Introduction to Strategic Management Rev: Feb, 2012 Euiho (David) Suh, Ph.D. POSTECH Strategic...

Introduction to Strategic ManagementRev: Feb, 2012

Euiho (David) Suh, Ph.D.

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

Dept. of Industrial & Management EngineeringPOSTECH

Contents※ Discussion Questions

1 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

Discussion Questions (1/2)

■ What are three levels of strategies? How does the hierarchy of the strategy work?

■ What is strategic management? Why is it named that way?

■ Which environmental factor is believed to be most important and why?

■ What is the model used for the external environment analysis? What external force is do you think most important?

■ Name one portfolio analysis and explain it. What are the advantages and dis-advantages of the portfolio analysis?

■ In the case study, what were strengths, weaknesses, opportunities, and threats of Megastudy to strengthen its position as an educational institute? From the analysis, what strategies were driven for further improvements? Ex-plain them for each part of the analysis (S-O, S-T, W-O, W-T)

4

Discussion Questions (2/2)

■ Case 1 in textbook (pp. 45~46, Chapter 2)– What are the business and political challenges that are likely to occur as a result of the

transformation of IT from a support activity to a partner role? Use examples from the case to illustrate your answer.

■ Discussion Questions in textbook (p. 67, Chapter 2)– Suppose your are a manager being asked to develop computer-based applications to

gain a competitive advantage in an important market for your company. What reserva-tions might you have about doing so? Why?

– How can Internet technologies help a business form strategic alliances with its cus-tomers, suppliers, and others?

5

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

6

Strategy (2/2)

■ Hierarchy of Strategy


Corporate strategy

Business strategy(decision level)

Functionalstrategy

7

Strategic Management

■ Definition of Strategic Management [Lamb, 1984]– Ongoing process that• evaluates and controls the business and the industries in which the company is involved• assesses its competitors• sets goals and strategies to meet all existing and potential competitors• reassesses each strategy annually or quarterly

(i.e. regularly to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competi-tors, a new economic environment, or a new social, financial, or political environment)

■ Strategic management for type of organization– Global/transnational organization: employing more structured strategic management

model, due to its size, scope of operations, and need to encompass stakeholder views and requirements

– SME (Small and Medium Enterprise): employing an entrepreneurial approach, due to its comparatively smaller size and scope of operations, as well as possessing fewer re-sources• SME's CEO (or general top management) may simply outline a mission, and pursue all activities

under that mission.


8

■ 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

Opportunity& Threat

Strength& Weakness

Today’s Cover-age

Strategic Management Process

9

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 Societal Goals– Company philosophy– Self-concept (identity)

2. Strategic Management Process1) Understand Company Mission

10

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

11

Remote (Macro) Environmental Factors

Economic Technological Sociocultural Political-legal

GDP trends /Inflation rates

Total government

Spending for R&D

Lifestyle changes

Career expecta-tions

Antitrust regula-tions

Interest rates / money supply

Total industry spending for R&D

Consumer ac-tivism

Environmental pro-tection laws

Disposable and

Discretionary income

Focus of technological efforts

Rate of family

FormationTax laws

Patent protection Growth rate of

PopulationSpecial incentives

Unemployment level New products

Age distribution of

Population

Foreign trade regu-lations

Wage/price control New developments in technology transfer from

lab to marketplace

Regional shifts in

Population

Attitudes toward

Foreign companies

Devaluation/revaluationLife expectancies

Birth rates

Laws on hiring and

Promotion

2. Strategic Management Process2) Analyze External Environment

12

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


13

Defining an Industry

■ Products

■ Competitors

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

■ Economic Traits

■ Critical Success Factors (CSF)

■ Entry barriers


14

Mapping strategic Groups

Product-line breadth Full menu

Price

low

high

limited menu

Burger King McDonald’s

KFCPizza hut

Shoney’sDenny’sCountry kitchen

Ponderosabonanza

Red lobsterOlive Garden

Chichi’sPerkins


■ U.S restaurant chain industry

15

Industry matrix

Strategic factors

WeightCompany A

rating

Company A weighed

score

Company B rating

Company B weighted

score

Total 1.00

1 3 4 5 62


16

Issues priority matrix

Probable impact on corpora-tion

high medium Low

Probability of

Occur-rence

HighHigh

priorityHigh

priority

Medium

priority

Medium

High

priority

Medium

priority

Low

priority

lowMedium

priority

Low

priority

Low

priority


17

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

18

Opportunity & Threat

■ Opportunity– A combinations of events or circumstances that arise, which, if acted upon at a cer-

tain time, will result in profit, gain, or victory• Product and market extensions through mergers, failure of competitors, and legal change• Advances in technology• A misfortune befalls a major competitor who then shuts down, liquidates, or goes bankrupt• A competing company is put up for sale at a good price• A chance occurs for you to hire a noted expert that you need• A breakthrough in your product or process that makes possible a gain in market share

■ Threat– An event, as defined by its impact on your company and the probability of its occur-

rence, that will result in harm to your company• Support of stakeholder groups• Resources: human, financial• Customer base• Capabilities such as technology, products, processes, management, and functional• Artificial barriers to competition: laws, regulations, patents, and licenses• Social changes and customer preferences


19

Scanning the external environment

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

Marketanalysis

Competitoranalysis

Communityanalysis

Supplieranalysis

Selection ofStrategic factors

Opportunitiesthreats

Governmentalanalysis

InterestGroup

analysis


20

Situation Analysis 2. Strategic Management Process3) Analyze Internal Environment

How well is the company’s strategy working?

What are the company’s strengths and weaknesses?

What are its core products and competencies?

What benchmarks are being usedfor measuring its situation?

21

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

22

Internal Scanning and Analysis (2/2)

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

■ PIMS Analysis (Profit Impact of Marketing Strategy)– Offered by the Strategic Planning Institute– Based on a database of about 3,000 businesses– Directed at identifying principles that will guide companies in establishing successful

strategies, or evaluating their own


23

Strength & Weakness (1/2)

■ Strength– Company’s resource or capability that can be used for developing a competitive ad-

vantage• Patents • Strong brand names • Good reputation among customers • Cost advantages from proprietary know-how • Exclusive access to natural resources • Good access to distribution networks

■ Weakness– The absence of certain strengths

• Lack of patent protection • A weak brand name • Poor reputation among customers • High cost structure • Lack of access to best natural resources

• Lack of access to key distribution channels


24

Strength & Weakness (2/2)

■ Functional Analysis of Strengths and Weaknesses of the firm– Establish a table with column heading: Factors, Strengths/Weaknesses, Standards

and Comparison• For each factor to be evaluated, the question must be asked, “Compared to what?”

– Standards or criteria may be:• The industry average for the factors being evaluated• The best firm’s values• The best value of any firm on each criterion• A previously set objective• A previous forecast

– Functional factors should be selected from the following functional areas:• Marketing• Operations/Production• Finance and accounting• Information Systems• Human resources, especially management and organization• Quality of all transactions, relationships, and outputs


25

Portfolio Analysis (1/6)

■ 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


26


■ SWOT Analysis

– Tying together strengths, weaknesses, opportunities, and threats vs. competitive posi-tion

– Development of the idea of matching the organization’s internal factors with external environmental circumstances [Philip Selznick, 1957]


Strength Weakness

Opportunity Threat

Aggressive Strategy

Defensive Strategy

Turn-around Strategy

DiversificationStrategy

Internal Factors

External Factors

27


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

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 de-

mands and low returns due to low market share– either invest heavily or sell off or invest nothing and gener-

ate whatever cash it can. Increase market share or deliver 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


28


■ 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


Invest aggressively

Invest selectively

Harvest or divest

High Medium Low

Hig

hM

ediu

mLo

w

Competitive Strength

Mark

et

Att

rac-

tiven

ess

29


■ 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


30


■ 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


31

Case Study

http://mis.postech.ac.kr/class/IMEN381_MIS/KoreanCases/03.Megastudy.pptx

32

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 – Fifteenth Edition”, McGraw – Hill, Chapter 2, pp. 43~71

■ 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_ppt/Chap001.ppt




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

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

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