In search of blue oceans: HCL Technologies

In search of blue oceans:  HCL Technologies

Vineet Nayar, CEO of $1.5 billion IT services company HCL Technologies Ltd, attributes the company’s transformation to Blue Ocean Strategy. Vineet Nayar He says being a services company, rather than a product company, was a real challenge to go off and find ‘blue oceans.’ While at INSEAD for Leadership Summit 2008, Nayar took the opportunity to meet one of the co-authors of Blue Ocean Strategy, W. Chan Kim. Nayar told INSEAD Knowledge that the day he took over HCL Technologies in 2005 someone gave him a copy of Blue Ocean Strategy. He found it on his table and, to this day, he has no idea who gave it to him.    Fortunately, he says, he had a half an hour to spare and started reading the book. The ideas fitted in with his own plans for the company. “I intuitively applied it to the company,” he says, “That’s what I was telling Professor Chan (Kim) and he was amazed by the way we had used Blue Ocean Strategy.” “It had a profound impact on our way of thinking.  So we applied those five principles of Blue Ocean Strategy in our own intuititive way, and it has worked pretty well.” HCL Technologies decided that not only did it have to be in a different business to its competitors, it also had to deliver its business differently. Nayar maintains it’s very easy to create blue oceans of uncontested market space ripe for growth for product companies, predominantly because they are innovation driven.  So it is good, he says, for companies for example that sell computers, such as Apple and Samsung, or sell cars like Toyota. But he adds it’s very difficult for services-related companies where innovation is not necessarily the end product. So, in the Blue Ocean frame of thinking, HCL Technologies switched its focus to value from concentrating on volume. An employee-oriented business Another move was that the company decided to put employees, not customers, first – because employees are the product that customers are buying. A further radical overhaul was linked to the accountability of the CEO. Instead of a ‘command and control’ form of leadership, Nayar adopted a democratic model, where employees remain accountable to the organisation, which he believes is more productive. “An employee is not a tool in the hands of a CEO, but a CEO is a tool in the hands of the employee – if you do that you will unleash the energy of 50,000 employees in the world which is unbeatable!” HCL Technologies has also aimed to make the firm as transparent as possible – so much so, that Nayar is confident that if his employees change jobs they will not find anything to match it. In short, the company’s Blue Ocean Strategy was that it concentrated not on the end product, but on the way it conducted its business. The result was that it evolved as a value-focused company that was completely different to its competitors. “There are some businesses which you will not do, there are some things you will not do, and some things which you will focus on,’ the CEO says. “But those things you will apply and that’s how success comes in.” And the results of these initiatives?  According to Nayar, HCL Technologies’ market capitalisation has doubled since it adopted Blue Ocean thinking. The company is among the fastest growing IT services companies today. And, Nayar says, its stock is one of the best performing in India’s information technology sector.  download MP4 video  download MP3 audio

Blue Ocean Strategy: The primer

Blue Ocean Strategy: The primer

The book ‘Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant’ has had a huge impact worldwide. Written by two INSEAD professors, W. Chan Kim and Renée Mauborgne, it sold more than a million copies within its first year of publication and has been translated into 39 languages, breaking Harvard Publishing records as the fastest selling book in print. In the lead up to writing the award-winning book, Kim and Mauborgne spent 15 years studying strategic moves by companies in more than 30 industries over a period spanning from 1880 to 2000. Traditionally competition has been at the heart of corporate strategy – country versus country, company versus company, and even business school versus business school. The key question is usually how can a company outdo its rivals? Competitive strategy and advantage were born from Harvard Business School, with the focus always on competition. The fundamental roots of this view of strategy can be traced to military strategy.  Even the vocabulary of companies can be traced to the military with words such as chief executive “officers”, “headquarters”, “troops” and “frontline” often applied within the corporate milieu. The rule of strategy has been that to gain share in a given market place you must take something from the competitor. In other words, you win, they lose. This is known as zero-sum gain. In this traditional view of strategy, it is presumed that the structure is fixed – the environment and conditions are already determined and cannot be changed by the efforts of a company. In academic terms this is known as the structuralist view or environmental determinism. “Strategy thus becomes a question of outpacing rivals to gain a greater share from a limited economic pie,” Mauborgne says. “But when we look at industry who do we admire most? Those who outpace rivals?  Yes, we admire winners.  But more so, we admire people who create new paradigms, businesses and market spaces. These are what expand the pie of intellectual and creative wealth. In other words, creating a non-zero sum game.” This shift from win-lose to a win-win is the essence of Kim and Mauborgne’s Blue Ocean strategy. According to Kim and Mauborgne, markets are made up of red and blue oceans. The red ocean represents the known market space where all the industries currently exist. In this space all the boundaries are defined and accepted, with companies trying to outperform each other. However, as the market space becomes congested, the potential for profits and growth decrease. In contrast, blue oceans are untapped market space characterized by demand creation and opportunities for highly profitable growth. Kim says “Blue Ocean Strategy goes beyond competition by opening up a larger ‘pie.’  It challenges the traditional structuralist view of strategy that regards industry structure as fixed and given. In contrast, Blue Ocean Strategy is based on a reconstructionist view of strategy whereby companies can shift the productivity frontier outwards by reconstructing market boundaries to create a bigger economic pie.” RED OCEAN STRATEGY BLUE OCEAN STRATEGY Compete in existing market space Create uncontested market space Beat the competition Make the competition irrelevant Focus on existing customers Focus on non-customers Exploit existing demand Create and capture new demand Make the value-cost tradeoff (create greater value to customers at a higher cost or create reasonable value at a lower cost) Break the value-cost tradeoff (Seek greater value to customers and low cost simultaneously) Align the whole system of firm’s activities with its strategic choice of differentiation or low cost Align the whole system of a firm’s activities in pursuit of differentiation and low cost. The book gives practical examples and puts forward conceptual tools as well as lays the underpinnings for the reconstructionist theory. It argues key to creating new market space is the simultaneous pursuit of differentiation and low cost.  That’s what allows a company to create a new value curve. For example, Cirque du Soleil eliminated animals and star performers from the show, which dropped its cost structure and created an all new element of artistic dance and music to achieve differentiation. Kim and Mauborgne’s work is both “managerial and theoretical” and can be used at all levels: national – to improve social and environmental wealth – as well as at an individual level. Blue ocean markets can be created in all walks of life, the INSEAD professors argue, not just technology-driven industries

In search of blue oceans: The Starwood experience

In search of blue oceans: The Starwood experience

download MP3 audio Robyn Pratt, Starwood Are companies using Blue Ocean Strategy to search for ‘uncontested market space’ and, if so, how? One group which has been exploring blue ocean thinking for the past three years is Starwood Hotels and Resorts. However, as INSEAD Knowledge has been finding out, the company has so far been taking a step-by-step approach to implementing the concept, rather than try to realise any sort of ‘grand vision’. As Starwood itself puts it, it’s more a question of finding ‘blue puddles, lakes or rivers’ at this stage rather than ‘blue oceans’ as such. Jens Meyer It was through a leadership development course at INSEAD, run by Adjunct ProfessorJens Meyer, that members of the group’s executive committee were first exposed to the strategic concept, at a time when hotel project teams and Six Sigma ‘black belts’ were finding it hard to come up with new solutions and break away from the competition. “So at that stage,” says Robyn Pratt, Vice President, Six Sigma and Operational Innovation (Europe, Africa & Middle East), “we, as a Six Sigma group, decided to look into the opportunities with amalgamating Blue Ocean, or bringing that as a tool, to our (Six Sigma) black belt community.” In conjunction with Meyer, the company has developed a process through which employees are trained in Blue Ocean Strategy, effectively focusing on non-customers, before being given three to four months to apply the methodology. Projects are then proposed to the senior operating team at a so-called ‘Visual Strategy Fair’; black belts or master black belts then put together a business case to present those projects to the senior leadership team for a decision on whether to implement these.  The first project to be implemented – FamTASTIC – was tried out first in hotels in Italy and Malta, and the concept is now being taken global. By targeting non-customers, the company carried out research into what families want on vacation by focusing not on the parents, but rather their children. The firm then developed special offers and rates to attract families, based on what the children wanted from a vacation. A second project, which has yet to be fully implemented, will similarly target non-customers.  Several hotels already offer their beds for sale, including Starwood’s Westin, which has a ‘Heavenly Bed’ scheme. Pratt says that, following research into the hotel bed retail market, the company found there has been little innovation in the industry in recent years and that the firm felt there was an opportunity here for Starwood. “(We asked) are there other opportunities where we could really market our sleep experience?  The team was actually not talking to people that stayed in hotels, they were talking to purchasers of beds and it was very interesting the learning and the insights that we got about the actual general purchase of a bed …There were some really interesting observations which the team is now working into an opportunity perhaps for the company.” “If we can come out of it with some blue puddles, some blue lakes, some blue rivers ... and have a couple of blue oceans - then we think it’s been very worthwhile ..." While Pratt says it’s too early to estimate precisely how much these projects are worth in dollar terms, she estimates that “with FamTASTIC, we’re looking at upwards of half a million dollars and incremental benefits to the hotels, and there are still many opportunities for implementing that further in other hotels.” Given the results so far, she says the concept of Blue Ocean Strategy is quickly spreading throughout the organisation and individual hotels are coming up with their own ideas. “In some cases, where we’ve got general managers that have really got this, it’s happening and they’re coming up with different ideas. So Blue Ocean for us is not just being able to come up with these huge big blue oceans of ideas; it’s being able to embed a different thought process as well into our people when they’re developing their strategy so that they can really start to see how to improve value.” Starwood has four other projects at different stages of planning and implementation, and Pratt says they are in the infant stages of applying the methodology and learning how to integrate it into operational innovation. “If we can come out of it with some blue puddles, some blue lakes, some blue rivers, and at the same time, learn - and have a couple of blue oceans there - then we think it’s been very worthwhile and something we should continue on.”  Pratt notes, however, that even though all the group’s senior executives have been trained in the processes, some people remain cynical and impatient in terms of seeing results. “Some people are looking for things to happen quickly because it is an investment, so far as training these people, having them work on these projects over a period of time. So I think (when) we can deliver some really solid benefits from a couple of our big projects, that is when we’re going to get the true buy-in and (others will) realise the value of what we’re doing.”   Pratt’s advice to companies which are thinking of exploring blue oceans is to keep an open mind and be patient. “I’m sure people are looking at us and saying ‘Is this all going to pay off?  What is the value of doing this?’ With the way we’re growing and the constant competition we’re faced with, we’ve got to think of doing things differently.”  download MP3 audio

Gucci: In the business of selling 'dreams'

Gucci: In the business of selling 'dreams'

As many look to cut costs to cope with the worsening economic downturn, you would expect consumer spending patterns to be adversely affected, with the luxury goods segment being one of the hardest hit.  Not so according to Robert Polet, chairman of the Gucci Group. While he agrees that consumer psyche vis-à-vis buying behaviour has taken a hit, he believes that his company is in the business of selling dreams – and you can’t put a price tag on a dream. “People buy our brands because they want to be a part of a particular dream… So people before going into the store, they decide ‘I would like to be part of that dream.’ And that is an emotional decision. It’s an aspirational decision for many. And they’re seduced when in the store; they’re seduced by the product, by a really desirable product that you cannot resist … This is not about selling bags or shoes or ties or suits. This is about ‘Would you like to be a Gucci man or a Gucci woman?’”  The big picture Though Polet says Gucci will not be making any broad sweeping tactical changes to tackle the crisis head on, preferring instead to go with a less reactive approach, he says it may be necessary to make some adjustments because it still makes good business sense to monitor the situation. “Let me just reaffirm the importance of actually sticking to your strategy because the strategy that you build around brands is the strategy for the longer term. You manage brands for a long life or longevity, so you don't sort of whisk them around every quarter or every year or every two years,” Polet told INSEAD Knowledge in an exclusive interview. “And that is come hell or high water I would say. But you know what, times change and there are things that you need to adapt to and in the short term – change your tactics.”  For example, he says, if a company’s growth is cut by half, it is technically still growing, though profits are significantly reduced. “So you will adjust if you're wise, your capital expenditures and the way that you manage your business, (yet) always staying true to the essence of the brand and to the long-term strategy.” Polet’s approach seems to have worked. When he joined Gucci in 2004, he hadambitious plans to double the company’s revenues in seven years, as well as to increase gross margins to 70 per cent. He says he has delivered on both counts, which he is why he chooses to remain optimistic at such a time. “Now having done that, it gives us of course a much better position because the profitability has almost tripled in absolute terms in the last four years. It gives you a fantastic starting point to be able to brace yourself for headwinds.”  Asia as the next frontier Turning to Asia for growth has also paid off. “We said four years ago, we would invest more than 60 per cent of all our investments in Asia Pacific. And that's exactly what we have done ... (we have grown) the stores in mainland China from four stores four years ago to 24 stores by the end of this year, which is quite remarkable.” Polet is now counting on Asia to cushion the Gucci brand from the shock waves of the ailing economy. “I'm absolutely convinced of it and it's actually happening as we speak. Asia is delivering its part of the portfolio that we knew that it would deliver.”

The show must go on: Cirque du Soleil’s recession-proof formula

The show must go on: Cirque du Soleil’s recession-proof formula

As we brace ourselves for what threatens to be the worst economic slump since the Great Depression, one company seems to be relatively unscathed by the global financial meltdown. According to Daniel Lamarre, president and chief executive officer of performance troupe Cirque du Soleil, whose shows still play to sell-out audiences, he is confident that his company will ride out the recession. “In the past when there was an economic crisis, people are turning to entertainment because you just want to forget about your problem and you're looking for hope andyou're looking for distraction. And that's entertainment. So normally we are not touched as bad as the other sectors of the economy.” He concedes, however, that forging partnerships with people who have deep pockets has helped cushion the business even in bad times. “The good news for us, if we're talking about the business model, is that the financing comes from a third party. It's not ourselves who have to invest all that money … We’re very, very lucky. I should say we’re spoilt, because we have partners that are willing to invest a lot of money behind our brand.  So financially it's great for us because they do finance those ventures by building for us the best theatres, by allowing us to develop huge productions, huge spectacles and because of that, we're in a huge growth mode.” Growth spurt Indeed, Cirque’s growth has been unstoppable. Its gross revenues climbed to $630 million in 2007 from $550 million in 2005, and they have continued to grow. “The big change in our strategy is that we are really in a growth mode also in geographical diversification. So with our touring show we went from touring in 70 cities around the world to 250 cities around the world now. We went from having just permanent shows in Las Vegas.  Now we're bringing permanent shows in Asia.  And I wouldn't be surprised if within the next five to ten years, we don't end up having a permanent show in each major city around the world.  So there is still a lot of potential for us.” If Asia is the next frontier for Cirque, Lamarre says that China is most definitely on his radar, as well as Japan and Korea. “It's a huge potential in terms of numbers … and that's why I'm spending a lot of time and a lot of resources in Asia. This is our number one priority for Cirque du Soleil right now.” In the meantime, Lamarre assures that the public should not expect anything less than leading-edge performances from Cirque, as artistic integrity will not in any way be compromised and it will always strive to be innovative. “What we have done in order not to compromise the quality of our shows, is that we have creative teams which are totally dedicated to each show. No one at Cirque works on the development of more than one show … It will take (them) three years to develop that show and three years from now we find (them) a new challenge.”

Cirque du Soleil: navigating blue oceans

Cirque du Soleil: navigating blue oceans

Even before the groundbreaking book Blue Ocean Strategy, by INSEAD professors W. Chan Kim and Renée Mauborgne, became an instant global bestseller, one company had already been searching for its own blue oceans and found its uncontested space. The company in question is Cirque du Soleil, a world-class circus devoid of animals, but which features a world-class performance troupe like no other, comprising its trademark blend of traditional circus, theatre, music and special effects.  When Cirque debuted in the 1980s, it mounted a new show once every two years. Starting in November this year, there will be 17 different Cirque du Soleil productions performing around the world. By the end of 2010, that number is projected to rise to 23. No mean feat for a company that originally started as a three-man street act. Today, Cirque has more than 1,000 artists; close to 80 million spectators around the world have seen a Cirque performance; and founder Guy Laliberte’s personal worth is estimated at $1.5 billion, according to Forbes. Remaining buoyant But the company isn’t resting on its laurels, despite its phenomenal and seemingly unstoppable success. “The danger will be to be complacent about it and thinking that we have a recipe, and that we will always continue to serve to the public a recipe.  And as you know the expectations of people now are getting higher and higher.”  “Therefore it's important for us that we continue to innovate, that we continue to take risks all the time. And that's what we are doing in order to avoid being passé,” says Cirque’s president and chief executive officer Daniel Lamarre. Though no one has yet been able to copy Cirque’s inimitable style, Lamarre is always mindful of potential competitors. He says all forms of competition should be considered, especially as Cirque is a performance art, which puts them in the same category as theatrical plays, musicals, concerts and the like.  “So we do have competition because we're all fighting for the same consumer. But so far we have been lucky because no one has been able to copy the kind of shows at the same level that we are, and that's reassuring. At the same time we have to continue to invest in order to innovate that we don't wake up one day and someone is able to do what we're doing.” Cirque is currently investing some $500 million in new productions in Las Vegas, Macau and Tokyo. It will continue to also invest heavily in research and development and in casting. Lamarre says Cirque has 50 scouts travelling around the world at any given time to recruit talent for new shows, and that there is a “trend group” whose function is to feed its creators information about new artistic trends. “And that's the only way for us to remain in the blue ocean.”