Make Your Competition Irrelevant
There are many lessons to be learned from the book "Blue Ocean Strategy."
June 18, 2008
My dad is a rocket scientist. Seriously, and at 80 years of age he's still a very sharp-thinking guy. He's also a passionate gardener who, as he says, must spend at least $80 a weekend at the garden center or it feels like someone took the seatbelts out of his car.
He told us about this great book he was reading, but it was taking him forever to finish. The problem he faced was that it kept inspiring him with so many ideas. "I am one-third of the way into the book and I have written myself over a hundred notes," he explained.
He hooked us on his next statement. "It tells you how to make your competition irrelevant." Since then, I bought the book and I have read it. I have sent copies to friends and customers. This book does not disappoint. The title is "Blue Ocean Strategy: How to Create Uncontested Market Space And Make the Competition Irrelevant" by W. Chan Kim and Renee' Mauborgne, published by Harvard Business School Press.
Blue Ocean principles can be woven into our horticulture industry. Why? Because frankly, we need it. We need to diversify. We need to develop uncontested market space where our competition is irrelevant. The largest channels for our products are squeezing too much fun and too much of the profit out what was once a healthy, vigorous industry.
What we are experiencing now in horticulture is what Kim and Mauborgne would call a red ocean market. We have more competition, increasing costs, downward price pressures, terms pressures and increasing similarities in products and services. We need a roadmap to move us into blue oceans, where the competition becomes irrelevant, where vigor and healthy profits arise.
Consider this: Kim and Mauborgne studied the launches of 108 companies. Of them, 86 percent were line extensions into existing red ocean markets. The remaining 14 percent were aimed at creating blue oceans. This little 14 percent blue ocean side generated 38 percent of the total revenues and a whopping 68 percent of the total profits of all the initiatives! While this does not show the hit rate of the initiatives, the blue water is more profitable globally than the red water. Significantly so.
I once met a grower in Texas who said that if we drive down any street in the United States today, about one house in nine will have a flower garden. If something changed to make it two houses in nine, the industry as it is today could not support the growth! When our industry does well, we all do well.
Blue Versus Red
A blue ocean is a market with one successful player. A red ocean is a market with many players fighting for known market share, facing increasing costs, reductions in price, more difficult terms and fewer and fewer differences between products. Red oceans use strategies that we are all familiar with: SWOTs, acquisitions, alliances and special deals. Interestingly, a lot of military strategy is applied to red oceans. You hear terms and phrases like Cola Wars, predatory pricing, sales reps on the front lines and guerilla marketing in red oceans. These are not bad things. They have their place. It's just that they often reflect mature markets with necessary short-term behaviors for survival. Blue oceans see the business world differently and approach the risks of business differently, too. In blue oceans, it's not about survival. It's about vigor in a marketplace where you are the only game in town.
How do we migrate from red oceans to blue oceans? The cornerstone of Blue Ocean Strategy is value innovation. A simultaneous reduction in costs with an increase in buyer value. Examples of value innovation in horticulture would be an air-cut bag container that stops root spin in nursery stock, which raises its value while cutting costs with a price point that is about one half the cost of a traditional 15-gallon container. When a breeder develops a poinsettia that can be grown a bit cooler than other varieties, they have lowered the cost, but if they add improved durability for the consumer, then it qualifies for value innovation. When an Ellepot machine effectively reduces labor enough to pay for itself quickly, then it meets the first criteria, and when it improves the yield and finish time for the plant liner, then it has both sets needed for value innovation.
How do you map and deploy value innovation? Kim and Mauborgne developed a great tool called a Customer Value Canvas. This canvas is a place where you list the buying factors you are measured on and then do something weird. You stop investing in some of the buying factors. The genius is that some factors don't mean as much as you think they do. In other words, they really don't matter to the market as much as they matter to the so-called experts in the market. Our industry is full of these silly measures. And we spend way too much trying to win on the wrong scales.
The value canvas is actually more than this. It allows you to look at all the buying factors and then it hosts a wider decision party. Your decision party determines if your business is going to do one of four things for each buying factor:
1. Reduce! Identify the buying factors where you should go below the industry standard.
2. Eliminate. Identify and eliminate factors the industry takes for granted that should be eliminated from your offering.
3. Raise. Identify factors where you should be well above the industry standard.
4. Create. Implement new factors that should be created that the industry has never offered.
Why must you do all four? Because you will never be nearly as profitable if you forget to reduce and eliminate costs that don't get appreciated. Kill the sacred cows and fund the other investment areas. Also, you will never reach your potential if you do not add and create in areas that distinguish you and make you completely different than your competition.
Breaking Through Status Quo
The canvas does not take you all the way home. It only gets you started. So here comes your corporate resistance. Here is where we discover company staffers that are wedded to the status quo, where powerful people will hold on to their own interests, where resources will be held in scarcity silos and still other staff will need basic motivation.
Ultimately, the resistance will point to at least one of six types of risks: search risk, planning risk, scale risk, business model risk, organizational risk and management risk
Fortunately, W. Chan Kim and Renee' Mauborgne position their methodology of blue ocean strategy around overcoming these risks. One area where I felt the authors did an exceptional job was in overcoming market size risk.
In defeating search risk, market boundaries are reconstructed by adding new pools of buyers. In defeating planning risk, they show how to focus on the big picture first, not the numbers. Starting in the numbers drives toward foregone conclusions which are more about bureaucratic inertia than value innovation. In defeating scale risk, they reach beyond existing demand to annex similar markets but those that have size and/or price improvement. In defeating business model risk, they identify correct strategic sequencing. In other words, they sequence in order of utility, price, cost and adoption to ensure they are profitable while providing their customers with a winning product. In beating organizational risk, they attack hurdles with tipping point effectiveness of key influencers properly assigned or reassigned and with fishbowl exposure on staff leadership towards clear milestones. Finally, they overcome management risk by building the execution into strategy. Using important fair processes within strategic planning builds sustaining motivation deep into the organization. Further, mobilizing people in a voluntary manner using these same fair strategic processes captures buy-in, pride and purpose that staff will appreciate and uphold.
When blue ocean companies embrace their risks in these ways, the risks ultimately become their greatest assets - they are barriers to entry that keep the competition out. They preserve your blue ocean and thwart margin erosion from copycats. Thankfully, red ocean strategists lock themselves into their red oceans with little indication of eventual home-grown vigor or renewal. Too often, they start with the numbers and iterate on bureaucratic inertia. This explains why they end up doing special deals and why they often need consolidation to survive.
My hope is that we as an industry can use these principles to expand our health in new and creative ways, which are profitable, fun, vigorous and sustaining. Back at McGregor's, we specialize in plant starts and we understand that these products are at the beginning of the food chain in our industry. We know that it is imperative for us to continue to listen and to innovate simple, scalable solutions for an ever-diversifying customer. So we support them in their new initiatives.
Someday soon we'd all like to see two houses in nine with a flower garden outside. My dad, the rocket scientist will be one of them. And I would be remiss if I did not say "thanks for the book tip dad, I told some nice folks about it."
Doug McQueen is vice president of McGregor Plant sales. He can be reached at firstname.lastname@example.org.