A Decision-Analytic Approach to Blue-Ocean Strategy Development
The potential value created with a new product or service provided by a firm is given by the difference between its (monetary) benefit, in the view of the firm’s customers, and the unit production cost to the firm. To what extent this potential value can
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1 Introduction The potential value created with a new product or service provided by a firm is given by the difference between its (monetary) benefit, in the view of the firm’s customers, and the unit production cost to the firm. To what extent this potential value can be exploited as a market opportunity depends on the firm’s success in obtaining a competitive advantage over other firms in the market. In order to acquire a competitive advantage, a firm must outperform its rivals in value creation (cf. Besanko et al. [1]). In order to enhance value creation, the firm has two generic options: It can raise the value for the customer, e. g., by differentiation of the product’s features, or it can lower the costs for providing the product. However, as Porter ([5], p. 18) points out, ‘achieving cost leadership and differentiation are (. . . ) usually inconsistent, because differentiation is usually costly.’ Therefore, the firm should view the two generic strategies as alternatives between which it must make a choice, since otherwise it may become ‘stuck in the middle,’ thereby sacrificing its competitive advantage. It appears somewhat surprising, though, that Porter’s view on the trade-off between differentiation and cost leadership is taken for granted in most of the literature on business strategy. From a decision-analytic perspective, it fails to acknowledge the multiple dimensions which typically characterize the benefits of consuming and the costs of producing a product or service. Hence, it should seem quite natural to consider a firm differentiating its product in one aspect while simultaneously reducing costs in another. Strategy selection then becomes a multi-attribute decision problem with important implications for mar-
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Matthias G. Raith, Thorsten Staak, and Helge M. Wilker
ket analysis. Since the weights that consumers attach to the different attributes of a product depend on the consumer group that makes up the market, value creation can be influenced by shifting the market focus to other (potential) customers that not only place different weights on the attributes, but also value different attributes. Kim and Mauborgne [2] offer an innovative approach to strategy development along this line. At the core of their approach is the realization that it is much more valuable for firms to focus their energy on finding or creating new, uncontested market space (a ‘blue ocean’) than to compete against incumbent firms on existing markets (‘bloodred oceans’). The main instrument for finding blue oceans is a ‘strategy canvas,’ a visual depiction of strategies as value curves allowing the comparison and differentiation of industries and competitors. However, the strategy canvas, as presented by [4], seems useful mainly for ex-post diagnosis and explanation of successful blue-ocean strategies. For the strategy developer in the ex-ante perspective it remains unclear how exactly a blue-ocean strategy is recognized among possible alternatives. This is particularly a problem in an entrepreneurial context, where an unencumbered start-up usually
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