Blue Ocean Strategy was first introduced in a book by two eminent professors at INSEAD - Renée Mauborgne and W. Chan Kim. In the book, they assert that a ‘blue ocean strategy’ helps create an increase in value for both businesses and their end customers.
What is the blue ocean strategy you ask? It states that for any business to make an entry into a brand new market and be able to generate adequate new demand, it must pursue the ideas of differentiation and low-cost offering, simultaneously.
The goal is to establish and take control of the (thus far) uncontested market space and eliminate all viable competition in the process. It is predicated on the idea that industry structure and market limits are constructible depending on the behaviors and attitudes of the involved industry participants.
What are blue oceans and red oceans?
The blue ocean and red ocean strategy refer to how markets are segregated and defined when it comes to value innovation.
The existing and current industries make up the known market space or the red oceans. Industry borders are established and acknowledged in red oceans, and the rules of engagement and competition are well known and adhered to.
Here, businesses strive to outperform their rivals in order to snag a bigger piece of the pie. Profits and growth have an inverse relationship with how crowded the markets are i.e., the greater the number of players vying for the same market or audience segments, the lesser will be a business’s bottom line. Products turn into commodities, fuelling a fierce or "bloody" competition. Hence, they are called red oceans.
In contrast, the blue oceans represent all the sectors and market opportunities that do not yet exist. The markets are so far untapped and haven’t seen competition from the different market players. Demand is created rather than contested for in blue oceans. There are many viable and achievable opportunities for a quick and profitable expansion.
Competition is unimportant in the blue ocean strategy framework since the rules of engagement are not adequately defined and are still in their infancy. A blue ocean provides enormous, deep, and powerful growth and profit opportunities for the market creators.
The blue ocean and red ocean strategy allow innovative leaders and businesses to be able to identify the core areas which can help drive value at a lower, as a detriment to the competition.
Principles of blue ocean strategy
Create a unique vision
At the start of the strategic planning exercise and during the strategy formulation phase, it is not as simple to differentiate between a red and a blue ocean market.
The first step is to identify the needs of your chosen target market and the key gaps that your product or service can fill. Once you do that, you need to analyze the strategies that the current players in the market are executing to gain market share, and gain insights into the performance of those strategies.
Then, you need to put down the factors of differentiation that will help you gain an upper hand.
Use the above checklist as a guide through the process and hold internal brainstorming sessions for each point.
Note that you do not necessarily need a never-done-before breakthrough or even be the first mover in the market. While technology is an accelerant and is important, what really drives change in a market is a unique idea.
And sometimes all you need to create a blue ocean is a paradigm shift in perspective and the ability to offer unique value to the customer.
The first step will be to identify the key people who can drive change and have an influence on organizational growth and direction. Drill down the teams into smaller groups to allow for the least resistance to change.
This will make the organization actionable at all levels. You also need to neutralize politics – add a trusted advisor to your inner team, one who understands the organization’s politics and how to isolate opposition.
Capture new market opportunities.
As per the blue ocean theory, when a blue ocean is identified and a new market emerges, it has massive potential for growth. The advantage is to those market players who are able to spot it in time and are able to make their move.
Those creating this new market will be able to tap into a new demand, which will have them enjoy higher margins and lower competition.
Markets or blue oceans are created by value innovation and at the same time driving down costs. These combined strategies effectively beat the competition. In other words, the key to success is to find a market that you can create and then make your own.
Value innovation dictates that you should focus on strategies that help your customers and your business gain value and make the competition in the shared market space pretty much irrelevant. This, by design, creates a market space that has been so far uncontested and has no active competitors.
When mapping out a blue ocean strategy formulation, value for the customers as well as key innovation ideas needs equal attention. Once that strategy is defined, it needs to be aligned with the price and utility of the offering, along with its cost positions.
Define the unique value proposition
Look to the value traditionally delivered or required along with the value proposition that the business offers. That is, what do customers generally purchase or use together with the core product or service of the business?
Gaining insights into the complementary values will give you an understanding of how to innovate the offerings in your core value proposition. The goal here is to take the complimentary value out of the equation for the buyers or find an integrated offering that enables the creation of a new market for the tweaked offering.
These three propositions are essential to the success of the strategy and must be mutually reinforcing.
Value innovation assigns equal importance to the concepts of both value and innovation. When an offering provides value but lacks innovation, the value it creates is marginal and not enough to sustain it in the long term. In such a scenario, while the value offered increases, it does not do enough to create marked differentiation that allows for growth and scalability.
Innovation without value usually is technology-driven, market pioneering, or futuristic, often aiming beyond what buyers are ready to accept and pay for. This means that even if the market is created, it will lack interest from customers because it just does not provide enough value to them to make any reasonable consideration.
Create a competitive advantage
To understand this further, we must look at four distinctive elements that help create that much-needed edge that will help you leap over the competition to create a unique blue ocean space for your offerings:
- Factors of competition as we try to determine which ones we are going to eliminate
- Which factors we are going to raise
- Which factors we are going to reduce
- And most importantly, what are we going to create that is brand new, so we create demand rather than fulfill demand
In the old days, companies would usually compete by either creating higher value for customers, which would by default make it more expensive for them to acquire. Or by creating a more standardized value proposition, leveraging on operational efficiency, and offering decent value for a lower cost.
In step 2, think about which factors need to be reduced well below the industry. Think of characteristics of a certain product that have been designed to beat the competition, but that cost a lot of time and resources. Can this initiative be reduced to something simpler with lower costs, but still remain competitive, interesting, and relevant to users?
Prioritize resources intelligently
This is about executing your Blue Ocean Strategy and strategy implementation. You need to get employees to understand the need for a shift in strategy, you may need to cope with limited resources, and you need to motivate your people and counter internal politics.
Using the principles of tipping point leadership will help business leaders and decision-makers to find actions that have a disproportionately higher impact on performance. Essentially actions that result in higher performance as compared to actions of seemingly similar value or priority.
Help your teams to directly see the issues unhappy customers are facing, and what it means to them. Assign resources where they can add the most value and can make the most difference.
When it comes to dealing with limited resources, tipping point leaders seek to multiply the value of what they have as part of their strategy implementation. They understand that resources are often allocated based on old assumptions. So they seek to identify waste and reallocate those resources to areas or activities that yield a much higher return.
Of course, the need to generate and utilize resources can be troubling due to limited capabilities. When you sit down and reprioritize how you use your resources, it also helps address the issue of motivation.
As resources are working on high-impact tasks and projects, their motivation to do well and create value in their work automatically increases.
Why should leaders learn the blue ocean strategy?
The blue ocean strategy allows for shaping up a whole new market and helps leaders be innovative in their approach to growing the business. In fact, learning the blue ocean strategy helps people step into leadership roles as it allows them to implement value innovation and drive exponential business growth.
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