Blue ocean strategy

Blue Ocean Strategy is a business strategy. It aims to build growth and profits, by reframing what it means to compete. The developers of the idea argue that an organization should create new demand in an uncontested market space. This is moving into a "Blue Ocean". This is in contrast with competing head-to-head with other suppliers in an existing industry 'Red Ocean’.

Where we are in the strategic planning process

In previous stages of the strategic planning process, we have set targets and analyzed relevant strategic factors in the SWOT analysis. This results in short list of big issues for the strategies to address. We now need to select the strategies for the enterprise.

Blue ocean strategy and strategic planning

The Blue Ocean approach can be challenging for the strategic planning team. However, it may help them see different options for advancing the firm’s performance. Base any decision to use the approach on a thorough analysis of the enterprise’s unique situation. Do not use it simply because others are using it, or it seems more creative than other approaches.

Basis of Competitive Strategy

Managers have long perceived themselves to be in a head-to-head battle for profits. They fight to gain a ‘sustainable competitive advantage.’

A common view of this struggle is that of Harvard University’s Michael Porter.

He worked out "generic strategies", which apply across different industries. He first explained them in his 1985 bestselling book -

Competitive Advantage: Creating and Sustaining Superior Performance.

The figure above shows the basis for the Porter generic strategies. See Porter strategies for more detail.

Blue Ocean Strategy - another view on strategy

Advocates of Blue Ocean strategic moves say that competing head on with rivals gets you into a fight in shrinking profit pool. Too many competitors lands you in blood stained waters! In their book -

Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant, W. Chan Kim and Renée Mauborgne explain their alternative view. They say that because most businesses are in such ‘Red Oceans’, the usual cost management or differentiation strategies, will be less profitable over time.

Playing the game on another field

The Blue Ocean concept of strategy is based on the idea that in the future profitable growth will come from moving out into the clearer waters of the blue ocean uncontested markets.

Porter made cost management and differentiation clear choices, warning against getting ‘stuck in the middle’ of a compromise between the two. In contrast, Kim and Mauborgne assert that strategic moves combining cost leadership and high value differentiation, termed “value innovation”, build a platform that takes the enterprise out of the reach of competitors, and creates new demand.

There are plenty of other fish in the ocean!

In the book Blue Ocean Strategy, in contrast to Porter, the authors attempt to link innovation with utility, price and cost positions. The Blue Ocean challenges the need to choose between product/service differentiation and lower cost, and instead strongly affirms that both differentiation and lower cost are achievable together.

The authors of the Blue Ocean approach also raise the fundamental issue of deciding the most useful unit for strategic analysis in terms of profit growth. In contrast with the convention of doing industry analysis of particular segments, Kim and Mauborgne argue for using ‘strategic moves’ as the basic unit of strategic analysis, and strategy selection. It is such strategic moves, designed to break out of the conventional restrictions of current industry structure, which make up the Blue Ocean challenge. 

They outline such Blue Ocean moves in their book across areas as diverse as watches, wine, cement, computers, automobiles, textiles, coffee makers, airlines, and retailers. They even use Cirque du Soleil as a case in point. They try to show how these firms have created uncontested market space and rendered the competition irrelevant.

What color is your strategy?

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