Blue Ocean Strategy - Coursework Example

Blue Ocean Strategy Introduction Strategy is an important aspect of management and understanding of organizational decision-making processes. Strategy is a central determinant of whether the organization succeeds or not as management depends on strategic moves to allocate resources towards predetermined value activities necessary in attraction of customers and eliminating competition in the marketplace (Thompson and Strickland, 2003). This essay is based on the analysis of the blue ocean strategy to determine how it evolved in addition to its relevancy to management decision-making practices. Following the analysis of essential concepts of blue ocean strategy, it is applied to iPhone from Apple to determine the contribution of the strategy to success of the company. 1. Blue Ocean Strategy Definition Blue oceans refers to the industries that are not yet in existence and are therefore represent markets considered as unknown market with no competition, as companies have not discovered they exist. These factors mean blue oceans presents an opportunity for firms to create demand as opposed to fighting over the clientele with growth opportunity also being extensive due to the ability of firms to generate maximum profits. Consequently, the term blue ocean can be used as a proxy for market space that is yet to be explored and therefore have endless potential for firms that discover them (Kim and Mauborgne, 2005). According to Kim and Mauborgne (2005), value innovation is the core of blue ocean strategy as it creates a difference between winners and loser among the firms that have adopted the strategy over the years. Value innovation targets satisfaction from business perspective through creation of demand and for customers through meeting their needs. In this case, moves management succeeds in bringing sustainable operations while the new customers experience new product or features introduced in the market. Focus on the competition as the benchmark for level of achievement in the market is seen as the reason for failure of red oceans. The author propose a strategy that is reliant on value innovation, which refers to an approach to dealing with competition where the management does not focus on beating competitors but on making the competition extraneous by creating drastically enhancing value for buyers and the company. To apply effectively the innovative approaches in blue ocean strategy, four areas of opportunity are recognized: eliminate, reduce, raise and create. These approaches are based on the management’s analysis of what customer value and willing to pay, however, Harper (2011) notes focusing on more, as an opportunity to create value should only be a response to evidence that the targeted customers value this approach in value creation. Exercise of caution is essential in this case as a company there is a possibility for firms to enhance value by reducing and eliminating some product features perceived as redundant.   Blue Oceans and Red Oceans The concept of blue ocean strategy has been contrasted with what red ocean in order to develop a basis for making distinctions about how innovative companies create new markets. Taken as a sum of the industry, red and blue oceans represents the whole market universe, which implies the total of a given market at any particular time is equal to the sum of blue and red oceans (Menzel, 2014). To create the difference, firms operating in blue ocean as perceived as those that do not play by the rules of the market but move a head of others by forming their own rules. This is opposite to the strategies adopted by red oceans that create strategies based on the industry flows. Blue oceans refer to a newly established industry where the structures are set by through strategic positioning of a particular company (Thompson and Strickland, 2003). The positioning of a company to influence the rules of the industry means concepts such as competitors, competition, rivalry and wars are irrelevant. Firms operating in red oceans are limited by the options involving whether to go for differentiation or low cost while in blue oceans firms have the capacity to develop strategy responding to both low cost and differentiation needs. Strategies in blue market do not involve capturing demand, but it is about creation of new products and services that will attract customers. Therefore, red oceans represent known markets where companies in industries are fighting for existing demand. Strategies in re markets involve companies positioning to get a slice of existing markets, therefore, cultivating cutthroat competition among sectors players. Some of the characteristics of red oceans can also include firms engaging in aggressive marketing, price wars, heightened rivalry and promotional campaigns, which have significant cost implications due to high financial burden to the firms. Kim and Mauborgne (2005) argue that although firms in the red ocean fight to be a head of one other, ultimately they are considered to be at the same level due to constrain imposed by the industry. History and evolution of blue ocean strategy Blue ocean strategy is the result of intellectual investments made by Professor Chan Kim and Professor Renée Mauborgne as members of the INSEAD Business School. The strategy is based on results achieved following over fifteen years of research by the authors. During the course of their studies, the researchers analysed up to 100 leading companies operating in 30 over distinct industries. The criteria for selecting suitable business organizations included sampling companies that had created new markets spaces by introducing innovative consumer products, services or entire new business models. Subsequently, the authors referred to these ground-breaking innovations as blue oceans (Niciejewska and Dimitrov, 2009). The development of blue ocean strategy is perceived as being direct reaction to failure by strategies that are theories that are more traditional, and approaches. For instance, Kim and Mauborgne (2005) note the inadequacy of five forces adding that such theories were only adequate for companies choosing to remain red oceans. Porter’s five forces theory is perceived as limiting a company’s growth prospects since it focuses on how businesses can compete in their current market places. Additionally, the five factors that determine profitability of a business as analysed under Porter’s model are thought of as specific for all the players in the industry. According to Murray (2010), the global business environment has gone through considerable development because of rapid pace of innovation making it necessary for researchers in the areas of management to develop a strategy that responds to the developments. Porters five forces is described as lacking the dynamic outlook of business strategies that can position an organization to take enter new markets and successfully create or sustain the market. Therefore, the five forces are castigated for being a formula that seeks to maintain the business in red oceans where existing sharks compete mercilessly for action. This background in business strategy provided a basis for the development of a new strategy that Kim and Mauborgne (2005) perceived as revolutionizing approach to perception about the market and competitors. Since introduction by Kim and Mauborgne (2005), blue ocean strategy has attracted scholarly research to assess its suitability as a new business strategy. Along with support of the strategy, there has been a number of criticism of particularly based on the assertion that blue ocean strategy is descriptive rather than prescriptive. Webber (2005) argues that the strategy is purely descriptive since the researchers conducted multiple case studies of successful innovations but analysis was limited to their own perspective of what successful business should entail. For Raith, Staak and Wilker (2007), Kim and Mauborgne do not provide a detailed explanation for strategy-making process involved in Blue Ocean with the authors noting the strategy process fails to present ways of appraising the offering level of competing factors for particular companies and the competitors. Further, there has been criticism about the researchers’ methodology with Yu Heng, Ngui and Voon (2011) noting that Kim and Mauborgne (2005) did not include a clear description of the approach and methods used in their studies. Therefore, it is argued that the blue ocean strategy as presented by Kim and Mauborgne (2005) does not have a formulated theoretical foundation. However, this criticism has also been followed with recommendations on how to improve the strategy to respond to the needs of business in the modern setting. According to Raith et al (2007), the methodological flaws contained in blue ocean strategy can be solved by adopting a decision-analytic approach to the development of blue the strategy. In this case, the author perceives quantitative methodology as being sufficient in measuring the strategic profiles in the strategy canvas obtained from the ex-post strategy analysis. Relevance of blue ocean strategy to today business challenges According to Kim and Mauborgne, blue oceans are created by adopting two distinct approaches: firstly, it is possible to introduce a new industry and secondly, expanding the boundaries of a red ocean to create a blue ocean in already existing industries. Based on these conceptions, blue ocean strategy is still relevant for businesses to address current situations. Although Kim and Mauborgne’s concepts can be used in reference to business organizations that were not in existence in the past 30 to 50 years and have found relevance in contemporary environment, the application has far-reaching consequences in the current business environment. Kim and Mauborgne’s concepts of blue ocean strategy are not limited to what might be termed as blue ocean companies. They refer to general strategic moves, which by implication are the managerial actions and decisions undertaken to as approaches in creating major market offering (Niciejewska and Dimitrov, 2009). Viewed in this perspective, industries such as the mobile phone, mp3 players and laptops were blue ocean strategy at some point in history. The blue ocean strategy is therefore relevant for business organizations whose managers are ready to invest substantial resources in areas that are yet to be explored by existing businesses. As Kim and Mauborgne (2005) note investment in blue oceans is not a guarantee for profits as there exists examples of those that have failed in their attempts to open and capture new market spaces. Therefore, companies in current business environment have to undertake a thorough market analysis with contingency plans to ensure the development of strategy-market fit. The current business environment is characterized by stiff competition that makes it difficult for many companies to reap maximum profit from existing markets. Finding new markets becomes an essential part of a company’s quest for sustainable business. Blue ocean strategy is an effective approach for organizations that seek to change approach in facing competition as it focuses on being different from the rest of players in the industry. Therefore, blue ocean strategy becomes essential for the success of any business as it ensure the management makes moves that will create a different product thereby, operating at a different level than competitors. Part of the relevance of blue ocean strategy is derived by the fact that traditional methods of making market analysis have become stale, therefore making it necessary that businesses develop new approaches to perception of markets and competitors. The proposition that value creation should be core to business strategies is a timely decision for businesses operating in current environment. There has been a change in business strategies where for instance, most of the leading companies have developed customer-cantered approaches in all their operations. Past strategies such as Porter’s five forces were focused on improving organizational efficiency in order to generate maximum profits. Such theories in management have minimal application in the current business environment since customers have become selective leading to production of goods and services that are customized for a small segment of the market (Niciejewska and Dimitrov, 2009). While internal realignment is important for the business to achieve success, it is important that such repositioning of the organization conducted with the aim of creating value for the customer. Strategic moves made by management should respond to the market by enhancing and creating value for the market in addition to eliminating particular organizational or product features with minimal value to contemporary or future markets. When adopting the blue ocean strategy Kim and Mauborgne (2005) advices companies to adopt the Four Actions Framework essential for creating value innovation and enabling these organizations break the value-cost 2. IPhone from Apple as an example of Blue Ocean Strategy Apple is one of the companies that have signified the importance of creating a new market through innovation. Steve Jobs, Steve Wozniak, and Ronald Wayneon founded the company in 1976 with a focus on production of PCs. PCs were considered as the new market in the electronics industry as companies took advantage of the discovery of the computer operating system. Therefore, Apple Computer operated as a manufacturer of PCs for over two decades, with products such as Apple II, Power Mac, and Macintosh being released to the market. However, the company experienced reduction in the volume of sales with the market share decreasing over the course of the 1990s forcing Apple management to reconsider role of the company in the industry. These difficulties led to the return of Jobs, who had been removed from the company after a series of in fighting with the company board members who considered his concepts expensive to implement and therefore a waste of resources, as there was no guarantee of market (Trelease, 2008; Cusumano, 2008). One of the reasons for Apples troubles during the 1990s has been noted as stiff competition occasioned by multiple companies such as Microsoft in operating systems and IBM in hardware. The company had failed to produce products that would enable it edge a head of competitors with products such as Macintosh considered expensive while failing to offer anything different from what competitors were offering. However, the return of Steve Jobs into management spelt a change of fortune as he sought to revolutionize the company (Katie, 2012). Changes in the approach to market were first signalled by the introduction of the iPod in 2001, marking the company’s transformation from a manufacturer of PC to other consumer electronics. The launch of iPad in 20012 was followed by the release of the initial iPhone version made available for the public from 29 June 2007. The launch of the iPhone presented an important shift in Apple’s strategy as it sought new market outside the PC platforms. This ensured the company did not face stiff competition from its traditional competitors such as IBM, Hewlett-Packard (HP), Dell and Microsoft. Making Blue Ocean strategies emerged as the difference between Apple and other companies as Apple was able to achieve sustained profitable growth while also revitalizing its declining electronics industry. The consumer electronics market was by the time of iPhone’s introduction very mature with minimal options for expansion. Additionally Apple had minimal chances of enhancing market share with the company’s decision representing a strategic move reshaping and revolutionizing the declining industry (Klaiber, 2013). The release and market success achieved by iPhone series indicates the importance of innovative approach to the market. As part of the blue ocean strategy, Apple introduced has successfully created a new market of smartphones did not exist before the introduction of the iPhone. As noted by Kim and Mauborgne (2005) blue oceans strategy involves companies with the ability to explore new markets that had not existed before by either developing new demand from existing industry or creating a new industry therefore generating demand. Apple has successfully created demand by introducing new features to existing phones therefore creating a new market from one that was already existing. Some of the features that made the first iPhone series a revolutionary concept were its large touchscreen with capacity for direct finger input, which departed from the use of keypads that was common at the time (Block, 2007). This approach in manufacture of smartphones implied Apple could not compete with other manufacturers of smartphones and other mobile phone gadgets. Therefore, this constituted value innovation as Apple successfully created a new feature that customers like. After introduction into the market, iPhones sales ensured Apple established a new market to leave behind the sales and market troubles of the 1990s since there was no competition from either the PC industry or mobile phone industries. This strategy is consistent with then assertions about blue oceans made by Kim and Mauborgne (2005) when noting that companies should not fight the market but move the market. The sales generated by iPhone series of phones means Apple has was able to develop the foundation necessary for defining the boundaries for smartphones as the new marketplace. Even with the innovativeness that saw Apple drastically improve its sales volume and profit margins, a number of critics that point out to the dwindling sales and increased imitation as a indicating the Apple will ultimately lose its market share. Apple is losing a significant portion of its market to competitions who are imitating the innovative features adopted in the smartphones and tablets. Additionally, it has been pointed out that Apple is not releasing new features but is now limited to upgrading of past concepts in the new iPhone versions. Therefore, there are suggestions that Apple has finally reached its highest point of creativity making it necessary for the company to re-evaluate its strategies. Critics of the blue ocean strategy have asserted that this approach is not sustainable as it is opened to imitation by competitions. Such imitations have been blamed for turning what was initially seen as blue oceans into red oceans. However, Kim and Mauborgne (2005) have accepted this fact noting that it is possible for blue oceans to transform into red oceans. The authors also note that this takes a number of decades providing an opportunity for the innovative company to continue reaping profits before this change occurs. This has been true of Apple and the iPhone series. Although companies such as Samsung and Nokia have entered the smartphone industry through Google’s android and Microsoft’s Windows technologies, Apple is still generating large profits from the sales of iPhone. The profit margins for the company might continue for a number of years before the new entrants can pose challenge to this market. Conclusion Blue ocean strategy has emerged as an important tool for companies that seek to be different from the rest in a particular industry. As opposed to red oceans, blue oceans reflect companies that seek to define and extend new markets instead of seeking approaches for sustainable competition with other companies. Blue oceans are therefore those that operate in markets and industries where competition does not exist. IPhone from Apple has been discussed as an example of application of concepts of blue ocean strategy. Release of iPhones into the market was characteristic of Apple’s shift from the mature and unprofitable PC industry to smartphone industry. The company avoided competition from players in the PC industry such Microsoft, HP, Dell, and IBM while also operating from a different level compared to mobile phone manufacturers such as Samsung. References Block, R., 2007. The iPhone is not a smartphone. Engadget, [online] 9 January. Available at: http://www.engadget.com/2007/01/09/the-iphone-is-not-a-smartphone/ [2 December 2014] Cusumano, M., 2008. Technology strategy and management The puzzle of Apple. Communications of the ACM, 51(9), 22-24. Harper, S. C., 2011. The ever-evolving enterprise: guidelines for creating your companys future. Santa Barbara, California: ABC-CLIO. Niciejewska, K., & Dimitrov, D., 2009. Business strategies: Blue Ocean Strategy: INSEAD School. München: GRIN Verlag. Katie, J., 2012. Critical marketing audit: The case of Apple Inc. München: GRIN Verlag Kim, W. C., & Mauborgne, R. (2005). Blue ocean strategy: How to create uncontested market space and make competition irrelevant. Boston, Massachusetts: Harvard Business Press. Menzel, A., 2014. CPLM Blue Ocean Strategy. München: GRIN Verlag. Klaiber, B., 2013. Anatomy of an Apple-The Lessons Steve Taught Us. Portland: BookBaby. Murray, A., 2010. The Wall Street journal essential guide to management: lasting lessons from the best leadership minds of our time. Ney York: HarperCollins. Raith, M.G., Staak, T. and Wilker, H.M., 2007. A decision-analytic approach to blue-ocean strategy development. In Kalcsics, J. and Nickel, S. (Eds), Operations Research Proceedings 2007. Berlin and Heidelberg: Springer. Thompson, A. A. & Strickland, A. J., 2003. Strategic Management: Concepts and Cases. New York, NY: Mcgraw-Hill. Trelease, R. B., 2008. Diffusion of innovations: smartphones and wireless anatomy learning resources. Anatomical sciences education, 1(6), 233-239. Webber, S., 2005. Strategy matters: in review. Across The Board, March/April, pp. 59-60. Yu, K. H., Heng, K. S., Ngui, L. H. and Voon, M. L., 2011. International Regimes and Non-regimes in Confucian (Corporate) Governance: A Critique of Blue Ocean Strategy’s Metaphor and Methodology” in Peter Kien-hong YU, International (Corporate) Governance: A One-dot Theory Interpretation, New York: Nova Business and Management Publications. Read More