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Kindle Notes & Highlights
by
W. Chan Kim
SWOT analysis—where strategy is about matching a company’s strengths and weaknesses to the opportunities and threats present in the existing industry. Here strategy perforce becomes a zero-sum game where one company’s gain is another company’s loss, as firms are bound by existing market space. Blue ocean strategy, by contrast, shows how strategy can shape structure in an organization’s favor to create new market space. It is based on the view that market boundaries and industry structure are not given and can be reconstructed by the actions and beliefs of industry players.
Instead of dividing up existing—and often shrinking—demand and benchmarking competitors, blue ocean strategy is about growing demand and breaking away from the competition.
Blue oceans, in contrast, are defined by untapped market space, demand creation, and the opportunity for highly profitable growth. Although some blue oceans are created well beyond existing industry boundaries, most are created from within red oceans by expanding existing industry boundaries, as Cirque du Soleil did. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set.
The companies caught in the red ocean followed a conventional approach, racing to beat the competition by building a defensible position within the existing industry order.16 The creators of blue oceans, surprisingly, didn’t use the competition as their benchmark.17 Instead, they followed a different strategic logic that we call value innovation. Value innovation is the cornerstone of blue ocean strategy. We call it value innovation because instead of focusing on beating the competition, you focus on making the competition irrelevant by creating a leap in value for buyers and your company,
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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.
