In today’s overcrowded market, companies compete head-on, resulting in bloody “red oceans” of rivals fighting over shrinking profits. Professor Renée Mauborgne and W. Chan Kim, founders of the blue ocean concept, argue for creating uncontested market space. We asked Mauborgne about the benefits of this approach.
How exactly did your Blue Ocean Strategy come about?
We have always shared an intellectual curiosity in understanding what it takes to stand apart and create strong profitable growth. In search of this answer, we looked back more than 100 years and across more than 30 industries. We asked ourselves which industries exist today that were prominent in 1900? It turns out that apart from basic industries such as cars and steel, there’s very few. Big growth industries in the past 30 years have included the computer industry, software, gas-fired electricity plants, cell phones and the café bar concept. Yet, in 1970, not one of those industries existed in a meaningful way.
The pattern continues as you dig further into the past. We have a hugely underestimated capacity to create new industries. It’s commonly assumed that the number of industries stays the same over time, but it doesn’t. If this is where the bulk of wealth has been created, then shouldn’t the field of strategy systematically explore and understand the path to new market space creation, what we call blue oceans? While our analysis did not reveal any permanently great companies or industries, what we did find is that companies, like industries, rise and fall based on the strategic moves they make. The strategic move that we found matters most is the creation and capturing of new market-space.
In industry, after industry, we observed high performing companies that did not compete – they made the competition irrelevant. They were not focused on benchmarking competitors and striving to beat them. Instead of accepting existing conditions in their industry, they challenged them and created a new demand. These insights did not square with the red ocean paradigm, which views industry conditions and demand as beyond a company’s influence. The current strategy paradigm failed to explain how to create and capture this lucrative and growing part of the market universe. This central void in the field of strategy inspired our research journey leading to the idea of “blue ocean strategy.”
Is this business strategy sustainable? For instance, would you need to repeat a Blue Ocean Strategy every time the competition catches up with you?
Creating blue oceans is not a static achievement but a dynamic process. Once a company creates a blue ocean and its powerful performance consequences are known, sooner or later imitators appear on the horizon. However, a blue ocean strategy brings with it considerable barriers to imitation. The first barrier is often cognitive. Competitors are often blocked from imitating simply because of brand image conflicts, or the blue ocean strategy does not fit conventional strategic logic. As an example, for many years CNN was ridiculed by the industry as chicken noodle news by the established players.
The second barrier is organizational. Because imitation often requires companies to make substantial changes to their existing business practices, politics often kicks in, delaying for years a company’s commitment to imitate a blue ocean strategy. The third barrier includes the economic forces of blue oceans.
The high volume generated by a value innovation leads to rapid cost advantages, placing potential imitators at an ongoing cost disadvantage. The best way to defend blue oceans and to block new entrants into the market you have created, as long as possible, is to heighten these barriers with a constant improvement of your initial blue ocean strategy of value, profit and people.
“Create companies that make a difference, where customers, employees and society wins.”
You suggest that organizations align these three strategy propositions – value, profit and people. How can this be done in a socially responsible manner?
First, let me back up and define what strategy is. Strategy is essentially the development and alignment of three propositions that seek to either exploit or reconstruct the industrial and competitive environment in which an organization operates. For any strategy to be successful, an organization must develop a value proposition that attracts buyers; it must create a profit proposition that enables the company to make money out of the value proposition; and it must offer a people proposition that motivates the people working for, or with, the company to execute the strategy.
While the value and profit propositions essentially set out the content of a strategy – what a company offers to buyers and how it will benefit from that offering – the people proposition determines the quality of strategy execution. In this way, blue ocean strategy is about creating a win-win strategy where buyers, the company, and people win.
On one level, you can say that a company that offers a leap in value to buyers, rewards its shareholders through profit, and provides conditions for employees and partners to be inspired to execute the strategy, is being socially responsible, as it’s bettering all those who come into contact with that organization.
However, if an organization has a mission, beyond this, where it wants to be socially responsible in the sense of serving the community, then this could be built into its value, profit, and people propositions. With more and more buyers and employees caring about the socially responsible nature of companies, creating a blue ocean strategy that explicitly addresses this could help to make a strategy even “bluer.”
How do businesses and individuals overcome a fear of the unknown in order to innovate their products and services?
They need to have confidence that there’s a systematic process for creating commercially compelling blue oceans. However, when most people think of creativity, imagination or innovation, they tend to feel threatened because all these require risk-taking. What blue ocean strategy set out to do was to de-risk the process of creating new markets, what we call “blue oceans,” so executives can responsibly engage in these actions in an opportunity-maximizing, risk-minimizing way.
To achieve this, during our research, we asked whether any systematic patterns existed in the way companies create new markets. This was key, because if there were patterns, a theory, tools and framework can be built which allow for the systematic pursuit of blue oceans. Our database of over 150 blue ocean strategic moves over the past 120 years confirmed that there are indeed patterns.
Based on these patterns, we developed the theory of blue ocean strategy and a set of tools and methodologies that executives could apply in a systematic way to create blue oceans in an opportunity-maximizing, risk-minimizing way. While creativity has generally been thought of as non-systematic and unstructured, blue ocean strategy challenged that.
The focus of our study is not on creativity by genius or of random occurrence, but on creativity that can be inculcated with a set of systematic tools and methodologies found through research. I believe that is one reason that our book Blue Ocean Strategy has had the impact that it has and has become a bestseller across five continents.
With seven billion people on the planet by year-end, how will your business ideas influence the world at large?
I believe the power of blue ocean strategy ideas can only take on more salience as increasing numbers of these seven billion people enter the global economy and strive to have the same standards of living, and level of prosperity, as the people in the West have long enjoyed. At a most basic level, there is simply not enough water or energy to go around, and the pollution that this will unleash on our already fragile planet will wreak havoc on the environment.
Without creativity in strategic thought and fundamentally new thinking on how we address the challenges this poses to the planet, we’re not going to overcome these strained structural conditions. I believe a blue ocean way of thinking offers the perspective, tools and framework that leaders of industry, and governments alike, can administer to address these challenges.
Is prosperity attainable by a wider majority in the future, without being at the expense of some?
The future is something that only the heavens can answer. But if you asked my opinion on the ability of the world population to attain greater prosperity, my answer is yes. We need only to look at history to see this trend. However, as history also reveals, those whose prosperity was based on exploitation lost in the long march of history, while those who helped create and raise the standards of living and pushed the boundaries of what was possible at the time were the greatest winners over an extended time.
To ensure you’re not a loser in the march to the future and will enjoy rising prosperity, you need to have a keen focus on how you and your organization will offer a leap in value to buyers, citizens, or people in general. Something that enriches their lives. That is what blue ocean strategy is all about.
How can you do well by doing good?
Too often those who attempt to do good, haven’t done well in economic terms. But it doesn’t have to be that way. I have seen countless occurrences in which breakthrough technologies have been created to solve major challenges in the developing world, such as brilliant innovations in health, but have never taken off. Why? The developers were so excited about what they were developing, which would solve some major need, that they failed to address what it would take to make it commercially viable in the market.
Their cost structure to produce it was either too high to make it viable, or its strategic price to recover costs was set well beyond what the market could bear. Local barriers to adoption also existed, such as distribution, refrigeration or financing that blocked the product from being successful in the market. Does that mean a gap between doing good and doing well need always exist? The answer is no. We precisely address this challenge through our blue ocean idea index.
The blue ocean idea index provides executives with tools to assess whether their idea to do good also aligns with what it takes to do well. Through it, executives can test if they have successfully addressed what it takes to offer a leap in utility, create a strategic price accessible to the target market, build a business model that generates profit at that strategic price, and addresses potential adoption hurdles in advance. I have faith that with blue ocean strategy, doing well and doing good can move in sync.
Renée Mauborgne is co-director of the INSEAD Blue Ocean Strategy Institute and a professor and distinguished fellow at INSEAD in Fontainebleau, France. She is the co-author, along with W. Chan Kim, of the international bestseller Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant (Harvard Business Press).