Blue Ocean Strategy

VP of Strategy: “What do you want to achieve?”
Me: “I want to hit $1M revenue as quickly as possible”

I was a Product Manager for a Network Security device seeking guidance from our VP of Strategy. His response took me by surprise. He said “If your objective is to hit $1M revenue; you should buy a home and flip it. You are in the wrong business”

This is when I realized my objective was not really to hit $1M in revenue. It was to get my product used by a lot of people and the result would be $1M revenue.

It’s always good to distinguish the objective and the measurable outcome of any strategy or vision because we tend to make different choices when we focus only on the outcome. Another important aspect is when we focus on the real objective instead of revenue; we tend to innovate and also invest in product lines that may cannibalize our current revenue sources but would ensure that we stay on the leading edge of value creation for our customers.

Take for example Blockbuster. Not very long ago Blockbuster was a very popular video rental company in America. This was a household name and you could rent any new movies for $4 and sometimes $6. They would even charge you a bit extra if you didn’t rewind the video cassette before returning. Their business model was booming with no threat in sight; the content consumption standards changed so Blockbuster started renting out DVDs in addition to cassettes.

Then came the tiny startup from silicon valley called Netflix. With the form factor of DVDs it was now possible to mail them through the good old US Postal Service. They came out with an innovative model where you subscribe to a plan and they’d mail you a DVD. You can manage your queue from their website. Blockbuster probably didn’t see this coming but they are now out of business. They came up with their own subscription service and tried to use their stores as an advantage by allowing people to return the DVDs either in store or through mail but it was too late. Their business model couldn’t stand the decline in business because customers switched to Netflix.

There are many such examples that happen in the industry – when one focuses on purely revenue as a goal we tend to make decisions that don’t serve us in the long term. For example Kodak invented the digital camera long time ago but never brought it to market because it would cannibalize it’s print business. Nokia could have invented the smart phone but Apple got there first. Sony the pioneer of the walkman is no longer a leader in personal music space etc. etc.

Often when thinking about new product strategy; people also tend to focus on a pure quantitative goal like number of users or number of units sold, revenue etc. and tend to neglect a qualitative metric like customer satisfaction, repeat purchasers etc. In my experience at several jobs; I have seen that neglecting the qualitative metric leads to poor execution of the strategy and every goal should have both quantitative and qualitative aspect.

When thinking of a product strategy it’s also important to not get into check list matching with a larger competitor because the larger competitor will always win. A good strategy would take advantage of technology trends like what Netflix did and decrease the cost of doing business while focusing on the value for the customer that it would not be a difficult choice for the customer to switch from the larger competitor to this new product or service.

Take for example the mobile cab ordering services like Uber or Lyft. They take advantage of three things that are now enabled with smart phones.

  • Ubiquitous connectivity
  • Location Service
  • Online Payments

By leveraging these three features; they have removed the pain of calling somebody and explaining to them the address several times. It also took away the pain of carrying cash and by using connectivity (both the driver & the customer) it can always tell the customer where the cab is while they are waiting. These few initiatives have allowed them to be more efficient and deliver a more enjoyable service to customers.

There are many similar scenarios that play out in our day to day lives; and some of them we only realize when we look at them in hindsight. The VP of Strategy at this company recommended a very good book to me titled “Blue Ocean Strategy” that I love and recommend. There are some interesting case studies and a different way to think about how one can compete with a much larger incumbent.

Mobile and the use of smart phones is changing many aspects of our daily life and companies that realize and take advantage of the trends are going to stay relevant as the consumer behavior changes and the companies that fight the change are going to have a difficult time defending their turf and the same is true for any technological change or advancement.

Comments

comments