Redefine your market boundaries

A company competes not only with the other firms in its own industry but also with companies in those other industries that produce alternative products or services, avers Uday Arur

Uday Arur

In my corporate avatar, I had a boss who had a brilliant sense of humour. Once at lunch, the talk turned to business diversification and a recent news item of an industrialist who had branched out from poultry farming to airlines. My quick-witted boss saw it, as logical extension of business - birds he said, were common to both! (‘Birds’= airplanes)

Humour is about seeing intuitive relationships between disparate events or issues and a similar kind of thinking is what authors Kim and Mauborgne suggest in their book ‘‘Blue Ocean Strategy’’.

Building on the metaphor of Red Ocean thinking (close to the shore, thinking within defined boundaries) and Blue Ocean thinking (wide ocean, boundary less thinking), they recommend six paths to expanding the horizons for a whole new market opportunity.

Just as my boss intuitively captured ‘birds’ as the common factor between the poultry and airlines business, managers need to drill down to the common factors between seemingly unrelated businesses to come up with opportunities between the spaces.

Like most new management ideas, the blue ocean thinking builds on the earlier idea of defining the business purpose/vision in a broader manner. Readers will recollect that Charles Revson many decades ago defined the purpose of his Revlon cosmetics business as ‘‘selling hope’’.

Like most new management ideas, the blue ocean thinking builds on the earlier idea of defining the business purpose/vision in a broader manner

The authors research suggests that most companies hypnotically build their strategies on the following six assumptions, keeping companies trapped competing in red oceans. Specifically they are:

• Define their industry similarly and focus on being the best within it
• Look at their industries through the lens of generally accepted strategic groups (such as luxury automobiles, economy cars, and family vehicles), and strive to stand out in the strategic group they play in
• Focus on the same buyer group, be it the purchaser (as in the office equipment industry), the user (as in the clothing industry), or the influencer (as in the pharmaceutical industry)
• Define the scope of the products and services offered by their industry similarly
• Accept their industry’s functional or emotional orientation
• Focus on the same point in time—and often on current competitive threats-in formulating strategy.

The more companies share this conventional wisdom about how they compete, the greater will be the competitive convergence among them.

To create blue oceans, managers need to look systematically across instead of within the accepted boundaries. They need to look across alternative industries, across strategic groups, across buyer groups, across complementary product and service offerings, across the functional-emotional orientation of an industry, and even across time. This can give companies keen insight into how to reconstruct market realities to open up blue oceans.

Looking across alternative industries

In the broadest sense, a company competes not only with the other firms in its own industry but also with companies in those other industries that produce alternative products or services. Alternatives are broader than substitutes. Products or services that have different forms but offer the same functionality or core utility are often substitutes for each other. On the other hand, alternatives include products or services that have different functions and forms but the same purpose.

For example, to sort out their personal finances, people can buy and install a financial software package, hire a CA, or simply use pencil and paper. The software, the CA, and the pencil are largely substitutes for each other. They have very different forms but serve the same function: helping people manage their financial affairs.

In contrast, products or services can take different forms and perform different functions but serve the same objective. Consider cinemas versus restaurants. Restaurants have few physical features in common with cinemas and serve a distinct function: They provide conversational and gastronomical pleasure. This is a very different experience from the visual entertainment offered by cinemas.

Despite the differences in form and function, however, people go to a restaurant for the same objective that they go to the movies: to enjoy a night out. These are not substitutes, but alternatives to choose from. In making every purchase decision, buyers implicitly weigh alternatives, often unconsciously. The thought process is intuitive for individual consumers and industrial buyers alike.

For some reason, we often abandon this intuitive thinking when we become sellers. Rarely do sellers think consciously about how their customers make trade-offs across alternative industries. A shift in price, a change in model, even a new ad campaign can elicit a tremendous response from rivals within an industry, but the same actions in an alternative industry usually go unnoticed.

Opportunity however, often lies in the space between alternative industries providing opportunities for value innovation. With the new patent regime in force, blue ocean thinking could help throw up the crucial differentiator in strategy - the strategy that could make all the difference.

The writer is a business coach practicing in Mumbai.

E-mail: udayarur@columnist.com