Term Paper, 2011
11 Pages, Grade: B
Meaning of Blue and Red Oceans
Blue Ocean Strategy
Porter Five Forces Model and Red Oceans
Threat of Competitive Rivalry in Red Oceans
Bargaining Power of Customers in Red Oceans
Bargaining Power of Suppliers in Red Oceans
Threat of New Entrants in Red Oceans
Threat of Substitutes in Red Oceans
Strategic Management – the Flip Side of Blue Ocean Strategy
Criticisms and Misunderstandings about Blue Oceans
Examples of Blue Ocean Strategy
This paper is an attempt to explore the Blue Ocean Strategy which surfaced in the year 2004 and within a few months, it revolutionised thinking patterns and decision making processes of many firms around the world. The terms “red oceans” and “blue oceans” became the part of the business dictionary and many business related journals started using these terms.
It links to the themes of “critical response” and “critical thinking” because the very creation of Blue Ocean Strategy is a challenge or disapproval of the entire field of strategic management, the field of study which has been studied, explored and discussed by many well-known authors over the past five decades and even before that. Where strategic management has been constantly emphasising to outclass the competition, blue ocean strategy cites this approach as short minded and insufficient and instead, preaches the creation of blue oceans to make the competition irrelevant. The reasons why authors of this strategy came up with the blue ocean strategy was because the engaged in the process of critical thinking and critical response and gathered the courage to challenge the mainstream and widely held assumptions about competition. Despite the fact that concepts of innovation and creativity did exist before the advent of blue ocean strategy, Blue Ocean Strategy provided the business and an academic world with a new lens to look at innovation, creativity and value creation (Thompson & Strickland, pp. 314-316, 2003). When as of today, there are many scholars which disagree to the theory as cite it as irrelevant, inconsistent and not having enough theoretical and research grounding. On the other hand, there are scholars who are engaged in the process of defending the theory thus creating an ongoing process of dialogue, critical thinking and critical response. The paper also explores those criticisms and makes an attempt to provide the answers for them.
Red and blue oceans represent the entire market universe. At any given point in time, the sum of markets would be equal to the sum of red and blue oceans. The names given to them are based on their certain characteristics which are discussed below.
Rather than remaining concerned with playing by the rules, firms in blue oceans create their own rules. In red oceans, the strategy created by firms flows from the industry structure. Interestingly, in blue oceans, the structure of the newly born industry is shaped by the strategy of the company (Thompson & Strickland, pp. 314-316, 2003). All concepts of competition, competitors, wars, rivalry and others become completely irrelevant. Within red oceans, when the firms have an option for either going for low cost “or” differentiation, in blue oceans, these firms can go for both low cost “and” differentiation strategies. In blue oceans, firms do not try to capture the demand but they create new demand for new products and services (Kim & Mauborgne, pp. 2-6, 2004).
Red oceans or in other words, the known market place, refers to the market universe which is in existence today. The boundaries, limitations, rules and regulations within these red oceans are well defined and well known to the industry players. Here, the only way to expand the share of the market is to steal the market share of the other players thus inducing cut throat competition (Kim & Mauborgne, pp. 63-64, 2005). Firms which are present in red oceans are more likely to engage in price wars, aggressive marketing, heavy promotional campaigns and rivalry which have cost these firms trillions of dollars, all in the pursuit of beating one another but towards the end of the day, they are at the same level. Supply is most likely to exceed demand in these industries thus inducing firms to fight.
Blue ocean strategy argues that rather than wasting all your resources in fighting with the competition, one should engage in activities with which the competition could be made irrelevant. In fact, the authors even argue that the best method to beat competition is to stop trying to beat competition. As mentioned earlier that rather than playing by a predetermined set of rules, the blue ocean strategy argues that firms should redirect their limited resources in creating their own fields and own rules. Blue ocean strategy argues that “permanently great company” or “permanently great industry” is just a myth and it does not exist in reality. In the short term, companies and industries may benefit from booms, business cycles, environmental factors and other reasons but that does not last for long. However, what does exist is “permanently great strategic moves” (Kim & Mauborgne, p. 6, 2004).
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