Implementation of the Blue Ocean Strategy Using Simulation: Firm-Level Evidence from Russian Steel Market

Abstract

This paper reports a methodological approach to quantitatively assess the effectiveness of the Blue Ocean Strategy in the Russian steel market that makes the competition irrelevant. Based on the simulation method, qualitative and quantitative dependencies are determined between firm economic performance and the implementation of the Blue Ocean, Red Ocean, and Monopoly strategies. It is shown by the example of the Russian steel market that Blue Ocean Strategy enables to get a significantly higher level of profit for the enterprise as compared to the implementation of the Red Ocean Strategy, even in a monopolistic market. This is provided by creating innovative value, manifested in the minimization of social losses in the market, ensuring the possibility of establishing a higher market value while reducing production costs. The results of the paper may serve as an aid to the effective development of small and medium-sized businesses by providing a sound quantitative framework to quantify the value of innovation. This article gives an insight into how firms can create blue oceans of uncontested market space to prosper in the future, providing an opportunity to evaluate the effectiveness of the chosen strategy to minimize risks.