An Interview with W. Chan Kim & Renée Mauborgne
INSEAD Professors and Co-Authors of Blue Ocean Strategy, Expanded Edition, 2015
What motivated you to write an expanded edition of Blue Ocean Strategy and what’s new in the new edition?
Blue Ocean Strategy struck a chord with managers and executives around the world when it was published in 2005. Our book has sold millions of copies and been translated into dozens of languages, making it a worldwide best-seller. “Blue Ocean” as a term has become integrated into the business vernacular, thanks to thousands of articles written about BOS. These articles explore the ways in which the concept, tools and frameworks of Blue Ocean Strategy have been applied by individuals, businesses, and government organisations.
Through both our discussions and research studies with executives and managers implementing blue ocean strategy over the years, we have been asked similar questions: How do we align all of our activities around our blue ocean strategy? What do we do when our blue ocean has become red? How can we avoid the strong gravitational pulls of “red ocean thinking” — we call them “red ocean traps” — even as we are pursuing a blue ocean strategy? These questions motivated the expanded edition.
In the expanded edition, to aid organisations that have struggled to align their activities — not to mention their relationship with external partners — we lay out a simple method to get key components of an organisation, from value to profit to people, working together to support the strategic shift that Blue Ocean Strategy requires. In the book, we also articulate a dynamic renewal process, one that helps companies make the creation of blue oceans a repeatable process and helps multi-business organisations balance both red and blue ocean initiatives.
Another key update outlines the most-common “red ocean traps” we see companies fall into as they apply Blue Ocean Strategy. Those traps — often created when companies embrace Blue Ocean Strategy but interpret and try to apply its tools using more conventional conceptual models — keep companies anchored in the “red” even as they attempt to set sail for the “blue.” With proper grasp of the concept, one can avoid the traps and successfully apply our model’s tools and methodologies.
The expanded edition also brings all of the original case studies and examples up to date and includes new case material. Overall, it adds two new chapters and expands another, addressing managers’ key challenges and trouble spots in putting Blue Ocean Strategy into practice. These points haven’t been addressed in the original edition.
How is Blue Ocean Strategy fundamentally different from conventional competitive strategy in terms of analytical, perspectives and practical implications?
In a nutshell, Blue Ocean Strategy proposes that strategy can shape industry structure, whereas competitive strategy sees strategy as choosing the right position under given structural constraints.
The field of strategy has been long dominated by a structuralist view; in other words, the idea that the industry’s structure is fixed. Strategy, as commonly practiced, tees off with industry analysis and is conventionally about matching a company’s strengths and weaknesses to the opportunities and threats present in the existing industry. Here, strategy becomes a zero-sum game where one company’s gain is another company’s loss, as firms are bound by existing market space.
Blue Ocean Strategy, by contrast, shows how strategy can create new market space. This model is based on a re-constructionist view of strategy. As industry history shows, new market spaces are created every day and are fluid with imagination. Buyers prove this point as they trade across alternative industries, refusing to see or be constrained by the cognitive boundaries that industries impose upon themselves. And firms prove that as they invent and reinvent industries, collapsing, altering, and going beyond existing market boundaries to create all new demand. In this way, strategy moves from a zero-sum to a non-zero-sum game. Even an unattractive industry can be made attractive by companies’ conscious efforts.
Is Blue Ocean Strategy more or less relevant today than when Blue Ocean Strategy was first published?
Blue Ocean Strategy is more imperative than ever. 10 years ago there were many forces driving the importance of creating blue oceans. At the top of the list was the fact that competition in existing industries was growing fiercer, and pressure on costs and profits was increasing. These forces have only intensified. The market today is much more crowded than it was a decade ago, thanks to the increased participation of global players from emerging economies and the emergence of tools for global communications, transactions and advertising that generally make it faster and easier to become a global player. Among other notable trends is the rising call for creative new solutions in a broad swath of industries that matter fundamentally to who we are. These include health care, education, and the government, where demands are high yet money and budgets are low. Moreover, the rising influence and use of social media have shifted the power and credibility of voice from organisations to individuals, making it increasingly impossible for organisations to over-market their me-too offerings. The rise of emerging economies such as China, India, and Brazil and the huge market demand they represent also call on organisations to come up with offerings that are both high-value and affordable to these markets characterised by relatively low per-capita income on the one hand, and increasingly sophisticated consumer tastes on the other. All these developments and trends have made the methodologies and tools of Blue Ocean Strategy more relevant and in greater demand than ever.
How does the rise in social media impact Blue Ocean Strategy?
It’s hard to believe that just a decade ago organisations still controlled the majority of information disseminated to the public about their products and services. Today that’s history. The surge in social media — including networking sites, blogs, micro-blogs, video-sharing services, and user-driven content and ratings that are seen as more credible than corporate marketing messages — has shifted power from organisations to individuals. Companies can no longer hide or over-market their me-too offering when virtually everyone has a global megaphone. This has forced companies to rely more on creating blue oceans than on leveraging marketing and sales techniques. To thrive in this marketplace, your offering needs to stand out as never before. That’s what gets people tweeting your praises, not your faults, and giving five-star ratings; clicking the thumbs-up, not the thumbs-down; listing your offering as favorites on social media sites; and even being inspired to blog positively about your offering. That’s not to say that marketing and sales techniques aren't still important. They are. But a compelling product or service needs to be the core. Without it, the impact marketing and sales techniques can have is substantially thwarted by the transparency of the rate-it economy.
Should companies always abandon red ocean businesses and products or services in order to pursue blue oceans?
If a company’s sole business is flailing in a red ocean and has no promise for profit and growth, it is time to look for the blue ocean. But companies with a diverse portfolio of businesses, such as General Electric, Johnson &Johnson, or Procter & Gamble, will always need to navigate both red and blue oceans. The key is to maintain a healthy balance between the profit of today and the growth of tomorrow. Consider Apple, which has maintained strong profitable growth over decades by successfully balancing its pioneers, migrators, and settlers. As Macintosh products sank into the red ocean, Apple launched the value-innovative iMac, the colorful, Internet-friendly desktop computer that transformed the company’s Macintosh division into a high migrator. Apple quickly followed with the iPod, which created an uncontested blue ocean within the digital music market. And when the iPod inevitably sank toward migrator status, Apple launched its next blue ocean, the iPhone. Yet Apple also illustrates how blue-ocean companies sometimes need to follow the more competition-based principles of red ocean strategy: once the iPod began to be imitated, Apple rapidly launched a range of variants at different price points: iPod mini, shuffle, nano, touch and so on. This not only served to keep encroaching competitors at arm’s length, but also expanded the size of the ocean it had created, allowing Apple, rather than its imitators, to capture the lion’s share of the market’s profit and growth. As Apple proves, red and blue ocean strategies are complementary in managing a company’s profit today while building strong growth and brand value for tomorrow.
What makes Blue Ocean Strategy distinctive as a guide for practice?
You can act on it. The field of strategy has produced a wealth of knowledge on the content of strategy. However, what it has remained almost silent on is the key question of how to create a strategy. Of course, we know how to produce plans. But, as we all know, the planning process doesn’t produce strategy. In short, we don’t have a theory of strategy creation.
While there are many theories that explain why companies fail and succeed, these are mostly descriptive, not prescriptive. There is no step-by-step model that prescribes in specific terms how companies can formulate and execute their strategies to obtain high performance. We seek to introduce such a model in the context of blue oceans to show how companies can avoid market-competing traps and, instead, achieve market-creating innovations. The strategy-making framework we advance is built on our strategy practices in the field with many companies over the last two decades and our model comes with analytic tools and frameworks. It helps managers in action as they formulate strategies that are innovative and wealth creating.
What makes Blue Ocean Strategy imperative for global companies today? The number of global players has increased significantly over the decades. Historically, major global companies came predominantly from the United States, Europe, and Japan. Yet over the last 15 years, the Fortune Global 500 has seen a 20-fold increase in companies from China, eight-fold increase in companies from India, and a doubling of Latin American companies. This suggests that emerging economies do not only represent potential oceans of new demand. They also represent oceans of potential competitors with global ambitions no different than Toyota’s, General Electric’s, or Unilever’s.
But it’s not just the number of global companies from emerging markets that is on the rise. In the last decade, there has been a fundamental shift in the cost and ease of becoming a global player. No organisation can afford to downplay this trend. Consider the following: For the low cost of setting up a website, any business can have a global store front; would-be entrepreneurs from anywhere can raise money via crowd-funding; services like Gmail and Skype have dramatically cut communication costs; trust in transactions now can be rapidly and economically achieved by using services like PayPal, while companies like Alibaba.com make searching for and vetting suppliers across the world relatively quick and easy. Search engines — the equivalent of global business directories — cost nothing. As for global advertising, any company can market its offerings on Twitter and YouTube for free. New players from all corners of the world increasingly can offer their wares or services to global markets. While these trends don’t mitigate all barriers to becoming a global player, they certainly intensify global competition.
To stand apart in these overcrowded markets, companies (multinational corporations and new global players alike) need to be creative through value innovation. Blue Ocean Strategy provides the tools and frameworks that any organisation can apply to create uncontested market space.
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