Chapter 6 – Organizational Strategy Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Learning Outcomes Specify the components of sustainable competitive advantage, and explain why it is important Describe the steps involved in the strategy- making process Explain the different kinds of corporate-level strategies Describe the different kinds of industry-level strategies Explain the components and kinds of firm- level strategies

Resources and Competitive Advantage LO 1 Resources: Assets, capabilities, processes, employee time, information, and knowledge used by an organization to: Improve its effectiveness and efficiency Create and sustain competitive advantage Competitive advantage: Providing greater value for customers than competitors can

Sustainable Advantage LO 1 Value provided by a firm that cannot be duplicated by other companies To achieve sustainable advantage, resources must be: Valuable Rare Imperfectly imitable Nonsubstitutable

Strategy-Making Process LO 2 Assessing the need for strategic change Conducting a situational analysis Choosing strategic alternatives

Assessing the Need for Strategic Change LO 2 Companies should avoid competitive inertia and look for strategic dissonance Competitive inertia: Reluctance to change strategies or competitive practices that have been successful in the past Strategic dissonance Discrepancy between a company’s intended strategy and the strategic actions taken by managers when implementing that strategy

Situational (SWOT) Analysis LO 2 Assessment of: Strengths and weaknesses in an organization’s internal environment Opportunities and threats in an organization’s external environment Involves: Assessing a company’s distinctive competencies and core capabilities Identifying strategic groups

Situational (SWOT) Analysis (continued) LO 2 Forming shadow-strategy task forces Shadow-strategy task force: Committee that analyzes a company’s own weaknesses to determine how they could be exploited

Categorization of Companies within a Strategic Group LO 2 Central companies in a strategic group Core firms Firms that follow strategies related to but somewhat different from those of the core firms Secondary firms

Strategic Reference Point Theory LO 2 Managers should either choose a risk-avoiding strategy or a risk-seeking strategy Decision is based on whether the company falls above or below strategic reference points Strategic reference points should be frequently revised to better focus on new challenges and opportunities

6.3 Strategic Reference Points LO 2 6.3 Strategic Reference Points

Approaches to Corporate-Level Strategy: Portfolio Strategy LO 3 Minimizes risk by diversifying investment Strategies Developing new businesses or looking for acquisitions Reducing risk through unrelated diversification Routing investments from mature, slow-growth businesses into newer, faster-growing businesses

6.4 Boston Consulting Group Matrix LO 3 6.4 Boston Consulting Group Matrix

6.5 Relationship between Diversification and Risk LO 3 6.5 Relationship between Diversification and Risk

Approaches to Corporate-Level Strategy: Grand Strategy LO 3 Helps an organization achieve its strategic goals Types Growth strategy: Focuses on increasing profits or market share Stability strategy: Focuses on improving the current sales strategy Retrenchment strategy: Focuses on turning around very poor company performance Recovery: Strategic actions taken after retrenchment to return to a growth strategy

Industry-Level Strategies LO 4 Porter’s five industry forces Positioning strategies Adaptive strategies

6.6 Porter’s Five Industry Forces LO 4 6.6 Porter’s Five Industry Forces

Positioning Strategies LO 4 Producing a product of acceptable quality at consistently lower production costs than competitors Cost leadership Providing a product or service that is different from competitors’ offerings that customers are willing to pay a premium price for it Differentiation Using cost leadership or differentiation to produce a specialized product or service for a specially targeted group of customers Focus strategy

Adaptive Strategies: Types LO 4 Defenders: Seek moderate, steady growth by offering a limited range of products and services to a well-defined set of customers Prospectors: Seek fast growth by: Searching for new market opportunities Encouraging risk taking Being the first to bring innovative new products to market

Adaptive Strategies: Types (continued) LO 4 Analyzers: Seek to minimize risk and maximize profits by imitating the proven successes of prospectors Reactors: React to changes in the external environment after they occur Do not follow a consistent adaptive strategy

Firm-Level Strategy LO 5 Direct competition: Rivalry between two companies that offer similar products and services Companies act and react to each other’s strategic actions Key factors Market commonality Resource similarity

6.7 A Framework of Direct Competition LO 5 6.7 A Framework of Direct Competition

Strategic Moves of Direct Competition LO 5 Attack Competitive move designed to reduce a rival’s market share or profits Response Competitive countermove to defend or improve a company’s market share or profit Types Mirroring the competitor’s move Responding with a different dimension from the competitor’s move or attack

Key Terms Resources Strategic dissonance Competitive advantage Sustainable competitive advantage Valuable resource Rare resource Imperfectly imitable resource Nonsubstitutable resource Competitive inertia Strategic dissonance Situational (SWOT) analysis Distinctive competence Core capabilities Strategic group Shadow-strategy task force Core firms Secondary firms Strategic reference points

Key Terms (continued 1) Corporate-level strategy Diversification Portfolio strategy Acquisition Unrelated diversification BCG matrix Star Question mark Cash cow Dog Related diversification Grand strategy Growth strategy Stability strategy Retrenchment strategy Recovery Industry-level strategy Character of the rivalry Threat of new entrants Threat of substitute products or services

Key Terms (continued 2) Bargaining power of suppliers Bargaining power of buyers Cost leadership Differentiation Focus strategy Defenders Prospectors Analyzers Reactors Firm-level strategy Direct competition Market commonality Resource similarity Attack Response

Types of strategies undertaken by organizations Summary Firms can achieve sustainable competitive advantage if their resources are valuable, rare, imperfectly imitable, and nonsubstitutable Types of strategies undertaken by organizations Corporate-level strategy Industry-level strategy Firm-level strategy