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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.