What Blue Ocean Strategy is
Blue Ocean Strategy is a framework developed by W. Chan Kim and Renée Mauborgne of INSEAD, popularised in their 2005 book of the same name. It argues that lasting profitable growth comes less from beating rivals in existing markets and more from creating uncontested market space, where demand is created rather than fought over.
In MBA coursework you might be asked to analyse a company that created a blue ocean, recommend a blue ocean move for a case company, or critically compare the framework with competitive positioning approaches such as Porter's.
Red oceans vs blue oceans
| 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 trade-off | Break the value-cost trade-off |
| Choose differentiation or low cost | Pursue differentiation and low cost together |
Red oceans are not bad in themselves; most firms operate in them most of the time. The framework's point is that the biggest growth opportunities often lie outside current industry boundaries.
Value innovation
The cornerstone concept is value innovation: simultaneously raising value for buyers and lowering costs for the firm. It happens when a company removes or reduces factors the industry competes on that buyers do not value much, which lowers costs, while raising or creating factors buyers value highly, which increases value. This directly challenges the idea, central to Porter's generic strategies, that firms must choose between differentiation and cost leadership.
Innovation is not the same as technology
Value innovation is about the offering and business model, not necessarily new technology. Many blue oceans in the original research used existing technology in a new combination aimed at non-customers.
The strategy canvas
The strategy canvas is a chart that captures the current state of competition in an industry. The horizontal axis lists the factors the industry competes on (price, features, service, convenience and so on). The vertical axis shows the offering level buyers receive on each factor, from low to high. Each competitor's profile is drawn as a line, its value curve.
- In a red ocean, competitors' value curves look alike: everyone competes on the same factors.
- A blue ocean move produces a value curve with a distinct shape: low on some factors, high on others, and new factors the industry never offered.
Kim and Mauborgne describe three characteristics of a good strategy: focus (not investing in every factor), divergence (a curve that stands apart) and a compelling tagline (a clear message of what the offer stands for).
Four Actions Framework and ERRC grid
To reconstruct buyer value and create a new value curve, the framework asks four questions:
| Action | Question |
|---|---|
| Eliminate | Which factors that the industry takes for granted should be eliminated? |
| Reduce | Which factors should be reduced well below the industry standard? |
| Raise | Which factors should be raised well above the industry standard? |
| Create | Which factors should be created that the industry has never offered? |
The answers are recorded in an ERRC grid (Eliminate, Reduce, Raise, Create), a four-box table. Eliminate and reduce drive costs down; raise and create drive value up. A strong analysis fills all four boxes and explains the reasoning for each.
The six paths framework
To find blue ocean opportunities, the framework suggests looking across six boundaries that industries usually take as fixed:
- Alternative industries: look at industries that serve the same purpose in a different form.
- Strategic groups within the industry: look across premium and budget tiers.
- The chain of buyers: purchasers, users and influencers may value different things.
- Complementary products and services: what happens before, during and after use.
- Functional or emotional appeal: shift an industry's orientation from one to the other.
- Time: trends that will clearly reshape value over time.
The framework also stresses looking at non-customers: people who barely use the industry, refuse it, or have never considered it. They are where new demand comes from.
A worked example
The authors' best-known illustration is Cirque du Soleil, which redefined circus entertainment in the 1980s and 1990s. Traditional circuses competed on star performers, animal shows and multiple show arenas, at rising cost and with shrinking audiences. Cirque du Soleil drew on elements of theatre to create a new form of entertainment for adults and corporate clients.
| Eliminate | Reduce | Raise | Create |
|---|---|---|---|
| Star performers; animal shows; multiple show arenas; aisle concession sales | Fun and humour; thrill and danger | Unique venue | Theme; refined environment; multiple productions; artistic music and dance |
The result was a value curve unlike any traditional circus, at lower cost on expensive factors such as animals, and with appeal to a new, higher-paying audience. In your own paper, apply the same structure to your case company, using evidence from the case and industry data.
Applying it to your case
For a case company, build the ERRC grid from evidence: industry reports for the competing factors, customer reviews or survey data for what buyers value, and cost data for what each factor costs to provide. Then check the new curve against buyer utility, a price the mass of target buyers can accept, and a cost structure that still makes a profit at that price.
Critiques and limits
MBA markers reward critical evaluation. Common critiques include:
- Imitation: successful blue oceans attract competitors, turning them red; the framework's advice on sustaining advantage is debated.
- Selection bias: critics argue some examples are chosen with hindsight, and that many attempts to create blue oceans fail.
- Novelty of ideas: some scholars see overlap with earlier work on differentiation, disruptive innovation and market creation.
- Practical difficulty: identifying non-customer needs and executing a new business model is resource-intensive.
- Context: in highly regulated or capital-intensive industries, room for value innovation may be limited.
A balanced paper can argue that Blue Ocean tools are most useful as a structured way to question industry assumptions, alongside, not instead of, competitive analysis such as Porter's frameworks and the resource-based view.
Writing it up
- Define the industry and its competing factors, with evidence.
- Draw the current strategy canvas for the case company and two or three main competitors.
- Analyse non-customers and explore relevant paths across boundaries.
- Complete the ERRC grid with justification for each choice.
- Draw the proposed value curve and check it for focus, divergence and a compelling tagline.
- Test feasibility: buyer utility, price, cost and adoption hurdles.
- Evaluate risks, imitation and limitations.
- Recommend clearly, with implementation implications.
When the paper is about entering a new market, our market entry strategy guide pairs well with this one.
Mistakes to avoid
- Using "blue ocean" as a buzzword Apply the tools: canvas, ERRC grid, six paths.
- Only raising and creating Without eliminating and reducing, there is no cost advantage and no value innovation.
- No competitor value curves The canvas needs comparison to show divergence.
- Ignoring non-customers New demand comes from people outside the current market.
- No critique MBA work must evaluate the framework, not just apply it.
- Unsupported claims Back factor ratings with case evidence and data.
Checklist before you submit
- Are the industry's competing factors identified with evidence?
- Is there a strategy canvas comparing the company with competitors?
- Is the ERRC grid complete and justified?
- Have you discussed non-customers and at least one of the six paths?
- Does the new value curve show focus and divergence?
- Have you evaluated feasibility, risks and the framework's limitations?
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