Blue Ocean authors W. Chan Kim and Renée Mauborgne have an article in this month’s Harvard Business Review discussing market re-structuring based on strategic decisions. In this post I will discuss how their new ideas can be applied in an open source ecosystem to restructure the marketplace.
Background: What is blue ocean strategy?
Kim and Mauborgne identify two kinds of oceans: red oceans and blue oceans. Red oceans are current markets. Competition exists and players must fight to carve out a share of the market in order to create value. Blue oceans on the other hand are undiscovered markets. Markets with no competition and low cost of entry. By looking for niches parallel to their current markets, organizations can discover blue oceans in order to create and capture a large share of a new market. Blue ocean strategy is based on a finance theory called endogenous growth. Endogenous growth theory states that strategies which promote innovation and openness will result in growth, and that organizations have the ability to change the market they operate in.
Structuralist & reconstructionist strategies
Two strategies identified as ways to create value for an organization are the structuralist strategy and the reconstructionist strategy. In structuralist strategy an organization believes the market they compete in cannot be changed, so in order to create a competitive advantage they must compete on price (low cost strategy) or charge more for more features (differentiation strategy). A reconstructionist organization on the other hand changes the market they compete in so that they are able to differentiate and offer the lowest cost.
Kim and Mauborgne state that for either of the strategies to be successful three key propositions must be aligned. These propositions are:
the value proposition used to attract buyers, the profit proposition which enables an organization to use the value proposition to make money and the people proposition which motivates employees to execute the strategy according to plan.
Application to open ecosystems
So how does the reconstructionist strategy apply to open source ecosystems? Organizations can leverage the strategy in order to differentiate and offer the lowest cost which will give them a significant competitive advantage. To be effective, the three strategy propositions must be aligned so that both the organization and the end user benefits and so the employees are willing to execute the strategy correctly.
Open ecosystems are able to present and attractive value proposition to the market due to their openness, ability to innovate (through niche creation) and ability to keep costs and process at a minimum. Due to the use of open source offerings and processes, members of open ecosystems have the ability to deliver offerings at reduced costs. These cost reductions, coupled with innovative new offerings create a strong profit proposition. The people proposition may differ across the ecosystem as some of the employees are paid members of corporate organizations and others are open source committers, donating their time for the sense of pride they receive.
A reconstructioniststrategy is not always best, however in entrenched markets where a new-comer or someone with less resources than the market leader is trying to break-in, the reconstructionist strategy may allow a nimble and innovative organization to gain the lion’s share of the market. Aligning the value, profit and people propositions will allow innovators to create a competitive advantage by differentiating and offering the lowest cost to the customer.
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