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TEACHING MODULE FOR:
From Competing in Existing Industries to
Creating New Market Space
Prepared by W. Chan Kim & Renée Mauborgne
For use in Strategy/Strategic Management Courses
I. Teaching Module Overview:
This teaching module fills an important void in the field of strategy. For the last twenty years, the field of strategy has been dominated by I/O Economics’ structuralist approach to strategy where the central paradigm has rested on the structure-strategy/conduct-performance framework. Here structure, determines strategy, which leads to performance consequences. Because the structure of an industry is taken as given the aim of strategy becomes how to best position a company against the competition to win a greater share of a given economic pie. This environmental deterministic view of strategy casts strategy as a zero-sum game, where one company’s gain comes at another company’s loss.
This view of strategy was made prevalent and is best represented by competitive strategy. Under competitive strategy firms are taught to analyze existing industry conditions, and to best position themselves against the competition. Here the strategic choices for firms are to pursue either differentiation or low cost. Hence, strategy is seen as making the value-cost trade-off.
While understanding how to compete in existing market space is important, this view of strategy leaves unaddressed the critical challenge of how to redefine industry boundaries and create new market space. To learn how to go beyond competing to create new market space, this strategy module focuses on how to reconstruct industry boundaries, how to reach beyond existing demand, how to pursue differentiation and low cost simultaneously, and how to build profitable business models to succeed in new market spaces.
Here, strategy is seen as breaking the existing value-cost trade-off and thereby creating a blue ocean of uncontested market space. The aim of the strategy is not how to position a company on the productivity frontier of existing best practices, but how to shift the productivity frontier itself outwards to create a bigger economic pie. This shifts the focus of strategy from a zero-sum to a non-zero-sum paradigm. Under this theory of strategy, strategy determines structure that leads to performance consequences. Here, even an unattractive industry can be made attractive by reconstructing market boundaries through companies’ conscious efforts.
For more information on Blue Ocean Strategy see www.blueoceanstrategy.com
II. Pedagogical Approach:
This module introduces a high impact pre-tested pedagogical approach to fill this void in the field of strategy. Specifically, of the four sessions in this module, three use engaging DVD movies that take advantage of the latest advances in multimedia production, allowing professors/instructors to use conceptually rich live action cases in the classroom. All of the DVD movies focus on fascinating case settings, and are accompanied by thorough Teaching Notes that show professors/instructors how to effectively lead high-impact class discussions. The concrete benefits to professors/students of this pedagogical approach include:
- The DVD movies allow students/executives to not read about a strategic setting as in using a paper case, but to actually see the setting as an executive would. The result is a leap in fun for both professors and students, a richer understanding of the dynamics of a strategic setting, and a far more memorable and engaging learning experience. Students and executives alike have registered their delight that this pedagogical method eliminates the need to pre-read long paper cases at night, yet provides deep learning.
- The DVD movies are carefully constructed to allow for important conceptual discussions and contrasts to be made such as structuralism versus reconstructionism, demand creation versus demand exploitation, desegmentation versus segmentation, competing versus creating, strategic pricing, technology innovation versus value innovation. In this way, the DVD movies are not only practically but also theoretically rich.
- The accompanying Teaching Notes provide class questions, handouts, robust answers to each question and a list of additional questions/comments that students/executives could raise in the classroom and how these can be effectively addressed. The Teaching Notes also include the wrap up the key conceptual learning points that can be drawn from each DVD movie. In this way, professor’s/ instructor’s of every level are able to achieve strong class/teaching results from the start.
The settings of the three DVD movies are the US wine industry in the beginning years of 2000, the strategic move of Cirque du Soleil, and a historical DVD movie which looks at three representative industries across time – the auto industry, the computer industry, and the cinema industry – to explore the macro defining patterns behind market-creating strategic moves.