Summary the artical - Essay Example

Summary of Blue Ocean Strategy Introduction W. Chan Kim and Renee Mauborgne (2004), both of strategy and international management at Insead, France, have published the article entitled Blue Ocean Strategy in Harvard Business Review of October 2004. In the article, they describe how blue ocean strategy creates new demand and new market rather than competing for the existing demand and market. SummaryMarket consists of two types of space, red oceans and blue oceans. In red oceans, several firms engage in a bloody competition to increase the share of the existing demand and market by trying to outperform each other.

Blue oceans consist of all those industries that create new demand and market or expand the boundaries of the existing demand and market. By doing so, they generate new opportunities for profit and growth. Blue oceans have been a source of growth in the past and will remain so in the future. Emergence of new industries and wide products differentiation in the existing ones in the past demonstrate this phenomenon. As globalization spreads and barriers fall further, red oceans will increasingly become competitive with more products standardized resulting in price wars and reduced profitability.

Only blue oceans will ensure growth and profit in the future. However, paradoxically, there is a bias in favor of red oceans. A study found that, out of 108 new ventures, 86 percent pursued red oceans strategy contributing to 62 percent of revenue and 39 percent of profit. Only the remaining 14 percent new ventures followed blue ocean strategy but they contributed 38 percent of revenue and 61 percent of total profit.Blue oceans have four defining features, as identified based on the data of 100 years in auto, computer, and movie and theater sectors.

First, firms might create blue oceans through technological innovation in some cases but they tweak the existing technology to new uses in most cases. Second, existing firms often create blue oceans within their core competency areas rather than stepping out to new frontiers. Third, the most appropriate unit of analysis is not a firm or industry but the strategic move involving managerial actions and decisions to tap the blue oceans of demand and market. Fourth, creation of blue oceans builds new brands.

Strategic orientation is more important than large R & D budget to create new market space.Red ocean strategy and blue ocean strategy have their own characteristics. In red ocean strategy, firms compete in the existing market space, beat the competition, exploit the existing demand, make a trade-off between value and cost, and gear all their activities either to promote differentiation or reduce cost. On the contrary, in blue ocean strategy, firms create new market space, make competition irrelevant, create and capture new demand, break the trade-off between value and cost, and invest their efforts to promote differentiation and reduce cost.

Most significantly, blue oceans change the correlation between value and cost. Red oceans increase value for customers at enhanced cost, which reduces their competitiveness. In contrast, blue oceans drive down the cost and drive up the value. To do so, they reject the structuralist view of market, reduce or eliminate those factors that drive up the cost, and add elements, functions and uses that have not been offered before. As the cost decreases with the economies of scale, the value for customer goes up further.

Blue oceans remain quite sheltered from competition. Through their early innovation and economies of scale, they create a high barrier for outsiders to imitate and compete. The brand name and loyal following they build in the process also protects them from competition for several years, giving them secure market for their products. Blue ocean strategy has always existed together with red oceans strategy, though rather unconsciously. Once companies recognize that blue ocean strategy needs a different logic, they can and will create more blue oceans in the days ahead.

ReferencesKim, W. C. & Mauborgne, R. (2004). Blue Ocean Strategy. Harvard Business Review, (October), 76-84.