By W. Chan Kim & Renée Mauborgne
Blue Ocean Shift — released in early-October 2017 — is the continuation of the award-winning Blue Ocean Strategy, a bestselling strategy book based on a study of 150 strategic moves spanning more than a hundred years and thirty industries. In this series, a “red ocean” is defined as a saturated market in which companies must compete to survive, and “blue ocean” as a market in which there is little or no competition.
Blue Ocean Shift focuses on how can corporations, bureaucratic organizations, non-profits, among other organizations – shift their mindset and products towards a blue ocean. Specifically, this book addresses the human barriers associated with innovation and change that can exist in large organizations.
Any company can move out of a “red ocean” of intense competition and into a new value-cost market space – a wide-open “blue ocean.” Doing so requires completing five steps, each of which yields valuable insights into the structure of the industry and the company’s particular vulnerabilities. The shift of a company’s culture, product portfolio, and strategy from a red ocean to a blue ocean is the transformation process introduced in “Blue Ocean Shift.”
A shift starts with a Pioneer-Migrator-Settler map, to get a good view of your current offerings, followed by creating a picture of the state-of-play in the industry with a Strategy Map. Next, delve into the actual experience of your customers and what they really want with a Buyer Utility Map, and identify how the total demand landscape for your offering could be expanded. With this information, the team can dive into systematic field research, using six paths that will enable them to decide what to eliminate, reduce, raise or create and so reconstruct the boundaries of the industry. Finally, after holding a Blue Ocean Fair and drawing up a new business model, the company will be ready to roll out its Blue Ocean Shift. Established bureaucratic companies, companies in regulated industries, or even government agencies surrounded in red-tape, can open up and create new blue oceans.
Blue Ocean Shift not only provides a recipe to identify and transition companies into blue oceans, but also focuses on the human-side (or “humanness”) of a transition. It does this by introducing many strategies and tactics that help shift the culture of an organization from its current state to one will allow any organization to welcome a shift.
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What is a Blue Ocean Shift?
In 2005, the book Blue Ocean Strategy described how some organizations across many industries have successfully made the leap from a “red ocean,” where competitors are trapped in a blood-red fight for customers, into a wide-open “blue ocean” of uncontested market space. Building on that work, a Blue Ocean Shift is a five-step process that allows any organization to make the transition from an existing, crowded market into a clear new market space. In other words, Blue Ocean Shift is the recipe book to help organizations shift from red oceans to blue oceans.
Whether the head of a large bureaucratic corporation, a small non-profit, or a government department, organization leaders tend to assume that the conditions of their industry are a given, a set of constraints that form the boundaries of the red ocean in which they must compete. Focused on competing over customers, leaders assume that there is always a trade-off between value and differentiation. But that assumption is wrong. Organizations can break out of red oceans and move into a blue ocean with a Blue Ocean Shift. Breaking out of the red ocean starts by swapping market-competing moves in favor of market-creating moves. There are three overall components to a successful Blue Ocean Shift.
- Adopting a blue ocean perspective: looking to the far horizon, recognizing that different questions have to be asked, and pondering what could be;
- Having practical tools that guide the process: these will translate a blue ocean perspective into a whole new offering;
- Embracing the concept of humanness: inspire people and build their confidence, so that they drive the process forward and can successfully implement the shift to a blue ocean.
Based on the three components above, we will look at three key notions that underpin a successful Blue Ocean Shift: (1) understanding the concept of market creation, (2) developing a Blue Ocean mindset, and (3) developing “humanness.”
Setting the Stage
1. Understanding Market Creation
Many people assume that market creation must involve some form of destruction or disruption. It is true that in some cases a new technology can destroy a market and create others – think Uber vs. taxis, or e-mail vs. snail-mail. However, focusing only on disruption gives a misleadingly incomplete picture of market creation.
For example, the children’s show Sesame Street created a new market for preschool edutainment, without destroying or disrupting any other aspect of early childhood education. This is an example of non-disruptive creation. In reality, market-creating strategies take one of three forms:
- A breakthrough answer to an existing problem, which usually takes the form of disruptive creation. For example, boats and airplanes allowed for a new marketplace of transportation that did not exist beforehand.
- Identifying an entirely new opportunity or solving a new problem, a wholly non-disruptive form of growth and creation. For example, Cirque Du Soleil created a new form of circus for both adults and children; they extended the market for circus goers.
- Redefining the problem and offering a new solution, which has elements of both disruptive and non-disruptive market creation. For example the smartphone disrupted less sophisticated cellular phones, but also expanded the market by enabling new mobile experiences.
Many also assume that the key to unlocking a new market is innovation, or that entrepreneurship automatically leads to market creation. The creators of new technologies do create extraordinary things, but they are rarely the ones who convert the new technology into something that creates new value. And, a business rarely succeeds or fails purely on the quality of its technology. It is important to understand that a Blue Ocean Shift does not merely mean “innovation.” A blue ocean is created when a new value-cost frontier is opened, and a Blue Ocean Shift occurs when an organization successfully “shifts” into the newly created frontier.
2. The Blue Ocean Mindset
Seeing new opportunities instead of nothing but competitive red oceans requires adopting a different mindset, one based on four fundamental principles.
- Do not take the conditions and boundaries in your industry as a given: instead, think in terms of changing those boundaries to work in your favor. Unleash your imagination.
- Make the competition irrelevant: do not focus on gaining an advantage over the competition; that is backward looking and keeps you focused on what the organization has achieved to date. Instead, unleash your forward-looking creativity.
- Rather than fighting over existing customers, focus on how to create and capture new ones: in most industries, existing customers are just a tiny sliver of the world of non-customers waiting out there. Create new demand by finding these non-customers.
- Go beyond the value-cost trade-off: instead of choosing between differentiation and low cost, actively pursue both at the same time.
Adopting a blue ocean mindset also includes embracing the concept of “humanness.” Building this concept into the process of a blue ocean shift inspires your people, gives them confidence, and allows them to drive the process of change. Humanness brings out people’s emotional engagement so that they have the confidence to act. Once they have that confidence, they can then start to use the tools and processes that will unleash a blue ocean shift. There are three elements to the blue ocean process that build the attitude of humanness.
The whole process of a blue ocean shift is daunting to contemplate. Instead, break the challenge into small, concrete steps that can be easily grasped, acted on, and ‘won.’
When people are told that change must happen, they do not commit to the process and will be resistant and even resentful. Instead, create the conditions that allow people to make discoveries for themselves. Not only will this prevent people from feeling manipulated, the very act of discovery helps people to develop a more open and forward-looking mindset. They will see things they had never thought of before.
This requires three fundamentals: engagement, so that people are actively involved in driving the process; explanation, so that people are reassured that they understand the thinking behind each stage; and clear expectations, so that no-one is surprised. This contributes to an atmosphere of trust, helping to ensure everyone’s voluntary cooperation.
Taken together, these three elements make it possible for people not only to buy into the whole process of a Blue Ocean Shift, but also to be willing to actually implement the changes required to make it happen. For example, in many industries innovation creates added risk, which might not be welcomed by some individuals if their objectives or Key Performance Indicators are aligned only with lowering risks. This is typical of regulated industries. During the Fair Process implementation, objectives and KPIs might need to be re-written such that the organizational culture can shift.
The Five Steps of a Blue Ocean Shift
Not all organizations are willing or able to execute a complete Blue Ocean Shift right now; but this is not an all-or-nothing process. Each of the five steps and its related tools has value in and of itself. Perhaps the organization just needs a wake-up call in the form of a systematic review of the industry as it stands (Step Two), or perhaps it could benefit from some insights into where to find new customers (Step Three). The only mistake is to do nothing and hope that things will change.
STEP ONE: GETTING STARTED
The first step is to map out exactly what industry or product offering you are going to tackle. The best way to do this is to start with the Pioneer-Migrator-Settler Map. Traditional organizational assessments focus on market share and industry attractiveness; but, market share is a lagging indicator that shows where the industry has been, and attractiveness only gives a snapshot of where the industry stands right now. Instead, the first step should be based around the concepts of value and innovation. This lets you look beyond today’s performance data and gives you an aerial view of the landscape.
To see how vulnerable or healthy your portfolio really is, use the concepts of Pioneer, Settler, and Migrator to assess how much value the product or service offers.
- Pioneers: products that break away from the competition. Pioneers are value innovations, the key to renewing the portfolio and opening up new frontiers.
- Settlers: the other end of the spectrum, Settlers offer only value imitation, converging with the rest of the industry and offering little prospect of growth. Think of Microsoft’s two main products, Office and Windows; they are the source of most of the company’s profits, but they are decades-old Settlers. This fact is reflected in the company’s stalled stock price.
- Migrators: somewhere between the two, migrators offer some improvement over the competition, but they do not represent innovative value.
To plot the Pioneer-Settler-Migrator map, first identify your key businesses, products or services. Choose the heads of each of your organization’s main units to participate and have each manager identify where the products fall on the map. It is important to have individuals complete this first, to ensure they feel invested in the whole process – see “Humanness.” Then, bring the whole group together to plot their collective assessment. Working as a group both ensures a sense of fair process and gives everyone a perspective on what others in the company are thinking. The “whole group” includes all decision makers. For example, in a regulated industry not only invite the product owners, but the legal team, finance team, and compliance officers – among others – responsible for the portfolio of products.
With the map completed everyone can see where the organization is vulnerable. If there is a healthy balance between Settlers, Migrators, and Pioneers -- congratulations! The organization is on a great path and can hold off on launching a full Blue Ocean Shift. If, however, there are a lot of Settlers, a few Migrators, and at best one or two Pioneers, then everyone can now see that a shift is needed.
To define the scope of your Blue Ocean Shift, look for a business, product or offering that has most or all of the following characteristics:
- a Settler or low Migrator;
- is headed by a manager who is eager to break into a blue ocean;
- has no other major initiatives underway;
- clearly has very limited options for growth.
The final part of Step One is constructing the right team to drive the Blue Ocean Shift. With a total of 10-15 people, the team should include the functions and organizational levels that will bring forth a new offering. This probably means senior representatives of human resources, IT, marketing, finances, manufacturing, research and development, sales, and the front line. Job title is less important that character; look for people who are well respected, with a reputation for listening, asking questions, and getting things done. They should also know their areas intimately and be willing to spend about 10% of their time on the project.
STEP TWO: THE STATE OF PLAY
The next step is to build a clear, shared picture of the current strategic landscape by creating a Strategy Canvas. This not only helps to build your strategy, it also makes sure that everyone is working from the same overall picture.
The Strategy Canvas is a one-page visual that tells a story in the form of a graph. The horizontal axis shows the key factors that the industry competes on, while the vertical shows the offering level that buyers receive or experience for each of these factors. The blue ocean team first identifies between five and twelve key competing factors for the “as-is” Strategy Canvas. Factors can relate to an offering’s product, service, or delivery platforms, but all should describe a key aspect of the offering from the buyer’s point of view. For example, a charity’s list of factors for the fund-raising industry might include pity pleas, soliciting grants, year-round events, recognition of donors, and so on.
Once again, start with the individual team members drawing up their own lists, then reconvene as a group and decide together on the key factors list.
Once the team has decided on the key factors list, pick a best player against which to plot the offering as a reference; either the industry leader or your strongest competitor. Then, using a five-point scale from very low to average to very high, have the team rate the offering level of each factor for your product and then for the reference company.
This step will yield a visual map of the current state of play, showing where the shape of your current offering diverges with the industry leader, if at all; the assumptions that the industry tends to act upon; and the extent to which competition in the industry is converging.
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