STRATEGIC MANAGEMENT – MBA 431

REVIEW OF LITERATURE

SUBMITTED
BY
ADISHESHA SAIRAM K B
1827901

SUBMITTED
TO
DR. SONIA MATHEW

Christ Institute of Management

CHRIST (Deemed to be University)
Bengaluru

July 2019
Topic Chosen – BLUE OCEAN STRATEGY

The origins of strategy can be traced back to the times of war, by militaries across the world,
when strategies were planned, created and deployed with the main aim of defeating the enemy.
The wars were always fought over money / lands which are limited in size and constant. This
is where the traditional school of thought took form, which is majorly to do with competitive
strategy.

The competitive strategy [Porter, Micheal.1980] focusses on working within the existing
boundaries of industries. It emphasizes the importance of beating the competition or developing
core competencies to gain an edge over the competition. The competitive strategy gives more
importance to the consumers who already buy rather than on new customers. It depends majorly
on the market demand and supply forces to set the path for the whole industry. It believes that
external forces ultimately shape the industry and its boundaries. The competing companies are
forced to face a trade-off between cost leadership and product differentiation.

Blue Ocean Strategy

The concept of Value Innovation (Chan, Kim, Mauborgne, Renee) gives a totally different
perspective, which focusses on reconstructing the boundaries rather than working within the
boundaries. It is based on reconstructionist view of strategy which emphasises that the forces
which reshape the industry come from within the industry and not from outside. It believes that
the players in the industry have the potential for innovation using their core competencies or
skills. Unlike competitive strategy, value innovation does not take a complementary view
regarding cost and differentiation, instead it emphasizes on doing both, at the same time,
coupled with their core competencies or skills that are intrinsic to the company.

The three major variations based on the theme of Value innovation are:

 Blue-Ocean strategy (Chan Kim and Renee Mauborgne., 2005)

 Disruptive Innovation (Clayton Christensen)
 Value Co-Creation (C.K. Prahalad and Venkat Ramaswamy)

All the three alternatives have most characteristics in common like:

 All of them focus on identifying and capturing markets for new demand.
 Customer driven rather than competition driven.
 Aiming for value addition through innovation.

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  Venturing into “no-consumption” areas instead of the existing customer areas.

The major difference in the three alternatives is in the area of the new market spaces they use
as opportunities.

The blue ocean strategy focusses on redefining the existing demand categories while disruptive
innovation focusses on new demand creation in existing markets and Co-Creation innovates by
revamping the user experience by transforming traditional products.

In this research article review the focus is the Blue Ocean strategy alternative of value
innovation. By definition “Blue oceans are markets yet to be created, where significant new,
uncontested demand can be unlocked by companies willing and able to pursue breakout
strategic moves”. [1]

The competitive strategy targets the red oceans i.e. markets which are already established and
many or several competitors are providing similar products or services to the existing
customers. Typically, Red oceans are industries where boundaries have already been
established and players of the industry try to gain an edge or make profits by choosing either
Cost leadership or product differentiation without any value innovation as such.

Blue Ocean focuses on seeking new opportunities in the existing demand. The process of blue
ocean strategy has the following steps:

 Getting started: Looking and choosing the right initiative for the blue market offering.
The Pioneer-Migrator-Settler Map is an analytical tool that is used in this step.
 Understanding the current scenario: unless we understand where we are it would not
be possible to envision where we want to be. For this the Strategy Canvas tool is
employed. To map out the as-is scenario of the market the areas in which the current
players compete or invest in is represented on the X-axis and the buyer awareness states
are represented on the Y-Axis. This helps as even the employees at manager level
seldom have the complete big picture of what is happening in the industry.
 Imagining where they want to be: The first step is to identify all the pain areas in
existing scenario. This is important because without identifying them we cannot gather
ideas as to how they can be overcome. Each pain area is an opportunity for a new
product or market. The second step is to identify the noncustomers i.e. customers who
have the potential to become buyers but are not yet due to either unawareness or because
existing products do not exactly meet their demand. This gives insights into where

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 opportunities lay. Blue Ocean places prime focus on non-customers rather than
customers.
 Making the move: The last step is to finally choose one among the blue ocean
opportunities available and implement them. Make the big picture analysis to identify
what the scenario would look like for both the buyers as well as the pioneers.

The research paper “Value innovation: a leap into the blue ocean” by W. Chan Kim and Renee
Mauborgne talks of a study conducted by the authors had very interesting insights into the
success of Blue Ocean strategy where the study found that out of 108 launches by business
companies 86% were just line extensions in the existing red oceans but these accounted for
only 39% of total profits and 62% of total revenues whereas the rest 14 launches were blue
ocean yet they accounted for 61% of the total profits whereas only 38% of total revenues.

The paper also talks about how the blue ocean concept is nothing new and that its roots can be
traced back to auto industry revolution through 1900 and 1940 when Henry Ford in 1908
created a blue ocean by making a car affordable to the public by bringing in the assembly line
which was followed by the launch of next blue ocean by GM motors who tapped into the
unchartered automobile market by making cars of different colours and more customizable.
This was a blue ocean as Ford motors made cars of just the one type with no variety.

The second example that the paper quotes is that of Casella Wines which was an Australia
based liquor company. Wine up till a point was considered something rare, vintage and only
for the elite creating a mind-set among the general public that it was something pretentious and
off-putting as it was portrayed as something only the refined could savour, Casella saw this as
an opportunity for blue ocean and launched wine as a no fuss liquor which represented good
times and the packaging which was bright and colourful made it even more appealing to the
consumers.

Success Stories of Blue Ocean Strategy:

1. The Apple iTunes: Apple started as a personal computer company and transitioned into
iPhones, iPads and got into the business of online music store the iTunes and captured
the market that no one had ventured into thereby creating a blue ocean.
2. Philips Teakettles: the British were one of the biggest market for tea and Teakettles but
due to the limestone deposits discouraged the consumers from using the teakettles to
avoid consuming limestone alongside their tea, Philips saw this as a blue ocean and

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 created tea kettles with a filter which acted as a barrier between the tea kettles and the
limestone deposits which would be filtered out.
3. Quicken by Intuit: Intuit saw a blue ocean in demand for personal financial organizer
as people used to make do with pen and paper accounting or hired professionals.
Quicken was an easy to use, customer driven personal financial package which instantly
hit it off with the customers. 30 years later still quicken remains a market leader in
personal financial package.

Conclusion:

The Competitive strategy is no longer sustainable as it once used to be, companies wishing to
create sustainable as well as profitable markets need to seek out the value innovation path and
blue ocean is most widely renowned strategy for this with a high success rate. It encourages
companies to employ core competencies to break into new horizons instead of participating in
competitive bloodbaths in the already congested red ocean markets which leave very little
space for innovation due to its established boundaries and silently accepted rules of
competition.

References:

1. W. Chan Kim, Renée Mauborgne, (2005) "Value innovation: a leap into the blue
ocean", Journal of Business Strategy, Vol. 26 Issue: 4, pp.22-28,
https://doi.org/10.1108/02756660510608521
2. Şafak Gündüz, Yükseköğretimde Mavi Okyanuslar, Üniversite Araştırmaları Dergisi,
10.32329/uad.483514, 1, 3, (116-120), (2018).
3. Brian Leavy, (2018) "Value innovation and how to successfully incubate “blue ocean”
initiatives", Strategy & Leadership, Vol. 46 Issue: 3, pp.10-20,
https://doi.org/10.1108/SL-02-2018-0020
4. Robert M. Randall, (2015) "W. Chan Kim and Renée Mauborgne dispel blue ocean
myths", Strategy & Leadership, Vol. 43 Issue: 2, pp.11-14,
https://doi.org/10.1108/SL01-2015-0007
5. Butler, Colin, August 2008 Strategic Change 17(5‐6):169 – 178 DOI: 10.1002/jsc.824.

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