The four-action model is to create a new customer value curve. A company driven by internal forces
^ Four Action Model
To reconstruct the customer value elements when working on a new value curve, we created Four Action Model . As shown in Figure 2-2, in order to break down the trade-off between differentiation and low cost and create a new value curve, four key questions need to be answered regarding the industry's inherent strategic logic and business model:
What factors that the industry takes for granted should be abolish ?
What factors should significantly reduce
What factors should significantly increase compared to current industry standards?
Which factors never before proposed by the industry should be create
?
^ FIGURE 2-2
Four action model
First question makes you think about abandoning the factors that have long been the subject of competition in your industry. Often these factors are taken for granted, even though they may no longer have any value, or even reduce it altogether. Most often, buyers begin to value completely different factors, but companies that are equal to benchmarking, they do not react to it in any way, and sometimes they do not notice the changes.
^ Second question results in finding out which products or services are being overcomplicated in the pursuit of beating the competition. In such a situation, companies begin to provide customers with redundant services, thereby increasing their costs, but without getting any return from this.
^ Third question, forces you to identify and get rid of the compromises that your industry forces consumers to make.
Fourth question helps to discover completely new sources of value for buyers, create new demand and change the strategic pricing system accepted in the industry
By answering the first two questions (about elimination and reduction), you can understand how it is possible to reduce costs compared to competitors. In the course of our research, it turned out that cases when managers methodically deal with the elimination and reduction of factors that are the subject of competition in this industry are very rare. The result is rising costs and complex business models. The second, two questions, on the contrary, help to understand how you can add value to the buyer and create new demand.
Together, they allow you to methodically figure out how you can reverse-engineer customer value elements in alternative industries, offering completely new opportunities while maintaining a low cost structure. competition factors. Abolition and creation force companies to independently change factors, thereby depriving them of relevance. existing rules competition
By applying the Four Actions model to your industry's strategy canvas, you gain a whole new perspective on old conventional wisdom. In the case of the US wine industry, by thinking in terms of these four actions, going against industry logic and paying attention to alternatives and non-customers, Casella Wines created a wine (Yellow Tail) with a strategic profile that was unrivaled. A blue ocean was created, instead of offering wine as wine, Casella Wines created a party drink that catered for everyone - beer drinkers, cocktail drinkers, and non-wine drinkers. In two years, the fun party drink, , has become the fastest growing brand in the history of the Australian and American wine industry, as well as the main wine imported into the US, overtaking French and Italian wines in the process. By August 2003 it was most a popular red wine in the United States in 750 ml bottles, which was sold more actively than Californian varieties. By mid-2003, the average sales were 4.5 million bottles per year. The world market was oversaturated with wine, but producers could hardly keep up with the demand.
Moreover, where big wine companies have invested in marketing for decades, creating big brands, with one jump ahead of its reputable competitors, doing without any advertising company in the media and without consumer advertising He did not steal sales from his competitors - he expanded the market, brought to the wine market those who previously drank not wine, but beer and ready-made cocktails. Moreover, beginners - consumers of table wines began to drink wine more often, lovers of the cheapest wine also caught up with them, and those who drank expensive wines descended from the heights to become consumers.
Figure 2-3 shows how these four actions led to an exit from competition engulfing the US wine industry. Here we can graphically compare the blue ocean strategy with over 1600 wineries competing in USA. As shown in Figure 2-3, the value curve is different from the others. Casella Wines took all four steps - eliminated, downgraded, upgraded and created - and eventually opened up an uncompetitive market space that changed the face of the US wine industry in two years.
^ FIGURE 2-3
Strategy canvas
By focusing on alternatives—beer and ready-made cocktails—and also thinking about non-customers, Casella Wines has created three new factors in the US wine industry—ease of drinking, ease of choice, and fun and entertainment—and discarded or reduced all others. Casella Wines found that many Americans didn't drink wine due to its complex flavor being rather difficult to get used to. Beer and ready-made cocktails, for example, were much sweeter and easier to drink. Therefore, it is a completely new combination of wine characteristics, forming an uncomplicated taste that has appealed to many consumers of alcoholic beverages. Like ready-made cocktails and beer, the wine tastes good and has a clear, uncomplicated aftertaste with pronounced fruity notes. The sweet fruity taste of the wine refreshes the palate, making the drinker skip another glass without hesitation. There was a wine that was easy to drink, and in order to appreciate it, no special expertise is required.
In addition to simple fruity sweetness, manufacturers have significantly reduced or eliminated all the factors that were the subject of competition in the wine industry - tannins, oaky flavor, richness of taste, ripeness - while creating a quality drink, both inexpensive and premium. When the need for wine aging was no longer needed, the working capital involved for this became unnecessary, which made it possible to accelerate the payback of the wine produced. Wine producers have criticized the sweet, fruity flavor, believing that it reduces the quality of the wine to a great extent and prevents people from appreciating good grapes and the ancient craftsmanship of winemakers. Perhaps this is so, but it was to the taste of all consumers.
Wine retailers in the United States offered stacks of different types of wine to customers, but the mass consumer was confused and depressed by such a wide choice. The bottles were similar to each other, the texts on the labels abounded in oenological terms understandable only to connoisseurs or collectors, and the choice was so excessive that the sellers retail stores experienced no less difficulty when they tried to figure it out themselves or recommend wine to bewildered potential buyers. In addition, the sight of the rows of bottles was tiring and demotivating for customers, making it difficult to choose and making the average buyer feel insecure about the results.
By creating simplicity of choice, he changed the whole picture. Casella Wines has significantly reduced the number of wines offered and created only two types: Chardonnay, the most popular white wine in the US, and Shiraz, a red one. Technical jargon has been banished from the bottles and replaced by a catchy, simple, unconventional label featuring a bright yellow-orange kangaroo on a black background. The boxes containing the bottles were painted in the same bright colors with a large inscription on the sides. They performed a dual function - they attracted attention and demonstrated the availability and simplicity of wine.
All records for ease of wine selection. In short, recommending just became fun.
Simplicity, expressed in the offer at first only two varieties of wine - red and white - and determined the business model of Casella Wines. The shortening of the storage period in the warehouse led to an increase in turnover and a reduction in the cost of storage equipment. Manufacturers violated all existing rules in the industry. Casella Wines was the first to bottle white and red wine in identically shaped bottles, a practice that made it even easier to produce and purchase, and as a result, displaying wine in stores became astonishingly simple.
The wine industry around the world proudly advertised wine as a refined drink with a long history and tradition. This has been reflected in the target market in the United States: educated professionals with above-average incomes. In this regard, the best approach was to mention the quality and history of the winery, the historical traditions of the castle or estate, as well as listing the awards awarded to the wine. Of course, the growth strategies owned by the largest enterprises the US wine industry were targeted at the upper end of the market; tens of millions of dollars have been invested in brand advertising to maintain this image. However, after turning their attention to consumers of beer and ready-to-drink cocktails, the producers found that this elite image did not affect the general public in any way, but only confused them. Therefore, Casella Wines broke with tradition and created something that has absorbed the weight of Australian culture: courage, ease, fun and adventure. Accessibility was like a mantra: "The essence of a great country...Australia", Australia did not have a traditional wine-producing image. The absence of capital letters in the name, coupled with bright colors and the image of a kangaroo, was an echo of the motives of this Country. And the winery was not indicated on the bottles. The producers promised that the wine would jump out of the glass like an Australian kangaroo.
As a result, a vast layer of consumers of alcoholic beverages was to the taste. By offering such a jump in value, producers have raised the price of their wines, overpriced and priced the bottle at $6.99, more than double the price of the cheapest wines. Since July 2001, when this wine first appeared on the shelves of retail stores, sales have grown unceasingly.
^
Eliminate-reduce-raise-create lattice
There is a third tool that is key to creating blue oceans - the grid. "abolish-reduce-raise-create
»
(See Figure 2-4). It serves to further develop the four-action model by forcing companies not only to ask all four questions, but to take action on all four of them. concrete steps
to create a new value curve. By encouraging companies to fill the grid with actions to eliminate and reduce, as well as to increase and create factors, the system immediately provides companies with four benefits:
Forces both differentiation and low cost at the same time, violating the value-cost trade-off.
Instantly identifies companies that are only upscaling and building, driving up their costs and often overcomplicating products and services - a common occurrence in many organizations.
Managers of any level easily understand this system and are actively involved in the process of its implementation.
^ FIGURE 2-4
Eliminate-reduce-raise-create lattice:
| Abolish | Boost |
| Oenological terminology and features | Relatively inexpensive price wines |
| Exposure quality | Participation of retail stores |
| Indirect Marketing | |
| reduce | Create |
| Richness of taste | Ease of use |
| Selection of wine names | Ease of choice |
| Winery prestige | Fun and adventure spirit |
* Filling in the grid means for a company to scrutinize every factor on which it competes in the industry, looking for the assumptions they have made unconsciously in the process of competing.
Figure 2-5 depicts the Eliminate-Reduce-New-Increase-Create grid for Cirque du Soleil. We can once again see this tool in action and demonstrate what can be discovered with it. It should be recalled here that many of the competitive factors in the industry, for which, for a long time, the struggle was waged, could be painlessly abolished or reduced. In the case of Cirque du Soleil, several features of traditional circuses have been eliminated, such as acts involving animals, inviting circus stars and simultaneous shows in several arenas. In the traditional circus industry, these factors have long been taken for granted, and no one has tried to question their relevance. However, performances with animals caused increasing public discontent. Moreover, rooms with animals are among the most expensive - after all, it is necessary not only to purchase an animal, but also to pay for its training, medical care, maintenance, insurance and transportation.
^ FIGURE 2-5
Eliminate-reduce-increase-create grid: Cirque du Soleil
| Abolish | reduce |
| Star Invitation | Fun and humor |
| Numbers with animals | Excitement and danger |
| Letting and renting retail space | |
| Simultaneous show in several arenas | |
| Boost | Create |
| The uniqueness of the performance venue | subject |
| Refined environment |
|
| Variety of productions |
|
| Music and dance of a different type |
Similarly, although the circus industry was aimed at inviting stars, in the eyes of the public, these so-called circus stars were commonplace, and were no comparison to movie stars. Again, this factor demanded considerable expenses, and had very little effect on the audience. Gone are the simultaneous performances in three arenas. At them, the audience began to get nervous, now and then, looking from one arena to another, in addition, such performances required a larger number of speakers, which also directly affected the costs.
^
Three Characteristics of a Good Strategy
Cassela Wines, like Cirque du Soleil, has created a unique, exceptional value curve that opens up a blue ocean for them. As shown in the strategy canvas, the value curve has a certain focus, the company does not disperse efforts across all key factors competition.
^ FIGURE 2-6
Southwest Airlines Strategy Canvas
Her value curve about chasing from the performance of other players - this is the result of the fact that the company did not equal its competitors, but instead considered alternative options. Motto the strategy is clear, a funny, artless wine that you can drink with pleasure at least every day.
An effective blue ocean strategy, when mapped through a value curve like strategy , exhibits three additional qualities; focus, divergence, attractive motto. Without these qualities, a company's strategy can become confusing, unclear, and difficult to promote in the presence of high costs. All four steps taken to create a new value curve should be constantly directed towards ensuring that the company's resulting strategy has such characteristics. These three qualities serve as a litmus test for testing the commercial viability of blue ocean ideas.
Let's take a look at Southwest Airlines' strategy to understand how these three qualities, through value innovation, emphasize the company's effective strategy for reshaping the short-haul airline industry (see Figure 2-6). Southwest Airlines has created a blue ocean by saving customers from painful choices between the speed of air transport, on the one hand, and the economy and flexibility of travel by car, on the other. To do this, Southwest offered its customers high-speed transportation that departs frequently, with flexible schedules and prices that are very attractive to many consumers. By eliminating and de-emphasizing some of the factors of competition in the air transport industry and increasing the importance of others, as well as creating new factors taken from the alternative industry - road transport - Southwest Airlines was able to provide those who fly with unprecedented utility and create a value leap through business - low cost models.
On the strategy canvas, Southwest Airlines' value curve differs markedly from that of its competitors. The company's strategy is typical example an attractive blue ocean strategy.
Focus
Every good strategy has a focus, and the strategy profile or value curve should clearly indicate its presence. Looking at Southwest's strategy, we can immediately see that the company focuses on just three factors: friendly service, speed, and frequent direct flights. By focusing on these three areas, Southwest has been able to offer prices that are competitive even compared to the cost of car travel; the company did not make unnecessary investments in food, waiting rooms and places of various classes. In contrast, its traditional competitors invest in all the factors that compete in the industry, and therefore it is much more difficult for them to offer prices at the same level as Southwest. By investing in all factors in a row, these companies make their actions dependent on the steps of competitors. The result is business models with high costs.
Divergence
If a company builds its strategy in a reactive way, reacting to the actions of its competitors, then its strategy loses all its uniqueness. This is evidenced by the similarity of food served in all aircraft, or the same type of waiting rooms for business class passengers. Therefore, reactive strategies tend to have the same profile on the strategy canvas. The value curves of Southwest's competitors are almost identical, and therefore can be displayed on the same curve on the strategy canvas.
In contrast, the value curves of companies with blue ocean strategies are never the same. Through four actions—eliminate, reduce, promote, and create—they make their strategies stand out from the industry average. Thus, Southwest became a pioneer in the field of direct flights between small cities, before in the industry such routes passed through transfer hubs.
^
Attractive motto
A good strategy always has a clear and compelling slogan “Airplane speed for the price of a car ride – anytime.” This is what Southwest Airlines' main slogan looks like – or could look like. What could the company's competitors have to say? Even the most experienced advertising agencies would be unlikely to be able to make something attractive from the usual combination of food, seat class selection, lounges and flight connections with standard service, not the most high speeds and cheap rates. A good slogan must not only convey a clear message, but must contain truthful advertising of what is being offered, otherwise consumers will lose confidence and interest in the company. In fact, to assess the effectiveness and strength of the strategy, it is enough to see if it has a convincing and true motto.
As shown in Figure 2-7, Cirque du Soleil's strategic profile also meets the three defining criteria of a blue ocean strategy: focus, divergence, and motto. Cirque du Soleil's strategy canvas allows you to compare a graphical representation of its strategic profile with that of its major competitors. The canvas clearly shows how Cirque du Soleil has deviated from the traditional logic of the circus industry. The figure shows that the value curve of Ringling Bros, and Barnum & Bailey in general, is very similar to that of smaller regional circuses. The main difference is that the supply of regional circuses is lower for each competitive factor due to their limited resources.
^ FIGURE 2-7
Cirque du Soleil Strategy Canvas
But Cirque du Soleil's value curve stands apart. It introduced such new, non-circus factors as the theme, variety of productions, sophisticated interior and music and dances of a different type. These factors, completely unconventional for the circus industry, are borrowed from the alternative entertainment industry - the theater. In this sense, the strategy canvas clearly reflects the traditional factors influencing competition in the industry, as well as the new factors that have led to the creation of a new market space that has changed the industry's strategy canvas.
Cirque du Soleil and Southwest Airlines have created blue oceans in a wide variety of business and industry contexts. At the same time, their strategic profiles are distinguished by the same three main characteristics, focus, divergence and motto. These three criteria guide the remodeling process that companies undertake to dramatically increase value for both consumers and themselves.
^
Deciphering the Value Curve
The strategy canvas allows companies to see the future from the present. To do this, the company must learn to decipher the value curve. Industry value curves contain a wealth of strategic knowledge about the current state of affairs and the future of the business.
^
blue ocean strategy
The first question that the value curve answers is, is the business doomed to succeed? When a company's or its competitors' value curve meets the three criteria for a good blue ocean strategy - focus, divergence, and motto - it means the company is on track. the right way. These three criteria serve as a kind of litmus test to determine the commercial viability of blue ocean ideas.
On the other hand, when a company's value curve lacks focus, its cost structure is likely to be high and its implementation and implementation business model complex. Without divergence, the company's strategy will be formulaic and will not stand out in any way. If there is no compelling slogan that communicates something to consumers, it means that the company is driven by internal forces or is a classic example of innovation for the sake of innovation without good commercial potential and chances to naturally outperform competitors.
^
A company stuck in a scarlet ocean
When a company's value curve matches that of its competitors, it means the company is most likely stuck in a scarlet ocean of ruthless competition. Explicit or implicit company strategy reflects the desire to outperform competitors in terms of cost or quality. This signals sluggish growth, unless the company, by a happy coincidence, is benefiting from an industry that is itself growing. In this case, the growth of the company is no longer due to its strategy, but to luck.
^
Over-offering with no return
When a company's value curve on the strategy canvas shows high values for all factors, the question arises: does the company's market share or profitability match the size of the investment? If not, then the strategy canvas is signaling that the company may be overprotective of its customers, offering them too much of what adds incremental value to customers. In order to conduct value innovation, a company must decide which factors it should eliminate and reduce—not just boost and create—so that its value curve differs from the rest.
^
Incoherent strategy
When a company's value curve is spaghetti-like and jumps up and down without any rhythm or reason, and the offer can be described as "lower-higher-lower-lower-higher-lower-higher", this signals that The company does not have a coherent strategy. Probably her strategy is based on unrelated sub-strategies. Perhaps individually they make sense and help to run a business by keeping people busy, but taken together they do nothing to make the company different from its main competitor and do not provide a clear strategic vision. Often this is a sign of functional or structural problems in the organization.
^
Strategic contradictions
Are there any contradictions in the strategy? There are areas in which the company offers a high level of one of the factors of competition, but does not pay attention to others that support it. For example, a company invests heavily in making its website easy to use, but fails to correct for slow page loading speeds. Strategic conflicts can also exist between your offer and price levels. For example, a gas station company found itself offering “less but more expensive”—fewer services than a major competitor but at a higher price. high prices. Not surprisingly, the company's market share has been declining rapidly.
^
A company driven by internal forces
What terms does the company use to describe competitive and industry factors when drawing a strategy canvas? Does she use the word "megahertz" instead of "speed" or "thermal water temperature" instead of "hot water"? Are the factors of competition expressed in terms that the buyer understands and can appreciate, or is it used in professional jargon? The language used in drawing up the strategy canvas makes it possible to understand whether the strategic vision of the company is formulated taking into account the perspective “outside”, determined by demand, or based on the view “from the inside”, i.e., based on the activities of the company itself. An analysis of the language of the strategy canvas shows how far it is from generating demand in the industry.
The model tools presented here are important analysis tools that will be used in the book and beyond. Additional tools will be added as needed. It is the combination of these analytical methods and six principles for creating and implementing a blue ocean strategy allows companies to move away from competition and open up new, untapped market space.
Now let's move on to the first principle - the reconstruction of the market boundaries. In the next chapter, we will discuss ways to increase opportunities and reduce risks in creating blue oceans.
^ PART TWO
Wine retailers in the United States offered stacks of different types of wine to customers, but the mass consumer was confused and depressed by such a wide choice. The bottles looked alike, the labels were full of oenological terms that only connoisseurs or collectors could understand, and the choice was so overwhelming that retailers had no less difficulty trying to sort it out themselves or recommend the wine to bewildered potential buyers. In addition, the sight of the rows of bottles was tiring and demotivating for customers, making it difficult to choose and making the average buyer feel insecure about the results.
By creating simplicity of choice, he changed the whole picture. Casella Wines has significantly reduced the number of wines offered and created only two types: chardonnay, the most popular white wine in the US, and shiraz, a red one. Technical jargon has been banished from the bottles and replaced by a catchy, simple, unconventional label featuring a bright yellow-orange kangaroo on a black background. The boxes containing the bottles were painted in the same bright colors with a large inscription on the sides. They performed a dual function: they attracted attention and demonstrated the availability and simplicity of wine.
Wine broke all records for ease of choice when its producers made retail shop assistants "ambassadors" of their brand, dressing them in Bushman hats and windbreakers, which are popular in outback areas of Australia. Inspired by branded outfits, as well as wine that did not puzzle them, sellers right and left advised to buy. In short, recommending just became fun.
Simplicity, expressed in the offer at first only two varieties of wine - red and white - and determined the business model of Casella Wines. The shortening of the storage period in the warehouse led to an increase in turnover and a reduction in the cost of storage equipment. Manufacturers violated all existing rules in the industry. Casella Wines was the first to bottle white and red wine in identically shaped bottles, a practice that made it even easier to produce and purchase, and as a result, displaying wine in stores became astonishingly simple.
The wine industry around the world proudly advertised wine as a refined drink with a long history and tradition. This has been reflected in the target market in the United States: educated professionals with above-average incomes. In this regard, the best approach was to mention the quality and history of the winery, the historical traditions of the castle or estate, as well as listing the awards awarded to the wine. Of course, the growth strategies owned by the largest members of the US wine industry were aimed at the upper end of the market; tens of millions of dollars have been invested in brand advertising to maintain this image. However, after turning their attention to consumers of beer and ready-to-drink cocktails, the producers found that this elite image did not affect the general public in any way, but only confused them. Therefore, Casella Wines broke with tradition and created something that has absorbed all the characteristics of Australian culture: courage, ease, fun and adventure. Accessibility was like a mantra: "The essence of a great country ... Australia." Australia did not have a traditional winemaking image. The absence of capital letters in the name, coupled with bright colors and the image of a kangaroo, was an echo of the motifs of this country. And the winery was not indicated on the bottles. The producers promised that the wine would jump out of the glass like an Australian kangaroo.
As a result, a vast layer of consumers of alcoholic beverages was to the taste. By offering this jump in value, producers raised the price of their wines above the budget price and priced the bottle at $6.99, more than double the price of the cheapest wines. Since July 2001, when this wine first appeared on the shelves of retail stores, sales have grown unceasingly.
Eliminate-reduce-raise-create grid
There is a third tool that is key to creating blue oceans - the grid. abolish - reduce - increase - create(Fig. 2.4). It serves to further develop the four-action model, forcing companies not only to ask all four questions, but also to take action in all four areas. concrete steps to create a new value curve. By encouraging companies to fill the grid with actions to eliminate and decrease, as well as to increase and create factors, the system immediately provides companies with four benefits:
- forces to achieve both differentiation and low costs at the same time, violating the "value - costs" compromise;
– Instantly identifies companies that are only upscaling and building, driving up their costs and often overcomplicating products and services – a common occurrence in many organizations
– managers of any level easily understand this system and are actively involved in the process of its implementation;
To fill in the grid means for a company to scrutinize every factor on which the industry competes, looking for the assumptions they make unconsciously in the process of competition.
Rice. 2.4. Lattice "eliminate - reduce - increase - create":
Rice. 2.5. Eliminate - Reduce - Increase - Create Grid: Cirque du Soleil
On fig. Figure 2.5 depicts the eliminate-lower-raise-create grid for Cirque du Soleil. We can once again see this tool in action and demonstrate what can be discovered with it. Here it should be recalled that many of the competitive factors of the industry, which have been fought for a long time, could be painlessly abolished or reduced.
Three Characteristics of a Good Strategy
Casella Wines, like Cirque du Soleil, has created a unique, exceptional value curve that opens up a blue ocean to it. As shown in the strategy canvas, the value curve has a certain focus; the company does not spread its efforts across all key competitive factors. Her value curve is different from the performance of other players - this is the result of the fact that the company did not become equal to competitors, but instead considered alternative options. Motto strategy is clear: a fun, artless wine that you can enjoy drinking every day.
An effective blue ocean strategy, when mapped across a value curve like strategy , exhibits three complementary qualities: focus, divergence, and a compelling slogan. Without these qualities, a company's strategy can become confusing, unclear, and difficult to promote when costs are high. All four steps taken to create a new value curve should be constantly directed towards ensuring that the company's resulting strategy has such characteristics. These three qualities serve as a litmus test for testing the commercial viability of blue ocean ideas.
Rice. 2.6. Southwest Airlines Strategy Canvas
Let's take a look at Southwest Airlines' strategy to see how these three qualities, through value innovation, emphasize an effective strategy for reshaping the short haul airline industry (Figure 2.6). Southwest Airlines has created a blue ocean by relieving customers of the agonizing choice between the speed of air travel on the one hand and the economy and flexibility of driving on the other. To do this, Southwest offered its customers high-speed transportation that departs frequently, with flexible schedules and prices that are very attractive to many consumers. By eliminating and de-emphasizing some competitive factors in the air transport industry and increasing the importance of others, and by creating new factors drawn from the alternative industry of road transport, Southwest Airlines has been able to provide air travelers with unprecedented utility and create a value leap through its business model. with low costs.
On the strategy canvas, Southwest Airlines' value curve differs markedly from that of its competitors. The company's strategy is a typical example of an attractive blue ocean strategy.
Focus
Every good strategy has a focus, and the strategy profile or value curve should clearly indicate its presence. Looking at Southwest's strategy, we can immediately see that the company focuses on just three factors: friendly service, speed, and frequent direct flights. By focusing on these three areas, Southwest has been able to offer prices that are competitive even compared to the cost of car travel; the company did not make unnecessary investments in food, waiting rooms and places of various classes. In contrast, its traditional competitors invest in all the factors that compete in the industry, and therefore it is much more difficult for them to offer prices at the same level as Southwest. By investing in all factors in a row, these companies make their actions dependent on the steps of competitors. The result is high-cost business models.
Divergence
If a company builds its strategy in a reactive way, reacting to the actions of competitors, then its strategy loses all its uniqueness. This is evidenced by the similarity of food served in all aircraft, or the same type of waiting rooms for business class passengers. Therefore, on the strategy canvas, reactive strategies tend to have the same profile. The value curves of Southwest's competitors are nearly identical, and therefore can be mapped onto the same curve's strategy canvas.
In contrast, the value curves of companies with blue ocean strategies are never the same. Through four actions—eliminate, reduce, promote, and create—they make their strategies stand out from the industry average. Thus, Southwest became a pioneer in the field of direct flights between small cities; before in the industry, such routes passed through transfer hubs.
Attractive motto
A good strategy always has a clear and attractive motto. "Airplane speed for the price of a car ride - anytime." This is – or could look like – the main slogan of Southwest Airlines. What could the company's competitors say here? Even the most experienced advertising agencies would be unlikely to be able to make something attractive from the usual combination of food, seat class selection, lounges and flight connections with standard service, not the highest speeds and expensive fares. A good slogan must not only convey a clear message, but must also contain truthful advertising of what is being offered, otherwise consumers will lose confidence and interest in the company. In fact, to assess the effectiveness and strength of the strategy, it is enough to look at whether it has a convincing and true motto.
As shown in fig. 2.7, Cirque du Soleil's strategic profile also meets the three defining criteria of a blue ocean strategy: focus, divergence, and motto. Cirque du Soleil's strategy canvas allows you to compare a graphical representation of its strategic profile with that of its major competitors. The canvas clearly shows how Cirque du Soleil deviates from the traditional logic of the circus industry. The figure shows that the value curve of Ringling Bros. and Barnum & Bailey are generally very similar to the curve of smaller regional circuses. The main difference is that the supply of regional circuses is lower for each competitive factor due to their limited resources.
Rice. 2.7. Cirque du Soleil Strategy Canvas
But Cirque du Soleil's value curve stands apart. It introduced such new, non-circus factors as the theme, variety of productions, sophisticated interior and music and dances of a different type. These factors, completely unconventional for the circus industry, are borrowed from the alternative entertainment industry - the theater. In this sense, the strategy canvas clearly reflects the traditional factors influencing competition in the industry, as well as the new factors that have led to the creation of a new market space that has changed the industry's strategy canvas.
, Cirque du Soleil and Southwest Airlines have created blue oceans in a wide variety of business and industry contexts. At the same time, their strategic profiles are distinguished by the same three main characteristics: focus, divergence and motto. These three criteria guide the process of reconstruction that companies are undertaking. To dramatically increase value for both consumers and ourselves.
Deciphering the Value Curve
The strategy canvas allows companies to see the future from the present. To do this, the company must learn to decipher the value curve. Industry value curves contain a wealth of strategic knowledge about the current state of affairs and the future of the business.
blue ocean strategy
The first question that the value curve answers is, is the business doomed to succeed? When the value curve of a company or its competitors meets the three criteria of a good blue ocean strategy—focus, divergence, and motto—it means the company is on the right track. These three criteria serve as a kind of litmus test to determine the commercial viability of blue ocean ideas.
On the other hand, when a company's value curve lacks focus, its cost structure is likely to be high and its implementation and implementation business model complex. Without divergence, the company's strategy will be formulaic and will not stand out in any way. If there is no compelling slogan that communicates something to consumers, it means that the company is driven by internal forces or is a classic example of innovation for the sake of innovation without good commercial potential and chances to naturally outperform competitors.
A company stuck in a scarlet ocean
When a company's value curve matches that of its competitors, it means the company is most likely stuck in a scarlet ocean of ruthless competition. Explicit or implicit company strategy reflects the desire to outperform competitors in terms of cost or quality. This signals sluggish growth, unless the company happens to be benefiting from an industry that is itself growing. In this case, the growth of the company is no longer due to its strategy, but to luck.
Over-offering with no return
When a company's value curve on the strategy canvas shows high values for all factors, the question arises: does the company's market share or profitability match the size of the investment? If not, then the strategy canvas is signaling that the company may be overprotective of its customers, offering them too much of what adds incremental value to customers. To conduct value innovation, a company must decide which factors it needs to eliminate and reduce—not just boost and create—so that its value curve differs from the rest.
Incoherent strategy
When a company's value curve is spaghetti-like and jumps up and down without any rhythm or reason, and the offer can be described as "lower-higher-lower-lower-lower-higher", this signals that the The company does not have a coherent strategy. It is likely that her strategy is based on unrelated sub-strategies. Perhaps individually they make sense and help to run a business by keeping people busy, but taken together they do nothing to make the company different from its main competitor and do not provide a clear strategic vision. Often this is a sign of functional or structural problems in the organization.
Strategic contradictions
Are there any contradictions in the strategy? There are areas in which the company offers a high level of one of the factors of competition, but does not pay attention to others that support it. For example, a company invests heavily in making its site easy to use, but fails to correct for slow page loading speeds. Strategic conflicts can also exist between your offer and price levels. For example, a gas station company found itself offering “less but more expensive”—fewer services than a major competitor but at higher prices. Not surprisingly, the company's market share has been declining rapidly.
A company driven by internal forces
What terms does the company use to describe the competitive factors in the industry when it draws its strategy canvas? Does she use the word "megahertz" instead of "speed" or "thermal water temperature" instead of "hot water"? Are the factors of competition expressed in terms that the buyer understands and can appreciate, or is it used in professional jargon? The language used in drawing up the strategy canvas makes it possible to understand whether the strategic vision of the company is formulated taking into account the perspective “outside”, determined by demand, or based on the view “from the inside”, that is, based on the activities of the company itself. An analysis of the language of the strategy canvas shows how far it is from generating demand in the industry.
The model tools presented here are important analysis tools that will be used in the book and beyond. As needed, we will add additional tools to them. It is the combination of these analytical methods and the six principles for creating and implementing a blue ocean strategy that allows companies to move away from competition and open up new, untapped market space.
Now let's move on to the first principle - the reconstruction of the market boundaries. In the next chapter, we will discuss ways to increase opportunities and reduce risks in creating blue oceans.
Part two
Creating a blue ocean strategy
Chapter 3
Reconstruction of the market boundaries
The first principle of the blue ocean strategy is to reconstruct the boundaries of the market in order to break out of the world of competition and create a blue ocean. This principle aims to minimize the search risk that many companies face. The difficulty lies in successfully singling out commercially viable blue ocean opportunities from the mass of available options. This is a major challenge, because managers cannot afford to be like riverboat gamblers and bet on strategy using only their own intuition and relying on chance.
In the course of our research, we sought to find out whether there are typical patterns for reconstructing the boundaries of the market in order to create a blue ocean. If they exist, we would like to explore whether they apply in all industries - from consumer and industrial goods to finance and services, telecommunications and information technologies, pharmaceuticals and b2b - or they are tied to specific industries.
We have been able to find clear patterns in the creation of blue oceans. To be precise, we have found six main approaches to reconstructing the boundaries of markets. We called it a model six ways. These pathways apply across all industries and put companies on the road to commercial success. profitable ideas blue oceans. None of these paths require any special vision or ability to see into the future. All of them are based on looking at existing data in such a way as to see new perspective.
These paths challenge six basic assumptions that underlie the strategies of so many companies. These six assumptions, on which most companies are likely to base their strategies, keep companies from breaking free from the red oceans of competition. More specifically, companies typically do the following:
– proceed from the same definition of their industry, make every effort to become the first in it;
– View their industry through the prism of generally accepted strategic groups (example - luxury cars, economy models, family cars) and strive to stand out in their strategic group;
– focus on the same group of customers, whether they are buyers (in the office equipment industry), users (in the clothing industry) or “influencers” (in the pharmaceutical industry);
– equally define the range of products and services offered by their industry;
- take as given the orientation towards the functional or emotional appeal of the product, accepted in their industry;
- when developing a strategy, they focus on the same time period - often on current threats from competitors.
The more firms trust this conventional wisdom about how they compete, the more similar their methods become.
To break out of the red oceans, companies need to break down the conventional boundaries that define accepted ways to compete. Instead of operating within these boundaries, managers should constantly look beyond them, creating blue oceans. They need to consider all possible alternatives available among other industries, strategic groups, consumer groups, additionally offered goods and services, functional-emotional industry orientations. Even time should not be an exception in this sense. This approach allows the company to better understand how to change market realities and discover blue oceans. Let's see what each of these six paths are.
Way one. Consider alternative industries
AT broad sense words companies compete not only with other companies within their own industry, but also with companies operating in other industries that produce alternative products and services. There are always more alternatives than substitutes. Products or services that have different appearance, but performing the same functions (or giving the same results), are usually substitutes each other.
For example, to get your finances in order, you can buy and install a package financial programs, hire a certified accountant, or just use pencil and paper. Programs, accountant and pencil are substitutes for each other. They are very different from each other, but they perform the same function: they help people manage their own finances.
In contrast, products or services may look different and perform different functions while serving the same purpose. Take, for example, cinemas and restaurants. They have few common features, and the function of restaurants is quite definite: they are designed to satisfy the need for gourmet food and communication. This purpose is very different from the visual entertainment offered by cinemas. However, despite various forms and the functions of restaurants and cinemas, people still visit both for the same purpose: to have a good evening. Restaurant and cinema are not substitutes, but alternatives for selection.
Whenever making a purchase decision, the buyer silently weighs (though sometimes unconsciously) all available alternatives. Do you want to spend two hours at your leisure? What can be done for this? Go to the cinema, see a massage therapist or sit in a coffee shop with your favorite book? Both individual buyers and buyers of goods industrial use the same intuitive-thinking process goes on in the head.
There is a third tool that is key to creating blue oceans - the grid. "eliminate-reduce-raise-create"(See Figure 2-4). It serves to further develop the four-action model, forcing companies not only to ask all four questions, but also to take action in all four areas. specific steps to create a new value curve. By encouraging companies to fill the grid with actions to eliminate and decrease, as well as to increase and create factors, the system immediately provides companies with four benefits:
Forces both differentiation and low cost at the same time, violating the value-cost trade-off.
Instantly identifies companies that are only upscaling and building, driving up their costs and often overcomplicating products and services - a common occurrence in many organizations
Managers of any level easily understand this system and are actively involved in the process of its implementation.
Filling in the grid means for the company to scrutinize every factor that competes in this industry, identify the assumptions that they have made unconsciously in the process of competition.
Figure 2-4
Eliminate-reduce-raise-create lattice:
Figure 2-5 depicts the eliminate-reduce-increase-create grid for Cirque du Soleil. We can once again see this tool in action and demonstrate what can be discovered with it. Here it should be recalled that many of the competitive factors of the industry, which have been fought for a long time, could be painlessly abolished or reduced. In the case of Cirque du Soleil, several of the souls of traditional circuses have been eliminated, such as acts involving animals, inviting circus stars and simultaneous shows in several arenas. In the traditional circus industry, these factors have long been taken for granted, and no one has tried to question their relevance. However, performances with animals caused increasing public discontent. Moreover, rooms with animals are among the most expensive - after all, it is necessary not only to purchase an animal, but also to pay for its training, medical care, maintenance, insurance and transportation. Similarly, although the circus industry was aimed at inviting stars, in the eyes of the public, these so-called circus stars were commonplace and were no match for movie stars. Again, this factor demanded considerable expenses, and had very little effect on the audience. Gone are the simultaneous performances in three arenas. At them, the audience began to get nervous, now and then looking from one arena to another, in addition, such performances required a larger number of speakers, which also directly affected the costs.
Figure 2-5
Eliminate-reduce-raise-create lattice:
Three Characteristics of a Good Strategy
Cassela Wines, like Cirque du Soleil, has created a unique, exceptional value curve that opens up a blue ocean for them. As shown in the strategy canvas, the value curve has a certain focus, the company does not spread its efforts across all key competitive factors. Her value curve is different from the indicators of other players - this is the result Togo, that the company did not become equal to competitors, but instead considered alternative options. Motto the strategy is clear, a funny, artless wine that you can drink with pleasure at least every day.
An effective blue ocean strategy, when mapped across a value curve like strategy , exhibits three complementary qualities: focus, divergence, and a compelling slogan. Without these qualities, a company's strategy can become confusing, unclear, and difficult to promote when costs are high. All four steps taken to create a new value curve should be constantly directed towards ensuring that the resulting company strategy has these characteristics. These three qualities serve as a litmus test for testing the commercial viability of blue ocean ideas.
Let's look at Southwest Airlines' strategy to see how these three attributes, through value innovation, emphasize an effective strategy for reshaping the short haul airline industry (see Figure 2-6). Southwest Airlines has created a blue ocean by relieving customers of the agonizing choice between the speed of air travel on the one hand and the economy and flexibility of traveling by car on the other. To do this, Southwest offered its customers high-speed transportation that departs frequently, on flexible schedules, and has prices that are very attractive to many consumers. By removing and de-emphasizing some competitive factors in the air transport industry and increasing the importance of others, and by creating new factors drawn from the alternative industry of motor transportation, Southwest Airlines has been able to provide air travelers with unprecedented utility and create a value leap through its business model. with low costs.
Figure 2-6
On the strategic canvas, Southwest Airlines' value curve differs markedly from that of its competitors. The company's strategy is a typical example of an attractive blue ocean strategy.
Focus
Every good strategy has a focus, and the strategy profile or value curve should clearly indicate its presence. Looking at Southwest's strategy, we can immediately see that the company focuses on just three factors: friendly service, speed, and frequent direct flights. Focusing on these three areas. Southwest has managed to set prices that are competitive even compared to the cost of car travel; the company did not make unnecessary investments in food, waiting rooms and places of various classes. In contrast, its traditional competitors invest in all the factors that compete in the industry, and therefore it is much more difficult for them to offer prices at the same level as Southwest. By investing in all factors in a row, these companies make their actions dependent on the steps of competitors. The result is high-cost business models.
Divergence
If a company builds its strategy in a reactive way, reacting to the actions of its competitors, then its strategy loses all its uniqueness. This is evidenced by the similarity of food served in all aircraft, or the same type of waiting rooms for business class passengers. Therefore, reactive strategies tend to have the same profile on the strategy canvas. The value curves of Southwest's competitors are almost identical, and therefore can be displayed on the same curve on the strategy canvas.
In contrast, the value curves of companies with blue ocean strategies are never the same. Through four actions—eliminate, reduce, promote, and create—they make their strategies stand out from the industry average. Thus, Southwest became a pioneer in the field of direct flights between small cities, before in the industry such routes passed through transfer hubs.
Attractive motto
A good strategy always has a clear and compelling slogan, “Airplane speed for the price of a car ride—anytime.” This is, or could be, the slogan of Southwest Airlines. What could the company's competitors say here? Even the most experienced advertising agencies would be unlikely to be able to make something attractive from the usual combination of food, seat class selection, lounges and flight connections with standard service, not the fastest speeds and expensive fares A good slogan should not only convey a clear message, but contain a truthful advertising what is offered - otherwise, consumers will lose confidence and interest in the company. In fact, to assess the effectiveness and strength of the strategy, it is enough to look at whether it has a convincing and true motto.
As shown in Figure 2-7, Cirque du Soleil's strategic profile also meets the three defining criteria of a blue ocean strategy: focus, divergence, and motto. Cirque du Soleil's strategy canvas allows you to compare a graphical representation of its strategic profile with that of its major competitors. The canvas clearly shows how Cirque du Soleil has deviated from the traditional logic of the circus industry. The figure shows that the value curve of Ringling Bros, and Barnum & Bailey as a whole is very similar to the curve of smaller regional circuses. The main difference is that the supply of regional circuses is lower for each competitive factor due to their limited resources.
Figure 2-7
But Cirque du Soleil's value curve stands apart. It introduced such new, non-circus factors as the theme, variety of productions, sophisticated interior and music and dances of a different type. These factors, completely unconventional for the circus industry, are borrowed from the alternative entertainment industry - the theater. In this sense, the strategy canvas clearly reflects the traditional factors influencing competition in the industry, as well as the new factors that have led to the creation of a new market space that has changed the industry's strategy canvas.
Cirque du Soleil and Southwest Airlines have created blue oceans in a wide variety of business and industry contexts. At the same time, their strategic profiles are distinguished by the same three main characteristics, focus, divergence and motto. These three criteria guide the remodeling process that companies undertake to dramatically increase value for both consumers and themselves.
Deciphering the Value Curve
The strategy canvas allows companies to see the future from the present. To do this, the company must learn to decipher the value curve. Industry value curves contain a wealth of strategic knowledge about the current state of affairs and the future of the business.
blue ocean strategy
The first question that the value curve answers is, is the business doomed to succeed? When the value curve of a company or its competitors meets the three criteria of a good blue ocean strategy—focus, divergence, and motto—it means the company is on the right track. These three criteria serve as a kind of litmus test to determine the commercial viability of blue ocean ideas.
On the other hand, when a company's value curve lacks focus, its cost structure is likely to be high and its implementation and implementation business model complex. Without divergence, the company's strategy will be formulaic and will not stand out in any way. If there is no compelling slogan that communicates something to consumers, it means that the company is driven by internal forces or is a classic example of innovation for the sake of innovation without good commercial potential and chances to naturally outperform competitors.
