Blue Ocean Strategy: Honesty

Blue Ocean Strategy doesn't directly deal with the issue of honesty, but it comes close enough at least one blog post seems appropriate.

In the world of new product development and new business development fraud runs rampant. That not a generalization: it's a simple fact, supported by overwhelming evidence. I myself have seen egregious behavior.

Normally the victims of the bad behavior are embarrassed so nothing happens, or they settle their disputes quietly. I remember one case where a business broker sold a company a useless piece of technology for $16 million: not only was it bad technology but one vital component directly infringed on the license of another company who wouldn't budge, rendering the software entirely useless. Their solution was to pay another small startup $50K for a functional piece of the same software, then message senior management that the less expensive one was in fact the $16MM useless application. A director or two were quietly fired but the money never recovered. Every genuine technology entrepreneur can tell similar stories; many would be happy to keep their losses to $16MM.

With that in mind, I came across an article in this morning's New York Times ("Doctors Start to Say ‘I’m Sorry’...") about a radical new business process in the medical field that eliminates two-thirds of of the cost and 80-percent of the time spent on malpractice claims. Doctors who make a mistake are required to own up to the mistake, apologize to the patient for hurting them, honestly explain what happened, and work with the hospital to ensure fair compensation. Amazingly, when the patients feel like their doctor did their best but made a mistake -- admitted the mistake and is working to fix it -- they're much less likely to sue.

Honesty is one theme I notice consistently running through successful technology companies. Steve Jobs makes it clear that Apple is always focused on giving consumers items he and his staff believe brings genuine utility. Blue Ocean Strategy has a focus on genuine consumer utility woven through virtually every element of the process (conversely there's thinly veiled contempt for raw marketing: items that do not bring about utility). The core part of value innovation -- requiring that factors be eliminating and reduced -- is clearly explained to consumers, who accept the trade-off for the factors that were raised and created.

Honesty. It doesn't always mean delivering a great product. But it means trying then, when that fails to happen, admitting to it and continually working to improve. It means disclosing when a person or company blows it then working hard to live up to the reasonable expectation of the buyer. It means exposing and rooting out the pariahs so they don't gunk up the system like seaweed does an ocean.

Blue Ocean Strategy: Getting Started

I get asked a lot about how to get started using Blue Ocean Strategy. The authors answer the question beginning on page 84. One poorly understood notion is the amount of introspection and work needed to find a Blue Ocean offering. I'll relay the individual steps but the authors do a better job than I ever could with this concise summary about the work of one of their case-study companies: "It was a painful experience."

Blue Ocean Strategy has two primary components: value innovation and a set of management techniques, including Fair Process & Tipping Point Leadership. As a business and product developer I tend to focus most on value innovation: making new businesses. The first part of value innovation the authors call "Visual Awakening" -- it's an uncomfortable experience.

Visual Awakening involves the process of mapping exactly where your business is, and where the various substitutes consumers can use are, and comparing the two. When done honestly the results are rarely uplifting. For each substitute you draw a Value Curve: a plot-diagram with the key factors that the industry competes within drawn at the bottom and the plots of each substitute drawn low to high. Most companies quickly realize that their curve looks virtually identical to the substitutes, an indication that they are competing on commoditized factors like price: red-ocean competition that that results in ever-shrinking margins and customer base.

It's rare that the Visual Awakening stage isn't disquieting. I'll address what comes next -- how to navigate to a better place -- in a future post.

Newton & Product development

Like many engineers that cross over to the business world I find it amazing how the Rules of Physics applies to business. The most obviously applicable to creating new businesses and products are Newton's Three Laws of Motion. Let's examine them:

1. Objects at rest tend to stay at rest. How many times have we seen a company that's making no apparent movement towards innovation say that they'll magically start? Windows Live manager Brian Hall told an investor conference this week "...[Microsoft is] now are focused on how we grow as fast as possible organically." Huh? The web browser was invented fifteen years ago but Microsoft is going to start magically growing organically. This just isn't the way things work, which leads us to Newton's Second Law:

2. The velocity of acceleration is mass times force. That is, the bigger something is, the more force is required to make it move. It's common for companies to underestimate the effort required to "change the needle" -- to launch a new business or product. I've often compared new business development to a three-stage rocket launch. The first stage uses almost all the fuel, is massively risky, and has the highest chance of catastrophic failure. Luckily the whole thing is over in a few minutes. The second stage uses exponentially less fuel, is much less risky, and really just positions the spacecraft for orbit. It lasts longer than the first stage, but typically lasts no more than a few hours. The third stage is orbit: just going around and around. Most companies live in Stage 3; they don't have the risk tolerance or the people to pull off a Stage 1 launch even if they want to, and most secretly don't. People mustn't underestimate the amount of energy required to launch a substantial business. Once we've launched our business we get to Newton's Third Law, which we should have anticipated while planning:

3. For every action there is an equal and opposite reaction. I obviously believe much more in Blue Ocean Strategy -- making competitor's irrelevant -- than Porter's Five Forces, duking it out. But companies should never underestimate the reaction of competitors to a new initiative. Competitors don't like to become irrelevant, and most will do everything they can to prevent it.

Call me Ishmael - Beware trying to bloody a Blue Ocean

"...to the last I grapple with thee; from hell's heart I stab at thee; for hate's sake I spit my last breath at thee."
- Captain Ahab, Moby Dick. Herman Melville, 1851.

Using the Blue Ocean metaphor it's impossible to not imagine a certain chief executive of a business in Redmond in the role of Captain Ahab, chasing down legendary Moby Dick in a dangerous effort to bloody the blue ocean. Ahab says he's given up the hunt, but everybody knows Ahab can't quit as long as Moby is alive.

Skipper Steve, his ship unable to navigate the stormy waters of the web, wants nothing more than to harpoon one of the whales that caused this mess; that battered both him personally and the vessel that served him well all these years. As long as Moby's cousins Google and Yahoo! -- the latter admittedly one lame beast after a harpoon took out half its brain -- swim the wild blue ocean our modern Ahab will be called to hunt them.

With more money than most countries Ahab is certain to eventually harpoon our modern-day Moby, but at what cost to himself, his ship, and his crew only history will tell. In any event, I'm symbolically composing this post on my Dell Ubuntu machine. It's not a dual-boot. The only thing worse than having a competitor build a blue-ocean in your sector is polluting your formerly Blue Ocean to the point that its new red hue is unmistakable.

"Give not thyself up, then, to fire, lest it invert thee, deaden thee; as for the time it did me. There is a wisdom that is woe; but there is a woe that is madness." - Moby Dick.

Nintendo building an island in Linden's blue ocean?

Click here for a link to an article, intelligently postulating on the theory that Nintendo may have purchased a virtual island in it's Blue Ocean Strategy hit Second Life that they intend to build into some type of Second Life Wiiville.

I've written lots of posts about the Wii, and one analysis about Second Life. It make sense that these two BOS rock-stars to join together and introduce Nintendo's blue consoles into Linden's blue world.

Blue Ocean Strategy: Recessions help blue ocean companies?

Here's an article in the NY Times about Steve & Barry’s, a chain that sells clothing and accessories all for under $10. They're mobbed.

The overwhelming focus of this blog is on Blue Ocean Strategy for technology companies but I can't help being the first to shout out an obvious BOS star when I see it. There is no way to sell clothing, in Manhattan, at prices for less than Wal-Mart and not be a BOS company.

I don't understand the garment business enough to try to analyze the offering. I'm a stereotypical geek when it comes to clothing: I have one suit that fits me poorly and that finds its way to the cleaners more often because of dust than use. But rock-bottom prices and fanatically loyal customers virtually always means that somebody's found a Blue Ocean diamond.

This makes me wonder whether recessions actually help spur Blue Ocean Strategy innovation? When the economy if flush with money people seem content to engage in red ocean practices: spending countless dollars on non-valuable technology innovation, throwing money away on worthless focus groups, or rushing to commoditize their business by breaking their own cost structures.

But the lack of easy capital in recessionary times forces entrepreneurs to focus on cost, and that focus -- when applied wisely -- tends to force business to investigate what's really valuable. This fanatic focus on value seems to guide business owners, either on purpose of by accident, through Blue Ocean thinking.

Recessions are like forest fires. They're brutal and dangerous and lousy to be in the middle of. But they also clear out the underbrush and allow new trees to take root and spawn. Many great businesses gained traction during prior recessionary times, and the recessions helped them. Google's a good example. Google is a great company, but if they had to compete during dot-com madness with the dozens of other search engines I'm not sure the ride to the top would have been as easy.

It'll be interesting to see the market changes that the coming year or two shakes out.

Follow up: a couple years later Steve & Barry's is gone. Exactly what happened isn't entirely clear but it looks like they were using incentives and rent deferments from struggling mall owners to build out their stores, which attracted customers to smaller stores, to subsidize the business. Needless to say, this wasn't a long-term strategy since they eventually had to pay rent and ran out of malls willing to subsidize them. My initial reaction was to delete this post; one of the earliest value innovation case studies was Enron and that obviously didn't turn out well. But there really were parts of Enron that were radically different, and the mobs of people at Steve & Barry's were very real. Both companies blew it on factors that had more to do with the greed of harvesting the fish out of their blue oceans too fast, not unlike overfishing in real life. So I'm leaving the post despite that the company did fail not long after.

Blue Ocean Strategy: US Healthcare Management

I live in the US and have my whole life. I've traveled around the world, visiting and living in many other countries and found the spirit of people in the US to be different than anywhere else. This is especially true for entrepreneurship: Americans -- both native-born and immigrants -- love to build businesses and invent things.

But the US also has some problem areas. One, in particular, is our health care system: it's a mess. A large number of people have no type of medical insurance. Explaining for my foreign readers: the uninsured don't have emergency coverage -- they have nothing; they're expected to pay their own bills entirely. Even those who have coverage oftentimes have lousy coverage that can be canceled for virtually any reason if a person ever becomes sick. Some people (including many millions of children) can't afford coverage, others are sick and can't buy it no matter how much they're willing to pay, and a third group just refuse to pay for it.

Part of this problem is purely political. From a conservative vantage point it's easy to criticize our legal system and the mayhem large lawsuits against doctors and medical providers and technology (drug and device) companies unleash. From a liberal vantage point everybody understands the classic economic Commons problem: the incentive for medical insurance companies to cherry-pick only the healthy for coverage.

But I strongly believe the application of Blue Ocean Strategy to technology -- especially information management -- can play a large part in solving the well documented problems of the US health system. The same technology can probably also improve health-care in those countries that have fewer problems.

Specifically, I'd say let's use information sharing to eliminate administrative overhead, pandering to hypochondriacs, and questionable remedies from the system. Let's reduce unnecessary tests: medical procedures designed for legal defenses, as well as sky-high compensation for many in the health-care business. Let's raise the availability of access to non-doctor professionals and self-help material to encourage people to seek alternative, lower-cost methods to treat themselves. Finally, let's create information sharing systems that quickly and efficiently diagnose and treat genuine ailments.

Businesses are thinking along these lines: Microsoft and Google both have medical records systems they're in the process of launching. Both have merit though I'm not sure either is different enough to make much of a dent: I admittedly haven't done an in-depth study but both initiatives look like red ocean thinking. I have my own ideas about what would work, but I'm working with a startup in stealth mode so no public sharing ... yet.

In any event, bringing the Value Innovation component of Blue Ocean Strategy to health care -- enabling lower cost and higher value -- is long overdue.

We study non-customers, not try to create them...

I've published quotes I thought were brilliant so here's one that's the opposite, from TechCrunch:

"I had a chance to play around with the SearchMonkey application creation tool, which is actually quite straightforward (if you’re comfortable with PHP, XSLT, and DataRSS)." (emphasis mine)

A small part of me says the author must be expressing sarcasm, but the realist in me says he wrote that with a straight face. When quotes like this start pouring out of Silicon Valley it's a strong indicator of an impending correction.

Blue Ocean Strategy: Microsoft & Yahoo -- Build a better search

Writing again about MS and Yahoo. Yahoo came in with essentially flat earnings. Depending upon how one parses the numbers Google's profitability grew 30-40 percent during the same quarter. Google is clearly a Blue Ocean Strategy company (click here for a BOS analysis of Google: "Bloogle: Making Portals Irrelevant"). Based on earnings MS CEO Steve Ballmer says he's ready to walk away from the deal. He's probably just bluffing but walking away would be the best move.

It isn't that MS doesn't need the reach of a world-class search engine: it's just that Yahoo doesn't fit that model. There are some great Yahoo properties -- Flickr, Groups, Messenger -- but the centerpiece of Yahoo is search and Yahoo's search stinks. The problem with Yahoo search is that it's adulterated. Yahoo liberally co-mingles paid search results with organic results: doing so violates the integrity and credibility of the results. Many consumers outright understand this; others just sense that something is "wrong" or "weird" with the results (I've heard both words used).

Yahoo searchers feel like they've walked onto a used-car lot: they put their guard up and many don't return. Yahoo used to have a strategic advantage by human-indexed search results but that fell apart when they switched to paid inclusion; pay Yahoo a few hundred dollars and you'll become relevant, even if you're a third-rate hack in your field.

For those not in the know paid inclusion is like paying for a job interview: the job you stand to receive is junk. Similarly, Yahoo's search results are worthless. Since virtually everybody knows this at some level only the most clueless are left searching on Yahoo, which dilutes the value of the search results to advertisers. These diluted results -- stemming from a lack of credibility -- push Yahoo to do more to monetize results, which typically means more dumb tricks like co-mingled results, which even further dilutes credibility. The resulting death spiral they're in is well documented and will be studied in business and journalism text books for many years.

Microsoft: if you want to build a better search then build a better search. Look at the tiers of non-customers and apply each through the six path framework to find the key factors of a great search engine. Google's clobbered you and Yahoo but you two set them up perfectly: you, Microsoft, focused too much on technology innovation and Yahoo self-destructed. The only way to fight a BOS offering is with another BOS offering. Google redefined the rules once; you can and should do the same back to them.

Without going into a full-scale analysis I'd think the key factors of a Google beating search engine would include Price, Ease of use, Scope of items returned (not just websites), Credibility of results, Comprehensiveness, Relevance of search results, Honesty and integrity of search provider, Objective and subjective descriptions of results, and Reward to business owners for playing fairly. There's probably a few more, and some of these probably need refinement. But buried in there, I'll bet, is the recipe for a genuine Google killer. It won't be cheap to build, but it'll cost a lot less than buying Yahoo and trying to reform its culture, brand, and technology.

Blue Ocean Strategy: The value of value innovation

One common misperception about Blue Ocean Strategy is that it increases one's Cost Of Goods Sold (COGS). This couldn't be further from the truth: value innovation always reduces COGS. Nintendo sells the Wii for $250 retail: they make money on every console sold and have since the console first went on sale. Sony and Microsoft, in contrast, sell their own consoles for a higher price point and lose money on every unit sold. It cost Microsoft less to produce early versions of DOS then Windows than it did to crank out VMS or the Macintosh OS, both because of volume and also because the lack of hardware lock-in made it possible to focus on high-margin software rather than lower-margin hardware. Despite the lower cost -- and the lack of an integrated locked-in ecosphere -- Microsoft's OS's went on to be much more valuable than the coupled operating systems they replaced.

Value Innovation -- the realization that less is oftentimes more -- is the centerpiece of Blue Ocean Strategy. At the core exists the understanding that a few really valuable key factors -- where value is defined in terms of utility to the buyer -- is better than a smörgåsbord of stuff. Put simply, a a two course meal created with the best ingredients, prepared by a talented chef, and served in a plain atmosphere by a friendly and prompt server has more appeal than a lousy eight-course meal served by a crank in a palace. The former has a lower price point, but since the Cost of Goods Sold is dramatically lower the gross margin and the volume of sales will be higher.

This isn't to say that value innovation involves deceiving the consumer into believing they're receiving something more valuable than they actually are. Steve Jobs put it best: "...it's not about pop culture, and it's not about fooling people, and it's not about convincing people that they want something they don't. We figure out what we want. And I think we're pretty good at having the right discipline to think through whether a lot of other people are going to want it, too."

Buyers realize when purchasing a Wii that the graphics won't be as sharp as a PS3, the physics as accurate as an XBox 360, and they understand the console won't play movies. These buyers probably like movies, sharp graphics, and accurate simulations. They just don't value these features as much as they like Mii's and the Wii remote. Nintendo doesn't try to convince buyers that they're receiving the best graphics, the best chip, or the best home entertainment system. Instead they're marketing the game system that's the most fun, with the realization that fun is the primary utility that buyers receive from any game console.

Blue Ocean Strategy & Technology Innovation

I can't count the number of times I've heard marketers rant on to say that technology has nothing to do with innovation and that Blue Ocean Strategy somehow supports this notion.

Summarizing: Blue Ocean Strategy puts customer value at the center of any new offering. Customer value is never defined in terms of raw technology, but the technology is catalytic to the value: the value will never get realized without the technology.

Let's examine some examples:

• The Wii wouldn't be without its small, inexpensive accelerometer driving the Wii remote. The accelerometer allows the creation of the magic wand: no accelerometer = no magic wand. However, Nintendo is not marketing accelerometers.


• Google reads a users mind to return relevant search results. However, these results are driven by a brilliant search algorithm and massive data centers. No brilliant algorithm and no enormous infrastructure = no mind reading web search. However, the end users never see the technology.


• The Toyota Prius is an engineering masterpiece. A user drives around with more computing power than the entire world had not long ago powered by computer-designed technology no human with a slide-rule could ever have mastered. No computers to design and run the Prius = no magic high mileage car. However, end users never see the technology.


• Even the Blue Ocean Strategy case studies in the book all have technology driving them. Starbuck's uses extremely sophisticated GIS systems and water filtration technology, Cirque du Soleil low noise, portable power generation and stage technology, the NYPD well documented crime tracking software; the list is endles...

All of these ... virtually every Blue Ocean business has one element in common: catalytic technology that is invisible to the end user. Blue Ocean Strategy demands the technology in itself rarely, if ever, has value but the value the technology brings to the consumer does. And, in almost all case studies, no technology means much less value. There are exceptions, but they're extremely rare.

I'll give marketers who say the technology doesn't matter the benefit of the doubt that they're not just trying to cover-up their own unwillingness or inability to learn about the technology driving their industry. However, when these people pipe-up and start shouting that "technology doesn't matter" tell them that they're absolutely wrong. It's just that technical innovation must be defined in terms that drive utility to the end user, but that doesn't mean the technology is unimportant.

Quoting the book "[acting] on the assumption that bleeding-edge technology is equivalent to bleeding-edge utility for buyers ... is rarely the case." Blue Ocean Strategy, pg. 120. That doesn't mean technology doesn't matter; it means the technology must always be described for it's utility and value to the buyer.

There would be no Nintendo Wii, Google, or Toyota Prius without extremely sophisticated new technology. The NYPD would be chasing down muggers aimlessly, Cirque du Soleil wouldn't be the same without the dramatic lighting, and Starbucks wouldn't magically be located in great locations. Just because the end-user never sees, understands, or appreciates the technology doesn't mean the business/product developer doesn't need to.

Blue Ocean Strategy: Non-Customers

One of the primary components of a successful six-path study is the focus on customers and non-customers. Non-customers, which are divided into three tiers, each of which has a specific definition, are especially important.

Paraphrasing from the book, the first tier of non-customers are current customers who are getting ready to leave. The second tier are people who consciously decide against your product. The third tier are people in distant markets.

Let's bring that back to earth using the the Nintendo Wii and -- more importantly -- it's predecessor, the Nintendo Game Cube. Young boys loved the Game Cube: it was small and cute and cheap; it even had a handle so they could pick it up and carry it to play with friends. The problem is that the core group of boys who played the Game Cube would "graduate" to a Sony PS2 or Microsoft XBox. These boys were the first tier of non-customers: current customers who were likely to leave. The second tier of non-customers were girls: they were the same age, had access to the same resources, but just didn't show interest in the Game Cube. Finally, geriatrics in nursing homes were the third tier: they thought a Game Cube was the box containing the checkers board.

Nintendo of course turned those tiers of non-customers entirely on their head. By studying the six-paths and applying what they learned to redefine the market boundaries they built the Wii and the Nintendo DS to appeal to both customers and non-customers alike. Boys love the Wii, but so do girls, young men, mom's, and just about everybody who tries it. Changing the key factors to attract girls to play the DS was especially inexpensive albeit brilliant: they came out with a version in pink. As for the Wii, it was renamed from it's code-name the Nintendo Revolution. Boys loved the name "Revolution" -- my son still does -- but they could live with the Wii. Girls went for the Wii, they had no interest in their brothers revolution.

One company that has a massive swarm of first tier non-customers is Microsoft. Vista is a disaster. One commentator, writing about the merits of Vista, described a key benefit as the inclusion of Snipping Tool, an application that takes screen-shots. That is, the strongest proponents of a multi-billion dollar project that took years to complete, greatly increased the hardware requirements needed to run, and cost almost double its predecessor were reduced to citing the inclusion of a trivial piece of freeware.

People are getting ready to flee Vista. I personally have a Vista "Ultimate" computer, a Macintosh, and I just ordered an Ubuntu (Linux) machine from Dell. Long term, putting up with the sluggish speed and instability of Windows just doesn't make sense, especially given that I'm sure Microsoft will soon enough want even more than the $400 I already paid for this awful operating system. In the case of Vista, it's not that the advantages outweigh the disadvantages: there are no advantages I can think of except that I need to use this computer to test software because Windows is what most of my clients use. If my clients change, so will I. I'll probably change anyway, and keep a Windows computer only for testing.

I'm a vocal and classic first-tier non-customer for Windows. Microsoft has literally millions more like me. I'm not being alarmist or anti-Microsoft: Gartner calls the current state of Windows "untenable" and has announced that Windows is "collapsing." Microsoft engaged in classic technical innovation: innovation for the sake of innovation, when releasing this awful beast. Now they're driving away their customers in droves.

Yahoo & Tipping Point Leadership

No matter what one's thoughts on the mideast former Israeli diplomat Abba Eban once famously said "Arabs never miss an opportunity to miss an opportunity." I won't get into whether I agree or disagree, except to say that his insight can be focused on plenty of business organizations. One of my favorites lately comes from perennial red ocean punching bag Yahoo.

I'm quoting from a news.com article here: Google deal gets 'big eye roll' from Yahoo employees.

One source inside Yahoo said it's not uncommon for executives to hold planning meetings for follow-up planning meetings, Dilbert-style. That bureaucracy could cause more Yahoo talent to leave for opportunities elsewhere.

"There's a lot of pent-up creativity," the source said. "Morale is in the sh**ter."

Yahoo has shown the opposite of leadership: they're mired in the red ocean, flaying around and being eaten alive. Recent releases showed their share of the search market continues to shrivel.

Yahoo destroyed their search engine with pay-to-play, but has some other great products like Flickr, Messenger, Groups, and Answers. They had good market timing. They used to have some really good people. But the documentation is overwhelming that this company is falling apart, in a death spiral of red ocean competition that's steadily increasing in strength and velocity like one the hurricanes that occasionally wash up on the shores of my state.

Yahoo has the raw stuff needed to reform itself into a strong Blue Ocean company, but lacks the willpower needed to complete the task. During the first dot-com bust I saw lots of companies fall apart; many were poorly managed, but others just had lousy timing. Yahoo put in place things like pay-for-play in their search engine that they never quite recovered from, and still haven't removed. While it hurts on an individual basis -- the people personally affected -- Yahoo deserves the fate that awaits.

Blue Ocean Strategy: Adding Value to Value Innovation

Blue Ocean Strategy is comprised of two primary pieces. I've focused the last few posts on the managerial components, because most people don't pay attention to those. But this is a blog for product and business developers, and most are focused on the concept of value innovation.

To reiterate, value innovation involves finding the key factors of an offering then eliminating and reducing factors that consumers can live without. Some of the cost savings used to eliminate and reduce are used to raise and create key factors that make an offer truly compelling and unleash a business that makes competitors irrelevant. Think the Nintendo Wii, Google's search engine, the Toyota Scion, and the entire open-source movement.

I've found the biggest challenge to the implementation of Blue Ocean Strategy is the accurate identification of the key factors and then having the guts to eliminate and reduce those key factors. If you do not eliminate and reduce substantive key factors, you are not practicing Blue Ocean Strategy. The whole point is to be able to create a Wii then sell it profitably for $250 at retail, while your red ocean competitors make machines that people want less and that sell for considerably more while taking a large loss.

I've seen too many value curves where people simply identify a plethora of key factors and raise them. This is a predicable recipe for what is, at best, a mediocre offering and at worst a disaster. The focus groups and internal marketers will probably be happy: "hooray -- this 'new' thing is like the old one's but there's more of it." But the market will, at best, shrug. Think Microsoft Vista, Yahoo search, or Dell's relentless pursuit to gut their respective companies. [In all fairness, I just purchased a pre-configured Ubuntu laptop from Dell. The fact the sell such a thing suggests they're once again trying, but it took me an hour to complete my purchase once I made my buying decision, thanks to an ineffective, frustrating, and ultimately useless phone-tour of India].

Ensure the "value" in value innovation: use the Four Actions Framework to eliminate and reduce key factors that consumers don't care about. Is Blu-Ray movie playing cool? You betcha. Do the movies look great? Sure they do. The physics and high-definition graphics are slick: they're so real an early PS3 critic said the absence of real-life made basketball players look like zombies. Still -- even with, or maybe despite all the neat gadgetry -- my kid still doesn't seem to have much interest in a PS3 or XBox360, despite that he loved his PS2. His attention is entirely on the Wii.

Blue Ocean Strategy: Seeing through the clutter

As the original Clinton campaign would have put it, "it's the six-path framework, stupid." Seriously ... a lot of people ask how to actually use Blue Ocean Strategy to make a new business. I've written a longer post that goes into each specific step, but realized that I skipped an executive summary that may be even more important.

Summarizing the 240 page academic book into one sentence: use the six-path framework to find the key factors of a business through the lens of customers and non-customers, then use the four actions framework to redefine the market boundaries of that business while adhering to tipping-point leadership and fair process to increase the chances your organization will be able to execute your new business. OK ... it was a run-on sentence, and it greatly oversimplifies. Still, it's a start.

As a product/business developer I'll take things a step farther. Listen to the Harry Chapin song "Six String Orchestra" where a young man dreams of being a great singer. In reality, he can't play his instrument and receives nothing but negative feedback from everybody around him. But in his mind, he hears the beautiful songs of the future, knowing that he'll have to do the hard work, practice a lot, and find the right people to make music with.

Product and business development is like that. I once had an early version of a product that went on to do great generously described as a "mud hut" by a seasoned software developer. He wasn't being negative: just saying that he understood my vision but that a lot of work is needed to turn that vision into reality.

Some people will disparage or sabotage your ideas out of petty jealousy, or because they fear their livelihood or relevance will be threatened either by the business you create, or the fact you (and not they) created it. But I've found many aren't acting in bad faith: they just don't understand where you're going and don't have the brainpower to see the end of the path.

Blue Ocean Strategy helps you not only figure out where that path should lead to, but gives us a series of powerful tools that help communicate that to others. Blue Ocean Strategy provides a roadmap, but isn't magic: you, the product and business developer have to figure out where that road is leading to and push your organization down that path.

The six-path framework is how you, the person trying to redefine a business or industry, find those key factors that are vital to the success of your business: it's the music you hear in your head, that you know you're capable of.

In the search for key factors, it's not uncommon to quickly jot down a list of factors: don't do this. Remember the old software engineering term GIGO: Garbage In, Garbage Out. The process of identifying and isolating key factors should be long and painstaking: there's nothing easy about it. You should really be uncomfortable with the key factors you eliminate and reduce. Making things worse, the longer you've been in the industry the more difficult the process will be, because you'll be steeped in the standard boundaries by which companies are already competing.

But if you use the six-path framework to find those key factors, then apply the four actions framework against them, you'll find that music you knew was there will come alive in real life. You'll invent a Wii, create the Prius, or launch the next Google. But never underestimate the amount of raw effort that went into each of these individual efforts, or that must go into yours if it has a chance of succeeding.

Nintendo Wii Blue Ocean Strategy -- Strategy Canvas

In April I'll try to show some Strategy Canvases built with the Blue Ocean Strategy (BOS) practitioner's tool I developed, BOS Createware. I'll start with the Nintendo Wii. Nintendo has never released the strategy canvas they used, but the canvas above is a good guess of what it probably looks like.

Let's look at the Key Factors, and examine how Nintendo likely arrived at them:

Eliminated Movie Playing. The PS3 plays Blu-Ray disks. The XBox 360 plays HD-DVD. Both play DVD's. The Wii plays ... nothing. Only games. Nintendo realized that high-resolution movies on a game machine are Technological Innovation: innovation solely for the sake of innovating. High-resolution movie-playing adds cost that doesn't align with the added consumer value.

Reduced Graphics & Physics. The Wii has good-enough graphics: they're fine. Using the six-path category of Strategic Groups shows people trade-up on entertainment to TV and movies or down to board-games. Nintendo obviously realized the cost of trying to invent a widget that traded up to the higher strategic group, movies, didn't outweigh the cost. Physics is similar: balls bounce just fine but if you're looking for real-time rendering of wind rustling through leaves look outside your window: this isn't something important enough to justify the added cost.

Raised Fun. This one almost seems obvious but, in retrospect it's probably the biggest six-path key factor responsible for the Wii's success. Microsoft and Sony concentrated entirely on functional elements: great graphics processors, physics engines, specialized chips, etc... Nintendo used the six-path element of Functional/Emotional to turn that around. Everything about the Wii is Fun: Fun -- an emotion element -- was placed over chips, a functional element. Mii's are fun; the fact the PS3 does a petaflop of calculations is cool, but not especially fun. Besides raising the Fun element Nintendo created the Virtual Console to take advantage of that giant game library they had lying around.

Created the Wiimote: Nintendo's Magic Wand. I've written an entire post just about the Wiimote: here's a link -- http://www.valueinnovation.net/2008/02/create-tech-innovation.html.

Repeating the well-known end-result, the Wii blew out of stock the day it was released and has remained unavailable ever since. PS3's and XBox 360's are stacked up as tall as a person on showroom floors, but you still have to show up at store opening times for the chance of landing a Wii. At last count the Wii was outselling the PS3 4:1 in Japan and is projected to overtake the XBox 360 in total volume of consoles by year-end despite that the 360 had a year head-start. Nintendo didn't compete in the Red Ocean: they created a Blue Ocean that rendered the competition irrelevant.

Consulting Consultants

I've been a product developer/marketer my entire career. I walked into the job accidentally, and have done essentially the same thing either independently or as an employee since then. I've spawned lots of products and a few businesses, and I continue to create them. My latest, Blue Ocean Strategy Createware -- the only authorized practitioner's tool for Blue Ocean Strategy -- is shaping up to be one of the coolest yet.

Some consultants are brilliant: they have great insight and they're fantastic at what they do. There's a good chance that by hiring a strong Blue Ocean Strategy Consultant that you'll raise the chances of finding a blue ocean opportunity. But some others consultants are lousy: the damage they can cause to an organization far outweighs any value they bring to it.

The key, I suspect, is simple: ask a consultant what they've done that they're really proud of. Ask them what business and products they've built, sold, or acquired. Then listen for a tinge of nostalgia and pride in their voices as they rattle off a few, along with a bunch of digressions about the challenges they came across. They may even send you an email with a bunch more they remembered after your conversation ended. The best consultants will be enthusiastic even about their flops, explaining what caused the failure and what they'd do to prevent it next time.

Good consultants will talk more about the reach and influence of their products, rather than the revenue they generated: I don't entirely understand why, but this trait seems to exist with the best of them. You'll have a tough time getting them to stop talking about how at least one product or service, that they were a key member in creating, rocked the world in its market.

The bad consultants will drone on endlessly about money and metrics. That isn't to say that money and metrics aren't important -- they're vital to business -- but they're just measurements of deeper factors influencing success.

Most importantly, remember that unless you've hired a full featured product development firm like IDEO, and trust them enough to sell whatever they produce, you are still going to have to do the work. This may work with a tiny number of the very best firms, like IDEO, Frog Design, or Fluid. But more often than not, it won't lead to success.

A business process like Blue Ocean Strategy -- in the hands of competent consultants -- makes it more likely that you'll succeed. But you still have to do a lot of work to get there. There is no low-cost magic machine that will turn out blue oceans on demand: the path to success is paved by sweat, disappointment, and endless hours of hard work, plenty of which will result in nothing.

But once you succeed -- once you unlock that blue ocean business -- you'll look back on those endless hours of toil with nostalgia as you struggle, like Nintendo, to crank out widgets fast enough to meet consumer demand.

Blue Ocean Strategy & Open Source Technology

My latest project is Blue Ocean Strategy Createware, the only authorized practitioner's tool for Blue Ocean Strategy. Createware is an ongoing project that probably deserves an entire series of posts, though I'll start with one insight I had from a module we're just finishing.

First, some background. Createware is web-based software built entirely, by design, on open-source technology. That doesn't mean that we didn't use any proprietary software while building it but, rather, that none of those proprietary standards sneaked into the final product. For example, the team uses a collection of Windows and Macintosh workstations, and our servers run the standard open-source LAMP (Linux, Apache, MySQL, & PHP) stack. The interactive chart making modules are programmed in Flash, an open standard, though we used Adobe's proprietary tools for our design and compile cycles.

An insight I had is that open source may be the single best example of a Blue Ocean movement I can think of. Everything about the open-source movement seems to leap straight from the theory. For example, the core of the open-source movement is Value Innovation. Disparate groups of developers listened to customers and non-customers, fielded a list of key elements, then used the Four Actions Framework to decide what needs to be Eliminated, Reduced, Raised, & Created.

Besides applying the Four Actions Framework the open-source movement also embraces Fair Process and Tipping Point Leadership. There are gatekeepers that decide whose code goes in and whose gets left out: this is actually a well-defined structure. These gatekeepers make informed decisions and almost always let people know how they came to their decisions, and the decisions are usually relatively final. Similarly, decision makers exercise Tipping Point Leadership; a small and fluid group of extremely influential people lead by ability rather than fiat. There are no spoiled heirs here. Even the most influential leaders -- GNU founder Richard Stallman and Linux creator Linus Torvalds -- have found themselves uncomfortably marginalized within their own movements at times.

The mechanism that drives the Value Innovation process within the open-source movement isn't entirely clear, but it definitely exists. Let's take the flagship Linux Operating System as an example. For purposes of illustration, I'm focused on the OS in general, rather than any specific implementation. The development of Linux Eliminated monolithic control over the code-base, Reduced branding and marketing, Raised product quality and reliability, and Created a peer-review system.

These sound easy but at the time they represented a wildly different way to think. The Free Software Foundation (FSF)/Gnu's Not Unix (GNU) project brought us 90% of the way there, but by leaving in place the monolithic control the GNU group understandably, albeit irrationally, spooked corporate chieftains. Torvald's Linux removed this control; the downside is there are dozens of flavors of Linux but the upside is that a number of these flavors are supported by the software giants and -- with that support -- moved from being a marginal experiment to becoming the preeminent operating system of corporate data centers.

Just because the open-source model has been successful doesn't mean there are those that don't try to usurp it to some extent. One of the features of Createware is "Save to Power Point" but, remember, there are no Windows Servers involved. How do we do that? Using a relatively new technology called Office Open XML (OOXML) that allows people to write Office document without Office. What's the downside? OOXML is insanely complicated to work with compared to OpenDocument, a competing format widely endorsed but so far incompatible with native support for the widely deployed MS Office. Why would Microsoft allow us to do that? Cynics say they made the format so complicated that programmers decide it's not worth fiddling with and just use Windows and Office. I'm not ready to take either side, except to say that OOXML did seem unnecessarily cumbersome and the documentation was overwhelming, but -- to be fair to Microsoft -- there is a lot of genuine complexity involved in the underlying engineering issues.

Is OOXML an attempt to rein-in the Blue Ocean open standards before they trample Microsoft's red document preparation software and reduce it's utility to a commodity: a tool to bloody up the blue ocean of open source? That's a religious debate I'm not going to wade into, other than to say that it's nice to be able to save to PowerPoint natively. Why do I need to save to Power Point, as opposed to a different document format? Because that's what my customers demand. Why do they demand that? That's the eventual Achilles heel of open-source and probably a question best answered by a strategic consultant rather than an enthusiastic product developer.

Fair Process: Blue Ocean Strategy

I've had a busy week, but have to remember that it's not nice to ignore one's blog. A large part of writing a blog is the ongoing commitment of time and energy required to add regular posts to it. A discussion about an adequate commitment of time and energy might actually make for a good post.

The specific focus -- a place where people tend to fall apart -- is that part of Blue Ocean Strategy called Fair Process. Much of what is now in the book comes from a series of articles published over many years in Harvard Business Review. Fair Process was the first of those articles, and the one overlooked by many people.

Fair Process is not about creating consensus in the decision making process. My own experience is that consensus is often harmful; consensus often prevents companies from making the kinds of dramatic changes that are needed to find genuine Blue opportunities. But Fair Process is about communication, about the establishment of a two-way line of communication between all current and future people involved in the creation of a new product or service.

Why no consensus? Thinking Blue always requires changing one's thought patterns: redefining the marketplace and building products and services to include non-customers. There will always be some number of people that will just never go along with this. These people must not be allowed to torpedo your new, Blue, opportunity.

But they -- and virtually everybody else who will be affected -- must be included and asked for their input. After you make a decision you must explain how you came to that decision, why you came to that decision, and why you believe that decision is in the best interests of the organization. There shouldn't be any ambiguity about the path that led to this decision making process or the trajectory of the new, Blue organization.

People can choose to accept and embrace the decision, or they can find another job. As harsh as it sounds do not allow people to sit around and do their best to sabotage the tough work required to create and launch your new product or service. If your competitors are smart they'll create plenty of conflict to challenge your new baby blue ocean, trying to redden your blue ocean before it grows (and if you've done your work they'll be irrelevant, and unable to do you any substantive harm).

Don't assume this applies only to the cranks in your organization. Remember the initial case study for Fair Process. To briefly reiterate, there were two factories. One had great labor relations; the other awful labor relations. The market was forcing substantive change. In anticipation of upcoming changes at the factory with poor relations managers kept workers abreast about the reasons for the change, the long-term ramifications of the change, and listened to their thoughts. They left the other factory alone though, thinking there's no need to bother them with decisions since there was already a strong trust relationship.

The end result, of course, is the factory with poor labor relations understood the need for change and bought into the process. The other factory only saw consultants coming and going quietly, heard rumors about major changes, and assumed the worst. Thankfully, before things spiraled completely out of control the managers realized how important it was to communicate and involve people, even when those people aren't in a decision making position.

This process of ongoing involvement -- not decision making, but rather communication -- is as vital to the health of an organization as coming up with brilliant Blue products and services delivered by value innovation. This is what's called Fair Process. It's as vital to success as a great TO-BE value curve, but frequently ignored. Ignoring Fair Process is probably the single greatest threat to your new, Blue business.

Blue Ocean Strategy: It's Work, but Worth It

I don't remember the names of many of my teachers, but one that stands out is a high-school teacher named Constance Holland. Ms. Holland was a civil rights activist that marched with Dr. Martin Luther King then turned teacher. After doing her best to explain something, then staring at the blank faces around the room, she stopped and roared the only quote I remember from any high-school teacher:

Wake Up! You're better than this .. this spaced-out indifference. Reach for the stars kids, and remember that anything else is beneath you.

I come across a lot of product and business developers; engineers and MBA's and people with degrees that end in "D." I feel like many US-doctors: people wait until their company is hurting then come looking for a pill to fix what ails them while they continue their same lousy health habits. They want the benefits of regular exercise and a good diet, but without the work.

Business leaders, entrepreneurs, students, workers, government officials ... everybody. Wake up. Listen to Ms. Holland: reach for the stars. Build great businesses. Jack Welsch famously used to say "Be #1 or 2 or get out." Come on Jack, you don't want to be #2: who wants to be #2? Art Rock, the early VC who funded Intel and Apple, once lectured something along the lines of "'A' people hire 'A' people and rarely 'B' people. They're happy when their hires pass them by, and they're quick to get rid of the 'B' people. 'B' people hire 'B' and 'C' people, on purpose. Run the process through a few hundred iterations to see it's so important to get the best and the brightest."

The US economy is going into the tank, largely on incompetence, indifference, indiscretion, and laziness. We have nobody else but ourselves to blame. But we also have the strongest entrepreneurial engine in world history: the right people and policies will fire it up and we'll eventually be fine. Other countries can keep cranking out low-cost labor, loosen their environmental and monetary regulations, or force workers to subsidize business through immoral tax structures. It doesn't matter: these commodities are inherently Red Ocean spasms. Some other country will come along that has even cheaper labor, is willing to pollute their water and air even more, or lets you run amok. It's like the hypothetical walk to the wall where the distance is always halved: we'll never quite get there, and even if we did who wants to walk into a wall?

Be Blue. Don't commoditize to compete in a Red Ocean but, rather, redefine the rules of the game; the boundaries of the market. Any company or country or individual can reach for the stars or slouch for the sewer: they can be Red or they can be Blue. But they can't be both. If they choose to go Blue they have to do the work; there's just no magic way to get there, but the results are worth it. The choice is entirely ours, and it's about time our business and government leaders started to take it more seriously.

Steve Jobs speaks...

Quoting Jobs:

"It's not about pop culture, and it's not about fooling people, and it's not about convincing people that they want something they don't. We figure out what we want. And I think we're pretty good at having the right discipline to think through whether a lot of other people are going to want it, too. That's what we get paid to do.

"So you can't go out and ask people, you know, what the next big [thing.] There's a great quote by Henry Ford, right? He said, 'If I'd have asked my customers what they wanted, they would have told me "A faster horse."'"

...

"My job is to not be easy on people. My job is to make them better. My job is to pull things together from different parts of the company and clear the ways and get the resources for the key projects. And to take these great people we have and to push them and make them even better, coming up with more aggressive visions of how it could be.""

...

"We don't have a lot of process at Apple..."

...

"At Pixar when we were making Toy Story, there came a time when we were forced to admit that the story wasn't great. It just wasn't great. We stopped production for five months.... We paid them all to twiddle their thumbs while the team perfected the story into what became Toy Story. And if they hadn't had the courage to stop, there would have never been a Toy Story the way it is, and there probably would have never been a Pixar.

"We called that the 'story crisis,' and we never expected to have another one. But you know what? There's been one on every film. We don't stop production for five months. We've gotten a little smarter about it. But there always seems to come a moment where it's just not working, and it's so easy to fool yourself - to convince yourself that it is when you know in your heart that it isn't.

"Well, you know what? It's been that way with [almost] every major project at Apple, too.... Take the iPhone. We had a different enclosure design for this iPhone until way too close to the introduction to ever change it. And I came in one Monday morning, I said, 'I just don't love this. I can't convince myself to fall in love with this. And this is the most important product we've ever done.'

"And we pushed the reset button. We went through all of the zillions of models we'd made and ideas we'd had. And we ended up creating what you see here as the iPhone, which is dramatically better. It was hell because we had to go to the team and say, 'All this work you've [done] for the last year, we're going to have to throw it away and start over, and we're going to have to work twice as hard now because we don't have enough time.' And you know what everybody said? 'Sign us up.'

"That happens more than you think, because this is not just engineering and science. There is art, too. Sometimes when you're in the middle of one of these crises, you're not sure you're going to make it to the other end. But we've always made it, and so we have a certain degree of confidence, although sometimes you wonder. I think the key thing is that we're not all terrified at the same time. I mean, we do put our heart and soul into these things."

Across Alternative Industries: From commercial printing to a pregnancy calendar

One of the six paths towards value innovation is to look across alternative industries. Let's take a brief quote from the book: "alternatives include products or services that have different functions and forms but the same purpose."

One of my inventions is the online pregnancy calendar. It's become relatively common now, but I built the first pregnancy calendar -- a website which contextualizes information during fetal development -- in early 1996 when my wife was pregnant with our son.

I'd like to say the pregnancy calendar was a well thought out and brilliant invention. The truth isn't quite as glamorous, but is more valuable from an understanding of where to look for new business ideas...

At the time I was working for Merrill Corporation on a print production control system. Merrill (a great company, and worth an entire separate post) is a leader in the creation of compliance documents for the securities industry. Way back when this meant printing books of financial disclosures to be mailed to investors and government agencies. These books would have to be produced at the last minute, changing with market conditions, then distributed around the country to Merrill's various print plants.

At the time I was looking for a method to allow the different print plants to coordinate scheduling the print jobs. They had a primitive Unix-based system but scheduling is an inherently graphical function, so they relied mainly on white-boards. The web browser had been invented not long before and table support was relatively new. I had the thought to use HTML tables to show production schedules that could be viewed and manipulated from different plants around the country.

As a learning exercise, at home, I wanted to see if it was possible to dynamically generate calendars in HTML. Once I created my test calendar I needed to populate the cells with data. The house was filled with pregnancy books and I thought it'd be neat to see how my son was developing tied to real dates.

So I pulled out data from all the pregnancy books and arranged them into a text-based database using their relative offsets. For example, "Day 8 -- Blastocyst cells separate: a baby head and tuchas form." I finished it, half tongue and cheek, and gave it to my wife, who gave it to friends, and on to other friends. Next thing I knew my learning project was on CNN, and being written about in the WSJ, NY Times, and lots of other media.

Most importantly, had I not started to look at industrial print plant scheduling I would never have cooked up the idea of a dynamically generated pregnancy calendar. I'm sure that somebody else would have eventually, but it wouldn't have been me: I would've missed the market. By looking across alternative industries -- even inadvertently -- I accidentally created a category killer that continues to dominate the online landscape to this day.

End note: For those who realized it while reading ... yes; I may have been the first to render calendars with contextualized content in HTML tables. Was I actually the first? Who knows. Could I have patented that? I hope not, but the way the PTO was recklessly issuing patents back then, probably. Would I do things any differently today with the patents? Nope. Even though I was told "sell this at a discount, or we'll make a knockoff" I still believe that software patents are rarely justified. Larry Page's brilliant Page Rank algorithm is the type of breakthrough that may make them acceptable, but nothing less than that. In any event, I suspect Google would've been just fine without the patents; the hassles from patent trolls is outweighed by the benefit to genuine innovators.

Quality Quotes

In preparation for some other work I've been compiling innovation related quotes and realized posting some would be a good way to start the week.

“There’s a way to do it better – find it.”
- Thomas Edison

“You never change something by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.”
- Buckminster Fuller

“Why join the navy if you can be a pirate?”
- Steve Jobs

“New opinions are always suspected and usually opposed, without any other reason but because they are not already common.”
- John Locke

“Observe what is with undivided awareness.”
- Bruce Lee

“Anyone can look for fashion in a boutique or history in a museum. The creative explorer looks for history in a hardware store and fashion in an airport.”
- Robert Wieder

“All truths are easy to understand once they are discovered; the point is to discover them.”
- Galileo

“To invent, you need a good imagination and a pile of junk.”
- Thomas Edison

“People take the longest possible paths, digress to numerous dead ends, and make all kinds of mistakes. Then historians come along and write summaries of this messy, nonlinear process and make it appear like a simple, straight line.”
- Dean Kamen

“In theory there is no difference between theory and practice. In practice there is.”
- Jan van de Snepscheut

“Innovation is not the product of logical thought, although the result is tied to logical structure.”
- Albert Einstein

The Real Digital Divide: Blue Ocean Strategy for Techies & Marketers

There's a lot written about the "digital divide" -- the separation of those who have access to technology and the Internet, and those who don't. While there are many examples throughout the world it's tough to imagine that even the very poorest of people don't have any access to the Internet. At least in the US, virtually every public library has public Internet access at no cost. Other countries seem to be comparable.

However, the authors of VIRE: Value Innovation in the REquirements Gathering Process raise a more substantive, real, and divisive digital divide. Specifically, the authors focus on the divide between "business people" -- marketers, finance types, and C-level executives -- and the engineers, product developers, and creative tech support teams.

Putting it succinctly I remember a conversation with a traditional MBA. We discussed the fact that if felt like the engineering groups were speaking English and the marketing groups Mandarin Chinese. She disagreed only to the extent that she knew both English and Mandarin, and thought the vocabulary differences are easier to negotiate and less disruptive than the gap between marketing and engineering.

The whole conundrum reminds me of an urban myth. Apparently, during the development of the Macintosh, each morning Steve Jobs would have team leaders sit together for a status meeting. Jobs would sit in the middle of a table with engineers on his right, marketers on on his left, and every else -- supply-chain, sales, finance, etc... -- on the other side. He made it clear: he was the Nexus between engineering and marketing, and everybody else was "on the other side."

Back to VIRE, I asked the authors why they didn't use the six-path framework of Blue Ocean Strategy/Value Innovation to guide in the development of the requirements. VIRE lays out a great framework for the use of the Four Actions Framework, but barely mentions how the requirements to be ERRC'd (Eliminated, Reduced, Raised, & Created) are gathered. Their answer: coming up with the core requirements is the job of marketing, not the engineers the IEEE-published VIRE was focused on.

Depending upon one's definitions, the modern software business is about 30 years old. It's time for a long overdue introduction...

Engineers, meet marketers. Marketers, engineers. Neither of you is better than one another; neither more specialized, smarter, or more vital to the success of your company. Work together, and great things can happen. Erect barriers and great things may happen anyway, but getting there will require unnecessary angst. Ignore one another's annoying habits -- dressing up or down, a disposition towards or against politics (both IRL and in the office), and respective tastes in things. Work together, try to grok one another, ignore the weird quirks: everybody will be happier and you'll be more likely to unleash blue oceans.

To find blue oceans requires brilliant marketers and brilliant engineers, working closely together. If you don't understand something, ask. If somebody asks, answer. If a manager sees either side making disparaging comments about the others inability to "get it," make them patiently explain or throw them off the team.

Let's use Blue Ocean Strategy to bridge the digital divide between marketing and techies, unleashing then navigating blue oceans the world over.

Second Life: Into the Wild Blue

"It is the brilliantly lit boulevard that can be seen, miniaturized and backward, reflected in the lenses of his goggles. It does not really exist. But right now, millions of people are walking up and down it." - Neal Stephenson, Snow Crash.

A friend and colleague recommended that I write about Second Life, the virtual world "game" from Linden Labs. It's a great suggestion and an appropriate subject for the first game, other than the Wii, I've written about.

Second Life is a Blue game. Unlike most other games there's no real competition: users live in a virtual world, buying, selling, and interacting with one another and their surroundings. Users -- called residents -- trade goods and services using a currency called Linden Dollars. Millions of residents build and maintain their virtual world, then hang out in it. The game draws inspiration from Neal Stephenson's book Snow Crash, a classic for the geek crowd.

Like most other great BOS offerings Second Life took a giant gamble on their Eliminate, Reduce, and Create elements of the Four Actions Framework. Most other game developers were focused on tech innovation: raising key elements, at great cost, that held little consumer value. Linden's careful avoidance of this trap allowed them to focus. Despite that Second Life was released about the same time as many other virtual world systems -- including the Sims, which had a great brand name -- Linden's Second Life went on to render the competition irrelevant.

The key elements of Second Life seem obvious:

"Like any place in Reality, the Street is subject to development. Developers can build their own small streets feeding off of the main one. They can build buildings, parks, signs, as well as things that do not exist in Reality..." Neal Stephenson, Snow Crash.

Eliminate control. Residents of Second Life create their own world: Linden exercises a light touch. Unless a resident has become hopelessly obnoxious they have residents work out their own differences. This has resulted in plenty of "content" -- there's no lack of places for people to traipse around about in Second Life. If individual residents find a place distasteful or dull, they just go somewhere else. Linden's policies have encouraged the market to create better content, and at far less cost, than an army of editors.

Reduce traditional game competition. There basically is none. Users can try to become rich, and there's even a method to convert Linden dollars into real money, and vice versa. But for the most part users work together to build a better world rather than trying to destroy a worse one.

Raise community. Community and camaraderie permeate everything in Second Life.

Create Linden dollars: a virtual economy. The Second Life economy is more than just the virtual money. Linden has created artificial scarcity. By doing so, Linden has created an emotion-fueled, vibrant, and apparently sustainable economy. People have tried to create artificial scarcity before, and they keep trying (look at the virtual gifts on Facebook and similar sites), but nobody has come anywhere close to the level that Linden has. Like all successful Create elements Linden used technology and ideas already in existence: e-commerce was alive and well when Second Life launched. But the technology was catalytic, not the centerpiece, used to unleash an entirely new way of doing things in Linden's virtual world.

Blue Ocean Strategy In Real Life

IRL = In Real Life. Answering a question I've been asked a few times: Yes, I've used Blue Ocean Strategy to create products. Some went on to do great; others not so great. Whatever the eventual outcome, I believe in the process and wouldn't spawn a new business without going through it.

Here are the steps, in order, I personally recommend to create a BOS business. Remember, everybody seems to have a different answer to this question. Like everything else here, this is solely my personal opinion.

1. Create a Pioneer-Migrator-Settler Chart. Be honest: many companies are big red blobs that may not shrink in total revenue, but will shrink dramatically in gross profit, over time.


2. Do a comprehensive six-path study in this order:
   1) time/trends, 2) chain of buyers, 3) strategic groups, 4) alternative industries, 5) complementary products & services, then 6) functional/emotional appeal. Why that order? I'll explain in a later post. Officially, the order doesn't matter, but I came up with this after a lot of thought and having been through the process a few times. It's important to study these for both current buyers and, more importantly, non-customers.


3. In parallel, send some engineers to figure out possible things that can be used in the "Create" portion of the Four Actions Framework, coming up later. I've developed these rules for a successful Create element: 1) there's an overwhelming chance the element will involve technology, 2) the technology will be catalytic: the end-user won't notice it directly, 3) the technology must exist and is usually mature, 4) you're looking for a new use of the technology, and 5) the technology is usually, though not always, from a different industry. They should be spending more time at Disneyworld and CES, and less in the lab. You might need to attach a marketer to them to keep them focused. If you do, find a creative geek (shameless plug: or just hire me to work with your engineers).


4. Abstract key elements from the above and plot your As-Is Value Curve: allow no more than 10 key elements; the fewer the better. Don't allow participants to guess in advance which should be eliminated, reduced, raised, and created (ERRC'd).


5. Complete your Strategy Canvas by plotting substitute offerings.


6. Figure out which key elements to eliminate and reduce. Eliminate and reduce substantive key elements: if there aren't a few people who swear you'll ruin the company by eliminating and reducing these -- and who show how important the elements are by pointing out how much competitors are working on these -- the elements aren't important enough.


7. Given what's left, raise it -- high. This is fun: it's the easiest part of the process. Make sure you don't slip into technical innovation, innovation for the sake of innovation, when doing this work.


8. Make the engineers/marketers from the Create study come back and show their nifty things: see which complement the key elements you've raised and add real consumer value.


9. Map a TO-BE curve out of all this.


10. Now ... iteratively go back and forth over the prior steps until you find a set of key elements that allow you to draw a TO-BE curve that matters. When you think you're there, use the Buyer Utility Map to see if it adds adequate value. If not, back to the Strategy Canvas.

All this should take a substantive amount of time and cause mental anguish. If everybody is giddy, happy, and/or relaxed you've missed something.

Finally, take your new curve and transform it into a business model that makes billions of dollars.

PS: About those flops... I attribute those more to managerial failure than to any issues with Blue Ocean Strategy. Using BOS honestly and accurately will churn out great businesses, but talented teams and managers are still needed to execute the models. For help with this, read the last third of the book.

MSFT hunting YHOO for "breakthrough engineering"?!

In this interview Bill Gates says that Microsoft is pursuing Yahoo for "brilliant engineers."

Huh?

Seriously ... Unlike most who comment about Blue Ocean Strategy, I'm an engineer, not a strategic consultant. As an engineer first, I understand engineers. I can say with certainty, Bill, if you want "brilliant engineers" the way to get them is to look at those tiers of non-customers, not to buy the basket-case of Silicon Valley.

Look in a mirror. Bill, you're a college dropout. Steve Jobs is a college dropout. Larry Ellison dropped out. Sergey, Larry, Jerry, and David all dropped out of grad school. Wozniak dropped out, though later went on to finish. Paul Allen's a dropout. Ballmer finished his undergrad degree, but he's a B-School dropout. Given this list I wish I would have dropped out of school.

Now, let's look at the "brilliant" people you're ready to pony up $44B for. There's people like Toby Lenk, founder of eToys, with his Harvard MBA. Ken Lay and his PhD in economics: he was generally thought to be brilliant, until he wasn't. Like Lenk, Skilling also shared an MBA from HBS: during his interview he apparently told them "I'm fucking smart" making me wonder what he said during his prison-intake interview. Bernie Ebbers has an undergraduate degree.

One of the tenants of Blue Ocean Strategy is to redefine markets. In the case of Microsoft, maybe you should think about redefining HR practices. Think about your well-known support for the H1B program, and the message that sends to potential engineers. US-engineers see its primary purpose to depress wages; Indian's on the program feel like they're indentured servants. Few of the people you'd actually want working for you is thrilled with the program.

More importantly, ask whether Jobs, Ellison, or you could get an interview, much less a job, at Microsoft. Ask whether a different approach to defining talent might have made Vista turn out better.

Bill, you don't need to spend $44 billion on Yahoo to get brilliant people. You need to redefine the meaning of what "brilliant" means, then realize there are plenty of people out there. You need to make sure that once you rope those brilliant people in that you apply Fair Process to make sure they remain productive and don't stray.

$44 billion isn't going to change the Microsoft culture, and brilliant engineers aren't going to "save" the company. Remember DOS? You apparently purchased it for $50K. Windows? Grabbed the basic ideas from Apple, who did the same from Xerox. Power Point was a purchase, and Excel a knock-off. The gist is that Microsoft's great people -- You, Bill -- don't have traditional backgrounds and Microsoft's greatest assets -- Windows and Office -- aren't the result of "brilliant engineering."

Take a look at this picture. Ask how many of these people, if any of them, Microsoft would hire. Then remember that they built one of the greatest companies in the world.

NPI: Making sure good ideas die an early death

NPI is the six-sigma term for New Product Introductions. Most companies that refer to the metric use it as the end measure of an oftentimes elaborate process to create new products. The measure is usually an integer representing the raw number of new products pushed into the market, entirely without regard to quality or consumer value.

NPI epitomizes red ocean thinking. The measure itself entirely fails to measure the quality of the "new" product, or the value to the consumer. If a red ocean marketer can get their "NPI point" by renaming the ADXL330 accelerometer the ADXL331 accelerometer they'll do just that. A Blue Ocean Innovator, on the other hand, will bundle the thing into a handheld gaming controller and sell it as a key element -- a magic wand -- in the Wii.

NPI's and six-sigma are all about the containment of risk. The processes serve partly as the antibodies of an organization, making sure that all new cells "fit" and attacking any that don't. The problem, of course, is that Blue Ideas usually don't fit at first. Blue Ocean Strategy requires you to redefine your market boundaries. Doing that, by definition, often results in products and services -- businesses -- that the rest of the organization will see as disruptive and dangerous.

The irony, of course, is that remaining with the status quo -- being stuck in a Red Ocean of product line extensions, price cutting, and the never-ending battle with suppliers, customers, etc.. -- is the real danger to the business. Much like an auto-immune disease kills its host by tricking an organisms defensive mechanisms into the mistaken belief that "good" cells are harmful, so to do "bad" business processes (and people) make a company believe necessary change is dangerous, disruptive, or reckless.

This is one business problem I don't have a suggested cure for other than to watch your people and processes, and make sure the conservative Red's aren't over-running the Blue's. B-school professors and corporate managers disagree about the extent that these people should be separated. Some believe large companies are hopeless: that they'll never adequately encourage innovation. Others believe a combination of the right policies, processes, and incentives will allow innovation to thrive.

Whatever your belief -- whether a giant company really can push out organic innovation -- (hello, Apple) or whether it's hopeless (hiya, Microsoft) -- it's important to be cognizant of the challenges and to constantly adjust your policies.

Bloogle: Making "Portals" Irrelevant

Get it: Google + Blue Ocean Strategy = Bloogle? OK -- it's Sunday. I get to make a bad joke that'll probably bring about a letter from Google's trademark lawyers.

Many people don't think Google is a Blue company because the Googlers seem to be so into technical innovation: making things for no apparent purpose other than to invent. I spent over an hour on the phone with a prominent consultant who argued passionately that Google's pure Red Ocean (he got angry when I wouldn't budge and now won't return email). Normally that'd be deadly -- the red ocean, not the consultant -- except, in the case of Google, they know that their experiments are ... experimental. They're not betting the farm on Google Docs any more than they are on corporate jets or top-notch cafeterias.

There's a big difference between Microsoft building Vista then not being able to articulate a why, and Google creating GMail because somebody thought that during the process they might stumble upon something interesting. The entire time Google's run off buying Blogger and web-based word processors and a Brazilian social networking site they've kept a laser focus on maintaining the quality of their core search and advertising business.

Why is Google Blue? Type in www.google.com and notice a) they eliminated configuration options for regular users, b) they've dramatically reduced the clutter: both the visual clutter of other "portals" and the not-so-valuable stuff it represents, c) they've dramatically raised ease of use, and d) they created Page Rank: the magic algorithm that seems to read your mind and return relevant results.

Most people would say Google breaks my "Create" rule that technology isn't the centerpiece of a Create key element. They're wrong. The center of Page Rank is links, and links existed long before Page Rank. Similarly, Page Rank wouldn't exist without links but links aren't an overt part of Page Rank: links aren't entirely hidden but they're also not something Google would list as a key element.

Net-net: when Google launched they had many competitors. They didn't beat the competition: they made it irrelevant. The appropriately named Yahoo, whom I can't say enough bad things about, is still charging $300+ to be listed in their directory that fewer people seem to use every day while Bloogle's single-handedly changed the entire face of the advertising industry.

Wii Fit: The Blue way to weight loss

With the release of the Wii, Nintendo roped in the first tier of noncustomers: those that would have soon left to red ocean competitors Sony or Microsoft. There seems to be broad consensus in the gaming community that Nintendo will be a solid #1 in "next-gen" consoles installed base at the end of 2008, despite Microsoft's one-year lead in getting a product to market and Sony's prior dominance of the field.

The second tier of noncustomers are those who consciously choose against the market, and the latest gadget out of Kyoto is aimed squarely at this group. The Wii Fit is an advanced exercise pad that tracks your weight and movement, and turns the Wii into a digital personal trainer intended just for you.

The Fit shipped December 1, 2007, in Japan and Nintendo has already sold 1 million units. We in the US are scheduled for a Q2 release. I'll be waiting in line to buy one.

The second tier of noncustomers, in this case, are those that have no interest in videogames. Despite my geek credentials I fit into this group. I think the Wii's great because I like technology and business. I appreciate the brilliance behind the blending of technology and business, but video games just don't have much appeal.

I'll be all over the Wii Fit though, pardon the pun. The alternative to the Fit isn't other videogame systems (except maybe the great one hit wonder "Dance Dance Revolution") but, rather, gyms and trainers and that all time fitness favorite ... nothing.

I'm not sure what Nintendo will do to to capture the third tier of noncustomers, those in markets entirely distant (Wii telephony?, Wii-link to order food?, Wii pets?). But as I wait to find out I'll be spending less time on the treadmill and more time on the Fit; a skinnier person soon after the Fit finally ships.

Eliminate

Eliminate is one of the Four Actions Framework. In earlier posts I've explored Create; we'll get to cousins Reduce and Raise in another post. But for now it's Eliminate's turn.

Eliminate means just what the word says: get rid of something entirely. The "something" must be a key element, which means that it must be something substantive that consumers will notice. Something that your red ocean peers are clobbering one another over the head to include; something that's taking lots of competitor's bandwidth and getting lots of their red ocean marketing money.

Nintendo, as usual, is a great example. The Wii doesn't play movies. It's not that they decided to wait out the Blu-Ray (Sony)/HD-DVD (Microsoft) slug-fest; Nintendo skipped all movie capabilities, even DVD's.

I'm sure some engineer or marketer argued that it probably would've been relatively inexpensive to put a DVD player in a Wii, then kids can watch movies in their room on their Wii. See the catch? To market the capability they would have had to define the benefit to their new market, and by doing so limit the market. Nintendo would have had to spend more technical budget, and added complexity, to add a feature that boxed in their core message and made it more difficult to message the key value proposition to their larger base of customers and non-customers alike.

So Nintendo eliminated movie playing entirely. Not for technical reasons, and probably not solely for cost reasons. Rather, they didn't want to waste money, time, and focus to box in their new, blue market.

Take that key element, remembering that if the element isn't one at least a few people absolutely love and swear is necessary it isn't a key element, and get rid of it completely. Figure out what the right 1-2 elements are and vanquish them from your offering. Don't try to disguise the key element as something that's really just cost savings ("we'll eliminate employee health benefits!"). Key elements matter to consumers: if the buyer doesn't notice, you're not eliminating anything.

Eliminate is probably the toughest of the Four Actions Framework. It isn't easy. It's substantially more difficult than Raising and Creating, but is vital if you're hoping to create a blue ocean rather than a slightly less red one.

My Toyota Scion: A Blue Car

I have two cars. One is a 2007 BMW X5, with the big engine and lots of contraptions. It's huge: my wife loves it, and I love her, so I smile and try not to grimace at the gas pump.

My car, used mainly by my eleven year-old and myself, is a Toyota Scion xB. It's the bluest thing I've ever seen. Not literally: mine's silver. But, as far as cars go, it's tough to believe Blue Ocean Strategy wasn't involved with my car and the entire Scion product line.

Toyota clearly took their inspiration by looking at the six paths -- specifically at Strategic Groups, Functional/Emotional Appeal, and the Chain of Buyers -- and saw an opportunity. They built a car that is simultaneously the champ of being both a first "new" car and the ultimate second car. I'm going to guess Toyota's key elements, and their application of the Four Actions Framework, is something like this:

Eliminate factory options: I don't think there are any. Dealers can install many options but, as far as I can see, the factory always cranks out the same car. In this regard, the xB is a contemporary cousin to the Model T.

Reduce performance driving metrics. The Scion xB, or "box car" as my kid calls it, drives well. I don't know what a professional driver thinks about it, and I don't think it matters. It starts, it stops, it moves at a reasonable pace between starting and stopping, and doesn't use much fuel. The whole emotional factor of how a car "feels" is dramatically reduced.

Raise the level of confidence by lowering the level of risk of buyers remorse. The flat-fee pricing goes a long way to making those first-time buyers not worry they're being taken advantage of when negotiating a car price. Scion dealers don't negotiate, unless one takes into account things like "dealer fees" that nobody should ever pay anyway.

Create an awesome iPod integrated radio as standard equipment. Until you've tried this thing you don't know how fun it is. Like all BOS "Create" key elements this one leveraged existing technology, used it in a different way, and it makes for a more valuable offering.

Finally, a digression. I bought my car from Earl Stewart Toyota, which is the best car dealer I've encountered in my life. This is a shameless, entirely unsolicited, and entirely deserved plug. Earl -- you can call him from phone's scattered around the shop-floor and he answers email -- is a long-time car dealer who had a change of heart after reading Customers for Life, by Carl Sewell. CFL is apparently a sales strategy, whereas Blue Ocean Strategy focuses on strategic planning, but whatever effect the book had on Earl it worked; I purchased my Scion over six months ago and still remember what a great experience I had.

Happy Birthday, Mr. Edison

Happy Birthday, Feb. 11th, to the world's greatest inventor, Thomas Edison.

One interesting factoid: Edison's first patent, a vote counting machine, was a flop.

"...if there is any invention on earth that we don't want down here," said a committee chairman in 1869, "that is it." Edison's vote recorder was never used. (Source: Edison Papers).

So, the notion that people shouldn't invent solely for the sake of inventing isn't exactly new. People needed electric lights, and needed (ok -- maybe wanted) movies, and recordings. As a Florida resident I can personally attest that accurate vote counting is something plenty of politicians still don't want to this day. Our motto: let's remember to make sure our inventions add value while reducing cost.

Strategic Groups: Drawing the Line at Lines

The NY Times has a good article about Disney's plan to improve their California Adventure Theme Park: Will Disney Keep Us Amused?.

Disney Park's are a tough sell. I lived in southern California for awhile and bought a season pass to both parks. By the end of our year-long pass my then five five year-old, when asked whether he'd rather go to the community pool or to a Disney Park, always chose the pool. Disney's problem? To this day -- six years later -- he still says he'd prefer the pool than to a Disney Park, or the Wii to either.

Disney's issue is that they unleashed an entirely new category decades ago in the Theme Park industry, and now they're at the top of the pack of their Strategic Group. That is, when people choose whether to trade up or down they see Disney as the Platinum standard. Never mind that other parks cost less, offer less, but are more fun: take Nickelodeon's Nick Hotel in Orlando, for example. Nick-land, as they call it, is a hoot: my kid's always up for that. The rooms cost less than almost any Disney hotel and there's no admission fee for the activities.

Despite, that Disney's decided their answer lay in technology, which is how this analysis ended up in this blog. Let's look at Disney's original park curve: they Eliminated the filthy and dangerous element of an amusement park, Reduced wild rides, Increased magic and safety, and Created media tie-in. It worked.

Their new ride is in 3D; you ride through and play games that mimic the games people play at traditional traveling amusement parks, though there aren't prizes. Somehow it involves Toy Story. Disney: the ride sounds cool -- I'll eventually be on it -- but I don't get how it's transformative. An experience where you wait in line (ouch), ride through playing 3D carnival games (not bad but not breathtaking), then leave. I haven't seen it but it feels like red-ocean competition.

My guess is Disney should have thought about why people trade up to their parks, looked at the Chain of Buyers who decides to go to the Park's, and tried a gutsier move. For example, Disney knows modern people intensely dislike lines so why not focus on a strategy that gets rid of them?

Take the "ride" apart and put each 3D game into a series of mini-sections: make enough so none has an unmanageable line. If the lines get long, add more (and be glad at the expense: it exists only because of higher demand). Better yet, tie the game-playing experience into an online or console-based game that's somehow tied together. Kids practice on the Internet and Wii version, then show up at the park to kick-butt on the giant 3D one. That'll get kids to nag their parents to go to Disneyland, rather than the other way around.

Disney built a blue ocean by redefining the meaning of a Theme Park way back when. It's time to do it again; look to the non-customers, realize they're boxed-in at the top of their Strategic Group, confront the Chain of Buyers problem head-on, and think differently, like Walt did.

Putting people inside a video game sounds fun, but it also sounds a lot like an upscale version of the same thing people already have in their living rooms. If I find myself at California Adventure I'll try it, but I'll bet my kid would still prefer to hang at the pool or the beach. The experience there is also 3D, and amazingly realistic.

Microsoft: The Vista of the Red Sea

Across Time

I've written kind words about Microsoft of way-back-when, so it's time to explain how they ended up listed as both a Blue and Red Ocean company. I use Windows Vista. I'm not saying that to try to gain sympathy, but rather because it's relevant to this blog. As every other tech commentator in the world has pointed out, Vista has ... issues.

Vista is the poster child for technical innovation: engineering for engineering’s sake, which doesn’t add value consumers care about.

The late, great, Harry Chapin in a live recording of his song “30,000 Pounds of Bananas” summed up the basic problem when discussing why his brothers weren't impressed with his latest work. "Harry," his brother Steve famously opined. "It sucks."

Bill, Steve, Ray, or whoever is running the show at Microsoft: Vista sucks. It's not just that it's buggy and slow and has too few features to justify its price. All those things are true, but if they were done to give us greater value we’d forgive: the Wii is slower than its competitors but we don’t care. The issue is there’s no Raise or Create here, and you don’t seem to have eliminated anything. It’s a giant collection of pieces: billions of dollars of digital stuff, for no apparent purpose.

When creating Vista, Microsoft wandered, like the ancient Egyptian army, into the middle of a parted Red Sea. They were chasing down Linux and Mac-OS like Pharaoh was chasing down the ancient Israelite's. To those Egyptian soldiers, things must've seemed just fine for awhile. They were standing in the middle of the Red Sea and bearing down on their slave workforce. They thought they were making progress when the walls came crashing down.

Microsoft, Windows is the cornerstone of your might – the business equivalent to the army of ancient Egypt -- and it's standing in the middle of a temporarily suspended Red Sea. Get out of there: learn from the six-paths; figure out what to eliminate and reduce, what to raise and create.

The ugliest of the six-paths is Across Time because it’s inviolable: you’re not going to escape it. Marketers see it simply as trends. It's that, but more. To matter, in BOS terms, a trend must be 1) decisive to your business, 2) irreversible, and 3) having a clear trajectory.

We aren't going to be running software off local computers forever. We're not sure when that will go away, but it won't be long. Microsoft; you know that. You knew that when Vista was being built. You ignored the trend, like the ancient Egyptian army ignored the strange state of the parted Red Sea. It's only a matter of time -- and not that much time -- until those red waves come crashing in. Go Blue before then.