CHAPTER Three Organizational Strategy

1. CHAPTER ThreeOrganizationalStrategy

2. What Would You Do? You are in charge of IKEA Design Company… • The furniture industry is highly fragmented and IKEA has turned this into opportunities • 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. Basics of Organizational Strategy After reading the next two sections, you should be able to: • explain the components of sustainable competitiveadvantage and why it is important. • describe the steps involved in the strategy-making process.

4. 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 Sustainable Competitive Advantage 1

5. ValuableResources RareResources SustainableCompetitive Advantage ImperfectlyImitableResources Non-SubstitutableResources Requirements for Sustainable CompetitiveAdvantage Adapted from Exhibit 8.1 1

6. Assess need forstrategic change Conduct a situational analysis Choosestrategicalternatives Strategy-Making Process 1 2 3 2

7. Assessing the Need for Strategic Change • Competitive Inertia • a reluctance to change strategies or competitive practices that have been successful • Strategic Dissonance discrepancy between top management’s intended strategy and the actual strategy implemented by lower management 2.1

8. Strategy Making for Big Firms Strategic Planning & Profits for Big Companies 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success 72% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success 75% What Really WorksStrategy Making for Firms Strategic Planning & Growth for Big Companies

9. Strategic Planning & Profits for Small Companies 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success 61% What Really WorksStrategy Making for Firms Strategy Making for Small Firms Strategic Planning & Growth for Big Companies 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success 62%

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

11. Strengths • Distinctive Competence • Core Capability Opportunities • Environmental Scanning • Strategic Groups Weaknesses Threats Situational Analysis INTERNAL EXTERNAL Adapted from Exhibit 8.2

12. 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

13. Choosing Strategic Alternatives • Risk-Avoiding Strategy • protect a competitive advantage • Risk-Seeking Strategy • create a sustainable competitive advantage • Strategic Reference Points • targets used by managers to determine if the firm has a sustained competitive advantage 2.3

14. Strategic Reference Points 2.3

15. Corporate, Industry, and Firm-Level Strategies After reading the next three 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.

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

17. Portfolio Strategy • Portfolio Strategy • Reduce risk by diversification • Acquisitions • the company purchases another company • Unrelated diversification • creating or acquiring companies in completely unrelated businesses • Boston Consulting Group (BCG Matrix) 3.1

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

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

20.  Company D Company A High Question Marks Stars Company C Company B   Market Growth Rate  Company E Company G Low Dogs Cash Cows Company F Company H  Small Large Relative Market Share BCG Matrix Adapted from Exhibit 8.5 3.1

21. High Risk Low Single Business Related Diversification Unrelated Diversification Diversification Strategies Adapted from Exhibit 8.6 3.1

22. GrowthStrategy focuses on increasing profits, revenues, market share, or numberof places to do business Stability Strategy RetrenchmentStrategy focuses on improving the way in which the company sells the same productsor 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

23. Five Industry Forces Positioning Strategies AdaptiveStrategies Industry-Level Strategies How should we compete in this industry? 4

24. Threats ofNew Entrants Character of Rivalry BargainingPower ofSuppliers BargainingPower ofBuyers Threat of Substitutes Five Industry Forces Adapted from Exhibit 8.7 4.1

25. Positioning Strategies Cost Leadership Differentiation Focus Strategy 4.2

26. Defenders • seek moderate growth • retain customers • Prospectors • seek fast growth • emphasize risk taking innovation Analyzers • blend of defender &prospector strategies • imitate other’s successes Reactors • use an inconsistent strategy • respond to changes Adaptive Strategies 4.3

27. Basics ofDirectCompetition Strategic Moves inDirect Competition Firm-Level Strategies How should we compete against a particular firm? 5

28. DIRECTCOMPETITION STRATEGICMOVES OFDIRECT COMPETITION Market commonality Attack Resource similarity Response Direct Competition 5.1

29. High II I Market Commodity III IV Low Low High Resource Similarity Direct Competition Adapted from Exhibit 8.8 5.1

30. Strategic Moves of Direct Competition • Attack • a competitive move • designed to reduce a rival’s market share or profits • Response • a countermove • designed to protect a company’s market share or profits 5.2

31. 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 Adapted from Exhibit 8.9 5.2