My Aspire

Blue Ocean Strategy Formulation Analytics and Principles

Strategy & Leadership: You offer two main analytics to help in the practical development of blue ocean strategies, the strategy canvas and the four actions framework. Can you explain briefly what these are and how they work?

Kim and Mauborgne: The strategy canvas is the central diagnostic and action framework in blue ocean strategy (see Figure 1). The strategy canvas is unique because it does three things in one picture. First, it shows the strategic profile of an industry by depicting very clearly the factors that affect competition among industry players, as well as those that might one day be key to the creation of new market space. Second, it shows the strategic profile of current and potential competitors, and identifies which factors they invest in strategically. Finally, it draws the company's strategic profile – or value curve – showing how it invests in the factors of competition and how it might invest in them in the future.

In the early stages of the strategy formulation process, a period we call Visual Awakening, the strategy canvas is used as a diagnostic tool. The four actions framework (see Figure 2), used in concert with the strategy canvas drives companies to pursue differentiation and low cost in redefining their strategy. It asks four questions:

Which of the factors that the industry takes for granted should be eliminated?
Which factors should be reduced well below the industry's standard?
Which factors should be raised well above the industry's standard?
Which factors should be created that the industry has never offered? (See Figure 3).

The first question forces managers to consider eliminating factors that companies in your industry have long competed on. Often those factors are taken for granted, even long after they have ceased to add value and in many cases have even begun to erode it. The second question drives managers to assess where they are over-serving customers, increasing their cost structure for no gain. The third question pushes managers to uncover and eliminate the compromises your industry forces customers to make. The fourth question helps managers to discover entirely new sources of value for buyers and to create new demand and shift the strategic pricing of the industry. It is by pursuing the first two questions (of eliminating and reducing) that managers gain insight into how to drop cost structure vis-à-vis competitors. The second two questions, by contrast, provide managers with insight into how to lift buyer value and create new demand. Collectively, they allow managers to systematically explore how to reconstruct buyer value elements across alternative industries to offer buyers an entirely new experience, while simultaneously keeping cost structure low.

Following the Four Actions Framework, we return to the strategy canvas where it is used as an action framework for building, and later communicating, a compelling blue ocean strategy. Companies can also make use of other important analytics we offer, such as the Six Paths framework, the buyer experience cycle, and the buyer utility map in developing blue ocean strategies.

Figure 1 Strategy Canvas Chart

Figure 2 Four Actions Framework

Continue