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.