Chapter
6
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
1
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?
Chapter 6
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2
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.
Chapter 6
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3
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
A competitive advantage that other
companies have tried unsuccessfully
to duplicate
1
Chapter 6
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4
Requirements for
Sustainable Competitive Advantage
Valuable
Resources
Rare
Resources
Sustainable
Competitive
Advantage
Imperfectly
Imitable
Resources
NonSubstitutable
Resources
1
Chapter 6
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Adapted from Exhibit 6.1
5
Strategy-Making Process
Assess need
for
strategic change
Conduct a
Situational
Analysis
Choose
Strategic
Alternatives
2
Chapter 6
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6
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 company’s intended strategy
and the strategic actions managers take when
implementing that strategy
2.1
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7
Doing the Right Thing
Is Ethics an Overlooked Source of
Competitive Advantage?
 Volvo’s reputation for safe cars has been
a source of competitive advantage
 Johnson & Johnson is admired for its response
to the Tylenol cyanide contamination incidence
Should ethics be the first source of
competitive advantage? Probably not…
2.1
 Start with low costs, good service, or unique product
capabilities. Use ethics as a way to differentiate your
company from the competition.
Chapter 6
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8
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
Chapter 6
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9
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
Chapter 6
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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
Chapter 6
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11
Situational Analysis
S
Strengths
Internal
W
Weaknesses
O
Opportunities
External
T
Threats
2.2
Chapter 6
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12
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
•Shadow-Strategy
Task Force
Threats
2.2
Chapter 6
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Adapted from Exhibit 6.4
13
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

2.2
Shadow-strategy task force
 seeks out its own company’s weaknesses and
determine how other companies could exploit them
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14
Strategic Groups
2.2
Exhibit 6.5
Chapter 6
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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
Chapter 6
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16
Menard’s : Risk Seeking
Chapter 6
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17
Strategic Reference Points
2.3
Adapted from Exhibit 6.6
Chapter 6
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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.
Chapter 6
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19
Corporate-Level Strategies
Corporate-Level
Strategy
The overall organizational strategy
that addresses the question “What
business(es) are we in or should we
be in?”
3
Chapter 6
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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
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21
Market Growth
BCG Matrix
3.1
High
Question Marks
Stars
Low
Dogs
Cash Cows
Small
Large
Relative Market Share
Chapter 6
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22
BCG Matrix
3.1
Stars
companies with a large share
of a fast-growing market
Question
Marks
companies with a small share
of a fast-growing market
Cash
Cows
companies with a large share
of a slow-growing market
Dogs
companies with a small share
of a slow-growing market
Chapter 6
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23
BCG Matrix
Market Growth
Company A
High

Company D
Question Marks
Stars
Company C
Company B

Company E
Company G
Low
Dogs
Company H


Cash Cows
Company F

Small
3.1
Large
Relative Market Share
Chapter 6
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Adapted from Exhibit 6.8
24
Diversification and Risk
Risk
High
Relationship Between
Diversification and Risk
Low
3.1
Single
Business
Related
Diversification
Chapter 6
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Unrelated
Diversification
Adapted from Exhibit 6.9
25
Problems with Portfolio Strategy


Unrelated diversification does not reduce risk.

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.
Present performance is used to predict future
performance.
Acquiring firms often treat stars as “conquered
foes.”
Chapter 6
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26
Grand Strategies
Growth
Strategy
focuses on increasing profits,
revenues, market share, or number
of places to do business
Stability
Strategy
focuses on improving the way in which
the company sells the same products
or services to the same customers
Retrenchment
Strategy
focuses on turning around very poor
company performance by shrinking
the size or scope of the business
3.2
Chapter 6
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27
Industry-Level Strategies
Five
Industry Forces
Positioning
Strategies
Adaptive
Strategies
4
Chapter 6
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28
Porter’s Five Industry Forces
Threats of
New Entrants
Bargaining
Power of
Suppliers
4.1
Character
of
Rivalry
Bargaining
Power of
Buyers
Threat of
Substitutes
Chapter 6
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Adapted from Exhibit 6.12
29
Positioning Strategies
Cost Leadership
Differentiation
Focus Strategy
4.2
Chapter 6
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30
Differentiation
Chapter 6
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31
Adaptive Strategies
Defenders
Prospectors
 seek moderate growth
 seek fast growth
 retain customers
 emphasize risk taking
innovation
Analyzers
Reactors
 blend of defender &
prospector strategies
 use an inconsistent
strategy
 imitate other’s
successes
 respond to changes
4.3
Chapter 6
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32
Firm-Level Strategies
Basics of
Direct
Competition
Strategic Moves
in
Direct
Competition
Entrepreneurship
and
Intrapreneurship
5
Chapter 6
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33
Firm-Level Strategies
DIRECT
COMPETITION
STRATEGIC
MOVES OF
DIRECT COMP.
ENTREPRENEURIAL
INTRAPRENEURIAL
ORIENTATION
Market commonality
Attack
Autonomy
Resource similarity
Response
Innovativeness
Risk taking
Proactiveness
Competitive
Aggressiveness
5
Chapter 6
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34
Firm-Level Strategies
Market Commonality
Resource Similarity
Attack
Response
Firm A
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
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Adapted from Exhibit 6.13
35
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
Chapter 6
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Adapted from Exhibit 6.14
36
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
Chapter 6
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37
Strategic Moves of
Direct Competition
Types of Responses
1. Match or mirror your competitor’s move.
2. Respond along a different dimension from
your competitor’s move or attack.
5.2
Chapter 6
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38
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
Chapter 6
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Adapted from Exhibit 6.15
39
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 decisionmaking activities that lead to new entry
5.3
Chapter 6
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40
Key Dimensions of
Entrepreneurial Orientation
Risk Taking
Autonomy
Innovativeness
Proactiveness
5.3
Competitive
Aggressiveness
Chapter 6
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41
Entrepreneurship
Chapter 6
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42