Unlike traditional models that focus on methods by which a firm survives within competitive fields, Blue Ocean looks to uncontested market-space and industries not yet in existence. The strategy of Blue Ocean is to avoid competitive fields altogether by moving into unknown market space with the theory that demand is created, not fought over. Blue Ocean recognizes the diminishing returns from shrinking red-ocean spaces that represent limited terrain and the need to beat an enemy to succeed. Red ocean strategy is a market-competing strategy, while blue ocean strategy is a market-creating strategy. Specifically, Blue Ocean rejects the fundamental tenet of conventional strategy: that a trade-off exists between value and cost. Meaning, that pursuing differentiation and low cost simultaneously drives up value for customers while driving down costs.

According to Sociologist Joel M.Podolny, status is a socially constructed perception of product quality in comparison to competing products. High Status companies enjoy a reputation for superior quality, allowing for increased pricing, greater sales growth, lowered costs, and access to financing. This also produces Greater Visibility (Matthew Effect) and the need to protect corporate image, which constrains both affiliations and partnerships. Importantly, superior status reduces the reluctance of consumers to purchase a product or service when there is uncertainty about a new product or service. An important distinction of high vs. low status companies is a greater willingness to take risks by high status, and less so by middle status companies. Middle status experiences a conservatism generated by lower security; fears of losing limited reputation generates a lack of confidence in terms of risk. Middle status companies are constrained by conformity. Middle-status actors must conform to expectations in order to avoid risking their standing. Whereas middle status firms are more tied to performance norms to ensure their legitimacy, high status firms have security, which equals greater freedom, to separate from market norms and increase opportunities.

There is a particular set of conditions that best indicates a firm’s willingness and ability to adopt Blue Ocean Strategy: Blue ocean is a strategic decision and as such involves risk and leadership. The creation of blue oceans, in other words, is a product of strategy and as such is a product of managerial action. Blue Ocean requires risk willingness, and is most likely to be a product of high status companies, who have the confidence to explore, and the ability to absorb a mistake should their blue ocean project fail. Regarding successful implementation, the important question is: what kind of company has the ability to successfully promote and market the “unknown?” This perhaps is where the benefits of status have significant impact. Kim & Mauborgne are clear that the traditional unit of strategic analysis- company and industry- have little explanatory power when it comes to analyzing how and why blue oceans are created. This makes it difficult to determine exactly what kind of company could or would explore or succeed in creating a blue ocean. The defining characteristics -never using competition as a benchmark and rejecting fundamental tenets of conventional strategy- are not specific to any particular kind of organization.

The question of successful implementation points to high status companies for the following reasons: new and unexplored territory- and no competition- exists, for the public, as fears and concerns of unknown products and services. A high-status company has the superior status and reputation to reduce the reluctance of consumers, when there is uncertainty about a new product or service. High-status companies have greater borrowing power, a desirable affiliation, and consumer trust; these companies can rely on the favorable social perceptions of quality to reduce consumer reluctance to purchase unknown products and services and would thus be more likely to successfully implement a blue ocean strategy, e.g. successfully market and sell the “unknown” using the reputation that comes from higher status.

 – Patrick Edward O’Toole –

According to Michael Porter, Operational Effectiveness is “performing similar activities better than rivals. Firms can reduce waste, increase efficiency, employ better technology, develop superior personnel training, and operationalize best practices, which increase operational effectiveness and superior performance. Operational Effectiveness is about performing similar activities in similar ways- leading (according to Porter), to mimicry among companies that end up looking like each other. This creates a competitive convergence since competitors can quickly imitate new techniques. “Competitors can quickly imitate management techniques, best practices, etc.” It leads in effect to firm homogeneity. In this way operational effectiveness has a homogenizing effect similar to the isomorphic mechanisms described by DiMaggio and Powell; but from different, if not opposite, intentions.

DiMaggio and Powell explain firm homogeneity through the process of isomorphism, a process of convergence within organizational and institutional fields that happens for several key reasons, one of which is called Mimetic Isomorphism. This mimetic process is defined as a “standard response to uncertainty.” It occurs when organizational technologies are misunderstood, goals are ambiguous, or the environmental landscape is uncertain. In direct contrast to operational effectiveness– which is trying to increase performance and “outdo” the competition- the nature of mimeticism is to negotiate uncertainty through imitation, and to create legitimacy via similarity to other organizational players. This is not the deliberate attempt to increase performance, e.g. create a desired differentiation from competitors, which is the intention behind operational effectiveness. Mimetic

Isomorphism is about being similar, about organizational modeling in order to remove and avoid differentiation (which is viewed as dangerous and risky). “Modeling, as we use the term, is a response to uncertainty.” Operational Effectiveness occurs intentionally, fueled by hopes of strategic distinction through superior performance (the homogenizing effects are not intentional). Mimetic Isomorphism may or may not happen intentionally, and occurs to create legitimacy through similarity but is not the product of strategic performance enhancement or a desire to distinguish the firm from its competition. It is fair to say that both processes are forms of strategy for firm survival (don’t tell Porter), but are employed (or occur) for very different reasons and under highly differentiated circumstances.

 – Patrick Edward O’Toole –

Deephouse acknowledged the institutional reality- championed by Stinchcomb, Reuf, DiMaggio and Powell- of similarity as unavoidable (isomorphism) and necessary for organizational survival (legitimacy). He is equally aware of the perspective of strategists like Porter (strategic positioning) and Barney (imperfect imitability) for whom similarity is negatively correlated with competitive advantage. Deephouse recognized that organizational performance is how a firm negotiates unavoidable institutional pressures and unavoidable competitive environments- that there is value for organizations to be both the same and to be different. Compared to the partisan “sociologist vs. strategist” dynamic we have observed with writers like Barney, Porter, and Reuf, Deephouse is aware that competition and legitimacy are equally important and valid organizational concerns (“the need for a firm to be different and the need for a firm to be the same”) that are strategic in the appropriate context, creating a tension firms must negotiate to develop strategy. “This paper addresses this tension by developing an integrative theory of strategic balance.” Deephouse recognized a trade-off between differentiation and conformity: strategic differentiation reduces competition which increases performance; but strategic conformity increase legitimacy which increases performance as well.

Deephouse referred to this as “Strategic Balance Theory”, which explains why he recommends that “firms seeking competitive advantage should be as different as legitimately possible”, a brilliant play on words that exactly combines the whole point of his theory: being different lowers competition and increases competitive advantage, but being too different creates legitimacy issues which have a negative impact. The Strategic Balance will combine the positive effects of difference (while avoiding the negative ROA of “too different)” and the positive effects of similarity (while avoiding the negative ROA of “too similar”).

Deephouse assessed the benefits of similarity (conformity) compared to the benefits of diversity (differentiation), and determined that the optimal strategic model was one that balances similarity with differentiation. This balance becomes the firms strategic advantage; the ability to be as different as possible without losing the benefits of legitimacy.