Tuesday, April 12, 2016

Blue Ocean Strategy - Developing Strategic options

It has been observed that companies tend to engage in cut-throat competition in search of sustained profitable growth. Yet in today’s overcrowded industries competing for head on results in nothing but a bloody ‘red ocean’ of rivals fighting over a shrinkable profit pool. It requires a great deal of strategic planning and executing to develop a lasting success – creating Blue Ocean of untapped market spaces that are ripe for growth. The Blue Ocean strategy essentially states that companies which adopt this strategy, create uncontested market space, eliminate the competition by making it irrelevant, create and capture new demand, break the value/cost trade-off and engaging in product/service differentiation and low cost. To capture the unmet demand and grow in a completely new market companies need to look inside their own organization – analyze their strategy and create a blue ocean that stems from their own core business. A blue ocean can be created either by an incumbent, i.e. the company already established the company in a particular market or by a new entrant. A classic example of a company that creates Blue Ocean is Apple. With its innovation and strategic planning, Apple has more often than not, emerged as a leading player and a giant by creating a new market space. For example, the innovations of iPod, iTunes, etc. are the testament to the fact that Apple believes in the adopting the Blue Ocean strategy. They were able to create a brand of themselves which separates them from the rest and used cutting-edge technology to strengthen their position in the market and ultimately create a blue ocean.

The research shows that the creators of Blue Ocean do not use competition as a bench mark. Instead, they make it irrelevant by creating a differentiated value for their buyers and the company itself. They strategize their business model opposite from the traditional belief that a trade-off exists between value and cost. These companies often pursue differentiation and low cost simultaneously. In this pursuit of achieving differentiation and low cost, the actions that a company takes favorably affect both its cost structure and value proposition to buyers. The way this strategy works is that by eliminating and reducing competing factors (of industry), companies can indulge in cost (mostly variable costs over fixed costs) savings, and by raising and creating elements the industry has never offered, they can alleviate the buyer value. The Blue ocean strategy also creates barriers to imitation as the creators can attract and create a voluminous customer base and can create economies of scale very rapidly thereby adding to the cost burden of the imitators. There is no denying the fact that both Blue Ocean and Red Ocean co-exist, and it is ultimately the strategy that a company adopts which will distinguish it from thriving in Blue Ocean or a red ocean. 

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