Blue Ocean Strategy is a revolutionary business framework which shifts the focus from traditional competitive markets (red oceans) to creating uncontested market space (blue oceans). This strategic approach helps to break away from ferocious competition, instead making the competition irrelevant by creating and capturing new demand.
Since its inception in 2005, Blue Ocean Strategy has gained significant traction among business leaders and academics alike. The framework is based on a decade-long study of 150 strategic moves spanning more than 30 industries, providing compelling evidence that companies can succeed not by battling competitors but by creating their own blue oceans of uncontested market space.
The concept of Blue Ocean Strategy was developed by INSEAD professors W. Chan Kim and Renée Mauborgne in the early 2000s. Their research, which began in 1997, focused on analysing successful business strategies which created new demand and disrupted traditional markets. The professors identified a common pattern among these successful companies, which led to the development of the Blue Ocean Strategy framework.
The term "blue ocean" is derived from the metaphor of red and blue oceans. Red oceans represent 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. Here, companies try to outperform their rivals to grab a greater share of existing demand. 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.
How to Use Blue Ocean Strategy
To apply Blue Ocean Strategy , follow these steps:
- Understand your current situation: Analyse your industry and company using the Four Actions Framework, which consists of four questions:
- Which of the 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?
- Define your blue ocean: Based on the Four Actions Framework analysis, create a new value curve that aligns with your strategic choice. This curve will illustrate how your company will create a unique offering which appeals to a new or existing customer base.
- Visualise your blue ocean: Use the Strategy Canvas, a visual tool that compares your company's value curve with those of your competitors and the industry as a whole. This visual representation will help you identify areas of differentiation and potential new opportunities.
- Select your target market: Identify the customers who will benefit most from your new value curve. This may include new or existing customers who were previously underserved or overlooked by the industry.
- Create a strategic sequence: Develop a roadmap for implementing your Blue Ocean Strategy, including key milestones, resource allocation, and potential challenges.
- Overcome organisational hurdles: Address internal resistance and potential barriers to change within your organisation. This may involve educating employees about the benefits of Blue Ocean Strategy, aligning incentives, and fostering a culture of innovation.
Blue Ocean Strategy can be applied to various business scenarios, such as:
- Entering a new market
- Launching a new product or service
- Reinvigorating an existing product or service
- Expanding into adjacent markets
- Transforming a company's business model
By following the Blue Ocean Strategy framework, businesses can create uncontested market space, generating new demand.
Strategic Usage
Rather than competing head-to-head with competitors, Blue Ocean Strategy creates new demand in an uncontested market space.
- Value Innovation: Blue Ocean Strategy encourages organisations to focus on value innovation, which combines value, differentiation, and low cost to create a unique offering which appeals to a new market. By pursuing value innovation, businesses can unlock new sources of demand and revenue.
- Four Actions Framework: The Four Actions Framework is a key tool within Blue Ocean Strategy that helps businesses identify opportunities for value innovation. This framework involves eliminating, reducing, raising, and creating key factors in an industry to create a unique value proposition.
- Pursue Differentiation and Low Cost: Blue Ocean Strategy advocates for businesses to pursue differentiation and low cost simultaneously. This approach allows companies to create a compelling value proposition which appeals to a broad range of customers while maintaining a cost-effective business model.
- Visualise and Analyse: The Strategy Canvas is a visual tool that helps businesses compare their offering with those of their competitors and identify areas for value innovation. By visualising the current state of the market, businesses can identify opportunities to create a unique value proposition.
Best Practices & Common Pitfalls
- Embrace a Long-Term Perspective: Blue Ocean Strategy requires a long-term perspective and a willingness to invest in the future. Businesses should be prepared to make significant changes to their business model, product offerings, and operations to pursue value innovation.
- Engage Stakeholders: Blue Ocean Strategy requires the engagement of all stakeholders, including employees, customers, and suppliers. By involving stakeholders in the strategic planning process, businesses can ensure that their value proposition resonates with their target market.
- Avoid Overemphasising Competition: Blue Ocean Strategy is about creating new demand, not competing head-to-head with competitors. Businesses should avoid focusing too much on their competitors and instead focus on creating a unique value proposition that appeals to a new market.
- Monitor Market Trends: Blue Ocean Strategy requires businesses to stay up-to-date with market trends and customer needs. By monitoring the market, businesses can identify opportunities for value innovation and stay ahead of the competition.
- Measure Success: Blue Ocean Strategy requires businesses to measure success in new ways. Instead of focusing solely on financial metrics, businesses should also measure customer satisfaction, brand awareness, and other non-financial metrics to ensure that they are creating value for their customers.
Blue Ocean Strategy is a powerful framework for business growth and innovation, focusing on value innovation, visualising the market, and engaging stakeholders to create new demand and unlock new sources of revenue. However, Blue Ocean Strategy requires a long-term perspective, a willingness to invest in the future, and a commitment to measuring success in new ways.
