Table of Contents
The model of competition shows that, risks and returns are supposed to be stable among several industries and businesses. In spite of this statement, several studies in economics show that a variety of industries can maintain several levels of profit making. This contrast is discussed in detail by industrial structure. Competition is a major factor when it comes to business.
This idea elicited different reactions from several analysts. One such study was done by Michael Porter. He developed the fact that industries are what they are because they are determined by five forces, which include; Rivalry, a competition from other firms, substitute products, power of the buyer; the effect of a buyer on a firm, power of the supplier on the industry and entry threat; that is the possibility that other firms might enter into the producing industry. These forces according to Porter are what any business Manager, craving to establish itself among rival firms, needs to comprehend the industrial environment in which the firm thrives.
On the other hand, a research by Kim and Mauborgne developed another way of looking at competition. They put forward a strategy known as the Blue Ocean Strategy (BOS) which focused on low cost and differentiation concurrently. Blue Ocean Strategy in this case refers to the ability of firms to create new markets for their products. Therefore, the new market space is what is termed as the Blue Ocean (Ahlstrom & Burton, 2009, pp. 63). According to Kim and Mauborgne, firms in a production industry should not try to overcome competition from other industries in the same category but to seek new markets or the Blue Ocean in order to increase demand. They give six principles that develop this strategy. This include; reconstruction of market boundaries; that is creating new markets, focusing on the large picture and not quantity terms, move from the existing customers to a larger population, getting the right strategies, overcoming organizational barriers like employee's willingness and designing ways of putting strategies into action.
There are various similarities between the two models. The two models agree on different ways. First, both models of the strategy are consumer focused. In competition, a firm tries to attract various buyers and to retain those buyers. For the two models, both propositions have capitalized the consumers. Whether it is through looking for untapped markets as for Kim and Mauborgne or competing for existing markets as advised by Porter, at the end of the day both models will be after the consumer.
Secondly, both propositions as put forward are influenced by entry threats. Porter sees entry threats as another force that influence a firm in a given industry. When prices of products are high, many other firms try to enter into the industry and when prices drop they will move out of the industry. Kim and Mauborgne's strategy also conquer those entry barriers as a negative force. This is because once the firm has ventured into a new market several other firms will want to come in when prices are high or move out when prices are low. This presents a point in which the two models meet (Hax & Wilde, 2001, pp. 52).
Thirdly, the two strategies also focus on value of the firms in an industry. Blue Ocean Strategy by looking at the product utility by a consumer and moving forward to establish cost and strategies is a way in which firms make their products valuable thus attracting buyers. The Porter's forces of strategy forwarded ways in which a firm can attract buyers. One is by making their products valuable thus attracting a large number of buyers. Lastly is that both strategies focus on the issue of differentiation that is through the product itself or other major factors of the firm.
The models differ in several ways. First, according to Michael Porter a firm has to try to gain fame over another firm in the same industry in order to make profits. For this purpose, a firm has to compete with other firms in the industry. Porter believes that, competition can result into no profits in a company. He proposes that competition has to do with competing for the same markets as other rivals in the industry. He, therefore, put down ways in which a firm can compete for the same market. First, a firm has to respond by revising prices; which means either increasing or decreasing prices to capture the consumers' attention (Hill & Jones, 2009, pp. 71).
Secondly, is improving the product in terms of the production process and the image of the product itself through packaging and advertising. Thirdly, is to create distribution channels. There should be set standards to be met by suppliers before supplying their raw materials. Doing all these, according to Porter, will help a firm compete adequately with other firms? Kim and Mauborgne, on the other hand, suggests that a firm does not have to gain fame over the other but to try and find alternative markets known as the Blue Ocean. According to their study, a firm need not compete for existing buyers but to create their own markets. For instance, if Tourists like to travel to Kenya a tourist attraction site in Africa but hate the hotels there then a firm can organize for camping facilities in game parks and carry their own food (Kim & Mauborgne, 2005, pp. 64).
Secondly, according to Porter, suppliers are capitalized when it comes to firms in a given industry. Suppliers have to meet certain terms and conditions before they supply their materials or manpower to a particular firm. The strengths of suppliers are measured through credibility, their concentration for instance medicine to hospitals or Health centers and also their effectiveness in terms of customer satisfaction. According to Kim and Mauborgne, demand is in the focus. This is creating new markets for counter demand, focusing on the existing consumers and non-consumers with the hope that the firm meets the needs of the non-customers. This is not with interest to gain advantage over other firms but to create blue oceans to attract customers.
Thirdly, according to Porter this strategy focuses on the numbers of consumers. The higher the number of buyers, the profits also will be high. A firm will enjoy what is almost like monopoly. This is determined by how much the buyer buys in the market. While Porter focuses on numbers, Kim and Mauborgne focus on new markets. This means focusing on the big picture. It is trying to attract a large clientele which means getting not only to new or existing buyers but also to non-consumers (Kim & Mauborgne, 2006, pp. 57).
Fourthly, according to Porter substitutes is another force that influences firms in a given industry. Prices of substitute products will influence the demand of a product. For example a buyer might choose to buy tea leaves and avoid coffee granules because of their difference in prices.
Kim and Mauborgne believe that creating new markets demystify competitions from firms producing substitute products. A firm can decide to venture into producing drinking chocolate which might have been overlooked by the firms producing coffee granules or tea leaves. By doing this the firm will have attracted customers who might have been neglected by the other beverage firms (Siegemund, 2008, pp. 97).
The fifth difference is that, Porter's strategy focuses on value and cost trade-offs, that is, creating value at higher prices or at lower cost while Kim and Mauborgne on the other hand, focus not only on creating value or trading costs but also on value at high costs and low costs.
The sixth difference is that Porter's strategy focus on working with existing customers and trying to maintain them through varying prices. On the other hand, Blue Ocean Strategy focuses on establishing new demand by looking for non-existent consumers. Lastly, Porters five forces of strategy model focus on implementation because it is dealing with existing consumers. In contrast, Kim and Mauborgne Blue Ocean strategy focus on the formulation and not implementation because it deals with creating new markets.
The two strategies have similarities and differences. Despite this fact, the two strategies can be back up for each other. Blue Ocean, for instance, is known for its ability to be maintained and has an appealing effect on the profit margin. A premise can try to combine both strategies that are using Porters ideas to curb competition in existing markets, while raising resources available for the blue ocean investments to add up the probabilities of finding new markets.