What is Blue Ocean, then? It is a previously unknown and uncontested market space that makes competition irrelevant. In Blue Oceans, demand is created rather than fought over. There is an ample opportunity for growth that is both profitable and rapid (Kim). Also, Blue Ocean is an unexplored market that has enormous potential for growth and that has no competition (Hollstein). This is as opposed to a Red Ocean, where the market is well defined and heavily populated by the competition. Contrary to Blue Oceans, in Red Oceans, companies try to outperform their rivals to grab a greater share of existing demand. Moreover, in Red Oceans, because companies accept the industrial boundaries, the laws of economic competition are well-known. Therefore, companies in Red Ocean fall easily if there are many competitors in the market. In addition, in Red Oceans, it is easy for supply to be greater than demand. There are other different characteristics between Red Ocean Strategy and Blue Ocean Strategy. In Red Ocean Strategy, companies compete in existing market space and beat the competition (Kang). Also, they exploit existing demand and make the value-cost trade-off. Companies align the whole system of a firm's activities with its strategic choice of differentiation or low cost. Contrary to Red Ocean Strategy, in Blue Ocean Strategy, companies create uncontested market place. As a result, it makes the competition irrelevant. Companies also create and capture new demand, and they break the value-cost trade-off. They align the whole system of a firm's activities with its strategic choice of differentiation and low cost (Kim). Consequently, companies can make their own markets though Blue Ocean Strategy and survive in an intense competitive struggle for the same customers.
There are four principles about formulating and two about executing Blue Ocean Strategy and reduced risks.First, reconstruct market boundaries, and this reduces the search risk. This is the most important principle in reality, because it made the six patterns to create Blue Ocean Strategy, and it gives company acute insight to approach Blue Ocean Strategy. Second, focus on the big picture, not the numbers, and this reduces the planning risk. This principle is an effective approach that enables workers to increase the sense of creativity and companies to execute effective strategy understanding and communicating with others toward the Blue Ocean Strategy. Also, this approach suggests that drawing a strategy canvas helps to approach Blue Ocean Strategy. Third, reach beyond existing demand, and this reduces the scale risk. This approach helps to maximize the scale of Blue Oceans that companies make and to create new supply. Fourth, get the strategic sequences right, thus reducing the business model risk. This gives companies a powerful business model guaranteeing enormous profits for Blue Ocean Strategy. Besides, this principle makes the real idea commercially for Blue Ocean Strategy. These are the four formulation principles and reduced risks. Fifth, overcome key organizational hurdles, and this reduces organizational risk. Sixth, build execution into strategy, and this reduces management risk such as distrust, noncooperation, slowdown, etc. These two execution principles reduce risks related to each principle.
In addition, there are four action frameworks in the Blue Ocean Strategy. The four fundamental action frameworks are eliminate, reduce, raise, and create, and these four actions are called Eric Law (Kim).
First, eliminate is a component that is deemed valueless and less attentive for consumers, thus need to be eliminated although it is very essential to the particular industry. This makes the company reconsider their benchmarking seriously.
Second, reducing is a component that is pulling down the level of the industry below the average to avoid the mistake of executing excessively. This action makes the company examine closely whether the products or service planned are excessively or not.
Third, raising is an area that is needed to raise the level of industry above the average, thus making consumers not compromise.
Fourth, create is about the creation of an industry that has never been suggested or provided by the company in the past. This action makes the company find the source of new and appropriate value for consumers.
The first two actions (eliminate and reduce) give an insight about the way that reduces the expense structure, and the next two actions (raise and create) give an insight as to how to raise consumer's value and how to create new supply. When these four actions come to be active inclusively, a company can find the way of constructing consumer's value, keeping expenses low and providing a new experience through an alternative industry.
In the process of creating Blue Ocean Strategy, the six patterns called Six Paths Framework made an approach to construct the market boundaries are made (Lim).
Firstly, look across alternative industries. There are two concepts called substitutes and alternatives. Products or services that have different forms but offer the same functionality or core utility are often substitutes for each other. On the other hand, alternatives include products or services that have different functions and forms but have the same purpose. When looking across alternative industries, because it has the same purpose as the others, Blue Ocean can be created.
Secondly, look across strategic groups within industries. In most industries, a small number of strategic groups capture the fundamental strategic differences and companies tend to improve their competitive position within a strategic group. The key to creating a Blue Ocean is to break out of the narrow tunnel vision by understanding the factors that determine customer's decisions.
Thirdly, look across the chain of buyers. Because the buyers and the users are the most effective and important factors in the competition, companies should look across and examine the chain of buyers to create the value and Blue Ocean.
Fourthly, look across complementary product and service offerings. Untapped innovative value is often hidden in complementary products and services. The key is to define the total solution buyers seek when they choose a product or service.
Fifth, look across functional or emotional appeal to buyers. Briefly, emotion-oriented industries create a fundamentally simpler, lower-priced, lower-cost business model that customers would welcome, and function-oriented industries infuse commodity products with new life by adding a dose of emotion that stimulate new demand.
Finally, look across time. Because all industries are dependent on the external trend that impacts their business, companies should plan systemically from the present value that a market provides to the value that a market will provide in the future through looking across time.
Actually, many companies have succeeded in creating their own Blue Oceans. Among many of them, I'll introduce three enterprises that have succeeded in making Blue Oceans: Starbucks, Samsung, and QB house.
Starbucks, which is one of the most famous coffee chains in the world, has created Blue Oceans making customers enjoy drinking coffee and sitting down and talking with people simultaneously. In many coffee shops in the past, customers just took out a cup of coffee. However, at Starbucks, there are many chairs and tables to have a chat in a friendly environment. Customers drink coffee and have a conversation in relative comfort (Lee). This gave Starbucks coffee shop a Blue Ocean and it's still a famous coffee shop now. The idea Starbucks used was very simple, but new. It "created" the new value for consumers.
Samsung has succeeded in making Blue Ocean in terms of cell phone. The uses of the first cell phones were just sending text messages and calling. In contrast to ordinary cell phones in the past, Samsung added the camera, mp3, blue-tooth, dictionaries, and digital multimedia broadcasting functions to them. Samsung wanted people to use and enjoy cell phones in different ways, not just as a simple calling machine (Lee). As a result, people's demand for Samsung's cell phones increased dramatically. Samsung sells ten million cell phones. Also, now Samsung is one of the largest and most recognized companies in the world.
QB house is a barbershop in Japan. In Japan, it takes almost an hour to get a haircut and people receive a massage, drink a cup of coffee or tea, and receive other services in the barbershop. QB house changed all this resolutely. It deleted any services that are inappropriate and unnecessary for cutting. It only focused on cutting hair. Consequently, it took 10 minutes to get a haircut and QB house could create a practical haircut service.
In my opinion, it's an ingrained notion that Blue Ocean Strategy is indeed beneficial to us. Because the main aim of Blue Ocean Strategy is valuable innovation, tons of values could be suggested. However, such values could not create Blue Oceans. For example, there are numerous values and ideas in Silicon Valley, but we do not refer to them as "Blue Oceans" because among those values, only 14% of them led to success in the market. In other words, the 86% of ideas failed in the market. This is because of the problem of execution. Therefore, what is important is the strategy to execute the values. Companies should pay more attention to six patterns, frameworks, and principles of Blue Ocean Strategy. However, it doesn't mean that companies should neglect to look for the new values and ideas. As time goes by, since lots of companies, that have created Blue Oceans, are now being engaged in Red Oceans; companies should create innovative and new ideas and values continuously. Hence, companies should keep an eye on execution strategy of being Blue Oceans discovering innovate ideas and values. This is the fastest, most effective way to reach Blue Ocean.
Works cited
Books
1. Kim, W.Chan , and Mauborgne, Ren?. Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant. US. Harvard Business School Press, 2005
2. Ahn, Jong Bae. Butterfly Effect Blue Ocean Marketing 100. ROK. The Window of The Future, 2005
3. Burrows, William E. This New Ocean: The Story of the First Space Age. New York. Random House, Inc., 1998
Periodicals
1. Kang, Hae Ku. "Escape from the competitive, bloody ocean."The Financial News 22 June 2005
2. Park, Il Han. "Want to win without competition?"Economic Review 24 May 2005
3. Lee, Kyu Sung. "[Blue Ocean Case Study] Samsung's Anycall- Only focused on customers forgetting about competition."Economic Review 31 May 2005
4. Hollstein, William J. "Find a sea less crowded."New York Times 30 January 2005
Internet Resources
1. Value Innovation Action Camp. Kang, Hae Ku. 2005. Value innovation Dept. Yuk Sam Heights Building 1515, Yuk Sam dong, Kang Nam ku, Seoul. 1 May 2006
2. Lim, Chae Whan. "6 paths framework."Online Posting. 1 May 2006 < http://www.mbr.co.kr/menu04-1.asp?bp_idx=3>
3. Kim, W.Chan , and Mauborgne, Ren?. "Blue Ocean Strategy."Online Posting. 2005. 1 May 2006.
Home