Notes

Formulating and Executing
Blue Ocean Strategy
Although economic conditions indicate the rising imperative of
blue oceans, there is a general belief that the odds of success are
lower when companies venture beyond existing industry space. The
issue is how to succeed in blue oceans. How can companies systematically
maximize the opportunities while simultaneously minimizing
the risks of formulating and executing blue ocean strategy? If
you lack an understanding of the opportunity-maximizing and riskminimizing
principles driving the creation and capture of blue oceans,
the odds will be lengthened against your blue ocean initiative.
Of course, there is no such thing as a riskless strategy. Strategy
will always involve both opportunity and risk, be it a red ocean or a
blue ocean initiative. But at present the playing field is dramatically
unbalanced in favor of tools and analytical frameworks to
succeed in red oceans. As long as this remains true, red oceans will
continue to dominate companies’ strategic agenda even as the business
imperative for creating blue oceans takes on new urgency. Perhaps
this explains why, despite prior calls for companies to go
beyond existing industry space, companies have yet to act seriously
on these recommendations.
This book seeks to address this imbalance by laying out a methodology
to support our thesis. Here we present the principles and analytical
frameworks to succeed in blue oceans.
Chapter 2 introduces the analytical tools and frameworks that
are essential for creating and capturing blue oceans. Although
supplementary tools are introduced in other chapters as needed,
these basic analytics are used throughout the book. Companies
can make proactive changes in industry or market fundamentals
through the purposeful application of these blue ocean tools and
frameworks, which are grounded in the issues of both opportunity
and risk. Subsequent chapters introduce the principles that drive
the successful formulation and implementation of blue ocean strategy
and explain how they, along with the analytics, are applied in
action.
There are four guiding principles for the successful formulation
of blue ocean strategy. Chapters 3 to 6 address these in turn. Chapter
3 identifies the paths by which you can systematically create uncontested
market space across diverse industry domains, hence
attenuating search risk. It teaches you how to make the competition
irrelevant by looking across the six conventional boundaries of
competition to open up commercially important blue oceans. The
six paths focus on looking across alternative industries, across
strategic groups, across buyer groups, across complementary product
and service offerings, across the functional-emotional orientation
of an industry, and even across time.
Chapter 4 shows how to design a company’s strategic planning
process to go beyond incremental improvements to create value innovations.
It presents an alternative to the existing strategic planning
process, which is often criticized as a number-crunching
exercise that keeps companies locked into making incremental improvements.
This principle tackles planning risk. Using a visualizing
approach that drives you to focus on the big picture rather than
to be submerged in numbers and jargon, this chapter proposes a
four-step planning process whereby you can build a strategy that
creates and captures blue ocean opportunities.
Chapter 5 shows how to maximize the size of a blue ocean. To
create the greatest market of new demand, this chapter challenges
the conventional practice of aiming for finer segmentation to better
meet existing customer preferences. This practice often results
in increasingly small target markets. Instead, this chapter shows
you how to aggregate demand, not by focusing on the differences
that separate customers but by building on the powerful commonalities
across noncustomers to maximize the size of the blue ocean
being created and new demand being unlocked, hence minimizing
scale risk.
Chapter 6 lays out the design of a strategy that allows you not
only to provide a leap in value to the mass of buyers but also to
build a viable business model to produce and maintain profitable
growth for itself. It shows you how to ensure that your company
builds a business model that profits from the blue ocean it is creating.
It addresses business model risk. The chapter articulates the
sequence in which you should create a strategy to ensure that
both you and your customers win as you create new business terrain.
Such a strategy follows the sequence of utility, price, cost,
and adoption.
Chapters 7 and 8 turn to the principles that drive effective execution
of blue ocean strategy. Specifically, chapter 7 introduces what
we call tipping point leadership. Tipping point leadership shows
managers how to mobilize an organization to overcome the key organizational
hurdles that block the implementation of a blue ocean
strategy. It deals with organizational risk. It lays out how leaders
and managers alike can surmount the cognitive, resource, motivational,
and political hurdles in spite of limited time and resources
in executing blue ocean strategy.
Chapter 8 argues for the integration of execution into strategy
making, thus motivating people to act on and execute a blue ocean
strategy in a sustained way deep in an organization. This chapter
introduces what we call fair process. Because a blue ocean strategy
perforce represents a departure from the status quo, this chapter
shows how fair process facilitates both strategy making and execution
by mobilizing people for the voluntary cooperation needed to
execute blue ocean strategy. It deals with management risk associated
with people’s attitudes and behaviors.
Figure 1-4 highlights the six principles driving the successful
formulation and execution of blue ocean strategy and the risks that
these principles attenuate.
Chapter 9 discusses the dynamic aspects of blue ocean strategy—
the issues of sustainability and renewal.
Let’s now move on to chapter 2, where we lay out the basic analytical
tools and frameworks that will be used throughout this book
in the formulation and execution of blue ocean strategy.