Thursday, April 16, 2015

Adding Blue to Red

The biggest challenge for incumbent players is to break free from the framing effects of their competitors’ strategies and pursue a strategy that is entirely different from the strategies of any players currently in the market. The big challenge here is for companies to take the leap of faith and break away from the status quo of present market strategies and set organizational and cultural beliefs and to pursue a strategy that presents a renegade view of the current market and potentially places the company in a vulnerable position.

For companies operating in a red ocean, the rat race of everyday competition in a saturated market makes it difficult for them to strategize towards blue ocean market opportunities. New entrants have the benefit of being free from the structure and processes already prevalent in the market, and thus find it easier to innovate. However, an incumbent can follow a framework that enables it to make the move from red ocean to blue ocean markets.

Looking beyond direct competition. This is the most important consideration that incumbents need to follow. As incumbent companies build their current presence and success in response to direct competitors, they are very reluctant to look beyond their direct competition. Blue oceans lie where companies consider indirect industries and markets as their direct competition. Ford Motors viewed horse-drawn carriages as their direct competitors and, in response, came up with the Model T that took the global automotive market by storm. A more recent example is Southwest Airlines that viewed car journeys as its direct competition and then innovated with a strategy of low-cost, point-to-point airline journeys.

Delaying (or timing) future innovation. At times, the speed of technological innovation outstrips the demand present in the market. This was the case with the hard drive market in the early 1990s. Hewlett Packard developed a micro hard drive called the Kittyhawk in the anticipation that it would be used for the PDA and mobile computing markets. The product, although radical for the time, did not see any major success, as the market for mobile computing had not yet matured enough to allow for the use of such breakthrough components. Fast-forward a decade, and micro hard drives are ubiquitously used across the mobile telephony and handheld computing industries. Therefore, for companies operating in red ocean markets, the move to blue ocean requires not just innovation, but the right timing to push forth those innovations into commercial use.

Not focusing on numbers. The larger the organization, the greater the focus on figures like profitability and revenue growth and hence, the greater the obstruction in the move towards blue ocean markets. As moves from red ocean to blue ocean require considerable R&D expenditure, and a focus on gaining a foothold in the new market. As most blue ocean products are simpler and less complex, they promise lower returns than existing market products, and thus require a shift away from company’s strategies of marketing high-revenue, high-margin products.

In conclusion, for incumbents, the move from red to blue ocean markets requires a significant change in set company values, and a marked departure from traditional management focal areas and objectives.

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