Blue Ocean

Blue Ocean Strategy

Away from fierce competition

Business strategy is a plan of actions designed by decision makers of the business to achieve long term goals, in order to break it down into simple terms, it is really  about two things: Where do you want to play? (Referring to the market) And how are you going to win? (Referring to the competitive advantage) in a business world where competition is extremely high.

“Blue Ocean Strategy: How to Create an Uncontested Market Space and make the Competition Irrelevant” is the book written by W. Chan Kim and Renee Mauborgne introduced a new business theory named “Blue Ocean Strategy” where it defines that the business world consists of two distinct kinds of market space, red oceans and blue oceans. Red oceans represent all the industries in existence today, the known market space. In red oceans, industry boundaries are defined, and the competitive rules of the game are well understood. Here, companies try to outperform their rivals in order to grab a greater share of existing demand. As the space gets more and more crowded, probability for profits and growth are reduced. Products turn into commodities and increasing competition turns the water bloody. Blue oceans symbolize all the industries which are not in existence today, the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There are many opportunities for growth that is both profitable and rapid.

Blue Ocean Strategy is considered to be one of the main pillars in the field of strategic management. It caught the attention of many scholars, academic researchers, and professional business parties as well as entrepreneurs. Hence, it was crucial to deeply analyze and develop BOS according to previous conducted studies. Thus, this part of the research mainly focuses on analyzing and illustrating precious conducted research and studies that mainly discussed the effect of BOS on organizational performance.

Challenges facing Blue Ocean Strategies “BOS”

(Rawabdeh, 2012) This paper proposes a methodology to implement the Blue Ocean Strategy in a privately owned Jordanian industrial firm struggling in a very competitive market using different tools and techniques such as value curves, strategy canvas, six path method, four actions framework, utility matrix and conjoint analysis in addition to some statistical tools such as discriminant analysis, cluster analysis, relative importance of Attributes for Targeting, and combination bundles analysis. The results of the paper were built on the bases of customer’s preferences, opinions, and suggestions that have been collected by different surveys. The main result shows that the company managed to identify a number of new products that can develop its own new markets for it (Blue Ocean Markets).

(Kim, 2008) explained challenges and moves of the BOS, he stated that there are numerous examples of blue ocean strategic moves in every corner of the world. It all started with the strategic move of a Belgian company, Bert Claeys’ ‘Kinepolis’, the world’s first ‘megaplex’ cinema in Belgium. The Bert Claeys Group built new market space around Belgium’s cinemas by refusing to accept common perceptions that the industry was declining due to the spread of video recorders and cable TV.

Bert Claeys ignored long-term decline and created this ‘megaplex’ cinema with 25 screens and seating for 7,600 audiences. 

Other examples of more significant blue ocean strategic moves include Ford’s model Sony’s Walkman, Dell’s made-to-order, Starbucks, Nintendo’s Wii, and so on.”.

From the previous studies we illustrated the challenges of the Blue Ocean Strategy and we found more challenges in some practical cases:

  1. Finding the right blue ocean. Blue ocean sounds great: go to a new market. Yes, but which one? it is not that easy to come up with new ideas and identify large, untapped markets. There are thousands of stories of companies that could not find profitable new markets. By definition, these markets are new, uncontested, no one is there. Strategy is a choice. Choosing the right blue ocean strategy must be the result of a deliberate and detailed process, backed by the right research. There is no magic formula or silver bullet.
  2. Arriving too early. First mover advantage is a myth. Kodak invented the first digital camera. The iPhone was a couple years late to the smartphone party. Entering a market too early is a clear risk. Customers might not understand what you are trying to sell. 

The technology might not be fully developed. The Amiga computer was a decade ahead of PCs and Macs, it was a technological marvel, and it died because the world was not ready for it. The Apple Newton and the first Microsoft Tablet PCs were the right ideas, just a couple years too early.

3. Being too new, too different. Some blue oceans are free of predators, but also free of fish. Many companies come up with great ideas, but the market is not ready. New markets introduce new terminology, solve new problems, or solve existing problems in new ways. Consumers do not like too much change. When P&G introduced their improved concentrated laundry detergents, it failed because consumers could not conceive how a few drops could clean as well as a cap-full of Tide. We do not like change. I am typing this post on a QWERTY keyboard layout, designed in the early mechanical typewriter era (1873) to slow typing down. The DVORAK keyboard, designed in 1936, is clearly superior for this age, yet we do not want to change.

4. Strategy execution. Entering a new market is difficult. You need to be smart about who is your customer, what problem you are solving, how to educate them on new ideas, new products, new solutions – and how to explain the value of the new way of doing business. Tassimo had a better product than Keurig when both entered the new single-pod coffee market. Tassimo did not execute, and it is all but dead now. Keurig did a better job in executing the same idea, with an inferior product. Corporate mindset is a challenge too.

5. Strategic clarity and corporate mindset. It is not enough to decide you want to go in a different direction, you need to shift the direction of your company. This requires clarity about the new destination, the trade-offs it requires, the challenges of getting there. Corporate culture often must shift. Everyone in the organization needs to understand the new set of customers, the new rules implicit in the new strategy. When Rackspace pivoted to the cloud, it had to evolve the thinking prevalent in every one of its thousands of employees from hosting servers to providing a platform. Failing to get employees on board with the new direction can prevent you from getting to the blue ocean.

6. Trust and patience. Going to a different ocean, a blue ocean, requires a lot of trust, preparation, and faith. Results most likely will not be immediate, so it requires patience. Investors, executives, and employees should be realistic about the time required to be successful in a new market. Milestones that show meaningful progress are going to be important. It is also important to look at early indicators to confirm you are not fishing in a dead sea. Many companies when pivoting to a new strategy, do not do it gradually, they bet the farm. And they are not always right.

7. Defensibility. The moment you find a new ocean, other sharks from your former red ocean and other adjacent oceans will be attracted to your new market. Cirque’s pristine blue ocean is being pursued by new competitors, like Wynn’s Le Reve. New markets where profits can be found do not remain the domain of a single player for long. You need to build defensibility into your strategy. Your strategy to defend your market (and profits) can consist of speed of execution, brand power, or technology – among others. It is better to start building defenses as soon as you arrive in your new market.

pursuing a Blue Ocean strategy

Yes, it is possible to be successful pursuing a Blue Ocean strategy. Many companies have done it. The number of companies that failed in the attempt is probably larger, their skeletons lie now at the bottom of the sea.

Pros and cons of BOS

(Rahman and Chadhury, 2019) The study deals with the blue ocean strategy (BOS) that offers users a framework for making uncontested market space and diverts the outlooks from the existing competition to the creation of innovative value and demand. The purpose of the study is to determine the influence of BOS on organizational performance. In this study, previous research on these topics of BOS are examined. The findings show that there is a significant contribution of BOS to the enhancement of organizational performance. The study recommends that the policymakers should perform a critical analysis of BOS before implementation to see its suitability in the desired organization.

(Alam and Islam, 2017) This study is based on the pros and cons of the Blue Ocean Strategy (BOS) that offers users a framework for creating uncontested market space and diverts the views from the current competition to the creation of innovative value and demand. The main objective of the study is to show the overall scenario of BOS and its impact on organizational performance. The study includes the history of BOS, comparison with Red Ocean Strategy (ROS), relevance of applying BOS, Applications, Critics, Findings, Recommendations and Conclusion. The Findings of the study tries to show the ultimate results of applying the BOS and the recommendations urge some precautions to apply BOS. The result found that BOS positively affects the organization performance if applied in organizations. Overall, the study is effective to decide the adoption of BOS within the organization. The recommendation for the organization is to do an in-depth analysis on BOS before implementation to see the suitability considering the company size, industry condition, and adaptability.

CRITIQUES

The cornerstone of the blue ocean strategy is value innovation. Rather than concentrating on beating the competitors, the company must actually prioritize on making the competition irrelevant. This can be done by creating more value for buyers enabling the company to open up a whole new uncontested market space, the blue ocean. Some cost savings are expected during the process. However, despite all the practicality of its tools and proposed frameworks in the book, critical questions confront its credibility.

Firstly [Theory] it focuses on the research methodology because only successful companies were studied. Blue Ocean Strategy is critiqued with lack of evidence because it does not focus on the number of cases which applied blue ocean strategy and  failed. There was no successful business initiative that was not a blue ocean strategy.

Secondly [Market Definition] it is recognized that the term “blue ocean strategy” is new, but blue ocean’s existence is not. Blue Ocean was not created but the demand that was drawn from other markets. Some critiques say that the prospect of raising demand infinitely simply does not exist.  Creation of a Blue Ocean market space is about creating new demand and attracting noncustomers instead of “creating” new customers.

Thirdly [Competition] the fact that sooner or later someone will copy or even improve your already successful model, due to the certainty that a company cannot really create Blue Oceans, they will always be surrounded by businesses striving to increase sales. Moreover, it does not exclude the certainty that imitators will arise, nor that the Blue Ocean Strategy is a “closed-end solution”. The successful implemented Blue Ocean Strategy will give a company only a limited, relatively peaceful, period of time. A successful Blue Ocean Strategy would imply a viable short-term competitive strategy in place. Both of these strategies are necessary for a company to survive and perhaps create value innovation and describes the risk of ignoring relevant competition

Fourthly [Time horizon] their critique with the fact that the strategy does not distinguish between short-term and long-term strategic time horizons. Other scientists have detected and criticized that the Blue Ocean Strategy is made more for long-term solutions whereas the fact that these companies have to pay attention to their short-term business and daily business.

Lastly [Innovation] Several critiques were mentioned that could affect the innovation process of a company in a negative manner. Some specify the difference between the Blue Ocean Strategy and competitive strategies as different types of innovation. Whereas continuous innovations are part of the competitive strategy, radical innovations are more seen as Blue Ocean specific.

Furthermore, the Blue Ocean Strategy as a whole doesn’t seem to be very well-suited to foster the kind of creativity that is needed for developing unique strategies. Moreover, the used frameworks may even reduce creativity by suggesting strategy making is a multiple-choice exercise. The only opportunities would be to go for low costs, high differentiation, or a niche. Reinventing the wheel is a risk of ignoring upcoming products or services, and also differences between products or services in the market.

Marketing success will come as matter of course for value innovation. This is a dangerous assumption since value alone does not bring consumer to buy, but marketing does.

The concept cannot be applied to every single product or service. For example, stricter regulations are making it impossible for trust department to offer diversified products. This will surely complicate the process of implementing blue ocean strategy, unless of course a total change of business is done, usually involving high costs.

The two oceans have always coexisted and always will. Reality demands that companies understand the strategic importance of both types of oceans. Competing in red oceans dominates the current field of strategy in theory and in practice, even as businesses’ need to create blue ocean strategy heightens. Blue ocean strategists have always existed but for most part their strategies have been largely unconscious. Once companies realize that blue ocean strategies have a different underlying logic from red ocean strategies, they will be able to create many more blue oceans in the future.

Pros and cons of BOS

The writer’s opinion is clearly stating that there is a positive relationship between the BOS and the Organization performance, supported by practical studies such as:

CIRQUE DU SOLEIL

Cirque du Soleil took the world by storm. It created a blue ocean of new market space. Its blue ocean strategic move challenged the conventions of the circus industry. Cirque’s productions have been seen by more than 150 million spectators in more than 300 cities around the world. In less than twenty years since its creation, Cirque du Soleil achieved a level of revenues that took Ringling Bros. and Barnum & Bailey—the once global champion of the circus industry—more than one hundred years to attain.

What makes this rapid growth all the more remarkable is that it was not achieved in a declining industry in which traditional strategic analysis pointed to limited potential for growth. Supplier power on the part of star performers was strong. So was buyer’s power. Alternative forms of entertainment —ranging from various kinds of urban live entertainment to sporting events to home entertainment—cast an increasingly long shadow. Children cried out for video games rather than a visit to the travelling circus. Partially as a result, the industry was suffering from steadily decreasing audiences and, in turn, declining revenue and profits. There was also increasing sentiment against the use of animals in circuses by animal rights groups. 

Cirque du Soleil took the world by storm

Ringling Bros. and Barnum & Bailey set the standard, and competing smaller circuses essentially followed with scaled-down versions. From the perspective of competition-based strategy, the circus industry appeared unattractive.

Another compelling aspect of Cirque du Soleil’s success is that it did not win by taking customers from the already shrinking circus industry, which historically catered to children. Instead it created uncontested market space that made the competition irrelevant. It appealed to a whole new group of customers: adults and corporate clients prepared to pay a price several times as great as traditional circuses for an unprecedented entertainment experience. Significantly, one of the first Cirque productions was titled “We Reinvent the Circus.”

Cirque du Soleil succeeded because it realized that to win in the future, companies must stop competing in red oceans. Instead they should create blue oceans of uncontested market space and make the competition irrelevant.

Canon

Canon’s strategic move, which created the personal desktop copier industry, is a classic example of blue ocean strategy. Traditional copy machine manufacturers targeted office purchasing managers, who wanted machines that were large, durable, fast, and required minimal maintenance.

Defying the industry logic, the Japanese company Canon created a blue ocean of new market space by shifting the target customer of the copier industry from corporate purchasers to users. With their small, easy-to-use desktop copiers and printers Canon created new market space by focusing on the key competitive factors that the mass of noncustomers – the secretaries that used copiers – wanted.

By questioning conventional definitions of who can and should be the target buyer, companies can often see fundamentally new ways to unlock value. Path three of blue ocean strategy’s six paths framework pushes companies to look across the chain of buyers in their industry. By shifting focus to a previously overlooked set of buyers, companies can unlock new value and create uncontested market space.

The Ford Model T

Ford’s Model T, introduced in 1908, is a classic example of a market-creating blue ocean strategic move that challenged the conventions of the automotive industry in the United States. It made the automobile accessible to the mass of the market.

Until that time, America’s five hundred automakers built custom-made novelty automobiles. Despite the number of automakers, the industry was small and unattractive with cars unreliable and expensive, costing around $1,500, twice the average annual family income. But Ford changed all of that with the Model T.

Ford’s Model T, introduced in 1908, is a classic example of a market-creating blue ocean strategic move that challenged the conventions of the automotive industry in the United States. It made the automobile accessible to the mass of the market.

Until that time, America’s five hundred automakers built custom-made novelty automobiles. Despite the number of automakers, the industry was small and unattractive with cars unreliable and expensive, costing around $1,500, twice the average annual family income. But Ford changed all of that with the Model T.

He called it the car ‘for the great multitude, constructed of the best materials.’ Although it only came in one color (black) and one model, the Model T was reliable, durable, and easy to fix. And it was priced so that the majority of Americans could afford to buy one. In 1908 the first Model T cost $850, which was half the price of existing automobiles. In 1909 it dropped to $609, by 1924 it was down to $240. A 1909 sales brochure proclaimed, ‘Watch the Ford Go By, High Priced Quality in a Low-Priced Car.’

Ford’s success was underpinned by a profitable business model.
Ford’s Model T, introduced in 1908

By keeping the cars highly standardized and offering limited options and interchangeable parts, Ford’s revolutionary assembly line replaced skilled craftsmen with ordinary unskilled laborers who worked one small task faster and more efficiently, cutting the labor hours by 60 percent. With lower costs, Ford was able to charge a price that was accessible to the mass market.

Sales of the Model T exploded. Ford’s market share surged from 9 percent in 1908 to 61 percent in 1921. So great was the blue ocean Ford created that the Model T replaced the horse-drawn carriage as the primary means of transport in the United States.

This automotive industry case study highlights the common pattern underlying successful blue ocean strategic moves: Value Innovation. It’s the simultaneous pursuit of differentiation and low cost that allows companies to unlock new demand and create blue oceans of uncontested market space.

PHILIPS

Philips’ blue ocean strategic move in the teakettle industry is an example of looking across complementary product and service offerings, path four in the six paths framework.

Despite its importance to British culture, the British teakettle industry had flat sales and shrinking profit margins until Philips Electronics, the Dutch consumer electronics company, came along with a teakettle that turned the red ocean blue.

By thinking in terms of complementary products and services, Philips saw that the biggest issue the British had in brewing tea was not in the kettle itself but in the complementary product of water, which had to be boiled in the kettle. The issue was the limescale found in tap water. The limescale accumulated in kettles as the water was boiled, and later found its way into the freshly brewed tea. The phlegmatic British typically took a teaspoon and went fishing to capture the off-putting limescale before drinking home-brewed tea. To the kettle industry, the water issue was not its problem. It was the problem of another industry—the public water supply.

By thinking in terms of solving the major pain points in customers’ total solution, Philips saw the water problem as its opportunity. The result: Philips created a kettle with a mouth filter that effectively captured the limescale as the water was poured. Limescale would never again be found swimming in British home-brewed tea. The industry was kick-started on a strong growth trajectory as people began replacing their old kettles with the new filtered kettles.

Conclusion...

To reconstruct market boundaries and create new market space, think about applying path four of blue ocean strategy’s six paths framework. It drives you to look across complementary products and service offerings to discover ways to create a leap in value.

According to the previous literature review and the conducted readings that covered mainly the purpose and the main characteristics of BOS as well as illustrating its pros and cons. Also, solidifying the conducted arguments, research analysis and different scholars’ opinions with applied evidence and case studies covering both worldwide regions as a remote environment and business sectors analysis as industrial environment. Hence, most of the studies presented emphasized the crucial and essential role of BOS and its effect on organization performance. As a conclusion of this paper, the researcher’s opinion seconds the hypothesis stating the there is a positive relation between BOS and company performance recommending that further studies are encouraged to be conducted for the sake of continuously developing the BOS and applying updated techniques and methods to effectively and continuously improve the productivity and effectiveness of organization performance.

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This article is written by:
Dr. Soha Amer
Pinnacle, Go to Market Consultant
Pinnacle Ltd.

Pinnacle Ltd. is a multi-countries modern consultancy firm, with offices around 13 countries in 4 continents, and 34 consultants working remotely and virtually managed.

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