Blue Ocean Strategy

The summary

Stop fighting for a bigger slice of a shrinking pie. That is the argument at the heart of this book. Kim and Mauborgne split the whole market universe into two kinds of water. Red oceans are all the industries that exist today: the known space, where boundaries are drawn, the rules are understood, and every company claws for a larger share of the same demand. As the space fills up, prospects for profit and growth drain away. Products turn into commodities, rivals slug it out on price, and the water turns bloody. Blue oceans are the industries that don’t exist yet: untapped space, fresh demand, room for real growth. Out there, competition is irrelevant, because the rules haven’t been written.

Most blue oceans aren’t found in some distant frontier. They get created from inside red oceans, when a company pushes past the existing boundaries. Cirque du Soleil did exactly that. Guy Laliberté’s troupe of street performers reinvented the circus for a grown-up audience, blending the fun and thrill of circus with the intellectual sophistication and artistic richness of theater. They dropped the animal shows, the star performers, the three simultaneous rings, the aisle concessions. What they built pulled in adults and theater-goers who had never bought a circus ticket. The right thing to study, the authors insist, isn’t the company or the industry but the strategic move: the set of decisions behind a major market-creating offering.

Value innovation

The cornerstone of the whole approach is what the authors call value innovation. It places equal weight on value and on innovation. Instead of trying to beat rivals in the existing space, you make the competition irrelevant by delivering a leap in value for buyers and for your own company at the same time.

This breaks one of the most stubborn beliefs in conventional strategy: the value-cost trade-off. Received wisdom says you either differentiate at higher cost or offer lower prices at lower value. Pick one. Value innovation refuses the choice. It pursues differentiation and low cost together. Cirque du Soleil offered an experience richer than any traditional circus while shedding the expensive elements that circuses took for granted, so its costs fell as its value rose. That only works when you align the whole system of a company’s activities, utility, price, and cost. Value innovation is a matter of strategy, not just a better product or a lucky bet on timing.

The strategy canvas

To see where you stand and where you could go, the authors give you the strategy canvas. It is both a diagnostic and an action framework. The horizontal axis lists the factors an industry competes on and invests in. The vertical axis shows how much of each factor buyers actually receive. Plot a company’s offering across those factors and you get its value curve, its strategic profile in one line.

Draw the canvas for a red ocean and the pattern jumps out: everyone’s value curves look nearly the same. In the U.S. wine industry of the late 1990s, hundreds of wines competed on the same handful of factors, with premium and budget players tracking each other in parallel. Sameness on the page is a warning. To create a blue ocean, you have to make your value curve break away from the pack, not inch ahead of it.

The four actions framework

So how do you reshape that curve? Kim and Mauborgne reduce it to four questions that challenge everything your industry assumes:

• Eliminate — which factors that the industry takes for granted should be dropped entirely?
• Reduce — which factors should be cut well below the industry’s standard?
• Raise — which factors should be pushed well above the standard?
• Create — which factors should be offered that the industry has never provided?

The first two questions show you where costs are hiding, where you’ve been overserving customers out of habit. The second two show you how to lift buyer value and open new demand. Laying the answers out in a companion tool, the eliminate-reduce-raise-create grid, forces you to fill in all four boxes at once, so you can’t just pile on features and inflate your cost structure.

Casella Wines, an Australian winery, ran this playbook to build [yellow tail]. It eliminated enological jargon, aging qualities, and above-the-line marketing. It reduced wine complexity, the range of varieties, and vineyard prestige. It raised the price over budget wines and leaned on retail-store involvement. And it created a wine that was easy to drink, easy to choose, and fun. [yellow tail] became a social, approachable drink that pulled in people who had never bought wine, and with no ad campaign it grew the market rather than stealing from rivals, reaching moving-average sales of 4.5 million cases.

Southwest Airlines did the same across a different boundary. It broke the trade-off between the speed of air travel and the economy and flexibility of the car, offering fast transport with frequent, flexible departures at prices ordinary people could afford. A strong blue ocean strategy, the authors note, shows three qualities on the canvas: focus, divergence, and a compelling tagline. Southwest’s could be “the speed of a plane at the price of a car, whenever you need it.” If your offering can’t be captured in an honest, memorable line like that, the strategy probably isn’t there yet.

The bottom line

The single most useful idea here is that you don’t have to choose between standing out and keeping costs low. By eliminating and reducing what your industry overinvests in, then raising and creating what buyers truly value, you can open uncontested space where rivals don’t matter. Read it if you run a business, build products, or set strategy and you’re tired of grinding out thin margins in a crowded market.