Blue Ocean Strategy is a transformational concept that was introduced by W. Chan Kim and Renee Mauborgne through a 2004 article in Harvard Business Review; in 2005 through the book titled Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant; and currently through the Blue Ocean Strategy website. Elements of Blue Ocean Strategy have been adopted by a wide range of firms all over the world, primarily in business but also in the social sector including nonprofits and government agencies. In today’s environment, Blue Ocean Strategy can be especially helpful for social sector leaders faced with mapping new directions through a shifting landscape.
What is Blue Ocean Strategy?
The authors introduce the concept of Blue Ocean Strategy in contrast to its counterpart, Red Ocean Strategy.
- Red Ocean Strategy. Think of a Red Ocean as an existing market space of defined by customers, service needs, and service providers. In Red Ocean Strategy, a firm competes in existing market space with the goal of beating the competition by exploiting existing demand. In the process they may face serious challenges as they fight for pieces of highly contested market share.
- Blue Ocean Strategy. Think of a Blue Ocean as a new market space with potential customers, needs, and little or no existing competition. In Blue Ocean Strategy, a firm creates uncontested market space with the goal of making the competition irrelevant by creating and capturing new demand. This eases the pressure to fight for market share, and generates new possibilities for delivering high value at an efficient cost.
In addition to the differences in strategic aims, the two approaches have differing requirements for leadership, management, and organization development. The Blue Ocean Strategy book and website articulate these differences, and provide practical tools and insights for pursuing Blue Ocean Strategy.
How might we apply Blue Ocean Strategy in the Social Sector?
Many social sector organizations are operating in a shifting environment marked by changes in community demographics, funder interests, public policy, and expectations for delivering value. In this situation, it is essential to be creative about envisioning a future for the organization. Blue Ocean Strategy can help us analyze the possibilities and develop a strategic vision. We can start by asking these questions.
- What kind of market space are we in? By market space we mean the people we serve, the services we provide, and the other organizations who do the same. Are we in a Blue Ocean with demonstrable need and little or no competition for clients and funding? Or are we in a Red Ocean with demonstrable need but many competit0rs for clients and funding? Or is our ocean shifting from Blue to Red due to emerging competitors, changes in funder interests, or changes in public policy?
- What kind of opportunities do we have? If we are in a Blue Ocean, can we survive and thrive in this market space for the next one to three years? If we are in a Red Ocean, or shifting from Blue to Red, can we survive and thrive in this market space despite the competition for clients and funding?
- What are our Blue Ocean possibilities? Based on our core capabilities, where might we find Blue Ocean market spaces? Are there population segments who need help but are going unserved? Are there things we could do to maximize the value of our services for these populations? Are there new partnerships we could develop to open new markets? Are there funders who might be willing to support us in a new Blue Ocean market space?
As a practical example for applying this strategic assessment, imagine a community health clinic that serves uninsured adult patients up to 200 percent of the federal poverty level in a state with a conservative Medicaid program.
- The Challenge. For years the clinic has been operating in a Blue Ocean where the competition for services and funding is low. This year the state enacted a Medicaid expansion that will allow many of the clinic’s uninsured patients (up to 138% of poverty) to enroll in Medicaid coverage. As a result, health systems and private medical practices will be entering the market space and competing to serve these patients. This could potentially turn the clinic’s ocean (market space) from Blue to Red.
- The Response. This is an opportune time for the clinic leadership to ask the strategic questions outlined above. As they assess their opportunities, they will not be limited to just the Red Ocean options of surrendering patients or entering the competition for Medicaid patients. They can also consider possibilities for Blue Ocean Strategies, such as delivering unique services to newly enrolled Medicaid patients; or partnering rather than competing with other Medicaid providers; or serving a new market segment of uninsured patients at higher levels of poverty. Each of these options has its own set of challenges for strategy, leadership, management, and organization development. But by viewing the possibilities through the lens of Blue Ocean Strategy, the clinic might be able to generate some creative options that are good for the community and the organization.