Implementing Blue Ocean Strategy

Strategy Concepts -- From Planning Through Analysis and Implementation The Concept of Strategy Strategy is about change and response to change. Competitive strategy cannot stand still (Eisenhardt, 2002). Competitive strategy must establish differentiation (Kim & Mauborgne, 2004). Strategy appears most difficult from the inside of a business as perspective taking is based on what the competition is doing, might do, might do in response to what other businesses do, and so forth (Kim & Mauborgne, 2004).

The critical distance needed to truly conceive and implement efficacious strategy is not easily achieved from inside a company -- a factor that has contributed significantly to the financial success of consulting businesses like Bain Consulting, Boston Consulting Group, Deloitte Touche Tohmatsu Limited, and McKinsey and Company. SWOT Analysis Businesses face market conditions that are in a continual state of flux, challenging them to construct strategies that are agile, effective, and relevant ("HBR SWOT," 2005).

A SWOT analysis can be used to structure the strategic planning process by clarifying the factors that can impede or support a business effort ("HBR SWOT," 2005). A SWOT analysis is fundamentally a review of the internal and external variables that have the potential to influence outcomes ("HBR SWOT," 2005). SWOT is an acronym for the words strengths, weaknesses, threats, and opportunities ("HBR SWOT," 2005).

The SWOT process begins with brainstorming sessions that are used to build lists under each of the four categories, delimiting the items on the list to those factors that have relevance to the project under consideration ("HBR SWOT," 2005). The next step in the SWOT process is to expand and contract the list with ideas that serve to limit weaknesses, maximize strengths, take advantage of opportunities, and reduce or avoid threats ("HBR SWOT," 2005).

Generic Approaches to Strategy Most organizations reach junctures that suggest or strongly indicate that the business model requires changing. To inform this decision, an organization can follow the suggestions of Johnson, Christensen, and Kagermann (2008). The first consideration is to "articulate what makes your existing model successful" by answering the questions, for instance, "What customer problem does it solve?" Or "How does it make money for your firm?" (Johnson, et al., 2008).

The next step in this determination might be to, "Watch for signals that your model needs changing, such as tough new competencies on the horizon" (Johnson, et al., 2008). The final step suggested by the authors is to, "Decide whether reinventing your model is worth the effort. The answer is yes only if the new model changes the industry or market" (Johnson, et al., 2008).

Strategic Moves an Organization Might Make An organization that is interested in making strategic moves that are outside the traditional models and frameworks -- and that are likely to be effective in niche markets -- would do well to consider the strategies outlined in Blue Ocean Strategy (Kim & Mauborgne, 2004).

Briefly summarized, these strategies could entail: 1) Creating uncontested market space; 2) Taking actions that make the competition irrelevant; 3) Taking actions that create and capture new demand; 4) Breaking the value-cost trade off; and 5) Aligning the whole system of a company's activities in pursuit of differentiation and low cost. (Kim & Mauborgne, 2004) One of the ways that Blue Ocean Strategy supports the development of an uncontested market is by considering the six conventional boundaries of competition and not permitting strategic thinking to be constrained by these concepts (Kim & Mauborgne, 2004).

The six conventional boundaries of competition include: Industry, strategic group, buyer group, scope of product or service offering, functional-emotional orientation of an industry, and time (Kim & Mauborgne, 2004). The catch phrase is to move from competing within to creating across (Kim & Mauborgne, 2004). A component of the Blue Ocean Strategy is completion of a Strategy Canvas that shows where the organization was functioning, where the competitors in the industry are functioning as a whole, and where the company will function given its new niche-directed, uncontested market position (Kim & Mauborgne, 2004).

The axes of the Strategy Canvas area as follows: Y Axis = Offering Level (from High to Low), and X Axis = Relevant Variables (Kim & Mauborgne, 2004).

The variables are derived from an analytic component of Blue Ocean Strategy that uses a Four Actions Framework to determine what steps the organization will take, as follows: 1) Eliminate -- Which variables that are taken for granted by the industry will be eliminated? 2) Reduce -- Which variables should be reduced below the industry standard (because they are not that important to consumers in the target niche)? 3) Raise -- Which variables should be raised well above the industry standard (because they are particularly important to the consumers in the target niche)? And, 4) Create -- Which variables should be created that the industry has never offered? (Kim & Mauborgne, 2004).

In addition, the Blue Ocean Strategy employs a specific framework for minimizing risks and maximizing opportunities in formulation and executing blue ocean creation. Effective Strategic Implementation and Action Plans An effective business model has the following elements: 1) A customer value proposition that addresses a particular need consumers have that competitive organizations do not offer or do not perform as well; 2) a profit formula that includes important components such as a definitive revenue model, a cost structure, profit and operating margins, and inventory turnover; and, 3) key resources.

such as personnel, facilities, technology, products, equipment, brand, and intellectual property that enables the business to deliver on their value proposition to targeted consumers (Johnson, et al., 2008). The business mode will also include key processes that enable the enterprise to leverage the resources; these processes can include manufacturing, service, and training (Johnson, et al., 2008). A typical time to reinvent a business model is when a new opportunity emerges that would enable a company to capitalize on new technology or enter new markets by leveraging existing technologies (Johnson, et al., 2008).

Another scenario that could drive change in a business model is when an opportunity surfaces that would permit the needs of a large group to be addressed because current solutions are too complicated or too expensive (Johnson, et al., 2008). Once a decision has been made to make substantive changes in a business model, leadership considerations are paramount (Kotter, 2006). Organizational change is known to be a process that takes time to articulate and evolve.

Skilled change managers practice these eight strategies -- in order -- so that the change may be strategically implemented and the action plans may be aligned with the strategy and with the realities of the context in which the change will take place (Kotter, 2006). The eight actions are as follows: 1) Establish a sense of urgency; 2) Form a powerful guiding coalition; 3) Create a vision; 4) Communicate the vision; 5) Empower others to act on the vision; and 6) Plan for and create short-term wins (Kotter, 2006).

Introduction To my mind, one of the clearest, most refreshing approaches to business strategy to come along in some time is Blue Ocean Strategy. As the title of the book by Kim & Mauborgne indicates, blue ocean strategy is designed to make the competition irrelevant through the creation of an uncontested market space (2004). This construct of an uncontested market space goes beyond the idea of a niche, which may be just a subset of a larger market that targets a smaller and decidedly different consumer population (Kim & Mauborgne, 2004).

Moreover, blue ocean strategy takes the idea of differentiation to the next level (Kim & Mauborgne, 2004). Consumers differentiate products or services according to how well and how differently their needs, desires, and aspirations are met. Blue Ocean strategy creates differentiation beyond what consumers would have imagined and constructed on their own (Kim & Mauborgne, 2004). From this basis, the discussion will consider some of the classic seminal and traditional literature that has served as the basis of business strategy for decades (Kim & Mauborgne, 2004).

The additional topic of ensuring that business strategy is current with and relevant to the changing competitive landscape, the impact of disruptive technology, and evolution of consumer and corporate orientation to responsible and sustainable practice (Kim & Mauborgne, 2004). Eisenhardt rightly identifies globalization as the new force transforming strategy; on point and written over a decade ago, her article now reads post-climactic (2002). In addition, she may have downplayed the influence of the Internet on changed strategy.

During the 12 years interim to the publication of her article, both domestic and international trade increasingly rely on digital transactions and communications. The instability of the markets and geopolitical relations has worsened in many regions in the interim, with even the relative stability of the Euro Zone rocking with the waves from Greek, Spanish, Central European, and Middle Eastern fiscal degradation and conflict (Eisenhardt, 2002).

The economic watchwords and phrases that Eisenhardt identified for strategic thinkers included entrepreneurial, disequilibrium, fleeting opportunity capture, and the "relentless cycle of wealth creation and destruction" -- words that, viewed through a contemporary lens, are strikingly prescient (2002, p. 89). Eisenhardt asserts that, "The fundamental precept that 'strategy is about being different' continues to be true" (2002, p. 89). She posits that different strategy must be characterized by "simplicity, organization and timing" (2002, p. 89). Yet, a closer look suggests that the critical attribute of strategy is that it be agile.

The high-velocity playing field, to use Eisenhardt's words, requires great flexibility in order to make speedy tactical, if not strategic, moves, ever responsive to uncertainty and ambiguity, while avoiding what can overnight become a critical flaw: an overly defined strategic position" (Eisenhardt, 2002). Eisenhardt peppers her writing with team sports and military analogies -- the term war room having completely different connotations in the new central control room in heads of state gather to watch drones deployed remotely to engage in anti-terrorist actions.

The problem with this language is not so much the connotations, but rather the way such thinking limits strategic thinking. Proctor and Gamble (affectionately aka P&G) has constructed a "war room" of sorts that consists of monitors that display up-to-the-second data about company metrics for the executive sales and marketing teams to view, analyze, and operationalize. Decisions are near instantaneous and are based on P&G's metrics, which are assigned to individual managers gathered in the space.

Eisenhardt highlights the strategic organizing of the Economist magazine, whose approach is remarkably similar to the blue ocean strategy it proceeds. The Economist operates more like a major print newspaper than a magazine. The Economist serves a niche of upmarket readers who are fond of the unique brand of long-form journalism, accomplished by giving writers "large swaths of territory and considerable freedom in choosing what to cover…compensates them more, both with money and with unfettered, interesting work" (Eisenhardt, 2002).

Timing is pivotal to strategy: a strategy employed too early or too late can be not only ineffective but also damaging to a competitive position. The embodiment of a focus on timing can be seen in business practices where increasingly refined and powerful digital platforms are employed for real-time market analysis and market research. It is fair to say that Eisenhardt's premise is correct: strategy has changed. But more to the point, strategy is all about change.

As Walter Kiechel, author of the book Lords of Strategy, argues, "…competitive advantage is eroding more and more rapidly. It would make sense that more people are seeking opportunities in unexplored places, including in the markets that have not been well served by large corporations. The first big challenge is responding quickly to changes in the environment. That requires devolution of the ability to think strategically from the top of the organization to everywhere else -- especially to the customer-facing periphery.

The other challenge is figuring out how to integrate talent and strategy implementation." (Kiechel, 2010). According to Kiechel (2010), the current trend of corporate short-term employment schemes may not be an effective approach, as short-timers may not understand the desired strategy, making decisions and allocating resources that do not result in fidelity of implementation. "Do project-by-project employees necessarily understand the company's costs, competitors, and customers well enough to make decisions that align with the strategy? It's a tricky challenge" (Kiechel, 2010).

Kiechel also notes that private equity firms seem particularly successful at using short-term operating managers since they are "absolutely clear about what the strategy is," whereas large enterprises rarely possess that type of clarity and focus. Porter developed the Five Forces analysis framework in response to his belief that the then-popular SWOT analysis was not sufficiently rigorous and tended to be ad hoc in nature (Porter, et al., 2002). That is, SWOT is not truly a framework or a model, but is more of a tool.

The Five Forces framework is based on the model used in industrial organizational economics and referred to as the Structure-Conduct-Performance paradigm (Porter, et al., 2002). The Structure-Conduct-Performance model is a causal theory that attempts to explain the relation between market structure and market environment through feedback loops. That is to say that, market structure directly influences the economic behavior (conduct) of a company, which then impacts the market performance of the business -- and business conduct can influence the market structure (Porter, et al., 2002).

The underlying consideration here that Porter was trying to address and convey is that the phrase used in economics ceteris paribus (all other things being equal or held constant) does not work in business since competitive strategy requires consideration of intervening variables. From the diagram below, it is possible to discern that three of the five forces are related to horizontal competition and two forces would come from vertical competition (Porter, et al., 2002).

The horizontal forces include: the threat of new entrants; the threat of established rivals; and the threat of substitute products or services (Porter, et al., 2002). The vertical forces are: the bargaining power of customers and the bargaining power of suppliers (Porter, et al., 2002). The Five Forces are key to understanding the intensity and likelihood of competition, from which a business can derive an understanding to the attractiveness of a market, which is foundational to the overall potential for profitability.