This one immediately reminds me of my MBA days wherein we learnt the rudiments of Competitive Strategy and Michael Porter. The bookish approach is scarcely avoidable when one understands that the book aims to be a ‘one-stop-shop’ to identify, remediate and recycle a firm’s approach towards the traditional trade-off between price and differentiation.
It does a great job in putting together the building blocks with suitable illustrations and some of the stories run across themes as we visit the various elements of creating great value and disproportionate amount of profit for the organization.
We experience commoditization across various segments of the products as a consumer. And the easiest way to spot it is to check the prices – usually there is only a marginal differentiation and often multiple schemes and promotions are on to make you choose a particular option. It does seem like a ‘dog-eat-dog’ world and the bloody marketing war is alluded to be the red ocean that we experience in our daily lives.Imagine then a differentiated product that defies all competition, pricing is no longer a restraint – in fact customers are falling over themselves to get hold of the elusive product and earn bragging rights, and it is not a flash in the pan, the product is good enough to spin-off profits in the near future and it will be some time before the eventual challenger can appear on the scene. Well that is the world of abundance and boundarylessness a.ka. the blue ocean strategy.
The key principle guiding the Blue Ocean strategy is that there is no need to do a trade-off between value and differentiation. Instead you provided a differentiated product that appeals to a customer segment at a lower cost. Sounds a bit crazy – we all have heard that you can’t have your Cake and eat it too. Well hang on for the paradigm shift as this can unlock great potential for your organization.
The toolkit is easy enough to understand and use. You begin by taking stock of the current situation and plot your firm’s position in the market place using a ‘Strategy Canvas’. The redefinition process looks at your product features and boxes them into one of the following 4 categories: Eliminate, Reduce, Raise or Create. This needs to be done in conjunction with the 6 paths available to create a differentiated product i.e. a new blue ocean. To size the market you need to look at customer sets that include – marginal customers who may switch off any time, non-customers who don’t choose your product and unexplored customers who don’t even know that your product could address their needs.
Having arrived at a strategic offering that has a viable audience you need to consider the strategic pricing while factoring in the costs. Obviously cost optimisation is a basic and recurring strategy but the pricing needs to factor in the attractiveness of your offering. The price is indeed a strategic decision that will define segment size and profitability for your product.
Pushing the new paradigm across the organization will present an execution challenge that will need to ensure that people are on board and willing to go out on a limb to execute the strategy as envisioned. Handling this segment well will ‘make or break’ many offerings as without the right execution the most brilliant strategy is bound to fail.
Constant revalidation and renewal is required as eventually all blue oceans will turn red in the normal course of time. So one is reminded of the Schumpeterian principle of ‘creative destruction’ that is an ongoing process but the blue ocean strategy is a far more proactive approach and its paradigm is not about the old order being replaced by the new. Rather it is about being able to envisage abundance by shifting the view; certainly the energies achieve far more by avoiding to compete on a ‘dog-eat-dog’ basis everyday.