Wednesday, November 25, 2015

Blue Ocean Strategy limitations

The "Blue Ocean Strategy" is a very interesting concept that allows companies to identify uncontested markets where they can thrive. The idea of countering the trade-off between value and cost by capturing an inexistent market incurring lower costs sounds very appealing. Moreover, first-mover advantage and network externalities make this strategy even more profitable. Identifying these markets is very challenging, however, and there are always risks when moving towards new directions.

There are four very important limitations that can contribute to blue ocean strategy failures:

  • Ignoring competition: The article makes a very important point in defining a blue ocean as a market where competition is irrelevant or non-existent. However, companies should be careful of believing that they are offering a unique product or service when this is not true. Making the competition irrelevant does not mean ignoring it. A careful analysis of the competition gives a company much higher confidence that the market it is attempting to capture is not being effectively captured by other competitors. At this point, it is also important to understand that competitors are not only those who offer the same product or services, but rather those that address the same customer needs.
  • Drifting too far: A company might be tempted to drift too far from its strengths, values and core capabilities. As we have seen in "The Coherence Premium" article, following market opportunities without recognizing the organization's capabilities is a very risky move. Moreover, as illustrated in the "Discovering New and Emerging Markets" excerpt, companies should be careful not to devote a substantial amount of resources to a market with a lot of uncertainty. Instead of leveraging lots of resources in a certain direction, companies pursuing a blue ocean should be flexible in allocating resources as they acquire a better understanding of the market.
  • Reinventing the wheel: Similarly to ignoring the competition, a company that falsely believes it is entering a non-existent market can start developing products or services that are already being offered by other companies. While these companies might not necessarily be competitors, a company should know what is being offered in different markets in order to avoid investing time and resources developing unnecessary products or services.
  • Not finding any fish: Sometimes a blue ocean is vacant for a reason. A company might learn after entering a new market that there were not enough customers or resources to maintain a sustainable position. Again, investing an adequate amount of resources and being flexible in their allocation is a way to minimize this risk as market uncertainty is reduced.
As any kind of strategy, companies should not take particular moves as a definite way to success. The marketplace is dynamic and blue oceans might be created everyday. Companies that can leverage these blue oceans effectively, recognizing the risks and limitations, will surely establish a strong position for the future.


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