Create Uncontested Market Space and Make the Competition Irrelevant

There are two kinds of business strategies that any company can employ.

Red Ocean Strategy
  • Compete in existing market space.
  • Beat the competition.
  • Exploit existing demand.
  • Make the value-cost trade-off.
  • Align the whole system of a firm’s activities with its strategic choice of differentiation or low cost.
Blue Ocean Strategy
  • Create uncontested market space.
  • Make the competition irrelevant.
  • Create and capture new demand.
  • Break the value-cost trade-off.
  • Align the whole system of a firm’s activities in pursuit of differentiation and low cost.

The cornerstone of the Blue Ocean Strategy is Value Innovation.

Cost savings are made by eliminating and reducing the factors an industry competes on.

Image module

Buyer value is lifted by creating and raising elements the industry has never offered.

Value innovation is created in the region where a company’s actions favorably affect both its cost structure and its value proposition to buyers. Cost savings are made by eliminating and reducing the factors an industry competes on.

Buyer value is lifted by raising and creating elements the industry has never offered. Over time, costs are reduced further as economies of scale kick in due to the high sales volumes that superior value generates. This is how a leap in value for both the company and its buyers are achieved.

The Four Actions Framework developed by W. Chan Kim and Renée Mauborgne is used to reconstruct buyer value elements in crafting a new value curve or strategic profile. To break the trade-off between differentiation and low cost in creating a new value curve, the framework poses four key questions, shown in the diagram, to challenge an industry’s strategic logic.

The strategic tool for Value Innovation is ERRC Grid.

Eliminate

Which factors that the industry has long competed on and are taken for granted should be eliminated?

Raise

Which factors should be raised well above the industry’s standard?

Reduce

Which factors sholud be reduced
well below the industry’s standard?

Create

Which factors sholud be created
that the industry has never offered?

Eight Principles of Blue Ocean Strategy
Formulation Principles Risk Factors Each Principle Reduces
Reconstruct Market Boundaries Search Risk
Focus On The Big Picture, Not The Numbers Planning Risk
Reach Beyond Existing Demand Scale Risk
Get The Strategic Sequence Right Business Model Risk
Execution Principles Risk Factors Each Principle Reduces
Overcome Key Organization Hurdles Organizational Risk
Build Execution Into Strategy Management Risk
Align The Value, Profit, And People Propositions Sustainability Risk
Renew Blue Oceans Renewal Risk

Value Innovation is More than Just Innovation!

“If you want something new, you have to stop doing something old”

Peter F. Drucker