Finding the Strategic Sweet Spot

(Ben Peters)

In the HBR article, “Can You Say What Your Strategy Is?”, the author talks about a “Strategic Sweet Spot” which he defines as the ability of a company to meet its customers’ needs “in a way that rivals can’t, given the context in which it competes”. Many companies are unable to find this ‘sweet spot’, however, because of a failure to differentiate themselves from the competitors, or an ill-conceived strategy. If you look at most of the really successful companies in the world today, they have all found a way to uniquely satisfy their customers’ needs by utilizing their core competencies to the fullest advantage. So what is the key for a company to find its “sweet spot”?

An interesting article* I came across provides three simple questions that a business should ask itself in order to identify its strategic “sweet spot”.

1. What is our company best at?
2. What do our customers want/need the most?
3. Where do our competitors struggle?

Many companies try to put themselves into a niche based on an apparent need in the marketplace rather than actually finding their “sweet spot”. A niche and a “sweet spot” are not the same thing, finding a niche is based only on external market factors, while a “sweet spot” is based on both internal factors(e.g.  core competencies and talents) and external factors(e.g. market need, competitors capabilities).

A great example of a company who was able to find a strategic “sweet spot” is Oracle. In the 1990’s the company shifted its focus from its database business towards building web applications. At the time, SAP was the clear leader in enterprise applications and many thought it was unwise to challenge them. Oracle’s CEO knew that the internet was the future of computing, and wisely invested the majority of the company’s resources into building applications that ran on the cloud. Oracle launched its E-business suite in 2000 and it was very successful.

Oracle was able to do find its “sweet spot” because they utilized their core development strengths, were able to forecast a market need for web-based enterprise applications, and saw that their main competitor in the field, SAP, was focused on traditional client-server enterprise applications rather than the cloud.

^*http://bizshifts-trends.com/2015/03/25/find-your-strategic-sweet-spot-its-what-makes-a-business-different-great-companies-always-know-their-sweet-spot/

Communicating and preserving one's strategy as a result

            The readings this week focused on the importance of having a strategy that is able to be communicated concisely to those inside and outside the organization. The reading Can You Say What Your Strategy Is? explored the importance of using a statement that gives a company’s objective, scope and competitive advantage inside and outside organizations. By having a well-understood statement, behaviors of numerous workers can be aligned and their overall actions can make one another’s more effective, allowing the whole operation to function much better. A clear strategy makes it easier for executives to formulate new plans and easier for everyone in an organization to implement it since the strategy can be easily communicated and internalized. This strategy isn’t just what someone should do, but when they should do it and for which market as well and in establishing these a company defines its competitive territory. A strategy should also apply to the product’s marketing with a value proposition that informs the targeted customer why they need what your product does for them and how your firm is the only one that can do that for them.

            Bringing Science to the Art of the Strategy attempts to bring scientific rigor to the process of strategizing by adapting the scientific method to producing novel strategies. Much like the other reading this one emphasized defining the conditions that a product faces, like product segment and pre-conceived notions about a product. This reading, however, added the concept of possibilities or trajectories various plans could take. These do this in order to turn issues into choices so that numerous possible paths can be explored. From there the situation and the conditions necessary for success are clearly defined, which allows possible barriers to be identified so they can be tested prior to implementation and data from those tests can be used to provide a rationale to choose one strategy over another.

            The Ben and Jerry’s Homemade Ice Cream case drove home the danger of not having a strategy. What had started as an ice cream shop in an abandoned gas station grew to a major competitor in the superpremium ice cream market raking in $150 million in annual sales. Ben and Jerry’s did this by differentiating themselves from their competition by only using Vermont natural dairy and by using mix-in components particularly well in their products. Asides from the Vermont natural dairy, there wasn’t much of a strategic objective so the company pursued various actions not completely aligned with their strategy and saw their first year of losses, which meant that they had to bring on Bob Holland to help create organization and strategy.

            With Ben and Jerry’s dilemma in mind, it’s little surprise that they’ve become certified as a Benefits Corporation. Benefits Corporations, or B corps for short, are corporations that work to incorporate social responsibility as a part of their corporate mission and make their business plan beholden to all possible stakeholders instead of just those shareholders as outlined in the Forbes article Why Consider a Benefit Corporation?. By picking a clear strategy that includes this Ben and Jerry’s could work to have a strategy that was both socially responsible while also outlining growth goals to achieve them, which also protects them from criticism from outsiders when they become part of a conglomerate while simultaneously preserving that mission to other influences from said conglomerate that may want to change it.

Blue Ocean Strategy in Wii Gaming

Blue Ocean strategy aims to create “uncontested market space” versus the traditional “competition-based strategic thought” associated with red ocean strategy (e.g. Porter’s Five Forces).

            Where the five forces desires to incorporate strategy techniques into the existing market, blue ocean strategy aims to form an entirely new market. The creation of the Wii gaming console is a prime example of blue ocean strategy put into action. The following aspects of the four action framework, as they relate to the Nintendo Wii gaming console, are highlighted below:

·       Creation. Wii has created exclusivity on Nintendo games. A con of this feature of the blue ocean strategy, with application to this particular case, is that by creating market-differentiation in this manner, it currently seems as though Nintendo and Wii have an unfair relationship. While Ninetendo is unable to create games for any other console, Wii is curtailing it’s opportunities to maximize its profit by not accepting games from other software companies, such as Blizzard and Bethesda.

·       

      Reduction. Wii reduced costs by eradicating features that are typically included in other consoles (i.e. low processor speed).[1]

·       

    Elimination. Typically, this generation of play-station possesses subscription prices to promote online, user-to-user gaming. The Wii has eliminated these subscription costs in their current model. However, this reduces the commonality of multi-player gaming amongst Wii users. It can be argued that by not emerging itself in the competitive market of online-gaming it has limited its profitability.

·       

      Raise. Wii approached the gaming world capitalizing upon the lack of family-friendly game consoles available. 

Based on the current example, it is difficult to determine whether the ocean blue strategy is the appropriate strategic-approach in the case of Nintendo Wii. Though it has proven to be successful in shaping a new market in the field of gaming, it is difficult to determine the future of the firm in its new market.

Perhaps due to limited exposure to blue ocean strategy, I am not yet convinced that this particular approach is indeed risk-minimizing. By delving into new market territory, this creates a lot of pressure on firms to ensure sustainability.

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[1] Osterwalder, Alexander. "Nintendo's Blue Ocean Strategy: Wii." Business Model Alchemist. January 5, 2007. Accessed November 26, 2015. http://businessmodelalchemist.com/blog/2007/01/nintendos-blue-ocean-strategy-wii.html.

Staying Out of the Red

                In “Blue Ocean Strategy,” Kim and Mauborgne define a red ocean as an overcrowded market where business fight with their competitors for the greatest market share. These crowded markets tend to have little profit or growth because the products become commoditized. Instead, businesses should look to define their own markets, “blue oceans,” where competition is irrelevant because the market environment is foreign to existing market titans. Blue oceans are filled with the minority pockets of users who are dissatisfied by the red market. Blue oceans are created by addressing their needs with a more meaningful or more efficient solution. Kim and Mauborgne’s “blue ocean” reminds me of advice that my first teaching assistant at Carnegie Mellon University told our class. Success does not equate to thinking outside the box. The tools necessary to succeed in a market are in the box for a reason. If Coke, Hershey, or Toshiba does something a certain way, there is probably a very good reason that they do things the way that they do. Successful innovation is not the reinvention of the wheel. The wheel is already efficient. Innovation is using the wheel to do new things. In the same manner, innovation, and arguably success, is often the result of adapting the known technology and known methods to a previously unsatisfied or ill-defined market that is devoid of serious competitors. The titans of the red markets will have difficulty invading your new blue market because their switching costs may be too high. Many may not bother attempting to capture the new market because the reallocation of resources would result in a profit loss in the red market that they already control. Reallocating resources could also destabilize their power base and allow their red competitors to steal some of their market share while their attention is focused on the blue market. The undefended market must be captured and defended with high switching costs and constant innovation. Otherwise, small competitors may attempt to steal the market. Nevertheless, the blue ocean strategy works. Apple, Circqu du Soleil, Compaq, HP, and many others have exploited a blue ocean market to supersede the previous generation of red ocean titans. All it takes is a good idea, the moxy to innovate to stay afloat, and the initiative to dive in.

Strategy is Blue Innovation

While reading the Blue Strategy Innovation I could not help but to stop and think about the needs or events that lead the creators of Cirque du Soleil to invent a new industry that redefined circus entertainment.
Though the article does not explain how is new "circus" was created , it helpful to know that when you assess the needs of a current industry you should not confine your thoughts to that industry alone. Case in point, Cirque du Soleil is not limited to just the circus industry, instead it can be seen as a cross over of both the circus and theater  industry, thus creating its own market .  I remember the first Cirque du Soleil show I ever attended, it was more than just a regular family outing, it was an event. The audience dressed a bit more "upscale" that they would at the circus and the reactions of the audience members was more involved, complete with "ohs and ahs".  It was from this experience that I have always considered Cirque du Soleil as its  own separate category of entertainment. My experience coupled with the other attendees have added to the blue strategy argument that the competition should not be used a benchmark.
In a similar blue strategy dynamic, Uber has developed a new market that years ago would not be in existence. Using the two logic pillars behind the blue ocean strategy, Uber has refined the "taxi" service industry.
In understanding the first logic, "it's not about technology innovation" Uber understood that the technology to communicate with a "service" was already in existence, however they also knew that the needs of the customers lied in the  accessibility of a car service without the third party player (taxi company). With a service that considers the customer's experience as one of its most important elements, Uber has made the "feedback" feature a new structure that was not a part of existing taxi companies. As a rider you are able to "rate" your driver as to provide feedback for future drivers.
The second and last logic that Uber has fully grasped in creating their own blue ocean is that " you don't have to venture into distant waters to create blue oceans."  Within the highly competitive  taxi company market, Uber was able to assess the needs of this industry without trying to create a new one. Uber was able to see that the main need of the industry was not the availability of the taxi companies but the intimacy of the experience of the customer.
All in all Uber has refined what the taxi services can do and has created new ways of thinking as it relates to customer experiences, thus this has cause the competitors to "caught up" to Uber, who is consistently reinventing and pushing the limits of the industry. With the creation of a global presence and effecting changes in legislature, Uber is beginning to expand beyond the normal " taxi" industry thus setting themselves apart just like Cirque du Soleil.

Below are some articles that showcases the changes Uber has affected:

Uber and  the city of St. Louis ride sharing  Negotiations

http://www.bizjournals.com/stlouis/news/2015/07/29/heading-into-negotiations-uber-taxi-commission.html

Amber Alert System in Uber Cars

https://newsroom.uber.com/2015/10/amberalerts/


Shenay Jeffrey

Blue Startups and New Niches from Recently Aligned Incentives.

Blue ocean strategy can be described as creating a new market or tapping unmet demand in industries or products that are yet to exist. The creation, or identification, of such an ocean is not limited to new companies, and in fact the emphasis on incumbent player discovery of the blue oceans in this week’s article shows the how taking large organizations onto uncharted waters is profitable. Though an organization may not need deep R&D budgets, it doesn’t hurt.

Though blue ocean strategy is never the norm for large, established organizations, it is more often than not the (unstated) strategy of startup companies, usually from necessity rather than choice. Limited financial and personnel resources preclude new companies from seriously competing. Even in industries with what would be considered moderate barriers to entry are too high for new companies. A common mantra of startups is to create a new niche.

Many ‘Blue Ocean Strategies’ are discussed, but one that I would add is to look for recently aligned incentives across players within an industry. That is, a situation in which traditional value-leakage which has made entrance into a market traditionally unattractive. An example is medical technologies and interventions in the pre-hospital environment in the US.

The causes for the misalignment of incentives are multi-factorial, including the limited training of pre-hospital health providers and the fact that more value will inherently be captured with definitive treatment that is only appropriate in the hospital compared with temporary interventions that can generally only stabilize or triage a patient. But the main reason is payment. Ambulances, assisted living facilities, nursing homes, and long term rehabilitation facilities are only paid by insurance companies and government healthcare based on the number of miles traveled or the number of occupied bed days, not on interventions or on outcomes. (Severity of patient illness is grossly stratified into 3 or 4 groups in nursing homes, but still reimbursed solely on days, not on outcomes.) Therefore, the cost of adding any new technology, no matter how cheap and no matter how much it may improve health outcomes, is greater than the new revenue an ambulance or nursing home will ever recover. Even if a new piece of equipment cost $100 and could save 10 lives a year, an ambulance company has no incentive to buy it.

The municipal ambulances in Madrid, Spain can be seen as a counter-example, as what happens when incentives align. The government is financially responsible for the hospitals, the ambulances, and the care and outcome of the patients—i.e., the Spanish voters. Therefore, the cost of placing innovative techniques and technologies placed in the ambulances needs only to be balanced with the benefits to health outcomes. This is why ultrasound machines were placed on every ambulance in Madrid years ago. The machines had to be specially designed to fit and function in the new environment.

But there is a Blue Ocean opening before us in the US. Over the last decade, health systems have been buying up health verticals, and in so doing now own more than 10% of ambulances in the country. That means that one out of 10 ambulances is operated, either directly or indirectly, by the company that will have to pay for the acuter and long term healthcare of the patient that are being transported. A market is opening before our eyes for devices and other interventions. Intubation tubes, new imaging techniques and diagnostics, and new hyper-early medical treatments which would have found no market 10 years ago now may have a chance. Basically, there is a blue ocean of possibility for anything done in the ambulance that could save healthcare dollars.

Reading the Strategy Between the Lines: Searching for Blue Ocean Markets

In the article “Blue Ocean Strategy,” W. Chan Kim and Renee Mauborgne present a convincing argument that a significant number of the most successful companies possess the unique strategic ability to read between the lines of existing market paradigms. It is argued that organizations that are best able to successfully identify fresh pockets of markets in which new, unoccupied areas of demand exist possess a key advantage enabling them to circumvent traditional competitive forces, dominate market share, provide customers with increased value, and ultimately produce growing profits. These companies direct their finite energies and resources beyond the slow, intensively competitive trench battles of the existing market space, which are dominated by competitors fighting one another to achieve gains in a crowded market. Often, the conditions of existing markets are such that they are overcrowded and subject to inelastic market constraints. Rather than directing the majority of energy and resources to secure small gains in oversaturated areas, these companies instead focus efforts to identify, link, and coherently align their organizational capabilities, creating new, uncontested market spaces. These new market spaces, termed “Blue Ocean Markets” by the authors, allow for an unparalleled position of strategic advantage.

By positioning itself in a newly formed - and malleable - Blue Ocean, the trailblazing organization is equipped with what can be described as a kind of pioneer’s privilege, namely, the level relative autonomy that is necessary for the company to invent and capture new demand. The organization is therefore able to take full advantage of the uncrowded competitive environment of the new market. The characteristically uncrowded conditions of the Blue Ocean also place significant barriers to the entry of outside competitors, meaning that there exists a relatively minute need for the company to defend against threats posed by emerging competitors. Moreover, because of the company’s lead role in tapping into unmet customer needs, thereby creating new market demand outside of traditional areas, the organization also has near-unilateral autonomy in its ability set precedents that define the basics of the new market’s operational framework and corresponding rules of trade that govern its constraints.

This radical shift in competitive perspective has a number of implications, but, to me, what is most interesting is the extent to which Blue Ocean Strategy places emphasis on managerial strategy and decision making in a company’s overall competitive positioning. Traditionally, there has been a heavy emphasis placed on the idea that a company is most successful if it can develop the right product, innovate in the newest way, or somehow be on the cutting edge of research and development work in its field. Instead, the nature of Blue Ocean Strategy is such that the most successful companies aren’t necessarily those that are at the technological forefront, but rather those whose leadership is best able to understand the rules, constraints, and dynamics of the current market in a way that steers the organization’s direction in a manner that links recent advancements with unmet areas of demand and cuts unnecessary costs. This, in itself, reinforces the need for organizations to place significant cultural value on the ability of its leaders to be able to identify trends, synthesize different pieces of information and utilize advances in technology in a manner that increases customer value derived from unmet demand, instead of a sole focus on advancements that increase the organization’s technological edge. Often times, the perception is to lead with the technology, but, as Blue Ocean Strategy demonstrates, it is actually much more advantageous to have leaders who are able to read between the lines of demand.    

Enter at your own risk

It is counterintuitive to think that companies that fail to thrive are hindered by good management rather than by poor management. Generally, when you ask someone why a firm failed, one of the first responses would be to blame the leadership for their lack of skill.

                However, as the introduction to Why Good Companies Fail to Thrive in Fast-Moving Industries points out, good management  can be a burden when dealing with the idea of disruptive technology – innovations that result in worse product performance rather than better performance.  The author states that while good management will want to guide their firm towards items that provide the best returns, it is wise to be situationally minded when determining the best time and methods in which to pursue producing potentially disruptive innovations.  No amount of good management can stave off failure without a proper strategy.

                Ideally, a firm wants to be a leader in sustaining technologies, which make product performance better. During the course of research, the author pointed out that very rarely was a company brought down by investing in sustaining technologies.

                This idea corresponds well with the blue ocean strategy article, which deals with becoming the big fish an uncontested market, rather than fighting tooth and nail in the highly competitive marketplace.  So long as a manager knows how to recognize the best means of harnessing the ideas of disruptive technologies, then countless blue oceans are available for their company to thrive in.

Blue Ocean Strategy limitations

The "Blue Ocean Strategy" is a very interesting concept that allows companies to identify uncontested markets where they can thrive. The idea of countering the trade-off between value and cost by capturing an inexistent market incurring lower costs sounds very appealing. Moreover, first-mover advantage and network externalities make this strategy even more profitable. Identifying these markets is very challenging, however, and there are always risks when moving towards new directions.

There are four very important limitations that can contribute to blue ocean strategy failures:

• Ignoring competition: The article makes a very important point in defining a blue ocean as a market where competition is irrelevant or non-existent. However, companies should be careful of believing that they are offering a unique product or service when this is not true. Making the competition irrelevant does not mean ignoring it. A careful analysis of the competition gives a company much higher confidence that the market it is attempting to capture is not being effectively captured by other competitors. At this point, it is also important to understand that competitors are not only those who offer the same product or services, but rather those that address the same customer needs.
• Drifting too far: A company might be tempted to drift too far from its strengths, values and core capabilities. As we have seen in "The Coherence Premium" article, following market opportunities without recognizing the organization's capabilities is a very risky move. Moreover, as illustrated in the "Discovering New and Emerging Markets" excerpt, companies should be careful not to devote a substantial amount of resources to a market with a lot of uncertainty. Instead of leveraging lots of resources in a certain direction, companies pursuing a blue ocean should be flexible in allocating resources as they acquire a better understanding of the market.
• Reinventing the wheel: Similarly to ignoring the competition, a company that falsely believes it is entering a non-existent market can start developing products or services that are already being offered by other companies. While these companies might not necessarily be competitors, a company should know what is being offered in different markets in order to avoid investing time and resources developing unnecessary products or services.
• Not finding any fish: Sometimes a blue ocean is vacant for a reason. A company might learn after entering a new market that there were not enough customers or resources to maintain a sustainable position. Again, investing an adequate amount of resources and being flexible in their allocation is a way to minimize this risk as market uncertainty is reduced.

As any kind of strategy, companies should not take particular moves as a definite way to success. The marketplace is dynamic and blue oceans might be created everyday. Companies that can leverage these blue oceans effectively, recognizing the risks and limitations, will surely establish a strong position for the future.

References:

• http://www.entrepreneurial-insights.com/understanding-blue-ocean-strategy-strategic-framework/
• http://kraaijenbrink.com/2012/08/four-risks-of-a-blue-ocean-strategy/

Finding the Blue Ocean: a Cluster experience

Have you ever caught yourself thinking of how you could create a new product, discover a new formula or even build something that nobody has ever thought of? We all dream of finding that sweet spot that will place us in a differentiated and competitive place. In my opinion, the authors of The Blue Ocean were inspired in this inter challenge when they strategized over finding a new market and creating a new set of customers. Now, was that completely utopic, or can we in fact reach the blue ocean in all spheres of work?

When I worked for SEBRAE, the Brazilian Services to Support Small Companies, my efforts were towards strategic positioning of clusters through market specialization. We focused on best practices, cluster strengthening and regional development. And yet, did we reach the blue ocean? Most of the times, we were swimming in red and vicious waters.

Seeking the blue ocean, we aimed new markets and structured lines of actions so that the small businesses could access their markets and clients in a more competitive and sustainable way.

As we matured our project and ways to approach the companies to their clients, we felt the need to apply new ways of thinking and be creative towards what our clusters had to offer and the markets they were focused on.

So we used Design Thinking principles as a strategy of speeding up innovation and market access. Clusters needed to: innovate on products and services; change business models; and get to know their clients from a new perspective. In other words, they needed to move towards their blue ocean.

Innovation worked as a catalyst to the new markets and new business models. The Design Thinking applications were used as drivers to accelerate this process by the use of shared tools with customers and clients, integrated business models – a multitask force, co-innovation – multidisciplined teams, and sinergy and cooperation between players.

It was then that we strategically implemented design thinking on our ICT clusters focused on Urban Mobility (Smart City Cluster) and Enterprise Mobility (Smart Enterprise Cluster).

What did we do differently?!

-               The market calls for their needs on services and solutions – what criteria they have on such demand?

-                Market players were directly involved since the beginning – the need to understand their gaps, usability and opportunities

-                Strategy designed based on the market and specialization of the cluster – a living lab environment

 The response came right through. As we reached emerging markets, we were able to evidence innovation on their product portfolio, process and even market approach. It was all a matter of asking questions in a different way and exploring the big picture.

As we were trying to pass on to our companies new ways to find disruptive innovation and grow, we learned that we have to think out-of-the-box in order to find the clear waters of the blue ocean. It is a matter of simplifying things and refining our view of the surroundings.