To win in the future, companies must stop competing with each other. The only way to beat the competition is to stop trying to beat the competition.
Imagine a market universe composed of two types of oceans: red oceans and blue oceans. Red oceans represent all the industries in existence today. This is the known market space.
Blue oceans represent all the industries not in existence today. This is the unknown market space.
In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Companies try to beat their rivals to grab a bigger share of existing demand. As more competitors enter the market, the prospects for profit and growth are reduced. Then products become mere commodities, and cutthroat competition turns the red ocean bloody.
Blue oceans, however, are defined by untapped market space, demand creation, and the chance for highly profitable growth. Although some blue oceans are created well beyond existing industry boundaries, most are created from within red oceans by expanding existing industry boundaries. The benefit in creating a blue ocean is that the competition becomes irrelevant, because the rules of the game are waiting to be set.
Red oceans will always be a fact of business life. But with technological advances allowing suppliers to produce a variety of goods and services, supply exceeds demand in most industries. As products and services become more similar, people increasingly select based on price. This has led to greater price wars and shrinking profit margins. Competing for a share of shrinking markets won’t be enough to sustain high performance. Companies need to go beyond competing and create blue oceans.
Traditional, red ocean strategy is heavily influenced by it roots in military strategy. In this way, strategy is about confronting an opponent and fighting over a piece of land that is both limited and constant. Therefore, to focus on the red ocean is to accept the key constraining factors of war – limited terrain and the need to beat the enemy to succeed – and to deny the distinctive strength of the business world: the ability to create new market space that’s uncontested.
Companies that swim in the red ocean follow a conventional approach, trying to beat the competition by building a defensible position within the existing industry order.
Creators of blue oceans, however, follow a different strategic logic known as value innovation. With value innovation, instead of focusing on beating your competition, you focus on making the competition irrelevant by creating a leap in value for both your customers and your company. This opens up new and uncontested market space.
For more tips on how to make your competition irrelevant, check out Blue Ocean Strategy by W. Chan Kim and Renee Mauborgne.