CHAPTER Three
Organizational
Strategy
1
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What Would You Do?
v
v
You are in charge of
IKEA Design Company…
The furniture industry is
highly fragmented and IKEA
has turned this into
opportunities
Scandinavian strategies
include low prices and
convenient packaging
Will the strategies work on a global basis? How can
IKEA identify opportunities and threats, and select a
competitive advantage strategy?
2
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Basics of Organizational
Strategy
After reading the next two
sections, you should be able to:
1.
2.
explain the components of sustainable
competitive
advantage and why it is important.
describe the steps involved in the strategymaking process.
3
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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
4
1
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Requirements for Sustainable
Competitive
Advantage
Valuable
Resources
Rare
Resources
Sustainable
Competitive
Advantage
Imperfectly
Imitable
Resources
NonSubstitutable
Resources
Adapted from Exhibit 8.1
1
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5
Strategy-Making Process
1
Choose
strategic
alternatives
2
Conduct a
situational
analysis
3
Assess need
for
strategic change
6
2
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Assessing the Need for
Strategic Change
v
Competitive Inertia
v
a reluctance to change strategies
or competitive practices that have
been successful
v
Strategic Dissonance discrepancy
between top management’s intended
strategy and the actual strategy
implemented by lower management
7
2.1
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What Really Works
Strategy Making for Firms
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%
8
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What Really Works
Strategy Making for Firms
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%
9
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Situational Analysis
S
Strengths
W
Weaknesses
O
Opportunities
Internal
External
T
Threats
10
2.2
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Situational Analysis
I
N
T
E
R
N
A
L
Strengths
•Distinctive
Competence
•Core Capability
Weaknesses
E
X
T
E
R
N
A
L
Opportunities
•Environmental
Scanning
•Strategic Groups
Threats
Adapted from Exhibit 8.2
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11
Strategic Groups
v
Core Firms
v
v
central companies in a
strategic group
Secondary Firms
v
firms that follow related,
but somewhat different,
strategies than do core
firms
12
2.2
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Choosing Strategic Alternatives
v
Risk-Avoiding Strategy
v
v
Risk-Seeking Strategy
v
v
protect a competitive advantage
create a sustainable competitive
advantage
Strategic Reference Points
v
targets used by managers to
determine if the firm has a sustained
competitive advantage
13
2.3
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Strategic Reference Points
14
2.3
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Corporate, Industry, and
Firm-Level Strategies
After reading the next three
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 firmlevel strategies.
15
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Corporate-Level Strategies
Portfolio
Strategy
Grand
Strategies
The overall organizational strategy
Corporate-Level that addresses the question “What
Strategy
business(es) are we in or should we
be in?”
16
3
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Portfolio Strategy
v
Portfolio Strategy
v
v
Acquisitions
v
v
the company purchases another
company
Unrelated diversification
v
v
Reduce risk by diversification
creating or acquiring companies in
completely unrelated businesses
Boston Consulting Group (BCG
Matrix)
17
3.1
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Market Growth Rate
BCG Matrix
High
Question
Marks
Low
Dogs
Stars
Cash Cows
Small
Large
Relative Market Share
18
3.1
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BCG Matrix
Question
Marks
companies with a small share
of a fast-growing market
Stars
companies with a large share
of a fast-growing market
Dogs
companies with a small share
of a slow-growing market
Cash
Cows
companies with a large share
of a slow-growing market
19
3.1
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Market Growth Rate
BCG Matrix
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
Large
Relative Market Share
Adapted from Exhibit 8.5
3.1
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20
Diversification Strategies
Risk
High
Low
Single
Busines
s
Related
Diversification
Unrelated
Diversification
Adapted from Exhibit 8.6
3.1
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21
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
22
3.2
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Industry-Level Strategies
How should we compete in this
industry?
Five
Industry Forces
Positioning
Strategies
Adaptive
Strategies
23
4
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Five Industry Forces
Threats of
New Entrants
Bargaining
Power of
Suppliers
Character
of
Rivalry
Bargaining
Power of
Buyers
Threat of
Substitutes
Adapted from Exhibit 8.7
4.1
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24
Positioning Strategies
Cost Leadership
Differentiation
Focus Strategy
25
4.2
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Adaptive Strategies
Defenders
Prospectors
 seek moderate growth
 seek fast growth
 retain customers
Analyzers
 emphasize risk taking
innovation
Reactors
 blend of defender &
prospector strategies
 use an inconsistent
strategy
 imitate other’s
successes
 respond to changes
26
4.3
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Firm-Level Strategies
How should we compete
against a particular firm?
Basics of
Direct
Competition
Strategic Moves
in
Direct
Competition
27
5
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Direct Competition
DIRECT
COMPETITION
5.1
STRATEGIC
MOVES OF
DIRECT
COMPETITION
Market
commonality
Attack
Resource
similarity
Response
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28
Market Commodity
Direct Competition
High
II
I
III
IV
Low
Low
High
Resource Similarity
Adapted from Exhibit 8.8
5.1
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29
Strategic Moves of Direct
Competition
v
Attack
v
v
v
a competitive move
designed to reduce a rival’s
market share
or profits
Response
v
v
a countermove
designed to protect a company’s
market share or profits
30
5.2
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Strategic Moves of Direct
Competition
Interfirm Rivalry:
Action & Response
Competitor Analysis
Strong
Market
Commonality
Weak Market
Commonality
Less
Likelihood of
an Attack
Greater Likelihood of
an Attack
Strong Resource
Commonality
Less Likelihood of
a Response
Low Resource
Commonality
Greater Likelihood of
a Response
Adapted from Exhibit 8.9
5.2
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31