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Organizational

4
Strategy
Learning Outcomes:
1. specify the components of sustainable competitive
advantage and explain why it’s important
2. describe the steps involved in the strategy-making
process
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
6. Blue Ocean Strategy
Competitive Advantage
• Resources
– assets, capabilities, processes, employee time,
information, and knowledge that an organization
controls.
• Competitive advantage
– providing greater value for customers than
competitors can
• Sustainable competitive advantage
– when other companies cannot duplicate the value a
firm is providing to customers
Sustainable Competitive Advantage
Resources must be…
• Valuable
• Rare
• Imperfectly imitable
• Nonsubstitutable
Three Steps of the
Strategy-Making
Process
Corporate Level Strategy

“What business or businesses are we in


or should we be in?”
Portfolio Strategy
A corporate-level strategy that minimizes risk by
diversifying investment among various businesses
or product lines.

Companies can grow through:


•acquisitions
•unrelated diversification
BCG Matrix
Grand Strategies
Broad strategic plans used to help an organization
achieve its strategic goals

•Growth strategy
•Stability strategy
•Retrenchment strategy
– make significant cuts
– recovery
Industry-Level Strategies

“How should we compete in this


industry?”
Porter’s Five Industry
Forces
Positioning Strategies
• Cost leadership

• Differentiation

• Focus
Adaptive Strategies
• Defenders

• Prospectors

• Analyzers

• Reactors
Firm-Level Strategies

“How should we compete against a


particular firm?”
Direct Competition
The rivalry between two companies offering
similar products or services that acknowledge each
other as rivals and take offensive and defensive
positions as they act and react to each other’s
strategic actions.

•Market commonality

•Resource similarity
Strategic Moves of Direct
Competition
• Attack
– a competitive move designed to reduce a rival’s
market share or profits

• Response
– a countermove, prompted by a rival’s attack,
designed to defend or improve a company’s market
share or profit
Blue Ocean Strategy
• A Blue Ocean is a new market which is
untouched by competition.
• The Blue Ocean Strategy aims at creating a new
market space, where the competition becomes
irrelevant
5& Planning and
6 Decision Making
1. discuss the benefits and pitfalls of planning
2. describe how to make a plan that works
3. discuss how companies can use plans at all
management levels, from top to bottom
4. explain the steps and limits to rational decision
making
5. explain how group decisions and group
decision-making techniques can improve
decision making
Benefits of Planning
• Intensified effort

• Persistence

• Direction

• Creation of task strategies


Pitfalls of Planning
• Impedes change and prevents or slows
adaptation

• Creates a false sense of certainty

• Detachment of planners
How To Make a
Plan That Works
Setting Goals
S.M.A.R.T. Goals
• Specific
• Measurable
• Attainable
• Realistic
• Timely
Developing Commitment to Goals
• Goal commitment
– the determination to achieve a goal

• Set goals collectively

• Make the goal public

• Obtain top management’s support


Developing Effective Action Plans
An action plan lists…

• Specific steps (how)


• People (who)
• Resources (what)
• Time period (when)

…for accomplishing a goal


Tracking Progress
• Proximal goals and distal goals

• Performance feedback
Maintaining Flexibility
• Options-based planning
– keep options open by making, small simultaneous
investments in many alternative plans.

• Slack resources
– a cushion of resources, like extra time or money, that
can be used to address and adapt to unanticipated
changes.
Planning from
Top to Bottom
Starting at the Top
• Strategic plans
– make clear how the company will serve customers
and position itself against competitors in the next 2 to
5 years
• Purpose statement
– a statement of a company’s purpose or reason for
existing
• Strategic objective
– a more specific goal that unifies company-wide
efforts, stretches and challenges the organization, and
possess a finish line and a time frame.
Bending in the Middle
• Tactical plans
– specify how a company will use resources, budgets,
and people to accomplish specific goals related to its
strategic objective
– time frame: 6 months to 2 years

• Management by Objectives (MBO)


– discuss possible goals
– collectively set goals
– jointly develop tactical plans
– meet regularly to review progress
Finishing at the Bottom
Operational plans
• Single-use plans
• Standing plans
– policies
– procedures
– rules and regulations
• Budgets
Steps to Rational Decision Making
1. Define the problem
2. Identify decision criteria
3. Weight the criteria
4. Generate alternative courses of action
5. Evaluate each alternative
6. Compute the optimal decision
Define the Problem

Existing state

Desired state
Identify Decision Criteria
The standards used to guide judgments and
decisions.
Weight the Criteria
• Absolute comparisons

• Relative comparisons
Generate Alternative
Courses of Action
After identifying and weighting the criteria that
will guide the decision-making process, the next
step is to identify possible courses of action that
could solve the problem.

The idea is to generate as many alternatives as


possible.
Evaluate Each Alternative
• The next step is to systematically evaluate each
alternative against each criterion.

• The key is to use information to systematically


evaluate each alternative against each criterion.
Limits to Rational Decision Making
• In theory, fully rational decision makers
maximize decision by choosing the optimal
solution.

• In practice, limited resources make it nearly


impossible to maximize decisions.
Advantages of Group
Decision Making
Groups do a better job than individuals at
• Defining the problem
• Generating alternative solutions
Pitfalls of Group
Decision Making
• Groupthink
– occurs in highly cohesive groups when group
members feel intense pressure to agree with each
other so that the group can approve a proposed
solution

• Takes considerable time

• Strong willed members


Structured Conflict
• C-type (cognitive) conflict
– focuses on problem- and issue-related differences of
opinion
– willingness to examine, compare, reconcile
differences to produce the best possible solution
• A-type (affective) conflict
– emotional reaction that can occur when
disagreements become personal
– hostility, anger, resentment, distrust, cynicism,
apathy
Creating C-Type Conflict
Devil’s advocacy
1. Generate a potential solution
2. Assign a devil’s advocate to criticize and
question the solution
3. Present the critique of the potential solution to
key decision makers
4. Gather additional relevant information
5. Decide whether to use, change, or not use the
originally proposed solution
Creating C-Type Conflict
Nominal Group Technique
• Begins with group quiet time
• Each member shares one idea at a time with the
group
• Group discusses the pros and cons of each idea
• Group members independently rank ideas
presented
• Idea with highest average rank is selected
Creating C-Type Conflict
Delphi Technique
• A group of experts respond to questions and to
each other until reaching agreement
Creating C-Type Conflict
Brainstorming/Electronic Brainstorming
• The more ideas the better
• All ideas are acceptable
• Other members’ ideas should be used to come
up with even more ideas
• Criticism or evaluation of ideas is not allowed

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