Tuesday, December 9, 2008

Blue Ocean Strategy

Now if you went to business school and are wondering if you were absent the day it was taught, know that the blue ocean strategy is a fairly recent marketing term—it was first used in Harvard Business Review in 2004. In 2005, authors W. Chan Kim and Renee Mauborgne released the book Blue Ocean Strategy which became a best seller.

In a nutshell, blue ocean strategy says: Don’t compete with rivals. Make them irrelevant. To do this, one must leave the highly competitive overcrowded industries—the “bloody” red ocean—where companies compete head-on for a shrinking profit pool. A corporation will do well to create an uncontested market space ripe for growth—the vast blue ocean.

In a press kit posted online at the Blue Ocean Strategy website, Kim and Mauborgne explain this further:

“To sustain themselves in the marketplace, red ocean strategists 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 a finite market is seen as a zero-sum game in which one company’s gain is achieved at another company’s loss. They focus on dividing up the red ocean, where growth is increasingly limited. Such strategic thinking leads firms to divide industries into attractive and unattractive ones and to decide accordingly whether or not to enter.

“Blue ocean strategists recognize that market boundaries exist only in managers’ minds, and they 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 creating innovative value to unlock new demand. This is achieved via the simultaneous pursuit of differentiation and low-cost.”

Kim and Mauborgne studied 150 blue ocean creations in over 100 years in more than 30 industries. This proves that the blue ocean strategy has been in place for years, and only the term is new.

There are four actions in the framework:

1. Reduce factors well below the industry’s standard.

2. Eliminate factors that the industry takes for granted.

3. Raise factors well above the industry’s standard.

4. Create factors that the industry has never offered.

The authors cite Cirque de Soleil as one example of a blue ocean strategy. It is a circus act, but rather than do what every other circus does—monkeys unicycling, lions jumping into a ring of fire, star performers being shot to the air by cannon, etc.—Cirque de Soleil distinguished itself by combining opera and ballet.

Two businesses come to my mind applying the blue ocean strategy. There’s Cerealicious, a cereal bar. When the owners were thinking of going into business, they saw how crowded the burger, pizza and coffee businesses are. So they boldly introduced a product that has never been familiar to Filipinos—cereal smoothies and drinks. And they succeeded at creating demand for Cerealicious’ products.

Another business is Tan Gan by designer Lulu Tan-Gan. While other ready-to-wear clothes shops in malls focus on offering everyday clothes and glam party dresses, Tan-Gan decided to focus on knitwear. With her shop, people have realized that knitwear does not just mean sweater. One can have business suits, party clothes, and weekend wear in knits.

Are you racking your brains plotting how to beat the competition? Set your sights on the vast blue ocean in the horizon and form your blue ocean strategy.