Using a value creation compass to discover “Blue Oceans”

Abstract

Purpose

Researchers Kim and Mauborgne argue that firms seeking to grow in mature markets need to create new buyer value, thereby entering Blue Ocean markets, where they don't have rivals. In contrast, firms fighting rivals in bloody, Red Oceans will struggle to remain profitable. To facilitate the search for Blue Oceans the paper aims to offer managers a new tool to uncover new points of buyer differentiation.

Design/methodology/approach

This paper draws from the strategy, marketing and economics literatures to illustrate how firms can enhance performance by creating Blue Oceans.

Findings

This paper suggests that one way to generate Blue Ocean strategies is to use the fundamental building blocks of value creation. Based on extensive work with value creation logics, it proposes that there are three types of value firms can offer customers: lower prices using an industrial efficiency logic; increase user connectivity with a network services logic; or enhance the offering's fit with the user needs using a knowledge intensive logic. By combining parts of two or more of the value creation logics, managers may construct innovative bundles of attributes.

Practical implications

Blue Ocean strategies are most appropriate for companies in the mature/decline phase of the product life cycle that are suffering from declining revenues and decreasing customer loyalty. Organizations facing these pressures typically attempt to increase the bottom line by increasing marketing and branding efforts while cutting costs and trying to dodge price wars. These value renovations usually meet with little success as competitors are attempting the same moves in what is largely a zero sum game. Instead of focusing on besting rivals, Kim and Mauborgne argue firms should aim for value innovation by redefining their offerings to compete in niches where there is no competition. Applying value creation logics helps managers redefine their offerings.

Originality/value

This is the first paper to outline how combining value creation logics leads to discovering Blue Oceans.

Citation

Sheehan, N.T. and Vaidyanathan, G. (2009), "Using a value creation compass to discover “Blue Oceans”", Strategy & Leadership, Vol. 37 No. 2, pp. 13-20. https://doi.org/10.1108/10878570910941172