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The future of startups with the Blue Ocean Strategy



Kirjoittanut: Sunita Kumar - tiimistä Crevio.

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INTRODUCTION

Blue Ocean Strategy is a business strategy framework developed by W. Chan Kim and Renée Mauborgne and introduced in their 2005 book, “Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant.” The concept is centered around the idea of finding and creating untapped market space, or “blue oceans,” as opposed to competing in crowded and competitive market spaces, often referred to as “red oceans.” (Freedman, 2023.)

Key principles of Blue Ocean Strategy include:

Red Oceans vs. Blue Oceans: Red Oceans represent existing markets with established competition, where companies compete for a share of a finite market. Blue Oceans, on the other hand, represent new, uncontested market spaces where demand is created rather than fought over.

Value Innovation: Blue Ocean Strategy emphasizes the simultaneous pursuit of differentiation and low cost. This is achieved by creating products or services that offer unique value to customers while keeping costs under control. Value innovation is the core of blue ocean thinking. (Alessandroni,2023.)

The Four Actions Framework: To create a blue ocean, companies should consider four key actions:

Eliminate: Identify aspects of your industry that can be eliminated because they don’t add value or are no longer necessary.
Reduce: Reduce or minimize certain features, services, or costs to a level that still meets the minimum requirements of customers.
Raise: Increase or enhance elements that are important to customers and that differentiate your offering.
Create: Introduce new features or services that have not been offered before and that can attract new customers.
Strategy Canvas: This is a visual tool used to chart a company’s current and potential competitive factors compared to its rivals. It helps to visualize the strategic profile of a company and identify opportunities for differentiation and innovation. (Harappa, 2021.)

The Six Paths Framework: This framework offers six different approaches to uncover new market opportunities by challenging industry assumptions. The six paths are: look across different industries, look across strategic groups, look across the chain of buyers, look across complementary products and services, look across functional and emotional appeal, and look across time.

Blue Ocean Strategy has been widely adopted by businesses looking to break away from the cutthroat competition of red oceans by creating new, innovative markets. By focusing on value innovation and finding untapped market spaces, companies can often achieve sustainable competitive advantages and higher profitability.

Market Differentiation: In today’s highly competitive global marketplace, standing out from the competition is crucial. Blue Ocean Strategy helps companies find innovative ways to differentiate themselves, creating unique products, services, or experiences that attract customers and reduce the focus on price-based competition.

Value Innovation: Blue Ocean Strategy encourages value innovation, which means simultaneously reducing costs and increasing value to customers. This approach can lead to improved profitability while also delivering better solutions to customers, creating a win-win situation.

Sustainability: Finding blue oceans can often lead to more sustainable and environmentally friendly solutions. Companies that innovate with a focus on sustainability can not only reduce their environmental footprint but also tap into growing markets driven by eco-conscious consumers.

Rapid Technological Change: The modern world is characterized by rapid technological advancements that can quickly disrupt established markets. Blue Ocean Strategy encourages companies to continuously seek new opportunities and adapt to changing market conditions.

Globalization: In a globalized world, companies can use Blue Ocean Strategy to identify new markets or adapt their offerings to cater to different cultures and regions. This can help them expand and grow in a diverse and interconnected world.

Customer-Centric Approach: Blue Ocean Strategy emphasizes understanding and addressing the unmet needs and preferences of customers. In an age where customer experience and personalization are crucial, this approach allows companies to better serve their target audience.

Reducing Competition: Red oceans are full of cutthroat competition, which can lead to price wars and decreased profitability. Blue Ocean Strategy provides a framework to reduce direct competition by creating a niche or unique market space, potentially making the competition irrelevant.

Resilience and Longevity: Blue Ocean Strategy encourages companies to look beyond short-term gains and focus on long-term sustainability. By continuously innovating and creating new market spaces, businesses can build resilience and longevity in the modern business landscape.

Digital Transformation: The digital age has opened up new opportunities for innovation and disruption. Companies can use Blue Ocean Strategy to harness the power of technology and data to create unique and valuable digital solutions that cater to emerging customer needs.

Risk Management: Blue Ocean Strategy involves calculated risk-taking by exploring uncharted waters. This can be a more sustainable approach than simply following existing market trends or competing in overcrowded industries where the risk of failure is high.

Blue Ocean Strategy remains relevant in the modern world as it provides a systematic approach to innovation and market creation, helping companies thrive in an environment marked by rapid change, globalization, and heightened customer expectations. By focusing on differentiation, value innovation, and sustainability, businesses can position themselves for long-term success and reduced competition. (Cobb, 2022.)

Examples

Cirque du Soleil: They redefined the circus industry by eliminating animal acts, focusing on artistic performances, and targeting a more mature audience. This created a new market for contemporary circus entertainment.

Uber: Uber disrupted the traditional taxi industry by providing a more convenient and efficient transportation service through a smartphone app.

Apple iPhone: The iPhone created a blue ocean by combining a mobile phone, an iPod, and an internet communication device into one product, revolutionizing the smartphone industry.

Nintendo Wii: Instead of competing with high-end gaming consoles, Nintendo targeted a broader, family-friendly market with motion-sensing technology, making gaming more accessible.

Yellow Tail Wine: This Australian wine company simplified wine choices and branding, appealing to consumers who found traditional wine terminology and labels intimidating.

Southwest Airlines: By offering low-cost, no-frills travel, Southwest attracted price-sensitive customers who didn’t typically fly and created a niche in the airline industry.

Dyson: Dyson’s innovative vacuum cleaners eliminated the need for bags and filters, addressing a major pain point for consumers and creating a new market for high-end, bagless vacuum cleaners.

Zara: Zara’s fast-fashion approach reduced lead times and introduced new clothing collections more frequently, allowing them to capture fashion-conscious consumers looking for affordable and up-to-date clothing.

Netflix: Netflix shifted from a DVD rental model to a subscription-based streaming service, giving customers more control over their viewing choices and disrupting the traditional TV and movie rental markets.

Tesla: Tesla created a blue ocean by focusing on electric vehicles, high-performance features, and autonomous driving technology, setting itself apart from traditional automakers.

These examples demonstrate how companies can find success by identifying untapped market opportunities and creating products or services that stand out from the competition, ultimately leading to growth and profitability. (Gavriluk, 2023.)

Benefits for startups.
Reduced Competition: Startups often have limited resources and may struggle to compete effectively in saturated markets. Blue Ocean Strategy allows them to identify and enter markets where competition is minimal or non-existent, reducing the pressure to outperform established players.

Differentiation: By focusing on creating unique value propositions, startups can stand out from the competition, attracting customers with innovative offerings. This differentiation can help build brand recognition and customer loyalty.

Market Expansion: Startups can identify underserved or untapped customer segments and cater to their specific needs and preferences. This expansion into new market spaces can provide opportunities for growth and revenue generation.

Innovation: Blue Ocean Strategy encourages startups to innovate and explore new business models, technologies, and value delivery mechanisms. This innovation can lead to breakthrough products or services that disrupt traditional industries.

Cost Savings: Entering uncontested market spaces can result in reduced marketing and customer acquisition costs, as startups don’t need to engage in aggressive price wars or promotional activities to gain market share.

Higher Profit Margins: In blue oceans, startups often have more pricing power, as they offer unique value, allowing for higher profit margins compared to highly competitive markets with razor-thin margins.

Customer-Centric Approach: Startups can tailor their offerings to better match customer preferences and needs, leading to improved customer satisfaction and brand loyalty.

Risk Mitigation: While there are inherent risks in any business endeavor, the Blue Ocean Strategy minimizes some risks associated with direct competition, such as market saturation and price wars.

Long-Term Sustainability: By creating a unique value proposition and reducing competition, startups can establish a more sustainable and defensible position in the market.

Scalability: Blue Ocean Strategy allows startups to create a business model that is scalable and adaptable to changes in market conditions and customer preferences.

However, it’s important to note that the Blue Ocean Strategy is not without its challenges. Startups still need to conduct thorough market research, validate their ideas, and execute effectively to realize the benefits of this strategy. It may also require a mindset shift and a willingness to challenge conventional industry boundaries. Additionally, startups should continuously monitor the market to ensure their blue ocean remains uncontested. (Faster Capital, 2023.)

Challenges

 

Risk and Uncertainty: Creating a blue ocean typically involves venturing into uncharted territory, which comes with a high degree of risk and uncertainty. It’s difficult to predict market demand and potential pitfalls, which can lead to financial and resource risks.

Innovation Barriers: Generating innovative ideas and bringing them to life can be challenging. Many organizations face cultural and structural barriers to innovation that may impede their ability to create a blue ocean.

Competitive Response: Once a blue ocean is identified and proven successful, competitors may quickly enter the market, turning it into a red ocean. This can erode the initial advantage and require a continuous cycle of innovation to stay ahead.

Resource Constraints: Developing and executing a blue ocean strategy can be resource-intensive. Many companies might not have the necessary resources, including funding, talent, or time, to invest in such an approach.

Market Acceptance: Convincing customers to adopt a completely new product or service can be challenging. It often requires significant marketing efforts and education to change customer behavior.

Implementation Challenges: Translating a blue ocean strategy into action can be challenging. It might involve changes in the organization’s structure, processes, and culture, which can be met with resistance from employees.

Sustainability: Sustaining success in a blue ocean is not guaranteed. As mentioned earlier, competitors can quickly enter the market, and customer preferences can change over time, making it crucial to keep innovating and adapting.

Lack of Data and Benchmarking: Blue oceans often lack historical data and benchmarks, making it difficult to gauge progress and success. This can hinder decision-making and performance evaluation.

Market Saturation: In some industries, there might be limited opportunities to create blue oceans due to market saturation, regulatory restrictions, or other external factors.

Ethical Concerns: The pursuit of a blue ocean strategy can sometimes raise ethical concerns, especially when it involves disrupting existing markets or exploiting vulnerable populations.

Despite these challenges, organizations that successfully navigate them can reap substantial rewards by creating new demand, achieving sustainable growth, and distancing themselves from intense competition. To do so, they need to be agile, innovative, and committed to the long-term pursuit of blue oceans. (Kim & Mauborgne, 2004.)

FUTURE OF BLUE OCEAN STRATEGY
Digital Transformation: As businesses increasingly adopt digital technologies, the Blue Ocean Strategy may need to adapt to leverage digital transformation opportunities. This could involve utilizing big data, artificial intelligence, and digital platforms to identify untapped market spaces and create innovative solutions.

Sustainability and ESG: With a growing focus on environmental, social, and governance (ESG) concerns, the future of Blue Ocean Strategy may involve creating strategies that align with sustainability goals. Companies might find “blue oceans” in markets related to clean energy, sustainable agriculture, or socially responsible products and services.

Globalization: As the world becomes more interconnected, Blue Ocean Strategy may need to address the challenges and opportunities of operating in a global marketplace. Identifying untapped market space could mean expanding into emerging markets or creating new niches within global industries.

Rapid Technological Advances: The pace of technological change is likely to accelerate. Businesses employing the Blue Ocean Strategy will need to stay ahead of these changes, continuously scanning for new technologies that can help them create innovative market spaces.

Cross-Industry Innovation: The blurring of industry boundaries and the convergence of different sectors could create opportunities for Blue Ocean Strategy. Companies that can successfully innovate and cross traditional industry lines may discover new blue oceans.

Consumer Behavior and Expectations: Understanding and adapting to changing consumer preferences will be crucial. Businesses will need to create offerings that resonate with the values and demands of future generations.

Competition and Collaboration: As markets evolve, competition may intensify. Blue Ocean Strategy could involve finding ways to collaborate with competitors in mutually beneficial ways while maintaining differentiation.

Data Analytics and AI: Advanced analytics and AI could become key tools in identifying and capitalizing on blue ocean opportunities. Predictive analytics may help companies anticipate future trends and customer needs more effectively.

Social and Political Trends: The evolving landscape of social and political forces can significantly impact business environments. Companies that consider these factors in their strategic planning may discover blue oceans by addressing emerging societal needs.

Continuous Innovation: To remain relevant, Blue Ocean Strategy will need to embrace a culture of continuous innovation. This may involve experimenting with new business models, products, and services to stay ahead of changing market dynamics.

The future of Blue Ocean Strategy will likely require ongoing adaptation and innovation to navigate the ever-changing business landscape. Businesses that can effectively identify untapped market spaces, create unique value propositions, and respond to emerging trends and challenges will be well-positioned to succeed using this strategic approach. (Kim & Mauborgne, 2004.)

In conclusion, the Blue Ocean Strategy is a powerful approach to business strategy that challenges the conventional idea of competing in red oceans and encourages businesses to explore uncharted waters. By focusing on innovation, customer needs, and value creation, companies can break free from intense competition and establish a unique market space. However, it’s important to note that implementing the Blue Ocean Strategy requires careful planning, execution, and a commitment to ongoing innovation and adaptation.

References
Freedman, M., 2022. Blue Ocean Strategy: Creating Your Own Market. Read is on 02.06.2023
https://www.businessnewsdaily.com/5647-blue-ocean-strategy.html
Alesandroni, V., 2023. What is a Blue Ocean Strategy? Read is on 06.06.2023
https://www.e-zigurat.com/en/blog/what-is-a-blue-ocean-strategy/
Harapa, 2021. Examples Of Blue Ocean Strategy. Read is on 10.06.2023
https://harappa.education/harappa-diaries/blue-ocean-strategy-examples/#
Arounda, 2022. Top 10 Blue Ocean Strategy Examples. Read is on 14.06.2023
https://arounda.agency/blog/top-10-blue-ocean-strategy-examples
Cobb, Jeff., 2022. 6 Paths for Leading Your Learning Business to Blue Ocean. Read is on 19.06.2023

6 Paths for Leading Your Learning Business to Blue Ocean


Faster Capital, 2023. Why Blue Ocean Strategies Are the Key to Starpup Success. Read is on 28.06.2023
https://fastercapital.com/content/Why-Blue-Ocean-Strategies-Are-the-Key-to-Startup-Success.html
Kim, W., & Mauborgne, R., 2004. Blue Ocean Strategy. Read is on 30.06.2023
https://hbr.org/2004/10/blue-ocean-strategy

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