Blue Ocean: Finding Open Water
At times the marketplace can force a business to make brutal decisions.
For example, when an important arm of your business is being squeezed to death by competitors, you have two choices: put the division out of its misery and move on or start looking for a new business strategy. If the first option is distasteful for whatever reason, then you may have to be bold and reinvent the entire line of business.
The Problem
Grand & Toy, a 127-year-old Canadian company, is primarily known by its chain of retail stores as an office-materials supplier to small businesses. But that business channel accounts for only about 10 per cent of the company’s $700 million in annual revenues. It is largely a wholesale business-to-business supplier that includes such lines as furniture and bulk supplies.
Many of the company’s 100 retail stores in Canada were unprofitable because they were competing directly with big-box stores such as Staples and Office Depot, often in suburban malls. The obvious solution would have been to get out of small-business supply completely, but the company didn’t want to do that because closing stores would have sent the wrong signal to its larger customers. Caught between these conflicting forces, Grand & Toy decided to go for a bold new strategy.
The Solution
Grand & Toy opted to use a business model innovation strategy called Blue Ocean, which is the movement from a competitive market space (the red, or bloody, ocean) to a new and uncontested market space (the blue ocean). Under this strategy, it cut out many parts of its traditional retail business and redeployed resources to serve an entirely new market segment.
The company uncovered this segment by carefully examining the small-business market. It realized that, while most office supply store customers were business consumers – single-person or micro businesses – there was a large, unserved segment of small businesses that needed more and didn’t want to shop for their supplies in malls. These companies, which often have 10 to 50 employees, also have to grapple with other business issues such as growth, technology purchase and deployment, and human resources. In short, they needed consultation as well as supplies.
Grand & Toy moved fast toward this blue ocean. It reduced its store count from 100 to 40 and created an online community where these business operators could meet and discuss issues. Then it began planning to convert existing stores to “business centres” where its newly identified target market could not only order supplies but also meet, in person and online, to receive help from consultants, experts and often each other.
This new conversion started last February in downtown Vancouver, the city with the highest concentration of small businesses in Canada, contained in a relatively small area. Currently, Grand & Toy has two business centres on Burrard and Granville streets and, at the time of writing, was planning to open another in Yaletown. The Vancouver stores are Grand & Toy’s beta, in a sense – a crucible where the company will test its strategy and refine it before it rolls out to the rest of the country.
Lessons
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Re-evaluate. A business can become paralyzed by external changes. It must examine the marketplace regularly for new trends.
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Reinvent. Even though it was more than a century old, Grand & Toy knew it had to be bold and agile. So it decided to take a risk and reinvent itself.
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Relate. Relevance to the wrong market can be death because it is changing constantly. Today you have to pinpoint exactly who your customers are.
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