There is a disconnect between what we teach in business schools and what happens when someone has to make payroll, estimate a roof, order materials, negotiate with subcontractors and convince a customer to sign. I have spent years on both sides of that divide. As an instructor, I have taught Blue Ocean Strategy, the Strategy Canvas and the Eliminate, Reduce, Raise and Create (ERRC) Framework. As a construction business owner, I have lived with competitive bidding, swinging material costs, labor shortages, demanding customers and the constant pressure to stay profitable.

Those two experiences have led me to a conclusion that is not fashionable in academic circles.

That does not mean the theory has no merit. W. Chan Kim and Renée Mauborgne gave us an accessible way to talk about innovation, value creation and competitive positioning. Their work pushes managers to question assumptions and look for opportunities that established competitors overlook. Those are worthwhile goals.

My disagreement is with the distance between the theory’s promise and its practical use. It is easy to tell companies to leave crowded markets, create new demand and make competition irrelevant. It is much harder to explain how a small roofing contractor, remodeler, plumber or framing subcontractor is supposed to do that when customers routinely collect multiple bids for essentially the same work. That is where the theory runs into trouble.

The Appeal of Blue Ocean Strategy

Kim and Mauborgne first drew wide attention with a 2004 Harvard Business Review article and then with their 2005 book, Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant. [3] Their argument is simple. Businesses traditionally compete in established markets, which the authors call red oceans. Competitors fight over existing demand, chase market share and often erode their own profits through aggressive pricing.

The alternative is the blue ocean. Instead of fighting rivals, a company creates new market space, develops new demand and pursues what the authors call value innovation. The goal is not merely to be different. It is to raise customer value while lowering costs, which would escape the usual trade-off between differentiation and low price.

The metaphor works. Who would not prefer a calm blue ocean to a bloody red one? For students meeting competitive strategy for the first time, it is a memorable way to think about innovation.

But an attractive metaphor is not an operating strategy. Blue Ocean Strategy is often presented in a way that invites students to believe that creative enough thinking can let almost any business escape competition. Markets do not follow the elegance of our diagrams. They follow prices, preferences, economic conditions, available resources, customer behavior and competitive response. Those forces do not disappear because a company writes a clever value proposition.

First, Differentiation Was Not Invented in 2005

One of my main objections is that much of the underlying reasoning was already established in strategic management. Consider Michael Porter. His 1980 book Competitive Strategy identified cost leadership, differentiation and focus as the basic routes to competitive advantage. [10] His 1985 book Competitive Advantage showed how firms create value through their activities and how those activities shape their competitive position. [11]

Porter’s differentiation strategy recognizes that a business can stand apart through product features, service quality, reputation, technology or customer relationships. His focus strategy recognizes that a company can win by serving a narrower segment better than competitors who try to serve everyone. None of that conflicts with the idea that businesses should look for ways to distinguish themselves. It was being discussed long before Blue Ocean Strategy arrived.

To be fair, Kim and Mauborgne make a more specific claim. Their emphasis on pursuing differentiation and low cost at the same time, and on reconstructing market boundaries, goes beyond advice to offer a better product. That deserves acknowledgment. Still, I question whether it is a fundamentally new view of competition or a new way of organizing ideas that strategists already understood.

Take a construction company that specializes in historic-home restoration. It develops skills general remodelers lack and charges premium prices because its crews are specialists. Is that a blue ocean, or is it the focused differentiation Porter described decades earlier? A roofing company may stand out through better warranties, clearer communication, reliable scheduling and excellent workmanship. Is that a new market, or a company executing differentiation well?

We can certainly apply Blue Ocean vocabulary to both. But giving an old business practice a new name does not make it a new discovery. Sometimes it just makes an old principle more marketable.

The Construction Industry Provides a Useful Reality Check

Construction is an especially revealing industry because it combines intense competition with hard operational limits. Consider an ordinary roof replacement. A homeowner calls three or four contractors for estimates. Each one inspects the roof, estimates labor and materials, accounts for disposal, insurance and overhead and submits a competitive proposal. One offers an excellent warranty. Another has outstanding reviews. A third promises faster completion. A fourth is known for customer service.

These differences matter. They can sway the customer’s decision and can justify a higher price. But all four contractors are still competing for the same project, and the customer’s basic need has not changed. The customer needs a roof. Unless someone has found an economically viable new way to protect a building from the weather, the essential service stays remarkably consistent.

The same is true of siding, gutters, framing, decks and remodeling. There is room to improve processes, materials, communication and warranties. There is room to specialize. But those improvements rarely eliminate competition. More often they help a contractor compete better inside an existing market.

In construction the competition is almost always relevant, and no amount of theoretical creativity changes the fact that someone still has to install the roof correctly.

The Numbers Make the Problem Clearer

Construction businesses operate under financial constraints that get too little attention in strategy discussions. According to the National Association of Home Builders’ Remodelers’ Cost of Doing Business Study , the average residential remodeling company earned a net profit margin of about 6.3 percent in 2024. Its gross profit margin was 29.9 percent, but operating expenses took another 23.6 percent of revenue. [7, 8] Cost of sales, which covers labor, materials and subcontractors, consumed about 70.1 percent of revenue. [8]

Gross profit and net profit are not interchangeable. A contractor can seem to earn a healthy margin on a job until administration, insurance, vehicles, office costs, marketing, financing and owner pay are counted. These figures do not describe every trade or every firm. They do show why efficiency and cost control matter so much.

Consider a hypothetical remodeler at that 6.3 percent margin. On $1 million in revenue, the company keeps about $63,000. Now suppose a new service program, expanded warranty or elaborate customer system adds $20,000 in annual expense and brings in no new revenue. That is nearly a third of the company’s net profit. The idea may look impressive on a slide and may even make the company seem more differentiated. But unless customers pay for the added value or the innovation produces enough new business, the company has simply made itself less profitable.

This is where theoretical discussion needs more discipline. Innovation is not automatically beneficial, and differentiation is not automatically profitable. I return to this below.

Labor Is Not a Theoretical Variable

Another problem is the assumption that businesses can redesign their operations freely. A company selling a digital service may be able to change a process or add a feature at modest cost. Construction does not work that way. A roofing project requires roofers. Framing requires people who can frame. Electrical and plumbing work require skilled and, in many cases, licensed workers. The work must be physically completed, inspected when required and done safely. A clever Strategy Canvas does not remove those requirements.

The 2025 national workforce survey from the Associated General Contractors of America and the National Center for Construction Education and Research found that 92 percent of responding firms had trouble filling open positions and that 45 percent had a project delayed because of worker shortages. [1, 9] About 1,300 people responded, across firms of different sizes and sectors. [1]

Those are real constraints. A company can design an innovative business model, advertise unique services and target a new segment. If it cannot find the labor to finish the work, its strategic ambitions do not matter. The same goes for materials. If a specified roofing product is backordered, repositioning the company does not install it. If subcontractors are unavailable, the schedule slips. If the city requires another inspection, the project waits.

The Eliminate, Reduce, Raise and Create Framework

One of the main tools of Blue Ocean Strategy is the ERRC Framework, which asks a business to consider four actions: [5]

• Eliminate: Which factors the industry takes for granted should be removed?
• Reduce: Which factors should be cut well below the industry standard?
• Raise: Which factors should be raised above the industry standard?
• Create: Which new sources of customer value should be introduced?

I have taught this framework for years, and I readily admit it has instructional value. It gives students a structured way to question established practices and to separate what customers value from what companies do only because competitors do it. That is a useful exercise.

I still find it hard to call the framework a breakthrough. What is revolutionary about advising a business to cut unnecessary expense, reduce activity that adds little value, improve what customers appreciate and develop new services when opportunities arise? Successful owners have done these things for generations without four neatly arranged boxes.

Here is how ERRC might apply to a roofing company.

• Eliminate: Unnecessary administrative steps, duplicate paperwork and inefficient communication.
• Reduce: Material waste, unnecessary travel, scheduling conflicts and avoidable delays.
• Raise: Workmanship, responsiveness, project transparency and customer satisfaction.
• Create: Digital project updates, convenient maintenance programs or simpler warranty support.

These are reasonable objectives, and I would encourage most contractors to pursue them. But notice what has happened. We have found operational improvements, cost-control opportunities and service enhancements. We have not necessarily found a new market, and we have certainly not made competitors irrelevant. We have described how a business might become more efficient and more attractive to customers. That is worthwhile, but it is ordinary management.

I would go further. A company that eliminates the wrong activity or reduces a service customers actually value can damage its reputation. A business that raises service standards without recovering the cost can lose profit. A company that creates something customers do not want wastes resources. The framework does not tell us which decisions will succeed. That takes research, financial analysis, experimentation and management judgment, and four verbs cannot replace them.

The Problem With Creating New Demand

One of the most attractive claims in Blue Ocean Strategy is that companies can move beyond existing demand and create new markets. Sometimes they can. History offers companies that brought in customers who had been underserved or excluded, and no one should dispute that market creation happens. The real question is whether successful examples establish a reliable method that other businesses can reproduce. I do not believe they do. There is a large difference between observing that some companies created new markets and claiming that a particular analytical framework can help ordinary businesses do the same.

Suppose a remodeling company launches an annual subscription. Customers pay a recurring fee for periodic home inspections, maintenance recommendations, discounted repairs and priority scheduling. That could be a good business. It could produce recurring revenue and deeper customer relationships. It could also fail because homeowners do not see enough value to justify the fee. Customers may prefer to pay for repairs only when something breaks. The company may underestimate the labor needed to meet its commitments. Subscribers may demand more maintenance than the revenue can support. A larger competitor may copy the program at a lower price.

The idea alone tells us very little about its profitability. A useful analysis would estimate customer acquisition costs, renewal rates, labor requirements, average service use, expected revenue and contribution margins. It would also estimate how many customers are likely to buy. This is where excitement about innovation can overshadow the economic questions that should decide whether an idea deserves investment.

A new market is not valuable simply because it is new. It becomes valuable when enough customers will pay enough money to support a sustainable business. That outcome must be demonstrated, not assumed.

The Problem of Hindsight

Another weakness is the way success stories can exaggerate a framework’s predictive power. Blue Ocean Strategy is usually illustrated with companies that succeeded by changing conventional industry offerings. Cirque du Soleil is the best known. Instead of competing head to head with traditional circuses on the same attractions, it built a theatrical, artistic entertainment experience. [3] The example is compelling and shows how an organization can redefine what customers are buying.

But there is a methodological problem. We already know Cirque du Soleil succeeded. It is easy to examine a winner afterward and identify the decisions that appear to explain its growth. It is much harder to learn how many companies tried similar innovations and failed, and those failures are essential to judging whether a strategy works. Otherwise we select the successful companies, study their strategies and treat those strategies as the cause of the success. That is selection bias, closely related to survivorship bias.

Dag Øivind Madsen examined this in a 2019 paper in the journal Social Sciences , which reviewed the concept’s popularity, the academic criticism it has drawn and the evidence on its adoption and effects. [6] The criticisms he surveys include a thin theoretical foundation, success stories written in retrospect and little systematic evidence for the stronger performance claims. Kim and Mauborgne themselves have acknowledged that they lack data on how often blue ocean initiatives succeed. The paper also reports that the concept is far better known than it is used. Surveys of managers suggest that only a minority say they have used it. [6]

The fair conclusion is not that the theory has been disproven. It is that its popularity and the strength of its general claims have outrun the quality and breadth of the evidence behind them. That is a legitimate reason for skepticism. A framework can be widely taught, commercially successful and intellectually appealing without being a reliable path to superior performance.

When a Blue Ocean Turns Red

Suppose a company does build a genuinely innovative service. Customers respond, revenue grows and profit improves. The business has accomplished something worthwhile. What happens next?

Competitors notice. They study the offering, copy its attractive features and begin to match it. Unless the innovator has real barriers to imitation, the advantage erodes. A distinctive service becomes a standard feature. A profitable niche draws new entrants. Yesterday’s innovative market starts to look like today’s conventional one. That is not unusual. It is a basic feature of competitive markets.

Construction makes the point easily. Suppose a roofing contractor is the first in its market to give customers a full online project portal. Homeowners can see photographs, get progress updates, open warranty documents and message the project manager. At first that could be a real point of difference. It might raise satisfaction and bring in business. But how hard would it be for competitors to offer something similar? Depending on the technology, perhaps not very. The innovation buys a temporary edge, not a permanently uncontested market.

To their credit, Kim and Mauborgne do not claim that new markets stay uncontested forever, and the theory recognizes the need for continued innovation. That qualification raises a question, though. If companies must keep defending their advantages, answering competitors, improving their offerings and adapting to change, how different is that from traditional competitive strategy? At some point the distinction looks more semantic than substantive. The ocean may change color, but the requirements of running a successful business remain.

Customers Do Not Purchase Strategy Diagrams

Operating a construction company teaches you that customers seldom care how sophisticated your strategic planning is. They care about their project. They want an accurate estimate, a fair price, a reliable schedule, competent work, clear communication and a satisfactory result. They want you to answer the phone. They want the crew to show up when promised and finish the job properly. And they would rather not find unexpected charges halfway through.

These expectations sound ordinary, and that is the point. Much of the value a construction company provides comes from doing ordinary things exceptionally well.

Consider two remodelers. The first has an elaborate marketing campaign, innovative software, a distinctive brand and service packages no competitor offers. The second has an experienced crew, accurate estimating, dependable subcontractors, fair pricing and a reputation for finishing projects properly. Which one is more likely to succeed? There is no universal answer, and the first company’s innovations might create real advantages. But I would hesitate to conclude that innovation alone outweighs the second company’s operating strength.

In construction, reliability is itself a powerful competitive advantage. Customers hire on referrals, past experience, reputation and confidence that the work will be done right. These are not revolutionary ways to create value. They are the fundamentals of a service business, and no strategy should encourage managers to overlook them.

The Difference Between Customer Value and Business Profit

This may be my most important concern with how innovation frameworks are applied. Students are encouraged to find ways to increase customer value, and that is appropriate. But creating customer value is only one part of a business model. The company must also capture enough of that value to stay profitable. The two goals are related but distinct.

Imagine a roofing company that offers a lifetime workmanship warranty, free annual inspections, immediate emergency response and complimentary gutter cleaning. Customers would love it. Next to competitors with leaner offers, the company would look far more attractive, and its Strategy Canvas would show remarkable differentiation. But who pays for the extra labor? Who pays for the inspection vehicles, administrative support, insurance exposure and future warranty claims? What happens when customers request more service than the company expected, or when the extras do not justify a higher contract price? The business could deliver more value and earn less profit. There is nothing strategic about that outcome, and it may be financially destructive.

The right question is not whether an innovation increases customer value. It is whether the innovation creates enough added revenue, cost savings or customer retention to justify what it costs to start and to keep running. A sound decision requires estimates of incremental costs and incremental benefits. That is basic managerial economics and the foundation of responsible planning.

Kim and Mauborgne explicitly aim to combine higher value with lower cost instead of simply adding expensive features, and that is an important point in their favor. But aspiring to both at once is not the same as showing that a particular company can achieve them. The numbers still have to work.

Small Businesses Cannot Experiment Without Consequences

Large companies often have the resources to experiment. They may have research departments, access to financing, diversified revenue and the capacity to absorb failed initiatives. Small businesses usually operate under very different conditions. The U.S. Small Business Administration’s Office of Advocacy reports that small businesses make up 99.9 percent of American businesses, roughly 34.8 million firms. [12] They are not a peripheral part of the economy. They are central to it. Yet the resources of an individual small firm are limited.

The owner of a small construction company may personally handle estimating, purchasing, scheduling, customer relations, crew supervision, billing and administration. A failed innovation hits immediately. A new service may require new hires. New technology brings subscriptions, equipment, setup costs and training. Entering an unfamiliar market may demand specialized expertise, equipment, insurance, licenses and advertising spend. Even a modest strategic change can create serious exposure, so the owner has to weigh opportunity against risk.

This is where I want to see more emphasis in discussions of strategic innovation. For a small business, survival is not evidence of a lack of imagination. It is a basic management responsibility. A contractor with ten employees cannot necessarily afford to chase a new market just because a framework says established competition is undesirable. Sometimes the most responsible move is to improve efficiency, protect margins, hold quality and keep serving a market the company already understands. That does not make an exciting case study. It does keep people employed and a business healthy.

What the Academic Research Actually Tells Us

A fair critique separates what the evidence supports from what it does not. Some empirical research suggests that Blue Ocean approaches may improve performance in certain settings. Madsen’s review cites a survey of more than 500 Finnish users that found an advantage in profitable sales growth, and it notes research suggesting that market-creating strategies may pay off over longer periods while conventional competitive strategies can work better in the short run. [6] Those findings should not be dismissed. They also complicate the idea that businesses should simply abandon traditional competition for blue oceans.

An earlier statistical study of the Dutch retail industry by van Stel, Thurik and Burke reached a similar middle position. It concluded that blue ocean strategy and competitive strategy coexist within the same competitive framework, and that which one dominates depends on market conditions. [13]

None of this proves that Blue Ocean Strategy fails. It suggests that its effectiveness depends on circumstances, that the evidence must be read carefully and that confident universal claims are hard to justify. That is a far more modest conclusion than the dramatic language about uncontested markets. It is also a conclusion I find considerably more credible.

Even the Creators Recognize That Blue Ocean Strategy Can Fail

Kim and Mauborgne’s own discussions are more nuanced than some popular presentations suggest. In a Harvard Business Review discussion of where Blue Ocean Strategy goes wrong, Mauborgne acknowledged that pursuing a blue ocean is no guarantee of success and stressed understanding noncustomers, avoiding mistaken assumptions and doing proper market research. [2] In a 2015 Harvard Business Review article, Kim and Mauborgne explained that successful strategy requires alignment among the value proposition, the profit proposition and the people proposition. [4] Customers must want the offering, the company must earn money providing it and the people involved must be able to carry it out.

I agree with those principles, and I think they are among the strongest parts of the authors’ work. But they also show why I object to oversimplified readings of the theory. Once Blue Ocean Strategy is qualified to require customer research, profitability, operating capacity, awareness of competitive response and sound execution, it begins to look like traditional business strategy in many important respects. That does not make the framework worthless. It does make its claim to be distinctive deserve a closer look.

Where Blue Ocean Strategy Actually Helps

Despite my criticisms, I am not suggesting Blue Ocean Strategy should leave business education. I have taught it for years and still see value in asking students to view established markets from a different angle. The Strategy Canvas is a useful diagnostic. It helps a business identify the factors on which competitors compete and compare its own offering against theirs, and when used carefully it can reveal where firms look alike and which attributes deserve further study. The ERRC Framework can also start good discussions. Students may uncover needless complexity, excess operating cost, overlooked customer needs or ways to improve service.

I would also acknowledge that construction itself offers room for real innovation. Prefabrication, modular building, new materials, automation, energy-efficient systems and better project delivery can change construction economics. Some innovations reshape the relationships among builders, suppliers, subcontractors and customers. Others create specialized markets that did not exist at commercial scale. There is no reason to deny those possibilities.

But we should distinguish between spotting a potential opportunity and proving that it is a viable blue ocean. The first is a creative process. The second requires evidence. For most small contractors, the more immediate benefit of strategic analysis is learning to compete better, not escaping competition altogether.

What I Would Rather Teach Business Students

If I were designing a practical decision process for a small construction company, I would begin with a set of questions.

First, what does the customer actually need? Not what the company hopes customers will want, and not what looks impressive in a presentation. What problem does the customer need solved, and what evidence shows there is enough demand?

Second, what does the company do particularly well? A business should examine its capabilities, workforce, reputation, supplier relationships and operating strengths. Opportunities should be judged against what the company can realistically deliver.

Third, what will the innovation cost? That includes direct costs, overhead, training, equipment, marketing, financing and the opportunity cost of pulling resources away from the existing business.

Fourth, how much added revenue or savings might it produce? That calls for realistic financial projections. Optimistic assumptions can be useful when exploring possibilities, but they should never replace sensitivity analysis and evidence.

Fifth, how will competitors respond? If an innovation is cheap to imitate, its advantage may be temporary. If it requires specialized skills, heavy investment, regulatory approval or deep relationships, the competitive picture may differ.

Sixth, what happens if the idea fails? This matters most to small businesses. Management should consider how much capital is at risk, whether the company can absorb a loss and whether the idea can be tested before a full commitment.

Finally, is this a better opportunity than improving what the company already does? That may be the most neglected question of all. A business can often do better by cutting material waste, sharpening estimates, keeping good employees or raising its referral rate. Those gains may be worth more than entering an unfamiliar market.

None of these questions requires a business to reject Blue Ocean Strategy. They ask it to place the framework inside a larger and more realistic analytical process.

The Danger of Turning Management Theories Into Dogma

Business education has a tendency to treat popular frameworks as if they were laws of organizational behavior. They are not. SWOT analysis, Porter’s Five Forces, the Business Model Canvas and Blue Ocean Strategy are analytical tools. Each stresses some parts of decision-making and simplifies others. That is what frameworks do. They organize complex information into manageable categories. But simplification has trade-offs, and a framework becomes a problem when students treat its categories as answers instead of questions.

A completed ERRC grid is not proof of innovation. A distinctive curve on a Strategy Canvas is not evidence of customer demand. A compelling value proposition is not evidence of profitability. And an attractive business model is no substitute for operating execution.

I believe instructors have a responsibility to make these distinctions clear and to encourage students to use frameworks critically, not mechanically. If a student argues that a company has found a blue ocean, I want to know why. Most important, I want to know what makes the student confident customers will actually pay for the proposed value.

A student who cannot answer these questions has not established a viable strategy. The student has identified a possibility. That is a good starting point, but it is not a conclusion.

A Construction Company Does Not Need to Escape Competition to Succeed

A contractor can build a successful company without creating a new market. It can develop specialized capabilities, improve its reputation, invest in better technology and recognize when a project type or market is no longer financially attractive.

None of that requires competition to become irrelevant. In fact, competitors often show us what customers value and where we need to improve. Competition is not simply an obstacle to escape. It is also a source of information, discipline and pressure to innovate.

That does not mean every competitive market is attractive or that every contractor should stay in the same segment forever. Markets change, opportunities appear and sometimes an entirely new business model is justified. But the presence of competition should not automatically be read as a sign that a company needs a different market. For many small businesses the goal should be to compete profitably, not to avoid competition. There is nothing strategically inferior about that.

The View From the Classroom and the Jobsite

Having taught the framework for years and run a construction business, I think it is appropriate to challenge the broader implications of the theory.

In the classroom, we can draw a Strategy Canvas that shows how a business might differentiate. On the jobsite, someone still has to do the work. In the classroom, we can recommend eliminating unnecessary activities. In the real world, we must decide which activities can go without hurting quality, safety, compliance or customer satisfaction. In the classroom, we can propose creating new customer value. In the real world, the company must learn whether customers will pay for it and whether any profit remains after the costs. In the classroom, we can imagine a market without meaningful competition. In the real world, competitors are free to respond, imitate, cut prices and chase the same customers.

Neither perspective should be ignored. Business education is more valuable when theoretical models are tested against practical conditions instead of accepted because they appear in influential books. The purpose of teaching strategy is not to produce students who can repeat fashionable terms. It is to develop managers who can evaluate opportunities, question assumptions, understand economic constraints and make defensible decisions. Those skills will stay valuable long after a given framework has lost its popularity.

Conclusion: Innovation Matters, but Reality Gets the Final Vote

My criticism is not that innovation is unimportant. Innovation is essential to economic progress, and businesses that refuse to adapt become vulnerable to changing technology, customer expectations and competition. Nor am I arguing that companies should copy their rivals and compete only on price. That would be an equally simplistic approach.

My argument is that Blue Ocean Strategy is better understood as a conceptual tool for exploring possibilities than as a dependable formula for business success. The Strategy Canvas, the ERRC Framework and the emphasis on customer value have real uses. But none of that shows that an organization can easily create new demand, escape competition or earn superior profit. Those outcomes depend on market conditions, customer behavior, available resources, execution and economics.

For a small construction company, the most profitable strategy may be nothing more glamorous than estimating accurately, keeping an experienced crew, controlling expenses, finishing projects properly and building a reputation that produces repeat business and referrals. There may be no newly discovered blue ocean in that. There may be no revolutionary value curve and no dramatic story about making competitors irrelevant. There is a company providing a service customers need at a price they will pay and managing operations well enough to earn a reasonable return. I would argue that deserves as much attention in business education as the celebrated stories of market creation.

After all, a business does not exist to validate a management theory. It exists to provide value, meet its obligations and stay economically viable.

The final measure of any business strategy is not how impressive it looks on a diagram. It is whether the business can make it work. In construction, as in most industries, that test is conducted in the real world.