The Five Premises in Real Life

Thinking in terms of total customer perspective can chart a course to the "blue ocean space" of market space not yet explored [1]

Many manufacturers that find themselves in an environment where their profits are being squeezed and with relentless pressure from abroad are looking beyond cost reduction and are re-evaluating their value to customers and products they produce.

For decades, Thogus Products had been a supplier of customer injection molds for the automotive industry. But to its president, Matthew Hlavin, it felt more like going to the racetrack where the horses determined the financial outcome. Only in this case, it was the customers who were setting the terms.

At the time, the automotive industry represented 56% of Thogus Product's business base. The auto OEM's had a hand in how the company aligned its production system, determined the price of the product, set up shipping and scheduled payments, Hlavin had had enough.

He fired his auto customers and laid out a diversification plan for the company, moving into industries ranging from medical to pharmaceutical to food and beverage, aerospace and plumbing. As a result, Thogus Products' revenue grew 76% over 2009, and Hlavin expects roughly 60% more for this year.

Firing customers is not exactly normal practice, but when businesses of every size are being squeezed on profits and facing a storm of competition from home and abroad, leaders realize that re-evaluating their business model and making changes accordingly is something they cannot afford to put off. Matt Hlavin had to come to terms with the fact that the company his grandfather had built more the 60 years ago was operating under a corroding business model.

That meant shifting from being a mass producer of plastic parts to one that emphasized specialized knowledge in engineering and product development. Just as important, Hlavin wanted to stop fighting for smaller and smaller slices of a densely competitive industry and identify the "blue ocean space," a reference to the best-selling 2005 book Blue Ocean Strategy. Blue oceans are a metaphor to describe the wider, deeper potential of market space that is not yet explored.

Years before Hlavin took over the business side; he started out in the company cold-calling manufacturing clients on the road. (A process he soon learned was not particularly productive.) But through that experience he became aware of an inherent disconnect between chemical suppliers and OEM's. The chemical companies had not developed an adequate understanding of their customers’ value stream, and therefore were not converting their materials into components that provided optimal utility.

What he saw was the need for a firm that could examine customer processes and value proposition and act as a co-creator of value. He believed Thogus Products could be presented as a partner that could help develop materials and then sell the end product in the marketplace.

Offering unique products combined with distinct services is what separates those that thrive from those that merely survive. He realized that he could not cost-reduce himself to growth.  Seeing the relationship with customers under a new light enabled   Matthew Hlavin to see the product as a distribution mechanism for customized experiences. Utilizing knowledge as the basic unit of exchange, he charted the course to the calm deep blue waters where rewards were much greater. [2]

The turbulent economic environment companies operate within is still filled with opportunities; leaders just need the right lens to focus in on them.                                                                                            
1    Blue Ocean Strategy    W. Chan Kim and  Renee Mauborgne                       
2    Peter Alpem    Industry Week                                   

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