doi:10.1016/j.lrp.2008.02.

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Copyright © 2008 Elsevier Ltd All rights reserved.

Book Review

W. Chan Kim and Renée Mauborgne, Blue Ocean

Strategy: How to Create Uncontested Market Space
and Make the Competition Irrelevant , Harvard
Business School Press (2005) 240 pp. $29.95,
hardcover.

Ofer H. Azar

Available online 18 March 2008.

Instead of competing with rival firms, make the competition irrelevant – this is the authors' main
message. Throughout the book they use the metaphor of red and blue oceans – red oceans
represent markets where competition is intense and bloody, while blue oceans are potential
markets not yet served by any firm. While most firms direct their efforts to red oceans, trying to
create and sustain a competitive advantage over their rivals, the authors argue that a much better
strategy is to focus attention on blue oceans, trying to identify as yet undiscovered market
opportunities, thus being able to exploit the new demand without the head-to-head competition
that drives profits down. They illustrate the importance of their main message with examples from
many firms and industries, as well as provide systematic managerial tools to assist managers in
finding and then taking advantage of blue oceans.

The book has quickly became a bestseller, been translated into thirty languages so far (with nine
more coming soon), and won awards such as being selected as one of Amazon.com's Top Ten
Business Books of 2005 and as strategy+business magazine's #1 Strategy Book of 2005. The
authors are both professors in strategy and management at INSEAD, and the book is based on
their research over many years, studying 150 strategic moves in thirty industries over a hundred
years.
The book's nine chapters are organized in three parts, with a brief preface and three appendices.
Part One discusses the main message of the book and presents some analytical tools and
frameworks. Given that no company or industry can be continuously highly profitable, the authors
judge the right unit of analysis to be ‘the strategic move’. Examining successful strategic moves
reveals ‘value innovation’ as the cornerstone strategy behind creating blue oceans of competitor-
free new demand. Instead of focusing on outperforming industry competitors, value innovation
involves a firm creating a leap in value for both the firm and its customers, making the
competition irrelevant by unleashing new demand and creating a new market where the firm is
free from competition, at least until imitators arrive. Value innovation involves both reducing
costs and increasing buyer utility, and the authors offer two tools to show how both can be
achieved. The first is a diagram called ‘the strategy canvas’. The x-axis shows the various factors
the industry invests in and competes on side by side, while the y-axis measures the extent to
which a firm invests in each factor and the extent to which its goods or services offer each factor.
In the airline industry, for example, such factors include ticket price, frequency of departures and
offerings of meals, lounges, different classes, etc. Competitors' strategic profiles can then be
depicted on the strategy canvas using a ‘value curve’. In many industries firms follow similar
strategies, and thus a single value curve can often capture various competitors profiles.

Considering their competitors' value curves, the firm can then use a second tool – the four actions
framework (Eliminate – Reduce – Raise – Create) – to consider what it should do to achieve value
innovation. When the firm believes a factor does not add enough value to customers (or to non-
customers the firm hopes may become customers) to justify its associated costs, it may choose to
reduce the level of its investment in this factor compared to the industry standard, or even to
eliminate it: these two actions help the firm to reduce its costs. The Canadian Cirque du Soleil, for
example, decided to eliminate several characteristics common in other circuses, such as animal
performances, three simultaneous stages and hiring star entertainers. The two actions of raising a
factor higher than the industry standard or creating something new that the industry has not
previously offered can achieve the increased buyer utility that is also an integral part of value
innovation. Depicting the firm's proposed strategy alongside the ‘normal’ industry value curve on
the canvas can help determine whether it seems promising. A good strategy should satisfy three
conditions: it should be focused (not spreading its efforts across all competition factors); it should
diverge from the value curve of the industry (offering something different and avoiding head-to-
head red ocean competition); and it should be able to be portrayed in a simple phrase – a good
‘tag line’.
Part Two's four chapters discuss how to formulate a blue ocean strategy. The first deals with
reconstructing market boundaries, and offers six paths to look for such opportunities
systematically. By examining these, the firm can get ideas on where new demand may come from:
alternative industries; strategic groups within the industry; the chain of buyers; complementary
goods and services; the functional or emotional appeal of the industry; and trends that develop
over time.

The next chapter suggests firms should ‘focus on the big picture, not the numbers.’ It advocates
four stages of strategy: awakening – comparing the business to its competitors and examining
how the strategy should change; exploration – going to the field to gain insights about customers
and demand; strategy fairs – developing proposals for alternative strategic directions and getting
feedback on them; and communication – explaining the old and new strategic profiles to workers
and supporting only initiatives that help to achieve the new strategy.

The following chapter discusses how to reach beyond existing demand, dividing non-customers to
three groups: those who are still customers but purchase only small quantities and may not remain
customers much longer those who consider the possibility but still choose not to buy; and those
who do not consider the industry as relevant to their needs. The firm should focus attention on
whichever segment has the highest potential.

The final chapter of Part Two deals with the optimum strategic sequence. The firm should first
consider whether its business idea creates high buyer utility; then think about what price can
attract the most customers; then consider whether the likely costs allow for the desired levels of
profitability; and finally consider potential hurdles to adoption.

Part Three examines the execution of a blue ocean strategy. The first chapter explains how to
overcome key organizational hurdles, divided into four categories: cognitive – making people
realize the need for strategic change; lack of resources; motivational – how to motivate workers to
implement the new strategy quickly and cheaply; and political – overcoming the resistance to
change within the organization. One of the interesting examples in this chapter discusses how
William J. Bratton turned NYPD from a failure into a great success in a couple of years.

The next chapter explains the importance of fair process in executing strategic change well. Fair
process involves three conditions: engagement – people who are going to be affected by the
change are involved in the process and their opinion is asked for; explanation – the strategic
decisions and their rationale are properly explained to the affected parties; and making
expectations clear – letting workers know what they are expected to do and how they will be
evaluated under the new strategy. Achieving fair process ensures that workers will trust and
commit to cooperating voluntarily with the new strategy.

The brief last chapter asks a question I was curious about from the very beginning: suppose that
you found a blue ocean: what guarantees your competitors won't follow you there and quickly
turn it red? The authors suggest firms can often retain a leading position in the new market they
have created and earn high profits because of barriers to imitation. For example, other firms might
not believe the new strategy is sensible; it may conflict with their current image; the market might
be a natural monopoly; proprietary patents may be involved; the original firm might enjoy
significant economies of scale and thus low costs; in some cases network externalities exist which
discourage competition; imitation might require drastic changes that cannot be achieved quickly
by others; and the original firm's drastic innovation may give it a lot of brand advertising and
loyal customers, an advantage that imitators may be unable to get. When, despite all these
barriers, other firms eventually enter the market and it becomes a red ocean, it is time to create a
new blue ocean elsewhere.

The book includes three appendices. The first (the longest and most interesting) describes the
evolution of the car, computer and movie theater industries, and how blue oceans were created in
them again and again over time. The other two appendices are brief and deal with value
innovation.

I enjoyed this book very much: it contains many interesting examples of real firms in various
industries that illustrate vividly the principles and ideas that the authors describe. Its ideas are
important, its arguments make sense, and it is easy to read. Moreover, the ideas are useful for
individuals as well as for firms and organizations: for example, analysing the potential effect of
different factors on results and adapting investment into each factor accordingly can apply as
much to individuals contemplating how to divide their time between different tasks as to firms
investing in competition factors. I would certainly recommend the book to scholars, students and
practitioners of strategy and management – and I believe it can provide an interesting reading also
for readers beyond these fields.