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CHAPTER FIVE

Effective Management 3 rd Edition Chuck Williams. CHAPTER FIVE. Organizational Strategy. 1. What Would You Do?. TiVo Headquarters Alviso, CA. TiVo, the first digital video recorder service, has become a popular concept.

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CHAPTER FIVE

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  1. Effective Management 3rd Edition Chuck Williams CHAPTER FIVE Organizational Strategy 1

  2. What Would You Do? TiVo HeadquartersAlviso, CA TiVo, the first digital video recorder service, has become a popular concept. However, five years after its startup, TiVo still is not profitable and is facing heavy competition from other DVR services. TiVo must find a niche that allows it to survive, differentiate its products and services, and must consider a counterattack against its competitors. If you were TiVo’s new CEO, what would you do? 2

  3. Basics of Organizational Strategy After reading the next two sections, you should be able to: indicate the components of sustainable competitive advantage and explain why it is important describe the steps involved in the strategy-making process 3

  4. Resources The assets, capabilities, processes, information, and knowledge that the organization controls Competitive Advantage Sustainable Competitive Advantage Providing greater value for customersthan competitors can A competitive advantage that othercompanies have tried unsuccessfullyto duplicate Sustainable Competitive Advantage 1 4

  5. ValuableResources RareResources SustainableCompetitive Advantage ImperfectlyImitableResources Non-SubstitutableResources Requirements forSustainable CompetitiveAdvantage 1 5

  6. Strategy-Making Process Assess Need forStrategic Change Conduct a Situational Analysis ChooseStrategicAlternatives 2 6

  7. Assessing the Need for Strategic Change Step 1Assess need for strategic change • Avoid Competitive Inertia • a reluctance to change strategies or competitive practices that have been successful in the past • Look for Strategic Dissonance • a discrepancy between a company’s intended strategy and the strategic actions managers take when implementing that strategy 2.1 7

  8. Doing the Right Thing Is Ethics an Overlooked Source of Competitive Advantage? • Volvo’s reputation for safe cars has been a source of competitive advantage • Johnson & Johnson is admired for its response to the Tylenol cyanide contamination incidence Should ethics be the first source of competitive advantage? Probably not… • Start with low costs, good service, or unique product capabilities. Use ethics as a way to differentiate your company from the competition. 2.1 8

  9. 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% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success 75% What Really Works 2.1 9

  10. Strategy Making for Small Firms What Really Works Strategic Planning & Profits for Small Companies 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success 61% Strategic Planning & Growth for Small Companies 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success 62% 2.1 10

  11. External Growth Through Acquisitions Strategic Planning & External Growth Through Acquisitions 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success 45% What Really Works 2.1 11

  12. S Strengths Internal W Weaknesses O Opportunities External T Threats SITUATIONAL ANALYSIS 2.2 12

  13. Strengths INTERNAL • Distinctive Competence • Core Capability Opportunities • Environmental Scanning • Strategic Groups • Shadow-Strategy Task Force EXTERNAL Weaknesses Threats Situational Analysis 2.2 13

  14. Strategic Groups • Core Firms • central companies in a strategic group • Secondary Firms • firms that follow related, but somewhat different, strategies than do core firms 2.2 14

  15. Strategic Groups 2.2 15

  16. CHOOSING STRATEGIC ALTERNATIVES Risk-Avoiding Strategy protect an existing competitive advantage Risk-Seeking Strategy extend or create a sustainable competitive advantage Strategic Reference Points targets used by managers to determine if the firm has developed the core competencies it needs to achieve a sustainable competitive advantage 2.3 16

  17. Menard’s:Risk Seeking 17

  18. What aspects of strategic planning do you see in the clip? Does Pollard suggest his friend be risk seeking or risk averse during the race? Biz Flix Seabiscuit Take Two Video CLICK 18

  19. Strategic Reference Points 2.3 19 Adapted from Exhibit 5.3

  20. Corporate, Industry, and Firm-Level Strategies After reading the next three sections, you should be able to: explain the different kinds of corporate-level strategies describe the different kinds of industry-level strategies explain the components and kinds of firm-level strategies 20

  21. Corporate-Level Strategy The overall organizational strategy that addresses the question “What business(es) are we in or should we be in?” Corporate-Level Strategies 3 21

  22. PORTFOLIO STRATEGY GRAND STRATEGIES • Growth • Stability • Retrenchment/Recovery • Acquisitions, unrelated diversification, related diversification, single businesses • BCG Matrix • Stars • Question marks • Cash cows • Dogs Corporate-Level Strategies 3 22

  23. Question Marks Stars High Market Growth Dogs Cash Cows Low Small Large Relative Market Share BCG Matrix 3.1 23

  24. Stars companies with a large share of a fast-growing market QuestionMarks companies with a small share of a fast-growing market Cash Cows companies with a large share of a slow-growing market Dogs companies with a small share of a slow-growing market BCG Matrix 3.1 24

  25. Company D Company A  Question Marks Stars High Company C Company B    Market Growth Company E Company G Dogs Cash Cows Low Company F Company H  Small Large Relative Market Share BCG Matrix 3.1 25 Adapted from Exhibit 5.5

  26. Relationship BetweenDiversification and Risk High Risk Low Single Business Related Diversification Unrelated Diversification Diversification and Risk 3.1 26 Adapted from Exhibit 5.6

  27. Unrelated diversification does not reduce risk. • Present performance is used to predict future performance. • Cash cows fail to aggressively pursue opportunities and defense themselves from threats. • Being labeled a “cash cow” can hurt employee morale. • Companies often overpay to acquire stars. • Acquiring firms often treat stars as “conquered foes.” Problems with Portfolio Strategy 27

  28. GrowthStrategy focuses on increasing profits, revenues, market share, or numberof places to do business Stability Strategy RetrenchmentStrategy focuses on improving the way in which the company sells the same productsor services to the same customers focuses on turning around very poorcompany performance by shrinking the size or scope of the business Grand Strategies 3.2 28

  29. Industry-Level Strategies Five Industry Forces Positioning Strategies AdaptiveStrategies 4 29

  30. Threats ofNew Entrants Character of Rivalry BargainingPower ofSuppliers BargainingPower ofBuyers Threat of Substitutes Porter’s Five Industry Forces 4.1 30 Adapted from Exhibit 5.7

  31. Positioning Strategies Cost Leadership Differentiation Focus Strategy 4.2 31

  32. Differentiation 32

  33. Defenders • seek moderate growth • retain customers • Prospectors • seek fast growth • emphasize risk takinginnovation Analyzers • blend of defender &prospector strategies • imitate other’s successes Reactors • use an inconsistent strategy • respond to changes Adaptive Strategies 4.3 33

  34. Firm-Level Strategies Basics ofDirectCompetition Strategic Moves In Direct Competition 5 34

  35. DIRECTCOMPETITION STRATEGIC MOVES OF DIRECT COMPETITION Market commonality Attack Resource similarity Response Firm-Level Strategies 5 35

  36. Firm-Level Strategies Market Commonality Resource Similarity Attack Response Firm B Firm A Entering market is most forceful attack. Exiting market is clear defensive signal of retreat. Entrepreneurship is strategy of entering established markets or developing new market. 5 36

  37. McDonald’s Wendy’s McDonald’s BurgerKing High II I Market Commonality McDonald’s III IV McDonald’s Low Subway Luby’s Cafeteria Low High Resource Similarity Direct Competition 5.1 37 Adapted from Exhibit 5.8

  38. Attack A competitive move designed to reduce a rival’s market share or profits. of Direct Competition Strategic Moves Response A competitive countermove, prompted by a rival’s attack, to defend or improve a company’s market share or profit. 5.2 38

  39. 1. Match or mirror your competitor’s move. 2. Respond along a different dimension fromyour competitor’s move or attack. of Direct Competition Strategic Moves Types of Responses 5.2 39

  40. Less Likelihood of an Attack Strong Market Commonality Greater Likelihood of an Attack Weak Market Commonality Less Likelihood of a Response Strong Resource Commonality Low Resource Commonality Greater Likelihood of a Response of Direct Competition Interfirm Rivalry: Action & Response Competitor Analysis Strategic Moves 5.2 40

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