Simply put, Blue Ocean Strategy is an approach to business strategy that looks at providing the same or augmented goods in uncontested market space. This is achieved by redefining the market and questioning current assumptions about competitive factors. The term was coined in a 2005 book by Kim and Mauborgne of the same name.
Blue Ocean Strategy has come up again and again with the clients I work with as an effective, process-drive way to think outside the box. This a brief guide to the main principles, tools and methods to help you think about Blue Ocean Strategy in your business context.
Tools & Frameworks
The strategy canvas is the cornerstone of Blue Ocean thinking. It allows you to set out the key competitive factors in your industry and map your current performance and competitors performance against each. This canvas can then be used a basis to set out a new strategy that changes your approach to some of these key factors.
The given example in the book is of Yellow Tail wine. …
<strategy canvas graph>
As articulated by Kim and Mauborgne, ‘to fundamentally shift the strategy canvas of an industry, you must begin by reorienting your strategic focus from competitors to alternatives, and from customers to non-customers of the industry’.
Sounds complex, right? Luckily the authors provide the 4-actions framework to assist with this process. This framework which of the industry factors should be reduced, which should be eliminated altogether, which should be raised above current norms and which should be created, or introduced to the industry.
This is the process through which you can alter your strategy curve on the canvas and move to uncontested space. Reduce and Eliminate help you to lower your cost structure in the business, and Raise and Create help you to provide new value to customers and create demand.
Formulating Blue Ocean Strategy
Reconstruct Market Boundaries
This is the first principle of Blue Ocean Strategy which limits the search risk of adopting a new strategy. The authors put forward six paths that reconstruct market boundaries regardless of your sector. Briefly, these are:
- Look across alternative industries
- Look across strategic groups within industries
- Look across the chain of buyers
- Look across complementary product and service offerings
- Look across functional or emotional appeal to buyers
- Look across time
Focus On The Big Picture
This step involves building a new strategy canvas, while leaving traditional strategic tools out of the picture. This a big topic, and a difficult process, as even identifying and agreeing the key competitive factors in your business can be contentious.
However, Kim and Mauborgne have outlined a 4-step process to visualizing strategy:
- Visual Awakening – draw your current value curve and see where it needs to change
- Visual Exploration – explore the 6 paths to blue oceans and decide which factors you should eliminate, create or change.
- Visual Strategy Fair – draw your ideal strategy canvas and get feedback from stakeholders
- Visual Communication – distribute your before and after curves to illustrate the new strategic direction of the business
Reach Beyond Existing Demand
The conventional wisdom is to compete by focusing marketing efforts on tightly defined market segments. This means the target market gets ever smaller and makes it more difficult to achieve major gains in sales and profits.
For Blue Ocean Strategy to work, businesses need to look at non-customers of the industry, and the commonalities they have, thereby opening up huge new markets.
There are 3 groups of non-customers that be turned into customers.
- Soon-to-be: These sit on the edge of the market, but are generally not customers of the industry
- Refusing: These are buyers who could use your industries offerings as a way to fulfil their needs, but have chosen against it.
- Unexplored: These are buyers that are completely unrelated to your current market.
Get The Strategic Sequence Right
Once you have developed a Blue Ocean Strategy the next step is to assess it’s commercial viability:
- Is there exceptional buyer utility in your business idea?
- Is your price acceptable to your blue ocean buyers?
- Can you achieve your targeted cost and profit levels at that price?
- Are you addressing any obstacles to your business idea up front?
Each question tackles utility, price, cost and adoption in that order. When you can answer yes to each of these you likely have a viable Blue Ocean Strategy.
Executing Blue Ocean Strategy
Overcoming Organizational Challenges
Theorizing a novel, blue ocean approach to business strategy is one thing, executing it effectively is quite another. The challenge of strategy execution is common across both red and blue oceans, but with the additional burden of breaking the status quo in the blue ocean.
Kim and Mauborgne posit 4 categories of challenges:
- Cognitive – overcoming the objection – ‘but this is the way we have always done it!’
- Resource – overcoming real or perceived resource limitations. It can be difficult to quantify fully the resources needed for a new strategy
- Motivational – realigning employees efforts to focus on the new strategy. Dan Pink asserts that giving staff mastery, autonomy and purpose in their work is the key to a motivated workforce
- Political – overcoming opposition from other decision makers in the business who may not share the same vision
As you can see, a deep understanding of organizational behavior and strategic HRM is vital to strategic success.
Build Execution Into Strategy
Getting all staff on-board with a new strategic vision is difficult. To get your colleagues working with you, and not against you, follow these 3 principles.
- Engagement – get them involved as much as possible when developing and executing the strategy.
- Explanation – for staff not directly involved in the strategy development process, provide a detailed explanation of the new strategy and why it has been chosen.
- Expectation – clarify what will be expected of staff. Uncertainty leads to poor performance.
So there you have it; a whistle-stop tour of Blue Ocean Strategy. Hopefully this has helped you to re-think your own business strategy and focus on working smarter, not harder.
If you want to find out more about Blue Ocean Strategy I would highly recommend picking up the book. It isn’t a taxing read and should give you all you need to formulate strategy in your organization.