Training for Business
Stuart Crainer looks at how 'blue ocean strategy' can break the cycle of conventional competition.
Guardian Weekly March 2005
Make a bigger splash in uncharted waters
The routine criticism of business School professors is that they preach rather than practise. The tidy world of management theory is populated by neat two-by-two matrices and vacuous phraseology. In contrast the real world of business is messy and complex - a smorgasbord rather than an imaginary cucumber sandwich.
W Chan Kim and Renée Maulborgne,
professors at lnsead, the business school with campuses in France and Singapore, are unusually willing to get their hands dirty. The result of their research over the past decade is Blue Ocean Strategy (published by Harvard Business School Press).
Their obsessive attention to detail has led to Kim and Maulborgne being tipped as the next big gurus to hit the business world. 'I'heir book has already set records for the publisher which sold rights in 23 languages before publication, surpassing even Kaplan and Norton's classic The Balanced Scorecard.
Even if the predictions come true, This "overnight" success will have taken years of work. Kim, a hyper-cerebral Korean, admits that he loses sleep about getting the data right. And there is a lot to get right.
Kim and Mauborgne looked back at 150 years of corporate history.
"We found that the pace of industry creation has speeded up," says Mauborgne. "We asked which industries are around that weren't around in 1900. And it turns out that most of the industries we take for granted today did not exist at that time. The same can be said if we look back only 30 years. We have a hugely underestimated capacity to create new industries. Everyone assumes that the number of industries stays the same over time, but it doesn't.'
The trouble is that the entire discipline of business strategy has focused on heating the competition in already existing markets. Sun Tzu's The Art of War (the oldest military treatise in the world) is still popular executive reading. (competition is seen as warfare, and the marketplace a bloody battlefield). Instead of thinking about creating new land, companies fight over the existing terrain.
It is a zero sum game.
Kim and Mauborgne think that the real strategic challenge looks very different. Instead of being constrained by an already existing industry --- a "bloody red ocean", in their terminology-managers need to understand that extra demand is out there and is largely untapped.
The crux of the problem is how to create it, to move away from competing in a red ocean to creating a blue ocean of uncontested market space.
" The moment you take an industry-deterministic view of your company you are a victim of that industry. The moment you sit back and say, 'how can we create a whole new industry?' then you start to break that cycle," says Kim. All industries are created not by big resources but by big ideas."
Indeed the companies Kim and Mauborgne point to as exemplars of blue ocean strategy have managed to create new markets with minimal resources. We drank coffee long before Starbucks appeared, but the company reinvented our coffee-drinking habits without spending a fortune on advertising. "Blue ocean strategy is a systematic approach to make the competition irrelevant by creating a leap in value for both the company and its buyers-they break the trade-off between differentiation and low costs," say Kim and Mauborgne.
Elsewhere they point to Wal-Mart in retailing, Dyson in vacuum cleaners, Swatch in watches and Formule 1 in hotels as companies that have managed to create new market space.
Another on this list is the Body Shop. "What Body Shop did was absolutely brilliant at the time," says Mauborgne. "It created a new market space in a highly competitive industry.
"The problem was that it didn't realise what made it a brilliant strategic move, and when everyone imitated them they needed to create new market space again and break away. But instead Body Shop has fallen into the red ocean of tough competition."
Blue ocean companies come at problems from new and original angles. For decades, British tea drinkers put up with a scum of lime scale over their cups of tea. Kettle makers predictably blamed water suppliers. Philips Electronics, however, saw this as an opportunity. It came up with a kettle with a filter-and kettle sales shot up.
"Few products and services are used in a vacuum. In most cases other products and services affect their value," says Mauborgne. "Untapped value is often hidden in complementary products and services."
Of course the temptation is to carry on with business as usual. The blue ocean is uncharted and scary although the currents and tides of the red one are strong, it's easier to stick with the maps you know. But this, Kim and Mauborgne are at pains to point out, is no longer an option. Most markets are now over-supplied.
Diminishing populations mean reduced demand. We have to look elsewhere.
"The number of industries it is possible to create is infinite. So can you imagine the industries of 2030 or 2040?" asks Kim with the zeal of a true believer. "It is like looking at the galaxy and the infinite numbers of stars. Someone out there is the chief executive of the new star."
Circus, but not as we know it
Entertainment and business theory are unlikely bedfellows. But, if you caught Cirque du Soleil's latest show Dralion, you may have learned more about business strategy than you expected. Kim and Mauborgne cite Cirque du Soleil as an exemplar of blue ocean strategy.
Created in 1984 by a group of street performers, Cirque's productions have been seen by 50 million people in almost 100 cities around the world. Nearly 7 million people saw a Cirque show in 2004, and the company now employs 3.000 People.
"What makes this all the more remarkable is that this rapid growth was not achieved in an attractive industry; nor at the expense of major Industry players." says Mauborgne
At the time of Cirque's debut the circus industry was in decline. Traditional strategic analysis pointed to limited potential for growth. "
Indeed 20 years ago the circus industry appeared doomed. Competition from new forms of entertainment was increasing. Circuses, with their performing animals, looked stuck in a time-warp of slapstick and sea lions.
Cirque's genius was to eliminate some costly and dated elements of the traditional circus-such as animals-and bring in technology and the mystique of the musical theatre. It didn't regard circuses as competition, but created a new market.
A low-priced offering targeted at children was reincarnated as a premium-priced product appealing to adults and corporate clients as well as children.