A Business Strategy That Could Change The Way We Do Business

Blue Ocean Strategy Articles : A Business Strategy That Could Change The Way We Do Business by Zigfred Diaz

A friend and I talked about a unique business strategy over a cup of coffee one afternoon. I was so intrigued by the idea so I did a little bit of research on the subject. This strategy is what is known as the Blue Ocean Strategy. The Blue Ocean Strategy is a corporate strategy that aims to tap unclaimed markets making competition irrelevant. The strategy is embodied in the book entitled "Blue Ocean Strategy" by Professors W. Chan Kim and Renee Mauborgne and Published by Harvard Business School Press.

According to the book, "Blue Ocean" refers to an untapped market, wherein there is only little or no competition at all enabling anyone to claim the market for his own. On the other hand "Red Ocean" refers to a market where competition is very high. In this situtaiton, the market is considered as very crowded already since almost everybody is producing the same type of service and the same kind of goods.

The Blue Ocean strategy is simply to innovate something; something that makes people give a higher value for a certain product or service. Since doing this would require additional cost, the cost that is incurred by the value added is reduced by eliminating product or service features that the market does not really care about.

To further drive home the point, it is necessary that a Philippine based or a "local" example be given. An example on how the Blue Ocean Strategy was used here in the Philippines can be seen by studying the strategic moves of the Gokongwei group of companies who owns Mobile phone company, Sun Cellular and airline Cebu Pacific among other companies.

A new untapped market was opened by Sun Cellular by adding value to products already found in existing markets. They achieved this by making calls within their network free. This is a very wise move considering that the market for mobile phones has already been saturated by both Smart and Globe. As a result, people are buying into this "new market." This is evidenced by the fact that most people in the country have a sim card and a cellphone for Sun Cellular and another sim card and a phone for other networks. Others have two sim cards in a dual sim phone.

What people really want, is to "fly" and in order to do this fares have to go down. This is exactly what Cebu Pacfic did in the Airline industry. They created a "new market" by slashing down their fares, since this is really what people want. People don't really care about a a hot meal or a newspaper. What they want is to fly. Eliminating these other cost, helped Cebu Pacific give value to what people really want, forcing people to buy into this "new market."

In order to survive, traditional Business strategy would normally want to "crush the competition." However Blue Ocean Strategy dictates that we "Create new markets with little or no competition." "Strategic thinking" is resorted to instead of the traditional business approach of "Strategic Planning." In Blue Ocean strategy we do not talk of "cutting prices" to capture a market, Instead we refer to it as adding "value" to products and services to claim an untapped market.

The critiques argue that the principles and ideas that are said to be unique to the strategy can also be found in other traditional business strategies. The say that Blue Ocean Strategy has already existed a long time ago.

However this line of thinking is not justified. A new theory is always built upon something that has already been accepted for a long time as a scientific principle or even theory. (As similarly as the theory of relativity rest upon the foundations of the principles of electricity, gravity, thermodynamics etc.) Our way of discovering something is built upon the knowledge that has been universally accepted by the majority. No matter what the critics say, it is certain that Blue Ocean Strategy is here to stay. In the years to come, it will surely have an effect on the way future entrepreneurs, managers and leaders will think and do business.

About the Author
Know more about business strategy. Visit the blog of Zigfred Diaz. Learn more about other diverse topics such as law, leadership, management, entrepreneurship, finances, investments, technology, internet marketing, blogging, Theology and life.

Source: http://www.goarticles.com/cgi-bin/showa.cgi?C=743350

Blue Ocean Strategy . . . The future trend of Business strategy ?

Blue Ocean Strategy . . . The future trend of Business strategy ? by Zigfred Diaz

I was in Star Bucks Club Ultima this afternoon to talk with a friend regarding a new business that he is planning to start.

One of the things that he mentioned was this unique business strategy that's quite different from what we traditionally learn in business school. According to him, this strategy sorts of deviates from normal business concepts that we hear and read from the usual management gurus. This strategy is called "Blue Ocean Strategy"

I was intrigued by the idea so I did a little bit of research on the subject. Blue Ocean Strategy is a corporate strategy that aims to tap unclaimed markets making competition irrelevant. The strategy is embodied in the book entitled "Blue Ocean Strategy" by Professors W. Chan Kim and Renee Mauborgne and Published by Harvard Business School Press. The authors claim that the Blue Ocean Strategy is a result of several years of study of strategic moves by over 30 industries in a span of 100 years.

In the book, "Blue Ocean" refers to an untapped market, a market wherein there is only little or no competition at all enabling anyone to claim the market for his own since it is not yet too crowded. In contrast, "Red Ocean" refers to a market where competition is very high. The market is considered as very crowded already since almost everybody is producing the same type of service and the same kind of goods.

The Blue Ocean strategy is simply to innovate something; something that makes people gives a higher value for a certain product or service. Since doing this would require additional cost, the cost that is incurred by the value added is reduced by eliminating product or service features that the market does not really care about.

In order that this can be understood well a "local" application must be cited. According to my friend a classic example of how the Blue Ocean Strategy was used here in the Philippines is the strategic moves of the Gokongwei group. As we all know, the Gokongwei group owns Mobile phone company, Sun Cellular and airline Cebu Pacific among other companies.

Since the market for mobile phones has already been saturated by both Smart and Globe, what Sun Cellular did is to create a "new market" by adding value to products already found in existing markets. As a result of this "added" value, (By making sun to sun calls free) a new untapped market was opened. It could be said that Sun Cellular is not competing directly with Globe and Smart but rather they have raised awareness among the people to buy into this "new market." As a result, most people now have two cellular phones or two sim cards in a dual sim phone. In this way Sun Cellular is not "out-performing" Smart and Globe but rather they have created a new market, making competition irrelevant.

In the airline industry, Cebu Pacific has managed to apply the Blue Ocean Strategy by adding "value" to what people really want, which is to "fly." People don't care about a newspaper, a hot meal or a fancily dressed flight stewardess. What people care about is that they can "fly." In order to do this airline fares must go down since this is what people care about. This in a sense allowed Cebu Pacific to tap into the "untapped" market. The existing market is referred to as "customers who can only afford to fly." The untapped market is "every can fly." This is embodied in Cebu Pacfic's advertisement "Now every JUAN can fly" (A play on the words "every juan" = "everyone", with "J" being pronounced as "H", Juan is the "universal" first name of Filipinos just like John is for the Americans) Cebu Pacific has managed to slash down fares by reducing cost on service features that most people do not really care about such as hot meals etc.

Being involved with the International Marketing Group (IMG), I can now clearly see that they have employed the Blue Ocean Strategy in the way they do business. I do not know if they have being doing this consciously or unconsciously. Instead of selling insurance products directly, IMG teaches it's clients and brokers the concepts of financial planning and management. (albeit not in a very organized manner) Product is not given primary importance. The financial broker shows his client his need for financial planning. The financial broker who is well versed in financial planning concepts then introduces products that suits the client needs. The untapped market of financial planning needs by the people is claimed by IMG and the added cost for this value service is compensated by reducing cost with regards to training agents and marketing efforts since IMG works on a model that allows insurance and financial services company to "outsource" their marketing and training. Other insurance companies have already followed this path. The trend now is that insurance agents are now becoming financial planners.

My friend's proposed business has a similar concept but it is something more than financial planning. He wants to introduce a value added service to clients that will enable him to add value to existing service in order to capture "untapped markets" However I could not discuss the details of the plan yet, but I am sure that employing the Blue Ocean Strategy would enable him to succeed in the new business that he is thinking. Perhaps in the proper time I could help him promote his business by writing an article on it, probably when the final details of the plan have been ironed out. However you might want to check out his website at www.premierebusinessinc.com

In Traditional Business strategy we talk about "crushing the competition" whereas in Blue Ocean Strategy we talk about "Creating new markets with little or no competition." Instead of "Strategic Planning" Blue Ocean Strategist resort to "Strategic thinking." Instead of "cutting prices" to capture a market, Blue Ocean Strategy is to add "value" to products and services to claim an untapped market.

I could personally say the Blue Ocean Strategy is a unique strategy. Critiques may say that the Strategy has already existed a long time ago and that principles that are said to be unique to the strategy can be found in other traditional business strategies as well. For me, the critics may just be jealous that they were not the first ones to embody the "strategy" in compact form. The critic's contention are not valid at all since our way of discovering something or learning something is to build upon the knowledge that has been universally accepted by the majority. A new theory is always built upon something that has already been long time accepted as a scientific principle or even theory. (Just like the theory of relativity rest upon the foundations of the principles of thermodynamics, electricity, gravity etc.) Whatever the Critics have to say, the strategy certainly is here to stay and is sure to have an effect on the way future entrepreneurs, managers and leaders will think and do business in the years to come.

About the Author
Zigfred Diaz is Vice president for operations for a group of family owned corporations. He is also a Financial & Real estate broker, lawyer, law professor & writer. He regularly blogs on diverse topics including business and entrepreneurship. Visit his blog today.

Source: http://www.goarticles.com/cgi-bin/showa.cgi?C=704187

Applying Blue Ocean Strategy to Product Development

Blue Ocean Strategy Articles : Applying Blue Ocean Strategy to Product Development by George Davison

Henry Ford didn't invent the car. He wasn't even the first manufacturer of the car. In fact, when he jumped into the industry, there were more than 500 manufacturers building automobiles. That's a heavy market. It's what some call a red ocean, tainted by the battling competition. So, why is it that we think of Ford when we think of cars? Because he didn't sail that red ocean. He made a blue ocean strategy that not only built long-term brand equity, but brought the cost of a car down from $1,500 to $250 in a matter of a few years, sending him into uncontested market space.

Not long ago, W. Chan Kim and Renée Mauborgne detailed the benefits of a blue ocean strategy in the Harvard Business Review. They define a red ocean as an existing industry where value is lost to cost-cutting warfare. On the other side, a blue ocean strategy is one that creates new markets through differentiating, much like Ford.

This same strategy should be applied to new product development. Of course, innovating product lines to win the competition's customers and cutting manufacturing costs with better designs is important, but creating entire new markets and categories untouched by competition and keeping costs low paves the way for real success.

Recently, we worked with a Canadian company, Calego, which focuses on matching character licenses with a variety of products, some of which fight in a red ocean. They were seeking new innovations for licensed characters. We could have slapped these images on current products with hopes they would sell by the license alone, but it would have been a waste of the value. Instead, we decided to search for a blue ocean strategy. What's something new? What's something no one has done in the market?

We found that consumers with young children were having difficulty keeping the children focused at the dinner table. With toys and technology vying for dinnertime attention, children are often not sitting still, much to the grievance of their guardians. So we set forth to open this doorway with a line we call interactive mealtime parents. We set a goal to turn otherwise normal mealtime products, such as plates, cups and bowls, into real attention-grabbers for children.

We created the Dinner Spinner™, a plate that spins at a touch of a button; the Talking Tumbler™, an interactive cup that talks when a child picks it up; and the Slide Show Tumbler™, which sends a lighted film strip rotating around the cup when activated.

Taking this blue ocean strategy approach for our client, Calego, has led to an almost endless supply of products for us to experiment with in design -- and without the fear of a lot of competition standing in our way.

Build value and brand equity by becoming recognized in markets without a lot of competition. Applying a blue ocean strategy to product development gives you room to grow comfortably and it places you in plain view of your customers. Otherwise, you'll be forced to bump shoulders, nearly invisible in a crowded sea of competitors, and forced to sacrifice value to make it all work.

About the Author
For nearly 20 years, George Davison has focused his life on helping inventors, people with ideas and corporations with product development, licensing and patenting. He is the founder and CEO of George Davison's Inventionland. Learn more at his blog.

Source: http://www.goarticles.com/cgi-bin/showa.cgi?C=382454

What is Competitive Advantage?

Blue Ocean Strategy Articles : What is Competitive Advantage? by Ben Haring

All of us in business are constantly thinking of ways to stay ahead of our competitors, but what actually is competitive advantage? Many strategy specialists discuss competitive advantage and the need for it in business, yet very few of them actually define the term. The difficulties in finding a suitable definition may simply be the result of competitive advantage meaning what it is; i.e. an advantage in terms of competitiveness, where no exact definition is given because it is company or product specific.

The notion that competitive advantage is company specific is supported by Hay and Williamson (1991, p42), where they define the term as a, "deceptively simple idea of assessing a company's capabilities and market position by how they give it advantage relative to competitors". They bring forward the opinion that competitive advantage can only be found by making a comparison between a company and its competitors. This is further supported by Barney (1991, p99) who also brings in the concept of adding value, where he states, "a firm is said to have a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by current or potential competitors".

Thus competitive advantage is unique to the company in question, it's compatibilities, how it positions itself in the market and how it adds value to its customers. When identifying your company's competitive advantage try assessing it by these factors above.

Recent Developments in Competitive Advantage

Rayport and Jaworski (2004) suggest as the focus of competition shifts from what companies do to how they do it, the new frontier of competitive advantage lies in the quality of interactions and relationships companies can establish with their customers and markets. In order to gain the most from advances in (Human) thinking as well as in new technology, they believe that a harmony must be found in the intelligent division of labour between man and machine. Thus a company may be able to achieve competitive advantage by differentiating how they interact with their customers. With the advances in modern technology companies can reach more customers in different ways. For example, you can now order a pizza from Domino's via interactive digital television. No other pizza delivery company can offer such a service and so Domino's has developed a differentiated competitive advantage through exploiting new customer interfaces.

Kim and Mauborgne (2004) introduce the concept of 'Blue Ocean Strategy' as a method of doing away with all competition. They split the business world into 'red oceans' and 'blue oceans'. A red ocean is an existing and often over crowed market place, where competition is great. A blue ocean is a newly created uncontested market place, which makes all competition irrelevant. When it comes to creating blue oceans, Kim and Mauborgne (2004) believe that successful companies pursue differentiation and low cost strategies simultaneously. However, it could be argued that use the use of the term 'blue ocean' is just an elaborate explanation of key concept of marketing; finding a need, satisfying it and regenerating it at a profit. Where the 'blue ocean' is the 'need' that has not yet been found.

For help in developing your competitive advantage feel free to contact AC&A (http://www.creativeattitude.org) and discuss it with one of our strategy specialists.

Bibliography

Barney, J., 1991. Firm resources and sustained competitive advantage. Journal of Management. Vol. 17, p99-120

Hay, M. Williamson, P., 1991. The Strategy Handbook. Oxford, Basil Blackwell, p42.

Kim, W. Mauborgne, R., 2004. Blue Ocean Strategy. Harvard Business Review, Oct 2004, p77-84

Rayport, J. Jaworski., 2004. Best Face Forward. Harvard Business Review. Dec 2004, p47-58

Source: http://www.goarticles.com/cgi-bin/showa.cgi?C=284156

Imitation Barriers to Blue Ocean Strategy

Blue Ocean Strategy is a systems approach that requires not only getting each strategic element right but also aligning them in an integral system to deliver value innovation. Imitation such a system is not an easy feat.

Below shows a snapshot of these barriers to imitation:

• Value innovation does not make sense to a company's conventional logic.
• Blue ocean strategy may conflict with other companies' brand image.
• Natural monopoly: The market often cannot support a second player.
• Patents or legal permits block imitation.
• High volume leads to rapid cost advantage for the value innovator, discouraging followers from entering the market.
• Network externalities discourage imitation.
• Imitation often requires significant political, operational, and cultural changes.
• Companies that value-innovate earn brand buzz and a loyal customer following that tends to shun imitators.

Source: Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant, W. Chan Kim and Renee Mauborgne, 2005, Page 118.

The Sequence of Blue Ocean Strategy

The Sequence of Blue Ocean Strategy

1. Buyer utility - Is there exceptional buyer utility in your business idea?
2. Price - Is your price easily accessible to the mass of buyers?
3. Cost - Can you attain your cost target to profit at your strategic price?
4. Adoption - What are the adoption hurdles in actualizing your business idea? Are you addressing them up front?
5. A Commercially Viable Blue Ocean Idea

Source: For more information, please read Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant, W. Chan Kim and Renee Mauborgne, 2005, Page 118.

Red Ocean Versus Blue Ocean Strategy

Red Ocean Strategy

• Complete in existing marketing space
• Beat the competition
• Exploit existing demand
• Make the value-cost trade-off
• Align the whole system of a firm's activities with its strategic choice of differentiation or low cost

Blue Ocean Strategy

• Create uncontested market space
• Make the competition irrelevant
• Create and capture new demand
• Break the value-cost trade-off
• Align the whole system of a firm's activities in pursuit of differentiation and low cost

Source: For more information, please read page 18, Blue Ocean Strategy: How to Create Uncontested Maket Space and Make the Competition Irrelevant, W. Chan Kim and Renee Mauborgne, 2005.