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CHAPTER ThreeOrganizationalStrategy

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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