*In this post this week, I will post about what I learned regrading the Blue Ocean strategy. Over the next 2 weeks, I will show examples of companies and institutions that managed to be successful by using the Blue Ocean Strategy.
Today, I went for another Soft Skills Competency Programme workshop. The title of the workshop was Innovative Marketing Tools from Blue Ocean Strategy. The speaker was Mr. Kenth Teh from Strategic Titans Consulting Group. There, I learned about the meanings of Blue Ocean and Red Ocean. The workshop was based on the book "Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant" penned by W. Chan Kim and Renée Mauborgne.
Red Ocean and Blue Ocean represents the situation in the marketplace a company is currently competing in. A company utilising the Red Ocean strategy will be competing in an existing marketplace, exploiting existing demand and making the value-cost trade off. As a result, the company will most likely be in the red as a result of trying to beat the competition by one-upping them. Hence, the term "Red Ocean" alluding to the "blood" spilt by all the competitors. This strategy is commonly taught at traditional marketing courses at universities.
Companies using the Blue Ocean Strategy, on the other hand, seek to create an uncontested market space by introducing a new and unique product. They aim to make the competition irrelevant as the competitors have yet to enter the new space created by the innovating company. Thus, a company utilising the Blue Ocean strategy will be able to create and capture new demand, as well as break the never-ending cycle of value-cost trade off. The "Blue" Ocean gives the mental image of a vast, unexplored and exiting market.
There are 4 basic steps in the process of using the Blue Ocean strategy: Visual Awakening, Visual Exploration, Visual Strategy Creation, and Visual Strategy Fair.
In Visual Awakening, a company will attempt to determine what their as-is strategy canvass is. They will do this through a buyer utility map. The reason why the people at a company will want to do this is to determine which category of businesses they belong to. There are 3 types of businesses: pioneers, migrators, and settlers. Pioneers are businesses that offer customers unprecedented value and are most likely Blue Ocean businesses. Migrators are businesses that offer improved but not innovative value over their competitors to customers. They give customers more for less. Settlers are businesses that offer more or less the same as their competitors and are often Red Ocean businesses. These businesses will likely be bankrupt in the future as they have failed to innovate.
By understanding which type of business a company is running, the company can attempt to turn a certain "migrator" business into a "pioneer" business. To do this, they will need to construct a chart called an as-is strategy canvass. First, a company must identify the key competing factors (KCF) for their industry. For example, the KCF for a company manufacturing game consoles will be cost, processor power, quality of games on the console, backwards compatibility, HD videos, and so on.
Next, the company will identify one key competitor. They will then start comparing itself and the competitor by ranking their relative performance against their key competitor. The result will be 2 different lines on a chart depicting the relative performances of the 2 companies.This chart will help the company identify definitively where its strengths and weaknesses lie.
Another important step in Visual Awakening is the construction of a buyer utility map. It is basically a table where the first horizontal row lists the six stages of buyer experience cycle: purchase, delivery, use, supplements, maintenance, and disposal. The first vertical column will list the six utility levers: customer productivity, simplicity, convenience, risk, fun & image, and environmental friendliness. Using this table, a company may then identify what a customer's pain points are. For example, if there are significant risks for a customer using the product produced by the company, a cross will be place on the box on the table representing "risk" and "use". The cross indicates a pain point.
The next step in using the Blue Ocean strategy is Visual Exploration. This means a company will attempt to explore the 3 tiers of non-customers of the company. This allow a company to look beyond its traditional customers, the core market. The first tier of non-customers are "soon-to-be" customers. They may be customers who are dissatisfied customers who rarely use the current products offered by a company and are considering switching to a better alternative. The second tier of non-customers are "refusing" customers who knew of the products but did not choose to use the product or can't afford the product. The third tier of non-customers are "unexplored" customers who are distant from a company's market and have never even considered the company's offerings as an option.
After knowing who the new, potential customers are, a company have 6 paths to reconstruct the market boundaries of their product such that the non-customers might become interested in using the company's products. I will explain the paths using various examples next week.
The third step in using the Blue Ocean strategy is Visual Strategy Creation. This is done by creating the ERRC grid. The letters in ERRC stands for Eliminate, Reduce, Raise, and Create respectively. The ERRC grid is used to demonstrate how a company may create value innovation by reducing cost while increasing value of a product or service.
Firstly, a company choose which elements to eliminate form a product to make it more appealing to new customers. Some of these elements may actually be factors that the industry takes for granted and thought to be a "sacred cow". Next, the company will choose to reduce certain aspects of the product. After that, they will select some aspects of the product that should be raised well above the industry standard. Finally, the company will be able to create a new type of product that the industry has never offered.
After determining what exactly to eliminate, reduce, raise, and create, the company will have to construct another strategy canvass. This time, the strategy canvass will be a "to-be" canvass. In other words, the company will have a new line atop the 2 lines representing its old self and its key competitor. The new line will highlight the changes to be made regarding the degree of importance given to the different Key Competitive Factors.
The final step in utilising the Blue Ocean strategy is to present the idea to the company's board of directors or investors. This stage is known as Visual Strategy Fair. The team tasked with creating the new strategy will have to explain clearly what their strategy is about. This is important as a great idea have to be presented clearly to be considered a great idea. A supposedly great idea that can't even be understood by others is not a great idea in actuality.
After attending the workshop, the most important thin I learned is this: we must always value innovation and never stop thinking about new solutions. The most important thing is not just to be creative, but to be innovative. To be innovative is to create something that is practical and useful. As an example, a person who is creative may design a car that has 7 doors. The extra 3 doors will be front and back windscreens, as well as the roof. This concept is certainly creative, but it is not innovative at all, since it is not practical. No car users will climb into a car through the back windscreen.
The return of investment from a product using the Blue Ocean strategy is much greater than that of a product using the Red Ocean strategy. This is proven by a research conducted by W. Chan Kim, the co-author of the book Blue Ocean Strategy. Both the revenue generated and the profits earned from a product following the Blue Ocean strategy is much greater than the same type of product following the more traditional Red Ocean strategy.
In conclusion, we should all strive to be innovators rather than to be imitators.
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