` Strategic Management

Po stech S trategy M anagement of I nformation S ystems Laboratory 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

Po stech S trategy M anagement of I nformation S ystems Laboratory 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?

Po stech S trategy M anagement of I nformation S ystems Laboratory The Strategic Management Model Evaluation Capabilities Evaluation Capabilities Strengths & Weaknesses Strengths & Weaknesses Forecast the Environment Forecast the Environment Opportunities & Threats Opportunities & Threats Implement the Strategy Implement the Strategy Set Long Term Objectives Set Long Term Objectives Mission & Vision Mission & Vision Craft the Strategy Craft the Strategy Evaluate & Control Strategy Evaluate & Control Strategy Feedback

Po stech S trategy M anagement of I nformation S ystems Laboratory Company Mission: What is our business? 1.Basic Product or Service 2.Primary markets 3.Principal technology used (if relevant) 4.Customer Satisfaction, Quality, and Societal Goals 5.Company philosophy 6.Self-concept (identity)

Po stech S trategy M anagement of I nformation S ystems Laboratory The Environment (1/3)  The Remote (Macro) Environmental Factors Economic Social-demographic Political-legal Technological Cultural Ecological-natural

Po stech S trategy M anagement of I nformation S ystems Laboratory 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

Po stech S trategy M anagement of I nformation S ystems Laboratory 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

Po stech S trategy M anagement of I nformation S ystems Laboratory 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

Po stech S trategy M anagement of I nformation S ystems Laboratory Porter’s 5-Force Model (2/2)  Porter’s 5-Force Model Suppliers Rivalry among existing firms Rivalry among existing firms Threat of new entrants Substitutive Products Buyers

Po stech S trategy M anagement of I nformation S ystems Laboratory 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

Po stech S trategy M anagement of I nformation S ystems Laboratory 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

Po stech S trategy M anagement of I nformation S ystems Laboratory 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?

Po stech S trategy M anagement of I nformation S ystems Laboratory 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

Po stech S trategy M anagement of I nformation S ystems Laboratory 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 organization Quality of all transactions, relationships, and outputs

Po stech S trategy M anagement of I nformation S ystems Laboratory 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

Po stech S trategy M anagement of I nformation S ystems Laboratory Setting 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

Po stech S trategy M anagement of I nformation S ystems Laboratory 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 businesses with a balanced portfolio of advantages Investing in core competencies for the businesses (usually called Strategic Business Units or SBU s)  The Process a.Choose Generic Corporate Level Strategies 1.Feasible corporate level strategies 2.Choose final generic strategy option b.Choose Specific corporate level strategy, guide by final generic strategy to yield

Po stech S trategy M anagement of I nformation S ystems Laboratory 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

Po stech S trategy M anagement of I nformation S ystems Laboratory 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 diversification 3.Conglomerate Diversification 4.Divestiture 5.Liquidation 1.Concentration 2.Vertical Integration 3.Concentric Diversification 1.Reformation of concentration 2.Horizontal integration 3.Divestiture 4.Liquidation Weak Competitive Position Strong Competitive Position Rapid Market Growth Slow Market Growth Supermarket Group Specialty Shop Group Drug Store Group

Po stech S trategy M anagement of I nformation S ystems Laboratory Crafting Corporate Level Strategy (4/6)  Analysis and Evaluation of the Portfolio GE 9-Cell Business Screen High Medium Low High Medium 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

Po stech S trategy M anagement of I nformation S ystems Laboratory 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

Po stech S trategy M anagement of I nformation S ystems Laboratory 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

Po stech S trategy M anagement of I nformation S ystems Laboratory 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

Po stech S trategy M anagement of I nformation S ystems Laboratory 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

Po stech S trategy M anagement of I nformation S ystems Laboratory 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

Po stech S trategy M anagement of I nformation S ystems Laboratory Strategy 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.