Why create Blue Oceans? How to reconstruct market boundaries and sail away from overcrowded, bloody Red Oceans? Back by request we revisit our popular BOS Wisdom series in which each week we feature select passages from the book Blue Ocean Strategy authored by highly distinguished Professors W. Chan Kim and Renée Mauborgne. Once published, each selection is archived in the Blue Ocean Strategy Basics section of this website. Today, to get us grounded, we look at “The Rising Imperative of Creating Blue Oceans” from page 8 of Blue Ocean Strategy:
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. 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. 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.
The result has been accelerated commoditization of products and services, increasing price wars, and shrinking profit margins. Recent industrywide studies on major American brands confirm this trend. They reveal that for major product and service categories, brands are generally becoming more similar, and as they are becoming more similar people increasingly select based on price. People no longer insist, as in the past, that their laundry detergent be Tide. Nor will they necessarily stick to Colgate when Crest is on sale, and vice versa. In overcrowded industries, differentiating brands becomes harder in both economic upturns and downturns.
All this suggests that the business environment in which most strategy and management approaches of the twentieth century evolved is increasingly disappearing. As red oceans become increasingly bloody, management will need to be more concerned with blue oceans than the current cohort of managers is accustomed to.
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. 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. 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.
The result has been accelerated commoditization of products and services, increasing price wars, and shrinking profit margins. Recent industrywide studies on major American brands confirm this trend. They reveal that for major product and service categories, brands are generally becoming more similar, and as they are becoming more similar people increasingly select based on price. People no longer insist, as in the past, that their laundry detergent be Tide. Nor will they necessarily stick to Colgate when Crest is on sale, and vice versa. In overcrowded industries, differentiating brands becomes harder in both economic upturns and downturns.
All this suggests that the business environment in which most strategy and management approaches of the twentieth century evolved is increasingly disappearing. As red oceans become increasingly bloody, management will need to be more concerned with blue oceans than the current cohort of managers is accustomed to.
Related links:
Buy the Blue Ocean Strategy book.
[Image via Asadbabil.]
