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Renewal at the Individual Business Level
To avoid the trap of competing at the individual business level, monitoring value
curves on the strategy canvas is essential. Monitoring value curves signals when
to value-innovate and when not to. It alerts an organization to reach out for
another blue ocean when its value curve begins to converge with those of the
competition.
It also keeps a company from pursuing another blue ocean when there is still a
huge profit stream to be collected from its current offering. When a company’s
value curve still has focus, divergence, and a compelling tagline, it should resist
the temptation to value-innovate the business again and instead should focus on
lengthening, widening, and deepening its rent stream through operational
improvements and geographical expansion to achieve maximum economies of
scale and market coverage. It should swim as far as possible in the blue ocean,
making itself a moving target, distancing itself from early imitators, and
discouraging them in the process. The aim here is to dominate the blue ocean
over imitators for as long as possible.
As rivalry intensifies and total supply exceeds demand, bloody competition
commences and the ocean will turn red. As competitors’ value curves converge,
an organization should begin reaching out for another value innovation to create
a new blue ocean. Hence, by charting a company’s value curve on the strategy
canvas and intermittently replotting its competitors’ value curves versus its own,
a company will be able to visually see the degree of imitation and, hence, of
value curve convergence and the extent to which its blue ocean is turning red.
The Body Shop, for example, dominated the blue ocean it had created for
more than a decade. The company, however, is now in the middle of a bloody
red ocean, with declining performance. It did not reach out for another value
innovation when competitors’ value curves converged with its own. [yellow tail]
has also dominated the blue ocean it created for more than a decade and has
since been successfully rolling out across the globe. It made the competition
irrelevant and has enjoyed strong, profitable growth as a result. However, today,
numerous other players have since jumped into the blue waters of new market
space. The test of Casella Wines’ long-run profitable growth will be its ability to
value-innovate again before imitators are able to compete both aggressively and
credibly with converging value curves. It’s also time for others like Cirque du
Soleil and Curves to reach for a new blue ocean. Hence, understanding how to
manage the dynamic process of continuous renewal is key.
A good example to illustrate this dynamic renewal process is
Salesforce.com
.
Salesforce.com
made a series of successful strategic moves to renew its blue
ocean in the B2B customer relationship management (CRM) industry. Since its
initial strategic move in the early 2000s,
Salesforce.com
has sustained
undisputed market leadership in the blue ocean of on-demand CRM automation
that it created for nearly fifteen years. This is all the more impressive as it
operates in the fast-moving high-tech sector. While numerous competitors, both
large, established incumbents with deep pockets and new upstarts, have tried to
dislodge it over the years,
Salesforce.com
has repeatedly broken away from the
pack by value-innovating again as other companies’ value curves began to
converge toward its own. In this way, it has successfully avoided the trap of
competing and kept itself in the blue. Consider:
In 2001,
Salesforce.com
redefined the traditional CRM software industry, by
effectively making traditional packaged software largely irrelevant. Gone were
the needs for expensive software, complicated and time-consuming client-side
installation, difficulty and risk in use, and the constant need for costly
maintenance and upgrades. Instead,
Salesforce.com
offered business users web-
based CRM solutions that focused on core functionalities, worked
instantaneously upon subscription, and had high reliability and usability with
ubiquitous access at a small fraction of the cost of traditional CRM software. In
this way,
Salesforce.com
created a blue ocean of all new demand that captured
small and medium-sized companies that had effectively been noncustomers of
the industry.
Over time, however, competitors jumped in to reap profits from the new
market space of on-demand CRM automation that
Salesforce.com
created. Large
players offered hybrid solutions, and an increasing number of small players
entered the on-demand CRM market in an attempt to provide similar offerings.
To break away from the competition,
Salesforce.com
made a new blue ocean
strategic move to renew its initial value innovation offering.
With the launch of
Force.com
, a cloud-based development tool for creating
add-on applications, and AppExchange, a web-based applications marketplace,
Salesforce.com
allowed corporate clients to obtain a range of on-demand
customized programs at low cost while still retaining the simplicity,
convenience, reliability, and low risk of its original offering, achieving both
differentiation and low cost.
To discourage imitation and further deepen its blue ocean that competitors
continued to eye,
Salesforce.com
went a step further and extended its value
curve by launching Chatter, a private social networking service that allowed
coworkers within a company to send, receive, and follow information updates in
real time, thereby enhancing collaboration and resolving the problem of
fragmentation that plagued the implementation and use of traditional CRM
systems. In this way, not only has
Salesforce.com
been able to maintain a gap
between its value curve and those of others over time, but it has also continued
to expand the size of the blue ocean, with large corporations now equally eager
to deploy on-demand web-based CRM applications due to its successive value
innovation moves.
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