Blue Ocean Strategy - How to Create Uncontested Market Space and Make Competition Irrelevant

Blue Ocean Strategy - How to Create Uncontested Market Space and Make Competition Irrelevant

Kim W.C., Mauborgen, R. (2005). Blue ocean strategy: How to create uncontested market space and make competition irrelevant. Cambridge, MA: Harvard Business School Press.

This publishing duo, now on the faculty of INSEAD business school in Paris, has written an innovative work on conceiving new market space. The authors contend that the key to industry success is not by battling competitors, per se, but rather by creating “blue oceans” of uncontested market space.

Blue ocean creation, the authors argue, 1) looks across alternative industries, 2) looks across strategic groups within industry, 3) redefines the industry buyer group, 4) looks across to complementary product and service offerings, 5) rethinks the functional-emotional orientation of its industry, 6) participates in shaping external trends over time.

Following this definition, the authors break down the consumer marketplace by categorizing consumers into three tiers. The first tier includes “soon-to-be” noncustomers who are one the edge of your market, waiting to jump ship. This includes people who minimally use the current market offerings to get by as they search for something better. The second tier includes “refusing” noncustomers who consciously choose against your market. People who either do not use or cannot afford to use the current market offerings because they find the offerings unacceptable or beyond their means would be classified as second tier “consumers.” Finally, the third tier includes “unexplored” noncustomers who are in markets distant from yours. There are people whose needs and the business opportunities associated with them have somehow always been assumed to belong to other markets.

Cirque du Soleil capitalized on such segmentation and is one example of successful blue ocean creation. In the circus market dominated for decades by the now struggling Barnum & Bailey Circus, Cirque du Soleil invented a circus-theater hybrid for mainstream creative performance entertainment. The company introduced new, noncircus factors such as theme, multiple productions, refined watching environment, and artistic music and dance into its strategy, thereby creating new market space and shifting the industry. Other examples of blue ocean creation can be found by examining the strategies of [yellow tail] wines, Netjets, and Apple’s iTunes software.

The latter third of the book speeds through several prescriptions to overcoming key organizational hurdles. To “jump the motivational hurdle”, for example, the authors recommend, “For a new strategy to become a movement, people must not only recognize what needs to be done, but they must also act on that insight in a sustained and meaningful way” (p. 161) These prescriptions may leave the reader seeking a more detailed elaboration of how to implement these recommendations, but the authors leave those details to managers. The authors even borrow a page from Malcolm Gladwell’s (2002) The Tipping Point and dabble in leadership recommendations: “tipping point leadership” fosters the belief that to change the masses, focus on the extremes – people, acts, and activities that exercise a disproportionate influence on performance to achieve a strategic shift fast at low cost – rather than the mainstream.

One of the most significant contributions of this book, interestingly, doesn’t necessarily deal with strategic market expansion and growth. Kim and Mauborgne’s explanation of “fair process” uncovers an important wrinkle in how managers should think about organizational justice. People care as much about the justice of the process through which an outcome is produced as they do about the outcome itself. In other words, as long as strategic decisions were developed fairly and following an appropriate process, people will follow in that direction even if they don’t completely support it. Adhering to fair process fosters trust in organizations and with this trust people are inspired to cooperate voluntarily in executing strategic decisions. “With fair process, people tend to be committed to support the resulting strategy even when it is viewed as not favorable or at odds with their perception of what is strategically correct for the unit” (Kim & Mauborgne, Harvard Business Review, Jul-Aug 1997).