Blue ocean strategy focuses attention on the creation of new markets at the product development stage. The concept is designed to encourage managers to focus on the creation of uncontested markets.
Most strategic models focus on achieving competitive advantages, the central question being how to be better than the competition. The ‘blue ocean strategy’ model does not focus on winning from competitors, but on making the competition irrelevant by creating ‘blue ocean’ opportunities. Blue oceans are uncontested marketplaces in which new demands from customers are satisfied (Kim & Mauborgne, 2005). ‘Red oceans’, in contrast, are competitive arenas in which competitors fight and consequently weaken each other.
The blue ocean strategy model encourages innovation and influences the focus of strategy development. Instead of using competitors as a benchmark, managers look beyond the limits of existing market boundaries to seek new opportunities to create new value for customers. Rather than trying to beat the competition directly, managers should take action to develop a business offering that opens up and captures a new market space.
Figure 5.1 Blue ocean strategy
Source: based on Kim and Mauborgne (2005)
Blue ocean strategy adds direction to the strategic management process. Development strategy often focuses solely on how to beat the competition. This will lead inevitably to a red ocean scenario in which competitors fight and consequently weaken each other. In order to direct the focus of strategy development towards the creation of blue oceans, the management team needs to answer four questions:
In this process, it is essential to focus on what customers value, rather than merely focusing on competitors or the core competencies of the firm. Instead, one should start from scratch. By answering these questions, it is possible to create entirely new concepts for product(s). As a result, a new so-called ‘value curve’ can be created. This curve determines a new value proposition, which shows how the value of the new product differs from current products (Kim & Mauborgne, 1997).
Two types of blue ocean can be created by this process, either by launching a completely new industry or by creating new opportunities from within the existing industry by expanding the strategic boundaries of the industry. Most blue oceans are created this way.
Blue ocean strategy is not a well-structured plan that is easy to implement. On the contrary, it is a concept that can be used to focus strategic development (by answering the questions in the previous section). Nevertheless, there are six core principles at the heart of blue ocean strategy that can be used as a guideline to tackle six key risks that are common to new product development strategy, namely search risk, planning risk, scope risk, business model risks, organisational risk and management risk. The six blue ocean principles can be interpreted as an ‘implementation’ guide for creating uncontested markets:
The blue ocean strategy model is a theoretical model that may be a revelation for many managers. However, the model primarily describes what to do (on an abstract level) instead of demonstrating how to do it. The model and related ideas are descriptive rather than prescriptive. Moreover, the cases mentioned by Kim and Mauborgne as examples of successful blue ocean innovations are interpreted through a ‘blue ocean lens’, rather than being based on this model.
Although Kim and Mauborgne have made a valuable contribution to strategic management literature, not all firms should adopt this model. Blue ocean strategy may be a good strategy for many firms, but for others a fast-moving strategy, cost leadership, differentiation or focus strategy may be far more successful (Porter, 1979). Kim and Mauborgne provide the important insight that a firm can simultaneously pursue cost differentiation and low costs.
Kim, W.C. and Mauborgne, R. (1997) ‘Value innovation: the strategic logic of high growth’. Harvard Business Review (January–February), 103–112.
Kim, W.C. and Mauborgne, R. (2005) Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant. Cambridge MA: Harvard Business School Press.
Porter, M. (1979) ‘How competitive forces shape strategy’. Harvard Business Review 57(2), 137–145.
