Organizational Strategy

Question 1

What is strategy?

Answer 1

• collection internal guidance defining the relationship between a firm and its environment
• Strategy is the creation of a position which is unique, valuable, sustainable

Question 2

creating a fit

Answer 2

• way firms activities interact and reinforce each other
• reinforce of competitive advantage and sustainability: no easy imitation of competitors
• -> strategy and leadership are inteytrbably linked

Question 3

key elements

Answer 3

1. Strategy rests on unique activities
2. A sustainable strategy position requires trade offs
3. strategic fit drives both competitive advantage & sustainability

Question 4

Unique activities

Answer 4

being different –> deliver unique value

1. Variety-based positioning
2. Needs-based positioning
3. Access-based positioning

Question 5

Variety-based positioning

Answer 5

• Based on the choice of product or service varieties rather than
• -> Variety-based positioning makes economic sense when a firm can produce particular products or services best using a distinctive set of activities

Question 6

Needs-based positioning

Answer 6

Needs-based positioning is effective when groups of customers with differing needs exist in the market, and when a tailored set of activities can serve those needs best
- example: private banking - investment of min. $ 5 million

Question 7

Access-based positioning

Answer 7

• -> less common and less well understood
• based on customer geography or of anything that requires a different set of activities to reach customers in the best way
• Access-based positioning makes economic sense when customer needs are similar but a different set of activities can be used to reach them.
• Example: Carmike Cinemas - only in small towns

Question 8

Summary

Answer 8

regardless of the source or definition (variety, needs, access or some combination of the three) positioning requires and rests on a tailored set of activities

Question 9

trade-offs

Answer 9

a valuable position will attract imitation (by incumbents)

• Repositioner: changing existing position fully
• Straddler: seeks to match the benefits of a successful repositioning while maintaining existing position
• -> strategic position not sustainable unless there are trade offs
• -> trade offs occur when activities are incompatible:
• force choices
• protect against repositioners as well as straddlers

Question 10

trade-offs reasons

Answer 10

1. inconsistencies in image or reputation
2. activities themselves
3. limits on internal coordination and control

Question 11

inconsistencies

Answer 11

• firms who deliver two inconsistent things/values at the same time
• -> lack in credibility and confusion of customers
• -> a powerful barrier to imitation

Question 12

activities

Answer 12

• value is destroyed if an activity is over or undersigned for its use
• -> Productivity can improve when variation of an activity is limited. Sales activity can often achieve efficiencies of learning and scale,
  (e. g., system gastronomy or lean production)

Question 13

limits on internal coordination and control

Answer 13

• firms that try to be all things tend to confuse customer
• -> Strong organizational priorities by choosing to compete in one specific way and not another,
  e. g., self-assembling furniture or price competition with no service offer

Question 14

Strategic fit

Answer 14

• strategy is about combining (fitting) activities
• Synergy: fitted activities reinforce each other
• -> create a chain that is as strong as its strongest link
• the fit reduces cost or increases differentiation. Fundamental to competitive advantage and sustainability of that competitive advantage
• -> Positions resting on activity systems with 2nd and 3rd order fit have an even greater sustainable advantage

Question 15

first order fit

Answer 15

• simple consistency between each activity and the overall strategy
• consistency ensures that advantages across activities (and not erode or cancel themselves out)
  (z. B.: Aldi hat genug Parkplätze für alle Kunden)

Question 16

Second order fit

Answer 16

• reinforcing activities (synergy)
• offer of Neutrogena products in premium surroundings
• -> spill over effect across brands

Question 17

Third order fit

Answer 17

• optimization of synergistic effort

- coordination and information exchange across activities to eliminate redundancy and minimize wasted effort

Question 18

Challenges in organizational strategy

Answer 18

• the failure to choose (need to say no to 80%)

- the role of leadership (leader needs to have a clear vision of what the strategy is)

Question 19

Five forces

Answer 19

• analyze the level as competition –> collective strength of forces
• determines the ultimate profit potential of industry
• forces strong: almost no company earns archive returns on investment
• forces weak: many companies are profitable

1. Bargaining power of suppliers
2. Bargaining power of buyer
3. Rivalry among existing competitors
4. Threats of substitute products or services
5. threats of new entrants

Question 20

Bargaining power

Answer 20

1. Easy for supplier to drive up prices
   - -> power depends on e.g. number of suppliers, cost of switching, uniqueness of service/product
2. Easy for buyers to drive down prices
   - -> power depends on number of buyers, importance of each buyer

Question 21

Rivalry among existing competitors

Answer 21

3. –> number of capability of competitors
   Rivalry price competition, product introduction
4. Substitute: Same or similar function
   - -> close substitutes increase likelihood of customers switching
5. Profitable markets (high returns) will attract new firms
   - -> new entrants decrease profitability for all firms

Question 22

Resource based view

Answer 22

1. Firm resource heterogeneity and immobility
   - ->
2. Value, Rareness, Imperfect imitability (past dependency, casual ambiguity, social complexity), sustainability
   - –>
3. sustained, competitive, advantage

• Identify, locate, acquire valuable key resources
• valuable key resources are costly to imitate & hard to substitute

Question 23

Firm resources

Answer 23

All: Information knowledge, organizational processes

• physical capital: technology, geographic location
• human: experience, relationships
• Organizational: formal reporting structure, formal/informal planning

Question 24

Attributes of resources

Answer 24

• Firm resource must have 4 attributes
  1. Value: implement strategies that improve effectiveness
  2. Rareness

Question 25

Sustained competitive advantage

Answer 25

Competitive advantage
- value creating strategy (not used by competitor)
–>
Sustainable competitive advantage
- result when other firms are unable to duplicate the benefits of strategy
(e.g. possession of a unique resource)

Question 26

Does structure follow strategy?

Answer 26

• Strategy can be considered as internal guidelines defining the relationship between organizations and environment
• Structure os a fundamental idea to the referring to the recognition (…) as structure and relationship of entities

–> structure and strategy are interdependent

Question 27

Organizational factors influencing strategies

Answer 27

–> organizational structure of a firm could influence competitive strategy

Question 28

Organizational factors

Answer 28

1. Cognitive patterns on strategies
   - structures are developed by processing complexity and uncertainty
2. Emergence of competition based strategies
   - successful corporate strategy is the evolutionary result of prior practices and earning of organizations
3. Path dependencies of strategies
   - strategies are reinforcing itself
   - -> lock in situation (hard to change strategy)

Question 29

Star Model of organizational design

Answer 29

• Strategy drives structure
  1. Strategy: determines direction
  2. Structure: determines location of decision-making power
  3. Processes: means of responding to information
  4. Rewards: influence motivation of people to perform
  5. People: influence and frequently define the employees mind set of skills

–> Model is foundation for making strategic choices

Question 30

Implications

Answer 30

• structure is only one aspect
• -> different strategies lead to different organizational forms

There is no one size fits all organizational design