Disclaimer: This study guide is NOT a substitute for reading the textbook chapters, and this guide

alone will not guarantee you a passing grade on exams. You must read the textbook chapters in their
entirety in order to fully prepare for the exam.

Management Chapter 6: Organizational Strategy

Resources: The assets, capabilities, processes, 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.

Competitive advantage: Use resources to provide greater value for customers than competitors can.

Sustainable competitive advantage: A competitive advantage that other companies have tried
unsuccessfully to duplicate and have for the moment, stopped trying to duplicate.

***Goal of most organizational strategies is to create competitive advantage and make sure sustainable.

4 requirements for Sustainable Competitive Advantage

1. Valuable Resources: Resources that allow companies to improve the efficiency and
effectiveness.
2. Rare Resources: Resources that are not controlled or possessed by many competing firms.
3. Imperfectly imitable resources: Resources that are impossible or extremely costly or difficult for
other firms to duplicate.
4. Nonsubstitutable resources: Resources that produce value or competitive advantage and have
no equivalent substitutes or replacements.

3 Steps for Strategy Making

1. Assess need for strategic change

2. Conduct Situational Analysis
3. Choose Strategic Alternatives

Competitive inertia: A reluctance to change strategies or competitive practices that have been
successful in the past.

What can managers do to improve the speed and accuracy with which they determine the need for
strategic change?

 Strategic Dissonance: A discrepancy between a company's intended strategy and the strategic
actions managers take when implementing strategy.

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Situational Analysis/S.W.O.T.: (Strengths, Weaknesses, Opportunities, or threats) An assessment of the
strengths and weaknesses in an organization's internal environment and the opportunities and threats
in its external environment.

 managers use environmental scanning to identify specific opportunities and threats that can
either improve or harm the company’s ability to sustain its competitive advantage
 environmental scanning: searching for important events or issues that might affect an
organization
 How do they use environmental scanning?
1. Identification of strategic groups: A group of companies within an industry that top
managers choose to compare, evaluate, and benchmark strategic threats and
opportunities.
2. formation of shadow-strategy task forces: actively seeks out its own company’s
weaknesses and then, thinking like a competitor, determines how other companies
could exploit them for competitive advantage.3

Companies are categorized by industry when environmental scanning occurs in 3 ways:

1. Core Firms: The central companies in a strategic group.

2. Secondary Firms: The firms in a strategic group that follow strategies related to but somewhat
different from those of the core firms.
3. Transient firms: companies whose strategies are changing from one strategic position to
another

Distinctive Competence: What a company can make, do, or perform better than its competitors.

 Example: Consumer Reports magazine consistently ranks Honda and Subaru cars as tops in
quality and reliability

Core Capabilities: The internal decision making routines, problem-solving processes, and organizational
cultures that determine how efficiently inputs can be turned into outputs.

 Example: Buying in bulk

***Need core capabilities to sustain distinctive competence

How do you choose strategic alternatives?

1. You choose from risk seeking or risk avoiding options based on strategic reference points
2. 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.

Corporate-level Strategy: The overall organizational strategy that addresses the question "What
business or businesses are we in or should we be in?"

Diversification: A strategy for reducing risk by owning a variety of items (stocks or, in the casee off a
corporation, types of businesses) so that the failure of one stock or one business does not doom the
entire portfolio.

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Portfolio Strategy: A corporate-level strategy that minimizes risk by diversifying investment among
various businesses or product lines.

 managers following portfolio strategy try to acquire companies that fit well with the rest of their
corporate portfolio and to sell those that don’t
 They take such decisions by considering:
1. Acquisition: company looks for another company to buy to “add legs to the stool”
2. Unrelated Diversification: reduces risk even more than portfolio strategy by creating or
acquiring companies in completely unrelated businesses.
3. Investing the profits and cash flows from mature, slow-growth businesses into newer, faster
growing businesses can reduce long-term risk.
 BCG Matrix: A portfolio strategy, developed by the Boston Consulting Group, that categorizes a
corporation's businesses by growth rate and relative market share and helps manages decide
how to invest corporate funds.
o BCG Matrix separates businesses into four categories based on how fast the market is
growing (high growth or low growth) and the size of the business’s share of that
market (small or large):
1. Star: A company with a large share of a fast-growing market.
2. Cash Cow: A company with a large share of a slow-growing market.
a. Strongest performer in corporate portfolio
3. Dog: A company with a small share of a slow-growing market
4. Question Mark: A company with a small share of a fast-growing market.

***problems with portfolio strategy has to do with the dysfunctional consequences that can occur when
companies are categorized as stars, cash cows, question marks, or dogs.

BCG matrix Problems:

1. Often yields incorrect judgments about a company’s potential.

2. Managers using the BCG matrix aren’t very good at accurately determining which companies
should be categorized as stars, cash cows, questions marks, or dogs.
3. BCG relies on past performance (previous market share and previous market growth), which is a
notoriously poor predictor of future company performance
4. BCG matrix actually makes managers worse at judging the future profitability of a business.
5. BCG matrix can also weaken the strongest performer in the corporate portfolio, the cash cow
a. Cash cow becomes less aggressive in seeking new business or in defending its present
business.

Related Diversification: Creating or acquiring companies that share similar products, manufacturing,
marketing, technology, or cultures.

 According to U shaped curve, does the best job of helping managers decide which companies to
buy or sell contrary to portfolio strategy
 Because you acquire or create new companies with core capabilities that complement the core
capabilities of businesses already in the corporate portfolio

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

 Helps individual businesses decide what category of business they should be in

Stability Strategy: A strategy that focuses on improving the way in which the company sells the same
products or services to the same customers.

 Keep trying to do it better

Retrenchment Strategy: A strategy that focuses on improving the way in which the company sells the
same products of services to the same customers.

 Focus on turning around very poor company performance by shrinking the size or scope
of the business or, if a company is in multiple businesses, by closing or shutting down
different lines of the business.
 2 step process:
o Cutting: reducing costs and reducing a business’s size or scope
o Recovery: The strategic actions taken after retrenchment to return to a growth
strategy.
o 2 steps are similar to pruning process of roses: Prior to each growing season,
roses should be cut back to two-thirds their normal size. Pruning doesn’t
damage the roses; it makes them stronger and more likely to produce beautiful,
fragrant flowers.

Industry-level strategy: A corporate strategy that addresses the question "How should we compete in
this industry?"

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5 industry forces that determine an industry’s overall attractiveness and potential for long-term
profitability:

1. Character of the rivalry: A measure of the intensity of competitive behavior between companies
in an industry.
2. Threat of new entrants: A measure of the degree to which barriers to entry make it east or
difficult for new companies to get started in an industry.
3. Threat of substitute products or services: A measure of the ease with which customers can find
substitutes for an industry's products or services.
4. Bargaining power of suppliers: A measure of the influence that suppliers of parts, materials, and
services to firms in an industry have on the prices of these inputs.
5. Bargaining power of buyers: A measure of the influence that customers have on a firm's prices.

***After analyzing industry forces, the next step in industry-level strategy is to protect your company
from the negative effects of industry-wide competition and to create a sustainable competitive
advantage

3 Positioning Strategies: aim to minimize effects of industry competition and build sustainable
competitive advantage

1. Cost Leadership: The positioning strategy of producing a product or service of acceptable quality
at consistently lower production costs than competitors can, so that the firm can offer the
product or service at the lowest price in the industry.
2. Differentiation: The 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.
3. 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.

4 Adaptive Strategies: aim to choose an industry-level strategy that is best suited to changes in the
organization’s external environment.

1. Defenders: Firms that adopt 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.
2. Prospectors: Firms that adopt an adaptive strategy that seeks fast growth by searching for new
market opportunities, encouraging risk taking, and being the first or bring innovative new
products to market.
3. Analyzers: Firms that adopt an adaptive strategy that seek to minimize risk and maximize profits
by following or imitating the proven successes of prospectors.
4. Reactors: Firms that take an adaptive strategy of not following a consistent strategy, but instead
reacting to changes in the external environment after they occur.

Firm-level Strategy: A corporate strategy that addresses the question "How should we compete against
a particular firm?"

 Although Porter’s five industry forces indicate the overall level of competition in an industry,
most companies do not compete directly with all the firms in their industry.

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 o Example: McDonald’s and Red Lobster are both in the restaurant business, but no one
would characterize them as competitors

Alternative form of Competition:

1. Direct Competition: The rivalry between two companies that offer similar products and services,
acknowledge each other as rivals, and react to each other's strategic actions.

Two factors determine the extent to which firms will be in direct competition with each other:

1. Market Commonality: The degree to which two companies have overlapping products, services,
or customers in multiple markets.
2. Resource Similarity: The extent to which a competitor has similar amounts and kinds of
resources.

Firms in direct competition can make two basic strategic moves:

1. Attack: A competitive move designed to reduce a rival's market share or profits.

2. Response: A competitive countermove, prompted by a rival's attack to defend or improve a
company's market share or profit.

Entrepreneurship: process of entering new or established markets with new goods or services

 Is a Firm level strategy: Firm-level strategies are concerned with direct competition between
firms.
 basic strategic act of entrepreneurship is new entry, or creating a new business from a brand-
new start-up firm

Intrapreneurship: Established firms can be entrepreneurial too, by entering new or established markets
with new goods or services

 In short, when existing companies are entrepreneurial

Entrepreneurial orientation: the set of processes, practices, and decision-making activities that lead to
new entry

 Have 5 dimensions:
1. risk taking
2. autonomy
3. innovativeness
4. proactiveness
5. competitive aggressiveness

***Note: Without these five key characteristics, an entrepreneurial orientation is unlikely to be created,
and an intrapreneurial strategy is unlikely to succeed.