In 2005, Professors W. Chan Kim and Renee Mauborgne launched a revolution in business strategy by encouraging firms to evacuate shark infested waters.
Their book, "Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant," (Harvard Business Review Press) suggests companies are better off searching for ways to gain "uncontested market space" over competing with similar companies.
These new spaces are described as "Blue Oceans," compared to the struggle for survival in bloody "Red Oceans" swarming with vicious competition. The Blue Ocean Strategy represents the simultaneous pursuit of high product differentiation and low cost, thereby making competition irrelevant.
"Our study shows that blue ocean strategy is particularly needed when supply exceeds demand in a market," Kim explained in an article on Forbes. "This situation is applying to more and more industries today and will be even more prevalent in the future."
Finding Blue Oceans
While avoiding the use of Harvard Business School’s Michael E. Porter's name, Kim and Mauborgne attack the famous "five forces" market analysis head on. Porter’s model looks at specific factors that help determine whether a business can be profitable based on other businesses in the industry.
Advocates of Kim and Mauborgne’s strategy would say this is a tactic that promotes merciless competition, remaining in the red waters.
The key to exceptional business success, the authors say, is to redefine the terms of competition and move into the "blue ocean," where you have the water to yourself. The goal of these strategies is not to beat the competition, but to make the competition irrelevant.
To discover an elusive Blue Ocean, Kim and Mauborgne recommend that businesses consider what they call the Four Actions Framework to reconstruct buyer value elements in crafting a new value curve. The framework poses four key questions:
- Raise: What factors should be raised well above the industry's standard?
- Reduce: What factors were a result of competing against other industries and can be reduced?
- Eliminate: Which factors that the industry has long competed on should be eliminated?
- Create: Which factors should be created that the industry has never offered?
This exercise forces companies to examine every factor of competition, guiding leaders to discover the assumptions they unconsciously make while competing. They can then search for blue oceans within their industries and make the shift.
Blue Ocean strategy in practice
Kim pointed out how Amazon has shifted from an online retailer to a digital platform that sells practically anything.
"Just think of its initial blue ocean shift in book retailing that separated it from the pack with its offering of the largest selection of books in the world, good prices, automatic confirmation of buyers' orders, its useful selection on 'people who bought this book also bought,' and firsthand reviews on what readers found useful or not in a book," said Kim.
Amazon isn't always successful in creating blue oceans, however. According to Mauborgne, it failed in a few instances against Zappos, eBay and Apple.
"In each of these cases, the companies Amazon went up against had all created blue oceans of their own, and whenever Amazon tried to imitate them, they failed," said Mauborgne. "The lesson here is that the best defense is offense, and the best offense … is to make a blue ocean shift and create your own blue ocean. Imitation is not the path to success, especially in the overcrowded industries most companies today confront."
Another company that created a blue ocean shift is Home Depot, which made an original value-cost frontier that led to the multibillion-dollar DIY market, according to Kim.
"When they saw Amazon encroaching upon their space, instead of competing head-on … they doubled down on offering what Amazon could not – knowledge and advice to complete complex do-it-yourself projects such as renovating your bathroom on your own," said Kim.
Making the shift
When there is limited room to grow, businesses try and look for verticals of finding new sectors where they can enjoy uncontested market share. The aim is to capture new demand with a superior product that makes competition irrelevant. Unfortunately, this isn’t always successful.
As stores continue to expand and American shopping habits change, retailers are going bankrupt at record-high rates. Nine West, Claire's and The Bon-Ton Stores are a few among the multitude of companies that have filed this year.
For struggling businesses, Mauborgne recommended the strategy canvas, which is featured in her and Kim's newest book, "Blue Ocean Shift: Beyond Competing" (Hachette Books, 2017). The one-page analytic helps businesses to focus on an industry and its key competing factors.
"It drives you to take a hard look at yourself as the market sees you," Mauborgne said. "If retailers applied it, they'd quickly discover that they all compete in the same space they have for 30 years and all are near mirror images of one another. That creates a real wake-up call, gets everyone aligned and creates a strong impetus for change."
Her ultimate advice for businesses is to stop competing and start creating.
Additional reporting by Kayla Harrison.