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Today, we recap what we have studied during the past few weeks.
If you ever hear your executives whine about the competition, you will want to read this book. It is about how a company can do things so differently that it moves into an entirely different marketplace, even a different industry. The authors, being called - ‘two of Europe’s brightest business thinkers’ - have written for all the major business publications and are distinguished professors.
In ‘Blue Ocean Strategy’, they describe the Red Ocean as where most companies compete, seeking customers from the same market as their competitors. Kim and Mauborgne suggest that companies break out of the Red Ocean of bloody competition by creating uncontested market space in the Blue Ocean that makes the competition irrelevant. The Red Ocean Strategy focuses on existing customers and has the following traits:
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Blue Oceans are defined by untapped market space, demand creation and the opportunity for highly profitable growth. In Blue Oceans, competition is irrelevant because the rules of the game are waiting to be set.
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In increasing numbers of industries, supply exceeds demand. The business environment in which most strategy and management approaches of the 20th century evolved is increasingly disappearing. As Red Oceans become increasingly bloody, the management will need to be more concerned with Blue Oceans than the current cohort of managers is accustomed to. Much of the success attributed to some of the model companies in built to last, was the result of industry sector performance rather than the companies themselves.
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The approach to strategy in creating Blue Oceans was consistent across time regardless of industry. Every great strategy has focus and a company’s strategic profile, or value curve, should clearly show it. When a company’s strategy is formed reactively as it tries to keep up with the competition, it loses its uniqueness.
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Challenging an industry’s conventional wisdom about which buyer group to target can lead to the discovery of a new Blue Ocean. Untapped value is often hidden in complementary products and services. The key is to define the total solution buyers seek when they choose a product or service. A simple way to do so is to think about what happens before, during and after your product is used.
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The process of discovering and creating Blue Oceans is not about predicting or preempting industry trends. Nor is it a trial-and-error process of implementing wild new business ideas that happen to come across managers’ minds or intuition. Rather, managers are engaged in a structured process of reordering market realities in a fundamentally new way.
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A company should never outsource its eyes. There is no substitute for seeing for it. Great artistes don’t paint from other people’s descriptions or even from photographs; they like to see the subject for themselves. The same is true for great strategists.
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To maximize the size of their Blue Oceans, companies need to take a reverse course. Instead of concentrating on customers, they need to look at noncustomers. And instead of focusing on customer differences, they need to build on powerful commonalities in what buyers’ value.
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The starting point is buyer utility. Does your offering unlock exceptional utility? Is there a compelling reason for the mass of people to buy it? Absent this, there is no Blue Ocean potential to begin with. The strategic price you set for your offering must not only attract buyers in large numbers, but also help you to retain them. Given the high potential for free riding, an offering’s reputation must be earned on day one, because brand building increasingly relies heavily on word-of-mouth recommendations spreading rapidly through our networked society.
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Before plowing forward and investing in the new idea, the company must first overcome such fears by educating the fearful.
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Compared with the Red Ocean Strategy, the 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. Conventional wisdom asserts that the greater the change, the greater the resources and time you will need to bring about results. Instead, you need to flip conventional wisdom on its head using what we call tipping point leadership.
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As we all know, figures can be manipulated. Even when the numbers are not manipulated, they can mislead. Sales people on commission, for example, are seldom sensitive to the costs of the sales they produce. Tipping point leaders zoom in on the act of disproportionate influence: Making people see and experience harsh reality firsthand. People remember and respond most effectively to what they see and experience: ‘Seeing is believing’.
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To tip the knowledge hurdle, not only must you get your managers out of the office to see operational horror, but also you must get them to listen to their most disgruntled customers firsthand. Don’t rely on market surveys.
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To what extent does your top team actively observe the market firsthand and meet with your most disgruntled customers to hear your concerns. Simply put, there is no substitute for meeting and listening to dissatisfied customers directly.
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When you want to wake up your organisation to the need for a strategic shift and a break from the status quo, do you make your case with numbers? Or do you get your managers, employees and superiors (and yourself) face-to-face with your worst operational problems? Do you get your managers to meet the market and listen to disenchanted customers holler? Or do you outsource your eyes and send out market research questionnaires?
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Are you allocating resources based on old assumptions, or do you seek out and concentrate resources on hot spots? What activities have the greatest performance impact but are resource starved? What activities are resource oversupplied but have scant performance impact?
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Organisations must make fair process the modus operandi. By fair process we mean engaging all the affected people in the process, explaining to them the basis of decisions and the reasons people will be promoted or sidestepped in the future and setting clear expectations of what that means to employees’ performance.
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Do you indiscriminately try to motivate the masses? Or do you focus on key influencers? (p. 165). Ask yourself two sets of questions: Who are my devils? Who will fight me? Who will lose the most by the future Blue Ocean Strategy? Who are my angels? Who will naturally align with me? Who will gain the most by the strategic shift?
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A company is not only top management, nor is it only middle management. A company is everyone from the top to the front lines. And it is only when all the members of an organisation are aligned around a strategy and support it, for better or for worse that a company stands apart as a great and consistent executor.
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Emotionally, individuals seek recognition of their value, not as ‘labour’, ‘personnel’, or ‘human resources’ but as human beings who are treated with full respect and dignity and appreciated for their individual worth regardless of hierarchical level. Intellectually, individuals seek recognition that their ideas are sought after and given thoughtful reflection and that others think enough of their intelligence to explain their thinking to them.
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Managers must see the nearly universal value of the intellectual and emotional recognition that fair process conveys. Practical reality demands that companies succeed in both oceans and master the strategies for both.
For the readers who wish to pursue an in-depth study on this strategy, it is worth to read the book - Blue Ocean Strategy (How to Create Uncontested Market Space and make the Competition Irrelevant) by W. Chan Kim and Renée Mauborgne.
In the coming weeks, we are going to study a few ideas from ‘The Leadership Challenge’ written by Kouzes and Posner. The book is quoted as one of the most trusted sources on becoming a better leader for the new generation of young leaders living and working in fast moving global environment. Stay with us!
(Lionel Wijesiri, a corporate director with over 25 years’ senior managerial experience, can be contacted at [email protected])
