Abstract
Most business organizations are conversant with the Red Ocean Strategy and are used to rivalry and competition while hoping to achieve the highest level of success. A major challenge that such organizations however face is that they find it difficult to generate new demand or increase their market share. The Blue Ocean Strategy offers an important framework that businesses can adopt to be able to create uncontested markets and subsequently focus from the vicious circle of competition. This paper aims to investigate the validity and validity of the Blue Ocean Strategy using theoretical and practical approaches. The paper tests the theoretical validity of this framework through conducting an extensive literature review and then examines its practical applicability. The theoretical framework analyses the basic concepts of the Blue Ocean Strategy, reviews its conception, differentiates between the Red Oceans and Blue Oceans, reviews opinion of other scholars and analyses the tools and frameworks associated with the strategy. The strategy’s practical applicability is tested on the Emirates Airline Company to see how it can help this company to realize the highest level of success. Findings on this analysis indicate that the Blue Ocean Strategy is a valid and reliable framework that business organizations can use to establish new market environments, make rivalry and competition irrelevant, create and exploit new demand, achieve sustainable growth and ultimately realize the highest level of success. Recommendations for the implementation of the Blue Ocean Strategy are also made to ensure that Emirates Airline Company is able to realize the most desired level of success.
1.0 Introduction
The main aim for any business organization is to generate the highest level of success while operating within a favorable business environment. Drastic transformations within the highly globalised contemporary economy however indicate that status quo, which is not sufficient in a globalised economy, cannot sustain a business. This is especially the case because many business organizations are increasingly suffering negative consequences of operating in a heavily crowed global market (Pollard 2007, 66). The ability for most business organizations to operate across the national borders has seen the number of competitors drastically increasing, which intensifies the degree of competition through pricing strategy and product differentiation. This in return contributes to constant decline in demand for products and the subsequent reduction in profit margins, which eventually forces certain business enterprises out of the competition field. On this note, new aspects of innovativeness are necessary to amend or create new processes as well as effective business models (Sushil 2007, 84). Innovation is particularly important as it would enable a business enterprise to successfully adapt to the ever transforming economic, social as well as technological sphere, which would in return allow it to achieve the highest level of success.
1.1 Background
Business entities have for a long time engaged in a head-on competition in the market place in pursuit for high profit margins and continuous growth. They are particularly pursuing to gain a competitive edge, a huge market share and distinctiveness. As a result, such organizations end up employing the wrong strategic approaches for expansion, which has portrayed a steady decline in the available market spaces (Sushil 2006, 87). Despite the fact that the current technological advancements are increasingly enhancing product development by enabling suppliers to generate a huge variety of unique products and services, the global spectrum market niche is rapidly vanishing. This is due to the declining trade barriers across the national and regional borders as well as the readily available online information on a global scale. Similarly, there is limited evidence of any possible growth in demand for products and services, which is the case particularly in developed markets (Kyle 2005, 89). The ultimate result is that the level of supply for products and services within most industries is increasingly overtaking the level of demand (Pollard 2007, 78). This situation has unavoidably hastened the commoditization of goods and services, declining profit margins, and intensive price wars. An analysis of leading brands shows that the distinction between service and product varieties is increasingly becoming more merged, which is continuously making consumer choices for specific products and services to disappear. On this note, differentiating brands in the overcrowded and highly turbulent modern day industries continue becoming complex especially during economic upturns as well as downturns. This explains that there is dire need for business organizations to come up with an effective and innovative business strategy that can help them to get out of the vicious cycle of unfavorable product and service competition.
1.2 Motivation
During the past few decades, a huge variety of strategy frameworks that business organizations can employ to develop new business models and eventually get out of the vicious cycle of product and service competition have been developed. While some of these strategies, like the Porters’ Five Forces, Ostrewalder’s Canvas and Kim and Mauborgne’s Blue Ocean strategies are startlingly famous, they have not been tested academically. The motivation to specifically look into the Blue Ocean Strategy is drawn from the fact that the strategy ranks as the most fundamental framework that can be used to develop innovative new markets that have a huge supply of customers, thereby enabling any business organization to gain sustainable level of success (Lee 2011, 210). Similarly, the book by Kim and Mouborgne, which documents information about strategy, was printed in over forty three languages and sold in over 3.5 million copies, which saw it ranking as the bestseller in the world. In addition, the book was awarded at the 2005 Frankfurter Book Fair as “The Leading Book of the Year” as well as ranked among the “Top Ten Business Books of the Year”. Furthermore, the book was ranked among the “Top Forty Most Influential Books in Chinese History”. Despite these significant achievements, which portray the Blue Ocean Strategy as the most appropriate strategy through which business organizations can obtain a sustainably successful edge, there has been constantly emerging questions inquiring about the extent to which this strategy has been tested empirically. This explains that there is dire need to research this strategy so as to generate academic information that can be given to practical users as an empirical verification of the suitability for using the Blue Ocean Strategy. Another motivating factor for researching the Blue Ocean Strategy is to help generate empirical information that can be utilized by both the academic and non-academic users.
1.3 Problem definition
The fact that the widely used Blue Ocean Strategy has not been academically researched indicates that the validity for its usage has not yet been tested. This shows that employing it within any business enterprise without a well formulated scientific verification may cause such enterprises to incur certain strategy-related errors that might eventually violate the often pursued level of success. This is because business organizations adopting a strategy that has not yet been tested might erroneously implement the framework in a manner that is not required, which may eventually attributed severe business failures (Lee 2011, 223). There is thus the need to conduct the current research so as to bridge the gap pertaining to the validity and reliability of the strategy in question. The research problem guiding this study is thus to investigate the degree to which application of the Blue Ocean Strategy is Valid and Reliable.
1.4 Research questions
Formulation of a good research question is appropriate in this inquiry as it will help to collect sufficient information that can help to test whether employing the Blue Ocean Strategy can successfully promote organizational success on one hand while breaking the vicious circle of products and service competition on the other. The overarching question of inquiry that will be used in this research is:
- Establish whether the Blue Ocean Strategy is a valid as well as reliable concept to be employed in business organizations
This overarching question will be narrowed down into more specific questions that will guide the researcher in venturing into both the practical and theoretical research spectrums.
- Is Blue Ocean Strategy theoretically valid and reliable?
- Is Blue Ocean Strategy practically valid and reliable?
2.0 Literature review
This section is intended to provide an in-depth review of the underlying theory behind the Blue Ocean Strategy so as to effectively respond to the question of whether this concept is theoretically valid and reliable. It will thus look into an array of published literature so as to provide fundamental information on this field of interest.
2.1 The Blue Ocean Strategy
The Blue Ocean Strategy describes an innovative business practice that aims to enhance successful business operations through enabling business organizations to set the pace in lucrative emerging markets. This business theory suggests that business organizations are far much better when they venture in uncontested market avenues than indulging in the traditional business competition. It discourages businesses from venturing in the “Red Ocean” market places where business enterprises continuously compete against each other. As portrayed by the Blue Ocean Strategy, businesses should instead pursue for a way to operate in markets that are not yet invaded by other competitors (Srinivasan 2006, 151).
2.2 Concept introduction
The Blue Ocean Strategy concept was introduced by Kim and Mauborgne in 2004 when they conducted an empirical inquiry on 150 business organizations operating in thirty industries for over one hundred years. The two scholars argued that two market categories that they described as Blue Oceans and Red Oceans prevailed and that companies operating in Blue Oceans managed to achieve true and sustainable success (Lee 2011, 312). They therefore made significant comparisons between the Red Ocean and Blue Ocean Strategies so as to exhibit to other business organizations the distinctive attributes that they ought to portray if they intend to employ either of the two strategies:
Table 2.2 comparing Red Ocean with Blue Ocean Strategy
| Red Ocean Strategy | Blue Ocean Strategy |
| Organizations compete in an existing market environment | Organizations establish uncontested market environment |
| Organizations engage in a head-on competition | Organizations render competition irrelevant |
| Rely on existing demand | Establish and exploit new demand |
| Create value trade-offs | Demolish value trade-offs |
| Align company activities along a huge variety of available choices for differentiation and cost reduction | Align company activities along new ventures that can result to differentiation and cost reduction |
2.3 The Red Oceans
Red Oceans describe market areas within which contested market spaces that are characterized by severe competition between business companies prevail. The Red Oceans characterize the traditional market environment where industry boundaries are precisely defined and widely accepted, rules of market competition are known and severe rivalry is the mode of operation for companies that aim to outperform their competitors to gain the greatest share of a heavily crowed market environment. There is also limited possibility for huge profits and sustainable growth (Srinivasan 2006, 155).
2.4 Blue oceans
Unlike the Red Oceans, Blue Oceans characterize new and unexploited market spaces and opportunities. The new market spaces constitute of new value and demand creations, unexploited consumer bases, rapid and highly beneficial growth and a potentially huge market space that is not yet discovered. Competition in these market spaces is irrelevant and there are no set rules for competition. According to Kim and Mauborgne (2004, 71), the distinctive boundaries between these oceans only prevail in managers’ minds. This is because organizations have not yet managed to create uncontested market environments that can help to shift business focus from competition and rivalry to innovative value that would eventually perpetuate creation of new demand. Similarly, most business managers are conversant with the Red Ocean and hence are more prepare to engage in stiff competition than create new market spaces (Srinivasan 2006, 152).
2.5 Idea of new market creations
Besides Kim and mauborgne’s Blue Ocean Strategy of creating a new market space, other scholars have invented ideas intended to portray how uncontested market spaces can be created. These ideas are however vaguely similar to the Blue Ocean Strategy, which offers the most strategic framework for establishing uncontested market spaces. Berry (2006, 17) for example explained how new markets can be created through employing service innovation. In his research, Berry discovered that most companies only pursue to increase the quantity of services offered without seeking to create service innovations that would ultimately generate new market spaces. He therefore recommended that such companies can diverge from that direction through understanding different types of service innovations (Berry 2006, 19). The companies in return would describe the niche factors identified through these innovations, which would eventually enable for new market creations. Similarly, Anderson & Gatington (2005, 406) explained that new markets can be created when firms undertake certain actions. They explained that new markets can be established when firms seek to satisfy certain unmet consumer needs. Such needs can be met when firms create novel products that would in return be used to address latent needs that were yet to be met. Another inquiry by Spencer (2005, 326) showed that governments play an important role in perpetuating new market creations. He discovered that the place of government in developed capitalist nations is critical especially because it constitutes to a group of decision makers who have authority to determine how limited tenure can be exploited. The government for example makes important decisions in the various policies that ought to be implemented, which influences a company’s decisions on whether potentially new market spaces can be exploited (Spencer 2005, 329).
2.6 The Blue Ocean Strategy framework
According to Kim and Mauborgne, the Blue Ocean Strategy provides a wide range of analytical frameworks that companies can employ to be able to establish and penetrate a new market space. Each company should be able to choose the most appropriate framework that it can use to enter a new market space in a unique way. An important point to note, however, is that all companies should intend to focus on new customers and be prepared to create blue oceans in already exiting red oceans. An example of a Blue Ocean Framework that companies can adopt is the 4 Action Framework, which focuses of new value creation (Kyle 2005, 109).
Figure 2.6 the 4 action Blue Ocean Strategy framework
3.0 Case analysis of a company in United Arab Emirates
3.1 Information about Emirates Airline Company
Emirates Airline Company is based in Dubai and it operates as a subsidiary company of the Emirates Group that is wholly managed by the State of Dubai’s Venture Corporation. The company runs more 3300 flights on weekly basis from its focal point in Dubai to over 144 cities situated in more than 78 nations around the world. Emirates Airline Company is the world largest carrier in terms of revenue and the largest in Middle East in terms of number of passengers, size of convoy and total revenue generated. This company, which was founded in 1985, is the world’s most rapidly growing with the number of passengers and the subsequent total revenue increasing drastically (Kus 2007, 34). In addition to obtaining Dubai’s leading position as the most prominent international air transport hub, Emirates Airline Company is fast invading the international market particularly in Europe and America and it is rapidly overtaking its main competitors.
3.2 How Emirates Airline Company can implement the Blue Ocean Strategy
Emirates Airline Company has particularly inclined its business operations on the Red Ocean Strategy where aims to venture in already invaded markets as well as pursuing to gain biggest market share and a highly competitive edge. The company has for example repositioned itself as an international carrier to be able to compete against the traditional aviation hubs like London Heathrow and Frankfurt. Given the fact that Emirates Airline Company has managed to gain a leading position in the industry, it should not pursue to venture in the Red Oceans but should implement the Blue Ocean Strategy to be able to realize sustainable success (Kus 2007, 48). The company should take advantage of declining demand among the traditional aviation hubs and the industry and implement the Value Innovation perspective to be able to succeed in an unfavorable market environment. The Value Innovation perspective will help the company to obtain a strategic growth by venturing into a completely different direction than that taken by other aviation hubs. The approach will enable the company to create a new market space where it can achieve a spectacular expansion and growth. While most aviation hubs concentrate on operating between Europe, North America and Australia, Emirates Airline can diversify its flights to Dubai, which is a new market space that is yet to be discovered (Kus 2007, 67).
Emirates Airline Company should also adopt the “Procedural Justice” perspective in decision making and knowledge creation. Through this perspective, the company should not follow the Red Ocean approach, which relies on forcing employees to engage in training activities but employees should be allowed to cooperate voluntarily (Kim & Mouborgne 2004, 80). This would ensure that the employees would not resist change, which would in return enhance execution of strategic decisions. The company should also focus on integrating value innovation with knowledge creation. Through this perspective, Emirates Airlines would ensure that it does not concentrate on building a competitive advantage or outperforming other market players but it would focus on breaking the competition and replication trap (Kim & Mouborgne 2004, 81).
3.3 How the strategy will help the company
Implementing the Blue Ocean Strategy will highly be beneficial to Emirates Airlines as it will create an opportunity for the company to venture in unexploited market space, which is an ideal choice for investment. This will enable the company to go beyond rivalry and competition and target to create a new market. This in return would ensure that the company is able to achieve a sustainable growth without being outpaced by other rival competitors. Similarly, implementing the Blue Ocean Strategy will ensure that Emirates Airlines is able to create a new niche by targeting a new category of customers whose latent need is yet to be met.
4.0 Recommendations
Given the great benefit that Emirates has achieved through obtaining a leadership position in the air transport industry, it should grasp this opportunity and apply the Blue Ocean Strategy into Practice. This would ensure that the leadership position obtained in sustainable for a long time. The company should also focus on becoming a low-cost carrier through expanding a huge variety of low-cost services. This would give this company a cost leadership position, which would increase passenger volume, which would in return enhance cost containment on one hand and operational efficiency on the other.
5.0 Conclusion
Business organizations have for a long time ventured in highly competitive markets where they intend to achieve a competitive edge on one hand and maintain the highest level of success on the other. This approach has however proven to fail most businesses since they face various business related challenged especially during economic upturns and downturns. As a result, business organizations have intended to pursue an appropriate business strategy that can help to retain a suitable level of success. The Blue Ocean Strategy has proven to be a valid and most reliable strategy that business organizations can use to attain the highest level of success as well as get out of the vicious circle of success. This is because the strategy enables a company to create new market spaces, render competition irrelevant, create new demand and align business activities along new ventures that can enhance differentiation and cost reduction.
References
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Berry, L 2006, “Creating New markets Through Service Innovation”, Research Feature 1st January, 17-19. Print.
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Spencer, J 2005, “How Governments Matter to New Industry Creation”, Academy of Management Review, 3, 321-337.
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