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Blue Ocean Strategy is a management approach based on a 10-year study of more than 150 strategic company actions that took place in over 30 industries during the course of 100 years. In their study, the book's authors found that only 14% of new product launches were attempts to create brand new markets. Yet that 14% generated 38% of total revenue and 61% of total profit.
Clearly, the companies that try to follow a blue ocean strategy end up with a much higher probability of success. This is something Peter Thiel talks about at length in his book Zero To One.
At its core, Blue Ocean Strategy is about redefining industry boundaries to create a market where one did not exist before, delivering higher value at a lower price point.
For example, Cirque du Soleil redefined the entertainment experience by creating a circus that eliminated the cost of star performers, animal care and training and the famous three rings. Instead, they anonymized performers, created additional comfort and surprise and priced it like a night at the theater to appeal to a Broadway crowd rather than stereotypical circus-goers. I find examples like these to be super interesting and another book that’s full of them is Alchemy: The Dark Art and Curious Science of Creating Magic in Brands, Business, and Life by Rory Sutherland.
Key to defining a blue ocean is first to recognize a red ocean that can only be marginally improved. Red oceans are characterized as well-known markets that compete for industry leaders, which focus on meeting the needs of existing customers and emphasize competitive advantages. In a market like this one, there is limited room to grow and thrive.
On the other hand, a blue ocean is a market that has no customers yet, and therefore no competitors. It's easier to succeed in a blue ocean because you are not marginally improving something that already exists; instead, you are creating something completely new. In other words, the blue ocean simply means opening up a new, uncontested space in the market where existing competition is an irrelevant concept.
Part of creating a blue ocean is in questioning things the industry takes for granted and trying to pursue a customer base that does not yet exist. As an example of this, Callaway Golf created a blue ocean when they stopped trying to sell to people who already play golf and instead started wondering why otherwise rich people did not play golf. They found that the learning curve was too steep, they created beginner golf clubs with a bigger head that made a lack of skill less relevant and saw a number of new customers enter the market. This reframe is perfectly articulated in the book Competing Against Luck. If you decide to read it, don’t stop until you read the milkshake story.
Blue Ocean Strategy requires first that you define your new market. Part of this involves evaluating what exists currently in the market and the customers in that market, as well as what potential alternatives are. For example, in high-class airfare, traditionally there was the option of buying a first-class ticket or having a private plane. However, a company came in and redefined that market by offering ownership of a share of a private plane, which reduced the barrier to entry and provided additional value to luxury travelers.
After redefining the market, the book describes specifically how to brainstorm new offering ideas and explore your strategy visually to see the benefits of a blue ocean more clearly. It also elaborates on the mechanisms by which you can expand your market to non-customers, develop a sound business model, and get your organization on board by extending the methodology to your team to engage every contributor as a partner in this process.
The book is full of stories that prove over and over the author's point that there is a specific way for businesses to create blue oceans and win entirely new markets by creating genuine value innovation. Throughout the book, the authors present compelling statistics and specific models and frameworks to define exactly how your company can embark on the journey to create a new blue ocean for the organization in order to create value innovation that makes the competition irrelevant. I would also add the book Purple Cow to your list on this subject or Sticky Branding.
Chan Kim is The Boston Consulting Group Bruce D. Henderson Chair Professor of Strategy and International Management at INSEAD, one of the world's most highly regarded business schools, as well as the Co-Director of INSEAD's Blue Ocean Strategy Institute.
Prior to his arrival at INSEAD, Kim worked as a professor at the University of Michigan Business School, USA. He has served as a board member as well as an advisor for a number of multinational corporations in Europe, the U.S. and the Asia Pacific region. He is an advisory member for the European Union and serves as an advisor to several countries. He won innumerable national and international awards for his work.
Renée Mauborge is considered among the top 5 management gurus in the world. She is currently The INSEAD Distinguished Fellow and professor of strategy at INSEAD, one of the top business schools globally. She also is Co-Director and Co-Founder of the INSEAD Blue Ocean Strategy Institute. She has won innumerable awards in management thinking and business strategy, both nationally and internationally.
Mauborge served on President Barack Obama's council for Historically Black Colleges and Universities and is a Fellow of the World Economic Forum. Along with her colleague, W. Chan Kim, Mauborge has been credited as the top international management thinker by Thinkers50.
Catch Blue Ocean Strategy co-author Renée Mauborge on Harvard Business Review'sHBR IdeaCast Podcast speaking about Blue Ocean Strategy and Red Ocean Traps.Listen to Renée Mauborge in her appearance on theModGolf Podcast, where she discusses how to create blue ocean value innovation in the modern golf industry.
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