W. Chan Kim is The Boston Consulting Group Bruce D. Henderson chair professor of Strategy and International Management at INSEAD, France, and co-author of the internal bestsellers Blue Ocean Strategy and Blue Ocean Shift. In an interview, he discusses how choosing the right out-of-the-box strategy holds the key to future growth and survival for companies across the globe. He spoke to Mint in a recent visit to India. Edited excerpts:
What motivated you to write Blue Ocean Shift more than a decade after writing Blue Ocean Strategy?
Let me start with the motivation of the first book. When you look at the history of industrial evolution all the way up, you will realize that someone creates a successful business model, it is always imitated by others which in turn brings competition. Accordingly, the first book divides enterprises into two categories. First are the “Red Ocean" companies and enterprises that operate in defined boundaries and focused on beating the competition in a highly competitive environment. The other category is of “Blue Ocean" companies which are focussed on creating new opportunities and markets for growth. In my opinion, corporate strategy has been for the longest time focussed on competing and not creating. There was no systematic framework, no defined thinking process and no serious methodology.
Blue Ocean Strategy was written in 2005 on the universal strategy of creating a new world of opportunity. The second book evaluates whether the Blue Ocean Strategy is applicable to all categories of companies, sectors, governments and individuals. For that, we needed to study a broader set of industry participants to understand whether it is generalizable. Also, we wanted to see whether companies have used the Blue Ocean Strategy and whether they became a failure or success. In the process, we wanted to conclude if there can be predictability around companies which implemented it. It took us 10 years to understand and collect empirical data.
What does it take for a Red Ocean company to become a Blue Ocean company? What are the key challenges?
To answer this question, we had to look across sectors and companies. Blue Ocean Shift has examples of companies which have done it successfully. We found three common patterns for successful companies which are perspective, dynamism and humanness. Companies should have a defined road map for transformation, they should be dynamic and they should be focussed on the transformation of human attitude to critical management decisions. Humanness is important because competition in a way is comforting. This is because you are already aware of the best practices against which you can always benchmark yourself. But there needs to be collective confidence when it comes to exploring the unknown.
What role do cultures play in creating successful companies? Why do we see some geographies producing more successful companies than the rest?
Strategy is subject to interaction among people in the context of culture where universal principles regardless of human races are same which are justice, dignity and fairness. But at the same time, details of execution must be customized according to the market.
Do you have any observation about India? What are the key takeaways for Indian companies from the Blue Ocean Shift?
India is different and so are the attitudes. But irrespective of culture, companies need to understand the common factors across the world. Indian managements often say that “This is how we do it in India" and they are rightly proud of their culture. But if Indian companies are able to integrate different cultures within the country, they should be able to replicate the same at a global level.
The idea is to look for more commonality instead of focusing on difference. Irrespective of local culture you need to understand what’s out there in the world.
When a company reaches the Blue Ocean stage, what does it need to do to remain there?
Many people ask me this. Once you create a Blue Ocean, how long does it exist? My answer is that it depends on the industry. Is it a capital-intensive one or is it a sector with low entry barriers? In general, Blue Oceans do not exist forever. There will be always someone who will come and imitate you which will give rise to competition and diminishing returns in due course.
Therefore, Blue Ocean state is a repeated process and it’s often the time to shift when competition grows. If you are a big company, you may remain in a state of both Red and Blue Ocean states. Ideally, some portfolios should be holding cash flows for the present while a Blue Ocean Shift will bring growth in the future, but may need cash for short term. How corporations set aside portfolios to manage cash flows and growth are the most important factors here. You need a good and balanced portfolio to manage future growth and everyday cash needs.