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Creating Blue Oceans
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The Book and the Authors
Prof Renee
Mauborgne
JOHN ABBOTT
Prof Chan Kim
JOHN ABBOTT
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Accolades
Over 2 million copies sold
Translated into over 41 foreign
languages a world record
Taught as the major theory of strategy at
leading business schools
Gives insights to CEOs, Executives,
Heads of State and Prime Ministers
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New Market Space
Red oceans and blue oceans make up market
universe
Red oceans: all industries in existence
= known market space
Blue oceans: all industries not in existence
= unknown market space
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Red Oceans vs. Blue Oceans
Red oceans
Industry boundaries defined and accepted
Competitive rules of game known
Companies try to outperform rivals; cutthroat competition
As market space gets crowded, prospects for profit and
growth reduced
Products become commodities
Red ocean strategy is a market-competing strategy
Blue oceans
Undefined market space, demand creation, opportunity for
highly profitable growth
Most are created from within red oceans by expanding
existing industry boundaries
Rules of game waiting to be set
Competition irrelevant
Blue ocean strategy is a market-creating strategy
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The Rising Imperative of
Creating Blue Oceans
Supply is exceeding demand in most industries
global competition is intensifying
Problems:
Accelerated commodization of products and
services
Increasing price wars
Shrinking profit margins
Red oceans becoming bloodier, need to be
concerned with creating blue oceans

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The Continuing Creation
of Blue Oceans
Blue oceans have been around for some time;
a feature of business life
Industries never stand still, constantly evolving
Significant expansion of blue oceans over
years
So why the focus on red ocean strategy?
Corporate strategy influenced by military strategy
Need to create new market space that is uncontested
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The Impact of Creating Blue Oceans
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From Company and Industry
to Strategic Move
Are there lasting visionary companies that
continuously outperform the market and
create blue oceans?
Found success of these model companies was
a result of industry sector performance, not
companies themselves
Strategic move used as unit of analysis (rather
than company or industry)
Strategic move: the set of managerial actions
and decisions involved in making a major
market-creating business offering
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Value Innovation: The
Cornerstone of Blue Ocean Strategy
Creators of blue oceans
follow value innovation
Value Innovation
Equal emphasis on value
and innovation
Defies value-cost trade-off
of competition-based
strategy
Successful value
innovation:
Drives down costs while
driving up buyers value
Uses a whole-system
approach
Follows reconstructionist
view
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Red Ocean Vs. Blue Ocean
Compete in existing
market space
Beat the competition
Exploit existing demand
Make the value-cost
trade-off
Align the whole system
of a firms activities
with its strategic choice
of differentiation or low
cost
Create uncontested
market space
Make the competition
irrelevant
Create and capture new
demand
Break the value-cost
trade-off
Align the whole system of
a firms activities in
pursuit of differentiation
and low cost
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Formulating and Executing
Blue Ocean Strategy
Six Principles of Blue Ocean Strategy
Reconstruct market boundaries
Focus on the big picture, not the numbers
Reach beyond existing demand
Get the strategic sequence right
Overcome key organizational hurtles
Build execution into strategy
The remaining chapters will give you the
principles and generalized frameworks to
succeed in blue oceans
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Take Aways

Red ocean strategy is a market-competing
strategy, while blue ocean strategy is a
market-creating strategy
As red oceans are becoming bloodier, we
need to create more blue oceans
The only way to beat the competition is to
stop trying to beat the competition!

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The Six Principles of Blue Ocean Strategy
Formulation Principles Risk factor each principle
attenuates
Reconstruct market boundaries
Focus on the big picture, not the
numbers
Reach beyond existing demand
Get the strategic sequence right
Search risk
Planning risk
Scale risk
Business model risk
Evaluation principles Risk factor each principle
attenuates
Overcome key organizational hurdles
Build execution into strategy
Organizational risk
Management risk
This figure highlights the six principles driving the successful formulation and
execution of blue ocean strategy and the risks that these principles attenuate.
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Points of view

Business often look at the industry from a
structuralist (supply) point of view

What if we looked at the industry from a
reconstructionist (demand) point of view?

Market boundaries are not viewed as given,
but could be reconstructed to unlock new
demand
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Generic Strategies vs.
Value Innovation
High
Low
V
1
C
1
Cost
Quality
High
High
High
Low
Low
Low
Quality
Cost


D
LC
V
1
C
1
Red Ocean Strategy Blue Ocean (VI) Strategy
Structuralist Reconstructionist
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Example: A highly competitive Industry
The American
Wine Industry
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What the industry offers
Premium Wines Budget Wines
Massive Choice
Polarised
Strategic Groups
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American Wine Industry
3
rd
largest in world: worth $20 billion
Californian makes 66% - the rest is from Italy,
France, Spain, Chile, Argentina, Australia
Exploding number of new wines new vineyards
in Oregon, Washington, New York
Customer base stagnant
31st in the world in per capita consumption!
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American Wine Industry
Top 8 producers had 75% of the market; 1600
had the remaining 25%
$ millions spent in marketing - Titanic battles
intense competition
Sever price pressure
The dominant growth strategy was towards
premium wines more complexity, better
image, more prestigious vineyards, number of
medals won at wine festivals.
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What wine customers said
It is too confusing and complex
Wine descriptions and terminology
The shopping experience
The lack of clear guidance on what to buy and
drink
Thus, massively intimidating for
noncustomers (the large majority of the US
population who were not wine drinkers)
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What are people
looking for in a wine?
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Segmentation of Market and Brands

Low
Involvement
High
Involvement
Easy Going Enjoyers Aspirationals Appreciators Connoisseurs
Glass with
friends

Least care
choosing a wine

Not wine
preferrers

Price is a strong
influencer
Everyday
enjoyment
To relax/unwind
Stick with limited
list of known
brands
Choose in-store
Not interested in
wine language

Influenced by
major brand
advertising
Image important
Wine preferrers
(sic)
Varietal
knowledge
Interested in
some wine
language
Enjoy trying new
wines

Visit wineries /
read wine articles
Want to
discover wine
Knowledge of
wine regions
Frequently buy
>$10 wines
Join wine clubs
Dont stick to
known brands

Ideal wine is
complex &
interesting
Sophisticated
drinker
Discerning wine
tastes
Dont decide in
store
Have a cellar
Less influenced
by specials/
promotions

Actively pursue
wine knowledge
Brand: Lindemans
Rosemount
Estate
Wolf Blass Penfolds
Demographic: M/F: 50/50 Age:
35-49
M/F: 30/70; Age:
30-40
M/F: 70/30; Age:
35-50
Age: 40+
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Strategy Canvas
The strategy canvas is both a diagnostic and an action framework for building a
compelling blue ocean strategy. It captures the current state of play in the known
market space. This allows you to understand where the competition is currently
investing, the factors the industry currently competes on in products, service, and
delivery, and what customers receive from the existing competitive offerings on the
market. The horizontal axis captures the range of factors the industry competes on
an invests in. The vertical axis captures the offering level that buyers receive across
all these key competing factors. The value curve then provides a graphic depiction
of a companys relative performance across its industrys factors of competition.
High
Low
Price Use of
enological
terminology
Above-the-line
marketing
Aging
quality
Vineyard prestige
and legacy
Wine
complexity
Wine range
Budget Wines
Premium Wines
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Four Steps of Visualizing
1. Visual
Awakening
2. Visual
Exploration
3. Visual
Strategy Fair
4. Visual
Communication
Compare your
business with your
competitors by
drawing your as is
canvas

See where your
strategy needs to
change
Go into the field to
explore the six paths
to creating blue
oceans

Observe the
distinctive advantages
of alternative products
and services

See which factors
you should eliminate,
create or change
Draw your to be
canvas based on
insights from field
observations

Get feedback on
alternative strategy
canvases from
customers,
competitors
customers, and non-
customers

Use feedback to build
the best to be future
strategy
Distribute your
before-and-after
strategic profiles on
one page for easy
comparison

Support only those
projects and
operational moves
that allow your
company to close
gaps and actualize the
new strategy
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What factors
should be
eliminated that the
industry has taken
for granted?
Eliminate
What factors
should be reduced
well below the
industry standard?
Reduce
What factors should
be created that the
industry has never
offered?
Create
What factors
should be raised
well beyond the
industry standard?
Raise
Four Actions to create a Blue Ocean
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Four Actions Framework +
Eliminate/Reduce/Raise/Create Grid
The four actions framework offers an technique
that breaks the trade-off between
differentiation and low cost and to create a new
value curve. It answers the four key questions
of what industry takes for granted and needs to
be eliminated; what factors need to be reduced
below industry standards; what factors need to
be raised above industry standards; and what
should be created that the industry has never
offered.
The eliminate-reduce-raise-create grid pushes
companies not only to ask all four questions in the
four actions framework but also to act on all four
to create a new value curve. By driving
companies to fill in the grid with the actions of
eliminating, reducing, raising, and creating, the
grid provides four immediate benefits: it pushes
them to simultaneously pursue differentiation and
low costs; identifies companies who are only
raising and creating thereby raising costs; makes
it easier for managers to understand and comply;
and it drives companies to scrutinize every factor
the industry competes on.
Eliminate
Enological terminology and
distinctions

Aging qualities

Above-the-line marketing
Raise
Price versus budget wines

Retail Store involvement
Reduce
Wine complexity

Wine range

Vineyard prestige
Create
Easy drinking

Ease of selection

Fun and adventure
A
New
Value
Curve
Reduce
Eliminate Create
Raise
Which factors should be
reduced well below
industry standards?
Which factors should be
created that the industry
has never offered?
Which factors should
be raised well above
the industrys standard?
Which of the factors
that the industry takes
for granted should be
eliminated?
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ERRC Grid yellow tail
The Case of yellow tail
Eliminate
Enological terminology & distractions
Aging qualities
Above-the-line marketing
Raise
Price versus budget wines
Retain store involvement
Reduce
Wine complexity
Wine Range
Vineyard prestige
Create
Easy drinking
Ease of selection
Fun & adventure
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To Be Canvas

Eliminate


Reduce


Raise

Create

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Yellow Tail
Only 2 types initially Chardonnay and Shiraz
Fruity, soft on palette, sweet-ish great for those who had
not drunk wine before
Same bottle for red and white low logistics costs
Simple vibrant packaging lower case letters/kangaroo
Un-intimidating
They were selling The essence of a great land
Australia ie they were not selling the wine
Australian clothing for the retail staff they
enthusiastically promoted a wine they could
understand.
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Value Innovation of [yellow tail]

Utility proposition
(customers, distributors and
retailers)
Creating of a social drink that is accessible to
anyone
Easy drinking, ease of selection, sense of fun and
adventure
Limit number of SKUs
Price to move at volume


Price proposition

Targeted at the mass of customers
Priced against the alternative (6-pack)

Cost structure

Elimination of working capital tied up in aging wines
Fast product turnover
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Results
No 1 imported wine (outsells France and Italy)
Fastest growing imported wine in the history of
the USA industry
New consumers of wine
Jug drinkers trade up
Premium wine drinkers trade down
Industry criticizes them mercilessly at first
Now wine press blurb gives it a best buy
for value; winning wine awards.
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The Case of Cirque du Soleil
Cirque du Soleil achieved rapid growth in a
declining industry with low profit potential
Cirque du Soleil created uncontested new
market space that made the competition
irrelevant
If you dont know them you can see some at
http://www.youtube.com/watch?v=M4lAPI5BAuk
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Example: Cirque du Soleil
Instead of simply trying to outpace the
competition, Cirque du Soleil offered people
both the fun and thrill of the circus and the
intellectual sophistication of the theater
Because of this, Cirque du Soleil appealed to
both circus customers and noncustomers
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Example: Cirque du Soleil
Each show, like a theater production, had its
own unique theme and storyline
This allowed customers to return to the show
more frequently
They also did away with the traditional high-
priced concessions and vendors thereby
cutting costs
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Example: Cirque du Soleil
Cirque du Soleil effectively combined the best
of both the circus and the theater while
eliminating everything else
This allowed them to achieve both
differentiation and low cost

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Eliminate-Reduce-Raise-Create
Eliminate
Star Performers
Animal shows
Aisle concession sales
Multiple show arenas
Raise
Unique venues
Reduce
Fun and humor
Thrill and danger
Create
Theme
Refined environment
Multiple productions
Artistic music and dance
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The Strategy Canvas
of Cirque du Soleil
hi
o
f
f
e
r
i
n
g

l
e
v
e
l

lo
Price
Fun & Humor Unique Venue Aisle Concessions
Multiple Show
Arenas
Thrills & Danger
Animal Shows
Star Performers
Theme
Refined Viewing
Environment
Multiple
Productions
Artistic Music
& Dance
Cirque du Soleil
Reduce Eliminate Raise Create
Kim & Mauborgne 2006
Ringling Brothers
Smaller Regional Circus
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Key Takeaways
Three tiers of non-customers:
1: buyers who purchase your industry offerings out of necessity;
will jump ship if given an opportunity.
2: buyers who purchase alternative offerings that serve the same
function
3: people who dont consume even the alternatives to your
offerings
Non-customer demand is unlocked by providing
new buyer utilities, at a price that attracts a
mass of buyers, given target costs.
Buyers could be not only end-users, but also other
participants in a value chain (e.g. distributors)
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Comparison of approaches
Red Ocean Strategy Blue Ocean Strategy
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Exercise
1. List Factors of
Competition
2. Top 2 or 3 in ERRC
Grid Quadrants


Clearly define the
group of non-
customer that you are
going after.
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Examples
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Exercise
3. Write on
Worksheet:
E left, C right
4. Draw As Is
5. Draw To Be
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Examples