Blue Ocean Strategy, Expanded Edition: How to Create Uncontested Market Space and Make the Competition Irrelevant

by W. Chan Kim

A common mistake is to discuss changes in strategy before resolving differences of opinion about the current state of play.

A company should never outsource its eyes. There is simply no substitute for seeing for yourself. Great artists don’t paint from other people’s descriptions or even from photographs; they like to see the subject for themselves.

Obviously, the first port of call should be the customers. But you should not stop there. You should also go after noncustomers.5 And when the customer is not the same as the user, you need to extend your observations to the users, as Bloomberg did.

The starting point is buyer utility. Does your offering unlock exceptional utility? Is there a compelling reason for the target mass of people to buy it? Absent this, there is no blue ocean potential to begin with.

These first two steps address the revenue side of a company’s business model. They ensure that you create a leap in net buyer value, where net buyer value equals the utility buyers receive minus the price they pay for it.

When the target cost cannot be met, you must either forgo the idea because the blue ocean won’t be profitable, or you must innovate your business model to hit the target cost.

Adoption hurdles include, for example, potential resistance to the idea by retailers or partners. Because blue ocean strategies represent a significant departure from red oceans, it is key to address adoption hurdles up front.

Companies must therefore start with an offer that buyers can’t refuse and must keep it that way to discourage any free-riding imitations. This is what makes strategic pricing key. Strategic pricing addresses this question: Is your offering priced to attract the mass of target buyers from the start so that they have a compelling ability to pay for it? When exceptional utility is combined with strategic pricing, imitation is discouraged.

A good way to look outside industry boundaries is to list products and services that fall into two categories: those that take different forms but perform the same function, and those that take different forms and functions but share the same overarching objective.

Many companies that create blue oceans attract customers from other industries who use a product or service that performs the same function or bears the same core utility as the new one but takes a very different physical form.

Different form and function, same objective.

Step 2: Specify a Level within the Price Corridor

Leverage Your Angels and Silence Your Devils To knock down the political hurdles, you should also ask yourself two sets of questions: Who are my devils? Who will fight me? Who will lose the most by the future blue ocean strategy? Who are my angels? Who will naturally align with me? Who will gain the most by the strategic shift?

Don’t fight alone. Get the higher and wider voice to fight with you. Identify your detractors and supporters—forget the middle—and strive to create a win-win outcome for both. But move quickly. Isolate your detractors by building a broader coalition with your angels before a battle begins. In this way, you will discourage the war before it has a chance to start or gain steam.

engagement, explanation, and clarity of expectation.

The question companies wrestle with is how to create trust, commitment, and voluntary cooperation deep in the organization. You don’t do it by separating strategy formulation from execution. Although this disconnect may be a hallmark of most companies’ practice, it is also a hallmark of slow and questionable implementation, and mechanical follow-through at best. Of course, traditional incentives of power and money—carrots and sticks—help. But they fall short of inspiring human behavior that goes beyond outcome-driven self-interest. Where behavior cannot be monitored with certainty, there is still plenty of room for foot-dragging and sabotage.

The lack of the three E principles of fair process negatively affected

The Three Strategy Propositions At the highest level, there are three propositions essential to the success of strategy: the value proposition, the profit proposition, and the people proposition.1 For any strategy to be successful and sustainable, an organization must develop an offering that attracts buyers; it must create a business model that enables the company to make money out of its offering; and it must motivate the people working for or with the company to execute the strategy.

Strategic alignment is the responsibility of an organization’s top executives versus those in charge of marketing, manufacturing, human resources, or other functions. Executives with a strong functional bias typically cannot successfully fulfill this important role because they tend to focus on a part, not the whole, of the three strategy propositions, hence missing the alignment. A manufacturing department, for example, might neglect buyer needs or treat people as a cost variable. Similarly, a marketing department might focus on the value proposition and pay insufficient heed to the other two propositions. However, when the three disparate strategy propositions that cut across an organization are fully developed and aligned, a high-performing and sustainable strategy is achieved.

While one or two strategy propositions can be imitated, imitating all three is difficult, especially the people proposition because it is embedded in human relationships that take time to cultivate. When external stakeholders are involved and important, getting the people proposition right takes even more time and effort for potential imitators, hence typically prolonging the aligned strategy’s sustainability.

To avoid the trap of competing at the individual business level, monitoring value curves on the strategy canvas is essential.

Over time, however, competitors jumped in to reap profits from the new market space of on-demand CRM automation that Salesforce.com created. Large players offered hybrid solutions, and an increasing number of small players entered the on-demand CRM market in an attempt to provide similar offerings. To break away from the competition, Salesforce.com made a new blue ocean strategic move to renew its initial value innovation offering. With the launch of Force.com, a cloud-based development tool for creating add-on applications, and AppExchange, a web-based applications marketplace, Salesforce.com allowed corporate clients to obtain a range of on-demand customized programs at low cost while still retaining the simplicity, convenience, reliability, and low risk of its original offering, achieving both differentiation and low cost.

Red Ocean Trap One: The belief that blue ocean strategy is a customer-oriented strategy that’s about being customer led.

Red Ocean Trap Two: The belief that to create blue oceans, you must venture beyond your core business.

Red Ocean Trap Three: The misconception that blue ocean strategy is about new technologies.

Red Ocean Trap Four: The belief that to create a blue ocean, you must be first to market.

Blue ocean strategy is not about being first to market. Rather it’s about being first to get it right by linking innovation to value.

Red Ocean Trap Five: The misconception that blue ocean strategy and differentiation strategy are synonymous.

Red Ocean Trap Six: The misconception that blue ocean strategy is a low-cost strategy that focuses on low pricing.