In dreams of blue oceans
Book "Strategy blue ocean. How to find or create a market free from other players" is unique work dedicated to . It vividly describes the high profitability and rapid development of companies that are able to generate effective business ideas by creating previously non-existent demand in a new market (called the “blue ocean”), in which there is practically no competition. This strategy avoids competition in low-margin markets (called the "red ocean").
The book is based on fifteen years of research, and as examples, the authors cite 150 productive strategies that have been used for 120 years in 30 industries. It was these strategies that made the overall blue ocean strategy a reality.
About authors
Chang Kim is one of the world's most renowned business consultants, professor and chair of the Department of Strategy and International Management at the French business school and research institute INSEAD, as well as a member of the board of directors of the Value Innovation Action Tank and a member of the European Union with advisory functions. Formerly a consultant international companies Worldwide. He is also the author of many articles that are devoted to the management of multinational corporations and are published in the most famous business magazines.
René Mauborgne is venerable researcher and professor of strategy and management at the aforementioned INSEAD, member of the World Economic Forum and author of a number of papers on the topic of management in international companies.
Summary of the book “Blue Ocean Strategy. How to find or create a market free from other players
The book consists of a preface, an acknowledgment section, three big parts, including nine chapters in total, a section of appendices and notes, a bibliographic list and a block dedicated to the authors.
Below we present a few interesting ideas from a book by Chan Kim and René Mauborgne.
Creating "blue oceans"
The creation of "blue oceans" can be illustrated by the example of the famous circus show "Cirque du Soleil". Initially, the company decided not to compete with conventional circus shows, but set about creating an unoccupied market segment that had no competition. The market was directed to a new target audience. The success of the circus is due to the fact that its organizers realized that in order to win in the future, it is necessary to get rid of competition.
From company and industry to strategic move
A strategic step is a set of decisions and actions of the management apparatus aimed at developing a major business proposal that can form new market.
There are no companies that are always successful. But the strategic moves that have resulted in the creation of blue oceans and the emergence of new trajectories for skyrocketing profits are remarkably similar.
Blue ocean winners and losers differ in that they each have a different approach to strategy. Those stuck in the red ocean used the traditional approach in the hope of outperforming the competition and establishing a comfortable defensive position in the prevailing market conditions. Those who created the blue oceans did not focus on other industry players - they acted on a different strategy, called value innovation, according to which both innovation and value are equally emphasized.
Reconstruction of the market boundaries
The first principle of the blue ocean strategy is the reconstruction of market boundaries, aimed at breaking out of the world of competition and creating a new industry. And, through their research, the authors were able to identify specific patterns in the process of creating blue oceans, namely: six ways to reconstruct markets.
The first way is to explore alternative industries. The second way is to study the industry's strategic groups. The third way is directed to consideration of a purchasing chain. According to the fourth way, it is necessary to study Additional services and products. The fifth path points to the analysis of the functional and emotional attractiveness of the product for consumers. And the sixth way calls to peer into tomorrow.
Focusing on the big picture, not the numbers
This principle can be called the main one when it comes to reducing the risk that is associated with. It is distinguished by the development of an alternative approach to the existing strategic planning, according to which, first of all, a strategic canvas is created. This approach leads to strategies that unlock people and help the organization consider blue oceans.
Creating a strategy canvas involves four steps:
- visual awakening
- visual study
- Visual Strategies Fair
- visual communication
Going beyond existing demand
This principle maximizes the size of the blue ocean created, which is key to value innovation. To achieve a successful result, it is necessary to overcome two traditional strategic practices - focusing on the existing customer base and striving for maximum segmentation, allowing you to adjust to differences among customers.
Follow the right strategic sequence
Once the pathways to create blue oceans have been explored, a strategic canvas has been developed to shape the future strategy, and ways to engage maximum number consumers, you can begin to create an effective business model. Its basis is the correct strategic sequence, expressed in the usefulness of the product for the buyer, price, cost and implementation.
Overcoming major organizational barriers
Companies must overcome four major hurdles.
The first is employees. Employees must be convinced that strategic change is right and necessary.
The second obstacle is limited resources. The more serious the changes in the company, the more resources are needed to implement them.
The third hurdle is. It is required to understand how key actors can be quickly and clearly motivated to change the current situation.
And the fourth obstacle is political intrigues. Here, one should take into account the attitude of officials and high-ranking officials to innovations in business.
Each case may differ in its degree of complexity, but many companies face only some of the obstacles in practice. However, it is simply necessary to be able to cope with all these difficulties in order to ensure the reduction of organizational risk.
Building the implementation process into a strategy
The organization is not only middle management. Only when the whole staff is united around the strategy and shares it in any situation, the company can stand out from the competition.
The implementation process must be built into the strategy from the outset - this ensures the faith and commitment of employees, and also motivates them to voluntarily cooperate. Only a fair process can be the main variable that distinguishes successful strategic steps in moving towards the "blue ocean" from unsuccessful ones. Depending on whether there is a fair process, the organization's actions lead to success or failure.
Conclusion
Creating blue oceans is not a one-time achievement, but a dynamic process. If a company creates a blue ocean, at some point in time imitators will appear along its path. And the question is, when exactly will they appear? In other words, how hard is a blue ocean strategy to follow? With the achievement of success by the organization and its first imitators, new players are pouring into the blue ocean.
And here arises next question: when should an organization create a new blue ocean? In order to avoid competition, you must monitor value curves on the strategy canvas. The moment your company's value curve merges with that of your competitors is an indication that a new blue ocean should be created.
The Art of Management and Future Strategies
Geoffrey Moore
momentum effect
How to survive in the "blue ocean"
Jean-Claude Laresh
To friends and family who fill our worlds with meaning
Preface to the publication in Russian
We are very pleased that the Blue Ocean Strategy has been translated into Russian and the ideas presented in this book have become available to the Russian-speaking audience. Once we happened to visit Russia. This happened at the end of the 80s, when we arrived in Leningrad, as the current St. Petersburg was still called in those years. We were surprised by the entrepreneurial spirit of those we met then, the inherent energy and desire of Russians to create new economic opportunities.
The question is: how can those doing business in Russia today put all their energy and intelligence into breaking the competition and creating blue oceans of a market space that has no place for competition? How Russian business can create products and services that provide companies with rapid profitable growth and are available to the mass buyer not only in Russia, but also in other countries of the world?
With global competition intensifying and trade barriers collapsing, answering these questions is more important than ever. The Blue Ocean Strategy book not only presents the concept itself, but also provides analytical tools and techniques that each Russian company can be applied in any field of activity - from the production of industrial products, the creation consumer goods, service delivery, retail, catering and circus performances to address this the most difficult task. Through our research over the past fifteen years, we have identified clear strategic patterns for creating blue oceans to break the vicious cycle of competitive warfare.
We invite you to read this book and apply its ideas and concepts in practice: in your company, in your enterprise. Blue oceans of opportunity lie all around us. There is no need to compete when you can turn your energy to the cause of creation.
Use the Blue Ocean Strategy to pave the way to new, high-value markets where everyone benefits: businesses, consumers, and society at large. We hope that this book will help the cause of creating a prosperous Russian economy.
Foreword
This book is dedicated to friendship, devotion and faith in each other. It was through friendship and faith that we embarked on a journey, exploring the ideas in this book, and then writing the book itself.
Our acquaintance took place twenty years ago in the classroom - one of us was then a professor, and the other was a student. And since then we have been working together, inspiring and supporting each other. This book is not a victory for an idea, but for a friendship that means more to us than any idea in the business world. Friendship has made our lives richer and our worlds more beautiful. None of us were alone.
There are no easy journeys; there is no friendship filled only with laughter. However, we met every day of our journey with joy, for we strived for knowledge and improvement. We passionately believed in the ideas presented in the book. These ideas are not for those who only dream of surviving. We have never been interested in survival. If your thoughts are only limited by them, do not read further. However, if you want to go the other way, build a company and use it to build a future where customers, employees, shareholders, and society all benefit, read on.
We do not promise you that it will be easy, but this path deserves attention.
The results of our research have confirmed that there are no companies that would not know failures, just as there is no forever successful industry. We have learned from experience that people, like corporations, are sometimes smart and sometimes not. To be more successful, we need to understand how we got the positive result and how we can replicate it systematically. This is what we call smart strategic moves, and, as we have established, the strategic move to create blue oceans is of paramount importance. blue ocean strategy aims to encourage companies to break out of the scarlet ocean of competition by creating a market niche for themselves where they can not be afraid of competitors. Blue ocean strategy proposes to move away from sharing existing – and often declining – demand with others, while constantly looking at competitors. Instead, she suggests dedicating ourselves to creating new, growing demand and moving away from competition. The book not only encourages companies to take this step, but also explains what needs to be done. First, we give you a set of analytical tools and perspectives that show you what systematic actions to take along the proposed path, and then we look at the principles that define blue ocean strategy and distinguish it from strategic approaches that are based on competition.
Our goal is to formulate and implement a blue ocean strategy that is as systematic and efficient as the competition in the red waters of the market we already know is systematic and efficient. Only then can companies take a thoughtful and responsible approach to creating blue oceans, maximizing their opportunities and minimizing risk. No company—regardless of size or age—can afford to turn into a gambler from a riverboat. Can't and shouldn't.
This book is the culmination of fifteen years of research and study of data from the past hundred years. extra years. It was preceded by a series of articles published in the Harvard Business Review and academic publications on various aspects of this topic. The ideas, models and tools presented in the book have been tested and refined in practice for many years in various corporations in Europe, the United States and Asia. The book builds on and develops this work, bringing all these ideas together in overall structure. It covers not only the analytical aspects that underlie the blue ocean strategy, but also the equally important points related to people, how to send an organization and its people along this path, how to create a desire in them to bring these ideas to life. We especially emphasize the importance of understanding how to achieve trust and loyalty, as well as intellectual and emotional recognition. Moreover, this understanding underlies the strategy itself.
The blue ocean strategy is about how a startup can create a new market and fill it with its product. Thus, at first you will not have direct competitors, and when they appear, it will be harder for them to catch up with you, because people do not like to change theirs. The first step in implementing the blue ocean strategy is to find your blue ocean.
Blue and scarlet oceans
blue oceans- these are still unknown and unoccupied areas of the market, scarlet oceans- these are existing industries in which already established companies compete (not shunning harsh methods, hence the scarlet color of the “blood” water). Accordingly, opportunities in the red oceans are severely limited. For example, there are already quite a lot of applications for creating photos with filters on the markets, so the "Instagram killers" compete in the red ocean. But it was possible at one time to create a blue ocean.
The blue ocean theory claims that the secret to its discovery is value innovation, the creation of a new product useful for the consumer using the capabilities already available to the manufacturer. In value innovation, both components are equally important: innovation without value does not solve the user problem, and value without innovation does not help you break out of the scarlet ocean of competition. Value innovation answers the question "How to get rid of competitors?". With her, you just stop playing by the rules they are used to.
An important effect of value innovation is cost reduction by eliminating most of the factors companies in the red oceans struggle to improve. For example, the Medium platform abandoned the possibility of blog customization and focused on content and its promotion within the community.
How to get a startup into the blue ocean
Reconstruction of the market boundaries
A startup needs to push the boundaries of its market and search in the following areas to find new business niches:
1. Alternative industries. The solution to the same problem is possible with the help of several means. For example, in 2006, if people wanted to watch something fun, they could go to the movies, buy a movie on disk, or open YouTube. These were all different products, but they performed the same function. The space between these substitute products and services is the best place to find a new business niche. And in 2007, Netflix took over with an online movie theater service, the ability to watch movies as easily as funny YouTube videos.
2. Strategic groups. These are groups of companies that operate in the same industry and compete on the same indicator (for example, “luxury”, environmental friendliness or cheapness). Companies from different groups usually do not pay enough attention to each other's actions, since the competition is within the group. For example, manufacturers of boomboxes relied on sound quality, and manufacturers of radio receivers - on the greatest possible compactness. Sony combined the two and opened up new business niches with its legendary Walkman, which was compact and high quality.
3. Participants in the chain of buyers. Often several people are involved in making a purchasing decision. And sometimes the product is not bought by the one who will use it. You need to determine if your company can create new value for those already involved in the value chain in one way or another. For example, home photo printers appeared because manufacturers decided to capture another link - private customers who print family photos. This is how new niches in business appear.
4. Additional products and services. Usually, products and services are not used on their own, but in combination with some accompanying goods. They have untapped value that is rarely noticed.
Now analyze functional and emotional appeal startup. Traditional business strategies involve competition on the functional side (consumer technology) in some industries, while others compete on the emotional side (tourism). You need to bring to your product an element that other companies usually discard. For example, Polaroid released the Polaroid 300 Instant Camera, which, unlike traditional cameras, is made in bright colors and looks more like a cute toy than a camera. Thus, the company was able to bring an emotional component to its product.
Focus on the big picture, not the numbers
The numbers are important, but they say little to someone who does not have a vision of the big picture. The strategic canvas of a startup is needed to paint the big picture. Perfect for this. At the same time, value innovation should be at the center of your startup. Without it, you will have to play by the rules of the red oceans - constantly improve those parameters for which there is competition. Your competitors will do the same and so it will continue indefinitely.
Here is how the value curve looks like for a blue ocean company (Southwest) compared to a scarlet ocean company:
A startup that aims to create a blue ocean does not need to compete on all fronts. He needs to identify what is truly important to users and direct all efforts towards value innovation in this indicator, casting aside the prejudices and traditional business strategies that prevail in the relevant industry.
Going beyond existing demand
The eternal question for any startup: where to get users and how to make them come back again and again (read about user retention in our article about). To maximize the size of the blue ocean, you need to expand your audience and look to those who are not your customers (we'll call them non-customers from now on). If you're still hesitant, look at Instagram or Uber - these are examples of grassroots startups that have something to offer to different groups of users.
Any company has three tiers of non-customers:
- Edge non-clients who are ready to switch to an alternative offer as soon as a worthy candidate appears. Interview them and identify the aspect that they do not like. It can often be fixed at little cost by getting customers who were already ready to leave.
- Abandoned non-customers who deliberately chose not your proposal. For example, companies did not understand the SnapChat feature for a long time and continued to use Twitter or Instagram to publish images, but after creating Our Stories (messages available after 24 hours) and Discover (creating a collection of content that lives for a day), they began to actively use snapchat.
- Unexplored non-customers do not consider your offer as an option. By identifying the reasons why they are not interested in them, you can create value for them and include them among your customers. For example, Airbnb was not interested in businessmen who prefer hotels. The startup identified the requirements such travelers have for housing (wireless Internet, smoke detectors, 24-hour check-in) and launched Airbnb for Business. This service has already been used by 5,000 companies and 50,000 of their employees.
Let's summarize. A blue ocean strategy requires a startup to:
- Refuse to compete on all factors in the industry and choose only 1-2 factors that are truly important. For example, Uber has determined that for passengers, the price and cleanliness of the car is much more important than being driven by a certified taxi driver.
- Reconstruct market boundaries using knowledge of alternative markets, strategic groups and all participants in the buyer chain.
- Do not adapt to trends, but use knowledge about them to increase the value of the product.
- Expand your market to include different groups non-customers.
Have an idea for a startup? ! We create MVP for startups and will be happy to help you.
The blue ocean strategy focuses on creating new markets during product development and improvement. The concept applied in this case is formulated in such a way as to encourage managers to focus on creating those markets that no one claims so far, that is, not contested with other participants.
In most strategic models, the emphasis is on achieving competitive advantage, i.e., the main thing in them is to find an answer to the question of how to act better than rivals. In the blue ocean strategy model, the idea of getting ahead of other market participants is not dominant. On the contrary, it highlights the fact that competition means nothing in creating blue ocean opportunities. Blue oceans, in this case, are uncontested market territories in which the company satisfies new customer needs (Kim and Mauborgne, 1997). For comparison, you can use the idea of the "red ocean", in the "waters" of which the rivals are constantly acting in such a way as to weaken each other.
| red ocean strategy | blue ocean strategy |
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The blue ocean strategy model encourages an organization to be innovative and influences what the underlying stakes are when developing a strategy. Instead of looking at competitors' performance as a benchmark, managers look beyond existing markets to find new opportunities to create new value for consumers. Without trying to directly beat rivals, managers under this option must actively develop their business and do it in such a way as to offer consumers new products and services and develop new market spaces (Kim and Mauborgne, 2005).
When to Apply the Model
Blue ocean strategy gives the process of strategic management a more pronounced focus. When applying a development strategy, the task of getting ahead of competitors is often put in the first place. This approach inevitably leads to the scenario of the "red ocean", in the "waters" of which the rivals are constantly fighting with each other, because of which they themselves weaken. In order for strategy development to focus on creating blue oceans, the management team must answer four questions (Kim and Mauborgne 1997).
- What factors that are accepted in the industry should actually be abandoned?
- What factors should be substantially reduced from industry standards?
- What factors should be significantly strengthened relative to industry standards?
- What factors that have never been applied in the industry should be created?
During this process, it is very important to focus primarily on what customers value, and not on competitors or core competencies. To do this, it is better to start from scratch. Having received answers to these questions, you can propose a completely new concept for a product or products. Thanks to this approach, the so-called value curve may appear, which shows how exactly the value of a new product differs from the value of goods and services already offered on the market (Kim, Mauborn, 1997).
With this process, you can create two kinds of blue oceans, i.e. you can propose a completely new industry or develop new opportunities for an existing industry, which will expand its strategic boundaries. Most blue oceans are created in this way.
How to use the model
The blue ocean strategy does not have a clear sequence of actions and therefore it is not so easy to implement it in practice. However, this strategy can be used to give some direction to strategic development (this can be achieved if you get answers to the questions listed above). In any case, the essence of the blue ocean strategy is determined by six key principles that can be considered guiding, and therefore they must be taken into account when managing the six main types of risk inherent, as a rule, in a new product development strategy, namely research risks, planning risks, increase risks. scale of production, risks associated with business models, organizational and management risks (Kim, Mauborgne, 2005). The six core principles that characterize the blue ocean strategy can collectively be considered a guide to its implementation and used to create unchallenged markets. Let's briefly reveal the essence of these principles.
- Delineate the boundaries of the market, i.e. identify the limits of commercially attractive "blue oceans" in which research risk is minimal.
- Pay extra attention big picture, rather than individual indicators; control planning risks by focusing on the evidence.
- Go beyond existing demand; control the risk of scaling up by generating the greatest demand for a new supply.
- Select correct sequence strategic steps; reduce the risk associated with business models, which can be achieved by betting on the creation of a reliable model focused on long-term profit.
- Overcome the main obstacles of an organizational nature; reduce the organizational risk that comes with implementing a blue ocean strategy.
- Include implementation issues in the strategy; focus on motivational aspects and use the competencies of workers in the implementation of the blue ocean strategy, as this will help you eliminate the threats of managerial risk.
conclusions
The blue ocean strategy model is essentially theoretical and may come as a revelation to many managers. However, this model primarily describes only what needs to be done (at an abstract level), but does not show how to do it. In other words, this model and the ideas associated with it are descriptive, not prescriptive or prescription. Moreover, the examples cited by Kim and Mauborgne as successful innovations that are related to this idea are considered by these authors through a “blue ocean lens” as a whole, and not based on the more rigorous measures of this model.
Although Kim and Mauborgne have made notable and valuable contributions to the strategic management literature, not all companies should use the model they proposed. A blue ocean strategy may be acceptable to many companies, but others may benefit from other strategies such as fast-tracking, cost leadership, differentiation, or focus (Porter, 1979). Of course, it is necessary to note the important discovery of Kim and Mauborn that companies can simultaneously achieve cost differentiation and low costs.
This book is about how to get out of the ocean of competition and create a new market niche for yourself. The blue ocean strategy allows us to abandon the struggle for ever-decreasing demand in developed markets and create a growing demand in new ones. This book has been translated into dozens of languages, published in millions of copies and is regularly included in the ratings of the best business publications of our time. The work of Chan Kim and Rene Mauborgne will be useful for both experienced entrepreneurs and those who are just thinking about starting their own business. With the permission of SmartReading, we publish a summary ("compressed" version) of this publication.
smartreading is a project of the co-founder of one of the leading Russian publishing houses business literature "Mann, Ivanov and Ferber" by Mikhail Ivanov and his partners. SmartReading produces so-called summaries - texts that summarize key ideas bestsellers in the non-fiction genre. Thus, people who for some reason cannot quickly read full versions books, can get acquainted with their main ideas and theses. SmartReading uses a subscription business model in its work.
Creating blue oceans
Former accordionist, acrobat and fire eater Guy Laliberte is now the head of Cirque du Soleil, one of Canada's largest companies and the most famous circus show in the world.
From the very beginning, Cirque du Soleil did not compete with traditional circuses. Instead, the company has formed a new market free from competitors. It was aimed at completely new group consumers: adults who are willing to pay several times more than a ticket to a regular circus in order to see a new, unparalleled performance. The name of one of the first projects of Cirque du Soleil spoke for itself: "We are reinventing the circus."
To understand what Cirque du Soleil has achieved, imagine a market universe made up of two oceans: red and blue. The scarlet oceans symbolize all that exist on this moment industries. This is the part of the market we know. Blue oceans represent all industries that do not yet exist today. These are unknown areas of the market.
From company and industry to strategic move
A strategic move is a set of management actions and decisions associated with the development of a major business proposal that creates a new market.
For example, Compaq was acquired by Hewlett-Packard in 2001 and lost its independence. As a result, many labeled the company as a loser. However, this did nothing to devalue Compaq's blue-ocean strategic move to shape the server industry. These strategic moves were not only part of the company's powerful re-entry into the market in the mid-90s, but also paved the way for a new multi-billion dollar market in the computer hardware industry.
Invariably successful companies or industries do not exist. However, the strategic moves that have led to the creation of blue oceans and new trajectories of strong earnings growth are strikingly similar.
The authors studied more than 150 strategic moves made between 1880 and 2000 in more than thirty industries and carefully researched the business players involved in each of these events. The industries were very diverse - hotel, film industry, retail, air transportation, energy, IT industry, TV and radio broadcasting, construction, automotive, steel industry, etc. The authors analyzed not only the winners who managed to create blue oceans, but also their less successful competitors.
The fundamental difference between the winners and the losers in blue oceans was their approach to strategy. Companies stuck in a red ocean followed the traditional approach of trying to beat the competition and trying to get into a defensive position to do so within the industry's conventions. But those whose aspirations were determined by the blue ocean strategy did not look up to their competitors. Instead, they subordinated their actions to a different strategic logic called value innovation.
Value innovation implies that equal emphasis is placed on both value and innovation. Value without innovation usually does not allow you to stand out from the competition. Innovation without value often leads to fruitless passion for technology. All this often turns out to be beyond what buyers are willing to accept and what they are willing to pay for.
Value innovation is a new way of thinking and executing a strategy that leads to the creation of a blue ocean and away from competition.
Let's go back to the Cirque du Soleil example. We can say that this company offers the best that is in the circus and theater, and minimizes or reduces all other elements to zero. With this unprecedented offering, Cirque du Soleil created the blue ocean and invented the new kind"live" entertainment, which is largely different from both traditional circus and traditional theater. At the same time, by removing many of the more expensive components of the circus, the company has been able to drastically cut its costs, thereby achieving both differentiation and low costs.
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Scarlet Ocean Strategy |
blue ocean strategy |
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Fight in the existing market space. |
Creation of a new market space. |
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Victory over competitors. |
Opportunity not to be afraid of competition. |
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Exploitation of existing demand. |
Formation and receipt of new demand. |
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Tradeoff between value and cost. |
Breaking the trade-off between value and cost. |
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Building the entire system of the company's activities depending on the strategic choice focused on differentiation or low costs. |
Building the entire system of the company's activities in accordance with the task of simultaneously achieving differentiation and cost reduction |
Cirque du Soleil has taken the strategic step of bringing its ticket prices closer to theater prices. The price of tickets was several times higher than the level accepted in the circus industry, but at the same time, the prices turned out to be attractive to adult spectators who are accustomed to the price of theater tickets.
Strategy canvas
The strategy canvas is an analytical model central to value innovation and the creation of blue oceans.
The strategy canvas is both a tool for diagnosing and building a blue ocean strategy. It reflects the current state of affairs in a known market space. This allows you to understand where competitors are investing, what are the characteristics of competing products within the industry, what service and delivery are like, and what competing offerings customers are getting in the market.
To fundamentally change the strategic canvas of an industry, one must begin by shifting the strategic focus from competitors to alternatives and from customers to noncustomers of the industry. To work on value and cost at the same time, we must abandon the outdated idea of equalizing competitors in the available field and stop making a choice between differentiation and low costs.
Developing and implementing a blue ocean strategy
The development and implementation of the approach, which is commonly referred to as the blue ocean strategy, is based on the following principles:
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Reconstruction of the market border |
Search risk |
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Focus on the big picture, not the numbers |
Planning risk |
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Going beyond existing demand |
Scale risk |
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Follow the right strategic sequence |
Business model risk |
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Overcoming major organizational barriers |
Organizational risk |
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Building Implementation into Strategy |
Management risk |
1. Reconstruction of market boundaries
The first principle of the blue ocean strategy is to reconstruct the boundaries of the market in order to break out of the world of competition and create a blue ocean.
Research has uncovered clear patterns in the creation of blue oceans. The authors found six main approaches to reconstructing the boundaries of markets and called it the six-way model.
Path One: Consider Alternative Industries
In a broad sense, companies compete not only with other companies within their own industry, but also with companies operating in other industries that produce alternative products and services.
What industries can be called alternative to yours? Why do customers choose between them? Turning Special attention on key factors that force buyers to choose between alternative industries, and by stripping or downplaying all other factors, you can create a blue ocean of new market space.
Path Two: Consider Industry Strategic Groups
Strategic groups are companies operating in the same industry and having similar strategies.
So, Ralph Lauren created the blue ocean " haute couture no fashion." The name of the designer, the elegant design of the stores and the sophistication of materials are what distinguishes the company and what most customers appreciate in the field of haute couture. And at the same time, her updated classic look and prices captured the best of what classic lines like Brook Brothers and Burberry had to offer. By combining the most attractive factors of both groups and discarding or reducing the importance of all others, Polo Ralph Lauren not only gained a share in both segments, but also attracted many new customers to the market.
What are the strategic groups in your industry? Why do customers choose higher or lower level groups?
Path three: look at the buyer chain
In most industries, competitors have similar target customer definitions. However, in practice there is a whole chain of "customers" directly or indirectly involved in making purchase decisions. Buyers who pay for a product will not necessarily be its users, in some cases there is also an important category of "influencers".
What does this chain look like in your industry? What customer groups does your industry typically target? If you were to refocus on a different group of buyers in your industry, how could you create new value?
Path Four: Consider Additional Products and Services
Very few products and services are used by themselves. In most cases, their value is influenced by other products and services.
Take the cinemas, for example. Being able to invite a babysitter and easily find a car park affects the perceived value of going to the movies. However, these additional services lie outside the traditional activities of cinemas. Few theater owners care about the difficulties of finding a babysitter. And in vain, because it affects their business.
In what context is your product or service being used? What happens before, during and after using it? Can you determine where there are " pain points"? How can they be eliminated by offering additional products or services?
Path five: analyze the functional and emotional attractiveness of the product for buyers
Companies competing in the same industry tend to become more and more similar friend not only by what range of products and services they offer, but also by which of the two possible options for the attractiveness of the product for the buyer they choose. In some industries, competition is mainly based on the price and usefulness of the product, this is the functional attractiveness. In other industries, competition is based on the feelings of the buyer, emotional attraction is involved here.
Is there competition in your industry for functional or emotional appeal? If you compete on the basis of emotional appeal, what elements of it can be discarded in order to transform it into functional attraction? And vice versa.
Path six: look into the future
All industries are subject to external trends that eventually begin to affect the business. Take at least the rise in popularity of the Internet, or worldwide movement to protect the environment. If we look at these trends from the right perspective, we can see opportunities for creating a blue ocean.
However, true blue ocean strategy insights rarely come from simply predicting the trend itself. Quicker, we are talking about getting to the heart of the trends that can be seen today.
To form the basis of a blue ocean strategy, these trends must be critical to your business, irreversible, and have a clear trajectory.
For example, in the late 1990s, Apple came to the attention of a worldwide wave of illegal copying of music files. In the presence of available technology, allowing anyone to download music for free, instead of paying an average of $19 per disc, the trend in digital music was clear. Its confirmation was the rapidly growing demand for MP3 players, with which one could listen to digitized music anywhere.
Apple has capitalized on this enduring trend, which it has been impacting on itself, and the direction of which has been transparent and sustainable. In 2003, Apple created the iTunes online music store, which beat free music download service providers by providing high-quality recordings and convenient directory browsing and search capabilities.
What trends can a high degree likely to affect your industry? Which trends are irreversible, which ones have a clear future? How will these trends affect your industry? Can you use them to create unprecedented value for customers?
2. Focus on the big picture, not the numbers
This principle is fundamental to reducing the risk associated with planning. Here we develop an alternative approach to the existing strategic planning process based not on the preparation of documents, but on the creation of a strategic canvas. This approach invariably results in strategies that reveal creative potential employees, helping the company see blue oceans.
The authors have developed a structured process for depicting and discussing a strategy canvas that pivots a company's strategy towards a blue ocean. One company that has adopted this process is a 150-year-old financial advisory group that we will call European Financial Services (EFS). The strategy she created as a result brought an additional 30% profit in the first year. This process consists of four main steps.
Step One: Visual Awakening
Faced with clear evidence of the company's obvious shortcomings, EFS executives could no longer defend their strategy, which proved to be weak, unoriginal, and poorly articulated. The attempt to build a strategic canvas pushed the change more than any other verbal argument, even if backed up by numbers. After this exercise, senior management had desire seriously review old strategy companies.
Step Two: Visual Inspection
The next step is to get the team to go "in the field" and work so that the managers themselves can see the result of how people use their products or services.
It is not uncommon for managers to rely on reports compiled by other people (who are often very, very far removed from the world for which they are reporting). The company should never outsource own eyes. No one can “see for yourself” anything for you.
Step Three: Visual Strategy Fair
After two weeks of drawing and redrawing, the groups showcased their results in what the authors call a visual strategy fair. The audience included senior company executives, but the majority of the audience was made up of EFS external counterparties - people that managers met while working "in the field", including non-clients, clients of competing companies and some of the most demanding clients of EFS.
By pulling together information about what the majority of the judges liked or disliked, the participating groups found that at least a third of the factors that they considered key in the competition turned out to be practically indifferent to customers. Another third of the factors were either poorly stated or left unnoticed in the visual awakening phase. At the same time, it became clear that management needed to reconsider a number of their long-standing beliefs about the services provided.
Step Four: Visual Communication
After the future strategy is developed, the last step is to communicate it within the company in such a way as to make it clear to all employees without exception.
EFS distributed the old and new strategic profile image to all employees of the company, explaining in detail the content of the image, explaining what should be eliminated, reduced, increased or created to achieve the blue ocean. Employees were strongly motivated by a clear plan of action, many of them hanging a strategic profile picture in their workplaces as a reminder of the company's new priorities and the gaps that need to be filled.
3. Going beyond existing demand
How can you maximize the size of the blue ocean you create? This brings us to the third principle of the blue ocean strategy: going beyond existing demand. It is a key component needed to achieve value innovation.
Companies should challenge two traditional strategic practices. The first is focusing on existing customers. The second is the desire for greater segmentation in order to accommodate differences among buyers.
Consider Gallaway Golf as an example. By introducing non-customers, the company has created a new demand for its offer. While the American golf industry was fighting to expand its existing client base, Callaway created a blue ocean of new demand by asking why sports enthusiasts and many country club members don't play the sport of golf.
After analyzing the reasons why people avoid playing golf, the company identified one feature that is common among the mass of non-customers: they all thought it was very difficult to hit a golf ball with a club. Due to the small size of the club head, the player needed to have excellent coordination of movements and an excellent eye, as well as to have enough time to master the skills of the game and be able to concentrate. As a result, beginners did not have any fun, and it took them too long to learn how to play well.
This discovery allowed Gallaway Golf to determine exactly how to create new demand for their products. The result was "Big Bertha", a golf club with a large head that made it much easier to hit the ball. Big Bertha not only turned non-customers of the industry into customers, but also pleased already experienced golfers, and soon gained general popularity. It turned out that, with the exception of professionals, almost all clients were oppressed by the difficulties associated with increasing their level of play, namely, with achieving hit stability.
4. Follow the right strategic sequence
So you've looked at ways to discover possible blue oceans. You have developed a strategy canvas that clearly articulates your future blue ocean strategy. And you figured out how to attract as many buyers as possible.
The next challenge is to create a sustainable business model. This brings us to the fourth principle of blue ocean strategy: following the right strategic sequence.
The right strategic sequence: utility for the buyer, price, costs and implementation.
It all starts with value for the customer. Does your proposal contain exceptional utility? Is there a compelling reason why people will buy your product? Think about your idea until you can answer these questions in the affirmative.
Then move on to the second step: setting the right strategic price. Remember that a company should not rely solely on price to create demand. Main question will be: can the price of the product you offer attract mass target buyers by giving them a tempting opportunity to pay for your product? If not, they won't be able to buy it.
These first two stages are related to the revenue side of the company's business model. With them, you create a spike in customer net value, where customer net value equals the utility of the offer to customers minus the price they paid.
The third component is costs. Can you produce your offering at a cost target and still make a solid profit? Can you make a profit by selling a product at a strategic price - a price that is affordable to a mass of target buyers? Don't let costs drive prices. Nor can you reduce utility because high costs prevent you from profiting from strategic prices. If it is not possible to maintain the target cost level, either the idea should be discarded because the blue ocean will not bring profit, or the business model should be changed to stay at the target cost level.
The last step is to overcome the obstacles associated with implementation. What obstacles will prevent you from putting your idea into practice? Can you overcome them directly? A blue ocean strategy is only complete when you can solve implementation problems from the very beginning.
The main question is how to make sure that the whole organization along with you would be involved in this process.
5. Overcoming major organizational barriers
Companies need to overcome four hurdles.
The first is the emergence of internal dissonance among employees. It is required to convince them of the correctness and necessity of making a strategic change. While red oceans can never lead your company to profitable growth, they do give people peace of mind.
The second obstacle is limited resources. It is believed that the more serious the changes that the organization is making, the more extensive resources are needed to carry them out. However, in many of the organizations studied by the authors, resource use was declining rather than increasing.
The third obstacle is motivation. How to motivate key actors act quickly and purposefully in order to break out of the current state of affairs?
And the last obstacle is political intrigues. As one manager put it: “It’s like this in our company: you still haven’t had time to say anything, but they’ve already dealt with you.”
While these hurdles vary in complexity from case to case, and many companies face only a few of the four, mastering them is essential to reducing organizational risk.
6. Embedding the implementation process in the strategy
The company is not only top management and not only middle management. Only when all employees of the organization unite around the strategy and support it "both in sorrow and in joy" - the company stands out from the crowd.
When it comes to blue ocean strategy, the challenge increases. As soon as you ask employees to leave their comfort zone and work differently than before, tension begins to build. People wonder: what are the true causes of change? Is management telling the truth about future growth as a result of a change in strategic course, or is it just trying to make us redundant and fire us?
An implementation process must be built into the strategy from the outset in order to gain the faith and commitment of workers and inspire them to voluntarily cooperate.
It is fair process that is the main variable by which one can distinguish successful strategic steps towards moving towards a blue ocean from unsuccessful ones. Depending on the presence or absence of a fair process, the best efforts of a company can lead to success or complete failure.
Fair process is the application by managers of the theory of procedural justice. As in the legislative realm, fair process builds implementation into strategy by first getting employees on its side. When a fair process is in place already at the strategy stage, people believe in fair play and this inspires them to work together voluntarily to implement solutions.
Loyalty, trust and voluntary cooperation is not just an attitude or behavior. This is intangible capital. When there is trust, people are more confident in each other's intentions or actions. If there is loyalty, they are even ready to sacrifice personal interests for the interests of the company.
Conclusion.
Sustainability and renewal of the blue ocean strategy
Creating blue oceans is not a one-time achievement, but a dynamic process. Having created a blue ocean, the company is faced with the fact that imitators appear on the horizon sooner or later.
The question is: how soon (or not soon) will they appear? In other words, how easy or difficult is it to mimic a blue ocean strategy? As the company and its early adopters succeed and expand the blue ocean, more and more companies are breaking into it.
This brings up a second question, related to the first: when should a company create the next blue ocean? To avoid falling into the trap of competition, you need to keep an eye on the value curves on the strategy canvas. As soon as your value curve begins to merge with that of your competitors, you will be able to determine that it is time to move into another blue ocean.
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