7 pages/≈1925 words
Business & Marketing
The blue ocean strategy (Essay Sample)
The essay focused on How market boundaries in mature and competitive boundaries can be reconstructed by organizations to create uncontested market space.source..
Institution affiliation: London School of Commerce
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How market boundaries in mature and competitive boundaries can be reconstructed by organizations to create uncontested market space. (The blue ocean strategy)
Competition among firms has intensified over the years in various industries. To the consumers, it is a good trend because they will have value for money. This is because have an opportunity to compare quality and the respective prices before they make a final choice. However, competition is never healthy for most organizations since the companies are likely to lose clients to their competitors and a decline in revenue is expected. How best to challenge competition to maintain the market share and venture to new areas has been a major concern for most organization. The concerns of most managers seem to be addressed through adopting the Blue ocean strategy developed by Chan Kim and Mauborgne. In the blue ocean strategy, market boundaries in mature and competitive boundaries can be reconstructed by organizations to create uncontested market space (Kim, Mauborgne 2005, pg 14).
Blue oceans strategy seeks to make competition irrelevant, create uncontested market space, create a new market, encourage differentiation and lower cost as well as break the value cost trade off. This is unlike the red ocean strategy that encourages companies to compete in the current market, beat the competition, make value for cost trade off and exploit the existing demand (Kim, Mauborgne 2005 pg 48).
Value innovation is considered as the cornerstone of the blue ocean strategy in creating an uncontested market space. Value innovation concept is unique from other strategic concepts because it focuses on eliminating competition through value addition for their clients. Value innovation occurs where a company's actions positively influences the value proposition to customers and the cost structure. Customer's value is lifted through creation of goods that are not offered. With efficient production, a firm will enjoy economies of scale hence generating more sales from the quality products.
Various analytical tools and frameworks aid in creating a systematic toolbox for comparison in the blue ocean strategy namely: the strategy canvas, the four-action framework and eliminate-reduce- raise create Grid(Kim, Mauborgne 2005, pg 23)
The strategy canvas
The strategy canvas is the central and action framework for building a strong blue ocean strategy. The horizontal axis of the canvas indicates the range of factors that firms compete on while the vertical axis indicates the offers that all the buyers receive. The canvas is hence important because it helps one to understand status of the market on competition. It then helps in building an individual's focus from competition to new markets for non-customers.
The four-action framework
The four-action framework is important since it helps managers to seek answers to four crucial questions that break the differentiation or low cost trade off. They include what factors should be eliminated because the industry no longer values them? , which factors should be reduced below the industry's standards? What factors should be improved above the standards in the industry? Moreover, which factors need to be created because they have ever been offered? (Kim, Mauborgne 2005, pg 29) Each of the four questions provides answers that will aid a company to lower costs and differentiation.
Diagrammatic representation of the Four Action Framework ((Kim, Mauborgne 2005, pg 29).
REDUCEWhat factors need to be reduced?
CREATEWhat factors should be created?ELIMINATEWhich of the factors is the industry not keen on that should be eliminated?A New Value Curve
RAISEWhat factors should be raised above the current standards in the industry?CREATE
The first question forces managers to eliminate factors that do currently do not add valuate the consumers. The second question will help managers to redesign and reduce factors that we used as a competition strategy with other companies. The first two questions hence help the company reduce its operation cost. The third question forces the management to eliminate those factors that the industry has imposed on the customers. It seeks to make consumers liberal to have what they feel is the best for them hence customer loyalty. The forth question makes managers to think innovatively and create value for consumers. The third and forth question help the company to differentiate its products and services.
The eliminate- reduce-raise-create grid
The eliminate- reduce-raise-create grid not only does it make managements of various organizations to ask the four action framework but also makes the companies to work on the questions to create value for the consumers. The four Grid helps companies to work towards differentiation and low costs as explained under the four-action framework (Siegemund 2008).Â
(Kim, Mauborgne 2005, pg 48) on the blue ocean strategy have also identified six principles that will help in successful formulation and implementation of the business strategy. Four principles help in successful formulation while the last two describe the implementation of the blue ocean strategy.
The formulation principles are explained as follows:
1 Reconstruction of market boundaries
The principle describes six parts through which managers can systematically develop uncontested market space. The principle educates companies on how they can make competition irrelevant through the six conventional boundaries of competition and opening potential blue oceans. The six parts concentrates on looking across strategic groups, alternative strategic industries, across complimentary product and services, across buyer groups across functional-emotional orientation of the industry as well as across time (Kim, Mauborgne 2005, pg 50-57).
2 Focus on the big picture as opposed to focusing on the numbers.
A company should design its strategic plan that will create maximum value for their clients. The principle focuses on alternative strategic plans to the existing ones. Focus on the bigger picture is essential because it will aid the company achieve its long-term goals.
3 Research beyond existing demand
This principle expects managers to focus on the aggregate demand of their clients as opposed to small market segmentations, which is the convention practice. The conventional practice leads to small target markets.
4 Get the strategic sequence right
This principle holds that the business model built by the management should be in a position to achieve profitability growth. When organizations meet the sequence of cost, price, utility and adoption requirements they will be able to handle the business model risk. Additionally, the blue ocean idea generated by the company will be achievable.
The next two principles highlights how the blue ocean strategy can be executed with minimal risk
5 Overcoming key organizational hurdles
This principle addresses organizational risk that faces the company in implementing the blue ocean strategy. The principle outlines how managers can overcome the resource, motivational, cognitive and political hurdles and to successfully implement the blue ocean strategy. Some of the challenges faced by the management could easily slow down or completely stop the implementation of the blue ocean strategy it not handled appropriately (Kim, Mauborgne 2005, pg 147).
6 Build execution onto strategy.
The management of any organization is encouraged to involve those who implement policies to be involved in the strategy formulation. This will motivate them and will be dedicated to execute the blue ocean strategy. The management should be able to convince the employees and other stakeholders that the new strategy will not threaten their job security or undermine their interests.
Market dynamics of value innovation in the blue ocean are different from those of conventional technology innovation in the red ocean strategy. Innovative organizations in the red ocean are found of price skimming so that they may be able to earn high returns for the innovation at its inception. The organizations then lower prices for the innovation so that they may discourage new entrants and increase their market share (Siegemund 2008).Â For value innovation in the blue ocean strategy, quality of the products creates a strong brand with high demand. Organizations in both the short and long run will be able to make high profits.
The blue ocean strategy makes a company in a position to achieve its goals because it focuses on creating new demand in uncontested markets instead of using resources to compete with other firms in the current market. The development and adoption of a new strategy by a company always involves an opportunity and a risk. All the six principles of the blue ocean strategy takes into account a specific aspect of risk. The six paths that can be used by a company to create uncontested market space are essential because they help in minimizing the associated risk.
When a company focuses on the bi...
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