Wednesday, November 30, 2011

Blue Ocean Strategy and the Benefits of Competitive Advantage

This week's readings gave a lot in terms of types of strategy. An item that I paid particular attention to, however, came from an article from W. Chan Kim and Renee Mauborgne entitled "Blue Ocean Strategy". The article discusses separating themselves from the pack and creating areas where competition is irrelevant. They call these areas blue oceans. They differ from red oceans where competition is fierce and often cancels each other out, leading to low to negligible profits.

I particularly enjoyed the example the authors gave with Cirque du Soleil and Ringling Bros. and Barnum & Bailey. The street performers who founded Cirque du Soleil did not seek to compete with Ringling Bros., as that would have been disastrous given the circus company's well-known recognition in the industry. Instead, Cirque du Soleil sought to "reinvent the circus" and have it align to the newer forms of entertainment that traditionally naysayers of the circus would go to---clients of the traditional ballet, opera, or theater. Like Kim and Mauborgne say, Cirque did not come up with a completely brand new act in the circus. Instead, they changed the way the act was presented to give the impression that it was a revolutionary movement.

Cirque du Soleil is doing extremely well today based on the way they entered the industry. They did not seek to compete with the traditional circus and adopt a Red Ocean strategy. They created their own market space and demand while making the competition itself irrelevant. They don't need to worry about competition because there is none for the act that they put on.

I thought this article coincided nicely a piece in the McKinsey Quarterly entitled "Putting Strategies to the Test: McKinsey Global Survey Results". The piece talks about how many leaders are not going after competitive advantages in industries. Just 53% of executives characterize their strategies as emphasizing the creation of advantage over competitors. The rest characterized their strategies as just matching competitors and going along with the known best practice.

In my view, this practice is not viable for a long term strategy for the simple reason that if there are too many fish in a pond, they will not all have the resources to survive. The same can be said for firms in an industry. In my opinion, they must find a way to explore ways of attaining competitive advantage against all of their competitors---preferably using the blue ocean research. The question now becomes, how can a company continually reach for the blue oceans?

Sources:


Kim, Chan W., Mauborgne, Renee, "Blue Ocean Strategy" (October 2004) Harvard Business Review.

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