Central Theme
Kim and Mauborgne argue that all businesses can be divided into two groups in terms of their strategy. The authors refer to these groups as “red ocean companies” and “blue ocean companies.” Principal differences between the two types of business strategies lie in the area of competition, relations between cost and value, and overall attitude toward the market.
Initially, the authors of the article use the terms “red oceans” and “blue oceans” to refer to two different categories of existing industries. A red ocean is a well-established industry, where the relationships between businesses and customers have been more or less defined. Red oceans are characterized by significant levels of competition. Competition is the driving force of such industries. Companies who compete in red oceans face determined consumers’ demand and recognize the need to satisfy the consumers’ needs by providing products and services that are better than those of the competitors’. Blue oceans, on the contrary, are areas of newly discovered—or, to put it more correctly—shaped demand. Blue oceans are territories of the market that have not been explored previously, and demand in them is created rather than fought over by the participants of the market.
Red oceans are dense and driven by competition; blue oceans are spacious and driven by defining new needs. Kim and Mauborgne state that the creation of blue oceans is associated with consistent strategic thinking and foresight. Businesses should think outside of the framework of their industries to discover, explore, and use uncontested market space.
In doing so, a crucial strategic approach is redefining the connection between value and cost. The traditional understanding of this connection is a trade-off. Businesses choose between the two, i.e. either opt for providing greater value that would cost customers more or for providing lesser value that would cost less. In blue oceans, there is no such trade-off. What businesses in blue oceans do instead is providing differentiation and low cost simultaneously. This becomes possible when competition becomes irrelevant, and competition becomes irrelevant only if a company enters a market space that is not yet covered by the business world.
Therefore, it can be concluded that red and blue oceans are fundamentally different, as they represent dramatically different strategic approaches to doing business. From the theoretical perspective, the worldview adopted by red ocean companies is what scholars call the “structuralist view,” also known as environmental determinism. It means that there is the assumption that the conditions of the market are a given, and all the participants of it are bound to compete under these conditions. Red ocean businesses find themselves somewhat powerless over economic forces. Blue ocean companies, on the contrary, adopt the reconstructionist worldview, i.e. the recognition that the market itself and different industries can be altered in terms of their rules and boundaries—and the alteration comes from the strategic planning and activities of companies.
Critical Analysis
The article is well-written and has a good structure. Pictures, text boxes, and separate quotes written in a larger font make reading and understanding easier. Its language is appealing to business practitioners as well as people who are interested in business but do not have professional knowledge about it. Technically, the article is not academic (for example, reference is not used), but it presents certain research data, which contributes to its persuasiveness. The article gives many examples, both from modern times and from the history of the 20th century. The authors had conducted a study to explore the development of blue oceans that had gone back 100 years. Although the methodology is not explained and the results are not formally presented (because the article is not an academic one), Kim and Mauborgne choose relevant information from their research and present it to strengthen their points. It makes the article more reliable and more convincing.
Main Takeaways
Kim and Mauborgne seem to regret that the portion of businesses that adopt the blue ocean strategy is rather small. It is suggested throughout the article that entering blue oceans is a more innovative and altogether more beneficial way of doing business. Blue ocean companies are more successful, run fewer risks of being damaged by adverse economic processes, and are more bound to satisfy customers’ needs optimally. Therefore, the main takeaway from the article for everyone who does business should be the understanding of how blue oceans work and how they can be created.
First of all, the authors stress from blue oceans often explode from existing industries. It means that entering a blue ocean is not necessarily about discovering something fundamentally new but often about finding uncontested market space within red oceans or identifying customers’ needs on intersections of industries and thus creating new demand. Kim and Mauborgne illustrate this idea by explaining that blue oceans associated with technological innovation, such as various areas of computer technologies that grew into major market spaces by the 2000s, were not created by technological advancement itself. There are new technologies that do not create blue oceans; similarly, there are technology-driven blue oceans that did not emerge due to technologies but were created through strategic planning of certain companies. The crucial aspect of such planning is not developing technologies but linking them to what is valued.
Also, Kim and Mauborgne address the issue of competition regarding blue oceans. As it was stated above, blue ocean companies make competition, as it is traditionally understood in red oceans, irrelevant. However, it does not mean that competition does not matter. It only means that focusing on competition means taking away from the opportunities for growth and strategic planning capacity of businesses.
It is also emphasized that analyzing blue oceans should not be based on traditional units of analysis such as industries and companies. There are no consistently successful companies, and industries change rapidly in the modern world. These two factors make business analysis vague so that the results of it do not effectively explain how blue oceans appear. Instead, what researchers should focus on is a strategic move as a unit of analysis. The strategy is exactly what shapes market space today, and the phenomenon of blue oceans is a convincing illustration of that.
Overall, the authors define five principal characteristics of blue oceans as opposed to red oceans. Instead of competing in existing market space, blue oceans create uncontested market space. Instead of being involved in the competition, blue oceans make it irrelevant. Instead of addressing existing demand, blue oceans shape and address new demand. Instead of playing by the rules of the trade-off between value and cost, blue oceans redefine the value/cost relationship. Finally, blue oceans pursue differentiation and low cost simultaneously instead of choosing between the two. Strategic planning toward all five of these characteristics can help companies create a blue ocean.
References
Kim, W. C., & Mauborgne, R. (2004). Blue ocean strategy. Harvard Business Review, 82(10), 76-84.