Creating Blue Oceans

If carmakers could defy conventional wisdom

For our second example of Defying Conventional Wisdom, we consider what if the much troubled automakers had the courage to re-think their very business model.   From a recent BusinessWeek article entitled “Detroit Should Get Cracking on it’s Googlemobile”:

If Google (GOOG) ran a car company, what would it look like? What lessons of Google's singular success in the Internet age might apply to remaking this, among other failing industries? Would the Googlemobile be the product of stealth and secrecy or openness and collaboration? Could Detroit release cars in beta? Could cars be ad-supported and free? Is there any hope for an industry that traffics in atoms instead of digits? Would a Googley car company even make cars?

A few years ago, it might have been absurd to look to Google for ideas about the auto industry. But not now, American automakers are in crisis. General Motors (GM) and Chrysler needed a $13 billion bailout from the federal government in December to keep them out of bankruptcy, and, with a new Administration in Washington, the Big Three are likely to head back to the well for billions more. They're suffering from more than the economic crisis. The huge declines in sales reflect a fundamental disconnect between drivers and Detroit. It's time for a radical rethinking of the way U.S. automakers do business.

[Image via Google.]

Departing from Conventional Wisdom

Companies today, facing an environment of great uncertainty, need to embrace the idea of challenging traditional industry assumptions.  This perspective of defying conventional wisdom goes hand-in-hand with the process of Blue Ocean Strategy, which is a systematic approach to turning unconventional ideas into winning strategies.   This week, to provide some inspiration, we feature two examples of Defying Conventional Wisdom. 

For our first example, we turn to the Aeroscraft, a large air ship (think of a flying Queen Mary II).  Contrary to conventional wisdom of the air travel industry, the Aeroscraft has been designed for passengers who are more concerned with the journey than the destination. 

From Flight Information Technology:

It's the Aeroscraft, and when it's completed, it will ferry pampered passengers across continents and oceans as they stroll leisurely about the one-acre cabin, or relax in their staterooms. Unlike its dirigible ancestors, the Aeroscraft is not lighter than air. It's 14 million cubic feet of helium hoist only two-thirds of the craft's weight. The rigid and surprisingly aerodynamic body, driven by huge rear-ward propellers, generates enough additional lift to keep the behemoth and its 400-ton payload aloft while cruising.

During takeoff and landing, six turbo-fan jet engines push the ship up or ease its descent. This two-football-fields-long airship is the brainchild of Igor Pasternak, whose privately-funded California firm, Worldwide Aeros Corporation, is in the early stages of developing a prototype and expects to have one completed by 2010.

[Image via Worldwide Aeros Corporation.]

Blue Ocean Strategy: First-Tier Noncustomers

Continuing in our series which takes a closer look at reaching beyond existing demand, our focus advances to First-Tier Noncustomers. Once featured, each entry is made accessible through the Blue Ocean Strategy Basics archive of our site.  For an overview of how to target First-Tier Noncustomers, we turn to pages 104 — 106 of the book Blue Ocean Strategy (co-authored by Professor W. Chan Kim and Professor Renée Mauborgne):

These soon-to-be noncustomers are those who minimally use the current market offerings to get by as they search for something better. Upon finding any better alternative, they will eagerly jump ship. In this sense, they sit on the edge of the market. A market becomes stagnant and develops a growth problem as the number of soon-to-be noncustomers increases. Yet locked within these first-tier noncustomers is an ocean of untapped demand waiting to be released.

Consider how Pret A Manger, a British fast-food chain that opened in 1988, has expanded its blue ocean by tapping into the huge latent demand of first-tier noncustomers. Before Pret, professionals in European city centers principally frequented restaurants for lunch. Sit-down restaurants offered a nice meal and setting. However, the number of first-tier noncustomers was high and rising. Growing concerns over the need for healthy eating gave people second thoughts about eating out in restaurants. And professionals did not always have time for a sit-down meal. Some restaurants were also too expensive for lunch on a daily basis. So professionals were increasingly grabbing something on the run, bringing a brown bag from home, or even skipping lunch.

These first-tier noncustomers were in search of better solutions. Although there were numerous differences across them, they shared three key commonalities: They wanted lunch fast, they wanted it fresh and healthy, and they wanted it at a reasonable price.

The insight gained from the commonalities across these first-tier noncustomers shed light on how Pret could unlock and aggregate untapped demand. The Pret formula is simple. It offers restaurant-quality sandwiches made fresh every day from only the finest ingredients, and it makes the food available at a speed that is faster than that of restaurants and even fast food. It also delivers this in a sleek setting at reasonable prices.

Related links:

Buy the Blue Ocean Strategy book

[Image via VWVortex.]

Global Crisis – The Comic Angle: Prayers and shopping

No matter where one turns these days, it seems nearly impossible to escape the news of the latest company or industry to unravel.  So to challenge the status quo of doom and gloom,  and to inject a layer of much needed levity, our new series presents satirical articles of different industries in crisis.  This week, we turn to two short bulletins from “Sign of the times” at Reuters.

From Reuters:

Prayer on being made redundant
The Church of England published two new prayers, comforting people who lost their jobs and those still in work after a round of cuts. "Hear me as I cry out in confusion, help me to think clearly, and calm my soul," says the "Prayer on being made redundant." The "Prayer for those remaining in the workplace" focuses on guilt and increased workload: "In the midst of this uncertainty, help me to keep going: to work to the best of my ability, taking each day at a time."

Shop, Damn It, SHOP
The crisis has brought a disastrous holiday season for many retailers, who depend on the frenzy to buy Christmas presents to push them into the black for the year. For its window display, a shop in London adapted a classic World War One recruiting poster in which a steely-eyed mustachioed general points at passers-by above the words "Your Country Needs You." The new admonishment is: "Shop, Damn It, SHOP."

[Image via Reuters.]

Blue Ocean Strategy: Reach Beyond Existing Demand

Continuing with our well-received series on Blue Ocean Strategy Basics, over the course of the next four weeks we will highlight how to reach beyond existing demand — and to target three tiers of noncustomers.  We will highlight one tier per week, and as each new overview is published it will become accessible in the Blue Ocean Strategy Basics archives.  Today we turn to pages 101 – 102 of the book Blue Ocean Strategy (co-authored by Professor W. Chan Kim and Professor Renée Mauborgne) for our introduction:

No company wants to venture beyond red oceans only to find itself in a puddle. The question is, How do you maximize the size of the blue ocean you are creating?

To achieve this, companies should challenge two conventional strategy practices. One is the focus on existing customers. The other is the drive for finer segmentation to accommodate buyer differences. Typically, to grow their share of a market, companies strive to retain and expand existing customers. This often leads to finer segmentation and greater tailoring of offerings to better meet customer preferences. The more intense the competition is, the greater, on average, is the resulting customization of offerings. As companies compete to embrace customer preferences through finer segmentation, they often risk creating too-small target markets.

To maximize the size of their blue oceans, companies need to take a reverse course. Instead of concentrating on customers, they need to look to noncustomers. And instead of focusing on customer differences, they need to build on powerful commonalities in what buyers value. That allows companies to reach beyond existing demand to unlock a new mass of customers that did not exist before.

Related links:

Buy the Blue Ocean Strategy book.

[Image via matty! .]

Radical Times Require Radical Action – watch this influential webcast

To counter the rampant fear and panic in the business world, Gabor was invited to join in a discussion of “positive” alternatives during the SAS Better Management Series webcast, entitled ‘Radical Times Require Radical Action.’  The third in a four-part series, this webcast was designed to share ideas and perspectives that will allow organizations not just to survive but to thrive in the current environment.

Moderated by Jonathan Hornby, Director of SAS’ Worldwide Marketing, distinguished panelists include:

Gabor George Burt, thought leader and internationally recognized expert on Blue Ocean Strategy, Value Innovation and Defying Conventional Wisdom.

Kevin Freiberg, co-author of BOOM! 7 Choices for Blowing the Doors Off Business as Usual on how ordinary people can achieve extraordinary results.

Geoffrey Moore, author of Dealing with Darwin, on the innovation life cycle and need to align and recycle resources for maximum value.

You can view the SAS Webinar ‘Radical Times Require Radical Action’ here. 

The Four Steps of Visualizing Strategy: Step Four — Visual Communication

Continuing in our series which takes a closer look at each step in creating a Blue Ocean Strategy Canvas, our focus advances to the fourth and final step — Visual Communication. Once featured, each step is made accessible through the Blue Ocean Strategy Basics archive of our site.  For the fourth step, we turn to pages 93 - 94 of the book Blue Ocean Strategy (co-authored by Professor W. Chan Kim and Professor Renée Mauborgne):

Step Four — Visual Communication

After the future strategy is set, the last step is to communicate it in a way that can be easily understood by any employee. EFS [European Financial Services Co.] distributed the one-page picture showing its new and old strategic profiles so that every employee could see where the company stood and where it had to focus its efforts to create a compelling future. The senior managers who participated in developing the strategy held meetings with their direct reports to walk them through the picture, explaining what needed to be eliminated, reduced, raised, and created to pursue a blue ocean. Those people passed the message on to their direct reports. Employees were so motivated by the clear game plan that many pinned up a version of the picture in their cubicles as a reminder of EFS’s new priorities and the gaps that needed to be closed.

The new picture became a reference point for all investment decisions. Only those ideas that would help EFS move from the old to the new value curve were given the go ahead. When, for example, regional offices requested that the IT department add links on the Web site—something that in the past would have been agreed to without debate—IT asked them to explain how the new links helped move EFS toward its new profile. If the regional offices couldn’t provide an explanation, the request was denied, thereby promoting clarity and not confusion on the Web site. Similarly, when the IT department pitched a multimillion-dollar back-office system to top management, the system’s ability to meet the new value curve’s strategic needs was the chief metric by which it was judged.

Related links:

Buy the Blue Ocean Strategy book

[Image via Marco Braun.]

Unilever: Turning Laundry Blue

We recently came across an article about a dirty topic — laundry detergent — which helps illustrate a core principle of Blue Ocean Strategy:  The simultaneous pursuit of differentiation and lower cost.  It seems that soapmakers’ bubble was just about to burst with customers demanding more environmentally friendly products, but without wanting to pay more for them.   

That’s when Unilever challenged its scientists to develop a detergent that uses fewer resources and less packaging, but with greener materials – consistent with the Four Actions Framework approach of Blue Ocean Strategy.

From BusinessWeek:

When Unilever (UN) challenged its scientists to come up with a detergent that uses fewer resources, greener materials, and less packaging, few thought it was possible. Yet Small & Mighty, the industry's first super-concentrated liquid detergent, launched in October 2005 in a partnership with U.S. retailer Wal-Mart Stores (WMT), 18 months ahead of rivals such as Procter & Gamble (PG). What started as a means to boost Unilever's green credentials now is opening up avenues of innovation that are helping to drive growth in the company's once-lackluster laundry unit. Since rolling out Small & Mighty in Europe in January 2007, more than 30 million bottles have been sold.

The virtue of the product is that consumers can wash the same amount of laundry with one-third the detergent. Smaller packaging means each bottle uses 55% less plastic, enabling retailers to stock three times the number of bottles in the same space, saving on labor and out-of-stock costs. There's big savings for Unilever, too, in manufacturing and transportation. The company says it saves 500 million gallons of water and 150 million pounds of plastic each year. And the smaller bottle means Unilever can transport three times as much product in every truck, saving 26 million gallons of diesel each year. "It's a good example of how good environmental practice is good for the company's bottom line," says Keith Weed, Unilever's group vice-president for home care.

[Image via adamantine.]

Global Crisis – The Comic Angle: Discount shops & Nightclubs

No matter where one turns these days, it seems nearly impossible to escape the news of the latest company or industry to unravel.  So to challenge the status quo of doom and gloom,  and to inject a layer of much needed levity, our new series presents satirical articles of different industries in crisis.  This week, we turn to two short bulletins from “Sign of the times” at Reuters.

From Reuters:

Every last pence counts in red oceans
In a southern England town families hit by the financial crisis put a pound store out of business by flocking to a 99 pence shop that opened across the road. The Pound World in Poole saw its earnings plummet by 70 percent and was forced to close within weeks of 99p Stores launching on the other side of the High Street. "It's funny to think a shop can close down because of a penny difference, I suppose it's a sign of the times," customer David Fitzpatrick told The Star newspaper. 

Proof of unemployment
The Delancey bar and nightclub in New York City's Manhattan has designated a special night out: "Laid off Mondays." It offers two-for-one drinks all night and a free shot of tequila at midnight "for everyone with proof of unemployment." 

[Image via Reuters.]

The Four Steps of Visualizing Strategy: Step Three — Visual Strategy Fair

Continuing in our series which takes a closer look at the application steps for visualizing strategy, our focus advances to the third step — Visual Strategy Fair. Once featured, each step is made accessible through the Blue Ocean Strategy Basics archive of our site.  We turn to page 90 of the book Blue Ocean Strategy (co-authored by Professor W. Chan Kim and Professor Renée Mauborgne), illustrating the experience of EFS (a European Financial Services Co.):

Step Three — Visual Strategy Fair

After two weeks of drawing and redrawing [possible new strategies], the [internal] teams presented their strategy canvases at what we call a visual strategy fair. Attendees included senior corporate executives but consisted mainly of representatives of EFS’s external constituencies — the kinds of people the managers had met with during their field trips, including noncustomers, customers of competitors, and some of the most demanding EFS customers. In two hours, the teams presented all twelve [value] curves — six by the online group, and six by the offline group. They were given no more than ten minutes to present each curve, on the theory that any idea that takes more than ten minutes to communicate is probably too complicated to be any good. The pictures were hung on the walls so that the audience could easily see them.

For more on this example, turn to page 90 of the book Blue Ocean Strategy.

Related links:

Buy the Blue Ocean Strategy book

[Image via Cup-Sellithaine.]