Chapter 6 Organizational Strategy

Chapter 6Organizational Strategy

Management Principles

Craig W. Fontaine, Ph.D.

Organizational/Business Strategy

The approach a company takes to create

a:

Competitive Advantage

Competitive Advantage

The reason why a customer would choose your product or service over the competition:

• Price• Superior customer services• Innovative technology• etc….

A sustainable competitive advantage is when other companies cannot duplicate the value

your company is providing to customers

Strategic Moves of Direct Competition

• Attack– a competitive move designed to reduce a rival’s market

share or profits

• Response– a countermove, prompted by a rival’s attack, designed

to defend or improve a company’s market share or profit

Before you can decide….

Managers must be aware….

In order to create and/or maintain a sustainable advantage companies must ….

1. Assess need for strategic change (Don’t allow competitive inertia)2. Conduct assessment(s) 3. Choose an alternative strategy – if needed

There are systematic processes for this…

Situational (SWOT) Analysis

• Strengths

• Weaknesses

• Opportunities

• ThreatsImplied/related are.....

Internal Analysis

• Distinctive competence– something that a company can make,

do, or perform better than competitors

• Core capabilities– less visible, internal decision-making

routines, problem-solving processes, and organizational cultures that determine how efficiently inputs can be turned into outputs

External Analysis• Environmental scanning • Approaches

– Strategic groups• group of companies within an industry that top

managers choose to compare, evaluate, and benchmark strategic threats and opportunities

– Core firms• companies of particular interest strategic group

– Secondary firms• firms that use strategies related to but somewhat

different from those of core firms

Choosing Strategic Alternatives

There are two distinct alternatives:

• Risk-avoiding strategy– Safer, but less potential

• Risk-seeking strategy– Less safe, but greater potential

Grand Strategies

A corporate-level strategy that minimizes risk by diversifying investment among various

businesses or product lines.

Grand StrategiesBroad strategic plans used to help

an organization achieve its strategic goals

– Stability strategy– Retrenchment strategy– Growth strategy

• A strategy where the organization maintains its current size and current level of business operations

• When is stability an appropriate strategy?– Industry is in a period of rapid upheaval with several key industry &

external forces drastically changing, making future highly uncertain– Industry is facing slow or no growth opportunities– Many small business owners follow stability strategy indefinitely

Stability Strategy

Corporate Level Restructuring Corporate restructuring is the process of

redesigning one or more aspects of a company. The process of reorganizing a company may be implemented due to a number of different factors, such as positioning the company to be more competitive, survive a currently adverse economic climate, or poise the organization to move in an entirely new direction

Retrenchment strategies

• Turnaround: Eliminating unprofitable outputs, reducing size of work force, rethinking firm’s products lines and customer groups.

• Divestment: sell one of business units• Liquidation: last resort strategy

Growth strategiesGrowth strategies:• Internal growth: Increase internal capacity of

organization without acquiring other firms.• Conglomerate Diversification: Acquiring unrelated

business. • Merger: Two roughly similar size firms combine

into one. To benefit of synergy.• Strategic alliance: Temporary partnerships