Looking beyond competition will help create an uncontested market space
By DR SIMON GEORGE / Pic By BLOOMBERG
A blue ocean is a depiction of depth, calmness and transparency, an ideal status a person or organisation would like to possess.
But the present-day external environment rarely allows this status to exist.
The ocean frequently becomes turbulent, muddy and chaotic due to the influence of external factors.
Organisations realise this special environment and increasingly start responding based on external influence, especially the behaviour of competitors.
This is called the “red ocean” way of organisational thinking and strategising, by keeping competition as the focus point.
This mostly leads to a win-lose situation, by believing that one can win by being better than competition.
Many organisations did well this way, but it may not ensure them consistent and long-term success. It also drains a lot of energy.
Professors W Chan Kim and Renée Mauborgne of INSEAD, Paris, researched the activities and performance of several good companies and sectors spread over a period of 100 years, and came out with a body of knowledge that believes it is possible for all to win, if an organisation focuses more on their inherent capabilities and try to be innovative by providing value to customers.
They put their research findings in the form of a book, Blue Ocean Strategy.
It contains a set of analytical tools and frameworks that show how to systematically develop a blue ocean strategy.
What is Blue Ocean Strategy?
Blue Ocean Strategy (BOS) is a systematic approach that changes the frame of reference from competitive strategy to making competition insignificant.
It challenges companies to break out from the red ocean of cutthroat competition by creating an uncontested market space that makes competition irrelevant.
The blue ocean approach calls for creating a new, uncontested market space, breaking the value-cost trade off, aligning the whole system of a company’s activities in pursuit of differentiation and low cost.
Challenging the conventional wisdom about which buyer group to target leads one to the discovery of a new “blue ocean”.
By looking across, companies can gain new insights to redesign their value curves to focus on a previously overlooked set of buyer needs.
These help them identify “non-customers”, who can later be converted to customers on the basis of value innovation.
Value Innovation: The Cornerstone of BOS
The blue ocean approach, surprisingly, does not use competition as the benchmark.
Instead, it follows a different strategic logic called “value innovation”.
Here, the focus is on making competition irrelevant by creating a leap in value for buyers and the company, thereby opening up a new and uncontested market space.
It lays emphasis on adding value with innovation rather than just value creation with improvements. Value innovation occurs when companies align innovation with utility, price and cost positions.
Southwest Airlines exemplifies this approach perfectly well with their low-cost air travel concept. It was conventionally believed that companies can either create greater value at a higher cost or create reasonable value at a lower cost.
Here the strategy is seen as making a choice between differentiation and low cost. In contrast, blue ocean pursues “differentiation” and “low cost” simultaneously. The success stories of some of the Indian IT (information technology) companies are a good example of value innovation.
Developing a BOS
BOS covers both strategy formulation and execution. A strategy is developed and executed based on six principles:
• Reconstructing market boundaries; • Focusing on the big picture;
• Reaching beyond current demand/ consumers;
• Establishing right strategic sequence;
• Overcoming organisational hurdles; and
• Building execution into strategy. A close and detailed analysis of the existing product and customers are the key to this strategy development.
Developing a “utility curve” of one’s products against those of competitors helps a company bring out the strengths and weaknesses of its own.
A more detailed analysis of the product leads to a four-action framework in terms of reduce, eliminate, raise and create various aspects of the product.
This step is only possible when the “buyer’s experience” with the present product is mapped through his/her usage cycle of purchase, deliver, use, supplements, maintenance and disposal activities.
Buyer experience mapping and the four-action framework planning can lead to the creation of new and modified products, processes and services which may create value innovation.
Blue Ocean Thinking
BOS became a popular organisational approach in strategy, as it is derived from an important life principle of looking deep into the self in times of challenges.
It motivates one to look at the capabilities of oneself to (meet) the demand of the times, and encourages one to come out with creative options to tide over difficulties, enhancing drastically the value of the output.
It helps one to identify one’s own strengths and weaknesses too. It is, hence, an excellent thinking approach to face tough times.
It stimulates one to stretch oneself to the next level rather than following the beaten path, to achieve goals.
It discourages one to look at the other person’s activities and achievements to chart one’s own path.
Creation of a BOS — NovoPen by Novo Nordisk
Insulin is a medicine used by diabetes patients as per the prescription of a doctor. It used to be administered by either a doctor or under the supervision of a doctor.
Insulin was supplied to patients in “vials” with its syringes, needles, medicine and with the required administering doses.
This made administration of the medicine complex and had to be done by a trained person each time.
Novo Nordisk AS, one of the leading pharmaceutical companies manufacturing this medicine found that the primary way to differentiate the product was by improving the purity of the drug, which had reached a plateau among competing manufacturers.
Novo Nordisk looked at a different approach to innovate — ie, a blue ocean way. Can we (the company) move away from the traditional way of competing?
Instead of focusing on the medicine to do better in the market, why not look at the administration of it?
Can we shift the focus from the doctor as decision maker to the patient?
Combining both these possibilities, the company created a blue ocean strategy, through its “path of looking across chain of buyers”.
Novo Nordisk developed the NovoPen, which resembled a fountain pen, by which the patient himself/herself can administer/inject the medicine.
It contains an insulin cartridge that can be carried as a self contained unit, with roughly a week’s dosage. The pen had a click mechanism, by which any one can control the dosage while administering.
It provided ease and convenience without the complexity of syringes and needles (to have been used by a trained medical person). With NovoPen, Novo Nordisk created BOS through its product and delivery.
- Dr Simon George is Dean Academics and Professor, TAPMI, Manipal. Article originally published in Indian Management (Vol 56 Issue 11) an AIMA and Spenta Multimedia Pte Ltd publication. The article is taken from AAMO newsletter Vol 3 Issue 1. For more information visit aamo.net.