Introduction
If there is one business strategy book I recommend more frequently than almost any other to owners of small-to-medium businesses, it is Blue Ocean Strategy by W. Chan Kim and Renée Mauborgne.
When it was first published in 2005, it challenged one of the most deeply entrenched beliefs in business, that success comes from outperforming competitors within an existing market. Instead, the authors proposed a far more powerful idea: the greatest opportunities often lie not in competing better, but in competing differently.
More than twenty years later, that message is arguably even more relevant.
Today’s SMEs operate in increasingly crowded markets characterised by commoditisation, global competition, artificial intelligence, digital disruption and relentless price pressure. Many business owners mistakenly believe that lowering prices, working harder or spending more on marketing will eventually deliver sustainable growth. Unfortunately, those tactics often trap businesses in a cycle of shrinking margins and increasing competitive intensity.
Throughout almost four decades of working in large corporations, building start-up businesses, leading organisational transformation and advising businesses across Australia and internationally, I have observed that the highest-performing organisations rarely become market leaders by simply copying their competitors. Instead, they identify unmet customer needs, rethink traditional business models and create entirely new sources of value.
That is precisely the central message of Blue Ocean Strategy.
This is far more than a book review.
It is an exploration of one of the most influential strategic frameworks ever developed, together with practical insights into how Australian SMEs can apply its principles to escape destructive price competition and build more valuable, profitable and resilient businesses.
Table of Contents
- About the Authors
- What Is Blue Ocean Strategy?
- Why Most SMEs Compete in Red Oceans
- The Central Idea Behind the Book
- Value Innovation Explained
- The Strategy Canvas
- The Four Actions Framework
- The Eliminate – Reduce – Raise – Create (ERRC) Grid
- Six Paths Framework
- Three Tiers of Non-Customers
- Australian SME Lessons
- Where the Book Excels
- Limitations of the Book
- Practical Implementation Framework
About the Authors (Business Strategy Perth)
Professor W. Chan Kim and Professor Renée Mauborgne are internationally recognised strategy scholars from INSEAD, one of the world’s leading graduate business schools.
Their work is based on extensive research examining more than 150 strategic moves across dozens of industries over more than a century.
Rather than studying why companies fail, they sought to understand why some organisations consistently create exceptional growth while avoiding destructive competition.
Their conclusion was both elegant and profound:
Businesses that achieve outstanding long-term performance rarely win by competing harder, they win by making the competition less relevant.
This became known as Blue Ocean Strategy.
What Is a Blue Ocean?
The book uses a simple but memorable metaphor.
Red Oceans
Red Oceans represent existing markets.
Businesses compete:
- for the same customers
- using similar products
- on comparable pricing
- with similar business models
- against numerous competitors
Competition becomes increasingly intense.
Profit margins decline.
Products become commoditised.
The “ocean” turns red from competitive conflict.
Most SMEs operate here.
Blue Oceans
Blue Oceans represent markets that are largely uncontested.
Instead of fighting competitors, businesses create entirely new customer value.
Competition becomes largely irrelevant because no direct comparison exists.
Examples include:
- Cirque du Soleil combining theatre with circus.
- Airbnb creating a new accommodation category.
- Uber redefining personal transport.
- Canva simplifying professional graphic design.
- Yellow Tail making wine approachable for non-traditional wine drinkers.
Each business redefined its market rather than simply improving an existing product.
The Book’s Central Message
The central thesis is remarkably simple:
Sustainable competitive advantage comes from creating new value, not merely competing harder within existing markets.
Many businesses ask:
“How can we become better than our competitors?”
Blue Ocean Strategy encourages a different question:
“How can we become different enough that traditional competitors become largely irrelevant?”
That subtle change in thinking often transforms an organisation’s strategic direction.
Why SMEs Become Trapped in Red Oceans (Business Strategy Perth)
Many SME owners unknowingly compete in Red Oceans because they benchmark themselves against competitors.
They ask:
- What prices do competitors charge?
- What products do they offer?
- What marketing are they doing?
- What technology do they use?
- What services are expected?
Over time, businesses become increasingly similar.
Differentiation disappears.
Competition shifts towards:
- price
- discounts
- promotions
- faster delivery
- longer trading hours
Eventually everyone works harder while earning less.
I often describe this as strategic convergence.
Businesses become so focused on outperforming competitors that they lose sight of creating genuine customer value.
Value Innovation – The Most Powerful Concept in the Book (Business Strategy Perth)
If Blue Ocean Strategy contains one defining idea, it is Value Innovation.
Traditionally businesses believed they had to choose between:
- differentiation
or
- low cost.
Kim and Mauborgne challenged this assumption.
Instead, they argued businesses should pursue both simultaneously.
This occurs by:
- eliminating unnecessary costs
- reducing activities customers don’t value
- increasing features customers genuinely appreciate
- creating entirely new value competitors don’t offer
This combination simultaneously increases customer value while reducing cost.
That is Value Innovation.
For SMEs, this principle can be transformational.
Instead of asking:
“How can we charge less?”
Ask:
“How can we become so valuable that customers stop comparing us solely on price?”
One of the Greatest Lessons for SME Owners
After advising businesses for many years, I have reached a similar conclusion to the authors.
Most businesses dramatically overestimate what customers value.
Conversely, they underestimate what customers dislike.
Many organisations continue investing heavily in features that customers barely notice while ignoring opportunities to solve genuine frustrations.
Blue Ocean Strategy encourages leaders to rethink every assumption.
That exercise alone often reveals enormous opportunities.
The Strategy Canvas (Business Strategy Perth)
One of the book’s most practical tools is the Strategy Canvas.
It allows businesses to visually compare themselves against competitors across the factors customers value.
Typical factors might include:
- price
- quality
- speed
- convenience
- innovation
- customer experience
- technical expertise
- product range
- support
- customisation
Rather than analysing financial statements alone, leaders begin examining how customers actually perceive value.
This often exposes remarkable strategic opportunities.
For many SMEs, I believe this exercise should become an annual Board or strategic planning workshop.
The Four Actions Framework
Perhaps the most practical chapter introduces four deceptively simple questions.
Every business should ask:
Eliminate
What factors accepted by the industry should be eliminated completely?
Reduce
Which factors should be reduced well below industry standards?
Raise
Which factors should be raised significantly above competitors?
Create
What entirely new sources of value could we create that competitors do not currently offer?
These four questions form the foundation of genuine strategic innovation.
The ERRC Grid
The Four Actions Framework becomes operational through the ERRC Grid.
Instead of simply brainstorming ideas, leadership teams categorise strategic initiatives into four practical buckets:
Eliminate
Examples:
- unnecessary reports
- excessive approvals
- outdated products
- low-value meetings
Reduce
Examples:
- product complexity
- administration
- unnecessary overhead
- inventory
Raise
Examples:
- customer service
- responsiveness
- expertise
- trust
- communication
Create
Examples:
- subscription services
- AI-enabled customer support
- strategic advisory
- online communities
- value-added partnerships
The Create category is where genuine Blue Oceans often emerge.
Blue Ocean Thinking in Practice
Consider two accounting firms.
Firm A competes on:
- hourly rates
- compliance work
- tax returns
Firm B offers:
- CFO advisory
- AI dashboards
- strategic planning
- governance reviews
- succession planning
- business coaching
Although both operate within accounting, one has effectively created a Blue Ocean by solving higher-value client problems.
The same principle applies across virtually every industry.
The Six Paths Framework – Finding Opportunities Others Never See (Business Strategy Perth)
One of the reasons Blue Ocean Strategy has remained so influential is that it doesn’t simply tell leaders to “be innovative.” Instead, it provides practical frameworks for discovering opportunities that competitors have overlooked.
Perhaps the most powerful of these is the Six Paths Framework.
Rather than viewing industries through traditional competitive boundaries, Kim and Mauborgne encourage leaders to deliberately challenge long-held assumptions by exploring six alternative perspectives.
For SME owners, these six paths can reveal opportunities that competitors may never even consider.
Path 1 – Look Across Alternative Industries
Most businesses benchmark themselves against direct competitors.
Blue Ocean Strategy encourages you to ask a different question:
What alternative solutions are customers currently choosing instead of my product or service?
For example:
A business coach isn’t simply competing against other business coaches.
They are competing against:
- Consultants
- Accountants
- Advisory Boards
- Online learning platforms
- AI tools such as ChatGPT
- Industry associations
- Internal management capability
Understanding these alternatives often reveals opportunities to combine elements from several industries into a completely new value proposition.
Path 2 – Look Across Strategic Groups
Within every industry there are usually distinct strategic groups.
For example:
Restaurants range from:
- Fast food
- Family dining
- Casual dining
- Fine dining
Hotels range from:
- Budget
- Mid-market
- Premium
- Luxury
Professional service firms range from:
- Low-cost providers
- Specialist boutiques
- Premium advisers
Rather than choosing one position, Blue Ocean Strategy encourages businesses to selectively combine the best elements from different groups.
Canva is an excellent example.
It combined:
- Professional design capability
- Consumer simplicity
- Cloud technology
- Affordable pricing
creating an entirely new market.
Path 3 – Look Across the Chain of Buyers
Most businesses assume they understand their customer.
Often they only understand the purchaser.
The actual buying decision may involve:
- Users
- Influencers
- Approvers
- Procurement managers
- Financial decision makers
- Technical advisers
Understanding each participant frequently uncovers overlooked opportunities.
For example, many engineering firms focus almost exclusively on project managers.
Yet value may be created by making life easier for procurement departments, finance teams or maintenance personnel.
Path 4 – Look Across Complementary Products and Services
Customers rarely purchase products in isolation.
They purchase complete experiences.
Ask yourself:
What happens before someone buys from us?
What happens afterwards?
What frustrations exist throughout that journey?
For example:
A removal company doesn’t simply move furniture.
Customers also require:
- Packing
- Storage
- Cleaning
- Utility connections
- Insurance
- Real estate support
- Property maintenance
Each represents a potential Blue Ocean opportunity.
Path 5 – Look Across Functional and Emotional Appeal
Industries often compete on either:
Functional value
Lowest cost
Efficiency
Speed
Reliability
or
Emotional value
Luxury
Experience
Status
Trust
Lifestyle
Many opportunities arise by moving deliberately in the opposite direction.
Apple did not simply build better computers.
It created products people genuinely enjoyed owning.
Tesla transformed electric vehicles from environmentally responsible purchases into aspirational performance vehicles.
Path 6 – Look Across Time
Many businesses react to change.
Blue Ocean businesses anticipate it.
Questions include:
- How will AI reshape our industry?
- What demographic shifts are occurring?
- How are customer expectations changing?
- What regulations are emerging?
- Which technologies are becoming mainstream?
Rather than defending today’s business model, Blue Ocean Strategy encourages organisations to build tomorrow’s.
The Three Tiers of Non-Customers
Another concept I particularly like is the discussion around non-customers.
Most businesses obsess over existing customers.
Blue Ocean Strategy argues that much greater opportunity often exists outside existing markets.
The authors identify three tiers.
First Tier
People who occasionally use your industry but are not enthusiastic customers.
For example:
Someone who reluctantly engages an accountant once each year.
Second Tier
People who deliberately choose alternatives.
For example:
Businesses relying entirely upon AI bookkeeping rather than employing an accountant.
Third Tier
People who have never considered purchasing your product.
These often represent the largest untapped opportunities.
Many revolutionary businesses grew by converting non-customers rather than stealing customers from competitors.
What This Means for Australian SMEs
This concept is particularly relevant today.
Instead of asking:
“How do we win more customers from our competitors?”
Perhaps ask:
“Who currently doesn’t buy from anyone?”
or
“Why don’t they buy?”
These questions frequently produce far more valuable strategic insights.
Real-World Blue Ocean Success Stories
One of the strengths of the book is its extensive use of practical examples.
Several have become business classics.
Cirque du Soleil
Rather than competing with traditional circuses, Cirque du Soleil eliminated:
- Animal acts
- Three-ring performances
- Expensive star performers
It simultaneously created:
- Theatre
- Music
- Sophisticated storytelling
- Premium customer experiences
The result was a completely new entertainment category.
Yellow Tail Wines
Wine had traditionally been marketed towards enthusiasts.
Yellow Tail simplified:
- Labelling
- Product selection
- Wine terminology
It targeted consumers intimidated by traditional wine culture.
Instead of competing for existing wine drinkers, it attracted entirely new ones.
Canva
Canva transformed graphic design by removing many barriers:
- Complex software
- Professional design expertise
- High software costs
Instead, it created:
- Simplicity
- Collaboration
- Cloud accessibility
- Affordable subscriptions
Millions of non-designers suddenly became customers.
Airbnb
Hotels focused on hotel rooms.
Airbnb focused on unused accommodation.
Instead of building more hotels, it created an entirely new marketplace.
Applying Blue Ocean Strategy to SMEs
One criticism I occasionally hear is:
“Blue Ocean Strategy works for billion-dollar companies, but not for small businesses.”
I disagree.
In many respects SMEs are actually better positioned.
They possess:
- Faster decision-making
- Less bureaucracy
- Greater flexibility
- Closer customer relationships
- Faster innovation
- Entrepreneurial cultures
Large organisations often struggle to escape existing business models.
Smaller businesses can pivot far more quickly.
A Practical Example, Business Advisory
Consider my own advisory work.
If I simply marketed myself as another business consultant, I would be competing in an extremely crowded Red Ocean.
Instead, the strategic focus has been on combining capabilities that are seldom found together.
Over almost four decades, my career has included institutional investment management, company valuation, executive leadership, entrepreneurship, board governance, mergers and acquisitions, capital raising and strategic advisory across numerous industries.
Rather than offering isolated consulting services, I seek to integrate strategic planning, governance, leadership development, commercial finance, business improvement and Board-level thinking into a single advisory proposition for SME owners.
That approach reflects one of the core messages of Blue Ocean Strategy:
Create differentiated value by combining capabilities in ways competitors typically do not, or to be blunt, can’t.
It is not about claiming uniqueness for its own sake; it is about solving broader and more valuable client problems than a traditional provider might address.
Where the Book Excels
In my opinion, Blue Ocean Strategy has endured because it changes the way leaders think.
Its greatest strengths include:
It challenges conventional strategic thinking
Instead of asking how to outperform competitors, it asks whether competing in the same way is necessary at all.
It provides practical frameworks
The Strategy Canvas, ERRC Grid and Six Paths Framework are tools that Boards and leadership teams can use immediately.
It focuses on customer value
The emphasis remains on creating meaningful value rather than simply adding features or reducing prices.
It is applicable across industries
The principles extend well beyond large corporations and can be adapted by SMEs, professional services firms, manufacturers, technology companies, not-for-profits and family businesses alike.
Where I Believe the Book Has Limitations
No strategy framework is universally applicable, and Blue Ocean Strategy is no exception.
Several considerations are worth bearing in mind.
First, creating a genuine Blue Ocean is difficult. Many industries are mature, highly regulated or capital intensive, making radical innovation more challenging.
Second, not every business needs to create an entirely new market. Incremental innovation, operational excellence and disciplined execution can also produce outstanding results.
Third, Blue Oceans rarely remain uncontested forever. Successful innovations attract imitators, meaning organisations must continue evolving rather than assuming today’s competitive advantage will last indefinitely.
Finally, execution is everything. A compelling strategic concept has little value without disciplined implementation, capable leadership and strong governance.
Why Blue Ocean Strategy Matters Even More in the Age of AI
When Blue Ocean Strategy was first published in 2005, artificial intelligence was largely confined to research laboratories and specialist applications. Today, AI has fundamentally changed the competitive landscape.
Paradoxically, this makes the book even more relevant.
AI enables competitors to replicate products, services, marketing campaigns and operational processes faster than ever before. What was once a sustainable competitive advantage can now be copied within weeks, or even days.
This means that sustainable advantage increasingly comes not from technology itself, but from:
- Better strategic thinking.
- Deeper customer insight.
- Superior business models.
- Stronger organisational culture.
- More effective leadership.
- Better governance.
- Faster innovation.
- More valuable customer experiences.
In other words, AI makes Blue Ocean thinking more important, not less.
Businesses that merely use AI to reduce costs are unlikely to achieve lasting competitive advantage.
Businesses that use AI to redefine customer value may create entirely new Blue Oceans.
A Practical Blue Ocean Workshop for SME Owners (Business Strategy Perth)
If I were facilitating a strategic planning workshop with an SME Board or leadership team, I would use a practical framework inspired by Kim and Mauborgne’s work, but expanded to include governance, leadership and implementation.
Step 1 – Define Your Current Red Ocean
Ask:
- Who are our competitors?
- Why do customers compare us?
- What causes customers to negotiate on price?
- Where are margins under pressure?
- Which competitors concern us most?
Simply identifying your current Red Ocean often creates new strategic awareness.
Step 2 – Map Your Strategy Canvas
Identify the factors customers currently compare.
Examples include:
- Price
- Speed
- Quality
- Service
- Convenience
- Expertise
- Innovation
- Trust
- Brand
- Digital capability
- Customer experience
Now compare yourself against your competitors.
Patterns quickly emerge.
Step 3 – Challenge Every Industry Assumption
Ask:
Why do we believe this is necessary?
Examples:
- Do customers really want more products?
- Do they really value our technical terminology?
- Does everyone require face-to-face meetings?
- Are lengthy proposals still necessary?
- Must we always charge by the hour?
- Is our pricing model outdated?
Many Blue Oceans emerge by questioning assumptions everyone else accepts.
Step 4 – Complete the ERRC Framework
List everything your business currently does.
Then ask:
Eliminate
What creates cost but little customer value?
Reduce
Where are we over-investing?
Raise
Where should we significantly outperform competitors?
Create
What have competitors never considered offering?
This exercise often generates dozens of strategic opportunities.
Step 5 – Identify Non-Customers
Rather than focusing solely on existing clients, ask:
Who never buys from us?
Why not?
What barriers exist?
Removing barriers frequently creates entirely new markets.
Step 6 – Consider Emerging Trends
Examine:
- AI
- Automation
- Demographics
- Sustainability
- Remote work
- Customer expectations
- Regulation
- Digital transformation
How could these trends create entirely new opportunities?
Step 7 – Evaluate Strategic Fit
Not every innovative idea deserves implementation.
Assess each opportunity against:
- Strategic alignment
- Commercial viability
- Financial return
- Competitive advantage
- Capability requirements
- Risk
- Implementation complexity
Boards should evaluate opportunities objectively rather than emotionally.
Step 8 – Develop an Implementation Roadmap
Innovation without execution is simply wishful thinking.
Every strategic initiative should include:
- Clear ownership
- Timelines
- Resources
- KPIs
- Budget
- Governance oversight
- Review milestones
Execution transforms strategy into results.
Practical Recommendations for SME Owners
If you only implement a handful of ideas from Blue Ocean Strategy, make them these:
- Stop benchmarking yourself exclusively against competitors.
- Spend more time understanding customers than analysing competitors.
- Focus on creating unique value rather than simply lowering prices.
- Conduct an annual Strategy Canvas exercise.
- Challenge long-held assumptions about your industry.
- Review every product and service through the ERRC Framework.
- Explore adjacent markets and non-customers.
- Use AI to create new customer value, not merely reduce costs.
- Encourage innovation throughout your leadership team.
- Make strategic thinking a standing Board agenda item.
- Review your business model every year.
- Remember that today’s Blue Ocean may become tomorrow’s Red Ocean.
Key Takeaways
- Blue Ocean Strategy remains one of the most influential strategic management books ever written.
- Competing on price is rarely a sustainable long-term strategy.
- Value Innovation sits at the heart of successful strategic differentiation.
- The Strategy Canvas provides a practical way to visualise competitive positioning.
- The ERRC Grid helps organisations redesign value while reducing unnecessary costs.
- The Six Paths Framework encourages leaders to identify opportunities beyond traditional industry boundaries.
- Many of the best opportunities lie among non-customers rather than existing customers.
- AI increases the importance of strategic differentiation rather than diminishing it.
- SMEs are often better positioned than large corporations to create Blue Oceans because of their agility.
- Sustainable competitive advantage comes from continually creating new value, not from defending yesterday’s success.
Frequently Asked Questions
Is Blue Ocean Strategy still relevant today?
Yes. Its principles of value innovation and market creation remain highly relevant, particularly in an era of AI, digital disruption and increasing commoditisation.
Is this book suitable for SME owners?
Absolutely. While many examples involve larger organisations, the underlying frameworks can be readily adapted by SMEs across virtually every industry.
Does Blue Ocean Strategy encourage businesses to ignore competitors?
No. It encourages businesses not to become obsessed with competitors. The emphasis is on creating superior customer value rather than simply outperforming rivals.
Can service businesses apply Blue Ocean Strategy?
Yes. Professional service firms, advisory businesses, healthcare providers, trades, education providers and not-for-profits can all benefit from the framework.
Is competing on price ever a good strategy?
Sometimes, particularly where scale provides a genuine cost advantage. However, for most SMEs, competing solely on price is difficult to sustain.
How often should a business review its strategy?
At least annually, with ongoing monitoring of industry trends, customer needs and emerging technologies.
Is innovation always expensive?
No. Many Blue Oceans arise from eliminating complexity, simplifying customer experiences or redesigning business models rather than investing heavily in technology.
What is the biggest lesson from the book?
Stop asking how to beat competitors. Start asking how to make competition far less relevant.
What role does leadership play?
Leadership creates the culture that encourages questioning assumptions, embracing innovation and pursuing strategic change.
Would I recommend this book?
Without hesitation. It deserves a place on every serious business owner’s bookshelf alongside Good Strategy/Bad Strategy, Good to Great, Playing to Win, The Innovator’s Dilemma and The E-Myth Revisited.
Final Thoughts
Few business books genuinely change the way leaders think.
Blue Ocean Strategy is one of them.
It encourages business owners to stop fighting over existing demand and instead create new demand. It shifts strategic thinking from competition to innovation, from imitation to differentiation, and from short-term tactical responses to long-term value creation.
Throughout my career, as a portfolio manager, company analyst, Managing Director, entrepreneur, Chairman and strategic adviser, I have seen organisations create exceptional results not because they outspent or outworked competitors, but because they fundamentally changed the rules of competition. Whether through innovative business models, strategic partnerships, product redesign, governance improvements or customer-focused innovation, the underlying principle has remained remarkably consistent: create value that others are not creating.
That is why Blue Ocean Strategy continues to deserve its reputation as one of the most important business books ever written.
For SME owners and leaders, its message is both simple and profound:
The objective is not to become the best competitor in your industry. The objective is to build a business so distinctive, valuable and strategically positioned that customers increasingly choose you for reasons other than price.
In an increasingly crowded and rapidly changing marketplace, that may be the most valuable competitive advantage of all.
Call to Action
If your business is trapped in relentless price competition, declining margins or an increasingly crowded marketplace, it may be time to rethink your strategy rather than simply work harder.
As a Fractional CEO, Non-Executive Chairman and Business Advisor, I help SME owners, Boards and leadership teams challenge conventional thinking, identify new strategic opportunities, strengthen governance and develop practical strategies that create sustainable competitive advantage.
If you would like to explore how Blue Ocean thinking could be applied to your own business, I would welcome the opportunity to discuss your strategy, market positioning and long-term growth objectives.
