Notes

From Company and Industry to Strategic Move
How can a company break out of the red ocean of bloody competition?
How can it create a blue ocean? Is there a systematic approach
to achieve this and thereby sustain high performance?
In search of an answer, our initial step was to define the basic
unit of analysis for our research. To understand the roots of high
performance, the business literature typically uses the company as
the basic unit of analysis. People have marveled at how companies
attain strong, profitable growth with a distinguished set of strategic,
operational, and organizational characteristics. Our question,
however, was this: Are there lasting “excellent” or “visionary”
companies that continuously outperform the market and repeatedly
create blue oceans?
Consider, for example, In Search of Excellence and Built to Last.
The bestselling book In Search of Excellence was published twenty
years ago. Yet within two years of its publication a number of the
companies surveyed began to slip into oblivion: Atari, ChesebroughPond’s,
Data General, Fluor, National Semiconductor. As documented
in Managing on the Edge, two-thirds of the identified model
firms in the book had fallen from their perches as industry leaders
within five years of its publication.
The book Built to Last continued in the same footsteps. It sought
out the “successful habits of visionary companies” that had a longrunning
track record of superior performance. To avoid the pitfalls
of In Search of Excellence, however, the survey period of Built to
Last was expanded to the entire life span of the companies while its
analysis was limited to firms more than forty years old. Built to
Last also became a bestseller.
But again, upon closer examination, deficiencies in some of the
visionary companies spotlighted in Built to Last have come to light.
As illustrated in the recent book Creative Destruction, much of the
success attributed to some of the model companies in Built to Last
was the result of industry sector performance rather than the
companies themselves. For example, Hewlett-Packard (HP) met
the criteria of Built to Last by outperforming the market over the
long term. In reality, while HP outperformed the market, so did the
entire computer-hardware industry. What’s more, HP did not even
outperform the competition within the industry. Through this and
other examples, Creative Destruction questioned whether “visionary”
companies that continuously outperform the market have ever existed.
And we all have seen the stagnating or declining performance
of the Japanese companies that were celebrated as “revolutionary”
strategists in their heyday of the late 1970s and early 1980s.
If there is no perpetually high-performing company and if the
same company can be brilliant at one moment and wrongheaded at
another, it appears that the company is not the appropriate unit of
analysis in exploring the roots of high performance and blue oceans.
As discussed earlier, history also shows that industries are constantly
being created and expanded over time and that industry
conditions and boundaries are not given; individual actors can
shape them. Companies need not compete head-on in a given industry
space; Cirque du Soleil created a new market space in the entertainment
sector, generating strong, profitable growth as a result. It
appears, then, that neither the company nor the industry is the best
unit of analysis in studying the roots of profitable growth.
Consistent with this observation, our study shows that the
strategic move, and not the company or the industry, is the right
unit of analysis for explaining the creation of blue oceans and sustained
high performance. A strategic move is the set of managerial
actions and decisions involved in making a major market-creating
business offering. Compaq, for example, was acquired by HewlettPackard
in 2001 and ceased to be an independent company. As a result,
many people might judge the company as unsuccessful. This
does not, however, invalidate the blue ocean strategic moves that
Compaq made in creating the server industry. These strategic
moves not only were a part of the company’s powerful comeback in
the mid-1990s but also unlocked a new multibillion-dollar market
space in computing.
Appendix A, “A Sketch of the Historical Pattern of Blue Ocean
Creation,” provides a snapshot overview of the history of three representative
U.S. industries drawn from our database: the auto industry—how
we get to work; the computer industry—what we use
at work; and the cinema industry—where we go after work for enjoyment.
As shown in appendix A, no perpetually excellent company
or industry is found. But a striking commonality appears to
exist across strategic moves that have created blue oceans and have
led to new trajectories of strong, profitable growth.
The strategic moves we discuss—moves that have delivered products
and services that opened and captured new market space, with
a significant leap in demand—contain great stories of profitable
growth as well as thought-provoking tales of missed opportunities
by companies stuck in red oceans. We built our study around these
strategic moves to understand the pattern by which blue oceans are
created and high performance achieved. We studied more than one
hundred fifty strategic moves made from 1880 to 2000 in more than
thirty industries, and we closely examined the relevant business
players in each of these events. Industries ranged from hotels, the
cinema, retail, airlines, energy, computers, broadcasting, and construction
to automobiles and steel. We analyzed not only winning
business players who created blue oceans but also their less successful
competitors.
Both within a given strategic move and across strategic moves,
we searched for convergence among the group that created blue
oceans and within less successful players caught in the red ocean.
We also searched for divergence across these two groups. In so
doing, we tried to discover the common factors leading to the creation
of blue oceans and the key differences separating those winners
from the mere survivors and the losers adrift in the red ocean.
Our analysis of more than thirty industries confirms that neither
industry nor organizational characteristics explain the distinction
between the two groups. In assessing industry, organizational, and
strategic variables we found that the creation and capturing of blue
oceans were achieved by small and large companies, by young and
old managers, by companies in attractive and unattractive industries,
by new entrants and established incumbents, by private and
public companies, by companies in low- and high-tech industries,
and by companies of diverse national origins.
Our analysis failed to find any perpetually excellent company or
industry. What we did find behind the seemingly idiosyncratic success
stories, however, was a consistent and common pattern across
strategic moves for creating and capturing blue oceans. Whether it
was Ford in 1908 with the Model T; GM in 1924 with cars styled to
appeal to the emotions; CNN in 1980 with real-time news 24/7; or
Compaq, Starbucks, Southwest Airlines, or Cirque du Soleil—or,
for that matter, any of the other blue ocean moves in our study—the
approach to strategy in creating blue oceans was consistent across
time regardless of industry. Our research also reached out to embrace
famous strategic moves in public sector turnarounds. Here
we found a strikingly similar pattern.