Blue Ocean Strategy
Blue ocean strategy is the simultaneous pursuit of differentiation and low cost to open up a new market space and create new demand.
In 2005, Professors W. Chan Kim and Renee Mauborgne launched a revolution in business strategy by encouraging companies to evacuate shark infested waters.
Their book, "Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant."
suggests companies are better off searching for ways to gain "uncontested market space" over competing with similar companies.
These new spaces are described as "Blue Oceans," compared to the struggle for survival in bloody "Red Oceans" swarming with vicious competition. The Blue Ocean Strategy represents the simultaneous pursuit of high product differentiation and low cost, that way making contest irrelevant.
So, what is the blue ocean strategy?
Blue ocean strategy is the simultaneous pursuit of differentiation and low cost to open up a new market space and create new demand. It is about creating and capturing uncontested market space, that's why making the competition irrelevant. It is based on the view that market boundaries and industry structure are not a given and can be reconstructed by the actions and beliefs of industry players.
In the classic book "Blue Ocean Strategy" Chan Kim & Renée Mauborgne coined the terms ’red ocean’ and ‘blue ocean’ to describe the market universe.
Red oceans are all the industries in existence today, the known market space. In red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known.
Companies try to outperform their rivals to grab a greater share of existing demand. As the market space gets crowded, profits and growth are reduced. Products become commodities, leading to a cutthroat or ‘bloody’ competition. Hence the term red oceans.
Blue oceans, on the other hand, 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. There is ample opportunity for growth that is both profitable and rapid.
In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. A blue ocean is an analogy to describe the wider, deeper potential to be found in unexplored market space. A blue ocean is vast, deep, and powerful in terms of profitable growth.
Kim explained in an article on Forbes, "Our study shows that blue ocean strategy is particularly needed when supply exceeds demand in a market. This situation is applying to more and more industries today and will be even more prevalent in the future."
Discovering Blue Oceans
avoiding the use of Harvard Business School’s Michael E. Porter's name, Kim and
Mauborgne attack the famous "five forces" market analysis head-on.
Porter’s model looks at specific factors that help determine whether a business
can be profitable based on other businesses in the industry.
Supporters of Kim and Mauborgne’s strategy would say this is a tactic that promotes merciless competition, remaining in the red waters.
The key to extraordinary business success, the authors say, is to redefine the terms of competition and move into the "blue ocean," where you have the water to yourself. The goal of these strategies is not to beat the competition, but to make the competition irrelevant.
To discover the Blue Ocean, Kim and Mauborgne recommend that businesses consider what they call the Four Actions Framework to reconstruct buyer value elements in crafting a new value curve. The framework poses four key questions:
1. Raise: What factors should be raised well above the industry's standard?
2. Reduce: What factors were a result of competing against other industries and can be reduced?
3. Eliminate: Which factors that the industry has long competed on should be eliminated?
4. Create: Which factors should be created that the industry has never offered?
These four keys force companies to examine every factor of competition, guiding leaders to discover the assumptions they unconsciously make while competing. They can then search for blue oceans within their industries and make the shift.
Blue Ocean in practice