Blue Ocean Strategy: How to Make the Competition Irrelevant
The focus of a lot of strategy literature is competition, specifically how to outperform the competition. How can we outperform our competitors? How do we acquire the upper hand in our industry? W. Chan Kim and Renée Mauborgne claim that competition should NOT be at the center of strategic thinking in their book “Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant.” They take issue with these traditional notions of strategic success. Instead, strategy should focus on the ability to expand your company’s market share by offering your consumers greater value. How can your business escape the red oceans of fierce rivalry and enter the blue ocean of uncontested market space is the central question of the Blue Ocean Strategy. The underlying principles will be outlined in this essay.
Red Ocean Strategy
All of the current industries are referred to as Red Oceans, or the recognized market area. Industry borders are established and acknowledged in Red Oceans, and the game’s rules of competition are well understood. Companies in these sectors strive to outperform their rivals in order to capture a larger portion of the market demand. Beating the competition and taking advantage of market demand are key components of swimming in a red ocean. However, the likelihood of profits and growth declines when market space becomes more congested as a result of heightened rivalry. In order to successfully compete with rivals for market share, it is thought that corporations should make a clear decision between distinction and cost leadership as a strategy. Porter’s Five Forces, generic strategies, and value disciplines are three often utilized frameworks in this school of thought.
Blue Ocean Strategy
In contrast, blue oceans refer to all the sectors that do not yet exist: the untapped, unpolluted market area. Demand is produced rather than contested in Blue Oceans. The Blue Ocean Strategy’s guiding principles state that businesses should not just look to compete in already-crowded markets (Red Oceans), but also look for or develop untapped areas (Blue Oceans). There is a lot of room for lucrative and quick expansion in these undeveloped and unknown sectors. Competition is also pointless because the game’s rules have yet to be established. Blue Ocean Strategy focuses on generating or expanding the pie, as opposed to Red Ocean Strategy, which is a zero-sum game that revolves around dividing the pie between competitors. The authors developed a concept called “Value Innovation” to enable the simultaneous pursuit of both distinction and low-cost in order to produce this shift in focus from Red Oceans to Blue Oceans.
Value Innovation
Chan Kim and Mauborgne, in contrast to traditional approaches to strategy, have placed the customer—and not the competition—at the center of strategy. They emphasize value creation and innovation equally in their strategy logic: Value Innovation. Together, these two factors ensure that innovation isn’t simply focused on technology and the future, but also maintains an eye on what is actually beneficial to customers and what isn’t. Only when businesses integrate innovation with utility, pricing, and cost position does value innovation occur. The frequently held “value-cost trade-off” orthodoxy of competition-based strategy, such as Porter’s Generic Strategies, which holds that businesses must choose between distinction and low cost, should therefore be abandoned by businesses. In order to build blue oceans, one must simultaneously pursue distinctiveness and low cost; this involves reducing expenses while concurrently increasing value for customers. Enhancing the cost structure will lower expenses while increasing utility and pricing will increase buyer value. They will enable value innovation that is advantageous to the business and its consumers. The Strategy Canvas is used to determine how Value Innovation may be accomplished.
The Strategy Canvas
The Strategy Canvas accomplishes two things: The first step is to determine the variables on which the present participants in the market are vying for market share in the recognized market area. The resulting “industry value curve” is a fantastic illustration of the areas that rivals are now emphasizing and the level of value that consumers are obtaining (see Figure 3 for an example). The Strategy Canvas’ second goal is to show how to shift attention from rivals to alternatives and from industry customers to noncustomers. This simply implies that each of those aspects is being re-examined to see which ones are less important to consumers and may be diminished or deleted, lowering expenses in the process. What elements should be improved or added in order to increase the worth of the buyer or generate fresh demand? A new value curve that deviates from the industry value curve and creates a blue ocean may be developed within the Strategy Canvas with the use of the Four Actions Framework (Figure 4) and the Eliminate-Reduce-Raise-Create Grid. It should be noted that both distinction and low cost have been considered while creating a new value curve.
Example: Cirque du Soleil
In their work, Chan Kim and Mauborgne presented a number of actual cases to demonstrate their points. One of the examples they used to demonstrate the value of the Blue Ocean Strategy was Cirque du Soleil. How did Cirque du Soleil succeed and establish itself as a major force in the struggling circus sector? Cirque du Soleil reinvented the circus experience by eliminating and reducing elements that were expensive and didn’t add much value to patrons anymore, while other circuses were concentrating on benchmarking comparable traditional circuses in an effort to take market share from a contracting demand pool. For instance, they stopped employing animals in their performances. The cost of feeding, transporting, and training the animals for the performance was in addition to the growing unease that the public had about the usage of animals. Therefore, the value innovation process was greatly enhanced by eliminating one issue alone. Additionally, Cirque du Soleil intended to improve the customer experience by concentrating on adults as well as children, as opposed to only kids. So that the presentations would be more dramatic and wonderful, they appropriated aspects from Broadway productions. Funny enough, as a result of these adjustments, Cirque du Soleil was able to carefully increase the cost of tickets such that they now match those of the theatre sector. Cirque du Soleil leaped out of the circus industry’s Red Ocean via both distinction and cheap cost and developed a brand-new, unheard-of Blue Ocean idea.
What’s next in the BOS-process?
Understanding the industry value curve is, of course, just the beginning of strategic repositioning. Management must clearly define the Blue Ocean Strategy after a blue ocean has been identified and then take the necessary steps to put the new strategy into practice. As a result, Chan Kim and Mauborgne have created additional frameworks, such as the Six Paths Framework, the Three Tiers of Noncustomers, the Buyer Utility Map, and the Four Hurdles of Strategy Execution, that can aid in this process. We won’t go into detail on any of these frameworks because it would beyond the scope of this essay. The references listed below can be used to learn more about those frameworks as well as Blue Ocean Strategy in general.
To Conclude
It’s not always a viable method to expand to merely give a little better solution at a marginally better price in a red, fiercely competitive ocean. Business owners frequently strive to move even more quickly to keep ahead of the competition or to merely maintain their present market position. It is necessary to create new demand when there is intense competition and it is challenging to capitalize on current demand. Value innovation, which simultaneously differentiates products and leads in costs, aids in making the competition obsolete. It is a useful strategy to employ if you want to understand the present status of the industry and the factors on which it competes, but it has also come under fire for placing insufficient emphasis on carrying out market viability assessments. Start by creating your own value curve and comparing it to industry norms to see whether value innovation could be used in your sector.
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