Friday, February 6, 2009

The Global Downturn and the Imperative for Blue Ocean Strategy

Despite the pain, recessions are historically times of enormous creativity and breakthrough business launches. Microsoft, General Electric, FedEx, CNN, and Apple are among the hundreds of companies that created blue oceans during an economic downturn.

Counterintuitively, innovation goes up when the economy goes down. Yet most companies choose to cut spending on innovation during a recession and shift their focus from growth to reservation, waiting out the storm until the economy picks up again. All companies have to cut costs, and invariably 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 evaporates. This is akin to medical patients deciding to reduce their expenditures by not spending money on medication. Innovative thinking is stifled when it is most needed.

Yet, good ideas are not expensive. As buyers are forced to make better choices within limited means, businesses also must make better strategic choices within their limited means. When times are lean both consumers and companies must make smarter decisions. Real customers continue to face real problems. For companies this means they must find ways to create new value, while reducing costs. This is also called Value Innovation: the cornerstone of Blue Ocean Strategy. To achieve value innovation, it is the ideas that matter, not your resources. It's about taking existing market elements and systematically reconstructing them to create significant new value for your customers and your company. As a result, lean times create innovation that is smarter than the innovation that springs from fatter times. They are "smarter" because they are based on ideas - not big budgets, R&D, or technological breakthroughs.

As Stanford economist Paul Roemer has been telling us for years, great advances come from great ideas. Yet ideas do not fall from the sky; they come from people. Every new thing that gives pleasure or productivity or convenience, be it an iPod or tweaks in a manufacturing plant, is the result of human ingenuity. To reiterate, it is during difficult economic times when we are forced to think more creatively how we create growth. Fortunately, Blue Ocean Strategy provides a proven and practical approach to create the ideas that will lead to breakthrough growth through value innovation: dramatically higher value and lower costs.

Professors Kim & Mauborgne have spent the past decade developing a set of analytical tools and frameworks to make the pursuit of blue oceans as methodical, codified, and executable as competing in the traditional competitive landscape. They studied companies around the world and developed practical methodologies in the quest of blue oceans. The ideas, tools, and frameworks used have been further tested and refined over the years in corporate and public sectors practices in Asia, North America, and Europe.

Blue Ocean Strategy, with its actionable frameworks and tools for both strategy formulation and execution, provides companies with a risk minimizing and profit maximizing approach for companies to grow their way out of the this economic downturn. Blue Ocean Strategy applies across all types of industries from the typical suspects of consumer product goods to b2b, industrial, pharmaceutical, financial services, entertainment, IT, and even defense.


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