Business Book Blog

Red Ocean – markets where there is competition

Blue Ocean – new markets

Example: Cirque Du Soleil over a  normal circus.

Stop trying to beat competition but instead make them irrelevant.

Industries never stand still.

First Principle of Blue Ocean: Reconstruct market boundaries

Value Innovation -  is the cornerstone of Blue Ocean Strategy, drive costs down while driving value up (like cirque du Soleil they removed animals from a circus driving down costs while driving performance value up)

Strategy Canvas – what are the key factors in an industry, where does the premium players line up?, where do the low cost players line up?, each player has a value curve that they are offering , shows three things: industry factors, competitors strategy, and your value curve all in the same place

Four Action Framework - what can you remove, greatly reduce, add,  greatly increase to be on a different canvas (create an entirely new value curve) than your competitor? Create a four corner grid for yourself.
 
Three Characteristics of a Good Strategy

• Focus of the value curve – do not diffuse across all categories
• Shape of value curve diverges from competitors
• Clear tagline

 
Beware

• Over delivery without payback
• An Incoherent Strategy
• Strategic Contradictions
• Internal versus External Market Driven

 
Six Paths that will force you into Red Oceans

• Trying to be best in your currently “defined” marketplace
• Striving to stand out in a narrow scope of your currently “defined” marketplace
• Focus on the same buyer groups
• Scope of products and services defined by industry
• Accept industries functional or emotional orientation
• Focus on same point in time and on competitive threats in their strategy

Substitute products – offer different form but fill same functionality

Alternative products – different forms but fill same purpose (restaurant or cinema fill the night out purpose)

Strategic groups within markets – luxury versus economy car builders don’t compete with each other, many companies look across strategic groups to create blue oceans

Purchaser, User, and Influencer of purchasing decisions are all important and all three hold different ideas of value

Untapped values are normally hidden in complementary services (cinema with a babysitter)

Three principles for trends, they need to be:

• decisive to your business
• irreversible
• have a clear trajectory 
  

Second Principle of Blue Ocean: Focus on the big picture, not numbers in your strategy

 
To Create a Blue Ocean Strategy

• Draw your “as-is” canvas
• Look to the six paths, get in the field yourself, find the value
• Create a new canvas based on opportunities in the six paths (eliminate, create, reduce, improve)
• Close the gap

 

Never outsource your eyes.

 
PMS Mapping

• Pioneer – pursue Blue Ocean,
• Migrators – Best in class Red Ocean
• Settlers – pursue Red Ocean

What is your portfolio PMS map? Revenue, profit, and market share cannot tell the future because the environment changes too fast. Instead use value and innovation to predict the future.

Build your strategy around a picture.
 
Third Principle of Blue Ocean: Reach beyond existing demand

Instead of looking for customers, look at non customers

 3 tiers of non customers

• those at the edge of your market
• those that refuse your market
• those that have never thought of your market as an option

Look at their commonalities and find the largest group of untapped customers

Fourth Principle of Blue Ocean: Get the strategic sequence right: buyer utility then price then cost then adoption
Buyer utility – price = customer value

You should not allow cost to drive price.  

Buyer Utility: bells and whistles are not utility 

Buyer Utility Map (Matrix) – 6 Levels versus 6 Levers, for each lever ask which level is the greatest block to buyer utility

Six Levels of Buyer Experience

• Purchase
• Delivery
• Use
• Supplements – Do you need other products to make this work?
• Maintain
• Dispose

Six Levers of Utility

• Customer Productivity
• Simplicity
• Convenience
• Risk
• Fun and Image
• Environmental Friendliness

Price

Knowing the price that captures the mass of the market is becoming more important, volumes are becoming more important in profitability, and many product exhibit the network effect (like the telephone, the more people that use it the more useful it is)

Rival good – cannot be copied by competitor, example an employee that works for one company cannot work for another

Non-Rival good – ideas that can be copied by your competitor

Price Corridor of the Mass

• Same form offerings
• Different form same function
• Different form and function, same objective

Plot (above) versus price tiers and find volume of customers at each tier

Factor in the excludability of your product

Excludability – the ability to exclude your competitors to using your concept, ideas, and strategy

Use Best Tier for Pricing

Cost

Derive Cost from target price minus the profit margin you want

Cost Levers

• Streamline Operations – MFG and Distro cost reductions
• Partnering
• Change the Pricing model of the industry: time-share, slice-share, equity interest instead of cash,

Adoption

Three adopters – employees, business partners, and the public

Fifth principle: Overcome key hurdles to execute the strategy  
Execution’s four hurdles: cognitive, resources,  motivation, politics

Tipping point leadership – there are people, acts, and activities that influence a disproportionate amount of influence in any organization, change the tipping points and the rest will follow

Cognitive -“Seeing is believing” quickest way to change is to show positive or negative stimuli directly to the people who need to change, show the problem or solution to the stakeholders 

Resources

• Hot Spots – low resource input but high performance gain
• Cold Spots – high resource input but low performance gain
• Horse Trading – leverage excess resources from one area to another (outside of your normal boundaries)

Move resources from cold spots to hot spots and horse trade outside of your normal resources your excess

Motivation

• Kingpins – key influencers and natural leaders
• Fishbowls – place kingpins in a transparent fishbowl so everyone can see their progress base it on transparency, inclusion and a fair process
• Atomization – break strategy into small goals so no one can say its not attainabl
  

Politics

Get a strong number two on your team

Who are my biggest opponents? What is their argument?

 

Sixth principle: To build people’s trust and commitment to the strategy you need to build in execution from the start.

 

Need a fair process so people don’t feel coerced.

“People care as much about how a decision was produced as what the decision was”

Fair Process

• Engages – show you want input from everywhere
• Explains – shows everyone why this is important
• Expectation clarity – what is expected out of everyone

Commitment, trust, and voluntary cooperation are intangible capital.

Imitation Barriers to Blue Ocean

• It does not make sense as traditional strategy
• Brand image conflict helps prevent it
• Natural monopolies may form
• Patents or legal protection
• High Volume can be hard to overcome
• Network externalities
• Loyal following by being first on the market

 
You must monitor the strategy canvas and be ready to move to another Blue Ocean at some point when your ocean turns red.