For most of the last quarter century since the publication of Michael Porter's landmark book Competitive Strategy, the central focus of the strategy field has been on searching for sustainable competitive advantage. Nowadays, however, leading gurus exhort would-be winners to put customers ahead of competition and try to develop compelling new value propositions capable of transforming existing market spaces and creating new ones. As yet, there are few practical guidelines as to how to go about this challenge.

W. Chan Kim and Renée Mauborgne have been in the vanguard of this new value innovation emphasis from its earliest days, and the ideas and tools developed in Blue Ocean Strategy (Harvard Business School Press, 2005) are the product of a successful twenty-year research and consultancy partnership. The book offers a comprehensive approach to the formulation and execution of strategies aimed at the creation of new market spaces – the blue oceans of the title. Professor Kim is The Bruce D. Henderson Professor of Strategy and International Management at INSEAD and Professor Mauborgne the INSEAD distinguished fellow and a professor of strategy and management at the same institution.

The book introduces its central ideas and metaphor with the example of the Montreal-based enterprise, Cirque du Soleil, started by a group of street performers in 1984 and now one of Canada's largest cultural exports. This company created an entirely new market opportunity by reinventing the circus as a theatrical experience, transcending traditional market boundaries. According to the authors, the example of Cirque du Soleil demonstrates the best way to beat the competition – in this case, leading players like Barnum & Bailey and Ringling Bros, vying with very similar strategies in a declining industry. The trick is to “stop trying to beat the competition” and focus instead on developing a compelling new value proposition that can create uncontested market space.

Strategy & Leadership: You present the concept of “value innovation” as the cornerstone of your new perspective, and you are careful to lay the stress on both “value” and “innovation”. Can you explain what you mean by value innovation and why it represents a new logic for strategy development?

Kim and Mauborgne: In our research we have found that those who seek to create blue oceans – totally new markets – do not benchmark against the competition. Instead, they attempt what we call value innovation. A value innovation strategy focuses on creating a leap in value for both buyers and the company, thereby opening up new and uncontested market space. Value innovation can occur anywhere in the entire range of a firm's activities – product, service, delivery, costs, pricing, and the business model.

Our point is that value and innovation are inseparable. Value innovation places equal emphasis on value and innovation. Value without innovation tends to produce incremental value that is not sufficient to stand out in the marketplace. Innovation without a strong enough emphasis on value too often leads to development of new product or service functionalities that exceed what buyers are ready to accept and pay for.

Value innovation is a new way of thinking about and executing strategy that defies one of the most commonly accepted dogmas of competition-based strategy – the value-cost tradeoff. The conventional belief is that companies can either create greater value for customers at a higher cost or create acceptable value at a lower cost. Here strategy is seen as making a choice between differentiation and low cost. In contrast, those that attempt to create blue oceans seek differentiation and low cost simultaneously.

Strategy & Leadership: You say that a blue ocean strategy may or may not involve a leading edge technology, but always involves an innovative way to reconfigure value that will shift radically the current value/cost frontier. Can you give an example of what you mean?

Kim and Mauborgne: Leading edge technology was not a common denominator across companies that created blue oceans. In our research we have found that sometimes leading edge technology was present, but often it was not the defining feature of blue oceans. Look at the computer industry – an industry that from its start seems to be entirely dependent on technology innovation. Consider the tabulating machine in 1924 that led to the creation of IBM, or the IBM 650, the first business computer in 1953, the Apple II computer in 1978, or Compaq's PC servers and Dell's PCs in the 1990s. Each of these blue ocean markets were created through the imaginative leveraging of existing technologies, which companies simplified and made easy to use, bringing unprecedented utility to the mass of buyers, with a compelling strategic price. To create blue oceans, the central issue is not innovating in terms of technology or science, but bringing innovation to bear on the value deliverable to the mass of buyers.

Strategy & Leadership: In your experience in working with business executives, what do they tend to find most challenging about your new ideas when they first encounter them?

Kim and Mauborgne: The central irony that strikes most executives is that the more companies focus on benchmarking the competition, and striving to match and beat their advantages, the more they tend to end up looking like their competitors and letting others set their strategic agenda. In contrast, blue ocean strategy not only reframes the strategic challenge from competing to making the competition irrelevant, but also it provides a series of tools and frameworks to act on this insight in an opportunity-maximizing, risk-minimizing way.

Strategy & Leadership: How durable is the advantage associated with a blue ocean strategy and what is the process for defending it?

Kim and Mauborgne: Once a company successfully creates a blue ocean, sooner or later imitators appear on the horizon. However, a blue ocean strategy brings with it considerable barriers to imitation.

The first barrier is often cognitive. Competitors are often blocked from imitating because of brand image conflicts, or the blue ocean strategy just does not fit conventional strategic logic. For example, established players in the telecom industry initially mocked CNN by calling it “chicken noodle news.”

The second barrier is organizational. Because imitation often requires companies to make substantial changes to their existing business practices, politics often kick in, delaying for years a company's commitment to imitate a blue ocean strategy.

The third barrier arises from the economic forces of blue oceans. The high volume generated by a value innovation leads to rapidly increasing economies, placing potential imitators at an ongoing cost disadvantage.

Once a company has created a blue ocean, the key is to sail as far as possible in it by lengthening, widening, and deepening the revenue and profit streams via geographic expansion, operational improvements, and refining your offering. This further makes imitation difficult.

Overall, our research indicates that a blue ocean strategy will more typically go without credible challenge for ten to fifteen years. Eventually, as other companies' strategies converge with your own, history shows you need to create new market space again and break away. Examples of companies that have created repeated blue oceans include IBM in the computer industry and AMC in the cinema industry.

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