Blue Ocean Shift – Chan Kim [Book Summary]

by Nick

“Blue Ocean Shift” by W. Chan Kim and Rene Moborn – the continuation of their famous bestseller “Blue Ocean Strategy”.

The new book is based on the thirty years of experience of Kim and Moborn in the study of numerous organizations that decided to put into practice the “blue ocean strategy”.

The authors talk about the same tools as in the “Blue Ocean Strategy”, but describe them from a practical point of view, which makes this book a step-by-step methodological guide for the implementation of the “transition to the blue ocean” in any organization, regardless of its size, form of ownership and areas of activity.

The book provides numerous examples of both successes and failures undertaken by the “strategic shift” of commercial firms, charitable foundations, and government departments.

This book is available as:

Audiobook | eBookPrint

“The Scarlet and Blue Oceans”

Businesses can fight to survive in the face of fierce competition in the existing market, in the “scarlet ocean”. And it may become the discoverer of a new market – the “blue ocean”, in which competition is absent by definition. In the “scarlet ocean,” firms are constantly forced to seek a compromise between the consumer value of the product and costs.

To create a product that is more valuable and stands out against the background of competitive offers, you need to increase costs. Attempts to reduce costs and price, as a rule, reduce the value of the product. The transition to the “blue ocean” avoids this dilemma, that is, to maintain low costs with high consumer value. Such a transition is a five-step process that any organization can implement. The success of the transition will provide a new vision.

The Summary you might like: Level Three Leadership

“Value Innovation”

Creating a new market, you can go in one of three ways. With “disruptive creation,” an innovative product supplants an earlier solution, and a new market destroys an old one. “Continuous creation” is also possible when the creation of a new market does not cause irreparable damage to other industries. This is exactly what happened with the emergence of microcredit, life coaching, and fitness clubs. Finally, there is an intermediate option when “inextricable” methods are combined with “subversive” ones.

For example, by launching ActiFry deep fryer, which allows you to cook low-calorie fries using a small amount of oil, Groupe SEB not only captured part of the traditional deep fryer market but also won new fans among those who were not at all interested in this dish before. However, innovative technologies should not be confused with “value innovation”.

A technological breakthrough in itself does not guarantee commercial success for a product, because it’s not the technology itself that matters to the consumer, but the value that it carries. Advanced technologies could not attract the attention of users to Google Glass glasses, while Starbucks coffee houses, on the contrary, conquered the market only due to a “jump in value”, without any technological innovations.

“New Vision”

The path to the “blue ocean” begins with a change in the focus of thinking. To create a new market, you must see new opportunities where others see only obstacles. Instead of finding a compromise between value and cost, blue ocean strategists seek a “leap in value” in their supply while maintaining low costs. A striking example of this approach is the British charity Comic Relief.

When it was created, thousands of charitable organizations fought for the same audience – wealthy elderly donors. Comic Relief went the other way. She began to hold a fun holiday “Red Nose Day”, where everyone is doing something funny or unexpected for a fee that goes to charity. It was possible to attract all sectors of society, including children, to participate in charity. Comic Relief dramatically reduced costs by abandoning costly marketing activities.

“Humanity of the process”

To increase the chances of success, the process of transition to the “blue ocean” should be built taking into account the psychological aspect of change. Three principles will help you with this:

  1. The scope of the set goals can paralyze the desire of employees to move forward. Therefore, break each big task into many small steps.
  2. Abandon the guidelines and help your colleagues conclude that the change is ripe. Organize, in particular, their meetings with customers.
  3. Get employees involved in developing your transition strategy. Explain the motives for decisions and clearly articulate “perspectives, functions, and responsibilities.”

Stage I. Start

It would be a mistake to start a total change immediately in all areas of activity.

Begin with a relatively small area. To determine the optimal area for the first transition experience, divide all the company’s products into three groups:

  • 1) slightly different from competitors’ offers;
  • 2) having a value higher than that of competitors, but not innovative;
  • 3) bringing “value innovation” to consumers.

Choose a product from the first group that is experiencing a period of difficulty due to the onset of competitors. It is important that the unit responsible for its release is not in a state of reorganization, and its head strongly supports the idea of transition.

“The transition to the blue ocean is a systemic process aimed at moving the company from ruthless markets with bloody competition (scarlet oceans, full of sharks) to open blue oceans (or new markets devoid of competition).”

Form a team of the “blue ocean” of 10-15 people – representatives of all key departments of the company, whose work can affect the success of a new product. It does not have to be department heads; it’s more important than these people are respected in the team and strive for change.

Include a pair of skeptics in the team: their presence will increase employee confidence in the reforms. In difficult cases, you can also hire an external consultant. Keep in mind that units that are not involved in the overall process may not understand the essence of the initiative and therefore resist its implementation.

Stage II. “Determining the Current State of Affairs”

To decide where to move, you need to understand where you are. At the second stage of the transition, the team studies the “strategic landscape” – the situation in the industry and the strategies of competitors. To do this, use a tool called “strategic canvas”. How to build it? On the horizontal axis of the graph, position 5–12 of the main areas in which the industry competes (for example, price, maintenance, work cycle, and so on). Only consider what matters to customers. Say, we include “attentive attitude to customers”, but not “good team”. On the vertical axis, apply divisions from one to five (1 – low, 5 – high).

Opposite each component of the competition, mark the level of supply of the industry leader – your main competitor – and connect the marks with a line. This line is the “strategic profile” of the leader. Then, in the same way, build a profile of your company and, if desired, another player.

“Based on the assumption that the only way to create a new market is to undermine the old, we may well lose sight of the opportunities for continuous creation.”

Invite the team to ponder the resulting schedule and express their thoughts. If your company’s line practically repeats the leader’s line drawing, you are in the “scarlet ocean” of imitators, where different companies offer the consumer products that differ very slightly. As a rule, such a discovery makes a great impression on team members and awareness of the need to move to the “blue ocean” is growing.

Stage III. “creating a Picture of the Possible”

Now you have to find the “pain points” that limit the growth of your industry. Consumers either put up with these shortcomings or abandon industry products because of them in favor of more attractive alternatives. The “consumer utility map”, a matrix of six columns and six rows, will help identify such points.

The columns correspond to the stages of the “consumer cycle” (purchase, delivery, use, additional products and services, maintenance and disposal). The lines show the “leverage of utility”: consumer productivity (the product’s ability to satisfy customer needs), simplicity, convenience, risk reduction (from physical and financial to emotional), entertainment and image, environmental friendliness. Each cell at the intersection of columns and rows is a “niche of utility”. Analyze with the whole team every stage of the “buying cycle” in your industry for all utility components.

Is there any obstacle at one stage or another to ensure simplicity, convenience, and so on? If there is a problem, mark these boxes with an “X”. Here they are – “pain points” of your industry! With “O,” mark the cells that your industry is currently focused on. (For example, prior to ActiFry, fryer manufacturers focused on one “utility niche” out of the 36 possible — productivity of use. And if they tried to wash the appliance, they would find a “pain point”.) convenience and so on?

If there are problems, mark these cells with an “X”. Here they are – “pain points” of your industry! With “O,” mark the cells that your industry is currently focused on. (For example, prior to ActiFry, fryer manufacturers focused on one “utility niche” out of the 36 possible — productivity of use.

And if they tried to wash the appliance, they would find a “pain point”.) convenience and so on? If there are problems, mark these cells with an “X”. Here they are – “pain points” of your industry! With “O,” mark the cells that your industry is currently focused on. (For example, prior to ActiFry, fryer manufacturers focused on one “utility niche” out of the 36 possible — productivity of use. And if they tried to wash the appliance, they would find a “pain point”.)

“Blue Ocean strategists are not fighting to attract more existing customers, they are shifting their focus to non-customers to create new demand.”

The “pain points” you have detected prevent people from becoming consumers of an industry product. Three groups, or “tiers,” of such “non-customers,” can be distinguished.

  1. Potential “non-customers”: they still use the products of your industry, but they will refuse them as soon as they find an alternative to them.
  2. “Refusers”: considered the possibility of buying a product and decided not to buy.
  3. Unexplored “non-customers”: they could potentially become your customers, but they don’t even think about it because of the current market conditions.

“The industries have already accustomed their consumers to what to expect. Therefore, studies give them the corresponding response – “more of the same, but cheaper”. ”

Discuss with the team who to consider your “non-clients” on each of the three tiers. Estimate the estimated volume of demand that you can create by removing the obstacles that prevent non-customers from becoming customers.

Stage IV. “Search for Ways to Achieve the Goal”

You have seen that the demand for your product can be significantly higher. To expand the boundaries of the market you will help the “model of six approaches.” Consider six possible directions:

  1. Other industries offering an alternative. Take a break from competitors and pay attention to customers of those industries that satisfy the same needs as you, but in other ways. Suppose you are engaged in air travel: focus on people who prefer other modes of transport over airplanes. What determines their choice? The main reasons are usually few: one or two. Find them out by interviewing these people.
  2. Strategic groups within your industry. In each industry, there are usually several “strategic groups” of companies that have similar market strategies. As in the previous case, find out what makes some customers in your industry prefer companies in other strategic groups.
  3. Participants in the purchase process. Competing firms tend to fight for the target customer, ignoring those who influence the purchasing decision: end-users, “influence agents” and “potential influence agents”. (So, when it comes to buying clothes for a teenage girl, the buyers are parents, the user is a daughter, the “agent of influence” may be a certain “star” of show business, and the “potential agent” is a seller who either recommends something to parents or refrains from advice.) Get on your side those participants who are not noticed by your competitors.
  4. Additional products and services. With their help, you can increase interest in your proposal. The idea will be prompted by monitoring the process of using the product in life. Watching the British brew tea while fighting tea, Philips created an explosive demand for its electric kettles by equipping them with integrated filters.
  5. Functional and emotional appeal. Typically, in each industry, competition is based on either the functional or emotional attractiveness of the product. For example, legal services are focused on functionality, while high fashion is focused on emotions. Is it possible to expand the demand for your product by changing the type of its appeal?
  6. Future. While other firms are adapting to a changing market, you can start to take the lead by identifying trends that will have a decisive influence on the development of your industry in the future. That’s exactly what Groupe SEB did: noticing the growing popularity of healthy eating, she created a new type of deep fryer.

“The fact that industry boundaries are not permanent, and that companies can create them again and again through focused efforts, is our main and time-tested argument.”

After conducting such an analysis, you will find many elements that are too important in the industry, although they are not important for consumers, as well as many gaps, the filling of which can significantly increase the demand for your product. Break these elements into four groups:

  • 1) those that need to be eliminated;
  • 2) those that need to be reduced;
  • 3) those that need to be increased;
  • 4) those that need to be created.

So, the team of citizenM, a new network of affordable luxury hotels, found out that you need to abolish the hall and restaurant, increase the comfort of the rooms, the quality of Wi-Fi, the pressure of the water in the shower, reduce the noise level (with a mandatory location in the city center), and create – Self-service desks and a 24-hour bar.

The first and second lists will help you reduce costs, and the third and fourth – to make a “jump in value”. Based on these four lists, develop a “targeted strategic profile” of your company and prepare a financial and economic justification for the idea. This work needs to be done for all six methods.

Stage V. “Implementation of the Strategic Step”

So, you have six “targeted strategic profiles”, each with a rationale. Which of the six options to put into practice? To make this difficult choice, organize a “fair of blue ocean strategies”. At the “fair” must be present the management of the company and its main departments; It is also advisable to invite existing and potential customers, partners, and industry analysts. After the presentation of options, all participants, except the strategic team, cast their votes for a particular strategy and substantiate their choice. The company management makes a decision, clearly explaining its reasons.

“The emergence of a common business model means that the development process is complete and the strategic step is ready to launch.”

Having chosen a strategy, you need to test a prototype of a new product with the participation of a potential audience and make the necessary changes to it. The new business model is finally formalized: a “target level of profitability” is established and ways to achieve it are being worked out (for example, through the conclusion of profitable partnerships, outsourcing, and optimization of operational activities). The implementation of the plan is best started with one business object – a store, hotel, service center, and so on. Then you will have the opportunity to identify and eliminate deficiencies in time. After verifying the viability of your business model, go on to scale it.

“At the government level, the transition to the blue ocean is just as applicable to corporations, nonprofits, or startups.”

Programs for the transition to the “blue ocean” can be implemented not only in a separate industry but also on a national scale. Thus, in Malaysia, on the basis of this technique, a successful state program of “community rehabilitation” of convicts was developed.

Conclusion

  • The transition from the “scarlet” to the “blue ocean” of markets allows us to avoid competition and increase the consumer value of the product while reducing costs.
  • The commercial success of a product is brought not by technological innovations, but by “value innovation”, that is, a “jump in value” of a product in the eyes of the consumer.
  • To create a new market, do not take industry conditions for granted and look for growth opportunities where others see obstacles.
  • For a successful transition of the company to the “blue ocean,” it is important that employees become interested participants in the development and implementation of a change strategy.
  • Start the transition by choosing one product for a company whose sales are difficult due to competitive pressures.
  • At the second stage of the transition, study the “strategic landscape” of your industry: how similar are the strategies of competing firms and how do they match yours.
  • In the third stage, analyze the customer experience and identify “pain points”.
  • Highlight the main groups of “non-customers” – potential consumers who, for one reason or another, are not yet clients of your industry.
  • In the fourth stage, develop six strategy options to attract the attention of customers from other industries and consumer groups to your proposal.
  • In the fifth stage, select one of the six strategic steps for practical implementation, test a new product and formalize a new business model.

Why You Should Read “Blue Ocean Shift”

  • To take your organization “beyond competition” to the “blue ocean”
  • To create your own league with all rewards
  • To be able to stand out from the crowd and succeed

This book is available as:

Audiobook | eBookPrint