Blue Ocean Strategy Development Principles

The blue ocean strategy is designed to minimize potential risks. It is based on three principles:

• search risk minimization - revision of market boundaries;
• minimization of planning risk - concentration on the big picture, not on numbers;
• minimization of risk of scale - going beyond the existing demand.

Principles for translating the blue ocean strategy

To effectively implement the blue ocean strategy, direct the organization's activities to its implementation. There are two principles for reducing organizational and managerial risks.

• Organizational risk minimization - overcoming organizational hurdles.
• Minimization of managerial risk - control over the implementation of the strategy.

Consumer Value Innovation - The Basis of Blue Ocean Strategy

The main objective of the blue ocean strategy is value innovation, that is, improving consumer qualities and lowering costs. This can be achieved if the company maintains a balance between utility, price and cost.

In most cases, the company seeks to gain market share. This is the traditional approach of enterprises - the scarlet ocean strategy.

A new product arises only in 14% of cases, which provide 61% of the total profit. This shows that companies choosing a blue ocean strategy are much more likely to succeed.

But modern business is characterized by a number of trends.

• Due to technological advances, productivity has grown and supply exceeds demand.
• Due to the reduction of trade barriers and globalization, specialized high-price niches have disappeared.
• Global demand for many products is falling along with a declining population in developed countries.

As a result, profit is reduced, many products turn into a standardized mass product. In order not to fight for market share, companies are trying to create a new market space, highly profitable and free from competition.

Companies that create new customer value are trying to achieve both differentiation and cost reduction. To do this, you must offer customers a new product at an affordable price. Over time, economies of scale will come into effect, and costs will be reduced even further.

How to develop a blue ocean strategy?

Tool No. 1. Strategic canvas.

The strategic outline shows the main factors of competition in the industry and allows you to analyze what firms invest in and what advantages they offer their customers.

Using this method, you need to pay attention to alternative products. Create an offer for customers with elements of consumer value for products from other industries. So you can develop new ideas, and not offer customers analogues of existing products.

Tool No. 2. Model of four actions.

There are four key questions in order to find the weaknesses of the scheme by which the industry operates.

1. What factors of consumer value to exclude?
2. What factors should be reduced?
3. What factors to increase?
4. What new sources of value to create?

In any industry, there are factors necessary for market penetration. But consumer preferences are changing, and it may turn out that current goods and services are too complex and expensive for customers.

These questions will help identify irrelevant competition factors. Try to identify the hidden trade-offs that consumers were forced to make.

Tool number 3. Grate.

Lattice method: the company fills out a table that allows us to recognize the differences between its actions and industry standards. Thanks to this method, managers will be able to act in concert.

When filling out the grid, carefully study the factors that are considered necessary for a player in the industry and evaluate how justified they are.

An effective blue ocean strategy has three distinguishing features.

• Priority availability. Rely on a limited set of competition factors. Do not invest in areas that are not related to these priorities.
• Deviation from the standard. Consider alternatives rather than industry-specific approaches.
• Clarity and clarity. A good and obvious strategy can be described in one capacious slogan.

Blue Ocean Strategy Development Principles

There are four principles for creating a blue ocean strategy.

Principle 1. Revision of market boundaries

There are six ways to find attractive ideas for blue oceans.

1. Analyze alternative industries and determine which products and services look different, but serve the same purpose. The consumer often chooses between offers from different industries. Take advantage of the space between these areas.

Example. NetJets Airlines has offered customers a scheme combining the speed and convenience of private jets with the low cost of shared ownership used in other industries.

2. Consider the various classes of firms in the industry and determine what factors influence the choice of the client. Borrow the main advantages of each class and discard the excess.

Example. Lexus cars combine the quality of luxury brands such as Mercedes, BMW and Jaguar with the price of Cadillac and Lincoln models that are inexpensive for this category.

3. Explore different groups of customers and connect their ideas of value. Change the traditional view of your target customer.

Example. Canon developed desktop copiers, switching from corporate purchasers to users who were not averse to having their own photocopier at home.

4. Pay attention to additional goods and services and develop a combined solution.

Example. The Barnes & Noble bookstore network has shifted its focus from selling books to creating an enabling environment for reading and studying.

5. Evaluate the attractiveness of the product and review the industry-standard solution. Add emotional appeal to a functional-useful product or shift the balance with the emotional component towards functionality.

6. Predict what the market will be when the development of a technology is complete. You will discover new opportunities if you decide what needs to be changed today.

Example. Apple was inspired by the success of the Napster file-sharing network to create the iTunes online store. It became clear that consumer demand for technology that allows you to download music in digital format is high. Then Apple developed a legal, simple and inexpensive way to access audio files and captured the market.

Principle 2. Focusing on the big picture, not numbers

A typical strategic plan imposes a scarlet ocean strategy on companies and never leads to the creation of blue oceans. To avoid this mistake, you need to focus on the picture as a whole, and not wander into a sea of ​​numbers. To do this, draw a strategic outline of your company, which:

• accurately and clearly represents the company's position in the market;
• allows you to build the future strategy of the company;
• Helps employees focus on the big picture
• identifies factors affecting industry competition;
• shows the development of which areas your company and its competitors invest;
• promotes dialogue between company divisions on issues of further development;
• activates the dissemination of strategically successful methods and the exchange of experience between departments.

Creating a strategic outline of the company is not easy. Disagreements are inevitable in the selection of competition factors and their assessment of your firm. Many managers tend to determine utility and value from the perspective of internal users, not customers.

How to build a strategic outline of the company?

Get complete understanding. Clearly compare your company with competitors. Let everyone see the whole picture and go beyond personal interests. Draw the proposed strategic outline, discuss and compare it with the strategy of competitors. Encourage participation and creativity.

Send managers to do fieldwork. Let them personally communicate with customers and find out exactly how people use your product or service. You should not entrust this to third parties and rely on other people's reports.

Chat with non-customers and find out why your product doesn't appeal to them. Analyze what alternatives they currently use. Assign this task to two teams. Let each one offer its own version of a new strategy and slogan.

Hold a concept competition in which each team will present a strategic canvas option based on the results of their “field research”. Let each “judge” vote for the concept he likes. This will immediately determine the most successful strategy.

Bring the approved strategy to the public. Distribute to employees graphs comparing the old and new strategic profile of the company. Managers should discuss these changes with their subordinates.

Principle 3. Going beyond existing demand

Creating a blue ocean, the company seeks to make it as large as possible, which means to reduce the risk associated with the establishment of services for this market. To do this, try to interest in your offer as many non-customers as possible, which can be divided into three categories.

Level 1 nonclients - Customers located on the border of your market. They will refuse your products as soon as something more interesting comes up. Offer them radically new consumer value, and they will buy more often.

Non-customers of the first level include people who use your products for lack of better options. Find something in common between non-customers and "borderline" customers, and you will understand what to focus on.

Find out what they like, find out what solutions appeal to them. Often, non-clients come up with more ideas about opening and expanding the blue ocean than regular customers.

Non-Customers Level 2 - Customers who do not use your product because it is too expensive or complex. Find out why these people do not buy your products and do not use the goods and services of your industry, and try to find a common ground between these reasons.

Non-Customers Level 3 - Customers who have not considered your industry’s offer because their needs relate to other markets. Try to go beyond the boundaries of the industry and gain access to the vast ocean of previously unmet demand.

Principle 4. Commitment to the chosen strategy

When developing strategies for the blue ocean, you need to create a sustainable business model that will effectively implement your idea. It is important to adhere to the chosen strategy - this will reduce the possible risks associated with the business model.

Optimal strategic sequence.

1. Usefulness for the buyer.
2. Affordable price.
3. Costs and potential profits.
4. Promotion of ideas and solutions to possible problems.

What is the difference between useful products and services?

• They are easy to buy.
• They are delivered quickly.
• To use them, you do not need special training.
• They do not require expensive auxiliary products.
• They are easy to maintain.
• They are easy to dispose of at the end of their life.

It should be determined what price will quickly conquer the mass market. Enter the market with an offer that buyers will not be able to refuse, and then try to keep this audience.

There is a price corridor, which is determined by a comparison of alternative products. If it is difficult for competitors to copy your working methods, you can set a price near the upper limit of this corridor. But if you are not protected from imitators, it is better to set the price at the lower border of the corridor, limiting the number of competitors. Setting an affordable price will launch the word of mouth mechanism and add popularity to the product.

Next, you need to understand whether you will make a profit at the intended price. Here you need to build on the strategic price, subtracting the desired profit from it and getting the planned cost, and not determine the price based on costs. The following methods will help you meet these stringent requirements.

Streamlining the production process and introducing innovations to reduce costs, for example, replacing raw materials with an unconventional, but more affordable alternative.

The use of other materials and new production methods, for example, due to more modern and cheaper technologies.

Entering into partnerships with other suppliers that perform production and marketing functions more efficiently. Partnership also allows you to take advantage of the professional knowledge of another company.

Changing the price model, for example, the transition from the sale of goods to rental or leasing. Some firms quite successfully provide their products in exchange for shareholding and a share in future earnings.

Your product will not succeed if people are not ready to accept it. Therefore, it is important to overcome the resistance of the three main groups.

1. Employees who will unknowingly sabotage any innovations if they see them as a threat to their income.
2. Business partners who need to be assured that a new product or service will not affect their income and market position.
3. A wide audience that is difficult to accept new ideas.

Principles for translating the blue ocean strategy

To implement the blue ocean strategy, it is necessary to direct the company's activities to its implementation, for which there are two principles.

Principle 1. Overcoming organizational obstacles.

The implementation of the blue ocean strategy encounters three obstacles:

• most employees are against change;
• the company has a limited amount of resources;
• employees do not want to change their usual working methods.

The method of “point activation” helps to overcome these obstacles: the manager focuses on the people and activities on which the work of the whole organization depends.

To convince employees of the need for a change of strategy, make sure that they independently assess the market situation and understand that changes are necessary. Get employees to chat with disgruntled customers.

To solve the problem of lack of resources, correctly distribute existing resources. Determine what requires a minimum of investment, but at the same time increases the efficiency of the organization, and direct resources to these "hot spots". Exchange unnecessary resources for necessary ones. Identify areas of inefficient use of resources (“cold spots”). Transferring resources from “cold spots” to “hot spots” can significantly facilitate the implementation of the blue ocean strategy.

To encourage employees to apply more effective working methods, tell them about the prospects. Do not issue orders that oblige everyone to think differently from today.

Work with opinion leaders.Seek the support of influential people in your company - their willingness to review working methods will convince others.

Stimulate transparency. Emphasize the importance of inclusiveness and fair, open discussion. Explain to employees the need for change. This makes it possible to smooth out doubts arising among ordinary employees.

Fragment the task, Acting according to the method of "point activation", break the overall goal into small components that are feasible for performers.

Provide support to those who benefit most from a change of strategy. Form a broad coalition for change and convince them to support you.

Neutralize those who lose the most from a change of strategy. Refute attacks of skeptics with facts and irrefutable logic.

Include a respected, knowledgeable employee in your team. This advisor knows the situation from the inside and will help you solve the problems of internal intrigues.

Principle 2. Formation of strategy commitment.

A blue ocean strategy should be developed through an open joint discussion. Seeing that the development of the strategy is carried out honestly, employees will voluntarily participate in the implementation of the plan in the following stages.

• Strategy Development: Get people involved in the discussion and explain the essence of the proposed strategy.
• Formation of installations: show employees that you reckon with their opinions - this is how you will gain their trust and devotion.
• Stimulating desired behavior: Encourage voluntary participation in the implementation of the strategy.
• Implementation of the strategy: create conditions for employees to take personal initiative.

The brand image prevents competitors from borrowing innovative ideas. The implemented blue ocean strategy sometimes covers all available demand, so imitation becomes unprofitable. Patents or licenses may be used to protect against copycats.

When your value curve begins to merge with the competition curve, you will need innovation again. Go beyond your strategic canvas and look for a new blue ocean. The long-term success of an organization depends on its ability to repeatedly create blue oceans.