Blue Ocean Strategy Tools: The Four Actions Framework and ERRC Grid

After you define the three tiers of non customers, the idea is that you poll these noncustomers and find out what it would take to purchase your product or service. For example, Nintendo asked people in their three tiers why they didn’t play games. Then they asked what would entice them to play. They took the answers to those questions and designed the Nintendo Wii. It has been a huge hit, attracting noncustomers who never before played electronic games.

The typical electronic game was very high tech and difficult to learn, which thrilled the young antisocial males in that market, but turned everyone else off. The average person wanted something easy to learn and have fun with. Looking at the competitive factors researched for electronic games (see Creating Your Strategy Canvas, May 11, 2009), we find out the following regarding the noncustomers we researched from the Three Tiers:

1. They thought the price was high, preferring something more affordable
2. They like the graphics but the very high resolution wasn’t necessary
3. The number of games was still important for variety
4. The online play wasn’t so important
5. They disliked the complexity, wanting something much simpler
6. The console specifications didn’t need to be so broad making the console difficult to learn
7. They wanted the additional feature of activity
8. They wanted the additional feature of being easy to use

OK, so what do we do with this information? When you look at the competitive factors, there are really only four actions you can take with them. You can eliminate them completely, you can reduce your investment in them, you can raise your investment in them or you can create totally new factors. These four actions then are the basis for creating a new strategy canvas. Here is a picture of the concept:

(from Kim & Marborgne)

To help you keep track of your competitive factors and see what you are doing, the Eliminate-Reduce-Raise-Create Grid (ERRC) keeps the factors sorted:

(from Kim & Marborgne)

Once you have this information, now you can recreate your value curve on the strategy canvas.

(from Kim & Marborgne)

See how different the Red Ocean and Blue Ocean Value Curves are? These represent both the old (Red Ocean) and new (Blue Ocean) value propositions to the customers. It is easy to see the difference and to show this to the entire company from senior managers to janitorial staff and have them understand how the company or product will be different.

Email me now (info@corporatestrategy.com) for further instructions on how to use the Four Actions Framework and ERRC grid or to request information regarding our speaking and consulting services. See our website http://www.corporatestrategy.com/

The Three Tiers Tool - Identifying your non customers

OK, so now you have created your PMS map and are realizing most of your products are in a great big bloody Red Ocean where you are constantly fighting off the competition in a shrinking pool of revenue and profit. You have created your strategy canvas, and have tested the competitive factors so you know just what factors the market makes decisions. Now what?

Well, this is the fun part. Looking at your strategy canvas and the competitive factors, there are four things you can do with competitive factors. You can eliminate them, reduce your investment or level of offering in them, raise your investment or level of offering in them, or create new ones. It is these actions or strategic moves taken by the CEO that helps to formulate the new blue ocean strategy.

The challenge is that these actions are not taken in a vacuum. Any action (or non action) must be supported by valid data. Where do you get this data? From the market place. You will have some surprises. Factors you and your staff are emotionally tied to may not have any interest at all from the customer point of view. In fact, they may be liabilities. These are the factors you will eliminate and stop investing resources in them.

What is critical here is what market place you decide to research. If you research only the current customer base in the industry, what are you doing? You are relegating yourself to the Red Ocean of bloody competition. I do recommend that you research your current market place. However, you must go to the non customers. There are usually tiers of non customers.

So let's look at a tool called the Three Tiers. In the center is your red ocean market. So if we use the electronic game industry as an example, young antisocial males would be at the heart of the red ocean market. They are the primary players of electronic games.

Moving away from them, the first tier would be males that have outgrown that stage of their life and may still play games, but are looking for something else. When they find it, they will bolt away from these games. This first tier is followed by girls, who know about games, can play the games, but don't want to. They reject the games in favor of more social activities. So girls are the second tier of non customers. The third tier of non customers is probably everyone else, seniors, families, elderly. See the Three Tiers example below:



To receive a copy of the Three Tiers instructions, email me at drsarahl@corporatestrategy.com with your name, company and contact information.

Can there be a Blue Ocean Strategy in the Training and Development Industry?

Note: A few days ago I attended the ASTD conference in Washington, DC specifically to hear the keynote address given by Renee Mauborgne. Rene is co-researcher and co-author for the best selling book Blue Ocean Strategy: How to create uncontested market space and make the competition irrelevant.

According to Tim Hill, President, Blackboard Learn Professional Education, Blackboard Inc, the training and development industry is a splintered industry with a lot of competition. "Very red", he says, when putting it in the context of Blue Ocean Red Ocean terminology, where blue oceans are new market spaces with no competition, and red oceans are the current market spaces where all the competitors compete.

Renee suggested that if you can answer the following questions, you can determine if Blue Ocean Strategy is relevant to your situation.

· Is your company facing heightened competition from domestic and international rivals?

· Do your sales representatives increasingly argue they need to offer deeper and deeper price discounts to make sales?

· Are you finding you need to advertise more to get noticed in the marketplace, yet the impact of each advertising dollar spent is falling?

· Is your company focused more on cost cutting, quality control, and brand management at the expense of growth, innovation, and brand creation?

· Do you blame your slow growth on your market?

· Do you see outsourcing to low cost companies or countries as a principal prerequisite to regain competitiveness?

· Are mergers and acquisitions the principal means your company sees to grow?

· Is it easier to get funding to match a strategic move made by your competitor than it is to get internal funding to support a strategic move that allows you to break away from the competition?

· Is commoditization of offerings a frequent worry of your company?

· List your key competitive factors; now list your competition’s. Are they largely the same?

If you answered "yes" to many of these questions, then you are swimming in a red ocean and should be looking for new markets to serve. Blue Ocean Strategy would be relevant to your company.

If Blue Ocean Strategy is relevant for you, then what can you do to bring it to your company? If you answered Yes to half or more of these questions, then I would argue that Blue Ocean Strategy is right for you.

Let’s look at the video game industry. Nintendo was lagging behind Microsoft and Sony, and didn’t like it. When they created the Wii, they went to several levels of non customers. The first line of non customers were the occasional users, typically other males who were outgrowing electronic games and were ready for something else. The next tier of non customers were girls who preferred connecting with each other than playing with technology. The third tier was everyone else, families, seniors and others.

Nintendo asked them what would make them play games and then designed a game that would fit their needs. Thus the Nintendo Wii was born and has been wildly popular with girls, families, and seniors. They reduced their costs by going low tech and increased the value by making it easy to understand, fun to play and active. Thus the Wii has outsold their competitors at a very high profit.

Let’s look at the performing arts industry, specifically classical music. Audiences are shrinking, costs are going up. The value is perceived in the well known artists who are very expensive. Andre Rieu has created a Blue Ocean Strategy in performing arts. He has no star performers, and brings classical music to the people in a fun and entertaining manner.

How did he do that? He researched the non customers and saw that they were intimidated by opera and concert halls. He lowered the veil of mystery and made the concerts people friendly. His concerts are in the top ten of all performing arts venues and outsell Bruce Springsteen.

Can there be blue oceans in the training and development industry? Renee argued that if Nintendo can do it going low tech, Andre Rieu can do it bringing concerts to the people and Perdue Farms can do it with a dead naked chicken, you can do it in your industry as well.

To check availability of Dr. Sarah Layton for speeches, workshops or strategic planning sessions, email her at drsarahl@corporatestrategy.com

Creating your strategy canvas

The Strategy Canvas is a critical diagnostic and action tool utilized in the Blue Ocean Strategy process. It allows an organization to visualize the competitive factors and the current state of play of those factors within an industry and then compares the organization’s offering with those of the industry in general. When combined with other tools, the strategy canvas helps you create your new blue ocean strategy.

We have already discussed Value Innovation as being key to Blue Ocean Strategy (see April 1, 2009 blog post). The strategy canvas helps you to create value innovation. As you read this, refer to the strategy canvas example below of the electronic games industry.

The strategy canvas has three components. First are the competitive factors. Competitive factors are the six to twelve features or benefits considered key or essential to the promotion of a product or service to its intended market. It is a value element used to attract buyers. These are listed across bottom horizontal axis of the canvas.

The second component is the Offering level up the vertical axis. The level of a competitive factor that the buyer receives and a company invests. I.e. at what level do you provide education? A high score means a company offers buyers more, and therefore invests more in that factor. In the case of price, a higher score means a higher price.

Understand that since you are going to be listing only your top 6 – 12 factors, the level of the offering is going to be high for each factor and each competitor in the industry.

The third component is the Value Curve created when you plot the competitive factor against the offering level and connect the dots. This key component of the strategy canvas is created when the offering level of an industry’s or organization’s competitive factors are plotted on the strategy canvas and the dots connected.

Think of this as a visual representation of the industry’s value proposition. A value proposition is what the customer gets for their money.

Because competitors benchmark each other, the competitors in each industry will follow the same general curve shape. Thus you can average the results and combine to create the industry canvas representing all competitors.

To receive a copy of the strategy canvas worksheet so you can create your own strategy canvas, email me (drsarahl@corporatestrategy.com) with your request, name, company and contact information.

The Pioneer-Migrator-Settler Map: Visualizing the potential of each product in the future growth of the company

Often in the corporate world, we get so buried in numbers and words that it is difficult to see the big picture. One of the key principles of Blue Ocean Strategy is to focus on the big picture, not the numbers. How much easier it is to understand a position or concept when you can see a picture of it.

The Pioneer-Migrator-Settler (PMS) Map is a diagnostic tool that allows you to see just how your revenue generating products and services fare in their contribution to the future growth of the company. It helps you determine if you are fighting for your life in the Bloody Red Ocean of competition or enjoying the beautiful deep Blue Ocean with no competition in sight. Key products are organized into three categories and then displayed by size.


The Pioneers are products that offer unprecedented value and high profit growth potential. They are not at all like the competition, actually have no real competition and enjoy a market all to themselves. Examples of Pioneers include Cirque du Soleil, Nintendo's Wii, and Casella [yellowtail] wine.

The Migrators are products and services that have value but are not innovative. These products sit on the border between Red and Blue Oceans and may have profit growth potential if some changes are made.

The Settlers are products and services that follow the industry norms. They are not innovative, do not diverge from the competition, generally have little or no profit growth potential, and face a shrinking pool of customers. This is the Red Ocean. Most products on the market today fall in this category. Examples of Settlers are cars, trucks, appliances, services. The chart above is typical of most companies today.

We like to think we have a really unique product or service. The reality is that to the customer, you look like everyone else. It is critical for CEOs and boards of directors to look realistically at their products and services to determine, first where they fall, really, on the P-M-S map, and then, what are they going to do about it.

The companies that are serious about the truth will take this question to the market and get their answer there. We are all too close to our products and services to be objective.

So, if you want to create your own P-M-S Map, email me drsarahl@corporatestrategy.com with your name, company and address and I will be happy to send you the instructions.

Dr. Sarah Layton, CMC, CEO and Managing Partner of Corporate Strategy Institute, is a certified management consultant and motivational speaker. Blue Ocean Strategy, outlines the processes of removing the fight for competitive advantage and the battle for differentiation typical of many corporate strategies.

Red Ocean vs. Blue Ocean

Don’t you just hate when people make up terminology to suit their purpose? You may think that Chan Kim and Renee Mauborgne may fall into the category of trying to coin new words to set their concepts apart, but there is method to the madness.

The concept is quite simple to understand. The Red Ocean is where every industry is today. There is a defined market, defined competitors and a typical way to run a business in any specific industry. The researchers called this the Red Ocean, analogous to a shark infested ocean where the sharks are fighting each other for the same prey.

A couple of years ago, my husband and I vacationed in Tahiti and went on a shark feeding dive. It was amazing to see how the sharks tore apart the chum and beat each other up over every morsel. Isn’t this much the same behavior we see in our industries? Thus the term, Red Ocean.

The Blue Ocean, on the other hand, is calm, smooth, with lots of food and little or no competition. This is where everyone would like to be and it is possible for you to have a Blue Ocean.

Consider some of the well known Blue Oceans created by the New York Police Department, Southwest Airlines, Cirque du Soleil, Casella Wine [yellowtail], Nintendo (Wii), Cemex Cement, and The Body Shop. These organizations created their blue ocean and so can you.

Here are the differences between the Blue and Red Oceans.


So just what does this mean? Let’s take the differences one at a time.

Focus on current customers vs. focus on noncustomers. In most industries there is little effort to attract new buyers to the industry, thus the focus on the customers currently purchasing in that industry. In the Blue Ocean, there is a focus on trying to increase the size of the industry by attracting people who have never purchased in that industry.

Compete in existing markets vs. Create uncontested markets to serve. Sounds good, right? But how do you do that? Existing markets are all the customers doing business in the industry right now, whether they are doing business with you or your competitors. If someone wins a customer, then it is assumed, someone will lose a customer. For someone to win, someone must lose.

In uncontested markets, there is only a winner, you. No one else is fighting for the business because either they don’t know about it, or they don’t know how. They will try, of course, but if you have done things the Blue Ocean Strategy way, they will not be successful for a very long time. Take Cirque du Soleil, for example. I read where there have been about 150 companies trying to compete with them, everyone went out of business. And after [yellowtail] wine came out, many wineries tried putting an animal on their label. None of them had the same success.

Beat the competition vs. Make the competition irrelevant. The competition becomes irrelevant because they cannot duplicate the ideas in a way that is a commercial success. Remember, the whole idea of Blue Ocean Strategy is to have high value at low cost. If you are doing that, how can anyone compete with you? All the would-be competitors fall by the wayside.

Exploit existing demand vs. create and capture new demand. You will be creating value so high that you will be attracting customers that never before would have considered entering the market. Nintendo’s Wii appeals to families and seniors. [yellowtail] attracted beer drinkers, Southwest Airlines appealed to auto travelers.

Make the value-cost tradeoff vs. break the value cost tradeoff. If you cut your strategy teeth on Michael Porter’s Competitive Strategy concepts, as I did, you understand that there were only two strategies to chose from, value or low cost. It was understood that you could not have both value and low cost. Kim and Mauborgne have broken that concept and said that you can have high value and low cost and developed the tools to do it. In fact, if you don’t break the value cost tradeoff, competitors will easily duplicate what you are doing and the ocean will once again be very red.

Align the organization with differentiation OR low cost vs. aligning the organization with differentiation AND low cost. You can’t just say you are going to have differentiation and low cost. You must search every nook and cranny of your processes and organization to strip away unnecessary cost. The entire organization must be aligned this way...anything that doesn’t create or contribute to value, gets eliminated or reduced. It is just the most efficient way to run an organization whether in a blue or red ocean.

Dr. Sarah Layton, CMC, CEO and Managing Partner of Corporate Strategy Institute, is a certified management consultant and motivational speaker. Blue Ocean Strategy, outlines the processes of removing the fight for competitive advantage and the battle for differentiation typical of many corporate strategies.

Aligning Utility or Usefulness to Create Value Innovation

In order to have value innovation, the value to the customer, the price to the customer and the cost to the company, must all be aligned. If any of these three elements are out of alignment, the initiative will not be a commercial success. Just try to have the price out of alignment with the cost. The company will lose money. Or have the price not in line with the value to the customer, the customer won’t buy and the product won’t be a commercial success.

Value can be such a nebulous word. Kim and Mauborgne, the researchers and authors of Blue Ocean Strategy, simplify it by describing six ways you can be valuable to a customer. They describe the word utility as the usefulness or value that provides the reason customers will buy. There are six ways a company can provide value: increase productivity, improve simplicity, improve convenience, reduce risk; be fun and/or improve image and be environmentally friendly. Virtually every value you can come up with will fall in one of those six broad categories.

According to the free dictionary, value innovation is a business strategy that involves thinking about strategy in terms of creating entirely new markets or redefining existing markets. The concept was also created by Kim and Mauborgne. There are five dimensions of Value innovation:

1. Industry assumptions: These are the usually unwritten rules of the industry. Value innovators challenge and leapfrog these. Years ago, for example, the professional services industries (such as law and medicine) had an unwritten rule about not advertising for patients or clients.

2. Strategic focus: Value innovators use the new tools to create new markets rather than follow existing ones. These new tools include the strategy canvas, four actions framework and other tools.

3. Customers: Rather than looking for differences, they look for commonalities between customers. Value innovators do not segment into smaller and smaller niches. Rather they group segments or niches by finding the common ground so they can create larger and larger markets to serve.

4. Assets and capabilities: Value innovators build capabilities to fit the market rather than defining the market according to their capabilities. They get out of their own way by continually growing their capabilities and learning new ways to add value. Sometimes the capabilities needed are less than the company can offer. For example, Casella wine was capable of aging wine, but the market they were after indicated that aging didn’t matter to them. Casella created a wine that wasn’t aged, creating a major cost saving.

5. Product and service offerings: Value innovators offer goods and services that customers value even if it means moving outside their established business. Cirque du Soleil saw that the circus non customer really valued the venues of other industries such as theater, dance, and opera. They included those offerings as they re-invented the circus.

For a free copy of the Customer Utility Chart, email your request to me at drsarahl@corporatestrategy.com with your name, company and email address

Dr. Sarah Layton, CMC, CEO and Managing Partner of Corporate Strategy Institute, is a certified management consultant and motivational speaker. Blue Ocean Strategy, outlines the processes of removing the fight for competitive advantage and the battle for differentiation typical of many corporate strategies.