The primary objective of every business is to earn profit. For the achievingthis
objective, various business strategies are put in place by every business entity. Broadly,
these strategies can be classified into two groups, the Red Ocean Strategy and the Blue
Ocean Strategy. The basic difference between the two is that entities operating under Red
Ocean strategy operate in sectors which are overcrowded and therefore demand for their
products or services is well defined but competition for fulfilling the demand is fierce due
than fought over. This is due to the fact that due to innovative thinking, either completely
new products are developed and demand for the same is created among consumers and
maximum profits are earned due to non-existence of competitors, or Blue Ocean is created
completely new industry is e-bay which introduced the concept of online auctioneering,
whereas Ford Motors is an excellent example of how Henry Ford adopted Blue Ocean
Strategy in the overcrowded automotive industry in early part of twentieth century by
introducing the Ford T model automobile which was within buying power of many
Americans due to its low price as a result of employment of assembling machinery rather
than employing costly skilled manpower as was the norm at that time for production of
luxury brand automobiles for the rich and wealthy. The result was that Ford became a
household name in America and reaped massive profits with minimal cost. The key
differences between the two strategies are that Red Ocean companies compete in the
existing market place, they have to beat the competition, they have to exploit existing
demand and they have to make the value/cost trade off. Blue Ocean companies on the
other hand create uncontested market place, make the competition irrelevant, create and
capture new demand and break the value/cost trade off. Survey of 108 new companies
conducted recently has revealed that 82% were Red Ocean companies and only 14% were
Blue Ocean Companies. However, 82% Red Ocean Companies only contributed 39%
Profit while the remaining 61% profit was earned by the remaining 14% Blue Ocean
Companies. Thus it can be safely concluded that competing in overcrowded industries
is no way to sustain high performance. The real opportunity lies in creation of Blue
Oceans of uncontested market space.
