Wednesday, November 28, 2012

Finding Blue Ocean Deeper, Not Farther


The blue ocean metaphor has become an extremely popular model for fledgling and incumbent businesses to follow.  Kim and Mauborgne, in their well-regarded article “Blue Ocean Strategy,” accurately capture how firms in competitive markets interact, as well as the virtue in finding market space that is previously untouched by competitive forces.

Unfortunately for many companies, finding blue ocean space is a demanding process.  Arguably new entrants have a significant advantage because they can act swiftly without the organizational inertia that accompanies existing organizations.  Unless incumbents have a substantial cash or positional advantage to move into a new market, it would seem that finding untouched blue ocean space is likely too costly and too risky to try.

After reflecting on Kim and Mauborgne, I would suggest that blue ocean space is not simply a horizontal move away from red ocean.  Rather, blue ocean can be a vertical movement, or a deepening of investment and strategy in what, at the surface level, seems to be a red ocean.  For example, the highly-competitive mobile phone industry began as a quest to make phone more compact and more reliable.  The “uncontested market space” that captured serious value was the addition of other capabilities, such as camera and internet functionality.  This strategy constitutes a depth-based blue ocean strategy, distinct from a breadth-based approach.

My contention is that start-ups and incumbents with a clear cash or otherwise competitive advantage can form an effective horizontal blue ocean strategy, but less agile, existing firms must make vertical, "dark-water" moves to stoke innovation.

Kim and Mauborgne discuss the many ways that companies can create demand by way of a blue ocean strategy.  My hope is to delineate some of those tactics as vertical strategies:

1) Expand Existing Product Capabilities or Services: innovative expansions to existing products or services provide a great way to capture larger market share by increasing functionality.  It was recently reported that LinkedIn will be expanding its website to include macro-level employment tools, intentioned to help assess labor markets in particular geographic areas or professional fields.

2) New Product Development: the shift from desktop computer usage to tablet usage was precipitated by a risk that developers took: investing in an untested, new product.  The rewards are self-evident now to companies like Apple, who has redefined how consumers used computers by creating a new product within their existing industry.

3) Mixing Industry Expertise: it would have seemed reasonable if J.C. Penney hired a long-time retail clothing industry expert as their CEO last summer.  Instead, they hired Apple’s retail guru Ron Johnson, an accomplished tech retailer more than anything clothing related.  And yet the decision to mix industry expertise makes sense given that a staffing change like this is a far more reasonable strategy for finding blue ocean than moving J.C. Penney into the computer industry.

This distinction between vertical and horizontal blue ocean strategies add credence to the holistic blue ocean ideology while democratizing its application.  Innovation occurs across the full spectrum of organizational tenure and financial condition, in large part because these strategies are available for the brave leaders willing to try them.

What then compels organizations to stay firmly within red ocean environments when innovative strategy is available to all?

Sources:

Blue Ocean Strategy
(Kim and Mauborgne, Harvard Business Review, Oct ‘04)

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