Creating Blue Oceans

Can Your Business Become Irrelevant While Being The Best?

Companies which are focused on benchmarking and continuous improvement, instead of  on continuous redefinition of their business and search for blue oceans, run a deadly risk: They could be best at what they do, yet become irrelevant to the world. And the most unsettling aspect is that no company, no matter how successful or iconic, is immune to this.

Consider two such examples. First, the case of Kodak. In April, 2004 Kodak was de-listed from the 30 Dow Jones Industrial Companies essentially because it failed to realize that its core business of film imagery was becoming extinct in face of digital imagery. Kodak is now scrambling via a major and painful restructuring to avert disaster. This year the company reported a third-quarter net loss of $1 billion and the shedding of 25,000 jobs.

And second is Coca-Cola. One of the biggest pieces of business news recently was that Pepsico’s stock market value overtook Coca-Cola’s for the first time. PepsiCo has diversified its brand over the years with beverages, such as Gatorade and Tropicana, that are perceived as relatively healthy. The firm, which has seen its share price rise by 14% this year, now gets only 20% of its revenue from carbonated soft drinks, compared with Coca-Cola's 80% (Source: Economist Business News, Dec. 16, 2005). Instead of continuing to battle head-on in its traditional market with Coca-Cola, Pepsico is going after new, high-growth market spaces. So the question becomes: Is Coke still the real thing, or is it starting to become less relevant?

What Can Sporting Greats Teach Us About Blue Oceans?

Not surprisingly there is a strong correlation between the accomplishments of sporting greats and the principles of Blue Ocean Strategy.

Consider the story of Roger Bannister.  Bannister was the first man to break the 4-minute mile in 1954. Before then, everyone thought that breaking this time barrier was impossible for a human being. The most striking thing about his accomplishment was that within 10 years after his run, more than 300 others also ran faster than 4 minutes, indicating that the mark was more of a psychological barrier than a physiological one. Overstepping psychological barriers is a dominant theme of Blue Ocean Strategy.

Another source of sporting inspiration comes from mountain climber Joe Simpson. Once faced with an apparently insurmountable challenge of getting down the icy slopes of Siula Grande, Peru, with a smashed and useless leg, he survived, in part due to a mind game: He separated the descend into small, achievable stages, each seeming relatively easy.  And each success boosted his morale along the way. This is an important lesson for implementing Blue Ocean Strategy. Seemingly bold, unchartered strategies can be accomplished by breaking them down into smaller, manageable steps, a process we call ‘atomization’.

How Can French Fries Save The World And Lead Us To Blue Oceans?

What would you say, if you were a leading fast-food company, at the prospect of having the combination of powerful sensory branding, a massive environmentally friendly image boost and the ability to turn waste into a complementary offering, all in one? Does this seem too good to be a viable blue ocean? Well, it may not be as far fetched as you may think.

Vegetable oil is a viable (though not yet practical) source of automobile fuel. A man named Joshua Tickell gained visibility for its use in 1997, when he drove his Veggie Van across the U.S. using leftover vegetable oil from Kentucky Fried Chicken and other fast food chains. Vegetable oil can be used in converted diesel engines.

In America alone, there are 18 billion liters (approx. 4.5 billion gallons) of waste vegetable oil generated every year by restaurants. So here is the opportunity: Instead of removing or recycling this waste, why not offer an eco-friendly fuel source via add-on gas stations at fast food outlets? The retail infrastructure is already in place, and this way motorists and cars can both tank up together. And here is the kicker: Exhaust from a car burning vegetable oil gives off a pleasant French fry smell! Thus the blue ocean scenario is complete.

Creating Blue Oceans: How Simple Can You Get?

Ah simplicity, the spice of life.  But how so?  Simplicity is at the core of Blue Ocean Strategy.  First, in an increasingly complex and turbulent business environment Blue Ocean Strategy distills the strategic challenge into a handful of essential questions, followed by a series of simple, logical steps and a visual platform for expressing strategic intent.  Such simplicity of focus is often a breakthrough eye-opener for executives, who usually see a much more convoluted and blurry picture.

Second, daring to strip away non-essential features and making simplicity itself a primary component of your offering also leads you toward blue ocean market space.  The following article from the November issue of Fast Company entitled “The Beauty Of Simplicity” illustrates this point through specific examples, most notably that of Google’s search engine and Apple’s iPod.

I'm snuggled under the covers with Jon Stewart and the remote. The "Evolution/Schmevolution" skit is funny, but it's been a long day, and I'm fading fast. The promise of technology is that I'm one click away from slumberland. I hit the power button. The picture disappears, but the TV is still glowing a creepy blue that will haunt my dreams if I don't make it go away. I try the tv button. Nothing. The cable button. Nothing. What the %$*&?? I kick off the blankets and trudge over to turn off the miserable box at the source. I can't help but wonder, as I lie there, now wide awake, how it is that all the things that were supposed to make our lives so easy instead made them more complex. Why is so much technology still so hard?

It is innovation's biggest paradox: We demand more and more from the stuff in our lives--more features, more function, more power--and yet we also increasingly demand that it be easy to use. And, in an Escher-like twist, the technology that's simplest to use is also, often, the most difficult to create.

Continue reading 'The Beauty of Simplicity' here.

Question 12: Are You Treading Water In A Red Ocean Or Gliding Freely In A Blue Ocean?

Tell us your Blue Ocean Strategy story.

Because Blue Ocean Strategy is relevant to all industries and all businesses, we would like to hear from you.  We will share our favorite reader responses in future posts:

• Is your company a Value Innovator?  If so, why, and if not, what are the key constraints holding it back?   

• Are you currently operating in a Red Ocean or a Blue Ocean?  Why? 

• What is your favorite example of a product, company, or industry stuck in a Red Ocean, or one that has created a Blue Ocean?

Question 11: How Can You Get Customers To Pay Well Above Industry Standards?

Why would anyone call a washing machine their ‘baby’?

A principal premise of Blue Ocean Strategy is that you can achieve high customer satisfaction AND high profitability simultaneously. The two are not mutually exclusive, in fact if you get it right, the two go hand in hand. 

The key of course is a switch in strategic orientation from incremental value improvement to value innovation, in which you create such a compelling and irresistible value package that customers are happy to pay a premium. And the best part is that you can do this in any overcrowded or saturated market (also known as Red Oceans).

Consider the story on the Norwegian furniture company Stokke entitled 'Hotweels' from Fast Company (May 2005). Stokke just introduced the Xplory baby stroller in the U.S., priced at a hefty $749, yet it sold in the first nine weeks what it had planned to sell over six months! Why are parents eager to pay so much above market standards for the Xplory? Because it offers a package of unprecedented attributes: It’s flexible design makes life easier for parents by allowing the seat to be raised to eye-level, to face either forward or backward, and enabling the stroller to navigate any terrain. It’s flashy, futuristic form creates a strong emotional bond. Even fathers are happy to ‘drive’ it around.

Another example is Whirlpool’s front-loading washer-dryer combo called the Duet, which the company introduced to a well-saturated market in 2001. The Duet was tagged at $2,300, vs. $600 a pair for most existing models, yet it became a sensation. Why? Because the Duet had features never seen before: It could wash big loads yet used very little water and electricity, and cleaned better. It could also handle silks, lace, and comforters.  But best of all, it inspired real affection among women who called it their ‘buddy’ or ‘baby’. They said that it changed their lives because it saves them time and gave back some of their freedom, doing laundry in record time.

Wow, getting your customers to call a household appliance their baby, now that’s pretty impressive! Find out how to effectively create Blue Oceans and eliminate the competition with Blue Ocean Strategy and Value Innovation expert Gabor George Burt. You can get in touch with him at the email address above.

Question 10: Seeing Is Believing, So Who Has Done What Using Blue Ocean Strategy?

In 2003 Samsung’s Digital Media unit launched 40 new products using the Value Innovation process, and its first quarter profits were 50 times higher than that of the same period the previous year.

So readers ask: “Show me tangible success stories involving the application of BOS”.

Even though Blue Ocean Strategy has penetrated numerous industries and government institutions around the world, it is still a very young concept (first Harvard Business Review article appeared in 1997).  Furthermore, BOS engagements and projects tend to be highly confidential until well after the implementation phase, due to their sensitive strategic nature. 

But already leading companies such as Samsung, Dupont, and Norwich Union are coming forth and giving compelling public testimonials to the benefit of applying Blue Ocean Strategy.  For example, Samsung’s comprehensive application of Value Innovation (the first component of BOS focused on strategy formation) is outlined in detail in the five-part series of articles downloadable below (Korean Economic Daily April-May 2004).

The articles reveal that Value Innovation is Samsung’s core tool for product development and played a significant role in helping Samsung become the world’s top consumer electronics company.  Last year there were 2,000 employees working in cross-functional teams on 90 Value Innovation projects at Samsung, and no product is introduced to the market without first getting  a Value Innovation Certificate.  Quote from the first Korean Economic Daily article: “In 2003 the Digital Media unit launched 40 new products using the VI process, and its first quarter profits were 50 times higher than that of the same period the previous year.” 

In the second article the tools and logic of Value Innovation are used to illustrate the phenomenal rise of Samsung in the already overcrowded mobile phone market.  Samsung only seriously entered the market in 1998, yet in five years it had already become the number 2 player surpassing Motorola and challenging number 1 Nokia.  It also boasted the world’s best selling mobile phone, all based on the framework of Value Innovation.

Please note that these articles will open in Adobe Acrobat format (.pdf)

Blue Ocean Strategy and Samsung Innovation Series I.pdf

Blue Ocean Strategy and Samsung Innovation Series II.pdf

Blue Ocean Strategy and Samsung Innovation Series III.pdf

Blue Ocean Strategy and Samsung Innovation Series IV.pdf

Blue Ocean Strategy and Samsung Innnovation Series V.pdf

Is this inspiration enough for you? Interested in applying Value Innnovation and Blue Ocean Strategy in your line of work? Contact Gabor Burt at the email address above.

Question 9: Must You Be Best At Anything To Create Blue Oceans?

In Hot Pursuit Of ‘The Da Vinci Code’  ....

Blue Ocean Strategy does not require that you be the best in your business or assume that you have abilities others can’t match.  Instead of such an exclusionary stance, BOS claims the opposite: 

With the right understanding of target customers and strategy to serve them, anyone can create blue oceans.  It is not about being best in every, or even in any one particular criteria, bur rather having the best mix of criteria which leads to unoccupied market space and high growth.

Consider the example of The Da Vinci Code.  By May, 2004, in little more than a year since it began, the book went into its 56th printing with 7.35 million books in print, becoming by far the best selling book ever by an unknown author (beating out ‘Bridges of Madison County’, which sold 6 million).  The book has maintained its grip on the public’s imagination since, sparking heated debates, TV shows and books about the authenticity of its claims, and originating a new type of cultural tourism.  The movie version, starring Tom Hanks, will hit the screens later this year.

So why this unprecedented success?  Envious critics rightfully point out that the author, Dan Brown, has very apparent flaws as a writer.  His character development is weak and dialogues shallow.  So what makes his book the runaway best seller and cultural phenomenon over the works of other, far more talented writers?  The answer lies with Mr. Brown’s ability to tap into the psyche of his audience, to offer them an unprecedented blend of attributes.  His book collapses and simultaneously fascinates several distinct groups of readers, from mystery seekers to history and religion buffs and art lovers, in the process blurring the boundary between fiction and non-fiction.  And in creating a blue ocean, The Da Vince Code not only appeals to numerous existing customer groups, but captures a mass of new customers, thereby significantly expanding the overall market.

--Commentary on Blue Ocean Strategy and Value Innovation by Gabor Burt.

Question 8: Are There Really No Permanently Great Companies?

“There’s no such thing as a permanently great company or a permanently great industry. All industries rise and fall as do companies.  However, there are permanently smart strategic moves” - W. Chan Kim & Renee Mauborgne, from Chief Executive Magazine article “Flouting Conventional Wisdom” (May 2003).

This claim is a cornerstone of Blue Ocean Strategy.  It signals the shift from emphasis on industries or companies to strategic moves as the key unit of measurement and analysis. One of the problems with the quest for permanent greatness is that it draws companies into the trap of wanting to continuously outperform competitors.  This creates a myopic view of being too focused on competitors, and hence getting locked into head-to-head competition with accepted industry boundaries.

Instead, a key quality companies should strive for is adaptability, always scanning and acting upon broad market opportunities.  All companies face difficult or life-threatening challenges at one point or another, and it is their adaptability and ability to make smart strategic moves which allow them to prosper even in the face of adversity.

Consider the case of Nokia.   In 1991 trade with the Soviet Union, Finland’s and Nokia’s largest market, collapsed overnight.  At the time the company’s core activities were paper and rubber products.  By 1994 Nokia was selling off its industrial divisions and was listed on NYSE as the world’s premier supplier of mobile phones, which was just a small, peripheral division three years earlier.

Or the case of IBM.  Between 1991 and 1993 IBM recorded losses of USD 16 Billion and the future was looking grim to say the least.  In 1993 Lou Gerstner became CEO, the first company leader who was not from within the company, in fact not even from within the industry.   He completely re-oriented the company’s focus from technology driven to customer solution driven, so that by 2001 $35 Billion of $86 Billion total sales were from the newly created Global Services.  This radical shift in company culture and orientation is widely accredited with IBM’s exemplary recovery to growth and healthy profitability.

Question 7: What Was The ‘Fantastical’ Innovation Of Dr. Seuss?

“All the rest of that day, on these wild screaming beaches, The Fix-it-Up Chappie kept fixing up Sneetches.”

Theodore Geisel, the creator of Dr. Seuss, is a wonderful example of a Value Innovator.  His stories and characters redefined a whole segment of the book industry and significantly grew its target audience in the process.  Here is how:

In the 1940’s so called ‘early readers’, books designed to teach children to read in the U.S., only used the 223 words approved by the Dolch reading list.  Not surprisingly the books were boring and unimaginative and hence did not inspire youngsters to read.  Breaking this mold completely, Dr Seuss stories took these 223 words, but set out to combine the best of early readers (their simplicity) and those of traditional fairy tales (entertaining story and moral message), adding his trademark zany humor and illustrations to the mix.  As a result, he created books not only kids but adults love to read.

Using the visual tools of Blue Ocean Strategy, the Value Innovation of Dr. Seuss is depicted in the chart below.  The ‘Value Curves’ clearly illustrate the compelling new market space occupied by Dr. Seuss:  The combination of the best attributes from two traditionally separate, alternative solutions (early readers and fairy tales) and the creation of a totally new dimension (zany humor).

Footnote to aspiring innovators:  The first Dr. Seuss book “To Think that I Saw it on Mulberry Street” was rejected by twenty-nine publishers before its was accepted.

Question 6: Why The Emphasis On Innovation Today?

“At some point you have to innovate on the top line and stop trying to take out on the bottom line—or else do both.”

As the excerpt from the HR Magazine article available for download below points out: “By the end of the 1990s, many companies had reached the point of diminishing returns with their cost-cutting efforts. They needed to find new ways to make money and drive corporate growth. Innovation became a high priority.” Moreover, a study by the Wall Street Journal Europe in 2002 revealed that the number one strategic priority of European companies, across diverse industries, is innovation and that companies were reluctant to cut funding for innovation even in light of lean economic times.

These observations and trends go hand in hand with the premise laid out in the book ‘Blue Ocean Strategy’.  From the introductory section entitled The Rising Imperative of Creating Blue Oceans: “Accelerated technological advances have substantially improved industrial productivity and have allowed suppliers to produce an unprecedented array of products and services.  The result is that in increasing number of industries, supply exceeds demand.  The trend towards globalization compounds the situation” (p.8).

The writing on the wall is clear:  Keep doing the same as before or improve it marginally and the best you can hope for is temporary survival in today’s business environment.  Instead, companies that are first not only to accept change, but to drive change and make innovation a strategic priority (see the examples of Whirlpool and P&G in the article), will be the ones to excel and create Blue Oceans of uncontested market space.   

Download a_watchword_for_the_21st_century.doc

Question 5: What Is The Fabric Of Your Company’s Success?

“Some companies are born great, some achieve greatness, and some have greatness thrust upon them.”

If you accept the deterministic view of business as paraphrased from the timely wisdom of William Shakespeare, then your company either falls neatly into one of the three categories above. Or, it’s not (yet) a great company. 

Which is it?  Which type of company is yours? 

But now there is an alternative view professing a level playing field.  Any company can become great, regardless of where it is today.  The barometer of success is not the size of companies or R&D budgets, but making the right strategic decisions at the right time.  This is the premise of Blue Ocean Strategy.   

Between 1975 and 1995 sixty percent of Fortune 500 companies were replaced on the list.  Suddenly the clear delineation and hierarchy among companies is blurred. 

Which way is your company headed? Email us your thoughts.

Question 4: How Can You Turn Red Oceans Into Blue?

‘How many psychologists does it take to change a light bulb?’  Answer:  ‘Just one, but the light bulb must really, really want to change.’ 

First a quick definition of terminology again:  Red Oceans are those market environments which are dominated by cutthroat head-to-head competition.  In contrast Blue Oceans are new market spaces in which companies can achieve such leaps in customer value (and hence profitability), that competition becomes irrelevant.

Consider this joke about psychologists: 

‘How many psychologists does it take to change a light bulb?’  Answer:  ‘Just one, but the light bulb must really, really want to change.’ 

This is the crux of it with companies too.  The first step in discovering Blue Oceans, or turning Red Oceans into Blue, is a major shift in the strategic approach and mindset of a company.  This is much easier said than done.  Firstly, because companies stuck in Red Oceans need to abandon the limiting, yet much more familiar approach to competition and market opportunities that they have been cultivated for a long time.  This is not easy, and requires highly committed leadership and the involvement of the whole organization.

It is also difficult because in many ways Blue Oceans are moving targets.  While in Red Oceans benchmarking and market research were stable sources of market intelligence, Blue Oceans try to tap into not just expressed but also latent customer needs.  Latent customer needs by definition are hard to define and measure because they have not yet been discovered. 

And now for the good news:  Blue Ocean Strategy is here to help!  The methodology of BOS is designed to provide a step by step guide to any company, regardless of size or industry on this difficult but highly rewarding journey from Red Oceans to Blue.

Question 3: Why Are Red Oceans So Abundant?

Companies as well as consumers have a predominant tendency to accept certain market standards and to take industry boundaries for granted.     

I think there are two principal reasons why Red Oceans, the environment in which head-to-head competition is the norm, are so abundant.  First, because companies as well as consumers have a predominant tendency to accept certain market standards and to take industry boundaries for granted.  This view creates a significant obstacle to change.  And second, even if companies want to break out of Red Oceans, their approach to innovation is usually too limited, short-lived, or misguided for achieving and sustaining Blue Oceans.

Here is an example to illustrate these two points.  With the notable exception of certain pioneering airlines, why is it that the choreography of in-flight service on most any traditional airline is still pretty much the same?  Apart from safety instructions, which presumably are standardized by regulation, why is it that the in-flight announcements are almost verbatim the same across airlines?  Who is setting these standards, and why are the others copying? The same goes for food or beverage selection, in-flight magazines, and duty-free shopping (on international flights).  Yet if you were to ask passengers, all of them would tell you numerous ways that the service could be much improved.  So here is a situation where both the suppliers and consumers have accepted certain industry guidelines and boundaries leading to a Red Ocean and diminished returns for companies and customers alike.

Let’s stay with the airline industry to highlight the second reason also, the often misguided approach to innovation.  I frequently fly transatlantic on a major airline which recently introduced brand planes on such routes.  A key new in-flight feature of the planes is the personal entertainment system which gives each passenger in economy class his/her very own TV monitor and a variety of programs to help pass the time.  This in itself is great.  Sadly, there is one feature of this novelty which for me ruins the whole experience and makes for an overall restless flight.  The ‘flight attendant call button’ has been tragically placed on the entertainment system’s remote control, and causes a loud, piercing ring throughout the cabin whenever pressed.  Since most passengers are unaccustomed to using this particular remote control in the first place, the button is inadvertently pushed every minute or two.  How could this design flaw  have been made? Why wasn’t it caught? In my view, this is a perfect example of coming up with a very useful innovation, but failing to test it completely from the perspective of the target customer.  And as a result, the seemingly trivial oversight causes the entire benefit of this innovation to be potentially negated.

Question 2: What Is The Link Between Value Innovation And Blue Ocean Strategy?

Innovation by itself is self-gratification.  Value on its own is too generic.  But together, Value Innovation is the key to uncontested market space.

Answer:  Blue Ocean Strategy is a portfolio of inter-related concepts and methodology allowing companies to breakaway from head-on competition in order to create and maintain uncontested market spaces of high customer value.  The portfolio includes the whole leadership gamut from Strategy Formation, Strategy Implementation, Organizational Change and Staff Motivation.

Value Innovation is the first component of BOS, and provides the strategy formation framework.  Value Innovation is a highly pragmatic, visual methodology that allows companies to challenge industry boundaries and taken for granted assumptions and in the process discover highly distinctive and successful strategies.  Value Innovation sets the stage for the rest of the BOS concepts.  It was first featured in a 1997, ground-breaking Harvard Business Review article.

The recently released book Blue Ocean Strategy, published in February 2005 by Harvard Business School Press, is the first source in which the entire portfolio of concepts and methodology is presented together in one collection.  The book is expected to be an international best seller.  Some early indicators:  Already the most widely translated book ever published by HBSP,  on the Top 10 list of the Wall Street Journal, and Amazon’s Best Sellers list.

Question 1: Just What Exactly Is Blue Ocean Strategy?

There are no permanently great companies or industries.  Instead there are right strategic moves that propel businesses forward.

Answer:  Blue Ocean Strategy is the most influential new concept in management strategy, whose exciting premise is that companies can rearrange conventional factors of competition in order to create a leap in customer value.  In the process, companies make their competition irrelevant and discover unoccupied market space (hence the shift from a bloody, confined red sea to an expansive blue ocean).

The strategy outlines the premise, research, success examples and the so-called ‘Value Innovation’ framework (first introduced in Harvard Business Review, 1997) which allows companies to create Blue Ocean Strategies and in the process achieve:

• High-impact, customer-based innovations.
• Significant increase in speed to market, from idea formation to market introduction.
• Significant decrease in development and operational costs.
• An innovation-focused and duly motivated organization.

Numerous leading companies around the world have given compelling testimonials to Blue Ocean Strategy and Value Innovation.  One of these is Samsung, which gives credit to Value Innovation for helping it to become the world’s leading consumer electronics company and to develop the world’s best selling mobile phone and flat screen TV. A quote from Mr. Ki Won Lee, Samsung’s VP of Innovation:

“Up until a few years ago, Samsung was a fast follower busy trying to catch up with the advanced technology and products.  However, as the company has joined the ranks of world-class businesses, there is no one to follow.  We needed to make a new market space and the way to do it is Value Innovation.  Value Innovation is the most superior concept used to create management innovation at Samsung.”