Blue Ocean Strategy...

Author: W. Chan Kim and Renee Mauborgne
Rating: 8

red oceans - overcrowded markets, boundaries defined and accepted, products become commodities, cutthroat competition, must beat the enemy to succeed, price wars. Slow growth unless the industry is growing.

blue oceans - untapped market space, demand creation, opportunity for highly profitable growth, competition irrelevant; achieved by chasing differentiation and low cost simultaneously. Sustainable based on barriers of conventional strategic logic of the competitor, brand image conflict of the competitor, natural monopoly due to size of market, patents, high volume cost advantages, network externalities (high volume of buyers/users), business practice innovations necessary, loyal following due to value.

principles of blue ocean strategies: 1) re-construct market boundaries to break from the competition using the six paths framework; 2) focus on the big picture, not the numbers; 3) reach beyond existing demand; 4) get the strategic sequence right; 5) overcome key organization hurdles to make blue ocean strategy happen in action; 6) build people's trust and commitment deep in the ranks and inspire their voluntary cooperation by building execution into strategy from the start

strategic move - the set of managerial actions and decisions involved in making a major market-creating business offering.

value innovation - instead of focus on beating competition, focus on creating a leap in value for buyers thereby making competition irrelevant; equal emphasis on value and innovation - without innovation it is value creation which is incremental value improvements based on technology, marketing, or futuristic and not truly blue ocean; innovation must align with utility, price and cost positions; system strategy approach that achieves a leap in value for buyers and the company; market boundaries and industry structure are not given and can be reconstructed by actions and beliefs.

strategy canvas - an analytical framework - diagnostic by showing current market and actionable by showing new possibilities - this is done by plotting the value curve; clearly depicts the traditional factors that affect competition among industry players as well as new factors that lead to creation of new market space. Continuous monitoring of the strategy canvas will signal when to value-innovate towards a new blue ocean.

value curve - graphic depiction of a company's relative performance across its industry's factors of competition as shown on the strategy canvas. If at high levels across all factors, and market share / profitability doesn't reflect investment, then the company may be oversupplying its customers by offering too much of those elements that add incremental value to buyers - eliminate and reduce to construct a divergent value curve. If spaghetti pattern then company strategy isn't coherent - independent substrategies - divisional or functional silos.

strategy shift - reorienting your strategic focus from competitors to alternatives and from customers to noncustomer of the industry; redefine the problem and construct buyer value elements that reside across industry boundaries.

four actions framework - which factors the industry takes for granted should be eliminated; which factors should be reduced well below the industry's standards; which factors should be raised well above the industry's standard; which factors should be created that the industry has never offered. First two statements drop the cost; the second two lift buyer value and create new demand.

the strategy grid - create a square broken into four pieces - eliminate, reduce, raise, create matches the four actions framework. Benefits: simultaneously pursue differentiation and low costs; flags focus problems on one sector (typically raise & create causing overengineering); easily understood by all increasing level of engagement; challenges thinking and increases discovery.

good strategy - the strategy grid creates a good strategy with three characteristics: focus, divergence and a compelling tagline. Becomes the initial litmus test of commercial viability of blue ocean ideas.

strategic focus - the resulting value curve does not diffuse its efforts across all key factors of competition (ie - what's different about your value curve - example of southwest friendly service, speed, frequent point-to-point departures). Non-focus has high cost structure and business model with complex implementation and execution.

strategic divergence - a value curve that stands apart - designed from the strategy grid and not from reactive competitive pressures. Non-divergence is a me-too strategy and no marketplace uniqueness.

strategic compelling tagline - clear-cut and advertises a company's offering truthfully (else customers will lose trust and interest). Non-compelling tagline is from an internally driven product or innovation for innovation's sake and not the customer - typically will have terms stated in company jargon instead of terms buyers can understand and value.

* strategy principle 1) re-construct market boundaries to break from the competition using the six paths framework

six paths framework: i) look across alternative industries - alternates have different functions and forms but the same purpose (example given restaurants and movies - both are a night out); ii) look across strategic groups within industries - strategic groups are companies within an industry that pursue a similar strategy (example given is luxury cars versus economy cars form narrow tunnel vision); iii) look across the chain of buyers - purchasers, users, and influencers - all have different version of value; iv) look across complementary product and service offerings - define the total solution of how the product is being used - what happens before, during, and after the product is used - identify pain points; v) look across functional or emotional appeal to buyers - functional products can add more emotion an emotional products typically can reduce function and price; vi) look across time - how does a trend change value to customers from the value a market delivers today versus what it might deliver tomorrow (trends must be decisive, irreversible, and have a clear trajectory

* strategy principle 2) focus on the big picture, not the numbers using a strategy canvas - focusing on the strategy canvas does three things: i) shows the strategic profile of an industry by depicting very clearly the factors that affect competition among industry players; ii) shows the strategic profile of current and potential competitors, identifying which factors they invest in strategically; iii) shows the company's value curve showing current and future factors of competition

four steps of visualizing strategy (or how to build the strategy canvas): i) visual awakening - compare business with competitors by drawing "as is" canvas; ii) visual exploration - go into the field putting managers face to face to see how the product is used with both customers and non-customers and review the chain of buyers (point iii in six paths); iii) visual strategy fair - show-off the resulting strategy canvas to executives, customers, and non-customers - judge the strategy factors; iv) visual communication - show the before and after strategy canvases and strategy grids to all employees - everyone has focus

multi-company organizations should use PMS map - pioneers (blue oceans), migrators (those extend the industry's curve but haven't altered the basic shape), and settlers (red oceans).

* strategy principle 3) reach beyond existing demand - aggregate the greatest demand reduces the risk of creating a new market -

** challenge the two conventional strategy practices - focus on existing customer and finer market segmentation
** instead - look to noncustomers and build on powerful commonalities in what buyers value - desegment
** Innovators Dilemma is excellent source material

three tiers of noncustomers: i) buyers who minimally purchase an industry's offering out of necessity but are mentally noncustomers of the industry - typically looking for something better so a leap in value will hook these buyers; ii) people who refuse to use your industry's offerings - typically the product is too expensive or missing something vital; iii) noncustomers who have never thought of your market's offerings as an option

* strategy principle 4) get the strategic sequence right - buyer utility, price, cost, and adoption.

buyer utility - does product offering unlock exceptional utility - compelling reason to buy - six utility levers are customer productivity, simplicity, convenience, risk, fun and image, environmental friendliness and should be mapped against the six stages of the buyer experience cycle which are purchase, delivery, use, supplements, maintenance, and disposal.

price - is the offering price attractive to the mass of the target buyers so they have a compelling ability to pay - volume generates higher returns and perceived value is closely tied to the number of buyers using the product. Price corridor for the mass - i) indentification of pricing against substitutes and alternatives across industries and non-industries; ii) determine pricing level within the corridor depending upon legal protections or significant investment (cost to compete)

blue ocean revenue occurs when there's a leap in net buyer value whereby utility received - price is greatest

cost - should not drive price but should be derived from an approach of price - profit = target cost. Three levers: i) streamline operations and introduce cost innovations from manufacturing to distribution; ii) partnering to get needed capabilities fast and effective while dropping their cost structure; iii) change the pricing model of the industry (typically done through leasing or by receiving an equity interest in the customer's business)

adoption - hurdles should be addressed in the beginning to ensure the successful actualization of the idea - educate the fearful - employees, business partners, general public - open discussion - explain merits - set clear expectations.

* strategy principle 5) overcome key organization hurdles to make blue ocean strategy happen in action four hurdles: i) cognitive - waking employees up to the need for a strategic shift - don't give them numbers but instead make them ride the electric sewer or arnott mason; ii) limited resources - use hot spots (high impact/low resource), free up cold spots (high resource/low impact) and do some internal and external horse trading (trading excess resources) when necessary; iii) motivation - movement is where people recognize, act, and sustain - massive concentration on a tipping point using kingpins (key influencers), fishbowls (kingpin actions/inactions made transparent to others through clear expectations and recognition - also noted as fair process), and atomization (breaking the tasks into attainable goals); iv) politics - angels (most to gain - gather these), devils (most to lose - isolate these and win over through facts and reason), and consiglier (insider who knows the landmines and will fight and support - place a consiglier in top management)

tipping point leadership - fundamental changes can happen quickly when the beliefs and energies of a critical mass of people create an epidemic movement toward an idea ** key is concentration and not diffusion ** people, acts, and activities that exercise a disproportionate influence on performance ** identify and then leverage the factors of disproportionate influence ** focus on acts of disproportionate influence

* strategy principle 6) build people's trust and commitment deep in the ranks and inspire their voluntary cooperation by building execution into strategy from the start

fair process - engagement (involving individuals in the strategic decisions that affect them by asking for their input and allowing them to refute the merits of one another's ideas and assumptions), explanation (everyone involved and affected should understand why final strategic decisions are made as they are), expectation clarity (requires that after a strategy is set, managers state clearly the new rules of the game ** intellectual recognition - ideas are sought after and given thoughtful reflection and that others respect their intelligence to share their thinking ** emotional recognition - human beings who are treated with full respect and dignity and appreciation for their individual worth

Great subject matter which at times is dragged down by scattered thoughts that tend to be poorly written. Actually it might be more of a layout problem. But if one digs into the book, there's some great gems in there. 8 out of 10.

Now, Discover Your Strengths...

Authors: Marcus Buckingham & Donald Clifton, Ph.D.
Rating: 7

Very good book for personal development focusing on evaluating strengths and not weaknesses as is common in the typical business environment - you know, those areas needing improvement or areas of "opportunity" that seem to be the defacto of every performance review.

The authors claim that fundamentally the two flawed assumptions are 1) each person can learn to be competent in almost anything and 2) each person's greatest room for growth is in his or her areas of greatest weakness. That managing an organization this way is not development, but is instead damage control and will not lead to a world class organization. Instead the two new assumptions should be 1) each person's talents are enduring and unique and 2) each person's greatest room for growth is in the areas of his or her greatest strength. Managing people on the two new assumptions allows you to look for talent, focus on outcomes, treat each employee uniquely, and spend time with your best people.

The data in the book comes from 2 million interviews done over 30 years from which the Gallup group has extracted 34 patterns which are the fundamental themes of human talent. Much like the how the 88 keys of a piano can play a song, the 34 talents can define our approach to an activity. Therefore, the theory is that your greatest success can be had by focusing your efforts on your top 5 talents.

The first three chapters are a lead-in for taking your strengths test (done on the internet). Some key points from the first three chapters are:

* Strength is defined as consistently being near perfect in an activity.

* Principles for living a strong life:
1. must be able to do it consistently and derive satisfaction
2. don't have to have a strength in every aspect in order to excel - but do the best with your strengths
3. excellence in an activity will come from your strengths and not by fixing your weaknesses

* Use your strengths and manage around your weaknesses

* talents are those themes you possess - they're god given; knowledge and skills can be developed to enhance a talent

* the power of a talent is that it is instinctive - a reaction - you don't need to think or dwell on the decision

Chapter 4 is to be read after taking the test. I was very skeptical that a test could determine my talents. But I've gone from being skeptical to - ooohhh - wow! My results are in order of strength:

1. Achiever - driven to accomplish - must continually achieve in order to feel good
2. Strategic - what ifs driven - evaluation - then strike a direction
3. Learner - love to learn new things - skill mastering - new challenges - new ideas
4. Maximizer - always trying to make it better - searching for excellence
5. Relator - pulled towards known people - easy to entrust - value genuine friendship

Which I find amazing as after taking the test I went through the other 29 themes and only found a couple others which I would consider to be my top 5. Analytical is searching for reasons and causes but Strategic is a better fit. An Arranger is one who organizes and likes to figure out how the pieces fit for maximum productivity but Maximizer is a better fit. And finally - Developer cultivates others - they're your educators, your team players that make everyone else better - however I wouldn't put that in front of the other 5.

Chapter 5 is essentially a giant FAQ. Some interesting tidbits...

* biggest obstacle is yourself by focusing on your weaknesses.

* three basic fears - weakness (we are skewed to focusing on weakness due to fear of criticism), failure (afraid to fail due to fear of being ridiculed), and true self (a feeling of being inadequate - not valuing our strengths)

* 33 million different combinations of top 5 - therefore my combination makes me unique

* weakness should not be dwelt upon, but they should be managed. To overcome you can:
1. get a little better at it - however you won't achieve excellence and the effort will be draining
2. design a support system - creative traditions that can provide support - example would be a commitment to clean your desk at the end of every month for those who lack Discipline (enjoy routine and structure, create order)
3. use a strong theme to overwhelm a weakness - some talents can be so strong they can substitute for a weakness
4. find a partner - be willing to accept your imperfection and find someone who compliments your weakness with strength - good example was a research lawyer and a trial lawyer - together they make a great team
5. just stop doing it - you'll earn greater respect and you'll feel better by not pounding against the same brick wall - great example in the book about lacking the talent of Empathy (I can relate) - I'm declaring that I too am giving up on Empathy - if you want me to know how you're feeling then tell me and remind me often.

* managing around a weakness may be challenging, but it's more creative, purposeful, and effective than trying to pour hours of training into a talent which is weak.

Chapter 6 was good on how to manage people by strengths. Rather than traditional management style of treating everyone the same, it is better to individualize your approach and capitalize on their uniqueness. The remainder of the chapter focused on each talent and how to manage people with those talents.

For example - Achievers like to be busy, they like to be measured, they work all hours - so putting an achiever in an all day meeting won't work - after finishing a task a reward of an easy assignment is the wrong direction - recognize his achievements and then give him a new goal to achieve - ask questions like "how late did you work to get this done"

Chapter 7 is really written towards HR and company executives to challenge the norm and move the company to strengths based measurement. A couple of key points...

* select people based upon talent and not necessarily skills or knowledge as that can be taught but talent can not

* focus performance on outcome not style - less on standardized policies / procedures and more on measuring the desired results - measured results should be the person's impact on the business; impact on the customer; impact on other employees

* focus training on strengths not weakness - so many HR programs focus on what people do wrong instead of building on what they do right

* devise ways to grow a person's career without having to promote the individual to a higher level and potentially out of an area of strength

While I liked the book quite a bit - I gave it a 7 out of 10 - pretty good, but I think more could be done to discuss the development of talents and more of what to do about the mix of your top 5 talents. I've finished the book and I'm waiting for the big finish - so what - I now have a set of defined talents - but again I'll say so what - what do I do with them and how do I put this new knowledge to good use.