Blue Ocean Strategy. How to find or create a market free from other players Rene Mauborgne, Kim Chang

The Blue Ocean Strategy aims to encourage companies to break out of the scarlet ocean of competition by creating a market niche for themselves where they can not be afraid of competitors. Blue ocean strategy proposes to refuse to share with others the existing - and often decreasing - demand, while constantly looking at competitors, and instead devote itself to creating new, growing demand and avoiding competition. The book not only encourages companies to take this step, but also explains what needs to be done. Our goal is to make the blue ocean strategy as effective as competing in the red waters of the market we already know.”

"Blue Ocean Strategy" by W. Chuck Kim, René Mauborgne

Regardless of my personal attitude to the idea of "blue oceans", I would like to first impartially talk about the idea set forth by the authors of this strategy, so that those who are not familiar with this theory or are only remotely familiar with it can formulate their own opinion. about this approach to strategy. And after considering this work, on the already formed opinion of the reader, I will state my own opinion about this strategy.

The essence of the blue ocean strategy proposed by Chen Kim and Mauborgne is that with the current pace of development and copying of technologies, head-to-head competition is irrelevant and, in the long run, is detrimental to the company. Allegorically speaking, the authors call competitive markets "red oceans", full of blood of competitors "cling" to each other. In the "red ocean" the boundaries of the market and the principles of the industry are clearly defined and the same for all participants. The products of competing companies have similar characteristics, and the differences between them, with time and the efforts of benchmarking, are erased.

Blue Ocean is an unoccupied niche in the market that the company creates based on:

unsatisfied needs of different groups of consumers united by it;
concentration on the key criteria for the consumer to select and evaluate the product;
focus on attracting "non-customers" of the company to the consumption of the product.

In a blue ocean, a company does not have to choose between a low cost strategy or a high customer value strategy—it can offer both.

Blue Ocean Strategy is the result of 15 years of research and analysis of data on the market strategies of 108 companies in 30 industries over the past 100 years. As a result, the authors found that 86% of business ventures during this period were linear expansions, that is, the improvement of work in the "red oceans". At the same time, such undertakings accounted for 62% of total revenues and only 39% of profits. In other words, it is in the "blue oceans" that the prospect of obtaining the greatest profit for the company lies. And there are no competitors at all - since the company that created the "blue ocean" is the first and, for a long time, the only one in it. It is important to note that the "blue ocean" is not measured by an industry or a particular company - it is rather a strategic move, a winning decision of the company for its market situation.

The main tool of the blue ocean strategy is the "strategy canvas" - it serves to diagnose and build such a strategy. To build a "strategic canvas" for a company, it is necessary to identify the key characteristics of products - its own and competitors - that are the subject of competition within the industry. The company also analyzes the level of supply received by the consumer for each of the factors. A high rate means a large investment in the development of a specific factor area.

The authors provide a way to visualize the "strategic canvas" to facilitate its analysis and presentation. Analysis of the "strategy canvas" allows the company to determine how its market strategy is similar to the strategies of competitors. Using the strategy canvas as an example, this similarity is easy to identify - the graphic forms of the “strategy canvas” of companies with similar approaches to competition have a similar shape.

After analyzing the "strategy canvas" and the implications of different factors of competition for different companies and for the customers themselves, Chen Kim and Mauborgne suggest that company leaders ask themselves four questions:

1. What factors of competition, defined and accepted in the industry, can be abolished? For example, McDonald's positions itself as a restaurant, but such an integral "feature" of the restaurant as waiters was initially deliberately abolished - costs are lower, service is faster.

2. What factors of competition should be significantly reduced from industry standards? For example, after analyzing the "strategic canvas" of the US wine market, Cassela Wines came to the conclusion that factors such as the richness and complexity of the taste of wine, the prestige of the winery and the choice of wine names, so cherished by winemakers, do not have for American consumers special significance. All three factors have been reduced by limiting the range of products, shifting the focus of communication from the history and prestige of the winery to other factors, and producing wines with a more pronounced and simple taste.

3. What factors should be significantly improved from industry standards? Yes, basically creation of Apple the iTunes online music store lies on the rise of a number of key factors in the music file sharing industry: high sound quality; a wide range of melodies, including works of past years; the possibility of buying thematic collections of songs.

4. What factors never before proposed by the industry should be created? Virgin, for example, left behind even major competitors by offering a non-standard but in-demand range of services to passengers, including in-flight massages. Another airline, NetJets, offers corporate customers a private jet service for a fixed annual fee, which is significantly different from the cost of actually maintaining such a jet at the company's expense.

The book outlines approaches and tools for developing and implementing a blue ocean strategy, including six ways to create it and approaches to interpreting the resulting strategy canvas. Despite the notoriety of the described idea of the perception of competition, it was Chen Kim and Mauborgne who first proposed a coherent and practical tool for applying the blue ocean strategy in practice. The language of presentation is simple, the examples are modern and understandable. The book contains appendices background information on sectoral and conceptual features of the blue ocean strategy.

It is worth noting that the technique for creating blue oceans has been reduced to a simple graphical representation and to a few easy-to-remember rules. For example, navigating the blue ocean is proposed with the help of a matrix called "eliminate-reduce-increase-create". To work with a team, it is proposed to use the rule of three E: Engagement (engagement), Explanation (explanation), Expectation (clarity of expectations). Such a presentation of the theory is convenient for businessmen who are hungry for new knowledge, but do not have free time.

The first way is to consider as competitors not only representatives of their own industry, but also companies operating in alternative industries. For example, cinema and restaurants are completely different types business. On a Saturday evening, however, they are equally good alternatives to enjoy. And most often, it is in the space of such alternatives that value innovation can be created.

The second way is to explore the main strategies of companies within the industry. Typically, the differences in strategies come down to what a given company chooses: low prices or high quality. In fact, we need to abandon this alternative and understand what other factors, in addition to price and quality, influence the choice of customers.

The third way is to consider the chain of buyers. The one who makes the purchasing decision is not always the end user of the product.

The fourth way is to consider additional products and services that provide value to the customer.

The fifth way is to analyze the functional and emotional appeal of the product to buyers.

The sixth way is to look into the future and see the opportunities to create a blue ocean.

I would also like to cite one of the wonderful methodological tables given in the book.

The “Focusing on the Big Picture, Not the Numbers” chapter of Creating a Blue Ocean Strategy provides four steps to strategy visualization.

1.Visual awakening	2. Visual examination	3. Visual Strategies Fair	4. Visual communication
Compare your business to competitors, for which you depict the strategic canvas as it really is "as it is". See what needs to change in your strategy.	Head out into the field to explore six ways to create blue oceans. Highlight the clear benefits of alternative products and services. See what factors need to be eliminated, created or changed.	Draw a “required” strategic canvas for your organization based on the results of practical research. Get feedback from your own clients, customers competitors and non-customers regarding alternative strategy canvas options. Use feedback to build the optimal "required" strategy for the future.	Share a printout of your before and after strategic profiles for easy comparison. Support only those projects and steps that will allow your company to fill in the gaps in order to update the new strategy.

Now we can say that we have comprehended a brief introduction to the content and principles of creating a blue ocean strategy. I gave a review of the text as objective as possible, or rather positive, but now I would like to add a couple of spoons of tar to this huge barrel of honey.

Let's try to understand what is behind the popularity and all the hype around this blue ocean theory - the basic concept of the blue ocean is that a company that, guided by the methods given in the book, can create its own blue ocean, which, in fact, is the "Grail of immortality" in the business world, because the creation of the "blue ocean" according to the authors leads to the fact that the company forever leaves the "red ocean" of the competitive environment and ensures its eternal prosperity due to the huge army of customers, super profits and lack of competitors.

This idea about eternal life”, spiced with the author’s terminology “blue and scarlet oceans”, “visualization”, etc., is more like not business work, but a book of modern esotericists promising “enlightenment” and “eternal life”. Again, this terminology has a profound impact on the reader's subconscious - every top manager or business owner has a dream of a "blue ocean", workaholics who dream of a vacation on the shores of the "blue ocean", and the "red oceans" of competition, " full of blood", on the contrary, affect typical human fears and cause disgust. Here are the words of one Russian entrepreneur about the reasons for his purchase of this publication: “Blue Ocean is a great term for a new market where your company is the first, where there are no competitors, where you can make high profits. Getting away from competition is the blue dream of entrepreneurs. Perhaps that is why the title of the book - Blue Ocean Strategy - immediately intrigued. Again, the authors of this book also play the Messiah who came to save this world from the blood of competition and lead it into blue oceans of happiness, as illustrated by this quote from Chen Kim's speech during his visit to Ukraine: “Ukrainians, wake up. I came to you with hope. Like a farmer who sows seeds in the spring and hopes for big harvest, so I came to Kyiv to sow grain (to give new knowledge). I hope that it will sprout here, and I will water it. And I will be proud of what Ukraine has become!”

But it’s good, it’s clear that, first of all, the popularity of a book is caused by a beautiful “wrapper”, PR, and so on, but this is not bad, the main value in any scientific or business work is evaluated by its usefulness, but this is another question ... But I would prefer to divide the work into 2 parts (idea and methodology) and accordingly evaluate the utility based on this division.

The usefulness of the blue ocean idea is likely close to 0, why? Because the initially utopian idea of a "blue ocean" cannot be used and, accordingly, be useful in a pragmatic business world. Its utopianity lies in the fact that the declared departure with the help of the "blue ocean", like anything else, from the competitive field is impossible! And the examples of “blue oceans” cited by the authors are, to put it mildly, far-fetched. After all, the creation of the "blue ocean" of McDonalds, cited as an example of a successful "blue ocean", did not bring this network of "restaurants" out of the competitive field of catering, fast food, etc. The "blue oceans" of American auto giants, cited as examples, have not taken them out of the competitive field, moreover, they do not help them outperform competitors, for example, Japanese automakers. On the contrary, while they are actively losing to them ... Here is a quote: “Blue oceans are not technological innovations. Hi-tech sometimes involved in the creation of blue oceans, but are not their hallmark. This also applies to technology industries. Blue oceans are often created by old players, while still within their core business. For example, Crysler and GM were established companies when they created blue oceans. Research has shown that most blue oceans are created within, not outside, the red oceans of existing industries. Blue oceans are at your side in every industry.

The blue ocean strategy is so strong it can create a brand that will last for decades. Think Ford (Model T), Crysler (minivan), IBM (electronic computer). The leaders of these companies can attest that the key to creating a new market space is not big R&D budgets, but the right strategic moves. That is, the creation of a blue ocean is a product of strategy and, in many respects, a product of managerial actions.”

Suppose the companies cited by the authors created "blue oceans", but we can easily recall the recent problems of each of these companies - Ford, Chrysler, and IBM. Accordingly, it can be understood that the blue ocean theory does not exist.

The usefulness of the technique is definitely there, but, unfortunately, it is secondary ... Michael Porter wrote about the possibilities of protection from market competition in his work of the same name. He proposed two strategies for such protection:

a) create a "reliable defense against the power of competition";

b) take a position where the company will be least vulnerable to competitive forces.

Of these strategies, it is the latter that is increasingly resonating with modern management thinkers and practitioners.

And most of all, the methods of the authors of "Creating a Blue Ocean Strategy" are similar to the classic works of D. Trout - "Differentiate or die!" and his other works. By the way, despite the fact that W. Chuck Kim and Rene Mauborgne constantly repeat that benchmarking and competitor orientation are the exclusive prerogative of the "red ocean" of competition, and are fundamentally not applicable in the creation of the "blue ocean", nevertheless, in their own methodologies actively use these approaches, which we can see in the table “Four stages of strategy visualization” above in the text (the places where competitive benchmarking is used are underlined).

For greater persuasiveness of the secondary nature of the "blue ocean" methods, I would like to cite brief analysis works of D. Trout.

As competition intensifies, it is becoming increasingly difficult for companies to find points of difference (in Chuck Kim's phrase it would sound like "finding blue oceans is getting harder"). But there is no other way.

"Differentiate or die!" This slogan, proclaimed by Jack Trout in 2000 in the book of the same name, opened a new page in the development of modern marketing. According to some experts, the word "differentiation" is actually just a new version of the term "positioning", to which Trout personally and in collaboration (with Al Rice and others) devoted many books. Which again shows the love of the “classics” of the business genre to use new terminology to describe old concepts.

The essence of the theory of differentiation is extremely simple and boils down to the following: in order to survive in conditions of fierce competition and commodity saturation in the markets, it is necessary to loudly declare one's difference, or otherwise, about the blue ocean. At the same time, the main sign of both product and market differentiation is the consumer's perception of the company and its products. Another sign is the methods by which the firm provides itself with advantages over its competitors.

In Differentiate or Die, Jack Trout and Steve Rivkin outline the basic steps to achieve differentiation. First, you need to know the situation in your market and be aware of the positions of competitors. Secondly, to find an idea that would qualitatively distinguish the company or its product among similar ones. Then this idea must be effectively implemented and embedded in the minds of the target audience. Those. the company must be aware of its position, the positions of direct and indirect competitors and non-competitors close to it, on the basis of this, develop its qualitative difference from them (“blue ocean”), which subsequently loudly declare on the market (brand itself and its own difference (blue ocean). ocean), inform about it, explain the value of this difference to the target audience).

"It's better to be the first than to prove that you are the best" says the first principle of J. Trout's bestseller "The 22 Immutable Laws of Marketing". However, experts are questioning this postulate, as they are now questioning the postulates of the authors of "Creating a Blue Oceans Strategy" even more. In most cases, this approach works when the products of brands in the same segment have tangible differences from each other. Over the past two years, we have seen a trend towards a gradual leveling of product quality in all markets. Without a strong brand and equally well-established distribution, most consumers are unlikely to choose a brand with the same quality as others but at a higher price.

In the face of increasing competition, it is becoming increasingly difficult for companies to find a point of differentiation when building marketing strategies. The successful implementation of this task largely depends on whether the company can place in the mind of the buyer the image or quality of the product. To date, leaders have simply sorted out the values generally accepted for the target audience: quality, reliability, simplicity, sophistication. In this context, it is worth giving an example of the Finnish company Raisio Group and its brand of instant cereals. Among all the positive characteristics of this product (usefulness, affordability, ease of preparation, high taste), when building a marketing strategy, the category "quick preparation" was chosen. The slogan "More time for communication" perfectly expresses the main idea of positioning this brand. If this case were considered in "Creating a blue ocean strategy", then it would be cited as one of the most successful examples of creating a "blue ocean", because. before that, none of their direct or indirect competitors had brought "communication" as their competitive advantage, i.e. From the highly competitive field of food products, these instant porridges have moved to the sphere of communications and leisure, where they are also out of the competitive field, because there were no porridges in this market segment yet.

A classic example of Rolls-Royce's strategy demonstrates how to segment the market and dominate its segment. The consumer was offered additional car finishing, after-sales service in order to ensure the reliability of cars. Thus, a stable idea was created about the product as a luxury item, comfort, designed for the snobbery of buyers. At the same time, it should be noted that Rolls-Royce does not often offer innovative technical developments, remaining in the shadow of auto giants. Again, here you can talk about the "blue ocean", isn't it? But it used to be called positioning, or differentiation...

Well, I think I've covered the concept of a blue ocean strategy quite clearly and objectively.

From all this, I concluded for myself that the book is good, but as a fascinating business fiction about a business utopia with more than vague and unclear recommendations for using the hackneyed, but always burning topic of competition in the key of “wishful thinking”.

But again, even though this is a “fairy tale”, and the above methods of avoiding competition or competitive struggle are “secondary” and are based on earlier works of such classics as M. Porter, D. Trout and others, but this is not the main thing ...

The main thing is that the beautiful "wrapper" and the ease of presenting the material in the form of a "serious fairy tale for adults" attracted the attention of a very wide audience of readers who may not have read either D. Trout or M. Porter, respectively, the authors of the book found their own " blue ocean", selling their work not only to potential clients, but also to lovers of light reading, esotericism, etc., acquainting a very large readership with the basics of strategic marketing, differentiation and positioning, creative marketing in the form of "for dummies", without giving readers to feel like that.

Moreover, "advanced" readers were able to enjoy easy reading and repetition of what was learned in classic works, in new form. Whatever you say, “repetition is the mother of learning”!

With all the fly in the ointment, this book can be considered a barrel of honey, because it presents the methods and ideas already known before, but in a beautiful and intelligible form. The authors cannot be called "creators", but their "tuning" of ideas and the creation of a beautiful myth "about milk rivers and jelly banks" deserves all praise.

The blue ocean strategy is designed to minimize possible risks. It is based on three principles:

minimization of search risk - revision of market boundaries;
planning risk minimization - focusing on the big picture, not on numbers;
minimizing the risk of scale - going beyond the existing demand.

To effectively implement a blue ocean strategy, direct the activities of the organization towards its implementation. There are two principles for reducing organizational and managerial risks.

Minimizing organizational risk - overcoming organizational obstacles.
Minimization of managerial risk - control over the implementation of the strategy.

Customer value innovation at the core of a blue ocean strategy

The main goal of the blue ocean strategy is value innovation, that is, improving consumer qualities and reducing costs. This can be achieved if the company maintains a balance between utility, price and costs.

In most cases, the company seeks to win back market share. This is the traditional approach of enterprises - the strategy of the red ocean.

A new product appears only in 14% of cases, which provide 61% of the total profit. This shows that companies that choose a blue ocean strategy are much more likely to succeed.

But for modern business characterized by a number of trends.

Thanks to technological advances, productivity has risen and supply exceeds demand.
Due to the reduction of trade barriers and globalization, specialized niche markets with high prices have disappeared.
Global demand for many products is falling along with the declining population in developed countries.

As a result, profits decrease, many products turn into a standardized mass commodity. In order not to compete for market share, companies are trying to create a new market space that is highly profitable and free from competition.

Companies that create new customer value strive to achieve both differentiation and cost reduction. To do this, it is necessary to offer customers a new product at an affordable price. Over time, economies of scale will kick in and costs will drop even further.

How to develop a blue ocean strategy?

Tool #1: Strategy Canvas.

The strategy canvas shows the main factors of competition in the industry and allows you to analyze what firms are investing in and what benefits they offer to their customers.

Using this method, one should pay attention to alternative products. Create an offer for buyers with elements of consumer value of products from other industries. So you can develop new ideas, and not offer customers analogues of existing products.

Tool #2: The Four Actions Model.

To find weak spots how the industry functions, there are four key questions.

What customer value factors to exclude?
What factors should be reduced?
What factors should be increased?
What new sources of value to create?

In any industry, there are factors necessary for market penetration. But consumer preferences are changing, and it may be that current products and services are too complex and expensive for buyers.

These questions will help identify irrelevant factors of competition. Try to identify the hidden trade-offs that consumers have been forced to make.

Tool number 3. Lattice.

The "grid" method: the company fills in a table that allows you to understand the differences between its actions and industry standards. Thanks to this method, managers will be able to act in concert.

When filling in the grid, carefully consider the factors that are considered necessary for an industry player and assess how they are justified.

An effective blue ocean strategy has three hallmarks.

Having priorities. Rely on a limited set of competitive factors. Do not invest in the development of areas that are not related to these priorities.
Deviation from the standard. Consider alternative options rather than industry accepted approaches.
Clarity and clarity. A good and obvious strategy can be described in one capacious slogan.

Principles for developing a blue ocean strategy

There are four principles for creating a blue ocean strategy.

Principle 1: Redefining the boundaries of the market

There are six ways to find compelling blue ocean ideas.

1. Analyze alternative industries and identify which products and services look different but serve the same purpose. The consumer often chooses between offers from different industries. Use the possibilities of the space between these spheres.

Example. NetJets offered customers a scheme that combines the speed and convenience of private jets with the low cost of fractional ownership found in other industries.

2. Consider the different classes of firms in the industry and determine what factors influence customer choice. Borrow from each class the main advantages and discard the excess.

Example. Lexus vehicles combine the quality of luxury brands such as Mercedes, BMW and Jaguar with the price of affordable Cadillac and Lincoln models in this category.

3. Study different customer groups and connect their perceptions of value. Change the traditional view of your target customer.

Example. Canon developed desktop copiers by switching from corporate buyers to users who didn't mind having their own photocopier at home.

4. Pay attention to additional products and services and work out a combined solution.

Example. Bookseller Barnes & Noble has shifted its focus from selling books to creating a welcoming environment for reading and learning.

5. Evaluate the attractiveness of the product and reconsider the traditional decision of the industry. Add emotional appeal to a functionally useful product or shift the balance from the emotional component towards functionality.

6. Predict what the market will be like when the development of this or that technology is completed. You will discover new opportunities for yourself if you determine what needs to be changed today.

Example. To create an online iTunes store Apple inspired the success of the Napster file-sharing network. It became clear that consumer demand for digital music download technology was high. Then Apple developed a legal, simple and inexpensive way access to audio files and captured the market.

Principle 2: Focus on the big picture, not the numbers

The typical strategic plan imposes a red ocean strategy on the company and never results in blue oceans. To avoid this mistake, you need to focus on the big picture, and not wander in a sea of numbers. To do this, draw a strategic canvas for your company that:

accurately and visually represents the position of the company in the market;
allows you to build the future strategy of the company;
helps employees focus on the big picture;
determines the factors affecting competition in the industry;
shows in which areas your company and its competitors are investing;
contributes to the dialogue of the company's divisions on issues of further development;
activates the dissemination of strategically successful methods and the exchange of experience between departments.

Creating a firm's strategic canvas is not easy. Disagreements are inevitable in the choice of competitive factors and their assessment relative to your firm. Many managers tend to define utility and value in terms of internal users rather than customers.

How to build a company's strategic canvas?

Achieve complete understanding. Visually compare your company with competitors. Let everyone see the big picture and go beyond personal interests. Draw a proposed strategy outline, discuss and compare it with competitors' strategies. Encourage participation and creativity.

Send managers to conduct field research. Let them interact with customers personally and find out exactly how people use your product or service. You should not entrust this to third parties and rely on other people's reports.

Talk to non-customers and find out why your product does not appeal to them. Analyze what alternatives they are currently using. Give this task to two teams. Let everyone offer their own version of the new strategy and slogan.

Hold a concept contest in which each team submits a strategy canvas based on the results of their “field research”. Let each "judge" vote for their favorite concept. This will immediately determine the most successful strategy.

Communicate the approved strategy to the public. Distribute charts to employees that compare the company's old and new strategic profile. Managers should discuss these changes with their subordinates.

Principle 3. Going beyond existing demand

By creating a blue ocean, the company seeks to make it as large as possible, and therefore reduce the risk associated with establishing a service for this market. To do this, try to interest as many non-customers as possible with your offer, which can be divided into three categories.

Level 1 Non-Clients- buyers located on the border of your market. They will abandon your products as soon as something more interesting turns up. Offer them a radically new customer value, and they will buy more often.

Level 1 non-customers include people who use your products because there are no better options. Find something in common between non-customers and "edge" customers, and you will understand what to focus on.

Find out what they like, find out what solutions appeal to them. Often more ideas about opening and expanding the blue ocean come from non-customers than regular customers.

Level 2 non-clients- customers who don't use your product because it's too expensive or complicated. Find out why these people do not buy your products and do not use the goods and services of your industry, and try to find common ground between these reasons.

Level 3 non-customers- Buyers who haven't considered your industry because their needs are in other markets. Try to transcend industry boundaries and tap into a vast ocean of previously untapped demand.

Principle 4. Commitment to the chosen strategy

When developing blue ocean strategies, you need to create a sustainable business model that will effectively implement your idea. It is important to stick to the chosen strategy - this will reduce the possible risks associated with the business model.

Optimal strategic sequence.

Benefit to the buyer.
Affordable price.
Costs and possible profit.
Promotion of the idea and solution of possible problems.

What is the difference between useful goods and services?

They are easy to buy.
They are delivered quickly.
No special training is required to use them.
They do not require expensive ancillary products.
They are easy to service.
They are easy to dispose of at the end of their service life.

It is necessary to determine what price will allow you to quickly conquer the mass market. Enter the market with an offer that buyers can't refuse, and then try to keep that audience.

There is a price band, which is determined by comparing alternative products. If it is difficult for competitors to copy your methods of work, you can set the price near the upper limit of this corridor. But if you are not protected from imitators, it is better to set the price at the lower border of the corridor, limiting the number of competitors. Installation affordable price will launch the word-of-mouth mechanism and make the product popular.

Next, you need to understand whether you will make a profit at the target price. Here you need to build on the strategic price, subtracting the desired profit from it and getting the planned cost, and not determine the price based on costs. The following methods will help to fulfill these stringent requirements.

Rationalization production process and introducing cost-reduction innovations, such as substituting raw materials for non-traditional but more affordable alternatives.

The use of other materials and new production methods, for example, due to more modern and cheaper technologies.

Entering into partnerships with other suppliers that perform production and marketing functions more efficiently. The partnership also allows you to take advantage of the expertise of another company.

Changing the pricing model, such as moving from selling a product to renting or leasing. Some firms have been very successful in providing their products in exchange for an equity stake and a share in future earnings.

Your product will not succeed if people are not ready to accept it. Therefore, it is important to overcome the resistance of the three main groups.

Employees who will unconsciously sabotage any innovation if they see it as a threat to their income.
Business partners who need to be reassured that a new product or service will not impact their revenue or market position.
A general audience that finds it difficult to accept new ideas.

Blue Ocean Strategy Implementation Principles

To implement the blue ocean strategy, it is necessary to direct the activities of the company to its implementation, for which there are two principles.

Principle 1. Overcoming organizational obstacles.

The implementation of the blue ocean strategy faces three obstacles:

most employees are against change;
the company has a limited amount of resources;
employees do not want to change their usual ways of working.

To overcome these obstacles, the “point activation” method helps: the leader focuses on the people and activities on which the work of the entire organization depends.

To convince employees of the need for a change in strategy, make sure that they themselves assess the position in the market and understand that a change is needed. Get employees to talk to dissatisfied customers.

To solve the problem of lack of resources, correctly allocate existing resources. Identify what requires the least investment yet increases the efficiency of the organization, and direct resources to these "hot spots". Exchange unnecessary resources for necessary ones. Identify resource inefficiencies (“cold spots”) Moving resources from cold to hot spots can make a blue ocean strategy much easier to implement.

To encourage employees to adopt better practices, tell them about the future. Do not issue orders obliging everyone to think differently from today.

Work with opinion leaders. Gain the support of powerful people in your company - their willingness to rethink the way they work will convince others.

Promote transparency. Emphasize the importance of participation and honest, open discussion. Explain to employees the need for change. This allows you to smooth out the doubts that arise among ordinary employees.

Break up the task Using the “point activation” technique, break the overall goal into small components that are feasible for the performers.

Ensure support for those who will benefit the most from a change in strategy. Form a broad coalition of change advocates and convince them to support you.

Neutralize those who will lose the most from a change in strategy. Refute the attacks of skeptics with facts and irrefutable logic.

Include a respected, knowledgeable person on your team. This adviser knows the situation from the inside and will help you solve the problems of intra-company intrigue.

Principle 2. Formation of commitment to the strategy.

A blue ocean strategy should be developed through open, collaborative discussion. Seeing that the development of the strategy is carried out with integrity, employees will voluntarily participate in the implementation of the plan in the following stages.

Strategy Development: involve employees in the discussion and explain the essence of the proposed strategy.
Formation of installations: Show your employees that you care about their opinions - this is how you win their trust and loyalty.
Stimulation of desired behavior: Encourage the desire for voluntary participation in the implementation of the strategy.
Implementation of the strategy: create conditions for employees to show personal initiative.

Brand image prevents competitors from borrowing innovative ideas. The realized blue ocean strategy sometimes covers all available demand, so that imitation becomes unprofitable. Patents or licenses can be used to protect against copycats.

When your value curve starts to merge with that of your competitors, you will need to innovate again. Go beyond your strategy canvas and look for a new blue ocean. The long-term success of an organization depends on its ability to repeatedly create blue oceans.

Current page: 1 (total book has 16 pages) [accessible reading excerpt: 9 pages]

blue ocean strategy

How to Create Uncontested Market Space and Make the Competition Irrelevant

W. Chan Kim Renee Mauborgne

HARVARD BUSINESS SCHOOL PRESS BOSTON, MASSACHUSETTS

How to create a free market niche and stop being afraid of competitors

W. Chan Kim Rene Mauborgne

Wu Chang Kim, Rene Mauborgne. Blue ocean strategy.

Per. from English. M.: N1RRO. 2005-272 p.

ISBN 5-98293-077-6 (Russian)

ISBN 1-59139-019-0

This book is written to inspire companies to break out of the scarlet ocean of competition by creating an unoccupied market niche where competitors can not be afraid. Blue ocean strategy proposes to refuse to share existing - and often declining - demand with others, while looking at competitors, and instead devote ourselves to creating growing demand and avoiding competition.

The book not only encourages companies to take this step, but also explains what needs to be done.

This Blue Ocean Strategy book is published under an agreement with Harvard Wimpesh School Press.

Publishing house "HIPPO"

www.hippopublishing.com

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To friends and family who fill our worlds with meaning

Part One: Blue Ocean Strategy

Chapter 1 Creating Blue Oceans 3

Chapter 2 Analytical Tools and Models 23

Part Two: Creating a Blue Ocean Strategy

Chapter 3 Reconstructing Market Boundaries 47

Chapter 4 Focusing on the big picture, not the numbers 83

Chapter 5 Going Beyond Existing Demand 105

Chapter 6 Maintaining the Right Strategic Sequence 121

Part three; Embodiment of the blue ocean strategy

Chapter 7 Overcoming Major Organizational Obstacles 153

Chapter 8 Embedding Implementation in Strategy 179

Chapter 9 Conclusion: Sustainability and Renewal of the Blue Ocean Strategy 195

Annex A 201

Annex B 219

Annex C 223

Notes 227

Bibliography 235

Preface to the edition in Russian

We are very pleased that Blue Ocean Strategy has been translated into Russian and the ideas presented in this book have become available to a Russian-speaking audience. Once we happened to visit Russia. This happened at the end of the 80s, when we arrived in Leningrad, as the current St. Petersburg was still called in those years. We were surprised by the entrepreneurial spirit of those we met then, the inherent energy and desire of Russians to create new economic opportunities.

The question is as follows. How can those who do business in Russia today direct all their energy and intelligence to break out of the competition and create blue oceans of a market space where there is no place for competition? As Russian business can create products and services that provide rapid profitable growth for companies and are available to the mass buyer not only in Russia, but also in other countries of the world?

With global competition intensifying and trade barriers collapsing, answering these questions is more important than ever. The book "Blue Ocean Strategy" presents not only the concept itself, but also provides analytical tools and melodics that every Russian company can apply in any industry - from production industrial products, consumer goods, service delivery, retail, catering and all the way to circus performances to meet this formidable challenge. Thanks to our research over the past fifteen years, we have been able to identify clear strategic models, creating blue oceans that allow us to break out of the vicious circle of competitive wars.

We invite you to read this book and apply its ideas and concepts in practice, in your company, in your enterprise Blue oceans of opportunity lie around us. There is no need to compete when you can turn your energy to the cause of creation. Use the Blue Ocean Strategy to pave the way to new, high-value markets where everyone benefits – companies, consumers and society as a whole. We hope that this book will help the cause of creating a prosperous Russian economy.

Foreword

This book is dedicated to friendship, devotion and faith in each other. It was through friendship and faith that we embarked on a journey, exploring the ideas in this book, and then writing the book itself.

Our acquaintance took place twenty years ago in the classroom - one of us was then a professor, and the other was a student. And since then we have been working together, inspiring and supporting each other. This book is not a victory for an idea, but for a friendship that means more to us than any idea in the business world. Friendship has made our lives richer and our worlds more beautiful. None of us were alone.

There are no easy journeys; there is no friendship filled only with laughter. However, we met every day of our journey with joy, for we strived for knowledge and improvement. We passionately believed in the ideas presented in the book. These ideas are not for those who only dream of surviving. We have never been interested in survival. If your thoughts are only limited by them, do not read further. However, if you want to go the other way, build a company and use it to build a future where customers, employees, shareholders, and society all benefit, read on.

We do not promise you that THIS will be easy, but this path deserves attention.

The results of our research have confirmed that there are no companies that have gone through a path without failure, just as there is no forever successful industry. We have learned from experience that people, like corporations, are sometimes smart and sometimes not. To be more successful, we need to understand how we got the positive result and how we can replicate it systematically. This is what we call smart strategic moves, and, as we have established, the strategic move to create blue oceans is of paramount importance.

The blue ocean strategy aims to encourage companies to break out of the scarlet ocean of competition by creating a market niche for themselves where they can not be afraid of competitors. The blue ocean strategy proposes to refuse to share existing and often declining demand with others, while constantly looking at competitors, and instead devote ourselves to creating new, growing demand and avoiding competition. The book not only encourages companies to take this step, but also explains what needs to be done. First, we offer a set of analytical tools and perspectives that show what systematic actions need to be taken along the proposed path, and then we consider the principles that define blue ocean strategy and distinguish it from competitive strategic approaches.

Our goal is to formulate and implement a blue ocean strategy that is as systematic and efficient as the competition in the red waters of the market we already know is systematic and efficient. Only then can companies take a thoughtful and responsible approach to creating blue oceans, maximizing their opportunities and minimizing risk. No company—regardless of size or age—can afford to turn into a riverboat gambler. It can't—and shouldn't.

This book is the culmination of fifteen years of research and study of data from the past hundred plus years. It was preceded by a series of articles published in the Harvard Business Review and academic publications on various aspects of this topic.

The ideas, models and tools presented in the book have been tested and refined for many years in practice and by various corporations in Europe, the United States and Asia. The book builds on this work and develops it further in a narrative that integrates all of these ideas into a single structure. This structure covers not only the analytical aspects that underlie the blue ocean strategy, but also the equally important points related to people, how to send an organization and its people along this path, how to create a desire in them to bring these ideas to life. We emphasize the importance of understanding how to achieve trust and loyalty, as well as intellectual and emotional recognition. Moreover, this understanding underlies the strategy itself.

The possibilities of blue oceans have always been there - just reach out. As they opened, the market universe expanded. We believe that this expansion is the key to growth. However, both in theory and in practice, people sometimes do not understand how blue oceans can be systematically created and dominated. We invite you to read this book and find out how you yourself can become a driving force in the process of expanding the market space.

Many people have helped us in the creation of this book. INSEAD has provided us with a unique research environment. INSEAD's inherent intersection of theory and practice has brought us many benefits, as has a truly international team of professors, students and senior management trainees there. Deans Antonio Borges, Gabriel Chavavini and Ludo Van der Heyden provided us with moral and practical support from the very beginning and allowed us to closely intertwine research and teaching work. PncewaterhouseCoopers (PwC) and Boston Consulting Group (BCG) provided financial support for our research; Frank Brown and Richard Baird of PwC, as well as René Abat, John Clarkson, George Stock and Oliver Tardy of BCG have been particularly valuable partners for us.

Over the years, we have been assisted by a team of talented researchers, among whom special mention deserves our dedicated colleagues Jason Hunter and Gee Mi, who have worked side by side with us for the past few years. Their dedication, constant support in research, and commitment to excellence have been absolutely indispensable in the writing of this book. We are happy that fate brought us together.

Our colleagues at INSEAD have also contributed to the ideas in this book. The teachers of the school, in particular Subrama-pian Rangai and Ludo Vam der Heyden, helped us in thinking about our ideas, made valuable comments and provided all kinds of support. Many INSEAD educators have shared the ideas and tools presented here with their students—aspiring executives and MBAs—and given us feedback loops that helped us think more clearly. Many others gave us intellectual support and nourished us with benevolent energy. Here we would like to thank, among others, Ron Adner, Jean-Louis Barca, Ven Bensau, Airy-Claude de Costigny, Mike Brimm, Lawrence Capron, Marco Cecaiolli, Karel Kula, Arpode Meie, Ingmar Dierix, Raret Diaz, George Ipeia, Nol Evans. Charlie Galunncha, Annabelle Gower, Haws Himepo, Dominic Eo, Neil Jones. Philippe Lasserre, Jean-Francois Mapzoni, Pence Meyer, Claude Michaud, Deegan Morris, Kai Nguyen-Hai, Subramania on Rangana, Jonathan Storey. Heinz Tanhanzer, Ludo Bai der Heyden, David Yamka, Peter Zemsky and Ming Zen.

We have been fortunate to interact with a large number of practitioners and analysts from around the world. They have been very helpful in illustrating how the ideas in this book work in real life and in preparing case studies for our study. Among these people, Mark Beauvois-Coladon, who has worked with us since the beginning of our work, deserves special mention. Through his experience in implementing our ideas in various companies, he made a significant contribution to the writing of the fourth chapter. Among others, we would like to thank Francis Guillard and his colleagues; Gavin Frazier and colleagues; Wayne Mortsisen; Brian Marks; Kenneth L o; Yasushi Shnina; Jonathan Landry and colleagues; Jupana Jiaiga; Ralph Trombett and his colleagues, Gabor Nart and his colleagues; Shangarama Venkatesh; Miki Kawava and colleagues: Atul Sinha and colleagues; Arnold Itzhak and his colleagues; Volker Westermann and his colleagues; Matty Williamson; as well as Caroline Edwards and her colleagues. We also appreciate our partnership with Accenture, which began with Mark Spelman. Omar Abbosh, Jim Sales and their team. Thanks also to Lucent Technologies for their support

In the course of our research, WE have met with corporate and government officials from all over the world, who have generously donated their time and knowledge to help formulate the ideas contained in this book. We are grateful to all of them. Among the many private and public initiatives to put our ideas into practice, the biggest sources of inspiration and knowledge are the Value Innovation Program (VIP) Center at Samsung Electronics and the Value Innovation Action Tank (VIAT) in Singapore. I would like to give a special mention to Josh-Yoig Yun of Samsung Electronics and all the Permanent Secretaries of the Government of Singapore as great partners. We also extend our warmest thanks to the members of the Value Innovation Network (VIN), the global community that puts the concept of Value Innovation into practice - especially to all those we have not been able to mention here.

Finally, we would like to thank Melinda Merino, our publisher, for her wise comments and editorial review, and the entire staff of Harvard Business School Publishing for their dedication and genuine enthusiasm for supporting us. Thanks to our current and past editors at the Harvard Business Review, especially David Champion, Tom Stewart, Knap Stone, and Joan Magretta. We are deeply indebted to the Masters of Business and PhDs, as well as executives trained at INSEAD. Particularly patient were the Strategy Innovation Study Group and Value Innovation Study Group (VISG), where we tested the ideas in this book. Their challenging questions and meaningful feedback helped us refine and refine our ideas.

PART ONE

Creating Blue Oceans

Former accordionist, acrobat and fire-eater Guy Laliberte is now the head of Cirque du Soleil, one of Canada's largest cultural exporters. Founded in 1984 by a group of street actors, the company has already introduced its productions to almost forty million people in ninety cities around the world. In less than twenty years of its existence, Cirque du Soleil began to achieve such profits that Ringling Bros and Barnum & Bailey, the world champions of the circus industry, managed to achieve only more than a hundred years after their appearance.

This rapid growth is also remarkable in that it took place not in an attractive, but in a declining industry, where the traditional strategic analysis carried out indicated limited growth opportunities. The power of suppliers, represented by the "stars" of performers, was as strong as the power of consumers. Alternative forms of entertainment - from a variety of city shows and sporting events to home entertainment - have increasingly led the circus industry into the shadows. Children begged their parents for money for game consoles, and not for a ticket to a traveling circus. Partly as a result, the circus industry was constantly losing customers and, as a result, falling revenue and income. In addition, animal rights groups increasingly opposed the participation of animals in circus performances. Ringling Bros, and Barnum & Bailey set the tone, and competing small circuses imitated them, creating lower-class versions of their own. In general, from the point of view of competitive strategy, the circus industry looked unattractive.

Another attraction of Cirque du Soleil's success was that the company didn't win by poaching customers from a fading, historically kid-friendly circus industry. Cirque du Soleil did not compete with Ringling Bros, and Barnum & Bailey. Instead, the company has created a new, unoccupied market space, free from competitors. It was aimed at a completely new group of consumers: adults and corporate clients who were willing to pay several times more than a ticket to a regular circus in order to see a new, unparalleled performance. The name of one of the first projects of Cirque du Soleil spoke for itself: "We are reinventing the circus."

New market space

Cirque du Soleil succeeded because it understood that in order to win in the future, companies need to stop competing with each other. The only way to beat the competition is to stop trying to win.

To understand what Cirque du Soleil has achieved, imagine a market universe made up of two oceans: red and blue. The scarlet oceans symbolize all the industries that exist at the moment. This is the part of the market we know. Blue oceans represent all industries that do not yet exist today. These are unknown areas of the market.

In the red oceans, the boundaries of the industry are defined and agreed upon, and the rules of the game of competition are known to all 1 . Here, companies are trying to outperform their rivals in order to win over most of the existing demand. As the market gets tighter, there are fewer opportunities for growth and profit. Products turn into consumer goods, and ruthless competitors cut each other's throats, flooding the scarlet ocean with blood.

Blue oceans, on the other hand, represent untapped market areas, require creativity, and provide opportunities for growth and high profits. Although some blue oceans are created outside the established boundaries of the industry, most of them do occur inside the red oceans, pushing the already existing industry boundaries - like Cirque du Soleil did. In the blue oceans, competition does not threaten anyone, since the rules of the game have yet to be established.

In the red oceans, the most important thing is always the ability to swim, overtaking your competitors. The red oceans will never lose their significance and remain a fact of business life. However, as supply begins to outstrip demand in a wide variety of industries, while it is necessary to compete for market share, it is no longer enough to sustain growth 2 . Companies need to move beyond competition. To generate new profits and opportunities for further development, they need to create blue oceans.

Alas, maps of blue oceans are practically non-existent. All strategic approaches of the last twenty-five years have been focused primarily on competition in red oceans 3 . As a result, we are well versed in how to deal with competitors in red waters, from analyzing the underlying economic structure of the industry, choosing a strategic position - low cost, differentiation or focus - and all the way to competitive benchmarking. The debate about blue oceans is ongoing 4 . However practical guides there is very little to create such oceans. Without appropriate analytical tools and developed principles effective management The risks of creating blue oceans remain something of a dream and seem to managers to be an overly risky strategy. This book offers you just that. practical schemes and analytical tools to systematically search for and conquer blue oceans.

Blue oceans have always been created

Although the term "blue oceans" new enough, you can’t say the same about the oceans themselves. They are an integral part of the business world of the past and present. Look at the world of a hundred years ago and ask yourself; how many current industries were then unknown to anyone? The answer is that such fundamental industries as automotive, sound recording, aviation, oil refining, healthcare and management consulting were then unheard of, in best case these areas were just beginning to emerge. Now let's move the arrow back only thirty years. Again, there are a huge number of multi-billion dollar industries such as investment funds, cell phones, gas-fired power plants, biotechnology, discount retail, courier delivery of mail, minivans, snowboards, coffee bars and home video recorders - and that's not all. Just three decades ago, none of these industries really existed.

Now let's move the clock forward twenty or fifty years and ask ourselves how many industries unknown today will appear then. If, based on historical experience, it is possible to predict the future, the answer is unambiguous - there will be a lot of them.

The truth is, industries never stand still. They are constantly evolving. Their work is improving, markets are growing, and players come and go. From the lessons of history, it becomes clear that we have a seriously underestimated opportunity to create new industries and recreate existing ones. Even the Standard Industrial Classification (SIC) system proposed by U.S. Census, in 1997 gave way to the North America Industry Classification Standard (NAICS). Under the new system, the ten industry sectors proposed by the SIC have been turned into twenty to represent new emerging industries 5 . For example, the service sector, which was old system, has now been reorganized into seven business sectors ranging from information to healthcare, and a social welfare sector has also emerged 6 . Given that these systems are designed to standardize and maintain continuity, these changes are indicative of how significant the expansion of the blue oceans has been.

However, until now, the main focus of strategic thinking has been on competitive red ocean strategies. This is partly because corporate strategy is strongly influenced by its progenitor, military strategy. The very language of strategy is thickly saturated with military terms: Chief Executive Officers are in the Headquarters, and Troops are in the Front Line. Described in such terms, the strategy is aimed at confronting the enemy and fighting for a limited piece of land of a strictly defined size 7 . However, unlike the war, the history of industry shows that the market universe was never strictly limited; on the contrary, blue oceans were constantly created in it. Thus, to focus on the red ocean meant to accept the basic factors of war (limitation of space and the need to defeat the enemy in order to survive) and deny obvious advantage business world: the possibility of creating a unique market space where there will be no competitors.

Impact of blue oceans

In a study of the business ventures of 108 organizations, we attempted to quantify the impact of blue oceans on profits and revenues (see Figure 1-1). It turned out that 86 percent of the initiatives were linear expansion, that is, they implied gradual improvements within the red oceans of the available market space. They accounted for only 62 percent of total revenue and 39 percent of total profits. The remaining 14 percent of initiatives were aimed at creating blue oceans. They generated 38 and 61 percent, respectively. Considering that business ventures included all investments made in the creation of red and blue oceans (regardless of the size of their income and profits, including completely unsuccessful projects), then the benefits of creating a blue ocean are obvious. While we don't have data on the success rates of red and blue ocean initiatives, the global differences in performance above speak for themselves.

Growing need for blue oceans

There are several driving forces behind the growing need for blue oceans. Advances in technology have greatly increased productivity and enabled suppliers to produce unprecedented volumes of products and services. As a result, it turns out that in various industries, supply is increasingly exceeding demand 8. The situation is aggravated by globalization trends. As borders between countries and regions blur, and product and price information instantly spreads around the world, niche markets and monopoly areas continue to disappear 9 . Supply is rising under the influence of global competition, but there is no evidence of demand growth around the world, statistics even point to a decrease in the number of participants in many developed markets 10.

The result has been an ever-increasing conversion of goods and services into commodities, intensifying price wars and declining profits. Recent studies of major American brands within the same industry have confirmed this trend 11 . According to research, brands in major categories of goods and services are becoming more similar to each other, and as their similarity grows, people increasingly make their choice based on price 12 . Unlike in the past, the consumer no longer intends to wash exclusively with Tide. And he won't cling to Colgate if they announce a sale of Cross pasta at discounted prices - and vice versa. In manufacturer-clogged areas, it is becoming increasingly difficult to distinguish between brands in both economic ups and downs.

All of this means that the business environment that gave rise to much of the twentieth century's strategic and managerial approaches is slowly disappearing. There is more and more blood in the red oceans, and leaders should pay more attention to blue oceans than to those to which the whole host of current managers are so accustomed.

From company and industry to strategic move

How can a company break out of the scarlet ocean of fierce competition? How can she create a blue ocean? Is there a systematic approach that can ensure that the company achieves this goal and thereby maintain high performance?

When we started looking for answers, our first step was to define a basic unit of analysis for our research. To understand this, where high performance comes from, the business literature usually uses the company as the main unit of analysis. People never cease to marvel at how companies achieve significant growth and profitability with an exquisite set of strategic, operational and organizational characteristics. However, we asked ourselves another question: are there “exceptional” or “visionary” long-lived companies that constantly outperform the market and creating blue oceans again and again?

Take, for example, books "In Search of Excellence" (In Search of Excellence) and "Built to Last" (Bwh To Last) 13 . Best-seller "In Search of Perfection" was published twenty years ago. However, two years after its publication, some of the companies studied by the author - Atari, Cheseborough Pond's, Data General, Fluor, National Semiconductor - have sunk into oblivion. As they say in "The Art of Management at the Turn of the Century" (Managing on the Edge) two-thirds of the exemplary companies listed in the book lost their position as industry leaders within five years of this work's publication.

Book "Built to Last" continued the same topic. In it, the author sought to identify the “successful habits of companies with vision” and a long track record of high performance. However, in order to avoid the mistakes made in the book In Search of Excellence, the study period in the book "Built to Last" has been expanded to life cycle companies and only companies that had already existed for at least forty years were analyzed "Built to Last" also became a bestseller.

Once again, however, a closer look revealed some of the flaws of the visionary companies discussed in the book. As shown in a recent work, Creative Destruction" (Creative Desiiuction), a large part of the successes that the author "Built forever” attributed to exemplary companies were more the result of the activities of the entire industry than the fruits of the labors of the companies themselves 15 . For example, Hewlett-Packard (HP) met the criteria in the book "Built to Last" because it has been ahead of the market for a long time. In practice, the entire computer components industry was ahead of the market at the same time as HP. What's more, HP didn't even outperform all of its competitors within the industry. Pay attention to this and other examples, the authors of the book “ Creative Destruction" wondered if there were any “visionary” companies that were ahead of the market for a long time? Besides, Everybody we had the opportunity to observe the stagnation or decline in the activities of Japanese companies, which, at the time of their heyday, in the late 1970s and early 1980s, enjoyed the glory of "revolutionary" strategists.

If, on the other hand, there are no ever-high-performing companies, and if the same company alternately achieves unparalleled success and declines, it turns out that the company cannot be considered an appropriate unit of analysis in the study of sources of high efficiency and blue oceans.

As discussed above, history also shows that industries have never ceased to emerge and expand, and that the conditions and boundaries of an industry are not fixed, but set by individual actors. Companies don't need to clash head-on in one industry space or another, Cirque du Soleil has created a new market space in the entertainment sector and has achieved strong profit growth as a result. It turns out that neither the company nor the industry can be considered the optimal unit for analyzing the sources of profitable growth.

The blue ocean strategy focuses on creating new markets during product development and improvement. The concept applied in this case is formulated in such a way as to encourage managers to focus on creating those markets that no one claims so far, that is, not contested with other participants.

In most strategic models, the focus is on achieving competitive advantages, that is, the main thing in them is to find an answer to the question of how to act better than rivals. In the blue ocean strategy model, the idea of getting ahead of other market participants is not dominant. On the contrary, it highlights the fact that competition means nothing in creating blue ocean opportunities. Blue oceans, in this case, are uncontested market territories in which the company satisfies new customer needs (Kim and Mauborgne, 1997). For comparison, you can use the idea of the "red ocean", in the "waters" of which the rivals are constantly acting in such a way as to weaken each other.

Blue and red ocean strategies

red ocean strategy	blue ocean strategy
Compete in an already existing market space Defeat competitors Take advantage of existing demand Look for a compromise, the most acceptable option in terms of price / quality ratio Align the entire system of operations of the company with its strategic choice to achieve cost differentiation or low costs	Create an uncontested market space Get rid of the competition Create new demand and meet it Offer a better compromise option in terms of price / quality ratio Align the entire system of company operations so as to achieve both cost differentiation and low costs

The blue ocean strategy model encourages an organization to be innovative and influences what the underlying stakes are when developing a strategy. Instead of looking at competitors' performance as a benchmark, managers look beyond existing markets to find new opportunities to create new value for consumers. Without trying to directly beat competitors, managers under this option should actively develop their business and do it in such a way as to offer consumers new products and services and develop new market spaces (Kim and Mauborn, 2005).

When to Apply the Model

Blue ocean strategy gives the process of strategic management a more pronounced focus. When applying a development strategy, the task of getting ahead of competitors is often put in the first place. This approach inevitably leads to the scenario of the "red ocean", in the "waters" of which the rivals are constantly fighting with each other, because of which they themselves weaken. In order for strategy development to focus on creating blue oceans, the management team must answer four questions (Kim and Mauborgne 1997).

What factors that are accepted in the industry should actually be abandoned?
What factors should be substantially reduced from industry standards?
What factors should be significantly strengthened relative to industry standards?
What factors that have never been applied in the industry should be created?

During this process, it is very important to focus primarily on what consumers value, and not on competitors or core competencies. To do this, it is better to start from scratch. Having received answers to these questions, you can propose a completely new concept for a product or products. Thanks to this approach, the so-called value curve may appear, which shows how exactly the value of a new product differs from the value of goods and services already offered on the market (Kim, Mauborn, 1997).

With this process, you can create two kinds of blue oceans, i.e. you can propose a completely new industry or develop new opportunities for an existing industry, which will expand its strategic boundaries. Most blue oceans are created in this way.

How to use the model

The blue ocean strategy does not have a clear sequence of actions and therefore it is not so easy to implement it in practice. However, this strategy can be used to give some direction to strategic development (this can be achieved if you get answers to the questions listed above). In any case, the essence of the blue ocean strategy is determined by six key principles, which can be considered guiding, and therefore must be taken into account when managing the six main types of risk inherent, as a rule, in a new product development strategy, namely research risks, planning risks, risks of scale-up, risks associated with business models, organizational and managerial risks (Kim and Mauborn, 2005). The six core principles that characterize the blue ocean strategy can collectively be considered a guide to its implementation and used to create unchallenged markets. Let's briefly reveal the essence of these principles.

Delineate the boundaries of the market, i.e. identify the limits of commercially attractive "blue oceans" in which research risk is minimal.
Pay more attention to the big picture than to individual indicators; control planning risks by focusing on the evidence.
Go beyond existing demand; control the risk of scaling up by generating the greatest demand for a new supply.
Select correct sequence strategic steps; reduce the risk associated with business models, which can be achieved by betting on the creation of a reliable model focused on long-term profit.
Overcome the main obstacles of an organizational nature; reduce the organizational risk that comes with implementing a blue ocean strategy.
Include implementation issues in the strategy; focus on motivational aspects and use the competencies of workers in the implementation of the blue ocean strategy, as this will help you eliminate the threats of managerial risk.

findings

The blue ocean strategy model is essentially theoretical and may come as a revelation to many managers. However, this model primarily describes only what needs to be done (at an abstract level), but does not show how to do it. In other words, this model and the ideas associated with it are descriptive, not prescriptive or prescription. Moreover, the examples cited by Kim and Mauborgne as successful innovations that are related to this idea are considered by these authors through a “blue ocean lens” as a whole, and not based on the more rigorous measures of this model.

Although Kim and Mauborgne have made notable and valuable contributions to the strategic management literature, not all companies should use the model they proposed. A blue ocean strategy may be acceptable to many companies, but others may benefit from other strategies such as fast-tracking, cost leadership, differentiation, or focus (Porter, 1979). Of course, it is necessary to note the important discovery of Kim and Mauborn that companies can simultaneously achieve cost differentiation and low costs.

Our goal is to formulate and implement a blue ocean strategy that is as systematic and efficient as the competition in the red waters of the market we already know is systematic and efficient. Only then can companies take a thoughtful and responsible approach to creating blue oceans, maximizing their opportunities and minimizing risk. No company - regardless of size or age - can afford to turn into a gambler from a river steamer. It can't - and shouldn't.

Our colleagues at INSEAD have also contributed to the ideas in this book. The teachers of the school, in particular Subrama-pian Rangai and Ludo Vam der Heyden, helped us in thinking about our ideas, made valuable comments and provided all kinds of support. Many INSEAD educators have shared the ideas and tools presented here with their students—aspiring executives and MBAs—and provided us with feedback loops that helped us think more clearly. Many others gave us intellectual support and nourished us with benevolent energy. Here we would like to thank, among others, Ron Adner, Jean-Louis Barca, Ven Bensau, Airy-Claude de Costigny, Mike Brimm, Lawrence Capron, Marco Cecaiolli, Karel Kula, Arpode Meie, Ingmar Dierix, Raret Diaz, George Ipeia, Nol Evans. Charlie Galunncha, Annabelle Gower, Haws Himepo, Dominic Eo, Neil Jones. Philippe Lasserre, Jean-Francois Mapzoni, Pence Meyer, Claude Michaud, Deegan Morris, Kai Nguyen-Hai, Subramania on Rangana, Jonathan Storey. Heinz Tanhanzer, Ludo Bai der Heyden, David Yamka, Peter Zemsky and Ming Zen.

In the course of our research, WE have met with corporate and government officials from all over the world, who have generously donated their time and knowledge to help formulate the ideas contained in this book. We are grateful to all of them. Among the many private and public initiatives to put our ideas into practice, the biggest sources of inspiration and knowledge are the Value Innovation Program (VIP) Center at Samsung Electronics and the Value Innovation Action Tank (VIAT) in Singapore. I would like to give a special mention to Josh-Yoig Yun of Samsung Electronics and all the Permanent Secretaries of the Government of Singapore as great partners. Our warmest thanks go also to the members of the Value Innovation Network (VIN), the global community that puts the concept of Value Innovation into practice - in particular to all those we have not been able to mention here.

PART ONE

Creating Blue Oceans

Former accordionist, acrobat and fire-eater Guy Laliberte is now the head of Cirque du Soleil, one of Canada's largest cultural exporters. Founded in 1984 by a group of street actors, the company has already introduced its productions to almost forty million people in ninety cities around the world. In less than twenty years of its existence, Cirque du Soleil began to receive such profits, which Ringling Bros and Barnum & Bailey, the world champions of the circus industry, managed to achieve only more than a hundred years after their appearance.

This rapid growth is also remarkable in that it took place not in an attractive, but in a declining industry, where the traditional strategic analysis carried out indicated limited growth opportunities. The power of suppliers, represented by the "stars" of performers, was as strong as the power of consumers. Alternative forms of entertainment - from a variety of city shows and sporting events to home entertainment - more and more led the circus industry into the shadows. Children begged their parents for money for game consoles, and not for a ticket to a traveling circus. Partly as a result, the circus industry was constantly losing customers and, as a result, falling revenue and income. In addition, animal rights groups increasingly opposed the participation of animals in circus performances. Ringling Bros, and Barnum & Bailey set the tone, and competing small circuses imitated them, creating lower-class versions of their own. In general, from the point of view of competitive strategy, the circus industry looked unattractive.