What is a Blue Ocean Strategy?
A Blue Ocean Strategy is a business strategy that advocates for creating new, uncontested market spaces, rendering competition irrelevant. Instead of vying for dominance in existing, saturated markets (red oceans), companies pursue entirely new market segments, often by redefining existing industry boundaries and creating significant value innovations.
The Core Principles of Blue Ocean Strategy
The Blue Ocean Strategy, conceptualized by W. Chan Kim and Renée Mauborgne, goes beyond simply “being different.” It’s about creating a new value curve that is distinct from competitors. This involves simultaneously pursuing differentiation and low cost, breaking the value-cost trade-off inherent in traditional competitive strategies. In red oceans, companies fight to capture a larger share of existing demand; in blue oceans, they create entirely new demand. This is achieved through a systematic approach, rather than relying on luck or isolated innovations.
The approach focuses on:
- Value Innovation: Not just innovation, but value innovation that simultaneously reduces costs and increases buyer value.
- Redefining Industry Boundaries: Looking beyond traditional industry definitions and understanding the chain of buyers, alternative industries, and complementary products and services.
- Breaking the Value-Cost Trade-Off: Avoiding the trap of focusing solely on cost leadership or differentiation, aiming instead for both.
- Following a Strategic Sequence: Ensuring the strategy is viable by following a specific order, starting with buyer utility, then price, then cost, and finally adoption.
Applying the Blue Ocean Framework
Implementing a Blue Ocean Strategy requires a shift in mindset and a disciplined approach. Tools like the Strategy Canvas and the Four Actions Framework are essential.
The Strategy Canvas
The Strategy Canvas is a diagnostic and action framework for building a compelling blue ocean strategy. It visualizes the competitive landscape by plotting the performance of industry players across key competitive factors. By identifying the factors the industry competes on and mapping the offerings of competitors, the Strategy Canvas allows companies to:
- Understand the current state of competition.
- Identify opportunities to differentiate.
- Create a new value curve that sets them apart.
The Four Actions Framework
The Four Actions Framework challenges companies to rethink the competitive factors they take for granted. It consists of four key questions:
- Eliminate: Which factors that the industry takes for granted should be eliminated?
- Reduce: Which factors should be reduced well below the industry standard?
- Raise: Which factors should be raised well above the industry standard?
- Create: Which factors should be created that the industry has never offered?
By systematically answering these questions, companies can break the value-cost trade-off and create a new value proposition.
Examples of Blue Ocean Strategies
Numerous companies have successfully implemented Blue Ocean Strategies, disrupting established markets and creating entirely new industries. Examples include:
- Cirque du Soleil: Reinvented the circus by eliminating animals, clowns, and traditional acts, and instead focusing on artistic performances, storytelling, and a sophisticated ambiance, appealing to a corporate clientele and achieving premium pricing.
- Nintendo Wii: Broke away from the technological arms race of competing consoles by focusing on ease of use, intuitive controls, and a broader range of games appealing to a wider demographic, including families and casual gamers.
- Southwest Airlines: Revolutionized air travel by eliminating unnecessary services like meals and assigned seating, offering a simple, low-cost, and point-to-point service, appealing to price-sensitive travelers.
- Yellow Tail Wine: Simplified the wine purchasing process by offering a single, easy-to-understand product at an accessible price point, targeting non-wine drinkers and making wine less intimidating.
These examples illustrate the power of challenging assumptions, redefining industry boundaries, and focusing on creating value for a new set of customers.
Frequently Asked Questions (FAQs) About Blue Ocean Strategy
Here are some common questions people have about Blue Ocean Strategy:
FAQ 1: How does Blue Ocean Strategy differ from traditional competitive strategies like Porter’s Five Forces?
Traditional competitive strategies, like Porter’s Five Forces, focus on competing within existing industries to capture market share. They are reactive and aim to analyze the competitive landscape to identify opportunities for gaining an advantage. Blue Ocean Strategy, in contrast, is proactive and focuses on creating new market spaces, rendering competition irrelevant. Instead of fighting for a bigger slice of the existing pie, it aims to create an entirely new pie.
FAQ 2: Is Blue Ocean Strategy only applicable to large companies with significant resources?
No, Blue Ocean Strategy can be applied by companies of all sizes, including small and medium-sized enterprises (SMEs). While large companies may have more resources, the core principles of value innovation and redefining industry boundaries are applicable regardless of size. SMEs can often be more agile and innovative, allowing them to quickly adapt and create new market spaces.
FAQ 3: Can a company create a Blue Ocean in a declining industry?
Yes, a company can create a Blue Ocean even in a declining industry. By identifying the unmet needs of customers or targeting a new customer segment, a company can revitalize a declining industry. This often involves redefining the product or service to offer a new value proposition that appeals to a different market.
FAQ 4: What are the potential risks of pursuing a Blue Ocean Strategy?
While Blue Ocean Strategy offers significant potential rewards, it also carries risks. One risk is that the new market space may not be sustainable, either due to imitation by competitors or changes in customer preferences. Another risk is that the company may overestimate the demand for its new offering. Thorough research, market testing, and continuous innovation are crucial to mitigating these risks.
FAQ 5: How do you identify potential Blue Ocean opportunities?
Identifying potential Blue Ocean opportunities involves thinking beyond existing industry boundaries. This can be done by:
- Looking across alternative industries.
- Examining strategic groups within industries.
- Looking across the chain of buyers.
- Exploring complementary product and service offerings.
- Rethinking the functional-emotional orientation of the industry.
- Participating in shaping external trends over time.
FAQ 6: What role does innovation play in Blue Ocean Strategy?
Innovation is central to Blue Ocean Strategy, but not innovation for its own sake. The focus is on value innovation, which is about simultaneously pursuing differentiation and low cost. This means creating a new value proposition that is both unique and affordable. It’s about making competition irrelevant by creating superior value for customers.
FAQ 7: How do you measure the success of a Blue Ocean Strategy?
Traditional metrics like market share are less relevant in the context of Blue Ocean Strategy. Instead, success is measured by:
- The ability to create a new market space.
- The growth in demand for the new offering.
- The profitability of the new venture.
- The degree to which competitors are rendered irrelevant.
FAQ 8: Is Blue Ocean Strategy a one-time event, or is it an ongoing process?
Blue Ocean Strategy is not a one-time event, but rather an ongoing process of continuous innovation and adaptation. Once a company has created a Blue Ocean, it needs to defend its position by continually improving its offering and anticipating future trends. Competitors will eventually attempt to imitate, so ongoing innovation is crucial to maintaining a competitive advantage.
FAQ 9: Can Blue Ocean Strategy be applied to non-profit organizations?
Yes, Blue Ocean Strategy can be applied to non-profit organizations. By redefining their mission and target audience, non-profits can create new ways to deliver value and address social needs. This might involve partnering with other organizations, adopting new technologies, or creating innovative funding models.
FAQ 10: What are the key skills and competencies required to implement a Blue Ocean Strategy?
Implementing a Blue Ocean Strategy requires a range of skills and competencies, including:
- Creative thinking and innovation.
- Market research and analysis.
- Strategic planning and execution.
- Cross-functional collaboration.
- Leadership and change management.
FAQ 11: How does Blue Ocean Strategy relate to disruptive innovation?
While both Blue Ocean Strategy and disruptive innovation involve creating new market spaces, they differ in their approach. Disruptive innovation often starts with a low-end offering that gradually improves and disrupts the existing market. Blue Ocean Strategy, on the other hand, aims to create a completely new market space by offering a fundamentally different value proposition from the outset. It seeks to create uncontested market spaces, rather than directly disrupting established players.
FAQ 12: Where can I learn more about Blue Ocean Strategy?
The best place to learn more about Blue Ocean Strategy is by reading the original book, Blue Ocean Strategy by W. Chan Kim and Renée Mauborgne. You can also find articles, case studies, and online resources on the Blue Ocean Strategy website (https://www.blueoceanstrategy.com/). Furthermore, many business schools and consulting firms offer courses and workshops on Blue Ocean Strategy. Understanding the theory and practical application is crucial for successful implementation.