Copyright ©2008 Cengage Learning. All rights reserved 1 Chapter 6 Organizational Strategy Designed & Prepared by B-books, Ltd. MGMT 2008 Chuck Williams

Copyright ©2008 Cengage Learning. All rights reserved 2 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.

Copyright ©2008 Cengage Learning. All rights reserved 3 Sustainable Competitive Advantage 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 1 1

Copyright ©2008 Cengage Learning. All rights reserved 4 Requirements for Sustainable Competitive Advantage Sustainable Competitive Advantage Sustainable Competitive Advantage Valuable Resources Non- Substitutable Resources Imperfectly Imitable Resources Rare Resources 1 1

Copyright ©2008 Cengage Learning. All rights reserved 5 Strategy-Making Process Assess need for strategic change Conduct a Situational Analysis Choose Strategic Alternatives 2 2

Copyright ©2008 Cengage Learning. All rights reserved 6 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 2.1

Copyright ©2008 Cengage Learning. All rights reserved 7 Situational Analysis S S W W O O T T Strengths Weaknesses Opportunities Threats Internal External 2.2

Copyright ©2008 Cengage Learning. All rights reserved SWOT ANALYSIS Strengths and Weaknesses – internal assessment of the organization leading to management decisions. Opportunities and Threats – external assessment of the business environment to identify the uncontrollable events that might impact management decisions. © 2013 Cengage Learning. All rights reserved. © iStockphoto.com/photovideostock 8

Copyright ©2008 Cengage Learning. All rights reserved EADS Vs BAE company/What-we-do.htmlhttp:// company/What-we-do.html © 2013 Cengage Learning. All rights reserved. 9

Copyright ©2008 Cengage Learning. All rights reserved © 2013 Cengage Learning. All rights reserved. 10

Copyright ©2008 Cengage Learning. All rights reserved EADS BAE 38B Euro Merger -giant-approaching © 2013 Cengage Learning. All rights reserved. 11

Copyright ©2008 Cengage Learning. All rights reserved What is SWOT Analysis? The SWOT Analysis is an important strategic tool. It helps companies make sound strategic decisions by looking at their controllable/internal environment, look at the external/uncontrollable environment.

Copyright ©2008 Cengage Learning. All rights reserved Internal vs. External Environments In analyzing a company’s current strategic position, it is important to look at what the company has control of (the internal environment), and what it does not have control of (the external environment).

Copyright ©2008 Cengage Learning. All rights reserved The Internal Environment The Internal Environment of a company includes the things the company can control. These are the Strengths and Weaknesses. When you look at the these, look not only from the company’s point of view, but also from the point of view of outsiders. Be realistic in your assessment.

Copyright ©2008 Cengage Learning. All rights reserved Strengths Your strengths should cover: What do you do well? What advantages do you have? What resources do you have access to? What do others see as your strengths? This is a good starting point, but not a limiting point in your analysis of strengths.

Copyright ©2008 Cengage Learning. All rights reserved Weaknesses Your weaknesses should cover: What do you do badly? What are things that need improvement? What do you do that you should avoid? Again, this is a good starting point, but try to look beyond these questions in analyzing weaknesses.

Copyright ©2008 Cengage Learning. All rights reserved The External Environment The External Environment is everything that is outside of the company’s control. These are the Opportunities and Threats. 1.Legal 2.Political 3.Social 4.Economic 5.Technological 6.Global 7.Competitive 8.environmental

Copyright ©2008 Cengage Learning. All rights reserved Opportunities & Threats Opportunities- What elements of the external environment could benefit the company? Threats- What elements of the external environment could hurt to the company?

Copyright ©2008 Cengage Learning. All rights reserved What Next? Now that you have identified the company’s Strengths, Weaknesses, Opportunities, and Threats, it’s time to put them together and understand what they mean.

Copyright ©2008 Cengage Learning. All rights reserved Internal (Controllable) External (Uncontrollable) StrengthsOpportunities WeaknessThreats LEVERAGE Leverage Leverage is when a strength allows you to take advantage of an opportunity.

Copyright ©2008 Cengage Learning. All rights reserved Internal (Controllable) External (Uncontrollable) StrengthsOpportunities WeaknessThreats Constraint Constraint is when a weakness prevents you from taking advantage of an opportunity. CONSTRAINT

Copyright ©2008 Cengage Learning. All rights reserved Internal (Controllable) External (Uncontrollable) StrengthsOpportunities WeaknessThreats Vulnerability Vulnerability is when a threat attacks a strength. VULNERABILITY

Copyright ©2008 Cengage Learning. All rights reserved Internal (Controllable) External (Uncontrollable) StrengthsOpportunities WeaknessThreats Problem Problem is when a threat attacks a weakness. PROBLEM

Copyright ©2008 Cengage Learning. All rights reserved Internal (Controllable) External (Uncontrollable) StrengthsOpportunities Weakness Threats LEVERAGE PROBLEM CONSTRAINTVULNERABILITY SWOT Analysis

Copyright ©2008 Cengage Learning. All rights reserved SWOT Analysis Once you have identified the Leverages, Constraints, Vulnerabilities, and Problems facing the company, you can make recommendations for the company to move forward and improve its market position.

Copyright ©2008 Cengage Learning. All rights reserved 26 HP Tops Dell In PC Sales HP surpassed Dell as the world’s leader in personal computer sales. HP could not compete with Dell for phone and internet sales. HP focused on sales through retail stores, where Dell had no presence. Source: Lawton, C “How HP Reclaimed Its PC Lead Over Dell.” The Wall Street Journal. June 4, pg.A1. Beyond the Book

Copyright ©2008 Cengage Learning. All rights reserved 27 Situational Analysis Strengths Weaknesses Distinctive Competence Core Capability INTERNALINTERNAL Opportunities Threats Environmental Scanning Strategic Groups Shadow-Strategy Task Force EXTERNALEXTERNAL 2.2

Copyright ©2008 Cengage Learning. All rights reserved 28 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

Copyright ©2008 Cengage Learning. All rights reserved 29 Tim Horton’s Competes with Dunkin’ Donuts on U.S. Soil Tim Horton’s currently claims 76% of the Canadian coffee and baked-goods market. Horton’s has met stiff competition from Dunkin’ Donuts as it expands into the U.S. market. Horton’s is best known for its coffee and offers it cheaper than Dunkin’. Beyond the Book Source: Belkin, D. “A Canadian Icon Turns Its Glaze Southward.” The Wall Street Journal. May 14, pg.B1.

Copyright ©2008 Cengage Learning. All rights reserved 30 Strategic Groups 2.2

Copyright ©2008 Cengage Learning. All rights reserved 31 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

Copyright ©2008 Cengage Learning. All rights reserved 32 Menard’s: Risk Seeking

Copyright ©2008 Cengage Learning. All rights reserved 33 Strategic Reference Points 2.3

Copyright ©2008 Cengage Learning. All rights reserved 34 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.

Copyright ©2008 Cengage Learning. All rights reserved 35 Corporate-Level Strategies 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?” 3 3

Copyright ©2008 Cengage Learning. All rights reserved 36 Corporate-Level Strategies  Acquisitions, unrelated diversification, related diversification, single businesses  BCG Matrix  Stars  Question marks  Cash cows  Dogs  Acquisitions, unrelated diversification, related diversification, single businesses  BCG Matrix  Stars  Question marks  Cash cows  Dogs PORTFOLIO STRATEGY  Growth  Stability  Retrenchment/ recovery  Growth  Stability  Retrenchment/ recovery GRAND STRATEGIES 3 3

Copyright ©2008 Cengage Learning. All rights reserved 37 Pepsi Releases New Health Beverages PepsiCo Inc. plans to release new health and water-based beverages. Pepsi is working to halt slumping sales of its Gatorade brand and combat increased competition from rival Coca-Cola. Pepsi is making efforts to offer healthier products. Source: McKay, Betsy. “Pepsi to Pump Up Water Brands.” The Wall Street Journal. July 25, pg.B2. Beyond the Book

Copyright ©2008 Cengage Learning. All rights reserved 38 BCG Matrix Relative Market Share Market Growth SmallLarge Low High Question Marks Stars Dogs Cash Cows 3.1

Copyright ©2008 Cengage Learning. All rights reserved 39 BCG Matrix companies with a small share of a fast-growing market Question Marks companies with a large share of a fast-growing market StarsStars companies with a small share of a slow-growing market DogsDogs companies with a large share of a slow-growing market CashCowsCashCows 3.1

Copyright ©2008 Cengage Learning. All rights reserved 40 BCG Matrix Relative Market Share Market Growth 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

Copyright ©2008 Cengage Learning. All rights reserved 41 Diversification and RiskRisk Low High Single Business Related Diversification Unrelated Diversification Relationship Between Diversification and Risk 3.1

Copyright ©2008 Cengage Learning. All rights reserved 42 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 defense themselves from threats. Being labeled a “cash cow” can hurt employee morale. Companies often overpay to acquire stars. –Ex: Ford bought LR & Jag for 2.8B & 2.4B and sold to Tata Motors for $2.3 (loss $3B) Acquiring firms often treat stars as “conquered foes.”

Copyright ©2008 Cengage Learning. All rights reserved 43 Grand Strategies 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 the company sells the same products or services to the same customers focuses on improving the way 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 3.2

Copyright ©2008 Cengage Learning. All rights reserved 44 Nestle Cuts Brands Nestle has a new strategy to cut unproductive brands and simplify its organization. Last year the company was producing 130,000 brand variations, and 30 percent weren’t making money. Last year Nestle cut 50 of its world-wide subsidiaries. While Nestle has outpaced competition in sales but still lags in profit margins. Source: Ball, Deborah. “After Buying Binge, Nestle Goes on a Diet.” The Wall Street Journal. July 23, pg.A1. Beyond the Book

Copyright ©2008 Cengage Learning. All rights reserved 45 Industry-Level Strategies Five Industry Forces Positioning Strategies Positioning Strategies Adaptive Strategies 4 4

Copyright ©2008 Cengage Learning. All rights reserved 46 Porter’s Five Industry Forces Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Substitutes Threat of Substitutes Threats of New Entrants Character of Rivalry Character of Rivalry 4.1

Copyright ©2008 Cengage Learning. All rights reserved 47 Supermarket Chains Compete through Differentiation Supermarket chains, such as Kroger and Safeway, have struggled to compete with low prices at Wal-Mart Supercenters. Supermarkets are working to offer a more convenient shopping experience. These chains are regaining customers with specialty and difficult to find items. Source: McWilliams, G “Not Copying Wal-Mart Pays Off for Grocers.” The Wall Street Journal. June 6, pg.B1. Beyond the Book

Copyright ©2008 Cengage Learning. All rights reserved 48 Positioning Strategies Cost Leadership Differentiation Focus Strategy 4.2

Copyright ©2008 Cengage Learning. All rights reserved 49 Differentiation

Copyright ©2008 Cengage Learning. All rights reserved 50 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 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 4.3

Copyright ©2008 Cengage Learning. All rights reserved 51 Firm-Level Strategies Basics of Direct Competition Strategic Moves in Direct Competition Strategic Moves in Direct Competition Entrepreneurship 5 5

Copyright ©2008 Cengage Learning. All rights reserved 52 Firm-Level Strategies DIRECT COMPETITION Market commonality Resource similarity STRATEGIC MOVES OF DIRECT COMP. ENTREPRENEURIAL INTRAPRENEURIAL ORIENTATION Attack Autonomy Response Innovativeness Risk taking Proactiveness Competitive Aggressiveness 5 5

Copyright ©2008 Cengage Learning. All rights reserved 53 Firm-Level Strategies Market Commonality Resource 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 5 5

Copyright ©2008 Cengage Learning. All rights reserved 54 Direct Competition Resource Similarity LowHigh Low Market Commonality III IIIIV McDonald’s Burger King Wendy’s Luby’s Cafeteria Subway 5.1

Copyright ©2008 Cengage Learning. All rights reserved 55 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. 5.2

Copyright ©2008 Cengage Learning. All rights reserved 56 Strategic Moves of Direct Competition Types of Responses 1. Match or mirror your competitor’s move. 2. Respond along a different dimension from your competitor’s move or attack. 5.2

Copyright ©2008 Cengage Learning. All rights reserved 57 Strategic Moves of Direct Competition 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 5.2

Copyright ©2008 Cengage Learning. All rights reserved 58 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

Copyright ©2008 Cengage Learning. All rights reserved 59 Key Dimensions of Entrepreneurial Orientation Risk Taking Autonomy Innovativeness Proactiveness Competitive Aggressiveness Beyond the Book

Copyright ©2008 Cengage Learning. All rights reserved 60 Entrepreneurship Beyond the Book