Blue Ocean Strategy From Michael Porter's Perspective - The World's Leading Strategist

2.2 - Blue Ocean Strategy from the perspective of Michael Porter - The World's Leading Strategist

According to Michael Porter, businesses will create competitive advantage by choosing one of the following strategies:

Cost Leadership: Compete by creating a product or service at the lowest possible product and related costs. Then the business can sell a large number of goods at an average price and earn a large profit.

- Differentation : Compete by creating a difference that other businesses find difficult to compete with. This difference could be product quality

Because Michael Porter emphasized that if a business does not choose one of the above strategies, it will not have a competitive advantage, the authors of Blue Ocean Strategy (W. Chan Kim and Renée Mauborgne) criticized the strategies. Michael Porter's competition is not enough to create a Blue Ocean. However, according to the writer's own opinion, businesses can completely pursue and apply a successful combination of 2 or 3 of the above strategies, such as a combination of low and different costs, or low cost costs. Low cost and centralized. At that time, the enterprise also created its own Blue Ocean.

According to Kim and Mauborgne, a strategic move is a series of managerial actions and decisions involved in forming a business for a large market. The essence of the “Blue Ocean Strategy” is to enhance value with convenience, low prices and reduce costs. It forces companies to take the leap in value, delivering a dramatic increase in value for both the buyer and for themselves.

The two authors, Kim and Mauborgne, argue that destructive fierce competition leads only to a Red Ocean full of competitors' blood in a dwindling profit pool. Competition in the Red Ocean does not increase the market but only competes for market share within a given market limit already available. In contrast, competition in the Blue Ocean is creating new market space, new demand. On that basis, the market will be expanded.

This result shows that, of the new businesses launched by businesses, up to 86% are geared towards competition in the Red Ocean, that is, continuing to expand into existing markets. Meanwhile, only 14% of new business activities are directed towards undefined markets.

However, this 86% of new business activities heading to the Red Ocean only impact 62% of corporate revenue and bring only 39% of total profits for businesses. While 14% of new business activities towards Blue Oceans bring about 38% of revenue and 61% of profits for businesses.

This impact is very obvious to see the benefits of bringing the company's operations to Blue Oceans. That is also the reason why once businesses have been successful in the Blue Oceans, they can have such great changes in the value of the company.

The Red Ocean Strategy is based on competition assuming that the structural conditions of an industry have been established and that firms are forced to compete under those conditions. In the Red Ocean, differentiation increases costs, because companies compete with the same principles and best practices. Here, the strategic choice for companies pursuing is either differentiation or low cost.

However, the difference between successful and unsuccessful companies in forming Blue Oceans is the companies' approach to this strategy. Companies sunk in the Red Ocean followed the usual method: they sought to beat their competitors by forging a defensive position in an industry order. However, the companies that create Blue Oceans are not racing with their competitors. Instead, they pursue a different strategy, value innovation . This value innovation is the foundation of Blue Ocean.

So, how to innovate value, and come up with a Blue Ocean strategy on what principles? The writer would like to give some main analytical tools as follows:

Value innovation emphasizes both value and innovation . Value without innovation favors value creation on an ever-increasing scale, meaning there is an improvement in value, but that improvement is not enough to cause companies to differentiate themselves. themselves in the market. In contrast, innovation that is not tied to value is more about technological innovations, pioneering in the market. However, these innovations are often beyond what buyers are willing to accept and pay for.

Value innovation is created when a company devises a strategy that affects both its cost structure and the value it delivers to buyers. Cost savings are achieved by eliminating or reducing competitive factors in the industry. The value brought to buyers increases and will form factors that have little or no presence in the industry. Over time, costs will decrease due to increased sales volume resulting in economies of scale.

According to the above model, Blue Ocean is formed by reducing costs while increasing value for buyers. It's a way to add value to both the company and the customer. The value customers receive will be formed from the use value of the goods and the money spent to buy those goods, while the value received by the company will be formed from the selling price of the goods and the cost structure. . Therefore, value innovation is achieved only when the entire system of activities related to use value, price and cost in the company is commensurate. The overall system approach to Blue Ocean formation has provided stability to this strategy.

The strategy map is meant to summarize and show the current state of the established market range. That helps to see and evaluate where competitors are investing, current competitive factors in the industry in terms of products and services as well as what customers receive from competitors. This is a very important model in determining and creating a Blue Ocean strategy because from the analysis of the strategy map, companies will find a way to renew the value of the product itself. my company.