Guru Mantra 16- Competitive Advantage: Racing for Uniqueness (The Second Part)

Blue Ocean Tools and Execution- Strategy Canvas, Attribute Analytics

As we discussed last time Blue Ocean stems from the idea that there are opportunities in each industry to move from ultra competitive battles around price and features (red ocean) into a new market reality where our competitors are either non-existent or irrelevant.

Great, how to go about it- Five steps

  1. Creating a strategy canvas template
  2. By raising an attribute
  3. By reducing an attribute
  4. By eliminating an attribute
  5. By creating an attribute

Step 1 : Build a strategy canvas

This is the fundamental cornerstone of Blue Ocean, this provides a overview of our business and products stack up against competition. As Kim says it serves two purposes. First we can know the current state of play . Second understand where competition is currently investing, the factors of competition and competitive offerings.

List the products or services, if a commodity or standard product we can segment like domestic, import. If niche product area list the name of competitors or even the product names.
List the attributes or factors of competition on which industry is competing. I have attached a file for a commodity company Maithan Alloys (confession- invested and biased). You can include value proposition to customers like speed of service/delivery, quality etc.
Rate each competition factor for company and competition segments. This should throw up where you are currently stack up.See the file attached, I am appending narration to understand better. Don’t boil the ocean on exact numbers, if you understand the business better you should be able to spot the number easily.

Step 2 to Step 5

If you need to identify a Blue Ocean we need to look at four elements within existing strategy canvas.

Raise an attribute- enhance the standard of an attribute to enhance competitive edge. For example memory storage, camera etc addition to mobile phone.

Reduce an attribute- reduce where unnecessary or unimportant. This helps during time of disruptions. For example my wild imagination says after Reliance Jio the incumbents shouldn’t worry too much about the open network drama, practically its a customer support tool nothing more.

Eliminate an attribute- eliminate altogether, remove owned applications which are not required by incumbent tele operators not generating revenue. Or say SD card slot, it’s not game changer any more. Microsoft removed giving cd with software purchase.

Create an attribute- suppose you can choose your tyres and ancillaries while buying a car.

Commentary for Maithan Alloys (canvas attached in excel file). few more will update later, need to make it user friendly; more of abstracts now).

Strategy Canvas
Maithan Alloys. Strategy Canvas.xls (33 KB)

Mathan has able to manage move ahead in:

  • uninterrupted power by taking grid lines from electricity board (comes with additional security deposit, superior cash flow gives head room).
  • capacity utilisation is currently around 90% plus against domestic number of 54% (this is partially done by not expanding capacity further, backed up long term contracts than auctioning price, focussing on operations than selling raw materials).
  • capital power (only company in alloys near debt free, high cash flow allows the timely management of working capital which is a significant portion of Industry)

Value element alignment of Maithan Alloys

Raising an value driver: Dedicated grid supply (easy to replicate once cash position improves for others).

Reducing an unwanted value driver: mix of backward integration and purchase than complete backward integration. Maithan is one of early player to tie up with small time raw material providers as on required basis rather leasing mine always. (dependency on import unlikely to reduce for all competitors due to high quality of ores available abroad). (time bound replication, building network require sometime).

Eliminate an unwanted value driver: None

Create an value driver: Custom tailored made product due to varieties of steel grade required (time bound replication as building prototype with different manufacturing processes, customer acceptance takes cash and money muscle).

Blue Ocean also includes heavy load section for putting strategy into work and the change management around leadership. But to my opinion more helpful for the execution of strategy than knowing “edge” of company which can protect earnings into deep future which is our sole aim. In case you are interested you can hole them out from their website for further understanding.

What we should be clear is :

  1. Prepare a strategy canvas (this is not easy unless you understand the business to a reasonable extent).
  2. Analyse the attributes and find out where your proposed candidate is demonstrating an edge.
  3. Spot the value alignment (what is the extra company is doing, the attribute…see above).

Competitive landscape with strategy canvas provides a deep insight to business model of company and helps in assessing future earning estimates and cash flows along with adjustments. This augments further whether financial metrics are reflecting the strategic advantage and document specific competitive advantages down the line. I will post the interconnected points of financial metrics, narrative based competitive advantage for this company as soon as I get done.

Good wishes and happy investing!

  • Disclaimer- the understanding of stated company is for illustration purpose only based on my limited understanding of financials and business. I have not discussed with management and not necessarily reflect exact and true picture of company.
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