Friday, December 30, 2005

Amber waves may be a thing of the past.

A claim worth investigating: apparently humans are the only creatures that have fewer babies when they are better fed. To invoke the vernacular: that's seriously messed up.

link to original article.

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The story of wheat

Ears of plenty
Dec 20th 2005
From The Economist print edition

The story of man's staple food

IN 10,000 years, the earth's population has doubled ten times, from less than 10m to more than six billion now and ten billion soon. Most of the calories that made that increase possible have come from three plants: maize, rice and wheat. The oldest, most widespread and until recently biggest of the three crops is wheat (see chart). To a first approximation wheat is the staple food of mankind, and its history is that of humanity.

Yet today, wheat is losing its crown. The tonnage (though not the acreage) of maize harvested in the world began consistently to exceed that of wheat for the first time in 1998; rice followed suit in 1999. Genetic modification, which has transformed maize, rice and soyabeans, has largely passed wheat by—to such an extent that it is in danger of becoming an “orphan crop”. The Atkins diet and a fashion for gluten allergies have made wheat seem less wholesome. And with population growth rates falling sharply while yields continue to rise, even the acreage devoted to wheat may now begin to decline for the first time since the stone age.

It is time to pay tribute to this strange little grass that has done so much for the human race. Strange is the word, for wheat is a genetic monster. A typical wheat variety is hexaploid—it has six copies of each gene, where most creatures have two. Its 21 chromosomes contain a massive 16 billion base pairs of DNA, 40 times as much as rice, six times as much as maize and five times as much as people. It is derived from three wild ancestral species in two separate mergers. The first took place in the Levant 10,000 years ago, the second near the Caspian Sea 2,000 years later. The result was a plant with extra-large seeds incapable of dispersal in the wild, dependent entirely on people to sow them.

The story actually starts much earlier, around 12,000 years ago. At the time, after several warm millennia, a melting ice sheet in North America collapsed and a gigantic lake drained into the North Atlantic through the St Lawrence seaway. The torrent of cool, fresh water altered the climate so drastically that the ice age, which had been in full retreat, resumed for a further 11 centuries. The Scandinavian ice sheet surged south. Western Asia became not only cooler, but much drier. The Black Sea all but dried out.

People in what is now Syria had been subsisting happily on a diet of acorns, gazelles and grass seeds. The centuries of drought drove them to depend increasingly on wild grass seeds. Abruptly, soon after 11,000 years ago, they began to cultivate rye and chickpeas, then einkorn and emmer, two ancestors of wheat, and later barley. Soon cultivated grain was their staple food. It happened first in the Karacadag Mountains in south-eastern Turkey—it is only here that wild einkorn grass contains the identical genetic fingerprint of modern domesticated wheat.

Who first replanted the seeds and why? For a start, he was probably a she: women have primary responsibilities for plant gathering in hunter-gatherer societies. The time was certainly ripe for agriculture: the ability to make tools and control fire (cooking makes many plants more digestible) was already well established. But was it an act of inspiration or desperation? Did it perhaps happen by accident, as discarded grains germinated around human settlements?

The wheat plant evolved three new traits to suit its new servants: the seeds grew larger; the “rachis” which binds the seeds together became less brittle so whole ears of grass, rather than individual seeds, could be gathered; and the leaf-like glumes that covered each seed loosened, thus making the grains “free-threshing”. In the past two years, the very mutations that allowed these changes have been located within the wheat plant's genome.

Wheat's servants now became its slaves. Agriculture brought drudgery, subjugation and malnutrition, because unlike hunter-gatherers, farmers could eke out a living when times were bad. But at least that meant that they could survive. Population growth was now inevitable. Within a few generations, wheat farmers were on the march, displacing and overwhelming hunter-gatherers as they went, and bringing with them their distinct Indo-European language, of which Sanskrit and Irish are both descendants. By 5,000 years ago wheat had reached Ireland, Spain, Ethiopia and India. A millennium later it reached China: paddy rice was still thousands of years in the future.

Wherever they went, the farmers brought their habits: not just sowing, reaping and threshing, but baking, fermenting, owning, hoarding. By 9,000 years ago they had domesticated cattle, to which they could feed wheat to get meat and milk. They could also get precious manure to fertilise the fields. Not until 6,000 years ago did somebody invent the first plough to turn the earth, burying weeds and breaking up the seedbed.

Innovations came slowly in wheat farming. The horse collar arrived in the third century BC, in China. By not pressing on the animal's windpipe, it enabled the animal to drag greater weight—and faster than an ox. In 1701 AD the Berkshire farmer Jethro Tull devised a simple seed drill based on organ pipes, which resulted in eight times as many grains harvested for every grain sown. Like most agricultural innovators since, he was vilified. A century later the threshing machine was greeted by riots.

In 1815 a gigantic volcanic eruption at Tambora in Indonesia led to the famous “year without a summer”. New England had frosts in July. France had bitter cold in August. Wheat prices reached a level that would never be seen again in real terms, nearly $3 a bushel. Thomas Robert Malthus was then at the height of his fame and the harvest failure seemed to bear out his pessimism. In 1798 he had forecast a population crash, based on the calculation that it was impossible to improve wheat yields as fast as people made babies (each new baby can make more babies; each new field of grain leaves less new land to cultivate).

The Malthusian crash was staved off in the 19th century by bringing more land under the plough—in North America, Argentina and Australia especially. But wheat yields per acre grew worse if anything as soil nutrients were depleted. So in 1898, in a speech to the British Association, a chemist, Sir William Crookes, argued again that worldwide starvation was inevitable within a generation. Population was rising fast. There was little new land to plough. Famines became worse each season, especially in Asia.

This time it was the tractor that averted Malthusian disaster. The first tractors had few advantages over the best horses, but they did not eat hay or oats. The replacement of draft animals by machines released about 25% more land for growing food for human consumption.

The Malthusian limit would surely be reached one day, though. The only way to increase yield was to find a way of supplying extra nitrogen, phosphorus and potassium to the soil. Neither a break crop of legumes, nor manure was the answer, since both demanded precious acres to produce. The search for fertiliser took unexpected turns. British entrepreneurs scoured the old battlefields of Europe searching for phosphorus-rich bones. In about 1830 a magic ingredient was found: guano. On the dry seabird islands off the South American and South African coasts, immense deposits of bird droppings, rich in nitrogen and phosphorus, had accumulated over centuries. Guano mining became a profitable business, and a grim one. Off South-West Africa, the discovery in 1843 of the tiny island of Ichaboe, covered in 25 feet of penguin and gannet excrement, led to a guano rush followed by a mutiny and battles. By 1850, Ichaboe, minus 800,000 tonnes of guano, was deserted again.

Between 1840 and 1880, guano nitrogen made a vast difference to European agriculture. But soon the best deposits were exhausted. In the dry uplands of Chile, rich mineral nitrate deposits were then found, and gradually took the place of guano in the late 19th century. The nitrate mines fuelled Chile's economy and fertilised Europe's farms.

On July 2nd 1909, with the help of an engineer named Carl Bosch from the BASF company, Fritz Haber succeeded in combining nitrogen (from the air) with hydrogen (from coal) to make ammonia. In a few short years, BASF had scaled up the process to factory size and the sky could be mined for nitrogen. Today nearly half the nitrogen atoms in the proteins of an average human being's body came at some time or another through an ammonia factory. In the short term, though, Haber merely saved the German war effort as it was on the brink of running out of nitrogen explosives in 1914, cut off from Chilean nitrates. He went on to make lethal gas for chemical warfare and genocide.

On farms, Haber nitrogen ran into much the same revulsion as had greeted the seed drill. For many farmers, the goodness of manure could not be reduced to a white powder. Fertiliser must in some sense be alive. Haber nitrogen was not used as fertiliser in large quantities until the middle of the 20th century, and for a good reason. If you put extra nitrogen on wheat, the crop grew taller and thicker than usual, fell over in the wind and rotted. On General Douglas MacArthur's team in Japan at the end of the second world war a wheat expert named Cecil Salmon collected 16 varieties of wheat including one called “Norin 10”, which grew just two feet tall, instead of the usual four. Salmon sent it back to a scientist named Orville Vogel in Oregon in 1949. Vogel began crossing Norin 10 with other wheats to make new short-strawed varieties.

In 1952 news of Vogel's wheat filtered down to a remote research station in Mexico, where a man named Norman Borlaug was breeding fungus-resistant wheat for a project funded by the Rockefeller Foundation. Borlaug took some Norin, and Norin-Brevor hybrid, seeds to Mexico and began to grow new crosses. Within a few short years he had produced wheat that yielded three times as much as before. By 1963 95% of Mexico's wheat was Borlaug's variety, and the country's wheat harvest was six times what it had been when Borlaug set foot in the country.

In 1961 Borlaug was invited to visit India by M. S. Swaminathan, adviser to the Indian minister of agriculture. India was on the brink of mass famine. Huge shipments of food aid from America were all that stood between its swelling population and a terrible fate. One or two people were starting to say the unsayable. After an epiphany in a taxi in a crowded Delhi street, the environmentalist Paul Ehrlich wrote a best-seller arguing that the world had “too many people”. Not only could America not save India; it should not save India. Mass starvation was inevitable, and not just for India, but for the world.

Borlaug refused to be so pessimistic. He arrived in India in March 1963 and began testing three new varieties of Mexican wheat. The yields were four or five times better than Indian varieties. In 1965, after overcoming much bureaucratic opposition, Swaminathan persuaded his government to order 18,000 tonnes of Borlaug's seed. Borlaug loaded 35 trucks in Mexico and sent them north to Los Angeles. The convoy was held up by the Mexican police, stopped at the border by United States officials and then held up by the National Guard when the Watts riots prevented them reaching the port. Then, as the shipment eventually sailed, war broke out between India and Pakistan.

As it happened, the war proved a godsend, because the state grain monopolies lost their power to block the spread of Borlaug's wheat. Eager farmers took it up with astonishing results. By 1974, India wheat production had tripled and India was self-sufficient in food; it has never faced a famine since. In 1970 Norman Borlaug was awarded the Nobel Peace Prize for firing the first shot in what came to be called the “green revolution”.

Borlaug had used natural mutants; soon his successors were bringing on mutations artificially. In 1956, a sample of a barley variety called Maythorpe was irradiated at Britain's Atomic Energy Research Establishment . The result was a strain with stiffer, shorter straw but the same early harvest and malting qualities, which would eventually reach the market as “Golden Promise”.

Today scientists use thermal neutrons, X-rays, or ethyl methane sulphonate, a harsh carcinogenic chemical—anything that will damage DNA—to generate mutant cereals. Virtually every variety of wheat and barley you see growing in the field was produced by this kind of “mutation breeding”. No safety tests are done; nobody protests. The irony is that genetic modification (GM) was invented in 1983 as a gentler, safer, more rational and more predictable alternative to mutation breeding—an organic technology, in fact. Instead of random mutations, scientists could now add the traits they wanted.

In 2004 200m acres of GM crops were grown worldwide with good effects on yield (up), pesticide use (down), biodiversity (up) and cost (down). There has not been a single human health problem. Yet, far from being welcomed as a greener green revolution, genetic modification soon ran into fierce opposition from the environmental movement. Around 1998, a century after Crookes and two centuries after Malthus, green pressure groups began picking up public disquiet about GM and rushed the issue to the top of their agendas, where it quickly brought them the attention and funds they crave.

Wheat, because of its unwieldy hexaploid genome, has largely missed out on the GM revolution, as maize and rice accelerate into world leadership. The first GM wheats have only recently been approved for use, their principal advantage to the farmer being so-called “no till” cultivation—the planting of seed directly into untilled soil saves fuel and topsoil.

Soon after Norman Borlaug went to India in 1963, a remarkable thing began to happen. The world population growth rate, in percentage terms, had been climbing steadily since the second world war (bar a two-year drop in 1959-60 caused by Mao Xedong). But in the mid 1960s it stopped rising. And by 1974 it was falling significantly. The number of people added each year kept on rising for a while, but even that peaked in 1989, and then began falling steadily. Population was still growing, but it was adding a smaller and smaller number each year.

Demographers, who had been watching the exponential rise with alarm, now forecast that the population will peak below ten billion—ten gigapeople—not long after 2050. Such a low forecast would have been unthinkable just two decades ago. Already, in developing countries, the number of children born per woman has fallen from six to three in 50 years. It will have reached replacement-level fertility (where deaths equal births) by 2035.

This is an extraordinary development, unexpected, undeserved—and apparently unnatural. Human beings may be the only creatures that have fewer babies when they are better fed. The fastest-growing populations in the world over the next 50 years will be those of Burkina Faso, Mali, Niger, Somalia, Uganda and Yemen. All except in Yemen are in Africa. All are hungry. All remain untouched by Borlaug's green Revolution: all depend on primarily organic agriculture.

In 10,000 years the population has doubled at least ten times. Yet suddenly the doubling has ceased. It will never double again. The end of humanity's population boom will happen in the lifetimes of people alive today. It is the moment when Malthus was wrong for the last time.

Of course feeding ten billion will not be trivial. It will require at least 35% more calories than the world's farmers grow today, probably much more if a growing proportion of those ten billion are to have meat more than once a month. (It takes ten calories of wheat to produce one calorie of meat.) That will mean either better yields or less rainforest—which is why fertilisers, pesticides and transgenes are the best possible protectors of the planet. The story of wheat is not finished yet.

How soon we forget greatness.

"Do one thing every day that scares you."

Eleanor Roosevelt.

Wednesday, December 28, 2005

Tribal instinct, or a lack of trust?

For Workers, It's Face Time Over PC Time

By TOM ZELLER Jr.

IN the early hours last Tuesday, before most New Yorkers woke to learn that a transit strike had halted their subway and bus service, Judy Breck was at her computer, getting ready to work.

"Sitting in my home studio on the Upper East Side of Manhattan, I am remembering the last New York City transit strike 25 years ago," Ms. Breck, the author of several books on the digital age, wrote at the Web log SmartMobs.com. "For 11 days in the morning I had to make my way the seven miles downtown to Wall Street, where I worked for a few hours before making my way the seven miles back home."

Ms. Breck, then a secretary at a law firm, had few options. "Working at home was limited mainly to invalids and wealthy executives," she wrote.

"Now, with mobile digital connectivity," she elaborated later in an e-mail message, "you have an office wherever you are." In theory, this is true. For millions of New Yorkers, and millions more Americans - business executives and managers, analysts, researchers, consultants and an unidentifiable number of others whose jobs require little more than a phone and a computer with an Internet connection - working from home is a real option.

But as the world saw last week, telecommuting does not appear to be a mass phenomenon in New York. Along with the thousands of restaurant, retail and service industry personnel, construction workers, street sweepers, teachers and other employees for whom connectivity has little to do with making a living, there were plenty of desk jockeys turning their white collars to the wind and making their way to offices, when they could presumably have worked from home.

Why has telecommuting never really been embraced in the way futurists once said it would? The answer has little to do with logistics and more to do with tribal phenomena like status, power, fear and ritual. It's also a function of the fact that even in the digital age, people in cities from New York to San Francisco just like to lay eyes on one another.

"If telecommuting were such a great idea, why do the Internet experts concentrate in a few small geographical areas?" said Kenneth T. Jackson, a professor of history and social sciences at Columbia University and the author of "The Encyclopedia of New York City."

"They, too, need the stimulation of other humans who are present in the flesh, not on a screen," he said.

As did, presumably, many of those New Yorkers who trudged across the bridges linking Brooklyn, Queens and Manhattan last week.

Just how many of them were as well prepared to work at home as in the office is not known. Data from WorldatWork, a telework industry consortium, suggest that after flatlining at about 7.6 million for the last four years, the number of regular employees working at home at least one day a month jumped to 9.9 million in 2005. Tens of millions more workers - self-employed types, contract employees - swell the number who "do some type of work from home" at least one day a month to 26.1 million, although what exactly was meant by "work" was unclear.

Some big companies have embraced telecommuting. About 30 percent of AT&T's managers, for example, were working outside the traditional office as of last year.

But one need look no further than the annual Urban Mobility Study, from Texas A.&M. University, to see a countertrend as well. "Traffic congestion levels have increased in every area since 1982," this year's report states. And near the top of miserably congested cities are those hotbeds of high tech: San Francisco, Dallas, San Diego, Seattle, Denver, Austin.

"Even in a world of casual instant-messaging and near-free phone calling," said Jonathan Zittrain, a professor of Internet governance at Oxford University, "a shout down the hall still matters."

This is immensely frustrating to Representative Frank Wolf, a Republican of Virginia, who has spent the better part of a decade promoting telecommuting. He helped pass a 2001 bill requiring that all federal agencies make telecommuting available to eligible employees by the end of this year - a goal that will not be reached.

The benefits of telecommuting, Mr. Wolf noted in an interview, include easing traffic congestion, reducing fuel consumption and pollution, cost savings for employers and even maintaining continuity of government and the economy in the event of disaster or attack - or a labor walkout.

"So what's the magic of driving in a metal box to get to an office just to sit in front of a computer?" he asked in exasperation.

Some hurdles to telecommuting have persisted for almost 20 years. Employers, for instance, like to keep an eye on employees. Employees often fear that rewards will accrue to those dedicated stars who show up at work most often, and certainly to those who, unlike the lazy, wily telecommuter, brave the elements even during a transit strike.

But daily journeys to and from work are more than just physical. For many workers they are necessary cognitive commutes.

"It's in some ways an incredibly functional period for people getting into a work frame of mind or a home frame of mind," said Christina Nippert-Eng, a professor of sociology at the Illinois Institute of Technology in Chicago.

"For people who really make a big distinction between work or home, they really need a bridging routine," she said. "If they don't figure out how to do that, telecommuting won't work."

Just how many New Yorkers sought out their home-to-work bridges last week on a literal span of steel and concrete, and how many found them in a bowl of Häagen-Dazs and an hour of "People's Court" is not known, but what seems certain is that for all of the promise of telecommuting, the lure of the group - of the center - persists.

That's as true in New York as anywhere.

"In an era when so much of our communication is electronic, the value of a face-to-face meeting has actually intensified," said Mitchell L. Moss, a professor of urban policy at New York University, "since the phone and e-mail have become routine while a meeting reflects the importance of the person or topic."

And, Professor Moss added, "the reason Manhattan rents are as high as they are is because people want to be near people - there is an enormous productivity gain when people have access to people."

Copyright 2005The New York Times Company

What matters are the spaces in between.

Age of Information Overload.

(AP) -- Books are being scanned to make them searchable on the Internet. Television broadcasts are being recorded and archived for online posterity. Radio shows, too, are getting their digital conversion -- to podcasts.

With a few keystrokes, we'll soon be able to tap much of the world's knowledge. And we'll do it from nearly anywhere -- already, newer iPods can carry all your music, digital photos and such TV classics as "Alfred Hitchcock Presents" along with more contemporary prime-time fare.

Will all this instantly accessible information make us much smarter, or simply more stressed? When can we break to think, absorb and ponder all this data?

"People are already struggling and feeling like they need to keep up with the variety of information sources they already have," said David Greenfield, a psychologist who wrote "Virtual Addiction." "There are upper limits to how much we can manage."

It may take better technology to cope with the problems better technology creates.

Of course, if used properly, the new resources have vast potential to shape how we live, study and think.

Consider books.

Nicole Quaranta, 22, is a typical youth. The New York University grad student in education does most of her research online. She'll check databases for academic journals and newspaper articles -- but rarely books, even though she acknowledges an author who spent years on a 300-page book might have a unique perspective.

"The library is daunting because I have to go there and everything is organized by academic area," Quaranta said. "I don't even know where to begin."

Were books as easily searchable as Web pages, she'd reconsider.

Otherwise, they might as well not exist.

With a generation growing up expecting everything on the Internet, libraries, nonprofit organizations and leading search companies like Yahoo Inc. and Microsoft Corp. are committing hundreds of millions of dollars collectively to scan books and other printed materials so they can be indexed and retrieved online. HarperCollins Publishers even announced plans in mid-December to digitize its vast catalog.

Access to most works still in copyright remains limited, though. Google Inc., for instance, is displaying only portions and sending those wanting more to a bookstore or nearby library. Even so, publishers and authors groups have sued Google.

The online access will let scholars and everyday readers obtain firsthand accounts from books rather than secondary interpretations in Web postings that can be inaccurate or biased.

"There's a lot of really good, although not well-known, books that are really almost impossible to get hold of," said Dick Gross, 61, a retired radiological physicist in Oregon City, Oregon, who seeks older books for bible teachings.

"They are locked up in somebody's library without people who live very far away having access to it."

Alan Staples Jr., 23, a Lawrence, Kansas, businessman, likes the idea of online books so much that he's even willing to pay a few pennies a page just to avoid a library.

Indeed, Amazon.com Inc. announced such a program in November and is working with publishers to get the necessary rights.

Meanwhile, television shows formerly locked up in network or studio vaults are starting to emerge online.

"Before, once it has been aired, it's gone, and it doesn't really contribute to our knowledge space," said Jakob Nielsen, a Web design expert with Nielsen Norman Group.

For the past year, Google has been digitally recording news and other programs from several TV stations in the San Francisco area (although Google has limited display to still images and closed-captioned text until it settles copyright matters).

Early next year, America Online Inc. and Warner Bros. will offer free access to dozens of old television shows, including "Welcome Back Kotter." And Apple Computer Inc. recently started selling episodes of shows old and new from ABC and NBC Universal for $1.99 each -- viewable on computers and its newer iPods. The catalog includes "Lost" and "Law & Order."

TiVo Inc. is also getting more mobile, expanding its digital recording service to permit video transfers to iPods and Sony Corp.'s PlayStation Portable.

In audio, National Public Radio has been producing free podcasts featuring clips or entire programs. Anyone with a music player can listen anytime, anywhere.

And then there are materials born digital: Photos from digital cameras can now be easily shared, even among strangers, at sites like Yahoo's Flickr.

Steve Jones, a professor of communications at the University of Illinois at Chicago, says centralization and easy access could make people smarter: Instead of wasting time finding information, they can focus more on assessing its worth.

But there's the danger, he says, that people will simply take information for granted: Assuming that whatever pops up first is the best.

Worse, people may simply tune out.

Field research by Jennifer Kayahara, a sociology graduate student at the University of Toronto, shows people are overwhelmed as it is.

"For people who don't search extensively online, that's the reason they give: 'There's too much,"' she said, adding that people worry they might miss something yet don't have the time to seek it out.

The key may lie in technologies that push to the top items you seek -- or would like, even if you don't know to look. Search analyst Danny Sullivan describes such a tool as "some sort of metal detector or magnet to pull all the good stuff out of the haystack."

Virtual communities may contribute to that end.

An online bookmarking service called del.icio.us, just purchased by Yahoo, lets you discover new sites by checking those frequented by people with bookmarks similar to yours. The idea is that people who share bookmarks are also likely to share interests.

Imagine the potential if a group of scholars in African history could get one set of search results, perhaps with an emphasis on books and academic journals, while music lovers could get another set, entertainment-oriented, using the same search terms.

Del.icio.us, Flickr and several newer services also support tagging, the ability to organize items by keywords. The collective human wisdom that goes into tagging is bound to identify things a computer might not otherwise know to retrieve.

Not that technology itself won't be important, and search companies are actively seeking better techniques, particularly for audio and video.

"Social networks, search engines and things yet invented are critical as we bring millions of movies, books and musical recordings online," said Brewster Kahle, a search pioneer who created the Internet Archive, a nonprofit preservation group.

Even more important will be good research skills -- infoliteracy, if you will. That means knowing where and how to look, and evaluating what you get back.

And that's crucial as people get inundated with electronic information 24/7 -- not just at their computers. Cell phones are being transformed into search and browsing tools, and iPods are becoming small television displays.

Rachel Edelman, 21, an NYU junior in communications studies, finds her vintage, music-only iPod enough of a distraction.

"If I'm listening to music, I'm not going to be thinking about other things, about school work, friends, family or relationships, even just noticing things on the street and noticing changes in the city," she said.

And with wireless Internet access creeping into every niche of life -- it's even coming to airplanes and taxis -- we'll have to carve out retreats from the information age.

"If you fill every waking minute with more media, you never do any independent thinking," Nielsen said. "You may have all the specific pieces of information, but the higher level is knowledge and understanding. You don't have time for that reflection if it's being thrown at you at never-ending streams.

"All you can do is duck."

Copyright 2005 The Associated Press. All rights reserved.This material may not be published, broadcast, rewritten, or redistributed.

Selling the hole instead of the drill.

MARKETING MALPRACTICE
Christensen, Clayton M., Cook, Scott, Hall, Taddy
Harvard Business Review, 0017-8012, December 1, 2005, Vol. 83, Issue 12

MARKETING MALPRACTICE

The Cause and the Cure

Marketing executives focus too much on ever-narrower demographic segments and ever-more-trivial product extensions. They should find out, instead, what jobs consumers need to get done. Those jobs will point the way to purposeful products--and genuine innovation.

THIRTY THOUSAND NEW CONSUMER PRODUCTS are launched each year. But over 90% of them fail--and that's after marketing professionals have spent massive amounts of money trying to understand what their customers want. What's wrong with this picture? Is it that market researchers aren't smart enough? That advertising agencies aren't creative enough? That consumers have become too difficult to understand? We don't think so. We believe, instead, that some of the fundamental paradigms of marketing -- the methods that most of us learned to segment markets, build brands, and understand customers -- are broken. We're not alone in that judgment. Even Proctor & Gamble CEO A.G. Lafley, arguably the best-positioned person in the world to make this call, says, "We need to reinvent the way we market to consumers. We need a new model."

To build brands that mean something to customers, you need to attach them to products that mean something to customers. And to do that, you need to segment markets in ways that reflect how customers actually live their lives. In this article, we will propose a way to reconfigure the principles of market segmentation. We'll describe how to create products that customers will consistently value. And finally, we will describe how new, valuable brands can be built to truly deliver sustained, profitable growth.

Broken Paradigms of Market Segmentation

The great Harvard marketing professor Theodore Levitt used to tell his students, "People don't want to buy a quarter-inch drill. They want a quarter-inch hole!" Every marketer we know agrees with Levitt's insight. Yet these same people segment their markets by type of drill and by price point; they measure market share of drills, not holes; and they benchmark the features and functions of their drill, not their hole, against those of rivals. They then set to work offering more features and functions in the belief that these will translate into better pricing and market share. When marketers do this, they often solve the wrong problems, improving their products in ways that are irrelevant to their customers' needs.

Segmenting markets by type of customer is no better. Having sliced business clients into small, medium, and large enterprises--or having shoehorned consumers into age, gender, or lifestyle brackets--marketers busy themselves with trying to understand the needs of representative customers in those segments and then create products that address those needs. The problem is that customers don't conform their desires to match those of the average consumer in their demographic segment. When marketers design a product to address the needs of a typical customer in a demographically defined segment, therefore, they cannot know whether any specific individual will buy the product--they can only express a likelihood of purchase in probabilistic terms.

Thus the prevailing methods of segmentation that budding managers learn in business schools and then practice in the marketing departments of good companies are actually a key reason that new product innovation has become a gamble in which the odds of winning are horrifyingly low.

There is a better way to think about market segmentation and new product innovation. The structure of a market, seen from the customers' point of view, is very simple: They just need to get things done, as Ted Levitt said. When people find themselves needing to get a job done, they essentially hire products to do that job for them. The marketer's task is therefore to understand what jobs periodically arise in customers' lives for which they might hire products the company could make. If a marketer can understand the job, design a product and associated experiences in purchase and use to do that job, and deliver it in a way that reinforces its intended use, then when customers find themselves needing to get that job done, they will hire that product.

Since most new-product developers don't think in those terms, they've become much too good at creating products that don't help customers do the jobs they need to get done. Here's an all-too-typical example. In the mid-1990s, Scott Cook presided over the launch of a software product called the Quicken Financial Planner, which helped customers create a retirement plan. It flopped. Though it captured over 90% of retail sales in its product category, annual revenue never surpassed $2 million, and it was eventually pulled from the market.

What happened? Was the $49 price too high? Did the product need to be easier to use? Maybe. A more likely explanation, however, is that while the demographics suggested that lots of families needed a financial plan, constructing one actually wasn't a job that most people were looking to do. The fact that they should have a financial plan, or even that they said they should have a plan, didn't matter. In hindsight, the fact that the design team had had trouble finding enough "planners" to fill a focus group should have tipped Cook off. Making it easier and cheaper for customers to do things that they are not trying to do rarely leads to success.

Designing Products That Do the Job

With few exceptions, every job people need or want to do has a social, a functional, and an emotional dimension. If marketers understand each of these dimensions, then they can design a product that's precisely targeted to the job. In other words, the job, not the customer, is the fundamental unit of analysis for a marketer who hopes to develop products that customers will buy.

To see why, consider one fast-food restaurant's effort to improve sales of its milk shakes. (In this example, both the company and the product have been disguised.) Its marketers first defined the market segment by product--milk shakes--and then segmented it further by profiling the demographic and personality characteristics of those customers who frequently bought milk shakes. Next, they invited people who fit this profile to evaluate whether making the shakes thicker, more chocolaty, cheaper, or chunkier would satisfy them better. The panelists gave clear feedback, but the consequent improvements to the product had no impact on sales.

A new researcher then spent a long day in a restaurant seeking to understand the jobs that customers were trying to get done when they hired a milk shake. He chronicled when each milk shake was bought, what other products the customers purchased, whether these consumers were alone or with a group, whether they consumed the shake on the premises or drove off with it, and so on. He was surprised to find that 40% of all milk shakes were purchased in the early morning. Most often, these early-morning customers were alone; they did not buy anything else; and they consumed their shakes in their cars.

The researcher then returned to interview the morning customers as they left the restaurant, shake in hand, in an effort to understand what caused them to hire a milk shake. Most bought it to do a similar job: They faced a long, boring commute and needed something to make the drive more interesting. They weren't yet hungry but knew that they would be by 10 AM; they wanted to consume something now that would stave off hunger until noon. And they faced constraints: They were in a hurry, they were wearing work clothes, and they had (at most) one free hand.

The researcher inquired further: "Tell me about a time when you were in the same situation but you didn't buy a mill shake. What did you buy instead?" Sometimes, he learned, they bought a bagel. But bagels were too dry. Bagels with cream cheese or jam resulted in sticky fingers and gooey steering wheels. Sometimes these commuters bought a banana, but it didn't last long enough to solve the boring-commute problem. Doughnuts didn't carry people past the 10 AM hunger attack. The milk shake, it turned out, did the job better than any of these competitors. It took people 20 minutes to suck the viscous mill shake through the thin straw, addressing the boring commute problem. They could consume it cleanly with one hand. By 10:00, they felt less hungry than when they tried the alternatives. It didn't matter much that it wasn't a healthy food, because becoming healthy wasn't essential to the job they were hiring the milk shake to do.

The researcher observed that at other times of the day parents often bought milk shakes, in addition to complete meals, for their children. What job were the parents trying to do? They were exhausted from repeatedly having to say "no" to their kids. They hired mill shakes as an innocuous way to placate their children and feel like loving parents. The researcher observed that the milk shakes didn't do this job very well, though. He saw parents waiting impatiently after they had finished their own meals while their children struggled to suck the thick shakes up through the thin straws.

Customers were hiring milk shakes for two very different jobs. But when marketers had originally asked individual customers who hired a milk shake for either or both jobs which of its attributes they should improve-and when these responses were averaged with those of other customers in the targeted demographic segment-it led to a one-size-fits-none product.

Once they understood the jobs the customers were trying to do, however, it became very clear which improvements to the milk shake would get those jobs done even better and which were irrelevant. How could they tackle the boring-commute job? Make the milk shake even thicker, so it would last longer. And swirl in tiny chunks of fruit, adding a dimension of unpredictability and anticipation to the monotonous morning routine. Just as important, the restaurant chain could deliver the product more effectively by moving the dispensing machine in front of the counter and selling customers a prepaid swipe card so they could dash in, "gas up" and go without getting stuck in the drive-through lane. Addressing the midday and evening job to be done would entail a very different product, of course.

By understanding the job and improving the product's social, functional, and emotional dimensions so that it did the job better, the company's milk shakes would gain share against the real competition--not just competing chains' milk shakes but bananas, boredom, and bagels. This would grow the category, which brings us to an important point: Job-defined markets are generally much larger than product category-defined markets. Marketers who are stuck in the mental trap that equates market size with product categories don't understand whom they are competing against from the customer's point of view.

Notice that knowing how to improve the product did not come from understanding the "typical" customer. It came from understanding the job. Need more evidence?

Pierre Omidyar did not design eBay for the "auction psychographic." He founded it to help people sell personal items. Google was designed for the job of finding information, not for a "search demographic." The unit of analysis in the work that led to Procter & Gamble's stunningly successful Swifter was the job of cleaning floors, not a demographic or psychographic study of people who mop.

Why do so many marketers try to understand the consumer rather than the job? One reason may be purely historical: In some of the markets in which the tools of modern market research were formulated and tested, such as feminine hygiene or baby care, the job was so closely aligned with the customer demographic that if you understood the customer, you would also understand the job. This coincidence is rare, however. All too frequently, marketers' focus on the customer causes them to target phantom needs.

How a Job Focus Can Grow Product Categories

New growth markets are created when innovating companies design a product and position its brand on a job for which no optimal product yet exists. In fact, companies that historically have segmented and measured the size of their markets by product category generally find that when they instead segment by job, their market is much larger (and their current share of the job is much smaller) than they had thought. This is great news for smart companies hungry for growth.

Understanding and targeting jobs was the key to Sony founder Akio Morita's approach to disruptive innovation. Morita never did conventional market research. Instead, he and his associates spent much of their time watching what people were trying to get done in their lives, then asking themselves whether Sony's electronics miniaturization technology could help them do these things better, easier, and cheaper. Morita would have badly misjudged the size of his market had he simply analyzed trends in the number of tape players being sold before he launched his Walkman. This should trigger an action item on every marketer's to-do list: Turn off the computer, get out of the office, and observe.

Consider how Church & Dwight used this strategy to grow its baking soda business. The company has produced Arm & Hammer baking soda since the 1860s; its iconic yellow box and Vulcan's hammer-hefting arm have become enduring visual cues for "the standard of purity." In the late 1960s, market research director Barry Goldblatt tells us, management began observational research to understand the diverse circumstances in which consumers found themselves with a job to do where Arm & Hammer could be hired to help. They found a few consumers adding the product to laundry detergent, a few others mixing it into toothpaste, some sprinkling it on the carpet, and still others placing open boxes in the refrigerator. There was a plethora of jobs out there needing to get done, but most customers did not know that they could hire Arm & Hammer baking soda for these cleaning and freshening jobs. The single product just wasn't giving customers the guidance they needed, given the many jobs it could be hired to do.

Today, a family of job-focused Arm & Hammer products has greatly grown the baking soda product category. These jobs include:

• Help my mouth feel fresh and clean (Arm & Hammer Complete Care toothpaste)

• Deodorize my refrigerator (Arm & Hammer Fridge-n-Freezer baking soda)

• Help my underarms stay clean and fresh (Arm & Hammer Ultra Max deodorant)

• Clean and freshen my carpets (Arm & Hammer Vacuum Free carpet deodorizer)

• Deodorize kitty litter (Arm & Hammer Super Scoop cat litter)

• Make my clothes smell fresh (Arm & Hammer Laundry Detergent).

The yellow-box baking soda business is now less than 10% of Arm & Hammer's consumer revenue. The company's share price has appreciated at nearly four times the average rate of its nearest rivals, P&G, Unilever, and Colgate-Palmolive. Although the overall Arm & Hammer brand is valuable in each instance, the key to this extraordinary growth is a set of job-focused products and a communication strategy that help people realize that when they find themselves needing to get one of these jobs done, here is a product that they can trust to do it well.

Building Brands That Customers Will Hire

Sometimes, the discovery that one needs to get a job done is conscious, rational, and explicit. At other times, the job is so much a part of a routine that customers aren't really consciously aware of it. Either way, if consumers are lucky, when they discover the job they need to do, a branded product will exist that is perfectly and unambiguously suited to do it. We call the brand of a product that is tightly associated with the job for which it is meant to be hired a purpose brand.

The history of Federal Express illustrates how successful purpose brands are built. A job had existed practically forever: the I-need-to-send-this-from-here-to-there-withperfect-certainty-as-fast-as-possible job. Some U.S. customers hired the U.S. Postal Service's airmail to do this job; a few desperate souls paid couriers to sit on airplanes. Others even went so far as to plan ahead so they could ship via UPS trucks. But each of these alternatives was kludgy, expensive, uncertain, or inconvenient. Because nobody had yet designed a service to do this job well, the brands of the unsatisfactory alternative services became tarnished when they were hired for this purpose. But after Federal Express designed its service to do that exact job, and did it wonderfully again and again, the FedEx brand began popping into people's minds whenever they needed to get that job done. FedEx became a purpose brand--in fact, it became a verb in the international language of business that is inextricably linked with that specific job. It is a very valuable brand as a result.

Most of today's great brands--Crest, Starbucks, Kleenex, eBay, and Kodak, to name a few--started out as just this kind of purpose brand. The product did the job, and customers talked about it. This is how brand equity is built.

Brand equity can be destroyed when marketers don't tie the brand to a purpose. When they seek to build a general brand that does not signal to customers when they should and should not buy the product, marketers run the risk that people might hire their product to do a job it was not designed to do. This causes customers to distrust the brand--as was the case for years with the post office.

A clear purpose brand is like a two-sided compass. One side guides customers to the right products. The other side guides the company's product designers, marketers, and advertisers as they develop and market improved and new versions of their products. A good purpose brand clarifies which features and functions are relevant to the job and which potential improvements will prove irrelevant. The price premium that the brand commands is the wage that customers are willing to pay the brand for providing this guidance on both sides of the compass.

The need to feel a certain way--to feel macho, sassy, pampered, or prestigious--is a job that arises in many of our lives on occasion. When we find ourselves needing to do one of these jobs, we can hire a branded product whose purpose is to provide such feelings. Gucci, Absolut, Montblanc, and Virgin, for example, are purpose brands. They link customers who have one of these jobs to do with experiences in purchase and use that do those jobs well. These might be called aspirational jobs. In some aspirational situations, it is the brand itself, more than the functional dimensions of the product, that gets the job done.

The Role of Advertising

Much advertising is wasted in the mistaken belief that it alone can build brands. Advertising cannot build brands, but it can tell people about an existing branded product's ability to do a job well. That's what the managers at Unilever's Asian operations found out when they identified an important job that arose in the lives of many office workers at around 4:00 in the afternoon. Drained of physical and emotional energy, people still had to get a lot done before their workday ended. They needed something to boost their productivity, and they were hiring a range of caffeinated drinks, candy bars, stretch breaks, and conversation to do this job, with mixed results.

Unilever designed a microwavable soup whose properties were tailored to that job--quick to fix, nutritious but not too filling, it can be consumed at your desk but gives you a bit of a break when you go to heat it up. It was launched into the workplace under the descriptive brand Soupy Snax. The results were mediocre. On a hunch, the brand's managers then relaunched the product with advertisements showing lethargic workers perking up after using the product and renamed the brand Soupy Snax-4:00. The reaction of people who saw the advertisements was, "That's exactly what happens to me at 4:00!" They needed something to help them consciously discover both the job and the product they could hire to do it. The tagline and ads transformed a brand that had been a simple description of a product into a purpose brand that clarified the nature of the job and the product that was designed to do it, and the product has become very successful.

Note the role that advertising played in this process. Advertising clarified the nature of the job and helped more people realize that they had the job to do. It informed people that there was a product designed to do that job and gave the product a name people could remember. Advertising is not a substitute for designing products that do specific jobs and ensuring that improvements in their features and functions are relevant to that job. The fact is that most great brands were built before their owners started advertising. Think of Disney, Harley-Davidson, eBay, and Google. Each brand developed a sterling reputation before much was spent on advertising.

Advertising that attempts to short-circuit this process and build, as if from scratch, a brand that people will trust is a fool's errand. Ford, Nissan, Macy's, and many other companies invest hundreds of millions to keep the corporate name or their products' names in the general consciousness of the buying public. Most of these companies' products aren't designed to do specific jobs and therefore aren't usually differentiated from the competition. These firms have few purpose brands in their portfolios and no apparent strategies to create them. Their managers are unintentionally transferring billions in profits to branding agencies in the vain hope that they can buy their way to glory. What is worse, many companies have decided that building new brands is so expensive they will no longer do so. Brand building by advertising is indeed prohibitively expensive. But that's because it's the wrong way to build a brand.

Marketing mavens are fond of saying that brands are hollow words into which meaning gets stuffed. Beware. Executives who think that brand advertising is an effective mechanism for stuffing meaning into some word they have chosen to be their brand generally succeed in stuffing it full of vagueness. The ad agencies and media companies win big in this game, but the companies whose brands are getting stuffed generally find themselves trapped in an expensive, endless arms race with competitors whose brands are comparably vague.

The exceptions to this brand-building rule are the purpose brands for aspirational jobs, where the brand must be built through images in advertising. The method for brand building that is appropriate for these jobs, however, has been wantonly and wastefully misapplied to the rest of the world of branding.

Extending--Or Destroying-Brand Equity

Once a strong purpose brand has been created, people within the company inevitably want to leverage it by applying it to other products. Executives should consider these proposals carefully. There are rules about the types of extensions that will reinforce the brand--and the types that will erode it.

If a company chooses to extend a brand onto other products that can be hired to do the same job, it can do so without concern that the extension will compromise what the brand does. For example, Sony's portable CD player, although a different product than its original Walkman-branded radio and cassette players, was positioned on the same job (the help-me-escape-the-chaos-in-my-world job). So the new product caused the Walkman brand to pop even more instinctively into customers' minds when they needed to get that job done. Had Sony not been asleep at the switch, a Walkman-branded MP3 player would have further enhanced this purpose brand. It might even have kept Apple's iPod purpose brand from preempting that job.

The fact that purpose brands are job specific means that when a purpose brand is extended onto products that target different jobs, it will lose its clear meaning as a purpose brand and develop a different character instead--an endorser brand. An endorser brand can impart a general sense of quality, and it thereby creates some value in a marketing equation. But general endorser brands lose their ability to guide people who have a particular job to do to products that were designed to do it. Without appropriate guidance, customers will begin using endorser-branded products to do jobs they weren't designed to do. The resulting bad experience will cause customers to distrust the brand. Hence, the value of an endorser brand will erode unless the company adds a second word to its brand architecture--a purpose brand alongside the endorser brand.

Different jobs demand different purpose brands.

Marriott International's executives followed this principle when they sought to leverage the Marriott brand to address different jobs for which a hotel might be hired. Marriott had built its hotel brand around full-service facilities that were good to hire for large meetings. When it decided to extend its brand to other types of hotels, it adopted a two-word brand architecture that appended to the Marriott endorsement a purpose brand for each of the different jobs its new hotel chains were intended to do. Hence, individual business travelers who need to hire a clean, quiet place to get work done in the evening can hire Courtyard by Marriott--the hotel designed by business travelers for business travelers. Longer-term travelers can hire Residence Inn by Marriott, and so on. Even though these hotels were not constructed and decorated to the same premium standard as full-service Marriott hotels, the new chains actually reinforce the endorser qualities of the Marriott brand because they do the jobs well that they are hired to do.

Milwaukee Electric Tool has built purpose brands with two--and only two--of the products in its line of power tools. The Milwaukee Sawzall is a reciprocating saw that tradesmen hire when they need to cut through a wall quickly and aren't sure what's under the surface. Plumbers hire Milwaukee's Hole Hawg, a right-angle drill, when they need to drill a hole in a tight space. Competitors like Black & Decker, Bosch, and Makita offer reciprocating saws and right-angle drills with comparable performance and price, but none of them has a purpose brand that pops into a tradesman's mind when he has one of these jobs to do. Milwaukee has owned more than 80% of these two job markets for decades.

Interestingly, Milwaukee offers under its endorser brand a full range of power tools, including circular saws, pistol-grip drills, sanders, and jigsaws. While the durability and relative price of these products are comparable to those of the Sawzall and Hole Hawg, Milwaukee has not built purpose brands for any of these other products. The market share of each is in the low single digits--a testament to the clarifying value of purpose brands versus the general connotation of quality that endorser brands confer. Indeed, a clear purpose brand is usually a more formidable competitive barrier than superior product performance--because competitors can copy performance much more easily than they can copy purpose brands.

The tribulations and successes of P&G's Crest brand is a story of products that ace the customer job, lose their focus, and then bounce back to become strong purpose brands again. Introduced in the mid-1950s, Crest was a classic disruptive technology. Its Fluoristan-reinforced toothpaste made cavity-preventing fluoride treatments cheap and easy to apply at home, replacing an expensive and inconvenient trip to the dentist. Although P&G could have positioned the new product under its existing toothpaste brand, Gleem, its managers chose instead to build a new purpose brand, Crest, which was uniquely positioned on a job. Mothers who wanted to prevent cavities in their children's teeth knew when they saw or heard the word "Crest" that this product was designed to do that job. Because it did the job so well, mothers grew to trust the product and in fact became suspicious of the ability of products without the Crest brand to do that job. This unambiguous association made it a very valuable brand, and Crest passed all its U.S. rivals to become the clear market leader in toothpaste for a generation.

But one cannot sustain victory by standing still. Competitors eventually copied Crest's cavity prevention abilities, turning cavity prevention into a commodity. Crest lost share as competitors innovated in other areas, including flavor, mouthfeel, and commonsense ingredients like baking soda. P&G began copying and advertising these attributes. But unlike Marriott, P&G did not append purpose brands to the general endorsement of Crest, and the brand began losing its distinctiveness.

At the end of the 1990s, new Crest executives brought two disruptions to market, each with its own clear purpose brand. They acquired a start-up named Dr. John's and rebranded its flagship electric toothbrush as the Crest SpinBrush, which they sold for $5--far below the price of competitors' models of the time. They also launched Crest Whitestrips, which allowed people to whiten their teeth at home for a mere $25, far less than dentists charged. With these purpose-branded innovations, Crest generated substantial new growth and regained share leadership in the entire tooth care category.

The exhibit "Extending Brands Without Destroying Them" diagrams the two ways marketers can extend a purpose brand without eroding its value. The first option is to move up the vertical axis by developing different products that address a common job. This is what Sony did with its Walkman portable CD player. When Crest was still a clear purpose brand, P&G could have gone this route by, say, introducing a Crest-brand fluoride mouth rinse. The brand would have retained its clarity of purpose. But P&G did not, allowing Johnson & Johnson to insert yet another brand, ACT (its own fluoride mouth rinse), into the cavity-prevention job space. Because P&G pursued the second option, extending its brand along the horizontal axis to other jobs (whitening, breath freshening, and so on), the purpose brand morphed into an endorser brand.

EXTENDING BRANDS WITHOUT DESTROYING THEM | There are only two ways: Marketers can develop different products that address a common job, as Sony did with its various generations of Walkman. Or, like Marriott and Milwaukee, they can identify new, related jobs and create new purpose brands that benefit from the "endorser" quality of the original brand.

Why Strong Purpose Brands Are So Rare

Given the power that purpose brands have in creating opportunities for differentiation, premium pricing, and growth, isn't it odd that so few companies have a deliberate strategy for creating them?

Consider the automobile industry. There are a significant number of different jobs that people who purchase cars need to get done, but only a few companies have staked out any of these job markets with purpose brands. Range Rover (until recently, at least) was a clear and valuable purpose brand (the take-me-anywhere-with-total-dependability job). The Volvo brand is positioned on the safety job. Porsche, BMW, Mercedes, Bentley, and Rolls-Royce are associated with various aspirational jobs. The Toyota endorser brand has earned the connotation of reliability. But for so much of the rest? It's hard to know what they mean.

To illustrate: Clayton Christensen recently needed to deliver on a long-promised commitment to buy a car as a college graduation gift for his daughter Annie. There were functional and emotional dimensions to the job. The car needed to be stylish and fun to drive, to be sure. But even more important, as his beloved daughter was venturing off into the cold, cruel world, the big job Clay needed to get done was to know that she was safe and for his sweet Annie to be reminded frequently, as she owned, drove, and serviced the car, that her dad loves and cares for her. A hands-free telephone in the car would be a must, not an option. A version of GM's OnStar service, which called not just the police but Clay in the event of an accident, would be important. A system that reminded the occasionally absentminded Annie when she needed to have the car serviced would take a load off her dad's mind. If that service were delivered as a prepaid gift from her father, it would take another load off Clay's mind because he, too, is occasionally absentminded. Should Clay have hired a Taurus, Escape, Cavalier, Neon, Prizm, Corolla, Camry, Avalon, Sentra, Civic, Accord, Senator, Sonata, or something else? The billions of dollars that automakers spent advertising these brands, seeking somehow to create subtle differentiations in image, helped Clay not at all. Finding the best package to hire was very time-consuming and inconvenient, and the resulting product did the job about as unsatisfactorily as the milk shake had done, a few years earlier.

Focusing a product and its brand on a job creates differentiation. The rub, however, is that when a company communicates the job a branded product was designed to do perfectly, it is also communicating what jobs the product should not be hired to do. Focus is scary--at least the carmakers seem to think so. They deliberately create words as brands that have no meaning in any language, with no tie to any job, in the myopic hope that each individual model will be hired by every customer for every job. The results of this strategy speak for themselves. In the face of compelling evidence that purpose-branded products that do specific jobs well command premium pricing and compete in markets that are much larger than those defined by product categories, the automakers' products are substantially undifferentiated, the average subbrand commands less than a 1% market share, and most automakers are losing money. Somebody gave these folks the wrong recipe for prosperity.

***

Executives everywhere are charged with generating profitable growth. Rightly, they believe that brands are the vehicles for meeting their growth and profit targets. But success in brand building remains rare. Why? Not for lack of effort or resources. Nor for lack of opportunity in the marketplace. The root problem is that the theories in practice for market segmentation and brand building are riddled with flawed assumptions. Lafley is right. The model is broken. We've tried to illustrate a way out of the death spiral of serial product failure, missed opportunity, and squandered wealth. Marketers who choose to break with the broken past will be rewarded not only with successful brands but with profitably growing businesses as well.

~~~~~~~~

By Clayton M. Christensen; Scott Cook and Taddy Hall

Clayton M. Christensen (cchristensen@hbs.edu) is the Robert and Jane Cizik Professor of Business Administration at Harvard Business School in Boston.

Scott Cook (scottcook@intuit.com) is the cofounder and chairman of Intuit, based in Mountain View, California.

Taddy Hall (taddy@thearf.org) is the chief strategy officer of the Advertising Research Foundation in New York City.

Tuesday, December 27, 2005

Old idea, new paint: hit 'em where they ain't.

BLUE OCEAN STRATEGY
By: Kim, W. Chan, Mauborgne, Renée
Harvard Business Review, 0017-8012, October 1, 2004, Vol. 82, Issue 10

Competing in overcrowded industries is no way to sustain high performance. The real opportunity is to create blue oceans of uncontested market space.

A onetime accordion player, stilt walker, and fire-eater, Guy Laliberté is now CEO of one of Canada's largest cultural exports, Cirque du Soleil. Founded in 1984 by a group of street performers, Cirque has staged dozens of productions seen by some 40 million people in 90 cities around the world. In 20 years, Cirque has achieved revenues that Ringling Bros. and Barnum & Bailey-the world's leading circus-took more than a century to attain.

Cirque's rapid growth occurred in an unlikely setting. The circus business was (and still is) in long-term decline. Alternative forms of entertainment - sporting events, TV, and video games- were casting a growing shadow. Children, the mainstay of the circus audience, preferred PlayStations to circus acts. There was also rising sentiment, fueled by animal rights groups, against the use of animals, traditionally an integral part of the circus. On the supply side, the star performers that Ringling and the other circuses relied on to draw in the crowds could often name their own terms. As a result, the industry was hit by steadily decreasing audiences and increasing costs. What's more, any new entrant to this business would be competing against a formidable incumbent that for most of the last century had set the industry standard.

How did Cirque profitably increase revenues by a factor of 22 over the last ten years in such an unattractive environment? The tagline for one of the first Cirque productions is revealing: "We reinvent the circus." Cirque did not make its money by competing within the confines of the existing industry or by stealing customers from Ringling and the others. Instead it created uncontested market space that made the competition irrelevant. It pulled in a whole new group of customers who were traditionally noncustomers of the industry-adults and corporate clients who had turned to theater, opera, or ballet and were, therefore, prepared to pay several times more than the price of a conventional circus ticket for an unprecedented entertainment experience.

To understand the nature of Cirque's achievement, you have to realize that the business universe consists of two distinct kinds of space, which we think of as red and blue oceans. Red oceans represent all the industries in existence today-the known market space. In red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are well understood. Here, companies try to outperform their rivals in order to grab a greater share of existing demand. As the space gets more and more crowded, prospects for profits and growth are reduced. Products turn into commodities, and increasing competition turns the water bloody.

Blue oceans denote all the industries not in existence today- the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. There are two ways to create blue oceans. In a few cases, companies can give rise to completely new industries, as eBay did with the online auction industry. But in most cases, a blue ocean is created from within a red ocean when a company alters the boundaries of an existing industry. As will become evident later, this is what Cirque did. In breaking through the boundary traditionally separating circus and theater, it made a new and profitable blue ocean from within the red ocean of the circus industry.

Cirque is just one of more than 150 blue ocean creations that we have studied in over 30 industries, using data stretching back more than 100 years. We analyzed companies that created those blue oceans and their less successful competitors, which were caught in red oceans. In studying these data, we have observed a consistent pattern of strategic thinking behind the creation of new markets and industries, what we call blue ocean strategy. The logic behind blue ocean strategy parts with traditional models focused on competing in existing market space. Indeed, it can be argued that managers' failure to realize the differences between red and blue ocean strategy lies behind the difficulties many companies encounter as they try to break from the competition.

In this article, we present the concept of blue ocean strategy and describe its defining characteristics. We assess the profit and growth consequences of blue oceans and discuss why their creation is a rising imperative for companies in the future. We believe that an understanding of blue ocean strategy will help today's companies as they struggle to thrive in an accelerating and expanding business universe.

Blue and Red Oceans

Although the term may be new, blue oceans have always been with us. Look back 100 years and ask yourself which industries known today were then unknown. The answer: Industries as basic as automobiles, music recording, aviation, petrochemicals, pharmaceuticals, and management consulting were unheard-of or had just begun to emerge. Now turn the clock back only 30 years and ask yourself the same question. Again, a plethora of multibillion-dollar industries jump out: mutual funds, cellular telephones, biotechnology, discount retailing, express package delivery, snowboards, coffee bars, and home videos, to name a few. Just three decades ago, none of these industries existed in a meaningful way.

This time, put the clock forward 20 years. Ask yourself: How many industries that are unknown today will exist then? If history is any predictor of the future, the answer is many. Companies have a huge capacity to create new industries and re-create existing ones, a fact that is reflected in the deep changes that have been necessary in the way industries are classified. The half-century-old Standard Industrial Classification (SIC) system was replaced in 1997 by the North American Industry Classification System (NAICS). The new system expanded the ten SIC industry sectors into 20 to reflect the emerging realities of new industry territories-blue oceans. The services sector under the old system, for example, is now seven sectors ranging from information to health care and social assistance. Given that these classification systems are designed for standardization and continuity, such a replacement shows how significant a source of economic growth the creation of blue oceans has been.

Looking forward, it seems clear to us that blue oceans will remain the engine of growth. Prospects in most established market spaces- red oceans- are shrinking steadily. Technological advances have substantially improved industrial productivity, permitting suppliers to produce an unprecedented array of products and services. And as trade barriers between nations and regions fall and information on products and prices becomes instantly and globally available, niche markets and monopoly havens are continuing to disappear. At the same time, there is little evidence of any increase in demand, at least in the developed markets, where recent United Nations statistics even point to declining populations. The result is that in more and more industries, supply is overtaking demand.

This situation has inevitably hastened the commoditization of products and services, stoked price wars, and shrunk profit margins. According to recent studies, major American brands in a variety of product and service categories have become more and more alike. And as brands become more similar, people increasingly base purchase choices on price. People no longer insist, as in the past, that their laundry detergent be Tide. Nor do they necessarily stick to Colgate when there is a special promotion for Crest, and vice versa. In overcrowded industries, differentiating brands becomes harder both in economic upturns and in downturns.

The Paradox of Strategy

Unfortunately, most companies seem becalmed in their red oceans. In a study of business launches in 108 companies, we found that 86% of those new ventures were line extensions-incremental improvements to existing industry offerings-and a mere 14% were aimed at creating new markets or industries. While line extensions did account for 62% of the total revenues, they delivered only 39% of the total profits. By contrast, the 14% invested in creating new markets and industries delivered 38% of total revenues and a startling 61% of total profits.

So why the dramatic imbalance in favor of red oceans? Part of the explanation is that corporate strategy is heavily influenced by its roots in military strategy. The very language of strategy is deeply imbued with military references - chief executive "officers" in "headquarters," "troops" on the "front lines." Described this way, strategy is all about red ocean competition. It is about confronting an opponent and driving him off a battlefield of limited territory. Blue ocean strategy, by contrast, is about doing business where there is no competitor. It is about creating new land, not dividing up existing land. Focusing on the red ocean therefore means accepting the key constraining factors of war- limited terrain and the need to beat an enemy to succeed. And it means denying the distinctive strength of the business world-the capacity to create new market space that is uncontested.

The tendency of corporate strategy to focus on winning against rivals was exacerbated by the meteoric rise of Japanese companies in the 1970s and 1980s. For the first time in corporate history, customers were deserting Western companies in droves. As competition mounted in the global marketplace, a slew of red ocean strategies emerged, all arguing that competition was at the core of corporate success and failure. Today, one hardly talks about strategy without using the language of competition. The term that best symbolizes this is "competitive advantage." In the competitive-advantage worldview, companies are often driven to outperform rivals and capture greater shares of existing market space.

Of course competition matters. But by focusing on competition, scholars, companies, and consultants have ignored two very important- and, we would argue, far more lucrative - aspects of strategy: One is to find and develop markets where there is little or no competition-blue oceans-and the other is to exploit and protect blue oceans. These challenges are very different from those to which strategists have devoted most of their attention.

Toward Blue Ocean Strategy

What kind of strategic logic is needed to guide the creation of blue oceans? To answer that question, we looked back over 100 years of data on blue ocean creation to see what patterns could be discerned. Some of our data are presented in the exhibit "A Snapshot of Blue Ocean Creation." It shows an overview of key blue ocean creations in three industries that closely touch people's lives: autos- how people get to work; computers-what people use at work; and movie theaters- where people go after work for enjoyment. We found that:

Blue oceans are not about technology innovation. Leading-edge technology is sometimes involved in the creation of blue oceans, but it is not a defining feature of them. This is often true even in industries that are technology intensive. As the exhibit reveals, across all three representative industries, blue oceans were seldom the result of technological innovation per se; the underlying technology was often already in existence. Even Ford's revolutionary assembly line can be traced to the meatpacking industry in America. Like those within the auto industry, the blue oceans within the computer industry did not come about through technology innovations alone but by linking technology to what buyers valued. As with the IBM 650 and the Compaq PC server, this often involved simplifying the technology.

Incumbents often create blue oceans - and usually within their core businesses. GM, the Japanese automakers, and Chrysler were established players when they created blue oceans in the auto industry. So were CTR and its later incarnation, IBM, and Compaq in the computer industry. And in the cinema industry, the same can be said of palace theaters and AMC. Of the companies listed here, only Ford, Apple, Dell, and Nickelodeon were new entrants in their industries; the first three were start-ups, and the fourth was an established player entering an industry that was new to it. This suggests that incumbents are not at a disadvantage in creating new market spaces. Moreover, the blue oceans made by incumbents were usually within their core businesses. In fact, as the exhibit shows, most blue oceans are created from within, not beyond, red oceans of existing industries. This challenges the view that new markets are in distant waters. Blue oceans are right next to you in every industry.

Company and industry are the wrong units of analysis. The traditional units of strategic analysis - company and industry- have little explanatory power when it comes to analyzing how and why blue oceans are created. There is no consistently excellent company; the same company can be brilliant at one time and wrongheaded at another. Every company rises and falls over time. Likewise, there is no perpetually excellent industry; relative attractiveness is driven largely by the creation of blue oceans from within them.

The most appropriate unit of analysis for explaining the creation of blue oceans is the strategic move-the set of managerial actions and decisions involved in making a major market-creating business offering. Compaq, for example, is considered by many people to be "unsuccessful" because it was acquired by Hewlett-Packard in 2001 and ceased to be a company. But the firm's ultimate fate does not invalidate the smart strategic move Compaq made that led to the creation of the multibillion-dollar market in PC servers, a move that was a key cause of the company's powerful comeback in the 1990s.

Creating blue oceans builds brands. So powerful is blue ocean strategy that a blue ocean strategic move can create brand equity that lasts for decades. Almost all of the companies listed in the exhibit are remembered in no small part for the blue oceans they created long ago. Very few people alive today were around when the first Model T rolled off Henry Ford's assembly line in 1908, but the company's brand still benefits from that blue ocean move. IBM, too, is often regarded as an "American institution" largely for the blue oceans it created in computing; the 360 series was its equivalent of the Model T.

Our findings are encouraging for executives at the large, established corporations that are traditionally seen as the victims of new market space creation. For what they reveal is that large R&D budgets are not the key to creating new market space. The key is malting the right strategic moves. What's more, companies that understand what drives a good strategic move will be well placed to create multiple blue oceans over time, thereby continuing to deliver high growth and profits over a sustained period. The creation of blue oceans, in other words, is a product of strategy and as such is very much a product of managerial action.

The Defining Characteristics

Our research shows several common characteristics across strategic moves that create blue oceans. We found that the creators of blue oceans, in sharp contrast to companies playing by traditional rules, never use the competition as a benchmark. Instead they make it irrelevant by creating a leap in value for both buyers and the company itself. (The exhibit "Red Ocean Versus Blue Ocean Strategy" compares the chief characteristics of these two strategy models.)

Perhaps the most important feature of blue ocean strategy is that it rejects the fundamental tenet of conventional strategy: that a trade-off exists between value and cost. According to this thesis, companies can either create greater value for customers at a higher cost or create reasonable value at a lower cost. In other words, strategy is essentially a choice between differentiation and low cost. But when it comes to creating blue oceans, the evidence shows that successful companies pursue differentiation and low cost simultaneously.

To see how this is done, let us go back to Cirque du Soleil. At the time of Cirque's debut, circuses focused on benchmarking one another and maximizing 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. Enter Cirque. Instead of following the conventional logic of outpacing the competition by offering a better solution to the given problem-creating a circus with even greater fun and thrills-it redefined the problem itself by offering people the fun and thrill of the circus and the intellectual sophistication and artistic richness of the theater.

In designing performances that landed both these punches, Cirque had to reevaluate the components of the traditional circus offering. What the company found was that many of the elements considered essential to the fun and thrill of the circus were unnecessary and in many cases costly. For instance, most circuses offer animal acts. These are a heavy economic burden, because circuses have to shell out not only for the animals but also for their training, medical care, housing, insurance, and transportation. Yet Cirque found that the appetite for animal shows was rapidly diminishing because of rising public concern about the treatment of circus animals and the ethics of exhibiting them.

Similarly, although traditional circuses promoted their performers as stars, Cirque realized that the public no longer thought of circus artists as stars, at least not in the movie star sense. Cirque did away with traditional three ring shows, too. Not only did these create confusion among spectators forced to switch their attention from one ring to another, they also increased the number of performers needed, with obvious cost implications. And while aisle concession sales appeared to be a good way to generate revenue, the high prices discouraged parents from making purchases and made them feel they were being taken for a ride.

Cirque found that the lasting allure of the traditional circus came down to just three factors: the clowns, the tent, and the classic acrobatic acts. So Cirque kept the clowns, while shifting their humor away from slapstick to a more enchanting, sophisticated style. It glamorized the tent, which many circuses had abandoned in favor of rented venues. Realizing that the tent, more than anything else, captured the magic of the circus, Cirque designed this classic symbol with a glorious external finish and a high level of audience comfort. Gone were the sawdust and hard benches. Acrobats and other thrilling performers were retained, but Cirque reduced their roles and made their acts more elegant by adding artistic flair.

Even as Cirque stripped away some of the traditional circus offerings, it injected new elements drawn from the world of theater. For instance, unlike traditional circuses featuring a series of unrelated acts, each Cirque creation resembles a theater performance in that it has a theme and story line. Although the themes are intentionally vague, they bring harmony and an intellectual element to the acts. Cirque also borrows ideas from Broadway. For example, rather than putting on the traditional "once and for all" show, Cirque mounts multiple productions based on different themes and story lines. As with Broadway productions, too, each Cirque show has an original musical score, which drives the performance, lighting, and timing of the acts, rather than the other way around. The productions feature abstract and spiritual dance, an idea derived from theater and ballet. By introducing these factors, Cirque has created highly sophisticated entertainments. And by staging multiple productions, Cirque gives people reason to come to the circus more often, thereby increasing revenues.

Cirque offers the best of both circus and theater. And by eliminating many of the most expensive elements of the circus, it has been able to dramatically reduce its cost structure, achieving both differentiation and low cost. (For a depiction of the economics underpinning blue ocean strategy, see the exhibit "The Simultaneous Pursuit of Differentiation and Low Cost")

By driving down costs while simultaneously driving up value for buyers, a company can achieve a leap in value for both itself and its customers. Since buyer value comes from the utility and price a company offers, and a company generates value for itself through cost structure and price, blue ocean strategy is achieved only when the whole system of a company's utility, price, and cost activities is properly aligned. It is this whole-system approach that makes the creation of blue oceans a sustainable strategy. Blue ocean strategy integrates the range of a firm's functional and operational activities.

A rejection of the trade-off between low cost and differentiation implies a fundamental change in strategic mind-set-we cannot emphasize enough how fundamental a shift it is. The red ocean assumption that industry structural conditions are a given and firms are forced to compete within them is based on an intellectual worldview that academics call the structuralist view, or environmental determinism. According to this view, companies and managers are largely at the mercy of economic forces greater than themselves. Blue ocean strategies, by contrast, are based on a worldview in which market boundaries and industries can be reconstructed by the actions and beliefs of industry players. We call this the reconstructionist view.

The founders of Cirque du Soleil clearly did not feel constrained to act within the confines of their industry. Indeed, is Cirque really a circus with all that it has eliminated, reduced, raised, and created? Or is it theater? If it is theater, then what genre- Broadway show, opera, ballet? The magic of Cirque was created through a reconstruction of elements drawn from all of these alternatives. In the end, Cirque is none of them and a little of all of them. From within the red oceans of theater and circus, Cirque has created a blue ocean of uncontested market space that has, as yet, no name.

Barriers to Imitation

Companies that create blue oceans usually reap the benefits without credible challenges for ten to 15 years, as was the case with Cirque du Soleil, Home Depot, Federal Express, Southwest Airlines, and CNN, to name just a few. The reason is that blue ocean strategy creates considerable economic and cognitive barriers to imitation.

For a start, adopting a blue ocean creator's business model is easier to imagine than to do. Because blue ocean creators immediately attract customers in large volumes, they are able to generate scale economies very rapidly, putting would-be imitators at an immediate and continuing cost disadvantage. The huge economies of scale in purchasing that Wal-Mart enjoys, for example, have significantly discouraged other companies from imitating its business model. The immediate attraction of large numbers of customers can also create network externalities. The more customers eBay has online, the more attractive the auction site becomes for both sellers and buyers of wares, giving users few incentives to go elsewhere.

When imitation requires companies to make changes to their whole system of activities, organizational politics may impede a would-be competitor's ability to switch to the divergent business model of a blue ocean strategy. For instance, airlines trying to follow Southwest's example of offering the speed of air travel with the flexibility and cost of driving would have faced major revisions in routing, training, marketing, and pricing, not to mention culture. Few established airlines had the flexibility to make such extensive organizational and operating changes overnight. Imitating a whole-system approach is not an easy feat.

The cognitive barriers can be just as effective. When a company offers a leap in value, it rapidly earns brand buzz and a loyal following in the marketplace. Experience shows that even the most expensive marketing campaigns struggle to unseat a blue ocean creator. Microsoft, for example, has been trying for more than ten years to occupy the center of the blue ocean that Intuit created with its financial software product Quicken. Despite all of its efforts and all of its investment, Microsoft has not been able to unseat Intuit as the industry leader.

In other situations, attempts to imitate a blue ocean creator conflict with the imitator's existing brand image. The Body Shop, for example, shuns top models and makes no promises of eternal youth and beauty. For the established cosmetic brands like Estée Lauder and L'Oréal, imitation was very difficult, because it would have signaled a complete invalidation of their current images, which are based on promises of eternal youth and beauty.

A Consistent Pattern

While our conceptual articulation of the pattern may be new, blue ocean strategy has always existed, whether or not companies have been conscious of the fact. Just consider the striking parallels between the Cirque du Soleil theater-circus experience and Ford's creation of the Model T.

At the end of the nineteenth century, the automobile industry was small and unattractive. More than 500 automakers in America competed in turning out handmade luxury cars that cost around $1,500 and were enormously unpopular with all but the very rich. Anticar activists tore up roads, tinged parked cars with barbed wire, and organized boycotts of car-driving businessmen and politicians. Woodrow Wilson caught the spirit of the times when he said in 1906 that "nothing has spread socialistic feeling more than the automobile." He called it "a picture of the arrogance of wealth."

Instead of trying to beat the competition and steal a share of existing demand from other automakers, Ford reconstructed the industry boundaries of cars and horse-drawn carriages to create a blue ocean. At the time, horse-drawn carriages were the primary means of local transportation across America. The carriage had two distinct advantages over cars. Horses could easily negotiate the bumps and mud that stymied cars-especially in rain and snow-on the nation's ubiquitous dirt roads. And horses and carriages were much easier to maintain than the luxurious autos of the time, which frequently broke down, requiring expert repairmen who were ex- pensive and in short supply. It was Henry Ford's understanding of these advantages that showed him how he could break away from the competition and unlock enormous untapped demand.

Ford called the Model T the car "for the great multitude, constructed of the best materials." Like Cirque, the Ford Motor Company made the competition irrelevant. Instead of creating fashionable, customized cars for weekends in the countryside, a luxury few could justify, Ford built a car that, like the horse-drawn carriage, was for everyday use. The Model T came in just one color, black, and there were few optional extras. It was reliable and durable, designed to travel effortlessly over dirt roads in rain, snow, or sunshine. It was easy to use and fix. People could learn to drive it in a day. And like Cirque, Ford went outside the industry for a price point, looking at horse-drawn carriages ($400), not other autos. In 1908, the first Model T cost $850; in 1909, the price dropped to $609, and by 1924 it was down to $290. In this way, Ford converted buyers of horse-drawn carriages into car buyers- just as Cirque turned theatergoers into circus goers. Sales of the Model T boomed. Ford's market share surged from 9% in 1908 to 61% in 1921, and by 1923, a majority of American households had a car.

Even as Ford offered the mass of buyers a leap in value, the company also achieved the lowest cost structure in the industry, much as Cirque did later. By keeping the cars highly standardized with limited options and interchangeable parts, Ford was able to scrap the prevailing manufacturing system in which cars were constructed by skilled craftsmen who swarmed around one workstation and built a car piece by piece from start to finish. Ford's revolutionary assembly line replaced craftsmen with unskilled laborers, each of whom worked quickly and efficiently on one small task. This allowed Ford to make a car in just four days- 21 days was the industry norm-creating huge cost savings.

***

Blue and red oceans have always coexisted and always will. Practical reality, therefore, demands that companies understand the strategic logic of both types of oceans. At present, competing in red oceans dominates the field of strategy in theory and in practice, even as businesses' need to create blue oceans intensifies. It is time to even the scales in the field of strategy with a better balance of efforts across both oceans. For although blue ocean strategists have always existed, for the most part their strategies have been largely unconscious. But once corporations realize that the strategies for creating and capturing blue oceans have a different underlying logic from red ocean strategies, they will be able to create many more blue oceans in the future.

The Simultaneous Pursuit of Differentiation and Low Cost

A blue ocean is created in the region where a company's actions favorably affect both its cost structure and its value proposition to buyers. Cost savings are made from eliminating and reducing the factors an industry competes on. Buyer value is lifted by raising and creating elements the industry has never offered. Over time, costs are reduced further as scale economies kick in, due to the high sales volumes that superior value generates.

A Snapshot of Blue Ocean Creation

This table identifies the strategic elements that were common to blue ocean creations in three different industries in different eras. It is not intended to be comprehensive in coverage or exhaustive in content. We chose to show American industries because they represented the largest and least-regulated market during our study period. The pattern of blue ocean creations exemplified by these three industries is consistent with what we observed in the other industries in our study.

Chart Legend:

A - Key blue ocean creations
B - Was the blue ocean created by a
new entrant or an incumbent?
C - Was it driven by technology pioneering
Or value pioneering?
D - At the time of the blue ocean creation, was
The industry attractive or unattractive?

A B C D

--> AUTOMOBILES

FORD MODEL T
Unveiled in 1908, the Model T was the first mass-produced
car, priced so that many Americans could afford it.

New entrant Value pioneering* Unattractive
(mostly existing technologies)


GM's "CAR FOR EVERY PURSE AND PURPOSE"
GM created a blue ocean in 1924 by injecting fun and
fashion into the car.

Incumbent Value pioneering Attractive
(some new technologies)


JAPANESE FUEL-EFFICIENT AUTOS
Japanese automakers created a blue ocean in the mid-1970s
with small, reliable lines of cars.

Incumbent Value pioneering Unattractive
(some new technologies)


CHRYSLER MINIVAN
With its 1984 minivan, Chrysler created a new class of auto-
mobile that was as easy to use as a car but had the passenger
space of a van.

Incumbent Value pioneering Unattractive
(mostly existing technologies)


--> COMPUTERS

CTR's TABULATING MACHINE
In 1914, CTR created the business machine industry by
simplifying, modularizing, and leasing tabulating machines.
CTR later changed its name to IBM.

Incumbent Value pioneering Unattractive
(some new technologies)


IBM 650 ELECTRONIC COMPUTER AND SYSTEM/360
In 1952, IBM created the business computer industry by
simplifying and reducing the power and price of existing
technology. And it exploded the blue ocean created by the
650 when in 1964 it unveiled the System/360, the first
modularized computer system

Incumbent Value pioneering Nonexistent
(650: mostly existing technologies)

Value and technology pioneering
(System/360: new and existing
technologies)


APPLE PERSONAL COMPUTER
Although it was not the first home computer, the all-in-one,
simple-to-use Apple II was a blue ocean creation when it
appeared in 1978.

New entrant Value pioneering Unattractive
(mostly existing technologies)


COMPAQ PC SERVERS
Compaq created a blue ocean in 1992 with its ProSignia
server, which gave buyers twice the file and print capability
of the minicomputer at one-third the price.

Incumbent Value pioneering Nonexistent
(mostly existing technologies)


DELL BUILT-TO-ORDER COMPUTERS
In the mid-1990s, Dell created a blue ocean in a highly
competitive industry by creating a new purchase and delivery
experience for buyers.

New entrant Value pioneering Unattractive
(mostly existing technologies)


--> MOVIE THEATERS

NICKELODEON
The first Nickelodeon opened its doors in 1905, showing short
films around-the-clock to working-class audiences for five cents.

New entrant Value pioneering Nonexistent
(mostly existing technologies)

PALACE THEATERS
Created by Rothapfel in 1914, these theaters provided
an opera like environment for cinema viewing at an affordable
price.

Incumbent Value pioneering Attractive
(mostly existing technologies)


AMC MULTIPLEX
In the 1960s, the number of multiplexes in America's suburban
shopping malls mushroomed. The multiplex gave viewers
greater choice while reducing owners' costs.

Incumbent Value pioneering Unattractive
(mostly existing technologies)

AMC MEGAPLEX
Megaplexes, introduced in 1995, offered every current blockbuster
and provided spectacular viewing experiences in theater
complexes as big as stadiums, at a lower cost to theater owners.

Incumbent Value pioneering Unattractive
(mostly existing technologies)


*Driven by value pioneering does not mean that technologies were
not involved. Rather, it means that the defining technologies used
had largely been in existence, whether in that industry or elsewhere.

---

Red Ocean Versus Blue Ocean Strategy

The imperatives for red ocean and blue ocean strategies are starkly different.

RED OCEAN STRATEGY

Compete in existing market space.

Beat the competition.

Exploit existing demand.

Make the value/cost trade-off.

Align the whole system of a company's
activities with its strategic choice
of differentiation or low cost.


BLUE OCEAN STRATEGY

Create uncontested market space.

Make the competition irrelevant.

Create and capture new demand.

Break the value/cost trade-off.

Align the whole system of a company's
activities in pursuit of differentiation
and low cost.

~~~~~~~~

By W. Chan Kim and Renée Mauborgne

W. Chan Kim (chan.kim@insead.edu) is the Boston Consulting Group Bruce D. Henderson Chair Professor of Strategy and International Management at Insead in Fontainebleau, France. Renée Mauborgne (renee.mauborgne@insead.edu) is the Insead Distinguished Fellow and a professor of strategy and management at Insead. This article is adapted from their forthcoming book Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant (Harvard Business School Press, 2005).