Blue Ocean Strategy for small and mid-sized companies in Germany

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August 2008



Why does 'value innovation' play an important role for small and medium-sized enterprises (SMEs)? Innovation, besides imitation, is the foundation to conduct business and produce goods and services. Each company needs at least at one point or another during its lifecycle innovation to stay competitive within a market. Its importance increases throughout time because of new companies accessing existing domestic markets by overcoming the market barriers and the international integration of markets for global trading. Aside the well-known forms of innovation, a new type called 'value innovation' was developed and published in 2005. This new category is embedded as an essential part in a strategy theory recognized as 'Blue Oceans'. This blue ocean strategy challenges companies to break out of their current market space.But is this kind of innovation really new and usable for general management consulting? The term 'value innovation' is not new within business science. However value innovation is used at a smaller scale. Nevertheless its meaning within the new theory which defines a new way to develop previously unidentified markets is crucial. It requires an overall new perspective of the management to plan and carry out its business processes. Therefore its advantages are only evident in a general strategy approach. Can this concept be turned into a consulting model to support SMEs? Why are SMEs the right target group? Small companies often seek a market niche which can be attained by differentiation in order to survive in competitive markets. Usually the managers are using business strategies like cost cutting or differentiation of products, processes or services to find this niche. This approach originates from the assumption that a group of buyers within the market is accessible or need the traded goods or services at another level of quality, prize, design or function. Could this new theory help establish new niches?The study will find answers to the questions mentioned above.


1;Blue Ocean Strategy for small andmid-sized companies in Germany Development of a consulting approach;1 1.1;Table of contents;3 1.2;I Preface;5 1.3;II Acknowledgement;6 1.4;1. Introduction;7 1.4.1;1.1. Aims and Objectives;7 1.4.2;1.2. Structure;7 1.4.3;1.3. Methodology;8 1.4.4;1.4. Research and Procedure;10 1.4.5;1.5. Limitation;11 1.4.6;1.6. Resources;12 1.5;2. Market Theory and Business Strategies;14 1.5.1;2.1. The Market Dynamics;14 1.5.2;2.2. Business Strategy Generic Strategies;15;2.2.1. Ansoff Matrix;15;2.2.2. Porters Generic Strategies;16 1.5.3;2.3. Business strategy Analytical Approaches;17;2.3.1 Porters Five Forces;17;2.3.2 Value Chain Model;17;2.3.3 Hamels Core Competency and Innovation;18 1.5.4;2.4. Types of Innovation Which Follow These Business Strategies;19 1.5.5;2.5. Management Consulting Approaches;22;2.5.1. Market-growth-market-share Matrix;22;2.5.2. Market-attractiveness-competitive-strength Matrix;24 1.6;3. Why does Industries Named Red Oceans?;25 1.7;4. Blue Ocean Strategy;27 1.7.1;4.1. The Idea Behind the Blue Ocean Strategy?;27 1.7.2;4.2. Value Innovation: The Cornerstone of Blue Ocean Strategy;27 1.7.3;4.3. Analytical Tools and Frameworks;28;4.3.1 Strategy Canvas;28;4.3.2 Four Actions Framework;31;4.3.3 Eliminate-Reduce-Raise-Create Grid;32 1.7.4;4.4. The Six Principles of Blue Ocean Strategy;33;4.4.1 Formulation Principles;33;4.4.2 Execution Principles;36 1.7.5;4.5. The Market Dynamics of Value Innovation;37 1.7.6;4.6. Key Success Factors;38 1.7.7;4.7. Blue Ocean as a Special Kind of Differentiation;39 1.7.8;4.8. Strength and Weaknesses;40 1.7.9;4.9 Results from the Questionnaire/ Interviews;41 1.8;5. Small and Medium-Sized Enterprises in Germany;42 1.8.1;5.1. Definitions of SMEs;42 1.8.2;5.2. Current Situation of SMEs;44;5.2.1 Results from the Literature Research;44;5.2.2 Results from the Interviews;44 1.8.3;5.3. Innovation Behavi
our and Strategies;45 1.8.4;5.4. The Consultant-client Relationship;46 1.9;6. Consulting Approach Based on Value Innovation;48 1.9.1;6.1. Definition of Management Consulting;48 1.9.2;6.2. Excursion: General Consulting Process;50 1.9.3;6.3. Consulting and Consulting Concept Characteristics;51;6.3.1. Results from the Literature Research;51;6.3.2 Results from the Interviews and the Questionnaire;52 1.9.4;6.4. Consulting of SMEs;53 1.9.5;6.5 Design of Consulting Concept Value Innovation;53;6.5.1. Framework;54;6.5.2. Consulting Concept Value Innovation;54;6.5.3. Summary of Phases and Tools;67 1.10;7. Conclusion;69 1.11;III Bibliography;70 1.12;IV Appendices;74


Carsten Siegemund, Diplom-Kaufmann, Johannes Gutenberg - Universität Mainz, Abschluss 1998, MBA IMC (International Management Consulting), Abschluss 2008. Derzeit tätig als Unternehmensberater im Bereich Risikomanagent und Prozessmanagement bei Banken.


Chapter 5.2, Current Situation of SMEs

Results from the Literature Research: The cyclical upturn in Germany is now visible. That is the headline in the media. Especially small and medium-sized companies are playing an important role in this situation. This is caused due to the fact that the majority of companies participating in the markets are part of this group. But only the minority of innovations which are important to protect the future profit and company’s existence were developed here. In 2006 more than 48.000 new ideas were patented which were developed at universities or by private persons. The majority of these ideas which includes innovation of products, services and processes were sold to international companies. 

Results from the Interviews

In the media the current situation is described by experts as following: In Germany the cyclical upturn is visible. The experts and also the national SMEs associations are talking about full order books and the fact that many companies are searching for new employees to fulfil the outstanding orders.The results from the interviews with experts of medium-sized companies revealed another reality. Yes, companies have got full order books but only in combination with a strictly cost reduction. Only the company which can offer its products at a very low price is able to catch the order. The competition of low price suppliers increases on the national markets. Especially the globalisation and the entry of companies which are located in Russia and China in the existing markets increase the cost pressure for SMEs in Germany. In the past these companies were accepted as cooperation partners and German companies have proceeded knowledge transfer to manifest production standards. Nowadays these cooperation partners are competitors acting on the same markets with another cost structure which is a competitive advantage. On the other hand the buyers&rsq
uo; side customers are price sensible and trying to decrease the price of products further. Another problem which is named by the expert is the order process. 

Today the time from the first contact, the offering and the order from the customer is taking longer and is a very complex procedure. The customers are asking e.g. for risk reducing methods and just-in-time deliveries. The main message of the interviews is that the managers of the SMEs need to find their niche or new ways to reduce the market’s pressure. 

Innovation Behaviour and Strategies

For their strategies regarding the innovation behaviour companies can only choose one of two categories: acting as innovator or as imitator. At the beginning of the literature research for this dissertation the author got the impression that the majority of the SME are acting as imitators and only a small group of companies are using their chance as innovators to spread their range of sales or improve their market shares. The opinion was conformed by a study proceeded by the BDU in the Southwest part of Germany. Following the results of this investigation 21 percent of SMEs in Baden-Württemberg are innovative and 45 percent are not really innovative. This result is driven by the self-description of the companies’ management. Regarding the fact that the existence of companies (especially for SMEs) requires continuously the development of new products and services, these figures are unusual low and not understandable. For the small part of companies which are acting as innovators the process of developing new ideas is not a strange concept. It is part of their day-to-day business to create new products and services. Though most of the time the process is not very systematic or structured. The generation of ideas can be called intuitive and depending on one person (e.g. owner) or a small number of key persons in the company. 89 percent of the interview partners
of an investigation which concerns with the development and management of innovations regarding especially the key persons of the innovation process named the CEO and the management as leading idea generators. 

The detailed results are as followed: 89 percent of the interviewees named the CEO and the management, 80 percent of the interviewees said the ideas will be generated by the employees, 79 percent of the interviewees get the ideas from a good customer relationship, 67 percent of the interviewees are discussing new ideas with suppliers, 56 percent of the interviewees named their competitors, 27 percent of the interviewees are looking for dialogues between research teams and universities. Only 26 percent of the interviewees are consulting an external consultant.The consequence of this ‘few persons’ strategy is an unplanned, unstructured process of generating business ideas. While competing in red ocean markets a company needs the structured process of innovation.Looking at the results of the same investigation the main innovation regularly are about optimisation of companies processes and the development of new products. 

The Consultant-client Relationship

The consulting process involves two partners – the consultant and the client. Building the relationship is not easy but important for the efficiency of the problem-solving process. To achieve a successful cooperation, both sides (consultants and clients) need to be aware of the human, cultural and other factors that will affect the relationship. Consultants and clients need to build and maintain a relationship of collaboration, understanding and trust. The consultant is supposed to achieve valid results in the client organisation without being part of it. This situation which needs a relationship of trust can provide problems if it lacks any of the mentioned factors. Beside that, the management of SMEs might have several issues which they can
discuss with consultants or areas the leaders will be supported by an external consulting company. The demand of external consulting depends on the actual situation of the company. As result of the conducted interviews only 14% of the interviewees do not need the support of external consultants and 86% usually are looking for the support of consultants in special issues. Regarding the possible fields of expertise offered by consultants, the following topics were regularly demanded according to the studies of literature (Figure 5-3: Central Issues of SMEs related to support by External Consultants (own design)).One of the substantial issues for consulting could be found in the area of general management: strategy.

EAN: 9783836614771
Untertitel: Development of a consulting approach. 1. Auflage. Sprache: Englisch. Dateigröße in MByte: 2.
Verlag: Diplomica Verlag
Erscheinungsdatum: August 2008
Seitenanzahl: 92 Seiten
Format: pdf eBook
Kopierschutz: Keiner
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