Organisational Strategy Flashcards
What is a comparative advantage?
Providing greater value for customers than competitors can
What is a sustainable comparative advantage?
A competitive advantage that other companies have tried unsuccessfully to duplicate and have, for the time being, stopped trying to duplicate
What are resources?
The assets, capabilities, processes, information and knowledge that an organisation uses to improve its effectiveness and efficiency, create and sustain competitive advantage and fulfil a need or solve a problem
What are valuable resources?
A resource that allows companies to improve efficiency and effectiveness
What is a rare resource?
A resource that is not controlled or possessed by many competing firms
What is a imperfectly imitable resource?
A resource that is impossible, or extremely costly or difficult for other firms to duplicate
What is a non-substitutable resource?
A resource that produces value or competitive advantage and has no equivalent substitutes or replacements
What are the steps in the strategy making process?
- Asses the need for change
- Conduct a situational (SWOT) analysis
- Chose strategic alternatives
What are the aspects on assessing the needs for change in strategy making?
- Competitive inertia
* Strategic Dissonance
What is competitive inertia?
A reluctance to change strategies or competitive practices that have been successful in the past
What is strategic dissonance?
A discrepancy between a company’s intended strategy and the strategic actions managers take when implementing that strategy
What is a situational analysis?
SWOT - An assessment of the strengths and weaknesses in an organisations internal environment and the opportunities and threats in its external environment
What are aspects of a company’s strengths and weaknesses?
- Distinctive competence
* Core capabilities
What is a distinctive competence?
What a company can do, make or perform better than its competitors
What is a core capability?
The internal decision making routines, problem solving processes and organisational cultures that determine how efficiently inputs can be turned into outputs
How are opportunities and threats assessed in a SWOT analysis?
Environmental scanning
What are strategic groups?
A group of companies within an industry that top managers choose to compare, evaluate and benchmark strategic threats and opportunities
What is benchmarking?
Benchmarking involves identifying outstanding practices, processes and standards at other companies and adapting them to your own company
What are core firms?
The central companies in a strategic group
What are secondary firms?
Firms that use strategies related to, but somewhat different from those of core firms
What are the two basic alternative strategies in Strategic Reference Point Theory?
Conservative, risk avoidance to protect competitive advantage
Aggressive, risk taking strategy to create sustainable competitive advantage
What are strategic reference points and examples?
The strategic targets managers use to measure whether a firm has developed the core competencies it needs to achieve a sustainable competitive advantage
Competitors’ prices, reach, output, influence etc.
How can managers influence the strategies chosen by their companies?
By actively changing the strategic reference points they use to judge strategic performance
- To develop new core competencies for the future
- Effective organisations will frequently revise their strategic
reference points
What do firms use to chose strategic alternatives in the strategy making process?
Strategic Reference Points
What question do corporate level strategies ask?
What business are we in or what business should we be in?
What are the corporate level strategies?
- Portfolio strategy
* Grand strategies
What is the goal of portfolio strategies?
Minimising risk by diversifying investment amend various businesses or product lines
A corporate level strategy
What is diversification?
A corporate level portfolio strategy for reducing risk by owning a variety of items (businesses) so that failure of one business does not doom the entire portfolio
What is related diversification?
- Creating or acquiring companies that share similar products, manufacturing, marketing, technology or cultures
- Acquiring companies with core capabilities that complement the core capabilities of businesses already in the corporate portfolio
What is unrelated diversification?
- Creating or acquiring companies in completely unrelated businesses
- When businesses are unrelated, losses in one business should have minimal effect on the performance of other companies in the corporate portfolio
What are the types of portfolio strategy?
- Diversification
* BCG Matrix
What is the BCG matrix?
- A corporate level portfolio strategy the categorises a corporations businesses by growth rate and relative market share and helps managers decide how to invest corporate funds
- Investing the profits and cash flows from mature, slow growth businesses into newer, faster growing ones can reduce long-term risk
What is the BCG matrix composed of?
- Stars
- Question Marks
- Cash Cows
- Dogs
What are stars in the BCG matrix?
A company with a large share of a fast growing industry
What are question marks in the BCG matrix?
A company with a small share of a fast growing market
What are cash cows in the BCG matrix?
A company with a large share of a slow growing market
What are dogs in the BCG matrix?
A company with a small share of a slow growing market
What are the benefits of portfolio strategy?
Related diversification reduces risk because the different businesses can work as a team, relying on each other for needed experience, expertise and support
What are the cons of portfolio strategy?
- Conglomerates composed of completely unrelated businesses can be even riskier than single, undiversified businesses
- The BCG matrix often yields incorrect judgements about a company’s potential because it relies on past performance
- Redirectign funds from cash cows to stars can lead to cash cows becoming less aggressive in seeking new business or in defending its present business
- Labelling a top performer a cash cow can harm employee morale as they realise they are now working to fund the growth of stars and question marks
What are grand strategies?
A broad corporate level strategic plan used to achieve goals and guide the strategic alternatives that managers of individual businesses or subunits they may use
What are the types of grand strategies?
- Growth Strategy
- Stability Strategy
- Retrenchment
What is the growth strategy?
- A corporate level grand strategy focusing on increasing profits, revenues, market share or the number of place in which a company does business.
- Externally by mergers or acquisition
- Internally by creating and growing new businesses
What is the stability strategy?
- A corporate level grand strategy to focus on improving the way in which the company sells the same products or services to the same customers
- Often chosen when the external environment doesn’t change much or after struggling with periods of explosive growth
What is the retrenchment strategy ?
- A corporate level grand strategy to focus on turning around poor company performance by shrinking the size or scope of a business
- Cost reductions, downsizing
What is recovery in the grand strategy?
The strategic actions taken after retrenchment to return to a growth (corporate level grand) strategy
What question do industry level strategies ask?
How should we compete in this industry?
What are Porter’s five industry forces?
- Character of the rivalry
- Threats of new entrants
- Threat of substitutes
- Bargaining power of suppliers
- Bargaining power of buyers
What do Porter’s five industry forces specify?
The stronger these forces, the less attractive the industry becomes to corporate investors because it is more difficult for companies to be profitable
What can determine the threat of new entrants?
Barriers to entry, Large capital requirements, need for specialised knowledge
What are the types of industry level strategies?
- Positioning Strategies
- Adaptive Strategies
What is the goal of positioning strategies?
To minimise the effects of industry forces & competition and to build a sustainable competitive advantage
What are the types of positioning strategies?
- Cost leadership
- Differentiation
- Focus
What is cost leadership & what are the benefits?
- An industry level positioning strategy where producing a product or service of acceptable quality at consistently lower production costs than competitors can so that the firm can offer the product or service at the lowest price in the industry
- Negates the threat of new entrants, the threat of substitutes and the bargaining power of buyers and suppliers
What is differentiation & what are the benefits?
- An industry level positioning strategy where providing a product or service that is sufficiently different from competitor’s offerings that customers are willing to pay a premium price for
- Negates the threat of substitutes and the threat of new entrants & can charge a premium
What is focus & what are the benefits?
- An industry level positioning strategy where using cost leadership or differentiation to produce a specialised product or service for a limited, specially targeted group of customers in a particular geographic region or market segment
- Works in market niches that competitors have overlooked or have difficulty serving
What are adaptive strategies?
An industry level strategy that is best suited to changes in the external environment
What are the types of adaptive strategies?
- Defenders
- Prospectors
- Analysers
- Reactors
What is the defender strategy?
An industry level adaptive strategy to seek moderate, steady growth by offering a limited range of products and services to a well defined set of customers
What is the prospector strategy?
An industry level adaptive strategy to seek fast growth by searching for new market opportunities, encourage risk taking and be the first to bring innovative products to the market
What is the analyser strategy?
An industry level adaptive strategy to minimise risk and maximise profits by following or imitating the proven success of prospectors
What is the reactor strategy?
An industry level adaptive strategy to not follow a consistent strategy but instead react to changes in the external environment after they occur
Tend to be the poorest performers
What question do firm level strategies ask?
How should we compete against a particular firm?
What is direct competition?
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
What are aspects of direct competition?
- Market commonality
* Resource similarity
What is market commonality?
The degree to which two companies have overlapping produces, services or customers in multiple markets
What is resource similarity?
The extent to which a competitor has similar amounts and kinds of resources to create and sustain an advantage
What are the types of firm level strategies?
- Attack
* Response
What is an attack?
A firm level strategy where the firm makes a competitive move designed to reduce a rival’s market share or profits
What is a response?
A firm level strategy where the firm makes a competitive countermove, prompted by a rivals attack, to defend or improve a company’s market share or profit
What are the downsides to differentiation?
Success is determined by the tastes of customers
Attracts imitators
Costly
What are the downsides to cost-leadership?
High efficiency requires high morale
Erosion of margins
Lack of brand loyalty - customers only care about price, will change brands with no issue
What is requires to achieve a sustainable comparative advantage?
Valuable resources
Imperfectly imitable resources
Non-substitutable resources
Rare resources
What are strategic reference points used for?
To decide on strategic alternative - whether to chose an aggressive risk seeking or conservative risk avoiding strategy based on whether the company performs above or below the reference points
What are the steps to conducting a situational analysis?
- Find distinctive competencies and core capabilities (SW)
- Scan the environment for OT’s through strategic groups (core & secondary)
