Unlocking Blue Oceans with Data Science
Written by Matt Dancho
Blue Ocean Strategy is a groundbreaking methodology for creating uncontested market space and making competition irrelevant. It’s core to developing profitable new products and services. Over my 10+ year career designing software and implementing data science in organizations, I’ve built my own Blue Ocean organization, Business Science, and I’ve helped hundreds of students become data scientists in their organizations, unlocking the ability to create new products and services with data for their organizations. In this article, we’ll examine how Blue Oceans are created and how your organization can create Blue Oceans with Data Science too. We’ll finish with a roadmap for your organization to build Blue Oceans with Data Science.
Blue Ocean Strategy - The Book
“Help! My Ocean is Turning Red” is how the most recent edition of the international best selling book on corporate strategy, “Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant”, begins. For those unfamiliar, the Red Ocean is what happens when markets become competitive and leaders find themselves fighting in an ocean of bloody competition. Margins shrink as competition intensifies driving commoditization.
Conversely, the Blue Ocean is where we want to be. The Blue Ocean is a metaphor for endless possibility that has borne new markets and products that have largely driven our economic history, not to mention economic prosperity for the organizations that have risen to the challenge. The challenge is creating Blue Oceans.
One of the lessons I’ve learned over my 10+ year career in applying data science, machine learning, and web technology to business is that we can use Data Science to create Blue Oceans.
In fact, it’s not just Data Science, but rather it’s the ability to provide new product offerings that transport us from Red Oceans to Blue Oceans. As I will demonstrate, Data Science is an untapped technology that can be used to unlock Blue Oceans for your organization.
How Blue Oceans Are Created
Before I jump into data science, let’s first examine what a Blue Ocean is and how it’s created with the Four Actions Framework.
Red Oceans vs Blue Oceans
Source: Red Ocean vs Blue Ocean Strategy
Most of corporate strategy is concerned with Red Ocean Strategy. It’s what’s taught in almost every MBA program. Porter’s Five Forces, SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats). This is Red Ocean Strategy. It’s marked by an intense focus on what the competition is doing.
Blue Ocean Strategy is different - The focus is unlocking uncontested market spaces where competition is irrelevant. It’s marked by an intense focus is on capturing new demand from the customer by offering a product or service that is a “quantum leap in value”.
The Four Actions Framework
Source: Four Actions Framework
Every Market contains the status quo. What all firms in the space compete on. The Four Actions Framework contains the 4 actions that firms take to create a Blue Ocean from an existing market.
Raise - Features that exist in the status quo that should be raised well above the standard.
Create - New features that should be created that the industry has never offered.
Reduce - Features that the industry has traditionally offered that should be reduced well below the industry standard.
Eliminate - Features that the industry has long competed on but should be eliminated.
All Blue Oceans are created from strategic implementation of four actions.
Using Data Science to Unlock Blue Oceans
Unlocking Blue Oceans is easier said than done, but what if it could be done with a new tool termed Data Science. In this section, I’ll first define what Data Science is and then I’ll give you two examples of how Data Science can be used to create new products that customers will crave opening up new markets in the process.
First, what is Data Science? Much has been made of 3 terms: Artificial Intelligence, Data Science and Machine Learning. Most have heard of these terms, but few truly understand what they can be used for.
Data Science Insights and Web Technology Combine to Generate Blue Ocean Opportunity
Source: Business Science
Rather than go into the details, I’m going to cut to the chase. Data Science has two attributes that can help create Blue Oceans:
Data Science Insights - The ability to use algorithms and data to generate predictive insights.
Web Technology - The ability to distribute these insights at scale without users needing knowledge of data science.
When combined these two attributes create new products that customers have never experienced before. This is the exact environment needed to unlock Blue Oceans.
Unlocking a Blue Ocean in Investment Management Services
In this section, we’ll take a look at a market: Investment Management Services, showing how we can use data science to develop an investment product that appeals to changing customer preferences while opening up a new market for automated portfolio risk mitigation.
Stock Portfolio Optimization Application (Click to Try the App)
Market Outlook: Investment Management Services
According to Deloitte’s Investment Management Outlook, Investment Management Services is in a period of rapid change, driven by shifting investor preferences, margin compression, regulatory developments, and advancing technologies.
Increased Competition - Tech-savvy firms are putting pressure on traditional firms; these new entrants are likely to provide low-cost services, coupled with digital-age capabilities.
Changing Customer Preferences - They tend to prefer engaging with online and mobile channels, a low minimum initial investment amount, and 24/7 access to investment advice on smart devices.
It’s the perfect opportunity for a Blue Ocean - Creating a completely new model for investment management.
Creating A Blue Ocean Product
What if you could build an application that gives customers better control over their investment portfolio while limiting investment risk at the same time? A product that let the customers pick the stocks, implementing data science algorithms to optimize their portfolios for both high returns and low risk. It would be a shift from the traditional way of investing with pre-determined stock portfolios, but according to Deloitte, that’s exactly what new investors want. More control, more technology, 24/7.
Here’s the new product that you and your team develops. It’s a Portfolio Optimization Application. It enables your customers to select 3 stocks they want in their portfolio.
The customer selects their favorite stocks
The application then automatically balances the portfolio for your investors to minimize risk (and bad decisions). For example, the portfolio allocation for an investor wanting AAPL, GOOG, and NFLX would result in: 49% AAPL, 30.1% GOOG, and 20.8% NFLX.
Your product implements automatic portfolio optimization using your proprietary data science algorithm
Say the customer did something silly like try to include GE in their stock mix. The application would automatically de-weight GE to prevent the investor from absorbing significant losses. 75.7% AAPL, 3.5% GE, and 20.7% NFLX.
The proprietary algorithm prevents bad decisions from costing your customer money
Applying the Four Actions Framework
The Blue Ocean Strategy needs more than a good idea. Let’s apply the Four Actions Framework to identify the value offering.
Raise - Give investors more flexibility by allowing them to pick stocks instead of investing in pre-built investment products.
Create - Give them access to data science algorithms that optimize the stock allocation to minimize risk.
Reduce - Reduce reliance on active management.
Eliminate - Overhead of managing multiple portfolio products.
The customer gets an easy-to-use product that they control 24/7 with less complex decisions like PE Ratios, Fee Assessments, Prospectus, etc. The cost-structure is lower with less reliance on active management and maintaining multiple product lines. The customer benefits
Roadmap: How To Implement Blue Ocean Data Science In Your Organization
We’ve seen what benefits Data Science can have to opening up Blue Oceans. Here’s how Business Science can help your organization unlock Blue Oceans with Data Science. Start with your organizations needs and we’ll help you determine a path forward.
Is your organization trained for implementing Blue Ocean strategy for developing data products at scale?
If no, we can help. We offer a 2-day workshop on Executive Data Science Education. We teach how to integrate organizational strategy with data science, how to use data science to maximize benefit, and the details behind that executives need to know. Just Contact Us.
Does your organization have talent that can build scalable web applications with data science like the ones shown in this article?
If no, we can educate your workforce with our online learning platform and R-Track Curriculum. No experience is required. We offer a revolutionary training system that will take your talent regardless of experience, teaching:
Data Science Foundations (DS4B 101-R)
Advanced Machine Learning and Business Consulting (DS4B 201-R)
Intermediate Web Applications (DS4B 102-R)
Expert Web Applications (DS4B 202-R, Coming Soon) - The final course in the system teaches our students how to build the Stock Portfolio Optimization Application shown in the article.
The best candidates for this program are those that are Subject Matter Experts that have an analytical background (experience using tools like Excel for business analysis). We take care of the rest.
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