December 28, 2006
Book Review
By Stuart Morley
Blue Ocean Strategy – How to Create Uncontested Market Space and Make the Competition Irrelevant
Author: Chan Kim and Renee Mauborgne Printed in 2005
Blue Ocean Strategy is based on the finding that that there are no permanently excellent companies or industries. Kim and Mauborgne found that there are some common smart strategic moves which involve creating blue oceans (creating new industries where there are no competitors) versus red oceans (where competition in existing industries is about grabbing a greater share of existing demand)
Cirque du Soleil is one of the examples of success described in the book. Cirque du Soleil is a combination of the circus and theatre industries. The founders realized that the key factors for a successful circus were: the tent, the clowns and the classic acrobatic acts like wheelman and short stunts. They adapted these three elements to make the tents more glamorous, the clowns more sophisticated and the acrobatic element more elegant. Then Cirque du Soleil borrowed from Broadway shows by having a theme and storyline, features multiple productions rather than a traditional “one for all” show. The shows all have an original score and assorted music to drive the visual performance, lighting and timing of the acts. The shows also feature the abstract and spiritual dance used in theater and ballet. In essences these changes allowed Cirque du Soleil to create more sophisticated shows.
The main visual tool the book uses is a Strategy Canvas showing the elements that Cirque du Soleil used that differentiated them significantly from smaller regional circuses. Cirque du Soleil was not just about doing some additional things. It was also about eliminating some elements (like star performers, animal shows, aisle concession sales and multiple show arenas. There were also elements that were reduced like some of the fun and humour as well as some of thrill and danger. To balance this Cirque du Soleil added more uniqueness to the venue plus the unique features of a theme, refined environment, artistic music and dance. The result was to create a demand from customers who would pay a higher price and come to the different shows.
Other less well know examples in the book include [yellow tail] wine produced by Casella Wines. They focused on fun and adventure, ease of selection of the wine ( choice of s white chardonnay or red shiraz), and easy drinking at a higher price than budget wines but less than the price of premium wines. Casella Wines also avoided wine speak (enological terminology), aging and quality factors, vineyard prestige and wine complexity. [yellow tail] avoided above- the- line marketing and focused on giving Australian outback clothing to retail shop employees. Casella borrowed ideas from the beer and ready- to -drink cocktail customers and realized that the elite image of the wine industry did not resonate with the general public.
Many businesses don’t realize how customers make trade-offs across alternative industries. For example NetJets is a fractional jet ownership business that compares the cost of owning and using its jets to the total price of a business class of first class air ticket and associated costs and time associated with using a regular airline. The research showed that the number one reason corporations use commercial airlines is cost. With NetJets the customer gets the convenience of a private jet at the price of a commercial airline ticket. In a cost benefit analysis for four passengers on a trip from Newark to Austin the true total cost of the trip was $19,400 compared to $10,100 for a private jet. NetJets uses smaller planes, smaller regional airports and limited staff to keep costs to a minimum. NetJets now owns more than 500 aircraft, operating more than 250,000 flights to more than 140 countries. The key advantages of NetJets over commercial airlines are the speed of total travel time, ease of checking in, flexibility and reliability and in-flight service. When compared to private jet corporate travel, NetJets offers a lower price, removes the need for customers to manage the aircraft and the deadhead costs.
Kim and Mauborgne found that blue ocean strategies go without a credible challenge for 10- 15 years. This was the case for Cirque du Soleil, Southwest Airlines, Federal Express, The Home Depot, Bloomberg and CNN.
The more legal and resource protection a blue ocean strategy, the more difficult it is to imitate the higher the price level it can command.
In the section on executing a blue ocean strategy, the example of how Bill Bratton, the police commissioner of the New York City Police Department (NYPD) managed to turnaround the mounting crime in New York to make it the safest large city in the United States within 2 years Bratton did this without any increase in budget. He is compared to Jack Welch who needed 10 years and tens of millions of dollars to restructure GE into a powerhouse company.
The trick to Bratton’s success was to focus on the factors or acts that exercise a disproportionately positive influence on breaking the status quo. One of these acts Bratton exploited was to make people see and experience harsh reality first hand. He took the area where the most crime was visible - the New York subway – and he and his senior people rode the subway to find the few spots where the most crime was committed. He did not add more police officers but merely deployed them to the crime hot spots and the crime rate dropped dramatically.
