Is Blue Ocean Strategy a Good Solution to the Challenges Facing the Fashion Industry - Example

Blue Ocean Strategy: A Solution to the Challenges Facing the Fashion Industry? Name Institution Course Date Executive Summary Strategic planning is a critical process in ensuring market leadership of any given firm. Most business organisations have relied on outperforming competitors as the basis of their strategy. In this regard, firms aim at outdoing each other through low-cost leadership or differentiation strategy. However, the sustainability of such approach which is also referred to us as Red Ocean has been questioned especially with the stagnated demand as compared to supply, decline of monopoly and standardisation of technology. The above realisation gave birth to a concept known as Blue Ocean. Anchored on the above, the aim of this report was to establish three issues. The first was to conceptualise what the term entails; the requisite elements within it and its relevance to fashion industry. To answer these concerns, apart from introduction and conclusion, the report has three main body parts. For blue ocean strategy, the report conceptualised it as a strategic approach where the focus is not anchored on competition, but on creation of new market place and new demand through value innovation thereby reducing need for competition and creating business strategies that are not easy to imitate. The third section examined and out the critical elements or process of blue ocean technology. The report established that the requisite elements under blue ocean strategy are two and include value innovation where businesses concurrently engage in low-cost leadership strategy and differentiation approaches so as to create products that are both of high value and low cost. Secondly it include creation of uncontested markets so as to cater for new demand through the ‘eliminate, reduce, raise and creation’ strategy. This helps in eliminating competition and creation of long lasting brand equity that is not easy to copy. Finally in chapter 4, the report examined the relevance of the blue ocean technology to fashion industry. Most of the discourse pointed that the relevance is tied to the two elements identified earlier in section 3 and creation of new demand through analysis of the existing non-customers. Table of Contents Executive Summary i Table of Contents ii Table of Figures ii 1.0 Introduction 1 2.0 Blue Ocean Strategy Concept 2 3.0 Critical Blue Ocean Elements and Processes 3 4.0 Relevance of Blues Ocean Strategy for the Fashion Industry 5 4.1 Value Innovation 6 4.2 Creation of Uncontested Market Places 7 4.3 Capturing new Demand 9 5.0 Conclusion 10 References 11 Appendices 13 Appendix 1: Elements of Blue Ocean Strategy 13 Table of Figures Figure 1: Value Innovation Strategy 4 Figure 2: Value creation for through service and service innovation 5 Figure 3: Four actions Framework 7 Figure 4: Indochino eliminate, raise, reduce & create strategy 9 Figure 5: Elements of Blue Ocean Strategy 13 1.0 Introduction Kim & Mauborgne (2004, p.3) notes that corporate strategy discourse and practice has been dominated by competition approach where the ultimate focus is to try and outdo each other within the existing market demand either through low-cost strategy or differentiation strategy which are applied singly. Nevertheless, they observe that with the changing dynamics as result of the fact that established markets are significantly reducing; technological advancement are improving thus, making it available to numerous players; trade barriers are falling; access to information on product and prices have expanded and monopolies are crumbling yet the demand is not commensurately increasing the competition strategy is not the most viable in the long run (p.2). In this context, they introduce the concept of red and blue ocean strategy whereby the red stands of the competition anchored approach while the blue stands for new approach of making competition irrelevant through value innovation. As such the premise of this report is to outline three issues related to blue ocean strategy. In regard to the above, the report conceptualise blue strategy; assess & outlines its critical elements and lastly, attest the relevance of the strategy to fashion industry. The report establishes that blue ocean strategy entails creation of new market space as opposed to the red ocean strategy that dictates to firms to try to outperform each other in a restricted market. Secondly, the report establishes critical elements or processes of blue ocean such as value innovation through concurrent application of low-cost strategy & differentiation strategy/ breaking the value/ cost trade-off; creation of new market space by reconstruction of market boundaries. Finally, the report found out that the relevance of blue ocean strategy is interlinked with the elements identified earlier as they lead to creation of barrier that makes it difficult to imitate a strategy fronted by a blue ocean firm. 2.0 Blue Ocean Strategy Concept To build a discourse on the concept of blue ocean strategy, it is paramount to tackle the concept in a comparative framework where the paper examines the two extremes which are Blue Ocean and Red Ocean so as to create a vivid picture of what it entails. In the present setting, Kim & Mauborgne (2004, p. 3) notes that the business aims at outdoing each other in regard to the existing demand. This is mostly influenced by porter’s model of pursuing either the strategy of low-cost leadership or differentiation strategy (Baroto, Abdullah & Wan, 2012, p.121). However, such approach is limiting and space for growth and profit is curtailed as the sector gets jumbled and products turn to be commodities (Kim & Mauborgne, 2004, p.3). Kim & Mauborgne (2004, p.3) conceptualises blue ocean as a strategic approach that is not anchored on the paradigm where business businesses seeks to outperform each other in regard to the existing demand by singly pursuing competitive strategies such as low cost leadership or differentiation. Instead, they posit that blue ocean entails creation of untapped market space through demand driven products and services thereby presenting a platform for explosive profitable growth. In a nutshell, they note that the whole concept is anchored on development of a new market niche or space that is unexploited or uncontested as opposed to the red ocean where business compete for or fight over the existing market share. This view is equally affirmed by other various literatures (see for example Giannoulis & Zdravkovic, 2012, p.119-120; Lindič, Bavdaž & Kovačič, 2012, p.930). 3.0 Critical Blue Ocean Elements and Processes Numerous works identify various elements that are synonymous with blue ocean strategy. In most of these literatures, the critical elements include value innovation through demystifying value/cost trade-off; creation of new market spaces that are uncontested therefore making competition irrelevant (see for example Lindič, Bavdaž & Kovačič, 2012, p.930-931; Kim & Mauborgne, 2004, p.5-9). The subsequent analysis and discussions centres around these two critical elements. For example see appendix 1. 3.1 Value Innovation Giannoulis & Zdravkovic (2012, p.119) indicates that blue ocean revolves around innovative solution formulation that dictates a paradigm shift from value creation to a paradigm of value innovation. The question that emerges is how is value innovation attained? In the competition oriented strategy/ red ocean, the principle is to either be a low-cost leader or engage in differentiation. Within this context, the hallmark of the whole encounter older approaches are discarded for new perspectives or the older perspectives are implemented in a fundamentally revolutionised manner where low cost and differentiation are undertaken concurrently as opposed to the red ocean where one of the strategies is pursued one at a time. Such approach presents a shift in thinking where value and cost are normally traded off. This leads to a mutual benefit as both customers and firm’s gains from such endeavours (Kim & Mauborgne, 2004, p.7). For instance figure 1 below diagrammatically represents how value innovation is attained. Figure 1: Value Innovation Strategy Source: Kim & Mauborgne, 2004, p.5. 3.2 Creation of Uncontested Market Places To restructure the existing market boundaries or create a new one where rules have not be formalised and profits are still high calls for business organisations to break away from the competition (Salvador & Reyes, 2011, p.31). The whole of this process is anchored on the Reconstructionist principle as opposed to structuralist or environmental determinist which restricts business strategist to adhere to economic forces larger than them. Instead, reconstructionist adopts a world view in which ‘market boundaries and industries can be reconstructed by the actions and beliefs of industry players’ (Kim & Mauborgne, 2004, p.7). According to Lu & Thawatthatree (2011, p.16) such views are imperative as they aid businesses organisations to ‘look beyond the contemporary competition and increase the market edge’. As such firms are able not only to address the primary core concerns of customers, but also supporting secondary desires. For instance see figure two below. Figure 2: Value creation for through service and service innovation Source: Bo Edvarsson 2009 cited in Lu & Thawatthatree, 2011, p.16. 4.0 Relevance of Blues Ocean Strategy for the Fashion Industry The fashion and apparel industry experiences numerous strategic & competitive issues. This has seen a decline in textile industry in developed nations and shifting it from one region to another (Jones, 2006). It has been established that the industry is demarcated by high levels of competitiveness and fragmentation. For instance, US marketplace has reduced in competitiveness as result of over capacity and reduced profitability (Parrish, 2008, p.2). This implies that businesses operating within this sector are prone to competitive threats which can contribute to limited sales, expanded overall cost, curtailed price points and decreased margins. Therefore it is imperative to come up with sustainable frames to outlive competition. In discussing the relevance of blue ocean strategy to the fashion industry, the report outlines four critical contributions it can make to fashion industry. These include value innovation, creation of uncontested market places and capturing new demand. 4.1 Value Innovation One of the relevance of blue ocean strategy to fashion industry rests on the ability to inform strategy formulators on how develop value innovation so as to stand out as compared to their competitors by being able to combine low-cost leadership strategy and differentiation strategy. The realisation is that most firms pursue one of these strategies by attempting at reducing overall cost with the hope of having higher margins or differentiating the product then selling it at a higher price (Ogutu & Samuel, 2012, p.70). However, Kim & Mauborgne (2004, p.7) notes that blue ocean demystifies this view by enabling firms to apply concurrently low-cost strategy and differentiation thereby leading to creation of a product that is of high value and comparatively low price and as a result, high growth is experienced. As Leavy (2005, p.14) puts it, the whole process is about combining value and innovation in concurrent occurrence. Fashion industry is a sector mostly demarcated with two extremes. A firm either operates as high end designers such as Hugo Boss, Calvin Klein and Ermanegildo or as low-price fast-fashion retailers such as H&M and Zara. However, firms like Indochino have been able to combine the two strategies over the web and apply them concurrently to their advantage. As such, they are committed to delivering high quality and highly fashionable menswear line at lower end of the pricing (Blue Ocean Strategy Canada, 2011, p.25-26). For instance, Indochino engages in ‘mass-customisation’ for high quality suits that retails at $350-$600 as opposed to high end players who retail the same at $2, 000. With their ‘1005 perfect fit promise’, a company that was initialised in 2007 had recorded $1million sales in 2009-2010 hence signifying 254% growth rate as compared to initial investment of $800, 000 capital investment (Cook, 2011). The end result of such value innovation is creation of barriers of entry that are difficult to imitate therefore making competition irrelevant. 4.2 Creation of Uncontested Market Places To attain this desire Kim & Mauborgne (2004); Leavy (2005, p.16) posits that there are six significant encounters that have to be undertaken. According to them these include examining across alternative industries; assessing complementary product & service, examining across strategic groups within the industry; looking across functional/ emotional appeal to buyer; examining across the chain of buyer and looking across time. Moreover, in building the uncontested market, it is imperative to apply the four action framework. This framework inform strategist on what should be reduced in regard to the existing industry standards, what should be created that the industry has never offered, what should be eliminated and what should be raised to met industry standards (Leavy, 2005, p.16). Figure three below is a diagrammatic representation on action framework for creating uncontested market places. Figure 3: Four actions Framework Source: Leavy, 2005, p.16 Premised on the above four actions framework, let take case example of Indochino and how they applied the four factors so as to build uncontested market place. The first was to eliminate the traditional approach of having physical store or retail outlets. Hence, they decided to adopt online platform where customers can place their orders with self taken measurements. This allowed the firm to cut operational costs on staffs and associated cost for operating physical retail outlets such as utility bills. Secondly, the firm deliberately decided to reduce the number of products they deal in by focusing on menswear. Additionally, they decided to reduce prices of the luxury brand from as high as $2, 000 to an average price of $500. This was necessitated as result of elimination of traditional costs associated with apparel industry as transactions are done online and all process outsourced from China (Blue Ocean Strategy Canada, 2011, p.29). On the other hand, the firm decided to raise the quality of menswear through customisation. This is the wonder magic combined with low cost as they are able to deliver high quality suits at low cost. They have equally raised their online presence in relation to how to take personal measurement through online tutorials. As such they are able to attract new customers. To sustain this approach, the firm created two new modalities. The first is the online trading and 100% guaranteed return policy for those whose customised measurement did not fit (Blue Ocean Strategy Canada, 2011, p.29-30). The above realisation is presented diagrammatically in figure 4. Figure 4: Indochino eliminate, raise, reduce & create strategy Source: Blue Ocean Strategy Canada, 2011, p.30. 4.3 Capturing new Demand The essence, blue ocean strategy is to capture new demand so as to make competition irrelevant. To capture new demand, a firm has to take cognisance of the fact that there are three categories of non customers that a business organisation can reach out to as proposed in blue ocean strategy theory. These are ‘soon-to-be’ noncustomers who have no allegiance to any brand and thus, are waiting for an opportunity join one. The second is the ‘refusing’ who deliberate, decide against the market. The third is the ‘unexplored’ noncustomers who are lying in distant markets. The theory appreciates that the first and last group of categories are the most suitable to target (O’Gorman, 2009, p.100-101). The current demand in apparel industry is either anchored on fast fashion- low cost that prioritises disposability and luxury fashion trends (Sherry et al., 2012, p.275). Using the case example of Indochino, let examine how they created new demand. In most scenarios, high-quality tailor made suit are meant for the rich and famous. However, the reality is that even the less rich or not famous individuals are equally in need of customised suits. This is exactly what they managed to do by opening the door on custom menswear to the masses trough online business platform where those who were initially not able to access high end suits or disliked low-quality suits can access their products (Cook, 2011). Most of the customers they captured could have been considered as ‘soon-to-be’ noncustomers or ‘unexplored’ noncustomers. 5.0 Conclusion The focus of this report was to examine and outline blue ocean strategy; the critical elements or processes of blue ocean strategy and the relevance of the strategy to fashion industry. The report established that blue ocean strategy is anchored on not competing on the existing demand, but to create a new market space. Secondly, the report identified that the critical elements in blue ocean technology are creation of uncontested market places, value innovation and creation of new demand. Lastly, the report through exhibits from Indochino menswear firm, the report established that three identified critical elements constitute the relevance of blue ocean strategy to fashion industry. References Baroto, M. B., Abdullah, M. M. B., & Wan, H. L. (2012). Hybrid Strategy: A New Strategy for Competitive Advantage. International Journal of Business & Management, 7(20). Blue Ocean Strategy Canada (2011). A study in value innovation: how Canadian companies compete in today’s economy. Retrieved on 1 April 2014 from: http://blueoceanstrategycanada.com/archive/pdf/bos_canada_white_paper_final_shrtpp.p df. Cook, J. (29 March, 2011). Indochino stitches together $4M, plans to revolutionize men’s suit design. Retrieved on 1 April 2014 from: http://www.geekwire.com/2011/indochino- stitches-4m-plans-revolutionize-mens-suit-sales/. Giannoulis, C. & Zdravkovic, J. (2012). Linking Strategic Innovation to Requirements: a look into Blue Ocean Strategy. Proceedings of Practice of Enterprise Modeling (PoEM 2012), CEUR, 933, 118-128. Jones, R. M. (2006). The Apparel Industry. Oxford: Blackwell Publishing Ltd. Joy, A., Sherry, J. F., Venkatesh, A., Wang, J., & Chan, R. (2012). Fast fashion, sustainability, and the ethical appeal of luxury brands. Fashion Theory: The Journal of Dress, Body & Culture, 16(3), 273-296. Kim, W. C., & Mauborgne, R. (2004). Blue ocean strategy: How to create uncontested market space and make competition irrelevant. Harvard Business Press. Leavy, B. (2005). Value pioneering–how to discover your own “blue ocean”: interview with W. Chan Kim and Renee Mauborgne. Strategy & Leadership, 33(6), 13-20. Lindič, J., Bavdaž, M., & Kovačič, H. (2012). Higher growth through the Blue Ocean Strategy: Implications for economic policy. Research policy, 41(5), 928-938. Lu, C., & Thawatthatree, A. (2011). Use value innovation to create competitive advantages in Blue Ocean: A case study of IKEA in Nanjing. O’Gorman, P. (2009). Wii: Creating a Blue Ocean The Nintendo Way. Palermo Business Review, 97-108. Ogutu, M., & Samuel, C. M. (2012). Strategies adopted by multinational corporations to cope with competition in Kenya. Strategies, 2(3), 69-82. Parrish, E., Berdine, M., Cassill, N., & Oxenham, W. (2008). Measuring the Competitive Advantage of the US Textile and Apparel Industry. In 2008 Industry Studies Conference Paper. Salvador, M. R., & Reyes, M. A. B. (2011). Methodology of Integration for Competitive Technical Intelligence with Blue Ocean Strategy: Application to an exotic fruit. Journal of Intelligence Studies in Business, 1(1). Appendices Appendix 1: Elements of Blue Ocean Strategy Figure 5: Elements of Blue Ocean Strategy Source: Kim & Mauborgne, 2004, p.5. Read More