Chapter 6
Chapter 6
Organizational Strategy
MGMT3
Designed & Prepared by
B-books, Ltd.
Chuck Williams
1
Copyright ©2011 by Cengage Learning. All rights reserved
Basics of Organizational
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.
2
Copyright ©2011 by Cengage Learning. All rights reserved
Sustainable Competitive Advantage
Resources
Resources
The
Theassets,
assets,capabilities,
capabilities,processes,
processes,
information,
information,and
andknowledge
knowledgethat
thatthe
the
organization
organizationcontrols
controls
Competitive
Competitive
Advantage
Advantage
Providing
Providinggreater
greatervalue
valuefor
forcustomers
customers
than
thancompetitors
competitorscan
can
Sustainable
Sustainable
Competitive
Competitive
Advantage
Advantage
AAcompetitive
competitiveadvantage
advantagethat
thatother
other
companies
companieshave
havetried
triedunsuccessfully
unsuccessfully
to
toduplicate
duplicate
1
3
Copyright ©2011 by Cengage Learning. All rights reserved
1
Chapter 6
Requirements for Sustainable
Competitive Advantage
Valuable
Valuable
Resources
Resources
Rare
Rare
Resources
Resources
Sustainable
Sustainable
Competitive
Competitive
Advantage
Advantage
Imperfectly
Imperfectly
Imitable
Imitable
Resources
Resources
NonNonSubstitutable
Substitutable
Resources
Resources
1
4
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Strategy-Making Process
Assess need
for
strategic change
Conduct a
Situational
Analysis
Choose
Strategic
Alternatives
2
5
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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
2.1
6
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2
Chapter 6
Situational Analysis
SS
Strengths
Strengths
Internal
W
W
Weaknesses
Weaknesses
O
O
Opportunities
Opportunities
TT
Threats
Threats
External
2.2
7
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Situational Analysis
I
N
T
E
R
N
A
L
Strengths
•Distinctive
Competence
•Core Capability
Weaknesses
Opportunities
E
X
T
E
R
N
A
L
•Environmental
Scanning
•Strategic Groups
Threats
2.2
8
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Strategic Groups
• Core Firms
• central companies in a strategic group
• Secondary Firms
• firms in a strategic group that follow strategies related
to but somewhat different from those of the core
firms
2.2
9
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3
Chapter 6
Choosing Strategic Alternatives
• Risk-Avoiding Strategy
– protect an existing
competitive advantage
• Risk-Seeking Strategy
– extend or create a sustainable
competitive advantage
• Strategic Reference Points
2.3
– targets used by managers to determine if
the firm has developed the core
competencies it needs to achieve a
sustainable competitive advantage
10
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Strategic Reference Points
2.3
11
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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.
12
Copyright ©2011 by Cengage Learning. All rights reserved
4
Chapter 6
Corporate-Level Strategies
The
Theoverall
overallorganizational
organizationalstrategy
strategy
Corporate-Level
thataddresses
addressesthe
thequestion
question“What
“What
Corporate-Level that
Strategy
business(es)
Strategy
business(es)are
are we
wein
inor
orshould
should we
we
be
bein?”
in?”
3
13
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Corporate-Level Strategies
PORTFOLIO STRATEGY
Acquisitions,
Acquisitions,
unrelated
unrelateddiversification,
diversification,
related
relateddiversification,
diversification,
single
businesses
single businesses
BCG
BCGMatrix
Matrix
Stars
Stars
Question
Questionmarks
marks
Cash
Cashcows
cows
Dogs
Dogs
GRAND STRATEGIES
Growth
Growth
Stability
Stability
Retrenchment/
Retrenchment/
recovery
recovery
3
14
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Market Growth
BCG Matrix
3.1
High
Question Marks
Stars
Low
Dogs
Cash Cows
Small
Large
Relative Market Share
15
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5
Chapter 6
BCG Matrix
Stars
Stars
companies
companieswith
with aalarge
largeshare
share
of
of aafast-growing
fast-growing market
market
Question
Question
Marks
Marks
companies
companieswith
with aasmall
smallshare
share
of
of aafast-growing
fast-growing market
market
Cash
Cash
Cows
Cows
companies
companieswith
with aalarge
largeshare
share
of
of aaslow-growing
slow-growing market
market
Dogs
Dogs
companies
companieswith
with aasmall
smallshare
share
of
of aaslow-growing
slow-growing market
market
3.1
16
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BCG Matrix
Company D
Market Growth
Company A
High
4
Question Marks
Company G
Low
3
Dogs
Company H
5
3.1
Stars
Company C
Company B
2
1
Company E
Cash Cows
Company F
Small
Large
Relative Market Share
Adapted from Exhibit 6.3
17
Copyright ©2011 by Cengage Learning. All rights reserved
Beyond the Book
Apple’s New Strategy?
Despite controlling 90% of song downloads
and 75% of digital music player sales,
Apple may be shifting its strategic focus
away from music. iPod sales are expected
to be flat in the coming years, while sales
of downloadable apps from the App Store
have taken off. How would you
characterize Apple’s various business
segments?
Source: P. Burrows, “Apps Trump Tunes at Apple”, Business Week, 28 September 2009. 34.
18
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6
Chapter 6
Diversification and Risk
Relationship Between
Diversification and Risk
Risk
High
Low
Single
Business
Related
Diversification
Unrelated
Diversification
3.1
19
Copyright ©2011 by Cengage Learning. All rights reserved
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
defend 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.”
20
Copyright ©2011 by Cengage Learning. All rights reserved
Beyond the Book
Comcast Wants a Deal
Consider the ramifications of a Comcast bid for NBC
Universal:
• Critics say that the NBC takeover would distract Comcast
executives from the firms core competencies of providing
cable TV, broadband and phone services.
• NBC’s sports assets (the Olympics, Sunday Night
Football) would give Comcast the resources to compete
with ESPN.
• NBC would also give Comcast a stake in Hulu, which
could be converted to a paid service.
Source: R. Grover, T. Lowry, “A Touchdown For Comcast?”, Business Week, 19 October 2009. 28.
21
Copyright ©2011 by Cengage Learning. All rights reserved
7
Chapter 6
Grand Strategies
Growth
Growth
Strategy
Strategy
focuses
focuseson
onincreasing
increasing profits,
profits,
revenues,
revenues,market
marketshare,
share,or
ornumber
number
of
places
to
do
business
of places to do business
Stability
Stability
Strategy
Strategy
focuses
focuseson
onimproving
improvingthe
the way
waythe
the
company
companysells
sellsthe
thesame
sameproducts
products
or
services
to
the
same
customers
or services to the same customers
Retrenchment
Retrenchment
Strategy
Strategy
focuses
focuseson
onturning
turning around
aroundvery
verypoor
poor
company
companyperformance
performance by
byshrinking
shrinking
the
thesize
sizeor
orscope
scopeof
ofthe
thebusiness
business
3.2
22
Copyright ©2011 by Cengage Learning. All rights reserved
Nalco is Strategic in
Retrenchment Phase
Beyond the Book
One common mistake made in the retrenchment process
is mandating equal staff reductions across the board.
When Nalco reduced its 11,000 person workforce by 4%, it
also shifted its workforce around, moving a group of
workers from a paper plant being shut down to another to
work on pollution control. It also opened a governmentaffairs office in China. Strategic cuts like these can be a
key step in moving from retrenchment to recovery.
Source: R. Charan, “My (Recovery) Playbook”, Fortune, 31 August 2009. 60-66.
23
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Industry-Level Strategies
Five
Five
Industry
IndustryForces
Forces
Positioning
Positioning
Strategies
Strategies
Adaptive
Adaptive
Strategies
Strategies
4
24
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8
Chapter 6
Porter’s Five Industry Forces
Threats
Threatsof
of
New
New Entrants
Entrants
Bargaining
Bargaining
Power
Power of
of
Suppliers
Suppliers
Character
Character
of
of
Rivalry
Rivalry
Bargaining
Bargaining
Power
Power of
of
Buyers
Buyers
Threat
Threat of
of
Substitutes
Substitutes
4.1
25
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Toy Maker Takes on
Challenging Girls’ Market
Beyond the Book
After finding success in the lucrative market for boys’
toys, Spin Master is looking to expand into the market
for girls 6-10 with their Liv line of dolls. The barriers to
entry for this market are notoriously high; Mattel’s
Barbie has largely controlled the market for the last
five decades, driving out numerous competitors,
including MGA Entertainments’ Bratz line, most
recently, with a lawsuit. Early results for the Liv dolls,
released July 2009, have shown promise though,
becoming a top seller at Walmart.com and gaining the
second largest share of shelf space for dolls.
Source: C. Palmeri, “The Boy Toy Maker Chasing Barbie”, Business Week, 28 September 2009. 70.
26
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Positioning Strategies
Cost
Cost Leadership
Leadership
Differentiation
Differentiation
Focus
FocusStrategy
Strategy
4.2
27
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9
Chapter 6
Adaptive Strategies
Defenders
Defenders
Prospectors
Prospectors
seek
seekmoderate
moderategrowth
growth
retain
retaincustomers
customers
seek
seekfast
fastgrowth
growth
emphasize
emphasizerisk-taking
risk-taking
&
&innovation
innovation
Analyzers
Analyzers
Reactors
Reactors
blend
blendof
ofdefender
defender&
&
prospector
prospectorstrategies
strategies
imitate
imitateothers’
others’
successes
successes
use
usean
aninconsistent
inconsistent
strategy
strategy
respond
respondto
tochanges
changes
4.3
28
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Firm-Level Strategies
Basics
Basicsof
of
Direct
Direct
Competition
Competition
Strategic
StrategicMoves
Moves
in
in
Direct
Direct
Competition
Competition
5
29
Copyright ©2011 by Cengage Learning. All rights reserved
Firm-Level Strategies
DIRECT
COMPETITION
STRATEGIC
MOVES OF
DIRECT COMP.
Market
Marketcommonality
commonality Attack
Attack
Resource
Resourcesimilarity
similarity
Response
Response
5
30
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10
Chapter 6
Firm-Level Strategies
Market Commonality
Resource Similarity
Attack
Response
Firm B
Firm A
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
31
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Market Commonality
Direct Competition
McDonald’s
Wendy’s McDonald’s
Burger
King
High
McDonald’s
II
I
III
IV
McDonald’s
Low
Subway
Luby’s Cafeteria
Low
High
Resource Similarity
5.1
32
Copyright ©2011 by Cengage Learning. All rights reserved
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.
5.2
33
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11
Chapter 6
Strategic Moves of Direct Competition
Types
Types of
of Responses
Responses
1.
1. Match
Match or
or mirror
mirror your
your competitor’s
competitor’s move.
move.
2. Respond along a different dimension from
your competitor’s move or attack.
5.2
34
Copyright ©2011 by Cengage Learning. All rights reserved
Strategic Moves of Direct Competition
Competitor Analysis
Interfirm Rivalry:
Action & 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
5.2
35
Copyright ©2011 by Cengage Learning. All rights reserved
Beyond the Book
Booksellers in Price War
In October 2009, Walmart.com announced it would sell the
ten most anticipated books of the season at $10 each.
When Amazon matched the price, Walmart.com dropped
the price to $9. Target’s online sales site posted the books
at $8.99. Walmart.com dropped the price again to $8.99.
One of these books, Stephen King’s “Under the Dome”,
has a cover price of $35. The American Booksellers
Association has brought the matter before the Justice
Department with concerns that these price cuts could hurt
the industry as whole, driving small independent
booksellers out of the market.
Source: J. A. Trachtenberg, “Booksellers Ask Justice Department to Investigate War Over Pricing”, The Wall Street Journal, 23 October 2009.
http://online.wsj.com/article/SB10001424052748703816204574489891863465178.html (accessed 10/23/2009).
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12