In today's hyper-competitive business world, many companies find themselves battling for market share in what W. Chan Kim and Renée Mauborgne call "red oceans"—industries where companies compete fiercely, leading to price wars and diminishing profits. The 'Blue Ocean Strategy' offers a powerful alternative: creating entirely new, uncontested market spaces that make competition irrelevant.
Red Oceans vs. Blue Oceans
Understanding the distinction is key to applying the strategy:
- Red Oceans: These are all the industries in existence today—the known market space. In red oceans, industry boundaries are defined and accepted, and companies try to outperform their rivals to grab a greater share of existing demand. As the market gets crowded, prospects for profit and growth are reduced. Products become commodities, and cutthroat competition turns the ocean "red" with the blood of rivals.
- Example: The intensely competitive smartphone market, where companies constantly battle over features and price.
- Blue Oceans: These are 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.
- Example: Cirque du Soleil created a blue ocean by combining elements of theater and circus, appealing to an entirely new audience beyond traditional circus-goers.
The goal of Blue Ocean Strategy is not to beat the competition but to make the competition irrelevant by creating a leap in value for buyers, thereby opening up new demand.
The Four Actions Framework: Creating Value Innovation
The core of Blue Ocean Strategy lies in Value Innovation, which means simultaneously pursuing differentiation and low cost. Instead of trading off value for cost, blue ocean strategists achieve both. This is often done using the Four Actions Framework:
Eliminate: Which factors that the industry has long competed on should be eliminated?
- Example (Cirque du Soleil): Eliminated animal acts, star performers, and aisle concessions, which were costly and increasingly less appealing to adults.
Reduce: Which factors should be reduced well below the industry standard?
- Example (Cirque du Soleil): Reduced the number of circus rings (to one) and deemphasized individual acts.
Raise: Which factors should be raised well above the industry standard?
- Example (Cirque du Soleil): Raised the artistic value, music, ambiance, and comfort of the venue.
Create: Which factors should be created that the industry has never offered?
- Example (Cirque du Soleil): Created a unique theme, storyline, sophisticated lighting, and intellectual property that drew audiences from theater and opera.
By applying this framework, businesses can reconstruct market boundaries and create a new Value Curve that sets them apart.
Applying Blue Ocean Strategy to Your Business
To move from red to blue oceans, consider these steps:
- Look Beyond Existing Demand: Instead of focusing on current customers, explore non-customers or "latent demand." What problems do these groups have that aren't being addressed?
- Focus on the Big Picture, Not Just Numbers: Use strategic canvases to visualize your current value curve and compare it to potential new ones.
- Systematically Reconstruct Market Boundaries: Challenge industry assumptions. What are the unspoken rules that limit your thinking?
- Build Executive Buy-in: Blue Ocean Strategy often requires significant organizational change, so leadership alignment is crucial.
By shifting your focus from competition to value innovation, your business can unlock new growth, create new demand, and achieve sustainable market leadership in your very own blue ocean.
