HOW STRATEGY SHAPED STRUCTURE Veron

Introduction The article is about Blue Ocean Strategy It compares 2 approaches i.e. Structuralist & Reconstructionist. It gives some keys that in which time which approach should be fruitful. It describes the importance of 3 propositions alignment. It describes how Dubai achieves its success with the alignment of the 3 propositions. It compares Napster & Apple by using 3 propositions

How Strategy Shapes Structure There are two approaches; Structuralist approach or Red Ocean: According to this approach, “Environment Shapes the strategy” Reconstructionist approach or Blue Ocean: “Strategy Shapes the structure”

Red and Blue Ocean Strategies Red Ocean Strategy Blue Ocean Strategy Compete in existing market space Create accepted market space Beat the competition Make the competition irrelevant Exploit existing demand Create and capture new demand Align the whole system of a strategic firm’s activities with its choice of differentiation or low cost. Align the whole system of a firm’s activities in pursuit of differentiation and low cost.

Choosing the Right Strategic Approach

WHICH ONE IS THE BEST In order to decide, you need to consider these factors: Environmental attractiveness The capabilities and resources Organization strategic mindset i.e. competing or innovating

When to use the Structuralist Approach When structural conditions of industry are attractive and you have the capabilities to create a viable competitive position, the structuralist is the best. When the industry is not so attractive but the company has the resources and capabilities to beat out the competition, the structuralist approach is the best. Use structuralist approach when the company has a bias toward defending current position and reluctant to venture outside unfamiliar territory and to go for competition.

the Reconstructionist Approach When to use the Reconstructionist Approach When the condition is unfavorable and they are going against you whatever your resources and capabilities might be, reconstructionist approach is the best one e.g. excess supply, cutthroat competition and low profit margins. When the industry is attractive and the existing players are well entrenched and the organization does not have the resources and capabilities to go against them then reconstructionist approach is the best. Use reconstructionist approach when the organization has an orientation toward innovation and a willingness to pursue new opportunities. End of Veron’s part

The Three Strategy Propositions a value proposition that attracts Buyers (2) a profit proposition that enables the company to make money out of the value proposition (3) a people proposition that motivates those working for or with the company to execute the strategy Rachel

Definition of Strategy The value and profit propositions set out the content of a strategy. The content of a strategy is what a company offers to buyers and how it will benefit from that offering. The people proposition determines the quality of execution.

Definition of Strategy The three propositions correspond to the traditional activity system of an organisation: “The outputs of an organisation’s activities are value for the buyer and revenue for itself, and the inputs are the costs to produce them and the people to deliver them.”

Definition of Strategy Hence, strategy is the development and alignment of the three propositions to either exploit or reconstruct the industrial and economic environment in which an organisation operates.

However…. It is unlikely to produce a high-performing and sustainable strategy unless a company creates a complete set of consistent propositions.

Types of Strategy Failure Execution failure: When the value and profit propositions are strong, but the people proposition doesn’t motivate employees or other constituencies, the organisation may experience temporary but unsustainable success. Formulation failure: When an organisation offers a motivating people proposition but lacks a strong value or profit proposition, the result might a poor performance.

How the two approaches diverge Under the structuralist approach, an organisation’s system of activities and strategic propositions need to be align with the choice of either differentiation or low cost. Under the reconstructionist approach, high performance is achieved when all three strategy propositions pursue both differentiation and low cost. End of Rachel’s part

Achieving Blue Ocean Strategy Alignment Thirty years ago, Dubai was awful. Now it is the land of hope, emerged as a premier tourist and business destination. The economic turbulences hit them but the survivals of Dubai due to its reconstructionist of blue ocean strategic move- aligning the three propositions around differentiation and low cost has brought unprecedented profitable growth. Dubai has redefined the role and activities of its government, yielding one of the fastest growing economies in the world for two decades. Martin

Dubai’s Value Proposition Dubai’s value proposition benefits both the investors and governments, so the profit propositions for the investors and the benefit and extract revenues for the government and it triggers the state’s economic development. To attract foreign investments, several compromises were made, i.e. 100% foreign ownership and free repatriation of capital and profits, charges no import ore re export duties, corporate tax rate for the first 15 to 50 years of operations is zero and can be extended.

Adapting the Changes Easier systems, English documentation, the quickness of business licensing processes, Emirates transparent legal system is based on British Law; and also world class airport and shipping services for logistics have been such the attractions. The profit propositions came from the idea that “what’s good for business is good for Dubai”, so they are not exploiting conventional corporate and personal taxes but the government invested in the infrastructure that supports the investors’ activities, so they profit from low cost value proposition.

It has been not just differentiated Economic development and government profitability are bolstered by the simultaneous pursuit of low costs. And the expatriates always remain the same, and some 80% of its growing population is now foreign. By restricting citizenship, the government has kept its social liabilities to a minimum. Join in UAE with Abu Dhabi, as the possessor of vast oil reserves, and the nation capital bears most of the cost of maintaining the federal government so these combining factors breaks the existing value-cost trade-off. End of Martin’s part

Dubai’s Profit Proposition Government has invested in infrastructure and supported the investors activities which have allowed the government to directly profit from its unique low cost proposition. Ocha

Example of Companies in Dubai DP World, 80% owned by government through Dubai World, operates the Jebel Ali port and complex in Dubai, where more than 6,000 companies are based. Now it operates over 50 ports in 31 countries which strong revenue growth for the state and a global reputation for quality.

Example of Companies in Dubai Nakheel, wholly owned by Dubai, is slated to develop half of all residential construction projects in the Emirates for the next 10 years, allowing the government to profit from the housing needs of foreign employees, now it is the world’s biggest real estates developers.

Example of Companies in Dubai The ownership of Emirates Airlines by the government makes money on the high volume of business travelers and cargo flowing into Dubai and it also gain reputation for its quality.

Dubai’s People Proposition People receive extensive state assistance, including: medical care, sickness and maternity benefits, child care, free of subsidize education, pensions, unemployment benefits, in some instances housing and disability benefits. Preserves Dubai culture and heritage by promoting virtual boundaries between its citizens and foreigners.

Dubai’s People Proposition Dubai’s people proposition has motivated its own citizens and its external partners to buy into the country’s value and profit propositions and support its strategy. End of Ocha’s part

Strategic Profiles: Dubai’s Strategy Propositions VS. Those of other emerging markets and Arab economies Dubai’s Value Proposition: Shanghai was used as a strategic reference to show how Dubai’s value proposition has been compelling to foreign investors despite its much smaller domestic market size. Mod

Strategic Profiles: Dubai’s Strategy Propositions VS. Those of other emerging markets and Arab economies Dubai’s Profit Proposition: Oil-based Arab economies were used as the strategic reference, as those economies are most comparable in terms of their geo-political, social and government revenue-generating mechanisms.

Strategic Profiles: Dubai’s Strategy Propositions VS. Those of other emerging markets and Arab economies Dubai’s People Proposition: Dubai’s past was used as a strategic reference depict how Dubai’s new strategy has made a difference to citizens.

Comic Relief reshaped the world of charity fundraising. Comic Relief’s Alignment of the Three Strategy Propositions Comic Relief, a UK fundraising created in 1985, has achieved 96% brand awareness in 20 years. It has raised more than £550 million in the UK. Comic Relief reshaped the world of charity fundraising.

Value Proposition

Value Proposition Traditional fundraising charities Make use of feelings of guilt and pity to pull in donations Focus on securing and recognising large gifts from high-income older donors Solicit funds year-round

Value Proposition On the contrary….. The idea of “Fun” draising combining a day of outrageous community with a star-studded comedy telethon, “Red Nose Night”

Value Proposition Participants need to either buy a red nose for £1 or raise money by doing silly antics that friends sponsor This unique experience is created only every 2 years to prevent people from boredom or hassle. Red Nose Day becomes a national holiday in the UK.

Value Proposition Comic Relief’s Value Proposition allows donors to make a huge difference while having a great time at a low cost.

Profit Proposition Comic Relief avoids large advertising costs, and it also makes grants to other charities so the costs are low, creating a differentiated, low-cost Profit Proposition. Red Nose Night The network, the studios, and the stars donate their services. Red Nose Day Public does the bulk of fundraising.

People Proposition Its strategy gives its staff members a strong sense of pride and belonging, and a chance to better the world while having fun at little or no financial cost. Corporate sponsors and celebrities also receive tremendous positive free publicity.

People Proposition Comic Relief’s People Proposition focuses on the public, corporate sponsors, and celebrities whose buy-in is needed to make the value and profit propositions sustainable. End of Mod’s part

When strategy is not alligned Why many market-creating innovations fail to become sustainable businesses? Failure to align the 3 strategy propositions. Yanni

Example: Napster An online music provider Founded in 1999, with 80 million registered users Simple, easy to use software that allowed music filed to be indexed, searched, and freely shared across computers throughout the world Yet, within 1 year, Napster was under seige

Why ? Record label worried that the free sharing of music would destroy their sales. So, they approached Napster to work out a revenue sharing model. Instead of working to build win-win agreement, Napster declared that it would advance with/without the industry’s support.

The rest of history... Napster was forced to shut down under a barrage of copyright infringement suits before it had developed a profit proposition to benefit from its huge user base. Without three aligned strategy propositions, Napster market creating innovation failed to deliver commercial success.

Example: Apple Launch the iTunes Music Store in 2003, and in the space of 5 years became the number one music seller in America Online music store that allowed buyers to freely browse more than 200,000 songs Guaranteed high sound quality Its online music store allowed buyers to freely browse more than 200,000 songs, cinluding exclusive tracks, listen to 30second samples, and download an individual song for 99cents or an entire album for 9.99

The difference: Napster VS Apple Apple built an attractive people preposition for the 5 major music companies. Not only earned money for every song downloaded, but also drove sales of iPod. The allignment across iTunes’s value, profit, and people propositions not only ushered in a new era of music but is sufficiently hard to imitate that to date no other online music store has been able to establish a firm footing in the industry. 5 music companies : BMG, EMI group, Sony, Universal Music Group, Warner Bros Ensuring the music downloaded with proper copyright protection, and paying the music companies 65 cents/songs downloaded

Key Lesson Managers should not get too excited about innovation per se The real difference between success and failure is strategy alignment.

The Leadership Challenge Different business units face different structural conditions with different resources and capabilities and have different strategic mind-sets. The challenge for the leaders : Ensure what the right strategic approach for each business should be and then to enter into the spirit of the framework to develop the right strategy for that unit Strategy : structuralist competitive strategy model or reconstructionist blue ocean strategy model