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From Crisis to Sustenance : Blue Oceans are possible in the era of rapid transformation
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In our previous instalments we said that the Blue Ocean Strategy (BOS) is a systematic way to challenge the conventional logic of competition in a given industry and to expand the market by attracting ‘non-customers’, often large market segments that have been ignored by the industry and that are off the manager’s radar screen.
The Blue Ocean Strategy, we said, challenges conventional competitive strategy wisdom by engaging in the simultaneous pursuit of low cost and differentiation, unlike traditional strategy that demands managers must make a choice by focusing on either a low cost-driven strategy or one rooted in differentiation. A large number of executives and companies from around the world have benefited from espousing the BOS ideas and principles.
Misconceptions
In this article, we’ll address the three most frequently mentioned misconceptions about the Blue Ocean Strategy and attempt to clarify what it is all about.
Misconception 1: Blue Ocean Strategy is a quick fix.
Some believe that all you have to do is draw a few PowerPoint slides and voilà, here comes your Blue Ocean! It is true that the BOS process is a systematic way to think creatively about strategic innovation: At its core lies a sequence of practical analytical tools that executives can use to rethink the value proposition of their products or services, to eliminate a variety of obstacles and legacy processes in their offerings and to discover new groups of customers that their industry has ignored. That said, it takes time – months or even a year or two.
Misconception 2: You can arrive at the Blue Ocean ideas using your existing bases of information and current understanding of their customers’ behaviour.
Nothing could be further from the truth. The generating truly great ideas that challenge entrenched ways of doing business usually involves extensive fieldwork, e.g., retail executives spending time in their stores and observing why customers leave their stores empty handed or why other consumers pass by their stores without as much as giving it a look. Bankers could benefit greatly from spending time in their retail branches or in their corporate clients’ back offices as would insurance agents observing their customers in their own settings.
We call this kind of fieldwork understanding the ‘Buyer’s Experience Cycle’, a way to uncover what we have termed as the ‘Pain Points’ that stand in the way of customers and non-customers adopting your products/services. This fieldwork provides the raw material and insights that executives can process in combination with the Blue Ocean Strategy tools to challenge long held assumptions about how business is done, a process that then yields the most compelling creative ideas, the large Blue Oceans.
Misconception 3: You expect to pursue Blue Oceans on your own because you assume that you possess all the necessary resources and capabilities to put strategy into action.
Regretfully, that’s not always the case. The truth is that forming strategic alliances with others can often help companies to expand the size of their market opportunity and attract more non-customers faster and cheaper. It is important to understand what resources, skills and capabilities are needed to implement Blue Ocean ideas, which ones are available within an organisation and which ones can be acquired from alliance partners.
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AirAsia
Let us take one more example of success. One of the significant changes that the airline industry has changed is the involvement of the budget airline industry. The good example in Malaysia is AirAsia.
AirAsia is a Malaysian low-cost airline headquartered in Kuala Lumpur. It is Asia’s largest low-fare, no-frills airline and a pioneer of low-cost travel in Asia.
The AirAsia group operates scheduled domestic and international flights to over 400 destinations spanning 25 countries. Its main hub is the Low-Cost Carrier Terminal at Kuala Lumpur International Airport.
Its affiliate airlines Thai AirAsia, Indonesia AirAsia, AirAsia Philippines and AirAsia Japan have hubs in a number of Asian countries.
AirAsia has managed to avoid the Red Ocean and compete with major airlines like Malaysia Airlines and regional airlines by looking into factors that the industry take for granted and also factors that are important to customers.
Four Actions Framework
With the Four Actions Framework proposed by the Blue Ocean Strategy authors, AirAsia has implemented many strategic moves to ensure they make Malaysia Airline and regional airline companies irrelevant.
Eliminate
- Over the counter booking system
- Free food/beverage on the plane
- Seating Class booking system
Reduce
- ‘Luxury’ facilities provided by airport lounge
- Number of attendance service on the plane
- Seat quality
Raise
- Focus on several key destinations
- Increase frequency of flight
Create
- Online booking system
- Point-to-point travel system
With these strategic moves, AirAsia was able to focus on factors that really bring value to the customers such as point-to-point travel system, easy booking system, etc. This helped AirAsia to reduce cost and at the same time increase the value to the customers – ‘Value Innovation’.
Besides that, AirAsia was able to look at current non-customers as explained by the authors of the Blue Ocean Strategy. They understood that there is a wide segment of customer base - presently classified as non-customers - for example - government staff and those that cannot afford to buy expensive tickets such as who are in rural areas, students or fresh graduates.
With the successful venturing into the Blue Ocean Strategy, AirAsia has ventured into other businesses such as Tune Hotel, which is a ‘limited service’ hotel chain that provides a claimed ‘five-star sleeping experience at a one-star price’ accommodation. Tune Hotel claims it is aiming for 100 hotels in its global portfolio by 2015.
Apple, google.com, amazon.com, Tata Motors, Micromax, ICICI Bank and LG Electronics are some other examples which use the Blue Ocean Strategy by doing ‘Value Innovation’.
Imitation
Going through this series of articles, a fair number of readers have written to us. Some have given their comments and others have raised queries. One writer had a pertinent question. “What if competitors jump into the Blue Ocean soon after it is created and makes it a Red Ocean again?” In fact, this question was raised by CEIBS Business Review to Prof Kim recently.
This was his reply: Formulating and executing the Blue Ocean Strategy in the right sequence will by itself build a rather strong barrier to imitation.
The principle of strategic pricing, in particular, allows a value innovator to capture the mass of the target buyers fast, thereby achieving economy of scale, as well as earning brand buzz and creating a loyal following in the market space, which raises the cost of imitation significantly.
For example, sometimes value innovation simply does not make sense to a potential imitator’s conventional logic. But most importantly, as the Blue Ocean Strategy requires, the alignment of the three strategy propositions—value, profit and people, once it is successfully implemented, it is hard to be copied as many times an imitator could get one or two propositions right, but not all three of them.
As a matter of fact, eventually any strategy is imitable and a Blue Ocean may also turn Red. This is exactly why the Blue Ocean Strategy never intends to offer a one-time solution to companies.
Rather, it calls for companies to monitor their value curves conscientiously and renew their Blue Ocean offerings by taking new Blue Ocean Strategic moves at the proper time.
(Next week – Recapitulation)
(Lionel Wijesiri, a corporate director with over 25 years’ senior managerial experience, can be contacted at
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