Wednesday, March 29, 2006

Blue Ocean Strategy

From a review by Fred Barstein:

In a recently published book, Blue Ocean Strategy (www.blueoceanstrategy.com), authors W. Chan Kim and Renee Mauborgne discuss how they think most companies’ business strategies are missing the mark. After studying 150 strategic
moves made from 1880-2000 in more than 30 industries, they suggest that, rather than finding ways to beat the competition using current rules (a “red ocean” or
“bloody strategy”), that companies instead look for blue oceans where there is
no competition. As the authors state more eloquently, “The only way to
beat the competition is to stop trying to beat the competition…In blue oceans,
competition is irrelevant because the rules of the game are waiting to be
set…corporate strategy is heavily influenced by its roots in military
strategy…confronting an opponent and fighting over a piece of land that is both
limited and constant.”


The basic tenet of blue ocean strategy is to make the competition irrelevant by creating a leap in value for buyers and your company which must include innovation. Without innovation, the result is just incremental sales. Innovation without value is too futuristic and not of interest to the mainstream or early majority. “Value innovation occurs only when companies align innovation with utility, price and cost…pursue differentiation and low cost simultaneously.” The basic tenets are:


1. Eliminate high cost services that are not highly valued
2. Reduce others
3. Raise or focus on some
4. Create new ones


The best way to understand the concept is to review a couple of examples. Cirque du Soleil is arguably a circus but, rather than compete with Barnum and Bailey, they decided to compete in a blue ocean. They eliminated high cost features
like star performers, animal shows and multiple arenas while reducing thrill and
danger. Instead they focused on unique venues and created theme based
shows, artistic music and dance, multiple productions and a refined
environment. Performers were recruited from the ranks of world class
gymnasts that had no future after competition. Cirque saw themselves
competing against Broadway shows or other high class entertainment, not
circuses. Southwest Airlines eliminated food, lounges, seating class and
hubs while focusing on cost, speed, friendly service and frequent point to point
departures. They saw themselves competing against driving, not traditional
airlines.

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