Blue Ocean Strategy

Many industries and businesses nowadays are saturated and overcrowded due to
the amount of companies and players on the field. Thus, creating a scenario called
red oceans, where companies have to compete not only in existing market space
but also forced to compete against the competitors and exploit the already existing
demand. These cutthroat competition turns the ocean bloody red. Hence, the term
red ocean. In contrast of red ocean, W. Chan Kim and Rene Mauborgne
suggested another term called blue ocean strategy. It is a scenario where
companies create their own uncontested market spaces, making competition
virtually irrelevant, capturing the new demand, and breaking the value-cost tradeoff. In this case, companies are rewarded with new streams of profits, growth spurts
and increased value in brand equity which would cement a spot in that particular
area of industry as a pioneer and leave future competitors behind.
However, in order to create blue ocean, companies have to understand what is the
counterintuitive logic behind this strategy. Contrary to belief, the blue ocean
strategy:-

Is not about technology innovation. Most of the time, blue ocean strategy is
about creating new values to consumers and linking them to the existing
technology at hand. With the example of Compaq using existing technologies to
create its ProSignia server, providing buyers twice the file and printing
capabilities of the minicomputer at one-third the price only.

Does not require one to venture far in order to create it. Many blue oceans are
created within existing red oceans. Example, AMC has introduced megaplexes,
which provides moviegoers spectacular viewing experiences within stadium-size
theater complexes at lower costs to theater owners.

In order to apply blue ocean strategy:-

One must never use the competition as a benchmark. Instead of continuing to

compete within the same boundaries, Ford has created a leap in value for both
the company and its customers by introducing the Model T back in 1908. It was a
car designed for everyday use, with a more affordable price tag, high durability
and user & maintenance friendly. In other words, Ford has created a blue ocean
within the then for wealthy people only car market by targeting and offering
products to the middle class with affordability and user friendliness as its core
values, resulting in a surge of Fords market share of 9% in 1908 to 61% in 1921.

One can reduce the costs while offering additional values to customers. Cirque
du Soleil has chosen to omit costly elements of traditional circus acts such as
animal acts and aisle concessions. In return, they are being replaced with
sophisticated elements from theater which appealed to the adult audiences with
themes, original scores and enchanting sets. These new elements change
annually and provide extra new values in the circuss acts, luring adults and
audience to return more frequently. This not only increases the revenue but at

the same time reduces negativity from potential animal rights and animal cruelty
prevention advocates within the audience, for that matter, Cirque created a
fresh and new market space that no one has ever come up with.

Cirque du Soleil is able to grow despite the industrys constant decline boils down to
the fact that it was able to create a blue ocean for itself. By reinventing the
definition of circus, Cirque was able to generate profits without contesting against
its competitors nor stealing their customers. What it did was creating a new
uncontested market place which competition is irrelevant and attracted new
customers who were drawn to the new added values of the business. In other
words, Cirque was able to breach the boundaries of the market/industry, venturing
into newly created markets where the growth is both profitable and rapid.
As time passes, the world changes and evolves, providing space and opportunities
to create blue oceans. Cirque is just one of more than 150 blue oceans created
studied by Kim and Mauborgne in over 30 industries, with data stretching back more
than a century. According to them there is consistent pattern of strategic thinking
behind the creation of new markets and industries. Sometimes success in creating
blue ocean merely comes down to the ability of managers in distinguishing the
differences between blue and red ocean.
As time goes by, the well of knowledge will grow, and along the way new industries
or markets will form accordingly. 100 years ago, pharmaceutical and petrochemicals
was so foreign it was almost unheard of. 30 years ago, cell phones, express package
delivery and video games came out. In recent years, services such as door to door
food delivery, calling taxi from cell phone with just a few touches of buttons and
purchasing digital copies of video games became popular. All these new markets
and industries are blue oceans created via innovations and ability to recognize a
new market. For certain, they provided growth not only companies but also nations
to a certain level. Who would have thought there are big companies nowadays
recruiting and paying players huge money to play video games competitively and
oil & gas company investing into one of these global gaming brand to help growing
the scene. If this were to happen 20 years ago, people might think this company is
going nuts.
Conventional strategies have been revolving around competition so much, that
companies always operate within the boundaries of competitors and competitions,
limiting their battlegrounds and the ways to beat their enemies. This is probably
best known as competitive advantage where companies strive to drive out rivals
and capture greater shares of the existing market. Not to say competition is
irrelevant but by focusing too hard on competitors and competitions, companies
have failed to realize opportunities to develop new market on their own, resulting in
little to no competitions and also how to exploit these new grounds and protecting
them.

From the data shown, involving 3 major industries that closely touch peoples lives,
autos (how people get to work), computers (what people use at work) and movie
theaters (where people enjoy after work). We can conclude that:- blue oceans is not about technology innovation
New technologies are sometimes involved in the creation of blue oceans but for
most of the cases, the technology used is already present and being used in the
industry.
- Incumbents often create blue oceans, usually within their core businesses
Incumbents are not at a disadvantage when it comes to blue oceans creation as the
exhibit shows that established players are able to create new market spaces not far
beyond at distant waters.

- Company and industry are the wrong units of analysis

There is no or little explanatory power when it comes to analyzing how and why
blue oceans are created with the traditional units of strategic analysis. Any
company is able to create blue ocean with the correct set of managerial skills and
decisions.
- Creating blue oceans build brands
Blue oceans strategy elevates brand equity that last for decades. Huge R&D
budgets do not necessarily reflect results in creating blue ocean but the right
strategic moves is the key. A good company or manager will understand what drives
a good strategic move will be able to create multiple blue oceans over time.
The red ocean assumption that industry structural conditions are a given and firms
are forced to compete within them is based on the intellectual worldview called
structuralist view or environmental determinism where companies and managers
are at the mercy of economic forces greater than themselves. Blue ocean strategies
on the other hand are based on a worldview in which market boundaries and
industries can be reconstructed by the actions and beliefs of industry players, called
reconstructionist view. Cost savings are made from eliminating and reducing the
factors an industry competes on, at the same time buyer value is lifted by raising
and creating new elements/values the industry has yet to offer. Of course, over time
costs will be reduced as the scale economies kick in from the high sales volume
generated from superior value.
Contrary to belief, blue oceans are not susceptible to imitations and companies
which created blue oceans can reap the benefits for ten to 15 years. Blue ocean
strategy creates a few economic and cognitive barriers to imitation. Blue ocean
creators attract customers in large volume immediately, and are able to generate
scale economies rapidly, thus putting imitators at an immediate cost disadvantage.
When imitation requires companies to make drastic changes to their system of
activities, they would need to restructure their organization to cater the blue ocean
strategy. This will impede their ability to do so because organization structures are
rigid and hard to change fast. Other times, attempts to imitate the blue ocean

creator will create conflicts with the imitators existing brand image. All these
restrictions are the reasons why blue ocean strategies cannot be replicated easily.
For me, this topic has been largely interesting and intriguing. Understanding
different business strategies is crucial in this modern business world, not only we
have to adapt to our surroundings but also realizing the blue oceans around us, only
then we can create our own blue ocean. Of course, we must understand the logics
behind both red ocean and blue ocean strategies. Both strategies are important and
applicable in all businesses. Often not all companies or managers are able to come
up with a blue ocean strategy as it requires a not only a good understanding and a
wealth of experiences but also the ability to be conscious about it. Even the most
experienced manager could not identify a blue ocean if he is unaware of it.