Thierry Lamarque
President, co-founder, Althéo
Doctor DBA, Business Science Institute
Olivier Meier*
Professor, Paris-Est Créteil University
Director, ASAP observatory
*Faculty member of the Business Science Institute
In terms of strategy, companies have different ways of approaching the issue of competition. We propose a strategic analysis of the three possible options around the concepts of "Red Ocean", "Blue Ocean" and "Grey Ocean".
The Red Ocean and the politics of confrontation
The Red Ocean corresponds to the traditional approach to strategy, where companies evolve in a highly competitive environment in which the rules of the game are already defined: the position of the players in the market (clients, suppliers, partners, prescribers, etc.) is known, demand has already been created and price offers are fixed. Within this universe, companies compete by using cost domination strategies or differentiation strategies (Porter's competitive strategies), in an attempt to gain market share in the face of existing demand. The objective here is to maximize the value of the offer within the limits set by the industry, by finding the best quality/price ratio. This competitive strategy leads to a distinction between "winning companies" and "losing companies" within a universe marked by increased competition, saturated markets and a convergence of strategies (a situation of hyper-competition where price wars and critical size often supplant innovation and creativity). Such a situation generally leads to an erosion of market shares and revenues. It also encourages external or joint growth policies (takeovers, buyouts, mergers, etc.) aimed at compensating for weak market growth by acquiring resources and market share from competitors. One example is the automotive sector, where the slowdown in markets, production overcapacity and heightened price competition have created the conditions for a competitive confrontation and encouraged the development of mergers and acquisitions and international alliances (AT&T-Time Warner, Exon-Mobil, Stellantis, Renault-Nissan-Mitsubishi, etc.).
The accounting business, which regularly calls upon ALTHEO's services, corresponds perfectly to the characteristics of a Red Ocean type strategic space. With 21,000 chartered accountants registered with the Order, grouped in some 18,000 structures in France, this sector is marked by an exacerbated competitive intensity. In addition, this profession has been subject for several years to competition from "online" firms that offer the most traditional services of the profession at low cost (bookkeeping, cash management, payroll outsourcing). In addition, the profession has to deal with an endemic annual decline in revenues due to the natural attrition of clients (bankruptcy filings, relocations, mergers and acquisitions). In order to survive in such a hostile environment, many accounting firms choose a forced external growth strategy.
The Blue Ocean or the praise of uniqueness
The Blue Ocean strategy, popularized by W. Chan Kim and R. Mauborgne, aims to exit a mature and highly competitive market with reduced growth prospects (risk of competitive confrontation), by creating a new strategic space that does not yet exist (unknown market), in which competition is absent. The "Blue Ocean" strategy therefore breaks with the "Red Ocean" type of confrontation strategies, by putting innovation at the center of the reflection through original solutions that respond to new needs or uses that the company has not yet expressed (new segmentation, new user experiences, new codes, new economic model). To quote Steve Job, the "Blue Ocean" strategy therefore aims to "read what is not yet written on the page" (Isaacson, 2011). This is the case, for example, of Tesla Inc., which has successfully designed the world's first 100% electric car, whose performance (acceleration capabilities, long range, better recharging network) and design (family sedans, compact sedans) are comparable to those of high-end sports cars. However, while seeking out such (uncharted and untapped) territory to escape the competition can be effective, the pioneer who identifies a new market may very quickly face the arrival of new companies eager to benefit from the wasteland work done by the pioneer company. Thus, despite a pioneering advantage, it is sometimes better to be an efficient and well-informed follower than a reckless pioneer with limited resources, as shown by the breakthrough of Sony and Microsoft in a market previously dominated by Nintendo (failure of the Wii U). Creating your own Blue Ocean is only a first step that needs to be maintained and strengthened, even when you dominate the market, like Apple, which must now face the Android offensive.
The energy sector also provides a good illustration of the Blue Ocean strategy adopted by energy performance experts. Surfing on the concepts of frugal and ecological savings in a world of finite resources, the "greentech" sector is extracting itself from the fratricidal price war led by the energy companies to propose technological platforms that enable companies to reduce their costs and carbon footprint, with the help of AI modeling and algorithms.
The Grey Ocean: when strategy rhymes with deterrence
This is why it can sometimes be interesting to develop a more modest strategy that avoids direct competitive confrontation ("Red Ocean") but also refuses to engage in a process of permanent competitive innovation ("Blue Ocean"), a source of destabilization. Indeed, the "Grey Ocean" strategy (Fréry, 2014), rather than choosing between confrontation or radicalism, aims to adopt a policy of dissuasion, where competitors will not dare to invest because of the risks involved, and this regardless of the sector and the originality of the services offered. The aim is to invest in strategic areas whose characteristics may be more dissuasive than attractive for a variety of reasons: the obligation to renounce certain alliances due to incompatibility, the need to change the business model, entry into a competitive universe that is constrained by regulatory or fiscal constraints, activities with an image that is not very attractive from a social and societal point of view, activities that have to deal with ethical issues, etc.
For example, we can cite the funeral home sector, where the figure of the "undertaker", ethical considerations and the obligation since 2013 to obtain a diploma in mourning psychology or funeral rites - a decree published in the Journal Officiel - constitute in themselves dissuasive factors which in many respects may be part of a "Grey Ocean" logic.
In this "Grey Ocean" space, we also find many activities that have been abandoned by investment funds because they do not fit well with the concerns of financial underwriters regarding the sustainable development of companies (CSR policies). Thus, companies that are not lucky enough to be "in the air" (e.g., selling smokers' products, producing plastics) can live happily ever after because of the low level of competition in their sector.
This article is based on the work of Frédéric Fréry and Olivier Meier in corporate strategy, and benefits from the experience base accumulated by ALTHEO, directed by Thierry Lamarque, in the field of general corporate policies.
Bibliography
Chan Kim W., Mauborgne R. (2017), Setting course for the Blue Ocean, Pearson, Village Mondial, 320 p.
Chan Kim W., Mauborgne R. (2013), Blue Ocean strategy: how to create new strategic spaces, Pearson, Global Village, 310 p.
Fréry F. (2014), "Forget the Blue Ocean, prefer the Grey Ocean", HBR France.
Isaacson, W. (2011). Steve Jobs. Paris: JC. Lattès.
Lamarque T., Story M. (2018), Reprendre une entreprise, Maxima, 239 p.
Meier O. (2018), Diagnostic stratégique : compétitivité, performance et création de valeur, 5ème ed, Dunod, 336 p.
Meier O. (2018), "Strategy: from the Porterian approach to the 3 Oceans", Carnets du Business.
Porter M. (1982), Strategic choice and competition, Economica, 426 p.
Zara O. (2016), The Tea strategy: agility, innovation and commitment in a digital, uncertain and complex world, Axiopole, 190 p.
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Thierry Lamarque's articles and books via CAIRN
Olivier Meier's articles and books via CAIRN