Managing Innovation: Blue Ocean Strategy

This document discusses the concept and application of Blue Ocean Strategy in managing innovation. It explores the advantages and disadvantages of this strategy and provides case studies of companies like Apple and BrewDog. The document also includes a business canvas model of BrewDog and its historical development.

Managing Innovation
Blue Ocean Strategy
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Content
Figures
Introduction
The paper is devoted to the analyse the development of innovation concept, aspect and types.
The report’s main objective is to define and explain the growth pattern of conception and
interpretation of innovation over time. Innovation is the method of making modifications to
something already created by introducing something new. Innovation is about helping
organisations develop, includes activities such as managing ideas, identifying the objectives
and motivating teams (O’Sullivian and Dooley, 2009).
Innovation is applicable to business to increase the effectiveness of a service or productivity.
Since middle of the 19th century innovation made the appearance into the area of scientific
research implicitly. Since the second half of the 20th century the concept of innovation began
to spread across the different areas of information.
More and more concept of innovation starts to develop like “blue ocean innovation” (Kim
and Mauborgne, 2005), “diffusion innovation” (Tiwari and Herstatt, 2011), and “disruptive
innovation” (Moore, 2005). The focus on this report will be for Blue Ocean Strategy for the
BrewDogg company.
The report is organised as follow. The first part will discuss the principal and process of blue
ocean theory along evaluating the theory. The second section analyses the development of the
innovation concept in historical perspective. Finally, the third part will highlight the
application of blue ocean strategy in the further development.
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Part 1
Innovation Theory -Blue Ocean Strategy
According to Whittington et al. (2006), Blue Ocean strategy concept is useful to identify new
gaps in the market. Blue Ocean means minimising the competitions and creating an open
market space. Blue Ocean strategy is aiming to avoid Red Oceans with many similar rivals
and low profitability and can be analysed with a strategic canvas. Considering a new strategy
canvas for removing Red Ocean strategy for the existing market and aiming to beat
competitors and utilizes existing demands. Therefore, Blue Ocean creates uncontested market
space and aims to make competition irrelevant by creating new demand.
By focusing on making the competition irrelevant there are few factors Blue Ocean strategy
needs to evidence. If a company acts favourably in reducing the cost will increase the value
of buyer and eventually will create a value innovation.
Blue ocean strategy is to focus on reconstructing the market, looking at the bigger picture and
reach beyond of what customers are currently demanding. Blue Ocean divided them strategy
by focusing on the strategy canvas characteristics. Working on the four framework actions;
reduce the standards factors in the industry, eliminate the factors that are assumed, create
opportunities the industry which has not offered before and raise standards which are above
the industry.
According to Chan and Mauborgne 2006, value innovation is created in the region where a
company’s actions favourably affect both its cost structure and its value proposition to
buyers. Cost savings are made by eliminating and reducing the factors an industry competes
on. Buyer value is lifted by raising and creating elements the industry has never offered. Over
time, costs are reduced further as scale economies kick in due to the high sales volumes that
superior value generates.
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Fig1. The cornerstone of Blue Ocean Strategy Source: Google Scholar, 2020
Effective blue ocean strategy should be about minimising the risks of the business not taking
the risk (Kim, Mauborhne, 2015).
The strategy Canvas- Framework Tool
The strategy canvas is both an analytical and an action framework for creating a powerful
blue ocean strategy. Finding the current state in the market, this will allow a better
understanding of competitors, the factors that company compete on its product and service.
Looking into what customers receive from the currant competitors.
Fig2. Blue Ocean Tools and Strategy
The Four Action Frameworks
The aim of the four action frameworks is to recreate consumers value factors in creating a
new value curve.
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There are four key questions that challenges industry business model:1- Eliminate-the reasons that the business takes for granted should be removed2- Raise – the reasons should be raised well above the industry requirements3- Reduce- the reasons should be lowered well below the industries standards
4- Create- the reasons should be created that the industry has never offered
Fig.3 The Four Actions Framework
Benefits and limitations
Advantages of blue ocean strategy
 Blue ocean strategy aids organisations in discovering a new immature and
unsaturated market. Unsaturated market give competition free environment to
the companies.
 It helps companies in getting rid of cut-throat competition in the existing
industry by continuous value addition in the production process.
 Value innovation is the core principle of blue ocean strategy. Value innovation
combine the elements of low cost leadership and product differentiation
strategy. It render competitive sustainable advantage to the company.
 Blue ocean strategy alter the elementary mindset of an individual. It modify
mental view and assist in identifying the opportunities.
 Blue ocean follows the principle of using strategically proven approach
instead of raw theories.
Disadvantages of blue ocean strategy
 It is very tough to discover modern ideas with high growth potential in future
and it also very difficult to find a market that is not tapped by companies till
date.
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 Evolution of a profitable blue ocean strategy is a consequent of extensive
research and analysis. It is not come up by miracle or magic. It very risky to
spend heavy on hunting of new market.
 Creation of new market is very tough because a company have to develop a
comprehensive plan with respect to potential customers and methods to
perfectly trained them about new ideas, new commodity and new solutions.
Company should have clear understanding of trade-off, barriers and human
capital.
 Entering in a new market with bad timing are highly prone to risk. Company is
requires check that arrival is not very early. Early arrival in the market result
in failure. Technology should be advanced enough to clarify the purpose of
goods and services introduce by the company.
Other features New unknown market: Blue ocean strategy find out a new unrecognised
market with huge growth potential. If company become successful in
searching new untouched market than it acts as treasure for that organisation.
Firm can take fully advantage of the company and earn maximum revenue. No competition: Business entity get relief from intense competition prevailing
in existing market. There is no competition because of zero competitors in the
market. Company can create their own rules for sustainability. Combination of strategies: In blue ocean strategy, company take advantages
of combination low cost leadership and product differentiation. It eliminate the
confusion of whether to choose quality or price in the minds of consumers
while purchasing the specific product. Need of demand creation: There is a strong requirement of creation of needs
among potential customers. Marketers are accountable for making customers
realising the needs of new goods or service. Company is required to showcase
the utility of the new product developed to cater the needs of new market. Seeking for potential customers: Assessment of prospective consumer base
that can prove to be beneficial for the company is crucial for the success.
Company have to choose right customer segment to avoid failure of the new
solution.
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Analyse
It is very essential to analyse this aspect within the marketplace, which is associated
with its application and usage within companies. Hence, as per its advantages and
disadvantages, the strategy could be applied in an appropriate and effective manner in order
to create sort of monopoly within the marketplace. This is achieved due to determination of
the market space that could be filled up by creation of a new demand. However, it is
necessary within this strategy that the demand is created of a new offering which makes the
competition irrelevant. Moreover, another aspect related to its application is that the strategy
developed by the firm under this theory must be appropriate in context to helping the firm
gaining profit. This could be achieved by communicating the exclusivity of the products that
are sold by the organisation to its target markets.
Examples of anything, hypnotises
There are several examples that are associated with the Blue Ocean Strategy which
would help in development of an appropriate and effective hypothesis of the firm. Some of
these examples are elaborated below:
 One of the most effective examples associated with Blue Ocean Strategy is Apple. It
developed iTunes, which is one of the most effective innovation of its time and which
solved several problems of the music industry with respect to illegal downloading of
the music illegally. Hence, the strategy contributed towards creating a new category
within the marketplace which was related to music sales.
 Another example that is related to Blue Oceans Strategy is associated with Backroads.
This organisation is a travel company which created a new demand within the market
for the segment luxury active travel. This allowed individuals to experience fitness
based holidays that included camping, biking, hiking and so forth. Hence, with this
new segment and effective application of Blue Oceans Strategy, the firm enhanced its
profitability by creation of a completely new segment when it comes to holidays.
Summaries of this part
Hence, as per the above part, Blue Oceans Strategy is a very effective in order to
ensure that a competent and more competitive position is created by the products and services
of the company. Furthermore, it also helps in gaining an appropriate and effective market
status that could be achieved by creation of a new and unique demand within the
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marketplace. However, it is necessary for the companies to first analyse the overall market to
find the gap for which the demand could be created. Moreover, it is also necessary that
certain examples associated with the strategy are evaluated and assessed to understand the
notion on which this strategy works, as well as ensure its effective implementation within the
marketplace.
Part 2
Company Background
In 2007, James and Martin began brewing in Martin’s mum’s garage, what ultimately
become a worldwide craft beer organization. BrewDog is a multinational brewery and pub
based in Ellon Scotland. The Pub was founded in 2007 by James and Martin having the same
passion for a great craft bear. The company is one of the fast growing in the market,
BrewDog was announce on Times Top 100 Best Employers.
BrewDog was founded in April 2007 by two young males in Ellon. With no money and scary
loans from the bank. By 2008 BrewDog had their first bear on the market. However, have not
passed long time until the threats stared to appear. Portman Group, the largest brewer and
beverages group in the UK have banned BrewDog’s bear. The founders of BrewDog have not
gave up, they started to export their bear to Sweden, Japan and America, opening new
opportunities.
Not only focusing on customer demands and give other people the chance to invest in
BrewDog, but also opened the first international bar in Stockholm in 2013. Other 10000
investors from 22 countries smashed crowd-founding. The variety of the products increased
year by year and by 2014 BrewDog shipped their beer in 55 different countries.
By 2015 the product was sold in 65 different countries and opened few more bars. The
following years was increasing and in 2018 they opened the world’s first craft beer hotel and
a beer museum. Currently, BrewDog have 1000 employees, 52 pubs opened in the UK and 26
pubs overseas and build 2 breweries in Elton. (BrewDog, 2020).
Hence, in order to better explain about the product, below is the Business Canvas
Model associated with the organisation and its Craft Beer:
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Illustration 1: Brewdog Business Canvas Model (1)
Illustration 2: Brewdog Business Canvas Model (2)
Illustration 3: Brewdog Business Canvas Model (3)
As per this model, it could be said that the firm has both online, as well as offline
models to deal its craft beer into the marketplace. Furthermore, the organisation plays
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effective attention to its product, as well as the modes through which It would be
communicating the same into the marketplace.
Historical Development
Hence, it could be denoted from the information above that Brewdog is very effective
in context ensuring that their products and services get effective attention within the
marketplace, along with effective innovation associated with the same. However, it is
necessary that is products and services are evaluated on the basis of their historical
development, along with application of Blue Ocean Strategy. Hence, both these aspects are
subjected below on Craft Beer and is evaluated below:
 Creating Uncontested market space
In the later half of the first decade of this century, it was very crucial that an
uncontested market space is created as the industry brewed lagers were very quite boring and
people wanted something nice to taste. Hence, the idea which drove the creation of Brewdog
which was related to development of own Craft Beer.
 Make competition irrelevant
During 2009, the firm indulged into development of a craft beer by the name of
Tokyo, which became one of the finest craft beers through development of a beer with natural
taste, as well as was directed towards millennials.
 Creation of new Demand
While the era near 2010 demanded tastier beer, it was perceived by Brewdog that the
there is a need to create demand for more environmental friendly products. Hence, they
ensured to fuse craft beer with fused art and taxidermy, along with presence of several
organic elements that make the beer more environmental conscious and healthy.
 Breaking Value-Cost Trade off
it is further necessary that the trade of of value and cost is eliminated by creating
exclusivity in the market. For instance, through their repeated and disruptive innovations they
have created better and more appropriate beers. For instance, they created Equity of Punks II,
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which was another effective craft beer, which allowed the company to ensure adding high
costing, as well as sales, through bringing in exclusivity in the marketplace.
 Align the whole system to ensure differentiation and low cost
Currently, all the systems and activities within the company is subjected towards
creation of new and differentiated beer through innovation, which is subjected towards
micro-brewery, along with enhancement of analysis of the market to determine where the
demand could be more created.
Part3
Application of the theory in the future development- Blue Ocean
1. Future Development
BrewDog is one the leaders within the beer industry that offers its customers high
quality craft beer to its customers. The beer industry is expanding at a fast rate with
innovations being implemented to the products as well as services every now and then (Jaw,
Chen and Chen, 2012). Therefore, for its future, development, BrewDog can consider adding
different flavours to its craft beers like rose etc. in order to increase its share in the market as
well as attract a large number of potential customers to buy its products. The ides is explained
below with the help of Blue Ocean strategy.
BrewDog should create a new market in which there are no new competitors. This
will help it in marketing the new flavoured beer effectively and gaining the attention of
customers. This can be done by implementing different strategies and using various offline as
well as online channels. Once people get attracted and start demanding the product, the
company can then capture the demand and then start producing and offering the products to
customers. The flavoured beers should be offered at low prices in order to hold the
customers. The company can al;so add new products to its existing product portfolio like
craft coffee, fruits drinks etc. In order to differentiate its products from other players in the
market, BrewDog should align all its activities in a different manner. This way, the customers
will be able to differentiate its products from others in the market.
In order to make the new products successful, the company should first understand its
overall position in the market, decide where its wants to be and then seek different ways to
get to that position. This can be done by developing new strategies and conducting market
research in order to get a better understanding of whether the innovation that they are
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launching in the market will be successful or not (Tidd and Bessant, 2018). Apart from all
this, Brew Dog already has its future plans decided. It has decided to host an event which it
will call “Open Day” at one of its breweries for people who work at independent craft
breweries where it will conduct various seminars about exporting, sales, brewing etc. This
will be beneficial for the company as a large number of people participating in the event
means forming of a large network.
By this, the respective organisation will be able to attract the different segments of
adopters early majority, late majority and laggards. It is likely that innovators and early
adopters attend this event as people in this segments always support the idea of innovation
and a new product being launched in the market. These people will promote the new
flavoured beers in the market by sharing information about the same with the other adopters
in order to generate interest and encourage them to try out the product. This can lead to an
increase in the sales of the new beers thereby providing BrewDog an advantage of gaining an
edge over its customers and thereby becoming a much more profitable company.
Conclusion
Thus, it is concluded from the report above that managing innovation is very
important within an organisation in order to ensure a different and better status within the
marketplace. Furthermore, it is necessary to gain a competitive and market position that is
associated with the sector as well as within the marketplace. It is necessary that Blue Ocean
Strategy is evaluated and explained, along its processes and technique, along with benefits
and other attributes in order to gain a better understanding of the same. Furthermore, it is
necessary that organisations and their products are described in context of application of this
theory which could reflect the historical development of its offerings. Lastly, its application
must also be used in order to create future developed and effective products for the firm to
achieve organisational objectives.
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References
Johnson G., Whittington R.,Scholes K., Angwin D., Regnér P. (2006). Exploring Strategy.
Available at: https://www.dawsonera.com/readonline/9781292145136 (Accessed
16/02/2020).
Kim C., and Mauborgne R., (2005) Blue Ocean Strategy. How to create uncontested Market
Space and Make the Competition Irrelevant. Page 16. Published Harvest, Boston.
BrewDog,. (2020) Born in Ellon. Enjoyed Worldwide. Available at:
https://www.brewdog.com/uk/ Accessed: (16/02/20202).
Hartland Brewery (2019). History of Beer. Available at:
https://www.heartlandbrewery.com/history-of-beer/ Accessed: (17/02/20202).
Jaw, Y. L., Chen, C. L. and Chen, S., 2012. Managing innovation in the creative industries–A
cultural production innovation perspective. Innovation. 14(2). pp.256-275.
Tidd, J. and Bessant, J. R., 2018. Managing innovation: integrating technological, market
and organizational change. John Wiley & Sons.
O’Sullivian D., Dooley L. (2009). Applying Innovation. Available at:
https://books.google.co.uk/books?
id=azgXBAAAQBAJ&printsec=frontcover#v=onepage&q&f Accessed:
(23/02/20202).
Kim W.C., Mauborgne R. (2005). Blue Ocean Strategy: How to Create Uncontested Market
Space and Make Competition Irrelevant // Harvard Business Press.
Moore G.A. (2005). Dealing with Darwin: How Great Companies Innovate at Every Phase of
Their Evolution // New York: Penguin Group.
Appendix
Appendix 1- Development of Innovation concepts and models in its historical developments,
continuation (2000-s)
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