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Diving into a 'Blue Ocean Strategy'

February 1, 2006
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In a tight industry, it can be sink or swim for providers, but a new business strategy offers a lifeline, and maybe even new service anchors

The book Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant by W. Chan Kim and Renée Mauborgne1 recently has topped business best-seller lists for at least two good reasons: It offers a truly fresh perspective on developing corporate strategy, and it provides a toolbox of practical techniques that can guide managers from the bloody-red “oceans” of competition into the blue oceans of uncontested market space. Developing a Blue Ocean Strategy is the next step in making your behavioral health organization relevant to current and future markets.

The core of Kim and Mauborgne's Blue Ocean Strategy is learning to transcend current market space by strategically differentiating your organization from competitors, while simultaneously focusing on lowering costs. Competition thus is rendered irrelevant, at least until it catches up and reconfigures along key value dimensions to imitate your organization.

The principal Blue Ocean Strategy tool is the strategy canvas—a simple line graph that illustrates the degree to which an organization invests in key value dimensions. The canvas also shows how the organization differentiates itself from the rest of the industry.

Key value dimensions vary according to industry. LifeSpring, Inc., a community mental health center serving southern Indiana, had 13 senior managers develop a list of value dimensions. The original list (table 1) had 35 items, many of which overlapped. These 35 items were combined and distilled into 5 key value dimensions (table 2). This distilling process is part of creating a strategic focus that is essential to Blue Ocean Strategy.

Kim and Mauborgne note that the language managers use in developing value dimensions can be telling. Using extensive jargon in creating value dimensions suggests an internal focus, while “buyer language” suggests a healthier outside perspective. Buyer language employs the words that customers actually use, as opposed to the professional jargon that the seller employs. For example, in behavioral health, the seller/provider might say “least restrictive and most appropriate level of care,” while the buyer might describe the same thing as the “cheapest and best treatment.”

The senior managers then rated these dimensions on a scale of 0 to 100 for LifeSpring, a major competitor, and the industry as a whole to develop a strategy canvas (a score of 0 score meant that the organization or industry did not address or invest in this value dimension whatsoever; a score of 100 meant that the organization or industry was fully and completed committed to this value dimension and could do little to increase investment in this area) (figure). While LifeSpring differed slightly from its major competitor and the industry in some areas, the converging value curves seen on the strategy canvas, according to Kim and Mauborgne, indicate a highly competitive “Red Ocean” environment, in which organizations are locked in competition within the same market space.

Kim and Mauborgne explain that when an organization scores highly on all dimensions across the canvas, this may suggest overinvestment in some value dimensions to the extent that the strategic focus is diluted. Zigzag patterns, with no particular rationale, suggest a lack of a coherent strategy or multiple (perhaps conflicting) independent substrategies. Also important to note are strategic contradictions, in which an organization may be high in one dimension but low in supporting dimensions. Kim and Mauborgne cite the example of a company that put high value on Web site design but had the slowest-responding site in the industry.

Creating Value and Differentiation

Kim and Mauborgne say that once your organization's value curve is defined and compared with your competitors’ curves, the next step is to determine what value dimensions should be reduced, eliminated, increased, or created. Each value dimension should be analyzed carefully to establish if the investment level is appropriate for the target market space. Some dimensions might be reduced or even eliminated if they hold little value for the targeted market. Industries often cling to value dimensions because of their history and management's “ego investment” despite the reality of the buyer's valuation.

In exploring uncontested market space, say Kim and Mauborgne, a new buyer might have little regard for traditional industry value dimensions. Such dimensions might be reduced drastically or eliminated. For example, providing a full continuum of behavioral health services might appeal to management and a segment of buyers who value one-stop shopping, but it might have little value for a buyer segment such as the court system, which might be only interested in prompt assessment services. When aiming at this market segment, resources geared at maintaining a full service continuum might be more productively invested in other dimensions deemed more valuable. Developing new value dimensions that appeal to uncharted market space is the creative heart of Blue Ocean Strategy.

Table 1. Comprehensive list of behavioral healthcare value dimensions

  • Price

  • Quality of care

  • Friendly clinicians

  • Friendly support staff

  • Pleasant and nonthreatening experience

  • Staff are easy to communicate with

  • Highly credentialed staff

  • Immediate availability of appointments

  • Linked to service by trusted party