Chapter 6: Organizational Strategy

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1

Resources

assets, capabilities, processes, employee time, information, and knowledge that an organization uses to improve its effectiveness and efficiency and create and sustain competitive advantage

2

Competitive advantage

providing greater value for customers than competitors can

3

Sustainable competitive advantage

competitive advantage that other companies have tried unsuccessfully to duplicate and have for the moment stopped trying to duplicate

4

Valuable resource

resource that allows companies to improve efficiency and effectiveness

5

Rare resources

resource that is not controlled or possessed by many competing firms

6

Imperfectly imitable resources

resource that is impossible or extremely costly or difficult for other firms to duplicate

7

Nonsubstitutable resource

a resource that produces value or competitive advantage and has no equivalent substitutes or replacements

8

Three steps of the strategy making process

Step 1: Asses need for the strategic change

Step 2: Conduct situational Analysis

Step 3: Choose strategic alternatives

9

competitive inertia

reluctance to change strategies or competitive practices that have been successful in the past

10

Strategic dissonance

discrepancy between a company's intended strategy and the strategic action managers take when implementing that strategy

11

Situational (SWOT) Analysis

S-strengths

W-weaknesses

O-opportunities

T-threats

assessment of the strengths and weaknesses in an organizations internal environment and the opportunities and threats in it external environment

12

Distinctive competence

what a company can make do or perform better than its competitors

13

Core capabilities

internal decision making routines, problem solving processes, and organizational cultures that determine how efficiently inputs can be turned into outputs

14

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

15

Strategic group

a group of companies within an industry against which top managers compare, evaluate, and benchmark strategic threats and opportunities

16

Core firms

the central companies in a strategic group

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Secondary firms

the firms in a strategic group that follow strategies related to but somewhat different from those of the core firms

18

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

19

risk avoiding strategy

aims to protect an existing competitive advantage

20

risk seeking strategy

aims to extend or create a sustainable competitive advantage

21

Corporate level strategy

the overall organizational strategy that addresses the question “What business or businesses are we in or should we be in?”

22

Diversification

a strategy for reducing risk by buying a variety of items (stocks or, in the case of a corporation, types of businesses) so that the failure of one stock or one business does not doom the entire portfolio

23

Portfolio strategy

a corporate-level strategy that minimizes risk by diversifying investment among various businesses or product lines

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Acquisition

purchase of a company by another company

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Unrelated diversification

creating or acquiring companies in completely unrelated businesses

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BCG Matrix

a portfolio strategy developed by the Boston Consulting group that categorizes a corporations businesses by growth rate and relative market share and helps managers decide how to invest corporate funds

27

Star

company with a large share of a fast growing market

*stars can become cash cows

28

Question mark

company with a small share of a fast growing market

*questions can become stars

29

Cash cow

company with a large share of a slow growing market

30

Dog

company with a small share of a slow growing market

31

U shaped relationship between diversification and risk

Left side of the curve shows single businesses with no diversification as extremely risky (if single business fails, entire business fails)

Right side of the curve shows that conglomerates composed of completely unrelated businesses are even riskier than single, undiversified business

32

Related diversification

creating or acquiring companies that share similar products, manufacturing, marketing, technology, or cultures

33

Grand strategy

broad corporate level strategic plan used to achieve strategic goals and guide the strategic alternatives that managers of individual businesses or subunits may use

Three kinds of strategies:

1. growth strategy

2. stability strategy

3. retrenchment strategy

34

Growth strategy

a strategy that focuses on increasing profits, revenues, market share, or the number of places in which the company does business

35

Stability strategy

strategy that focuses on improving the way in which the company sells the same products or services to the same customers

36

Retrenchment strategy

strategy that focuses on turning around very poor company performance by shrinking the size or scope of the business

37

Recovery

the strategic actions taken after retrenchment to return to a growth strategy

38

Industry-level strategy

corporate strategy that addresses the question "How should we compete in the industry?"

39

Character of the rivalry

a measure of the intensity of competitive behavior between companies in an industry

40

Porter's five industry forces

Character of rivalry

threat of new entrants

bargaining power of buyers

threat of substitute products or services

bargaining power of suppliers

41

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

42

Threat of substitute products or services

a measure of the ease with which customers can find substitutes for an industry's products or services

43

Bargaining power of suppliers

measure of the influence that suppliers of parts. materials, and services to firms in an industry have on the prices of these inputs

44

Bargaining powers of buyers

measure of the influence that customers have on a firms prices

45

Cost leadership

positioning strategy of producing a product or service of acceptable quality at consistently lower production cost than competitors can so that the firm can offer the product or service at the lowest price in the industry

46

Differentiation

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

47

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

48

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

49

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

50

Analyzers

companies using adaptive strategy that seeks to minimize risk and maximize profits by following or imitating the proven successes of prospectors

51

Reactors

companies that do not follow a consistent adaptive strategy but instead react to changes in the external enviroment

52

Firm level strategy

corporate strategy that addresses the question "How should we compete against a particular firm?"

53

Direct competition

rivalry between two companies that offer similiar products and services, acknowledge each other as rivals, and act and react to each others strategic actions

54

Market commonality

degree to which two companies have overlapping products, services, or customers in multiple markets

55

Resource similiarity

the extent to which a competitor has similar amounts and kinds or resources

56

Attack

a competitive move designed to reduce a rivals market share or profits

57

Response

a competitive countermove, prompted by rivals attack, to defend or improve a company's market share or profit