To understand how you can create compelling new propositions, you must first truly understand your current proposition.
Most existing marketplaces are “well–defined”. In other words each player who competes in that space understands in detail the customers’ needs, how they have developed over time and the size of the market. What is not always clear is how your proposition differs, or does not really differ, from your immediate competitors or indeed from a group of your immediate competitors. What genuinely makes your product/service stand out?
To help our clients understand this we use a tool called the strategy canvas, which is a graphical representation of your value proposition compared to your competitions. The strategy canvas is a simple 2-dimensional graph that has on the x-axis the “key competitive factors” that relate to your offering. Think of key competitive factors as the real reasons why your customers buy your product. The y-axis represents value, absolute or perceived.
So, put yourself in the position where your MD or CEO asks you to define the 5 or 6 reasons why your core customers buy your product and how important they are. The first is always price and the position on the graph is absolute. The rest are plotted in terms of value from the customers’ perspective. If your product offers a lot of very important or highly desirable features that might be represented on the graph as high value, whilst a competitor’s basic low function device with minimal features would be represented as low value.
You then carry out the same exercise for your competitors’ products and look at the results to see how they compare. Where there are a large number of competitors, you may group them (as referred to in para 2 above) for example into high priced alternatives and budget alternatives. Then ask yourself the question, “Does our offering really stand out – is it really all that different?”
One of the problems with differentiation in an existing mature marketplace is that it is typically a process of providing more value / features for the same price, or providing similar value / features for a lower price. Both of these approaches remove value for you, the provider. Although you might well argue the customer gets a better deal, this approach eats into your current margins.
And that is where the Blue Ocean concept differs, focussing on creating new marketplaces as opposed to continuing to battle on in the red ocean.
One of the biggest challenges facing organisations today is the task of standing out from the crowd; how can they be different – and successful?
Most organisations compete in what are often termed “red oceans”, the analogy being that as they fight to maintain their share of a defined market space, everyone suffers and has to make painful decisions. Hence the ocean is, metaphorically, covered in blood.
The concept of Blue Ocean Strategy as a methodology was developed by Chan Kim and Renée Mauborgne at INSEAD and is the result of 15 years of research. What Kim and Mauborgne did was seek out and learn from what was common to organisations who had successfully redefined their markets and enjoyed the very significant advantages that come from such an approach. Their objective was to work out how such results could be replicated or achieved in a systematic manner.
In the “blue ocean” , companies redefine their markets, creating a space where, for a period of time at least, they can make their competitors irrelevant.
The product or service stands out from the crowd because it satisfies often unperceived needs that no-one else addresses. It will frequently compete based on different factors and even where the factors are common, the offering is still different enough to stand out.
Often discussed in parallel is the concept of value innovation. “Value Innovation” is the identification and implementation of strategic change that delivers real competitive advantage, by simultaneously seeking out reductions in cost and increases in customer value. One of the main challenges put forward against such an aspiration is that you can do one or the other but not both. Experience shows however that you can do both and that when you do, you will operate in a market space that you control; where the competition will struggle to participate, at least in the short to medium term.
Over the next month or two we will post here a series of articles that will cover some of the concepts and tools, based on what we view as the four key stages of the process:
- Current State Analysis;
- Exploration; and
Research suggests that to get the most out of innovation, you must apply very different success criteria. Applying traditional measures such as “rapid ROI” or “rapid growth” can strangle at birth the very seeds of an idea that might provide you with a lifeline in the future. Easily said but in truth not always easily achieved.
When AT&T set up their Worldnet group, who were tasked with developing Internet service offerings, the new team found themselves answering to senior management whose own traditional product sets essentially competed against those being developed by the Worldnet people. For example, voice over the Internet products clashed with the more traditional voice offerings. Not surprisingly there was little desire to sponsor and promote new ideas that would impact the revenues that probably formed a noticeable part of their reward package at the time and by applying the more traditional ROI models they had a sound basis for rejecting the proposals. Almost certainly the message they would have communicated would have focussed on the need to protect existing revenues.
So how do you manage innovation – what should your approach be? Here are three suggestions you may want to consider:
Spread your bets: always have a reasonable number of early stage initiatives on the go which need be no more than ideas with some structure around them which brings out their potential. From this evolving group a number will progress to the next stage where you may for example want to do some testing. Finally there should be a small number of high potential initiatives where most of your budget spend is targeted.
Cut some slack: as mentioned above don’t apply the same success criteria as you would to a project that was launching a new product or reorganising a department. Deviation from plan may not be a bad thing – although make sure everyone understands why. Remember you want people to be creative so don’t stifle their creativity.
Get people engaged: relationships with people outside the immediate team are critical and all too often too much energy is expended on dealing with the critics. Although the sceptics need to be given an opportunity to air their views, once that has been done make it clear that you do not expect any repeat performances. If the initiative goes ahead, make it clear that you require buy-in from all the stakeholders across the group.
Learn from the past: although innovation is all about creating the ideas that secure your future, if you do not learn from what has gone before you will reinvent the mistakes of the past. Review your successes as well as your failures and take key messages forward into the next innovation.
It seems somewhat ironic that the numbers of mergers and acquisitions taking place (not so much during this recent recession but certainly in the lead up to it) continues to increase, yet research still seems to suggest that surprisingly few ever achieve their promised strategic and financial goals. You might well ask why this is. Of course, if there was an easy answer then the problem would no longer exist but the evidence shows that it does.
CGA believes that the real value from any merger is delivered, and can only be delivered, through excellent integration. Yet in many mergers responsibility for delivering integration lies either with people who have other roles as well or does not clearly exist at all. Although due diligence teams will by necessity develop a deep knowledge of the acquired company, they all too often disband after the deal closes and provide little or no handover.
You should ask: Who is responsible for the integration process? Who will ensure that integration deadlines and performance targets are met? Who will set out how operations will be combined and make it happen? Who will educate people about the new world and provide a focal point for the challenging issues that will always arise? The role needed is that of an integration manager/leader whose sole reason for being there is to deliver integration successfully.
This individual will be a highly motivated top achiever and will be known for having delivered complex change programmes successfully. He/she will be able to get to grips with complex situations quickly, relate to many levels of authority. The will be empathetic where appropriate but will not avoid the tough decisions and, perhaps most importantly, will have enough clout to make things happen.
(Why it may be better for you to use a smaller consultancy practice sometimes)
Having worked for one of the largest accountancy practices in the world, let me start of by saying that large consultancy firms do have a hugely important role in helping the free market economy run effectively by providing high quality legal, accountancy and other business related services. They have access to a huge bank of highly trained and skilled individuals and have gained a reputation for providing a quality service that has been earned over a period of many years. Finally, there are a number of transactions that are of such a size and complexity that only the largest consultancy firms would have the resources to meet the needs of their clients adequately.
However, the vast majority of businesses are small to medium sized and the majority of the needs of these businesses are likely to be met more effectively by the business advisory and consultancy firms who would describe themselves as “mid –tier”. The reasons for this are as follows:
- More personalised approach – With smaller consultancy practices you are more likely to work with someone who can closely relate to the unique pressures of running your business as it is quite possible they have faced similar issues themselves. Also, you should get a solution that is tailored to your own specific circumstances because of the time that the smaller consultancy practices are able to devote to their clients.
- Highly skilled teams – Smaller consultancy practices often have people who have trained with the bigger consultancy firms or have worked for large organisations and are able to match the large consultancy firms in terms of knowledge and skills. Quite often the smaller consultancy practices will have an in depth knowledge of a particular business sector or industry class which may well tie in with your business.
- Costs – Large practices carry large overheads and this is reflected in the charge-out rates to clients. Smaller companies will often be able to provide similar services for a fraction of the cost.
In summary, there are areas of the market where big consultancy firms are the right solution for the right business. However, for the majority of small to medium sized businesses, the smaller consultancy / business advisory practices will deliver a service which will meet and often exceed their needs