Blue Ocean Strategy is a business concept that focuses on creating uncontested market space by offering unique products or services, thereby making competition irrelevant. Unlike traditional “red ocean” strategies, where companies fiercely compete in saturated markets, blue ocean strategies encourage businesses to innovate and explore new areas of demand. By doing so, companies can achieve differentiation and low costs simultaneously, unlocking new customer bases and increasing profitability.
This approach, outlined by W. Chan Kim and Renée Mauborgne in their book Blue Ocean Strategy, emphasizes value innovation as the key to long-term growth and sustainable success in various industries.
Key Concepts of Blue Ocean Strategy
Value Innovation
The cornerstone of Blue Ocean Strategy is value innovation, which involves simultaneously pursuing both differentiation (unique products or services) and low costs. Unlike traditional strategies, which require a trade-off between differentiation and cost leadership, value innovation seeks to break this compromise.
Value innovation focuses on two aspects:
- Raising buyer value: By offering something innovative, companies create new value for customers, allowing them to break free from conventional offerings.
- Reducing costs: By eliminating or reducing features that the market has taken for granted, companies can significantly lower costs, making it easier to price competitively.
Eliminate-Reduce-Raise-Create (ERRC) Grid
This tool helps companies identify how to create a blue ocean by systematically analyzing their current market space. It involves:
- Eliminate: What factors that the industry takes for granted can be eliminated to reduce costs or simplify the offering?
- Reduce: What factors should be reduced well below industry standards to streamline costs or operations?
- Raise: What factors should be raised well above the current industry standard to deliver more value to customers?
- Create: What new factors or attributes can be created that the industry has never offered before?
By applying this framework, companies can reimagine their offerings and find opportunities for differentiation and cost leadership simultaneously.
The Four Actions Framework
In addition to the ERRC grid, the Four Actions Framework helps companies rethink the competitive landscape:
- Eliminate: Identify which factors the industry competes on but can be eliminated to free up resources.
- Reduce: Identify factors that have been over-delivered and reduce them to cut costs without hurting the customer experience.
- Raise: Determine which factors should be enhanced to offer more value to customers.
- Create: Add completely new elements that create unprecedented value for customers
Strategic Canvas
The Strategic Canvas is a visual tool used to map out the current competitive landscape, identifying key factors where industry players compete and how they perform. It helps companies visualize where to innovate by highlighting gaps or areas where value can be created or costs can be reduced.
The canvas has two main components:
- Horizontal axis: Shows the various competitive factors in an industry.
- Vertical axis: Represents the performance or offering level of each competitor in relation to those factors.
By analysing the canvas, companies can easily spot where they need to differentiate and where they can cut back.
Examples of Blue Ocean Strategy
- Cirque du Soleil
Cirque du Soleil is one of the most famous examples of Blue Ocean Strategy. Before its creation, the traditional circus industry was highly competitive, with companies fighting over the same shrinking audience and rising costs (such as animal care and performer wages). Cirque du Soleil redefined the market by eliminating costly elements like animals and three-ring performances, reducing the use of expensive stars, raising the level of artistic and theatrical performances, and creating a unique fusion of circus and theatre.
Cirque du Soleil created a new entertainment form that appealed not only to traditional circus-goers but also to new audiences, such as adults and corporate clients, willing to pay premium prices for a unique cultural experience. By creating a “blue ocean,” Cirque du Soleil made competition irrelevant and achieved enormous success.
- Nintendo Wii
In the gaming console market, companies like Sony and Microsoft were competing over hardcore gamers with high-end, expensive consoles (PlayStation and Xbox) offering advanced graphics and processing power. Instead of competing head-on, Nintendo created a blue ocean with the Wii by focusing on a different customer segment—casual gamers and families.
Nintendo simplified the gaming experience by creating motion-sensor controls, allowing non-gamers and families to easily participate. This approach created a new market, vastly expanding the gaming audience beyond traditional gamers, and resulted in the Wii’s tremendous commercial success.
- Yellow Tail Wine
The wine industry has traditionally been split between expensive, high-quality wines and low-cost, mass-market wines. Casella Wines, the makers of Yellow Tail, avoided competing in this “red ocean” by creating a new wine that was easy to drink, affordable, and appealing to casual wine drinkers who found traditional wines intimidating.
By simplifying its wine offerings and focusing on the mass market, Yellow Tail created a new category of wine that attracted beer and cocktail drinkers. It became one of the fastest-growing wine brands globally, illustrating the power of Blue Ocean Strategy.
Implementation Process
The implementation of Blue Ocean Strategy follows a systematic process:
- Reconstruct Market Boundaries: Analyze existing markets and find opportunities to redefine boundaries by targeting new customer segments, combining industries, or simplifying offerings.
- Focus on the Big Picture: Instead of getting bogged down in operational details, focus on the strategic direction and long-term value creation.
- Reach Beyond Existing Demand: Companies should look beyond their current customer base and explore new markets or untapped customer needs.
- Sequence the Strategy: Make sure that the new product or service offers clear utility, an affordable price, and a cost structure that supports profitability. Test the strategy before full-scale implementation.
- Overcome Organizational Hurdles: Address resistance within the organization, align employees around the new strategy, and ensure that everyone understands the value of creating a blue ocean.
- Build Execution into Strategy: Ensure that the strategy is not only visionary but also executable. Strong leadership, clear communication, and an engaged workforce are key to successfully creating a blue ocean.
Challenges and Criticism
While Blue Ocean Strategy offers significant potential, it does come with challenges:
- Sustainability of Blue Oceans: Over time, competitors may enter the newly created market, turning it into a red ocean. Continuous innovation is required to maintain a competitive edge.
- Risk of Failure: Not every blue ocean will succeed. Companies may struggle to accurately identify new opportunities or execute their strategies effectively.
- Balancing Value and Cost: Achieving both differentiation and low cost can be challenging, particularly in industries with high fixed costs or limited flexibility.
Conclusion
Blue Ocean Strategy provides a powerful framework for companies to escape fierce competition and discover new opportunities for growth and differentiation. By focusing on value innovation, companies can create new markets, capture new demand, and increase profitability. However, success in blue oceans requires careful planning, continuous innovation, and a focus on delivering unique value to customers.
