Blue ocean strategy?: has it really enhanced performance or is it just hype?, a study of firms of the Indian airline industry

Abstract

"Blue Ocean Strategy" is the philosophy introduced by W. Chan Kim and Renee Mauborgne through their international best seller "Blue Ocean Strategy". As per authors, companies traditionally have been competing on red oceans. In red oceans, competition tries to out perform each other in quest for greater market share. Competitive rules and industry boundaries are defined and thought to be rigid. In contrast, Blue Oceans are defined as untapped market space, demand creation and opportunity for profitable growth. Companies following blue oceans challenge the structure of the industry and try to look out for opportunities that not only add value to the customer but it also achieve it at a lower cost. Such companies make the Value-costtrade off irrelevant. We have had blue ocean creators in highly competitive industries in the past like the Cirque du Soleil that redefined the circus industry or Southwest Airline which revolutionized low cost carrier concept in the United States. Indian Aviation industry is also a highly competitive industry. From being an industry that was monopolized by state owned carriers in the early ninety it has grown nto a highly competitive red ocean with 9 airlines competing against each other for market share in 2007.Our objective in this project is to analyze the highly competitive Indian Aviation industry to find out instances of Blue Ocean by the firms in the industry. Having captured the blue ocean players and their idea, we analyzed if these firms were able to benefit out of the strategy by looking at their performance balanced scorecard. Based on the performance and the degree of success we provide certain recommendations for the future to ensure that the blue ocean ideas lead to better performance. We started our analysis by looking at the strategy canvas of the airline industry and identified Air Deccan and Paramount Airways as the players that have tried to implement blue ocean ideas in the last few years. With the vision to empower every Indian to fly, Air Deccan became the first low cost airline in India and its entry into the market rationalized the prices in the market and was the main factor which let to market expansion. Average prices fell drastically in the years that followed. Paramount Airways came up with a product that provided a premium "Business Class Only" service at the price of an economy class. They tried to bring in a bit of rationality (price) to the emotional appeal that the regular business class had. Jet Airways and Kingfisher Airlines were the potential blue ocean players but our analysis led to the conclusion that they were mere differentiators whose strategy map does not vary in shape with the rest in the industry and whose strategy was to provide "More for more". Air Deccan's financial and operational performance in the first two years after entering the market has not been that good. However it expanded too fast and it focused on gaining market share. With this in mind, they lost their focus on important parameters of timeliness and reliability. Customer perception of the airline was very bad. But in the last year (2006), Air Deccan's management was committed to the transformation of the company to become the number 1 company in all aspects. This has improved the operational parameters a lot in the last3 quarters. Based on our analysis, we came up with the following recommendations for Air Deccan.