Chapter 9

Organizational Strategy

2

What Would You Do? General Motors’ Strategy How can GM create a sustainable

advantage over its competitors? Are there potential business opportunities as well

as threats? What should GM’s new strategy be?

3

After discussing this section, you should be able to:

Learning ObjectivesBasics of Organizational Strategy1. explain the components of sustainable competitive

advantage and why it is important.2. describe the steps involved in the strategy-making

process.

4

Sustainable Competitive Advantage Resources

assets, capabilities, processes, information, & knowledge

Competitive advantage providing greater value for customers than

competitors can Sustainable competitive advantage

when other firms cannot duplicate the value a firm is providing to customers

5

Achieving Sustainable Competitive Advantage

Resources must be:

Valuable Rare

ImperfectlyImitable

Non-substitutable

6

Strategy-Making Process

7

What Really Works?

Strategy-Making for Firms, Big and Small

Strategic Planning & Profits for Big Companies

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

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

Probability of success 72%

Probability of success 75%

Strategic Planning & Growth for Big Companies

8

What Really Works? (cont’d)

Strategy-Making for Firms, Big and Small

Strategic Planning & Growth for Small Companies

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

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

Probability of success 61%

Probability of success 62%

Strategic Planning & Return on Investment for Small Companies

9

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

10

Situational Analysis - SWOT

Strengths

Weaknesses

•Distinctive Competency

•Core Capability

Opportunities

Threats

•Environmental Scanning

•Strategic Groups•Shadow-Strategy Task Force

11

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

12

Gannett

Tribune Co.

Knight Ridder

Dow Jones

New York Times

Strategic Groups for Gannett Company

Newspapers

97

14

32

25

16

TV Stations

22

22

0

3

8

Web Sites

100

29

57

8

2

Other

8

11

0

3

5

Adapted from Exhibit 9.7

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

14

At the top looking down

At the bottom looking up

Strategic Reference PointsCurrent SituationCurrent Situation• SatisfiedSatisfied• Sitting on top ofSitting on top of

the workthe work

IssuesIssues• ThreatsThreats• Potential lossPotential loss• NegativityNegativity

Response orResponse orBehaviorBehavior• Risk AverseRisk Averse• ConservativeConservative• DefensiveDefensive

Current SituationCurrent Situation• DissatisfiedDissatisfied• At the bottom At the bottom

looking uplooking up

Perception ofPerception ofNew IssuesNew Issues• OpportunityOpportunity• GainGain• PositivityPositivity

Response orResponse orBehaviorBehavior• Risk takingRisk taking• DaringDaring• OffensiveOffensive

Adapted from Exhibit 9.8

15

After discussing this section, you should be able to:

Learning ObjectivesCorporate-, Industry-, & Firm-Level Strategies3. explain the different kinds of corporate-level

strategies.4. describe the different kinds of industry-level

strategies.5. explain the components and strategies of

firm-level competition.

16

Corporate-Level Strategies

PortfolioStrategy

GrandStrategies

Corporate-level strategy overall organizational strategy that addresses the

question “What business or businesses are we in or should we be in?”

17

Portfolio Strategy

Minimize risk by diversification Acquisition

the company purchases another company Unrelated diversification

creating or acquiring companies in completely unrelated businesses

BCG Matrix

18

Boston Consulting Group (BCG) Matrix

Relative Market ShareRelative Market Share

Mar

ket

Gro

wth

Rat

eM

arke

t G

row

th R

ate

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

Adapted from Exhibit 9.10

19

Relationship Between Diversification and Risk

Ris

kR

isk

Low

High

SingleBusiness

RelatedDiversification

UnrelatedDiversification

Adapted from Exhibit 9.11

20

Blast From The PastFive Decades of Diversification Strategies1950s & 1960s: Conglomerates and General Management Skills1950s & 1960s: Conglomerates and General Management Skills

1970s: Corporate Strategy and Portfolio Planning1970s: Corporate Strategy and Portfolio Planning

1980s: Restructuring and Value-Based Planning1980s: Restructuring and Value-Based Planning

1990s: Synergy and “Core” Portfolios1990s: Synergy and “Core” Portfolios

2000: Too Early to Tell2000: Too Early to Tell

21

Grand Strategy

22

Been There, Done That

Internal growth is now the focus Diversifying globally Focus on long-term shareholders

Nestle’s Strategy

23

Industry-Level Strategies

Five Industry Forces

Adaptive Strategies

Industry-level strategy overall organizational strategy that addresses the

question “How should we compete in this industry?”

PositioningStrategies

24

Porter’s Five Competitive Forces

Character of Rivalry

Threat ofNew Entrants

BargainingPower ofSuppliers

Threat ofSubstitute Products

or Services

BargainingPower ofBuyers

25

Positioning Strategies

Cost Leadership

Differentiation

Focus Strategy

26

Adaptive Strategies

Defenders seek moderate growth retain customers

Prospectors seek fast growth emphasize risk taking

and innovation

Analyzers blend of defender &

prospector strategies imitate the proven

successes of others Reactors

use an inconsistent strategy

respond to changes

27

Firm-Level Strategies

Basics ofDirect Competition

Strategic Moves Involvedin Direct Competition

Firm-Level Strategyof Entrepreneurship

28

Framework of Direct Competition

Resource SimilarityResource Similarity

Low High

High

Low

Mar

ket

Co

mm

od

ity

Mar

ket

Co

mm

od

ity

III

III IV

29

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

30

Likelihood of Attacks & ResponsesCompetitor AnalysisCompetitor Analysis Interfirm Rivalry:Interfirm Rivalry:

Action & ResponseAction & ResponseStrong Market Commonality

Less Likelihood of an Attack

Weak Market Commonality

Greater Likelihood of an Attack

High ResourceSimilarity

Greater Likelihood of a Response

Low Resource Similarity

Less Likelihood of a Response

Adapted from Exhibit 9.17

31

Firm-Level Strategy of 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

32

Entrepreneurial Orientation

Autonomy

Innovativeness

Risk-taking

Proactiveness

Competitive Aggressiveness

33

What Really Happened? GM’s Strategy

Significantly improve reliability of its cars Use cost savings to develop differentiated

products hot new cars and trucks

Radical retrenchment strategy close Oldsmobile division close some European factories cut the number of different models