Innovation has often been seen as a random experimental process. Blue Ocean Strategy challenges traditional innovation theories and offers systematic methodologies for creating blue oceans of uncontested market space and highly profitable growth. Blue Ocean Strategy challenges traditional innovation beliefs that innovation is trial and error must be done by an entrepreneur and opportunities and risks come together. Blue Ocean Strategy in contrast, offers analytical tools and frameworks that help organizations minimize risks while maximizing opportunities to achieve profitable growth.
The increase in energy demands, as well as the rising costs to provide and manage energy over the years has led to smart grid development around the world.
But, the high costs associated with smart grid development infrastructure and the various different technical standards around the world have created a competitive marketspace for the industry. As players strive to out-do their competitors they may want to consider Blue Ocean Strategy.
What is a smart grid?
Smart grids are used and promoted by many governments as a way of creating energy independence – particularly issues such as global warning and emergency resilience issues. Smart grids delivers electricity from suppliers to consumers using two-way digital technology to control appliances at consumers’ homes to save energy, reduce cost and increase reliability and transparency. Smart grids have an information and metering system which overlays electricity distribution grids to control the amount of energy used.
What is Blue Ocean Strategy?
Blue Ocean Strategy, developed by INSEAD professors W. Chan Kim and Renee Mauborgne, is the proven system for making competition irrelevant by creating new market spaces through simultaneous achievement of differentiation and low cost. Instead of being locked in red oceans of fierce, bloody competition, you can apply Blue Ocean Strategy to move to clear waters of uncontested market space.
Electrical grids are an aggregate of multiple networks and multiple power generation companies. They require many operators employing varying levels of communication and coordination, most of which is manually controlled. Smart grids increase the connectivity, automation and coordination between these suppliers, consumers and networks that perform either long distance transmission or local distribution tasks.
This paradigm is changing as businesses and homes begin generating more wind and solar electricity, enabling them to sell surplus energy back to their utilities. Modernization is necessary for energy consumption efficiency, real time management of power flows and to provide the bi-directional metering needed to compensate local producers of power. Although transmission networks are already controlled in real time, many in the US and European countries are antiquated by world standards, and unable to handle modern challenges such as those posed by the intermittent nature of alternative electricity generation, or continental scale bulk energy transmission.
High costs.
What tends to happen in a technology-driven industry is that technology demands directly drive up costs. This is the particular case for smart grid development because of the different standards and technological requirements around the world. Here lies the potential Blue Ocean Strategy opportunity. The value should directly tie with a low cost structure.
Value innovation - the cornerstone of Blue Ocean Strategy.
Value innovation is the simultaneous pursuit of differentiation and low cost. It is called value innovation because instead of focusing on trying to beat the competition, you focus on making the competition irrelevant by creating a leap in value for buyers and your company, thereby opening up new and uncontested market space.
Value innovation places equal emphasis on value and innovation. Value without innovation tends to focus on value creation on an incremental scale and innovation without value tends to be technology-driven, often shooting beyond what buyers are ready to accept and pay for. If the focus is not on low cost the industry is sure to fall into fierce competition where competitors will move in and imitators reduce profit margins.
The different global standards.
The American National Standards Institute (ANSI) is responsible for mandating and monitoring North America metering standards .This body defines the physical form factor of socketed meters, the specifications for metrology and timing accuracy, and the appropriate performance and safety testing for meters. The European standards are defined by the International Electrotechnical Commission (IEC) and the Measuring Instrument Directive (MID). The differences between these standards do not affect the overall smart grid architecture, but they create requirements for different products in Europe and the U.S.
Communications standards. Most North American smart grid systems use a combination of TCP/IP addressing and communications to communicate with meters that use ANSI C12.18 and C12.22 communications. The European equivalent also uses TCP/IP—and this commonality creates a strong architectural commonality between North American and European solutions. The European meters, however, typically use IEC communications including the DLMS/COSEM suite of standards, so much of the head-end software and low-level communications components are different in the U.S. and Europe.
Radio emission standards. In North America, wireless mesh networks between electricity meters largely have won the day. This is partially because of the flexible regulations around use of public, unlicensed radio communications bands as regulated by the Federal Communications Commission (FCC). European regulations are somewhat different—communications in the unlicensed 2.4 GHz band are restricted to a lower power level and must use frequency- or channel-hopping technologies to be approved for use in the EU. This has delayed the introduction of wireless mesh technology into Europe, which is one reason PLC and digital cellular communications have been more popular. Recent pilots of wireless mesh technologies in the unlicensed 2.4 GHz band have shown promising results, so we expect an architectural convergence in the U.S. and Europe, even with the different radio emission standards.
The different global standards result in different technologies and infrastructure. This most likely will only lead to higher costs. The major smart metering hardware sellers and makers of software like Echelon, General Electric, Itron, IBM, Cisco and Honewell entering the market have an ample Blue Ocean Strategy opportunity.
One United States Department of Energy study calculated that internal modernization of US grids with smart grid capabilities would save between 46 and 117 billion dollars over the next 20 years. In 2009, the smart grid industry was valued at about $21.4 billion — by 2014, it will exceed at least $42.8 billion. Given the success of the smart grid’s in the U.S., the world market is expected to grow at a faster rate, surging from $69.3 billion in 2009 to $171.4 billion by 2014.
Furthermore, the push for smart grid development would increase GDP by creating more new, green-collar energy jobs related to renewable energy industry manufacturing, plug-in electric vehicles, solar panel and wind turbine generation, energy conservation construction.
The increase in energy demands, as well as the rising costs to provide and manage energy over the years has led to smart grid development around the world.
As the charge for global smart grid development ameliorates as do the high costs associated with smart grid development infrastructure and the various different technical standards around the world. As a result, these challenges have created a competitive marketspace for the industry. But, as companies strive to out-do their competitors they should consider how Blue Ocean Strategy can address global smart grid concerns.
