Blue ocean strategy

What Is Blue Ocean Strategy?

Blue ocean strategy is a framework within strategic management that encourages businesses to create new, uncontested market spaces rather than compete in existing, crowded industries. This approach, widely discussed in business literature, seeks to make competition irrelevant by generating new demand and offering a unique value proposition. The core idea behind blue ocean strategy is to simultaneously pursue differentiation and low cost leadership, a concept termed "value innovation." Instead of fighting for market share in a "red ocean" of rivals, companies aim to discover or create untapped opportunities that offer substantial growth strategy and profitability.³³, ³⁴

History and Origin

The concept of blue ocean strategy was introduced by W. Chan Kim and Renée Mauborgne, professors at INSEAD, in their seminal 2005 book, "Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant." Their work was based on a decade-long study of over 150 strategic moves across more than 30 industries spanning 100 years. ³¹, ³²The original framework was first presented in an article published in the Harvard Business Review in 2004. ³⁰Kim and Mauborgne asserted that sustained success comes not from battling competitors, but from creating "blue oceans"—new market spaces ripe for growth. Th²⁹is perspective challenges conventional strategic planning that often focuses on outperforming rivals within existing industry boundaries. Th²⁸e Blue Ocean Strategy Institute continues to disseminate and extend research on this strategic approach.

#²⁷# Key Takeaways

• Blue ocean strategy focuses on creating new, uncontested market spaces rather than competing in existing ones.
• ²⁶ It emphasizes "value innovation," which is the simultaneous pursuit of differentiation and low cost.
• ²⁴, ²⁵ The goal is to make competition irrelevant by generating new demand, rather than fighting over shrinking demand.
• ²³ Companies can often achieve significant growth and sustained competitive advantage by applying this strategy.
• ²² Tools like the Strategy Canvas and the Eliminate-Reduce-Raise-Create (ERRC) Grid help systematically identify new market opportunities.

#²¹# Interpreting the Blue Ocean Strategy

Interpreting the blue ocean strategy involves shifting a business's perspective from competition-centric thinking to a focus on creating new demand and value. Instead of merely analyzing industry conditions and benchmarking rivals, companies applying this strategy seek to redefine industry boundaries. This often involves looking across alternative industries or strategic groups, rethinking the functional-emotional orientation of products and services, and identifying the needs of "non-customers"—those who are currently underserved or entirely outside the market. The ²⁰aim is to achieve a significant leap in value for buyers while simultaneously reducing costs, thereby leading to improved profit margins for the company.

¹⁹Hypothetical Example

Consider a hypothetical company, "EcoRide," operating in the highly competitive electric bicycle market. This market is characterized by intense price wars, incremental product development, and a focus on existing customer base. Instead of launching yet another electric bike with slightly better battery life or a lower price, EcoRide opts for a blue ocean strategy.

They identify a group of "non-customers": urban commuters who are wary of traditional electric bikes due to bulkiness, theft concerns, and the perceived hassle of charging. EcoRide develops a service-based business model offering ultra-lightweight, foldable electric micro-scooters available at central urban hubs, accessible via a subscription app. These scooters are designed for short, last-mile commutes, are charged and maintained by EcoRide staff, and are easily storable. By eliminating ownership hassle, reducing cost through shared access, raising convenience, and creating a new micro-mobility experience, EcoRide creates a new market space distinct from traditional electric bike sales, making direct competition largely irrelevant.

Practical Applications

Blue ocean strategy has been applied across various industries, impacting market entry and expansion. A classic example is Cirque du Soleil, which revitalized the declining circus industry not by competing with traditional circuses, but by creating a new entertainment form that blended elements of circus with sophisticated theater, appealing to an adult audience willing to pay a premium. They eliminated costly animal acts and star performers while raising artistic production values. This¹⁷, ¹⁸ strategic move created uncontested market space and allowed Cirque du Soleil to achieve substantial revenues rapidly. Simi¹⁶larly, companies like Nintendo, with its Wii console, expanded the gaming customer base by focusing on casual gamers and family entertainment rather than just competing on graphics and processing power with existing console manufacturers.

¹⁵Limitations and Criticisms

While blue ocean strategy offers a compelling vision for growth, it is not without limitations. Critics suggest that while the concept is theoretically appealing, its practical implementation can be challenging due to a lack of clear protocols. Crea¹³, ¹⁴ting a truly uncontested market space often requires significant innovation and a deep understanding of unmet needs, which can be difficult to identify and execute. Some critiques also argue that "blue oceans" may not remain uncontested indefinitely, as success can eventually attract new entrants and competition, turning them "red" over time. Furt¹²hermore, the strategy's emphasis on reconstructing market boundaries and breaking the value-cost trade-off can be complex for established organizations with entrenched structures and processes. A paper published in The International Journal of Business & Management highlights concerns regarding the model's theoretical rigor and practical applicability, suggesting it may lack clear empirical grounding for the concept of uncontested markets.

¹⁰, ¹¹Blue Ocean Strategy vs. Red Ocean Strategy

The primary distinction between blue ocean strategy and Red Ocean Strategy lies in their approach to market competition.

Red ocean strategy involves intense competition where companies fight over a shrinking pool of profits. This often leads to price wars, commoditization, and a focus on incremental improvements. Conv⁸, ⁹ersely, blue ocean strategy seeks to avoid this direct confrontation by creating new demand and value, thereby opening up new market opportunities.

⁶, ⁷FAQs

What is "value innovation" in blue ocean strategy?

Value innovation is the cornerstone of blue ocean strategy, referring to the simultaneous pursuit of heightened differentiation and lower costs. Instead of choosing between offering superior value at a high cost or reasonable value at a low cost, companies strive to achieve both, creating a significant leap in value for buyers and the company itself.

###⁴, ⁵ Can small businesses apply blue ocean strategy?
Yes, blue ocean strategy is not exclusive to large corporations. Small businesses can also identify untapped market spaces by rethinking their current industry analysis, challenging assumptions, and creating unique offerings that appeal to non-customers. The core principles of value innovation and making competition irrelevant are scalable to businesses of all sizes.

###³ Is blue ocean strategy focused on technology?
Not necessarily. While technological advancements can certainly facilitate the creation of blue oceans, the strategy is fundamentally about "value innovation"—creating new value for customers. Many successful blue oceans have been created without groundbreaking technology, by simply redefining the problem or solution in an existing industry. Examples include Starbucks redefining the coffee experience or IKEA creating a new model for furniture retail.¹, ²