Assinment Complete

7/30/2019 Assinment Complete

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UNIVERSITY OF WALES NEWPORT

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Blue Ocean Strategy is a powerful technique through which a business can identify new market

positions and create competitive advantage.


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Using your knowledge and understanding of Blue Ocean Strategy critically evaluate the Blue Ocean

process and its key analytical tools, when applied to a SME.

Your essay should draw on suitable references to support your arguments and should present

appropriate conclusions.

Within your 2000 word submission you should:

Critically analyse and evaluate the key tools and processes involved in producing a Blue

Ocean Strategy

Critically evaluate this analytical method, using appropriate case studies and references

where relevant.

Discuss, particularly in relation to SMEs, its purpose, application and timing

This aim of this essay is to analyse, explain the importance, evaluate the key

tools and process in producing a Blue Ocean strategy. This essay proceeds

further by the evaluation of using different case studies. In the end this

essay will describe the usage and importance of Blue Ocean Strategy when

applied in a small medium enterprise company.


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To start a business it is important to make a strategy. As a good strategy can

make a business successful and sometimes a bad strategy can ruin the

business as well. As discussed by Harrison (2009), a strategy is a plan made

by an organisation in order to achieve a short term goal and ultimately to

achieve the fundamental purposes. According to Harrison and Johan (2009),

they described that the strategy includes strategy positioning, as it helps a

company to perform different activities from the competitors or to perform

similar activities in a very different way.

The SME managers should make a strategic decision regarding the direction

of the business. The strategy will then relate to its customers and its

competitors. (Harrison and Johan, 2009).

Most of the small companies and bigger companies have engaged

themselves in head to head compition of sustained profitable growth. They

all fought for the competitive advantages, they battled over market and

struggled for differentiation. As discussed by Kim and Mauborne (2002) that

these hallmarks are not the way to create profitable growth. They further

said that success comes not from battling competitors but from creating blue

oceans untapped new market space ripe for growth. They further explained

that this blue Ocean strategy presents a systematic tool of making the

competition irrelevant.According to Kim and Mauborne (2005), they describe the difference

between two types of strategies. One is called as Red ocean strategy whichrepresents all the industries in existence today while the other one is Blue

Ocean strategy that represents all the industries not in existence today. In

Red Ocean strategy boundaries are defined and accepted and the rules of

compition are known. Here the companies using Red Ocean strategy try to

outperform their competitors to gather a greater share of the demand in

market while the Blue Ocean strategy in contrast is an untapped market

space. It is the demand creation for highly profitable growth. Although some

blue oceans are created well beyond existing industries, most are created

within red oceans by expanding industry boundaries. Most of them are

created within the red oceans by making the competition irrelevant, becausethe rules of the game are waiting to be set. Hence the focus is on Blue Ocean

strategy. Thus there are two types of Blue Ocean Strategy. One is that to

launch a new industry as did by EBay with online auctions and other is to

create blue ocean strategy on a company using Red ocean strategy.


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According to Kim and Mauborne (2005) state that for forming strategy

companies should use strategy canvas which captures the current position of

market with competent factors and make comparison with the different

players of industry on those factors. Strategic canvas is unique because it

does three things in one picture. Firstly, it shows the strategic profile of a

company by depicting very clearly the facts that affect competition among

industry players. Secondly, it shows the strategic profile of current and

potential competitors and identifies which factors they invest in strategically.

Finally, third is value curve which shows how the company invests in the

factors of competition and how it might invest in them in future. Thus, they

further state that among them the basic tool is Value curve which is graphic

depiction of a companys relative performance across its industrys factors of

competition.

The creators of blue oceans strategy surprisingly didnt use the competitionas their benchmark. Instead, they followed a different strategic logic that iscalled Value Innovation. Value Innovation is the heart of blue oceanstrategy. It is called as Value Innovation because instead of focusing onbeating the competition, the focus will be on making the competitionirrelevant by creating a leap in value for buyers and company, thus openingup new and uncontested market space. Value Innovation is the new way ofthinking about and executing strategy that results in the creation of a blueocean and a break from the competition. The value-cost trade off is the mostimportant part of the Value Innovation. It is conventionally believed thatcompanies can either create greater value to customers at a greater cost or

create reasonable value at a lower cost. Here, a strategy is seen as making achoice between differentiation and low cost. In contrast, those that seek tocreate blue oceans pursue differentiation and low cost simultaneously.


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In the above figure, it is explained as that the cost savings are made by

eliminating and reducing the factors an industry competes on. Buyer value

is raised by raising and creating elements the industry has never offered. To

reconstruct buyer value elements in crafting a new value curve Four Actions

Framework is used. They are reducing, eliminate, raise and create. The

factors that the industry takes for granted are eliminated, some of the

factors are reduced well below the industry's standard, some of the factors

raised well above the industry's standard and some factors are createdthat

the industry has never offered. This Four Actions Framework helps to

reconstruct buyer value elements in crafting a new value curve.

Many big brands has used this strategy and get successful, among them are

Coca-cola, HP etc. I am going to discuss two case studies of two different

companies which have used this strategy and make the competition

irrelevant. Among them the first one is a USA wine company.

When using a strategic canvas all the competitive factors are mentioned on

the bottom of the chart. Here; Price, terminology, marketing investment,

aging quality, vineyard prestige, wine complexity and wine range. These are

the standard things that the industry competes on. Premium Wines are all

high on these items, while the budget wines are far lower. The industry itself

is very narrow in its definitions. This is a $20 billion market with intense

competition. There are 8 companies that produce more than 75% of the wine

in the U.S. and the estimated 1600 other wineries product the remaining

25%. The industry faces intense competition, mounting price pressure, flatdemand.

The value curves for both premium and budget wines are effectively the

same for all the players. When they try to differentiate themselves they wind

up all being different in the same way. Enter Casella Wines. They found that

the mass of Americans rejected wine because its complicated taste was

difficult to appreciate. Beer and ready to-drink cocktails were much sweeter

and easier to drink. They made [yellow tail] to appeal to the mass of alcohol

drinkers. They created an easy drinking wine of uncomplicated taste that did

not take years to develop and appreciation for. They added to the existingmarkets competitive points three new ones. Easy Drinking, Ease of

Selection, and Fun and Adventure.

When expressed through a value curve, an effective blue ocean strategy has

three complementary qualities: focus, divergence and a compelling tag line

that speaks to the market. Without these qualities a companys strategy will


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likely be muddled, undifferentiated and hard to communicate with a high

cost structure.

There is another case study that is discussed below, which used blue Ocean

strategy i.e South West Airlines. They did not benchmark against other

airlines they instead benchmarked against the option of driving. They usedthe three basic characteristics of good strategy that are focus, divergence

and tagline. Without these qualities a companys strategy becomes hard to

communicate with a high cost. Every great strategy has focus, a company

strategic profile or value curve which clearly shows it. Thus the South West

did a marvelous job by mapping a value curve of both average airline and

car transportation. They benchmarked their service against car

transportation not with the other airlines. Thus they get succeeded by giving

and adding friendly service, speed, frequent point to point departures.

The second most important characteristic of a good strategy is divergencewhich is formed to keep up with or beat the competition and to create

uniqueness in the market. South West did not even try to compete with

other airlines. And they completely diverged from the industry (eliminating

meals, lounges, seating class choices etc.) Pushed Low Price, Friendly

Service, Speed, Frequent point to point departures.

The last and important characteristic is compelling a tag line. The Southwest

airline used a tag line The speed of a plane at the price of a car whenever

you need it.

When a companys value curve converges with its competitors, it signals that

the company is likely caught within a red ocean of bloody competition. A

companys explicit or implicit strategy tends to be trying to outdo its

competition on the basis of cost or quality. This signals slow growth unless,

by the grace of luck, the company benefits from being in an industry that is

growing on its own . This growth is not due to a companys strategy,

however, but to luck.

When a companys value curve on the strategy canvas is shown to deliver

high values across all factors, the companys market share and profitabilityreflect these investments and it does not happen the strategy canvas signals

that the company may be oversupplying its customers, offering too much of

those elements that add less incremental value to buyers.


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To value-innovate the company must decide which factors to eliminate and

reduce and not only those to raise and create and to construct a divergent

value curve.

When using this strategy in a SME, it helps them to survive in the

competition. It has been discussed by Siegemund (2008), and he said thatsmall companies always try to get the market position which they do by

using differentiation. He further said that usually managers use strategies for

cost cutting or differentiation in product, service to attain good market

position. This Blue Ocean strategy will help the managers to teach them the

best way of beating the competition and that is to stop beating the

competition. According to Niciejewska and Dimitrov (2009), they said that a

small company should need to understand the market condition and most

importantly the factors which the other players of the market are fighting for.

Thus using this data, a company would be able to do the best among those

companies who come under Red ocean. Thus it can be concluded that blue

Oceans strategy not only helps the managers of the SME to flourish but it

also helps them to understand how to tackle the market condition and to get

good market position.

According to Miller (2010), he emphsised that this blue ocean strategy not

only helps the large companies but also the small medium enterprise

companies as well by analyzing the bundle of resources. He further

explained that every firm has different resources but the challenge is to

routine those resources. Thus by doing this, they can easily attract thecustomers, which became difficult under Red Ocean Strategy.

Hence , in the end it can be concluded that the Blue Ocean strategy tools like

strategy canvas, value curve, four actions framework, buyer value and etc

not only helps a small or big companies to outperform better than the

competitors. It also been analysed by the two case studies that how the

companies get success by using the Blue Ocean Strategy. It can also be seen

that using this strategy a company can create a trend in the market. Thus

the main focus will be on the customer. It can be said in the end that Blue

Ocean strategy is based on the actions and beliefs of the industry players.The structure and market boundaries exist in the mind of the managers, who

limit their thinking. Their shift of attention from supply to demand, from a

focus on competing to focus on value innovation can unlock the new

demands. This can be achieved by the pursuit of differentiation and low-cost.

Therefore a market structure is changed by breaking the cost trade off and

rules of the game that is by making the competition irrelevant.


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References

HARRISON, J and JOHAN, C 2009. Foundations in Strategic

management. 5th edn. USA: Cenegage Learning

KIM, W. and MAUBORNE, R. 2002. Charting your companys future:

How to create Uncontested Market Space and Make the Competition

Irrelevant. USA: Harvard Business School Publishing.

KIM, W. and MAUBORNE, R. 2005. The Blue Ocean Strategy.USA:

Harward Business School Corporation


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MILLER, W. 2010. Value Maps: Valuation Tools That Unlock Business

Wealth. Canada: John Wiley and Sons Inc.

NICIEJEWSKA. K and DIMITROV. D. 2009. Blue Ocean Strategy. INSEAD

School. Seminar paper. Germany: Druck and Bindung

SIEGEMUND, C. 2008. Blue Ocean Strategy for Small and Mid-sized

Companies in Germany: Development of a Consulting Approach.

Hamburg: Druck Diplomica Verlag GMH
http://books.google.co.uk/books?id=PsvdBi_Q7gkC&printsec=frontcover&dq=blue+ocean+strategy&hl=en&ei=Q9lQTJL-Mo-64Qau1MT2Bg&sa=X&oi=book_result&ct=result&resnum=3&ved=0CDUQ6AEwAghttp://books.google.co.uk/books?id=PsvdBi_Q7gkC&printsec=frontcover&dq=blue+ocean+strategy&hl=en&ei=Q9lQTJL-Mo-64Qau1MT2Bg&sa=X&oi=book_result&ct=result&resnum=3&ved=0CDUQ6AEwAghttp://books.google.co.uk/books?id=PsvdBi_Q7gkC&printsec=frontcover&dq=blue+ocean+strategy&hl=en&ei=Q9lQTJL-Mo-64Qau1MT2Bg&sa=X&oi=book_result&ct=result&resnum=3&ved=0CDUQ6AEwAghttp://books.google.co.uk/books?id=PsvdBi_Q7gkC&printsec=frontcover&dq=blue+ocean+strategy&hl=en&ei=Q9lQTJL-Mo-64Qau1MT2Bg&sa=X&oi=book_result&ct=result&resnum=3&ved=0CDUQ6AEwAghttp://books.google.co.uk/books?id=PsvdBi_Q7gkC&printsec=frontcover&dq=blue+ocean+strategy&hl=en&ei=Q9lQTJL-Mo-64Qau1MT2Bg&sa=X&oi=book_result&ct=result&resnum=3&ved=0CDUQ6AEwAghttp://books.google.co.uk/books?id=PsvdBi_Q7gkC&printsec=frontcover&dq=blue+ocean+strategy&hl=en&ei=Q9lQTJL-Mo-64Qau1MT2Bg&sa=X&oi=book_result&ct=result&resnum=3&ved=0CDUQ6AEwAghttp://books.google.co.uk/books?id=PsvdBi_Q7gkC&printsec=frontcover&dq=blue+ocean+strategy&hl=en&ei=Q9lQTJL-Mo-64Qau1MT2Bg&sa=X&oi=book_result&ct=result&resnum=3&ved=0CDUQ6AEwAg

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