The business universe consists of two distinct kinds of space, which we think of as red and blue oceans. Red oceans represent all the industries in existence today, the known market space. In red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are well understood. Here, companies try to outperform their rivals in order to grab a greater share of existing demand. As the space gets more and more crowded, prospects for profits and growth are reduced. Blue oceans denote all the industries not in existence today the unknown market space, untainted by competition.
In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. There are two ways to create blue oceans. In a few cases, companies can give rise to completely new industries, but in most cases, a blue ocean is created from within a red ocean when a company alters the boundaries of an existing industry.
Companies have a huge capacity to create new industries and re-create existing ones, a fact that is reflected in the deep changes that have been necessary in the way industries are classified. In blue oceans, you invent and capture new demand, and you offer customers a leap in value while also streamlining your costs and the results are big profits, speedy growth-and brand equity that lasts for decades while rivals scramble to catch up.
The article explains that the traditional units of strategic analysis, company and industry, are of limited use in explaining how and why blue oceans are created. The most appropriate unit of analysis is the strategic move, the set of managerial actions and decisions involved in making a major market-creating business offering.
Which are the three most critical issues of this reading?
The three most critical issues of this reading are Differentiation between red Ocean and Blue Ocean, Recognizing opportunities and the pursuit of differentiation and low cost simultaneously.
First, strategy is all about red ocean competition. It is about confronting an opponent and driving him off a battlefield of limited territory. Blue ocean strategy, by contrast, is about doing business where there is no competitor. The difference is that in the red ocean an invention will be competing in existing market space and exploiting existing demand whereas in the blue ocean we are creating an uncon-tested market space and creating and capturing new demand.
Second, recognizing new opportunities is a vital component that Blue Ocean companies need to possess. Recognizing new opportunities can range from finding and developing markets where there is little or no competition to finding a niche in an unattractive market and exploiting it.
Third issue is the pursuit of differentiation and low cost simultaneously, Strategy is essentially a choice between differentiation and low cost. But when it comes to creating blue oceans, cost savings are made from eliminating and reducing the factors an industry competes on, since companies generate value or itself through cost structure and price, blue ocean strategy is achieved only when the whole system of a company’s utility, price and cost activities is properly aligned.
Which are the three most relevant lessons learned of this reading?
The three most relevant lessons that I learned from this reading are first Blue oceans are not about technology innovation. Leading-edge technology is sometimes involved in the creation of blue oceans, but it is not a defining feature of them.
Second Incumbents often create blue oceans-and usually within their core businesses. Incumbents are not at a disadvantage in creating new market spaces. Moreover, the blue oceans made by incumbents were usually within their core businesses.
Third, creating blue oceans builds brands. So powerful is blue ocean strategy that a blue ocean strategic move can create brand equity…