Released by: Manager@Work, The Edge
Date: 24 March 2008
With globalisation, trade liberalisation, technological advancement and commodisation, we now face a different business environment. We were taught to study the dynamics of supply and demand and chase demand with supply once the former has been established. Should we build hotels and related facilities when we have certain signs of tourist demand and arrivals or do we build hotels first and wait
for the influx of these tourists?
There are times when people have relied on their entrepreneurial hunch to take on certain innovative and opportunistic decisions in starting or growing their business. How do they do it?
The old paradigm of competition was to aggressively compete for a bigger share of the same market and mind share of the customers through branding in order to capture greater market shares. Things have changed and today one may need to move and adopt paradoxical thinking to create new demand, market and customers through "break out strategy" (BOS).
The current business environment has resulted in commodisation, when, due to the advances in technology and increase in production capacity, there is oversupply. With people aspiring to be entrepreneurs, there will be a continued source of supply. It has increase manifold and as a result, has created intense competition, prompting a 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 lies in the strategic thinking and moving with the engines of innovation. The following are some management insights on thriving in the new business paradigm.
Creative Destruction.
Destroy and create innovatively. Customers have become very discerning and choosy. In a consumptive society, wealth is measured by what one can afford. The insatiable needs can be met by enterprises that keep creating new and innovative products and services. Apple and Microsoft constantly destroyed their products and created new and innovative products to generate more sales. With Microsoft,
first it was DOS, then Windows and now Vista. Apple came up with the iPod which creatively destroyed Sony's Walkman. So, for your company 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 invent new ones.
Supply-led Innovation.
In the future, one can see that new business growth will be in companies who are constantly innovate as their products become stale and there is oversupply. As American automakers lose market share, Honda and Toyota are soaring on the backs of their high-quality low-emissions vehicles. The trend for clean car technology means companies that can build the best low-emission car will have the best
chance of long-term success and survival. Go, recognise and flow with the innovation trends.
First-mover Advantage.
With innovation, the new tinkers and the managers will need the courage to do the things that are unproven. They will gain invaluable experience through trial and error when creating 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. Its strategy, aimed at saving over US$ 2.8 billion per
year, focuses on VI - the core ingredient in the Blue Ocean Strategy. Start to develop an innovation programme in your company, if you still have not got one.
Learn from Other Industries.
Learning from the processes, uniqueness and other competencies of other industries will enable Malaysian companies and entrepreneurs to look at innovation to create new market and customer. Companies can look forward to achieving strategic value innovation - increasing value and decreasing 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. This is because China's large population offers over 376.38 million customers (as of end-February, 2008).
Paradox of Value Cost Trade off.
Demand is created rather than fought for. There is ample opportunity for growth that is both profitable and rapid. Southern Airlines and AirAsia have successfully eliminate the old mindset by offering flexibility of bus travel at the speed of air travel. They use secondary airports and offer low fares, thus making flying affordable to everyone. Their aim is to maximise profit by constant
innovations in reducing operating costs, which has successfully created a new uncontested market space.
Price Minus Cost
In the cost plus approach, the "pain" of price is passed to the customers. However, in today's oversupply business environment, customers are not prepared to tolerate this, so it has to be borne by the supplier who then has to use the "price minus cost" approach. This ensures the creativity and innovative ways are found to continuously reduce cost to enjoy bigger profit margins. So, continue to
innovate cost down if you want to be profitable.
Create New Markets and Customers.
With technology and other enablers, we can create new markets and customers. With good customer relationship management, you can develop a group of client customers who will tell others about you and your business, while advocates will be bringing other customers to your businesses. Look beyond your market boundaries to look for your non and unexplored customers and developed your existing
customers into "clients and advocates".
Discover and Use Different Business Models.
New entrepreneurs usually use new business models to compete. One way is to launch completely a new business models, like what eBay Inc. did 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. Can you discover a different business models or can you uncover a hidden business models
that will change the way you do your business better?
Develop Strategy First then Right Structure and Performance.
There are no permanently great companies or industries. But there are great strategic moves that propel businesses to move forward and enable find blue ocean opportunities. Strategic value innovation is the first component of BOS providing the strategy formulation and implementation framework. Today the strategy is developed first then the structure. The enabling systems and processes come next.
So make sure you don't put the cart before the horse in your BOS development.
Competitors Becoming Collaborators and Allies.
As customers are fast becoming our competitors, there may be a need to establish collaboration and alliance with your traditional competitors. "Alliances are where the real growth is," said Peter Drucker who was not talking about mergers and acquisitions. Most M&A are not alliances and, says Drucker; do not create real growth. Many are costly efforts to counter adverse commercial trends in the
hope that just bigger will somehow be better at winning the competitive war. Plastics moulders Nypro, for example, are so integral to Johnson & Johnson's soft contact lens business that even their computers are linked.
Developing and implementing your BOS to create demand through strategic value innovation and creative destruction can help your company recognise hidden opportunities and the need to constantly reconstruct your business. This will allow you to breakaway from head-on competitions in order to create and maintain an uncontested market space of high customer value.
Dr Wilson Tay, MMIM, MIM-CPT is CEO of the Malaysian Institute of Management, the national management organisation of Malaysia. MIM invites companies and professional managers to be members. Contact MIM Membership Support and Outreach at (603) 2164 5255 or fax (603) 2165 4681. MIM is currently conducting a programme `Winning With Blue Ocean Strategy' in Kuala Lumpur. For further information on
the programme, please contact MIM Customer Service at (603) 2164 5255 or visit www.mim.org.my or e-mail enquiries@mim.org.my.
