blue ocean shift

010203040506070809101112131415161718192021222324252627282930313233

S34N35

BLUE OCEAN

S HIF TBEYOND COMPETING

PROVEN STEPS TO INSPIRE CONFIDENCE AND SEIZE NEW GROWTH

W. CHAN KIM | RENÉE MAUBORGNE

New York Boston

BlueOceanShift_HCtext1P.indd iii 6/12/17 3:00:44 PM

Copyright © 2017 by W. Chan Kim and Renée Mauborgne

Jacket design by Amanda KainJacket photograph © Marta Nardini / Getty ImagesCover copyright © 2017 by Hachette Book Group, Inc.

Hachette Book Group supports the right to free expression and the value of copyright. The purpose of copyright is to encourage writers and artists to produce the creative works that enrich our culture.

The scanning, uploading, and distribution of this book without permission is a theft of the author’s intellectual property. If you would like permission to use material from the book (other than for review purposes), please contact [email protected]. Thank you for your support of the author’s rights.

Hachette BooksHachette Book Group1290 Avenue of the AmericasNew York, NY 10104hachettebookgroup.comtwitter.com/hachettebooks

First Edition: September 2017

Hachette Books is a division of Hachette Book Group, Inc.The Hachette Books name and logo are trademarks of Hachette Book Group, Inc.

The publisher is not responsible for websites (or their content) that are not owned by the publisher.

The Hachette Speakers Bureau provides a wide range of authors for speaking events. To find out more, go to www.hachettespeakersbureau.com or call (866) 376- 6591.

Library of Congress Cataloging-in-Publication Data has been applied for.

ISBNs: 978-0-316- 31404-6 (hardcover), 978-0-316- 31405-3 (ebook), 978-0- 316- 39679-0 (large print)

Printed in the United States of America

’RRD-C

10 9 8 7 6 5 4 3 2 1

BlueOceanShift_HCtext1P.indd iv 6/12/17 3:00:44 PM

Figure 1-1

From Market Competing to Market Creating

High

High

Low

Low

Relative cost

Buy

er v

alue

In pursuit of differentiation or low cost to complete on the existing productivity frontier of an industry

In pursuit of differentiation and low cost to open up a new value-cost frontier

1

2

blue o

cean

shift

BlueOceanShift_HCtext1P.indd 12 6/12/17 3:00:44 PM

A Blue Ocean Perspectiveto expand people’s horizons andguide them in the right direction

Humanness in the Processto inspire and build people’s confidenceso that they own and drive the process

for effective execution

A SuccessfulBlue Ocean Shift

Market-Creating Tools with Guidanceon how to apply them to build people’s

creative competence and open up a newvalue-cost frontier

Figure 1-2

The Three Key Components of a Successful Blue Ocean Shift


Growth

Three Ways of Pursuing Market-Creating Strategy

Disruptive Creation

Offeringa breakthrough solutionfor an existing industry

problem

Redefining and solvingan existing industry

problem

Identifying and solvinga brand-new

problem or seizing abrand-new opportunity

Nondisruptive Creation

Figure 2-1

A Growth Model of Market-Creating Strategy


Figure 4-1

How Humanness Is Built in the Process

Humanness in the Process

Atomization

breaks the challenge down intosmall, concrete actions so that

people can have the confidenceto act on them step-by-step

Firsthand Discovery

allows people to see thingsthat they never saw before

and realize the need forchange themselves

Fair Process

recognizes people for theirintellectual and emotional worth,building trust and inspiring their

voluntary cooperation


Step One: Get Started• Choose the right place to start your blue ocean initiative: The Pioneer-Migrator-Settler Map• Construct the right team for the initiative

Step Two: Understand Where You Are Now• Collectively build one simple picture that captures your current state of play: The Strategy Canvas• See and easily agree on the need for the shift

Step Three: Imagine Where You Could Be• Discover the pain points of buyers imposed by the industry: The Buyer Utility Map• Identify the total demand landscape you can unlock: The Three Tiers of Noncustomers

Step Four:

Step Five:

Find How You Get There• Apply systematic paths to reconstruct market boundaries: The Six Paths Framework• Develop alternative strategic options that achieve differentiation and low cost: The Four Actions Framework

Make Your Move• Select your move at the blue ocean fair, conduct rapid market tests, and refine the move• Finalize the move by formalizing your big-picture business model that delivers a win for both buyers and you• Launch and roll out your move

Note: Italics refer to the corresponding analytic tools to be used.

Figure 4-2

Overview of the Blue Ocean Shift Process


PioneerValue Innovation

Pioneer-Migrator-Settler Map

MigratorValue Improvement

SettlerValue Imitation

Larger revenues Smaller revenues

Key for plotting:

Figure 5-1

The Pioneer-Migrator-Settler Map of a Consumer Appliance Company


PioneerValue Innovation

MigratorValueImprovement

SettlerValue Imitation

Pioneer-Migrator-Settler Map

As-Is Portfolio To-Be Portfolio

Figure 5-2

Creating a Healthy, Balanced Portfolio: The Case of the Consumer Appliance Company


High

Low

Offe

ring

leve

l

TraditionalLarge Fund-Raising

Charities

Small Fund-Raising

Charities

Pity pleas

Fund-raisingcosts

Advocacycounseling, care

servicesSoliciting and

managinggrants

Year-roundevents and activities

Transparencyof operations

Every £ tothe cause

Credibility throughcorporate

sponsorships

Recognitionof donations

Figure 7-1

Strategy Canvas of the UK Charity Fund-Raising Industry (Pre–Comic Relief)


Traditional LargeFund-Raising Charities

Small Fund-RaisingCharities

Advocacycounseling,

care services

Pity pleas

High

Low

Offe

ring

leve

l

Soliciting andmanaging

grants

Year-roundevents andactivities

Transparencyof operations

Every £ tothe cause

Celebrity-driven glamourand popularity

Symbol ofbelonging

Fund-raisingcosts

Credibility throughcorporate

sponsorships

Recognitionof donations

Interaction andparticipation

Fun andmayhem

Red Nose Day

Figure 7-2

Strategy Canvas of Comic Relief

“Doing Something Funny for Money”


Purchase

CustomerProductivity

Simplicity

Convenience

Risk Reduction

Fun &Image

EnvironmentalFriendliness

Delivery Use

The Six Stages of the Buyer Experience Cycle

The

Six

Uti

lity

Leve

rs

Supplements Maintenance Disposal

Figure 8-1

The Buyer Utility Map


010203040506070809101112131415161718192021222324252627282930313233

S34N35

Uncovering the Blocks to Buyer Utility

Purchase Delivery Use Supplements Maintenance Disposal

Customer What is the biggest block to customer Productivity: productivity in each stage?

What are the key reasons for this block?

Simplicity: What is the biggest block to simplic-ity in each stage?What are the key reasons for this block?

Convenience: What is the biggest block to conve-nience in each stage?What are the key reasons for this block?

Risk What is the biggest block to risk Reduction: reduction in each stage?


Fun and What is the biggest block to fun and Image: image in each stage?


Environmental What is the biggest block to environ-Friendliness: mental friendliness in each stage?


Figure 8-2


010203040506070809101112131415161718192021222324252627282930313233

S34N35

What Each Utility Lever Means

To ensure that everyone is clear on what each buyer utility lever means, below is a summary for your easy reference:

Productivity: Anything to do with efficiency—less time, effort, and/or money—in fulfilling buyers’ needs.

Simplicity: Anything that eliminates or minimizes complexity or mental hassle.

Convenience: When and where I want something—like 24/7, 365.

Risk Reduction: This may be financial, physical, and emotional, including reputation.

Fun and Image: This is the tangible and intangible aes-thetic look, feel, attitude, and style an offering conveys.

Environmental Friendliness: This utility lever is about “green” matters. Is your offering environmentally friendly? Or do buyers prefer your offering because of your organization’s strong reputation for environmen-tal friendliness?

Figure 8-3


Purchase

CustomerProductivity

Simplicity

Convenience

Risk Reduction

Fun andImage

EnvironmentalFriendliness

Delivery Use

The Six Stages of the Buyer Experience Cycle

O X X

X

X

X

The

Six

Uti

lity

Leve

rs

Supplements Maintenance Disposal

Liters of oilexpensive

Cleanup isdifficult

Creating aReliableElectric Fryer

Hot fryer isdangerous

Hot fryermakes homessmell for days

Oil hard todispose of

X = pain point that blocks buyer utility

O = utility space the industry currently focuses on

Figure 8-4

The Buyer Utility Map of Electric Home French Fry Makers: Pre–Groupe SEB’s ActiFry


YourIndustry

First Tier:Soon-to-benoncustomers

First-tier “soon-to-be” noncustomers are on the edge of your industry, waiting tojump ship.Second-tier “refusing” noncustomers consider your industry and then consciouslychoose against it.Third-tier “unexplored” noncustomers are currently in seemingly distant markets.

Second Tier:Refusingnoncustomers

Third Tier:Unexplorednoncustomers

Figure 9-1

The Three Tiers of Noncustomers


Table 9-1 Noncustomers in Various Industries

First Tier of Noncustomers

Second Tier of Noncustomers

Third Tier of Noncustomers

The Credit Card/Debit Card Industry

Small and midsize merchants that reluctantly accept credit and debit cards for payment

New business, microbusinesses, and self‑ employed individuals who do not accept credit or debit

Individuals needing to make payments to other individuals

The UK Charity Fund- raising Industry

Older wealthy individuals who feel frustrated with year‑ round solici‑tations for funds

Young professionals who choose not to donate, due to the lack of transparency in percentage of funds that go to the cause

Children and low‑ income individuals who never thought of donating

The Lan-guage Translation Industry

Large corporations frustrated by the time, expense, and fractured nature of securing language translation of busi‑ness materials, including website copy, brochures, product documen‑tation, etc.

Midsize organiza‑tions that don’t use translation services for the vast major‑ity of languages, even though, with the Internet, people from virtually every country can be their potential customers

Individuals with blogs and small organiza‑tions, who never thought of using language transla‑tion, even though it could open a far wider global audience and customer base for them

The Orches-tra Industry

Individuals who attend concerts once a season or every few years, as it’s seen more as something they should do than something they want to do

Individuals who can afford to attend but choose not to, as they find the experience boring, outdated, or too pretentious

Individuals who never considered going to the orchestra, as they have no real knowl‑edge of classical music and feel the orchestra experience is essen‑tially for the educated elite, not ordinary people


Path One

Look across alternativeindustries

A New Value-Cost Frontier

Path Four

Look across complementaryproduct and serviceofferings

Path Two

Look across strategic groupswithin your industry

Path Six

Participate in shapingexternal trends over time

Path Three

Look across the chain ofbuyers and redefine theindustry buyer group

Path Five

Rethink your functional-emotional orientation ofthe industry

Figure 10-1

The Six Paths to Open Up a New Value-Cost Frontier


010203040506070809101112131415161718192021222324252627282930313233

S34N35

Path One: Look Across Alternative Industries

Red Ocean Lens:

Focus on rivals in your industry

Blue Ocean Lens:

Look across alternative industries


Figure 10-2

Path One: Action Steps

1. Identify the major problems or needs that yourindustry’s offering or your target industry’s offeringsolves or addresses from buyers’ point of view.

2. Next ask, What alternative industries solve thesame problems or address similar needs for buyers?Here we encourage people to role-play and ask, IfI were the buyer, what other alternative industrieswould I consider before even deciding to patronizeour industry? That helps people shift from a supplyto a demand perspective.

3. Among these alternative industries, which capturethe greatest catchment of customers? Focus here.Interview buyers from each relevant alternativeindustry.

4. Probe why buyers traded across your industryor target industry and this(these) alternative(s),including what they see as the chief negatives of theindustry they rejected and the chief positives of thealternative industry they choose.

5. Record all the key insights gained. A recording tem-plate for each path can be downloaded for free atwww.blueoceanshift.com/ExerciseTemplates

01020304050607080910111213141516171819202122232425262728293031323334S35N

Path Two: Look Across Strategic Groups Within Your Industry

Red Ocean Lens:

Focus on your competitive position within a strategic group

Blue Ocean Lens:

Look across strategic groups within your industry or target industry


Figure 10-3

Path Two: Action Steps

1. Identify the strategic groups in your industry ortarget industry.

2. Focus on the two largest strategic groups.3. Interview buyers from each group. Probe why buy-

ers traded up for one strategic group or traded downfor the other. Focus on identifying the distinguish-ing factor(s) that led users of each strategic groupto patronize it over the others. Ask the same peoplewhat they saw as the dominant negative or turn-offof the strategic group they rejected.

4. Record all the key insights gained, noting specificallythe reasons buyers offer to explain their decisions.

01020304050607080910111213141516171819202122232425262728293031323334S35N

Path Three: Look Across the Chain of Buyers

Red Ocean Lens:

Focus on better serving the existing buyer group of the industry

Blue Ocean Lens:

Look across the chain of buyers and redefine the industry buyer group


Figure 10-4

Path Three: Action Steps

1. Identify the chain of buyers—users, purchasers, andinfluencers—in your industry or target industry.

2. Identify the main buyer group your industry or tar-get industry currently focuses on. Then shift yourfocus to those the industry has largely ignored.

3. Interview buyers from the “untargeted” buyergroups. Probe for their different definitions of value.Drill down to the biggest blocks to utility and coststhe industry currently imposes on them.

4. Record the insights from each “untargeted” buyergroup and group like-minded responses together.

010203040506070809101112131415161718192021222324252627282930313233

S34N35

Path Four: Look Across Complementary Product and Service Offerings

Red Ocean Lens:

Focus on maximizing the value of the product or service offering as defined by your industry

Blue Ocean Lens:

Look across the total solution buyers seek to understand the complementary products and services that enhance or detract from your offering’s value


Figure 10-5

Path Four: Action Steps

1. Look at the real context in which your offering isused by identifying what happens before, during,and after its use.

2. Observe buyers as they actually use your productor service. In recording the insights gained, groupinsights you uncovered so that patterns in the fre-quency or criticality of observed blocks to utility canbe discerned.

3. Use the buyer utility map and the noncustomer toolto guide your observations.

4. Record all insights gained.

01020304050607080910111213141516171819202122232425262728293031323334S35N

Path Five: Rethink the Functional- Emotional Orientation of Your Industry

Red Ocean Lens:

Focus on improving price performance within the functional-emotional orientation of your industry

Blue Ocean Lens:

Rethink the functional-emotional orientation of your industry or target industry


Figure 10-6

Path Five: Action Steps

1. Identify the industry’s current orientation. Is it pre-dominantly functional or emotional?

2. Listen to customers and noncustomers character-ize your industry or target industry. Probe the topcharacteristics that reflect why they see it as func-tional or emotional.

3. Look for commonalities across their responses andgroup like-minded comments.

4. Explore what the offering would look like if youflipped the orientation.


010203040506070809101112131415161718192021222324252627282930313233

S34N35

Figure 10-7

Path Six: Action Steps

1. Identify the three to five trends that are seen ashaving a decisive impact on your industry or targetindustry. Give people the option of doing secondaryresearch online to complete this.

2. Discuss and assess the relevance of these trends toyour industry. Focus on those that are commonlyseen to decisively impact your industry or targetindustry.

3. Discuss and assess the extent to which each trend isirreversible.

4. Discuss and assess whether each of the trends isevolving along a clear trajectory.

5. List the implications of all the trends that are deci-sive to your industry, irreversible, and evolving ina clear direction. Detail how each will change whatbuyers value and how that would impact your busi-ness model over time.



Which factors should bereduced well below theindustry’s standard?

Blue OceanOpportunity

Reduce

Which factors should beraised well above theindustry’s standard?

Raise

Which factors that theindustry has neveroffered should becreated?

Create

Which factors that theindustry takes for grantedshould be eliminated?

Eliminate

Figure 11-1

The Four Actions Framework


Front desk and concierge service

Eliminate Raise

Bellhops and doormen

Full-service restaurants and roomservice

Lobby

Sleeping environment—Extra-largebed, luxurious linens, quietness,shower power

Guestroom types

Room size

Price vis-à-vis luxury hotels’

Reduce Create

Kiosks for one-to-three-minute selfcheck-ins

Communal living environment with 24/7bar and pantry and iMacs for guest use

Multitasking “ambassadors” hired forwarmth and a can-do attitude;no scripted staff

Prime location

Free movies on demand, phone callsat VoIP rates, free instant high-speedInternet, and lots of plugs for guests’gadgets

Figure 11-2

The Eliminate-Reduce-Raise-Create (ERRC) Grid: The Case of CitizenM


Full-Service Luxury Hotels

CitizenM

Three-Star Hotels

Price Lobby RoomSize

Primelocation

Kiosks for one-to-three-minuteself check-ins

Multitasking“ambassadors”; no

scripted staff

Bellhops anddoormen

Front desk andconcierge

service

Full-servicerestaurants and

room service

Guestroomtypes

Sleepingenvironment

Free movieson demand,

phone calls atVoIP rates, free

instant high-speed Internet

Communal livingenvironment

with 24/7 bar andpantry and iMacs

for guest use

High

Low

Offe

ring

leve

l

Figure 11-3

The Strategy Canvas of CitizenM at the Time of Its Launch, 2008

“Affordable Luxury for the People”


Expandedmarket

Company’s Perspective Customers’ Perspective

vis-à-vis comparable hotel operations

Low marketing costs

Cost additions>

+

Cost savings

Primelocation

one-to-three-minute

check-in kiosks

Great service bymultitasking

“ambassadors”

Free hi-speed Internet/free movies on demand/

Skype phone rates

Five-starsleeping

environment

Unique and compellingcommunal living space

Over 50%reduction

in staff

Over 40%reduction in

requiredreal estate

35% costreduction

in constructingguestrooms

Efficiency gains frompartnership, costinnovations, and

highly motivated staff

Low cost position

Highvolume

Affordableluxury

High growth inrevenues and profits

CitizenM

Price accessibleto three-starcustomers

Luxuryexperience

Figure 13-1

How CitizenM’s Business Model Works


High

Conventional Prisons

Community RehabilitationProgram

Eliminate Reduce Raise Create

Low

Build newconventional prisonsto reduce congestion

Treat incarcerationas the primary aim

Strict securitysystem

Productive activityand income

High-valuevocational training

Large and rigidbuilding structure

Conduciveenvironment for close

family contact

Supportafter release

Deploymentof military landand personnel

Offe

ring

leve

l

Figure E-1

The Strategy Canvas of Malaysia‘s Community Rehabilitation Program

“Give a Second Chance Through Rehabilitation, Not Incarceration”


blue ocean shift

Documents