BLUE OCEAN STRATEGY – KIM & MAUBORGNE

This book review  looks into Blue Ocean Strategy by Kim & Mauborgne. I had known about this book for some time. I was aware of the many copies it had sold and that it was responsible for coining the term Blue Ocean Strategy. Sometimes I think non-fiction books that have sold millions of copies can be over hyped, but this book is not in that category.

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This book is a treasure trove of good ideas and insights for how businesses can think differently about strategy and ultimately, be more effective.

They begin with the observation that:

What consistently separated winners from losers in creating blue oceans was their approach to strategy.

The companies caught in the red ocean followed a conventional approach, racing to beat the competition by building a defensible position within the existing industry order.

The creators of blue oceans, surprisingly, didn’t use the competition as their benchmark. Instead, they followed a different strategic logic that we call value innovation.

This really sets the scene for the central theme that the book is about.

For more information  on value innovation, the authors had this to say:

Because buyer value comes from the utility and price that the company offers to buyers and because the value to the company is generated from price and its cost structure, value innovation is achieved only when the system of the company’s utility, price, and cost activities is properly aligned.”

The diagram below is useful for showing how value innovation is created in the space between costs and buyer value.

value innovation

Effective frameworks are important during the strategy formulation process. This book has a number of excellent frameworks, but there was one in particular that stood out for me. It was the Eliminate-Reduce-Raise-Create Grid. This grid forces businesses to scrutinise every factor that the industry competes on. The inclusion of the eliminate quadrant forces businesses to not over-engineer solutions to problems. Deciding to not do something can be as important as deciding to do something. You can find more information in the grid below.

ERRC

Later on, in a chapter titled ‘focus on the big picture, not the numbers’ the authors have this advice:

“The strategic profile with high blue ocean potential has three complementary qualities: focus, divergence, and a compelling tagline. If a company’s strategic profile does not does not clearly reveal those qualities, it’s strategy will likely be muddled, undifferentiated, and hard to communicate. It is also likely to be costly to execute.”

The quotation above sums up the overarching theme of the book. Effective strategy cannot become all about doing new things. It should be about doing things that a company already does but doing them better and about eliminating things that don’t create value.

Later on, there is a great section on technology and how it applies to Blue Ocean Strategy. The authors had the following to say:

Unless the technology makes buyers’ lives dramatically simpler, more convenient, more productive, less risky, or more fun and fashionable, it will not attract the masses no matter how many awards it wins. Value innovation is not the same as technology innovation.”

I thought this quotation was great. Too often technology is thought of a panacea where more is always better. In reality it is only effective technology that we need more of, not technology for technology’s sake.

The price that a company decides to charge for its product or service is a key component of the strategy formulation process. The authors issue the following guidance:

The key here is not to pursue pricing against the competition within an industry but rather to pursue pricing against substitutes and alternatives across industries and nonindustrues.

Towards the end of the book, the authors offer the following advice for how to create a successful strategy:

At the highest level, there are three propositions essential to the success of strategy: the value proposition, the profit proposition, and the people proposition. For any strategy to be successful and sustainable, an organisation 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.

This is great advice, which if taken onboard will help companies with the strategy and execution process enormously.

If companies do manage to transition away from a red ocean into a blue ocean, they may find that others try to copy them. The authors set out a number of barriers that limit this imitation.

One is the alignment barrier. Aligning value, profit and people into an integrated system is not easy. This limits imitation.

The cognitive and organisational barrier. Imitation often requires competitors make substantial changes to their existing business practices. Organisational politics prevents this from happening.

The brand barrier. Brand image conflict can prevent companies from imitating a blue ocean strategy.

The economic and legal barrier. Natural monopoly blocks imitation when the size of a market cannot support another player.

What you need to know

This book review looked at Blue Ocean Strategy by Kim & Mauborgne. Some books really force you to think differently and leave a lasting impression. This book certainly had that effect on me.

Even if you consider yourself to be astute at strategy formulation, by reading this book you can learn something.

Strategy when used incorrectly can be dangerous and can lead organisations to pursue lost causes. But when used correctly, it can be a potent force for change.

I would definitely recommend this book.

Thank you for reading,

By Barnaby Nash

Please share your thoughts in the comments section below or reach out to me on social media. What is your favourite book on strategy?

Let’s stay connected

I can be reached on LinkedIn and on Twitter @FollowBarnaby

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