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01May '09

Blue Ocean Strategy Versus Competitive Strategy: Theory and Evidence

ERIM Report Series Research in Management

Theme: Empirical test of blue ocean strategy versus competitive strategies based on data compiled from 655 retail shops across 41 shop types within the Dutch retailing industry.

Summary: This paper addresses the debate surrounding blue ocean strategy versus competitive strategy. The authors note that blue ocean strategy seeks to turn strategic management on its head by replacing competitive advantage with value innovation as the primary objective, in which firms create consumer demand resulting in increased profitability in the industry. To test the dominance of either strategic school of thought in both the long and short terms, a theoretical model is outlined that posits that as long as there are profits to be had in a particular market, more and more vendors will arrive to serve that market until it reaches a saturation point, where everyone more or less breaks even. Looking at entire industries in this way over time would tell if companies succeed by creating new markets (blue oceans) or pursuing competitive strategies. If companies succeeded by creating new markets that attracted consumers over the long term, industry profits and the number of vendors would both steadily increase. If, however, firm profitability went down as the number of firms went up that would show that companies focused on competition would outperform those setting their sights on the blue oceans. Using a comprehensive data set of the Dutch retail industry comprising of 655 retail shops across 41 shop types analyzed over the period 1982-2000, statistical evidence is brought to bear on this debate to tests the hypotheses. The authors found that average firm profits were positively related to the number of firms in more than half the shop types, whereas profitability and the number of vendors rose and fell together across all shop types over the period spanning indicating that blue ocean strategy was at play over the long term. They also report that in the short term competitive strategy appeared to dominate. The study shows that blue ocean and competitive strategies overlap and managers do not face an either/or decision between the two.

Reference: Burke, Andrew, A. van Stel, and R. Thurik. “Blue Ocean Strategy versus Competitive Strategy: Theory and Evidence.” ERIM Report Series Research in Management (May 2009).

Burke, Andrew, A. van Stel, and R. Thurik. “Blue Ocean Strategy versus Five Forces.” Harvard Business Review 80 (May 2010): 28-29.
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