Business Building Ideas Part 1 of 3

What is the difference between Red and Blue Oceans? 

There is a ‘radical’ new idea that in order for companies to win in the future, “they must stop competing with each other!” The only way to beat the competition then is to “stop trying to beat the competition”In the business universe there are two sorts of oceans: Red Oceans and Blue Oceans. Red Oceans represent all the industries in existence today, and this is called ‘Market Space’. Blue Oceans denote all the industries not in existence today, and this is called unknown market space. In the Red Oceans game, the rules are known and the participants try to outperform each other, becoming ‘cut-throat’ and therefore the waters are bloody. Blue Oceans, in contrast are defined by untapped market space, demand creation, and opportunity for highly profitable growth. Understanding the value of Blue Ocean StrategyMost Blue Oceans are created from within Red Oceans by expanding existing boundaries. In Blue Oceans competition is irrelevant because the rules of the game are waiting to be set and created. It will always be important to swim successfully in Red Oceans by outsmarting rivals. Red Oceans will always exist and be a fact of business. With supply exceeding demand competing for most industries, holding on to market share is getting tough. For the past 25-30 years we have focused on competition-based red oceans. This information will provide you with a framework to begin looking at a new model for business, Blue Ocean strategy! Creating Blue Oceans – Cirque du Soleil What did Guy Laliberte do to create Blue Oceans? How did he do it? What was the state of the circus business at the time? What is the difference between Red and Blue Oceans?What is the problem with competing in Red Oceans? Look at the language of Red Oceans (strategy, headquarters, officers and troops and front lines) What is New Market Space and how is it created? A study of 108 companies in both profit and revenue showed the following fascinating results; Business Launch 86% were Red Ocean growth 14% Blue Revenue impact 62% Red Ocean and 38% Blue Ocean Profitability impact 39% Red Ocean and 61% Blue Ocean        Why create Blue OceansAccelerated technology has improved industrial productivity creation of an unprecedented array of products and services.In many industries this has caused supply to exceed demand. Globalization has also impacted cost in dramatic ways (Wal-Mart). The impact has been a dramatic decrease in prices. Increased commoditization – price wars – brand blurring. Are there lasting “excellent” or “visionary” companies?Look at the companies selected in “In Search of Excellence” Within 2 years of being selected many disappeared (Atari, Cheesebrough Ponds, Data General, Fluor, etc.In a book called “Managing the Edge” 66% of the companies selected had fallen from grace in 2 years. The first key is “Strategic Moves”A Strategic Move is a set of managerial actions and decisions that are involved in making a major market-creating business offering. Even though Compaq was bought by Hewlett-Packard, it’s success lay in the fact that it created Server Technology.                                            The second key is “Value Innovation”Value innovation is the cornerstone of Blue Oceans. Instead of trying to beat the competition, focus on making it irrelevant. Do this by creating a leap in value for buyers and your company. Value innovation places equal emphasis on VALUE and INNOVATION. You must align Innovation with Utility, Price & Cost. Stop relying on technology, it changes too fast (Intel) Value Innovation totally defies the old “value-cost trade off”.     Once again let’s look at Cirque du SoleilWhat did they do?Differentiation and lowering of costs lies at the heart of what they did.What was wrong with the old circus?Cirque du Soleil married the Circus and theatre.Cirque du Soleil injected sophistication and story line.Cirque du Soleil creates multiple shows giving people a reason to come back.Cirque du Soleil dramatically increased demand for its own shows and they raised prices to theatre level.Cirque du Soleil achieved a lowering of COSTS while increasing BUYER VALUE.Value innovation is much more than just innovation.Value innovation requires that you create a strategy that embraces increasing buyer value and lowering costs. Red Ocean Strategy                                                                                     Competes in existing market spaceBeat the competition                                                                                      Exploit existing Demand                                                                                 Make the value-cost trade offAlign the whole system of your activities with the strategic choice of differentiation or low cost Blue Ocean StrategyCreate uncontested market spaceMake the competition irrelevantCreate and capture demandBreak the value-cost trade-offAlign the whole system of your activities in pursuit of differentiation and low cost Analytical Tools and Frameworks                                                    Effective Blue Ocean Strategy should be about Risk Minimization and not Risk Taking.The US Wine Industry and ‘yellow tail’ from Australia. U.S. Wine industry is $20 billion in size, yet 8 companies control 75% of the entire market. This leaves 1,600 other wineries to compete for 25% for the rest of the market.  So with this in mind, how do you open up and capture a blue ocean of uncontested market space? The first answer lies in creating a STRATEGY CANVAS. The Strategy CanvasIt is both a diagnostic and an action framework for building blue ocean strategy.First it captures the current state of play in the known market.It shows you where the competition is currently investing.The factors that the industry currently competes on in product, service and delivery. It tells you what customers receive from the existing competitive offerings.Now lets paint the Strategy Canvas in graphic form for analysis.First step is to define the principal FACTORS. Seven Principal Factors of the US Wine IndustryPrice per bottle of wine. Image in packaging, labels, wine medals won, use of esoteric enological terminology to stress art and science of wine making. Above the line marketing to raise consumer awareness in a crowded market, designed to encourage retailers to give prominence. Aging quality of the wine. The prestige of the Vineyard and its legacy. Complexity of the wine’s taste, including such things as tannins and oak. A diverse range of wines to cover all varieties of grapes and consumer preferences. How do we shift the ‘strategy canvas’ of the wine industry?Reorient your focus from competitors to alternatives.Reorient your focus from customers to noncustomers.This helps you to get insight into how to redefine the problem the industry focuses on.This helps you to reconstruct buyer value elements. Casella wines from Australia redefined the industry problem by making a wine that was;FunNon-traditionalEasy to drink for everyone

WHY: Research showed that the great mass of American adults saw wine as a TURNOFF and SNOBBISH. The FOUR ACTIONS FrameworkWhich of the factors that the industry takes for granted should be totally eliminated?Which factors should be reduced well below the industry’s standard?Which factors should be raised well above the industry’s standard?Which factors should be created that the industry has never offered? What did Casella do with the 4 action framework?First it broke the competitive landscapeRather than offering wine as wine, it created a social drink for everyoneBeer drinkersCocktail drinkersOther drinkers of non-wine beverages In 2 years became the fastest growing brand in the history of the US and Australian wine industry. By 2003 it was the number one red wine in the US shipping 4.5 million casesCasella did not steal existing wine customers, it created a NEW MARKET OF THEMCasella acted on all four actions; eliminate, reduce, raise, create. Easy drinking, Easy to select, Fun and Adventure. ELIMINATEEnological terminology and distractions / Aging qualities / Above-the-line marketingRAISEPrice versus budget wines / Retail store involvementREDUCEWine complexity / Wine Range   /   Vineyard prestigeCREATEEasy Drinking   /   Ease of selection   / Fun and adventure                Eliminate-Reduce-Raise-Create Grid: (Cirque du Soleil) ELIMINATEStar performers / Animal shows / Aisle confessional sales / Multiple show arena RAISEUnique venueREDUCEFun and humor / Thrill and dangerCREATETheme / Refined environment / Multiple productions / Artistic music and dance Three Characteristics of a Good Strategyyellow tail] created a unique and exceptional value curve to create Blue Ocean[yellow tail] strategy has FOCUS: it does not diffuse its efforts across key competitive factors. The shape of its value curve diverges from the other playersThe tagline of their strategic profile is clear: a fun and simple wine to be enjoyed every day. So the three complimentary qualities are;FOCUSDIVERGENCECOMPELLING TAGLINE Southwest AirlinesFOCUSFriendly serviceFrequent point-to-point departuresSpeedNo meals, no lounges, no seating choices, no hubsDIVERGENCEKeeping up with the competition makes you lose uniquenessBy diverging away from competition, Southwest created a blue oceanCOMPELLING TAGLINEA good strategy has a clear-cut and compelling taglineYOU ARE NOW FREE TO MOVE ABOUT THE COUNTRY Reading the Value Curve:The strategy canvas let’s you see the future in the present.The value curve answers the question as to whether the business deserves to be a winner.If your value curve converges with your competitors you will swim in red oceans, with high costs and slow growth.Be careful about over promising and under delivering.If your value curve is ‘zig-zag’ you do not have a coherent strategy.K.I.S.S. and beware of jargon.