“Blue ocean strategy challenges companies to break out of the red ocean of bloody competition by creating uncontested market space that makes the competition irrelevant.” – W. Chan Kim
Why few companies are highly profitable and others do not survive? Why companies create new markets and innovate? Why many of them compete for same marketplace but results in fewer profit margins? These are some of the fabulous notions every CEO gets when he faces intense competition and decline in the company’s profits?
The answers to all these questions are obvious as companies normally goes after Red Ocean not the uncontested marketplace, Blue Ocean, which is an untapped marketplace for growth opportunities. But, why on earth would anyone be concerned about, Blue Ocean. What is it exactly?
Blue ocean strategy is the idea given to world by two Insead Business School Professors, W. Chan Kim and Renée Mauborgne after studying more than 150 strategic moves over 100 years and 30+ industries and the less successful competitors. They found out that the blue ocean is about making competition irrelevant and going after the growth opportunities and eventually making more profits.
In today’s competitive world, companies fight to gain profitable growth but results in intense competition (blood bath) and declining profits. This is the red ocean scenario where shrinking profit is the essence of rivalry and to make it irrelevant the blue ocean strategy is developed by Kim and Mauborgne which was published in their book ”Blue Ocean Strategy”
According to the book, create the blue ocean of untapped market for uncontested growth opportunities, instead of going after crowded marketplace of Red Ocean. For example, suppose in a temple compound there are 10 sweet shops each one of them selling same type of sweets as other ones. One day a new sweet shop opens in their compund with same offerings. Now, think of these 10 shops’ profit margins. Does it grow or diminish or else become thin.
After some days of business, the frustration among shopkeepers to attract customers with similar offerings becomes cutthroat business rivalry. Few sweet sellers start to slash their prices and this creates ripples effect in the closed marketplace which forces other shops to sell at even more thin profit margins and hence overall market will result in a Red Ocean and shrinking profit margins.
But how this can be turned into a Blue Ocean? For instance, what if the new shop offered different kind of sweet from their counterparts? This will create Blue Ocean for the shop as it is making competition irreverent by offering different things to the market without compromising on the growth and profit. Customers can buy this particular kind of sweet from the new shop which is not available with other shopkeepers and the shopkeeper can make desired profits on the sale as no one else is there to offer particular sweet at other price or discount. This is its competitive advantage and unique selling point.
I hope the idea of blue ocean strategy is comprehensible to all of you in laymen’s language. It is about creating differentiation and low cost strategies and exploring questions such as how to create uncontested market space, focusing on bigger picture and how to go beyond existing market demand and finally getting the strategic sequence right.