Chapter 9 - Organizational strategy Flashcards
Strategy is:
a term used frequently when discussing the behaviour of corporations.
Strategies often fail because:
- strategies are carried out within competitive environments.
- are designed by humans, and thus subject to our own inherent frailties.
- can occur at different levels and take different forms.
Resources
the assets, capabilities, processes, information and knowledge that an organization uses to improve its effectiveness and efficiency and to create and sustain an advantage over competitors.
Competitive advantage
providing greater value for customers than competitors can.
Sustainable competitive advantage
a competitive advantage that other companies have tried unsuccessfully to duplicate and have, for the moment, stopped trying to duplicate.
Four conditions to achieving a sustainable competitive advantage with resources
The resources must be:
- valuable
- rare
- imperfectly imitable
- nonsubstitutable
Valuable resources
a resource that allows companies to improve efficiency and effectiveness
Rare resources
a resource that is not controlled or possessed by many firms
Imperfectly imitable resource
a resource that is impossible or extremely costly or difficult for other firms to duplicate
Nonsubstitutable resources
a resource, without equivalent substitutes or replacements, that produces value or competitive advantange
Companies use a strategy-making process to:
create strategies that produce sustainable competitive advantage
Three steps of the strategy-making process
- Assess need for strategic change
- Conduct situational analysis
- Choose strategic alternatives
Assessing the need for strategic change
- Avoid competitive inertia
- Look for strategic dissonance (are strategic actions consistent with the company’s strategic intent?)
Competitive inertia
a reluctance to change strategies or competitive practices that have been successful in the past.
Strategic dissonance
a discrepancy between upper management’s intended strategy and the strategy actually implemented by lower levels of management.
Situational (SWOT) analysis
an assessment of the strengths and weaknesses in an organization’s internal environment and the opportunities and threats in its external environment.
SWOT analysis can help a company by:
determining how to increase internal strengths and minimize internal weaknesses while simultaneously maximizing external opportunities and minimizing external threats.
Strengths (SWOT)
- preferential access to natural resources
- patents
- facility locations that are advantageous
- well-known brands
- distinctive knowledge of production processes
Weaknesses (SWOT)
- ineffective marketing
- inconsistent access to distribution channels
- corporate image problems
- inferior goods and services
Opportunities (SWOT)
- opening up of new international markets
- the formation of strategic alliances
- the existence of a weak market leader
- legislation that weakens regulation
- the reduction of international trade barriers
Threats (SWOT)
- legislation that bring about new regulations
- increased trade barriers
- powerful new industry entrants
- price wars among competitors
Competitive advantages can:
erode over time if internal strengths eventually become weaknesses.
Analyzing an organizations internal environment
begins with an assessment of distinctive competencies and core capabilities.
Distinctive competencies
what a company can make, do, or perform better at than competitors.
Core capabilities
the internal decision-making routines, problem-solving processes, and organizational cultures that determine how efficiently inputs can be turned into outputs.
Managers use environmental scanning
to identify specific opportunities and threats that can either improve or harm the company’s ability to sustain its competitive advantage.
Strategic groups
a group of companies within an industry that top managers choose to compare, evaluate, and benchmark strategic threats and opportunities.
Core firms
the central companies in a strategic group
Secondary firms
the firms in a strategic group that follow related but somewhat different strategies than do the core firms.
Shadow-strategy task force
a committee within the company that analyzes the company’s own weaknesses to determine how competitors could exploit them for competitive advantage.
Members of a shadow-strategy task force should:
- be independent-minded
- come from a variety of company functions and levels
- have the access and authority to question the company’s current strategic actions and intent
Choosing strategic alternatives will:
help the company create or maintain a sustainable competitive advantage.
Strategic Reference Point Theory
managers can choose between two basic alternative strategies:
- A conservative, risk-avoiding strategy that aims to protect an existing competitive advantage
- An aggressive, risk-seeking strategy that aims to extend or create a sustainable competitive advantage
Strategic reference points
the strategic targets managers use to measure whether a firm has developed the core competencies it needs to achieve a sustainable competitive advantage.
The choice between risk-seeking vs risk-avoiding
typically depends on whether top management views the company as falling above or below strategic reference points.
When “falling above” strategic reference points
Current situation - satisfied - sitting on top of the world Perception of new issues - threats - potential loss - negativity Response to behaviour - risk-averse - conservative - defensive
When “falling below strategic reference points
Current situation - dissatisfied - at the bottom looking up Perception of new issues - opportunity - gain - positivity Response to behaviour - risk-taking - daring - offensive
Changing strategic reference points
managers can influence the choice of strategic alternatives by actively changing and adjusting the strategic reference points they use to judge strategic performance.
Corporate-level strategy
the overall organizational strategy that addresses the question “what business or businesses are we in or should we be in?”
Corporate-level strategies
- portfolio strategy
- grand strategies
Diversification
a strategy for reducing risk by buying a variety of items (stocks or, in the case of corporation, types of businesses) so that failure of one stock or one business does not doom the entire portfolio.
Portfolio strategy - corporate level strategy
corporate-level strategy that minimizes risk by diversifying investment among various businesses or product lines.
Different strategies in the portfolio strategy
- acquisitions, unrelated diversification, related diversification, single businesses
- Boston Consulting Group Matrix
- stars
- question marks
- cash cows
- dogs
Acquisitions - portfolio strategy
The purchase of a company by another company (The more businesses in which a corporation competes, the smaller its overall chance of failing.)
Unrelated diversification - portfolio strategy
creating or acquiring companies in completely unrelated businesses
BCG matrix - portfolio strategy
a portfolio strategy, developed by the Boston Consulting Group, that managers use to categorize the corporation’s businesses by growth rate and relative market share, helping them decide how to invest corporate funds.
Four categories of the BCG matrix - portfolio strategy
- star
- question mark
- cash cow
- dog
Star - BCGM - portfolio strategy
a company with a large share of a fast-growing market
Question mark - BCGM - portfolio strategy
a company with a small share of a fast-growing market
Cash cow - BCGM - portfolio strategy
a company with a large share of a slow-growing market
Dog - BCGM - portfolio strategy
a company with a small share of a slow-growing market
Problems with portfolio strategy
- unrelated diversification does not reduce risk
- uses present performance to predict future performance
- assessments of a business’s growth potential are often inaccurate
- cash cows fail to aggressively pursue opportunities and defend themselves from threats
- labeling a top performer as a cash cow can harm employee morale
- companies often overpay to acquire stars
- acquiring firms often treat acquired stars as “conquered foes.” Key stars’ managers, who once controlled their own destinies, often leave because they are now treated as relatively unimportant middle managers
Recommendations for making portfolio strategy work
- don’t be so quick to sell dogs or question marks. Instead, management should commit to the markets in which it competes by strengthening core capabilities
- put your “eggs in similar (not different) baskets,” by acquiring companies in related businesses
- acquire companies with complementary core capabilities
- encourage collaboration and cooperation between related firms and businesses within the company
- “date before you marry.” Work with a business before deciding to acquire it
- when in doubt, don’t acquire new businesses. Mergers and acquisitions are inherently risky and difficult to make work. Acquire only firms that can help create or extend a sustainable competitive advantage.
Related diversification - portfolio strategy
creating or acquiring companies that share similar products, manufacturing, marketing, technology, or cultures.
Grand strategies - corporate level strategy
- growth strategy
- stability strategy
- retrenchment strategy/recovery
Grand strategy
a broad corporate-level strategic plan used to achieve strategic goals and guide the strategic alternatives that managers, individual businesses or subunits may use.
Growth strategy - grand strategy
strategy that focuses on increasing profits, revenues, market share, or the number of places in which the company does business
Stability strategy - grand strategy
strategy that focuses on improving the way a company sells the same products or services to the same customer
Retrenchment strategy - grand strategy
strategy that focuses on turning around very poor company performance by shrinking the size or scope of the business
Recovery - grand strategy
the strategic actions taken after retrenchment to return to a growth strategy
First step(s) of a typical retrenchment strategy might include: (4)
- significant cost reductions
- layoffs of employees
- closing of poorly performing stores, offices, or manufacturing plants
- closing or selling entire lines of products or services
Industry-level strategies
- five industry forces
- positioning strategies
- adaptive strategies
Industry-level strategy
corporate strategy that addresses the question “how should we compete in this industry?”
Five industry forces - industry-level strategies
- character of the rivalry
- threat of new entrants
- threat of substitute products or services
- bargaining power of suppliers
- bargaining power of buyers
Character of the rivalry - five industry forces
a measure of the intensity of competitive behaviour between companies in an industry
Threat of new entrants - five industry forces
a measure of the degree to which barriers to entry make it easy or difficult for new companies to get started in an industry
Threat of substitute products or services - five industry forces
a measure of the ease with which customers can find substitutes for an industry’s products or services
Bargaining power of suppliers - five industry forces
a measure of the influence that suppliers of parts, materials, and services to firms in an industry have on the prices of these inputs
Bargaining power of buyers - five industry forces
a measure of the influence that customers have on a firm’s prices
Positioning strategies - industry-level strategies
- cost leadership
- differentiation
- focus strategy
Cost leadership - positioning strategies
the positioning strategy of producing a product or service of acceptable quality at consistently lower production costs than competitors can, so that the firm can offer the products or service at the lowest price in the industy
Differentiation - positioning strategies
the positioning strategy of providing a product or service that is sufficiently different from competitors’ offerings that customers are willing to pay a premium price for it
Focus strategy - positioning strategies
the positioning strategy of using cost leadership or differentiation to produce a specialized product or service for a limited, specially targeted group of customers in a particular geographic region or market segment
Adaptive strategies - industry-level strategies
- defenders
- prospectors
- analyzers
- reactors
Adaptive strategy are - industry-level strategies
best suited to changes in the organizations’ external environment
Defenders- adaptive strategies
an adaptive strategy aimed at defending strategic positions by seeking moderate, steady growth and by offering a limited range of high-quality products and services to a well-defined set of customers
Prospectors- adaptive strategies
an adaptive strategy that seeks fast growth by searching for new market opportunities, encouraging risk-taking, and being the first to bring innovative new products to market
Analyzers- adaptive strategies
an adaptive strategy that seeks to minimize risk and maximize profits by following or imitating the proven successes of prospectors
Reactors- adaptive strategies
an adaptive strategy of not following a consistent strategy, but instead reacting to changes in the external environment after they occur
Firm-level strategy
corporate strategy that addresses the question “how should we compete against a particular firm?”
Firm-level strategies
- direct competition
- strategic moves of direct competition
- entrepreneurial orientation
Direct competition - Firm-level strategy
the rivalry between two companies that offer similar products and services, acknowledge each other as rivals, and act and react to each other’s strategic actions
2 factors determine direct competition - Firm-level strategy
- market commonality
- resource similarity
Market commonality
the degree to which two companies have overlapping products, services, or customers in multiple markets
Resource similarity
the extent to which a competitor has similar amounts and kinds of resources - assets, capabilities, processes, information, and knowledge
Strategic moves of direct competition - Firm-level strategy
- attack
- response
Attack
a competitive move designed to reduce a rival’s market share or profits
Response
a competitive counter move, prompted by a rival’s attack, to defend or improve a company’s market share or profit
Entrepreneurial orientation - Firm-level strategy
the set of processes, practices, and decision-making activities that lead to new entry, characterized by five dimensions: autonomy, innovativeness, risk-taking, proactiveness, and competitive aggressiveness
Entrepreneurship
the process of entering new or established markets with new goods or services
Autonomy - (new entrants)
fostering creativity among employees by giving them freedom and control to develop new ideas into a new products or services without interference from others
Innovativeness - (new entrants)
supporting new ideas, experimentation and creative processes that might produce new products, services, or technological processes
Risk-taking - (new entrants)
willingness to take some risks by making large resource commitments that may result in costly failure… a managers’ preferences for bold rather than cautious acts
Proactiveness - (new entrants)
the ability to anticipate future problems, needs, or changes by developing new products or services that may not be related to their current business
- by introducing new products or services before the competition does
- by dropping products or services that are declining
Competitive aggressiveness - (new entrants)
must be willing to use unconventional methods to directly challenge competitors for their customers and market share
Industry level strategy- five industry forces is:
A strategy that determines an industry’s overall attractiveness and potential for long-term profitability.
Industry level strategy- positioning strategies are used to:
Effectively protect your company from the negative effects of industry-wide competition and to create a sustainable competitive advantage.
