chapter 6 organizational strategy

Copyright ©2008 Cengage Learning. All rights reserved

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Chapter 6Organizational Strategy

Designed & Prepared byB-books, Ltd.

MGMT

Chuck Williams


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Basics of Organizational Strategy

After reading these sections, you should be able to:

1. indicate the components of sustainable competitive advantage and explain why it is important.

2. describe the steps involved in the strategy-making process.


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Sustainable Competitive Advantage

ResourcesThe assets, capabilities, processes,information, and knowledge that theorganization controls

Competitive Advantage

Providing greater value for customersthan competitors can

SustainableCompetitiveAdvantage

A competitive advantage that othercompanies have tried unsuccessfullyto duplicate

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Requirements for Sustainable Competitive Advantage

SustainableCompetitiveAdvantage

ValuableResources

Non-Substitutable

Resources

ImperfectlyImitable

Resources

RareResources

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Strategy-Making Process

Assess need for

strategic change

Conduct aSituational

Analysis

ChooseStrategic

Alternatives

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Assessing the Need for Strategic Change

1. Avoid Competitive Inertia a reluctance to change strategies or competitive

practices that have been successful in the past

2. Look for Strategic Dissonance a discrepancy between a company’s intended strategy

and the strategic actions managers take when implementing that strategy

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Situational AnalysisS

W

O

T

Strengths

Weaknesses

Opportunities

Threats

InternalInternal

ExternalExternal

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Situational Analysis

StrengthsStrengths

WeaknessesWeaknesses

•Distinctive Competence

•Core Capability

INTERNAL

OpportunitiesOpportunities

ThreatsThreats

•Environmental Scanning

•Strategic Groups

EXTERNAL

2.2


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Strategic Groups• Core Firms

• central companies in a strategic group• Secondary Firms

• firms that follow related, but somewhat different, strategies than do core firms

2.2


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Choosing Strategic Alternatives• Risk-Avoiding Strategy

– protect an existing competitive advantage

• Risk-Seeking Strategy– extend or create a sustainable

competitive advantage• Strategic Reference Points

– targets used by managers to determine if the firm has developed the core competencies it needs to achieve a sustainable competitive advantage

2.3


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Strategic Reference Points

2.3


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Corporate, Industry, and Firm-Level Strategies

After reading these sections, you should be able to:

3. explain the different kinds of corporate-level strategies.

4. describe the different kinds of industry-level strategies.

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


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Corporate-Level Strategies

Corporate-LevelStrategy

The overall organizational strategythat addresses the question “What business(es) are we in or should webe in?”

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Corporate-Level Strategies

Acquisitions, unrelated diversification, related diversification, single businesses

BCG MatrixStarsQuestion marksCash cowsDogs

PORTFOLIO STRATEGY

Growth

Stability

Retrenchment/recovery

GRAND STRATEGIES

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BCG Matrix

Relative Market ShareRelative Market Share

Mar

ket G

row

thM

arke

t Gro

wth

Small Large

Low

High Question MarksQuestion Marks StarsStars

DogsDogs Cash CowsCash Cows

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BCG Matrix

companies with a small share of a fast-growing market

QuestionQuestionMarksMarks

companies with a large share of a fast-growing marketStarsStars

companies with a small share of a slow-growing marketDogsDogs

companies with a large share of a slow-growing market

CashCashCowsCows

3.1


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BCG Matrix

Relative Market ShareRelative Market Share

Mar

ket G

row

thM

arke

t Gro

wth

Small Large

Low

High Question MarksQuestion MarksCompany A

Company B

StarsStarsCompany C

Company D

DogsDogs

Company H

Company G

Cash CowsCash CowsCompany F

Company E

Adapted from Exhibit 6.3

3.1


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Diversification and Risk R

isk

Ris

k

Low

High

SingleBusiness

RelatedDiversification

UnrelatedDiversification

Relationship BetweenRelationship BetweenDiversification and RiskDiversification and Risk

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Problems with Portfolio Strategy• Unrelated diversification does not reduce risk.

• Present performance is used to predict future performance.

• Cash cows fail to aggressively pursue opportunities and defend themselves from threats.

• Being labeled a “cash cow” can hurt employee morale.

• Companies often overpay to acquire stars.

• Acquiring firms often treat stars as “conquered foes.”


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Grand StrategiesGrowthStrategy

focuses on increasing profits, revenues, market share, or numberof places to do business

StabilityStrategy

focuses on improving the way the company sells the same productsor services to the same customers

RetrenchmentStrategy

focuses on turning around very poorcompany performance by shrinkingthe size or scope of the business

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Industry-Level Strategies

Five Industry Forces Positioning

Strategies AdaptiveStrategies

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Porter’s Five Industry Forces

BargainingPower ofSuppliers

BargainingPower ofBuyers

Threat ofSubstitutes

Threats ofNew Entrants

Character of

Rivalry

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Positioning Strategies

Cost Leadership

Differentiation

Focus Strategy

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Differentiation


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Adaptive StrategiesDefenders

seek moderate growth retain customers

Prospectors

seek fast growth emphasize risk-taking

& innovation

Analyzers blend of defender &

prospector strategies imitate others’

successes

Reactors use an inconsistent

strategy respond to changes

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Firm-Level Strategies

Basics ofDirect

CompetitionStrategic Moves

inDirect

CompetitionEntrepreneurship

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Firm-Level StrategiesDIRECT

COMPETITION

Market commonality

Resource similarity

STRATEGICMOVES OF

DIRECT COMP.

ENTREPRENEURIALINTRAPRENEURIAL

ORIENTATION

Attack Autonomy

Response Innovativeness

Risk taking

Proactiveness

CompetitiveAggressiveness

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Direct Competition

Resource SimilarityResource SimilarityLow High

High

Low

Mar

ket C

omm

onal

ityM

arke

t Com

mon

ality

III

III IV

McDonald’sMcDonald’s

McDonald’sMcDonald’s

BurgerKing

Wendy’s

Luby’s Cafeteria Subway

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Strategic Moves of Direct CompetitionAttack

A competitive move designed to reduce a rival’s market share or profits.

Response

A competitive countermove, prompted by a rival’s attack, to defend or improve a company’s market share or profit.

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Strategic Moves of Direct Competition

Types of Responses

1. Match or mirror your competitor’s move.

2. Respond along a different dimension fromyour competitor’s move or attack.

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Strategic Moves of Direct Competition

Competitor AnalysisCompetitor Analysis Interfirm Rivalry:Interfirm Rivalry:Action & ResponseAction & Response

Strong Market Commonality

Less Likelihood of an Attack

Weak Market Commonality

Greater Likelihood of an Attack

Strong Resource Similarity

Less Likelihood of a Response

Low Resource Similarity Greater Likelihood

of a Response5.2


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Entrepreneurship• Entrepreneurship

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

• Intrapreneurship– entrepreneurship within an

existing organization

• Entrepreneurial orientation– the set of processes, practices, and decision-making

activities that lead to new entry

Beyond the Book


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Key Dimensions of Entrepreneurial Orientation

Risk Taking

Autonomy

Innovativeness

Proactiveness

CompetitiveAggressiveness

Beyond the Book

chapter 6 organizational strategy

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