Finding an article (within past 30 days) about a struggling 'Red Ocean Strategy' company and make 300 words comment.

Blue Ocean Strategy (BOS) Notes

As mentioned in WEEK ONE's lesson ESSENTIAL ELEMENTS OF SUCCESS, surprisingly, most businesses do not truly understand their business environment. And lacking this understanding draws them into head-to-head competition, where eventually everyone loses.

Each week's lesson will rely heavily on reading our text, Blue Ocean Strategy (BOS). This week you should have already read the Preface thru page 22. Note, the text is extremely comprehensive with many layers. Often students and my clients will find themselves reading it over and over to pull back the layers and tune in their senses.

The lessons will highlight key areas of the text, with some supplemental tools from time to time. My goal is to break down those walls of conventional thinking and help you become more perceptive. I will also utilize my responses to your posts for the exercises as opportunities to supplement the lessons and tie in the principles of business and the text.

New Market Space

"The only way to beat the competition is to stop trying to beat the competition." It's as simple and complicated as that. This is what we will explore over the next several weeks.

The text centers around the concept of creating businesses in blue oceans. Better said in a quote from the book, "Blue ocean strategy challenges companies to break out of the red ocean of bloody competition by creating uncontested market space that makes the competition irrelevant. Instead of dividing up existing - and often shrinking - demand and benchmarking competitors, blue ocean strategy is about growing demand and breaking away from the competition."

To begin, we must first understand where blue and red oceans exist. As the book illustrates, imagine a market universe of mostly blue oceans. Within it there are red oceans. These red oceans represent all of the industries in existence today. And blue oceans represent those undiscovered industries. These are the unknown market spaces.

For example, think about some good old fashioned industries and the blue oceans that were discovered along the way.

- Telephones turned into cell phones, which turned into cameras and now smart phones. - Radios turned into the Walkman, which turned into MP3 players, then products like the iPod and eventually iTunes with even more functionality.

From these examples you can hopefully begin to see as the blue oceans eventually begin to turn red, there are always companies pushing the boundaries of the industry to create their own uncontested market space. Industries never stand still, they continuously evolve.

In red oceans, "products become commodities, and cutthroat competition turns the red ocean bloody."

Business strategy, especially over the past quarter of a century has been on:

- analyzing the underlying economic structure of an existing industry - choosing a strategic position of low cost, differentiation or focus - benchmarking the competition

Most new markets/opportunities are created on the fringe of these red oceans by expanding the market boundaries ... and even venturing beyond. Here, "competition is irrelevant because the rules of the game are waiting to be set."

I don't want to diminish the importance of red oceans. "Red oceans will always matter and will always be a fact of business." However, successful and sustainable businesses, those businesses that have a loyalty and affinity with their customers, are natural organic extensions of these red oceans. "Companies need to go beyond competing."

Unfortunately/fortunately, blue oceans are largely uncharted. Here lay the best opportunities to succeed with less risk. That is, less risk for those who research and understand the roots of their industry and their customer needs, and blaze a trail with a pretty good idea of where it leads.

The Continuing Creation of Blue Oceans

As the text suggests, if you look back 100 years, you will see that industries such as automobiles, music recording, aviation, petrochemicals and health care. Within the last 30 years we began to see mutual funds, cell phones, gas-fired electricity plants, biotech, discount retail, express package delivery, minivans, snowboards, coffee bars, home video, etc.

We must understand that conventional thinking has conditioned us to compete. To quote BOS again, "...the overriding focus of (most business) strategic thinking has been on competition-based red ocean strategies. Part of the explanation for this is that corporate strategy is heavily influenced by its roots in military strategy. The very language of strategy is deeply imbued with military references - chief executive "officers" in "headquarters," "troops" on the "front lines." Described this way, strategy is about confronting an opponent and fighting over a given piece of land that is both limited and constant. Unlike war, however, the history of industry shows us that the market universe has never been constant; rather, blue oceans have continuously been created over time. To focus on the red ocean is therefore to accept the constraining factors of war - limited terrain and the need to beat an enemy to succeed - and to deny the distinctive strength of the business world: the capacity to create new market space that is uncontested."

The Impact of Creating Blue Oceans

In a case study, the authors of BOS were able to quantify the impact of creating blue oceans. In the study of 108 companies, 86% of them were line extensions - incremental improvements within the red ocean of existing market space, "yet they accounted for only 62 percent of total revenues and a mere 39 percent of total profits. The remaining 14 percent of the launches were aimed at creating blue oceans. They generated 38 percent of total revenues and 61 percent of total profits." See Figure 1-1. As you can see, blue ocean businesses demonstrate far greater performance. As you will see, this is due to the loyalty and affinity they develop with the customers.

From Company and Industry to Strategic Move

BASIC QUESTION: Are there lasting "excellent" or "visionary" companies that continuously outperform the market and repeatedly create blue oceans?

Lots of examples are in books that depict companies as excellent for isolated success, but soon disappeared or struggle: - Atari, Data General, Fluor, National Semiconductor, HP, Compaq

What will become clear is that the company and industry are not the right focus, rather, strategic moves - the set of managerial actions and decisions involved in making a major market-creating business offering. There is a commonality that exists across strategic moves that have created blue oceans, and have led to new trajectories of strong, profitable growth.

"The creation and capture of blue oceans are achieved by small and large companies, by young and old managers, by companies in attractive and unattractive industries, by new entrants and established incumbents, by private and public companies, by companies in low- and high- tech industries, and by companies of diverse national origins."

Value Innovation: The Cornerstone of Blue Ocean Strategy

The difference between winners and losers in creating blue oceans is strategy.

With red ocean companies, it pretty much boils down to two key things: beat the competition and defense. This conventional thinking has doomed them to continue to repeat the same mistakes.

In contrast, blue ocean companies are about value innovation. Here they focus on a leap in value. It is important to note that value with out innovation is just value creation - incremental increase, and don't stand out. These tend to be technologically-driven, market pioneering or futuristic - beyond what customers are ready to accept or pay for. Value innovation occurs when companies align innovation with utility, price and cost positions. "If not, this can be the egg for someone else to hatch." The value innovator breaks the value-cost trade-offs - believes in greater-value, higher cost.

Fig 1 - 3: Red Ocean Versus Blue Ocean Strategy

Red Ocean Strategy	Blue Ocean Strategy
Compete in existing market space.	Create uncontested market space.
Beat the competition.	Make the competition irrelevant.
Exploit existing demand.	Create and capture new demand.
Make the value-cost trade-off.	Break the value-cost trade-off.
Align the whole system of a firm's activities with its strategic choice of differentiation orlow cost.	Align the whole system of a firm's activities in pursuit of differentiation and low cost.

 

Value innovators redefine the problem by developing a better understanding of the underlying situation(s). This is the simultaneous pursuit of differentiation and low cost. Cost savings are made by eliminating and reducing the factors an industry compete on, and buyer value is lifted by raising and creating elements the industry has never offered.

Value innovation is about a strategy that embraces the entire system of a company's activities.

Formulating and Executing Blue Ocean Strategy

The text and this course pursue a method that encourages you to venture beyond industry boundaries to create your own uncontested market space. This offers a much more favorable risk/reward ratio. While the market is filled will tools and analytical frameworks, they often focus on red oceans, and are eventually doomed to failure. This text and course will teach a methodology to create blue ocean companies. I will release and discuss the tools to create uncontested market space as we progress.

Enjoy the journey!