Business Strategy & Strategic Management - Assignment Example

? Business Strategy and Strategic Management Table of Contents The Blue Ocean Strategy 3 How Companies can Make the Competition Irrelevant Using the Blue Ocean Strategy 5 The Use of the Blue Ocean’s Strategy By Cirque du Soleil 5 The Use of the Blue Oceans Strategy by Chrysler 6 The Blue Ocean’s Strategy as Utilized by the Nintendo WII 7 Critique of the Structuralist and Reconstructionist Schools of Strategy 9 Key Strategic Approach Propositions 11 Reconstructionist Approach as Applied by the City State of Dubai 12 Bibliography 14 Business Strategy and Strategic Management The Blue Ocean Strategy The Blue Ocean’s strategic concept is seen to attempt to essentially represent all the various potential markets that are seen to as yet not exist and must therefore be created. The blue Ocean Strategy was first proposed by INSEAD’s professors Kim and Mauborgne in the year 2005 (Uden, et al. 2013). As proposed by Kim and Mauborgne, the Blue Ocean Strategy fundamentally suggests that companies should attempt to create new demand across various uncontested market spaces with the sole objective of attempting to avoid competition. In line with the Blue Ocean Strategy, companies are required to ensure that they break down the traditional wall used in product definition, carefully rethink and re-strategize on exactly how their service or product will eventually be positioned in the market and eventually develop a series of new products as a result of their endeavors to ensure that they always attempt to think outside the box (Wong, 2010). According to Todd and Bessant (2011), as a result of the blue ocean strategic concept, it is normal for new markets to be created due to the challenging of the various boundaries that are seen to exist between different markets and industries, however, there at times happens to be whole new industries created as exemplified by those that in recent years have been seen to have been spawned by the internet. As such, it is evidently clear that both new entrants and incumbents play a crucial role in the formation of these new markets (Tidd and Bessant, 2011). Professor’s Kim and Mauborgne distinguish the Blue Ocean Strategies by attempting to try and compare them to the more traditional form of thinking which are seen to constitute of the Red Ocean Strategies (Ziesak, 2009). As opposed to the Red Ocean strategy of developing new products that compete in the currently existing market space, companies should ensure that they develop new products that have been positioned in uncontested market spaces which is in line with the Blue Ocean strategy. The Blue Ocean strategy also aims to try and make the competition irrelevant as opposed to attempting to beat this same competition as is commonly seen in a Red Ocean strategy (Siegemund, 2008). While the Red Ocean strategy attempt to try and fight for a share of the existing customers and market segment, the Blue Ocean strategy as proposed by Professors Kim and Mauborgne proposes that companies should instead try to capture new demand (Rao, et al., 2008). The Strategy also postulates that the various firms and companies should try to break the traditional cost/value trade-off: In line with this, companies should essentially align the entire system of their various company activities to be channeled in the pursuit of both low cost and product differentiation (Tidd and Bessant, 2011). According to Cunningham and Harney (2012), if effectively combined with the right cost and pricing structure, significant new customer utility; which is the creation of a certain level of satisfaction or meeting the needs of these customers, can ensure that a firm is able to create a significant leap in net buyer value in a case where the net buyer value is seen to essentially be equal to the utility that the buyers happen to receive minus the actual price that they happen to pay for it. In light of this formulation, it is clearly evident that professors Kim and Mauborgne perceive buyer value and customer utility to fundamentally be interchangeable terms and can be able to be measured financially as they can both be netted by simply subtracting their overall financial cost. In addition to this, if a company is able to efficiently create customer utility, it is subsequently able to create a significant profit for its self. This profit is generally the price of the of the actual product offering minus the total costs incurred in its production. In respect to this, Cunningham and Harney (2012), argues that Kim and Mauborgne essentially make the postulation that the value of the product happens to be equal to the level of satisfaction enjoyed by the customers, and that meeting the needs of customers by a product happens to be equal to the amount that customers are found to be willing to pay for the given service or product. Professors Kim and Mauborgne, conducted a study in which they found that in most instances, Blue Oceans happen to be created in the event that a company happens to create some form of value by simultaneously opting to reduce cost while offering new or different services or products. The study which examined the strategies employed by 108 different companies found that only a marginal amount of 14% of the innovations produced by these companies managed to successfully create new markets while remaining 86% were perceived to mainly be incremental line extensions. It should be noted that, that the 14% of the Blue Ocean innovations were however able to account for an estimated 61% of the total profits and 38% of the revenues accrued by the companies (Kim and Mauborgne, 2004). How Companies can Make the Competition Irrelevant Using the Blue Ocean Strategy The Use of the Blue Ocean’s Strategy By Cirque du Soleil The successful implementation of the Blue Ocean strategy is seen to involve a number of relatively well know tactics and strategies such as product differentiation and brand re-positioning, It may also be facilitated by the use of technology as well as any radical innovations, however, in most instances, this is found to not be the key driver. One of the most popular and well-cited examples of the effective application of the Blue Ocean Strategy is seen in its adoption by Cirque du Soleil a Canadian entertainment company. For Cirque du Soleil to be able to sufficiently stand out from the crowd and curve out a principally new market segment for itself, the company’s show was developed to consist of opera, street entertainment, drama and circus art (Kim and Mauborgne, 2005). It is as a result of the uniqueness of this company that it is generally able to generate relatively high profit margins as well as command an extensive market share. Cirque du Soleil is seen to not have any direct competitors operating in the same product category as themselves as theirs is a new product category that has been created by themselves (Wong, 2010). Companies can be able to effectively utilize a mixture of the strategies and tactics involved in the Blue Ocean strategy so as to be able to effectively make the competition irrelevant. The Use of the Blue Oceans Strategy by Chrysler When a new brand is first introduced into a given market, there are about two possible bases on which it is found to be able to compete. The first option is that it can attempt to compete on brand preference by attempting to convince possible buyers to opt for the particular brand as opposed to opting for other brand (Pride and Ferrell, 2010). This form of competition is normally found to take place in a large number of the well-established subcategories and categories and is often perceived to be relatively tough. The second option is to cause the brand to compete on brand relevance a concept which involves the presentation of the customers with an ample product offering to choose from to which products offered by competitors appear to seem quite irrelevant (Dibb and Simkin, 2012). This tactic of the Blue Ocean strategy is often found to be the option that is particularly favored by breakthrough brands and most marketers consider it to be the most effective route that can be used in order to secure both the profitability and growth of a new brand in the market. A successful brand relevance strategy is seen to require that a company has the innate ability to engage in transformational or substantial innovation by sensing any potential changes in both the customers’ lives and the market place and upon which the company is required to ensure that it cultivates the required fortitude necessary to cause it to commit to a new concept and successfully manage to bring it into the market (Aaker, 2011). A company should also be able to shift its focus from attempting to build a brand and focus on the building up of a new category or subcategory. The company should also be able to develop a number of barriers that will effectively shift it against copycats. Although a number of companies are found to be relatively unwilling to venture outside the established comfort zone of the an already existing value proposition, business model and target market, those willing to do stand the chance of creating a new category or sub category in which most or all of its currently existing competitors do not exist. This was the case witnessed when Chrysler first introduced its Dodge Caravan and Plymouth Voyager back in 1983. Chrysler was able to secure a new market segment of customers who found the newly introduced concept of the minivan to be particularly appealing. Chrysler were able to effectively eliminate all the competition from this new market segment as the competition was found to not be between Chrysler and other motor vehicle manufacturers such as GM or Ford Vehicles (Daye, 2011). The vehicle products produced by Chrysler’s competitors were found to be irrelevant to the decision of the customers as Chrysler had managed to successfully create a new category in which it happened to be the sole occupant. By competing on brand relevance, Chrysler did not face any viable competitor because the company continually innovated behind the product in addition to its competitors having other priorities. Chrysler’s first year minivan sales were seen to top 200,000 vehicles and the company has managed to make sales amounting to some estimated 12.5 million units (Aaker, 2011). The Blue Ocean’s Strategy as Utilized by the Nintendo WII In the global video games industry, most of the existing companies can be seen to have constantly been engaged in attempts at competing on a head-to-head basis in what is essentially an existing red ocean industry. Most of these companies such as the Microsoft with its Xbox 360 product and Sony with its PlayStation product have been locked in a intense competition aimed at attempting to gain increased market share as well as beat all competition. In this highly competitive market, Nintendo was seen to adopt a different strategy that saw it make all the current competition irrelevant (Nulman, 2009). Nintendo’s initial attempt at competing with Microsoft’s Xbox 360 as well as Sony’s PS2 by developing the GameCube gaming product were largely unsuccessful as both its competitors had managed to gain impressive technological superiority and were able to cater selling their product to the more lucrative gaming market of persons aged between 10-34 years. GameCube was however aimed at the smaller 7-16 age market which is estimated to only account for a third of the video game industry market. Nintendo employed a number of Blue Ocean strategies so as to effectively cause the competition to become irrelevant, in order to effective create a new market, Nintendo implemented a set of key changes which included changing its Game-Play by shifting its prime focus from the stiff technological race towards attempting to create a more user-oriented strategy that involved the development of wireless controllers and a number of accessories such as fishing rod, sword and shield. These changes were seen cause the game’s controls to become more realistic and fun. Realizing its initial mistake of attempting to target only the younger consumers in the launching of its GameCube product (Collins, 2008), Nintendo opted to avoid the highly competitive 18-34 years lucrative gaming market and target the casual gamers category. This category typically consisted of diverse individuals such as girls, other males and elderly persons. The interactivity of the Wii gaming console was also found to be prescribed by doctors and praised for its potential role in helping persons in the rehabilitation of certain injuries as well as in the regaining of strength (Aalst, 2010). As a result of casual gamers being not particularly interested in the technologically advanced specifications seen to be widely preferred by the more hard core gamers, Nintendo chose to reduce the actual cost of their processors which caused their WII gaming console to become more affordable. By providing interesting game packs such as its sports package that was seen to include a diverse and large selection of games, Nintendo was able to guarantee that families would be able to enjoy hours of entertainment and fun from gaming with friends and other family members. Nintendo is currently perceived to be the market leader in the gaming market. Of note is that while the United States market is experiencing a situation that is seeing Nintendo and Microsoft engage in an intensive head-to-head battle, in most of the other markets across the globe. Critique of the Structuralist and Reconstructionist Schools of Strategy Porters and others were seen to champion the more traditional process for the identification and subsequent execution of strategy. Under this traditional process, companies were first required to conduct an essentially in-depth analysis of the various environmental conditions in which they happened to operate and there after establish an effective and competitive advance that was primarily based on their various distinctive core competencies. This was achieved by these companies by their opting to follow either a low cost or differentiation strategy. This strategy was labeled as being a Structuralist approach by Kim and Mauborgne as a result of its assumption that the current structure of the environment confronting a given company is the key determinant of the actual strategy that the company must follow, this strategy can in essence be summarized as structure shapes strategy. Kim and Mauborgne were however, quick to note that this particular strategy has been instrumental in the shaping the practice and study of strategy for a number of decades (Kimberly, 1976), however, they argue that it is virtually impossible to attempt to ignore the numerous examples of situations that saw firms opting to adopt and implement a raft of strategies that were instrumental in shaping the structures of the various industries in which these companies were essentially involved as exemplified by the case of Nintendo WII and Ford’s Model T. According to Kim and Mauborgne, companies to generally be found to have two different choices with these being that they can basically adopt Structuralist strategies that will see them assume that their operating environment is given or choose to adopt Reconstructionist strategies that will see them seek to try and shape their actual environment. The Reconstructionist strategies that are seen to be popularly referred to as the Blue Ocean strategies by professors Kim and Mauborgne (Aswal and Singh, 2004), are found to be primarily based on the presumption that it is evidently quite possible and rather preferable that if the right set of circumstances happen to exist, for companies to attempt to try and reverse the structure-strategy sequence, and reshape their current operating environment in a manner that they will find to be most preferable to them. According to Kim and Mauborgne, these two strategies have a set of different optimal conditions under which they can be established and the choice is seen to be mainly dependent on a set of various structural conditions, the given organization’s particular mind-set and the capabilities and resources available to the organization. In this regard, the Structuralist approach is perceived to be especially fit in the event that a given organization or company happens to have the necessary amount of resources that equip it with the innate capabilities of being able to build a mainly distinctive differentiation or facilitate its establishment of a mainly low cost position. Structural strategies are also seen to be a good fit in the event that although they are deemed to be particularly less than attractive in a given situation, the organization happens to have the necessary capabilities and resources that can help it in outperforming its competitors mainly on product or service cost or differentiation. They are also found to be suitable in the event that a given company or organization happens to have a certain bias towards any attempts at trying to defend its current strategic position in addition to its having a degree of reluctance in any attempts to try and venture into any unfamiliar territory. As opposed to the a structural approach, companies are recommended to adopt a mainly Reconstructionist approach in the event that the existing structural conditions are essentially perceived to be innately attractive but the different players are found to be well entrenched and the company finds itself in a position whereby it generally lacks the necessary capabilities and resources that could aid it in outperforming the entrenched companies. A Reconstructionist approach can also be adopted in the event that the currently prevailing structural conditions are deemed to be particularly unattractive in addition to their being seen to be working against the organization irrespective of its capabilities and resources. The approach is also particularly suited in the event that the organization happens to have an orientation towards various innovations and a general willingness to try and pursue any evident new opportunities that might be made available to it. Key Strategic Approach Propositions Irrespective of the actual strategic approach that a company is seen to select, the actual chances of the success of the chosen strategy are found to be heavily hinged on the company’s actual ability of being able to comprehensively develop and sufficiently align a set of three key strategic positions. These are found to be; Companies should be able to develop an appropriate value proposition that that will the company attract new buyers. This value proposition is found to generally be measured by the actual utility that the product’s buyers happen to receive from the given product offering minus the price that these buyers were asked to pay so as to receive this offering (Aswal and Singh, 2004). Another key proposition in this regard is that the company should ensure that it develops an effective people proposition that will see it motivate all the different persons that happen to be working for or even with the given company in the execution of a given strategy. This proposition is found to be measured by perceived existence and eventual success of the various positive incentives and motivations that the company is able to put in place for these persons (Ojha, 2012). The company should also be keen to establish a profit proposition that will enable the company to make money and be able to turn considerable profit from the already established value proposition. This profit proposition is largely found to be measured by the company first identifying all the various revenues that happen to have been generated by a given product offering and then proceeding to deduct all the different costs that are found to be associated with the production and eventual delivery of the given product offering (Ojha, 2012). It is important for these three propositions to be aligned as applied in both the Reconstructionist and the Structuralist strategies. It is however important to note that there happens to exist a key difference as applied to these two strategies in that while companies that choose to adopt a more Reconstructionist approach will be seen to essentially concurrently pursue the twin goals of low cost and differentiation, companies that choose to follow a primarily Structuralist approach are seen to compete on the basis of either differentiation or low cost. Perhaps one of the best illustrations of the adoption of a Reconstructionist approach is seen in the adoption of this approach by the city-state of Dubai. By adopting this approach, Dubai was seen to essentially create what is widely believed to be one of the world’s fastest growing economies over the last two decades, this is despite of the city-state facing a number of seemingly impossible environmental conditions inhibiting its attainment of this objective. Reconstructionist Approach as Applied by the City State of Dubai As found to be applicable with the city-state of Dubai, the value proposition provided to the buyers who were in the form of various foreign investors was seen to include the creation of a suitable environment for the conducting of business related activities with the costs involved in establishing a business being seen to be greatly reduced, the elimination of both the import and re-export duties, extended tax holiday in addition to offering the free repatriation of profits and a greatly expedited company registration process (Gutterman, 2011). The profit proposition that was offered by this city-state was seen to include the use of a number of differentiated avenues for the generation of revenue as well as the overall reduction of cost structure. Dubai chose to avoid the creation of an economy that was heavily reliant on oil exports an instead choose to adopt a model that saw it focus on non-oil based business initiatives that included investments in tourism, infrastructure, real-estate and aviation (Gutterman, 2011). The people proposition involved saw it develop learning and money making opportunities for its citizens in addition to providing them with job guarantees, social security benefits and international recognition. Dubai was seen be able to successfully differentiate itself for the surrounding Arab countries in that it was able to strike a sufficient balance between its cosmopolitan environment and its traditional values (Gutterman, 2011). Firms with multiple businesses should adopt a policy that will see them make separate decisions for each particular business based on the best strategic approach that the company should use for the particular business. 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