…Precise and Powerful
Author: W. Chan Kim and Renee Mauborgne
Publisher: Harvard Business School Press
Category: Business and Management
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Name of Book: Blue Ocean Strategy
Modern day business is characterized by competition and aggressive manipulations within the murky waters of what the authors call red oceans. So, blue ocean is all about creating uncontested market; new market space that makes competition irrelevant. To lead in the future, companies must stop competing with each other and the only way to beat competition is to stop trying to beat competition. In blue oceans, competition is irrelevant, because, the rules of the game ate waiting to be set. To focus on the red ocean is therefore to accept the key constraining factors of war; limited terrain and the need to beat an enemy to succeed and to deny the distinctive strength of the business world; the capacity to create new market space that is uncontested. According to the authors, creating blue oceans has little to do with business and industry sectors but is attributed to what they call strategic move; a set of management actions and decisions involved in making a major market creating business offering.
The authors concluded that what separates winners and losers is their approach to strategy. Innovation must be anchored on value for both the company and the customer. Innovation must be aligned with utility, price and cost positions, not just acquiring technology and pioneering markets. Value innovation does not lead to value-cost trade off, rather, those who seek to create blue oceans must pursue differentiation and low cost simultaneously.
FORMULATING AND EXECUTING BLUE OCEAN STRATEGY:
If you lack an understanding of the opportunity maximizing and risk minimizing principles during the creation and capture of blue oceans, the odds are will be lengthened against your blue ocean initiative. Strategy will always involve opportunity and risk both in blue and red oceans. The rest of the book will be acquainting us with both the guiding factors and principles for creating a blue ocean.
ANALYTICAL TOOLS AND FRAMEWORKS:
For a start, effective blue oceans should be about minimization of risks and not risk taking. The Strategy Canvas: this is an action frame work for building a compelling blue ocean strategy. it works by first capturing what the industry competes on like products, service delivery etc and secondly, it helps you re-orient your strategic focus from customers to non customers and from competitors to alternatives. The Four Actions Frame work for creating a blue ocean are: 1. Which of the factors that the industry takes for granted should be eliminated 2. Which factors should be reduced well below the industry’s standard 3. Which factors should be raised well above the industry’s standard 4. What factors should be created that the industry has never offered. The Eliminate-Reduce-Raise-Create Grid: this is the third tool in creating blue oceans which focuses on eliminating what is no longer necessary, reducing what needs to be contained, raising what is downplayed and creating what never existed. Three Characteristics of a good strategy: Focus; every great strategy has a compelling focus, Divergence; great strategies steer the company on a divergent path, off the competition track, Tagline; a compelling message that clearly and truthfully communicates to the customer the value the company offers. To detect whether a company is on the way to creating a blue ocean, check whether the value it claims to deliver reflects in its bottom-line. If its strategy delivers high-low-high-low curve, then, it’s incoherent. Does it engage in strategic contradiction where it builds an expensive website that’s too slow, does it engage in inside out perspective where it uses words that are simple in communication or is it outside out where it uses technical and complex jargons.
PARTII: FORMULATING A BLUE OCEAN STRATEGY:
The first principle of blue ocean strategy is to reconstruct market boundaries to break from competition and create Blue Ocean. To break out of red oceans, companies must break out of the accepted boundaries that define how they compete. Path1: Look across alternative industries. In the broadest sense, companies don’t compete with only firms in its industry but also with other industries that produce alternative products or services. People go to a restaurant for the same objective as they go to movies; night out and by exploring why customers make this trade off can open up opportunities. Path2: Look across strategic groups within industries. Strategic groups refer to a group of companies that pursue similar objective. Some car makers focus on luxury while others focus on economy and by looking beyond one’s group to the other group can open up an opportunity to create a blue ocean. Path3: Look across the chain of buyers. Looking across the different groups of buyers; from retailers, consumers, corporate purchasing agents to corporate buyers and challenging an industry’s conventional wisdom about which target group to focus on can lead to the discovery of a blue ocean. Path4: Look across complimentary product and service offering: in most cases, most products and services are used alongside other ones. The key here is to study products and services that affect the use of yours whether you are aware or not and how they can be turned to your favour. The key is to define the total solution buyers seek when they choose a product or service. In other words, what happens before, during and after your product is used. Path5: Look across functional or emotional appeal to Buyers: one of the greatest appeals to buying products of services is emotion and often, this is the way industries have programmed customer expectation. Removing costly and unnecessary emotional attractions to a product can lead to a blue ocean, likewise, adding intelligent emotional attachment to a product or service can equally lead to a blue ocean. Path6: Look across time: Looking at trends based on the activities of a given industry at a particular time, from the value a market delivers today to the value it might deliver tomorrow can be a pointer to the future shape of the business, which might lead to a blue ocean. Facebook, amazon and others were created by looking across the internet trends.
FOCUS ON THE BIG PICTURE NOT THE NUMBERS:
This topic is about evolving a strategy that will diverge from the traditional approach of focusing on the competition to focusing on what the company should do. It entails the use of a strategy canvas which showcase the industry profile, profile of competitors and the strategic profile of the company and how it invests its resources today and tomorrow. This helps to keep attention on all the departments of the company instead of a unit. The four steps of visualizing a strategy includes: 1. Visual awakening: present your current strategy, compare it with competition and observe where you need to change 2. Visual exploration: sending out managers to the field to find out by critical examination how customers use their products or services.3. Visual Strategy Fair; where all the mangers present their discoveries for critical scrutiny for onward adoption by both customers and stake holders. 4. Visual communication; after a strategy is adopted, its presented in a way will be understood by all. Visual Strategy at a Corporate Level: This is a process where all the units present their strategy to one another which deepens understanding and empathy. This is done using the pioneer -migrator-settler map, where the pioneer is the business that brings the highest good for the company, the settlers are the normal businesses that do what others do while the migrators are the businesses that are in between but have the potential of becoming pioneers. Reach Beyond Existing Demand: to maximize the size of the blue ocean one created, one should focus on non customers and not on existing customers and instead of focusing on existing customer differences, should focus on what customers have in common. Every company has three tiers of non customers that serve as opportunities; the first is closest to your market and sits at the verge of your market waiting to be converted or to jump. There are those who deliberately choose against your product and the third one are those who have never seen your market as an option and are furthest from you. Try to explore whether there are overlapping commonalities across the three all tiers of non customers and the rule hers is to go for the largest catchment.
GET THE STRATEGIC SEQUENCE RIGHT:
This deals with getting the strategic sequencing of your blue ocean right. The first is buyer utility; is there a compelling reason for the mass of people to buy it? The second is price; is your offering priced to attract the mass of target buyers so that they have a compelling ability to pay for your offering. The third is cost; can you produce your offering at the target cost and still earn a healthy profit margin and the last is adoption hurdles; potential resistance to the idea by retailers or partners. There are six levers that help to test for the strength of the utility of your offering; does it empower the customer to be productive, is it simple to use, is it convenient, does it involve risk, is it fun to see and use and is it environmentally friendly. The smartest way to price is to start with an offer that buyers can’t refuse and should be kept that way to resist any free riding imitation. In moving from strategic pricing to target costing, price minus costing and not cost plus pricing is essential if you are to arrive at a cost structure that’s both profitable and hard for potential followers to match. To hit the cost target, companies have three principal levers; the first is stream lining operations and introducing cost innovations from manufacturing to distribution, the second is partnering with relevant agencies instead of doing everything themselves and the third is changing the pricing model of the industry. In changing the business model of the industry, employees, partners and the general public should be informed to avoid resistance. Having successfully evolved a blue ocean idea, The next stage is the challenge of execution.
OVERCOME KEY ORGANISATIONAL HURDLES:
Execution is indispensable to evolving a blue ocean and in doing so, four hurdles are usually encountered: 1.Cognitive; waking employees up to the need for a strategic shift 2. Limited Resources, motivation and politics-To solve cognitive challenges, organizations should employ what is known as the tipping point of leadership which entails influencing key people, event and activities that exercise a disproportionate influence on performance. For instance, making people experience, first hand the circumstances you want them to confront creates a cognitive dramatic shift in people. To overcome the hurdle of resources, redistribute your resources to your hot spots; areas that will deliver the most impact. To overcome motivation hurdle, engage people, spirit, soul and body by getting them to know what needs to be done, principles of operations and the intended consequences and to knock over the political hurdle; tipping point leaders, focus on angels; maximizing the influence of those on your side, silencing devils, minimizing the influence of possible opposition and getting a consigliere on their top management team; meaning those in top management who are sympathetic to your cause. The dictum here is: “Don’t fight alone, get the higher and wider voice to fight with you” The summary wisdom here is to avoid following conventional wisdom, because, not every challenge requires a proportionate action. Focus on acts of disproportionate influence.
BUILD EXECUTION INTO STRATEGY:
We must understand that a company is not only top or middle management but everyone from the top to the frontlines. To succeed in executing strategy, company must invoke its most fundamental base which is the attitudes and behaviors of its people deep in the organization and to succeed at this, execution must be built into strategy from the start. At the fore front of execution, success is enthroning fair process into management and this can be done by employing the three E(s) of fair process; Engagement, Explanation and clarity of Expectation. Fair process matter because, individuals seek recognition of their value, not as labour, personnel or human resources but as human beings who are treated with full respect and dignity and appreciated for their individual worth, regardless of hierarchical level and intellectually, individuals seek recognition that their ideas are sought after and given thoughtful reflection and that others think enough of their intelligence to explain their thinking to them. Finally, in executing a blue ocean, companies wrestle with how to create trust, commitment and voluntary cooperation deep in the organization.
The Sustainability and Renewability of a Blue Ocean Strategy: To put it differently, how easy or difficult to imitate is a blue ocean strategy? A great company should not wait until they are imitated to innovate. Nevertheless, its not easy to imitate a blue ocean strategy due to some barriers as: other companies don’t usually take value innovation seriously, the strategy may conflict with other company’s brand image, often, the market cant support a second player, patents or legal permits, high volume leads to rapid cost advantages for the value innovator discouraging followers form entering the market, network externalities discourage innovation, innovation often requires a lot of political, operational and changes and the fact that companies that value innovate earn brand buzz and a loyal customer following which tend to shun imitators. To avoid the trap of competition, you need to monitor value curves on the strategy canvas; it signals when to value innovate and when not to and it allows you to reach out to another blue ocean when your value curve begins to converge with those of the competition. Finally, this book aims to teach and demonstrate that executing a blue ocean is not a myth but can be as systematic and actionable as competing in red oceans of known market place.