4 rules for creating a ‘Blue Ocean’ strategy

Twenty years ago, strategy professors Renée Mauborgne and W. Chan Kim introduced a revolutionary concept to the management world. Businesses, they said, could unleash growth by creating “blue oceans” (markets that did not exist) instead of competing in “red oceans” (established, overcrowded markets).

The academics explained in the Harvard Business Review that “as the space [in red oceans] gets more and more crowded, prospects for profits and growth are reduced. Products turn into commodities, and increasing competition turns the water bloody … In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid.”

This approach, coined Blue Ocean Strategy™, continues to hold relevance today. In fact, according to Vistage speaker Andi Simon, a Blue Ocean Strategy is precisely what CEOs need to develop growth-oriented strategic plans in 2024.

I recently sat down with Simon, anthropologist and author of “On the Brink: A Fresh Lens to Take Your Business to New Heights,” to better understand how businesses and business leaders can leverage this approach. Here are her four rules for CEOs.

Understanding Blue Ocean Strategy

Blue Ocean Strategy involves creating new market spaces (blue oceans) that are uncontested, making the competition irrelevant. This contrasts with red oceans, where industries are saturated, and companies vie for the same customers, leading to fierce competition.

By focusing on differentiation and low cost simultaneously, businesses can unlock new demand and achieve rapid growth. This strategy empowers companies to escape the constraints of overcrowded markets and focus on opportunities that provide both profitability and scalability.

Red Ocean vs. Blue Ocean Strategy

In red oceans, companies compete in existing market spaces, striving to outperform rivals and capture a larger share of existing demand. This often leads to commoditization and reduced profitability.

In contrast, blue ocean strategy encourages creating new demand in unexplored markets, breaking the value-cost trade-off, and aligning the entire system of a company’s activities in pursuit of differentiation and low cost.

Rule 1: Act like an anthropologist

To find new markets, CEOs need to act like anthropologists — observing, studying and talking to customers and non-customers in their authentic environments. Simon emphasizes that CEOs should do this work themselves, as opposed to delegating it to an internal team or outsourcing it to a third party.

This exercise aims to identify unmet needs and find non-customers that could become customers in the near term. “Look for non-users who will become fans of yours if you solve their problems in a very innovative way,” Simon explains.

What if you find a problem that falls outside your industry’s scope? That’s a good reason to solve it. “Because if everyone is doing the same thing, the same way … your idea of adding value will always add costs, and you will be competing with others just like you,” says Simon. “The market will not expand, and you will face a very difficult strategic environment in which to grow.”

The Strategy Canvas Tool

A pivotal tool in formulating a Blue Ocean Strategy is the Strategy Canvas. It serves as both a diagnostic and an action framework, capturing the current state of play in the known market space.

By plotting factors that the industry competes on and where the competition invests, companies can visualize their strategic position and identify opportunities to innovate by offering unprecedented utility.

Value Innovation in Blue Ocean Strategies

At the core of Blue Ocean Strategies is value innovation. This approach focuses on creating new market spaces and delivering innovative value rather than competing against others. Value innovation allows businesses to redefine boundaries, enhance performance, and establish themselves as industry leaders.

By combining differentiation and cost leadership, value innovation makes the competition irrelevant and fosters demand. It is a cornerstone of achieving sustainable growth in uncontested market spaces.

Rule 2: Use collaboration to problem solve

Once you’ve identified an unmet need, you might think, “I can’t solve that problem.” Replace that statement with the question, “How can I solve that problem?”

Don’t assume you have to develop or deliver a solution on your own. More often, you’ll need partners who can collaborate with you to create value for new customers.

There are multiple ways to structure the collaboration, Simon says. You could develop a solution and then find a partner to build it. You could connect customers to an existing solution and charge them a markup. You could hire a team of experts to help you develop a solution. The list goes on.

Implementing Blue Ocean Strategy: A Five-Step Process

Transitioning from a red ocean to a blue ocean involves a systematic five-step approach:

1. Choosing the Right Place to Start: Select the scope and scale of the Blue Ocean initiative.
2. Building the Right Team: Assemble a team with the requisite skills and perspectives.
3. Understanding the Current State: Assess the current market realities and the company’s strategic canvas.
4. Exploring Beyond Existing Demand: Investigate non-customers to uncover new demand.
5. Developing and Testing Blue Ocean Moves: Systematically develop and test strategic options before executing.

This process ensures that companies create sustainable growth opportunities in uncontested markets.

Rule 3: Generate demand for your new idea

Coming up with an idea is merely the first step in developing your Blue Ocean Strategy. To turn that idea into a market, you’ll need to generate demand for it. Typically, that’s achieved through branding and marketing.

Simon recalls a family business that ran into this issue. When the founder’s son took over, he told Simon the business had too many products. “I said, ‘The challenge isn’t that your dad made something people asked for. It’s that he didn’t turn them into markets. He thought about people who had a problem to solve, but he didn’t think other people had the same problem. Marketing was never part of his storytelling.’”

Simon cautions that, if you don’t market your idea, you will get stuck in the role of innovator and never reap the monetary rewards of your innovation. “Innovators can do well,” she says. “But most of the time it’s the person who monetizes the innovation that does really well.”

Potential Risks and Challenges

While pursuing a Blue Ocean Strategy offers immense opportunities, it also presents risks. Investing in new market spaces is costly, and returns aren’t assured. As new markets attract competitors, companies must innovate consistently to avoid turning their blue ocean into a red ocean.
Strong strategic planning and management are essential to overcoming these challenges and ensuring long-term success in Blue Oceans.

Case Study: Nintendo’s Wii Console

An illustrative example of Blue Ocean Strategy in action is Nintendo’s approach to the Wii console. Instead of competing directly with Sony and Microsoft on graphics and processing power, Nintendo focused on innovative gameplay and motion controls, appealing to a broader audience, including non-gamers.

This strategic move allowed Nintendo to create a new market space, resulting in significant commercial success.

Sustaining Blue Oceans through Strategic Actions

To sustain a blue ocean, continuous strategic focus is needed. Organizations should remain alert to emerging trends and adapt their strategies to align with market needs.

By implementing robust feedback mechanisms, management can ensure strategies remain relevant, allowing the business to thrive amidst shifting market dynamics. Sustaining blue oceans requires innovation and agility to stay ahead of potential competitors and maintain market leadership.

Rule 4: Strive for faster, easier and cheaper

Considering an acquisition as part of your Blue Ocean Strategy? Be careful what you buy.

Simon says it’s usually a mistake to acquire a competitor for the sake of swooping up their customers. “What you really want is to find a company at the starting point of an innovation that’s going to help you,” she explains.

Translation: Look for innovations that can make your new product/service faster, easier and cheaper — and, ideally, appeal to younger customers. Beware of innovations that add complexity, instead of removing complexity, from your product or service.

At the end of the day, creating a Blue Ocean Strategy is about thinking more like a scrappy entrepreneur than like a seasoned CEO. “Be open to new possibilities,” says Simon. “That is what will make your competitor irrelevant.”

Related Resources

Strategic Planning: Identifying Gaps in Your Game [New Report]

Strategic planning guide for leaders & business owners

0 views