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Chapter 6

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School of Management
SOM 122

Chapter 6- Organizational Strategy Sustainable CompetitiveAdvantage • Resources- assets, capabilities, processes, employee time, info, knowledge that an organization controls o Help create and sustain advantage over competitors • Competitive advantage- using resources to provide greater value for customers than competitors can o Apple- iPod, simple design for the price, iTunes store • Sustainable competitive advantage- other companies cannot duplicate that value o Competitors have tried unsuccessfully to duplicate the advantage, then stopped o 4 conditions must be met to be sustainable  Valuable resources • Once valuable can no longer be valuable (always change) o Walkman industry to mp3 industry  Rare resources • Not controlled or possessed by many competitors  Imperfectly imitable resources • Impossible or extremely costly or difficult to duplicate  Nonsubstitutable resources • No other resources can replace them and produce similar value or competitive advantage Strategy Making Process • Shadow-strategy task force- actively seeking out its own weaknesses and then thinking like its competitors, trying to determine how they can be exploited for competitive advantage • Competitive inertia- comes from success, reluctance to change strategies or competitive practices that have been successful in the past • Strategic dissonance- discrepancy between a company’s intended strategy and the strategic actions managers take when actually implementing that strategy o Actions consistent with intent SWOT analysis (situational analysis)- strengths, weaknesses, opportunities, threats • Assessment of strengths and weaknesses internally and opportunities and threats externally • Helps determine how to increase internal strengths and minimize weaknesses while maximizing external opportunities and minimizing threats • Internally: o Distinctive competence- something the company can make, do or perform better than its competitors  Product is better, faster, cheaper  Cannot be sustained for long without core capabilities Chapter 6- Organizational Strategy o Core capabilities- decision making routines, problem solving processes and organizational cultures that determine how effectively inputs can be turned into outputs  Less visible  Ex. Trader Joe’s- buying large quantities and find great new products for its stores • Externally: o Strategic groups- other companies within an industry against which top managers compare, evaluate, and benchmark strategic threats and opportunities o Core firms- central companies in a strategic group  Ex. Home Depot and Lowes o Secondary firms- follow strategies related to but somewhat different from those of the core firms  Ex.ACE Hardware CHOOSING ALTERNATIVES • Strategic reference point theory- managers choose between two basic alternative strategies (but not predestined to choose these 2) o Conservative risk avoiding strategy (aims to protect an existing competitive advantage) o Aggressive risk seeking strategy (aims to extend or create a sustainable competitive advantage) • Strategic reference point- targets that managers use to measure whether their firm has developed the core competencies that it needs to achieve a sustainable competitive advantage Corporate Level Strategy • The overall organizational strategy that addresses the question “what business are we in/should be in?” • Portfolio Strategy: o Minimizes risk by diversifying investment among various businesses or product lines o Diversification- owning stocks in a variety of companies in different industries  Reduce risk in overall stock portfolio, entire collection of stocks o 1. More business invested in, smaller chances of failing  Legs of a stool • Look internally • Look for acquisitions- other companies to buy o 2. Reduce risk even more through unrelated diversification  Creating or acquiring companies in completely unrelated businesses • Losses in one, have little in another Chapter 6- Organizational Strategy o 3. Investing profits and cash flow from mature, slow growth businesses into newer, fast growing businesses  Reduces long term risk  BCG Matrix- categorize their corporation’s businesses by growth rate and relative market share • Helps decide how to invest corporate funds • STARS- large share of fast growing market o Must invest substantially • QUESTION MARKS- small share of fast growing market o May eventually become stars • CASH COWS- large share of slow growing market o Highly profitable • DOGS- small share of slow growing market o Not profitable Problems with Portfolio U shaped relationship between diversification and risk • Single businesses with no diversification are very risky • Corps composed of completely unrelated businesses are even riskier
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