9 organizational strategy

©2004 by Nelson, a division of Thomson Canada Limited 1

Chapter 9

Organizational Strategy


What Would You Do? Sobeys is a national player in the

grocery industry Faced integration, cash flow, and IT

problems Has 12% of the market Increasing competition and tough

market outlook How do you respond to these

challenges?


Learning Objectives:Basics of Organizational Strategy

After reading the next two sections, you should be able to:

1. explain the components of sustainable competitive advantage and why it is important2. describe the steps involved in the

strategy-making process


Sustainable Competitive Advantage Resources

assets, capabilities, process, information, and knowledge

Competitive advantage providing greater value for customers than

competitors can Sustainable competitive advantage

when other companies have tried unsuccessfully to duplicate, and have, for the moment, stopped trying to duplicate


Achieving a Sustainable Competitive AdvantageResources must be:

Valuable Rare

Imperfectly imitable Non-substitutable


Strategy-Making ProcessStep 1Assess need for strategic change

Step 2Conduct situation analysis

Step 3Choose strategic alternatives

Adapted from Exhibit 9.1


What Really WorksStrategy-making for Firms, Big and Small


What Really Works


Assessing the Need for Strategic Change Competitive inertia

a reluctance to change strategies or competitive practices that have been successful in the past

Strategic dissonance discrepancy between upper

management’s intended strategy and the strategy actually implemented by lower levels of management


Situational Analysis (SWOT)Strengths and Weaknesses

distinctive competence what a company can do, or perform

better than competitors core capabilities

internal routines, processes, and culture that determine how efficiently inputs can be turned into outputs


Situational Analysis (SWOT)Environmental scanning

strategic groups a group of companies within an industry

that top managers choose to compare, evaluate, and benchmark strategic opportunities and threats

shadow-strategy task force a committee within the company that

analyzes the company’s own weaknesses to determine how competitors could exploit them


Strategic GroupsCore firms the central companies in a

strategic groupSecondary firms firms that follow related but

somewhat different strategies than do core firms


Choosing Strategic AlternativesStrategic reference points

targets used by managers to determine if the firm has a sustainable competitive advantage

Risk-avoiding strategy protects an existing competitive advantage

Risk-seeking advantage create or sustain a sustainable competitive

advantage


Strategic Reference Points

Exhibit 9.2


Learning Objectives:Corporate-, Industry-, & Firm-Level Strategies

After reading the next three sections, you should be able to:

3. explain the different kinds of corporate-level strategies4. describe the different kinds of industry-

level strategies5. explain the components and kinds of firm- level strategies


Corporate-Level StrategiesCorporate-level strategy

overall organizational strategy that addresses the question “What business are we in or should we be in?”

PortfolioStrategy

GrandStrategies


Portfolio Strategy Minimize risk by diversification Acquisition

purchase of a company by another company Unrelated diversification

creating or acquiring companies in completely unrelated businesses

BCG matrix Related diversification


Boston Consulting Group Matrix

Exhibit 9.4


Diversification and Risk There is a U-shaped relationship

between diversification and risk: Single businesses with no

diversification are extremely risky Competing in a variety of different

businesses can lower risk. Conglomerates composed of

completely unrelated businesses are riskier than undiversified companies.

Adapted from Exhibit 9.5


Grand Strategies

Growth Stability

Retrenchment Recovery


Industry-Level Strategies Industry-level strategy

overall organizational strategy that addresses the question “How should we compete in this industry?”

Five industry forces Positioning strategies Adaptive strategies


Porter’s Five Industry Forces Character of the rivalry Threat of new entrants Threat of substitute products or

services Bargaining power of suppliers Bargaining power of buyers


Positioning StrategiesCost leadership

producing a quality product or service at a price lower than competitors

Differentiation accentuating difference between a product

or service and those of competitorsFocus

Using cost leadership or differentiation for a specific target market


Adaptive StrategiesDefenders

seek growth retain customers

Prospectors seek fast growth encourage risk-

taking and innovation

Analyzers minimize risk and

maximize profit imitate proven

successes of prospectors

Reactors Inconsistent

strategy React to changes


Firm-Level Strategies Direct competition Strategic moves of direct

competition Entrepreneurship: A firm-level

strategy


Direct CompetitionDirect competition

rivalry between two firms that offer similar products and services that acknowledge each other as rivals and take offensive and defensive positions in response to each other

Two factors determine extent of competition: market commonality resource similarity


Strategic Moves of Direct CompetitionAttack

a competitive move designed to reduce a rival’s market

share or profitsResponse

a counter move to defend or improve a company’s

market share or profit


Attacks and Responses

Exhibit 9.8


Entrepreneurship: A Firm-Level StrategyEntrepreneurship

process of entering new or established markets with new goods or services

Entrepreneurial orientation set of processes, practices and decision-

making activities that lead to new entry characterized by autonomy,

innovativeness, risk-taking, proactiveness, and competitive aggressiveness


What Really Happened? Focused product lines Improved store network Removed costs from its structure Revenues, share price, and

operating earnings all increased