Value pioneering - how to swim in your own ocean

Citation

Leavy, B. (2005), "Value pioneering - how to swim in your own ocean", Strategy & Leadership, Vol. 33 No. 3. https://doi.org/10.1108/sl.2005.26133cae.001

Value pioneering - how to swim in your own ocean

Value pioneering – how to swim in your own ocean

Blue Ocean Strategy

W. Chan Kim and Renée MauborgnePiublished by Harvard Business School Press, 2005, 190 pp.

For most of the last quarter century since the publication of Michael Porter’s landmark book Competitive Strategy, the central focus of the strategy field has been on sustainable competitive advantage. However, recent years have brought a pronounced shift in emphasis towards strategy innovation. As Gary Hamel argues in Leading the Revolution, the traditional obsession with competitors is a recipe for strategy convergence. Today’s would-be winners are exhorted to put customers ahead of competition and try to develop compelling new value propositions capable of transforming existing market spaces and creating new ones. As yet, however, there are few practical guidelines as to how to go about this challenge. This is where Blue Ocean Strategy aims to make its mark.

W. Chan Kim and Renée Mauborgne have been in the vanguard of the value pioneers from their earliest days, and the ideas developed in this book are the product of a successful twenty-year research and consultancy partnership. Many of the book’s chapters have been published in a series of well-regarded articles stretching back to the mid-1990s, and in Blue Ocean Strategy, they are brought together in a more integrated way to offer a comprehensive approach to the formulation and execution of strategies aimed at the creation of new market spaces – the blue oceans of the title. Professor Kim is The Bruce D. Henderson Professor of Strategy and International Management at INSEAD and Professor Mauborgne the INSEAD distinguished fellow and a professor of strategy and management at the same institution. Their core ideas have been developed and tested in their work with many leading companies around the world, and Samsung has institutionalized its business creation program around them.

The book introduces its central ideas and metaphor with the example of the Montreal-based enterprise, Cirque du Soleil, started by a group of street performers in 1984 and now one of Canada’s largest cultural exports. This company created an entirely new market opportunity by reinventing the circus as a theatrical experience. According to the authors, the example of Cirque du Soleil demonstrates the best way to beat the competition – in this case, leading players like Barnum & Bailey and Ringling Bros. vying with very similar strategies in a declining industry. The trick is to “stop trying to beat the competition” and focus instead on developing a compelling new value proposition that can create uncontested market space.

The book’s central metaphor asks us to imagine the market universe composed of two sorts of oceans, red and blue. Red oceans are known or established market spaces, where the trend today is towards increasing competitive intensity, and the water is getting more and more bloody. Blue oceans are market spaces waiting to be discovered. Blue ocean strategies are aimed at creating such market spaces and dominating their growth.

Blue oceans are not a new phenomenon. To show that the creation of new market spaces occurs repeatedly throughout business history, Kim and Mauborgne offer the example of phenomenally successful Ford Model T. Ford conceived of it almost 100 years ago as a reliable car for the average person at a time when all other carmakers were competing to sell high-priced cars to the wealthy.

What has been missing until now, according to the authors, is a systematic way to think about blue ocean strategy development and tools to facilitate it. For Kim and Mauborgne, the key to blue ocean strategy is value innovation. Such value pioneering need not involve a leading edge technology. What is required is a compelling new way to reconfigure value that represents a quantum leap beyond the current value-cost frontier, allowing value pioneers to enjoy both cost and differentiation advantages simultaneously. The new proposition should also have broad market appeal. One of the primary aims of a blue ocean strategy is to reverse the process of finer segmentation that characterizes many mature markets to instead create new aggregations of demand across existing market boundaries.

Kim and Mauborgne integrate their approach to value innovation into six principles of blue ocean strategy and the book is mainly organized around them. Four of the principles concentrate on blue ocean strategy formulation: reconstruct market boundaries; focus on the big picture, not the numbers; reach beyond existing demand; and get the strategy sequence right. The remaining two deal with execution: overcome key organizational hurdles; and build execution into strategy. Up to now, most blue ocean strategies have owed a lot to inspired entrepreneurial insight. In future, the authors believe that it should be possible to create such strategies in a more deliberate and systematic fashion by following these principles.

The book is packed with useful analytics to aid this process. The most basic ones include the strategy canvas, and the four actions framework (see Figures 1 and 2). In the book, both models are clearly illustrated through the examples of Casella Wines entry into the US wine industry and Cirque du Soleil’s reconception of the circus value proposition.

Figure 1 Eliminate-reduce-raise-create grid: the case of [yellow tail]

Kim and Mauborgne’s “strategy canvas” is a visual tool that helps identify the main factors shaping the current value-cost relationships in any industry. In the wine industry, among the primary components of value are price, above-the-line marketing, aging quality, vineyard prestige and legacy, wine complexity and wine range. The strategy canvas not only allows the value curves (current value-cost positions on each of these components) of the existing competitors to be mapped onto each other and compared, but also provides the basis for exploring where new market space might be created. This is where the four actions framework (eliminate-reduce-raise-create) comes in. This framework helps the strategist to identify how value might be reconfigured by systematically examining which of current value components might be eliminated, which reduced well below current industry standard, which raised well above industry standard, and where new ones might be created for greatest impact. The first two, “eliminate” and “reduce”, point to opportunities for breakthrough on the cost side; the second two, “raise” and “create”, help to identify how to “lift buyer value and create new demand.”

Figure 2 The strategy canvas of [yellow tail]

Value innovation aims to bring about a fundamental shift in the strategy canvas of any industry. It begins with “reorienting your strategic focus from competitors to alternatives, and from customers to noncustomers,” as Casella Wines did in the US wine market. Instead of trying to figure out how to win share from the existing competitors, the company set out to understand why so many American drinkers seemed to shy away from wine and to change this situation. It created three new components to the conventional value curve to help to widen wine’s appeal to traditional beer and cocktail drinkers – easy drinking, easy to select and fun/adventurous image – and set about eliminating or reducing most of the others. The result was a blue ocean strategy that saw it expand the overall market and become the number one imported wine within two years.

Beyond these basic tools, Kim and Mauborgne also identify six paths to finding blue ocean opportunities through systematically searching across: alternative industries (not just substitute products or services); strategic groups, the chain of buyers; complementary product and service offerings; the functional and emotional appeal of buyers; and time. All are illustrated with interesting examples, some well known – like NTT DoCoMo, CNN, and Bloomberg. But others – like Cirque du Soleil, Casella Wines, NetJets (a time-share corporate jet service), Curves (a women’s fitness franchise) and NABI (a Hungarian bus manufacturer) – are less known. In some examples they use, like Cemex, the company is well known, but not the particular example of value innovation.

In advising strategists to keep the focus on the big picture, not the numbers, the authors show how the visuals of the strategy canvas and the four-actions framework can help to bring the opportunities for value innovation into clearer relief than “any argument based on numbers and words.” They even provide their own value innovation portfolio matrix, the pioneer-migrator-settler map, for the multi-business context. Strategists are urged to focus on the latent potential in noncustomers as they search for blue ocean opportunities across existing market boundaries, and are also shown why getting the strategy sequence right (buyer utility-price-cost-adoption, in that order) is key to developing a business model that will have compelling market appeal at a compelling price.

Because value innovation strategies are normally significant departures from the status quo, the authors suggest how to overcome the major organizational barriers to change and how to build corporate-wide commitment. They identify four main hurdles – cognitive, resource, motivational and political. Their primary prescription for overcoming them is an unconventional approach to change management that they term ‘tipping point leadership,’, which they illustrate through the case of Bill Bratton and the dramatic turnaround in New York City crime prevention by the NY Police Department during the mid-1990s. The authors also argue that the ultimate success of any blue ocean strategy requires the building of execution into the strategy by means of what they call “fair process”, and show why all three of it principles – engagement, explanation and clarity of expectation – have to be followed if sufficient organization-wide commitment is to be secured.

In all of this, it might be said that there is something old, something new and something borrowed (as well as something blue). For example, the section on execution borrows from tipping point and distributive justice theories, the heavy emphasis on the latent opportunities in noncustomers could be straight out of Clayton Christensen’s disruptive innovation playbook, and the argument that “blue ocean strategy is a systems approach that requires not only getting each strategic element right but also aligning them in an integral system” to create a formidable barrier to imitation looks a lot like classic Porter. Yet there is more than plenty that is fresh and interesting in Blue Ocean Strategy, and even what is old and borrowed is synthesized in new and quite insightful ways.

Brian LeavyAIB Professor of Strategic Management at Dublin City University Business School and a contributing editor of Strategy & Leadership (brian.leavy@dcu.ie).