BLUE OCEAN STRATEGY

BLUE OCEAN STRATEGY
Competing in overcrowded industries is no way to sustain high performance. The real opportunity is to create BLUE OCEANS of uncontested market space

BLUE OCEAN vs. RED OCEAN

Red Oceans represent all the industries in existence today – the known market space
Red Oceans’ industries boundaries are defined and accepted
Red Ocean’s competitive rules are well understood

What’s it like in a Red Ocean?

Companies try to outperform rivals in order to grab greater share of existing demand
Space gets more crowded
Prospects for profits and growth reduced
Products turn into commodities
Increasing competition turns water bloody

What is the BLUE OCEAN?

Blue oceans denote all industries NOT in existence today
The Unknown market space
Untainted by competition
In Blue Oceans, demand is created not fought over
In Blue Oceans, growth is profitable and rapid

2 ways to create Blue Oceans

Companies can give rise to complete new industries, example : Ebay with the online auction industry
Created WITHIN a Red Ocean when a company alters the boundaries of an existing company.

Insights on Blue Ocean Strategy

There is a consistent pattern of strategic thinking behind the creation of new markets and strategies (called Blue Ocean Strategy)
Blue Ocean strategies part with traditional models focused on competing in existing market space
Managers’ failure to differentiate between blue and red ocean strategy lies behind the difficulties many companies encounter to break from the competition

The Paradox of Strategy

In a study of 108 companies
86% of new ventures were line extensions or incremental improvements to existing industries
ONLY 14% were aimed at creating new markets or strategies
Line extensions provided 62% of total revenues but ONLY 39% of TOTAL PROFITS
In contrast, on the 14% invested in creating new markets it delivered 38% of the total revenues BUT it delivered 61% of TOTAL PROFITS!!!

Why the imbalance?

Corporate strategy is heavy influenced by its roots in military strategy
The language of strategy is imbued with military references like “officers”, “headquarters”, “troops”, “front lines”
The language is the that of a red ocean strategy
The language is about confronting the enemy and driving him off a battlefield of limited territory

What focusing on the red ocean means

It means accepting the key constraints of war
Limited terrain
The need to beat an enemy to succeed
Denying the distinctive strength of the business world – the capacity to create new market space that is uncontested

Competition Matters but …

It ignores two very IMPORTANT and FAR MORE LUCRATIVE aspects of strategy :
To find and develop markets where there is little or no competition (blue oceans)
To exploit and protect blue oceans

Red Ocean vs. Blue Ocean

Red Ocean

Compete in existing market space
Beat the competition
Exploit existing demand
Make the value/cost trade-off
Align the whole system of company’s activities with its strategic choice of differentiation OR low cost

Blue Ocean

Create uncontested market space
Make the competition irrelevant
Create and capture new demand
Break the value/cost trade-off
Align the whole system of a company’s activities in pursuit of differentiation AND low cost