Charting the Course: Frameworks for Strategic Choice

and Growth
Once a firm has analyzed its external environment and its internal resources, it must make
choices about how it will compete and grow. This section explores two influential frameworks
that guide these strategic choices: Blue Ocean Strategy, which focuses on creating new market
space, and the Ansoff Matrix, which outlines pathways for business expansion.
3.1. Subsection: Creating New Frontiers: The Blue Ocean Strategy
3.1.1. Core Concept: Red Oceans vs. Blue Oceans

The Blue Ocean Strategy framework presents a powerful alternative to traditional competitive
strategy. It categorizes the market universe into two distinct types of spaces: red oceans and
blue oceans.
 Red Oceans represent all the industries in existence today—the known market space. In
red oceans, the industry boundaries are clearly defined and accepted, and the
competitive rules of the game are well understood. Here, companies strive to outperform
their rivals to capture a greater share of existing demand. As the market space becomes
increasingly crowded, competition intensifies, turning the ocean "bloody" with rivalry,
which in turn reduces prospects for profit and growth.
 Blue Oceans, in contrast, denote all the industries not in existence today—the unknown
market space, untainted by competition. In blue oceans, demand is created rather than
fought over. This creates ample opportunity for growth that is both highly profitable and
rapid. In blue oceans, competition is made irrelevant because the rules of the game are
waiting to be set.
The core argument of the framework is that the dominant focus of strategy work over the past
few decades has been on red ocean, competition-based strategies. The imperative for future
growth and high performance, however, lies in the ability of firms to create blue oceans.
3.1.2. The Principle of Value Innovation

The cornerstone of Blue Ocean Strategy is value innovation. This is the simultaneous pursuit
of differentiation and low cost, which results in the creation of a new, uncontested market
space.
This concept represents a direct challenge to one of the central tenets of traditional competitive
strategy, particularly the Porterian view of "generic strategies." The traditional view holds that
firms face a fundamental trade-off: they can choose to be a low-cost producer or they can
differentiate their products, but they cannot do both simultaneously. Attempting to do so, the
argument goes, leads to being "stuck in the middle," failing to achieve either advantage.
Value innovation rejects this trade-off by arguing that it is possible to align innovation with utility,
price, and cost positions. Instead of focusing on beating the competition, firms should focus on
making the competition irrelevant by creating a leap in value for buyers and the company itself.
Value innovation is achieved by strategically answering a new set of questions: what to
eliminate and reduce, and what to raise and create, in order to reconstruct buyer value
elements.
3.1.3. The Four Actions Framework

The Four Actions Framework is the practical, analytical tool used to create value innovation
and break the cost-differentiation trade-off. It challenges a company to reconsider the long-held
assumptions of its industry by asking four key questions:
  Eliminate: Which factors that the industry takes for granted and has long competed on
should be eliminated? These factors are often assumed to be necessary but may no
longer hold value for customers.
 Reduce: Which factors should be reduced well below the industry's standard? These are
often features that have been over-designed or over-served in the race to match and beat
rivals, adding cost without a corresponding gain in buyer value.
 Raise: Which factors should be raised well above the industry's standard? This involves
uncovering and enhancing the key elements that buyers truly value but that the industry
has not adequately addressed.
 Create: Which factors should be created that the industry has never offered? This
involves discovering entirely new sources of value for buyers and creating new demand.
By acting on these four questions, companies can systematically reconstruct market boundaries
and create a new value curve for their offerings.
3.1.4. Detailed Example Analysis: Cirque du Soleil

Cirque du Soleil is the quintessential example of a company that successfully created a blue
ocean, fundamentally redefining the circus industry. Instead of competing with established
players like Ringling Bros. and Barnum & Bailey within the existing red ocean of the traditional
circus, Cirque du Soleil created a new market space between circus and theatre. This can be
clearly analyzed using the Four Actions Framework:
 Eliminated: Cirque du Soleil eliminated several of the most costly and controversial
elements of the traditional circus. It did away with star performers, who commanded high
salaries, and animal shows, which were not only expensive but also a growing source of
public concern and protest. It also eliminated aisle concessions, which interrupted the
viewing experience.
 Reduced: The company reduced the emphasis on traditional circus elements like broad
"fun and humor" and overt "thrill and danger." While acrobatics remained, they were
reframed within an artistic context rather than as pure death-defying spectacle.
 Raised: Cirque du Soleil significantly raised the uniqueness of the venue. It abandoned
the cheap circus tent in favor of a luxurious, theatre-like environment with comfortable
seating and a sophisticated ambiance. This allowed it to command premium, theatre-level
prices far exceeding what a traditional circus could charge.
 Created: The company created several new elements never before seen in a circus. It
introduced a theme and a storyline to each production, giving it an artistic narrative arc.
It incorporated sophisticated artistic music and dance, and a refined viewing
environment. These elements, borrowed from the world of theatre, created a new, more
elegant and artistic form of entertainment.
By taking these actions, Cirque du Soleil created a form of entertainment that was
simultaneously like a circus and unlike a circus. It appealed to a whole new group of customers:
adults and corporate clients who were willing to pay a premium for a sophisticated evening out,
a demographic that had long since abandoned the traditional circus.
3.1.5. Deeper Implications of Blue Ocean Strategy

The Blue Ocean framework offers a profound shift in strategic thinking. First, it presents a direct
challenge to the primacy of Porter's Five Forces. The Five Forces framework is fundamentally
about understanding the existing industry structure and positioning a firm to best defend itself
and succeed within that structure. Blue Ocean Strategy, in contrast, is about making that
structure irrelevant. The Four Actions Framework is a tool for systematically changing the
structure of an industry. By creating a new market space, a company like Cirque du Soleil
effectively sidestepped the forces that governed the traditional circus industry. The intense
rivalry with Ringling Bros., the bargaining power of star performers, and the concerns of animal
rights groups (a social force) were rendered irrelevant to its own success. This positions Blue
Ocean Strategy as a "reconstructionist" view of strategy, where the goal is to reshape the
environment itself rather than merely reacting to it.
Furthermore, there is a powerful link between a successful Blue Ocean move and the creation
of VRIO resources. The unique combination of elements that Cirque du Soleil created—its
artistic production capabilities, its brand reputation for sophisticated live entertainment, its
unique creative culture—became a set of valuable, rare, and inimitable resources. These new
capabilities were inimitable for both traditional circuses, which lacked the artistic and theatrical
know-how, and for traditional theatre companies, which lacked the acrobatic and large-scale
logistical expertise. The social complexity and causal ambiguity of Cirque's creative process
made it exceptionally difficult to copy. Therefore, the Blue Ocean strategy can be seen as the
mechanism through which new VRIO resources are forged, leading to a powerful and sustained
competitive advantage. This provides a crucial link between the strategic choice to create new
markets and the internal foundations of long-term success.
3.2. Subsection: Pathways to Expansion: The Ansoff Growth Matrix
3.2.1. Core Concept: A Framework for Growth

While Blue Ocean Strategy offers a paradigm for creating new markets, firms also need a
structured way to think about more conventional growth paths. The Ansoff Growth Matrix,
developed by H. Igor Ansoff, is a classic strategic tool that helps businesses plan and decide on
their product and market growth strategy. It presents four distinct strategic options based on the
combination of existing versus new products and existing versus new markets.
3.2.2. In-Depth Elaboration of the Four Quadrants

The matrix is a 2x2 grid that outlines four primary growth strategies, each with a different level of
associated risk.
 Market Penetration (Existing Products, Existing Markets): This is the strategy of
increasing sales of existing products to the firm's existing markets. The objective is to
increase market share. Tactics can include encouraging existing customers to buy more
frequently, launching promotional campaigns to attract customers from competitors, or
finding new users for the product within the current market segment. This is generally
considered the least risky of the four strategies, as the firm is operating with known
products in a known market.
 Market Development (Existing Products, New Markets): This strategy involves taking
a company's existing products and selling them in new markets. These "new markets" can
be defined in several ways, such as new geographical areas (e.g., expanding from a
regional to a national level, or entering international markets) or new demographic or
psychographic segments of customers. This strategy carries more risk than market
penetration because the firm is entering unfamiliar customer territory.
 Product Development (New Products, Existing Markets): This strategy focuses on
developing and launching new products to serve the company's existing, well-understood
customer base. This approach often leverages a strong brand name, deep customer
relationships, and established distribution channels. The risk here lies in the uncertainty of
new product development and acceptance.
 Diversification (New Products, New Markets): This is the strategy of entering new
markets with new products. It is by far the riskiest of the four strategies because it
requires the firm to operate outside of its core competencies in both product and market
knowledge. Diversification can be related, where the firm enters a new business that has
some linkage to its existing business (e.g., leveraging a common technology or
 distribution channel), or unrelated, where it enters a completely new field with no obvious
connection to its current operations.
3.2.3. Detailed Example Analysis: Starbucks

The historical growth trajectory of Starbucks provides clear examples of initiatives within each of
the four Ansoff quadrants.
 Market Penetration: Starbucks has consistently pursued this strategy by opening more
stores in cities where it already has a strong presence, effectively saturating the market. It
also uses its Starbucks Rewards loyalty program to encourage more frequent visits and
higher spending from its existing customer base.
 Market Development: A key pillar of Starbucks' growth has been its aggressive
international expansion, taking its existing coffee shop format and product line into new
geographical markets like China and Japan. This is a classic market development
strategy.
 Product Development: Starbucks constantly introduces new products to its existing
customers in its existing stores. Examples include the launch of its Via Ready Brew
instant coffee, the sale of branded coffee machines and tumblers, and the continuous
expansion of its food offerings beyond simple pastries.
 Diversification: Starbucks has also pursued diversification, albeit with mixed results. Its
acquisition of Teavana was a move into a new product category (loose-leaf tea) and
aimed at a new market segment (dedicated tea drinkers who may not frequent coffee
shops). Similarly, the "Starbucks Evenings" initiative, which involved selling wine and beer
in some stores, represented a new product category aimed at capturing a new usage
occasion and market (the evening social crowd).
3.2.4. Deeper Implications of the Ansoff Matrix

The simple 2x2 structure of the Ansoff Matrix conceals important strategic nuances. First, there
is an implicit but critical third dimension to the matrix: risk. As a firm moves diagonally from the
top-left quadrant (Market Penetration) to the bottom-right (Diversification), the level of risk
increases substantially. Market Development introduces market risk—the uncertainties of
understanding new customer behaviors, navigating different cultural norms, and dealing with
unfamiliar regulatory environments. Product Development introduces product and technical risk
—the challenges of designing, manufacturing, and marketing a new offering successfully.
Diversification combines both market and product risk, making it an exponentially more
dangerous and complex endeavor. Visualizing the matrix not as four equal boxes but as a "risk
gradient" helps strategists appreciate the profound trade-offs involved. The choice is not simply
about which box to enter, but about understanding, mitigating, and managing the associated
level of risk.
Second, the Ansoff Matrix helps to clarify the crucial distinction between different levels of
strategy within a large organization, namely business-level strategy and corporate-level
strategy. Business-level strategy, which is the primary focus of frameworks like Porter's Five
Forces and the RBV, asks the question, "How should we compete in this particular business?"
For Starbucks, this would involve questions about how its coffee shops can win against
competitors like Dunkin' or local independent cafes. Corporate-level strategy, on the other hand,
asks, "What businesses should we be in?" The Ansoff Matrix, especially its Market
Development and Diversification quadrants, is a quintessential corporate-level tool. It helps
senior executives at a company like The Walt Disney Company decide whether to expand its
theme park business to a new country (Market Development) or to acquire a streaming service
like Hulu (a form of Related Diversification). This distinction is fundamental to understanding
how strategy is formulated and managed in complex, multi-business corporations.
Section