Book Summary Blue Ocean

Book Summary
W. Chan Kim Renee Mauborgne
1
Contents
Part One: Blue Ocean Strategy
1. Creating Blue Oceans
2. Analytical tools and Frameworks
Part Two: Formulating Blue Ocean Strategy

3. Reconstruct Market Boundaries
4. Focus on Big Picture, Not the numbers
5. Reach beyond Existing demand
2
Contents
Part Three: Executing Blue Ocean Strategy
7. Overcome key organizational hurdles
8. Build Execution into strategies
3
Chapter 1:
Creating Blue Oceans
This chapter talks about the new market

spaces which replaces red ocean
strategy with blue oceans. It also talks
about the imperative of making a new
ocean besides analysing its impact on
any industry.
4
RED OCEANS VS. BLUE OCEANS
Imagine a market universe composed of two
sorts of oceans: red oceans and blue oceans.
Red oceans represent all the industries in
existence today. Blue oceans denote all the
industries not in existence today.
In RED oceans, industry boundaries are
defined and accepted, and the competitive
rules of the game are known
BLUE oceans, in contrast, are defined by

untapped market space, demand creation, and
the opportunity for highly profitable growth
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Red Ocean Blue Ocean
6
Red Oceans vs. Blue Oceans
Blue Ocean Red Ocean
Undefined market space, Industry boundaries defined
demand creation, opportunity and accepted
for highly profitable growth
Most are created from within

red oceans by expanding Companies try to outperform
existing industry boundaries rivals; cutthroat competition
Rules of game waiting to be As market space gets

set crowded, prospects for profit
and growth reduced
Blue ocean strategy is a

market-creating strategy Red ocean strategy is a
market-competing strategy
7
The Rising Imperative of Creating
Blue Oceans
Supply is exceeding demand in most industries
global competition is intensifyingProblems:
Accelerated communization 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 Impact of Creating Blue
Oceans
9
VALUE INNOVATION
Value innovation is the cornerstone of blue ocean

strategy. We call it value innovation because
instead of focusing on beating the competition,
you focus on making the competition irrelevant
by creating a leap in value for buyers and your
company, thereby opening up new and
uncontested market space
Innovation without value tends to be technology-

driven, market pioneering, or futuristic, often
shooting beyond what buyers are ready to accept
and pay for
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Value Innovation
11
VALUE INNOVATION
Value innovation occurs only when

companies align innovation with
utility, price, and cost positions
Those that seek to create blue

oceans pursue differentiation and
low cost simultaneously.
12
VALUE INNOVATION: THE CORNERSTONE
OF BLUE OCEAN STRATEGY
Competition-based red ocean strategy

assumes that an industry’s structural
conditions are given and that firms are
forced to compete within them
Value innovation is based on the view

that market boundaries and industry
structure are not given and can be
reconstructed by the actions and beliefs
of industry players
13
Few examples of Blue Oceans
The American Wine Industry :Casella

Wines
The Case of Cirque du Soleil
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The American Wine Industry
3rd 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
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Casella Wines
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

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Casella Wines
Premium wine drinkers trade down
Industry criticizes them mercilessly at first
17
The Circus Industry
Supplier power of the star performer were high
Alternative form of entertainment was available :

Ranging from urban live entertainment to home
entertainment
Industry was suffering from steadily decreasing

audiences and in turn, declining revenue and
profit
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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
Because of this, Cirque du Soleil appealed to

both circus customers and noncustomers
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Example: ‘Cirque du Soleil’
A circus company stuck in a stagnant market

space with limited potential for growth as per the
traditional strategic analysis of the market.
Bargaining power of both the

suppliers(performers) and the buyers(the
customers) was high along with a negative
sentiment against the use of animals.
Cirque du Soleil competed against the traditional

players in the industry by creating a different form
of entertainment all together.
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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
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Chapter 2:
Analytical Tools and
Frameworks
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Effective blue ocean strategy should be about
risk minimization and not risk taking. This
chapter applies strategy canvas framework on
US wine industry Strategy canvas captures the
offering level that buyers receive across all
key competing factors. A high score means
that a company offers buyers more, and hence
invests more. To fundamentally shift the
strategy canvas of an industry, you must begin
by reorienting your strategic focus from
competitors to alternatives, and from
customers to non-customers of the industry
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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 company’s relative
performance across its industry’s factors of
competition
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Strategy Canvas
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THE STRATEGY CANVAS
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THE STRATEGY CANVAS (YELLOW TAIL)
Instead of offering wine as wine, Casella created

a social drink accessible to everyone: beer
drinkers, cocktail drinkers, and other drinkers of
non-wine beverages
[yellow tail] leapfrogged tall competitors with no

promotional campaign, mass media, or
consumer advertising. It didn’t simply steal sales
from competitors; it grew the market. [yellow tail]
brought non-wine drinkers—beer and ready-to-
drink cocktail consumers—into the wine market
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The Strategy Canvas (Yellow Tail)
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Strategy Canvas : Cirque du
Soleil
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Four Actions to create a Blue
Ocean
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FOUR ACTIONS FRAMEWORK
There are four key questions to

challenge an industry’s strategic logic
and business model:
1) Which of the factors that the industry

takes for granted should be eliminated?
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2) Which factors should be reduced well

below the industry’s standard?
3) Which factors should be raised well

above the industry’s standard?
4) Which factors should be created that

the industry has never offered?
32
33
Casella Wines -- Yellow Tail
Casella Wines created three new

factors in the U.S. wine industry —
easy drinking,
easy selection,
fun and adventure —
and eliminated or reduced everything
else
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4 Actions : Wine Industry
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4 Actions : Cirque du Soleil
Eliminate Raise
Star Performers Unique venues
Animal shows
Aisle concession sales
Multiple show arenas
Reduce Create
Fun and humor Theme
Thrill and danger Refined environment
Multiple productions
Artistic music and dance
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3 characteristics of a Good strategy
Only on the main

factors of
Focus service/product
Tendency to be
Divergence unique & different
from the
competitors
Compelling
taglines Clear cut and
meaningful tagline
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READING THE VALUE CURVE
Blue Ocean Strategy:
When a company’s value curve, or its

competitors’, meets the three criteria that
define a good blue ocean strategy—focus,
divergence, and a compelling tagline that
speaks to the market—the company is on the
right track
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A Company Caught in the Red Ocean
When a company’s value curve

converges with its competitors, it signals
that a company is likely caught within
the red ocean of bloody competition
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Over delivery Without Payback
When a company’s value curve on the strategy

canvas is shown to deliver high levels across
all factors and the its position is not strong, the
strategy canvas signals that the company may
be oversupplying its customers, offering too
much of those elements that add incremental
value to buyers
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An Incoherent Strategy
When a company’s value curve looks

like a bowl of spaghetti—a zigzag with
no rhyme or reason, where the offering
can be described as “low-high-low-low-
high-low-high”—it signals that the
company doesn’t have a coherent
strategy
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Strategic Contradictions
Are there strategic contradictions?

These are areas where a company is
offering a high level on one competing
factor while ignoring others that support
that factor
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An Internally Driven Company
In drawing the strategy canvas, how does a

company label the industry’s competing
factors? Are the competing factors stated in
terms buyers can understand and value, or
are they in operational jargon? The kind of
language used in the strategy canvas gives
insight as to whether a company’s strategic
vision is built on an “outside-in” perspective,
driven by the demand side, or an “inside-out”
perspective that is operationally driven
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Part 2: Formulating
Blue Ocean
Strategy
44
Chapter 3:
Reconstruct Market
Boundaries
Challenge: Successfully identify,

out of the possibilities that exist,
commercially compelling blue
ocean opportunities
45
SIX FUNDAMENTAL ASSUMPTIONS:
KEEP COMPANIES TRAPPED IN RED
OCEANS
1) Define their industry similarly and
focus on being the best within it
2) Look at their industries through the

lens of generally accepted strategic
groups, and strive to stand out in the
strategic group they are in
3) Focus on the same buyer group,

whether it’s the purchaser, user, or
influencer
46
SIX FUNDAMENTAL ASSUMPTIONS:
KEEP COMPANIES TRAPPED IN RED OCEANS
4) Define the scope of the products and

services offered by their industry
similarly
5) Accept their industry’s functional and

emotional orientation
6) Focus on the same point in time-and

often on current competitive threats-in
formulating strategy
47
PATH 1:LOOK ACROSS ALTERNATIVE
INDUSTRIES
Companies compete not only with the

other companies in their own industry
but also with companies in those other
industries that produce alternative
products or services
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Path 1: Look across alternative Industries
Cinemas vs. Restaurants – Completely different

but solves the same purpose for the person i.e. a
good night out
Buyers implicitly makes decisions between

alternatives and substitutes, often
unconsciously
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PATH 1: (HOME DEPOT)
Offer the expertise of professional home

contractors at markedly lower prices than
hardware stores
By delivering the decisive advantages of both

alternative industries, and eliminating or
reducing everything else, they have transformed
the ordinary homeowners into do-it-yourselfers
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PATH 1: (SOUTHWEST AIRLINES)
Concentrated on driving as the

alternative to flying, provided the speed
of air travel at the price of car travel
51
Path 2: Look Across Strategic
Groups Within Industries
Strategic Group: Group of companies within an

industry that pursue a similar strategy
Need to understand what factors drive the

customers to trade up or down between strategic
groups
52
Path 2: Look Across Strategic
Groups Within Industries
Strategic Groups can generally be ranked in a

rough hierarchical order built on 2 dimensions:
PRICE & PERFORMANCE
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Path 2: SONY, TOYOTA, POLO
Examples of Companies creating

Blue Oceans by following this path
Sony Walkman
– By looking Toyota Lexus – Polo Ralph
across the low Offered the Lauren –
price and quality of Providing the
mobility of Mercedes Benz, satisfaction of
transistor BMW etc. at the haute couture
radios & high price of Cadillac and affordable
fidelity of boom or Lincoln price
boxes
54
Path 3: Look across Chain of Buyers
Chain of “buyers” - directly or indirectly

involved in the buying decision.
Purchasers who pay for the product or service
may differ from the actual users
There are important influencers as well.
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Path 3: Look across Chain of Buyers
Challenging an industry’s conventional wisdom

about which buyer group to target can lead to
the discovery of new blue ocean. By shifting its
focus upstream from purchasers to users,
Bloomberg created a value curve that was
radically different from anything the industry
had seen before
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PATH 3: LOOK ACROSS THE CHAIN OF
BUYERS
Purchasers, users, and influencers
Companies usually focus on a single

buyer group
Create blue ocean by shifting buyer

group
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PATH 3: NOVO NORDISK AND
STARBUCKS
Novo Nordisk
From insulin producers to diabetic care
company
Starbucks
Selling coffee beans to grocery stores
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Path 4: Look Across Complementary
Product and Service Offerings
Few products and services are used in a

vacuum. In most cases, other products and
services affect their value
The key is to define the total solution buyers

seek when they choose a product or service. A
simple way to do so is to think about what
happens before, during, and after your product
is used. Babysitting and parking the car are
needed before people can go to the movies.
59
PATH 4: LOOK ACROSS
COMPLEMENTARY PRODUCT &
SERVICE OFFERINGS
Most products and services are affected

by other products or services & many
companies fail to notice this
The key is to define a solution buyers

seek when they choose a product or
service. A simple way to do this is to
think about what happens Before,
During, After
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Path 4: PHILIPS
By thinking in terms of solving the major pain

points in customers’ total solution, Philips saw
the water problem as its opportunity. The result:
Philips created a kettle having a mouth filter
that effectively captured the lime scale as the
water was poured
61
PATH 4: NABI
NABI: Hungarian bus company that

applied Path 4 to U.S. transit bus industry
Competition competed on offering the

lowest purchase price for buses. But
Designs outdated
Delivery times were late
Quality was low

62
PATH 4: LOOK ACROSS COMPLEMENTARY
PRODUCT & SERVICE OFFERINGS
Solution: Adopted fiberglass when making it’s
buses
Cut costs by being corrosion free
Light weight cut fuel consumption and emissions

After accidents they didn’t have to replace a
whole panel rather they could cut the damaged
area and replace it
Lighter weight also meant lower powered engines
and fewer axles which cut costs
And gave more space inside the bus

63
PATH 5: LOOK ACROSS FUNCTIONAL
OR EMOTIONAL APPEAL TO BUYERS
Emotionally Oriented
Add price without enhancing functionality .
Functionally Oriented
Blend commodity products with life by adding

emotion.
Examples:
Swatch, The Body Shop, Quick Beauty House

64
PATH 5: (QUICK BEAUTY HOUSE,
JAPAN)
Created a Blue Ocean in the Japanese

barbershop industry.
Shift from emotional to highly functional
Eliminated the time and cost of getting a haircut
Re-defined the Japanese barbershop industry
65
6. LOOK ACROSS TIME
Three principles to assess trend
Clear
Decisive Irreversible
trajectory
Example- Apple identified the trend for digital

music and realized the fast growing demand
for MP3 players and launched Apple’s hit Ipod
66
Path 6: Look Across Time
Three principles are critical to assessing trends

across time. To form the basis of a blue ocean
strategy, these trends must be decisive to your
business, they must be irreversible, and they
must have a clear trajectory.
Having identified a trend of this nature, you can

then look across time and ask yourself what the
market would look like if the trend were taken to
its logical conclusion
67
PATH 6: LOOK ACROSS TIME
What companies tend to do:
Focus on same point in time
Passive actions
Projecting trend itself
External Threats
68
PATH 6: LOOK ACROSS TIME
What companies need to do:
Look into time
Don’t predict future
How the trend will bring Value
69
FROM HEAD TO HEAD COMPETITION TO
BLUE OCEAN CREATION
Head to head competition Blue Ocean Creation
Industry Focus on rivals within its Look across alternative
industry industries
Strategic Group Focus on competitive Look across strategic
position within strategic group within industries
group
Buyer Group Focus on better serving the Redefines the industry
buyer group buyer group
Scope of product or Focus on maximizing the Look across
service offering value of product or service complementary product
offerings within industry or service offerings
bounds
Functional Emotional Focus on improving price Rethink the functional
Orientation performance within the emotional orientation of
functional emotional its industry
orientation of its industry
Time Focus on adapting external Shape external trends
trends as they occur over time
70
Chapter 4:
Focus on the Big Picture,

Not numbers
71
FOCUS ON THE BIG PICTURE, NOT
NUMBERS
Strategy Canvas
Drawing a strategy canvas:
visualizes a company’s current strategic position

in its marketplace
helps the company chart its future strategy
draws a company’s and its managers’ focus on

the big picture rather than becoming immersed in
numbers
72
FOCUSING ON THE BIG
PICTURE: DRAWING YOUR STRATEGY
CANVAS
Drawing a Strategy Canvas does three
things
It shows the strategic profile of an industry
by depicting very clearly the factors that
affect the competition among industry
players
It shows the strategic profile of current

and potential competitors, identifying
which factors they invest in strategically
It shows the company’s strategic profile-or

value curve- depicting how it invests in
them in the future
73
THE FOUR STEPS OF VISUALIZING
STRATEGY
Visual Visual
Visual Visual
Strateg Commu
Awakening Exploration
y Fair nication
74
Chapter 4:
Focus on the Big Picture, Not numbers
75
STEP1: VISUAL AWAKENING
Compare your business See where
with your Competitors by your strategy
drawing your “as is” needs to
strategy canvas change
76
STEP2: VISUAL EXPLORATION
Observe
Go into the the
See which
field to distinctive
factors you
explore the advantage
should
six paths s of
eliminate,
to create alternative
create or
Blue products
change
Oceans. and
services
77
STEP3: VISUAL STRATEGY FAIR
Draw your “to be” strategy 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
78
STEP3: VISUAL STRATEGY FAIR
Eliminate-Reduce-Raise-Create Grid:
The Case of EFS
RAISE
ELIMINATE Ease of Use
Relationshi Security
p Accuracy
Manageme Speed
nt Market
Commentary
REDUCE
CREATE
Account
Confirmati
Executives
on
Corporate
Tracking
Dealers
79
STEP 4: VISUAL COMMUNICATION
Support only
those projects and
Distribute your
operational moves
before-and-after
that allow your
strategic profiles
company to close
on one page for
the gaps to
easy comparison
actualize the new
strategy
80
EXAMPLE – EFS
Had been struggling for a long time with

an ill-defined and poorly communicated
strategy
81
EXAMPLE – EFS
Began the strategy process by bringing

together upper management from Europe, N.
American, Asia, and Australia
2 Teams: Value curve production and emerging
online foreign exchange business
The experience: Europe vs. America
EFS strategy vs. competitors (Clearskies)
82
EXAMPLE – EFS
EFS sent managers out for four weeks to gather

information.
They had to interview ten people involved in

corporate foreign exchange.
Also reached outside the industry’s traditional

boundaries to other companies that did not yet
use corporate foreign exchange.
83
EXAMPLE – EFS
EFS Findings:
What they thought was important turned out not

to be what the customer thought was important.
Because of these findings, EFS was able to

reformulate new strategies.
Redid the value curves and formulated new

compelling taglines that fit their business model.
84
EXAMPLE – EFS
Both teams presented their strategy canvases

at a visual strategy fair (6 by the online group/6
by the offline group)
After all 12 strategies were presented, each

judge was given 5 sticky notes and told to put
them next to his/her favorite, then explain why
they did not choose certain curves.
85
EXAMPLE – EFS
They realized that 1/3 of what they had

thought were key competitive factors were,
in fact, marginal to customers. Another 1/3
either were not well articulated or had been
overlooked in the visual awakening phase.
It then became clear that the executives
needed to reassess things such as EFS’s
separation of its online & traditional
business.
86
STEP 3: VISUAL STRATEGY FAIR
Following the visual strategy fair, the

teams were able to draw a value curve
that was a truer likeness of the existing
strategic profile than anything they had
produced earlier.
87
STEP 3: VISUAL STRATEGY FAIR
88
EXAMPLE – EFS
The new value curve exhibited the criteria

of a successful strategy, and it displayed
more focus than the previous strategy
By collapsing its online & traditional

businesses into 1 offering, EFS
substantially cut the operational
complexity of its business model, making
systematic execution far easier
89
EXAMPLE – EFS
Eliminate-Reduce-Raise-Create Grid: The Case of
EFS
Eliminate Raise
Ease of use
Relationship Security
Management Accuracy
Speed
Market commentary
Reduce Create
Account Executives Confirmation
Corporate Dealers Tracking
90
USING THE PIONEER-MIGRATOR-
SETTLER (PMS) MAP
PMS Map- helps visualize, plan, and predict a

companies future growth and profit.
Pioneers- business that offer unprecedented

value and are powerful sources of profitable
growth. Their value curves are different form
the competitions on a strategy canvas. All
pioneers are blue oceans.
91
USING THE PIONEER-MIGRATOR-
SETTLER (PMS) MAP
Migrators- are in between pioneers and

settlers. They offer improved value, but
not innovative value.
Settlers- do not contribute to much

future growth and are stuck in a red
ocean. Their value curves match the
basic shape of the industry.
92
EXAMPLE PMS MAP
93
VISUAL STRATEGY AT THE CORPORATE
LEVEL
USING THE STRATEGY USING THE PIONEER-
CANVAS MIGRATOR-SETTLER (PMS)
MAP
Exam
ple Samsung Electronics A company’s Pioneers are
Of Korea the businesses that offer
• In 1998, Samsung unprecedented value.
Electronics used Strategic
Canvas in its key business
creation decisions Settlers are those whose
• In 2003, the center value curves conform to the
completed more than eighty basic shape of the industry’s.
strategic projects and These are me-too businesses.
opened more than 10 VIP
(Value Innovation Program) The potential Migrators lies
branches to meet rising somewhere in between. These
demands businesses offer improved value,
but not innovative value.
94
OVERCOMING THE LIMITATIONS OF
STRATEGIC PLANNING
It should be more
It should be more
about building the big
conversational than
picture than about
solely documentation-
number-crunching
driven
exercises
It should be more
It should have a motivational, invoking
creative component willing commitment,
instead of being than bargaining driven,
strictly analysis-driven producing negotiated
commitment
95
CHAPTER 5:
REACH BEYOND EXISTING DEMAND
96
First-Tier Noncustomers
These soon-to-be noncustomers are those

who minimally use the current market
offerings to get by as they search for
something better. Upon finding any better
alternative, they will eagerly jump ship. In
this sense, they sit on the edge of the
market
97
First-Tier Noncustomers
What are the key reasons first-tier

noncustomers want to jump ship and leave
your industry? Look for the commonalities
across their responses. Focus on these, and
not on the differences between them. You
will glean insight into how to de-segment
buyers and unleash an ocean of latent
untapped demand
98
Second Tier Noncustomer
These are refusing noncustomers, people

who either do not use or cannot afford to use
the current market offerings because they
find the offerings unacceptable or beyond
their means. Their needs are either dealt with
by other means or ignored
99
Second Tier Noncustomer
What are the key reasons second-tier

noncustomers refuse to use the products or
services of your industry? Look for the
commonalities across their responses. Focus
on these, and not on their differences. You
will glean insight into how to unleash an
ocean of latent untapped demand
100
Third Tier Noncustomer
The third tier of noncustomers is the farthest

away from an industry’s existing customers.
Typically, these unexplored noncustomers
have not been targeted or thought of as
potential customers by any player in the
industry. That’s because their needs and the
business opportunities associated with them
have somehow always been assumed to
belong to other markets
101
Go for the Biggest Catchment
Focus on the tier that represents the biggest

catchment at the time
Explore whether there are overlapping

commonalities across all three tiers of
noncustomers. It expands the scope of latent
demand you can unleash
You should first reach beyond existing demand
to noncustomers and desegmentation
opportunities as you formulate future
strategies
102
Go for the Biggest Catchment
You should be aware when your competitors

succeed in attracting the mass of
noncustomers with a value innovation move,
many of your existing customers may be
attracted away because they too may be
willing to put their differences aside to gain the
offered leap in value
You must profit from it to create a sustainable

win-win outcome
103
Example: (PRET MANAGER)
Having Identified need of healthy,

inexpensive, fast, fresh lunch with sit-down
facilities by observing commonalities across
first tier of non-customers & came up with
Pret Manager
104
Example: (JCDecaux)
JCDecaux- Observed the commonalities in
the second tier non-customers and realized
that the low rate of repeat visits, low value
addition, less exposure time, lack of
stationary downtown locations in outdoor
advertising using billboards were the
reasons for many companies to not opt for
outdoor advertising. So it came up with the
idea that municipalities could offer stationary
downtown locations, such as bus stops,
where people tended to wait a few minutes
and hence had time to read and be influenced
by advertisements.
105
Example: (DENTAL WHITENING)
Dental whitening – It was an assumption that

tooth whitening was a service provided
exclusively by dentists and not by oral care
consumer-product companies.
Consequently, oral care companies never
looked at the needs of these noncustomers.
When they did, they found an ocean of latent
demand waiting to be tapped & the capability
to deliver safe, high-quality, low-cost tooth
whitening solutions, and the market
exploded
106
Chapter 6.
Get the Strategic Sequence Right
• Companies need to build their

strategy following what is called the
Sequence of Blue Ocean Strategy.
• The sequence goes:
• Buyer Utility, Price, Cost, Adoption
107
Sequence
Buyer Utility Price

Does your
offering unlock Companies don’t Cost
exceptional want to rely
utility? solely on price to Can you produce
create demand your offering at
There is no blue
Is your offering
the target cost Adoption
ocean potential and still earn a
without this point priced to attract healthy profit
the mass of margin?
Options include: target buyers for
• Park the idea a compelling Don’t let cost
• Rethink it ability to pay for drive prices
• Reach an your offering? When target costs
affirmative These first two cannot be met,
steps address the forgo the idea
revenue side of a because the blue
company’s ocean will not be
business model profitable
108
Chapter 6:
Sequence of Blue Ocean Strategy
Buyer Utility NO_RETHINK
Is there exceptional
buyer utility in your
Price NO_RETHINK
business idea?
YES Is your price easily

accessible to the NO_RETHINK
mass of buyers? Cost
YES NO_RETHINK
Can you attain your
cost target to profit at
your strategic price? Adoption
What are the adoption

YES hurdles in actualizing the
A
COMMERCIALLY business idea? Are you
VIABLE BLUE addressing them upfront?
OCEAN YES
109
Example: PHILIPS CD-I
Philips’ CD-I (All in one: video machine

+music system + game player + teaching tool)
But couldn’t provide consumers with the
understanding of the product and hence NO
COMPELLING REASON TO BUY IT  Sales
never took off
110
The Buyer Utility Map
111
Chapter 6:
The Six Stages of Buyer Experience Cycle
112
Chapter 6:
The Six Utility Levers
The way in which companies can unlock
exceptional utility for the buyers
Customer Productivity (the most
commonly used lever)
Simplicity
Convenience
Risk
Fun & Image
113
Uncovering Blocks to Buyer Utility
This shows how a company can identify the most
compelling hot spots to unlock exceptional utility:
114
QUESTIONS TO ASK?
When testing for exceptional utility ask:
Where are the greatest blocks to utility across

the buyer experience cycle for your customers
and non customers?
Does your offering effectively eliminate these

blocks?
When a company’s offering passes this test, it

is ready to move to the next step
115
QUESTIONS TO ASK?
From Exceptional Utility to Strategic Pricing
To secure a strong revenue stream for your

offering, you have to set the right strategic
price.
Many companies may take the reverse course

and test the product in different situations
before deciding to low their pricing.
It is crucial to know how the company will set

its pricing strategy from the start.
116
Two reasons for change:
Companies are discovering that volume generates

higher returns than it used to
For eg. In software industry, Producing the first

copy of the Windows XP operating system cost
Microsoft billions of dollars, whereas subsequent
copies involved no more than the nearly trivial
cost of a CD. This makes volume key.
117
To a buyer, the value of a product or service may

be closely tied to the total number of people
using it.
For eg. online auction service managed by eBay.

People will not buy a product or service when it
is used by few others. Either you sell millions at
once, or you sell nothing at all.
118

Excludability is a function both of the nature of
the good and of the legal system.
A good is excludable if the company can prevent
others from using it
Intel, for example, can exclude other
microprocessor chipmakers from using its
manufacturing facilities through property
ownership laws
Lack of excludability reinforces the risk of free
riding
119
PRICING
Companies have to start at day one

finding the right pricing strategy to
bring in the customers and retain them
over time
Word of mouth is a huge brand building

tool
120
PRICING
Price Corridor of the Mass
This a tool that has been created to help

managers find the right price for an irresistible
offer
This irresistible offer by the way does not always

have to be the lowest labeled price for that
particular line of product
The tool involves two distinct but interrelated

steps
121
Price Corridor of the Mass
To help managers find the right price for an
irresistible offer
122
STEP 1: IDENTIFY PRICE CORRIDOR
How do companies determine a

strategic price?
Answer: Understand the price

sensitivities of the people who will be
comparing your product to many other
products in other industries
123
Companies must categorize products

that fall into two categories
Different form, same function
Different form and function, same

objective
124
Different form, same function
Example: Ford’s Model T vs. the horse-

drawn carriage
Different form and function, same

objective
Example: Cirque du Soleil vs.

restaurant/bar
125
Listing all these alternatives shows

managers which buyers can be
poached
Identify the price bandwidth that

captures the largest groups of target
buyers: the Price Corridor of the Mass
126
Step 2: Specify a Price Level
How high of a price can managers set

within the corridor? They must assess
Degree to which the product is protected

legally through patents or copyrights
Degree to which the company owns

some exclusive asset or core capability
127
Level of patent and asset protection

determines which price bound to
choose
Upper
Middle
Lower
128
Companies should pursue mid- to lower-
boundary pricing if:
Their blue ocean has high fixed costs and

marginal variable costs
Their attractiveness depends heavily on

network externalities
Their cost structure benefits from steep

economies of scale and scope
129
FROM STRATEGIC PRICING TO TARGET
COSTING
Target Costing addresses the profit side of the
business Model
To maximize profit potential a company

should start with Strategic Price, then deduct
desired profit margin from the price to arrive
at Target Cost
Price-minus costing, and not cost-plus

pricing, is essential if you are to arrive at a
cost structure that is both profitable and hard
for potential followers to match
130
FROM STRATEGIC PRICING TO TARGET
COSTING
important strategic plans companies use to
meet their Target Cost
Streamlining Operations and Introducing Cost

Innovations
Partnering
Changing Price Model of the Industry
131
PROFIT MODEL OF BLUE OCEAN
STRATEGY
The Strategic
Price
The Target
Profit
The Target Cost
Streamlining and
Partnering
Cost Innovations
Pricing
Innovation
132
BLUE OCEAN IDEA (BOI) INDEX
DoCoMo
Philips Motorola
i-mode
CD-I Iridium
Japan
Is there exceptional utility? Are

Utility there compelling reasons to _ _ +
buy your offering?
Is your price easily accessible

Price _ _ +
to the mass of buyers?
Does your cost structure meet

Cost _ _ +
the target cost?
Have you addressed adoption

Adoption _ -/+ +
hurdles up front?
133
Executing Blue Ocean Strategy
Chapter 7
Overcome Key
Organization Hurdles
134
The Four Organizational Hurdles
to Strategy Execution
Cognitive Hurdle
An organization
wedded to the
status quo
Political Hurdle
Opposition from Resource Hurdle
powerful vested Limited resources
interests
Motivational Hurdle
Unmotivated staff
135
Tipping Point Leadership
Builds on the rarely exploited corporate reality

that in every organization, there are people,
acts, and activities that exercise a
disproportionate influence on performance
136
ORGANIZATIONAL HURDLES
Tipping Point
Leadership
Allows you to
quickly and
cost effectively
overcome the 4
hurdles to
executing blue
oceans
137
Tipping Point Leadership
Mounting the
challenge is about
conserving
resources and
cutting time by
focusing on
identifying and then
leveraging the
factors of
disproportional
influence in an
organization.
138
1. Break Through the Cognitive
Hurdle
The hardest battle is simply to make people
aware of the need for a strategic shift and to
agree on its causes.
Tipping point leadership does not rely on

numbers.
It zooms in on the act of disproportionate

influence: making people see and experience
harsh reality first hand. “Seeing is believing.”
139
1. Break Through the Cognitive
Hurdle
Two ways:
1. Make Employees Come Face-to-Face with the

Worst Operational Problems
2. Meet with Disgruntled Customers
140
2. Jump the Resource Hurdle
Redistribute Resources to Your Hot Spots

(Activities that have low resource input but high
potential performance gains)
Redirect Resources from Your Cold Spots

(Activities that have high costs but low
performance impact)
141
Engage in Horse Trading (Trading excess

resources for another unit’s excess to fill
remaining resource gaps.
142
143
3. Jump the Motivational Hurdle
Zoom in on Kingpins
- Key Influencers in the organization
- Can create a ripple effect by touching and

motivating employees to embrace the new
strategy
144
Fishbowl management, where kingpins’ actions

and inaction are made transparent to others
-Creates an intense performance culture.
-Raises the stakes of inaction.
145
Atomize to Get the Organization to Change Itself
-Relates to the framing of the strategic challenge
-Employees need to know that it is attainable, or

the change will not likely succeed.
146
4. Knock Over the Political Hurdle
Secure a Consigliores on Your Top Management
Team
A politically adept but highly respected insider who

knows in advance all the land mines to be encountered by
a strategic change
Leverage Your Angels and Silence Your Devils
Angels- those who have the most to gain from the

strategic shift.
Devils- those who have the most to lose from a strategic
shift.
147
Chapter 8:
Build Execution into
Strategy
148
CHAPTER 8:
A company must equal everyone from

the top to the front lines. Everyone in
an organization must support and be
aligned with strategy. To build trust
and commitment and to inspire
voluntary cooperation build execution
into strategy from the start & reach to
fair process in making and executing
of strategy
149
THE POWER OF FAIR PROCESS
Fair process is the managerial expression of
the procedural justice theory
psychology study of procedural

of justice process justice
Why Does Fair Process Matter?
150
Intellectual and Emotional Recognition

Theory:
When individuals feel recognized for their

intellectual worth, they are willing to share
their knowledge
By using fair process employees will be to

engage in voluntary cooperation
151
If individuals are not treated as though

there knowledge is valued they may not
share their ideas and best thinking
Employees may also begin to reject

other’s intellect as well
152
ATTITUDES AND BEHAVIORS TOWARD
FAIR PROCESS
Strategy Formulation Fair Process
Process Engagement
Explanation
Expectation clarity
Attitudes Trust and Commitment

“I feel my opinions count.”
Behavior Voluntary Cooperation

“I’ll go beyond the call of
duty.”
Strategy Execution Exceed Expectations

Self-initiated
153
3 E PRINCIPLES OF FAIR PROCESS
Engagement
Explanation Expectation
Involving individuals in
the strategic decisions Everyone involved should Clarity
that affect them understand why the final Once the strategy has
• Ask for input strategic decisions are been set into action,
made managers must clearly
• Allow employees to communicate the new
question the ideas or • People are confident that
managers have rules and procedures
assumptions of others
• Communicates considered all opinions Employees should know
management’s respect and made decisions what standards they will
for individuals and their based on the overall be judged on and what
ideas interest of the company penalties they will receive
• Employees can trust for failure
• Creates better strategic
decisions from managers intentions Are the new goals, targets,
management and greater • Managers can receive and responsibilities for our
commitment from feedback from employees clearly
everyone involved employees allowing for understood?
enhanced learning of the
decision
154
THE TALE OF TWO PLANTS
Chester
Failed to Engage Employees
Consulting firm ordered not to disturb

employees
155
Chester
Failed to Explain
Employees were not explained why new system

was being implemented
Failed to clarify Expectations
Did not elaborate on how new system worked,

and what employees jobs were
156
High Park
Engaged Employees
Introduced consultants to employees, held

company meetings.
Explained why new process was being

implemented
Clearly stated employee Expectations in new

system
157
RESULTS:
Management at Chester violated the three E’s,

unlike High Park
Chester plant employees lose trust in
management and is met with resistance to the
new strategy
High Park strategy is implemented, Employees
gain trust in management and shift from being
the worst employees to the best
158
FAIR PROCESS AND BLUE OCEAN
STRATEGY
Intangible capital
Companies who have created blue oceans are

quick to praise their employees who show
commitment, trust and voluntary cooperation
Companies who have this intangible capital

stand apart in speed, quality and consistency of
their execution and to implement strategic
shifts at low cost
159
STRATEGY
Obtaining Intangible Capital
What not to do?
What to do?
160
STRATEGY
What not to do?
Money and Power?
This will simply fall short of inspiring human

behavior beyond self interest.
Don’t separate strategy formulation from

execution
This is a hallmark of questionable implementation

and mechanical flow through at best!
161
STRATEGY
What to do?
Implement Fair process

Build execution into strategy making from the
start
People tend to be committed to support the
resulting strategy even when it is viewed as not
favorable or at odd with their unit
People realize that small self sacrifices are
essential in building a strong company
162
Chapter 9
Conclusion: The Sustainability
and Renewal of Blue Ocean
Strategy
163
Chapter 9
“Creating blue oceans is not a static
achievement but a dynamic process.
Once a company creates a blue ocean
and its powerful performance
consequences are known, sooner or
later imitators appear on the horizon.
The question is, how easy or difficult is
your blue ocean strategy to imitate?”
164
BARRIERS TO IMITATION
A value innovation does not make sense

based on conventional strategic logic
Brand image conflict can prevent

companies from attempting to imitate a
blue ocean strategy
Natural monopoly can block imitation if the

size of the market cannot support another
player
165
Copyrights, patents or other legal block

imitation
The high volume generated by a large

value innovation leads to rapid cost
advantages, placing potential imitators at
a sever disadvantage
166
Network externalities. The more customers

you have the more attractive you become
Because imitation often requires

companies to make substantial changes to
their existing business practices
A huge leap in value often earns brand

buzz and a loyal following in the
marketplace
167
WHEN TO VALUE-INNOVATE AGAIN
Monitor value curves on strategy canvas

and dominate the blue ocean as long as
possible
Hold on when there is still a huge profit

stream to be collected from your current
offerings
168
Focus on lengthening, widening and
deepening your rent stream to operational
improvements and geographic expansion to
achieve maximum economies of scale and
market coverage
Reach out for another blue ocean when your

value curve begins to converge with those of
the competition
169
A blue ocean strategy brings with it considerable

barriers to imitation. Some of these are
operational, and others are cognitive
When imitators persist, monitor value curves

and focus on lengthening, widening, and
deepening your share through operational and
geographical expansion until value-innovation
is your last resort
170
Sameer Mathur
Indian Institute of Management,

Lucknow
Marketing Professor 2013 –
Marketing Professor 2009 – 2013
Ph.D. and M.S. (Marketing) 2003 – 2009

17
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Prepared By: Prof. Sameer Mathur, Ph.D.

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Book Summary

W. Chan Kim Renee Mauborgne

2. Analytical tools and Frameworks

Part Two: Formulating Blue Ocean Strategy

4. Focus on Big Picture, Not the numbers

5. Reach beyond Existing demand

8. Build Execution into strategies

This chapter talks about the new market

BLUE oceans, in contrast, are defined by

Most are created from within

Rules of game waiting to be As market space gets

Blue ocean strategy is a

Accelerated communization of products and

Increasing price wars

Shrinking profit margins

Red oceans becoming bloodier, need to be

Value innovation is the cornerstone of blue ocean

Innovation without value tends to be technology-

Value innovation occurs only when

Those that seek to create blue

Competition-based red ocean strategy

Value innovation is based on the view

The American Wine Industry :Casella

The Case of Cirque du Soleil

3rd largest in world: worth $20 billion

Californian makes 66% - the rest is from Italy,

Exploding number of new wines – new vineyards

Fastest growing imported wine in the

New consumers of wine

Jug drinkers trade up

Premium wine drinkers trade down

Industry criticizes them mercilessly at first

Supplier power of the star performer were high

Alternative form of entertainment was available :

Industry was suffering from steadily decreasing

Cirque du Soleil created uncontested new

Because of this, Cirque du Soleil appealed to

A circus company stuck in a stagnant market

Bargaining power of both the

Cirque du Soleil competed against the traditional

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

Instead of offering wine as wine, Casella created

[yellow tail] leapfrogged tall competitors with no

There are four key questions to

1) Which of the factors that the industry

2) Which factors should be reduced well

3) Which factors should be raised well

4) Which factors should be created that

Casella Wines created three new

Only on the main

Blue Ocean Strategy:

When a company’s value curve, or its

A Company Caught in the Red Ocean

When a company’s value curve

Over delivery Without Payback

When a company’s value curve on the strategy

When a company’s value curve looks

Are there strategic contradictions?

An Internally Driven Company