Cutthroat competitors within a shrinking profit pool is an all too familiar scenario for 21st-century organisations. Markets become saturated, growth rates diminish, and profit margins shrink. What if we told you that there's a way to escape this relentless, vicious circle?
Say hello to your organisation's new best friend: blue ocean strategy. It explains how firms can generate their own uncontested market space, or 'blue oceans', that make the competition irrelevant. Be prepared to be challenged on everything you thought you knew about strategic success. Let's dive in.
Red vs. Blue Oceans
Firstly, what makes red oceans different from blue ones?
According to the ocean model, the world of business operates at two distinct levels, represented by red and blue oceans. We can think of red oceans as established market space where companies attempt to outperform each other to seize a greater share of existing demand. However, as the ocean becomes overcrowded, profit and growth potential depreciate, and competition turns the water bloody.
Contrarily, blue oceans manifest unknown market space where businesses create demand rather than fight over it, which subsequently results in rapid profit and growth rates. These types of oceans are shark free, pollution is a thing of science fiction and all matter of life live in Attenborough approved harmony.
1: The best way to beat the competition is to stop trying to beat the competition
There are two ways to create blue oceans. An organisation can either generate a blue ocean from within a red ocean by modifying the current industry, or it can create an entirely new industry. eBay, for example, created the online auction industry in 1995.
The aim of blue ocean strategy is not to out-perform competitors, it is to break out of the boundaries that define how you compete.
2: Blue oceans are rarely the result of technological innovation
The technology probably already existed. IBM created a blue ocean within the computer industry by simplifying and reducing the power and price of existing technology. New markets may be in closer waters than you think.
3: Blue ocean creators never use the competition as a benchmark
Rather than choosing one or the other, blue ocean strategy marries differentiation and low cost through value innovation. This means reducing the factors an industry competes on and raising those which the industry has never offered. By doing this, companies focus more on what buyers really value and restructure the industry parameters accordingly.
4: Blue oceans maximise opportunity while minimising risks
Commercially viable blue ocean ideas give people a convincing reason to buy. They are priced to attract the mass of target buyers. They produce offerings at the strategic price yet still earn a healthy profit from it. Additionally, they address adoption hurdles prior to rolling the idea out. Ensuring that your blue ocean idea meets these criteria can help you refine your ideas and minimise the risks.
5: Blue ocean strategy is a threefold approach
Blue ocean strategy is integrated. It aligns three significant factors: value, profit and people. In other words: the blue ocean company develops an offering that attracts buyers; it generates a business model that allows companies to make profit and motivates its employees to execute the strategy. Together, the three elements create a winning strategy that will benefit buyers, the company and both internal and external stakeholders.
Pursuing a blue ocean strategy can be the making of a company, but it is not without risks and challenges. If it was easy, every company in the world would enjoy their own blue ocean.
Creating your own market can be an expensive communications challenge. Players in red oceans benefit from the collective marketing communications of the whole industry. However, in a blue ocean, you're the only player in town and need to get that message across all on your own.
You might be arriving at the party too early. Entering a market prematurely is risky as customers might not understand what you are trying to sell. Take the Amiga computer: it was developed a decade ahead of PCs and Macs but died because the world simply wasn't ready for it. Timing is everything.
As soon as you create a successful blue ocean, you can bet that sharks from red oceans will appear pursuing profit. Defensibility must therefore be built into your strategy. This can be done through speed of execution, brand power or technology strength, to name a few.
Remember, every market space and industry were new once upon a time. Anyone is capable of creating new market space - it's whether you have the capability of breaking through your industry boundaries. To find out more about how we can help you with your strategy and anything else marketing, click here.
'Blue Ocean Strategy' was originally published in 2004 for the Harvard Business Review (October 2004). To read the original article, click here.