Blue Ocean Strategy is a concept in business strategy introduced by W. Chan Kim and Renée Mauborgne in their 2005 book titled "Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant." The main idea behind Blue Ocean Strategy is to create new market space or "blue oceans" by focusing on innovation rather than competing in existing market spaces or "red oceans."
Here are some key principles and concepts of Blue Ocean Strategy:
- Red Oceans vs. Blue Oceans:
- Red Oceans represent existing industries where firms compete for market share in a crowded, often commoditized market space. Competition is intense, and companies often try to outperform rivals to grab a greater share of existing demand.
- Blue Oceans denote untapped market spaces where demand is created rather than fought over. These markets are characterized by innovation that makes competition irrelevant because the rules of the game are yet to be established.
- Value Innovation:
- Blue Ocean Strategy emphasizes the concept of "value innovation," where companies pursue both differentiation and low cost simultaneously. This allows them to create a leap in value for both buyers and themselves, unlocking new demand and making competitors irrelevant.
- The Strategy Canvas:
- The strategy canvas is a diagnostic and action framework for building a compelling Blue Ocean Strategy. It visually compares a company's current strategic profile with that of its competitors in the industry, highlighting areas of differentiation and opportunity.
- Four Actions Framework:
- This framework challenges companies to break away from the competition by asking four key questions:
- Which factors that the industry takes for granted should be eliminated?
- Which factors should be reduced well below the industry's standard?
- Which factors should be raised well above the industry's standard?
- Which factors should be created that the industry has never offered?
- This framework challenges companies to break away from the competition by asking four key questions:
- Examples of Blue Ocean Strategy:
- Successful examples include Cirque du Soleil (which combined elements of circus and theater to create a new form of entertainment), Nintendo Wii (which targeted non-gamers with motion-sensing technology), and Southwest Airlines (which focused on low-cost, no-frills air travel).
Blue Ocean Strategy has been influential in challenging conventional business thinking and encouraging companies to innovate and create new markets rather than solely competing in existing ones. It emphasizes the importance of strategic thinking, creativity, and value creation for sustained success in business.
In Simple words,
Imagine you're at a beach with lots of other people, all trying to find seashells. The beach is crowded, and everyone is looking in the same places for the best shells. That's like a "red ocean" because it's crowded and competitive, just like when lots of companies are fighting over the same customers with similar products.
Now, picture another beach where hardly anyone is looking for seashells. It's peaceful, and you have the whole place to yourself. That's a "blue ocean." It's like when a company finds a new idea or a new way to do things that no one else is doing. They create a space where there's no competition because they're doing something unique.
So, in business terms, "blue ocean strategy" means finding new ways to do things that no one else is doing. It's about creating your own space in the market where you don't have to compete directly with others because you're offering something special and different. It's like finding a whole beach of untouched seashells instead of fighting for the same ones everyone else is grabbing.