Debunking the ‘Top-down’ Model

Debunking the ‘Top-down’ Model

Thirteen years ago, W. Chan Kim and Renée Mauborgne swept the world with a new vision for corporate strategy in the book “Blue Ocean Strategy.” Last y

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Thirteen years ago, W. Chan Kim and Renée Mauborgne swept the world with a new vision for corporate strategy in the book “Blue Ocean Strategy.” Last year, they presented a set of strategic tools in their new book “Blue Ocean Shift: Beyond Competing: Proven Steps to Inspire Confidence and Seize New Growth” to help companies apply the strategy in a changing world.

Chaney Ho, an executive director with industrial automation specialist Advantech Co., and Joseph Huang, president of E.Sun Financial Holding Co., are both fans of the authors and the concept.

Ho says that when the blue ocean strategy was first introduced, he put it into practice by analyzing and revising his company’s strategy.

Ho was looking to compete with China-based EVOC Intelligent Technology, which was founded by a former Advantech employee in China and has received financial support from China’s government. Carefully applying the blue ocean strategic map, he analyzed the differences between Advantech and EVOC and decided to eliminate the company’s advertising budget, allocating the resources instead to strengthen the stability of Advantech’s products and relationships with its big clients. (Read: Advantech Launches Counter Attack from Europe)

Huang said he was particularly impressed by the authors’ emphasis on the need for a humanistic process, or “humanness,” in executing a blue ocean shift.

After speaking with Ho and Huang, CommonWealth Magazine asked Kim and Mauborgne some of the questions that popped up as the two executives applied the strategy to their businesses. Here are excerpts of the conversation.

CommonWealth Magazine: It has been more than 10 years since “Blue Ocean Strategy” was published. Do you think “Blue Ocean Strategy” is still a comprehensive tool for companies nowadays? More than 10 years later, have you revised the theory? If so, why?

W. Chan Kim & Renée Mauborgne: What has happened in the past decade is consistent with our observations about the pattern of value innovation and new market creation. Tech companies have brought significant changes to the financial industry with profound implications for consumers and the society at large.

Yet underlying the creation of a new market and new demand was still value innovation rather than technological innovation or disruption.

Those successful FinTech companies have used new technologies to address the pain points of users caused by traditional financial services and in turn create breakthroughs in value for consumers. Their innovations, therefore, were firmly anchored in value. We should also remember that there were companies that eventually failed despite the bleeding-edge technologies they possessed because they did not offer innovative value to consumers.

This is an important point for traditional financial institutions to appreciate, as once they see new technologies as enabling tools to help them achieve value innovation, they can take an active part in shaping the future outlook of the industry rather than being disrupted by these technologies.

Renée Mauborgne and W. Chan Kim (Source: Blue Ocean Shift Team)

On a more general level, new developments in the past decade have made our theory more relevant than ever before. For most organizations, it is more imperative than before to pursue blue ocean shift. The market today is much more crowded than 10 years ago due to increased participation of global players from emerging economies and the emergence of tools for global communications, transactions and advertising that generally make it faster and easier to become a global player.

The rise of emerging economies and the huge market demand they represent also call on organizations to come up with offerings that are both high-value and affordable to these markets characterized by relatively low per-capita income on the one hand, and increasingly sophisticated consumer tastes on the other.

Moreover, the rising influence and use of social media have shifted the power and credibility of voice from organizations to individuals, making it increasingly impossible for organizations to over-market their me-too offerings.

There has hardly been a time in history when achieving innovative value at lower cost became a pressing need in so many industries, sectors, countries and regions.

CW: According to the book, a blue ocean and red ocean are clearly different concepts. However, companies sometimes feel confused over whether they are situated in a blue or red ocean. Are there signs or indicators you can recommend to help companies identify their situation?

Kim & Mauborgne: When you are in the red ocean, normally you will find yourself trapped in cutthroat competition. Profit margins are declining, downward pressure on price is mounting, and products are getting commoditized in your industry.

In order to evaluate accurately and systematically whether your offerings are in the red ocean, the first blue ocean tool you want to use is the Strategy Canvas – a one-page visual analytical that depicts the way an organization configures its offering to buyers in relation to those of its competitors.

The horizontal axis of the strategy canvas specifies the key factors the industry competes on and invests in; the vertical axis captures the offering level buyers receive or experience for each of an industry’s key competing factors. This tool allows you to draw and compare the strategic profiles of your offering and those of your competitors in a picture; see and understand where you and your competitors are currently investing; the product, service and delivery factors the industry is competing on; and what customers receive from existing competitive offerings.

This exercise pushes you to take a step back from the detail you are typically enmeshed in and clearly see your industry’s defining contours. When the strategic profiles of industry players are converging, the industry is turning into a red ocean of bloody competition. If you are in such a situation, it is time to think about a blue ocean shift.

A second tool you want to use here is the Pioneer-Migrator-Settler (PMS) Map. Pioneers are businesses or offerings that represent value innovations. A value innovator stands apart from the competition by offering a leap in value. Settlers are “me-too’s” that offer value imitation. Migrators represent a value improvement over the competition and may even be best in class but they do not offer innovative value.

While the as-is strategy canvas enables you to evaluate where a particular offering of yours stands in the industry, the PMS Map allows you to plot all your existing offerings on the map and assess the strength of your organization’s portfolio of offerings. When you do the exercise, if you have many “me-too” settlers in your portfolio, making a blue ocean shift is imperative for your company in order to create new momentum for profitable growth in the future. Conversely, if you have quite a few pioneers in the portfolio, they are your blue oceans and the sources of your company’s profitable growth. (Read: Taiwanese Food Makers Choosing Blue Ocean over Red Ocean)

CW: The financial industry tends to be highly regulated. Financial institutions often identify new business opportunities but cannot take advantage of them because of regulations. What can they do when they face such situations?

Kim & Mauborgne: A fundamental principle of the blue ocean approach is to look across existing boundaries of competitions. Indeed regulations in the financial industry are especially heavy. But outside the traditional industry, financial innovations have been happening. The new FinTech sector is rapidly taking shape. Retail companies are offering banking services based on their large consumer networks. These, of course, are themselves the results of reconstruction across market boundaries.

Translated by Luke Sabatier
Edited by Tomas Lin