The inspiration for today's blog post is a book I read last year called Blue Ocean Strategy by W. Chan Kim and Renee Mauborgne. The basic principle of Blue Ocean Strategy is relatively straightforward - instead of competing in the bloody red oceans of the current marketplace where competition is fierce, strive to steer your business to a wide open blue ocean that has no competition. How do you get to a blue ocean of competition? Through value innovation - the simultaneous pursuit of differentiation and low cost.
So what does Blue Ocean Strategy look like in more practical terms? An example would be Cirque du Soleil, an organization that managed to successfully innovate and compete in what was previously the declining "circus" industry. How did Cirque du Soleil do it? By re-defining value in the circus - for instance, by targeting adults instead of children, and making it more like a theater experience, while retaining the lower cost aspects like basic, plain seats, and a show that has no big-name (and expensive) "star" draws. The end result is an experience that is not quite circus, nor theater... and that's the point. Cirque du Soleil succeeded by not competing with the red oceans of circuses or theaters directly, but by creating its own new blue ocean.
Another example of Blue Ocean Strategy would be Southwest Airlines, which entered a brutally bloody red ocean existing airline industry that was struggling to even be economically viable. Southwest redefined their marketplace by eliminating what they viewed as unnecessary - from air route hubs to seating choices to lounges and meals - and focusing on what was appealing to attract people who were currently non-customers, such as by making departure times so frequent and flights so inexpensive that people who take short family trips by car would consider flying Southwest instead.
As the authors note, the key to finding a Blue Ocean is to look at the values delivered by traditional competitors, and the values that consumers want - including, and perhaps especially, those non-customers who currently do not even engage in the industry - and in the process, re-draw the value curve focusing on low cost where possible and high value differentiation where it matters. Below is an example of the value curve for Southwest compared to other airlines, and the alternative of traveling by car.
A similar example from the financial services industry might be the rise of Charles Schwab, who devastated the traditional brokerage model with a focus on low cost and differentiation. Schwab made their competition irrelevant by aggressively pursuing low cost - for instance, by eliminating expensive brokerage commissions, making their trading systems more efficient - while simultaneously differentiating themselves with online trading tools that opened up stock investing to a group of non-customers - the so-called "do it yourselfers" who previously did not engage the financial services industry at all. The end result was a company with explosive growth, not just because they took customers away from their competition (people who invested with brokers), but because they attracted customers who weren't even prospects up until that point (do-it-yourselfers)!
So what does all of this mean for the financial planning world? We, too, have become an industry that is very set in its way of doing things. There is a "standard way" that financial planning is delivered, involving meetings with the planner, the production of the financial plan, and implementation and monitoring with standard financial services products. In other words, financial planners are increasingly competing against each other in an ever-bloodier red ocean, trying to differentiate with tiny changes at the margins while staying constrained by "the way things have always been done."
In turn, this raises the question - what is it that we do in financial planning that we believe delivers value, but in reality just increases cost with limited benefit? For Southwest, the Blue Ocean meant letting go of traditional "requirements" in the airline industry that were actually high cost but limited consumer value, from serving meals on flights to offering lounges to providing predetermined seating assignments. In financial planning, what high cost items might we eliminate? The labor-intensive construction of the written financial plan? Regular in-person meetings that require a substantial time commitment of both planner and client? And what can we deliver that is genuinely valuable to an audience who previously has not engaged in financial planning at all?
As I've written previously, financial planning is just entering into the digital age, which will create a unique opportunity for financial planners to create a new value proposition to reach prospective clients and deliver value in ways never done before. The Blue Ocean Strategy authors suggest four key questions to ask for any industry to determine an ideal strategy for redefining value:
- Which of the factors that the industry takes for granted should be eliminated?
- Which factors should be reduced well below the industry's standard?
- Which factors should be raised well above the industry's standard?
- Which factors should be created that the industry has never offered?
So what do you think? How would you answer the questions above - what do you think could be eliminated, reduced, raised, and created? How would you draw the value canvas for financial planning as a business? What could we change to open up an entirely new marketplace for future financial planning consumers?
(For those who are interested in more techniques about how to define a new Blue Ocean strategy, I strongly recommend the "Blue Ocean Strategy" book itself, which provides numerous tools and techniques to help brainstorm how to reinvent your business.)