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Although the blue ocean strategy may sound at first like the design for a great holiday, it's actually a business concept that has quickly gained recognition among many firms - Netflix, Uber and IKEA being some rather notable examples.
But what is the definition of blue ocean strategy and what are the characteristics of blue ocean companies?
The authors of the concept are Chan Kim and Renée Mauborgne, professors of strategy at INSEAD. They described the blue ocean theory in their 2005 bestselling book "Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant".
Citing the authors, the clue of the blue ocean strategy "is about creating and capturing uncontested market space, thereby making the competition irrelevant".
Chan Kim and Renee Mauborgne propose a controversial approach to building a market advantage. Whereas in a traditional approach companies focus on intense market struggle, they instead advise ignoring the competition. Why?
Kim and Mauborgne assert that in the traditional approach, companies try to beat the competition by delivering a regular product or service in a more efficient way, in turn leading to hyper-competition and mutual destruction.
Alternatively, if companies make competition irrelevant, they will have the opportunity to create uncontested market space and thus determine their market differentiators. Such an approach will enable them to deliver real innovation by way of their product or service.
Kim and Mauborgne’s theory stands in opposition to a red ocean strategy. Red oceans are markets already discovered and developed; where companies will fight for every percentage of market share. The concept focuses on the implementation of strategies which will increase productivity and efficiency more than they will innovate. As a result, a market is likened to a bloody red ocean of companies doing more or less the same thing in an industry standing still.
On the contrary, blue oceans represent new market spaces that are yet to be discovered and customers not yet known. It's an area where competition is irrelevant and the market game rules are yet to be established.
Chan Kim and Renee Mauborgne believe that a blue ocean strategy can define the nature of a company and ensure its long-term profitability whereas a red ocean strategy is ultimately unprofitable. It's simply not possible for a company to increase its productivity and efficiency indefinitely. At some point, the venture will become too costly and find the company haemorrhaging profits in an ever-shrinking profit pool.
focus on competition
compete on the existing market rather than create new market space
exploit existing demand
make a choice: value for customers or low cost
make the competition irrelevant
create uncontested market space and ignore the existing one
create new demand
break the value-cost trade-off
Based on the "Red Ocean vs Blue Ocean Strategy"
Having the above comparison in mind, it may be concluded that the primary goal of a firm pursuing a blue ocean strategy should be to introduce a product or service with unique features. By doing so, the chances of better pricing and higher profits in the long-term increase drastically.
A company wanting to introduce a blue ocean strategy may have numerous questions, for example:
Is it actually possible to make our competition irrelevant?
How do we create uncontested market space in practice?
How do we start a blue ocean business?
The authors of "Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant" are sure to address such companies. Chan Kim and Renee Mauborgne developed the blue ocean strategy framework - a 5-step guide - as well as numerous tools to support entrepreneurs on their way to a blue ocean business.
Step 1: "Get started" - helps identify the right place to begin the transformation, taking into account the potential barriers (the organization's limitations, for example). Reflection at this stage is key to not getting overwhelmed by over-ambitious plans.
Step 2: "Understand where you are now" - although the key point of the blue ocean strategy is to make the competition irrelevant, it doesn't mean that you needn’t have a thorough knowledge of it. Therefore the competition analysis, including its strengths and weaknesses, is crucial for determining the next steps and for inspiring your team to embrace change.
Step 3: "Imagine where you could be" - encourages market exploration, broadens the perception of the client, determines hidden customer pains, and thereby unlocks the unique value for the client. At this point, considering the following questions is helpful:
What are the alternatives to the current offer?
What are the user's pains?
What are the standards in the industry?
What will happen if they are lowered, increased or eliminated?
What will arise when combining the offer with solutions from other industries?
Step 4 "Find how you get there" - encourages the redefining of market perception and the formulation of a strategy that will facilitate the shift from the current playground to a new market space.
Step 5 "Make your move" - nothing will happen without action. However, to benefit the most from this transition, the first move you make should be subject to reflection.
The steps of the blue ocean strategy framework may seem theoretical, but there are also many tools to make them more practical for companies. One is the blue ocean strategy canvas. The purpose of this tool is to capture the current state of play in terms of the competitive landscape. With this gained awareness of the factors driving competitors into the red ocean, it's possible to plan a shift away from it.
Although the theory and its practical tools are easily accessible, a blue ocean strategy is not necessarily easy to implement. Anyone can try it, be they a large corporation, start-up or non-profit organization. But in practice, no one is guaranteed success.
A blue ocean business is about new market space, new clients, and new product features, and there are many factors that make this a high-risk strategy. Those who succeed, however, are rewarded.
One company that has benefited greatly from its brave blue ocean decisions is Netflix. Instead of fighting for survival in the bloody red ocean of video rental stores, they navigated bluer waters as a streaming video platform based on subscription fees. It's hardly worth mentioning just how worth the risk this was.
Netflix proves that companies that decide on such brave maneuvers open themselves to endless opportunities. The most significant blue ocean opportunity is the position of market leader and title of true innovator. And this affords privileges on many levels. With no competition, blue ocean strategy companies can be much more flexible, and mainly in terms of:
re-shaping the offer
optimizing marketing costs
At Startup Development House we love experimenting and engaging in projects that have a chance to disrupt the market. We believe that the success of a blue ocean strategy very much depends on the quality of market analysis. Therefore, we holistically support our clients in the Product Discovery Process. We start by diving into the competitive landscape and discovering the real pains of the users. With this approach, we continue with a list of ideas for the product's unique features.
Do you have an idea for an application or other digital product? Contact us and we'll talk about how we can release it into the bluest of ocean waters.
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