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Going Blue:  it’s not always about competition

By Robert Likhang FCIS, ACMA, CGMA, CA(L) –  Financial & Management Consultant at

 RL Consulting (PTY) Ltd 

Introduction

Our economy is not doing well and that shows on balance sheets of most of our entrepreneurs. The big reason amongst others, are low foreign investments to leverage the domestic business, low infrastructure expenditure by the government, high interest rates, increasing quest for imports which extends leakages in our economy, poor disbursements of payments by the Treasury at the Ministry of Finance, that compounded by poor liquidity with the government.

Most entrepreneurs are doing business with government and if the government is not doing well that will reflect on their decline in financial performance.  The businesses are in red ocean of blood in competition for the little business still remaining in the country.

We embrace the decision of the Lesotho Revenue Authority with its new friendly strategy which has led to such initiatives as the Voluntary Disclosure Programme. The pressures of pending tax penalties would make the conditions even harder. We embrace the local banks for their renewed interest in lending to small and medium entities as a way to inject credit funds so as to stimulate economic activity.  The situation of competition will not become less of a pressure, but even with high unemployment more people will enter into entrepreneurship space and make the oceans bloodier.

Blue Oceans Strategy

Not so long ago, a new concept called the Blue Oceans strategy entered the business world. The concept teaches that the competitive strategies in use are a way of winning the war of costs (cost leadership) or differentiation, so that your company can get competitive advantage over its strategy group (companies it is competing with). The pioneers and proponents of the Blue Oceans strategy call this highly competitive approach a Red Oceans strategy, redness reflecting the bloodiness of the competition.

Blue Oceans argues that the entrepreneur could move to other geographic areas, or different approaches for which the industry is not competing and thus avoid the competition. The understanding is that outside the bloody red ocean is the bigger blue ocean yet uncontested.  The approach uses a grid of four factors which are meant to stimulate your action to take yourself out of the Red Ocean into the bigger Blue Ocean. The four factors are: Eliminate, Reduce, Raise, Create.

  • Eliminate – What acts and activities do you need to stop undertaking because your company is not performing well at, compared to the industry? There is no need to be spending your energy and time, even money on the activities that you are clearly failing on. You need to look at your business activities and allocation of budgets, and take a courageous decision to desist on the activities. You close certain branches and products that are not profitable. Speed is of critical nature as the further delays only destroy value and reputation.
  • Reduce – What activities do you need to reduce because although you are still making money on them but it is not increasing and efficiency is very low. You could spend the time, energy and money of high margin activities rather than low margins you are receiving compared to competitors in your strategic group. You could reduce the number of products in the whole business,
  • Raise – What activities do you need to raise, which seem to have a hope for increasing margins above the average competitors. You need to increase budget of time and money on this activity and such resources will be available from savings above. You could increase the product range which the industry does not include.
  • Create – What new activities do you have to start which the industry is not aware of or it is too slow to start on them? You could obtain complimentary or supplementary products or services or automate, digitalise what has been done manually by the industry.

Blue Leadership

Blue Ocean strategy needs a different thinking, and a different leadership. You need to think differently from the rest of the competitors and do not use them as benchmark or reference point. In the same way the grid of the factors above needs to be filled:

  • Eliminate – what acts and activities do leaders in your industry spend their intelligence, time, energy and other resources? Take a different thinking rather to value adding and more value creating activities.
  • Raise – what are the issues the industry looks at, or actions and activities do leaders spend their time, energy and budgets on, and you would wish to raise well above the current competitor’s level?
  • Reduce – What activities and acts do leaders in your industries invest time, energy, intelligence and money on for which you need to reduce low below the industry level? You will create time and resources to matters that have to be raised or created.
  • Create – What act and activities should leaders invest their time and resources on but do not undertake? It is important to change direction and go a different way if you expect different results.

Conclusion

The problem is never in the declining economy or challenges in your industry, rather the way you think. The reason for so much failure in business is caused by holding on the same old thinking that probably worked well in the past. Entrepreneurs and Corporate leaders often lack the only thing they are left to do when all else face, which ability to think differently. If your old ways of strategic thinking led to collapse or show signs of failure, you then need to change the thinking to reverse the failure.

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