chapter 6 organizationing stragery

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

Chapter 6

Prepared byDeborah Baker

Texas Christian University

Management4th Edition

Chuck Williams

OrganizationalStrategy

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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 TiVo’s new CEO, what would you do?

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Basics of Organizational Strategy

After reading these sections, you should be able to:

1. indicate the components of sustainable competitive advantage and explain why it is important.

2. describe the steps involved in the strategy-making process.

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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 strategy

2.12.1

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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What Really Works

Strategic Planning & Profits for Big Companies10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

probability of success 72%

Strategy Making for Big Firms

10% 20% 30% 40% 50% 60% 70% 80% 90% 100%


Strategic Planning & Growth for Big Companies

2.12.1

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What Really Works

Strategic Planning & Profits for Small Companies10% 20% 30% 40% 50% 60% 70% 80% 90% 100%


Strategy Making for Small Firms

10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Strategic Planning & Growth for Big Companies


2.12.1

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Strategic Planning & External Growth Through Acquisitions10% 20% 30% 40% 50% 60% 70% 80% 90% 100%


External Growth Through Acquisitions

2.12.1

What Really Works

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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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Strategic Groups

Exhibit 6.5

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 advantage

2.32.3

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Menard’s : Risk Seeking

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Strategic Reference Points


2.32.3

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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.

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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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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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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

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Positioning Strategies

Cost LeadershipCost Leadership

DifferentiationDifferentiation

Focus StrategyFocus Strategy

4.24.2

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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

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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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DIRECTCOMPETITION

Market commonalityMarket commonality

Resource similarityResource similarity

STRATEGICMOVES OF

DIRECT COMP.

ENTREPRENEURIALINTRAPRENEURIAL

ORIENTATION

AttackAttack AutonomyAutonomy

ResponseResponse InnovativenessInnovativeness

Risk takingRisk taking

ProactivenessProactiveness

CompetitiveAggressiveness


55

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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


5.15.1

Resource 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 entry

5.35.3

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Key Dimensions of Entrepreneurial Orientation

Risk TakingRisk Taking

AutonomyAutonomy

InnovativenessInnovativeness

ProactivenessProactiveness



5.35.3

42


Entrepreneurship

chapter 6 organizationing stragery

Business

strategic planning growth

strategic position

strategic dissonance

needfor strategic change

corporatelevel strategy

strategic planning profits

strategic alternatives

strategies change