TYPES OF ORGANIZATIONAL STRATEGIES
Strategic planning takes place on three different and distinct levels: corporate, business, and functional. (See Exhibit 8-4 and PowerPoint slide 8-16).
A. Corporate Strategy
Corporate strategy is an organizational strategy that determines what businesses a company is in, should be in, or wants to be in, and what it wants to do with those businesses.
1. There are three main types of corporate strategies:
a. A growth strategy is a corporate strategy that is used when an organization wants to grow and does so by expanding the number of products offered or markets served, either through its current business(es) or through new business(es).
b. A stability strategy is a corporate strategy characterized by an absence of significant change in what the organization is currently doing.
c. A renewal strategy is a corporate strategy designed to address organizational weaknesses that are leading to performance declines. Two such strategies are retrenchment strategy and turnaround strategy.
2. Corporate Portfolio Analysis is used when an organization’s corporate strategy involves a number of businesses. Managers can manage this portfolio of businesses using a corporate portfolio matrix, such as the BCG matrix.
a. The BCG matrix is a strategy tool that guides resource allocation decisions on the basis of market share and growth rate of SBUs. (See Exhibit 8-5 and PowerPoint slide 8-23.)
B. Business (Competitive) Strategy
A business strategy (also known as a competitive strategy) is an organizational strategy focused on how the organization will compete in each of its businesses.
1. The Role of Competitive Advantage. A competitive advantage is what sets an organization apart, that is, its distinctive edge. An organization’s competitive advantage can come from its core competencies.
2. Quality as a Competitive Advantage. If implemented properly, quality can be one way for an organization to create a sustainable competitive advantage.
3. Sustaining Competitive Advantage. An organization must be able to sustain its competitive advantage; it must keep its edge despite competitors’ action and regardless of major changes in the organization’s industry.
4. Michael Porter’s work explains how managers can create and sustain a competitive advantage that will give a company above-average profitability.
a. Industry analysis is an important step in Porter’s framework. He says there are five competitive forces at work in an industry; together, these five forces determine industry attractiveness and profitability. (See Exhibit 8-6 and PowerPoint slide 8-29). Porter proposes that the following five factors can be used to assess an industry’s attractiveness:
1) Threat of new entrants. How likely is it that new competitors will come into the industry? Managers should assess barriers to entry, which are factors that determine how easy or difficult it would be for new competitors to enter the industry.
2) Threat of substitutes. How likely is it that products of other industries could be substituted for a company’s products?
3) Bargaining power of buyers. How much bargaining power do buyers (customers) have?
4) Bargaining power of suppliers. How much bargaining power do a company’s suppliers have?
5) Current rivalry. How intense is the competition among firms that are currently in the industry?
5. According to Porter, managers must choose a strategy that will give their organization a competitive advantage. Porter identifies three generic competitive strategies. Which strategy managers select depends on the organization’s strengths and core competencies and the particular weaknesses of its competitor(s).
a. A cost leadership strategy is a business or competitive strategy in which the organization competes on the basis of having the lowest costs in its industry.
b. A differentiation strategy is a business or competitive strategy in which a company offers unique products that are widely valued by customers.
c. A focus strategy is a business or competitive strategy in which a company pursues a cost or differentiation advantage in a narrow industry segment.
6. An organization that has been not been able to develop either a low cost or a differentiation competitive advantage is said to be “stuck in the middle.”
7. Subsequent research indicates that it is possible, though very difficult, for organizations that are stuck in the middle to achieve high performance.
C. Functional Strategy
Functional strategy is the strategies used by an organization’s various functional departments to support the business or competitive strategy.