Wednesday, June 15, 2011

Blue Oceans - The unconquered territories

Competition – the main concern for most of the organizations these days. How do we outwit our competitors? How do we outperform them? How do we transform ourselves so that we can always maintain a competitive advantage over them? These are some of the major questions which form the back-bone of strategic moves of most companies. All the organizations are investing huge amounts of efforts in keeping themselves ahead of competitors. Does this struggle to thrive in an accelerating and expanding business universe always pay rich dividends? May be ‘Yes’ or may be ‘No’.
To survive in fierce competition is a daunting task and it takes enormous planning, and carefully crafted strategic moves to achieve the desired results. One may wonder what if I put same amount of efforts in some new adventure, an unexplored territory; how much return would I get on my investments? Will it be same as the investing in competitive market or lesser than that or even higher? A superb article “Blue Ocean Strategy” by Chan Kim and Renee Mauborgne answers this exact question very precisely. As part of a study undertaken, they found out that out of total expansion plans of organizations only 14% were focussed towards creating new markets while rest 86% for improvements to existing industry offerings. Though the larger investments in existing offerings contributed to 39% of total profit, the smaller investments in new offerings resulted in staggering 61% of profits. Wow!!! Here’s some food for thought for today’s organizations!
The article lays strong emphasis on importance of Blue Oceans. The current known market place represents the Red Ocean while the unknown market place – all the industries not in existence today are represented by Blue Ocean. Blue Ocean strategy is about creating new market space that is uncontested. These are not tainted by competitions, these are yet to be explored and crowded by others. Would it not make a manager’s life much easier if he does not have to deal with any competition? Entire market share is yours since you are the pioneer (or even sole owner) of the market. You may have total command over this, it’s your territory! Furthermore, the Blue Oceans present ample opportunity for growth that is both profitable and rapid. Isn’t this a dream of any organization?
As prospects in Red Oceans disappear faster than ever due to dense crowd of competitors, Blue Oceans have the highest potential to become the engine of growth of an organization. In Red Oceans, the fierce competition has forced the variety of brands to be similar thereby diminishing the differentiation and the value offered by their services. This has a detrimental impact on the brand of the organization. On the contrary, in Blue Ocean markets when a company offers a leap in value, it rapidly earns brand buzz and a loyal following in marketplace. And once an organization gains such loyalty, it is extremely difficult for other latecomer organizations to unsettle them. Thus, the Blue Ocean strategy allows organizations to simultaneously pursue differentiation and low cost which is almost impossible in Red Oceans.
So, the question that would bother is how are Blue Oceans created? Are they totally new arenas? Though one may think that Blue Oceans are totally new and completely different than current market areas, rarely it is the case. Blue oceans are right next to every industry. Most Blue Oceans are created within Red Oceans of existing industries and are aided by advances of leading technologies. For example, Infosys is rapidly making moves to embrace Cloud Computing, a latest technology trend, to enhance its services and provide new offerings. Infosys is key player in providing IT services in global market place. However, it is not the only player in this market. It faces severe competition from the likes of other IT giants - TCS, Accenture, Wipro, CTS and many others. However, what Infosys is trying to do now is enhance its offering and create new market offerings with the help of Cloud computing technology. Infosys has recognized that Cloud computing arena is growing at a rapid pace and is answer to many challenges associated with a traditional IT landscape. Its efforts to embrace this new technology in current market place will create a new market within current IT world i.e. a Blue Ocean. This field is not yet crowded with other competitors and thus presents Infosys with lots of opportunities to amplify its market presence and profit. Moreover, the enhanced services in this Blue Ocean will help Infosys not only strengthen their brand value but also achieve differentiation. Though, Cloud Computing looks very promising, it is yet to see how much Infosys benefits from this Blue Ocean. Though, Infosys and the leading market analysts firmly believe that Cloud is the future of IT world, only time will validate or invalidate this belief. We can just wish Infosys “All the best”!
To conclude, it is important to note that Blue and Red oceans have always co-existed and always will. Currently, though competing in Red Oceans is predominant; but the need to create Blue Oceans is gaining strength. Organizations need to understand that Blue Oceans are the areas which can provide more benefits than Red Oceans.

The Article - Blue Ocean Strategy by W. Chan Kim and Renee Mauborgne

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