EIM2301 Engineering Management Lecture 03 PDF

10/23/2024 EIM2301 Engineering Management Lecture 03 The Functions of Engineering Management: The Planning Function (2) Outline 1 Strategic Planning Terminology 2 Strategy Formulation Steps 3 Tools for Strategy...

10/23/2024 EIM2301 Engineering Management Lecture 03 The Functions of Engineering Management: The Planning Function (2) Outline 1 Strategic Planning Terminology 2 Strategy Formulation Steps 3 Tools for Strategy Formulation EIM2301 Engineering Management Noha M. Galal, Ph.D. 1  10/23/2024 Strategic Management: Definitions Strategic management is the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives. Objectives can be defined as specific results that an organization seeks to achieve in pursuing its basic mission. Long-term means more than one year. Strategies are the means by which long-term objectives will be achieved. Annual objectives are short-term milestones that organizations must achieve to reach long-term objectives. Policies are the means by which annual objectives will be achieved Strategy is derived from: the firm’s vision, mission, objectives, external audit, and internal audit; they are consistent with, or build on, past strategies that have worked well. EIM2301 Engineering Management Noha M. Galal, Ph.D. Steps of Strategic Planning Strategy developing a vision and a mission, identifying an organization’s external opportunities and threats, determining internal strengths and weaknesses, Formulation establishing long-term objectives, generating alternative strategies, and choosing particular strategies to pursue. Strategy establish annual objectives, devise policies, motivate employees, and allocate Implementation resources so that formulated strategies can be executed Strategy (1) reviewing external and internal factors that are the bases for current strategies, (2) measuring performance, and Evaluation (3) taking corrective actions. EIM2301 Engineering Management Noha M. Galal, Ph.D. 2  10/23/2024 Strategy Formulation Framework Input Stage Matching Stage - External Factor Evaluation Matrix Decision Stage - SWOT Matrix (EFE) -The Strategic Quantitative - Internal Factor Position and Action Strategic Planning Evaluation Matrix Evaluation (SPACE) Matrix (QSPM) (IFE) Matrix EIM2301 Engineering Management Noha M. Galal, Ph.D. Internal Factor Evaluation Matrix (IFE) summarizes and evaluates the major strengths and weaknesses in the functional areas of a business, and it also provides a basis for identifying and evaluating relationships among those areas. EIM2301 Engineering Management Noha M. Galal, Ph.D. 3  10/23/2024 Sample Internal Factor Evaluation Matrix for a Retail Computer Store EIM2301 Engineering Management Noha M. Galal, Ph.D. Developing the IEF Matrix List key internal factors as identified in the internal-audit process 1 Assign a weight that ranges from 0.0 (not important) to 1.0 (all-important) to each factor 2 Assign a 1 to 4 rating to each factor to indicate whether that factor represents a major weakness (rating = 1), 3 a minor weakness (rating = 2), a minor strength (rating = 3), or a major strength (rating = 4). Multiply each factor’s weight by its rating to determine a weighted score for each variable 4 Sum the weighted scores for each variable to determine the total weighted score for the organization. 5 EIM2301 Engineering Management Noha M. Galal, Ph.D. 4  10/23/2024 External Factor Evaluation Matrix (EFE) summarizes and evaluates economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information. EIM2301 Engineering Management Noha M. Galal, Ph.D. EFE Matrix for a Local 10-Theater Cinema Complex EIM2301 Engineering Management Noha M. Galal, Ph.D. 5  10/23/2024 Developing the EEF Matrix List 20 key external factors as identified in the external-audit process, including both opportunities and threats that affect the firm and its industry 1 Assign a weight that ranges from 0.0 (not important) to 1.0 (all-important) to each factor 2 Assign a rating between 1 and 4 to each key external factor to indicate how effectively the firm’s current strategies respond to the factor, where 4 = the response is superior, 3 = the response is above average, 2 = the response is average, and 1 3 = the response is poor. Multiply each factor’s weight by its rating to determine a weighted score for each variable 4 Sum the weighted scores for each variable to determine the total weighted score for the organization. 5 EIM2301 Engineering Management Noha M. Galal, Ph.D. The Strengths-Weaknesses-Opportunities- Threats (SWOT) Matrix helps managers develop four types of strategies: SO (strengths-opportunities) strategies, WO (weaknesses-opportunities) strategies, ST (strengths-threats) strategies, and WT (weaknesses-threats) strategies. EIM2301 Engineering Management Noha M. Galal, Ph.D. 6  10/23/2024 SWOT Matrix Internal Factors Strengths Weaknesses Opportunities External Factors SO Strategies WO Strategies Threats ST Strategies WT Strategies EIM2301 Engineering Management Noha M. Galal, Ph.D. Strategies from SWOT SO strategies use a firm’s internal strengths to take advantage of external opportunities. WO strategies aim at improving internal weaknesses by taking advantage of external opportunities. ST strategies use a firm’s strengths to avoid or reduce the impact of external threats. WT strategies are defensive tactics directed at reducing internal weakness and avoiding external threats EIM2301 Engineering Management Noha M. Galal, Ph.D. 7  10/23/2024 Matching Key External and Internal Factors to Formulate Alternative Strategies EIM2301 Engineering Management Noha M. Galal, Ph.D. SWOT Matrix: A Retail Computer Store Example S EIM2301 Engineering Management Noha M. Galal, Ph.D. 8  10/23/2024 The Strategic Position and Action Evaluation (SPACE) Matrix FP-financial position Aggressive Conservative Backward, forward, horizontal integration Market penetration Market penetration Market development Market development Product development Product development CP- Related diversification Diversification (related or unrelated) IP-industry competitive position position Competitive Defensive Backward, forward, horizontal integration Retrenchment Market penetration Divestiture Market development Liquidation Product development SP -stability position EIM2301 Engineering Management Noha M. Galal, Ph.D. The Strategic Position and Action Evaluation (SPACE) Matrix (cont.) Internal financial position [FP] Dimensions competitive position [CP] External stability position [SP] Dimensions industry position [IP] EIM2301 Engineering Management Noha M. Galal, Ph.D. 9  10/23/2024 Example Factors That Make Up the SPACE Matrix Axes SP: refers to the volatility of profits and revenues for firms in a given industry. It is based on the expected impact of changes in core external factors such as technology, economy, demographic, seasonality, and so on. EIM2301 Engineering Management Noha M. Galal, Ph.D. BEST The SPACE Matrix WORST BEST WORST BEST WORST EIM2301 Engineering Management Noha M. Galal, Ph.D. 10  10/23/2024 Developing the SPACE Matrix (1/2) Select a set of variables to define financial position (FP), competitive position (CP), stability position (SP), and industry position (IP). 1 Assign a numerical value [+1 (worst) to +7 (best)] to each of the variables that make up the FP and IP dimensions. Assign a numerical value [–1 (best) to –7 (worst)] to each of the variables that make up the SP and CP dimensions. 2 On the FP and CP axes, make comparisons to competitors. On the IP and SP axes, make comparisons to other industries. Compute an average score for FP, CP, IP, and SP by summing the values given to the variables of each dimension and then by dividing by the number of variables included in the respective dimension. 3 EIM2301 Engineering Management Noha M. Galal, Ph.D. Developing the SPACE Matrix (2/2) Plot the average scores for FP, IP, SP, and CP on the appropriate axis in the SPACE Matrix. 4 Add the two scores on the x-axis and plot the resultant point on X. Add the two scores on the y-axis and plot the resultant point on Y. 5 Plot the intersection of the new (x, y) coordinate. Draw a directional vector from the origin of the SPACE Matrix (0,0) through the new (x, y) coordinate. 6 That vector, being located in a particular quadrant, reveals particular strategies the organization should consider. EIM2301 Engineering Management Noha M. Galal, Ph.D. 11  10/23/2024 Example Aggressive Strategy Profiles An organization is in an excellent position to use its internal strengths to (1) take advantage of external opportunities, (2) overcome internal weaknesses, and (3) avoid external threats. A financially strong firm that has achieved A firm whose financial strength is a major competitive advantages in a growing dominating factor in the industry and stable industry EIM2301 Engineering Management Noha M. Galal, Ph.D. Example Conservative Strategy Profiles A firm that has achieved financial strength A firm that suffers from major competitive in a stable industry that is not growing; the disadvantages in an industry that is firm has few competitive advantages technologically stable but declining in sales EIM2301 Engineering Management Noha M. Galal, Ph.D. 12  10/23/2024 Example Competitive Strategy Profiles A firm with major competitive An organization that is competing advantages in a high-growth industry fairly well in an unstable industry EIM2301 Engineering Management Noha M. Galal, Ph.D. Example Defensive Strategy Profiles A firm that has a very weak competitive A financially troubled firm in a very position in a negative growth, stable industry. unstable industry EIM2301 Engineering Management Noha M. Galal, Ph.D. 13  10/23/2024 Strategy Profiles: Summary Aggressive an organization is in an excellent position to use its internal strengths to (1) take advantage of external opportunities, (2) overcome internal weaknesses, and (3) avoid external threats. Conservative staying close to the firm’s basic competencies and not taking excessive risks Competitive backward, forward, and horizontal integration; market penetration; market development; and product development. Defensive the firm should focus on improving internal weaknesses and avoiding external threats EIM2301 Engineering Management Noha M. Galal, Ph.D. Terminology (1 of 3) Divestiture: involves selling all or a portion of the business to another company or individual. This can be a good option if the business is still profitable and has assets that can be sold. Liquidation: involves selling off all of the business assets and closing down the company. Market penetration: when a company works towards a higher market share by tapping into existing products in existing markets. Market development: introducing existing products to new markets. Retrenchment: cut down all products and services that are not profiting your business to achieve financial stability. EIM2301 Engineering Management Noha M. Galal, Ph.D. 14  10/23/2024 Terminology (2 of 3) Related diversification: occurs when a firm moves into a new industry that has important similarities with the firm's existing industry or industries Unrelated diversification: pursuing growth in product markets where the main success factors are unrelated to each other. Backward integration: is a form of vertical integration in which a company expands its role to fulfill tasks formerly completed by businesses up the supply chain. Horizontal integration: the acquisition of a business operating at the same level of the value chain in the same industry EIM2301 Engineering Management Noha M. Galal, Ph.D. Terminology (3 of 3) Integration Horizontal Backward Vertical Forward Integration Integration Integration EIM2301 Engineering Management Noha M. Galal, Ph.D. 15  10/23/2024 The Strategic Position and Action Evaluation (SPACE) Matrix FP-financial position Aggressive Conservative Backward, forward, horizontal integration Market penetration Market penetration Market development Market development Product development Product development CP- Related diversification Diversification (related or unrelated) IP-industry competitive position position Competitive Defensive Backward, forward, horizontal integration Retrenchment Market penetration Divestiture Market development Liquidation Product development SP -stability position EIM2301 Engineering Management Noha M. Galal, Ph.D. Quantitative Strategic Planning Matrix (QSPM) to determine the relative attractiveness of alternative strategies. The QSPM uses input from Stage 1 analyses and matching results from Stage 2 analyses to decide objectively among alternative strategies Input Stage (Stage 1) Matching Stage (Stage 2) - External Factor Evaluation Matrix Decision Stage - SWOT Matrix (EFE) -The Strategic Quantitative - Internal Factor Position and Action Strategic Planning Evaluation Matrix Evaluation (SPACE) Matrix (QSPM) (IFE) Matrix EIM2301 Engineering Management Noha M. Galal, Ph.D. 16  10/23/2024 QSPM Form EIM2301 Engineering Management Noha M. Galal, Ph.D. A QSPM for a Retail Computer Store EIM2301 Engineering Management Noha M. Galal, Ph.D. 17