Organizational Strategy Flashcards
What is strategy?
- collection internal guidance defining the relationship between a firm and its environment
- Strategy is the creation of a position which is unique, valuable, sustainable
creating a fit
- 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
key elements
- Strategy rests on unique activities
- A sustainable strategy position requires trade offs
- strategic fit drives both competitive advantage & sustainability
Unique activities
being different –> deliver unique value
- Variety-based positioning
- Needs-based positioning
- Access-based positioning
Variety-based positioning
- 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
Needs-based positioning
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
Access-based positioning
- -> 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
Summary
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
trade-offs
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
trade-offs reasons
- inconsistencies in image or reputation
- activities themselves
- limits on internal coordination and control
inconsistencies
- firms who deliver two inconsistent things/values at the same time
- -> lack in credibility and confusion of customers
- -> a powerful barrier to imitation
activities
- 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)
limits on internal coordination and control
- 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
Strategic fit
- 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
first order fit
- 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)
Second order fit
- reinforcing activities (synergy)
- offer of Neutrogena products in premium surroundings
- -> spill over effect across brands
Third order fit
- optimization of synergistic effort
- coordination and information exchange across activities to eliminate redundancy and minimize wasted effort
Challenges in organizational strategy
- 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)
Five forces
- 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
- Bargaining power of suppliers
- Bargaining power of buyer
- Rivalry among existing competitors
- Threats of substitute products or services
- threats of new entrants
Bargaining power
- Easy for supplier to drive up prices
- -> power depends on e.g. number of suppliers, cost of switching, uniqueness of service/product - Easy for buyers to drive down prices
- -> power depends on number of buyers, importance of each buyer
Rivalry among existing competitors
- –> number of capability of competitors
Rivalry price competition, product introduction - Substitute: Same or similar function
- -> close substitutes increase likelihood of customers switching - Profitable markets (high returns) will attract new firms
- -> new entrants decrease profitability for all firms
Resource based view
- Firm resource heterogeneity and immobility
- -> - Value, Rareness, Imperfect imitability (past dependency, casual ambiguity, social complexity), sustainability
- –> - sustained, competitive, advantage
- Identify, locate, acquire valuable key resources
- valuable key resources are costly to imitate & hard to substitute
Firm resources
All: Information knowledge, organizational processes
- physical capital: technology, geographic location
- human: experience, relationships
- Organizational: formal reporting structure, formal/informal planning
Attributes of resources
- Firm resource must have 4 attributes
1. Value: implement strategies that improve effectiveness
2. Rareness
Sustained competitive advantage
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)
Does structure follow strategy?
- 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
Organizational factors influencing strategies
–> organizational structure of a firm could influence competitive strategy
Organizational factors
- Cognitive patterns on strategies
- structures are developed by processing complexity and uncertainty - Emergence of competition based strategies
- successful corporate strategy is the evolutionary result of prior practices and earning of organizations - Path dependencies of strategies
- strategies are reinforcing itself
- -> lock in situation (hard to change strategy)
Star Model of organizational design
- 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
Implications
- structure is only one aspect
- -> different strategies lead to different organizational forms
There is no one size fits all organizational design
