Blue Ocean Strategy

Blue Ocean Strategy

Blue Ocean Strategy is a corporate strategy and bestselling business book written by Professors W. Chan Kim and Renée Mauborgne, of insead. The book offers examples of how successful businesses captured uncontested market space, and thereby made competition irrelevant. This was formerly described as "Value Innovation," in 5 articles for the Harvard Business Review by Kim & Maubourgne before they released the book in 2005. Blue Ocean Strategy is the result of a decade-long study of 150 strategic moves spanning more than 30 industries over 100 years (1880-2000).

Concept:

The "ocean" refers to the market or industry. "Blue oceans" are untapped and uncontested markets, which provide little or no competition for anyone who would dive in, since the markets are not crowded. A "red ocean", on the other hand, refers to a saturated market where there is fierce competition, already crowded with people (companies) providing the same type of services or producing the same kind of goods.
Their idea is to do something different from everyone else, producing something that no one has yet seen, thereby creating a "blue ocean". An essential concept is that the innovation (in product, service, or delivery) must raise and create value for the market, while simultaneously reducing or eliminating features or services that are less valued by the current or future market. The authors critique Michael Porter's idea that successful business are either low-cost providers or niche-players. Instead, they propose finding value that crosses conventional market segmentation and offering value and lower cost.

Examples:

Some examples of companies that may have created new market spaces in the opinion of Kim and Mauborgne include Cirque du Soleil (unique circus format) and Home Depot (offering the prices and range of lumberyard, while offering consumers classes to help them with DIY projects). A current example of this strategy is the success of the Nintendo Wii, which Nintendo designed to target audiences not traditionally known to play videogames.

Criticisms:

While co-authors Professor Kim and researcher Mauborgne propose approaches to finding uncontested market space, at the present there are few if any success stories of companies that applied their theories. This hole in their data persists despite the publication of Value Innovation concepts since 1997. A critical question is whether this book and its related ideas are descriptive rather than prescriptive. Kim and Maubourgne take the marketing of a value innovation as a given, assuming the marketing success will come as a matter of course. The authors present many examples of successful innovations, and then explain from their Blue Ocean perspective - essentially interpreting success through their lenses.

The concept is often categorized as a management fad. Even Prof Kim acknowledge these attacks.
The research process followed by the authors presents many questionable practices, raising doubts on the integrity of the theory. Some of these are:

-No control group was used. There is no way to know how many companies exploiting a blue ocean strategy concept failed. The theory therefore does not meet the falsifiability criteria in practice. A deductive process was not followed. The examples in the book are selected to "tell a winning story".

-A whole chapter of the book "Tipping Point Leadership" is based on an already demonstrated flawed conclusion that the drop in crime in NY city is not explained by policies and actions but by an increase in abortion rates (according to book Freakonomics). Crime rates fell also in other cities other than NY without applying what the authors call Tipping Point Leadership.

-The main framework Eliminate-Reduce-Raise-Create is redundant and circular. By definition innovating is about doing something different. And by definition something different will necessarily have something eliminated, reduced, raised or created. There are no new insights with this framework. The key and more important questions not addressed in the book is WHAT is to be eliminated and HOW and WHAT you create.

-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, Blue Ocean Strategy is an extremely successful attempt to brand a set of already existing concepts and frameworks with a highly sticky idea. The blue ocean/red ocean analogy is a powerful and memorable metaphor, which is responsible for its popularity. 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 these tools are also used by Six Sigma practitioners and proposed by other management gurus.