What is Blue Ocean Strategy
Blue Ocean Strategy is an increasingly popular strategy theory created by INSEAD professors W. Chan Kim and Renée Mauborgne, advocating the creation of a new market space (a blue ocean) as a mean for achieving profitable growth.
The red ocean represents the existing market space. Companies in red oceans most often pursue competitive-based strategies, aiming to get a bigger share of the market from their competitors. This hopefully explains the bloody competition and red ocean metaphors. This approach is called the structuralist view of strategy, meaning that companies adapt their behavior (strategy) to the existing industry’s conditions.
However, this approach is limited! Due to globalization, lowering cost of production and increased availability of information, the competition is more fierce some than ever in most industries. This puts increasing pressure on companies and shrinks their profit margins faster. In this competition race, products and services tend to become commoditized much faster.
The blue oceans represent the new markets created by companies following conscious strategic decisions. This is called the reconstructionist view of strategy. Companies can (and do, as we see more and more often) recreate the boundaries of an industry, as result of the strategy they pursue.
The creation of a new market space gives companies a natural monopolistic position to be exploited. However, Blue Ocean Strategy does not encourage companies to behave monopolistically, as it would hurt them in longer term. Instead, companies are advised to price their service/product strategically, to win a mass of buyers. This results in win-win situations for the buyers (value proposition), for the company (profit proposition) and for the employees (people proposition).
Blue Ocean Strategy
Let’s illustrate a breakthrough strategic move which follows the pattern of a Blue Ocean Strategic move. We chose the Cirque du Soleil example since most of the readers are familiar with it, therefore it makes it easy to explain and to understand.
Cirque du Soleil
Think of a typical circus versus Cirque du Soleil. Ask yourself these questions: Which are the value factors that the later offers to its buyers? How are these factors different from the classic circus?
You have probably noticed that some of the factors are common to both traditional circus and Cirque du Soleil, but their offering level is different (lower or higher). However, other factors are offered by Cirque du Soleil (animals, star performers and aisle concessions), while others are completely new to the circus industry (theme and artistic music and dance). Below is the graphic representation of the industry’s strategy compared to Cirque du Soleil’s strategy (this tool is called the Strategy Canvas).
Strategy Canvas is the central tool of Blue Ocean Strategy
It seems obvious that traditional circus strategy and Cirque du Soleil are very different. Cirque du Soleil comes with a strategic offering that goes against the industry’s traditional logic. However, it turned out to have great success! These are not random differences – rather they follow a clear pattern. While some elements are eliminated or reduced (as an effect, the company’s cost structure is reduced), others are raised or created (thus the value that buyers receive is increased). This simultaneous pursuit of differentiation and low-cost is called Value Innovation and is the foundation of Blue Ocean Strategy.
The case of Cirque du Soleil was created based on the analysis of an existing strategic move which took place before Blue Ocean Strategy was published. However, while the thinking is not totally new, the great power of Blue Ocean Strategy lies in the frameworks and tools for creating such strategic moves in a structured and replicable way, which brings us to a second definition:
Blue Ocean Strategy is a structured approach to breakthrough innovation
The Blue Ocean Strategy Formulation Process is an opportunity-maximizing and risk-minimizing approach to creating blue oceans in a structured and replicable way. The process is focusing on the big picture, is visual, highly collaborative and experiential.
The logic is to analyze the current situation of the company, of the industry and of the competitors to find how could the cost structure be reduced. Then it aims to explore various ways of creating new factors that raise the value offered to buyers. Below is an illustration of the Blue Ocean Strategy process and tools. It is worth mentioning that the framework is similar to the Design Thinking process and methods, being highly collaborative, visual, but adds in addition the thinking and tools that help new market creation.
Blue Ocean Shift
After 10 years of releasing the first book, INSEAD Profesors Chan Kim and Renee Mauborgne released their second book, Blue Ocean Shift, which changes the focus from why to how to create new markets. The examples used (ActiFry, Kimberly-Clark, Citizen M Hotels and many more) are real cases of companies applying Blue Ocean Strategy and achieving success. The theory and the formulation process become therefore more credible and more accessible for leaders looking for high organic growth.
Blue Ocean Strategy is applicable to any company in any industry. The scope of the projects differs widely, but most commonly is product or service innovation, business model innovation and customer experience innovation.
Get in touch with us to discuss how can it be applied to your company to help you achieve profitable organic growth!