Blue Ocean Strategy for Manufacturers

Create New Markets and Leave the Competition Behind with the Blue Ocean Shift for Manufacturers

In today’s fast-paced manufacturing world, standing out can feel like an uphill battle. But what if the key to success isn’t about outpacing the competition, but making them irrelevant altogether? This is the central idea behind Blue Ocean Shift by W. Chan Kim and Renée Mauborgne. This blog will explore the book’s key concepts and strategies, offering a fresh perspective on how manufacturing SMEs can innovate and carve out new market spaces.

Disrupting Existing Markets

One of the most powerful impacts of a “blue ocean shift” is its ability to completely transform existing markets. Consider how CDs were once the primary way to distribute music until Apple’s MP3 technology turned the industry on its head. In manufacturing, this could be likened to the introduction of automation in processes that were once manual. Similarly, AI tools like ChatGPT are reshaping how industries manage information and technology. These innovations didn’t just offer something new—they forced entire industries to rethink their approach.

Creating New Markets

Not every innovation needs to disrupt the status quo. Some can create entirely new markets without stepping on existing players’ toes. For example, the Grameen Bank’s microfinance model provided access to loans for rural communities in Bangladesh, where traditional banks wouldn’t venture. In the manufacturing sector, this could be similar to introducing a new material or process that opens up possibilities for products previously deemed unfeasible. Even small shifts, like the move to customizable manufacturing solutions, can open up entirely new markets.

Redefining Existing Problems

Another approach is to redefine and solve existing problems in new ways. This doesn’t necessarily disrupt the market but reshapes it, capturing new segments while still creating value. For instance, consider how lean manufacturing principles have redefined efficiency and waste reduction. Much like Cirque du Soleil transformed the circus by blending it with theater, or how André Rieu revolutionized classical music by turning concerts into visual spectacles, manufacturing companies can also innovate within their industry and broaden their reach.

The Mindset Behind Blue Ocean Thinking

At the heart of blue ocean thinking is the belief that industry conditions aren’t set in stone; they can be reshaped. The key for manufacturers is to avoid getting trapped in a cycle of constantly watching competitors. Instead, focus on understanding customer pain points and innovating around what truly adds value to their operations.

Interestingly, it’s not just about new technology. A fancy feature or a state-of-the-art machine is meaningless if it doesn’t add value. That’s why blue ocean strategy emphasizes value innovation. It’s about making competition irrelevant by offering something truly unique. Chasing competitive advantage often leads to imitation rather than genuine innovation. By creating a blue ocean first, competitive advantage tends to follow naturally.

Differentiation and Cost Reduction

For manufacturing SMEs, differentiation and cost savings go hand in hand. Blue ocean strategists don’t just tweak existing features; they ask fundamental questions: What can we eliminate? What new value can we create? This mindset moves beyond traditional competitive thinking and opens the door to new possibilities.

The Blueprint for a Successful Blue Ocean Shift

To successfully shift to a blue ocean, companies need both confidence and the right tools. But how do you get everyone in your organization on board? The book outlines three critical rules:

1. Atomization: Break large challenges into smaller, more manageable tasks.
2. Firsthand Discovery: People are more likely to buy into a new idea if they experience its benefits directly. Help them see the limitations of the current “red ocean.”
3. Fair Process: Engage your team, explain your reasoning, and set clear expectations. Building trust and motivation requires treating others as you would want to be treated.

The Five Steps to Blue Ocean Shift

The book details five steps to successfully execute a blue ocean shift:

1. Get Started: Lay the groundwork for your strategy.
2. Understand Where You Are Now: Use tools like the Pioneer-Migrator-Settler Map and Strategy Canvas to assess your current position.
3. Imagine Where You Could Be: Envision your potential using the Buyer Utility Map and by exploring the three tiers of non-customers.
4. Find How You Get There: Apply the Six Path Framework and the Four Action Framework (ERRC grid) to chart your course.
5. Make Your Move: Implement rapid testing and refine your strategy using the Business Model Canvas.

Depending on your company’s situation, you can start at the step that best fits your needs—there’s no need to always begin at step one.

Getting Started with Your Blue Ocean Shift

The first step is identifying which product within your portfolio has the potential to unlock new market space. This is where the Pioneer-Migrator-Settler Map becomes essential.

Step 1: Get Started

The Pioneer-Migrator-Settler Map is a tool that categorizes your product portfolio based on the value they deliver:

• Pioneers: Products that represent true value innovation, introducing something entirely new and creating untapped market spaces.
• Migrators: Products that offer value improvement—better versions of existing products that still compete in the current market.
• Settlers: Products that imitate what’s already available, offering little differentiation and being most vulnerable to competition.

Mapping Your Portfolio

To create your own Pioneer-Migrator-Settler map, follow these steps:

1. Identify Your Core Products: List the main products within your organization.
2. Categorize Each Product: Determine whether each product is a pioneer, migrator, or settler based on the value it delivers.
3. Size Matters: The larger the circle representing each product, the more significant its impact on your organization’s revenue.

For more detailed guidance, you can explore resources like the Blue Ocean Strategy tools.

Key Insight: The manager leading the unit selected for a Blue Ocean Shift must genuinely believe in the initiative. Without their buy-in, the chances of success diminish significantly.

Build the Right Team

A Blue Ocean Shift is a team effort, especially in manufacturing, where cross-functional collaboration is key. It’s essential to have the right people on board to bring your strategy to life.

Team Composition

The ideal Blue Ocean team consists of 10 to 15 people with diverse skills and perspectives. Look for team members who:

• Are good listeners and can interpret feedback effectively.
• Command respect and influence within their departments.
• Aren’t afraid to question the status quo and challenge ideas.
• Have a can-do mindset focused on finding solutions.
• Provide valuable critique without dominating the team’s direction.

The time commitment for team members should be manageable—around 10% of their working time, with occasional spikes to 20% during critical phases.

Step 2: Understand Where You Are

With your team in place, the next step is to take a clear-eyed look at your current position in the market. This is where the Strategy Canvas becomes invaluable.

Create a Strategy Canvas

The Strategy Canvas is a powerful visual tool that offers a snapshot of your strategy compared to your competitors. For manufacturing SMEs, this means understanding where your business stands in areas such as product quality, delivery speed, customer service, and pricing. By laying out these factors visually, you can quickly identify where you excel and where you might be falling short.

Reflect and Learn

After completing your Strategy Canvas, gather your team and ask some critical questions:

• Does our curve differ significantly from our best-in-class competitors?: Are we truly setting ourselves apart, or are we just slightly better or worse in the same areas?
• Is our strategy genuinely unique, or just a slight variation of the norm?: Are we offering something different, or are we competing in a crowded space with minimal differentiation?
• Would our target audience become fans if they saw this canvas, or would they hesitate?: Are we delivering what truly matters to them, or are we missing the mark?
• If investors saw this canvas, would they be eager to invest or increase their stake because of a promising future?: Is our strategy strong enough to attract and retain investment?

By honestly answering these questions, you’ll have a clearer understanding of where you stand and where you need to focus your efforts.

Step 3: Imagine Where You Could Be

In many industries, including manufacturing, companies often impose self-limiting boundaries—rules everyone assumes must be followed. These restrictions can lead to missed opportunities, especially in a competitive landscape. To break free from these limitations, manufacturers need to envision not just where they are, but where they could be.

Identifying Untapped Opportunities with the Buyer Utility Map

A powerful tool to help identify these opportunities is the Buyer Utility Map. This map highlights unresolved problems that customers face—issues that, if addressed, could create significant value. This could mean identifying inefficiencies in production, service gaps, or unmet supply chain needs. By focusing on these areas, you can uncover opportunities to differentiate your offerings and provide greater value.

Engage Directly with Your Market

To accurately fill out the Buyer Utility Map, you need to go beyond assumptions and engage directly with your customers:

• Have Conversations with Customers: Regularly talk to your existing customers and potential clients to uncover pain points that might not be immediately visible.
• Don’t Outsource Your Insight: The knowledge you gain from these conversations is invaluable and should be directly experienced.
• Experience the Buyer Journey Yourself: Walk through the entire buyer experience as if you were a customer.
• Shadow a Customer: Observe a customer as they go through different parts of their process—be it production, assembly, or product utilization.
• Document Everything: Capture your observations with videos, photos, and detailed notes. This documentation will be essential as you refine your strategy.

Step 4: Find How You Get There

To successfully execute a Blue Ocean Shift, it’s essential to view your market from a new perspective, uncovering opportunities that may have been previously overlooked. The Six Path Framework is designed to help you do just that. By exploring these six different paths, you can identify new market spaces that your competitors may have missed.

The Four Actions Framework

The Four Actions Framework helps you reshape your product to stand out in a new market space. Here’s how it works:

1. Reduce: Which features can you reduce well below the industry standard?
2. Eliminate: Which features should you eliminate because they no longer add value?
3. Create: What new features can you develop that aren’t currently offered in your industry?
4. Raise: Which existing features should you significantly improve?

For a true Blue Ocean Shift, you must both remove and add features. Simply improving or reducing a few aspects won’t create a breakthrough; you need to think about how to change the offered value fundamentally.

Step 5: Make Your Move

After following the first four steps of the Blue Ocean Shift process, your team will have identified several promising opportunities. Now it’s time to take decisive action and bring those ideas to life.

Building a Sustainable Business Model

Once you’ve chosen a Blue Ocean strategy, the next step is to create a business model that is both sustainable and profitable. Start by setting an ambitious profit margin, and then build your business model around that goal. For manufacturing SMEs, this could mean focusing on efficiency improvements, strategic sourcing, or innovative pricing models.

• Strategic Partnerships: Who can we partner with to reduce costs or enhance value?
• Operational Efficiency: How can we streamline our operations to be more efficient?
• Employee Motivation: How can we inspire and motivate our team to achieve more?

When implementing your strategy, start small to iron out any initial challenges. Once you’ve refined your approach and have proof of concept, you can scale up more effectively. This methodical approach minimizes risk and ensures that your Blue Ocean strategy is built on a solid foundation.