Blue Ocean Strategy

Blue Ocean Strategy is a book written by W. Chan Kim and Renée Mauborgne.  Unlike some of the previous business books written about, this one was selected by me.  There were a few different conversations about it at work which led me to believe that it was worth learning about.  Having read it over the last few weeks, I know feel fairly well informed about the strategy and what makes it different from existing methods.

The most basic idea is that instead of competing in an existing market (“ocean”), why not create a new market to work with.  By redefining the market space, the company can be the first to provide products and services.  However, it is not just about creating something different.  It is also about creating value innovation for the customers.  This means that the product or service needs to fit a strategy canvas that keeps both the company and the customer happy.  True value comes from stopping certain activities while growing new ones.  The different strategies can be plotted against an X-Y axis and compared to other companies.  The overall difference is that the company with the blue ocean strategy is going to look a lot lower in certain strategies but much higher than others.

The tricky part is figuring out what needs to be readjusted. The book spends much time explaining how to target the strategy canvas.  As an example,  Southwest Airlines created a blue ocean by dropping traditional airline features like meals, lounges, seating choices, and hubs.  It instead focused on friendly service, speed, and frequent point to point departure.  This shift in focus reduced their cost base while increasing their demand based on what customers wanted most.  Instead of raising prices, Southwest instead found the most appropriate price for the customer while still guaranteeing a profit.  The assigning of price and costs is very important for the success of the business.  Setting the price too high hurts demand while also encouraging competition.  Setting the price too low with little or no profits guarantees that the business will not survive.

I was most skeptical about the idea related to keeping the ocean blue.  Nothing would be stopping a newcomer from entering the market later on.  However, this is where the blue ocean strategy shines.  Not only are you the first to enter that market, but if you set the price correctly from the start, you will discourage any other companies from doing the same.  Existing companies will not want to change their strategy canvases to match.  It is very hard to stop doing things that everyone expects is going to continue even if it does not make sense.

There is no easy way to do justice to all the things said.  Perhaps there will be more posts about Blue Ocean Strategy in the future like what was done for “Good To Great”.

About Jeff Muir

Live near Brisbane, Australia. Software developer currently focused on iOS and Android. Avid Google Local Guide