Turbulent times have hit for any kind of organization whether in public or private sector irrespective of the type of economy i.e. developed or developing. Deceleration in growth rates of gross domestic product (GDP), consumer expenditure and international trade has put corporate earning into a tailspin. At the same time, the competition for the share of the consumer's wallet becomes more severe. This competition makes the market bloodier and intense. Now the businesses left with no option to increase their market share by seeking opportunities in new geographies where they face challenges by local firms and early-bird multinationals. These businesses would limit their white space for business and provide limited scope to them. According to the well-known authors and management thinkers, W. Chan Kim and Renee Mauborgne, 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. Blue Ocean in contrast is defined by untapped
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market space, opportunities for highly profitable growth and possibility for new demand creation.
According to business.gov.in Outsourcing dates back to the 1960s from where it has grown to different levels from the time-sharing data process model to business process outsourcing (BPO) and then to knowledge process outsourcing (KPO). ). Recently, companies have adopted a business strategy of outsourcing entire business activities, such as technology operations, customer relationship, logistics, finance, document processing, etc. The history of outsourcing started in the United States, when it was struck with economic stagnation and rising inflation rates. Since, then the US companies started outsourcing their service related jobs to cheaper locations to regain their profitability.
Globalization of economies supplemented by technological advances has led to the evolution of the outsourcing industry in India. After the flourishing of information technology (IT) in the late 1990s and 2000s, outsourcing has spread to Indian States. US companies started outsourcing information technology activities to low cost locations in India. Some of the companies also started their offshore facilities in India. The internet business boom is the main drive for this success. Especially two Asians giants China and India are the leaders in providing outsourcing services to the American industries.
India has been known for its huge talent pool and has proved to be one of the most significant destinations for global companies to outsource their back office operations. Due country's additional edge in knowledge based services, India has emerged as a favourite destination for outsourcing of knowledge processes too. Over a period of time, the industry has touched everyone from market researchers to accountants to medical professionals. Now BPOs have also started high end consulting jobs.
According to the Hindu-Business Line, a leading newspaper, the year 2012 has been a landmark year for the Indian outsourcing industry. The outsourcing companies not only weathered business uncertainties but also helped clients globally tide over the current crisis through the effective use of technology. It was especially heartening to note the outsourcing industry's growth and increasing maturity. In just over a decade, the industry has grown to nearly $11 billion in export revenues. It employs over 7 lakh people and accounts for 35 per cent of the global outsourcing market. In fact, for companies such as Tata Consultancy Services and Infosys, the growth from the BPO sector has been spectacular every quarter.
As we are entering into extremely increasing maturing stage of this industry, Indian Outsourcing Industry has taken a strategic towards adoption of BOS (Blue Ocean Strategy).
Understanding the 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'.
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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 buyer's value perception for the product.
Some Examples of Companies of Indian Outsourcing Industry succeeded in creating Blue Ocean by extending beyond well known boundaries of Red Ocean
HCL-Case Study of Adopting BOS to beat Competiton
2005 was a year of make over for HCL as the baton passed from founder Shiv Nadar to Vineet Nayar as CEO. Vineet Nayar adopted the Blue Ocean Strategy immediately and his four pronged strategy focused on service innovation, pricing innovation, creation of new markets and technology disruption. Also he adopted the policy of Employee First philosophy and full service co sourcing model. The company saw revenue YoY growth of 26 %( 6200Cr) in 2007-08, 41% (8764Cr) in 2008-09, and 25% (10983Cr) in 2009-10 under the leadership of Vineet Nayar as CEO. It has been an up and down performance during the time where financial crisis and recession played a spoil sport. Company still sticks to the Blue Ocean Strategy.
2009 was year when recession was at its peak when even the Indian IT vendors were handing over pink slips to the employees. HCL's Employee first and Customer Second Philosophy helped them to grow in recession and also gain the No.1 spot in employee satisfaction. HCL invited ideas from employees and launched the cost cutting exercises with the support of employees. Employees actively participated in increasing the revenues from existing customers by their value addition and significant commitment. SAP offerings also played a crucial role during this time.
Given the current market environment, while most of HCL's peers were pretty cautious, the IT major added almost a USD 1 billion in new businesses. There is a lot of opportunity in the churn with about USD 40-45 billion of contracts coming up for year 2012.
Inspite of Ups and Downs, the companies keep committed to its principle of BOS, IT services global market is a trillion dollars and Indian players account only for 3% to 4% of that. Therefore the company decided that it would not compete against the Indian Service providers. Then it starts looking at the weak bottom of internationally acclaimed players such as IBM, and the HPs having hugely frustrated customers and that the opportunity was called a total idea outsourcing market opportunity. No one from the Indian service provider has dared to get into that market because it was dominated by International players. So the company bet upon this and the return of this bet is remarkably high as already shown above. So that was the Blue Ocean strategy they adopted and succeeded incredibly
Infosys Technologies India- Initiative to Overcome Slowdown with BOS
K V Kamath took over as the chairman of Infosys in August'2011, and talked about a 'Blue Ocean' strategy with focus on healthcare and government verticals, and expansion into emerging markets India and China. Infosys revenues from healthcare (1.1%) and government (1.3%) verticals are negligible compared to BFSI (30%), Telecom (15%) and Manufacturing (10%). Healthcare and Government verticals are very critical for Infosys to maintain growth as US government announced a major healthcare spend (US$ 40bn by 2011- Total US$100 bn) and Indian Government is spending around rupees 30,000 crore on various IT projects across departments in 2011
According to Blue Ocean Strategy, for Infosys, Government Vertical is an un-entered market and focus on this segment will lead to revenue growth. Recently Infosys has bagged the Rs 700-750 crore financial services systems integrator contract from the Department of Posts (DoP) and 'rural information and communications technology system integrator contract, worth about Rs. 100 crore (Rs. 1 billion). Infosys is looking at public sector contracts in UK and other European countries, which Infosys avoided earlier due to complex contract liabilities and present pricing models don't work.
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Healthcare is the second focus vertical according to Infosys Blue Ocean Strategy. Infosys has established a separate subsidiary in the US for serving government and healthcare customers in 2009. Sources are reporting that Infosys is about to acquire Thomson Reuters' healthcare division in a US$700-750 million transaction in US which will be the best option for Infosys to gain revenues in this vertical segment instantly. Health care segments require domain expertise, involves regulatory compliances and work is complex. Apart from US, Infosys is searching for acquisitions in Europe and Japan and in both industries healthcare and public services.
Expansion in China and India is another Blue Ocean Strategy of Infosys. Accordingly Infosys is planning to increase the headcount at its India business process outsourcing (BPO) unit by five-fold to 2,000 in one year. In China, Infosys is planning to triple its staff headcount to 10,000 in 2-3 years. Infosys has to focus on this strategy, as US and Europe are facing economic slowdown and debt crisis and businesses and governments in this regions are slowing down their IT spend. To overcome this scenario this seems to be the best strategy not only for Infosys but all other Indian IT vendors
Blue Ocean Strategy (BOS) - Samsung Electronics 2006-2011
Value Innovation, first component of Blue Ocean Strategy is Samsung's primary tool for product development. Value Innovation Program centre was started in 1998 and by 2004 the centre was playing a very key role in rapid growth of Samsung to become the world's top consumer electronics company. Many cross-functionalÂ Blue Ocean project teams were at work,Â and had ingrained the approach inÂ the corporate culture with an annual conference presided over by their entire top management. One of the key successes of VIP centre was, within five years of entering the mobile phone market, in 2003 Samsung has become the No2 player in the mobile phones market.
Samsung BOS strategy has also helped it to maintain top position in TV market (since 2006-2012), Global; LCD panel market since 2002. BOS is still at the core of the Samsung product strategy and company has been able to make the necessary adaptations according to the business environment and changing consumer preferences. In 2006 Samsung launched Market Driven Change (MDC) where its focus was on the consumer insights and how to develop better and new products using consumer insights. One of the successful results of the MDC was Flat panel LCD TV Bordeaux. This TV has played a crucial role in Samsung overtaking Sony in the LCD market. In 2007 Samsung keeping focus of teenager customers has launched a store in the Second Life Site. The virtual space will be used to showcase range of mobile handsets to teenagers the future consumer group, in a competition-less way.
2008 has been a tough year for Samsung as the Chairman of the group was indicted and forced to resign on tax evasion charges. Samsung also failed to acquire SanDisk, the flash memory giant. Fall in sales of microchips and TVs has hit the company badly due to recession. Early 2009 Samsung merged its LCD (liquid crystal display) and semiconductor business into one business unit called Device Solution Business. It is also merged its digital media and its telecommunications business into one business unit, called Digital Media & Communications Business. Samsung launched green management initiative that is intended to make Samsung a leading eco-friendly company by 2013. The 'Eco-Management 2013' plan seeks to reduce greenhouse gas emissions from manufacturing facilities by 50 percent, and to reduce indirect greenhouse gas emissions from all products by 84 million tons over five years.
2009 also saw Samsung enter into Mobile OS market with launch of its own open mobile operating system, called "bada," whichÂ can be used to develop applications for Samsung phones. Samsung launched mobile phones Wave based on Bada platform along with its first smart phone on Google's Android platform - Samsung Galaxy. The company plans to bring down smart phone prices significantly. Samsung launched 3D LED TVs and at a premium pricing and changing the home entertainment experience from 2-D to 3D.
2010 saw Samsung launching a a new tablet PC named Galaxy Tab as the latest device meant to rival Apple Inc.'s popular iPad. Samsung is still innovating in a big way and it still relies on a basic assessment: product's competitiveness is everything, and it must be kept away from price wars.
2011 Samsung Electronics has a diverse business portfolio which consists of Digital Media & Communications which encompasses the business units that manufacture and sell digital TVs, monitors, computers, mobile phones, communication systems, air conditioners, refrigerators and other appliances; and Device Solutions which includes businesses that specialize in semiconductor memories, system LSI, LED and other products Thanks to market growth in high value LED TVs, the Consumer Electronics businesses under Digital Media & Communications had yet another successful year making Samsung Electronics the top selling TV brand for the sixth consecutive year. Sales from Mobile Communications, also under the Digital Media & Communications umbrella, increased sharply by KRW 15.4 trillion thanks to strong smartphone sales.
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, 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.