Copyright ©2008 Cengage Learning. All rights reserved 1 Chapter 6 Organizational Strategy Designed & Prepared by B-books, Ltd. MGMT 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 8 Situational Analysis Strengths Weaknesses Distinctive Competence Core Capability INTERNALINTERNAL Opportunities Threats Environmental Scanning Strategic Groups EXTERNALEXTERNAL 2.2

Copyright ©2008 Cengage Learning. All rights reserved 9 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 10 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 11 Strategic Reference Points 2.3

Copyright ©2008 Cengage Learning. All rights reserved 12 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 13 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 14 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 15 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 16 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 17 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 18 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 19 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.”

Copyright ©2008 Cengage Learning. All rights reserved 20 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 21 Industry-Level Strategies Five Industry Forces Positioning Strategies Positioning Strategies Adaptive Strategies 4 4

Copyright ©2008 Cengage Learning. All rights reserved 22 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 23 Positioning Strategies Cost Leadership Differentiation Focus Strategy 4.2

Copyright ©2008 Cengage Learning. All rights reserved 24 Differentiation

Copyright ©2008 Cengage Learning. All rights reserved 25 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 4.3

Copyright ©2008 Cengage Learning. All rights reserved 26 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 27 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 28 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 29 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 30 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 31 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 Similarity Less Likelihood of a Response Low Resource Similarity Greater Likelihood of a Response 5.2

Copyright ©2008 Cengage Learning. All rights reserved 32 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 33 Key Dimensions of Entrepreneurial Orientation Risk Taking Autonomy Innovativeness Proactiveness Competitive Aggressiveness Beyond the Book