1. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 1 CHAPTER Three Organizational Strategy

2. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 2 What Would You Do? You are in charge of IKEA Design Company… v The furniture industry is highly fragmented and IKEA has turned this into opportunities v 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?

3. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 3 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.

4. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 4 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

5. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 5 Requirements for Sustainable Competitive Advantage Sustainable Competitive Advantage Sustainable Competitive Advantage Valuable Resources Non- Substitutable Resources Imperfectly Imitable Resources Rare Resources Adapted from Exhibit 8.1 1

6. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 6 Strategy-Making Process Assess need for strategic change Conduct a situational analysis Choose strategic alternatives 12 3 2

7. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 7 Assessing the Need for Strategic Change v Competitive Inertia v a reluctance to change strategies or competitive practices that have been successful v Strategic Dissonance discrepancy between top management’s intended strategy and the actual strategy implemented by lower management 2.1

8. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 8 What Really Works Strategy Making for Firms Strategic Planning & Profits for Big Companies 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success 72% Strategy Making for Big Firms 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success75% Strategic Planning & Growth for Big Companies

9. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 9 What Really Works Strategy Making for Firms Strategic Planning & Profits for Small Companies 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success 61% Strategy Making for Small Firms 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Strategic Planning & Growth for Big Companies probability of success62%

10. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 10 Situational Analysis S S W W O O T T Strengths Weaknesses Opportunities Threats Internal External 2.2

11. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 11 Situational Analysis Strengths Weaknesses Distinctive Competence Core Capability Opportunities Threats Environmental Scanning Strategic Groups INTERNALINTERNAL EXTERNALEXTERNAL Adapted from Exhibit 8.2

12. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 12 Strategic Groups v Core Firms v central companies in a strategic group v Secondary Firms v firms that follow related, but somewhat different, strategies than do core firms 2.2

13. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 13 Choosing Strategic Alternatives v Risk-Avoiding Strategy v protect a competitive advantage v Risk-Seeking Strategy v create a sustainable competitive advantage v Strategic Reference Points v targets used by managers to determine if the firm has a sustained competitive advantage 2.3

14. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 14 Strategic Reference Points 2.3

15. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 15 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.

16. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 16 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?” Portfolio Strategy Grand Strategies Grand Strategies 3

17. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 17 Portfolio Strategy v Portfolio Strategy v Reduce risk by diversification v Acquisitions v the company purchases another company v Unrelated diversification v creating or acquiring companies in completely unrelated businesses v Boston Consulting Group (BCG Matrix) 3.1

18. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 18 BCG Matrix Relative Market Share Market Growth Rate SmallLarge Low High Question Marks Stars Dogs Cash Cows 3.1

19. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 19 BCG Matrix 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 3.1

20. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 20 BCG Matrix 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 8.5 3.1

21. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 21 Diversification Strategies Risk Low High Single Busines s Related Diversification Unrelated Diversification Adapted from Exhibit 8.6 3.1

22. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 22 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 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 3.2

23. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 23 Industry-Level Strategies Five Industry Forces Positioning Strategies Positioning Strategies Adaptive Strategies How should we compete in this industry? 4

24. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 24 Five Industry Forces Adapted from Exhibit 8.7 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

25. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 25 Positioning Strategies Cost Leadership Differentiation Focus Strategy 4.2

26. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 26 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

27. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 27 Firm-Level Strategies Basics of Direct Competition Strategic Moves in Direct Competition Strategic Moves in Direct Competition How should we compete against a particular firm? 5

28. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 28 Direct Competition DIRECT COMPETITION Market commonality Market commonality Resource similarity Resource similarity STRATEGIC MOVES OF DIRECT COMPETITION Attack Response 5.1

29. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 29 Direct Competition Resource Similarity LowHigh Low Market Commodity III IIIIV Adapted from Exhibit 8.8 5.1

30. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 30 Strategic Moves of Direct Competition v Attack v a competitive move v designed to reduce a rival’s market share or profits v Response v a countermove v designed to protect a company’s market share or profits 5.2

31. Copyright ©2006 by South-Western, a division of Thomson 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 Commonality Less Likelihood of a Response Low Resource Commonality Greater Likelihood of a Response Adapted from Exhibit 8.9 5.2