Blue Ocean Strategy – by W Chan Kim and Renee Maurborgne

The Problem:
Current markets are flooded with competition. More and more companies are competing for smaller and smaller profit margins. This cut-throat battle leaves the water bloody. This is the Red Ocean.

The Solution:
Swim away from the competition. Make the competition irrelevant. Find somewhere that is wide open. Create a Blue Ocean.

‘How to create uncontested market space and make the competition irrelevant’

Blue Ocean Strategy Summary

The Problem: Current markets are flooded with competition. More and more companies are competing for smaller and smaller profit margins. This cut-throat battle leave the waters bloody. This is the Red Ocean.

The Solution: Swim away from the competition. Make the competition irrelevant. Find wide open space. Create a Blue Ocean. 

The Blue Ocean Strategy challenges companies to break out of the red ocean of bloody competition by creating uncontested market space that makes the competition irrelevant. 

New Market Space

Red Oceans represent all the industries in existence today. This is the known ‘market space’. Blue Oceans denote all the industries NOT in existence today. This is the unknown market space.

Red Oceans

In Red Oceans, the industry boundaries are known and accepted. The competitive rules of the game are known. Companies try to outperform their rivals to grab a greater share of existing demand. As the market gets crowded, prospects for profits and growth are reduced. Products become commodities, and cutthroat competition turns the red ocean bloody. There is severely limited potential for growth or strong profits. Most companies try to get good by out-competing the rest – this leaves them with a fairly good understanding of how to win their own share of the bloody water, but they better keep an eye over their shoulder because another company is sneaking up behind them to try to slit their throat and take their customers. To focus only on the red ocean is therefore to accept the key constraining factors of war (limited terrain, the need to beat an enemy to succeed) and to deny their distinctive, unique strengths.

Blue Oceans

Alternatively, Blue Oceans are defined by untapped market space, demand creation, and the opportunity for highly profitable growth. Some blue oceans might be hidden in plain sight and they might be immediately adjacent to the red ocean you’re in – they might be right next to you but everyone is too buy competing and fighting to take a sideways glance. Some blue oceans are created by sailing somewhere completely new and different, but more often it simply involves an expansion of your current perceived industry boundaries. Largely, blue oceans are unchartered territory. The dominant focus of business strategy over the last few decades has been to focus on sharpening their swords and get better at direct combat and competition, but a far more sustainable strategy is to go beyond competing and start looking for ways to innovate. You will always need the skills of fighting the red oceans (even if you make your own blue ocean, the copycats will soon try to follow you and you’ll need to outcompete your rivals), but while red oceans will always be a fact of business life, the best way to seize opportunity and new avenues for growth is to keep your focus on creating blue oceans. 

Strategy canvas: Four actions framework

Kim and Mauborgne off a ‘strategy canvas’ for evaluating the different competitors in your industry. Once you’ve got an understanding of ‘the lay of the land’ in your market, there are four vital questions you need to ask yourself in order to set yourself apart from the competitio and create your blue ocean. 

1. Which of the factors that the industry take for granted should be eliminated? This forces you to eliminate factors that companies in your industry have long competed on. If you can identify one of these areas of competition that you believe that consumer doesn’t really care about, you can eliminate it from your strategy. By eliminating something that everybody else is fighting over, you can re-allocate your focus and your efforts to improving the more important and more valuable things. This will help make your offering far more attractive. For example, some airlines eliminated the airport lounges. For a long time, the airlines were competing on this. Some lower-cost airlines were able to remove this offer and instead focus on other areas (like reducing costs or making flights more frequent). To the consumers who were more sensitive the price than to the lounge experience, these airlines were able to create some blue ocean. 
2. Which factors should be reduced well below industries standard? You can’t be perfect in every criteria. You need to compromise on some things so that you can dominate others. In this case, these are the things that can’t be eliminated altogether (as in action 1), but you can reduce them to the bare minimum level required to pass.
3. Which factors should raise above industries standard? There are the things that you feel are most valued by customers. By eliminating some things and significantly reducing others, you have spare resources left over that you can allocate to being exceptional in specific areas.
4. Which factors should be created that has never been offered? This is where the innovation comes in. What is something that no one else in your market is doing? What’s something brand new that your customers care about that you can create in order to solve their needs or wants? Finding the right answer to this question goes a long way to setting you apart in your own blue ocean. 

Other business comparison books?

The authors also throw some shade on other similar books. In Search of Excellence by Tom Peters and Robert Waterman was another book we did on the podcast (and we have to honour of interviewing Tom Peters as well in 2017). The Blue Ocean authors said that a drawback of this study was that it mostly looked at the company and the people within the company, but no company will be excellent forever if the right people move on. Good To Great (see book ###) and Built To Last by Jim Collins also copped some shade, because the Blue Ocean authors said that a massive factor in the companies that became ‘great’ were in industries that experienced booms, and again no industry can sustain a boom forever (a lot of the companies profiles also went on to go bust in the year or decades after the books were published). The Blue Ocean authors suggest that their book is superior and more perennial because they focus on strategic moves that any company in any industry could make. They say that the strategies a company follows are a far more important factor for sustained high performance. We’ll leave that assessment up to you though – all of these books are worth reading if you’re interested in business, so read them all and take little bits from each to create your own master plan.