Management Consulting News - Vol. 4, No. 5 - May 3, 2005

In This Month's Issue:

Here’s to the Winners

Interview: W. Chan Kim and Renée Mauborgne on
How to Make Your Competition Irrelevant

Are You Bullish on Consulting?

The BPO Beat Goes On

Prospects for Telecom Consultants

The Looming Talent Crisis

Upcoming Events

Coming Attractions

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Here’s to the Winners

Thanks to everyone who entered our book giveaway last month for Guerrilla Marketing for Consultants. The response was overwhelming. We’ve sent the book to the first ten people who responded. And the winners are…

Speaking of giveaways, you're invited to register for my Guerrilla Consulting Webinar on May 12. I'll be discussing why traditional marketing strategies are failing miserably in today’s market and how to use guerrilla marketing tactics to create an advantage.

Enjoy this month’s issue and, if you have any comments, please send me an email

Mike McLaughlin
Editor, Management Consulting News

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Meet the MasterMinds: W. Chan Kim and Renée Mauborgne

How to Make Your Competition Irrelevant

Professor W. Chan Kim and Professor Renée Mauborgne are research partners and coauthors of Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant. They are members of the faculty at INSEAD, an international graduate business school.

Professors Kim and Mauborgne are on the Thinkers 50 list of the most influential business thinkers of our time. They are also co-founders of the Value Innovation Institute, a global center for connecting innovative ideas with commercial opportunities. The articles they have published in the Harvard Business Review have sold more than half a million reprints.

MCNews: How do you define blue ocean strategy, and why is it important for executives to embrace the idea?

Number one: stop benchmarking the competition. The more you benchmark your competitors, the more you tend to look like them.

Kim: Blue ocean strategy is about creating uncontested market space. Too many companies are swimming in the red ocean of bloody competition where there is limited room for real growth. The image of the vast blue ocean conveys the infinite possibilities for profitable growth that exist with this strategy.

MCNews: Can you explain your concept of “value innovation” and how it relates to creating a blue ocean strategy?

Mauborgne: Value innovation is a strategic move that allows a company to create a blue ocean. Typically, companies in the red ocean pursue incremental improvements for customers through either low cost or differentiation. Value innovation helps companies make giant leaps in the value provided to customers through the simultaneous pursuit of differentiation and low cost.

It shouldn’t be a trade off between the two; exceptional value and innovation should be inseparable. Offer buyers a huge leap in value, and that will give rise to new markets. That’s how you make the competition irrelevant.

MCNews: When you look at the state of strategic planning in companies, what do you think works well, and what doesn’t?

Kim: Most companies are too numbers-driven. They do lots of comparative industry analysis—especially on the competition—but that blinds them to the big picture.

The focus on numbers does produce some accountability, though. You develop numbers and then make somebody accountable for them. But that approach keeps companies in the red ocean because of the narrow focus on the competition.

MCNews: The numbers-driven process is familiar and comfortable for many executives. Have you found that successful companies resist rethinking strategic planning?

Mauborgne: I think most companies know that strategic planning is an imperfect process. There are certainly many books and articles criticizing it. But they have not had an alternative to it, so companies have kept on using it because it does allow for some degree of accountability.

We offer a compelling alternative. We begin by giving companies three pointers on how to break out of the red and into the blue ocean. Number one: stop benchmarking the competition. The more you benchmark your competitors, the more you tend to look like them. That makes you a me-too organization, which is the opposite of what you want to achieve.

Second: stop being content to swim in the red ocean. Many companies are caught up in competing and don’t even look to the horizon of the blue ocean. And third: don’t count on your customers for growth. Look to non-customers; they provide the most insights into how you can create new, uncontested opportunities—new demand for your products or services.

MCNews: What are the first few steps to help executives see the light about this new way of thinking about a business?

Kim: The most important part is to help people realize that a company is in the red ocean to begin with. People think they are in the blue ocean when they really aren’t. When you show them the true picture, they are always surprised.

The next step is to turn their attention away from the competition and, as Renée said, get them to focus on non-customers—those in the marketplace who are not using the company’s products or services at all. Then people start to get a lot of blue ocean ideas.

MCNews: Putting a new strategy in place eventually translates into day-to-day business activities that affect everyone in the organization. Do you have any suggestions for insuring organization-wide acceptance or buy-in for a blue ocean strategy?

Mauborgne: Building on Chan’s points, we create a willingness in people to change by making them see the limitations of the red ocean. That gets them to listen. Then, we set the aspiration to create a blue ocean by showing how other companies have accomplished that.

We stress how to build a blue ocean strategy through dialog that is inclusive. We talk about how to build execution into strategy from the beginning by getting not only the top few people involved, but people across the organization. Then they are all part of it, have ownership of it, and therefore feel a commitment to execute on the ideas.

MCNews: What are some examples of red and blue ocean companies?

Kim: If you look at the airline industry, the airlines that are either in bankruptcy or close to it remain stuck in the red ocean of competition. Southwest Airlines, on the other hand, created a totally blue ocean by attracting car drivers.

Southwest did not compete head-on against other airlines by offering better meals or other incentives. Instead, they attracted car drivers by making flying closer to the car-driving experience. They offered the speed of the airplane with the economics and flexibility of driving.

Starbucks and IKEA are other examples of companies that have created new markets for their products through value innovation.

MCNews: What advice would you give companies if they want to get out of the red ocean?

In any industry, no matter how competitive it is, a company can create a blue ocean of uncontested market space.

Mauborgne: In any industry, no matter how competitive it is, a company can create a blue ocean of uncontested market space. For instance, the auto industry has generally been a red ocean industry. But when Chrysler came out with the minivan, they created a blue ocean and soaring new demand.

For us, that’s the excitement of blue ocean strategy. You can create a blue ocean within a red one. In the airline industry, another good example is Virgin Atlantic Airways, which went for the high end market. Virgin redefined the travel experience for business and first-class travelers. It’s not just getting from airport A to B, but the experience you have from when you leave your home to when you arrive. So it includes ground transportation, and options like taking a shower on arrival instead of going to a hotel.

MCNews: They offer the opposite of the car driving experience?

Mauborgne: Absolutely. And that’s a key point. You can create a blue ocean at the high end of an industry as Virgin did, or at the economy end as Southwest did. Blue oceans can also be created at the middle point of an industry like Borders and Barnes & Noble have done. There are multiple entry points to create a blue ocean in any industry.

MCNews: I guess the challenge is to have the method and the talent somewhere in your organization to help identify where your opportunities are for a blue ocean strategy.

Kim: That’s right.

MCNews: With more than 6,000 books on business strategy in the market, do you have a blue ocean strategy for your book?

Kim: Unlike other books on strategy, this book is the result of more than a decade of research and practice. Many strategy books conceptualize without providing a framework for what and how to do things. In our book, we generate action steps based on our experience of putting theory into practice.

We are saying that we found a pattern in the way innovation creates new markets. It’s not random, so we can structure it. The book presents the pattern for doing so. That message is actually counterintuitive.

MCNews: Thanks to both of you for your time today.

Find out more about Kim and Mauborgne at www.blueoceanstrategy.com.

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Are You Bullish on Consulting?

You should be—says the 3rd Annual Survey of Independent Consultants conducted by M² Consulting, Inc., a US provider of independent business consultants.

M² asked over 700 independent consultants to assess the state of their businesses and the market for independent consultants.

The survey respondents were optimistic, with more than half reporting higher revenue in 2004 than in 2003. The top trend that consultants noted for 2004 was that clients are more eager to start new projects, dropping the top trend of 2003, clients taking a more cautious approach to launching new initiatives, to second place.

The increasing demand for consultants didn’t result in higher billing rates for the survey respondents. In spite of the rise in demand, almost half of the respondents haven’t changed their billing rates in three years, and 27% of the respondents actually reduced rates over the same period. With higher demand and flat, or decreasing rates, these consultants are either growing their businesses through hiring new consultants, or working harder to achieve revenue gains.

The study also shed some light on the issue of project pricing, noting that creative pricing trends, such as value-based billing, are less favored by clients than traditional billing strategies.

Source: www.msquared.com.

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The BPO Beat Goes On

Gartner Consulting says that finance and accounting business process outsourcing (BPO) is critical for CFOs to increase their efficiency.

According to Gartner, CFOs should implement finance and accounting BPO to allow them to spend more time on strategic activities. Gartner recommends that CFOs delegate transactional tasks to a third party whose core business is finance and accounting BPO.

Gartner’s analysts believe that outsourcing activities such as accounts payables, expense management, and payroll frees up a CFO's time to focus on planning, activity-based costing, process metrics, and decision support at the CEO and business-unit leadership levels.

For the record, Gartner defines BPO “as the delegation of one or more IT-intensive business processes to an external provider that, in turn, owns, administers and manages the processes based on defined and measurable performance metrics.”

"To achieve true shareholder value, the efficient CFO has to focus on decision support, a strategic activity that makes it possible to focus on analyzing and interpreting financial data, not necessarily producing it," says Gartner VP, Michael Montonen.

Montonen goes on to say that outsourcing capabilities to support processes for financial transactions and management have matured substantially, with financial data often generated and reported now by service providers. In the BPO world, finance and accounting BPO can also be used to facilitate Sarbanes-Oxley (SOX) compliance.

Hey, can BPO wash my car too?

Not to pick on Gartner, but with so much BPO hype, consultants should take the opportunity to talk to CFOs about the realities and the trade-offs of BPO. A CFO may dump transactional processing responsibilities, but that gets replaced with complex contract and program management. If you have any doubts about the problems with data security, just read the news of the latest hacker hitting an unwitting computer system and running off with company information.

And don’t forget that BPO could land the CFO and CEO behind bars. If your client outsources SOX compliance, the client—not the BPO vendor—is responsible for that compliance.

There are many appropriate opportunities for BPO of financial processes. After all, payroll has been outsourced for decades. But make sure you give your clients the whole story before they sign on the dotted line.

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Prospects for Telecom Consultants

In March 2005, the consulting firm, Oxford Global Resources, asked telecommunications consulting clients to forecast their upcoming demand for consulting services.

For the second quarter of 2005, most telecom clients (60%) expect consultant hiring to remain the same, while 15% expect an increase. Not many clients (10%) believe they’ll pull back spending on consultants. The rest (15%) aren’t sure how they’ll use consultants this quarter.

For the third quarter of 2005 through the first quarter of 2006, telecom clients’ plans for hiring consultants are optimistic, but mixed. More than 40% of respondents forecast an increase in consultant hiring, but others are less certain—30% are planning no increase in hiring, and 27% aren’t sure.

The telecommunications consulting business appears strong, despite some potential softness in the months ahead. If you hope to win work from the clients who are planning to increase their use of consultants, you may find an even more competitive environment than today. There will be more consultants chasing fewer buyers, especially if so many telecom clients hold spending on consulting flat or rein it in.

To head off a potential problem, it is a great time to focus on the health of your current client relationships and review the effectiveness of your marketing strategies.

Source: www.oxfordcorp.com.

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The Looming Talent Crisis

Making matters worse, almost half of the HR executives said retention of key talent is the issue that will most impact business performance. With a pending flood of retirees looming, many organizations are in a real talent bind—how to keep business performance strong in an era of skill shortages and employee turnover.

For HR and Organization Design consultants, clients will need you now more than ever. Consulting firms offering comprehensive approaches to employee recruitment, skill development, and retention should see a pick up in demand that could last for several years. While this issue may not rival the frenzy created by reengineering, Y2K, or Sarbanes-Oxley, talent management, at all levels of organizations, will be a boardroom topic and a market opportunity.

If you want an additional perspective on the talent crunch, take a look at our September 2002 interview with futurist Roger E. Herman, author of Impending Crisis: Too Many Jobs, Too Few People. Back then, Herman was talking about statistics projecting that the US could have ten million more jobs than people by 2010.

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Upcoming Events

Guerrilla Marketing for Consultants: Join Michael McLaughlin for the no-cost Webinar, “Guerrilla Marketing for Consultants” to be held on May 12, 2005. http://web5.e2c.com/event/call_for_speakers/speaker-05-12-05.html

Wellesley Hills Group Seminar: “How to Sell Professional Services: The Rainmaker Program” will be offered on both May 12-13, 2005, and September 22-23, 2005, in Boston. www.whillsgroup.com/become_a_rainmaker.cfm

Institute of Management Consultants (IMC USA) 2005 Conference: “New Frontiers of Consulting: Trends, Tools and Alliances to Take Your Business to New Frontiers!” will be May 21-24, 2005, in Kansas City, Missouri. www.imcusa.org

Top-Consultant Seminar: “The Art of Selling Consulting Services” will be June 17, 2005, in London. www.top-consultant.com/UK/events/Article_display.asp?ID=14

National Speakers Association 2005 Convention: “Dare to Enjoy the Journey” is set for July 9-12, 2005, in Atlanta, Georgia. www.nsaspeaker.org/meetings/atlanta/index.shtml

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Coming Attractions

Join us next month when our guest will be bestselling author and consultant, Marcus Buckingham, whose books include First, Break All the Rules and Now, Discover Your Strengths. In his latest book, The One Thing You Need to Know, he challenges the conventional wisdom of leadership, management, and individual success. Find out why Tom Peters said, “Buckingham performs the most magical of acts: He speaks with uncommon sense, yet reaches profoundly uncommon conclusions.”

Look for the next issue of Management Consulting News on June 7, 2005.

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