08-10-2012, 04:45 PM
Blue Ocean Strategy
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Creating Blue Oceans
AONE TIME ACCORDION PLAYER, stilt-walker, and fireeater,
Guy Laliberté is now CEO of Cirque du Soleil,
one of Canada’s largest cultural exports. Created in 1984 by a group
of street performers, Cirque’s productions have been seen by almost
forty million people in ninety cities around the world. In less than
twenty years Cirque du Soleil has achieved a level of revenues that
took Ringling Bros. and Barnum & Bailey—the global champion of
the circus industry—more than one hundred years to attain.
What makes this rapid growth all the more remarkable is that it
was not achieved in an attractive industry but rather in a declining
industry in which traditional strategic analysis pointed to limited
potential for growth. Supplier power on the part of star performers
was strong. So was buyer power. Alternative forms of entertainment—
ranging from various kinds of urban live entertainment to
sporting events to home entertainment—cast an increasingly long
shadow. Children cried out for PlayStations rather than a visit to
the traveling circus. Partially as a result, the industry was suffering
from steadily decreasing audiences and, in turn, declining revenue
and profits.
New Market Space
Cirque du Soleil succeeded because it realized that 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.
To understand what Cirque du Soleil has achieved, imagine a
market universe composed of two sorts of oceans: red oceans and
blue oceans. Red oceans represent all the industries in existence
today. This is the known market space. Blue oceans denote 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.1 Here, companies
try to outperform their rivals to grab a greater share of existing demand.
As the market space gets crowded, prospects for profits and
growth are reduced. Products become commodities, and cutthroat
competition turns the red ocean bloody.
The Continuing Creation of Blue Oceans
Although the term blue oceans is new, their existence is not. They
are a feature of business life, past and present. Look back one hundred
years and ask yourself, How many of today’s industries were
then unknown? The answer: Many industries as basic as automobiles,
music recording, aviation, petrochemicals, health care, and management consulting were unheard of or had just begun to
emerge at that time. Now turn the clock back only thirty years.
Again, a plethora of multibillion-dollar industries jumps out—mutual
funds, cell phones, gas-fired electricity plants, biotechnology,
discount retail, express package delivery, minivans, snowboards,
coffee bars, and home videos, to name a few. Just three decades ago,
none of these industries existed in a meaningful way.
The Impact of Creating Blue Oceans
We set out to quantify the impact of creating blue oceans on a company’s
growth in both revenues and profits in a study of the business
launches of 108 companies (see figure 1-1). We found that 86
percent of the launches were line extensions, that is, incremental
improvements within the red ocean of existing market space. Yet
they accounted for only 62 percent of total revenues and a mere 39
percent of total profits. The remaining 14 percent of the launches
were aimed at creating blue oceans. They generated 38 percent of
total revenues and 61 percent of total profits. Given that business
launches included the total investments made for creating red and
blue oceans (regardless of their subsequent revenue and profit consequences,
including failures)
The Rising Imperative of Creating Blue Oceans
There are several driving forces behind a rising imperative to create
blue oceans. Accelerated technological advances have substantially
improved industrial productivity and have allowed suppliers to produce
an unprecedented array of products and services. The result
is that in increasing numbers of industries, supply exceeds demand.
8 The trend toward globalization compounds the situation.
As trade barriers between nations and regions are dismantled and
as information on products and prices becomes instantly and globally
available, niche markets and havens for monopoly continue to
disappear.9 While supply is on the rise as global competition intensifies,
there is no clear evidence of an increase in demand worldwide,
and statistics even point to declining populations in many
developed markets.