Chapter 6

Organisational
strategy
Basics of organisational strategy
After reading these sections,
you should be able to:

1. Specify the components of sustainable

competitive advantage and explain why it is
important.
2. Describe the steps involved in the
strategy making process.
Sustainable competitive advantage
The assets, capabilities, processes,
Resources information and knowledge that the
organisation controls.

Competitive Providing greater ______ for customers

advantage than competitors can.

Sustainable A competitive advantage that other

competitive companies have tried unsuccessfully
advantage to duplicate.
Requirements for sustainable
competitive advantage
Valuable Rare
resources resources

Sustainable
competitive
advantage

Imperfectly Non-
imitable substitutable
resources resources
 Strategy making process

Assess need Conduct a Choose

for strategic situational strategic
change analysis alternatives
 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.
 Situational analysis

S S__________
Internal
W W____________

O O____________
External
T T____________
 Beyond the book

Qantas launches Jetstar

• In 2004 Qantas launched Jetstar, its
discount airline. Please insert
• 80 per cent of Jetstar’s capacity was photograph of a
Qantas or
planned for leisure routes. Jetstar plane if
• Leisure routes have recently been possible, or a
Australia’s fastest growing sector. generic plane if
not
• Jetstar operating costs will be lower
than Qantas, allowing it to be more
competitive.

Source:www.accessmylibrary.com/coms2/summary_0286-21162787_ITM
 Situational analysis

Strengths Opportunities
I E
N X •Environmental
T •Distinctive
T scanning
E competence E •Strategic groups
R R •Shadow-strategy task
N •Core capability N force
A A
L Weaknesses L Threats
 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 are changing from one
strategic position to another.
 Strategic review prompts plant
closure at National foods
• National foods has decided to phase out
manufacturing in Hexham, NSW.

• Products produced included thickened Please insert a

cream, sweetened condensed milk and photograph of a
cottage cheese. cow

• National Foods considered the age of the

site, manufacturing costs associated with
the location and scale of the operation in
making the decision.
Source: www.ausfoodnews.com.au/2009/10/02/strategic-review-forces-plant-closure-at-national-foods
Strategic groups
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.
Strategic reference points

Source: A. Fiegenbaum, S. Hart & D. Schendel, ‘Strategic Reference Point Theory’, Strategic Management
Journal 17 (1996): 219–35.
 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.
 Corporate-level strategies

The overall organisational strategy

Corporate-level that addresses the question ‘What
strategy business(es) are we in or should we
be in?’
 Corporate-level strategies
Portfolio strategy Grand strategies

 Acquisitions, unrelated  G__________

diversification, related
diversification, single businesses  Stability

 BCG matrix  Retrenchment/recovery

 stars
 question marks
 cash cows
 dogs
 BCG matrix

Question marks Stars

Market growth

High

Low Dogs __________

Small Large
Relative market share
 BCG matrix
Companies with a large share
Stars
of a fast-growing market.

Question Companies with a small share

marks of a fast-growing market.

Cash Companies with a large share

cows of a slow-growing market.

Companies with a small share

Dogs
of a slow-growing market.
BCG matrix
Diversification and risk

Source: ACADEMY OF MANAGEMENT EXECUTIVE by Alan McWilliams & Chuck Williams. Copyright 1996
by Academy of Management (NY). Reproduced with permission of Academy of Management (NY) in the
format Textbook via Copyright Clearance Center.
 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’.

22
 Grand strategies
Focuses on increasing profits,
Growth
revenues, market share or number
strategy
of places to do business.

Focuses on improving the way the

Stability
company sells the same products
strategy
or services to the same customers.

Focuses on turning around very poor

Retrenchment
company performance by shrinking
strategy
the size or scope of the business.
 Beyond the book
Nestlé cuts brands
• Nestlé has a new strategy to cut unproductive brands
and simplify its organisation.

• Last year the company was producing 130 000 brand

variations, and 30 per cent weren’t making money.

• Last year Nestlé cut 50 of its world-wide subsidiaries.

• Nestlé has outpaced competition in sales but still lags

in profit margins.

Source: Ball, Deborah. “After Buying Binge, Nestle Goes on a Diet.” The Wall Street Journal. July 23, 2007. pg.A1.
 Industry-level strategies

Five industry
forces Positioning
strategies Adaptive
strategies
 Porter’s five industry forces
Threats of
new entrants

Bargaining Bargaining
Character
power of power of
of rivalry
suppliers buyers

Threat of
substitutes
 Positioning strategies

C_______ leadership

D____________

F_______ strategy
Differentiation

iStockphoto
 Adaptive strategies
Defenders Prospectors
 seek moderate growth  seek fast growth

 retain customers  emphasise risk taking

innovation

Analysers Reactors
 blend of defender and  use an inconsistent
prospector strategies strategy

 imitate other’s  respond to changes

successes
 Firm-level strategies

Basics of
direct Strategic moves
competition in direct
competition Entrepreneurship
 Firm-level strategies

Direct Strategic moves of

competition direct competition

Market commonality Attack

Resource similarity Response

 Firm-level strategies
Market Commonality
Resource Similarity

Attack

Response
Firm A Firm B

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.
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.
Strategic moves of direct competition

Types of responses

1. Match or mirror your competitor’s move.

2. Respond along a different dimension from

your competitor’s move or attack.
Strategic moves of direct competition
Inter-firm rivalry:
Competitor analysis
action and response
Strong market Less likelihood of an
commonality attack

Weak market Greater likelihood

commonality of an attack

Strong resource Less likelihood

commonality of a response

Low resource Greater likelihood

commonality of a response
Key dimensions of Beyond the book

entrepreneurial orientation
Risk taking

Autonomy

Innovativeness

Proactiveness

Competitive
aggressiveness