05Sep '07

A Decision-Analytic Approach to Blue Ocean Strategy Development

The Annual International Conference of the German Operations Research Society

Theme: Quantification of the strategy canvas for ex-ante strategy development and selection.

Summary: The authors challenge Porter’s argument that ‘differentiation is usually costly’ and argue that even though this view on the trade-off between differentiation and cost leadership is taken for granted in most of the literature on business strategy, it essentially fails to acknowledge that firms can differentiate their product in one aspect while simultaneously reducing costs in another. The authors argue that strategy selection should not be a one-dimensional either/or decision between the generic differentiation and low cost strategies, but should instead be approached as a multi-attribute decision problem. The authors suggest that blue ocean strategy offers an innovative approach to strategy development along these lines and note that blue ocean strategy’s central tool, the strategy canvas, is useful for visual depiction and comparison of differentiation among industry competitors. They argue that since the weights that customers attach to different product attributes depend on the consumer group that makes up the market, the perception of value can be influenced by shifting the market focus to other potential customers (which Blue Ocean Strategy‘s authors call noncustomers) who not only place different weights on same attributes, but may also value completely different factors. They suggest employing a multi-attribute decision analytic approach to address the strategy development and selection process. The authors propose interpreting the strategy canvas as a quantitative assessment of strategy profiles and show that this will help managers objectively evaluate strategy alternatives, develop and derive the optimal strategy ex-ante, and will also enable them to assess the market potential of different buyer groups. They also suggest that any uncertainties introduced in this process by subjective valuation and scoring methods can be minimized by using sensitivity analysis to test the robustness of a firm’s decision.

Reference: Raith, Matthias G., T. Staak, and H. M. Wilker.“A Decision-Analytic Approach to Blue Ocean Strategy Development.” Paper presented at the Annual International Conference of the German Operations Research Society (GOR). Saarbrücken, September 5–7, 2007.
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