Wednesday, December 22

Part 1 - Would Nemo Survive Using the Blue Ocean Strategy?

"Blue Ocean Strategy is a bestseller across five continents. It has been published in over 40 languages and sold over 2 million copies (since 2005). " - Source


"Blue Ocean Strategy is a business strategy book first published in 2005 and written by W. Chan Kim and Renée Mauborgne of The Blue Ocean Strategy Institute at INSEAD, one of the top European business schools. The book illustrates the high growth and profits an organization can generate by creating new demand in an uncontested market space, or a "Blue Ocean", than by competing head-to-head with other suppliers for known customers in an existing industry." - Source

"Based on a study of 150 strategic moves spanning more than 100 years (1880 - 2000) and 30 industries, it provides us with
a systematic approach to making the competition irrelevant and creating uncontested market space. " - Source

So, what is Blue Ocean Strategy exactly?

"It is the simultaneous pursuit of differentiation and low-cost to create new market space. Blue Ocean Strategy seeks to make the competition irrelevant by creating a leap in value for both the company and its buyers. Blue Ocean Strategy aligns the following three propositions:
  1. Value proposition
    The utility buyers receive from the product or service minus the price they pay for it.

  2. Profit proposition
    The price of the offering minus the cost of producing and distributing it.

  3. People proposition
    The readiness of employees to execute the new strategy with all of their energy, to the best of their abilities, and voluntarily.
Beyond the alignment of these three propositions, six principles drive the successful formulation and implementation of Blue Ocean Strategy." - Source

Click here to read more and learn about BOS for free.

If the BOS theory still does not make sense, this should nail it:

"Go where profits and growth are – and where the competition isn’t."
- Kim & Mauborgne (PDF)

...And what is the likelihood of that?

In this two part series I will explore Blue Ocean Strategy (BOS), and reflect back on a 2-day BOS workshop I attended a few weeks back (1st - 2nd December) at the UCSI Blue Ocean Strategy Regional Centre. In Part 1, I will zoom in on BOS as a theory and share some insights that might have been overlooked by the authors. In part 2, I will focus on Blue Ocean as a systematic approach to gain insight, innovate and create value, and explore some of the useful tools that we can use to visualize our own Blue Ocean, whatever that might be.

Having read the book twice (first time in 2007), read dozens of related articles, and participated in a 2-day BOS workshop, I believe I am entitled to share my honest opinions regarding this approach next. Though, I might be wrong!


While I kind of like the Blue Ocean idea (Exotically relaxing and hypnotizing!) and most of the BOS visualization tools (explored in Part 2), I kind of find the 'Read Ocean and Blue Ocean Strategy' mambo jumbo (graphic above) and several of the case studies used in the book both misleading and a whole lot of _____ (you guess?)!

The BOS theory has already been around for a few years, and it is NOT short of criticism either, so I am not going to go on a full-blown (reinventing the wheel) shark attack. However, being fair to BOS, it has also rebutted six misconceptions about BOS (PDF) reasonable convincingly.

"Dramatic mix of circus arts and street entertainment." - Source

If you read the Blue Ocean Strategy (BOS) book, or listen to any consultant promoting BOS, they will for sure share with you the ultimate BOS example and pride Cirque du Soleil. No doubt the Cirque du Soleil (founder Guy Laliberté) is an inspiring, innovative and breathtaking story, but is it really a Blue Ocean?

First, Guy Laliberté never used BOS as a tool to innovate and create value. So, although it might be a Blue Ocean, it does not prove that the BOS as a theory is practical and implementable. Secondly, BOS like so many other theories often hijack success stories from a few angles (and hide others), and then absorb them into a portfolio of evidence of whatever they are trying to convince or sell.

Let's look a bit closer at the amazing Cirque du Soleil story, and explore whether it is really a Blue Ocean according to the 'Red Ocean vs Blue Ocean' framework:
  • Break the Value-cost Trade-off?
    The authors would like you to believe that Cirque du Soleil grew out of the traditional circus act and then reinvented it by eliminating performing animals and star performers (cut cost), and shifted the buyer group from children (end-users of the traditional circus) to adults (purchasers of the traditional circus), drawing upon the distinctive strengths of other alternative industries, such as the theatre, Broadway shows and the opera, to offer a totally new set of utilities to more mature and higher spending customers (Source).

    In reality, Guy Laliberté (folk musician, busker and fire breather) never really worked with performing animals or so called star performers, and we could actually argue instead that he reinvented street entertainment by transforming a group of street performers into a "proper circus" (learning the circus act from Guy Caron). He didn't pick up the idea of telling a story from the theatre, but from the Moscow Circus method. His vision was to create a circus with neither a ring nor animals. The rationale was that the lack of both of these things draws the audience more into the performance (Source).

    Ironically, the book never mentions this, and the main reason is probably that these revelations would confuse their 'value-cost trade-off' idea. Yes, Cirque du Soleil enhanced the show value and entertainment as they innovated over the years, but it also made the Cirque du Soleil much more costly than most other street entertainment shows (which are often free, but you are encouraged to donate/give a token of appreciation), and that had nearly catastrophic consequences during the first few years. Did you know that Guy Laliberté or his company went nearly bankrupt several times during the first few years, and if it was not for government grants, his never-say-die attitude, connections, and bit of fortune (luck!) this amazing story would have ended in disaster, and this again was never mentioned in the BOS book. The BOS book gives us an impression as if it was a smooth ride to heaven, and that the BOS was the secret to its success. What baloney!

  • Create Uncontested Market Space?
    Seriously, what does this really mean? How do you create an uncontested market space for adult entertainment? Give us a break! Cirque du Soleil explored, innovated, and has developed (after several financial failures) over the years several amazing and unique shows that consists of a theatrical mix of circus arts and street entertainment. You could have 10 other groups use similar Blue Ocean Strategies and they would have failed, unless they had people like Guy Laliberté to make it happen.

    The idea of creating an uncontested market space is an illusion, unless we simply define it as an uncontested market space, which is easy as the authors have provided no real measure (like so much else!) to prove this. That probably did not make much sense either, but then again the idea of creating an uncontested market space (perhaps on Mars!) in the 21st century, unless for an extremely short period, is highly unlikely. But, we should never stop dreaming. Anything is possible!

  • Make the Competition Irrelevant?
    Very few companies and products throughout history have made competition irrelevant (e.g. Microsoft Office could be an example, but that cost millions, if not billions of dollars in research and development), and if they have made competition irrelevant, it has only been for short periods. But then again, can competition ever be irrelevant? Even the iPhone (Vs Blackberry Vs Android) has relevant competition, although it has been a tremendous success.

    If there is no competition in sight, perhaps the market is not worth embracing anyway. In short, I would argue that there is no harm with contested competition. For example, the iPhone entered a read ocean competitive smart-phone market (which had bad products!), but through its exceptional user experience and iTunes Eco-system it has managed to capture a healthy market share. As for the Cirque du Soleil story, they are not the first acrobatic story show to pop-up. The Chinese dragon show has been around for centuries. Also, Cirque du Soleil will always have relevant competition from other amazing traveling shows and acts (and other forms of adult entertainment!), but as long as their shows are unique, attractive and entertaining, they will amplify their reputation and attract an increasing global demand.

  • Create and Capture New Demand?
    Perhaps on Mars or Pluto (the Moon is more likely)! There is and has always been a demand for new forms of adult entertainment (or ways of being entertained), and Cirque du Soleil has been successful in capturing this universal demand with their amazing shows (not necessarily because of their strategy!).

  • Align the whole system of a firm's activities in pursuit of differentiation and low cost?
    Low cost for whom? The firm? The customer? Both? This idea has confused me until today. When I first read the book, I got the impression that Blue Ocean was about enhancing the customer value and at the same time lowering the product/service cost. But after attending the workshop, and scrutinizing some of the case studies, I get the impression that the lowering cost aspect, refers mostly to the firm, and not necessarily to the customer.

    If we go back to the Cirque du Soleil case, we see a pursuit of differentiation and lower implementation cost if we compare to the traditional circus act. But, that is rather misleading, because we could have and perhaps should have compared it to street performances, which it really originated from. And if we did, it would be differentiation, but at a higher cost. Moreover, had Cirque du Soleil used performing animals and star performers, it would have certainly gone bankrupt, because it nearly went bankrupt without them several times. Though, kudos to Cirque du Soleil for hiring over the years many amazing street performers, and providing them a healthy and stable living income beyond what they would have probably got from performing on the streets.

Having said all this, we could go BLUE arguing whether Cirque du Soleil is really a Blue Ocean or not. No point wasting any more time on this issue, though please challenge me on all accounts (can always update my post).

Having always been attracted to business improvement books, or books that explore creativity and business value innovations (attracted to the stories rather than the formulas!), I see a common trend and pattern in many of the books I have read, which is the manipulation of past and existing success stories to prove their ideas and frameworks for ultimate success. In other words, they will look through their narrow lenses and highlight what fits their theory, and then hide does aspects that do not fit.

The secret to sustained success lies in the marketing strategy (BOS misses this point)! No, it lies in strong ethical practices (BOS misses this point)! No, the secret to success is strategic execution (RIP)! No, it lies in the strategy itself. BOS claims based on its research that the strategic move, and not the company or the industry, is the right unit of analysis for explaining the creation of blue oceans and sustained high performance...bla, bla (p. 10). They are all right in their own lenses.

Though, I would argue that all of the above mentioned ideas, do not really highlight the real essence of companies that have had sustained success over time, which is exceptional leaders working with amazingly talented people. What would Apple today be without Steve Jobs, or Air Asia without Tony Fernandes?

Exceptional leaders have the ability to visualize (ideas), inspire, empower, and attract talented people to work for them, and as importantly they have the ability to continuously attract the world attention needed (or hire people that can!) to make it a sustained success. So, if you want a real strategy that really works, hire exceptional leaders and talented people with the right attitude (to your needs). Even if you don't have a great strategy, these people will most likely do a better job on strategy development than any consultant, or consultancy firm out there.

You are wrong! Maybe, I am!

Although, I find all the exotic buzz words (that can easily be manipulated) and the Red/Blue ocean framework from BOS a load of ____ (the real Blue Ocean!), they do have some interesting tools we can use to acquire useful insights and help us create value innovations. Your results using these tools might not turn out to be real Blue Oceans according to their immeasurable and exotic framework, but nevertheless the tools are worth a try.

So, what about the Nemo puzzle? That will be explored in part 2 (if I can cook up an answer!), and I will also reveal the ultimate secret to success, which is...


Che said...

I read this book few months ago. I just accept the facts as it is, didn't even think about questioning the concept.

Now I doubt if one of my new year resolution will be very effective. Reading certain number of books each month.

Zaid Ali Alsagoff said...

Dear Che,

Thanks for the input :)

Yes, I used to focus on quantity, but over time I have realized the amazing benefits on spending more time reflecting than the actual reading process. It is amazing how fast we forget (and just achieve shallow learning) when we speed read to meet some self-made target resolution :)

In short, I read a lot, but today I also try to question, discuss and reflect what I read more, and that alone I believe has been priceless (Beginning to love that word!) to my learning :)

Thanks and Cheers!

Pascal said...

Dear Zaid,

You've made a wonderful analysis of the Blue Ocean Strategy! I can also recommend the book "The Halo Effect" by Phil Rosenzweig. This books discusses extensively all the errors most business authors make.

Zaid Ali Alsagoff said...

Dear Pascal,

thanks for the positive feedback :)

I will check out the book you recommended.

I am certainly no wiz in business and value innovations, so that one should be worth a read for sure :)

Thanks & Cheers!