Blue Ocean Strategy @ Panasonic – Business To Business focus

Panasonic Corporation is adopting Blue Ocean Strategy wherein the company is shifting its total focus to Business to Business customers and the company is forced to take such drastic strategic move as it is facing tough completion form Korean players like Samsung, LG who are dominating the consumer durables industry. Not only Panasonic other Japanese players like Sony, Toshiba are all facing tough competition. Panasonic has been predominantly a B2B company where in B2B segment contributes 70% of revenues and 30% of its revenues contributed from consumer products. In the USA, 80% of sales come from B2B, while in Europe 40% of sales come from B2B and in India 15% sales come from B2B and 85% come from consumer sales selling kitchen appliances, air conditioners, hair dryers, dry cell batteries, switches (through its acquired subsidiary, Anchor Electricals) and televisions. Kazuhiro Tsuga came to India earlier in 2010 as head of Panasonic Automotive Systems, a B2B division that makes electronic parts for automobiles. Tsuga met Maruti and Tata Motors, though the initial contact is yet to bear fruit. "This business takes a long time to get going. In the coming years, we hope to have more B2B business in India," he says.

In future, Panasonic Corporation President, Kazuhiro Tsuga plans to move company away from traditional in-house manufacturing towards partnering with industries that range from automobiles and aviation to logistics, retail, housing and healthcare. The products will still be electronic for example the video screens that is now designed for fitting on airplane seats but they will be developed for and sold to original equipment manufacturers. "Future growth will in B2B. Our objective is now to provide a better life to consumers through their cars, their businesses, their home construction," says Tsuga. This is a classic Blue Ocean Strategy, where the company moves out of hyper-competitive waters to uncontested markets. But as Tsuga San says, "The Koreans are competitive in home electronic products like televisions, but not so in other areas like B2B products. In B2B also we have competition, but the business is different. It is more customized, rather than standardized." 

Panasonic is not doing well financially and its stock has eroded by 80% over the last four years which also touched a ten year low in November 2012, but recovered courtesy of Tsuga’s well laid out midterm management plan, which has the stated objective of raising operating profit from ¥ 140 billion in the current year to ¥250 billion next year and ¥350 billion in 2014. How does he expect to achieve that? "By eliminating unprofitable businesses like televisions, semi-conductors and mobile phones," he says. Panasonic Blue Ocean Strategy focus is on creating uncontested B2B electronics market space where it is trying to bring standardized products to market which can easily aligned and installed with other products and create value both for customers and clients. Blue Ocean Strategy is being adopted to keep the iconic brand alive and survive in the market. The company is accredited with innovating products in the past and through innovation only the company can revive its fortunes and survive in the long term. This also proves the fact that often companies facing crises will look at Blue Ocean Strategy for survival, which is also high risk strategy.

One such product it launched recently is "Front Info Display CY-DF100D" head-up display, can be linked to Panasonic's "Strada CN-R500" and "CN-R300" series of car navigation systems. The system provides drivers with information such as information about where to turn right/left during route guidance, information about a bifurcation at an interchange, etc just by slightly turning the eyes, improving driving safety. The CY-DF100D continues route guidance even when a passenger is operating the system for playing music, the radio, etc and the screen is not displaying a map. Moreover, the brightness of the HUD can be automatically adjusted with an illuminance sensor. The CY-DF100D consists of (1) the "Projection Unit," which projects an image, (2) "Combiner Unit," which reflects an image, and (3) "Multi Expand Unit," which is used for connection with a car navigation system. The Projection Unit and Combiner Unit are installed on the dashboard on the driver's side.  As of Aug 29, 2013, the CY-DF100D can be installed in Toyota Motor Corp's "Alphard," "Vellfire," "Prius α," "Isis," "Porte," "Sienta," "Spade," Nissan Motor Co Ltd's "Moco," Honda Motor Co Ltd's "Fit hybrid" and Daihatsu Motor Co Ltd's "Move Conte." 

Blue Ocean Strategy @ Samsung – Galaxy Note Series created Phablet Segment

Samsung has adopted successfully Blue Ocean Strategy and company has profited through this strategy in the past few years. Samsung has invested heavily in Research & Development that helps the company to innovate and create new products that helped the company to grow into a Global powerhouse. Samsung’s team of researchers and engineers include over 50,000 employees across 42 global research facilities—each one collaborating on strategic technologies to forge new market trends and set new standards of excellence. Blue Ocean Strategy visions the creation of uncontested markets with no competition through new product innovation leading to creation of new demand. Samsung Galaxy Note Series of phablets highlights the Blue Ocean Strategy of Samsung that created an uncontested phablet market and dominates it with its Galaxy Note II and Galaxy Note III with Galaxy Gear smart watch. Market Research Firm IHS reported that 25.6 million phablet devices were sold in 2012 and estimated that these figures would grow to 60.4 million in 2013, and 146 million by 2016. Wikipedia definition of Phablet, is a smartphone form factor describing tablets with a screen over 6.5 inches in size and has normal phone calling functions ,designed to combine or straddle the functionalities of a smartphone and tablet, eliminating the need for two devices. As of October 2013, Samsung has sold over 40 million Galaxy Note devices over the past two years. 30 million were of the Note II, while the Note (Original) sold around 10 million.

Value innovation is at the heart of blue ocean strategy. Value Innovation is defined as creating value for both the buyer and the company and the innovation (in product, service, or delivery) should be such that it raises and create value for the market and company and at the same time reduces or eliminates features or services that are less valued by the current or future customers. Samsung Galaxy Note phablet is a classic example of value innovation where it eliminates the need for two devices smartphones and tablets, raises the product utility through big screen that enhances the browsing and multimedia experience and Stylus that facilitates sketching, note-taking and annotation. In its latest Galaxy Note 3 Samsung added a smart watch Galaxy Gear that adds even more functionality. Stylus reduces the need for carrying the notebooks or papers for note taking during meetings and conferences. Galaxy Note phablets with accessories like stylus and Gear smart watch created a need for new applications which also allowed developers of apps to create innovative new apps that best suited for phablets. Samsung Galaxy Note phablet series created the phablet market that also encouraged its competitors like Sony, Lenovo, Nokia, Asus, Acer, etc. also enter the market with their own version of phablets. Competition has picked up in the phablet market but Samsung still dominates the market. Samsung Galaxy Note phablet series is focused on giving Apple Inc. a tough competition, as Apple dominates the smartphone market with iPhones and Tablet market with iPads. Samsung has been hugely successful with this strategy and is giving a tough competition for Apple and also launching timely upgraded versions of the phablet series and phablets are critical part of Samsung global mobile strategy. Phablet sales are slowly crossing the tablets and laptops sales in some markets like Asia as reported by IDC highlights that Samsung Blue Ocean Strategy is highly successful.    

Blue Ocean Strategy @ Salesforce.com – SMB, Mid-Market, B2B Marketing Focus & AppExchange

Salesforce.com has adopted the Blue Ocean Strategy since its inception and the company has been hugely successfully because of this strategy. Mark Benioff, former Oracle executive developed and hosted on-demand customer relationship management (CRM) solution called Salesforce.com in 1999. He is credited with pioneering the concept of delivering sales, marketing, and customer service applications, via a simple web site when the competitors of the company were offering the same solutions via client software on user desktops and traditional enterprise software technology. Competitors like Oracle, SAP, Microsoft, etc. that dominated the enterprise software market, locked in almost all the large companies in the world with their products and services offerings and it forced Saleforce.com to innovate a new way of offering so that it can enter the market and survive and the best way was to not only on demand web based solution with a 30 day initial free trial before buying but also the company focused on small and medium businesses (SMB) and mid-market customers which generated billions of dollars in revenues. SMBs and Mid-Market customers preferred the company’s solutions as they need not invest on ant hardware like servers or PCs and other software which is reduced their costs big time. Salesforce.com success mantra has been their ability to generate immediate benefits to companies of all sizes at reduced risks and costs, fixed low cost per user per month inclusive pricing model, less complicated and easy to use product focusing on contact management and Salesforce automation, reduced deployment and administration costs and single deployment with upgrades done regularly online automatically. Company also tasted success with large enterprise customers too over period of time and has become a market leader in the CRM market.

Another innovation that Saleforce.com adopted was its Business to Business marketing strategy where the company used simple and fast online configuration and WebEx demonstrations to present to new clients rather than complicated proof of concepts in terms of case studies, documents and other promotional materials to show utility of their product offerings, also used telesales through WebEx and word of mouth rather than employ costly direct sales force which drastically reduced the sales cycle for the company to 23 days where as its competitors had more than 90 days sales cycle. Since the company used direct web delivered model it not only reduced the deployment time for the customers but also enabled the company to offer low pricing to their customers. In September 2005, Salesforce.com added a new service called AppExchange offering which a web-based portal is giving companies access to a range of applications for on-demand use, ranging from financial and administrative applications, to applications focused on specific industries. Company adopted this model which is similar to Amazon.com retailing model, that allows Salesforce.com customers see a range of competing products and can read reviews from other users, as well as check how other user’s rate additional products that extend the core functionality of Salesforce.com. This model is necessitated as the company started targeting the large enterprise customers who needed complimentary products and services that aligned best with their existing technologies. With such innovative Blue Ocean Strategy, Salesforce.com has been able to build brand equity and loyal customer following that earned billions of dollars in revenues for the company. 

Amazon India Strategy: Three Pillars, Vast selection, Low prices & Fast delivery to customers

Amazon.in gives users access to sellers of books, movies and TV shows. The company will be increasing the range available, with cameras and mobile phones due next. This is the 10th country-specific site that Amazon has globally, apart from the main US one. For now, owing to foreign direct investment (FDI) regulations, the company has to follow the marketplace model, where they are not directly selling any of the products on the site, but are handling logistics for the sellers, with their “Fulfilled by Amazon” model. The marketplace makes about 40 per cent of Amazon's revenues globally and, on Wednesday, Amazon said it is starting with a modest 100 retailers in India. Amazon has three pillars it is basing its strategy on, according to Amit Agarwal, Vice President and Country Manager, Amazon India: a vast selection, low prices, and fast delivery to customers. The other part of the strategy is to build a highly customer centric model. A buyer can come and chose the seller, and chose the best deal.

For sellers, Amazon is offering two options right now. One is selling on Amazon; there, the listing and payment is on Amazon, but logistics are handled by the seller. The second is fulfilment by Amazon, where Amazon also handles the deliveries. Sellers pay a monthly subscription fee for the merchant, along with a referral fee for successful transactions. However, for the first year, the company is offering a free subscription, and a discounted referral fee of 5%, instead of the normal 12% fee. Fulfilment by Amazon is optional, but a quick look at the site shows that a majority of sellers are using the service. But finally, to sell on the Amazon Marketplace: the seller will have to bear a monthly subscription fee of Rs 499, currently set free for a year's promotion; a transaction fee of 12 per cent of the item value (set at a promotional 5 per cent); and a closing fee of Rs 10 on every sale. Amazon is a platform, where retailers, shop owners or publishers can sell their titles - at times with help from an Amazon warehouse and logistics managed by Amazon.

For buyers, too, there is a launch window where there are no delivery charges, and no cash on delivery charges. Amit Agarwal, vice-president and country manager, Amazon India said that the timeline for this decision isn’t fixed, and added, “We’re watching the consumer feedback. We’ve made the whole thing very transparent, and we won’t charge for things overnight. It’s going to be something we do base on what the customers are saying.” Agarwal also confirmed that the sellers can’t add their offerings directly yet, and said, “We look at the selection, scale and speed that the companies can offer, and help them to make the most of the system.”

Some believe that the entry of Amazon is going to have a negative impact on companies such as Flipkart, which, on 4 June, reached a milestone of selling 100,000 books in a single day. Flipkart also follows a marketplace model, but Agarwal points out that sellers don’t need to be exclusive to one platform, and will only use a platform that gives them a competitive advantage. The marketplace model, which was pioneered by eBay, and is used by sites such as Flipkart, SnapDeal and Infibeam today, is quickly gaining ground in Indian e-commerce—the move gives them access to much more inventory than before, without significant investment.

At the same time, Amazon’s other business in India, the price comparison website Junglee.com will also continue to function. Agarwal says, “In a way, Junglee is a map of the e-commerce space, and our goal is to have Amazon.in show up on that map in a good position. Junglee served to confirm and validate our views about India, about what the customer is looking for. It’s also helped us to see a lot of sellers, who aren’t well known, but are offering a great catalogue. They would make great candidates for Fulfilment by Amazon, so in that way, we see Junglee as very complementary to what we’re doing with Amazon.in.”

For Amazon India is a crucial market as it is expected to grow at a good pace in the coming three to five years. Forrester estimates that the Indian market will grow at a compounded growth rate faster than any other country in the Asia-Pacific region to reach $8.8 billion in 2016 from the 2012 levels of US $1.6 billion. Amazon has also entered a comparatively larger market created by Indian players like Flipkart, Jabong, Myntra and numerous others ( some of them already shutdown) who were able to increase market share through strategies like cash-on-delivery payments, liberal return policies, free or subsidized shipping and in-house logistics. Amazon understood the importance of these strategies and incorporated them in its business model along with its big strength the Market Place model. Amazon has perfectly timed its entry into the Indian market and this strategy has allowed it to use its strengths to maximum advantage. 

Healthcare IT Outsourcing Market 2013-2018 – Indian IT firms competing for growth

The global healthcare IT outsourcing market is estimated to grow at a compound annual growth rate of 7.6 percent, to reach $50.4 billion by 2018 from $35 billion in 2013, according to Markets and Markets Research report. North America dominates the market with 72 percent market share and is forecasted to reach $36 billion by 2018 from $25 billion in 2013. Asia-Pacific and rest of the world are expected to register CAGRs of 8.1 percent and 7.8 percent (2013 to 2018) respectively, followed by Europe at 7.2 percent. Major players in the market are Accenture, Accretive Health, Inc., Allscripts Healthcare Solutions, Inc., Anthelio Healthcare Solutions, Cognizant Technology Solutions, Dell, Inc., HCL Technologies, Hewlett-Packard Company, IBM, Infosys Limited, McKesson Corporation, Siemens Healthcare, Tata Consultancy Services Ltd., Wipro Ltd., Xerox Corporation, Epic System, and Computer Sciences Corporation.

Gartner estimated that spending by global healthcare providers for IT services will grow by 6 per cent to reach $30.4 billion in 2013. Consulting, with 9 per cent growth in 2013, will be the fastest-growing sub segment within the global healthcare provider market for IT services. Healthcare IT spending at large North American healthcare organizations is expected to increase to more than $34.5 billion next year, spurred by current regulatory trends and the trend is expected to open up new markets for many vendors according to Technology Business Research Inc.’s (TBR) new SourceIT Healthcare Report. North America (U.S. and Canada) dominate the global healthcare information technology outsourcing market. Healthcare IT outsourcing industry growth is attributed to ever growing need to cut healthcare costs as governments pay for such costs and they are looking to reduce their deficits; rise in demand for applications management services, application development, and infrastructure outsourcing for providers, life sciences, and payers; growing population close to 30 million citizens will be added to be covered under the insurance policy as per HIPPA Act; lack of in-house IT experts; and the new ICD 10 guidelines.

Information Technology is at the core of Healthcare Industry as the industry on the whole generates huge amounts of data and Healthcare providers/payers need to electronically track data related to medical records, billing codes, electronic monitoring systems, and patient care. In order to track and manage this valuable data via electronic systems, there is a need for strong information technology infrastructure and devices such as servers, desktops, networks, personal digital assistants (PDAs), and laptops. Due to the lack of required skills and IT domain expertise, maintaining IT infrastructure and services is a challenging task for the healthcare industry. The healthcare industry, which faces the challenge of delivering the best patient care at an affordable cost, has been opting for outsourcing IT solutions. India based players like Cognizant Technology, HCL Tech, Infosys, TCS, Wipro are aggressively building capabilities in healthcare IT space. Cognizant and HCL Tech are leading the pack and rest of the Indian players aggressively trying to cash the opportunity and best way is through Mergers and Acquisitions. But the global competition is tough too from players like Accenture, IBM, Dell, etc. 

Indian IT-BPO industry moving towards complicated Outcome based pricing model

For years Indian IT-BPO industry relied on the labor arbitrage wherein Indian software companies provided information technology and business process services to American companies at a fraction of cost due to the huge supply of inexpensive engineering talent and English speaking graduates that led to the building of US $108 billion ( Rs 6.4 lakh crore) IT industry in India. The industry has seen a double digit growth and generates employment for hundreds of thousands of engineers and graduates every year but the Indian IT-BPO industry has been maturing for the past few years seeing slowdown in growth and reducing employment opportunities for engineering graduates and other graduates too.  Industry relied on traditional Fixed Price and Time and Materials pricing model for years and built up huge employee base in India and other locations across the world. Lakhs of employees work for the top Indian IT companies like TCS, Infosys, Wipro, HCL Tech, Cognizant Technology, Mahindra Satyam, etc. and it is becoming difficult for the Indian companies to manage such huge workforce as the number of employees increase so do the cost associated in managing, training and retaining also increases which literally destroyed the labor arbitrage that Indian companies relied on for years.

These days often clients of Indian IT Industry complain that India is no longer a low cost destination for IT-BPO services and the emergence of countries like Philippines, Poland, etc. as low cost destinations compared to India is also affecting the future growth potential of the industry. These challenges forced Indian IT-BPO industry to move towards outcome based pricing model, wherein clients link billing or payments to business outcomes and the principle is simple, Indian IT companies will be paid a share of portion of the revenue generated or the cost savings that have been achieved by the Indian vendors for their clients. This is a highly complicated and risky model compared to the traditional model where in clients are charged based on numbers of hours worked by engineers on a project or fixed price per employee. In the initial years of IT-BPO outsourcing cost reduction and cutting were the primary objectives of the most of the American companies which most of the companies have successfully achieved and now moving towards more complex business process centric spending from the simple IT spending which also forcing the Indian IT-BPO companies to adopt the outcome based pricing model.

Also the changing global macroeconomic environment, globalization, increasing reliance on emerging markets for growth for most of the American companies is one of the factors. Intense competition between the Indian IT-BPO companies of all sizes be it small, medium and large and the multinational outsourcing companies to adopting the low cost delivery model by setting up operations in India and other low cost destinations also led to the increased adoption of outcome based model as a differentiating factor for both top line and bottom line growth for the Indian companies. Indian IT Majors have since past three years have been talking about various nonlinear revenue initiatives that includes outcome based pricing model, analytics, social media, consulting and mobility technologies as key strategic areas that will drive future growth. Non Linear revenue model is where the relationship between employee headcount growth and revenue growth will be not there. Outcome based pricing model which many industry experts call a natural progression for Indian IT-BPO industry as the industry matures have been seeing a slow adoption.

Outcome based pricing models are highly complex and complicated model and lack of experience both on the client side and vendor side is one of the major reason for slow adoption. For this model to work the clients should move on from basic cost cutting initiatives to more business process centric initiatives the outcomes of which will have a direct effect on the client revenue and profit growth. Both the client and vendor should have significant experience in outsourcing delivery models and matured internal organization structures, systems and processes that facilitate this model of pricing. Indian IT companies must recruit and develop highly skilled engineering talent with excellent domain expertise and also have Managers and domain experts specializing in range of industries and verticals who also must have deep understanding of clients’ existing systems, identify gaps and pitching improvements accordingly. India definitely lacks the skill sets in terms of domain experts and consultants in range of industry verticals like BFSI, Manufacturing, Retail, etc.

Another major issue has been the difficulty in measuring the outcomes, tracking and reporting such outcomes. Service Level Agreements and business outcomes that are to be achieved in terms of quantification and impact are often difficult to agree upon and which will increase the inherent risks involved in failing to measure and report such business outcomes. There is chance of increasing disputes, legal litigations and financial penalties may also increase which will be having a huge financial impact for both clients and vendors. So one important everyone should understand is that outcome based pricing model is not suitable for all outsourcing activities and if client is looking for a basic cost cutting initiatives it is better to stick with the traditional pricing models like fixed price and Time and Materials Models. Industry experts believe that high end  activities like Analytics, cloud Computing, Consulting, Mobility, Social Media, Strategic Sourcing related processes are best suited for outcome based pricing model. Both clients and vendors are adopting more hybrid pricing models that include both the traditional models and outcome based pricing but majority is still traditional pricing model with 70% of billing related to commodity processes and 30% outcome based pricing for strategic functions that involves analytics, etc.

In an interview with The Hindu, Executive Director and Chief Executive Officer T. K. Kurien of Wipro had said “All the companies in the industry are still learning. But maturity in this area depends partly on us and partly on customers. But if I had to take a bet, I would say that five years from now 60-70 per cent of the market would be outcomes-based. We are experimenting and I am sure we will make mistakes. But we are ready to takes risks.” This is the case with all the major Indian IT companies that are experimenting and learning to adopt the outcome based pricing model thus increasing both the revenues and profits.