Over a decade ago, I took some time away from business to study full-time for an MBA. I had mixed views as to how a formulaic learning experience could have an impact on my future business and strategic thinking. I remember one module concerning strategic business where we were invited to bring some theories together to form new and coherent understandings of existing situations.
One area that I have been thinking about recently is Michael Porter’s 5 forces model and the Blue Ocean Strategy – something I will call the ‘Blue Porter‘. By bringing these two powerful models together could assist in building a competitive strategy.
For brevity, the detail of each strategy is not covered here but can be found on separate pages as indicated by the hotlinks below.
Porters 5 forces is a framework used for understanding the competitive forces that shape every industry. These comprise five fundamental forces:
- the threat of new entrants,
- the bargaining power of suppliers,
- the bargaining power of customers,
- the threat of substitute products or services, and
- the competitive rivalry within the industry.
Its primary goal is to determine the attractiveness of an industry, which it achieves by gauging the intensity of competition, identifying opportunities and threats, and assisting businesses in selecting appropriate competitive strategies.
The Blue Ocean Strategy is a business framework that advocates creating uncontested market spaces, or “blue oceans,” instead of fighting for dominance in the current competitive market, or “red oceans.”
Bringing the models together – Building Competitive Strategy
To integrate Porter’s 5 Forces model with the Blue Ocean strategy, businesses must complement their competitive analysis with a search for untapped potential. Here is a step-by-step guide to achieving this integration:
- Analyze the Industry Using Porter’s 5 Forces Model
- Begin by applying Porter’s Five Forces model to understand the competitive landscape of your industry.
- Identify and assess the factors that shape the overall industry environment using the five forces. A way that I find useful is to think about these factors having Low, Medium or High significant in our market.
- Recognize the sectors and industry segments where competitive rivalry is most intense, and consider the potential consequences of entering or operating within these “red oceans.”
- Identify Opportunities for Innovation and Differentiation
With a clear understanding of the competitive forces at play, start looking for opportunities to innovate and deliver unique value propositions that target unfulfilled customer needs. Reframe the competitive forces in your industry to identify new market spaces with less competition—these are your potential “blue oceans.” Ask:
- What are the underserved needs of customers in my industry?
- What factors could I change to deliver unique value?
- Which industries or customer segments are adjacent to mine and offer potential value innovation?
- Consider emerging trends, customer preferences, and new technologies that might present opportunities to craft novel offerings not yet addressed by competitors.
- Apply the Blue Ocean Strategy Framework
Leverage the Blue Ocean Strategy’s core principles to create and refine your new value proposition.
- Value Innovation: Deliver exceptional value through a combination of differentiation and low cost, ensuring that your offering is attractive to customers and hard for competitors to copy.
- Eliminate-Reduce-Raise-Create (ERRC) Grid: Assess which factors in your industry are worth eliminating, those that should be reduced, the ones you need to raise above the industry standard, and the new factors your offering can create.
- Reach Beyond Existing Demand: Expand your customer base by focusing on untapped customer segments and non-customers who could benefit from your innovative offering.
- Overcome Key Organizational Hurdles: Develop and nurture a corporate culture that supports innovation, embraces risks, and breaks traditional industry boundaries.
- Test and Validate Your Blue Ocean Offering
Once you’ve pinpointed the unique value proposition and differentiated offering, refine, and test your idea. Use market research, prototyping, and feedback from potential customers to validate whether your offering has indeed unlocked a market space with minimal competition.
- Reassess and Adapt Over Time
As your business grows, remember that even “blue oceans” do not remain static. Competitors may eventually catch up with innovations, or new entrants can appear. Regularly revisit Porter’s Five Forces to monitor changes in the competitive landscape, while also exploring new ways to chase further “blue ocean” opportunities to maintain market leadership.