Blue Ocean Strategy

summary of HBR’s 2004 October article W. Chan Kim Renee Mauborgne

There are two ways to create 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 boundaries of an existing industry.

In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid.

Global markets become transparent, demand growth is flattening due to stabilizing population growth and saturation, and commoditization grows.

Despite those compressive trends, most companies stay within in their red oceans. “In a study of business launches in 108 companies, we found that 86% of those new ventures were line extensions—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 delivered 38% of total revenues and a startling 61% of total profits.

once corporations realize that the strategies for creating and capturing blue oceans have a different underlying logic from red ocean strategies, they will be able to create many more blue oceans in the future.