How to Create Uncontested Market Space and Make Competition Irrelevant
Author: W. Chan Kim, Renée Mauborgne
The basic premise of the book is that there are two types of markets:
- Red oceans which are markets which are known today – the mainstream where companies try to outperform their rivals to get a greater share of existing demand.
- Blue oceans which are markets that are unknown (yet to be created). While red oceans are characterised by competition for existing demand, companies that create blue oceans are creating demand and new markets – making competition irrelevant.
Traditionally, business books have focussed on how to compete in red oceans. Michael Porter is the undisputed thought leader in that space and he proposed that companies can either choose to be a cost leader or to differentiate. This book on the other hand proposes that companies that seek to create blue oceans pursue low cost and differentiation – simultaneously. The authors dubbed this approach “value innovation”. The book does provide a number of tools and techniques that help you formulate a compelling value proposition and thus create a blue ocean.
The book is an easy read and it will help build your “innovation” and “thinking outside the box” skills, and for those reasons it is well worth a read.
The target audience for this book is obviously company managers but even so, I like to take at least one thing away from each book I read and try and apply it to enterprise architecture. One of the tools in the book is called the “Eliminate-Reduce-Raise-Create Grid”. Essentially it involves analysing your industry and looking for ways to:
- Eliminate factors that the industry takes for granted even though customers no longer use them for making buying decisions.
- Reduce factors that have been overdesigned or overcomplicated in the race to beat competitors, resulting in ‘overserving’ customers. Customers may not want these things and wouldn’t pay for them but since they’re ‘free’ they’ll take them.
- Raise factors well above the industry standard where they create new value for customers. Or put another way – eliminate the compromises that the industry forces customers to make.
- Create entirely new sources of value for buyers, thus creating new demand, and allowing you to set prices without reference to the industry as a whole.
So how can you apply this to EA? When we’re building solutions, the concept of “value” should be foremost in our minds. But how often do you see this: the solution team meets with the client. They listen intently and studiously write down everything the client says. Then they label the result a “Requirements Document”. All too often, no effort is made to assess the “value” of what the client is asking for. The “Eliminate – Reduce – Raise – Create” tool is a really simple tool for quickly assessing the underlying value of each requirement. Here’s a simple example of how you can use this tool:
- Eliminate any requirements that do not have a hard, traceable link to business value. (e.g. “we’d like to be able to change the fonts and colours in the application and reorder the fields on the form”)
- Reduce any requirements that are “nice to have” or been put in just in case (e.g. “we need to be able to export reports to Excel. It would also be nice to be able to export to PDF, Word and HTML)
- Raise any requirements that don’t offer a level of future proofing for reasonably foreseeable events (e.g. “the application only needs to support 50 concurrent users”).
- Create requirements that have not been explicitly asked for (or have been explicitly excluded) but are generally accepted as important (e.g. “we don’t need any security built into the system because it will be hosted on a secure intranet”).
Pretty simple stuff – and we all do it subconsciously- but sometimes it’s good to apply a bit of rigour or structure to our subconscious – particularly when you need to communicate your thought process to clients.