03. introduction to strategic management rev: mar, 2014 euiho (david) suh, ph.d. postech strategic...
TRANSCRIPT
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
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Strategy (2/2)
■ Hierarchy of Strategy
1. Introduction of Strategic Management
Corporate strategy
Business strategy(decision level)
Functionalstrategy
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■ 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
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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
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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
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Scanning the external environment
Analysis of societal environmentEconomic, sociocultural, technological, political-legal factors
Marketanalysis
Competitoranalysis
Communityanalysis
Supplieranalysis
Selection ofStrategic factors
Opportunitiesthreats
Governmentalanalysis
InterestGroup
analysis
2. Strategic Management Process2) Analyze External Environment
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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
2. Strategic Management Process2) Analyze External Environment
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Defining an Industry
■ Products
■ Competitors
■ Structure– Number, size, relative strength, market share of competitors, product differentiation
■ Economic Traits
■ Critical Success Factors (CSF)
■ Entry barriers
2. Strategic Management Process2) Analyze External Environment
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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
2. Strategic Management Process2) Analyze External Environment
Suppliers
Rivalry amongexisting firmsRivalry amongexisting firms
Threat of new entrants
Substitutive Products
Buyers
OtherStakeholders
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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
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Internal Scanning and Analysis (2/2)
■ Match of strategy and structure– Culture– Images– Identity– Leadership– Mission, Goals, Objectives, and Organizational Structure
2. Strategic Management Process3) Analyze Internal Environment
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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
2. Strategic Management Process3) Analyze Internal Environment
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Portfolio Analysis (2/7)
■ 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
2. Strategic Management Process3) Analyze Internal Environment
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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
Portfolio Analysis (3/7)
■ GE/Mckinsey Matrix
2. Strategic Management Process3) Analyze Internal Environment
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Portfolio Analysis (4/7)
■ 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
2. Strategic Management Process3) Analyze Internal Environment
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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
Strengths Weaknesses
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
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
Portfolio Analysis (6/7) 2. Strategic Management Process3) Analyze Internal Environment
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Portfolio Analysis (7/7)
■ 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
2. Strategic Management Process3) Analyze Internal Environment
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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