Chapter 5 Organizational Strategy Sustainable Competitive Advantage Recourses o The assets capabilities processes employee time information and knowledge that an organization uses to improve its effectiveness and efficiency create and sustain competitive advantage and fulfill a need or solve a problem o Firms use to improve organizational effectiveness and efficiency o Critical to organizational strategy because they can help companies create and sustain an advantage over competitors Competitive Advantage o Providing greater value for customers than competitors can o Developed in each corporation over many years o Engrained in the corporate culture assets policies and procedures Sustainable Competitive Advantage When other companies cannot duplicate the value a firm is providing to customers A comparative advantage that other companies have tried unsuccessfully to duplicate and have for the moment stopped trying to duplicate Not the same as a long lasting competitive advantage though companies obviously want a competitive advantage to last a long time Low Cost Provider Low Pricing Market Power Powerful Brands Strategic Assets Barriers to Entry Product Differentiation Outstanding Management People Culture Strong Balance Sheet Cash Rolex Xbox and Playstation Boeing and Airbus SAP and Oracle Google and Bing Coke and Pepsi Marathon and Valero o Variable resources Allow companies to improve their efficiency and effectiveness Changes in customer demand and preferences competitors actions and technology can make once valuable resources much less valuable Resources that is not controlled or possessed by many o Rare resources competing firms o Imperfectly imitable other firms to duplicate o Nonsubstitutable A resource that is impossible or extremely costly or difficult for A resource that produces values or competitive advantage and has no equivalent substitutes or replacement iTunes s software Strategy Making Process Assessing the Need for Strategic Change Determine whether the company needs to change is strategy to sustain a competitive advantage Difficult because there is a lot of uncertainty in business Also top managers are often slow to recognize the need for strategic change o Avoid Competitive Inertia A reluctance to change strategies or competitive practices that have been successful in the past o Look for Strategic Dissonance A discrepancy between a company s intended strategy and the strategic actions managers take when implementing that strategy Managers must be aware of strategic dissonance o Discrepancy between the intended strategy and what actually happens Situational Analysis SWOT analysis An assessment of the strengths and weaknesses in an organization s internal environment and the opportunities and threats in its external environment Helps a company determine how to increase internal strengths and minimize internal weaknesses while maximizing external opportunities and minimizing external threats Internal Analysis Distinctive Competence o Something that a company can make do or perform better than competitors o Cannot be sustained for long without superior core capabilities o Core Capabilities o Less visible internal decision making routines problem solving processes and organizational cultures that determine how efficiently inputs can be turned into outputs Strategic group o Group of companies within an industry that top managers choose to compare evaluate and benchmark strategic threats and opportunities o Managers include companies as part of their strategic group if they compete directly with those companies for customers or if those companies use strategic similar to theirs Core firms Secondary firms o Central companies in a strategic group o Firms that use strategies related to but somewhat different from those of core firms Choosing Strategic Alternatives Strategic reference points o The strategic target managers use to measure whether a firm has developed the core competencies it needs to achieve a sustainable competitive advantage Risk avoiding strategy Risk seeking strategy o Aims to protect an existing competitive advantage o Aims to extend or create a sustainable competitive advantage Corporate Level Strategies The overall organizational strategy that addresses the question what business or businesses are we in or should be in To formulate effective strategies companies must be able to answer these three basic questions What business are we in or should we be in How should we compete in this industry Who are our competitors and how should we respond to them Portfolio Strategy A corporate level strategy that minimizes risk by diversifying investment among various businesses or product lines 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 To reduce risk in the overall stock portfolio Acquisition The purchase of a company by another company Unrelated Diversification Creating or acquiring companies in completely unrelated business Losses in one business or industry should have minimal effect on the performance of other companies in the corporate portfolio BCF matrix A portfolio strategy developed by the boston consulting group that categorized a corporation s businesses by growth rate and relative market share and helps manager decide how to invest corporate funds Stars A company with a large share of a fast growing Corporations must invest substantially in it A company with a small share of a last growing Question mark market market May eventually become starts Relatively weakness in the market makes investing more risky than investing in starts Cash cow Dogs A company with a large share od a slow growing market Often highly profitable A company with a small share of slow growing market Often not profitable U Shape Relationship between Diversification and Risk The left side of the curve shows that single businesses with no diversification are extremely risky if the single business fails the entire business fails The right side of the curve shows that conglomerates composed of completely unrelated businesses are even riskier than single undiversified businesses Related diversification Creating or acquiring companies that share similar products manufacturing marketing technology or culture Grand Strategies A broad strategic plan used to help an organization achieve it strategic goals Guide the