Read the article attached and write a detailed summary of 1700 words plus answer the questions listed.

Open Posted By: ahmad8858 Date: 17/02/2021 Graduate Coursework Writing

1. Detailed - Comprehensive Summary for THIS article
      Your Detailed - Comprehensive Summary for THIS article post should be no less of 1,700 words.  
2. Which are the three most CRITICAL ISSUES of THIS article? Please explain why? and analyze, and discuss in great detail …
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3. Which are the three most relevant LESSONS LEARNED of THIS article? Please explain why? and analyze, and discuss in great detail …
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Kim, W. C., & Mauborgne, R. (2004, October). Blue ocean strategy. Retrieved February 16, 2021, from https://hbr.org/2004/10/blue-ocean-strategy

Category: Mathematics & Physics Subjects: Physics Deadline: 12 Hours Budget: $120 - $180 Pages: 2-3 Pages (Short Assignment)

Attachment 1


Blue Ocean Strategy

by W. Chan Kim and Renée Mauborgne

Competing in overcrowded

industries is no way to sustain

high performance. The real

opportunity is to create blue

oceans of uncontested market


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Blue Ocean Strategy

by W. Chan Kim and Renée Mauborgne

harvard business review • october 2004 page 1





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Competing in overcrowded industries is no way to sustain high

performance. The real opportunity is to create blue oceans of

uncontested market space.

A onetime accordion player, stilt walker, and fire-eater, Guy Laliberté is now CEO of one of Canada’s largest cultural exports, Cirque du Soleil. Founded in 1984 by a group of street performers, Cirque has staged dozens of pro- ductions seen by some 40 million people in 90 cities around the world. In 20 years, Cirque has achieved revenues that Ringling Bros. and Barnum & Bailey—the world’s leading cir- cus—took more than a century to attain.

Cirque’s rapid growth occurred in an un- likely setting. The circus business was (and still is) in long-term decline. Alternative forms of entertainment—sporting events, TV, and video games—were casting a growing shadow. Chil- dren, the mainstay of the circus audience, pre- ferred PlayStations to circus acts. There was also rising sentiment, fueled by animal rights groups, against the use of animals, tradition- ally an integral part of the circus. On the sup- ply side, the star performers that Ringling and the other circuses relied on to draw in the crowds could often name their own terms. As a result, the industry was hit by steadily decreas-

ing audiences and increasing costs. What’s more, any new entrant to this business would be competing against a formidable incumbent that for most of the last century had set the in- dustry standard.

How did Cirque profitably increase reve- nues by a factor of 22 over the last ten years in such an unattractive environment? The tagline for one of the first Cirque productions is reveal- ing: “We reinvent the circus.” Cirque did not make its money by competing within the con- fines of the existing industry or by stealing cus- tomers from Ringling and the others. Instead it created uncontested market space that made the competition irrelevant. It pulled in a whole new group of customers who were tradition- ally noncustomers of the industry—adults and corporate clients who had turned to theater, opera, or ballet and were, therefore, prepared to pay several times more than the price of a conventional circus ticket for an unprece- dented entertainment experience.

To understand the nature of Cirque’s achievement, you have to realize that the busi-

Blue Ocean Strategy

harvard business review • october 2004 page 2

W. Chan Kim

([email protected]) is the Boston Consulting Group Bruce D. Henderson Chair Professor of Strategy and International Management at In- sead in Fontainebleau, France.

Renée Mauborgne

([email protected] insead.edu) is the Insead Distinguished Fellow and a professor of strategy and management at Insead. This article is adapted from their forthcoming book

Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant

(Harvard Business School Press, 2005).

ness 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. Products turn into commodities, and increasing competition turns the water bloody.

Blue oceans denote all the industries


in existence today—the unknown market space, untainted by competition. In blue oceans, de- mand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. There are two ways to cre- ate blue oceans. In a few cases, companies can give rise to completely new industries, as eBay did with the online auction industry. But in most cases, a blue ocean is created from within a red ocean when a company alters the bound- aries of an existing industry. As will become ev- ident later, this is what Cirque did. In breaking through the boundary traditionally separating circus and theater, it made a new and profit- able blue ocean from within the red ocean of the circus industry.

Cirque is just one of more than 150 blue ocean creations that we have studied in over 30 industries, using data stretching back more than 100 years. We analyzed companies that created those blue oceans and their less suc- cessful competitors, which were caught in red oceans. In studying these data, we have ob- served a consistent pattern of strategic think- ing behind the creation of new markets and in- dustries, what we call blue ocean strategy. The logic behind blue ocean strategy parts with tra- ditional models focused on competing in exist- ing market space. Indeed, it can be argued that managers’ failure to realize the differences be- tween red and blue ocean strategy lies behind the difficulties many companies encounter as they try to break from the competition.

In this article, we present the concept of blue ocean strategy and describe its defining characteristics. We assess the profit and growth consequences of blue oceans and discuss why their creation is a rising imperative for compa- nies in the future. We believe that an under- standing of blue ocean strategy will help to-

day’s companies as they struggle to thrive in an accelerating and expanding business universe.

Blue and Red Oceans

Although the term may be new, blue oceans have always been with us. Look back 100 years and ask yourself which industries known today were then unknown. The answer: Indus- tries as basic as automobiles, music recording, aviation, petrochemicals, pharmaceuticals, and management consulting were unheard-of or had just begun to emerge. Now turn the clock back only 30 years and ask yourself the same question. Again, a plethora of multibillion- dollar industries jump out: mutual funds, cel- lular telephones, biotechnology, discount re- tailing, express package delivery, snowboards, coffee bars, and home videos, to name a few. Just three decades ago, none of these indus- tries existed in a meaningful way.

This time, put the clock forward 20 years. Ask yourself: How many industries that are un- known today will exist then? If history is any predictor of the future, the answer is many. 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 classi- fied. The half-century-old Standard Industrial Classification (SIC) system was replaced in 1997 by the North American Industry Classification System (NAICS). The new system expanded the ten SIC industry sectors into 20 to reflect the emerging realities of new industry territo- ries—blue oceans. The services sector under the old system, for example, is now seven sec- tors ranging from information to health care and social assistance. Given that these classifi- cation systems are designed for standardization and continuity, such a replacement shows how significant a source of economic growth the creation of blue oceans has been.

Looking forward, it seems clear to us that blue oceans will remain the engine of growth. Prospects in most established market spaces— red oceans—are shrinking steadily. Technologi- cal advances have substantially improved in- dustrial productivity, permitting suppliers to produce an unprecedented array of products and services. And as trade barriers between na- tions and regions fall and information on prod- ucts and prices becomes instantly and globally available, niche markets and monopoly havens are continuing to disappear. At the same time,

Blue Ocean Strategy

harvard business review • october 2004 page 3

there is little evidence of any increase in de- mand, at least in the developed markets, where recent United Nations statistics even point to declining populations. The result is that in more and more industries, supply is overtaking demand.

This situation has inevitably hastened the commoditization of products and services, stoked price wars, and shrunk profit margins. According to recent studies, major American brands in a variety of product and service categories have become more and more alike. And as brands become more similar, people increasingly base purchase choices on price. People no longer insist, as in the past, that their laundry detergent be Tide. Nor do they necessarily stick to Colgate when there is a special promotion for Crest, and vice versa. In overcrowded industries, differenti- ating brands becomes harder both in eco- nomic upturns and in downturns.

The Paradox of Strategy

Unfortunately, most companies seem be- calmed in their red oceans. In a study of busi- ness launches in 108 companies, we found that 86% of those new ventures were line exten- sions—incremental improvements to existing industry offerings—and a mere 14% were aimed at creating new markets or industries. While line extensions did account for 62% of the total revenues, they delivered only 39% of the total profits. By contrast, the 14% invested in creating new markets and industries deliv- ered 38% of total revenues and a startling 61% of total profits.

So why the dramatic imbalance in favor of red oceans? Part of the explanation is that cor- porate strategy is heavily influenced by its roots in military strategy. The very language of strategy is deeply imbued with military refer- ences—chief executive “officers” in “headquar- ters,” “troops” on the “front lines.” Described this way, strategy is all about red ocean compe- tition. It is about confronting an opponent and driving him off a battlefield of limited terri- tory. Blue ocean strategy, by contrast, is about doing business where there is no competitor. It is about creating new land, not dividing up ex- isting land. Focusing on the red ocean there- fore means accepting the key constraining fac- tors of war—limited terrain and the need to beat an enemy to succeed. And it means deny- ing the distinctive strength of the business

world—the capacity to create new market space that is uncontested.

The tendency of corporate strategy to focus on winning against rivals was exacerbated by the meteoric rise of Japanese companies in the 1970s and 1980s. For the first time in corporate history, customers were deserting Western companies in droves. As competition mounted in the global marketplace, a slew of red ocean strategies emerged, all arguing that competi- tion was at the core of corporate success and failure. Today, one hardly talks about strategy without using the language of competition. The term that best symbolizes this is “competi- tive advantage.” In the competitive-advantage worldview, companies are often driven to out- perform rivals and capture greater shares of ex- isting market space.

Of course competition matters. But by fo- cusing on competition, scholars, companies, and consultants have ignored two very impor- tant—and, we would argue, far more lucra- tive—aspects of strategy: One is to find and develop markets where there is little or no competition—blue oceans—and the other is to exploit and protect blue oceans. These challenges are very different from those to which strategists have devoted most of their attention.

Toward Blue Ocean Strategy

What kind of strategic logic is needed to guide the creation of blue oceans? To answer that question, we looked back over 100 years of data on blue ocean creation to see what pat- terns could be discerned. Some of our data are presented in the exhibit “A Snapshot of Blue Ocean Creation.” It shows an overview of key blue ocean creations in three industries that closely touch people’s lives: autos—how peo- ple get to work; computers—what people use at work; and movie theaters—where people go after work for enjoyment. We found that:

Blue oceans are not about technology in- novation.

Leading-edge technology is some- times 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 technol- ogy intensive. As the exhibit reveals, across all three representative industries, blue oceans were seldom the result of technological innova- tion per se; the underlying technology was often already in existence. Even Ford’s revolu- tionary assembly line can be traced to the meat-

A Snapshot of Blue Ocean Creation

The table on the next page identifies the strategic elements that were common to blue ocean creations in three different industries in different eras. It is not intended to be compre- hensive in coverage or exhaustive in content. We chose to show American industries because they represented the largest and least-regulated mar- ket during our study period. The pat- tern of blue ocean creations exempli- fied by these three industries is consistent with what we observed in the other industries in our study.

Blue Ocean Strategy

harvard business review • october 2004 page 4

Key blue ocean creations

Was the blue ocean created by a new entrant or an incumbent?

Was it driven by technology pioneering or value pioneering?

At the time of the blue ocean creation, was the industry attractive or unattractive?

New entrant Value pioneering* (mostly existing technologies)

UnattractiveFord Model T Unveiled in 1908, the Model T was the first mass-produced car, priced so that many Americans could afford it.

Incumbent Value pioneering (some new technologies)

Attractive GM’s “car for ever y purse and purpose” GM created a blue ocean in 1924 by injecting fun and fashion into the car.

Incumbent Value pioneering (some new technologies)

UnattractiveJapanese fuel-efficient autos Japanese automakers created a blue ocean in the mid-1970s with small, reliable lines of cars.

Incumbent Value pioneering (mostly existing technologies)

UnattractiveChr ysler minivan With its 1984 minivan, Chrysler created a new class of auto- mobile that was as easy to use as a car but had the passenger space of a van.

Incumbent Value pioneering (some new technologies)

UnattractiveC TR’s tabulating machine In 1914, CTR created the business machine industry by simplifying, modularizing, and leasing tabulating machines. CTR later changed its name to IBM.

Incumbent Value pioneering (650: mostly existing technologies)

Value and technology pioneering (System/360: new and existing technologies)

NonexistentIBM 650 electronic computer and System/360 In 1952, IBM created the business computer industry by simpli- fying and reducing the power and price of existing technology. And it exploded the blue ocean created by the 650 when in 1964 it unveiled the System/360, the first modularized com- puter system.

New entrant Value pioneering (mostly existing technologies)

UnattractiveApple personal computer Although it was not the first home computer, the all-in-one, simple-to-use Apple II was a blue ocean creation when it appeared in 1978.

Incumbent Value pioneering (mostly existing technologies)

NonexistentCompaq PC servers Compaq created a blue ocean in 1992 with its ProSignia server, which gave buyers twice the file and print capability of the minicomputer at one-third the price.

New entrant Value pioneering (mostly existing technologies)

UnattractiveDell built-to - order computers In the mid-1990s, Dell created a blue ocean in a highly competitive industry by creating a new purchase and delivery experience for buyers.

New entrant Value pioneering (mostly existing technologies)

NonexistentNickelodeon The first Nickelodeon opened its doors in 1905, showing short films around-the-clock to working-class audiences for five cents.

Incumbent Value pioneering (mostly existing technologies)

Attractive Palace theaters Created by Roxy Rothapfel in 1914, these theaters provided an operalike environment for cinema viewing at an affordable price.

Incumbent Value pioneering (mostly existing technologies)

UnattractiveAMC multiplex In the 1960s, the number of multiplexes in America’s subur- ban shopping malls mushroomed. The multiplex gave viewers greater choice while reducing owners’ costs.

Incumbent Value pioneering (mostly existing technologies)

UnattractiveAMC megaplex Megaplexes, introduced in 1995, offered every current block- buster and provided spectacular viewing experiences in theater complexes as big as stadiums, at a lower cost to theater owners.

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Blue Ocean Strategy

harvard business review • october 2004 page 5

packing industry in America. Like those within the auto industry, the blue oceans within the computer industry did not come about through technology innovations alone but by linking technology to what buyers val- ued. As with the IBM 650 and the Compaq PC server, this often involved simplifying the technology.

Incumbents often create blue oceans—and usually within their core businesses.

GM, the Japanese automakers, and Chrysler were es- tablished players when they created blue oceans in the auto industry. So were CTR and its later incarnation, IBM, and Compaq in the computer industry. And in the cinema indus- try, the same can be said of palace theaters and AMC. Of the companies listed here, only Ford, Apple, Dell, and Nickelodeon were new entrants in their industries; the first three were start-ups, and the fourth was an estab- lished player entering an industry that was new to it. This suggests that incumbents are not at a disadvantage in creating new market spaces. Moreover, the blue oceans made by in- cumbents were usually within their core busi- nesses. In fact, as the exhibit shows, most blue oceans are created from within, not beyond, red oceans of existing industries. This chal- lenges the view that new markets are in dis- tant waters. Blue oceans are right next to you in every industry.

Company and industry are the wrong units of analysis.

The traditional units of strategic analysis—company and industry—have little explanatory power when it comes to analyz- ing how and why blue oceans are created. There is no consistently excellent company;

the same company can be brilliant at one time and wrongheaded at another. Every company rises and falls over time. Likewise, there is no perpetually excellent industry; relative attrac- tiveness is driven largely by the creation of blue oceans from within them.

The most appropriate unit of analysis for ex- plaining the creation of blue oceans is the stra- tegic move—the set of managerial actions and decisions involved in making a major market- creating business offering. Compaq, for exam- ple, is considered by many people to be “un- successful” because it was acquired by Hewlett- Packard in 2001 and ceased to be a company. But the firm’s ultimate fate does not invalidate the smart strategic move Compaq made that led to the creation of the multibillion-dollar market in PC servers, a move that was a key cause of the company’s powerful comeback in the 1990s.

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. Almost all of the compa- nies listed in the exhibit are remembered in no small part for the blue oceans they created long ago. 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.

Our findings are encouraging for executives at the large, established corporations that are traditionally seen as the victims of new market space creation. For what they reveal is that large R&D budgets are not the key to creating new market space. The key is making the right strategic moves. What’s more, companies that understand what drives a good strategic move will be well placed to create multiple blue oceans over time, thereby continuing to de- liver high growth and profits over a sustained period. The creation of blue oceans, in other words, is a product of strategy and as such is very much a product of managerial action.

The Defining Characteristics

Our research shows several common charac- teristics across strategic moves that create blue oceans. We found that the creators of blue oceans, in sharp contrast to companies playing

Red Ocean Versus Blue Ocean Strategy The imperatives for red ocean and blue ocean strategies are starkly different.

Red ocean strategy

Compete in existing market space.

Beat the competition.

Exploit existing demand.

Make the value/cost trade-off.

Align the whole system of a com- pany’s activities with its strategic

choice of differentiation or low cost.

Blue ocean strategy

Create uncontested market space.

Make the competition irrelevant.

Create and capture new demand.

Break the value/cost trade-off.

Align the whole system of a company’s activities in pursuit of differentiation and low cost. Co

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Blue Ocean Strategy

harvard business review • october 2004 page 6

by traditional rules, never use the competition as a benchmark. Instead they make it irrele- vant by creating a leap in value for both buy- ers and the company itself. (The exhibit “Red Ocean Versus Blue Ocean Strategy” compares the chief characteristics of these two strategy models.)

Perhaps the most important feature of blue ocean strategy is that it rejects the fundamen- tal tenet of conventional strategy: that a trade- off 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. In other words, strategy is essentially a choice between differentiation and low cost. But when it comes to creating blue oceans, the evidence shows that successful companies pursue differ- entiation and low cost simultaneously.

To see how this is done, let us go back to Cir- que du Soleil. At the time of Cirque’s debut, circuses focused on benchmarking one an- other and maximizing their shares of shrinking demand by tweaking traditional circus acts. This included trying to secure more and better- known clowns and lion tamers, efforts that raised circuses’ cost structure without substan- tially altering the circus experience. The result was rising costs without rising revenues and a downward spiral in overall circus demand. Enter Cirque. Instead of following the conven- tional logic of outpacing the competition by of- fering a better solution to the given problem— creating a circus with even greater fun and thrills—it redefined the problem itself by offer- ing people the fun and thrill of the circus


the intellectual sophistication and artistic rich- ness of the theater.

In designing performances that landed both these punches, Cirque had to reevaluate the components of the traditional circus offering. What the company found was that many of the elements considered essential to the fun and thrill of the circus were unnecessary and in many cases costly. For instance, most cir- cuses offer animal acts. These are a heavy eco- nomic burden, because circuses have to shell out not only for the animals but also for their training, medical care, housing, insurance, and transportation. Yet Cirque found that the appe- tite for animal shows was rapidly diminishing because of rising public concern about the treatment of circus animals and the ethics of exhibiting them.

Similarly, although traditional circuses pro- moted their performers as stars, Cirque real- ized that the public no longer thought of circus artists as stars, at least not in the movie star sense. Cirque did away with traditional three- ring shows, too. Not only did these create con- fusion among spectators forced to switch their attention from one ring to another, they also increased the number of performers needed, with obvious cost implications. And while aisle concession sales appeared to be a good way to generate revenue, the high prices discouraged parents from making purchases and made them feel they were being taken for a ride.

Cirque found that the lasting allure of the traditional circus came down to just three fac- tors: the clowns, the tent, and the classic acro- batic acts. So Cirque kept the clowns, while shifting their humor away from slapstick to a more enchanting, sophisticated style. It glam- orized the tent, which many circuses had aban- doned in favor of rented venues. Realizing that the tent, more than anything else, captured the magic of the circus, Cirque designed this classic symbol with a glorious external finish and a high level of audience comfort. Gone were the sawdust and hard benches. Acrobats and other thrilling performers were retained, but Cirque reduced their roles and made their acts more elegant by adding artistic flair.

Even as Cirque stripped away some of the traditional circus offerings, it injected new el- ements drawn from the world of theater. For instance, unlike traditional circuses featuring a series of unrelated acts, each Cirque cre- ation resembles a theater performance in that it has a theme and story line. Although the themes are intentionally vague, they bring harmony and an intellectual element to the acts. Cirque also borrows ideas from Broad- way. For example, rather than putting on the traditional “once and for all” show, Cirque mounts multiple productions based on differ- ent themes and story lines. As with Broadway productions, too, each Cirque show has an original musical score, which drives the per- formance, lighting, and timing of the acts, rather than the other way around. The pro- ductions feature abstract and spiritual dance, an idea derived from theater and ballet. By in- troducing these factors, Cirque has created highly sophisticated entertainments. And by staging multiple productions, Cirque gives people reason to come to the circus more of-

Blue Ocean Strategy

harvard business review • october 2004 page 7

ten, thereby increasing revenues. Cirque offers the best of both circus and

theater. And by eliminating many of the most expensive elements of the circus, it has been able to dramatically reduce its cost structure, achieving both differentiation and low cost. (For a depiction of the economics underpin- ning blue ocean strategy, see the exhibit “The Simultaneous Pursuit of Differentiation and Low Cost.”)

By driving down costs while simultaneously driving up value for buyers, a company can achieve a leap in value for both itself and its customers. Since buyer value comes from the utility and price a company offers, and a com- pany generates value for 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. It is this whole-system ap-

proach that makes the creation of blue oceans a sustainable strategy. Blue ocean strategy inte- grates the range of a firm’s functional and op- erational activities.

A rejection of the trade-off between low cost and differentiation implies a fundamental change in strategic mind-set—we cannot em- phasize enough how fundamental a shift it is. The red ocean assumption that industry struc- tural conditions are a given and firms are forced to compete within them is based on an intellectual worldview that academics call the


view, or

environmental determin- ism

. According to this view, companies and managers are largely at the mercy of economic forces greater than themselves. Blue ocean strategies, by contrast, are based on a world- view in which market boundaries and indus- tries can be reconstructed by the …