In the previous article Break Out Strategy: Create Demand through Strategic Value Innovation and Creative Destruction (Part 1), we discussed The Changing Paradigm of Competition and the Old Paradigm. Understanding the competitive landscape and the shift in business would allow companies to re-think their strategies and change their business models to find new opportunities.
How do we shift out of the Old Paradigm?
The New Paradigm of Competition
The current scenario of globalisation and trade liberalisation has resulted in the phenomenon of commodification, due to the advance of technology, increased and rapid production capacity and hence, over supply. There is now a situation of too much supply looking for the elusive demand, which has prompted innovative ways of searching for new markets and the conversion of non-customers. With more people aspiring to be entrepreneurs, there will be a continued source of supply being found. This supply situation has therefore increased multi-fold and as a result, has really created intense competition prompting the great need to move to blue oceans and new market space. So how do you find this idyllic, unrivalled market space where you make the competition irrelevant? The secret is in strategic thinking and strategic moves, powered by the engine of innovation. What are these secrets or new revelations? The following are some management insights to be considered in order to thrive and succeed in the new business paradigm:
Management Insight #1:
Concept of Creative Destruction
Destroy and create innovatively. Customers today have become very discerning and choosy. In a consumptive society, wealth is measured by what one can afford. So, the customers’ insatiable needs can be tickled by enterprises that keep creating new and innovative products and services. Apple and Microsoft have constantly destroyed their products and created new and more innovative products to generate new sales. With Microsoft, remember the first DOS you used in your PC before you moved onto Windows? And now perhaps you are using Vista. Apple came up with the iPod which creatively destroyed Sony’s Walkman. Look at the constant generational ‘destruction’ of storage devices from floppy disks to diskettes and now to USB thumb drives.
Another example of this concept is the success of the Nintendo Wii and DS, which Nintendo designed to target audiences not traditionally known to play video games. By simplifying its interface (through a touch screen on the DS and motion controls on the Wii) and by marketing software which are designed to complement daily life rather than create escapist experiences (e.g., games such as Wii Sports, Wii Fit, Brain Training etc.), Nintendo has managed to spark greater mainstream appeal than any previous console or news story which have detailed its appeal to those who have never played video games before. In both the Wii and the DS, these have become much sought-after by both children and adults as learning and entertainment gadgets. And this translates into greater sales. So, in order for your companies to keep on innovating and growing new lines of products or services, you may have to think about proactively killing off some of your products to keep re-inventing new products and generating demand.
Management Insight #2:
Supply-led Innovation
In the future, one can see that new business growth will be in the realm of companies that constantly innovate as products become stale and oversupplied. These are the companies that are able and are good at attracting customers to their innovation. As American automakers continue losing their market share, Honda and Toyota are soaring on the backs of their high quality, low-emission vehicles. The increasing trend towards clean car technology means that companies which can build the best low-emission car, will have the best chance of long-term success and survival. With environmental concerns taking centre-stage, leading automobile companies are racing towards producing high quality and efficient ‘green’ automobiles. Recognise and flow with the innovation trends.
Management Insight #3:
First Mover Advantage
Opportunities wait for no person. With innovation, the new tinkerers and the managers will need to have the courage to do things which have not yet been proven. Here, it is where the candidates will obtain the invaluable experience through trial and error to create the blue oceans of uncontested market space. Toyota revealed the newest iteration of its Crown sedan, the first car created under its Value Innovation (VI) programme. Toyota is now focusing on its strategy aimed at saving the carmaker over US$2.8 billion per year on VI – the core element in the Blue Ocean Strategy. Start to develop an innovation programme in your company, if you still have not got one yet.
Management Insight #4:
Learning from Other Industries
Learning from other industries in terms of their processes, uniqueness and other competencies, will allow Malaysian companies and entrepreneurs to look at innovation for new market and customer creation. By using methods which result in innovation, companies can look forward to achieving strategic value innovation, that is, increase in value and decrease in cost. China Mobile’s CEO, Wang Jianzhou, talked about China’s hinterland as a classic blue-ocean market, where the company is casting its net widely without worrying about getting tangled up with the nets of rivals as China is a highly populous country with over 376.38 million customers (as of the end of February 2008).
Management Insight #5:
Paradox of Value Cost Trade-off
In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. Southern Airlines and AirAsia have successfully eliminated the old mindset by offering the flexibility of bus travel at the speed of air travel using secondary airports. As a result, ‘Now Everyone Can Fly’ with these airlines’ low fare offering, which makes flying affordable to everyone. Such moves aim to maximise profit through constant innovation in reducing operating costs, thereby successfully creating new uncontested market space.
Management Insight #6:
Price Minus Cost
Moving from the old business paradigm of cost-plus margin, today it is about price minus cost. In the context of the cost-plus approach of pricing, the price pain is passed to the customers. However, in today’s ‘oversupply’ business environment, customers are not prepared to tolerate the price pain, and this pain now has to be borne by suppliers who have to set their prices on a price-minus-cost basis. The pain experienced by suppliers will challenge them to ensure that creative and innovative ways are continuously pursued to reduce costs in order to gain bigger profit margins. So, continue to innovate and cost down if you want to be profitable in the long run.
Management Insight #7:
Creating New Markets and Customers
With advanced technology and other enablers, we can create new markets and customers – even from non-customers or unexplored customers. You can look at customers who are not necessarily from your own industry to develop a group of clients and advocates. With good customer relationship management (CRM), you can develop a group of customers who will tell others about you and your business whilst advocates will bring other customers to your business. Look beyond your market boundaries to look for your noncustomers and unexplored customers, and develop your existing customers into ‘clients and advocates’.
Management Insight #8:
Discovering Different Business Models
Many new entrepreneurs have used new business models as a means of competing anew. Opportunities can be found in doing old things in new ways or new things in old ways. One way is to launch a completely new business model as what eBay Inc. had done with its online auction which connects hundreds of millions of people around the world every day, empowering them to explore new opportunities and innovate together. eBay Inc. does this by providing the Internet platforms of choice for global commerce, payments and communications. Since its inception, eBay Inc. has expanded to include some of the strongest brands in the world, including eBay, PayPal, Skype, Shopping.com and others. Can you discover a different business model or can you uncover a hidden business model that will change the way you do your business better?
Management Insight #9:
Developing Strategy Before the Right Structure and Performance
There are no permanently great companies or industries. Instead, there are great strategic moves that propel businesses to move forward and find blue ocean opportunities. Strategic value innovation (SVI) is the first component of BOS, and thus it provides the strategy formulation and implementation framework. In today’s SVI paradigm, strategy is developed first, then the structure and enabling systems and processes follow. So, make sure you don’t put the cart before the horse in your BOS development.
Management Insight #10:
Competitors Becoming Collaborators and Allies
As customers are fast becoming our competitors, there may be a need to establish some form of collaboration or alliance with your traditional competitors. “Alliances are where the real growth is” – this challenging assertion comes from the late Peter Drucker, which in no way includes mergers and acquisitions in the statement. Most are not alliances, and according to Drucker, do not in themselves win real growth. Rather, many are costly efforts to counter adverse commercial trends in the hope (often disappointed) that just being bigger will somehow mean being better at winning the competitive wars. Plastics moulders Nypro, for example, is so integral to Johnson & Johnson’s soft contact lens business that even their computers are linked. In telecoms and IP technology, British Telecom likewise seeks strong umbilical relationships with customers to whom it acts as the main supplier.
Management Insight #11:
Re-inventing the Customers
By understanding their customers’ needs, companies need to constantly re-invent their customers. Novo Nordisk, the Danish insulin producer that created a blue ocean in the insulin industry, realised that it could break away from the competition and create a blue ocean by shifting the industry’s longstanding focus on doctors to end-users – the patients themselves. In focusing on patients, Novo Nordisk found that insulin, which was supplied to diabetes patients in vials, presented significant challenges in administering. Vials left the patient with the complex and unpleasant task of handling syringes, needles and insulin, and of administering doses according to his or her needs. Needles and syringes also evoked unpleasant feelings of social stigmatism for patients. And patients did not want to fiddle with syringes and needles outside their homes, a frequent occurrence because many patients must inject insulin several times a day. This led Novo Nordisk to the blue ocean opportunity of NovoPen, launched in 1985. NovoPen, the first user-friendly insulin delivery solution, was designed to remove the hassle and embarrassment of administering insulin. Have you discovered your own invention or equivalent of the NovoPen?
Developing and implementing your BOS to create demand through strategic value innovation and elative destruction can help your company recognise hidden opportunities and the need to constantly reconstruct your business. This will allow you to break away from head-on competition, in order to create and maintain an uncontested market space of high customer value.
This includes the whole leadership gamut from strategic value analysis, formulation, implementation and involving organisational change and staff motivation, which hopefully, can give you the first mover advantage and respite in the blue ocean before the others catch up and turn it into red oceans again – which means you will need to constantly search for your next blue ocean while you are enjoying the present one momentarily.
