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Searching for Blue Ocean Strategies

By Louis Columbus
Sep 23, 2005 5:00 AM PT

We've been having a debate in the graduate-level International Marketing course I am teaching regarding whether or not you can buy your way into entirely new markets through high levels of R & D spending. The knee-jerk reaction is to say the bigger the spending in R & D, the higher the innovation, therefore, entirely new markets get created as a result. What follows is market dominance, and just look at 3M, IBM, Microsoft and other global leaders, my students pointed out. Throw in the Apple iPod and case closed.

Searching for Blue Ocean Strategies

Yet for every example of multi-million to billion-dollar plus investments in R & D, you can just as easily find the R & D spending of smaller firms that created an entirely new segment and essentially obsoleted the competition. Salesforce.com did this in CRM and Microsoft's announced re-organization this week is aimed at precisely this same dynamic: how to intelligently market and sell so entirely new markets get created.

The dynamic of companies in mature industries, like CRM, is to try to outspend each other on innovation and paradoxically drop literally billions of dollars into software to make their applications and themselves easier and simpler to work with, when all that's really needed is a shift in strategy. Siebel's prodigious spending on R & D is a case in point.

Defining Red and Blue Oceans

Looking for research on this dynamic, I found the Harvard Business Review article "Blue Ocean Strategy" by Professors W. Chan Kim and Renee Mauborgne of INSEAD, a world-renowned business school in Fontainebleau, France. The piece squarely addresses this dilemma. I've recently finished reading their book of the same name and it has been invaluable in explaining how existing markets resist rejuvenation through massive spending on R & D on the one hand, and how smaller upstarts create new markets with a fraction of the dollars invested of larger, more entrenched rivals.

Professors Kim and Mauborgne use a red ocean-versus-blue ocean allegory to define the differences in existing versus undiscovered or uncreated markets. They define red oceans as all industries in existence today, where industry boundaries are defined and accepted, and the competitive rules are well understood. In red ocean industries, the authors contend that companies attempt to outperform their rivals in order to grab ever greater share. This competition turns products into commodities and pricing takes a hit. The water gets increasingly red from price wars and the lack of true innovation.

The authors contrast red oceans with blue oceans, or those industries that don't exist yet, often in an unknown market segment where demand is created rather than battled over. Now you might argue, as some of my students do, that you can buy your way into a blue ocean strategy -- and that's where massive R & D budgets come in.

But that's not the point. Blue ocean strategies are made from strategic decisions that re-align a company's resources and create entirely new demand, unpolluted by competition. The chart shown here provides a summary of the differences between red and blue ocean strategies. There is a wealth of lessons in Blue Ocean Strategy, and I've included only the critical elements for purposes of this article's focus on trying to discover trails to blue ocean markets.

Finding 'Trails' to Blue Oceans

When it comes to analytics, many manufacturers I've worked with use them to get a perfect picture of the present just before it slips into the past. In other words, analytics applications -- especially those that rely on templates and a "one size fits all" approach -- are great at snapshots yet cannot tell you what is hidden in the toughest data to decipher of all, which is the rambling text and terabytes of unstructured content.

Layering in the lessons learned from Professors Kim and Mauborgne it becomes clear that analytics in red ocean industries can deliver tactical victories, but entirely new insights into strategies -- radical departures at times from the status quo -- are needed for any company to create a blue ocean strategy, obsoleting their competition in the process.

Trails to blue ocean strategies can be found in the massive amount of unstructured content provided by a company's customers, prospects, channel partners, resellers, service organizations and the many members of a its supply chain. Looking for patterns in unstructured content can show entirely new approaches to using products, alternative approaches to customizing products and services, and suggestions -- all potential trails into a blue ocean strategy.

Google, IBM, Microsoft, and Oracle all have major efforts underway in latent semantic indexing and linguistic analysis efforts as does Attensity, Cymfony and others. What's unique about Attensity is their approach to linguistically mapping content just as you and I did during sixth-grade English. The linguistic modeling that Attensity's applications are based on can cluster, organize and interpret significant amounts of unstructured content rapidly, finding patterns. It's only a matter of time until someone uses this technology to find a blue ocean strategy.

Reflecting on the examples from the book in light of what Attensity's applications can accomplish, one has to wonder if Detroit would have been pre-emptive and acquired all energy-efficient patents, designs and factories globally prior to the onslaught of fuel-efficient and highly reliable Japanese cars. Evidently Nissan, Toyota and others found a blue ocean easily in the pain American car owners felt during the 1970s, a point the authors make. Geoffrey Moore also makes this excellent point in Crossing the Chasm, where he states that being an expert in your customers' pain makes or breaks your company. In that sense, customers' pain is also a trail to an entirely new blue ocean strategy -- their pain is any company's potential gain.

Bottom Line: Blue Ocean Strategy explains why OnDemand is the future of everyman's CRM, and why SAP, in pioneering NetWeaver and true Service Oriented Architectures, is the start of an already over-hyped and rapidly turning red ocean of Web services. Next time you are asked to vote for a product line refresh or not, or approving millions in R & D, think of this book and its lessons learned and consider whether you are just making a red ocean more crimson or navigating to blue oceans.

Louis Columbus, a CRM Buyer columnist, is a former senior analyst with AMR Research. He is the author of several books on making the most of analyst relationships, including Best Practices in Analyst Relations, which can be downloaded for free.

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