Chapter 5: Organizational Strategy P a g e | 1
Effective Management 7th Edition
Chapter 5: Organizational Strategy
Pedagogy Map
This chapter begins with the learning outcome summaries and terms covered in the chapter, followed by a
set of lesson plans for you to use to deliver the content in Chapter 5.
Lesson Plan for Lecture (for large sections)
Lesson Plan for Group Work (for smaller classes)
Assignments with Teaching Tips and Solutions
Highlighted Assignments Key Points
What Would You Do? The Walt Disney Company must resolve several strategic
questions as it faces struggling brands and products.
Management Team Decision
decision to keep selling soft drinks at primary and secondary
schools.
Practice Being a Manager Students consider competitive advantage as they work to win
Additional Assignments Key Points
Management Team Decision A management team must decide if a cell phone company
needs to adopt a new strategy for selling cell phones in India.
Develop Your Career Potential Conducting an individual SWOT analysis can help students
plan their future.
Learning Outcomes
5-1 Specify the components of sustainable competitive advantage and explain why it is
important.
Firms can use their resources to create and sustain a competitive advantage, that is, to provide greater
5-2 Describe the steps involved in the strategy-making process.
The first step in the strategy-making process is determining whether a strategy needs to be changed to
sustain a competitive advantage. Because uncertainty and competitive inertia make this difficult to
determine, managers can improve the speed and accuracy of this step by looking for differences between
5-3 Explain the different kinds of corporate-level strategies.
Corporate-level strategies, such as portfolio strategy and the grand strategies, help managers determine
what businesses they should be in. Portfolio strategy focuses on lowering business risk by being in
multiple, unrelated businesses and by investing the cash flows from slow-growth businesses into faster-
5-4 Describe the different kinds of industry-level strategies.
Industry-level strategies focus on how companies choose to compete in their industries. Five industry
-term
profitability. Together, a high level of new entrants, substitute products or services, bargaining power of
Chapter 5: Organizational Strategy P a g e | 3
5-5 Explain the components and kinds of firm-level strategies.
Firm-level strategies are concerned with direct competition between firms. Market commonality and
resource similarity determine whether firms are in direct competition and thus likely to attack each other
attacks. In general, the more markets in which there is product, service, or
customer overlap, and the greater the resource similarity between two firms, the more intense the direct
competition between them. When firms are direct competitors in a large number of markets, attacks are
Terms
acquisition
core firms
corporate-level strategy
cost leadership
defenders
differentiation
direct competition
distinctive competence
diversification
prospectors
question mark
rare resource
reactors
recovery
related diversification
resource similarity
resources
advantage
threat of new entrants
threat of substitute products or
services
unrelated diversification
valuable resources
Lesson Plan for Lecture
Pre-Class Prep for You: Pre-Class Prep for Your Students:
Review chapter and determine what points to
cover.
Bring PPT slides.
Read Chapter 5, bring book.
Warm Up Begin Chapter 5 by asking your students to name a company that has a strategic
competitive advantage. Then, push them to articulate what they think gives that company
a strategic advantage.
Topics PowerPoint Slides Activities
5-1 Sustainable
Competitive Advantage
1: Organizational
Strategy
2: What Would You Do?
5-2 Strategy-Making
Process
5-2a Assessing the Need
for Strategic Change
5-2c Choosing Strategic
Alternatives
5: Three Steps of the
Strategy-Making Process
6: Assessing Need for
Change
8: Internal Environment
9: External Environment
conference to illustrate
rivalries/competitors,
secondary schools, transient
5-3 Corporate–Level
Strategies
5-3b Grand Strategies
13: Corporate-Level
Strategies
Strategies
15: Portfolio Strategy
16: Portfolio Strategy
17: BCG Matrix
Chapter 5: Organizational Strategy P a g e | 5
5-4 Industry-Level
Strategies
5-4b Positioning
Strategies
22: Industry-Level
Strategies
24: Positioning Strategies
25: Focus Strategy
The adaptive strategy of
prospectors pushes
fut
are the advantages and
5-5 Firm-Level
Strategies
5-5b Strategic Moves of
Direct Competition
27: Firm-Level Strategy
28: Direct Competition
30: A Framework of
Direct Competition
31: Strategic Moves of
Direct Competition
32: Strategic Moves of
Direct Competition
33: Strategic Moves of
Direct Competition
Managers often visit
products or services in
order to benchmark their
own performance. Ask
benchmarking in order to
boost your performance as
a student, an athlete, or
hobbyist of any sort? What
do you do and how does it
Management Workplace 34: Theo Chocolate Launch video in slide 34.
Adjust lecture to include the activities in the right column. Some activities should be
done before introducing the concept, some after.
Conclusion
and
Preview
Assignments:
1. Assign students to diagram the framework of direct competition for the movie
rental industry. Students first need to create the list of companies to plot (Netflix,
Redbox, etc.).
Chapter 5: Organizational Strategy P a g e | 6
Lesson Plan for Group Work
Pre-Class Prep for You: Pre-Class Prep for Your Students:
Review material to cover and modify lesson
plan to meet your needs.
Set up the classroom so that small groups of
45 students can sit together.
Read Chapter 5, bring book.
Warm Up Begin Chapter 5 by asking your students to name a company they think has a sustainable
Content
Delivery
Lecture on Sustainable Competitive Advantage (Section 5-1).
Break for group activity:
Divide the class into small groups (3 4 students) and have them think about digital
music players or satellite radio. Whichever industry they choose, have them list the
companies operating in that space (there will be more for digital music players than
for satellite radio) and determine if they think any one company in particular has a
sustainable competitive advantage. then tell them to push harder
to decide if a company used to have an advantage and lost it (why); or if a company is
poised to create one (how).
Lecture on the Strategy-Making Process (Section 5-2).
Break for group activity:
Divide the class into small groups of 3 4 students and tell each group that it
represents the management team of a locally owned and operated water park, which
has been in business for 15 years. Revenues are $5 million per season; equipment is
neither new nor old; the company has little debt service, a good reputation in the
community, and a flood of job applicants each summer. Next season, however, the
amusement park across the highway is adding a water park to its traditional thrill ride
attractions. Conduct a quick situational analysis and then determine which strategic
alternatives will help the company create or maintain its competitive advantage.
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Break for the following activity:
Divide the class into groups of 2 3 students to map the portfolio of a well-known,
diversified company such as Disney, Procter & Gamble, or HBO. Before doing the
exercise in class, check out a set of annual reports from the campus library. (If that is
not feasible, at least research the latest annual report for each company you want
Remind students of the disadvantages with portfolio strategy, and move into a discussion
of Corporate-Level Strategies rand Strategies (5-3b).
Lecture on Industry- and Firm-Level Strategies (Sections 5-4 and 5-5).
As you move through the section on direct competition, refer back to the
activity above. Use it as a basis for talking about direct competition and the
strategic moves of direct competition. Other good examples include:
Divide students into small groups of 3 4 students and have them diagram the
framework of direct competition for the movie rental industry. Have students create
the list of companies to plot. If they have trouble, suggest Netflix, Redbox, and even
TiVo and Hulu.
Conclusion
Assignments:
Remind students about any upcoming events.
Assignments with Teaching Tips and Solutions
What Would You Do Case Assignment
What Really Happened? Solution
WALT DISNEY COMPANY
animated film business, which had struggled and lost money over the last decade. While giving Pixar total
Chapter 5: Organizational Strategy P a g e | 8
control over Disney animated films
Disney films, consumer products, media networks, and online, mobile, and video games consistently
underperformed compared to
aging characters like Mickey Mouse and Winnie-the-
fering, you face a basic decision. Should Disney
grow, stabilize or retrench? Disney is an entertainment conglomerate with Walt Disney Studios (films),
parks and resorts (including Disney Cruise lines and vacations), consumer products (i.e., toys, clothing,
books, magazines, and merchandise), and media networks such as TV (ABC, ESPN, Disney Channels,
ABC Family), radio, and the Disney Interactive Media Group (online, mobile, and video games and
products). If Disney should grow, where? Like Pixar, is another strategic acquisition necessary? If so,
who? If stability, how do you improve quality to keep doing what Disney has been doing, but even better?
divisions would you shrink or sell?
The purpose of a growth strategy is to increase profits, revenues, market share, or the number of places
(stores, offices, locations) in which a company does business. Companies can grow externally by merging
with or acquiring other companies in the same or different businesses. Or, they can grow internally,
Should Disney grow, stabilize, or retrench?
Soon after Bob Iger became CEO, Disney found itself in the midst of a deep, global economic recession.
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So, faced with losses and decreasing revenues, Iger employed a retrenchment strategy. For example, with
operating income also down sharply at Disney parks and resorts, Disney offered voluntary buyouts to 600
executives, hoping to significantly cut costs. Chair of the parks and resorts unit, Jay Rasulo, indicated that
While the first step of retrenchment includes significant cost reductions, the next step is recovery, taking
investments in theme parks, technology, and construction, all intended to return Disney to aggressive
ing and investing] before the recession, and some
Iger reasoned that long-
construction and expensive assets like cruise ships brought about by the recession. So, in the midst of the
recession, the company invested millions in the Disney Dream (a brand-new cruise ship), $1 billion to
ney Land), and then spent billions more to expand
Hong Kong Disneyland, as well as a new Disney resort in Hawaii.
While those investments were intended to grow Disney organically, that is, to create growth in current
lines of business, Disney spent $4.3 billion to buy Marvel Entertainment, home to well know comic book
heroes such as X-Men, Captain America, Iron Man, and Thor, and $563 million to buy Playdom, a
company which makes games for Facebook users. When it comes to Marvel Entertainment, Iger
expla
for some critical franchises. Notably, Iron Man will be distributed by us, and Avengers. We’re developing
three live-action series for ABC and ABC Family. You can buy Marvel products at Disney stores. And
e that we felt we wanted and
needed to be in. We did not have that expertise in the company, and we felt that bringing it into the
Portfolio strategy focuses on lowering business risk by being in multiple, unrelated businesses and by
investing the cash flows from slow-growth businesses into faster-growing businesses. One portfolio
strategy, the BCG matrix, suggests that cash flows from cash cows should be reinvested in stars and in
Chapter 5: Organizational Strategy P a g e | 10
Disney is an entertainment conglomerate with Walt Disney Studios (films), parks and resorts (including
Disney Cruise lines and vacations), consumer products (i.e., toys, clothing, books, magazines, and
merchandise), and media networks such as TV (ABC, ESPN, Disney Channels, ABC Family), radio, and
the Disney Interactive Media Group (online, mobile, and video games and products). Given the number of
different entertainment areas that Disney has, what business is Disney really in? Is Disney a content
business, creating characters and stories? Or is it a technology/distribution business that simply needs to
find ways to buy content wherever it can, for example, buying Pixar, and then delivering that content in
ways that customers want (i.e., DVDs, cable channels, iTunes, Netflix, social media, Internet TV, etc.)?
Disney, says Ige
Should there be one grand strategy (i.e., growth, stability, retrenchment) that every division follows, or
should each division have a focused strategy for its own market and customers? Likewise, how much
discretion should division managers have to set and execute their strategies, or does that need to be
controlled and approved centrally by the strategic planning department at Disney headquarters?
As mentioned previously, a grand strategy is a broad strategic plan used to help an organization achieve
strategy, but it not based on growth, stability, or retren
is to manage its portfolio of brands in an integrative way, but differently from the ideas suggested in
portfolio theory. An example is the best way to illustrate this.
It was a textbook example of the “Disney way” of doing business: a new movie that set off a fountain of
spinoffs. There was a theme-park attraction, a series of Simon & Schuster books, a soundtrack album,
and a line of toys and childrens‘ clothing featuring the beloved heroine. To make sure kids knew about the
movie, Disney script writers planted repeated references to it in the company’s television shows.
-recognized strategy that Disney used with Toy Story 3, the release of the first
Winnie the Pooh movie in 50 years, or The Pirates of the Caribbean: On Stranger Tides;
: brand
management. Each successful Disney movie (Beauty and the Beast), TV show (High School Musical), or
character (Winnie the Pooh) is a Disney brand. And, at Disney under Iger, the strategy is to manage and
These great character franchises were all brands unto themselves. But nobody was really managing
those brands, and decisions were being made in a vacuum. So if we determine that Toy Story is a real
ic planning department would keep a tight rein to effectively execute the
e Disney business units.
Sometimes we’ll even focus on a market say, what’s going on in Japan with Pooh? We‘ve also created
financial metrics to track them against each franchise so we can see what’s going on financially. If we see
a trend that is worrisome or the opposite
That tight
Management Team Decision
DEALING WITH COMPETITION
Purpose
The purpose of this activity is to push students to think about how companies respond to the decisions
made by their closest competitors.
Setting It Up
This activity works well as either a paired or individual activity. For more background information, ask
students to research Coca-
Questions
1. five industry forces, map the soft-drink industry.
According to Michael Porter, five industry forc
potential for long-term profitability. These are: the character of the rivalry, the threat of new entrants,
the threat of substitute products or services, the bargaining power of suppliers, and the bargaining
power of buyers.
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The character of the rivalry between Pepsi and Coca-Cola is very strong, since each represents the
other s main competition, not just in the primary and secondary school market, but in virtually every
beverage market around the world. The rivalry between the two companies is marked by near-
constant moves against each other,
in the case, responding to a strategic decision. Because Pepsi and Coca-Cola are so dominant in the
market, the threat of new entrants is somewhat high. Any company that wants to introduce a new soft–
2. What are the risks and opportunities of the strategies followed by Pepsi? Of Coca-Cola?
For Pepsi, the primary benefit of its decision not to sell is developing the reputation that it cares about
public-health issues and is taking an active role in insuring that children get a proper diet. Even
though it will see a decrease in sales, its public reputation for doing the right thing will increase. The
3. How would you respond to Coca- sales policy? How would you reas
board that this response will allow you to remain competitive and profitable?
Chapter 5: Organizational Strategy P a g e | 13
Practice Being a Manager
MOST LIKELY TO SUCCEED
Exercise Overview and Objective
The objective of this exercise is to apply the concepts of sustainable competitive advantage and strategic
groups in a setting familiar to students the local restaurant market. Student work groups will each
develop a restaurant concept (name; description of menu, layout, and any other distinguishing features;
and likely direct competitors with your new concept). A judging team will listen to brief concept
presentations by each work group and select the concept(s) most likely to succeed. The class will then
debrief on the topics of sustainable competitive advantage and strategic groups.
Preparation
This exercise will work best if students are encouraged to give some attention to the local restaurant
market in advance of conducting the exercise. You may stimulate such attention a session or two before
conducting the exercise by asking students to consider the following three items:
Are you aware of any restaurants in our (local) market that have failed/closed over the past few
years? If so, why do you think that these restaurants failed/closed?
What restaurants are highly successful in our (local) market? What factors do you think account
for their success? Have any of these restaurants been successful for more than five (5) years?
Pick two local restaurants that are quite different from one another in terms of menu, pricing,
and/or atmosphere. Try to identify the direct competitors (strategic group) for each of these
restaurants.
These three items should help students begin to think about factors that might play a role in determining
competitive success (sustainable competitive advantage) or failure. The last bulleted item should help
students to begin to see strategic groups within the local restaurant market.
If you would like to use more informal preparation, you might simply ask students to think about
In-Class Use
You may use convenient groupings (e.g., project groups) for this exercise or simply assign students
randomly to groups of students. The exercise instructions assume that 10 teams will present their
concepts. At two 2 minutes each, the presentations require 20 minutes. If you are conducting this exercise