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Blue Ocean Strategy by W. Chan Kim

Blue Ocean Strategy by W. Chan Kim

by Parker · 182 things on Twos

The only way to beat the competition is to stop trying to beat the competition
Industries never stand still. They continuously evolve
The creators of blue oceans focused on value innovation, instead of focusing on beating the competition, you focus on making the competition irrelevant by creating a leap in value for buyers and your company, thereby opening up new and uncontested market space
Value innovation places equal emphasis on value and innovation. Value without innovation tends to focus on value creation on an incremental scale, something that improves value but is not sufficient to make you stand out in the marketplace. Innovation without value tends to be technology-driven, market pioneering, or futuristic, often shooting beyond what buyers are ready to accept and pay for
Conducting extensive customer research is not the path to blue oceans. Our research found that customers can scarcely imagine how to create uncontested market space. Their insight also tends toward the familiar “offer me more for less.” And what customers typically want “more” of are those product and service features that the industry currently offers
A good tagline must not only deliver a clear message but also advertise an offering truthfully, or else customers will lose trust and interest
Products or services that have different forms but offer the same functionality or core utility are often substitutes for each other
Alternatives include products or services that have different functions and forms but the same purpose
If a company’s strategic profile does not clearly reveal its focus, divergence, and compelling tagline, it will likely be muddled, undifferentiated, and hard to communicate. It is also likely to be costly to execute.
Instead of concentrating on customers, they need to look to noncustomers. And instead of focusing on customer differences, they need to build on powerful commonalities in what buyers value
To reach beyond existing demand, think noncustomers before customers; commonalities before differences; and desegmentation before pursuing finer segmentation
People remember and respond most effectively to what they see and experience: “Seeing is believing.”
Blue Ocean Strategy Summary
No journey is easy; no friendship is filled only with laughter. But we were excited every day of that journey because we were on a mission to learn and improve
Red oceans represent all the industries in existence today. This is the known market space
Blue oceans denote all the industries not in existence today
Although some blue oceans are created well beyond existing industry boundaries, most are created from within red oceans by expanding existing industry boundaries, as Cirque du Soleil did
It will always be important to swim successfully in the red ocean by outcompeting rivals. Red oceans will always matter and will always be a fact of business life
To seize new profit and growth opportunities, companies need to go beyond competing and create blue oceans
Companies need not compete head-on in a given industry space
The strategic move, and not the company or the industry, is the right unit of analysis for explaining the creation of blue oceans and sustained high performance
A strategic move is the set of managerial actions and decisions involved in making a major market-creating business offering
The companies caught in the red ocean followed a conventional approach, racing to beat the competition by building a defensible position within the existing industry order
Red Ocean Strategy
Compete in existing market space
Beat the competition
Exploit existing demand
Make the value-cost trade-off
Align the whole system of a firm’s activities with its strategic choice of differentiation or low cost
Blue Ocean Strategy
Create uncontested market space
Make the competition irrelevant
Create and capture new demand
Break the value-cost trade-off
Align the whole system of a firm’s activities in pursuit of differentiation and low cost
There is no such thing as a riskless strategy. Strategy will always involve both opportunity and risk, be it a red ocean or a blue ocean initiative
The Six Principles of Blue Ocean Strategy
Reconstruct market boundaries
Focus on the big picture, not the numbers
Reach beyond existing demand
Get the strategic sequence right
Overcome key organizational hurdles
Build execution into strategy
Effective blue ocean strategy should be about risk minimization and not risk taking
To fundamentally shift the strategy canvas of an industry, you must begin by reorienting your strategic focus from competitors to alternatives, and from customers to noncustomers of the industry
Four actions framework
Eliminate: Which of the factors that the industry takes for granted should be eliminated?
Reduce: Which factors should be reduced well below the industry’s standard?
Raise: Which factors should be raised well above the industry’s standard?
Create: Which factors should be created that the industry has never offered?
3 completmentary qualities: focus, divergence, and a compelling tagline
Principle 1: Reconstruct market boundaries
Six paths framework
Look Across Alternative Industries
Observe the distinctive advantages of alternative products and services.
Look Across Strategic Groups Within Industries
Challenging an industry’s conventional wisdom about which buyer group to target can lead to the discovery of new blue ocean. By looking across buyer groups, companies can gain new insights into how to redesign their value curves to focus on a previously overlooked set of buyers
By questioning conventional definitions of who can and should be the target buyer, companies can often see fundamentally new ways to unlock value
Look Across the Chain of Buyers
Look Across Complementary Product and Service Offerings
The key is to define the total solution buyers seek when they choose a product or service
A simple way to do so is to think about what happens before, during, and after your product is used
What is the context in which your product or service is used?
What happens before, during, and after?
Can you identify the pain points?
How can you eliminate these pain points through a complementary product or service offering?
Look Across Functional or Emotional Appeal to Buyers
Functionally oriented industries can often infuse commodity products with new life by adding a dose of emotion and, in so doing, can stimulate new demand
Companies’ behavior affects buyers’ expectations in a reinforcing cycle
Industries have trained customers in what to expect. When surveyed, they echo back: more of the same for less
When companies are willing to challenge the functional-emotional orientation of their industry, they often find new market space
Emotionally oriented industries offer many extras that add price without enhancing functionality. Stripping away those extras may create a fundamentally simpler, lower-priced, lower-cost business model that customers would welcome
Starbucks turned the coffee industry on its head by shifting its focus from commodity coffee sales to the emotional atmosphere in which customers enjoy their coffee
If you compete on emotional appeal, what elements can you strip out to make it functional? If you compete on functionality, what elements can be added to make it emotional?
Look Across Time
By looking across time—from the value a market delivers today to the value it might deliver tomorrow—managers can actively shape their future and lay claim to a new blue ocean
Principle 2: Focus on the big picture, not the numbers
Most plans don’t contain a strategy at all but rather a smorgasbord of tactics that individually make sense but collectively don’t add up to a unified, clear direction that sets a company apart—let alone makes the competition irrelevant
Focus attention on the big picture rather than becoming immersed in numbers and jargon and getting caught up in operational details
Drawing a strategy canvas does 3 things:
Shows the strategic profile of an industry by depicting very clearly the factors that affect competition among industry players
Shows the strategic profile of current and potential competitors, identifying which factors they invest in strategically
Shows the company’s strategic profile—or value curve—depicting how it invests in the factors of competition and how it might invest in them in the future
The Four Steps of Visualizing Strategy
Visual Awakening
Compare your business with your competitors’ by drawing your “as is” strategy canvas.
See where your strategy needs to change.
Visual Exploration
Go into the field to explore the six paths to creating blue oceans.
Great artists don’t paint from other people’s descriptions or even from photographs; they like to see the subject for themselves
You should not only talk to these people but also watch them in action
Identifying the array of complementary products and services that are consumed alongside your own may give you insight into bundling opportunities
You need to look at how customers might find alternative ways of fulfilling the need that your product or service satisfies
See which factors you should eliminate, create, or change.
Visual Strategy Fair
Draw your “to be” strategy canvas based on insights from field observations.
Get feedback on alternative strategy canvases from customers, competitors’ customers, and noncustomers.
Use feedback to build the best “to be” future strategy
Visual Communication
Distribute your before-and-after strategic profiles on one page for easy comparison.
After the future strategy is set, the last step is to communicate it in a way that can be easily understood by any employee
Support only those projects and operational moves that allow your company to close the gaps to actualize the new strategy.
Principle 3: Reach beyond existing demand
By aggregating the greatest demand for a new offering, this approach attenuates the scale risk associated with creating a new market
There are three tiers of noncustomers that can be transformed into customers. They differ in their relative distance from your market
“Soon-to-be” noncustomers: buyers who minimally purchase an industry’s offering out of necessity but are mentally noncustomers of the industry
They are waiting to jump ship and leave the industry as soon as the opportunity presents itself
If offered a leap in value, not only would they stay, but also their frequency of purchases would multiply, unlocking enormous latent demand
What are the key reasons first-tier noncustomers want to jump ship and leave your industry? Look for the commonalities across their responses. Focus on these, and not on the differences between them. You will glean insight into how to desegment buyers and unleash an ocean of latent untapped demand
“Refusing” noncustomers: People who refuse to use your industry’s offerings
Buyers who have seen your industry’s offerings as an option to fulfill their needs but have voted against them
People who either do not use or cannot afford to use the current market offerings because they find the offerings unacceptable or beyond their means. Their needs are either dealt with by other means or ignored
What are the key reasons second-tier noncustomers refuse to use the products or services of your industry? Look for the commonalities across their responses. Focus on these, and not on their differences
“Unexplored” noncustomers: never thought of your market’s offerings as an option
These unexplored noncustomers have not been targeted or thought of as potential customers by any player in the industry. That’s because their needs and the business opportunities associated with them have somehow always been assumed to belong to other markets
To maximize the scale of your blue ocean you should first reach beyond existing demand to noncustomers and desegmentation opportunities as you formulate future strategies
The Sequence of Blue Ocean Strategy
Buyer utility
Is there exceptional buyer utility in your business idea?
What trends have a high probability of impacting your industry, are irreversible, and are evolving in a clear trajectory? How will these trends impact your industry? Given this, how can you open up unprecedented customer utility?
Does your offering unlock exceptional utility?
Is there a compelling reason for the mass of people to buy it?
Unless the technology makes buyers’ lives dramatically simpler, more convenient, more productive, less risky, or more fun and fashionable, it will not attract the masses no matter how many awards it wins
Create a strategic profile that passes the initial litmus test of being focused, being divergent, and having a compelling tagline that speaks to buyers
The way a product or service is developed becomes less a function of its technical possibilities and more a function of its utility to buyers
The Six Stages of the Buyer Experience Cycle
Purchase
How long does it take to find the product you need?
Is the place of purchase attractive and accessible?
Delivery
How long does it take to get the product delivered?
How difficult is it to unpack and install the new product?
Use
Does the product require training or expert assistance?
How effective are the product's features and functions?
Does the product or service deliver far more power or options than required by the average user? Is it overcharged with bells and whistles?
Supplements
Do you need other products and services to make this product work?
Maintenance
Does the product require external maintenance?
How easy is it to maintain and upgrade the product?
How costly is maintenance?
Disposal
Does use of the product create waste items?
The Six Utility Levers
Customer productivity
Helps a customer do things faster or better
Simplicity
Being easy to obtain, use, or dispose of
Convenience
Risk
A product might reduce a customer’s financial, physical, or credibility risks
Fun and image
Environmental friendliness
Where are the greatest blocks to utility across the buyer experience cycle for your customers and noncustomers? Does your offering effectively eliminate these blocks?
Price
Is your price easily accessible to the mass of buyers?
Companies are discovering that volume generates higher returns than it used to. As the nature of goods becomes more knowledge-intensive, companies bear much more of their costs in product development than in manufacturing
To a buyer, the value of a product or service may be closely tied to the total number of people using it
Brand building increasingly relies heavily on word-of-mouth recommendations spreading rapidly through our networked society
Cost
Can you attain your cost target to profit at your strategic price?
Adoption
What are the adoption hurdles in actualizing your business idea? Are you addressing them up front?
This sequence leads to a commercially viable blue ocean idea
People who are worried about personal job security are more likely to scan the job market than to try to solve the company’s problems
Tipping point leadership builds on this insight to inspire a fast change in mindset that is internally driven of people’s own accord
There is no substitute for meeting and listening to dissatisfied customers directly
Instead of focusing on getting more resources, tipping point leaders concentrate on multiplying the value of the resources they have
You should concentrate your efforts on kingpins, the key influencers in the organization. These are people inside the organization who are natural leaders, who are well respected and persuasive, or who have an ability to unlock or block access to key resources
At the heart of motivating the kingpins in a sustained and meaningful way is to shine a spotlight on their actions in a repeated and highly visible way. This is what we refer to as fishbowl management, where kingpins’ actions and inaction are made as transparent to others as are fish in a bowl of water
The fishbowl gave an opportunity for high achievers to gain recognition for work in their own precincts and in helping others
By fair process we mean engaging all the affected people in the process, explaining to them the basis of decisions and the reasons people will be promoted or side- stepped in the future, and setting clear expectations of what that means to employees’ performance
The cushion of support provided by fair process, combined with the fishbowl emphasis on sheer performance, pushes people and supports them on the journey, demonstrating managers’ intellectual and emotional respect for employees
Unless people believe that the strategic challenge is attainable, the change is not likely to succeed
Break it down into bite-sized atoms that employees at different levels can relate to
It is only when all the members of an organization are aligned around a strategy and support it, for better or for worse, that a company stands apart as a great and consistent executor
When individuals feel recognized for their intellectual worth, they are willing to share their knowledge; in fact, they feel inspired to impress and confirm the expectation of their intellectual value, suggesting active ideas and knowledge sharing. Similarly, when individuals are treated with emotional recognition, they feel emotionally tied to the strategy and inspired to give their all
If individuals are not treated as though their knowledge is valued, they will feel intellectual indignation and will not share their ideas and expertise; rather, they will hoard their best thinking and creative ideas, preventing new insights from seeing the light of day
People realize that compromises and sacrifices are necessary in building a strong company. They accept the need for short-term personal sacrifices in order to advance the long-term interests of the corporation. This acceptance is conditional, however, on the presence of fair process
Eventually, however, almost every blue ocean strategy will be imitated. As imitators try to grab a share of your blue ocean, you typically launch offenses to defend your hard-earned customer base. But imitators often persist. Obsessed with hanging on to market share, you may fall into the trap of competing, racing to beat the new competition. Over time, the competition, and not the buyer, may come to occupy the center of your strategic thought and actions. If you stay on this course, the basic shape of your value curve will begin to converge with those of the competition
When the company’s value curve still has focus, divergence, and a compelling tagline, you should resist the temptation to value-innovate again and instead should focus on lengthening, widening, and deepening your rent stream through operational improvements and geographical expansion to achieve maximum economies of scale and market coverage