TiVo, the first digital video recorder service, has become a popular concept
However, five years after its startup, TiVo still is not profitable and is facing heavy competition from other DVR services
TiVo must find a niche that allows it to survive, differentiate its products and services, and must consider a counterattack against its competitors
If you were TiVo’s new CEO, what would you do?
Basics of Organizational Strategy After reading these sections, you should be able to:
indicate the components of sustainable competitive advantage and explain why it is important.
describe the steps involved in the strategy-making process.
Sustainable Competitive Advantage 1 Resources The assets, capabilities, processes, information, and knowledge that the organization controls Competitive Advantage Providing greater value for customers than competitors can Sustainable Competitive Advantage A competitive advantage that other companies have tried unsuccessfully to duplicate
Is Ethics an Overlooked Source of Competitive Advantage?
Volvo’s reputation for safe cars has been a source of competitive advantage
Johnson & Johnson is admired for its response to the Tylenol cyanide contamination incidence
Should ethics be the first source of competitive advantage? Probably not…
Start with low costs, good service, or unique product capabilities. Use ethics as a way to differentiate your company from the competition.
DOING THE RIGHT THING
What Really Works Strategic Planning & Growth for Big Companies 2.1 Strategic Planning & Profits for Big Companies 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success 72 % Strategy Making for Big Firms 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success 75 %
What Really Works Strategic Planning & Profits for Small Companies 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success 61 % Strategy Making for Small Firms 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Strategic Planning & Growth for Big Companies probability of success 62 % 2.1
What Really Works 2.1 Strategic Planning & External Growth Through Acquisitions 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success 45 % External Growth Through Acquisitions
Situational Analysis 2.2 S W O T Strengths Weaknesses Opportunities Threats Internal External
Situational Analysis Adapted from Exhibit 6.4 2.2 Strengths Weaknesses
Strategic Reference Points Adapted from Exhibit 6.6 2.3
Corporate, Industry, and Firm-Level Strategies After reading these sections, you should be able to:
explain the different kinds of corporate-level strategies.
describe the different kinds of industry-level strategies.
explain the components and kinds of firm-level strategies.
Corporate-Level Strategies 3 Corporate-Level Strategy The overall organizational strategy that addresses the question “What business(es) are we in or should we be in?”
Corporate-Level Strategies 3 Adapted from Exhibit 6.7
Acquisitions, unrelated diversification, related diversification, single businesses
BCG Matrix Relative Market Share Market Growth Small Large Low High Question Marks Stars Dogs Cash Cows 3.1
BCG Matrix 3.1 companies with a small share of a fast-growing market Question Marks companies with a large share of a fast-growing market Stars companies with a small share of a slow-growing market Dogs companies with a large share of a slow-growing market Cash Cows
BCG Matrix Relative Market Share Market Growth Small Large Low High Adapted from Exhibit 6.8 3.1 Question Marks Company A Company B Stars Company C Company D Dogs Company H Company G Cash Cows Company F Company E
Diversification and Risk Risk Low High Single Business Related Diversification Unrelated Diversification Adapted from Exhibit 6.9 3.1 Relationship Between Diversification and Risk
Present performance is used to predict future performance.
Cash cows fail to aggressively pursue opportunities and defense themselves from threats.
Being labeled a “cash cow” can hurt employee morale.
Companies often overpay to acquire stars.
Acquiring firms often treat stars as “conquered foes.”
Grand Strategies 3.2 Growth Strategy focuses on increasing profits, revenues, market share, or number of places to do business Stability Strategy focuses on improving the way in which the company sells the same products or services to the same customers Retrenchment Strategy focuses on turning around very poor company performance by shrinking the size or scope of the business
Industry-Level Strategies Five Industry Forces Positioning Strategies Adaptive Strategies 4
Porter’s Five Industry Forces Adapted from Exhibit 6.12 4.1 Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Substitutes Threats of New Entrants Character of Rivalry
Firm-Level Strategies Basics of Direct Competition Strategic Moves in Direct Competition Entrepreneurship and Intrapreneurship 5
Firm-Level Strategies 5 DIRECT COMPETITION Market commonality Resource similarity STRATEGIC MOVES OF DIRECT COMP. ENTREPRENEURIAL INTRAPRENEURIAL ORIENTATION Attack Autonomy Response Innovativeness Risk taking Proactiveness Competitive Aggressiveness
Firm-Level Strategies Adapted from Exhibit 6.13 5 Market Commonality Resource Similarity Entering market is most forceful attack. Exiting market is clear defensive signal of retreat. Entrepreneurship is strategy of entering established markets or developing new market. Firm A Firm B Attack Response
Direct Competition Adapted from Exhibit 6.14 5.1 Resource Similarity Low High High Low Market Commonality I II III IV McDonald’s McDonald’s McDonald’s McDonald’s Burger King Wendy’s Luby’s Cafeteria Subway
Strategic Moves of Direct Competition 5.2 Attack A competitive move designed to reduce a rival’s market share or profits. Response A competitive countermove, prompted by a rival’s attack, to defend or improve a company’s market share or profit.
Strategic Moves of Direct Competition 5.2 Types of Responses 1. Match or mirror your competitor’s move. 2. Respond along a different dimension from your competitor’s move or attack.
Strategic Moves of Direct Competition Adapted from Exhibit 6.15 5.2 Competitor Analysis Interfirm Rivalry: Action & Response Strong Market Commonality Less Likelihood of an Attack Weak Market Commonality Greater Likelihood of an Attack Strong Resource Commonality Less Likelihood of a Response Low Resource Commonality Greater Likelihood of a Response