Frameworks & Tools for a Long-term Strategic Planning Approach

In a previous post we considered the need for different approaches and tools for strategic planning exercises that had different planning horizons and timeframes.

Here we look at scenarios where enterprises, involved in fiercely competitive markets, may have to consider a paradigm shift to address long-term survival while others may wish to pursue exponential growth by creating/capturing new potential high growth opportunities.

In such circumstances a major strategic shift may be based on a three year plus enterprise strategic planning horizon.

A Blue Ocean Strategy and Porter’s Five Competitive Forces Framework are approaches that may be appropriate and useful in the analysis and strategy development process.

A Blue Ocean Strategy is a marketing strategy in which a business makes a paradigm shift away from existing highly competitive saturated markets to creating and capturing new demand in a largely uncontested market where competition becomes irrelevant. This cannot be achieved overnight, and the focus is on the longer planning horizon.

This contrasts with a red ocean strategy which focuses on beating the competition in saturated markets to gain an increased share of existing current demand and usually involves making a value/cost trade-off. This cut-throat competition turns the ocean blood red. On the other hand, the undefined and unexplored market resembles the vast and deep blue ocean.

A blue ocean strategy is appropriate for enterprises that are fighting in a fiercely competitive market which contains major players, i.e., strong competitors. Typically, in such fiercely competitive saturated markets supply exceeds demand and companies struggle to survive over the long-term.

Identifying these extremely attractive Blue Oceans can be particularly challenging.

Structured brain storming can also form a valuable tool in identify such highly attractive markets, where competition is largely irrelevant.

A portfolio of tools is available to assist development and implementation of a blue ocean strategy Tools such as:

The Eliminate-Reduce-Raise-Create (ERRC GRID)

The Eliminate-Reduce-Raise-Create (ERRC) Grid is a matrix tool that drives companies to focus simultaneously on eliminating and reducing, as well as raising and creating which helps the enterprise to create a new value curve which enables it to address new blue ocean opportunities.

It focuses the enterprise to systematically analyze every factor the current industry/market competes on. What new blue ocean type markets can be created by eliminating or reducing some of these factors or alternatively raising them or creating new factors. The factors that really impact the customer should be created or raised, while eliminating/reducing factors that do not. This creates a new product offering that does not currently exist, in a space without direct competitors.

The Six Paths Framework

The Six Paths Framework helps to successfully identify commercially attractive blue oceans by reconstructing market boundaries. It can be used to address the transition from red ocean to blue ocean under six classifications. These six classifications are (a) industry (b) strategic group (c) buyer group (d) scope of product/service (e) functional-emotional orientation and (f) timescale.

Three tiers of noncustomers and Buyer Utility Map help to identify and/or create new blue markets. As with all significant change, implementation of the blue ocean strategy can be challenging. The Four Hurdles to Strategy Execution is appropriate to address the implementation issue.

Three Tiers of Noncustomers

The blue ocean strategy identifies three tiers of noncustomers. In a red ocean strategy, an enterprise seeks to retain and expand their existing customer base to grow their share of a saturated highly competitive market. This frequently involves a value/cost trade-off.

The blue ocean strategy seeks to identify opportunities beyond the current market.

To identify blue ocean opportunities is useful to segment noncustomers. The three tiers of noncustomers framework allow the enterprise to segment the noncustomers into three tiers. This provides a deeper understanding of the totality of noncustomers and helps to identify blue ocean new markets and latent demand within the entire noncustomer domain.

The tier analysis, where the characteristics and needs of the particular tier is understood, helps to identify potential blue ocean opportunities that can be exploited by responding to and satisfying those identified needs.

Buyer Utility Map

The Buyer Utility Map focuses on the six stages of the buyer experience cycle. It enables analysis of the appropriate levers to use at each stage of the buyer cycle.

By identifying how the buyer experience is currently handled (red ocean) it focuses attention on other potential paths (blue ocean). Other paths of interest are where a product or service can potentially respond to the buyer needs or wishes at each stage of the buyer cycle. It further identifies which of the six utility levers, i.e., the ways in which companies provide benefits for their customers, are most suitable to use at each stage. By mapping a potential new offering on to the buyer utility map, one can see if, and how, the new path creates a different value proposition from existing offerings and if the value proposition is such that it should be incorporated into the blue ocean strategy.

Four Hurdles to Strategy Execution

As with all significant change, implementation of the blue ocean strategy can be challenging. To be valuable and relevant all strategies must be supported by a clear implementation action plan.

The Four Hurdles to Strategy Execution template lays out four areas that must be addressed in implementing something that is a significant departure from the current model as a blue strategy implementation.

These are:

• The Cognitive Hurdle: The action to be undertaken convince/get the buy-in of key individuals of the need for a strategic shift.
• The Resource Hurdle: Identification of the additional resources required for the strategy implementation.
• The Motivational Hurdle: What actions are planned to motivate key players to drive the implementation and overcome obstacles?
• The Political Hurdle: Are there political issues to be overcome and, if so, how is this to be done.

Porter’s Five Competitive Forces

Porter’s model of competitive forces assumes that there are five generic competitive forces that influence the competitive power of the key players in the relevant business environment.

As one considers strategic options, Porter’s Five Forces model helps to profile the broad competitive marketplace environment. It helps to identify where the real balance of power resides and where the real long term strategic competition is likely to come from.

The analysis provides a strong input into any strategy to “play” in a particular market or market sector.

The five competitive forces identified by Michael Porter are:

1. Intensity of rivalry among Existing Competitors
2. Bargaining power of Suppliers
3. Bargaining power of Buyers
4. Threat of Substitute Products
5. Threat of New Entrants

By analyzing how each force affects the enterprise, and by identifying the strength and direction of each force, you can quickly assess the strength of your position and your ability to make a long-term sustained profit in a particular market or industry under consideration.

Competitive Rivalry: Competitive rivalry can be intense, and it is difficult to establish a strong position, where there is a large number of equally sized competitors, and no one is able to establish a sustainable advantage. Value proposition, cost base, brand, breath of product/service offering, customer service can all provide a degree of competitive advantage in such highly competitive environments.

Markets with few competitors can be attractive but short-lived. What is the strategy to be in a strong and sustainable competitive position as the market becomes more crowded with new entrants? What is the cost of switching for existing customers?

Supplier Power: Where suppliers are in a strong position, they tend to drive up prices and make the sector less attractive. Are there a large number of suppliers available to you? What is the cost of stitching suppliers? Technology, regulatory/legal frameworks, cost base and supply chains can all influence the power of suppliers and their ability to drive up prices. Does a supplier input price to your product of service have a significant input into your total cost base and pricing to customers?

Buyer Power: In situations where buyers exert power, they tend to drive prices down and make the market less attractive for new entrants. Do your customer buyers demand significant customization requirements? How do they define value? Is price the main driver or can you offer enhanced service at a competitive price?

Threat of Substitution: Where the customer can substitute alternative products that can provide the same benefits and the cost of switching is low it will tend to weaken supplier’s position, drive down prices and make the sector less attractive. In sectors with high levels of technology innovation/change and low switching costs, the risk of product or service substitution is high. This can mean that the wishes and problems of the customer can be addressed in a way that offers better value (lower cost or enhanced offering). Is increased investment in technology internally or partnership with a technology supplier an appropriate strategy for you to consider?

Threat of New Entrant: If the barriers to entry for new competitors are low, and there are no significant fixed costs and few economies of scale, then new competitors will tend to quickly enter the market and weaken your position. Can you protect your position by entering longer term supply contracts with your customers? Can your value proposition, brand, after sales service, ease of doing business with, and other options form components of your competitive strategy?