STRATEGY AT SEA
Based on an interview with Professor W Chan Kim
Narelle Hooper, Editor of The Australian FINANCIAL REVIEW BOSS Magazine
A common question asked by most companies is, "How do we continuously stay ahead of the competition? How do we become a truly innovative company capable of creating repeatable breakthrough strategic moves?" This is a particularly vexing problem during the current economic downturn.
All companies have to cut costs, yet unfortunately, one of the early victims is often spending on innovation activities such as R&D, training, or education budgets. Long-term projects are shelved, hiring is frozen, and workers are made redundant. Worse, risk capital begins to disappear.
Yet, counterintuitively, innovation goes up when the economy goes down. Despite the pain, recessions are historically times of enormous creativity and breakthrough business launches.
In an interview with co-founder and co-author of the Blue Ocean Strategy, Professor W. Chan Kim shares his views with writer Narelle Hooper on these questions...
· We need to stop chasing our tails, says professor W.Chan Kim
What colour ocean are you swimming in: red or blue? It's a metaphor that has powerfully captured an approach to business strategy - one which shuns the
well-trodden path.
In 2005, INSEAD professors W.Chan Kim and Renee Mauborgne channelled their 15 years of research into their book Blue Ocean Strategy. Since then the French business school academics have created a sizeable wave of their own.Despite the sniping about its shortcomings from some traditional strategists, the book continues to appear at the top of the business bestsellers list and South Korean born, US-raised Kim regularly sells out on the speaking circuit.
Red oceans, according to their analogy, represent industries today - the known market space in which boundaries are defined and companies compete to grab a greater share of existing demand. As the space gets more and more crowded, prospects for profits and growth are reduced and competition turns the water bloody.
Blue oceans denote the undiscovered market space in which demand is created rather than fought over and there is plenty of opportunity for profitable growth.
Typically, companies in the red ocean pursue incremental improvements through either low cost or differentiation. It is the "strategic move" that allows a company to create a blue ocean and "value innovation" is achieved through the simultaneous pursuit of differentiation and low cost.
Speaking to AFR BOSS from Paris ahead of a visit to Australia in March, Kim says there is lots of "red" behaviour going on now. "Many companies are in a knee-jerk reaction. It's 'we can't do anything about this. Demand is collapsing.'
They think the only way they can survive is to shrink costs and cut jobs. The assumption behind this is that shrinking demand cannot be controlled....We are saying you can do something about it."
Instead of assuming structure shapes strategy, emerging thinking is that strategy can shape business structure. "People take for granted what strategy is - either we are differentiated or we are the lowest cost," Kim says. "The main thinking of Blue Ocean Strategy is it's not good enough, you need to simultaneously achieve differentiation and low cost."
He says the root of the current crisis lies in a boom built on "financial innovations" that transferred risk instead of solid and profitable growth of the real economy. "Innovation ruined the financial sector this time - where was the fundamental value added?"
When innovation were not based on value, and decoupled from efforts to pursue breakthroughs in buyer value, they cannot produce or sustain profitable growth and may lead to the kind of economic backlash unfurling today. Mostly, says Kim,a blue ocean is created from within the red, when a company comes up with a move that alters the boundaries of an existing industry. The shift by McDonald's to healthier foods, the success of the Ipod and Itunes are good examples.
He says it is important not to confuse innovation with the Blue Ocean strategy. And you need to be nimble when the competition hits your patch, to find new uncontested space.
Critics argue there are shortcomings in the depth of case study data to support Blue Ocean theory. But Kim says he is continuing to gather long-term empirical data. And in what sounds like the germ of another book, he says it is an approach that can be embraced not just corporates but by governments and individuals.
Taken from the article "NEW FOUNDATIONS - The foundations of business have shifted and it leaves us questioning. We asked some of the world's best thinkers for advice on managing in unprecedented turbulence" - Story by Catherine Fox, The Australian Financial Review BOSS, February 09 Volume 10
Bo Sanchez presents the CEBU INTERNET MARKETING WORKSHOP (Hands-on training on how to Make Money Online)
1 comments:
Blue Ocean Strategy suggests that the traditional strategies are not sufficient to achieve or sustain profitable growth in the present day markets marked by cut-throat competition.
Post a Comment