Blue Ocean Strategy

 

  Blue Ocean Strategy 

                                      By - W.C Kim and Renee Mouborgnee 

 

Preview 

Companies adopt conventional strategies which seek to blow other competitors out of the water. The result, however, is far from what is imagined, it is like flogging a dead horse! The book illustrates numerous ways through which an organization can rise above the pettiness of competition. 

About the Authors 

W. Chan Kim and Renee Mouborgnee are top-ranked management advisors and professors at INSEAD, France (the second-largest business school in the world). The Korea-born W.C Kim is a Fellow of the World Economic Forum and board member as well as an advisor to many multinational corporations in Europe, the U.S., and the Asia Pacific region. Ms. Mouborgnee is an American and completed her fellowship at INSEAD; she also served on former President Obama's Board of Advisors. Mouborgnee is also a Fellow of the World Economic Forum.  

 

The Big idea: Search for, and create an uncontested market space to succeed! 

 

Most Companies focus on the consumers they target, and the competitors they fight with. However, creating new value for customers, or creating new hitherto untargeted customers, is the aim of a "Blue Ocean Strategy". Value- creation, and innovation, is the need of the hour. A technology-driven, market-oriented, and futuristic market space does not allow companies to become inconsistent. Companies need to continually work on their strategies to stay alive and thrive in the market. They should deliver products and services that can create new value for consumers, hence creating an uncontested market. This untapped market laden with potential is an ocean ripe with new possibilities. 

In contrast, a "Red Ocean" refers to an existing market, and Companies trying to beat the existing competition and cater to existing demand would be swimming in the red ocean. As markets get crowded, opportunities for growth and profits greatly reduce. Firms compete with one another to sell similar products, and that results in perfect competition. In such a marketplace, Companies command more or less the same price, with no one particular major player in the market. The demand for each firm gets distributed.  

  

Some of the things you will learn in this book:    

• Why Organizations should pursue value innovation 
• Why there should be an attempt to create and sustain new demand in the market. 
• How to make competition irrelevant 
• Why it is important never to lose sight of the bigger picture 

How to go about creating an uncontested market space? Value Innovation 

A Blue Ocean can be for you to swim in if you can create value innovation. While we are familiar with innovation, value innovation doesn’t necessarily create something new; instead, it improves on existing products or services, while reducing the overall costs for both: the customer, and the company. Thus, resulting in a tremendous leap in the value of the offering. The Blue Ocean Strategy aims to break the value-cost trade-off by pursuing differentiation and low cost simultaneously, as compared to conventional strategies which pursue a value-cost trade-off, wherein it is an either this or that scenario. To embark on the path of value innovation, one must ask four questions in the context of the product or service: 

1. Which features can be done away with? 
2. Which features can be dialed down a little bit? 
3. Which features can be improved? 
4. Which new features can be offered? 

This is also known as the ERRC framework: Eliminate, Reduce, Raise, and Create. This framework can help achieve a unique value curve, which creates a blue ocean of uncontested space!  

  

Boundaries fence you in: Reimagine to reconstruct 

Why is it necessary to reconstruct boundaries? In order to seek and create an uncontested market, a product or a service should seek to reconstruct the boundaries themselves. There is a six-path framework to achieve this as advised in the book: 

1. Look across alternates: Which industries serve the same purpose as your industry, but have a different form. For example, restaurants may be competing with movie halls indirectly, since both fulfill the same utility for the customer, i.e, having a good time out. 
2. Look across strategic groups: Are there any untapped areas that the industry is not targeting? Strategic groups are typically ranked in a hierarchy with price and performance as parameters. What will make the customers trade up the value chain to pay a higher price? What will make them trade down?  
3. Look across the Buyers: Who is buying? Is there a chain involved? Who are the influencers, the purchasers, and the end-users? It can be extremely valuable information. 
4. Look across complementary products and services: Assess the context of the usage of your product or service. What is the user doing or thinking BEFORE using your product? What are they doing or thinking WHILE they use your product? What do they do AFTER they use your product? The context of the user can throw light on areas that may be pain points. And if your product can address those pain areas, you have a blue ocean for yourself. 
5. Look across functional and emotional appeal: Can you transform the functional appeal of your product or service to an emotional one, or vice versa?  
6. Look across time: Ascertain and identify the trends of the future. Can you use these trends to the best of your advantage? If so, you could be swimming in a blue ocean. This is in stark contrast to having a reactive strategy where one REACTS to the changing times and trends, rather than proactively tweaking the business model, product, or service. 

 

Focus on the big picture 

In the drudgery of day-to-day business, it is easy for managers to forget the larger context of their firm's objective. Managers very often get so carried away by micromanaging by choosing the right price, target-based costing, or choosing the perfect market strategy, that they overlook the utility of the product or something like customer services. Types of economic utility that consumers derive from goods or services are form, time, place, and possession. Hence, "Utility" refers to the usefulness or value that a purchaser obtains in return for exchanging his or her money for a company's goods or services. Companies seek to maximize customer satisfaction through addressing all of the four types of utility – or as many as possible.  

Amazon, one of the biggest e-commerce brands, is widely acclaimed for its customer services. Delivery boys are given extensive training especially on how to deal with female customers, and consumer feedback is highly valued. This focus on its main service, i.e., delivery, has ensured its success in the market.  

In management, the ability to see the larger picture is a vital leadership skill. In simple words, a leader should have a depth of vision and insight. A leader's ability to lead arises from the depth of his knowledge. Leaders look into the future, and in doing so they perceive the to-be reality, which they report back with their clear and detailed sightings.  

Generate new demand in the market

Demand creation is an economic affair that bridges the gap between what the consumers really want and what is available. It is the allocation of limited resources among the buyers. Twenty years ago, producers would adopt a production-oriented strategy wherein buyers would be expected to purchase whatever is available to them. However, with changing times and increasing competition, producers have had to adopt Holistic marketing strategies. They need to take into account the needs and desires of their target audience. It is natural, however, that here too a red ocean would be created! Every firm would be competing for the attention of the consumers.  

A firm needs to find its blue ocean in this very approach. A buyer-oriented market mandates the focus to be on existing customers, but non-customers could also be a source of untapped potential! An alcoholic beverage company in Australia, specializing in wine-making was on a plateau with its market penetration. The number of beer drinkers in their country was much larger than the wine drinkers, and the latter were perceived to be high society fat cats. The company concentrated on its research and development to come up with a beverage that tasted somewhat like beer but was fermented with grapes. The drink they eventually came up with, became an overnight bestseller having its takers among the beer drinkers too. 

It has been found that brands use feelings to appeal to customers. Emotional Branding is a term in marketing communications; it implies a well-crafted technique to appeal to the basic emotions of the consumers. Scientific studies have proved that shared emotional connection between brands and the consumers, sways their attention to the product, and generates new demand.  

The Pug in the Hutch Ads in India five years ago brought widespread appreciation both for the then telecommunications company and the breed's popularity in India! Emotional branding should be used tactfully in order to influence the collective perception of people. 

 A reputed circus company in Europe was in the process of packing up; it was finding it difficult to compete in this era of television, the internet, and social media. The use of animals in circuses was increasingly being looked at with disdain. Keeping in mind the mentality of its consumers, the management of the circus company pulled out the animal acts and instead replaced them with abstract and spiritual musical dances; an offshoot of theatrics. This move ensured the survival of the Company and gradually started bringing in huge revenues. Which Company, you ask. The one and only, Cirque Du Soleil! 

Formulate a decisive business strategy

A decisive strategy involves business and marketing strategies that are different and cost-effective. A clear and competitive business strategy has a long-lasting impact on organizational profit and revenue. Every organization formulates a strategy by which it tries to achieve its goals. These could be along the lines of growth, expansion, or even retrenchment! Out of the box, thinking is encouraged in management as they lead to rare and uncommon business strategies. Dell, a major player in the computer technology business, established itself in a short period of time on the grounds of its unique business model. At a time when firms were catering to generalized customer demand in the market, Dell concentrated on individual demand, thereby offering a customized product. Their inventory was stocked with goods to assemble rather than the final product itself. This allowed them the liberty to design each product as per individual demand and in the process ensured no obsolescence.  

A strategic move on the part of the business creates a new value curve to capitalize on. A value curve is a graphical representation of the primary products or services that bring value to the firm, i.e., profit. Some techniques to elucidate the creation of a new value curve involve working on branding and promotions of a product or service. Mass media and social media marketing should be used wisely for this purpose. The marketing mix used should be in tune with the target audience's reach. 

Research proves that Brand promotion is of vital importance to any company. Branding is not just an exercise to foster trust amongst customers, but also to help firms maintain their share price and increase profits. In the Indian context, Nestlé's branding and repositioning of Maggi is an outstanding illustration of this phenomenon. Maggi had for decades penetrated deep in the consumer psyche and established itself as a ready-to-eat product. In 2015, a legal case was filed against Maggi alleging that the product was extremely unhealthy- it had illegal amounts of lead and MSG content. Soon sales started dwindling, and inventory was taken off the shelves in the market. Nestle fought the case, and eventually successfully rebranded and relaunched the brand as a healthy ready-to-eat product. Maggi was marketed as "Tasty and Healthy" with Vitamins and Iron. The company added value to its product through strategic rebranding. They had a clear-cut and compelling tagline. 

Execute perfectly 

Simply put, without perfect execution, the product, or the Company is unlikely to succeed. Now, this does seem to be obvious, but it is easily overlooked. The Company pursuing the Blue Ocean needs to be clear and transparent with all its stakeholders. Often, employees and other important stakeholders are resistant to change. This is because they are not sensitized to the need for change. Such a scenario can result in disengagement and the subsequent impact on the organization's ability to pursue the blue ocean.   

The Company along with its business managers should be able to identify problem areas in execution and anticipate people who may oppose the plan. This information can be thus used for managing the execution in a better manner. Since the pursuit of a blue ocean requires constant value innovation, the process of execution is also a constant feature, and thus blue ocean businesses should aim at developing an organization that is friendly to change, in order to smoothen the challenges with execution.  

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Final Summary  

An organization cannot simply function in the marketplace today, it has to sustain itself. Competition is fierce, and stakes are at an all-time high. In an attempt to rise above the rest, organizations adopt a tunneled approach to outshine competitors. Firms try to create both value and cost by adopting the conventional way of thinking in business, i.e., focus on its competition, however, a new way of thinking which has proved to be more productive is digging deeper into insights of the buyers. This approach has led to the formation of numerous new products and services. The best strategies focus on individual action and not collective action. Along with designing effective strategies, firms also need to execute them brilliantly. This requires managers to be more inclusive and democratic with their employees.  

 

 

Stand out sections of the book  

• In chapter one, the core and unique concepts of red and blue oceans are explained in depth. 
• The end of the first chapter illustrates a very interesting concept – Value innovation, the cornerstone of Blue Ocean 
• Chapter two gives the main tools and sets the basic blueprint to adopt Blue Ocean oriented strategies 
• The last chapter is an interesting read as it describes numerous examples of modern-day companies that adopted a strategically different approach.