EMPIRICAL VALIDATION of BLUE OCEAN STRATEGY SUSTAINABILITY in an INTERNATIONAL ENVIRONMENT Jiri DVORAK*, Ilona RAZOVA
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Foundations of Management, Vol. 10 (2018), ISSN 2080-7279 DOI: 10.2478/fman-2018-0012 143 EMPIRICAL VALIDATION OF BLUE OCEAN STRATEGY SUSTAINABILITY IN AN INTERNATIONAL ENVIRONMENT Jiri DVORAK*, Ilona RAZOVA** University of Economics, Prague, Jindrichuv Hradec, CZECH REPUBLIC * e-mail: [email protected] ** e-mail: [email protected] Abstract: This article investigates the applicability of blue ocean strategy in regard to low-cost airlines in the civil airline industry. To do so, the commercial offers of selected airlines were compared to vali- date any attempts to apply the blue ocean strategy concept. This is followed by examining the time lim- itation of the concept in a competitive environment and is illustrated by the changes in the industry for the past 30 years and a comparison of offers from similar companies. The third issue is the evalua- tion of the further contribution of blue ocean strategy when it is recognized as time-limited. The im- portance of first-mover advantage, which could be based on the ability to capture an economy of scale and advantageously shape the market, is also discussed. Keywords: blue ocean strategy, civil airliners, competitiveness, low-cost strategy, first-mover ad- vantage, Ryanair, customer value, value curve. JEL: M16, L10, L21. 1 Introduction Bonsor, 2001; Doganis, 2006). In Europe, the situa- tion began to change with the emergence of Ryanair Air transport experienced dynamic growth in the in 1985 when it entered the European market with second half of the twentieth century, which contin- a low-cost airline concept (Barrett, 2004; Thomas, ued into the early twenty-first century and still re- 2013; Ryanair, 2015a). In terms of the nature of the mains a dynamically developing industry today product offered, the company’s approach is consid- (Doganis, 2006; Wensveen, 2012; ICAO, 2016). ered to be the blue ocean strategy (Štverková, The sharp increase in the distances and the volume Červinka and Humlová, 2012). of passengers were positively affected by the gradual The purpose of this article is to verify this classifica- deregulation of this sector (Doganis, 2006; Fu, Oum tion at the time of the company’s entry into the mar- and Zhang, 2010; Žabokrtský, 2011). A major con- ket and the second topic is to verify the limited time sequence was the increased cost-effectiveness validity of this strategy. From this aspect, the last of carriers because of optimizing the price strategy goal is to assess the further development of the busi- and the transport links network associated with in- ness once the blue ocean strategy effect has vanished creased competition (Fu et al., 2010). and to discuss the importance of the first-mover ad- Although the greater competition has increased the vantage. This could be, for example, the ability availability of this service, it has also led to more to capture an economy of scale and shape the market intense rivalry and thus lower profitability of the in an advantageous way (Hill and Hult, 2016). sector (Porter, 2008). During this time, many new companies emerged. For the purposes of this article, 2 Theoretical background we divide them according to the nature of the prod- uct and how the transport is organized. We chose Competitiveness and competitive struggle are as old two major types of airlines: a traditional airline offer- as business itself. The strategy is not a new phenom- ing a complete package of services and a wide range enon in terms of the typology of individual strategic of available destinations and a charter airline focused approaches (Ansoff, 1957; Johnson, Whittington, on complex groups, which is mainly used by travel Scholes, Regnér and Angwin, 2014; Miles and agencies as a part of their service (Reichmuth, 2008; Snow, 1978; Porter, 2008; Porter, 1998) and others 144 Jiri Dvorak, Ilona Razova nor in terms of the impact of the changes on the are linked through an appealing metaphor to an at- competitive environment (Zhang, Peek, Pikas; Lee, tractive marketing concept (Simister, 2011). 2016; Dagnino and Padula, 2002). There is an obvi- According to Kim and Mauborgne (2005a, 2005b), ous growth in the dynamics of such changes result- the key contribution of this approach is the definition ing from technological changes, the globalization of six principles leading to the formulation and im- of the business environment, and hypercompetition. plementation of the strategy. The key points are The increasing dynamics of the environment influ- to create a current market strategy image that will ences the ability to react to changes and the mean- allow the expansion of existing market boundaries ingfulness of the long-term strategy development and the discovery of common characteristics of non- (Heijden, 2006). However, the basic idea of a strate- customers. The tool for realization is to find a new gic approach remains to gain a competitive ad- value curve using four steps that transform the cur- vantage (Carpenter and Sanders, 2008) as a pre- rent competitive model. This concept is criticized for requisite for competitiveness and economic success. its retrospection and is deconstructed in its applica- One of the most widespread approaches to business- bility to uncover the new and real blue ocean. Si- level strategy is still considered to be Porter's Gener- mister (2011) states that the authors of the strategy ic Strategies (Porter, 1998), a concept based on the look back through "blue glasses" to find successful two main directions: product differentiation and low- companies to apply their rules and that the theory cost strategy. In 2005, W. Chan Kim and Renna lacks a predictive character and only uses the tools Mauborg published their work entitled Blue Ocean to display successful historical examples (Rao, Strategy (Kim and Mauborgne, 2005a), which intro- 2007). This critique is followed by a critical study duced a different view of the issue. The authors (Kampa, Cziulik, and Amodio, 2012) stating the claim that this is not just another approach to com- absence of a clear link between the formulation pete for existing customers as the key aim is to create and implementation of blue ocean strategy. Howev- a new sovereign market space, which enables the er, our goal is not to create a new strategy or evaluate organization to escape from a direct fight with exist- whether the method can be used to create a blue ing competitors in the so-called red ocean. The main ocean. In addition, Ryanair launched its strategy long aim is to create a new demand generated by noncus- before the blue ocean strategy concept was pub- tomers who have not yet used the product using lished, so the retrospective use of tools does not con- a systematic combination of differentiation and low- tradict our aims. cost strategies. In the late twentieth century, the hub and spoke net- However, the work and originality of the concept work business model used by large airlines stabilized have been widely criticized by pointing out that as a major business model in passenger air transport. it only develops previously published topics (Rao, The advantages of the model are the ability to serve 2007), such as disruptive innovation changing the a dense network of airports to provide passengers essence of competitive struggle (Bower and Chris- with a point-to-point transfer from point A to point B tensen, 1995) or new marketing space formulated by and to ensure that they move along the entire intend- Prahalad and Hamel (1990). Blue ocean strategy ed route under the auspices of a single transport completely neglects a number of other aspects, such company. Traditional airlines also rely on providing as possible market risks. What happens if others are their customers with a complete package of services developing the same idea at the same time? What both before and during the flight (Bonsor, 2001; happens if the strategy goes too far to overcome Doganis, 2006; Reichmuth, 2008; Wensveen, 2012). the company's competencies? Or simply, what if the Charter airlines were created to meet the demand blue ocean is not ultimately blue and there are from travel agencies and concurrently represent no fish that can be caught (Kraaijenbrink, 2012)? a 30% share of intra-European civil air transport There are also polar opinions (Rao, 2007) that com- (Doganis, 2006). From a methodical point of view, pletely reject any benefit of the concept. On the other it is particularly important that the offers of the two hand, it cannot be denied that the topics discussed major groups of carriers were unified at the end Empirical Validation of Blue Ocean Strategy Sustainability in an International Environment 145 of the twentieth century (Reichmuth, 2008). The rise However, the Ryanair concept is seen as a more of low-cost air carriers has shifted the balance complex change than just Porter’s low-cost generic of power on the European civil airline market. strategy (Štverková et al., 2012). An overview of the share of individual types of air- The basis for success can be observed in the shift lines in the European market in 1992 and 2015 from the traditional business model commonly used is provided in Fig. 1. by airlines towards a differentiated no-frills product A low-cost strategy is considered to be the one that offer with limited or no additional services that ena- works with low operating costs, or at least a lower ble to sell cheap air tickets without the loss of cus- cost than is common among its competitors, thus tomer satisfaction (Doganis, 2006; Reichmuth, enabling it to become the price leader in the market 2008). (Barrett, 2004; Macário et al., 2007; Porter, 2008). Weekly seats available (millions) 15 10 5 0 Full Service Others Low-Cost Figure 1.