HOW STRATEGY SHAPED
STRUCTURE
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:
According to this approach,
“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
Create and capture new
demand
Exploit existing 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.
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.
The Three Strategy
Propositions
(1) 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
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.
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.
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.
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.
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.
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.
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 revenuegenerating 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’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.
When strategy is not alligned
Why many market-creating innovations fail
to become sustainable businesses?
Failure to align the 3 strategy propositions.
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
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.
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 mindsets.
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