Chapter 6 Organizational Strategy

1. MGMT3 Chuck Williams Chapter 6Organizational Strategy Designed & Prepared byB-books, Ltd.

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

3. Sustainable Competitive Advantage 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 1

4. ValuableResources RareResources SustainableCompetitive Advantage ImperfectlyImitableResources Non-SubstitutableResources Requirements for Sustainable Competitive Advantage 1

5. Strategy-Making Process Assess need forstrategic change Conduct a Situational Analysis ChooseStrategicAlternatives 2

6. Assessing the 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. S Strengths Internal W Weaknesses O Opportunities External T Threats Situational Analysis 2.2

8. Strengths INTERNAL • Distinctive Competence • Core Capability Opportunities • Environmental Scanning • Strategic Groups EXTERNAL Weaknesses Threats Situational Analysis 2.2

9. Strategic Groups • Core Firms • central companies in a strategic group • Secondary Firms • firms in a strategic group that follow strategies related to but somewhat different from those of the core firms 2.2

10. 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

11. Strategic Reference Points 2.3

12. Corporate, Industry, and Firm-Level Strategies After reading these 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.

13. Corporate-Level Strategies Corporate-Level Strategy The overall organizational strategythat addresses the question “What business(es) are we in or should webe in?” 3

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

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

16. BCG Matrix 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 3.1

17.  Company D Company A High Question Marks Stars Company C Company B   Market Growth  Company E Company G Low Dogs Cash Cows Company F Company H  Small Large Relative Market Share BCG Matrix 3.1 Adapted from Exhibit 6.3

18. Beyond the Book Apple’s New Strategy? Despite controlling 90% of song downloads and 75% of digital music player sales, Apple may be shifting its strategic focus away from music. iPod sales are expected to be flat in the coming years, while sales of downloadable apps from the App Store have taken off. How would you characterize Apple’s various business segments? Source: P. Burrows, “Apps Trump Tunes at Apple”, Business Week, 28 September 2009. 34.

19. Relationship BetweenDiversification and Risk High Risk Low Single Business Related Diversification Unrelated Diversification Diversification and Risk 3.1

20. 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 labeled a “cash cow” can hurt employee morale. • Companies often overpay to acquire stars. • Acquiring firms often treat stars as “conquered foes.”

21. Beyond the Book Comcast Wants a Deal • Consider the ramifications of a Comcast bid for NBC Universal: • Critics say that the NBC takeover would distract Comcast executives from the firms core competencies of providing cable TV, broadband and phone services. • NBC’s sports assets (the Olympics, Sunday Night Football) would give Comcast the resources to compete with ESPN. • NBC would also give Comcast a stake in Hulu, which could be converted to a paid service. Source: R. Grover, T. Lowry, “A Touchdown For Comcast?”, Business Week, 19 October 2009. 28.

22. GrowthStrategy focuses on increasing profits, revenues, market share, or numberof places to do business Stability Strategy RetrenchmentStrategy focuses on improving the way the company sells the same products or 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

23. Beyond the Book Nalco is Strategic in Retrenchment Phase One common mistake made in the retrenchment process is mandating equal staff reductions across the board. When Nalco reduced its 11,000 person workforce by 4%, it also shifted its workforce around, moving a group of workers from a paper plant being shut down to another to work on pollution control. It also opened a government-affairs office in China. Strategic cuts like these can be a key step in moving from retrenchment to recovery. Source: R. Charan, “My (Recovery) Playbook”, Fortune, 31 August 2009. 60-66.

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

25. Threats ofNew Entrants Character of Rivalry BargainingPower ofSuppliers BargainingPower ofBuyers Threat of Substitutes Porter’s Five Industry Forces 4.1

26. Beyond the Book Toy Maker Takes on Challenging Girls’ Market After finding success in the lucrative market for boys’ toys, Spin Master is looking to expand into the market for girls 6-10 with their Liv line of dolls. The barriers to entry for this market are notoriously high; Mattel’s Barbie has largely controlled the market for the last five decades, driving out numerous competitors, including MGA Entertainments’ Bratz line, most recently, with a lawsuit. Early results for the Liv dolls, released July 2009, have shown promise though, becoming a top seller at Walmart.com and gaining the second largest share of shelf space for dolls. Source: C. Palmeri, “The Boy Toy Maker Chasing Barbie”, Business Week, 28 September 2009. 70.

27. Positioning Strategies Cost Leadership Differentiation Focus Strategy 4.2

28. Adaptive Strategies • Defenders • seek moderate growth • retain customers • Prospectors • seek fast growth • emphasize risk-taking& innovation Analyzers • blend of defender &prospector strategies • imitate others’ successes Reactors • use an inconsistent strategy • respond to changes 4.3

29. Firm-Level Strategies Basics ofDirectCompetition Strategic Moves inDirect Competition 5

30. DIRECTCOMPETITION STRATEGICMOVES OFDIRECT COMP. Market commonality Attack Resource similarity Response Firm-Level Strategies 5

31. 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. Firm-Level Strategies 5

32. 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

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

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

35. Competitor Analysis Interfirm Rivalry: Action & Response 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 Strategic Moves of Direct Competition 5.2

36. Beyond the Book Booksellers in Price War In October 2009, Walmart.com announced it would sell the ten most anticipated books of the season at $10 each. When Amazon matched the price, Walmart.com dropped the price to $9. Target’s online sales site posted the books at $8.99. Walmart.com dropped the price again to $8.99. One of these books, Stephen King’s “Under the Dome”, has a cover price of $35. The American Booksellers Association has brought the matter before the Justice Department with concerns that these price cuts could hurt the industry as whole, driving small independent booksellers out of the market. Source: J. A. Trachtenberg, “Booksellers Ask Justice Department to Investigate War Over Pricing”, The Wall Street Journal, 23 October 2009. http://online.wsj.com/article/SB10001424052748703816204574489891863465178.html (accessed 10/23/2009).