JOURNAL ARTICLE | California Management Review | 47 | April 2005
Blue Ocean Strategy: From Theory to Practice
This article examines industrial competition using the Blue Ocean theory, a school of thought that suggests that there are untapped markets and the opportunity for higher growth without eating away at the profits of competitors. For several years, industrial organization (IO) economics gave formal expression to the prominent importance of competition to firms' success.To sustain themselves in the marketplace, companies grab a bigger share of the market at the expense of the competition. In blue ocean theory, competition is irrelevant because the rules of the game are waiting to be set. With supply exceeding demand in more industries, competing for contracting markets will not be sufficient to sustain high performance. Companies need to go beyond competing in established industries.The authors conducted a study of new business launches in 108 companies and found that 86 percent of these launches were line extensions - incremental improvements to existing industry offerings, while only 14 percent expanded to blue oceans. While line extensions did account for 62 percent of the total revenues, they accounted for only 39 percent of total profit.In contrast, the 14 percent investing in creating blue oceans, delivered 38 percent of total revenues and 61 percent of total profits. The forces behind the rising importance of creating blue oceans are discussed. The strategies of creating blue oceans are also discussed.