Blue ocean strategy is a strategy that challenges the firms to foresee beyond competition by creating new uncontested market space i.e. Blue Ocean that makes the current competition irrelevant.
It is about growing demand and breaking away from the competition.
1. Meaning & Need of Blue Ocean Strategy 2. Foundation 3. Characteristics 4. Principles 5. Analytical Tools & Frameworks
6. Approaches 7. Difference between Blue & Red Ocean Strategies 8. Sustainability and Renewal of Blue Ocean Strategy.
Blue Ocean Strategy in Strategic Management
Blue Ocean Strategy – Meaning & Need of Blue Ocean Strategy
Blue ocean strategy is a strategy that challenges the firms to foresee beyond competition by creating new uncontested market space i.e. Blue Ocean that makes the current competition irrelevant. It is about growing demand and breaking away from the competition.
There are several reasons behind a rising imperative to build blue oceans-
1. Accelerated technological progress has substantially improved industrial productivity and has allowed suppliers to produce an unprecedented array of products and services. The result is that in increasing numbers of industries in which do have excess supply over demand.
2. The trend toward globalization paves way for reduction in trade barriers between nations and regions and as information on products and prices becomes instantly and globally available, niche markets and havens for monopoly continue to fade away.
3. There is no clear evidence of an increase in demand worldwide, and statistics even point to declining populations in many developed markets.
All these forces in combination have created accelerated commoditization of products and services apart from increasing price wars, and shrinking profit margins.
All this advocates that the business environment in which most strategy and management approaches of the twentieth century evolved is increasingly disappearing. As competitive markets become increasingly cut throat, management will need to be more concerned with blue oceans than the current group of managers is habitual to.
Blue Ocean Strategy – Foundation of Blue Ocean Strategy
What crucial in creating blue oceans is approach to strategy. The companies caught in the red ocean followed a conventional approach, aiming to beat the competition by building a defensible position within the existing industry order. The creators of blue oceans, surprisingly, didn’t use the competition as their benchmark.
Rather, blue ocean strategists followed a different strategic logic that value innovation is the foundation of blue ocean strategy. Value innovation means creating a leap in value for buyers and your company, thereby opening up new and uncontested market space.
Value innovation places equal emphasis on value and innovation. Value without innovation tends to focus on value creation on an incremental basis, something that improves value but is not sufficient to make you differentiated in the marketplace. Innovation without value usually is technology-driven, market pioneering, or futuristic, often aiming beyond what buyers are ready to accept and pay for.
Value innovation happens only when companies align innovation with utility, price, and cost positions. If they fail to support innovation with value in this way, technology innovators and market pioneers often breeds ideas that other companies exploit. Importantly, value innovation is not something as “value-cost trade-off”.
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. In contrast, those that seek to create blue oceans practice differentiation and low cost simultaneously.
Value innovation requires companies to orient the entire organization toward achieving a leap in value for both buyers and themselves. Without such integral approach, innovation will remain dethatched from the core of strategy. The creation of blue oceans is about pushing costs down while simultaneously driving value up for buyers.
This is how a jump in value for both the company and its buyers is achieved. Because buyer value comes from the combination of utility and price that the company offers to buyers vis a vis the value to the company is generated from price and its cost structure, that is why value innovation is achieved only when the whole system of the company’s utility, price, and cost activities is properly aligned.
It is this whole system approach that makes the creation of blue oceans a sustainable strategy. Blue ocean strategy integrates the range of a firm’s functional and operational activities. On the contrary, innovations such as production innovations can be achieved at the subsystem level without impacting the company’s overall strategy.
An innovation in the production process, for example, may lower a company’s cost structure to support its existing cost leadership strategy without changing the utility proposition of its offering. Although innovations of this nature may help to secure and even lift a company’s position in the existing market space, but such a subsystem approach will rarely create a blue ocean of new market space. In this sense, value innovation is more than innovation.
Blue Ocean Strategy – 3 Important Characteristics: Focus, Divergence and Compelling Tagline
There are three important characteristics that serve as an initial litmus test of the commercial viability of blue ocean ideas.
Every great strategy has focus, and a company’s strategic profile, or value curve, should clearly show it. Investing across the board, companies let their business models costly.
When a company’s strategy is formed reactively as it tries to keep up with the competition, it loses its distinctiveness. Consider the similarities in most circus companies. On the strategy canvas, therefore, reactive strategists tend to share the same value curve. In contrast, the value curves of blue ocean strategists always stand apart.
By applying the four actions of eliminating, reducing, raising, and creating, they set apart their profiles from the industry’s average profile. Cirque du Soleil, pioneered so many innovations in its offering so that its strategic profile diverged from its competitors.
3. Compelling Tagline:
A good strategy has a clear-cut and compelling tagline. Even the most proficient ad agency would have difficulty reducing the conventional circus offering to a memorable tagline in the given context. A good tagline must not only deliver a clear message but also advertise an offering truthfully, or else customers will lose trust and interest. In fact, a good way to test the effectiveness and strength of a strategy is to look at whether it contains a strong and authentic tagline.
Blue Ocean Strategy – Principles: Formulation and Execution Principles
There are six principles of blue ocean strategy bifurcated into two parts i.e. formulation and executions. First four principles covers formulation aspect while last two unveils blue ocean strategy execution elements.
A. Formulation Principles:
Principle 1 – Reconstruct Market Boundaries:
The first Principle of blue ocean strategy is to recreate market boundaries to break from the competition and construct blue oceans. This principle addresses the search risk many companies struggle with. The challenge is to successfully identify opportunities that are commercially compelling blue ocean opportunities. This challenge is key because managers cannot afford to gamble their strategy on intuition or on a random drawing.
Kim and Mauborgne found six basic approaches to redesign market boundaries. They call this the six paths framework. None of these paths needs special vision or foresight about the future. All paths are based on looking at familiar data from a new point of view. These paths challenge the six fundamental assumptions underlying many companies’ strategies. These six assumptions, on which most companies build their strategies, keep companies cornered in red oceans.
The assumptions are:
1. Define their industry similarly and focus on being the best within it
2. Look at their industries through the lens of generally accepted strategic groups such as luxury automobiles, economy cars, and family vehicles), and strive to stand out in the strategic group they play in
3. Focus on the same buyer group, be it the purchaser (as in the office equipment industry), the user (as in the clothing industry), or the influencer (as in the pharmaceutical industry)
4. Define the scope of the products and services offered by their industry similarly
5. Accept their industry’s functional or emotional orientation
6. Focus on the same point in time—and often on current competitive threats—in formulating strategy The more that companies share this conventional wisdom about how they compete, the greater the competitive convergence among them.
To move away of red oceans, companies must go beyond the accepted boundaries that define how they compete. Instead of looking within these boundaries, strategist needs to look systematically across them to create blue oceans.
They need to look across alternative industries, across strategic groups, across buyer groups, across complementary product and service offerings, across the functional-emotional orientation of an industry, and even across time.
Principle 2 – Focus on the Big Picture, Not the Numbers:
After identifying blue oceans, next question is, how firm align its strategic planning process to focus on the big picture and apply these ideas in drawing company’s strategy canvas to arrive at a blue ocean strategy? This is big challenge.
This principle is key to diminishing the planning risk. Here firm develop an alternative approach to the existing strategic planning process that is based not on preparing a document but on drawing a strategy canvas. This approach consistently produces strategies that open up the creativity of a wide range of people within an organization.
This approach not only open companies’ eyes to blue oceans, but also easy to understand and communicate for effective implementation.
This principle would be discussed in two parts i.e. visualizing strategy through drawing strategy canvas and visualizing strategy at corporate level.
Part 1 – Drawing Your Strategy Canvas:
Drawing a strategy canvas is never simple. Even identifying the key factors of competition is very complicated. It includes four steps-
Step 1 – Visual Awakening:
A common pitfall is to discuss strategy before resolving differences of opinion about the current state of play. It is observed that executives are often reluctant to accept the need for change. Either they may have a vested interest in the status quo or they may feel that time will eventually justify their previous choices.
Step 2 – Visual Exploration:
The next step is to send a team into the field, putting managers face-to-face with customers and non-customers their products or services. This step may seem evident, but it was found that managers often outsource this part of the strategy- making process. They rely on reports that other people Iike research agencies, consultants.
Great strategic insights will come from the field and challenging the boundaries of competition. Strategist should meet customers, non-customers, users, influencers, end users of your product. Field visit should be made with following objectives in mind –
i. Exploration of six paths to identify blue oceans
ii. Understand distinctive advantages of alternative products and services
iii. Observe which strategic factor firm should eliminate, create or modify.
Usually the field research toppled many of the conclusions managers had reached in the first step of the strategy creation process.
Based on field experience executives spend considerable time for redrawing strategy canvass.
Step 3 – Visual Strategy Fair:
Now the teams present their strategy canvases in a visual strategy fair. Attendees included senior corporate executives but consisted mainly of representatives of groups to them executives met in earlier step. Teams would present their strategy curves. Then the attendees would rate strategies.
Most important aspect of this stage is to make it transparent free from politics. The judges were asked to explain their picks, adding another level of feedback to the strategy-making process. Judges were also asked to explain why they did not vote for the other value curves.
Based on the input got managers can further refine their strategy curves. Following the strategy fair, the teams were finally able to complete their mission. More important, the managers will be in a position to draw a future strategy that would be distinctive.
Step 4- Visual Communication:
After the future strategy is set, the last step is to communicate it in a way that can be easily understood by any employee. The key is to it should percolate to lower level of management and become a guiding elements for every decisions in the organization.
Part 2 – Visualizing Strategy at the Corporate Level:
Visualizing strategy can also help managers responsible for corporate strategy foresee and plan the company’s future growth and profit.
Corporate manger can segregate business into three categories:
i. A company’s pioneers are those SBUs that offer unprecedented value. These are your blue ocean strategists, and they are the engines of profitable growth. Their value curve diverges from the competition on the strategy canvas.
ii. At the other extreme are settlers—businesses whose value curves conform to the basic shape of the industry. These are me-too businesses. Settlers will not generally contribute much to a company’s future growth. They are stuck within the red ocean.
iii. The potential of migrators lies somewhere in between. Such businesses extend the industry’s curve by giving customers more for less, but they don’t amend its basic shape. These businesses offer improved value, but not innovative value. These are businesses whose strategies fall on the boundaries of red oceans and blue oceans.
A useful exercise for a corporate management team pursuing profitable growth is to plot the company’s current and future portfolios on a pioneer-migrator-settler (PMS) map. If both the current portfolio and the planned offerings consist mainly of settlers, the company has a low growth course, is largely limited to red oceans, and needs to push for value innovation.
Although the company might be profitable today as its settlers are still making money but in future it may well have fallen into the trap of competitive benchmarking, imitation, and intense price competition. If current and planned offerings consist of a lot of migrators, reasonable growth can be anticipated. This exercise is especially valuable for managers who want to see beyond today’s performance.
Principle 3 – Reach Beyond Existing Demand:
How do you maximize the size of the blue ocean you are creating? This brings us to the third principle of blue ocean strategy- Reach beyond existing demand. This is a key component of achieving value innovation. By aggregating the greatest demand for a new offering, this approach attenuates the scale risk associated with creating a new market. To achieve this, companies should challenge two conventional strategy practices.
i. One is the focus on existing customers.
ii. The other is the drive for finer segmentation to accommodate buyer differences.
To reach beyond existing demand, think noncustomers before customers; commonalities before differences; and de-segmentation before pursuing finer segmentation. This principle mitigates scale risk concerned with blue ocean idea.
The Three Tiers of Non-Customers:
Although noncustomers typically offer big blue ocean opportunities but few companies have keen understanding into who noncustomers are and how to unlock business from them. To convert this huge latent demand into real demand in the form of new customers, companies need to deepen their knowledge about noncustomers.
There are three tiers of noncustomers that can be converted into customers. They differ in their comparative distance from firm’s market. The first tier of noncustomers is closest to your market. Rather first tier customer sit on the edge of the market.
They are ones who minimally purchase an industry’s offering out of necessity but are cognitively noncustomers of the industry. They are waiting to leave the industry as soon as the better offering is available. However, if offered a leap in value, not only would they remain with industry, but also their frequency of purchases would increase, unlocking enormous latent demand.
The second tier of noncustomers is people who refuse to use your industry’s offerings. These are buyers who have used your industry’s offerings as an option to fulfill their needs but have voted against them.
The third tier of noncustomers is at extreme position from firm’s market. They are noncustomers who have never thought of your market’s offerings as an option.
By focusing on key commonalities across these noncustomers and existing customers, companies can understand how to pull them into their new market.
Principle 4 – Get the Strategic Sequence Right:
The next challenge is to build a strong business model to ensure that you make a healthy profit on your blue ocean idea. This brings us to the fourth principle of blue ocean strategy i.e. “Get the strategic sequence right”.
Companies need to build their blue ocean strategy in the order of buyer utility, price, cost, and adoption.
At the outset firm should ask two questions:
i. Does firm’s offering unlock exceptional utility?
ii. Is there a compelling reason for the mass of people to buy it?
If the answer is negative then park the idea, or rethink it until firm reach an affirmative answer. When firm pass the exceptional utility bar, firm advance to the second step- setting the right strategic price. A company cannot afford to rely solely on price to create demand.
The key question here –
Is firm’s offering priced to attract the mass of target buyers so that they have a convincing urge to pay for your offering?
If it is not, buyers will not buy it. Nor will the offering create irresistible market buzz. These first two steps concentrate on the revenue side of a company’s business model. They ensure that firm create a jump in net buyer value, where net buyer value equals the utility buyers receive minus the price they pay for it.
To secure the profit side company needs to focus on next element i.e. cost.
Key question here is-
i. Can firm produce it’s offering at the target cost and still earn a healthy profit margin?
ii. Can company profit at the strategic price i.e. the price easily accessible to the mass of target buyers?
Firm should not allow costs to determine prices. Nor firm should scale down utility because high costs and block its ability to profit at the strategic price. When the target cost cannot be met, firm must either forgo the idea because the blue ocean won’t be profitable, or firm must refine business model to achieve the target cost.
The cost side of a company’s business model ensures that it creates a leap in value for itself in the form of profit that is, the price of the offering minus the cost of production. It is the combination of exceptional utility, strategic pricing, and target costing that allows companies to achieve value innovation i.e. a rise in value for both buyers and companies.
The last step is to tackle adoption hurdles.
Firm should ask two questions here:
i. What are the adoption hurdles in rolling out your idea?
ii. Have firm addressed these up front?
The formulation of blue ocean strategy is comprehensive only when firm address adoption hurdles in the beginning to ensure the successful actualization of blue ocean idea. Adoption hurdles can come from employees, stakeholders and even from general public.
Testing for Buyer Utility through “Buyer Utility Map”:
The need to assess the buyer utility of company’s offering is very obvious. Still many companies fail to deliver exceptional value as they are obsessed by the newness of their product or service, especially if it is based on new technology.
The buyer utility map helps managers look at this issue from right perspective. Buyer utility map outlines all the forces companies can use to deliver exceptional utility to buyers as well as the various experiences buyers can have with an offering. This map allows managers to discover the full range of utility spaces that a product or service can potentially fill.
On a vertical column, cutting across the stages of the buyer’s experience are what we call utility levers i.e. the ways in which companies can unlock exceptional utility for buyers.
Most of the levers are well known Utility levers are as follows:
i. Customer productivity
iii. Fun and image, and
iv. Environmental friendliness
v. Reduce a customer’s financial, physical, or credibility risks.
vi. Convenience simply by being easy to obtain, use, or disposal
By locating firm’s proposed offering on the thirty-six spaces of the buyer utility map, one can clearly see how, and whether, the new idea not only creates a different utility proposition from existing offerings but also removes the biggest blocks to utility that stand in the way of converting noncustomers into customers. Importantly, if company’s offering falls on the same space or spaces as those of rivals, chances are it is not a blue ocean offering.
Setting the Strategic Pricing:
To secure a strong revenue stream for your offering, firm must set the right strategic price. This step ensures that buyers not only will want to buy your offering but also will have an ability to pay for it. It is increasingly important; to know from the start what price will quickly capture the mass of target buyers.
There are two reasons for setting the strategic pricing:
i. First, volume generates higher returns (economies of scale). Again with increasing product development cost, volume allows it to spread it over it. (e.g. Producing the first copy of the Windows XP operating system, for example, cost Microsoft billions of dollars, whereas subsequent copies involved no more than the nearly trivial cost of a CD) This makes volume key.
ii. A second reason is that to a buyer, sometimes the value of a product or service may be closely tied to the total number of people using it. This phenomenon, called network externalities. (For example online auction services like eBay, social networking sites like Facebook, What up, etc.)
From Strategic Pricing to Target Costing:
Target costing, step in the strategic sequence, addresses the profit side of the business model. To maximize the profit potential of a blue ocean idea, a firm should start with the strategic price and then deduct its expected profit margin from the price to arrive at the target cost. Approach is price-minus costing, and not cost-plus pricing.
It is essential if firm has to arrive at a cost structure that is both profitable and hard for potential competitors to match. When target costing is driven by strategic pricing, however, it is often aggressive. Sometimes reductions through elimination are sufficient to hit the cost target, but often they are not. To hit the cost target, companies have three principal levers.
i. The first involves streamlining operations and introducing cost innovations from manufacturing to distribution, e.g. The Home Depot, IKEA, and Wal-Mart have done in retail or Southwest Airlines has done by shifting from major to secondary airports.
ii. Partnering, however, provides a way for companies to secure needed capabilities fast and effectively while dropping their cost structure. It allows a company to leverage other companies’ expertise and economies of scale, e.g. IKEA seeks out the lowest prices for materials and production via partnering with some fifteen hundred manufacturing companies in more than fifty countries to ensure it the lowest cost and fastest production of products
iii. Firm may go for pricing innovation. Pricing innovations like rental model, leasing model, time share model, slice share model not only creates strategic price but al lows firm to meet target cost. The aim is not to compromise on the strategic price but to hit the target through a new price model. Some companies are dumping the concept of price altogether.
Instead, they give products to customers in return for an equity interest in the customer’s business. Hewlett-Packard, for example, has traded high-powered offered to Silicon Valley start-ups for a share of their revenues. Similar kind of pricing innovation Times Group used with its advertisers.
(Times group offered advertising space in its publication in lieu of shareholding from small but growing companies like Career Forum, House of Laptops, Weekender, Lok Housing, etc.) But importantly, pricing innovation for one industry is often a standard pricing model in another industry.
A business model built in the sequence of exceptional utility, strategic pricing, and target costing creates value innovation.
From Utility, Price, and Cost to Adoption:
Even an unbeatable business model may not guarantee the commercial success of a blue ocean idea. Most of the time blue ocean strategy may provoke fear and resistance among a company’s three main stakeholders- its employees, its business partners, and the general public. Before going forward and investing in the new idea, the company must first overcome such fears by educating the fearful.
Before companies go public with an idea, they should make an intensive effort to communicate to employees that they are aware of the threats posed by the execution of the idea. Companies should work with employees to find ways of defusing the threats so that everyone in the company wins, despite shifts in people’s roles, responsibilities, and rewards.
Potentially even more damaging than employee alienation is the resistance of partners who fear that their revenue streams or market positions are threatened by a new business idea. e.g. Similar problem was faced by SAP when it was developing its product Accelerated SAP (ASAP) targeted at MSMEs, an enterprise software system that was fast to implement and hence low cost.
The problem was that the development of best-practice templates for ASAP required the active cooperation of large consulting firms that were deriving substantial income from lengthy implementations of SAP’s other products. As a result, they were not necessarily incentivized to find the fastest way to implement the company’s software. SAP resolved the dilemma by openly discussing the issues with its partners.
Opposition to a new business idea can also come from the general public, especially if the idea is very new and innovative; threatening established social or political norms, e.g. Monsanto, which makes genetically modified foods. Its intentions have been questioned by European consumers, largely because of the efforts of environmental groups such as Greenpeace, Friends of the Earth, and the Soil Association.
In educating these three groups of stakeholders—your employees, your partners, and the general public the key challenge is to engage in an open discussion about why the adoption of the new idea is indispensable. Company need to explain its merits, set clear expectations for its ramifications, and describe how the company will address them. Stakeholders need to know that their voices have been heard and that there will be no surprises.
B. Execution Principles:
Once a firm has formulated a blue ocean strategy with a profitable business model, it must execute it. Companies often have a tough time translating strategic thought into action whether in red or blue oceans. But compared with red ocean strategy, blue ocean strategy represents a significant departure from the status quo. It hinges on a shift from convergence to divergence in value curves at lower costs. That raises the execution bar.
1) Overcome Key Organizational Hurdles:
Mangers face four organizational hurdles while executing blue ocean strategies.
i. Cognitive Hurdle- Red oceans may not be the paths to future profitable growth, but employee feel comfortable. Blue oceans to people are like rocking the boat.
ii. Resource Hurdle – The greater the shift in strategy, the greater it is assumed are the resources needed to execute it. But resources were being cut, and not raised, in many of the organizations.
iii. Motivation Hurdle – How do you motivate key players to move fast and tenaciously to carry out a break from the status quo? That will take years, and managers don’t have that kind of time.
iv. The final hurdle is politics.
Although all companies face different degrees of these hurdles, and some firms face only the subset of the four, knowing how to triumph over them is key to attenuating organizational risk. This brings us to the fifth principle of blue ocean strategy – Overcome key organizational hurdles to make blue ocean strategy happen in action. To achieve this effectively, however, companies must discard perceived wisdom on managing change.
Conventional wisdom says that the greater the change, the greater the resources and time firm will need to bring about results. Instead, firm need to flip conventional wisdom on its head using what we call tipping point leadership. Tipping point leadership allows firm to overcome these four hurdles fast and at low cost while winning employees’ backing in executing a break from the status quo.
The key questions answered by tipping point leaders are as follows:
i. What factors or acts exercise a disproportionately positive influence on breaking the status quo?
ii. What factors or acts exercise a disproportionately positive influence on getting the maximum bang out of each buck of resources?
iii. What factors or acts exercise a disproportionately positive influence on motivating key players to aggressively move forward with change? And
iv. What factors or acts exercise a disproportionately positive influence on knocking down political roadblocks that often trip up even the best strategies?
By single-mindedly focusing on answers to above questions, tipping point leaders can topple the four hurdles that limit execution of blue ocean strategy. They execute fast and at low cost. Let us understand how one can leverage disproportionate influence factors to tip all four hurdles to move from thought to action in the execution of blue ocean strategy.
Break through the Cognitive Hurdle:
To tip the cognitive hurdle fast, tipping point leaders focus on the act of disproportionate influence. Tipping point leader pushes people see and experience harsh reality firsthand. Research in neuroscience and cognitive science shows that people remember and respond most effectively to what they see and experience- Usually it is seen that through experience, positive stimuli reinforce behavior, whereas negative stimuli change attitudes and behavior.
Tipping point leadership builds on this insight to inspire a fast change in mindset. Instead of relying on numbers to tip the cognitive hurdle, thus people experience the need for change in two ways-
i. To break the status quo, employees must come face-to-face with the worst operational problems. Don’t let top brass, middle brass, or any brass theorize about reality. This direct experience exercises a disproportionate influence on tipping people’s cognitive hurdle fast.
ii. Meet with Disgruntled Customers to tip the cognitive hurdle, not only must you get your managers out of the office to see operational horror, but also managers must get them to listen to their most disgruntled customers firsthand. Don’t rely on market surveys.
After tipping cognitive hurdle let us understand how to tip resource hurdle.
Jump the Resource Hurdle:
After people in an organization accept the need for a strategic shift and more or less agree on the outlines of the new strategy, most leaders are faced with the harsh reality of limited resources. Instead of focusing on getting more resources, tipping point leaders focus on multiplying the value of the resources they have.
When it comes to limited resources, there are three factors of disproportionate influence that executives can leverage to dramatically free resources, on the one hand, and multiply the value of resources, on the other.
Jump the Motivational Hurdle:
To execute Blue Ocean strategy, tipping point leaders alert employees to the need for a strategic shift and identify how it can be achieved with limited resources. For a new strategy to become a pan organization movement, people must not only recognize what needs to be done, but they must also act on that insight in a sustained and meaningful manner. Here the challenge is to motivate the mass of employees fast and at low cost.
For strategic change to have real impact, employees across the organization must move en masse. To trigger such movement of positive energy, tipping leaders focus on key influencer within the organization. These key influencers are regarded as kingpins. These are people inside the organization who are natural leaders, who are well respected and influential, or who have an ability to unlock or block access to key resources.
As with kingpins in bowling, when you hit them straight on, all the other pins come toppling down. This frees an organization from tackling everyone, and yet in the end everyone is touched and changed. As in most organizations there are a relatively small number of key influencers, who tend to share common problems and concerns, it is manageable for the CEO to identify and motivate them.
At the heart of motivating the kingpins in a sustained and meaningful way is to throw a spotlight on their actions in a repeated and highly visible way. This is what referred to as fishbowl management, where kingpins’ actions and inaction are made as transparent to others as are fish in a bowl of water.
By placing kingpins in a fishbowl in this way you greatly raise the stakes of inaction. Light is shined on who is lagging behind, and a fair stage is set for rapid change agents to shine. Importantly, for fishbowl management must be based on transparency, inclusion, and fair process.
Knock over the Political Hurdle:
Even the best and brightest are regularly eaten alive by politics, intrigue, and plotting. Organizational politics is an unavoidable reality of corporate and public life. Even if an organization has reached the tipping point of execution, there exist powerful vested interests that will resist the impending changes.
The more likely change becomes, the more intensely and vocally these negative influencers will fight to protect their positions, and their resistance can seriously damage and even spoil the strategy execution process.
To overcome these political forces, tipping point leaders focus on three disproportionate influence factors:
i. Leveraging angels – Angels are those who have the most to gain from the strategic shift.
ii. Silencing devils – Devils are those who have the most to lose from it.
iii. Getting a consigliere on their top management team. And a consigliere is a politically adept but highly respected insider who knows in advances all the land mines, including who will are the devils and who are the angles.
Apart from functional specialists, Tipping point leaders, also engage one role few other executives think to include- a consigliere.
To hammer down the political hurdles, tipping point leader should also ask him two sets of questions:
i. Who are my devils? Who will fight me? Who will lose the most by the future blue ocean strategy?
ii. Who are my angels? Who will naturally align with me? Who will gain the most by the strategic shift?
Don’t fight alone. Get the higher and wider voice to fight with you. Understand detractors and supporters—forget the middle—and strive to create a win-win outcome for both. But move swiftly. Isolate detractors by building a broader coalition with your angels before a battle begins. In this way, you will discourage the war before it has a chance to start or gain momentum.
The conventional theory of organizational change rests on transforming the mass. Tipping point leadership, by contrast, takes a reverse course. To change the mass it focuses on transforming the extremes- the people, acts, and activities that exercise a disproportionate influence on performance.
By transforming the extremes, tipping point leaders are able to change the mass fast and at low cost to execute their new strategy. It is never easy to execute a strategic shift, and doing it fast with limited resources is even more difficult.
By consciously addressing the hurdles to strategy execution and focusing on factors of disproportionate influence, managers / leaders can knock them over to actualize a strategic shift. Don’t follow conventional wisdom. Focus on acts of disproportionate influence. This is a critical leadership component for making blue ocean strategy happen.
The next principle drills down one level further. It deals with the challenge of aligning people’s minds and hearts with the new strategy by building a culture of trust, commitment, and voluntary cooperation in its execution, and support for the leader.
2) Build Execution into Strategy:
A company needs to invoke the most fundamental base of action- the attitudes and behavior of its people deep in the organization. Executing blue ocean strategy requires a culture of trust and commitment that motivates people to execute the agreed strategy— not to the letter, but to the spirit.
People’s minds and hearts must align with the new strategy so that at individual level, people embrace it of their own accord and willingly go beyond compulsory execution to voluntary cooperation in carrying it out.
To build people’s trust and commitment across the organization and inspire their voluntary cooperation, firms need to build execution into strategy from the start. This principle allows companies to minimize the management risk of distrust, non-cooperation, and even sabotage. Poor strategic Process Can Ruin Strategy Execution as it creates indignation, distrust, resentment and finally non-cooperation / refusal.
It is observed that people’s satisfaction with the outcome and their commitment to it rose when procedural justice was exercised. The managerial expression of procedural justice theory is “Fair process”. When fair process is exercised in the strategy- making process, people trust it. This inspires them to cooperate voluntarily in executing the resulting strategic decisions.
Voluntary cooperation is beyond mechanical execution, where people do only what it takes to get by. It involves going beyond the call of duty, wherein individuals exert energy and initiative to the best of their abilities — even subordinating personal self-interest—to execute resulting strategies.
There are three reinforcing elements that define fair process i.e.:
ii. Explanation, and
iii. Clarity of expectation.
i. Engagement means involving individuals in the strategic decisions that affect them by asking for their input and allowing them to counter the merits of one another’s ideas and assumptions. Engagement communicates management’s respect for individuals and their ideas. Encouraging refutation sharpens everyone’s thinking and builds better collective wisdom.
ii. Explanation means that everyone involved and affected should understand why final strategic decisions are made. An explanation of the thinking that underlies decisions makes people convinced that managers have considered their opinions and have made decisions impartially in the overall interests of the company.
An explanation lets employees to trust managers’ intentions even if their own ideas have been rejected. It also provides a powerful feedback loop that enhances learning.
iii. Expectation clarity requires that after a strategy is set, managers state clearly the new rules of the game. Although the expectations may be demanding, employees should know up front on what benchmarks they will be judged by and the penalties for failure.
Taken together, these three criteria collectively lead to judgments of fair process. This is important, because any subset of the three does not create judgments of fair process.
Blue Ocean Strategy – Analytical Tools & Frameworks of Blue Ocean Strategy
Variety of tools is enlisted below used for blue ocean strategy.
List of Analytical Tools & Frameworks of Blue Ocean Strategy:
1. The Strategy Canvas
2. The Four Actions Framework
3. Eliminate-Reduce-Raise-Create Grid
4. The Six Paths Framework
5. Buyer Utility Map
6. Buyer Experience Cycle
7. Price Corridor of the Mass model
8. Four Steps of Visualizing Strategy Process
9. Pioneer – Migrator – Settler Map
10. Three Tiers of Noncustomers Framework
11. The Sequence of Blue Ocean
Two analytical tools i.e. Strategy Canvass & Value Curves and four action framework is the edifice on which blue ocean strategy stands. That is why before delving into principles; we would first embrace these two tools.
1. Strategy Canvass & Value Curves:
The strategy canvas is both an investigative and an action framework for building a compelling blue ocean strategy. It serves two purposes.
First, it captures the current state of play in the known market space.
Second it also allows you to understand where the competition is currently investing, the factors the industry currently competes on (in products, service, and delivery), and what customers receive from the existing competitive offerings on the market.
In the case of the U.S. circus industry, there are eight principal factors on which conventional companies used to compete as well as invest in-
b) Multiple show arenas
c) Star Performers
d) Fun & humour
e) Animal show
f) Thrill & danger
g) Aisle concessions
h) Unique venue
That is the underlying structure of the traditional American circus industry from the market perspective. Now let’s move on to the vertical axis of the strategy canvas, which captures the offering level that buyers receive across all these eight key competing factors.
A high score means that a company offers buyers more, and hence invests more, in that factor. In the case of price, a higher score indicates a higher price. We can now plot the current offering of circus companies across all these factors to understand their strategic profiles, or value curves. As per the value curve, the basic component of the strategy canvas, is a graphic depiction of a company’s relative performance across its industry’s factors of competition.
Premium end circus operators like Ringling Brothers, Barnum & Bailey were heavily investing in all these factors except venue but competitive forces forced them to charge lower prices. At the same time smaller regional circus used to follow cost focus strategy i.e. investing lesser in all these factors so that their prices are even lesser than likes of Ringling Brothers, Barnum & Bailey.
By looking across alternatives, however, Cirque du Soleil redefined the problem of the circus industry to a new one- how to make a unique and modern circus which will appeal to both children and adults. Why? Industry environment was not good.
Cirque de Soleil was ready to explore how to redraw the strategic profile of the U.S. circus industry to create a blue ocean. To achieve this, it introduced new factors like theme, multiple production, artistic music & dance along with refined watching environment for the customer at very attractive price even at reduced cost structure for itself. In this process Cirque de Soleil not only added elements into strategic canvass but reduced traditional factors by applying four action framework.
2. Four Action Frameworks:
To reconstruct buyer value elements in crafting a new value curve, the four actions framework has been developed. To break the tradeoff between differentiation and low cost and to create a new value curve, there are four key questions affirm should ask itself. By posing these questions firm fundamentally challenges industry’s strategic logic and business model.
These questions are:
1. Which of the factors that the industry takes for granted should be eliminated?
2. Which factors should be reduced well below the industry’s standard?
3. Which factors should be raised well above the industry’s standard?
4. Which factors should be created that the industry has never offered?
The first question forces company to consider eliminating factors those companies in your industry have been competing over the past. Usually those factors are taken for granted even though they no longer have value or may even erode value. Sometimes there is a fundamental change in what buyer’s value, but companies that are focused on competitive benchmarking do not act on, or even sense the change.
The second question forces you to determine whether products or services have been overdesigned to out-compete the competition. Here, companies over serve customers, increasing their cost structure for no gain in buyer value.
The third question pushes company to uncover and remove the compromises your industry forces customers to make. The fourth question helps firm to discover entirely new sources of value for buyers and to create new demand and shift the strategic pricing of the industry.
It is by asking the first two questions (of eliminating and reducing) firm gains insight into how to drop cost structure vis-a-vis competitors. The next two questions, by contrast, provide firm some insights into how to lift buyer value and create new demand. Collectively, these four questions allow strategic mangers to systematically explore how firm can reconstruct buyer value elements across alternative industries to offer buyers an entirely new experience, while simultaneously keeping its cost structure low.
The importance of this analytical tool lies in pushing companies to go beyond value maximization exercises within existing factors of competition. By eliminating and creating the factors push companies to change the factors themselves, hence making the existing rules of competition irrelevant.
When firms apply the four actions framework to the strategy canvas of your industry, strategic manger gets a revealing new look at old perceived truths.
Cirque de Soleil applied four action framework and not only eliminated star performers, animal shows, aisle concession rates and multiple arenas but infused theme, refined environment, multiple productions, music and artistic elements. It also raised tent element making it unique value and simultaneously toned down elements like fun & humour, thrill & danger.
A third tool – a supplementary analytic to the four actions framework i.e. the eliminate- reduce-raise-create grid can be used to make this framework action oriented. The grid pushes companies not only to pose all four questions in the four actions framework but also to act on all four to create a new value curve.
By making companies to fill in the grid with the actions of eliminating and reducing as well as raising and creating, the grid gives companies four immediate benefits-
a. It drives them to simultaneously pursue differentiation and low costs to break the value-cost trade-off.
b. It immediately gives warning to those companies that are focused only on raising and creating and thereby lifting their cost structure and often over engineering products and services—a common plight in many companies.
c. It is easily understood by managers at any level, creating a high level of engagement in its application.
d. Because completing the grid is a challenging task, it drives companies to vigorously scrutinize every factor the industry competes on, making them uncover the range of implicit assumptions they make unconsciously while competing.
Blue Ocean Strategy – Approaches of Blue Ocean Strategy
W. Chan Kim and Rene Mauborgne (2005) presented a new strategy named blue ocean strategy. Blue ocean strategy makes competition irrelevant but tries to create and capture a new market. The crux of the strategy is a value-cost trade off.
The approach of blue ocean strategy is as follows:
i. Strategy Canvas:
The canvas captures the current state of business relating to products, services, delivery, and customer perception.
ii. Four Actions Framework:
The framework is developed to reconstruct the value elements in crafting a new value curve, to find answers for the factors which need to be eliminated, reduce such factors well below the industry standards, raise certain factors well above the industry standards, and create new factors that are not offered currently.
iii. Eliminate—Reduce—Raise—Create Grid:
The framework is developed and mapped to a grid, to specifically understand the factors involved. Further, the factors are identified and methods to implement the strategy are developed.
Neither the company nor the industry is the best unit of analysis for profitable growth. Actually, it is the strategic move that creates a ‘blue ocean’ and sustained high performance that should be its focus of growth. This fundamental builds upon the argument that ‘value innovation’ is the cornerstone of a blue ocean strategy.
Blue ocean strategy refers to creating opportunities in industries which are not in existence today. Mostly such opportunities are in the unknown market space, untainted by competition.
In blue oceans, the competition is not that relevant as everyone is trying to experience a newfound opportunity. One of the criticisms of blue ocean strategy is that it fails to recognize the importance of brand and communication.
Blue Ocean Strategy – Difference between Blue & Red Ocean Strategies
Competition- based red ocean strategy presumes that an industry’s structural conditions are given and that firms are forced to compete within it. This assumption based on what the academics call the structuralist view, or environmental determinism.
In contrast, value innovation is based on the view that market boundaries and industry structure are not given and can be reconstructed by the actions and beliefs of industry players. We call this the Reconstructionist view. This Reconstructionist view on which blue ocean strategy is based. In the red ocean, differentiation costs because firms compete with the same best-practice rule.
Here, the strategic choices for firms are to pursue either differentiation or low cost. In the Reconstructionist world, however, the strategic aim is to create new best-practice rules by breaking the existing value cost trade-off and thereby creating a blue ocean.
Major difference between blue ocean strategy and red ocean strategy is former breaks value cost trade off while conventional logic plays makes trade-off between cost and value.
Blue Ocean Strategy – Sustainability and Renewal
Creating Blue Oceans is not a one achievement but a dynamic process. Once a company creates a blue ocean and its powerful performance consequences leads to rival copying it. The question is-
i. How soon or late will imitators come?
ii. More importantly, how easy or difficult is blue ocean strategy to imitate?
iii. As the company and its early imitators succeed and expand the blue ocean, more companies eventually enter. This raises a related question about timing:
iv. When should a company reach out to create another blue ocean?
Here we would discuss the issues of the sustainability and renewal of blue ocean strategy.
A blue ocean strategy carry with it considerable barriers to replication. Some barriers are operational, while others are cognitive.
This sustainability is based on various imitation barriers as suggested by Kim & Mauborgne are follows –
Usually value innovation move does not make sense based on conventional strategic logic.
Brand image conflict prevents companies from imitating a blue ocean strategy. Blocks imitation when the size of a market cannot support another player. Patents or legal permits block imitation.
The high volume generated by a value innovation leads to rapid cost advantages, placing potential imitators at an on-going cost disadvantage.
Network externalities also block companies from easily and credibly imitating a blue ocean strategy,
Because imitation often requires companies to make substantial changes to their existing business practices, politics often kick in, delaying for years a company’s commitment to imitate a blue ocean strategy.
When a company offers a leap in value, it rapidly earns brand buzz and a loyal following in the marketplace.
In addition to these barriers, blue ocean strategy requires a systems approach which can only be possible when each strategic element is right aligned in an integral system to deliver value innovation. Replicating such a system is not an easy deed.
When to Value-Innovate Again:
Ultimately, almost every blue ocean strategy will be copied. As imitators try to grab a share of your blue ocean, you typically launch offenses to defend your hard earned customer base. But imitators often keep it up. This is the time firm may fall into the trap of competing.
If you stay on this path, the basic shape of firm’s value curve will begin to converge with those of the competition. To avoid the trap of competing, firm need to monitor value curves on the strategy canvas. Monitoring value curves indicates when to value-innovate and when not to. It alerts firm to reach out for another blue ocean. It also keeps firm from pursuing another blue ocean when there is huge potential from current offering is remaining.
When the company’s value curve still has focus, divergence, and a compelling tagline firm should resist the attraction to value innovate again. Rather company should focus on lengthening, widening, and deepening business model through operational improvements and geographical expansion to achieve maximum economies of scale and market coverage.
As blue and red oceans have always coexisted, practical reality requires that companies succeed in both oceans and master the strategies for both. But because companies already understand how to compete in red oceans, what they need to learn is how to make the competition irrelevant.