Book Summary — Blue Ocean Strategy

🚀 The Book in 3 Sentences

1. Propose a framework to avoid competition in an existing market.
2. From planning to execution blue ocean strategy.
3. Several use cases and great virtualization

🎨 Impressions

I am impressed with the blue ocean strategy. It teaches readers to think out of the box systematically. Examples in this book are interesting and can support the content perfectly.

🙎‍ Who Should Read It?

I would recommend this book for the entrepreneur who wants to avoid competition in the red ocean. It provides a framework to apply to any business. Anyway, this book can also be read by anyone since there is not many of technical term and writers explain it quite well.

📒 Summary + Notes

📖 Meaning

• Red ocean = existing market space.
• Blue ocean = new market space.
• While the red ocean strategy focuses on competition, the blue ocean strategy creates an uncontested market and captures new demand.
• Blue ocean strategy breaks value-cost trade-off by using value innovation which reduces cost but increases value.
• Examples of the past blue ocean: mobile phone, music recording
• Driving force: technology, global data connection

🛠️ Create a blue ocean

Strategy canvas

source: https://www.blueoceanstrategy.com/tools/strategy-canvas/

This graph illustrates a big picture comparing the existing industry and blue ocean strategy you would like to adopt.

It captures which factors that could create a new market.

Four-action framework

• Eliminate factors that are not related to customer value
• Raise factors you would like to focus on
• Reduce factors that you don’t focus on to save cost
• Create new factors to capture customer demand

After identifying 4 actions, summarizing into the eliminate-raise-reduce-create grid to make it easy to understand.

3 characteristics of a good strategy

• Focus: have a unique value proposition and reduce unnecessary cost
• Divergence: Your graph in strategy canvas must be distinguishable from a current industry graph
• Compelling tagline: clear and compelling slogan

Problems when a strategy is not good enough

• Caught in the red ocean (due to low divergence)
• Over delivery (not focus)
• Incoherent (focused factors aren’t coherent)
• Strategic contradictions (raised and reduced factors are contradicted)
• Internally driven (unclear slogan)

🛣️ Reconstruct market boundary

6-Path Framework

Examine these 6 paths to break out of the red ocean

Path 1: Look Across Alternative Industries

Focus on rivals.

Substitute: products with the same function.

Alternative: products with the same purpose.

The space between alternative industries could provide an opportunity for value innovation.

By focusing on factors in alternative industries that attract customers, you may find the blue ocean.

Path 2: Look Across Strategic Groups Within Industries

Combine advantage of 2 strategic groups to create a new product.

Path 3: Look Across the Chain of Buyers

Buyer could be divided into 3 categories

1. Purchaser Ex. staff in IT department buy a program which used by engineer department
2. User Ex. You buy a shirt for yourself
3. Influencer Ex. Doctor order medicine for the patient

You can create a blue ocean strategy by changing the category of buyers.

Path 4: Look Across Complementary Product and Service Offerings

Not finish just selling product. Plan for after selling product.

Path 5: Look Across Functional or Emotional Appeal to Buyers

Path 6: Look Across Time

Emphasis on irreversible trend which clear trajectory such as online streaming after the internet is invented

🖼️ Visualizing Strategy

There are 4 steps to visualize strategy

1. Visual awakening
   - Understand the big picture by drawing strategy canvas (example in creating a blue ocean)
2. Visual exploration
   - Go to an actual field, ask users
   - Observe other alternative products
   - Perform 4-action framework (more detail in creating a blue ocean)
3. Visual strategy fair
   - Draw 6 new strategy canvases using the 6-path framework (more detail in reconstructing market boundary)
   - Think slogan for each strategy → Present to user → Select one best strategy
4. Visual communication
   - Present internally within the organization by compare strategy curve of old VS new strategy
   - Decide factors to focus

🐘 Maximize the size of the blue ocean

Source: https://www.blueoceanstrategy.com/tools/three-tiers-of-noncustomers/

There are 3 tiers of noncustomers that offer big blue ocean opportunities.

Tier 1: Close to the current market. However, they won’t buy a product if not necessary.

Tier 2: Refuse to use product or unaffordable.

Tier 3: Never interest in the current market.

🔑 Key is to find the intersection of noncustomers.

⛓️ Strategic sequence

Constructing a blue ocean strategy should follow this sequence to succeed.

1. Buyer Utility

source: https://www.blueoceanstrategy.com/tools/buyer-utility-map/

• Use buyer utility map to discover pain points of the customer.
• Horizontal axis: buyer experience sequence.
• Vertical axis: Utility levers that are feeling of the customer for each buying step

2. Price

• To set a strategic price, there are 2 steps including
  2.1 Identify the price corridor of the mass (Red) Consider prices of substitution and alternatives to identify a price corridor that could attract a mass of customers.
  2.2 Specify a price level within the price corridor (Blue)
  Within the price corridor, you have to consider price level based on the barrier to entry. If the barrier is high, you could set a higher price.

3. Cost

• The key is to adjust cost based on price not adjust price based on cost.
• The profit margin will be based on cost, so the company has to plan to achieve the target cost.
• There are 3 levers that a company can use
  3.1 Cost innovation such as optimize the production process, use low-cost material
  3.2 Partnership
  3.3 Change the pricing model such as the change from selling to lending

4. Adoption

• Blue ocean means new business, so people may not understand it yet.
• You have to educate stakeholders, so they can adapt to your business.

🌀 Overcome Key Organization Hurdle

There are 4 key organizational hurdles. ❌ represents actions that usually do not work. On the other hand, ✅ is recommend actions.

1. Cognitive
People are used to the status quo, so you need to make them realize that strategic shift is required.

❌ Present with number

✅ Come face-to-face with the worst operational problems

✅ Meet with disgruntled customers

2. Resource
Limited budget.

❌ Lower goal

❌ Fight for more resource

✅ Categorize resource into 3 types

2.1 Hot spots: low input → high output

2.2 Cold spots: high output → low input

2.3 Horse trading: relocatable resource

3. Motivation

Employees don’t feel the need for a strategic shift.

❌ Transform organization

✅ Use influencers (kingpin) in the organization

✅ Place kingpins in a fishbowl: show transparency & fair process

✅ Atomize: make strategy sound attainable to everyone by dividing goal into smaller piece

4. Politic

✅ Find the person who has great influence within top management

✅ Increase the number of supporting employee

👊 Executing Blue Ocean Strategy

• To execute strategy successfully, a fair process is required.
• The fair process leads to people's attitudes and behavior change.
• Fair process → Trust and commitment → Voluntary cooperation → Exceeds expectation
• 3 E for the fair process: Engagement, Explanation, Expectation clarity

🐢 Sustainability & Renewal Strategy

• To make strategy sustainable, the barrier to entry plays a big role.
• Some barriers to entry including value innovation, brand image, natural resource, patent, high volume production capability, network externalities, politics, brand loyalty.
• When the value curve of the new entry look-alike yours, the blue ocean becomes red and it is time to consider renew strategy.