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June 28,2018 Newsletter

Blue Oceans

Blue Oceans

W. Chan Kim and Renee Mauborgne in 2004 wrote about competitive marketplaces coining the terms Red and Blue Oceans. The Red Ocean is the analogy that represents contested markets where there is a constant fight for dominance and where a Blue Ocean represents an uncontested marketplace because it is newly created. Through their research, they identified that the companies that have succeeded over the long term are the ones that have continued to prioritize the creation of new Blue Oceans instead of fighting wars of attrition in trying to maintain a hold of market share. Blackberry is a great example of achieving the Blue Ocean by pairing their cell phones with an e-mail service capability in 1999. For several years, they dominated the mobile market and maintained a stronghold in business sales. The market eventually became saturated with competitors and instead of trying to create a new evolution, they chose to fight for the maintenance of market share leading to their eventual corporate death.

Most MBAs leading organizations will repeat these stories of failing to innovate and continue to fall into similar traps. As organizations grow, their expectations with shareholders, analysts, and executives verbalize innovation but their behaviors stress stability and repeatability. Having a desire to create a foreseeable performance leads to the development of evaluation models that are predictable in nature which directly leads to favoring incremental over disruptive initiatives. Incremental initiatives are easier to predict, they are empirically grounded, and they are easier to recover from if they fail. The disruptive and Blue Ocean initiatives fall into a different category, one of unpredictability. Financial modeling, returns on investment, and customer adoption are all unknowns with proposing a disruptive initiative. The data is poor, the market is yet to be defined, and the risks are significant which leads to organizations inherently guiding back to choosing safer incremental projects. Unfortunately, these incremental gains are only tactical maneuvering to win a battle in a war that will continue for years. The disruptive model is the strategic approach that will lose a handful of battles in sacrifice to win the longer-term war.

Taking a more myopic view, it is very easy for an executive and management team to tell their teams to be more creative, to bring forward disruptive ideas, and to be the beacon of innovation. There are two specific occasions where these plans fail. The first being that the role or responsibility the individuals are in are built for standardization and not for innovation. For example, a pharmacist technician refilling a prescription would not want to be creative when following a standardized procedure but would be encouraged to think of creative opportunities to improve the patient experience.

This would be targeting the creativity to areas more apt for innovation versus providing a generalized notion to be creative. The second occasion where innovation initiatives flop is when those ideas are brought forward and the organization doesn’t have the capability, capacity, or courage to act on those ideas. The innovator is dejected and will have then lost faith in the organization that they will act upon the best ideas.

To read more, find the link to the book, “The Blue Ocean Strategy”

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