03. Introduction to Strategic Management Rev: Mar, 2014 Euiho (David) Suh, Ph.D. POSTECH Strategic...

03. Introduction to Strategic ManagementRev: Mar, 2014

Euiho (David) Suh, Ph.D.

POSTECH Strategic Management of Information and Technology Laboratory(POSMIT: http://posmit.postech.ac.kr)

Dept. of Industrial & Management EngineeringPOSTECH

Contents1 Introduction of Strategic Management

2 Strategic Management Process

1) Understand Company Mission

2) Analyze External Environment

3) Analyze Internal Environment

4) Set Long Term Objectives

5) Craft the Strategy

6) Implement the Strategy

7) Evaluate the Strategy

3 Case Study

3

Strategy (1/2)

■ Strategy– The means or general actions to be taken to achieve long term objectives

■ Levels of Strategy– Corporate strategy

• Overarching strategy of the diversified firm “Which businesses should we be in?” “How does being in these businesses create synergy and/or add to the competitive advantage of the

corporation as a whole?”

– Business strategy• Aggregated strategy of single business firm or a strategic business unit (SBU) in a diversi-

fied corporation• Incorporating either cost leadership, differentiation, or focus

to achieve a sustainable competitive advantage and long-term success [Michael Porter]• Blue Ocean Strategy [W. Chan Kim and Renée Mauborgne]:

Breaking the previous value-cost trade off by simultaneously pursuing both differentiation and low cost

“How do we complete?”

– Functional strategy• Short and medium term strategy limited to the domain of each department’s functional re-

sponsibility “What should our organization do to synchronize with the business level strategy?”

1. Introduction of Strategic Management

4

Strategy (2/2)

■ Hierarchy of Strategy

1. Introduction of Strategic Management

Corporate strategy

Business strategy(decision level)

Functionalstrategy

5

■ Basic Elements of the Strategic Management Process

■ Strategic Management Process

Environmentalscanning

Strategicformulation

Strategyimplement

Evaluationcontrol

2. Strategic Management Process

AnalyzeExternal Envi-

ronment

AnalyzeInternal Environ-

ment

Implementthe Strat-

egy

SetLong term Objec-

tives

UnderstandCompany Mission

Craft the Strat-egy

Evaluate & Con-trol

the Strategy

FeedbackFeedback

1

2 3

4

5

6

7

Today’s Cover-age

Strategic Management Process

6

Company Mission

■ Mission– The reason for which the firm exists, and what it will do– Describing

• The products/services to be supplied, • The markets to be served,• The technology applied

■ What is our Business?– Basic Product or Service– Primary markets– Principal technology used (if relevant)– Customer Satisfaction, Quality, and Social Goals– Company philosophy– Self-concept (identity)

2. Strategic Management Process1) Understand Company Mission

7

Environmental Variables 2. Strategic Management Process2) Analyze External Environment

Task environment(industry)

InternalEnvironmentStructures

Cultureresources

Cus-tomers

Creditors

Special interestgroups

governments

shareholders

Technologicalforces

EmployeesLabor unions

competitors

Trade associations

Communities

suppliers

Economicforces

Socioculturalforces

Political-legalforces

Remote environment

8

Remote (Macro) Environmental Factors

Economic

GDP trends /Inflation rates

Interest rates / money supply

Disposable and

Discretionary income

Unemployment level

Wage/price control

Devaluation/revaluation

2. Strategic Management Process2) Analyze External Environment

Technological

Total government

Spending for R&D

Total industry spending for R&D

Focus of technological efforts

Patent protection

New products

New developments in technology transfer from

lab to marketplace

Sociocultural

Lifestyle changes

Career expecta-tions

Consumer ac-tivism

Rate of family

Formation

Growth rate of

Population

Age distribution of

Population

Regional shifts in

Population

Life expectancies

Birth rates

Political-legal

Antitrust regula-tions

Environmental pro-tection laws

Tax laws

Special incentives

Foreign trade regu-lations

Attitudes toward

Foreign companies

Laws on hiring and

Promotion

9

Scanning the external environment

Analysis of societal environmentEconomic, sociocultural, technological, political-legal factors

Marketanalysis

Competitoranalysis

Communityanalysis

Supplieranalysis

Selection ofStrategic factors

Opportunitiesthreats

Governmentalanalysis

InterestGroup

analysis


10

Task (Immediate, Operating) Environmental Factors

■ All persons, groups, or entities that have an interest in the company

■ Stakeholders– Stockholders– Customers– Suppliers– Financial Institutions– Competitors– Trade Associations– Activist Groups– Federal, State, and Local Government Agencies – Media Representatives– Unions


11

Defining an Industry

■ Products

■ Competitors

■ Structure– Number, size, relative strength, market share of competitors, product differentiation

■ Economic Traits

■ Critical Success Factors (CSF)

■ Entry barriers


12

Porter’s 5-Force Model

■ Nature and intensity of competition in an industry is a composite of five com-petitive forces– Rivalry among competitors in the industry– The bargaining power of buyers– The bargaining power of suppliers– The potential entry of new competitors– The power of firms with substitute products

■ Industry driving forces– Increase incentive for the industry to change– Industry growth rate– Product innovation– Customer preferences– Firms entering and leaving the industry– Cost and productivity– Increasing globalization


Suppliers

Rivalry amongexisting firmsRivalry amongexisting firms

Threat of new entrants

Substitutive Products

Buyers

OtherStakeholders

13

Internal Scanning and Analysis (1/2)

■ Value Chain Analysis– Identifying the primary and support activities that create value– Analyzing and reducing business costs and compare one business’ value chain with

those of competing companies

Support

Activity

Primary

Activity

Firm infrastructure

Human Resource Management

Technology Development

Procurement

Inbound

Logistics

Out-bound

Logistics

Opera-tion

Market-ing

And

Sales

After

Sales

Service

Competitive

Advantage

2. Strategic Management Process3) Analyze Internal Environment

14

Internal Scanning and Analysis (2/2)

■ Match of strategy and structure– Culture– Images– Identity– Leadership– Mission, Goals, Objectives, and Organizational Structure


15

Portfolio Analysis (1/7)

■ Definition of Business Portfolio– A business portfolio is the collection of Strategic Business Units that make up a cor-

poration. – The optimal business portfolio is one that fits perfectly to the company's strengths

andhelps to exploit the most attractive industries or markets

■ Aim of a portfolio analysis – Analyze its current business portfolio and decide

which SBU's should receive more or less investment– Develop growth strategies for adding new products and businesses to the portfolio– Decide which businesses or products should no longer be retained– The BCG Matrix is the best-known portfolio planning framework.

And the GE/McKinsey Matrix is a later and more advanced form of the BCG Matrix


16


■ Stars (=high growth, high market share)– Use large amounts of cash and are leaders in the busi-

ness so they should also generate large amounts of cash.

■ Cash Cows (=low growth, high market share)– Profits and cash generation should be high, and because of

the low growth, investments needed should be low. Keep profits high

■ Dogs (=low growth, low market share)– Avoid and minimize the number of dogs in a company.– Deliver cash, otherwise liquidate

■ Question Marks (=high growth, low market share)– Have the worst cash characteristics of all, because high

demands and low returns due to low market share– Either invest heavily or sell off or invest nothing and gen-

erate whatever cash it can. Increase market share or de-liver cash

■ Limitations of BCG Matrix– The link between market share and profitability is questionable since increasing market share can

be very expensive– The approach may overemphasize high growth, since it ignores the potential of declining markets– The model considers market growth rate to be a given. In practice the firm may be able to grow

the market

■ BCG Matrix


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■ GE/Mckinsey matrix attempt to improve upon the BCG Matrix– Market (Industry) attractiveness replaces market growth as the dimension of in-

dustry attractiveness – Competitive strength replaces market share as the dimension by which the compet-

itive position of each SBU is assessed– GE/McKinsey Matrix works with a 3 x 3 grid, while the BCG Matrix has only 2 x 2.

This also allows for more sophistication


■ GE/Mckinsey Matrix


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■ GE/Mckinsey Matrix (Cont’d)

■ Strategic Business Units are portrayed as a circle plotted in the GE McKinsey Matrix – The size of the circles represent the Market Size– The size of the pies represent the Market Share of the SBU's– Arrows represent the direction and the movement of the SBU's in the future

■ Limitations of GE/Mckinsey Matrix– Core competencies are not represented– Interactions between Strategic Business Units are not considered

Market Attractiveness

- Market size- Market growth rate- Pricing trends - Competitive intensity/rivalry - Overall risk of returns in the indus-try - Demand variability- Segmentation

Competitive Strength

- Strength of assets and competencies- Relative brand strength- Market share- Market share growth- Customer loyalty- Record of technological or other innova-tion


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■ SWOT analysis– Development of the idea of matching the organization’s internal factors with external

environmental circumstances

– TOWS Matrix• To develop strategies that take into account the SWOT profile, a matrix of these factors can be

constructed• The SWOT matrix, can be changed into what is known as the TOWS Matrix

Environ-ment

Criteria Characteristic

InternalStrengths

A firm’s resources and capabilities that can be used for developing a competitive advan-tage

Weak-nesses The absence of certain strengths

External

Opportuni-ties

A combinations of events or circumstances that arise, which, if acted upon at a certain time, will result in profit, gain, or victory

ThreatAn event, as defined by its impact on your company and the probability of its occurrence, that will result in harm to your company

TOWS Anal-ysis

Strengths Weaknesses

Opportuni-ties

S-O strategies Pursue opportunities that fit well the company's strengths

W-O strategies Overcome weaknesses to pursue opportunities

Threats

S-T strategiesIdentify ways that the firm can use its strengths to reduce its vulnerability to external threats

W-T strategies Make a defensive plan to pre-vent the firm's weaknesses from making it susceptible to external threats

SWOT Analysis


ThreatsOpportunities

Portfolio Analysis (5/7) 2. Strategic Management Process3) Analyze Internal Environment

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Globalization and knowledge society

Increasing expectation of high quality human resource

Increasing attention to special-ized graduate school (ex. Steel graduate course)

Supporting of the foundation Brilliant students Staffs of superior ability High quality facilities for research POVIS system Hard-studying campus environment

Hard to attract students and faculty Lack of Globalization Poor External Advertisement Small scale of Alumni Association Lack of Leadership

Increasing the number of stu-dents evading science and en-gineering department

Competitive universities’ ad-vance.

Increasing competition in re-ceiving large-scale project.

■ SWOT analysis (cont’d)– Example) SWOT Analysis of POSTECH


Op-por-tuni-ties

Threats

S-O strategies

Caring system for better human source

W-O strategies

Advertise POSTECH through external cooperation

Produce high quality human resource through a select few education.

S-T strategies

Advertise POSTECH by showing POSTECH has better research out-comes than other competitive uni-versities

Foundation of a branch school abroad

W-T strategies

Increasing the number of foreign ex-change students

Provide privilege to top notch stu-dents

Portfolio Analysis (6/7) 2. Strategic Management Process3) Analyze Internal Environment

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■ Advantages and limitation of Portfolio analysis– Portfolio offers certain advantages

• It encourages top management to evaluate each of the corporation’s businesses individu-ally and to set objectives and allocate resources for each

• It stimulates the use of externally oriented data to supplement management’s judgment• It raises the issue of cash flow availability for use in expansion and growth• Its graphic depiction facilitates communication

– Portfolio have some very real limitations Matrix• It is not easy to define market segments• It suggests the use of standard strategies that can miss opportunities or be impractical• It provides an illusion of scientific rigor when in reality positions are based on subjective

judgments• It is not always clear what makes an industry attractive or what stage a product is at in its

lifecycle


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Reference

■ Euiho Suh, “Strategic management 1 (PPT Slide)”, POSMIT Lab. (POSTECH Strategic Management of Information and Technology Laboratory)

■ Euiho Suh, “Strategic management 2 (PPT Slide)”, POSMIT Lab. (POSTECH Strategic Management of Information and Technology Laboratory)

■ O’Brien & Marakas, “Introduction to Information Systems – Sixteenth Edition”, McGraw – Hill, Chapter 2

■ Dr. Kevin Lance Jones, “SWOT (Strengths, Weaknesses, Opportunities & Threats) Analysis”, page 7-8

http://mis.postech.ac.kr/class/IMEN381_MIS/mis_ppt/Strategic_management1.ppt










http://mis.postech.ac.kr/class/IMEN381_MIS/Textbook%20IIS%2016th/Chap002.ppt







http://mis.postech.ac.kr/class/IMEN381_MIS/references/SWOT.ppt

http://mis.postech.ac.kr/class/IMEN381_MIS/references/SWOT.ppt

03. Introduction to Strategic Management Rev: Mar, 2014 Euiho (David) Suh, Ph.D. POSTECH Strategic...

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