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Finding blue oceans

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Finding blue oceans

Post  Admin on Wed Feb 24, 2010 8:11 pm

Indian companies must create uncontested market spaces in different sectors.

As products and services increasingly become commodities in overcrowded industries and companies, profitable growth shrinks and companies are driven to compete primarily on cost. Companies in India today are competing in the global market place where cost arbitration alone is not sufficient to differentiate and sustain the business. Historically, a recession is a time of enormous creativity and breakthrough business launches. If we look at the current Indian information technology industry, the pure outsourcing or offshore development centre business models are not able to deliver sustained growth. It is time for companies in the sector to look into value innovation — the cornerstone of Blue Ocean Strategy.

The long-term solution for creating jobs is in companies creating compelling products and services that take them out of the vicious cycle of commodity completion. Lean times create innovation that is smarter than the innovation that is generated during fatter times. They are smarter because they are based on ideas — not big budgets, research and development, or technological breakthroughs. Therefore, Blue Ocean Strategy is a rising imperative for CXOs.

Blue Ocean Strategy is critical in today’s business climate because prospects in most established market spaces — red oceans — are shrinking steadily. Technological advances have substantially improved industrial productivity, permitting suppliers to produce a plethora of products and services. And as trade barriers between nations fall and information on products and prices becomes instantly and globally available, niche or monopoly markets are beginning to disappear.

The result is that in more and more industries, supply is overtaking demand. This situation has inevitably hastened the commoditisation of products and services, stoked price wars, and shrunk profit margins. If we look at some of the major brands in India, a variety of product and service categories have become more and more alike. And as brands become similar, people increasingly base purchase choices on price. In overcrowded industries, differentiating brands becomes harder both in economic upturns and in downturns.

Swimming in a ‘red ocean’? The question one has to answer is, “Is there is a systematic approach to creating blue oceans?” The authors of Blue Ocean Strategy, Chan Kim and Renne Mauborgne, began looking at companies spanning a 100-year period. During their analysis, it showed that there are no perpetually excellent companies. Consider In Search of Excellence, the first bestselling business book published in 1982. Within just five years, two-thirds of the identified model firms in the book had declined. Likewise, for those sample companies in Built to Last, another blockbuster business book, it was later found that if industry performance was removed from the equation, many of the companies in Built to Last were no longer exceptionally excellent. Therefore, one can safely conclude that there is no perpetually high-performing company and likewise there are no perpetually excellent industries. If we look at the once high-performing telecom industry over a three-year period from 2000 to 2003, it lost half a million jobs and was the cause of tremendous personal financial loss and upheaval. Four trillion dollars of market capitalisation disappeared.

Consider the IT/BPO sector in India. A few years ago, it looked like there was no stopping its meteoric rise and people envied companies in that industry. Today, the reverse is largely true. When companies try to outperform their rivals to grab a greater share of existing demand, product and services become commodities and there is cutthroat competition. This can be termed as ‘red oceans’.

Blue oceans, in contrast, 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. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. It is an analogy to describe the wider, deeper potential of market space that is not yet explored. It is vast, deep and powerful in terms of profitable growth.

Therefore, after extensive analysis of the industry, Blue Ocean Strategy has revealed that the ‘strategic move’, and not the company or the industry, is the right unit of analysis for explaining the creation of blue oceans and the root of profitable growth. Strategic moves are a set of managerial actions and decisions involved in making a major market-creating business offering. The basis of blue ocean systematic methodology is based on a study of over 150 strategic moves from over 30 industries, spanning from 1880 to 2000.

Many opportunities
The principles of Blue Ocean Strategy apply across all types of industries — from consumer product goods, pharmaceutical, financial services, entertainment, agriculture, IT and even government. In India, we have several opportunities to leverage and apply the principles of Blue Ocean Strategy to create uncontested market space.

For example, how do we compete and transform our coffee industry in India? Although India is not a major coffee exporting country, it is still a large producer of approximately 300,000 tonnes a year. Ensuring profitability and success of the coffee growers in the region is of paramount importance, beyond just economic reasons. Prolonged neglect of coffee plantations will result in ecological damage to the Western Ghats as each acre sustains almost 400 to 500 shade-bearing trees. It is time for us to look at the techniques of Blue Ocean Strategy and embrace value innovation.

Then there is India’s success story in the electric vehicle industry where Reva has created a blue ocean for itself as an ‘idea and knowledge company’. Instead of competing against the traditional automobile manufacturer’s product, a red ocean, Reva has focused on the electric vehicle, thereby creating a blue ocean for itself.

The success of the Indian Premier League is yet another example of how a successful blue ocean has been created by reducing spectator time, reducing the emphasis on classic batting and bowling techniques, raising the pace of the game and emphasis on athleticism, increasing the entertainment quotient with Bollywood and cheer leaders. It overall created a unique entertainment experience coupled with loyalty to the city.

We can apply the principles and techniques of Blue Ocean Strategy to transform our healthcare industry via remote healthcare and diagnostics. This can be done by deploying networked MRI’s in Tier II cities and rural India and providing affordable MRI services. We can educate the rural masses in India by looking at a unique way to reach out to them besides traditional brick and mortar institutions. Can we leverage remote education and create collaborative educational communities?

A rich array of companies have created blue oceans across diverse, and unexpected, industry domains from NetJets in jet travel, to NABI in the municipal bus industry, Cemex in Cement, Joint Striker Fighter in defence, and Cirque du Soleil in entertainment.

Whereas Blue Ocean Strategies create new market spaces and change industry dynamics, they are not necessarily initiated by new entrants to an industry. Blue oceans are created by both incumbents and new entrants. CXOs at large and established corporations should find it comforting — startups do not have natural advantages over established companies in creating new market spaces. Large R&D budgets are not the key to creating new market space either. The key is making the right strategic moves. A company that understands what drives good strategic moves will be best positioned to create multiple blue oceans over time, thereby continuing to deliver high growth and sustained profits. Therefore, creation of blue oceans is a product of strategy and as such is a direct result of managerial action, and not the size or age of the firm. CXOs are empowered to leverage the principles and techniques offered by Blue Ocean Strategy to enable transformative moves within their respective organisations.

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