Saturday, April 11, 2015

Bule Oceans, Red Herrings

I found the Kim and Mauborgne piece on the Blue Ocean Strategy a very frustrating and ultimately weak argument.  While the article does not provide the research the authors did in detail, it seems to me that the fundamental premise of their article is flawed.

The authors set up a dichotomy between a "red ocean", an established and mature industry with defined boundary. In contrast a "blue ocean" is an industry not known today, where demand did not previously exist.  But this contrast leaves out a considerable degree of complexity and nuance.  An organization can and should be both a red ocean and a blue ocean organization.  Using rather generic terms to differentiate the two ocean types (the difference between "beat the competition" and "make the competition irrelevant" for example) shows that blue and red oceans are only a matter of degrees.  Virtually every Blue Ocean identified in the automobile, computer, and movie theater chart are just just particularly successful incremental changes based on a tactic of attracting new customers.

Additionally, the authors set up a straw man argument about the nature of "industries".  They present industries as a static box that a firm may chose to enter only if it plays by a certain set of rules.  But tactics such as trying to create new demand for a product or to attempt to both reduce costs and increase value are rather conventional strategies. Firms compete in multiple arenas and for multiple types of consumer spending.  Firms can also move into and out of industries as they or the industries change.  Outside of a few highly commoditized industries, most "red oceans" have an incredible amount of opportunity for innovation.  While the authors attempt to say that blue oceans come from red, they fail to make a compelling argument.

The key example discussed in the article was Cirque du Soleil, which the authors describe as being in the "circus business".  However, Cirque is competing not with traditional circuses (and was likely never looking for the same consumer judging by their product's price point), but with all sorts of firms for consumer's entertainment dollar.  Cirque found a way to offer a high value product at a relatively low cost, but that is hardly revolutionary. The authors' fawning over Cirque's "revolutionary" market position (using the term "magic" to describe the company hardly seems objective) isn't sufficient to prove that the firm is doing something substantially more revolutionary than Blue Man Group or STOMP!, two contemporary live performance experiences that are also new entrants into the industry.

A second example focused on the creation of the Model T.  The authors conveniently forget the fact that the Ford company existed for 5 years and 19 prototypes prior to the Model T.  The move to mass production and lower costs was a sizable but still incremental improvement on prior versions of Ford's product.

Ultimately, the article failed to convince me that "Blue Oceans" are a paradigm worth accepting.

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