BUS608: Ethical and Strategic Management

3a. Analyze Porter's Generic Strategies to determine the appropriate business strategy

• What companies can you think of that likely use a cost leadership strategy?
• What aspects of narrow and broad markets relate to a differentiation strategy?
• How does Porter define the "hole in the middle"?

Porter's Generic Strategies is a tool often used to provide direction on a company's strategy. Of course, this only occurs after a company has done internal and external analysis. Porter's Generic Strategies look at three main components. The first is cost leadership, which refers to the ability of a company to create economies of scale through efficient operations that produce a large volume.

The second is differentiation, which refers to a company's ability to create a good or service that is difficult to replicate and fulfills a niche within a market.

Finally, a market segmentation strategy is a cross between the two, where a market is narrower, and the firm's goal is to find untapped markets by looking at specific consumer market segments where they may be effective.

Figure 5 and Figure 6 illustrate the two competitive strengths key to business-level strategy. The first dimension is the source of a company's competitive advantage. This aspect includes whether the company is trying to gain an edge over its competitors by keeping costs down or offering something unique in the market. The second dimension is the company's field of activity. This dimension includes whether the company targets general customers or attracts only a subset of customers.

Figure 5: Porter's Generic Strategies model

Figure 6: Analysis of four firms – Walmart, Nordstrom, Dollar General, and Anthropologie

To review, see Porter's Generic Strategies.

3b. Explain the various tools, such as the BCG and SPACE Matrix, to create business strategy

• Using the BCG matrix, what products or services do you use that would be considered a cash cow for an organization?
• On the balanced scorecard, which element is most important in which industries?
• When performing a SWOT analysis, how might a company turn opportunities into strengths?

When companies analyze their current business units, they sometimes use the BCG matrix. This matrix helps companies determine where they should focus their strategic efforts. It looks at how much market share the company has in that particular market and looks at the industry to determine if it is growing. The outcome of the BCG matrix is a cash cow, dog, question mark, or a star. The cash cow is a product or service with a high market share in a slow-growing industry. A dog is a product that has a low market share in a mature industry. A question market indicates a product that is growing rapidly, but the company isn't sure if it will be profitable. Often, when a product is a question mark, they aren't sure when they will recoup the initial financial investments. A star has a high market share in a growing industry. Understanding the BCG matrix can help determine what products/services the company should focus on.

The balanced scorecard is another tool to assist in strategy development. This method involves looking at the financial, customer, internal processes, learning, and growth perspectives of the organization to pinpoint a strategy that appropriately leverages resources.

Some companies also use strategy maps, which focus on using a mind map and other tools, such as internal and external analysis, to map out the best strategic direction for the company.

A SWOT analysis can also be a useful tool to help companies see their strengths, weaknesses, opportunities, and threats. This information can help direct a strategy as well.

The SPACE matrix stands for Strategic Position and Action Evaluation. The tool is a four-quadrant matrix that indicates whether the company should implement an aggressive, conservative, defensive, or competitive strategy.

To review, see Purpose of the BCG Matrix, Strategic Management Tools of Performance, and Strategic Position and Action Evaluation.

3c. Examine the common organizational structures used to craft business strategy, such as the matrix and functional structures

• When might a company use a simple organizational structure?
• What advantages do you see with a functional structure versus a matrix structure?
• How do you think organizational structure supports organizational strategies?

When setting a strategy, organizations must ensure their organizational structure supports their chosen strategy. The first type of organizational structure is the functional structure. This type, illustrated in Figure 7, is characterized by each function (such as marketing or HR) divided into its own departments, with a top-down reporting structure.

In a divisional structure, the organization is divided by product or service offerings, and each division has all resources necessary to function independently, such as human resources and IT departments. For example, GE has six product-specific divisions supported by six centralized service divisions: Energy, Capital, Home and Business Solutions, Healthcare, Aviation, and Transportation. Centralized public relations, legal, human resources, and financial services support these product areas. See Figure 8 for an illustration of this type of structure.

In a matrix structure, an organization is grouped by two different operational perspectives. This is a complex structure because, for example, people could be grouped by the type of project the company is working on AND a particular department.

There is also the simple structure, where there are no formal systems of division of labor. This is normally reserved for sole proprietorships or small businesses, where a formal structure may only be necessary once they grow.

Figure 7: Example of a functional organizational chart

Figure 8: An organizational chart with a divisional structure

To review, see Common Organizational Structures and Executing Strategy through Organizational Design.

3d. Describe how ethical behavior can be integrated into business strategy

• What aspects of a code of ethics are important?
• What can leadership do to ensure an ethical workplace?
• What do you think the role of employees should be in organizational ethics?

When companies use tools to select their organizational strategy, they must keep ethics and social responsibility in mind. There are several ways the leaders of organizations can achieve this. First, when managers lead by example, they model the proper behavior patterns. Many companies also offer ethics training programs, which focus on how employees can identify and resolve ethical situations. Many companies also have a formal code of ethics, which defines the expected behavior of employees.

To review, see How Organizations Influence Ethical Conduct.

Unit 3 Vocabulary

Be sure you understand these terms as you study for the final exam. Try to think of the reason why each term is included.

• balanced scorecard
• BCG matrix
• cost leadership
• differentiation
• divisional structure
• functional structure
• market segmentation
• matrix structure
• Porter's Generic Strategies
• simple structure
• SPACE matrix
• SWOT analysis