The conventional wisdom that you must outcompete your competitors in order to achieve continuous profitability is challenged by the blue ocean strategy. It also provides a different option. The alternative is to innovate and establish your own market in order to render your rivals obsolete. This emerging market is known as the “blue ocean.” With markets getting saturated and profit margins being squeezed by competition, innovation skills are becoming more and more crucial. Leading businesses of the future, according to Kim and Mauborgne, must transform and adapt. This is based on a review of 150 strategic decisions made over the course of more than a century and thirty different industries.
About W. Chan Kim
W. Chan Kim is the co-director of the INSEAD Blue Ocean Strategy Institute and The Boston Consulting Group Bruce D. Henderson Chair Professor of Strategy and International Management at the business school. He was a professor at the University of Michigan Business School in the United States before joining INSEAD. Kim has worked for a number of global firms in Europe, the United States, and Asia as a board member and advisor. He works as an advisor for the European Union and for a number of other nations. He was recognised by Thinkers50 as the world’s top management thinker, together with his coworker Renée Mauborgne. Additionally, MBA Rankings listed him as one of the top 5 business school teachers in the world.
About Renée Mauborgne
Renée Mauborgne teaches strategy at INSEAD, one of the finest business schools in the world, and is The INSEAD Distinguished Fellow. She also serves as the Institute’s co-director for blue ocean strategy at INSEAD. According to Thinkers50, Renée Mauborgne and Chan Kim are the top management thinkers in the world. She is the first woman to hold the top position among the world’s thought leaders on the Thinkers list. Additionally, MBA Rankings listed Renée Mauborgne as one of the top 5 business school teachers in the world.
The Blue Ocean Strategy Formulation Principles: The First Eight Rules
- Build New Market Boundaries
- Think on the big picture.
- Go above and beyond the call of duty
- Get the Strategies in the Right Order
Execution Principles
- Getting Over Major Organizational Obstacles
- Create an execution-focused strategy.
- Sync up the proposals for value, profit, and people.
- Blue Oceans Renew
The Need for the Blue Ocean Strategy
The authors cite a glut of competition in today’s markets as evidence. Today, there are more businesses than ever before. As a result, businesses must compete for profit margins that are getting lower. This cutthroat war is how Blue Ocean Strategy characterises this increasingly difficult rivalry. The rivers are stained with blood from this conflict. The writers refer to the contemporary corporate environment as the “Red Ocean” as a result.
Every industry in existence is represented in Red Oceans. This is the established market area. The Blue Oceans, in contrast, are untapped markets that are home to nonexistent industries.
Red Oceans
Within Red Oceans, everyone is aware of and agrees with the industry boundaries. In essence, every business is aware that in order to capture a larger portion of the market’s current demand, they must outperform their rivals. Importantly, crowded marketplaces will result in lower profit and growth since demand is split across many businesses.
There is little room for expansion and the creation of large profits in crimson oceans. There will always be anxiety involved in navigating a corporation through red oceans. Even if you discover a way to beat one of your rivals, you must still exercise caution. There is always the possibility that another business is lurking behind you, prepared to slice your throat and seize your clients.
Blue Oceans
“In any sector, blue waters are right there beside you.” – Renée Mauborgne and W. Chan Kim
Red and blue oceans are very different from one another. Blue oceans are specifically characterized by untapped market potential and demand generation. Thus, there is a greater potential and opportunity for very profitable expansion in blue oceans. The authors do not claim that finding blue waters is extremely challenging. Instead, it is simple to conceal blue oceans from view. For instance, your blue ocean might be right next to the red ocean that your current business is residing in.
It can be challenging to look elsewhere when you are amidst competitors in a crimson ocean. You must, however, give up competing and fighting for a while. Consider your surroundings to see if there are any blue ocean opportunities. You may be building your own lucrative market while competitors are squabbling over the same restricted amount of market space. On sometimes, you can find a blue ocean by sailing to a brand-new location. Your blue ocean, though, is typically only somewhat outside the confines of your current industry.
Learning how to fight in red waters has become an increasing obsession for modern business. Business plans are centered on how you can outperform your rivals in this area. The writers of this book contend that avoiding competition altogether is more sustainable. Spend your time and effort on innovation instead. It’s important to note that the writers do not advocate avoiding competition at all costs. The knowledge of red oceans will always be helpful. In certain situations, people will want to turn your blue ocean red. For instance, being successful by creating your own blue ocean can frequently encourage imitators to try to outcompete you. Red oceans will always exist in the world of business.
Sustainable strategy execution is mostly focused on a motivating-people proposal, whereas strong strategy content is based on a compelling value proposition for buyers and a powerful profit argument for the company. – Renée Mauborgne and W. Chan Kim
The Four Actions Framework
The authors offer a structure they refer to as their strategy canvas. Utilize this canvas to assess the various competitors in your sector. You need to ask yourself four crucial questions after learning about your competition and the market your company operates in. Each of these inquiries will assist you in determining what you must do to outperform your rivals. This strategy will produce a thriving blue ocean.
Which of the elements that the sector takes for granted needs to be removed?
This question will motivate you to think about the elements that businesses in your industry have been vying for for a long time. Eliminate the elements that, in your opinion, the public does not care about. Remove them specifically from your plan. You can redirect your attention and efforts to enhancing the more significant items by getting rid of these unneeded elements. Importantly, it’s probable that your rivals will be wasting their time and effort on the extraneous elements you’ve eliminated. You will thereafter get a natural advantage. The authors use airports as an example of this tactic in their writing. Despite the fact that multiple airlines compete in this area, some airports asked themselves this question and came to the conclusion that airport lounges were unnecessary.
When low-cost airlines made the decision to eliminate this component, they were able to increase their profits and the number of flights they offered. For customers who were more budget sensitive than lounge experience sensitive, these airlines built a “blue ocean” for them.
Which elements ought to be drastically lowered below industry standards?
Your business cannot meet every standard that distinguishes a high-caliber organisation. Therefore, you must determine which areas you are willing to sacrifice in order to outperform the other requirements. The things that can’t be deleted are the criteria you wish to dominate in. Instead, you may lower them to the absolute bare minimum needed to pass.
Which elements ought to be elevated above the norm?
Customers in your industry tend to value particular qualities more than others. Therefore, you can have extra resources by removing some of your input for certain criteria and considerably reducing others. Then, using these resources, it will be possible to elevate some places.
Which Never Before Offered Factors Should Be Created?
It’s all about innovation in this factor. Try to think of something no one else is doing in your market. Finding the appropriate response to this issue will significantly accelerate your company’s development in its own blue ocean.
Value Innovation
“The foundation of blue ocean strategy is value innovation. We refer to it as value innovation because instead of concentrating on outperforming the competition, you concentrate on making the competition obsolete by enhancing value for customers and your business, which creates a gap in the market that is uncontested. Value is equally important in value innovation. – Renée Mauborgne and W. Chan Kim
The foundation of developing a blue ocean strategy is value innovation. As previously indicated, you should avoid making the mistake of concentrating all of your attention on outperforming your rivals. By producing a leap in value, you should attempt to render your rival obsolete. This value ought to be beneficial to both your customers and the employees that make up your business.
According to the authors, value innovation may be divided into two parts. For instance, some businesses could expend a lot of energy on value creation while ignoring innovation. These businesses essentially concentrate on incremental value development. Although this strategy will increase the worth of their business, it won’t make them stand out from their rivals in the market. In contrast, some businesses will priorities innovation without paying enough attention to value. These businesses tend to be technology-driven and totally fixated on the future. However, because they are projecting too far into the future, they are probably going to exceed the expectations that the buyers currently have. Both of these strategies will result in inefficient corporate growth.
Your organisation must place equal emphasis on value and innovation if it wants to see true economic success.
The Cirque du Soleil is cited in this book as an example of a business that successfully applied value innovation. By staying away from the extremely competitive market of traditional circuses, they established a “blue ocean.”
Where to Look For Your Blue Ocean
Reconstructing market boundaries will be necessary to find the optimal blue ocean for your business. The authors offer six approaches you might use to begin redrawing the market boundaries for your business.
Path 1 : Investigate Alternative Industries
Consider the trade-offs that your customers are probably making across different industries as a starting point for recreating market borders. The writers give NetJets as an example. When one business started weighing these trade-offs, they realised that the cost of air travel had the biggest impact on their clients. They selected innovation over a conventional strategy for lowering their prices. They specifically gave their clients a sixteenth ownership interest in an aeroplane. In essence, they were travelling in the same aeroplane as 15 other passengers. Then, each owner would be qualified for fifty flight hours annually. By using this cutting-edge pricing method, NetJets provided private flights for the same cost as a commercial trip.
Path 2: Look Across Strategic Groups Within Industries
There are instances of successful businesses that do not follow this approach. Even yet, it’s getting harder and harder for these businesses to succeed. For instance, in the same luxury care market, Mercedes, BMW, and Jaguar are all focused on out-competing one another. There are those who have succeeded significantly and quickly who are exceptions to this rule. For instance, the American fitness company Curves. At first, it appeared that Curves would enter a competitive fitness sector that was already oversaturated. But they went in a different direction. They noticed an untapped market of women who struggled to maintain their physical health when they looked across the strategic fitness group. They entered the crowded marketplaces of health clubs and at-home fitness regimens while still creating their own niche.
Path 3 : View the Whole Chain of Buyers
Companies frequently run the risk of generating too-small target markets as they try to embrace customer preferences through finer segmentation. – Renée Mauborgne and W. Chan Kim
The majority of industries will come up with a standard definition of who their ideal customer is. However, the writers of this book contend that there ought never to be a standard definition of one consumer. Instead, a series of purchasers who are either directly or indirectly involved in the purchasing decision can be found. It is inaccurate to concentrate on a single target and it ignores the logic behind why someone would buy something in a market. Therefore, the authors advise that while choosing what product to launch and how to sell it, you should take into account the buyers, users, and influencers.
Path 4 : Examine Related Product and Service Offerings
A lot of times, complementary goods and services conceal unrealized value. The secret is to identify the comprehensive solution that consumers choose when making a purchasing decision. Thinking about what occurs prior to, during, and following the use of your product might help.
Path 5: Consider Buyers’ Functional or Emotional Appeal
Your company should run properly while also appealing to customers’ emotions. While some industries compete on emotion, others compete on function. If you are currently vying for dominance based on functional characteristics, consider how you may remove functionality and win on emotion. Likewise, imagine that competition in your sector is based on emotional traits. In that scenario, you should consider how to reduce emotion and exert control based solely on function.
Path 6: Look Across Time
The requirement to buy an entire CD when one or two songs were all that was desired was eliminated with iTunes. What trends are inescapable, on a clear trajectory of development, and very likely to affect your industry? What effects will these trends have on your sector? How can you create a new level of consumer utility in light of this?
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