Title of the paper: Blue Ocean Strategy

Authors: W. Chan Kim and Renee Mauborgne

Journal Name: Harvard Business Review
Year of Publication: October 2004

ABSTRACT
The central idea of Blue ocean strategy has become very prominent since it was incepted.
Companies spend too much time fighting for the same customers in the same markets, the so
called red, bloodied oceans. The authors claim that the dominant logic in firms over the past
few decades has been competition-based red ocean strategies. They have followed a
mainly Michael E Porters logic (also termed as Porterian logic) of cost cutting and taking
market share from their competitors. If they really want to succeed they should look for new
blue oceans i.e. they should offer new products and services or find new customers. By
moving into this untapped market space companies can find opportunity for highly
profitable growth.
The main idea of the article is to give an objective view of the term Blue Ocean Strategy. The
article highlights the moves taken by the businesses to create strategic logic. A comparative
study is also done between Red Ocean Strategy (ROS) and Blue Ocean Strategy (BOS). The
message of authors is that, companies should focus on the big picture rather than just the
numbers and an immediate return on investment.
MAIN RESEARCH- THE INSIGHTS
In recent times most of the businesses are concerned about managing costs, quality control,
assets utilization, operational efficiency, logistics, cycle times etc., these are basically the
productivity management factors and do not give much emphasis to growth/innovation,
creativity methods, new brand development, global reach, corporate brand, future strategy
etc. which are the creativity management factors. The businesses spend most of their time
(nearly 80%) on productivity management rather than creativity management (nearly 20%)
where true growth and profitability lies. J oseph Schumpeter coined the term Innovation in
1942, he spoke about randomness, entrepreneurship, trial and error-learn from failures,
opportunities and risks coming together. He believes that innovation should be in
DNA/culture of the businesses and considers innovation as a sub-system approach. The
biggest question is- from where the innovation strategies come from.


W. Chan Kim and Renee Mauborgne, are looking from past 25 years, that, What makes an
innovation succeed? What makes an innovation fail? Are there any similarities between 98%
of the failures and 2% of the success and vice-versa? That translation is done by the strategic
logic, Blue Ocean Strategy. On researching the history of blue ocean creations
150 blue ocean creations
More than 30 industries
Over 100 years (1880-2000)
Launch within Red Oceans Launch within Blue Oceans
Business Launch 86% 14%
Revenue Impact 62% 38%
Profit Impact 39% 61%
Incremental Moves Innovative Moves

Above comparison clearly gives the distinction between the impact on profit on adopting the
incremental moves (product line extensions) and innovative moves by the industries. The
crux lies in the development of Strategic Logic.
Businesses takes market demand and environment as the given. For example, if someone
wants to start a restaurant business in Kormangala, Bangalore, he will look for, whats the
demand basically and the total population, income level and all the required demographics
and the competitors, how many other restaurants are there in that area and then start fighting
over market share. Take market demand as the pie and the aim is to take bigger slice of the
pie. This is a zero-sum game (one gets a bigger slice, somebody else gets a smaller slice). It
signifies the rivals fighting with each other turning the ocean bloody red and hence is termed
as a Red Ocean Strategy.
Blue color is a calm place where there are no rivals, no competitors and there is no fighting.
Whereas companies have long engaged in head to head competition, they have fought for
market share, they have battled for differentiation. The professors (Kim & Mauborgne)
suggest that even though it is necessary, it is not the enough for profitable growth. For
profitable growth you need to look into other strategic growth options and blue ocean strategy
is one of them.


CASE EXAMPLES- APPLICATIONS
There are few case examples which will bring out the insights of the BOS
Case-1: Classical Orchestra Industry
Orchestra Industry is considered to be a declining industry in US. Even the big 5 (Boston
Symphony, Chicago Symphony, Cleveland Orchestra, New York Philharmonic and
Philadelphia Orchestra), despite all subsidies, brand name and quality of performance are
running deficits. The target market for this industry are the people who appreciate and
understands music and as most of the people have little knowledge about the music, the
industry seems to be non attractive. The situation of the industry is shown in the graph below:

The number of concerts are increasing as number of concert companies are on the rise yet the
average number of audience per concert is going down.
The orchestra industry believes in that the success of the orchestra depends on the factors
such as fancy venues, the better the venue the higher the cost of the ticket. The musicians
should be formal and trained and they should have a star conductor which will bring in more
revenue. The industry spends million dollars on the star conductors. The industry has
unsustainable cost structure as shown below.



There strategy canvas is used as a tool to look into the blue ocean strategy. The canvas below
gives the traditional orchestra experience which includes high cost due to high non value
added features

The factors like price, star conductor, star soloist, fancy theatre, mannerism and code of
conduct, length of each piece of music, size of orchestra are on the high and the number of
concerts, value capacity and use of familiar music are on the lower side.


At this point when industry seems to be unattractive, Andre Rieu, a Dutch violinist changed it
all by moving outside the market that industry focussed on as shown in the below strategy
canvas.

He has eliminated the factors that are adding cost and factors which are not adding value for
the buyers. Increased value for the buyers by adding certain factors like audience
participation, festive costumes and settings, fast, fun family atmosphere, that is the BOS
In the above case the strategic logic is:
Increased value for the buyers
Reduce the cost structure of the company
Hence simultaneous pursuit of high value and low cost is the blue ocean strategy.
Case-2: Tata Motors- Nano Car
In year 2009, Tata Motors came up with the new concept of Nano Car-World's Cheapest Car.
They have adopted combination of differentiation and low cost as stated in Blue Ocean
Strategy and tried to capture in the non- customers. It is the outcome of combo Value
Innovation and playing a different game.



CRITIQUE
The power of the blue ocean / red ocean metaphor has made the idea very popular for anyone
wanting to create the product or service category the right way. However, the BOS is not
without criticism.
The relative idea in the article is rather descriptive than prescriptive. The authors present
many examples of successful innovations, and then explain from their Blue Ocean
perspective, essentially interpreting success through their lenses. Criticisms include claims
that no control group was used, that there is no way to know how many companies using a
BOS failed and the theory is thus unfalsifiable, that a deductive process was not followed,
and that the examples in the article were selected to tell a winning story. Brand and
communication are taken for granted and do not represent a key for success. Kim and
Maubourgne take the marketing of a value innovation as a given, assuming the marketing
success will come as a matter of course. It is argued that rather than a theory, BOS is an
extremely successful attempt to brand a set of already existing concepts and frameworks with
a highly sticky idea. This metaphor can be powerful enough to stimulate people to action.
However, the concepts behind the Blue Ocean Strategy (such as the competing factors,
the consumer cycle, non-customers, etc.) are not new. Many of this articles key concepts
were previously covered in Competing For The Future by Gary Hamel and C.K
Prahalad, which was published in 1996. The authors encouraged managers to stake out new
marketing space, which they termed white space, in order to "create and dominate emerging
opportunities.
Competition isnt made irrelevant by blue ocean strategy. A business is still competing for
share of the consumers wallet with a wide variety of other products. It is just differentiation
by another name as it gives customers more choice of how they want to solve particular
problems and issues. Blue Ocean Strategy isnt as customer-centric as you might think since
it smacks of building a better mousetrap syndrome. It doesnt go into detail about
understanding the customers core problems and frustrations with existing products which
create the opportunity for value innovation.
CONCLUSION
Inspite of having lot of criticisms the concept of blue ocean strategy prevails. It helps you to
think about how you can differentiate your business and products and for that it should be


encouraged. The idea is extremely thought provoking. In order to maintain a steady growth of
Blue Ocean Strategy businesses should set up the imitation barriers. These barriers should be
set so high that the imitators wont be able to join the market easily. The concept gives a clear
idea on how innovation works as BOS is a systematic approach which follows a pattern based
on theory and methodologies. It aids risk minimization and opportunity maximization with
the extensive use of analytical frameworks and helps in achieving a systems strategic
alignment.
REFERENCES
http://hbr.org/1996/11/what-is-strategy/ar/1
http://hbr.org/1994/07/competing-for-the-future/ar/1
http://www.blueoceanstrategy.com/