6 - Strategic Choices

10/26/22
Tecnológica bracarense Edigma vira-se para a gestão de filas e

para o estrangeiro – Executive Digest Online, 28 março’22
A empresa tecnológica Edigma, nascida e instalada em Braga, vai
orientar o negócio para a gestão de filas, atendimento e
6 – Strategic choices sinalética digital, olhando para as exportações mas sem largar as
experiências interativas, segmento no qual vem atuando desde
2004. (…) No entanto, o empresário considera que se trata de
"uma evolução" e não de um abandono do segmento no qual a
empresa se notabilizou, especialmente na área das experiências
interativas, como por exemplo em museus ou outras
infraestruturas culturais e lúdicas, após ter lançado a sua
primeira montra interativa em 2004, saída da Universidade do
Minho.
© 2021 Pearson Education Limited. All Rights Reserved. © 2021 Pearson Education Limited. All Rights Reserved.
Edigma, a Braga-based technology company, turns to queue The focus of part II:
management and overseas - Executive Digest Online, 28
March'22
Strategic choices
The technological company Edigma, born and installed in Braga, • How organisations relate to competitors in terms of
is going to direct its business towards queue management, their competitive business strategies.
customer service, and digital signage, looking to export, but
• How broad and diverse organisations should be in
without letting go of interactive experiences, a segment in which
it has been acting since 2004. (...) However, the entrepreneur terms of their corporate portfolios.
considers that this is "an evolution" and not an abandonment of • How far organisations should extend themselves
the segment in which the company became known, especially in internationally.
the area of interactive experiences, such as in museums or other
cultural and recreational infrastructures, after having launched • How organisations are creative and innovative.
its first interactive showcase in 2004, out of the University of • How organisations pursue strategies through organic
Minho. development, acquisitions or strategic alliances.
Strategic choices
Learning outcomes
• Assess business strategy in terms of the

generic strategies of cost leadership,
differentiation, focus and hybrid strategy.
• Apply principles of game theory and the
benefits of competition vs. cooperation to
business strategy.
• Identify and apply business model
components:
• value creation, configuration and capture.
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• Strategy statement: Strategy

– Vision
– Mission
– Values
– Objectives Vision
• Competitive strategies: Porter generic
strategies; Strategy clock e business models
• Corporate strategy/ Business strategy
Mission Objetives Strategy
– Product/market strategy
– Diversification
– Vertical integration
– Outsourcing
– ...
Strategic business units (SBUs)

Strategic choices
A strategic business unit (SBU) supplies goods or services
for a distinct domain of activity.
• A small business can be considered as just one SBU.
Where to
compete?
Corporate
strategy HQ • A large diversified corporation is made up of multiple
businesses (SBUs).
• SBUs can be called divisions or profit centres.
How to reach
Company’s
• SBUs can be identified by:
objectives? – Market-based criteria (similar customers, channels
Business Division/ Division/ and competitors);
strategy Company/ Company/
SBU SBU – Capabilities-based criteria (similar strategic
capabilities).
How to Competitive
compete? strategy
The purpose of SBUs

Competitive strategy – How?
• To decentralise initiative to smaller units within the
corporation so SBUs can pursue their own distinct • Lidl
strategy. • Apple
• To allow large corporations to vary their business • Renova
strategies according to the different needs of external • Rolls Royce
markets.
• Montblanc
• To encourage accountability – each SBU can be held
responsible for the success or failure of its • Ryan Air
own strategy. • Ikea
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Generic competitive strategies Three generic strategies
Michael Porter introduced the term ‘generic strategy’ to

mean basic types of competitive strategy that hold across
many kinds of business situations.
• Competitive strategy is concerned with how a company,
business unit or organisation achieves competitive
advantage in its domain of activity.
• Competitive advantage is about how a company,
business unit or organisation creates value for
its users, both greater than the costs of
supplying them and superior to that of rivals.
Source: Adapted from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter. The Free Press, a Division of Simon & Schuster, Inc.
Cost-leadership strategy Economies of scale and the

experience curve
Cost-leadership strategy involves becoming the lowest-
cost organisation in a domain of activity.
Four key cost drivers that can help deliver cost
leadership:
• Lower input costs.
• Economies of scale.
• Experience.
• Product/process design.
For example, for many electronic
components per unit costs can drop
as much as 95 per cent every time
the accumulated volume doubles.
Costs, prices and profits for Cost-leadership strategy

generic strategies
Low cost should not be pursued in total disregard for
quality. Businesses have two options here:
• Parity – equivalent quality in terms of product or
service features. The cost leader can then charge the
same price as rivals and make higher profits.
• Proximity – only slightly lower quality allows the cost
leader to offer a slightly lower price
and still make higher profits.
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Differentiation strategy (1 of 2) Differentiation strategy (2 of 2)
Differentiation involves uniqueness along some The key drivers of differentiation are:
dimension that is sufficiently valued by customers to • Product and service attributes – providing better or
allow a price premium. unique features (e.g. Apple or Dyson).
• Within each market businesses may differentiate • Customer relationships – customer service and
along different dimensions.
responsiveness (e.g. Zalando); customisation (e.g.
Two key issues to consider: SAP) or marketing and reputation
• The strategic customer on whose needs the (e.g. Coca Cola).
differentiation is based. • Complements – building on linkages with
• Key competitors – who are the rivals and other products/services
who may become a rival. (Apple and iTunes).
Focus strategy (1 of 3) Focus strategy (2 of 3)
A focus strategy targets a narrow segment or domain of • Cost focusers identify areas where broader cost
activity and tailors its products or services to the needs based strategies fail because of the added cost of
of that specific segment to the exclusion of others. trying to satisfy a wide range of needs (e.g. Iceland
Foods).
Two types of focus strategy:
• Differentiation focusers look for specific needs that
• Cost-focus strategy (e.g. Ryanair).
broad differentiators do not satisfy so well (e.g. ARM
• Differentiation focus strategy (e.g. Ecover Holdings in the market for mobile phone chips).
for ecological cleaning products).
Focus strategy (3 of 3) ‘Stuck in the middle’?
Successful focus strategies depend on at least one of Porter argues:

three key factors: • There is a fundamental trade-off between a cost-
• Distinct segment needs. leadership and differentiation strategy and thus
firms need to adopt and stick to one single generic
• Distinct segment value chains. strategy.
• Viable segment economics. • Failure to do this leads to a danger of being ‘stuck in
the middle’ – doing no strategy well.
• However, Porter acknowledges that the strategies can
be combined under certain circumstances.
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Combining generic strategies Hybrid strategy
• A company can create separate strategic business units A hybrid strategy combines different generic strategies.
each pursuing different generic strategies and with
different cost structures.
For example Southwest Airlines (USA) famously
• Technological or managerial innovations where both
pioneered low cost air fares but also seeks to
cost efficiency and quality are improved.
differentiate on convenience, frequent departures and
• Competitive failures – if rivals are similarly ‘stuck in the friendly service.
middle’ or if there is no significant competition then
middle strategies may work. Ikea
• Hybrid strategies.
The Strategy Clock (1 of 2) The Strategy Clock (2 of 2)
The strategy clock provides an alternative

approach to generic strategy which gives more
scope for hybrid strategies.
It has two distinct features:
• It is focused on the prices to customers rather
than the costs to organisations.
• The circular design allows for incremental
adjustments in strategy rather than stark
choices.
Source: Adapted from D. Faulkner and C. Bowman, The Essence of Competitive Strategy, Prentice Hall, 1995.
Strategy clock – differentiation Strategy clock – Low-price
• Strategies in this zone seeks to provide products Low price combined with low perceived value.
that offer perceived benefits that differ from • A standard low-price strategy (9 o’clock)
those offered by competitors. Low prices combined with similar quality to
• There is a range of alternative strategies: competitors aimed at increasing market share.
– differentiation without price premium (12 o’clock) Needs a cost advantage (such as economies of
– used to increase market share. scale) to be sustainable, e.g. Asda/Walmart in
– differentiation with price premium (1 o’clock) – grocery retailing.
used to increase profit margins. • A ‘no-frills’ strategy (7 o’clock)
– focused differentiation (2 o’clock) – used for Focusing on price sensitive market segments –
customers that demand top quality and will pay a typified by low-cost airlines like Ryanair.
big premium.
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Strategy clock – hybrid strategy Strategy clock – non-competitive

strategies
Seeks to simultaneously achieve higher benefits Increased prices with low perceived product or
and lower prices relative to those of competitors. service benefits.
Hybrid strategies can be used: • In competitive markets, such strategies will be
• to enter markets and build position quickly; doomed to failure.
• as an aggressive attempt to win market share; • Only feasible where there is strategic ‘lock-in’ or
• to build volume sales and gain from mass a near monopoly position.
production.
A classic example is IKEA.
Strategic lock-in Interactive strategies
Strategic lock-in is where users become Business strategy choices depend on what
dependent on a supplier and are unable to use competitors do (they are interactive).
another supplier without substantial switching • Richard D’Aveni gives an example of how
costs.
competitors may interact in terms of
Lock-in can be achieved in two main ways: competitive moves in price and perceived
• Controlling complementary products or services. quality.
An example is razors that only work with one type
of blade.
• Kumar gives an example of how firms might
respond to the entry of a low price rival.
• Creating a proprietary industry standard.
Microsoft with its Windows operating system.
Interactive price and Responding to low-cost rivals

quality strategies – D’Aveni
Note: axes are not necessarily to linear scales. Source: Reprinted by permission of Harvard Business Review. Exhibit from ‘A framework for responding to low-cost rivals’ by N. Kumar, December 2006. Copyright © 2006 by the Harvard Business
Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Hypercompetition: Managing the Dynamics of Strategic Maneuvering by School Publishing Corporation. All rights reserved.
Richard D’Aveni with Robert Gunther. Copyright © 1994 by Richard D’Aveni. All rights reserved. © 2021 Pearson Education Limited. All Rights Reserved. © 2021 Pearson Education Limited. All Rights Reserved.
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Hypercompetition Game theory
Hypercompetition describes markets with Game theory encourages an organisation to consider

continuous disequilibrium and change, e.g. popular competitors’ likely moves and the implications of these
music or consumer electronics. moves for its own strategy.
• It may be impossible to plan for long-term • Game theory is particularly important where
sustainable competitive advantage. competitors are interdependent.
• Planning may actually destroy competitive • In these circumstances it is important to:
– get in the mind of competitors;
advantage by slowing down responses.
– think forwards and reason backwards.
• Successful hypercompetition demands speed and
initiative rather than defensiveness.
Prisoner’s dilemma
Prisoner’s
dilemma
Note: Hypothetical data constructed for illustration purposes only.
Game theory considers cooperation Business models (1 of 2)
• Sometimes too much competition can be damaging A business model describes a value proposition for
and it is in the interests of competitors to restrain customers and other participants, an arrangement of
competition. activities that produces this value and associated
• Collaboration with some competitors may give revenue and cost structures.
competitive advantage over other competitors (or New entrants with new business models can radically
potential entrants). change the dynamics and competition in a market and
establish superior positions
(e.g. Uber, Spotify).
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Business models (2 of 2) Business model components
There are three essential elements in a business model:

• Value creation – a proposition that addresses a
customer segment’s needs.
• Value configuration – the way resources and
activities are organised to produce this value.
• Value capture – the way the cost structures and
revenue streams create added value for stakeholders.
Business models Business model patterns (1 of 2)
Two points need emphasis: Four typical business model patterns are:
• Business models once established are often taken for • Razor and blade – named after the classic Gillette strategy of
granted. Models can become institutionalised and form a selling razors cheaply and profiting from sales of high priced
‘recipe’ for the industry. blades (e.g. mobile phones, ink-jet printers).
• Even if competitors share a business model their • Freemium – named by combining ‘free’ and ‘premium’. Basic
strategies may still differ. For example, Airbnb have services are free to attract customers who then upgrade to
expensive premium services (e.g. Spotify).
differentiation advantages based on their size and
network effects even though others use the same model. • Peer-to-peer – brings together people and/or businesses
without having to go through a middle man
(e.g. Kiva, Zipcar).
Business model patterns (2 of 2)
• A multi-sided platform is a business model that brings

together two or more distinct but interdependent
groups of participants to interact on a platform (e.g.
Uber, video games, Google search).
‒ It can be:
q A technology (e.g. Microsoft’s PC operating system)
q A product (e.g. Nintendo’s videogame console)
q A service (e.g. Ubers transportation service)
– It can have two or more sides
Sharing economy business models© 2021 Pearson Education Limited. All Rights Reserved. © 2021 Pearson Education Limited. All Rights Reserved.
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Platform providers Summary
• Michael Porter’s generic strategy framework defines

various business strategies, including cost leadership,
differentiation, focus and hybrid strategies.
• Game theory encourages managers to get in the mind of
competitors and think forwards and reason backwards.
• A business model describes the business
logic of an enterprise including the domains of value
creation, value configuration and value capture.

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10/26/22

Tecnológica bracarense Edigma vira-se para a gestão de filas e

• Assess business strategy in terms of the

• Strategy statement: Strategy

Strategic business units (SBUs)

The purpose of SBUs

Generic competitive strategies Three generic strategies

Michael Porter introduced the term ‘generic strategy’ to

Cost-leadership strategy Economies of scale and the

Costs, prices and profits for Cost-leadership strategy

Differentiation strategy (1 of 2) Differentiation strategy (2 of 2)

Focus strategy (1 of 3) Focus strategy (2 of 3)

Focus strategy (3 of 3) ‘Stuck in the middle’?

Successful focus strategies depend on at least one of Porter argues:

Combining generic strategies Hybrid strategy

The Strategy Clock (1 of 2) The Strategy Clock (2 of 2)

The strategy clock provides an alternative

Strategy clock – differentiation Strategy clock – Low-price

Strategy clock – hybrid strategy Strategy clock – non-competitive

Strategic lock-in Interactive strategies

Interactive price and Responding to low-cost rivals

Hypercompetition Game theory

Hypercompetition describes markets with Game theory encourages an organisation to consider

Note: Hypothetical data constructed for illustration purposes only.

Game theory considers cooperation Business models (1 of 2)

Business models (2 of 2) Business model components

There are three essential elements in a business model:

Business models Business model patterns (1 of 2)

Business model patterns (2 of 2)

• A multi-sided platform is a business model that brings

Platform providers Summary

• Michael Porter’s generic strategy framework defines

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