In her speech and interaction with Kaihan Krippendorff, Renee Mauborgne puts forth some of the tools and concepts of the Blue Ocean strategy that can help organizations shift in the future to a strong growth trajectory.
The field of strategy used to be all about competing. The theory was that some industries are more attractive than others, and the aim was to understand how to beat your rivals within the existing industry space by choosing a distinctive position. Strategy was therefore confined within the existing industry space and how to excel and divide up that pie. Theoretically, it is called a structuralist view of strategy because it takes structural conditions for granted and believes that micro actors, that is, the firm can influence that structure, but can only divide it up and win a greater share of it. The underlying theory comes from IO or industrial organization economics, which views that the paradigm is structure, shapes and strategy, which in turn determines performance, and growth beyond an existing industry comes from outside forces.
When global competition hit the industries, and every industry was being challenged and facing tough hardships, it raised the question about whether strategy only has to be about competing in existing spaces. But the industrial history tells that there are many new industries created by people that were new industries and new market spaces, creating lots of money, but expanding the business terrain. The only difference was that there was no systematic understanding of how to do that for strategy. It was known as a black box. There was a new market space but strategy was not focused on it.
Contrary to Red Ocean Strategy, which says that the micro actor can only work within structural conditions but cannot shape them, Blue Ocean Strategy is a reconstructionist view that says individual markets are created by firms, and as firms created them, so can firms shape them.
The research in this direction began with exploring if there were any patterns to strategy for new market space. In the next 10 years, two distinct patterns were found. They were the Red Ocean market-competing strategy and the Blue Ocean market-creating strategy. The market competing strategy was termed Red Ocean Strategy because all the industries and current existing industries tend to be overcrowded with lots of competition, supply exceeds demand, and that can get pretty bloody. On the other hand, new markets that people can create are wide and untainted like the blue ocean. Competition is minimal if at all, and they are filled with growth and opportunity. There is a completely different theoretical perspective that defines it. Contrary to Red Ocean Strategy, which says that the micro actor can only work within structural conditions but cannot shape them, Blue Ocean Strategy is a reconstructionist view that says individual markets are created by firms, and as firms created them, so can firms shape them. The micro actor is an empowered actor that can create their future and that theory comes down to endogenous growth. To summarize, the Red Ocean Strategy paradigm is one more structure-shaped strategy that influences our performance, whereas the Blue Ocean Strategy can shape the structure. It can even turn an unattractive industry attractive, which in turn determines performance. This is when growth and new demand can be created by the firm.
The next part of the research was to find out where it could be applied and was it generalizable, dynamic and prescriptive. Another 10 years were spent trying to understand how to apply these ideas, and to see what worked and what didn’t. Through the research, two factors emerged that could help organizations make a successful Blue Ocean shift. The first factor that it takes to move into these blue waters is to have the creative competence to move. Its two underlying factors are Blue Ocean Perspective and a roadmap. The Blue Ocean Perspective is about realizing, that if individual firms created industries, individual firms can also shape their boundaries. We need to understand what that perspective is so we do not have a narrow take on a market but can begin to see possibility. Beyond perspective, we also need a roadmap with market-creating tools and guidance, because while we all want to create and move out of red waters, we do not have a roadmap to get us there. With market-creating tools in hand, we do not have to only rely on instinct and the random genius that is not always abundant in all organizations.
Creative competence is not enough if one lacks the confidence to act, and therefore, confidence is the second factor that it takes to make the Blue Ocean shift. The element of confidence is usually left out of strategy books, and even if it is discussed, we tend to talk about people as though they are rational economic actors, as though they are only defined by their title or function. The issue is that the CEOs or frontline managers or other employees are not just their titles but humans who are emotional and only partly rational. Hence, when people are asked to shift or move from what they know to imagine new possibilities, it is going to bring out their emotional side of fears, insecurities and doubts. The key to building confidence is to first realize that we are more than rational actors, and then we need to normalize those fears, anxieties and self-doubts. This requires building humanness into the process.
As humans, we feel confident when we are in our comfort zone. The existing industry space is that comfort zone, and if we want to grow and move towards creating something new, we have to move from that comfort zone to the discomfort zone. This is where we are immediately filled with fear, where we lose confidence. Confidence is really built when we learn, and the Blue Ocean shift process gives the tools that allow people to think differently to create new ideas. As we learn with each tool, and each step how to think differently, that discomfort zone becomes a comfort zone. To shift further, we need to again venture into that discomfort zone, again creating anxiety and fear until we learn, and the process keeps repeating as our comfort zone keeps expanding. This is the way the Blue Ocean shift process is designed.
Blue Ocean shift is about shifting from that red to the blue, but in a way that brings our people along through that confidence and humanness.
To summarize, Blue Ocean shift is about shifting from that red to the blue, but in a way that brings our people along through that confidence and humanness. In that sense, it is more than just an economic theory of strategy. It is a behavioural theory of strategy. It is about learning how to shift our culture, our mindset and transform our organization from a mindset of scarcity, which is the Red Ocean, to a mindset of abundance, which is the Blue Ocean.
The five-step process of Blue Ocean Shift involves getting started, where you are now, imagine where you could be, finding how to get there, and finally, making that move. Each step of the process comes with simple one-page analytic tools that any organization or person can apply. It allows us at each step, as human beings to move from that comfort zone onto that discomfort zone, become comfortable and move and take the next step in that journey. This tool is called the strategy canvas and anyone can apply it. It involves looking at the factors you compete on and what you offer customers and see the extent to which you converge. It creates a real strategic alignment in an organization about the need for change. It is not about the top imposing that on people. People discover that for themselves, and when you talk to people about whether they need to change based on that, it creates a natural impetus to move forward. this is how creative competence and humanness are built simultaneously.
In traditional strategic theories, there are two ways to win within existing industry boundaries. It is either by being the most differentiated player of high value or by being a low-cost player. But companies that make a Blue Ocean shift open up a new value across the frontier, achieving both differentiation and low costs on that frontier to essentially leave competition behind and open up that new market space. With the humanness, it is about understanding how to pull people along in that process, so they own and drive the process for success.
The Blue Ocean Shift is significant in the post-pandemic world. Every crisis faced in history has always resulted in a shrinking of demand. When a crisis occurs, people tend to restrict their consumption, either for lack of cash or from being overly cautious, and demand starts to shift downward. To come out of this crisis, we need to understand how to create demand. On the one hand, we need low-cost commodities in the market, but on the other hand, people are not going to be happy with low cost only because they have already tasted high value. So, market players are looking for offerings that stand apart and offer a low cost that can help to not only capture a greater share of existing demand and create new demand for new people into the market. Some of the tools and processes coming out of the post-pandemic implication and Blue Ocean shift will be very relevant in creating new demand.
Besides the shrink in demand, the second implication of a crisis is that people are left scared and wondering whether they will get fired, whether their company will even come back, and if they will have a job or not. At the same time, they need to have their energy picked up in their companies so they can tackle this challenge and start creating a brighter future. We are economic factors but we are also scared, emotional beings. This is where some of these ideas and tools help in building that confidence in people. Recognizing our humanness and fear and normalizing it becomes key in teaching people how to build their confidence to succeed in this new world.
Blue Ocean Shift is even more relevant in the current scenario and for moving forward.
The third critical area relevant is that people right now realize things need to be different. When they come out, things have to shift. They can feel the pressure that is on the organizations and they don’t assume that things can go back to normal. Typically, it is very hard to create the momentum for change in organizations when the economy is going well. But right now, there is an openness in people. They realize things need to be different and we need to think new for this new world we are entering, so we need to shift. This is a great opportunity to not only manage cash, which will be sufficient for the next year or two, but start thinking about how to come out with a very strong growth trajectory for the future. Here too, some of the tools and concepts in Blue Ocean shift can help make that shift in organizations.
Kaihan Krippendorff in Conversation with Renee Mauborgne
Kaihan Krippendorff: Does trying a Blue Ocean Strategy make sense during the current crisis?
Renee Mauborgne: Blue Ocean Shift is even more relevant in the current scenario and for moving forward. One is for creating new demand. People are cash strapped and conservative with the money they have because they are worried and nervous. Even hearing that there might be a second post-pandemic, the people, consumers, buyers and corporate buyers are going to be very cautious about where they spend their money. They are going to be looking for those that are offering them a leap in value that are both differentiated and lower-cost.
The crisis is hitting us all, but a lot of companies are going to be also exposed for the weakness that they had before COVID. In the 2008 crisis, General Motors went bankrupt, but the company had been declining in market share for years on end. The crisis only revealed that underlying weakness, in a very acute, fast way. Many companies had been riding the strong global economy we have been having, especially in the U.S., so they were not really doing well enough but were benefiting from a rising tide. But the role of the strategists, the organizations is to add value beyond that. Then the question for organizations becomes that how are they going to do that? Right now, we have an openness in organizations that was not there during the rising economic tide. It is an exciting time to get people engaged if we give them the tools and a roadmap, and acknowledge their fear.
Kaihan Krippendorff: How do you instill the blue ocean mindset in the rest of the team? As a leader, how do you drive the organization to embrace like Blue Ocean?
Renee Mauborgne: It is part of the whole process. It is not just a strategist or an innovator in their own silo creating these ideas because if they do, it will not get implemented often by the rest of the organization, especially when it means a shift, and it means something different. Many sales forces even undermine their own company’s innovative products because they don’t know how to sell them correctly because they don’t understand the value.
The first step is therefore pulling together a very diverse team, including from the frontline and not only the top. Everyone has wisdom and knowledge throughout organizations.
The second thing is, a whole Blue Ocean Shift process is not about telling people to change or what to do, but giving them the tools and processes so they create that on their own. Once you have the tool, the team, and you know where you want to start, you draw the strategy canvas, which is the factors you compete on, and how much do you offer in comparison to your competitors. While drawing the strategy canvas, people will find that they don’t know what they compete on necessarily. They will find that their strategies converge. Then, the leaders can ask if following that strategy can get them five or 10 years of strong growth or not, given the competition on the horizon and the shrinking demand.
Kaihan Krippendorff: Is the Blue Ocean always a lower cost, or in other words, is there a leap in value to cost?
Renee Mauborgne: Blue Oceans are not created only at the low end of the market. Cirque du Soleil is anything but low end. From a buyer’s point of view, we feel like it is a quantum leap in value, so it is differentiated at a high price point. Tesla does too. Their new model is oversubscribed, and so many people are signing up because Tesla is trying to drop that cost structure. So, you can have a Blue Ocean at the high end, the mid-range and the low end of the market.
There are so many things that companies compete on that industries take for granted, that you can eliminate and reduce in your business model to simultaneously drop your cost structure so that you are able to hit the strategic price like Tesla is trying to do today. It is really about starting with what is the leap in value for the market, what is the strategic price to unlock it, and then how to build the business model to drop the cost structure in order to deliver that without compromising either the strategic price or the leap in value that is delivered. Thus, businesses can create what Tesla is creating right now in the Blue Ocean space.
Kaihan Krippendorff: Is this a carefully planned process or do we need to build a sense of urgency to shift quickly? If so, how can we do this quickly?
Renee Mauborgne: First of all, it doesn’t necessarily take that long to do, so get your team together and go through each step. You don’t need to do all five steps. You need to simply shift, and since everyone is cash strapped and in urgency, you can go to the second step, which is imagining where the company could be. Put up that buyer utility map which takes you from purchase to disposal and every step in between and all the utility levers, and find where the biggest pain points and blocks are in each step and how you can eliminate those steps. When you find a pain point, most companies try to hide what is going wrong. But you want to have a culture that thrives on identifying pain points and cheerleads it because every pain point is not a constraint, but an opportunity to create new value. Next, you can start asking who could be pulled in to create a new market for this and if there are new customers that would grow to create that momentum. The good thing is that a lot of our customers are home right now. Usually, it is hard to get hold of customers, hard to get people on the phone, but nowadays, people have a lot of time in their hands. So, companies can use customers and noncustomers very effectively right now to do this process.
Kaihan Krippendorff: What would you suggest we specifically do right now?
Renee Mauborgne: There is one tool in Blue Ocean Shift called the Eliminate-Reduce-Raise-Create framework that can be used. Leaders have to just ask their team, what is the one thing the company should eliminate, that creates the cost structure, but doesn’t really add any value. Normally, people don’t like letting go, but right now they are open. They know we need to get rid of costs. The next question to ask is what is the one factor, one thing that company does for its customers, that it could create that would lift their value immediately in the marketplace?
The second thing that can be done is introducing that idea of humanness, and to get people together. Leaders can then acknowledge to them their fear and anxiety, and normalize it, and then let them know how they are going to start to build that confidence together by taking actions like thinking about what to eliminate or reduce so the company starts shifting out of a red ocean of bloody competition into and creating this Blue Ocean. The third important thing is drawing a strategy canvas. Most organizations have an illusion about themselves, and it is very eye-opening to get everyone on the page.
Kaihan Krippendorff: If there is one answer that you can give for people across different industries, what would you ask them to do differently or where would you ask them to look in order to understand how to apply the Blue Ocean Shift?
Renee Mauborgne: I would like to give you a tailored answer, but in reality, I’d start with that strategy canvas. I’d start by looking for the pain points in every industry. We have a map for that and it tends to apply straight across the board. The Blue Ocean Shift process tries to really go broad on that.
Kaihan Krippendorff: Where do you see most companies struggle when pursuing the Blue Ocean Strategy?
Renee Mauborgne: One is that it must be owned by somebody that has responsibility for what they are doing. Having responsibility is very critical. If you are trying to change someone else, and they are not brought into that, that is a very difficult process. Also, the manager must be someone who is determined, who owns their story and owns the fact that if the company is doing fine but is not different than its competitors then they are not booting up. The manager or CEO should not be happy to just ride on what they have.
Kaihan Krippendorff: Should Blue Ocean be professionalized or rolled into other functions part-time, as a key with transformation innovation? Where do we enter the organization and start beginning the work?
Renee Mauborgne: It can enter in many different ways. We have had a product manager of a large multinational apply it and because of their great success, other managers started doing it and started rolling out in the organization. It is always recommended to start small and earn the right to grow to see the success in an organization so that in the end, Blue Ocean is pulled into an organization as opposed to pushed down from an organization. Some organizations like Kimberly Clark, Samsung actually formalized it. They started to see the success and created a Blue Ocean, or in the case of Samsung, it was a Value Innovation Program Center where they started putting all the innovation projects through that to start looking at it through that lens.
But in the end, Blue Ocean starts as a strategy in thinking, and as you go through the process, it changes you as a person. Your perspective completely changes, making you wonder how could you not see before what you can see now. There is a Blue Ocean perspective in whatever you do. Starting conversations with people is the easiest way to go about it but there are many other different ways.