Nokia’s Blue Ocean Strategy Essay.
In today’s overcrowded industries, competing head-on results in nothing but a bloody “red ocean” of rivals fighting over a shrinking profit pool. Some Companies are fighting for a competitive advantage or over market share while others are struggling for differentiation. This strategy is increasingly unlikely to create profitable growth in the future. Nokia , the Finland’s falling mobile phone company has seen its market share and share price tumbling dramatically by 90% since 2007 and the company is yet to achieve the comeback it hopes.
Instead of competing in such red ocean of bloody competition, Nokia should make smart strategic moves by creating uncontested market space that would make the competition irrelevant. Blue ocean is then concerned with unknown markets where opportunities abound. First of all, this study will critically be evaluating Blue Ocean Strategy by highlighting the six principles that Nokia can use to successfully formulate and execute Blue Ocean Strategies. Secondly, we will be focusing on the comparison and contrast of red and Blue Ocean, and finally, this assignment will concentrate on an explanation of the benefit and problems of Group Work.
Blue Ocean Strategy Blue Ocean strategy challenges Nokia to break out of the red ocean of bloody competition by creating uncontested market space that makes the competition irrelevant. Instead of dividing up existing and often shrinking demand and benchmarking competition, blue ocean strategy is about growing demand and breaking away from competition. This involves creating blue oceans in a smart and responsible way that is both opportunity maximising and risk minimising. Creating uncontested new market space
To win in the future, Nokia must stop competing with rival firms in the battle of smartphones because the only way to beat the competition is to stop trying to beat the competition since the rules of the game are yet to be set. Because operations improve, markets expand, and players come and go, it is a big challenge for Nokia to continuing creation of blue oceans. Here, the strategic move would be the right unit of analysis for explaining the creation of blue oceans and sustained high performance. A strategic move is the set of managerial actions and decisions involved in making a major market-creating business offering. Also, Nokia has to focus on value innovation which is the cornerstone of blue ocean strategy. But again, instead of beating the competition, Nokia should focus on making the competition irrelevant by creating a leap in value for buyers and the company, thereby opening up new and uncontested market space.
Formulating and executing Blue Ocean Strategy To succeed in Blue Ocean, Nokia has to take into account the principles and analytical frameworks that are essential for creating and capturing the strategy. Nokia’s executives have to be brave and entrepreneurial, they should learn from failure, and seek out revolutionaries. Effective blue ocean strategy should be about risk minimisation and not risk taking. The tools and frameworks presented include: * The strategy canvas: it a diagnostic and an action framework for building a compelling blue ocean strategy which serves two purposes.
First, capturing the current state of play in the known market space, allowing you to understand where the competition is currently investing, the factors the industry currently competes on in products, service, and delivery, and what customers receive from the existing competing offerings on the market. Second, Nokia’s executives should fundamentally shift the strategy canvas of its operations by reorienting the strategic focus from competitors to alternatives, and from customers to non customers of the business.
* The four actions framework consists of reconstructing buyer value elements in crafting a new value curve. These actions consist of eliminating the factors that Nokia takes for granted, reducing factors well below Nokia’s standard, raising factors well above Nokia’s standard, and creating factors that Nokia has never offered. * The Eliminate-Reduce-Raise-Create Grid is key to creation of blue oceans. The grid will push Nokia to act on all four to create a new value curve. By doing it, the grid will give four immediate benefits: * Pushing Nokia to simultaneously pursue differentiation and low costs to break the value-cost trade-off. * Lifting its cost structure and overengineering products and services
* Creating a high level of engagement in its application since it is easily understood by managers. * Scrutinising every factor Nokia competes on, making it discover the range of implicit assumptions they make unconsciously in competing. An effective blue ocean strategy has three complementary qualities: focus, divergence, and a compelling tagline. To make its competition irrelevant, Nokia should then apply the principles of Blue Ocean Strategy to succeed.
Principles of Blue Ocean Strategy Six principles will guide Nokia Corporation through the formulation and execution of its Blue Ocean Strategy in a systematic risk minimizing and opportunity maximizing way.
The first four principles address Blue Ocean Strategy formulation.
* Reconstruct market boundaries.
This principle identifies the paths by which Nokia’s management can systematically create uncontested market space across diverse industry fields, thus attenuating search risk. It will teach Nokia’s management how to make the competition irrelevant by looking across the six conventional boundaries of competition to open up commercially important blue oceans. The six paths focus on looking across alternative industries, across strategic groups, across buyer groups, across complementary product and service offerings, across the functional-emotional orientation of an industry, and even across time.
* Focus on the big picture, not the numbers. This illustrates how Nokia’s management can design the business’s strategic planning process to go beyond incremental improvements to create value innovation. It portrays an option to the current strategic planning process, which is often criticized as a number-crunching exercise that keeps companies engaged into making incremental improvements. This principle challenges risk planning. Using a visualizing approach that drives managers to focus on the big picture rather than to be submerged in numbers and jargon, this principle suggests a four-step planning action whereby Nokia could build a strategy that will create and capture blue ocean opportunities.
* Reach beyond existing demand.
To create the largest market of new demand, Nokia’s management must challenge the conventional practice of embracing customer preferences through finer segmentation. This practice often results in increasingly small target markets. Instead, this principle shows how to aggregate demand, not by focusing on the differences that separate customers but by building on the powerful commonalities across noncustomers to maximize the size of the blue ocean being created and new demand being unlocked, thus minimizing scale risk.
* Get the strategic sequence right.
This principle describes a sequence which Nokia should follow to ensure that the business model they build will be able to produce and maintain profitable growth. When it will meet the sequence of utility, price, cost and adoption requirements, it will then address the business model risk and the blue ocean ideas it created will be a commercially viable one.
The remaining two principles address the execution risks of Blue Ocean Strategy.
* Overcome key organizational hurdles.
Tipping point leadership shows how Nokia’s management can mobilise an organisation to overcome the key organisational hurdles that block the implementation of a blue ocean strategy. This principle addresses organisational risk. It sets out how Nokia’s executives likewise can overcome the cognitive, resource, motivational, and political hurdles despite limited time and resources in executing blue ocean strategy.
* Build execution into strategy.
By integrating execution into strategy making, Nokia’s personnel are motivated to pursue and execute a blue ocean strategy in a sustained manner inscrutable in an organisation. This principle introduces fair process. Since a blue ocean strategy by force of necessity represents a departure from the status quo, fair process is needed to facilitate both strategy making and execution by rallying people for the voluntary cooperation required to accomplish blue ocean strategy. It deals with management risk associated with people’s postures and conduct.
Red and Blue Ocean strategies Competition-based red ocean strategy assumes that an industry’s structural conditions are given and that firms are forced to compete within them. Simply stated, red ocean strategy is all about outpacing competitors in existing market. The strategic choices for firms are to pursue either differentiation or low cost. Conversely, blue ocean strategy is based on the view that market boundaries and industry structure are not given and can be reconstructed by the actions and beliefs of industry players. Clearly, blue ocean strategy teaches how to get out of established market boundaries to leave the competition behind, making it irrelevant. The table below outlines the key defining features of red and blue ocean strategies.