Category Archives: Market

Blue Ocean Strategy

The concept of Blue Ocean Strategy was presented by W. Chan Kim and Renée Mauborgne, professors at INSEAD, in an article published in Harvard Business Review in 2004 and more thoroughly in their book Blue Ocean Strategy published in 2005.

Here’s a video they made, briefly explaining what it is all about:

In short, they argue that the global market place of the 21st Century consists of red and blue oceans. Red oceans represent the known market place (meaning all current industries, companies etc.). Much in line with how Porter (as presented in chapter 2) describes the market, here industry boundaries are defined and accepted, and the competitive rules of the game are known. As such, an organization’s strategy in a red ocean is all about how to outperform its competitors, with the overall aim of increasing market share. Kim and Mauborgne argue that these oceans quickly get crowded, which in turn means that the prospects for profits and growth are reduced. To sustain themselves in the marketplace, practitioners of red ocean strategy hence focus on creating competitive advantage, most often by analysing what their competitors do and then aim to do it better. Here, seizing a larger market share is understood as a zero-sum game, in which one organization’s seizure is accomplished at the expense of another. Following the logic presented in chapter 2, cost and value are seen as trade-offs, and the organization hence has to choose either a cost or differentiation position. The only way to win is to “attack and kill” others, hence, the term “red oceans”.

Blue oceans, to the contrary, describe the unknown market place (meaning any industry, company, product line etc. that does not already exist). A market place void of competition, because there simply are no competitors. In such a market, demand is shaped and created by the supplier and no competitive rules are yet set, which means, according to Kim and Mauborgne, that there are lots of opportunities for growth and profit. Why? Because this market is without given boundaries or industry structure, allowing the organization (the supplier) to set the rules.  As such, Kim and Mauborgne take, what they call, a reconstructionist view. That is, they argue that structure and market boundaries only exist in the minds of management (they are constructions, not “God-given”), and are hence open to reconstruction. The idea is that by acknowledging the construction of the market, and hence not allowing oneself to be limited by that construction, but rather reconstruct it, organizations can tap into undiscovered demand.

How? Well, Kim and Mauborgne argue that this can be done by shifting focus from supply to demand, from solely focusing on competition to a focus on innovation. In order to do so, organizations must pursue the otherwise conceived as mutually exclusive strategies of differentiation and low-cost simultaneously. In doing so, competition is rendered irrelevant, because the organization expands the demand side, rather than the supply side. Which in turn allows the organization to play a non–zero-sum game, with high profit possibilities.

Though popular, the concept has received a fair share of criticism. For instance, in Holt and Cameron’s book Cultural Strategy (2010), it is argued that while Kim and Mauborgne present the concept as new, many of its elements have been presented and covered elsewhere (e.g. the theory of Six Sigma). In addition, the case study on which the blue ocean theory is based has been problematized (both method and selection), as has Kim and Mauborgne’s failure to address strategic communication as a vital part of an organization’s success with innovation (see e.g. herehere, here and here. In short, though we find the name and the idea catchy (which also explains its popularity), we do not think it is entirely novel, nor do we think that it is developed enough to stand alone.