Critical Evaluation - Blue Ocean Strategy

Risk associated with being first mover(entry order).

1. Being overtaken by 2nd mover

Facing market risk - market not formed yet

Customer uncertainty and extended time for adaptation

Charles Stack 1st online book store lost its market share for Amazon.com

invest highly in R&D and marketing cost

Follower strong product positioning, pricing and heavy promotion

firm has to be aware of fast, aggressive and imitating followers that will neutralize all the firm's efforts and investments and decrease firm dominance

cost of imitation is only about 65% of the cost of innovation market development, competitive actions and technological development it is not easy to shape industry conditions have to be taken into account Mauborgne must have high entry barriers, in order to block out the competitive actions or consider them irrelevant Thus, the theory simplifies the complex world, but as it oversimplifies and neglects other possible situations in the industry, it adds little value in explaining to route so success.

2. most fundamental assumption of the Blue Ocean theory is that industry's

conditions can be shaped by a firm's efforts. The red ocean describes a situation where existing industry rules are readily formed, static and cannot be changed. While the possible occurrence of a blue ocean encourages the creativity and learning, the red ocean claims that learning is ineffective in such situation. The assumptions behind the two are therefore not coherent with each other, but also do not give an insightful explanation either, as a good theory should be.

3. The thought that industry conditions can be shaped is not new either. are based on the Schumpeterian view that business strategies should be entrepreneurial and creative and should follow a strategy that breaks the market and industry rules. And because this assumption is not new, it creates little insights to the development in this research area. The Blue Ocean theory therefore does not bridge the two schools of thought, nor provide an explanation for them. Thereby, the theory fails the explanation part of a theory, and does not succeed in explaining how blue oceans are created, based on industry rules.

4. Even though by offering low prices and high value a company might capture a large part of the market, it does not necessarily mean that it will or even has the power to create an entire new market, which the authors claim to do. Other factors besides monetary costs and increased value may have an influence on customer decisions that are not incorporated by the theory. Customers do not only think in terms of price and value only, which is assumed by the authors when they claim that value innovation is the cornerstone of a blue ocean and little attention is put on marketing and customer perceptions. Customer perception, attitudes and habits also have an influence on their behavior (Fishbein & Ajzen, 1975). The theory fails to include these influences and assume that value innovation by itself will boost sales.

5. 'value innovation'. However, the idea of combining buyer value and low cost is not new. A concept that can be compared to that is disruptive innovation.

Porter (1991) himself altered his own perspective and remarked that competitive advantage could come from low cost, differentiation or both. Therefore,

as it does not disconfirm earlier assumptions, neither does it create new insights. Value innovation in itself cannot explain the creation of a blue ocean. Moreover, value innovations are hard to accomplish, because it strives to lower costs and increase value at the same time.

6. The assumptions argue that competitor orientation restricts firms from looking further than the current industry and market (Kim and Mauborgne, 2005). The book does not include any academic proof for that claim and there is evidence that competition benefits both customers and companies. new product/service that a company is supposed to offer based on value innovation is intended to be a better solution to the problem. The word 'better' already signifies a comparison with other products/services, which nullifies the assumption that competition should not be the benchmark. Besides that, by turning a blind eye to competitive actions, companies can encounter unexpected risks and forgo great opportunities. Competition can benefit both the customers and companies in different ways.

in the customers' state of mind competitive advantage may still exist. Even though rational choice theory has some restrictions and criticism like bounded rationality and the influence of emotions, humans still have to urge to be rational. Therefore, it is inevitable to take competitive actions and products into account when trying to understand consumer behavior and attempting to distinguish from competition in consumer's minds. And firms facing competition have more incentive to reduce costs than firms in regulated industries with less competition (Armstrong & Sappington, 2006).

according to Kim and Mauborgne, a company would not have the opportunity to strive to its best, as it would be facing competition as the market matures, driving the company to seek for another Blue Ocean and leaving the current one. Moreover, a firm should not leave a market based on the competitive forces, but rather on the expected profit rate of staying in the market. If the firm would leave early because of the competition, it may miss the peak of the market growth stage (growth and maturity stage; Anderson and Zeithaml, 1984) and fail to catch the majority of the market, reach maximum profit and maximum value for customers.

The reasoning behind value innovation already indicates that it is needed to compare the current offerings to what the value innovating firm is about to launch into the market, as value innovation should result in offering a better solution. For that reason, competition is already the benchmark by definition. Competitive actions also give several opportunities for market developments and/or can pose threats to the incumbent firm, and should therefore not be neglected in the strategy formation process. Nor should it be assumed that it does not have an influence on the creation of a blue ocean.

A company should not be constrained with what it has

This assumption argue that a company should look beyond its current assets and capabilities and try to create new and value-added factors to a product or service, and at the same time eliminate nonvalue-adding factors (Kim and Mauborgne, 2005). The