Blue ocean strategy is a way to create growth opportunities by finding unique solutions to problems
Blue ocean strategy is a management business strategy that requires companies to find ways to create growth opportunities instead of competing with other businesses in the same industry. It was developed by W. Chan Kim and Renée Mauborgne, professors at INSEAD and co-directors of the INSEAD Blue Ocean Strategy Institute.
What does “blue ocean” mean?
The term blue ocean refers to an industry where there is no competition. Instead of fighting for market share, you can focus on offering customers new products or services that are completely different from what is already out there.
An example would be if you started a company that built tiny houses instead of regular-sized houses because there weren’t any competitors doing it yet (in comparison, red oceans have plenty of competitors).
Key points are
Create uncontested market space
Companies are often trapped in the red ocean of bloody competition. They compete within the same market space by fighting for competitive advantage and share. As a result, they seek to outperform their rivals to grab a greater share of existing demand. While companies strive to beat the competition, they tend to give too little thought to creating new demand and expanding the market through differentiation and low cost. The essence of blue ocean strategy is about creating and capturing uncontested market space; making the competition irrelevant; creating and seizing new demand; overcoming key organizational hurdles that prevent a company from pursuing differentiation and low cost simultaneously; aligning the whole system of a company’s activities with its strategic choice of differentiation and low cost; building execution into strategy, organization, process, people, reward systems, management controls, culture – in short into everything an organization does.
Make the competition irrelevant
You might be considering going into a market that is already crowded with well-established competitors. The competition will be fierce, and you’ll need to create something that’s far better than the alternative if you want to win over customers.
However, it’s much easier to build a successful business when you’re trying to create something entirely new in an untapped market. Blue ocean strategy is a framework for developing your idea so that it creates its own separate demand rather than competing against other companies.
The primary objective of the blue ocean strategy is to make the competition irrelevant by creating an uncontested new market space instead of fighting over existing customers in an overcrowded marketplace.
Align innovation with utility, price and cost positions
When you define your blue ocean strategic move, simultaneously create a value curve that aligns your innovation with utility, price and cost positions.
Consider the case of Cirque du Soleil, for example, which has cut costs by lowering the number of costumes per show from 200 to less than 20; reducing salaries for its cast members through an equity-sharing system; eliminating musicians from its shows, and adopting other innovative measures. Cirque was able to reduce costs significantly while providing consumers with fresh experiences that set it apart from traditional circuses.
Overcome key organizational hurdles
So you’ve decided to go for it. You’ve made a commitment to break through your organization’s current industry boundaries, find new market spaces and create uncontested market places where there is no competition. Now what? To make this happen you’ll have to overcome three key organizational hurdles that block innovation: resistance to change, lack of time and resources, and culture.
The best way to avoid the reformer’s dilemma is by changing the context in which people operate so they don’t feel like they’re being asked to give up something good in favour of something better. The answer here is leadership support. When senior leaders are on board with bold moves, employees are more likely to follow suit because they know their career prospects won’t be jeopardized if they do so.
Build execution into strategy
You might have all the answers, but you won’t get anywhere unless you can execute your strategy. Just as vital as the first step is ensuring that you have the right resources to carry it out in an effective manner.
The following principles will help you do just that:
- Resource allocation: In order for your strategy to make a difference, it needs to be implemented. Make sure your company has enough resources—employees, time and money—to execute your vision.
- Organizational alignment: A good plan is worthless without a good team to execute it. Foster commitment to your strategy by aligning each team member’s goals with the overarching objectives of the business.
- Leadership alignment: You can’t expect anyone else to perform at their best if management isn’t as enthusiastic about its vision as they are. From top to bottom, ensure that everyone in leadership is fully on board with what you want to be accomplished and how you want it done.
By finding a way to gain a competitive advantage, an organization can create an economic oasis. This is the essence of the blue ocean strategy, which can be tailored and applied to any type of industry, regardless of its market conditions. No matter what industry a business may be in, there are ways to capture blue ocean opportunities. There are two primary principles that need to be understood when creating a blue ocean strategy: understand your customers and create new value for them.