With Blue Ocean strategy in place, you focus on more value added to your buyer | Daily News
From crisis to sustenance - Part 12

With Blue Ocean strategy in place, you focus on more value added to your buyer

The caption for our last week’s instalment was: “Get out of that crowded swimming pool and take a deep dive into the blue ocean: unexploited mighty space is all yours!”

We were trying to pave the way to introduce you to the concept of Blue Ocean Strategy. It has been one of the much acclaimed tactical approaches adopted by diversified companies to gain a competitive advantage over peers.

The term is coined from the book “Blue Ocean Strategy” penned by W. Chan Kim and Renee Mauborgne.

The professors together conducted a decade-long study of 150 strategic moves spanning 30 industries over 100 years. Through their book and their teachings, the professors give you ways on how you can crush your competition by creating an entirely new territory with your business practices. The strategy can be applied to various sectors and stay relevant to various businesses. The Blue Ocean strategy challenges everything you know about strategic success and gives you a systematic approach to making competition irrelevant.

“Our study shows that blue ocean strategy is particularly needed when supply exceeds demand in a market. This situation is applying to more industries today and will be even more prevalent in the future.” Kim said in an article for Forbes.

Value innovation

According to this theory, you can say that the business world is divided into two kinds of markets - the red ocean and the blue ocean. The red ocean consists of current industries, competition boundaries, where the rules are well-defined and competitors strive to gain market share of the existing demand between the rivals. As this market gets crowded, the prospect of profit reduces or nullifies.

Blue oceans come into the second side of the market, aiming to make competition relevant by tapping into a completely new market space and tapping into that demand. Companies aiming for the blue ocean tap into value innovation in their approach so that they can benchmark the competition.

The strategy canvas

If you want your company to be a successful one, however, you have to define all your strategies from a customer focus.

You can conduct primary research with your customers, prospects and respected industry resources to prepare a tailored strategy canvas for your firm, which takes the following information into consideration: Customer perception of your firm’s capabilities: How do they currently use your product andtechnology? What business problems does your technology solve? How does the use of your capabilities break down by user type? What are the key values they obtain? What part of the market do you share with the competition? What areas are underserved by the competition? What areas are well-served by the competition?

What areas are already commoditized and which represent opportunities for commoditization? Are your customers using or considering using capabilities in a way you are yet to consider? How can you expand your technology based on that information? Where can you add features and capabilities that will increase usage? Peripheral market opportunities: Where can you expand your business to create new opportunities in new and existing markets?

This information will generate entirely different ideas from those which will be produced when you focus too much solely on attempting to develop better solutions than your competitors are currently offering customers.

Now let us apply a few case studies.

iPad

Apple saw the blue ocean and took a deep dive into it. Rest is history. We all know how iPad has reinvigorated the tablet space and how it now commands close to 1040% market share worldwide. It is the ability to think out of the box and create new products and markets that has kept apple on course to become the world’s first trillion-dollar company. Blue ocean strategy no doubt has played a big role in it?

The Apple iPad is a perfect example of how this process can be applied in the real world. This best-selling product is a modification of a laptop computer. A brief examination of what has been eliminated, reduced, augmented and created from a basic laptop shows us how Steve Jobs and his team have been able to create a brand-new category in the computer space.

This is how Steve Jobs viewed the personal computer industry in the mid 2000s.

* Low PC sales growth

* Global competition

* Commoditization of PC: R&D arms race and price war

* Segmentation strategy

* Netbook: Low-end laptop

* Threats from substitutes: smartphones

This is how the Blue Ocean strategic thinking was applied to iPad.

(1) Instead of further segmenting within the PC industry, can we create a third category that is neither PC nor Smartphone?

(2) Instead of offering high-valued laptops or lower-valued netbooks, can we make a new product that provides breakthroughs in value for PC users?

(3) Instead of further segmenting within the PC industry, can we create a third category that is neither PC nor Smartphone?

(4) Instead of offering high-valued laptops or lower-valued netbooks, can we make a new product that provides breakthroughs in value for PC users?

And, then Apple tackled the Four Actions Framework.

* Eliminate

The following features have been eliminated: the top cover, the mouse, the physical keyboard and the USB connectors.

* Raise

The features that have been augmented are: the start-up speed, the ease of use, intuitive navigation, ease of viewing and the ability to navigate (through the use of your fingers). Also, non-PC functions (e.g. handheld gaming, E-book reader) were raised.

* Reduce

The following features have been reduced: the footprint, the memory, the screen size and the price. The lower price is the cornerstone of Blue Ocean Strategy, since this is how a true-Blue Ocean is created. When one realizes that the iPad is lower priced than most upmarket laptops, one understands how important this factor has been in its success. Functions were also reduced by using embedded software applications.

* Create

The final piece of the puzzle is the creation of new features or services. This is where Steve and his team have exceeded expectations. The App store and the ability to sync through iTunes is what enable even the most inexperienced computer user to easily navigate and work in the iPad. There were hardware add-ons (e.g. SD card reader, physical keyboard) and style and fin. This has expanded the market exponentially and brought new computer users into the market space. The ability to expand the market is another key success factor in Blue Ocean Strategy

Steve and his team might not call the process Blue Ocean Strategy but they have certainly utilized all its principles to create the iPad and the iPad.

Canon

Canon’s strategic move, which created the personal desktop copier industry, is a classic example of blue ocean strategy. Traditional copy machine manufacturers targeted office purchasing managers, who wanted machines that were large, durable, fast and required minimal maintenance.

Defying the industry logic, the Japanese company Canon created a blue ocean of new market space by shifting the target customer of the copier industry from corporate purchasers to users. With their small, easy-to-use desktop copiers and printers Canon created new market space by focusing on the key competitive factors that the mass of noncustomers – the secretaries that used copiers – wanted.

By questioning conventional definitions of who can and should be the target buyer, companies can often see fundamentally new ways to unlock value. Path three of blue ocean strategy’s six paths framework pushes companies to look across the chain of buyers in their industry. By shifting focus to a previously overlooked set of buyers, companies can unlock new value and create uncontested market space.

Quicken

Intuit created a blue ocean with its Quicken financial software package by looking across substitute industries and reconstructing boundaries across them.

To sort out their personal finances people can buy and install a financial software package, hire a CPA, or simply use pencil and paper. The software, the CPA and the pencil are largely substitutes for each other. They have very different forms but serve the same function: helping people manage their financial affairs.

Instead of benchmarking the competition Intuit created a blue ocean by looking to the pencil as the chief alternative to personal financial software to develop Quicken software. Intuit focused on bringing out both the decisive advantages that financial software had over the pencil – speed and accuracy and the decisive advantages that the pencil had over software – simplicity of use and low price – and eliminated or reduced everything else. With Quicken’s user-friendly interface resembling the familiar checkbook, it was faster and more accurate than the pencil, yet almost as simple to use. The program eliminated the accounting jargon and the sophisticated features traditional financial software offered, offering only the few basic functions that most customers use.

The product was so simple, easy to use, fun and productive that buyers fell in love with it. Moreover, simplifying the software cut costs. Neither the pencil nor other software packages could compete. Today, more than thirty years on, Quicken still remains the number-one-selling personal financial software. Microsoft tried for years to dislodge Intuit’s value innovation, but after nearly thirty years of efforts and investment, it finally threw in the towel and ceased operations in 2009.

Starbucks, iTunes, Bloomberg, Philips, Polo, Cemex, Cirque du Soleil, The Nintendo Wii and host of other examples are available to prove the success stories of Blue Ocean Strategy.

(Lionel Wijesiri is a retired company director with over 30 years’ experience in senior business management. Presently he is a freelance journalist and could be contacted on [email protected])


 

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