Excerpt: Blue Ocean Strategy - Creating Blue Oceans

Excerpt: Blue Ocean Strategy - Creating Blue Oceans

Blue Ocean Strategy: A one time accordion player, stilt-walker and fire-eater, Guy Laliberte is now CEO of one of Canada's largest cultural exports, Cirque du Soleil. Created in 1984 by a group of street performers, Cirque's productions have been seen by almost 40 million people in 90 cities around the world. In less than 20 years Cirque du Soleil has achieved a revenue level that took Ringling Brothers and Barnum & Bailey's Circus - the global champion of the circus industry - more than one hundred years to attain.

Blue Ocean Strategy: What makes this all the more remarkable is that this rapid growth was not achieved in an attractive industry. It was 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 Play Stations, rather than a visit to the traveling circus. Partially as a result, the industry was suffering from steadily decreasing audiences and, in turn, revenue and profits. There was also increasing sentiment against the use of animals in circuses by animal rights groups. Ringling Brothers and Barnum & Bailey's Circus set the standard and competing smaller circuses essentially followed with scaled down versions. From the perspective of competition-based strategy, then, the circus industry appeared unattractive.

Blue Ocean Strategy: Another compelling aspect of Cirque du Soleil's success is that it did not win by taking customers from the already shrinking demand for the circus industry, which historically catered to children. Cirque du Soleil did not compete with Ringling Brothers and Barnum & Bailey's Circus to make this happen. Instead it created uncontested new market space that made the competition irrelevant. It appealed to a whole new group of customers - adults and corporate clients prepared to pay a price that is several times as expensive as traditional circuses for their unprecedented entertainment experience. Significantly, one of the first Cirque productions was titled "We Reinvent the Circus".

Blue Ocean Strategy: 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 known market space. Blue oceans denote all the industries not in existence today. This is unknown market space.

Blue Ocean Strategy: 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 existing demand. As the market space gets more and more crowded, prospects for profits and growth are reduced. Products become commodities, and cutthroat competition turns the red ocean bloody.

Blue Ocean Strategy: Blue oceans, in contrast, are defined by untapped market space, demand creation, and the opportunity for highly profitable growth. While blue oceans are occasionally created well beyond existing industry boundaries, most are created by expanding existing industry boundaries as Cirque du Soleil did. In blue oceans, competition is irrelevant as the rules of the game are waiting to be set.

It will always be important to swim successfully in the red ocean by out-competing rivals. Red oceans will always matter and be a fact of business life. But, with , supply exceeding demand in more and more industries, competing for a share of contracting markets, while necessary, will not be sufficient to sustain high performance. Companies need to go beyond this. To seize new profit and growth opportunities, they also need to create blue oceans.

Unfortunately, blue oceans are largely, uncharted. The dominant focus of strategy work over the past 25 years has been on competition-based red ocean strategies. The result has been a fairly good grasp of how to compete skillfully in red waters from analyzing the underlying economic structure of an existing industry, to choosing a strategic position of low cost or differentiation or focus, to benchmarking the competition. While some discussions around blue oceans exist, there is little practical guidance on how to create them. Lacking analytic frameworks to create blue oceans and principles to effectively manage risk, creating blue oceans has remained wishful thinking that is seen as too risky for managers to pursue as strategy. This book provides practical frameworks and analytics for the systematic pursuit and capturing of blue oceans.