Wednesday, November 27, 2013

Managing Blue Ocean Strategy

Managing Blue Ocean Strategy

The concept of Blue Ocean strategies is to create a new market for yourself, that is devoid of competition and has sufficient demand, instead of trying to continually trying to survive with minimal profits in the cut throat red ocean.

Any market that is continually profitable, is bound to attract competition that will erode the profits of the organization that created the blue ocean and over time turn it into a red ocean.Therefore there are certain things an organization embarking on a blue ocean strategy need to take into consideration to ensure they retain at least most of the blue ocean if not all of it:

Differentiation - The differentiation should be sufficiently significant to match the organizations growth objectives. The level of differentiation and its demand would define the level of benefits from the blue ocean strategy

Barriers to entry - The blue ocean strategy while implementing the differentiated market offering should also ensure that sufficient barriers to entry are created for competition, to avoid competition as long as possible. The barriers to entry can vary from business to business, Southwest airlines creating the first movers advantage in utilizing secondary airports to create a massive network, or policy regulations or quality of product etc.


A Blue ocean strategy that does not create sufficient barriers to entry/ differentiation is bound to be flooded by competition sooner rather than later. If the company expects to be flooded by competition soon, it should create ways to get customer lock in, or extract maximum value as early as possible and plan to be cost leaders when the competition comes in. Like at present Amazon can afford to be cost leaders, after holding the blue oceans for a significant duration of time.

Funding the Blue Ocean - As is expected an organization with a blue ocean strategy is bound to be flooded by competition and should be prepared to be cost leaders while they embark on their next blue ocean creating strategy. The best way to fund the strategy is to be cost leaders in your previous blue ocean, and diverting profits to create the next blue ocean.

These cycles of blue ocean and red ocean may vary by industry and size of organization. Big organizations might have multiple blue and red ocean ventures simultaneously. While some might have only one big blue ocean strategy sufficiently differentiated for a long time.



References: http://hbr.org/2010/05/blue-ocean-vs-five-forces

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