Ch.

05 Strategic Management
Rev 2: Mar., 2015

Prof. Euiho Suh

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

Dept. of Industrial & Management Engineering

POSTECH

Strategy

Strategic Management
What is Strategic Management?
Strategic management is the set of managerial decision and action that determines the long-ru
n performance of a corporation
Strategic management includes

Environmental scanning (both external and internal)

Strategy formulation (strategic or long range planning)
Strategy implementation
Evaluation
Control

The study of strategic management therefore emphasizes the monitoring and evaluation of ext
ernal opportunities and threats in lights of a corporations strengths and weaknesses

Contents
1

Strategic Management

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

Case Study

Strategic Management (1/15)

The Three Hierarchical Levels of Strategy
Strategy is a set of analytic
techniques for understanding
and influencing your companys
position in the market place

Enterprise strategy is concerned

with the match between your
companys internal capabilities
and its external environment

Corporate
Strategy

Business you should be in

Business Strategy

Tactics to beat the competition

Functional Strategy

Operational methods to implement the tactics

Strategic Management Types of Strategy (2/15)

Corporate Level Strategy

Diversification
Acquisition
New Market Global Strategy
New Ventures and Market Exits (Disinvestment)

Business Unit Level Strategy

Competitive Strategy for same Industry

Cost Leadership
STP
Product Differentiation
Vertical Integration

Function Level Strategy

Execution
Operational Excellence

Strategic Management (3/15)

3 Levels of Strategy
Corporation

Corporate Level

Business Level

Functional Level

Business
unit A
FIN

Business
unit B
R&D

What businesses are we in?

Business
unit C
MFRG

MKTG

How do we compete?
How do we support
business level
strategy?

Corporate level examples

Travelers acquires Salomon Brothers, Disney acquires ABC, AT&T acquires TCI, GE sells Kidder P
eabody

Business level examples

CBS adopts strategy of trying to capture younger viewers, Pfizer founds a developing life style
drugs; e.g.) Viagra

Functional level examples

Cigarette companies adverting campaign to convince people to oppose Tobacco Bill
7

Strategic Management (4/15)

Hierarchy of Strategy
Corporate strategy

Business strategy
(decision level)

Functional
strategy

Strategic Management (5/15)

Corporate vs. Business Strategy
Industry
attractiveness
Which industries should
we compete in?

Corporate
strategy

Rate of Return on
Investment
How do we make money?

Competitive
advantage
How should we compete?

Business
strategy

Strategic Management (6/15)

Corporate Strategy

Approach to
allocating investment
capital and
resources?

Efforts to capture
cross-business
strategic fits?

Narrow or broad-based
diversification?
Diversification
related, unrelated or a
mix?

Corporate
strategy

Moves to divest weak

business units?

Scope of geographic
operations?

Moves to add new

businesses?
Moves to build
positions in new
industries?

10

Strategic Management - Corporate-Level Growth Strategies (7/15)

Concentration (focus on existing businesses)
Grow existing business units, often by entering new markets

Integration
Vertical or horizontal
Can be organic (own unit) or acquisition

Diversification
Related or unrelated
Explicitly about acquisition

International Expansion
Existing business units enter new markets
Can be organic (own unit) or acquisition

Retrenchment
Turnaround
Sell-out / Divestment
Bankruptcy / Liquidation
11

Strategic Management (8/15)

Corporate Strategy Directions
Ansoff Matrix
Products / services
Existing

New

Existing

Market penetration

New products and

services

New

Market development

Conglomerate
diversification

Markets

12

Strategic Management Corporate strategy examples (9/15)

Dell acquires Apple
Horizontal integration
Dell and Apple both make personal computers
If thats what you see, they are in the same industry and so this is horizontal integration like United Airline
s acquiring American

Related diversification
Dell makes PCs, Apple makes an operating system for PCs
From that perspective, this is related diversification where the synergy is likely using Dells marketing prow
ess to leverage Apples operating system technology

Obviously, from a business point of view this is a fairly silly scenario, as are many of the scenario
s. Thats not the point, eh?

Dell acquires Intel

Backwards vertical integration
Intel is a key supplier to Dell, of microprocessors

13

Strategic Management (10/15)

Business Strategy

14

Strategic Management (11/15)

Business Level Strategies

Core Competencies and Strategy

Core competencies

Strategy

Business-level
strategy

The resources and capabilities that have been determined

to be a source of competitive advantage for a firm over its
rivals
An integrated and coordinated set of actions taken to
exploit core competencies and gain a competitive
advantage
Actions taken to provide value to customers and gain a
competitive advantage by exploiting core competencies in
specific, individual product markets
15

Strategic Management (12/15)

Four Categories of Business Tactics

Anticipatory Tactics

Tactics of Engagement

Offensive
Tactics

Preemtion
- Pioneering
- Attacking yourself
- Intimidation
- Capture

Attack
- Frontal assault
- Flanking maneuver
- Guerilla warfare
- Siege warfare

Defensive
Tactics

Deterrence
- Raising structural barriers
- Expected retaliation
- Discouraging attacks
- Diplomatic peacekeeping

Response
- Counterattack
- Fast follower
- Retrenchment
- Withdrawal

16

Strategic Management (13/15)

Business Level Strategies
Competitive Advantage

Broad
Target

Cost

Uniqueness

Cost leadership

Differentiation

Integrated Cost
Leadership /
Differentiation

Competitive
Scope
Narrow
Target

Focused Cost
leadership

17

Focused
Differentiation

Strategic Management (14/15)

Functional Strategy

Function

The intended role or purpose of a person or thing

Strategy

Greek work strategos generalship

Definition

Functional strategy is the approach a functional area takes

to achieve corporate and business unit objectives and
strategies by maximizing resource productivity

18

Strategic Management (15/15)

Functional Level Strategies
All organizations irrespective of the size, nature and scope of business
must perform the functions like
Marketing
Finance
Production & Operations
Human Resource Management
Research & Development etc.
Careful planning, execution and coordination of these functions are highly
essential for effective strategic planning, implementation and control
19

Strategic Management Process (1/5)

Process of Strategic Management
Feedback

Situation
Analysis

Strategy
Formulation

Strategy
Implementation

Evaluation
& Control

Analyzing current
situation

Deciding on
strategies

Putting strategies in
action

Evaluating/changing
strategies

External/Internal
Analysis

Strategic Intent

Corporate

Management
Issues

Business

Competitive
Strategy
20

Organization
Issues

Functional
Issues

Strategic Management Process (2/5)

Basic Elements of the Strategic Management Process
Environmental
scanning

Strategic
formulation

Strategic Management Process

2

Strategy
implement

Todays Coverage
Understand
Company Mission

Analyze
External Environment

4
5
6

Evaluation
control

Analyze
Internal Environment

Set
Long term Objectives
Craft the Strategy

Implement
the Strategy

Feedback
Feedback

7 Evaluate & Control

the Strategy

21

Strategic Management Process (3/5)

More Progressive View for SM Process

Strategy formulation
Strategic
intent

Organizational
appraisal

Environmental
appraisal

SWOT analysis

Vision

Environmental
scanning

Corporate level
strategy

Mission

ETOP analysis

Business objective

PEST analysis

Business level
strategy
Strategic plans

Strategy
Implementation

Project
Procedure
Resource
allocation
Structural
Behavioral
Functional
Operational

Strategic
Control

22

Strategic
Evaluation

Strategic Management Process (4/5)

Strategic Decision-Making Process
Scan and
Assess
External
Environment

Strategy Formulation

Societal
Task

Evaluate
Current
Performance
Results

Examine and
Evaluate the
Current

Review
Corporate
Governance

Board of
Directors
Top
Management

Mission
Objectives
Strategies
Policies

Opportunities
Threats

Select Strategic
Factors (SWOT)
in light of
Current
Situation

Scan and
Assess
Internal
Environment
Structure
Culture
Resources
23

Analyze
External
Factors

Analyze
Internal
Factors
Strengths
Weaknesses

Review and
Revise as
Necessary
Mission
Objectives

Strategic Management Process (5/5)

Strategic Decision-Making Process (Contd)
Strategy
Implementation

Strategy Formulation

Generate and
Evaluate
Strategic
Alternatives

Select and
Recommend
Best
Alternative

24

Implement
Strategies
Programs
Budgets
Procedures

Evaluation and
Control

Evaluate and
Control

Understand Company Mission (1/4)

Strategic Intent

Vision

Intent

Where we want to get to

How we intend to
get there

Strategic
Intent

25

Understand Company Mission (2/4)

Vision

Mission

Business Objective

Kotter (1990) - Vision is a description of something (organizational corporate

culture, a business, technology, an activity) in the future.
El Namaki (1992) Vision is a mental perception of a kind of environment
an individual or an organization aspire to create within a broad time horizons.
Miller and Dess (1996) Category of intensions that are broad, all inclusive
and forward

Essential purpose of organizations existence.

It should be feasible, precise, clear, motivating, distinctive.
It should also indicate major component of strategy.
It should also indicate how objectives can be drawn on these lines.

Objectives are the plans that state specifically how the goals shall be
achieved.
It should be concrete and specific, should related to time frame.
Objectives are measurable and controllable, challenging.

26

Understand Company Mission (3/4)

The Pyramid of Purpose The language of Strategic Intent

Strategic Intent
Vision

Mission

Priorities

Aim

Objectives

Decision
Criteria

Strategic
Initiatives

Strategies

27

Understand Company Mission (4/4)

Financial
To succeed financially, how should
we appear to our shareholders?

Customers

Internal Business Process

To achieve our vision, how should

we appear to our customers?

To satisfy our shareholders and

customers, what business
processes must we excel at?

Learning & Growth

To achieve our vision, how will we
sustain our ability to change and
improve?

28

Strategic Management Process (1/2)

Environment

Environment

External Environment

Internal Environment

Strength

Weakness

29

Opportunity

Threat

Strategic Management Process - Environmental Variables (2/2)

Remote environment
Economic
forces

Technological
forces

Task environment
(industry)
shareholders
governments

Internal
Environment
Structures
Culture
resources

Special interest
groups
Customers

suppliers
Employees
Labor unions
competitors

Trade associations
Communities

Creditors
Sociocultural
forces

Political-legal
forces

30

Analyze External/Internal Environment (1/24)

Factors of External Environment

Government and legal factors

Geo-physical factors
Political factors
Socio-cultural factors
Demo-graphical factors etc.

Two types of External Environment Factors

Micro/operating environment
Macro/general environment

31

Analyze External/Internal Environment (2/24)

Micro/Operating Environment
The environment which is close to business and affects its capacity to work is known as Micro o
r Operating Environment

They are the persons who supply raw material and required components to the company
They must be reliable and business must have multiple suppliers i.e. they should not
depend upon only one supplier

Customers

Customers are regarded as the king of the market

Success of every business depends upon the level of their customers satisfaction
Wholesalers, Retailers, Industries, Government and Other Institution, Foreigners

Market
Intermediaries

They work as a link between business and final consumers

Middleman, Marketing Agencies, Financial Intermediaries, Physical Intermediaries

Competitors

Every move of the competitors affects the business

Business has to adjust itself according to the strategies of the competitors

Public

Any group who has actual interest in business enterprise is termed as public
They may be the users or non-users of the product
e.g.) media and local public

Suppliers

32

Analyze External/Internal Environment (3/24)

PEST Analysis

Political

Environmental

Social

Technological

PEST
Analysis

33

Analyze External/Internal Environment (4/24)

Macro/General (Remote) Environment
Economic/Environment

Technological

Sociocultural

GDP trends /
Inflation rates

Total government

Lifestyle changes

Spending for R&D

Career expectations

Interest rates /
money supply

Total industry spending

for R&D

Consumer activism

Disposable and

Focus of technological
efforts

Discretionary income

Unemployment level
Wage/price control
Devaluation/revaluation

Patent protection
New products

New developments in
technology transfer from lab
to marketplace

34

Rate of family
Formation
Growth rate of
Population
Age distribution of

Political-legal
Antitrust regulations
Environmental
protection laws
Tax laws
Special incentives

Population

Foreign trade
regulations

Regional shifts in

Attitudes toward

Population

Foreign companies

Life expectancies

Laws on hiring and

Birth rates

Promotion

Analyze External/Internal Environment (5/24)

ETOP Analysis (Environmental Threat and Opportunity Profile)
A technique to structure environmental issues
Dividing the environment into different sectors
Each sectors can be subdivided into sub sectors

Analyzing the impact of each sector and subsector on the organization

Describe the impact in the form of a statement

Advantage of ETOP

It provides a clear of which sector and subsectors have favorable impact on the organization
It helps interpret the result of environment analysis
The organization can assess its competitive position
Appropriate strategies can be formulated to take advantage of opportunities and counter the t
hreat
SWOT analysis (Strength, weakness, opportunities and threats)

35

Analyze External/Internal Environment (6/24)

Scanning the external environment
Analysis of societal environment
Economic, sociocultural, technological, political-legal factors

Market
analysis

Competitor
analysis

Community
analysis

Interest
Group
analysis

Supplier
analysis
Selection of
Strategic factors
Opportunities
threats

36

Governmental
analysis

Analyze External/Internal Environment (7/24)

Internal Assessment
of the Organization
What are our strengths?

What are our weaknesses?

Manufacturing efficiency?
Skilled workforce?
Good market share?
Strong financing?
Superior reputation?

Outdated facilities?
Inadequate R&D?
Obsolete technologies?
Weak management?
Past planning failures?

SWOT
Analysis
What are our opportunities?

What are our threats?

Possible new markets?

Strong economy?
Weak market rivals?
Emerging technologies?
Growth of existing market?

External Assessment
of the Environment
37

New competitors?
Shortage of resources?
Changing market tastes?
New regulations?
Substitute products?

Analyze External/Internal Environment (8/24)

38

Analyze External/Internal Environment (9/24)

Internal
Factors
External
Factors

Strengths (S)

Weaknesses (W)

Opportunities (O)

SO Strategies
Generate strategies here
that use strengths to take
advantage of opportunities

WO Strategies
Generate strategies here
that take advantage of
opportunities by overcoming
weaknesses

Threats (T)

ST Strategies
Generate strategies here
that use strengths to avoid
threats

WT Strategies
Generate strategies here
that use minimize
weaknesses and avoid
threats

39

Analyze External/Internal Environment (10/24)

SWOT Analysis Example

40

Analyze External/Internal Environment (11/24)

SWOT Analysis Example (Contd)
SWOT Analysis of POSTECH

Supporting of the foundation

Brilliant students
Staffs of superior ability
High quality facilities for research
POVIS system
Hard-studying campus environment

Strengths
Globalization and knowledge society
Increasing expectation of high
quality human resource
Increasing attention to specialized
graduate school (ex. Steel graduate
course)

Increasing the number of students

evading science and engineering
department
Competitive universities advance.
Increasing competition in receiving
large-scale project.

Oppor
tuniti
es

Threa
ts

Hard to attract students and faculty

Lack of Globalization
Poor External Advertisement
Small scale of Alumni Association
Lack of Leadership

Weaknesses

S-O strategies

W-O strategies

Caring system for better human source

Advertise POSTECH through external

cooperation
Produce high quality human resource
through a select few education.

S-T strategies

W-T strategies

Advertise POSTECH by showing POSTECH

has better research outcomes than other
competitive universities
Foundation of a branch school abroad

Increasing the number of foreign exchange

students
Provide privilege to top notch students

41

Analyze External/Internal Environment (12/24)

Definition of Business Portfolio
A business portfolio is the collection of Strategic Business Units that make up a corporation.
The optimal business portfolio is one that fits perfectly to the company's strengths and
helps 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

42

Analyze External/Internal Environment (13/24)

BCG Matrix

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 demands an

d low returns due to low market share
Either invest heavily or sell off or invest nothing and generate what
ever 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

43

Analyze External/Internal Environment (14/24)

GE/Mckinsey Matrix

GE/Mckinsey matrix attempt to improve upon the BCG Matrix

Market (Industry) attractiveness replaces market growth as the dimension of industry attractive
ness
Competitive strength replaces market share as the dimension by which the competitive positio
n 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
44

Analyze External/Internal Environment (15/24)

GE/Mckinsey Matrix (Contd)
Market Attractiveness
-

Market size
Market growth rate
Pricing trends
Competitive intensity/rivalry
Overall risk of returns in the industry
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 innovation

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

45

Analyze External/Internal Environment (16/24)

P5CFM (Porters Five-Competitive-Force Model)
A tool to know about difference forces that impact on a companys ability to compete
A tool to diagnose the principal competitive pressures in a market
A tool to assess how strong and important each force is

Potential
Potential Entrants
Entrants
Bargaining
Power of
Suppliers

Suppliers
Suppliers

Threat of New Entrants

Industry Competitors

Buyers
Buyers

Rivalry among Existing Firms

Bargaining
Power of
Buyers

Threat of Substitute
Products or Service

Substitutes
Substitutes
46

Analyze External/Internal Environment (17/24)

P5CFM (Contd)
Barriers to entry
Economics of Scale
Proprietary product
differences
Brand identity
Switching costs

Determinants of
supplier power
Differentiation of
inputs

Buyer concentration
versus firm

Switching costs of
suppliers and firms in
the industry

Capital requirements

Presence of substitute
inputs

Access to distribution

Supplier concentration

Absolute cost
advantages
- Proprietary learning
curve
- Access to necessary
inputs
- Proprietary low-cost
product design

Importance of volume
to supplier

Government policy

Threat of forward
integration relative to
threat of backward
integration by firms in
the industry

Expected retaliation

Determinants of
buyer power

Cost relative to total

purchases in the
industry
Impact of inputs on
cost or differentiation

Determinants of
substitution threat

Rivalry
determinants
Industry growth

Buyer volume

Relative price
performance of
substitutes

Buyer switching costs

relative to firm
switching costs

Switching costs
Buyer propensity to
substitute

Intermittent
overcapacity

Buyer information
Ability to backward
integrate
Substitute products
Pull-through
Price/total purchases
Product differences
Brand identity impact
on
quality/performance
Buyer profits
Decision makers
incentives

47

Fixed (or storage)

costs/value added

Product differences
Brand identity
Switching costs
Concentration and
balance
Informational
complexity
Diversity of
competitors
Corporate stakes
Exit barriers

Analyze External/Internal Environment (18/24)

P5CFM (Contd)
Example

48

Analyze External/Internal Environment (19/24)

Value Chain
The idea of the value chain is based on the process view of organizations, the idea of seeing a
manufacturing (or service) organization as a system, made up of subsystems each with inputs,
transformation processes and outputs.
Inputs, transformation processes, and outputs involve the acquisition and consumption of reso
urces - money, labour, materials, equipment, buildings, land, administration and management.

How value chain activities are carried out determines costs and affects profits

49

Analyze External/Internal Environment (20/24)

Value Chain (Porter, 1985) (Contd)

50

Analyze External/Internal Environment (21/24)

Value Chain (Contd)

Seeds Green
fertilizers
Agrochemicals
Farm machinery
Irrigation
Energy

Sorter
Grader
Packager
Logistics
Energy
Materials

Food manufacturers
Food preparers
Packagers
Branding
Energy inputs
Additives
Logistics

51

Farmers markets
CSAs
Local shelf space
Groceries
Superstore food
chains
Food services

Home
Restaurants
Institutions
Take-out
Events

Analyze External/Internal Environment (22/24)

Value Chain (Contd)
Primary value chain

Demand fulfilment

Inbound
logistics

Outbound
logistics

Operations

Demand generation

Marketing and
sales

Service

Call-off to suppliers

Conversion

Warehousing

Channels to market

Installation

Materials handling

Assembly

Order processing

Repair

Warehousing

Packaging

Picking

Inventory control

Maintenance

Shipment

Product, pricing,
advertising and
promotion,
distribution

Delivery

Sales force
effectiveness

Support activities

Procurement
Purchasing raw
material, supplies,
fixed assets

Customer value,
cost to consumer,
convenience,
communication

Technological
development

Human
resources

Process design

Recruiting, hiring,
training, developing
and compensating
all personnel

Product design
R&D

Infrastructure
General management
Finance
Accounting
IT

52

Training

Analyze External/Internal Environment (23/24)

Value Chain (Contd)
Example) Wal-Mart Value Chain

53

Analyze External/Internal Environment (24/24)

Value System
A self-organizing market economy that locks-in a pattern of
behavior between individuals, organizations and society
and is sustained over time. We want our strategy to
influence our Dominant Economic Loop.

Supplier/
Community
Value Chains

What is your strategic thinking

for growth? Localview and
Global view...

Business
Value Chain
All participants are affected by competitive
forces/industry structure, shape each agents
strategy and share the value

Transport/
Channel Value
Chains

Goal: find the profit pools in your market

economy and capture the value for the
business and society
54

Downstream
Value
End-User/Society
Value Chains

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)
OBrien & Marakas, Introduction to Information Systems Sixteenth Edition,
McGraw Hill, Chapter 2
Dr. Kevin Lance Jones, SWOT (Strengths, Weaknesses, Opportunities & Threats) Analy
sis, page 7-8

55