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Blue Ocean Strategy

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In brief: Blue Ocean Strategy is a strategic framework that guides companies to create new, uncontested market spaces (Blue Oceans) instead of competing for market share in existing markets (Red Oceans). Developed by W. Chan Kim and Renée Mauborgne, it combines differentiation with cost leadership.

What is Blue Ocean Strategy? – Definition

Blue Ocean Strategy is a strategic management framework introduced in 2005 by INSEAD professors W. Chan Kim and Renée Mauborgne in their bestselling book of the same name. It is based on a fundamental insight: lasting success does not come from fighting competitors, but from creating new markets.

The metaphor is memorable: In “red oceans”, companies compete in established industries for limited demand—the water is red with competition. In “blue oceans”, companies create new demand in uncontested markets—clear, deep water with enormous growth potential.

In the context of business model innovation, Blue Ocean Strategy is a powerful tool: it helps companies develop radically new value propositions that transcend existing industry boundaries and unlock new customer segments.

Red Ocean vs. Blue Ocean: The Fundamental Difference

CriterionRed OceanBlue Ocean
MarketExisting industryNew market space
CompetitionBeat competitorsMake competition irrelevant
DemandShare existing demandCreate new demand
StrategyDifferentiation OR costDifferentiation AND cost
FocusMonitor competitorsUnderstand non-customers
GrowthLimited by market sizePotentially unlimited

The Key Blue Ocean Tools

Strategy Canvas: Visualizes how a company and its competitors perform across relevant competitive factors. Shows at a glance where offerings are similar and where differentiation potential exists.

Four Actions Framework: Four questions that unlock new value innovation: What can be eliminated? What can be reduced? What can be raised? What can be created?

Six Paths Framework: Six ways to think beyond industry boundaries: alternative industries, strategic groups, buyer groups, complementary products/services, functional vs. emotional orientation, time trends.

Three Tiers of Non-Customers: Analyzes three groups that do not (yet) use the existing market—and why. These non-customers represent the greatest growth potential for Blue Oceans.

The ERRC Grid (Eliminate-Reduce-Raise-Create)

The ERRC Grid is the operational heart of Blue Ocean Strategy. It translates strategic analysis into concrete actions:

EliminateRaise
Which industry factors that are taken for granted should be eliminated?Which factors should be raised well above the industry standard?
ReduceCreate
Which factors should be reduced well below the industry standard?Which factors that the industry has never offered should be created?

The ERRC Grid forces companies to simultaneously reduce costs (Eliminate/Reduce) and increase customer value (Raise/Create)—the foundation for value innovation.

Applying Blue Ocean Strategy: 5 Steps

  1. Create a Strategy Canvas: Visualize the current competitive landscape—where do your company and competitors position themselves?
  2. Analyze non-customers: Who does not use your industry—and why? Jobs-to-be-Done interviews help uncover unmet needs
  3. Explore the Six Paths: Systematically think beyond industry boundaries—in innovation workshops with cross-functional teams
  4. Complete the ERRC Grid: Define concrete actions for Eliminate, Reduce, Raise, Create—the new business model pattern emerges
  5. Validate and implement: Test the new value proposition in the market using Lean Startup methods and scale incrementally

Blue Ocean in Practice

  • Cirque du Soleil: Eliminated animals and star performers (cost reduction), created artistic performance and upscale ambiance (value innovation)—and created a new market between circus and theater
  • Nintendo Wii: Instead of competing in the graphics race with PlayStation and Xbox, Nintendo created a new category for non-gamers through motion control
  • IKEA: Eliminated delivery service and assembly, reduced consultation, raised design, created self-service experience—and made stylish furniture affordable for everyone
  • Nespresso: Transformed the coffee market through a capsule system—premium quality at home, simple and fast. Subscription model for capsules as a revenue model

Blue Ocean Strategy for Austrian SMEs

SMEs are often better positioned for Blue Ocean strategies than large corporations:

  • Niche expertise: SMEs often know their customers better than any corporation—deep understanding of the customer journey is the foundation for value innovation
  • Agility: New offerings can be tested and adapted quickly—without years-long strategy processes
  • Industry combination: SMEs at the intersection of different industries can create synergies that large companies overlook
  • Regional Blue Oceans: Not every Blue Ocean needs to be global—uncontested market spaces exist at the regional level as well

Use the Blue Ocean tools in innovation workshops or as part of innovation consulting to systematically identify new growth opportunities beyond existing competition.

Discover Your Blue Ocean

Out of the red ocean, into new growth. We support you in developing a Blue Ocean Strategy that unlocks new market spaces and customer segments.

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Frequently Asked Questions (FAQ)

What is the difference between Blue Ocean Strategy and disruption?

Both concepts aim at new markets, but with different focuses. Disruptive innovation according to Christensen describes a process where a newcomer with an initially inferior product displaces an established company—the focus is on competitive dynamics. Blue Ocean Strategy focuses on creating new demand through value innovation—regardless of whether existing providers are displaced. Blue Oceans can be disruptive, but they do not have to be.

How sustainable is a Blue Ocean? Won’t it become a Red Ocean?

Yes, every Blue Ocean will eventually become a Red Ocean when competitors follow. The question is how long the advantage lasts. Blue Oceans are harder to copy when they are based on a unique business model (not just a product feature), build network effects, or create a strong brand. The best strategy: continuously seek new Blue Oceans before the current one turns red—Blue Ocean Strategy is not a one-time event, but a mindset.

Can every company create a Blue Ocean?

In principle, yes—Blue Oceans have been created in all industries, from circus to technology, from hospitality to financial services. What matters is the willingness to question industry conventions and shift focus from competitors to non-customers. However, this requires courage and perseverance, as Blue Ocean strategies often initially meet with internal skepticism.

Should I abandon my Red Ocean business?

No—Blue Ocean Strategy does not mean abandoning existing businesses. Most successful companies operate a portfolio of Red Ocean and Blue Ocean activities. The core business (Red Ocean) delivers cash flow, while Blue Ocean initiatives secure future growth. The key lies in balance and conscious resource allocation between both areas.

Can you create a Blue Ocean in a mature industry?
Yes, many successful Blue Oceans emerge in mature industries by challenging industry assumptions. Cirque du Soleil reinvented circus, Dollar Shave Club disrupted razors, and Warby Parker transformed eyewear – all mature markets. The key is identifying which industry factors you can eliminate, reduce, raise, or create to unlock new demand. Mature industries often have ossified assumptions that go unquestioned for decades, making them ripe for value innovation once someone challenges the conventional wisdom.

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