Back in 2004 INSEAD’s W. Chan Kim and Renée Mauborgne published their hugely influential book Blue Ocean Strategy, in which they popularize the concept of seeking unknown market spaces that are untainted by competition. They reason that when demand is created rather than fought over it creates rich possibilities for profitable and rapid growth.

At the heart of the strategy is differentiation, which is also something strongly advocated by new research from the Universities of Göttingen and Groningen, which highlights the importance of uniqueness in terms of corporate strategy.

While one would imagine that unique strategies would be regarded positively, however, they find that the capital markets often react negatively to such unique strategies.

Deviating from industry norms

The research shows that when companies deviate from industry norms, it makes them that bit harder to evaluate, which is not something welcomed by the financial community.  This in turn can often put companies off of following such unique strategies, even when this is actually better for them in the long-term.

It’s something the researchers refer to as the “uniqueness paradox”, and they explore the issue through the lens of investors and their influence on the strategies companies employ.  They analyzed data from around 900 listed companies in the US over a twelve-year period.

The analysis underlined the influence investors have on the strategy chosen by organizations, with investors such as pension funds particularly influential.  That these investors typically take a long-term look at the companies they invest in offers a degree of hope, as they could advocate for a more unique strategy to be followed.

“They are more likely to encourage management to implement these strategies,” the researchers say. “This is especially true for industries where companies are more difficult for the capital market to assess because, for example, corporate profits vary widely.”

The researchers believe a number of key conclusions emerged from their study.  Firstly, it’s vital that companies communicate effectively with investors about their strategy and the reasons for it.  This is especially so if it’s markedly different from rivals in their industry.

It’s also vital that investors appreciate the role they play in supporting the strategy adopted by the companies they invest in and how a long-term approach can be beneficial for all concerned.  As such, they can take a more active role in the companies they invest in rather than the passive approach adopted by so many funds today.