Blue Ocean Strategy 1 Running Head: BLUE OCEAN STRATEGY

Blue Ocean Strategy: Pacific or Puddle?

Jeffrey J. Bowe Anderson University BSNS7050 Conceptual Foundations of Management July 2, 2009

Blue Ocean Strategy 2 What Caused the Blue Ocean Craze and How Deep is The Water Blue Ocean Strategy (Kim & Mauborgne, 2005) quickly became lauded as a revolutionary new theory of business strategy. Kim and Mauborgne‟s1 concept is there are two types of oceans, red oceans and blue oceans. Red oceans are full of bloody competition where profits are minimal to nonexistent and the market is comprised of many players all using marketing to attempt to increase market share. Blue oceans, in contrast, are undeveloped and uncontested markets, created by innovative companies which identify an underserved market, and then enter that market and earn handsome profits with little threat of competition. While it is not uncommon for authors to claim a new and revolutionary approach to solving an existing problem, a legitimate area of concern is whether the “new” has any accepted theoretical structure or conceptual foundation to support the claim. Mintzberg, Ahlstrand, and Lampel say, There is a terrible bias in today's management literature toward the current, the latest, the “hottest.” This does a disservice, not only to all those wonderful old writers, but especially to the readers who are all too infrequently offered the trivial new instead of the significant old. (1998, p. 8) The first question for this paper is whether Blue Ocean Strategy is new, followed by whether it has deep roots in accepted foundations of management—deep roots like an ocean—or is it built on shallow commentary without strong theoretical bases—shallow like a puddle. Whether Blue Ocean Strategy is new is answered easily—no, it is not new. Whether the Blue Ocean Strategy has puddle or Pacific depth to its foundation is also answered easily-it has Pacific depth when redefined to fit the purposes of the author. The last question of whether Blue

Due to the large number of references to Kim and Mauborgne and Blue Ocean Strategy, the year will be left off all subsequent references as all citations are to the same reference, and the citation will be Kim and Mauborgne, Blue Ocean, or Blue Ocean Strategy, depending on the context.

p. “Strategy is the direction of an organization" according to McCarthy (2000. According to Chandler. “Strategy is developing a broad formula for how business is going to compete. Porter writes. Since the 1960‟s. Stinchcombe. we need to define strategy. 35). 1986. p. or analyzing how these are matched to choose strategies. vii). 48). 1991. 1958. . 1980. 1978. 1977) Porter says. which reminds us of the famous Drucker question. p. 1985). The balance of this paper will outline the bases for these conclusions. strategy is “The determination of the basic long-term goals and objectives of an enterprise. p. p. xvi) Later. p. and critique of Blue Ocean Strategy. 89). and what policies will be needed to carry out those goals” (1980. what its goals should be. 10). “Strategy is about seeking a competitive edge over rivals while slowing the erosion of present advantages” (Day. we next must look at the history of the study of business strategy. “What is our business and what should it be?” (Drucker. Penrose. Having defined strategy. 1997b. 99). What is Strategy? To dig into a review. (Barney. Most research on sources of sustained competitive advantage has focused on either isolating a firm‟s opportunities and threats (Porter. p. The common theme of all of these definitions is that strategy is a look at and description of a desired future. describing its strengths and weaknesses (Hofer & Schendel. “Strategy can be viewed as building defenses against the competitive forces or finding a position in the industry where the forces are weakest” (2008. Business strategy has been researched for nearly 100 years. 1965). analysis. 1988.Blue Ocean Strategy 3 Ocean will survive the test of time is also answered yes providing the parameters of use are followed. “Strategic decisions” are “decisions on what kind of business the firm should seek to be in” (Ansoff. and the adoption of courses of action and the allocation of resources necessary for carrying out these goals” (Rumelt.

p. (1998) note that even though the concept of strategy is about stability. “We [have created] five-forces analysis. This advice is as sound today as it was then. analytical tools” (Hambrick & Fredrickson. Recombination strategists look for a better way to compete to gain a larger share of a zero-sum perfectly competitive market. the resource-based view of the firm. 51). often powerful. Historical Background and Literature Review General concepts There are two major schools of strategy. both of which have impact on and components within Blue Ocean Strategy. when a new theory of strategy is proposed. many managers feel that the pace of competition today requires new approaches and this prompts strategic theorists such as Kim and Mauborgne to propose new models. and a host of other helpful. 2005. 2000). to . 1991) Mintzberg et al. hypercompetition. So.Blue Ocean Strategy 4 The older models assume homogeneity in strategically relevant resources and that any heterogeneity that is developed is quickly absorbed to all firms via mobile resources in a perfectly competitive market. (Barney. suggests that the best use of strategy today is to combine elements from the various models to synthesize what is best for each firm. value chains. core competencies. Sun Tzu wrote over 2400 years ago that “The best policy is to attack your enemy‟s strategy” (Hanzhang. Newer models suggest heterogeneity lingers which provides new opportunities and threats in competitive environments. The concern for a firm‟s future is of vital importance to managers who are agents of shareholders and are personally interested in developing effective strategy to maintain their employment. recombination and reconstruction. But. the vast majority of research is about using strategy to create change. Mintzberg‟s quote above is correct—it is often adopted as the greatest and most important breakthrough. In the fifty years of business strategy research. Mintzberg et al.

. 1993) Porter (1985) introduced the value chain concept. “Deconstruction of the proprietary business arrangements has changed the boundaries that define markets and industries leading to a radically new competitive landscape. (Peteraf. Nixon and Hueskel write... and creates new demand by offering something with increased value to the newly bounded area. Hitt. driving companies to look for defensible positions using advantages in existing market space. xii). Brandenburger and Nalebuff (1996) state that the boundaries of business are artificial. One of the major subsets of the reconstruction school is the resourced-based view. The SCP perspective is that structure of the market as defined by economic theory impacts buyer and seller conduct through pricing and value. Implicit to the resource-based view is that internal resources are not universal and heterogeneous. p. “A resource is…anything which could be thought of as a strength or weakness of a given firm” (Wernerfelt. This school feels there is latent demand to be found and the best approach is to stimulate the demand side. .Blue Ocean Strategy 5 redistribute a set level of demand. Inside the recombination school is the structuralist view of strategy.It is changing the concept of firm strategy along with the strategic options available to firms” (2000. 172). there is an environmental impact which leads to competitive advantage thinking. often called the structure-conductperformance (SCP) view. p. Bresser. Recombination looks at the supply side. redefines competition. that all markets are interdependent and cannot be considered individually. which is a non-zero sum perspective. 1984. typically looking at either cost or differentiation. In contrast. ignores the existing perfect competition market structure. In other words. leading to financial and operational performance of the firm. the reconstruction school redraws or reshapes the boundaries of the market. taking existing components and most often using technological innovations to create a new offering to primarily the same group.

Specific theorists Ansoff (1957) is a cornerstone recombination theorist. 1991) . Ansoff‟s research showed that a firm has four strategic options in a 2 x 2 matrix: a firm can either penetrate the market or develop the market. His “reactive mode” is similar to organic strategic planning which is similar to Mintzberg‟s emergent strategy. Ansoff says it is essential to systematically anticipate future environmental challenges to an organization. techniques and models. (Ansoff cited in Chartered Management Institute. 2007. rather than on product-market positioning (Kay. Market penetration requires increasing existing product market share in existing markets. all of which state that proper strategy is evolutionary with incremental changes to prior strategy. (Barney. saying their perspective is a further development of his value-chain concept. In developing strategy. and to draw up appropriate strategic plans for responding to these challenges. He explained further that. 1993)” (Gurau.Blue Ocean Strategy 6 and resource-based theorists feel they build on Porter. declaring that strategy is intentional and involves heavy analysis. and diversification requires new products to be produced for new markets. product expansion requires developing new products for existing customers. In Corporate Strategy. market expansion requires the identification of new customers for existing products. 1991) “The resource-based perspective argues that the strategic analysis should focus more on the key resources that allow the firms to attain a specific competitive advantage. or a firm can expand its product‟s use via modification (product development) or look for new products (diversification). Ansoff (1988) sees a firm‟s “capability planning” as a complement to formulation of strategy. Ansoff (1988) built a systematic approach to strategy formulation and strategic decision-making through a framework of theories.372). p.

another member of the recombination school.Blue Ocean Strategy 7 Ansoff‟s research found that most well run companies do all of the first three simultaneously and may opt to also do the fourth. An economist by training and practice. unlike Mintzberg who sees intentional strategy as impossible. Probably the most analytical of all strategic theorists. differentiation (G2).but where they are drawn has little to do with strategy since the type of market dictates the strategy. and not who is or is not currently playing in your market (1980. Porter (1980. “The essence of formulating competitive strategy is relating a company to its environment” (1980. “Mintzberg places Porter‟s work in the „positioning school‟. p. His strategic model and resulting strategic recommendations are based on the analysis of industry structure. 3). Structural analysis is the type of competitive market. is one of the most well known and highly analyzed strategic theorists. p. Porter is very intentional in the entire process. The three generic strategies are low cost producer (G1). a firm can take offensive or defensive moves to secure its position. and "The goal of competitive strategy for a business unit in an industry is to find a position in the industry where the company can best defend itself against these [five] competitive forces or can influence them in its favor" (p. a precursor to Blue Ocean and counter to Porter who originally said the three generic strategies were mutually exclusive. Porter is highly analytical in studying industry and competition. 32) Porter‟s two most well known concepts are the five forces and three generic strategies. or niche market (G3).4) For Porter. followed by looking at established players and new markets and figuring out where to draw the lines(s) for your company…. which advocates an analytic approach to strategic . 1985).

Mintzberg sees the Porter and Ansoff approach to strategy as “top down” and does not like it. in some ways. senior managers need to craft a strategic intent for their firm” (Hambrick & Fredrickson. must be analyzed. Hambrick and Fredrickson are clear that winning is not a chance event and that everything. 2007. p. more like Kim and Mauborgne. We present a framework for strategy design. Porter would ruminate that there is no other effective process to form strategy. p. Blue Ocean does not look at competition. Two more recombination theorist are Hambrick and Fredrickson. 51). including competitors. that competitive and internal analysis are necessary parts of the strategic process. marketplace. Mintzberg feels that events cannot be predicted. providing answers to five questions—arenas: where will we be active? vehicles: how will we get there? differentiators: how will we win in the marketplace? staging: what will be our speed and sequence of moves? economic logic: how will we obtain our returns? (Hambrick & Fredrickson. including your competition and your own capabilities. 59). p. He clearly states his . that strategic planning cannot be separated from operational issues. competitors. and that novel ideas cannot come from analysis and hard data. Mintzberg is also a recombinationist but views the strategic process quite different from Porter and Ansoff and. 370).Blue Ocean Strategy 8 planning and implementation” (Gurau. and internal capabilities. As we discuss at length in the next section. 2005. arguing that a strategy has five elements. Hambrick and Fredrickson say that you need to pay attention to all areas. They approach strategy most like Porter. “Based on a careful and complete analysis of a company‟s environment. 2005. and not just the market. Porter favors the analytical process but Mintzberg says no one has ever created a strategy through analysis.

ex post limits to competition. such as a) on which of the firm‟s current resources should diversification be based. whereas the trend was to look at strategy from a product perspective. Blue Ocean is a productcentric model that all but ignores market structure. “I don‟t think you create a strategy through a formal process” (McCarthy. Wernerfelt saw strategy moving from market to product noting. and one of the founders of the resource-based view. informal. He noted that traditional concepts of strategy looked at resource positions of the firm in terms of relative strengths and weaknesses. and ex ante limits to competition” . and analysis of firm capabilities prior to launching a new strategy. 172) Wernerfelt (1984) saw the need for new strategic models to address both existing offerings and resources and new offerings that require new resources. competition. Mintzberg likes “flexible strategy” that is incremental. p. Some thirty years prior to Blue Ocean Strategy. and d) what types of firms will it be desirable for this particular firm to acquire? (1984. The resource perspective provides a basis for addressing some key issues in the formulation of strategy for diversified firms. He feels strategy should be more of a synthesis and the best strategy will emerge during the course of running the business instead of from formal planning meetings. 36). Peteraf is also a resource-based reconstructionist whose strategic model for competitive advantage includes four conditions. b) which resources should be developed through diversification. c) in what sequence and into what markets should diversification take place. imperfect resource mobility. Those include superior resources (heterogeneity within an industry). and continuous. Wernerfelt is a reconstructionist with a Porter-like analytical approach.Blue Ocean Strategy 9 position that. all of which must be met. p. “Four conditions underlie sustained competitive advantage. 2000.

they share some conceptual elements. Balanced Scorecard becomes a strategy only if stated as such. Simon et al. “The Balanced Scorecard is not really a „strategy formulation tool‟ ” (1996. and harvest. . all future citations will be either Simon et al. sustain. Kaplan and Norton‟s Balanced Scorecard is another popular and well researched strategic tool.Blue Ocean Strategy 10 (Peteraf. more of a recording of result against objective and activity than a setting of objective and activity. p. Kaplan and Norton are intentional strategists in that they feel strategy should be planned in detail and not left to an incremental or emergent process per Mintzberg. 2 Due to the large number of citations to this reference. We will discuss the choice of harvest or a blue ocean move in the next section. The stage three harvest is. Bilstein. Both are designed to visually show opportunities for differentiation in the market or offering. or Manage for Profit depending on the context. Kaplan and Norton‟s model does have three generic strategies: growth. a different focus from Blue Ocean’s focus on new markets. a key to Blue Ocean Strategy discussed in the next section. However. where the company wants to harvest the investments made in the earlier two stages” (p. The competitor map of Manage for Profit is very similar to the strategy canvas of Blue Ocean. Simon. Heterogeneity and imperfect resource mobility are imperfect information and imperfect communication. 179). and Luby (2005)2 write about strategies for mature markets. “A mature phase of their life cycle. 57). and to challenge the assumptions that drive current behavior and offerings. 77). develop a competitor map which outlines where to pick and do battle for profit and where to cede market share that is not profitable. However. Although Blue Ocean Strategy and Manage for Profit target different markets. 1993. In Manage for Profit not Market Share. Both Manage for Profit and Blue Ocean suggest looking at your market without preconceived ideas or limitations. otherwise it is a measurement tool for any strategy in place. p.

As an economist. 1997. (Ho & Weigelt. Game theory is also Mintzberg-ish in that strategy emerges from moves and countermoves by all players. the process of entrepreneurial innovation which continually creates new markets and new competitors as firms find better ways to solve existing problems (which is the Manage for Profit target) and offer new solutions to new problems (the Blue Ocean target). and could be called “The science of strategy” (Brandenburger & Nalebuff. 127). but may not be successful in the long run. because they lack strategic foresight. One of Schumpeter‟s major concepts is creative destruction. economic profit is accounting profit plus a return on capital that compensates for the risk involved in investing the . Game theory is similar to the heavy analysis models likes Porter and Ansoff which include competition as part of the strategic decision process. Schumpeter strongly agrees that most markets are perfectly competitive and that all firms in competitive markets will trend to zero economic profit as competition decreases profit via decreased margins. because they fail to realize the process-like nature of strategy. (Economic profit is not accounting profit. to anticipate or project strategic moves of your competitors. p. 137) Porter would agree with game theory while Blue Ocean unfortunately dismisses the need to anticipate competitors‟ reactions. p. p. Managers who are myopic do not anticipate the future. “Game theory provides a formal methodology for knowing oneself and one's competitors” (Ho and Weigelt. A core economic theorist is Schumpeter (1970). Such managers may make good short-run decisions. Ho and Weigelt and Brandenburger and Nalebuff warn of the dangers of ignoring the interactive nature of competition. 40).Blue Ocean Strategy 11 Game theory is a strategic analysis tool just like Porter's five forces or Boston Consulting Group‟s strengths/weaknesses/opportunities/threast (SWOT) model. 1996.

This does not in itself indicate that their model lacks conceptual basis. do induce other less efficient firms to enter the industry. you find that their main point is the need to go from red oceans to blue oceans. returning significant economic profit. they draw inconsistent conclusions from other theorists and a conclusion from economics counter to core equilibrium theory. but keep costs low and keep out “free riders. and could be the result of using Ansoff and Porter-like analysis of markets to identify opportunities in the form of weaknesses in competitors that can be turned into firm strenghts. Within first 8 pages. One of the biggest areas of concern for the Blue Ocean Strategy is their dismissal of economic theory. Kim and Mauborgne admit that this is not a new concept.) Schumpeter provides conceptual theory for why only oligopoly will allow economic profit. In fact. however. They claim that a firm can produce long term at P > ATC (price greater than average total cost where total cost includes return on investment). When Kim and Mauborgne do discuss conceptual foundations. Conceptual Critique and Holes in the Ocean Blue Ocean Strategy is tactical over theoretical and makes only passing attempts to discuss conceptual foundations. all discussed in this section. This is nothing more than moving from perfect competition to oligopoly or monopoly. but being doctorally qualified leads to higher inherent credibility. from commodity to non-commodity. They claim that you can sell at high price and high quantity over time. This author could find no indication of doctoral qualification of either Kim or Mauborgne. although their positions at INSEAD would imply such credentials. Such firms will enter and .Blue Ocean Strategy 12 capital in the type of venture contemplated.” This is counter to all economic theory that says economic profits will draw other firms into the industry and cause economic profits to go to zero. We will discuss next that Blue Ocean Strategy suggests economic profit is available in competitive markets. “High prices.

(p. Blue Ocean Strategy admits that economics and pricing are in play. “It is foolish not to explicitly consider the demand side in setting prices. Kim and Mauborgne agree that value is important. 1993. Customers who are willing to pay more—a higher marginal revenue—lead to increased profits. absent a natural monopoly (such as the only power company in a rural area supplying electricity) or a legal monopoly (such as a patent). p. otherwise the market will follow a perfect competition model. "You should not let cost drive price” (Kim & Mauborgne. 214) Simon et al. They suggest "price-minus costing" where you start with price and subtract profit to get to your target price. With perfect information in the market. We must recall that with perfect information all competitors in an industry have the opportunity to have same cost curve. 130). suggesting that there are increasing efficiencies of scale at all levels of higher output. economic theory says the inevitable impact of competition on price is that in a perfectly competitive market price will go to cost.. Manage for Profit states that if you have a truly innovative product. They say shoot for a target cost that is low enough . note that the marginal revenue curve (the additional revenue gained from selling one more unit) is a key to profit. p. then go for market share and follow a monopoly pricing model. The customer's willingness to pay is not determined by costs of a product but by its performance and resulting value to its customer” (Simon et al. Blue Ocean attempts to prepare an argument that the marketing can overcome these economic theories. 180). However. 119). 61). that too high a price will lead to competition (p. writing.Blue Ocean Strategy 13 produce so long as price exceeds their marginal cost (MC)” (Peteraf. but such arguments are not accepted by economists and suggest a shallow puddle and not a deep ocean. all markets become perfectly competitive. Kim and Mauborgne also fail to show the long-run average total cost (LRATC) curve turning back up at higher quantity (Q).

They refer to this as “pricing innovation” yet they are really discussing Porter G2 (differentiation) and G1 (low cost) because the innovation is to make the purchase attainable and reachable by the masses through low cost—assuming that low cost leads to low price. While Ford (1922) might have liked this. “The creation of blue oceans is about driving costs down [Porter G1] while simultaneously driving value up for buyers [Porter G2 and G3]” (Kim and Mauborgne. Blue Ocean discusses strategic pricing. and by page 132 they say this low cost situation is an essential requirement for “lucrative blue waters. so they are now involving Porter G1. To bring some . which is also the Manage for Profit concept. which they define as setting a price that will attract right away the mass of buyers. 1985. 128). p. including “Redefining competition away from the strengths of substitutes from your competitor and…. 1997b. or neutralize the advantages of the leader” (Day. 17). and add G1 low cost so that the offering is not attractive to competitors. “High-profit opportunities ultimately attract competitors who strive to match. then you have what Kim and Mauborgne call value innovation. If your strategy is Porter G3 niche which is a redefinition of relative strengths and weaknesses. it has no theoretical basis. they contradict the rest of their model and book by agreeing with economic theory and suggesting low to mid pricing to keep the new market unattractive to competition—the opposite of page 119 where they say cost should not drive price. leapfrog. 311). Redirecting strategy toward segments least vulnerable to substitution” (Porter. Porter discusses the strategy of substitutes variously.Blue Ocean Strategy 14 that competition cannot match it. p. p. 49). including both alternatives and substitutes although they do not use these terms (p.” Then. The last step of the Blue Ocean Strategy is “assessing and addressing adoption hurdles” which does include some analysis (pp. They follow economic theory and discuss price elasticity and then move to looking at competition or offerings that are near competition. 125-126).

1997. same function” which is between the normal definitions of a substitute and alternative. The company may not have the resources or capabilities to pull off the preemption” (Wind. The authors both support and reject Ansoff and Porter. 1980. and seem to agree most with Mintzberg. Knowing where to compete is critical for both Blue Ocean and Porter. requires a complete understanding of the market and competitors to know where a strategic advantage is possible. they discuss offerings which have a “different form. 32). p. p. The analysis of “existing and potential competitors” of Porter (1980. 270). especially a mature market. same objective” (p. 114). Others would call this an alternative. p. According to Best. but that new customers are also important (p.Blue Ocean Strategy 15 foundation to their model. Do Kim and Mauborgne look at existing internal skill sets or resources in the firm? Do they analyze position and capabilities or just plunge forward into a new market? Other strategy theorists warn of imprudent moves. Blue Ocean admits that looking at current customers for segmentation is not wrong. Kim and Mauborgne call it a Blue Ocean Strategy. 129). Blue Ocean must balance both of these for their model to work. and other offerings with a “different form and function. A resource-based view holds that a firm can find and maintain an advantage and that imperfect information is possible. 49) is the “look beyond” of Blue Ocean. A highly competitive market. xiii). Porter writes. p. “Entrepreneurial companies by definition create differentiation. Best (2001) states that a firm must look both at company and at market-- . they seek to create „distinctive capabilities‟ by fostering an interactive dynamic between their own technological capabilities and market opportunities” (2001. “Mistakes in industry definition made by competitors present opportunities for staking out superior strategic positions” (2008. p. 92). “[The firm] may have developed a strategy that is not feasible. “Defining the relevant industry [is] a crucial step in competitive strategy formulation” (Porter.

and adds Porter and Ansoff analysis of markets to find opportunities. Blue Ocean makes no mention of existing skills or capabilities as an area of concern in strategy. (Barney. according to Porter. p. Barney (1991. Blue Ocean claims this is the core of the success process. a significant lapse according to other strategic theorists and an indication of shallow puddle depth. 1984. “It is much easier to pioneer a position than to replace someone else who already has it (see Ries and Trout. 104) writes. firms should focus on oligopolistic or monopolistic segments or industries. What does Blue Ocean say about size of the market? Do they agree with Chandler that size is best? Or. The only comment that Blue Ocean makes about size is to price the offering such that the firm draws the most customers in the shortest amount of time. Blue Ocean is a “new growth theory” which combines the logical incrementalism of Mintzberg.Blue Ocean Strategy 16 the market sets the price and the company must be able to provide the offering at that price. This unique processing though. p. All competitors can come to the same decision about new opportunities. to out think your competition. p. and no firm will be able to maintain a competitive advantage. 2002. do they agree with Manage for Profit that profit is better than size? Manage for Profit would not agree with Chandler that size via vertical and/or horizontal integration is the primary long term strategy and goal— Manage for Profit by definition says go for profit over size. To avoid this risk. pursue those opportunities. There is the balance between Porter and Blue Ocean. can be replicated by other firms. 58) Blue Ocean says that being first has advantages in that the first firm in the market can set the price and offering parameters. . 1981)” (Wernerfelt. 174). the knowledge side of innovation from Peteraf. so that strategy is a cognitive process which is the result of unique processing of information.

Management theorists call this unknown “causal ambiguity. “The economic performance of firms depends not only on the returns from their strategies but also on the cost of implementing those . yet the advantage exists and the result is positive economic profits. Since the firm and therefore market does not know the source of the advantage. In some situations. or by potentially entering firms. Blue Ocean Strategy assumes that firms do not have identical resources. it is not possible for any one firm to obtain a competitive advantage from first moving. a particular firm must have insights about the opportunities associated with implementing a strategy that are not possessed by other firms in the industry.Blue Ocean Strategy 17 It seems clear that if competing firms are identical in the resources they control. the firm cannot decipher why their combination of resources has resulted in a strategic advantage. it cannot be replicated. 1991. To be a first mover by implementing a strategy before any competing firms. 1993) Blue Ocean does not subscribe to causal ambiguity. Blue Ocean says forget the patents and performance drivers and just focus on need. agreeing with Schumpeter in the short run when entrepreneurial innovation is at its creative best so in this element Blue Ocean is deeply rooted. (Barney.” where the cause is unknown or ambiguous. Schumpeter‟s creative destruction says that continual entrepreneurial innovation will repeat the cycle ad infinitum with improved pricing and parameters generating ways for competitors to regain market share by finding new blue oceans. Therefore. but we cannot forget about resources and competitors as easily as Blue Ocean would have us do. but rather ignores the capability discussion and focuses on future direction with minimal forethought to the ability to be successful in the new market. Peteraf. The strengths of our competitors can lead to higher costs for our firm if our firm does not currently possess the same strength.

“To look for positions in the market where a firm can meet its objectives without threatening its competitors…. and then ceding other niches where you are weaker to your competition such that all firms are making satisfactory profits. Both Blue Ocean and Manage for Profit say that peaceful competition is best. Once a company creates a blue ocean and its powerful performance . (Hambrick & Fredrickson. 56-57) The latter combines Porter G1 and G3 in the Blue Ocean Strategy. “Creating blue oceans is not a static achievement but a dynamic process. 185) and “Organizations have to build on whatever strengths they can make use of” (Mintzberg et al. 2005. In some cases. p.. Porter opens the door for the Blue Ocean Strategy in saying that.Blue Ocean Strategy 18 strategies” (Peteraf. who never forgets his base in economics. While pure economic theory states that competition will eventually drive economic profits to zero.may be a place where everyone is relatively happy” (1980. 1998.. Peaceful competition is finding a niche that you are best suited to fill. p. the economic logic might reside on the cost side of the profit equation…an advantage that competitors cannot duplicate. p. the argument remains that profit attracts competition. the economic key may be to obtain premium prices by offering customers a difficult to match product…In some instances. which is to find a place where your competitor cannot or will not go. For Porter‟s focus on analysis. Relatively happy is an important term for Porter. in a shorter timeframe economic profits are available. p. “New entrants may be tempted into an industry where existing firms are doing well…so it needs to find a strategy it can defend against existing competitors and new entrants through some distinctive advantages” (p. looking at where to freeze out a competitor is or can be part of the strategy of a Blue Ocean. 40). However. 57).57).

Blue Ocean assumes imperfect information in the form of intellectual brain power. “With whom am I really competing?” where a Blue Ocean perspective starts and ends with “What need is being unmet?” The second question in a competitive advantage strategy is. These are “change the game” strategies that dampen the competitive forces. This appears very late in the book. 102). yet this is even less likely in today's high pace information world. that you can think of something that your competition cannot think of. p. The payoff from understanding the competitive forces is when managers begin to think how they can change strategy to alter the attractiveness of their market to their advantage. 185). p. A firm is said to have a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors. A competitive advantage strategy approach starts with the question that opens Porter‟s (1985) book Competitive Advantage. “What advantage does the firm have over its competition?” or “Where do we have an advantage over our rival?” so that we can create a strategy that creates and/or sustains these advantages.Blue Ocean Strategy 19 consequences are known. perhaps by . (Barney. and is very similar to Mintzberg‟s emergent strategy. “How will my competitors respond to an action now and how will they respond in the future?” According to Day. sooner or later imitators appear on the horizon” (Kim & Mauborgne. A firm is said to have a sustained competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy. and also concurs with economic theory. The third question in competitive advantage strategy is. 1991.

46) This is where game theory. and Porter‟s intense competitor analysis take center stage and provide decision input missed in Blue Ocean Strategy. and the requirement for a catchy and unique tagline is marketing and not a management or strategy issue. . Porter all say know the customer. or using capital investment to raise the minimum scale of operations to deter potential entrants. Further. Blue Ocean Strategy may be theoretically sound.Blue Ocean Strategy 20 dramatically increasing differentiation. 47) may not visually demonstrate points of differentiation. Porter addresses both Blue Ocean new markets and Manage for Profit mature markets. The Porter and Ansoff analysis is very different from the management debate Blue Ocean suggests as part of the innovation process because Porter especially is much deeper in the level analysis that is part of strategy. p. Drucker. but it is not an innovative process when one looks at Porter G2 differentiation or G3 niche market or the resource-based views which state that new markets and offerings are available from imperfect information. and even Ford (1922) and Taylor (1911) knew the customer wanted price so they focused on cost while others were focusing on features. raising switching costs. The value curve model or strategy canvas of Blue Ocean is not significantly different from the five forces graphic as a way to visually indicate what is happening. The Blue Ocean commitment to focus is not unique. Porter‟s model combines the types of competition with buyer and supplier power and has strong ties to economics throughout presentation. Deming. Blue Ocean all but ignores economic theory during the first half of their book and then apply it inconsistently throughout the second half. Porter‟s visual model (1980. (1997a. p. but the process of working through the Porter visual is more comprehensive and descriptive. behavioral theory. so that position is not revolutionary.

these two generic strategies involve fundamentally different routes to competitive advantage. Blue Ocean Strategy might be innovative in calling it out as a theory. p. Kaplan and Norton also suggests a Blue Ocean move is not always best. 55). but not as a practice that has been in place for some time. and only by carefully analyzing the company. Kim and Mauborgne reverse course and suggest a Manage for Profit process of milking or harvesting a mature business as a cash cow. (Day. and Simon et al. “Companies sometimes pursue both strategies simultaneously.Blue Ocean Strategy 21 The Future of The Ocean As noted above. 57) Gurau writes of the difficulty in knowing when to harvest and when to venture to blue waters. the customers. At the end of the book (p. 54) Usually is not always and Blue Ocean is about those non-incompatible times. that a company should maximize current profits to earn the maximum profit before making new investments in a new offering. p. According to this view. Blue Ocean is not a new theory. a manager will be able to decide which specific . 188). Porter (1985) recognizes harvesting as a valid and profitable strategy. So why is Porter G3 niche market strategy not Blue Ocean Strategy? The simplest view is that positional advantage can be achieved either by differentiation through providing superior customer value or by achieving the lowest delivered cost. and firms must make a choice between them because they are usually incompatible. and the competitive environment. p. “No strategy is better than the other in absolute terms. 1997b. so a firm must be prepared and able to harvest profits from mature markets as well. (Kaplan & Norton. state that innovation cannot grow a pipeline and profit fast enough. 1996. Firms like Kellogg prosper by simultaneously lowering costs and gaining price premiums with superior customer value” (Day. 1997b.

p. (Kim and Mauborgne. and deepening your rent stream through operational improvements and geographical expansion to achieve maximum economies of scale and market coverage. “To avoid the trap of competing. This is good advice which will keep Blue Ocean a popular strategy due to its success. 185). p. It also keeps you from pursuing another blue ocean when there is still a huge profit stream to be collected from your current offering…. adds significant staying power to their model. Firm success is contingent on both as Kim and Mauborgne admit late in the book saying. p.Blue Ocean Strategy 22 strategy is more appropriate for its firm” (Gurau. should resist the temptation to valueinnovate again and instead should focus on lengthening. Monitoring the canvas allows a firm to be aware of the need to redirect. sooner or later imitators appear on the horizon” (Kim and Mauborgne. 190). while generating maximum cash from existing markets before. possibly. 379). “Practical reality demands that companies succeed in both oceans and master the strategies for both” (p. There is no argument that it is easier to find profit in non-competitive (oligopoly or monopoly) markets and that when competition arrives. widening. “Once a company creates a blue ocean and its powerful performance consequences are known. This is Porter and Ansoff-like competitor analysis. you need to monitor value curves on the strategy canvas” (p. the market needs to be analyzed more closely for the proper strategy to maximize profit in the future. .Kim and Mauborgne suggest a harvesting focus can keep a firm from being distracted by new opportunities that are not as good as the one currently being served. exiting them for a Blue Ocean market. 188).188-189) This apparent change of heart matches economic theory and agrees with strategists like Porter and Ansoff who suggest that analysis of timing is a vital part of strategy and while not consistent with the majority of their theory. Kim and Mauborgne write that.

slow.Preemption is tantamount to knocking out your rival's missiles while they are still on the ground.185) but your competition has the same information from which to be the first to create a Blue Ocean. “The new watchwords are anticipation and preparation” (Day & Reibstein. which assumes that the firm is the first mover. A Blue Ocean Strategy brings with it “considerable barriers to imitation” (p. p. A simple offensive maneuver is designed to attack a competitor or move in a new direction. forcing you to a reactive mode to survive because your strategy canvas is no longer profitable. beating you to a new market. 45).2).Blue Ocean Strategy 23 This leads to the last area of concern remains for Blue Ocean Strategy—it is only a proactive model. there is no mention in the Blue Ocean book about reaction. In contrast. and that they might just get one key aspect implemented faster—so you need to be . which limits its usefulness to practitioners confronting smart competitors who have done their homework and simply acted faster. it is quite possible that your competition completes a Blue Ocean move first. 256) In reality. preemption is focused on attacking the future moves of a competitor. “Managers also must identify potential moves of competitors” (Wind. or limit the damage of a rival's action after it has been initiated. You must assume your competition is as smart as you are and that they are having the same strategy sessions you are having. which is why game theory is a useful analytical strategic tool. p. A reactive move tries to stop. 2000. 1997. p. 265). this would make the oligopoly arguments of Blue Ocean problematic because others are doing the same analysis of the same data trying to create an equally effective Blue Ocean solution against you. Without minimizing the value of being a first mover. (Wind. Sun Tzu realized that it is easiest to “Defeat your enemy by a surprise move” (Hanzhang. 1997. p. before they have been made…. 1997.

the . p. Porter‟s models are still valuable tools for managers in their attempt to analyze the competitive market environment and design effective strategies” (Gurau. p. 259-260) Porter suggests that a firm must continually look to other markets and industries for events and offerings that might impact their own market. pp. This is not to say that being first does not have advantages. (2008) The more turbulent the environment. “Despite its (sic) limitations. 2007. and fails to address weaknesses that by definition must be in place. but the real challenge managers face is to anticipate these changes” (Schoemaker & Amit. 1997. If a firm fails to prepare for counters by competition.Blue Ocean Strategy 24 prepared for that contingency. (Wind. The only Blue Ocean Strategy move is to create a new market instead of creating a more defensible position in your current market. then the firm will be required to find a long string of blue oceans. “Changes may be easy to understand in retrospect. so that they would not find themselves in a former red ocean that became a Dead Sea. Sun Tzu would be equally supportive of catching your enemy off guard from your own analysis and projection of their next move. Therefore. 376). 1997. Day. Porter. a manager must first be aware of the possibility for the move….372). the older intentional and highly analytical models of Porter and Ansoff are valuable in projecting second and third wave activities. the problem is there is no contingency component in Blue Ocean which represents a serious flaw for its long term usefulness. To preempt a move. Understanding the possible moves of competitors provides an opportunity to lock them out. and the game theorists would be more prepared from a more continuous and intentional analysis of their competitors and the market. The key to preemption is to determine where competitors or the market are headed. knowing more about what the competition is doing and is likely to do.

“As market boundaries become more blurred. demanding a wider field of vision” (Day & Reibstein. But Blue Ocean Strategy countermands or dismisses some very well received theory from . competition has become more complex and multidimensional. This is where Blue Ocean can function at its finest—look at the customer.Blue Ocean Strategy 25 more likely it is for new solutions to appear via Schumpeter‟s creative destruction. bringing new outsiders into once stable industries. Another place Blue OceanStrategy could find success is not clearly stated but rests in the trend today of co-opetition and joint ventures. The Blue Ocean goal is simply to create a new market and sharing the risk through co-opetition or partnering with customers can be a new market leading to short term economic profits. 1996) Blue Ocean Strategy could be stronger with an acknowledged tie to partnering and co-opetition as increasing levels of technology are likely to create narrower areas of expertise. or should they try to combine them into palatable dishes. Blue Ocean fails to emphasize the iterative and complex nature of strategy required when facing smart competitors with the reality of perfect information in the market. customers. p. as chefs do back in the kitchen?. 1997. and be successful.2). 367) Proactivity is preferred and as long as a firm can be a first mover then Blue Ocean has staying power. p. and other players in the competitive environment” (Day & Reibstein. The options and threats facing companies are broader and more diverse. Banding together multiple areas of expertise will probably be a more effective strategy than doing it all yourself in a mediocre fashion.2). Should strategists pick and choose from among all these ideas. be first. (Brandenburger & Nalebuff. like diners at a buffet table. “The impact of a strategy is determined not only by the initial action of the firm but by the interactions of the strategy with competitors.. Unfortunately. 1998.. (Mintzberg et al.The answer has to be „yes‟ both times. p.

Day. . Mintzberg. and the next version needs to include how to defend a previous blue ocean that has slowly or suddenly become red. Ansoff. and a list of other foundational authors of strategy and economics.Blue Ocean Strategy 26 Porter.

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