10 Feb Blue Ocean Success
‘What do Cirque du Soleil and the professional services firms with new business models have in common?’. The question was recently asked by Warren Riddell, one of my business partners.
His reflections on the answer generated so much interest that we thought they should be shared with BRW readers.
Cirque du Soleil and firms with new business models are both demonstrations of innovating to deliver more value. And both swim in a blue ocean (in the context of the Blue Ocean vs Red Ocean strategy debate, which I explain below). By new business models, I mean for example AdventBalance in legal services, about which I written before in BRW.
At the heart of Blue Ocean strategy, as Warren explained, is value innovation. This concept is centred on a win-win scenario for clients and professional services firms by which clients gain increased value and firms gain increased profit. There is no doubt that some new professional services firms recognise this because it is happening now in at least law, IP and accountancy.
Cirque du Soleil provides a great example of how the old can be re-invented into the new for a win-win. Consider this observation in the Harvard Business Review: “At the time of Cirque’s debut, circuses focused on benchmarking one another and maximising their shares of shrinking demand by tweaking traditional circus acts.
“This included trying to secure more and better-known clowns and lion tamers, efforts that raised circuses’ cost structure without substantially altering the circus experience. The result was rising costs without rising revenues and a downward spiral in overall circus demand.”
If this sounds familiar; it is. Not only are there uncanny similarities between lion tamers and law or accounting firm partners, more fundamentally the business models of circuses and these firms are not too dissimilar.
-hire the best talent to draw the client/audience
– maximise the yield on that talent
– drive down fixed costs (old style circuses replaced their big tops with rented arenas) to be able to pay for that talent, and
– try to occupy a space where there is no or little competition – which is admittedly easier for circuses than for professional firms.
Value innovation breaks with the conventional value/cost trade-off, where a firm increases its value to its clients by increasing its cost, or the opposite it decreases cost and decreases value to its clients.
Blue Ocean strategy seeks to break this relationship, by increasing client value and simultaneously increasing a firm’s profit.
Cirque increased the value of the circus experience to its paying guests by providing more of what the audience really wanted, which allowed it to access a new and higher spending audience base and at the same time it reduced its own costs.
For example, Cirque removed costly and undervalued animals from the show. Whilst Cirque du Soleil was a disruptive newcomer, the Harvard Business Review paper cites incumbents that shifted the boundaries of their markets and created Blue Ocean strategies.
There is a lesson here for all professional services firms that use the traditional business model – innovation is possible.
Evidence of new Blue Ocean strategies in the delivery of legal and other professional services can be found in the likes of LPO providers and Riverview Law. And Deloitte’s Giam Swiegers has warned that all traditional-model accountancy and consulting firms are similarly under threat.
Almost all big law and accountancy firms are in a red ocean
Now some will be saying that it can hardly be a Blue Ocean if you are sharing it with others.
This may be true, but it is a matter of relativity. Almost all big law and accountancy firms are unquestionably in a red ocean with conventional boundaries. It is the firms that are challenging these boundaries that will open up blue ocean opportunities for themselves and the litmus test is value innovation.
Blue oceans are not about technology innovation. Blue Ocean strategy is achieved when the whole system of a firm’s services, price, and cost base is re-engineered and aligned. The new business model firms get this, they create client value that is incrementally superior to their competitors, and they do this with sufficient profit to fuel both growth and satisfy shareholder expectations.
The founder of Cirque du Soleil was a one-time accordion player, stilt walker, and fire-eater. He was from within the industry not from outside, nevertheless he saw a different way to create value for both his audience and himself. The rest is history.
How many one-time practising lawyers and accountants have the vision to become new model professional services firm leaders?