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Blue Ocean Strategy Theory and Criticism

Essay Topic:

Outline the main components of Kim and Mauborgne’s (2004) concept of ‘Blue Ocean Strategy’.Critically assess the strengths and limitations of this approach to pursuing competitive advantage.Use relevant examples to support your argument.

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Introduction In the contemporary hostile business environment, innovation has become part of any company’s paramount strategy for continuous survival. Nokia, despite being the world’s largest mobile phone manufacturer having a large customer base, realized how lack of innovation to compete against rivals high end smart phones threatened its market presence.

Kim and Mauborgne’s (2004) Blue Ocean Strategy is one of the major contributions in that context. Accordingly, this essay examines the Blue Ocean Strategy concept in the following order: First, the theory is explained with a real-life example. Secondly we look at few of its limitations. Thirdly, a critical appraisal of why this approach is better or worse off than other competing and value innovation theories is presented and finally the conclusion is drawn. Blue Ocean Strategy Theory

According to Kim and Mauborgne (2004) the business universe consists of two distinct kinds of space: Red and Blue Oceans. Red Oceans are the known market space where 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 the market. As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities, and cutthroat competition turns the ocean bloody and hence, the term red ocean.

Blue oceans, in contrast, refer to all the industries not in existence today—the unknown market space, untainted by competition. The essence of Blue Oceans is value innovation where demand is created rather than fought over. There is ample opportunity for rapid growth and profits. In Blue Ocean, competition is irrelevant because the rules of the game are waiting to be set. In contrast to Red Ocean which emphasizes either on cost or differentiation strategy, Blue Ocean suggests it is possible to attain both simultaneously. Pursuing this strategy is able to create high barriers to entry.

There are two ways to create blue oceans: one is to give rise to completely new industries and the other is by changing the boundary of an existing industry. One of the classic examples of Blue Ocean strategy was Fords invention of Model T back in 1908. At that time the automobile industry in US was saturated (Red Ocean) with 500 small car companies manufacturing few expensive cars for the rich citizens only. Ford redefined the industry by the introduction of Model T car which was more robust, affordable and had less maintenance cost.

With high demand and standardization in its product it was able to attain both differentiation and low cost. Thus instead of entering and competing on the same level Ford made the competition irrelevant by tapping into a whole new market or Blue Ocean within the existing industry. Limitations Some of the Blue Ocean Strategy limitation suggested by Bowman (2008) includes the cost associated with failed projects and innovations, the ambiguity in the industry definition and the methodology carried out for the theory. Other Strategy Theories and Approaches

Competitive Strategy Forces Porter’s five forces viewing competition as the main issue that business out to be addressing is in direct contrast to Blue Ocean’s view of value innovation and creating new market. A recent research in the retail market by Barke (2010) suggests that Porter’s view of increased firm leading to lower profitability is in fact true but it does not go down alarmingly as suggested but rather a ‘pedestrian force’. Also Blue Ocean innovation in an existing market can last for 15 years before it to go down to a basic level (Barke, 2010).

What that means is that the profit gains from innovation, in an existing market, are a lot more than previously supposed. Disruptive Innovation Kim and Mauborgne (2004) failed to identify the difficulty in adopting Blue Ocean strategy particularly for the established firms. Christensen and Overdorf (2004) spotted this issue in their ‘disruptive innovation’ model which bears similarity with Blue Ocean in that new markets can be created with the existing industry and ‘continual innovation’ is needed for survival. Broadly defining, it is a strategy which disturbs the trajectory f an industry it is heading to, instead of trying to change the whole industry and does so by targeting the so called non-consumers. Christensen argues that established firm’s strength in resources, process, and values culture can often lead to rigidity to change and adapt to threats or explore new markets. Easy jets incremental growth and rise in dominance against other airlines such as British Airways is a perfect example. British Airways tried to change its business model and copy Easy Jet’s low cost strategy but miserably failed due to its different value.

Christensen and Overdorf (2000) highlight this issue about the ‘dangers of quickly imitating by established firms’ and instead urges new ‘organizational structure, acquisition’ means to tackle the issue. They further go on to say that small disruptive startups will always have an added advantage over established firms due to less stress in ‘managing resources’ and in CEO’s ‘quick intuitive decisions. ’ Their theory, thus, provide a whole new perspective in Blue Ocean Strategy model. Experience Innovation and Co-Creation of Value

Prahalad (2004) argues that that today, customers want to be involved more and more in the production experience or become ‘co-creator’s’ instead of the ‘dominant logic’ of companies that decides which product to manufacture and sell as suggested by Blue Ocean strategy and other theories. According to him, this dominant logic fails to recognize threats, seize opportunities, growth and innovation. He suggests ‘value’ is created through experience of consuming the product rather than only measured by product, service or transaction (Prahalad, 2004: 173).

This is what terms as ‘experience innovation’ that can be created through a paradigm known as ‘DART (Dialogue, Access and Choice, Risk Assessment and Transpercy). ’ Starbucks is a good example here – where people just don’t go to drink coffee but rather to experience of the coffee shop culture. Trends in Japanese Management While Blue Ocean Strategy emphasizes on finding a new market for competitive advantage, Clegg and Kono (2002) asserts that one of the rise of Japanese companies such as Hitachi and Toshiba was ‘developing strategic alliances and co operation with other companies’ (Clegg and Kono, 2002: 278).

Further dissimilarity in Blue Ocean strategy includes Hamel and Prahalad (1989) ‘advantage of being a follower rather than a leader’ which enables companies to have a ‘strategic intent’ or a long term vision of winning and beating the biggest in the business such as Canon sought to beat ‘Xerox’ and ultimately matching global unit market share. Conclusion The competitive perspective suggests that companies should pay close attention to their existing markets when looking for opportunities for innovation; that competition is a much weaker force in terms of eroding the benefits from innovation.

Disruptive innovation highlights the obstacles faced by firms in pursuing Blue Ocean but rightly urges firms to adopt this strategy for survival. With the current IT phenomena the experience innovation’s holistic view of measuring value through consumer is a new breadth of fresh air that should be included and be a part of Blue Ocean Strategy. Lastly, the trends in Japanese Management indicates that other successful strategy theories must also be considered alongside Blue Ocean as part of companies broader business plan to remain competitive.

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