Managing Strategic Design - Book Report/Review Example

"The only way to beat the competition is to stop trying to beat the competition..." says W Chan Kim (2005), the of the bestseller - Blue OceanStrategy. In order for the companies to win in the future, they must stop competing with each other and instead focus on expanding their market space. With the current technological stage, productivity levels are high, supply exceeds demand, and the prices are falling. Globalization facilitates new entrants in an existing market with lower production costs. The creation of new markets which spotlights the non-customers in order to create demand has become an essential business strategy for survival and growth. The book - Blue Ocean Strategy, describes the marketplace as two kinds of ocean - red, which are crowded and small, and blue, which are uncontested and unexplored. Red oceans and blue oceans make up the market world. Red oceans are considered as the industries and all known market space. On the other hand, blue oceans are industries not in existence or unknown market space. Under the red ocean, industry boundaries have been defined and accepted. The rules of the game in the competition are already known where companies try to outperform rivals. As market space gets crowded, the potential for profit and growth are reduced where the products become commodities due to hyper-competition. The red ocean strategy is considered as a market-competing strategy. Blue oceans have undefined market space where demand is created and opportunity for profitable growth is high. Blue oceans can be created by expanding existing industry boundaries within red oceans. The rules of the game in the competition are waiting to be set yet where competition is still irrelevant. The blue ocean strategy is a market-creating strategy. There is a rising necessity for companies and businesses to create blue oceans. The supply is exceeding demand in most industries and global competition is increasing. These situations create accelerated commoditization of products and services, increase price wars between competitions, and shrink a company's profit margin. In other words, the red oceans have become bloodier to play at such that companies need to be concerned with creating blue oceans. However the concept looks fresh and new, blue oceans have been around some time in the business cycle. It is a part and feature of business. The market as well as the industries never stands still, it is constantly evolving. There have been significant expansion of blue oceans over the years but companies still focus on red ocean strategy. This may be due to the fact that corporate strategy is influenced by military strategy that focus on winning battles not on exploring new and uncontested market space. The cornerstone of blue ocean strategy is value innovation. Value innovation means equal emphasis on value and innovation. It defies the traditional concept of value-cost trade-off employed in competition-based strategies. Successful value innovation drives down costs while driving up buyers' value. It uses a whole-system approach that follows a re-constructionist view. The blue ocean strategy creates value while making customers comfortable and make them pay for such comfort and convenience. The red ocean strategy competes in existing market space with the corporate objective of beating the competition and exploiting existing demand. It makes the value-cost trade-off and aligns the whole system of the company's strategies and activities with its choice of differentiation or low-cost. On the other hand, blue ocean strategy creates uncontested market space with a goal of making competition irrelevant and capturing new demand. It breaks the value-cost trade-off and aligns the whole system of the business's activities in pursuit of differentiation and low cost. For a new business that aims to create new demand or an existing business that targets to expand its boundaries and capture uncontested market, the blue ocean strategy enumerates six principles as a guide. 1. Reconstruct market boundaries 2. Focus on the big picture, not the numbers 3. Reach beyond existing demand 4. Get the strategic sequence right 5. Overcome key organization hurdles 6. Build execution into strategy In order to reconstruct market boundaries, companies that intend to create a blue ocean market space, they must follow the four action framework - Eliminate-Reduce-Raise-Create. The framework has the following principles: Factors that the industry takes for granted should be eliminated such as factors that have been long competed on. Companies should move the focus from benchmarking competitors but instead find out if there are changes in what buyers' value. Factors below the industry's standards should be reduced. Companies should determine if products are overdesigned and has incurred no gain but pain in costs. Factors above the industry's standard should be raised by eliminating the compromise that customers have with the industry. And factors the industry has never offered should be created through new source of value and creation of new demand with strategic pricing of the industry. Blue ocean strategy looks across alternative industries and does not focus on rivals within the industry. It looks across strategic group within the industry and does not focus on competitive position within such strategic group. It redefines the buyer group and does not focus on better serving the specific buyer group. Blue ocean strategy looks across complementary products and offerings while participating in shaping external trends over time. If the principles are followed correctly, the risk factors to the business are attenuated and minimized. Blue ocean strategy is about creating new market space without taking too much risk on the business. The company must prepare its organization in shifting its strategy by reorienting the focus from competitors to alternatives and from customers to non-customers. Moving the focus from competitors and customers will develop new insights in creating new solutions and new values, better buyer elements, as well as creating market space across industry boundaries. The conventional strategic planning tends to drive companies into the red ocean. To see the big picture, the company needs a visual awakening, a visual exploration, a visual strategy fair and a visual communication. Visual awakening is comparison of one's business with the competition and seeing where the strategy needs to change. Visual exploration is going out into the field to investigate the alternatives and see what factors should be eliminated, reduced, changed or created. Visual strategy fair is getting feedback on alternatives from customers, competitor's customers and noncustomer, then, drawing one's strategy from these feedbacks. Visual communication is distributing the future strategies and choosing only those that allow the company to close the gaps to realize the new strategy. The conventional strategic initiatives are with focus on existing customers to retain and expand market share. To reach beyond the existing demand, companies need to focus on noncustomers by seeking on the same interest that customers' value and aggregating a new mass of customers. The strategic sequence of the blue ocean strategy is buyer utility first, followed by price, cost and adoption. Buyer utility involves customer productivity, simplicity, convenience, risk, image and environmental friendliness. Strategic pricing ensures that customers will want to buy and will have the compelling ability to achieve it. After all, price is where the revenues flow - the bloodline of every business. Target costing addresses the profit side of the business. The strategic price is defined and deducted with the desired profit margin in order to arrive at the target cost. It is strategic for a company to reach a cost structure that allows profitability which is hard for competition to follow. Adoption involves addressing concerns of employees, business partners and general public in order to avoid resistance and fear. It is developing awareness to communicate the advantages that everyone will have over the success of the strategy. After accomplishing this sequence, the company will have a commercially viable blue ocean idea. Implementing and executing a blue ocean strategy is a challenge where some issues need to be addressed and barriers must be overcome. These organizational barriers include the resistance of the people to change, the limited resources available, and the motivation of the key players to persevere, go faster and quickly change. The organization is everyone from top management to front line employees. This means that the organization is made by people and each one is important. Everyone must be aligned around the strategy and needs to support it. It is essential to create a culture of trust and commitment in order to execute the strategy. This can be achieved not only through a written document but with a coalition of spirit, heart and mind of the people involved and affected by the new strategy (Mintzberg, 1994). Building execution into strategy mitigates management of risk, distrust, noncooperation and sabotage. Implementation and execution can be successful when it is fair and transparent. The strategy formulation needs to have engagement, explanation and expectation clarity. The company's attitude needs to have trust and commitment. The people's behaviour needs to be cooperative and voluntary. And the strategy execution needs to exceed expectations by being self-initiated. A fair process includes intellectual and emotional recognition while an unfair process includes intellectual and emotional indignation. A fair process centres on trust and commitment while an unfair process lies on distrust and resentment. A fair process is voluntary cooperation while an unfair process is refusal to execute. For a new business, creating blue oceans is a dynamic process. Sooner or later competition will crop up and follow the business's strategy or rival in the new market space. New business must consider the barriers of imitation. 1. Value innovation does not make sense when based on conventional strategic planning. 2. Brand image conflict prevents competitors from imitating. 3. When size of the market cannot support another competitor it blocks imitation. 4. Patents or legal permits block imitation. 5. High volume generated by innovation leads to cost advantages for the company while placing competitors in costs disadvantages. 6. Imitation requires substantial changes and high investments which may take years. 7. The offer of a rise in values earns brand loyalty. In the end, a company must realize that there is no permanently excellent industry and there are no permanently excellent companies. Commitment, trust and voluntary cooperation are difficult to measure because they are intangible capital of the company. They are the assets of the company in succeeding through a blue ocean strategy. Works Cited Kim, W. C., & Mauborgne, R. (2005). Blue Ocean Strategy: How to Create an Uncontested Market Space and Make the Competition Irrelevant. Boston: Harvard Business School Press. Mintzberg, H. (1994, January). The Fall and Rise of Strategic Planning. Harvard Business Review , 107-114. Read More