“Blue ocean strategy”: The red thread connecting Apple with Yellow Tail
- Blue ocean strategy was developed and launched by professors Chan Kim and Renée Mauborgne in the mid-00s.
- “Blue oceans” are areas of almost limitless potential where the aim is to develop products and services that create entirely new markets.
- The approach typically requires a bold mindset: examples include Apple, Airbnb, Amazon, and Australia’s largest family-owned wine company.
Developed by Chan Kim and Renée Mauborgne, two professors of strategy at INSEAD [business school], the central idea of blue ocean strategy is that instead of competing directly with competitors in an existing market, organizations should focus on finding new markets. There are several reasons for this approach, but the most compelling is clear: the opportunity to create a monopoly and reap the returns before competitors enter the new market you have created. Examples include the rise of disruptive businesses and innovators such as Apple, Airbnb and Amazon. Kim and Mauborgne identified their approach to strategy based on a study of 150 strategic business moves spanning more than 100 years across 30 sectors. Their insights were first published in 2004 in a Harvard Business Review article, and then in 2005 in their book Blue Ocean Strategy.
About the idea
Blue Ocean Strategy outlines two attitudes to competition: red oceans and blue oceans. The current marketplace for all products and services are made up of red oceans (bloody battlegrounds) where boundaries are clearly defined, and organizations operate within them. Here, organizations compete to gain extra share within the current market.
In contrast, blue oceans are areas of deep, uncharted, almost limitless potential where the aim is not to compete conventionally but to develop products and services that create entirely new markets: in essence, creating customers that do not yet exist. Examples of blue ocean strategy in action include:
- Low-cost airlines which recognized that many people want to travel in a way that is inexpensive and fun, not costly and stuffy
- Cirque de Soleil which reinvented the waning concept of a circus by presenting it as a stage show
- Streaming services — notably Spotify and Netflix — which developed initially uncontested markets for on-demand music, podcasts and videos.
In practice
Blue ocean strategy is about moving an organization to a place where it can rapidly grow and increase profits with little or no competition. This typically requires a shift in thinking, together with the application of several principles.
Shift your thinking
Kim and Mauborgne emphasize the need for a bold mindset willing to defy conventional wisdom about value and cost. Most organizations operate in the red ocean, focusing on the need for trade-offs between creating more value for the customer at greater cost, or creating less value at a lower cost. Food retailers and hotel companies are a classic example of this: either providing “value” ranges at a low cost, or “premium” offerings at a greater cost.
Technological innovation is rarely the key defining characteristic of blue oceans. Instead, blue ocean companies typically use existing technologies to redesign a product, service or method of delivery, creating a new offering as a result.
Blue ocean organizations do not accept that there needs to be such a trade-off. Instead, they create value, often at a lower cost, through products and services that appeal to a new market of customers.
The authors highlight three shifts needed to move successfully towards a blue ocean mindset.
- Develop a blue ocean perspective. This is possibly the toughest challenge: overcoming existing convention and thinking. In an established organization this can be particularly difficult because you need to think like a start-up and focus not on competing in a market, but on creating a market.
- Use market-creating tools and insights. You need to apply the right practical tools. In particular, this means asking the right questions at the right time and understanding the significance of the answers. This is best done in collaboration within a diverse and supportive group, who can provide different perspectives, challenge orthodoxy and build on each other’s thinking.
- Recognize that the mindset is fundamentally about people. Sailing into a blue ocean is invariably a risky venture, literally taking an uncharted course. This requires personal attributes including courage, confidence, mutual support, a willingness to accept challenge and adapt.
Several other qualities also matter, notably empathy, understanding how colleagues, customers and others are feeling; communication, to ensure that momentum is sustained and people are moving together in the same direction; and learning, so people have the required levels of confidence and competence to succeed.
Understand that technology is an enabler, not a panacea
Kim and Mauborgne highlight the fact that technological innovation is rarely the key defining characteristic of blue oceans. Instead, blue ocean companies typically use existing technologies to redesign a product, service or method of delivery, creating a new offering as a result.
Challenge existing market boundaries
Reimagine the market by identifying new customers. These may be customers that are not yet served or are inadequately served.
Keep focused on the overall picture
What matters and needs to be achieved.
Minimize risk
Assess current industry practices and decide what can be eliminated, improved, reduced (either simplified or not done to existing standards), or offered for the first time.
Implement the plan carefully and creatively
Succeeding with a blue ocean strategy requires an ability to overcome barriers, secure resources and support, and remain resilient and committed despite your unorthodox approach being challenged.
In 2001 Casella expected to sell 25,000 cases a year; by the end of 2005 the company’s cumulative sales were over 25 million cases.
An interesting example of the thoughtful, bold approach needed to make a blue ocean strategy work is provided by the Australian wine company Casella Wines and its brand Yellow Tail. Established in 2001, the small, unknown brand decided not to compete in the traditional wine drinking markets against French and Italian producers. Instead, Yellow Tail set out to create new wine consumers in the US. It adopted a different marketing approach to the established wine producers, offering a wine that was unpretentious, accessible, fun and easy to drink. In fact, it wasn’t competing with other wines for social drinkers, but with beer and cocktail drinkers. In 2001 Casella expected to sell 25,000 cases a year; by the end of 2005 the company’s cumulative sales were over 25 million cases.
Thought starters
- What does everyone in your industry do in the same way?
- What are the standard ways of working, assumptions and best practices that everyone follows?
- Where are the gaps? Which industry standards could your organization redefine when creating a new service or product?
- What might disappoint or frustrate current and potential customers about existing products or services that you could address?
- What industry standards could be eliminated or adapted to save costs and/or time?
- What problems are you likely to face when implementing your blue ocean strategy? How might you address them?
What next?
Read Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant by W. Chan Kim and Renée A. Mauborgne.
