8. The 60 Second Leader and …

COMPETITION

Refuse to compete. The blue and the red. Protect your advantage.

‘We still use these old warfare metaphors for business leadership, quoting ancient Chinese generals and applying them to business. But “beat the enemy” doesn’t work. You need to compete to be unique, not the best.’

Professor Michael Porter, in an interview with the author ⁽¹⁾

BLUE OCEAN STRATEGY

All the big strategy thinkers have been singing the same song for the past five years or more. From Gary Hamel and C. K. Prahalad⁽²⁾ to Michael Porter, from Renee Mauborgne to Kjell Nordstrom, the mantra is: ‘Don’t compete. Be unique.’ Ironic, really, that they are all competitors in terms of their book sales, the business schools they represent, and on the lecture circuit, but all are putting the same argument forward. In other words, they are doing what they tell us not to do. Or it could just be that if they all agree on this, they are all right.

Renee Mauborgne and W. Chan Kim put it most evocatively with their phrase ‘Blue Ocean Strategy’. ⁽³⁾

THE BLUE AND THE RED

Mauborgne and Kim say that a blue ocean is a new or previously unnoticed market space. You create it by identifying a set of unserved customers or spot an unmet need among existing customers. Then you work up a value proposition for them that is different to anything else out there.

The 2006 Nobel Prize winner Muhammad Yunus is an example of a blue ocean strategist. Lending to the poor and destitute - micro-lending - was a non-existent market sector. The existing banks refused to accept it was a viable market. Yet Yunus grew his Grameen Bank, which only lends to the poor, into a profitable £2.5 billion business (multiply that by about 1.8 at current exchange rates to get US dollars).

Most markets in the developed world are a red ocean, where the competition all agree what the market is and all have well-defined often lookalike offers competing against each. In many cases this leads to strategic convergence - where you and your competitors all follow the same strategy and end up competing on price.

You need to take the blue pill rather than the red pill (sorry, slipped from oceans to The Matrix there) because red markets are saturated, with head-to-head competition forcing down price. Blue ocean strategists stake out their own territory.

At least that’s the theory. In practice, the best you can hope for is a temporary monopoly⁽⁴⁾ (unless you are Bill Gates, in which case you manage to spin it out for years), since competitors will appear on your patch and start competing with you almost immediately. What was blue will turn red faster than you think.

PROTECTING YOUR ADVANTAGE

Michael Porter and others point out that having a unique value creation chain that is hard to copy, not just a unique or unusual product or service, helps protect your competitive advantage. Where some of the big strategists are weak, though, is in recognizing the value of a unique culture in setting you apart from the competition. I’ve seen Porter describe at length Southwest Airlines’ hard-to-copy value chain and how its strategy is based on a unique set of trade-offs and a set of interdependent activities that are ‘a good fit’, without once mentioning that company’s unique people culture. That’s strategists for you.

USEFUL CONCEPT

A caveat on ‘refuse to compete’: ‘The word competition comes from the Latin and literally means seeking together or choosing to run the same race. But, in an age of abundance, the tracks are pretty crowded.’ - Kjell Nordstrom and Jonas Ridderstrale. ⁽⁴⁾ But the one caveat I would add is that the ‘don’t compete’ rule doesn’t apply to operations. However desirable and different your offer is, you have to match the best operational performance, such as delivery times.

AND, FINALLY … MAINTAIN A BALANCE

I heard Renee Mauborgne make the point recently that you need to balance your portfolio of products and services between current revenue generators - red ocean products and services - and emerging or future products and services - blue ocean strategies.

SOURCES AND FURTHER READING

1 Professor Michael Porter, in an interview with Phil Dourado.

2 The Future of Competition, Gary Hamel and C. K. Prahalad.

3 Blue Ocean Strategy, Renee Mauborgne and W. Chan Kim.

4 Funky Business, Kjell Nordstrom and Jonas Ridderstrale.

A 60 Second Leader Tale: Muhammad Yunus’ Blue Ocean Strategy

I’m not one for the ‘great man’ school of history, but there are a few obvious Mandela-stature exceptions - and Muhammad Yunus is one of them.

Yunus is an economics professor. The major banks laughed at his suggestion that they break destitute Bangladeshis out of the poverty cycle with a new concept that gave them an alternative to loan sharks - micro-lending.

So, he lent a group of villagers the money in his own pocket - the equivalent of £14 or around US$25 - to buy the materials they needed to set up micro-businesses. They all paid him back with interest. His new idea - micro-lending - grew into the £2.5 billion (almost $5 billion at current exchange rates) Grameen Bank that is owned by its users, is estimated to have helped hundreds of thousands of people out of poverty … and continues to make a profit.

The false assumption that the rest of the banking industry’s practice rested on was that the very poor are a bad credit risk. Yunus’ small-scale experiment suggested they were wrong. As he scaled his operations up, it became clear that for the customer group who made up his main constituency - rural women - they were completely wrong. The proportion of Grameen borrowers who default on their loan is tiny compared with traditional bank lending.

Yunus then spotted that, with mobile phones, local growers and crafts-people - mostly women - could jump past middlemen, who tended to exploit them with very low prices, to negotiate direct with buyers further away, increasing their bargaining power.

So, he launched Grameen Phone, a phone rental scheme with its own network, to get mobile phones into the hands of the poor. Now if you go to Bangladesh ‘Grameen Phone’ is likely to pop up on your phone screen as your local provider. It has become, like the bank, a highly profitable success story.

Yunus still lives in a tiny apartment in Bangladesh. He explained once that he developed the idea for the Grameen Bank during the Bangladesh famine in the 1970s. He had become increasingly disillusioned that people were dying while he and other economics professors were sitting around in Chittagong University teaching elegant economic theories ‘whereas in fact the starvation all around us showed we knew nothing. What we were teaching wasn’t helping.’

He once said to The Guardian newspaper: ‘One day we will look in museums and say to our children, “That’s what poverty looked like.”’

That sounds naïve - until you look at what he has achieved so far. Fifty other countries - including the US - have taken up micro-lending. Yunus’ work helped prompt C. K. Prahalad’s book The Fortune At The Bottom Of The Pyramid, which looks at extending capitalist practice to embrace the world’s poorest with Grameen-style offerings that make healthy profits while at the same time helping people out of poverty.

Now, like I said, I am wary of the whole ‘great man as leader’ or ‘great man as forger of history’ school of thinking (it’s nearly always men). But every now and again, someone comes along that makes us see the world afresh and inspires us by showing us we can do the apparently undoable and take the lead to make major change happen. Sounds like a leader to me.