Just what is a “Blue Ocean Strategy?”
Wednesday, 21 October, 2009 Leave a comment
I thought that this was a far better summary, of what "Blue Ocean" is about, than I could manage. Well worth a read as it may spark THE idea that provides you and/or your business with a "new path" through these tough trading conditions:
Summary: The primary concept is simple: Blue Oceans represent unknown, uncreated market space. They become wide open opportunities once discovered and executed. Red Oceans, on the other hand, represent known markets. These are highly competitive, segmented, bloody, shark-infested waters with shrinking opportunities. Throughout history, markets are born as blue oceans and evolve to red through competition, commoditisation and over supply. The goals of a blue ocean strategy:
Create uncontested space
Make competition irrelevant
Create and capture new demand
Break the value-cost trade-off
Align your entire system in pursuit of low cost, high margin
Red ocean strategies are self focused, obsessed with their organisation’s internal perception of the industry condition, size of opportunities, competition, consumers and timing.
Blue oceans are about creating new opportunities, not creating new varieties of existing products, services or processes. Patterns can be identified and applied to generate innovative thinking. Based on research that included hotels, cinema, retail, airline, industry, computer, home construction, software, cosmetics, steel, auto and energy, common paths were identified for blue ocean strategies.
Innovation comes from seeing across industries, not competing within them. Using Southwest Airlines as one example, Mauborgne cited how they recreated the experience/expectation of auto travel in the air. Expectations included speed, low cost and high convenience. These are the points that Southwest focused on to differentiate their service and break away from the pack. In the process, a number of services that were industry standard revealed to be unnecessary or a willing trade-off for a large number of fliers.
A second example cited was Yellow Tail wine. Increasing competition for wine retail (including Walmart and CostCo) has driven margins down. Eight players dominated a market of 4000 competitors. The market has segmented into lower cost and higher cost wines with a gap in the middle. Rather than fighting for the gap by taking share from the high and low, Yellow Tail focused on beer drinkers. Careful testing identified a segment of this huge demographic as occasional wine buyers who are often intimidated when ordering wine in restaurants. Priced between the high and low, the appeal functioned on multiple levels. With simple labelling, an easy to pronounce name, the slightly fruitier product reached the CostCo floor where salespeople were dressed in Yellow Tail shirts. They recommended the product as “easy to drink” to wine department browsers. The results: Year 2, Yellow Tail became the #2 import. By year 3, it outsold California’s top wine.
Four questions to ask when evaluating strategies:
1. What can you eliminate? Features, services, components? As much as 30-40% of features may be irrelevant.
2. What can you reduce or simplify? We make things complex because the ability exists. But unnecessary complexity creates stress, not value or loyalty.
3. What can you create to differentiate?
4. How can you raise the price?
Innovation is essential for organizations that find themselves on a path where growing competition drives price and profit down. When you find yourself here, it’s time to wake up and overcome the inertia.
In the end, innovation is not about R&D, but about thinking. See things differently. Then use that insight to drive strategy, development and execution.