In the early 1960s, Bruce Henderson, the founder of Boston Consulting Group, asserted that there was only one way to successfully compete: gain a relative market share advantage over all competitors and have lower costs than all of them. On top of it, the firm will further reduce costs due to the learning curve advantage.
In 1980, Michael Porter pointed out another way to compete: differentiation. His view of two generic strategies – cost leadership and differentiation - became very popular. He was categorical that each company will ultimately have to choose either cost leadership or differentiation. Any company opting for both will “get stuck in the middle”.
In 2005, W. Chan Kim and Renee Mauborgne of INSEAD, in their book, “Blue Ocean Strategy’’ came up with a completely different approach. Their main contention was that while remaining in the existing business (red ocean), companies should also identify new uncontested markets (blue ocean). In doing so, companies will simultaneously pursue cost leadership and differentiation.
Red Ocean Strategy VS Blue Ocean Strategy | |
Competing in existing market space | Create uncontested market space |
Beat the competition | Make the competition irrelevant |
Make the value–cost trade-off | Break the value–cost trade-off |
Align the whole system of a company’s activities with its strategic choice of differentiation or low cost | Align the whole system of a company’s activities with its strategic choice of differentiation and low cost |
Unlike many other strategy approaches, Blue Ocean Strategy comes with a what and how-to-do list. It clearly articulates the steps required and provides tools for each step.
Following, in brief, are the steps involved in executing the Blue Ocean Strategy:
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Identifying problem/customer pain points - which are restricting the company’s growth
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Prepare ‘As is’ Strategy Canvas/Value Curve – to understand the current status
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Ideas to innovate – Six Path Framework (To identify the blue ocean market)
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Carry out Eliminate, Reduce, Raise and Create (ERRC) analysis – this helps a company to pursue cost leadership and differentiation simultaneously
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Prepare a new ‘To be’ Strategy Canvas / Value Curve - which will be the starting point of implementation.
There have been many examples of the success of Blue Ocean Strategy like Cirque du Soleil (A Canadian circus company), Marvel, Nintendo, Stich Fix in the fashion retail industry, Health Media in the healthcare industry, etc. However, a notable failure was Tata Nano.
S.M. Fakih retired from a large multinational company as the head of strategy development. He teaches Strategic Management at IGTC. IGTC plans to conduct a one-day open program or can customize a program for your organization on “Business Unit Strategies – with special reference to Blue Ocean Strategy”. For details, please contact igtcdirector(at)indo-german.com.
