Traditional 5 Forces plays Blue Ocean in Strategy Stakes |
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 This is the first in a series of articles discussing which strategy tools are most appropriate in what situations. Recognising that every client engages T l M l G in response to circumstances particular to the client at that time, the tools selected should respond to the client needs at that time. A new article in this series will be published in each of the months ahead.With the exception of the traditional SWOT analysis, few aids to strategy development are more frequently used than Porter’s approach to Competitive Advantage. But others are equally useful, albeit addressing the strategy “elephant” from a different standpoint. One such alternative is “Blue Ocean” strategy. Director of Consulting at T l M l G, Peter Boyce, explores how, when and why each be applied. With the exception of the traditional SWOT analysis, few aids to strategy development are more frequently used than Porter’s approach to Competitive Advantage. But others are equally useful, albeit addressing the strategy “elephant” from a different standpoint. One such alternative is “Blue Ocean” strategy. Director of Consulting at T l M l G, Peter Boyce, explores how, when and why each be applied. Competitive Advantage Competitive Advantage is seen by T l M l G as reliant upon two ideas;
The core concepts of the Competitive Advantage approach can be understood through three diagrams shown here.  Figure 1 Generic Competitive Strategies  Figure 2 Five Forces Product Market dynamics  Figure 3 - Value Chain execution of Strategy The Competitive Advantage approach develops an understanding of market dynamics and behavior, reducing naivety in developing strategy. The Competitive Advantage approach does not help the organization to find the innovations required to “make them [organizations] less vulnerable and more powerful, relative to the other participants”. That requires a framework designed to support finding appropriate innovation. Enter Blue Ocean Strategy. Blue Ocean Strategy Blue Ocean Strategy is seen by T l M l G as reliant upon three ideas; 1. That organizations tend to compete ‘head-on’ creating a “bloody red ocean of rivals fighting over a shrinking profit pool” 2. That there are unmet and as yet, unidentified needs (Blue Ocean) to be found 3. That organizations can use defined processes (ERRC and BEC BUM) to stimulate the identification of unmet market needs. For the record, T l M l G agrees with the latter two, but the first is over simplified. It is fairer to say that organizations tend to be more comfortable with ‘incrementalism’ than ‘breakthrough’ in the way they invest in strategy development. The core concepts of Blue Ocean Strategy can be understood through the three diagrams shown here.  Figure 4 Blue Ocean Strategy Canvas  Figure 5 ERRC Options for identifying change in value creation  Figure 6 - Experience and Utility Matrix - BEC BUM Framework All three models (and therefore Blue Ocean) rely upon an informed understanding of the product market, its current value creation dynamics and what competitors offer and customers value. The Blue Ocean approach does provide great tools through which to identify customers’ unmet needs and find customers not yet in the product market. It creates more competitive advantage ‘possibilities’ for evaluation. In creating the possibilities, it is helping the organization to find the innovation (in its widest sense) required to “make them [organizations] less vulnerable and more powerful, relative to other product market participants”. Blue Ocean’s support to creativity fills an idea generation gap in Competitive Advantage. How the two approaches differ Where the two approaches differ most is in the importance attributed to market dynamics in the determination of strategy. Blue Ocean seeks to make rivals ‘irrelevant’ by identifying untapped (or at least less tapped) product markets where unique buyer segments and needs can be identified and satisfied. Competitive Advantage confronts the role of market dynamics ‘head-on’ as a powerful influence over how any strategy is likely to perform in that market. T l M l G starts with the customer. The customer in that dynamic system is being offered alternatives through which to meet their needs differentiated on a variety of dimensions (for example the 4, 5 or 7 Ps of marketing). No amount of innovation eliminates the competitive dynamic. Innovation, however, changes the dynamic. Indeed innovation(and its cousin - differentiation) is the source of competitive advantage. What is more important is not to see existing dynamics as defining the market, nor your performance, nor the boundaries for your own innovation. Instead, the dynamics should be seen as the environment in which your innovation will compete. Innovation should be seen as necessary to be able to out-compete. Put in the terms of these two models: Porter’s Competitive Advantage should be seen as required to inform and evaluate the ideas developed using Blue Ocean strategy. Blue Ocean Strategy should be seen as a powerful innovation tool through which to find breakthrough possibilities capable of helping you to ‘out-compete’. Whilst maintaining incremental improvement in what a company already does is important to underlying corporate strength, being too timid to tackle ‘breakthrough’ innovation is a recipe for accumulating vulnerability. Indeed, incrementalism alone can suggest an organization is struggling to act strategically. Examples of product market dynamics at work Unquestionably, iPhones and iPads represent innovations which have delivered stellar gains for Apple. But the products are positioned relative to competitors and cognizant of the competitors’ ability to respond. The decision to invest in the innovation anticipated an ability to ‘out-compete’. The open source applications development made Apple again, a magnet for developers, giving Apple relatively more power in relation to suppliers. The absence of comparable innovation (for a time) improved Apple’s power relative to buyers. But of course, substitutes existed and rivalry ensued and intensified over time. Without the competitors, the drive for innovation and the scale of demand would both have been much less. Competitors move rapidly to emulate the value created by the user interface and applications diversity. In this context, innovation remains relative to market forces but innovation shifts the distribution of power for a time. The oft cited Blue Ocean story of Yellow Tail Wines breaking with the traditional value propositions for marketing wines (complexity, personality, environment, tannins, wood and aging etc) is another example. They [Yellow Tail] are said to have redefined the challenge as being to create a wine that was fun and easy to drink, tapping the demand for beer, spirits and ready to drink cocktails. Using the four actions framework, ways to resolve the redefined problem were developed and ultimately, an innovative marketing mix for wine aimed at capturing new customers and new occasions was found. The result was a stellar success. Even though many, many competitors followed (cautiously at first), the success of Yellow Tail created tremendous strength for Casella (owners of Yellow Tail), particularly for the Yellow Tail brand. Almost 10 years after its launch in 2001, “According to The Power 100 report by British consultancy firm Intangible Business, [Yellow Tail] is ranked number 4 in the global wine industry and moves forward to number 34 in the top 100 wine and spirit brands globally” in 2010 Yellow Tail’s innovation created Blue Ocean in a seeming sea of Red Ocean. Apple’s iPhone and iPads have done the same. Even as competitors close the gap, there are significant profits to be had from going on the journey from Blue back to Red. The innovation creates the opportunity. But the innovation is developed from an understanding of existing market dynamics AND evaluated in the context of existing market dynamics. T l M l G takes the view that Competitive Advantage demands constant innovation and that Blue Ocean is an excellent innovation framework. Strategy, however, requires a balance between extracting and leveraging existing value with innovation and creating new value. Strategy is about being able to sustain value creation, balancing incrementalism with breakthrough changes. It is not a case of either Competitive Advantage OR Blue Ocean as a strategy framework. Rather, it is knowing how and when to use them to both extract and create value on the journey. For more information on strategy development, contact T l M l G and ask for Direct of Consulting, Peter Boyce Add this page to your favorite Social Bookmarking websites 
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