Chapter 6 Organizational Strategy

1. MGMT Chuck Williams Chapter 6Organizational Strategy Designed & Prepared byB-books, Ltd.

2. Basics of Organizational Strategy After reading these sections, you should be able to: indicate the components of sustainable competitive advantage and explain why it is important. describe the steps involved in the strategy-making process.

3. Sustainable Competitive Advantage Resources The assets, capabilities, processes, information, and knowledge that the organization controls Competitive Advantage Sustainable Competitive Advantage Providing greater value for customersthan competitors can A competitive advantage that othercompanies have tried unsuccessfullyto duplicate 1

4. ValuableResources RareResources SustainableCompetitive Advantage ImperfectlyImitableResources Non-SubstitutableResources Requirements for Sustainable Competitive Advantage 1

5. Strategy-Making Process Assess need forstrategic change Conduct a Situational Analysis ChooseStrategicAlternatives 2

6. 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 strategy 2.1

7. S Strengths Internal W Weaknesses O Opportunities External T Threats Situational Analysis 2.2

8. Beyond the Book Moon Valley FurnitureSWOT Analysis • Rick Detkowski had the opportunity to buy Moon Valley Furniture on the cheap in 2006. Should he flip the property or fix the company? • Strengths: simple, high-quality furniture; team player in local foresting economy. • Weaknesses: lack of marketing; disorganized production process. • Threats: furniture production in external environment shifting to China and Mexico; slow in housing boom. • Opportunities: pine and cedar furniture popular in growing log cabin niche market; expansion into pre-fab parts like porch railings. • Detkowski decided to grow the company, expected to go into the black in 2008. Source: A. Salkever, “Case Study: Anatomy of a Business Decision,” Inc. Magazine, November 2008, 60, 64-65.

9. Strengths INTERNAL • Distinctive Competence • Core Capability Opportunities • Environmental Scanning • Strategic Groups • Shadow-Strategy Task Force EXTERNAL Weaknesses Threats Situational Analysis 2.2

10. 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

11. 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

12. Beyond the Book Biz Flix: Seabiscuit 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? Take Two Video Click

13. Strategic Reference Points 2.3

14. Corporate, Industry, and Firm-Level Strategies After reading these sections, you should be able to: explain the different kinds of corporate-level strategies. describe the different kinds of industry-level strategies. explain the components and kinds of firm-level strategies.

15. Corporate-Level Strategies Corporate-Level Strategy The overall organizational strategythat addresses the question “What business(es) are we in or should webe in?” 3

16. PORTFOLIO STRATEGY GRAND STRATEGIES • Acquisitions, unrelated diversification, related diversification, single businesses • BCG Matrix • Stars • Question marks • Cash cows • Dogs • Growth • Stability • Retrenchment/recovery Corporate-Level Strategies 3

17. Beyond the Book Google’s Diverse Corporate-Level Strategy • Google’s business is to “organize the world's information and make it universally accessible and useful.” • To this end, Google researches how cell phones can be used to access information, builds software like AdWords, and buys other resources like YouTube. Source:”Corporate Information,” Google.com, available online at http://www.google.com [accessed 8 December 2008]; A. Lashinsky, “Power 25,” Fortune, 10 December 2007, 118.

18. Question Marks Stars High Market Growth Dogs Cash Cows Low Small Large Relative Market Share BCG Matrix 3.1

19. BCG Matrix Stars companies with a large share of a fast-growing market QuestionMarks companies with a small share of a fast-growing market Cash Cows companies with a large share of a slow-growing market Dogs companies with a small share of a slow-growing market 3.1

20.  Company D Company A High Question Marks Stars Company C Company B   Market Growth  Company E Company G Low Dogs Cash Cows Company F Company H  Small Large Relative Market Share BCG Matrix 3.1 Adapted from Exhibit 6.3

21. Relationship BetweenDiversification and Risk High Risk Low Single Business Related Diversification Unrelated Diversification Diversification and Risk 3.1

22. 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.”

23. GrowthStrategy focuses on increasing profits, revenues, market share, or numberof places to do business Stability Strategy RetrenchmentStrategy focuses on improving the way the company sells the same products or services to the same customers focuses on turning around very poorcompany performance by shrinking the size or scope of the business Grand Strategies 3.2

24. Beyond the Book Pernod’s Organic Growth Strategy • Pernod went from being a family-owned company focused on anise liqueur to the second-largest spirits company in the world by buying the companies that make Chivas Regal, Malibu rum, and Absolut vodka. • Antitrust laws make it difficult for Pernod to grow further by means of acquisitions. • Pernod plans to grow the Absolut brand by introducing fewer new flavors, which take focus away from the “mother product.” • Pernod will promote Absolut among fashionable young drinkers who prefer vodka to whisky and in China, an emerging market for spirits. Source: C. Passariello and A. O. Patrick, “Pernod Puts its Buying Spree on Ice,” The Wall Street Journal, 24 July 2008, B1.

25. Industry-Level Strategies Five Industry Forces Positioning Strategies AdaptiveStrategies 4

26. Threats ofNew Entrants Character of Rivalry BargainingPower ofSuppliers BargainingPower ofBuyers Threat of Substitutes Porter’s Five Industry Forces 4.1

27. Beyond the Book Facebook and MySpace Compete through Differentiation • Facebook and MySpace compete as social networking sites. • Facebook is designed as a “utility” for connecting with people you already know, with a clean, consistent, efficient site layout. Facebook offers a platform for users to create applications. • MySpace allows users to design their own pages and competes by licensing and distributing content—like debuts of NBC television shows—and creating new content—like signing on musicians to create new content. Source: D. Kirkpatrick, “MySpace Strikes Back,” Fortune, 1 October 2007, 128-136.

28. Positioning Strategies Cost Leadership Differentiation Focus Strategy 4.2

29. Differentiation

30. Adaptive Strategies • Defenders • 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

31. Firm-Level Strategies Basics ofDirectCompetition Strategic Moves inDirect Competition Entrepreneurship 5

32. DIRECTCOMPETITION STRATEGICMOVES OFDIRECT COMP. ENTREPRENEURIAL INTRAPRENEURIAL ORIENTATION Market commonality Attack Autonomy Resource similarity Response Innovativeness Risk taking Proactiveness CompetitiveAggressiveness Firm-Level Strategies 5

33. Market Commonality Resource Similarity Attack Response Firm B Firm A 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-Level Strategies 5

34. McDonald’s Wendy’s McDonald’s BurgerKing High II I Market Commonality McDonald’s III IV McDonald’s Low Subway Luby’s Cafeteria Low High Resource Similarity Direct Competition 5.1

35. Strategic Moves of Direct Competition 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. 5.2

36. 1. Match or mirror your competitor’s move. 2. Respond along a different dimension fromyour competitor’s move or attack. Strategic Moves of Direct Competition Types of Responses 5.2

37. Competitor Analysis Interfirm Rivalry: Action & Response Less Likelihood of an Attack Strong Market Commonality Greater Likelihood of an Attack Weak Market Commonality Less Likelihood of a Response Strong Resource Commonality Low Resource Commonality Greater Likelihood of a Response Strategic Moves of Direct Competition 5.2

38. Beyond the Book 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

39. Beyond the Book Risk Taking Autonomy Innovativeness Proactiveness CompetitiveAggressiveness Key Dimensions of Entrepreneurial Orientation