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Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
1
Chapter 6Organizational Strategy
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
4
Sustainable Competitive Advantage
ResourcesResourcesThe assets, capabilities, processes,information, and knowledge that theorganization controls
The assets, capabilities, processes,information, and knowledge that theorganization controls
Competitive Advantage
Competitive Advantage
Providing greater value for customersthan competitors can
Providing greater value for customersthan competitors can
SustainableCompetitiveAdvantage
SustainableCompetitiveAdvantage
A competitive advantage that othercompanies have tried unsuccessfullyto duplicate
A competitive advantage that othercompanies have tried unsuccessfullyto duplicate
11
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
5
Requirements forSustainable Competitive Advantage
SustainableCompetitiveAdvantage
SustainableCompetitiveAdvantage
ValuableResources
ValuableResources
Non-Substitutable
Resources
Non-Substitutable
Resources
ImperfectlyImitable
Resources
ImperfectlyImitable
Resources
RareResources
RareResources
Adapted from Exhibit 6.1
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Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
6
Strategy-Making Process
Assess need for
strategic change
Conduct aSituational
Analysis
ChooseStrategic
Alternatives
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Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
7
Assessing the 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 strategy2.12.1
Step 1Assess need
for strategic change
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
8
Doing the Right Thing
2.12.1
Is Ethics an Overlooked Source ofCompetitive Advantage?
Volvo’s reputation for safe cars has been a source of competitive advantage
Johnson & Johnson is admired for its responseto the Tylenol cyanide contamination incidence
Should ethics be the first source of competitive advantage? Probably not…
Start with low costs, good service, or unique product capabilities. Use ethics as a way to differentiate your company from the competition.
Is Ethics an Overlooked Source ofCompetitive Advantage?
Volvo’s reputation for safe cars has been a source of competitive advantage
Johnson & Johnson is admired for its responseto the Tylenol cyanide contamination incidence
Should ethics be the first source of competitive advantage? Probably not…
Start with low costs, good service, or unique product capabilities. Use ethics as a way to differentiate your company from the competition.
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
12
Situational Analysis
SS
WW
O O
TT
StrengthsStrengths
WeaknessesWeaknesses
Opportunities Opportunities
ThreatsThreats
InternalInternal
ExternalExternal
2.22.2
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
13
Situational Analysis
StrengthsStrengths
WeaknessesWeaknesses
•Distinctive Competence
•Core Capability
INTERNAL
OpportunitiesOpportunities
ThreatsThreats
•Environmental Scanning
•Strategic Groups•Shadow-Strategy Task Force
EXTERNAL
Adapted from Exhibit 6.4
2.22.2
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
14
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
Shadow-strategy task force seeks out its own company’s weaknesses
and determine how other companies could exploit them
2.22.2
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
16
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 advantage2.32.3
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
17
Menard’s : Risk Seeking
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved 18
Biz Flix: Seabiscuit
Take Two Video
Click
What aspects of strategic planning do you see in the clip?
Does Pollard suggest his friend be risk seeking or risk averse during the race?
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
19
Strategic Reference Points
Adapted from Exhibit 6.6
2.32.3
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
21
Corporate-Level Strategies
Corporate-LevelStrategy
Corporate-LevelStrategy
The overall organizational strategythat addresses the question “What business(es) are we in or should webe in?”
The overall organizational strategythat addresses the question “What business(es) are we in or should webe in?”
33
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
22
Corporate-Level Strategies
33
Acquisitions, unrelated diversification, related diversification, single businesses
BCG MatrixStarsQuestion marksCash cowsDogs
Acquisitions, unrelated diversification, related diversification, single businesses
BCG MatrixStarsQuestion marksCash cowsDogs
PORTFOLIO STRATEGY
Growth
Stability
Retrenchment/recovery
Growth
Stability
Retrenchment/recovery
GRAND STRATEGIES
Adapted from Exhibit 6.7
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
23
BCG Matrix
Relative Market ShareRelative Market Share
Mar
ket
Gro
wth
Mar
ket
Gro
wth
Small Large
Low
High Question MarksQuestion Marks StarsStars
DogsDogs Cash CowsCash Cows
3.13.1
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
24
BCG Matrix
companies with a small share of a fast-growing market
companies with a small share of a fast-growing market
QuestionQuestionMarksMarks
QuestionQuestionMarksMarks
companies with a large share of a fast-growing market
companies with a large share of a fast-growing marketStarsStarsStarsStars
companies with a small share of a slow-growing market
companies with a small share of a slow-growing marketDogsDogsDogsDogs
companies with a large share of a slow-growing market
companies with a large share of a slow-growing market
CashCashCowsCows
CashCashCowsCows
3.13.1
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
25
BCG Matrix
Relative Market ShareRelative Market Share
Mar
ket
Gro
wth
Mar
ket
Gro
wth
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 6.8
3.13.1
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
26
Diversification and Risk R
isk
Ris
k
Low
High
SingleBusiness
RelatedDiversification
UnrelatedDiversification
Adapted from Exhibit 6.9
3.13.1
Relationship BetweenRelationship BetweenDiversification and RiskDiversification and Risk
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
27
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 defense 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.”
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
28
Grand Strategies
GrowthStrategy
GrowthStrategy
focuses on increasing profits, revenues, market share, or numberof places to do business
focuses on increasing profits, revenues, market share, or numberof places to do business
StabilityStrategy
StabilityStrategy
focuses on improving the way in whichthe company sells the same productsor services to the same customers
focuses on improving the way in whichthe company sells the same productsor services to the same customers
RetrenchmentStrategy
RetrenchmentStrategy
focuses on turning around very poorcompany performance by shrinkingthe size or scope of the business
focuses on turning around very poorcompany performance by shrinkingthe size or scope of the business
3.23.2
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
29
Industry-Level Strategies
Five Industry Forces
Five Industry Forces Positioning
Strategies
PositioningStrategies Adaptive
Strategies
AdaptiveStrategies
44
Answers the question: How should we compete in this industry?
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
30
Porter’s Five Industry Forces
Adapted from Exhibit 6.12
BargainingPower ofSuppliers
BargainingPower ofSuppliers
BargainingPower ofBuyers
BargainingPower ofBuyers
Threat ofSubstitutes
Threat ofSubstitutes
Threats ofNew Entrants
Threats ofNew Entrants
Character of
Rivalry
Character of
Rivalry
4.14.1
Easy to start a company in this
industry?
Easy to find substitute products/services?
Do your suppliers control you?
Do your customers control you?
How intense is the competitive behavior
between companies in your industry?
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
31
Positioning Strategies
Cost LeadershipCost Leadership
DifferentiationDifferentiation
Focus StrategyFocus Strategy
4.24.2Use one of the above strategies for a
specific group of customers in a specific geographic region or market segment.
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
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Differentiation
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
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Adaptive Strategies
Defenders
seek moderate growth
retain customers
Defenders
seek moderate growth
retain customers
Prospectors
seek fast growth
emphasize risk taking innovation
Prospectors
seek fast growth
emphasize risk taking innovation
Analyzers
blend of defender &prospector strategies
imitate other’s successes
Analyzers
blend of defender &prospector strategies
imitate other’s successes
Reactors
use an inconsistent strategy
respond to changes
Reactors
use an inconsistent strategy
respond to changes
4.34.3 THE END
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
34
Firm-Level Strategies
Basics ofDirect
Competition
Basics ofDirect
CompetitionStrategic Moves
inDirect
Competition
Strategic Moves in
Direct Competition
Entrepreneurshipand
Intrapreneurship
Entrepreneurshipand
Intrapreneurship
55
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
35
Firm-Level Strategies
DIRECTCOMPETITION
Market commonalityMarket commonality
Resource similarityResource similarity
STRATEGICMOVES OF
DIRECT COMP.
ENTREPRENEURIALINTRAPRENEURIAL
ORIENTATION
AttackAttack AutonomyAutonomy
ResponseResponse InnovativenessInnovativeness
Risk takingRisk taking
ProactivenessProactiveness
CompetitiveAggressiveness
CompetitiveAggressiveness
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Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
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Firm-Level Strategies
Adapted from Exhibit 6.13
55
Market CommonalityResource Similarity
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.
Firm A Firm B
Attack
Response
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
37
Direct Competition
Adapted from Exhibit 6.14
5.15.1Resource SimilarityResource Similarity
Low High
High
Low
Mar
ket
Co
mm
on
alit
yM
arke
t C
om
mo
nal
ity
III
III IV
McDonald’sMcDonald’s
McDonald’sMcDonald’s
BurgerKing
Wendy’s
Luby’s Cafeteria Subway
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
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Strategic Moves of Direct Competition
5.25.2
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.
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
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Strategic Moves of Direct Competition
5.25.2
Types of ResponsesTypes of Responses
1. Match or mirror your competitor’s move.1. Match or mirror your competitor’s move.
2. Respond along a different dimension fromyour competitor’s move or attack.
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
40
Strategic Moves of Direct Competition
Adapted from Exhibit 6.15
5.25.2
Competitor AnalysisCompetitor Analysis Interfirm Rivalry:Interfirm Rivalry:Action & ResponseAction & 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
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
41
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 decision-
making activities that lead to new entry5.35.3
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
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Key Dimensions of Entrepreneurial Orientation
Risk TakingRisk Taking
AutonomyAutonomy
InnovativenessInnovativeness
ProactivenessProactiveness
CompetitiveAggressiveness
CompetitiveAggressiveness
5.35.3
Chapter 6Copyright ©2009 by Cengage Learning Inc. All rights reserved
43
Entrepreneurship