In the Wake of a Contrarian Idea: Blue Ocean Strategy

If you are a professional in innovation or business growth, then Blue Ocean Strategy is simply one of the most important books ever written. When launched in 2005, it torched a ubiquitous idea that had dominated business thinking for decades. This older concept had been repeated so many times, by so many dignitaries and authorities, by professors and best-selling authors, that it was accepted as truth. What was this entrenched belief?

It was this: A business or product strategy should be committed to either product differentiation or low cost alone. Only one or the other. If differentiation, you went upmarket. You raised performance. You added the bells and whistles and delighter features. Some authors even split the “differentiation” into two sub-strategies: product differentiation and customer intimacy. But the point was that you’d willingly add cost to achieve the high-end performance for high-paying customers. It’s the first-class flight of new product notions. Conversely, for a low-cost strategy, everything in your business must strip out all extraneous costs. It’s the no frills airline model, best represented by Europe’s Ryan Air.

But then, 2005 happened. Blue Ocean Strategy happened.

Authors W. Chan Kim and Renee Mauborgne cut out the legs from underneath this “law” that you had to commit to either a high-end or low-end strategy only. Instead, they made the case that you should pursue both differentiation and low-cost simultaneously. Both. Previously, it was believed that pursuit of both would leave you in no-man’s land. But Blue Ocean Strategy taught us that if you can understand a segment’s needs, you can increase performance in some areas while decreasing it (thus decreasing costs) in others. The result: you provide better overall value to the customer, and in fact Kim and Mauborgne refer to this as “Value Innovation.”

By creating a new value curve, you could compete on new dimensions, thus creating a new market: a blue ocean. “Blue” because it avoids the nastiness that comes with attacking your competitors on the same product attributes, resulting in a red ocean.

The problems with the prior thinking prior seems obvious in hindsight. If I commit to a differentiation strategy only, my pool of interested customers will shrink as my products deliver increasingy higher levels of performance than most customers care about. And if I commit to a low-cost strategy only, I watch my margins shrink as I try to drive out my rivals with lower prices. In this case, I end up closing factories and departments in a depressing race to the bottom. I may be able to occasionally stave off a stockholder revolt with profit from cost-cutting, but the business slowly dies as my golden geese starve.

Think about how the poster child of the low-cost strategy, Walmart, has evolved. They’ve added free 2-day shipping on millions of items. They’ve added a “Free Same-Day Pickup” and “Free Grocery Pickup”. Performance increases! Expensive ones! Clear violations of the “low cost provider” which was always a flawed idea. A flawed idea that dominated the strategy course within every MBA program for 30 years.

However… as powerful and practical as Blue Ocean Strategy is. The book still leaves us with a key unanswered question: “Where should I increase performance? And where can I get by with less?” This is where New Product Blueprinting can help! The Blueprinting tools and methods fuse perfectly with Blue Ocean Strategy.

In Discovery Interviews, we uncover all the customer needs for a market segment. Imagine that you produce fabric for backpacks. Should the fabric be lighter? Stronger? Wider selection of colors? Or are the fabrics fine as they are, but your customer wants them delivered faster? Or in smaller lots? Or with a more generous return policy? You’ll get this list during your Discovery Interviews.

In Preference Interviews, you will hone in on the actual performance ranges that customers want. For delivery time, what’s the longest acceptable duration? And what’s the shortest that would make customers happy? With Blueprinting, you will learn these numbers. As fantastic as Blue Ocean Strategy is, it didn’t give us much for real-world application. But good for us, Blueprinting has the tools to make it all actionable.

If you haven’t read both, New Product Blueprinting and Blue Ocean Strategy, push them to the top of your reading list! Then return to this piece and see if the connections between the two make sense. If not, feel free to contact me, Scott Burleson and I’ll be glad to help blend these blues for you!

Article excerpted from Take AIM Newsletter, Jan-Feb 2018.