In t r oduction
For a long time, companies have been competing head-on for the purpose of achieving consistent and profitable growth. They fight for competitive advantage, battle for greater market share, and strive to differentiate themselves. However, in today's saturated markets, direct competition produces nothing more than “red oceans” tinged with the blood of rivals fighting for an increasingly reduced reserve of profits.
This strategy questions everything that is believed to know about how to achieve strategic success, the authors affirm that although most companies compete in these red oceans, this strategy offers less and less possibilities to generate profitable growth.
Based on a study of 150 strategic movements spanning a period of more than a hundred years and thirty industries, they argue that tomorrow's leading companies will not succeed by battling their competitors but by creating "blue oceans" of safe market spaces and ready to grow.
The blue ocean strategy is a systematic approach to make competition unimportant. This strategy aims to change the schematics, offers a proven analytical framework, and the tools to create and capture blue oceans.
It examines a wide range of strategic moves from a large number of industries and highlights the six principles that any business can apply to successfully formulate and execute blue ocean strategies.
Turning traditional ideas about strategy completely, “Ocean Blue” marks a milestone by charting a “bold path to win in the future”. (Chan & Mauborgne, 2008).
This strategy arises from the need to put aside destructive competition between companies if you want to be a winner in the future, expanding market horizons and generating value through innovation.
The creators of the strategy use a simile to differentiate the two most common competitive situations in any type of industry: the red oceans and the blue oceans, which are explained later.
Or Red Ceano
Before explaining what the "Blue Ocean Strategy" consists of, I consider it pertinent to begin by defining what a "Red Ocean" is.
Red oceans represent all the industries that exist today.
In the red oceans the boundaries of industries are perfectly defined and accepted as they are.
Furthermore, the rules of the competitive game are known to all. In this world, companies try to outperform rivals by "clawing" little by little market share.
As more competitors appear, the chances of profit and growth decrease, products become more standardized, and competition becomes bloody (hence the red color of the oceans).
Blue ocean
Blue oceans, on the other hand, are characterized by the creation of markets in areas that are not currently exploited, and that generate opportunities for profitable and sustained growth in the long term.
There are blue oceans that have nothing to do with today's industries, although most arise from red oceans as the limits of existing businesses expand.
The fundamental fact is that when the blue oceans appear, the competition becomes irrelevant, because the rules of the game are waiting to be fixed.
The "Ocean Blue" symbolize business ideas that are currently unknown.
Principles for Developing a Blue Ocean Strategy
- Create new consumption spaces
The process of discovering and creating blue oceans is not about trying to predict trends in an industry or sector through a purely divinatory exercise.
Nor is it to implement the new ideas that arise in the minds of managers using the trial and error method.
The first principle for creating a strategy of these characteristics is to establish a structured process that manages to expand the limits of the market as it is conceived today. To achieve this, (Chan & Mauborgne, 2008) propose the following five paths.
- Focus on the big idea, not the numbers
Having examined the itineraries that can lead to a blue ocean, the next step will have to be how to apply these ideas to our own company to devise a true transformative strategy.
In most companies, strategic planning is based on how to compete in today's markets (the red oceans): how to increase market share, how to continuously reduce costs, etc.
In drawing up any strategic plan, managers spend much of their time doing the numbers rather than going outside and thinking about how to get further and further away from the competition.
Furthermore, when viewed closely, these plans are rarely about true strategy, but are mere tactical moves that may make sense individually, but taken together do not show a clear or innovative direction.
This leads us to the formulation of the second principle for the development of a true blue oceans strategy: focus on the whole, not the numbers.
(Chan & Mauborgne, 2008) They propose an alternative to the traditional strategic planning process: instead of preparing a formal document, it is more advisable to draw on a canvas, and in the clearest possible way, the strategy that we want to implement.
Doing this exercise does not mean that you don't have to do numbers and compact all the ideas in a final document, but that will be later. Details are easier to locate if you first have a clear vision of how we want to distance ourselves from the competition.
- Go beyond existing demand
No company wants to venture beyond the red oceans to find themselves swimming in a ridiculous pool of water. How can we maximize the size of the market we are creating?
This question leads to the formulation of the third principle of the blue oceans strategy: go beyond the existing demand.
In order to achieve this objective, companies should correct two conventional strategic practices:
- The one that consists of focusing solely on solving the needs of current customers and… The one that leads to an excessive segmentation of the markets.
The more intense the competition between companies, the stronger the attempt to personalize the offer of products and services. The downside is that when companies compete to conquer consumer preferences through excessive segmentation, they risk creating too small a target market (s).
To maximize the size of the blue oceans, companies, instead of focusing on customers, have to turn their gaze to non-customers; and, instead of paying extreme attention to the differences between the clients, they should promote the common elements that they all value.
Despite the fact that the universe of non-customers usually offers great opportunities to institute blue oceans, few companies are concerned with knowing their characteristics in order to try to attract them and convert them into customers.
Broadly speaking, it can be said that there are two different levels of non-customers: the difference between them lies in the relative distance that each one maintains in relation to our current market.
- The first level of non-clients is made up of people who at some point have analyzed our offer of products or services, but have finally decided that what we offer does not meet their expectations. The second level of non-clients is made up of those people who consider the current offer of products or services of an industry as unacceptable or as beyond their economic possibilities. Their needs are met by other means or ignored.
However, reaching out to these types of non-clients can be very lucrative. The natural strategic orientation of many companies tends to maintain the current customer base and seek new opportunities through progressive segmentation. Although this method may be valid to consolidate a competitive advantage and increase market share, it is not a strategy that leads to the creation of blue oceans and generate new demand.
Staying geared toward current customers is not inherently pernicious; however, questioning the status quo and taking an open look at the opportunities offered by those who are not yet on our side should not be ruled out beforehand.
- Ensuring the commercial viability of the blue ocean
It involves validating the strategy to ensure its commercial viability. The objective is none other than to reduce the risk involved in implementing such a strategy.
To be sure of the viability of the strategy, an affirmative answer must be found to the following questions:
- Will the clients get an exceptional profit from the new business idea? Is the price set for the products or services available to the large mass of potential clients? Is the cost structure we have viable considering the price objective What have we set ourselves? Are there obstacles to transform our current value proposition?
Cirque du Soleil, Starbucks, The Home Depot or Ralph Lauren are blue oceans that have little to do with technology. For the new product or service to consistently appeal to the masses, it must make customers' lives much easier, more productive, more comfortable, more fun, less risky and all while respecting the environment.
In addition, it must do so in each of the phases that make up the customer's consumer experience: purchase, delivery, use or maintenance. The new proposal must not only provide a clearly differentiated utility from the existing one, but must also remove the obstacles that prevent non-clients from going over to our side.
The second aspect that will determine the feasibility of the blue ocean strategy is the establishment of an appropriate price. The strategic price that is set for the offer of products or services must not only attract customers in a massive way, but must also be an incentive to retain them.
When an exceptional profit is combined with a strategic price, the possibility of being imitated by the competition is reduced.
E j e m p the Blue Ocean
Below are some examples of companies and entrepreneurs who - started a business / developed a product or service - based on the Blue Ocean strategy.
C i rque du Soleil
The world famous Cirque du Soleil is an example of a show created from a blue ocean strategy. Created in Canada in 1984 by a group of actors, its performances have reached more than 40 million people in 90 cities around the globe.
At first glance, few would consider it a good idea to start a company related to the world of circus. In fact, the circus, as a traditional concept, is in the doldrums. Their natural audience, children, have long been more interested in electronic games than in a tent.
From a strategic point of view, the circus industry was clearly unattractive. Before Cirque du Soleil emerged, circuses were immersed in fierce competition to see who managed to attract the best clowns, the best trainers, in short, who managed to have the most stars among their cast. This caused costs to increase disproportionately amid a collapse in demand for this type of show.
This battle ceased to make sense to Cirque du Soleil, which could not be considered as either a circus or a theatrical production. In fact, it managed to break the boundaries of the industry, as they were known until then, by offering people the fun and excitement of the circus (keeping its traditional symbols, such as the tent, clowns and acrobatic exercises) together with the sophistication and intellectual richness of the theater (each performance has its own story line, there is dance, music is played specially composed for the occasion, etc.).
On the other hand, Cirque du Soleil's performances are aimed at audiences of all ages (not just children accompanied by their parents), which together with the unique character of each of their tours has surprisingly increased demand of this type of shows, with the addition that it can charge fees similar to those of theaters (higher than the entrance to a traditional circus).
Cirque du Soleil has managed to create a blue ocean characterized by an innovative show concept, sharply differentiated from the pre-existing industries (circus and theater), it has reduced costs in those factors in which the industry had traditionally competed and it has expanded the borders of the market by diversifying the target audience.
W a l t Disney
Walt Disney has offices that create OA. The rationale is: "If you can dream it you can do it".
Office 1 is the "I-dreamer". Its motto is: “Prohibited to prohibit”.
Office 2 is the "critical self". His motto is Murphy's Law: What can go wrong will go wrong.
Office 3 is that of the "I-realist", it specifies the ideas of the "I-dreamer" that pass the filter of the "I-critic." His motto: reality is the only truth. (Krell, 2015).
Space x
Space X is an ambitious American company headed by Elon Musk (Founder and CEO) who designed the first spacecraft models for commercial use.
Although he has been heavily criticized by personalities in the space field such as Neil Armstrong, who oppose space travel in a commercial way, Musk has proven the feasibility and importance of focusing government funds on space exploration and travel to he.
With incredible steps into the future, Space X is positioned as an ambitious company with a strong role in scientific and business innovation.
T e s l a Motors
Tesla Motors is a Silicon Valley company that designs and manufactures electric cars, components for electric vehicle propulsion and battery storage systems.
Elon Musk's vision for joining Tesla Motors was to prove to the consumer world that the electric car didn't have to be small and unappealing.
His picture of what Tesla Motors could do was that the company could establish itself as the first in the blue ocean to design electric sports cars that would revolutionize the current perception of what an electric car is.
This is how Tesla Roadster, Tesla Model S and Tesla Model X were born. This is how the company moved forward since 2003 and became a boom in the stock market in 2013 when tremendous profits began to show.
(Pañaranda, 2015)
Red Ocean vs Blue Ocean
| E st rategy O ceano Red | E st rategy O ceano Blue |
|---|---|
| Competing in the existing market space | Create a space without competition in the market |
| Challenge the competition | Make competition irrelevant |
| Exploit the existing demand in the market | Create and capture new demand |
| Choosing between the choice of value or cost | Break the trade-off of value or cost |
| Align the entire system in the activities of a company with the strategic decision of differentiation or low cost | Align the entire system in the activities of a company in order to achieve differentiation and low cost |
A blue ocean is a virgin market, where the rules of competition do not yet prevail, and where you can impose your prices and obtain wide profit margins.
Conclusions
A red ocean is an already very competitive market, where products tend to behave like commodities, with tight margins, price wars and the incessant search for productivity in order to move forward (Create My Company, 2013).
L or s oceans blue tend to become red. A clear example of this was Apple and Sony, who created blue oceans with their products, the ipod, the iphone and the ipad the first, and the walkman the second. In a couple of years, the rest of the companies in this sector began to imitate the product, as they observed that they were highly successful. This is how the blue ocean turned red as it had a large number of companies that manufactured generic products, with the same function.
To achieve this strategy, it is necessary to carry out innovation and development processes, be very observant and develop disruptive thinking.
Thanks
I thank the Orizaba Technological Institute for providing the tools and human capital to develop professionally and the MAE Fernando Aguirre y Hernández professor of the course of Fundamentals of Administrative Engineering for promoting learning through practice among their students, thus encouraging proactivity and genuine learning.
R eferences
- Chan, W., & Mauborgne, R. (2008). Blue Ocean Strategy. Barcelona: Profit.Crear mi Empresa. (April 23, 2013). Create my company. Obtained from Create my Company Web site: http://crearmiempresa.es/article-estrategia-oceano-azul-apple-117310177.html Krell, H. (May 14, 2015). Entrepreneurs News. Obtained from Emprendedores NewsWeb site: http://emprendedoresnews.com/tips/la-teoria-del-oceano-azul.htmlPañaranda, F. (August 17, 2015). Critical Management. Obtained from Critical Administration Web site:
