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BLUE OCEAN STRATEGY

Red Ocean vs. Blue Ocean (Kim & Mauborgne, 2022)
The Blue Ocean strategy creates a new market space and stimulates new demand. On the other hand, the
Red Ocean strategy is about competing in an existing market space to capture demand.
In Blue Oceans, demand is created rather than fought over.
There is ample opportunity for growth that is both profitable and rapid.
Red Ocean Strategy Blue Ocean Strategy

Compete in existing market space Create uncontested market space
Beat the competition Make the competition irrelevant
Exploit existing demand Create and capture new demand
Make the value/cost tradeoff Break the value/cost tradeoff
Align the company’s activities with its strategic Align the whole system of a company’s activities
choice of differentiation or low cost in pursuit of differentiation and low cost
Creating Blue Oceans builds brands. A Blue Ocean strategic move can create brand equity that lasts for
decades. For instance, the Model T (the first affordable automobile, which made cars available to middle-
class people) rolled off Henry Ford’s assembly line in 1908. IBM’s 360 series (the first family of computers
designed to cover commercial and scientific applications) is also considered an equivalent of the Model T.
In contrast to traditional companies, the creators of Blue Oceans never use the competition as a
benchmark. Instead, they make it irrelevant by creating a different value for buyers and the company.
The most important feature of the Blue Ocean strategy is that it rejects the fundamental principle of
conventional strategy: that a tradeoff exists between value and cost. It means that companies can create
greater value for customers at a higher cost or create reasonable value at a lower cost. In Blue Oceans,
successful companies simultaneously pursue differentiation and low cost.
Occupying an Uncontested Market Space

One principle of the Blue Ocean strategy is to reconstruct market boundaries to break from the
competition. The challenge is to identify commercially compelling Blue Ocean opportunities successfully.
This challenge is critical because managers cannot bet their strategy on intuition.
Six (6) steps (six paths framework) to reshaping market boundaries:
1. Define industry requirements and focus on being the best within them.
2. Look at the industries through the lens of generally accepted strategic groups (rival firms with
similar competitive approaches, such as luxury automobiles, economy cars, etc.) and strive to
stand out.
3. Focus on the same buyer group, be it the purchaser (as in the office equipment industry), the user
(as in the clothing industry), or the influencer (as in the pharmaceutical industry).
4. Define the scope of the products and services offered by the industry.
5. Accept the industry’s functional or emotional orientation.
6. Focus on competitive threats and formulate strategy.
To break out of Red Oceans, companies must reject the accepted boundaries defining their competition.
Instead of looking within these boundaries, managers must look systematically across them to create Blue
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Oceans. They need to look across alternative industries, strategic groups, buyer groups, complementary
product and service offerings, an industry's functional-emotional orientation, and even time. It gives
companies keen insight into how to reconstruct market realities to develop Blue Oceans.
Strategy Canvas
The strategy canvas graphically depicts a company’s and its competitor’s value proposition, suggests
opportunities to escape/eliminate competition, captures the current and future state of activity within a
market space, and documents current and future competitive investments. It captures the current
strategic landscape and the prospects for an organization.
The strategy canvas serves two (2) purposes:
• To capture the current state of a market space, which allows users to see the factors that the
industry competes on and where the competition currently invests
• To propel users to refocus from competitors to alternatives and from customers to non-customers
of the industry
How to construct a strategy canvas (see Figure 1):
• Plot the existing product’s and competitor’s top 6-8 value elements (i.e., quality, price, design,
etc.). Note that the value elements may differ from one industry to another.
• Rate each value element (on a scale of one [1] to five [5]) and plot the points on the graph (i.e.,
for quality, both Starbucks and Tim Hortons are rated four [4]).
• In writing an interpretation and analysis of the graph, use the guide questions below:
1. What are the similarities and/or differences between you and your competitor’s canvases?
2. What are the competitive assumptions made about your industry’s value elements?
3. What are the strategic implications for your organization, competitors, and industry?
4. Any general patterns? (convergence or divergence on value elements)
Sample graph:
Starbucks Tim Hortons

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0
Q u a l i ty P r i ce Design S e r v i ce C u s to m e r s B r a n ch e s
Figure 1. Strategy canvas: Starbucks Coffee

ERRC (Eliminate, Reduce, Raise, Create)
A helpful tool in crafting a future strategy canvas is the “Four (4) Actions Framework,” which facilitates
identifying the value elements to be created, increased, decreased, or eliminated.

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The Eliminate-Reduce-Raise-Create (ERRC) Grid developed by W. Chan Kim and Renee Mauborgne is a
simple matrix-like tool that drives companies to focus simultaneously on eliminating, reducing, raising,
and creating while unlocking a new Blue Ocean.
Figure 2. The four (4) actions framework
The ERRC Grid is a tool for creating Blue Oceans. It pushes companies to act on the questions posed in the
Four (4) Actions Framework to create a new value curve (or strategic profile) essential to unlocking a new
Blue Ocean. The grid gives companies four (4) immediate benefits (see Figure 3 for the example):
• It pushes them to simultaneously pursue differentiation and low cost to break the value-cost
tradeoff.
• It immediately flags companies focused only on raising and, creating, solving problems related to
cost structure and over-engineering products and services.
• Managers easily understand it at any level, creating a high degree of engagement in its
application.
• It drives companies to thoroughly scrutinize every factor in the industry, helping them discover
the implicit assumptions they unconsciously make in competing within the market.

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Figure 3. ERRC grid: Starbucks Coffee
References:
Kim, W. C. & Mauborgne, R. (2004). Blue Ocean strategy. Harvard business review, 1-11.
Kim, W.C. & Mauborgne, R. (2005). Blue Ocean strategy: From theory to practice. California Review
Management, 47(3), 105-121.
Kim, W. C. & Mauborgne, R. (2015). Blue Ocean strategy: How to create uncontested market space and
make the competition irrelevant. Harvard Business Review Press.
Kim, W. C. & Mauborgne, R. (2023). What is Blue Ocean strategy?
https://www.blueoceanstrategy.com/what-is-blue-ocean-strategy/
Eliminate-reduce-raise-create grid (ERRC grid) | Blue Ocean strategy tools and frameworks. (n.d.).
https://www.blueoceanstrategy.com/tools/errc-grid/
Red Ocean strategy vs Blue Ocean strategy. (n.d.). https://www.blueoceanstrategy.com/tools/red-
ocean-vs-blue-ocean-strategy/
Strategy canvas | Blue Ocean tools and frameworks. (n.d.).
https://www.blueoceanstrategy.com/tools/strategy-canvas/


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BLUE OCEAN STRATEGY

Red Ocean Strategy Blue Ocean Strategy

Occupying an Uncontested Market Space

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Starbucks Tim Hortons

Figure 1. Strategy canvas: Starbucks Coffee

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Figure 2. The four (4) actions framework

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Figure 3. ERRC grid: Starbucks Coffee

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