Chapter 6 Organizational Strategy
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Copyright ©2008 Cengage Learning. All rights reserved
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Chapter 6Organizational Strategy
Designed & Prepared byB-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.
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3
Sustainable Competitive Advantage
ResourcesThe assets, capabilities, processes,information, and knowledge that theorganization controls
Competitive Advantage
Providing greater value for customersthan competitors can
SustainableCompetitiveAdvantage
A competitive advantage that othercompanies have tried unsuccessfullyto duplicate
1
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Requirements for Sustainable Competitive Advantage
SustainableCompetitiveAdvantage
ValuableResources
Non-Substitutable
Resources
ImperfectlyImitable
Resources
RareResources
1
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5
Strategy-Making Process
Assess need for
strategic change
Conduct aSituational
Analysis
ChooseStrategic
Alternatives
2
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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
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Situational AnalysisS
W
O
T
Strengths
Weaknesses
Opportunities
Threats
InternalInternal
ExternalExternal
2.2
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Situational Analysis
StrengthsStrengths
WeaknessesWeaknesses
•Distinctive Competence
•Core Capability
INTERNAL
OpportunitiesOpportunities
ThreatsThreats
•Environmental Scanning
•Strategic Groups
EXTERNAL
2.2
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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
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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
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Strategic Reference Points
2.3
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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.
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Corporate-Level Strategies
Corporate-LevelStrategy
The overall organizational strategythat addresses the question “What business(es) are we in or should webe in?”
3
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Corporate-Level Strategies
Acquisitions, unrelated diversification, related diversification, single businesses
BCG MatrixStarsQuestion marksCash cowsDogs
PORTFOLIO STRATEGY
Growth
Stability
Retrenchment/recovery
GRAND STRATEGIES
3
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BCG Matrix
Relative Market ShareRelative Market Share
Mar
ket G
row
thM
arke
t Gro
wth
Small Large
Low
High Question MarksQuestion Marks StarsStars
DogsDogs Cash CowsCash Cows
3.1
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BCG Matrix
companies with a small share of a fast-growing market
QuestionQuestionMarksMarks
companies with a large share of a fast-growing marketStarsStars
companies with a small share of a slow-growing marketDogsDogs
companies with a large share of a slow-growing market
CashCashCowsCows
3.1
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BCG Matrix
Relative Market ShareRelative Market Share
Mar
ket G
row
thM
arke
t Gro
wth
Small Large
Low
High Question MarksQuestion MarksCompany A
Company B
StarsStarsCompany C
Company D
DogsDogs
Company H
Company G
Cash CowsCash CowsCompany F
Company E
Adapted from Exhibit 6.3
3.1
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Diversification and Risk R
isk
Ris
k
Low
High
SingleBusiness
RelatedDiversification
UnrelatedDiversification
Relationship BetweenRelationship BetweenDiversification and RiskDiversification and Risk
3.1
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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.”
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Grand StrategiesGrowthStrategy
focuses on increasing profits, revenues, market share, or numberof places to do business
StabilityStrategy
focuses on improving the way the company sells the same productsor services to the same customers
RetrenchmentStrategy
focuses on turning around very poorcompany performance by shrinkingthe size or scope of the business
3.2
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Industry-Level Strategies
Five Industry Forces Positioning
Strategies AdaptiveStrategies
4
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Porter’s Five Industry Forces
BargainingPower ofSuppliers
BargainingPower ofBuyers
Threat ofSubstitutes
Threats ofNew Entrants
Character of
Rivalry
4.1
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Positioning Strategies
Cost Leadership
Differentiation
Focus Strategy
4.2
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Differentiation
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Adaptive StrategiesDefenders
seek moderate growth retain customers
Prospectors
seek fast growth emphasize risk-taking
& innovation
Analyzers blend of defender &
prospector strategies imitate others’
successes
Reactors use an inconsistent
strategy respond to changes
4.3
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Firm-Level Strategies
Basics ofDirect
CompetitionStrategic Moves
inDirect
CompetitionEntrepreneurship
5
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Firm-Level StrategiesDIRECT
COMPETITION
Market commonality
Resource similarity
STRATEGICMOVES OF
DIRECT COMP.
ENTREPRENEURIALINTRAPRENEURIAL
ORIENTATION
Attack Autonomy
Response Innovativeness
Risk taking
Proactiveness
CompetitiveAggressiveness
5
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Direct Competition
Resource SimilarityResource SimilarityLow High
High
Low
Mar
ket C
omm
onal
ityM
arke
t Com
mon
ality
III
III IV
McDonald’sMcDonald’s
McDonald’sMcDonald’s
BurgerKing
Wendy’s
Luby’s Cafeteria Subway
5.1
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Strategic Moves of Direct CompetitionAttack
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
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Strategic Moves of Direct Competition
Types of Responses
1. Match or mirror your competitor’s move.
2. Respond along a different dimension fromyour competitor’s move or attack.
5.2
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Strategic Moves of Direct Competition
Competitor AnalysisCompetitor Analysis Interfirm Rivalry:Interfirm Rivalry:Action & ResponseAction & 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 Response5.2
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Entrepreneurship• 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
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Key Dimensions of Entrepreneurial Orientation
Risk Taking
Autonomy
Innovativeness
Proactiveness
CompetitiveAggressiveness
Beyond the Book
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