BLUE OCEAN STRATEGY

The Blue Ocean Strategy, was created by W. Chan Kim, in 1990, seeks to set aside the competition among enterprises, expanding the market through innovation. Kim and Mauborgne (K and M) said that "what companies need to achieve to be successful in the future it is to stop competing with each other". They divide current markets in two options; red markets and blue markets.

 In the last twenty years, all the strategic thinking has been directed to the red ocean; Administration defines that competition is the success or failure of companies, which has allowed many know perform ably in this world, but knowing that another type of strategy could produce better results, without much concern for competition.

The red ocean represents all existing industries today. These companies must be clearly marked limits and the competencies defined, and their aim is to overcome the opponent and gain a foothold in the market. They are constantly exposed to new competitors, which diminish their growth potential. Usually this type of ocean is the reality of any business. Blue ocean strategy focuses attention on the creation of new markets at the product development stage.

The concept is designed to encourage managers to focus on the creating of uncontested markets.

Most strategic models focus on achieving competitive advantages: the central question being how to be better than the competition. The BOSM (Blue ocean strategy model) does not focus on winning from competitors, but on making the competition irrelevant by creating "blue ocean" opportunities. Blue oceans are uncontested marketplaces in which new demands of customers are satisfied (Kim and Mauborgne, 1997). Read oceans, in contrast, are competitive arenas in which competitors fight and consequently weaken each other.

We can list most important characteristics of these markets

Red ocean Strategy (defend current position perspective)

Compete in an existing market place.

Beat the competition

Exploit existing demand

Make the value / cost trade-off

Align the whole system of a firm’s activities with its strategic choice of differentiation or low cost

Blue ocean strategy (innovate and pursue new opportunities perspective)

Create an uncontested marketplace

Make the competition irrelevant

Create and capture new demand

Beat the value / cost trade – off

Align the whole system of a firm’s activities in pursuit of differentiation and low cost.

Examples of blue markets are:

• Cirque du Soleil
• NetJets (arrendadora de aviones de negocios)
• Ralph Lauren
• Swatch
• Novo Nordisk (empresa farmacéutica danesa)
• Nabi

The BOSM encourages innovation and influences the focus of strategy development. Instead of using competitors as a benchmark, managers look beyond the limits of existing market boundaries to seek new opportunities to create new value for customers. Rather than trying to beat the competition directly, managers should take actions to develop a business offering that opens up and captures a new market space (Ki and M, 2005)

BOSM adds direction to the strategic management process. Development strategy often focuses solely on how to beat the competition. This will lead inevitably to a red ocean scenario in which competitors fight and consequently weaken each other, in order to direct the focus of strategy development towards the creation of blue oceans, the management team needs to answer four questions:

1. Which of the factors that our industry takes for granted should be eliminated?
2. Which factors should be reduced well below the industry’s standard?
3. Which factors should be raised well above the industry’s standard?
4. Which factors should be created that the industry has never offered?

In this process, it is essential to focus on what customers value, rather than merely focusing on competitors or the core competencies of the firm. Instead, one should start from scratch. By answering these questions, it is possible to create entirely new concepts for products. As a result, a new so-called value curve can be created. This curve determines a new value proposition, which shows how the value of the new product differs from current products (K and M, 1997).

Two types of Blue Ocean can be created using this process: either by launching a completely new industry; or by creating new opportunities from within the existing industry by expanding the strategic boundaries of the industry. Most blue oceans are created this way.

BOS is not a well-structured plan that is easy to implement. On the contrary, it is a concept that can be used to focus strategic development (by answering the above questions). Nevertheless, there are six core principles at the heart of BOS that can be used as a guideline to tackle six key risks common to new product development strategy, namely: search risk, planning risk, scope risk, business model risks, organizational risk and management risk (Kim and Mauborgne, 2005). The six blue ocean principles can be interpreted as an implementation guide for creating uncontested markets.

The first principle: reconstruct market boundaries identify commercially compelling blue oceans in which the search risk is minimized.

The second principle: focus on the big picture, not the numbers: tackle the planning risks by focusing demand for a new offering.

The fourth principle: get the strategic sequence right: reduce the business model rusk by focusing on how to build a robust model that ensures long-term profit.

The fifth principle: build execution into strategy: focus attention on the motivation and use of the competencies of employees to execute BOS, thereby overcoming management risk.

Regarding everything mentioned above, the question to be answered is whether this strategy can be used in all cases.

The BOSM is a theoretical model that may be a revelation for many managers. However, the model primarily describes what to do (on an abstract level) instead of demonstrating how to for it. The model and related ideas are descriptive rather than prescriptive. Moreover, the cases mentions by K and M as examples of successful blue ocean innovations are interpreted through a “blue ocean lens”, rather than being based on this model. Although K and M have made a valuable contribution to strategic management literature, not all firms should adopt this model. BOS may be a good strategy for many firms, but for others a fast-moving strategy, cost leadership, differentiation or focus strategy may be far more successful (Porter, 1979). K and M provide the important insight that a firm can simultaneously pursue cost differentiation and low costs.(Marcel Van Assen – Gerben Van den Berg & Paul Pletersma).

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