Chapter 6 Organizational Strategy

Copyright ©2011 by Cengage Learning. All rights reserved

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Chapter 6Organizational Strategy

Designed & Prepared byB-books, Ltd.

MGMT3

Chuck Williams


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Sustainable Competitive Advantage

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

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

Competitive Advantage

Competitive Advantage

Providing greater value for customersthan competitors can

Providing greater value for customersthan competitors can

SustainableCompetitiveAdvantage


A competitive advantage that othercompanies have tried unsuccessfullyto duplicate

A competitive advantage that othercompanies have tried unsuccessfullyto duplicate

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3

Requirements for Sustainable Competitive Advantage



ValuableResources

ValuableResources

Non-Substitutable

Resources

Non-Substitutable

Resources

ImperfectlyImitable

Resources

ImperfectlyImitable

Resources

RareResources

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

2.12.1


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Situational Analysis

SS

WW

O O

TT

StrengthsStrengths

WeaknessesWeaknesses

Opportunities Opportunities

ThreatsThreats

InternalInternal

ExternalExternal

2.22.2


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Situational Analysis

StrengthsStrengths

WeaknessesWeaknesses

•Distinctive Competence

•Core Capability

INTERNAL

OpportunitiesOpportunities

ThreatsThreats

•Environmental Scanning

•Strategic Groups

EXTERNAL

2.22.2


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Strategic Groups

• Core Firms• central companies in a strategic group

• Secondary Firms• firms in a strategic group that follow strategies

related to but somewhat different from those of the core firms

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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

2.32.3


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Corporate-Level Strategies

Corporate-LevelStrategy

Corporate-LevelStrategy

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

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

Acquisitions, unrelated diversification, related diversification, single businesses

BCG MatrixStarsQuestion marksCash cowsDogs

PORTFOLIO STRATEGY

Growth

Stability

Retrenchment/recovery

Growth

Stability

Retrenchment/recovery

GRAND STRATEGIES

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BCG Matrix

Relative Market ShareRelative Market Share

Mar

ket

Gro

wth

Mar

ket

Gro

wth

Small Large

Low

High Question MarksQuestion Marks StarsStars

DogsDogs Cash CowsCash Cows

3.13.1


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BCG Matrix

companies with a small share of a fast-growing market

companies with a small share of a fast-growing market

QuestionQuestionMarksMarks

QuestionQuestionMarksMarks

companies with a large share of a fast-growing market

companies with a large share of a fast-growing marketStarsStarsStarsStars

companies with a small share of a slow-growing market

companies with a small share of a slow-growing marketDogsDogsDogsDogs

companies with a large share of a slow-growing market

companies with a large share of a slow-growing market

CashCashCowsCows

CashCashCowsCows

3.13.1


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BCG Matrix

Relative Market ShareRelative Market Share

Mar

ket

Gro

wth

Mar

ket

Gro

wth

Small Large

Low

High Question MarksQuestion Marks

Company A

Company B

StarsStarsCompany C

Company D

DogsDogs

Company H

Company G

Cash CowsCash Cows

Company F

Company E

Adapted from Exhibit 6.3

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Diversification and Risk R

isk

Ris

k

Low

High

SingleBusiness

RelatedDiversification

UnrelatedDiversification

Relationship BetweenRelationship BetweenDiversification and RiskDiversification and Risk

3.13.1


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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 Strategies

GrowthStrategy

GrowthStrategy

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

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

StabilityStrategy

StabilityStrategy

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

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

RetrenchmentStrategy

RetrenchmentStrategy

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

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

Five Industry Forces Positioning

Strategies

PositioningStrategies Adaptive

Strategies

AdaptiveStrategies

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Porter’s Five Industry Forces

BargainingPower ofSuppliers

BargainingPower ofSuppliers

BargainingPower ofBuyers

BargainingPower ofBuyers

Threat ofSubstitutes

Threat ofSubstitutes

Threats ofNew Entrants

Threats ofNew Entrants

Character of

Rivalry

Character of

Rivalry

4.14.1


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Positioning Strategies

Cost LeadershipCost Leadership

DifferentiationDifferentiation

Focus StrategyFocus Strategy

4.24.2


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Adaptive Strategies

Defenders

seek moderate growth

retain customers

Defenders

seek moderate growth

retain customers

Prospectors

seek fast growth

emphasize risk-taking& innovation

Prospectors

seek fast growth

emphasize risk-taking& innovation

Analyzers

blend of defender &prospector strategies

imitate others’ successes

Analyzers

blend of defender &prospector strategies

imitate others’ successes

Reactors

use an inconsistent strategy

respond to changes

Reactors

use an inconsistent strategy

respond to changes

4.34.3


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Firm-Level Strategies

Basics ofDirect

Competition

Basics ofDirect

CompetitionStrategic Moves

inDirect

Competition

Strategic Moves in

Direct Competition

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Firm-Level Strategies

DIRECTCOMPETITION

Market commonalityMarket commonality

Resource similarityResource similarity

STRATEGICMOVES OF

DIRECT COMP.

AttackAttack

ResponseResponse

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Firm-Level StrategiesMarket CommonalityResource Similarity

Entering market is most forceful attack.Exiting market is clear defensive signal of retreat.Entrepreneurship is strategy of entering established markets or developing new market.

Firm A Firm B

Attack

Response

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Direct Competition

Resource SimilarityResource Similarity

Low High

High

Low

Mar

ket

Co

mm

on

alit

yM

arke

t C

om

mo

nal

ity

III

III IV

McDonald’sMcDonald’s

McDonald’sMcDonald’s

BurgerKing

Wendy’s

Luby’s Cafeteria Subway

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Strategic Moves of Direct Competition

Attack

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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Types of ResponsesTypes of Responses

1. Match or mirror your competitor’s move.1. Match or mirror your competitor’s move.

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

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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 Commonality

Less Likelihood of a Response

Low Resource Commonality

Greater Likelihood of a Response

5.25.2

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Chapter 6 Organizational Strategy