A Conversation with W. Chan Kim and Renee Mauborgne
authors of BLUE OCEAN STRATEGY
1) What is a blue ocean strategy?
Kim & Mauborgne: Blue Ocean Strategy is a way to make the competition irrelevant by creating a leap in value for both the company and its customers.
2) What are red and blue oceans, and why do you use the colors red and blue?
Kim & Mauborgne: We use the terms red and blue oceans to describe the market universe. Red oceans are all the industries in existence today—the known market space. In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here companies try to outperform their rivals ...view middle of the document...
They focus on dividing up the red ocean, where growth is increasingly limited. Such strategic thinking leads firms to divide industries into attractive and unattractive ones and to decide accordingly whether or not to enter.
Blue ocean strategists recognize that market boundaries exist only in managers’ minds, and they do not let existing market structures limit their thinking. To them, extra demand is out there, largely untapped. The crux of the problem is how to create it. This, in turn, requires a shift of attention from supply to demand, from a focus on competing to a focus on creating innovative value to unlock new demand. This is achieved via the simultaneous pursuit of differentiation and low-cost.
Under blue ocean strategy, there is scarcely an attractive or unattractive industry per se because the level of industry attractiveness can be altered through companies’ conscientious efforts. As market structure is changed by breaking the value/cost tradeoff, so are the rules of the game. Competition in the old game is therefore rendered irrelevant. By expanding the demand side of the economy new wealth is created. Such a strategy therefore allows firms to largely play a non–zero-sum game, with high payoff possibilities.
4) Why are so many CEOs focused on the red ocean, while as you’re claiming, the money is increasingly in the blue ocean?
Kim & Mauborgne: Blue and red oceans have always coexisted and always will. Practical reality, therefore, demands that companies understand the strategic logic of both types of oceans. At present, however, competing in red oceans dominates the field of strategy in theory and in practice. Part of the reason traces back to the historical foundation of business strategy—war—where territory is defined and limited and opponents compete to protect and enlarge their share of limited and existing terrain. This focus on beating the competition in existing market space was exasperated by the meteoric rise of the Japanese in the 1970s and 1980s. Faced with mounting competition in the global marketplace as, for virtually the first time in corporate history, customers were deserting Western companies in droves, the center of strategic thinking gravitated further towards the competition. A slew of competition-based strategies emerged which argued that competition is at the core of the success and failure of firms, and that competition determines the appropriateness of a firm’s activities that can contribute to its performance.
The result has been a fairly good understanding of how to compete skillfully in red waters, from analyzing the underlying economic structure of an existing industry, to choosing a strategic position of low cost or differentiation or focus, to benchmarking the competition. Yet, although some discussions around blue oceans exist, little practical guidance exists to create and capture them. This largely explains why CEOs remain focused on red...