Wednesday, November 20, 2013

What is Blue Ocean Strategy?

I was reading class post for our weeks blog discussion, one common theme i noticed was the reference to "blue ocean". sadly, this was my first time coming across this term and i have been curious as to what exactly is Blue Ocean strategy. the concept of Blue Ocean strategy was developed from the book " Blue ocean strategy by W. Chan Kim and Renee Mauborgne, who endeavored to develop a more dynamic approach to strategy that could keep up with the pace of innovation and technology. the key idea to Blue ocean strategy is to redefine the terms of competition by moving to the blue ocean where you have the water to yourself and where the competition is irrelevant.  The Authors of the book argue that the "Porters 5 forces analysis" is one that remains in the "red ocean" and gives room for competition. 
"Among the examples they cite is Cirque du Soleil, the Canadian company that redefined the dynamics of a declining circus industry in the 1980s. Under conventional strategy analysis, the circus industry was a loser. Star performers had “supplier power” over the company. Alternative forms of entertainment, from sporting events to home entertainment systems, were relatively inexpensive and on the rise. Moreover, animal rights groups were putting increased pressure on circuses for their treatment of animals.
Cirque du Soleil eliminated the animals and reduced the importance of individual stars. It created a new form of entertainment that combined dance, music and athletic skill to appeal to an upscale adult audience that had abandoned the traditional circus.
Instead of “five forces”, Mr. Kim and Ms. Mauborgne talk about “four actions” that can help you create a blue ocean strategy. The actions are found by answering these questions:
– Which of the factors that the industry takes for granted should be eliminated? In the case of Cirque du Soleil that included animals, star performers, and the three separate rings.
– Which factors should be reduced well below the industry’s standard? Cirque du Soleil reduced much of the thrill and danger associated with conventional circuses.
– Which factors should be raised well above the industry’s standard? Cirque du Soleil increased the uniqueness of the venue by developing its own tents, rather than performing within the confines of existing venues.
– Which factors should be created that the industry has never offered? Cirque du Soleil introduced dramatic themes, artistic music and dance, and a more upscale, refined environment.
Mr. Kim and Ms. Mauborgne argue that businesses should focus less on their competitors and more on alternatives; they also should focus less on their customers, and more on non-customers, or potential new customers.
Many companies have adopted this strategy and few other examples that come to mind of product or porjects that follow the blue Ocean strategy and are creating market areas where they have the ocean to themselves;
1. cirque du symphony: an orchestra with acrobats 
2. Elon Musk's vaccum tube train
Unlike the Porter "five forces",  i do not think  that the idea of Blue Ocean strategy can work for every  organization, some organizations face enormous switching and/ or development costs, some organizations are in industry that are full developed and there is no more room in the ocean, some organizations offer products or services that have very limited use and therefore , for a very specific market. 
Reference 
Excerpted from “The Wall Street Journal Guide to Management” by Alan Murray, published by Harper Business.

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