Blue Ocean Strategy (BOS) is a new concept in strategic management, introduced by Professor W. Chan Kim and Renee Mauborgne in 2004. After doing detailed research, Kim and Mouborgne found out that most of the companies rely on the market segmentation and price competition for attracting customers. This results in increasing costs, decreasing rewards and creating a Red Ocean where all competitors compete together. Therefore, in order to maintain the growth, it is necessary that companies go beyond the competition by creating Blue Oceans. They win the game not by competing in the existing market but make the competition irrelevant by focusing on the new market space.
Blue Ocean Strategy does not aim to give an outstanding performance in the existing industry as it is in the case of Red Ocean; in contrast, it focuses on creating a new market space “Blue Ocean” and making the competition irrelevant. According to Kim and Mauborgne (2005a, p. 171):
“Head-to-head competition results in nothing but a bloody red ocean as rivals fight over shrinking profits. Success comes not from battling competitors, but from making the competition irrelevant by creating ‘blue oceans’ of uncontested market space.”
Evolution of Blue Ocean Strategy
As stated above, Blue Ocean Strategy was introduced by Professor Kim and Mauborgne in 2004. They came up with this new concept of strategic move after studying 150 strategic moves taken in 30 industries in a period of around 120 years i.e. from 1880-2000. (Kim & Mauborgne 2004, p.4).
Blue Ocean Strategy was published initially in 2005 as “Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant” and since then it has become an international best seller. Managers and business executives in all parts of the globe are taking keen interest in this new concept of strategic management and are trying to implement it.
BOS concept that gives the idea of creating and capturing unconcealed space of the whole market is not new. Michael Porter, Professor at the Harvard Business School and an expert in competitive strategies, has always focused on the point that successful strategy means to do things in a different way. It does not mean to do a strict competition with the other companies where everyone is doing same thing. In other words, it does not mean to swim in those red waters where sharks exists and can harm you. It simply means to go to the blue waters where there are no sharks and therefore no competition. This concept is even hundreds of years older than Michael Porter’s idea and was given by a Chinese General who stated that competition should be avoided in order to do best war.
Blue Ocean Vs Red Ocean
Kim and Mauborgne pointed out that if whole market of the universe is made up of two oceans than the Red Oceans represent all the industries which exists today while the Blue Ocean is the unknown market space which shows the industries that does not exist today (Kim & Mauborgne 2005b, p. 106).
The Blue Ocean concept is very different from the old Red Ocean concept in which all competitors compete in the market to capture the market share. The Red Ocean Strategy is based on three elements, which are; competing with the same factors, accepting the boundaries of existing industry and focus on increasing the existing demand (Kim & Maubourge 2005b, p. 20; Kim & Maubourge 2007, p. 72).
The Blue Oceans on the other hand are the uncovered spaces of the markets that are escaped by the competitors. It is a process of simultaneously hunting for differentiation and low costs. Kim and Mauborgne introduced the concept of Blue Oceans, based on the principle that the game of competition can be changed and something new can be introduced that can be the value innovation (Pitta & Pitta 2008, p.37).
The value innovation also consists of three elements, these include; reconstruction of the elements of value, which means to come up with a new product or service. The second element is to look across the industry and find new opportunities, instead of using the new product development in the space that is already fill with competitors. The last element, which is most difficult one, is to create the new demand from non-customers and the new streams of revenue (Buisson and Silberzahn 2010, p.365). .
Six Principles of Blue Ocean Strategy
Several companies created Blue Oceans and were very successful but some also failed in accomplishing their objectives. This is because finding the right choice and making the right strategic move is not an easy task. Therefore, it is risky for every company, no matter big or small, to take such moves. In order to minimize these risks, Kim and Maubourge have proposed six principles of Blue Ocean Strategy that companies must keep in mind when making such strategic moves for creating Blue Oceans. From these six principles, the first four are the formulation principles while the remaining two are the execution principles. These are as follows:
1. Reconstructing Market Boundaries: Companies can reduce the risk of doing search by reconstructing the market boundaries.
2. Focusing on Big Pictures: Companies should focus on the big picture and not only on the numbers for reducing the planning risk.
3. Reaching Beyond the Existing Demand: Companies can decrease the Scale risk by reaching beyond the existing demand.
4. Making Strategic Sequence: Companies should pay special attention and make their strategic sequence right. It will help in reducing the risk of the business model.
5. Solving Organizational Hurdles: Companies can reduce their organizational risk by reducing the key organizational problems and difficulties.
6. Building Execution into Strategy: The managerial risks can be lowered by carefully checking the possibility and probability of success of the strategy by taking concerns of all employees from the very beginning.
Advantage of Blue Ocean Strategy
As stated above, Blue Ocean Strategy gives the idea that companies use such methodologies and tools that create new market space (Kim et al. 2008, p.1). Surprisingly this is also true for the small businesses and enterprises. Despite having a small market size, limited resources and very little global impact, they can also take the advantage from this new strategic management model. This is because size does not matter at all when making the strategic moves.
Even small companies can use this strategy, as it does not need huge capitals and big markets; it only needs educated people and creative minds. It requires people who can act like a fish that very quickly swims in the blue water by coming up with new innovative ideas. Moreover, companies should also plan what to do if others copy their idea and launch similar products in the market.
Blue Ocean Strategy — A Dynamic Process
Assuming that Blue Ocean Strategy is a statics process in which companies can achieve targets only by creating something new and making competition irrelevant is a wrong approach. Indeed, Blue Ocean Strategy is a dynamic process in which companies should keep working hard and swimming in the new blue oceans by discouraging the potential imitators.
The case of “The Body Shop” is a good example for understanding what happens when companies consider this process as static. The Body Shop was running very much successfully in 1980s but instead of keep competing with the big cosmetic brands, it came up with new market space for natural beauty products.
The idea was good but the problem was that The Body Shop did not realize that this brilliant strategic move was not the end. The company focused on mining other market spaces and did not try to resist the companies that were entering into its blue ocean. Initially few but with the passage of time, many competitors jumped into Blue Ocean and made it Red. This way “The Body Shop” became involve in the battle of market share and is still struggling. This was the wrong strategy, as the company should have kept an eye on its potential imitators.
Companies using Blue Ocean Strategy should increase their growths and profits by swimming in the Blue Ocean as far as they can. They should be ready to face the copycats from day one and discourage their potential imitators from entering into the Blue Ocean, as long as possible. In case, the blue ocean becomes Red due to lot of competitors, the companies need to create a new ocean again in order to swim freely (Parvinen et al. 2011, p.1221). This is the point where The Body Shop was stuck as they only focused on mining market space rather than focusing on competitors.
Blue Ocean Strategy not only shows to companies how to create oceans but also guides them how to monitor the Blue Oceans and reach to new Blue Oceans if competitors jump in the ocean. In this way, Blue Ocean Strategy is not a static process but it is a dynamic process, which focuses on creating new market spaces with the passage of time.
BOS Relevant to Today’s Business Challenges
In order to evaluate if Blue Ocean Strategy can be helpful for the organizations in the current era of Information Technology and globalization; it is important to first look at some the famous creations of Blue Ocean Strategy:
1. General Motors: General Motors introduced fun into cars by designing “cars for every purse and purpose.” They were able to do this by creating a Blue Ocean in 1924 and making the competition irrelevant.
2. Chrysler Minivan: In 1984, Chrysler made an automobile that was easy to carry and could be drive likes a car but it had a passenger capacity of van.
3. Ford Model T: Ford came up with a Model T. car in 1908, which was a first mass produced car and priced reasonably, which made it affordable for Americans.
4. IBM 650 Electronic Computer: IBM created a different business computer industry in 1952. It made the technology simple by reducing its power as well as price. It also once again created the Blue Ocean by the 650 electronic computer and system/360, which was the first modularized system.
5. Apple Computers: The personal computer made by Apple in 1978 was not the first home computer but Apple created a Blue Ocean by creating it as very simple and all in one Apple II.
6. Compaq PC Servers: In 1992, Compaq also created Blue Ocean by making very cheap ProSignia server for its buyers. This server had twice the file and print capability of the microcomputer.
Looking at the success of these brands, there is no doubt in saying that Blue Ocean Strategy is even useful today because it builds bands. It is a very powerful strategic model that has ability to create brand equity that lasts for years and in some cases decades. BOS is different from competitive strategy concept where the structure gives shape to the strategy because BOS theory of reconstruction where strategy gives shape to the structure (Kim & Mauborgne 2009, p.3).
Almost all of the companies that created Blue Oceans sometime in past are still remembered today. For instance, if we consider the examples illustrated above; we see that hardly few people are still alive today who were around the first Model T. Of Ford in 1908 but the company is still taking benefit of its Blue Ocean move that it took a century ago. Similarly, IBM is still considered as an “American Institution” for the Blue Ocean that it created by making 360 series.
The term “Blue Oceans” seems new but Blue Oceans have always been in the business market. If we look back a century, we see that several industries which are famous today were unknown at that time. These include; cosmetics, automobiles, pharmaceuticals, petrochemicals, music recordings and many others. Even if we go back only 25 to 30 years, we see even the most recent technology industries like cell phone, bio-technology, discount retailing, home videos were not there (Kim & Mauborgne 2004, p.3).
In the same way, if we look 20 years forward, many industries which are unknown today, will be important and famous that time. This is because industries have a very huge capacity to come up with new ideas, new products and it has even become more easy and competitive after the advent of information technology. Industries keep changing and creating Blue Oceans in order to move forward and do something different for competing in the market (Kim & Mauborgne 2005a, p. 26). BOS is very helpful in Innovation, which is an experiment process and in which the entrepreneurs keep trying new ways of achieving success. This strategy has the ability to offer reproducible/systematic processes and methodologies in chase of the Blue Oceans by the new as well as existing firms (Andersen and Strandskov 2008, p.792).
Therefore, there is no doubt in saying that Blue Oceans is important in today’s businesses and will always remain the engine of growth in future. Indeed, they will grow more in number as the Red Oceans are shrinking these days due to information technology, which has created new modes of doing business. Industrialists are continuously working to enhance their processes, increase productivity and make huge profits.
However, at the same time, some experts also argue that the monopoly and niche markets concept is declining these days as more and more industries are producing like products. Despite this fact, whatever the situation be, industries have always grown and produced new products for the markets. Therefore, Blue Ocean Strategy has always been successful and will always be successful in future as well, if it is planned and implemented carefully.
Looking at the importance of Blue Ocean Strategy even in the current market, executives of large organizations must make efforts to create the Blue Oceans in order to survive in the industry. Only allocating large budgets for Research and Development cannot help them compete; they need to make the right strategic moves and create Blue Oceans. A single good strategic move can show the direction and help in creating multiple Blue Oceans in future. As Kim and Mauborgne (2005a, p.25) write:
“Our analysis of industry history shows that the strategic move, and not the company or the industry, is the right unit of analysis for explaining the root of profitable growth.”
These days all major global organizations are focusing towards one of the oldest concept of Strategic Management, “The Blue Ocean Strategy.” This concept, which seems new, is actually hundreds of years old. It gives the idea of creating Blue Oceans by building a new market space and making the competition irrelevant. This paper discussed in detail the concept of Blue Ocean Strategy, its evolution, principles and its practical application in the today’s world.
The purpose of Blue Ocean Strategy is not to break the competition of the existing industry but to create new space in the market known as the blue ocean by making the competition irrelevant. Blue Ocean Strategy, which is an important component of strategic management, is a dynamic process. It helps building successful brands through new modes of business, product innovation, increased productivity and huge profits. Therefore, it is as important for meeting the challenges of today’s businesses as it was centuries ago.
Andersen, P.H. And J. Strandskov (2008). “The innovator’s dilemma: when new technologies cause great firms to fail/leading the revolution/blue ocean strategy: how to create uncontested market space and make the competition irrelevant.” Academy of Management Review” 33(3): 790-794
Buisson, B. And P. Silberzahn (2010). “Blue Ocean Or Fast-Second Innovation? A Four- Breakthrough Model To Explain Successful Market Domination.” International Journal
of Innovation Management” 14(03): 359-378.
Kim, C & Mauborgne, R (2004), ‘Blue Ocean Strategy’, “Harvard Business Review.”
Kim, C & Mauborgne, R (2005a), ‘Value Innovation: A Leap into the Blue Ocean’, Journal of Business Strategy, Vol. 26 No. 4, Emerald Group Publishing Limited.
Kim, C & Mauborgne, R (2005b), ‘Blue Ocean Strategy: From Theory to Practice’, California Management Review, Spring 2005 Vol.47, No.3.
Kim, C & Mauborgne R (2007), ‘Blue Ocean Strategy’, Leadership Excellence, Vol. 24 No. 9.
Kim, W.C., R. Mauborgne, et al. (2008). Blue ocean strategy: How to create uncontested market space and make the competition irrelevant, Harvard Business School Press.
Kim, C & Mauborgne, R (2009), ‘How Strategy Shapes Structure’, Harvard Business Review, Vol. 87 No. 9.
Parvinen, P., J. Aspara, et al. (2011). “Awareness, action and context-specificity of Blue Ocean practices in sales management.” Management Decision 49(8): 1218-1234.
Pitta, D & Pitta E (2008). Transforming the Nature and Scope of New Product Development. Department of Marketing and Entrepreneurship, University of Baltimore, Baltimore, Maryland, USA.
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