Increasing importance of the blue oceans and its characteristics
Competition is the core essence behind the strategies that organizations pursue. This is done by analyzing the competitors and identifying if that could be done in a better way to gain their market share. In fact, this is the reason why ‘blue oceans’ are effective spaces without any competition to tackle and the market space is empty and is new. Compared to the blue oceans are our traditional market spaces full of competitors and the industry rules are defined in the typical manner where one competitor tries to take the market share of the other and the battle is ongoing. And as the name suggests, the blue oceans have no rules and are ‘unexplored’ with the rules waiting to be set by the new players in the new industry by the expansion of the red oceans. This is a typical case of supply exceeding the demand and thus, the need for blue oceans arises for growth and new opportunities to be banked.
Many reasons have led to the increasing importance of the blue oceans. No doubt the speedy advancements in the technology and machinery have led to improved supplies in the variety of goods and services offered by organizations. The removal of the trade barriers led to more informed customers and the producers as well, globalization pretty much impacted the monopolies. Therefore, these all have led to decreased profits and price wars and the brands becoming more similar than ever in their contribution. The business environment no more has respect for the other brands and the differentiation becomes even more difficult.
One characteristic of the blue oceans are that they have the reconstructionist approach. This implies that unlike the red oceans in which the structure of the industry is defined and the firm has to follow them to compete, in blue oceans new beliefs can be ‘reconstructed’ by the actions of the firm. The old beliefs are broken and cost leadership or differentiation can be no more the strategies and new rules of the game are created. Everything is in control of the firm and can be recreated by the firm in response to the way they offer their services.
The demand is created in the economy according to the blue oceans perspective and it has to be tapped and low cost can still be achieved. Therefore, it goes beyond innovation and becomes a strategy that focuses on all the operational activities of the company.
There are several analytical frameworks and tools that can be used by the firms in their pursuing of the blue oceans strategy. One such strategy is the ‘strategy canvas’ and it has two dimensions: diagnostic and actions, that can be used in the formulation of the blue oceans strategy. It serves its purpose by identifying and analyzing the current investments done by the competitors such as: products, services, delivery and the existing offerings made to the customers. Therefore, the market space is analyzed more importantly the current state. The ‘value curve’ is the main component of the strategy canvas and this is done by plotting the offering level that the buyers receive (high or low) from the components plotted on the horizontal axis which are the factors that the factors industry invests in and competes on. Therefore, the shifting of the strategy canvas requires the firm to focus on the non-customers instead of the customers and focus on alternatives instead of the competitors. This is done because for high growth benchmarking competitors and trying to outperform them would hitch up the sales but not create uncontested markets that the firm would dominate in fearlessly.
Then there is the Four Actions Framework in which a new value curve is constructed and there are new buyer value elements. There are four key questions that challenge an industry’s logic and business model. Firstly, the company has to eliminate the factors that the companies in the industry have competed on. Secondly, the extra designing of the products in the race to get the customers is questioned because the costs are increased for no gain at all. Thirdly, there are questions about the compromises that the customers have to make for the firm and the firm should seek to eliminate them. Fourthly, the firm is questioned for entirely new values that the buyers could be provided and entirely new demand can be created and there is strategic pricing of the industry. The first two factors/questions require the firm to drop its costs and competition. The next two factors/questions provide the intuition to the firm into creating new demand and changing the buyer value perceptions. Thus, to make a new value curve the firm should reduce, create, eliminate and raise.
There is tool which is supplement to the four actions framework called the eliminate-reduce-raise-create grid. In this, the four questions have to be acted on so as to consider the creation of the new value cover. There are immediate benefits that the company can get after filling the grid with the required actions.
As we can see, there are three characteristics of a good strategy or just blue oceans strategy: focus, divergence and a tagline which is persuasive. This would lead to better innovation for the organization and lead to breakthroughs benefitting the buyers and the firms.
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