How To Choose A Strategy (A.K.A Salmons Or Sharks?)

Choosing a strategy is undoubtedly one of the most important decisions that any organization takes and it is made arduous by the forces that determine good and evil in the industry. In this blog post, I intend to briefly examine 4 strategies and how to stray away from the trodden path to determine your own fate. Let me dive right in to the 4 types.

A. Low-cost leadership strategy

This particular type of strategy is known to all and focuses on primarily ensuring the lowest cost of goods sold. This is mostly viable for small to medium businesses, but it is equally used largely by big companies. For eg: in India, we see a large competition between telecom companies like Vodafone, Airtel, Tata Indicom, Reliance, Idea, etc, reducing the price of calls to 1paise/second. Imagine calling people at 0.02cents a second!

B. Differentiation strategy

This type of strategy aims at ensuring that customers look at your company differently from other companies. The best example of this that is easily understandable to everyone is Apple. Apple products like iPod, iPhone, iPad, and MacBook have created a niche for the company that is truly their own.

C. Customer-relationship centric strategy

This type of strategy is the most pleasing one to the common man since it creates a scenario where the organization is focused on the customer. This is employed by fewer companies in the manufacturing industries and more by service oriented organizations. This is self-evident, but I would like to point out the retail shops Dick’s Sporting Goods. Every time, I go to a store in America, I am met by emptiness and lack of service. However, Dick’s makes sure that I am met by a guy who points me to where I want to go.

D. Network externalities strategy

This type of strategy is the least accessible to the common man, but is the most obvious to the geeks out there. Every user of this service needs other users to use the service. Skype used network externality to the extreme similar to AT&T in the early era of telecommunications and ensured that their business is backed by the enormous customer base that they have. Network externalities ensure fewer new entrants and give the incumbent the advantage.

Blue Oceans And Red Oceans

I propose two options for you today:

i. Stay on the same path that everyone has been following since time immemorial?

ii. Beat your own path, do your own thing and make your own destiny?

Which one would you take? What are Blue Oceans? What are Red Oceans?

Red oceans are the environments that you see around you that have always been there. Blue oceans are the ones that you make for yourselves. In my opinion, true success and large money lies in the for-profit sector in innovation. For everyone who has downloaded music illegally, Napster is a household name. Napster made a new market where none was earlier available. Many other companies like Facebook, Google, and Tata (Nano) found crevices, nooks and niches while other companies were too busy fighting in the open market. These are the organizations that really make a difference in the world. The trick is to find the perfect rapport of low cost, innovation, and buyer value. Would you rather be a salmon in the old sea or a shark in the new sea?

Citations

1. “Types Of Strategy – Which Fits Your Business?” – Excerpted from “Strategy: Create and Implement the Best Strategy for your Business”

2. “Blue Ocean Strategy” – W. Chan Kim, Renee Mauborgne

New Businesses Swim in Blue Oceans

I like the concepts introduced by "Blue Ocean Strategy." It's among the best articles we've studied so far.

The authors took an abstract concept and made it engaging to read by peppering in numerous examples of some of the most-successful "Blue Ocean" moments in business history (Model T, Cirque du Soleil and AMC). These strategies would translate well to small business entrepreneurs trying to break into an existing industry. If they can carve out new territory, it could save a small businessperson the typical troubles of a slow start with little to no profits.

A good local example is the Kobold Watch Co. Owner Michael Kobold founded the company in 1998. It's one of the few American watch-making companies, which means he entered an industry at an unattractive time. He's a "new entrant," the technologies for making the high-end, high-performance watches but he has pioneered a new value market that is attractive to celebrities, adventurers and other wealthy clients looking for a watch that can withstand sub-zero temperatures on Mt. Everest or undersea exploration.

Here's the story: http://www.pittsburghlive.com/x/pittsburghtrib/business/s_702482.html

Kobold had a Blue Ocean strategy that paid off. His high-quality watches and careful marketing to celebs made the worldwide competition irrelevant. It seems like it would be difficult for other new entrants to imitate. The high cost of the watches is a bit of a departure from the Blue Ocean model, but it seems to be appropriate to the brand and the technical expertise required to build the watches. Does it still qualify as a "Blue Ocean?" I think so.

I think the Blue Ocean strategy could serve as an excellent way to start a business plan for a new business or nonprofit. Envisioning how a new company could play to an un- or under-served market would be an excellent way to begin enticing investors to support the emerging business. It would serve as an immediate sign of innovation and confidence in the produce or service. Would venture capitalists essentially only be interested in companies with a blue ocean strategy? Particularly given the high profit potential of blue ocean concepts as opposed to the red ocean fighting among competitors.