블루오션 H(2004) Blue Rcean Btrategy


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블루오션 H(2004) Blue Rcean Btrategy

  1. 1. STRATEG by W. Chan Kim and A ONETIME ACCORDION PLAYER, Stilt Walker, and fire-eater, Guy Lalibertd is now CEO of one of Renee Mauborgne i Canadas largest cultural exports. Cirque du Soleil. Founded in 1984 by a group of street performers. Cirque has staged dozens of productions seen by some 40 million people in 90 cities around the world. In 20 years, Cirque has achieved revenues that Ringling Bros, and Barnum & Bailey-the worlds leading circus-took more than a century to attain. Cirques rapid growth occurred in an unlikely setting. The circus business was (and still is) in long-term decline. Alternative forms of entertainment - sporting events, TV, and video games - were casting a growing shadow. Children, the mainstay of the circus audience, preferred PlayStations to circus acts. There was also rising sentiment,76 HARVARD BUSINESS REVIEW
  2. 2. fueled by animal rights groups, against the use of animals, porate clients who had turned to theater, opera, or ballettraditionally an integral part of the circus. On the supply and were, therefore, prepared to pay several times moreside, the star performers that Ringling and the other cir- than the price of a conventional circus ticket for an un-cuses relied on to draw in the crowds could often name precedented entertainment experience.their own terms. As a result, the industry was hit by steadily To understand the nature of Cirques achievement, youdecreasing audiences and increasing costs. Whats more, have to realize that the business universe consists ofany new entrant to this business would be competing two distinct kinds of space, which we think of as red andagainst a formidable incumbent that for most of the last blue oceans. Red oceans represent all the industries incentury had set the industry standard. existence today-the known market space. In red oceans, How did Cirque profitably increase revenues by a fac- industry boundaries are defined and accepted, and thetor of 22 over the last ten years in such an unattractive competitive rules of the game are well understood. Here,environment? The tagline for one of the first Cirque pro- companies try to outperform their rivals in order to grabductions is revealing: "We reinvent the circus."Cirque did a greater share of existing demand. As the space getsnot make its money by competing within the confines more and more crowded, prospects for profits and growthof the existing industry or by stealing customers from are reduced. Products turn into commodities, and in-Ringling and the others. Instead it created uncontested creasing competition turns the water bloody.market space that made the competition irrelevant. It Blue oceans denote all the industries not in existencepulled in a whole new group of customers who were tra- today-the unknown market space, untainted by com-ditionally noncustomers of the industry-adults and cor- petition. In blue oceans, demand is created rather thanOCTOBER 2004 77
  3. 3. Blue Ocean Strategyfought over. There is ample opportunity for growth thatis both profitable and rapid. There are two ways to create A Snapshot ofblue oceans. In a few cases, companies can give rise tocompletely new industries, as eBay did with the online Blue Ocean Creationauction industry. But in most cases, a blue ocean is cre- This table identifies the strategic elements that wereated from within a red ocean when a company alters the common to blue ocean creations in three differentboundaries of an existing industry. As will become evi- industries In different eras. It is not intended to bedent later, this is what Cirque did. In breaking through comprehensive in coverage or exhaustive in contentthe boundary traditionally separating circus and theater,it made a new and profitable blue ocean from within the We chose to show American industries becausered ocean of the circus industry. they represented the largest and least-regulated market during our study period. The pattern of blue Cirque is just one of more than 150 blue ocean cre-ations that we have studied in over 30 industries, using ocean creations exemplified by these three industriesdata stretching back more than too years. We analyzed is consistent with what we observed in the othercompanies that created those blue oceans and their less industries in our study.successful competitors, which were caught in red oceans.In studying these data, we have observed a consistentpattern of strategic thinking behind the creation of newmarkets and industries, what we call blue ocean strategy. multibillion-dollar industries jump out: mutual funds,The logic behind blue ocean strategy parts with tradi- cellular telephones, biotechnology, discount retailing,tional models focused on competing in existing market express package delivery, snowboards, coffee bars, andspace. Indeed, it can be argued that managers failure home videos, to name a few. Just three decades ago, noneto realize the differences between red and blue ocean of these industries existed in a meaningful way.strategy lies behind the difficulties many companies This time, put the clock forward 20 years. Ask your-encounter as they try to break from the competition. self: How many industries that are unknown today will In this article, we present the concept of blue ocean exist then? If history is any predictor of the future, thestrategy and describe its defining characteristics. We as- answer is many. Companies have a huge capacity to cre-sess the profit and growth consequences of blue oceans ate new industries and re-create existing ones, a fact thatand discuss why their creation is a rising imperative for is reflected in the deep changes that have been necessarycompanies in the future. We believe that an understand- in the way industries are classified. The half-century-olding of blue ocean strategy will help todays companies as Standard Industrial Classification (SIC) system was re-they struggle to thrive in an accelerating and expanding placed in 1997 by the North American Industry Classifi-business universe. cation System (NAICS). The new system expanded the ten SIC industry sectors into 20 to reflect the emerging realities of new industry territories-blue oceans. The ser-Blue and Red Oceans vices sector under the old system, for example, is nowAlthough the term may be new, blue oceans have always seven sectors ranging from information to health care andbeen with us. Look back 100 years and ask yourself social assistance. Given that these classification systemswhich industries known today were then unknown. The are designed for standardization and continuity, such a re-answer: Industries as basic as automobiles, music record- placement shows how significant a source of economicing, aviation, petrochemicals, Pharmaceuticals, and man- growth the creation of blue oceans has been.agement consulting were unheard-of or had just begun Looking forward, it seems clear to us that blue oceansto emerge. Now turn the clock back only 30 years and will remain the engine of growth. Prospects in mostask yourself the same question. Again, a plethora of established market spaces - red oceans - are shrinking steadily. Technological advances have substantially im- W. Chan Kim (chan.kim@wseaci.edu) is the Boston Con- proved industrial productivity, permitting suppliers to sulting Group Bruce D. Henderson Chair Professor of Strat- produce an unprecedented array of products and services. egy and International Management at Insead in Fontaine- And as trade barriers between nations and regions fall and bleau, France. Renee Mauborgne (renee.mauborgne@ information on products and prices becomes instantly and insead.edu) is the Insead Distinguished Fellow and a pro- globally available, niche markets and monopoly havensfessor of strategy and management at Insead. This article are continuing to disappear. At the same time, there is lit- is adapted from their forthcoming book Blue Ocean Strat- tle evidence of any increase in demand, at least in the de- egy: How to Create Uncontested Market Space and Make veloped markets, where recent United Nations statistics the Competition Irrelevant (Harvard Business School even point to declining populations. The result is that in Press, 2005). more and more industries, supply is overtaking demand.78 HARVARD BUSINESS REVIEW
  4. 4. Was the blue ocean At the time of the blue created by a new Was it driven by ocean creation, was entrant or an technology pioneering the industry attractive Key blue ocean creations incumbent? or value pioneering? or unattractive?(A Ford Model T New entrant Value pioneering* Unattractive Unveiled in 1908,theModetT was the first mass-produced (mostly existing technologies) car, priced so that many Americans could afford it.o GMs "car for every purse and purpose" Incumbent Value pioneering AttractiveE0 GM created a blue ocean in 1924 by injeaing fun and (some new technologies) fashion into the car.< Japanese fuel-efficient autos Incumbent Value pioneering Unattractive Japanese automakers created a blue ocean in the mid-1970s (some new technologies) with small, reliable lines of cars. Chrysler minivan Incumbent Value pioneering Unattractive With its 1984 minivan, Chrysler created a new class of auto- (mostly existing technologies) mobile that was as easy to use as a car but had the passenger space of a van. V) CTRs tabulating machine Incumbent Value pioneering Unattractive a; In 1914, CTR created the business machine industry by [some new technologies) 3 simplifying, modul3rizing,and leasing tabulating machines. Q. CTR later changed its name to IBM, E 0 IBM 650 electronic computer and System/360 Incumbent Value pioneering Nonexistent1 j1 In 1952, IBM created the business computer industry by simpli- (650: mostly existing technologies) fying and reducing the power and price of existing technology. And it exploded the blue ocean created by the 650 when in Value and technology pioneering 1964 it unveiled the System/360, the first modularized com- (System/360: new and existing puter system. technologies) Apple personal computer New entrant Value pioneering Unattraaive Although it was not the first home computer, the all-in-one, (mostly existing technologies) simple-to-use Apple II was a blue ocean creation when it appeared in 1978. Compaq PC servers Incumbent Value pioneering Nonexistent Compag created a blue ocean in 1992 with its ProSignia (mostly existing technologies) server, which gave buyers twice the file and print capability of the minicomputer at one-third the price. Dell built-to-order computers New entrant Value pioneering Unattractive In the mid-1990s, Deli created a blue ocean in a highly (mostly existing technologies) competitive industry by creating a new purchase and delivery experience for buyers. Nickelodeon New entrant Value pioneering Nonexistent The first Nickelodeon opened its doors in 1905, showing short (mostly existing technologies) (0 films around-the-clock to working-dass audiences for five cents.1- Palace theaters Incumbent Value pioneering Attractive aj Created by Roxy Rothapfel in 1914, these theaters provided (mostly existing technologies)*> an operalike environment for cinema viewing at an affordable 0 price. AMC multiplex Incumbent Value pioneering Unattractive In the 1960s, the number of multiplexes in Americas subur- (mostly existing technologies) ban shopping malls mushroomed.The multiplex gave viewers greater choice while reducing ownerscosts. AMC megaplex Incumbent Value pioneering Unattractive Megaplexesjntroducedin 1995,offered every current block- (mostly existing technologies) buster and provided spectacular viewing experiences in theater complexes as big as stadiums, at a lower cost to *Driven by value pioneering does not mean that technologies were not involved. Rather, it means that theater owners. the defining technologies used had largely been in existence, whether in that industry or eisewhere.OCTOBER 2004 79
  5. 5. Blue Ocean Strategy This situation has inevitably hastened the conimoditi- an enemy to succeed. And it means denying the distinc-zation of products and services, stoked price wars, and tive strength of the business world-the capacity to createshrunk profit margins. According to recent studies, major new market space that is uncontested.American brands in a variety of product and service cate- The tendency of corporate strategy to focus on win-gories have become more and more alike. And as brands ning against rivals was exacerbated by the meteoric risebecome more similar, people increasingly base purchase of Japanese companies in the 1970s and 1980s. For thechoices on price. People no longer insist, as in the past, first time in corporate history, customers were desertingthat their laundry detergent be Tide. Nor do they neces- Western companies in droves. As competition mountedsarily stick to Colgate when there is a special promotion in the global marketplace, a slew of red ocean strategiesfor Crest, and vice versa. In overcrowded industries, dif- emerged, all arguing that competition was at the core offerentiating brands becomes harder both in economic corporate success and failure. Today, one hardly talksupturns and in downturns. about strategy without using the language of competi- tion. The term that best symbolizes this is "competitive advantage." In the competitive-advantage worldview,The Paradox of Strategy companies are often driven to outperform rivals andUnfortunately, most companies seem becalmed in their capture greater shares of existing market space.red oceans. In a study of business launches in 108 compa- Of course competition matters. But by focusing onnies, we found that 86% of those new ventures were line competition, scholars, companies, and consultants haveextensions-incremental improvements to existing indus- ignored two very important - and, we would argue, fartry offerings-and a mere 14% were aimed at creating new more lucrative - aspects of strategy: One is to find andmarkets or industries. While line extensions did account develop markets where there is little or no competi-for 62% of the total revenues, they delivered only 39% of tion-blue oceans-and the other is to exploit and protectthe total profits. By contrast, the 14% invested in creating blue oceans. These challenges are very different fromnew markets and industries delivered 38% of total reve- those to which strategists have devoted most of theirnues and a startling 61% of total profits. attention. So why the dramatic imbalance in favor of red oceans?Part of the explanation is that corporate strategy is heav-ily influenced by its roots in military strategy. The very Toward Blue Ocean Strategylanguage of strategy is deeply imbued with military ref- what kind of strategic logic is needed to guide the cre-erences - chief executive "officers" in "headquarters," ation of blue oceans? To answer that question, we looked"troops" on the "front lines." Described this way, strategy back over lOO years of data on blue ocean creation to seeis all about red ocean competition. It is about confronting what patterns could be discerned. Some of our data arean opponent and driving him off a battlefield of limited presented in the exhibit "A Snapshot of Blue Oceanterritory. Blue ocean strategy, by contrast, is about doing Creation." It shows an overview of key blue ocean cre-business where there is no competitor. It is about creating ations in three industries that closely touch peoplesnew land, not dividing up existing land. Focusing on the lives: autos - how people get to work; computers - whatred ocean therefore means accepting the key constrain- people use at work; and movie theaters - where peopleing factors of war-limited terrain and the need to beat go after work for enjoyment. We found that:80 HARVARD BUSINESS REVIEW
  6. 6. Blue Ocean Strategy Blue oceans are not about technology innovation. does not invalidate the smart strategic move CompaqLeading-edge technology is sometimes involved in the made that led to the creation of the multibillion-dollarcreation of blue oceans, but it is not a defining feature of market in PC servers, a move that was a key cause of thethem. This is often true even in industries that are tech- companys powerful comeback in the 1990s.nology intensive. As the exhibit reveals, across all three Creating blue oceans builds brands. So powerful isrepresentative industries, blue oceans were seldom the blue ocean strategy that a blue ocean strategic move canresult of technological innovation per se; the underlying create brand equity that lasts for decades. Almost all oftechnology was often already in existence. Even Fords the companies listed in the exhibit are remembered inrevolutionary assembly line can be traced to the meat- no small part for the blue oceans they created long ago.packing industry in America. Like those within the auto Very few people alive today were around when the firstindustry, the blue oceans within the computer industry Model T rolled off Henry Fords assembly line in 1908, butdid not come about through technology innovations the companys brand still benefits from that blue oceanalone but by linking technology to what buy-ers valued. As with the IBM 650 and the Com-paq PC server, this often involved simplifyingthe technology. Red Ocean Versus Blue Ocean Strategy Incumbents often create blue oceans-and usually within their core businesses. The imperatives for red ocean and blue ocean strategies are starkly different.GM, the Japanese automakers, and Chryslerwere established players when they createdblue oceans in the auto industry. So were CTR Red ocean strategy Blue ocean strategyand its later incarnation, IBM, and Compaq Compete in existing market space. Create uncontested market space.in the computer industry. And in the cinemaindustry, the same can be said of palace the- Beat the competition. Make the competition irrelevant.aters and AMC. Of the companies listed here, Exploit existing demand. Create and capture new demand.only Ford, Apple, Dell, and Nickelodeon werenew entrants in their industries; the first three Make the value/cost trade-off. Break the value/cost trade-off.were start-ups, and the fourth was an estab- Align the whole system of a com- Align the whole system of a companyslished player entering an industry that was panys activities with its strategic activities in pursuit of differentiationnew to it. This suggests that incumbents are choice of differentiation or low cost. and low cost.not at a disadvantage in creating new marketspaces. Moreover, the blue oceans made by in-cumbents were usually within their core busi-nesses. In fact, as the exhibit shows, most blue oceans are move. IBM, too, is often regarded as an "American insti-created from within, not beyond, red oceans of existing tution" largely for the blue oceans it created in comput-industries. This challenges the view that new markets are ing; the 360 series was its equivalent of the Model T.in distant waters. Blue oceans are right next to you in Our findings are encouraging for executives at the large,every industry. established corporations that are traditionally seen as the Company and Industry are the wrong units of analy- victims of new market space creation. For what they revealsis. The traditional units of strategic analysis - company is that large R&D budgets are not the key to creating newand industry - have little explanatory power when it market space. The key is making the right strategic moves.comes to analyzing how and why blue oceans are created. Whats more, companies that understand what drives aThere is no consistently excellent company; the same good strategic move will be well placed to create multiplecompany can be brilliant at one time and wrongheaded blue oceans over time, thereby continuing to deliver highat another. Every company rises and falls over time. Like- growth and profits over a sustained period. The creationwise, there is no perpetually excellent industry; relative of blue oceans, in other words, is a product of strategy andattractiveness is driven largely by the creation of blue as such is very much a product of managerial action.oceans from within them. The most appropriate unit of analysis for explainingthe creation of blue oceans is the strategic move-the set The Defining Characteristicsof managerial actions and decisions involved in making Our research shows several common characteristics a major market-creating business offering. Compaq, for across strategic moves that create blue oceans. We found example, is considered by many people to be "unsuccess- that the creators of blue oceans, in sharp contrast to com-ful" because it was acquired by Hewlett-Packard in 2001 panies playing by traditional mles, never use the compe- and ceased to be a company. But the firms ultimate fate tition as a benchmark. Instead they make it irrelevant byOCTOBER 2004 81
  7. 7. Blue Ocean Straten In blue oceans, demand is created rather than fought over.There is ample opportunity for growth that is both profitable and rapid. ^creating a leap in value for both buyers and the com- longer thought of circus artists as stars, at least not in thepany itself. (The exhibit "Red Ocean Versus Blue Ocean movie star sense. Cirque did away with traditional three-Strategy" compares the chief characteristics of these ring shows, too. Not only did these create confusiontwo strategy models.) among spectators forced to switch their attention from Perhaps the most important feature of blue ocean strat- one ring to another, they also increased the number ofegy is that it rejects the fundamental tenet of conven- performers needed, with obvious cost implications. Andtional strategy: that a trade-off exists between value and while aisle concession sales appeared to be a good waycost. According to this thesis, companies can either cre- to generate revenue, the high prices discouraged parentsate greater value for customers at a higher cost or create from making purchases and made them feel they werereasonable value at a lower cost. In other words, strategy being taken for a ride.is essentially a choice between differentiation and low Cirque found that the lasting allure of the traditionalcost. But when it comes to creating blue oceans, the evi- circus came down to just three factors: the clowns, thedence shows that successful companies pursue differen- tent, and the classic acrobatic acts. So Cirque kept thetiation and low cost simultaneously. clowns, while shifting their humor away from slapstick To see how this is done, let us go back to Cirque du to a more enchanting, sophisticated style. It glamorizedSoleil. At the time of Cirques debut, circuses focused on the tent, which many circuses had abandoned in favorbenchmarking one another and maximizing their shares of rented venues. Realizing that the tent, more thanof shrinking demand by tweaking traditional circus acts. anything else, captured the magic of the circus. CirqueThis included trying to secure more and better-known designed this classic symbol with a glorious externalclowns and lion tamers, efforts that raised circuses cost finish and a high level of audience comfort. Gone werestructure without substantially altering the circus expe- the sawdust and hard benches. Acrobats and otherrience. The result was rising costs without rising revenues thrilling performers were retained, but Cirque reducedand a downward spiral in overall circus demand. Enter their roles and made their acts more elegant by addingCirque. Instead of following the conventional logic of artistic flair.outpacing the competition by offering a better solution Even as Cirque stripped away some of the traditionalto the given problem-creating a circus with even greater circus offerings, it injected new elements drawn from thefun and thrills-it redefined the problem itself by offering world of theater. For instance, unlike traditional circusespeople the fun and thrill of the circus and the intellectual featuring a series of unrelated acts, each Cirque creationsophistication and artistic richness of the theater. resembles a theater performance in that it has a theme In designing performances that landed both these and story line. Although the themes are intentionallypunches. Cirque had to reevaluate the components of the vague, they bring harmony and an intellectual elementtraditional circus offering. What the company found was to the acts. Cirque also borrows ideas from Broadway.that many of the elements considered essential to the For example, rather than putting on the traditionalfun and thrill of the circus were unnecessary and in many "once and for all" show. Cirque mounts multiple produc-cases costly. For instance, most circuses offer animal acts. tions based on different themes and story lines. As withThese are a heavy economic burden, because circuses Broadway productions, too, each Cirque show has anhave to shell out not only for the animals but also for their original musical score, which drives the performance,training, medical care, housing, insurance, and transpor- lighting, and timing of the acts, rather than the othertation. Yet Cirque found that the appetite for animal way around. The productions feature abstract and spiri-shows was rapidly diminishing because of rising public tual dance, an idea derived from theater and ballet. Byconcern about the treatment of circus animals and the introducing these factors. Cirque has created highly so-ethics of exhibiting them. phisticated entertainments. And by staging multiple pro- Similarly, although traditional circuses promoted their ductions. Cirque gives people reason to come to the circusperformers as stars. Cirque realized that the public no more often, thereby increasing revenues.82 HARVARD BUSINESS REVIEW
  8. 8. Blue Ocean Strategy Cirque offers the best of both circus and theater. And they are able to generate scale economies very rapidly,by eliminating many of the most expensive elements of putting would-be imitators at an immediate and continu-the circus, it has been able to dramatically reduce its cost ing cost disadvantage. The huge economies of scale instructure, achieving both differentiation and low cost. purchasing that Wal-Mart enjoys, for example, have sig-(For a depiction of the economics underpinning blue nificantly discouraged other companies from imitating itsocean strategy, see the exhibit "The Simultaneous Pur- business model. The immediate attraction of large num-suit of Differentiation and Low Cost.") bers of customers can also create network externalities. By driving down costs while simultaneously driving up The more customers eBay has online, the more attrac-value for buyers, a company can achieve a leap in value tive the auction site becomes for both sellers and buyersfor both itself and its customers. Since buyer value comes of wares, giving users few incentives to go elsewhere.from the utility and price a company offers, and a com- When imitation requires companies to make changespany generates value for itself through cost structure to their whole system of activities, organizational politicsand price, blue ocean strategy is achieved only when the may impede a would-be competitors ability to switch towhole system of a companys utility, price, and cost activ- the divergent business mode! of a blue ocean strategy.ities is properly aligned. It is this whole-system approach For instance, airlines trying to follow Southwests exam-that makes the creation of blue oceans a sustainable strat- ple of offering the speed of air travel with the fiexibilityegy. Blue ocean strategy integrates the range of a firms and cost of driving would have faced major revisions infunctional and operational activities. A rejection of the trade-off between low cost and dif-ferentiation implies a fundamental change in strategicmind-set-we cannot emphasize enough how funda-mental a shift it is. The red ocean assumption that indus- The Simultaneous Pursuit oftry structural conditions are a given and firms are forced Differentiation and Low Costto compete within them is based on an intellectual world- A blue ocean is created in the region where a companysview that academics call the structuralist view, or environ- actionsfavorably affect both its cost structure and its valuemental determinism. According to this view, companies proposition to buyers. Cost savings are made from eliminat-and managers are largely at the mercy of economic forcesgreater than themselves. Blue ocean strategies, by con- ing and reducing the factors an industry competes on. Buyertrast, are based on a worldview in which market bound- value is lifted by raising and creating elements the industryaries and industries can be reconstructed by the actions has never offered. Over time, costs are reduced further asand beliefs of industry players. We call this the recon- scale economies kick in, due to the high sales volumes thatstructionist view. superior value generates. The founders of Cirque du Soleil clearly did not feelconstrained to act within the confines of their industry.Indeed, is Cirque really a circus with all that it has elimi-nated, reduced, raised, and created? Or is it theater? Ifit is theater, then what genre - Broadway show, opera,ballet? The magic of Cirque was created through a recon-struction of elements drawn from all of these alternatives.In the end. Cirque is none of them and a little of all ofthem. From within the red oceans of theater and circus,Cirque has created a blue ocean of uncontested marketspace that has, as yet, no name.Barriers to ImitationCompanies that create blue oceans usually reap the ben-efits without credible challenges for ten to 15 years, aswas the case with Cirque du Soleil, Home Depot, FederalExpress, Southwest Airlines, and CN N, to name just a few.The reason is that blue ocean strategy creates consider-able economic and cognitive barriers to imitation. For a start, adopting a blue ocean creators businessmodel is easier to imagine than to do. Because blue oceancreators immediately attract customers in large volumes.OCTOBER 2004 83
  9. 9. Blue Ocean Strategyrouting, training, marketing, and pricing, not to men- pensive and in short supply. It was Henry Fords under-tion culture. Few established airlines had the flexibility standing of these advantages that showed him how heto make such extensive organizational and operating could break away from the competition and unlock enor-changes overnight. Imitating a whole-system approach is mous untapped demand.not an easy feat. Ford called the Model T the car "for the great multi- The cognitive barriers can be just as effective. When tude, constructed of the best materials." Like Cirque, thea company offers a leap in value, it rapidly earns brand Ford Motor Company made the competition irrelevant.buzz and a loyal following in the marketplace. Experience Instead of creating fashionable, customized cars for week-shows that even the most expensive marketing cam- ends in the countryside, a luxury few could justify.paigns struggle to unseat a blue ocean creator. Microsoft, Ford built a car that, like the horse-drawn carriage, wasfor example, has been trying for more than ten years to for everyday use. The Model T came in just one color,occupy the center of the blue ocean that Intuit created black, and there were few optional extras. It was reliablewith its financial software product Quicken. Despite all and durable, designed to travel effortlessly over dirt roadsof its efforts and all of its investment, Microsoft has not in rain, snow, or sunshine. It was easy to use and fix.been able to unseat Intuit as the industry leader. People could learn to drive it in a day. And like Cirque, In other situations, attempts to imitate a blue ocean Ford went outside the industry for a price point, lookingcreator conflict with the imitators existing brand image. at horse-drawn carriages ($400), not other autos. In igo8,The Body Shop, for example, shuns top models and makes the first Model T cost $850; in 1909, the price droppedno promises of eternal youth and beauty. For the estab- to $609, and by 1924 it was down to $290. In this way.lished cosmetic brands like Est^e Lauder and LOreal, im- Ford converted buyers of horse-drawn carriages into caritation was very difficult, because it would have signaled buyers - just as Cirque turned theatergoers into circus-a complete invalidation of their current images, which goers. Sales of the Model T boomed. Fords market shareare based on promises of eternal youth and beauty. surged from 9% in 1908 to 6i% in 1921, and by 1923, a ma- jority of American households had a car. Even as Ford offered the mass of buyers a leap in value,A Consistent Pattern the company also achieved the lowest cost structurewhile our conceptual articulation of the pattern may be in the industry, much as Cirque did later. By keepingnew, blue ocean strategy has always existed, whether or the cars highly standardized with limited options andnot companies have been conscious of the fact. Just con- interchangeable parts. Ford was able to scrap the prevail-sider the striking parallels between the Cirque du Soleil ing manufacturing system in which cars were constructedtheater-circus experience and Fords creation of the by skilled craftsmen who swarmed around one work-Model T. station and built a car piece by piece from start to finish. At the end of the nineteenth century, the automobile Fords revolutionary assembly line replaced craftsmenindustry was small and unattractive. More than 500 auto- with unskilled laborers, each of whom worked quicklymakers in America competed in turning out handmade and efficiently on one small task. This allowed Ford toluxury cars that cost around $1,500 and were enormously make a car in just four days - 21 days was the industryunpopular with all but the very rich. Anticar activists tore norm-creating huge cost savings.up roads, ringed parked cars with barbed wire, and orga-nized boycotts of car-driving businessmen and politicians. Blue and red oceans have always coexisted and alwaysWoodrow Wilson caught the spirit of the times when he will. Practical reality, therefore, demands that companiessaid in 1906 that "nothing has spread socialistic feeling understand the strategic logic of both types of oceans.more than the automobile." He called it "a picture of the At present, competing in red oceans dominates the fieldarrogance of wealth." of strategy in theory and in practice, even as businesses Instead of trying to beat the competition and steal need to create blue oceans intensifies. It is time to evena share of existing demand from other automakers, the scales in the field of strategy with a better balance ofFord reconstructed the industry boundaries of cars and efforts across both oceans. For although blue ocean strate-horse-drawn carriages to create a blue ocean. At the gists have always existed, for the most part their strategiestime, horse-drawn carriages were the primary means of have been largely unconscious. But once corporations re-local transportation across America. The carriage had alize that the strategies for creating and capturing bluetwo distinct advantages over cars. Horses could easily ne- oceans have a different underlying logic from red oceangotiate the bumps and mud that stymied cars-especially strategies, they will be able to create many more bluein rain and snow-on the nations ubiquitous dirt roads. oceans in the future. ^And horses and carriages were much easier to maintainthan the luxurious autos of the time, which frequently Reprint R0410Dbroke down, requiring expert repairmen who were ex- To order, see page 159.84 HARVARD BUSINESS REVIEW