Chapter 6 Copyright ©2009 by Cengage Learning Inc. All rights reserved 1 Chapter 6 Organizational Strategy.

Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved

1

Chapter 6Organizational Strategy


4

Sustainable Competitive Advantage

ResourcesResourcesThe assets, capabilities, processes,information, and knowledge that theorganization controls

The assets, capabilities, processes,information, and knowledge that theorganization controls

Competitive Advantage

Competitive Advantage

Providing greater value for customersthan competitors can

Providing greater value for customersthan competitors can

SustainableCompetitiveAdvantage


A competitive advantage that othercompanies have tried unsuccessfullyto duplicate

A competitive advantage that othercompanies have tried unsuccessfullyto duplicate

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5

Requirements forSustainable Competitive Advantage



ValuableResources

ValuableResources

Non-Substitutable

Resources

Non-Substitutable

Resources

ImperfectlyImitable

Resources

ImperfectlyImitable

Resources

RareResources

RareResources

Adapted from Exhibit 6.1

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6

Strategy-Making Process

Assess need for

strategic change

Conduct aSituational

Analysis

ChooseStrategic

Alternatives

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7

Assessing the Need for Strategic Change

Avoid Competitive Inertia a reluctance to change strategies or competitive

practices that have been successful in the past

Look for Strategic Dissonance a discrepancy between a company’s intended

strategy and the strategic actions managers take when implementing that strategy2.12.1

Step 1Assess need

for strategic change


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Doing the Right Thing

2.12.1

Is Ethics an Overlooked Source ofCompetitive Advantage?

Volvo’s reputation for safe cars has been a source of competitive advantage

Johnson & Johnson is admired for its responseto the Tylenol cyanide contamination incidence

Should ethics be the first source of competitive advantage? Probably not…

Start with low costs, good service, or unique product capabilities. Use ethics as a way to differentiate your company from the competition.

Is Ethics an Overlooked Source ofCompetitive Advantage?

Volvo’s reputation for safe cars has been a source of competitive advantage

Johnson & Johnson is admired for its responseto the Tylenol cyanide contamination incidence

Should ethics be the first source of competitive advantage? Probably not…

Start with low costs, good service, or unique product capabilities. Use ethics as a way to differentiate your company from the competition.


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Situational Analysis

SS

WW

O O

TT

StrengthsStrengths

WeaknessesWeaknesses

Opportunities Opportunities

ThreatsThreats

InternalInternal

ExternalExternal

2.22.2


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Situational Analysis

StrengthsStrengths

WeaknessesWeaknesses

•Distinctive Competence

•Core Capability

INTERNAL

OpportunitiesOpportunities

ThreatsThreats

•Environmental Scanning

•Strategic Groups•Shadow-Strategy Task Force

EXTERNAL


2.22.2


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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

Transient Firms companies whose strategies change from one

strategic position to another

Shadow-strategy task force seeks out its own company’s weaknesses

and determine how other companies could exploit them

2.22.2


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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 advantage2.32.3


17

Menard’s : Risk Seeking

Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved 18

Biz Flix: Seabiscuit

Take Two Video

Click

What aspects of strategic planning do you see in the clip?

Does Pollard suggest his friend be risk seeking or risk averse during the race?


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Strategic Reference Points


2.32.3


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Corporate-Level Strategies

Corporate-LevelStrategy

Corporate-LevelStrategy

The overall organizational strategythat addresses the question “What business(es) are we in or should webe in?”

The overall organizational strategythat addresses the question “What business(es) are we in or should webe in?”

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22

Corporate-Level Strategies

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Acquisitions, unrelated diversification, related diversification, single businesses

BCG MatrixStarsQuestion marksCash cowsDogs

Acquisitions, unrelated diversification, related diversification, single businesses

BCG MatrixStarsQuestion marksCash cowsDogs

PORTFOLIO STRATEGY

Growth

Stability

Retrenchment/recovery

Growth

Stability

Retrenchment/recovery

GRAND STRATEGIES



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BCG Matrix

Relative Market ShareRelative Market Share

Mar

ket

Gro

wth

Mar

ket

Gro

wth

Small Large

Low

High Question MarksQuestion Marks StarsStars

DogsDogs Cash CowsCash Cows

3.13.1


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BCG Matrix

companies with a small share of a fast-growing market

companies with a small share of a fast-growing market

QuestionQuestionMarksMarks

QuestionQuestionMarksMarks

companies with a large share of a fast-growing market

companies with a large share of a fast-growing marketStarsStarsStarsStars

companies with a small share of a slow-growing market

companies with a small share of a slow-growing marketDogsDogsDogsDogs

companies with a large share of a slow-growing market

companies with a large share of a slow-growing market

CashCashCowsCows

CashCashCowsCows

3.13.1


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BCG Matrix

Relative Market ShareRelative Market Share

Mar

ket

Gro

wth

Mar

ket

Gro

wth

Small Large

Low

High Question MarksQuestion Marks

Company A

Company B

StarsStarsCompany C

Company D

DogsDogs

Company H

Company G

Cash CowsCash Cows

Company F

Company E


3.13.1


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Diversification and Risk R

isk

Ris

k

Low

High

SingleBusiness

RelatedDiversification

UnrelatedDiversification


3.13.1

Relationship BetweenRelationship BetweenDiversification and RiskDiversification and Risk


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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 defense 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 Strategies

GrowthStrategy

GrowthStrategy

focuses on increasing profits, revenues, market share, or numberof places to do business

focuses on increasing profits, revenues, market share, or numberof places to do business

StabilityStrategy

StabilityStrategy

focuses on improving the way in whichthe company sells the same productsor services to the same customers

focuses on improving the way in whichthe company sells the same productsor services to the same customers

RetrenchmentStrategy

RetrenchmentStrategy

focuses on turning around very poorcompany performance by shrinkingthe size or scope of the business

focuses on turning around very poorcompany performance by shrinkingthe size or scope of the business

3.23.2


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Industry-Level Strategies

Five Industry Forces

Five Industry Forces Positioning

Strategies

PositioningStrategies Adaptive

Strategies

AdaptiveStrategies

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Answers the question: How should we compete in this industry?


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Porter’s Five Industry Forces


BargainingPower ofSuppliers

BargainingPower ofSuppliers

BargainingPower ofBuyers

BargainingPower ofBuyers

Threat ofSubstitutes

Threat ofSubstitutes

Threats ofNew Entrants

Threats ofNew Entrants

Character of

Rivalry

Character of

Rivalry

4.14.1

Easy to start a company in this

industry?

Easy to find substitute products/services?

Do your suppliers control you?

Do your customers control you?

How intense is the competitive behavior

between companies in your industry?


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Positioning Strategies

Cost LeadershipCost Leadership

DifferentiationDifferentiation

Focus StrategyFocus Strategy

4.24.2Use one of the above strategies for a

specific group of customers in a specific geographic region or market segment.


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Differentiation


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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

4.34.3 THE END


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Firm-Level Strategies

Basics ofDirect

Competition

Basics ofDirect

CompetitionStrategic Moves

inDirect

Competition

Strategic Moves in

Direct Competition

Entrepreneurshipand

Intrapreneurship

Entrepreneurshipand

Intrapreneurship

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35


DIRECTCOMPETITION

Market commonalityMarket commonality

Resource similarityResource similarity

STRATEGICMOVES OF

DIRECT COMP.

ENTREPRENEURIALINTRAPRENEURIAL

ORIENTATION

AttackAttack AutonomyAutonomy

ResponseResponse InnovativenessInnovativeness

Risk takingRisk taking

ProactivenessProactiveness

CompetitiveAggressiveness


55


36



55

Market CommonalityResource Similarity

Entering market is most forceful attack.Exiting market is clear defensive signal of retreat.Entrepreneurship is strategy of entering established markets

or developing new market.

Firm A Firm B

Attack

Response


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Direct Competition


5.15.1Resource SimilarityResource Similarity

Low High

High

Low

Mar

ket

Co

mm

on

alit

yM

arke

t C

om

mo

nal

ity

III

III IV

McDonald’sMcDonald’s

McDonald’sMcDonald’s

BurgerKing

Wendy’s

Luby’s Cafeteria Subway


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Strategic Moves of Direct Competition

5.25.2

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.


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5.25.2

Types of ResponsesTypes of Responses

1. Match or mirror your competitor’s move.1. Match or mirror your competitor’s move.

2. Respond along a different dimension fromyour competitor’s move or attack.


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5.25.2

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 Commonality

Less Likelihood of a Response

Low Resource Commonality

Greater Likelihood of a Response


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Entrepreneurship and Intrapreneurship

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 entry5.35.3


42

Key Dimensions of Entrepreneurial Orientation

Risk TakingRisk Taking

AutonomyAutonomy

InnovativenessInnovativeness

ProactivenessProactiveness



5.35.3


43

Entrepreneurship

Chapter 6 Copyright ©2009 by Cengage Learning Inc. All rights reserved 1 Chapter 6 Organizational Strategy.

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