Blue Ocean Strategy

A onetime accordion player, stilt walker, and fire-eater, Guy Lalibert is now CO of one
of Canada!s largest cultural e"ports, Cir#ue du Soleil$ %ounded in &'() by a group of
street performers, Cir#ue *as staged do+ens of productions seen by some ), million
people in ', cities around t*e world$ -n ., years, Cir#ue *as ac*ie/ed re/enues t*at
0ingling Bros$ and Barnum 1 Bailey2t*e world!s leading circus2took more t*an a
century to attain$
Cir#ue!s rapid growt* occurred in an unlikely setting$ 3*e circus business was 4and still
is5 in long-term decline$ Alternati/e forms of entertainment2sporting e/ents, 36, and
/ideo games2were casting a growing s*adow$ C*ildren, t*e mainstay of t*e circus
audience, preferred 7layStations to circus acts$ 3*ere was also rising sentiment, fueled by
animal rig*ts groups, against t*e use of animals, traditionally an integral part of t*e
circus$ On t*e supply side, t*e star performers t*at 0ingling and t*e ot*er circuses relied
on to draw in t*e crowds could often name t*eir own terms$ As a result, t*e industry was
*it by steadily decreasing audiences and increasing costs$ 8*at!s more, any new entrant
to t*is business would be competing against a formidable incumbent t*at for most of t*e
last century *ad set t*e industry standard$
9ow did Cir#ue profitably increase re/enues by a factor of .. o/er t*e last ten years in
suc* an unattracti/e en/ironment: 3*e tagline for one of t*e first Cir#ue productions is
re/ealing; <8e rein/ent t*e circus$= Cir#ue did not make its money by competing wit*in
t*e confines of t*e e"isting industry or by stealing customers from 0ingling and t*e
ot*ers$ -nstead it created uncontested market space t*at made t*e competition irrele/ant$
-t pulled in a w*ole new group of customers w*o were traditionally noncustomers of t*e
industry2adults and corporate clients w*o *ad turned to t*eater, opera, or ballet and
were, t*erefore, prepared to pay se/eral times more t*an t*e price of a con/entional
circus ticket for an unprecedented entertainment e"perience$
3o understand t*e nature of Cir#ue!s ac*ie/ement, you *a/e to reali+e t*at t*e business
uni/erse consists of two distinct kinds of space, w*ic* we t*ink of as red and blue
oceans$ 0ed oceans represent all t*e industries in e"istence today2t*e known market
space$ -n red oceans, industry boundaries are defined and accepted, and t*e competiti/e
rules of t*e game are well understood$ 9ere, companies try to outperform t*eir ri/als in
order to grab a greater s*are of e"isting demand$ As t*e space gets more and more
crowded, prospects for profits and growt* are reduced$ 7roducts turn into commodities,
and increasing competition turns t*e water bloody$
Blue oceans denote all t*e industries not in e"istence today2t*e unknown market space,
untainted by competition$ -n blue oceans, demand is created rat*er t*an foug*t o/er$
3*ere is ample opportunity for growt* t*at is bot* profitable and rapid$ 3*ere are two
ways to create blue oceans$ -n a few cases, companies can gi/e rise to completely new
industries, as eBay did wit* t*e online auction industry$ But in most cases, a blue ocean is
created from wit*in a red ocean w*en a company alters t*e boundaries of an e"isting
industry$ As will become e/ident later, t*is is w*at Cir#ue did$ -n breaking t*roug* t*e
boundary traditionally separating circus and t*eater, it made a new and profitable blue
ocean from wit*in t*e red ocean of t*e circus industry$
Cir#ue is >ust one of more t*an &?, blue ocean creations t*at we *a/e studied in o/er @,
industries, using data stretc*ing back more t*an &,, years$ 8e analy+ed companies t*at
created t*ose blue oceans and t*eir less successful competitors, w*ic* were caug*t in red
oceans$ -n studying t*ese data, we *a/e obser/ed a consistent pattern of strategic t*inking
be*ind t*e creation of new markets and industries, w*at we call blue ocean strategy$ 3*e
logic be*ind blue ocean strategy parts wit* traditional models focused on competing in
e"isting market space$ -ndeed, it can be argued t*at managers! failure to reali+e t*e
differences between red and blue ocean strategy lies be*ind t*e difficulties many
companies encounter as t*ey try to break from t*e competition$
-n t*is article, we present t*e concept of blue ocean strategy and describe its defining
c*aracteristics$ 8e assess t*e profit and growt* conse#uences of blue oceans and discuss
w*y t*eir creation is a rising imperati/e for companies in t*e future$ 8e belie/e t*at an
understanding of blue ocean strategy will *elp today!s companies as t*ey struggle to
t*ri/e in an accelerating and e"panding business uni/erse$
Blue and 0ed Oceans
Alt*oug* t*e term may be new, blue oceans *a/e always been wit* us$ Look back &,,
years and ask yourself w*ic* industries known today were t*en unknown$ 3*e answer;
-ndustries as basic as automobiles, music recording, a/iation, petroc*emicals,
p*armaceuticals, and management consulting were un*eard-of or *ad >ust begun to
emerge$ Aow turn t*e clock back only @, years and ask yourself t*e same #uestion$
Again, a plet*ora of multibillion-dollar industries >ump out; mutual funds, cellular
telep*ones, biotec*nology, discount retailing, e"press package deli/ery, snowboards,
coffee bars, and *ome /ideos, to name a few$ Bust t*ree decades ago, none of t*ese
industries e"isted in a meaningful way$
Adapted from The Wall Street Journal Guide to Management by Alan Murray,
published by Harper Business
3*e rapid pace of inno/ation and c*ange in recent years *as led sc*olars and e"ecuti/es
to searc* for an approac* to strategy t*at is more dynamic t*an 9ar/ard 7rofessor
Cic*ael 7orter!s classic <fi/e forces$= One of t*e most successful efforts to do so is t*e
book <Blue Ocean Strategy,= by 8$ C*an Dim and 0enee Cauborgne$
8*ile a/oiding use of Cr$ 7orter!s name, Cr$ Dim and Cs$ Cauborgne ne/ert*eless
attack *im *ead on, arguing t*at t*e <fi/e forces= analysis is a formula for remaining in
<red oceans,= w*ere t*e s*arks compete mercilessly for t*e action$ 3*e key to
e"ceptional business success, t*ey say, is to redefine t*e terms of competition and mo/e
into t*e <blue ocean,= w*ere you *a/e t*e water to yourself$ 3*e goal of t*ese strategies
is not to beat t*e competition, but to make t*e competition irrele/ant$
Among t*e e"amples t*ey cite is Cir#ue du Soleil, t*e Canadian company t*at redefined
t*e dynamics of a declining circus industry in t*e &'(,s$ Ender con/entional strategy
analysis, t*e circus industry was a loser$ Star performers *ad <supplier power= o/er t*e
company$ Alternati/e forms of entertainment, from sporting e/ents to *ome
entertainment systems, were relati/ely ine"pensi/e and on t*e rise$ Coreo/er, animal
rig*ts groups were putting increased pressure on circuses for t*eir treatment of animals$
Cir#ue du Soleil eliminated t*e animals and reduced t*e importance of indi/idual stars$ -t
created a new form of entertainment t*at combined dance, music and at*letic skill to
appeal to an upscale adult audience t*at *ad abandoned t*e traditional circus$
-nstead of <fi/e forces=, Cr$ Dim and Cs$ Cauborgne talk about <four actions= t*at can
*elp you create a blue ocean strategy$ 3*e actions are found by answering t*ese
#uestions;
Which of the factors that the industry takes for granted should be eliminated? -n
t*e case of Cir#ue du Soleil t*at included animals, star performers, and t*e t*ree separate
rings$
Which factors should be reduced well below the industrys standard? Cir#ue du
Soleil reduced muc* of t*e t*rill and danger associated wit* con/entional circuses$
Which factors should be raised well above the industrys standard? Cir#ue du
Soleil increased t*e uni#ueness of t*e /enue by de/eloping its own tents, rat*er t*an
performing wit*in t*e confines of e"isting /enues$
Which factors should be created that the industry has never offered? Cir#ue du
Soleil introduced dramatic t*emes, artistic music and dance, and a more upscale, refined
en/ironment$
Cr$ Dim and Cs$ Cauborgne argue t*at businesses s*ould focus less on t*eir competitors
and more on alternati/esF t*ey also s*ould focus less on t*eir customers, and more on
non-customers, or potential new customers$