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May 19
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Blue Ocean Strategy or Market Leadership?

Which direction should companies take? Open new markets, or become extremely competitive?

 Report paper by Novaxia Corporate Programme Team

 download in pdf format

In a period of deep changes, after the crisis, many companies had to take a hard look at their Business Models, products, services, processes and markets to find new solutions to continue growing and to overcome the turbulent times we are experiencing.

Those who fail to do this, risk to be beaten by a competitor from Singapore, France or China or not to pick the soft signals from markets and people telling them that needs and requirements changed, also due to technological innovations that offer customers new opportunities and state-of-the-art products.

One of the most precious skills of people, teams and organizations, allowing them to continuously grow also during moments of crisis, is the ability to relentlessly innovate; not only listening to the changes that are happening in the world but also surfing on the wake of those changes and exploit the opportunities they bring.

Managers and entrepreneurs that want to find new opportunities often finding themselves facing a dilemma: shall we work on radical innovations, or try to beat the competitors and become Leaders?

In management literature the first line of action was developed by W. Chan Kim and Renée Mauborgne in their research on Blue Ocean Strategy. A Blue Ocean is a market in which we are the only company and where competition is irrelevant: we are not simply the Leaders, we are the only ones to have the products, the skills or the Business Model to meet unsatisfied needs.

In their research, Kim and Mauborgne take as an example Cirque du Soleil, a circus that, in a market that was experiencing great difficulties also due to the bad reputation of the companies in the sector, create a new, revolutionary concept of circus-theatre, which become a world success.

Figures show the success of this innovation:

–          1.500 artists;

–          5.000 employees;

–          11 travelling shows all over the world;

–          11 resident shows;

–          31 original creations;

–          300 cities visited;

–          Almost Euro 1 billion in sales

–          100 million spectators since 1984[1]

Blue Ocean Strategy is an attitude that avoids heavy competition in Red Oceans, which are extremely saturated and hyper-competitive markets where the difference is often the price or a super-specialization in a small niche, in favour of the creation of a new market, or a radical innovation in an existing one, by creating, for instance, a completely different Business Model.

How can companies manage to apply such a strategy? They need to analyze their organizations and:

  1. Eliminate processes, products, services that are not useful – The Cirque du Soleil, for instance, eliminate animals, which were costly and created a bad reputation for the circus;
  2. Reduce all parts of the Business Model, giving space to something more profitable or effective and cutting out the rest – In Cirque du Soleil, they reduced humorous and funny shows and replaced them with high-level performances;
  3. Raise those parts in the organization that perform well – the Cirque du Soleil increased the number quality and variety of artist, who became real stars of a great theatre;
  4. Create something that did not exist – the Cirque du Soleil created the concept of Circus-Theatre, exporting it all over the world.

The other possibility for the organizations that want to grow even in times of crisis and difficulties in the market and that do not want to live in a constant price battle, is that of becoming super-competitive, exploring new niches or becoming unique. Clients become fans of the organizations and promote its products and services. The brand becomes an important part of their personality. Examples are Apple, Starbucks, the Italian natural ice-cream chain Grom and the Body Shop. Sometimes companies manage to create raving fans with products that touch the hearts of people: recently, the “beetle” or the new Fiat 500 and the Italian Moleskine journals.

In this case, the winning attitude is the following:

  1. Listen to the existing market. Listen to clients, asking them what they really want, what their habits are, observing them while they try and use our product and see what does not make them happy. In the Lean Startup, this technique is defined as “Get Out of The Building”: instead of studying in the ivory tower of your office strategies that then reveal their ineffectiveness on the market, we first go to the market with a prototype of the product or business model and we test them, leaving clients decide whether they are valid.
  2. Observe our organization.  Check our range of products, our business model, our communication strategy, bringing incremental innovation that allow us to be unique, to create new niches and to touch the hearts and minds of people. Relentless innovation, with small steps: not only a revolutionary, innovative product, but also a new blog, better able to listen and talk to clients, for instance, or new services that delight our customers making them rave about us, new niches of clients that we did not serve before but that might be extremely profitable.
  3. Create a culture in which innovation is an attitude. Create teams and occasions in which people study the business model, criticize it, look for feedback from the market and correct the direction the organization took, abandoning strategies that do not work, even though we fell in love with them. If the client does not want something we offer, and this makes us lose money and market share, it is not worth pursuing it anymore. In Team meetings, Coaching and facilitation techniques will help make the meeting extremely effective to discuss and brainstorm new ideas.
  4. Act and ask for feedback. Innovate continuously in small increments, and listen, once again the market, to understand what improvements may be made. We will be surprised about how many opportunities still exist to grow and become unique.

cirque_du_soleil_pic

What road shall a company take? When talking about strategy, it’s up to the company to decide what’s best for them. In the former case, we need to have courage and dare, completely changing our paradigms. In the latter, we need the determination and adequate processes to continuously pursue a research-innovation-feedback loop.

Both roads have one important factor in common: they both express an innovation-driven attitude, always striving to improve. Companies and teams that want to grow need to develop the following skills:

  •  Ability to listen to the market, especially to capture those signals that are telling us we are not in the right direction, even if we significantly invested in that strategy;
  • Ability to ask the right questions to the market, so that we do not receive a confirmation of what we wanted to hear, but answers that allow us to find new opportunities;
  • Ability to facilitate extremely effective meetings with Teams. Being skilled in innovating means being also able to facilitate meetings in which everybody contributes, creating a well diversified team, from the Top Managers, used to study the strategy, to front office employees, that better know the market and the headaches of people. In this case we need people with good facilitation and coaching skills to manage the meeting;
  • Ability to translate innovation into action. Many ideas in the company find filters that hinder them: when the Board in IBM refused to 5 of its employees to pursue their idea, they left the company creating SAP, one of the most used software in the world. Risking, with caution, is part of the DNA of the most innovative and healthy companies in the world, because it generates new products, services and processes, it forces you to keep track of the market and to be always modern and it generates new profits, even though some markets change or even disappear.
  • Ability to ask for a feedback. We need to be humble and ask clients what they think about us. We need to accept what they say, even when we do not like the answer, and act accordingly. If we find ourselves “explaining” to clients the advantages of our products to “convince” them to buy it, we chose the wrong approach. Instead of talking so much, we need to listen. 

[1] http://money.cnn.com/2011/10/25/smallbusiness/cirque_du_soleil_guy_laliberte.fortune/index.htm

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