how blue is your ocean?

7/31/2019 How Blue Is Your Ocean?

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CONTENTS BUSINESS NATION WORLD TECHNOLOGY HEALTH/LIFESTYLE

The Blue Ocean Strategy:

Value Innovation overCompetitive AdvantageEstablishing new markets and exploring uncharted territory

STRATEGY POINTS

The Blue Ocean strategy encourages businesses to create newmarkets as opposed to competing in saturated ones

Creating new markets involves risk management, innovation, and

constant improvement because applying the blue ocean strategyis a dynamic process

By Marishka Noelle M. Cabrera

Every now and then the business world goesagog over a new idea, one that promisesWRKHOSUPVRXWSHUIRUPWKHLUFRPSHWLWLRQ

add value to their products and services, and,

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ones business totally apart from the competition.

In 2005, Harvard professorsW. Chan Kim

and Renee Mauborgne published their best-selling book, Blue Ocean Strategy: How to

Create Uncontested Market Space and Make the

Competition Irrelevant. In their assessment

of more than 150 strategic moves in over 30

industries, the authors present a strategy called

the blue ocean strategy, which centers on

companies breaking out of the competitive

market space to create an uncontested one,

thereby making the competition irrelevant.

The strategy also encourages companies to

reconstruct their market boundaries in order to

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The book discusses, among many others,

Cir que du Soleilas an example of a blue ocean

company. Instead of directly competing with the

Ringling Bros. and other circuses in an industryexperiencing a long-term decline because of

rising costs and decreasing audiences due to

alternative forms of entertainment (television,

video games, sporting events), Cirque du

Soleil turned to a new set of consumers. These

consumers were adults who enjoyed watching

the opera, ballet, and theater, and who were

willing to pay more for premium entertainment.

BUSINESS

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As one Cirque du Soleil tagline goes, We

reinvent the circus.

In the case of social networking site Facebook,

David Kirkpatrick, author of The Facebook

Effect, says, in an interview, that what set

Facebook apart from the beginning was that it

was based on the genuine identities of its users.

Before Facebook, other social networking sites

were worlds of anonymity and role-playing.

Critics of the idea argue that the blue ocean

strategy tends to be nave, as one academic

puts it. In his 2006 blog entry,Grant

McCracken, anthropologist and author

of Culture and Consumption: New Approaches

to the Symbolic Character of Consumer

Goods and Activities, says the concept

undermines the hard work that comes with

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kind of good fortune happens to a handful of

companies, which, according to him, would

explain why Kim and Mauborgnes book is thin

on examples.

McCracken does point out that their book

does tell readers just how much marketinghas become a game of ideas, imagination and

innovation. He adds, Indeed, it is increasingly

a game in which advantage goes to those who

can step out of received wisdom and current

assumptions, and see the world new.

Bl ue vs. Red Ocean. In business, there are

two distinct kinds of market spaces,

say authors Kim and Mauborgne: the blue

and the red oceans. The red represents all

the industries in the conventional marketVSDFHZKHUHLQGXVWU\ERXQGDULHVDUHGHQHG

and the rules of competition are understood.

In this arena, rival companies try to

outperform one another to grab a greater s

hare of the demand. Nevertheless, as markets

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reduced, competition eventually turns

the water bloody.

Blue oceans, on the other hand, represent

the limitless possibilities of an untapped

marketthe unknown market space untainted

by competition. In the Harvard Business

ReviewPaperback Series of the book by Kim

and Mauborgne: In blue oceans, demand is

created rather than fought over. There is ample

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and rapid.

There are two ways to create blue oceans,

according to the strategy. First is to create

new industries altogether, such as what online

auctioning site eBay did. But in most cases blue

oceans are created from within a red ocean

when a company alters the boundaries of an

existing industry, such as in the strategic move

of Cirque du Soleil.

Based on a presentation from

Blueoceanstrategy.com, the red ocean

represents an arena where players are pushed

to compete in existing markets, beat the

competition, exploit existing demand, make

the value-cost trade-off, and align the whole

system of the companys activities with its

strategic choice of differentiation or low cost.Meanwhile, the blue ocean strategy involves:

creating uncontested market space; making the

competition irrelevant; creating and capturing

new demand; breaking the value-cost trade-off;

aligning the companys activities in pursuit of

differentiation and low cost.

The decli ne of the competi t i ve advantage

str ategy? Hence, it can be assumed that the

blue ocean strategy replaces the conventional

strategic management concept of competitiveadvantage with value innovationor the

simultaneous pursuit of differentiation and

low cost, according to Blueoceanstrategy.

com. As elaborated in the groundbreaking

1979 Harvar d Business Reviewarticle by

economist and Harvard professor Michael

E. PorterVXVWDLQLQJORQJWHUPSURWDELOLW\

entails responding strategically to competition.

The blue ocean strategy: Value innovation over competitive advantage



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forcesestablished rivals, customers, suppliers,

aspiring entrants, and substitute offerings

shapes company strategy. In a 2008 update

of this article, Porter writes: The extended

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an industrys structure and shapes the nature ofcompetitive interaction within an industry.

But should there really be a distinct choice

to be made between the two strategies? The

study Blue Ocean versus Competitive

Strategy: Theory and Evidence attempts to

provide a methodological synthesis of the

theories enabling us to bring statistical

evidence to the debate by analyzing data

from the Dutch retail industry. Authors

Andrew Burke RI&UDQHOG8QLYHUVLW\LQWKHUnited Kingdom,Andr van Stel of the Erasmus

University Rotterdam in the Netherlands,

and Roy Thurikof the University of Amsterdam

found that strategic managers need not be

THE FOUR ACTIONS FRAMEWORK FOR VALUE INNOVATION

FIVE FORCES THAT SHAPE INDUSTRY COMPETITION

Source: Harvard Business Review

Source: Blueoceanstrategy.com

Reduce

Which factors should be

reduced well below theindustry's standard?

A NewValueCurve

Create

Which factors should becreated that the industry has

never offered?

Raise

Which factors should beraised well above theindusty's standard?

Eliminate

Which of the factors that theindustry takes for granted

should be eliminated?

Rivalry Among

ExistingCompetitors

Threat of NewEntrants

Threat ofSubstitute

Products or

BargainingPower ofSuppliers

BargainingPower ofBuyers



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In an update of his 1979 article, Harvard professor Michael PorterWDONVDERXWKLV+DUYDUG%XVLQHVV5HYLHZDUWLFOHRQWKHYH

competitive forces that shape strategy. Video from YouTube

Professor Andrew Burke of the Bettany Centre for Entrepreneurial

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markets prove to be an effective strategy. Video from YouTube

faced with an either/or decision with regard to

the strategies.

[M]odern strategic management does not

appear to make a discrete choice between using

blue ocean or competitive strategy but rather

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optimal blend of these two strategies across both

short and long-term horizons, the study notes.

In an interview, Burke says that, based on their

research, there are a lot more opportunities

in existing markets than previously thought,

and that competition is a weak force in terms

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established market. Innovation, Burke notes,

does not have to be radical, rather, it can be

more incremental and adaptive.

Cr eating new m ark ets. Finding and creating

new, untapped markets is the crux of the

problem. An article from Qn, a publication of the

Yale School of Management, says [I]t requires

convincing an array of customers, partners,

and other constituencies to see the world

differently. The article focuses on insights from

leaders who were able to create new markets in

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Peter Meyer, author of Creating and

Dominating a New Market and Warp-Speed

Growth, recounts in his 2003 article found on

the website Small Business Advocate the key

elements of creating a new market: identify

problems that need solutions; follow one of two

lower risk paths since the risk of failure is high;

be willing to ignore the call of new opportunities,

and instead stick to the market concept that

was decided on; and start with cross-functional

teams and leadership.

In theHarvar d Business Reviewblog, author

Alessandro Di Flore, CEO of the European

Centre for Strategic Innovation, writes, The

best market opportunities are often to be found

in the least likely customers. If you want a big

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your competitors are chasing as well.

He cites the case of a European leader in the

consumer electronics industry that was looking

for new growth opportunities. The companys

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consumers who were also early adopters, but all

its competitors were doing this as well. In the

new strategy, the company started targeting a

new segment: housewives. Investing in this new

market mainly through in-store education

and post-sale technical support and customer

service-- paid off with nearly a 60% increase in

new target segment revenues.

As with most strategies, applying the blue ocean

strategy entails a fair amount of risk especially

for businesses that are more traditional in




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their values and have banked on competitive

advantage for their growth. Blueoceanstrategy.

com, nonetheless, explains the six risk factors

in strategy formulation and execution that

companies need to face: search, planning,

scope, business model, organizational, and

management risks.

A dynam ic pr ocess. Another issue is that

of long-term sustainability. Eventually, blue

oceans will turn red because other companies

will want to get a piece of that pie. However,

Robynne Berg of Australia-based Berg

Consulting emphasizes in her article that

if a company makes a blue ocean move, it

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the competition catches up, the company

would have already proceeded to its next

strategic move.

Any company who makes the mistake of

thinking one Blue Ocean strategic move will

provide them with lasting sustainability will

one day be irrelevant as have many behemoths

of the past, she cautions. Berg also cited the

case of BlackBerry, which rested too long in the

glory of their original blue ocean smartphone.

Now, BlackBerry maker Research In Motion(RIM) is trying to reel itself from quarterly

losses and is counting on its upcoming phones

and its very loyal customers, according to a

GMA News report. Hence, it is important to

note that the process of applying the blue ocean

strategy is not static, rather, it is dynamic.

Meanwhile, a study by professors Dennis

Pitta Ph.D. and Elizabeth Pitta from the

University of Baltimore in Maryland

focuses on the factors affecting the success ofnew product development and how the blue

ocean strategy comes into play. Applying a

blue ocean strategy to avoid competition early

in the product life cycle promises to reduce

dangerous competition to allow the product to

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to achieve sustainability, constant improvement

is required.

Blu e oceans in tod ays econom y. Kim

and Mauborgne note in an interviewfound

on the website of business school INSEAD

that in todays business climate, established

market spaces or red oceans are shrinking

steadily due to technological advances, the

fall of trade barriers between nations, and

declining demand. In overcrowded industries,

differentiating brands becomes harder both

in economic upturns and in downturns, the

authors say.

An article by Siddhartha Roy of Indias Tata

Group on emerging markets and the blue

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forces model and the blue ocean strategy

base themselves largely on the experiences

of developed economies. As such, if these

strategies are to be applied within the context

of emerging economies, certain issues must

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identify blue ocean opportunities; the nature

of its value innovation; and the sustainability

of the proposition. The article also providesexamples of industries like laundry soaps and

detergents, shampoo packaging, automobiles,

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can be applied.

As far as buzzwords go, the blue ocean strategy

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coined in 2005 by the two Harvard professors,

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creating (and sustaining) a demand for it have

been the basic elements of any winning businessmarketing strategy. Then again, in a rapidly

changing business environment, it is still

important to remember the values comprising

the bedrock of successful businesses across

generations: hard work, intuition, imagination,

and innovation.



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