A Case Study of Red Bull and its Status as a Blue Ocean

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School of Engineering and Mathematical Sciences
Strategic Risk Management: A Case Study of Red
Bull and its Status as a Blue Ocean
Gayel Sidaoui
Project for the Degree of MSc in Project Management, Finance
and Risk
Supervisor: Prof. Martin Newby
30 November 2012

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Project Title: Strategic Risk Management: A Case Study of Red Bull and its Status as a Blue
Student: Gayel Sidaoui
Supervisor: Prof. Martin Newby
30 November 2012
The world we live in has become so complex and competitive that the need
to constantly adapt to the ever-changing environment has become a must.
The world’s population has recently exceeded seven billion. Seven billion
people in constant interaction and competition for limited resources,
opportunities and services. Organizations have become so fragile in such
environments that failure to properly formulate, implement and evaluate
successful strategies will eventually lead to their demise. The business
environment has become such a turbulent place with all the changes.
Organizations and companies need to know where they are, where they plan
to go and how they will get there. Strategic management is based on two
major points: strategy formulation and strategy implementation. Most
companies and organizations either spend a lot of time and resources
properly implementing a wrongly formulated strategy, or spend a lot of time
and resources properly formulating while failing to properly implement. They
need both good implementation and good formulation if they were to
succeed, grow and sustain. Also strategic risks are defined as risks
encountered during the strategic management process.
In this dissertation I will start by introducing the origin, evolution and history
of strategic management. Then I will talk about competitive strategic
management. Moreover I will talk about risk management in general and
strategic risk management in particular and see how strategic management
and risk management affect one another. I will mainly base my results on a
case study that will cover Red Bull and Red Bull Mission Stratos. I will
analyze Red Bull’s advertising, marketing and strategy. I will also analyze the
record breaking Red Bull Stratos mission by undergoing a risk analysis of the
project. From my analysis of the case study I was able to conclude that Red

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Bull Mission Stratos had a significant effect on social media and helped Red
Bull strengthen its strategy and brand image. Red Bull no longer belongs to
the Red Ocean where fierce competition prevails but has able to transform
itself into a Blue Ocean where it has created uncontested market space and
managed to make the competition irrelevant.
Many organizations have failed, not because they were unable to plan a
future that exploited opportunities and mitigated risks, but because they have
not been able to properly implement their strategy and reach their preset
targets. Red Bull on the other hand has been successful to implementing an
effective strategy.
Risks threaten companies daily and only a few are able to grow sustainably.
Sustainable growth is not the product of organizations’ operating on gut
instinct and past experiences but of gaining confidence from proper
identification and assessment of both internal and external risks and

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Table of Contents
1. Origins of Strategic Management........................................................... 6
2. Evolution and Historical Development of Strategic Management ..............8
3. Strategic Management ........................................................................ 10
3.1 Strategic Management Definition.................................................... 10
3.2 The Strategy Hierarchy .................................................................. 10
3.3 Process of Strategic Management................................................... 11
3.3.1 Mission and Objectives................................................................ 12
3.3.2 Environmental Scanning.............................................................. 12
3.3.3 Strategy Formulation .................................................................. 13
3.3.5 Evaluation and Control................................................................ 15
3.4 Deliberate vs. Emergent Strategies................................................. 16
3.5 Globalization ................................................................................. 17
3.6 Analytical Tools and Frameworks.................................................... 18
3.6.1 SWOT Analysis ........................................................................... 18
3.6.2 PEST Analysis............................................................................. 21
4. Competitive Strategic Management...................................................... 22
4.1 Why Compete?.............................................................................. 22
4.2 Porter’s 5 Forces Model.................................................................. 23
4.2.1 The Bargaining Power of Suppliers............................................... 24
4.2.2 Bargaining Power of Buyers......................................................... 25
4.2.3 Pressure from Substitute Products ............................................... 25
4.2.4 The Threat of New Entrants ........................................................ 26
4.2.5 Intensity of Rivalry Among Existing Competitors........................... 27
4.3 Innovation as a Key Component in Strategy.................................... 27
5. The Need for Risk Management........................................................... 30
6. Strategic Risk Management................................................................. 32
6.1 Scope and Potential for Risks to Influence the Strategy of an
Organization ....................................................................................... 32
6.2 Strategic Risk................................................................................ 33
6.3 Strategic Risk Management Process................................................ 37
6.3.1 The Need for Being Proactive Not Reactive................................... 39
6.3.2 Using Scenarios to Respond to Uncertainty .................................. 40 Identifying Risks and Opportunities........................................... 40 Assessing Risks to Develop the Likelihood and Impact of
Occurrence......................................................................................... 41 Responding to Uncertainty ....................................................... 43
6.4 Risk Appetite................................................................................. 48
6.5 Risks in Strategy Implementation ................................................... 49
7. Case Study – Red Bull & Red Bull Stratos............................................. 51
7.1 Red Bull........................................................................................ 51
7.1.1 How it Started............................................................................ 51
7.1.2 Red Bull’s Current Position .......................................................... 52
7.1.3 Red Bull Marketing...................................................................... 53
7.1.4 Red Bull Strategy........................................................................ 56
7.1.5 SWOT Analysis of Red Bull .......................................................... 57

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7.1.6 PEST Analysis of Red Bull............................................................ 58
7.2 Red Bull Mission Stratos – Journey to the Edge of Space.................. 58
7.2.1 Mission Description..................................................................... 58
7.2.2 Benefits of the Project ................................................................ 60
7.2.3 The Jump in Numbers................................................................. 61
7.2.4 Risks in the Project..................................................................... 62
7.2.5 Management of the Risks in the Project ....................................... 66
8. Findings and Recommendations .......................................................... 74
8.1 Effect on Social Media.................................................................... 74
8.2 Red Bull – A Blue Ocean ................................................................ 75
9. Conclusion ......................................................................................... 79
References............................................................................................. 80

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1. Origins of Strategic Management
The word strategy has its roots from the Greek word ‘strategia’, which means
military commander. Webster’s New World Dictionary defines strategy as ‘the
science of planning and directing military operations’.
In the 1980s business strategists realized that there was a vast knowledge
base in the field of strategy that had barely been examined. It stretched back
thousands of years back mainly encompassing military strategy books. So
military strategic management dated back to thousands of years, had a major
influence on what strategic management is nowadays.
According to James (1984), ‘to survive you have to learn to fight by the rules
of the game. The rules of the business game have changed in response to
economic, technological and social dislocation and require new approaches
to market combat. The companies that will survive and prosper will be those
that recognize the new rules of the market-place and adopt end-game
strategies which reflect the combative nature of the market-place. Those
companies which continue to use game plans which are not conflict
orientated will have a less-than-even chance of survival’. So strategy can be
considered as a set of policies that are used to conduct conflict and to secure
an advantage over the competition.
It is vital however to be very careful with the usefulness of this military
analogy since a business cannot vanquish its competitors without being
noticed. Business is predominantly there for the long term whereas wars are
based on both destroying the opposition and the use of the resources in
order to gain an overwhelming advantage before destroying the enemy. Kay
(1993) argues that ‘Success in business is usually about adding value of your
own, not diminishing that of your competitors, and is based on distinctive
capability, not destructive capability. … The second area in which military
analogy misleads is in inviting excessive emphasis on leadership, vision and
determination. … If General Custer or Lord Raglan had been businessmen,

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would we have been so keen to become their employees or to buy shares in
their business. … Fighting against overwhelming odds may sometimes be a
necessary military strategy. It is almost always not a sensible business
Hinterhuber and Popp (1992) provide a further example of the military
analogy but in the context of trying to identify the qualities needed to be a
strategic manager. They contend that the greatest strategist of all time was
not a business executive or an entrepreneur but a war general named
Helmuth von Moltke, chief of the Prussian and German general staffs from
1855 to 1888, who engineered the strategy behind the military victories that
allowed Otto von Bismark to assemble a loose league of German states into
a powerful empire. They also found two important characteristics that apply
to both business strategists and military strategists:
1. The ability to understand the significance of events without being
influenced by current opinion, changing attitudes, or personal
2. The ability to make decisions quickly and to take the indicated action
without being deterred by a perceived danger.
A major difference between military and business strategy is that business
strategy is formulated, implemented, and evaluated with an assumption of
competition, whereas military strategy is based on the assumption of conflict.
Nonetheless, military conflict and business competition are so similar that
many techniques for the formulating, implementing and evaluating of
strategies can be applied to both (Thompson & Martin, 2010).

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2. Evolution and Historical Development of Strategic
The discipline of strategic management was created in the 1950s and the
1960s. The most influential contributors were Alfred Chandler, Philip
Sleznick, Igor Ansoff and Peter Drucker. Ansoff pioneered the concept of
strategy in the late 1950s and early 1960s. He was nicknamed the father of
strategic management. He came up with a paradigm for strategic success
that identifies conditions that optimize profitability. The key elements of his
paradigm were the following (Ansoff, 1965):
1. There is no universal success formula.
2. The strategy required for success is determined by the level of
environmental turbulence.
3. The aggressiveness of the strategy should be aligned with turbulence
in the environment in order to optimize the firm’s success.
4. Management’s capabilities should be aligned with the environment to
optimize the firm’s success.
5. Internal capability variables jointly determine the firm’s success.
Ansoff also introduced the terms gap analysis (where you are today and
where you want to be in the future) and synergy (the whole is greater than
sum of its parts and requires an examination of how opportunities fit the core
capabilities of the organization).
Ever since, ten distinct schools or points of view have emerged
encompassing this discipline. Each has a unique perspective that focuses on
one major aspect of the strategy-formation process. They are:
1. The Design School – strategy formation as a process of conception.
2. The Planning School – strategy formation as a formal process.
3. The Positioning School – strategy formation as an analytical process.
4. The Entrepreneurial School – strategy formation as a visionary
5. The Cognitive School – strategy formation as a mental process.
6. The Learning School – strategy formation as an emergent process.

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7. The Power School – strategy formation as a process of negotiation.
8. The Cultural School – strategy formation as a collective process.
9. The Environmental School – strategy formation as a reactive process.
10. The Configuration School – strategy formation as a process of
Mintzberg (1998) grouped them intro three categories. The first is normative
and includes the design, planning and positioning schools. The second group
consists of six schools, the entrepreneurial, cognitive, learning, power,
cultural and environmental schools. It is more concerned with how strategic
management is actually implemented rather than how optimal plans are
prescribed. The third and final group, which consists of the configuration
school is a hybrid of the other schools but organized into stages or cycles.

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3. Strategic Management
3.1 Strategic Management Definition
At their simplest, strategies help explain the things that managers and
organizations do (Thompson & Martin, 2010). Bowman and Asch (1987)
have described strategic management as ‘the process of making and
implementing strategic decisions and the process of strategic change’.
Mintzberg (1987) argues that there is no easy definition for strategy but
defines strategy with five Ps - plan, pattern, position, perspective and ploy.
First strategy is a plan - guidance for action into the future or a way to get
from here to there (looking ahead). Secondly strategy is a pattern –
consistency over time (looking backward). In addition strategy is a position –
the creation of a unique and valuable position involving a different set of
activities. Moreover strategy is a perspective – a fundamental way of doing
things. And finally strategy is a ploy – a tactic to overreach a competitor
(Mintzberg, 1998).
Strategic management is how we cope with our emergent world in the face of
dynamic uncertainty. The world of competition, fashion and technology is an
ever-changing one. Organizations need to exploit all their strategic
resources, meet the expectations of their customers and clients and deal with
stakeholders. In order to properly do that they have to implement proper
strategic management that is capable of dealing with any constraints or
uncertainties while simultaneously out-maneuvering competitors.
3.2 The Strategy Hierarchy
Strategic management can occur at a corporate, functional and operational
level. Corporate strategy answers the question of which business an
organization should be in and how does being in that business add to the
competitive advantage of the company as a whole. Functional strategies are
specific to different functional areas like finance, human resources,

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marketing, etc. They emphasize on short and medium term plans and must
comply with the broader corporate strategy. Operational strategy deals with
the operational activities that include scheduling and resourcing.
3.3 Process of Strategic Management
Strategic management has commonly been portrayed as revolving around
three main phases: formulation, implementation and control. Its main
components are: vision, company mission, company profile, external
environment, strategic analysis and choice, long-term objectives, annual
objectives, grand strategy, functional and operational strategies, policies,
control and evaluation.
Thompson and Martin (2010) have considered a number of aspects to
strategic management:
1. The strategy itself - to establish a clear direction for the company or
organization and a means for getting there, which requires a strong
competitive position.
2. Excellence in strategy implementation to yield effective performance.
3. Creativity and innovation to ensure that the organization responds to
pressures for change and that strategies are improved and renewed.
4. Ability to manage strategic change.
5. Proper implementation and innovation to enable the organization to
thrive and grow in the global dynamic environment.
Craig (2003) says that strategy can link the overall goals of the organizations
to its actions. He termed the sequence of strategic management as MOST:
Mission, Objectives, Strategy and Tactics; which involves a process of
increasing specificity beginning with overall organizational goals, then
articulating them in action-oriented form, before identifying a strategy and the
objectives it aims to achieve, and finally specifying particular tactics.

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Summing up we can think of the strategic planning process as being
composed of five steps:
1. Mission and Objectives
2. Environmental Scanning
3. Strategy Formulation
4. Strategy Implementation
5. Evaluation and Control
Any firm must engage in strategic planning to clearly define its objectives. It
should also assess both the internal and external factors threatening it before
formulating, implementing and evaluating a strategy.
3.3.1 Mission and Objectives
The initial task in strategic management is the compilation and dissemination
of the vision and mission statement. This step outlines the ‘raison d’etre’ of
an organization. The mission statement usually describes the company’s
business vision and summarizes the purpose and goals of the firm. It
includes the values and purpose of the firm as well as the visionary goals
that usually guide the pursuit of the targeted opportunities and objectives.
Usually in this step, the firm’s leaders are guided by their business vision.
They usually define both financial objectives – involving measures such as
earnings, growth and sales target, and strategic objectives – determining
position, reputation and market share. Short and long term objectives along
with their completion dates may also be defined
3.3.2 Environmental Scanning
Environmental scanning involves applying several frameworks to analyze the
firm both internally and externally. The analysis should cover the firm’s
industry and its competitors. The internal analysis of the firm should be made
on both a micro and macro level in order to identify its strengths and
weaknesses. The firm’s external analysis should also be made on both micro

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and macro levels in order to identify potential threats and opportunities.
Having identified the Strengths, Weaknesses, Opportunities and Threats, a
SWOT analysis can be applied. This will be covered in section 3.6.1. The
industry can also be analyzed by another framework. This framework
developed by Michael Porter (1980) is known as Porter’s five forces model
and evaluates the threat of new potential entrants, the threat of substitute
products, the bargaining power of suppliers, the bargaining power of buyers
and the rivalry amongst competitors. Porter’s five forces framework will be
covered in section 4.2. Environmental scanning allows the firm to collect and
consider valuable information and fully understand the industry before it
starts formulating a strategy.
3.3.3 Strategy Formulation
Having properly scanned the environment and identified the strengths,
weaknesses, opportunities and threats, the firm should match its strengths to
the opportunities it has identified while at the same time addressing the
weaknesses and threats. In doing so it seeks to attain and develop a
competitive advantage over its rivals. Having reviewed the elements of the
SWOT analysis, the firm has to reflect, prioritize, develop options and make
decisions. Those decisions reflect the strategy it intends to take. Also
alternative strategies should be formulated to address key strategic issues.
Porter (1980) identified three independent generic strategies from which the
firm can choose. They are:
1. Cost Minimization Strategy – products compete to offer certain
features at the lowest possible cost.
2. Market Focus Strategy – products tailored for the specific needs of
a market and not all consumers.
3. Differentiation Strategy – products compete by offering a unique
combination of features.
Johnson et al. (2008) presented a model in which strategic options should be
evaluated against three success criteria:

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1. Suitability – overall rationale of the strategy (evaluation tools:
SWOT analysis).
2. Feasibility – whether organization has resources and capabilities to
implement the strategy (evaluation tools: cash flow analysis and
forecasting, break even analysis and resource deployment
3. Acceptability – expectation of identified stakeholders with expected
financial and non-financial outcomes (evaluation tools: what if
analysis and stakeholder mapping).
The main reasons for formulating a strategy are to define a desired future
state, to describe how this desired state will be attained and to allocate and
align resources to achieve this desired state.
It is important that the level of uncertainty associated with strategy
formulation is reduced to as low as possible. This area will be covered below
in the section covering strategic risk management (section 6).
3.3.4 Strategy Implementation
After the strategy is formulated it has to be implemented by means of
programs, procedures and budgets. Implementation in other words is how
the firm’s uses its resources and staff motivation to reach its target goals.
Any company’s success relies mainly on two very important factors, proper
strategy formulation and proper strategy implementation. Most companies
and organizations either spend a lot of time and resources properly
implementing a wrongly formulated strategy, or spend a lot of time and
resources properly formulating while failing to properly implement. They need
both good implementation and good formulation if they were to succeed,
grow and sustain. Also, in large companies, care has to be taken, as those
responsible for formulating the strategy may be different than those
implementing it. In that case, extra care must be taken to properly
communicate the strategy and reasoning behind it among all those involved.

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To achieve results, plans are put into practice, resources are marshaled, and
capacity is tapped.
In addition implementing a strategy may involve organizational change,
resourcing and employing change management procedures. Examples of
organizational change are creating new units, merging existing ones or
switching from a geographical to a functional structure. Implementing change
may severely affect an organization, so change management is sometimes
needed where an individual is appointed to champion the changes, address
and enlist opponents while proactively identifying and mitigating problems.
Markides (1999) examined the nature of strategic planning and described
both strategy formulation and implementation as an ongoing, never-ending,
integrated process requiring continuous reassessment and reformation. He
argued that strategic management is planned and emergent, dynamic and
3.3.5 Evaluation and Control
After formulating and implementing strategies, they must be constantly
monitored, evaluated and adjusted to cope with the ever-changing dynamic
and complex business environment that we live in. Monitoring allows firms to
check their progress towards goal achievement and assess whether changes
in the environment necessitate alterations to their strategies. Effective
monitoring also allows firms to react and anticipate. It is vital to stress that in
order to properly succeed with their strategies, firms need to be proactive
and not reactive. Some reaction is required as the world and business
environment is full of uncertainties however firms have to be prepared for the
worst before implementing strategies. Constantly adapting and changing
strategies is not a sign of weakness but a sign of strength.

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3.4 Deliberate vs. Emergent Strategies
Strategies that are fully realized are usually called intended strategies. On
the other hand, unrealized strategies are those that are not attained. Both
intended and unrealized strategies are the outcome of something that was
planned. Emergent strategies are strategies where a pattern is realized that
was not expressly intended (Mintzberg et al, 2009).
Fig. 3.1 Deliberate vs. Intended Strategies (Mintzberg, 2009)

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Thompson and Martin (2010) argue that strategies are sometimes
determinedly intentional but on occasions they emerge from the choices that
organizations make in the face of dynamic uncertainty.
Moncrieff (1999) stressed on the idea of strategy dynamics and claimed that
strategy is partially deliberate and partially unplanned. He argued that the
unplanned element is usually from emergent strategies resulting from the
emergence of opportunities and threats in the environment and from
strategies in action.
According to Mintzberg (2009), ‘Perfect realization implies brilliant foresight,
not to mention an unwillingness to adapt to unexpected events while no
realization at all suggests a certain mindlessness. The real world inevitably
involves some thinking ahead as well as some adaptation en route.’ In other
words, most strategies are a combination of both intended (according to
plan) and emergent (according to change) strategies. All strategies need to
mix a bit of both – to exercise control while fostering learning. Needless to
say that emergent strategies aren’t necessarily bad and deliberate strategies
aren’t necessarily good. Those who survive are those able to predict and
plan as well as react to unexpected events.
3.5 Globalization
In this environment, successful managers need to properly understand the
similarities and differences between borders to prevent any potential downfall
while utilizing all opportunities. Managers when developing global strategies
should take both benefits and drawbacks of globalization into account. While
a company only has to develop a strategy taking into account governmental
regulation, one language, and one currency in a domestic market, it must
consider and plan for different levels and kinds of governmental regulation,
multiple currencies, and several languages in the global market (Heil, 2010).

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3.6 Analytical Tools and Frameworks
3.6.1 SWOT Analysis
SWOT analysis is a tool that provides a framework to review the strategy,
position and direction of an organization. Strengths and Weaknesses are
usually the internal factors whereas Opportunities and Threats are linked to
the external factors. This look at the internal and external environment is a
crucial part of strategic management.
Lynch (2000) argues that there are 17 commonly recognizable steps in the
implementation of a SWOT analysis. Thich are:
1. Establish the individuals who should be involved in the process. It
should include employees from all key areas of the business.
2. Consider involving (if appropriate) key customers, suppliers or other
sympathetic outsiders who know the market within which the business
operates and can provide an objective independent view.
3. Arrange a workshop to identify the business’s strengths and
weaknesses and the opportunities and threats facing it.
4. Ask participants to collect and review information on internal
management and external factors affecting the market within which
the business operates, prior to the workshop.
5. Decide whether there is a suitable individual in-house who would have
the skills and objectivity to manage the workshop. Otherwise appoint
an external facilitator.
6. Prepare and issue a briefing pack to the participants including some
basic details about the structure of the market and the business’s
performance within the market, so that discussion within the workshop
is less subjective.
7. Decide on how the factors will be measured/quantified.
8. Hold the workshop. Brainstorm the factors.
9. List the strengths, weaknesses, opportunities and threats. Only
important factors should be included, but some factors will invariably

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be more important than others. Each factor should be a short bullet
point so that the SWOT analysis fits on one page.
10.Strive to make factor descriptions as specific as possible.
11.Where possible quantify the factors.
12.Quantify in a readily comprehensible way.
13.When there are no further suggestions, score each factor and list the
factors in order of importance.
14.Provide some explanation of the factors in the form of supporting
paragraphs on the sheet.
15.Assess the significance of the SWOT analysis completed.
16.Create and execute an action plan to tackle weaknesses, capitalize on
strengths and opportunities and deal with threats.
17.Use the analysis and action plan as a review tool before implementing
decisions, so that decisions fit with what the analysis suggests.
Strengths should be taken into consideration only if they can be used to
exploit an opportunity or counter a threat. Similarly, weaknesses are
dangerous if they relate to a threat. This analysis should be undertaken
keeping in mind the objective of strategy and strategic management, is to
gain sustainable competitive advantage. According to Lynch (2000),
‘Competitive advantage can only be sustained if customer needs are
addressed. The market analysis is an important input into the SWOT
analysis. To derive real advantage from a strength, it must be useful in
satisfying the needs of customers. Similarly, if weaknesses relate to specific
customers’ need, they should be addressed as a matter of priority.
Table 3.1 provides a non-exhaustive checklist of factors that may be relevant
to a SWOT analysis. However it is important to note that each SWOT
analysis has to be tailored specifically to the business environment under

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Table 3.1 Factors Relevant to a SWOT Analysis (Lynch, 2000)
Market dominance
Core ompetencies
Economies of scale
Low-cost positpion
Leadership skills
Management skills
Financial resources
Manufacturing skills
R & D
Brand & reputation
Low market share
Few core
Old plant
High-cost base
Weak balance sheet
Weak cash flow
Low R&D capability
Weak positioning
Quality problems
Lack of access to
strong distribution
New demand
Market growth
Social change
Political support
Economic upswing
Cheap funds
Trade liberalization
New market
Competitive prices
Higher input prices
Changing needs
and tastes
Buyer consolidation
Substitute threats
Capacity growth
outstrips demand
Cyclical downturn
Regulation & laws
Threats from
Fig. 3.2 SWOT Analysis Framework (Kay, 1993)

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3.6.2 PEST Analysis
PEST, which stands for Political, Economical, Social, and Technological, is
usually used for analysis of the external factors (threats or opportunities) that
are either positively or negatively affecting the organization.
Usually political factors include laws and regulations, tax policies,
environmental ordinances, political instability, and trade barriers to name a
few. Economic factors include purchasing power, firm’s capital, interest rates
and exchange and inflation rates. Social factors involve the demographic and
cultural factors and include health consciousness, population growth,
population distribution (age and sex), career paths and safety
consciousness. Technological factors usually try to lower and eliminate
barriers to entry and include R&D activity, technological incentives and rate
of technological change.

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4. Competitive Strategic Management
4.1 Why Compete?
The intensity of competition in an industry is neither a matter of coincidence
nor of bad luck, rather competition in an industry is rooted in its underlying
economic structure and goes well beyond the behavior of current competitors
(Porter, 1980). He also argues that a competitive industry is any industry
where firms produce products that are close substitutes for each other.
To thrive and grow, organizations must be able to meet expectations of their
customers or clients and to do what they do at least as well as, and ideally
better than any rivals (Thompson & Martin, 2010). To reach their targets
organizations have to survive the competition and outperform their
Hamel (1989) and Prahalad (1994) declared that strategy needs to be more
active and interactive and that less ‘armchair planning’ was needed. Their
most well known advance was the idea of core competency which states that
each organization has some functional area that it excels in and that
business should focus on opportunities in that area while letting others go
(Hamel, 1990).
Porter’s five forces analysis shows how a firm could use forces to obtain a
sustainable competitive advantage. Porter’s (1980) generic strategies detail
the interaction between market focus strategies, cost minimization strategies
and differentiation strategies. He also showed that choosing one rather than
trying to position the company between them is very important in
outperforming the competitors.
Sewell (1990), Reichheld (1996), Gronroos (1994) and Sasser (1990)
observed that businesses were spending more on customer acquisition than
on retention and argued that competitive advantage comes with ensuring that

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customers returned again and again. Also Gilmore and Pine (1997) found
competitive advantage in mass customization where flexible manufacturing
techniques permitted businesses to customize products for each customer
without losing economies of scale. This turned the product into a service.
De Geus (1997) identified four key traits of companies that had prospered for
more than 50 years despite the severe competition. They are:
1. Sensitivity to the business environment – ability to learn and adjust.
2. Cohesion and identity – ability to build a company with personality
vision and purpose.
3. Tolerance and decentralization – ability to build relationships.
4. Conservative financing.
Peter Ellwood former chief executive of Lloyds TSB Group said that ‘The
flame of competition has changed from smokey yellow to intense white heat.
For companies to survive and prosper they will have to have a vision, a
mission and a strategy. They will pursue the action arising from that strategy
with entrepreneurial skill and total dedication and commitment to win.’
The goal of competitive strategy for a business unit in an industry is to find a
position in the industry where the company can either best defend itself
against the competitive forces or can influence them in its behavior (Porter,
1980). Porter’s five forces model serves as a concrete example of how firms
can do that.
4.2 Porter’s 5 Forces Model
Porter’s ‘Five Forces’ model shows how the strategic situation of a company
can be established by investigating five factors:
1. Bargaining power of suppliers
2. Bargaining power of buyers
3. Pressure from substitute products
4. Threat of new entrants

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5. Intensity of rivalry among existing competitors.
The collective strength of these five forces determines the ultimate profit
potential in an industry (Porter, 1980). These five competitive forces clearly
reflect that competition in an industry goes well beyond the established
players. Competition may be termed rivalry as firms not only have to worry
about other players in the industry but also on suppliers, buyers, new
entrants and other firms.
The five forces model helps in making strategic decisions as it is used to
determine an industry’s competitive structure.
4.2.1 The Bargaining Power of Suppliers
Suppliers are the firms that provide any form of input to a particular industry.
On the other hand bargaining power of suppliers refers to the potential of
suppliers to increase the prices of inputs (labor, raw materials, services, etc)
or the costs of industry in other ways (Porter 1980). When we say strong
suppliers, we usually refer to those suppliers capable of extracting a profit out
of an industry by increasing the costs of firms in that industry. Porter (1980)
argues that a supplier group is powerful if the following apply:
1. It is dominated by a few companies and is more concentrated than the
industry it sells to.
2. It is not obliged to contend with other substitute products or sale to the
3. The industry is not an important customer of the supplier group.
4. The suppliers’ product is an important input to the buyer’s business.
5. The supplier group’s products are differentiated or it has built
switching costs.
6. The supplier group poses a credible thread of forward integration.
In those ways, suppliers are regarded as a threat.

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4.2.2 Bargaining Power of Buyers
Buyers are either the customers who directly consume the product or the
firms that distribute the product to the consumers. Buyers usually can
influence the price (decrease price), demand better quality products
(increase firm costs) or services or play as competitors against one another
all at the expense of the industry’s profitability. Porter (1980) argued that a
buyer group is usually powerful if:
1. It is concentrated or purchases large volumes relative to seller sales.
2. The products it purchases from the industry represent a significant
fraction of the buyer’s costs or purchases.
3. The products it purchases from the industry are standard or
4. It faces few switching costs.
5. It earns low profits.
6. Buyers pose a credible threat of backward integration.
7. The industry’s product is unimportant to the quality of the buyers’
products or services.
8. The buyer has full information.
In those ways, buyers are regarded as a threat.
4.2.3 Pressure from Substitute Products
Substitutes are products capable of performing the same function as the
industry’s product of concern. All firms in an industry are competing with
industries producing substitute products (Porter, 1980). Those substitutes
usually limit the potential returns by placing a ceiling on prices charged.
Porter argues that the more attractive the price-performance alternative
offered by substitutes, the firmer the lid on industry profits. The less the
number of close substitutes a product has, the greater is the opportunity for
firms in an industry to control their prices to maximize profits. Porter (1980)
argues that the substitutes that deserve the most attention are:

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1. Those that are subject to trends improving their price-performance
tradeoff with the industry’s product.
2. Those that are produced by industries earning high profits.
4.2.4 The Threat of New Entrants
New entrants to an industry bring new capacity along with the desire to gain
market share. Prices can be bid down or incumbents’ costs inflated as a
result, reducing profitability (Porter, 1980). The threat of entry usually
depends on six major sources of barriers to entry that Porter had identified. If
barriers to entry are usually high the threat of entry is low. In other words, the
degree of barriers to entry and the threat of entry are inversely proportional.
Porter argued that the six major sources of barriers to entry are:
1. Economies of Scale – refer to declines in unit costs of product as the
absolute volume per period increases. They discourage entry by
forcing entrant to either come in at large scale and risk strong reaction
of existing firms or come in at a small scale and accept cost
2. Product Differentiation – means that existing firms already have
customer loyalty and brand identification. This causes a barrier to
entry, as new entrants have to invest heavily in order to overcome
existing customer loyalties.
3. Capital Requirements – new entrants must invest large financial
resources in order to be able to compete.
4. Switching Costs – are one-time costs facing the buyer of switching
from one supplier’s products to another’s.
5. Access to Distribution Channels – the need to secure distribution for
6. Government policy – in the form of licensing requirements and limits
on access to raw materials.
All those sources act in the favor of the existing competitors and prevent
further competition.

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4.2.5 Intensity of Rivalry Among Existing Competitors
Rivalry among existing competitors takes the familiar form of jockeying for
position – using tactics like price competition, advertising battles, product
introductions and increased customer services or warranties (Porter, 1980).
Rivalry usually occurs for two reasons, either because one of the competitors
feels the pressure or because he feels an opportunity to improve position.
Since firms in an industry are mutually dependent on one another, excess
action and reaction may result in all firms suffering. One of the main causes
of leaving the entire industry worse off is price competition. Intense rivalry is
usually the result of a number of interacting structural factors, which Porter
described as the following:
1. Numerous or Equally Balanced Competitors – large number of firms
causes some to think they can make moves without being unnoticed.
2. Slow Industry Growth – turns competition into a market share game
for expansion-seeking firms.
3. High Fixed Storage Costs – creates strong pressures for all firms to fill
4. Lack of Differentiation or Switching Costs – choice of buyer largely
influenced by price and service.
5. Capacity Augmented in Large Increments – disruptions to industry’s
supply and demand balance.
6. Diverse Competitors

leads to
differences and
misunderstandings between firms in an industry.
7. High Strategic Stakes – increases rivalry.
8. High Exit Barriers – specialized assets, fixed costs of exit, strategic
interrelationships, emotional barriers, government and social
restrictions are all burdens if firms decide to leave.
4.3 Innovation as a Key Component in Strategy
Innovation is a key component in strategy. It gives a sustainable competitive
advantage for business organizations that are big believers in its importance.

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In other words, if we were to think of strategy as a puzzle, innovation is one
of its most fundamental pieces. However, it is not sufficient by itself – an
organization must consider more than innovation to be able to properly
develop and implement an effective strategy. According to Gabriel (2008),
innovation is ‘the successful commercial exploitation and implementation of
new ideas’. The importance given to the role of innovation in strategy is a
result of the existent social and economic conditions. In what Peter Drucker
termed the ‘knowledge economy’ that has emerged due to the rise of the
service industry and decline of manufacturing since the end of the Second
World War, business organizations have increasingly had to react to change
more rapidly if they wish to succeed in the marketplace (Drucker, 1992).
Henry (2008) argues that the role of strategy is to achieve competitive
advantage for an organization. He considers ‘Competitive Advantage’, as
that which allows an organization to meet consumers’ needs better than its
rivals and claims that its source may derive from a number of factors which
include its products or services, its culture, its technological know-how and its
processes. Competitive advantage is an important issue for a business
because a strategy, which can enable sustainable competitive advantage,
will allow an organization to generate super-normal returns, and will have a
distinct impact on overall performance (Kay, 1995).
Also innovation can prevent strategic drift, which is the tendency for
strategies to develop incrementally on the basis of historical and cultural
influences but to fail to keep pace with a changing environment (Johnson,
So where can business organizations look for innovation and how can they
promote it more effectively? Peter Drucker has suggested that there are
seven areas where companies should look for such opportunities, which
have been surmised by Hindle (2008) as being:
1. Any unexpected success

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2. Any incongruity between what actually happens and what was
expected to happen
3. Any inadequacy in a business project
4. A change in industry or market structure that surprises everyone
5. Demographic changes
6. Changes in perception and fashion brought by changes in the
7. Changes in awareness caused by new knowledge
There seems to be an agreement between a large number of authors who
have been studying this issue that those seven points mentioned above can
serve as opportunities for innovation. They can also aid in developing
strategies, preventing strategic drift and reaching a status of sustainable
competitive advantage.
Also in 2010, IBM released a study summarizing three conclusions of 1500
CEOs they had studied worldwide. The conclusions were:
1. Complexity is escalating.
2. Enterprises are not fully equipped to cope with this complexity.
3. Creativity is the most important leadership competency, which is
needed, in strategic management (IBM, 2010).
Innovation however is not the sole component of an effective strategy and it
can never be. It is always coupled with creativity, which triggers innovation.
Innovation is necessary to survive and thrive. It is a way of life.
Fig. 4.1 Forms of Innovation (Moeller, Stolla and Doujak, 2008)

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5. The Need for Risk Management
Today the world is full of risks. The number of risks that exist increases as a
function of both human and organizational evolution and development
(Roberts, Wallace and McClure, 2003). Also as organizations become larger
and more complex the number of risks also increases. Risk is an intrinsic
factor of every human endeavor. The concept of risk and reward is usually
considered as any part of the decision-making process. This concept is the
basis of risk analysis as people and organizations evaluate potential risks
and rewards before deciding on whether something should be done or not.
Roberts, Wallace and McClure (2003) argue that the human mind considers
risk and reward as a form of model in which possible events and outcomes
are considered in terms of possible actions, where the possible gains are
balanced against the possible losses before a decision is made as whether
or not that outcome is acceptable. We can think of this process as the basis
of decision-making under conditions of risk.
It is vital to note out that risk is not always a negative concept. The universe
we live in is characterized by constant dynamic change and the world is full
of uncertainty. Change is a dynamic mechanism that influences everything
and those that make it best through the world of uncertainty are those most
capable of adaptation to change. Also risk analysis and management
sometimes can lead to positive outcomes, or what is better known as
opportunities. So risk is necessary for opportunities to exist, and for
companies or organizations to be able to develop any opportunity, it has to
accept all risks accompanying that opportunity. The key however is to be
able to properly identify and manage those risks in order to nullify them as
much as possible.
Every organization has its own risk appetite and its own range of acceptable
outcome. Any organization that can raise the stakes to a level where
competition becomes intimidated inherits the opportunity to exploit that risk
(Roberts, Wallace and McClure, 2003). So risk has another positive attribute

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in that it intimidates competition. The concept of risk and risk management is
a dynamic and not a static entity. Risk management is not only about
identifying risks and taking precautionary measures, but also about looking at
the whole broader picture (the business environment) and analyzing the
opportunities that exist (coupled with risks) and then making an informed
decision on which is the best to accept and engage in.

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6. Strategic Risk Management
6.1 Scope and Potential for Risks to Influence the Strategy of an
By analyzing the issues that impact on the level of uncertainty, we can notice
a range of issues ranging between microeconomic and macroeconomic
issues that can take a major significance through the impact of events. This
range is usually the scope and potential for risks to influence the strategy of
an organization. As the timescale increases, the degree of uncertainty also
increases and the number of issues that can impact on the strategy also
increases. These issues usually are what we call strategic risks, which are
usually long-term oriented.
Without consideration of risk, the organization will not be able to improve its
performance, which is a fundamental objective of the strategic planning
process. Roberts, Wallace and McClure (2003) argue that there is little
consistency in the literature on how risk should be described and qualified
and only limited attempts have been made to quantify risk and its impact on
strategy. For this reason, when dealing with strategic risks and their effect on
strategy I will mainly discuss the process of identification and qualification of
issues increasing the uncertainty for organizations. Also strategic risks that
affect an organization can be either internal within the organization, external
in the business industry, from the market, from social factors, from political
factors, from the global economy or from unforeseeable events or causes.

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Fig. 6.1 Primary Areas of Strategic Risk (Roberts, Wallace and McClure, 2003)
As focus moves towards the core of the diagram, the risk identification
context becomes more specific.
It is needless to say that when strategy fails, the probability of risks arises.
6.2 Strategic Risk
Many organizations will suffer and possibly fail if they do not fully analyze
and try to find solutions for the uncertainties present in the market they are
trying to exploit. So to make sure that organizations attain their objectives,
time and effort has to be devoted to manage the potential risks standing in
their course. Roberts, Wallce and McClure (2003) argue that since resources
are limited, it is essential that the organization and its managers have a
thorough understanding of the strategic risks that threaten the business and
its performance in order that those limited resources can be allocated to
ensuring that the chances of success are maximized.
Strategic risks are of two types or categories. The first category are those
risks than can impact on the organization’s strategic failure or success but

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which the organization has no control of whatsoever (usually external). When
we say that the organization has no control of, we refer to the probability
element of the strategic risks. The second category is strategic risks that
arise during the strategy implementation stage (usually internal). They both
however share a common characteristic in that they increase the uncertainty
when it comes to an organization reaching its strategic goals or objectives
and reduce the likelihood of the organization not drifting away from its
intended strategy during implementation.
Strategic risk relates to risk at the corporate level and usually is any risk that
might affect the development of an organization’s strategy. Roberts, Wallace
and McClure (2003) define strategic risk as the risk relating to the long-term
performance of the organization and include a range of variables such as the
market (highly variable and dynamic), corporate governance (reputation and
ethics) and stakeholders (shareholders, business partners, customers and
suppliers). Strategic risk is one of the most difficult types of risk to manage in
any organization, as it tends to be applicable over a long term and is rather
time dependent. Such types of risks are also more complex and difficult to
assess and model.
Fig. 6.2 Current and Desired Positions (Roberts, Wallace and McClure, 2003)
Point A is the current position of where the company is now. Its position is
determined by a number of factors such as market position, size, gearing,
asset base and vulnerability to name a few.
Point B is the desired position or where the company directors want to be
after a certain length of time. This position is again determined by various
The route from A to B represents the course upon which the company wishes
to progress based on a preplanned strategy. In planning this course, the

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strategic risk manager knows that there are two types of risks that could be
encountered: foreseeable and unforeseeable risks. However they may or
may not occur depending on several factors. Those that occur will affect the
course of progression of the organization from A to B. An organization’s
strategy is usually the collective management of many risks.
Fig. 6.3 Strategic Risks (Roberts, Wallace and McClure, 2003)
Some risks that stand between A and B can’t be foreseen or accurately
determined. The unforeseen risks might affect the viability of navigating
between A and B. As a result the company might suffer slight or sometimes
severe deflections as it implements its strategy aiming to reach position B.
Such deflections might lead to points C or D as shown in the figure.
Fig. 6.4 Strategy Displacement (Roberts, Wallace and McClure, 2003)
Such an impact may result in the course A to B being no longer attainable
since the planned strategy has been driven off course by risks that were
either greater or less than expected during strategy formulation and because
contingency plans have not been properly formulated. This is either because
the management has been careless in setting up contingency plans for the
anticipated risks or because unforeseen risks have caused that strategy
displacement to points C and D. To reinforce or deflect the original strategy,
it might be useful and important to formulate new strategies at this point.
Most strategies however take account of those variations by allowing a
variance envelope, which permits divergence up to a certain limit. This

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variance envelope usually diminishes as time passes. In other words, as the
company nears its desired position B, it would have already dealt with the
risks threatening its viability.
Fig. 6.5 Strategy Implementation Variance Envelope (Roberts, Wallace and McClure,
As shown in the figure above, early shifts from course are acceptable as long
as they remain within the limits of the variance envelopes.
To sum things up, strategic management is concerned with the identification
and management of these risks in order to ensure that the organization
finishes within an acceptable position previously set. The strategic risk
management process should detect and possibly predict any outcomes of
any sort of misalignment during the strategic implementation process.
Roberts, Wallace and McClure (2003) argue that this information acts as the
basis for justifying any necessary corrective actions that will eventually lead
to a successful, acceptable or better outcome to be achieved.
Mulcaster (2009) argued that while much research and creative thought has
been devoted to generating alternative strategies, too little work has been
done on what influences the quality of strategic decision making and
effectiveness with which strategies are implemented. An example that
strengthens this argument is the 2008-2009 financial crises that could have
been avoided if the banks had paid more attention to managing the risks
associated with their investments. Mulcaster (2009) developed a framework
that addresses the way organizations should change the way they make

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decisions to improve the quality of their decisions in the future. The
framework is made up 11 forces that should be incorporated in the decision-
making process and process of strategic implementation. They are: time,
politics, risk, opposing forces, holistic effects, opportunity cost, style,
incentives, adding value, learning capabilities and perception.
6.3 Strategic Risk Management Process
Risks and the processes that organizations follow to manage them are part
of the daily business environment. Strategic risk management is a particular
application of the general risk management process that deals with risks that
affect organizations as they seek to plan and implement their future.
Roberts, Wallace and McClure (2003) argue that the first element of strategic
risk considers those risks that exist within the external business
environments. When those risks are present, the business may be forced to
make some strategic decisions regarding its objectives and implementation
methods. Then once the future position is decided, the next stage would be
to examine the effect on the organization if it were not able to reach its
targeted objectives.
The objective of strategic management is to design a long-term plan that will
take an organization from its current position to a new (better) desired
position. In reaching its objectives, uncertainty arises and usually is at its
peak the further in time the organization is from its target. So as the strategy
implementation process proceeds, the number of uncertainties facing the
organization will decrease. In other words, the closer it is to its desired
targets and objectives, the less uncertainties it will face. All the way from
strategy formulation through to implementation and evaluation, the
organization must deal with uncertainty, which has been higher than ever
before due to today’s dynamic and complex business environment. Roberts,
Wallace and McClure (2003) argue that the degree of uncertainty within our
environment is fuelled by numerous drivers that include:
1. Technological change

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2. Actions of competitors
3. Changes in customer demand
4. Statutory changes
5. Internal change
6. Required tactical responses to imposed unforeseeable risk impacts
Having defined strategic risks it is necessary to examine how an organization
should respond to the strategic risks to reduce uncertainty and increase its
chances of success. As a start, it is vital that organizations appreciate that
any risk management system they implement can only reduce and control
risk up to a certain point since there will always be an element of residual
risks that tend to be centered on uncertainty. It is needless to say that some
sources of uncertainty can’t be controlled by the organization and include
issues such as change in market rates, emergence of new competitors or
change in demand due to technological change. In such areas forecasting is
an important tool to predict what is likely to occur in the future. Also since the
business environment has become highly dynamic and prone to change,
constant monitoring of the business environment is essential. This will allow
early identification of any indicators of uncertainty before coming up with
responses. In doing so, the organization is capable of responding to strategic
risks by developing alternative strategies (in the form of emergent strategies).
Also, contingency plans may be useful to mitigate the impacts of the risks.
Unforeseeable strategic risk is an important characteristic of strategic risk
management in that the management of these risks is beyond the control of
the organization (Roberts, Wallace and McClure, 2003). The best way to deal
with them is by constantly monitoring the business environment as well as
constantly monitoring the performance against targets and objectives. This
constant monitoring will not only detect risks but may also provide new
opportunities. So a management framework is vital for effectively managing
strategic risks.
Roberts, Wallace and McClure (2003) argue that such a framework ensures
that responsibilities are allocated; authorities are set so that the decision-

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making process within the organization is controlled within agreed criteria
and that the framework is part of the organization’s governance structure
thus being critical to the effective management of strategic risk within the
As stated before, an organization is incapable of influencing or controlling the
probability element of strategic risks. However what it can control is how it
decides to stand in the face of uncertainty. The organization should develop
scenarios that offer it contingencies where each scenario covers certain risk
events. To reduce the impact of the identified risks on the business, Roberts,
Wallace and McClure, (2003) argue that alternative future courses of action
should be developed as contingency responses to different risk events where
the they are designed to mitigate the impact of the risk and insure that the
impact of the risk on the organization and its strategy is reduced to as a low
as possible.
The process of strategic risk management is not done by one person or one
department in an organization but should be done by the different
departments together to ensure that all the results of each department are
collated and a big picture is developed of where the organization is today and
where it wants to be in the future.
6.3.1 The Need for Being Proactive Not Reactive
The external environment largely shapes the strategy and success of an
organization. The continual change and responses to that change make it
difficult to clearly define the organization’s strategy. As a response, most
businesses usually use strategy to impose a structure on events that have
already occurred. Thus they are labeled as reactive. This is not the way
forward as it is essential that the organization be as proactive as possible if it
were to succeed in the dynamic business environment. Roberts, Wallace and
McClure (2003) argue that being reactive is not the approach that will offer
any business long-term success.

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To sum things up, strategic management must be a proactive process where
all the information available to the organization should be taken into account
during strategic planning while at the same time it should be as flexible as
possible when it comes to reacting to changes in both the internal and
external environments. Also the strategy should have a structure since it
allows complexity to be broken down to allow strategic managers to decide
which issues are the most relevant. In doing so, priorities for action are
established where the business allocates resources to activities that are most
important in attaining its future targets. Failure of putting in place a structure
results in the organization becoming reactive. The structure which is usually
the product of the accumulation of information on both an internal and
external basis is vital for the decision making process. The lack of
information is not the biggest problem, but being able to identify what the
most important parts of existing information seems to be the biggest problem
nowadays. Prioritizing is vital for proper strategic management.
6.3.2 Using Scenarios to Respond to Uncertainty Identifying Risks and Opportunities
When considering facing uncertainty, there are two levels, which should be
considered. The first is whether or not the organization can identify the risks
that may impact its strategy. The second is whether it can quantify the
likelihood of occurrence as well as the impact of those risks. This figure
below can be a useful tool to identify and monitor risks affecting the strategy.

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Fig. 6.6 Primary Areas of Strategic Risk (Roberts, 2003)
A flow chart of the identified risks and opportunities of each area should be
constructed. It should also include the factors that can affect the probability of
success and failure. In doing so, the organization can reduce the level of
uncertainty by incorporating potential risks and opportunities within its
strategic plan. Monitoring any changes in the risks over time can further
reduce the levels of uncertainty.
Also negative events, actions and scenarios that have affected an
organization in the past should be the starting point for future consideration.
Also issues that may impact on the future should also be identified. This
usually requires a high degree of research and understanding of the
business and the environment. Assessing Risks to Develop the Likelihood and Impact of
Identifying the risks and opportunities is only the start of the process. The
second stage is to assess the risks and opportunities to develop the
likelihood and impact of their occurrence. Roberts, Wallace and McClure
(2003) argue that the organization must be able to assess the overall degree

Page 42

of risk or opportunity by qualifying the potential impact and probability of the
event actually occurring. The shorter the time horizon, the lower is the level
of risk and vice versa.
In developing a strategy it is vital that the organization focuses on two main
points when examining the external factors, which are risk identification and
risk assessment (knowledge of how risks will impact the strategy). A
comprehensive system of identification and assessment enables the
organization to develop a strategy that not only considers those factors but
also develops contingency plans allowing it to respond to unforeseeable
Fig. 6.7 Alternative Strategic Scenarios (Roberts, 2003)
The figure above shows three zones in which an organization will operate
which are:
1. Reduced Uncertainty: the organization that operates in the reduced
certainty zone has properly identified and assessed the risks and has
developed a proper strategic objective. Despite that, it may face some
uncertainty no matter how well it has identified and assessed the risks
and formulated strategy. The organization is capable of making a
commitment when it comes to its strategic targeted objectives.
2. Uncertainty: the organization has carried out a limited assessment and
has been able to identify risks leading to a limited perspective on its
strategic significance. Despite the risks being identified, their potential

Page 43

significance on the organization and its formulated strategy has not
been established. The organization will suffer when it comes to
allocating resources and when encountering any potential risk or
opportunity. The organization has to be very flexible and should
quickly respond and adapt to any changes in the environment. The
organization is unlikely to be able to develop a sustainable competitive
advantage due to the fact that it is reactive not proactive.
3. Very High Uncertainty: the organization has not made any attempt to
identify how the risks may affect its future. The organization is likely to
suffer in its business environment due to the fact that the decisions it
is making are not taking into account the external factors. The
organization usually bases its decisions on what it has done in the
past believing that what may have brought it success in the past will
also do so in the future. To move out of this quadrant it has to do
some more analysis and planning or it is deemed to fail.
It should be noted that the difficult part is not identifying or assessing the
risks in the strategic risk management process but how to manage / exploit
the risks / opportunities. Roberts, Wallace and McClure (2003) argue that the
identification and analysis of risks must be used to develop a picture of the
future in order that the organization can seek to position itself for maximum
benefit, while minimizing the risk of failure. Responding to Uncertainty
Uncertainty creates both opportunity and risk. The longer the timescale, the
greater the degree of uncertainty. Responding to uncertainty is not an easy
task. The organization should develop appropriate responses to ensure that
its strategic plan takes full account of the necessary information that has
been identified and assessed (risks and opportunities). Sometimes when
assessing its relevant risks and opportunities, the organization discovers that
alternative possibilities may arise. So more than one scenario must be
developed to take that into account. This is what we call scenario planning.

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Scenario planning allows the organization to filter and distil the large amount
of information captured in the risk identification and assessment processes,
and allows this information to be used in the generation of a series of
alternative scenarios that effectively describe a number of potential
alternatives for the future environment for the organization, and the major
influences determining the occurrence and consequences of the various
scenarios (Roberts, Wallace and McClure, 2003). This technique has proven
to be effective in handling strategic uncertainty that many organizations and
industries have faced. To sum things up, we can think of scenario planning
as a tool that embraces uncertainty by recognizing that there may exist more
than one alternative to deal with uncertainty in the future. The output from
scenario planning is a set of different but related scenarios (since they were
derived from same information) that vary reflecting the different possible
outcomes associated with the identified risks. Scenario planning offers a
means to mitigate uncertainty by creating a context in which rational options
can be developed for the future actions and positioning of the organization
(Roberts, Wallace and McClure, 2003). The organization will usually choose
its future course based on the confidence in its developed scenarios, the
decision makers’ characteristics and its risk appetite. Scenario planning is
helpful in highlighting the critical areas of uncertainty and involves developing
a number of alternative scenarios each making different assumptions about
the future based on the identified risks. According to Roberts, Wallace and
McClure (2003), scenario planning is composed of the following steps:
1. What are we trying to determine? – This step requires realization that
things will change and that this change will bring high level of
uncertainty that may be either driven by opportunities (good thing) and
risks (bad thing). The organization should determine what it wants to
achieve in the future.
2. What are the risks and opportunities? – The organization should
identify what are the drivers (risks and/or opportunities) that would
affect its future (negatively and/or positively). Those drivers can either
be discontinuity drivers (cause a fundamental change) that are usually
dramatic and unpredictable or trend drivers (reflect widespread

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changes) that are usually more predictable. In identifying those
drivers, the organization will find it easier when it comes to making key
3. Rank risks and opportunities – having identified and listed the main
drivers it is necessary to assess and rank them. Both a risk map and
opportunity map are useful for assessment of the drivers where each
identified driver is plotted on both maps. The horizontal axis of the
maps describes the likelihood of the driver whereas the vertical axis
describes the impact. Each axis is divided into 3 parts: low, medium
and high. The likelihood of strategic risks is usually externally driven
and cannot be reduced by the organization. The organization tries to
develop a picture of what might happen in the future and come up with
scenarios to reduce uncertainty.
Fig. 6.8 Risk Map Example (Roberts, Wallace and McClure, 2003)
Fig. 6.9 Opportunity Map Example (Roberts, Wallace and McClure, 2003)

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From the maps, a list of opportunities and risk can be created to
develop scenarios. For each of the identified drivers, an overall rating
has been ranked based on where the risk or opportunity has been
plotted. So the ranking only reflects the location of the risk or
opportunity on its corresponding map.
4. Understanding connectivity – it is important to understand the extent
and the degree of the connectivity since the main determinants of
failure and success are counterplays of each other and since the
outcome of one of the drivers might influence that of other drivers. The
relationship and connectivity must be understood since reducing the
uncertainty around one driver may aid in reducing or eliminating that
of another driver. The most important drivers that affect others should
be classified as primary drivers because they influence the overall
level of uncertainty, whereas secondary drivers are those influenced
by primary drivers.
5. Developing the logic of the scenarios – after identifying the main
drivers, assessing and ranking them and assessing the connectivity
between them, the logic for scenarios can be developed. In this stage,
the organization should identify and map the critical risks and
opportunities. When developing the implications of the scenario, the
organization should look into both the internal and external factors that
lead to the driver. The organization should then plot all the causal
drivers against each other (2 at a time) by focusing on the
fundamental risks and opportunities.
Fig. 6.10 Plotting Causal Drivers (Roberts, Wallace and McClure, 2003)

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Looking at two causal drivers at a time and plotting them against each
other, the outcome may lie in one of the four quadrants each
representing a possible scenario. This is the starting point for scenario
6. Developing the scenarios – having plotted the primary drivers against
each other, four scenarios exist for each combination of drivers. The
four outcomes or scenarios are then analyzed separately before
decision makers review the information at hand to reduce the
uncertainty around the decisions. They must now consider the
implications of their decision in each of the four possible scenarios.
7. Implications – after the organization develops the different scenarios
in detail it must return to the focal driver or the decision it has
identified in the first step. The organization will be able to determine
how its decisions will be for each scenario.
8. Implementation and monitoring – risks and opportunities should be
constantly monitored to see how they will affect the level of uncertainty
and the strategy. Constantly monitoring the progress of organization is
vital to make sure it hasn’t drifted from its desired course. Monitoring
is crucial because it allows the organization to know which of the
identified scenarios are closest to reality.
Scenario planning is a very useful tool and framework for managing strategic
risks. It does not only play a role in reducing uncertainty but also helps in
developing alternative scenarios for dealing with risks in the future. However,
it must not been seen as the final stage of the strategic risk management
process, rather it is the starting point for the next stage of planning, the
monitoring of which is a critical element of strategy implementation (Roberts,
Wallace and McClure, 2003).
Despite all the positives of scenario planning, there is always a possibility
that some unforeseeable event occurs leading to the whole scenario
planning process being invalid. Also sometimes, scenarios may offer a wider
range of outcomes and if the organization were looking at a general direction

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rather than answering a specific question, it might find itself facing a higher
level of uncertainty. To cope with that it has to take one of the three positions
below, which are:
1. Defining the future by acting as leaders in determining how a specific
industry should operate.
2. Adapting to the future by taking a position within a market based on
how it is defined.
3. Contingent development where the organization waits until the level of
uncertainty in the environment it operates in becomes lower before it
decides to enter the market.
As time goes by, the degree of uncertainty decreases as more of the
uncertainty in what was the future becomes known. Also the degree of
uncertainty is also influenced by a company’s attitude to risk or what is
formally known as risk appetite.
6.4 Risk Appetite
It is vital to stress that sometimes two different companies in the same
industry may come up with the same results when identifying risks and
developing scenarios. However, their actions may be different due to their
risk profile or risk appetite. Risk appetite defines the organization’s
willingness to take risk and reflects the extent to which the organization uses
its capital for developing strategies and absorbing losses.
Fig. 6.11 Risk Appetite (Roberts, Wallace and McClure, 2003)

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This figure shows how the organization responds to the level of uncertainty
with its strategic positioning. We can infer from this diagram that the risk-
averse decision maker will tend towards contingent development under low
to medium uncertainty and will try to avoid conditions of high uncertainty. The
risk-neutral decision maker will tend towards adapting and defining the future
depending on the level of uncertainty. The risk-seeking decision maker will
tend towards defining the future in conditions of high uncertainty. Risk
seekers are usually proactive.
A company with a low risk appetite usually bases its strategy on contingent
development and is not likely to be a threat when competing for opportunities
due to its slow nature. Such companies are usually reactive.
However, no matter what the organization’s appetite for risk is, it will reach a
stage where it must commit to implementing its strategy.
6.5 Risks in Strategy Implementation
Strategy implementation is not an easy task at all as the implementation
element is difficult sometimes. Also failure of the organization to properly
implement its strategy will most likely lead to its failure. Strategic drift is one
of the most common risks that organizations face and usually results from
improper alignment of resources to the targeted strategy. Strategic drift
arises when the organization fails to meet its objectives. Strategic drift due to
internal factors is best managed through effective monitoring and control.
What I mean by effective control is that organizations should review their
strategies, set critical success factors and key performance indicators around
their critical activities to make sure everything is going to plan. Also strategic
drift may be caused by external factors, which also requires effective
monitoring of changes to the external environment and possibly adapting to
those changes as quickly as possible.

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Fig. 6.12 Displacement Effect of External Forces (Roberts, Wallace and McCLure,
Whether resulting from internal or external factors, strategic drift is best
controlled when it is detected early. The organization should then monitor
and assess the factors causing the strategic drift before changing its course
of action.

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7. Case Study – Red Bull & Red Bull Stratos
7.1 Red Bull
7.1.1 How it Started
Red Bull was founded by Dietrich Mateschitz in an attempt to bring to the
West a traditional Asian tonic drink. Red Bull was based on an energy drink
found in Thailand, which was sold by Chaleo Yoovidhya under the name
Krating Daeng. Red Bull was first launched in Austria in 1987 by the Austrian
company Red Bull GmbH, then spread through Europe and now trades in
more than 160 countries worldwide. It has grown to become the number one
energy drinks company in the world with 4.6 billion cans sold worldwide in
Red Bull is a carbonated drink containing caffeine, sucrose, taurine, B-group
vitamins, glucuronolactone and glucose designed to give energy to its
drinkers. Its product range currently consists of Red Bull Energy Drink, Red
Bull Sugar Free, Red Bull Energy Shot and Red Bull Cola. The energy drink
is a functional beverage with a unique combination of ingredients that has
been specially developed to increase performance, increase concentration
and reaction speeds, improve vigilance, stimulate metabolism and increase
energy in its users. Red Bull is a popular drink amongst men in particular with
its largest consumers being athletes, students and night clubbers.
The company’s advertising slogan is ‘Red Bull gives you wings’ and the
product is marketed through advertising, events, team ownerships, celebrity
endorsements and music. From the beginning, the company was willing to
invest in unusual events and causes in order to get noticed differently in
society. This trend has developed to such an extent that today Red Bull’s
association and backing is the primary reason behind certain sports’

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7.1.2 Red Bull’s Current Position
Red Bull is currently experiencing large growth year-on-year and has
experienced better than expected growth in some markets. The strength of
the company is not only in its annual turnover but also in its brand strength,
sales volume, and market share.
Fig. 7.1 Red Bull Revenues (MarketLine, 2012)
We can notice a big change in the year-on-year percentage increase
between 2007 and 2008, which is mainly because of the economic crash of
2008. However, Red Bull has since been able to return its strong double-digit
Monster Energy, is Red Bull’s closest competitor which has been showing
good revenue growth despite experiencing lower annual growth compared to
Red Bull.
Fig. 7.2 Red Bull vs. Monster Growth (MarketLine, 2012)
Red Bull’s current market share is estimated to be 43% of the global energy
drinks market. Its remarkable recognition strategy has enabled the company
to hold off advances of companies such as Pepsi and Coca-Cola.

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Fig. 7.3 Energy Drinks’ Market Share (MarketLine, 2012)
In comparison to most of its competitors, Red Bull’s serving is much smaller
yet the price charged is higher. Despite that, it sells in higher volumes.
The company grew by around 700 employees in 2011 to reach 8294
employees (MarketLine, 2012).
7.1.3 Red Bull Marketing
One would think that when accessing Red Bull’s website online, one would
find information about the product. However, it is unusual that the Red Bull
product is a secondary consideration on the company’s website. The website
is mainly devoted to market and advertise the different events it sponsors
and runs rather than focusing on its energy drink as a product. Through
investment and backing of sporting and cultural events, Red Bull began
displaying an element of reduced involvement in its own product. It has
simply grown from an energy drink to a worldwide recognizable brand image.
By associating itself in such depth to activities and events it can shift its focus
and devote less time to promote its actual product. Red Bull has been able to
transform its image to the consumers, from an energy selling drink to an
investor and sponsor of events, activities and teams.

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Also Red Bull worked to ensure that the brand was visible on the street by
promoting the drink in pick up trucks that had a huge red bull can mounted
on top of the vehicle. They distributed cans to people on the streets and
made sure cans were left on tables in hot spots such as trendy bars, pubs
and clubs. Promoting Red Bull directly to Generation Y (those born after
1981) was the main goal of Red Bull. This became known as viral marketing
where Red Bull used this kind of marketing strategy where the youth would
spread and promote the popularity of its drink.
Red Bull has both relied on traditional and untraditional ways of advertising
and marketing. The television and radio are examples of the traditional
methods they have used. However, they were unusual in their content but
highly recognizable and stylized. Their most known and common advert is
based on a simple cartoon format which was intended to make the viewers
laugh at its ridiculous nature of the situation faced by the cartoon characters
with the message that Red Bull gives you wings (same as their slogan). A
common theme was that the characters grew wings and then would fly away
while drinking the product. This was a successful strategy that allowed Red
Bull to build and add to its image.
In what was later called ‘The Red Bull Way’, Red Bull was capable of forging
a new method of recognition. The company not only backed sporting and
cultural events but also became involved in running, creating and developing
these events. Rather than simply sponsor an event or a sports team, Red
Bull would buy the team, sets up its own managerial team and buy the
relevant assets to run the team. This was the case with the company buying
and renaming several football teams that include New York Red Bulls and
FC Red Bull Salzburg. Red Bull also bought the Renault Formula 1 team,
renamed it Red Bull racing team and was able to dominate the championship
where its driver Sebastian Vettel was able to win the Formula 1
championships in 2010, 2011, and 2012. Vettel appears with Red Bull livery,
clothes and car. The NY Red Bulls stadium has a huge Red Bull logo
displayed to the viewers. Also an interesting side of the sponsorship is that

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there is demand for Red Bull merchandise among fans. The company’s
website contains a section where fans can by specific merchandise, clothes,
posters and related accessories thus increasing the company’s visibility.
The company has been able to transform itself to sponsoring and managing
teams that are notoriously expensive to operate since they require high
levels of technical expertise.
Red Bull’s diverse marketing and strategic view has enabled it to market
itself in sports like BMX, mountain biking, motocross, windsurfing,
snowboarding, skateboarding, wakeboarding, kayaking surfing, rally, cliff-
diving, motocross, Formula 1 racing, football and break-dancing.
The company also sponsors individual athletes and teams and individuals to
perform in the most extreme of stunts and events and in the most remote
locations. The main benefit in investing in this expensive equipment for its
teams is that videos these athletes publish can become very popular
especially when they feature daredevil feats. This allows Red Bull to gain
significant recognition for providing the platform for this to happen. Also by
including danger and enthralling spectacles, Red Bull was able to increase
and further attract people to their events. Providing these risky and
expensive events is unusual although the rewards and recognition gained
through popularizing and creating a new sport or type of event by having the
Red Bull brand displayed on all equipment was significant.
Through its marketing and advertising campaigns, Red Bull was able to
create and cultivate a brand image associating the drink with youth culture
and extreme sports. Its marketing also maintains a sense of product
mystique that makes consumers feel special as if they’ve discovered
something that no on else knows about.
Red Bull even spent around 18million pounds on a project called ‘Red Bull
Stratos – Mission to the Edge of Space’, which is a mission to transcend

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human limits by sending Felix Baumgartner, an Austrian pilot and skydiver to
128100ft in a stratospheric balloon before freefalling towards the earth at
supersonic speeds. The team spent more than 5 years preparing for the
mission, which was completed on the 14
of October 2012.
7.1.4 Red Bull Strategy
Red Bull mission statement is:
‘ Our mission is to be the premier marketer and supplier of Red Bull in Asia,
Europe and other parts of the globe. We will achieve this mission by building
long-term relationships with people who can make it become a reality.’
Its vision statement is:
1. People: Be a great place to work where people are inspired to be the
best they can be.
2. Portfolio: Bring to the world a portfolio of quality beverage that
anticipate and satisfy people’s desires and needs.
3. Partners: Nurture a winning network of customers and suppliers by
together creating mutual enduring value.
4. Profit: Maximize long term return to shareowners while being mindful
of our overall responsibilities.
5. Productivity: Be a highly effective, lean and fast-moving organization.
It is evident from Red Bull’s corporate strategy that the company applies core
values on collaboration, accountability, passion, diversity, quality, integrity
and leadership.
Red Bull’s brand positioning strategy is:
1. Able to incorporate an element of positive emotional attachment.
2. Unique and relevant to its target audience.
3. Consistent across multiple marketing and advertising mediums.
4. Able to adapt to a changing environment.
5. Continually delivering according to customer expectations.

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Red Bull’s brand positioning comes from its product benefits such as the fact
that it vitalizes the body and mind. This then becomes the basis for the
unique brand personality of Red Bull, which is innovative, intelligent, witty,
charming, unpredictable, polarizing and nonconforming.
Its distribution strategy stresses on intensive distribution which aims to
provide saturation coverage of the market by using all possible distribution
channels such as social media, supermarkets, advertisements and
billboards, events, sports, gyms, coffee houses and convenience stores to
name a few.
7.1.5 SWOT Analysis of Red Bull
Table 7.1 SWOT Analysis of Red Bull
-Market leadership
-Marketing efforts
-Brand identity
-Brand positioning
-Brand awareness
-Out of the box
-Focus on
-No patents
of new types of
-Loss of original
consumer base
(generation Y)
-Over reliant on
single product
-Negative press

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7.1.6 PEST Analysis of Red Bull
Table 7.2 PEST Analysis of Red Bull
-If government imposes health and safety restrictions on
amount of energy drinks that should be consumed, this might
affect the amount of energy drinks that are bought.
-If government imposes import or export charges on the
energy drinks market, it might affect the amount of energy
drinks that are imported or exported.
-Inflation would increase the already high price but will
simultaneously decrease the consumers’ disposable income
leading to a decrease in sales.
-Since the target age is youths, an increase in the population
of youths may increase sales.
-Expansion into new markets will incur additional costs
(produce new language labels).
Technological -New technologies may enable competitors to produce more
quantities at a cheaper cost.
-With the late surge of internet shopping, Red Bull can
promote its product at ease while selling directly to the
7.2 Red Bull Mission Stratos – Journey to the Edge of Space
7.2.1 Mission Description
On the 14
of October 2012, Austrian daredevil Felix Baumgartner put on his
spacesuit, entered the capsule and was lifted by a huge 55 story high balloon
up to the stratosphere reaching an altitude of 128100ft (39045meters). He
opened the capsule door and jumped back to earth reaching a speed of
833mph (1342.8km/h) (Mach1.24). He became the first man to break the
speed of sound in freefall while also breaking the records for both the highest
freefall and highest manned balloon flight. Felix’s entire trip back to earth

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from the moment he jumped lasted 9minutes and 9 seconds with 4 minutes
and 22 seconds of those in freefall (before deploying parachute). Millions of
people worldwide watched this historic jump.
Felix did not prepare for this jump on his own. The Red Bull Stratos team
brought together the world’s leading minds in aerospace medicine,
engineering, pressure suit development, capsule creation and balloon
fabrication. Joe Kittinger, the previous record holder whose records date
back to 1960 was one of the most influential and important people for both
Felix and the team. In 1960, Kittinger jumped from an altitude of 102800ft.
The former Air Force command pilot has not only played a major role in
developing the capsule, its life support systems and other equipment, but has
also helped train Felix throughout the 5 year long preparations.
Felix began skydiving at the age of 16 and started performing skydiving
exhibitions for Red Bull since 1988. By the 1990s, Felix started BASE-
jumping and currently holds the world records for both the world’s highest
and lowest BASE jumps. Felix is also known for the dangerous nature of
stunts he has performed during his career. In 2003, he became the first
person to cross the English Channel with a carbon wing.
In preparation for Felix’s historic jump from the stratosphere, a long list of
procedures had to be done. His training started around 5 years ago. He also
performed 2 test jumps, the first from 71581ft where he reached a speed of
364.4mph and the second from 9763ft reaching a speed of 533mph.
Felix said “I don’t have to put myself in danger to be happy. But I have to
have a challenge. This is the ultimate skydive.”
Felix’s mentor and previous record holder Joe Kittinger is confident of
success. He always tells Felix that he needs Three Cs – confidence in his
team, confidence in his equipment and confidence in himself.

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The flight was postponed twice which many saw as a deliberate attempt by
Red Bull Stratos team to build up suspense and to reschedule to a Sunday
where potential viewers may be largest.
History has shown us that when things go according to plan in extreme
expeditions the world usually takes notice. And take notice they did.
7.2.2 Benefits of the Project
The jump was more than just breaking Joe Kittinger’s previous record that
had stood for 52 years. Project team members insist that the effort isn’t a
mere publicity stunt. The objective is science and knowledge of how the body
reacts in such conditions. All the data will be shared with commercial
spaceflight companies and NASA as these parties plan to rocket people into
extremely hostile environments. The data obtained may help space fliers
survive a suborbital calamity. Also the Red Bull Stratos medical and
engineering teams will be sharing their groundbreaking findings with those
interested in improving aerospace safety. High altitude bailout is an area of
interest to the commercial space sector, the U.S. Federal Aviation
Administration, NASA and the military, which could all make use of data
obtained from Felix’s jump. To sum things up, one of the main reasons of this
project is to validate that crews can survive higher altitudes and at higher
speeds without adverse effects.
Some of the key benefits of a successful Red Bull Stratos mission for the
scientific community are as follows (Red Bull, 2012):
1. To help develop a new generation of personal and protective space
suit with enhanced mobility, visual clarity, parachute rig and life
support system by actually testing in real space equivalent
2. To understand the dynamics of breaking the sound barrier in freefall.
3. To understand the potential need for stabilization equipment.

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4. To help develop protocols for exposure to high altitude and high
5. To evaluate a physiologic monitoring system in a pressurized
spacesuit environment.
6. To evaluate crew survival procedures and equipment appropriate for
stratospheric aircraft and suborbital vehicles.
7. To develop a best practices procedure for the initial treatment of
exposure to pressure loss at high altitude including use of a
specialized ventilator.
8. To help Felix reach new heights and break records that have been set
52 years ago.
The spacesuit and chest pack include data measuring instruments that will
help the team monitor the space dive and log scientific data. Felix’s heart
rate and oxygen intake will also be measured to see how his body reacts to
breaking the speed of sound. Also, the chest pack will telemeter GPS
location, atmospheric conditions, altitude, inertia and speed.
Dr. Clark, a six time Space Shuttle crew surgeon and Felix’s own medical
expert said, “We’re going to bring Felix back safely, and then we’re going to
share what we’ve learned about the equipment, the procedures and his
physiological reactions so that others can come back safely from the public
and private space programs on the horizon.”
7.2.3 The Jump in Numbers
1. Felix jumped from 39045m or 128100ft. He holds the record for
freefalling from the highest altitude and for reaching the highest
altitude in a balloon.
2. Felix reached an optimal speed of 1342.8km/h or 833.9mph (Mach
1.24), breaking the speed of sound. He holds the record for being the
first person to break the speed of sound in freefall.
3. Felix fell for 34 seconds before going supersonic.

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4. The vertical distance of Felix’s freefall was 36529m or 119846ft. He
holds the record for the longest vertical distance travelled in freefall.
5. Felix was in freefall for 4 minutes and 22 seconds.
6. Felix released his parachute 5300ft above the ground.
7. Felix spent 9 minutes and 9 seconds above the ground before landing.
8. Felix landed 70.5 km or 43.8miles away from the launch site.
Felix’s benchmarks included:
1. Reaching supersonic speed in freefall – he was the first person to
exceed supersonic speed without mechanical assistance in freefall,
reaching a speed of 833.9mph.
2. Freefall from highest altitude – he jumped from 128100ft.
3. Highest manned balloon flight – his float altitude was 128100ft.
7.2.4 Risks in the Project
Looking back, it is amazing how Kittinger was able to accomplish his stunt in
1960 when he jumped from 102800ft when technology wasn’t as advanced
as nowadays. Kittinger’s team had to overcome numerous risks and
challenges to bring him back safely. And bring him back safely they did.
The Red Bull Mission Stratos Journey to the Edge of Space project is full of
risks and unknowns. Felix says that he faces fear everyday. He adds, “Fear
has become a friend of mine. It’s what prevents me from stepping too far
over the line. Having been involved in extreme endeavors for so long, I’ve
learnt to use fear for my advantage”. Felix and his team are very aware of the
risks involved and have calculated the odds of his survival. When dealing
with risk and uncertainty, one can classify them as known knowns, known
unknowns and unknown unknowns. The most dangerous are the unknown
unknowns, which have not been thought of or discovered to be actually
factored in the risk management process. However, the team has tried to
minimize the risks as much as possible where everything is planned and
nothing is left to chance.

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So many atmospheric and technical factors are involved in successful space
flight missions. The Red Bull Stratos mission is no different to that. Factors
such as aerodynamics, guidance, control, stability, propulsion, thermal
protection and landing systems should be properly planned to make sure
Felix lands safely and alive.
Some of the risks that Felix and his team encountered were:
1. Felix breaking the speed of sound barrier: Dr. Clark, a six time Space
Shuttle crew surgeon and Felix’s own medical expert has been studying all
known physical effects of the mission. One of the riskiest of those physical
effects is when Felix breaks the sound barrier and then rapidly slows down
as the atmosphere thickens. “Breaking the speed of sound in a freefall is a
pioneering effort and being a pioneer requires risk,” said Felix. Worries
include vibrations caused by passing sound waves and internal injuries if
some parts of the body reach supersonic speeds before others.
2. Wind is a major barrier that may have drastic consequences on Felix and
the whole project. At launch wind must be no more than 2-4mph to enable
the capsule and balloon to take off safely. Also the balloon can be almost
brittle and wind gusts can easily rupture the balloon.
3. The first 1000ft pose a major threat to the project. Failure for the capsule
and the balloon to take off safely during the first 1000ft of ascent would lead
to the ultimate death of Felix as there’ll be no chance of an emergency exit
and not enough altitude for parachute deployment.
4. The freezing temperatures are a major threat to Felix. Felix passed
through temperatures of minus 68 degrees Celsius. At above 120000ft, Felix
experienced the environment of near space where the vacuum of space and
the extreme cold could have killed him in a very short time had he not been
wearing a controlled temperature and pressure suit.
5. The pressure at an altitude above 120000ft is nearly nonexistent. His suit
is pressurized to 3.5 pounds per square inch (psi) which is equivalent to the
pressure at 35000ft. Had his suit been unable to keep the pressure

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regulated, Felix wouldn’t have made it back to earth alive. Felix describes the
feeling in the pressurized suit as like swimming without touching water.
6. The ‘Armstrong Line’ is named after Armstrong who discovered that at
63000ft, air pressure becomes so low that without temperature regulation
and pressurization, the body fluids will literally vaporize. So without the
pressure suit, Felix’s fluids would have boiled leading to failure of his tissues
and organs thus leading to ultimate death. The smallest crack in his suit
would also cause immediate death.
7. A flat spin is one of the biggest risks in the project. The primary concerns
in a flat spin are the eyes, brain and cardiovascular system. Two cases may
occur. The first is if the upper body is the center of rotation. This leads to the
blood rushing towards the feet and leading to a blackout. The second is if the
lower body is the center of rotation. This leads to the blood reaching the head
and leading to ‘red out’, which can cause ocular hemorrhage and intercranial
(brain) hemorrhage. A flat spin is one of the primary risks of the mission as a
flat spin beyond 120 rotations per minute can knock out the most advanced
8. The heat in Felix’s visor was not working properly prior to him leaving the
capsule. At a certain time the team was considering aborting the mission
because in the list of contingencies if Felix was unable to see properly, he
wasn’t allowed to leave the capsule. Baumgartner’s visor is fitted with an
intensely powerful heat regulator than should keep his view free from fog and
9. Balloon and capsule launch are critical to the success of the mission. All
the conditions have to be perfect to launch the balloon. Without launching the
balloon there would simply have been no jump at all as the balloon is what
will lift Felix to the desired height.
10. The balloon carrying Felix and the capsule is very thin (1/10 the thickness
of a sandwich bag) to optimize lift to weight ratio. A rogue wind may puncture
the balloon and doom the mission. There was a big potential that the balloon
tear apart. The balloon weighing 3000 pounds has to lift the 2900-pound
capsule plus Felix and his spacesuit to at least 120000ft. If the balloon

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ruptures soon after take-off, Felix will not have time to get out of the capsule
11. Failure to comply with the list of contingencies may lead to a mission
abort. In that case the capsule and Felix should be brought back safely to
12. Extremely hostile environment is a very dangerous place for Felix.
13. Effects of shock waves on the body are a worrisome factor for Felix and
his team. The colliding supersonic waves cause supersonic heating that may
ultimately break his spacesuit. This heating usually rises with an increasing
supersonic speed.
14. Ebullism is the terrifying condition in which the drastically lower air
pressure above 62000ft makes liquid in the body start to bubble and vaporize
thus inflating the body and leading to unconsciousness in less than 15
15. Lung injury is a hazard of accidental exposure to the low-pressure
environment of the stratosphere.
16. Spacesuit failure could cause gas seeping into the body tissues due to
sudden low pressure, trap gas in body cavities that can collapse the lungs
(barotraumas) and may cause severe oxygen deprivation (anoxia).
17. Leaving the capsule is fraught with danger. Felix has to fall forwards from
the capsule platform and needs to plummet down head first to reach
maximum speed. With no wind at such high altitudes since the air is very
thin, Felix can find himself trapped in an uncontrolled flat spin.
18. Extreme cold could stress the balloon. As Felix ascends, his balloon and
capsule will pass through the Tropopause. In this zone, temperatures can
drop drastically to -46 to -57 degrees Celsius. Felix’s super thin balloon will
be stressed by the cold and possibly rupture.
19. The spacesuit makes it difficult for Felix to move at ease.
20. Ultra violet radiation at 120000ft is more than 100000 times as strong as
the ground.
21. In the event that Felix gets into a dangerous flat spin, his instability might
lead to problems with the emergency drogue deployment. If he became

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entangled with the drogue, Felix would need to clear it otherwise he would
wind up deploying his parachute into a tangled mess.
22. The team had never tested the equipment and Felix in the real
23. One of the main factors affecting the success of the mission is the
24. Wind could blow Felix far away from the launch site.
25. Balloon will expand at high altitude as air is less dense.
26. Decompression sickness is a risk that Felix may encounter due to large
differences in pressures between the hostile environment, the capsule and
the pressure suit.
27. The balloon may not reach the desired altitude or may continue to climb
above the desired altitude.
28. Felix might lose consciousness and might not be able to deploy his
parachute for landing safely.
29. Felix might accidentally deploy his parachute much earlier than required
while still at high speed which might delay his landing and make him run out
of the oxygen he’s breathing (should last him 10 minutes).
30. Unknown unknowns.
7.2.5 Management of the Risks in the Project
Table 7.3 Management of Risks in Red Bull Stratos
1. Breaking Speed of Sound
Once Felix has gone supersonic, the
air resistance will start to pick up as
the atmosphere becomes denser the
lower he falls. With air resistance in
the denser atmosphere, Felix is
trained to move himself into the delta
position (arms and legs spread out),
which would stabilize him and

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decrease his speed. Also a crack
team has taken into account the
effects of supersonic speeds on the
suit prior to designing it. The air is so
thin in the stratosphere which means
that no significant effects from the
shock waves will be felt since sound
travels slower when the air is colder.
2. Wind
The team will employ a fleet of their
own balloons prior to sending Felix,
to track weather conditions and wind
patterns at every layer of the
3. First 1000ft
The team was forced to delay the
mission twice which means that they
are not willing to take any risk with
the weather.
4. Freezing Temperatures
Felix’s suit was strong enough to
keep his body temperature warm
temperatures as low as -70 degrees
5. Low Pressure
Felix wore a pressure suit to protect
him from the dangers of experiencing
the low pressure.
6. Armstrong Line
Felix wore a pressure suit to protect
his fluids from boiling. His airtight suit
and the capsule around him will be
continuously pressurized to create a
personal atmosphere that isolates
him from the void surrounding him.
7. Flat spin
Felix had an emergency drogue

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parachute, which would have opened
automatically if more than -3.5Gs of
forces are achieved. However, Felix
fell into a flat spin in his jump but
managed to overcome it without the
use of the parachute. He was able to
assume a rigid aerodynamic body
position right after the flat spin. The
fact that he had trained over
hundreds of simulations served to his
8. Visor Problem
The visor has an integrated heating
circuit to prevent both icing and
fogging. Despite Felix encountering
visor problems which almost led to
mission abortion, the team took
a calculated risk and pressed on with
the mission. He lost full visibility of
the ground, his altimeter and other
instruments and ended up deploying
his parachute slightly earlier than
9. Balloon and Capsule Launch
The team had to twice postpone the
launch due to unfavorable conditions.
10. Extremely Thin Balloon
The team had to make sure that all
conditions were favorable for launch
by sending a weather balloon before
the master attempt. The team also
had to abort and postpone the
mission after gusts of wind blew the
balloon to the ground. The balloon,
which had been inflated with helium,
could not be used again.

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11. Contingency List
An emergency parachute is deployed
to deliver the capsule and Felix
safely. However, it is unknown how
react to
conditions while falling from above
12. Hostile Environment
Felix’s spacesuit will separate him
from the hostile environment. The
team made use of the latest
technology and developed its own
enhancements to increase mobility in
the spacesuit.
13. Supersonic Shock Waves
Felix has been trained how to
position himself to decrease his
speed. However, no one has ever
broken the speed of sound while
freefalling. According to the team this
is one of the biggest unknowns in the
mission as no one has ever done
anything like this. The team also
relied on the fact that the air is less
dense and extremely thin in the
Stratosphere, which would diminish
the effect of the shock waves despite
his supersonic speed.
14. Ebullism
The pressurized suit contains an
extremely reliable mechanism for
automatically maintaining pressure at
different altitudes.
15. Lung Injury
The use of a pressurized spacesuit
(incorporated in his suit) are essential
for protecting Felix’s lungs and life.

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16. Spacesuit Failure
The team was confident in Felix’s
spacesuit as tests proved to show
that it was highly reliable.
17. Leaving the Capsule
Years of training and experience
helped Felix overcome the dangers
of leaving the capsule.
18. Extreme Cold may Stress Balloon The balloon is super thin to optimize
weight-to-lift ratio. Baumgartner will
be insulated so the dangers of the
extreme cold in the Tropopause are
minimized since Felix will descend
very quickly.
19. Uncomfortable Spacesuit
The team enhanced their spacesuit
for increased mobility. Felix at first
felt claustrophobic in the suit
however he was able to overcome
his fear with the help of a
psychologist, mental training and
physiological training.
20. UV Radiation
Felix will only have a short exposure
so this is unlikely to be a major
21. Drogue Deployment
If Felix has a more than 3.5Gs of
forces continuously for a period of 6
seconds, his drogue parachute will
be deployed automatically to stabilize
him. Also Felix has a manual drogue
deployment button on his glove,
which will deploy the drogue if he
holds that button for 3 seconds or
22. Testing Equipment

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unmanned balloon test flights to
check that every piece of engineering
(without Felix in the capsule) would
properly function in real conditions.
23. Weather
The team sent weather balloons prior
to mission go ahead to make sure
conditions suited the jump.
24. Wind Blowing Felix Off Track
Using computer weather models to
predict conditions up to 130000ft the
team can create landing trajectory
projections prior to take off. At one
point Felix, his capsule and balloon
encountered winds of more than
130mph that were not deemed
dangerous due to the fact that they
were uniform. Felix landed some
43miles away from the launch site.
25. Balloon Expanding
Low air pressure will cause the
helium to expand so much that if the
excess cannot escape through the
vent tubes, the balloon might burst.
calculated the helium quantities and
balloon size prior to inflation.
26. Decompression Sickness
Felix has been trained to withstand
differences in pressures while
wearing his pressure suit. His
pressurized suit and capsule will
significantly reduce the risk of
decompression sickness.
27. Balloon Ascent Out of Control
The team’s calculations of the
amount of helium to be inflated

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projects that the balloon will reach
somewhere between 120000 and
130000ft. In case the balloon does
not reach that range of altitudes,
releasing helium from the balloon will
cause a decrease in altitude whereas
dropping ballast will lift the balloon.
The balloon will float when its
average density is the same as the
28. Felix Unconscious
Felix’s parachute system includes a
System technology, which will deploy
the reserve parachute at the
assigned time and safety altitude.
29. Felix Deploying Parachute Early
Felix parachute system has several
backup parachutes so he can use a
handle to cut away his deployed
parachute and get back to freefall
before finally deploying his parachute
at the required altitude.
30. Unknown unknowns
The team devised a treatment
protocol in case of an emergency.
The team claim that Felix would never jump if the odds were against.
However, we can notice from the risks above the almost all of them might
have led to Felix’s death. So despite the ultimately dangerous consequences
of most risks, it is evident that the team has been able to overcome them by
proper risk management.

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Felix acknowledged that the Red Bull Stratos mission is a step into the
unknown but was determined to reach the edge of space and rewrite history
no matter how much hard work and dedication it took.

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8. Findings and Recommendations
8.1 Effect on Social Media
We all use social media in one way or the other. Whether to share memories,
learn about new things, make friends and advertise someone (usually
yourself) or something. The Red Bull Stratos has had a significant effect on
social media, mainly on YouTube, Facebook and Twitter. Red Bull’s
marketing strategy has transformed it from an energy drinks company into a
highly recognizable image of extreme sports and events. Through Red Bull
Stratos, it has also been able to strengthen that image. The Red Bull Stratos
was a very risky project. There was a big chance that Felix wouldn’t have
made it back to earth alive. However, the team was able to overcome the
risks through proper risk management, thus further strengthening its image
as a sponsor of extreme events. Imagine what would have happened to Red
Bull’s reputation and image had the project been a failure. Red Bull’s main
strategy is to provide saturation coverage of the market by using social
media along with numerous other distribution channels. By analyzing how
Red Bull Stratos affected social media, we can notice that it has highly
strengthened and served its strategy. To begin with, the Red Bull Stratos was
the most watched event by number of simultaneous viewers on YouTube,
reaching 8 million viewers. The London 2012 Olympics had 500,000 at its
peak whereas the Royal Wedding managed 300,000. This number speaks
up for itself. Red Bull Stratos also had a significant impact on the growth of
the total subscribers on the Red Bull YouTube channel. The mission was
completed on the 14
of October 2012. The average growth in subscribers
was 2142 subscribers per day during the first week of October. This number
increased around 4000% to 87801 subscribers on the day of the jump. The
mission also had a significant effect on Facebook. One billion people use
Facebook worldwide and the Stratos mission was highly engaging for fans on
Facebook. On the day of the jump, posts related to the jump exceeded
900,000 interactions, which included likes, comments and shares. However
the reach is much higher than the number of interactions as not all people

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would interact when encountering a post related to the jump. The reach is
approximately 100 times larger than the number of interactions
(Socialbakers, 2012). So with 900,000 interactions on Facebook alone, the
jump may have reached up to 90 million users, which is almost 9% of all
Facebook users or 1.3%, the world’s population. Average post engagement
related to Red Bull climbed 193557%. The mission also had a big effect on
Twitter. On the day of the jump, there were more than 20,000 related
Through social media Red Bull (through Red Bull Stratos) was able to further
strengthen its brand image and marketing strategy. Also Red Bull has been
able to transform itself from a Red Ocean where an industry’s boundaries are
well defined and competitive rules of the game are known to a Blue Ocean
where uncontested market space is created, making the competition
irrelevant as the rules of the game are waiting to be set.
8.2 Red Bull – A Blue Ocean
Red Bull’s unique and unusual methods of marketing and its simple yet
highly effective strategy have enabled it to create uncontested market space
thus making the competition irrelevant. The company has realized that to win
in the future, it had to stop competing with others, and the only way to beat
the competitors in the energy drink industry was to stop trying to beat the
competition. It has been able to transform itself from a fierce, competitive and
bloody Red Ocean where companies try to outperform their competitors by
trying to increase market share to a Blue Ocean where competition is
irrelevant as the rules are yet to be set simply by expanding existing
boundaries that existed in the energy drinks industry. Red Bull Stratos had a
big hand in assuring Red Bull’s transformation into a Blue Ocean. Kim and
Mauborgne (2005) were the first to define this idea of Red vs. Blue Ocean.
In order to seize new profit and growth opportunities Red Bull needed to go
beyond competing and was able to create this Blue Ocean. The energy

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drinks sector contains many brands that are generally becoming similar and
as they become more similar people usually select based on the lowest
price. Red Bull was aware of the consequences of similarity and price and
was able to successfully undergo a transition from Red Ocean to Blue
Red Bull’s approach to strategy was one of the reasons for its transformation
from a Red Ocean to a Blue Ocean. Kim and Mauborgne (2005) undertook a
study to find out which is the right unit of analysis for explaining the creation
of Blue Oceans and found out that the strategic move was the right unit of
analysis. Red Bull no longer used competition as their benchmark. They
considered value innovation as their new benchmark because instead of
focusing on methods to beat the competitors and increase market share
(which was already the highest in the energy drinks sector), the company
focused on making the competition irrelevant by creating a leap in value for
the customers and their company. As a result they were able to open up new
and uncontested market space. Most companies emphasize on either value
or innovation. Value without innovation tends to improve value but is not
enough to make you stand out in the industry. On the other hand, innovation
without value is usually highly technologically driven often exceeding what
customers are ready to pay for a product or service. Red Bull has been able
to equally emphasize on both value and innovation by coming up with a new
way of formulating and implementing strategy. The notion of value innovation
is an essential characteristic in their Blue Ocean. The creation of Blue Ocean
comes from driving down costs (mainly advertising costs) while at the same
Through its transformation to a Blue Ocean, Red Bull has been able not only
to create uncontested market space and make the competition irrelevant but
also to capture and create new demand mainly through its out of the box
advertising, and sponsoring and organizing of extreme sports and events.
Red Bull has been able to break the value-cost trade-off and successfully
align all its activities in pursuit of differentiation and low cost.

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Table 8.1 How Red Bull Was Able to Create Blue Ocean as Opposed to a Red Ocean
Blue Ocean
Red Ocean
-New uncontested market space
-Irrelevance of competition
-New demand targets
-No value-cost trade-off
-Company’s activities devoted to
pursue differentiation and low cost
-Existing market space
-Importance of competition
-Existing demand
-Value-cost trade-off
-Company’s activities devoted to its
strategic choice of differentiation or
low cost.
Red Bull had a firm understanding of how to maximize opportunities while
simultaneously minimizing the risk, which was a driving force behind its
creation of a Blue Ocean.
By implementing value innovation strategy, unusual and unique marketing,
sponsoring athletes, sponsoring and organizing extreme sports, sponsoring
and organizing events, reaching new demand targets, maximizing
opportunities while minimizing risks, being unpredictable and by sponsoring
and managing a team that sent Felix to the edge of space, Red Bull was able
to transform itself from the shark infested, bloody and highly competitive Red
Ocean to a Blue Ocean where it sets the rules of the game. It has been able
to shift its strategic focus from competitors to alternatives and from
customers to noncustomers of the energy drinks industry. Its blue ocean
strategy has three complementary characteristics, which are focus,
divergence and a compelling tagline. Those three characteristics are
prerequisites of an effective Blue Ocean strategy.
Kim and Mauborgne (2005) argue that there are 6 principles of Blue Ocean
Strategy, which are:
1. Reconstruct market boundaries
2. Focus on the big picture not the numbers
3. Reach beyond existing demand

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4. Get the strategic sequence right
5. Overcome key organizational hurdles
6. Build execution into strategy
Red Bull has shown its capability of applying those six principles. It has
broken out from competition and created a Blue Ocean of new boundaries by
properly analyzing opportunities and dealing with the elements of search risk.
Red Bull has also focused on the big picture and not the numbers in a sense
that it could have looked at its appealing market share and year-to-year
growth and simply decided to remain in the Red Ocean. However, it decided
to focus on the bigger picture and strengthen its brand image as a sponsor
and organizer of extreme sports and events. In doing so it properly managed
all elements of the planning risk. Red Bull was also able to attenuate the
scale risk associated with creating new market. It reached beyond its existing
demand and was successfully able to add its previous noncustomers to its
current customers. Through proper strategic formulation, proper strategic
implementation and eliminating and dealing with business model risks, Red
Bull was able to get the strategic sequence right. Red Bull was also able to
overcome the key organizational risks by proper strategy implementation.
The company has also been able to build execution into strategy by creating
a culture of trust and commitment that motivated all departments of the
company to execute the agreed strategy hand in hand without leaving
anyone out.

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9. Conclusion
Strategic management is useless unless it is properly formulated and
implemented to make the company or organization prosper in the competitive
environment. Strategists need to begin by formulating out a vision, a mission,
and then strategy implementation is needed to make the dreams come into
fruition. The business environment we live in has become very precarious
and risky. Hard earned capital can be washed away overnight if investment is
not done with sufficient care, long term sustainability and a competitive edge.
Only those who have that edge will survive in the shark-infested business
waters. Sustainable growth is not the product of organizations’ operating on
gut instinct and past experiences but of gaining confidence from proper
identification and assessment of both internal and external risks and
Industries never stand still but continuously grow and evolve. Markets
expand, industries change, technology advances and players come and go.
However, history has taught us that there is a huge capacity to create new
industries and expand and recreate ones that exist. Red Bull Stratos is a
typical example of how Red Bull was able to do that. The company had to
take risks to build value through diversification of sponsoring and organizing
extreme sports and events. The success story of Red Bull and its ability to
create a Blue Ocean stems from the fact that it knew which risks would have
the biggest effect on its strategy and which environmental changes may
provide the biggest opportunities with the right strategic adjustment.
As founder of Red Bull, Dietrich Mateschitz says “We don’t bring the product
to the people, we bring people to the product.”

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I would like to express my deepest appreciation to my advisor Professor
Martin Newby for his expert, sincere and valuable guidance and
encouragement extended to me. I would also like to thank him for providing
me with the opportunity to complete this dissertation.
I would also like to thank the School of Engineering and Mathematical
Sciences and all the professors, lecturers and tutors of my postgraduate
program who paved the way for an MSc in Project Management, Finance
and Risk.
I also thank my parents, family and friends for their continuous
encouragement and support.

A Case Study of Red Bull and its Status as a Blue Ocean