Organizational Strategy
CHAPTER NINE
Prepared by
Deborah Baker
Texas Christian University
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved
Management
3rd Edition
Chuck Williams
1
CHAPTER NINE
What Would You Do?
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?
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved
2
CHAPTER NINE
Basics of Organizational Strategy
After reading the next two
sections, you should be able to:
1.
explain the components of sustainable competitive
advantage and why it is important.
2.
describe the steps involved in the strategy-making
process.
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3
CHAPTER NINE
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
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4
CHAPTER NINE
Requirements for Sustainable Competitive
Advantage
Valuable
Resources
Rare
Resources
Sustainable
Competitive
Advantage
Imperfectly
Imitable
Resources
1
NonSubstitutable
Resources
Adapted from Exhibit 9.1
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5
CHAPTER NINE
Strategy-Making Process
1
Assess need
for
strategic change
2
Conduct a
Situational
Analysis
3
Choose
Strategic
Alternatives
2
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6
CHAPTER NINE
Assessing the Need for Strategic Change
 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
2.1
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7
CHAPTER NINE
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%
2.1
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved
More
8
CHAPTER NINE
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%
2.1
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9
CHAPTER NINE
Situational Analysis
S
Strengths
Internal
W
Weaknesses
O
Opportunities
External
T
Threats
2.2
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10
CHAPTER NINE
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
2.2
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved
•Environmental
Scanning
•Strategic Groups
•Shadow-Strategy
Task Force
Threats
Adapted from Exhibit 9.4
11
CHAPTER NINE
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
2.2
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12
CHAPTER NINE
Strategic Groups
Newspapers TV Stations Web Sites
Other
Gannett
100
22
100
8
Tribune Co.
12
27
50
12
Knight Ridder
31
0
57
0
Dow Jones
19
3
2
6
New York Times
19
8
40
4
2.2
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Adapted from Exhibit 9.5
13
CHAPTER NINE
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
2.3
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14
CHAPTER NINE
Strategic Reference Points
2.3
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Adapted from Exhibit 9.6
15
CHAPTER NINE
Corporate, Industry, and
Firm-Level Strategies
After reading the next three
sections, you should be able to:
3.
explain the different kinds of corporate-level
strategies.
4.
describe the different kinds of industry-level
strategies.
5.
explain the components and kinds of firm-level
strategies.
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16
CHAPTER NINE
Corporate-Level Strategies
Portfolio
Strategy
Corporate-Level
Strategy
Grand
Strategies
The overall organizational strategy
that addresses the question “What
business(es) are we in or should we
be in?”
3
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17
CHAPTER NINE
Portfolio Strategy
 Portfolio Strategy
 Reduce risk by diversification
 Acquisitions
 the company purchases another company
 Unrelated diversification
 creating or acquiring companies in completely
unrelated businesses
 Boston Consulting Group (BCG Matrix)
3.1
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18
CHAPTER NINE
Blast From The Past
Five Decades of Diversification Strategies
1950s-1960s
Conglomerates and General Management
Skills
1970s
Corporate Strategy and Portfolio Planning
1980s
Restructuring and Value-Based Planning
1990s
Synergy and “Core” Portfolios
2000s
Too early to tell
3.1
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19
CHAPTER NINE
Market Growth Rate
BCG Matrix
3.1
High
Question Marks
Stars
Low
Dogs
Cash Cows
Small
Large
Relative Market Share
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20
CHAPTER NINE
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
3.1
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21
CHAPTER NINE
Market Growth Rate
BCG Matrix
Company A
High

Question Marks

Company G
Dogs
Company H


Company E
Cash Cows
Company F

Small
3.1
Stars
Company C
Company B
Low
Company D
Large
Relative Market Share
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved
Adapted from Exhibit 9.8
22
CHAPTER NINE
Diversification Strategies
Risk
High
Low
Single
Business
Related
Diversification
3.1
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Unrelated
Diversification
Adapted from Exhibit 9.9
23
CHAPTER NINE
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
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24
CHAPTER NINE
Been There Done That
Related Diversification at easyGroup
 easyGroup owns easyJet, easyInternetcafes, and
easyCar
 Strategy is a portfolio of investments
 Company model is based on having fixed costs and
few variable costs, and booking online to increase
efficiency
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25
CHAPTER NINE
Industry-Level Strategies
Five
Industry Forces
Positioning
Strategies
Adaptive
Strategies
How should we compete in this industry?
4
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26
CHAPTER NINE
Five Industry Forces
Threats of
New Entrants
Bargaining
Power of
Suppliers
Character
of
Rivalry
Bargaining
Power of
Buyers
Threat of
Substitutes
4.1
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Adapted from Exhibit 9.12
27
CHAPTER NINE
Positioning Strategies
Cost Leadership
Differentiation
Focus Strategy
4.2
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28
CHAPTER NINE
Adaptive Strategies
Defenders
Prospectors
 seek moderate growth  seek fast growth
 retain customers
 emphasize risk taking
innovation
Reactors
Analyzers
 use an inconsistent
 blend of defender &
strategy
prospector strategies
 respond to changes
 imitate other’s
successes
4.3
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29
CHAPTER NINE
Firm-Level Strategies
Basics of
Direct
Competition
Strategic Moves
in
Direct
Competition
Entrepreneurship
and
Intrapreneurship
How should we compete against a
particular firm?
5
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30
CHAPTER NINE
Direct Competition
DIRECT
COMPETITION
STRATEGIC
MOVES OF
DIRECT COMP.
ENTREPRENEURIAL
INTRAPRENEURIAL
ORIENTATION
Market commonality
Attack
Autonomy
Resource similarity
Response
Innovativeness
Risk taking
Proactiveness
Competitive
Aggressiveness
5.1
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Adapted from Exhibit 9.13
31
CHAPTER NINE
Market Commodity
Direct Competition
High
II
I
III
IV
Low
Low
High
Resource Similarity
5.1
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Adapted from Exhibit 9.14
32
CHAPTER NINE
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
5.2
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33
CHAPTER NINE
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
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved
Adapted from Exhibit 9.15
34
CHAPTER NINE
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
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35
CHAPTER NINE
Key Dimensions of Entrepreneurial Orientation
Risk Taking
Autonomy
Innovativeness
Proactiveness
Competitive
Aggressiveness
5.3
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36
CHAPTER NINE
What Would You Do—II?
Kmart
 Kmart is operating in the red, despite
reorganization efforts and earlier bankruptcy
protection
 Kmart faces fierce competition and has tried to
be too many things to too many people
What strategic direction does Kmart need? How can
Kmart create sustainable competitive advantage?
What would you do?
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37
CHAPTER NINE