Red Oceans Industry boundaries are defined and accepted Companies try to outperform rivals –Ex. Cellphone service Very crowded space Products turn into commodities Structuralist View or Environmental Determinism

Blue Oceans All the industries not in existence today Clear of competition Two ways to create Blue Oceans 1.Companies give rise to completely new industries Example: 2.A blue ocean is created from within a red ocean when a company alters the boundaries of an existing industry Industry examples: automobiles, music recording, pharmaceuticals Reconstructionist View

Key Blue Ocean Creations Blue Oceans will remain the engine of growth, red oceans are shrinking steadily.

Key Components of Blue Oceans Blue oceans are not about technology innovation Incumbents often create blue oceans and usually within their core businesses –Examples: GM, Chrysler, Dell Company and industry are the wrong units of analysis Creating blue oceans builds brands –Example: Ford

Defining Characteristics of Blue Oceans Never use competition as a benchmark Rejects the fundamental principle of conventional strategy: a trade-off exists between value and cost Blue oceans use both differentiation and low cost simultaneously

Simultaneous Use of Low Cost and Differentiation

Strategy in Blue and Red Oceans Red oceans are favored partially because corporate strategy is heavily influenced by its roots in military strategy Two important aspects of strategy often go ignored with red oceans 1.Find and develop new markets 2.Exploit and protect blue oceans

Cirque du Soleil Demand for the circus spiraling downward –Demand for animal shows was rapidly decreasing –Three-ring shows were confusing and expensive –High prices for concessions Three factors left to focus on: –The clowns –The tent –The classic acrobatic acts New, theatrical elements were added Expensive elements were eliminated

Barriers to Imitation Economic Barriers –Generate scale economies very rapidly –Network externalities may be created Example: –Organizational politics may interfere Example: Southwest Airlines Cognitive Barriers –Offering greater value promotes the company’s brand name –Attempting to imitate a blue ocean creator will create confusion about the imitator’s current brand image

Blue and Red Oceans Blue and red oceans will always coexist Competing in red oceans dominates the field of strategy in theory and in practice Corporations need to realize that strategies for creating blue oceans differs greatly from red ocean strategies