- Which of the Blue Ocean pathways should your project company pursue to improve overall profitability?
All of the Blue Ocean pathways have potential in improving profitability. However, the path of looking across alternative industries have a greater potential for improving overall profitability in the company. Alternatives are products or services with different forms and functions but have a similar purpose. Before deciding on the product or service to seek, consumers look at the most convenient alternative amongst those available in the market. Looking at how consumers choose a certain alternative industry helps in providing opportunities for value innovation beneficial in improving overall performance. For instance, Intuit developed Quicken Software as an alternative product and years later the company remains the leader in selling personal financial software.
Many other companies have succeeded in improving their overall profits by focusing on alternative industries in their industry and by focusing on key factors that make consumers trade the alternatives they create a new market place. For instance, NetJets developed the idea of fractional ownership of jets as an alternative product and the company has grown larger compared to other airlines. The company reconstructed its market boundaries by evaluating the alternative industries. NetJets looked at the factors that consumers weigh in the aviation industry which include flying on first or business class offered by commercial airlines and to buy their own jets. After looking at the advantages and disadvantages of each alternative, NetJets came with a new idea of selling jets in fractions to cater for all needs of customers where they enjoy the convenience of a private jet at an affordable price. The success of these companies proves that the path of looking across alternative industries leads to the creation of the new market. Therefore, my project company should pursue the path as a means of improving the overall profitability.
- If you could make one change to improve your project company’s industry level profitability, what would it be and which force does it affect?
To improve the level of profitability in my project company, I would ensure the company has clout with customers and distribution channels. This refers to the company’s relative bargaining power. Having consumers needing the business more of the products of the business that the business a business needs them gives the specific business the capacity to negotiate for an advantage. Having a stronger negotiation power is a competitive advantage which leads to improved promotion, better visibility, and enhanced trade terms in comparison to competitors’. This change would affect the force of entry threat. New entrants in the industry come with a desire and capacity to gain market share. This brings the threat of capping the profit potential of an industry. When new entrants diversify from other markets they leverage existing abilities shaking up competition just like how Microsoft shook competition when it entered internet browser’s market. The response and the strength of the existing competitors in an industry influence the decision of new entrants into the market. When existing businesses have ample resources that can effectively fight back, then new entrants take time to make an entry decision. Having power with customers and distribution channels gives incumbent capacity to fight back. This influences the decision of the new entrants into the market.
Having clout with customers and distribution channels gives newcomers a second thought before entering into an industry. Lack of such power encourages the market entry of new comers which creates a high threat of the entry moderating profitability. To improve the profitability level of the industry, it is necessary that my project company secures clout in distribution channels as well as power with customers. This will give the company capacity to fight back under threat of new entrants. It is important to remember that potential entrants may have various capabilities to evade entry barriers. This calls for creativity, commitment, and being mindful of how incumbent business conducts their businesses. This is why it is very important for my project company to embrace the proposed change to be able to fight back in case of new entrants and eventually which helps in improving the level of profitability of the industry.
Kim, W. & Mauborgne, R. (2015). From Blue Ocean Strategy: How to Create Uncontested Market Space and Market the Competition Irrelevant. A Harvard Business Review Press Book, pp. 50-82.
Porter, M (2007). Understanding Industry Structure. Harvard Business School, pp.1-16.