Blue Ocean Strategy Basics – Value Innovation

An introduction to the core of blue ocean strategy

Blue Ocean Strategy is a strategic framework and the name of a bestselling 2005 book written by Chan Kim & Renée Mauborgne published by Harvard Business Review. The book is based on a series of articles published in Harvard Business Review starting in the 1990s.

This post is the first in a series of brief, high-level overviews of the ideas and tools. Like others I work with, we’ve worked directly with the authors of the book and published extensively on the subject, typically at Harvard Business Review and/or Harvard Business School Press. Absent the authors themselves, there are no more authoritative figures.

Over time, we will publish ongoing micro-cases — examples of blue or red businesses over time — so please subscribe to our newsletter.

A very generalized overview of blue ocean strategy…

The business world is divided into blue oceans and red oceans of opportunity. These aren’t businesses; they’re what we call strategic moves — individual products or services businesses have built.

In red oceans, many competitors offering similar products and services often competing on price. Blue oceans are products and services that redefine market boundaries so they don’t compete on price.

Blue ocean strategic moves make the competition irrelevant. Sounds impossible? It did to us, too, at first. Please, bear with us…

There are three top-tier components in blue ocean strategy:

  1. Value Innovation
  2. Fair Process
  3. Tipping Point Leadership

We will focus on value innovation, often described as the heart of blue ocean strategy. The other two components are important but too often ignored.

Value innovation has several high-level concepts:

  1. Breaking the cost/value trade-off
  2. Noncustomers
  3. Making competition irrelevant

Besides the higher-level concepts, there are a number of popular tools to help explore and identify a blue ocean opportunity. These are the:

  1. Blue Ocean Strategy Canvas
  2. Blue Ocean Buyer Experience Cycle & Buyer Utility Map
  3. Blue Ocean Noncustomer Exercise
  4. Blue Ocean Six Path Framework

In individual posts, we’ll explore each in more detail.

Making Competition Irrelevant

Sounds impossible, right? Maybe even ridiculous? Honestly, we thought so too even after reading the book until we took the time to learn in more depth. Let’s check out a well-known and easy-to-understand case study, the Nintendo Wii.

Before the Wii, Nintendo was a distant third in the console market behind Sony and Microsoft. Sony was releasing the PS3 with a chip that cost billions to develop and could guide cruise missiles. Microsoft was losing hundreds on every Microsoft 360 game console sold.

Nintendo realized they couldn’t compete and didn’t try. Instead, they turned to value innovation.

Nintendo released the Wii which made the competition irrelevant. Sony and Microsoft competed fiercely and gamers purchased a Sony or Microsoft system. However, they also purchased a Wii. Additionally, many people who wouldn’t purchase any type of game console also purchased a Wii.

The Wii is a blue ocean offering. It didn’t compete with Sony and Microsoft but, rather, made them irrelevant as competitors. In contrast, Sony and Microsoft very much competed with one another (and, in their minds, they also were competing with Nintendo).

What happened? After analysts predicted doom-and-gloom Nintendo outsold Sony and Microsoft combined for about two years, an eternity in videogame time.

Nintendo used the six-path framework and buyer utility map to figure out how to break the value/cost trade-off, to create a system that cost less but offered more value and didn’t compete with the better-funded higher-powered and better-known consoles.

Are finding blue oceans impossible in your industry? No. There are consultants who say so. Many have a poor understanding of what blue ocean strategy means, relying on a superficial understanding. To find the right person look to books published and articles in Harvard Business Review or Harvard Business School Publishing. Avoid fly-by-night types with sleek websites who have taken or who offer cheap internet classes.

I’ve been applying blue ocean strategy since 2001 with the authors of the book, since when the book was a series of articles. Like you, I also thought the entire “make competition irrelevant” sounded impossible; hoaky even. But, over time, I worked with countless companies and have seen it work again and again. Blue ocean strategy, under the guidance of somebody who knows what they’re doing, is a great path to unlock creativity to find blue oceans of opportunity.

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