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BLUE OCEAN STRATEGY

Red Ocean vs. Blue Ocean

In blue oceans, demand is created rather than fought over.

There is ample opportunity for growth that is both profitable
and rapid.

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. This is often true even in industries
that are technology intensive.
Red Ocean Strategy Blue Ocean Strategy
Compete in existing market space. Create uncontested market space.

Beat the competition. Make the competition irrelevant.

Exploit existing demand. Create and capture new demand.

Make the value/cost trade-off. Break the value/cost trade-off.

Align the whole system of Align the whole system of
a company’s activities with its strategic a company’s activities in pursuit of
choice of differentiation or low cost. differentiation and low cost.

Creating blue oceans builds brands. So powerful is blue ocean strategy that a blue ocean strategic
move can create brand equity that lasts for decades. Very few people alive today were around when
the first Model T rolled off Henry Ford’s assembly line in 1908, but the company’s brand still benefits
from that blue ocean move. IBM, too, is often regarded as an “American institution” largely for the blue
oceans it created in computing; the 360 series was its equivalent of the Model T.

The creators of blue oceans, in sharp contrast to companies playing by traditional rules, never use the
competition as a benchmark. Instead they make it irrelevant by creating a leap in value for both buyers
and the company itself.

Perhaps the most important feature of blue ocean strategy is that it rejects the fundamental tenet of
conventional strategy: that a tradeoff exists between value and cost. According to this thesis,
companies can either create greater value for customers at a higher cost or create reasonable value at
a lower cost. But when it comes to creating blue oceans, the evidence shows that successful companies
pursue differentiation and low cost simultaneously (Kim & Mauborgne, Blue Ocean Strategy, 2004).
Occupying an Uncontested Market Space
One principle of blue ocean strategy is to reconstruct market boundaries to break from the competition and
create blue oceans. This principle addresses the search risk many companies struggle with. The challenge
is to successfully identify, out of the haystack of possibilities that exist, commercially compelling blue ocean
opportunities. This challenge is key because managers cannot afford to be riverboat gamblers betting their
strategy on intuition or on a random drawing.
Six (6) basic approaches (six paths framework) to remaking market boundaries:
1. Define their industry similarly and focus on being the best within it.
2. Look at their industries through the lends of generally accepted strategic groups (such as luxury
automobiles, economy cars, and family vehicles), and strive to stand out in the strategic group they
plan in.

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3. Focus on the same buyer group, be it the purchaser (as in the office equipment industry), the user
(as in the clothing industry), or the influencer (as in the pharmaceutical industry).
4. Define the scope of the products and services offered by their industry similarly.
5. Accept their industry’s functional or emotional orientation.
6. Focus on the same point in time – and often on current competitive threats – in formulating strategy.
To break out of red oceans, companies must break out of the accepted boundaries that define how they
compete. Instead of looking within these boundaries, managers need to look systematically across them to
create blue oceans. They need to look across alternative industries, across strategic groups, across buyer
groups, across complementary product and service offerings, across the functional-emotional orientation
of an industry, and even across time. This gives companies keen insight into how to reconstruct market
realities to open up blue oceans.
Strategy Canvas
The strategy canvas graphically depicts a company’s and its competitors value proposition investments,
suggests areas of opportunity on which to escape/eliminate competition, captures the current and future
state of activity within a marketspace, and documents current and future competitive investment. It
graphically captures, in one simple picture, the current strategic landscape and the future prospects for an
organization.
The strategy canvas serves two (2) purposes:
• To capture the current state of play in the known market space, which allows users to clearly see
the factors that the industry competes on and where the competition currently invests
• To propel users to action by reorienting their focus from competitors to alternatives and from
customers to noncustomers of the industry
How to construct a strategy canvas:
• Plot the existing product’s top 6-8 value elements in which a company currently competes.
• Plot the competitor’s top 6-8 value elements.
• What are the similarities and/or differences between you and your competitor’s canvases?
• What are the competitive assumptions made about your industry’s value elements?
• What are the strategic implications for your organization, competitors, and industry?
• Any general patterns? (convergence or divergence on value elements)

Sample graph:
High
Focus on Value Element

Low

Value Elements
Figure 1. Strategy Canvas Template

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ERRC (Eliminate, Reduce, Raise, Create)

A helpful tool in crafting a future strategy canvas is the Four Actions Framework as it facilitates in identifying
the value elements to be created, increased, decreased, or eliminated.
The Eliminate-Reduce-Raise-Create (ERRC) Grid developed by W. Chan Kim and Renee Mauborgne is a
simple matrix like tool that drives companies to focus simultaneously on eliminating and reducing as well
as raising and creating while unlocking a new blue ocean.

Figure 2. The Four Actions Framework

The ERRC Grid is a tool for the creation of blue oceans. This complements the Four Actions Framework. It
pushes companies not only to ask the questions posed in the Four Actions Framework but also to act on
all four (4) to create a new value curve (or strategic profile), which is essential to unlocking a new blue
ocean. The grid gives companies four immediate benefits:
• It pushes them to simultaneously pursue differentiation and low cost to break the value-cost trade
off.
• It immediately flags companies that are focused only on raising and creating, thereby lifting the cost
structure and often over-engineering products and services – a common plight for many
companies.
• It is easily understood by managers at any level, creating a high degree of engagement in its
application.
• Because completing the grid is a challenging task, it drives companies to thoroughly scrutinize
every factor the industry competes on, helping them discover the range of implicit assumptions
they unconsciously make in competing.

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Figure 3. ERRC Grid

REFERENCES
Kim, W. C. & Mauborgne, R. (2004). Blue ocean strategy. Harvard business review, 1-11.
Kim, W.C. & Mauborgne, R. (2005). Blue ocean strategy: From theory to practice. California Review
Management, 47(3), 105-121.
Kim, W. C. & Mauborgne, R. (2015). Blue ocean strategy: How to create uncontested market space and
make the competition irrelevant. Boston: Harvard Business Review Press.
Eliminate-reduce-raise-create grid (ERRC grid) | Blue ocean strategy tools and frameworks. (n.d.).
Retrieved June 13, 2018, from https://www.blueoceanstrategy.com/tools/errc-grid/
Red ocean strategy vs blue ocean strategy. (n.d.). Retrieved June 13, 2018, from
https://www.blueoceanstrategy.com/tools/red-ocean-vs-blue-ocean-strategy/
Strategy canvas | Blue ocean tools and frameworks. (n.d.). Retrieved June 13, 2018, from
https://www.blueoceanstrategy.com/tools/strategy-canvas/

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