Tuesday, November 24, 2015

Red vs Blue: A Case for 'Measured' Audacity

The article 'Blue Ocean Strategy' defines Red Oceans as those industries in which the nature and the extent of the market is already known and firms compete, often myopically, for a larger share of an economic pie, the size of which may be stagnant e.g. the Airline industry, or diminishing, as in the circus business. Blue Oceans are those industries that come into being when previously untapped markets or market segments in which demand is neither known nor predictable are successfully penetrated for much rapid growth and greater profits. Blue Oceans are often a result of innovative strategies and practices that are hitherto untried and untested. Southwest Airlines with its unique vision, service paradigm and competitive strategy in the stagnant airlines industry and Cirque du Soleil with its 'reinvention' of the circus in the overall declining circus industry are two examples of creating and separating blue from red towards spectacular success.

'Discovering New and Emerging Markets' in The Innovator's Dilemma suggests that most strategy-making is constrained by that which is known, i.e. Red Ocean strategy is geared towards those incremental innovations that sustain the firm's current share in the pie because strategists are familiar with the market, the inherent competition and the profit and loss calculus. The greatest potential, however, lies in disruptive innovations that have the capacity to upend the entire market status quo, and create entirely new demand and supply dynamics. However, since the impact of disruptive innovations is highly unpredictable and not clearly mapped out from prior experience, strategy-making often fails to meaningfully convert these innovative disruptions brimming with risk and opportunity into the Blue Oceans of success. According to the author of The Innovator's Dilemma, in dealing with disruptive innovation, strategy-makers must not presume that its trajectory from inception to becoming a veritable blue ocean can be clearly predicted. It is this presumption that can often turn strategy from being a roadmap to a roadblock. As a case in point, HP designed, developed and priced the Kittyhawk 1.3-inch disk drive in the early 1990s entirely on the presumption that it would form an integral part of hand-held and miniature computers, the market for which was supposed to be up and coming. However, when that market failed to materialize, the Kittyhawk proved to be too rigid in design and production costs that it could not be used, despite demand, in video games, the market for which boomed at that time. In spite of the Kittyhawk being a visionary product given the explosion of hand-held computers and mobile phones only a few years later, HP suffered for its attempt to plan out the 'unknowable', i.e. the market trajectory of a disruptive innovation, and had to discontinue the Kittyhawk in 1994. Similarly, Honda's success in finding its blue ocean in the American motorbike market and Intel's microprocessor blue ocean owed primarily to the market recognizing the inherent value of these revolutionary products as premeditated strategy either repeatedly failed (Honda) or was mostly lacking (Intel).

The takeaway for me from the articles was that in dealing with disruptive innovations with blue ocean-potential, more strategies are likely to fail than not. The key is for management, or whoever is in charge of strategy, to not place all bets on one course of action that looks right but, in fact, has no surety of success in the face of an unknown and 'unknowable'. In this manner, firms will be able to conserve precious resources so as to be able to try other strategies if one fails. Furthermore, strategy at the initial stages of disruptive innovation must be geared towards discovering, learning and creating as much knowledge about the market possibilities as possible rather than prematurely implementing a given production or marketing plan in an unpredictable market. For example, if the Kittyhawk had a more flexible design, it could have easily been modified to fit video games rather than being ignominiously dumped. Finally, Ford's Model T and Southwest's strategic plan to compete with point-to-point road travel rather than air travel resulted in blue oceans not only because of the audacity of the underlying purpose but also because the strategic initiatives aligned well with the tempo of the receiving market.

Muhammed Haider

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