In its issue of December, TOY INDUSTRY has delivered a coverage with the topic of “Catching Decisive Occasion fro Amusement Play-sets”. Qiu Hai, owner of Chongqing-based Haifeng Toy Co., Ltd, successfully applies a Blue Ocean Strategy to his business. In fact, in this issue, Greatdreams Cartoon, company in the interview of “CEO of Greatdreams Cartoon Talks about New Marketing Pattern” praises highly of the management idea. So what’s the nitty-gritty for Blue Ocean Strategy? What’s its context? This might be what readers concern. Inventors of Blue Ocean Strategy give their answer on their homepage: www.blueoceanstrategy.com.
About Author
W. Chan Kim is Co-Founder and Co-Director of the INSEAD Blue Ocean Strategy Institute and The Boston Consulting Group Bruce D. Henderson Chair Professor of Strategy and International Management at INSEAD, France (the world's second largest business school). Prior to joining INSEAD, he was a professor at the University of Michigan Business School, USA. He has served as a board member as well as an advisor for a number of multinational corporations in Europe, the U.S. and Pacific Asia. He is an advisory member for the European Union and is the Country Advisor to Malaysia.
Renée Mauborgne Co-Founder and Co-Director of the INSEAD Blue Ocean Strategy Institute and Distinguished Fellow and a professor of strategy at INSEAD, France (the world's second largest business school). She was born in the United States. Mauborgne is a Fellow of the World Economic Forum. Her Harvard Business Review articles, co-authored with W. Chan Kim, are worldwide bestsellers and have sold over half a million reprints.
Questions & Answers
Can you briefly explain the concept of Blue Ocean Strategy?
We use the terms red and blue oceans to denote the market universe. Red oceans are all the industries in existence today – the known market space. In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here companies try to outperform their rivals to grab a greater share of existing demand. As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities, and cutthroat competition turns the red ocean bloody. Hence, the term “red” oceans.
Blue oceans, in contrast, denote all the industries not in existence today -- the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. Blue ocean is an analogy to describe the wider, deeper potential of market space that is not yet explored. Like the “blue” ocean, it is untouched, vast and deep in terms of profitable growth.
Blue ocean strategy provides a systematic approach to break out of the red ocean of bloody competition and make the competition irrelevant by reconstructing market boundaries to create a leap in value for both the company and its buyers. Instead of competing in existing industries, blue ocean strategy equips companies with frameworks and analytic tools to create their own blue ocean of uncontested market space. The book, however, tackles not only the challenge of how to create blue oceans, but also the equally important challenge of how to execute these ideas in action in any organization.
How does blue ocean strategy fundamentally differ from red ocean strategy?
In simple terms, red ocean strategy is about how to out-pace rivals in existing market space; it is a market-competing strategy. In contrast, blue ocean strategy is about how to get out of established market boundaries to leave the competition behind; it is a market-creating strategy.
Red ocean strategy assumes that an industry’s structural conditions are given and that firms are forced to compete within a finite market space. Taking market structure as given, companies are driven to try to carve out a defensible position against the competition in the existing industry terrain. To sustain themselves in the marketplace, practitioners of red ocean strategy focus on building advantages over the competition, usually by assessing what competitors do and striving to do it better. Here, grabbing a bigger share of the market is seen as a zero-sum game in which one company’s gain is achieved at another company’s loss. Hence, competition, the supply side of the equation, becomes the defining variable of strategy.
Such strategic thinking leads firms to divide industries into attractive and unattractive ones and to decide accordingly whether or not to enter. After it is in an industry, a firm chooses a distinctive cost or differentiation position. Here, cost and value are seen as trade-offs. Because the total profit level of the industry is also determined exogenously by structural factors, firms principally seek to capture and redistribute wealth instead of creating wealth. They focus on dividing up the red ocean, where growth is increasingly limited.
Under blue ocean strategy, however, the strategic challenge looks very different. Recognizing that structure and market boundaries exist only in managers’ minds, practitioners who hold this view do not let existing market structures limit their thinking. To them, extra demand is out there, largely untapped. The crux of the problem is how to create it. This, in turn, requires a shift of attention from supply to demand, from a focus on competing to a focus on value innovation--that is, the creation of innovative value to unlock new demand. This is achieved via the simultaneous pursuit of differentiation and low-cost.
Under blue ocean strategy, there is scarcely an attractive or unattractive industry per se because the level of industry attractiveness can be altered through companies’ conscientious efforts. As market structure is changed by breaking the value/cost tradeoff, so are the rules of the game. Competition in the old game is therefore rendered irrelevant. By expanding the demand side of the economy new wealth is created. Such a strategy therefore allows firms to largely play a non-zero-sum game, with high payoff possibilities.
Is blue ocean strategy new?
Although the term blue oceans is new, their existence is not. They are a feature of business life, past and present. Look back one hundred years and ask yourself, How many of today’s industries were then unknown? The answer: Many industries as basic as automobiles, music recording, aviation, petrochemicals, health care, and management consulting were unheard of or had just begun to emerge at the time. Now turn the clock back only thirty years. Again, a plethora of multibillion-dollar industries jumps out ?mutual funds, cell phones, gas-fired electricity plants, biotechnology, discount retail, express delivery, minivans, snowboards, coffee bars, and home videos to name a few. Just three decades ago, none of these industries existed in a meaningful way.
Now put the clock forward twenty years--or perhaps fifty years--and ask yourself how many now unknown industries will likely exist then. If history is any predictor of the future, the answer is many of them. Again, blue oceans have and always will exist. The reality is that industries never stand still. They continuously evolve. Operations improve, markets expand, and players come and go. Yet, as history teaches us we have a hugely underestimated capacity to create new industries and re-create existing ones. This book not only articulates the existence and importance of blue oceans. Equally, if not more importantly, it provides analytical frameworks and tools that allow companies to create and capture blue oceans in an opportunity maximizing, risk minimizing way.
Blue ocean strategy may be perceived as involving high risk. How does blue ocean strategy address the issue of risk?
Above all, blue ocean strategy is about risk minimization and not about risk taking. Of course, there is no such thing as a riskless strategy. Any strategy, whether red or blue, will always involve risk. Nonetheless, when it comes to venturing beyond the red ocean to create and capture blue oceans there are six key risks companies face: search risk, planning risk, scope risk, business model risk, organizational risk, and management risk. The first four risks revolve around strategy formulation, and the latter two around strategy execution.
Are you saying red ocean strategy is no longer useful?
Absolutely not. It will always be important to swim successfully in the red ocean by out-competing rivals. Red oceans will always matter and will always be a fact of business life. But with supply exceeding demand in more industries, competing for a share of contracting markets, while necessary, will not be sufficient to sustain high performance. Companies need to go beyond competing. To seize new profit and growth opportunities they also need to create blue oceans. A better balance must be struck across red ocean and blue ocean initiatives.
How durable is the advantage associated with a blue ocean strategy and what is the process for defending it?
Creating blue oceans is not a static achievement but a dynamic process. Once a company creates a blue ocean and its powerful performance consequences are known, sooner or later imitators appear on the horizon. However, a blue ocean strategy brings with it considerable barriers to imitation. Some of these are cognitive, and others are operational.
The first barrier is often cognitive. Competitors are often blocked from imitating because of brand image conflicts, or the blue ocean strategy just does not fit conventional strategic logic. For many years CNN, for example, was ridiculed by the industry as chicken noodle news by established players. The second barrier is organizational. Because imitation often requires companies to make substantial changes to their existing business practices, politics often kick in, delaying for years a company’s commitment to imitate a blue ocean strategy. The third level includes the economic forces of blue oceans. The high volume generated by a value innovation leads to rapid cost advantages, placing potential imitators at an ongoing cost disadvantage.
By heightening these barriers to imitation, companies can defend the blue oceans they created for some time. However, it should be noted that creating a blue ocean is not a static strategy process, but a dynamic one. █ |