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  1. 1. Forever Blue Des Dearlove immediate tit-for-tat retaliation. alternatives. Either, they started with Strategy quickly reverts to tactical their industry as the basic strategic Special Report opportunism. As the German Field building block, or with their Marshall Helmuth Carl Bernard von company. The former led them Moltke memorably observed: towards Michael Porter’s Five Forces “No battle plan ever survives contact framework which focuses on with the enemy.” So where should industries; while the latter inclined companies turn for a more innovative them towards Gary Hamel and CK approach to strategy? Prahalad’s core competencies which Blue Ocean Strategy claims to focuses on companies. hold the answer and, along the way, Over the last two decades a great challenges everything you thought deal of intellectual energy has been you knew about strategy. The expended on refining these two authors, W. Chan Kim and Renée worldviews. Yet, both view the world T o many in the business world, Mauborgne, argue that cut-throat from a purely competitive stand strategy formulation remains competition results in nothing but a point – they see strategy as a zero- the pinnacle of corporate bloody red ocean as rivals fight over sum game. According to Kim and endeavour. Yet, as business becomes shrinking profits. Based on a study Mauborgne there’s also an intellectual ever more competitive, and growth of 150 strategic moves spanning irony underlying both. “There’s no more elusive, strategy is often little more than 100 years and 30 such thing as a permanently great more than a call to reform ranks for industries, they argue that lasting company or a permanently great the next bloody battle. Orthodox success comes not from battling industry. All industries rise and fall strategy is all about beating the competitors, but from creating “blue as do companies,” they explain. competition – literally, to death. oceans” – untapped new market “However, there are permanently It is no coincidence that strategic spaces with high growth potential, smart strategic moves.” plans are couched in warlike notions. something they call value innovation. Kim and Mauborgne are methodical. They exhort companies to seize Their work is characterised by competitive advantage, battle over Smart moves rigorous research and attention to market share, and struggle for Before diving into the blue ocean it detail. They are also patient. On the differentiation. The trouble is that is worth looking around from the strength of their Harvard Business if the opposing army is doing the diving board. The vista is clear. Review articles alone, some thought- exact same thing, such strategies Those in search of strategic leaders of their standing would be often cancel each other out or trigger inspiration have traditionally had two on their second or third book. Kim 56 Business Strategy Review Spring 2005 Special Report: Business Books
  2. 2. Photo: John Abbott Kim and Mauborgne: Life on the ocean wave and Mauborgne are only now substantially attributable to envied companies in the IT industry; publishing their first. Blue Ocean something they call strategic moves. today the reverse is largely true. Strategy is the culmination of more “When we first asked ourselves if Kim and Mauborgne’s analysis of than a decade of work. there is a systematic approach to industry history revealed that the The Korean and American, now create blue oceans, we began by strategic move, and not the company based at Insead, wanted to be sure looking at the basic unit of analysis or the industry, is the right unit of Special Report their theories stand up – that they used in business literature: the analysis for explaining the creation cannot be dismissed as a passing company. However, history reveals of blue oceans and the root of fad or fashion. Nothing has been left that there are no perpetually profitable growth. “By strategic move to chance. Extending their data back excellent companies,” they say. we mean, the set of managerial over 100 years took two years of “Consider In Search of Excellence, actions and decisions involved in painstaking research. “We have the first bestselling business book making a major market-creating sleepless nights getting the data published in 1982. Within just five business offering. The strategic right,” reflects Professor Kim, a years two-thirds of the identified moves we discuss – moves that have former University of Michigan model firms in the book had declined. delivered products and services that Business School professor who Likewise, for those sample companies opened and captured new market studied under CK Prahalad and in the book Built to Last, another space, with a significant leap in alongside Gary Hamel. Mauborgne, blockbuster business book, it was demand – contain great stories of an American, joined intellectual later found that if industry performance profitable growth. We built our study forces with Kim at Michigan. was removed from the equation, many around these strategic moves (over So what does all this data show? of the companies in Built to Last 150 from over 30 industries Kim and Mauborgne believe that were no longer exceptionally excellent. spanning from 1880 to 2000) to the business world has been As Foster and Kaplan point out in understand the pattern by which overlooking one of the key lessons their book Creative Destruction, the blue oceans are created and captured of wealth creation in history. Their companies listed certainly and high performance is achieved.” research indicates that the major outperformed their markets, but so Consider auto-industry from 1900 source of wealth creation over time did their entire industries.” to 1940 is instructive. Ford’s Model is not the industry that a company So if there is no perpetually high- T, launched in 1908, triggered the plays in per se. Nor did they find performing company and if the same industry’s growth and profitability, permanently great companies that company can be brilliant at one replacing the horse drawn carriage consistently captured wealth. This moment and wrongheaded another, with the car for American contradicts books like In Search of it appears that the company is not households. It lifted Ford’s market Excellence, Built to Last, and Good the appropriate unit of analysis in share from 9 to 60 per cent. The to Great, which seek to distil the exploring the roots of high Model T, then, was the strategic characteristics of great companies. performance. Likewise, there are no move that ignited the automotive Instead they found that an industry’s perpetually excellent industries. Five industry. But in 1924, it was and a company’s ups and downs are years ago, for example, people overtaken by another move, this ¡ Special Report: Business Books Spring 2005 Business Strategy Review 57
  3. 3. ¡ time by GM. “Contrary to Ford’s substantially limits its strategic arrival of new technology. So how functional one-colour one-car single opportunities and profitable growth does the notion of blue ocean model strategy, GM created the new potential by narrowly confining its strategy differ from the “disruptive market space of emotional stylised analysis to its own industry. Yet, in technology/innovation” proposed by cars with ‘a car for every purpose and most strategy literature, industry Clayton Christenson? purse’,” explain Kim and boundaries are regarded as central – Professors Kim and Mauborgne Mauborgne. “Not only was the auto think of SWOT analysis or Michael have a ready answer. Disruptive industry’s growth and profitability Porter’s Five Forces.” technologies/innovation, they say, is again catapulted to new heights, but Rather than viewing strategy as about seizing those customers who GM’s market share jumped from 20 enacted in a landscape of dominant are overserved by incumbents in the to 50 per cent while Ford’s fell from companies or industries, in Blue existing industry. It focuses on 60 to 20 per cent.” Ocean Strategy Kim and Mauborgne disrupting from the low-end to Look back to the major industries of 1970 and very few, if any, are now significant. Then in the 1970s, Japanese car paint a persuasive picture of a capture down market customers. In companies created the blue ocean of commercial world in constant flux, contrast, blue ocean strategy is about small, gas efficient autos. In the where whole industries rise and then making incumbents irrelevant by 1980s, Chrysler created the blue often disappear into oblivion. “Look creating uncontested new market ocean of minivans. All these back to the major industries of 1970 space not only within but also beyond companies were incumbents. and very few, if any, are now existing industry boundaries. When Moreover, the blue oceans made by significant,” they note. “The big blue ocean strategy speaks of creating incumbents were usually within their growth industries in the past 30 years uncontested new market space core businesses. In fact, most blue have been the computer industry, within, however, it does not focus on oceans are created from within, not software, gas-fired electricity plants, the low-end like disruptive innovation. Special Report beyond, red oceans of existing mobile phones, and the café bar It focuses equally on creating blue industries. This challenges the view concept. But in 1970 not one of oceans at the high-end as in the that new markets are in distant those industries existed in a case of Dyson in vacuum cleaners, waters. Blue oceans are right next to meaningful way, and that’s just 30 Starbucks in coffee, or Polo Ralph you in every industry. Issues of years back. The pattern continues as Lauren in fashion, at the low-end as perceived cannibalisation or creative you dig into the past. The big is in the case of Curves in fitness or destruction for established companies industries of 1940 aren’t those of Formule 1 in hotels, or anywhere in also proved to be exaggerated. Blue 1910 and so on. We have a hugely between as in the case of Borders oceans created profitable growth for under-estimated capacity to create and Barnes & Noble in book retailing, every company launching them, new industries.” or Pret A Manager in take-out food. start-ups and incumbents alike. This, then, is their key message. Hence, when blue ocean strategy Over the research period, they The number of industries is ever speaks of “within” it embraces the found a similar pattern in other expanding – and the pace is whole range of entry points of sectors. In short, the strategic move accelerating. The implications for demand creation. Furthermore, blue that matters most to both an companies are profound. “What we ocean strategy differs from industry’s long run profitable growth see is that over a 30 year cycle the disruptive innovation in that it also and that of individual companies is focus of commerce, where the money reaches beyond existing industry the repeated creation over time of is made, shifts 100 per cent,” say boundaries by opening entirely new new market space that embraces the Kim and Mauborgne. “Some industry space as in the case of mass market. Kim and Mauborgne industries die, some persist. But new Cirque du Soleil or eBay. call this “value innovation”. Without industries are constantly being They also have a counter to the it, whole industries fade into the created. It is like a galaxy of stars – charge that blue ocean strategy is sunset and are replaced by those infinite.” Transpose that onto the inherently more risky. Far from it, which are more innovative. Without future, and the obvious conclusion is they say, blue ocean strategy is it, companies become irrelevant or that the biggest industries today are about risk minimisation and not are overtaken – as Ford was unlikely to be the biggest industries about risk taking. Of course, there overtaken by GM in the 1920s. 30 years hence. is no such thing as a riskless “Value innovation occurs across strategy. Any strategy, whether red industries, across countries, across Different not disruptive or blue, will always involve risk. companies,” they say. “It is a Often, of course, the emergence Nonetheless, when it comes to universal force. A company, therefore, of new industries coincides with the venturing beyond the red ocean to 58 Business Strategy Review Spring 2005 Special Report: Business Books
  4. 4. create and capture blue oceans there every company pursuing a blue ocean The problem was that The Body are six key risks companies face: strategy? The problem, say Kim and Shop didn’t realise what made it a search risk, planning risk, scope risk, Mauborgne, is that the basis of brilliant strategic move. Its genius business model risk, organisational strategic thinking – and the lay in creating a new market space risk, and management risk. The first consulting industry it has spawned – in what was seen as a commodity four risks revolve around strategy is based on coming up with strategies industry. Once it had carved out its formulation, and the latter two based on what you can see now. own market, the company focused around strategy execution. Business strategy is historically on mining that new market space. Each of the six principles in Blue intertwined with military notions of That was effective while few players Ocean Strategy expressly addresses strategy. Carl von Clausewitz, a imitated it. But, as more and more how to mitigate each of these risks. Prussian general, and Sun-Tzu, an competitors moved into its market The first blue ocean principle – ancient Chinese theorist, are still space, the company became reconstruct market boundaries – cited as inspirations by the world’s involved in a bruising battle for addresses the search risk of how to managers. This notion of strategy, say market share. This was the wrong successfully identify, out of the Kim and Mauborgne encourages strategy. haystack of possibilities that exist, managers to see strategy as a series “Once you have your own market commercially compelling blue ocean of battles to be conducted on a neatly space and imitators follow, you go into opportunities. The second principle defined battlefield. The victor gains classical competitive strategy mode – focus on the big picture, not the ownership of more of the battlefield. where you focus on milking it, getting numbers – tackles how to mitigate “The war analogy we have used for your best market share, blocking other the planning risk of investing lots of strategy so far is the wrong one. It is imitations and dramatically ramping effort and lots of time but delivering based on an assumption that there’s up and refining your offering”, explain only tactical red ocean moves. The only so much territory that exists,” Kim and Mauborgne. “But, as other third principle – reach beyond they observe. “So it’s been about companies’ strategies converge on existing demand – addresses the dividing up that territory. There’s your market, history shows you need scope risk of aggregating the been a winner and a loser. But our to create new market space again greatest demand for a new offering. research shows it’s not a zero sum and break away.” Special Report The fourth principle – get the game. You can create new land. In their model, strategic success strategic sequence right – addresses Business history shows us that depends on understanding the context how to build a robust business contrary to perceived wisdom, the and using the right moves at the model to ensure that you make a number of market spaces that can right time. Strategy becomes a game healthy profit on your blue ocean be created is infinite.” of tag or leapfrog, rather than a idea, thereby mitigating business Blue ocean strategy, Kim and brawl. Crucially, Kim and Mauborgne model risk. The fifth principle – Mauborgne argue, offers a more reject the idea that a company’s overcome key organisational hurdles reliable route to value creation. This strategic options are determined by – tackles how to knock over changes the fundamental operating traditional industry lifecycle. organisational hurdles in executing a principles of strategy. Consider The strategic lesson is clear: blue ocean strategy addressing The Body Shop. In the 1980s, The “When you take an industry organisational risk. The sixth Body Shop was highly successful. deterministic view of your company principle – build execution into Rather than compete head on with you become a victim of that industry. strategy – tackles how to motivate large cosmetics companies, it The moment you sit back and say people to execute blue ocean invented a whole new market for how can we create a new industry strategy to the best of their abilities, natural beauty products. More then you start to break that cycle. overcoming management risk. recently Body Shop has struggled. All industries are created not by big But, say Kim and Mauborgne, that resources but by big ideas.” Winning battles, losing wars does not diminish the brilliance of Big ideas also change the way we It sounds compelling. So, why isn’t its original strategic move. think about business. s Des Dearlove ( is a contributing editor to Strategy+Business and consulting editor to CEO. Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant, by W. Chan Kim and Renée Mauborgne is published by Harvard Business School Press. Special Report: Business Books Spring 2005 Business Strategy Review 59