Higher growth is a key goal of companies, governments, and societies. Economic policies often attempt to attain this goal by targeting companies of certain sizes that operate in specific industries and focus on a specific business activity. This approach to policy making has considerable shortcomings and seems to be less than fully effective in increasing economic growth. We suggest a new approach to policy making that stems directly from the entrepreneurial perspective. This approach examines a successful business strategy framework – the Blue Ocean Strategy – to discover conditions for high growth. We test the propositions on empirical data for two cases of successful high-growth business, namely Slovenian gazelles and Amazon.com. The results reveal a gap between the macro level of economic policy making to achieve higher growth and the micro level of business growth. The findings call for a change in the focus of economic policies on specific size companies, industries, and business activities to intraindustry cooperation, collaboration between companies of different sizes, value innovation, and creation of uncontested markets.
Today, most governments recognize that entrepreneurial activity and innovation are important elements of economic policy. The idea of a positive relationship between innovation and entrepreneurship on the one hand and economic growth on the other hand has endured in economic thought ever since Schumpeter (1942) popularized “creative destruction” as a result of entrepreneurial activity that creates new products and business models and generates long-term economic growth. The idea of stimulating economic growth by supporting entrepreneurial activity has established deep governmental commitment to provide a high level of support to small and medium-sized enterprises (SMEs) and new start-ups.
However, governments are generally ill equipped to provide detailed economic direction (Porter, 1990). A reason for this could be a lack of feedback on the results of policy interventions, as only a few studies have investigated whether the policy measures introduced indeed have the desired effect on entrepreneurial activity (Patzelt and Sheperd, 2009). Another reason is the structure of today's business context, which is changing quickly and pushes companies of all sizes and in different industries to be innovative and to constantly review their processes and practices to survive in the market.
Over the past few years, the financial crisis has forced policy makers to rethink the path to economic recovery. Job creation has remained a primary policy concern. This means that economic policies mostly target companies of a specific size, in particular SMEs and new companies. This policy direction seems somewhat reasonable because it provides a quick solution to increase employment, re-establishes active participation in the labor market, and reduces negative social effects of job loss. However, the creation of low-added-value jobs works only in the short run, as it more or less postpones any problems to a later time. A strong focus on employment growth seems to imply that existing government policies may be less than fully effective in increasing economic growth. Evidence for this also comes from an analysis of sources of economic growth in the European Union since the mid-1990s and a comparison to the United States (Timmer et al., 2011). To explore this room for improvement, our study compares existing policy-making initiatives with the characteristics of high business growth, and it introduces a new approach to policy making. We investigate the value of an entrepreneurial perspective on opportunities in the business environment for the foundation of economic policy.
The article begins with a brief overview of the sources of economic growth that have been targeted by instruments of economic policies. It continues with shortcomings of current policy-making approaches and proposes a new approach based on a business strategy called the “Blue Ocean Strategy” (BOS). The BOS is a successful example of executing change as a crucial source of high business growth (Tushman and O’Reilly, 1997), in contrast to conventional strategy models that are explicitly or implicitly based on stability rather than change. The propositions derived from the BOS framework are then analyzed via two cases, Slovenian gazelles and Amazon.com. These successful cases of high business growth serve as benchmarks to determine how congruent their characteristics are with BOS characteristics. In the final section of the article, we discuss our findings to see how policy makers can learn from the BOS framework, we report the limitations of our study, and we present directions for future research. Our recommendations are primarily intended for policy makers. Companies can use the BOS directly, as it is a framework created for them, but they can also benefit from understanding the implications of its use for policy makers.
This article has sought to challenge some well-established premises of economic policies, namely what companies are the targets of such policies and what is being supported and stimulated to achieve high growth. To be more specific, is it appropriate for current economic policies to focus on SMEs and start-ups, high-tech industry, and patents? Our research based on companies that excelled in growth suggests that such policies might not lead to desired outcomes. A different perspective on how to achieve high growth comes from the business world itself; it is based on the valuable contribution of a specific business strategy, the BOS, to today's business. Our research thus tested four propositions arising from the BOS framework.
The first proposition, that companies creating blue oceans grow faster, received only partial support. Rather, our research suggests that the key to high growth is not to create a new market but to be the first to develop and exploit that market. This is most evident in the case of Amazon.com, which was not the first in the market but was the first to truly develop and exploit it; Computer Literacy Bookshops and Book Stacks Unlimited had a significant advantage in the marketplace but could not fight off Amazon.com. The search for unexploited blue oceans therefore appears to open up the same opportunities for a company as creating blue oceans from scratch.
Second, our results greatly challenge the premise that industry strongly influences growth. Fast-growing companies are found in a variety of industries. Slovenian fast-growing companies are players in several industries that are not related to high technology; they create an important part of total value added and achieve this with a high net value added per employee. Congruent with the BOS, companies working at the borders of industries seem to achieve higher added value per employee. The results also showed that companies can successfully focus on their competencies to enter completely new markets and not limit themselves to the industry they are in. This implies that policy makers should reconsider technology clusters in favor of intraindustry cooperating companies. A more diversified environment increases the probability of successfully combining core competencies in different configurations by offering a greater number and variety of unsolved challenges, as well as a much wider pool of expert knowledge and other resources to create new markets.
Third, our findings suggest that value innovation is as important as technology innovation. By this, we do not suggest that policy makers should move away from a technology focus and substitute it with a value focus. Amazon.com built its value innovations on continuous improvements to technological solutions, but we found that Amazon.com has managed to position itself as the leader in the Web services business by developing new innovative ways to serve the customer. We also found that technology was not the main factor that influenced the growth rate of gazelles when compared to the remaining companies. This finding suggests that value creation deserves a higher position on the priority list of policy initiatives and that companies can achieve high growth regardless of whether they patent their products and technology.
Fourth, the focus of economic policies should move from SMEs to cooperation between different-sized companies. “Small is cute” is an attractive strategy, but it is not necessarily an effective one. Although our results showed that there are differences in the net value added per employee between small companies and other fast-growing companies, the threshold greatly influences those differences. In terms of impact on the total value added, one should locate the threshold somewhere between the size that is typically used for micro and small companies, not between middle and large companies as we might expect. But when we consider putting the threshold for a small company between 10 and 20 employees, the impact of so defined small companies on the overall growth rate is much less than is typically believed. The share of generated value added drops rapidly as the number of employees is reduced. These companies are also underrepresented in comparison with all companies, which implies that, although there is a special emphasis on them, they are still less effective in terms of becoming fast-growing companies. In terms of value added per employee, it seems worthwhile to focus on micro and small companies, but it does not seem sufficient, as they do not generate enough added value. Typical arguments in favor of SME-supporting policies are that SMEs generate the highest growth and the most new jobs, they are a prerequisite for developing larger companies, they are more flexible and therefore can reposition faster, and they have lower sunk costs and thus can achieve higher growth. Nevertheless, large companies also have important advantages, such as a pool of resources, capital, and market position. We therefore suggest focusing on efforts that combine the characteristics of small companies with the competencies and resources of large companies. Open innovation theory (Chesbrough et al., 2006) offers approaches that could be harnessed to create a new generation of policies that enable cooperation between companies of different sizes.
As with any research, these findings must be interpreted taking into account the study's scope and limitations. One limitation is the use of quantitative data only for Slovenian companies, as the Slovenian economy is small and young, with relatively smaller companies. Moreover, focusing the analysis on one year might introduce some bias. For example, the data are from the time of the peak of the real estate boom. Although the conclusions are not context dependent, we cannot fully exclude the impact of context on the results. Another limitation of the research reported in this paper is that it does not measure the effects of the proposed approaches, but this was beyond the scope of the study.
These limitations suggest several possibilities for future research. Further research is needed on the operationalization of the ideas and concepts presented in this article. This could then serve as a basis for creating new, more relevant indicators that are currently missing. This data support would provide better grounds for testing the appropriateness of different governmental policies in different contexts, including different phases of business cycles, different levels of country development, different industrial structures, and other country-related specifics.
The BOS is primarily relevant to companies that can use it to grow more quickly by creating unique offerings for new markets rather than by competing with rivals in existing ones. However, as our research showed, policy makers can also learn from the BOS framework to create policies that can contribute to higher business growth. Implications of our research are primarily intended for policy makers, but companies can also find the results interesting in terms of how to approach their strategy to achieve higher growth. In the end, we did not aspire to develop operationalized policies but to give insights into the foundations on which successful policies can be developed.
