Sunday, June 12, 2016

Blue Ocean Is Pretty But Not Easy

All the three articles this week describes the possibility of a new market or sub-market which big companies have equal chance to lose as small ones. Clayton called it “disruptive technologies”, which bring to a market a very different value proposition… and underperform established products in mainstream markets. In “Blue Ocean Strategy”, it is defined as uncontested market spaces where the competition is irrelevant. And most blue oceans are created from within, not beyond, the read oceans of existing industries. Everyone should find this market, enter it and build wall against the new comers.

However, as the numbers indicate, 86% were line extensions while only 14% were aimed at creating new markets or industries. As the “Blue Ocean Strategy” says, part of the explanation is that corporate strategy is mostly about red ocean competition. “It is about confronting an opponent and driving him off a battlefield of limited territory”. Another constraint I can think of is described in last week’s readings: expansions should focus on the companies own strength. Like in the example of motorcycle market in North America, given Harley Davison is the first to find the off-the-road recreational motorbike market, will it succeed? As the company later entered the low-end market with small-engine bikes acquired from Aeromecchania, the result is not a happy ending. Many of its dealers felt the small machines compromised Harley Davidson’s image with their core customer.

Another fact is that the reason why competitors do not enter that “blue ocean” is because they have tried and it’s proven not successful. Given there is no technology innovation, why don’t you think your competitor did not find the “blue ocean” you find. As Amazon decided to enter the package delivering industry, it thought Sunday Delivery might be the “blue ocean”. However, both UPS and FedEx remain their market focus unchanged. And as Fred Smith, Chairman of FedEx, once said: “We have not found a sufficient demand for Sunday delivery”. Interestingly, over-night shipping and aero-shipping are the blue oceans Fred discovered which built its $35 billion Fortune 500. But don’t you think he is the first one came up with this idea? He might be the first rich one, though.

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