These past few weeks I have been reading “Blue Oceans Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant”.
Many of us look at the current systems as they are and try to beat the competition or work within that system to bring change.
But our existing systems are what the authors, Chan Kim and Mauborgne, call “the red oceans”: these are based on shared old assumptions that everyone has come to accept as the norm.
Yet, the true value is often found in the creation of what the authors call “blue oceans”: these “denote all the industries not in existence today” (p. 4).
For example, companies like Cirque du Soleil are examples of blue oceans: at a time when most circus operations were declining in profitability and popularity, Cirque du Soleil has managed to revive circus as it never was.
It got rid of most of the costly items associated with circus (animals, high-cost processes) and replaced these with acrobatics, music, storyline, and created experiences that you won’t easily forget.
In other words, blue oceans emerge from innovative strategic thinking and seeing value where it never existed before.
Value innovation: creating new value and markets
The vital core of such companies relies on value innovation:
“instead of focusing on beating the competition, you focus on making the competition irrelevant by creating a leap in value for buyers and your company, thereby opening up new and uncontested market place” (p. 12).
This includes focus on such issues as utility, cost and price positions.
Most of the traditional wisdom says that if a company is to make profit, it needs to have a high price for its service/product that is highly desirable and different, or it has to deliver something at very low cost (with low quality).
Yet, blue ocean thinking on value innovation is that you can create something that brings the customers high value with high quality and uses new ideas to deliver this.
In effect, value innovation “is based on the view that market boundaries and industry structure are not given and can be reconstructed by the actions and beliefs of industry players” (p. 17).
Value innovation in other words questions the current state of things and sees significant opportunities in delivering value that is exciting, surprising and creates a new demand.
Strategy canvas: strategic moves that can help companies leap
A key strategy that such companies undertake is examining what they are doing well at the moment, what they are doing poorly, and where they can improve and create new revenue streams and simply create a new demand and new market.
As the authors note, “To fundamentally shift the strategy canvas of an industry, you must begin by reorienting your strategic focus from competitors to alternatives, and from customers to non-customers of the industry” (p. 28).
This means that the company needs to develop a new value curve where it can see which costs and processes it can do away with (factors leading to low quality or increases in costs) and which factors it needs to implement and include to deliver new and exciting value.
To do a strategy canvas, four key questions should drive the process:
- “Which of the factors that the industry takes for granted should be eliminated?
- Which of the factors should be reduced well belowthe industry’s standard?
- Which factors should be raised well abovethe industry’s standard?
- Which factors should be createdthat the industry has never offered?” (p. 29)
By focusing on these questions companies can start to fundamentally shift through a robust process and also question some of the industry-old foundational beliefs why things are done in a particular way and why products are as they are.
Often the very complicated business models and processes within an industry exist because a) everyone uses them and b) with a focus on beating the competition, most have no time (or will) to innovate outside the traditional processes and market.
Great examples in the book include how the Australian [yellowtail] wine broke into the American market: it offered an easy drinking wine that was sweeter, choosing the wine didn’t require difficult decisions on behalf of buyers (eg only with particular foods or extensive prior wine knowledge), and it sold only a few different kinds of wine in attractive bottles.
It offered the wine at a lower cost as it eliminated e.g. the complex aging process used by wineries so it could supply its wines faster.
[yellowtail] brought non-wine drinkers into the market, and became the wine of choice beating even French and Italian wines in US, without all the fuss and finesse usually associated with wine drinking.
Nailing down the core factors for change
The strategy canvas should be complimented also with Eliminate-Reduce-Raise-Create (ERRC) grid that further helps the company to differentiate the factors that are hindering them and which are supporting growth and winning the marketplace.
Whereas the strategy canvas explains the higher-level thinking, the ERRC grid is much more about actions that the company can take.
By understanding which factors the company can for example eliminate (which are really costly and more cumbersome than key for success), companies can unlock resources and also change fundamentally the cost structure within which they operate.
After constructing the strategy canvas and undertaking the ERRC gird exercises, the focus needs to shift on formulating a new compelling strategy that relies on the new insights.
In this process, three key factors are crucial: focus, divergence and compelling tagline.
Focus is about focusing on a few key factors and not trying to do everything: simplifying what is important (e.g. speed of service, customer satisfaction, and frequency of service) companies can make better decisions what they need to do.
Divergence means that the new strategy enables the company to truly standout: its strategy and strategic moves give it an edge from all the other companies as they make different and bold decisions in their strategic profiles.
Every strategy needs a tagline that is memorable, truthful and captures what customers can expect from the company and its services.
Good taglines guide the company in decision-making but also provide a compelling case for its why: the key values and aspirations that are driving the company.
Blue oceans are about thinking differently, seeing pockets of untapped value, whether these are existing systems or customer base, or new systems that can bring change in markets where the competition and industry standards are making the market rather stale.
Applying blue oceans thinking into climate adaptation
There is so much more to blue ocean thinking that I’ve summed here but it already provides important and key lessons also for climate adaptation.
The red oceans of climate change are often said to be neocapitalism and slowly moving global systems, such as the United Nations Framework Convention on Climate Change that culminates each year in Convention of Parties (COP) meeting (the 25th meeting will be held this December in Madrid).
Especially the outside observers to these processes are increasingly frustrated by the seemingly slow progress of the Convention: it requires common agreement by all countries for all negotiating text, it has challenges of transparency (why particular political positions are what they are), and who is influencing the most and why.
Yet, even if the main process is rather slow, there are also attempts at blue ocean thinking that use foresight and future literacy in trying to capture innovation windows and identify leverage points in systems where positive change has the biggest impact.
In the upcoming COP25 for example a new UN inter-agency initiative Resilience Frontiers will include sessions each day during the Convention to bring together people who are interested in innovation and thinking differently.
What is very exciting at a personal level is that I am able to be involved with this new initiative and facilitate a session with different partners each day.
I firmly believe in the power of collective innovation, idea sharing and foresight-induced “seeing around corners” that I am confident that some blue oceans will be discovered and progressed.
The key will be to question fundamentally the foundational assumptions about the systems that we operate within, and ask new, better, bolder questions as to how we can think differently and create more space for breakthrough ideas.