Blue Ocean Strategy

Blue Ocean Strategy

The Blue Ocean Strategy is a revolutionary business strategy framework that suggests companies are better off searching for ways to gain “uncontested market space” (referred to as “Blue Oceans”) than competing head-to-head with other companies in existing industries (“Red Oceans”). Developed by W. Chan Kim and Renée Mauborgne, professors at INSEAD, this strategy was detailed in their 2005 book titled “Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant.” The core premise of the Blue Ocean Strategy is that market boundaries and industry structure are not given and can be reconstructed by the actions and beliefs of industry players.

What is the Blue Ocean Strategy?

The Blue Ocean Strategy advocates for creating new demand in an uncontested market space, or a “Blue Ocean,” rather than competing over a saturated market space, or “Red Oceans,” where the competition is fierce. The approach focuses on making the competition irrelevant by innovating in offerings, pricing, and delivery to create value for both the company and its customers. This strategy emphasizes the simultaneous pursuit of differentiation and low cost to open up a new market space and create new demand.

Origin of the Framework

Kim and Mauborgne developed the Blue Ocean Strategy after studying 150 strategic moves spanning more than a hundred years and thirty industries. They noticed that companies often thrived by creating blue oceans of uncontested market space, as opposed to those that fought over well-defined markets with numerous competitors. The term “Blue Ocean” is metaphorical, describing the wider, deeper potential of market space that is not yet explored.

How It Works

The Blue Ocean Strategy provides several analytical tools and frameworks, including:

• Value Innovation: The cornerstone of the Blue Ocean Strategy, focusing on innovation that significantly increases value for customers while simultaneously reducing or eliminating features or services that are less valued by the current or future market.
• The Four Actions Framework: A tool that helps companies reconstruct market elements to create new value for customers and the company. It involves four key questions: Which factors that the industry takes for granted should be eliminated? Which factors should be reduced well below the industry’s standard? Which factors should be raised well above the industry’s standard? Which factors should be created that the industry has never offered?
• The Strategy Canvas: A diagnostic and action framework for building a compelling blue ocean strategy. It graphically captures, in one simple picture, the current strategic landscape and the future prospects for an organization.
• The ERRC Grid (Eliminate-Reduce-Raise-Create Grid): Helps companies systematically consider how they can create new value for customers by eliminating and reducing the factors an industry competes on and by raising and creating elements the industry has never offered.

Why It Is Valuable

The Blue Ocean Strategy offers significant value by:

• Driving Growth: By focusing on untapped market spaces, companies can unlock new demand and opportunities for significant growth.
• Reducing Competition: Creating a blue ocean makes the competition irrelevant by changing the rules of the game.
• Enhancing Innovation: Encourages companies to break out of the existing competitive structure and think in innovative ways about their business.
• Building Brands: Companies that successfully implement a blue ocean strategy can build powerful brands that dominate their unique market space.

When and How to Use It

The Blue Ocean Strategy can be applied at any stage of a company’s lifecycle, whether it is looking to enter a new market, revitalize a mature market, or break away from a crowded market space. Companies use this strategy to:

• Explore new market spaces by understanding non-customers.
• Redefine customer value to create new demand.
• Look across alternative industries and strategic groups to find new ideas.
• Challenge the functional-emotional orientation of the industry.

To implement a Blue Ocean Strategy, companies should:

1. Engage in a strategic planning process that incorporates the tools and frameworks of the Blue Ocean Strategy.
2. Encourage a culture of exploration and innovation that is willing to challenge industry norms.
3. Invest in market research to identify non-customers and uncover unmet needs.

Shortcomings/Criticisms

Despite its widespread acclaim, the Blue Ocean Strategy has faced criticism:

• Risk and Uncertainty: Venturing into untested markets can be riskier than competing in existing markets.
• Implementation Difficulty: Finding and developing a blue ocean strategy can be challenging, requiring deep insight and a clear vision.
• Sustainability: Competitors may quickly imitate the strategy, turning blue oceans into red oceans.
• Overemphasis on Differentiation: Some critics argue that the focus on differentiation might neglect the importance of cost control and efficiency.

The Blue Ocean Strategy offers a transformative approach to strategic planning, emphasizing the creation of new markets and the redefinition of existing ones. While it presents challenges and requires a significant shift in mindset, its potential for driving sustainable growth and innovation makes it a valuable tool for businesses seeking to break away from intense competition and explore new opportunities.