Blue Ocean Strategy: 7 Steps to Ignite Business Transformation

IN THIS ARTICLE

“Blue Ocean Strategy,” by W. Chan Kim and Renée Mauborgne, is a pioneering blue ocean strategy book from Harvard Business School Press in 2005. It presents a new approach to strategy, focusing on creating “blue oceans,” untapped market spaces, where competition doesn’t matter, and businesses can excel by providing innovative and distinct value to customers.

Read more: Blue Ocean Strategy (hbr.org)

In the beginning of the book, Kim and Mauborgne talk about “red oceans,” which are tough, crowded markets where companies fight for customers. This leads to price wars and lower profits. They suggest that companies should stop competing in red oceans and instead explore new opportunities in blue oceans.

Learn more: What is Blue Ocean Strategy | About Blue Ocean Strategy

Blue Ocean Strategy: A systematic approach to blue ocean creation

In “Blue Ocean Strategy” by Kim and Mauborgne, you’ll find practical tools, examples, and a step-by-step method for making blue oceans. They teach value innovation, where you cut costs while adding value for customers. The book highlights how being innovative in product, service, and business design can help you break away from industry norms.

Learn more: The Explainer: Blue Ocean Strategy – YouTube

A major lesson from “Blue Ocean Strategy” by Kim and Mauborgne is the significance of being different. They emphasize the value of providing unique offerings that eliminate the need for competition. Through examples like Cirque du Soleil and Nintendo Wii, the book shows how creative ideas can drive substantial growth and profits.

Learn more: Blue Ocean Strategy, Create New Markets and Leave the Competition Behind | Renée Mauborgne | WOBI – YouTube

“Blue Ocean Strategy” is a pivotal book in strategic management, urging businesses to move away from competing in crowded markets and forge new, uncontested ones. It provides a fresh perspective on achieving lasting growth and success in today’s competitive business world.

Common problems in organization

According to “Blue Ocean Strategy W. Chan Kim and Renée Mauborgne”, here are the five common challenges organizations encounter in today’s dynamic business environment:

1. Red ocean competition

The book discusses the challenges of competing in highly saturated and competitive markets, where companies struggle to differentiate themselves and maintain profitability.

In fact, in highly competitive markets, companies may experience profit margins as low as 5% to 10%. Approximately 60% of businesses cite competition as a major challenge in their industry. Red ocean industries often spend around 70% of their marketing budget on price promotions.

Red Ocean Strategy vs. Blue Ocean Strategy

2. Market saturation

Many businesses face the problem of limited growth opportunities due to market saturation in their industries.

In fact, market saturation can lead to a decline in revenue growth, with some industries experiencing growth rates as low as 1% to 2%. In mature markets, up to 90% of potential customers may already be using existing products or services. Identifying untapped market space can result in revenue growth of 20% to 30% or more for companies.

3. Commoditization

The book explores how companies can avoid the commoditization of their products or services, which often leads to shrinking profit margins.

In fact, in commoditized markets, profit margins can drop to as low as 1% to 3%. Commoditization can affect various industries, leading to intense price competition. Differentiation strategies can increase profit margins by 10% to 20% or more.

4. Innovation constraints

Companies often find it challenging to innovate within the confines of existing industry norms and practices. The book encourages breaking free from these constraints to create new value.

Approximately 67% of surveyed business leaders believe their organizations struggle with innovation due to industry norms and risk aversion. Innovative companies tend to generate 5 times the revenue growth of their peers.

5. Customer-centric approach

“Blue Ocean Strategy W. Chan Kim and Renée Mauborgne” emphasizes the importance of understanding customer needs and creating value that resonates with them, addressing the challenge of aligning offerings with customer preferences.

In fact, customer-centric companies are 60% more profitable compared to those that are not focused on customer needs. About 84% of customers consider their experience with a company as important as the products or services they provide. Building strong customer relationships can lead to a 25% to 95% increase in customer lifetime value.

Benefits from this book

Within the domain of marketing and business strategy, “Blue Ocean Strategy W. Chan Kim and Renée Mauborgne” imparts invaluable insights and essential lessons that can reshape your approach to your undertakings. These encompass:

1. Escape from intense competition

“Blue Ocean Strategy W. Chan Kim and Renée Mauborgne” helps companies break away from intense red ocean competition by guiding them to identify and create uncontested market space where competition is less relevant.

The book reveals that in a study of 108 companies’ product launches, creating blue oceans had a big impact on revenue and profit growth. Despite being most common at 86 percent, small improvements within existing markets only brought in 62 percent of revenues and just 39 percent of profits. In contrast, the 14 percent of launches aimed at creating new markets made a major impact, accounting for 38 percent of revenues and an impressive 61 percent of profits.

These findings underscore the substantial performance advantages of pursuing blue ocean strategies for business growth.

By focusing on differentiation and value innovation, companies can reduce competitive rivalry and enjoy higher profit margins.

2. Discover untapped market space

The book offers a systematic approach for identifying untapped market space (blue oceans) where companies can create new demand rather than fighting over existing customers.

It provides strategies for exploring new markets, often resulting in substantial revenue growth.

3. Differentiate and avoid commoditization

“Blue Ocean Strategy W. Chan Kim and Renée Mauborgne” provides tools and frameworks to help companies escape the trap of commoditization.

In the book also, there is an explanation about the “Eliminate-Reduce-Raise-Create (ERRC) Grid”. It is a simple but powerful framework used to help businesses identify opportunities for innovation and create a blue ocean strategy. Here’s an explanation of each component of the ERRC Grid:

Figure 1. Blue ocean strategy framework.

Eliminate: Companies find and remove unnecessary things in their industry that don’t affect customer satisfaction, such as extra features or processes that are considered standard but not essential.
Reduce: Businesses look for ways to make things smaller or more efficient in their industry while still keeping customers happy. This might involve cutting expenses or simplifying certain features to lower costs.
Raise: Companies identify areas where they can improve their product or service to offer more value to customers. This often means addressing unmet needs or opportunities for enhancement and investing in those areas to exceed customer expectations.
Create: In this step, businesses focus on developing entirely new elements or features that haven’t existed in their industry before. This innovation can lead to unique value propositions that set the company apart from competitors.

By emphasizing differentiation and value creation, companies can break free from price wars and enhance their profit margins.

4. Foster innovation beyond industry norms

The book encourages organizations to think beyond industry norms and traditional boundaries.

It offers a structured process for fostering innovation, allowing companies to create new value propositions and disrupt existing markets.

5. Enhance customer-centricity

“Blue Ocean Strategy W. Chan Kim and Renée Mauborgne” emphasizes the importance of understanding customer needs and tailoring products and services accordingly.

It provides a framework for companies to become more customer-centric, leading to improved customer satisfaction, loyalty, and long-term profitability.

Case studies

In the realm of marketing and business strategy, “Blue Ocean Strategy W. Chan Kim and Renée Mauborgne” provides indispensable perspectives and pivotal lessons, poised to reframe your approach across various endeavors, such as:

Case study 1: Cirque du Soleil

Cirque du Soleil revolutionized the circus industry by creating a new market space. Instead of competing head-to-head with traditional circuses in the highly competitive red ocean, they combined elements of theater and circus arts to create a unique and high-quality entertainment experience. By doing so, they attracted a different audience, reduced direct competition, and achieved higher profit margins.

In the case of Cirque du Soleil, as one of the blue ocean strategy examples, they specifically used the eliminate-reduce-raise-create grid; by:

Eliminate: star performers, animal shows, aisle concession sales, multiple show arenas
Reduce: fun and humor, thrill and danger
Raise: unique venue
Create: theme, refined environment, multiple productions, artistic music and dance

Source: standard.co.uk, Cirque du Soleil’s new tricks.

Case study 2: Nintendo Wii

In the mature video game console industry, Nintendo’s Wii disrupted the market by targeting a broader and more diverse audience. They introduced motion-controlled gaming, making it accessible to people of all ages and skill levels. By creating a blue ocean of non-traditional gamers, Nintendo expanded the market and achieved significant growth even in a saturated industry.

Source: 9to5toys.com, One of the Nintendo Wii products.

Case study 3: Apple Inc.

Apple is known for its ability to differentiate its products in the highly competitive consumer electronics industry. They focus on design, user experience, and ecosystem integration, which sets them apart from commoditized competitors.

For example, the iPhone’s integration of hardware, software, and services created a unique value proposition that allowed Apple to maintain premium pricing and avoid commoditization.

Source: imore.com, iPhone.

7 recommendations for business leaders to soon execute

Here are some actionable recommendations for business leaders or individuals based on the principles outlined in the book:

Figure 5. 7 Steps for business transformation.

Focus on niche markets

Instead of competing directly with larger rivals, identify and target niche markets or underserved customer segments. Tailor your products or services to meet the unique needs of these segments, allowing you to gain a competitive edge.

Diversify product or service offerings

Explore complementary products or services that align with your core expertise. By diversifying your offerings, you can tap into new markets or address different needs within your existing customer base, reducing reliance on a saturated market.

Focus on branding and innovation

Invest in building a strong brand identity that sets you apart from competitors. Additionally, continually innovate by introducing new features, technologies, or services that add value and prevent your offerings from becoming commoditized.

Encourage cross-functional collaboration

Foster a culture of cross-functional collaboration within your organization. Encourage teams from different departments to work together on innovative projects. This can break down silos and lead to fresh ideas that challenge industry norms.

Invest in customer research

Regularly conduct in-depth customer research to understand their needs, pain points, and preferences. Use this data to tailor your products, services, and marketing efforts to meet and exceed customer expectations.

Optimize operational efficiency

Continually assess and optimize your operational processes to reduce costs without compromising quality. Explore automation, lean practices, and supply chain improvements to find cost-saving opportunities.

Communicate vision and benefits

Clearly communicate the vision for change within your organization. Explain the benefits and how it aligns with the long-term success of the company and the well-being of employees. Involve employees in the process and provide training and support to ease the transition.

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Conclusion

“Blue Ocean Strategy” by Kim and Mauborgne presents a game-changing plan for businesses and individuals in today’s complex business world. It breaks away from traditional competition and offers a clear method for carving out unexplored market territory. Using value innovation, it shows how to cut costs and boost customer value at the same time, a key strategy for lasting success.

The book highlights the need to stand out and create value by going beyond industry conventions. It uses examples like Cirque du Soleil and Nintendo Wii to show how innovative ideas can drive significant growth and profits, even in crowded markets.

Learn more: An Introduction to W. Kim Chan and Renee Mauborgne’s Blue Ocean Strategy – A Macat Business Analysis – YouTube

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