New economic strategy opens up new markets to state

by michael | Feb 11, 2011 | Blue Ocean, News

Lousiana’s blue ocean

In the past two years, Louisiana landed its first nuclear manufacturing complex, a testing center for one of the world’s largest video game developers, and a startup auto manufacturing plant that wants to change the way cars are built and sold.

One common thread is knit into the ventures. They represent jobs in sectors largely new to Louisiana, sectors that could yield far more jobs if the state cultivates the right companies, the right way.

Enter Louisiana’s new “Blue Ocean” strategy.

Blue ocean is a business metaphor lifted from the 2005 watershed book by W. Chan Kim and Renée Mauborgne, “Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant.”

Kim and Mauborgne have built an entire consulting enterprise upon “Blue Ocean” after dedicating a sizable chunk of their lives to the pursuit. For a decade, they scrutinized 150 strategic business moves spanning 30 industries during the years 1880 to 2000.

What they discovered is most companies spend their business lives churning in “red oceans,” seas where the waters are roiled by countless competitors whose presence makes it difficult to generate profitable growth in the future.

Blue ocean businesses find new market spaces where they’re poised to offer low-cost, in-demand solutions that no one else is delivering as well.

Louisiana’s blue ocean strategy will be one that sets the state apart for new markets not fully exploited by other states, said Stephen Moret, the state’s economic development secretary.

In essence, Louisiana expects to get more jobs by offering a business climate where blue ocean companies can thrive.

“We’re not really looking to adopt the book’s complete philosophy so much as seeing that high-level idea — (blue ocean) — as the basic concept,” Moret said. “We’re so far behind in some existing growth industries that in many cases it would be futile and very costly to try to catch up.”

What can work, he said, is cultivating high-growth opportunities that aren’t yet dominated by other states.

Some examples:

NUCLEAR ENERGY MANUFACTURING: With dozens of nuclear power reactors being planned or built worldwide, Louisiana won a multistate competition to land a 1,400-job nuclear components manufacturing facility built by The Shaw Group and opening this fall in Lake Charles. The state used that deal to leverage a 15-year deal keeping Shaw’s headquarters in Baton Rouge and adding 1,500 new professional jobs over the length of the deal.

DIGITAL INTERACTIVE MEDIA: With some early Louisiana success stories at bringing digital applications to market — for example, TurboSquid Inc. in New Orleans and Nerjyzed Entertainment Inc. and Yatec LLC in Baton Rouge — the Baton Rouge Area Chamber, the state Department of Economic Development and LSU convinced Electronic Arts Inc. to bring a 220-job global testing center to LSU’s South Campus. The jobs largely are entry level, but the state and Baton Rouge officials eventually hope to win a video game development studio and the $60,000- to $80,000-a-year programming and design jobs that come with it.

ADVANCED MANUFACTURING: Published reports in northeast Louisiana — not confirmed by the state or the company — claim the V-Vehicle Co. manufacturing facility being developed in Monroe will produce an automotive Holy Grail: A car costing as little as $12,000 with fuel economy exceeding 40 mpg. If successful, the VVC venture exemplifies what the state wants more of — manufacturers creating blue ocean markets by doing something with technology that no one has done before. The bigger payoff may be that VVC’s lead investor is California-based venture capital firm Kleiner Perkins Caulfield & Byers, which shepherded Google, Sun Microsystems and Genentech into multibillion-dollar success stories. Moret expects the Kleiner Perkins relationship to yield other bioscience and advanced manufacturing investments in Louisiana.

VALUE-ADDED AGRIBUSINESS: In Lacassine, Mexican conglomerate Grupo Zaga opened a $20 million cotton-spinning mill this summer, with plans for a second facility and eventual demand for 15 percent to 20 percent of the state’s cotton crop. In Delhi, state officials convinced ConAgra Foods Inc. to build a $210 million sweet potato-processing facility. The investments symbolize blue ocean strategy in this sense: Each uses crops grown inside and outside the state to generate more investment and income inside the state.

Another common thread is that jobs among the blue ocean target firms tend to exceed average wages in their areas by a substantial amount.

The $35,000-a-year jobs for the ConAgra plant, for instance, are 44 percent higher than the current per capita income in Richland Parish, state officials said.

Louisiana has beaten the path to predicting future prosperity before, from a Capital Region cluster strategy pursued by a previous Baton Rouge Area Chamber administration to the Vision 2020 plan hammered out in Gov. Mike Foster’s administration.

Moret asserts that his department’s blue ocean initiative will be complementary to the Vision 2020 plan but create new market space.

Vision 2020, he said, articulated broad policy objectives, such as developing new software and energy ventures in the state.

Blue ocean will go further, refining software to digital interactive media companies and identifying specific firms that Louisiana can attract. Similarly, nuclear module manufacturing represents a unique energy industry category, which Moret said the state can use to woo more companies who could be suppliers to Shaw.

Earlier this year, Moret’s LED department advertised for proposals from consultants, one of whom would be picked to complete the first phase of the blue ocean study.

LED is close to selecting the consultant for what will be an expected six-month project.

But will the consultant create real blue ocean opportunities for the state or merely refine existing job-recruiting blueprints?

The outcome will depend on how seriously the state takes the blue ocean concept to heart, said H.R. “Pent” Penton, founder of Innovation Insights LLC. The Baton Rouge-based management consulting firm, with a satellite office in the Atlanta area, does two-thirds of its work in blue ocean-like strategies — or what he alternately calls value innovation.

Central to the work is helping companies prioritize what’s most valuable about their goods or services and identifying changes that accentuate that value, creating blue ocean market space in the process.

That’s essentially what Louisiana must do, Penton said.

“Where the blue ocean methodology will come in once you’ve identified those (long-range growth companies) is in understanding what’s going to attract them to Louisiana,” he said.

A true blue ocean study might take every company targeted by the state and draw what Penton describes as value curves showing the precise elements Louisiana can use to  differentiate itself from the competition — other states and nations — and to differentiate the company from its competitors.

That’s an intricate process, said Penton, who’ll teach a blue ocean introductory workshop on Oct. 15 through LSU’s Executive Education program.

“I think if you don’t have the right approach — and this is a problem I’ve always had with blue ocean, like so many strategic methodologies — they’re great looking backwards,” he said. “Anybody with a strategy can look at Southwest Airlines or pick Samsung — any company — and explain how that’s their strategy. And how in Southwest Airlines’ case, blue ocean didn’t exist, but intuitively that is what was done.”

The real challenge is moving companies forward to the point that they create blue ocean space no one else has, said Penton, who’ll broach that approach in the LSU workshop.

Done correctly, he said, it can be applied to a business, state or city — in the sense that East Baton Rouge’s city-parish government is attempting to create blue ocean space with its proposed Alive tourism project.

Moret said a second phase of the state’s blue ocean study will dig deeper into the specifics of how Louisiana can implement its targeted industry plan.

“(This) is the most important economic development strategy effort that we will pursue in this administration,” Moret said.

And the blue ocean strategies employed by the state will be overseen by a newly created state board, the Louisiana Innovation Council. Gov. Bobby Jindal appointed members to the 31-person council in August and the membership includes every major higher education figure in the state, business leaders, legislators and cabinet members, including Moret and Curt Eysink, executive director of the Louisiana Workforce Commission.

Moret emphasized that LED will continue to spend 50 percent of its efforts on existing companies in the state, helping them to expand and find their own blue ocean opportunities.

But unless new high-growth industries are added to the state’s economy, Louisiana will just peck away at its unemployment ranks without significantly growing its labor force and job numbers.

“Research shows that the dominant reason people move in the U.S. is to pursue a job or a business opportunity, and that’s especially true of Louisiana,” Moret said. “As a state, we have to be extremely serious about doing everything we can to formulate a growth policy.”

And yes, Moret added, special incentives will remain part of that growth policy when the state attempts to attract premier companies.

With careful cultivation, the payoff for blue ocean can be there, said John Zachary, research director for the Baton Rouge Area Chamber.

An example lies next door in Round Rock, Texas.

“Dell became the company they did because of manufacturing,” Zachary said, referring to the company’s blue ocean genius in making the personal computer cheaper and in getting it to the customer faster. “That’s an innovation.”

–GARY PERILLOUX