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Best Book Summary + PDF: Blue Ocean Strategy by Allen Cheng - https://www.allencheng.com - Visit for more summaries like this one.

Best Book Summary + PDF: Blue Ocean Strategy by Allen Cheng https://www.allencheng.com/blue-ocean-strategy-summary-pdf/

Tired of competing head-to-head with other companies? Do you feel like your strategy differs little from the competition surrounding you? You may need to redefine the rules of competition by defining a new strategy. In this Blue Ocean Strategy summary, learn: How blue ocean strategies create more customer value and cut costs at the same time How Cirque du Soleil broke out of the circus market and created its own category of entertainment How Apple created multiple blue oceans in quick succession and upended traditional hardware/software markets The 6 ways you can discover blue oceans in your own industry.

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Brief Introduction Blue Ocean Strategy describes two types of playing fields: Red oceans, where competition is fierce in bloody waters, strategy centers around beating rivals, and wins are often zero-sum. Blue oceans, where a market space is new and uncontested, and strategy centers around value innovation. Blue ocean strategy pushes companies to create new industries and break away from the competition. In short, you create a blue ocean by focusing on the factors that customers really care about, while discarding factors they don’t. This often attracts a new type of customer the industry hadn’t previously supported and growing the market. The hard part is actually finding a reasonable strategy and executing it successfully. This book contains plenty of examples of successful blue ocean strategies, and it teaches you how to discover and execute them.

Part 1: Blue Ocean Strategy

Chapter 1: Creating Blue Oceans Much of business strategy in the past few decades has focused on competition, including Michael Porter’s five forces and SWOT analysis. In these red oceans, market structures are known, and companies try to outperform rivals to grab share of existing demand. Over time, markets become crowded, products become commodities competing on price, and profits dissipate. This trend is aggravated by technological improvements that allow incredible creation of supply that can outstrip demand. In contrast, blue ocean strategy creates new market spaces, creates new demand, and leads to profitable growth. Here, the market structure is yet to be decided.

Blue Ocean Strategy Pursues Value Innovation In their analysis of strategic moves over 120 years, the authors found a consistent pattern to successful blue ocean strategies: value innovation. The best way to understand value innovation is to consider each component separately. Value creation

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without innovation tends to mean incremental improvements. For instance, decreasing costs and prices by 2% can create a lot of value – but it doesn’t lead to a new market space and differentiation. Likewise, innovation without value tends to obsess over new technologies and market pioneering that shoot beyond what buyers are ready to pay for (see: Webvan in the 1990’s tech bubble). To succeed, blue ocean strategy requires 1) doing things in a new way that 2) delivers a leap in value to customers.

Properties of Blue Ocean Blue oceans are being continuously created. A century ago, these industries didn’t exist: automobiles, aviation, health care, music recording. 40 years ago, these industries didn’t exist: e-commerce, mobile phones, personal computers, biotechnology, coffee shops. It’s certain that 10-30 years from now, new unknown industries will be created. To focus on red-ocean competition is to deny the dynamism of changing markets, and to miss out on massive opportunities. Blue ocean strategies lead to more profitable growth. The authors studied business launches of 108 companies. They found that 86% of launches were incremental extensions of existing markets, but they accounted for 62% of revenues and 39% of profits. In contrast, 14% of launches created blue oceans, and they generated 38% of total revenues and 61% of profits. (Note: This does not consider the likelihood of success of a red vs blue ocean strategy, ie blue oceans may be higher risk higher reward, or the expected value of a blue ocean project). Blue ocean strategy doesn’t seek to trade off value with cost. In classical business strategy, companies can compete either by creating higher-value products at higher cost, or undercut competitors at lower cost. Blue ocean strategy seeks to do both simultaneously. It raises buyer value by creating elements the industry never previously offered. It also reduces cost by eliminating unnecessary factors the industry competes on. This is fairly abstract and becomes clear with the Cirque du Soleil example below. There is no permanently successful executor of blue ocean strategy. All industries rise and fall. All companies rise and fall. Blue ocean strategy can be executed by both startups and incumbents. Technology innovation is not necessary for blue ocean strategy. It is sometimes present, but more often the innovation was creating something new that buyers value.

Example: Cirque du Soleil Circuses in the 1980s were dominated by Ringling Bros. and Barnum & Bailey. They featured three-ring

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Best Book Summary + PDF: Blue Ocean Strategy by Allen Cheng - https://www.allencheng.com - Visit for more summaries like this one.

circuses, clowns, and animal acts, and their customers were children and families. However, competition was strong. Circuses competed to secure more famous entertainers and exotic animal acts, raising costs without dramatically changing buyer value. Buyers had appealing substitutes for entertainment in television and video games. Furthermore, there was increasing public outcry about confinement and harsh training of animals. A former street performer, Guy Laliberté decided to escape the red ocean of circuses to create a blue ocean of theatrical entertainment: Cirque du Soleil. Its shows combine the circus with adult theater, showing incredible acrobatics and physical feats set to a storyline and original music. This blue ocean had magnificent properties distinguishing itself from traditional circuses: Cirque du Soleil changed the nature of the show and thus decreased significant costs common to the industry. They removed animal acts and their associated care, training, transportation, and housing. Instead of three rings, their shows feature one stage, reducing the number of performers needed. Instead of featuring star clowns and lion tamers, they anonymize the performers, thus preventing performers from gaining leverage and starting a bidding war with competitors. Cirque du Soleil increased value to the buyer with an innovative show and increased demand. Production value increased with music, lighting, story line, and artistry. This increased sophistication to match prestigious Broadway shows, allowing high pricing of tickets to theater level. The performance theater was upgraded with more comfortable seats, avoiding circus hard benches and sawdust floors. Traditional circuses were by and large the same, whereas Cirque du Soleil could create multiple unique productions around different acts and music. This increased demand so a viewer could happily see multiple shows. Cirque du Soleil essentially offered the best of both circus and theater, creating a new form of entertainment, while stripping away everything unnecessary.

Red ocean strategy Compete in existing market space. Beat the competition. Exploit existing demand. Trade off value for cost. Winning is zero-sum against competitors. Market structure is fixed, and you play within it. Follow best practices and improve on them.

Blue ocean strategy Create uncontested market space. Make the competition irrelevant. Create and capture new demand. Simultaneously increase value and decrease cost. Winning is non-zero-sum. The market can be restructured. Break the best practice rules.

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Appendix A: Three Industries with Blue Ocean Creation This is a good time in this Blue Ocean Strategy summary to cover 3 industries with repeated blue ocean creation.

Automobile Industry In the 1890s, the horse and buggy was the primary mode of transportation. In 1893, the Duryea brothers created the first automobile. Despite being unreliable, they cost $1,500, twice the average annual income. They thus became a publicly maligned symbol of excess. In 1908, 500 American automakers existed making luxury, custom automobiles. Henry Ford created the Model T, the first standardized, mass-produced automobile. Standardization reduced costs by employing unskilled laborers instead of car artisans. Limiting car options reduced the number of unique parts needed. It cost $850, half the price of existing cars. By 1924 the price was down to $290. By 1923, the majority of American households owned an automobile. Market share increased from 9% in 1908 to 61% in 1921 Now that cars were mass-market, Ford’s cars were getting boring. In 1924, General Motors introduced variety – “a car for every purse and purpose” (see car examples here). A range of options created new demand as buyers went up or down-market relative to the Model T. With frequent updates to cars, they were replaced more frequently, driving up demand. From 1926 to 1950, GM increased market share from 20% to 50%, while Ford’s fell from 50% to 20%. But Ford and Chrysler followed this strategy, and they began a red ocean period of competition and imitation. The Big 3 owned 90% of the US market. In the 1970s, Japanese manufacturers created a blue ocean of small, efficient, high-quality cars. US automakers, who had fallen complacent and focused on luxury, were caught by surprise. In 1984, Chrysler unveiled the minivan, a cross between a car and a van. It became Chrysler’s bestselling car. In the 1990s, the SUV was introduced, featuring increased space over the minivan and rugged fourwheel drive and towing capabilities.

Computer Industry Before computers, businesses ran operations with a ledger and a pen. This was low-cost but relatively slow. In 1890, Herman Hollerith invented the punch card tabulating machine for census calculations. It was expensive and difficult to use and required maintenance. The business was merged to form CTR in 1911.

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In 1914, Thomas Watson at CTR simplified tabulators. This reduced cost and training time. Furthermore, he created a new leasing model where businesses could avoid large upfront costs and upgrade machines frequently. By 1924, CTR held 85% of the tabulating market and became IBM. In 1952, the first electronic computer, named the UNIVAC, was released by a competitor. Despite few sales, IBM recognized the promise and released the IBM 650, a less powerful but less complicated computer. By the end of the 1950s, IBM had captured 85% of the business electronic computer market. (Note it didn't have to be first to market to win) IBM then introduced the System/360, a range of computers from small to large needs. It introduced interoperable software and equipment. IBM also unbundled hardware, services, and software, selling individually and creating the new software and services industries. In the 1970s, IBM, DEC, and others competed on building more powerful machines for the business market. Then in 1978, Apple created the first popular home computer – the Apple II. The Apple II wasn’t the first personal computer – the Altair 8800 was. But the latter was difficult to use, with no monitor, no permanent memory, no keyboard. This led president of DEC to say “there’s no reason for any individual to have a computer in their own home.” The Apple II combined existing technology into an easy-to-use solution with compelling software for the home (like word processors and games). At a low enough price, computers went mainstream. IBM followed suit and offered their own PCs in 1982. In the mid-1990s, computer manufacturers competed on performance, offering more features and software, and sold through distributors. Dell Computer Corp. upended this pattern, selling direct to consumers and reducing price substantially. Dell reduced delivery time to 4 days, compared to the industry average of 10 weeks. Further blue oceans include the tablet with Apple’s iPad; cloud computing services; and mobile phones.

Movie Theater Industry Before movies, a major form of visual entertainment was through live theater or operas. This catered primarily to the educated upper class, out of reach of working-class people. They played only a few times a week and were located in wealthy neighborhoods. In 1893, Thomas Edison invented the Kinetoscope, allowing a peepshow a few minutes long. These were used as interludes for live theater. In 1905, the blue ocean of movie theaters was created by Harry Davis with the nickelodeon. Simple theaters were constructed in lower-rent neighborhoods. Shows cost only 5 cents and played from morning to night. The content was fun and accessible. By 1914, the US had 18,000 nickelodeons with 7 million daily admissions. Nickelodeons were widespread, but were considered low-brow. In 1914 Palace Theaters created a blue ocean by moving upmarket, creating plush theaters showing longer films with more mature plots. This attracted upper/middle-class theater-goers at a reduced price.

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Eventually, Americans moved into suburbs, and Palace Theaters were too expensive to service a large geographical area. Competition pushed theaters to be small, running a movie per week. It didn’t feel like a special night out any longer. In 1963, AMC introduced the multiplex, with multiple different-sized theaters showing a variety of films. This helped meet a wider array of buyer needs while spreading risk and lowering costs. In a similar move, in 1995 AMC created the 24-screen megaplex. This combated the trend of moviegoers watching movies at home on VHS instead by offering superior sight and sound. The larger scale also gave it operational economies and leverage with distributors. Further blue ocean moves include online streaming of movies like Netflix.

Chapter 2: Analytical Tools and Frameworks A major reason imitative competition is so popular is that it provides a straightforward blueprint for what to do. In contrast, breaking new ground with creative blue ocean ideas is relatively risky. Our Blue Ocean Strategy summary will teach you analytical tools to minimize risk.

The Strategy Canvas The strategy canvas visualizes the current state of the industry and shows how a blue ocean strategy differs from incumbents. It plots two axes: On the horizontal axis: List the values the customer cares about, and current dimensions of competition. On the vertical axis: Segment buyers into distinct groups. For each group, plot a value curve showing how much buyers receive in each of the horizontal factors. The goal of a blue ocean strategy is to deliver more of what customers value (thus offering a clearly better product), and less of what they don’t (thus saving costs). The strategy canvas makes this clear. Here’s a canvas of Cirque du Soleil vs Ringling Bros and smaller regional circuses:

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Notice how smaller regional circuses are simply lower-cost imitations of the big names. Now look at where Cirque du Soleil differs drastically, and where it offers similar value. As described in the previous chapter of the Blue Ocean summary, Cirque du Soleil’s shows featured similar acrobatic wonderment and thrill as circuses. It introduced entirely new elements like high production value and artistry. However, it cut down on costly expenses that didn’t provide customer value – star performers and animal shows. This strategy canvas clearly shows how Cirque du Soleil offered superior customer value while lowering certain costs. There are two warning signs when plotting your strategy canvas: When your value curve closely resembles those of competitors. This suggests you’ll be competing directly with them, offering at best incremental value or cost savings. Red ocean competition looks like this. When you try to offer extremely high value on all dimensions. In this case, you’re trying to be something for everyone, making it compelling for no one and delivering a worse experience than a focused competitors. It’s very unlikely that all customer segments care equally about all values. Force yourself to question assumptions about what customers value, and try to separate customers into different segments. It’s important to list the values that customers truly care about, not just superficial factors that differentiate you but offer little value.

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Four Actions Framework To create a distinct curve, Blue Ocean Strategy offers four questions: Which factors the industry takes for granted should be eliminated? Which factors should be reduced well below industry standards? Which factors should be raised well above industry standards? Which factors should be created that the industry has never offered? The first two questions force you to find factors that overserve customers, forcing them to pay for more than what they want. This is counterintuitive because there’s often a natural tendency to simply imitate competitors. Eliminating these simplify your business model and reduce costs. The second two questions encourage you to lift buyer value and give them more of what they want. New factors offer entirely new experiences and create new demand.

Eliminate-Reduce-Raise-Create Grid The results of the Four Actions Framework can be summarized on an Eliminate-Reduce-Raise-Create Grid.

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