What is Blue Ocean?
The term “Blue Ocean” refers to an uncontested market space where competition is minimal, and the potential for growth and innovation is high. This concept contrasts with “Red Ocean,” which is characterized by fierce competition in saturated markets. Blue Ocean strategies seek to create new demand in an uncontested market space rather than competing in an existing industry.
Origin and Historical Context
Blue Ocean Strategy emerged from the work of W. Chan Kim and Renée Mauborgne, two professors at INSEAD, in their groundbreaking book “Blue Ocean Strategy,” published in 2005. They argue that companies should look for new opportunities in spaces that are untainted by competition, akin to navigating open, tranquil waters rather than the bloody, shark-infested waters of Red Oceans.
Key Characteristics of Blue Ocean
Innovation
Companies that pursue Blue Ocean strategies focus on innovation, creating unique products or services that open up new demand. This innovation is not limited to product features; it can also include new business models, customer experiences, or operational processes.
Value Creation
Instead of competing on price or quality within existing markets, Blue Ocean strategies involve redefining the value proposition to tap into latent demand. This approach often resonates with a broader range of customers and can create entirely new market segments.
Risk and Uncertainty
Navigating a Blue Ocean entails a high degree of uncertainty and risk. Pioneers in new markets need to educate potential customers, scale their operations efficiently, and defend against new entrants who may copy their innovations.
Examples of Blue Ocean Strategy
Cirque du Soleil
Cirque du Soleil reinvented the circus industry by combining elements of theater and circus performance while eliminating costly aspects such as animal acts. This innovation created a new entertainment category that appeals to a more affluent, adult audience.
Apple iTunes
Prior to the launch of iTunes, the music industry was battling piracy with limited success. Apple’s solution not only addressed the piracy issue but also created a user-friendly platform for purchasing and organizing digital music, resulting in a new market segment for digital music sales.
Applying Blue Ocean Strategy
Eliminate-Reduce-Raise-Create Grid
Kim and Mauborgne propose the ERRC Grid as a tool for identifying Blue Ocean opportunities:
- Eliminate: Factors that the industry has long competed on that can be eliminated.
- Reduce: Factors that can be reduced well below the industry’s standard.
- Raise: Factors that should be raised well above the industry’s standard.
- Create: Factors that the industry has never offered.
Using this framework, companies can systematically explore new market spaces by challenging industry conventions and assumptions.
Strategic Canvas
The Strategic Canvas helps visualize a company’s current strategic positioning and the potential shift towards a Blue Ocean. By plotting factors of competition and identifying gaps, businesses can focus on areas that offer the most significant opportunities for differentiation.
Comparisons and Related Terms
Red Ocean vs. Blue Ocean
- Red Ocean: Compete in existing market spaces, exploit existing demand, beat the competition.
- Blue Ocean: Create uncontested market space, create and capture new demand, make the competition irrelevant.
Disruption vs. Blue Ocean Strategy
While both concepts emphasize innovation, Blue Ocean Strategy is about creating entirely new demand and new markets. In contrast, disruption often involves displacing incumbents in established markets.
Frequently Asked Questions
What is the primary goal of a Blue Ocean Strategy?
The primary goal is to create new market spaces with little to no competition, thereby unlocking new demand and profitable growth.
How can a company identify Blue Ocean opportunities?
Companies can use tools like the ERRC Grid and the Strategic Canvas to systematically analyze their industry and identify areas for innovation and value creation.
What are the risks associated with Blue Ocean strategies?
The main risks include the uncertainty of market acceptance, the cost of educating customers, and potential imitation by competitors once the market potential is established.
References and Further Reading
- Kim, W. Chan, and Renée Mauborgne. Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant. Harvard Business Review Press, 2005.
Summary
A Blue Ocean Strategy emphasizes the creation of new markets and demand through innovation and value redefinition. It stands in stark contrast to the competitive battles of Red Oceans, aiming to make the competition irrelevant by tapping into unexplored areas of the market. These strategies, while carrying inherent risks, offer significant opportunities for growth and profitability.
