The hybrid competitive strategy framework, Thesis of Business Strategy

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THE HYBRID COMPETITIVE STRATEGY

FRAMEWORK

A managerial theory for combining differentiation

and low-cost strategic approaches based on a case study of a

European textile manufacturer

A thesis submitted to the University of Manchester

for the degree of Doctor of Business Administration

in the Faculty of Humanities

Alexandre H. H. Lapersonne

Alliance Manchester Business School

Management Sciences and Marketing Division

Table of Contents

3.4.2.2 Data analysis methods ..................................................................................... 115 3.4.2.3 Investigating and explaining the mixed strategy adoption through a causal process tracing method ................................................................................................ 118 3.4.2.4 Mixed strategy exploration through a possibilistic generalization approach. 123 3.5 CONCLUSION ............................................................................................................ 124 CHAPTER 4 - PRESENTATION OF THE SINGLE CASE STUDY AND CHOICE VALIDATION.................................................................................................................... 125 4.1 INTRODUCTION........................................................................................................ 125 4.2 PRESENTATION OF THE COMPANY CASE STUDY AND ITS BUSINESS ENVIRONMENT............................................................................................................... 126 4.2.1 A BRIEF PRESENTATION OF THE FIRM’S CASE STUDY .............................................. 126 4.2.2 BRIEF PRESENTATION OF THE EUROPEAN JEANSWEAR MARKET ............................ 128 4.3 PRESENTATION OF A SHORT STORYLINE OF THE FIRM’S CASE STUDY ............................................................................................................................................. 130 CHAPTER 5 - THE CAUSAL MECHANISMS OF A MIXED STRATEGY ADOPTION ........................................................................................................................ 133 5.1 INTRODUCTION........................................................................................................ 133 5.2 ANALYSING THE CAUSAL MECHANISMS THAT RESULTED IN THE ADOPTION OF A MIXED STRATEGIC APPROACH BY ALPHA-DENIM .......... 136 5.2.1 CAUSAL MECHANISMS RESPONSIBLE FOR THE BREAKDOWN OF ALPHA-DENIM’S ORIGINAL PURE LOW-COST STRATEGIC APPROACH .......................................................... 137 5.2.2 CAUSAL MECHANISM RESPONSIBLE FOR ALPHA-DENIM´S FAILURE IN ADOPTING A PURE DIFFERENTIATION STRATEGIC APPROACH............................................................... 140 5.2.2.1 Commoditization effect on Premium Jeanswear brands .................................. 140 5.2.2.2 Increase of consumer price sensitivity and demand volatility on the Premium Jeanswear brand market .............................................................................................. 142 5.2.2.3 Increase of competition in the Premium Jeanswear market ............................ 143 5.2.2.4 Increase of uncertainty in the Premium Jeanswear market ............................. 145 5.2.3 CAUSAL MECHANISMS RESPONSIBLE FOR ALPHA-DENIM TO ADOPT A MIXED STRATEGIC APPROACH ..................................................................................................... 147 5.2.4 NECESSARY AND SUFFICIENT CONDITIONS THAT EXPLAIN THE ADOPTION FOR A MIXED STRATEGY BY ALPHA-DENIM ............................................................................... 150 5.2.5 DISCUSSION AND CONTRIBUTION ............................................................................ 153 5.3 ANALYSING THE EVOLUTION OF THE STRATEGY MAKING PROCESS OF ALPHA-DENIM THAT RESULTED IN THE ADOPTION OF A MIXED STRATEGY APPROACH ................................................................................................ 155 5.3.1 PERIOD (2005-2006) - IMPLEMENTING A DIFFERENTIATION STRATEGY ................. 155 5.3.1.1 Definition process ............................................................................................ 155 5.3.1.2 Structural context ............................................................................................. 158 5.3.1.3 Strategic context............................................................................................... 159 5.3.1.4 Selection process (Impetus) ............................................................................. 160 5.3.1.5 Product market and Capital market................................................................. 161 5.3.2 PERIOD (2007-2009) - TESTING A LOW-COST PRODUCT LINE UNDER A DIFFERENTIATION STRATEGY ........................................................................................... 163 5.3.2.1 Definition process ............................................................................................ 163 5.3.2.2 Structural context ............................................................................................. 164 5.3.2.3 Selection process (Impetus) ............................................................................. 165

5.3.2.4 Strategic context............................................................................................... 165 5.3.2.5 Product market and Capital market................................................................. 166 5.3.3 PERIOD (2010-2011) – WHEN THE DIFFERENTIATION STRATEGY SEEMED TO WORK ......................................................................................................................................... 168 5.3.3.1 Definition process ............................................................................................ 168 5.3.3.2 Structural context ............................................................................................. 169 5.3.3.3 Selection process (Impetus) ............................................................................. 169 5.3.3.4 Strategic context............................................................................................... 170 5.3.3.5 Product market and Capital market................................................................. 170 5.3.4 PERIOD (2012-2013) - DEFINITIVE FAILURE OF THE DIFFERENTIATION APPROACH AND ADOPTION OF A MIXED STRATEGY ........................................................................... 172 5.3.4.1 Definition process ............................................................................................ 172 5.3.4.2 Structural context ............................................................................................. 173 5.3.4.3 Selection process (Impetus) ............................................................................. 174 5.3.4.4 Strategy context ................................................................................................ 175 5.3.4.5 Product market and Capital market................................................................. 175 5.3.5 DISCUSSION AND CONTRIBUTION ............................................................................ 177 5.3.5.1 Evolution of the strategy making patterns as an adaptive process to fit the environment and development of a dynamic capability in altering strategy renewal sub- process as a result of a learning process ..................................................................... 177 5.3.5.2 Conflict management of the strategy making process at the operational level 182 5.3.5.3 The risk of excessive strategic alignment between managerial levels ............. 183 5.4 CONCLUSION ............................................................................................................ 185 CHAPTER 6 - MIXED STRATEGY IMPLEMENTATION AT THE FIRM’S STRATEGY MARKET LEVEL ...................................................................................... 186 6.1 INTRODUCTION........................................................................................................ 186 6.2 COMBINING DIFFERENTIATION AND LOW-COST MARKET APPROACHES .................................................................................................................. 188 6.2.1 THE DIFFERENTIATION APPROACH OF ALPHA-DENIM´S MIXED STRATEGY ............ 188 6.2.2 THE LOW-COST APPROACH OF ALPHA-DENIM’S MIXED STRATEGY........................ 189 6.3 CAPABILITY IN MANAGING THE BALANCE BETWEEN DIFFERENTIATION AND LOW-COST STRATEGIC APPROACHES .................. 194 6.3.1 MANAGING THE BALANCE BETWEEN DIFFERENTIATION AND LOW-COST MARKET SEGMENT .......................................................................................................................... 194 6.3.2 MANAGING THE BALANCE BETWEEN DIFFERENTIATION AND LOW-COST PRODUCT LINE .................................................................................................................................. 198 6.4 UNDERSTANDING THE ORGANIZATIONAL MECHANISMS INVOLVED IN THE MANAGEMENT OF A DUAL STRATEGY MARKET APPROACH .............. 200 6.5 DISCUSSION AND CONTRIBUTION ..................................................................... 206 6.5.1 DEFINING AND MANAGING THE DUAL STRATEGIC FOCUS THROUGH CLEAR AND COMPLEMENTARY ROLES ................................................................................................. 206 6.5.2 MIXED STRATEGY AND STRATEGY FLEXIBILITY ..................................................... 208 6.5.3 CONTROLLING THE FLEXIBILITY OF THE MIXED STRATEGY, A COMBINATION OF RATIONAL-ACTOR AND INTERNAL-ECOLOGY STRATEGY MAKING PROCESS MODEL ....... 209 6.5.4 MIXED STRATEGY, FLEXIBILITY AND PERFORMANCE ............................................. 212 6.6 CONCLUSION ............................................................................................................ 213

8.5 INDUCING CHARACTERISTICS OF THE MIXED STRATEGY

REINFORCEMENT PERSPECTIVE ............................................................................. 284

8.5.1 REINFORCING AN ORIGINAL PURE DIFFERENTIATION STRATEGY WITH A LOW-COST

APPROACH ........................................................................................................................ 284

8.5.2 REINFORCING AN ORIGINAL PURE LOW-COST STRATEGY WITH A DIFFERENTIATION

APPROACH ........................................................................................................................ 286

8.5.3 MIXED STRATEGY MAKING PROCESS UNDER A REINFORCEMENT PERSPECTIVE ..... 287

8.5.4 TYPE OF BUSINESS MODEL ADOPTION UNDER A REINFORCEMENT PERSPECTIVE.... 288

8.5.5 MANAGING TRADE-OFF UNDER A REINFORCEMENT PERSPECTIVE.......................... 291

8.5.5.1 Managing trade-off when reinforcing an original pure differentiation strategy with a low-cost approach. ............................................................................................ 291 8.5.5.2 Managing trade-off when reinforcing an original pure low-cost strategy with a differentiation approach. ............................................................................................. 292 8.6 INDUCING CHARACTERISTICS OF THE MIXED STRATEGY DIVERSIFICATION PERSPECTIVE ............................................................................ 293 8.6.1 MIXED STRATEGY MAKING PROCESS UNDER A DIVERSIFICATION PERSPECTIVE .... 293 8.6.2 TYPE OF BUSINESS MODEL ADOPTION UNDER A DIVERSIFICATION PERSPECTIVE ... 294 8.6.3 MANAGING TRADE-OFF UNDER A DIVERSIFICATION PERSPECTIVE ......................... 294 8.7 RECOMMENDATION IN IDENTIFYING THE CORRECT ENVIRONMENTAL SITUATION ....................................................................................................................... 295 8.8 CONCLUSION ............................................................................................................ 297 CHAPTER 9 - CONCLUSION......................................................................................... 298 9.1 INTRODUCTION........................................................................................................ 298 9.2 MAIN CONTRIBUTION OF THIS STUDY ........................................................................ 298 9.2.1 CONTRIBUTION TO THE FIELD OF STRATEGY MANAGEMENT .................................. 298 9.2.1.1 Mixed strategy and environmental factors ....................................................... 298 9.2.1.2 Mixed strategy and strategy making process ................................................... 299 9.2.2 CONTRIBUTION TO THE PRACTICE OF STRATEGY IMPLEMENTATION ...................... 301 9.3 RESEARCH LIMITATIONS ..................................................................................... 303 9.4 DIRECTIONS FOR FUTURE RESEARCH ............................................................ 304 9.4.1 FUTURE RESEARCH IN THE FIELD OF STRATEGY PROCESS....................................... 304 9.4.2 FUTURE RESEARCH IN THE PRACTICE OF MIXED STRATEGY IMPLEMENTATION ..... 306 9.5 CONCLUSION ............................................................................................................ 306 APPENDICES .................................................................................................................... 307 APPENDIX 1 – CONGRUENCE ANALYSIS FOR THE VALIDATION OF THE SINGLE CASE STUDY ......................................................................................................................................... 308 APPENDIX 2 – A COMPREHENSIVE STORYLINE OF A MIXED STRATEGY ADOPTION ......... 379 APPENDIX 3 – LETTER OF PRESENTATIONS, INTERVIEWS STRUCTURE, MEMOS AND CODING INFORMATION ................................................................................................................... 420 REFERENCES ................................................................................................................... 449

List of Figures

Figure 1 - A taxonomical representation of the Porter´s generic strategies model. ... 41

Figure 2 - A taxonomical representation of the Miles & Snow strategy types. ......... 42

Figure 3 - A space matrix based on the dimensional paradigm with a discrete relative

position. Compiled by the authors based on the principles of the Bowman´s

strategy clock model (Johnson et al., 2003)........................................................ 44

Figure 4 - A representation of pure, mixed and “stuck-in-the-middle” strategies

following a dimensional paradigm of continuum intensity strategic emphasis.

Compiled by the author based on an interpretation of the literature review....... 46

Figure 5 - A representation of pure, mixed and “stuck-in-the-middle” strategies

following a dimensional paradigm of principal strategy criteria (Thornhill and

White, 2007; Manev et al., 2015). ...................................................................... 47

Figure 6 - The RAP model (Bower and Gilbert, 2005) – Compiled by the author.... 84

Figure 7 - Case study project – A unique case study with an integrated multiple unit

analysis approach. ............................................................................................. 107

Figure 8 - Alpha-Denim organizational structure in 2013 (Source: Based on the

firm´s organizational structure charts). ............................................................. 127

Figure 9 - The conjunction factors that led to the loss of Alpha-Denim’s low-cost

competitive advantage. ..................................................................................... 137

Figure 10 - Causal chains that result in a commoditization effect on Premium

Jeanswear brands. ............................................................................................. 140

Figure 11 - Causal chains that cause the European Premium Jeanswear market to be

volatile, unstable and unpredictable.................................................................. 142

Figure 12 - Causal chains that make the European Premium Jeanswear market more

competitive........................................................................................................ 143

Figure 13 - Causal chains that make the European Premium Jeanswear into a very

uncertain environment. ..................................................................................... 145

Figure 14 - Causal chains that resulted in the adoption of a mixed strategic approach

by Alpha-Denim. .............................................................................................. 147

Figure 15 - Graph representation of all the causal mechanisms that resulted in an

adoption of a mixed strategic approach by Alpha-Denim for the period 2005-

Figure 16 - Process interpretation of field data: Period (2005-2006) - Implementing a

differentiation strategy. ..................................................................................... 162

Figure 17 - Process interpretation of field data: Period (2007-2009) - Testing a low-

cost product line under the differentiation strategy. ......................................... 167

List of Tables

Table 1 - Summary of Porter’s generic competitive strategies. Compiled and

summarized from Porter (1980, 1985, 1996)...................................................... 30

Table 2- Listing of the literature of the diversity of the mixed strategy definitions and

their classification of conceptual paradigms. ...................................................... 51

Table 3 - Compilation of independent variables used to measure mixed strategic

approach in empirical studies. ............................................................................ 55

Table 4 - A proposition of definition on four levels of strategy formulation to define

the boundary between the mixed and pure strategic approach. .......................... 59

Table 5 - Example of Enabling conditions of Strategy agency in Manager’s role

expectation (Mantere, 2008) ............................................................................... 92

Table 6 - Endogenous and exogenous criteria to choose the single case study. ...... 105

Table 7 - Interview plan achieved for the first and second stage. ............................ 110

Table 8 - Data analysis plan ..................................................................................... 114

Table 9 - Test of the crucialness of the case study selected. Source: created by the

author based on the definition of degree of crucialness defined by Blatter and

Haverland (2012). ............................................................................................. 117

Table 10 - Evolution of Alpha-Denim strategy making process for the period 2005-

Table 11 - Evolution of Alpha-Denim role management in the strategy renewal sub-

processes for the period 2005-2013. ................................................................. 181

Table 12 - Summary of the two approaches of the Alpha-Denim mixed strategy.

(Source: compiled by the author based on information extracted from interviews

and firm’s documents). ..................................................................................... 192

Table 13 - Distribution of the Alpha-Denim product line across Premium and

Popular markets in 2013. (Source: compiled from sales product database). .... 193

Table 14 - Alpha-Denim production cost structure 2012-2013 (Source: Table

summary compiled from managerial reports of the firm 2012-2013). ............. 218

Table 15 - Illustrative simulation of variation of setup cost of a weaving machine.

(Source: compiled by the author and based on cost information derived from

interviews and the firm’s documents)............................................................... 227

Table 16 - Development of the product mix composition of Alpha-Denim for the

period 2008-2013. (Source: Extracted from product mix composition

development – R&D department). .................................................................... 230

Table 17- Evidence of Extended departmental consciousness enabling condition for

championing strategy alternatives .................................................................... 262

Table 18 - Evidence of Organizational altruism enabling conditions for championing

strategy alternatives. ......................................................................................... 264

Table 19 - Evidence of Shared vision enabling conditions for championing strategy

alternatives. ....................................................................................................... 266

Table 20 - Evidence of an Integration and conciliation management role for

championing strategy alternatives. ................................................................... 268

Table 21- Environmental situation generalized from the particular case study of

Alpha-Denim for the adoption of mixed strategy. ............................................ 275

Table 22 - Mixed strategy business model dimensions generalized from the particular

case study of Alpha-Denim and literature review. ........................................... 277

Table 23 - Mixed strategy map characterized by nine possible implementations. .. 278

Table 24 - Trade-off approach in a reinforcement perspective where differentiation is

the strategy to be reinforced.............................................................................. 292

Table 25 - Example of mixed strategy implementations extracted from the literature.

Table 26 - A suggested theoretical framework for the study of dynamic capability of

strategy process management. .......................................................................... 305

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Abstract

The fact that we have entered turbulent times has been a central theme in the recent

strategy literature. Turbulent environments are commonly described by increased

competitive intensity, disruptive changes in the industry structure, volatility of

demand, and unpredictability of customer behaviour, alongside instability of

economic, social and political factors. In such a context, the adoption of traditional

approaches to strategy, which assumes a relatively stable world, have been questioned

by new approaches. Mixed strategy, which emerged as a contingency option to Porter’s

generic strategies model, defends that in a turbulent environment the simultaneous

pursuit of the low-cost and differentiation approaches is fundamental for the short-

term performance and long-term survival of the firm. A vast corpus of literature

supports the benefits of adopting a mixed approach strategy: several empirical studies

have proved that a combination of low-cost and differentiation strategic elements

establishes a firm’s performance superiority over the pure strategy choice. The mixed

literature has concentrated on the performance linkage and on the debate countering

the pure strategy approach, however very little attention has been paid to the challenges

presented by the mixed strategy implementation. In fact, despite the rich empirical

literature, it is still not clear how firms that adopt a mixed strategy may successfully

integrate the inherent contradiction of the low-cost and differentiation approaches.

The aim of this study is to investigate how a firm has been implementing the mixed

strategy approach, unveiling its managerial characteristics and to generate a proposed

managerial framework that could serve as a guide for further implementation. This

study approaches the subject of mixed strategy implementation on three levels:

environment, strategy definition and making process, and value chain activity. After

having elucidated several ambiguities related to the concept of mixed strategy present

in the literature and having proposed a normalized definition, this study investigates

through a unique case study approach, an in-depth explorative process using causal

process methods the managerial implication of the mixed strategy. Several

characteristics are revealed from the unique case study and represent a major

contribution to the field of strategy management. Furthermore, a managerial

framework is proposed which could serve as support in the implementation of a mixed

strategy.

Copyright Statement

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Acknowledgements

This research would not have been possible without the guidance and support of my

supervisors, Prof. Paul R. Jackson, Prof. Nitin Sanghavi and Dr. Claudio De Mattos,

to whom I am profoundly indebted for their insightful contribution and critical eye. It

is to them that I owe the great learning opportunity afforded to me in these past years.

I would also like to thank the Doctoral staff of the Alliance Manchester Business

School for all their assistance. Finally, I would like to thank my family for always

looking at the bigger picture and being there for me. I want to thank especially dear

work colleagues and friends that have in some way contributed to the completion of

this thesis. Special thanks go to Dr. Dirk Hickert, Dr. Rui Torres de Oliveira, Marcelo

Castro, Francisco Maiolino, Anderson Cunha, Pablo Lara, Sergio Cesari, David

Bardin, Andrew Bruce and José Luis Zabaleta.

Chapter 1 – Introduction

1.1 Research background

The scope of this research is centred on the study of the adoption of mixed strategy,

also known as combination, hybrid or dual strategy (Markides and Charitou, 2004;

Pertusa-Ortega, Molina-Azorín and Claver-Cortés, 2009; Claver-Cortés, Pertusa-

Ortega and Molina-Azorín, 2012). Since the success of Porter’s generic strategies

model, a long debate has existed between two points of view: the proponents of

Porter’s model, who defend that the pursuit of both low-cost and differentiation

strategies by a firm would result in a poor performance situation called “stuck-in-the-

middle”, and the proponents of the adoption of mixed strategy, which involves a

combination of low-cost and differentiation elements, and who defend superior

performance over the pure strategy adoption.

At the centre of this debate, the concept of trade-offs has been playing a key role as it

could be considered the central part of the coherence of a strategy (Magretta, 2012).

Trade-offs are determined by choosing one strategic dimension to the detriment of the

other. In the trade-offs paradigm, opposed strategic dimensions could not be pursued

at the same time without creating some sort of inefficiency in the firm’s value chain

(Porter, 1980b, 1996). This is because strategic positioning, such as differentiation and

cost leadership, involves contradictory activities and resources allocation that are

mutually exclusive. In fact, the choice of a differentiation strategy usually requires an

emphasis in product innovation, customer customization, service differentiation and

premium image to sustain a premium price. In contrast, a low-cost strategy usually

requires an emphasis on limited product and service scope, standardization, efficiency

through economy of scale and learning curve to achieve a lower cost. Consequently,

any firm that does not choose one type of strategy, or tries to implement the two

simultaneously, will find itself in a poor performance situation, referenced to as stuck-

in-the-middle (Porter, 1996).

Numerous empirical studies defend this point of view (Dess, Carolina and Davis,

1980; Aulakh, Kotabe and Teegen, 2000; Thornhill and White, 2007). In fact, a firm

that chooses a particular position in an industry, which should be by low-cost or

differentiation approaches, could sustain a competitive advantage based on two types

of sources: the attractiveness of the industry associated to the barriers that could offer

protection (Porter, 1981, 1996) and the set of unique resources that were developed

internally that could offer protection through heterogeneity and imperfect mobility

(Barney, 1991; Amit and Schoemaker, 1993; Peteraf, 1993). Consequently, the rules

of trade-offs associated with the industry idiosyncrasy, which shape the strategic

choices of this firm, remain valid while these industry characteristics remain

unchanged (Spanos and Lioukas, 2001). In such a context of predictability and

stability, it is recommended and sensible that a firm concentrates its focus on one

strategic dimension and specializes in a few competencies.

Conversely, in a turbulent environment marked by a high level of competition,

instability of demand and fast transformation of the industry, the rules of trade-offs

lose their importance, because at best they have a temporary validity (D’Aveni, 1995;

D’Aveni, Dagnino and Smith, 2010). Consequently, a firm in such a context is forced

to deploy a more complex and dynamic approach to strategy (Chakravarthy, 1997).

The modern era of globalization, high speed and instability has been at the origin of

this need. In fact, many authors argue that business environments have been much

more dynamic, unstable and competitive. These turbulent environments are commonly

described by increased competitive intensity, disruptive changes in the industry

structure, volatility of demand, and unpredictability of customer behaviour; alongside

instability of economic, social and political factors. In these uncertain business

environments, firms have been compelled to adapt to survive and to maintain their

financial performance. In such a context, the adoption of traditional approaches to

strategy, such as the positioning school, which assumes a relatively stable world, has

been questioned by the emergence of the mixed strategy alternative, which seems to

be more suitable for adaptation.

An extensive body of theoretical and empirical studies endorses the pursuit of a

combination of the low-cost and differentiation strategy approach (Phillips, Chang and

Buzzell, 1983; Hill, 1988; Murray, 1988; Beal and Yasai-Ardekani, 2000; Proff, 2000;

Spanos, Zaralis and Lioukas, 2004). Additionally, several studies demonstrate that

firms that have adopted a mixed approach in a dynamic environment have presented a

superior or at least equivalent performance compared to pure strategy options (Pertusa-

Ortega, Molina-Azorín and Claver-Cortés, 2009).