Blue Ocean vs Red Ocean Strategy: What's the Difference?

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What factor increases the risk of substitutes in an industry?

Low cost structure

High switching costs (correct)

Low switching costs

High profit margins

In the context of the 5 Forces model, what does a high degree of rivalry among existing competitors indicate?

Strong barriers to exit

Market growth in the industry

Low intensity of competition

Potential for a monopoly situation (correct)

What does the 5 Forces model primarily address?

Cost leadership strategies

How to enter a new market

Factors that make an industry more attractive (correct)

Scope of operations in different industries

What does the 5 Forces model fail to directly address according to the text?

How companies build competitive advantage Signup and view all the answers

What aspect influences the intensity of competition within an industry?

High barriers to exit Signup and view all the answers

In relation to competitive advantage, what may lead to a fight for market shares among existing rivals?

High asset specialisation Signup and view all the answers

Which factor may disrupt existing products in an industry according to the text?

'Low switching costs from products customers are using' Signup and view all the answers

What can be inferred about a situation with no rivalry within an industry?

'Monopoly situation' Signup and view all the answers

'Asset specialisation' and 'fixed costs of exit' are examples of what according to the text?

'Barriers to exit' Signup and view all the answers

Which of the following is NOT a danger in conducting a SWOT analysis, as per the text?

Overemphasis on core elements of business strategies Signup and view all the answers

In a cost leadership strategy, what is considered a disadvantage as per the text?

Significant upfront investments Signup and view all the answers

What is the key characteristic of a firm 'stuck in the middle' regarding its generic strategy?

Inability to offer unique features Signup and view all the answers

What does focus differentiation strategy primarily rely on to attract customers?

Unique features for a narrow market Signup and view all the answers

'Focused niches' in focus strategies are less vulnerable to substitutes because they:

Create high entry barriers Signup and view all the answers

What is a common challenge firms face when following a differentiation strategy?

Imitating uniqueness too easily Signup and view all the answers

Corporate level strategy primarily focuses on:

Selecting and managing different businesses Signup and view all the answers

Diversification mainly involves using expertise from one business to:

Enter a related business area Signup and view all the answers

Value Innovation is best described as:

A strategy that creates new market space by combining differentiation and low cost Signup and view all the answers

Study Notes

Red Ocean and Blue Ocean Strategy

Red Ocean Strategy: Compete in existing market space, beat competition, and exploit existing demand.
Blue Ocean Strategy: Create uncontested market space, make competition irrelevant, create and capture new demand, and break the value-cost trade-off.
Red Ocean Strategy: Focus on market competing strategy, try to outperform rivals, and reduce costs.
Blue Ocean Strategy: Follow value innovation, drive down costs while driving up buyer's value, and use a whole system approach.

Internal Analysis

Why Internal Analysis Matters: Determine if a firm's resources and capabilities are of competitive advantages, establish strategies that will exploit any sources of competitive advantage, and provide a comparative look at a firm's capabilities.
Resources: Assets employed in the activities and processes of an organization, cover a spectrum of individual, social, and organizational phenomena, can be obtained externally or internally generated, and can be tangible or intangible.
Capabilities: Emerge over time through complex interactions among tangible and intangible resources, based on developing, carrying, and exchanging information and knowledge through a firm's human capital, and foundation of capabilities: unique skills and knowledge of firm employees.

Value Chain Analysis

Inbound Logistics: Activities used to receive, store, and disseminate inputs to a product.
Operations: Activities necessary to convert the inputs provided by inbound logistics into final product form.
Outbound Logistics: Activities involved with collecting, storing, and physically distributing the product to customers.
Procurement: Activities completed to purchase the inputs needed to produce a firm's products.
Technological Development: Activities related to process equipment, basic research, product design, etc.
Firm Infrastructure: Activities that support the work of the entire value chain.

SWOT Analysis

Captures the concept of strategic fit between a company's internal and external environment.
Strengths: Identify opportunities to capitalize on changes in any of the 5 forces, identify main sources of competition, and build a strong market position.
Weaknesses: Identify areas where the company is vulnerable, and determine how to address these weaknesses.
Opportunities: Identify external opportunities that can be leveraged to gain a competitive advantage.
Threats: Identify external threats that can impact the company's performance and determine how to mitigate these threats.

Business Level Strategy

Why do some firms outperform others and enjoy advantages over time?
Business level strategy addresses the question of how a firm will compete in a particular industry.
Generic strategy: Way of positioning a firm within an industry, focusing on generic strategies allows executives to concentrate on core elements of a firm's business level strategies.
Types of generic strategies: Firm's source of competitive advantage, firm's scope of operations, and stuck in the middle.
Cost leadership: Offers products or services with acceptable quality and low price.
Focus cost leadership: Competing based on price to target a narrow market.
Focus differentiation: Unique features that fulfill the demands of a narrow market.
Differentiation: Based on uniqueness rather than price, and seeks to attract a broader market.

Corporate Level Strategy

Definition: Actions a firm takes to gain an advantage by selecting and managing a group of different businesses.
2 main concerns: What businesses the firm should be in, and how the firm should manage different business units.
Diversification: Using expertise and knowledge gained in one business to diversify into a business where it can be used in a related way.
Moderate-to-High levels of diversification: Low level of diversification: Single business strategy.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

Learn about the differences between Red Ocean and Blue Ocean Strategies in terms of known vs unknown market space, competition levels, and strategies for sustainable growth. Explore how core competencies and capabilities play a role in shaping a company's competitive advantage.

Red Ocean vs Blue Ocean Strategy

Choose a study mode