Blue Ocean Background
The formula is simple:
Differentiation + Low Company Costs + Increase Consumer Value = Blue Ocean Strategy
Coined back in 2005 by INSEAD business professors Chan Kim and Renée Mauborgne, the Blue Ocean Strategy defines the nontraditional method of constructing your own market. The term is defined along with the traditional “Red Ocean Strategy.” A red ocean is defined as an established market, one that already has intense competition and a place where rivals fight for market share. A blue ocean is an unchallenged market space where rivals and competition are insignificant. In a blue ocean, you create your demand with an incentive of value for consumers.
Most companies live in red oceans and are more comfortable doing so. As Kim and Mauborgne mentioned, this comfortability comes from businesses being rooted in military strategy. An example is looking at marketing campaigns – the definition is rooted from military campaigns – which means a series of interconnected actions to produce a certain result. Businesses stuck thinking inside the box will always be at war for market share. Unattractive or nonexistent markets in a blue ocean strategy mean opportunities for creation. An idea that is outside the box is swimming in a blue ocean.
Requirements for a Successful Blue Ocean Strategy
Differentiation is the key driver of a blue ocean strategy. To create a product that is so differentiated creates a list of opportunities for businesses. Many companies have used the differentiation strategy to get ahead of the competition and continue to stay ahead. But blue ocean strategy is not just differentiation, it is using differentiation to drive business costs down and consumer value up.
Blue ocean strategies typically do not come from innovations in technology, but ideas of how to use the technology differently. It is about using technology to create something worth consumers’ attention, desire, and money while lowering production costs for you.
Value innovation requires companies to orient the whole system toward achieving a leap in value for both buyers and themselves. – W. Chan Kim, Blue Ocean Strategy
Innovative thinking is the root of both differentiation and low-cost strategies. Innovation for blue ocean strategies rarely comes from technological breakthroughs but innovative ideas. AMC already had its share in the movie theatre industry, but their “Megaplexes” gave consumers a greater viewing experience and provided owners lower costs.
Blue Ocean Strategies in Action
A common example of a company that created its own market from resources provided is Apple. Apple continues to use this strategy with products like the personal computer released in 1976 all the way to the iPhone. The company looks at blue oceans that seem unattractive and push forward with their leading-edge ideas. The personal computer was released when people already had computers at home, but theirs was all-in-one and user-friendly, which set them apart in a whole new market.
Another famous product that is an example of a blue ocean strategy is the Nintendo Wii. The company, a computer game producer, created a product with a motion control stick where people could enjoy their products in a larger group. This not only increased their computer games sales, but they created a market for consumers at a lower price point and new features like a small console for large social groups. With these innovations, they created a market spanning from non-gamers all the way to the elderly.
How Technology Leadership Can Help
- Promote Innovation and Creativity – With new technologies being created, employees are bound to find a new way for these technologies to drive business value to consumers. As a leader, it’s important to promote innovation and provide the space for your team to be creative. Some companies have internal hack-a-thons or quarterly collaborative experimentation projects that employees get to work on and present later. Creating fun opportunities for employees to express their creativity and ideas could be what is holding your company back from creating a product or service in a blue ocean.
- Listen – As companies continue to digitize their products and services for consumers, new uses arise and can create a whole new market by doing so. Listening to consumer feedback can ignite ideas within your team to create a new product or strategy that differentiates you from companies still battling for territory in Red Oceans. As a leader, making sure your team’s goal is to serve your consumers and continue bettering your products can contribute to more ideas and improvements in your organization. Also making sure that you know what your team is capable of and growing on that is vital for enabling innovation.
- Automation Initiatives – Automation can help organizations to analyze large amounts of industry research and find holes in them. These holes can be used to create new market spaces based on the new ideas and needs that will be satisfied.
- Turn Conflicts into Opportunities – A great leader will look at constraints or conflicts as potential or as an opportunity. By promoting your team to challenge each other (constructively), more innovative ideas will arise from these conversations. Because most blue ocean strategies emerge from already established companies it is up to leadership to create a space where new challenges are welcomed.
Outdated strategies will not last in future business landscapes, so it’s time that leaders start shifting their perspectives on how to move forward. The technology space holds abundant opportunities for companies to create their own demand and cut costs while differentiating themselves. The Blue Ocean Strategy may have been created years ago but is founded on the principle of creating something unprecedented and will continue to hold value in the future.