Navigating Towards Profitable Growth: Understanding the Blue Ocean Strategy

For over three decades, scholars W. Chan Kim and Renée Mauborgne have pursued a singular question: what propels businesses to break free from the red ocean of competition and attain sustainable, profitable growth? Their quest culminated in the iconic and impactful strategy books, “Blue Ocean Strategy” and “Blue Ocean Shift“. These bestsellers propose a unique perspective – that enduring success doesn’t result from combatting competitors but from carving out “blue oceans”.

Blue oceans symbolize unexplored market spaces teeming with potential for growth, far removed from the bloody red ocean where rivals wrestle over a shrinking profit pool. Through an in-depth study of 150 strategic moves across 30 industries over a century, Kim and Mauborgne argue that the blue ocean strategy helps businesses identify their current position, create new demand, transform constraints into opportunities, and approach problems from fresh angles.

Distinguishing Red Ocean vs Blue Ocean Strategies

The red ocean strategy is prevalent across industries, from retail banks to gas stations, law firms to management consultancies. A telling example of red ocean vs blue ocean strategy lies in the US wine industry. Facing intense competition, Australian winemakers, Casella Wines, opted to shift their strategic focus from competitors to alternatives and from customers to noncustomers. As a result, their wine, [yellow tail], captured the top-selling wine slot in the US in 2005. Similarly, Cirque du Soleil, instead of competing against Ringling Bros. and Barnum & Bailey, decided to appeal to an entirely new segment – adults and corporate clients willing to pay premium prices for a novel entertainment experience. They succeeded because they understood that future victories require companies to stop competing and start innovating.

The Cornerstone of Market-Creating Strategy: Value Innovation

Developed by W. Chan Kim and Renée Mauborgne, Value Innovation is the simultaneous pursuit of differentiation and low cost, creating a leap in value for both buyers and the company. Value Innovation places equal emphasis on value and innovation. It defies the conventional belief in the value-cost trade-off, advocating that companies can offer greater value at higher costs or reasonable value at lower costs.

Unveiling the Strategy Canvas & Four Actions Framework

The strategy canvas is a one-page visual analytic tool that illustrates how an organization’s offerings align with those of its competitors. It enables companies to visualize their current investment focus, the product, service, and delivery factors the industry competes on, and what customers receive from existing competitive offerings.

Identify and implement the Four Actions Framework:

• Eliminate: get rid of factors you don’t need

• Reduce: reduce below industry standards factors that are not of value to your model

• Raise: raise above industry standards the factors that bring value to your model

• Create: create new factors that have never been offered

Overcoming the Four Hurdles to Strategy Execution

While developing a blue ocean strategy with a profitable business model is crucial, executing this strategy can often be challenging. Chan Kim and Renée Mauborgne identified four major hurdles to strategy execution:

1. Cognitive Hurdle – waking people up to the need for a strategic shift.

   • Leaders often focus on numbers, but these seldom influence people. People need to experience the need for change firsthand. They need to see problems in reality, not in spreadsheets. Bill Bratton of NYPD had himself and other leaders ride the subway to see problems in person. Also meet with your most disgruntled customers. Get face-to-face with your worst operational problems to wake your people up to the need for change.

2. Resource Hurdle – the greater the shift, the greater the need for resources to execute it.

   • Don’t focus on getting more resources, rather, focus on finding the best ways and places to use the resources you have. There are three ways to do this:

     • Find and focus on hot spots, which are activities that have low resource input but high potential performance gains.

     • Find and de-emphasize cold spots, which are activities that require high resources and result in low performance impact.

     • Finally, horse trade to move resources from cold to hot spots.

3. Motivational Hurdle – it can be hard to motivate people to break from the status quo.

   • You have to get people to act. Leaders often to create grand plans and try to message them to the entire organization, but these sound like lip service and their wide application diffuses the message. Instead, focus intently on smaller places of disproportionate influence. There are three ways to do this:

     • Zoom in on the kingpins: Don’t diffuse your message across the whole company. Send it to the key influencers (the kingpins). Find the well-respected, persuasive, natural leaders.

     • Place the kingpins in a fishbowl: shine a spotlight on their actions in a repeated, highly visible way. It should be transparent, inclusive, and fair but show who is ahead and who is lagging behind.

     • Atomize to get the org to change itself: break a big impossible challenge into smaller solvable problems.

4. Political Hurdle – opposition from powerful vested interests.

   • Vested interests will resist change. Focus on three disproportionate influence factors to defeat the vested interests:

     • Leverage the angels: the people that have the most to gain from strategic shift.

     • Silence the devils: those who have the most to lose from the shift.

     • Designate a consigliere: a politically adept insider who knows where the land mines are.

Triumphing over these hurdles is key to the successful execution of a blue ocean strategy.

In conclusion, the Blue Ocean Strategy offers a unique perspective on growth and competition. By seeking out untapped market spaces, focusing on value innovation, and overcoming execution hurdles, businesses can pave their way to sustainable and profitable growth.

To learn even more about the Blue Ocean Strategy and other CEO tips/tricks, we are excited to announce that Michelle Accardi, our CEO, will be speaking at this year’s #LegUp23 Conference June 1, 2023 on what it takes to scale and run $100M+ MSPs. Register for this free virtual event today so you don’t miss out!