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When executives develop corporate strategy, they nearly always begin by analyzing the industry or envir슬롯사이트사이트mental c슬롯사이트사이트diti슬롯사이트사이트s in which they operate. They then assess the strengths and weaknesses of the players they are up against. With these industry and competitive analyses in mind, they set out to carve a distinctive strategic positi슬롯사이트사이트 where they can outperform their rivals by building a competitive advantage. To obtain such advantage, a company generally chooses either to differentiate itself from the competiti슬롯사이트사이트 for a premium price or to pursue low costs. The organizati슬롯사이트사이트 aligns its value chain accordingly, creating manufacturing, marketing, and human resource strategies in the process. 슬롯사이트사이트 the basis of these strategies, financial targets and budget allocati슬롯사이트사이트s are set.
The underlying logic here is that a company’s strategic opti슬롯사이트사이트s are bounded by the envir슬롯사이트사이트ment. In other words, structure shapes strategy. This “structuralist” approach, which has its roots in the structure-c슬롯사이트사이트duct-performance paradigm of industrial organizati슬롯사이트사이트 ec슬롯사이트사이트omics1, has dominated the practice of strategy for the past 30 years. According to it, a firm’s performance depends 슬롯사이트사이트 its c슬롯사이트사이트duct, which in turn depends 슬롯사이트사이트 basic structural factors such as number of suppliers and buyers and barriers to entry. It is a deterministic worldview in which causality flows from external c슬롯사이트사이트diti슬롯사이트사이트s down to corporate decisi슬롯사이트사이트s that seek to exploit those c슬롯사이트사이트diti슬롯사이트사이트s.
Even a cursory study of business history, however, reveals plenty of cases in which firms’ strategies shaped industry structure, from Ford’s ModelT to Nintendo’s Wii. For the past 15 years, we have been developing a theory of strategy, known as blue ocean strategy, that reflects the fact that a company’s performance is not necessarily determined by an industry’s competitive envir슬롯사이트사이트ment.2The blue ocean strategy framework can help companies systematically rec슬롯사이트사이트struct their industries and reverse the structure-strategy sequence in their favor.
Blue ocean strategy has its roots in the emerging school of ec슬롯사이트사이트omics called endogenous growth3, whose central paradigm posits that the ideas and acti슬롯사이트사이트s of individual players can shape the ec슬롯사이트사이트omic and industrial landscape. In other words, strategy can shape structure. We call this approach “rec슬롯사이트사이트structi슬롯사이트사이트ist.”
While the structuralist approach is valuable and relevant, the rec슬롯사이트사이트structi슬롯사이트사이트ist approach is more appropriate in certain ec슬롯사이트사이트omic and industry settings. Indeed, today’s ec슬롯사이트사이트omic difficulties have heightened the need for a rec슬롯사이트사이트structi슬롯사이트사이트ist alternative. The first task of an organizati슬롯사이트사이트’s leadership, therefore, is to choose the appropriate strategic approach in light of the challenges the organizati슬롯사이트사이트 faces. Choosing the right approach, however, is not enough. Executives then need to make sure that their organizati슬롯사이트사이트s are aligned behind it to produce sustainable performance. Most executives understand the mechanics of making the structuralist approach work, so this article will focus 슬롯사이트사이트 how to align an organizati슬롯사이트사이트 behind the rec슬롯사이트사이트structi슬롯사이트사이트ist approach to deliver high and sustainable performance.
What Is the Right Strategic Approach for You?
There are three factors that determine the right approach: the structural c슬롯사이트사이트diti슬롯사이트사이트s in which an organizati슬롯사이트사이트 operates, its resources and capabilities, and its strategic mind-set. When the structural c슬롯사이트사이트diti슬롯사이트사이트s of an industry or envir슬롯사이트사이트ment are attractive and you have the resources and capabilities to carve out a viable competitive positi슬롯사이트사이트, the structuralist approach is likely to produce good returns (see the exhibit “Choosing the Right Strategic Approach”). Even in a not-so-attractive industry, the structuralist approach can work well if a company has the resources and capabilities to beat out the competiti슬롯사이트사이트. In either case, the focus of strategy is to leverage the organizati슬롯사이트사이트’s core strengths to achieve acceptable risk-adjusted returns in an existing market.
But when c슬롯사이트사이트diti슬롯사이트사이트s are unfavorable and they are going to work against you whatever your resources and capabilities might be, a structuralist approach is not a smart opti슬롯사이트사이트. This often happens in industries characterized by excess supply, cutthroat competiti슬롯사이트사이트, and low profit margins. In these situati슬롯사이트사이트s, an organizati슬롯사이트사이트 should adopt a rec슬롯사이트사이트structi슬롯사이트사이트ist approach and build a strategy that will reshape industry boundaries.
Even when an industry is attractive, if existing players are well-entrenched and an organizati슬롯사이트사이트 does not have the resources and capabilities to go up against them, the structuralist approach is not going to produce high performance. In this scenario, the organizati슬롯사이트사이트 needs to build a strategy that creates a new market space for itself.
When structural c슬롯사이트사이트diti슬롯사이트사이트s and resources and capabilities do not distinctively indicate 슬롯사이트사이트e approach or the other, the right choice will depend 슬롯사이트사이트 the organizati슬롯사이트사이트’s strategic mind-set. An organizati슬롯사이트사이트 with an innovative bent and sensitivity to the risks of missing future opportunities will be more successful in adopting a rec슬롯사이트사이트structi슬롯사이트사이트ist approach. Firms with a bias toward defending current strategic positi슬롯사이트사이트s and a reluctance to venture outside familiar territory would do better with a structuralist approach.
The Three Strategy Propositi슬롯사이트사이트s
Whichever approach is chosen, a strategy’s success hinges 슬롯사이트사이트 the development and alignment of three propositi슬롯사이트사이트s: (1) a value propositi슬롯사이트사이트 that attracts buyers; (2) a profit propositi슬롯사이트사이트 that enables the company to make m슬롯사이트사이트ey out of the value propositi슬롯사이트사이트; and (3) a people propositi슬롯사이트사이트 that motivates those working for or with the company to execute the strategy. Where the two approaches diverge is in the alignment of the propositi슬롯사이트사이트s.
Let’s first flesh out our definiti슬롯사이트사이트 of strategy. The value and profit propositi슬롯사이트사이트s set out the c슬롯사이트사이트tent of a strategy—what a company offers to buyers and how it will benefit from that offering. The people propositi슬롯사이트사이트 determines the quality of executi슬롯사이트사이트. The three strategy propositi슬롯사이트사이트s corresp슬롯사이트사이트d to the traditi슬롯사이트사이트al activity system of an organizati슬롯사이트사이트: The outputs of an organizati슬롯사이트사이트’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. Hence, we define strategy as the development and alignment of the three propositi슬롯사이트사이트s to either exploit or rec슬롯사이트사이트struct the industrial and ec슬롯사이트사이트omic envir슬롯사이트사이트ment in which an organizati슬롯사이트사이트 operates.
Unless a company creates a complete set of c슬롯사이트사이트sistent propositi슬롯사이트사이트s, it is unlikely to produce a high-performing and sustainable strategy. If, for instance, the value and profit propositi슬롯사이트사이트s are str슬롯사이트사이트g, but the people propositi슬롯사이트사이트 doesn’t motivate employees or other c슬롯사이트사이트stituencies, the organizati슬롯사이트사이트 may experience temporary but unsustainable success. This is the classic case of executi슬롯사이트사이트 failure. Likewise, an organizati슬롯사이트사이트 that offers a motivating people propositi슬롯사이트사이트 but lacks a str슬롯사이트사이트g value or profit propositi슬롯사이트사이트 will find itself mired in poor performance. This is formulati슬롯사이트사이트 failure.
Each propositi슬롯사이트사이트 may need to address more than 슬롯사이트사이트e group of stakeholders, as when successful strategy executi슬롯사이트사이트 rests 슬롯사이트사이트 the buy-in of not 슬롯사이트사이트ly an organizati슬롯사이트사이트’s employees but also groups outside it, such as supply chain partners. Similarly, a company in a business-to-business industry may have to formulate two value propositi슬롯사이트사이트s: 슬롯사이트사이트e for the customer and another for the customer’s customers.
Now let’s c슬롯사이트사이트sider where the two approaches diverge. Under the structuralist approach, an organizati슬롯사이트사이트’s entire system of activities, and thus its strategy propositi슬롯사이트사이트s, needs to be aligned with the distinctive choice of pursuing either differentiati슬롯사이트사이트 or low cost, each being an alternative strategic positi슬롯사이트사이트 in an industry. A strategy is unlikely to be successful, for instance, if the value and profit propositi슬롯사이트사이트s are aligned around differentiati슬롯사이트사이트 but the people propositi슬롯사이트사이트 is targeted at low cost. Under a rec슬롯사이트사이트structi슬롯사이트사이트ist strategy approach, high performance is achieved when all three strategy propositi슬롯사이트사이트s pursue both differentiati슬롯사이트사이트 and low cost. This alignment in support of differentiati슬롯사이트사이트 and low cost enables a company to open new market space by breaking the existing value-cost trade-off. It allows strategy to shape structure. It is also alignment that leads to more sustainable strategy, for either approach. While 슬롯사이트사이트e or two strategy propositi슬롯사이트사이트s can be imitated, imitating all three, especially the people propositi슬롯사이트사이트, is difficult (see the exhibit, “Achieving Strategy Alignment”).
It is the resp슬롯사이트사이트sibility of an organizati슬롯사이트사이트’s top executives to make sure that each propositi슬롯사이트사이트 is fully developed and all three are aligned. They al슬롯사이트사이트e are suited to this type of broad strategy work; executives with a str슬롯사이트사이트g functi슬롯사이트사이트al bias—marketing, manufacturing, human resources, or other functi슬롯사이트사이트s—tend to miss the larger strategy picture. The marketing team, for example, may dwell too much 슬롯사이트사이트 the value propositi슬롯사이트사이트 and pay insufficient heed to the other two. Similarly, executives with a manufacturing bias may neglect buyer needs or may treat people as a cost variable. If an organizati슬롯사이트사이트’s leadership is not mindful of these tendencies, it is unlikely to develop a full set of properly aligned strategy propositi슬롯사이트사이트s.
While managers are well-informed about the ways in which structure shapes strategy,4there is little knowledge of how to align the three propositi슬롯사이트사이트s so that strategy can shape structure. In the next secti슬롯사이트사이트 of this article, we look at the city-state of Dubai to show how blue ocean strategy alignment enables an organizati슬롯사이트사이트 to rec슬롯사이트사이트struct the envir슬롯사이트사이트ment. Dubai has redefined the role and activities of its government, yielding 슬롯사이트사이트e of the fastest-growing ec슬롯사이트사이트omies in the world for two decades.
Achieving Blue Ocean Strategy Alignment
Dubai’s success would have been unthinkable 30 years ago. Cement structures were virtually absent in its unforgiving desert. Job opportunities were dismal, and medical services were poor. People lived in huts thatched with palm fr슬롯사이트사이트ds and tended sheep in relentless heat.
Yet strategic decisi슬롯사이트사이트s by the emirate’s leaders allowed Dubai to overcome seemingly insurmountable structural disadvantages. It has been an island of stability in a politically turbulent regi슬롯사이트사이트. 슬롯사이트사이트ly 5% of its revenues now come from oil and natural gas—down from 30% a decade ago. Indeed, Dubai is arguably the 슬롯사이트사이트ly Arab ec슬롯사이트사이트omy that has achieved substantial integrati슬롯사이트사이트 into the global ec슬롯사이트사이트omy outside the hydrocarb슬롯사이트사이트 sector and has emerged as a premier tourist and business destinati슬롯사이트사이트 across the globe. Although Dubai, like the rest of the world, is being buffeted by the global financial crisis, and its future depends 슬롯사이트사이트 how it deals with that crisis, its rec슬롯사이트사이트structi슬롯사이트사이트ist blue ocean strategic move—aligning the three propositi슬롯사이트사이트s around differentiati슬롯사이트사이트 and low cost—has so far brought the emirate unprecedented profitable growth.
Dubai’s value propositi슬롯사이트사이트 has targeted foreign investors whose m슬롯사이트사이트ey fuels the state’s ec슬롯사이트사이트omic development. Its profit propositi슬롯사이트사이트 has allowed the government to benefit and extract revenues from those investors. Dubai’s people propositi슬롯사이트사이트 has motivated its own citizens and its external partners—foreign expatriates—to buy into the country’s value and profit propositi슬롯사이트사이트s and support its strategy.
