ch. 05 strategic management rev 2: mar., 2015 prof. euiho suh postech strategic management of...

Ch. 05 Strategic Management

Rev 2: Mar., 2015

Prof. Euiho Suh

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

Dept. of Industrial & Management EngineeringPOSTECH

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Strategy

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Strategic Management

■ What is Strategic Management?– Strategic management is the set of managerial decision and action that determines

the long-run performance of a corporation

– Strategic management includes• Environmental scanning (both external and internal)• Strategy formulation (strategic or long range planning)• Strategy implementation• Evaluation• Control

– The study of strategic management therefore emphasizes the monitoring and evalua-tion of external opportunities and threats in lights of a corporation’s strengths and weaknesses

Contents1 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

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Strategic Management (1/15)

■ The Three Hierarchical Levels of Strategy

CorporateStrategy

Business you should be in

Business StrategyTactics to beat the competition

Functional StrategyOperational methods to implement the tactics

Strategy is a set of analytic techniques for understanding and influencing your company’s position in the market place

Enterprise strategy is concernedwith the match between your

company’s internal capabilitiesand its external environment

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Strategic Management – Types of Strategy (2/15)

■ Corporate Level Strategy– Diversification– Acquisition– New Market – Global Strategy– New Ventures and Market Exits (Disinvestment)

■ Business Unit Level Strategy– Competitive Strategy for same Industry– Cost Leadership– STP– Product Differentiation– Vertical Integration

■ Function Level Strategy– Execution– Operational Excellence

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■ 3 Levels of Strategy

■ Corporate level examples– Travelers acquires Salomon Brothers, Disney acquires ABC, AT&T acquires TCI, GE sells

Kidder Peabody

■ Business level examples– CBS adopts strategy of trying to capture younger viewers, Pfizer founds a developing

“life style” drugs; e.g.) Viagra

■ Functional level examples– Cigarette companies adverting campaign to convince people to oppose Tobacco Bill

Corporation

Businessunit A

Businessunit B

Businessunit C

FIN R&D MFRG MKTG

Corporate Level

Business Level

Functional Level

What businesses are we in?

How do we com-pete?

How do we support business level strategy?

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■ Hierarchy of Strategy

Corporate strategy

Business strategy(decision level)

Functionalstrategy

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■ Corporate vs. Business Strategy

Rate of Return on Investment

How do we make money?

Industryattractiveness

Which industries should we compete in?

Competitiveadvantage

How should we com-pete?

Corporatestrategy

Businessstrategy

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■ Corporate Strategy

Corporatestrategy

Narrow or broad-based diversifica-

tion?Diversification re-lated, unrelated

or a mix?

Scope of geo-graphic opera-

tions?

Moves to add new businesses?

Moves to build positions in new

industries?

Moves to divest weak business

units?

Efforts to capture cross-business strategic fits?

Approach to allo-cating invest-

ment capital and resources?

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Strategic Management - Corporate-Level Growth Strategies (7/15)

■ Concentration (focus on existing businesses)– Grow existing business units, often by entering new markets

■ Integration– Vertical or horizontal– Can be organic (own unit) or acquisition

■ Diversification– Related or unrelated– Explicitly about acquisition

■ International Expansion– Existing business units enter new markets– Can be organic (own unit) or acquisition

■ Retrenchment– Turnaround– Sell-out / Divestment– Bankruptcy / Liquidation

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■ Corporate Strategy Directions

Existing New

Exist-ing

New

Market penetra-tion

New products and services

Market devel-opment

Conglomerate diversification

Products / services

Markets

Ansoff Matrix

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Strategic Management – Corporate strategy examples (9/15)

■ Dell acquires Apple– Horizontal integration• Dell and Apple both make personal computers• If that’s what you see, they are in the same industry and so this is horizontal integration like

United Airlines acquiring American

– Related diversification• Dell makes PCs, Apple makes an operating system for PCs• From that perspective, this is related diversification where the synergy is likely using Dell’s mar-

keting prowess to leverage Apple’s operating system technology

– Obviously, from a business point of view this is a fairly silly scenario, as are many of the scenarios. That’s not the point, eh?

■ Dell acquires Intel– Backwards vertical integration• Intel is a key supplier to Dell, of microprocessors

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■ Business Strategy

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■ Business Level Strategies

Core Competencies and Strategy

Core competen-cies

The resources and capabilities that have been determined to be a source of competitive ad-vantage for a firm over its rivals

Strategy An integrated and coordinated set of actions

taken to exploit core competencies and gain a competitive advantage

Business-level strategy

Actions taken to provide value to customers and gain a competitive advantage by exploit-ing core competencies in specific, individual product markets

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■ Four Categories of Business Tactics

Anticipatory Tactics Tactics of Engagement

Offen-sive

Tactics

Defen-sive

Tactics

Preemtion - Pioneering - Attacking yourself - Intimidation - Capture

Attack - Frontal assault - Flanking maneuver - Guerilla warfare - Siege warfare

Deterrence - Raising structural bar-riers - Expected retaliation - Discouraging attacks - Diplomatic peacekeep-ing

Response - Counterattack - Fast follower - Retrenchment - Withdrawal

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■ Business Level Strategies

Cost Uniqueness

Broad Target

Nar-row

Target

Cost leadership Differentiation

Focused Cost leadership

Focused Differ-entiation

Competitive Advantage

Competi-tive Scope

Integrated Cost Leadership /

Differentiation

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Functional Strategy

Function The intended role or purpose of a person or

thing

Strategy Greek work ‘strategos’ – generalship

Definition

Functional strategy is the approach a func-tional area takes to achieve corporate and business unit objectives and strategies by max-imizing resource productivity

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Functional Level Strategies

All organizations irrespective of the size, nature and scope of business must perform the functions like

Marketing

Finance

Production & Operations

Human Resource Manage-ment

Research & Development etc.

Careful planning, execution and coordination of these functions are highly essential for effective strategic planning, implementa-

tion and control

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Strategic Management Process (1/5)

■ Process of Strategic Management

Analyzing current situation

SituationAnalysis

Deciding on strategies

StrategyFormulation

Putting strategies in action

StrategyImplementation

Evaluating/chang-ing strategies

Evaluation& Control

External/InternalAnalysis

Strategic IntentManagement

IssuesOrganization

Issues

FunctionalIssues

Corporate Business

CompetitiveStrategy

Feedback

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■ Basic Elements of the Strategic Management Process

■ Strategic Management Process

Environmentalscanning

Strategicformulation

Strategyimplement

Evaluationcontrol

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


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■ More Progressive View for SM Process

StrategicControl

• Vision

• Mission

• Business objec-tive

Strategicintent • Environmental

appraisal

• Environmental scanning

• ETOP analysis

• PEST analysis

Strategy formulation

• Organizational appraisal

• SWOT analysis

• Corporate level strategy

• Business level strategy

• Strategic plans

• Project

• Procedure

• Resource alloca-tion

• Structural

• Behavioral

• Functional

• Operational


StrategicEvaluation

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■ Strategic Decision-Making Process

EvaluateCurrentPerformanceResults

Examine andEvaluate theCurrent• Mission• Objectives• Strategies• Policies

ReviewCorporateGovernance• Board of

Directors• Top

Management

Scan andAssessExternalEnvironment• Societal• Task

Scan andAssessInternalEnvironment• Structure• Culture• Resources

AnalyzeInternalFactors• Strengths• Weaknesses

AnalyzeExternalFactors• Opportunities• Threats

Select StrategicFactors (SWOT)

in light ofCurrent

Situation

Review andRevise asNecessary• Mission• Objectives

Strategy Formulation

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■ Strategic Decision-Making Process (Cont’d)

Generate and EvaluateStrategic

Alternatives

Strategy Formulation

Select andRecommend

BestAlternative

ImplementStrategies• Programs• Budgets• Procedures

Evaluate andControl


Evaluation andControl

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Understand Company Mission (1/4)

■ Strategic Intent

Where we want to get to

Vision

How we intend to get there

Intent

Strategic Intent

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Vision

Kotter (1990) - Vision is a description of something (organi-zational corporate culture, a business, technology, an activ-ity) in the future.

El Namaki (1992) – Vision is a mental perception of a kind of environment an individual or an organization aspire to cre-ate within a broad time horizons.

Miller and Dess (1996) – Category of intensions that are broad, all inclusive and forward

Mission

Essential purpose of organization’s existence. It should be feasible, precise, clear, motivating, distinctive. It should also indicate major component of strategy. It should also indicate how objectives can be drawn on these

lines.

Business Objec-tive

Objectives are the plans that state specifically how the goals shall be achieved.

It should be concrete and specific, should related to time frame.

Objectives are measurable and controllable, challenging.

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■ The Pyramid of Purpose – The language of Strategic Intent

Strategic Intent

Vision Mission

AimPriorities Objectives

StrategiesDecisionCriteria

StrategicInitiatives

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Customers

To achieve our vision, how should we appear to our cus-

tomers?

Financial

To succeed financially, how should we appear to our

shareholders?

Internal Business Process

To satisfy our shareholders and customers, what business processes must we excel at?

Learning & Growth

To achieve our vision, how will we sustain our ability to change and improve?

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Environment

Internal Environ-ment

External Environ-ment

Strength

Weak-ness

Opportu-nity

Threat

■ Environment

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Strategic Management Process - Environmental Variables (2/2)

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

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Analyze External/Internal Environment (1/24)

■ Factors of External Environment– Government and legal factors– Geo-physical factors– Political factors– Socio-cultural factors– Demo-graphical factors etc.

■ Two types of External Environment Factors– Micro/operating environment– Macro/general environment

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■ Micro/Operating Environment– The environment which is close to business and affects its capacity to work is known as

Micro or Operating Environment

Suppliers They are the persons who supply raw material and required compo-

nents to the company They must be reliable and business must have multiple suppliers i.e.

they should not depend upon only one supplier

Customers

Customers are regarded as the king of the market Success of every business depends upon the level of their customer’s

satisfaction Wholesalers, Retailers, Industries, Government and Other Institution,

Foreigners

Market Inter-mediaries

They work as a link between business and final consumers Middleman, Marketing Agencies, Financial Intermediaries, Physical In-

termediaries

Competitors Every move of the competitors affects the business Business has to adjust itself according to the strategies of the com-

petitors

Public Any group who has actual interest in business enterprise is termed as

public They may be the users or non-users of the product e.g.) media and local public

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■ PEST Analysis

PESTAnalysis

P Political

E Environmental

S Social

T Technological

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Economic/Environ-ment

GDP trends /Inflation rates

Interest rates / money supply

Disposable and

Discretionary income

Unemployment level

Wage/price control

Devaluation/revaluation

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

■ Macro/General (Remote) Environment

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■ ETOP Analysis (Environmental Threat and Opportunity Profile)– A technique to structure environmental issues– Dividing the environment into different sectors• Each sectors can be subdivided into sub sectors

– Analyzing the impact of each sector and subsector on the organization– Describe the impact in the form of a statement

■ Advantage of ETOP– It provides a clear of which sector and subsectors have favorable impact on the organi-

zation– It helps interpret the result of environment analysis– The organization can assess its competitive position– Appropriate strategies can be formulated to take advantage of opportunities and

counter the threat– SWOT analysis (Strength, weakness, opportunities and threats)

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

Marketanalysis

Competitoranalysis

Communityanalysis

Supplieranalysis

Selection ofStrategic factors

Opportunitiesthreats

Governmentalanalysis

InterestGroup

analysis

■ Scanning the external environment

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SWOTAnalysis


What are our strengths?• Manufacturing efficiency?• Skilled workforce?• Good market share?• Strong financing?• Superior reputation?

What are our weaknesses?• Outdated facilities?• Inadequate R&D?• Obsolete technologies?• Weak management?• Past planning failures?

What are our threats?• New competitors?• Shortage of resources?• Changing market tastes?• New regulations?• Substitute products?

What are our opportunities?• Possible new markets?• Strong economy?• Weak market rivals?• Emerging technologies?• Growth of existing market?

Internal Assessmentof the Organization

External Assessmentof the Environment

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Strengths (S) Weaknesses (W)

Opportunities (O)

Threats (T)

SO StrategiesGenerate strategies here that use strengths to take ad-vantage of opportuni-ties

WO StrategiesGenerate strategies here that take advan-tage of opportunities by overcoming weak-nesses

ST StrategiesGenerate strategies here that use strengths to avoid threats

WT StrategiesGenerate strategies here that use minimize weaknesses and avoid threats

InternalFactors

ExternalFactors

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■ SWOT Analysis Example

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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 Example (Cont’d)– SWOT Analysis of POSTECH

Strengths Weaknesses

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


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■ 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

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■ 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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■ P5CFM (Porter’s Five-Competitive-Force Model)– A tool to know about difference forces that impact on a company’s ability to compete– A tool to diagnose the principal competitive pressures in a market– A tool to assess how strong and important each force is

Industry CompetitorsRivalry among Existing Firms

SuppliersSuppliers

Potential EntrantsPotential Entrants

BuyersBuyers

SubstitutesSubstitutes

Bargaining Power of Suppliers

Threat of New Entrants

Bargaining Power of Buyers

Threat of Substitute Products or Service

https://www.youtube.com/watch?v=mYF2_FBCvXw

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■ P5CFM (Cont’d)

Economics of Scale

Proprietary product differences

Brand identity

Switching costs

Capital require-ments

Access to distribu-tion

Absolute cost ad-vantages- Proprietary learn-ing curve- Access to neces-sary inputs- Proprietary low-cost product design

Government policy

Expected retalia-tion

Barriers to entry

Differentiation of inputs

Switching costs of suppliers and firms in the industry

Presence of substi-tute inputs

Supplier concentra-tion

Importance of vol-ume to supplier

Cost relative to to-tal purchases in the industry

Impact of inputs on cost or differentia-tion

Threat of forward integration relative to threat of back-ward integration by firms in the indus-try

Determinants of supplier power

Buyer concentra-tion versus firm

Buyer volume

Buyer switching costs relative to firm switching costs

Buyer information

Ability to backward integrate

Substitute products

Pull-through

Price/total pur-chases

Product differences

Brand identity im-pact on quality/per-formance

Buyer profits

Decision makers’ incentives

Determinants ofbuyer power

Relative price per-formance of substi-tutes

Switching costs

Buyer propensity to substitute

Determinants ofsubstitution threat

Industry growth

Fixed (or storage) costs/value added

Intermittent over-capacity

Product differences

Brand identity

Switching costs

Concentration and balance

Informational com-plexity

Diversity of com-petitors

Corporate stakes

Exit barriers

Rivalrydeterminants

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■ P5CFM (Cont’d)– Example

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■ Value Chain– The idea of the value chain is based on the process view of organizations, the

idea of seeing a manufacturing (or service) organization as a system, made up of subsystems each with inputs, transformation processes and outputs.

– Inputs, transformation processes, and outputs involve the acquisition and consump-tion of resources - money, labour, materials, equipment, buildings, land, administra-tion and management.

■ How value chain activities are carried out determines costs and affects prof-its

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■ Value Chain (Porter, 1985) (Cont’d)

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■ Value Chain (Cont’d)

Seeds “Green” fertilizersAgrochemicalsFarm machin-eryIrrigationEnergy

SorterGraderPackagerLogisticsEnergyMaterials

Food manufacturersFood preparersPackagersBrandingEnergy inputsAdditivesLogistics

Farmers marketsCSAsLocal shelf spaceGroceriesSuperstore food chainsFood services

HomeRestaurantsInstitutionsTake-outEvents

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■ Value Chain (Cont’d)

Call-off to suppli-ers

Materials han-dling

Warehousing

Inventory control

Inboundlogistics

Conversion

Assembly

Packaging

Maintenance

Operations

Warehousing

Order processing

Picking

Shipment

Delivery

Outboundlogistics

Channels to mar-ket

Product, pricing, advertising and promotion, dis-tribution

Customer value, cost to con-sumer, conve-nience, commu-nication

Sales force effec-tiveness

Marketing andsales

Installation

Repair

Training

Service

Purchasing raw material, sup-plies, fixed as-sets

Procurement

Process design

Product design

R&D

Technologicaldevelopment

Recruiting, hir-ing, training, de-veloping and compensating all personnel

Humanresources

General manage-ment

Finance

Accounting

IT

Infrastructure

Primary value chainDemand fulfilment Demand generation

Support activities

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■ Value Chain (Cont’d)– Example) Wal-Mart Value Chain

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■ Value System

Supplier/Community

Value Chains

Business Value Chain

Transport/Channel Value

Chains

End-User/Soci-ety Value

Chains

A self-organizing market economy that locks-in a pattern of behavior between individuals, organiza-tions and society and is sustained over time. We want our strategy to influence our “Dominant Eco-nomic Loop”.

All participants are affected by competi-tive forces/industry structure, shape each agent’s strategy and share the value

Goal: find the profit pools in your market economy and capture the value for the business and society

What is your strategic thinking for growth? Lo-calview and Global view...

Down-streamValue

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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

ch. 05 strategic management rev 2: mar., 2015 prof. euiho suh postech strategic management of...

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