Blue Ocean Strategy and the Ecological Business Strategy: Capturing the Market - Case Study Example

Blue Ocean Strategy and the Ecological Business Strategy: Capturing the Market Introduction Many definitions of strategy highlight the idea that it entails the general path wherein the business organisation is operating, tackling broad issues such as where the business is headed to, as well as more precise questions like what kind of business should the organisation pursue (John & Gillies 1996). Johnson and Scholes (1993, as cited in John & Gillies 1996, p. 176) provide a definition of strategy (John & Gillies 1996, p. 176): “Strategy is the direction and scope of an organisation over the long term: ideally which matches its resources to its changing environment…” Two of the most relevant business strategies today are the blue ocean strategy and the ecological business strategy. This paper introduces both these strategies and afterwards presents a case study for each of these strategies. Blue Ocean Strategy W. Chan Kim and Renee Mauborgne, in their book Blue Ocean Strategy—How to Create Uncontested Market Space and Make the Competition Irrelevant (2015), particularly offer the advice to pay attention to opportunities that pursue open waters or ‘prospects’ in the blue ocean instead of exerting too much effort trying to overpower the rivalry in the prevailing industry, or, as the authors call it, ‘red ocean’. On the contrary, the blue ocean strategy could be demonstrated by eBay’s online auction by moving into a ‘competitor-less’ market (Siegemund 2008). Old-style competitive models, doing business in the red ocean, focused on defeating the competition in the prevailing market. Michael Porter argued that organisations have to reach a strategic decision between adopting a lower cost structure or differentiation (Siegemund 2008). On the other hand, the blue ocean strategy places emphasis on the open or ‘uncontested’ market by developing or introducing a product/service that is inimitable in a certain market where competition is non-existent, hence rendering competition unimportant. Instead of vying in a prevailing demand setting, the blue ocean strategy tries to raise and expand new demand for its products/services (Koontz 2010). All industries non-existent at a certain stage can be classified as blue oceans until their formation. Competition in these newly formed industries is immaterial for a given duration of time, because the company fully controls the market automatically until competition could enter it, altering the structure of the market and forcing the company to change their strategies to more competition-oriented ones (Koontz 2010). The pioneers of Blue Ocean Strategy indicate their unique ‘strategic logic value innovation’ (Siegemund 2008, p. 27) and refer to it as the foundation of their theoretical model of creating ‘new uncontested market space’ (Siegemund 2008, p. 27). The major dissimilarity with other strategic models is that the company’s management places emphasis on getting rid of the competition through generating further value for the company and its customers. As explained by Kim and Mauborgne (2005, p. 16): [..] Value innovation is created in the region where a company’s actions favourably affect both its cost structure and its value proposition to buyers. Cost savings are made by eliminating and reducing the factors an industry competes on. Buyer value is lifted by raising and creating elements the industry has never offered. Over time, costs are reduced further as scale economics kick in due to the high sales volumes that superior value generates. The making of blue oceans entails reducing the costs while at the same time enhancing customer’s value. To take advantage of the blue ocean and to remove competition, the pioneers developed a diagnostic structure and instrument for action referred to as ‘The Strategic Canvas’ (Koontz 2010, p. 115). This instrument finds the vital related aspects in an industry wherein companies face competition. These aspects are different for different industries. For instance, in the airline industry these aspects could be the quality of the service, the meals, the airfare, etc. For companies wanting to exploit a blue ocean strategy, four steps must be taken into consideration. First, find and remove those aspects that could be irrelevant to the customer. Second, if removal is not an alternative, try cutting down those aspects. Third, create or toughen those aspects that are hard to imitate or are unique. And, lastly, build unique and new aspects that are desired by the customers but are disregarded by the competitors (Koontz 2010). In summary, a blue ocean strategy integrates the disbelief related to most entrepreneurial efforts. It pursues what existing companies in the industries ignore. It pursues industries where companies are unworried and overconfident. It examines all factors in the industry and defies traditional knowledge and principles. It afterwards seeks ways to create additional value for its customers and ways to actualise what competitors and customers think are not possible. It inspires every company to vie against itself in working for the market, instead of contending against other companies (Kim & Mauborgne 2015). In other words, it motivates companies to formulate strategies that make competition unimportant. Blue Ocean Strategy: Southwest Airlines Southwest Airlines explored a new price category in its market where only a small number of competitors had ever tried in the past. The company created a new business framework for the airline industry by launching the low-fare type of carriers. By creating other alternatives to what was offered at the moment, Southwest Airlines created a blue ocean strategy way prior to the introduction of the concept (Lauer 2010). Kim and Mauborgne explains, “Southwest Airlines concentrated on driving as the alternative to flying, providing the speed of air travel at the price of car travel and creating the blue ocean of short-haul air travel” (Lauer 2010, pp. 49-50). Through these measures, the company created a blue ocean from the new market it cultivated using a bottom-up approach (Lauer 2010, p. 50): Southwest Airlines created a blue ocean by breaking the trade-offs customers had to make between the speed of airplanes and the economy and flexibility of car transport. To achieve this, Southwest offered high-speed transport with frequent and flexible departures at prices attractive to the mass of buyers. By eliminating and reducing certain factors of competition and raising others in the traditional airline industry, as well as by creating new factors drawn from the alternative industry of car transport, Southwest Airlines was able to offer unprecedented utility for air travellers and achieve a leap in value with a low-cost business model. By proving to the airline industry that a substitute to the hub-and-spoke systems adopted by majority of the other leading airlines is possible, Southwest Airlines introduced a new means for passengers to fly, in addition to a new means for present-day airline firms to generate profit (Kim & Mauborgne 2015). At present, passengers are not bound anymore to the simulated flight structures formed by the drawing off passengers into the major centres of leading airlines in cities at times far away from a direct flight route between cities due to the ground-breaking business model of Southwest Airlines (Lauer 2010). Concerning Southwest Airlines’ strategic description it shows its unique value curve in comparison to the regular airlines in the United States and to car transportation. The company concentrates with their newly formed value curve on the aspects ‘frequent point-to-point departures’, ‘speed’, and ‘friendly service’ (Kim & Mauborgne 2015, p. 39). In contrast, the aspects ‘hub connectivity’, ‘seating class choices’, ‘lounges’, ‘meals’, and ‘price’ were cut down and deemphasised (Kim & Mauborgne 2015, p. 39). Southwest Airlines generated a blue ocean by offering passengers the choice of using a high-speed transportation with affordable prices and regular departures (Lauer 2010). In order to attain such, according to Kim and Mauborgne (2015), the company removes and lessens a number of factors considered competition elements in the industry and regards them unimportant for their new target market, so as to redirect their resources into the new core strategy. Ecological Business Strategy Companies generate economic value. The products and/or services they create and develop, which are also an outcome of a conversion of material energy and inputs by means of technological and labour tools, satisfy customers’ needs and demands. By selling products and/or services the company obtains financial gains that owners eventually get back (Boons 2009). Nevertheless, this economic value has an adverse side: these actions unavoidable change the natural ecologies wherein they occur by consuming natural resources, increasing the quantities of new materials or resources, and generating wastes that affect ecological mechanisms. These ecological outcomes influence not just the entities included in the economic transactions, they could influence those communities situated close to production infrastructures as well as populations residing in other places across the globe or even future generations (Boons 2009). Because of the broad array of potential ecological effects and the imperfect methods of evaluating that effect, a company’s ecological strategy is rooted in a clear or implied evaluation of what ecological outcomes are to be taken into consideration (Stead 2014). In such regard companies are included in generating value through their operations that could lessen their ecological effect, but they also contribute to the definition of what is regarded to be an ecological effect (Boons 2009). Corporate sustainability places emphasis on three major organisational factors such as financial, environmental, and social performance. It addresses the ways to manage and bring together human activities in such a manner that they fulfil psychological and physical needs without sacrificing the economic, social, and ecological foundation which allows these demands to be satisfied (Aras et al. 2012). The core principle of the ecological business strategy or sustainability is that companies must not seek economic benefits to the detriment of future generations, ecology, and society. Within the perspective of ecology, the goal of market strategy is achieving and sustaining a profitable match between an organisations and its immediate environment. Within the realm of business, just like in the biological realm, survival of the fittest is the game. Obviously, not like animals and plants, business leaders could wilfully make an effort to influence or mould the environments wherein their businesses are operating (Aras et al. 2012). The ecological model of business strategy, enhanced with several principles from game theory, sums up how business leaders generally tackle strategy. Business strategy basically denotes how the business works within its broader environment. According to Bansal and Hoffman (2012), management-oriented discourse usually describes this environment in relation to social actors and their interconnections. The ecological business strategy questions the above assumption: first, it spreads outside the social environment to involve ecological and physical factors, and, second, it suggests a system boundary for dealing with environmental effects that are outside the organisation. The level to which the ecological business strategy largely focuses on the enhancement of the productivity of current operations instead of placing emphasis on more essential adjustments of industrial systems is a continuous issue (Bansal & Hoffman 2012). Such issue could be shifted into the question regarding the level to which the ecological model is adopted as a strategic, instead of an operational, action by companies. The ecological business strategy could create competitive advantage, particularly when it is all about harnessing resource efficacies that positively influence cost management. In addition, implementing doctrines of design for environment (DfE) could result in the creation and improvement of products that demand other business approaches (Bansal & Hoffman 2012). A firm’s ecological strategy is determined largely by the type of organisation it is or desires to be. However, the decision can be influenced as well by the business environment wherein it is operating—the overall extent of instability and the intricacy of its connections with others in the ecological unit (Iansati & Levien 2004). The ecological business strategy can enable the integration of environmental issues into business operations by means of new product development. In the sustainable supply-chain discourse, reducing risks has been classified as a central motivation (Bansal & Hoffman 2012; Iansati & Levien 2004). Within that setting, risk is understood primarily in relation to the level to which a company may lose acceptability because of the environmental and social effects of its products, services, and/or operations. Nevertheless, according to Bansal and Hoffman (2012), in recent times, the problem of supply security is being paid with greater attention. As resources increasingly become scarce, and the locations where they are mined more politically unstable, the security of supply is threatened. Ecological Business Strategy: Johnson & Johnson Johnson & Johnson discovered that an ecological business strategy strengthens their productivity and profitability. According to Stead (2014, p. 122): “between the years 2004 to 2009, the firm invested US$187 million in more than 60 energy reduction projects that have reduced carbon emissions by 129,000 metric tons annually.” The company’s senior director for worldwide health and safety stated that, “Waste is a cost to the corporation… and, of course, the less waste you send out of your gates, the less expensive it is to make your product” (Stead 2014, p. 122). Johnson & Johnson has long been using scientific knowledge and making efforts to understand the essential needs of the people and the healthcare sector to seek or create new answers for humanity, and its future (Singh 2013). The company has been led by deep-rooted standards for more than six decades. The Chairman of the Board of Directors and CEO, William C. Weldon, repeatedly mentioned the company’s philosophies and ethical codes (Rainey 2010, p. 305): Johnson & Johnson is governed by the values set forth in Our Credo, created by General Robert Wood Johnson in 1943. These principles have guided us for many years and will continue to set the tone of integrity for the entire Company. At all levels, the employees of Johnson & Johnson are committed to the ethical principles embodied in Our Credo and these principles have been woven into the fabric of the Company. Johnson & Johnson is valued, esteemed, and appreciated far and wide. It was one of the companies included in the Global 100 Most Sustainable Corporations in 2006. Moreover, since 2000, the company has never left the list of Dow Jones Sustainability Index (Rainey 2010, p. 305). Johnson & Johnson has a strong tradition of recognising the expectations, needs, and demands of the outside world. Its primary obligations as stated in its Credo are to the communities, the employees, the customers, and finally the stockholders. The company integrates input from every internal player and outside stakeholder into the strategic planning, implementation, and analysis (Singh 2013; Rainey 2010). Outside entities give important ideas about expectations and needs, arising problems that demand focus, and the necessary goals and business models. The company’s image of international obligations was stated in its Sustainability Report of 2003 (Rainey 2010, pp. 305-306): Caring manifests itself in our corporate giving, as we reach out to support social and public health programmes as well as medical educational initiatives around the world. Through these efforts, we strive to help establish structures that will bring lasting improvements, not just short-term relief. Our corporate contributions are an investment toward a healthy global future. The company places great importance on the community, the employee, the customer, and the stockholder (Singh 2013; Rainey 2010). Johnson & Johnson’s more comprehensive model guarantees that every stakeholder is taken into account and the prospects are sought and harnessed. Conclusions Two of the most important business strategies today, given the cutthroat competition and environmental problems caused by business activities, are the blue ocean strategy and the ecological business strategy. The blue ocean strategy is primarily used by companies, such as Southwest Airlines, to eliminate or reduce competition. On the other hand, the ecological business strategy is adopted by companies, such as Johnson & Johnson, to build brand reputation and thus enhance corporate profitability. Companies choose their business strategies depending on their vision and immediate internal and external concerns. 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