Tuesday, August 07, 2007

Scrutinizing Blue Ocean Strategy

Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant written by W. Chan Kim and Renée Mauborgne was one of the best sellers in year 2005. I haven’t read this book, but did come across photocopy of its Appendix A. I am not sure if I could agree with what I read.

In Appendix A, the authors examine auto industry. They write:

In the 1970s, the Japanese created a new blue ocean, challenging the U.S. automobile industry with small, efficient cars.

Back in 1970s, majority of American households already owned cars. The Japanese automakers, therefore, were competing in existing market rather than creating a new blue ocean. Sales of Japanese-branded vehicles rose steadily because of these reasons:

  1. The market was expanding because of population increase.
  2. The Japanese car makers ate into the market share of the Big Three.
  3. More and more American families could afford to purchase second or third cars.

The third reason could readily be explained by older marketing models. Success of Toyota, on the other hand, can be explained by the famed Toyota Production System. The Japanese also moved up the value chain by selling luxury cars, e.g. Lexus by Toyota, Acura by Honda and Infiniti by Nissan.

The book continues…

Fast-forward to 1984. A beleaguered Chrysler, on the edge of bankruptcy, unveiled the minivan, creating a new blue ocean in the auto industry.

The success of the minivan ignited the sports utility vehicle (SUV) boom in the 1990s, which expanded the blue ocean Chrysler had unlocked.

Now, according to Kim and Mauborgne, a Blue Ocean Strategy involves BOTH differentiation and low cost. As we know, minivan and SUV are not cheap. The automakers were competing on differentiation but hardly low cost!

It is clear that the automakers mentioned above did not adopt Blue Ocean Strategy as claimed by the authors. They were, nonetheless, successful. My lecturer said, “Blue Ocean Strategy is one of the strategies, but it is not the best strategy.” I probably have to agree with him.

Related post:
The Toyota Way

Blue Ocean Strategy on Wikipedia


  1. I bought a copy of this 2 weeks ago. Still nicely wrapped in plastic.
    It cost RM 119.80! Ouch!

  2. Cocka,
    Even a joker like you also read this kind of serious book!?? That's is fantastic.

    I was also thinking of buying a copy a few weeks ago. Now I am giving it a pass.

  3. well, its kinda like THE book now.hvnt read it yet.

    how'd u found my blog???

  4. fei wen,
    Yeah, the book is hot. I don't find it particularly great, but I haven't read the whole book yet.

    As for your 2nd question, I will need to check out your blog more frequent before I can give an answer.

  5. With regards to your comments khengsiong I think that you have missed the point a bit when it comes to what Kim and Mauborgne are trying to say. When the Japanese first entered the U.S. automotive market they essentially did create a blue ocean strategy using Kim and Mauborgne's logic. Kim and Mauborgne's definition of a blue ocean is simply put as the creation of uncontested market space. Since the Japanese automotive manufacturers created a new market segment in the U.S. automotive market i.e. smaller more efficient cars it seems perfectly reasonable to suggest that they created a blue ocean.

    Your three points you use to try and discredit Kim and Mauborgnes argument are not a valid explaination of why the Japanese automotive companies did so well. Population increases and the increase in dispoable income does not explain why certain American's chose Japanese cars over American cars, that is a ludacris assumption. The reason why Japanese automotive manufacturers were so successful was because as Kim and Mauborgne say they created a blue ocean i.e. smaller more efficient cars essentially what American customers wanted at the time but American automotive manufacturers failed to regonise and hence the reason why they were successful.

    Also with regards your point about differentiation and low cost. Kim and Mauborgne when making reference to low cost they were not referring to the price of the end product i.e. the SUV but to the production of it. Crysler's SUV is a perfect example of a blue ocean and of low cost and differentiation (not going to explain this as you have acknowledged they achieved a differentiation strategy). Much of the car market works on low margins but the SUV market is a high margin market due to their higher selling price but relatively low cost production. Therefore Crysler successfully achieved what Kim and Mauborgne describe as value innovation i.e. differentiation and low cost strategy as they produced SUV's at a relatively low cost i.e. low cost strategy but could sell them at a high price because they are considered a sign of status i.e. differentiation strategy.

    Two Havard Graduates who received Doctorates are highly unlikely to make the simplistic mistakes you criticised them for.

  6. AlexThanks for your comments.

    Many people mistake BOS to mean 'creation of uncontested market place'. But this is an idea long known to the practitioners and discussed by the scholars. What, then, is so special about BOS? Just the name, I suppose.

    Akio Morita, founder of Sony, once said, "We don't serve market. We create market."

    OTOH, if BOS is really about combining differentiation and low-cost strategies as per Michael Porter, then many of the examples cited by Kim and Mauborgne don't meet this criteria.

    The cost in low-cost refers to the price consumers pay.

  7. Hi khengsiong,

    I agree I am not a keen proponent of BOS. However, their examples still match up to Michael Porter's generic strategies.

    I guess a low cost strategy can refer to the price a company charges the consumer and their activities that allow them to operate a low cost strategy because without keeping costs low they cant offer consumers a low price. However, as Barney (2007) noted in his book Gaining And Sustaining Competitive Advantage, that companies pursuing a low cost strategy look for anyway to cut costs but they do not necessarily continue to lower prices as they continue to cut costs because this can lower the perception of their products in the eyes of the consumers. This indicates to me that low cost strategies refer more to cutting company costs and keeping the price competitive rather than continually cutting the price of a goods. The perfect example is Toyota who continually cut costs through innovative production techniques thus increasing their overall profitability as they increase their margins i.e. cutting costs more than they cut prices. If Toyota were to continually cut prices in line with cutting costs consumer perception of them as being a good value for money car company i.e. their differentiaiton maybe lost. Therefore I don't disagree with you that a low cost strategy concerns the price a company charges a consumer. I do though feel that it is more to do with a companies activities it undertakes to cut it's costs.

    Kim and Mauborgne are referring to Michael Porter's generic strategies and consequently rejecting his view that a company can choose between two generic strategies i.e. differentiation and low cost. Porter (as you probably know) said that both strategies are mutually exclusive. However, this has proven to be false by many researchers e.g. Barney (2007) and Hill (1987)as it is found that companies can pursue both stratgies effectively again Toyota are a perfect example of this. So Kim and Maubourgne are correct when they argue that companies can achieve this and the examples they give are good examples of this.

    All in all I do agree with you with regards to blue ocean strategy that it is not the best strategy. However, Kim and Mauborgne's examples do check out in regards to Michael Porter's generic strategies.

    Here is the link to the HBR article they wrote on BOS and you can read that their examples do check out. http://www.courtenayhr.com/images/Blue%20Ocean%20Strategy.pdf

    Also here is another link for another article they wrote

    Just thought I add these in case you were interested.

  8. ac00020 Thanks for your explanation. I never expect my post written nearly 2 years ago would still be commented, LOL...

    I haven't read Barney's works so I can't comment on that. In any case, cutting operating cost while at the same time maintaining price consumers pay isn't an easy task, and cannot be readily explained by BOS.

    Which is why Toyota Production System generates so much interest.

  9. Hello, I do not agree with the previous commentator - not so simple

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