Blue Ocean Strategy theory (Research Paper Sample)

Blue Ocean Strategy theory
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Blue Ocean Strategy theory
For the last three decades, competition has been the driving force of the corporate strategy. Nowadays, it is hard for one to talk about corporate strategy without mentioning the facets that define corporate competition. These include competitive benchmarking, competitive strategy, beating the competition, and creating competitive advantages. The result has been a precise understanding of how companies can compete skillfully within established markets. The current strategies range from analyzing the underlying economic framework of an existing market to selecting a strategic position of differentiation, low cost, or focus. The avalanche of analytic tools and the defining frameworks that range from the five force framework to value chain have successfully placed corporate competition at the heart of current strategies. However, research into market dynamics over the last few years show that the above need not be the case. Competition really matters but by placing much attention on the strategies of competition, scholars and companies have downplayed a very crucial and lucrative aspect of corporate strategy. This unique aspect does not involve competition, but it aims at making competition irreverent developing new market spaces where there is minimal competition. This is what has come to be regarded as the “blue oceans.”
Assume a market environment that is composed of two kinds of oceans; blue oceans and red oceans. The red oceans encompass all the industries that are in existence today. This means that the red oceans represent the known market space. On the other hand, the blue oceans represent all industries that do not exist in the market today. This means that the blue oceans stand for the unknown and unexplored market space (Kim & Mauborgne 2013).
Within the red oceans, the industry boundaries are clearly defined and accepted. Furthermore, the rules and regulations of the competition are well known and accepted. In this kind of environment, companies strive to outperform each other with an aim of grabbing the greatest share of the prevailing market demands. The dominant focus of corporate strategy over the last two decades has been the kind of competition that is based on the red ocean strategy. However, as the market space of the red ocean strategy becomes increasing overcrowded, prospects of growth and high profit margins have reduced significantly. Products are becoming commodities and the intense competition has turned the red ocean environment bloody. This explains why the term ‘red’ has been used to define this kind of market environment.
Blue oceans are characterized by unexplored market space. This shows that there exists high demand creation, and the prospects for profitable growth are very high. Even though some blue oceans are developed well beyond the prevailing market boundaries, most of these markets are developed from within the red oceans. This is often accomplished by expanding the established market boundaries. Within this type of market, competition is largely irrelevant since the rules and regulations of the game are not yet established. The term ‘blue ocean’ has been used to depict the wider potential of a market environment that is deep, vast, and largely untapped (Kim & Mauborgne 2013).
It will always be prudent to navigate with success within the red ocean by outsmarting the rivals. Red oceans will always be important and they will still remain fundamental facts of business life. But as supply continues to exceed demand in many industries, competing for market share in the shrinking market may not be sufficient to ensure sustained high performance. Companies will need to explore means beyond competing within the already established industries. This brings into the limelight the importance of the blue ocean strategies to remedy the companies and ensure that they can still pursue high profits and avoid sinking into the loss making territories.
The logic that underlies the blue ocean strategy is a counterintuitive one. It may be defined by the following characteristics:
The strategy is not about technological innovation. In fact, blue oceans seldom performance results from technological innovation. Usually, the underlying technology is already in existence. The blue ocean strategists only have to link the strategy with what their buyers value.
One does not need to venture into murky waters in order to establish the blue oceans. Indeed, most blue oceans are developed from within, but not beyond, the red oceans of the prevailing industries. Incumbents usually develop blue oceans within their central businesses. An example of this is the introduction of mega-plexes by AMC, which is an established player in the theater industry. The new product provided the theater-goers with spectacular viewing experiences at lower costs to the theater owners.
APPLYING BLUE OCEAN STRATEGIC MOVES
In order to successfully apply the blue ocean moves, one needs to put the following factors into consideration:
One should never use the competition as the benchmark. Rather, it is prudent to make the competition seem irrelevant by developing a leap in value both for oneself and fro the clients. For example, the Ford Company successfully accomplished this with their Model T. It is important to note that the company could have tried to customize the fashionable, flashy cars that wealthy clients purchased for their weekend outings in the countryside. Instead, the company opted to offer a car for everyday use, and one that was far more durable, affordable, and easy to use and fix as compared to the ones offered by the core rivals. As a result, the sales for the new model boomed and the company’s market share soared from 9% before the new venture to 61% after the introduction of the new model (Kim & Mauborgne 2013).
It is important to lower costs while at the same time providing customers with more value. For example, Cirque du Soleil omitted the expensive elements of traditional circus such as aisle concessions. The reduced cost structure enabled the company to offer sophisticated elements from its theaters that appealed significantly to its adult audiences. The added value attracted adults who had not attended the circus for many years and enticed them to return there more frequently. The end result was increased revenues for the company (Siegemund 2008).
Despite the benefits that are presented by the blue ocean strategies, it is apparent that many companies appear to be calmed in their red oceans. So why does this dramatic imbalance in favor of red oceans persist? Part of the solution to this question is that corporate strategy is heavily influenced by its origin in military strategy. The very language that characterized this strategy is deeply laced with military references such as “troops” on the front or the chief executive “officers” in the headquarters. When described this way, the strategy is solely about red ocean competition. Put more clearly, it is about facing an opponent and forcing them of the battlefield of this limited space. On the contrary, the blue ocean strategy places much focus on conducting business in an environment that is devoid of any competitors. The strategy emphasizes on creating new land but not dividing the already existing land. Therefore, placing great focus on the red ocean means an acceptance of the key constraining factors which are present in a contested environment. It means denying the definitive strength of the corporate world-the ability to develop new market space that is uncontested.
Incumbents often create blue oceans
The suggestion presented here is that incumbents are not disadvantaged while establishing new market spaces. Moreover, the blue oceans as created by the incumbents are usually within their core businesses. As studies have demonstrated, blue oceans are developed from the read oceans and this challenges perception that new markets are in unexplored waters. Blue oceans are often right next in every industry.
Company and industry as the wrong units of analysis
The contemporary elements of strategic analysis, company and industry, have less explanatory power when it comes to making an analysis of why and how blue oceans are established. When developing a business idea, it is prudent to keep in mind that there has not been any consistently excellent company. Rather, the same company can be excellent at one time and then become wrongheaded at another time. This means that every company usually experiences sinks and surges over time. Similarly, there is no any perpetually excellent industry. Rather, relative attractiveness is driven to a great extent by the establishment o blue oceans from within the existing industries.
The most important unit of analysis for comprehending the establishment of blue oceans is the strategic move. This comprises the set of managerial decisions and actions that are involved in realizing a market-creating business initiative. A precise demonstration of this is Compaq which is considered by many people to be unsuccessful as it was acquired by Hewlett-Packard and the former ceased to be an independent company. However, the company’s ultimate fate cannot be used to invalidate the succinct strategic move that Compaq made. It is a move that led to the establishment of the multibillion-dollar market in Pc servers. It has been hailed as a move that became the key cause of the company’s dynamic comeback in the 1990’s (Gunther & MacMillan 2005).
Creating blue oceans builds brands.
The blue ocean strategy is so strong that a well crafted blue ocean strategic move can establish brand equity that lasts for many years. Almost all successful companies have at one time taken a blue ...