This idea of blue ocean strategy was initially introduced in 1988 by Prof. Charles W. L. Hill from Michigan State University and eventually developed in to the blue ocean strategy book. The book metaphorically compares the market today to red and blue oceans. It covers the formulation and execution of strategies that are exclusively geared towards steering existing companies from red oceans to blue oceans as well as ensuring that new companies are founded on blue oceans. The red oceans represent niches already filled in the market by existing enterprises. These have clear cut paths and limitations are also preset.
The space they occupy is evident and mapped out within the confines in the global market space. There is a lot of competition as most companies occupy these waters. This metaphor comes from the idea that when there is stiff competition the game eventually becomes dirty and the water muddied. There is unexploited market space in the commerce world, the space that no one ventures to. There are industries that have not yet been established. Companies should not be established from already evident needs but require the formulation of new needs thereby creating a demand.
This is the ideal market where demand is ample. Industries that venture in the blue markets grow very fast. There is no competition because the companies set the trends of the market. The idea of value innovation is introduced in the book as a need for these businesses that venture in the blue waters. There is room here for companies to navigate clearly and avoid accidents. For this to happen there is need to create and establish value in their products so that a genuine interest is created within the client.
The need to create value is evident and a necessity incase the company hopes to create irrelevance of already existing products in the market. The book emphasizes the need to have businesses that are willing to put value in their services and products regardless of whether this will increase the production costs. They propose that industries can find value if they strategize in offering low costs and yet maintaining the highest value in their products. Companies need to have differentiation and low costs if they aspire to have a sustainable competition advantage over other companies in the market (Kim & Mauborgne, 2005)
Cirque du Soleil is given as an example of a company that succeeded in reinventing itself and making a successful trend into the blue oceans by reinventing itself for the market. It achieved this by replacing the animal and star performances with better quality ballet and opera combined with an even better circus performance. These strategies when applied, appealed to a wider population and by adding value to their services, even though their costs went higher they were eventually able to make an even greater profit and occupy their own niche in the market.
They did not enter a pre established niche but instead created their own demand by offering a product that no other company was offering at a low price. The book is clear on the importance of businesses focusing on achieving and sustaining high performance. In order to do this there is need for them to get rid of strategies that are geared for succeeding in the already crowded niches. There is an urgent need for them to create blue oceans which they will occupy and freely navigate. By creating these canvasses it becomes possible for these markets to capture new opportunities and experience growth.
If these companies focus on competition strategies with already existing businesses, they will be confining themselves to the structuralists view or environmental determinism by assuming that the structure of the company is preset in the market and they are therefore confined within these structures. Companies in this area focus not on leading or excelling but merely staying afloat in the market by trying to formulate strategies that help them stay ahead of the competition by acquiring a bigger share of the already crowded market. Competition with the other existing companies determines the core on which everything else rotates.
The company has to scrabble for market place by displacing already existing companies otherwise it cannot exist. Any growth for the company is tantamount to another’s loss. Cost and value are not significant. Companies center on capturing and dispensing wealth rather than creating wealth. Their focus is on getting a share of the red ocean where conditions for their growth are not conducive. Companies need to adapt the Blue ocean strategy where the confines of a market are nonexistent and the idea of structuralism is viewed as misleading to the company.
Companies are in a position to create their own boundaries and structures by changing their operation and the products they bring to the market. This is referred to as the Reconstructionist view. It allows the management to expand their views beyond what they can see at the moment. Demand can be created and that should be the focus of every business. Value innovation steers the company towards creating demand. Companies can only unlock demand by allowing differentiation while also focusing on reasonable pricing (Kim & Mauborgne, 2005).
Apart from focusing on value innovation these companies also need to focus on tipping point leadership. This is derived from epidemiological studies that stipulate that fundamental revolutions occur simultaneously when the ambitions, focus and the goals of a particular group of people bring about en mass movement towards a common goal. To explain the applicability of this in a business situation, the authors give a case study of William Bratton who was appointed as a police commissioner of New York City in February 1994.
At the time of his appointment the department was faced with seemingly insurmountable hurdles. Apart from a low budget, there was an inefficient hierarchy of management, an underpaid and unmotivated workforce and turf wars over jurisdiction (Kim & Mauborgne, 2005). Within two years of his appointment the commissioner was able to bring a complete turnaround in the police force. In a study, the authors examined the strategies he employed in order to bring change and proposed them to organizations as tipping point management strategies.
For any company to thrive there is need to change the management and strategy of the company. Management needs to isolate the critical areas and accord them a special focus. Communication within the organization is vital as it ensures a free flow of information. There is need to delegate and put people within the organization into first contact with the problems. This stimulates them to come up with problem solving inventions. To maintain motivation among the workers, promotions and other incentives have to result from performance and bias has to be removed.
These strategies led to a turnaround of the New York police force and when applied to the Boston and Los Angeles police force they had the same positive effects of reducing crime and maintaining motivation within the workers even with a seemingly low budget. These changes outlasted him and were evident even after he left the two police forces. Companies also need to implement the fair process strategy. This involves recognition of knowledge as a resource and cultivating it from the employees to benefit the company. It is therefore crucial to create an environment in which employees aspire to share ideas, knowledge and expertise.
The management needs to work towards creating an environment of trust to allow the workers to feel safe and share ideas. This will enhance overall company productivity. This can be achieved by having specific ventures that would require team formulation within the company. It is important to make the employees feel like they belong and that they are valued by the company. This can be done by engaging them in decision making as much as possible especially in areas that involve their wellbeing. A company cannot afford to undermine the role of communication in its success.
The book prescribes a number of tools for all businesses that wish to excel in the market. They advocate for businesses to create a strategy canvas by identifying the areas that they compete on with other companies thereby creating a strategic profile. By forming a link between these factors the company can develop a distinctive strategy that differentiates them from other companies while allowing them to capture an untapped market. The four actions framework is also recommended. This is explained as an eliminate-reduce-raise-create grid.
Companies need to evaluate themselves on this grid and employ strategies in the four areas so as to formulate a new curve for value. An example of Casella wines which is based in Australia is given to explain how this is possible. This company was able to evaluate itself on this grid and create a blue ocean for itself by producing a new non traditional wine that was appealing to a larger majority. They did this by conducting an intensive study among the general population on the already existing wines. They discovered that majority of the population did not like the traditionally produced wines.
Companies need to look at the areas that need to be eliminated, which factors should have their focus reduced, which ones need added attention and what products need to be conceptualized that the company has never offered before and these will help it create a demand for its product. The litmus test for BOS should be used to check whether a company has a strategy. The company has to have a clear focus and divert from the norm. It is mandatory to have a clear tagline. In the case of Casella wines the tagline was to produce a fun quality yet fun wine for all occasions.
They maintained a focus on this and it appealed to the target market. Another essential tool that managers need to familiarize themselves with is the four hurdles tool. Management ultimately affects the performance of a company. It is crucial that the leaders are conversant with the operations of the company to ensure the company succeeds. Management of any company faces major four hurdles that they must conquer so as to lead the company to blue waters. The cognitive hurdle involves sharing the vision of the company with the employees and helping them realize the need to have a shift in company and individual strategy.
Limited resources are another hurdle that management has to surmount. Companies always have bigger budgets than what the available resources allow. Change does not necessarily have to result from resources. The leaders need to find a way to work around limited funds and still maintain value innovation. Motivation is a crucial factor for all employees. Management needs to find an effective way to motivate the individual key players within the organization to greater productivity. Politics is also a hurdle that most organizations grapple with.
Having the know-how of how to avoid and overcome these hurdles ensures that the company can concentrate on the main objectives and set in place strategies towards acquiring them. The use of a pioneer-migrator-settler (PMS) map aids the company in its pursuit of profit. There is a need for companies to focus on establishing pioneer business for they offer the blue waters. For a business to experience profits it has to have a high growth trajectory and this can only result from having more pioneers than migrators and settlers.
It is of great importance that businesses shift their focus to pioneers. They are untapped and are the majority. The book advocates on the need to understand your market and give it a special focus. In order to grow the size of their market, they need to capture a wider scope of customers while still retaining the old clientele. However, the major focus needs to be on looking for new clientele. There is need for product specialization and linking up the values of all customers to come up with a generalized idea of what they all want. This ensures that the needs of all the customers are met.
All non customers fall into three tiers and strategies should be employed to convert all of them to customers. Apart from these tools, the company needs to use the Kingpins in a fishbowl approach. The inactivity or activity of all workers should be focused on equally. The issue of fairness is reemphasized and the importance of involving all workers in decision making is crucial if they are to share in the company’s ultimate vision. The challenge needs to be presented as an achievable feat so that the workers can believe in it and make it a reality.
This brings the main objective closer to everyone and makes sure that everyone is working towards achieving the same goal (Kim & Mauborgne, 2005). It is very important to establish hot and cold spots so as to keep track of the main goal. Appealing to the intended market and maintaining their interest by pioneering in value innovation while still providing reasonable pricing is crucial for success. It is important if an organization bears in mind the experience of customers with the product they intend to offer. This is referred to as the buyer experience cycle.
It involves product purchase, delivery, use, supplements offered, and the maintenance of the product as well as its disposal. This allows the company to identify a gap and focus on it. The company needs to offer cheaper, simpler versions of high quality products to appeal to a larger market and convert the three tiers of non customers to clients. They have to find out why people are not using their products and what would make the start using them and meet that need. The two authors provide companies with a practical approach to enable growth both for the company and the workers.
The many accounts they give of how these approaches have been actualized act as a reference guide for any company that needs to reinvent itself and make a difference in its operation in an already crowded market. They employ a wide variety of already existing business strategies and compile them to a well versed edition that should appeal to both the already existing companies as well as to companies that are being created. They articulately present these ideas in an easy to read format.
Though a lot of focus was given to some companies, the examples they give to using their approaches generally are from a wide scope of companies from service providers like Cirque du Soleil to manufacturing companies like Casella wines. This wide array of examples allows them to appeal to a wider company audience. The book is written from information stemming from a longitudinal study of several organizations. It has guidelines on how to create growth for the company by focusing on creating a demand in the market for a product thereby making the competition loose significance.
This can be attained by ensuring the focus of the company shifts from cost and competition to production of quality material and services. A company also needs to change the strategies and structure within which it operates so as to succeed in exiting the red oceans and entering the blue oceans where growth is assured. Since this was published from a study it would have been beneficial to devote some time to mention some companies that strayed from the guidelines and evaluate their performance. Not doing so makes the book appear to have been conceptualized from companies that happened to make a turn around in their success by chance.
I think no two companies can be run the same way and have similar outcomes. Though the general approaches apply to almost all companies, I think the real solution needs to be tailor-made from the needs and role of the company and not copied from a particular menu. Overall, I find it a good read for motivating workers in an organization and instilling better working conditions which would ultimately lead to better performance in a company (Kim & Mauborgne, 2005). References Kim, W. C. & Mauborgne, R. (2005). Blue Ocean Strategy. Boston: Harvard Business School Press.