Management Chapter 6: Organizational Strategy
What are the three steps of the strategy making process?
1. Asses the need for strategic change 2. Conduct situational analysis (SWOT) 3. Chose strategic alternatives
What are the two basic strategy moves firms in direct competition can make?
1. Attacks 2. Responses
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
What four conditions must be met for a firm to achieve a sustainable competitive advantage?
Its resources must be valuable, rare, imperfectly imitable, and non-substitutable
Besides being aware of the dangers of competitive inertia, what can managers do to improve the speed and accuracy with which they determine the need for strategic change?
Look actively for signs of strategic dissonance
What determines the likelihood of an attack or response?
Market commonality and resource similarity
Sustainable competitive Advantage
a competitive advantage that other companies have tried unsuccessfully to duplicate and have, for the moment, stopped trying to duplicate. Sustainable competitive advantage is not the same as a long-lasting competitive advantage, though companies obviously want a competitive advantage to last a long time. Instead, a competitive advantage is sustained if competitors have tried unsuccessfully to duplicate the advantage and have, for the moment, stopped trying to duplicate it.
Sustainable competitive advantage
a competitive advantage that other firms have tried unsuccessfully to duplicate and have, for the moment, stopped trying to duplicate.
Response
a competitive counter move, prompted by a rival's attack, to defend or improve a company's market share or profit
Response
a competitive counter-move, prompted by a rival's attack, to defend or improve a company's market share or profit
Attack
a competitive move designed to reduce a rival's market share or profits
Resourses
The assets, capabilities, processes, information and knowledge that an organization uses to improve its effectiveness and efficiency, create and sustain competitive advantage, and fulfill a need or solve a problem
Market commonality
The degree to which two companies have overlapping products, services, or customers in multiple markets. The more markets in which there is product, service, or customer overlap, the more intense the direct competition will be between two companies
Resource similarity
The extent to which a competitor has similar amounts and kinds of resources ( the assets, capabilities, processes, information and knowledge for creating and sustaining an advantage over competitors)
Firm-level strategy
a corporate strategy that addresses "How should we compete against a particular firm?"
Firm-level strategy
a corporate strategy that addresses the question "How should we compete against a particular firm?"
Industry-level 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 take when implementing that stragegy
Strategic dissonance
a discrepancy between a company's intended strategy and the strategic actions managers take 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
Strategic group
a group of companies within an industry that top managers choose to compare, evaluate, and benchmark strategic threats and opportunites
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 or 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 price
Bargaining power of buyers
a measure of the influence that customers have on a firm's prices
Bargaining power of 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
Bargaining power of suppliers
a measure of the influence that suppliers of parts, materials, and services to firms in an industry have on the the price of these inputs
Character of the rivalry
a measure of the intensity of competitive behavior between companies in an industry
Character of rivarly
a measure of the intensity of competitive behaviour between companies in an industry
Threat of new entrants
a measure to the degree of which barrier to entry make it easy or difficult for new companies to get started in an industry
BCG matrix
a portfolio strategy developed by the Boston Consulting Group 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 resource
a resource that allows companies to improve efficiency and effectiveness
Valuable resources
a resource that allows companies to improve efficiency and effectiveness
Imperfectly imitable resource
a resource that is impossible or extremely costly or difficult for other firms to duplicate
Rare resource
a resource that is not controlled or possessed by many competing firms
Non-substitutable resources
a resource that produces value or competitive advantage and has no equivalent substitutes or replacements
Diversification
a standard strategy for stock market investors for reducing risk by owning a variety of items (stocks or, in the case of corporation, types of businesses) so that the failure of one stock or one business does not doom the entire portfolio
Diversification
a strategy for reducing risk by buying a variety of items (stocks or, in the case of corporation, types of businesses) so that the failure of one stock or one business does not doom the entire portfolio
Retrenchment strategy
a strategy that focuses around turning around very poor company performance by shrinking the size of the business
Stability strategy
a strategy that focuses on improving the way in which the company sells the same products or services
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
Growth strategy
a strategy that focuses on increasing profits, revenues, market shares, 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
Grand strategy
a broad corporate-level strategic plan used to achieve strategic goals and guide the strategic alternatives that managers of individual businesses or sub-units may use
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 the moment, stopped trying to duplicate
Valuable Resources
allow companies to improve their efficiency and effectiveness. Unfortunately, changes in customer demand and preferences, competitors' actions, and technology can make once-valuable resources much less valuable.
SWOT analysis
an assessment of the strengths and weaknesses in a company's internal environment and the opportunities and threats in its external environment
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
Stars
are companies that have a large share of a fast-growing market. To take advantage of a star's fast-growing market and its strength in that market (large share), the corporation must invest substantially in it.
Cash Cows
are companies that have a large share of a slow-growing market. Companies in this situation are often highly profitable, hence the name "cash cow."
Question Marks
are companies that have a small share of a fast-growing market. If the corporation invests in these companies, they may eventually become stars, but their relative weakness in the market (small share) makes investing in question marks riskier than investing in stars.
Dogs
are companies that have a small share of a slow-growing market. As the name suggests, having a small share of a slow-growth market is often not profitable.
Unrelated diversification
creating or acquiring companies in completely unrelated businesses
Related diversification
creating or acquiring companies that share similar products, manufacturing, marketing, technology, or cultures
Grand Strategy
is a broad strategic plan used to help an organization achieve its strategic goals.* Grand strategies guide the strategic alternatives that managers of individual businesses or subunits may use in deciding what businesses they should be in. There are three kinds of grand strategies: growth, stability, and retrenchment/recovery.
Portfolio Strategy
is a corporate-level strategy that minimizes risk by diversifying investment among various businesses or product lines.* Just as a diversification strategy guides an investor who invests in a variety of stocks, portfolio strategy guides the strategic decisions of corporations that compete in a variety of businesses. First, according to portfolio strategy, the more businesses in which a corporation competes, the smaller its overall chances of failing. Managers employing portfolio strategy can either develop new businesses internally or look for acquisitions, that is, other companies to buy. Second, beyond adding new businesses to the corporate portfolio, portfolio strategy predicts that companies can reduce risk even more through unrelated diversification—creating or acquiring companies in completely unrelated businesses (more on the accuracy of this prediction later). Third, investing the profits and cash flows from mature, slow-growth businesses into newer, faster-growing businesses can reduce long-term risk. The best-known portfolio strategy for guiding investment in a corporation's businesses is the Boston Consulting Group (BCG) matrix.*
Treat of New Entrants
is a measure of the degree to which barriers to entry make it easy or difficult for new companies to get started in an industry. If new companies can enter the industry easily, then competition will increase, and prices and profits will fall.
Character of the Rivalry
is a measure of the intensity of competitive behavior among companies in an industry. Is the competition among firms aggressive and cutthroat, or do competitors focus more on serving customers than on attacking each other? Both industry attractiveness and profitability decrease when rivalry is cutthroat.
BCG Matrix
is a portfolio strategy that managers use to categorize their corporation's businesses by growth rate and relative market share, which helps them decide how to invest corporate funds. Contrary to expectations, the BCG matrix often yields incorrect judgments about a company's potential. In part, this is because the BCG matrix relies on past performance (previous market share and previous market growth), which is a notoriously poor predictor of future company performance.
Stability Strategy
is to continue doing what the company has been doing, just doing it better. Companies following a stability strategy try to improve the way in which they sell the same products or services to the same customers.
Growth Strategy
is to increase profits, revenues, market share, or the number of places (stores, offices, locations) in which the company does business. Companies can grow in several ways. They can grow externally by merging with or acquiring other companies in the same or different businesses.
Retrenchment Strategy
is to turn around very poor company performance by shrinking the size or scope of the business or, if a company is in multiple businesses, by closing or shutting down different lines of the business. The first step of a typical retrenchment strategy might include making significant cost reductions: laying off employees; closing poorly performing stores, offices, or manufacturing plants; or closing or selling entire lines of products or services.
What are the initial steps in a retrenchment strategy?
making significant cost reductions; laying off employees; closing poorly preforming stores, offices, or manufacturing plants; and/or closing or selling entire lines of products or services
Nonsubstitutable Resources
no other resources can replace them and produce similar value or competitive advantage.
Competitive advantage
providing greater value for customers than competitors can
Resource similarity
the extent to which a competitor has similar amounts and kinds of resources
Secondary firms
the firms in a strategic group that follow strategies related but somewhat different from those of the core firms
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 costs than competitors can, so that the firm can offer the product or service at the lowest price in the industry
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
Acquisitions
the purchase of a company by another company
Direct competition
the rivalry between 2 companies that offer similar products and services, acknowledge each other as rivals, and act and react to each other's strategic actions (ex: Mercedes & BMW)
Direct competition
the rivalry between two companies that offer similar products and services, acknowledge each other as rivals, and react to each other's strategic actions
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 core competencies it needs to achieve 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
Imperfectly Imitable Resources
those resources that are impossible or extremely costly or difficult to duplicate.
Defenders
those who adopt 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
those who adopt an adaptive strategy that seeks fast growth by searching for new market opportunities, encouraging risk taking, and being the first to bring new products to the market
Analyzers
those who adopt an adaptive strategy that seeks to minimize risk and maximize profits by following or imitating the proven successes of prospectors
Reactors
those who take an adaptive strategy of not following a consistent strategy, but instead reacting to changes in the external environment after they occur
What is the purpose of an adaptive strategy?
to choose an industry-level strategy that is best suited to changes in the organization's external environenment
What is the purpose of a positioning strategy?
to minimize the effects of industry competition and build a sustainable competitive advantage
Competitive Advantage
using their resources to provide greater value for customers than competitors can.
Distinctive competence
what a company can make, do, or perform better than its competitors
Distinctive competence
what a company can make, do, or preform better than it's competitors
What are the three positioning strategies (according to Micheal Porter)?
1. Cost leadership 2. Differentiation 3. Focus
What are the four types of adaptive strategies?
1. Defenders 2. Prospectors 3. Analyzers 4. Reactors
What are the three types of grand strategies?
1. Growth 2. Stability 3. Retrenchment/recovery
What two factors determine the extent to which firms will be in direct competition?
1. Market commonality 2. Resource similarity
Porters Five Forces
Character of rivalry Threat of new entrants Threat of substitute products or services Bargaining power of suppliers Bargaining power of buyers
What are the two main approaches to a corporate-level strategy that companies use to decide which business they should be in?
Portfolio strategy and grand strategies
Competitive advantage
Providing greater value for customers than competitors can
What is the second step in a retrenchment strategy?
Recovery
What kind of portfolio strategy does the best job of helping managers decide which companies to buy or sell?
Related diversification
Corporate-level strategies help managers...
decide what business to be in
Industry-level strategies help managers ...
determine how to compete in an industry
Firm-level strategies help managers...
determine when, where and what strategic actions to take against a direct competitor
Imperfectly imitable resourse
resources that are impossible or extremely costly or difficult for other firms to duplicate
Rare resources
resources that are not controlled or possessed by many competing firms
Rare Resources
resources that are not controlled or possessed by many competing firms, are necessary to sustain a competitive advantage. For sustained competitive advantage, however, other firms must be unable to imitate or find substitutes for those valuable, rare resources.
Situational Analysis (SWOT Analysis)
strengths, weaknesses, opportunities, and threats, is an assessment of the strengths and weaknesses in an organization's internal environment and the opportunities and threats in its external environment. A SWOT analysis helps a company determine how to increase internal strengths and minimize internal weaknesses while maximizing external opportunities and minimizing external threats. An analysis of an organization's internal environment, that is, a company's strengths and weaknesses, often begins with an assessment of its distinctive competencies and core capabilities.
PEST analysis
the Political, Economic, Social/Democratic, and Technological factors that affect a company and shape the company's strategy
Resources
the assets, capabilities, processes, employee time, information, and knowledge that an organization uses to improve its effectiveness and efficiency and create and sustain competitive advantage
Core firms
the central companies in a strategic group
Market commonality
the degree to which 2 companies have overlapping products, services, or customers in multiple markets