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FIGURE 10-2
Apple’s portfolio of businesses on the dynamic PMS map
While the size of named circles roughly represents the relative revenues of
Apple’s main businesses, that of unnamed dots does not as they simply represent
Apple’s peripheral products and services.
The Apple Store is not plotted, although it is recognized as a blue ocean in the
retail industry, as its sales are already captured in all existing products.
Figure 10-2
depicts Apple’s portfolio of businesses on the dynamic PMS map.
A series of blue ocean strategic moves led Apple to become America’s most
admired and valuable company within a decade. The iMac, iPod, iTunes Store,
iPhone, and iPad were created by different business units serving different
industry sectors, yet they shared a common strategic approach—reconstructing
the existing markets and creating new demand. Although these strategic moves
were planned and executed by individual business units, it was Apple Inc. that
planned and orchestrated its business portfolio at the corporate level.
As seen in
figure 10-2
, Apple has maintained strong profitable growth by
keeping a successful balance across its pioneers, migrators, and settlers over
time, even as once pioneers lost their pioneer status. This was achieved by
launching new blue ocean businesses as previous pioneer businesses were
starting to be imitated. In looking at Apple’s portfolio across time, its profitable
growth was first lifted in 1998 when it dramatically simplified its Macintosh
product range and launched the value-innovative iMac, the first colorful, friendly
desktop computer that made it easy for the first time to connect to the internet.
The iMac literally made people smile and introduced fashion and aesthetics into
computers. While the iMac transformed Apple’s Macintosh division into a high
migrator, Apple quickly followed this with the launch of the iPod. The iPod
revolutionized the digital music market, creating an uncontested blue ocean,
which was strengthened further with its launch of the iTunes Music Store two
years later. As the iPod was eventually imitated and sank toward migrator status,
Apple reached out and launched its next blue ocean, the iPhone.
Apple continued to launch subsequent blue oceans over time, including its app
store and the iPad to ensure the next chunk of growth at the corporate level as
others began to encroach on the blue oceans it was creating in its individual
businesses. As the dynamic PMS map also makes clear, that is not to say that
Apple is only about blue oceans; nor should any company’s corporate portfolio
be. Companies with a diverse portfolio of businesses, such as Apple, General
Electric, Johnson & Johnson, or Procter & Gamble, will always need to swim in
both red and blue oceans at a given point in time and succeed in both oceans at
the corporate level. This means that understanding and applying the competition-
based principles of red ocean strategy are also needed. Once Apple’s iPod began
to be imitated, for example, to counter competition it rapidly launched a range of
iPod variants at various price points with the iPod mini, shuffle, nano, touch, and
so on. This not only served to keep encroaching competitors at arm’s length, but
also expanded the size of the ocean it created, allowing Apple, not imitators, to
capture the lion’s share of the profit and growth of this new market space. By the
time the iPod’s blue ocean became crowded with more imitators, Apple had
created another blue ocean by introducing the iPhone.
In this way, Apple has been successfully managing its corporate portfolio for
strong profitable growth. The challenge for Apple in going forward will be to
continue to renew its portfolio, as current pioneers eventually become migrators
and settlers, so that it can maintain a healthy balance between the profit of today
and the growth of tomorrow. This is the precise challenge Microsoft has been
facing for several years. Despite relatively strong profit, Microsoft has failed to
maintain a healthy balance across pioneers, migrators, and settlers. While it has
proven to be adept at knowing how to compete and get profit out of settler
businesses, Microsoft has launched no new pioneers, whether a search engine
like Google, a social network site like Facebook, a video game console like the
like Google, a social network site like Facebook, a video game console like the
Wii, or popular web services like Twitter to renew its corporate portfolio. Its
deep dependence on the settler businesses of Office and Windows that dominate
its portfolio has severely penalized Microsoft. Profit aside, its stock price has
been unimpressive for more than a decade and, even more telling, it has lost its
luster in attracting top talent. For Microsoft to get out of its slump, it needs to
work toward creating a better balanced portfolio across businesses that not only
compete in red oceans but also create blue oceans, which renew, expand, and
build its brand value.
The eight principles of blue ocean strategy proposed in this book should serve
as essential pointers for every company thinking about its future strategy if it
aspires to lead the increasingly overcrowded business world. This is not to
suggest that companies will suddenly stop competing or that the competition will
suddenly come to a halt. On the contrary, the competition will be more present
and will remain a critical factor of market reality. As captured on the dynamic
PMS map, red ocean and blue ocean strategies are complementary strategic
perspectives, with each serving different and important purposes.
Because blue and red oceans have always coexisted, practical reality demands
that companies succeed in both oceans and master the strategies for both. But
because companies already understand how to compete in red oceans, what they
need to learn is how to make the competition irrelevant. This book aims to help
balance the scales so that formulating and executing blue ocean strategy can
become as systematic and actionable as competing in the red oceans of known
market space.
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