Friday, November 27, 2015

Reading the Strategy Between the Lines: Searching for Blue Ocean Markets

In the article “Blue Ocean Strategy,” W. Chan Kim and Renee Mauborgne present a convincing argument that a significant number of the most successful companies possess the unique strategic ability to read between the lines of existing market paradigms. It is argued that organizations that are best able to successfully identify fresh pockets of markets in which new, unoccupied areas of demand exist possess a key advantage enabling them to circumvent traditional competitive forces, dominate market share, provide customers with increased value, and ultimately produce growing profits. These companies direct their finite energies and resources beyond the slow, intensively competitive trench battles of the existing market space, which are dominated by competitors fighting one another to achieve gains in a crowded market. Often, the conditions of existing markets are such that they are overcrowded and subject to inelastic market constraints. Rather than directing the majority of energy and resources to secure small gains in oversaturated areas, these companies instead focus efforts to identify, link, and coherently align their organizational capabilities, creating new, uncontested market spaces. These new market spaces, termed “Blue Ocean Markets” by the authors, allow for an unparalleled position of strategic advantage.

By positioning itself in a newly formed - and malleable - Blue Ocean, the trailblazing organization is equipped with what can be described as a kind of pioneer’s privilege, namely, the level relative autonomy that is necessary for the company to invent and capture new demand. The organization is therefore able to take full advantage of the uncrowded competitive environment of the new market. The characteristically uncrowded conditions of the Blue Ocean also place significant barriers to the entry of outside competitors, meaning that there exists a relatively minute need for the company to defend against threats posed by emerging competitors. Moreover, because of the company’s lead role in tapping into unmet customer needs, thereby creating new market demand outside of traditional areas, the organization also has near-unilateral autonomy in its ability set precedents that define the basics of the new market’s operational framework and corresponding rules of trade that govern its constraints.

This radical shift in competitive perspective has a number of implications, but, to me, what is most interesting is the extent to which Blue Ocean Strategy places emphasis on managerial strategy and decision making in a company’s overall competitive positioning. Traditionally, there has been a heavy emphasis placed on the idea that a company is most successful if it can develop the right product, innovate in the newest way, or somehow be on the cutting edge of research and development work in its field. Instead, the nature of Blue Ocean Strategy is such that the most successful companies aren’t necessarily those that are at the technological forefront, but rather those whose leadership is best able to understand the rules, constraints, and dynamics of the current market in a way that steers the organization’s direction in a manner that links recent advancements with unmet areas of demand and cuts unnecessary costs. This, in itself, reinforces the need for organizations to place significant cultural value on the ability of its leaders to be able to identify trends, synthesize different pieces of information and utilize advances in technology in a manner that increases customer value derived from unmet demand, instead of a sole focus on advancements that increase the organization’s technological edge. Often times, the perception is to lead with the technology, but, as Blue Ocean Strategy demonstrates, it is actually much more advantageous to have leaders who are able to read between the lines of demand.    

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