Conference on Strategic Growth Planning and Change Management -- 'Strategic Growth Planning with the Blue Ocean Strategy' is one of two workshops that form the centerpiece of next week's Conference on Strategic Growth Planning and Change Management'. The other workshop, focusing on the theme 'Change Management and Applications of Strategic Planning', will be detailed in subsequent installments of this series spotlighting this one-of-a-kind conference, organised by OEPPA, one of Oman's most reputable media organisations.
So what is Blue Ocean Strategy (BOS) all about?
Blue Ocean Strategy is a business strategy book first published in 2005 and written by W Chan Kim and Renée Mauborgne of The Blue Ocean Strategy Institute at INSEAD. The book illustrates what the authors believe is the high growth and profits an organisation can generate by creating new demand in an uncontested market space, or a "Blue Ocean", rather than by competing head-to-head with other suppliers for known customers in an existing industry.
In the book the authors draw the attention of their readers towards the correlation of success stories across industries and the formulation of strategies that provide a solid base create unconventional success - a strategy termed as "Blue Ocean Strategy". Unlike the "Red Ocean Strategy", the conventional approach to business of beating competition derived from the military organisation, the "Blue Ocean Strategy" tries to align innovation with utility, price and cost positions. The book mocks at the phenomena of conventional choice between product/service differentiation and lower cost, but rather suggests that both differentiation and lower costs are achievable simultaneously.
The metaphor of red and blue oceans describes the market universe.
Red Oceans are all the industries in existence today -- the known market space. In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here companies try to outperform their rivals to grab a greater share of product or service demand. As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities or niche, and cutthroat competition turns the ocean bloody. Hence, the term red oceans.
Blue oceans, in contrast, denote all the industries not in existence today -- the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. Blue ocean is an analogy to describe the wider, deeper potential of market space that is not yet explored.
The cornerstone of Blue Ocean Strategy is 'Value Innovation'. A blue ocean is created when a company achieves value innovation that creates value simultaneously for both the buyer and the company. The innovation (in product, service, or delivery) must raise and create value for the market, while simultaneously reducing or eliminating features or services that are less valued by the current or future market.
The contents of the book are based on research and a series of Harvard Business Review articles as well as academic articles on various dimensions of the topic. Authors Kim and Mauborgne studied about 150 positions made from 1880 to 2000 in more than thirty industries and closely examined the relevant business players in each. They analysed the winning business players as well as the less successful competitors. Studied industries included hotels, cinemas, retail stores, airlines, energy, construction, publishing, automotive and steel.
The authors searched for convergence among the more and less successful players. Divergence across the two groups was also studied to discover the common factors leading to strong growth and the key differences separating those winners from the mere survivors and the losers. Kim and Mauborgne defined a consistent and common pattern across all the seemingly idiosyncratic success stories and first called it value innovation, and then Blue Ocean Strategy.
Kim and Mauborgne argue that while traditional competition-based strategies (red ocean strategies) are necessary, they are not sufficient to sustain high performance. Companies need to go beyond competing. To seize new profit and growth opportunities they also need to create blue oceans.
The authors argue that competition based strategies assume that an industry's structural conditions are given and that firms are forced to compete within them, an assumption based on what academics call the structuralist view, or environmental determinism. To sustain themselves in the marketplace, practitioners of red ocean strategy focus on building advantages over the competition, usually by assessing what competitors do and striving to do it better. Here, grabbing a bigger share of the market is seen as a zero-sum game in which one company's gain is achieved at another company's loss. Hence, competition, the supply side of the equation, becomes the defining variable of strategy. Here, cost and value are seen as trade-offs and a firm chooses a distinctive cost or differentiation position. Because the total profit level of the industry is also determined exogenously by structural factors, firms principally seek to capture and redistribute wealth instead of creating wealth. They focus on dividing up the red ocean, where growth is increasingly limited.
Blue Ocean Strategy, on the other hand, is based on the view that market boundaries and industry structure are not given and can be reconstructed by the actions and beliefs of industry players. This is what the authors call "reconstructionist view". Assuming that structure and market boundaries exist only in managers' minds, practitioners who hold this view do not let existing market structures limit their thinking.
To them, extra demand is out there, largely untapped. The crux of the problem is how to create it. This, in turn, requires a shift of attention from supply to demand, from a focus on competing to a focus on value innovation -- that is, the creation of innovative value to unlock new demand. This is achieved via the simultaneous pursuit of differentiation and low-cost. As market structure is changed by breaking the value/cost tradeoff, so are the rules of the game. Competition in the old game is therefore rendered irrelevant. By expanding the demand side of the economy new wealth is created. Such a strategy therefore allows firms to largely play a non-zero-sum game, with high payoff possibilities.
UCSI Blue Ocean Strategy Regional Centre
The UCSI Blue Ocean Strategy Regional Centre Sdn Bhd (UCSI BOSRC), based in Kuala Lumpur, Malaysia, is the Official Regional Licensee of Blue Ocean Strategy Businesses and has the Exclusive Regional License covering Malaysia, Australia, Canada, China, India, Indonesia, Philippines, Singapore, Taiwan, and Thailand.
As part of Malaysia's reputable UCSI Group, the Regional Centre is committed to accurately presenting BOS concepts and tools with the highest professional standards. To this end, substantial investments have been made to set up the following supporting systems:
• Strategic alliances with overseas partners to promote the learning of BOS such as e-learning.
• Priority access to the latest case studies and updated materials on BOS.
• PG courses in MBA and DBA with an emphasis on BOS.
• An international network of trained and qualified BOS consultants with extensive knowledge and experiences.
• A high-tech Blue Ocean Strategy Hall in which to conduct conferences, workshops and trainings.
(Source: Blue Ocean Strategy Organisation; Wikipedia)
Ten salient features about BOS
1. BOS is the result of a decade-long study of 150 strategic moves spanning more than 30 industries over 100 years (1880-2000).
2. BOS is the simultaneous pursuit of differentiation and low cost.
3. The aim of BOS is not to out-perform the competition in the existing industry, but to create new market space or a blue ocean, thereby making the competition irrelevant.
4. While innovation has been seen as a random/experimental process where entrepreneurs and spin-offs are the primary drivers - as argued by Schumpeter and his followers - BOS offers systematic and reproducible methodologies and processes in pursuit of blue oceans by both new and existing firms.
5. BOS frameworks and tools include: strategy canvas, value curve, four actions framework, six paths, buyer experience cycle, buyer utility map, and blue ocean idea index.
6. These frameworks and tools are designed to be visual in order to not only effectively build the collective wisdom of the company but also allow for effective strategy execution through easy communication.
7. BOS covers both strategy formulation and strategy execution.
8. The three key conceptual building blocks of BOS are: value innovation, tipping point leadership, and fair process.
9. While competitive strategy is a structuralist theory of strategy where structure shapes strategy, BOS is a reconstructionist theory of strategy where strategy shapes structure.
10. As an integrated approach to strategy at the system level, BOS requires organisations to develop and align the three strategy propositions: value proposition, profit proposition and people proposition.
© Oman Daily Observer 2012
