Blue Ocean Strategy Cheat Sheet: Create Uncontested Market Space

Introduction: What is Blue Ocean Strategy and Why It Matters

Blue Ocean Strategy is a business theory developed by W. Chan Kim and Renée Mauborgne that challenges companies to break out of bloody competition (“red oceans”) by creating uncontested market space (“blue oceans”) where competition is irrelevant. Rather than battling over existing demand and market share, Blue Ocean Strategy focuses on expanding the market and generating new demand. This approach enables companies to achieve both differentiation and low cost simultaneously, creating a leap in value for both customers and the company.

Core Concepts and Principles

Red Oceans vs. Blue Oceans

Value Innovation: The Cornerstone of Blue Ocean Strategy

Value Innovation occurs at the intersection where a company’s actions positively influence both:

• Cost structure (reduced)
• Buyer value (increased)

This creates a leap in value for both buyers and the company itself, opening new and uncontested market space.

Key characteristics:

• Focuses on making competition irrelevant rather than benchmarking competitors
• Creates new demand rather than fighting over existing customers
• Breaks the value-cost trade-off by pursuing differentiation and low cost simultaneously
• Aligns the entire system of company activities toward differentiation and low cost

Strategic Frameworks and Tools

1. The Strategy Canvas

The Strategy Canvas is a visual analytical framework that:

• Captures the current state of play in the known market space
• Shows factors the industry competes on and invests in
• Depicts the value curves of your company vs. competitors

Steps to create a Strategy Canvas:

1. Identify 5-12 key competing factors in your industry
2. Plot competitors’ offerings across these factors (1-10 scale)
3. Plot your current offering across the same factors
4. Identify where your curve follows industry patterns vs. where it diverges
5. Create a new value curve that breaks from the industry pattern

2. The Four Actions Framework

Used to reconstruct buyer value elements and create a new value curve by asking four key questions:

3. The Eliminate-Reduce-Raise-Create (ERRC) Grid

A supplementary tool to the Four Actions Framework that:

• Pushes companies to simultaneously pursue differentiation and low cost
• Creates a visual reference for action planning
• Forces thorough analysis across all four dimensions

Example: Cirque du Soleil ERRC Grid

4. The Six Paths Framework

Six approaches to redefine market boundaries and create blue oceans:

1. Look across alternative industries
   • Identify substitutes or alternatives that serve the same function or core utility
   • Example: NetJets created a blue ocean between private jet ownership and commercial airlines
2. Look across strategic groups within industries
   • Identify groups that pursue distinct strategies or positioning
   • Example: Curves created a blue ocean between full-service health clubs and home exercise programs
3. Look across the chain of buyers
   • Expand beyond the immediate customer to consider all players who influence purchase decisions
   • Example: Novo Nordisk targeted decision influencers (physicians) not just paying customers (patients)
4. Look across complementary product and service offerings
   • Consider what happens before, during, and after your product/service is used
   • Example: NABI created a complete preschool solution, not just individual toys
5. Look across functional or emotional appeal to buyers
   • Shift from emotional to functional or vice versa
   • Example: Swatch shifted from functional timepieces to emotional fashion accessories
6. Look across time
   • Identify trends that will fundamentally change your industry
   • Example: Apple’s iTunes anticipated digital music consumption trends

5. The Three Tiers of Noncustomers

Identifies potential new customer groups:

1. First Tier: “Soon-to-be” noncustomers
   • Currently minimally use your industry’s offerings
   • Buying out of necessity, but looking for something better
   • Example: People using basic cell phones but wanting better functionality
2. Second Tier: “Refusing” noncustomers
   • Consciously choose against your industry
   • Find industry offerings unacceptable or unaffordable
   • Example: People who use public transportation instead of owning cars
3. Third Tier: “Unexplored” noncustomers
   • Never considered your industry’s offerings as an option
   • Needs served by different industries or solutions
   • Example: People who never considered short-term office space before WeWork

Strategic Sequence for Creating Blue Oceans

A four-step process to validate blue ocean ideas:

1. Buyer Utility
   • Does your offering deliver exceptional utility to buyers?
   • Identify which utility levers you’re addressing across the six stages of the buyer experience cycle
2. Strategic Pricing
   • Is your offering priced to attract the mass of target buyers?
   • Price must be accessible to target market volume
3. Cost
   • Can you attain your cost target to profit at your strategic price?
   • Streamline operations and innovate cost structure
4. Adoption
   • Have you addressed adoption hurdles for all stakeholders?
   • Educate key stakeholders (employees, business partners, general public)

Buyer Utility Map

A framework to assess how innovations create utility across six stages of the buyer experience:

Successful Blue Ocean Strategy Examples

Implementation Challenges and Solutions

Organizational Hurdles

The Fair Process Principle

To gain buy-in for blue ocean initiatives, follow the “Three E Principles”:

1. Engagement: Involve individuals in decisions by asking for their input
2. Explanation: Ensure everyone understands the rationale for final decisions
3. Expectation Clarity: Set clear rules for how decisions will be implemented

Blue Ocean Strategy Planning Process

1. Current State Assessment
   • Draw your current strategy canvas
   • Understand where you and competitors invest
   • Identify factors taken for granted in your industry
2. Future State Exploration
   • Apply the Six Paths Framework
   • Identify noncustomers and their needs
   • Create alternative strategy canvases
3. Strategy Formulation
   • Apply the Four Actions Framework
   • Complete the ERRC Grid
   • Select the value curve with greatest potential
4. Strategy Validation
   • Test the strategy through the strategic sequence
   • Verify buyer utility, price, cost, and adoption
5. Strategy Execution
   • Address organizational hurdles
   • Implement using fair process principles
   • Rapidly prototype and refine the offering

Common Pitfalls to Avoid

• Focusing only on technology innovation rather than buyer value
• Starting with benchmarking competitors instead of looking across alternatives
• Thinking of blue oceans as industry disruptors rather than value innovations
• Pursuing Blue Ocean Strategy only when in trouble rather than from a position of strength
• Failing to gain organizational alignment before implementation
• Thinking of Blue Ocean Strategy as a one-time exercise rather than a continuous process
• Not abandoning the initiative when validation tests fail

Key Questions for Strategy Workshops

1. What factors should be eliminated that your industry takes for granted?
2. What features should be reduced well below industry standard?
3. What factors should be raised well above industry standard?
4. What entirely new factors should be created that the industry has never offered?
5. Who are your noncustomers, and what would attract them?
6. How do your target customers currently solve the problem you’re addressing?
7. What key trends might change your industry in the next 3-5 years?
8. What complementary products or services affect the utility of your offering?
9. What are the biggest pain points in the customer journey that no competitor addresses?
10. If you were starting from scratch, how would you design your business model?

Resources for Further Learning

• Books: “Blue Ocean Strategy” and “Blue Ocean Shift” by W. Chan Kim and Renée Mauborgne
• Tools: Blue Ocean Strategy simulation and online canvas tools
• Case Studies: INSEAD Blue Ocean Strategy Institute case collection
• Frameworks: Additional tools and templates at blueoceanstrategy.com

Remember that Blue Ocean Strategy is not about being the first to market or about technological innovation alone. It’s about creating and capturing new demand through a leap in value for buyers and for the company itself.