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'Blue Ocean Strategy' book review

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Book review on 'Blue Ocean Strategy' book.

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'Blue Ocean Strategy' book review

  1. 1. Doctorate of Business Administration (DBA) Intake 3 Strategic Management (SM) “Blue Ocean Strategy”-Book Review Prepared by: Supervisor: Walid Saafan Prof. Dr. Adel M. Zayed Jul., 2015
  2. 2. Strategic Management (SM) “Blue Ocean Strategy”-Book Review Page: 1 / 5 Walid Saafan – Jul., 2015 Contents 1 Introduction...............................................................................................................................2 2 Summary of key arguments .......................................................................................................2 3 Evaluation/ Analysis...................................................................................................................3 4 Conclusion .................................................................................................................................4 5 References:................................................................................................................................5
  3. 3. Strategic Management (SM) “Blue Ocean Strategy”-Book Review Page: 2 / 5 Walid Saafan – Jul., 2015 1 Introduction Corporate strategy theory and framework developed by Professors W. Chan Kim and Renee Mauborgne, of INSEAO. BOS offers examples of how successful businesses captured uncontested market space, and thereby made competition irrelevant. This theory was formerly described as "Value Innovation" in 5 HBR articles by Kim & Maubourgne before they introduce it in their book in 2005. Blue Ocean Strategy was developed from studying 150 strategic moves across over 30 industries that was implemented over the past 100 years (1880-2000). 2 Summary of key arguments The authors claim that organizations compete within industries and predefined market boundaries that is built on managers’ minds that restrict their thinking when creating their strategies. In their process of strategy formulation, Managers think about the famous competitive strategies developed by Michael Porter: differentiation and cost leadership. The drawback of these competing strategies is the theory of zero-sum game, where companies goes into price war within their current markets. This stagnant markets is against innovation and creating new markets that create new products and services that are needed by a defined customer segments. The authors addressed the limitation in Porter’s assumptions for competitive strategies and look for an alternative approaches that companies can adopt. Prof. Charles W. L. Hill in 1988 mentioned that combining differentiation and cost leadership strategy is required to be maintained by organizations to achieved sustained competitive advantage, Kim and Mauborgne introduced value innovation concept to exploit the demand from adopting differentiation and cost leadership strategies. Target customer value is increased by offering innovative new product/ service features that is appreciated by specific customer segment, while reducing cost by eliminating factors that the industry is competing on and will not affect the satisfaction of the same target segment, the result will lead to more economies of scale that derived by higher customer value and higher companies’ profits derived by an increase in sales. Value innovation occurs when organizations align innovation with buyer value proposition that lead to creating new market spaces and break the compromise of value and cost tradeoffs and lead the new developed markets. ‘The Blue Ocean Strategy’ book provide companies with the practical tools and frameworks required to successful create their blue oceans where they can benefit in a way that realize both profit maximization and risk minimization. The book is divided into three parts, Part one describe the principles of blue ocean strategy including the used analytical tools and used framework. It also explain the benefit of value innovation concept to strategy. Parts two and three cover the six blue ocean strategy’s principles categories by the main strategy formulation and execution principles.
  4. 4. Strategic Management (SM) “Blue Ocean Strategy”-Book Review Page: 3 / 5 Walid Saafan – Jul., 2015 3 Evaluation/ Analysis The authors defend their proposed strategy by definition of high performance companies, they claims that the main driver for these successful companies derived from the external industry performance and not the internal companies’ strength. They conclude that there are other factors (outside the company and industry) that should be considered in analysis of the drivers for high performance. They also observed that the managerial actions and decisions involved in creating market offering that derived significant market demand should be used to assess the creation of the blue oceans and sustained organizations’ high performance. The book moves to explore value innovation and the differences between red and blue ocean strategies. The authors present some tools and frameworks to support the good strategy formulation and execution. They explained the ‘strategy canvas’ diagnostic tool and action framework used for building blue ocean strategy, the horizontal axis includes the range of factors that companies competing on while the vertical axis represent the customer reception level across all the competing factors. This is a graphical presentation of company’s relative performance compared with the industry’s factors of competition. The authors propose four actions framework (Eliminate- Reduce- Raise- Create ERRC grid) that challenge industry’s business model. The first consider the factors taken for granted that shouldn’t be eliminated. The second focus on factors that needs to be reduced below standards. The third look at factors that should be raised above the bar, while the forth look for the factors that were never introduced before in the industry. The ERRC grid is used to create a new value curve that is required to create a new blue ocean in the industry. Authors explain the four strategy formulation principles the starts with constructing market boundaries by describing the six routes: look in alternative industries, strategic groups, buyer groups, complementary products, functional orientation, and time. The second principle of looking on the big picture through four steps to visualize the strategy and PMS map. The visualization strategy deals with identifying improvement area in the current strategy, then follow the six path to construct ERRC grid to create the blue ocean, then accordingly develop the strategy canvas, and finally select the proper strategic move. The third principle aim to attract non-customers through a new demand instead of increasing the market share among existing customers. The non-customer typically offers large opportunities for growth. The Authors segment them into three tiers based on their closeness to the concerned market. The first tier is the closest to the concerned market and they are not loyal to any brand unless offered high value that converts them into loyal customers. The second tier represent customer that receive non-satisfactory offers from existing markets. The third tier is the farthest from market where they never been offered by the market. Companies can attract some customers from these segments to their products and services.
  5. 5. Strategic Management (SM) “Blue Ocean Strategy”-Book Review Page: 4 / 5 Walid Saafan – Jul., 2015 The fourth principle aim to present the implementation process in the proper structure that involve the buyer experience cycle product purchase, product delivery, customer use, supplement products, product maintenance, and product disposal. The authors present the blue ocean strategy execution principles in the third part of the book. The first principle deals with overcoming the internal organization’s hurdles including changing employee mindset, overcome resources limitations, motivate employees. The authors recommend that managers adopt ‘tipping point leadership’ to overcome these hurdles. In part three, the authors discuss their idea about strategy execution that is derived by trust and commitment among all involved people to execute the agreed-on strategy. 4 Conclusion The authors presented many ideas in their book about the blue ocean strategy that are not clear if it is a new or old ideas, the blue ocean strategy ideas are built around a similar ideas adopted by earlier thinkers talking about strategic thinking outside the box. Kim and Mauborgne in blue ocean strategy discussed some concepts that were presented earlier by Swedish professors Jonas Ridderstrale and Kjell Nordstrom In 1999 in their book ‘Funky Business’. BOS presented a scenario where market supply exceeds demand, ‘Funky Business’ book presented the same scenario where overcapacity is normal in today’s business. BOS claims that success is not guaranteed for red ocean strategy, ‘Funky Business’ book explains that competitive strategy will not lead to nowhere. BOS was talking about creating a blue ocean that turns into red, similar to ‘Funky Business’ claim about companies create a temporary monopolies. Many of the presented tools in BOS are adopted by six sigma practitioners. The authors interpret a number of successful innovative practical business cases from their point of view as a result of successful adoption of BOS. Linking the significant improvement in the revenues of the presented business cases neglects the proper research process using statistical analysis like having a proper sample of companies including companies adopting BOS successfully are not, analyzing companies failed to adopt BOS, comparing results with similar companies that didn’t adopt BOS. The author also applied inductive reasoning that lead to the intension of telling success stories. The authors didn’t present the impact of marketing strategy on BOS, they assume that marketing success is given The authors put all emphasize of competitive intelligence in most of the presented tools and frameworks, they also conclude that a successful BOS implementation will be imitated by competitors, then the company should pursue a new BOS, whereas companies should have a defensive procedures in place to be implemented when competitor imitation.
  6. 6. Strategic Management (SM) “Blue Ocean Strategy”-Book Review Page: 5 / 5 Walid Saafan – Jul., 2015 The authors assumes a stable business cycle which is not found in the real world due to high competition and technological advances. The proposed BOS concept can’t be generalized to all products of services especially in the current globalization trends. Overall the book is good and important for strategic thinkers that it provides a number of successful tools and frameworks that can be combined with other tools to build a sold strategic plan that lead to a competitive advantage for the company and sustained returns over a long period of time. 5 References: Kim, W. C., and Mauborgne, R. (2005). Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant. Harvard Business School Press, Boston, Massachusetts. Nordstrom, K., and Ridderstrale, J. (2000). Funky Business: Talent Makes Capital Dance. Financial Times Management, Australia.

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