This document discusses how organizations can pursue a blue ocean strategy through strategic alliances in a changing environment. It defines blue ocean strategy as creating new markets without competitors by differentiating and lowering costs. Strategic alliances are described as cooperative arrangements that improve competitive position by sharing resources. The document argues that strategic alliances help organizations overcome hurdles to blue ocean strategy by providing complementary resources, knowledge, and barriers to imitation from competitors. Pursuing a blue ocean strategy through strategic alliances is presented as a way for organizations to gain sustainable competitive advantage in today's complex business environment.
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Blue oceans through alliance. How we can find blue oceans in a highly changing and interconnected environment
1. Blue oceans through alliance.
How we can find blue oceans in a highly
changing and interconnected environment?
Author: Kevin Rommen (S4072294)
Course: MOR005 - Project Designing Research
Contact information: info@kevinrommen.nl / 00 31 (0)6 4390 5126
2. Introduction
Especially in the constantly changing environment organizations have to be cautious and aim to
stay aligned with the industry context. Organizations have to play by the rules of the game,
meaning that they have to shape their organization around the environment. However, playing by
the rules of the game also inherits the fact that strategist aren’t shaping the organization but the
environment is (Wit, de and Meyer, 2010b). Thus between organizations there is little difference in
goals and strategies, evidence for this can be found within the generic strategies described by
Porter (1985). When every organization is lead by generic strategies and no one is really unique
sustainable competitive advantage is narrow.
De Wit and Meyer (2010b) state that “the more innovative the rule breaker, the larger will be
the competitive advantage over rivals stuck with outdated business models”. Gaining sustainable
competitive advantage thus implies shaping your environment instead of letting the environment
shape you. In other words constantly innovating in order to shape a new industry context, which is
also referred at as a blue ocean by Kim and Mauborgne (2004, 2005a).
This paper investigates how a blue ocean strategy through alliances provides sustainable
competitive advantage in a highly changing and interconnected environment.
I will address blue ocean strategy and its hurdles from a strategic alliance perspective, how
strategic alliances in a complex world add value and i will end the paper with a discussion on how
strategic alliances strengthen blue ocean strategies.
Blue ocean strategy
The external drivers of industry development (Wit, de et al., 2010b) have influenced the our
world-economy immensely over the last 20 years. The technological, economic and socio-cultural
drivers are increasingly driving innovation, expanding our capabilities, rising globalization, offering
load of products and services and a huge amount of ‘similar’ organizations. While there are more
products and services available the world demand isn’t increasing (Kim et al., 2004 & 2005a)
resulting value deprecation of the products and services, which leads to commoditization of these
products and services (Kim et al. 2004, 2005a; Pine and Gilmore, 1999). This is substantiated by
Pine and Gilmore (1999) in their book on the experience economy, where they explain experience
as a new economic offer and means to achieve high profit margins. This commoditization leads to a
hardened environment where competitors fight for a piece of the pie through price wars, thereby
reducing the profit margins (Kim et al. 2005a). In short, a bloody red ocean with a negative vicious
circle.
2 Blue oceans through alliance: how to reach sustainable competitive advantage in a highly changing and interconnected environment
3. Instead of fighting for a piece of the pie, struggling with competitors and battling as rivals blue
ocean strategy proposes a different approach. Blue ocean strategy is about creating new markets,
otherwise know as blue oceans, where there are no competitors to fight with. It is not technical
innovation that thrives a blue ocean strategy, nor is it a specific industry or organization that
explains the creation of blue oceans. This view is aimed at creating superior value for the customer
and organization through bot differentiation and low-cost at the same time. (Kim et al., 2004,
2005a)
Blue ocean strategy isn’t new and surely isn’t something that is limited to new players in an
industry as would be expected. It is even true that most blue oceans are found within red oceans,
just by expanding existing industry boundaries (Kim et al., 2005a). Examples provided by Kim et al
(2004) include among others Ford, Apple, Cirque du Soleil, Dell and IBM and show that the
principle can be related back to at least 1905. The question arises how in this day and age, where
the environment is extremely complex, how blue oceans can be found, created and protected?
Blue ocean strategy & strategic alliances
“Strategic alliances are cooperative arrangements between two or more firms to improve their
competitive position and performance by sharing resources” (Ireland, Hitt and vaidyanath, 2002, p.
413) is on the one hand to general but on the other hand it clearly defines the goal behind a
strategic alliance; which is gaining competitive advantage (Dyer, Kale and Singh, 2001; Ireland et
al., 2002; Dyer and Singh, 1998). Dyer and Singh subdivides this in 4 potential sources: relation-
specific assets, knowledge-sharing routines, complementary resources/capabilities, and effective
governance. In this paper we’ll use strategic alliance in the broadest sense of the word, as it is our
goal to analyze strategic alliances in a blue ocean strategy and not the other way around. Also we
won’t be differentiating between alliance contexts, like joint ventures, buyer-seller relationships or
channel partnerships (Spekman, Forbes, T.M., Isabella, L.A. and MacAvoy, 1998)
De Wit and Meyer (2010a) divide relational actors into eight different groups which each fulfill a
different role towards an organization. Organizations either can, must or want to interact with
these actors. Four groups can be clearly divided in horizontal relation, industry insiders and
industry outsiders, and vertical relations, suppliers and buyers. Through the ‘september distinction’
we can list the other groups: socio-cultural actors, economic actors, political/legal actors and
technological actors which all have a position within the broader environment of the organization.
Because blue ocean strategy strives for differentiation and low-cost at the same time (Kim et al.,
2004, 2005a) the horizontal relationships, vertical relationships and even the other actors can be
opportunities for a strategic alliance. In this increasingly complex environment, due to accelerating
3 Blue oceans through alliance: how to reach sustainable competitive advantage in a highly changing and interconnected environment
4. globalization, it’s difficult for organizations to have all resources available to compete effectively in
this highly changing and interconnected environment (Ariño, A. and Torre, J. de la., 1998).
Strategic alliances can be a valuable tool for organizations to seek competitive advantage
especially in a highly changing environment; it helps organizations, for example. to cut overhead
costs, increase responsiveness, improve flexibility and efficiency (Lorenzoni and Baden-Fuller,
1995), cope with uncertainties, minimize transaction costs, reduce resource dependence (outside
their control) and repositioning in dynamic markets (Das and Teng, 1996, 2000; Spekman, Forbes,
T.M., Isabella, L.A. and MacAvoy, 1998; Young-Ybarra & Wiersema, 1999) and lastly it helps
organizations to combine, exchange or invest in resources/capabilities, knowledge and assets (Dyer
et al., 1998).
Central toward blue ocean strategy is creating and capturing new demands, reaching towards
uncontested market space (Kim et al., 2004, 2005a, 2005b). Especially in creating new markets
strategic alliances can provide the resources, knowledge and capabilities to shape these dynamic
environments. Collaboration can create value when complementary resources are aligned with
each other (Ireland et al., 1995), a starting point to create and capture new demand. This is
strengthened through research by Ahuja which found that social capital increases the possibility of
radical breakthroughs in technology (2000).
Creating blue oceans is often done by established players within their current core business
(Kim et al. 2004, 2005a). Though relatively new entrants can also be the creator of a blue ocean
strategy as well, which comes with a disadvantage because “the creation of blue oceans, in other
words, is a product of strategy, and as such is very much a product of managerial action.” (Kim et
al., 2004, p. 81). Though managerial action can be imitated, especially by established players
where efficiency and effectivity is high. Theoretically they have the resources and capabilities to
follow, and even outrun the smaller companies due to their experience. So it’s important for new
players to create as much barriers as possible, especially barriers with social complexity and causal
ambiguity make imitation hard.
When organizations created a new value curve and made their strategic moves they have found
their blue ocean (Kim et al., 2005a). They have an uncontested market space without competitors,
at least for a while. Competitors could, and probably will, choose to pursue the same strategy,
while they probably cannot create a blue ocean themselves they do have a life long experience in
red ocean competing. Kim et al. (2005b, p. 188) discuss several economic and cognitive barriers
which are: “(1) Value innovation does not make sense to a company’s conventional logic, (2) blue
ocean strategy may conflict with other companies’ brand image, natural monopoly: (3) the market
cannot support a second player, (4) patents or legal permits block imitation, (5) high volume leads
4 Blue oceans through alliance: how to reach sustainable competitive advantage in a highly changing and interconnected environment
5. to rapid cost advantage for the value innovator thereby discouraging followers from entering the
market, (6) network externalities discourage imitation, (7) imitation often requires significant
political, operational and cultural changes and (8) companies that value-innovate earn brand buzz
and a loyal customer following that tends to shun imitators”. However, it’s inevitable for
competitors to arrive in ‘your’ blue ocean as they want a piece of the pie. Thus the barriers for
imitation cannot be high enough. This is especially true because Kim et al. (2005) describe
possible/potential barriers which don’t automatically apply or occur in every situation. From an
imitation perspective strategic alliances provide barriers which have to be understood by the
competition. These barriers are, as described by Dyer et al. (1998), that the competitor cannot to
ascertain how returns are generated due to causal ambiguity, cannot quickly replicate resources
due to time compression diseconomies have an influence on, cannot imitate practices or
investments due to the interconnectedness of the assets, cannot find the necessary strategic
alliances to provide complementary resources and capabilities and cannot create the same socially
complex environment. These are significant barriers which strengthen blue ocean strategy and are
difficult to overcome in a dynamic environment.
Blue ocean strategy pursues differentiation and low cost within the complete system of activities
in order to break the trade-off between cost and value (Kim et al. 2004), a viewpoint which
especially shows how blue ocean strategy challenges the status quo. This connects perfectly with
strategic alliances for they stimulate co-specialization (Wit, de et al. 2010a). Here each
organization is specialized and contributes more to the whole than if it was one organization. This
improves the change & innovation lifecycle and cuts down costs. Also alliances prevent
competencies from becoming rigidities (Floyd & Wooldridge, 1999; Leonard-Barton, 1992), which
constrains the organizations in changing and executing a blue ocean strategy. These strategic
alliances also prevent organizations from becoming unwieldy in this highly changing environment.
Organizations can pursue the search for a blue ocean and don’t have to be limited due to their own
size. Strategic alliances thus reduce risk and increase flexibility which can make it a preferred
alternative towards acquisitions (Harrison, Hitt, Hoskisson & Ireland, 2001).
Tiers of non-customers are an important opportunity for creating blue oceans, as every
organization aims to find their customer base they forget to look at this from the exact opposite
way (Kim et al., 2005b). Why aren’t we selling our products to the people who aren’t buying it,
and can we change our product so we will be selling our products to them in the future? Kim et al.
(2005b) describe multiple tiers within non-customers depending on the distance from the current
market. Through a channel partnership strategic alliances can add value in reaching non-
customers. This soft approach, which build upon current brand image of that channel, makes it
easier and thus less costly to ‘wheel in’ new customers.
5 Blue oceans through alliance: how to reach sustainable competitive advantage in a highly changing and interconnected environment
6. Hurdles in executing a blue ocean strategy
Even if the blue ocean is found, a new business model is created managers claim that the
execution of this strategy is an enormous challenge. Organizations face four hurdles which prevent
them from successfully implementing the blue ocean strategy. These hurdles are:
(1) cognitive: employees don’t really want to change they’re routined and comfortable. A
problem solved by Kim et al. (2005b) through experience, seeing is believing. However firms active
mostly as suppliers in the supply chain don’t have the tangibility which is emphasized. When, from
a bottom-up perspective, organizations at the end of the supply chain engage in strategic alliances
with their suppliers this hurdle becomes easier to overcome. When the final product/brand is
admirable and an alliance is set it will be easier to change the routines of the employees.
(2) Limited resources: the greater the change the more money this will cost and companies
mostly don’t have adequate resources available. A problem which is approached through “simply”
being creative with your resources. Organizations should concentrate on multiplying the value of
and freeing resources through hot spots, cold spots and horse trading (Kim et al., 2005b). Kim et al.
(2005b) propose this as a solution, but i see this to be more a nifty workaround instead of concrete
solution. Strategic alliances, however, provide a more solid base in leveraging the necessary
resources. Vertical strategic alliances within the supply chain, or horizontal strategic alliances with
industry in- and outsiders can cut overhead costs, improve efficiency and flexibility, minimize
transaction cost (Lorenzoni and Baden-Fuller, 1995; Das et al., 1996, 2000; Spekman et al., 1998;
Young-Ybarra et al., 1999) and thus the availability of resources grows.
(3) Motivation: how to get key players motivated and get them to break with the status quo. So
when you’ve got the people aware of the problem, you still have to motivate them in order act
upon it. From this point of view strategic alliance cannot provide added value. Even more the
solution provided by Kim and Mauborgne (2005b) is powerful within strategic alliances and
necessary for success when strategic alliances is a fundamental part of blue ocean strategy.
(4) Politics: even when a strategy is ground-breaking through either inter- or intra-
organizational politics everything can be shot down. (Kim et al., 2005b). Unfortunately this
happens in every organization, and as such also within strategic alliances. According to Kim and
Mauborgne (2005b) you should have a consiglieri which knows the territory and paves they way;
an occupation or unit (group of occupations) which is widely spread within strategic alliances and
respectively better know a an alliance manager (Dyer et al., 2001) or strategic centre (Lorenzoni et
al., 1995). Walking that political line will take effort, even when you play by that book, but when
that road doesn’t lead you anywhere in strategic alliances there’s a way out. When the power
6 Blue oceans through alliance: how to reach sustainable competitive advantage in a highly changing and interconnected environment
7. relationship is either mutual independence, unbalanced independence or unbalanced dependence
(Wit, de et al., 2010) and you’re the “stronger” than your adversary you can force the organization
to comply or substitute the organization. Though do keep in mind that this is an last resort, as
you’ll probably weaken the relationship. This is equal to the power versus authority relationship
described by Simon (1997).
Conclusion & Discussion
The top 500 global businesses have on average some 60 alliances each, which was back in
2001 (Dyer et al., 2001). Expected is that this number has been growing since then, and will keep
growing as also the environment keeps changing at this high pace. Even though many of the
strategic alliances fail. They apparently have the power to create added value, at least that is the
view of top-level managers. They see strategic alliances as a primary growth vehicle (Ireland et al.,
2002). Deriving from that managers want to create added value, thus see the need improving their
offering and innovation their products, or in other words searching for new uncontested market
space. We could argue that strategic alliances and blue ocean strategy are an ideal combination
where there is mutual interdependence towards each other; thus where blue ocean strategy offers
strategic alliances a structure for developing strategic alliances and strategic alliances provide blue
ocean strategy with new barriers to imitation, easier access to resources, prohibits competencies
changing into rigidities, stimulates differentiation and lowers costs.
While this previous statement might go a bit far, i’ve definitely shown that strategic alliances
can be useful within blue ocean strategy. Especially within a highly changing and interconnected
environment, where product life cycles decline and organizations don’t have the necessary
resources available, strategic alliances add value through social capital which stimulates the
creation of new demands, adding more imitation barriers for potential competitors, by lowering
costs through co-specialization, preventing organizations from becoming unwieldy institutions and
even can weaken different hurdles faced in blue ocean strategy. While Kim et al. (2005b) provide
workaround to these hurdles, the strategic alliance can provide a more than that especially when
limited resources are available.
Within this paper we propose different positions in which strategic alliances can strengthen
blue ocean strategy. However, we should not forget that forming strategic alliances is an unstable
and difficult operation, a subject which is further researched by Das et al. (2000). Still top level
managers see these alliances as a primary growth vehicle (Ireland et al., 2002), so knowledge and
experience in this area will continue to evolve. A positive direction for blue ocean strategy through
strategic alliances
7 Blue oceans through alliance: how to reach sustainable competitive advantage in a highly changing and interconnected environment
8. Solutions provided in this paper could in a empirical (real-life) situation contradict each other. In
order to really assess which choices need to be made in specific situations further research is
needed, eventually following with the construction of a framework. In this research different forms
of strategic alliances should be incorporated, i.e. if the relationship is tight/loose and the kind of
strategic alliance that is made (joint venture, channel partnership, buyer-seller relationship).
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