2 Ways to Spot a Blue Ocean Company
Since W. Chan Kim and Renée Mauborgne published their landmark book Blue Ocean Strategy in 2005, there’s been a lot of talk in the business world about “blue ocean” companies.
But what exactly is a blue ocean company? And what is the line between a blue ocean company and a very successful red ocean company?
Turns out, there are two criteria your company needs to meet to be considered a blue ocean company:
- Significantly lower cost than your competition.
- Reaching an audience your competition doesn’t.
Significantly Lower Costs
Red oceans are defined by everyone doing the same thing. Some do it better (higher quality or lower costs) and some do it worse. But it’s all a matter of degrees.
Blue ocean, on the other hand, is fundamentally different. They have an entirely new business plan.
Consider Cirque du Soleil. They’re a circus that got rid of the animals–the single largest expense for circuses. Traveling, training, upkeep, support staff, insurance, and (now) bad PR are all extra expenses related to animals. By switching to a people-based entertainment structure, their costs were significantly lowered.
Take another example, Southwest airlines. By no longer offering meals, lounges, seating choices, and hub connectivity (things their competitors offer), they were able to significantly reduce their own costs.
But cost reduction alone is not enough. The other factor of blue ocean companies is that they’ve redefined their value and reached new markets.
Reaching Different Audiences
The second component of a blue ocean company is to create a new market. By taking your existing industry and expanding its boundaries, you create an uncontested space–a blue ocean.
For Southwest airlines, in tandem to cutting features, they also redefined their value offerings. Southwest became the airline that competed with driving. By offering a ton of point-to-point departures (and because they reduced their cost, which allows them to reduce their price), they were able to tap into a completely different market: those who were (previously) choosing driving over flying.
Consider again Cirque du Soleil. By bringing in the multicultural art and dance, theme, and a refined experience, they are tapping in to business people with high-end clients, as well as others who would have considered a circus for kids.
Shifts costs down while creating new value (and expanding your market) go hand in hand. Changing only costs (offerings) puts you at a disadvantage. And expanding your market without the economic support of lowering your costs is recipe for burn-out.
While many companies claim they are blue ocean, true blue ocean organizations have create a special problem for their competitors. Namely, they cannot catch-up, because blue ocean is not an issue of degree but of direction.
True blue ocean companies have made fundamental changes to how they do business. And it’s for this reason it often takes competitors a decade or more to catch up.