Strategic Management

BLUE OCEAN STRATEGY

In an established industry, companies compete with each other for every piece of available market share. The competition is often so intense that some firms cannot sustain themselves and stop operating. This type of industry describes a red ocean, representing saturated market share, bloodied by competition. 

To avoid costly competition, firms can innovate or expand in the hope of finding a blue ocean. A blue ocean exists where no firms currently operate, leaving the company to expand without competition.

Blue ocean strategy generally refers to the creation by a company of a new, uncontested market space that makes competitors irrelevant and that creates new consumer value often while decreasing costs.

Red oceans represent to all the industries in existence today – the known market space. Here companies try to outperform their rivals to grab a greater share of product or service demand.

Blue oceans, in contrast, denote all the industries not in existence today – the unknown market space, untainted by competition. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. A blue ocean is created when a company achieves value innovation that creates value simultaneously for both the buyer and the company.

Blue ocean strategy, on the other hand, is based on the view that market boundaries and industry structure are not given and can be reconstructed by the actions and beliefs of industry players. This is achieved via the simultaneous pursuit of differentiation and low-cost. There are four principles of Blue Ocean Strategy formulation: 1. how to create uncontested market space by reconstructing market boundaries 2. Focusing on the big picture 3. Reaching beyond existing demand 4. Getting the strategic sequence right. And the following guidelines may be proposed to companies seeking to create blue oceans: 1. Identify the key features/ dimensions that currently define a product/ service. 2. Identify a group of...