Blue Ocean Strategy

How to Create Uncontested Market Space and Make the Competition Irrelevant

by W. Chan Kim and Renee Mauborgne Book Review by Herb Rubenstein

Introduction

Authors Kim and Mauborgne contend in this book that there is one approach to business that has consistently outperformed other approaches for decades. It is not about improving an existing product to capture market share. It is not about increasing market share at all. It is not about meeting demand. It is the radical notion of creating demand, of producing a product or service for which there is no demand simply because it has yet to be offered in the marketplace. The authors of Blue Ocean Strategy have distilled this approach into a series of workable, repeatable steps.

The book is filled with examples of companies that have successfully deployed these strategies to develop new products and services. These products and services have not only created substantial value for their customers they have also generated sizeable profits, effectively leaving their competitors in the dust The tenets and components of Blue Ocean strategies are well explained. This book has sold over one million copies and has been very influential in Asia, Japan, and Europe, with only limited impact in the United States. This book review shows that the concepts and strategies described in the book are extremely relevant to the U.S. market.

Background Companies have long engaged in head-to head competition in search of sustained, profitable growth. They have fought for competitive advantage, battled over market share, and struggled for differentiation. Blue Ocean Strategy, by W. Chan Kim and Renee Mauborgne, of INSEAD, challenges the conventional wisdom of competition-based strategies and the requirements of strategic success and documents that the most successful companies have actually abandoned competition. In fact, Blue Ocean strategies have generated more profits and more revenue by making competition irrelevant.

Red Oceans and Blue Oceans

The book uses Red Oceans and Blue Oceans as a metaphor, each representing a different approach to free-market capitalism. Red oceans represent all industries and companies currently seeking to gain market share from their competitors as their primary growth or marketing strategy. These companies continuously seek to improve, reduce price, and effect improvements in the value they create for their customers. While this strategy will always be necessary, the authors suggest that a different strategy captured by the metaphor, Blue Oceans, is often a more appropriate and financially rewarding set of strategies for companies. In the world of red oceans, industry boundaries are well-defined and accepted and the rules of the competition are well known.

The competitors are also well known and competitive intelligence is a key component of learning what your competition will do in the near future. Companies swimming in red oceans try to outperform their rivals to grab a greater share of existing demand. As the market space becomes more and more crowded, prospects for profits and growth are reduced, products become commodities, and cutthroat competition turns the ocean blood red. Long-standing industries often find themselves in exactly this situation. Blue Oceans, on the other hand, represent a world where a product or service, or even an industry is not currently in existence, but is about to be created by an innovative company.

Blue Oceans are characterized by untapped market space, demand creation, and the opportunity for highly profitable growth. In Blue Oceans, competition is irrelevant for two reasons. First, there are no actual competitors with the product or service that is about to be offered. Second, in this new space the prices, marketing, service, and other business rules are not yet established, leaving an open field to the company that can fill the open space. Although some Blue Oceans are created well beyond existing industry boundaries, many are created from within red oceans by changing the nature and definition of a product or service, and making it applicable to new markets far beyond where the current red ocean playing field exists. For example, the circus has been around for hundreds, if not thousands, of years. A key component of the circus was the animals. In the circus industry over the past several decades, costs have been escalating, profits and crowds have been dropping. Because the outlook for the industry was so bleak, there were basically no new entrants into the marketplace. However, one company, Cirque du Soleil, saw an opening of the Blue Ocean variety. Eliminate the animals. Hire great gymnasts. Create great scenery. Play fantastic music. Eliminate the rings and the ring-master. Use a smaller physical space. Don’t use existing facilities. Rather, bring your own tent to host the show. 3 Cirque du Soleil now sits alone in a newly redefined circus space. It has no competitors. It is immensely profitable. It has not only met the existing demand, it has created an even greater demand for a new form of entertainment, which appeals to new customers who had long given up on the “Circus” as well as those who would have never gone to the circus because of the use of animals. Cirque du Soleil not only reinvented the circus, it reinvented the industry. It has no political opposition from animal rights groups. It boldly pushed forward into uncharted territory, and now charts that territory with great success, which is why competitors are very, very far behind.

This and other examples make it clear that blue ocean strategy is not always available in many industries, especially those that are truly locked into making a commodity. Therefore, the book concedes, red oceans will always matter and companies always need to be excellent at red ocean strategies. Who for instance will reinvent the breakfast cereal? It is a safe bet that no company will do so in our lifetime. The players in that industry duke it out every week and will continue to do so. Competition is still the key to a free market economic system. However, there is now a well documented new approach that has been used successfully by many companies, based on the radical notion that it is best to ignore what the competition is doing and venture forth with a new product, a new offering. Blue Ocean strategy gives the benefits of monopoly power to those companies ready, willing, and able to create something entirely new, or create a new application of something that currently exists in a manner that is very difficult to replicate quickly.

Blue Ocean Strategy In the past, MBA courses in business have often emphasized how to beat the competition on price, service, time to market, or incremental enhancements to product or service offerings. This book seeks to fill the void by offering companies a sound theoretical framework and clear guidance on how to develop a Blue Ocean strategy. Most of today’s great companies either started or at least got their great growth cycles started with a Blue Ocean strategy. Microsoft’s combination of discrete pieces of software for example transformed an industry. Pharmaceutical companies are constantly seeking a patentable product that will do what no other drug or drug-company has ever been able to do before. Companies that took early advantage of the internet were also using Blue Ocean strategies.

The book challenges companies to transcend the red ocean of bloody competition by creating products and services so different from the norm that they have no initial competition and therefore dominate uncontested market space. Instead of focusing on beating the completion, companies using a Blue Ocean strategy focus on making the competition irrelevant by creating a leap in value with their new product or service. The basic element of this approach is termed value innovation. As the cornerstone of Blue Ocean strategy, value innovation places equal emphasis on value and innovation. Increasing value without significant innovation tends to be incremental, at best. Value may be enhanced, but not sufficiently enough to allow the company to stand out in the marketplace. 4 Marketplaces are dynamic. Winners in business must be different from the rest of the crowd.

The book provides compelling evidence that product launches which were “Red Ocean” in nature were actually less profitable than those with Blue Ocean characteristics. With globalization firmly in place, it is necessary for companies to find Blue Ocean opportunities in order to produce high returns. Otherwise, what they produce will become commoditized. Other countries will inevitably find ways to produce and transport these commodities cheaper than high-wage countries. Innovation without value on the other hand tends to be technology-driven, market pioneering, or futuristic, often going well beyond what consumers are ready to accept or buy. DOA means dead on arrival, not demand on arrival. Innovation without a quantum leap in value for customers is in effect a one-way ticket to marketplace oblivion. When asked the question, “What is wrong with innovation?” Peter Drucker answered, “Most of the time it is not innovative enough.” Blue Ocean strategy is demanding because for it to succeed a company must produce a good or service that is not only innovative but also makes a quantum leap in creating value for its’ customers.

In addition, the book Blue Ocean Strategy takes a legitimate stab at Good To Great, In Search of Excellence, and other similar books that analyze companies and their management practices. Employing the term “unit of analysis” (that element or entity that is studied), the authors of Blue Ocean Strategy assert that great business books should not study a company or use it as the unit of analysis in order discover the causes of its’ success. In fact, many of the companies in the books Good To Great and In Search of Excellence, which were selected for study since they outperformed their competitors for years, often fell into deep funks and poor financial performance soon after the books were published. When viewed as a whole, the literature of business books shows that there are no perpetually great companies or even companies that consistently over decades outperform their competitors. Even the author of Good To Great has since written a book seeking to explain why companies fail. Rather than saying a company succeeded because of its leadership style, or some other overarching element of the company, the authors of Blue Ocean Strategy maintain that the correct unit of analysis is not the company as a whole, but rather its strategic moves.

Understanding Success So It Can Be Replicated

In other words, the path to understanding how a company succeeds is to study the strategic moves of the company, not the company itself. Moreover, the book clearly demonstrates that there is one type of strategic move that outperforms all others: Blue Ocean strategy. Careful observers will ask that if it is true that Blue Ocean strategies increase a company’s potential for success, is it also true that if a company does not employ Blue Ocean strategies it will likely fail? The answer lies in the nature of the industry. As industries mature they become stagnant. Companies in these mature industries rest on their old research and development findings as they create new products and services. They stick with what they know how to produce. They fight change even when it could benefit them. If an entire industry does not change, and if the supply chain of that industry does not change, companies can get along quite nicely without a Blue Ocean strategy. Still, such companies are vulnerable.

The U.S. auto industry was doing well in 2005 and had done so for 100 years. However, by 2009 the entire industry was practically bankrupt all because a key supply chain component, gasoline, skyrocketed in price. Competitors whose cars relied less on gasoline (had better fuel economy) were less vulnerable to this price shock and have therefore survived. Who would have thought ten years ago that FIAT would buy Chrysler without shelling out a dime? The authors of Blue Ocean Strategy studied 150 key strategic moves from 1880 to 2000 in more than 30 industries. The book outlines the common factors derived from this research that have led to successful Blue Ocean strategies. One such factor is for a company to find a way to create great value at relatively low cost. Most mature industries have a fairly rigid “value-cost” tradeoff: greater value equals greater cost. The old adage, “you get what you pay for” comes from this business approach. Blue Ocean strategies often create enormous value to consumers at a lower cost than they could get from other products and services currently on the market. On the supply or production side of the equation, Blue Ocean strategists are keenly aware that costs need to be kept down. By looking across market boundaries for sources of value, Blue Ocean strategists are able to select the best aspects from unrelated industries and incorporate them into a product or service that will appeal to a wide variety of customers. Cirque du Soleil for example combined circus and theatre. In so doing, the company created a new form of live entertainment with tickets priced similar to that of the theatre, thus giving enormous value to customers while still charging more than the outmoded circus industry. Driving costs down and driving up value for customers is a key principle of Blue Ocean strategies. Note: low cost does not mean low price.

Blue Ocean strategies are so profitable because although costs are reduced, price is not; therefore a strong profit margin is achieved. Blue Ocean strategy is also about maximizing the opportunities and minimizing the risks for a company. This requires careful analysis, especially in regard to the value a new product in unchartered territory will create for a consumer. It also requires finding new ways to spread costs. One example is the company, eBay which allows its customers to perform quality control procedures in regard to its suppliers, as well as set quality control standards and enforce them. In this way, eBay’s costs are shifted to consumers. Another example is the company, Microsoft which shifted some of its software design and production costs to its customers who were “beta testers.” Microsoft would send these beta testers software packages along with thousands of “bugs” or defects included. The beta testers would find the defects, and tell the company on a regular basis what was wrong with their products and how to fix them. All for free!

Six Principles of Blue Ocean Strategy

Based on over 15 years of extensive research, the authors have determined six guiding principles for the formulation and execution of Blue Ocean strategy:

1. Reconstruct Market Boundaries – Do not define your company by the way 6 other companies and industries are defined; rather, combine in one offering a product or service that crosses markets, customer groups, and creates more value than the current offerings on the market. (suggestion: if an explanation is included with one point, an explanation should probably be included with every point)

2. Focus on the Big Picture, Not the Numbers

3. Reach Beyond Existing Demand,

4. The Right Strategic Sequence,

5. Overcome Key Organizational Hurdles

6. Build Execution into Strategy.

The book discusses these guiding principles in great detail along with the risk factors each principle attenuates. Tools & Frameworks Intense competition in any industry fuels consolidation since larger enterprises can achieve economies of scale, create large scale and efficient distribution systems, and keep costs down. In such cases, large scale change is rare, and innovation is not considered a strong suit of market leaders. Thus, bureaucracies become inevitable, stagnation the norm, and the best way for a new entrant into the marketplace to compete is using Blue Ocean strategies that in effect catch the entire industry off guard. In order to make the formulation and execution of Blue Ocean strategy systematic and actionable, the authors introduce a set of analytical tools and frameworks, including:

• The Strategy Canvas

• The Four Actions Framework

• The Eliminate-Reduce-Raise-Create Grid.

These and other supplementary tools and frameworks are essential analytics used in Blue Ocean strategy development. It is the combination of these analytic techniques and the six principles of formulating and executing Blue Ocean strategies that allow companies to break from the competition and unlock uncontested markets.

The strategy canvas is a two-pronged analytical tool and action framework. First, it identifies in the current marketplace, the items upon which the industry competes. This includes costs, consumer traits and awareness, quality factors, buying patterns, and the range of factors that make a product or service successful in the marketplace. In essence, the strategy canvas captures the value drivers of an industry from the customer’s perspective. Second, it ranks all major industry competitors in terms of low to high in regard to each factor. A line is then drawn through each factor rating to show the value elements and their high and low ranking for each company. A clear, accurate strategy canvas gives one the ability to ascertain the strategy profile of each competitor in the marketplace. One can ascertain a company’s score based on this analysis and the graph which creates what is referred to as a “value curve”. High scores indicate that a company is doing well across the range of competitive factors that are most important in its particular industry. Factors in the airline industry prior to Southwest Airlines’ entry included meals, assigned seating, booking though travel agents, and flying only to major cities. Southwest intentionally either scored low or scored zero on each of these items. Other factors like fun, low cost, flying to numerous smaller airports, quick turnaround of planes at terminals, and no assigned seating were not valued by the industry, but Southwest Airlines scored high on each of these value drivers. Southwest Airlines therefore carved out new value terrain in the airline industry and maintained uncontested space for some time.

The products or services created using Blue Ocean strategies do not try to out-compete competitors on many of the traditionally viewed value drivers of a given industry, as the Southwest Airlines example illustrates. Rather, Blue Ocean strategists seek to create alternatives to these traditional factors on which their products and services may attain a high score, and therefore yield greater value for the consumer at a lower cost. Blue Ocean strategists also aggressively seek to create products and services and sell them to current non-customers who may shift their buying patterns from one product or market to the product or market that the Blue Ocean company is pursuing. This, in effect, redefines the offerings available in the market as well as the customer base. In the wine industry for example, the focus on many different types of wine, hard to understand language, the prestige of the vintner purchased through advertising and expensive labeling, an emphasis on the slightest variations in terms of color, taste, and the year produced, were all seen as key value drivers.

However, one company realized that these items, which added greatly to the price of the wine, might actually be a turnoff to many potential buyers, including beer and cocktail drinkers. The company even considered the cork to be somewhat of a nuisance. These items were seen as barriers to the person who just wanted a fun wine to drink. So Casella Wines simplified its wine offerings, selling only one red (Shiraz) and one white (Chardonnay), each with a screw top, and charging a comparatively low price. The company sold 400m dollars worth of wine labeled “Yellow Tail” at $6.99 a bottle. Casella in essence changed the value proposition of wine and became the fastest growing wine company in the world in its first three years of existence. It won over beer and cocktail drinkers, and even some wine enthusiasts as the traditional wine industry criticized the quality of its wine at every opportunity. Blue Ocean strategy requires reducing investment in factors where the current industry is “over investing.” Yellow Tail spent little on advertising or prestige building, and changed beer and cocktail drinkers into wine drinkers. Easy drinking, easy to select, and fun/adventure (simple fruity sweetness in taste) were the goals of Yellow Tail; quite distinct from the rarefied typical wine industry value drivers deemed as most important for over a hundred years.

Thus, Yellow Tail achieved what the book refers to as the Four Actions Framework. It reduced investment in factors that were not producing value for the consumer. It eliminated factors that consumers did not value at all. It created factors that the current industry never offered that were of value to the customer. It raised the factors in which the current industry was under investing.

The Eliminate-Reduce-Raise-Create Grid builds on the four actions framework. In one chart, all of the Four Actions Framework activities are listed. This serves as a guide to promote differentiation between Blue Ocean products and services and those of the traditional market. Blue Ocean strategies must have a clear focus on value creation and they must be right about it. Southwest Airlines knew cost reduction was key and therefore reduced amenities, raised the number of departures, created friendly, fun service, did not assign seats, implemented advanced boarding passes, eliminated meals and lounges, eliminated payments to travel agencies and websites that aggregated carriers, and increased flight options. Because of these and other innovations, consumers flocked to Southwest Airlines and profits followed. Blue Ocean strategies often simplify language. They use the word “speed” while their competitors use the term “megahertz.” Reconstructing market boundaries is also critical. Chiropractic clinics deploying Blue Ocean strategy become “wellness centers” and thus aggregate serving many markets in one building.

Six Paths

The book describes six paths to defining a market in the traditional sense and six paths to breaking out of that market, these include:

1. Look across alternative industries for value, buyers, and opportunities. Know what customers are looking for and what they value in these industries and combine them in to one offering such as a phone and a camera, or hardware and contractors (Home Depot)

2. Look across strategic groups within industries. The fitness market for women was captured by Curves because the industry had ignored women or had forced them to exercise in clubs with men. Women’s only fitness centers became a huge success by focusing on a alternative strategic group. Curves combined women’s only physical spaces with the idea of women supporting women through exercise. Franchises were offered at $30k, not the $500k typical in the existing fitness market which was also machine heavy and capital intensive.

3. Look across the chain of buyers. Make the distinction between who is buying and who is paying, and meet the needs of the buyers, not the payers. This aspect has led to medical device companies focusing on the patient rather than doctors, hospitals, and insurance companies. This in turn has led to innovations that patients really want. Novo Nordisk’s insulin “pen” is a good example.

4. Look across complementary product and service offerings. Look to see what a consumer is doing before, during and after they use your product and try to expand your services and products to meet those needs. A good example of this is insurance companies that have expanded into the rental car industry by offering persons involved in accidents rental carsin exchange for a prepaid premium.

5. Look across functional or emotional appeal to buyers. Emotional additions to products and services add to price but rarely add to cost. The “love” element of Apple’s iPhone is an excellent example as this product was sold on the notion that a “lot of love” went into making it. In Mexico, CEMEX added emotion to selling concrete by repackaging it and selling it as part of the “dream” of a better house. Viagra and Starbucks have also added emotion and lifestyle enhancement to their messages about a medical product and coffee.

6. Look across time. Trends should be analyzed not for the trend itself, but how it will change buying patterns, value recognition and appreciation by consumers, and how these activities will be combined in the future. Skype combines video and telephone services and has brought into the marketplace grandparents who can play peek-a-boo with their grandchildren from half-way across the globe, with virtually no cost to the consumer. Apple’s iTunes combined the internet and a plethora of downloadable songs which has tempted away many of those who illegally downloaded music.

These six paths are essential to creating a successful Blue Ocean strategy. In fact, a company’s Blue Ocean strategy will not only benefit from a careful analysis of current trends, the company’s offerings may also help influence future ones.

Strategic Planning

Strategic planning is often incremental in nature. However, Blue Ocean strategies use a different strategic planning process. First, they take advantage of the strategy canvas, focusing on the major drivers of the industry and the value propositions of competitors. The process then seeks to create alternative value propositions. A key aspect of this process is the use of graphs and visualization of the entire competitive space which provides alternative combinations that can capture new customers with radically new products. Second, a company must be aligned internally with the need/opportunity for radical change in its products and services. GM for example knew it should build energy efficient cars, but could never secure an agreement within its own company to do so. Heated discussions are likely, and leadership, referred to as tipping point leadership by the authors, is critical at this juncture. Customers must also be surveyed so a company can understand what they value. Although this step cannot be skipped, it is rarely used in the typical strategic planning process.

Alternative products and services must then be designed and evaluated by the strategy team. Each should be scored by leaders of the company and customers, as well as potential customers. A value curve must be created that combines the most valuable aspects of each alternative. Only then can the final product/service design be developed. In a visually compelling manner, the value curve must be presented to everyone in the company.

Alignment must be achieved that mobilizes the company behind the product or service innovation. Once this has been achieved, money is allocated for the production/service offering and the company moves forward with execution. In essence, this is the new strategic planning process that produces pioneers. The results of this process are products and services that provide unprecedented value. Focusing on capturing new customers and new groups of customers is another important aspect of Blue Ocean strategy. A company seeking a Blue Ocean strategy must therefore fully understand all customer segments within the existing industry: what makes them buy, what they value, and what they think is missing in the current value mix of the products and services currently being offered. Without this in-depth understanding, a company has very little chance of implementing a successful Blue Ocean strategy. Once additional customer groups have been identified as potential buyers, the world essentially opens up to companies seeking to create Blue Ocean strategies. Grandmothers 10 use SKYPE, a consumer group far removed from computer techies. Callaway created the large headed golf club, following the lead of large rackets in tennis. Mediocre golfers started to buy high end golf clubs, and became a new consumer group, purchasing expensive, top-of-the-line equipment. Non-customers must be analyzed as carefully as customers. There may be noncustomers close to your market that rarely purchase goods or services in your industry, but would do so if they were offered a great leap in value.

Some people refuse to eat “fast food” very often. If however a healthy alternative was created at a fast food chain, this attitude might change. Another tier of non-customers are those who absolutely refuse to use a current product or service. Older people who refuse to use computers have been captured by SKYPE and, to some extent, email. In these noncustomer groups, there is still a tremendous amount of untapped demand waiting to be served by a product or service with much greater value than what is currently on the market. Making a computer game easy, like the Nintendo Wii, and making it exercise oriented as well, has captured older customers who are anything but computer “gamers.”

Outdoor advertising companies that were unable to erect their billboards in cities donated benches and placed them in central metropolitan locations with the proviso that they could use them as backdrops for advertising. This idea succeeded in opening up a previously closed section of the market. A third tier of non-customers are those that are barely, if at all, aware of your products or services. This group can still be a potential target market, once the product or service is radically changed, provided the company has included features and value these current non-customers want. Conducting research into the value that such a non-customer could place on a good or service is neither easy nor cheap. However, it has the potential of revealing entirely new vistas, bringing a variety of new customer segments into a company’s customer base who previously resided far beyond it.

Sequence

Marvin Bower of McKinsey was once asked what the difference was between senior McKinsey consultants and those who had only worked there for a year or two. Bower replied that every consultant at McKinsey can go into a company, study the company and the industry, and in a reasonable time know exactly what the company should do to be more successful. However, he added, only the senior consultants knew in what order the activities should be taken to produce the best result for the company. In certain things, sequence may not matter.. In Blue Ocean strategy, it is critical.

The sequence observed by the authors as most successful in creating a Blue Ocean strategy is as follows:

1. Understand buyer utility.

2. Assess price of your potential offering and make sure buyers will pay it.

3. Establish cost targets for your good or service to leave ample room for profit.

4. Know and be able to address all adoption hurdles/barriers which your product may face in the marketplace.

If a company can succeed in each sequence, a Blue Ocean opportunity may exist. Once designed using this process, products and services must then be tested and rigorously evaluated. Execution not only means getting the product to market on time, on budget, and consistent with the specs, it also requires a thorough understanding and an intelligent facilitation by the company of why and how the consumer purchases the product.

Key Questions That Every Company or Organization Must Answer

Is there ease of use, maintenance, and disposal?

Does the product require supplementary products or substantial knowledge or expertise to operate?

What emotions does the product generate in the consumer?

Is it environmentally friendly?

Convenient?

Does it cause little financial or physical risk to the consumer to try it the first time or use it regularly?

Is it simple?

These questions must be asked well before the product is available for sale.

Pricing

Pricing is critical to a successful Blue Ocean strategy. Effective strategic pricing of a product or service can be accomplished only if the company knows the value that the product or service creates for the consumer and each consumer segment. If there are separate consumer segments that have highly variable value realization from slightly different variations of the product, then ”versioning”, creating separate versions for each segment, is warranted along with divergent prices in what is called a “price corridor.” Changing the pricing model for an industry can also give a company a huge price advantage.

For example, installing solar PV (electricity producing) or solar thermal (hot water/heat producing) systems on single family residential units can be very expensive and difficult to finance. Although new forms of “leasing” make these products much more affordable, most of today’s solar providers and installers who deal in the residential market are small scale and cannot arrange for this type of financing. The solar provider or installer that can find and utilize these financing options at a reasonable cost will have created a Blue Ocean strategy that could potentially yield great profits.

Minimizing cost is critical to Blue Ocean strategies. Determining high cost factors in the current industry’s offerings and reducing them in a new offering is essential for creating exceptional value and entering into a non-competitive space. Of course, over time there will be competition. The longer a company can sustain a non-competitive space, the more effectively it will be able to continue to create innovation and therefore maintain distance between itself and its rivals. Execution Proper execution of a Blue Ocean strategy requires that all employees understand and are able to function in their individual roles of creating a new product or service. Employees must also be motivated; all politics and antagonism against the new strategy must be effectively dealt with. And, adequate resources must be allocated to the new endeavor.

“Tipping Point Leadership” is critical in each of these aspects of execution. Customers must be contacted about the new innovation and won over. Those who liked the old product may be especially hard to convince that this “new” product or service is actually better. Companies that have built a culture of trust with their employees and customers are in a far better position to develop a Blue Ocean strategy than those who lack this essential feature. Engagement, explanation, and expectation clarity are central to successful execution of a Blue Ocean strategy, even to your most loyal customers.

Conclusion

Creating Blue Ocean strategies is not a static achievement, it is a dynamic process. Once a company creates a Blue Ocean strategy and its powerful performance consequences are known, imitators will inevitably appear on the horizon.

Thus, Blue Ocean companies must always understand the answers to two important questions:

1. How easy/difficult is Blue Ocean strategy to imitate?

2. When should a company take action to create another Blue Ocean strategy?

There are real hurdles in imitating Blue Ocean strategy leaders:

• The value innovation of a Blue Ocean strategy will often not make sense to a competitor’s conventional logic.

• Blue Ocean strategy may conflict with the competitor’s well developed brand image.

• Natural monopoly: The market often cannot support a second player.

• Patents or legal permits block imitation.

• High volume leads to rapid cost advantage for the value innovator, discouraging followers from entering the market.
• Network externalities discourage imitation.

• Imitation often requires significant political, operational, and cultural changes.

• Companies that value-innovate earn brand buzz and a loyal customer following that tends to shun imitators.

Eventually, almost every Blue Ocean strategy will be imitated. The book concludes with a discussion on knowing when to value-innovate again, as well as when not to do so. Because red and blue ocean types of market environments have always coexisted, practical reality demands that companies know how to master the strategies necessary to compete and succeed in both. While the knowledge of competition-based strategies is widely held, making competition irrelevant is not. Therefore the purpose of the book is to help balance the scales so that formulating and executing Blue Ocean strategy can become as systematic and actionable as competing in the familiar, yet bloody oceans of existing markets.