The Blue Ocean beckons

The Quality Conundrum - How Indian Industry is managing quality

Companies have traditionally engaged in head-to-head competition in search of sustained, profitable growth, fought for competitive advantage, battled over market share and struggled for differentiation.

The Blue Ocean concept, elaborated by W Chan Kim and Renee Mauborgne of INSEAD, suggests that companies should seek "blue oceans" of markets rather than focusing on the "red oceans".

The Confederation of Indian Industry (CII) is working closely with the Blue Ocean Network to enable Indian companies to benefit from this methodology.

The Blue Ocean refers to a market not contested by a competitor. Such markets provide little or no competition for anyone who dives in, since the markets are not crowded. Here the demand is created rather, and there is opportunity for profitable and rapid growth. A Red Ocean refers to a saturated market fraught with fierce competition. 
 

Which colour do you want?
Red Ocean Strategy	Blue Ocean Strategy
Compete in existing market space	Create uncontested market space
Beat the competition	Make the competition irrelevant
Exploit existing demand	Create and capture new demand
Make the value/cost trade-off	Break the value/cost trade-off
Align the whole system of a company's activities with its strategic choice of differentiation or low cost	Align the whole system of a company's activities in pursuit of differentiation and low cost

Already crowded with companies providing the same type of services or goods, these markets have little to offer in terms of growth. Companies try to capture a greater share of limited demand, with profits and growth declining. Products turn into commodities, and increasing competition turns the water bloody.

Although it is important to swim successfully in the Red Ocean by out-competing rivals, in the long run, businesses cannot be sustained by remaining in them. Competing for a share of contracting markets, while necessary, will not be sufficient to sustain high performance. To seize new profit and growth opportunities, companies need to create Blue Oceans.

The Blue Ocean idea revolves around doing something different or producing something new. Innovation must raise and create value for the market, while simultaneously reducing or eliminating features or services that are less valued by the current or future market.

There are two ways to create Blue Oceans "" create completely new industries or create a Blue Ocean from within a Red Ocean by expanding boundaries of the existing industry and making competition irrelevant. Delivering to an unserved set of customers a compelling new value proposition creates a Blue Ocean. The Blue Ocean Strategy (BOS) is, thus, the simultaneous pursuit of differentiation and low cost.

BOS provides a systematic approach to making competition irrelevant. It is a proven, analytical framework and tool for successfully creating and capturing Blue Oceans.

These include strategy canvas, value curve, four actions framework, six paths, buyer experience cycle, buyer utility map and the Blue Ocean idea index. The principles show how to reconstruct market boundaries, focus on the big picture, reach beyond existing demand, get the strategic sequence right, overcome organisational hurdles and build execution into strategy.

They are designed to be visual to not only effectively build the collective wisdom of the company, but also to effectively execute through easy communication. The three key conceptual building blocks of BOS are: value innovation, tipping point leadership and fair process.

Companies such as Southwest Airlines, LG, Nintendo and Cirque du Soleil are known to have gained using this strategy. Southwest Airlines effectively used the strategy canvas tool to map its strengths against its competitors to define its Blue Ocean.

HCL recognised that its application outsourcing business was coming under pricing pressure being increasingly commoditised. Using BOS, HCL decided to chase large deals that would bring a significant transformation, to move up the value chain and go for multi-service deals.

To implement BOS successfully, you need to recognise that market boundaries exist only in the mind. Don't let existing market structures limit your thinking. Extra demand exists and is largely untapped; the problem is to unleash such demand. This requires a paradigm shift in the focus of attention from supply to demand, from competing to creating innovative value to unlock new demand.

BOS applies across all industries "" from consumer products to B2B, industrial, pharmaceutical, financial services, entertainment and IT.

This methodology is also suited for an "entry strategy" in mature markets and to compete against mature products/services. It can be used by new entrants creating a BOS, which will create a differentiator as well as create value, as is demonstrated by the low cost airlines.

Dr Surinder Kapur is chairman, CII Mission for Manufacturing Innovation, and chairman and managing director, Sona Koyo Steering Systems