The Ugly Duckling of Strategy: Why Red Ocean is Still Relevant

Red Ocean Strategy has become like the least desirable strategy, especially since the Blue Ocean Strategy book (W. Chan Kim and Renée Mauborgne) was published in 2005. The actual concept is from the early 90s.

The Blue Ocean Strategy became the go-to approach, and everyone wanted to adopt it. Even Google shows that it is 6 times more popular than the Red Ocean Strategy. According to a 2004 study, only 14% of businesses created those new markets, as described by a Blue Ocean Strategy. Although I have not found studies on the current market situation 20 years later, I would assume that it has not changed significantly.

So let's talk about what a Red Ocean Strategy is, and whether it is still relevant.

A red Ocean Strategy at its core is focused on beating competitors at winning market share and, hopefully, becoming the market leader. It usually doesn't aim for disruption but for incremental improvements and validated markets. But wait, this sounds like pretty much what most companies are doing, no?

Well, yes, you see, there are so many times companies can find new markets and create disruptions, some companies are obviously much better than others at this. But even for companies that are great at this, when a product reaches maturity, the blue ocean disappears: competitors pop up, leaps in innovation turn into innovative steps, and eventually into continuous improvement, and even sometimes stagnation.

Imagine Apple in the late 90s and early 00s. They managed to disrupt several markets: music with iPods, mobile with the iPhone, but those products slowly but surely became less innovative, and in the case of iPods discontinued in 2022. This means that what originally was a Blue Ocean Strategy eventually became a Red Ocean Strategy.

So why can't companies be in a Blue Ocean Strategy all the time?

• First of all, it is hard. A smaller company or team can usually be much more innovative. Bigger and successful companies, those that find that Blue Ocean and conquer it, tend to grow, become more bureaucratic, and less innovative
• Second: profits. As the market matures, typically the product or service becomes more profitable, more customers are looking for it, easier to make sales, product is "mostly" ready. This gives incentive for the company to follow a "if it works, don't change it" mentality. 
• Third: competition. When a company finds a new market, competitors will appear; these can be new or existing competitors jumping at the opportunity, trying to close the innovation gap. And many companies fall into, at least to some degree, a defensive position.

There are always more reasons, but to me, those are some of the most important ones. But what does this mean: Red Ocean Strategy is still very relevant and applicable for many companies, actually, most of the companies you know are operating in a Red Ocean Strategy. Even poster children of Blue Ocean Strategy, like Netflix or Apple are nowadays much more focused on a Red Ocean Strategy.

Let's think about the core principles of Red Ocean Strategy

• Cost leadership: can be in the low but also in the high end of cost.
• Differentiation: either with better value or features.
• Concentrate on proven markets: you are familiar with the customers and competitors.
• Scalable execution with operational improvements.
• Beat competition: based on the previous points.

For most of you, these are the strategies that the company you work for follows. So Red Ocean is not a strategy that is dead, it's a strategy that has a clear purpose, and it works. It is not better or worse than Blue Ocean Strategy, it's better suited for mature products that are in later stages of a growth phase.

Does it have downsides?

Well, yes. Like everything in life.

If you, or your company, only focus on Red Ocean Strategy, especially dragging products for very long, well, at some point, someone will beat that market and come up with a new idea, which will create that new opportunity and disruption. So some other downsides can be:

• Intense competition
• Price wars
• Slow innovation
• Easy to fall into a comfortable position

So why should one use a Red Ocean Strategy?

Companies can use this strategy when a market is maturing, like the phone market I mentioned earlier. This "new market" has reached maturity, meaning there is no need to go for a Blue Ocean Strategy, at least not in the short to medium term. 

The company's goals are focused on gaining market share, not necessarily creating new segments.

For some companies, the focus might be first to establish a profitable position, which is easier to achieve in a proven market. Innovation might come later.

Some companies might have found success with a product in a very specific market and are focusing on how to grow by expanding operations before focusing on innovations.

Red Ocean Strategy is just a piece of the puzzle

Like any other framework, Red Ocean Strategy is a great option to have in your toolkit, and learn how and when to apply it. If you want to know about a playbook that will help you create a system to operate your business, go check out The Leader's Strategic Operating System, which will help you choose and learn to use the frameworks that are best suited for your type of business.