By Clifford Cui
Business generates competition. The outcome of it, to competitors, can be as critical as survival or death. Correct strategies help companies defend against the cutthroat competitors, keep customers and grow business. However, if a company wants to dislodge the competitors and leap-frog its growth, it must be innovative, and adopt extraordinary competitive strategies to create new market space for its products and services.
In his successful business strategy book “Competitive Strategy,” Michael Porter suggests that firms follow three generic strategies: cost leadership, product differentiation, or focus, or blends of the three strategies, in terms of their overall orientation towards competition. Companies must prioritize them; otherwise they are likely to become “stuck in the middle” – not leading in cost, differentiation or focus, and less profitable than their rivals.
Professor W. Chan Kim and Renee Mauborgne characterized Michael Porter’s traditional approach as “Red Oceans” strategy in their book: Blue Oceans Strategy.” In this book, the authors suggest that in Michael Porter’s model, successful business are either low-cost providers or niche-players, and industry boundaries are defined and accepted; competitive rules of the game are known. As rivals try to outdo one another, they end up competing solely on the basis of incremental improvements in cost or quality or both. The cutthroat competition turns the market space or ocean bloody.
To seize new profit and growth opportunities, Professor W. Chan Kim and Renee Mauborgne suggest that companies need to create new market space: blue oceans for their products and services. Wherein, all industries are not in existence, and are untainted by competition; rules of the game are not defined; demand is created rather than fought over, and the potential, depth, and magnitude of the opportunities are similar to those offered by the vast and yet to be explored oceans. They suggest the following six tactics to explore such opportunities:
- looks across alternative industries,
- looks across strategic groups within industry,
- redefines the industry buyer group,
- looks across to complementary product and service offerings,
- rethinks the functional-emotional orientation of its industry, and
- Participates in shaping external trends over time.
The Blue Oceans Strategy draws criticism too. Mike Smock, the Marketing Director of vSente writes at the website: “The excerpt provided more detail on both the problem and approach - but nothing I could characterize as new or breakthrough to support a claim of creating uncontested market space. In fact it seemed as if the authors were simply repackaging long held notions about market niches”. Other authors challenge that there have no successful business models built on the Blue Oceans strategy.
Some of the criticisms seem unfair and unnecessary. In reality, both Red and Blue Oceans strategies are creative and useful methodologies for strategic planning. Unlike the situations predicted by some critiques, the Internet, email, and broadband communication technology have not reduced the Blue Oceans to ponds. On the contrary, they are expanded. The unprecedented scale of globalization makes it possible for companies to look beyond the national boundaries in designing and creating customer value and the value delivery systems. For industries, such as combating global warming and healthcare, the real solutions might rest with the Blue Oceans strategy. Similarly, the new market spaces so created will never replace the traditional market place. Competition in business will be head-to-head as usual. In order to survive and compete, companies have to focus on either cost leadership or product differentiation on these markets. Therefore, both Red and Blue Oceans strategies should coexist and be applied in competitive strategies.
The war strategy of the famous historical Chinese military strategist Sunzi may offer valuable suggestions to the Red and Blue Oceans debate. In the “Arts of War,” Sunzi categorized military actions as two types: the orthodox, or Zheng, and the extraordinary or Qi. The former refers to the action that is conventionally correct and the latter the action that is new, and can surprise enemies. To obtain victory, the Sunzi advocates “the extraordinary,” But, he also suggests that there are no hard and fast rules for which strategy to use, and in many circumstances people should use both. The ultimate choice of strategy for each military engagement should be dictated by the realities of the battle ground.
In applying the Sunzi’s strategy to the business competition, one may label the orthodox or Zheng as the Red Oceans, and the extraordinary or Qi as the Blue Oceans. To defend against competitors in the industry, one has to focus on either cost leadership or differentiate its offerings. But one should result to the Blue Oceans strategy when one plans to create new value and delivery systen on a new market space. Therefore, instead of pitting one strategy against another, people should keep both options on the table, and skillfully woven them into the effective and new competitive strategy for each initiative based on the unique elements on each targeted market space. The interplay of both strategies, as the Sunzi suggests, will generate an unending series of innovative, surpprising, and wining competitive strategies as seamless as the rolling of the unending circles.
To contact Clifford Cui, please email at: cliffordcui@yahoo.com
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