What Is A Blue Ocean Strategy? One Of The Dangers In Craftin
What Is A Blue Ocean Strategy One Of The Dangers In Crafting Th
What Is A Blue Ocean Strategy One Of The Dangers In Crafting Th
Blue Ocean Strategy is a business approach that emphasizes creating uncontested market space—termed "blue oceans"—rather than competing in saturated markets, or "red oceans." The central idea is to innovate in a way that renders the competition irrelevant by fundamentally changing the boundaries of industry and creating new demand (Kim & Mauborgne, 2005). However, a significant danger in crafting a Blue Ocean strategy is that managers might become "stuck in the middle," failing to pursue a clear differentiation or cost leadership, leading to ambiguous positioning that diminishes competitive advantage (Porter, 1980). This situation occurs when firms attempt to pursue both low-cost and differentiation strategies simultaneously, which can dilute their strategic focus and erode profitability (Kim & Mauborgne, 2005). Therefore, managers need to ensure a coherent value proposition that aligns with their strategic intent to avoid this trap.
The Five Forces model, developed by Michael Porter, provides a comprehensive framework to analyze industry attractiveness and competitive pressures. When considering one of the generic strategies—cost leadership or differentiation—the Five Forces can be leveraged to understand how forces such as supplier power, buyer power, threat of new entrants, threat of substitutes, and industry rivalry influence strategic choices. For instance, in a cost leadership strategy, analyzing supply chain efficiencies and bargaining power of suppliers can help a firm identify cost reduction opportunities (Porter, 1980). Conversely, for differentiation strategies, understanding the threat of substitutes and industry rivalry helps position offerings uniquely to customers (Porter, 1980). By systematically evaluating these forces, managers can identify areas where strategic positioning can be reinforced or improved to sustain competitive advantage within their chosen scope of competition.
There are two primary generic competitive strategies: cost leadership and differentiation. The cost leadership strategy aims to achieve a competitive advantage by becoming the low-cost producer in the industry, allowing the firm to penetrate broad markets or defend against rivals with lower prices (Porter, 1980). This approach hinges on efficiency, economies of scale, and cost control, enabling the firm to sustain profitability even in price-sensitive segments. Differentiation, on the other hand, focuses on providing unique products or services that are valued by customers, allowing the firm to command premium prices. The competitive advantage in differentiation stems from branding, quality, features, or customer service that distinguish the firm from competitors (Porter, 1980). Both strategies are influenced by the scope of competition, which defines whether the firm targets a broad or niche market—broad scope allows for extensive market coverage, while narrow scope targets specialized segments.
Exhibit 5.10 introduces the "Why, What, Who, and How" of Business Models framework, marking a significant shift from traditional approaches by emphasizing the interconnectedness of a firm's purpose, value proposition, target customer segments, and operational processes. This framework encourages firms to think holistically about how to create, deliver, and capture value, integrating strategic elements into a cohesive model. It moves away from static, product-centric views, fostering dynamic, customer-centric, and adaptable business architectures that better reflect the complexities of contemporary markets (Osterwalder & Pigneur, 2010).
The Balanced Scorecard approach (Exhibit 5.8) is a strategic management tool that facilitates value creation by translating a company's vision and strategy into a comprehensive set of performance measures across four perspectives: financial, customer, internal business processes, and learning and growth. This multidimensional approach ensures that firms monitor both short-term financial outcomes and long-term strategic capabilities, fostering balanced organizational growth (Kaplan & Norton, 1992). By aligning initiatives and measures across these perspectives, firms can improve operational efficiency, enhance customer satisfaction, innovate continuously, and ultimately create sustainable competitive advantage.
Exhibit 5.11 focuses on measuring and assessing competitive advantage by incorporating both qualitative and quantitative performance dimensions. Quantitative measures include financial ratios, market share, and profitability metrics, which provide objective data on a firm’s performance. Qualitative measures, such as customer satisfaction, brand reputation, and innovation capability, offer insights into intangible assets and future potential (Hitt et al., 2016). Considering both dimensions allows for a more holistic evaluation of competitive advantage, recognizing that successful long-term performance not only depends on financial outcomes but also on intangible assets and market perceptions. This comprehensive approach helps managers make informed strategic decisions to sustain and strengthen competitive positioning over time.
References
- Kim, W. C., & Mauborgne, R. (2005). Blue Ocean Strategy. Harvard Business Review.
- Porter, M. E. (1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors. Free Press.
- Osterwalder, A., & Pigneur, Y. (2010). Business Model Generation. Wiley.
- Kaplan, R. S., & Norton, D. P. (1992). The Balanced Scorecard: Measures that Drive Performance. Harvard Business Review.
- Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2016). Strategic Management: Concepts and Cases. Cengage Learning.