Posts Tagged packaging

Blue Ocean, Green Accounting

Posted by on Sunday, 7 March, 2010

Blue Ocean Strategy is a method of creating a business plan which has been applied successfully by many well known companies recently. The idea behind it is to leave the red ocean of well established competitors and aim for a new target market, the blue ocean. Of course, innovation and market segmentation are not new ideas, so the real breakthrough here is to create a strategy that allows you to change a few elements in a company and transform it into an entirely different competitor.

Value Innovation is the goal of the Blue Ocean Strategy. If you follow this link you’ll see the pyramids consisting of cost and value. This is often referred to as a tradeoff as it is considered the cost of quality at each level, and accountants can calculate which levels of quality each target market is willing to pay for. The goal of blue ocean strategy is to break through this tradeoff by completely eliminating traditional costs in the firm’s market that don’t actually add value, and apply the savings to add new features which open up a new market. Successful application allows a product launch with features competitors can’t match at a lower cost, while opening up a channel to additional customers.

Cirque Du Soleil is the most widespread example of this strategy. Critics of the theory mention that the group didn’t set out by planning to use the blue ocean strategy, although in my opinion it still explains why they managed to use it successfully. This case also involves sustainability elements as it replaces negative elements of the circus industry with positive elements. Circuses are well known for several acts, including the animal exhibits, concessions stands, and a ring with star performers. Cirque Du Soleil eliminated all of these. Customers are concerned with animal cruelty, getting ripped off by concessions stands, and don’t wish to pay a high price to see stars that are not well known outside the industry. This eliminates several negative elements without losing much value, but it’s only half the story. Cost savings were applied to improve the popular elements that are positive. Sound and visual effects were greatly improved, and elements of traditional theatre were added so that the performance would tell a story. The Moscow Circus acted as a benchmark for this part of the plan. So what does this story have to do with green accounting?

Green processes are considered too expensive in many companies. Management is always concerned with the bottom line, and telling the boss to consider the environment can make you sound like a hippy who wants to waste other people’s money. The point behind Blue Ocean is that you can create value and cut costs at the same time, so here’s an example. A lot of companies use bulky packaging to make their products visible on the shelf. They might even mix different components of the container to create an effect, like combining metal, plastic, and paper to make the package easy to see. Recyclers can’t handle this type of waste and it fills up the landfills. It’s possible to significantly cut the packaging costs, even as far as creating a plain brown paper wrapping. Why? Because this would open up a new market channel of environmentally conscious customers, while eliminating the added costs of the packaging which will just be discarded anyway. Similar strategies are possible in many other businesses, this was just the first one that came to mind for me.