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Blue ocean strategy, or creating new value for customers.


Blue ocean strategy, or creating new value for customers.

 

We do this to our businesses. We draft their strategies based on the well-known market patterns, wishing to get the same wonderful results as other companies. This is how the red oceans, exploiting already utilized on the market customer value, are created. Luckily, there is a way out of it. Popularized by two management thinkers, W. Chan Kim and Renee Mauorgne, the blue ocean strategy can secure your success on the market and help you out in making the competition irrelevant.

Table of Contents:

 

What is the blue ocean strategy?

 

Among other things, it is a result of a reflection upon the preferred company’s competitive environment. The authors of the book “Blue Ocean Strategy” deliberated whether organizations should thrive in uncontested market space or the saturated “bloody” one. To find an answer for that, they didn’t need to reach out far away from their intuition and a fair share of history. Looking at the most successful companies and industries, one can spot that they all started by breaking new ground.

 

While individual case studies and blue ocean’s success stories have been plentiful, one perfect example of such an achievement can be the launch of the Ford Model T. At the beginning of the 20th century, the American automotive market was highly dominated by custom-made cars which were accessible to only a few. With a bold approach and innovative attitude, Ford decided to create a cheap and durable car. As a result, they came up with a universal car – a black “tin Lizzie.” With over 15 million units sold, the secret behind its success was a relatively low price due to an extraordinarily aligned assembly line that replaced arduous hand-crafting techniques.

 

Analyzing the latter history, we can learn a valuable lesson about the blue ocean strategy. To succeed, organizations need to shift their focus from a sole interest in beating the competition to creating new value for their customers. This means optimizing the entire operating model in the pursuit of breaking the value cost trade-off. Thus, the blue ocean is a paradigm of simultaneously following both the differentiation and low-cost strategies.

 

How to identify blue ocean opportunities and leverage them?

 

The Blue Ocean Strategy book authors created a set of 8 principles divided into two categories that should guide an organization through finding its new customer value. The first category, “Formulation principles,” selected four significant activities that strive for a profound analysis of the sector and critical thinking.

 

Reconstruct market boundaries

 

To spread the innovation and enter the blue ocean, we must first analyze the existing market and its segments. We can do this by following the Six Paths Framework proposed by the authors of the book. This analysis focuses on the competitive environment and offered value on the market, and allows for a deeper understanding of the customers’ segmentation, a chain of buyers, and market drivers.

 

Focus on the big picture, not the numbers

 

While big data can provide numerous insights into the developed market, it’s unlikely to tell you much about the unexplored customer’s needs. One of the best solutions to get a good understanding of the characteristics of the selected market and learn about its trends is to conduct an in-depth analysis based on the known patterns of project analysis. To learn more about the tools that can help you achieve such an analysis, please read our article “Use business tools and do a market analysis to develop your business!” In addition to the selected business templates, you can use the Business Canvas to visualize the most critical aspects of your future strategy.

 

Reach beyond existing demand

 

The essence of the blue ocean strategy is to capture the existing target group and the non-customers. Reaching beyond a current demand relates closely to the disruptive innovation paradigm and extends it into the spectrum of creating new value for the unserved customers. To succeed, organizations need to delve into the three segments, defined by the author, that do not belong to the specific target groups of companies in the market, namely “soon to be customers,” “refusing” non-customers, and the “unexplored” ones. This procedure will make the devised strategy relevant to a broader target audience and understand and cover the unmet needs of customers who have declined to use selected services or purchase a particular product.

 

Get the strategic sequence right

 

As the last step in formulation, the organization shall leverage the strategic plan and focus on identifying the “price corridor.” The most crucial aspect to consider in this step is developing a commercially viable business model while introducing several pricing innovations to the industry.

After the mentioned “Formulation” steps, you can come forward to the “Execution” part. Whereas before you needed to investigate the market and conduct a multidimensional analysis deeply, you will be required to focus on organizational culture, management, and practice.

 

Overcome key organizational hurdles

 

Despite the organization’s life cycle stage, every company can shift its strategy into a blue ocean. The only barrier on the horizon can be its implementation into practice. Mature organizations usually follow a pattern of well-established processes in which employees feel comfortable due to their extensive experience. To change things, the management needs to gradually change processes and introduce them to subgroups of various departments.

 

Build execution into strategy

 

In this step, according to the authors of the Blue Ocean Strategy book, you ought to follow the rule of three E’s, namely Engagement, Explanation, and Expectation.

  1. The first engagement phase encourages the executives to include a bottom-up approach and has the voice of employees in the strategic planning.
  2. In the second step – Explanation – it is crucial to come to a mutual understanding with every employee in the organization’s structure regarding the incentives and reasons for the chosen decision.
  3. Finally, in the third phase, the objectives need to be put into practice with predefined expectations in the scope of time, cost, and quality of execution.

 

Align the value, profit, and people propositions

 

After implementing the change in the organization and leading employees throughout the revolution, the company needs to synchronize these three aspects to complement each other.

 

Renew blue oceans

 

To sum up, the whole blue ocean strategy concept is founded on a simple assumption – to surpass the boundaries of an existing market and reconstruct it by reaching out beyond existing demand. However, to succeed, the points set out above need to be repeated and deeply grounded within the operation and planning divisions of the company. Furthermore, when you see that the blue ocean gradually intensifies with red, you need to set your business on your next journey and look for new waters to sail.

 

Agnieszka Maciąg

 

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