Can you briefly explain the concept of Blue Ocean Strategy? :
Can you briefly explain the concept of Blue Ocean Strategy?
Slide 3:
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.
How does blue ocean strategy fundamentally differ from red ocean strategy? :
How does blue ocean strategy fundamentally differ from red ocean strategy?
Slide 5:
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.
Slide 6:
RED OCEAN STRATEGY
Compete in existing market space
Beat the competition
Focus on existing customers
Exploit existing demand
Make the value-cost tradeoff
(create greater value to customers at a higher cost or create reasonable value at a lower cost)
Align the whole system of a firm’s activities with its strategic choice of differentiation or low cost
BLUE OCEAN STRATEGY
Create uncontested market space
Make the competition irrelevant
Focus on non-customers
Create and capture new demand
Break the value-cost tradeoff
(Seek greater value to customers and low cost simultaneously)
Align the whole system of a firm’s activities in pursuit of differentiation and low cost.