Comparison of Porters Five Forces and Mauborgne Blue Ocean Strategies - Coursework Example

Porter’s Five Forces and Mauborgne Blue Ocean Strategies: A comparison I. Introduction Given the business uncertainties of the 21st century, there is a need to identify a business strategy formulation framework or frameworks useful to the current situation. Globalization finds firms competing nationally and internationally. Even at the local level, firms have to compete with foreign or multinational firms. Every business firm becomes exposed to competition given globalizing economies. Among the business strategy formulation frameworks that have a good reputation in the market are Porter’s Five Forces Strategy Formulation Framework and Kim and Mauborgne’s Blue Ocean Strategy Formulation Framework. II. Porter’s Five Forces Strategy Porter’s five forces strategy is premised on the view that five forces that influence the structure of an industry and that an awareness of the five forces and the shaping of strategy consistent with the five forces help a firm become profitable and “less vulnerable to attack” (Porter 2008, 1st paragraph). Porter (2008) described the said five forces in terms of Figure 1. Figure 1. Five Forces Shaping Strategy Source: Porter (2008) According to Porter (2008, 2nd paragraph), the key tasks of the strategist is to understand and cope with competition. Consistent with Figure 1, Porter (2008, 2nd paragraph) clarified that competition, however, goes beyond industry rivals and cover four other competitive forces: potential entrants, bargaining power of buyers, threat of substitutes, and bargaining power of suppliers. An extended rivalry results from the five forces (Porter 2008, 2nd paragraph). In sum, the five forces strategy calls for decreasing the rivalry among industry players, reducing the threat of new entrants, decreasing the bargaining power of customers, decreasing the threat of substitutes, and decreasing the bargaining power of customers (Reckiles 2001, p. 1). In dealing with rivals, Porter’s five forces strategy posited that a firm can choose one of the following alternatives or strategic moves: changing prices, product differentiation, creatively building channels of distribution, and exploiting relationship with suppliers (QuickMBA 2007, p. 3). In addressing the threat of new entrants, a firm can tap laws or government, use patents and proprietary knowledge and rights, promote specificity for related products, and build up internal economies of scale wherein production costs are at minimum QuickMBA 2007, p. 9-10). In dealing with the bargaining power of customers, Porter’s five forces strategy calls for diversification of markets, forward integration or ability to go into distribution and retailing, institution of measures that can make it costly for buyers to switch to other suppliers, fragmenting buyers and making sure that they have no influence on products and prices, and creating measures to have control over buyers purchases (QuickMBA 2007, p. 7-8). In dealing with the threat of substitutes, a firm can tap technology as well as use price competition (QuickMBA 2007, p. 5-6). Finally, in dealing with supplier power, a firm can standardize its product, and implement backward integration (QuickMBA 2007, p. 7). III. Kim and Mauborgne’s Blue Ocean Strategy Kim and Mauborgne (2005, p. 106) describes the blue ocean strategy as the strategy that seeks to make competition irrelevant by creating a new market place where there are no competitors which they called as a “blue ocean”. In 2007, the authors pointed out that the idea in brief behind the blue ocean strategy is that the best way towards profitable growth is stop competing in the overcrowded industries of the red oceans or stop trying to outperform rivals in getting bigger slices of existing demand (p. 1). In 2009, their articulation on the blue ocean strategy is that one must “go where profits and growth are and where the competition isn’t” (Slide 2). According to Kim and Mauborgne (2007, p. 1), one must not use competition as a benchmark. Instead, one must “make the competition irrelevant by creating a leap in value for both yourself and your customer” (Kim and Mauborgne 2007, p. 1). Further, one can also reduce costs while offering customers more value at the same time. The strategy holds that the market is a space composed of two oceans: the red and the blue oceans (Kim and Mauborgne 2005, p. 106). In the read oceans, companies try to defeat their rivals by trying to grab a greater share of existing demand but as the market space of the red oceans gets crowded, the opportunities for profit and growth are reduced (Kim and Mauborgne 2005, p. 106). Cutthroat competition ensues and turns the red ocean bloody and, thus, the term “red” oceans (Kim and Mauborgne 2006, p. 106). In contrast, in the blue oceans, “competition is irrelevant because the rules of the game are waiting to bet set” and the term “blue ocean” is an analogy that seeks to “describe the wider potential of market space that is vast, deep, and not yet explored”. According to StratX (2008, slide 6), the principles involved in the Blue Ocean strategy are as follows (Kim and Mauborgne 2006, p. 106): 1. Create uncontested market space; 2. Make the competition irrelevant; 3. Create and capture new demand; 4. Break the value-cost trade-off; and 5. Align the whole system of a firm’s pursuit of a firm’s activities in pursuit of differentiation and low cost. The result of the application of the strategy should result to a new product curve that is reached through execution of four imperatives (StratX 2008, Slide 7). The first imperative is to identify and reduce the feature of the business that should be reduced below the industry mean (StratX, Slide 7). The second imperative is identify and eliminate the features of the business that should be eliminated that are usually taken for granted by the industry (StratX 2008, Slide 7). The third imperative is to identify and raise the features of the business that should be raised well above the industry standards. Finally, the fourth imperative is to identify and create features in the business that the industry never offered in the first place. The four imperatives are represented in Figure 2. Figure 2. Four imperatives of the Blue Ocean Strategy Source: StratX 2008, Slide 7 IV. Comparison and analysis of the Five Forces and Blue Ocean Strategies Overall, we can describe Porter’s Five Forces Strategy as a business strategy formulation framework for competition to survive and grow in business while Kim and Mauborgne’s Blue Ocean Strategy as a strategy formulation framework that seeks avoidance of competition to survive and grow in business. However, Kim and Mauborgne’s business strategy formulation framework does not advocate actual business monopoly but only product or service monopoly via product or service differentiation in a market where competition already exists. Of course, if a monopoly in the business is actually possible then Kim and Mauborne’s business strategy is partially realized de facto. However, the real point of Kim and Mauborgne’s business strategy is to make competition irrelevant in the first place. It is, of course, possible to make competition irrelevant through product differentiation and technological lead over rivals, especially if one’s technological lead is covered by the applicable intellectual property rights or technological and business patents. Porter’s Five Forces Strategy Formulation Framework appears to be extremely useful for a business firm in competition and for whom competition is unavoidable. Porter’s Five Forces Analytical Framework enables one to be proactive and rise above the tendency to be myopic: particularly, in seeing only that the ongoing competition is between the firm and current rival firms. Porter correctly pointed out that the competition is not only between the firm and rival firms but with suppliers, substitutes, bargaining power of consumers, and potential new entrants. Thus, a responsible business manager must craft a business strategy to take into account the five forces that can affect his or her business both in the short-term and in the long-term. Porter’s analytical framework allows a business manager, therefore, to be anticipatory rather than responding only to current challenges that has emerged. Porter’s five forces analysis allows one to anticipate the scenarios that can emerge in the medium as well as in the long terms. In contrast, as implied by our earlier discussion, Kim and Mauborgne’s Blue Ocean Strategy Formulation Framework is readily applicable if the firm is in a position to make technological and other product innovations or product differentiation that can make competition irrelevant. The Blue Ocean Business Strategy Framework is readily applicable if we can attribute qualities to our product or service whether or not the qualities are actually possessed by our product or not or service. For example, we can associate our product to certain lifestyle and standard of living: a product or service for those in the upper class even if our product or service is good as well for people in the lower classes or people having another set of lifestyles. If we the potential to become successful at product differentiation through calculated advertising and business promotions then the Blue Ocean Strategy is convenient to implement. This is not saying however that the Blue Ocean Strategy is limited to product differentiation because it is clear in the four imperatives discussed in Figure 2 that the Blue Ocean Strategy is more than product differentiation although product differentiation can be an important part of the strategy. Unfortunately, it is always a case in today’s globalizing world that our business strategies can be copied by hundreds of firms in the international economy. Many of these economies are beyond the reach of intellectual and other property rights. We can adopt a differentiation strategy but the strategy can be copied. We can have the property rights to a technology or a process or a brand but the same can be copied by business pirates in the global economy. Thus, while the Blue Ocean Strategy is desirable, it is still not the time to abandon Porter’s Five Force Strategy Formulation Framework, subject of course to the firm’s financial capabilities. V. Conclusion The conclusion of this work is that both the Blue Ocean and Five Forces strategy remains relevant in the 21st century. It is imperative that business strategists are familiar with both strategies and adopt a strategy framework that combines the best elements of the two strategies. The Blue Ocean Strategy is good but it is difficult to keep competition irrelevant for so long because profit-hunters exists and the world economic environment is not yet able to adequately defend intellectual and business property rights. References Kim, W. and Mauborgne, R., 2005. Blue ocean strategy: From theory to practice. California Management Review, 47 (3), 105-121. Kim, W. and Mauborgne, R., 2007. Bllue ocean strategy. Harvard Business Review Reprint R0410D. Kim, W. and Mauborgne, R., 2009. Blue ocean strategy. Powerpoint Slides. Porter, M., 2008. The five forces that shape strategy. Available from: http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/pr [Accessed 4 January 2011]. QuickMBA, 2007. Porter’s five forces: A model for industry analysis. Available from: http://www.quickmba.com/strategy/porter.shtml [Accessed 4 January 2011]. Reckiles, D., 2001. Porter’s 5 forces. A handout. Reckiles Management. StratX, 2008. Blue ocean strategy theory overview. A powerpoint presentation. StratX. Read More