The KaosPilots - a Blue Ocean Strategy essay The following is a description of a company that through value innovation made

a strategic move which enabled the company to create a new and uncontested marked space a blue ocean and therefore made the competition irrelevant. In 1991 a new school in Aarhus, the second largest city in Denmark, started its first team of students under the characteristic name The KaosPilots. The schools academic and pedagogical ambitions were and still are to develop a unique educational program and competency environment for young people who wish to make a positive difference in society. The academic level of the school is similar to that of a graduate degree (Bachelor of Science) and the school calls itself International school of Creative Business Design and Social Innovation. The criterion for success is not only that the students secure good jobs after they graduate, but that they themselves will create new and exciting jobs. The goal of the school is to become Scandinavias most attractive, modern, value-based entrepreneur educational program and at the same time, as an educational program and a competency milieu, significantly strengthen its international profile and collaborative relations. Because of the entrepreneurial focus the students only work with 'real world' projects defined by external clients/partners. Actually 30% of the students activities are practical project work and only 47% are classroom teaching/lectures. Hence a vital qualification required of the applying students is a high level of enthusiastic drive and ambition. However, if the high level of ambition is one of the characteristics of a KaosPilot, social identification and responsibility is the other. As the schools introduction pamphlet describes: The students are entrepreneurial young adults with their hearts in the right place, who want to make a positive difference here in life. In fact the students are so motivated that they dont mind the $5500 annual student fee. The school itself has a social ambition to create a more sustainable world - culturally, environmentally and humanly thereby attracting students with this particular mindset. The students entering the KaosPilots are therefore not the typical average business school student. Though the school is partly government funded (44%) it is privately owned and has a relatively small budget compared to the public business schools. Besides the government funding other funds comes from the students itself and other sources such as lectures, projects and private companies. Although it is a Danish school, 50% of the schools 100 students are from abroad. Besides attracting students from abroad the school has initiated what they call system export of the KaosPilots knowledge and experience to other countries. The school in Aarhus has through what they call KaosPilot International, established its sister school in Norway the first academic year starting in August 1

2005. A new school will follow in Malm, Sweden in 2006 and serious negotiations are taking place about establishing KaosPilot programmes in Holland within a couple of years. The school also has academic networks/ educational outposts in Berlin, San Fransisco, Durban, and Havanna. The KaosPilots has no research facilities or professors doing research, therefore new knowledge is mostly created through the practical work of the students and through a vast international network of companies, schools and innovative individuals. The School has close personal relations with a number of entrepreneurial people and great thinkers such as Otto Scharmer (MIT), Dee Hock (VISA), Alan Webber (Fast Company) Kjeld Kristiansen (LEGO, owner), Mads Oevlisen (Novo Nordic, CEO) and many more. The school also has several on-going dialogues with a series of European and North American companies, educational institutions and think tanks about future strategic collaborations. Collaborations that will ensure the schools students access the most interesting and up-to-date knowledge, experience and research in the schools three core areas; creative project, process design and business design. During the 14 years that the KaosPilots has been in Aarhus, it has not only been running an education, but also a commercial consultancy company working with both the private, public and voluntary sector. The business idea is to help organisations and individuals master the capability for innovation and creativity leveraging on the KaosPilot philosophy and methodology, combining the disciplines of creative business, project and process design. This also contributes to the knowledge creation at the school. Today the graduates of the KaosPilots have a great rate of success both as employees in public and private companies as well as entrepreneurs and business owners as it is written in the schools fact sheet: Unemployed KaosPilots don't exist apparently. Allan Webber, founding editor of Fast Company adds, If the KaosPilots didnt exist, someone would have to invent them. Thats how you know that its an essential idea. You cant imagine it not being there. Lets look at how they did it. About the market/competition: The big business schools and universities in Denmark are all government funded and controlled. These schools offer Graduate and Post-Graduate degrees in business administration and economics.1 The market for privately owned schools is extremely small and entry into this market is very difficult especially because studying in the public business schools and universities is free of charge. The competition to attract students especially the skilled ones - is high among both private and public business schools since the financial support from the government is based on the number of graduating students. This competition is now gradually

The market described here does not include MBA studies.

increasing due to changes in the demography in Denmark with fewer young people in the age group of 20-30. At the same time students are gradually demanding more from their educational institutions. This calls for new ways of attracting students and also for ways of attracting young people that would perhaps not otherwise choose to take a Bachelor/Master degree education. The founders of the KaosPilots looked at this red ocean of competing business schools and saw that there was a hidden potential in the market a space between the existing markets with a lot of un-served potential customers. How they created a fundamentally new market space that made the competition irrelevant: The KaosPilots created a new market in the space between the existing markets of education. Many very creative and entrepreneurial young people in Denmark often end up not taking a business education. This is mainly due to the reason that the business schools do not offer the subjects and activities that attract these young people. Another reason is that these entrepreneurial fire-souls often are too impatient to sit for hours and study heavy lecture books about subjects that does not really interest them (advanced math, statistics, financial accounting etc.) they want to start up a business as soon as possible and what they need are some practical experiences combined with some relevant theory. The founders of the KaosPilots they themselves being creative and entrepreneurial saw this un-served market and created a school that would appeal to young innovative people all over the world. They created a school that would teach business to young people who perhaps otherwise would not have taken an education. Furthermore they succeeded in attracting students from the public business schools students that were perhaps not feeling motivated and perhaps would have even dropped out before completing their degrees. By creating this new market space they made the competition irrelevant and were able to both differentiate themselves from the competitors and keep the cost level at a low rate. How they achieved both differentiation and low cost: By focusing on teaching entrepreneurial business through hands on practices and not through science and heavy theory the KaosPilots were able to differentiate themselves from the competing business schools and thus making them irrelevant to the success of the school. By attracting students who otherwise would not have gotten a business/entrepreneurial education (or perhaps any education at all since they would have started a business of their own with out any education) they were able to create a win-win situation between the school and its students giving the students an education that will make them able to cut some corners when starting their own business, or at least motivating them to go for an educational degree and giving the school a successful growing business. But the third and perhaps most fortunate winner - is the society. At the same time as differentiating themselves from the competitors they were able to keep the costs at a low and competitive level. This was done by eliminating expensive science research activities, facilities and 3

professors. The teachers are instead consultants from the private sector some hired ad hoc for shorter periods, some permanently hired (some of them educated at the KaosPilots) and all burning for the new ideas the school are producing. Although not having any traditional research activities new knowledge is created at the school - partly from the students fieldwork and partly through the incorporated consultancy business. The consultancy business gives inspiration to the school and vice versa thus making sure that the school is updated on modern management tools and theories. At the same time profits from the consultancy business covers some 28% of the schools expenses. Another cost reducer comes through the schools cooperation with the private sector. Students perform as part of their education various tasks for private companies for free, which gives them experience and a possibility to use the methods they learnt. For this the companies give contributions to the school both in form of raw materials and cash. In this way Apple donated free Macs to the school - covering the need for computers of the entire school staff. Finally the school keeps itself less dependent on government funding through the student payments that covers another 28% of the expenses. The figure below shows the strategy canvas for the KaosPilots, which illustrates how both differentiation and low cost was achieved.

The Strategy Canvas of the KaosPilots

High

Danish public business schools

The KaosPilots

Low Government Science Professors funding and research control (facilities etc) Heavy text Fieldwork books and and practical economic use of theory theories Student payment Auditorium lektures Focus on academic abilities Number of exams Focus on creative abilities Practical exercises and games Funding Focus on from networking consultancy abilities activities

Approximate values

The KaosPilots created a blue ocean by changing their value curve to match the needs and values of the identified un-served costumers. They were able to successfully change and sharpen their strategic focus through changing the key competitive factors of the industry and thus eliminating, reducing, raising and creating new factors. A blue ocean was made by creating a strategy that through focus and divergence and including all or most of the schools activities made it possible to attain a leap in value for both customers and 4

the company. The founders of the school looked across industries and incorporated a consultancy firm/innovation lab into the school which was until then unheard of in Denmark and thereby merging two different industries. At the same time they redefined the industrys buyer group to include a new group of buyers that were otherwise un-served. Through building a huge network of companies and individuals the school is able to offer the students access to companies and individuals around the world contacts that could be crucial for starting their own business. One could say that the school has looked across complementary product and service offerings and observed and noted that to start a business you need a network. Finally one could say that they certainly have looked across time and were able to create a new trend and a new way of looking at teaching business. As for the compelling tagline, the KaosPilots have an entire page on their homepage dedicated to how they came up with their tagline. They have had many and the latest really hits the spot: The KaosPilots Change the game and they certainly have. The school seems to have the potential to be a leading player in creating the future of education. So far the Kaospilots does not impose a threat to the public business schools, but perhaps it will in the future. In organisations of the future, the concept of superior/subordinate will crumble as we come to understand that everyone must constantly, simultaneously lead and follow and our governmental, educational, commercial and social organisations must be reconceived to enable them to do so. This is what the KaosPilots are all about. - Dee Hock, Founder and CEO Emeritus, VISA

- by David Gram