Friday, November 27, 2015

Staying Out of the Red

                In “Blue Ocean Strategy,” Kim and Mauborgne define a red ocean as an overcrowded market where business fight with their competitors for the greatest market share. These crowded markets tend to have little profit or growth because the products become commoditized. Instead, businesses should look to define their own markets, “blue oceans,” where competition is irrelevant because the market environment is foreign to existing market titans. Blue oceans are filled with the minority pockets of users who are dissatisfied by the red market. Blue oceans are created by addressing their needs with a more meaningful or more efficient solution. Kim and Mauborgne’s “blue ocean” reminds me of advice that my first teaching assistant at Carnegie Mellon University told our class. Success does not equate to thinking outside the box. The tools necessary to succeed in a market are in the box for a reason. If Coke, Hershey, or Toshiba does something a certain way, there is probably a very good reason that they do things the way that they do. Successful innovation is not the reinvention of the wheel. The wheel is already efficient. Innovation is using the wheel to do new things. In the same manner, innovation, and arguably success, is often the result of adapting the known technology and known methods to a previously unsatisfied or ill-defined market that is devoid of serious competitors. The titans of the red markets will have difficulty invading your new blue market because their switching costs may be too high. Many may not bother attempting to capture the new market because the reallocation of resources would result in a profit loss in the red market that they already control. Reallocating resources could also destabilize their power base and allow their red competitors to steal some of their market share while their attention is focused on the blue market. The undefended market must be captured and defended with high switching costs and constant innovation. Otherwise, small competitors may attempt to steal the market. Nevertheless, the blue ocean strategy works. Apple, Circqu du Soleil, Compaq, HP, and many others have exploited a blue ocean market to supersede the previous generation of red ocean titans. All it takes is a good idea, the moxy to innovate to stay afloat, and the initiative to dive in.

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