Chapter 3 Part 1 Blue Ocean Strategy Chapter 1 Creating a Blue Ocean
Guy Laliberte, who has played the accordion, walked on stilts, and swallowed fire, is now the CEO of Cirqued du Soleil, Canada's largest entertainment export company.This circus, established by a group of street performers in 1984, has toured in more than 90 cities around the world, with about 40 million spectators.In less than 20 years, Cirque du Soleil's total revenue has reached that of the world's two largest circus companies—Ringling Bros. and Barnum & Bailey. level reached over 100 years ago.
The reason why this achievement is extraordinary is that the circus industry is no longer an attractive industry, but a sunset industry with very limited growth potential according to traditional strategic analysis.On the supply side, celebrity artists monopolize the market.The same is true on the demand side, with all kinds of in-town entertainment, sports shows, and family entertainment being an alternative to circus performances, casting a growing shadow on the industry.Kids are more interested in video games than in traveling circuses.It can be seen that the industry is suffering from the continuous loss of viewers and the resulting decline in revenue and profits.In addition, animal rights groups have escalated concerns about the treatment of animals in circuses.With Ringling Brothers Circus and Barnum and Bailey's Circus already setting the industry standard and smaller circuses following suit, the circus industry is really unattractive from a competitive strategy standpoint.
Another valuable aspect of Cirque du Soleil's success is that it did not appeal to a lost child audience, nor did it compete head-to-head with Ringling Brothers Circus and Barnum and Bailey's Circus. A new non-competitive market space, free from competition.The new customer groups attracted by this are adult audiences and business people who are willing to spend several times higher than watching traditional circus performances to obtain a novel entertainment experience.Apparently, Cirque du Soleil's first show could be called "We Reinvented the Circus."
The secret of Cirque du Soleil's success is that it understands that in order to be successful in the future, companies must stop competing with each other.The only way to win in the competition is to give up the idea of competition.
To better understand the success of Cirque du Soleil, we imagine that the market space consists of two oceans: a red ocean and a blue ocean.The red ocean represents all the industries that exist today, it is a known market space.Blue oceans represent all industries that do not currently exist, i.e. unknown market spaces.
In the Red Ocean, industry boundaries are clear and definite, and the competitive rules of the game are known
In contrast, blue oceans represent untapped market space, demand creation, and opportunities for rapid profit growth.While some blue oceans are created outside of existing red ocean territories, the vast majority of blue oceans are created by extending the boundaries of industries that already exist, as Cirque du Soleil did.In blue oceans, competition is irrelevant because the rules of the game have yet to be established.
It is always important to beat the competition in the red ocean field.Because the Red Ocean has always existed and will always be part of the real business world.However, as supply exceeds demand in more and more industries, competition for market share, although necessary, is no longer sufficient to maintain good performance growth.Businesses need to look beyond the competition.To capture new profit and growth opportunities, businesses must create blue oceans.
Unfortunately, blue oceans are largely unknown.The strategic research in the past 20 years has mainly focused on the competition-based red ocean strategy. Although managers have the desire to create a blue ocean, they are afraid that the risk is too high and it is difficult to form a strategy.This book provides a systematic operating framework and analysis methods for finding and winning blue oceans.
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Although "blue ocean" is a new term, it is not new.It was and is a part of business life.Let us look back at the past century, how many industries today were unknown at that time?The answer: Many basic industries, including automobiles, recording, aviation, petrochemicals, health care, and management consulting, were unheard of or just emerging at the time.Hedge funds, cell phones, gas-fired electricity, biotechnology, factory outlets, express delivery, minicars, snowboards, coffee bars, and VCRs are among the many industries that are now well-established and popped up three decades ago.Thirty years ago, none of the above industries actually existed.
If the clock is set to the next twenty or fifty years, how many unknown industries will appear?Taking history as a mirror, there will be many such industries.
The reality tells us that industrial development is not static, but continues to evolve, because operations are improving, the market is expanding, and market players come on stage after you sing.History has proven that we have immeasurably great potential for creating new industries and reinventing old ones.In fact, the 50-year-old "Standard Industry Classification (SIC)" system announced by the US Census Bureau was replaced by the "North American Industry Classification Standard (NAICS)" system in 1997.The new system expands the original 10 SIC industry departments to 20 departments, reflecting the reality of the development and growth of new industries.Assuming these systems were designed for the purposes of standardization and continuity, this shift shows just how significant the expansion of blue ocean territory has been.
However, the current dominant strategic thinking is still based on the Red Ocean strategy of competition.In part because corporate strategy is still largely shaped by its roots—militarized strategy. "Strategy" itself is military terminology - the "command (headquarters)" of the chief executive officer, and the "front line" of the "combat team".According to this expression, the so-called strategy is "to face the opponent and compete for a limited and established position".However, unlike wars, the history of industrial development tells us that the market space has never been a given constant, and the blue ocean continues to expand over time.Once a business focuses on the Red Sea, it accepts the limiting factors in warfare—limited ground and the notion that the enemy must be defeated to win—and ignores the unique strengths of the business world—by avoiding competition and creating new market spaces .
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Through empirical research on 108 newly-started companies, we can quantitatively analyze the impact of blue ocean expansion on corporate revenue and profit growth (see Figure 1.1).We found that 86% of start-ups scale linearly, i.e. grow within an already existing red ocean market space.This 86% red ocean contributed 62% and 39% to total revenue and total profit, respectively.Another 14% of companies are positioned to expand blue oceans, which account for 38% of total revenue and 61% of total profit.If the number of red ocean companies and blue ocean companies reflects the proportion of total investment released (regardless of investment income, investment failure, etc.), then the performance created by blue oceans is obvious.Although we lack separate data on the entrepreneurial success rates of Red Ocean and Blue Ocean companies, the overall performance difference between the two is enough to illustrate the problem.
Figure 1-1. The profit and growth effect of Blue Ocean
There are several driving forces behind the urgency to create blue oceans.The ever-accelerating technological progress has significantly increased industrial productivity and made it possible for manufacturers to provide products and services on a large scale.This leads to an increase in the number of industries and an oversupply situation
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The above situation has accelerated the circulation of products and services, intensified price wars, and narrowed profit margins.Recent research on several US industry brands confirms this trend.People no longer have to use Tide to choose washing powder as in the past; once Crest promotes, they no longer insist on using Colgate toothpaste, and vice versa.In an overcrowded industry, segmenting brands has become increasingly difficult in good times and bad.
All this suggests that the business environment in which twentieth-century management strategies and methods existed is accelerating its demise.As the competition in the red ocean becomes increasingly cruel, managers must change the current habit of thousands of troops crossing a single-plank bridge and transform to a blue ocean.
How does a company break through the cutthroat competition in the red ocean?How does it expand the blue ocean?Is there a systematic path to achieve the above goals and maintain high performance?
To find out, our first step is to define the basic unit of analysis for our study.In order to understand the basis of high performance, previous business research literature usually regards the enterprise as the basic unit of analysis.People are always amazed at how companies can maintain strong and sustainable profit growth with a remarkable set of strategic, operational and organizational characteristics.However, our question is: Will there always be "excellent" or "visionary" companies that can continue to conquer the market and continue to open up blue oceans?
We can revisit "In Pursuit of Excellence" and "Longevity".
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The book "Longevity" follows in the footsteps of the previous book.The book states that "good habits of the visionary business" can help companies maintain high performance in the long run.In order to avoid the defects of the book "Pursuing Excellence", the book "Longevity" expands the research scope to the entire survival period of the enterprise, and its research objects are limited to enterprises that have survived for more than 40 years. "Longevity" also became a bestseller.
But the problem reappears.The inefficiencies of some of the visionary businesses featured in Lasting Survival are coming to light, according to recent examinations.As the recent book "Creative Destruction" describes, the success of some of the exemplary companies listed in "Enduring Survival" is overwhelmingly due to the strength of the entire industry rather than the performance of individual companies.Hewlett-Packard, for example, fits the long-term market-conquering criteria set out in Survival.In fact, during the period when HP was conquering the market, the entire computer hardware industry as a whole was doing well.Looking further, HP isn't even a competitive winner in the industry.Using this and other examples, Creative Destruction questions the existence of so-called "visionary" firms that can consistently conquer markets.Furthermore, we have all witnessed the progression of Japanese companies from their “revolutionary” strategies in their heyday in the late 1970s to early 1980s to stagnant performance and even decline.
If sustainable high-performance companies do not exist at all, or if a company is brilliant in one period but misjudged in another period, this company should not be used as the basic analysis unit for exploring the root of high performance and blue ocean expansion.
As discussed above, history also demonstrates that an industry will expand steadily when its rules and boundaries have not been defined; individual market participants can set the rules and boundaries.Businesses don't have to compete ruthlessly in a given market space; Cirque du Soleil has expanded a new market space in the entertainment industry and has enjoyed strong, profitable growth as a result.This shows that the industry should not be used as the basic unit of analysis for the study of profitable growth.
Our research demonstrates that strategic actions, not firms or industries, are the fundamental unit of analysis that explains blue ocean expansion and sustainable high performance.A strategic action consists of a set of market-expanding management actions and decisions.For example, Compaq was acquired by Hewlett-Packard in 2001 and is no longer an independent company. Many people may think that the company is not successful. However, this does not affect our analysis of Compaq's blue ocean strategy to expand the server industry.These strategic moves were not just part of the company's strong recovery in the mid-1990s, but also opened up a whole new multibillion-dollar computer industry market space.
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In Appendix A: "A Survey of Blue Ocean Strategy Cases", we extracted from the database three representative industries in the United States: the automobile industry-what we use to work; the computer industry-what we use to work; We gave a brief introduction to entertainment after work.As Appendix A demonstrates, no business or industry is always great.But there seems to be significant commonality among the strategic moves that have created blue oceans and steered companies onto new trajectories of strong, profitable growth.
The strategic moves we've discussed—creating and capturing new market spaces and creating huge demand by offering innovative products and services—encompass not only the many legends of massive profit growth, but also the thinking behind them, And those enterprises trapped in the red sea missed the opportunities brought by these ideas.We study these strategic actions in order to understand the behavior patterns that create blue ocean areas and achieve high growth.We analyzed the strategic actions of more than 150 firms in more than 30 industries between 1880 and 2000, carefully observing the behavior of the firms involved in each event.The industries we study include hospitality, movies, retail, railroads, energy, computers, broadcasting, and auto manufacturing, steel.We not only study the winners who expanded the blue ocean domain, but also analyze the situation of less successful competitors.
Whether it is for a specific strategic move or between different strategic moves, we try to find the commonalities of the blue ocean companies and those of the less successful red ocean companies.We also tried to find the differences between these two types of enterprises.Through this work, we seek to discover the common factors that lead to blue ocean expansion, as well as the key differences that separate successful survivors from red ocean losers.
Through the analysis of more than 30 industries, our research finds that neither the industry itself nor organizational characteristics are sufficient to explain the differences between the two groups.In assessing variables such as industry, organization, and strategy, we found that no matter the size of the company, no matter the age of the manager, no matter whether the industry is in the sun or sunset, whether the enterprise is new to the market or established, whether the ownership is private or state-owned, technology No matter the content is high or low, regardless of the country of registration, it can create and occupy a blue ocean.
Our observations did not reveal any firm or industry that was permanently superior.However, we found a common pattern behind those seemingly different success stories: strategic actions to create and occupy blue oceans.No matter which historical period or industry, whether Ford Motor Company developed the Model T in 1908, or General Motors launched a personalized car in 1924; Real-time news 24 hours a day, 7 days a week; or Compaq, Starbucks Coffee, Southwest Airlines, Cirque du Soleil, blue ocean strategy is the common pattern behind these successes.Our research also covers strategic transformation in the public sector, where we find a similar pattern to the private sector in that ownership is also independent of strategic action.
Whether or not to create a blue ocean as the company's strategic orientation is a consistent criterion for distinguishing strategic winners from losers.Enterprises trapped in the Red Sea follow the traditional strategic orientation and build fortifications within the existing industry range in an attempt to win the competition.Instead, it follows another set of completely different strategic logic, which we call "value innovation", which is also the cornerstone of blue ocean strategy.The reason why it is called value innovation is that it does not focus on competition, but tries to make a leap in the value of customers and enterprises, thereby opening up a new, non-competitive market space.
The focus of value innovation lies in both "value" and "innovation".In the absence of innovation, the focus of value is on scale-up "value creation," which provides value but is not sufficient to enable the firm to outperform the market.In this sense, it is necessary to distinguish value innovation from "technical innovation" and "market promotion".Our research proves that the criterion for distinguishing success or failure in blue ocean development does not lie in whether there is a "killer" core technology, nor does it lie in "time to enter the market".While both factors do exist at times, in more general cases they are not important.Only when enterprises organically combine innovation with utility, price and cost, can value innovation happen.If enterprises cannot make innovations revolve around value, enterprises as technology innovators and market promoters often lay eggs, but are incubated by other enterprises.
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In a 10-year study, they observed that less than 10% of market pioneers became business winners and more than 90% became losers.
Value innovation is a new way of strategic thinking and strategic execution to create a blue ocean and break through competition.Importantly, value innovation challenges one of the fundamental dogmas of competitive strategy—that value and cost are just like eating and eating.On the contrary, the explorers of the blue ocean are pursuing differentiation and low cost at the same time.
Let us now return to the case of Cirque du Soleil.In the new entertainment model it created, the circus achieved both differentiation and low cost.At the time of its debut, other circuses were busy competing with each other in a shrinking market, still in the form of traditional circus performances, but trying to outdo their competitors.Their approach did not jump out of the circle of traditional circuses, but only worked hard to retain as many famous clowns and animal trainers as possible, which is a marketing strategy to increase the cost of circuses.As a result, the increase in cost has not brought about an increase in revenue, and the total demand for circus performances is still in a downward spiral.
When Cirque du Soleil appeared, traditional strategies began to fail.Whether in traditional circus performances or in classical theater productions, Cirque du Soleil has not focused on competition.Different from the traditional catch-up competitive strategy logic, it does not provide better solutions to existing problems, such as creating more funny or exciting effects, but provides two products to the audience at the same time: combining the funny of the circus with the Thrilling, combined with the technical synthesis and artistic appeal of a theatrical play; thus, it redefines the problem itself.By breaking down the lines between circus performance and stage play, Cirque du Soleil won not only circus audiences, but also non-circus audiences—those adult audiences who frequent the theater.
This creates a brand new concept of circus, breaks the incomparable relationship between value and cost, and opens up a blue ocean field as a new market space.Now let's consider the difference.While other circuses still focus on providing animal performances, hiring star performers, using multiple stages, and in-house concessions, Cirque du Soleil has completely abandoned these practices.For a long time, the above-mentioned practices have been fully affirmed in the traditional circus industry and have never been questioned.However, growing public dissatisfaction with animal performances and the cost of the animals themselves, along with their training, medical care, dedicated housing, insurance and transportation, make animal performances one of the most expensive items in the circus.
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Likewise, if the circus industry focuses on star performers, the so-called "circus stars" are no match for movie stars in the public's mind, and they are a high-cost factor that hardly affects changes in audience numbers.As for the composite stage, because the frequent switching of the performance stage not only upsets the audience, but also inevitably increases the number of actors, resulting in a significant increase in cost.While in-arena concessions add to overall revenue, the high prices of licensed merchandise make general audiences feel like they're being ripped off.
The appeal of traditional circus performances was narrowed down to three elements: tents, clowns, and acrobatics, such as riding a unicycle or gnomes.So Cirque du Soleil kept the clowns, but transformed the clown's humor from slapstick to a more charming and refined form.Since Cirque du Soleil believes that the tent is a symbol of the magic of the circus, it not only continues to use the tent as a performance venue, but also has a classical interior luxury design for the tent, which reminds people of the former glory of the circus.The irony is that many other circuses have abandoned tents and rented venues instead.Cirque du Soleil also kept the acrobatics and other thrills, but the show was shortened, and it was also refined with artistic expression and technical packaging.
By borrowing from theater performances, Cirque du Soleil has added non-circus factors, such as adding a main storyline, more interesting plots, artistic song and dance performances, and other diversified artistic elements.These elements from the alternative theater industry were entirely new creations for the circus industry.
Traditional circuses often offer a series of discrete performances.Unlike this, every Cirque du Soleil show has a theme or storyline, which is actually some kind of reorganization of the stage performance.Although the subject matter is intentionally vague, this allows the various artistic components to be unrestricted and harmoniously unified.Cirque du Soleil also drew inspiration from Broadway performances, integrating music, visual effects, lighting and performances, changing the original single form of performance.In the performance, the practice of theater and ballet is also used for reference, making the dance more expressive and lifelike.By introducing the above new elements, Cirque du Soleil has created an exquisite show format.
More importantly, by injecting these new elements, Cirque du Soleil has given people more reasons to watch the circus, and the market demand has expanded rapidly.
In short, Cirque du Soleil takes the essence of circus performances and theater performances and discards the redundant ones, forming a new entertainment method that is different from traditional circus and theater performances, thus creating a blue ocean.At the same time, by cutting a large number of high-cost circus performances, Cirque du Soleil's cost has been greatly reduced, achieving both differentiation and low cost.Cirque du Soleil has strategically determined its own ticket prices based on the ticket prices of theater performances. Although the ticket prices of original circus performances are several times higher, it still attracts a large number of adult audiences because they are more expensive than theater performances. This price is not high.
Figure 1-2 describes the dynamic relationship between differentiation and low cost, which are the foothold of value innovation.
Figure 1-2
When corporate behaviors have positive impacts on corporate cost structure and customer value at the same time, value innovation can be realized in this intersection area.Cost savings occur by eliminating or compressing certain elements of competition, and over time economies of scale resulting from value creation further contribute to cost reductions.
As shown in Figure 1-2, the creation of blue oceans is to reduce costs while creating value for customers, so as to obtain simultaneous improvement of enterprise value and customer value.Since customer value comes from the company providing higher utility to customers at a lower price, and the value of the company depends on the price and cost structure, value innovation can only be achieved when the utility, price and cost behaviors of the entire company are correctly integrated. time can happen.The blue ocean strategy is implemented in each functional department and operation department of the enterprise.
Unlike value innovation, other innovations, such as product innovation, can be realized within subsystems that do not affect the overall strategy of the enterprise.For example, in the manufacturing process, a company can consolidate its market strategic position as a price leader by cutting prices, but it will not affect the utility of the products provided by the company.Although this type of innovation helps a firm maintain or even enhance its position in an existing market, innovation in such subsystems rarely opens up a blue ocean of new market space.
In this sense, value innovation is not just "innovation", but a strategic issue covering the entire corporate behavior system.Figure 1-3 summarizes the key differences between red ocean and blue ocean strategies.
The competition-based Red Ocean strategy assumes that the structural conditions of an industry are given, and companies are forced to compete under these conditions; On ".On the contrary, value innovation believes that market boundaries and industrial structures are not given, and the concepts and behaviors of industry participants can reconstruct industry boundaries and structural conditions.We call this the "structural reconstructionist" perspective.In a red ocean, differentiation is costly because all firms compete according to the same rules of optimal behavior.Here, the strategic choice of the enterprise is either to pursue differentiation or to pursue low cost.However, in the perspective of structural reconstructionism, the strategic goal is to break the existing law of value-cost substitution and construct new optimal behavior rules, thereby expanding the blue ocean (for more discussion on this issue, please refer to Appendix B: "Value Innovation: A Restructuring Perspective on Strategy").
Figure 1-3
Cirque du Soleil has broken the operating rules of the circus industry through the reconstruction of cross-industry elements, and at the same time won differentiation and low cost.Is Cirque du Soleil still a circus after undergoing a major surgery of additions, additions, deletions, and modifications?Or is it a theater?If it is a theatre, what category does it belong to?Broadway play, opera or ballet?Obviously there is no exact answer.Cirque du Soleil's restructure across the above industries allows it to have some of the content of the above performance forms at the same time, but not all of the content of any of them.Although Cirque du Soleil did not obtain a recognized industry name, it opened up a non-competitive market space and created a blue ocean.
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While the economic environment demonstrates the urgency of implementing a blue ocean strategy, it is generally believed that ventures outside the existing industrial space have a lower chance of success.So how to succeed in the blue ocean?In the process of planning and implementing blue ocean strategy, how can enterprises systematically maximize opportunities and minimize risks?Without an understanding of opportunities and risks, success in creating blue oceans is likely to be less.
Of course, there is no such thing as a risk-free strategy.Strategy always implies opportunity and risk at the same time, whether in red oceans or blue oceans.But currently, far more analytical frameworks and tools exist on how to succeed in red oceans than blue oceans.As long as this imbalance persists, red oceans will continue to dominate the formulation of corporate strategy, even as the need to create blue oceans becomes more pressing.Perhaps this explains why, when there have been calls for companies to step out of the current industry space, companies still haven't really taken these suggestions seriously.
This book hopes to correct the current imbalance by presenting our thesis approach.Here, we propose several principles and analytical frameworks for success in blue oceans.
In Chapter 2, we introduce the key analytical tools and frameworks for creating and strategic blue oceans.These basic analytical methods are used throughout the book, although other chapters introduce supplementary tools where needed.Because these tools and analytical frameworks consider both strategic opportunities and risks, companies can proactively implement transformation under current industry and market conditions through selective application of these tools and frameworks.Subsequent chapters introduce the basic principles of successful formulation and implementation of blue ocean strategy, and use the above analytical framework to demonstrate how these principles are applied in practice.
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The successful formulation of blue ocean strategy needs to follow four basic principles, which are analyzed in turn in chapters three to six.Chapter 3 identifies how to open up non-competitive market spaces and reduce "search risk" by comparing different industry groups.It will teach readers how to cross the six boundaries of traditional competition and create a blue ocean with commercial significance, so as to avoid competition.The traditional competitive boundaries are: the boundaries of alternative industries, different strategic groups, different customer groups, complementary products and services, functional-emotional orientation of the industry, and different time periods.
Chapter 4 shows how to design a firm's strategic planning process to move beyond volume expansion to value innovation.While the current corporate strategic planning process often locks companies into a path of quantitative expansion, this chapter offers an alternative model that addresses "planning risk."This chapter uses an intuitive method to make readers face a general picture without being overwhelmed by a large number of terms.This chapter designs a "four-step" strategic planning process, enabling readers to build strategies, create and grasp blue ocean opportunities.
The fifth chapter demonstrates how to maximize the blue ocean domain.This chapter challenges the conventional wisdom of better segmenting markets to meet existing consumer preferences in order to create markets that maximize demand.Practice under this concept only adds to the small target market.And this chapter tells readers how to integrate demand, and take groups that are not currently customers as the direction of efforts to expand the scale of the blue ocean market, thereby opening up new markets and reducing "scale risk", instead of focusing on distinguishing the differences between consumers,
Chapter 6 focuses on the design of strategies that not only create value for the majority of customers, but also create a reliable business model that creates and maintains its own profit growth.This chapter tells readers how to ensure that enterprises build a profitable business model in the blue ocean and reduce "business model risk".This chapter explains the steps involved in developing a strategy to help readers ensure win-win outcomes for themselves and their clients in new business domains.Developing a strategy includes the steps of utility, price, cost, and execution.
The seventh and eighth chapters turn to the principled issues related to the effective implementation of the blue ocean strategy.In particular, Chapter 7 introduces the concept of "Leadership at Key Points," that is, how managers motivate organizations to overcome key organizational obstacles in implementing blue ocean strategy.What is involved here is the issue of "organizational risk".This chapter shows how leaders and managers can overcome perception, resource, motivation, and interpersonal barriers to implementing blue ocean strategy with limited time and resources.
The eighth chapter demonstrates the principle of implementation in strategy, and encourages employees to firmly implement the blue ocean strategy within the organization.This chapter introduces the concept of "process justice".Since the blue ocean strategy means breaking the rules, ensuring the fairness of the process helps to improve the enthusiasm of employees in the formulation and implementation of the strategy, and implement the strategy in a voluntary and cooperative manner.This chapter deals with "managing risks" related to employee attitudes and behaviours.
Figure 1-4
Figure 1-4 shows the six principles that must be followed to successfully formulate and implement a blue ocean strategy, and the risks that can be reduced by mastering these principles.
Chapter 9 discusses the dynamic development of blue ocean strategy—the sustainable and continuous renewal of strategy.
Let us now turn to Chapter 2, where we discuss the basic analytical tools and frameworks used throughout the book to formulate and execute blue ocean strategy.
There are several driving forces behind the urgency to create blue oceans.The ever-accelerating technological progress has significantly increased industrial productivity and made it possible for manufacturers to provide products and services on a large scale.This leads to an increase in the number of industries and an oversupply situation
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The above situation has accelerated the circulation of products and services, intensified price wars, and narrowed profit margins.Recent research on several US industry brands confirms this trend.People no longer have to use Tide to choose washing powder as in the past; once Crest promotes, they no longer insist on using Colgate toothpaste, and vice versa.In an overcrowded industry, segmenting brands has become increasingly difficult in good times and bad.
All this suggests that the business environment in which twentieth-century management strategies and methods existed is accelerating its demise.As the competition in the red ocean becomes increasingly cruel, managers must change the current habit of thousands of troops crossing a single-plank bridge and transform to a blue ocean.
How does a company break through the cutthroat competition in the red ocean?How does it expand the blue ocean?Is there a systematic path to achieve the above goals and maintain high performance?
To find out, our first step is to define the basic unit of analysis for our study.In order to understand the basis of high performance, previous business research literature usually regards the enterprise as the basic unit of analysis.People are always amazed at how companies can maintain strong and sustainable profit growth with a remarkable set of strategic, operational and organizational characteristics.However, our question is: Will there always be "excellent" or "visionary" companies that can continue to conquer the market and continue to open up blue oceans?
We can revisit "In Pursuit of Excellence" and "Longevity".
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The book "Longevity" follows in the footsteps of the previous book.The book states that "good habits of the visionary business" can help companies maintain high performance in the long run.In order to avoid the defects of the book "Pursuing Excellence", the book "Longevity" expands the research scope to the entire survival period of the enterprise, and its research objects are limited to enterprises that have survived for more than 40 years. "Longevity" also became a bestseller.
But the problem reappears.The inefficiencies of some of the visionary businesses featured in Lasting Survival are coming to light, according to recent examinations.As the recent book "Creative Destruction" describes, the success of some of the exemplary companies listed in "Enduring Survival" is overwhelmingly due to the strength of the entire industry rather than the performance of individual companies.Hewlett-Packard, for example, fits the long-term market-conquering criteria set out in Survival.In fact, during the period when HP was conquering the market, the entire computer hardware industry as a whole was doing well.Looking further, HP isn't even a competitive winner in the industry.Using this and other examples, Creative Destruction questions the existence of so-called "visionary" firms that can consistently conquer markets.Furthermore, we have all witnessed the progression of Japanese companies from their “revolutionary” strategies in their heyday in the late 1970s to early 1980s to stagnant performance and even decline.
If sustainable high-performance companies do not exist at all, or if a company is brilliant in one period but misjudged in another period, this company should not be used as the basic analysis unit for exploring the root of high performance and blue ocean expansion.
As discussed above, history also demonstrates that an industry will expand steadily when its rules and boundaries have not been defined; individual market participants can set the rules and boundaries.Businesses don't have to compete ruthlessly in a given market space; Cirque du Soleil has expanded a new market space in the entertainment industry and has enjoyed strong, profitable growth as a result.This shows that the industry should not be used as the basic unit of analysis for the study of profitable growth.
Our research demonstrates that strategic actions, not firms or industries, are the fundamental unit of analysis that explains blue ocean expansion and sustainable high performance.A strategic action consists of a set of market-expanding management actions and decisions.For example, Compaq was acquired by Hewlett-Packard in 2001 and is no longer an independent company. Many people may think that the company is not successful. However, this does not affect our analysis of Compaq's blue ocean strategy to expand the server industry.These strategic moves were not just part of the company's strong recovery in the mid-1990s, but also opened up a whole new multibillion-dollar computer industry market space.
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In Appendix A: "A Survey of Blue Ocean Strategy Cases", we extracted from the database three representative industries in the United States: the automobile industry-what we use to work; the computer industry-what we use to work; We gave a brief introduction to entertainment after work.As Appendix A demonstrates, no business or industry is always great.But there seems to be significant commonality among the strategic moves that have created blue oceans and steered companies onto new trajectories of strong, profitable growth.
The strategic moves we've discussed—creating and capturing new market spaces and creating huge demand by offering innovative products and services—encompass not only the many legends of massive profit growth, but also the thinking behind them, And those enterprises trapped in the red sea missed the opportunities brought by these ideas.We study these strategic actions in order to understand the behavior patterns that create blue ocean areas and achieve high growth.We analyzed the strategic actions of more than 150 firms in more than 30 industries between 1880 and 2000, carefully observing the behavior of the firms involved in each event.The industries we study include hospitality, movies, retail, railroads, energy, computers, broadcasting, and auto manufacturing, steel.We not only study the winners who expanded the blue ocean domain, but also analyze the situation of less successful competitors.
Whether it is for a specific strategic move or between different strategic moves, we try to find the commonalities of the blue ocean companies and those of the less successful red ocean companies.We also tried to find the differences between these two types of enterprises.Through this work, we seek to discover the common factors that lead to blue ocean expansion, as well as the key differences that separate successful survivors from red ocean losers.
Through the analysis of more than 30 industries, our research finds that neither the industry itself nor organizational characteristics are sufficient to explain the differences between the two groups.In assessing variables such as industry, organization, and strategy, we found that no matter the size of the company, no matter the age of the manager, no matter whether the industry is in the sun or sunset, whether the enterprise is new to the market or established, whether the ownership is private or state-owned, technology No matter the content is high or low, regardless of the country of registration, it can create and occupy a blue ocean.
Our observations did not reveal any firm or industry that was permanently superior.However, we found a common pattern behind those seemingly different success stories: strategic actions to create and occupy blue oceans.No matter which historical period or industry, whether Ford Motor Company developed the Model T in 1908, or General Motors launched a personalized car in 1924; Real-time news 24 hours a day, 7 days a week; or Compaq, Starbucks Coffee, Southwest Airlines, Cirque du Soleil, blue ocean strategy is the common pattern behind these successes.Our research also covers strategic transformation in the public sector, where we find a similar pattern to the private sector in that ownership is also independent of strategic action.
Whether or not to create a blue ocean as the company's strategic orientation is a consistent criterion for distinguishing strategic winners from losers.Enterprises trapped in the Red Sea follow the traditional strategic orientation and build fortifications within the existing industry range in an attempt to win the competition.Instead, it follows another set of completely different strategic logic, which we call "value innovation", which is also the cornerstone of blue ocean strategy.The reason why it is called value innovation is that it does not focus on competition, but tries to make a leap in the value of customers and enterprises, thereby opening up a new, non-competitive market space.
The focus of value innovation lies in both "value" and "innovation".In the absence of innovation, the focus of value is on scale-up "value creation," which provides value but is not sufficient to enable the firm to outperform the market.In this sense, it is necessary to distinguish value innovation from "technical innovation" and "market promotion".Our research proves that the criterion for distinguishing success or failure in blue ocean development does not lie in whether there is a "killer" core technology, nor does it lie in "time to enter the market".While both factors do exist at times, in more general cases they are not important.Only when enterprises organically combine innovation with utility, price and cost, can value innovation happen.If enterprises cannot make innovations revolve around value, enterprises as technology innovators and market promoters often lay eggs, but are incubated by other enterprises.
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In a 10-year study, they observed that less than 10% of market pioneers became business winners and more than 90% became losers.
Value innovation is a new way of strategic thinking and strategic execution to create a blue ocean and break through competition.Importantly, value innovation challenges one of the fundamental dogmas of competitive strategy—that value and cost are just like eating and eating.On the contrary, the explorers of the blue ocean are pursuing differentiation and low cost at the same time.
Let us now return to the case of Cirque du Soleil.In the new entertainment model it created, the circus achieved both differentiation and low cost.At the time of its debut, other circuses were busy competing with each other in a shrinking market, still in the form of traditional circus performances, but trying to outdo their competitors.Their approach did not jump out of the circle of traditional circuses, but only worked hard to retain as many famous clowns and animal trainers as possible, which is a marketing strategy to increase the cost of circuses.As a result, the increase in cost has not brought about an increase in revenue, and the total demand for circus performances is still in a downward spiral.
When Cirque du Soleil appeared, traditional strategies began to fail.Whether in traditional circus performances or in classical theater productions, Cirque du Soleil has not focused on competition.Different from the traditional catch-up competitive strategy logic, it does not provide better solutions to existing problems, such as creating more funny or exciting effects, but provides two products to the audience at the same time: combining the funny of the circus with the Thrilling, combined with the technical synthesis and artistic appeal of a theatrical play; thus, it redefines the problem itself.By breaking down the lines between circus performance and stage play, Cirque du Soleil won not only circus audiences, but also non-circus audiences—those adult audiences who frequent the theater.
This creates a brand new concept of circus, breaks the incomparable relationship between value and cost, and opens up a blue ocean field as a new market space.Now let's consider the difference.While other circuses still focus on providing animal performances, hiring star performers, using multiple stages, and in-house concessions, Cirque du Soleil has completely abandoned these practices.For a long time, the above-mentioned practices have been fully affirmed in the traditional circus industry and have never been questioned.However, growing public dissatisfaction with animal performances and the cost of the animals themselves, along with their training, medical care, dedicated housing, insurance and transportation, make animal performances one of the most expensive items in the circus.
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Likewise, if the circus industry focuses on star performers, the so-called "circus stars" are no match for movie stars in the public's mind, and they are a high-cost factor that hardly affects changes in audience numbers.As for the composite stage, because the frequent switching of the performance stage not only upsets the audience, but also inevitably increases the number of actors, resulting in a significant increase in cost.While in-arena concessions add to overall revenue, the high prices of licensed merchandise make general audiences feel like they're being ripped off.
The appeal of traditional circus performances was narrowed down to three elements: tents, clowns, and acrobatics, such as riding a unicycle or gnomes.So Cirque du Soleil kept the clowns, but transformed the clown's humor from slapstick to a more charming and refined form.Since Cirque du Soleil believes that the tent is a symbol of the magic of the circus, it not only continues to use the tent as a performance venue, but also has a classical interior luxury design for the tent, which reminds people of the former glory of the circus.The irony is that many other circuses have abandoned tents and rented venues instead.Cirque du Soleil also kept the acrobatics and other thrills, but the show was shortened, and it was also refined with artistic expression and technical packaging.
By borrowing from theater performances, Cirque du Soleil has added non-circus factors, such as adding a main storyline, more interesting plots, artistic song and dance performances, and other diversified artistic elements.These elements from the alternative theater industry were entirely new creations for the circus industry.
Traditional circuses often offer a series of discrete performances.Unlike this, every Cirque du Soleil show has a theme or storyline, which is actually some kind of reorganization of the stage performance.Although the subject matter is intentionally vague, this allows the various artistic components to be unrestricted and harmoniously unified.Cirque du Soleil also drew inspiration from Broadway performances, integrating music, visual effects, lighting and performances, changing the original single form of performance.In the performance, the practice of theater and ballet is also used for reference, making the dance more expressive and lifelike.By introducing the above new elements, Cirque du Soleil has created an exquisite show format.
More importantly, by injecting these new elements, Cirque du Soleil has given people more reasons to watch the circus, and the market demand has expanded rapidly.
In short, Cirque du Soleil takes the essence of circus performances and theater performances and discards the redundant ones, forming a new entertainment method that is different from traditional circus and theater performances, thus creating a blue ocean.At the same time, by cutting a large number of high-cost circus performances, Cirque du Soleil's cost has been greatly reduced, achieving both differentiation and low cost.Cirque du Soleil has strategically determined its own ticket prices based on the ticket prices of theater performances. Although the ticket prices of original circus performances are several times higher, it still attracts a large number of adult audiences because they are more expensive than theater performances. This price is not high.
Figure 1-2 describes the dynamic relationship between differentiation and low cost, which are the foothold of value innovation.
Figure 1-2
When corporate behaviors have positive impacts on corporate cost structure and customer value at the same time, value innovation can be realized in this intersection area.Cost savings occur by eliminating or compressing certain elements of competition, and over time economies of scale resulting from value creation further contribute to cost reductions.
As shown in Figure 1-2, the creation of blue oceans is to reduce costs while creating value for customers, so as to obtain simultaneous improvement of enterprise value and customer value.Since customer value comes from the company providing higher utility to customers at a lower price, and the value of the company depends on the price and cost structure, value innovation can only be achieved when the utility, price and cost behaviors of the entire company are correctly integrated. time can happen.The blue ocean strategy is implemented in each functional department and operation department of the enterprise.
Unlike value innovation, other innovations, such as product innovation, can be realized within subsystems that do not affect the overall strategy of the enterprise.For example, in the manufacturing process, a company can consolidate its market strategic position as a price leader by cutting prices, but it will not affect the utility of the products provided by the company.Although this type of innovation helps a firm maintain or even enhance its position in an existing market, innovation in such subsystems rarely opens up a blue ocean of new market space.
In this sense, value innovation is not just "innovation", but a strategic issue covering the entire corporate behavior system.Figure 1-3 summarizes the key differences between red ocean and blue ocean strategies.
The competition-based Red Ocean strategy assumes that the structural conditions of an industry are given, and companies are forced to compete under these conditions; On ".On the contrary, value innovation believes that market boundaries and industrial structures are not given, and the concepts and behaviors of industry participants can reconstruct industry boundaries and structural conditions.We call this the "structural reconstructionist" perspective.In a red ocean, differentiation is costly because all firms compete according to the same rules of optimal behavior.Here, the strategic choice of the enterprise is either to pursue differentiation or to pursue low cost.However, in the perspective of structural reconstructionism, the strategic goal is to break the existing law of value-cost substitution and construct new optimal behavior rules, thereby expanding the blue ocean (for more discussion on this issue, please refer to Appendix B: "Value Innovation: A Restructuring Perspective on Strategy").
Figure 1-3
Cirque du Soleil has broken the operating rules of the circus industry through the reconstruction of cross-industry elements, and at the same time won differentiation and low cost.Is Cirque du Soleil still a circus after undergoing a major surgery of additions, additions, deletions, and modifications?Or is it a theater?If it is a theatre, what category does it belong to?Broadway play, opera or ballet?Obviously there is no exact answer.Cirque du Soleil's restructure across the above industries allows it to have some of the content of the above performance forms at the same time, but not all of the content of any of them.Although Cirque du Soleil did not obtain a recognized industry name, it opened up a non-competitive market space and created a blue ocean.
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While the economic environment demonstrates the urgency of implementing a blue ocean strategy, it is generally believed that ventures outside the existing industrial space have a lower chance of success.So how to succeed in the blue ocean?In the process of planning and implementing blue ocean strategy, how can enterprises systematically maximize opportunities and minimize risks?Without an understanding of opportunities and risks, success in creating blue oceans is likely to be less.
Of course, there is no such thing as a risk-free strategy.Strategy always implies opportunity and risk at the same time, whether in red oceans or blue oceans.But currently, far more analytical frameworks and tools exist on how to succeed in red oceans than blue oceans.As long as this imbalance persists, red oceans will continue to dominate the formulation of corporate strategy, even as the need to create blue oceans becomes more pressing.Perhaps this explains why, when there have been calls for companies to step out of the current industry space, companies still haven't really taken these suggestions seriously.
This book hopes to correct the current imbalance by presenting our thesis approach.Here, we propose several principles and analytical frameworks for success in blue oceans.
In Chapter 2, we introduce the key analytical tools and frameworks for creating and strategic blue oceans.These basic analytical methods are used throughout the book, although other chapters introduce supplementary tools where needed.Because these tools and analytical frameworks consider both strategic opportunities and risks, companies can proactively implement transformation under current industry and market conditions through selective application of these tools and frameworks.Subsequent chapters introduce the basic principles of successful formulation and implementation of blue ocean strategy, and use the above analytical framework to demonstrate how these principles are applied in practice.
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The successful formulation of blue ocean strategy needs to follow four basic principles, which are analyzed in turn in chapters three to six.Chapter 3 identifies how to open up non-competitive market spaces and reduce "search risk" by comparing different industry groups.It will teach readers how to cross the six boundaries of traditional competition and create a blue ocean with commercial significance, so as to avoid competition.The traditional competitive boundaries are: the boundaries of alternative industries, different strategic groups, different customer groups, complementary products and services, functional-emotional orientation of the industry, and different time periods.
Chapter 4 shows how to design a firm's strategic planning process to move beyond volume expansion to value innovation.While the current corporate strategic planning process often locks companies into a path of quantitative expansion, this chapter offers an alternative model that addresses "planning risk."This chapter uses an intuitive method to make readers face a general picture without being overwhelmed by a large number of terms.This chapter designs a "four-step" strategic planning process, enabling readers to build strategies, create and grasp blue ocean opportunities.
The fifth chapter demonstrates how to maximize the blue ocean domain.This chapter challenges the conventional wisdom of better segmenting markets to meet existing consumer preferences in order to create markets that maximize demand.Practice under this concept only adds to the small target market.And this chapter tells readers how to integrate demand, and take groups that are not currently customers as the direction of efforts to expand the scale of the blue ocean market, thereby opening up new markets and reducing "scale risk", instead of focusing on distinguishing the differences between consumers,
Chapter 6 focuses on the design of strategies that not only create value for the majority of customers, but also create a reliable business model that creates and maintains its own profit growth.This chapter tells readers how to ensure that enterprises build a profitable business model in the blue ocean and reduce "business model risk".This chapter explains the steps involved in developing a strategy to help readers ensure win-win outcomes for themselves and their clients in new business domains.Developing a strategy includes the steps of utility, price, cost, and execution.
The seventh and eighth chapters turn to the principled issues related to the effective implementation of the blue ocean strategy.In particular, Chapter 7 introduces the concept of "Leadership at Key Points," that is, how managers motivate organizations to overcome key organizational obstacles in implementing blue ocean strategy.What is involved here is the issue of "organizational risk".This chapter shows how leaders and managers can overcome perception, resource, motivation, and interpersonal barriers to implementing blue ocean strategy with limited time and resources.
The eighth chapter demonstrates the principle of implementation in strategy, and encourages employees to firmly implement the blue ocean strategy within the organization.This chapter introduces the concept of "process justice".Since the blue ocean strategy means breaking the rules, ensuring the fairness of the process helps to improve the enthusiasm of employees in the formulation and implementation of the strategy, and implement the strategy in a voluntary and cooperative manner.This chapter deals with "managing risks" related to employee attitudes and behaviours.
Figure 1-4
Figure 1-4 shows the six principles that must be followed to successfully formulate and implement a blue ocean strategy, and the risks that can be reduced by mastering these principles.
Chapter 9 discusses the dynamic development of blue ocean strategy—the sustainable and continuous renewal of strategy.
Let us now turn to Chapter 2, where we discuss the basic analytical tools and frameworks used throughout the book to formulate and execute blue ocean strategy.