06 June 2018

Blue Oceans and New Markets in the Age of Digital

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Blue ocean strategy has become a staple of business theory. Globalising markets are increasingly characterised by competition that spans across borders. Companies can simply no longer afford to rest on their laurels when it comes to progress and margins as developing economies start to pose more of a threat whilst tech start ups continue to target areas that are susceptible to disruption. Such a pincer movement leads to a survival of the fittest situation as margins become squeezed causing a sector to become increasingly high risk. These market conditions typify what ENSEAD business professor, W. Chan Kim describes a red ocean. Competition eventually renders the market fruitless for all but the biggest players.

He argues that a modern company must always strive to move in the direction of a blue ocean where they identify a previously untapped demographic to buy their product or service without a threat from other companies that will force them to adopt a reactionary rather than active business strategy.

How to escape from a market where the waters are taking on an increasingly red tint is one of the hardest questions to answer. For all the market research and preparation that can be carried out, going out into the unknown in search of that blue ocean requires a leap of faith and a belief that your decision will render the competition irrelevant. There is no doubt that the pursuit of such goals can expose a company to enormous risk but the potential benefits are enormous .

The good news is that the internet has provided a wealth of opportunities in which to encounter blue oceans. This can be most clearly scene in the cases of AirBnB and Uber. What these companies have done isn’t revolutionary in terms of the service they’re providing but the way in which they do so has changed the landscape of the respective transport and travel sectors.

By delivering a faster and easier way for customers to get what they are after, they have been able to blow the completion out of the water. It is testament to the success of these San Francisco tech giants that there is now large-scale public policy debates over the consequences that the domination of their business models is having on cities across the world. There is perhaps no clearer example of a company operating in a blue ocean than local and national governments having to intervene to control the knock-on effects of its popularity.

These are extreme examples that of course are almost impossible to replicate as they imply an unprecedented cultural and economic shift.

The majority of cases of blue ocean strategy revolve around a company having understood and anticipated a shift in the market that allows a new offering (whether that be a product or service) to thrive without concerning itself with the competition.

Apple is a prime example of this when it realised that illegal downloads and streaming had fundamentally changed the nature of the music industry, it therefore brought out iTunes as a way of meeting the demand of a public that were increasingly moving away from purchasing in traditional record shops. Such evolution was then followed up by Spotify that saw the growing popularity of a subscription based model for music listeners.

It is important to remember that the core product is not changing in any of these examples. From a CD to iTunes to Spotify, what is evolving is the delivery system that offers customers a better and more convenient experience each time. Customer experience is key, if a company is able to build an experience that is far superior to that of the competition and offers a better value proposition then it is highly likely that company will come out on top. If directors are able to effectively reflect on such matters, then the likelihood is that the future of their organisation will become substantially brighter.

Economic progress is pushed forward by companies that dare to venture out into the unknown. It forces the competition to play catchup or face irrelevance and eventual demise. Look around and you will see that examples of blue oceans have become plentiful over the past decade. Whether it is Netflix’s assault on Hollywood or companies like Monzo that take on the status quo within banking. From multibillion dollar industries to more local cases, the potential to move away from the competition is greater than ever. It just requires the drive to do so, something that many will not realise until it is too late and the waters of their market turn deep red.