Blue Ocean Strategy is a business concept introduced by W. Chan Kim and Renée Mauborgne in their 2005 book titled “Blue Ocean Strategy.” It suggests that businesses can succeed not by battling competitors, but rather by creating new, uncontested market spaces known as “Blue Oceans.” This strategy contrasts with “Red Oceans,” where companies fight for dominance in saturated markets.
|The metaphor of blue and red oceans describes the market universe: Blue Oceans are vast, deep, and powerful in terms of opportunity and growth, while Red Oceans are bloody from fierce competition.
Importance of Blue Ocean Strategy
In today’s rapidly evolving marketplace, the importance of Blue Ocean Strategy has become more pronounced. It provides a framework for businesses to break out of intense competition and find or create new spaces devoid of rivals. By focusing on innovation, differentiation, and creating new demand, companies can unlock new value for customers and themselves, leading to higher profitability and growth. This approach encourages companies to shift from traditional competitive strategies and instead innovate in ways that make competition irrelevant. It’s particularly beneficial for startups and businesses looking to capture high growth in an increasingly saturated market landscape.
Understanding Red and Blue Oceans
Red Oceans represent all the industries in existence today – the known market space. In Red Oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here, companies try to outperform their rivals to grab a greater share of existing demand. As the market space gets crowded, prospects for profits and growth reduce. Companies in Red Oceans engage in cut-throat competition that turns the ocean bloody, hence the term “Red Oceans.” This environment is characterized by price wars, intense rivalry, and strategies focused on competing within the existing market boundaries, often leading to a zero-sum game with limited growth and diminishing returns.
In contrast, Blue Oceans signify the untapped market space, demand creation, and the opportunity for highly profitable growth. Unlike Red Oceans, Blue Oceans are characterized by the absence of competition. This is because the business creates a new market or industry where it is the only player, at least initially. Blue Strategy involves finding and exploiting these uncharted waters, focusing on innovation, creating new demand, and offering a unique value proposition. It’s about making the competition irrelevant by changing the playing field of strategy. This strategic shift opens up a new space, creating a move that can lead to high growth and profits by tapping into new demand, and effectively creating a monopoly-like situation where the company sets the rules.
Contrast and Comparison
The primary difference between Red and Blue Oceans lies in their approach to market competition. Red Oceans are defined by a zero-sum game with fierce competition where success often comes at the expense of others. Companies focus on winning against the competition, leading to incremental improvements and often commoditization. In contrast, Blue Oceans are about making the competition irrelevant through innovation and creating new markets. It’s a growth strategy that focuses on creating new value for both the company and the customer, leading to the opening of new markets and demand. This fundamental shift in mindset from competition to creation is what distinguishes Blue from Red Ocean strategies.
Salesforce.com’s Blue Ocean Strategy
One of the most illustrative examples of the Blue Ocean Strategy in the tech industry is the case of Salesforce.com, which revolutionized the software application industry through its introduction of cloud-based customer relationship management (CRM) software. Here’s a detailed look at this case study.
Prior to Salesforce.com, CRM solutions were primarily hosted on a company’s own servers — a costly and complex affair that was mainly accessible to large corporations. These traditional CRM solutions required significant investment in IT infrastructure, software licensing, and ongoing maintenance. Small to medium-sized businesses were often priced out of the market or had to make do with scaled-down versions with limited functionality.
Innovation – Cloud-based CRM Solution
Salesforce.com, founded in 1999 by Marc Benioff and a team of software veterans, identified the pain points in the existing CRM solutions and created a completely new market space by offering CRM software as a cloud-based service. This innovative approach allowed businesses of all sizes to access a scalable and customizable CRM solution without any of the infrastructure costs or long-term commitments associated with traditional CRM systems.
Key Strategies of Salesforce.com’s Blue Ocean
- Subscription Model: Salesforce.com introduced a subscription model, which was a significant shift from the hefty upfront costs of traditional CRM software. Customers could now pay an annual or monthly fee to use the software, dramatically lowering the barrier to entry for smaller businesses.
- Customization and Scalability: Unlike the one-size-fits-all approach of traditional CRM systems, Salesforce.com offered a highly customizable platform that could scale with the growth of a business. This appealed to a broad range of companies that had been underserved by existing solutions.
- No Hardware or Software Maintenance: Customers did not need to worry about maintaining hardware or updating software; Salesforce.com took care of all the updates and maintenance as part of its service.
- Ecosystem Development: Salesforce.com also created an ecosystem around its platform, encouraging third-party developers to create complementary applications and services. This not only enhanced the functionality of Salesforce.com’s offerings but also made it more entrenched as a platform.
The introduction of Salesforce.com’s cloud-based CRM solution was a classic blue ocean move. It made the competition irrelevant by offering a product that was more accessible, cost-effective, and scalable. As a result, Salesforce.com rapidly grew into one of the leading CRM solution providers worldwide, significantly expanding the CRM market and transforming the industry.
Salesforce’s innovative strategy fundamentally changed the software industry, prompting a widespread shift towards cloud-based services and subscription models. It not only grew its own business but also expanded the market for CRM systems by making them accessible to a much wider audience.
Crafting a Successful Blue Ocean Strategy for Startups
Identifying Blue Oceans
For startups, identifying Blue Oceans is about discovering or inventing new market spaces where they can be first movers. This process often starts with a comprehensive understanding of the industry, including recognizing the pain points and unmet needs of customers. Startups should look beyond the existing market boundaries and explore how they can redefine the customer experience, often by leveraging new technologies, innovative business models, or unique product offerings. This involves a creative leap in imagining what could be, rather than focusing solely on improving what is. They should employ tools like the Four Actions Framework (eliminate, reduce, raise, create) to reconstruct market elements and the ERRC grid (Eliminate-Reduce-Raise-Create) to systematically consider how to create new value for customers. Identifying a Blue Ocean means actively looking where others aren’t and being willing to challenge industry norms and assumptions.
At the heart of Blue Ocean Strategy is value innovation, the simultaneous pursuit of differentiation and low cost, creating a leap in value for both the company and its customers. For startups, this means not just attending to the existing market demands but creating and capturing new demand, making the competition irrelevant. It’s about finding the right alignment of utility, price, and cost positions, ensuring that the whole system of a company’s activities is geared toward achieving differentiation and low cost. Startups need to focus on what customers value and how to redefine those elements in a way that stands apart from the competition. This might involve adopting new technologies, rethinking the customer experience, or entering or creating entirely new markets. The key is that the innovation must significantly change the playing field and bring a new set of values to the customers.
Strategic Planning and Execution
Once a startup has identified a potential Blue Ocean and understood the principle of value innovation, the next step is strategic planning and execution. This involves developing a clear, compelling Blue Ocean move and implementing it effectively. Startups should create a strategy canvas, a diagnostic and action framework for building a compelling Blue Ocean Strategy. They should clearly articulate the new value curve, showing how they will offer increased value to customers in a unique way. Execution involves overcoming key organizational hurdles and embedding the blue ocean into everything the company does. It requires strong leadership, effective communication of the vision, and the engagement of the entire organization. Startups need to be agile, adapting quickly to feedback and changes in the market, and ensure that their blue ocean strategy is well executed through proper resource allocation, technology adoption, and continuous innovation. The successful implementation of this strategy hinges on the startup’s ability to be nimble, forward-thinking, and relentlessly customer-focused.
As markets continue to evolve rapidly, the principles of Blue Ocean Strategy will become increasingly relevant. Businesses that can continuously innovate and adapt, creating new value for customers, will thrive. The future will favor those who can not only navigate but also create their Blue Oceans, shaping the industries of tomorrow.