Why Don’t More Companies Pursue a Blue Ocean Strategy?
In the Harvard Business Review article “Blue Ocean Strategy”, the author mentions a study conducted on business launches. 108 companies were analyzed in the study and it was found that 86% of business investments were made to improve existing capabilities/offerings, while only 14% of investments went towards creating new markets. What is more surprising is that the 14% investment in new markets generated 61% of the total profit, while the investment in existing business ventures generated only 39%. Given this data, one has good reason to question the logic for such an imbalance.
The article gives several reasons why companies are reluctant to invest more towards finding “Blue Ocean”, including the strong influence of military strategy in business and the intensity of competitor rivalry. Another reason companies don’t go after “Blue Ocean” more often is the high level of risk involved. Target markets might not always be responsive to a company’s efforts to reach them, which can lead to losses for the company if they have invested heavily in reaching them.
One recent example is Nintendo. Nintendo released a new gaming console the “Wii” in 2006 with the target of attracting a new audience of casual “gamers” who had never had a big interest in playing video games. The Wii was very successful at first and Nintendo was able to sell millions of Wii consoles based on its ease of use and motion sensing platform. The only problem was that the new breed of gamers didn’t want to buy more games for the console; many were content with the standard Wii Sports game that came standard with every system. So although the Wii was still profitable for Nintendo, it did not turn out to be the savior they had hoped for, and as a result of this, along with some other issues, Nintendo spent several years reporting financial losses.