Strategy is an ancient art that has been talked about with great philosophers, generals and business leaders each building their own version of how to achieve the objective.
At its base level we have to ask what is strategy then? Strategy comes from stratagem, which is the ploy that you choose to gain an advantage or an end. Setting strategy is the art of defining how you structure yourself best to achieve an objective.
One of the more interesting frameworks that are used to create strategy and value maps is the red ocean vs. blue ocean strategy concept, which is the focus of this article.
The basic idea is that we often find ourselves competing in a red ocean where we fight hard to beat the competition, eke out an existence in an overcrowded market and have to fight on price to make an existence. The idea of a blue ocean strategy is to change the very definition of what is valuable to people and to compete on a new value curve. By choosing to redefine a product or market you are speaking potentially to latent needs of individuals and can change the value perception of a product or service.
The six paths
|Red Ocean Strategy
||Blue Ocean Strategy
|Compete in existing market space
||Create uncontested market space
|Beat the competition
||Make the competition irrelevant
|Exploit existing demand
||Create and capture new demand
|Make the value-cost trade-off
||Break the value cost trade-off
|In areas in which you are better, choose to differentiate yourself from your competitors.
||Be better; offer higher value and lower cost than your competitor.
|In areas in which you compete, differentiate by low cost.
||Use innovation to break cost barriers.
But blue oceans soon turn into red oceans. As other sharks start swimming in your waters there is a lot more blood and the innovation curve needs to be sustained.
A lot of organisations put a bunch of people in a room and ask them to come up with a plan on how they are going to make the next blue ocean.
Four actions framework
If you delve a little bit deeper into the framework of blue ocean strategy you will see that there is four core activities that make a blue ocean organisation work
- Raise standards
- Create new products
- Reduce waste
- Eliminate unnecessary steps for the end consumer
These are incremental activities that make it more difficult for competitors to enter and create a natural barrier to entry.
The sequence of blue ocean strategy
On a blue ocean strategy it is recommended that you must totally rethink the utility that your product have for the end customer. If what you come up with is very different from what customers are experiencing now then you have crossed the first hurdle. The next phase is to ask if you can deliver what you customer wants to experience within a reasonable timeframe. If you can do that within cost and profit parameters that make commercial sense, you are in the early phases of building a sea change.
Creating a tipping point
Good blue ocean strategy does not get implemented in the mass market initially. You need to excite the people at the fringes. It is no use to take your new blue ocean product and submit it to your traditional client as the next big thing. The idea is to excite a core of users are trendsetters and that can fundamentally influence how things are being thought about in this space. As the small flame of change burns – in time it turns into a raging storm at which point you have already resolved most of the challenges to making it appealing to everyone and you can continue to fight on cost and value to customers, while your competitors are playing catch-up.
The blue ocean strategy recommends that you need to work on your product until you can convince people that are at the edge of wanting to change, your worst critics and people that have not used your product at all. If you can convince these three target groups then the rest is simple.
Pioneers, migrators or settlers
To find out which products you want to be innovative with, a useful exercise is to look at your current initiatives and place it on a grid to see which of it is helping you become more innovative (pioneering), which of it is helping you shift towards being more pioneering (migrators) and which of these products are your settler products. In the Blue ocean language you need to have initiatives in all areas and maybe be looking at taking those settlers and starting to migrate them to pioneering space. It will not happen overnight but by using the four actions you can start iterating there.
Starting to look for innovation
To look for innovation it sometimes help to map the buyer experience as a lifecycle and also look at the levers of value that the customer perceives for your product.
Note that this is not what the executives perceive the customer like about the product or could potentially like about the product (note – you may actually have to talk to customers in this process).
The question is if we can improve the buying experience as much as we can improve the product to speak to the desires of customers and at the same time leverage items such as cost, utility and value to create a better experience.
It may not be an easy process but will create innovation projects that transform your business and continues to deliver breakthrough results.
Hurdles to execution
In Blue Ocean Strategy – there is typically 4 hurdles that stand in the way of successful execution. These are identified as
- The cognitive hurdle – people do not want to rock the boat in the organisation and cannot understand why we need to change. They want to be better at existing efforts and do not want to move to new frontiers
- The resource hurdle – getting enough resources allocated innovation is always difficult and invariably they do not have the skills required. If they are external they do not know your industry and if they are internal they are not always keen to drive change.
- The motivational hurdle – there is a core of people that need to get excited about a new idea, although it may not be close yet.
- The political hurdle – it may happen that ideas get shot down in an organisation and political manoeuvring is required before an idea even gets promoted to the next step.
Blue ocean strategy is about re-inventing the game while still making sure that the business is intact. It is not about being reckless or risk averse – it is about a good process to move your business to be more relevant for the customer. The challenge is that innovation becomes its own enemy and that without seriously keeping innovating; the super profits of blue oceans cannot be sustained.
To some extent, there are two risks inherent in blue ocean strategy – innovation for innovation sake and innovation that is not better for the customer. A customer may want the integration between two systems – your improvements show that you can make one component cheaper – but you lose integration with the other system. You think the customer wants a cheaper product (or you need to make it cheaper to keep the competitor out of the market) and the customer has lost the one thing that was important to them.
How do you counter against blue ocean strategy? Traditional wisdom dictates that there are various responses to blue ocean strategy
- Innovate past you competitor – while they are “taking the market”, build the next big thing and take them out when they are in the heat of the battle.
- Imitate – make something that is close enough to your competitors to confuse your customer and ride on the wave of the new category.
- Capture the niche – you competitor would have alienated some customers – you can capture that niche and offer them superior value.
- Win in the shark tank – while your competitor is off chasing new markets – and other migrate to join them – pickup the pieces in the rust belt and turn that into a viable industry in itself. Leverage cheaper resources and known products to innovate in a different direction while bringing more customers along.
While some are boiling the ocean, others are trying to climb it. You can decide if your ocean is green, blue, red or yellow. It does not really matter – at the end of the day you need to focus on the customer and decide what the best end is to reach that customer and execute your solution. Execution is where most strategy fail and execution only work when people get out of the boardrooms and from behind computers and into the trenches.
In an age where big-data, the cloud and analytics can easily paralyse and organisation – it is time to go out and start looking at how to really serve your market. If you can do that – you will always be a step ahead of your competitors and questions of strategy can focus on creating more colourful solutions to practical problems.