Management Model: "Blue Ocean Strategy"

?? STRATEGY & POSITIONING pattern ??

?? Prologue

The Blue Ocean Strategy, developed by W. Chan Kim and Renée Mauborgne in 2005, is a groundbreaking approach to business strategy that focuses on creating uncontested market spaces rather than competing in existing, saturated markets. This innovative concept has revolutionized the way organizations approach growth and competitive advantage.

The strategy encourages companies to break free from the "red oceans" of fierce competition and instead create "blue oceans" of new market opportunities (Kim & Mauborgne, 2005). By simultaneously pursuing differentiation and low cost, companies can create value innovation, expanding market boundaries and capturing new demand.

The Blue Ocean Strategy has been successfully implemented by numerous organizations across various industries, demonstrating its versatility and effectiveness in driving sustainable growth and profitability.

?? Key Takeaways

Key points: Blue Ocean Vs. Conventional Leadership; Blue Ocean Leadership Grid; Buyer Utility Map; Cost of Designated Employees; ERRC Grid; Fair Process; Five Steps to a Blue Ocean Shift; Four Actions Framework; Four Hurdles to Strategy Execution; Four Step Blue Ocean; Leadership Canvas; Leadership Process; Pioneer Migrator Settler Map; Price Corridor of the Mass; Red Ocean Vs Blue Ocean Strategy; Sequence of Creating a Blue Ocean; Six Paths Framework; Strategy Canvas; Three Components of Blue Ocean Shift; Three Components of Humanness; Three Tears of Noncustomers; Tipping Point Leadership; Value Innovation.

Key Takeaways:

• The Eliminate-Reduce-Raise-Create (ERRC) Grid is an analysis tool used with the Four Actions Framework. While the Four Actions Framework asks crucial questions, the ERRC grid helps you put it into action to create a new blue ocean (Miro, n.d.).

• Four Actions Framework: The strategy employs a four actions framework - Eliminate, Reduce, Raise, and Create - to reconstruct market boundaries and develop new value curves.

• Horizontal Axis (Competitive Factors): The horizontal axis represents the factors on which businesses in the industry compete, such as price, quality, features, or customer service. These are the traditional aspects on which companies typically focus their efforts to outperform one another (Pereira, 2024).

• Market Creation: Rather than competing in existing markets, the strategy focuses on creating new demand and expanding market boundaries.
• Sustainable Growth: By creating unique value propositions, companies can achieve sustainable growth and profitability in uncontested market spaces.
• Systematic Approach: Blue Ocean Strategy provides a structured process for identifying and creating new market opportunities, making it a repeatable and scalable approach to innovation.
• Value Innovation: The Blue Ocean Strategy emphasizes the importance of creating value innovation, which involves simultaneously pursuing differentiation and low cost. This approach allows companies to create new market spaces and make competition irrelevant.

?? When & How to Use the Model:

The Blue Ocean Strategy is best implemented when companies are facing intense competition in their existing markets or seeking new growth opportunities. To apply the model effectively:

1. Analyze the current market landscape and identify pain points that limit industry growth.
2. Use the Four Actions Framework to reconstruct market boundaries and develop alternative opportunities.
3. Create a strategy canvas to visualize the current industry factors and identify areas for differentiation.
4. Develop and test new value propositions that address unmet customer needs.
5. Align the entire organization around the new strategy, ensuring that all aspects of the business support the blue ocean move.

?? Real-world Examples:

The strategy is particularly useful for companies looking to break away from commoditization, enter new markets, or disrupt existing industries (Kim & Mauborgne, 2004).

• Airbnb: Developed a new market for short-term rentals, challenging traditional hospitality models and creating value for both property owners and travelers.
• Apple Inc.: Apple Inc. found a blue ocean with its iTunes music download service. While billions of music files were being downloaded each month illegally, Apple created the first legal format for downloading music in 2003 (Young, 2022).
• Cirque du Soleil: Reinvented the circus industry by eliminating traditional elements and incorporating theatrical artistry, creating a new entertainment category.
• Netflix: Netflix created new models of entertainment: first by introducing mail-order video rentals, and later by pioneering the first streaming video platform paid for by user subscriptions (Young, 2022).
• Nintendo Wii: Targeted non-gamers and casual players, expanding the video game market beyond traditional hardcore gamers.
• Uber: Created a new market space in transportation by connecting riders with drivers through a mobile app, disrupting the traditional taxi industry.
• Yellow Tail: Simplified wine selection and marketing, making wine accessible to a broader audience and capturing a significant market share in the United States.

?? Challenges to Implementation:

• Organizational Resistance: Implementing a Blue Ocean Strategy often requires significant changes in organizational structure and culture, which can face resistance from employees and stakeholders.
• Risk and Uncertainty: Creating new markets involves inherent risks and uncertainties, as there is no proven demand or established business model to follow.
• Resource Allocation: Shifting resources from existing operations to new market initiatives can be challenging and may face opposition from within the organization.
• Execution Complexity: Successfully implementing a Blue Ocean Strategy requires careful planning, coordination, and execution across multiple business functions.
• Maintaining the Blue Ocean: As successful strategies are often imitated, companies must continuously innovate to maintain their competitive advantage and prevent their blue oceans from turning red.

?? Final Analysis:

The Blue Ocean Strategy offers a powerful framework for companies to break free from traditional competitive strategies and create new market spaces. By focusing on value innovation and systematic market creation, organizations can achieve sustainable growth and profitability.

While the implementation of this strategy presents challenges, its potential rewards in terms of market leadership and long-term success make it a compelling approach for businesses seeking to differentiate themselves in today's competitive landscape.

The success stories of companies like Cirque du Soleil, Nintendo, and Airbnb demonstrate the transformative potential of the Blue Ocean Strategy when executed effectively. As markets continue to evolve and competition intensifies, the principles of the Blue Ocean Strategy remain relevant and valuable for organizations looking to create and capture new demand.

PROFESSIONAL: I conduct academic research by interviewing CEOs of small and medium-sized businesses (SMEs) in Japan, known as Japanese Global Niche Top (aka "Hidden Champion").

• I am also conducting a holistic four-year study that examines the growing entrepreneurial ecosystem in Japan, which includes interviews with startups, incubators, accelerators, studios, living labs, venture capitalists, and government officials (to date, individuals have been interviewed in Tokyo, Osaka, Kyoto, and Hiroshima).

PERSONAL: I am a polymath and love all types of topics typically reading 2-3 books each week. Now, I have a chance to share my insights with readers!

References

Iruthayasamy, L., & Iruthayasamy, L. (2021). Blue ocean versus red ocean. Understanding Business Strategy: Confusion and Consensus, 93-114.

Kabukin, D. (2014). Reviewing the Blue Ocean Strategy. Is the Blue Ocean Strategy valid and reliable? (Master's thesis, University of Twente).

Khan, A. M. (2019, June 10). Business Model Canvas & Blue Ocean Strategy | “Business Model Generation.” Medium. https://tinyurl.com/48c73vuc.

Kim, W. C., & Mauborgne, R. (2004, October). Blue Ocean Strategy. Harvard Business Review. https://hbr.org/2004/10/blue-ocean-strategy.

Kim, W. C. (2005). Blue ocean strategy: from theory to practice. California management review, 47(3), 105-121.

Kim, W. C., & Mauborgne, R. (2011). Blue ocean strategy. Harvard business review.

Kim, C., & Mauborgne, R. (2013). Strategy Canvas | Blue Ocean Tools and Frameworks. Blue Ocean Strategy. https://www.blueoceanstrategy.com/tools/strategy-canvas/.

Kim, W. C., & Mauborgne, R. A. (2014). Blue ocean strategy, expanded edition: How to create uncontested market space and make the competition irrelevant. Harvard business review Press.

Kumar, S. (2023). Red Ocean Strategy: A Literature Review. International Journal of Economics & Business Administration (IJEBA), 11(4), 91-100.

Trompenaars, F., & Coebergh, P. H. (2014). 100+ management models. Oxford: Infinite Ideas.

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