What color is the ocean? The question may seem trivial, but you may be surprised to learn that there are two kinds: a blue ocean and a red ocean. This very belief lies behind the business theory called the Blue Ocean Strategy.
This is a theory that can completely revolutionize the way a company approaches its target market. Not only that, thanks to this particular strategy, startups can also receive a major boost toward success.
In this guide you will find out what the Blue Ocean strategy is, what it is for, and how best to implement it. Let’s proceed in order and now get to know who wrote the book “Blue Ocean Strategy: winning without competing.” It was on those pages that the Blue Ocean strategy was first theorized.
What is the “Blue Ocean” strategy?
As we just mentioned, the Blue Ocean strategy was first theorized in the book “Blue Ocean Strategy: winning without competing,” written by Renée Mauborgne and W. Chan Kim and published in 2004. Two authors (two ISEAD professors) arrived at this theory by analyzing 150 different business strategies implemented over about 100 years in 30 different industries. Mauborgne and Kim then further developed their theory (emphasizing the theme of humanity in business contexts) in a new book titled “Blue ocean: shift,” published in 2017.
But what, exactly, is the Blue Ocean strategy? It involves creating and conquering unexplored market space by rebuilding the boundaries of an industry so as to unlock unseen demand, intercept market share and generate profitable growth.
To better understand this strategy, however, you need to know the difference between Blue Ocean and Red Ocean. According to this theory, in fact, the markets in which businesses of all types operate can be compared to two oceans, one blue and one red. The difference is made by how you decide to approach your target market.
Difference between Blue Ocean and Red Ocean
The Red Ocean includes the market that exists today, which has well-defined and widely accepted boundaries. In such a scenario, companies take a traditional approach, using competitors as benchmarks and trying to outperform them in order to capture an increasing share of pre-existing and available demand. The name “red” is due precisely to this “last-ditch” competition.
The Blue Ocean, on the other hand, comprises the untapped market. Here the rules of the competitive game have not yet been defined and the opportunities for growth are greater, both in profits and speed.
Blue Ocean: the basic principles of the strategy
The Blue Ocean strategy consists of firms’ simultaneous pursuit of cost leadership and differentiation. The basic idea is that market boundaries are a human construction and, therefore, organizations can (and should) reshape them. The goal of this strategy is to create new market spaces where there is no competition. It is no coincidence that a famous phrase by Mauborgne and Kim reads:
“The only way to beat the competition is to stop trying to beat the competition.”
Among the key concepts of the Blue Ocean strategy are alignment (it is necessary for everyone to be aligned on the strategy) and renewal (blue oceans are destined to become red oceans and, therefore, it is necessary to continuously seek new spaces). Another concept behind this strategy is that competition should not be placed at the center of strategic thinking. The structure of the industry, as mentioned, can and must be changed, creatively.
The backbone of the Blue Ocean Strategy, however, is what is known as Value Innovation, which occurs when companies succeed in combining innovation with utility, price and cost items. The goal is not to break down competition, but to neutralize it by providing an increase in value that can open up a new, hitherto unexplored market space.
As for, however, the basic principles for formulating the Blue Ocean strategy, you should know that Mauborgne and Kim identified four:
- redefine market boundaries;
- put the focus on the big picture and not on the numbers;
- extend the dimension beyond the existing demand;
- follow the right strategic sequence.
Four others can be added to these basic principles of the Blue Ocean strategy:
- overcome the first obstacles;
- integrate implementation methods into the strategy itself;
- alignment;
Why adopt the Blue Ocean strategy
Now that you know what the Blue Ocean strategy is and how it works, it is important that you also know why you should adopt it for your startup or company.
Overcoming competition in traditional markets
One of the main advantages that the Blue Ocean strategy can offer you is the ability to overcome competition from traditional markets. In the pre-existing sectors, i.e., those that make up the Red Ocean, competition is increasingly intense and the pressure on costs and profits is increasing. To make a difference you need to be creative and stand out, precisely through value innovation.
Benefits for startups and established companies
Creating an entirely new market allows your business to enjoy the benefits of the so-called “first mover”-this means that the competitive advantage you are able to gain will be difficult for your competitors to replicate, and your profitability will increase in the long run.
That’s not the only advantage: by adopting the Blue Ocean strategy you “train” yourself to find original and ever-new solutions in response to renewed market needs.
The Blue Ocean strategy also gives you the opportunity to involve more and better all business stakeholders in your strategic process.
For a startup, adopting the Blue Ocean strategy is important for three reasons. First, it allows them to avoid starting a business directly in the Red Ocean, directing the company to a market where there is no competition and where new opportunities are present. Moreover, this strategy makes it possible to maximize these opportunities while minimizing the risks associated with setting up a business. Last but not least: since startups generally have limited resources, adopting a Blue Ocean strategy allows them to deliver value to customers at a relatively low cost and using those resources more wisely, on high-impact areas.
How to implement the Blue Ocean strategy
The process of implementing the Blue Ocean strategy can be divided into three stages for better understanding. In the next few lines you will find out how to create a Blue Ocean.
Market analysis and opportunity identification
To best implement the Blue Ocean strategy, it is necessary, first of all, to identify one’s niche through market analysis.
You need to conduct research on markets and supply and demand so you can identify the best market to start with. A great ploy is to do research on existing markets that are relevant or similar to the market you plan to enter or are thinking of creating.
Once you have a clear idea of what the current market is, you need to identify the weaknesses that limit it so that you can use them as opportunities to come up with new solutions to existing problems and, thus, overtake the competition.
Remember that identifing your target audience is critical to achieving your goals. Even more important is to find out who the noncustomers are and why they are noncustomers, so that you can target them precisely.
Innovation in products and services
Based on the opportunities you identify, you will need to redesign your so-called Value Curve, evaluating which factors to eliminate, reduce, raise, or create.
The factors to be eliminated are those that the industry now takes for granted and/or that no longer have any significant value (in some cases they may even have a negative impact). For example, they may be services that are no longer needed.
The factors to be reduced (in order to save money and better manage resources), on the other hand, are those on which the industry tends to exaggerate to try to beat the competition, but which do not take into account the real needs of customers.
Then there are the factors to raise: these are the ones that could enable you to differentiate yourself and create more value for customers. These very potential benefits should prompt you to focus investment and effort on these key-factors.
Finally, there are the factors to create: these are totally new sources of customer value that have never been considered by the industry. They allow you to attract and intercept new demand and radically distinguish yourself from your competitors. With this in mind, you will not be surprised to learn that technological innovation in business plays a crucial role.
Building a change-oriented team
The chances of successfully implementing a Blue Ocean strategy are drastically reduced if you fail to create team a change-oriented ready to challenge the status quo. Choose people who are motivated, as well as from different functions and levels of the organization.
Successful examples of the Blue Ocean strategy
Knowing, in theory, how to effectively implement a Blue Ocean strategy is useful, but reasoning about a successful practical example can be even more so. The typical case study is that of the Nintendo Wii.
The Nintendo Wii and innovation in gaming
The Nintendo Wii is a Japanese gaming console launched on the market in 2006. Its main innovations compared to all other consoles at the time were the elimination of the hard disk and DVD (which cost it a reduction in processor computing capacity and graphics quality) and, most importantly, the introduction of a wireless remote control capable of sensing movement.
The latter innovation allowed the Nintendo Wii to radically differentiate itself from its competitors (from Playstation to Xbox), promoting a new way of thinking about gaming, which has since been seen (also) as an opportunity to keep fit and compete in larger groups.
Through its innovations, Nintendo Wii, in practice, managed to penetrate the Blue Ocean, that is, an untapped market, while others were swimming in a now very crowded Red Ocean.
How to start your path to the Blue Ocean
Before concluding this guide dedicated to the Blue Ocean strategy, it is important to reiterate a fundamental concept: in order to successfully implement this strategy, it is necessary to avoid common mistakes and maximize results.
Avoiding common mistakes and maximizing results
To avoid making the mistakes that other entrepreneurs struggling with the Blue Ocean strategy are wont to make, you must also know the limitations of this theory.
Keep in mind, for example, that the Blue Ocean strategy requires really in-depth market and customer knowledge, and not all companies, especially in the case of startups, have the resources to gather and manage such a large amount of information.
Involving the members of the organization in the implementation of the strategy also requires significant efforts, including economic levels, which not everyone can sustain.
Finally, creating a new market through the Blue Ocean strategy carries additional risks: for example, it may not be accepted by the public or may not meet customer expectations.
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