Blue Ocean StrategyChapter One: Creating Blue Oceans

New Market Space

•Red oceans and blue oceans make up market universe

•Red oceans: all industries in existence= known market space

•Blue oceans: all industries not in existence= unknown market space

Red Oceans vs. Blue Oceans• Red oceans

▫ Industry boundaries defined and accepted▫ Competitive rules of game known▫ Companies try to outperform rivals; cutthroat

competition▫ As market space gets crowded, prospects for profit and

growth reduced▫ Products become commodities▫ Red ocean strategy is a market-competing strategy

• Blue oceans▫ Undefined market space, demand creation, opportunity

for highly profitable growth▫ Most are created from within red oceans by expanding

existing industry boundaries▫ Rules of game waiting to be set▫ Competition irrelevant▫ Blue ocean strategy is a market-creating strategy

The Rising Imperative of Creating Blue Oceans

•Supply is exceeding demand in most industries

•global competition is intensifying•Problems:

▫Accelerated commodization of products and services

▫Increasing price wars▫Shrinking profit margins

•Red oceans becoming bloodier, need to be concerned with creating blue oceans

The Continuing Creation of Blue Oceans

•Blue oceans have been around for some time; a feature of business life

• Industries never stand still, constantly evolving

•Significant expansion of blue oceans over years

•So why the focus on red ocean strategy?▫Corporate strategy influenced by military strategy▫Need to create new market space that is

uncontested

The Impact of Creating Blue Oceans

From Company and Industry to Strategic Move•Are there lasting visionary companies that

continuously outperform the market and create blue oceans?

•Found success of these model companies was a result of industry sector performance, not companies themselves

•Strategic move used as unit of analysis (rather than company or industry)

•Strategic move: the set of managerial actions and decisions involved in making a major market-creating business offering

Value Innovation: The Cornerstone of Blue Ocean Strategy

• Creators of blue oceans follow value innovation

• Value Innovation▫ Equal emphasis on

value and innovation▫ Defies value-cost trade-

off of competition-based strategy

▫ Successful value innovation: Drives down costs while

driving up buyers’ value Uses a whole-system

approach Follows

reconstructionist view

Red Ocean Vs. Blue Ocean Strategy

• Compete in existing market space

• Beat the competition• Exploit existing

demand• Make the value-cost

trade-off• Align the whole system

of a firm’s activities with its strategic choice of differentiation or low cost

• Create uncontested market space

• Make the competition irrelevant

• Create and capture new demand

• Break the value-cost trade-off

• Align the whole system of a firm’s activities in pursuit of differentiation and low cost

Formulating and Executing Blue Ocean Strategy

•Six Principles of Blue Ocean Strategy▫Reconstruct market boundaries▫Focus on the big picture, not the numbers▫Reach beyond existing demand▫Get the strategic sequence right▫Overcome key organizational hurtles▫Build execution into strategy

•The following chapters will give you the principles and analytic frameworks to succeed in blue oceans

Take Aways

•Red ocean strategy is a market-competing strategy, while blue ocean strategy is a market-creating strategy

•As red oceans are becoming bloodier, we need to create more blue oceans

•“The only way to beat the competition is to stop trying to beat the competition!”