Blue Ocean Strategy(Sprint Nextel Corporation)

Introduction

Company and Industry Overview

Sprint Nextel Corporation is a communications company offering a host of

wireless and wireline communication product and services. The company

is a quintessential example of a firm battling out in a bloody red ocean

market. The company has been reporting losses consistently for the last

three years.

Sprint provides communication services throughout the US, Puerto Rico

and Virgin Islands. It competes in a mature market facing intense

competition. It fights for market share with other market giants such as

AT&T, Verizon, T-mobile etc. Under ‘Risk Factors’ in their latest SEC-10K

filing (financial year ended 31st December 2009) the company states the

following risk “As the wireless market matures, we must increasingly seek

to attract subscribers from competitors”- a classic condition of a firm

struggling in a red ocean. Ironically, till the recent past the statistics show

that they have only been losing out their customer base to their

competitors. The product service that they offer does not differentiate

them substantially from their competitors. The strategy that they have

resorted to, all along, have been to introduce marginal improvements to

the product service, which however does not propose much value

proposition to the customer base, and even if it does , is easily imitable

by its competitors.

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A good analysis of the industry and its competitiveness can be done by

means of Porters Five Forces .

Porters Five Forces Analysis

Threat of substitutes

The firm provides a broad range of communication tools enveloping

almost all the present communication technologies such as wireline,

wireless, internet communication tools etc. Hence the threat from

substitute product is rather low for this firm.

Barriers to entry

The wireless segment of the firms business which contributes to the major

chunk of their revenue comes under what regulators term as ‘commercial

mobile radio services’ (CDMRS). The federal communications commission

(FCC) in keeping with the communications act of 1934 exercises strict

control over the rate of firms entering the CDMRS segment. Sprint and its

major competitors owns and operates their individual infrastructure ,

which are very extensive. The huge infrastructure requirements and the

tight regulation regarding entry of firms and allocation of spectrum,

presents significant barriers to potential new entrants. However the fact

that there is still a good chunk of unallocated spectrum does present a ray

of hope for aspirant entrants.

Buyer Power

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The buyers wield significant power in this industry. The product

differentiation is not significant in this industry and as a result the market

wars are waged on the basis of price. This combined with the insignificant

switching cost to customers make the incumbent companies very

vulnerable to competition. Buyers switch between service providers quite

easily when attractive new schemes are introduced. This forces

companies to continually lower the cost and in the case of Sprint, even

enticing them to sell communication gadgets for prices far below their

cost in anticipation of retaining the customers for a longer period and

thereby hoping to make up for the loss incurred initially.

Degree of Rivalry

As discussed in the previous section, the industry is highly competitive

and hence a high degree of rivalry exists. The market has reached close

to maturity and hence the only way for firms to significantly boost their

revenue is to attract customers from competitors. This has forced the

firms to cut down on their prices, offer gadgets at prices below their

actual costs etc and thereby incurring huge losses.

Supplier Power

Most of the infrastructure and other services required for this industry is

owned and maintained by the companies themselves. However for Sprint,

Motorola is the sole supplier of gadgets that work in their iDEN (integrated

digital enhanced network) technology and those devices cannot be used

in any other networks other than iDEN. Hence cooperation and efficient

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support from Motorola is warranted for sprint to function well in that

particular segment. This gives Motorola an undue advantage over Sprint.

The above analysis pictures an industry segment pitched in a bitter battle

among rival players. None of the major players have shown any attractive

returns and firms like Sprint have projected losses consecutively for the

last three years. None of the players yet have indicated any signs of

carving out a blue ocean for themselves. They are all pitched against each

other , targeting the same customers , through minor technological

differentiation and price reductions, thereby bleeding others and

themselves in the market. An indicator of such an approach is the recent

introduction of 4G network in the US market by Sprint. This obviously is

not a very formidable advance for either of its competitors to emulate.

Sketch a Blue Ocean for Sprint

Sprint has a major strength, thanks to its extensive infrastructure and

network coverage: connectivity. It has, at present, the ability to transfer

‘voice data’ from any point in the country to anywhere in the world. This

presents enormous opportunities in tune with the rapid transformation the

world is witnessing with respect to how people interact and how business

is done.

Below we investigate the blue ocean opportunities for sprint, in line with

the systematic model prescribed in the book on “Blue Ocean Strategy”.

Path 1: Look across alternative industry

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Looking beyond the benefits connectivity provides to the communication

network, there is another area where this presents immense opportunity;

in tracking. This possibility is presently deployed at some scale in logistics

control. However the promises that these possibilities present span far

wider than the area of logistics. It is of common knowledge, that the

present mobile network can track the location of any mobile phone, by

virtue of the frequent auto-synchronising the gadget does with the

nearest base station tower of the network. The power used up by the

device in this process is minimal. Major power used up by the device is

during communication (ie while a user talks) and for other applications

such as games, calculator, lighting up the display etc. A very small gadget

, which performs the sole function of synchronising with the base station

on a regular basis thereby enabling the network to detect its location,

when associated with a GPS system (which is currently available with

almost all mobile service provider) could effectively result in an efficient

tracking tool. This tool can be further enhanced if additional features such

as a speaker be incorporated such that it can give out a tone when signals

for tracking it are received (much the same way as how a mobile phone

rings when it receives a call). This could help detection as well. Such

gadgets could be sold as accessories with the mobile phone connection

and can be used to in tracking objects such as cars, laptops, pets, wallets

and even small children (of course, the health issues regarding wave

transmissions from the gadgets has to be studied properly before this

particular application). It can also come handy for small freight companies

who cannot afford the sophisticated tracking devices that big firms use, as

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this would help them track the exact location of their fleet on a continuous

time basis.

Path 2: Look across strategic groups within industries

This specific industry caters to all types of consumers .There is no specific

segment of market that it does not serve.

Path 3: Look across the chain of buyers

In the mobile phone service segment, most of the times the user and the

purchaser is the same individual, unless ofcourse if it is a corporate

connection, in which case it is the facilities department of the corporation

that buys the service.

Path 4: Look at complimentary product and service offering

Today with the introduction of i-phones , mobile phones have access to

certain features of the internet. However the mobile phones have still not

reached a stage where it can access all the features of the internet at the

pace a laptop can from a wi-fi or broadband internet source. This has to

do with the difference in the layout of the mobile phone network versus

the internet network. When a user looks in for information on the internet

from his mobile phone, the mobile phone sends the signal to the nearest

base station tower, the base station tower forwards this signal to another

base station that can process internet data, the requested data is then

obtained from the internet gateway allocated to the network owner, this

information is then returned to the gadget. The mobile phone network is

designed primarily to cater to transmission of audio data; though the

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latest technology has made it possible to access the internet as well , the

basic network framework makes it rather less effective in providing all the

services offered by the internet. However if the base station towers are

replaced by routers then the mobile phone network can be effectively

turned into an internet network. This would mean a full scaled internet

access at every nook and corner of the country. However the picture is

not all as well as it seems, a major bottle neck towards the realisation of

such a scheme is the incapability of the present mobile phone batteries to

provide energy enough to support such data exchange (example, video

download). This issue can be dealt with reducing the span area of the

routers thereby reducing the demand on energy from the mobile gadget.

However this would demand an increase in the number of routers, in order

to cover the given area. This in turn means a good deal of investment.

However such a venture need not be initiated throughout the network in

one go. It could be laid out in a phased manner. The system can be first

initiated in major cities with high customer concentration. The approach

could be very similar to the one proposed in one of the cities on the west

coast, where routers are installed on roof tops of buildings, thereby

enabling a wifi connection throughout the city. The major advantage with

this is the shift from a market of mobile audio communication (Red Ocean)

to mobile video communication (Blue ocean). That is , communications

would be done over VOIP (Voice over internet protocol). Users could do

video chat over the mobile phone as conveniently as they do on a laptop.

This is effectively combining your mobile phone and your laptop in one

piece.

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Path 5: Look across functional or emotional appeal to buyers

Sprint has successively focussed on the functional appeal by bringing new

technologies in the market and presenting it at very competitive prices.

However with the introduction of the internet network , they could focus

on the more high tech and suave appeal the technology would bring in,

attracting initially the high net worth clients and then slowly expand its

internet network from the cities as the clientele base grows.

Path 6: Look across time

The internet based mobile video communication system, has promising

future when viewed across time. Studying the present trends, it can be

observed that there is a significant change occurring with respect to the

way humans interact and do business. Man is a social animal and he

would continue to be; however the way he socialise is changing and is

bound to change even more in the future. The driving force for this

significant change is the computer technology in general and internet

technology in particular. A shift from physical socialising to virtual

socialising can be observed to be taking place. As a result, now, one is

able to keep in contact with a number of friends across the globe on a

continuous basis and keep abreast with most of things happening in their

lives. A similar trend can be observed in the work style. With more and

more work getting outsourced , the requirement for all the resources

including human resource to be stationed at one location is getting less

and less relevant. On an extended trajectory it could be assumed that in

the coming years a lot number of industries might find it more convenient

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for its employees to work at the comfort of their home rather than

assembling at a specific location everyday. Technologies such as the

mobile video communications would present a virtual environment of

togetherness for the employees, irrespective of how far they are located

physically. On an even more extended trajectory, it is not very difficult to

imagine a world fully connected, such as the sensory image of sound and

vision from any part of the world is accessible anytime to anyone. This in

short would grant the mortals the ability hitherto ascribed only to the

providence: the ability to become omnipresent. In this context the

potential of the mobile internet connectivity is enormous.

Looking at the two potential blue ocean opportunities spotted so far, the

later, that of mobile video communications presents a much more

promising picture .

Finally let us evaluate the technology in terms of the three criteria

prescribed in the “Blue ocean Strategy Book”.

Focus

Refer the strategy canvas sketched for Sprint , in the appendix. It can be

noticed that the new strategy has a clearly focussed target where it

supersedes the present conventional mobile networks, i.e in terms of the

quality of internet connection and the capability of mobile video chat.

Divergence

Notice that all the players in the conventional mobile technology are

sketched as one graph. This shows how much insignificant the

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differentiation in their services are. However the new strategy clearly

differentiates Sprint from the rest of the competition. The parameters in

which they compete are clearly different from what is set by the

conventional mobile communications market.

Compelling Tagline

Sprint can adopt the following tagline “We empower you by making you

omnipresent”. The tagline clearly communicates the enormous features

and benefits the product has to offer. It is clearly different from any other

product or service available.

Hence it can be surmised that the adoption of this new strategy would

help Sprint break out of the bloody red ocean battle it is involved in right

now and bring more value to itself and its customers in a new blue ocean

market.

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Reference

1. Kim W.C,Mauborgne, R.(2005). Blue Ocean Strategy. How to create

uncontested market space and make the competition
irrelevant.Boston,Massachusets:Harvard Business Review Press.
2. Sprint Nextel Corporation, SEC 10K filing (Financial year ended 31st
December 2009)

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Appendix

Eliminate Raise

• Provision of gadgets at prices • Cost of subscription

below cost.

• Conventional mobile network

(long term)

Reduce Create

• Price discounts • Internet wireless network.

• Promotional offers • Emotional appeal for tech

• Conventional mobile network savvy and high income

(Phased manner) professionals/ corporate.

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