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1200 words total. 3 APA cited references and reference list. NO PLAGIARISM PLEASE!!!1. In a narrative format, discuss the key facts and critical issues presented in the case.2. Kerrie has been charged with reducing operating expenses. Explain her solution to this problem. Be specific and discuss both positive and negative factors.3. There is a clear violation of Fayol’s unity of direction principle in this case. What is it, and how does Kerrie attempt to overcome it?4. There are several examples of self-interest in Kerrie’s organization. How would Mary Parker Follett suggest these issues be resolved?FOR QUESTION FIVE 250 WORDS TOTAL. 2 APA CITED REFERENES AND REFERENCE LIST. NO PLAGIARISM PLEASE!!!5. Explain why Miles and Snow developed these four strategists: prospectors, defenders, analyzers, and reactors. Which one appears to you to be the most reliable?
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Organizational Strategy
& Performance
2
Chapter Outline:
2-1
The Strategic
Managment Process
V
I
C
K
E
R
S
,
2-2
Theories of Strategy
2-3
Strategy at the
Corporate Level
2-4
Strategy at the
Business Level
T
E
A
R
D
R
A
2-5
Strategy at the
Functional Level
Summary
Review Questions
Glossary
Endnotes
1
1
9
1
T
S
Key Terms
business-level strategy
business unit
competitive advantage
contingency theory
core competencies
corporate profile
corporate restructuring
corporate-level strategy
differentiation strategy
distinctive competence
divestment
downsizing
external growth
first-mover advantages
focus
functional strategies
generic strategies
growth strategy
industrial organization (IO)
industry
intended strategy
internal growth
liquidation
low-cost strategy
low-cost–differentiation
realized strategy
related diversification
retrenchment strategy
stability strategy
strategic alliances
strategic group
strategic mgmt. process
strategy
synergy
turnaround
Organizations are most likely to succeed when their activities are integrated
toward a common purpose. But this does not occur automatically; it requires
substantial forethought and planning. In other words, it requires a strategy. This
chapter discusses the strategic planning process, as well as strategic alternatives
available for each organization. Although the concepts presented herein have been
developed with profit-seeking firms in mind, they can be equally applicable to
public and private not-for-profit organizations that must compete in some way with
other organizations or agencies.
The concept of an organizational strategy encapsulates the notion of planning for
success. Specifically, a strategy refers to top management’s plans to develop and
sustain competitive advantage so that the organization’sVmission is fulfilled. A
strategy provides direction for the organization and can beIidentified by examining
a pattern of decisions made by an organization’s top managers.
C It is most likely to
be effective when it is compatible with the organization’s
K structure and culture,
concepts that will be developed later in the text. Although strategy is discussed
E
before structure and culture, all three dimensions are tightly intertwined.
strategy
top management’s plans to
attain outcomes consistent
with the organization’s
mission and goals
R
A successful strategy is marked by four key distinctions. S
First, it does not simply
emerge, but rather is developed after top managers systematically
evaluate both
,
the organization’s resources and external factors that can affect performance.
Second, it is long-term and future-oriented—usually several years to a decade or
longer—but built on knowledge about the past and present.TThird, it is distinctively
E situations that occur
opportunistic, always seeking to take advantage of favorable
A choices. “Win-win”
outside the organization. Finally, strategic thinking involves
strategic decisions are often possible, but most involve some
R degree of trade-off
between alternatives, at least in the short run.
D
2-1 The Strategic Management Process
R
A
Ideally, a strategy is developed as part of a conscious
1 activity led by an
organization’s top managers. The strategic management
1 process also includes
top management’s analysis of the environment in which the organization operates
9
prior to formulating a strategy, as well as the plan for implementation and control
11
of the strategy. This process can be summarized in six steps:
T
1. External Analysis: Analyze the opportunities and threats or constraints that
S
exist in the organization’s external environment.
2. Internal Analysis: Analyze the organization’s strengths and weaknesses in
its internal environment.
3. Mission and Direction: Reassess the organization’s mission and its goals in
light of the external and internal analyses.
strategic management
process
the continuous process
of determining the
mission and goals of an
organization within the
context of its external
environment and its
internal strengths and
weaknesses; formulating
and implementing
strategies; and exerting
strategic control to ensure
that the organization’s
strategies are successful in
attaining its goals
Organizational Theory
2-2
4. Strategy Formulation: Formulate strategies that build and sustain
competitive advantage by matching the organization’s strengths and
weaknesses with the environment’s opportunities and threats. Consider the
fit between the strategy and other organizational dimensions, such as the
structure and the prevailing culture.
5. Strategy Implementation: Implement the strategies that have been
developed. Make adjustments to the organizational structure, if feasible
and relevant.
6. Strategic Control: Evaluate organizational effectiveness and engage in
strategic control activities when the strategies are not
V producing the desired
outcomes.
I
C complexities in the
Although this process is simple and straightforward,
environment complicate the process, especially betweenKthe time a strategy is
formulated and the time it is actually implemented. Henry
E Mintzberg introduced
two terms to help clarify the shift that often occurs during this period. An intended
R
strategy reflects what management originally planned and may be realized just
S
as it was proposed , but the intended strategy and the realized strategy, what
, original strategy may
management actually implements usually differ.2 Hence, the
be realized with desirable or undesirable results, or it may be modified as changes
in the firm or the environment become known.
T
intended strategy
the original strategy top
management plans and
intends to implement
realized strategy
the strategy top
management actually
implements
E
The gap between the intended and realized strategies usually results from unforeseen
A that was not available
environmental or organizational events, better information
when the strategy was formulated, an improvement in topR
management’s ability to
assess its environment, or strategic responses from competitors.
As such, this gap
D
can be minimized if top managers assimilate and process
information
about the
R
organization’s environment more effectively. It is not uncommon for such a gap to
A
exist, creating the need for constant strategic action if a firm is to stay on course.
Instead of resisting modest strategic changes when new information is discovered,
1 to make such changes
managers should search for new information and be willing
1
when necessary.
A thorough discussion of each step of the
strategic management process is beyond
the scope of this text. However, many of
the concepts presented in the text relate
to one or more of these phases. The
remainder of this chapter is concerned
primarily with the theories that influence
the process and the content of corporate
and competitive strategies available to
organizations.
9
1
T
S
Organizational Theory
2-3
2-2 Theories of Strategy
The strategic management process has been influenced by a number of theories
and perspectives, three of which are summarized in the table 2-1 and discussed
below.
V
I
C
K
Industrial organization (IO) economics, a branch of microeconomics, emphasizes
E
the influence of the industry environment upon the organization. IO emphasizes
that an organization must adapt to influences exertedRby its industry— the
S
collection of competitors that offer similar products or services—to
survive and
prosper. Following this logic, organizational performance, is primarily determined
by the structure of the industry in which it competes. Industries with “favorable
structures” offer the greatest opportunity for high organizational performance.
T
E “five forces” model,
IO logic can be seen in Michael Porter’s frequently cited
discussed in greater detail in the following chapter. Porter’s
A model identifies five
structural elements that influence industry profitability: Existing
rivalry, threat of
R
substitutes, threat of new entrants, bargaining power of buyers, and bargaining
D
power of suppliers.3 These factors collectively determine the potential for profits in
R
a particular industry. It assumes that organizations are likely to perform well when
A
they operate in industries with attractive structures.
The concept of adaptation is central to the IO perspective. In essence, an
1
organization’s performance and ultimate survival depend on its ability to adapt
1
to external forces rather than attempt to influence or control
them. Strategies,
9
resources, and competencies are assumed to be fairly similar among competitors
within a given industry. If one organization deviates from
1 the industry norm and
implements a new, successful strategy, others will rapidly
T mimic the higherperforming organization by purchasing the resources, competencies,
or management
S
talent that have made the leading firm so profitable. Hence, strategic managers
should seek to understand the nature of the industry and formulate strategies that
feed off the industry’s characteristics.4
In contrast to the IO perspective, resource-based theory views performance
primarily as a function of an organization’s ability to acquire and utilize its
resources.5 Although environmental opportunities and threats are important, an
industrial organization
(IO)
a view based in
microecomonic theory
that states that a firm’s
profitability is most
closely associated with
industry structure
industry
a group of competitors
that produces similar
products or services
resource-based theory
a view that states that a
firm’s performance is tied
to the resources it acquires
and utilizes.
Organizational Theory
2-4
organization’s unique resources comprise the key variables that allow it to develop
a distinctive competence, distinguishing itself from its rivals, and creating
competitive advantage. “Resources” include all of a firm’s tangible and intangible
assets, such as capital, equipment, employees, knowledge, and information.6 In
many respects, an organization’s resources define its capabilities, as an organization
with strong research and development may also possess the capability to develop
successful new products. Ultimately, this can create value and lead to greater
performance.
distinctive competence
unique resources, skills,
and capabilities that
enable an organization to
distinguish itself from its
competitors and create a
competitive advantage
All resources are not equally valuable. If resources are to be used for sustainable
competitive advantage—a organization’s ability to enjoy strategic benefits and
Vtime—those resources
outperform the industry norm over an extended period of
I not easily imitated,
must be valuable, rare (i.e., not easily obtained by rivals),
7
and without strategically relevant substitutes. In other words,
C the most desirable
resources on ones that utilized by an organization in a wayKthat competitors cannot
easily match. Valuable resources contribute significantly to the organization’s
E
effectiveness and efficiency, rare resources are possessed by only a few competitors,
R
and imperfectly imitable resources cannot be fully duplicated by rivals.
S
Contingency theory emphasizes the interaction between
the organization
,
and its environment. Within this perspective, the fit between organization and
environment is the central concern. In other words, a strategy is most likely to be
successful when it is consistent with the organization’s T
mission, its competitive
E
environment, and its resources. In effect, contingency theory represents a middle
A as the joint outcome
ground perspective that views organizational performance
of environmental forces and the firm’s strategic actions.R
On the one hand, firms
can become proactive by choosing to operate in environments
D where opportunities
8
and threats match the firms’ strengths and weaknesses. On the other hand, should
R
the industry environment change in a way that is unfavorable to the firm, its top
A
managers should consider leaving that industry and reallocating
its resources to
other, more favorable industries.
contingency theory
a perspective that suggests
that the most profitable
firms are likely to be the
ones that develop the best
fit with their environments
1
Contingency theory is applied when a strategy is formulated. Strategic managers
1
consider internal resources in light of external opportunities and threats and
9 an effective strategy
develop strategies that reflect a fit between the two. Hence,
is not merely a “good idea,” but one that capitalizes on 1the particular resources
controlled by an organization and the environment in which
T it operates. In other
words, an effective strategy “fits” the organization.
S
As has been demonstrated, each of these three perspectives has merit and has been
incorporated into the strategic management process. The industrial organization
view is prominent within the industry analysis phase, resource-based theory
applies directly to the internal analysis phase, and contingency theory is seen in the
strategy formulation phase. Hence, multiple perspectives are critical to a holistic
understanding of an organization’s strategy and its relationship with performance.9
Organizational Theory
2-5
2-3 Strategy at the Corporate Level
The complex notion of organizational strategy can be examined from three
perspectives: firm (also called corporate), business (also called competitive),
and functional. The corporate strategy reflects the broad strategic approach top
management formulates for the organization. The business-level strategy outlines
the competitive pattern for a business unit, an organizational entity with its own
mission, set of competitors, and industry. Top managers craft competitive strategies
for each business (unit) to attain and sustain competitive advantage, a state
whereby its successful strategies cannot be easily duplicated by its competitors.10
Functional strategies are created at each functional level (i.e., marketing, finance,
V
production, etc.) to support the business and corporate strategies.
I
There are two steps involved in developing the corporateCstrategy. The first step
is to assess the markets or industries in which the firm operates. At the corporate
K
level, top management defines the corporate profile by identifying the specific
E
industry(s) in which the organization will operate. Three basic profiles are possible:
operate in a single industry, operate in multiple related R
industries, or operate in
S
multiple, unrelated industries.
,
An organization that operates in a single industry can benefit from the specialized
knowledge that it develops from concentrating its efforts on one business
area. This knowledge can help the firm improve productT or service quality and
become more efficient in its operations. McDonald’s, E
for instance, constantly
changes its product line, while maintaining a low per-unit
A cost of operations by
concentrating exclusively on fast food. Wal-Mart benefitsRfrom expertise derived
from concentration in the retailing industry. Although involved in other businesses
D
as well, Anheuser Busch limits its scope of operations primarily to brewing, from
R
which it derives more than 80 percent of its revenues and profits.11 Firms operating
A in business cycles,
in a single industry are more susceptible to sharp downturns
however.
1
An organization may operate in multiple related industries to reduce the uncertainty
1 An organization may
and risk associated with operating in a single industry.
diversify by developing a new line of business, or an 9
organization with large,
successful businesses may acquire smaller competitors
1 with complementary
product or service lines, a process known as related diversification.
In some
T
instances, however, a smaller firm may acquire a larger one,
S as was the case when
Kmart acquired Sears in 2004. Size, of course, can be defined in a number of ways,
including total revenues, number of employees or locations, or the physical size
of facilities.
The key to successful related diversification is the development of synergy among
the related business units. Synergy occurs when the two previously separate
organizations join to generate higher effectiveness and efficiency than would have
corporate-level
strategy
the broad strategy that top
managment formulates for
the overall organization
business-level
stragegy
a strategy formulated
for a business unit that
identifies how it will
compete with other
businesses within its
industry
business unit
an organizational
entity with its own
unique mission, set of
competitors, and industry
competitive advantage
a state whereby a
business unit’s successful
strategies cannot be
easily duplicated by its
competitors
functional strategies
strategies created at
functional levels (e.g.,
marketing, finance,
production, etc.) to
support the business and
corporate strategies
corporate profile
identification of the
industry(ies) in which a
firm operates
related diversification
a process whereby an
organization acquires one
or more businesses not
related to its core domain
synergy
when the combination of
two organizations results
in higher efficiency and
effectiveness that would
otherwise be achieved
by the two organizations
separately
Organizational Theory
2-6
been generated by them separately. When there are similarities in product or service
lines, relationships in the distribution channels, or complementary managerial or
technical expertise across business units, synergy is most likely to result.
An organization may choose to operate in unrelated industries because its
managers wish to reduce risk by spreading resources across several markets,
thereby pursuing unrelated diversification by acquiring businesses not related
to its core domain. Unlike related diversification, unrelated diversification is not
about synergy. Unrelated diversification is pursued primarily to reduce risks that
are associated with the organization that operates in only one area of business.
Unrelated diversification, however, can make it more difficult for managers to stay
Vindustries. In addition,
abreast of market and technological changes in the various
they may unknowingly shift attention away from theI organization’s primary
business in favor of less critical ones.
C
unrelated
diversification
process whereby an
organization acquires
businesses unrelated to
its core domain
K is associated with
The second step involved in developing the corporate strategy
the extent to which an organization seeks to increase itsEsize. Simply stated, an
organization may attempt to increase its size significantly,Rremain about the same
size, or become smaller. These three possibilities are S
seen in three corporate
strategies—growth, stability, and retrenchment (i.e., become
smaller)—each of
,
which is discussed in greater detail.
T
E
The growth strategy seeks to significantly increase a A
organization’s revenues
or market share. Growth may be attained in a variety ofR
ways. Internal growth
is accomplished when a firm increases revenues, production
capacity, and its
D
workforce, and can occur by growing a business or creating new ones. External
R
growth is accomplished when an organization merges with or acquires another
A
firm. Mergers are generally undertaken to share or transfer
resources and/or
2-3a Growth Strategies
improve competitiveness by combining resources.
1
The attractiveness of merging with or acquiring another organization may seem
1
intuitively obvious: Two organizations join forces into a single one that possesses
all the strengths of the individual firms. The key to 9
successful mergers and
1 Some companies like
acquisitions is often found in the ability to develop synergy.
G.E. are well known for their ability to acquire other companies
T and integrate them
effectively. Opportunities for synergy ar …
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