Blue Ocean Strategy of Mercedes-Benz

Introduction

The blue ocean strategy refers to a situation or a market where there is no irrelevant competition, or where there is negligible competition. The blue ocean strategy of Mercedes-Benz is focused on searching for new markets and business avenues which operate with minimal pricing pressures. The blue ocean strategy can be applied across different sectors and industries, and the businesses that exist within them. Mercedes-Benz blue ocean strategy is pivoted on entering new market spaces, or developing them as well as on innovation focused internally or externally that helps reinvent the industry to ensure no irrelevant competition (Kim & Mauborgne, 2014).

Moving away from saturated markets

The Mercedes-Benz continues to operate in saturated market spaces, and is restricted in growth and expansion. The Mercedes-Benz’s businesses often face hurdles in the way of development and are also faced with increasingly intense pricing pressures- and are thus said to operate in a red ocean. A red ocean is marked with cut-throat competition and pricing wars that compromise the profits for all players. Pressures in saturated markets along with narrow growth spaces had forced the Mercedes-Benz to search for new avenues – vertically or horizontally – to be able to enjoy higher market shares, and swim in blue oceans (Kim & Mauborgne, 2014).

Blue ocean strategy and differentiation

New industry boundaries

As companies and organizations move towards blue oceans, they redraw and redesign industry boundaries. This is possible through innovation and creativity. The Mercedes-Benz also explores new platforms and channels, as well as means of doing business and is thus able to expand existing industry boundaries. The Mercedes-Benz has also been able to show the potential of developing new industries through its innovations – by identifying new spaces and making the competition irrelevant (Agnihotri, 2016).

Differentiation

The Mercedes-Benz has focused on differentiation under the blue ocean strategy. The Mercedes-Benz’s efforts towards differentiation are focused on creating unique value for the customers in its product and service offerings (Agnihotri, 2016; Blue Ocean Strategy, 2022).

Cost efficiencies and low cost

Under blue oceans, the Mercedes-Benz also focuses on maintaining affordability for the value additions and differentiated products and services that it offers. The Mercedes-Benz commonly continuously reevaluates and reassesses its own processes and systems to maintain high-cost efficiencies (Freedman, 2022).

Value innovation – value addition and low-cost maintenance

In doing so, the Mercedes-Benz has been able to explore blue oceans through value additions as well as affordability for consumers. The Mercedes-Benz has been able to successfully identify what consumer’s value and include it in its offerings and value propositions. At the same time, the Mercedes-Benz has been able to provide the value differentiation at affordable costs. In this manner, the Mercedes-Benz enjoys high levels of value innovation (Kim, 2002; Kim & Mauborgne, 2014).

Understanding red oceans

Under red oceans, where the Mercedes-Benz previously operated, all layers had accepted the predefined structures and boundaries of the industry, and had continued to operate as well as compete within these (The Economic Times, 2022).

Cut throat competition

To be able to remain profitable and successful, players, including the Mercedes-Benz within red oceans, focused efforts on developing and maintaining competitive advantages over one another, and other players. This advantage was largely cost-based, as in the case of the Mercedes-Benz. In this way, wealth was only redistributed at the expense of other players, and the Mercedes-Benz failed to create any new wealth in the red oceans (Kim & Mauborgne, 2005).

Understanding blue oceans

Under the blue ocean strategy, the Mercedes-Benz operates in an industry and market space that is not marked with set boundaries or structures. These blue ocean structures have been recreated by the Mercedes-Benz at large, as well as by other players. Other players have also contributed to the restructuring of the industry through innovation (Kim & Mauborgne, 2014).

Restructuring industrial boundaries under the blue ocean strategy

Under the blue ocean strategy, the Mercedes-Benz is not restricted by predefined rules, barriers, and principles. Instead, the Mercedes-Benz has been able to shift its strategic direction and attention from focusing on supply towards working on developing and creating demand (Blue Ocean Strategy, 2022). The Mercedes-Benz, in this manner, is focused on the building of value innovation in its offerings, along with ensuring efforts towards building and maintaining differentiation and cost-effectiveness. In this way, the Mercedes-Benz has been able to immaterialize the competition (Kim & Mauborgne, 2017).

Strategic directions for blue oceans

The Mercedes-Benz has four different strategic directions, which it can choose from four continuing to pursue its blue ocean strategy. All of these strategic directions will strengthen the company’s current business position and will supports its strategy of value addition and cost efficiencies, as well as differentiation – allowing it to develop strong and sustainable market positions. These directions are

Raise

• The Mercedes-Benz should assess and evaluate the current industry standards and practices.

• The Mercedes-Benz should identify loopholes, and areas which can be improved, expanded upon, or developed a new within the industry.

• The Mercedes-Benz should identify different drivers and factors within the industry boundaries.

• The Mercedes-Benz should identify through research and observation the different factors that could raise above the existing industry standards (Kim, 2002; Kim & Mauborgne, 2017).

Eliminate

• The Mercedes-Benz should assess and observe current industry standards.

• The Mercedes-Benz should observe players’ practices within the industry, and relate the same with the industry standards.

• The Mercedes-Benz can identify the standards which are not needed, which are obsolete, and which may slow down operations and processes.

• These standards can be eliminated in own operations by the Mercedes-Benz (Kim & Mauborgne, 2014; Freedman, 2022).

Reduce

• The Mercedes-Benz can also assess an observe industry standards for identifying factors that are not needed, or needed partially.

• The Mercedes-Benz can work on reducing these standards to enhance operational performance and maximum utilization of resources as well as value addition (The Economic Times, 2022; Kim & Mauborgne, 2014).

Created

• The Mercedes-Benz can also expand current industry boundaries and standards.

• This expansion will be possible by the Mercedes-Benz through expanding and creating new standards.

• The new standards can be created by the Mercedes-Benz through observing industry processes and operations, and identifying potential loopholes.

• The Mercedes-Benz can introduce new processes and standards to redesign industry boundaries (Agnihotri, 2016; Kim & Mauborgne, 2005).

Blue ocean strategy: organizational competencies

The Mercedes-Benz has been able to successfully implement the blue ocean strategy because of three important organizational elements (Freedman, 2022). These organizational elements have allowed the Mercedes-Benz to explore blue oceans, experiment successfully with innovation, and add value to its product offerings. These elements include the following:

Mindset

• The Mercedes-Benz has a progressive mindset that is rooted in this participative and visionary leadership (Bratton, 2020).

• The Mercedes-Benz has a positive and can-do attitude and mindset.

• This mindset has allowed the Mercedes-Benz to achieve success through high focus and efforts (Wilson, 2018).

• The Mercedes-Benz has high motivation levels of employees – which enhances the optimal performance of the organization and has allowed it to explore Blue Ocean through creativity (Kim & Mauborgne, 2017; Kim & Mauborgne, 2005; Wilson, 2018).

Tools

• The Mercedes-Benz has access to multiple resources that has allowed it to take advantage of the blue ocean strategy (Mebert & Lowe, 2017).

• These resources Mercedes-Benz capabilities are internal as well as external for the Mercedes-Benz.

• The Mercedes-Benz has also invested resources and trainings for developing internal capabilities and capacities for ensuring upgraded skills and increased value addition (Buchanan & Huczynski, 2019; Chernev, 2018).

Culture

• The Mercedes-Benz has a learning culture, and encourages all employees to ask questions and carry out healthy discussions (Anthony, 2021; Schein, 2010).

• The Mercedes-Benz has a culture that is focused on research and development, which in turn leads to new innovations and solutions for existing demands and challenges (Wunder, 2019).

• The Mercedes-Benz has an inclusive and diverse culture, which leads to increased synergies that allow the development and implementation of blue ocean strategies easily (Wilson, 2018).

Using the blue ocean strategy effectively: steps for successful implementation

The Mercedes-Benz has developed the blue ocean strategy following systematic and organized processes and steps (Kim & Mauborgne, 2017). The steps that the Mercedes-Benz undertook for developing the blue ocean strategy include:

Step1

The Mercedes-Benz conducted thorough market and industry research to identify the right place to work towards developing a core team (Kim & Mauborgne, 2014; Freedman, 2022). This core team was responsible for driving Mercedes-Benz forward strategically towards new value additions and differentiations (Blue Ocean Strategy, 2022; Kim & Mauborgne, 2017 b).

Step2

The Mercedes-Benz continued to conduct deep market analysis as well as studied and assessed the competition closely. This was needed by the Mercedes-Benz to identify potential opportunities, and demand gaps in the existing industry as well as potential structural changes in the existing industrial boundaries (Blue Ocean Strategy, 2022).

Step3

The Mercedes-Benz’s assessment of the macro environment, and the market spaces allowed it to also identify the challenges and issues hidden in the current industry structure and design (Machado, 2019; Kim & Mauborgne, 2017 b). These issues and problems have restricted the industry size, and led to restrictive growth for the Mercedes-Benz. The Mercedes-Benz was also blue to identify new non-customers in this assessment- which could be turned into future consumers (Blue Ocean Strategy, 2022).

Step4

The Mercedes-Benz worked to redesign and reconstruct the industry boundaries and structures in a systematic manner. This was done through identifying new opportunities, as well as through exploring new innovations and valuations in existing offerings (Blue Ocean Strategy, 2022).

Step5

The Mercedes-Benz finally elected the right blue ocean move, i.e. conducted various pilot testing’s and market testing for its new offerings before finalizing and launching them in the market to attract new consumers, and explore new markets (Blue Ocean Strategy, 2022).

Tackling challenges on the way to Blue Ocean

Restructuring and reorganizing the boundaries and structures of the industries is not that simple (Anthony, 2021; Kim & Mauborgne, 2017 b). Managers and practitioners of the Mercedes-Benz seek to renew the value of their offerings within the organization – mostly using new technologies and advances networks to not only create value propositions, but also transform existing ones (Kim & Mauborgne, 2005; Kim, 2002). However, the Mercedes-Benz has been able to overcome resistance towards change and innovation within the organization, as well as in the external environments, because of:

Organizational culture

The culture within the Mercedes-Benz supports exploration and innovation. This culture is important for supporting the development and implementation of new ideas that boost the value propositions of the Mercedes-Benz (Chernev, 2018; Bratton, 2020; Martinez, Beaulieu, & Gibbons, 2015).

Business design

The Mercedes-Benz also continually practices business design (Freedman, 2022). The Mercedes-Benz ensures that it’s leading from the font. This means that the Mercedes-Benz ensures that its teams are empowered, and confident in tackling ambiguous and difficult challenges and issues. This allows the Mercedes-Benz to identify new opportunities and innovate (Wunder, 2019).

Strong and visionary leadership

The Mercedes-Benz has a forward-thinking, progressive, charismatic leadership. This leadership ensures that the Mercedes-Benz continually engages in disruptive processes and innovations – which in turn allow the company to explore and implement the blue ocean strategy. The leadership is supportive of, and facilitates the change processes within the company (Machado, 2019).

Communication

The Mercedes-Benz ensures that all communication within the organization is transparent and quick (Chernev, 2018; Buchanan & Huczynski, 2019). The leadership and management levels have frequent meetings within the company along managerial levels (Wilson, 2018; Wunder, 2019). This allows employees to feel on board of the happenings, and be part of a change from the beginning – understanding its need and facilitating its implementation. This is critical for ensuring successful innovation and adoption of the blue ocean strategy (Anthony, 2021; Chernev, 2018; Kim, 2002).

Value innovation in blue ocean strategy

Value innovation within the blue ocean strategy focuses on value as well as innovation (Blue Ocean Strategy, 2022; Kim & Mauborgne, 2017). This means that the Mercedes-Benz seeks to innovate and create value at the same time as a means of differentiation within the marketplace to be able to implement the blue ocean strategy (Kim & Mauborgne, 2014). The Mercedes-Benz does not only engage in value creation – which focuses on scaling the existing value only instead of creating a new one (Blue Ocean Strategy, 2022; Agnihotri, 2016; Kim & Mauborgne, 2014).

Technology innovation

The Mercedes-Benz engages in value innovation through technology innovation. The Mercedes-Benz ensures that it uses advanced and progressive technology to address various consumer demands and problems as well as needs in innovative ways and manners (Kim & Mauborgne, 2005). However, the Mercedes-Benz ensures that it focuses on value innovation rather than technology innovation in its value propositions so that new value through technology is created for consumers (Kim, 2002; Wilson, 2018).

Low cost

The Mercedes-Benz also ensures affordability with value innovation. The value innovation allows the Mercedes-Benz to operate at low costs, and maintain cost efficiencies (Chernev, 2018). As a result, the Mercedes-Benz maintains low costs and high value for consumers – allowing it to tap into new consumer groups as well. As a result, the Mercedes-Benz is able to enjoy a high growth rate as well as increased sales and profits (Kim & Mauborgne, 2014).

The strategies and strategic directions for designing and implementing the blue ocean strategy have been overseen through some guiding and fundamental principles by the Mercedes-Benz. These include”

Formulation principles

Redesigning the industry

• The Mercedes-Benz sought to reconstruct, redesign and rebuild the market boundaries and standards.

• The Mercedes-Benz was bold enough to redefine the industry space and the market space in which it operated (Mebert & Lowe, 2017).

Long term focus

• The Mercedes-Benz focused on long-term success and sustainability, instead of short-term gains and numbers.

• The Mercedes-Benz was visionary, and aw beyond the existent customer demand and needs (Freedman, 2022).

Demand creation

• The Mercedes-Benz creates demand for the new value-added offerings it manufactured and proposed in the blue oceans (Kim, 2002).

• The Mercedes-Benz tapped into new customer groups and target audiences (Kim & Mauborgne, Red Ocean Traps (Harvard Business Review Classics), 2017 b).

Execution principles

Overcoming organizational challenges

Organizational culture

• The Mercedes-Benz has a result organizational culture (Martinez, Beaulieu, & Gibbons, 2015; Schein, 2010).

• The Mercedes-Benz invests in research and development.

• The Mercedes-Benz is quick to adapt to change and has a disciplined change management team to oversee change processes (Chernev, 2018; Kim & Mauborgne, 2014).

Environmental assessment

• The Mercedes-Benz continually assesses its internal and external environments and creates contingency plans (Chernev, 2018; Machado, 2019).

• The Mercedes-Benz engages in pre-strategic planning to help strengthen its strategic focus and direction (Wilson, 2018; Kim & Mauborgne, 2017 b).

Leadership

• The Mercedes-Benz has a visionary leadership (Bratton, 2020).

• The leadership at the Mercedes-Benz has a participative approach which encourages employee motivation and their organizational commitment.

• The leadership ensures optimal organizational performance at the Mercedes-Benz (Freedman, 2022; Kim & Mauborgne, 2005).

Developing execution strategy

• The Mercedes-Benz has developed a sequential strategic direction for execution.

• The execution of the blue ocean strategy is based on market research (Anthony, 2021).

• The execution of the blue ocean strategy has been carefully planned to ensure that it’s timely.

• The execution involves all parts and members of the Mercedes-Benz (The Economic Times, 2022; Kim, 2002).

Blue ocean strategic Tools

The Mercedes-Benz has been able to use multiple operational and strategic tools.

Shift in organizational mindset

These tools kits have been important for the Mercedes-Benz in helping it develop the right mindset needed for aligning processes and systems towards the blue ocean strategic direction (Kim & Mauborgne, 2017 b). The tools have been a powerful source for the Mercedes-Benz in facilitating it towards aligning its resources, and identifying potential blue oceans (Kim, 2002). The Mercedes-Benz has been diligent in ensuring that its teams and organizational members are familiar with the blue can strategies and tools so that the shift in their mindset is facilitated and strengthened (Wunder, 2019).

Cultural driver

Moreover, the tools also ensure increased alignment of the Mercedes-Benz’s culture with the strategy. This, in turn, has allowed the Mercedes-Benz to realize the increased number of opportunities, and embed creativity in its internal processes and systems (Kim, 2002; Buchanan & Huczynski, 2019).

These tools include, for example:

• Value innovation

• Six path framework

• Strategy canvas

• Four action framework

• Tipping point leadership

• ERRC Grid

• Pioneer settler migrator map

• Buyer utility map

• 3 tiers of non-customers

• Fair processes

• Visualizing strategy (The Economic Times, 2022)

Conclusion

With the use of the blue ocean strategy, the Mercedes-Benz has been able to redesign the industrial boundaries and standards using multiple techniques and tools that have been identified and discussed briefly in this paper.

The blue ocean strategy has been an important strategic element for the Mercedes-Benz. The Mercedes-Benz has been able to explore new markets and tap into new customer groups through using the blue ocean strategy. This has been possible for the Mercedes-Benz through continuous investment in research and development as well as through its organizational cultural, which is focused on innovation and creativity. The Mercedes-Benz has been able to make use of innovative processes and progressive technology to create value innovation. At the same time, the Mercedes-Benz has moved out of red oceans and no longer competes over pricing strategies. This has also allowed Mercedes-Benz to build a cost advantage, and maintain affordability in its offerings for customers.

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