01Jan '09

Using a Value Creation Compass to Discover “Blue Oceans”

Strategy & Leadership

Theme: Theoretical argument for using ‘value creation logics’ to facilitate creating blue oceans, as illustrated through an analysis of a leading German toy manufacturer.

Summary: The authors argue that companies in the mature/decline phase of the product life cycle suffering from declining revenues and decreasing customer loyalty typically attempt to increase their bottom line by increasing marketing and branding efforts while cutting costs and trying to dodge price wars. These value renovations rarely result in success, as competitors attempt the same moves. The authors suggest that instead of focusing on beating rivals, companies can grow and enhance performance by applying blue ocean strategy. However, they note, applying blue ocean strategy entails the difficult task of redefining the offering and creating new buyer value. This paper attempts to offer a new tool for managers to facilitate uncovering attributes of buyer differentiation to create blue oceans. The authors draw upon their experience in value creation to suggest that companies can utilize three distinct logical orientations  called  ‘value creation logics’ to create new value. These include industrial efficiency logic, knowledge-intensive logic and the network logic.  They propose firms can create differentiation by increasing user connectivity through network services logic or enhancing the offering's fit with the user’s needs through knowledge-intensive logic. Additionally, companies can lower costs by pursuing industrial efficiency logic. The authors argue that by combining these three logical orientations, managers can offer innovative bundles of  attributes in their offerings that simultaneously achieve differentiation and low cost. The authors illustrate their arguments using the case of Gund Teddy Bears, a leading German toy manufacturer.

Reference: Sheehan, Norman T., and G. Vaidyanathan. "Using a Value Creation Compass to Discover “Blue Oceans”. Strategy & Leadership 37 (2009): 13-20.
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