Chapter 9

Organizational Strategy

©2004 by Nelson, a division of Thomson Canada Limited

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What Would You Do?
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Sobeys is a national player in the grocery industry Faced integration, cash flow, and IT problems Has 12% of the market Increasing competition and tough market outlook How do you respond to these challenges?
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©2004 by Nelson, a division of Thomson Canada Limited

Learning Objectives: 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
©2004 by Nelson, a division of Thomson Canada Limited

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Sustainable Competitive Advantage

Resources

assets, capabilities, process, information, and knowledge providing greater value for customers than competitors can when other companies have tried unsuccessfully to duplicate, and have, for the moment, stopped trying to duplicate
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Competitive advantage

Sustainable competitive advantage

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Achieving a Sustainable Competitive Advantage
Resources must be:
Valuable Rare

Imperfectly imitable

Non-substitutable

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Strategy-Making Process
Step 1 Assess need for strategic change Step 2 Conduct situation analysis Step 3 Choose strategic alternatives
Adapted from Exhibit 9.1 ©2004 by Nelson, a division of Thomson Canada Limited

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What Really Works
Strategy-making for Firms, Big and Small

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What Really Works

©2004 by Nelson, a division of Thomson Canada Limited

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Assessing the Need for Strategic Change

Competitive inertia

a reluctance to change strategies or competitive practices that have been successful in the past discrepancy between upper management’s intended strategy and the strategy actually implemented by lower levels of management
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Strategic dissonance

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Situational Analysis (SWOT)
Strengths and Weaknesses

distinctive competence

what a company can do, or perform better than competitors internal routines, processes, and culture that determine how efficiently inputs can be turned into outputs

core capabilities

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Situational Analysis (SWOT)
Environmental scanning

strategic groups

a group of companies within an industry that top managers choose to compare, evaluate, and benchmark strategic opportunities and threats a committee within the company that analyzes the company’s own weaknesses to determine how competitors could exploit them
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shadow-strategy task force

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Strategic Groups
Core firms  the central companies in a strategic group Secondary firms  firms that follow related but somewhat different strategies than do core firms
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Choosing Strategic Alternatives
Strategic reference points

targets used by managers to determine if the firm has a sustainable competitive advantage protects an existing competitive advantage create or sustain a sustainable competitive advantage
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Risk-avoiding strategy

Risk-seeking advantage

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Strategic Reference Points

Exhibit 9.2 ©2004 by Nelson, a division of Thomson Canada Limited

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Learning Objectives: Corporate-, Industry-, & 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 industrylevel strategies 5. explain the components and kinds of firm- level strategies
©2004 by Nelson, a division of Thomson Canada Limited

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Corporate-Level Strategies
Corporate-level strategy

overall organizational strategy that addresses the question “What business are we in or should we be in?”
Portfolio Strategy Grand Strategies

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Portfolio Strategy
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Minimize risk by diversification Acquisition

purchase of a company by another company creating or acquiring companies in completely unrelated businesses

Unrelated diversification

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BCG matrix Related diversification
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©2004 by Nelson, a division of Thomson Canada Limited

Boston Consulting Group Matrix

Exhibit 9.4 ©2004 by Nelson, a division of Thomson Canada Limited

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Diversification and Risk
There is a U-shaped relationship between diversification and risk:
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Single businesses with no diversification are extremely risky Competing in a variety of different businesses can lower risk. Conglomerates composed of completely unrelated businesses are riskier than undiversified companies.
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Adapted from Exhibit 9.5 ©2004 by Nelson, a division of Thomson Canada Limited

Grand Strategies

Growth

Stability

Retrenchment

Recovery

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Industry-Level Strategies

Industry-level strategy

overall organizational strategy that addresses the question “How should we compete in this industry?”

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Five industry forces Positioning strategies Adaptive strategies
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Porter’s Five Industry Forces
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Character of the rivalry Threat of new entrants Threat of substitute products or services Bargaining power of suppliers Bargaining power of buyers

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Positioning Strategies
Cost leadership

producing a quality product or service at a price lower than competitors accentuating difference between a product or service and those of competitors Using cost leadership or differentiation for a specific target market
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Differentiation

Focus

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Adaptive Strategies
Defenders
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Analyzers

seek growth retain customers seek fast growth encourage risktaking and innovation

Prospectors
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minimize risk and maximize profit imitate proven successes of prospectors Inconsistent strategy React to changes
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Reactors


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Firm-Level Strategies
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Direct competition Strategic moves of direct competition Entrepreneurship: A firm-level strategy

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Direct Competition
Direct competition

rivalry between two firms that offer similar products and services that acknowledge each other as rivals and take offensive and defensive positions in response to each other

Two factors determine extent of competition:
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market commonality resource similarity
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©2004 by Nelson, a division of Thomson Canada Limited

Strategic Moves of Direct Competition
Attack
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a competitive move designed to reduce a rival’s market share or profits a counter move to defend or improve a company’s market share or profit
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Response
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Attacks and Responses

Exhibit 9.8 ©2004 by Nelson, a division of Thomson Canada Limited

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Entrepreneurship: A Firm-Level Strategy
Entrepreneurship

process of entering new or established markets with new goods or services set of processes, practices and decision-making activities that lead to new entry characterized by autonomy, innovativeness, risk-taking, 29 proactiveness, and competitive

Entrepreneurial orientation

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What Really Happened?
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Focused product lines Improved store network Removed costs from its structure Revenues, share price, and operating earnings all increased

©2004 by Nelson, a division of Thomson Canada Limited

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