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Blue Ocean Strategy is a powerful technique through which a business can identify new market positions and create competitive advantage.
Using your knowledge and understanding of Blue Ocean Strategy critically evaluate the Blue Ocean process and its key analytical tools, when applied to a SME.
Your essay should draw on suitable references to support your arguments and should present appropriate conclusions.
Within your 2000 word submission you should:
Critically analyse and evaluate the key tools and processes involved in producing a Blue Ocean Strategy
Critically evaluate this analytical method, using appropriate case studies and references where relevant.
Discuss, particularly in relation to SMEs, its purpose, application and timing
The basic theme of this essay is to describe the Blue Ocean Strategy. The main focus will be on its importance and the tools which are required for the Blue Ocean Strategy. The essay proceeded with the critically evaluation of the blue ocean strategy using two case studies. Then, the analyses fetched from case studies will then be checked in Small Medium Enterprise Company. In the end there will be a discussion on the importance of Blue Ocean strategy on SME.
"A company is not only top management, nor is it only middle management. A company is everyone from the top to the front lines. And it is only when all the members of an organization are aligned around a strategy and support it, for better or for worse that a company stands apart as a great and consistent executor. Overcoming the organizational hurdles to strategy execution is an important step toward that end. It removes the roadblocks that can put a halt to even the best of strategies."
(Kim and Mauborgne, 2005)
A good strategy matched with outstanding implementation is every company's best assurance of success. Strategy creation is doing the right things and implementation is doing the things right. (Harvard Business School). As said by R. Duane Ireland, Robert E. Hoskisson, Michael A. Hitt (2008) strategy is an action plan designed to move an organisation toward its picture of the firm as it hopes to exist in the future time period.
There are two types of strategy: Blue Ocean strategy is a market space that is created by identifying an un-served set of customers, then delivering to them a compelling new value proposition. This is done by reconfiguring what is on offer to better balance customer needs with the economic cost of doing so. This is opposed to a Red ocean, where the market is well defined and heavily populated by the competition.(Hollensen, 2007). Heinz (2007), says red Ocean may be illustrated by the 'bloody' current competition in the automobile industry in which companies try to be a little better than their competitors for example in cost structure. In contrast, the blue ocean strategy may be illustrated by the ebay online auction by entering a market without competitors
According to Kim and Mauborgne two types of Blue Ocean can be differentiated: the first is when a company creates a market and dominates it for a time until imitators see profit opportunity then it's slowly become a red ocean. The example for this is Body shop, which dominated the blue ocean it had created for more than ten years but now it's facing bloody competition. The reason is that it did not build up a new blue ocean strategy when followers came closer. (INSEAD, 2009)
The second alternative of a blue ocean strategy according to Kim and Mauborgne is when a company creates a market and dominates it to the point that there is no competitive threat. Here is an example is In-N-Out Burgers, a California fast food restaurant chain, offers only three kinds of burger, chips and soft drinks to its customers. Although very small range of products, In- and - Out burgers is very successful since decades, it did not focus on the competition but raised the customer value by focusing on the on factors like freshness of food which was so far not a key factor to the food industry.(INSEAD,2009)
There are no companies that are permanently successful, temporary success however can be achieved. This view is expressed by Kim and Chan. According to Kim and Chan( 2005) ideal way to leave fierce competition and irrelevant market share competitors (red ocean) behind, consist of creating a new market, so called Blue Ocean Strategy, where competition and all its negative sequences become irrelevant for a company.
Kim and Chan (2005) believes that only the combination of value creation and innovation leads to value innovation, the key to Blue ocean strategy. This approach can be used, where cost can be cut and new value to the customers is offered at the same time. Consider, for example the case study of Yellow Tail, a wine created explicitly for the U.S market and launched in 2000 by Casella wines, a small family owned Australian winery. Casella changed the wine industry's given: that wine is a unique beverage for informed customers who requires complex wide range of products and is best reached through marketing and brand building that drips with enological terminology.
Casella created a blue ocean by introducing a fun, non traditional wine targeted at the U.S drinkers who normally do not drink wine a market three times the U.S size of wine market. Soft, sweet and fruity, Yellow Tail appealed to beer drinkers and ready to drink cock tail drinker, without traditional focus on tannins, oak, complexity and aging. Casella made selection easy by offering only one white and red wine by replacing technical jargon by striking Kangaroo logo.
The Result is Yellow tail became the fastest- growing brand in the history of U.S and Australian wine market and no1 big bottle in U.S(750ml) by August 2003 and Casella winery grew to be one of the largest wineries in Australia. (Kim and Mauborgne)
In order to create above mentioned value innovation and to take the first step toward the creation of Blue Ocean Strategy, Kim and Mauborgne use the strategy canvas. A coordinate system representing the observed market as precisely as possible, is marked on the strategy canvas. The factors which in which the industry invests and which are competed for are marked on the abscissa the level which is offered to the customers respectively is shown on the ordinate. Connecting these points lead to a value curve which enables comparison of owns product with alternatives. The value curve, the basic component of the strategy canvas, is a graphic depiction of a company's relative performance across its industry factors of competition. To fundamentally shift the strategic canvas of an industry, you must be re orienting your strategic focus from competitors to alternatives and customers to non customers.
To reconstruct buyer value elements in crafting new value curve, Kim and Mauborgne have developed the four action framework as shown below
...to break the trade off between differentiation and low cost and to create a new value curve.
Eliminate factors that companies in the industry have long competed on and factors which are take for granted which no longer have value and distract from the value
Reduce products or services that are overdesigned in the race to match and beat the competition.
Uncover and raise the customer needs finally, create news sources of value for buyer.
In the case of U.S wine industry by applying four action frameworks it could be seen that casella wine has created a wine whose strategic profile broke from the competition and created Blue Ocean. By mid 2003 Yellow tails moving average annual sales were tracking at 4.5 million cases. The above strategy canvas shows that by four action framework application lead to break the competition in the U.S wine Industry for Casella winery.(Kim and Mauborgne,2005)
There is a third tool created by Kim mauborgne i.e., eliminate-reduce-create-raise grid. Here the grid pushes company to act on four frameworks.
This is illustrated by the example of Canadian circus group cirque du soleli which succeeded in creating new market according to the blue ocean principle by simultaneously renunciating expensive stars in the show ring (reduce)and consistently orientating towards intellectual artistic interpretation of the show( create)
Aisle concession sales
Multiple show arena
Fun and Humour
Thrill and danger
Artistic Music and dance
And reducing the fun and humour and raising the unique venue according to the industry standards
Kim and Mauborgne also discussed the four action framework of creating a new value curve should well guided by the three main qualities of a company: focus, divergence and a tagline. These qualities make the strategy precise to understand, differentiate with the competitors and easy to communicate with the cost structure of the company.
Firstly, the company value curve needs to have a focus, so the company does not diffuse its efforts across all key factors. This Focus should be clearly shown by company value curve. Secondly, to the focus the shape of the company's value curve needs to be diverging from its competitors to make their uniqueness. In comparison the value curves of blue ocean strategies always differ from the competitors by applying four action frame work. And the final quality is the tagline which is most important for a successful blue ocean strategy. The tagline must send a clear message to its customers of advice and offering truthfully.
As shown in the strategy canvas, Yellow tail value curve has focus which the company does not deviate from its key factor of competition. The divergence in the value curve is shown by not benchmarking the competitors but looking at alternatives. Finally the tagline of the Casella wine is precise: a fun and simple wine to be enjoyed every day.
Managing SME's is distinctively different from managing larger enterprise for a number of reasons. These include more limited resources, behavioural attributes that stem from the combination of ownership and management that is typical, and a lesser ability to shape or influence external environmental influence.( Moha Asri Hj. Abdullah, Mohd. Isa Haji Bakar,2000). According to Kristin Hallberg (2000), SME development strategy is in reality just a private sector development strategy recognising that majority of the firms are small that they may face different constraints and opportunities than large firms and that the type of institutions and instruments best suited to their needs may be underprovided in distorted and segmented markets. Any SME, no matter whatever it offers tangible goods or services, will have certain key competencies capabilities and process. ( Robert H. Lowson, 2002). Candice Lim (2010) says that small and medium business is very sensitive to risk and competition.
Whereas Blue ocean strategy is really new approach and usable for general management consulting. The consept which the kim and mauborgne created could be used for the consulting the SME which are forced to find their new way to reach their vision of success (Carsten Siegemund,2008)
It could be concluded that blue ocean strategy offers both a process and set of tools that a practitioner can use for navigate business. By using the Blue ocean strategy analytical tools like strategy canvas, four action frameworks, and value curve helps the SME to outperform the competitors and also diverge from the competition. As discussed above, the two case studies have successfully implemented the analytical tools of Blue ocean strategy to avoid the competitors and competition in the red ocean and swim the Blue ocean strategy for an uncontested market space. Key to Blue ocean strategy is value innovation which can be created by eliminating and reducing the factors on industry competes on and buyer value lifted by raising and creating elements industry has never offered. Blue ocean strategy is aimed at delivering superior value to non existing customers by reducing the factors that industry takes for granted and by enhancing some factors above industry levels. Hence Blue ocean strategy is a successful creation which could well suited for Small medium sized enterprise to make their own market space irrelevant to existing market.
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