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-act...
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