The business world is often perceived as a bloody red ocean full of aggressive sharks trailing the smaller fish. Once they are in a good position, they attack! It’s not a fun place to be in; one is constantly hunting, while the other is running away. And both just want to survive!
Wouldn’t it be great to swim in peaceful and friendly waters instead of a bloody red ocean full of sharks? The Number One Thinkers W. Chan Kim and Renee Mauborgne call this safe space the Blue Ocean – an uncontested market where competition is irrelevant.
How do you find your Blue Ocean?
Too often, companies benchmark themselves in terms of the competition and, based on those insights, define their strategy. This immediately gives you an entrance ticket to the bloody red ocean in which the only way to protect yourself is by fighting others. The creators of the blue ocean, however, act in the opposite way – they ignore the competition and rather focus on developing value innovation.
Value innovation presents a whole new way of thinking, that is, of increasing customer value in direct proportion to reducing operational costs. This directly negates the assumption that to increase value to our customers, we will have to raise costs accordingly.
Value innovation should not be confused with technology innovation! Rather, it’s about looking to noncustomers who are currently not using your product because they cannot afford it or they prefer alternatives which might even be outside your currently perceived market. The types of insights gained through this perspective become the framework for understanding the industry’s pain points and discovering your potential Blue Ocean.
Once you have analyzed the profiles of your noncustomers, try to answer Four questions which will help you to define a potentially new product or service:
1. Which factors should be reduced well below the industry’s standard?
2. Which factors should be created that the industry has never offered?
3. Which factors should be raised well above the industry’s standard?
4. Which of the factors the industry takes for granted should be eliminated?
As an example, let’s look at Cirque du Soleil’s blue ocean answers to the Four-Question grid (Figure 1). It’s clear that Cirque du Soleil looked at the industry differently and didn’t even try to compete with other circus companies. Instead they focused on noncustomers, that is, adults and corporate employees who are ready to pay more.
How do I know if my Blue Ocean is really blue?
Well, let’s say you have an idea, which sounds amazing. You feel like you have discovered a new blue ocean, but you still lack confidence to go full speed for implementation. In this case, you can test yourself against three criteria: focus, divergence and compelling tagline.
Your Blue Ocean Strategy should have a clear strategic focus: obviously, you cannot be the best everywhere. You need to find that niche area which differentiates you from others. This happens when you forget the competition and try to find your playing field – divergence. Lastly, your new strategy needs to be appealing to your customers and have a clear-cut tagline.
Six principles for implementing a Blue Ocean Strategy
Creating a Blue Ocean Strategy sounds very attractive, but it’s not easy. That is why the authors of the Blue Ocean Strategy book have created a Six-Principle framework, which serves as a guide for companies to implement.
1st principle – reconstruct market boundaries. For this, you need to identify commercially appealing blue oceans. This can be done by looking across alternative industries, chains of buyers or complementary products. These might give you inspiration and help you understand the different influencers in your customers’ product purchase decisions. Maybe you could also target an alternative group which is currently not being considered as your main market.
It might also be useful to consider whether your current product is perceived as functional or emotional. There could also be potential to add more functionality to an emotional product or a more emotional appeal to a functional one. More importantly, search for inspiration outside your current competition.
2nd principle – focus on the big picture, not the numbers. The Blue Ocean strategy is not about crunching Excel sheets and writing a flashy business plan. Rather, it’s about taking an outside-the-box approach and visualizing your strategy by means of a value curve (Figure 2). A picture is certainly worth a thousand words.
3rd principle – reach beyond the existing demand. This principle directs you to look to your noncustomers and then search for commonalities among three main tiers (Figure 3). The first tier of noncustomers is closest to your current market, people who buy your product minimally but would switch immediately if a better alternative came along. The second tier are people who refuse to buy your product, while the third tier are customers furthest from your market, who have never thought of buying anything from you.
Try not to focus only on one tier, but rather find a commonality of needs among all three. This will be a great strategy to find a niche which your company can fulfill.
4th principle – get the strategic sequence right. This is the step where you need to answer YES four times in sequence to be certain that your blue ocean idea is viable and profitable.
1. Is there exceptional buyer utility in your business idea?
2. Is your price easily accessible to the target mass of buyers?
3. Can you attain your cost target to profit at your strategic price?
4. What are the adoption hurdles in actualizing your business idea? Are you addressing them upfront?
If you answered the last question with a YES, then you can be certain your Blue Ocean is waiting for you.
5th principle – overcome key organizational hurdles. Blue Ocean Strategy often represents a departure from a comfortable status quo in organizations to something more challenging. Leaders who will strive to implement this new strategy are likely to face four hurdles.
· cognitive in order to show your employees that there is a burning platform for change
· limited resources. Since getting new resources to will always be challenging, shift your focus to reshuffling the current resources more efficiently
· motivating key stakeholders to move fast
· internal politics, which needs to be approached with sensitivity
The authors suggest overcoming these challenges by adopting a tipping point leadership style, which zeros in on the people and the activities that greatly impact performance. It enables core transformations to be made at a low cost and new strategies to be quickly put in place. Check out this HBR article to better understand how to apply these principles in practice.
6th principle – build execution into the strategy. In other words, don’t underestimate the importance of bringing your people along with you on this new journey.
The authors suggest you use a Fair Process to affect people’s behaviors and attitudes. This consists of three parts: engagement, explanation and expectations. Make sure to engage your employees right from the start, asking for their input and ideas in shaping the new strategy. They will appreciate the respect you show them and feel more involved in the company’s decisions. Later explain to all the relevant stakeholders why certain decisions were made and how their ideas were considered. Finally, clarify your expectations upfront so that everyone understands what is required from their side.
Following this process will help you to ensure that people jump on-board your ship for the exciting journey in the wonderful clear Blue Ocean. Bon voyage!