Competitive Strategy

Identify
Mapping Blue
Your Oceans
Product by
Portfolio
by W. Chan Kim and Renée Mauborgne
February 12, 2015
This past quarter Apple once again crushed its earnings report.
This despite Wall Street’s uncertainty since the death of the
company’s founder and visionary, Steve Jobs. How has Apple
managed to maintain its stock price and convince investors of its
growth potential?

Consider the recent history of Apple and Microsoft, two tech

companies no longer run by their visionary founders, and how
each has competed in red or blue oceans. Over the last fifteen
years Apple has made a series of successful market-creating—or
blue ocean—moves (think the iMac, iPod, iTunes, the iPhone, the
App Store, and the iPad). From the 2001 launch of the iPod to the
fiscal year end of 2014, Apple’s market cap surged more than 75-
fold as its sales and profits exploded. Over the same period,
Microsoft’s market cap crept up a mere 3 percent while its revenue
went from being nearly five times larger than Apple’s to nearly
half its size. Two old businesses—Windows and Office—account
for close to 80% of the company’s profits. While the products
might bring in steady revenues, the lack of any compelling
market-creating offering has left Microsoft with a red-ocean
heavy product portfolio—for which the company has paid a steep
price.

The truth is too many companies are paying a similarly steep

price. In studying more than 100 new business launches we found
that 86 percent of what companies classified as new business
launches were effectively market-competing moves. That is,
incremental improvements in existing market space, like a pasta
company introducing a new line of gluten-free pasta. This 86% of
market-competing moves, however, generated only 62 percent of
combined launch revenues and 39 percent of profits. By contrast,
the remaining 14 percent of launches—those that created markets
or recreated existing ones—generated 38 percent of revenues and
a whopping 61 percent of profits. In other words, blue oceans offer
the real potential for future profitable growth.

The challenge for all companies, Apple included, is how to

continue investing in existing revenue-generating businesses
while at the same time creating and launching the businesses of
tomorrow.

We developed an analytic tool—the Pioneer-Migrator-Settler Map

—to address precisely that challenge and, as we discuss in the
new Blue Ocean Strategy, Expanded Edition, its beauty is that it
can be applied dynamically over time to shift the trajectory of a
company’s profitable growth prospects.
The Map allows you to see in one simple picture what your
current portfolio of businesses says about your future growth
prospects and indicates how you should drive your company to
lift your prospects over time. On the Map, settlers are businesses
offering me-too value; migrators are businesses with value
improvements over competitors’; and pioneers are businesses
that offer unprecedented value—these are your blue ocean
offerings. The key, for any successful organization, is to maintain
a balanced portfolio of pioneers, migrators and settlers—or, put
another way, of red and blue oceans, even as once pioneers get
imitated.

Consider Apple, mapped in the chart below. In 1997, Apple could

boast just one migrator (the Macintosh) and a handful of settler
peripherals and services. And the company’s future hung in
question. The Map shows a very different picture in 2003, with
the addition of two pioneers (iPod and iTunes), and the
Macintosh now lifted to high migrator status with Apple’s launch
in 1998 of the iMac—the first colorful, friendly desktop computer
that made it easy to connect to the internet. As shown on the Map,
by 2008, as the iPod was eventually imitated and sank toward the
migrator category, the company reached out and launched its
next blue oceans, the iPhone and App store. Then as the iPhone
and iTunes store fall into the migrator category, the company
introduces the iPad. In other words, Apple has maximized growth
prospects by maintaining a healthy balance of pioneers,
migrators, and settlers over time, even as the businesses that fell
into each category shifted with competition.
As the dynamic Map also makes clear, Apple is not 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 and succeed in
both oceans at the corporate level. 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.

The challenge for Apple in going forward is 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 nearly a
decade. Despite relatively strong profit, Microsoft has failed to
maintain a healthy balance across pioneers, migrators, and
settlers. 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 leading-edge brand value.
The question for executives is: If you were to plot your portfolio of
businesses on the map how would it fall? Is your portfolio settler-
heavy—as is the case with a majority of declining companies? Has
a business that was in the past a pioneer, generating huge profit
and growth, become a settler, suggesting that the company’s
growth is likely to be slow without the introduction of a new
pioneer? Or is your portfolio well–balanced, ensuring current
cash flow and strong upside profitable growth potential?

Forward-thinking executives understand that the real business

they are in is not cosmetics or foods or chemicals or computers. It
is the business of creating. Only sustained creation will sustain
compelling profitable growth. The question is: How much of your
organization’s time and talent is lined up behind building
pioneers versus managing settlers?

W. Chan Kim is a professor of strategy and

management at INSEAD and a codirector of the
INSEAD Blue Ocean Strategy Institute, in
Fontainebleau, France. He is a coauthor, with
Renée Mauborgne, of the books Blue Ocean
Strategy and Beyond Disruption: Innovate and
Achieve Growth Without Displacing Industries,
Companies, or Jobs (Harvard Business Review
Press, 2023).

Renée Mauborgne is a professor of strategy

and management at INSEAD and a codirector
of the INSEAD Blue Ocean Strategy Institute, in
 Fontainebleau, France. She is a coauthor, with
W. Chan Kim, of the books Blue Ocean Strategy
and Beyond Disruption: Innovate and Achieve
Growth Without Displacing Industries,
Companies, or Jobs (Harvard Business Review
Press, 2023).

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