When Blue Ocean Strategy was first published in 2000, many companies started looking for innovation strategies that simply “make the competition irrelevant.” But, as Jeffrey Phillips writes, swimming in the blue oceans requires much more than having just another strategy.
Tom Kean, CEO of BXR Industries, a 50 year old semiconductor company based in Phoenix, Arizona, reviewed the strategic plans he’d received for the electronics, automotive, and industry verticals for the third time in as many days. Each strategic plan predicted increased competition from on-shore competitors and new competition from off-shore, including one competitor that had previously been a supplier. Margins were in the low single digits and falling fast, and BXR (a fictional composite of several all-too-real companies), was increasingly competing on features and cost, even as product life cycles were getting squeezed tighter. The more Kean looked at the plans, the more they all looked the same: more features, more marketing, and more of the same from the competition.
One plan, however, was different enough from the rest to alleviate Kean’s growing distress. The leader of the electronics group was calling for a radical break from the traditional strategic parameters of growing market share, revenue, and profitability. Instead of focusing on the competition—red oceans of intense competitive rivalry—he advocated looking at a slice of the market BXR had never explored, a so-called “blue ocean strategy” where BXR would break its constant value-cost, tit-for-tat strategy with products that simply made the competition irrelevant.
Kean is just one of many CEOs who have identified the blue oceans as a way out of the toe-to-toe feature wars in which so many firms seem to get lost. Rather than focus on ever-decreasing differences between competitors, Blue Ocean Strategy—the title of the 2005 business bestseller by Insead professors W. Chan Kim and Renée Mauborgne—seeks “uncontested market space” found through aligning a company’s pursuit of differentiation and lowered cost at the same time.
As Kim and Mauborgne were first to note, blue ocean strategy is hardly a new idea. Firms as varied as Ford, Southwest, and Cirque de Soleil have all created blue oceans. Henry Ford may not have had the advantage of perusing a bestselling strategy book, but his intuition that the car would one day make the horse and buggy irrelevant, unlocking an as yet unknown and untapped market for inexpensive motorized transportation, was clearly a forerunner of blue ocean strategy. Until Ford, automobile manufacturers were dedicated to satisfying the demand for bespoke motor cars; the Model T swept that industry away, instead revolutionizing the world by emphasizing low cost and reliability.
Although not quite so revolutionary, Herb Kelleher, founder of Southwest Airlines, opened up air travel to the hoi polloi used to navigating Texas by car and bus. He made air travel friendly, approachable, and affordable—decreasing the costs of air travel comparable to that of vehicular transportation while eliminating meals, lounges, and seating choices. Southwest opened an entirely new market without ever setting a plane down at a major hub. (Until recently, Southwest had an unbroken string of 30 years of profits—unheard of in the airline industry.) NetJets, the fractional jet service, turned the Southwest formula on its head by creating more value for corporate titans who wanted faster service and faster, more direct flights, but without the headaches of owning an entire plane.
These blue ocean success stories exemplify the creation of new markets by reducing and eliminating features that customers (or prospective customers) didn’t find essential while raising and creating new features that ultimately redefined a market. Each looked beyond existing demand and the pieties of conventional strategy to create new markets and tap unmet needs that create very profitable blue oceans.