Chapter 6Chapter 6

Defining the Organization's Strategic Direction Defining the Organization's Strategic Direction

Copyright © 2013 by Professor D. J. Lee, Kyung Hee Univ. All rights reserved.

6-2

Overview

• A coherent technological innovation strategy leverages the firm’s existing competitive position and provides direction for future development of the firm.

• Formulating this strategy requires:• Appraising the firm’s environment,• Appraising the firm’s strengths, weaknesses,

competitive advantages, and core competencies,

• Articulating an ambitious strategic intent.

6-3

Tech. Strategy &Planning

Investment in R&D projects

Evaluation & Selection of R&D

R&D Management

Tech. asset Mgmt.

Commercialization

Organization

Schedule

Cost

Production

Strategic decision making Operational decision making

Process of MOT [supp.]

6-4

- The art of war, especially the planning of movements of troops

and ships etc., into favorable position; plan of action or policy in

business or politics etc.(Oxford dictionary)

- The determination of the long run goals and objectives of an

enterprise, and the adoption of courses of action and the

allocation of resources necessary for carrying out these

goals(Chandler)

- Pattern or plan that integrates an organization’s major goals ……..

(Quinn)

- Pattern of objectives ……….., stated in such a way as to define

what business the company is in or is to be in and the kind of

company it is or is to be (Andrews)

What is STRATEGY? [supp.]

6-5

- In order to achieve the goals of a company, from a

mid or long-term perspective, the process of finding

the best direction to focus and the effective and

efficient ways to allocate its resources and efforts,

based on the analysis of the company’s external

environments and internal capabilities

To search and set a mid or long-term goals

effectively,

To find the efficient ways to achieve the goals

To make action plans to do actually

What is STRATEGY? [supp.]

6-6

Corporation

SBU* A SBU B SBU C

R&DR&D Production Marketing

Corporatestrategy

Businessstrategy

Functionalstrategy

*SBU: Strategic business unit

Hierarchy of strategic management [supp.]

6-7

– Corporate strategy: To set the vision and the goals from a

company’s overall viewpoint and choose the business areas to

focus managerial resources “What new business should we challenge and what old business

should we give up from now on?” Business portfolio, Business diversification strategy

– Business(Competitive) strategy: To make action plans for

competitive advantage in a business unit level “How and with what weapons should SBU compete?” Cost leadership, product differentiation, market focus strategy

– Functional strategy: To make detail action plans to support

higher-level strategy in an each function level “How should the functional organization use the allocated resources

efficiently?” Manufacturing strategy, Marketing strategy, Technology strategy

Hierarchy of strategic management [supp.]

6-8

External Analysis(O&T)

• PEST(macro-environments)• Five-force Model• Stakeholder analysis• Competitor

Internal Analysis(S&W)

• Company performance• Business system• Capabilities & resources

Develop Execute Evaluate

• Generationof strategicoptions

• Evaluationof strategicalternatives

• Selectionof optimal strategies

• Detailedaction plan

• Responsibilityand timing

• Resourceallocation

• Monitoringsystems

• Performanceevaluation

• Feedback& adjustment

Strategy Formulation

• To identify SWOT(Strength, Weakness, Opportunity and Threat)

6-9

Company

Economy-GDP-Inflation-Interest rate-Exchange rate-Oil price

Politics/Regulation

-Political power-Policy-Regulation direction

Technology

-Innovation trend-NPD trend-Diffusion trend

Society/Culture

-Demography-Life style-Cultural trend

External analysis: Macro-environments

6-10

• Porter’s Five-Force Model• To assess industry attractiveness• To assess a specific firm’s external environment

External analysis: Five-Force Model

6-11

1. Degree of existing rivalry. Determined by number of firms, relative size, degree of differentiation between firms, demand conditions, exit barriers.

2. Threat of potential entrants. Determined by attractiveness of industry, height of entry barriers (e.g., start-up costs, brand loyalty, regulation, etc.)

3. Bargaining power of suppliers. Determined by number of suppliers and their degree of differentiation, the portion of a firm’s inputs obtained from a particular supplier, the portion of a supplier’s sales sold to a particular firm, switching costs, and potential for vertical integration. (e.g. Wal-Mart vs. PC market)

External analysis: Five-Force Model

6-12

4. Bargaining power of buyers. Determined by number of buyers, the firm’s degree of differentiation, the portion of a firm’s inputs sold to a particular buyer, the portion of a buyer’s purchases bought from a particular firm, switching costs, and potential for vertical integration.

5. Threat of substitutes. Determined by number of potential substitutes, their closeness in function and relative price.

• Complements. How important?, whether they are differentially available?, who captures the value?

External analysis: Five-Force Model

6-13

External analysis: Stakeholder analysis

• Who are the stakeholders.• What does each stakeholder want.• What resources do they contribute to the organization.• What claims are they likely to make on the organization.

6-14

Current Strategy

Future Objectives

Resources & Capabilities

Basic Assumptions

• What likely moves or strategy changes will thecompetitor make?

• How will this change ourrelationship with competitors?

• Where do we hold an advantage over our competitor?

Predictions

External analysis: Competitor Analysis

6-15

• Current Strategy• How is the firm competing?• Is performance meeting its goal?

• Future Objectives• What are the future goals & aspirations?• Where will emphasis be placed in the future?

• Resources & Capabilities• What are the competitors’ key strength and weakness?• Where is the competitors’ vulnerable?

• Basic Assumption• What assumptions does the competitor hold about the

industry and itself?

External analysis: Competitor Analysis

6-16

CompanyInternalAnalysis

Market Performance Analysis

Value Chain Analysis

Core Competence

Internal Analysis

6-17

• Identification of the firm’s strengths and weaknesses is organized by examining each of the activities of value chain.

Internal Analysis: Value chain analysis

6-18

• Each activity can be considered from the point of view of how it contributes the overall value, and what the firm’s strengths and weaknesses are in that activity

• Assess which strengths have potential to besustainable competitive advantage• Rare• Valuable• Durable• Inimitable

Internal Analysis: Value chain analysis

Competitive Advantage Sustainable

Competitive Advantage

6-19

Core Competences

Basic, Enabling Capabilities : combinations of skills, equipments, structure that company owns

Critical Capabilities: Capabilities that company must have in order to do business by securing customers

Competences: combinations of capabilities

Internal Analysis: Core competence

6-20

• Core competence: A set of integrated and harmonized abilities that distinguish the firm in the marketplace.

Competitive Advantage

Core Competences

Resources Capabilities

Internal Analysis: Core competence

6-21

Core competencesCore competences

Distinctive and Superior to Competitors

Scarce and Difficult to Imitate

Applicable to Other Business

Important onValue Creation

Internal Analysis: Core competence

6-22

Company Core competence

NIKE• Product design and marketing• Supplier management

WALMART• Integrated logistics• Supply chain management

HONDA• Engines and power trains• Dealer management

McKinsey• Top management consulting• Recruiting and people development

APPLE •?

Starbucks •?

Internal Analysis: Core competence

6-23

Internal Analysis: Core competence

• The Risk of Core Rigidities is faced by firms when they focus on current capabilities and do not develop new ones.

• Dynamic Capabilities enable a firm to quickly reconfigure its organizational structure and routines in response to new opportunities and are not related to specific products or technologies.• A set of abilities that make a firm more agile and

responsive to change

6-24

Strategic Intent

• Strategic Intent• A long-term goal that is ambitious, builds upon and

stretches firm’s core competencies, and draws from all levels of the organization.

• Typically looks 10-20 years ahead, establishes clear milestones• Firm should identify resources and capabilities needed to close

gap between strategic intent and current position.

6-25

– Based on the analysis of external environments and internal

capabilities,

– To establish the position of technology in achieving the

corporate strategy (or business goals),

– To search for and select the strategically necessary

technologies,

– To find the effective ways to acquire those technologies,

– To plan how to utilize and manage the acquired technologies,

– To build up the system to put them action,

– From a mid or long-term perspective, to make a decision

regarding the strategic direction and action plans to focus

company’s technological resources and efforts

Technology Strategy [Supp.]

6-26

• Is really technology strategy one of functional strategy?– As the importance of technology is getting higher, it becomes

difficult to define the status of technology strategy in terms of traditional standpoint of business strategy theory

– Core competence theory

– Technological capability is one of the significant elements of core competence

– Nowadays, technology strategy should be considered as rather a core strategy than a functional strategy in the strategic management !

Technology Strategy [Supp.]

6-27

To set the goals of technology strategyTo set the goals of technology strategy

To select the necessary technologies

To select the necessary technologies

To select the method to acquire technologiesTo select the method

to acquire technologies

To utilize and manage the acquired technologies

To utilize and manage the acquired technologies

Competitive advantageCompetitive advantage

Linkages with corporate strategy

Portfolio analysis/TRM

Make or/and Buy

Commercialization

R&D Management

Performance evaluation

Strategic Level(Why/What to do)

Paradigm, Framework

Procedure, Technique

Managerial Level (What/How to do)Procedure, Technique

• Activities to perform in technology strategy

Technology Strategy [Supp.]

6-28

• Elements(or Dimensions) of Technology Strategy

(1) Technology Selection Strategy

- Which technology should we select and invest in?

(2) Technology Acquisition Strategy

- How could we acquire the necessary technologies?

- Basically choice problem between MAKE (in-house

R&D) or BUY (licensing from external sources)

(3) Technology Exploitation Strategy

- How should we utilize the acquired technologies in

order to maximize their values?

Technology Strategy [Supp.]