Strategy Design

Blue Ocean Strategy

Blue ocean strategy uses a strategy canvas and four actions to change what an industry competes on and reach demand nobody is serving.

The questionWhich factors our industry competes on could we drop, cut, raise, or invent, so that we serve buyers the industry is not reaching?

Value innovation. The main tools are the strategy canvas, the four actions framework, and the eliminate-reduce-raise-create (ERRC) grid.

Model · W. Chan Kim and Renée Mauborgne, 2004 and 2005

Eliminate

Full-service packages
Routine office visits

Reduce

Manual bookkeeping

Raise

Same-day answers
Fixed monthly price

Create

Live cash-flow view
Monthly planning call

Simplified four-actions grid from the worked example, with each column listing the factors moved in that direction.

When to use it

Competitors in a mature market match each other on the same features, and price has become the only lever left.
A client is losing buyers who have stopped using the category altogether, and wants to know why they left.
A new-offer team keeps adding features and cost, and needs a structured way to decide what to take away.
You need a picture of how an offer compares with rivals on the factors buyers care about, before any repositioning work.

When to avoid it

The client's advantage depends on scale or a cost position in an existing market. Porter's generic strategies or a cost program address that more directly.
The industry is new and the factors of competition are not yet settled. There is no established profile to depart from, and customer discovery work will tell you more.
The plan rests on demand nobody has evidence for. The framework generates hypotheses, and those need testing with buyers before investment.
The decision is about a single product feature or price point. A value proposition or pricing analysis is the right size of tool.

Overview

Blue Ocean Strategy maps what an industry competes on and asks which of those factors to eliminate, reduce, raise, or create, so that a new offer serves buyers the industry is not reaching. It supports a design choice about what to stop offering as much as what to add, with the aim of lowering cost and raising buyer value at the same time.

The evidence is case-based. Kim and Mauborgne’s examples were chosen after the fact, so they show what success looked like, not how often the approach works. A blue ocean also attracts imitators once it is visibly profitable. Treat the grid as a source of hypotheses, test them with noncustomers and a priced pilot, and plan for rivals to copy the offer.

The tools

Strategy canvas

A chart with the factors the industry competes on along the horizontal axis and the level of each factor offered on the vertical axis. Each competitor's profile drawn across the factors is its value curve. When the curves of most players look the same, the industry is competing on the same terms, which is the condition the method is designed to break.

Four actions framework

Four questions about the factors on the canvas. Which ones the industry takes for granted should be eliminated? Which should be reduced well below the standard? Which should be raised well above it? Which has the industry never offered that should be created? Eliminating and reducing lower cost, raising and creating add value for buyers.

ERRC grid

A four-part grid that records the answers to the four actions. A grid with entries only under raise and create is a warning that the new offer will cost more without being distinct.

Noncustomers

Kim and Mauborgne look for demand outside current buyers, in three tiers. These are people about to leave the market, people who have refused it, and people who have never been considered as customers. Their reasons for not buying often point to the factors to eliminate or create.

What it is not

A license to ignore competitors. The canvas starts from a careful read of what rivals offer, and imitators arrive once a new space proves profitable.
The same as disruptive innovation. Blue ocean moves can come from any direction, including the high end, and do not depend on a cheaper technology improving over time.
Proof that leaving competition pays. The examples are successes chosen after the fact, and the books do not report how many similar moves failed.

The steps

Draw the current canvas

List the factors the industry competes on, as buyers would name them, and plot your offer and the main alternatives. Include substitutes from outside the industry. The output is a picture of where curves converge.
Talk to noncustomers

Interview people who left the category, refused it, or were never considered. Ask what stops them buying. Look for factors the industry over-delivers on and needs it ignores.
Run the four actions

For each factor, decide whether to eliminate, reduce, raise, or keep it, and list factors to create. Fill the ERRC grid, and check that both cost-reducing and value-adding columns have entries.
Draw the new value curve

Plot the proposed offer on the canvas. A useful curve departs clearly from the others, can be described in a short sentence, and stays focused on a few factors.
Test before committing

Price and pilot the offer with real buyers, and check the cost structure against the price. Note what would stop rivals from copying it and how long that is likely to hold.

In practice

The partners of a mid-sized accounting firm were losing small-business clients to cheap online bookkeeping, and their response so far had been to cut fees. The consultant drew the canvas with them. The factors were range of services, office visits, hours of bookkeeping, turnaround on questions, price, and tax advice. Their curve and those of their four local rivals were nearly identical, high on range and visits and slow on questions. The online services were low everywhere except price.

Interviews with former clients and with owners who had never used an accountant showed a different concern: they wanted to know whether they could afford to hire or buy equipment next month. The grid that came out eliminated full-service packages and routine office visits, reduced manual bookkeeping by moving clients to a software ledger, raised answer speed to same day and fixed the monthly price, and created a live cash-flow view with a monthly planning call. The partners piloted it with twenty clients before changing the price list, and set a review date to see whether local rivals had copied it.

What you leave with

A strategy canvas showing the current value curves of the client and its main alternatives.
A completed ERRC grid with the factors moved in each direction.
A proposed value curve with the target buyers and a price.
Evidence from noncustomer interviews and a pilot plan with a review date.

Failure points

Factors from the inside

The team lists factors in its own terms, such as product specifications, instead of what buyers weigh. The canvas then confirms the current offer and finds nothing to eliminate.

Only raise and create

The grid has entries in the two value-adding columns and none in the others. The new offer costs more, and the price has to rise to cover it.

No noncustomer evidence

The workshop invents what noncustomers want. The new curve reflects the team's assumptions, and the demand fails to appear at launch.

Treating the space as permanent

A new offer works, and rivals copy it within a year or two. Without a plan for the next move, the blue ocean turns into the next contested market.

Reasoning from the famous cases

The team copies the shape of a celebrated example without the conditions that made it work. The books' cases are successes selected afterward, and similar attempts that failed are not in them.

The failures above are usually Framing: the wrong problem was chosen before this framework was applied.

Origin

W. Chan Kim and Renée Mauborgne, professors at INSEAD, developed the approach from their earlier work on value innovation. Their Harvard Business Review article "Blue Ocean Strategy" appeared in October 2004, and the book Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant followed from Harvard Business School Press in 2005. The book bases its argument on what the authors describe as a study of 150 strategic moves across more than a hundred years and thirty industries. An expanded edition in 2015 added chapters on alignment, renewal, and red ocean traps, and Blue Ocean Shift (2017) gave a step-by-step process.

Blue Ocean Strategy, Blue Ocean, and Red Ocean are registered trademarks owned by Kim and Mauborgne. The canvas and grid templates published on their site are copyrighted. This note describes the ideas in its own words and does not reproduce their diagrams.