Blue Ocean Strategy - Essay Example

?Blue ocean strategy Blue ocean strategy Introduction According to Kim and Mauborgne, competition in a crowdedmarket is not the way to sustain higher performance thus firms must seek opportunities to create blue oceans of the uncontested markets. Blue ocean strategy refers to creation of new and uncontested markets spaces whereby competition is irrelevant due to new customer value (Kim and Mauborgene 3). On the other hand, red oceans represent industries that are currently in existence and where competition rules are well defined. Unlike red oceans, blue oceans create demand from the red oceans by breaking the boundaries of competition (Kim and Maubourgne, 2005). For instance, companies like music recording multinationals, management consulting and pharmaceuticals were hardly heard of in the last 100 years. In this case, companies will have the opportunity to re-create others in order to reflect the emerging realities in economic growth and blue oceans. The authors assert that technological advancements, increased deregulation of markets and improved industrial productivity will enhance creation of blue oceans. Saturation of the developed markets has resulted in to price wars and shrunk profit margins thus the need of a blue ocean strategy (Niciejewska and Dimitrov, 2009). Surprisingly, the authors point out that 86 percent of the surveyed companies seem to be comfortable in red oceans since they have only line extensions while only 14 percent are committed at creating new markets. It is interesting that the survey found out that 14 percent of the firms that invested in new market development delivered 38 percent of the revenues and impressive 61 percent of total profits. On the contrary, the 86 percent of firms concentrated on line extensions thus delivering 62 percent of the total revenues and only 39 percent of the total profits (Kim and Mauborgene 4). The article explains the imbalance towards red oceans as occasioned by a military strategy of the chief executives that is geared at competing with opponents in the concentrated market. On the other hand, blue oceans focus on entering markets without competitors. The authors make it clear that companies that rely on red oceans deny the ability to use the distinctive capabilities of the business in entering new markets. The authors provide an example of Japanese companies of 1980s due to decline of Western companies in droves. The authors agree that competition is important, but companies must attain competitive-advantage and develop markets with minimal or no competition (Warren, 2008). The authors go ahead to provide the logic behind the creation of blue oceans. The article outlines that new technology and innovation will create blue oceans. Some of the blue oceans that have been created by new technology include Ford Model IT and Apple Personal computers. Incumbents also create blue oceans within the existing business like AMC multiplex of 1995 and Palace theaters of 1914. The authors assert that strategic moves define blue oceans and no the size of the industry or companies. Accordingly, blue oceans build existing brands through creating brand equity just like Ford’s Model T that still benefits the company today (Kourdi, 2009). The article differentiates the red oceans from blue oceans since Red Ocean strategies compete in the current market space while blue oceans create new uncontested markets. Red oceans aim at beating competition while blue oceans desire to make completion irrelevant. In addition, blue oceans break the value to cost trade off unlike red oceans that make the value to cost trade-off (Koontz and Weihrich, 1990). The authors offer a deep explanation of blue ocean strategy by asserting that such companies reject the fundamental strategies of competition that aim at creating more value for customers or lowering operating costs. The authors offer an example of Cirque du Soleil since at the time of market entry Circuses were benchmarking without raising market revenues. Cirque did not follow the traditional logic of beating competition, but it redefined the problem and offered people the trill and sophistication of the theater. The demand for animal shows was declining due to animal rights concerns and boredom with stars as circus artists. Cirque kept clowns and shifted humor to and redesigned the tents. Cirque created sophisticated entertainments through multiple productions, themes and story lines thus entering in a new uncontested market (Harrison and John, 2010). The authors are critical that blue ocean strategy is attained when customer value, prices and costs of the whole organisation are aligned. Blue Ocean rejects that notion that firms compete in a pre-determined economic structure since it asserts that competition boundaries can be reconstructed to create new markets. In addition, such companies reap benefits for more than 10 years just like Federal Express and Southwest Airlines. Blue oceans create barriers of imitation since the companies create large economies of scale immediately and enjoy cost advantages just like Wal-Mart and eBay thus creating customer switching costs. Imitation is also made impossible by company politics and need to change the entire business model and train employees on the new culture. Not even the expensive marketing campaigns can unseat a blue ocean company in the market (McLoughlin and Aaker, 2010). The authors reject the misconception that blue ocean is about new products, new technologies and extension of product lines. The authors have clarified that Blue Ocean entails looking beyond the competition boundaries and making a strategic move that reconstructs the boundaries (DuBrin, 2009). The reconstruction of boundaries will create value for customers and present new demand through value innovation (Peng, 2009). Blue oceans can be created with or without new technologies just like the case of Starbucks. However, I believe that both red ocean strategies and blue ocean strategy are both needed in a business since red ocean strategies still provide revenues and profits for some organisations. The authors reject the misconception that Blue ocean strategy is customer oriented by asserting that it aims at creating new demand and capturing the mass market. The strategy is different from traditional market segmentation Blue ocean is not short term since companies must start by offering new offerings and pricing the products in order to capture the mass market. Conclusion Blue ocean strategy originates from the history of industrial evolution and strategic moves done by different companies. Blue ocean strategy aims at reconstruction of competition boundaries and creating new uncontested markets. Blue ocean strategy provides a systematic process of innovation in both new and existing firms. Unlike red ocean strategy, blue ocean strategy does not seek to beat competition, but to create uncontested markets thus making competition irrelevant. Red ocean strategy aligns the strategic decisions to low cost or differentiation in order to create value, but Blue ocean strategy simultaneously pursues both low cost and differentiation strategies thus driving customer value. From the above discussion, it is clear that Blue Ocean aims at reaching beyond the existing market and beating the organisational hurdles through reconstruction of market boundaries and value innovation. References: DuBrin, A.J. 2009. Essentials of management. Mason: Thomson Business & Economics. Harrison, J.S and John, C.H. 2010. Foundations in strategic management. Mason: Cengage Learning. Kim, W.C and Mauborgene, R. “Blue Ocean strategy”, Harvard Business review. October 2004. P 1-11. Kim, W.C and Maubourgne, R. 2005. Blue ocean strategy: how to create uncontested market space and make the competition irrelevant. Boston: Harvard Business School Press. Koontz, H and Weihrich, H. 1990. Essentials of management. New York: McGraw-Hill. Kourdi, J. 2009. Business strategy: a guide to taking business forward. London: Economists Association. McLoughlin, D and Aaker, D. 2010. Strategic market management: global perspectives. New Jersey: Wiley. Niciejewska, K and Dimitrov, D. 2009. Blue ocean strategy INSEAD School. Muchen: Verlag. Peng, M.W. 2009. Global strategy. Mason: Cengage Learning. Warren, K. 2008. Strategic management dynamics. New Jersey: Wiley & Sons. Weihrich, H., Koontz, H and Cannice, M.V. 2010. Management: a global and entrepreneurial perspective. New Delhi: McGraw-Hill. Read More