Blue Ocean Strategy | Zane Davis

W. Chan Kim and Renée Mauborgne, 2015

My notes

1. Creating Blue Oceans
- Value Innovation p 13
  - Differentiation and low cost simultaneously
  - Align innovation with utility, price, and cost
  - Creates value in an innovative way, basically

2. Analytical Tools and Frameworks
- Strategy Canvas

Four actions framework

Reconstruct Market Boundaries
- Path 1: Look across alternative industries
- Path 2: Look across strategic groups within industries
- Path 3: Look across the chain of buyers
- Path 4: Look across complementary product offerings
- Path 5: Look across functional or emotional appeal to buyers
- Path 6: Look across time

Focus on the Big Picture, Not the Numbers
- Visualise strategy

Pioneer-Migrator-Settler Map
- Pioneer: businesses offering unprecedented value, blue oceans
- Migrators: in between P and S, give value but don’t alter market
- Settlers: Businesses whose value curves conform to the basic shape of the industry

Reach Beyond Existing Demand

Get the Strategic Sequence Right

Overcome Key Organizational Hurdles

Build Execution into Strategy

Align Value, Profit, and People Propositions

Renew Blue Oceans
Avoid Red Ocean Traps

Some other guys notes:

Blue Ocean Strategy Pursues Value Innovation

In their analysis of strategic moves over 120 years, the authors found a consistent pattern to successful blue ocean strategies: value innovation.
The best way to understand value innovation is to consider each component separately. Value creation without innovation tends to mean incremental improvements. For instance, decreasing costs and prices by 2% can create a lot of value – but it doesn’t lead to a new market space and differentiation.
Likewise, innovation without value tends to obsess over new technologies and market pioneering that shoot beyond what buyers are ready to pay for (see: Webvan in the 1990’s tech bubble).
To succeed, blue ocean strategy requires 1) doing things in a new way that 2) delivers a leap in value to customers.

Properties of Blue Ocean

Blue oceans are being continuously created. A century ago, these industries didn’t exist: automobiles, aviation, health care, music recording. 40 years ago, these industries didn’t exist: e-commerce, mobile phones, personal computers, biotechnology, coffee shops. It’s certain that 10-30 years from now, new unknown industries will be created.
To focus on red-ocean competition is to deny the dynamism of changing markets, and to miss out on massive opportunities.
Blue ocean strategies lead to more profitable growth. The authors studied business launches of 108 companies. They found that 86% of launches were incremental extensions of existing markets, but they accounted for 62% of revenues and 39% of profits. In contrast, 14% of launches created blue oceans, and they generated 38% of total revenues and 61% of profits. (Note: This does not consider the likelihood of success of a red vs blue ocean strategy, ie blue oceans may be higher risk higher reward, or the expected value of a blue ocean project).
Blue ocean strategy doesn’t seek to trade off value with cost. In classical business strategy, companies can compete either by creating higher-value products at higher cost, or undercut competitors at lower cost. Blue ocean strategy seeks to do both simultaneously. It raises buyer value by creating elements the industry never previously offered. It also reduces cost by eliminating unnecessary factors the industry competes on. This is fairly abstract and becomes clear with the Cirque du Soleil example below.
There is no permanently successful executor of blue ocean strategy. All industries rise and fall. All companies rise and fall. Blue ocean strategy can be executed by both startups and incumbents.
Technology innovation is not necessary for blue ocean strategy. It is sometimes present, but more often the innovation was creating something new that buyers value.

Red ocean strategy	Blue ocean strategy
Compete in existing market space.	Create uncontested market space.
Beat the competition.	Make the competition irrelevant.
Exploit existing demand.	Create and capture new demand.
Trade off value for cost.	Simultaneously increase value and decrease cost.
Winning is zero-sum against competitors.	Winning is non-zero-sum.
Market structure is fixed, and you play within it.	The market can be restructured.
Follow best practices and improve on them.	Break the best practice rules.

Four questions:

Which factors the industry takes for granted should be eliminated?
Which factors should be reduced well below industry standards?
Which factors should be raised well above industry standards?
Which factors should be created that the industry has never offered?

Three Characteristics of a Good Strategy

A good blue ocean strategy:

Focuses on a few factors, instead of spreading itself thin across many.
Diverges from competition, instead of imitating it.
Can articulate its strategy with a clear tagline.

Reconstruct market boundaries
1. Look across alternative industries
2. Look across strategic groups within industries
3. Look across the chain of buyers
4. Look across complementary product and service offerings
5. Look across functional or emotional appeal to buyers
6. Look across time
Focus on the big picture, not the numbers
1. Create a strategy canvas
  1. Identifies important factors of competition in the industry
  2. Shows the strategic profile of current competitors, including your company
  3. Shows how a new blue ocean strategy creates a unique value curve, focusing on values critical to customers at the expense of less-important factors
2. Pioneer-Migrator-Settler Maps
  1. Companies have a portfolio of projects across the spectrum of innovation
Reach beyond existing demand
1. Three tiers of non-customers
  1. Soon-to-be noncustomers are begrudging customers in your market, waiting to jump to better alternativies
  2. Refusing noncustomers ahve consider your industry’s options but have decided not to consume
  3. Unexplored noncustomers have never thought of your industry’s products as an option
2. Try to find commonalities among all three, not differences
Get the strategic sequence right
1. Buyer utility – is there exceptional utility in your idea
2. Price – is your price accessible to the target mass of buyers
3. Cost – can you attain your cost target to profit at your price?
4. Adoption – what adoption hurdles impede your idea
  1. customers
  2. partners
  3. employees


	Your idea (+/- for each grid)
Utility	Is there exceptional utility? Are there compelling reasons to buy your offering?
Price	Is your price easily accessible to the target mass of buyers?
Cost	Does your cost structure meet the target cost?
Adoption	Have you addressed adoption hurdles up front?

Execution

Overcome key organizational hurdles
1. Cognitive hurdles
2. Resource hurdles
3. Motivational hurdles
4. Political hurdles
Build execution into strategy
1. Engagement
2. Explanation
3. Clear expectations
Align value, profit, and people propositions
Renew Blue oceans
1. Maximizing a blue ocean business
  1. Barriers
    1. cognitive
    2. organization
    3. image
    4. momentum
    5. economy of scale
    6. network
    7. legal
    8. alignment
2. Avoiding red oceans
  1. Myth: blue ocean is a customer-led strategy
    1. reality: exploring noncustomers and creating new demand
  2. Myth: blue oceans require moving beyond core business
    1. more about redefining boundaries
  3. Myth: blue oceans require new tech
  4. Myth: you must be first to market
  5. Myth: same as differentiation
  6. Myth: just a low cost strategy
  7. Myth: just about marketing
  8. Myth: About finding and dominating niches
    1. Tries to de-segment buyers by focusing on commonalities between customers and noncustomers to create a new value prop
  9. Myth: Competition is always bad
    1. Goal is more to find new pockets of demand that aren’t currently competitive
  10. Myth: synonomous with creative disruption
    1. Blue oceans avoid displacement by moving into empty areas