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Blue ocean shift is a systematic process to move your organization from cutthroat markets with bloody competition—what we think of as red oceans full of sharks—to wide-open blue oceans, or new markets devoid of competition. This is the practitioners guide that is a compliment to the original work, walking through step by step how to develop a blue ocean strategy, using each of the analytical tools and frameworks developed by the blue ocean team.
Top Lessons Learned
- It's important to have a diverse team building the blue ocean strategy so that unique perspectives can be shared and that everyone is bought in at the end.
- Competition is good for the customer, not for you and your profits.
- Value creation and waste elimination are two cornerstones of a blue ocean strategy.
Part 1: getting started
New market space is created by moving away from existing value/cost structures and market boundaries/assumptions.
There are three components to a successful blue ocean shift:
- Adopt a blue ocean perspective, so that you expand your horizons and shift your understanding of where opportunity resides.
- You must have practical tools for market creation with proper guidance on how to apply them to translate a blue ocean perspective into a commercially compelling new offering that creates new market space.
- Have a humanistic process, something we have come to call “humanness” in the process, which inspires and builds people’s confidence to own and drive the process for effective execution.
If you can move people to action (strategy execution) by inspiring and building their confidence to own and drive your new strategy, they will be committed to seeing change through and overcoming the organizational constraints you confront.
- Avoid the traditional carrots and sticks.
- Change is threatening, even internally. This is why inspiration is paramount.
- As change starts to happen and progress is made, people will inevitably get energized.
To create a new market, existing ones don't always need to be disrupted or displaced (via innovation).
- Sesame Street created a new market for edutainment without affecting any existing markets. Kiva did the same thing for lower income entrepreneurs.
- Non-destructive/disruptive creation generates jobs and new opportunities. This isn't always necessary, but it should be considered in a holistic strategic market creation process.
- New market creation doesn't necessarily require a new or innovative technology to be developed. Instead, a new value frontier must be introduced.
Consider one of the three approaches:
- Offer a breakthrough solution for an industry’s existing problem.
- Redefine an industry’s existing problem and solve it.
- Identify and solve a brand-new problem or seize a brand-new opportunity.
People see only what they look for.
Blue Ocean strategists think along a set of principles:
- Blue ocean strategists do not take industry conditions as given. Rather, they set out to reshape them.
- Blue ocean strategists do not seek to beat the competition. Instead they aim to make the competition irrelevant.
- Blue ocean strategists focus on creating and capturing new demand, not fighting over existing customers.
- Blue ocean strategists simultaneously pursue differentiation and low cost. They aim to break, not make, the value-cost trade-off.
- Blue ocean strategists focus more on non customers instead of existing industry customers.
To help people develop the confidence to act on a blue ocean shift, three elements that address different aspects of our humanness are built into the process: atomization, firsthand discovery, and the exercise of fair process.
- Atomization is all about breaking things down small, concrete steps that build confidence over time.
- Firsthand discovery happens when people use the tools themselves it does ownership and creativity, instead of receiving a directive from the ivory tower.
- Fair process is about engaging people who are involved in execution, challenging ideas together, and creating trust and reassurance throughout the chain of command. Fair process also sets clear expectations across the board.
Part 2: the five steps to making a blue ocean shift
The pioneer-migrator-settler map can be used to outline all current initiatives to plan the blue ocean shift. The value you deliver today drives buyer behavior. The value you delivered yesterday is a function of your market share.
- Pioneer: novel value innovation that has fans, not customers.
- Migrator: improvement in basic value, but not innovative.
- Settler: imitators of others in the industry, nothing novel about this.
What you want to understand is this:
- which of your offerings or businesses are “me-toos” that offer only imitative value;
- which are better than competitors’ but only marginally so, delivering improved value;
- and which, if any, are value innovations that deliver a true leap in value.
Building your own pioneer-migrator-settler map follows this process:
- Identify what you have already in terms of offerings.
- Sort them into one of the three buckets (include revenues earned metadata).
- Note that technology pioneers are different than value pioneers…revenue will likely help tell this story.
- Don't worry about perfection, good enough relative position is the aim.
The whole point of this map is to build a shared understanding across team members of the consequences of inaction in the market.
Building the right blue ocean team
People who are not involved in the blue ocean planning process will likely not accept the outcome and will default back to traditionally held industry beliefs.
Who to put on the team
- Get people who have respect from others and credibility in the organization.
- Bring in one or two naysayers to act as a devil's advocate and build credibility.
- Get reps from different departments to see all perspectives and build ownership.
For large, dysfunctional, or overly political organizations you can bring a consiligere to the team. A consigliere is someone in the organization with an ear to the ground, a master of organizational politics, who knows who the big players and blockers are, and who’s hungriest for change and likely to be one of your strongest supporters.
Getting clear on the current state of play
The strategy canvas is a one-page visual analytic that depicts the way an organization configures its offering to buyers in relation to those of its competitors. It communicates:
- Factors of competition
- Offering level
- Our own and competitor strategic profiles
- Tells a story about where everyone stands and how you'll be different
The horizontal axis lays out all of the industry’s key competing factors. The vertical axis captures the offering level buyers receive or experience for each of an industry’s key competing factors; a high score means that a buyer is offered "more".
A blue ocean strategy should diverge from Industry norms and focus on a specific area of value creation, not just over or under deliver on everything.
- Identify the industry you're in or looking to enter.
- Identify the key things that are completed on from a buyer's perspective (5-12 big picture). Always include price in for-profit situations.
- Plot the industry leader(s) with these factors, plotting no more than three big picture players from the buyers perspective.
- Rate your own (planned) offering on these factors. Use a 1-5 scale to do the plotting for some consistency.
Uncovering the hidden pain points that limit the size of the industry
A pain point is anything that limits value of existing customers or is so prohibitive that it keeps non-customers from converting.
The buyer utility map tool exists to identify pain points through the entire buyer journey and to identify where non-customers may be getting turned away.
Customer Productivity: What is the biggest block to customer productivity in each stage? What are the key reasons for this block?
Simplicity: What is the biggest block to simplicity in each stage? What are the key reasons for this block?
Convenience: What is the biggest block to convenience in each stage? What are the key reasons for this block?
Risk Reduction: What is the biggest block to risk reduction in each stage? What are the key reasons for this block?
Fun and Image: What is the biggest block to fun and image in each stage? What are the key reasons for this block?
Environmental Friendliness: What is the biggest block to environmental friendliness in each stage? What are the key reasons for this block?
Once you plot out the buyer's process, go through each utility lever and ask the following questions:
- What is the biggest block to X?
- What is the reason for that?
Use X's to denote where pain points exist and O's to denote where the industry currently focuses it's efforts.
As you go through and complete this process, find ways to see things through the buyers eyes, experience what they experience.
There are three tiers of non-customers, regardless of the industry you're in.
Total demand potential = function (existing industry customers + first-tier noncustomers + second-tier noncustomers + third-tier noncustomers)
Some examples for other industries are included in the tables below.
Key question to start with: who typically buys and uses the industry’s current offering and why?
Then dig into:
- Who sits on the edge of our industry and uses its offering reluctantly and/or minimally?
- Who considers our industry and then consciously rejects it, satisfying their needs through another industry’s offering or not at all?
- Who could strongly benefit from the utility our industry offers, but doesn’t even consider it, because the way it is currently being delivered makes the industry seem irrelevant or out of their financial reach?
Work through the following questions systematically:
- What did we learn?
- Who are the first-tier, second-tier, and third-tier noncustomers of our industry or target industry?
- What is the approximate magnitude of each tier of noncustomers, relative to the industry’s existing customer base?
- Is each of the three tiers small, suggesting scant room to create a blue ocean? Or are one, two, or all three of the tiers noteworthy in terms of the magnitude of their potential demand?
- Which tier, if any, has the largest group of noncustomers that could potentially be unlocked with a reconstructed offering?
- Do we see a link between the blocks to utility revealed in the buyer utility map and any of the three tiers?
- Might these blocks to utility be causing the noncustomer groups to patronize another industry to fulfill their ultimate purpose?
- If yes, do we imagine that this tier of noncustomers might be unlocked by systematically exploring what it would take to convert them into customers?
Reconstructing market boundaries in a systematic way
The six paths framework can be used to start rethinking what a market looks like and where things may be blocking it.
- Alternative industries can be thought of as other ways to solve a basic need or problem.
- What are the sources of value that drive the decision to choose one over the other?
- This might be expertise, cost, or speed.
- Looking across strategic groups in your Industry can help you find value elements to eliminate or create.
- Be on the lookout for things that may be discouraging customers based on the way the strategic groups offer value.
- Look towards the entire chain of buyers instead of users alone.
- This could be the money holder, influencer, supplier, owner, maintainer, etc.
- Each of these individuals are going to have different definitions of value.
- The total solution space (what is the entire buyer's experience) (include ownerhip costs) that buyers seek likely has pain points, seek to eliminate them.
- Try to rethink the functional or emotional orientation around your industry. How people feel about the legal industry is a great example of this, functional but elitist and expensive.
- Is it functional or emotional? What does that mean? Why?
- Participate in shaking external trends over time using a systems leadership approach.
Going through this process is very much detective work…treat it as such and don't get defensive.
Developing alternative blue ocean opportunities
The four actions framework is all about action. Taking all of the learnings from each prior step and creating the blue ocean move.
- Cut cost structure
- Which factors that the industry takes for granted should be eliminated?
- Which factors should be reduced well below the industry’s standard?
- Increase value
- Which factors should be raised well above the industry’s standard?
- Which factors that the industry has never offered should be created?
This is what the process looked like while developing citizenM hotels.
Once you've successfully gone through this process, draw it out using the strategy canvas. It can be a powerful driver to create a tagline to go with the new strategy, this can help guide development efforts.
Part 3: making the move
Conducting rapid market tests
Ideally you should have a handful of strategies outlined and ready to test.
Using traditional market feedback techniques can be used with internal team members, customers, and non-customers.
- Present each option
- Outline economic benefits
- If you can get votes to occur retrospective style, do it
- Collect feedback
Developing the business model to execute
The strategy canvas should be non-negotiable, don't compromise to hit a certain price point.
The following questions may help:
- Is there someone else that could be partnered with?
- How can operations be streamlined or innovated?
- How can people's positive energy and contributions be multiplied?
It might be useful to outline the business model using the canvas provided by strategyzer for this step.