Artificial Intelligence (AI) is the single most transformative driver of today's business world. Enterprises across all industries are racing to utilize AI to create new products and services. With heightened competition and growing market saturation, selecting suitable AI investments has become increasingly complex. A business that is a slow adopter reads the market wrong or invests heavily in AI investments that don’t pay off can expect significant and possibly irreversible consequences.
Blue Ocean Strategy can accelerate and focus the process to improve the odds of AI business success. Developed by W. Chan Kim and Renée Mauborgne, Blue Ocean Strategy [1] focuses on creating new market spaces—'blue oceans'—free from competition, rather than competing in saturated market spaces or bloody 'red oceans'. When applied to AI, this strategy provides a pathway for businesses to accelerate innovation, differentiate their offerings, and convert non-customers free from the constraints of traditional competition.
Understanding Blue Ocean Strategy
Blue Ocean Strategy is built on the principle of value innovation, which is the simultaneous pursuit of differentiation and low cost. Don’t think of low cost as cost-cutting; it is more than that. It encompasses purposefully minimizing the costs that don’t add value and investing in those that do.
Instead of competing within the confines of existing industry boundaries, Blue Ocean Strategy creates a framework and mindset that encourages businesses to break away from the pack by executing targeted objectives that will create distance between them and rivals.
The core elements of this novel and proven approach include:
Creating an uncontested market space by following a deliberate innovation process and framework focused on making the competition irrelevant.
Breaking the value-cost trade-off to achieve differentiation and low cost simultaneously.
Focusing on the big picture first by looking beyond the numbers and concentrating on the overall strategic vision. There will be time for numbers.
Reaching and thinking beyond existing demand to turn non-customers into customers to expand market boundaries.
Getting the strategic sequence correct by aligning innovation with utility, price, cost, and frictionless adoption.
Get these right, and the market will respond.
The Challenge of AI in Competitive Markets Today
The AI landscape is growing more crowded daily, with numerous businesses developing similar solutions built on the same technologies and competing for the same customer base. While innovative, many AI products and services fail to achieve significant market traction because they compete in already saturated markets. This could be a single large competitor or many small start-up competitors. There is no one size of market saturation. These saturated 'red oceans' are characterized by fierce competition, price wars, slim profits, and shrinking margins.
An example of an ocean turning from ‘blue to ‘red’ are image-based AI solutions that create or utilize AI to edit images. Search “AI-based image creation or editing,” and dozens or more results exist. At the time of this article, over 100 such businesses and solutions were found in several pages of results, with many more pages of results left to be counted. The results include large, well-established market leaders extending their solutions to small niche players focused on one attribute or feature. Many compete on price through free or limited trials, claiming a better product with minimal perceptible user-level differentiation or feature sets [2], [3]. These are textbook examples of swimming in a ‘red ocean.’
Does this mean these are all bad ideas? No, customers may want and expect these features as a part of a core offering. Still, unless a solution provides something unique that meets the requirements of Blue Ocean Strategy, they will be in for a fight to capture and retain customers as they embark on a feature and price war.
Small start-ups usually don’t have the backing, capital, or resources to fight a long campaign, and for the rest of the market, it can be a massive resource drain without much benefit.
Many other examples of feature-driven business cases fit into this category where there was an opportunity to provide a unique and new product or service feature for a brief and fleeting moment. As the requirements of a true Blue Ocean Strategy were missing, any window of opportunity closed as quickly as it opened.
The growing list of feature-based stand-alone AI businesses in for a challenging business future includes automated accounting features, which are currently being swiftly integrated into major accounting and enterprise resource systems; writing and content tools, which are being incorporated into word processing applications; data analysis tools which are being added to spreadsheet applications, and more such examples. Many of these are brilliant ideas but are only sometimes good businesses.
For AI innovations to succeed in becoming the basis for viable business opportunities, they need to be more than just advanced technology and the word AI in name or marketing literature—they require a strategic approach that differentiates them from the competition and creates new demand that is hopefully sustainable for an extended period. This is where Blue Ocean Strategy becomes crucial.
Applying Blue Ocean Strategy to AI Innovation
AI is rapidly advancing, changing daily, and has vast untapped potential across various industries. It can also enable more efficient innovation. A Blue Ocean Strategy can guide innovation that has the potential to create and define a new market. Here are some suggestions, ideas, and steps in the context of the Blue Ocean Strategy that can be applied to help drive AI market success or where AI can enhance the creation of a Blue Ocean Strategy.
Suggestion One
Think Different – Find new opportunities by meeting unmet needs
Blue Ocean Strategy encourages businesses to explore beyond existing markets to discover unmet needs and opportunities.
Idea One – Think New Business Applications
AI can address in rapid fashion problems that traditional methods cannot. For instance, AI-driven predictive maintenance in industrial settings can prevent costly downtimes, an area often overlooked by conventional approaches.
Idea Two – Identify New Customer Segments
AI can identify and cater to previously ignored customer segments. AI-powered financial advisory services can be tailored to lower-income individuals, democratizing access to financial planning.
How to Identify Untapped Opportunities
Step 1 - Conduct Market Research
Use AI to analyze market trends, customer feedback, and emerging needs that are not currently being addressed.
Step 2 - Engage with Non-Customers
Identify potential customers not currently using AI products and services to understand their concerns, pain points, and needs.
Step 3 - Explore Adjacent Industries
Look for opportunities to apply AI in industries that have yet to adopt or incorporate AI innovation widely.
Suggestion Two
Enhance Value Innovation
The core of Blue Ocean Strategy is value innovation—creating high value at low cost—which AI can significantly enhance.
Idea One – Personalize and Differentiate
AI enables hyper-personalization, creating unique value propositions. AI can provide personalized treatment recommendations based on patient data in healthcare, setting services apart from generic healthcare solutions.
Idea Two - Automate and Reduce Costs
AI-driven automation improves efficiency and reduces operational costs. In manufacturing, AI can optimize supply chain operations, reducing waste and increasing productivity, thus lowering costs while maintaining high quality.
How to Enhance Value Innovation
Step 1 - Focus on Customer Needs
Develop AI solutions that address specific customer pain points and deliver exceptional value.
Step 2 - Leverage Automation
Use AI to automate routine tasks, improve efficiency, and reduce costs, enabling competitive pricing without compromising quality.
Step 3 - Combine Technologies
Integrate AI with other technologies like IoT, blockchain, and big data to create innovative solutions that stand out in the market.
Suggestion Three
Redefine Market Boundaries
AI has the potential to blur and redefine traditional industry boundaries, creating entirely new markets.
Idea One – Converge Technologies
Integrating AI with technologies like IoT and blockchain can lead to innovative products. Smart cities, for example, use AI and IoT to manage resources efficiently, creating a new market for urban management solutions.
Idea Two – Blur Industries
AI can merge different industries, leading to novel business models. Fintech businesses using AI for personalized financial products blend finance and technology to create new markets.
How to Redefine Market Boundaries
Step 1 - Explore Cross-Industry Applications
Identify how AI can be applied across different industries to create hybrid solutions.
Step 2 - Develop New Business Models
Use AI to create innovative business models that do not fit traditional industry definitions.
Step 3 - Form Strategic Partnerships
Collaborate with businesses in different industries to create integrated solutions that address broader market needs.
Suggestion Four
Capture New Demand
A fundamental principle of Blue Ocean Strategy is to go beyond existing demand and convert non-customers into customers, which AI can facilitate.
Idea One – Look at and Combine Company, Industry, Non-Customer Data
AI can analyze vast datasets to uncover hidden trends and demands. Businesses can then develop products that address these latent needs, capturing new markets.
Idea Two – Give the People What They Want
AI enhances customer engagement through personalized experiences. AI-powered chatbots, for instance, can provide tailored interactions, converting non-users into loyal customers.
How to Capture New Demand
Step 1 - Analyze Customer and Non-Customer Data
Use AI to gain insights into customer preferences, behaviors, and unmet needs.
Step 2 - Develop More Accessible Solutions
Create AI products that are accessible and appealing to a broader audience, including non-users.
Step 3 - Enhance Customer Experience
Leverage AI to offer personalized and seamless customer experiences that build loyalty and attract new users.
Suggestion Five
Ensure Strategic Alignment
For successful implementation, Blue Ocean Strategy must align with a business’s strategic goals, which AI can support.
Idea One – Strive For Utility Enhancement
AI increases the utility of products by making them more intelligent and responsive. Home automation systems that learn user preferences offer enhanced convenience and satisfaction.
Idea Two – Get Operational Cost Down
By reducing operational costs, AI allows businesses to offer competitive pricing without compromising quality.
Idea Three - Operational Efficiency
AI streamlines processes, reducing costs and aligning with Blue Ocean Strategy’s cost-effective principle.
Idea Four - Facilitate Easy Adoption
AI simplifies user experiences, encouraging adoption through intuitive interfaces and personalized support.
How to Ensure Strategic Alignment
Step 1 - Align AI Initiatives with Business Goals
Ensure that AI projects support the business’s overall strategic objectives.
Step 2 - Measure Impact
Regularly assess the impact of AI initiatives on business performance and customer satisfaction.
Step 3 - Foster a Culture of Innovation
Encourage a mindset of continuous innovation and improvement to keep pace with AI advancements.
Remember the Importance of True Value Innovation
We have mentioned Value Innovation several times. It is one of the most important concepts of a successful Blue Ocean strategy. Many products and services struggle to gain a competitive edge in the crowded AI market because they do not offer true value innovation. Simply having advanced technology is not enough; businesses must focus on creating significant customer value while minimizing or managing the costs of things that don’t add value.
To do this effectively, true value innovation involves the following:
Idea One - Understand Customer Needs
Developing AI solutions that solve real problems and meet customers' specific needs.
Idea Two - Balance Differentiation and Cost
Achieving a balance between offering unique, high-value features and maintaining cost efficiency.
Idea Three – Continuously Refine and Improve
Regularly updating and improving AI products based on customer feedback and technological advancements.
Steps to Ensure Strategic Alignment
Step 1 - Learn and Apply Blue Ocean Strategy
Following a Blue Ocean Strategy allows businesses to execute a business innovation framework-driven process. This approach can lead to significant growth and profitability by tapping into new markets and offering unique value propositions.
Putting It All Together
Combining Blue Ocean Strategy with Artificial Intelligence offers a transformative approach for businesses seeking to innovate and differentiate in competitive markets. Businesses can create uncontested market spaces and achieve significant growth by focusing on untapped opportunities, enhancing value innovation, redefining market boundaries, capturing new demand, and ensuring strategic alignment.
Blue Ocean Strategy encourages businesses to step away from fierce competition and explore new market spaces. With its vast potential and rapid advancements, AI is an ideal tool to facilitate this exploration or develop AI-based business solutions. Businesses can leverage AI to identify unmet needs, automate processes, personalize offerings, and redefine industry boundaries, creating unique value propositions that stand out in the market.
For successful AI innovation, it is crucial to prioritize true value innovation. This means understanding customer needs, balancing differentiation with cost efficiency, and continuously improving AI products based on feedback and technological advancements. Implementing Blue Ocean Strategy principles can guide businesses in achieving these goals, ensuring that their AI initiatives align with overall strategic objectives and drive substantial market impact.
The synergy between Blue Ocean Strategy and AI enhances competitive advantage and creates new possibilities for societal impact and customer satisfaction. As AI technology evolves, businesses adopting this strategic approach will be well-equipped to lead innovation, capture new markets, and set new industry standards. The journey may be challenging, but the potential rewards in growth, differentiation, and transformative impact make it a worthwhile endeavor.
References and Citations
Mauborgne, R., & Kim, W. C. (2017). Blue ocean shift: Beyond competing - Proven steps to inspire confidence and seize new growth. Hachette Books.
Google Search. "AI-based image creation or editing." Accessed May 18, 2024. www.google.com.
Microsoft Bing Search. "AI-based image creation or editing." Accessed May 18, 2024. www.bing.com.
Blue Ocean®, Blue Ocean Shift®, and Blue Ocean Strategy® are registered trademarks and intellectual property owned by Kim & Mauborgne.
Images and Media Cover image, Microsoft Stock Image Photos, May 18, 2024
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