Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 1 CHAPTER NINE CHAPTER NINE Management 3rd Edition Chuck Williams Organizational Strategy Prepared by Deborah Baker Texas Christian University

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 2 CHAPTER NINE What Would You Do? You are in charge of IKEA Design Company…  The furniture industry is highly fragmented and IKEA has turned this into opportunities  Scandinavian strategies include low prices and convenient packaging Will the strategies work on a global basis? How can IKEA identify opportunities and threats, and select a competitive advantage strategy?

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 3 CHAPTER NINE 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 important. 2.describe the steps involved in the strategy-making process.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 4 CHAPTER NINE Sustainable Competitive Advantage 1 Resources The assets, capabilities, processes, information, and knowledge that the organization controls The assets, capabilities, processes, information, and knowledge that the organization controls Competitive Advantage Providing greater value for customers than competitors can Sustainable Competitive Advantage Sustainable Competitive Advantage A competitive advantage that other companies have tried unsuccessfully to duplicate

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 5 CHAPTER NINE Requirements for Sustainable Competitive Advantage 1 Sustainable Competitive Advantage Sustainable Competitive Advantage Valuable Resources Non- Substitutable Resources Imperfectly Imitable Resources Rare Resources Adapted from Exhibit 9.1

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 6 CHAPTER NINE Strategy-Making Process 2 Assess need for strategic change Conduct a Situational Analysis Choose Strategic Alternatives 123

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 7 CHAPTER NINE Assessing the Need for Strategic Change 2.1  Competitive Inertia  a reluctance to change strategies or competitive practices that have been successful  Strategic Dissonance  discrepancy between top management’s intended strategy and the actual strategy implemented by lower management

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 8 CHAPTER NINE What Really Works Strategy Making for Firms 2.1 Strategic Planning & Profits for Big Companies 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success72% Strategy Making for Big Firms 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success75% More Strategic Planning & Growth for Big Companies

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 9 CHAPTER NINE What Really Works Strategy Making for Firms 2.1 Strategic Planning & Profits for Small Companies 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success61% Strategy Making for Small Firms 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Strategic Planning & Growth for Big Companies probability of success62%

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 10 CHAPTER NINE Situational Analysis 2.2 S S W W O O T T Strengths Weaknesses Opportunities Threats Internal External

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 11 CHAPTER NINE Situational Analysis 2.2 Strengths Weaknesses Distinctive Competence Core Capability Opportunities Threats Environmental Scanning Strategic Groups Shadow-Strategy Task Force INTERNALINTERNAL EXTERNALEXTERNAL Adapted from Exhibit 9.4

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 12 CHAPTER NINE Strategic Groups 2.2  Core Firms  central companies in a strategic group  Secondary Firms  firms that follow related, but somewhat different, strategies than do core firms  Transient Firms  companies whose strategies change from one strategic position to another  Shadow-strategy task force  seeks out its own company’s weaknesses and determine how other companies could exploit them

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 13 CHAPTER NINE Strategic Groups 2.2 Gannett Tribune Co. Knight Ridder Dow Jones New York Times Newspapers Newspapers TV Stations TV Stations Web Sites Web Sites Other Other Adapted from Exhibit 9.5

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 14 CHAPTER NINE Choosing Strategic Alternatives 2.3  Risk-Avoiding Strategy  protect a competitive advantage  Risk-Seeking Strategy  create a sustainable competitive advantage  Strategic Reference Points  targets used by managers to determine if the firm has a sustained competitive advantage

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 15 CHAPTER NINE Strategic Reference Points 2.3 Adapted from Exhibit 9.6

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 16 CHAPTER NINE Corporate, Industry, and Firm-Level Strategies After reading the next three 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.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 17 CHAPTER NINE Corporate-Level Strategies 3 Corporate-Level Strategy Corporate-Level Strategy The overall organizational strategy that addresses the question “What business(es) are we in or should we be in?” The overall organizational strategy that addresses the question “What business(es) are we in or should we be in?” Portfolio Strategy Grand Strategies Grand Strategies

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 18 CHAPTER NINE Portfolio Strategy 3.1  Portfolio Strategy  Reduce risk by diversification  Acquisitions  the company purchases another company  Unrelated diversification  creating or acquiring companies in completely unrelated businesses  Boston Consulting Group (BCG Matrix)

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 19 CHAPTER NINE Blast From The Past Five Decades of Diversification Strategies s-1960s 1970s 1980s 1990s 2000s Conglomerates and General Management Skills Conglomerates and General Management Skills Corporate Strategy and Portfolio Planning Restructuring and Value-Based Planning Synergy and “Core” Portfolios Too early to tell

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 20 CHAPTER NINE BCG Matrix 3.1 Relative Market Share Market Growth Rate SmallLarge Low High Question Marks Stars Dogs Cash Cows

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 21 CHAPTER NINE BCG Matrix 3.1 companies with a small share of a fast-growing market companies with a large share of a fast-growing market companies with a small share of a slow-growing market companies with a large share of a slow-growing market Question Marks StarsStars DogsDogs CashCowsCashCows

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 22 CHAPTER NINE BCG Matrix 3.1 Relative Market Share Market Growth Rate SmallLarge Low High Question Marks Company A Company B Stars Company C Company D Dogs Company H Company G Cash Cows Company F Company E    Adapted from Exhibit 9.8

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 23 CHAPTER NINE Diversification Strategies 3.1 Risk Low High Single Business Related Diversification Unrelated Diversification Adapted from Exhibit 9.9

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 24 CHAPTER NINE Grand Strategies 3.2 Growth Strategy focuses on increasing profits, revenues, market share, or number of places to do business Stability Strategy Stability Strategy focuses on improving the way in which the company sells the same products or services to the same customers focuses on improving the way in which the company sells the same products or services to the same customers Retrenchment Strategy focuses on turning around very poor company performance by shrinking the size or scope of the business focuses on turning around very poor company performance by shrinking the size or scope of the business

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 25 CHAPTER NINE Been There Done That  easyGroup owns easyJet, easyInternetcafes, and easyCar  Strategy is a portfolio of investments  Company model is based on having fixed costs and few variable costs, and booking online to increase efficiency Related Diversification at easyGroup

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 26 CHAPTER NINE Industry-Level Strategies 4 Five Industry Forces Positioning Strategies Positioning Strategies Adaptive Strategies How should we compete in this industry?

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 27 CHAPTER NINE Five Industry Forces 4.1 Adapted from Exhibit 9.12 Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Substitutes Threat of Substitutes Threats of New Entrants Character of Rivalry Character of Rivalry

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 28 CHAPTER NINE Positioning Strategies 4.2 Cost Leadership Differentiation Focus Strategy

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 29 CHAPTER NINE Adaptive Strategies 4.3 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 other’s successes Analyzers  blend of defender & prospector strategies  imitate other’s successes Reactors  use an inconsistent strategy  respond to changes Reactors  use an inconsistent strategy  respond to changes

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 30 CHAPTER NINE Firm-Level Strategies 5 Basics of Direct Competition Strategic Moves in Direct Competition Strategic Moves in Direct Competition Entrepreneurship and Intrapreneurship How should we compete against a particular firm?

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 31 CHAPTER NINE Direct Competition 5.1 Adapted from Exhibit 9.13 DIRECT COMPETITION Market commonality Resource similarity STRATEGIC MOVES OF DIRECT COMP. ENTREPRENEURIAL INTRAPRENEURIAL ORIENTATION Attack Autonomy Response Innovativeness Risk taking Proactiveness Competitive Aggressiveness

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 32 CHAPTER NINE Direct Competition 5.1 Resource Similarity LowHigh Low Market Commodity III IIIIV Adapted from Exhibit 9.14

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 33 CHAPTER NINE Strategic Moves of Direct Competition 5.2  Attack  a competitive move  designed to reduce a rival’s market share or profits  Response  a countermove  designed to protect a company’s market share or profits

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 34 CHAPTER NINE Strategic Moves of Direct Competition 5.2 Competitor Analysis Interfirm Rivalry: Action & 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 Adapted from Exhibit 9.15

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 35 CHAPTER NINE Entrepreneurship and Intrapreneurship 5.3  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

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 36 CHAPTER NINE Key Dimensions of Entrepreneurial Orientation 5.3 Risk Taking Autonomy Innovativeness Proactiveness Competitive Aggressiveness

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 37 CHAPTER NINE What Would You Do—II? Kmart  Kmart is operating in the red, despite reorganization efforts and earlier bankruptcy protection  Kmart faces fierce competition and has tried to be too many things to too many people What strategic direction does Kmart need? How can Kmart create sustainable competitive advantage? What would you do?