“The only way to beat the competition is to stop trying to beat the competition.” – Blue Ocean Strategy
Authored by W. Chan Kim and Renee Mauborgne
Blue Ocean Strategy is term coined by W. Chan Kim and Renee Mauborgne. Kim and Mauborgne have investigated organizations to come to a strong conclusion – don’t fight your competition in a shrinking profit pool; create a new pool!
To bring a more critical discussion around this concept let’s look through the basics. Blue Ocean Strategy divides the business environment into two separate regions, oceans as they call it – red and blue.
A red ocean is a pool of industries that currently exist in the market, here the norms of an industry have been etched in stone. If a new organization would need to break into this market it would need to follow existing competitive rules and patterns that have been set and accepted. One would need to work around strategies to be head and shoulders around a pool of competitive organizations. The profit and share of the market are cut and divided sharply, making the ocean bloody in nature.
A blue ocean on the other hand is a fight where demand is created. In this strategy there is an opportunity for quick profitable growth, however one must study to see that a blue ocean is a derivative of an existing red ocean strategy. An organization may choose to alter a few parameters and functions to stretch the boundaries of an existing industry.
A simple example of the same would be study the shift that eBay had; they moved from the online auction industry towards meeting consumer needs. This organization managed to develop a profitable blue oceans from within their red ocean.
With growing competition and marginal profits, an organization can become becalmed in nature within the red ocean. Products are quite often commoditized with very little distinction between brands and their respective services.
Blue ocean strategy has paved way within industries to further expand and grow – Eg. the service sector which served as a singular entity has now evolved into seven others ranging from information to health care and even social assistance. The blue ocean engine thus has brought about economic growth.
These creators have the capacity to attract customers at large offering higher volumes, generating economies of scale that would put imitators at a loss. Economies of scale seen by organizations such as Walmart discourage imitators from replicating the business model. When an organization intends to provide marginal value, the brand can create a buzz in the respective market.
Both blue and red ocean strategies have coexisted through time and have been employed by the same organization to capture a new market. In the midst of a disruptive business environment an organization can look unto itself to study its best operations and address value that goes beyond the existing norm.
Source : HBR’s 10 Must Reads – On strategy, 2011
(Adapted from Seal Education Newsletter)