Blue Ocean Strategy

Chapter 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!”