Book Review: Blue Ocean Strategy

Author: W. Chan Kim and Renee Mauborgne
Publisher: Harvard Business School Press
Year Published: 2005
Rating:
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In the subtitle of their book, W. Chan Kim and Renee Mauborgne claim they can show readers “how to create uncontested market space and make the competition irrelevant.” Unfortunately, the book is more idealistic than practical.

What is a blue ocean? The authors divide the world into “red oceans” and “blue oceans”. Red oceans are known markets where companies ruthlessly compete for an extra sliver of market share. Blue oceans are all the industries that currently don’t exist – the unknown market space. If you can create something so innovative that it revolutionizes your industry – and in fact creates a whole new market space (a “blue ocean”) – you’ll leave your competitors in the dust and have the market demand all to yourself.

The rest of the book is more or less a summary of Kim and Mauborgne’s research on the companies that have made a successful leap from a red ocean into a blue ocean. Their research shows that companies who have created blue oceans follow a “value innovation” strategy – that is, they completely reinvent themselves based on what customers would want (even though they might not actually know they want it yet) rather than competing toe-to-toe others in your industry.

My biggest problem with the book is that yes, of course every company wants to innovate and create their own uncontested market spaces, but that’s a lot easier said than done and the authors don’t provide much of a framework for successfully implementing that strategy. In fact, they make quite a number of assumptions that make their model more theoretical than practical. For instance:

The book assumes you’ll be able to get all your top level execs together in meetings over several weeks to define criteria and plot extremely subjective data onto a simplistic graph. Now, I admit, if you can get everyone to agree on the criteria and data points of the 7-10 critical factors that are meaningful to customers in your marketplace (why customers may choose your competitors over you – and where each of your advantages/disadvantages lie), and if the graph is an accurate reflection of your company vs your competitors, then perhaps that graph might be useful. But those are quite a lot of assumptions to hammer out in meetings with no real market research to back them up. To me, it sounds more like an exercise in why large companies need to bring in Kim and Mauborgne as consultants to lead them through this process.

The book also assumes that innovation should come from the top down, when in many companies, it’s not the strategic analysis of the marketplace over several months that facilitates innovation. It’s the little guy on the sales team who happened to talk with a customer, thought up something great, and now must champion that idea until upper management gets behind it. Yes, innovation may happen, but often, companies don’t have processes in place for employees to submit innovative ideas, so they are quickly squashed because “that’s not how the company does things.”

Let’s say so your company is fortunate enough to create a “blue ocean”… now what? A “blue ocean” by itself isn’t enough to sustain long term competitive advantage, and simply because you’re the first mover into an untapped market doesn’t mean you’ll rule alone forever. Quite the opposite is true – as soon as you point out the obvious, your competitors will rush to fill the gap – perhaps even building on your research and failures to create something better – so your blue ocean will quickly become purple and then red as more competition enters the space. If you want to be successful, you have to keep finding new “blue oceans” – and very few companies are able to manage that type of sustained innovation. A few examples of companies who could do this repeatedly would have been nice.

That said, some of the examples provided seem superficial – as they were chosen because parts of their strategy fit neatly into the model, yet the authors seemed to ignore the key reasons why the companies became successful. For instance, they use Casella Wines’ Yellow Tail brand as a success story of how a mom-and-pop Australian winery saw a niche in the US market and grabbed it with little promotional efforts. Yet they completely fail to mention that Casella Wines was so successful because they struck a 50/50 profit split with major wine distributor, WJ Deutch, who had already built their US distribution network over the last 20 years. Sure, Casella Wines might not have done much promotion other than point-of-sale displays, but they already had wide distribution including shelf space in Costco.

Southwest is another example. They authors stress how Southwest cut costs by eliminating meals and reservations rather than what really disrupted the airline industry – Southwest abandoned the hub-and-spoke network that virtually all their competitors use to route their plane traffic. Instead, they use a point-to-point model and offer very few non-stop flights over long distances.

Finally, the three criteria for what makes a successful “blue ocean” strategy are incredibly weak – focus, be different, and have a great marketing tagline. That sums up everything you need to know, right?

Blue Ocean Strategy isn’t a bad book but it only seems applicable to a handful of companies and doesn’t shed much light on how others can implement similar strategies. Given that hindsight is always 20/20 and that the authors don’t delve into detailed case studies, it’s also difficult to know if these companies actually followed a similar process to the Blue Ocean model – or if that’s just how the authors interpreted and intellectualized the process. I suspect the latter.

If you’re interested in the concepts, check out the books by Michael Porter, The Boston Consulting Group, or Clayton Christensen – or if you want a less academic, lighter read, pick up Seth Godin’s Purple Cow.

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