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What is Blue Ocean Strategy?
Blue ocean strategy is a business strategy for saturating markets. It is a strategy for overcoming competition in a unique way.
Imagine starting over? From scratch? Creating your own universe? Picking an environment and mould it as per your whims? Well, it may or may not be possible in case of life, relationships, or the world we live in but it is certainly possible to do all of the aforementioned, seemingly crazy things, to a market. Yes, a market. Even in this day and age where commerce and industry have pervaded every sector of human existence, discovering uncharted demographic demand groups and mapping commercial offerings to fulfill those demands still offers huge scope. This is where the blue ocean strategy comes into play.
Blue Ocean Strategy – Background and Central Idea
The propounders of the blue ocean strategy are professors W. Chan Kim and Renee Mauborgne, faculty and co-directors of the INSEAD Blue Ocean Strategy Institute.They co-authored a book, Blue Ocean Strategy, in 2005. The central idea of this book and the strategy is to tap uncharted markets, the ‘blue oceans’ in the book, instead of spending time, resources, and efforts to outsmart competitors in established markets. Kim and Mauborgne assimilated ideas and concepts for this book and its namesake strategy after studying almost a hundred and fifty marketing and competition strategies that have existed over three hundred years and are spread across thirty different industries.
After closely scrutinizing this information and analyzing various resource aspects that went in them, the two professors reached an innovative conclusion that companies can create huge value for themselves, their customers, their employees, and their stakeholders by creating for themselves uncontested market spaces, thereby unlocking new demand. Such a move, while seemingly mammoth and divergent from the much trodden path, will completely do away with competition. Hence, there will be huge savings of time, resources, and efforts that are attributed towards dealing with competition.
The Strategy in Detail
The book divides the collective global business arena into two distinct market spaces – the red ocean and the blue ocean. The red ocean includes all existing industries and much tapped and actively catered market spaces those industries occupy. The playing field of demand and demography, market dynamics, rules of competition, industry boundaries, etc., are clearly established, accepted, and understood. In the red oceans, the industrial and market players play by these rules in a bid to grab greater shares of this predefined arena by outwitting and outperforming competitors. The overall demand pie is finite and each player can only hope to gain a larger slice of this pie. Any new entrant in this red ocean contributes to the crowd of the existing players and as new entrants increase, the slices of the pie keep getting smaller for everyone. Profits and growth opportunities diminish for everyone every time a new player joins the game. This means, a significant portion of every player’s revenues and profits are spent after strategies to keep the competition at bay.
The blue ocean, on the other hand, includes the potential industries that do not exist at present and all the untapped market spaces and demand demographics that will take shape as and when such potential industries take shape. Therefore, any demand that is captured in such a market space is created from scratch. This ensures ample opportunities for the initial set of players in the new industry to grow and earn profits. Blue oceans can be brought into existence in two primary ways. A completely new, unheard of industry can be built up from scratch or a distinct industry can be created from within the red ocean by manipulating the functioning boundaries of an existing industry therein. While the former technique is easier to fathom, one might wonder how the latter may be possible. A prominent case in point to illustrate the latter is eBay and how it kick-started the online auction industry.
The core concept of the blue ocean strategy is founded on the idea of value innovation. This can be achieved through a combination of product utility differentiation and low cost of production and operations. This ultimately translates into creation of value for the company, its customers, employees, and stakeholders. An important aspect of value innovation that enables value creation cost reduction is streamlining products and services to eliminate ‘frills’ – the unnecessary, non-utility features of products and services that are made available in the market. A prominent case in point of the value innovation strategy discussed above is the Tata Nano car. A differentiated four-wheeler which is an all-utility-no-frills product that comes at a very attractive price – Tata Motors created a blue ocean from within a red ocean and how!
The blue ocean strategy comes with a distinct set of tools, ideas, and framework that facilitate the creation of blue ocean industries and market spaces. We will be discussing those in detail in another post. Watch this space!