Blue Ocean Theory of Strategic Management - MGMT 449

W. Chan Kim and Renee Mauborgne developed a theory of strategic management called the Blue Ocean Strategy. This post analyzes the thoughts and concepts from their article.

Kim and Mauborgne define both blue and red ocean strategies and discuss the importance of generating new demand. The business world is comprised of red and blue oceans, each of which is characterized by different market spaces and strategic developments. The authors emphasize the strategic benefits of employing the blue ocean strategy. In essence; this strategy will ensure consistent demand. The authors illustrate several examples of blue oceans with popular companies such as Cirque du Soleil and Ford Motor Company. These companies reveal that blue oceans are not reliant on technological innovation, they focus instead on what buyers’ value. Strategists should consider developing blue oceans as opposed to operating within red oceans as it widens the opportunity for industries to grow and increase their profitability.

Defining Red and Blue Ocean Strategies:

The business world is a very competitive space and industries must employ numerous strategies to maintain their share of the market. Red and blue oceans tackle this in very different ways. The former represents existing industries and their related competition; as newer competitors permeate the market, profits decrease. Red oceans are significantly more common than their counterparts. Blue oceans, contrastingly, are characterized by undiscovered market space. Demand in blue oceans is created, either from within a red ocean (which is more likely) or in a new industry, and results in rapid growth and profitability. It is critical to understand that the creation of blue oceans does not rely solely on technological innovation. There are several strategic factors that contribute to their success. As the authors discuss, when Apple released its Apple II, the company employed mostly existing technologies. Beyond this, the market itself was unattractive upon the entry of this product. Their success was attributed to value pioneering, a critical part of developing blue oceans.

Understanding Buyer Value:

Strategists ought to consider that blue oceans deny the red ocean’s tradeoff between value and cost. Blue oceans have a history of applying innovation to what buyers value that has been consistent throughout this study. Cirque du Soleil, a favored example in this article, introduced themselves as an elevated circus, one with elements from ballet and theater, and thus created a new market within the red ocean that is the current circus industry. In incorporating these new, dynamic features, Cirque du Soleil caught the attention of a more elitist audience, one that was willing to pay more money than a traditional patron of the circus. Intuitively, one might assume that as technology develops, markets will shift. However, in an analysis of 150 blue oceans in 30 different industries, it was found that value pioneering was the driving force in creating these new markets. Kim and Mauborgne further their point by describing the success of Ford’s Model T. The market for automobiles was highly limited due to expensive upkeep and low practicality. Ford identified these concerns and reacted quickly by developing an assembly line for the Model T. The car was produced in large quantities, was easy to use, cheap to fix, and most importantly, rendered its competition irrelevant. The authors emphasize the importance of recognizing these facets of consumer wants in developing blue oceans.

Overcoming the Strategic Paradox:

Although blue oceans have been defined as a long-term strategic goal, red oceans remain the focus of most industries. The authors believe this to be the result of the militant nature of corporate structures. They reference terms such as headquarters and officers to express the competitive environment in red oceans. Kim and Mauborgne implore industries to instead consider the potential of a new market space. Furthermore, they believe that strategists should forgo the concept that a tradeoff exists between value and cost and instead search for opportunities to develop a new market space. Differentiating a product or service is not synonymous with increasing costs. Essentially, working to create a new market that places emphasis on what buyers value is a more lucrative strategy. Red oceans rely on a structuralist view that is largely defined by greater economic forces outside industry control. This stands in stark contrast to the reconstructionist view characteristic of blue oceans. The reconstructionist view describes an economic environment that is flexible and can adapt to the innovations of the industry. Again, the authors turn to Cirque du Soleil; had the founders of this company felt confined to the accepted definition of a circus, they might not have developed a blue ocean at all. Instead, they blended artistry from different backgrounds to create a new experience, a blue ocean within a red space. They created a new market, but also cut several costs associated with more traditional circuses and replaced them with more cost-efficient talent for the show.

The blue ocean strategy is a visionary’s tool for success. Industries should consider the potential that lies in creating blue oceans. Strategists must understand that developing new markets creates opportunity for growth which can translate into increased profits. Managers are tasked with creating success in their industries. By recognizing the benefits of employing the blue ocean strategy, they can differentiate their offerings to organize new market spaces. This spells opportunity for long term growth.