Chapter 6Organizational Strategy

© 2015 Cengage Learning MGMT7

© 2015 Cengage Learning

6-1 specify the components of sustainable competitive advantage and explain why it’s important

6-2 describe the steps involved in the strategy-making process

6-3 explain the different kinds of corporate-level strategies

6-4 describe the different kinds of industry-level strategies

6-5 explain the components and kinds of firm-level strategies

Competitive Advantage

• Resources– assets, capabilities, processes, employee

time, information, and knowledge that an organization controls.

• Competitive advantage– providing greater value for customers than

competitors can

• Sustainable competitive advantage– when other companies cannot duplicate the

value a firm is providing to customers

© 2015 Cengage Learning6-1

Sustainable Competitive Advantage

Resources must be…• Valuable• Rare• Imperfectly imitable• Nonsubstitutable

© 2015 Cengage Learning6-1

Three Steps of the Strategy-Making Process

© 2015 Cengage Learning 6-2

Assess

• Difficult because there is a lot of uncertainty in business.

• Also, top managers are often slow to recognize the need for strategic change. – competitive inertia

• Managers must be aware of strategic dissonance.

© 2015 Cengage Learning6-2

Situational Analysis

• Strengths

• Weaknesses

• Opportunities

• Threats

© 2015 Cengage Learning 6-2

Internal Analysis

• Distinctive competence– something that a company can make,

do, or perform better than competitors

• Core capabilities– less visible, internal decision-making

routines, problem-solving processes, and organizational cultures that determine how efficiently inputs can be turned into outputs

© 2015 Cengage Learning 6-2

Looking Outside• Environmental scanning• Strategic group

– group of companies within an industry that top managers choose to compare, evaluate, and benchmark strategic threats and opportunities

• Core firms– central companies in a strategic group

• Secondary firms– firms that use strategies related to but somewhat

different from those of core firms

© 2015 Cengage Learning 6-2

Choosing Strategic Alternatives

• Risk-avoiding strategy

• Risk-seeking strategy

© 2015 Cengage Learning 6-2

Strategic Reference Points

© 2015 Cengage Learning 6-2

Corporate Level Strategy

“What business or businesses are we in or should we be in?”

© 2015 Cengage Learning 6-3

Portfolio Strategy

A corporate-level strategy that minimizes risk by diversifying

investment among various businesses or product lines.

Companies can grow through:•acquisitions•unrelated diversification

© 2015 Cengage Learning6-3

Boston Consulting Group Matrix

6-3© 2015 Cengage Learning

U-Shaped Relationship between Diversification and Risk

6-3© 2015 Cengage Learning

Grand Strategies

Broad strategic plans used to help an organization achieve its strategic goals

•Growth strategy•Stability strategy•Retrenchment strategy

– make significant cuts– recovery

© 2015 Cengage Learning6-3

Industry-Level Strategies

“How should we compete in this industry?”

© 2015 Cengage Learning 6-4

Porter’s Five Industry Forces

© 2015 Cengage Learning 6-4

Positioning Strategies

• Cost leadership

• Differentiation

• Focus

© 2015 Cengage Learning6-4

Adaptive Strategies

• Defenders

• Prospectors

• Analyzers

• Reactors

© 2015 Cengage Learning 6-4

Firm-Level Strategies

“How should we compete against a particular firm?”

© 2015 Cengage Learning 6-4

Direct Competition

The rivalry between two companies offering similar products or services that

acknowledge each other as rivals and take offensive and defensive positions as they

act and react to each other’s strategic actions.

•Market commonality

•Resource similarity© 2015 Cengage Learning 6-5

A Framework of Direct Competition

© 2015 Cengage Learning 6-5

Strategic Moves of Direct Competition

• Attack– a competitive move designed to

reduce a rival’s market share or profits

• Response– a countermove, prompted by a rival’s

attack, designed to defend or improve a company’s market share or profit

© 2015 Cengage Learning6-5

<click screenshot for video>

Theo Chocolate

1. Evaluate Theo’s new strategy in light of the company’s strengths, weaknesses, opportunities, and threats.

2. Using the BCG Matrix, explain Theo’s decision to offer a classic line of chocolate bars after having limited success with Fantasy Flavor chocolates.

3. Which of the three competitive strategies—differentiation, cost leadership, or focus—do you think is right for Theo Chocolate? Explain.

© 2015 Cengage Learning