Blue Ocean Strategy

"The only way to beat the competition is to stop trying to beat the competition."

— W. Chan Kim and Renée Mauborgne

Kim and Mauborgne are professors at INSEAD. They studied 150 strategic moves across 30 industries over a century, and found that those that created the most value didn't come from beating the competition on its own turf, but from redefining the turf.

The image that gives the book its name divides markets in two. Red oceans are the industries that already exist, with known rules, where companies fight over demand that isn't growing and margins get thinner and thinner. Blue oceans are the markets that don't yet exist, where demand is created rather than contested.

The central concept is value innovation. Traditional strategy assumes you have to choose between differentiating or having low costs. The authors argue that a blue ocean opens up when you achieve both at the same time. You eliminate or reduce the attributes the industry takes for granted and the customer no longer cares about, which lowers cost. And you create or raise attributes no one offered, which raises value for the buyer.

To do it, they propose two tools:

• The strategy canvas. A chart with the attributes the industry competes on along the horizontal axis and the level each competitor offers on the vertical. Almost always all the curves look alike; yours should look different.
• The four actions. Four questions about those attributes: what to eliminate from what the industry takes for granted, what to reduce well below the standard, what to raise well above the standard and what to create that the industry has never offered.

The case the book uses as its example is Cirque du Soleil. In a declining circus industry, it eliminated the animals and the stars, which were the most expensive, reduced the thrill of danger and added what came from theater: a story, original music and a refined atmosphere. It stopped competing for children with other circuses and attracted adults who paid theater prices.

Another valuable idea is that of non-customers. Instead of studying current customers to take them from the competition, the book invites you to study those who don't buy in the industry: those about to leave, those who rejected it and those who never considered it. That's usually where the demand that can be created lies.

The authors also warn that a blue ocean doesn't last forever. When it works, imitators arrive and the water turns red again. That's why strategy is not an event but a practice that repeats.

How to apply it? Draw your industry's strategy canvas with five to eight attributes and place your three main competitors. Then answer the four actions and draw your new curve. If it looks like everyone else's, you're still in the red ocean.

As a founder it will help you choose a market where your startup doesn't have to beat the big players at their own game, and to review your value proposition every time you start to feel you're competing only on price.