What is a Blue Ocean Strategy?
Definition of a Blue Ocean Strategy
The term “Blue Ocean Strategy” is used to refer to the process of using a combination of low costs and differentiation to create a new market and to build demand for a product or service. It’s all about tapping into a market that’s currently underserved.
The term comes from a book by Chan Jim and Renée Mauborgne that’s called Blue Ocean Strategy and that’s mostly known for establishing it as a term in the first place. Jim and Mauborgne also created the term “red ocean”.
Red oceans are all of the industries that currently exist, the known and established market. Because they’re already well-established, the rules of these industries are already known and widely accepted. Companies in red oceans aim to beat out their competitors by outperforming them to gain a larger slice of the pie.
It’s said that the reason that red oceans are red is that the cut-throat competition leaves everyone bleeding as companies fight each other for a limited pool of potential revenue.
This makes it easier for people to picture blue oceans, because they’re all of the industries and marketplaces that don’t currently exist. Because of this, companies are able to create demand instead of fighting over the demand that’s already there.
Entrepreneurs like blue ocean strategies because it means that they don’t need to worry about the competition. Their competitors are irrelevant because the market is yet to be created. Like a blue ocean, it’s unfathomably deep and full of potential for them to explore. It also means that they don’t need to play by the rules.
Jim and Mauborgne have sold over four million copies of their book, and one publication named them the #1 management thinkers in the world. Their research is grounded in a ten-year-long study of 30 different industries across over 100 years, which means that we can safely assume that they know what they’re talking about.
Their first book – Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant – was later followed up with a second, Blue Ocean Shift: Beyond Computing – Proven Steps to Inspire Confidence and Seize New Growth.
One of the major benefits of blue ocean strategy is that it doesn’t require a huge amount of investment to get a company off the ground. Adherents of the concept say that it allows them to max out their opportunity while keeping risk as low as possible.
Another key concept is that companies can simultaneously pursue both differentiation and low cost, allowing consumers and customers to get value and affordability at the same time.
What Are Some Examples of Blue Ocean Strategies?
The start-up world, the business world in general and even popular culture are all rife with examples of blue ocean strategies. Just a few of the most well-known examples include:
- Netflix: Instead of trying to compete with established player Blockbuster when it came to movie rentals, Netflix created its own market by first using the mail to deliver and return rentals and then later pivoting to online streaming.
- Uber: Uber realised that instead of competing in the red ocean by becoming a taxi company, they could empower drivers who could use their own vehicles to provide rides on-demand to people via a mobile app.
- iTunes: As well as avoiding the red ocean that was the physical purchasing model for music, iTunes also sidestepped competition from illegal pirating and provided a brand new way for people to access music.
Related: Learn how to find your blue ocean and nail your product positioning in crowded markets with a mentor
Can Blue Ocean Strategy Coexist with Other Models?
Sure! In fact, blue ocean strategy approaches work well with everything from SWOT analyses to balanced scorecards.
What is the Four Actions Framework?
The four actions framework is a model that was provided by Chan Jim and Renée Mauborgne in their book and which includes the following four actions:
- Raise: Determine which factors need to be raised such as product, pricing or service standards.
- Eliminate: Determine which aspects of a company or industry can be removed to streamline costs.
- Reduce: Determine which aspects of a company or industry can be reduced to streamline costs.
- Create: Determine where there’s potential for new products or services to be created.