Blue ocean strategy means creating the new market. The key principle of blue ocean strategy is to pursue low cost and differentiation simultaneously. Chan Kim and Renée Mauborgne wrote a book called “The Blue Strategy” in 2004 which presents analytical frameworks and tools to foster an organization’s ability to systematically create and capture “blue oceans”. A sequel of this book “Blue ocean shift” was later published in 2017.
| Blue oceans mean new & unexplored markets. | Red oceans are all the industries in existence. |
| Unexplored and untainted by competition, ‘blue oceans’ are vast, deep and powerful in terms of opportunity and growth. | competition is cutthroat which makes the ocean( market) bloody. Hence the term ‘red ocean‘ |
| Blue ocean strategy creates new demand. | Red ocean strategy is Conventional approach of beating the competition. |
| Creating blue oceans is non-zero-sum. There is ample opportunity for growth that is both profitable and rapid. | Competing in red oceans is a zero-sum game. Profit for a company means a loss for other market players. |
The book involves creating value by focusing on differentiation and low cost. It discusses four action frameworks that can be used to analyse and create value.
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- Raise: What should a company raise in terms of Product, price and service level?
- Eliminate: What areas to eliminate?
- Reduce: Where costs can be reduced?
- Create: Which new products can be created and can innovation be applied to existing products?
The book further discusses 4 principles of blue ocean strategy formulation. These principles are:
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- Always focus on a larger picture
- Reconstruct and expand market boundaries
- Reach beyond existing demand and supply in new market spaces
- Getting strategic sequence right.
The best unit to analyse profitable growth is neither the company nor the industry but the strategic move that creates “blue ocean” and sustained high performance.
