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Professor Renée Mauborgne stepped in front of the London Business Forum looking fresh faced and supremely relaxed. There was not a hint of the hectic schedule, which takes her to all corners of the planet as an Institute Director, speaker and best-selling business author. She was here to share insights from Blue Ocean Strategy, her 2-million plus selling book co-created with colleague W. Chan Kim.

Mauborgne opened by telling us that, in the current downturn, strategy is more important than ever. We should not focus on reacting to the negative or to stock price as even the best company’s shares are down; instead we should focus on how to make our competitors irrelevant.

The traditional strategy for excelling has focused on beating the competition and fighting for existing demand. In this market supply exceeds demand and there is a bloody red ocean. There is an assumption that the market space is finite. However, business history reveals that, to the contrary, market space is not limited, but unlimited. Companies can go beyond competing in existing markets to create new market space - a blue ocean - where there are no competitors. To illustrate, Mauborgne took us through a range of strategic moves, starting with that of video gaming company Nintendo. Previously there had been two main players in this highly competitive market - Microsoft and Sony - with Nintendo a distant third. Then the launch of the Wii created a whole new market, beyond existing demand, by appealing to non-traditional consumers, including older people, parents and those who usually do sport for leisure. Nintendo had successfully moved into a blue ocean, and profits and growth soared as a result.

Mauborgne argues that there is a pattern and process to successfully creating and capturing blue oceans. The key is ‘value innovation’ – the simultaneous pursuit of differentiation and low cost. To achieve value innovation companies can apply the Four Actions Framework, an analytic tool of Blue Ocean Strategy. Specifically, companies can ask what can they eliminate, reduce, raise and create that the industry has never offered. The actions of eliminate and reduce are what drop a companies’ cost structure, while the actions of raise and create are what allow a company to simultaneously stand apart and achieve differentiation. In the case of the Wii, for example, Nintendo eliminated high definition compatibility and high-resolution graphics while dramatically reducing processing power, giving the Wii the lowest cost structure in the industry. At the same time it raised aesthetics and created a simple controller, motion and fun family games to break away from the competition and create a blue ocean of new market space. Another example cited by Mauborgne was that of Body Shop who made an emotional industry functional, moving them away from their competitors at that time. Conversely, Swatch managed to make functional watches emotional, again securing clear market space. Like Nintendo’s Wii, both strategic moves made the competition irrelevant, achieving differentiation and low costs and pulling in all new customers.

The good news is that many companies have the potential to create Blue Oceans, not just new enterprises or well established market leaders. Nor is it about technological innovation per se; sometimes technology is present sometimes it is not. Furthermore, the benefits of moving into a blue ocean go well beyond an increase in short-term revenue. Creating a blue ocean can be a powerful way to build both your brand and customer loyalty and advocacy. For example, thirty years after the launch of its blue ocean the Walkman, Sony is still associated with premium quality and innovation.

Mauborgne closed her talk by outlining the need for balance in a company’s strategic approach. Whilst blue oceans represent strong growth opportunities, it is unfeasible for a company to exclusively operate in this area. Sooner or later competitors will move into your field, meaning that you still need to operate effectively in red oceans. To illustrate, Mauborgne introduced us to the Pioneer-Migrator-Settler Map. With Pioneer being the blue ocean; Migrator, the best in crowd; and Settler as the Me-too products. It is important, she argued, that you spread your activities across these three areas. However, ignoring the pioneer element of your business completely will allow your competitors to gain advantage and ultimately your market share.