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Friday, June 08, 2007

Innovating with Blue Ocean Strategy and Experience Co-Creation

Blue Ocean originally uploaded by kater_wg.
Innovation. Trying new approaches to the tried and true. Keeping an open mind. Nurturing Creativity. It really matters. On the personal front as well as in business.

Back in April, I shared I Have Met The Mouse and STORY Brings Brands To Life, a result of a magical DisneyWorld day courtesy of Maritz, that included a half day session with the Disney Institute.

As fantastic as the Disney Institute part of the Maritz meeting [observations from our field trip to the Magic Kingdom coming soon], what really sparked my imagination was listening to Francis Gouillart, President and Co-Founder of Experience Co-Creation Partnership, best-selling author and leading authority on strategy, and innovation [and intensely involved in INSEAD and the University of Michigan].

Gouillart, in his presentation, addressed Innovation from the perspective of the Customer's Experience and the invaluable role that "Co-Creation" [i.e., involving customers in the creation of value] plays in identifying distinct points of competitive differentiation.

Take that one step further and Experience Co-Creation becomes the process through which one arrives at a "Blue Ocean", based on the book Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant by W. Chan Kim, Renée Mauborgne from INSEAD, to which Gouillart contributed, about creating truly innovative businesses. Per Wikipedia, blue oceans represent "untapped and uncontested markets, which provide little or no competition for anyone who would dive in, since the markets are not crowded. A "red ocean", on the other hand, refers to a saturated market where there is fierce competition, already crowded with people (companies) providing the same type of services or producing the same kind of goods."

To truly innovate, one needs to reinvent through simplification what one brings to the marketplace. It's not about line extensions or further segmenting the business. In fact, segmentation tends to be bad for innovation. Rather, it's about coming up with radically new ways to grow the market. [Note: 80% of innovation happens at the low end of the market; 20% at the high end.]

[Interestingly, aspects of this discussion remind me of the MarketingProfs.com Book Club discussion [see Book Club is Back: Round #2 and in the Ring with Al and Laura Ries] of The Origin of Brands: Discover the Natural Laws of Product Innovation and Business Survival and convergence vs. divergence. According to CK, "... opportunities are not found where most people and companies look—that is, in the convergence of existing categories like television, the computer, cellphones and the Internet. Instead, opportunity for new brands lies in the opposite direction ... [via] “divergence,” which explains the miniscule survival rate of so many new brands)."]

The traditional approach to innovation wants to keep adding, which adds cost, further segments the market into a smaller customer base, and doesn't add comparable value. It's much better to SIMPLIFY.

Take Cirque du Soleil. Is it a circus? Well, in some sense yes. But, it has done away with animals [50% of the cost structure]; it eliminated star performers [another 20% of cost], reinvesting in magnificent costumes, unusual music, brilliant choreography. It borrowed from theater to tell a story. The end result is something totally different, in its own category and that viewers value highly -- enough to pay a significant premium. In other words, Cirque du Soleil has created a Blue Ocean.

It has built differentiation based on distinct value elements.

Yellow Tail represents another example: a casual Australian wine offering simplicity and consistency via few choices, an innovation in a market where complexity and inconsistency are the rule. The result is that Yellow Tail has grown market share in a short period of time, without significant advertising expenditures, over a multitufe of better advertised other choices, imports, etc.

Critical to building a Blue Ocean is creating a VALUE CURVE that looks at value through the eyes of the customer. It's not about the product benefits or the manufacturing benefits. It's about what matters to the customer.

For wine, the key elements of the customer's experience include:
- price
- wine, science, connoisseur dimension
- image
- aging quality
- heritage and prestige of vineyard
- wine complexity
- range of products
- ease of drinking
- ease of selection
- fun and adventure

The traditional value curve for premium wines ranks all of these elements high and on a similar level; for mid-market wines, medium. But, for Yellow Tail, price is slightly above mid-market, wine science/connoisseur dimension, image and ageing quality are stripped; heritage/prestige, wine complexity and range of products [3 to 7] are mid/low, and ease of drinking, ease of selection and fun/adventure extremely high! [ 3 elements that don't even factor into traditional wine experiences!].

Formule 1 breaks the hotel paradigm of the 'etoile' [star] rating system for hotels. Formule 1 is a low budget french hotel owned by Accor Hotels [also owns Motel 6 in US].

The elements of customer experience for hotels includes:
- eating facilities
- architectural aesthetics
- lounge appeal
- room size
- 24 hour receptionist
- room furniture/amenities
- bed quality
- hygiene
- silence
- price

Traditional hotel chains offer a relatively similar ranking across all of those elements, higher for a 2 star hotel, and lower for a 1 star. Formule 1 on the other hand offers no eating facilities, zippo in atmosphere or architecture; room size is based on the Japanese model; imagine a self-serve kiosk [think self check-in at the airport] rather than a live receptionist, and relatively little in room furniture/amenities. However, those elements that do matter to the traveler [bed quality, the cleanliness of the rooms, and silence] have been pumped up dramatically, and the price closer to that of a 1 star hotel, but significantly below that of a 2 star hotel.

Again, this represents a value curve viewed through the eyes of the consumer where poorly valued elements have either been eliminated or significantly reduced and resources focused to significantly enhance highly valued elements. The full experience has been examined in terms of the customer's interactions with the "experience environment" [i.e., the company] to determine which aspects matter and which don't, to then create a solution where both company and customer win.

Up to this point, we've looked at organizations where the company fully controls the delivery of the experience. Imagine, though, taking that one step further and involving the customer in the design of the experience. In other words engaging in co-creation to deliver a blue ocean.

In my mind, this represents a significant paradigm shift. As consumers, we are used to being mostly passive absorbers of stuff, services, experiences. Think of a visit to the doctor's office: don't you do what the receptionist, nurse, doctor tell you to do? [fill out this form, step on the scale, etc...]. We are essentially on the receiving end and simply deal with the situation. [I find that the more automated an option I have -e.g., self-checkout, ATM, online- the better I can deal with a situation over which I otherwise have no control.]

Today, though, we are seeing a world where individuals/customers are not only highly connected, but also extremely well-informed [often better than salespeople], increasingly active in the purchase process, and ready to make decisions. We no longer need or want to be passive recipients. We prefer to be a part of the process. We want the interaction with the companies we care about to be unique experiences. And, ideally, we want to be involved in the creation of that experience with the company [i.e., co-created]. Think Build-A-Bear.

To illustrate, consider Sumerset Houseboats in KY, a manufacturer of custom houseboats. For years, customer satisfication hovered at 70%. Why? By analyzing the points of customer interaction, Sumerset decided to include a camera during the manufacturing process. It educated purchasers. It also gave purchasers a sense of pride of ownership. Customer satisfaction has increased to 90%. The camera concept created a platform for interaction and winds up benefitting both parties. For the company, it limits rework. For the customer, it means a differentiated customer experience.

Another benefit that Sumerset sees is the creation of customer communities [think Harley Davidson] both on the customer end as well as the company side, decreasing marketing costs. The collective community becomes a source of R&D. Value increases and it's that much easier to sell more [think of iPod/iTunes where people sell the product, they talk up the benefits, create and share playlists, etc.].

The next installment in Innovating with Blue Ocean Strategy and Experience Co-Creation will look at co-creating a new experience first at the strategic level and then at the process level.

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