Business case studies focus on companies. That’s all wrong. The more effective unit of assessment is the “strategic decision.” Companies change because people and external factors shift. Better to take specific moments to assess who, why and how did leadership get it right.
That’s the foundation of what most interests me about popular business book and concept Blue Ocean Strategy, written by W. Chan Kim and Renée Mauborgne. The original 2005 book’s origins are with a 1997 article on “value innovation” in Harvard Business Review. I read the updated version published in 2015.
It’s easy to criticize the careerism of business books like these. Smart management researchers uncover some findings, group case studies and give it cute branding to sell books and lead to a career of consulting and public speaking. It all has a very packaged feel. Yet I have gotten genuine value from many such books once they’re put in the proper concept: Pick from them what helps you and don’t feel required to follow it all.
The big headline of the book is that too often when facing a strategic decision, leaders follow the pack because it feels safe. Their assessment says this is all wrong. Rather than a crowded “red ocean;” Distinguish yourself by turning to open “blue ocean.” In some sense, many other business metaphors — such as Jim Collins’s “Big Hairy Audacious Goal” (BHAG) and the “Queen Bee Role” and “making the donuts” — give similarly productive advice: Fall in love with the problem not the solution, and, rather than following everyone else, uncover what you’re the best in the world at.
The advice is good enough, though, that it can help. A friend advised me it was return to Blue Ocean Strategy. I read it, translated it into a mini-workshop my leadership team, and it helped push us forward at an important juncture.
You might rightly benefit too. Pick up a copy. For my future reference, I’ve shared my notes below.
- Don’t focus on competition (red ocean) focus on clients (blue ocean)
- The message: rather than incrementally improve offerings that are similar to your competitors, go to where there is complete “quantum leap” of improvement
- Other business exercises keep you in “red oceans”: SWOT and “five forces” assumes you’re tied to your industry rather than being entirely different
- “To win in the future, companies must stop competing with each other. The only way to beat the competition is the stop trying to beat the competition.”
- Cirque de Soleil classic example: They dropped all that didn’t make sense about circuses and went upmarket
- Books like Search of Excellence and Built to Last (2001) were criticized because the companies of their case-study companies failed, or failed to outperform their peers.
- Maybe there are no visionary companies and so companies are the wrong unit of measure of analysis. Authors argue that the “strategic move” is the right unit of measure, not company.
- Research covered 150 “strategic moves” between 1880-2000
- Rather than competitive differentiation; authors argue for “value innovation,” something bolder than “value creation.” Focus on both value and something truly different than the rest
- Not bleeding-edge technology, or time in the market, “Value innovation occurs only once company has aligned innovation with utility, price and cost positions.”
- “If they fail to anchor innovation with value in this way, technology innovators, and market pioneers, often lay the eggs that other companies hatch.”
- It is conventionally believed that companies can either create greater value to customers at a higher cost or create reasonable value at a lower cost. Here strategy is seen as making a choice between differentiation and low-cost. In contrast those that seek to create blue oceans pursue differentiation and low cost simultaneously.
- Strategy canvas
- Shift your attention from competitors to alternatives; from customers to noncustomers
- Casella Wines offered new approachable wine to compete with wine industry by getting new customers
- Four actions framework:
- Reduce: below industry standard
- Eliminate: industry standards
- Create: new offerings
- Raise: elevated above industry standard
- Blue ocean strategy: Focus on areas to compete, diverge from others and compelling tagline
Six paths framework for choosing your blue ocean
- Look across alternative industries (alternatives not substitutes): What are alternatives to our industry? Why do customers trade across them?
- Strategic groups within industries (for us maybe that’s b2b media and B2C and local) What are the strategic groups in your industry? Why do customers trade up for the higher group and why did they trade down for the lower one?
- Look across the chain of buyers (purchaser, user, influencer) (for us this might be size of company and who buys, whereas we have gone to readers of ours) What is the chain of buyers in your industry? Which buyer group does your industry typically focus on? If you shifted the buyer group of your industry, how could you unlock value?
- Complementary product and service offerings (maybe this is like our events, our mix of services) 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 illuminate these pain points through a complementary product or service offering?
- Look across functional or emotional appeal to buyers (if youre industry is one, try to use the other , example being Cemex and its Patrimonto Hoy program) ((Like should we make our clients feel emotionally tied to us in some way? )) Does your industry compete on functionality or emotional appeal? If you compete on emotional people appeal, what elements can you strip out to make it functional? If you computer functionality, what elements can be added to make an emotional?
- Look across time (what trends have a high probability of impacting your industry, are irreversible, and are evolving in a clear trajectory? How all these trends impact your industry, given this how can you open up unprecedented customer utility?
- Focus on the big picture not the numbers
- Draw a strategy canvas, and find the value curve
Four steps of visualizing strategy (see photo)
1. visual awakening: what is our strategy curve now
2. Visual exploration: what do customers and non customers tell us
3. Visual strategy fair: present what they could be
4. Visual communication: the dad
For an exercise:
- What factors do we compete on?
- How would you rate us and competitors
- What do our customers say?
- Eliminate-reduce-raise-create grid
- How does this fit in strategic vision ?
Then plot on PMS:
- pioneer: innovation offerings for longterm value
- Migrators: improved value but not true differentiation
- Settlers: me-too businesses, no differentiation
- Aristotle: “the soul never thinks without an image”
- Instead of customer differences, focus on non-customers.
Three tiers of non customers
- First tier: “Soon-to-be” noncustomers who are on the edge of your market, waiting to jump ship. (For us, maybe job posters?)
- Second tier: “Refusing noncustomers who consciously choose against your market.
- Third tier: “Unexplored” noncustomers who are in markets distant from yours.
(Example of Pret A Manger which looked at what urban center workers were not buying lunch — they wanted faster, healthier, cheaper — and created a category )
- Non customers offer more insight into growth opportunities than current customers
- Sequence of blue ocean strategy (see photo): buyer utility, price, cost and adoption
- Note for my own book: I screenshot a lot of helpful charts in this book, I want the same for my book. Especially the chapters for each persons (creators, marketers, advocates), I should create charts that could also be used for consulting and staff retreat exercises
- Bleeding edge technology and bleeding edge utility for buyers rarely overlaps, according to their research
- Unless your innovations make “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.”
- See photo of buyer utility map: you map your offering and the industry and see where to stand out
- Often we seek novelty seeking early adopting price insensitive clients. But we need a competitive price sooner for two reasons: (1) more knowledge intensive products and services spend more on product development than in manufacturing; (2) network externalities mean more users benefit all
- Knowledge work is full of “nonrival ideas” (as opposed to rival goods like scrap steel or doctorate researcher that only one company can use)
- Price corridor of the target mass (photo)
- Review products/services that take same form; those different form and same function and those that add different form and function but same objective
- Build that price corridor by looking at alternatives (not just competitors): do you have anything that keeps you high end?
- Strategic price point minus desired profit margins equals target cost (price-minus costing as opposed to cost-plus pricing)
- With price first, you think creatively about ways to reduce cost rather than assuming what your product / service has to include and therefore cost (ie reduce high cost low value stuff)
- Culture change only happens by finding the tipping points of leverage: what people and initiatives have disproportionate influence?
- NYPD chief Bill Bratton and top brass rode the subway despite limited actual reported crime there, it was the tipping point, that was their tipping point. (Broken window theory widely discredited now but did that help with narrative?)
- With limited resources, talk about hot spots and cold spots: where can small bits of money have big impact? Reduce elsewhere
- “Place kingpins in a fishbowl” more data and open transparency about team performance (leadership meeting could be this)
- Need a consigliere for culture change: someone who knows the inside gossip
- Thibaut and Walker on procedural Justice; we care about the Justice of the process as much as the Justice of the outcome
- These authors use the phrase “fair process” to name the managerial version of procedural Justice: engagement, explanation and clarity of expectation.
- Value proposition, profit proposition and the people proposition
Achieving strategy alignment:
- Value proposition: The utility buyers receive from an offering minus the price they pay for it
- Profit proposition: The revenues an organization generates from an offering minus the cost to produce and deliver it
- People proposition: The positive motivations and incentives put in place for the people needed to support and implement the strategy
Those three above can lead to either…
- Blue ocean strategy approach: The alignment of the three strategy propositions in pursuit of both differentiation and low cost.
- Red ocean strategy approach: The alignment of the three strategy propositions in pursuit of either differentiation or low cost.