Does your company swim in the Red ocean or the Blue ocean? This is the intriguing question asked in “The Blue Ocean Strategy” by W. Chan Kim and Renee Mauborgne – professors at INSEAD, the worlds second largest business school located in France. In the “Blue Ocean Strategy”, Kim and Mauborgne develop an alternate view of business strategy that goes against the grain of the accepted notions of strategic planning.
At the risk of being over-simplistic, traditional business strategic planning - which is heavily influenced by the writings of Michael Porter – focuses on creating competitive advantage through either cost reduction strategies OR product differentiation strategies. This type of strategy, according to Kim and Mauborgne, puts a company in the Red ocean – the known marketplace. Red ocean companies aggressively compete against each other for a larger piece of the existing market. As more companies enter the Red ocean the potential for increased marketshare is reduced which creates increased competition and turns the water “bloody” or Red.
The Blue ocean, on the other hand, is wide open. There is no competition because the marketplace is not defined. Companies create consumer demand instead of fighting for it. Blue oceans are not new. As Kim and Mauborgne note, just think of the industries that exist today that did not exist thirty years ago: mutual funds, DVDs, cell phones, digital cameras, juice bars, express delivery, etc. Companies jumped into the Blue ocean and created the markets for these products that many of them now dominate. And they did it with an emphasis on BOTH product differentiation AND cost reduction.
Kim and Mauborgne cite Cirque du Soleil as an example. Cirque du Soleil re-defined the concept of “circus” to provide a new entertainment experience at a lower cost than a traditional circus. By doing this, they created a new marketplace that was totally unique with no competition – a Blue ocean. As the only swimmer in that ocean, the marketplace was theirs.
The Blue Ocean Strategy is a thought-provoking book for anyone involved with business strategy. I can’t think of many strategists who would deny that creating demand is a much better strategy that competing for limited marketshare. But the question I have is how realistic is this strategy for most companies? How many Blue oceans can there be? How often can you re-define an airline, computer, camera, shoe, radio, television, refrigerator, car, shirt, etc.? Granted there will be innovators, but can every company be an innovator?
Kim and Mauborgne themselves state that Red oceans and Blue oceans have always coexisted and always will. There will always be Red oceans. However, Kim and Mauborgne make the argument that the Blue ocean strategies in the past have been largely “unconscious” and by raising the awareness of the underlying logic of these strategies, companies will be able to create more Blue oceans.
The jury is still out on Blue Ocean Strategy. On one hand I see a lot of value in this type of thinking and on the other hand I question how much real value most companies can truly obtain though this type of strategy. Can you really formalize into a logical process the unconscious innovative thinking that creates Blue oceans? Or are these “Eureka” moments the result of creative intuition that defies logic?
