Sustainability of the Blue Ocean Concept - Case Study Example

Sustainability of the Blue Ocean Concept Name Course code Institution Date Introduction The significance of the Blue Ocean concept is that while it is often crucial to try and successfully navigate in an intensely competitive and concentrated market by defeating the rivals, particularly when supply exceeds demand in an industry, sustaining growth and greater levels of performance would be difficult (Singh, A 2014). In which case, businesses should explore alternatives that go beyond the existing industries by creating blue oceans. The question regarding the sustainability of the Blue Ocean can, therefore, not be ignored. This essay answers the question using two narratives: whether companies can keep jumping out of the red into the blue, and second, whether companies can prevent other companies from ‘swimming’ in their blue oceans. It is argued that despite the fact that the Blue Oceans can ultimately become a red ocean over time, it is sustainable business strategy when businesses keep jumping out of the red into the blue, and when they prevent other companies from ‘swimming’ in their blue oceans. Theoretical background The Blue Oceans Concept theorizes that two types of hypothetical oceans exist: the blue oceans and the red oceans. The red oceans, which simply depict an existing marketplace, embody all industries currently in existence. On the other hand, the blue oceans, or simply a non-existent marketplace, represent the industries that currently do not exist (Kim & Mauborgne 2005). Therefore, a typical red ocean contains definite and recognised market structures and boundaries in the industry with identifiable competitive rules of the game. In the red oceans, fierce competition exists as businesses engage in strategies intended to outcompete their rivals to attain a greater market share. However, intense crowding of the market space leads to the narrowing of the profit prospects and limited business growth. On the other hand, blue oceans consist of a virgin market space, which demands innovativeness to create opportunities for more growth and profits. Therefore, the issue of competition is beside the point as rules of the game or competition are yet to be established (Kim & Mauborgne2004). While Blue Oceans can eventually become a red ocean over time, it can still be a sustainable business strategy when a business keeps jumping out of the red into the blue, and when the business prevent other companies from ‘swimming’ in their blue oceans. Companies can keep jumping out of the red into the blue Companies can keep jumping out of the red oceans into the blue oceans to ensure sustainability of the Blue Ocean Concept. This is specifically so since the odds of success within the red oceans are less than the odds for success in the blue oceans. An important issue, in this regards, is how companies can continuously increase the prospects of going beyond the boundaries, while increasing the barriers to entry (Kim & Mauborgne 2005). This is because for all kinds of businesses, there are usually numerous potential blue strategies that they can pursue. However, the key barrier is in deciding whether a possible blue strategy is viable commercially. Several paths exist that business can use to reconstruct their businesses to seek constantly newer market possibilities through the blue strategy. It is, therefore, reasoned that whenever a business faces risks of market saturations, it can often jump out of the red oceans into the blue oceans. This is because blue ocean strategies are essentially concern about minimising risks rather than taking risks. With focus on minimising risks, therefore, a business can always jump into a blue ocean (Hollensen 2013). Since the blue oceans can always be reconstructed, it is possible for businesses to discover often the new boundaries, hence making the strategy sustainable. Rather than play by the traditional rules, the businesses using the blue oceans strategies can often use competition as its benchmark for venturing into newly unexplored market space to make competition irrelevant. As Kim and Mauborgne (2005) observes, although the competition-based red oceans strategy hypothesises that the structural conditions of an industry are definite and, therefore, businesses should be compelled to outcompete each other within these structures, the blue ocean strategy is anchored in the perspective that the industry structure and boundaries of the market are not defined, and can, therefore, be reconstructed continuously by a business. This perspective is based on the Reconstructionist view. Additionally, since the existent market structures do not limit the innovativeness, thinking or creativity of the businesses managers, they can always jump into the blue ocean, as the strategy is sustainable. According to Kim and Mauborgne (2004), the market boundaries and structures only exist in the minds of the managers. However, when the business managers hold the Reconstructionist perspective, they do not allow the current structures of the market to restrict or delimit their innovativeness or thinking. In which case, an additional demand often exists in an unexplored market space, which lies untapped. In return, this demands changing of focus from supply to demand, from concentrating on competition to concentrating on quitting the competition and venturing into a new and unexplored market space. The latent capacity to stimulate the demand side of the economy by expanding existing markets and creating new ones also allows businesses to jump into the blue oceans whenever an existing industry becomes unattractive. This makes the blue ocean concept sustainable. Kim and Mauborgne (2005) explain that within the Reconstructionist view, the notion of attractive or unattractive industry does not necessarily exist, as the degree of the attractiveness of an industry can often be changed based on a business’ meticulous efforts to reconstruct. Kim and Mauborgne (2005) add that since the reconstruction process facilitates the altering of a market structure and the rules of the fame, companies can often jump to the blue ocean to render competition irrelevant. In the process of jumping to the blue ocean, a company gets to stimulate the demand side of the economy. The blue ocean strategy expands existing markets and creates new markets. Companies can prevent other companies from ‘swimming’ in their blue oceans Jumping into the blue ocean is sustainable strategy as companies can prevent other companies from ‘swimming’ in their blue oceans by creating value for customers (cognitive values) while simultaneously cutting costs. As Kim and Mauborgne (n.d.) explains, jumping into the blue oceans is essentially concerned with lowering costs while at the same time increasing value to the customers. In turn, this enables a company to increase simultaneously the value for the customers and the company (Dalken 2008). As the customer’s value emanates from the utility of the good or service, and the price offered by the company, and because the company’s value is created from price, as well as the cost structure, a blue oceans strategies is realised once all of the company system’s price, utility, and cost measures become favourably aligned (Jorgensen 2008). Creating barriers through economies of scale to imitation also enables companies to prevent other companies from jumping into the blues oceans. Businesses that often create blue oceans benefit from a sustainable strategy that allows them to enjoy significant profits with formidable challenges for between 10 and 15 years (Kim & Mauborgne 2005). One reason for this is the sustainable nature of the blue oceans strategy, specifically as it creates significant cognitive and economic barriers to imitation. This is because companies that jump into the blue oceans strategy tend to attract immediately a large customer base, which allows them to create economies of scale fast. In turn, this puts the likely competitors at a persistent cost disadvantage (Burt 2011). For instance, Wal-Mart currently enjoys high economies of scale, which has considerably stopped other businesses from copying its business model. Immediate attraction of a huge number of customers also has a potential to generate network externalities, which in turn creates imitation barriers. For instance, since eBay has more customers on the internet, it has become a highly sustainable auction website for buyers and sellers of merchandise, hence providing customers with little incentives to move to the competitors (Kim and Mauborgne 2004). The companies can also use the whole system approach to create significant imitation barriers. In other words, the imitation should demand that the likely competitors make entire changes to the whole system of their activities. In such situations, Kim and Mauborgne (2005) explain that politics within an organisation is likely to hinder the likely competitors from jumping into the blue ocean, or using the business model that a business uses in the blue ocean. An example is the case of Southwest Airlines, which offers flexibility in terms of speed of travel, low pricing, marketing and training to facilitate unique organisational cultures. In such a model, minimal large airlines have the flexibility to make significant operational and organisational changes within a short time. Therefore, imitating a similar model would not be practicable within a short time. Conclusion In the end, despite the fact that the blue ocean can ultimately become a red ocean over time, it is sustainable business strategy when businesses keep jumping out of the red into the blue, and when they prevent other companies from ‘swimming’ in their blue oceans. Companies can keep jumping out of the red oceans into the blue oceans to ensure sustainability of the Blue Ocean Concept, as the blue oceans can always be reconstructed, allows businesses to often discover new boundaries, does not limit the innovativeness, thinking, or creativity to create new demands of the businesses managers. Sustainability of the concept can also be attained when businesses creating imitation barriers through economies of scale, generating network externalities, creative cognitive value and using the whole system approach to create significant imitation barriers. References Burt, G 2011, Blue Ocean Strategy sustainability and renewal, viewed 15 April 2016, Dalken, F 2008, Are Porter’s Five Competitive Forces still Applicable? A Critical Examination concerning the Relevance for Today’s Business, viewed 15 April 2016, Hollensen, S 2013, "The Blue Ocean that disappeared – the case of Nintendo Wii," Journal Of Business Strategy, Vol. 34 No. 5 Jorgensen, J 2008, "Michael Porter’s Contribution to Strategic Management," Revista Base, vol 5 no 3, pp.236-238 Kim, C & Mauborgne, R 2004, "Blue Ocean Strategy," Harvard Business Review, October 2004 Issue Kim, C & Mauborgne, R 2005, “Blue Ocean Strategy: From Theory to Practice," California Management Review, vol 47 no 3, pp.105-121 Kim, C & Mauborgne, R n.d., How to Create Uncontested market Space and Make the Competition Irrelevant, viewed 15 April 2016, Singh, A 2014, "The evolution of blue ocean strategy: The ideas that shaped a century and its companies," International Journal of Research, Vol. 5, Issue 1, pp.69-80’ Read More