WHY LOWERING COSTS AND INCREASING VALUE DOESN’T NEED TO BE A TRADE-OFF

May 28, 20190training

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WHY LOWERING COSTS AND INCREASING VALUE DOESN’T NEED TO BE A TRADE-OFF

May 28, 2019 0training

Credit: The Blue Ocean Team

Do you often find your
organization making value-cost trade-offs – either creating greater value for
customers at a higher cost or creating reasonable value at a lower cost?

In a competitive industry,
companies tend to choose their position on a range of value-cost trade-offs
that are available given the structure and norms of the industry. Some pursue
differentiation to stand apart from competitors by providing premium value.
Others pursue cost leadership, driving costs down by cutting back the
industry’s existing competing factors. Here strategy is seen as a choice between
differentiation or low cost. It’s the mindset of a red ocean strategist.

Red ocean strategists focus on
either differentiation or cost leadership

When pursuing differentiation,
red ocean strategists focus on what to offer more of. They think about what to
factors to improve or create to stand apart from competitors. They pay less
attention to what factors they can eliminate or reduce that would lower costs.
The trade-off usually results in higher costs to the company and higher prices
for customers.

When pursuing cost leadership,
red ocean strategists focus on what to offer less of. They think about what
factors to eliminate and reduce in their current offerings and largely ignore
what they should improve or create to increase the value of their offer. The
trade-off usually results in compromised value for customers.

How about you? Do you act on
the assumption that to achieve differentiation, you need to spend more? Do you
assume that to win through low costs you need to compromise on the distinctive
value you can offer?

Differentiation and cost
leadership are viable strategic options, which a great many organizations
pursue. However, both strategic options require making trade-offs and keep
organizations stuck in red oceans of bloody competition. To break out of red
oceans and create blue oceans of uncontested market space, you need to shift
your mindset from ‘making’ to ‘breaking’ the value-cost trade-off.

Blue ocean strategists pursue
differentiation and low cost simultaneously

Blue ocean strategists do not
view value and cost as a trade-off. They pursue differentiation and low cost
simultaneously. Unlike red ocean strategists, they see strategy not as an
either-or, but as a both-and approach that breaks the value-cost trade-off.

Blue ocean strategists realize
that differentiation cannot be sacrificed to cost savings, and vice versa. They
seek to break not make the value-cost trade-off through value innovation,
effectively creating a leap in value for both buyers and the company through
the simultaneous pursuit of differentiation and low costs.

Blue ocean strategists focus as
much on what to eliminate and reduce as they do on what to raise and create.
This value innovation approach allows blue ocean strategists to leapfrog the
competition, creating a positive buzz – especially online – that attracts not
just new customers but fans.

Becoming a blue ocean
strategist is about embracing a new perspective and asking a fundamentally
different set of questions. Are you ready to see new opportunities where others
see only red oceans of declining profits and growth?


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