Title of the paper: Blue Ocean Strategy Authors: W. Chan Kim and Renee Mauborgne Journal Name: Harvard Business Review Year of Publication: October 2004
ABSTRACT The central idea of “Blue ocean strategy” has become very prominent since it was incepted. Companies spend too much time fighting for the same customers in the same markets, the so called red, ‘bloodied’ oceans. The authors claim that the dominant logic in firms over the past few decades has been competition-based red ocean strategies. They have followed a mainly Michael E Porter’s logic (also termed as Porterian logic) of cost cutting and taking market share from their competitors. If they really want to succeed they should look for new blue oceans i.e. they should offer new products and services or find new customers. By moving into this “untapped market space” companies can find “opportunity for highly profitable growth.” The main idea of the article is to give an objective view of the term Blue Ocean Strategy. The article highlights the moves taken by the businesses to create strategic logic. A comparative study is also done between Red Ocean Strategy (ROS) and Blue Ocean Strategy (BOS). The message of authors is that, companies should focus on the big picture rather than just the numbers and an immediate return on investment. MAIN RESEARCH- ‘THE INSIGHTS’ In recent times most of the businesses are concerned about managing costs, quality control, assets utilization, operational efficiency, logistics, cycle times etc., these are basically the productivity management factors and do not give much emphasis to growth/innovation, creativity methods, new brand development, global reach, corporate brand, future strategy etc. which are the creativity management factors. The businesses spend most of their time (nearly 80%) on productivity management rather than creativity management (nearly 20%) where true growth and profitability lies. Joseph Schumpeter coined the term Innovation in 1942, he spoke about randomness, entrepreneurship, trial and error-learn from failures, opportunities and risks coming together. He believes that innovation should be in DNA/culture of the businesses and considers innovation as a sub-system approach. The biggest question is- from where the innovation strategies come from.
W. Chan Kim and Renee Mauborgne, are looking from past 25 years, that, What makes an innovation succeed? What makes an innovation fail? Are there any similarities between 98% of the failures and 2% of the success and vice-versa? That translation is done by the strategic logic, Blue Ocean Strategy. On researching the history of blue ocean creations
150 blue ocean creations
More than 30 industries
Over 100 years (1880-2000) Launch within Red Oceans
Launch within Blue Oceans
Business Launch
86%
14%
Revenue Impact
62%
38%
Profit Impact
39%
61%
Incremental Moves
Innovative Moves
Above comparison clearly gives the distinction between the impact on profit on adopting the incremental moves (product line extensions) and innovative moves by the industries. The crux lies in the development of Strategic Logic. Businesses takes market demand and environment as the given. For example, if someone wants to start a restaurant business in Kormangala, Bangalore, he will look for, what’s the demand basically and the total population, income level and all the required demographics and the competitors, how many other restaurants are there in that area and then start fighting over market share. Take market demand as the pie and the aim is to take bigger slice of the pie. This is a zero-sum game (one gets a bigger slice, somebody else gets a smaller slice). It signifies the rivals fighting with each other turning the ocean bloody red and hence is termed as a Red Ocean Strategy. Blue color is a calm place where there are no rivals, no competitors and there is no fighting. Whereas companies have long engaged in head to head competition, they have fought for market share, they have battled for differentiation. The professors (Kim & Mauborgne) suggest that even though it is necessary, it is not the enough for profitable growth. For profitable growth you need to look into other strategic growth options and blue ocean strategy is one of them.
CASE EXAMPLES- APPLICATIONS There are few case examples which will bring out the insights of the BOS Case-1: Classical Orchestra Industry Orchestra Industry is considered to be a declining industry in US. Even the big 5 (Boston Symphony, Chicago Symphony, Cleveland Orchestra, New York Philharmonic and Philadelphia Orchestra), despite all subsidies, brand name and quality of performance are running deficits. The target market for this industry are the people who appreciate and understands music and as most of the people have little knowledge about the music, the industry seems to be non attractive. The situation of the industry is shown in the graph below:
The number of concerts are increasing as number of concert companies are on the rise yet the average number of audience per concert is going down. The orchestra industry believes in that the success of the orchestra depends on the factors such as fancy venues, the better the venue the higher the cost of the ticket. The musicians should be formal and trained and they should have a star conductor which will bring in more revenue. The industry spends million dollars on the star conductors. The industry has unsustainable cost structure as shown below.
There strategy canvas is used as a tool to look into the blue ocean strategy. The canvas below gives the traditional orchestra experience which includes high cost due to high non value added features
The factors like price, star conductor, star soloist, fancy theatre, mannerism and code of conduct, length of each piece of music, size of orchestra are on the high and the number of concerts, value capacity and use of familiar music are on the lower side.
At this point when industry seems to be unattractive, Andre Rieu, a Dutch violinist changed it all by moving outside the market that industry focussed on as shown in the below strategy canvas.
He has eliminated the factors that are adding cost and factors which are not adding value for the buyers. Increased value for the buyers by adding certain factors like audience participation, festive costumes and settings, fast, fun family atmosphere, that is the BOS In the above case the strategic logic is:
Increased value for the buyers
Reduce the cost structure of the company
Hence simultaneous pursuit of high value and low cost is the blue ocean strategy. Case-2: Tata Motors- Nano Car In year 2009, Tata Motors came up with the new concept of Nano Car-World's Cheapest Car. They have adopted combination of differentiation and low cost as stated in Blue Ocean Strategy and tried to capture in the non- customers. It is the outcome of combo – Value Innovation and playing a different game.
CRITIQUE The power of the blue ocean / red ocean metaphor has made the idea very popular for anyone wanting to create the product or service category the right way. However, the BOS is not without criticism. The relative idea in the article is rather descriptive than prescriptive. The authors present many examples of successful innovations, and then explain from their Blue Ocean perspective, essentially interpreting success through their lenses. Criticisms include claims that no control group was used, that there is no way to know how many companies using a BOS failed and the theory is thus unfalsifiable, that a deductive process was not followed, and that the examples in the article were selected to tell a winning story. Brand and communication are taken for granted and do not represent a key for success. Kim and Maubourgne take the marketing of a value innovation as a given, assuming the marketing success will come as a matter of course. It is argued that rather than a theory, BOS is an extremely successful attempt to brand a set of already existing concepts and frameworks with a highly sticky idea. This metaphor can be powerful enough to stimulate people to action. However, the concepts behind the Blue Ocean Strategy (such as the competing factors, the consumer cycle, non-customers, etc.) are not new. Many of this article’s key concepts were previously covered in “Competing For The Future” by Gary Hamel and C.K Prahalad, which was published in 1996. The authors encouraged managers to stake out new marketing space, which they termed white space, in order to "create and dominate emerging opportunities. Competition isn’t made irrelevant by blue ocean strategy. A business is still competing for share of the consumer’s wallet with a wide variety of other products. It is just differentiation by another name as it gives customers more choice of how they want to solve particular problems and issues. Blue Ocean Strategy isn’t as customer-centric as you might think since it smacks of “building a better mousetrap syndrome”. It doesn’t go into detail about understanding the customers’ core problems and frustrations with existing products which create the opportunity for value innovation. CONCLUSION Inspite of having lot of criticisms the concept of blue ocean strategy prevails. It helps you to think about how you can differentiate your business and products and for that it should be
encouraged. The idea is extremely thought provoking. In order to maintain a steady growth of Blue Ocean Strategy businesses should set up the imitation barriers. These barriers should be set so high that the imitators won’t be able to join the market easily. The concept gives a clear idea on how innovation works as BOS is a systematic approach which follows a pattern based on theory and methodologies. It aids risk minimization and opportunity maximization with the extensive use of analytical frameworks and helps in achieving a systems strategic alignment. REFERENCES
http://hbr.org/1996/11/what-is-strategy/ar/1
http://hbr.org/1994/07/competing-for-the-future/ar/1
http://www.blueoceanstrategy.com/