Who Wants to Swim in a Red Ocean?

juli 5th, 2018 · by John · Weblog EN

Depending upon the industry and the environment they operate in, companies adopt different strategies. But the heart of any strategy is to create a unique value proposition for customers and attaining an advantage over competition. The so-called Blue Ocean Strategy can help you to create uncontested market space that makes competition irrelevant.

Red and Blue Oceans

Kim and Mauborgne (2014) analyzed 150 companies within 30 industries over a period 100 years. They concluded that there are two kinds of markets: blue and red oceans.

Red oceans represent the traditional existing industries in known market spaces, where industry boundaries are defined and accepted. The basic rule is to outperform rivals, and to grab a greater share of existing demand. Prospects for profit and growth in these  markets are limited.

Blue oceans stand for new and undiscovered markets, for opportunities with new value creations and for new customer bases with no competition. Demand is created, growth is rapid and profitable, and competition irrelevant.

Many managers are familiar with red oceans and feel accustomed to competition. But the challenge for them should be to move from red to blue. What distinguishes winners from losers in the process of creating blue oceans is their attitude to strategy. They do not benchmark rivals, but adopt a new strategic logic.

Blue Ocean Paradox

Kim and Mauborgne found that only 14% of business launches were made in blue ocean markets, but that these 14% achieved 38% revenue impact and 62% profit impact. The 86% business launches in red oceans were only able to get 39% of total profit.

This paradoxical and dramatic imbalance in favor of blue oceans, may be explained by the fact that corporate strategy is heavily influenced by military strategy. Its language is filled with military references, such as chief executive “officers” and “headquarters”. Military strategy is about confronting an opponent and driving him off the battlefield. Blue ocean strategy, on the other hand, is about doing business where there is no rivalry.

Focusing on red oceans means accepting the constraining factors of war: to defeat a rival or to succeed in a limited terrain. This however, means denying the distinctive strength of the business world: the capacity to create new uncontested markets. As  more companies join existing markets and compete on minimizing cost, prices will go down. But competing on price is not a sustainable solution. You should therefore not outplay competition, but ignore them by searching and entering new and uncontested markets.

Blue Ocean Strategy

While striving for advantages over competition, the strategic thinking of companies often ends up in incremental improvement; imitation but not innovation. Sustainable and profitable growth can only be achieved by breaking out of the trap of imitation. This can be done by implementing value innovation as a strategy.

Value innovation involves a focus on value creation for the customer, and an emphasis on innovation. To pursue these new ways of doing things, ask yourself two questions, and depending on the answer act accordingly: (1) Are we offering our customers superior value? And (2) Is our price level accessible to the mass of buyers?

Are Red Oceans worthless?

Red ocean strategies are not useless. Your company must also master its traditional markets using conventional strategic planning tools. Red oceans will always matter, and are a fact of business life. But to focus on the red ocean is to accept the constraining factors of limited terrain and the need to beat an enemy to succeed. To sustain high performance, you must create your own blue oceans, and make competition irrelevant!

John Greijmans

Leave a Reply

* Copy This Password *

* Type Or Paste Password Here *