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Chapter 9

Organizational Strategy

©2004 by Nelson, a division of Thomson Canada Limited


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What Would You Do?
 Sobeys is a national player in the
grocery industry
 Faced integration, cash flow, and IT
problems
 Has 12% of the market
 Increasing competition and tough
market outlook
 How do you respond to these
challenges?

©2004 by Nelson, a division of Thomson Canada Limited


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Learning Objectives:
Basics of Organizational
Strategy

After reading the next two


sections, you should be able to:

1. explain the components of


sustainable competitive advantage
and why it is important
2. describe the steps involved in the
strategy-making process
©2004 by Nelson, a division of Thomson Canada Limited
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Sustainable
Competitive Advantage
 Resources
 assets, capabilities, process, information,
and knowledge
 Competitive advantage
 providing greater value for customers than
competitors can
 Sustainable competitive advantage
 when other companies have tried
unsuccessfully to duplicate, and have, for
the moment, stopped trying to duplicate

©2004 by Nelson, a division of Thomson Canada Limited


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Achieving a Sustainable
Competitive Advantage
Resources must be:

Valuable Rare

Imperfectly imitable Non-substitutable

©2004 by Nelson, a division of Thomson Canada Limited


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Strategy-Making
Process
Step 1
Assess need for strategic change

Step 2
Conduct situation analysis

Step 3
Choose strategic alternatives
Adapted from Exhibit 9.1
©2004 by Nelson, a division of Thomson Canada Limited
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What Really Works
Strategy-making for Firms, Big and
Small

©2004 by Nelson, a division of Thomson Canada Limited


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What Really Works

©2004 by Nelson, a division of Thomson Canada Limited


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Assessing the Need for
Strategic Change
 Competitive inertia
 a reluctance to change strategies or
competitive practices that have been
successful in the past
 Strategic dissonance
 discrepancy between upper
management’s intended strategy and
the strategy actually implemented by
lower levels of management
©2004 by Nelson, a division of Thomson Canada Limited
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Situational Analysis
(SWOT)
Strengths and Weaknesses
 distinctive competence
 what a company can do, or perform
better than competitors
 core capabilities

internal routines, processes, and culture
that determine how efficiently inputs can
be turned into outputs

©2004 by Nelson, a division of Thomson Canada Limited


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Situational Analysis
(SWOT)
Environmental scanning
 strategic groups
 a group of companies within an industry
that top managers choose to compare,
evaluate, and benchmark strategic
opportunities and threats
 shadow-strategy task force
 a committee within the company that
analyzes the company’s own weaknesses
to determine how competitors could
exploit them
©2004 by Nelson, a division of Thomson Canada Limited
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Strategic Groups
Core firms
 the central companies in a

strategic group
Secondary firms
 firms that follow related but

somewhat different strategies than


do core firms
©2004 by Nelson, a division of Thomson Canada Limited
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Choosing Strategic
Alternatives
Strategic reference points
 targets used by managers to determine if
the firm has a sustainable competitive
advantage
Risk-avoiding strategy
 protects an existing competitive advantage
Risk-seeking advantage
 create or sustain a sustainable competitive
advantage
©2004 by Nelson, a division of Thomson Canada Limited
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Strategic Reference
Points

Exhibit 9.2

©2004 by Nelson, a division of Thomson Canada Limited


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Learning Objectives:
Corporate-, Industry-, &
Firm-Level Strategies

After reading the next three


sections, you should be able to:

3. explain the different kinds of


corporate-level strategies
4. describe the different kinds of industry-
level strategies
5. explain the components and kinds of
firm- level strategies
©2004 by Nelson, a division of Thomson Canada Limited
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Corporate-Level
Strategies
Corporate-level strategy
 overall organizational strategy that
addresses the question “What
business are we in or should we be
in?”

Portfolio Grand
Strategy Strategies

©2004 by Nelson, a division of Thomson Canada Limited


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Portfolio Strategy
 Minimize risk by diversification
 Acquisition
 purchase of a company by another company
 Unrelated diversification
 creating or acquiring companies in
completely unrelated businesses
 BCG matrix
 Related diversification

©2004 by Nelson, a division of Thomson Canada Limited


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Boston Consulting
Group Matrix

Exhibit 9.4

©2004 by Nelson, a division of Thomson Canada Limited


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Diversification and Risk
There is a U-shaped relationship
between diversification and risk:
 Single businesses with no
diversification are extremely risky
 Competing in a variety of different
businesses can lower risk.
 Conglomerates composed of
completely unrelated businesses are
riskier than undiversified companies.
Adapted from Exhibit 9.5
©2004 by Nelson, a division of Thomson Canada Limited
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Grand Strategies

Growth Stability

Retrenchment Recovery

©2004 by Nelson, a division of Thomson Canada Limited


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Industry-Level
Strategies
 Industry-level strategy
 overall organizational strategy that
addresses the question “How should
we compete in this industry?”
 Five industry forces
 Positioning strategies
 Adaptive strategies

©2004 by Nelson, a division of Thomson Canada Limited


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Porter’s
Five Industry Forces
 Character of the rivalry
 Threat of new entrants
 Threat of substitute products or
services
 Bargaining power of suppliers
 Bargaining power of buyers

©2004 by Nelson, a division of Thomson Canada Limited


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Positioning Strategies
Cost leadership
 producing a quality product or service at a
price lower than competitors
Differentiation
 accentuating difference between a product
or service and those of competitors
Focus
 Using cost leadership or differentiation for a
specific target market
©2004 by Nelson, a division of Thomson Canada Limited
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Adaptive Strategies
Defenders Analyzers
 seek growth  minimize risk and
 retain customers maximize profit
Prospectors
 imitate proven
successes of
 seek fast growth prospectors
 encourage risk-
taking and
Reactors
innovation  Inconsistent
strategy
 React to changes
©2004 by Nelson, a division of Thomson Canada Limited
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Firm-Level Strategies
 Direct competition
 Strategic moves of direct
competition
 Entrepreneurship: A firm-level
strategy

©2004 by Nelson, a division of Thomson Canada Limited


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Direct Competition
Direct competition
 rivalry between two firms that offer similar
products and services that acknowledge
each other as rivals and take offensive and
defensive positions in response to each
other
Two factors determine extent of
competition:
 market commonality
 resource similarity
©2004 by Nelson, a division of Thomson Canada Limited
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Strategic Moves of
Direct Competition
Attack
 a competitive move
 designed to reduce a rival’s market
share or profits
Response
 a counter move
 to defend or improve a company’s
market share or profit
©2004 by Nelson, a division of Thomson Canada Limited
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Attacks and Responses

Exhibit 9.8
©2004 by Nelson, a division of Thomson Canada Limited
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Entrepreneurship:
A Firm-Level Strategy
Entrepreneurship
 process of entering new or
established markets with new goods
or services
Entrepreneurial orientation
 set of processes, practices and
decision-making activities that lead to
new entry
 characterized by autonomy,
innovativeness, risk-taking,
©2004 by Nelson, a division of Thomson Canada Limited
proactiveness, and competitive 29
What Really Happened?
 Focused product lines
 Improved store network
 Removed costs from its structure
 Revenues, share price, and
operating earnings all increased

©2004 by Nelson, a division of Thomson Canada Limited


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