Chapter 6 Organizational Strategy

Learning Outcomes After reading this chapter, you should be able to: 1.Specify the components of sustainable competitive advantage and explain why it is important. 2.Describe the steps involved in the strategy- making process. 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. Copyright © 2015 by Nelson Education Ltd.6-2

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 Copyright © 2015 by Nelson Education Ltd

Requirements for Sustainable Competitive Advantage Copyright © 2015 by Nelson Education Ltd. 4 Sustainable Competitive Advantage Sustainable Competitive Advantage Valuable Resources Non- Substitutable Resources Imperfectly Imitable Resources Rare Resources

Strategy-Making Process 1.Assess the need for strategic change. 2.Conduct situational analysis. 3.Choose strategic alternatives. Copyright © 2015 by Nelson Education Ltd. 5 Avoid Competitive Inertia Look for Strategic Dissonance

Situational Analysis Copyright © 2015 by Nelson Education Ltd

Situational Analysis Distinctive competence Core capability Shadow-strategy task force Environmental scanning Strategic groups PEST analysis Copyright © 2015 by Nelson Education Ltd

Class Activity: Situational Analysis of Your School Copyright © 2015 by Nelson Education Ltd. 8 STRENGTHSWEAKNESSES OPPORTUNITIESTHREATS 6-8 Fill in the SWOT analysis for your university/college. What did you learn? Beyond the Book

9 STRENGTHS Brand image Cost leader strategy Product innovation WEAKNESSES Poor intellectual capital Lagging in e-commerce No distinctive competencies OPPORTUNITIES QR codes Minimal barriers of entry M/A (mergers/ acquisitions) THREATS Inflation Slowdown in market share Growing bargaining power of suppliers and customers Sample Situational Analysis Copyright © 2015 by Nelson Education Ltd.6-9

Choosing Strategic Alternatives Risk-Avoiding Strategy protects an existing competitive advantage Risk-Seeking Strategy extends or creates a sustainable competitive advantage Strategic Reference Points targets used by managers to determine whether the firm has developed the core competencies it needs to achieve a sustainable competitive advantage Copyright © 2015 by Nelson Education Ltd

Choosing Strategic Alternatives: Strategic Reference Points Copyright © 2015 by Nelson Education Ltd

Corporate-Level Strategies What business(es) are we in or should we be in? Grand Strategy Portfolio Strategy 12 Copyright © 2015 by Nelson Education Ltd

Corporate-Level Strategies PORTFOLIO STRATEGY Acquisitions Unrelated diversification Related diversification Single businesses BCG matrix –Stars –Question marks –Cash cows –Dogs Copyright © 2015 by Nelson Education Ltd

Corporate-Level Strategies GRAND STRATEGIES Growth Stability Retrenchment/recovery Copyright © 2015 by Nelson Education Ltd

Problems with Portfolio Strategy Copyright © 2015 by Nelson Education Ltd.6-15

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 defend themselves from threats. Being labelled a “cash cow” can hurt employee morale. Companies often overpay to acquire stars. Acquiring firms often treat stars as “conquered foes.” Copyright © 2015 by Nelson Education Ltd.6-16

U-Shaped Relationship Between Diversification and Risk Copyright © 2015 by Nelson Education Ltd

Grand Strategies Growth Strategy is to increase profits, revenues, market share, or the number of places (store, offices, locations) in which the company does business Stability Strategy focuses on improving the way the company sells the same products or services to the same customers Copyright © 2015 by Nelson Education Ltd

Grand Strategies Retrenchment Strategy focuses on turning around very poor company performance by shrinking the size or scope of the business Copyright © 2015 by Nelson Education Ltd

Industry-Level Strategies: How Should We Compete in This Industry? Five Industry Forces Positioning Strategies Adaptive Strategies Copyright © 2015 by Nelson Education Ltd

Porter’s Five Industry Forces Copyright © 2015 by Nelson Education Ltd

Positioning Strategies Copyright © 2015 by Nelson Education Ltd Cost leadership Focus strategy Differentiation strategy

Adaptive Strategies Defenders: seek moderate growth retain customers Analyzers: are a blend of defender and prospector strategies imitate other’s successes Prospectors: seek fast growth emphasize risk-taking innovation Reactors: use an inconsistent strategy respond to changes Copyright © 2015 by Nelson Education Ltd

Firm-Level Strategies: How Should We Compete Against a Particular Firm? Copyright © 2015 by Nelson Education Ltd. 24 Strategic Moves in Direct Competition Entrepreneurship Basics of Direct Competition

Firm-Level Strategies: A Framework of Direct Competition Copyright © 2015 by Nelson Education Ltd

Strategic Moves of Direct Competition AttackResponse Copyright © 2015 by Nelson Education Ltd

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 entry Copyright © 2015 by Nelson Education Ltd. 27 Beyond the Book 6-27