Plenty more fish in the sea? It depends on the ocean. Or at least that’s what companies that use the blue ocean strategy would tell you.
In 2004, Blue Ocean Strategy by W. Chan Kim and Renée Mauborgne, caused waves in the business world. Their idea was simple: why compete for market share when you can create your own?
This guide will cover everything you need to know about the blue ocean and red ocean strategies, provide real examples, and show you how to execute these strategies in your organization.
TL;DR
- Blue ocean is a business strategy focusing on creating new market spaces rather than competing in existing ones.
- A red ocean is an existing market with many competitors, while a blue ocean is a market yet to be discovered with no competitors.
- Best for companies with a serious commitment to aligning their efforts and prioritizing transparency
- Blue ocean redefines how businesses can look at success and offers a unique approach to growth.
- Companies must consider a large amount of risk with blue ocean initiatives.
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Blue Ocean vs Red Ocean: Main Differences
The analogy of red and blue oceans describes markets and industries.
Red oceans are existing industries with demand and cutthroat competition. The color red denotes the bloody battle for revenue, existing market space, and success between companies. For example, the fashion industry.
Blue oceans are industries that don’t exist yet, with untapped potential for growth and success, which companies must find or create. For example, personal computing in the 1970s.
Five main differences between the red ocean and the blue ocean strategy. Image source: blueoceanstrategy.org
What Is Blue Ocean Strategy?
The blue ocean strategy aims to shift strategic imperatives from outperforming competitors in existing markets to creating new industries, thereby making the competition irrelevant. Companies may use this strategy when the current supply in their existing market exceeds demand or if turnover has increased and profit margins are diminishing.
Blue ocean companies focus on creating uncontested market space with new demand for products or services that don’t exist yet by simultaneously pursuing the following:
- Differentiation
- Low Costs
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Value innovation is the process of reducing costs and increasing buyer value by creating elements that were not previously available in the industry.
Advantages of blue ocean strategy:
- Businesses can create uncontested markets that have new opportunities.
- This framework offers a new perspective and encourages unorthodox thinking about creating consumer value.
- The Blue Ocean process helps companies understand customer needs and desires more deeply.
- It moves strategic imperatives away from competition and towards differentiation.
Disadvantages and possible limitations of the blue ocean strategy:
- There is a risk that efforts won’t result in the creation of a blue ocean. This strategy's success depends on an organization’s resources, talent, and position in the market.
- Balancing dual strategic imperatives (cost reduction and buyer value) can take time and effort for organizations.
- Organizational hurdles, such as scarcity of resources and a lack of strategic alignment, can impact the outcomes of the blue ocean strategy.
- Businesses must attract enough customers to generate economies of scale and dissuade immediate competition.
- Blue ocean markets will eventually become red oceans as competitors appear.
What Is Red Ocean Strategy?
Red ocean strategies are the opposite of the blue ocean strategy. They describe business strategies organizations use to grow and succeed in established markets.
However, there are significant pitfalls to pursuing a red ocean strategy:
- Red oceans are filled with businesses competing for the same customers.
- Maintaining growth becomes increasingly tricky as profits diminish in red oceans.
- Red ocean markets force enterprises to choose between cost leadership or differentiation.
- Success in red ocean markets requires simultaneous exploitation of demand and beating your competitors.
- Red ocean markets need greater resources and scale to compete effectively.
But before you start despairing, it’s important to note that red ocean strategies aren’t always a bad move. Red ocean companies can and still do experience great success in red ocean markets with high levels of competition.
Some examples of when a red ocean strategy may be a better choice include when:
- A company has experience, knowledge, or skills that it can leverage in the existing market.
- There are limited resources, and they can’t afford to spend significant capital on finding blue oceans or capitalizing on them.
- An organization has a low-risk tolerance or is in a period of stabilization.
- A company has a good position and level of profitability in an existing market.
How to Make the Shift From Red Ocean to Blue Ocean (in 6 Steps)
Adopting a blue ocean strategy can have significant long-term benefits when done correctly. But, to get the red-blue shift right, you’ll need to approach the process systematically.
The steps and concepts below are just a summary of the approach created by the authors of Blue Ocean Strategy. We’ve included an additional sixth step because it’s crucial but often overlooked.
1. Start planning your blue ocean initiative
Begin by defining the scope of your blue ocean initiative. Next, identify which SBUs, services, or products will benefit the most from a blue ocean shift.
To assist in this process, Chan Kim and Renée Mauborgne suggest using a pioneer-migrator-settler map to rank multiple strategic business units (SBUs) on value and innovation.
Image source: blueoceanstrategy.org
- Pioneers: SBUs offering unprecedented value.
- Migrators: SBUs offering better value than the market.
- Settlers: SBUs offering the same value as other competitors.
If you want a more comprehensive picture, you can combine this analysis with other strategic frameworks such as SWOT analysis, Porter’s Five Forces, or GE Matrix.
Use this information to identify which SBUs to target and create a team of people to carry out the blue ocean initiative. This step is vital to ensure you aren’t overambitious with your plans and that they fit your broader portfolio goals.
“When you are bringing on new team members, it's not just about bringing folks on so that they can do the job today. It's about bringing folks that can adapt and change into the strategy and the decisions that you will make six months, nine months down the line.” - Div Manickam, Portfolio Marketing Leader, Lenovo.
2. Understand the current situation
Create an overview of the competitive landscape by filling out a strategy canvas. A strategy canvas is a visual representation of the factors an industry competes on (Competing Factors), what consumers get (Offering Level), and the strategic profile of major players (Industry Value Curve).
Image source: blueoceanstrategy.org
List factors that businesses in your industry compete on for a share of the market. For example, a mobile phone manufacturer could list ease of use, design, performance, business applications, camera quality, product range, etc.
Remember, the strategy canvas serves two purposes: to capture the current competitive landscape and propel your organization into action. This step will inform your organization how it currently competes and give a baseline for competition in your industry.
💡Tip: As an alternative, you can also use a strategic group analysis. You can read more about it in our in-depth overview of six competitive analysis frameworks.
3. Imagine where you could be
Next, it’s time to consider the assumptions and limitations in your current industry. These factors are the springboards you’ll need to find to envision a better target market and break past industry boundaries.
If you don’t know where to begin, the blue ocean strategy suggests creating a Buyer Utility Map to think about your industry from a demand-side perspective.
Image source: blueoceanstrategy.org
A Buyer Utility Map visually represents how companies provide utility for their customers through various stages of the buying experience.
Utility levers are how businesses unlock utility for their customers with their products or services:
- Productivity
- Simplicity
- Convenience
- Risk Reduction
- Fun and Image
- Environmental Friendliness
The Buyer Experience Cycle outlines the consumer experience in six stages:
- Purchase
- Delivery
- Use
- Supplement
- Maintenance
- Disposal
Use your team’s knowledge, experience, and other strategic analysis tools to identify opportunities to break away from competitors, provide pioneering value, and open up new customer bases.
“Co-creation is a really important one I think for all businesses. It’s about getting the right people in the right room and creating that space. And, ultimately, the reason we see it as most important is a lot of these people are going to be the ones executing the strategy.” - Jordan Colreavy, Head of Category Strategy, L'Oréal.
4. Formulate your business strategy
You’ll need to bring this vision to reality. This part of the process can be likened to “opportunity solving.” It’s about figuring out how your business will get from A (red ocean) to B (blue ocean).
For example, your company may need more capital or resources to achieve specific improvements, or there may be several steps you need to do first before you can realize a larger goal.
The authors of Blue Ocean Strategy suggest using a Four Actions framework. It will help you identify how factors must change to shift your product, service, or business and prescribes four types of actions for businesses.
- Eliminate: Which factors that the industry has long competed on should be eliminated?
- Create: Which factors that the industry has never offered should be created?
- Raise: Which factors should be well above the industry’s standard?
- Reduce: Which factors should be reduced well below the industry’s standard?
By answering these questions, companies can refine and build new offerings and set objectives that will put them in a class of their own.
For example, if a company were to go back in time and use the blue ocean in developing personal computers, their Four Action Framework might suggest:
Price → Reduce
Size → Reduce
Features → Create
Business-only applications → Eliminate
User Experience → Raise
5. Launch your blue ocean strategy
With your potential opportunities and paths in place, it's time to begin executing your blue ocean strategy. The creators of the Blue Ocean Strategy suggest using an iterative three-phase approach to do this:
- First, select your move, goal, and direction. Make sure you are specific and clear.
- Prioritize speed over perfection. Rapidly test new products or features in the market.
- Finally, refine it to maximize potential. Adapt your strategy based on the results.
6. Maintain execution momentum
The blue ocean strategy offers businesses a unique perspective on opportunity, growth, and competition. If executed correctly, it can lead to impactful shifts that will help your organization grow to new levels.
However, the blue ocean strategy requires the simultaneous pursuit of multiple strategic initiatives. This can be extremely tricky if you’re using tools like Excel, Google Sheets, and PowerPoint. Your teams don’t have access to the latest data and you don’t have a real-time overview of what’s happening with your strategy. This usually results in delayed results, wasted resources, and failed strategies.
You need a single place where you can keep track of all initiatives, align cross-functional teams, and hold them accountable for progress.
A better way is to supplement your blue ocean strategic planning with a powerful strategy execution platform like Cascade. It has all the tools and features you’ll need to track progress, maximize the impact of your strategy, and maintain consistent performance across the organization.
Blue Ocean Strategy Example: Spotify
The majority of profits from the music industry have come from the physical sales of CDs, tapes, and records. However, the introduction of digital shifted this trend in the early 2000s, with companies like Napster, The Pirate Bay, Apple iTunes, and Pandora dominating the digital music industry.
However, a small startup from Stockholm had other plans. When Spotify launched in 2006, it had a specific vision of what the music industry should be.
Up until then, consumers had to:
- Purchase songs and albums to listen to them.
- Own specific devices, such as iPods, to use certain platforms
- Illegally download or copy songs.
Spotify looked at these pain points and built a strategy around them. They came up with a better way of listening to music by offering:
- An affordable subscription-based business model that allowed consumers to legally listen to unlimited amounts of music on any device with an internet browser. And they compensated the artists for their work.
The result wasn’t just out-competing existing companies. Instead, Spotify leap-frogged them and created a blue ocean by:
- Redefining the level and kinds of utility and value.
- Offering a new way of commercializing music streaming.
- Pricing their streaming service to make the current competition irrelevant.
📚Recommended reading:
Strategy study: How Spotify Became The Standard In Convenience And Accessibility
Strategy study: How Amazon Conquered the E-Commerce and Tech Industries Worldwide
Lead Transition with Strategy Execution Software
All companies need a healthy balance of innovators, migrators, and settlers to ensure continued stability, growth, and success.
If most of your SBUs operate in industries with high levels of competition and decreasing profit margins, it’s time for a change, and you should consider using the Blue Ocean Strategy to make it happen.
If you’re busy creating your own blue ocean, a robust strategic planning and execution platform like Cascade will fuel your success.
Focus on impact, improve your execution, and deliver business results with the No. 1 strategy execution platform in the world. Take it for a spin for free or book a call with Cascade expert.
FAQs about Blue Ocean Strategy
What is the difference between the blue ocean strategy and the differentiation strategy?
Differentiation strategy focuses on gaining a competitive advantage in the current market with no focus on cost. Blue ocean strategy focuses on creating an entirely new market through differentiation and cost leadership.
What is Strategy Canvas in the Blue Ocean?
A strategy canvas is a strategic planning tool designed to help strategic thinkers visualize the competitive landscape of an industry and inspire role players to take action.
What is Blue Ocean Strategy's Four Actions Framework?
The Four Actions Framework is a simplified approach to turning pain points, conditions, and existing constraints into opportunities. According to the Four Actions Framework, each factor from your vision should be either raised, reduced, created, or eliminated.
