Myth: Sony’s PlayStation 3 is the mother of all gaming consoles. Fact: Nintendo’s Wii outsold both the PlayStation 3 and Microsoft’s Xbox 360 for the 10th straight month in the US this July. Closer home, the Indian Premier League brought the BCCI unquestionable success, drawing as many as 18 million viewers, 2 million shy of ICC’s T20 World Cup. The two instances may sound as different as chalk and cheese, but they are both based on the same premise — the blue ocean strategy, proposed by INSEAD professors Renee Mauborgne and W Chan Kim in their best-selling book by the same name.
The book urges companies to stop benchmarking competition and start creating new and uncontested markets, eventually, making rivals obsolete. Nintendo, for its part, focused on the non-videogame playing audience, while IPL created a whole new experience out of an age-old game.Blue Ocean Strategy, which draws upon a study of 150 strategic moves spanning over 100 years and 30 industries, challenges many-a-conventional notion. In Mumbai to attend the SAS Premier Business Leadership Series, Mauborgne spoke extensively to Byravee Iyer on how to make competition irrelevant. Edited excerpts:
The blue ocean strategy goes against conventional wisdom, especially at a time when companies are constantly strategising to beat competition...
Most companies’ strategic planning is to focus on how to build a defensible position within existing industries by beating competition. But conversely, the more you focus on beating competition, the more you allow competition to set your strategic agenda. Naturally, then, you start to look like the competition as opposed to looking different from it. That’s why, in most industries, you can’t help but notice that all major players converge and do the same thing.
On the other hand, the blue ocean strategy urges companies to look at the alternatives, and not the rivals. This means looking into the reasons people refuse to come to your industry, which consequently begins to give you insights into the alternatives and non-customers, and thus helps you redefine the market space.
You refer to the strategic moves companies employ to create uncontested market space as “value innovation”. What’s the best way to go about doing that?
Value innovation is a simultaneous pursuit of differentiation and low cost, and it is the cornerstone of the blue ocean strategy. It is about linking innovation to what the market values. So it’s not about being different for the sake of being different, but about being different such that it is a win-win situation for both the buyer and company alike. And this is applicable whether you are in a high-cost country such as Japan and the US, or in a low-cost country.
But is this applicable to all industries?
Yes it is, whether it is a regulated industry, B2B, or financial services. And lately, we’ve been seeing that it is being applied to the social sector and even the government sector. In fact, my colleague and the book’s co-author, W Chan Kim is in Malaysia, working with a government institute there to apply the ideas and the framework of the book to the country and its national priorities. So in that respect it has proved to have quite a latitude across spaces.
You recommend that for a company to succeed it must make competition irrelevant and the best way to do that is to create new industries and markets. Are you suggesting that the blue ocean is infinite?
If you look at market space, yes, the blue ocean is infinite even though there is no proof of that. Take look at history, how many billion- and trillion-dollar industries exist today that did not a century ago. Whether it is the auto industry, the computer industry, the aviation industry, petrochemicals or biotechnology, all of these industries were unheard of back then. Look at the numerous new industries that have been created in the past 30 years in the ever-expanding universe of business space. Today, ringtones is a muti-billion dollar industry — 10 years ago, it was not even on the radar. Another good example would be the business of social networking sites that has grown rapidly in the past five years.
How does value innovation help cutting-edge companies with top-of-the-line technology and innovative products/services, but at the same time, facing cut-throat competition?
The blue ocean strategy is beyond value innovation. It is the alignment of values, profits and the people proposition — which is execution. That is the strategy that links technology to commercial opportunity. For instance, if you ask people around the world, who created the PC, they are mostly likely to say Apple or IBM, and if you ask them who introduced the VCR, most of them will tell you it’s Sony or JVC. But neither of those answers are correct. It was neither Apple nor IBM that created the PC, it was a little known company called MITS, and the VCR was the product of a firm called Ampax.
The difference between these companies is that Sony, IBM, JVC and Apple understood how to link technology to commercial opportunity by simplifying it at an attractive pricing-point, backed by a good strategic model so as to put that technology to use in a commercial way. That’s the basic premise of the blue ocean strategy — how to link technological innovation or any innovation to commercial opportunity by answering to the value, price and business model? That said, often, even without technology or perhaps with less cutting-edge technology companies can create blue oceans.
Is there any such thing as healthy comp-etition?
First, because there’s so much of red ocean [the known market space] and intense competition, it often automatically gives rise to the need for blue oceans. In our book, we never say red ocean competition is not good because most companies will always have red ocean businesses. And there are quite a few industries such as consulting, which operate in a red ocean, but not a bloody ocean. In other words, they conduct operations amidst gentlemanly competition. So yes, you can have healthy competition when supply does not exceed demand in an industry.
Moving from a red ocean to a blue one would come with its fair share of change. But people are inherently resistant to change...
In the second half of our book, we talk about how to execute and how to overcome cognitive obstacles — people that you need to change, resource hurdles and political hurdles that need to be overcome. Blue ocean strategy talks about value innovation, tipping point leadership and fair processes — the three conceptual underpinnings of the book. Tipping point leadership is about how you overcome barriers fast and at low cost. Fair process is about how you motivate people to be behind those ideas. When things are not going well, how do you make people see that?
Traditionally, when management wants change, they show their employees numbers. Then what happens is that good performers feel that this is not relevant to them, and bad performers become very political and defensive in an attempt to negate why they’re doing poorly. Instead of showing executives numbers, let them see reality first hand and feel the pressure. For instance, look at a supermarket at, say, six in the evening, a time when most people are done with work. You’ll usually find only a few registers open and people waiting in long queues to pay their bills. Naturally, given such a situation, nobody wants to go food-shopping. In order to establish change, one needs to show the employees of the supermarket what’s going on. Then they’ll see for themselves that this does not make sense and more registers need to be open at critical hours of the day. Thus companies need to make their employees see the hard reality people are up against.
But aren’t numbers just as important?
Often, we see it’s the numbers that drive what a company does. Instead, you should have a big picture of what you are trying to achieve in the market space, and how you intend to do so at a lower cost. After you’ve done that, you can have the numbers to back it up, because at the end you have to answer to numbers. Numbers are very important, the difference is we believe numbers shouldn’t be one of the key strategies to drive your growth, we believe differentiation, low cost and your people should define your strategy. Then you can put numbers behind it to make sure it works, and you will eventually make money.
How do you get companies to see that they need to move from the red ocean to the blue?
I think a lot of companies today feel the pressure given the current scenario of job losses, higher input costs, market share battles and declining margins. I think a lot of companies feel the need and that’s why people talk increasingly about innovation. But even for a company that is in the red ocean and doesn’t see it, there is a very simple exercise to run. Look at what factors you are competing on, then draw your strategic profile versus your competitors. That usually shows companies that their strategies and the competitors’ strategies are very similar, which is a big wake-up call for these companies, and they start to realise that they need to do something. It doesn’t mean that they align behind it, but it does mean the perception of people is changing. This leads to conversation and that is always the starting point for change.
Which are the noteworthy Indian companies swimming in the blue ocean?
I think what Tata is trying to do with Nano is probably the blue ocean that is getting the most global press and curiosity. I know the car is not out yet, and with rising input costs whether it can hit its price target is something we have to watch for. But I think, this is a very exciting experiment to create a car for people who could never have cars and at such a challenging price point.
