Blue Ocean Strategy is a marketing theory and the title of a thsis published in 2004 that was written by W.
Chan Kim and Renée Mauborgne, professors at INSEAD. The four actions framework aids in eliminating the trade-off between differentiation and low cost within a company. Raise: This questions which factors must be raised within an industry in terms of product, pricing or service standards. Eliminate: This questions which areas of a company or industry could be completely eliminated to reduce costs and to create an entirely new market. Thsis: This questions which areas of a company’s product or service are not entirely necessary but play a significant role in your industry, for example, the cost of manufacturing a certain material for a product could be reduced.
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Therefore, it can be reduced without completely eliminating it. Create: This prompts companies to be innovative with their products. By creating an entirely new product or service, a company can create their own market through differentiation from the competition. The second part describes the four principles of blue ocean strategy formulation. The third and final part describes the two key implementation principles of blue ocean strategy including tipping point leadership and fair process. These implementation principles are essential for leaders to overcome the four key organizational hurdles that can prevent even the best strategies from being executed.
Unlike the «red ocean strategy», the conventional approach to business of beating competition derived from the military organization, the «blue ocean strategy» tries to align innovation with utility, price and cost positions. The authors ask readers «What is the best unit of analysis of profitable growth? This section possibly contains original research. The metaphor of red and blue oceans describes the market universe. In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here companies try to outperform their rivals to grab a greater share of product or service demand. As the market space gets crowded, prospects for profits and growth are reduced.
In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. Blue ocean is an analogy to describe the wider, deeper potential of market space that is not yet explored.
Mauborgne’s 1997 article «Value Innovation — The Strategic Logic of High Growth». Value innovation is the simultaneous pursuit of differentiation and low cost, creating value for both the buyer, the company, and its employees, thereby opening up new and uncontested market space. Many others have proposed similar strategies. For example, Swedish educators Jonas Ridderstråle and Kjell Nordström in their 1999 book Funky Business follow a similar line of reasoning. Companies need to go beyond competing. To seize new profit and growth opportunities they also need to create blue oceans.
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