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Strategic ManagementStrategic Management

Postech Strategy Management of Information Systems Laboratory

Strategic Management (1/2)Strategic Management (1/2)

Strategic Management A process for conducting the entrepreneurial activities of a

firm for organizational renewal, growth, and transformation Major Tasks

Set a mission and goals Assess the environment Appraise company capabilities Craft the strategy Implement the strategy Evaluate and control the strategy

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

Postech Strategy Management of Information Systems Laboratory

Strategic Management (2/2)Strategic Management (2/2)

Strategy The means or general actions to be taken to achieve long

term objectives Levels of Strategy

Corporate Level: What types of businesses should we be in?

Business Level: How do we compete? Functional Component Level: What should our

organization do to synchronize with the business level strategy?

Postech Strategy Management of Information Systems Laboratory

The Strategic Management ModelThe Strategic Management Model

EvaluationCapabilitiesEvaluation

Capabilities

Strengths&

Weaknesses

Strengths&

Weaknesses

Forecast the EnvironmentForecast the Environment

Opportunities&

Threats

Opportunities&

Threats

Implementthe StrategyImplement

the Strategy

SetLong TermObjectives

SetLong TermObjectives

Mission & VisionMission & Vision

Craft the Strategy

Craft the Strategy

Evaluate & Control

Strategy

Evaluate & Control

Strategy

FeedbackFeedback

Postech Strategy Management of Information Systems Laboratory

Company Mission:What is our business?Company Mission:What is our business?

1. Basic Product or Service2. Primary markets3. Principal technology used (if relevant)4. Customer Satisfaction, Quality, and Societal Goals5. Company philosophy6. Self-concept (identity)

Postech Strategy Management of Information Systems Laboratory

The Environment (1/3)The Environment (1/3)

The Remote (Macro) Environmental Factors Economic Social-demographic Political-legal Technological Cultural Ecological-natural

Postech Strategy Management of Information Systems Laboratory

The Environment (2/3)The Environment (2/3)

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

Postech Strategy Management of Information Systems Laboratory

The Environment (3/3)The Environment (3/3)

Defining an industry Products Competitors Structure (number, size, relative strength, market share of

competitors, product differentiation) Economic Traits Critical Success Factors (CSF) Entry barriers

Postech Strategy Management of Information Systems Laboratory

Porter’s 5-Force Model (1/2)Porter’s 5-Force Model (1/2)

The nature and intensity of competition in an industry is a composite of five competitive 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

Postech Strategy Management of Information Systems Laboratory

Porter’s 5-Force Model (2/2)Porter’s 5-Force Model (2/2)

Porter’s 5-Force Model

Suppliers

Rivalry amongexisting firmsRivalry amongexisting firms

Threat of new entrants

Substitutive Products

Buyers

Postech Strategy Management of Information Systems Laboratory

Opportunity & Threat (1/2) Opportunity & Threat (1/2)

Opportunity A combinations of events or circumstances that arise,

which, if acted upon at a certain 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

Postech Strategy Management of Information Systems Laboratory

Opportunity & Threat (2/2)Opportunity & Threat (2/2)

Threat An event, as defined by its impact on your company and

the probability of its occurrence, 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

Postech Strategy Management of Information Systems Laboratory

Evaluation of Company Capabilities (1/4)Evaluation of Company Capabilities (1/4) Situation Analysis

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 used for measuring its

situation?

Postech Strategy Management of Information Systems Laboratory

Evaluation of Company Capabilities (2/4)Evaluation of Company Capabilities (2/4) Approaches to internal scanning and analysis

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

Firm infrastructure

Human Resource Management

Technology Development

Procurement

Inbound

Logistics

Outbound

Logistics

Operation

Marketing

And

Sales

After

Sales

Service

Competitive

Advantage

Support

Activity

Primary

Activity

Postech Strategy Management of Information Systems Laboratory

Evaluation of Company Capabilities (3/4)Evaluation of Company Capabilities (3/4) Approaches to internal scanning and analysis

(cont’d) 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 organizationQuality of all transactions, relationships, and outputs

Postech Strategy Management of Information Systems Laboratory

Evaluation of Company Capabilities (4/4)Evaluation of Company Capabilities (4/4) 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

Postech Strategy Management of Information Systems Laboratory

Setting Strategic (Long Term) ObjectivesSetting Strategic (Long Term) Objectives Characteristics of Long Term Objectives

Acceptable to managers Adaptable to extraordinary changes in the environment Clearly measurable against specified criterion Understandable

Generic Groups of Long Term Objectives Product/Market scope Profitability Competitive edge Financial specifications, expenditures, net worth, etc. Innovation and technology Employee Development/Productivity Sources of, and Deployment of resources Synergy Risk Legitimacy (Satisfaction of Resources) Ideological leadership

Postech Strategy Management of Information Systems Laboratory

Crafting Corporate Level Strategy (1/6)Crafting Corporate Level Strategy (1/6) Objectives

Maintaining corporate-wide consistency of direction of the total company toward long range

Leveraging resources for long range goals Reducing financial risk by building a balanced portfolio of businesse

s with a balanced portfolio of advantages Investing in core competencies for the businesses (usually called St

rategic Business Units or SBUs) The Process

a. Choose Generic Corporate Level Strategies1. Feasible corporate level strategies2. Choose final generic strategy option

b. Choose Specific corporate level strategy, guide by final generic strategy to yield

Postech Strategy Management of Information Systems Laboratory

Crafting Corporate Level Strategy (2/6)Crafting Corporate Level Strategy (2/6) Choose Generic Corporate Level Strategies

Generic Strategy: A group of corporate level strategies that are first determined so that the decision maker is guided toward making an appropriate specific strategy

A list of generic strategies Concentration Concentric diversification Conglomerate diversification Vertical backward integration Forward integration Joint ventures Divestiture Turnaround/Restructuring Bankruptcy Liquidation

Postech Strategy Management of Information Systems Laboratory

Crafting Corporate Level Strategy (3/6)Crafting Corporate Level Strategy (3/6) Choose Generic Corporate Level Strategies

(cont’d) Feasible Corporate Generic Strategies

1. Concentric Diversification

2. Conglomerate Diversification

3. Joint Ventures

1. Turnaround or retrenchment

2. Concentric diversification3. Conglomerate

Diversification4. Divestiture5. Liquidation

1. Concentration2. Vertical Integration3. Concentric

Diversification

1. Reformation of concentration

2. Horizontal integration3. Divestiture4. Liquidation

WeakCompetitive

Position

StrongCompetitive

Position

Rapid Market Growth

Slow Market Growth

SupermarketGroup

SpecialtyShopGroup

DrugStoreGroup

Postech Strategy Management of Information Systems Laboratory

Crafting Corporate Level Strategy (4/6)Crafting Corporate Level Strategy (4/6) Analysis and Evaluation of the Portfolio

GE 9-Cell Business Screen

High

Medium Low

Hig h

Med

ium

Low

Industry Attractiveness

Business

Strength

Market size and Growth rate Industry profit margins Competitive intensity Bargaining power of customers and supplier Cyclicality of demand Financial norms Economies of scale Capital intensity

Relative market share Profit margins Cost position Level of differentiation Technological capability Response time Financial strength Human assets

Invest aggressively

Invest selectively

Harvest or divest

Postech Strategy Management of Information Systems Laboratory

Crafting Corporate Level Strategy (5/6)Crafting Corporate Level Strategy (5/6) GE 9-Cell Business Screen (cont’d)

The areas of the circles: the sales of each SBU the segments: Market share Corporate strategy implications from the matrix are:

Suggest investment priorities Incorporate a wide variety of strategic variables Indication of possible life-cycle stages of the SBUs Indicate balance or lack of balance in the portfolio Compare performance among business units

Postech Strategy Management of Information Systems Laboratory

Crafting Corporate Level Strategy (6/6)Crafting Corporate Level Strategy (6/6) Using SWOT to derive generic corporate strategies

SWOT Analysis: Ties together strengths, weaknesses, opportunities, and threats vs. competitive position

Place each SBU in a cell

Postech Strategy Management of Information Systems Laboratory

Implementing The Strategy (1/3)Implementing The Strategy (1/3)

Implementing with structure Communicating the strategy to the organization to prepare

every employee with an understanding of what will follow and the things in general that must be done

Prepare and disseminate a list of major annual objectives for the organization

Establish policies and procedures for actions Prepare an organization structure that matches the new

strategy Install best practices for each department based on the

value chain and benchmarks

Postech Strategy Management of Information Systems Laboratory

Implementing The Strategy (2/3)Implementing The Strategy (2/3)

Implementing with organizational leadership Staff the organization with committed leaders capable of

driving implementation Avoid resistance to change through employee development

and communication with employees Tie rewards and communication with employees Develop a strategy-supporting culture

Implementing with concern for laws, environmental, and social concerns

Implementation must be carried out with concern for factors that may not always be spelled out

but must represent good citizenship

Postech Strategy Management of Information Systems Laboratory

Implementing The Strategy (3/3)Implementing The Strategy (3/3)

Implementing with the functional components of strategy

Marketing: product policies, distribution policies, ethics, customer relations, pricing policies

Production/operations: equipment, layout, method of delivery of services, work methods, production planning, quality control, outsourcing

R&D/design: estimating the time for new product development, quality and cost balance in design, continuing education of creative workers, outsourcing of design work

Accounting/finance: increasing labor costs, increasing sales expense, economic value added, taxes, exchange rate between U. S. and other currencies, transfer pricing

Human Resource Management: assignment of people to new projects, salary and bonus payments, promotions and dismissals, major human errors, recruitment and selection

Corporate information and communication systems: management information system, personal communications, mass communications, communicating policies

Postech Strategy Management of Information Systems Laboratory

Strategy EvaluationStrategy Evaluation

Quantitative Criteria Overall financial performance such as ROI, ROE, profit

margin, market share, earning per share Time of implantation vs. planned time Increase in productivity, quality, number of employees, etc.

Qualitative Criteria Is the strategy internally consistent? Is the strategy consistent with the environment? Is the strategy appropriate in view of the available

resources? Does the strategy involve an acceptable degree of risk? Does the strategy have an appropriate time framework? Is the strategy workable?

Stage Criteria The strategy may be evaluated at each stage of its

development shown in slide 4, as well as after implementation at selected times.