After talking to many business leaders over the past few months, I've noticed two very different approaches to AI adoption. Some companies are rushing to implement AI only to keep up with competitors to stay relevant. And some organizations use AI to go beyond automation, find new markets, and create new opportunities. In this blog post we explore red ocean and blue ocean AI strategy for sustainable businesses.
Red Ocean AI Strategy: Competing in a Crowded Market
A Red Ocean AI strategy is all about competing in existing markets. Companies here are focused on efficiency, cutting costs, optimizing workflows, and keeping up with industry trends. But there's a catch: the more companies adopt the same AI strategies, the less differentiation they have. It turns into a race to the bottom, where everyone tries to squeeze out small advantages in an already saturated space.
- Price Wars: AI lowers costs, but when everyone uses the same tools, no one stands out.
- Incremental Gains: AI helps optimize processes, but it doesn't change the game.
- Tech Commoditization: AI features become standard, making it harder to differentiate.
Examples of Red Ocean AI Strategies:
- Chatbots for customer service: It is great, but everyone has them now.
- AI-driven sales forecasting: It is useful, but it doesn't break new ground.
- Automating back-office tasks: It is efficient, but not a game-changer.
That said, Red Ocean strategies aren't inherently inferior, they're often necessary to maintain competitiveness and can deliver reliable ROI with lower implementation risk.
The Spectrum Approach: Beyond the Binary
In reality, most successful AI implementations exist on a spectrum between pure efficiency plays and radical innovation. Consider these hybrid approaches:
- Enhanced Red Ocean: A retail company implements AI-powered inventory management (a common application) but integrates it with local climate and social media trend data for uniquely precise forecasting.
- Accessible Blue Ocean: A financial services firm uses AI not just to automate loan approvals but to create entirely new financial products for previously underserved customer segments with non-traditional credit profiles.
Blue Ocean AI Strategy: Creating New Market Spaces
A Blue Ocean AI strategy is about using AI to create something entirely new. Instead of competing within existing boundaries, these companies unlock new opportunities, attract different customer segments, and change the way business is done.
- Break Free from Competition: AI isn't just a tool, it's a way to rethink how things work.
- Create New Demand: Instead of battling for market share, create a new category.
- Innovate Beyond Efficiency: AI drives new revenue streams, experiences, and business models.
Examples of Blue Ocean AI Strategies:
- AI-Powered Personalized Healthcare: Instead of making hospitals more efficient, AI enables personalized treatment plans based on genetics and real-time health data.
- AI-Driven Investment Advisory: Instead of competing with human advisors, AI builds a self-learning, adaptive investment strategy that evolves with the market.
Case Study: Recursion Pharmaceuticals
Recursion has created a Blue Ocean in pharmaceutical development by combining AI with experimental biology to identify new uses for existing drugs and discover novel compounds. Their platform can test compounds against hundreds of disease models simultaneously, dramatically reducing the time and cost of traditional drug discovery.
Results: The company went from startup to public company valued at over $3B by creating an entirely new approach to an entrenched industry, attracting partnerships with major pharmaceutical companies seeking to revitalize their pipelines.
Industry Context Matters
The potential for Blue Ocean AI strategies varies significantly by industry:
- High Potential: Healthcare, financial services, education, and logistics have numerous friction points and inefficiencies that AI could transform.
- Medium Potential: Retail, manufacturing, and professional services offer opportunities, particularly at the intersection of physical and digital experiences.
- Challenging But Possible: Highly regulated industries like defence or utilities may face more barriers but can find Blue Ocean opportunities through focused innovation in specific domains.
How to Find Your AI Blue Ocean?
- Think Beyond Automation: AI isn't just about doing things faster, it's about doing things differently.
- Solve Unmet Needs: What are the biggest frustrations in your industry that no one has tackled?
- Focus on Experience, Not Just Efficiency: How can AI make your offering more engaging, personalized, or valuable?
- Leverage Unique Data & Insights: The best AI solutions aren't generic, they're built on unique data and perspectives.
The Reality of Sustainable Innovation
Even Blue Ocean strategies eventually attract competition. To sustain your advantage:
- Build Data Channels: Create virtuous cycles where your AI solutions generate proprietary data that further improve your offerings.
- Continuous Innovation: Plan for the next wave of innovation before competitors catch up to your current one.
- Balance Resources: Allocate resources between defending your current position and exploring new frontiers.
Implementation Challenges
Blue Ocean strategies typically involve:
- Higher upfront investment in talent, technology, and market education
- Greater uncertainty and longer timeframes for profitability
- Organizational resistance to radical change
- The need for more specialized AI expertise
These challenges explain why many companies default to Red Ocean approaches, even when Blue Ocean opportunities exist.
Final Thought
AI isn't just a box to check, it's a strategic decision. You can use it to stay competitive in the Red Ocean, find your unique position on the spectrum, or break new ground in the Blue Ocean. Understanding your organizational capabilities, risk tolerance, and industry context is crucial to choosing the right approach. The most successful companies often pursue a portfolio of AI initiatives across the spectrum, balancing immediate returns with transformative potential.
