Playing To Win
Blue Ocean Strategy & Playing to Win
Utility & Compatibility — Mainly
Two weeks ago, I published a piece in this series on the connections between the Jobs to be Done and Playing to Win, and reader responses were strikingly enthusiastic and appreciative. So, I decided to continue with other relevant strategy models out there. Next on the list is Blue Ocean Strategy, which I am discussing in my 24th Year III Playing to Win Practitioner Insights (PTW/PI) piece called Blue Ocean Strategy & Playing to Win: Utility & Compatibility — Mainly. You can find the previous 134 PTW/PI here.
Blue Ocean Strategy
Blue Ocean Strategy (BOS) is an extremely popular strategy framework created by INSEAD professors Chan Kim and Renée Mauborgne (K&M) and made famous with the publication of their 2005 best selling book, Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant.
There is certainly lots to like about the book. Unlike many business books, it is intensely practical. It provides a theory, but also ways for readers to put its theory into action — and many BOS enthusiasts do just that. Another thing that I like is its relentless customer orientation. All of the tools in the book start with the customer. For example, Buyer Utility is the first thinking step in the book’s Strategy Sequence. I believe that all good strategy starts from customers and a desire to serve them distinctively well and BOS doesn’t waver from that North Star. In my view, it is hard to argue that BOS doesn’t deserve the massive success that it has experienced.
Compatibility of BOS with Playing to Win (PTW)
The core thought of BOS, as reflected in the title, is that companies should seek to compete in ‘Blue Oceans’ that they create and are devoid of competition rather than in competitively intense ‘Red Oceans.’ I think that is an important insight and one that is very compatible with PTW.
In the model that I created in the mid-1990s (a decade before the publication of BOS) and have used ever since, I highlighted the importance of the Where-to-Play (WTP) decision in strategy. Strategy is not just about How-to-Win (HTW). WTP is a choice — even though, as K&M point out, many executives don’t think of it as such, and hence dutifully compete in Red Oceans. It is almost as if they think that it’s their moral obligation: i.e., we are a newspaper company, so we must print and distribute news printed on newsprint.
WTP has been part of my (above) Strategic Choice Cascade from its inception and my admonition has always been to seek a WTP that overlaps as little as possible with others.
In my view, the very hardest way to compete is to have same WTP as competitors combined with a similar theory of HTW. That is, to play on the same field with the same intention. BOS calls that situation a Red Ocean and I really like the evocative term. Often that kind of powerful analogy makes a huge difference in adoption. And I agree fully: choosing to compete in a Red Ocean is not a great idea!
The next best alternative is to choose a distinctive HTW in the same WTP. Think about the luxury hotel business. Four Seasons decided to play in the luxury hotel space, against numerous other players. But rather than attempting to compete in that space in the same way as its numerous competitors, Four Seasons chose an entirely different HTW. Rather than attempt to win on the basis of grand architecture and décor combined with obsequious service, as with virtually all its competitors, Four Seasons competed on the basis of a previously unidentified need of frequent business travelers, which was a form of service that made up for what they sadly left at home and at the office.
But I have always argued that the best strategy is to pursue a unique WTP and a HTW that is as distinct as possible from those of competitors in any proximate WTP. In such a WTP/HTW combination, you are barely competing at all, and your customers are inclined to think of you as utterly unique. Of course, this is what BOS calls a Blue Ocean, which they illustrate with Cirque du Soleil. Customers don’t think: “this is a better circus.” They think: “I am not even sure what this is, but it sure is enjoyable and entertaining.”
In this way, BOS and PTW are very compatible. Both K&M and I admonish companies to think really carefully about where they choose to play, whether it is called a distinctive WTP/HTW or a Blue Ocean.
Distinctive Utility to PTW
Over and above the compatibility, I think that BOS provides distinctive utility with its ‘ERRC’ model, which posits the four ways to create a new form of value for customers: 1) Eliminate attributes that buyers no longer value; 2) Reduce over-delivery beyond which customers don’t value; 3) Raise value in areas that have distinctive appeal to buyers; and/or 4) Create new value that would attract new customers to the market.
I like this model and think it has distinctive utility because one of the very hardest tasks in strategy, regardless of the WTP, is to come up with a compelling HTW. Most strategies fail because they have either no theory of HTW or a very weak one. As a result, the company ends up merely playing instead of truly attempting to win. To me, ERRC is a valuable search mechanism for finding a compelling PTW.
I like search mechanisms of this sort. It is one thing to admonish someone to achieve a particular outcome. It is a much more valuable thing to give them tools for pursuing that outcome. I did that (along with colleague Jennifer Riel) in Creating Great Choices. We provided three search vectors for finding an integrative solution to an apparent either/or choice. We received plenty of feedback from readers that this was an important advance over the admonishment to find an integrative solution that I provided a decade earlier in The Opposable Mind.
In this way, BOS, and in particular the ERRC model, is of utility to PTW as a search mechanism for finding a compelling HTW.
Incompatibility with PTW
One thing about BOS is fundamentally incompatible with PTW, and that is its dismissal of the notion that a company should choose to be either a cost leader or a differentiator, an idea first put forward by Michael E Porter (MEP) in his 1980 classic Competitive Strategy. To K&M, MEP’s admonition is specious. Instead, companies should think about both cost and value together.
Honestly, I don’t know why everybody feels the compulsion to take shots at MEP. It seems almost obligatory for all writers who want to see themselves in the category of ‘leading management thinker.’
I will never forget when a wannabe management thinker enthusiastically pointed out to me the (supposed) stupidity of MEP’s (supposed) strategy admonition to find a structurally attractive industry and then just sit in and exploit it permanently. I asked her where she had read such a thing in MEP’s work or maybe in what speech she heard him declare it. She was taken aback because I was expected to join in enthusiastically in bashing MEP. She tried to dodge my question and steer into other territories, but I persisted. In due course, she had to admit that she had never read or heard MEP stating any such thing — which of course I knew in advance because MEP never said anything remotely close to her description.
But not to worry, she assured me. She had been told this critique by yet another ‘leading management thinker,’ which of course meant it had to be true! And that made immediate sense to me because the person to whom she referred is not any sort of expert on MEP, or in fact a rigorous management thinker of any sort. But both needed to do the obligatory thing and attack MEP for stuff he neither believes nor has written or spoken about.
In any event, K&M had to follow suit and criticize MEP’s view and assert that it is wrong to think about low cost versus differentiation. Instead a company needs to work on both the cost and price/value side of what is generally characterized as the value equation.
I simultaneously agree and disagree with their point of view (and I assume MEP would too, if asked). I agree that it is absolutely true that a company needs to work on both sides of the value equation. My friend AG Lafley declared that unequivocally when he became CEO of P&G in 2000. Its costs had gotten out of line and its differentiation wasn’t as strong as it needed to be. And he worked on both — very successfully. In full agreement with AG, I have always argued that the key to competitive advantage is to have a bigger differential between your costs and the value you deliver — as reflected in the price — than any competitor.
But that agreement with K&M doesn’t obviate the need to unambiguously act as either a cost leader or a differentiator. A company needs that strategic clarity. And that was not something lost on AG. He knew and was absolutely clear that P&G was a differentiator. Having that clarity is critical because a company always needs to know how it will proceed when it wants to press its advantage or when it is attacked competitively. Will it invest to reinforce its cost advantage to make sure competitors can’t beat it on that front? Or will it protect its differentiation? You simply have to be clear on that or you will die, which is happening across tech even as we speak. It is as important as that. AG turned around a lagging P&G by working on both sides of its value equation — but without leaving one iota of confusion across the organization about what P&G was, is, and will be: one of the world’s greatest differentiators.
I would argue that if you take a BOS view and successfully create a Blue Ocean, in due course, competitors will come after it. That has even happened with key BOS example, Cirque du Soleil. When competition does so, the company must respond competitively. And if a company isn’t sure and get confused at the point of attack — perhaps because they take BOS to heart that they shouldn’t think about low cost versus differentiation — they won’t know how to respond. When its profitability and stock price plummeted in mid-2000 and the board fired its CEO for the first time in P&G’s then 163-year history, P&G could have been confused about what it was. But, thanks in large part to AG’s leadership, it wasn’t and it became a resurgent differentiator.
MEP was and continues to be right that you have to decide whether you are going to compete as a cost leader or a differentiator — and, simultaneously, be one that works on both sides of its value equation — regardless of what those who wish they were as influential as is MEP may think.
As with Jobs to be Done (JTBD) and PTW, there is a lot of compatibility between BOS and PTW. Both encourage uniqueness in WTP and HTW. Both encourage working on both the cost and value sides of the value equation. Both encourage a strong customer orientation in strategy. Over and above that, BOS provides a helpful search mechanism — the ERRC model — for finding a distinctive HTW. Overall, it makes a real contribution that any strategy practitioner can utilize.
Just ignore the gratuitous shot at MEP. It is not needed for an excellent contribution. Worse, it is can unhelpfully blind you in critical ways that threaten to make you more vulnerable when others take note of your lovely Blue Ocean and join the party!