blue ocean strategy and the transistor radio
DESCRIPTION
A description of the blue ocean strategy canvas is given, as well as an illustrative example from the radio industry.TRANSCRIPT
Christian Sandström holds a PhD from Chalmers University of Technology, Sweden. He writes and speaks about disruptive innovation and technological change.
Is your company in a red or blue ocean?
Count the your number of times you answer ’yes’ to the following questions:
1. Is your company facing heightened competition
from domestic and international rivals?
2. Do your sales people increasingly argue they need to offer deeper and deeper price discounts to
make sales? 3. Are you finding your need
to advertise more to get noticed in the marketplace,
yet the impact of these efforts keeps falling?
4. Is your company focused more on cost cutting,
quality control, and brand management at the expense of growth, innovation, and
brand creation?
5. Do you blame your slow growth on your market?
6. Do you see outsourcing to low cost companies or countries as a principal prerequisite to regain
competitiveness?
7. Are mergers and acquisitions the principal
means your company sees to grow?
8. Is it easier to get funding for efforts to follow your
competitor than it is to get funding for breaking away
from competition? 9. Is commoditization of
offerings a frequent worry of your company? 10. List your key
competitive factors and then those of your
competitors. Are they highly similar?
If you answered ’yes’ to 6-10 out of those questions, you are in a red ocean.
If you answered ’yes’ to 1-5 out of those questions, you are in a blue ocean.
Red Ocean Blue Ocean Compete in existing markets Create a new market
Red Ocean Blue Ocean Compete in existing markets Create a new market Beat the competition Avoid the competition
Red Ocean Blue Ocean Compete in existing markets Create a new market Beat the competition Avoid the competition Exploit existing demands Explore new demands
Red Ocean Blue Ocean Compete in existing markets Create a new market Beat the competition Avoid the competition Exploit existing demands Explore new demands Customer value or low cost Customer value and low cost
Red Ocean Blue Ocean Compete in existing markets Create a new market Beat the competition Avoid the competition Exploit existing demands Explore new demands Customer value or low cost Customer value and low cost Differentiation or low cost Differentiation and low cost
Sounds like yet another management fad, doesn’t it?
The question remains:
What should
we do on Monday?
The Strategy Canvas will help us to find new markets and thereby avoid competition.
Start with mapping up the different performance parameters that matter in your industry.
For example: in the camera industry you’ll find price, image quality, design, compatibility, weight etc.
Try to make an (unbiased) plot of how your company performs along your key
dimensions. And also try to plot where your competitors have positioned themselves.
0
1
2
3
4
5
6
7
8
9
10
Price Factor2
Factor3
Factor4
Factor5
Factor6
Factor7
Our productsCompetitor 1Competitor 2
You will end up with something like this.
Now you have a pretty good idea about what the competitive climate looks like…
If your line intersects with those of your competitors to a large extent - you are in
a red ocean. Eat or be eaten.
Now it’s time to find a way out of that place…
… This is done with the ERIC framework…
ERIC stands for Eliminate, Reduce, Increase and Create.
0
1
2
3
4
5
6
7
8
9
10
Price Factor2
Factor3
Factor4
Factor5
Factor6
Factor7
Our productsCompetitor 1Competitor 2
Basically, you eliminate some performance dimensions, reduce others, increase some and who
knows, maybe create some new ones as well.
By doing so, you do not try to compete with others, you look for ways of avoid competition.
You change the value proposition, and by doing so, you will be able to find new customers, who are not
served yet by the industry.
And thus, you’ll find a blue ocean.
Show us a better example than this one!
We’ll take a look at the
radio industry…
Analogue radios were big and beautiful…
”At the dearest place in Your Home….”
’If You want good sound -
Ask for Radiola’
So, the established Radio companies focused on sound, sound and sound…
Transistor radios, on the other hand, had very different performance dimensions.
They were smaller, cheaper, had a worse sound quality and were portable.
Now let’s compare them by using the strategy canvas.
0
1
2
3
4
5
6
7
8
9
10
Price Design Soundquality
Size Portability
Analogue radiosTransistor radios
This is my (unbiased) interpretation.
Now you have to find some customers…
What about young people, who can’t afford a nice, big and clumsy furniture radio?
They’d love to bring the radio along to the beach.
Home transistor
An ideal, portable, ’second radio’ and for your summer house
What about a radio to have in the car?
A ’travel radio’?
Sony, Grundig and Luxor among others targeted non-consumers and created a huge market!
While the analogue companies were trapped in a red ocean, focusing on sound.
Some estimates suggest that there are 7 billion transistor radios in use today.
This kind of opportunities can be identified when trying to avoid competition, instead of fighting it.
Good luck on Monday!
Sources
W. Chan Kim and Renée Mauborgne, Blue Ocean Strategy, 2005.
Lecture by Bengt Järrehult at Chalmers
2009-02-19
Image attributions
Crocodile photos by Thomas Hordern. Radio and landscape images taken by
Christian Sandström
