I’ve long been a supporter of ‘Blue Ocean Strategy’ thinking. I’m also a firm believer that the greatest opportunities for business today lie with business model innovation – i.e. finding new ways to create, deliver and capture value. This enables the creation of uncontested market space – ripe for growth.
Blue Ocean Strategy
Blue Ocean strategy, created by Professors W. Chan Kim and Renee Mauborgne, deals with the reality of companies long engaging in head-to-head competition in search of profitable growth. These companies have fought for competitive advantage, battled over market share and struggled for differentiation. This head-on competition often results in nothing but a bloody ‘read-ocean’ of rivals fighting over a shrinking profit pool and failing to build any meaningful and sustained strategy to create profitable growth in the future.
It is suggested that the business universe consists of 2 distinct kinds of space, viz red oceans and blue oceans. Red oceans represent all the industries in existence today – the known market space. In red oceans, industry boundaries are defined and accepted and the competitive rules of the game are well understood. Here, companies try to outperform their rivals in order to grab a greater share of existing demand. As the space gets more and more crowded, prospects for profit and growth are reduced. Products become commodities and increasing competition turns the water bloody.
Blue oceans, on the other hand, denote all industries not in existence today – the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. There are primarily two ways to create blue oceans. In limited instances companies can give rise to completely new industries. In most cases however, a blue ocean is created from within a red ocean when a company alters the boundaries of an existing industry.
One of the most effective ways to create blue oceans – to create meaningful competitive advantage, is to develop organisational capabilities that enable the enterprise to design and to deliver unique and distinctive customer experiences, and through this capability, to create value that is distinctive in the market. This is about satisfying a real customer/client need that deals not only with an appropriate, relevant and unique product or service, but also addresses the experiential and emotional elements that the customer/client needs.
The Challenge of Growth – Value Innovation
Profitable, organic growth is a tremendous challenge facing many companies today. As organisations get larger the organic growth challenges become bigger. Very often the value differentiator that led to the initial growth is lost or diminished as more nimble and agile competitors step in to disrupt.
Most companies share an implicit set of beliefs about ‘how we compete in our industry or in our strategic group.’ They share a conventional wisdom about who their customers are and what they value and what products and services their industry should be offering. Their strategy is dominated by the idea of staying ahead of the competition. They view business opportunities through the lens of their existing assets and capabilities – they ask, given what we have, what is the best we can do? This leads to competitive convergence – they end up competing solely on the basis of incremental improvements in cost or quality or both.
Differentiated, winning organisations with enlightened leadership pay little attention to matching or beating their rivals – instead they seek to make competitors irrelevant through a strategic logic called value innovation.
Value innovators do not accept their industry conditions as given. They do not set strategy accordingly. They do not let competitors set the parameters of their strategic thinking – they do not focus on comparing strengths and weaknesses with those of their competitors in order to build an advantage. They are not interested in competing at the margin for incremental share.
Value innovation logic starts with the ambition to dominate the market by offering a tremendous leap in value. Value innovators do not let what we can do today condition their view of what is required to ‘win’ tomorrow.
An analysis of major innovations within existing corporations in the past decade shows that precious few have been business model related and an American Management Association study a few years back determined that no more than 10% of innovation investment at global companies is focussed on developing new business models.
Shareholders today want to understand that companies are able to grow organically. Customers are a finite resource. Companies need to prove to shareholders that they are capable of acquiring more of this limited resource, need to prove they are capable of retaining those customers that they have, particularly the valuable ones, need to allocate resource efficiently and manage the cost-to-serve those customers based upon what they’re worth today and what they will be worth tomorrow and need to have a sufficiently compelling customer value proposition that ensures they can develop their current customers through appropriate and relevant up-sell and cross-sell initiatives.
This is about developing leaps in value for both the organisation and the buyers, creating all new profitable demand.
The creation of blue oceans is reliant on innovation across products, services and delivery (experience). Those companies most successful at repeating value innovation are those who take advantage of all 3 of these platforms. Sadly, too many organisations limit their strategic options by focussing on only 1 dimension of strategy.
Competing in overcrowded industries is no way to sustain high performance. Developing and operationalising a customer-centric business model will enable an organisation to stand out.
For more insight into customer-centric business model innovation, please see my book “The Customer-Centric Blueprint’ – http://amzn.to/ZILg4y
(Much of this content is attributed to various Harvard Business Review articles – Blue Ocean Strategy by W.Chan Kim and Renee Mauborgne, Value Innovation: The Strategic Logic of High Growth by W.Chan Kim and Renee Mauborgne, Creating New Market Space by W, Chan Kin and Renee Mauborgne and Insead MBA Mini Elective – Blue Ocean Strategy Simulation Course)
