Ninth AIMS International Conference on Management

January 1-4, 2012

Blue Ocean Strategy A Critical Analysis of Application on Indian Companies

Smita Shukla smitashukla_in@yahoo.com University of Mumbai, Mumbai
Blue Ocean Strategy which is much discussed strategic approach that needs to be followed by such companies that wish to beat the market competition. The paper analyses the practical application of Blue Ocean strategy in case of Indian companies. This paper also discusses the risk factors/negatives associated with the emergence of application of Blue Ocean Strategy in India/worldwide.

1. Introduction
According to the well-known authors and management thinkers, W. Chan Kim and Renee Mauborgne, the only way to beat the competition is to stop trying to beat the competition. According to them, the entire market universe can be divided into two oceans: Red Ocean and Blue Ocean. Red Ocean is representative of all such industries/products which already exist and are thus representative of the known market space. Blue Oceans denote the industries/products not in existence today. Blue Oceans thus represent the unknown market space. In the Red Ocean industry boundaries are defined and well accepted. This means the existing competition is well known in the market space and the players in the market try to outperform their rivals to get greater share of the existing market demand. As existing market space gets crowded prospects for good profit and growth in future are reduced. Products then lose their distinctiveness and become regular commodities resulting in cut throat market competition thus turning Red Ocean more red or bloodier. Blue Ocean in contrast is defined by untapped market space, opportunities for highly profitable growth and possibility for new demand creation. [1]

2. Understanding Creation of Blue Ocean

According to the W. Chan Kim and Mauborgne, most of the blue oceans that are created emerge within the existing red oceans by expanding existing industry boundaries. However some blue oceans can also be created well beyond existing industry boundaries. The companies which are located in the Red Oceans follow conventional approach to beat the completion by building up defensible position or by out-competing the rivals within the existing industry order. This, however many a times, leads to creation of situation in which supply exceeds the demand in the industries which are involved in the competition leading to a scenario under which the future market share and profits of the competing firms starts contracting. On the other hand companies operating in the Blue Ocean do not try to fight competition but try to look beyond the existing competition. In other words, instead of focusing on beating the competition the company focuses on making the competition irrelevant by creating leap in the value for the customers and the company via creation of new uncontested market space. Kim and Mauborgne call this as Value Innovation. [1] Value Innovation gives equal importance to creation of value and innovation. According to Kim and Mauborgne, value without innovation tends to focus only on value creation on incremental scale. This means that change leads to only some improvement in value but is not sufficient enough for the companies to stand out in the market space. On the other hand, innovation without value tends to become a technological change or a futuristic concept or a business improvement holding little market value in the sense that outcome of innovation may be such that the customers are not be willing to accept and pay for the innovation. Thus, according to the Kim and Mauborgne, value innovation occurs only when the companies are able to align innovation with utility, price and cost. Value Innovation is thus such innovation which leads to reduction in cost of delivering the new product and at the same time enhances the buyers value perception for the product. [1]

3. Some Examples of Indian Companies that succeeded in creating Blue Ocean by extending the Known Boundaries of Red Ocean Market Space
Maruti-Suzuki Maruti Udyog Limited (MUL) was established in the year 1991 as a joint venture between the Government of India and Suzuki Motors. The company launched first small car in India, Maruti-800 in the year 1983. Maruti 800 was based on Suzuki Alto Kei car. With the launch of Maruti-800, MUL was able to create a Blue Ocean with the known four wheeler automobile market space. At that time the known or existing competition in four wheeler market space in India was from only two companies Hindustan Ambassadors and Premier Padmini. Both the competitors were offering to the customers outdated technology and models. Thus Maruti 800 was 1325

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successful in creating a revolution in the Indian car market. It was able to offer to the customers what they wanted with suitable innovation in the Indian car market. Maruti-800 soon became the largest selling car in India and the company (Maruti Suzuki India Limited) became the largest player in the Indian four wheeler automobile market space. The company, till date, on account of the value innovation it introduced, is still the company with the largest market share in the four wheeler automobile category in India. [5] Air Deccan Air Deccan, the first low fare-no frills airline line company in India, was established in the year 2003 by Captain Gopinath under the company name Deccan Aviation limited. It initiated its operations with regular scheduled flights from Banglore to Manglore and Hubli. It soon included other hubs as well in its regular flying program. Air Deccan also became the first private airline company in India to include Airbus aircraft A320 in its fleet. Air Deccan ruffled feathers of existing market players by successfully offering Air fares as low as Rs. 500 plus taxes. Air Deccan created revolution in the aviation industry by making it possible for the common man to avail aviation services on account of its low fair-no frill offer. Air Deccan changed the rules of the game/competition in the aviation industry and forced other aviation companies to rethink on their strategies. [6] ICICI Bank ICICI bank was promoted by ICICI Limited, an Indian Financial Institution, in the year 1994 as wholly owned subsidiary of ICICI. The shareholding of ICICI in the ICICI bank was reduced to 48% by a public offering of shares of the Bank in the year 1998. In the decade of 2000, ICICI and ICICI bank in wake of emerging opportunity to create Universal banking entity, decided to merge ICICI with ICICI Bank. The Process of merger was completed by the year 2002, resulting in emergence of first Universal bank in India. Varied operations of ICICI and ICICI and ICICI bank, whether wholesale or retail were thus brought under one entity ICICI bank. ICICI Bank, thus became, first Universal bank in India which also revolutionized the concept of banking in India. ICICI bank besides offering number of banking services under one umbrella also became first bank in India that pushed the concept of internet banking very aggressively in the Indian market space. ICICI Bank had an internet banking platform in place since 1994 which it used effectively to gain dominant position in the Indian Banking space. It also became the first bank in India that focused aggressively on Retail loan portfolio to build up business opportunities for the bank. On account of its stance and innovation like installing machines like Cash Acceptor, its branchless banking initiative known as B2, its technology product like Money to India which now is known as Money to the World, its mobile banking initiative iMobile etc, ICICI bank has not only been able to become but also retain its position as largest private sector bank in India. [7] TATA Motors Ratan Tata shocked Indian automobile sector with his announcement to introduce in Indian market, a car costing only 1, 00,000 Indian rupees. TATA Motors delivered its promise by subsequently launching basic version of Nano at 1, 00, 000 Indian rupees on 23rd March, 2009. Nano is most inexpensive car in the world. The company was able to deliver its promise on account of the considerable innovations it was able to introduce. Company was able to create a car model which used less steel in the car body and engine. The company ensured that car design ensured ample seating space for four adults in the car. The company was also able to ensure good fuel efficiency in the Nano. TATA Motors subsequently filed for 34 patents associated with the design of Nano. TATA Motors instead of focusing on top 15% to 20% of Indian population (in terms of their income capabilities) focused on that section of population that travelled by two wheelers and had low spending capability. The company was able to meet the dream of Indian masses to own a four wheeler vehicle. TATA Nano, in Indian market today is being hailed as Peoples Car. At the time of launch, Nano was able to create the same magic which was created by Maruti 800 post its launch in the year 1983. [8] Now, it is another story that post launch of Nano and its initial few months of being there in the market, Nano is finding it hard to push up its sales further. For the same, the company is now coming out with innovative marketing strategies and financing schemes in India. Micromax Till early 2008, Indian mobile handset market was dominated by players like Nokia, Samsung, LG, Sony Ericsson, Motorola etc. The market was ruffled by entry of Micromax. The company came in with product offers that were in the range of Rs. 1, 500 to Rs. 2, 500. Initially the company focused on small towns and rural market but soon it started to focus on building brand image and product portfolio which attracted all. Micromax is now Indias third largest GSM mobile phone vendor. Following value innovations by Micromax helped the 1326

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company to beat the competition: (a) increasing the battery size thereby leading to long lasting battery power. This innovation was extremely suitable for those areas in India which are suffering from erratic power supply (b) Launch of dual SIM and dual reception (GSM and CDMA) handset in the market even before world leader Nokia was able to do so in India (c) Introduction of high technology and good quality handsets, that is handsets with touch screen application or handsets with Android application at very low prices in India, (d) Micromax also introduced mobile phones with Qwerty keyboards in India at very reasonable prices (e) Building strong dealer network. The company has an estimated over 75, 000 retailers in India today. The company offers an estimated 5% commission to each of its distribution chain partners [9]. All the above have insured that a little known Indian mobile handset manufacturing company has been able to beat the existing competition in India via creation of Blue Ocean within known Red Ocean market space.

4. Some examples of Indian Companies and their Products that represent creation of Blue Ocean in Unknown Market Space
Shaadi.com Shaadi.com was started by Anupam Mittal on account of his chance encounter with a marriage broker. Anupam Mittal understood that success of a marriage broker was dependent on his/her ability to match matrimony requirement of parties or families based far and apart from each other. A chance of good match making was dependent on the ability of the marriage broker to travel and communicate far and wide. It was also dependent on hi or her social clout. Mr. Mittal, thus, decided to use internet as a medium to do such match making thereby removing the geographical barriers applicable on regular marriage broker or match maker. Today, Shaadi.com is the largest matrimonial website in the world with over 20 million registered users. Shaadi.com is a unique company and has succeeded in creating Blue Ocean in the unknown market space never tried before. [10] FabIndia FabIndia is a unique retail venture in India based on ethnic Indian craftsmanship and clothing. FabIndia has succeeded in creating Blue Ocean in unknown market space. John Bissell, who had worked in India as a consultant for the Ford Foundation, founded FabIndia in the year 1960 to showcase Indian handloom textiles to the world. He opened the flagship Greater Kailash (New Delhi), store in 1975 to retail home furnishings. The store subsequently expanded into garments. At that time, the business of FabIndia largely catered to overseas buyers. William Bissell, son of John, took over as managing director of FabIndia in 1999 and today heads a network of 87 stores in 39 cities in India as well as its branches in Rome, Dubai and Guangzhou with a turnover in excess of Rs 3 billion. FabIndia works closely with the artisans and villagers to develop designs and colour palettes and to optimise production techniques and raw material inputs. For the textiles, mostly natural fabrics and vegetable dyes are used. FabIndia sources its products from around 22,000 craftsmen and artisans across India and has a plan to increase its supplier base to 100,000 in the next few years. Today FabIndia has expanded beyond textiles into furniture, stationery, pottery, organic foods and body care products etc. All merchandise is sold under the single FabIndia brand and the company owns all its stores as W. Bissell feels this helps the brand to maintain its identity. [11]

5. Some Examples of Global Companies that succeeded in creating Blue Ocean in Known/Unknown Market Space
There a several global companies which have been successful in creating Blue Oceans by expanding either the known market boundaries of the Red Ocean or by creating the Blue Ocean in the untapped or unknown market. Some examples of such companies are: Apple Computers On April 1, 1976, Apple Computer was born. Steven Wozniak, a high school drop-out who worked for HewlettPackard and dabbled in computer-design created what later became the Apple I computer. His high school buddy Steven Jobs, also a high school drop-out, convinced Steven that the two should form a company to market the new computer, which eventually took off in 1977 with the Apple II. There are very few companies in world that have an interesting past as Apple Computers. The company at one point of time in its history, lost majority of its market share and was on the verge of liquidation. However, the company came back by reinventing itself and the concept of computers. Apple is a company that has invented many products that have revolutionized the entire computer industry. iPod, iTunes, iPhone, iPad etc are some classic examples of success of Apple Computers. Under the leadership of Steve Jobs the company was able to create many Blue Oceans within the IT Industry. [12] 1327

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Amazon.com Amazon.com, founded by Jeff Bazo in the year 1994, became on of the first e-commerce companies in world that achieved phenomenal success in market. The concept of Amazon.com was based on the idea of selling books online. Amazon today is serving around 137 million customers every week. The revenues of the company are over USD 34 billion currently. [13 and 14] Google.com Larry Page and Sergey Brin started Google in the year 1997-98. The company has been able to maintain its position of being one among the most powerful internet search engines available till date in market. Over the years, since its inception, Google has been releasing a steady stream of innovative tools and services - some of them developed in-house, many others bought in from start-ups: Gmail, Google Docs for word processing and spreadsheets, Picasa for picture editing, Google Earth and Maps for location-based search and display of information, Blogger, YouTube's video service etc. The list is seemingly endless. Above has ensured that company that succeeded in creating Blue Ocean has been able to keep it blue for years altogether till now. [15 and 16] Other global companies which have received success in creating blue Oceans in the known or unknown market space have been companies like Yahoo, eBay, Facebook, IBM, Samsung etc.

6. Challenge in front of Indian Companies

Though there have been some Indian companies, which have succeeded in creating blue oceans in the known or unknown market space, still it can be safely stated that Indian companies are short of matching the success stories that have been created by companies in the western or the developed markets. A major reason for the same is lack of focus of Indian companies on innovation and research and development. Indian education system and culture focuses more on theory than experimental learning. This tends to create risk-averse business managers and companies. Further, many Indian companies, especially those which are family managed businesses have an established authoritarian approach, whereby managers are expected to follow the orders of seniors without asking too many questions. [2] Thus the biggest challenge in front of the Indian companies is to focus on innovation on the lines of their western counterparts. Some global giants like CEMEX, Pepsi Frito-Lay, Hitachi etc have created position of Chief Innovation Officer (CIO) in their companies and chief innovation Officer directly reports to the CEO (Chief Executive Officer) of the company. CIO ensures that company maintains focus on innovation program as part of the companys strategy for growth. Indian companies thus also need to focus on value innovation to meet the challenge of multinational companies like LG, Sony, Hyundai, IBM etc which are now extremely active in the Indian market space.

7. The Challenge of Blue Ocean Strategy in General

The biggest challenge in front of the companies that have been successful in creating Blue Ocean is to ensure that Blue Ocean stays Blue. This is because success of products of such companies is generally replicated by other companies over a period of time. To quote certain examples, dominance of Maruti-Suzuki was challenged by Hyundai in the 1990s. By the year 2009-10, Maruti also had to deal with the challenge posed by other car companies like Volkswagen, Ford, GM, Nissan etc. Similarly, Deccan Airways was soon challenged by companies/products like Spicejet, Kingfisher, Jetlite, GoAir etc. In the banking sector, ICICI is being challenged by other new age private sector banks like HDFC Bank, Yes Bank, Axis Bank etc in terms of their technology innovations and products. Success of Shaadi.com resulted in growth of similar websites like Bharatmatrimony.com, jeevansaathi.com etc. Successful products of Apple Computers like iPhone, iPad, iPod etc were quickly copied by other known companies in the market. This means that a company that has been successful in creating Blue Ocean has to ensure through regular value innovations that market of its products continues to stay blue. In words of Kim and Mauborgne Creating Blue Ocean is not a static achievement but a dynamic process. Once a company creates a blue ocean and its powerful performance is known, sooner or later imitators appear on horizon. Thus biggest challenge for a company that has been successful in creating Blue Ocean is to ensure that it continues to introduce regular value innovation other wise there is always a possibility that the company will fail in the market soon. It is on account of the above, that Orkut was challenged by Facebook and Facebook still stands tall while Orkut is now dead.

8. References
1. Kim, W. Chan and Mauborgne, Blue Ocean Strategy: How to create uncontested market space and make the competition irrelevant, Harvard Business School Publishing Corporation, 2005. 1328

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2.

3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17.

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