In

todays competitive market there is a cut-throat competition between companies for available
market share. Businesses are always looking for ways in which they can better compete with
their contenders. Most of the business management theories, like Five Force Theory by Michael
Porter, emphasis on how to compete with the rivals and survive the existing market.But there is
one unique theory which suggests that they should look out for ways in which they will compete
against no one but themselves.
What is Blue Ocean Strategy?
Blue ocean strategy(BOS) is term that describes how organization should try and find a way to
work in a marketplace that isnt bloodied by the competitors and is free of competition.
The term is coined by professors W. Chan Kim and Renee Mauborgne in their book "Blue
Ocean Strategy: How to Create Uncontested Market Space and the Make Competition
Irrelevant" (2005). They both are Professors at INSEAD and Co-Directors of the INSEAD Blue
Ocean Strategy Institute. Thestudy is based on 150 strategic moves spanning more than 100
years and 30 industries.
Blue oceansdenote all the industries not in existence today the unknown market space,
untainted by competition. In blue oceans, demand is created rather than fought over. There is
ample opportunity in BOS for growth that is both profitable and rapid.

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As cited in the book, Competing in overcrowded industries is no way high performance. The
real opportunity is to create the oceans of uncontested market space. The way of creating the
opportunity is Blue ocean strategy.

Difference between Red & Blue Ocean

Majority of the business practices form Red Ocean Strategy. One can hardly talk about strategy
without the language of competition. This is called competitive-advantage worldview where
companies are often driven to outperform the rivals and capture greater share of existing
market. However, to capture this existing share one has to go through head-to-head competition
which turns the ocean bloody, hence, the termRed Ocean.

Red Ocean strategy is assessing what competitors do and striving to do it better. Here, grabbing
a bigger share of the market is seen as a zero-sum game in which one companys gain is
achieved at another companys loss. Firm principally seek to capture and redistribute wealth
instead of creating wealth. Here the competition is often so intense that some firms cannot
survive themselves and stop operating.
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The blue ocean theory explains that no doubt this competition is vital. But while focusing on
competition many scholars, companies and consultant usually ignore significant aspects of
strategy. The aspect to find and develop markets where there are little or no competitions-Blue
Oceans- and other is to exploit and maintain blue oceans.
To avoid costly competition, firms can innovate or expand in the hope of finding a blue ocean. A
blue ocean exists where no firms currently operate, leaving the company to expand without
competition.
To elaborate it further let see an example:
Facing one of the biggest recession after the great depression in the late 1920s, many furniture
giants like Crate& Barrel, Bed, Bath & Beyond, Target & IKEA had to incur huge loss due to
reduced spending by consumers. Furniture industry had become a red blooded marketplace
where each and every brand was competing with each other. During that period IKEA-worlds
largest retailer, revitalized this industry and made furniture shopping a new experience.
Instead of focusing too much on the competition, IKEA focused on where the job needs to be
done. They thought out of the box by finding complementary products & services that made
good communication with the consumers. They thought of recombining the market across
segments and industries instead of separating it. They changed their target consumers and
started designing their products for families as well and diverted their focus more on amenities.
And by this change they succeeded in targeting their old, young and families segment. They
started offering playground for children as well as for restaurants. Prices were kept low while
style, selection and ease were elevated. By raising the amenities they increased their
performance. They increased their profitability by reducing the cost incurred on ambiance and
the interior designs of the stores. Here an innovation in the existing market, a blue ocean
strategy, is applied where demand is created rather than fought over it. There is ample
opportunity for growth over here that is both profitable and rapid.
Mobile phones and electronic gadgets companies, booming online industry etc. can be consider
as Red ocean place. Chances to sustain in these industries will be increased if demand for
innovative idea is created i.e. following BOS.
Value Innovation
In the above example, a new value has being invented in order to survive in such a challenging
industry. This is what is called as Value Innovation. Value innovation is an important feature of
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Blue Ocean. A blue ocean is created in a region where a companys action affects both its cost
and value propositions to buyers. Cost savings are made from eliminating and reducing the
factors an industry competes on. Buyer value is lifted by raising and creating elements the
industry has never offered.
Skypein the voice-over-IP (VoIP) industry,they combined voice and video value innovation
whichaccompany users with much higher value at lower cost than alternatives.Its offering
created such exceptional utility for users around the world that Skype has become a verb - to
'Skype' someone means to call someone using the Skype application.
Key Analytical Tools & Frameworks:
Strategy Canvas
The strategy canvas is both a diagnostic and an action framework for building a compelling blue
ocean strategy. It captures the current state of play in the known market place. It allows a
company to understand:

the factors in the industry currently competes on in products, services and

o
o

delivery
where the competition currently investing
what customers receive from existing competitive market

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Four Action Frameworks

The Four Actions Framework is used to reconstruct buyer value elements in crafting a new value
curve. It breaks the trade-off between differentiation and low cost, and creates a new value
curve. The framework poses four key questions to challenge an industrys strategic logic.

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Four Action Frameworks

(ERRC) Grid
The Eliminate-Reduce-Raise-Create (ERRC) Grid complements the Four Actions Framework. It
pushes companies not only to ask the questions posed in the Four Actions Framework but also
to act on all four to create a new value curve, which is essential to unlocking a new blue ocean.
The ERRC grid with reference to the case of IKEA (Worlds Largest Furniture company) cited
aboveis as follows:

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ERRC Grid with Ref. to IKEA

Six

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Principles

of Blue Ocean Strategy

The six principles of BOS are as follows:
Formulation Principles:
1.
2.
3.
4.

Reconstruct market boundaries

Reach beyond existing demand
Focus on big pictures, not the numbers
Get the strategic sequence right

Execution Principles:
5. Overcome key organizational hurdles
a. Cognitivehurdle
b. Resourcehurdle
c. Motivationalhurdle
d. Politicalhurdle
6. Build execution into the strategy
Important Cases for the study:
TATA Motors: NANO
TATA NANO is a great example of Blue Ocean Strategy. Tata Motors took a strategic move to
create and launch the Tata Nano-cheapest Indian car. Tata Nano created its exceptional value
proposition and attained a viable profit proposition by following the right strategic sequence.
The vision of Ratan Tata (chairman of Tata Motors' parent, Tata Group) to create an ultralowcost car for a new category of Indian consumer is nothing but based on BOS theory. In India
there are people who couldn't afford the $5,000 sticker price of what was then the cheapest car
on the market and instead drove his family around on a $1,000 motorcycle. And yet none of the
6

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automakers in India were focused on that segment. In that respect, the Nano is a great example
of the so-called blue ocean strategy.

Nintendo - Wii
Nintendo looked to the gaming industrys noncustomers segment of the market. This noncustomer segment included older non-gamers, parents who wanted their children to play active
games, the elderly and very young children. Once Nintendo understood why these noncustomer
groups shunned video games, they reconstructed elements across market boundaries to create
a console based on simplicity, functionality, and interactivity, with games that dramatically raised
utility for these noncustomers.
Nintendo Wii adopted a Blue Ocean strategy by reducing the complexity as well as by adding
fun element in it. They had reached beyond existing demands by designing a video game
console meant for almost all class of people in the society. By following BOS, they made
changes in their four action framework approach. They eliminatedthe complexity in the game
controls; they increased their game library collections and raised the standard of the use of the
game; reduced price & online pay hassle and finally created a new interactive group fun box
along with magic wand in it.
Wikipedia
The online encyclopedia industry has evolved from the first printed edition of Encyclopedia
Britannica. Then Microsoft attempted to sustain its Encarta.com, but failed. Later they adopted
three strategy propositions of value, profit and people around both differentiation and low cost to
break the value-cost and created a blue ocean that is hard to imitate. They followed
Reconstructionist approach that pursues both differentiation and low cost.
The BOS strategy is the simultaneous pursuit of differentiation and low cost. It has the theory
not to out-perform the competition in the existing industry, but to create new market space or a
"blue ocean," thereby making the competition irrelevant. For incorporating these kinds of
innovative ideas & theory into your business there is need of an expert. These experts can
guide you to go ahead with the suitable theory and strategy. And to connect with these
professionals you can visit CrossProf.com. We have a huge database of business consultants
and professionals who can provide you key business services in a comprehensive way.

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Ref:
http://www.uhu.es/45122/temas/P&SC/Theme1_BlueOceanStrategy.pdf
http://www.blueoceanstrategy.com
http://www.slideshare.net/nusantara99/blue-ocean-strategy-51901
http://www.investopedia.com/terms/b/blue_ocean.asp
http://www.businessnewsdaily.com/5647-blue-ocean-strategy.html
http://guides.wsj.com/management/strategy/what-is-blue-ocean-strategy/

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