©2008 by Nelson, a division of Thomson Canada Limited 1 Management Second Canadian Edition Chuck Williams Alex Z. Kondra Conor Vibert Slides Prepared by: Kerry Rempel, Okanagan College

©2008 by Nelson, a division of Thomson Canada Limited 2 Chapter 9 Organizational Strategy

©2008 by Nelson, a division of Thomson Canada Limited 3 What Would You Do? The wine industry in Canada is fledgling, but growing Grape production was a new venture for Nova Scotia The VQA standards were just being introduced If you were Hanspeter Stutz, how would you proceed?

©2008 by Nelson, a division of Thomson Canada Limited 4 Learning Objectives: 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

©2008 by Nelson, a division of Thomson Canada Limited 5 Sustainable Competitive Advantage Resources assets, capabilities, process, information, and knowledge Competitive advantage providing greater value for customers than competitors can Sustainable competitive advantage when other companies have tried unsuccessfully to duplicate, and have, for the moment, stopped trying to duplicate

©2008 by Nelson, a division of Thomson Canada Limited 6 Achieving a Sustainable Competitive Advantage Resources must be: ValuableRare Imperfectly imitableNon-substitutable

©2008 by Nelson, a division of Thomson Canada Limited 7 Strategy-Making Process Step 1 Assess need for strategic change Step 2 Conduct situational analysis Step 3 Choose strategic alternatives Adapted from Exhibit 9.1

©2008 by Nelson, a division of Thomson Canada Limited 8 What Really Works Strategy-making for Firms, Big and Small

©2008 by Nelson, a division of Thomson Canada Limited 9 What Really Works

©2008 by Nelson, a division of Thomson Canada Limited 10 Assessing the Need for Strategic Change Competitive inertia a reluctance to change strategies or competitive practices that have been successful in the past Strategic dissonance discrepancy between upper management’s intended strategy and the strategy actually implemented by lower levels of management

©2008 by Nelson, a division of Thomson Canada Limited 11 SWOT Situational analysis that looks at: S – strengths W – weaknesses O – opportunities T – threats

©2008 by Nelson, a division of Thomson Canada Limited 12 Situational Analysis (SWOT) Strengths and Weaknesses distinctive competence what a company can do, or perform better than competitors core capabilities internal routines, processes, and culture that determine how efficiently inputs can be turned into outputs

©2008 by Nelson, a division of Thomson Canada Limited 13 Situational Analysis (SWOT) Environmental scanning strategic groups a group of companies within an industry that top managers choose to compare, evaluate, and benchmark strategic opportunities and threats shadow-strategy task force a committee within the company that analyzes the company’s own weaknesses to determine how competitors could exploit them

©2008 by Nelson, a division of Thomson Canada Limited 14 Strategic Groups Core firms the central companies in a strategic group Secondary firms firms that follow related but somewhat different strategies than do core firms

©2008 by Nelson, a division of Thomson Canada Limited 15 Choosing Strategic Alternatives Strategic reference points targets used by managers to determine if the firm has a sustainable competitive advantage Risk-avoiding strategy protects an existing competitive advantage Risk-seeking advantage create or sustain a sustainable competitive advantage

©2008 by Nelson, a division of Thomson Canada Limited 16 Strategic Reference Points Exhibit 9.2

©2008 by Nelson, a division of Thomson Canada Limited 17 Learning Objectives: Corporate-, Industry-, & 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

©2008 by Nelson, a division of Thomson Canada Limited 18 Corporate-Level Strategies Corporate-level strategy overall organizational strategy that addresses the question “What business are we in or should we be in?” Portfolio Strategy Grand Strategies

©2008 by Nelson, a division of Thomson Canada Limited 19 Portfolio Strategy Minimize risk by diversification Acquisition purchase of a company by another company Unrelated diversification creating or acquiring companies in completely unrelated businesses BCG matrix Related diversification

©2008 by Nelson, a division of Thomson Canada Limited 20 Boston Consulting Group Matrix Exhibit 9.4

©2008 by Nelson, a division of Thomson Canada Limited 21 Diversification and Risk There is a U-shaped relationship between diversification and risk: Single businesses with no diversification are extremely risky Competing in a variety of different businesses can lower risk. Conglomerates composed of completely unrelated businesses are riskier than undiversified companies. Adapted from Exhibit 9.5

©2008 by Nelson, a division of Thomson Canada Limited 22 Grand Strategies GrowthStability RetrenchmentRecovery

©2008 by Nelson, a division of Thomson Canada Limited 23 Industry-Level Strategies Industry-level strategy overall organizational strategy that addresses the question “How should we compete in this industry?” Five industry forces Positioning strategies Adaptive strategies

©2008 by Nelson, a division of Thomson Canada Limited 24 Porter’s Five Industry Forces Character of the rivalry Threat of new entrants Threat of substitute products or services Bargaining power of suppliers Bargaining power of buyers

©2008 by Nelson, a division of Thomson Canada Limited 25 Positioning Strategies Cost leadership producing a quality product or service at a price lower than competitors Differentiation accentuating difference between a product or service and those of competitors Focus Using cost leadership or differentiation for a specific target market

©2008 by Nelson, a division of Thomson Canada Limited 26 Adaptive Strategies Defenders  seek steady growth  retain customers Prospectors  seek fast growth  encourage risk- taking and innovation Analyzers  minimize risk and maximize profit  imitate proven successes of prospectors Reactors  Inconsistent strategy  React to changes

©2008 by Nelson, a division of Thomson Canada Limited 27 Firm-Level Strategies Address the question “How should we compete against a particular firm?” Direct competition Strategic moves of direct competition Entrepreneurship: A firm-level strategy

©2008 by Nelson, a division of Thomson Canada Limited 28 Direct Competition Direct competition rivalry between two firms that offer similar products and services that acknowledge each other as rivals and take offensive and defensive positions in response to each other Two factors determine extent of competition: market commonality resource similarity

©2008 by Nelson, a division of Thomson Canada Limited 29 Strategic Moves of Direct Competition Attack a competitive move designed to reduce a rival’s market share or profits Response a counter move to defend or improve a company’s market share or profit

©2008 by Nelson, a division of Thomson Canada Limited 30 Attacks and Responses Exhibit 9.8

©2008 by Nelson, a division of Thomson Canada Limited 31 Entrepreneurship: A Firm-Level Strategy Entrepreneurship process of entering new or established markets with new goods or services Entrepreneurial orientation set of processes, practices and decision- making activities that lead to new entry characterized by autonomy, innovativeness, risk-taking, proactiveness, and competitive aggressiveness

©2008 by Nelson, a division of Thomson Canada Limited 32 What Really Happened? Hanspeter Stutz purchased the land and buildings in 1993 He replanted the vineyard with different varietals In 2000 he opened his wine operations