Common Strategic Approaches

Choosing Your Play: Competing vs Creating in Business Strategy

Problem

Founders hear a lot of buzzwords: “Blue Ocean”, “Porter’s Five Forces”, “competitive advantage”. But what do these strategic approaches actually mean for a small business in South Africa trying to survive and grow?

The danger is picking an approach based on hype instead of evidence or context.

Approach

The research compares two common strategic approaches (beyond emergent vs deliberate strategy):

1. Porter’s Five Competitive Forces (Porter, 2008) – focused on dominating or defending a position in existing markets:
   1. Rivals.
   2. Customers.
   3. Suppliers.
   4. New entrants.
   5. Substitutes.

   Awareness of these forces helps you understand your industry’s structure and find a more profitable, less vulnerable position.

2. Blue Ocean Strategy (Kim & Mauborgne, 2007) – focused on creating new markets:

1. “Red ocean”: crowded markets where firms fight for existing demand and profits shrink.
2. “Blue ocean”: uncontested market space, making competition less relevant by offering a leap in value while streamlining costs.

Empirical research: Blue Ocean vs Five Forces (Burke, Van Stel & Thurik, 2010):

1. Used a model dating back to Hotelling (1921).
2. Analysed profits and number of vendors for 41 shop types over 19 years (1982–2000).
3. Found that Blue Ocean-type strategies can be sustainable:
   1. In over half the cases, profits and number of firms were positively related.
   2. After controlling for external factors, profitability and vendor numbers rose and fell together.

They concluded:

1. Competition eventually erodes innovation profits.
2. But this process is slow (estimated 15+ years).
3. Combining both approaches may be wise: using competitive strategy to fund future Blue Ocean moves.

Results

We can summarise:

1. Porter: great for understanding and competing effectively in existing industries.
2. Blue Ocean: great for finding new demand and avoiding direct competition for a time.
3. Evidence suggests:
   1. Blue Ocean strategies can deliver sustained profit over long periods.
   2. Eventually competition catches up; no blue ocean stays blue forever.
   3. A mix of both approaches can be powerful.

Lessons for founders

What the research shows

1. Two major strategic planning options:
   1. Compete smartly within existing market structures (Porter).
   2. Create or discover new market spaces (Blue Ocean).
2. Empirical data indicates Blue Ocean strategies can be profitable and sustainable, but not forever.
3. A hybrid approach – competing well today while investing in new spaces – is often recommended.

What this suggests you might try in your startup

1. Map your current market with Five Forces.
   Ask:
   1. How strong are your customers (e.g. retailers, corporates) in negotiating price?
   2. How easily can new players enter your niche in South Africa?
   3. What substitute solutions do customers currently use (WhatsApp, Excel, cash)?
2. Look for “blue ocean” micro-niches.
   You don’t need to reinvent an entire industry. You might:
   1. Serve an under-served region or language group.
   2. Combine services in a way others haven’t.
   3. Change the cost structure (e.g. offer pay-as-you-go models that match local cash flow).
3. Use current business to fund exploration.
   If you’re already in a red ocean (e.g. generic agency services), use cash from that to test new, more differentiated offers.
4. Be realistic about timeframes.
   Research suggests that competitive imitation can take years. If you find a genuine niche, plan to exploit it while it lasts and keep scanning for the next move.
5. Regularly reassess your position.
   Even a blue ocean in South Africa can become crowded as others notice the opportunity. Schedule time annually to check: Are we still differentiated? Where is the next wave?