California Management Review

California Management Review

California Management Review

BLUE OCEAN STRATEGY: FROM THEORY TO PRACTICE

California Management Review

Spring 2005

Summary: This article examines industrial competition using the BlueOcean theory, a school of thought that suggests 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 described how business competition was essential to firms’ success and how companies needed to grab a bigger share of the market. In blueocean theory, competition is unimportant because the rules of the game are not set. Blue oceans are defined by untapped market space, demand creation, and unlimited market opportunity. With supply exceeding demand in many red ocean industries, competing for contracting markets will not be sufficient in the future. The authors conducted a study of new business launches in 108 companies and found that 86 percent of these launches were line extensions, and detailed what percentage of their profits derived from these extensions. The article explains the importance and some of the strategies related to creating blue oceans.

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