By Surpriya Garg & Jith Rabindranath
A blue ocean represents all industries not in existence today, as an unknown market space, untainted by competition. In Blue Ocean Strategy, demand is created, rather than fought over. There is ample opportunity for growth that is both profitable and rapid. There are two ways to explore a blue ocean.
In a few cases, companies can give rise to completely new industries, as eBay did with the online auction industry. However, in most cases, a Blue Ocean Strategy is created from within a red ocean, where a company alters its boundaries within an existing industry.
A prime example is Cirque du Soleil. By breaking through traditional boundaries, bridging circus and theater, Cirque du Soleil made a new and profitable blue ocean from within the red ocean of the circus industry. Cirque du Soleil is a Canadian entertainment company, founded in 1984 by two former street performers, Guy Laliberté and Gilles Ste-Croix. Guy and Gilles did not restrict themselves to traditional circus, by combining the best elements of circus and theatre. In doing so, they eliminated the trade-off between value and cost for the consumers.
W. Chan Kim and Renée Mauborgne, the creators of Blue Ocean Strategy, define the four steps that Cirque du Soleil took to create a successful blue ocean. These steps are include:
Unfortunately, most companies seem stranded within their red oceans. In a recent study conducted, comprised of 108 companies, it was found that 86% of new ventures were incremental improvements to existing industry offerings. A mere 14% were aimed at creating new markets or industries. While line extensions did account for 62% of total revenue, they delivered only 39% of the total profit. By contrast, the 14% invested in creating new markets and industries, delivered 38% of total revenues and a startling 61% of total profits.
By focusing largely on competition, companies have ignored two very important lucrative aspects of strategy. One such aspect includes finding and developing markets where there is little or no competition (blue oceans). The second aspect involves exploiting and protecting blue oceans. These challenges are very different from those to which strategists have devoted most of their attention.
Leading-edge technology is sometimes involved in the creation of blue oceans, but it is not a defining characteristic. This is often true even in industries that are technology concentrated. As seen over time, across all industries, blue oceans are seldom the result of technological innovation. However, the underlying technology was often already in existence. Even Ford’s revolutionary assembly line can be traced to the meatpacking industry in America. Like those within the auto industry, blue oceans within the computer industry did not come about through technology innovations alone, but by linking technology to what buyers valued. For example, the IBM 650 and the Compaq PC server often involved simplifying the technology.
At CGN, we help our clients look past the red ocean and aim for the blue, by looking to the future, exploring new innovative and disruptive markets. We empower company leadership to look at the holistic view of industry, its customers, and visualize the current and future gaps within the industry. From here, CGN drives transformation by eliminating and reducing extra features, while raising and creating value for customers, by re-defining the organization, and turning assets into advantages, driving innovation and agility across the organization, truly transforming the business with a roadmap to the future.