Corporate Strategy is an important part of the theory and practice of management.
For top management, strategy is what a map or a compass is to a sailor on a ship; it is a map for navigating the corporate ship towards its desired goal (Srinivasan, 2009). Strategies are a reality of any business model whether a manufacturer, beverage company, legal firm, or fast food restaurant. A critical question to consider is which business strategy the organizational leader will choose to apply in order to create sustainable initiatives that increase revenue.
The research herein will address the key strategies organizational leaders apply to their business models today, the pros and cons of each theory, hallenges and opportunities associated with each theory, and recommendations will be made as to which strategic theory demonstrates the most effective strategic formula for creating and sustaining new market shares while maintaining previously established markets.
Identification of Critical Issues and Analysis
In the global business world, whether the firm’s strategy is from the structuralist or the reconstructionist school of thought, there will always be a certain amount of competition within an industry.
Kim & Mauborgne (2005), explain the structuralist view of strategy as a competition-based strategic thinking model where firms compete in ferocious battles for existing market with financial constraints within a red ocean (area in the market where head-to-head bloody competition occurs). To achieve sustainment in the business world, structuralistic strategy focuses on building advantages over the competition and beating the competition one way or another. From the standpoint of the reconstructionist view of strategy, the challenge looks very different.
The reconstructionist believes in creating new demand within untapped markets within the blue ocean (area in the market where a new market is created where no battles occur, but new margins abound). However, the challenge lies in discovering or creating the demand. Structuralists focus on competing while reconstructionists focus on value innovation (see Appendix 1- value innovation of Cirque de Soleil), which contrarily compels organizations not to compete, but to create new markets focusing on utility, price, and cost position (Kim & Mauborgne, 2005).
Within the blue ocean reconstructionist view, Kim & Mauborgne (2005), are staunch advocates and developers of the blue ocean strategy and value innovation, however they never suggest that a corporation’s business portfolio be devoid of a balanced portfolio which consists of competitive and non-competitive strategy. Instead, Kim & Mauborgne (2005), state, “clearly what executives should be doing is getting their organization’s to shift the balance of their future portfolio toward the pioneers portion of the portfolio”, which is the portion of a company’s business that offers unprecedented value within uncharted territory.
The underlying yet critical objective may be for industry players to apply the strengths within each stratagem in order to create a balanced vision and modus operandi for their respective organizations. Literature Review The following review of literature will illustrate an evaluation of secondary research compiled as it pertains to the aforementioned schools of thought: with the incumbent being the structuralist (red ocean) viewpoint and the upstart reconstructionist (blue ocean) viewpoint nipping at its tail for market prominence.
It is almost inarguable that in a company’s perfect world there would be no competition. Inasmuch, the reconstructionist’s entire theory rests upon the principle of value innovation which, according to Kim & Mauborgne (2005), is a matter of creating powerful leaps in value for the firm and its buyers, rendering rivals obsolete and unleashing new demand. In direct support, Halligan (2006) espouses, “The only way to beat the competition is to stop trying to beat the competition. Converse leanings rest with the structuralist’s school of thought which favors ferocious head-to-head competition. Structuralist Views According to Ormanidhi & Stringa (2008), how firms compete and what strategies they choose are imperative questions for companies in every sector of the business world. Their writings state that improved understanding of a firm’s competitiveness would serve as input to improve policies concerning competition and related issues; and improved policies, will provide valuable support to efforts to continuously develop markets and businesses.
Within, the author’s place significant emphasis on the concept of competition with echoes from Porter’s five forces model (see Appendix 6). The model illustrates the five forces, which hinge on the determinants of the industry’s overall competitiveness and profitability, which are: threat of new entry, intensity of rivalry among existing firms, pressure from substitute products, bargaining power of buyers, and bargaining power of suppliers. Richard Randall (2007), points out that Hewlett Packard’s investors have a problem with Porter’s five forces model.
Their primary concern is that there is something missing within the model’s strategy. “Porter’s forces tell us that getting out of the PC business now is probably a smart strategy, but the model does not address what new products or businesses Hewlett Packard is going to introduce or acquire that will restore the shareholder value lost when the separated PC business and HP both suffer falling product prices and rising component costs”. The above quote illustrates limitations of the structuralist point of strategy. A dissimilar view comes from a strong advocate for the structuralist strategy.
As seen in Appendix 6, Tony Grundy (2006) ascertains that Michael Porter’s five competitive forces has been one of the most influential models taught within top business schools on a global level. However, the model has considerable shortcomings and leaves room to be expanded upon. The model tends to overstress macro-analysis, oversimplifies industry value chains, fails to link up with practical management actions, appears to be self contained and not related to the dynamics of growth in a particular market, and it is riddled with too much economic terminology for the average manager to apply to everyday scenarios (Grundy, 2006).
Eliashberg & Chatterje (1995), provide compelling evidence that supports the structuralist (red ocean) school of thought by noting that the critical managerial questions concerning competition are: “What is driving competition in my industry or in industries I am thinking of entering? What actions are competitors likely to take and what is the best way to respond? How will my industry evolve over time? How can the firm best position itself to compete in the long run”.
The authors support a framework for classifying competitive models that are multi-dimensional: the objective of the model, the basic assumptions made about demand characteristics, supply characteristics, and competitive activity, the decision making process, and the mode of analysis. This indeed sets a company up to generate more existing market shares. Similarly, Renko, et al (2010), uses a case study of a small bakery of Croatia to give credence to the development of a marketing strategy using the structuralist’s five forces model.
Applying the five forces model, one Croatian small bakery owner was able to determine the attractiveness of the bakery industry, to measure perceptions of the strength of competitive forces to identify the existing competitive advantages and distinct success factors in the bakery industry, which supports the notion that the structuralist view is valuable even in the small business sector. Buisson & Silberzahn (2010), assert that there are two streams of thought, which have dominated recent arguments of what is the most effective strategic marketing model.
The First Mover approach is where a firm’s strategy is to be first to enter a market offering powerful differentiation strategy that creates strong profits. The Fast Second approach is where Buisson & Silberzahn (2010) contend that companies should not try to become pioneers, but rather target the newly created market in second position, and colonize it. Buisson & Silberzahn (2010) take the position that although Fast Second strategy has received less acclaim than the popular reconstructionist blue ocean strategy, it should not mask the fact that the argument between the two approaches is not settled from the academic point of view.
By proposing that gaining market share is akin to war, Vrontis Sharp (2003) contend that the writings of Sun Tzu in ‘The Art of War’ the oldest formalized writing focusing on the concepts and principles of warfare and military strategy hold in business as in war. With this assertion, Coca-Cola’s strategy is discussed with strategy enmeshed in the structuralist school of thought to seek advantage over the competition. Reconstructionist Views According to Burke, et al. , (2010), it would be foolish to dismiss competitive strategy altogether.
The author’s research showed that competition eventually erodes the profits from innovation but it is a slow process requiring 15 years or more. This suggests that it takes time for the blue ocean approach to yield to competitive strategy. A test was conducted on Dutch retailing and evidence supported that blue ocean strategy is sustainable (Burke et al. , 2010). Similarly, Henning’s writings are in alignment with the blue ocean strategy, a reconstructionist view, where the brand has employed focus and divergence, to strengthen its position within the industry.
Croc’s Inc. , President and CEO, John McCarvel is optimistic about the future of the company with a new marketing campaign in place. With principles of reconstructionism firmly in hand, the Croc’s brand has been refocused within the dynamic retail environment (Kristen Henning, 2010). In alignment with the reconstructionist strategy, Hilary Becker (2008) celebrates the reconstructionist strategy’s ability to leverage the chaotic world of marketing strategy by identifying opportunities and providing a methodology to capture it for a firm’s financial gain.
Within, she asserts that in light of the rate of globalization, firms will need to focus on increased segmentation of the markets in order to gain and create market share. Park, et al (2011), discusses as the business world continues to move towards a faster paced global environment in which competitors seem to multiply, everyone is trying to grab a piece of the pie. The need to develop blue ocean strategies and implement judo strategies has never been more of a necessity.
Businesses can participate in judo strategy, which is an oxymoron employing tactics such as rapid movement to provide flexibility and leverage while seeking to avoid head-to-head competition. According to Srinivasan (2009), the trends of thought in business strategy are moving toward a less competitive and a more creative approach to strategy. So, the new tendency in strategic thinking is not in favor of head-on competition but suggest a ground-breaking surpassing or bypassing of competition in a new creation which satisfies a dormant need which did not exist before.
During difficult economic times, the need for the reconstructionist alternative is heightened. In a case study analyzing 14 different agencies, Mohamed (2009) contends that the blue ocean strategy was sufficient in its application to the different agencies and provided evidence that the reconstructionist strategy was indeed superior with emphasis on the eliminate-raise-reduce-create grid (See Appendix 7) which is an analytic which supports the Four Actions Framework (See Appendix 4).
The framework asks which factors the industry can eliminate, raise, reduce, and create in order to create value innovation. Kim & Mauborgne (2009), support the treatise that if executives follow the direction of a firm’s strategy that is dictated by the industrial and environmental conditions which that firm operates in, a firm is destined to mindlessly compete in head-to-head battles for predetermined market share.
Conversely, by applying the reconstructionist blue ocean strategy a firm can carve out uncontested market space and leave the competition behind. Evaluation of Alternatives There are two distinct views on how industry structure is related to strategic actions of industrial players: structuralist view also known as the competitive theory and the reconstructionist view referred to as the non-competitive theory (Kim & Mauborgne, 2005). The difference in strategic thought patterns is as follow in Figure 1: Figure 1 Structuralistic View |Reconstructionist View | |Pursuit of differentiation or low cost |Strategic choice of differentiation and low cost | |Break the value-cost trade-off |Make the value-cost trade-off | |Exploit existing demand |Create and capture new demand | |Beat the competition |Make the competition irrelevant | |Compete in existing market space |Create uncontested market space | Based on the aforementioned thought patterns, it is apparent that those with the structuralist view undoubtedly trust that head-to-head competition is the most effective way to survive in business. The reconstructionist believes in a more creative, innovative way to create demand, however both views can be argued. According to Becker (2008), the strategy canvas (Appendix 3) used by the reconstructionist could lead to incorrect estimations and analysis of the value curve. There is also the unanswered uestion of whether the structuralist view will be able to withstand longevity. For example, Crocs (a well-known shoe manufacturer) built their business on a reconstructionist view. The styles were new and innovative like nothing else on the market. According to Henning (2010), the style was copied and knocked off and became saturated in terms of distribution. From another viewpoint, Burke, et al (2010), suggests that businesses may want to consider a blend of the two strategies. For example, it is suggested that by slowing down profit erosion with an effective competitive strategy for an existing market, investment funds could be made available for an alternate strategy.
By doing so, funds could be invested, thus improving the chance of finding an untapped market with an abundance of consumers. A perfect example here is Coca Cola. Coca Cola competes head-to-head with companies such as Pepsi, however; in terms of differentiation, the firm attempts to be diverse from its competitors by adding something new to its product line that will provide a unique value to its customers. This goal is achieved through well-designed and managed marketing activities resulting in perceived superior quality product and high brand image and recognition (Vrontis & Sharp, 2003). Pro’s and Con’s of Both Views There are pro’s and con’s associated with the structuralists view and the reconstructionist view as noted in Figure 2 below: Figure 2 BLUE OCEAN STRATEGY/RECONSTRUCTIONIST VIEW | |PRO’S |CON’S | |Comprehensive model strategy formulation that |Focuses more on formulation than implementation and does not guarantee| |creates barriers to imitation and leads to higher |that moves to blue ocean strategy provides more than temporary | |returns than red ocean strategy/structuralist view |advantages | | | | |Complements five forces model (a red ocean model) |If strategy works, the more profitable market will attract new | |by introducing a way to think creatively) about a focal industry |participants leading to increased competition. | |The model is supported by intuitive, practical, and innovative tools |Focus on discovering uncontested space. |aimed at risk reduction | | |Shifts emphasis from supply-side analysis with competitive-based |Sometimes difficult to develop knowledge | |strategic thinking, to |in a completely different area. | |demand-side analysis to | | |value-innovative strategic planning | | (Kim & Mauborgne, 2005) According to Origano (2007), the reconstructionist model (blue ocean strategy) is superior for the small to medium size business because they stand closer to their customers and market.
In doing so, smaller companies are able to obtain more information from their customers, obtain publicity, and get their message out quickly. The drawbacks associated with the reconstructionist non-competitive strategy is that it can be difficult to create a blue ocean without the necessary knowledge and experience of marketing, communication and implementation. There is also the inevitable issue of industry copycats emerging and forcing companies to frequently find a new strategy when a firm neglects creating significant barriers to entry by applying the proper cost structure (Kim & Mauborgne, 2005). Origano, 2007, surmises that it is more difficult for larger companies to maneuver fast changes, which makes the strategies effective implementation a possible risk.
In addition, research to date has not found any case studies that prove or disprove the ability of the reconstructionist strategy to work perpetually for any company in any industry. Business Model Every company should design its own strategic planning model and modify it frequently as the company advances into formulating its strategic management plan procedures (Strategic Management Model, 2011). Whether in the big or small business sector, a company must choose between a competitive or non-competitive strategy, which is a clearly defined destination, in the form of a business model. This is critical to the firm’s success in garnering sustainable market share and profit margins.
Businesses align their entire strategy and resources around head-to-head competition or value innovative non-competition, or a balance of the two. A typical business model might start out with the preparation of a well-defined mission statement. Such a statement declares a company’s intent to its management, employees, customers, and the market it serves. The second step is establish a set of company-wide core values, typically 5 to 10 core values that somewhat expand upon the mission statement. The third step is to establish goals and objectives for the entire organization. The chosen goals and objectives must be aligned with the overall purpose and strategic plan of the company. The fourth step is to link strategies to the goals and objectives.
For example, deciding how the company will increase sales or reduce costs. The fifth step is to link company resources to strategies. Discovering the most efficient method to accomplish these objectives is of paramount importance. The overall purpose of a strategic management model is to provide framework for management and employees to work as a team towards a common goal. When a company takes the time to establish its mission statement and core values it allows the entire company to have one cohesive and all-inclusive approach to strategic planning. A strategic management model will look very different from the standpoint of a competitive firm or a non-competitive firm.
For example, a company operating under the competitive structuralist view might have a mission statement that alludes to having a sharp competitive edge, whereas a company leaning towards a reconstructionist view might have a mission statement more focused on value and innovation. Either way, the models will look completely different to reflect the chosen competitive or non-competitive overall strategy. Most Effective Strategy While both strategies are effective in their own way, our research has indicated that a combination of both strategies is the most effective strategy. If a firm had to choose one strategy over another, the blue ocean strategy would appear more attractive because it’s based on value innovation rather than simply head-to-head competition.
Having the ability to gain uncontested market share is probably every company’s desire, however, research has clearly indicated that new, innovative ideas are ideal in creating market share but reality is that copy cats will move in making knock off products which slowly pushes the firm back into the red ocean of aggressive competition. A balanced portfolio where the red ocean cash-generating portion is still intact but balanced with blue ocean/reconstructionist strategy is in fact the most effective strategy. Kim & Mauborgne (2005), advocate employing the use of specific tools and frameworks when implementing the blue ocean reconstructist strategy. These tools are illustrated in Appendices 2-5. Recommendations
Companies in today’s business world need to understand the strategic logic of both sides of the fence: blue ocean and red ocean strategies. While the need for businesses to create blue oceans intensifies, the reality is that at present the red ocean strategy of head-to-head competition dominates the field of theory and in practice. A balance is required across both oceans. The blue ocean strategy isn’t necessarily a new, unheard of strategy; however it is becoming more and more recognized as a method of developing uncontested market space. For firms whose strategies are wholeheartedly entrenched within the red ocean/structuralist view don’t have to abandon the segment/strategy of their business but enhance with reconstructionist strategy.
The recommended course of action for any industry player is to align its model with a SWOT analysis of the internal and external business environment (see Appendix 1) and to apply the directives associated with the analysis, which is a catalyst for creating a strategic business model that parallels the firm’s mission statement and core values thus formulating the most effective strategy possible. By balancing the business portfolio with resources allocated in all three areas of the business and thus encompassing aspects of non-competitive and competitive approach a company can effectively create and sustain market shares while reducing the inherent risks associated. Conclusion
In conclusion, the structuralist view, also referred to as the red ocean strategy, is where most companies exist today. It is referred to as the red ocean because it can be thought of as competitors fighting in bloody waters. On the other hand, the reconstructionist view is very different. The reconstructionist’s operate on the basis of creating demand and finding untapped markets while focusing on value innovation. Each firm has to decide which strategy fits best with their specific business model and future plans. Competitive theory has been existence far longer than non-competitive, but both have proven to be relatively effective in the business world; however, blue ocean strategy is a new concept for global business leaders.
A combination of blue/red ocean strategies will create balance within a firm allowing the firm to move forward with business as usual while seeking out untapped markets and applying creativity in respect to value innovation. The reconstructionist strategy has proven itself to the most effective strategy that incorporates the strengths found within the two theoretical viewpoints making it the clear choice for leaders seeking to create and sustain new market share, while maintaining previously establish markets
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