Are you a fan of Porter’s five forces or blue ocean? Do you want to dominate existing markets or explore for new ones to create?
Blue Ocean Strategy
Porter’s 5 Forces Strategy
Researchers Andrew Burke, André van Stel, and Roy Thurik studied whole industries to determine whether an innovation strategy or a competitive strategy is better.
They examined profitability and numbers of vendors for 41 shop types during a 19-year period (1982–2000). They employed a model that dates back to the 1921 economics study by Harold Hotelling for their research approach.
It argues that as long as there are profits to be made in a certain market, more and more vendors will emerge to serve that market until it reaches a saturation point, at which everyone more or less breaks even. If an industry is successful, additional competitors will enter the market, increasing competition and lowering profits down below the marginal cost.
Looking at entire industries, they discovered that blue-ocean approach would need the creation of a new market. If it attracted consumers in the long term, industry profits and the number of vendors would both continuously increase. As a result, companies win by staking out new markets.
As I said, the study looked at profits and numbers of vendors for 41 shop types over a 19-year period (1982–2000) and they found evidence that the blue-ocean strategy is sustainable. Average company profitability and the number of businesses were positively associated in more than half of the shop categories.
They found evidence that the blue-ocean strategy is sustainable. Average company profitability and the number of businesses were positively associated in more than half of the shop categories.
Andrew Burke, André van Stel, and Roy Thurik
According to their findings, competition gradually erodes the profits from innovation. However, this is a slow process that takes around 15 years, meaning that blue-ocean approach takes the greater part of a generation to yield to a competitive strategy.
According to their research, businesses may want to consider a hybrid of the two strategies. For example, by slowing profit erosion in an existing market with an efficient competitive strategy, they can improve the funds available for blue-ocean investments and hence their chances of finding an untapped market with plenty of consumers.
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Nazli Mohammad 