In a business context, it is inevitable that one of the main words one would hear is competition. In a way doing business is like participating in a competition for market share, profits etc. Even one of the basic theories of trade, the one of Ricardo, speaks about the competitive advantage and its importance.
But how to become successful in doing business? Does a recipe exist which guarantees that a business could thrive and be successful? On the one hand one could argue that business opportunities arise from the environment, lead by an “invisible hand” and the essentials of doing business are similar to the one centuries ago and that people do not have substantial influence. On the other hand, others would argue that the success of a business is predominantly result of the well-prepared planning and in that way is connected more to the human (merchant’s) abilities rather than to the environment itself.
Surely, the centuries of business history has shown that answering the question what makes a business successful does not have a clear answer. It would be very shallow way of thinking to give a simple answer to this question. Surely, the environment plays an important role for the business but the other way round, doing business is not a random game. In contrast, only thinking strategically without being in the appropriate environment and without any resources, it is quite impossible to set up a successful business.
Furthermore, the business environment is not static but instead very dynamic. As the time passes by, businesses change and what was true about business success centuries or even a decades ago, is not true any more. At the same time, it does not mean that business now and in the past has nothing in common. On the contrary, nowadays the business and management science is so complex and possesses sophisticated methodology and tools which help to prove that the strategical way of thinking in the context of doing business is an essential part of the success of a company. And even the understanding of business strategy is different because it could range from simple planning to the application of very complex scientific business models. However, as the business environment changes, so do the business strategies as well. That’s why some of the often considered for true strategies, seem to be out-of-date with the business reality. For that reason, if a strategy does not work, one has to check it again.
Table of Contents
1. Introduction (DD)
2. Necessity of strategic management (DD)
3. Blue Ocean Strategy
3.1. Examples for Blue Ocean Strategy (KN)
3.2. Analytical Blue Ocean Tools (KN)
3.2.1. First Tool: The Strategy Canvas (KN)
3.2.2. Second Tool: The Four Actions Framework (KN)
3.2.3. Third Tool: The Eliminate-Reduce-Raise-Create Grid (KN)
3.2.4. Three Qualities (KN)
3.3. The six principles of formulating Blue Ocean Strategy
3.3.1. First Principle: Reconstructing market boundaries (KN)
3.3.2. Second Principle: Focus on the big picture (KN)
3.3.3. Third Principle: How to create demand (DD)
3.3.4. Fourth Principle: Business Model (DD)
3.3.5. Fifth Principle: Overcoming key organizational hurdles (DD)
3.3.6. Sixth Principle: Build Execution into Strategy (KN)
4. Evaluation and future trends
4.1. The Helo Effect – a critical opinion from McKinsey (KN)
4.2. Blue Ocean and the future of management (KN)
4.3. Innovation management and blue ocean strategy (DD)
4.4. Geographical Differences (DD)
4.5. Critique of the Blue Ocean Strategy (DD)
5. Conclusion (DD/KN)
Objectives and Topics
The primary objective of this seminar paper is to explain the core concepts of the Blue Ocean Strategy, demonstrate the analytical tools used to create uncontested market spaces, and provide a critical evaluation of its relevance in contemporary business environments. The paper investigates how firms can move beyond traditional competition by focusing on value innovation and strategic reorientation.
- Theoretical foundations of strategic management and competitive positioning.
- Analytical frameworks including the Strategy Canvas and the Four Actions Framework.
- Strategic principles for creating new demand and overcoming organizational hurdles.
- Critical evaluation and comparison with alternative models like the Delta Model.
- Practical application examples such as Cirque du Soleil and Yellow Tail.
Excerpt from the Book
3.2.1. First Tool: The Strategy Canvas (KN)
The Strategy Canvas is a central tool for creating blue ocean. It is a strategy map, a visual representation of the company's strategy vis-à-vis the competition. Kim and Mauborgne explain the Strategy Canvas by using the example of the American wine industry, which, according to them, has seven principal factors, such as the price, the aging quality of wine, the prestige of a wine's vineyard, and others that are all seen as a key to the promotion of wine. This range of factors is the horizontal axis, the market perspective of the Strategy Canvas. The vertical axis shows the offering level that buyers receive across all the key competing factors: from a low level of a certain factor, e.g. low price, to a high level, e.g. high quality.
By graphically pose the current offering of wineries across all given factors the aim is to understand the wineries` strategic profiles, so called value curves. The value curve is the basic component of the strategy canvas. It answers the most important question whether a business deserves to be a winner. When a company's value curve is similar to the value curves of the competitors it indicates that this company is likely caught in a situation of bloody competition. While if a company's value curve shows a high level across all factors, this might be an indicator for an oversupply of factors to the customers. It might be necessary for the company to reduce or eliminate some factors. Another indicator of a noneffective strategy is a “zigzag” form of the value curve. In this case the company does not have a clear strategic vision and can not survive in the long-term view (Kim/Mauborgne, 2005, pp. 41-43).
Summary of Chapters
1. Introduction (DD): This chapter outlines the inherent challenges of business competition and the necessity of strategic thinking in a dynamic environment.
2. Necessity of strategic management (DD): It establishes the foundational definitions of strategic management and explains why structured planning is vital for corporate performance.
3. Blue Ocean Strategy: This central chapter explains the shift from competing in overcrowded industries to creating uncontested market space through innovation.
3.1. Examples for Blue Ocean Strategy (KN): This section provides real-world business cases, such as Cirque du Soleil, that have successfully applied blue ocean principles.
3.2. Analytical Blue Ocean Tools (KN): It introduces actionable frameworks including the Strategy Canvas and the Four Actions Framework to help managers formulate strategy.
3.2.1. First Tool: The Strategy Canvas (KN): Describes how the Strategy Canvas maps strategic profiles and identifies opportunities for value creation.
3.2.2. Second Tool: The Four Actions Framework (KN): Outlines the four key questions aimed at reducing costs while simultaneously lifting buyer value.
3.2.3. Third Tool: The Eliminate-Reduce-Raise-Create Grid (KN): Explains the grid method that operationalizes the Four Actions Framework.
3.2.4. Three Qualities (KN): Defines the essential qualities of focus, divergence, and a compelling tagline for a successful strategy.
3.3. The six principles of formulating Blue Ocean Strategy: Introduces the comprehensive step-by-step process required for successful formulation and execution.
3.3.1. First Principle: Reconstructing market boundaries (KN): Details the "Six Paths Framework" for looking across industries and buyer groups.
3.3.2. Second Principle: Focus on the big picture (KN): Emphasizes using visualization tools to avoid being trapped in excessive number-driven analysis.
3.3.3. Third Principle: How to create demand (DD): Argues for focusing on noncustomers to unlock potential market growth.
3.3.4. Fourth Principle: Business Model (DD): Explains the strategic sequence of utility, price, cost, and adoption to ensure profitability.
3.3.5. Fifth Principle: Overcoming key organizational hurdles (DD): Addresses the cognitive, resource, motivational, and political challenges in executing strategic shifts.
3.3.6. Sixth Principle: Build Execution into Strategy (KN): Highlights the importance of a "fair process" and employee engagement in implementing strategy.
4. Evaluation and future trends: Offers a critical perspective on the strategy, incorporating opposing views from thinkers like Phil Rosenzweig and Gary Hamel.
4.1. The Helo Effect – a critical opinion from McKinsey (KN): Critiques the assumption that successful companies are solely the product of a singular, perfect strategy.
4.2. Blue Ocean and the future of management (KN): Discusses whether existing management models remain adequate for the challenges of the 21st century.
4.3. Innovation management and blue ocean strategy (DD): Explores the connection between technological innovation and value innovation.
4.4. Geographical Differences (DD): Addresses how regional contexts influence the way successful strategies are developed.
4.5. Critique of the Blue Ocean Strategy (DD): Compares the Blue Ocean Strategy with other models, such as the Delta Model, noting similarities and differences.
5. Conclusion (DD/KN): Summarizes the key insights and reflects on the necessity of critical thinking in applying strategic frameworks.
Keywords
Blue Ocean Strategy, Value Innovation, Strategy Canvas, Competitive Advantage, Strategic Management, Market Boundaries, Noncustomers, Four Actions Framework, Tipping Point Leadership, Business Model, Execution, Innovation Management, Delta Model, Strategic Sequence, Value Curve
Frequently Asked Questions
What is the core purpose of this paper?
This paper aims to demystify the Blue Ocean Strategy, explaining its basic concepts and providing tools and principles that allow companies to create new, uncontested market spaces rather than competing in existing, saturated ones.
What are the primary themes discussed in the work?
The main themes include value innovation, strategic mapping, the importance of focusing on noncustomers, the strategic sequence of business models, and overcoming organizational hurdles during the implementation phase.
What is the primary objective of the Blue Ocean Strategy?
The primary goal is to make the competition irrelevant by creating a new value proposition that simultaneously achieves differentiation and lower costs, thereby unlocking new demand.
Which scientific methods are employed?
The paper utilizes a literature-based analytical approach, reviewing the original work by Kim and Mauborgne, applying their frameworks to real-world business cases, and contrasting these findings with critical perspectives from contemporary management theory.
What topics are covered in the main body?
The main body systematically reviews the analytical tools (Strategy Canvas, Four Actions Framework), the six principles for strategy formulation, organizational execution challenges, and a comparative evaluation against other strategy models like the Delta Model.
How would you describe the key characteristics of this strategy?
It is characterized by a shift from red ocean competition to blue ocean creation, an emphasis on big-picture strategic visualization, a focus on noncustomers, and the integration of execution directly into the strategy formulation process.
How does the "Four Actions Framework" function?
It helps firms define a new value curve by questioning which industry factors should be eliminated, reduced, raised, or created, thereby breaking the traditional trade-off between differentiation and low costs.
What is the significance of the "Tipping Point Leadership"?
Tipping point leadership is presented as a method to overcome organizational hurdles by focusing on the people, acts, and activities that exert a disproportionate influence on performance, rather than trying to change the entire mass of employees at once.
How does this strategy compare to Michael Porter’s competitive models?
While Porter emphasizes industry structure and gaining competitive advantage in existing markets, the Blue Ocean Strategy suggests that firms can transcend these structures by looking for new market space that currently does not exist.
- Quote paper
- Katharina Niciejewska (Author), Dimitar Dimitrov (Author), 2008, Business strategies: Blue Ocean Strategy, Munich, GRIN Verlag, https://www.grin.com/document/115235
