1. Chapter 9
Organizational Strategy
©2004 by Nelson, a division of Thomson Canada Limited
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2. 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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3. 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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4. 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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5. Achieving a Sustainable
Competitive Advantage
Resources must be:
Valuable Rare
Imperfectly imitable Non-substitutable
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6. 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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7. What Really Works
Strategy-making for Firms, Big and Small
©2004 by Nelson, a division of Thomson Canada Limited
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8. What Really Works
©2004 by Nelson, a division of Thomson Canada Limited
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9. 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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10. 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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11. 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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12. 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
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13. 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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14. Strategic Reference Points
Exhibit 9.2
©2004 by Nelson, a division of Thomson Canada Limited
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15. 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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16. 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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17. 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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18. Boston Consulting
Group Matrix
Exhibit 9.4
©2004 by Nelson, a division of Thomson Canada Limited
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19. 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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20. Grand Strategies
Growth Stability
Retrenchment Recovery
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21. 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
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22. 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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23. 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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24. 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
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25. Firm-Level Strategies
 Direct competition
 Strategic moves of direct competition
 Entrepreneurship: A firm-level strategy
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26. 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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27. 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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28. Attacks and Responses
Exhibit 9.8
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29. 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, proactiveness,
and competitive aggressiveness
©2004 by Nelson, a division of Thomson Canada Limited
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30. 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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