Blue Ocean Shift

Blue Ocean Shift Plot Summary

Introduction

In today's hypercompetitive business landscape, many organizations find themselves trapped in "red oceans" - saturated markets where rivals compete fiercely for the same customers, leading to diminishing returns and commoditization. How can companies break free from this cycle of destructive competition and find sustainable growth? This question lies at the heart of the blue ocean shift framework, which offers a systematic approach to creating uncontested market spaces where competition becomes irrelevant. The blue ocean paradigm represents a fundamental departure from traditional strategic thinking. Rather than focusing on outperforming rivals within existing industry boundaries, it challenges organizations to create new demand and expand market boundaries. Through a structured, humanistic process that builds both confidence and creative competence, any organization—from corporations to nonprofits to governments—can make this transformative journey. The framework provides actionable tools to identify hidden pain points in industries, discover oceans of noncustomers, reconstruct market boundaries, and develop offerings that simultaneously achieve differentiation and low cost, ultimately creating new markets that benefit both the organization and society at large.

Chapter 1: The Fundamentals of Market-Creating Strategy

Market-creating strategy fundamentally differs from market-competing strategy in its approach to industry conditions and boundaries. While traditional strategy views industry structures as given constraints within which organizations must position themselves, market-creating strategy recognizes that these boundaries are mental constructs that can be reconstructed. This perspective shift is essential for organizations seeking to break free from red oceans of bloody competition and create blue oceans of uncontested market space. Market creation occurs through three primary approaches. First, organizations can offer a breakthrough solution to an existing industry problem, as seen when digital photography effectively replaced film photography. Second, they can redefine and solve an existing industry problem, like how Cirque du Soleil redefined circus entertainment by combining elements of traditional circus with theatrical artistry. Third, they can identify and solve a brand-new problem or seize a brand-new opportunity, exemplified by microfinance institutions addressing the previously unaddressed challenge of providing capital to the poor. Understanding the distinction between disruptive and nondisruptive creation is crucial for market-creating strategy. Disruptive creation, whether through creative destruction or disruptive innovation, involves displacing existing markets. Nondisruptive creation, by contrast, establishes entirely new markets without displacing existing ones, as seen with Sesame Street creating the preschool edutainment market. Both approaches generate growth and can create blue oceans, but organizations often overlook nondisruptive opportunities by focusing solely on disruption. A critical insight about market-creating strategy is that it doesn't necessarily depend on technological innovation. While technology can enable new markets, successful market creators focus on value innovation—delivering unprecedented buyer value—which may or may not involve new technology. Apple's R&D spending has been among the lowest in the tech industry, yet it has been extraordinarily innovative in creating new markets by focusing on value rather than technology alone. The Segway, despite being an engineering marvel, failed commercially because it didn't address clear buyer needs or overcome usage limitations. Market creation isn't limited to entrepreneurs or naturally creative individuals. With a systematic process built on concrete market-creating tools and a humanistic approach that inspires confidence, ordinary people in any organization can create blue oceans. This process makes market creation accessible to everyone by providing a structured way to see beyond industry boundaries, uncover hidden opportunities, and develop strategies that deliver both differentiation and low cost.

Chapter 2: Understanding Red Oceans vs Blue Oceans

Red oceans represent all the industries in existence today—the known market space where industry boundaries are defined and accepted, and competitive rules are understood. In these crowded markets, companies try to outperform rivals to grab a greater share of existing demand. As more competitors enter, prospects for profits and growth diminish, products become commodities, and cutthroat competition turns the ocean bloody red. Blue oceans, in contrast, denote all the industries not in existence today—the unknown market space untainted by competition. In blue oceans, demand is created rather than fought over, and there is ample opportunity for profitable growth. While some blue oceans are created far from existing industry boundaries, most are created by expanding existing industry boundaries, as demonstrated by Cirque du Soleil, which created a new market space between circus and theater. The fundamental difference between red and blue ocean strategies lies in their approach to the value-cost trade-off. Red ocean strategy accepts the trade-off between value and cost—organizations can either create greater value for customers at higher cost (differentiation) or create reasonable value at lower cost (low cost). Blue ocean strategy breaks this trade-off by pursuing both differentiation and low cost simultaneously, opening up a new value-cost frontier. The strategic logic of red oceans is based on competition. Organizations benchmark competitors and focus on building competitive advantages within the existing industry structure. This leads to either differentiation or low-cost strategic positions. By contrast, the strategic logic of blue oceans is value innovation—the simultaneous pursuit of differentiation and low cost. Value innovation is achieved by reducing or eliminating factors the industry competes on while raising and creating elements that offer unprecedented value to buyers. Organizations in red oceans typically use a market-competing lens that focuses on beating rivals, serving existing customers better, and accepting industry conditions as given. They make strategic choices based on what competitors are doing. Blue ocean organizations, however, use a market-creating lens that focuses on making competition irrelevant, creating and capturing new demand, and breaking industry value-cost trade-offs. They define their strategies by looking across alternatives and reconstructing market boundaries. Moving from red to blue oceans requires a strategic shift in an organization's mindset and activities. It involves challenging industry assumptions, looking across strategic groups, redefining buyer groups, exploring complementary products and services, rethinking the functional-emotional orientation of an industry, and anticipating external trends. When executed properly, this shift can lead to sustainable growth by creating new demand rather than just dividing existing demand.

Chapter 3: The Three Tiers of Noncustomers Framework

The three tiers of noncustomers framework provides a systematic way to identify untapped demand that lies beyond an organization's current market. This framework challenges the conventional wisdom that growth comes primarily from serving existing customers better. Instead, it reveals how vast opportunities exist in three distinct tiers of people or organizations that don't currently patronize an industry. The first tier consists of "soon-to-be" noncustomers who sit on the edge of the market. These are reluctant users who minimize their use of the industry's offerings and would readily jump ship if presented with a better alternative. They use current offerings out of necessity, not preference. For example, in the credit card industry, many small merchants accept cards reluctantly due to high fees and cumbersome systems. Identifying and addressing the pain points of first-tier noncustomers can not only prevent them from leaving but also increase their usage frequency. The second tier comprises "refusing" noncustomers who have consciously rejected the industry's offerings. These individuals or organizations have considered using the industry's products or services but decided against it, either because another industry better meets their needs or because the current offering is beyond their means. Consider new businesses that considered accepting credit card payments but chose against it due to perceived complexity or cost. Understanding why second-tier noncustomers have made this choice reveals opportunities to reconfigure offerings in ways that might convert them into customers. The third tier encompasses "unexplored" noncustomers who have never been targeted or considered as potential customers by any industry player. These noncustomers are the furthest from the existing market but often represent the largest untapped demand. Before Square, person-to-person payments were ignored by the credit card industry, which assumed transactions required merchant infrastructure. By recognizing this overlooked group, Square created a new market for mobile payments between individuals. The framework shifts strategic thinking from "How can we better serve existing customers?" to "How can we convert noncustomers into customers?" This perspective dramatically expands the potential demand landscape. The total demand potential isn't limited to existing industry customers but includes all three tiers of noncustomers. Organizations that recognize this can uncover substantial new growth opportunities by addressing the needs, pain points, and constraints that keep noncustomers from patronizing their industry. When organizations apply this framework, they often discover that the ocean of noncustomers dwarfs their existing customer base. Comic Relief, for instance, recognized that the UK charity fund-raising industry focused narrowly on wealthy older donors while ignoring young professionals, children, and low-income individuals. By addressing these noncustomers' needs, Comic Relief created an entirely new approach to charity fund-raising that dramatically expanded participation.

Chapter 4: The Six Paths to Create Blue Oceans

The six paths framework provides systematic routes to break away from the competition and create blue oceans of uncontested market space. Each path challenges a fundamental assumption that limits strategic thinking and offers a structured way to reconstruct market boundaries and redefine industry problems. The first path invites organizations to look across alternative industries that serve the same function or solve the same problem but in different forms. Rather than focusing on improvements within their industry, organizations identify why buyers trade across alternative industries and combine their decisive advantages. For example, NetJets recognized that business travelers choose between commercial airlines, private jets, and other transportation options based on specific needs. By combining the benefits of private jet ownership (flexibility, convenience) with those of commercial airlines (lower cost), NetJets created a new market space through fractional jet ownership. The second path encourages looking across strategic groups within an industry—clusters of companies with similar strategies. Most organizations focus on improving their position within their strategic group, but the key to blue oceans is understanding what causes buyers to trade up or down between groups. HealthMedia created digital health coaching by combining the high efficacy of telephonic counseling with the low cost of digitalized content, breaking the value-cost trade-off that separated these strategic groups in the health management industry. The third path involves looking across the chain of buyers—users, purchasers, and influencers—who participate in buying decisions. Industries typically converge around a common definition of the target customer, but redefining the buyer group can unlock new value. Philips Electronics shifted focus from corporate purchasers of fluorescent lighting to chief financial officers, who recognized that disposal costs (due to mercury content) far outweighed purchase price. This insight led to environmentally friendly bulbs that eliminated disposal costs. The fourth path explores complementary product and service offerings that affect the value of an organization's offering. By considering what happens before, during, and after product use, organizations can discover untapped sources of value. Philips identified that British tea drinkers struggled with lime scale in municipal water, leading to the creation of a teakettle with a built-in filter that removed scale—turning a slow-growth industry into a fast-growing one. The fifth path rethinks the functional-emotional orientation of an industry. Some industries compete primarily on price and functionality (functional appeal), while others compete on feelings (emotional appeal). Shifting an industry's orientation—from functional to emotional or vice versa—can create new market space. The Body Shop succeeded by adding emotional appeal to the functionally oriented cosmetics industry through its stance against animal testing and support for fair trade. The sixth path involves looking across time to identify trends that will fundamentally change an industry. Rather than merely adapting to trends, organizations that shape trends participate in creating the future. Netflix saw that broadband internet would enable streaming of full-length films, allowing instant viewing gratification and complete flexibility—insights that led them to create their streaming service well before competitors. These six paths provide structured ways to challenge industry assumptions and create blue oceans. By systematically exploring these paths through field-based research, organizations can generate insights that lead to commercially compelling strategic moves that make competition irrelevant.

Chapter 5: Building Humanness and Confidence in the Process

The human dimension is often overlooked in strategic transformation, yet it's critical to successful blue ocean shifts. People are paradoxical—they aspire to make a difference yet simultaneously fear they cannot. They want to change the world for the better but doubt their ability to do so. A successful blue ocean shift process acknowledges this paradox by incorporating "humanness"—an approach that builds psychological understanding into the strategic process. Humanness recognizes that beneath professional titles, all people are vulnerable. They fear making mistakes, being ridiculed, or revealing what they don't know. When people feel genuinely understood and appreciated as whole individuals, not just for their brilliance or perfection, they stop feeling like imposters. They trust others, engage fully, and commit to making success happen. This emotional engagement is essential for reshaping and reimagining industry boundaries. Three key elements build humanness in the blue ocean shift process: atomization, firsthand discovery, and fair process. Atomization breaks down the challenge of creating new market space into small, concrete steps that inspire confidence rather than overwhelm. As people accomplish each step, they see that what once seemed daunting is within reach. Firsthand discovery allows people to see market realities for themselves, rather than being told. When they witness pain points and opportunities directly, they develop conviction about the need for change based on their own experiences. Fair process—comprising engagement, explanation, and clear expectations—addresses people's fundamental need for recognition and respect. Engagement actively involves people in strategic decisions that affect them, allowing them to contribute ideas and challenge assumptions. Explanation ensures people understand the reasoning behind decisions, even if their own ideas weren't adopted. Clear expectations specify what people's roles and responsibilities are at each step of the process. Together, these elements make people feel valued for their intellectual and emotional worth. While humanness builds confidence to act, market-creating tools and guidance build creative competence. These tools provide the intellectual understanding needed to systematically create new market space. Like an athlete needs specific training regimens to transform their body, strategists need structured frameworks to reshape market boundaries. Tools like the strategy canvas, buyer utility map, and eliminate-reduce-raise-create grid enable people to translate insights into concrete actions that break the value-cost trade-off. The blue ocean shift process integrates humanness and market-creating tools at each step. This integration ensures that execution isn't an afterthought but is built into the process through people's buy-in. Even when decisions don't align with what individuals originally hoped for, the humanistic process fosters acceptance and commitment. The result is an organization where people voluntarily support and drive the strategy forward. Organizations that successfully incorporate humanness into their strategic processes see remarkable transformations. Team members develop greater confidence, creative capabilities expand, and the atmosphere shifts from skepticism to enthusiasm. People begin to say, "I didn't know I was that creative" or "I can do it!" These internal changes create the foundation for the external market transformation that defines a blue ocean shift.

Chapter 6: The Five Steps to Making a Blue Ocean Shift

The blue ocean shift journey unfolds through five systematic steps that guide organizations from competing in red oceans to creating new market space. This process transforms abstract concepts into practical actions while building both confidence and competence among team members. Step one, "Get Started," focuses on choosing the right scope for your blue ocean initiative and assembling the right team. Using the pioneer-migrator-settler map, organizations assess their current portfolio to identify offerings that are ripe for a blue ocean shift. This typically means selecting a "settler" business—one that merely imitates competitors—with a leader eager for change. The team should include representatives from all functions that will play a role in bringing the new offering to market, creating cross-functional ownership of the initiative from the start. Step two, "Understand Where You Are Now," builds a clear picture of the current competitive landscape using the strategy canvas tool. This one-page visual depiction shows the factors the industry competes on, what buyers receive, and how the major players' strategic profiles compare. By revealing how similar competitors' strategies appear to buyers, the canvas creates a wake-up call about the need for change. Through fair process and firsthand discovery, team members collectively develop this understanding, eliminating the need for anyone to tell them change is necessary. Step three, "Imagine Where You Could Be," shifts focus from what is to what could be. The buyer utility map helps discover pain points and limitations imposed by the industry that block value for buyers. These pain points represent opportunities to change the playing field of strategy. The three tiers of noncustomers framework then identifies untapped demand lying outside the industry. By making visible noncustomers who were previously ignored, the team begins to see blue oceans as more than just a metaphor—they become tangible opportunities with defined potential. Step four, "Find How You Get There," provides systematic paths to create new market space. The six paths framework guides the team to look across alternative industries, strategic groups, buyer chains, complementary offerings, functional-emotional orientations, and trends to reconstruct market boundaries. Field research along these paths generates insights that the four actions framework then translates into concrete strategic moves. By focusing on what to eliminate, reduce, raise, and create, the team pursues both differentiation and low cost simultaneously. Step five, "Make Your Move," brings the blue ocean shift to fruition. The blue ocean fair gathers feedback on alternative strategic options from key stakeholders, culminating in a decision on which move to pursue. Rapid market tests with the offering's prototype validate its potential and reveal necessary refinements. The team then finalizes a big-picture business model that ensures the move delivers value to buyers while generating profit for the organization. Throughout the launch and rollout, the strategy canvas guides decisions on what to do and what not to do, maintaining integrity in execution. Each step incorporates humanness and builds creative competence while avoiding common pitfalls. The process doesn't require organizations to make one great leap but guides them through incremental, achievable steps that culminate in a blue ocean shift. By breaking down the journey this way, the process makes market creation accessible to everyone, not just entrepreneurs or naturally creative individuals. Organizations can apply the entire process or focus on specific steps that address their most pressing needs, making it adaptable to different contexts and situations.

Chapter 7: The Eliminate-Reduce-Raise-Create Grid

The Eliminate-Reduce-Raise-Create (ERRC) Grid is a powerful analytical tool that enables organizations to break the value-cost trade-off and create new market space. Unlike traditional strategic approaches that focus primarily on improving existing offerings, the ERRC Grid pushes organizations to simultaneously pursue differentiation and low cost—the cornerstone of value innovation. The ERRC Grid is built on four key questions that challenge an industry's strategic logic and business model. First, which factors that the industry takes for granted should be eliminated? This question forces organizations to consider removing elements that no longer add value to buyers but persist due to industry convention. Second, which factors should be reduced well below the industry standard? This identifies areas where products or services have been overdesigned in the competitive race, increasing costs without proportional value gain. Third, which factors should be raised well above the industry standard? This addresses compromises buyers are forced to make due to industry norms. Fourth, which factors should be created that the industry has never offered? This drives organizations to offer entirely new sources of value for buyers. The first two actions—eliminate and reduce—provide insight into lowering costs, while the second two—raise and create—drive increased buyer value. Of particular importance are the actions of eliminating and creating, as they push organizations beyond value-maximization exercises that merely adjust existing competitive factors. By forcing organizations to consider all four actions, the ERRC Grid ensures a strategy that achieves both differentiation and low cost. Consider citizenM hotels' application of the ERRC Grid. The company eliminated traditional hotel elements like front desks, bellhops, and room service that added little value for frequent travelers. It reduced room size and variety, cutting costs significantly. Simultaneously, citizenM raised the quality of sleeping environments with king-size beds, fine linens, and sound insulation, and created self check-in kiosks and a vibrant communal living space. The result was an affordable luxury hotel experience that achieved occupancy rates 80% higher than the industry average while maintaining costs 40% lower than comparable hotels. The ERRC Grid serves as a visual check on whether an organization is pursuing all four actions. If an organization focuses only on raising and creating elements—as many do—the grid visually flags this imbalance with empty spaces in the eliminate and reduce quadrants. This visual accountability mechanism ensures organizations don't fall into the trap of only adding features and costs, which results in higher prices or reduced margins rather than value innovation. When developing a blue ocean move, organizations should translate the insights gained from market exploration into concrete factors in each quadrant of the ERRC Grid. These factors should be specific and actionable rather than abstract concepts or desired outcomes. For example, instead of listing "convenience" as a factor to create, organizations should specify the concrete actions that will create convenience. This specificity allows organizations to estimate cost implications accurately and develop a business model that delivers both value to buyers and profits to themselves. The ERRC Grid transforms the way organizations think about strategy creation. Rather than focusing solely on outperforming competitors within accepted industry boundaries, it encourages systematic reconstruction of market boundaries and buyer value elements. This reconstruction is what allows organizations to break away from the competition and create blue oceans of uncontested market space.

Summary

Blue Ocean Shift provides a revolutionary framework for transforming organizations from market-competing to market-creating entities. The essence of this approach lies in its systematic process that combines humanness—addressing our psychological needs for recognition and confidence—with practical market-creating tools that build creative competence. This powerful combination enables anyone, not just entrepreneurs or creative geniuses, to create new market spaces where competition becomes irrelevant. The implications of this framework extend far beyond individual business success. In a world facing resource constraints, climate challenges, and social inequalities, our collective ability to break free from destructive competition and create new value-cost frontiers has never been more critical. By enabling organizations to simultaneously pursue differentiation and low cost while unlocking new demand, the blue ocean shift process offers a path to sustainable growth that benefits both organizations and society. Whether in business, nonprofits, or government, this approach provides hope that we can transcend the limitations of existing market boundaries and create more inclusive, efficient, and innovative solutions to our most pressing problems.

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W. Chan Kim

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Blue Ocean Strategy

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How to Create Uncontested Market Space and Make the Competition Irrelevant

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