Trade-offs and Coherence in the Business Strategy for a Digital Innovation

Contents
  1. A set of choices
  2. Table I: Coherent decisions
  3. Table II: Trade-offs
  4. References

Conceptualizing the Business Strategy for a Digital Innovation as a Set of Choices

In accord with Michael Porter and James Heppelmann's (2014) article who extend Porter's earlier work on competitive strategy into the realm of smart, connected products, the business strategy for a digital innovation remains focused on making choices to create and maintain competitive advantage.

Porter and Heppelman emphasize the importance of trade-offs in decision-making and the need for coherent, mutually reinforcing choices. Tables I) and II) provide examples for coherence and trade offs in the context of crafting the business strategy for a digital innovation.

Table I: Examples of coherent decisions

Examples of coherent decisions in the context of crafting the business strategy for a digital innovation.

Strategic Choices Example
Technology Infrastructure and Growth Model The chosen technology infrastructure must be built to fit the intended growth model. When Netflix transitioned from a DVD rental service to streaming content the company changed to a robust cloud-based infrastructure, which was able to handle millions of simultaneous streams globally. This choice supported rapid expansion without compromising on performance.
Value proposition and product features The value attributes of the offering must align with the product or service features that determine customers' experience. For example, Amazon Prime's convenient one-click purchasing and personalised recommendations enhance customer experience and loyalty.
Customer segments and cost model How the business structures its operational costs should be aligned with target customers and their willingness to pay. For example, Amazon Web Services offers cloud packages at various price points, ranging from small-scale users to enterprise clients, with different operational models (i.e. more elaborate services for enterprise clients). This choice allows Amazon to offer lower prices to cost-conscious startups and premium services to larger enterprises simultaneously.

Table II: Examples of trade-offs

Examples of trade-offs encountered in the context of crafting the business strategy for a digital innovation.

Trade-off Example
Balancing of personalized, tailored offerings with standardized products or services that are easier to scale Spotify offers personalised playlists for users which are based on their preferences. However, its core streaming platform is standardised across all markets. Finding the right balance between the two aides the company in serving millions of users globally.
Balancing of user privacy concerns with the monetization of user data Google monetizes user data by delivering targeted ads. However, the company also complies with stringent regulations that prioritise user privacy.
Balancing of attracting a larger user base with lower fees vs. charging premiums to generate revenue Dropbox provides free cloud storage up to a certain size limit. This freemium model attracts users and then invites them to upgrade to paid plans once they outgrow the storage limit.

References

Porter, M.E. & Heppelmann, J.E. (2014). How smart, connected products are transforming competition. Harvard Business Review, 92(11), pp.64–88.