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Chapter 9

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  1. Chapter 9 Organizational Strategy

  2. What Would You Do?General Motors’ Strategy • How can GM create a sustainable advantage over its competitors? • Are there potential business opportunities as well as threats? • What should GM’s new strategy be?

  3. Learning ObjectivesBasics of Organizational Strategy • explain the components of sustainable competitive advantage and why it is important. • describe the steps involved in the strategy-making process. After discussing this section, you should be able to:

  4. Sustainable Competitive Advantage • Resources • assets, capabilities, processes, information, & knowledge • Competitive advantage • providing greater value for customers than competitors can • Sustainable competitive advantage • when other firms cannot duplicate the value a firm is providing to customers

  5. Achieving Sustainable Competitive Advantage Resources must be: Valuable Rare Imperfectly Imitable Non-substitutable

  6. Step 1: Assessing the need for strategic change Step 2: Conduct a situational analysis Step 3: Choose strategic alternatives Strategy-Making Process

  7. What Really Works? Strategy-Making for Firms, Big and Small Strategic Planning & Profits for Big Companies 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Probability of success 72% Strategic Planning & Growth for Big Companies 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Probability of success 75%

  8. What Really Works? (cont’d) Strategy-Making for Firms, Big and Small Strategic Planning & Growth for Small Companies 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Probability of success 61% Strategic Planning & Return on Investment for Small Companies 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Probability of success 62%

  9. Assessing the Need for Strategic Change • Competitive Inertia • a reluctance to change strategies or competitive practices that have been successful • Strategic Dissonance • discrepancy between top management’s intended strategy and the actual strategy implemented by lower management

  10. Strengths • Distinctive Competency • Core Capability Opportunities • Environmental Scanning • Strategic Groups • Shadow-Strategy Task Force Weaknesses Threats Situational Analysis - SWOT

  11. Strategic Groups • Core Firms • central companies in a strategic group • Secondary Firms • firms that follow related, but somewhat different strategies than do core firms • Transient Firms • companies whose strategies change from one strategic position to another

  12. Gannett Tribune Co. Knight Ridder Dow Jones New York Times Strategic Groups for Gannett Company Newspapers 97 14 32 25 16 TV Stations 22 22 0 3 8 Web Sites 100 29 57 8 2 Other 8 11 0 3 5 Adapted from Exhibit 9.7

  13. Choosing Strategic Alternatives • Risk-Avoiding Strategy • protect a competitive advantage • Risk-Seeking Strategy • create a sustainable competitive advantage • Strategic Reference Points • targets used by managers to determine if the firm has a sustained competitive advantage

  14. Current Situation • Satisfied • Sitting on top of • the work • Issues • Threats • Potential loss • Negativity • Response or • Behavior • Risk Averse • Conservative • Defensive • Current Situation • Dissatisfied • At the bottom • looking up • Perception of • New Issues • Opportunity • Gain • Positivity • Response or • Behavior • Risk taking • Daring • Offensive Strategic Reference Points At the top looking down At the bottom looking up Adapted from Exhibit 9.8

  15. Learning ObjectivesCorporate-, Industry-, & Firm-Level Strategies • explain the different kinds of corporate-level strategies. • describe the different kinds of industry-level strategies. • explain the components and strategies of firm-level competition. After discussing this section, you should be able to:

  16. Corporate-Level Strategies • Corporate-level strategy • overall organizational strategy that addresses the question “What business or businesses are we in or should we be in?” Grand Strategies Portfolio Strategy

  17. Portfolio Strategy • Minimize risk by diversification • Acquisition • the company purchases another company • Unrelated diversification • creating or acquiring companies in completely unrelated businesses • BCG Matrix

  18. Company D Company A High Question Marks Stars Company C Company B Market Growth Rate Company E Company G Low Dogs Cash Cows Company F Company H Small Large Relative Market Share Boston Consulting Group (BCG) Matrix Adapted from Exhibit 9.10

  19. Relationship Between Diversification and Risk High Risk Low Single Business Related Diversification Unrelated Diversification Adapted from Exhibit 9.11

  20. Blast From The PastFive Decades of Diversification Strategies 1950s & 1960s: Conglomerates and General Management Skills 1970s: Corporate Strategy and Portfolio Planning 1980s: Restructuring and Value-Based Planning 1990s: Synergy and “Core” Portfolios 2000: Too Early to Tell

  21. Grand Strategy Growth Strategy Stability Strategy Recovery/Retrenchment Strategy

  22. Been There, Done That Nestle’s Strategy • Internal growth is now the focus • Diversifying globally • Focus on long-term shareholders

  23. Industry-Level Strategies • Industry-level strategy • overall organizational strategy that addresses the question “How should we compete in this industry?” Adaptive Strategies Five Industry Forces Positioning Strategies

  24. Porter’s Five Competitive Forces Threat of New Entrants Bargaining Power of Suppliers Bargaining Power of Buyers Character of Rivalry Threat of Substitute Products or Services

  25. Positioning Strategies Cost Leadership Differentiation Focus Strategy

  26. Defenders seek moderate growth retain customers Prospectors seek fast growth emphasize risk taking and innovation Analyzers blend of defender & prospector strategies imitate the proven successes of others Reactors use an inconsistent strategy respond to changes Adaptive Strategies

  27. Firm-Level Strategies Basics of Direct Competition Strategic Moves Involved in Direct Competition Firm-Level Strategy of Entrepreneurship

  28. Framework of Direct Competition High II I Market Commodity III IV Low Low High Resource Similarity

  29. Strategic Moves of Direct Competition • Attack • a competitive move • designed to reduce a rival’s market share or profits • Response • a countermove • designed to protect a company’s market share or profits

  30. Likelihood of Attacks & Responses Competitor Analysis Interfirm Rivalry: Action & Response Less Likelihood of an Attack Strong Market Commonality Weak Market Commonality Greater Likelihood of an Attack High Resource Similarity Greater Likelihood of a Response Low Resource Similarity Less Likelihood of a Response Adapted from Exhibit 9.17

  31. Firm-Level Strategy of Entrepreneurship • 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

  32. Entrepreneurial Orientation Autonomy Innovativeness Risk-taking Proactiveness Competitive Aggressiveness

  33. What Really Happened?GM’s Strategy • Significantly improve reliability of its cars • Use cost savings to develop differentiated products • hot new cars and trucks • Radical retrenchment strategy • close Oldsmobile division • close some European factories • cut the number of different models