Blue Ocean Strategy

December 31st, 2015

What is Blue Ocean Strategy and why should I care about? My simple answer is that it is a strategy consisting of differentiation and lower cost which embraces the entire system of activities within a company to create a unique situation.

Here’s how it works. Value is created in areas where the company’s actions have a favorable impact on its cost structure and from the value propositions offered to customers. Competition is not the center of strategic thinking. This enables cost savings to occur as a result of eliminating and reducing the factors which are normally the focus of competition.

Value is enhanced by raising and creating features and components that are not typically offered within the industry. The structure of an industry can be shaped and is not just taken for granted. Over time costs are reduced as economies of scale kick in due to higher sales volume generated through creation of superior value.

Blue Ocean Strategy involves the following four step action process:

  1. Eliminating factors that the industry takes for granted.
  2. Reducing the factors which can be reduced well below standards for the industry.
  3. Creating factors that were never offered by the industry.
  4. Finally, raise the factors that can be raised well above the standard for the industry.

Characteristics of a good strategy include the creation of focus combined with differences from the normal strategic process and linking these concepts with a compelling tagline. This means thinking beyond normal boundaries and exploring new possibilities. These actions take you to “blue oceans” where little or no competition exists in contrast to “red oceans” which are infested with intense competition.

The key to Blue Ocean Strategy is extending beyond existing demand. Your thinking should focus on finding non-customers before thinking about customers. Market areas and customers that haven’t been targeted are going to be the essence of finding “Blue Oceans” and successful strategies.