2. TRADITIONAL MARKET SPACE
• Competition is at the heart of corporate strategy
• Traditionally, markets are defined by boundaries
• Organizations enter markets and employ various
strategies to carve out market share from an existing
space
• Grabbing market share is a zero-sum game with winners
and losers
• Defensible positions are created and jealously guarded
from other competitors
3. WHAT IS A RED OCEAN?
• Represents all of the industries in a given market space
at a specific point in time
• Industry boundaries are strictly-defined and accepted by
all players in the space
• The goal is to beat the competition by exploiting existing
demand in your favor via all “appropriate” means
• Value / Cost paradigm is seen as a trade-off
• Cutthroat competition turns the ocean Red
4. RED OCEAN EXAMPLES
• Hewlett Packard / Dell
• Bank of America / Citigroup
• ATT / Verizon
• Dish / Direct TV
• St. Vincents Hospital / Billings Clinic
5. THE GOOD…POSITIVE ATTRIBUTES OF RED
OCEAN STRATEGY
• Market forces and competition can negatively
affect pricing
• Insures that organizations pay attention to
input costs
• Reduces excess capacity and waste
• “Culls the Herd”
• Attempts to match consumer demand with
provider supply
6. …THE BAD, AND THE UGLY
• Excludes Collaboration
• Service Duplication
• Often Marginalizes Consumers
• Wastes Resources
• May Stifle Innovation
7. WHAT IS A BLUE OCEAN MARKET SPACE?
• Denotes all the services or products not in
existence today- i.e. Unknown Market Space
• Identified by untapped demand or demand
creation
• Most are created from within red oceans by
expanding boundaries
• Competition becomes irrelevant
8. BLUE OCEAN EXAMPLES
Henry Ford “Model T”
Thomas Edison and the Electric Bulb
Henry Kaiser and the prospective payment model
Steve Jobs and Apple, Inc.
Google
Cirque du Soleil
Minute Clinics
9. CORE CONCEPTS FOR BLUE OCEAN STRATEGY
• Blue Oceans are often created from within core
businesses
• Blue Oceans are not defined by technology innovation
• Blue Ocean strategy does not use the competition as a
benchmark
• Blue Ocean strategy marries cost reduction and
innovation to yield total value
• Blue Ocean strategy does not recognize boundaries
• Blue Ocean strategy builds brands
10. LOCAL EXAMPLES OF BLUE OCEAN INITIATIVES
Missoula Bone and Joint Musculoskeletal Urgent
Care Clinic- Missoula, MT
Rocky Mountain Surgical Center- Bozeman, MT
Orthopedic Center of Montana- Great Falls, MT
St. Vincents Orthopedic Center of Excellence-
Billings, MT
11. KEYS TO SUCCESS IN BLUE OCEAN STRATEGY
• Be Appropriately Bold
• Think Outside the Box
• Be Disruptive
• Listen but do not worship the “nay”
Sayers
• Dare to Dream
• “First to Market” is very powerful
12. CONSUMER PREFERENCES
Source: Advisory Board Presentation: Blueprint for Growth 2020; 2014 Primary Care Consumer Choice Survey, Marketing and Planning Leadership Council
13. FINAL THOUGHTS
• Red Oceans will always matter and successful
organizations will still need to outcompete rivals in
defined market spaces
• As markets consolidate and margins tighten, competition
alone will be insufficient
• Identifying and then seizing uncontested market space is
a means by which organizations can benefit from new
growth and profit opportunities
14. CITATIONS
Chan Kim, W., and Mauborgne, R. (2004) Blue Ocean Strategy. Harvard
Business Review. October 2004, p. 2-10.
Chan Kim, W., and Mauborgne, R. (2005) Blue Ocean Strategy: From Theory
to Practice. California Management Review. Vol. 47(3), p. 104-121.
Gunther McGrath, R., and MacMillan, I., (2005) Marketbusting: Strategies for
Exceptional Business Growth. Harvard Business Review. March 2005.
Chan Kim, W., and Mauborgne, R. (2004) Blue Ocean Strategy: How to
Create Uncontested Market Space and Make the Competition Irrelevant.
Harvard Business School Publishing. December 2004
Editor's Notes
So, what in the world do red or blue oceans have to do with medicine and, specifically, with hand surgery? Is this about controlling hemorrhage? Well, in a sense, yes. It is about understanding where healthcare is heading from a strategy and business development standpoint as we navigate the tremendous changes ahead of us via forces introduced by PPACA and other Federal and State legislation on the horizon, increasing consumerism, pressures from millenials to deliver more cost effective care with greater overall value (if you have been following the news lately, see what millenials are doing to the cable and satellite communication industry), and from technology disruption- both medical but also non-medical, such as social media and virtual medicine to name a few.
So, historically, what do we mean by the “traditional market space”? And, by the way, this is still where most organizations, including healthcare organizations, exist; but, the landscape is changing quickly.
Common monikers used to describe competition in a marketplace historically come from the military
Organizational hierarchy is rooted in militaristic terms: officers, troops, enemy, headquarters
Common sayings include: “take no prisoners”, “on the front lines”, “define the battlefield”, “marshal our forces”
Corporate Strategy aligns all activities either towards differentiation or low cost in order to maximize market share. Beat the competition using one or the other, but rarely both.
Red Oceans comprise the most common way we think about markets and how they are defined.
The vast majority of healthcare organizations still operate predominantly in a red ocean mentality: focused mainly on market share capture, inpatient volumes, and benchmarking to the competition with a foundation rooted in defined and inviolable boundaries. Most strategy is built around zip codes and counties. Little strategy looks outward beyond immediate physical geography (but that is changing slowly with the advent of medical tourism and the explosion in digital technology).
This is the traditional world we live in. Where we are comfortable.
Each example shows two strong competitors working in a defined market space and employing strategy and energy to outdo the other either on price or commodity, rarely on both.
In most communities with at least two hospitals, duplicate services abound with price points that are fairly consistent. Study by BC/BS in 2015 regarding cost of primary TJA in Montana across all care sites. Remarkably, homogenous cost of care approximating $32,000 per case. The only asymmetry was in the providers, implants used, and facility physical space. Even quality metrics (what little available, including ALOS) failed to differentiate providers.
So, head to head competition as represented by traditional red ocean strategy is certainly not all bad. In fact, there are several attributes that help improve or insure markets remain competitive by promoting both
productive and allocative efficiency.
2. Mediators for success in red ocean markets:
Focus
Determination
Competitive nature
Deliberate
Ruthless
Why might this model be increasingly ineffective in the healthcare arena? The parts of red ocean strategy that lead to success in many other industries are now seen as impediments to needed change in the delivery of health care services, if we believe that we should and we will change from volume to value based care. I have outlined several of the hypothetical roadblocks to making this transition.
So, is there an alternative to “business as usual”? One possible alternative is to begin to look at strategy differently, with an eye toward expanding markets, breaking traditional boundaries of care delivery, and looking for synergies between the cost of care and how it is delivered.
So, this introduces the topic of Blue Ocean strategy thinking. Blue ocean strategy is about doing business where there is no competitor- creating new opportunities rather than continually fighting over and dividing up existing market space.
Blue ocean strategy rejects the traditional tenet that a tradeoff exists between value and cost. Instead, organizations pursuing blue ocean strategy pursue differentiation and cost reduction simultaneously thereby elevating total value to the consumer.
Blue ocean strategy rejects the idea that an entire market space is rigidly defined.
Blue ocean strategy means that we must begin to look for innovative and collaborative ways to deliver care rather than continuing to operate in silos- either at the individual provider level or even at the healthcare organizational level.
So, from a macro view, what do we mean by blue ocean strategy? (see bullet points on slide). More importantly, is there any empiric evidence or concrete examples that this kind of thinking translates into positive financial metrics?
In a study of 108 new business launches in 2005, 86% were line extensions (incremental improvements to existing offerings) and 14% were aimed at creating a new market or product altogether; although the line extensions accounted for 62% of the total revenue for these companies, they only contributed 39% in profit to the bottom line (i.e. due to existing direct and variable costs); in contrast, the 14% new projects delivered only 38% in total revenue but a whopping 61% in total profits to the organizations! (Kim Chan, Mauborgne). In essence, the new products or services brought an entire new income stream into the organization.
So, just in case you think this is a completely new concept, I think you will be surprised by some examples on this list. Although they didn’t really have a name for what they actually created, their efforts speak to all of the components of blue ocean strategy: innovation, disruption, rejection of boundaries, and courage to pursue a new vision, regardless of the hurdles or the criticism at the time.
Henry Ford- mass production around a cheap automobile for the average citizen rather than the traditional hand crafted car only affordable by the ultra-wealthy.
Henry Kaiser- industrialist working in California in the shipbuilding industry. Designed a group practice plan in 1933, based on the pioneering work by Dr. Sidney Garfield, that resulted in emergency coverage for workers under one system of care and eventually expanding to non-emergency and preventative care for workers and their dependents followed by expansion to several integrated but geographically dispersed sites. This system introduced pre-payment for services instead of traditional fee-for-service.
Steve Jobs- famous for looking at the market and determining what people wanted before they knew they wanted it: 1980’s Mac- graphic user interface (GUI) eliminated need to use cumbersome software language; late 1990’s-2000’s IPOD revolutionized the music delivery industry, the IPHONE introduced the concept of the “smart” phone, and the IPAD introduced an entire new product and service line around tablet computing and “APPS”.
Google- who remembers the earliest “web crawlers”? Alta Vista, Netscape, even eventually AOL (all paid services by the way). They were all supplanted by Google (and eventually others like Yahoo, Bing, etc). because of its robust search engine but also its ability to integrate multiple internet-related tasks via one software program and provide it for FREE! As an aside, Google remains the 800 pound gorilla in this market space and we will touch on why in a moment.
Cirque du Soleil- transformed the performance art community by combining facets of circus, acrobatics, dance, and music into one program- taking the dying components of each separately and forming an entirely new entertainment experience.
Minute Clinics- retail medicine clinic model founded by venture capitalists to deliver inexpensive and convenient low acuity care. Introduced transparent pricing for services, immediate service, and convenient locations in malls, shopping centers, and now CVS stores.
One thing to remember about blue ocean strategy is that it does not mean you need to come up with an entirely new concept. Blue Ocean strategy often means taking a good idea or concept and introducing it locally where it doesn’t already exist. Remember, most novel ideas are actually borne from pre-existing ones.
Cutting-edge technology can sometimes augment or help create a blue ocean strategy, but it is not a defining feature; in fact, most often, organizations pursuing a blue ocean strategy simply need to harness existing technology to be successful- marrying the technology in new and creative ways
Blue ocean strategy strives to make the competition irrelevant and, therefore, benchmarking is irrelevant because the market place rules do not currently exist
Blue ocean strategy rejects the paradigm that you must provide a new product or service or else reduce the cost of current products or services but you cannot do both. The ultimate goal of a blue ocean strategy is to identify products and services that provide a greater total value to the consumer by affording a new way to do something at a decreased cost or provide an entirely new product that supplants previous products and at a lower cost (concept of substitution)
Blue ocean strategy does not ask whether or not it is appropriate to enter a specific new market space, only whether or not it is feasible. Do not be a slave to the status quo!
Finally, blue ocean strategy can create powerful brand equity that may last for decades. First to market is a very powerful economic tool which yields a long-lasting distinct competitive advantage to the pioneer by making it more difficult for others to eventually enter the space and replicate results. Remember Google, Apple, Cirque du Soleil…
So, I got thinking that to bring this home and make sure you don’t think I am just making this up or that this is great for so-called large markets or multi-national businesses, but you could never pull off this type of strategy in a state like Montana, I decided to look for some “local” healthcare examples (so, I even narrowed my focus to make it more difficult). It actually took me less than 10 minutes (I am truly not lying about this) to come up with 4 examples that I believe have blue ocean strategic thinking as a cornerstone. In each case, the principals looked at the market and imagined a different experience for consumers than what was being offered by traditional health care organizations in the community. I am hoping that someone from each of these groups will just comment briefly on the thought process behind the decision to pursue these initiatives and then how it has played out.
Look for Andy or Charlie from Missoula Bone and Joint to talk about their urgent care clinic initiative
Look for Rob Blake to talk about developing a free-standing ASC in Bozeman
Look for Chuck Jennings to speak about ortho group initiative to set up a new orthopedic care delivery experience for patients in Great Falls
RMC to speak about ortho floor renovation as “hospital within hospital” concept for TJA and Spine patients
So, you see. Just like some of the earlier examples, many of the individuals in this room have embraced “blue ocean” thinking without possibly knowing the exact term for this type of creative and innovative thinking.
So, in summary:
Be bold and think outside the box when you continue to ponder ways to improve access and delivery and reduce cost at the same time. Don’t be afraid to challenge conventional wisdom and remember, as providers, you have a unique and unparalleled knowledge and experience in the delivery of healthcare that non-medical folks will never match.
Be disruptive (in a positive sense). Don’t be afraid to look at current models of care with an eye of blowing them up and starting de novo. You can’t harm anyone or anything by working on a whiteboard or a computer.
Respect differences of opinion and value input from others, including non-medical administrators. They truly do have much value to offer the process and their experiences and training can be equally beneficial; however, do not accept “no” as an answer without having good evidence backing it up.
Dare to Dream: Disney said, “If you can dream it, you can do it” and a second favorite quote is “Its kind of fun to do the impossible”
Finally, underestimate the power of first to market at your peril. If you deliver a new and valuable product to the market before anyone else, it will be very difficult for others to replicate, at least in the near term. The converse is equally true, it is rare for copycats to supplant innovators unless the innovators make critical downstream mistakes (think Google or Apple).
I added this slide from a different presentation provided by a very bright health care consultant in Minneapolis, who has been in the healthcare arena more than 30 years. The Advisory Board is a national consulting organization that works mainly with hospital systems and large IHS’s around strategy and business development. I really find this information fascinating and it is particularly relevant as we as providers (physicians, healthcare administrators, and industry representatives) think about what our customers will want in the near future. I think you can see that there is probably a bimodal curve with the millenial crowd on one end and the baby-boomers on the other. Fast forward a decade, though, and most of the folks we will care for will have grown up in the past two decades and their needs and desires are distinctly different than many of us in this room or certainly our parents and grand parents. Looking for innovative ways to engage and service them will ultimately define the winners and losers in most markets and I would also venture that there is a lot of blue ocean territory out there to be discovered in the process.
