Written by the Blue Ocean Team
As a middle market firm, don’t fall into the trap of going up against the biggest established players in your industry. Instead, you should be focusing on creating new markets.
Plenty of successful middle market companies grow fast without going head to head with the competition at all. To take your middle market company to the next level, learn to shift from competing to creating, and grow your business by offering unprecedented value to your buyers. Chan Kim & Renee Mauborgne show you precisely how to achieve this in their recent New York Times bestseller Blue Ocean Shift. Here we provide a quick snapshot to get you started.
Get Your Team On Board
The two most common practices organizations rely on for strategy execution are also the reason most transformative efforts fail. First, most organizations treat strategy creation and execution as separate and sequential activities. One group of people devises a strategy and then hands it off to another to execute.
Second, when it comes to execution, most time and attention get focused on making structural changes and using carrot and stick approaches, such as changing spans of control, aligning incentives, setting up key performance indicators, and the like.
While carrots, sticks, and structural shifts have their roles to play, they do little to inspire and build people’s confidence, which is critical to creating transformative change. Instead of treating execution as something that happens after the strategy has been set, build it into your strategy from the start or people won’t own it.
Don’t forget the emotions and psychology of your people. If you can move people by inspiring and building their confidence to own and drive your new strategy, they will be committed to seeing change through and overcoming the organizational constraints you confront. Change, after all, can be threatening.
See the Big Picture
As you grow, things can get complex quickly. With multiple layers and lots of opportunities to grow, it can get difficult to get new initiatives done like opening new markets or scaling operations. To identify the right opportunities and open up new markets, you must have a clear understanding of where you stand. To do this, you need to draw your as-is strategy canvas, a blue ocean analytic tool created by Kim & Mauborgne.
Your as-is strategy canvas will give you a big picture view of the current state of play in your industry. You will be able to clearly see the industry’s defining boundaries without getting lost in the small operational details.
By drawing the as-is strategy canvas, you will capture on a single page the current state of play, the assumptions the industry acts on, as well as the set of factors you and your competitors compete on. This will give you and your team a commonly agreed upon baseline to assess new ideas against.
Below is an example of an as-is strategy canvas of the fund-raising charity industry. As you can see, the strategic profile of the smaller fund-raising charities more or less mirrors that of traditional large fund-raising charities. These me-too charities all compete on the same set of factors, carrying out almost identical fundraising activities, ultimately leading to donor fatigue.
Imagine Where You Could Be and Scale Up
The next step is to imagine where you could be. If you’re a middle market firm faced with intense competition, declining demand and increasing costs, do not take industry practices as a given.
Don’t let the structure of the industry shape your strategy because just as individual firms created existing industry conditions, individual firms can shape them too. Just look at the US life-coaching industry. It is a $2 billion industry that didn’t exist 25 years ago.
To identify a blue ocean opportunity for your company, you don’t need to be a creative genius, you just need the right tools.
Create and Capture New Demand
Focusing on existing customers will keep your business anchored in the red ocean of existing market space. In most industries, organizations converge around a common definition of who their customers are. This prevents companies from seeing the wider potential of new demand outside their industry that they could tap into. In many industries, existing customers are just a drop in the bucket compared with all the noncustomers who can be reached through market-creating strategies.
To capture these noncustomers, you need to identify the pain points that stop them from buying into your target industry. Pain points are aspects of a business, product, or service that buyers, knowingly or unknowingly, are forced to put up with or find so inconvenient that they turn to alternatives. Utility captures the satisfaction that buyers get out of a business, product or service. Blocks to utility have the opposite effect. These are the difficulties or pain points an industry imposes on buyers.
Turn Problems Into Opportunities
Most industries become blind to pain points, just as buyers often become numb to them, in the belief that they are simply the way things are. But as a middle market business, you can turn these pain points into an opportunity to capture new demand. Start by identifying the pain points blocking buyer utility in your industry with Kim & Mauborgne’s buyer utility map.
A buyer’s experience can be broken down into six distinct stages from purchase to disposal – what we call the ‘buyer experience cycle.’ Running down the vertical axis of the buyer utility map are the six utility levers, some of which you might pull to offer buyers greater utility. Combined with the six stages of the buyer cycle, the map produces 36 potential utility spaces. Where does your industry concentrate its efforts among these 36 possible spaces?
Few industries or organizations realize how many utility spaces they could explore or, on the flip side, the narrowness of their current focus. Start filling in your buyer utility map to widen your focus and discover blue ocean opportunities.
Create Value and Lower Costs
As a middle market business, do you act on the assumption that, to achieve differentiation, you need to spend more? Do you assume that lowering costs means compromising on the distinctive value you can offer?
To truly stand apart and offer buyers unprecedented value, you need to break the value-cost trade-off. This means focusing on both (1) the factors of competition that you can raise and create to increase value for buyers and (2) the factors you can eliminate and reduce to decrease costs. Kim & Mauborgne’s Eliminate-Reduce-Raise-Create (ERRC) Grid, a blue ocean analytic tool, will help you achieve this.
Chart Your Company’s Future
Once you’ve filled in your ERRC grid, use it to start drawing your ‘to-be’ strategy canvas.
Your to-be strategy canvas, in one single visual, will show how your strategic profile, or future blue ocean strategic move, stands apart from your competition. It can be a great visual to present to investors, other departments and senior leaders of your organization.
With these tools in hand, chart your company’s future and shift from competing to creating.
Photo Credit: iStock by Getty Images
About Our Guest Blogger
The Blue Ocean Team shares case studies, stories and practical insights related to the blue ocean tools and principles developed by W. Chan Kim and Renée Mauborgne. Our blog is there to help you ‘shift your mindset, go beyond competing, and create your own blue ocean’, whether in business, government, or personal life. Find out more https://www.blueoceanstrategy.com/blog/
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Photo Credit: iStock by Getty Images