The Blue Ocean Strategy is based on a business book from W. Chan and Renée Mauborgne of The Blue Ocean Strategy Institute. The book broadly outlined the concepts behind their strategy which organizations including the Institute teach.
The term “value innovation” came about in the late 90s from the consulting firm, Gemini Consulting (later to become CapGemini who produce the annual World Wealth Report). This was a growth-based strategy framework which outlined a completely new approach to doing business which hadn’t previously been fully considered.
Typically traditional business strategy contends that a business can either offer a superior product or service for a premium price or a standard offering for a lower price. With value innovation, this argument is turned on its head by suggesting less competition via the Blue Ocean Strategy, along with a variable pricing approach depending on demand.
Blue Ocean Strategy
The Blue Ocean Strategy was formed by using the older “value innovation” approach and modernizing it.
The idea is that rather than going head to head with many other corporations for a piece of a highly competitive marketplace, businesses would do better to work to create new demand in a marketplace that is uncontested. Because of the general lack of other competitors in that space, this became known as the “Blue Ocean” strategy.
Advantages of Blue Ocean Strategy
The strategy has a number of advantages for business.
Marketing departments can focus on creating demand for new products in a new space, rather than fighting to be heard above a blizzard of similar sounding advertisements from a host of competitors, which generally serves to push up advertising budgets for all participants.
Companies creating new markets can also benefit from a lack of competitive pressure on pricing, so once they have stroked the demand for the product, they can decide how scarce the product will be and price accordingly. Once beyond the early stages, profit margins can be considerably wider until other entrants increase competition later.
Organizations can reorient themselves for “Blue Ocean” by placing a greater focus on differentiating themselves from other markets. Making their products and services appear more valuable because they exclusively offer the solutions that customers need. In this sense, they dream up a new market, then create the idea that there is a need for it in the mind of the consumer, and then market their product or service accordingly.
First to market with innovative ideas and practice thinking is paramount to finding success with “Blue Ocean Strategy”. For this reason, only some organizations can adjust their business approach to adopt well. Often new organizations or new divisions of existing businesses can do better than trying to change a large organization, so managements that wish to try the “Blue Ocean” approach need to consider a radically different way to organize the business in order to be successful.
It is up to individual organizations to choose their new markets very carefully in order to meet with success with the “Blue Ocean Strategy”. Choosing poorly will result in a failed investment opportunity.