One of my old fellow colleagues of the FFSI network from Brazil, who had completed her MBA at INSEAD two years ago, told me how impressed she was by the lectures she attended on Strategies conducted by the authors of Blue Ocean Strategy. From my internet search I came across an article on the subject last night. In the present juncture of seemingly economic recession, and financial crisis the thoughts of the authors to explore new market spaces become more relevant than ever.

Blue Ocean Strategy

W. CHAN KIM & RENEE MAUBORGNE

For over 20 years, the key question of strategy has been: How to outpace rivals, how to out-compete? Today we can hardly speak of strategy without referencing competition or using a war analogy. Because land is limited, the only way to advance one’s territory or market share is at the expense of another—a zero-sum game.

Under this theory of strategy, the world and industry conditions are fixed. The structure is taken as given (environmental determinism). This is in-box or within industry boundaries thinking. Here structure determines strategy that leads to performance.

If we look at history, whom do we admire most? Those who out-compete and beat others? Yes, we admire winners. But even more we admire those who create new paradigms in art, music, thought; new businesses that open up new market spaces, create new demand, and improve our lives. That is what expands the pie of economic, intellectual and creative wealth.

How can we create these new market spaces? In economic terms, this is a non-zero-sum game that shifts the focus of strategy from win-lose to win-win. New market spaces (what we call blue oceans) create a win for companies, societies, employees, and sometimes even for the competition. That’s the essence of blue ocean strategy.

Blue ocean strategy goes beyond competing to creating by opening a bigger pie for all. It is a reconstructionist approach to strategy rooted in New Growth Theory. Here strategy determines structure that leads to performance. Under this strategy, even an unattractive industry can be made attractive by the efforts of companies to reconstruct market boundaries.

Consider the New York Public Library (NYPL). From 2002 to 2004, NYPL funding was cut by 20 percent. The competition was intensifying as the internet, super-size bookstores, and other media were capturing a larger share of the shrinking market. Libraries were seen as dull and lackluster. The NYPL was operating in a unattractive industry with a shrinking budget and new tough competitors. In the old view of strategy, the best the NYPL could have hoped for was to go head-to-head against new rivals to maximize its share of a declining market.

Yet in less than 10 months, from 2004 to 2005, with just two staff, a miniscule budget, and scant marketing, Paul Holdengräber, the Director of Public Programs, made the NYPL one of the hottest venues in town. All new demand was created as attendance climbed by 400 percent. Nearly every public program event is sold out.

Holdengräber did not accept market boundaries that defined what libraries can and cannot do. Nor did he focus on beating the competition. Instead he sought to create new demand by reconstructing the market the library operated in to offer the public a leap in value. As Director of Public Programs, Holdengräber was in charge of the traditional public lecture program. Most of these programs were dull book readings or one-way monologues. They rarely attracted more than small clusters of senior citizens.

Holdengräber changed all of that. He infused theater, glamour and the feeling of a French intellectual soiree into the events, newly baptized as LIVE. Holdengräber sought to create carefully thought-out cocktails of artists, poets, politicians, rock stars, and writers to host a dialogue on hot or controversial topics such as obsessions, music downloading, terrorism. He took from theater the idea of infusing the events with a bit of show-like music, dancers and opera singers to stimulate all the senses. And then he made the events two-way discourses between those on stage and the audience, also pushing the events from 6 to 7 p.m. when everyone was free after work. The result is an eclectic splicing of daytime talk show, theater, and French drawing room soiree, and price of the library speaker series. In short, Holdengräber created a blue ocean of new market space. With his strategic actions, he reconstructed the market, creating win-win performance consequences as scores of people who had never entered the library rapidly converted into enthusiastic attendees.

Every organization can break free of the head-to-head zero-sum competition and open up blue oceans of new market space. Our research looks at 150 strategic moves that created blue oceans in 30 industries, spanning back to Ford’s Model T, which created the first blue ocean in the auto industry, up until the strategic moves of Apple’s iPod and iTunes and Cirque du Soleil.

We wondered, Is there a pattern to the creation of blue oceans? If so, we can systematically pursue blue oceans. We found six paths to remaking market boundaries in an opportunity-maximizing, risk-minimizing way. None require special foresight about the future. All are based on looking at familiar data with new perspective.

These paths challenge the six assumptions that define how most organizations build their strategies—assumptions that keep them locked in the red ocean of bloody competition: define their industries similarly, look at their industries through the lens of the same strategic groups, focus on capturing more of existing customers, define the scope of their products and services similarly, accept the functional or emotional orientation of their industries, and focus on current competitive threats. The result is me-too strategies that lead to head-to-head competition.

To create new market space, you need to gain insight into all the factors you compete on that no longer add value (factors that can be eliminated or reduced for huge cost savings) and into factors you should create that your industry never before offered to unlock new demand and set yourself on a profitable growth trajectory.