Blue Ocean Strategy Tools Analysis Paper
MMBA-6570 Business Strategy for a Competitive Advantage
April 15, 2013
The purpose of the blue ocean strategy is to focus on making the business itself better without focusing on the competition. Kim and Mauborgne (2005) state that “blue ocean strategy challenges companies to break out of the red ocean of bloody competition by creating uncontested market space that makes the competition irrelevant” (p. x). There are several analytical tools that have been created to challenge companies to become part of the blue ocean. Reconstructing market boundaries to break from the competition is the first principle of the blue ocean strategy, and this concept is known as the six paths framework (Kim & Mauborgne, 2005). Research showed that the following six assumptions keep companies trapped in creating red oceans: (1) define their industry similarly and focus on being the best within it, (2) look at their industries through the lens of generally accepted strategic groups and strive to stand out in the strategic group they play in, (3) focus on the same buyer group, (4) define the scope of the products and services offered by their industry similarly, (5) accept their industry’s functional or emotional orientation and (6) focus on the same point in time – and often on current competitive threats – in formulating strategy (Kim & Mauborgne, 2005). In order for companies to gain insight on how to reconstruct their market realities, companies must stop focusing on these constrictive boundaries. Kim & Mauborgne (2005) also discuss that “the strategy canvas is both a diagnostic and an action framework for building a compelling blue ocean strategy; the value curve is a graphic depiction of a company’s relative performance across its industry’s factors of competition” (p. 25 & 27). Basically, the concept of the strategy canvas is to base the company’s strategic outlook to becoming an alternative versus a substitute. Companies need to strive to stand alone in the market and to not be complacent with competition. In doing so, it will enable companies to focus on the noncustomers. There are three tiers to noncustomers. Kim and Mauborgne (2005) discuss that first-tier noncustomers “are closest to the market; they are buys who minimally purchase an industry’s offering out of necessity but are mentally noncustomers of the industry” (p. 103). Tier-1(soon-to-be) noncustomers only purchase when the need arises, but if they were offered an alternative versus a substitute, giving them more value, they may be likely to stay in the industry. They want better options than what the market is providing them. Kim and Mauborgne (2005) describe the second-tier noncustomers as “people who refuse to use your industry’s offerings” (p. 103). Tier-2 noncustomers simply either do not use the market’s product, or they cannot afford it. By focusing on the common reasons why tier-2 noncustomers choose not to use the product, companies can gain insight on how to create a demand from them. Kim and Mauborgne (2005) describe the third-tier noncustomers as “the farthest from your market; they have never thought of your market’s offerings as an option” (p. 104). Tier-3 noncustomers have not been targeted due to company’s thinking their needs have been met within other markets. By focusing on noncustomers, companies have the opportunity to expand the market and create a new demand. The four actions framework was developed to reconstruct buyer value elements in crafting a new value curve (Kim & Mauborgne, 2005). There are four concepts in the framework: (1) eliminated, (2) reduced, (3) raised and (4) created. Kim & Mauborgne discuss that “collectively, they allow you to systematically explore how you can reconstruct buyer value elements across alternative industries to offer buyers an entirely new experience,...