Chapter

Organizational Strategy

Management 4th Edition Chuck Williams

Chapter 6 Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

Prepared by Deborah Baker Texas Christian University

What Would You Do?

TiVo Headquarters, Alviso, CA

TiVo, the first digital video recorder service, has become a popular concept However, five years after its startup, TiVo still is not profitable and is facing heavy competition from other DVR services TiVo must find a niche that allows it to survive, differentiate its products and services, and must consider a counterattack against its competitors If you were TiVos new CEO, what would you do?

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Basics of Organizational Strategy

After reading these sections, you should be able to:

1. 2.

indicate the components of sustainable competitive advantage and explain why it is important. describe the steps involved in the strategy-making process.

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Sustainable Competitive Advantage

Resources The assets, capabilities, processes, information, and knowledge that the organization controls

Competitive Advantage

Providing greater value for customers than competitors can

Sustainable Competitive Advantage 1

A competitive advantage that other companies have tried unsuccessfully to duplicate

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Requirements for Sustainable Competitive Advantage

Valuable Resources Sustainable Competitive Advantage Imperfectly Imitable Resources
1
Chapter 6 Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved Adapted from Exhibit 6.1

Rare Resources

NonSubstitutable Resources

Strategy-Making Process

Assess need for strategic change

Conduct a Situational Analysis

Choose Strategic Alternatives

2
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Assessing the Need for Strategic Change

Step 1 Assess 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 companys intended strategy and the strategic actions managers take when implementing that strategy

2.1
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Doing the Right Thing

Is Ethics an Overlooked Source of Is Ethics an Overlooked Source of Competitive Advantage? Competitive Advantage?
Volvos reputation for safe cars has been Volvos reputation for safe cars has been a source of competitive advantage a source of competitive advantage Johnson & Johnson is admired for its response Johnson & Johnson is admired for its response to the Tylenol cyanide contamination incidence to the Tylenol cyanide contamination incidence Should ethics be the first source of Should ethics be the first source of competitive advantage? Probably not competitive advantage? Probably not Start with low costs, good service, or unique product Start with low costs, good service, or unique product capabilities. Use ethics as a way to differentiate your capabilities. Use ethics as a way to differentiate your company from the competition. company from the competition.
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2.1

What Really Works

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%

Strategic Planning & Growth for Big Companies 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
probability of success 75%

2.1
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What Really Works

Strategy Making for Small Firms
Strategic Planning & Profits for Small Companies 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
probability of success 61%

Strategic Planning & Growth for Big Companies 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
probability of success 62%

2.1
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10

What Really Works

External Growth Through Acquisitions
Strategic Planning & External Growth Through Acquisitions 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
probability of success 45%

2.1
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11

Situational Analysis
S S W W O O T T
2.2
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Strengths Strengths
Internal

Weaknesses Weaknesses Opportunities Opportunities

External

Threats Threats

12

Situational Analysis
Strengths Distinctive Competence Core Capability Weaknesses
E X T E R N A L

I N T E R N A L

Opportunities Environmental Scanning Strategic Groups Shadow-Strategy Task Force Threats

2.2
Chapter 6 Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved Adapted from Exhibit 6.4

13

Strategic Groups

2.2

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 companys weaknesses and determine how other companies could exploit them

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14

Strategic Groups

2.2
Exhibit 6.5 Chapter 6 Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

15

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
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16

Menards : Risk Seeking

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17

Strategic Reference Points

2.3
Adapted from Exhibit 6.6 Chapter 6 Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

18

Corporate, Industry, and Firm-Level Strategies

After reading these sections, you should be able to:

3. 4. 5.

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.

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19

Corporate-Level Strategies
The overall organizational strategy that addresses the question What business(es) are we in or should we be in?

Corporate-Level Strategy

3
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20

Corporate-Level Strategies
PORTFOLIO STRATEGY
Acquisitions, unrelated diversification, related diversification, single businesses BCG Matrix Stars Question marks Cash cows Dogs

GRAND STRATEGIES

Growth

Stability Retrenchment/ recovery

3
Adapted from Exhibit 6.7 Chapter 6 Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

21

BCG Matrix

Market Growth

High

Question Marks

Stars

Low

Dogs

Cash Cows

Small
3.1
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Large

Relative Market Share

22

BCG Matrix
Stars companies with a large share of a fast-growing market companies with a small share of a fast-growing market companies with a large share of a slow-growing market companies with a small share of a slow-growing market
23

Question Marks Cash Cows

Dogs
3.1

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BCG Matrix Question Marks

Question Marks
Company B Company A Company D

Market Growth

High

Stars
Company C

Company G

Company F

Company E

Low

Dogs
Company H

Cash Cows

3.1

Small

Large
Adapted from Exhibit 6.8

Relative Market Share

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24

Diversification and Risk

High Relationship Between Diversification and Risk

Risk
Low Single Business Related Diversification Unrelated Diversification
Adapted from Exhibit 6.9

3.1

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25

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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26

Grand Strategies
Growth Strategy focuses on increasing profits, revenues, market share, or number of places to do business focuses on improving the way in which the company sells the same products or services to the same customers focuses on turning around very poor company performance by shrinking the size or scope of the business

Stability Strategy

Retrenchment Strategy 3.2

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27

Industry-Level Strategies

Five Industry Forces

Positioning Strategies

Adaptive Strategies

4
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28

Porters Five Industry Forces

Threats of New Entrants

Bargaining Power of Suppliers

Character of Rivalry

Bargaining Power of Buyers

4.1

Threat of Substitutes
Chapter 6 Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved Adapted from Exhibit 6.12

29

Positioning Strategies

Cost Leadership

Differentiation

Focus Strategy
4.2
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30

Differentiation

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31

Adaptive Strategies
Defenders Defenders
seek moderate growth seek moderate growth retain customers retain customers

Prospectors Prospectors
seek fast growth seek fast growth emphasize risk taking emphasize risk taking innovation innovation

Analyzers Analyzers
blend of defender & blend of defender & prospector strategies prospector strategies imitate others imitate others successes successes

Reactors Reactors
use an inconsistent use an inconsistent strategy strategy respond to changes respond to changes

4.3
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32

Firm-Level Strategies

Basics of Direct Competition

Strategic Moves in Direct Competition

Entrepreneurship and Intrapreneurship

5
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33

Firm-Level Strategies
DIRECT COMPETITION
Market commonality Resource similarity

STRATEGIC MOVES OF DIRECT COMP.

Attack Response

ENTREPRENEURIAL INTRAPRENEURIAL ORIENTATION

Autonomy Innovativeness Risk taking Proactiveness Competitive Aggressiveness

5
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34

Firm-Level Strategies
Market Commonality Resource Similarity

Attack

Firm A

Response

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.

5
Chapter 6 Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved Adapted from Exhibit 6.13

35

Direct Competition
Market Commonality
McDonalds Wendys McDonalds Burger King

High
II
McDonalds

I IV

III

Low Low

McDonalds Subway

Lubys Cafeteria

High

Resource Similarity
Adapted from Exhibit 6.14

5.1
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36

Strategic Moves of Direct Competition

Attack A competitive move designed to reduce a rivals market share or profits.

Response A competitive countermove, prompted by a rivals attack, to defend or improve a companys market share or profit.
5.2
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37

Strategic Moves of Direct Competition

Types of Responses Types of Responses
1. Match or mirror your competitors move. 1. Match or mirror your competitors move. 2. Respond along a different dimension from your competitors move or attack.

5.2
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38

Strategic Moves of Direct Competition

Competitor Analysis
Strong Market Commonality Weak Market Commonality Strong Resource Commonality Low Resource Commonality 5.2
Chapter 6 Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved Adapted from Exhibit 6.15

Interfirm Rivalry: Action & Response

Less Likelihood of an Attack Greater Likelihood of an Attack Less Likelihood of a Response Greater Likelihood of a Response

39

Entrepreneurship and Intrapreneurship

Entrepreneurship
the process of entering new or established markets with new goods or services

5.3

Intrapreneurship
entrepreneurship within an existing organization

Entrepreneurial orientation
the set of processes, practices, and decisionmaking activities that lead to new entry

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40

Key Dimensions of Entrepreneurial Orientation

Risk Taking Risk Taking Autonomy Autonomy Innovativeness Innovativeness Proactiveness Proactiveness Competitive Competitive Aggressiveness Aggressiveness
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5.3

41

Entrepreneurship

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42