By Steve Denning – Forbes
Edited by Ted Dacko
In 2005, Blue Ocean Strategy, Expanded Edition: How to Create Uncontested Market Space and Make the Competition Irrelevant, a book by Professors W. Chan Kim and Rénee Mauborgne, launched a revolution in business strategy. After all, which firm would not to be operating in “uncontested market space,” where “competition was irrelevant”? Instead of struggling to survive in the bloody shark-infested “Red Oceans” of vicious competition, why not move to the “Blue Oceans” where there was little or no competition?
What inspired the authors was not “dividing up markets or the globe,” but rather organizations and individuals that created “new frontiers of opportunity, growth, and jobs,” where success was not about fighting for a bigger slice of an existing, often shrinking pie, but about “creating a larger economic pie for all.” The book was a publishing sensation. It sold more than 4 million copies and has been translated into 44 different languages.
Now, 12 years later, the authors offer an exciting new book that synthesizes their experience in assisting with the implementation of Blue Ocean strategy. The book, Blue Ocean Shift: Beyond Competing – Proven Steps to Inspire Confidence and Seize New Growth, is published this week by Hachette. It includes the experience of organizations large and small, for profit, nonprofit and governments.
The book includes many illuminating examples of Blue Ocean strategy in action, including:
- The National Youth Orchestra of Iraq found success by “reducing the emphasis on technical excellence and a sophisticated European repertoire” and instead focusing on “the power of music to bridge the deepest divides and highlight Iraq’s rich heritage.” Abandoning expensive guest conductors and soloists and European repertoire, the orchestra comprises young men and women from all Iraqi ethnic and religious groups.
- The French Groupe SEB found success by slipping out of the intensely competitive market for conventional French fry makers, by creating a French fry maker that operated without the hassle of heating large quantities of oil. The Acti-Fry made healthier French fries with only one table spoon of oil for two pounds of French fries. It transformed the market for French fry makers.
- (added from the book) HealthMedia explored why buyers traded across the strategic groups of telephonic counseling and web content. It found that despite all the factors players competed on buyers traded up to telephonic counseling for one overriding reason – high efficacy, while they traded down to digitalized content for low cost. In essence, companies competing in telephonic counseling were following a classic differentiation strategy, offering high efficacy through specialized counseling for mainly severe health challenges but at a high cost. By contrast, those competing in digitalized content followed a classic low cost strategy of offering generic health information at a low price but with low efficacy. These trade-offs limited employees’ use of both strategic groups’ offerings, creating an ocean of noncustomers. Instead of competing in either strategic group, HealthMedia set out to break these tradeoffs. The result was opening up a new value-cost frontier in the industry by creating a new market space called digital health coaching, which combined the far lower cost of digitalized content with a leap in efficacy through interactive online questionnaires that digitally matched people’s self-reported challenges with a health plan that would work best for them.
In effect, Blue Ocean strategy involves market-creating innovation. It opens up new possibilities that are not available to organizations operating within the existing cost-value structure. It expands the universe as to what is possible, often enabling higher value at lower cost.
In their work since the launch of their 2005 book, the authors have found three key components in successful Blue Ocean shifts:
- Mindset: The authors found that, as in the world of Agile management, Blue Ocean strategy is fundamentally a shift in mindset. It involves “expanding mental horizons and shifting understanding of where opportunity lies.”
- Tools: Successful implementers of Blue Ocean strategy have used practical tools to systematically “translate blue ocean thinking into commercially compelling new offerings.” Sporadic, one-off “Blue Ocean strategy” is one thing: systematically adopting Blue Ocean thinking is another.
- Human-ness: Successful implementers exemplify “a humanistic process, which inspires people’s confidence to own and drive the process to own and drive the process for effective execution.”
The Blue Ocean Mindset
Perhaps the most important chapter is Chapter 3, which delineates the Blue Ocean mindset and the distinctive opportunity-based thinking that is at the foundation of Blue Ocean strategy. It is a perspective that enables strategists “to ask a fundamentally different set of questions,” the answers to which “in turn enable them to perceive and appreciate the fallacies behind long-held assumptions and the artificial boundaries we unknowingly impose on ourselves.”
It describes for instance how Salesforce.com was able to upend the customer-relationship management industry through providing services on a subscription basis through the cloud. Such Blue Ocean strategists epitomize strategic agility by focusing on creating and capturing new markets, not fighting over existing customers. In effect, they “think different.”
The Five Step Process
The book offers a five-step process for systematically reproducing such strategic triumphs, and shows how a Blue Ocean initiative can be successfully launched in even the most bureaucratic organization that is trapped in a bloody Red Ocean. The five steps are:
- Choosing the right place to start and constructing the right Blue Ocean team for the initiative.
- Getting clear about the current state of play
- Uncovering the hidden pain points that limit the current size of the industry and discovering an ocean of non-customers.
- Systematically reconstructing market boundaries and developing alternative Blue Ocean opportunities.
- Selecting the right Blue Ocean move, conducting rapid market tests, finalizing, and launching the shift.
Though this process, the organization is able to move from the limitations of competing within the existing industry (“settlers”) to migrate towards greater value improvement (“migrators”) and eventually towards creating new value for people who are not already customers (the “pioneers” of marketing-creating innovation.)
The Trap Of Mere Product Improvement
In the process, the book shows how to move beyond the trap of merely focusing on making things better for existing customers. Thus, usually product improvement doesn’t lead to large new markets of those who were formerly non-customers. If it does, that is a happy accident, rather than the main goal. To get more consistent success in generating market-creating innovations, an explicit focus on attracting non-customers is needed. This includes (a) soon-to-be non-customers; (b) refusing non-customers and (c) unexplored non-customers.
Market-creating innovations sometimes involve eliminating features, not adding or improving them. Paradoxically, less may be more. Yet the decision to eliminate seemingly popular features is not one that is easily taken at the level of the individual team. Moreover, existing features typically have their own constituencies within the organization: a team that has created a feature often becomes a lobby for retaining and improving it.
Market-creating innovations can also lead to self-cannibalization of the firm’s existing products and so generate a reluctance to interfere with a current revenue stream. Such a decision is never easy and typically it has to be taken at a high level of the organization.
In the absence of an explicit process to foster market-creating innovation, decisions on “big bets” also risk being engulfed in corporate politics: the loudest voice having the most hierarchical clout may end up making the call. In the absence of hard numbers, proceeding with the investment will often be perceived as presenting too great a risk and the investment will be abandoned.
Blue Ocean Shift shows that it doesn’t have to be this way. There is a process for systematically generating market-creating innovations. There are well-established principles that can lead to sustained success.
At the same time, the book avoids the trap of suggesting that Blue Ocean strategy is simply another process. Ultimately Blue Ocean strategy is about a different mindset. Unless the Blue Ocean initiative is conducted by people with the distinctive opportunity-based thinking that is at the foundation of Blue Ocean strategy, it will risk having no impact.
The Larger Challenge: Organizational Transformation
Blue Ocean Shift provides us with a comprehensive guide to enable any organization with the right mindset to launch and implement a Blue Ocean initiative.
Yet the book also shows that the kind of leadership and management needed to implement a Blue Ocean strategy initiative is very different from the typical big bureaucracy, where strategy is decided at the top, and where big leaders appoint little leaders, who in turn appoint even smaller leaders, who report upwards on their progress of implementing the top management game plan.
The book reveals that the kind of leadership and management that is needed is also very different from the current management of many public corporations that have a short-term perspective and are principally focused on maximizing shareholder value, pumping up the share price through share buybacks, defeating competitors through mergers and acquisition and lowering costs by offshoring of production.
As the book’s story unfolds, it becomes increasingly clear that Blue Ocean strategy is about a lot more than just formulating a strategy or implementing a single initiative. Sustained success inevitably entails organizational transformation. The current book by Professors Kim and Mauborgne does a great service by pointing to these broader institutional challenges.