Chapter 8 Organizational Strategy Effective Management, by Williams South-Western College Publishing Copyright © 2002 2 What Would You Do? Kodak’s Diversification Strategy How can Kodak create a sustainable advantage over its competitors? What are Kodak’s opportunities and threats? What should their new strategy be? Effective Management, by Williams South-Western College Publishing Copyright © 2002 3 Learning Objectives Basics of Organizational Strategy After discussing this section, you should be able to: explain the components of sustainable competitive advantage and why it is important. describe the steps involved in the strategymaking process. Effective Management, by Williams South-Western College Publishing Copyright © 2002 4 Sustainable Competitive Advantage Resources assets, capabilities, processes, information, & knowledge Competitive advantage providing greater customer value than competitors Sustainable Competitive Advantage when other firms cannot duplicate the value a firm is providing to customers Effective Management, by Williams South-Western College Publishing Copyright © 2002 Achieving Sustainable Competitive Advantage 5 Resources must be: Valuable Rare Imperfectly Imitable Nonsubstitutable Effective Management, by Williams South-Western College Publishing Copyright © 2002 6 Strategy-Making Process Effective Management, by Williams South-Western College Publishing Copyright © 2002 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% Probability of success 72% Strategic Planning & Growth for Big Companies 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Probability of success 75% Effective Management, by Williams South-Western College Publishing Copyright © 2002 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% Probability of success 61% Strategic Planning & Return on Investment for Small Companies 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Probability of success 62% Effective Management, by Williams South-Western College Publishing Copyright © 2002 Assessing the Need for Strategic Change 9 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 Effective Management, by Williams South-Western College Publishing Copyright © 2002 10 Situational Analysis - SWOT Strengths •Distinctive Competency •Core Capability Weaknesses Opportunities •Environmental Scanning •Strategic Groups •Shadow-Strategy Task Force Threats Effective Management, by Williams South-Western College Publishing Copyright © 2002 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 Effective Management, by Williams South-Western College Publishing Copyright © 2002 12 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 Effective Management, by Williams South-Western College Publishing Copyright © 2002 13 Learning Objectives Corporate-, Industry-, & Firm-Level Strategies After discussing this section, you should be able to: explain the different kinds of corporatelevel strategies. describe the different kinds of industrylevel strategies. explain the components and strategies of firm-level competition. Effective Management, by Williams South-Western College Publishing Copyright © 2002 14 Corporate-Level Strategies Portfolio Strategy Grand Strategy Effective Management, by Williams South-Western College Publishing Copyright © 2002 15 Portfolio Strategy Minimize risk by diversification Acquisition the company purchases another company Unrelated diversification creating or acquiring companies in completely unrelated businesses BCG Matrix Effective Management, by Williams South-Western College Publishing Copyright © 2002 Market Growth Boston Consulting Group (BCG) Matrix High Low Question Marks Stars Dogs Cash Cows Low Adopted from Figure 8.2 16 High Relative Market Share Effective Management, by Williams South-Western College Publishing Copyright © 2002 17 Related Diversification Risk High Low Single Business Adapted from Figure 8.3 Related Diversification Unrelated Diversification Effective Management, by Williams South-Western College Publishing Copyright © 2002 18 Grand Strategy Effective Management, by Williams South-Western College Publishing Copyright © 2002 19 Industry-Level Strategy Five Industry Forces Positioning Strategies Adapted Strategies Effective Management, by Williams South-Western College Publishing Copyright © 2002 Porter’s Five Competitive Forces 20 Threat of New Entrants Bargaining Power of Suppliers Character of Rivalry Threat of Substitute Products or Services Bargaining Power of Buyers Effective Management, by Williams South-Western College Publishing Copyright © 2002 21 Positioning Strategies Cost Leadership Differentiation Focus Strategy Effective Management, by Williams South-Western College Publishing Copyright © 2002 22 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 Effective Management, by Williams South-Western College Publishing Copyright © 2002 23 Firm-Level Strategies Basics of Direct Competition Strategic Moves Involved in Direct Competition Firm-Level Strategy of Entrepreneurship Effective Management, by Williams South-Western College Publishing Copyright © 2002 24 Market Commodity Framework of Direct Competition High II I III IV Low Low High Resource Similarity Adopted from Figure 8.5 Effective Management, by Williams South-Western College Publishing Copyright © 2002 25 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 Effective Management, by Williams South-Western College Publishing Copyright © 2002 26 Likelihood of Attacks & Responses Competitor Analysis Interfirm Rivalry: Action & Response Strong Market Commonality Weak Market Commonality Less Likelihood of an Attack Greater Likelihood of an Attack Strong Market Commonality Weak Market Commonality Less Likelihood of an Attack Greater Likelihood of an Attack Adapted from Figure 8.6 Effective Management, by Williams South-Western College Publishing Copyright © 2002 27 Firm-Level Strategy Entrepreneurship the process of entering new or established markets use new goods or services Entrepreneurial Orientation set of processes, practices, and decisionmaking activities that lead to new entry Effective Management, by Williams South-Western College Publishing Copyright © 2002 28 Entrepreneurial Orientation Autonomy Innovativeness Risk-taking Proactiveness Competitive Aggressiveness Effective Management, by Williams South-Western College Publishing Copyright © 2002 29 What Really Happened? Kodak’s Strategy Sustainable competitive advantage is not clearly evident Investing in digital technology Their business is imaging From retrenchment to growth Effective Management, by Williams South-Western College Publishing Copyright © 2002