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CONTENTS BUSINESS NATION WORLD TECHNOLOGY HEALTH/LIFESTYLE
The Blue Ocean Strategy:
Value Innovation over
Competitive Advantage
Establishing new markets and exploring uncharted territory
STRATEGY POINTS
The Blue Ocean strategy encourages businesses to create new
markets as opposed to competing in saturated ones
Creating new markets involves risk management, innovation, and
constant improvement because applying the blue ocean strategy
is a dynamic process
By Marishka Noelle M. Cabrera
E
very now and then the busi ness world goes
agog over a new i dea, one that promi ses
Lo IeIp hrms ouLperIorm LIeIr compeLILIon,
add value to thei r products and servi ces, and,
uILImuLeIy, drIve prohLs und growLI, by seLLIng
ones busi ness totally apart from the competi ti on.
I n 2005, Harvard professors W. Chan Ki m
and Renee Mauborgne publi shed thei r best-
selli ng book, Blue Ocean Strategy: How to
Create Uncontested Market Space and Make the
Competi ti on I rrelevant. I n thei r assessment
of more than 150 strategi c moves i n over 30
i ndustri es, the authors present a strategy called
the blue ocean strategy, whi ch centers on
compani es breaki ng out of the competi ti ve
market space to create an uncontested one,
thereby maki ng the competi ti on i rrelevant.
The strategy also encourages compani es to
reconstruct thei r market boundari es i n order to
hnd new opporLunILIes Ior growLI.
The book di scusses, among many others,
Ci r que du Solei l as an example of a blue ocean
company. I nstead of di rectly competi ng wi th the
Ri ngli ng Bros. and other ci rcuses i n an i ndustry
experi enci ng a long-term decli ne because of
ri si ng costs and decreasi ng audi ences due to
alternati ve forms of entertai nment (televi si on,
vi deo games, sporti ng events), Ci rque du
Solei l turned to a new set of consumers. These
consumers were adults who enj oyed watchi ng
the opera, ballet, and theater, and who were
wi lli ng to pay more for premi um entertai nment.
BUSINESS
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As one Ci rque du Solei l tagli ne goes, We
rei nvent the ci rcus.
I n the case of soci al networki ng si te Facebook,
Davi d Ki rkpatri ck, author of The Facebook
Effect, says, i n an i ntervi ew, that what set
Facebook apart from the begi nni ng was that i t
was based on the genui ne i denti ti es of i ts users.
Before Facebook, other soci al networki ng si tes
were worlds of anonymi ty and role-playi ng.
Cri ti cs of the i dea argue that the blue ocean
strategy tends to be nave, as one academi c
puts i t. I n hi s 2006 blog entry, Grant
McCracken, anthropologi st and author
of Culture and Consumpti on: New Approaches
to the Symboli c Character of Consumer
Goods and Acti vi ti es, says the concept
undermi nes the hard work that comes wi th
hndIng LIuL unconLesLed murkeL, und LIuL LIe
ki nd of good fortune happens to a handful of
compani es, whi ch, accordi ng to hi m, would
explai n why Ki m and Mauborgnes book i s thi n
on examples.
McCracken does poi nt out that thei r book
does tell readers j ust how much marketi ng
has become a game of i deas, i magi nati on and
i nnovati on. He adds, I ndeed, i t i s i ncreasi ngly
a game i n whi ch advantage goes to those who
can step out of recei ved wi sdom and current
assumpti ons, and see the world new.
Bl ue vs. Red Ocean. I n busi ness, there are
two di sti nct ki nds of market spaces,
say authors Ki m and Mauborgne: the blue
and the red oceans. The red represents all
the i ndustri es i n the conventi onal market
spuce, wIere IndusLry boundurIes ure dehned
and the rules of competi ti on are understood.
I n thi s arena, ri val compani es try to
outperform one another to grab a greater s
hare of the demand. Nevertheless, as markets
Lend Lo be overcrowded und prohLs ure
reduced, competi ti on eventually turns
the water bloody.
Blue oceans, on the other hand, represent
the li mi tless possi bi li ti es of an untapped
marketthe unknown market space untai nted
by competi ti on. I n the Har var d Busi ness
Revi ew Paperback Seri es of the book by Ki m
and Mauborgne: I n blue oceans, demand i s
created rather than fought over. There i s ample
opporLunILy Ior growLI LIuL Is boLI prohLubIe
and rapi d.
There are two ways to create blue oceans,
accordi ng to the strategy. Fi rst i s to create
new i ndustri es altogether, such as what onli ne
aucti oni ng si te eBay di d. But i n most cases blue
oceans are created from wi thi n a red ocean
when a company alters the boundari es of an
exi sti ng i ndustry, such as i n the strategi c move
of Ci rque du Solei l.
Based on a presentati on from
Blueoceanstrategy.com, the red ocean
represents an arena where players are pushed
to compete i n exi sti ng markets, beat the
competi ti on, exploi t exi sti ng demand, make
the value-cost trade-off, and ali gn the whole
system of the companys acti vi ti es wi th i ts
strategi c choi ce of di fferenti ati on or low cost.
Meanwhi le, the blue ocean strategy i nvolves:
creati ng uncontested market space; maki ng the
competi ti on i rrelevant; creati ng and capturi ng
new demand; breaki ng the value-cost trade-off;
ali gni ng the companys acti vi ti es i n pursui t of
di fferenti ati on and low cost.
The decl i ne of t he compet i t i ve advant age
st r at egy? Hence, i t can be assumed that the
blue ocean strategy replaces the conventi onal
strategi c management concept of competi ti ve
advantage wi th value i nnovati onor the
si multaneous pursui t of di fferenti ati on and
low cost, according to Blueoceanstrategy.
com. As elaborated i n the groundbreaki ng
1979 Har var d Busi ness Revi ew arti cle by
economi st and Harvard professor Mi chael
E. Porter, susLuInIng Iong-Lerm prohLubIIILy
entai ls respondi ng strategi cally to competi ti on.
The blue ocean strategy: Value innovation over competitive advantage
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urLIer, LIe InLerpIuy oI LIe hve compeLILIve
forcesestabli shed ri vals, customers, suppli ers,
aspi ri ng entrants, and substi tute offeri ngs
shapes company strategy. I n a 2008 update
of thi s arti cle, Porter wri tes: The extended
rIvuIry LIuL resuILs Irom uII hve Iorces dehnes
an i ndustrys structure and shapes the nature of
competi ti ve i nteracti on wi thi n an i ndustry.
But should there really be a di sti nct choi ce
to be made between the two strategi es? The
study Blue Ocean versus Competi ti ve
Strategy: Theory and Evi dence attempts to
provi de a methodologi cal synthesi s of the
theori es enabli ng us to bri ng stati sti cal
evi dence to the debate by analyzi ng data
from the Dutch retai l i ndustry. Authors
Andrew Burke oI CrunheId UnIversILy In LIe
Uni ted Ki ngdom, Andr van Stel of the Erasmus
Uni versi ty Rotterdam i n the Netherlands,
and Roy Thuri k of the Uni versi ty of Amsterdam
found that strategi c managers need not be
THE FOUR ACTIONS FRAMEWORK FOR VALUE INNOVATION
FIVE FORCES THAT SHAPE INDUSTRY COMPETITION
Source: Harvard Business Review
Source: Blueoceanstrategy.com
Reduce
Which factors should be
reduced well below the
industry's standard?
A New
Value
Curve
Create
Which factors should be
created that the industry has
never offered?
Raise
Which factors should be
raised well above the
industy's standard?
Eliminate
Which of the factors that the
industry takes for granted
should be eliminated?
Rivalry Among
Existing
Competitors
Threat of New
Entrants
Threat of
Substitute
Products or
Bargaining
Power of
Suppliers
Bargaining
Power of
Buyers
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In an update of his 1979 article, Harvard professor Michael Porter
taIks about his Harvard Business Review articIe on the ve
competitive forces that shape strategy. Video from YouTube
Professor Andrew Burke of the Bettany Centre for Entrepreneurial
Performance and Economics at the CraneId SchooI of
Management at CraneId University, says innovating in existing
markets prove to be an effective strategy. Video from YouTube
faced wi th an ei ther/ or deci si on wi th regard to
the strategi es.
[ M] odern strategi c management does not
appear to make a di screte choi ce between usi ng
blue ocean or competi ti ve strategy but rather
Iuces LIe more dIIhcuIL cIuIIenge oI hndIng un
opti mal blend of these two strategi es across both
short and long-term hori zons, the study notes.
I n an i ntervi ew, Burke says that, based on thei r
research, there are a lot more opportuni ti es
i n exi sti ng markets than previ ously thought,
and that competi ti on i s a weak force i n terms
oI erodIng LIe benehLs Irom InnovuLIon In un
establi shed market. I nnovati on, Burke notes,
does not have to be radi cal, rather, i t can be
more i ncremental and adapti ve.
Cr eat i ng new mar ket s. Fi ndi ng and creati ng
new, untapped markets i s the crux of the
problem. An arti cle from Qn, a publi cati on of the
Yale School of Management, says [ I ] t requi res
convi nci ng an array of customers, partners,
and other consti tuenci es to see the world
di fferently. The arti cle focuses on i nsi ghts from
leaders who were able to create new markets i n
LIe heIds oI LecInoIogy, hnunce, und reuI esLuLe.
Peter Meyer, author of Creati ng and
Domi nati ng a New Market and Warp-Speed
Growth, recounts i n hi s 2003 arti cle found on
the websi te Small Busi ness Advocate the key
elements of creati ng a new market: i denti fy
problems that need soluti ons; follow one of two
lower ri sk paths si nce the ri sk of fai lure i s hi gh;
be wi lli ng to i gnore the call of new opportuni ti es,
and i nstead sti ck to the market concept that
was deci ded on; and start wi th cross-functi onal
teams and leadershi p.
I n the Har var d Busi ness Revi ew blog, author
Alessandro Di Flore, CEO of the European
Centre for Strategi c I nnovati on, wri tes, The
best market opportuni ti es are often to be found
i n the least li kely customers. I f you want a bi g
prohL, go Ior LIe murgInuI users, noL LIe ones uII
your competi tors are chasi ng as well.
He ci tes the case of a European leader i n the
consumer electroni cs i ndustry that was looki ng
for new growth opportuni ti es. The companys
prevIous murkeLIng budgeL Iocused on uIuenL
consumers who were also early adopters, but all
i ts competi tors were doi ng thi s as well. I n the
new strategy, the company started targeti ng a
new segment: housewi ves. I nvesti ng i n thi s new
market mai nly through i n-store educati on
and post-sale techni cal support and customer
servi ce-- pai d off wi th nearly a 60% i ncrease i n
new target segment revenues.
As wi th most strategi es, applyi ng the blue ocean
strategy entai ls a fai r amount of ri sk especi ally
for busi nesses that are more tradi ti onal i n
The blue ocean strategy: Value innovation over competitive advantage
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thei r values and have banked on competi ti ve
advantage for thei r growth. Blueoceanstrategy.
com, nonetheless, explai ns the si x ri sk factors
i n strategy formulati on and executi on that
compani es need to face: search, planni ng,
scope, busi ness model, organi zati onal, and
management ri sks.
A dynami c pr ocess. Another i ssue i s that
of long-term sustai nabi li ty. Eventually, blue
oceans wi ll turn red because other compani es
wi ll want to get a pi ece of that pi e. However,
Robynne Berg of Australi a-based Berg
Consulti ng emphasi zes i n her arti cle that
i f a company makes a blue ocean move, i t
sIouId be dIIhcuIL Lo repIIcuLe, und by LIe LIme
the competi ti on catches up, the company
would have already proceeded to i ts next
strategi c move.
Any company who makes the mi stake of
thi nki ng one Blue Ocean strategi c move wi ll
provi de them wi th lasti ng sustai nabi li ty wi ll
one day be i rrelevant as have many behemoths
of the past, she cauti ons. Berg also ci ted the
case of BlackBerry, whi ch rested too long i n the
glory of thei r ori gi nal blue ocean smartphone.
Now, BlackBerry maker Research I n Moti on
(RI M) i s tryi ng to reel i tself from quarterly
losses and i s counti ng on i ts upcomi ng phones
and i ts very loyal customers, accordi ng to a
GMA News report. Hence, i t i s i mportant to
note that the process of applyi ng the blue ocean
strategy i s not stati c, rather, i t i s dynami c.
Meanwhi le, a study by professors Denni s
Pi tta Ph.D. and Eli zabeth Pi tta from the
Uni versi ty of Balti more i n Maryland
focuses on the factors affecti ng the success of
new product development and how the blue
ocean strategy comes i nto play. Applyi ng a
blue ocean strategy to avoi d competi ti on early
i n the product li fe cycle promi ses to reduce
dangerous competi ti on to allow the product to
succeed, LIe puper hnds, However, LIe guIns
wIII probubIy noL exLend IndehnILeIy. n order
to achi eve sustai nabi li ty, constant i mprovement
i s requi red.
Bl ue oceans i n t odays economy. Ki m
and Mauborgne note i n an i ntervi ew found
on the websi te of busi ness school I NSEAD
that i n todays busi ness cli mate, establi shed
market spaces or red oceans are shri nki ng
steadi ly due to technologi cal advances, the
fall of trade barri ers between nati ons, and
decli ni ng demand. I n overcrowded i ndustri es,
di fferenti ati ng brands becomes harder both
i n economi c upturns and i n downturns, the
authors say.
An arti cle by Si ddhartha Roy of I ndi as Tata
Group on emergi ng markets and the blue
oceun sLruLegy poInLs ouL LIuL boLI LIe hve
forces model and the blue ocean strategy
base themselves largely on the experi ences
of developed economi es. As such, i f these
strategi es are to be appli ed wi thi n the context
of emergi ng economi es, certai n i ssues must
hrsL be resoIved, sucI us: Iow oILen do hrms
i denti fy blue ocean opportuni ti es; the nature
of i ts value i nnovati on; and the sustai nabi li ty
of the proposi ti on. The arti cle also provi des
examples of i ndustri es li ke laundry soaps and
detergents, shampoo packagi ng, automobi les,
und mIcrohnunce, wIere LIe bIue oceun sLruLegy
can be appli ed.
As far as buzzwords go, the blue ocean strategy
us u concepL Is noLIIng new wIen IL wus hrsL
coi ned i n 2005 by the two Harvard professors,
II onIy becuuse hndIng LIuL unmeL need und
creati ng (and sustai ni ng) a demand for i t have
been the basi c elements of any wi nni ng busi ness
marketi ng strategy. Then agai n, i n a rapi dly
changi ng busi ness envi ronment, i t i s sti ll
i mportant to remember the values compri si ng
the bedrock of successful busi nesses across
generati ons: hard work, i ntui ti on, i magi nati on,
and i nnovati on.
The blue ocean strategy: Value innovation over competitive advantage
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