Research Journal of Economics & Business Studies - RJEBS - The ...

more complex, they devised separate tools, techniques and systems to maintain control. Two examples
are Ansoff’s S.W.O.T model, and Porter’s Five Forces.
According to Amram and Kulatilaka (1999) and Leibold et al. (2006) these tools used today to achieve
competitive advantage through differentiation, were developed 50 years ago, for analyzing the
environment and planning. But, the purpose of strategic management and the circumstances under
which the tools were developed in the first place have considerably changed over the years (Hamel
1998; Roos 2004)
While traditional tools like Porters Five Forces may provide insight, they do not generally provide
foresight, which is one of the most important factors to construct creative strategies for the future
(Courtney 2001). Furthermore, Mintzberg and Lampel (1999) add that these analytical tools do not to
build strategies as proposed by Porter, but they provide ideas which can only be used in thinking about
what strategy to pursue.
Kim and Mauborgne (2005) argue that “the traditional approach, and thus the tools applied to
formulate strategies focuses too much on competing in existing market space, defeating the
competition, exploiting existing demand, making the value/cost exchange, and aligning the total
system of a organisation’s activities with its strategic choice of differentiation or low cost.
The above discussions, brings out the opportunity to develop the first pair of hypotheses for strategy
formulation:
Hypothesis 1: Companies can only follow market positioning through differentiation, low cost and
focus while formulating business strategies.
Hypothesis 2: Organisations should come out of the traditional approaches and seek to formulate new
strategies by creating newer developments on the existing industry.
The Blue Ocean Theory
The theory of Blue Ocean proposed by Kim and Mauborgne in 2005 is firmly grounded on a study
based upon 150 strategic moves made by companies in a range of industries. The misconceptions of
the BOS theory are that it induces companies to evade the existing competition and apply the blue
ocean strategy as a shortcut. In reality, Kim and Mauborgne explain that red oceans and blue oceans
are both equally important for business practices. Considering the example of IBM who created the
modern computer industry, from there on Apple and Microsoft have continuously reinvented business
models, thus reconstructing market boundaries of competition, and therefore creating an entirely new
market for their products (Kim and Mauborgne, 2005).
Kim and Mauborgne (2005) demonstrate their ‘reconstructuralist’ view as opposed to Porter’s
structuralist approach and traditional methods of strategy making. The cornerstone of the Blue Ocean
Strategy is value innovation. Value innovation challenges the conventional method of strategizing,
pursues differentiation, and low cost simultaneously to create a leap in value for both buyers and the
company to create new customer demand and break away from the competitive benchmarking.
Kim and Mauborgne (2005) further condemns the focus on benchmarking arguing that it leads to
imitation not innovation which results in “price pressure” and further “commodization”. The creation
of blue oceans is a process rather than a market outcome. In this regard, the value innovation process
consists of reducing costs and simultaneously driving up value for buyers. (Kim and Mauborgne,
2005) As shown in Figure 2.1, value innovation is achieved when a company’s actions positively
affect both its cost structure and value proposition to buyers.
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