Document 6505830

the most salient workplace and human resource issues
that are becoming important in the world of work. The
analysis is relevant to management professionals as well
as to academics. One of the book’s key strengths lies in
its comprehensiveness of scope and balancing the interests of various stakeholders. The conclusions are largely
relevant in different degrees for many other countries
in the developed world as well. With the growing
importance of convergence thesis in social science and
management, many formulations will be of immediate
relevance to developing countries like India as also to
others. The book has painted a wide canvas of the
contemporary world of work in the US and the implications it would have for public policy. The treatment
of issues is authoritative. This book is a significant
contribution to literature on American worker and human
resource management.
Debi S Saini
Professor, Human Resource Management Area
Management Development Institute
Gurgaon
e-mail:[email protected]
Blue Ocean Strategy: How to Create Uncontested
Market Space and Make the Competition Irrelevant
W Chan Kim and Renée Mauborgne
Boston: Harvard Business School Press, 2005, pp. 240, US$ 27.95
W
hy should companies waste time ‘breaking
the competition’ when they can ‘break away’
from the competition? In other words, why
should companies deplete their attention span in an
endless analysis and tracking of the ‘competition’ when
they can choose the path of ‘innovation’ instead? W Chan
Kim and Renée Mauborgne argue that it is time to move
away from the red waters of saturated markets in order
to ‘create uncontested market space’ in the blue oceans
of innovation since only innovation can actually ‘make
the competition irrelevant.’ While the red oceans of competition will not go away, the primary objective of this
book is to set out a systematic strategy to make blue
oceans possible since innovation is not just creativity or
so-called ‘value innovation,’ but the ability to ‘align
innovation, with utility, price, and cost positions.’ The
creation of blue oceans through the process of innovation, however, is extremely demanding. The authors,
therefore, set out a framework comprising the different
aspects of innovation so that practising managers can
go about the task of value innovation in as systematic
a way as possible.
Kim and Mauborgne begin with an elementary
differentiation between the ‘red ocean’ and the ‘blue
ocean.’ The former comprises ‘all the industries in existence today,’ while the latter represents ‘all the industries not in existence today.’ The intensity of competition
turns the market space of the former into red, bloody
oceans. An understanding of these industries depends
on the conventional analytic frameworks used to study
‘competitive dynamics’ in business schools; these frameworks and forms of analyses dominate the strategy
curriculum. Little guidance, however, is available for
those who wish to swim in the blue ocean. This is partly
because of the origins of business strategy in the history
of military strategy. In military strategy, the fight is
always over a piece of limited territory which has to be
occupied and defended; this territory is ‘limited and
constant.’ This is, however, not a valid constraint in the
context of industry: business history reveals that blue
oceans have appeared from time to time. Most of the
leading industries in place today did not even exist a
few decades ago since the emergence of a new technology can reshape industrial configurations beyond recognition. Examples of such blue oceans include ‘many
industries as basic as automobiles, music recording,
aviation, petrochemicals, healthcare, and management
consulting.’
The crucial questions that companies must ask
themselves today are these: Can the discovery of blue
oceans be pursued in a systematic way? Or should it be
left to the accidental emergence of innovations in the
economy? Furthermore, why should companies actually
bother with value innovations given the risks involved
in pursuing anything new? According to Kim and
Mauborgne, the economic reasons that will compel com-
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panies to innovate are the following: the excess of supply
over demand in most industries, the reduction in tariff
barriers as a result of globalization, the loss of niche
markets, the dismantling of monopolies, and the changes
in the demography of the ‘developed markets.’ As a
result of these economic factors, both products and brands
are being increasingly commoditized. Furthermore, the
authors argue that the performance of most companies
has been historically inconsistent. Hence, it has become
necessary, according to the authors, to move away from
using the company and/or the industry as the fundamental unit(s) of analysis.
The new unit of analysis that Kim and Mauborgne
propose is the ‘strategic move.’ A strategic move is
defined as a ‘set of managerial actions and decisions
involved in making a major market-creating business
offering.’ The empirical base for this book is drawn from
‘more than one hundred fifty strategic moves made from
1880 to 2000 in more than thirty industries.’ The study
included analyses of both the winners and the losers in
their attempts to create ‘blue oceans.’ The differences
between the two cannot be explained in terms of industrial and/or organizational characteristics. The crucial
difference lay in their ‘approach to strategy.’ The winners were able to negotiate the ‘value-cost trade-off’
better than the losers: they did not have to exercise the
customary ‘choice between differentiation and low cost.’
They were able to pursue both through ‘value innovation,’ which, as pointed out earlier, must be ‘aligned with
utility, price, and cost positions.’ Only then can value
innovation serve as ‘the cornerstone of blue ocean strategy’ and take in the activities of the company as a whole.
The default assumptions in the competitive notion
of strategy are then identified under the rubric of ‘environmental determinism.’ In this model, the players
work in the belief that they cannot ask questions; they
can, at best, manoeuvre within the given, historical frame
of competitive dynamics. While firms put in a heroic
attempt to differentiate in this space, they do so at a high
cost since they either use the competitor as a benchmark
or survey the industry mechanically for the available set
of ‘best practices.’ The blue ocean, however, renders the
possibility of innovating within a ‘reconstructionist’
frame (as opposed to a ‘structuralist’ frame of ‘environmental determinism’) provided that a given company
or firm can continue to handle ‘opportunity and risk’
since ‘there is no such thing as a riskless strategy.’
As the authors point out in Appendix B of this
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volume, the reconstructionist view of strategy is inspired by Joseph Schumpeter’s notion of endogenous
growth. However, the modalities of endogenous growth
that emerge from innovations that arise from ‘within’
are not clear in Schumpeter’s model—especially since
it is based on the activities of the ‘lone entrepreneur.’
The challenge is to make such innovations widespread,
a challenge that was initially taken up by the ‘new
growth theory’ and, subsequently, by the ‘reconstructionist view of strategy.’ The reconstructionist model
‘requires a shift of attention from supply to demand,
from a focus on competing to a focus on value innovation—that is, the creation of innovative value to unlock
new demand.’ Only by shifting to the demand side of
the equation and by working out the modalities of value
innovation is it possible to ‘achieve a leap in value’ that
is not reducible to competitive dynamics in the traditional sense of a zero-sum game. The framework required to do this is referred to as the ‘strategy canvas.’
The focus on the demand side of the equation means
that companies should concentrate on ‘alternatives’ rather
than on competitors and on ‘non-customers’ rather than
customers. The strategic hope here is that it is possible
to pursue both cost and value by redefining the very
nature of the industry that a company finds itself in. In
order to do this and generate ‘a new value curve,’ the
strategic framework must comprise the following four
actions in order to redefine the factors which constitute
the structure of a given industry. The strategic framework should eliminate, reduce, raise, and create the
factors responsible for the generation of a new value
curve given the industry standards at any point in time
through the application of the ‘strategy canvas.’
The role of the four actions given above (in generating a new value curve) has been illustrated through
three case studies. These cases include Casella Wines,
Southwest Airlines, and Cirque du Soleil, a Canadian
circus. Southwest, for example, is not interested in the
competitive dynamics of the airline industry per se. It
is, instead, focused on providing an alternative to car
travel by reducing the cost of flying since it is a lowcost carrier. Southwest is also proactive in strategy
formulation—avoiding thereby the me-too attitude of
most key players in the airline industry. And, it works
with an effective tagline: ‘the speed of a plane at the price
of a car—whenever you need it.’ It is alternatives to air
travel and non-customers in the airline industry that
matter to Southwest Airlines in the formulation of a new
BOOK REVIEWS
152
strategy canvas.
The four principles of strategy formulation and the
two principles of implementation set out in this book
to generate a new strategy canvas (i.e., a blue ocean),
however, do not have to be left to the vagaries of business
history—they can be formulated and implemented systematically. Blue oceans are industries that emerge when
companies learn to reconstruct markets, ‘focus on the
big picture,’ go beyond the given demand for a product
or service, and work out the right sequence in the formulation of a strategic goal. The principles of execution
involve learning to take the organization down the path
of innovation along with an inbuilt understanding of the
role of execution in the framing of strategy. The following paragraphs set out the four principles of strategy
formulation in some detail along with a brief discussion
of the relevant cases included in the book.
The first principle is reconstructing markets or rather
market boundaries. But, what does it actually mean to
‘reconstruct’ a market? What are the paths that companies must traverse to reconstruct rather than merely
penetrate markets? Kim and Mauborgne argue that there
are six paths of relevance here. They comprise the following: thinking of product/service alternatives (as
opposed to mere substitutes); looking across strategic
groups within an industry; redefining the traditional
chain of buyers in an industry (comprising influencers,
purchases, and users); generating a total solution for a
product or service by examining the temporal sequence
in which it will be used through the notion of complementary offerings; defamiliarizing the conventional link
between the emotional and functional aspects of a product/service; and tracking the emergence of trends across
time.
The case studies used to illustrate the six paths of
relevance in reconstructing market boundaries comprise
Net Jets and NTT DoCoMo; Curves (a fitness company
for women); Novo Nordisk and Bloomberg; NABI (a bus
company based in Hungary); The Body Shop, Cemex,
and Direct Line Group; Apple Computers and Cisco
Systems respectively.
The reconstruction of market boundaries, however,
presupposes the ability to change the strategy planning
process. Since this process is inevitably enmeshed in the
logic of the red ocean, it is extremely tempting for a
strategic planner to get drawn into the emotionally
comforting routine of number work and operational
details. In order to draw up a ‘strategy canvas,’ however,
it is necessary to focus on the ‘big picture.’ Hence, the
importance of working out the modalities of ‘visualization’ in strategic planning. The authors illustrate the
importance of visualization with a case study of the role
of value innovation programmes at Samsung Electronics. Some of the concrete outcomes of these programs
include LCD TVs and mobile phones which are leaders
in their respective categories. A concrete tool that the
authors advocate the use of in this context is the PioneerMigrator-Settler (PMS) Map. Such a map can help a
company to situate its portfolio. ‘For the purpose of the
exercise, settlers are defined as me-too businesses,
migrators are business offerings better than most in the
marketplace, and pioneers are the only ones with a mass
following of customers.’ Most items in the portfolio are
likely to be in the locus of the settler—the challenge is
to push it towards the locus of the pioneers as represented in a hypothetical scatter plot diagram.
The red ocean, given the conventional dynamics, is
bound to be preoccupied not only with the current
portfolio of product/service offerings but also with the
customers already in place. The blue ocean must, therefore, aim at what is in excess of the current demand by
targeting ‘the three tiers of non-customers’ for a given
company. The first tier comprises those who are willing
to try a new product or service; the second tier comprises
those who are not willing to try; and the third tier
comprises those who have not yet been targeted as
potential customers. Case studies used to illustrate the
dynamics of these three segments include Prêt A Manger, JC Decaux, and Lockheed Martin’s Jet Strike Fighter
(JSF) programme respectively. Converting these noncustomers into customers, however, demands a business
model which must ‘get the strategic sequence right.’
The strategic sequence demands that the company
must pay attention to identifying a product/service that
offers the buyer exceptional utility. It should be at a price
affordable to the customer; however, demand should not
be just a function of the price. Utility and price will help
the company to structure the revenue section of its
business model. In order to generate a profit, however,
the company must be able to target cost effectively
without letting ‘costs drive prices’—otherwise, the company’s offerings will not generate ‘a leap in value.’ This
is especially the case in ‘bottom of the (economic) pyramid’ initiatives as the Cemex case study (based in Mexico)
illustrates. In other words, to summarize, ‘it is the
combination of exceptional utility, strategic pricing, and
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target costing that allows companies to achieve value
innovation.’ Value innovation, however, is not the same
as technology innovation; technology does not automatically translate into ‘exceptional utility’ for the
customer as illustrated by the failure of Motorola’s
Iridium project.
The authors advocate the use of a ‘buyer utility map’
comprising six utility levers across ‘the six stages of the
buyer experience cycle’ as a reality check instead of
conflating technology innovation with value innovation.
This utility map can help to identify the ‘blocks to buyer
utility.’ Value innovation (as opposed to technology
innovation) involves the identification and elimination
of such utility blocks. A relevant example in this context
is Ford’s pioneering entry level automobile, the Model
T (1908), which exploited the fact that most automakers
in the pre-Ford era concentrated on luxury automobiles
(in an attempt to make money) without realizing that
the real hurdle in selling automobiles had to do with
inadequate roads and routine maintenance. Since the
cars were customized with multiple options and mechanics were scarce, the utility of these luxurious vehicles were severely limited by road and weather conditions. The Model T did away with these problems by
building a durable car of standardized design making
automobiles available to the ‘multitudes.’ Ford was able
to pioneer successfully at the level of the product, the
price, and the manufacturing process (the assembly line).
In order to get into place the dynamic combination of
exceptional utility and strategic pricing, a company must
identify the target cost as early as possible. To generate
a blue ocean, ‘a company should start with the strategic
price and then deduct its desired profit margin from the
price to arrive at the target cost.’ The assembly line
helped Ford to reduce the costs and time involved in
the manufacture of the Model T.
Cost innovations then are absolutely crucial: strategies to attain such innovations include streamlining
operations, partnering, and changing the model of pricing in place. As the authors explain in Appendix C on
‘the market dynamics of value innovation,’ blue ocean
strategy aims to avoid the practice of ‘price skimming’
which is endemic in monopoly markets. The strategic
intent should be ‘on creating new aggregate demand
through a leap in buyer value at an accessible price.’
Keeping costs at low levels over a sustained period of
time can, in addition to benefiting the customer, make
it very difficult for the competition to emulate an instan-
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tiation of value innovation. In addition to utility, price,
and cost, a company should be aware of the resistance
that may emerge to the adoption of a blue ocean strategy.
For example, SAP experienced a lot of resistance in the
development of Accelerated SAP (ASAP) from consultants who feared the possibility of a loss in revenue from
‘the development of best-practice templates’ for small
and mid-sized companies in the market for business
application software. SAP had to convince the consultants that the loss of revenue from the reduction in time
to implement ASAP could be compensated for by an
increase in the client base for affordable business application software.
The modalities of formulating blue ocean strategy
culminate in the tool that the authors term ‘the Blue
Ocean Index (BOI).’ The index embodies the strategic
‘sequence of utility, price, cost, and adoption.’ The
different claimants to value innovation can then check
the attributes of their product against this index. The
authors contrast the failure of Motorola’s Iridium project
vis-à-vis the launch of the ‘i-mode’ by NTT DoCoMo in
Japan in 1999 as a way of illustrating the usefulness of
the BOI. The failure of the former and the success of the
latter are mapped onto the structure of the BOI. The imode was a project to offer Net access on cell phones.
It was so resoundingly successful that DoCoMo was not
only able to address the problems of utility, price, cost,
and adoption that structure the BOI, but, have also
become, in the assessment of the authors, ‘the only
company that has been able to make money out of the
mobile Internet.’ Interestingly, ‘DoCoMo now exceeds
its parent company, NTT, in terms of market capitalization as well as potential for profitable growth.’
Finally, the two principles of strategy implementation: overcoming the inevitable hurdles in the organization and learning to build execution into strategy. The
first principle is illustrated by a detailed case study of
police commissioner Bill Bratton’s attempt to reduce the
levels of crime in New York City and turn around the
demoralized New York City Police Department (NYPD)
in the 1990s. Bratton used a model of leadership known
as ‘tipping point theory.’ This theory is based on the
simple principle ‘that in every organization, there are
people, acts, and activities that exercise a disproportionate
influence on performance.’ Hence, the focus should be
on working with these disproportionate influencers rather
than seeking a massive response to a massive challenge.
Disproportionate influencers can help to break through
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the cognitive, the political, and the motivational hurdles
in the organization and overcome the resource constraints
inherent in the implementation of blue ocean strategy.
And, finally, the process of implementation must
include execution from the very beginning through the
notion of ‘fair process’ comprising ‘engagement, explanation, and expectation clarity’ to garner the cooperation
of employees. While a blue ocean strategy can offer
companies some protection against imitation, it is important to know when to value-innovate again. The right
time is when a company’s ‘value curve begins to converge with those of the competition.’ The pursuit of blue
oceans, however, does not mean that companies can do
away with red oceans forever since these two models
of competition and strategy are often found to co-exist
in many industries. Nevertheless, Kim and Mauborgne
seek to “balance the scales so that formulating and
executing blue ocean strategy can become as systematic
and actionable as competing in the red oceans of known
market space.”
Shiva Kumar Srinivasan
Assistant Professor, Communications Area
Indian Institute of Management
Ahmedabad
e-mail: [email protected]
The books that help you most are those which make you
think the most. The hardest way of learning is that of
easy reading; but a great book that comes from a great
thinker is a ship of thought, deep freighted with truth
and beauty.
—Theodore Parker
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