Chart limitless growth in a blue ocean

Blue Ocean is a business strategy that promises a systematic approach to make competition irrelevant. But it does not mean you should throw away all you have and jump into new "Blue Ocean" markets.

Dr Zunaira Munir, managing partner of Strategize Blue, a San Diego-based consulting firm, said Blue Ocean aims at creating new demand in the market. But, she said, it is not advisable that companies leave their old businesses and jump into the new territory.

"Some misunderstand that with Blue Ocean, you can forget about competition. It [competition] will always  be there," she said. "Blue Ocean is complementary. Companies should go for a mix of portfolios. You should keep your cash cow [businesses]."

The Blue Ocean strategy is the result of a study of 150 strategic moves spanning more than 30 industries over 100 years. The study was conducted by Insead professors W. Chan Kim and Renee Mauborgne. They wanted to know how to create uncontested market space. The strategy received an overwhelming response by the world business community, and the book "Blue Ocean Strategy" went on to be a "Guinness Book" record-holder, with editions in 41 languages having been published since 2005.

Sometimes, Blue Ocean is confused with a segmentation strategy. While segmentation means gearing toward a specific group of customers within the market, Blue Ocean is the "de-segmentation" of the market, or the creation of a new, unknown industry. "Blue Ocean is supposed to be deep and big," Munir said at a seminar organised by AIM Inlines on May 14.

The cornerstone of Blue Ocean is "value creation" - for your company and the buyers. Companies that like to escape the bloody competition in the "Red Ocean" and wish to expand into the Blue Ocean have to find ways to increase value for the "buyers", who comprise customers and "non-customers". And all this is while simultaneously seeking to cut costs through elimination of things that do not really add value to the buyers.

To implement a Blue Ocean strategy, companies must analyse what really are the values of customers and non-customers, regardless of common beliefs prevalent in the market.

For example, in the hotel industry, every hotel will look at the standard of things such as eating facilities, lounge appeal, architecture aesthetics, room size, furniture, silence and price its rooms by the quality of these components.

Formule1, a low-budget French hotel, had eliminated most of the industry-norm qualifications - it had no lobby, receptionist, restaurant or architectural aesthetics, for instance. It built a hotel that was simply a nice place to sleep. That was because it had found that the real value "non-customers" of traditional hotels wanted in a hotel comprised hygiene, bed quality and silence.

"Blue Ocean is differentiation and low cost. [That is] high value for both the company and the buyers. Not low price. But in the Red Ocean, it's either differentiation or low cost - the company that can't be differentiated has no other choice but to cut its costs to survive competition," Munir said.

The Nintendo Wii, which surpassed Google and Microsoft in terms of profits per employee, has been swimming in a clear Blue Ocean as well. Every other video-game company, including Sony's PlayStation and Microsoft Xbox, moved toward higher-resolution graphic interface, more technologically advanced gaming experience, ever-higher processing power, and focused on young male customers primarily.

But, Nintendo Wii was cleverly designed to appeal to mothers, the elderly and young female customers. Its simple-to-use-console games have made it possible to attract this group of customers who are traditionally non-customers of the gaming industry and Nintendo has benefited from lower costs and high product margin.

Also, more games can be played with Wii unlike with the Xbox and Play Station, the new version consoles of which have gone so advanced they cannot be used with the old games, Munir said. "Sony lost US$250 [Bt8,018.5] on every console it sold because it spent huge sums on R&D [research and development], and made money from the [software] games sold afterwards. Each Wii makes US$50 because it's just a simple machinery."

Blue Ocean is not just for new products or businesses, it can also be applied in the management of a country, like in the case of Malaysia, or in process management, including supply chain and CRM (Customer Relationship Management).

Actually, the Indian Blue Ocean expert thinks the strategy can be applied to anything that has a problem, including your career development and even your relationships.

"One of my classmates at Insead went to see professor Kim saying he had a big problem because he became the only one who had no girlfriend. The professor said he should draw the value factors ... of what girls are looking for, what his friends are offering and what he was lacking. There is a systematic way to see what you have to eliminate and create," she said.

To find a "value gap" in the market, companies should look at the use of its products and, importantly, all the stages of the buyer-experience cycle, which include purchase, delivery, supplements, maintenance and disposal.

To implement a Blue Ocean strategy, companies must first ask whether there is exceptional buyer utility in the business idea. "If it makes the buyer say, 'Aha!' that's the first step," Munir said.

Then they need to ask whether the price is easily accessible to mass buyers, and if the answer is yes, then the next question is can the companies attain their cost targets to profit at their strategic price. After that, the other things the organisations must know are the hurdles in actualising the idea. And if all answers are "yes", it is, perhaps, a commercially viable Blue Ocean idea.