WHAT do successful companies like Apple, Cirque du Soleil, QB House, Air Asia, Sheng Siong Supermarket and Mustafa Centre have in common? They found their patch of “Blue Ocean” to operate their business in.
The phrase takes its name from Blue Ocean Strategy, a business strategy book by W. Chan Kim and Renée Mauborgne of Insead, a leading international business school. In its first year of publication, the book sold more than a million copies and has since been translated in 41 languages.
The authors studied 150 companies from 1880 to 2000 in more than 30 industries. They found a common thread running through all the success stories — innovation and the “Blue Ocean” strategy.
The book promotes creating new market space or “Blue Ocean” — where competition is made irrelevant — rather than competing in an existing industry. The authors use the metaphor of Red and Blue Oceans to portray the marketplace.
The Red Ocean consists of existing businesses struggling in the know marketplace where boundaries are defined. The competitive rules of businesses are known and accepted by all. Companies existing in the Red Ocean try to outperform their rivals to grab a greater share of the product or service demand through cut-throat strategies.
As the market space gets crowded, profits and growth are eroded. Products become commodities and the marketplace turns into a bloody battle zone — hence the name “Red Ocean”.
Competing in the overcrowded marketplace is no way to sustain high performance. The real opportunity is to carve out an uncontested marketplace — the Blue Ocean.
This unknown market space is virtually untainted by competition. Demand here is created rather than fought over. There are many opportunities here for rapid and profitable growth. Blue Ocean makes competition irrelevant because the rules of the game are unknown.
Thirty years ago, we did not have mobile phones, the Internet, e-mail, budget airlines, notebook computers, GPS, DVD movies and 10-minute haircuts. These were the industries in the Blue Ocean then.
Blue Ocean can be created within the Red Ocean by changing the boundaries of an existing industry — for example, what eBay did for auctions by putting them online.
The failure to realise the differences between Red and Blue Oceans is the main reason why companies cannot break away from competition.
Why do companies operate comfortably in the Red Ocean? Corporate strategy is partly influenced by military strategies.
Even the language businesses use is full of military references. Companies are trained to protect their market share, attack competitors, penetrate the marketplace, launch an attack on the competition, and so on.
Blue Ocean is not about technology innovation although cutting-edge technology is involved in many Blue Ocean businesses. In creating Blue Ocean, companies can build brands that thrive over decades, as in the case of IBM, Ford, Federal Express, Apple, Dell and CNN. The key to create Blue Ocean is not a huge R & D budget but in adopting a right strategic move and taking massive action.
Blue Ocean creators never use their competitors as a benchmark. Instead, they make competition irrelevant by creating huge value for both the consumers and the company itself.
Practitioners of Blue Ocean reject the conventional belief that there is a trade-off between value and cost. Traditionally, the higher the cost, the more value customers get. In Blue Ocean, companies can pursue both differentiation and low costs simultaneously.
Next week: How Cirque du Soleil used the Blue Ocean strategy to create value for customers.