Blue ocean Strategy: A review

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Blue Ocean Strategy lays down a set of principles aimed at creating a demand centric focus rather than being supply side oriented. To explain this concept the authors of the book “Blue Ocean Strategy How to Create Uncontested Market Space and Make Competition Irrelevant”, W. Chan Kim and Renée Mauborgne, use the analogies Red Ocean and Blue Ocean, where Red ocean indicates the highly competitive existing markets and Blue Ocean concentrates on tapping undiscovered customer bases.

Justifying the need for developing innovation centric approaches the authors state the fallacies in the existing approach of companies in competing in red oceans. The competition based approach leads to everyone resorting to the same techniques in the market leading to smaller market segments and pressure on existing margins. The current trends of globalization also are counter productive to the Red Ocean approach, as with merging markets it becomes very expensive and sometimes non profitable to keep abreast with the competition.

The Red Ocean approach leads to everyone hovering over the same buyer group and attempts to make your self outstand in the already well defined group.

The focus of the Blue Ocean approach is to create your own market and be a leader in that field. The authors state that such an approach need not necessarily lead to a technological innovation but necessarily aimed at understanding new markets and tapping altogether different customers. It is an attempt at identifying latent demands. The profit margins in Blue Oceans are far more substantial than any of the Red Ocean approaches where each and every strategy is evolved vis-à-vis the competition leading to low profits. The Blue Ocean strategy claims that a simultaneous low cost and high differentiation approach need to be pursued in the identified market to stay a leader. The key is to look across alternative markets and strategy groups across the industry to get a hang of which customers have been untapped.

The strategy comprises of different tools and frameworks for strategy. One of the tools for identifying innovation possibilities is the Strategic Canvas.

The strategy canvas is a graph depicting the company’s position vis-à-vis the competition in the market. It helps diagnose the gaps and areas for differentiation.

The x axis lists the factors that companies compete on, and the y axis is an indication of the magnitude of investment of each competitor on that particular factor.

An example of a strategy canvas is depicted below.

Source :http://hbswk.hbs.edu/archive/3020.html#chart

The graph for Southwest Airlines shows how it has differentiated itself from the competition on friendly service, speed and frequent departures.

The Strategy Canvas helps your company in identifying the common points of competition and the differences and the gaps if any in the industry. The graph above has used a very novel approach in making a comparison even with the car segment(road transportation) which is an alternative to the airline industry. It even helps in identifying the congruence of differentiation on different factors for e.g. the graph above for Southwest Airlines show that it has differentiated itself on the factors that are advantages of the car commutation mode and not on the factors of the airline industry.

Some examples of Blue Ocean strategy implementation from http://www.valueinnovation.net/2008/04/blue-ocean-strategy-technology.html

1.) Nintendo Wii’s addition of accelerometer in the Wii remote, thereby creating a magic wand to control the video game console.

2.) Google’s brilliant algorithmic and data mining approach to identify relevant searches by tracking the user mind.

3.) Toyota Prius a high computing power based vehicle.

Another noteworthy example is the approach used by Cirque de Soleil. The circus used to function by the market norms of a circus by staging typical animal and performer shows. They shifted their focus to more mature entertainment by clubbing the typical circus activities with theatre and which not only created more market value but reduced their costs as well.(Ref: http://blog.hubspot.com/blog/tabid/6307/bid/54/Blue-Ocean-Strategy-A-Small-Business-Case-Study.aspx)

A criticism of Blue Ocean strategy is that no matter how unique your innovation might be every Blue Ocean gradually turns into a Red Ocean, i.e. the typical first movers advantage is short- lived. Secondly the vehement supporters of Blue Ocean only project the success stories of this strategy. There numerous examples of very well thought innovations failing in the market despite of identifying a potential segment.

Thirdly Blue Ocean strategy negates the role played by randomness in innovation. Many unique innovations that become successful are not deliberate in nature, they have huge role of chance in them. Creating a strategy for innovation may not necessarily lead to results. However Blue Ocean does provide an incentive and food for thought for capturing new markets. Many non-biased strategists are of the view that company executive should spend certain amount of time and energy in pursuing innovations.

References :

1.) Dr. Dan Herman(n.d.). Every Blue Ocean Will Eventually Turn Red; Create An Unfair Advantage Instead .Retrieved September 07, 2008, from http://www.content4reprint.com/business/management/every-blue-ocean-will-eventually-turn-red%3B-create-an-unfair-advantage-instead.htm

2.) Assoc. Professor Assoc. Professor Andy Young University of Warwick, UK (n.d.).BLUE OCEAN STRATEGY.Retrieved September 07, 2008, from http://web.management.ntu.edu.tw/English/NtuMBA/Upload/Blue%20Ocean%20Strategy-Andrew%20Young.pdf

3.) Blue Ocean Strategy (n.d) .Retrieved September 07, 2008, from http://en.wikipedia.org/wiki/Blue_Ocean_Strategy

4.) Susan Sarfati (n.d.).Swimming Toward a Blue Ocean. Retrieved September 07, 2008, from EBSCOhost Web ,

5.)Ralph G. Trombetta, Founder, Value Innovation Associates and Senior Strategist, The Value Innovation Network(n.d.).Design Your Future: Blue Ocean Strategy.Retrieved September 07, 2008, from EBSCOhost Web, Xavier Institute Of Management

6.) Blue Ocean Strategy:How to Create Uncontested Market Space and Make the Competition Irrelevant(n.d.).Retrieved September 07, 2008,from http://www.corporatestrategy.com/

7.) Use a strategy canvas to identify innovation opportunities(August 03,2006).Retrieved September 07, 2008,from http://www.innovationtools.com/Weblog/innovationblog-detail.asp?ArticleID=946

8.)http://www.blueoceanstrategy.com

Managing Uncertainty: Different Viewpoints

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The litmus test of a robust organization is its response to the most uncertain scenarios. The quest for evolving techniques to cope with the vagaries of the business environment has forever occupied the management strategist. The very fetish of inventing a permanent process for every environment has led to the debacle of many organizations.

It has always been a certain human tendency to model the successful. However prudent the approach of the winner might be, the very fact that is ignored in all such models is the role played by randomness of environment i.e. precisely what works for Microsoft may not work for Infosys.

Flexibility though a certain clue may not be an absolute approach to every situation. In the article Strategy Under Uncertainty the authors Hugh Courtney, Jane Kirkland, and Patrick Viguerie in their attempt to explain uncertainty first identify the varying degrees of uncertainty, from level 1 where the future is clearly visible to level 4 where ambiguity is all pervasive, in an increasing order. Then the authors come up with list of responses to each and every stimulus. Though this works perfectly as a broad classification but in an extremely varying and chaotic environment there is scope for overlapping among different levels of uncertainty and even in approaches to each trigger of the environment. However it does provide a framework for an initial analysis or kickoff.

My alternative take on the issue of dealing with uncertainty would be to first make a correct identification of the randomness inherent in the uncertainty of the environment. It is a prominent problem with management consultants and practitioners to search for a definite answer when the question in the first place is not exactly defined. To illustrate my point further, many a times the best possible solution is achieved but that does not necessarily ensure success, not because of a strategic flaw but because of the role played by randomness in the situation, it would be a capital mistake to find a new solution that fits the successful event in a post event analysis. So a step further would be to first identify the randomness involved in the uncertain environment and choosing the least risky approach might work out for survivability of the organization if that be a goal.

Some novel approaches to managing uncertainty stem from the stream of complexity theory where uncertainty is viewed as originating from highly complex system. In the article Managing Uncertainty in Innovation: The Applicability of Both Real Options and Path Dependency Theory the authors hint at using a problem centric approach rather than an optimistic solution centric approach. The authors are also strong propagators of understanding the role of societal influence on problems. Some of the uncertainties in the environment exist from different perceptions of the same problem by different parties.

Another clue for managing business uncertainties could come from the uncertainty management in the field of creative media arts. Most art and media productions are prone to a vicissitude of scenarios, as the productions span months and years. This makes them highly prone to uncertainties as the changing tastes and fads of the public determine the outcome of the production. A widely used approach is the use of pilot testing with sample audiences, but the key again is whether the sample audience would be a representative of the population. A regular sampling ensures that the producers are continuously aware of the changing environments.

References:

1.) Hugh Courtney, Jane Kirkland, and Patrick Viguerie (1997).Strategy Under Uncertainty, HBR (November – December 1997)

2.) Anna M. Dempster(2006).Managing Uncertainty in Creative Industries: Lessons from Jerry Springer the Opera,The Author Journal compilation,Volume 15 Number 3,Blackwell Publishing.Retrieved September 07, 2008, from EBSCOhost Web ,Xavier Institute Of Management

3.) William H.A. Johnson(2007).Managing Uncertainty in Innovation:The Applicability of Both RealOptions and Path Dependency Theory,The Author Journal compilation,Volume 16 Number 3 2007,Blackwell Publishing.Retrieved September 07, 2008, from EBSCOhost Web , Xavier Institute Of Management

4.) Alice MacGillivray(2008). A Review of Managing Uncertainties in Networks: A Network Approach to Problem Solving and Decision Making written by Joop Koppenjan and Erik-Hans Klijn,published by Routledge,Book reviews E:CO Issue Vol. 10 No. 2 2008 pp. 129-135.Retrieved September 07, 2008, from EBSCOhost Web , Xavier Institute Of Management

5.) Nassim Nicholas Taleb(2004).Fooled by Randomness: The Hidden Role of Chance in the Markets and in Life, Second Edition