- In the changing and increased competition that defines the current business world, entrepreneurs and executives alike need to carefully analyze what strategy that best suit their business profile: structuralist or reconstructionist. Basically, this is the main idea of the article “How Strategy Shapes Structure”, written by W. Chan Kim and Renee Mauborgne.
The article starts by defining and explaining each strategy. It shows that the structuralist strategy is the classic approach to business, employed by most companies that intend to either differentiate or set low prices. The companies that apply this strategy adapt their strategy to the environment (the industry) within which they are competing, by studying the competition, the macroeconomic conditions, defining their strengths and weaknesses and proposing aligned set of strategy propositions for either achieving differentiation or for proposing lower prices. Comparatively, the reconstructionist strategy does the opposite, shaping the environment on the strategy. Companies that explore this business approach are innovative, bold and regarded as trendsetters; yet, they too respect the scheme of aligning their set of strategy propositions. However, unlike the structuralist strategy the reconstructionist one aims for achieving both differentiation and low cost.
The article next presents the optimum conditions that indicate when it is best to adopt the structuralist approach and when it would be more indicated to go with the reconstructionist approach. Should the market wherein the company activates possess attractive structural conditions and should the organization have the right resources to propose distinctiveness, the structuralist strategy is the right approach. Similarly, the structuralist strategy is also preferred to the reconstructionist one when although the structural conditions are less attractive, the organization has the resources to overpass its competitors. Yet, the reconstructionist strategic approach should be implemented when the players are difficult to be outperformed, although the structural conditions are favorable and when the structural conditions are unfavorable, although the resources are available. Nevertheless, the authors suggest that in the current dynamic economy, diversified companies should know how to approach both strategies.
The article further exemplifies the theory regarding structuralist versus reconstructionist approach, by presenting the case of Dubai, a city – state that has become a role model for economies around the world, radically changing its Arab nationalism and oil-based economy for the globalization and a diversified economy. The article illustrates that Dubai acted as an organization that managed to align its three strategic propositions (value proposition, profit proposition and people proposition) for achieving both differentiation and low cost. It achieved its value proposition by offering foreign investors incentives, tax free programs, transparent regulations, freedom to repatriate 100% of their capital and profits and other benefits for encouraging investments in Dubai, making its customers (the investors) happy with these foreign investment conditions. It achieved profit proposition by capitalizing on the travels from and to Dubai, from housing the foreign workers, from maintaining social liabilities to the minimum for the expatriates and by becoming part of United Arab Emirates, being exonerated from budgeting the military, diplomatic and monetary agencies. Finally, Dubai achieved people proposition by proposing cheap housing for the foreign workers, compared to other foreign working destinations, and in general good living standards, influencing the people component (Dubai’s workers) to happily contribute to enhancing its economic performance. Like this, the low cost and differentiation where achieved, by aligning the value proposition with the profit and the people propositions.
Dubai’s case is next compared with Shanghai’s business philosophy, which was outperformed by Dubai because the Chinese town did not provide competitive political, legal and financial benefits to its investors.
The article further compares the case of Napster with Apple’s i-Tunes, indicating that although both businesses were innovative, the long-term success was achieved by Apple, because besides breakthrough innovation the company also knew how to align its strategy propositions for achieving both differentiation and low cost. This is the receipt for the blue ocean strategy that other companies such as IBM, Sony, JVC and many others applied in their businesses for reshaping the environment and creating competitive advantage and associating their names with computer world, respectively with view recording industry.
Towards the end, the article shows that the blue ocean strategy can be applied by any type of organization, giving the example of the nonprofit organization Comic Relief, famous for its original approach to fundraising, but successful for its blue ocean strategy alignment. In the end, Kim and Mauborgne challenge the entrepreneurs and managers to analyze their preparedness for either a structuralist competitive strategy model or for a reconstructionist blue ocean strategy.
2. The business environment is subjected to specific working procedures and structures defined by the environment. However, throughout time the business world has changed and it has contributed to shaping new working structures through innovative strategies. Environment does define strategy, when the strategy was already set and shaped the environment. Therefore, I consider that both approaches are correct and applicable. Initially, I believe, the strategy defines the environment. Innovative businesses define the business environment and then the business environment works on the framework proposed by the trend-setting organizations. Creating new strategies and business trends means redefining the environment. On the other hand, adjusting to the existent strategies and business trends means following the environment. Therefore, both approaches are valid. The sole consideration is to identify if an organization is a trend-setter, defining the environment, or if it is a follower, allowing the environment to define its strategy. I do believe, however, that there is a prevalence of the follower organizations, who customize their strategy on the one imposed by the environment, aligning their strategy propositions to either differentiation or low cost. The trend-setting organizations that define the environment through their strategies are both accurate in aligning their strategy propositions with differentiation and low cost and innovative. Innovation and bold approach are features that the classical, follower companies lack, felling comfortable in applying strategies that proved efficient, rather than venturing themselves in setting breakthrough strategies and reshaping the environment.
3. As an Arabic country, Kuwait’s economy is currently highly dependent on oil. However, the country is oriented towards becoming more emancipated, pursuing integration in the globally economy. In this purpose it offers attractive benefits and opportunities to expatriate workers, attracting, like this, global talents and becoming a global competitor for the workforce. Kuwait intends to achieve diversification, following Dubai’s model, which imposed a state of the art framework for the Arabic countries in terms of modernization and fiscal liberation from oil and attracted foreign workers, alluring them with an affluent lifestyle (“Forget Working in Dubai”, n.d.). Although the mode of life and the benefits that Kuwait offers to expatriate workers (competitive salaries, career development, citizenship or self-sponsored visas) (“Forget Working in Dubai”, n.d.) are attractive, the business environment that the country proposes for foreign investors is still rather opaque, compared with Dubai’s model. The country’s economy is changing and this implies year to year new regulations that add to the cohort of norms that business owners must adjust to, such as dealing with construction permits, getting credit, paying taxes or getting electricity, among many others (The International Bank for Reconstruction and Development, 2013). Kuwait’s core activities structured around oil economy, has, however, a high potential for generating technology transfer, job creation, education and training (Oxford Business Group, 2008). Capitalizing on these capabilities, Kuwait has the potential for reproducing Dubai’s success stories. One problem that needs to be addressed is whether Kuwait has the economic, political, legal flexibility and socio-cultural flexibility to apply a social transformation meant to make the country more global, becoming a competitive destination for foreign direct investment. Another problem relates to Kuwait’s ability to optimize its resources for aligning them with its strategy propositions and the differentiation and low cost goals.
The International Bank for Reconstruction and Development (2013) illustrates that in Kuwait organizations pay 12 taxes per year that amount to 12,4% of their profit, but the foreign companies need to pay additional taxes. Compared to Dubai, the current economic context from Kuwait needs to be redefined for attracting more investors and for emphasizing the country’s economy based on the economic value that external businesses and foreign workers could bring in the country.
This briefly structured economic context that defines Kuwait indicates that although the country is in the right direction, it is not yet prepared to achieve Dubai’s success story. The country needs to find a synergy between its value proposition (generating attractive business environment for foreign investors) its profit proposition (making profit out of the foreign investors and workers’ spending on travel and housing) and its people proposition (creating benefits for satisfying the workers).
Forget working in Dubai, go work in Kuwait instead. (n.d.) Retrieved from http://www.shelteroffshore.com/index.php/living/more/forget-working-dubai-work-kuwait-instead-10972.
Kim, W., C. & Mauborgne, R. (2009) “How strategy shapes structure.” Harvard Business Review. Pp. 73-80.
Oxford Business Group (2008) The Report Kuwait 2008. Oxford: Oxford Business Group.
The International Bank for Reconstruction and Development/The World Bank (2013) Doing business 2014. Economic profile Kuwait. Washington, DC: The International Bank for Reconstruction and Development/The World Bank