Strategic Change: Implementing Strategies to Build and Develop a Company Chapter 8

8 | 2 Copyright © Houghton Mifflin Company. All rights reserved. Strategic Change The movement of a company away from its present state toward some desired future state to increase its competitive advantage and profitability

8 | 3 Copyright © Houghton Mifflin Company. All rights reserved. The Change Process Distinct steps of the change process: –Determining the need for change –Determining the obstacles to change –Managing and evaluating change

8 | 4 Copyright © Houghton Mifflin Company. All rights reserved. Figure 8.1: Stages in the Change Process

8 | 5 Copyright © Houghton Mifflin Company. All rights reserved. Another Illustration of the Change Process Determine obstacles to change Manage and Evaluate Change Determine the need for change

8 | 6 Copyright © Houghton Mifflin Company. All rights reserved. Portfolio of Core Competencies A core competence is a core skill of a company Identifying these central value-creating capabilities tells a company which business opportunity to pursue

8 | 7 Copyright © Houghton Mifflin Company. All rights reserved. Video Clip: Jordan's Furniture’s Reaction to Change

8 | 8 Copyright © Houghton Mifflin Company. All rights reserved. Figure 8.2: Establishing a Competency Agenda

8 | 9 Copyright © Houghton Mifflin Company. All rights reserved. Strategy Implementation Strategies implemented through: –Internal new ventures –Acquisitions –Strategic alliances

8 | 10 Copyright © Houghton Mifflin Company. All rights reserved. “Successful organizations understand the importance of implementation, not just strategy,... and, moreover, recognize the crucial role of their people in the process.” - Jeffrey Pfeffer © RoyaltyFree/ Stockdisc/ Getty Images

8 | 11 Copyright © Houghton Mifflin Company. All rights reserved. Strategic Change: Implementing Strategies to Build and Develop a Company Internal New Ventures Acquisitions Strategic Alliances Risk

8 | 12 Copyright © Houghton Mifflin Company. All rights reserved. Internal New Ventures Involve creating the value-chain functions necessary to start a new business from scratch Typically used to leverage or recombine valuable competencies to enter a new business area Generally science-based companies tend to favor internal new ventures as a strategy implementation

8 | 13 Copyright © Houghton Mifflin Company. All rights reserved. Internal New Ventures (cont’d) Although these can be profitable, the reported failure rate is very high Three reasons for failure: –Market entry occurs on too small a scale –Poor commercialization of the new product –Poor corporate management of the venture

8 | 14 Copyright © Houghton Mifflin Company. All rights reserved. Internal New Ventures (cont’d) Ways to limit risk: –Adopt a structured approach to managing the venture –Foster close links between R&D and marketing –Set up project teams –Choose ventures with greatest probability of commercial success –Monitor projects closely

8 | 15 Copyright © Houghton Mifflin Company. All rights reserved. Figure 8.3: Scale of Entry and Profitability

8 | 16 Copyright © Houghton Mifflin Company. All rights reserved. Acquisitions Involve one company purchasing another company Usually done by a company that: –wants to move fast –is in a well established industry and has barriers of entry Used in two ways: –To strengthen competitive positioning by purchasing a competitor –To enter a new business or industry

8 | 17 Copyright © Houghton Mifflin Company. All rights reserved. Acquisitions (cont’d) Advantages Faster than building a new business Less risk than internal new ventures Ability to circumvent most entry barriers Disadvantages Often end up dissipating value Often fail to realize anticipated benefits Tend to be expensive Difficult to integrate various corporate cultures

8 | 18 Copyright © Houghton Mifflin Company. All rights reserved. Acquisitions (cont’d) Ways to limit risk: –Target identification and pre-acquisition screening –Bidding strategy (this works best when the stock market undervalues a company) –Integration

8 | 19 Copyright © Houghton Mifflin Company. All rights reserved. Figure 8.4: Structuring Alliances to Reduce Opportunism

8 | 20 Copyright © Houghton Mifflin Company. All rights reserved. Strategic Alliances Cooperative agreements between companies to work together and share resources to achieve a common goal Can be informal or short-term agreements Can be joint ventures- a formal type of strategic alliance where two companies create a new separate company

8 | 21 Copyright © Houghton Mifflin Company. All rights reserved. Strategic Alliances (cont’d) Advantages –Facilitate entry into a market –Share the fixed costs and risks that arise –Bring together complementary skills and assets Disadvantages –May provide competitors with access to valuable knowledge

8 | 22 Copyright © Houghton Mifflin Company. All rights reserved. Strategic Alliances (cont’d) Ways to limit risk: –Careful partner selection –Alliance structure –Alliance management