Application of "Blue ocean strategy vs. red ocean strategy" in Finance

Crazyman · February 14, 2014, 5:51pm

I think people are using this Blue Ocean brand to justify some pet products that are unlikely to succeed. A full phone that points to Mecca? Can’t $ 1.99 apps do that already?

A fund that looks at higher returns with the same risk? That’s not very oceanic - not only they may very well fail, but every active manager in the world is basically doing the same thing.

Crazyman · February 14, 2014, 5:52pm

double post

bchad · February 14, 2014, 5:58pm

Crazyman and I are on the same wavelength here. I was just about to say that “Blue Ocean Strategy” has real meaning, but right now it is just being used as some magical incantation that marketers use to make their stuff sound like a major breakthrough.

It may be useful to look at Blue Ocean Strategies to explain past successes, like the iPhone and iPad, and it may be useful priming tool for brainstorming sessions to try to come up with new ideas, but as marketing jargon, it just sounds like another buzzword spoken by people who don’t really know what they’re talking about.

system · February 14, 2014, 6:05pm

You do have some valid arguements.Now a days any “innovation” is marketed as a “disruptive innovation” and any new strategy is promoted as a “Blue ocean strategy” by most strategic marketing professionals.

lxwarr30 · February 14, 2014, 8:36pm

I fail to see how Nintendo is a “Blue Ocean Strategy” when by definition they entered an established market - console video games. They just use differentiation (nostalgia! wee!) and lower cost to find their place. I’m going to copy your definition from “Red Ocean Strategy” below so you can read yourself.

They focus on competing in a marketplace which already exists.
They focus on the value/cost trade-off. The value/cost trade-off is the view that a company has the choice between creating more value for customers but at a higher cost, or reasonable value for customers at a lower cost. In contrast, those who attempt a blue ocean strategy aim to achieve differentiation and at the same time, low cost.

I mean I could even put together an argument why the walkman wasn’t a “Blue Ocean Strategy” because the portable music market already existed in boomboxes. Sony used these points from “Red Ocean Strategy” to forge their market:

They focus on beating the competition. (creating an even more portable product)
They focus on better execution (better marketing, lower cost base etc).

TL;DR - Academic circle jerk phrase like “entrepreneur” or “social”

system · February 14, 2014, 9:00pm

First of all, it is important to realize that practicing competitive strategy, or what we call Red Ocean Strategy, is essential to the success of a business. One still must compete in the marketplace. However, competitive strategy often makes companies too focused on benchmarking against the competition, focusing on their existing assets and capabilities, and generally trying to react to the circumstances of their industry. These are the most common mistakes companies make in formulating their strategies. To avoid these mistakes, Blue Ocean Strategy asks companies to first stop benchmarking and put aside any conception of their own assets and capabilities. We believe that the moment you take an environmentally deterministic view of your company you are a victim of your environment. Companies find this challenge inspiring. Learning to think differently about opportunities and risks, daring to move forward into the future, that is what keeps people and companies alive, young, and growing.
Blue ocean strategy first asks how can I create exceptional buyer utility that will change the lives of the mass of the market? Once answered, they ask, what is the price that will unlock the mass of buyers? Here you have achieved your value proposition. Next they ask given the strategic price what is the cost target I need to achieve to make a tidy profit. This is the company proposition. Finally they ask, what are the internal adoption hurdles to executing my strategy and how do I overcome them? This is the people proposition.
The moment you sit back and say how can we create a whole new industry, by asking just a few simple questions, then you start to break that cycle. All industries are created not by big resources but by big ideas. Blue Ocean Strategy proposes a different approach whereby new market space is built by cognitively reordering and reconstructing existing market realities and existing data in a fundamentally new way. Not by focusing on your current assets and capabilities.
Creating blue oceans is not a static achievement but a dynamic process. Once a company creates a blue ocean and its powerful performance consequences are known, sooner or later imitators appear on the horizon. However, a blue ocean strategy brings with it considerable barriers to imitation. Some of these are cognitive, and others are operational.
The first barrier is often cognitive. Competitors are often blocked from imitating because of brand image conflicts, or the blue ocean strategy just does not fit conventional strategic logic. For many years CNN, for example, was ridiculed by the industry as chicken noodle news by established players. The second barrier is organizational. Because imitation often requires companies to make substantial changes to their existing business practices, politics often kick in, delaying for years a company’s commitment to imitate a blue ocean strategy. The third level includes the economic forces of blue oceans. The high volume generated by a value innovation leads to rapid cost advantages, placing potential imitators at an ongoing cost disadvantage.
The best way to defend blue oceans and to block new entrants into the market you have created as long as possible is to heighten these barriers with constant improvement on your initial blue ocean strategy of value, profit and people propositions.
Yes, blue ocean strategy applies across all types of industries from the typical suspects of consumer product goods to b2b, industrial, pharmaceutical, financial services, entertainment, IT, and even defense. Blue Ocean Strategy drives this point home by highlighting a rich array of companies creating blue oceans across diverse, and unexpected industry domains from NetJets in jet travel, to NABI in the municipal bus industry, to Cemex in cement, to Joint Striker Fighter in defense, to Cirque du Soleil in entertainment.
Also, although blue ocean strategies create new market space and change industry dynamics, they are not necessarily initiated by entrants to an industry. It is found that blue oceans were created by both industry incumbents and new entrants, challenging the lore that start-ups have natural advantages over established companies in creating new market space. In the auto industry, think of GM which created the blue ocean of emotional, stylized cars in the 1920s, or the Japanese which created the blue ocean of small, gas efficient autos in the 70s, or Chrysler which created the blue ocean of minivans in the 80s – all were incumbents. Blue oceans created profitable growth for every company launching them, start-ups and incumbents alike.

tjcfa · February 14, 2014, 9:08pm

U have 290 AF points, u passed level 1, u use cool words. U are my idol.

system · February 14, 2014, 9:13pm

From Malaysia to the UK, governments are having to look at providing public services differently. A ‘Blue Ocean’ strategy is proving an increasingly popular way to turn routine thinking on its head

While ‘blue sky thinking’ might be a tired management cliché, experience from Malaysia suggests that a ‘Blue Ocean’ approach offers practical tools for innovation in public services.

The so-called Blue Ocean Strategy has been adopted by the Malaysian government and applied to a range of its services. Results, so far, indicate that it could prove useful in public sector contexts elsewhere.

Blue Ocean theory was created by professors W. Chan Kim and Renée Mauborgne of INSEAD, one of the world’s largest business schools with campuses in France, Singapore and Abu Dhabi. Their book, Blue ocean strategy: how to create uncontested market space and make the competition irrelevant, was published in 2006 and the Blue Ocean Strategy Institute at INSEAD applies the theory to businesses worldwide.

Blue Ocean theorists describe existing markets as ‘red oceans’ – red with blood as firms are dragged under by circling sharks with which they try to compete. They propose an alternative to standard differentiation strategies of either lower cost or higher quality, arguing that it is better to focus on being different rather than trying to compete in an already bloody red ocean – hence the blue ocean analogy.

According to this theory, high performing companies achieve growth and long term stability by creating new markets and avoiding cut throat competition. McDonalds, Cirque du Soleil and Yellow Tail wine are among the many case studies cited as demonstrating the application of this strategy to businesses.

In industry, the impetus to innovate comes from the threat of competition, whereas in public services it is from having to do more with limited budgets. Much current thinking about how to manage public services comes from a conventional understanding of how businesses survive when the going gets tough, but the Blue Ocean approach turns such thinking on its head. While the commercial sector aims to expand demand for services, public organisations are often trying to do the opposite.

Blue Ocean Strategy can help boost creativity in public as well as private sector organisations. The dramatic transformation of the New York Police Department in the 1990s, later applied in Boston, is one such example cited by Kim and Mauborgne. Blue Ocean Strategy is popular among businesses in Asia in particular, with, for example Malaysian Airlines discovering that driving customers to the airport could distinguish their offer from that of competitors.

There is a close relation between business and the state in Malaysia, leading the Malaysian Government to adopt a National Blue Ocean Strategy in 2011. Prime minister, Datuk Seri Najib Razak, has said: ‘Blue Ocean Strategy is a management tool which can be applied in the government’s administrative context as it enables us to think out of the box with good results.’ He wants every civil servant to adopt four elements enshrined in the Blue Ocean Strategy when carrying out their daily duties: ‘reduce’, ‘eliminate’, ‘create’ and ‘increase opportunities’.

The Blue Ocean Strategy has been applied to prisons, housing, water supply and a number of other services in Malaysia and has encouraged collaboration between the police and army. Blue Ocean thinking has meant developing holistic solutions through seeing things from service users’ perspectives and eliminating steps in bureaucratic processes.

This has led to the creation of one-stop-shops at urban Transformation Centres in principal locations, which house government services, private agencies, businesses, NGOs, and youth facilities in one place and are open every day including Sundays. Results include reducing the time taken to issue a passport from three days to half on hour.

The Blue Ocean approach complements lean thinking and is a way of potentially taking it further. In this context, the Association for Public Service Excellence was recently asked to run workshops for civil servants in Malaysia to show how UK councils have been responding to austerity. Delegates in Kuala Lumpur gained insights into ways in which APSE has used ‘lean thinking’ management tools to help local authorities reduce costs and improve efficiency.

Most public service improvement plans tend to look at how to do what the organisation is already doing more effectively. But efficiency has been optimised in many instances in the UK by taking a different approach, and APSE is now helping councils innovate, generate income and reduce demands on services.

Applying Blue Ocean Strategy to ‘reduce’, ‘eliminate’, ‘create’ and ‘increase opportunities’ refocuses thinking – and questions underlying assumptions; for example, by changing public behaviour in order to reduce demand and by involving users in service design. However, with all strategic management frameworks such as ‘Blue Ocean’ it is important to remember that public service delivery is not a ‘perfect’ market.

Some desirable social objectives or outcomes cannot be delivered through normal market mechanisms and the normal rules of demand and supply don’t always apply in a public sector context. However rather than stripping away services as a response to austerity, in these tough times for public services everywhere, Blue Ocean thinking can help strategise and prioritise innovation and income generation – and lead to entirely new ways of doing things.

See more at: http://opinion.publicfinanceinternational.org/2013/10/public-services-the-future-is-blue/#sthash.NXANXKoi.dpuf