Download - CHAPTER Three Organizational Strategy
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CHAPTER ThreeOrganizationalStrategy
2Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved
What Would You Do?What Would You Do?You are in charge of You are in charge of IKEA Design Company…IKEA Design Company…
The furniture industry is The furniture industry is highly fragmented and IKEA highly fragmented and IKEA has turned this into has turned this into opportunitiesopportunities
Scandinavian strategies Scandinavian strategies include low prices and include low prices and convenient packaging convenient packaging
Will the strategies work on a global basis? How can IKEA Will the strategies work on a global basis? How can IKEA identify opportunities and threats, and select a competitive identify opportunities and threats, and select a competitive advantage strategy? advantage strategy?
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Basics of Organizational Basics of Organizational StrategyStrategy
After reading the next two sections, you should be able to:
1.1. explain the components of sustainable explain the components of sustainable competitivecompetitiveadvantage and why it is important. advantage and why it is important.
2.2. describe the steps involved in the strategy-describe the steps involved in the strategy-making process.making process.
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Sustainable Competitive Sustainable Competitive AdvantageAdvantage
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
1
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Requirements for Sustainable Requirements for Sustainable CompetitiveCompetitiveAdvantageAdvantage
SustainableCompetitiveAdvantage
SustainableCompetitiveAdvantage
ValuableResources
ValuableResources
Non-Substitutable
Resources
Non-Substitutable
Resources
ImperfectlyImitable
Resources
ImperfectlyImitable
Resources
RareResources
RareResources
Adapted from Exhibit 8.1
1
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Strategy-Making ProcessStrategy-Making Process
Assess need for
strategic change
Conduct asituational
analysis
Choosestrategic
alternatives
1 2 3
2
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Assessing the Need for Assessing the Need for Strategic ChangeStrategic Change Competitive InertiaCompetitive Inertia
a reluctance to change strategies a reluctance to change strategies or competitive practices that have or competitive practices that have been successfulbeen successful
Strategic Dissonance discrepancy Strategic Dissonance discrepancy between top management’s intended between top management’s intended strategy and the actual strategy strategy and the actual strategy implemented by lower managementimplemented by lower management
2.1
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What Really WorksWhat Really WorksStrategy Making for FirmsStrategy Making for Firms
Strategic Planning & Profits for Big Companies
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
probability of successprobability of success7272%%
Strategy Making for Big Firms
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
probability of successprobability of success 7575%%
Strategic Planning & Growth for Big Companies
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What Really WorksWhat Really WorksStrategy Making for FirmsStrategy Making for Firms
Strategic Planning & Profits for Small Companies
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
probability of successprobability of success6161%%
Strategy Making for Small Firms
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Strategic Planning & Growth for Big Companies
probability of successprobability of success 6262%%
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Situational AnalysisSituational Analysis
SS
WW
O O
TT
StrengthsStrengths
WeaknessesWeaknesses
Opportunities Opportunities
ThreatsThreats
InternalInternal
ExternalExternal
2.2
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Situational AnalysisSituational Analysis
StrengthsStrengths
WeaknessesWeaknesses
•Distinctive Competence
•Core CapabilityOpportunitiesOpportunities
ThreatsThreats
•Environmental Scanning
•Strategic Groups
INTERNAL
EXTERNAL
Adapted from Exhibit 8.2
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Strategic GroupsStrategic Groups
Core FirmsCore Firms central companies in a central companies in a
strategic groupstrategic group
Secondary FirmsSecondary Firms firms that follow related, firms that follow related,
but somewhat different, but somewhat different, strategies than do core strategies than do core firmsfirms
2.2
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Choosing Strategic AlternativesChoosing Strategic Alternatives
Risk-Avoiding StrategyRisk-Avoiding Strategy
protect a competitive advantageprotect a competitive advantage
Risk-Seeking StrategyRisk-Seeking Strategy
create a sustainable competitive create a sustainable competitive advantageadvantage
Strategic Reference PointsStrategic Reference Points
targets used by managers to determine if targets used by managers to determine if the firm has a sustained competitive the firm has a sustained competitive advantageadvantage
2.3
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Strategic Reference PointsStrategic Reference Points
2.3
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Corporate, Industry, and Corporate, Industry, and Firm-Level StrategiesFirm-Level StrategiesAfter reading the next three sections, you should be able to:
3.3. explain the different kinds of corporate-level explain the different kinds of corporate-level strategies. strategies.
4.4. describe the different kinds of industry-level describe the different kinds of industry-level strategies.strategies.
5.5. explain the components and kinds of firm-level explain the components and kinds of firm-level strategies.strategies.
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Corporate-Level StrategiesCorporate-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?”
PortfolioStrategy
PortfolioStrategy
GrandStrategies
GrandStrategies
3
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Portfolio StrategyPortfolio Strategy
Portfolio StrategyPortfolio Strategy Reduce risk by diversificationReduce risk by diversification
AcquisitionsAcquisitions the company purchases another the company purchases another
companycompany Unrelated diversificationUnrelated diversification
creating or acquiring companies in creating or acquiring companies in completely unrelated businessescompletely unrelated businesses
Boston Consulting Group (BCG Boston Consulting Group (BCG Matrix)Matrix)
3.1
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BCG MatrixBCG Matrix
Relative Market ShareRelative Market Share
Mar
ket
Mar
ket
Gro
wth
Rat
eG
row
th R
ate
Small Large
Low
High Question Question MarksMarks
StarsStars
DogsDogs Cash CowsCash Cows
3.1
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BCG MatrixBCG Matrix
companies with a small share of a fast-growing market
companies with a small share of a fast-growing market
companies with a large share of a fast-growing market
companies with a large share of a fast-growing market
companies with a small share of a slow-growing market
companies with a small share of a slow-growing market
companies with a large share of a slow-growing market
companies with a large share of a slow-growing market
QuestionQuestionMarksMarks
QuestionQuestionMarksMarks
StarsStarsStarsStars
DogsDogsDogsDogs
CashCashCowsCows
CashCashCowsCows
3.1
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BCG MatrixBCG Matrix
Relative Market ShareRelative Market Share
Mar
ket
Gro
wth
Rat
eM
arke
t G
row
th R
ate
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 8.5
3.1
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Diversification StrategiesDiversification StrategiesR
isk
Ris
k
Low
High
SingleBusines
s
RelatedDiversification
UnrelatedDiversification
Adapted from Exhibit 8.6
3.1
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Grand StrategiesGrand 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
3.2
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Industry-Level StrategiesIndustry-Level Strategies
Five Industry Forces
Five Industry Forces
PositioningStrategies
PositioningStrategies
AdaptiveStrategies
AdaptiveStrategies
How should we compete in this industry?
4
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Five Industry ForcesFive Industry Forces
Adapted from Exhibit 8.7
BargainingPower ofSuppliers
BargainingPower ofSuppliers
BargainingPower ofBuyers
BargainingPower ofBuyers
Threat ofSubstitutes
Threat ofSubstitutes
Threats ofNew Entrants
Threats ofNew Entrants
Character of
Rivalry
Character of
Rivalry
4.1
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Positioning StrategiesPositioning Strategies
Cost LeadershipCost Leadership
DifferentiationDifferentiation
Focus StrategyFocus Strategy
4.2
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Adaptive StrategiesAdaptive 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
4.3
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Firm-Level StrategiesFirm-Level Strategies
Basics ofDirect
Competition
Basics ofDirect
CompetitionStrategic Moves
inDirect
Competition
Strategic Moves in
Direct Competition
How should we compete against a particular firm?
5
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Direct CompetitionDirect Competition
DIRECTCOMPETITION
Market commonality
Market commonality
Resource similarity
Resource similarity
STRATEGICMOVES OF
DIRECT COMPETITION
AttackAttack
ResponseResponse
5.1
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Direct CompetitionDirect Competition
Resource SimilarityResource Similarity
Low High
High
Low
Mar
ket
Co
mm
od
ity
Mar
ket
Co
mm
od
ity
III
III IV
Adapted from Exhibit 8.8
5.1
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Strategic Moves of Direct Strategic Moves of Direct CompetitionCompetition AttackAttack
a competitive movea competitive move designed to reduce a rival’s designed to reduce a rival’s
market share market share or profitsor profits
ResponseResponse a countermovea countermove designed to protect a company’s designed to protect a company’s
market share or profitsmarket share or profits
5.2
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Strategic Moves of Direct Strategic Moves of Direct CompetitionCompetition
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
Adapted from Exhibit 8.9
5.2