Competing in overcrowded industries is no way to sustain high performance. The real opportunity is to create blue oceans of uncontested marketspace. Managers usually spend their time figuring out how to outfox the competition. Strategic management has its origin in military thinking. The question usually is how to conquer a certain piece of land on our enemies. Also the enemies have to be defeated, we cannot coexist. It’s a zero-sum game. This is old thinking.
According to W. Chan Kim and Reneé Mauborgne (Amazon Affiliate link), there are two kinds of space. On the one hand there are the contested battlegrounds, the existing cake that needs to be divided. These are called red oceans. Red from the blood of all the fierce competition, as they dramatically state. The other kind are blue oceans. New markets with no competition yet.
When diversifying or starting a new business a manager has the choice between getting back into the fight with existing or new competitors or creating a new space with no competition yet. Obviously the creation of new markets is no new idea. Any radically new idea in our history has created a new market. The terminology of blue versus red oceans is new however and it creates the possibility for manager to make a choice and think outside of their current box.
The creation of new markets has always existed. You may think of the iPhone or personal computer, but new markets have been created since the invention of the wheel. Kim and Mauborgne use the example of Cirque du Soleil. The CEO, Guy Laliberté, could’ve tried to create a regular circus, but with more animals, more impressive juggling acts and even funnier clowns. With higher costs he would’ve created a little higher value. But he didn’t.
By creating a new space he avoided the cost/value connection. With lower costs (no animals for instance) he created a lot more value. He combined parts of the circus, parts of theater and ballet and created something totally new. Something uncontested.
When competing in red oceans you are trying to beat or match the competitors who is currently performing best. This means that even when you match them you will only become just as good as someone else. This is the same flaw that exists with benchmarking. A firm that is lead by benchmarking of competitors will only try to achieve to be just as good in a couple of years as the competitors are now. Not only is there no incentive to surpass a competitor on a certain road, firms will also not follow a whole new road altogether.
There is no doubt that there are many potential gains from creating a new space, free of competition and free of a value/cost trade-off. Then why do most managers spend their time on improving what they where doing yesterday and today? Are you improving little by little what you did yesterday or are you looking to make the leap into the next blue ocean?