Blue Ocean Strategy Part 1 – Value Innovation

Author: tracysigler | Posted: March 11th, 2011 | | Tags: , , , , , | 2 Comments »

Google, Salesforce.com and Sequoia Capital just contributed to a $32 million funding round for HubSpot, a Cambridge, Mass., developer of online marketing software.

Company founders Dharmesh Shah and Brian Halligan have said they were influenced by the book Blue Ocean Strategy. Whether they have actually created a “blue ocean,” or uncontested market space, with their product remains unclear to me, but obviously some smart folks have decided to invest in the business.

Red Oceans are crowded with bloody cutthroat competitors. Operating in a Blue Ocean means your “value innovation” has broken through traditional market barriers. You’re not fighting for market share. You’ve created a new market and attracting customers that didn’t previously exist.

 

Value Innovation is the cornerstone of Blue Ocean Strategy and according to the authors it occurs only when companies “align innovation with utility, price, and cost positions. If they fail to anchor innovation with value in this way technology innovators and market pioneers often lay the eggs that other companies hatch.” As the business cliche goes “pioneers are the ones with arrows in their backs.”

Most companies choose one of two paths:

  • The high end: Differentiation by creating greater value at higher cost.
  • The low end: Broader appeal through reasonable value and lower cost.

Blue Ocean Strategy means Value Innovation, or simultaneous differentiation and low cost. So there’s the rub. How do you deliver more for less?

If you want to make your competition irrelevant you’ll have to create a new way to meet a market need, and create a new market in the process.

The authors have studied scores of companies and their competitors across over 30 industries as far back as 1880. The bottom line is that businesses with a Blue Ocean Strategy are much more likely to be profitable and successful long term.

There are various analytical tools and frameworks to help create a Blue Ocean Strategy or possibly to identify companies with such a strategy that may be worthy of investment. In some upcoming posts well discuss those. Sound good?