Traditional 5 Forces plays Blue Ocean in Strategy Stakes |
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TMG November 2010  Recognising that every client engages T l M l G in response to stratetegic circumstances particular to the client at that time, the strategy tools selected should respond to the client needs at that time. Which tools is a collaborative decision made jointly with clients in response to two factors. First, the best overall strategy development process to generate strategic insight and second, the practical time and resources available to the task. 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 strategy from different standpoints. 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 is seen by T l M l G as reliant upon two ideas;
 The Four Generic Competitive Strategies captures all possible ways of competing albeit there are an unlimited number of possible differentiations and cost leadership achieved in many ways. Every organization should be able to describe not just its own strategy, but those of its main rivals in these terms. The goal is to find a 'sweet spot' where your selection of target market and decisions on cost or selected differentiators positions your firm to compete successfully in a large enough 'product market' to achieve your objectives. The two - target market and cost vs differentiation, are intrinsically linked. Put simply as an example, if you choose to differentiate on quality, then your target market will narrow toward those customers who value quality over other attributes. If you choose to offer the lowest price, it may be difficult to retain customers who need products with particular additional attributes as adding these usually adds to the cost. Your combined selection of target market and differentiation is often referred to as your 'value proposition'. The dynamics that shape a product market are captured by the Five  Forces Framework. These forces are dynamic and foresight in relation to each helps a firm understand how the market is likely to evolve. Insight into evolution of market forces informs decisions on what capabilities (resources or competencies) the firm needs to strengthen or build to compete.In order to succeed in the complex dynamic environment of your product market, you are going to need to defend against and / or leverage these market forces in a way that delivers value to customers and to you. The way this is done is through sustainable competitive advantages. Your unique combination of advantages - usually around 3-5 that enable you to; Sustain a value proposition (differentiation on cost or other attributes to your chosen target market) sufficiently to beat competitors to those customers.  The value chain captures the concept of an organizational system that is set up to deliver the above strategy to the market. 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. T l M l G agrees with the latter two, but the first is over simplified. Firms usually try to differentiate from each other but often struggle to do so. Further, organizations are more comfortable with 'incrementalism' than investing in major breakthrough changes or innovations. In addition, as markets mature, all participants get to know each other better, match any changes other competitors make and create a hotly competitive, low differentiation environment. Blue Ocean is a great way to mobilise thinking around new differentiators (value creation) and in the process, attracting new customers into the market. The core concepts of Blue Ocean Strategy can be understood through the three diagrams shown here. The Blue Ocean Strategy Canvas is a way of representing (orange line on graph) what the industry usually does (you may want to plot each major competitor separately) on a range of competing factors.  The Four Actions Framework raises questions about identifying both low value current differentiators and new, previously unleveraged differentiators. Finding a powerful combination of these gives rise to the creation of new value. In doing so it may attract current customer demand as well as new customers into the market (as does any innovation) The experience and utility matrix BEC BUM Framework is a structured way of lookjing for those new dimensions of differentiation. All three Blue Ocean models rely upon an informed understanding of the product market, its current value creation dynamics and what competitors offer and customers value as outlined in competitive advantage. The Blue Ocean adds a dimension, providing 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. Inevitably, however, there are no 'un-contested' or non-competitive markets. Selling someone a new car can compete with selling them a new kitchen. Selling someone grapes competes with selling them watermelon. All markets are competitive. What Blue Ocean does well is to look for relatively less contested space. 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. It recognises that all markets are competitive and that each firm needs unique competitive advantages to succeed. What Competitive Advantage does not do is provide tools for finding those advantages. This is where Blue Ocean steps in as a great solution.
Blue Ocean is not an alternative to Competitive Advantage. It is a way to help find competitive advantage.
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. 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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