What Is Blue Ocean Strategy?

Competition is cutthroat in the business world. Most businesses, according to W. Chan Kim and Renée Mauborgne’s book, Blue Ocean Strategy, operate within a space known as the Red Ocean. This is the known market space, where industries and companies are already defined, and the boundary lines of competition are well-established. In the Red Ocean, companies fight for a share of existing demand through price wars and differentiation strategies. The competitive landscape becomes “stained red” from the conflict.

The Blue Ocean Strategy (BOS) offers a radical alternative. Blue Ocean Strategy is the simultaneous pursuit of differentiation and low cost to open up a new market space and create new demand. It’s about making competition irrelevant by creating a new value proposition that positions businesses in an uncontested market—a “blue ocean” of opportunity.

Kim and Mauborgne studied more than 150 strategic moves across 30 industries spanning 100 years to develop the Blue Ocean Strategy, and its lessons can be valuable for business owners today.

Core Tenets of Blue Ocean Strategy

Blue Ocean Strategy is built on principles that challenge the conventional wisdom of competition-based strategy. The differences are summed up as:

The central principle that drives Blue Ocean Strategy is value innovation. Value innovation integrates innovation with utility, price, and cost positions. It’s only achieved when a company’s actions both drive down its cost structure and lift the value proposition for the buyer at the same time.

• Cost savings is accomplished by eliminating and reducing the factors the current industry takes for granted or competes heavily on.
• Buyer value is accomplished by raising and creating new elements that the existing industry has never offered.

Value Innovation is what allows companies to escape the traditional trade-off between low cost and high differentiation.

Key Analytical Tools of Blue Ocean Strategy

Business owners can use two key analytical tools to systematically identify and create a blue ocean.

Strategy Canvas

The Strategy Canvas is a diagnostic tool that visually plots the relative offering levels of competitors in the industry. It’s designed to capture the current state of the known market, so managers can see where competitors are currently investing, what customers receive, and what competitors offer.

A Strategy Canvas is generally depicted on a graph, and the depiction of a company’s relative performance across these factors is called its Value Curve. To find a blue ocean, you need to create a divergent Value Curve.

Four Actions Framework

The Four Actions Framework is how you construct a new Value Curve. Also known as an ERRC Grid (for reasons you’ll see in a moment), it provides a structured approach to challenging conventional logic and business models.

The Four Actions Framework includes:

• Eliminate: Which factors that the industry has long competed on should be eliminated to drive down cost?
• Reduce: Which factors should be reduced well below the industry standard to further drive down cost?
• Raise: Which factors should be raised well above the industry standard to increase buyer value?
• Create: Which factors should be created that the industry has never offered to increase buyer value and create new demand?

A company can focus on the first two actions to lower its cost structure. The second two will help elevate the buyer’s value, creating a new, superior Value Curve.

Examples of Blue Ocean Success

There are many examples of Blue Ocean Strategy in the business wild, but these two are particular standouts.

Cirque du Soleil

Cirque du Soleil revitalized a stagnant, declining circus industry by creating its own blue ocean. Rather than competing with Ringling Bros. and other traditional acts, they shed the conventional family-friendly thinking to create a more sophisticated product that appealed to broader demographics.

• They eliminated expensive elements like star performers and animal acts.
• They reduce the number of acts and concessions.
• They raised the production quality, integrating concepts from traditional theater.
• They created a compelling story and thematic continuity, turning the circus experience from a children’s event into a sophisticated spectacle.

The Blue Ocean attracted a whole new audience of adults and corporate clients by blending the best of theater, opera, and the circus into a new art form.

Southwest Airlines

In the late 1970s, Southwest Airlines created a blue ocean by targeting non-customers who previously chose to drive or take buses for short to medium-haul travel.

• They eliminated complex features like meals, baggage transfers, and assigned seating.
• They reduced reliance on hub-and-spoke systems.
• They raised the frequency of departures.
• They created speed and convenience with point-to-point routes and exceptional turnaround times.

The result was an airline service that operated more like an “air taxi” than an airline. They offered the speed of air travel at nearly the price point of car travel, attracting a massive, underserved segment of the market—the traveler whose only alternative was driving.