The Blue Ocean Strategy is a marketing concept developed by by W. Chan Kimand Renée Mauborgne in 2004. The authors suggest that firms are better off exploring “uncontested market space” rather than competing in a highly saturated market contested with vicious competition. The authors refer to these new spaces as “Blue Oceans” and suggest that they provide competitive advantage by making the competition irrelevant.
Four Actions Framework
In order for a Blue Ocean to be discovered the authors bring forward the Four Actions Framework which is based on four actions :
Raise: Identify the factors that should be raised well above the industry’s standard at present.
Reduce: Look out for the factors that should be reduced well below industry standard.
Eliminate: Identify the factors that have been the source of competition within the industry up to now.
Create: Create new industry factors that have not been previously offered.
Simultaneous Differentiation and Low cost strategy
The Blue Ocean Strategy Theory suggests that a firm can at the same time pursue a differentiation and low cost strategy by identifying what consumers value and then rethinking how this value can be provided at a lower cost. This approach is referred as “value innovation” and goes in contrast with Porter’s Five Forces which is based on exploiting existing demand and competing in a contested market space.
Five Step Process
In order for the organization to escape ”Red Oceans“ and enter a new unsaturated market the authors put forward a five step process:
1. Get Started: The first step is all about choosing the right place to start. Selecting the right people for the Blue Ocean team is crucial.
2. Understand where you are now: Examine and understand the current business situation and competitive landscape.
3. Imaging where you could be: Explore the Blue Oceans which you could tap into and realize the size of your industry.
4. Find how to get there: Create a new market space by formulating a well-developed strategy and reconstructing market boundaries.
5. Make your move: Inthe final step of the process decide which Blue Ocean move you will pursue and roll out a fair process. People’s commitment and top management’s support are vital factors in this last step.
By following this process, the organization can eventually move out of crowded markets and therefore start creating new value for non-customers. This process can be applied to several business scenarios; from a long-established company to a non-profit organization.
The Blue Ocean Strategy is one of the few strategic planning models that has reinvented the wheel. The goal of the Blue Ocean Strategy is to encourage organizations to leave overdeveloped and contested markets, referred as “Red Oceans” and instead enter new, growing markets that are untapped by the competition. By doing this, companies can instantly gain advantage and can enjoy increased sales, fewer risks and greater success.