Expert answer:Analyzing Strategy
Solved by verified expert:Part 1 -Need 200 – 250 words in APA format with scholarly references (journal articles) within the last five years to answer the following:Noorale cited Pearce II and Robinson (1985) defining strategic management as “the set of decisions and actions resulting in the formulation and implementation of strategies designed to achieve the objectives of an organization.” Does this definition describe the relationship between strategy and decision making in today’s organizations? Why or why not? Nooraie, M. (2012) Factors influencing strategic decision making processes. International Journal of Academic Research in Business & Social Sciences, 2(7), 662-645. Articles attached. Part 2 Need 200 – 250 words in APA format with scholarly references (journal articles) within the last five years to answer the following:Consider Kim and Mauborgne’s (2005) blue ocean strategy and Michael Porter’s strategy theory. Which is the more effective to achieve competitive advantage? Why? Articles attached. References Kim, W. C., & Mauborgne, R. (2005). Blue ocean strategy: From theory to practice. California Management Review, 47(3), 105-121. Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), 78-93.
kim__w._c.____mauborgne__r.__2005_._blue_ocean_strategy_from_theory_to_practices.pdf
nooraie__m.__2012__factors_influencing_strategic_decision_making_processes.docx
porter__m._e.__2008_._the_five_competitive_forces_that_shape_strategy._harvard_business_review__86_1___78_93..pdf
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Management
Review
Blue Ocean Strategy:
From Theory to Practice
W. Chan Kim
Renée Mauborgne
© 2005 by The Regents of
the University of California
Blue Ocean Strategy:
FROM THEORY TO PRACTICE
W. Chan Kim
Renée Mauborgne
F
or twenty-five years, competition has been at the heart of corporate
strategy. Today, one can hardly speak of strategy without involving
the language of competition: competitive strategy, competitive
benchmarking, building competitive advantages, and beating the
competition. Such focus on the competition traces back to corporate strategy’s
roots in military strategy. The very language of corporate strategy is deeply
imbued with military references—chief executive “officers” in “headquarters,”
“troops” on the “front lines,” and fighting over a defined battlefield.1
Industrial organization (IO) economics gave formal expression to the
prominent importance of competition to firms’ success. IO economics suggests
a causal flow from market structure to conduct and performance.2 Here, market
structure, given by supply and demand conditions, shapes sellers’ and buyers’
conduct, which, in turn, determines end performance.3 The academics call this the
structuralist view, or environmental determinism. Taking market structure as
given, much as military strategy takes land as given, such a view drives companies to try to carve out a defensible position against the competition in the existing market space. To sustain themselves in the marketplace, practitioners of
strategy focus on building advantages over the competition, usually by assessing
what competitors do and striving to do it better. Here, grabbing a bigger share
of the market is also seen as a zero-sum game in which one company’s gain is
achieved at another company’s loss. Hence, competition, the supply side of the
equation, remains the defining variable of strategy with the focus on dividing
up existing industry space.
Adapted from BLUE OCEAN STRATEGY: How to Create Uncontested Market Space and Make the
Competition Irrelevant by W. Chan Kim and Renée Mauborgne. Copyright © 2005 by Harvard Business School Publishing Corporation. All Rights Reserved.
CALIFORNIA MANAGEMENT REVIEW
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Blue Ocean Strategy: From Theory to Practice
Not surprisingly, the result has been a fairly good understanding of how
to compete skillfully in established markets, from analyzing the underlying economic structure of an existing industry to choosing a strategic position of low
cost or differentiation or focus.4 The arsenal of analytic tools and frameworks
ranging from the five force framework to the value chain successfully anchored
competition at the core of strategy. But should it be?
Our research over the last fifteen years suggests no. Of course competition
matters. However, by focusing on the strategies of competition, companies and
scholars have ignored a very important—and, we would argue, more lucrative—
aspect of strategy. This involves not competing, but making the competition
irrelevant by creating a new market space where there are no competitors—
what we call a “blue ocean.”
Blue Oceans
Imagine a market universe composed of two sorts of oceans: red oceans
and blue oceans. Red oceans represent all the industries in existence today. This
is the known market space. Blue oceans denote all the industries not in existence
today. This is the unknown market space.
In the red oceans, industry boundaries are defined and accepted, and the
competitive rules of the game are known.5 Here companies try to outperform
their rivals to grab a greater share of existing demand. The dominant focus of
strategy work over the past twenty-five years has been on competition-based red
ocean strategies.6 As the market space of red oceans gets crowded, prospects for
profits and growth are reduced. Products become commodities, and cutthroat
competition turns the red ocean bloody. Hence we use the term “red” oceans.
Blue oceans, in contrast, are defined by untapped market space, demand
creation, and the opportunity for highly profitable growth. Although some blue
oceans are created well beyond existing
industry boundaries, most are created from
W. Chan Kim is The Boston Consulting Group
within red oceans by expanding existing
Bruce D. Henderson Chair Professor of Strategy
and International Management at INSEAD.
industry boundaries. In blue oceans, compe
tition is irrelevant because the rules of the
Renée Mauborgne is The INSEAD Distinguished
game are waiting to be set. The term “blue
Fellow and a professor of strategy and
ocean” is an analogy to describe the wider
management at INSEAD. She can be reached
potential of market space that is vast, deep,
at
and not yet explored.
It will always be important to navigate successfully in the red ocean by
outcompeting rivals. Red oceans will always matter and will always be a fact of
business life. However, with supply exceeding demand in more industries, competing for a share of contracting markets, while necessary, will not be sufficient
to sustain high performance. Companies need to go beyond competing in established industries. To seize new profit and growth opportunities, they also need
to create blue oceans.
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CALIFORNIA MANAGEMENT REVIEW
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Blue Ocean Strategy: From Theory to Practice
FIGURE 1. The Profit and Growth Consequences of Creating Blue Oceans
Business Launches
Revenue Impact
Profit Impact
14%
86%
62%
38%
61%
39%
Launches within red oceans
Launches for creating blue oceans
The Impact of Creating Blue Oceans
We conducted a study of business launches in 108 companies. We found
that 86% of these launches were line extensions, i.e., incremental improvements to existing industry offerings within red oceans, while a mere 14% were
aimed at creating new markets or blue oceans. While line extensions in red
oceans did account for 62% of the total revenues, they only delivered 39% of
the total profits. By contrast, the 14% invested in creating blue oceans delivered
38% of total revenues and a startling 61% of total profits. Given that business
launches included the total investments made for creating red and blue oceans
(regardless of their subsequent revenue and profit consequences, including failures), the performance benefits of creating blue oceans are evident (see Figure
1).
The Rising Imperative of Creating Blue Oceans
There are several driving forces behind a rising imperative to create blue
oceans. Accelerated technological advances have substantially improved industrial productivity and have allowed suppliers to produce an unprecedented array
of products and services. The trend toward globalization compounds the situation. As trade barriers between nations and regions are dismantled and as information on products and prices becomes instantly and globally available, niche
markets and monopoly havens continue to disappear.7 While supply is on the
rise as global competition intensifies, there is no clear evidence of an increase in
demand worldwide, and statistics even point to declining populations in many
developed markets.8
The result has been accelerated commoditization of products and services,
increasing price wars, and shrinking profit margins. Recent industry-wide studies on major American brands confirm this trend.9 They reveal that for major
product and service categories, brands are generally becoming more similar,
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Blue Ocean Strategy: From Theory to Practice
and as they are becoming more similar people increasingly select based on
price.10 People no longer insist, as in the past, that their laundry detergent be
Tide. Nor will they necessarily stick to Colgate when Crest is on sale, and vice
versa. In overcrowded industries, differentiating brands becomes harder both
in economic upturns and in downturns.
All this suggests that the business environment in which most strategy
and management approaches evolved is increasingly disappearing. As red oceans
become increasingly bloody, management will need to be more concerned with
blue oceans than the current cohort of managers is accustomed to.
Blue Ocean Strategy
Although economic conditions indicate the rising imperative of blue
oceans, there is a general belief that the odds of success are lower when companies venture beyond existing industry space.11 The issue is how to succeed in
blue oceans. How can companies systematically maximize the opportunities
while simultaneously minimizing the risks of creating blue oceans?
Of course, there is no such thing as a riskless strategy.12 Strategy will
always involve both opportunity and risk, be it a red ocean or a blue ocean initiative. At present, however, there is an overabundance of tools and analytical
frameworks to succeed in red oceans. As long as this remains true, red oceans
will continue to dominate companies’ strategic agenda even as the business
imperative for creating blue oceans takes on new urgency. Perhaps this explains
why companies—despite prior calls to go beyond existing industry space—have
yet to act seriously on these recommendations. While executives have received
calls to be brave and entrepreneurial, to learn from failure, and to seek out revolutionaries, as thought-provoking as these ideas may be, they are not substitutes
for analytics to navigate successfully in blue waters.
We have spent more than a decade studying over 150 blue ocean
creations in over 30 industries spanning more than 100 years from 1880 to
2000. Our central research question was whether there was a pattern by which
blue oceans are created and high performance achieved.
A Reconstructionist View of Strategy
There are common characteristics across blue ocean creations. In sharp
contrast to companies playing by traditional rules, the creators of blue oceans
never used the competition as their benchmark. Instead they made it irrelevant
by creating a leap in value for both buyers and the company itself.
While competition-based red ocean strategy assumes that an industry’s
structural conditions are given and that firms are forced to compete within
them, blue ocean strategy is based on the view that market boundaries and
industry structure are not given and can be reconstructed by the actions and
beliefs of industry players. We call this the reconstructionist view. In the red ocean,
differentiation costs because firms compete with the same best-practice rule.
According to this thesis, companies can either create greater value to customers
at a higher cost or create reasonable value at a lower cost. In other words,
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Blue Ocean Strategy: From Theory to Practice
strategy is essentially a choice between differentiation and low cost.13 In the
reconstructionist world, however, the strategic aim is to create new rules of the
game by breaking the existing value/cost trade-off and thereby creating a blue
ocean.
Recognizing that structure and market boundaries exist only in managers’
minds, practitioners who hold the reconstructionist view do not let existing market structures limit their thinking. To them, extra demand is out there, largely
untapped. The crux of the problem is how to create it. This, in turn, requires a
shift of attention from supply to demand, from a focus on competing to a focus
on leaving the competition behind. It involves looking systematically across
established boundaries of competition and reordering existing elements in different markets to reconstruct them into a new market space where a new level of
demand is generated.14
In the reconstructionist view, there is scarcely any attractive or unattractive industry per se because the level of industry attractiveness can be altered
through companies’ conscientious efforts of reconstruction. As market structure
is changed in the reconstruction process, so are the rules of the game. Competition in the old game is therefore rendered irrelevant. By stimulating the demand
side of the economy, blue ocean strategy expands existing markets and creates
new ones.
The creation of blue oceans is about driving costs down while simultaneously driving value up for buyers. This is how a leap in value for both the company and its buyers is achieved. Because buyer value comes from the utility and
price that the company offers to buyers and because the value to the company
is generated from price and its cost structure, blue ocean strategy is achieved
only when the whole system of the company’s utility, price, and cost activities
is properly aligned. It is this whole-system approach that makes the creation of
blue oceans a sustainable strategy. Blue ocean strategy integrates the range of a
firm’s functional and operational activities. In this sense, blue ocean strategy is
more than innovation. It is about strategy that embraces the entire system of a
company’s activities.15
Analytical Frameworks and Tools
In an attempt to make the formulation of blue ocean strategy as systematic and actionable as competing in the red waters of the known market space,
we studied companies around the world and developed practical methodologies
in the quest of blue oceans. We then applied and tested these tools and frameworks in action by working with companies in their pursuit of blue oceans,
enriching and refining them in the process in an attempt to move from a theory
of reconstructionism to practical application.
As a brief introduction to these tools and frameworks, the U.S. wine
industry demonstrates how these tools can be applied in practice in the creation
of blue oceans. The United States has the third largest aggregate consumption of
wine worldwide. Yet the $20 billion industry is intensely competitive. California
wines dominate the domestic market, capturing two-thirds of all U.S. wine sales.
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Blue Ocean Strategy: From Theory to Practice
These wines compete head-to-head with imported wines from France, Italy,
and Spain and New World wines from countries such as Chile, Australia, and
Argentina, which have increasingly targeted the U.S. market. With the supply of
wines increasing from Oregon, Washington, and New York State and with newly
mature vineyard plantings in California, the number of wines has exploded. Yet
the U.S. consumer base has essentially remained stagnant. The United States
remains stuck at thirty-third place in world per capita wine consumption.
The intense competition has fueled ongoing industry consolidation. The
top eight companies produce more than 75 percent of the wine in the United
States, and the estimated one thousand six hundred other wineries produce the
remaining 25 percent. There is a simultaneous consolidation of retailers and
distributors across the United States, something that raises their bargaining
power against the plethora of winemakers. Titanic battles are being fought for
retail and distribution space. Downward pressure on wine prices has set in.
In short, the U.S. wine industry faces intense competition, mounting price
pressure, increasing bargaining power on the part of retail and distribution channels, and flat demand despite overwhelming choice. Following conventional
strategic thinking, the industry is hardly attractive. For strategists, the critical
question is, how do you break out of this red ocean of bloody competition to
make the competition irrelevant? How do you open up and capture a blue ocean
of uncontested market space?
The Strategy Canvas
The strategy canvas is both a diagnostic and an action framework for
building a compelling blue ocean strategy. It serves two purposes. First, it captures the current state of play in the known market space. This allows you to
understand where the competition is currently investing; the factors the industry currently competes on in products, service, and delivery; and what customers
receive from the existing competitive offerings on the market. Figure 2 captures
all this information in graphic form. The horizontal axis captures the range of
factors the industry competes on and invests in.
In the case of the U.S. wine industry, there are seven principal factors:
▪ price per bottle of wine;
▪ an elite, refined image in packaging, including labels announcing the
wine medals won and the use of esoteric enological terminology to stress
the art and science of winemaking;
▪ above-the-line marketing to raise consumer awareness in a crowded market and to encourage distributors and retailers to give prominence to a
particular wine house;
▪ aging quality of wine;
▪ the prestige of a wine’s vineyard and its legacy (hence the appellations
of estates and chateaux and references to the historic age of the
establishment);
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FIGURE 2. The Strategy Canvas of U.S.Wine Industry in the Late 1990s
High
Premium Wines
Budget Wines
Low
Price
Above-the-Line
Marketing
Use of
Enological Terminology and
Distinctions in Wine
Communication
Aging
Quality
Vineyard Prestige
and Legacy
Wine
Range
Wine
Complexity
▪ the complexity and sophistication of a wine’s taste, including such things
as tannins and oak; and
▪ a diverse range of wines to cover all varieties of grapes and consumer
preferences from Chardonnay to Merlot, and so on
These factors are viewed as key to the promotion of wine as a unique beverage
for the informed wine drinker, worthy of special occasions.
That is the underlying structure of the U.S. wine industry from the market perspective. The vertical axis of the strategy canvas captures the offering
level that buyers receive across all of these key competing factors. A high score
means that a company offers buyers more, and hence invests more, in that factor. In the case of price, a higher score indicates a higher price. We can now plot
the current offering of wineries across all these factors to understand wineries’
strategic profiles, or value curves. The value curve, the basic component of the
strategy canvas, is a graphic depiction of a company’s relative performance
across its industry’s factors of competition.
Figure 2 shows that, although more than one thousand six hundred
wineries participate in the U.S. wine industry, from the buyer’s point of view
there is enormous convergence in their value curves. Despite the plethora of
competitors, when premium brand wines are plotted on the strategy canvas,
we discover that from the market point of view all of them essentially have
the same strategic profile. They offer a high price and present a high level of
offering across all the key competing factors. Their strategic profile follows a
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Blue Ocean Strategy: From Theory to Practice
classic differentiation strategy. From the market point of view, however, they
are all different in the same way. On the other hand, budget wines also have
the same essential strategic profile. Their price is low, as is their offering across
all the key competing factors. These are classic low-cost players. Moreover, the
value curves of premium and low-cost wines share the same basic shape. The
two strategic groups’ strategies march in lockstep, but at different altitudes of
offering level.
To set a company on a strong, profitable growth trajectory in the face of
these industry conditions, it won’t work to benchmark competitors and try to
outcompete them by offering a little more for a little less. Such a strategy may
nudge sales up but will hardly drive a company to open up uncontested market
space. Nor is conducting extensive customer research the path to blue o …
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