Red Oceans, Blue Oceans, and Extraordinary

By Clifford Cui

Business generates competition. The outcome of it, to competitors, can be as critical as survival or death. Correct strategies help companies defend against the cutthroat competitors, keep customers and grow business. However, if a company wants to dislodge the competitors and leap-frog its growth, it must be innovative, and adopt extraordinary competitive strategies to create new market space for its products and services.

In his successful business strategy book “Competitive Strategy,” Michael Porter suggests that firms follow three generic strategies: cost leadership, product differentiation, or focus, or blends of the three strategies, in terms of their overall orientation towards competition. Companies must prioritize them; otherwise they are likely to become “stuck in the middle” – not leading in cost, differentiation or focus, and less profitable than their rivals.

Professor W. Chan Kim and Renee Mauborgne characterized Michael Porter’s traditional approach as “Red Oceans” strategy in their book: Blue Oceans Strategy.” In this book, the authors suggest that in Michael Porter’s model, successful business are either low-cost providers or niche-players, and industry boundaries are defined and accepted; competitive rules of the game are known. As rivals try to outdo one another, they end up competing solely on the basis of incremental improvements in cost or quality or both. The cutthroat competition turns the market space or ocean bloody.

To seize new profit and growth opportunities, Professor W. Chan Kim and Renee Mauborgne suggest that companies need to create new market space: blue oceans for their products and services. Wherein, all industries are not in existence, and are untainted by competition; rules of the game are not defined; demand is created rather than fought over, and the potential, depth, and magnitude of the opportunities are similar to those offered by the vast and yet to be explored oceans. They suggest the following six tactics to explore such opportunities:

• looks across alternative industries,
• looks across strategic groups within industry,
• redefines the industry buyer group,
• looks across to complementary product and service offerings,
• rethinks the functional-emotional orientation of its industry, and
• Participates in shaping external trends over time.

The Blue Oceans Strategy draws criticism too. Mike Smock, the Marketing Director of vSente writes at the website: “The excerpt provided more detail on both the problem and approach - but nothing I could characterize as new or breakthrough to support a claim of creating uncontested market space. In fact it seemed as if the authors were simply repackaging long held notions about market niches”. Other authors challenge that there have no successful business models built on the Blue Oceans strategy.

Some of the criticisms seem unfair and unnecessary. In reality, both Red and Blue Oceans strategies are creative and useful methodologies for strategic planning. Unlike the situations predicted by some critiques, the Internet, email, and broadband communication technology have not reduced the Blue Oceans to ponds. On the contrary, they are expanded. The unprecedented scale of globalization makes it possible for companies to look beyond the national boundaries in designing and creating customer value and the value delivery systems. For industries, such as combating global warming and healthcare, the real solutions might rest with the Blue Oceans strategy. Similarly, the new market spaces so created will never replace the traditional market place. Competition in business will be head-to-head as usual. In order to survive and compete, companies have to focus on either cost leadership or product differentiation on these markets. Therefore, both Red and Blue Oceans strategies should coexist and be applied in competitive strategies.

The war strategy of the famous historical Chinese military strategist Sunzi may offer valuable suggestions to the Red and Blue Oceans debate. In the “Arts of War,” Sunzi categorized military actions as two types: the orthodox, or Zheng, and the extraordinary or Qi. The former refers to the action that is conventionally correct and the latter the action that is new, and can surprise enemies. To obtain victory, the Sunzi advocates “the extraordinary,” But, he also suggests that there are no hard and fast rules for which strategy to use, and in many circumstances people should use both. The ultimate choice of strategy for each military engagement should be dictated by the realities of the battle ground.

In applying the Sunzi’s strategy to the business competition, one may label the orthodox or Zheng as the Red Oceans, and the extraordinary or Qi as the Blue Oceans. To defend against competitors in the industry, one has to focus on either cost leadership or differentiate its offerings. But one should result to the Blue Oceans strategy when one plans to create new value and delivery systen on a new market space. Therefore, instead of pitting one strategy against another, people should keep both options on the table, and skillfully woven them into the effective and new competitive strategy for each initiative based on the unique elements on each targeted market space. The interplay of both strategies, as the Sunzi suggests, will generate an unending series of innovative, surpprising, and wining competitive strategies as seamless as the rolling of the unending circles.


To contact Clifford Cui, please email at: cliffordcui@yahoo.com

Incongruity: Symptom for Innovation Opportunity

By Clifford Cui

It is important that you look for symptom for innovation opportunity before making new effort in fighting a head-to-head battle to take back customers from your competitor(s), or blaming your clients for their irrationality and unfaithfulness. This symptom could very well be incongruity.

In theatrical work, incongruity is a discrepancy, or a dissonance between what is expected and what occurs depending on the structure of a play, and it is often created by the audience’s awareness of a fate in store for the characters that they themselves do not suspect. This scenario has similarities in business. But, here the characters are played by managers, and the audiences are customers. Consumer’s perception of your product is affected by advances in technology, changes in offerings of substitutes to your products, income level, lifestyle, and fad. As the perception shifts, the position of your offerings may not be worth as much to your clients as it was. Reality changed. Customers are aware of it, and they buy less; market reflects it, and it sends out an incongruous signal: a disconnection between what your performance is and what you assume it to be. Sadly, some managers neglect this signal, and keep doing the no-result tasks, and try hard to make things right. However, in theatrical work, incongruity makes audience happy and laugh while in business the negligence of it generates disastrous ending. Indeed, this is the very reason for the failures of many mighty businesses.

Luckily, incongruity also has a positive role: a symptom of opportunity to innovate. Many entrepreneurs seize the opportunity, and take timely measures to turn the slum in sales around, create lucrative new market space, and launch winning new products. In his book “Innovation and Entrepreneurship,” Peter Drucker classifies the incongruity in business as four types. In order to better understand the concept, let’s take a closer look at what the types are, and how we can innovate under each circumstance:

• An incongruity between the economic realities of an industry. For instance, early last century, health care expenses was about 1% of GDP for many countries, and nowadays, it counts about 7 – 11% for GDP for many developed countries; however, the services haven’t improved much, and many people still remain uninsured. The following example is very close to my life. Contrary to high speed data transfer on the Internet, the Internet connection at our neighborhood is slow. Then, RCN comes with a faster and cheaper Internet connection package with cable and telephone service. Families who subscribed told those who did not. RCN becomes the dominant carrier in our neighborhood within a matte of three months.
• An incongruity between the reality of an industry and the assumptions about it. Producers or manager could misconceive the reality, make erroneous assumptions about the market, and direct their efforts to area where results do not exist. During the Second World War, the enormous war time demand helped created large still mills in the United States. When the war is over, the abnormal demand disappears. Industry’s need for steel products is still growing, but the growth incremental. Many managers firmly believes in the size is important in steel making, and cling to the large mill operation. Entrepreneurs in the industry invented mini steel mill which requires less capital to build, cheaper to operate, and more flexible in meeting the incremental demands and the need for various types of steel products. It is the mini steel mills that bring new life to America’s steel industry.
• An incongruity between the efforts of an industry and the values and expectations of its customers. Engineers like the technology they developed. Most people love what they do. However, they must make sure customers also like what they do, and are willing to pay for the features and quality of their products. The rise and decline of Japanese and Swiss watch makers is a typical example of this scenario.
• An internal incongruity within the rhythm or the logic of a process. Some procedures are established. You may have practiced them for decades. However, some procedures, or part(s) of the operation still make you uneasy each time, and the need to improve the process also offers you good opportunity for innovation.

Incongruity is a symptom of changed reality, and the innovation is to discover new approaches to meet with the needs of these changes. But, the innovative solution has to be clearly definable, and feasible with the existing, known technology, and with easily available resources. It must be simple rather than complicated, and practical rather than grandiose. Doing the right things is more important than doing things right.

The author: Clifford Cui, can be reached at cliffordcui@yahoo.com

Innovate through Unexpected Events

By Clifford Cui

One of the rich sources of Innovation is unexpected events: unexpected success and failures in your business, and unexpected external events that may impact your business.

Unexpected success means unexpected surges in demand of your product and services. It could be a sudden increase in sales of a product or line of products at your store(s), unexpected orders from new buyers and distributors, requests for your product from a new market segment for a different usage. It should also include the success of your competitors and suppliers. Such surges may temporarily over burden your current system’s capacity, deviate it from your traditional markets or clients, more so, render conflict with your company’s current mission, goals, strategy, and objectives.

Unexpected failure needs a little more clarification as some of it may result from poor product design, planning, and execution of the marketing plans, or sheer human stupidity. Therefore, unexpected failure here only refers to the failures of thoroughly researched, superbly designed, and well executed launches of products or projects.

Unexpected external events are the major events happened outside your business. Typical examples, as such, could be terrorist blowing up airlines, technology breakthroughs, and product or business model innovations by your competitors.

The unexpected events foretell the fundamental changes in your business or your business environment. They may be changes of customer’s perception of your product or service, innovation or technological advancement in other sectors. Customers are still purchasing your product, but they may be buying it for a different value, purpose or reason. If you can find out the driving force behind these changes, and be innovative in modifying your offerings, business model, marketing technique, or expand your capacity to accommodate the new demands, you will pose a strong position for your company in the future market. For instance, oregionally, Craiglist’s intent wasn’t to build a community-information-and-exchange site for all the U.S. Instead, Craig began using e-mail to let his friends know about cool events taking place around San Francisco. In order to meet with the demand for the information later on, Craig evolved the network into the popular Craigslist site of today.

Unfortunately, in too many organizations, unexpected successes are overlooked as temporary aberrations. But the unexpected failures will never go away unnoticed. Instead of finding out what’s behind the failure, management often gets quick to point finger to whom the responsible person is. A classical example of such failure is the Swiss pharmaceutical company. In 1950s, there appeared a growing demand for treating animals with antibiotic medicine. When the Swiss pharmaceutical company approached the manufactures for veterinary use of the antibiotics, the manufactures thought that applying a new antibiotic to the treatment of animals was a “misuse of a noble medicine,” and refused to reformulate it to serve the veterinary markets. In the end, the Swiss veterinary company obtained licenses for veterinary use without any difficulty and at low cost. Nowadays, veterinary medicine has become a very lucrative market.

Unexpected events are ideal sources for true innovative thinkers. For example, with the onset of aircraft hijackings in the 1960s and the 9/11 terrorist attack, many new companies and security products have mushroomed. Companies with the know-how and technology built metal, weapon, or chemical detectors, risk analysis and critical assets protection methodology, inspection and training programs, as well as software for the analysis and site profiling. IBM is also well-known for its ability in riding the tide. While merrily following its five-year business plan, it discovered that Apple was going to introduce the personal computer. Instead of ignoring the event, IBM “tweaked” its business plan a little and introduce a PC of its own, which became the industry leader.

Therefore, companies should always be on the look-out of meaningful unexpected events, and take them seriously. They should not only analyze such occurring, but also go out, look around, and listen, and also establish a system to strategize and develop products to seize the development opportunities. Constantly asking yourself the following questions might be useful for this searching and decision making process:

• What unexpected product success, failures or unexpected external events have you had recently?
• In which geographic areas have you had these unexpected events recently?
• In which market/industry segments have you experienced unexpected events recently?
• What customer segments have provided unexpected success or failures recently?
• What unexpected success or failures have your suppliers had recently?
• What unexpected success or failures have your competitors had recently?
• Which of your technologies has had unexpected success or failures recently?
• What unexpected customer/user groups have bought from you recently?
• What unexpected sources have asked to sample, distribute, or represent your product recently?
• What would the unexpected events mean to your business if you are going to exploited it?
• Where could it lead your company?
• What would you have to do to convert the unexpected events into an opportunity?
• How do you plan to do about them?
  
  
  Clifford Cui
  To contact the author, please email cliffordcui@yahoo.com