Organizations have to experiment to make profits in a saturated market with high competition. Even though there are no templates or guides, managers have to take the risk of working with newer ideas and strategies. So, why not do it in a space with no competition? Why not explore the blue ocean, where no one else swims?
First, let’s see what the red and blue oceans are.
Red oceans are industries that exist in the known market space. Lots of organizations operate here and the competition is cut-throat, earning it the name ‘red ocean’. Red ocean organizations adopt red ocean strategies to gain control of a market that exists on limited demand. Apart from the existence of giant players, red oceans offer lesser profits, which further decrease when new players enter the market.
Blue oceans are industries that don’t exist but may have a vast potential for profit. It’s the unknown, untapped market space, not yet explored or tainted by competition. It offers huge opportunities. Blue ocean companies create new demand instead of fighting over a shrinking pool of profit and ensure rapid and profitable growth.
Here we’ll discuss the meaning of blue ocean strategy, blue ocean shift and some examples of blue ocean companies in detail. Read on.
Meaning Of Blue Ocean Strategy
Blue ocean strategy is a device to acquire uncontested market spaces by creating fresh demand. It’s a pacifist marketing scheme that allows an organization to tap into unexplored industry gaps with vast potential. Blue ocean strategy is a path-breaking tool for creating new demand for upgraded or advanced products. The products are familiar to the customer and stand out because of their unique features and utilities. Strategic planning based on blue ocean theory prevents benchmarking competition and opens up a unique profitable space in the market.
By adopting the blue ocean strategy and entering a new market, an organization can establish complete monopoly instead of fighting with the competition and sharing profits. Conducted over a decade, the blue ocean strategy is a study of over 150 strategic moves across 30 industries over 100 years. Researchers Renee Mauborgne and W. Chan Kim devised the blue ocean theory by focusing on discovering the common factors that create blue oceans and the key differences between champions of the market and the ones who either merely survive or who drift into the red ocean. Research and the database continue to grow and the blue ocean strategy depicts similar patterns with blue ocean companies in for-profit industries, non-profit industries and public sectors.
Characteristics And Importance Of The Blue Ocean Strategy
The meaning of blue ocean strategy implies that it pushes an organization to look beyond its competition. While red oceans see businesses offer similar products at different rates, blue ocean products are unique and can sell at premium prices. Let’s look at some important characteristics of blue ocean strategy:
- Competing factors and costs have to be reduced by creating new industry factors
- The competition automatically becomes irrelevant when an organization taps into uncontested market spaces
- Common frameworks and strategic patterns are used to execute strategies
- The management uses step-by-step processes instead of traditional practices to implement strategies
- Risks are mitigated, losses are minimized and chances of success are maximized
- Employee support must be ensured by including them in process and tool management
- Sustainability can be ensured by aligning people, values and profits
Blue ocean theory allows this strategy to align innovation with cost position, price and utility. Managers must fully understand the meaning of blue ocean strategy to find blue oceans. This can create new opportunities for profits by maximizing growth and customer base. The goal of a manager who wants to explore a blue ocean is to make the competition useless instead of trying to be better than them. Let’s look at why blue ocean strategy is an important aspect of organizational growth:
- It improves an organization’s productivity by focusing on specific products or services.
- Organizations make advancements in technology as they enter blue oceans.
- Working frameworks can analyze price competition, shrinking profit margins and drawbacks in previous and present strategies.
- Products can gain global recognition and significantly escalate profits if a market space has no major players worldwide.
Blue ocean strategy impacts the working culture and outlook of organizations by encouraging them to offer valuable products and services to the consumers. This greatly boosts brand image and cements customer loyalty.
Blue Ocean Shift
Blue ocean shift is a strategic plan to move an organization to a newer market or a blue ocean. It’s a plan to instill confidence in teams and drive growth. There are three key components of a successful blue ocean shift:
- There is a shift in mindset as seen in agile management. It involves having a broader outlook and recognizing key areas of opportunities.
- For successful implementation, practical tools must be systematically used to translate an idea for a blue ocean into a commercially compelling opportunity.
- To successfully implement the strategy, managers must exemplify a human process to inspire people and drive them to effectively execute that process.
Here are some common tools that are used during blue ocean shifts:
1. Six Paths Framework
The Six Paths Framework allows managers to identify the array of possibilities that exist and reconstruct market boundaries. The six paths are:
- Looking across alternative industries
- Looking at strategic groups that are operating within an industry
- Redefining the industry buyer group
- Looking at service offerings and complementary products
- Rethinking functional-emotional orientation of the industry
- Shaping external trends in the short and long term
2. Four Actions Framework
The Four Actions Framework adds new value to the strategic profile and reconstructs buyer value elements. The trade-off between differentiation and low cost is broken to create a new value curve. The four key actions are:
- Creating unique industry factors to generate value by offering something new
- Reducing factors inconsequential to the new market
- Eliminating long-standing factors that’ve acted as the basis of competition in the industry
- Raising all factors above industry standards that are essential for the new market
3. Fair Process
Fair process is exercised during strategy formulation and inspires voluntary cooperation during execution. It’s a concept to build execution into strategy. The three principles of fair process are:
- Engaging all individuals in strategic decisions to allow better communication, uncompromised employee involvement and flawless execution. It helps the management show the employee that they value their opinions and inputs.
- Explaining final strategic decisions to everyone and why they were made. It tells employees that their opinions were considered and helps them understand the decisions.
- Creating expectation clarity by setting down rules and objectives. Clarifying expectations can help employees gauge the standard of work and execute the strategy rapidly.
These tools are key to challenging an industry’s strategic logic. Managers must know how to effectively work with such frameworks while implementing the blue ocean strategy.
Blue Ocean Companies
We see from the meaning of blue ocean strategy that it drives organizations to make choices that create demand. Strategies can be to develop a new product or upgrade an existing product with unique features. Here are some blue ocean companies that explored uncharted waters:
Airbnb is a digital platform for renting vacation stays. They capitalized on the fact that as much as tourists look for options other than hotels, several homeowners are interested in renting out their properties for limited periods as well. Be it a private property for rent or a hotel service, Airbnb mediates between two parties by offering the travelers enough information to make a choice, at a rate offered by the host.
Netflix was one of the first organizations to use the blue ocean strategy. Seeing the growing popularity of the internet, Netflix decided to shift its focus from DVD sales and rents to online streaming. They decided to offer multiple high-quality movies and shows on a single platform for a user to stream. They eliminated the need for physical stores by becoming an online library of motion pictures, with no competition in sight.
Philips made a revolutionary strategic move in the teakettle industry, applying the Six Paths Framework. Since they couldn’t change the British public water supply, Philips introduced the first-ever teakettle with a filter fitted at the mouth to trap limescale. This meant that consumers found a unique product to simplify the filtering process and tea making.
Market-creating innovation is at the core of a blue ocean strategy. Managers must see the new opportunities it presents that otherwise don’t exist in a saturated cost-value structure. Good management skills help look past short-term ambitions, expand possibilities and often enable higher value at lower costs.
Harappa’s Executing Solutions program is a strategy execution course that strengthens your problem-solving skills. Thrive in competitive markets, solve problems step-by-step and implement effective solutions. Delegate tasks effectively, track progress and manage crises. Learn frameworks and tools to analyze markets and spot blue oceans in your industry. Learn to take responsibility in a cut-throat industry and navigate to blue oceans where the profits lie. Ask for a free demo today!
Discover more from Harappa with a selection of trending blogs on the latest topics in online learning and career transformation