Module 2:

MBA3052
Environmen
tal
Scanning
&
Industry
Analysis
 MBA3022: COURSE COVERAGE

This course has 4 modules – Let’s get started

Module 1: Introduction to Strategic Management
with Module 2:

Module 2: Environmental Scanning and Industry Analysis

Environmental
Module 3: Strategy Formulation Scanning
Module 4: Competitive Strategy and Corporate Advantage &
Industry Analysis
 Module 2 Coverage

2.1 Capabilities and Competencies

2.2 Sources of Competitive Advantage: Position and Capability

2.3 Value Chain Analysis – Primary and Secondary Activities

2.4 Internal and External Environmental Analysis: SWOT, PESTEL, VUCA & BEVUCA

2.5 Blue Ocean and Red Ocean Strategy

2.6 How strategy shapes structure – Structuralist and Reconstructionist Approaches

2.7 Dubai Strategy Proposition

 2.1
Capabilities and Competencies
 Capabilities
Definition: Capabilities are the collective skills, knowledge, processes, and resources that an organization
can leverage to achieve its strategic objectives. They are the "how" an organization does things.

Characteristics of Capabilities

• Intangible and embedded within the organization.

• Developed over time through learning and experience.
• Often cross-functional, involving multiple departments or units.
• Difficult to imitate or replicate by competitors.

Examples

• Strong R&D capabilities

• Efficient supply chain management
• Superior customer service
• Effective innovation processes.
 Competencies
Definition: Competencies are specific skills, knowledge, and abilities that individuals within an organization
possess and apply them to perform the strategic activities effectively. They are the “what” the organization
achieves through individual competencies.

Characteristics of Competencies
• Collective: They are shared by multiple individuals within an organization
• Tangible: They can be developed through training and experience
• Core to the business: They are specific to job roles and functions
• Quantifiable: They can be assessed and measured
Relationship between Capabilities and Competencies
• Competencies are the building blocks of Capabilities. Individual competencies combine to form
organizational capabilities.
• Capabilities are the foundation for competitive advantage. A firm’s unique capabilities differentiate it
from competitors and create value.
 Importance of Capabilities and Competencies in Strategic
Management
Understanding capabilities and competencies is crucial for strategic management for several reasons:

Identifying core competencies

• These are the unique capabilities that give a firm a competitive advantage.

Developing strategic capabilities

• Building and strengthening capabilities is essential for long-term success.

Managing talent
• Identifying and developing employee competencies supports the creation of organizational
capabilities.
Making strategic decisions
• Understanding capabilities helps in evaluating strategic options and making informed choices.
Real-world Examples of Capabilities and Competencies

Capability: Competency:
Ability to conceptualize, Design innovation and
Apple design, develop, and ability to create
market innovative ground-breaking
products products

Capability: Competency:
Strong capability in AI, ML, Consistently pushing
and Data Analysis leading the boundaries in
to innovative products and Search, AI, and Cloud
services Computing
Real-world Examples of Capabilities and Competencies

Capability: Competency:
Efficient Order Fulfilment, Obsessive focus on
Warehousing, and Delivery customer experience and
Capabilities satisfaction

Capability:
Competency:
Creating exceptional customer
experiences through Creating magical
storytelling, character experiences for guests
development, and theme park across its various
operations. businesses.
 Core Competence
Core competence is a concept introduced by C.K. Prahalad and Gary Hamel.

It refers to the collective learning in an organization, especially how to coordinate diverse production skills
and integrate multiple streams of technology.

Essentially, it's a combination of skills and technologies that allow a company to deliver a particular
benefit to the customer.

Key Characteristics of Core Competence

Collective learning: It's not just about individual skills but how the organization as a whole learns and
improves.
Coordination of diverse skills: It involves bringing together different skills and functions to create
something unique.
Integration of multiple technologies: It's about combining different technologies to create a superior
product or service.
Customer benefit: The ultimate goal is to deliver a valuable benefit to the customer.
 Core Competence (Continued)…
Benefits of Identifying Core Competencies
Focus: Helps organizations concentrate on their strengths and core business.
Innovation: Encourages innovation and new product development.
Competitive advantage: Creates a sustainable competitive advantage by differentiating the company.
Resource allocation: Helps in efficient allocation of resources.

Examples of Core Competencies

Apple: Design and user experience.

Toyota: Lean manufacturing and supply chain management.

Walt Disney: Storytelling and character development.

 2.2
Sources of
Competitive Advantage:
Position and Capability
 What is Strategic Positioning?
Strategic positioning is a business strategy where an organization differentiates itself from competitors by
creating better value for its customers.
This can help them create a competitive advantage over other similar companies and, ultimately, increase
company profit.
Strategic positioning can work well alongside traditional sales strategies, like improving the quality of the
product and creating more time-efficient processes.

Cost Leadership Cost leadership refers to the business technique of establishing the
lowest price point possible for a product within your industry.

Differentiation Differentiation is a business strategy that involves creating a premium

product or experience and charging more for it.

Focus on Niche Markets Another example of strategic positioning is to find a niche market rival
companies aren't yet trying to sell to, and provide a specialized service
or product created especially for consumers.
 Benefits of Strategic Positioning

New direction
• In differentiating itself from its contemporaries, a company may develop a new program, goal or
mission.
• While the original intent may have been to create separation between them and their rivals, the
result can sometimes be a new direction in marketing or branding that the company executives may
not have considered before.
Clear goals
• As a company finds new direction in its strategic positioning, marketers may make decisions that
require clarification and consideration of the company goals.
• For example, they may reevaluate the type of value they hope to bring to their client's lives, which
clients they hope to reach and what impact they might have on their community at large.
Effective decision-making
• A clear goal, like those associated with strategic positioning, can help create a useful framework and
a streamlined process for decision-making.
 2.3
Value Chain Analysis:
Primary & Secondary Activities
 Value Chain Vs. Supply Chain
A supply chain is the network of people, businesses, and materials involved in the creation, production,
and distribution of a product.
A value chain is the process of adding value to raw materials to create a product that consumers want to
buy.

Supply chain
• Focuses on the efficient movement of goods while minimizing costs. Activities include acquiring raw
materials from suppliers, order fulfillment, and delivery of finished products to customers.
• The main stakeholders are shareholders and investors.

Value chain
• Focuses on creating value at each stage of a product's lifecycle, from inception to customer
experience. Activities include product development, marketing and sales, customer service, and
more.
• The value chain also considers internal and external stakeholders, and can include non-monetary
values such as ethical and moral concerns.
 Michael Porter’s Value Chain
In strategic management, few frameworks have garnered as much attention and acclaim as Michael
Porter’s “Value Chain Analysis Model.”

Porter’s Value Chain Model – introduced by Michael Porter in his seminal work: “Competitive Advantage:
Creating and Sustaining a Superior Performance”. (1985)

Porter argues: “Competitive advantage cannot be understood by looking at a firm as a whole. It stems
from the many discrete activities a firm performs in designing, producing, marketing, delivering, and
supporting its product.”

What is a “Value Chain?”

• A value chain is a series of consecutive steps that go into the creation of a finished product, from its
initial design to its arrival at a customer’s door.
• The chain identifies each step in the process at which value is added, including the sourcing,
manufacturing, and marketing stages of its production.
 Michael Porter’s Value Chain

Value chains help increase a business’s efficiency so the business can deliver the most value for the least
possible cost.

The end goal of a value chain is to create a competitive advantage for a company by increasing
productivity while keeping costs reasonable.

Value chain theory analyzes a firm’s five primary activities and four support activities.

The overarching goal of a value chain is to deliver the most value for the least cost in order to create a
competitive advantage.
Value Chain In Action
 Understanding and applying Porter’s Value Chain @
Starbucks

5 Primary Activities (Forces) 4 Secondary Activities

Inbound Logistics
Company Infrastructure

Operations
Human Resource Management
Outbound Logistics
Research and Development
Marketing and Sales
Procurement
Services
 Primary Activity 1: Inbound Logistics @ Starbucks

This includes the warehousing and associated inventory control of raw materials. This also includes the
nature of the relationship with suppliers.

Broadly speaking, the objective of inbound logistics is to ensure that the necessary inputs are available in
the right quantities, at the right time, and at the right cost to support the company’s operations.

When these requirements are satisfied, inbound logistics can facilitate cost savings, improved quality
control, and increased supply chain efficiency.

The Starbucks value chain begins with buyers purchasing high-quality coffee beans from primary producers
in Asia, Africa, and Latin America.
The beans are roasted and packaged – which adds value to their sale price – and sent to a mixture of
Starbucks-owned and third-party distribution centers.
Note that the procurement process is never outsourced to ensure quality standards are enforced from the
start of the chain.
 Primary Activity 2: Operations @ Starbucks

Operations encompass any process that turns raw materials into a finished product ready for sale,
including labeling, branding, and packaging.

Operations tend to be at the core of a company’s value chain. As a result, improvements in this area can
lead to a significant competitive advantage.

Key activities include process design, capacity planning, and production scheduling.

Starbucks operates more than 32,000 stores in 80 different countries.

Stores are either company-owned or licensed to other companies who have access to desirable retail
spaces such those inside airports.
In 2023, Starbucks operated 19,592 Vs. 18,253 licensed stores. Starbucks leverages primarily company-
operated stores to keep tight control over product development, branding, distribution, and customer
experience.
 Primary Activity 3: Outbound Logistics @ Starbucks

Outbound logistics concern any process where the product is distributed to a customer.

This includes the storage and distribution of products and the processes involved in fulfilling customer
orders. Effective outbound logistics management can lead to improved customer satisfaction, reduced
lead times, and increased profitability.

Key activities in this process include order processing, inventory management, transportation, and
warehousing.

Starbucks does not tend to employ a B2B model where other brands distribute its products, but a small
selection of coffee products can be found in supermarkets.

Most products are transported from warehouses and distribution centers and then sold in Starbucks stores
and cafés around the world.
 Primary Activity 4: Marketing and Sales @ Starbucks

Any processes that attempt to enhance product visibility among a target audience are included in
marketing and sales. This activity heavily relies on Customer Relationships.

Marketing and sales can encompass the 4 Ps of marketing (product, price, place, and promotion), but it
may also include activities such as public relations and sales management.

All contribute to increasing brand awareness, revenue, and customer loyalty.

Starbucks is one of the world’s most recognizable brands, and for good reason.

The company is able to promote its brand with consistent messaging across social media, video, television,
events, and various in-store experiences such as new product sampling.
 Primary Activity 5: Service @ Starbucks

Services include any processes that occur after a purchase has been made, including customer service,
repairs, refunds, and warranty acknowledgment.

Exceptional customer service can provide a point of differentiation to stand out from competitors and
build a positive brand reputation.

A focus on customer service can also lead to valuable feedback and insights that can be used to improve
products and operations.

Starbucks aims to build brand loyalty through a superior in-store experience. After witnessing the café
culture in Italy, CEO Howard Schultz wanted to bring a similar experience to American coffee lovers.
He wanted Starbucks to serve “as a third place between home and work, an extension between people’s
lives, at a time when people have no place to go.”
In addition to home-based comforts, Starbucks invests heavily in customer service training to add value to
the chain.
Secondary Activity 1: Company Infrastructure @ Starbucks

Company infrastructure entails any process that supports daily business operations. Administration,
clerical, financial, and line management are all value-creating infrastructure processes.

Key activities within this secondary process include financial management, budgeting, risk management,
recruitment and selection, training and development, and technology management.

When the focus is on infrastructure, companies can improve their ability to manage resources, adapt to
dynamic market conditions, and build a desirable organizational culture.

@Starbucks, this encompasses various departments that are necessary to maintain company operations,
such as finance and legal.

Starbucks also employs business managers in corporate offices and store managers in each café to oversee
the baristas.
 Secondary Activity 2: Human Resource Management @
Starbucks
HRM covers any process related to the training, acquisition, or termination of employees. When a
company has streamlined its human resource management processes, it is likely to experience increased
employee satisfaction, productivity, and engagement.
This is an area that is currently undergoing a significant shift. As per 2023 Global Human Capital Trends
Report, in a boundaryless world, work isn’t defined by jobs, the workplace isn’t a specific place, and many
workers aren’t traditional employees. (Deloitte)

Deloitte advocate activities like prioritizing human outcomes, and establishing employee-employer
relationships based on new, co-created rules and boundaries.

Starbucks is well known for its HR practices. It had 381,000 employees in 2023, compared to 402,000
employees in 2022, 383,000 in 2021, and 228,000 in 2020.
Employees are offered a range of perks, including health coverage, paid leave, retirement plans, subsidized
university education, company stock plans, and discounts on work-related transportation expenses.
These initiatives result in a motivated, efficient, and engaged workforce which increases employee
retention.
 Secondary Activity 3: Research and Development @
Starbucks
Technology can create a competitive advantage in Porter’s value chain because it can streamline important
processes. These include payroll automation software, customer service procedures, and distribution
networks.

The most obvious benefit of research and development is that it enables a company to develop a
sustainable competitive advantage that others cannot replicate.

There are also additional benefits such as reduced production costs and increased product quality.

Each Starbucks store provides unlimited bandwidth free of charge which creates significant value for
casual diners and businessmen alike. The company also uses technology to ensure the taste of its coffee is
consistent across its stores.
The Starbucks Rewards program app is another example of the café chain using technology to its
advantage. Customers can download an app, use it to pay for their coffee, and collect stars that can be
redeemed for food, drinks, and more.
Customers must preload the app with money or redeem a gift card to make a purchase.
 Secondary Activity 4: Procurement @ Starbucks
Procurement is simply the acquisition of necessary goods or services. The most typical example is the
procurement of raw materials and the negotiation of pricing and product purchase contracts.

It may also include the purchase of equipment, offices, buildings, and machinery.

Procurement is a critical activity that can significantly impact a company’s cost structure and overall
profitability. It also has important implications for quality assurance, supply chain resilience, and
innovation.

As noted earlier, procurement for Starbucks means sourcing coffee beans directly from primary producers
on several continents.

Purchasing agents that are employed by the company form strategic partnerships with each producer and
communicate the standards they must meet in terms of bean quality.
 2.4
Internal and External
Environmental Analysis:
SWOT, PESTEL, VUCA
 2.4.1 Let’s first understand the concept of an
“Environment”
Environment literally means the surroundings, external objects, influences or circumstances under which
someone or something exits.

With respect to Strategic Management, Environment of any organization is “The aggregate of all
conditions, events and influences that surround and affect it”.

Business
Environment

Far-reaching
Dynamic Complex Uncertain Multi-faceted Relative
impact
Dynamic: The environment in which the business operates changes continuously because there is a wide
variety of factors that exist in the environment, causing it to change its shape and character.

Complex: There are many forces, events and conditions that constitute business environment, arising
from various sources. So, it is a bit difficult to understand the relative influence of a particular factor, on
the operation of the organization.

Uncertain: Uncertainty is an inherent characteristic of the business environment because no one can
predict what is going to happen in future.

Multi-faceted: A single change in the business environment, can be viewed differently by different
observers because their perceptions vary.

Far-reaching Impact: The survival, growth and profitability, of a business enterprise, depends largely on
the environment in which it exists. A small change in the environment has a far-reaching impact on the
organization in different ways.

Relative: The notion of a business environment is relative since it varies from one location to another.
 Components of Business Environment
Internal Environment:

Business Strength is an inherent capacity which an organization can use to gain

Environment strategic advantage. Example: Good reputation among customers,
resources, assets, people, experience, knowledge, and capabilities.

Weakness is an inherent limitation or constraint which creates strategic

Internal External disadvantages. Example: gaps in capabilities, financial limitations, low
Environment Environment morale, overdependence on a single product line.

External Environment:
Micro
Environment Opportunity is a favourable condition in the organization’s
environment which enables it to consolidate and strengthen its
position. Example: economic boom, favourable demographic shifts,
relaxed regulations, unfulfilled customer needs.
Macro Threat is an unfavourable condition in the organization’s environment
Environment which creates a risk for, or causes damage to the organization.
Example: economic downturn, new competitors, changing customer
preferences, new regulations, stringent legislations.
 2.4.2 SWOT Analysis
It is a framework used to evaluate a company’s competitive position and develop strategic planning.
Strengths: Weaknesses:
1. Identify internal factors that are favorable to the 1. Identify Internal factors that are unfavourable to
organization. the organization.
2. Consider skills, resources, capabilities, and 2. Consider skills, resources, capabilities, and
advantages. disadvantages.
3. Ask: “What do we do well?”, “What are our 3. Ask: “What do we do poorly?”, “What are our
advantages?” disadvantages?”
SWOT Analysis
Opportunities: Threats:
1. Identify external factors that can benefit the 1. Identify external factors that can harm the
organization. organization.
2. Consider trends, changes, and developments in the 2. Consider trends, changes, and developments in the
market. market.
3. Ask: “What can we leverage?”, “What are the 3. Ask: “What can harm us?”, “What are the threats?”
opportunities?”
Advantages & Disadvantages of SWOT Analysis
Advantages

Helps identify Strengths, Weaknesses, Opportunities, Threats

Provides a clear overview of the company’s current situation

Helps prioritize areas for improvement

Can be used by companies of all sizes/industries

Disadvantages

Can be time-consuming and resource-intensive

Can lead to narrow, internal focus

Can lead to GroupThink and lack of creativity

May not take into account external factors which affect the company
SWOT Analysis of Starbucks
 2.4.3 PESTEL Analysis
PESTEL Analysis is a strategic tool used to analyze and assess the macro-environmental factors that may
impact an organization or industry.
 How to perform, analyze, and interpret PESTEL Analysis?

Identify the organization or industry to be Identify key drivers and trends in each PESTEL factor.
analyzed.
Assess the potential impact of each factor on the
Research and gather data on the six PESTEL organization or industry (positive, negative, or
factors: Political, Economic, Social, neutral).
Technological, Environmental, Legal
Evaluate the interrelationships between PESTEL
factors.
Organize the data into a PESTEL framework or
template. Prioritize the most significant factors that may impact
the organization or industry.

Analyze each factor's potential impact on the Use the analysis to inform strategic decisions,
organization or industry. opportunities, and threats.
Advantages & Disadvantages of PESTEL Analysis
Advantages:

Simple and easy framework

Reduces the impacts and effects of potential threats

Helps identify and exploit new opportunities

Enables to assess implications of entering new markets

Disadvantages:

Cost and time restrictions

Can lead to assumption rather than factual data

Users can oversimplify the information

Analysis Paralysis
PESTEL Analysis of Starbucks
V

A
 2.4.4 VUCA Analysis

VUCA Analysis is a strategic tool used to assess and adapt to the external environment which is always –

• Volatile
• Uncertain
• Complex
• Ambiguous

The US “Army War College” first coined the term “VUCA” to describe the post cold-war world.

Business leaders have since adopted it to relate to the challenges of operating in a rapidly changing
landscape of the modern-day corporate world.

It helps understand and navigate the dynamic and unpredictable nature of modern markets.
 Characteristics of VUCA Factors
Volatility – Rate of change
• We know things change.
• What we don’t know is how they might change and how to get ready for them.

Uncertainty – Unclear about the present

• Changes are unexpected and their duration cannot be predicted.

Ambiguity – Lack of clarity about meaning of an event

• Cause-effect relationships are unclear, there are no precedents or previous experience to fall back
upon.
Complexity – Multiple Key decision factors
• There are many interacting factors and drivers.
 Guide to approaching events in the VUCA categories
+ Complexity:
Volatility:

Characteristics: The challenge is unexpected or unstable and may be

Characteristics: The situation has many interconnected parts and
of unknown duration, but it’s not necessarily hard to understand;
variables. Some information is available or can be predicted, but the
knowledge about it is often unavailable.
volume or nature of it can be overwhelming to process.
Example: Price fluctuates after a natural disaster takes a supplier off-
Example: You are doing business in many countries, all with unique
line.
regulatory environments, tariffs, and cultural values.
Approach: Build in slack and devote resources to preparedness – for
Approach: Restructure, bring on or develop specialists, and build up
instance, stockpile inventory or overbuy talent. These steps are
resources adequate to address the complexity.
typically expensive; your investment should match the risk.
Ambiguity: Uncertainty:
Characteristics: Causal relationships are completely unclear. No Characteristics: despite a lack of other information, the event’s basic
precedents exists; You face “unknown-unknowns.” cause and effect are known. Change is possible but not a given.

Example: You decide to move into immature or emerging markets or Example: A competitor’s pending product launch muddies the future
to launch products outside your core competencies. of the business and the market.

Approach: Experiment. Understanding cause and effect requires Approach: Invest in information – collect, interpret, and share it. This
generating hypotheses and testing them. Design your experiments so works best in conjunction with structural changes, like adding
- that lessons learned can be broadly applied. information analysis networks, that can reduce ongoing uncertainty.

- +
 VUCA Real-life Examples
Volatility

The global financial markets are a prime example of volatility.

The prices of stocks, commodities, and currencies can change rapidly in a very short time, driven by a
myriad of factors ranging from economic indicators to geopolitical events.
The 2008 financial crisis is an instance of extreme volatility where markets around the world experienced
dramatic fluctuations.

Uncertainty

A recent example of uncertainty is the Brexit referendum.

The decision for the UK to leave the European Union brought with it significant unpredictability regarding
economic, political, and social outcomes.
This uncertainty had far-reaching impacts, affecting everything from trade agreements to immigration
policies.
 VUCA Real-life Examples…
Complexity
The healthcare sector often grapples with complexity, with a myriad of intertwined factors such as patient
demographics, disease profiles, evolving regulations, and technological advancements.
The COVID-19 pandemic is a stark example of this complexity.
Healthcare providers having to simultaneously manage an influx of patients, vaccine distribution, evolving
treatment protocols, supply chain disruptions, and a rapidly changing regulatory landscape

Ambiguity

The rise of artificial intelligence (AI) and automation technologies brings with it a degree of ambiguity.

While these advancements promise improved efficiency and productivity, there are unclear implications
for job displacement, data privacy, and ethical considerations.
The lack of a clear regulatory framework for these emerging technologies further compounds this
ambiguity.
 Advantages & Disadvantages of VUCA Analysis
Advantages

Helps organizations understand and adapt to dynamic environments.

Encourages proactive thinking and strategic planning.

Identifies areas for improvement in agility and resilience.

Enhances decision-making in uncertain conditions.

Disadvantages

May be subjective, depending on the analyst's perspective.

Can be challenging to quantify VUCA factors.

Requires ongoing monitoring and updating.

May not provide a comprehensive analysis of all factors impacting the organization.
 How to deal with VUCA environment?

Understanding
Vision • Slow down, observe, ask questions,
and listen carefully
• Align activities with an overall goal • Know the strengths of team
Volatility • Encourage team members to members and work with them to Uncertainty
overcome obstacles find solutions.
• Structure the team in a way that • Know what your team needs to
fosters initiative optimize their performance and
meet your expectation

Agility
Clarity
• Adapt quickly and as needed
• Communicate effectively and
Complexity • Communicate your vision Ambiguity
understand communication needs
• Focus on gathering the information
at all levels
you need to make good decisions
• Formulate messages according to
those needs
 2.4.5 BEVUCA  Business Excellence in a VUCA
Environment

It is increasingly challenging to operate in a

continuous VUCA environment.

How do companies achieve business

excellence in such a situation?

The BEVUCA framework addresses this gap

and identifies 18 Critical Success Factors
(CSFs) for managing in a high VUCA
environment for integrating quality and risk
management:
 18 CSFs of BEVUCA

Agile Key Performance Indicators Leadership Agility

(AKPIs)
Change Management Organization Agility

Dynamic Capability Organization Culture

Dynamic Planning Organization Structure

Ethical Leadership and CSR Restructuring

Experimentation Stakeholder’s Management

Flexible HR Team Resilience
Innovation and Creativity Training and Development
Knowledge Management Vision Platform
The way forward… VUCA  BANI
 2.5
Blue Ocean
and
Red Ocean
Strategy
 The Concept of Blue Ocean and Red Ocean

Chan Kim and Renée Mauborgne coined the terms: “Red Ocean” and “Blue Ocean” to denote the market
universe.

What are “Red Oceans?”

• Red oceans are all the industries in existence today – the known market space, where industry
boundaries are defined and companies try to outperform their rivals to grab a greater share of the
existing market.
• Cut-throat competition turns the ocean bloody red. Hence, the term ‘red’ oceans.

What are “Blue Oceans?”

• Blue oceans denote all the industries not in existence today – the unknown market space, unexplored
and untainted by competition.
• Like the ‘blue’ ocean, it is vast, deep and powerful – in terms of opportunity and profitable growth.
 Characteristics of Red Ocean and Blue Ocean Strategy

Red Ocean Strategy Blue Ocean Strategy

Compete in existing market space Create an uncontested market space

Beat the competition Make the competition irrelevant

Exploit existing demand Create and capture new demand

Make the value-cost trade-off Break the value-cost trade-off

Align the whole system of a firm’s activities with Align the whole system of a firm’s activities in
it strategic choice of differentiation or low cost pursuit of differentiation and low cost
 Differentiating Blue Ocean Strategy & Red Ocean Strategy
Basis of Differentiation Blue Ocean Strategy Red Ocean Strategy

Competition Low Competition High Competition

Focus Emphasizes creating new demand through Focuses on capturing existing demand
innovation and outperforming rivals
Market Space Creates new market space by offering Competes within the boundaries of
unique products / services existing market segments
Customer Value Focuses on creating and capturing new Competes by improving existing
value for customers products and services
Risk Lower risk Higher risk

Marketing Approach Positive, future oriented, emphasizes Negative, present-oriented; often

growth and opportunity focused on beating the competition
Example(s) Apple’s entry into Smartphone market Coke & Pepsi in the Cola market
with iPhone worldwide
 Key Characteristics of Red Ocean Strategy
Intense Competition
Red Ocean markets are crowded with competitors, leading to cutthroat rivalry and a focus on capturing
existing customers.
Price Wars
Price becomes a primary battleground as companies attempt to attract customers by offering lower
prices or discounts.
Limited Growth
Growth opportunities are often limited in Red Ocean markets because the market is saturated, leaving
little room for expansion.
Product Imitation
Companies frequently mimic each other’s products and strategies, resulting in a lack of differentiation.
Customer Acquisition
The primary goal is to steal market share from competitors, often through aggressive marketing and
advertising efforts.
 Strategies for success in Red Ocean Markets

Cost Leadership
Companies focus on becoming the lowest-cost producer in the industry, allowing them to offer
competitive prices and potentially capture a larger market share.
Differentiation
Businesses seek to differentiate their products or services by offering unique features, quality, or
branding to attract customers willing to pay a premium.
Niche Targeting
Instead of competing broadly, companies may target a specific niche or segment of the market that is
underserved by existing competitors.
Innovation
Continuous innovation in product design, technology, or business processes can provide a competitive
advantage by offering something new or improved.
 Strategies for success…

Aggressive Marketing
Aggressive advertising and marketing campaigns are employed to capture the attention of customers
and lure them away from competitors.
Partnerships and Alliances
Companies may form strategic partnerships or alliances to strengthen their position in the market or
gain access to complementary resources.
Mergers and Acquisitions
Consolidation through mergers and acquisitions can lead to increased market share and economies of
scale, improving competitiveness.
Customer Loyalty Programs
Reward programs and loyalty initiatives aim to retain existing customers and prevent them from
switching to competitors.
 Challenges of Red Ocean Strategy
Profit Erosion
Price wars and aggressive competition can lead to reduced profit margins, eroding the profitability of
companies in the market.
Market Saturation
Red Ocean markets are often saturated, making it difficult for companies to find new customers or grow
organically.
Customer Churn
Customer loyalty is hard to maintain in competitive markets, as customers are easily swayed by lower
prices or attractive offers from competitors.
Risk of Commoditization
The pursuit of cost leadership can lead to products or services becoming commoditized, further
intensifying competition.
Sustainability Challenges
Sustaining a competitive advantage in a Red Ocean market can be challenging over the long term, as
rivals continually seek to catch up.
 Transitioning to a Blue Ocean Strategy

Recognizing the limitations and challenges of a Red Ocean strategy, companies are choosing to transition
to a Blue Ocean strategy.

This shift involves exploring new market spaces where competition is minimal or non-existent.

Companies can create demand by offering innovative products or services that cater to unmet customer
needs.

How are organizations going to achieve that?

This can be achieved by doing the following steps…

 Transitioning to a Blue Ocean Strategy
Market Research
Identify untapped market opportunities and unmet customer needs.
Innovation
Develop innovative products or services that address these needs and provide unique value to
customers.
Value Proposition
Clearly communicate the value proposition to potential customers, emphasizing the distinctive benefits
of the offering.
Marketing and Positioning
Create a marketing strategy that differentiates the new offering from existing alternatives and positions
it as a groundbreaking solution.
Execution
Execute the strategy with a focus on delivering exceptional value and exceeding customer expectations.
 E-R-R-C Grid for Blue Ocean Strategy
The Eliminate-Reduce-Raise-Create (ERRC) Grid is an essential tool of blue ocean strategy developed by
Chan Kim and Renée Mauborgne.
It is a simple matrix-like tool that drives companies to focus simultaneously on eliminating and reducing,
as well as raising and creating while unlocking a new blue ocean.

Eliminate Raise
Which factors that the Which factors should be
industry has long competed raised well above the
on should be eliminated? industry’s standard?

Reduce Create
Which factors should be Which factors should be
reduced well below the created that the industry
industry standard? has never offered?
 E-R-R-C Grid for Starbucks

Eliminate Raise
Which factors should be raised well above
Which factors that the industry has long the industry’s standard?
competed on should be eliminated?
Locations, Price, Barista Training,
Commodity Coffee
Variety

Reduce Create
Which factors should be reduced well below Which factors should be created that the
the industry standard? industry has never offered?

Roast Quality Community Atmosphere

 E-R-R-C Grid for Apple’s iPhone

Eliminate Raise
Which factors should be raised well above
Which factors that the industry has long the industry’s standard?
competed on should be eliminated?
Mobile Internet, Style and
Variety of Models
Entertainment, Ease of use, Simplicity

Reduce
Which factors should be reduced well below Create
the industry standard? Which factors should be created that the
industry has never offered?
Number of buttons,
Embedded Business Applications, Customizations through App Store
PC-like performance
 2.6
How Strategy Shapes
Structure:

Structuralist
and Reconstructionist
Approach
 How Structure Shapes Strategy: The Structuralist
Approach
While developing corporate strategy to carve out a distinct strategic position, analyzing the industry or
environmental conditions is usually the starting point.
They assess the strengths and weaknesses of their competitors and set to outperform their rivals by
building a competitive advantage.
The competitive advantage is usually achieved by differentiating itself with respect to the competition by
two approaches: (a) by setting a premium price or, (b) pursuing low costs
Once an approach is decided, the organization aligns its value chain accordingly – creating manufacturing,
marketing, HR strategies in the process.

Based on these strategies – financial targets, and budget allocations are set.

The underlying logic is that a company’s strategic options are bound by its environment.

In other words: Structure Shapes strategy.

This is called “Structuralist Approach.”

 How Strategy Shapes Structure: The Reconstructionist
Approach
Any study in business history, reveals a plenty of cases where in a firm’s strategy shaped the industry
structure.

Be it Ford’s Model T or Nintendo’s Wii.

Then there is a concept of “Blue Ocean Strategy”, which reflects that a company’s performance is not
necessarily determined by an industry’s competitive environment.
This strategy framework helps companies systematically reconstruct their industries and reverse the
structure-strategy sequence in their favour.
Blue Ocean strategy’s central paradigm shows that the ideas and actions of individual players can shape
the economic and industrial landscape.

In other words: Strategy can shape the Structure.

This is called “Reconstructionist Approach.”

 The 3-Strategy Proposition
Regardless of which strategy approach is chosen, a strategy’s success hinges on the development and
alignment of three propositions:
Achieving Strategy
Alignment Value Proposition
• The utility buyers receive from an offering
minus the price they pay for it.
A. B. C.
Value Profit People Profit Proposition
Proposition Proposition Proposition
• The revenues an organization generates
from an offering minus the cost to produce
A. The proposition that attracts buyers and deliver it

B. Enables the company to make money out of value People Proposition

proposition
• The positive motivations and incentives put
C. Motivates those who work for or with the company in place for people needed to support and
to execute the strategy implement the strategy
 Achieving Strategy Alignment

Structuralist Approach
Value
Proposition The alignment of three strategy
propositions in pursuit of
EITHER differentiation or low
Profit cost.

Proposition Reconstructionist Approach

The alignment of three strategy

People propositions in pursuit of BOTH
Proposition differentiation or low cost.
 2.7
Dubai Strategy Proposition
 Dubai 3-decades ago…

Dubai 3 decades ago:

• Cement structures were virtually non-existent

in its unforgiving desert
• Job opportunities were dismal
• medical services were poor
• people lived in thatched huts with palm
fronds, and tended sheep in the relentless
heat

Sheikh Zayed Road, 1990

 Dubai today… How did it happen?

Strategic decisions by the Emirate’s leaders allowed Dubai to overcome seemingly insurmountable
structural disadvantages.
It has been an island of stability in a politically turbulent region.

Only 5% of its revenues now come from oil and natural gas—down from 30% a decade ago.
 Dubai Strategy Proposition
The City-State of Dubai in the United Arab Emirates (UAE) is a classic example how Blue Ocean Strategy
Alignment enables an organization (and countries) to reconstruct its environment.

By redefining the role and activities of its government, Dubai has yielded one of the fastest-growing
economies in the world for over two decades.

It adopted reconstructionist blue ocean strategic move – aligning the three propositions around
differentiation and low cost, and it has brought unprecedented profitable growth.

Dubai’s ‘Value Proposition’ has targeted foreign investors whose money fuels the state’s economic
development.

Dubai’s ‘Profit Proposition’ has allowed the government to benefit and extract revenues from those
investors.

Dubai’s ‘People Proposition’ has motivated its own citizens and its external partners—foreign expatriates
—to buy into the country’s value and profit propositions and support its strategy.
 Module 2 Coverage: We completed…
2.1 Capabilities and Competencies

2.2 Sources of Competitive Advantage: Position and Capability

2.3 Value Chain Analysis – Primary and Secondary Activities

2.4 Internal and External Environmental Analysis: SWOT, PESTEL, VUCA & BEVUCA

2.5 Blue Ocean and Red Ocean Strategy

2.6 How strategy shapes structure – Structuralist and Reconstructionist Approaches

2.7 Dubai Strategy Proposition

 End
Of
Module 2