Blue Ocean Strategy- Book Review
1 August 2006
Dr. Moria Levy
Since the release of Nonke and Takeuchi's seminal work, "The Knowledge-Creating Company," in 1995, numerous individuals have grappled with a shared concern—how to cultivate knowledge within an organization and formulate a successful strategy.
In a world centered on knowledge, many concur that it plays a pivotal role in the overall equation. Professor W. Chan Kim and Professor Renee Mauborn's 2004 book, akin to Nonke and Takeuchi's, systematically outlines methods for developing knowledge that propels organizations toward extraordinary success. However, this book predominantly emphasizes value innovation.
The book equips the reader with tools for delivering more (output) for less (payment), simultaneously enhancing profitability and carving out a blue ocean—an expansive, unparalleled market. There's no magic involved; it results from diligent effort, and the law of conservation of matter is elegantly upheld, notwithstanding the seemingly contradictory notion of "giving more with less." How is this accomplished?
What is value innovation?
Innovation refers to a novel solution previously nonexistent in the market's context. The authors posit that this isn't necessarily technological innovation, though it's not dismissed. Innovation can manifest in the product's functionality, sales approach, and pricing. For instance, instead of sales, Blockbuster's movie rental model innovatively opened a blocked market where the cost of videos exceeded what the market was willing to pay.
Value signifies added value or benefit. It's crucial to emphasize that the benefit is subjective and lies in the user's eyes. An innovative solution must provide the user with additional value. Mere innovation falls short if it doesn't translate into a new benefit the user didn't have before.
In the context of this book, value innovation is a fresh perspective on strategy and its practical application to forge a competitive advantage through a significant leap forward. This strategy encompasses an enterprise's activities rather than solely focusing on production optimization. As per the authors' definition, it enables the creation of a blue ocean and an escape from market competition.
The blue ocean represents a new market without competitors, making it expansive and easy to navigate. This contrasts with the crowded market's ocean, the Red Ocean, saturated with competitors' struggles. The red ocean inevitably leads to price reductions and differentiation attempts that shrink the market. In contrast, the blue ocean encompasses untapped niches, generating demand and providing an opportunity for highly profitable growth.
The book's core concept revolves around innovating value to deliver more with less. How? By addressing four key questions that scrutinize the primary value components characterizing the existing market:
Which existing value components should be reduced or eliminated?
What value components, previously unexplored by the industry, should be introduced?
Which value components should undergo significant expansion?
What value components, often taken for granted by the industry, should be eliminated?
The thought process, supported by various analytical tools provided by the authors, assumes that we have grown accustomed to receiving responses to needs that may only sometimes be necessary. Rethinking these notions can lead to profound conclusions about our perceptions and attitudes toward what truly matters in the products or services we purchase.
For instance, in the wine industry, where sophistication and refinement are often emphasized, Casella, an Australian winery, challenged this elitist image. Recognizing that most of the population felt discouraged and overwhelmed by the vast array of wine choices, Casella introduced a single, bold, and relaxed wine, appealing to a broader audience beyond traditional wine enthusiasts. This move created a new, expansive market of wine lovers, yielding a higher price point than slightly cheaper wines. The key to their success lies in eliminating the complexities of aging the wine and streamlining its production process while emphasizing values of easy choice, pleasure, and adventure through youthful and bold branding.
Three recommended characteristics for a successful strategy that shapes a unique and unconventional value curve include:
Focus: Avoid offering an infinite array of values; concentrate on a limited number of carefully chosen elements.
Differentiation: The value innovation strategy positions the organization apart from its competitors, creating a distinct separation.
Compelling Proposition: Define a concise, attractive proposition that effectively communicates a genuine and powerful message.