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Swimming in the Blue Ocean by Kim and Mauborgne

How to Create Uncontested Market Space and Make the Competition Irrelevant

It is generally accepted that to grow a business you need to either offer something better (or cheaper ), find a different market to sell to or to satisfy a different need.  In most instances industry boundaries are defined and accepted, competitive rules known and the market is finite and crowded.  The result is that companies have to fight for market share with their competitors’ offerings.  The resulting blood bath from price wars, shrinking profit margins, and brands becoming ever more similar, is the analogy for a Red Ocean Strategy.

The alternative Blue Ocean Strategy allows you to market uncontested; as the industry is not currently in existence and so the market space is genuinely unknown.  Of course there is some risk attached to swimming in the Blue Ocean in that the waters are untested and they may contain killer sharks.  The big plus point is that industry boundaries undefined and so rules can be set by you.  It will create a newly defined, infinite and uncontested market. 

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So why create a Blue Ocean?

There are several driving forces behind a rising imperative to create blue oceans. 

      Accelerated technological advances have substantially improved industrial productivity and have allowed suppliers to produce an unprecedented array of products and services.  The result is that, in increasing numbers of industries, supply exceeds demand.

       As trade barriers between nations and regions are dismantled and as information on products and services becomes instantly and globally available (for example, via the Internet), niche markets and monopoly continue to disappear.

       While supply is on the rise as global competition intensifies, there is no clear evidence of an increase in demand world-wide, and statistics even point to declining populations in many developed markets.

Value Innovation

This is the cornerstone of Blue Ocean Strategy.  It places equal emphasis on value and innovation. 

Those companies that focus on adding Value only to their portfolio of products or services will lack differentiation.  Those companies that focus on Innovation only will tend to be those that are technology-driven, market pioneering or futuristic – often shooting beyond what buyers are ready to accept or willing to pay for.  By focussing on Value and Innovation the Blue Ocean strategy will generate markets by being so very different and generate volume sales by its value for money. 

There are 3 further characteristics of a good strategy, Focus, Divergence and a Compelling Strap-line, They serve as an initial litmus test of commercial viability.  Without them, the strategy is likely to be muddled, undifferentiated, and hard to communicate.

To help us understand the Blue Ocean Strategies we are going to look at three case studies.

Casella Wines

An Australian Winery formed in year 1820 wanted to break into the US market with a new wine.  Wine companies operating in US were somewhat snobbish, more interested in wine’s character.  It was thought that the mass US market prefers beer & spirits to wine.

Cirque du Soleil

The founder of Cirque du Soleil, Guy Laliberté was a Stilt-walker, Fire-eater and Accordion Player.  But Circus industry was declining due to technology generated alternative entertainment, animal rights pressure, the increased overheads (animals) and social modernisation.

QB House

Traditional Japanese haircut ritual performed by barbers lasts 1-hour.  It includes wet shave, hot towels, etc.  A new barbershop business in Japan was looking to differentiate.

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Framework 1:  The 4 Actions Framework

There are four areas to seriously consider when developing a new Blue Ocean strategy.

Question 1: Which of the factors that the industry takes for granted should be eliminated?

Question 2: Which factors should be reduced well below the industry’s standard?

Question 3: Which of the factors should be raised well above the industry’s standard?

Question 4: Which of the factors should be created that the industry has never offered?

Result = A new Value Curve or Strategy Curve

Framework 2: The Strategy Canvas

In order to illustrate your analysis, the strategy canvas first captures the current state of play in market place.  It plots where competition is investing and identifies the factors that your industry competes on, i.e. products, services and delivery. The diagnostic then becomes an illustrative action framework for an emerging Blue Strategy.

Strategy Canvas [yellow tail] Casella, A fun and simple wine to be enjoyed every day – is the fastest growing Australian wine company in history

Strategy Canvas Cirque du Soleil – is thriving – multiple shows ranging from macabre tales to Beatles tribute shows

Strategy Canvas QB House – is now the biggest barbershop chain in Japan

Framework 3: Reconstruction of Market Boundaries

Path 1: Look across Alternative Industries

ie NetJet – 1/16th ownership of a Jet – as available as a car journey with benefit of speed of flying

Path 2: Look across Strategic Groups within Industries,

ie Curves (Texas) – women’s fitness company and franchise – married traditional health clubs and home exercise programs and eliminated everything else – example: they put machines in a circle.

Path 3: Look across the chain of buyers

ie Novo Nordisk – Danish insulin producer – focused on users, not doctors and provided Innovo, an integrated electronic memory and cartridge-based insulin system to help people manage the risk and worry of missing an insulin dose.

Path 4: Look across Complementary Product/Service Offerings

ie NABI – Hungarian bus company – discovered biggest cost to municipalities was not the bus (which everyone was competing on) but maintenance after purchase. So they started supplying fibreglass buses killing 5 birds with one stone.

Path 5: Look across Functional or Emotional Appeal to Buyers,

ie QB House

Path 6: Look across Time,

ie, iTunes saw illegal music-sharing market and how it would eventually have to legalise – got in early

A Word of Caution

It is still important to swim successfully in Red Oceans.  The ‘How To’ is well understood and documented.  Still need to be an expert at this as your emerging market will inevitably attract competitors.

If you are an existing business wishing to adopt a Blue Ocean strategy then ensure all individuals in your organisation have ownership.  Belief in the new strategy must be Top down and Integrated

More information read ‘Blue Ocean Strategy’ – Kim & Mauborgne and enjoy the swim.

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