Chapter 6 Organizational Strategy

Core firms

the central companies in a strategic group

Secondary firms

the firms in a strategic group that follow strategies related to but somewhat different from those of the core firms

Core Capabilities

the internal decision-making routines, problem-solving processes, and organizational cultures that determine how efficiently inputs can be turned into outputs

Corporate-level strategy

the overall organizational strategy that addresses the question "What business or businesses are we in or should we be in?"

Cost leadership

the positioning strategy of producing a product or service of acceptable quality at consistently lower production cots than competitors can, so that the firm can offer the product or service at the lowest price in the industry

Resources

the assets, capibilities, processes, employee time, information, and knowledge that an organization uses to improve its effectiveness and efficiency and create and sustain competitive advantage

Differentiation

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

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.

Acquisition

the purchase of a company by another company

Recovery

the strategic actions taken after retrenchment to return to a growth strategy

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.

Industry-lvl strategy

a corporate strategy that addresses the question "How should we compete in this industry?"

Portfolio strategy

a corporate-level strategy that minimizes risk by diversifying investment among various businesses or product lines

Strategic dissonance

a discrepancy between a company's intended strategy and the strategic actions managers taken when implementing that strategy

Strategic group

a group of companies within an industry against which top managers compare, evaluate, and benchmark strategic threats and opportunities.

Threat of new entrants

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 of services

a measure of the ease with which customers can find substitutes for an industry's products or services

Bargaining power of buyers

a measure of the influence that customers have on a firm's prices

Bargaining power for suppliers

a measure of the influence that suppliers of parts, materials, and services to firms in an industry have on the prices of these inputs.

Character of the rivalry

a measure of the intensity of competitive behavior between companies in an industry

BCG (Boston Consulting Group) matrix

a portfolio strategy that categorizes a corporation's businesses by growth rate and relative market share and helps managers decide how to invest corporate funds

Competitive inertia

a reluctance to change strategies or competitive practices that have been successful in the past

Valuable Resources

a resource that allows companies to improve efficiency and effectiveness

Imperfectly imitable resources

a resource that is impossible or extremely costly or difficult for other firms to duplicate

Rare Resources

a resource that is not controlled or possessed by many competing firms

Nonsubstitutable resources

a resource that produces value or competitive advantage and has no equivalent substitutes or replacements

Diversification

a strategy for reducing risk by buying a variety of items (stocks or, in the case of a corporation, types of businesses) so that the failure of one stock or one business does not doom the entire portfolio.

Stability strategy

a strategy that focuses on improving the way in which the company sells the same products or services to the same customers

Growth strategy

a strategy that focuses on increasing profits, revenues, market share, or the number of places in which the company does business

Retrenchment strategy

a strategy that focuses on turning around very poor company performance by shrinking the size or scope of the business

Situational Analysis (SWOT)

an assessment of the strengths and weaknesses in an organization's internal environment and the opportunities and threats in its external environment.

Opportunities and threats are part of the

external environment

Strategic reference point theory

managers choose between two basic alternative strategies. They can choose a conservative, risk-avoiding strategy that aims to protect an existing competitive advantage. Or They can choose an aggressive, risk-seeking strategy that aims to extend or create a sustainable competitive advantage.

Two major approaches to corporate-level strategy

portfolio strategy grand strategies

Competitive advantage

providing greater value for customers than competitors can

The five industry forces that determine overall levels of competition in an industry as well as the positioning strategies and adaptive strategies that companies can use to achieve sustained competitive advantage and above-average profits

Character of the rivalry Threat of new entrants Threat of substitute products of services Bargaining power of suppliers Bargaining power of buyers

Positioning Strategies

Cost leadership Differentiation Focus strategy

Adaptive Strategies

Defenders Prospectors Analyzers Reactors

Four conditions that must be met for a firm's resources to achieve a sustainable competitive advantage

Resources must be Valuable, Rare, Imperfectly imitable, and Nonsubstitutable

SWOT stands for

Strengths, weaknesses, opportunities, and threats

Three questions to formulate an effective strategy

What business are we in? How should we compete in this industry? Who are our competitors, and how should we respond to them?

Grand Strategy

a broad corporate-level strategic plan used to achieve strategic goals and guide the strategic alternatives that managers of individual businesses or subunits may use

Shadow-strategy task force

a committee within a company that analyzes the company's own weaknesses to determine how competitors could exploit them for competitive advantage

Star

a company with a large share of a fast-growing market

Cash cow

a company with a large share of a slow-growing market

Question mark

a company with a small share of a fast-growing market

Dog

a company with a small share of a slow-growing market

Sustainable competitive advantage

a competitive advantage that other companies have tried unsuccessfully to duplicate and have, for them moment, stopped trying to duplicate

Reactors

companies that do not follow a consistent adaptive strategy but instead react to changes in the external environment after they occur

Defenders

companies using 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

companies using 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

companies using an adaptive strategy that seeks to minimize risk and maximize profits by following or imitating the proven successes of prospectors

Unrelated diversification

creating or acquiring companies in completely unrelated businesses

Strengths and weaknesses are part of the

internal environment

Distinctive competence

what a company can make, do, or perform better than its competitors