What if your business could be in its own league? Instead of competing with others in your industry, what if you were setting the pace, creating unique products, and benefiting from lucrative new markets?
Generating that kind of environment is the goal of the Blue Oceans strategy, a business theory that suggests that companies are better looking for ways to gain "uncontested market space" than engaging in traditional competition.
The term is derived from the book "Blue Ocean Strategy" by Kim & Mauborgne (2015). It describes how companies traditionally work in "red ocean" conditions, where companies viciously fight each other for part of the market. Instead, according to the blue ocean strategy, organizations must find a way to work in a market free of competitors.
According to the Blue Ocean website, the book is based on a study of 150 strategic movements spanning more than 100 years and 30 industries. In the book, the authors argue that leading companies will succeed not by fighting competitors, but by systematically creating "blue oceans" of uncontested market space ripe for growth. The strategy represents the simultaneous search for a high differentiation of products and a low cost, so the competition is irrelevant.
To support their theory, Kim and Mauborgne invite readers to consider the business climate of 20 years ago, and the many new business opportunities that have emerged since then.
"How many industries that are unknown today will exist?" Kim and Mauborgne wrote in the Harvard Business Review. “If history is a predictor… the answers are many, companies have an enormous capacity to create new industries and recreate existing ones, a fact that is reflected in the profound changes that have been necessary in the way industries are classified. »
The authors say that the blue ocean strategy is successful because it simultaneously attracts large numbers of clients while raising the cost of competition.
"When imitation forces companies to make changes to their entire system of activities, organizational policy can prevent a competitor from switching to the divergent business model of a blue ocean strategy," wrote Kim and Mauborgne.
The book provides companies and entrepreneurs with the framework and tools to create and capture "blue oceans," including a strategy canvas, a value curve, a four-action, six-path framework, buyer experience cycle, and an index. of blue ocean ideas. Frameworks and tools are designed to not only effectively grow a company's collective wisdom, but also facilitate effective strategy execution through fluid communication.
Find blue oceans
To discover an elusive blue ocean, Kim and Mauborgne argue that companies and entrepreneurs must consider what the authors call the "Four Actions Framework." This is used to reconstruct the elements of the buyer's value in drawing a new value curve. To break the balance between differentiation and low cost, and to create a new value curve, the framework asks four key questions:
-Lift: What factors should be considered well above the industry norm?
-Remove: What factors that the industry has competed for a long time should be eliminated?
-Reduce: What factors should be reduced well below the industry standard?
-Create: What factors should be created that the industry has never offered?
Kim and Mauborgne said this exercise forces companies to scrutinize every competition factor, helping leaders discover the range of assumptions they unconsciously make while competing. This exercise also pushes leaders to simultaneously seek differentiation and low cost in order to break the value-cost tradeoff. The questions also highlight companies that focus only on nurturing and creation, in the process of lifting the cost structure and often over-engineering of products and services.
Blue ocean against five forces
The theory runs counter to Harvard professor Michael Porter's five-force model, which helps companies determine how they can best compete in the existing market. Porter's model examines five specific factors that help determine if a company can be profitable, based on other companies already in the industry.
In the "Wall Street Journal Essential Management Guide" author Murray (2010) says that the rapid pace of innovation and change in recent years has led to the search for a strategy that is more dynamic than Porter's five forces.
"While avoiding the use of Mr. Porter's name, Mr. Kim and Mrs. Mauborgne attack him head-on, arguing that the analysis of the five forces is a formula for staying in 'red oceans', where sharks compete without pity for action »Murray wrote in his book. "The key to exceptional business success, they say, is to redefine the terms of the competition and move to the" blue ocean, "where you have water for yourself."
Murray writes that the blue ocean strategy encourages companies to focus less on their competitors and more on alternatives, while at the same time focusing less on their current customers and more on new potential customers.
Blue ocean strategy examples
A popular example of the blue ocean strategy, which Kim and Mauborgne review in their book, is Cirque du Soleil. By completely reinventing the circus, Cirque du Soleil made money that Ringling Bros. and Barnum & Bailey took over a century to achieve.
"Cirque did not make money competing within the confines of the existing industry or stealing Ringling and others' customers," Kim and Mauborgne wrote in Harvard Business Review. Instead, it created an indisputable market space that made competition irrelevant and attracted a new group of clients who were traditionally non-clients in the industry (adults and corporate clients who had become theater, opera or ballet and therefore both were prepared to pay several times more than the price of a conventional circus ticket for an unprecedented entertainment experience ”).
Southwest Airlines is another successful example of executing the blue ocean strategy. According to consulting firm Blue Ocean Strategy Partners, Southwest tapped a customer base that preferred to drive to air travel because of the lower cost. Rather than compete with other airlines, Southwest positioned itself as an alternative to automobiles, offering reduced prices, improved billing times, and increased flight frequency.
"This new combination created an offering that allowed the customer to benefit from the high travel speeds of an airplane at low prices combined with the flexibility of traveling by car," writes Blue Ocean Strategy Partners on its website.
Bibliography
Kim, WC, & Mauborgne, R. (2015). The Blue Ocean Strategy, Extended Edition: How to create an uncontested market space and make competition irrelevant. Harvard Business Review Press.
Murray, A. (2010). Wall Street Journal, Management Guide. HarperBusiness.
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