Luận văn thạc sĩ building strategy for petrovietnam university in stage 2011 2015

Thirdly, strategy helps companics to create the competitive advantage and stimulate the sustainable development of the company in the long-term by focus all of its resources to implement

VIETNAM NATIONAL UNIVERSITY, HANOI

MASTER OF BUSINESS ADMINISTRATION THESIS

Supervisor: Dr Do Xuan Truong

Hanoi—2011

1 Strategy and role of strategy

6.2 Prowess 1a identiily sustainable compelitive advantages 17

9.1 Levels of strategy - The Strategy making pyramid 23

1 PVU Project — The imperative

11 Overview about PetroVietnam PVN

1.2 Overview about PetroVictnam University — PVU

2 External environment analysi

21 Macroanalysis PEST model

3.1 Action plan of Organisational management & Policy strategy 86

Ministry of Education and Training,

Strengths, Weaknesses, Opportunities, ‘'hreats Gain, Risk, Expense, Achievable, Time

Politics, Economies, Social, Technology Join Venture Company

Information Technology

Information Communication ‘'echnology

On the job training Join Operation Company

Gross Domestic Product

Danang Polytechnic University

Ilo Chi Minh Polytechnic University

Hanoi University of Mining and Geology

Hanoi University of Technology

PetroVisttam Manpower Training College

PetroVietnam Finance Company

Vietnam Petroleum Institute

Public Relation

Accreditation Board for Engineering and Technology

Texas International Education Consortium

Model of SWOT matrix

Appropriate strategies selection (GREAT model}

Estimated number of employees needed m period 2016 — 2025 of PVN Vietnam GDP Growth rate 2006 - 2010

Statistics of Vietnam University Liducation

SWOT Analysis

Strengths — Opportunitics Strategies (S — O strategies)

Strengths — Threats Strategies (S —T strategies)

‘Weaknesses — Opportunities strategies ( W — O strategies)

Weaknesses ‘Ilreats Strategies (W 'T strategies)

PYU’s appropriate strategics sclection (GREAT model)

Action plan of Organizational management & Policy stralegy

Action plan of Marketing strategy

Logo Petro Vietnam The Number of employees of PVN in 2010 The structure and level of labor PVN in 2010 The structure of working age PVN in 2010 Logo PetroVietnam University

3D model views of PVU s Main campus in Vinh Phuc Socialize education model

Vietnam GDP Growth rate 2006 — 2010

Vietnam Population Pyramid 2010

INTRODUCTION

This part will give an introduction to readers about the thesis irstly, the necessity

of the thesis is mentioned, next are objectives of the thesis, then researches questions are raised up, followed by scope of work, methodology, thesis‘s contributions, expected results, further research directions and limitations of the

thesis Finally, the thesis structure is presented in order to help readers have an over-all picture of the whole study

1 Necessity of the thesis

- PVU has just been established in the early of 2011, PVU have the business lovel strategy very clear is Dillirentiation stralogy Bul they didn’t have clear

functional strategies and “what are most important fields must be focus” is big, question for them in this stage

- PYN and PVU's managers desire to tntild PVU as a intemational university:

become one of the best urriversilies tu Vielnarn and area on 2020s

- Almost international universities have the clear strategy This shows the necessity of building the strategy in order to make differences with other universities as well as designing a development pathlength for the university

itself

2 Objectives of the thesis

- Review the theory in strategy and strategic management

- Analyse the case of PetroVielnam Universily in the Grst slage

- Propose some recommendations in order to build the strategy of PVN in

stage 2011-2015

3 Research Questions

- What is strategy and what is the role of strategy’?

- Which factors will affect to build strategy of PVU

- Which strategy will be suitabte for PVU in the very first state

ˆ Scope of works

- Field: Strategy and stralegy management

> Space: All activitics of PVU

- Time: About 5 years from the establishment 2011 - 2015

5 Data source

- Strategy in ew stage of PVN

- Consulting project of PVN with TIEC

- Intemet, books and ebooks

- Experts (Manager of PVU, Educational expert )

6 Expected Results

- Giving out a general picture of the educational field

- Giving out a deep analysis about the case of PVU

- Propose some recommendations for functional level strategy for PVU in the

slage 2011 - 2015

7 Structure of the thesis

INTRODUCTION

CHAPTER 1: LITERATURE REVIEW

CHAPTER II: ANALYSE THE CASE OF PETROVIETNAM UNIVERSITY

CHAPTER LIL: STRATEGY FORMULATION AND RECOMEN DATION

CONCLUSION:

REFERENCE

APPENDIX

CHAPTER 1: LITERATURE REVIEW

Literature review is an important chapter of any thesis; it helps readers to remind

about strategic theories relating to the thesis’s topic In this chapter, the theory in

strategy and shategic management will be reviewed as a basic for analyses in next chapters

1, Strategy and role of strategy

1.1 Definition of strategy

Strategy is a broad term which covers alll of the activities of an organization In the

theoretical base, there are various definitions about strategy

Professor Arthur Thompson and Strickland, in their book Strategic Management? defined “strategy” as a “game plan” management has for positioning the company

in its chosen markel arena, compeling sucvess[ully, salislying customers, and achieving good business performance 1n this definition, the term of “positioning” is emphasized, as Thompson saw the importance of identifying clearly the positioning

of the company in the market

Dr Erica Olsen, in her book “Strategic Planning for Dummies”, has given another definition: “Strategy means consciously choosing to be clear about your company’s direction in relation to what’s happening in the dynamic environment, With this

knowledge, you're in a much better position to respand proactively to the changing

environment”

Professor Michael L.Porter of Ilarvard University, USA, has stated his own

Viewpoints in the article “What is strategy?” in Harvard Business Review In his

opinion, strategy is performing different activities from rivals’ or performing

similar activities in different ways It is the creation of a unique and valuable

Adthur Thompson and Stickdands, Strategic Management: Concepts and Cases,10th edition, McGraw Hill

position, involving a different set of activities Strategy, therefore, is quite different from “Operational Liffectiveness (OL!) which is only “Performing similar activities better than rivals perform them” Although both operational effectiveness and strategy are necessary for the superior performance of an organization, they operate

in different ways

From the viewpoint, il cant he seen thal a company can overcome rivals only if il can establish a difference it can preserve and maintain this Ile also points out some

certain core points when inenliomng strategy:

Strategy depends on unique activities Competitive strategy is about being different

It means deliberately choosing a different set of activities to deliver a unique mix of

value,

Strategy creates the fit driving Both Competitive Advantage and Sustainability It is

considered as a system Therefore, if a company has a sound and clear strategy, i

can create a difference system which is very difficult to imitate, and they can brings

both competitive advantage and sustainability

From these definitions, it can be seen that although the description of strategy are different, all authors agreed at a common viewpoint that strategy is a clear and best way (or road map) thal a company has to “choose” to go lo reach success As there might be different ways, a company can only choose the best way and ignore others

T£ not, if will go around and never reach the final destination

1⁄2 Role of strategy

Strategy plays an important role in the overall business activity of the company Firstly, it helps the company go ahead in a clear direction, avoid being mislead in the way ahwad or go around ina eirele Secondly, a clear and sound strategy helps to clarify and communicate within the organization and to its customers/partners, so that all knows where the company goes and all implement this strategy in a

consistent and coordinated way Thirdly, strategy helps companics to create the competitive advantage and stimulate the sustainable development of the company in the long-term by focus all of its resources to implement which is considered as critical activities and to design an effective business system in order to maintain its chosen positions in the market By doing this way, strategy helps companies to

refuse implementing unimportant activities, therefore, save time, efforts and

resources and reinforce the strong position lt can be said that, without a sound strategy, company hardly can maintain and develop its position in the market in the

long-term

2 Strategic management process

The Strategic management process is a problem which is interested by many

strategists as well as economists Simply understanding, strategic management is a

process of implementing “stralegic decisions” to answer 3 main questions: 1-

Where is the company now? 2- Where will the company g0? 3- How can the company reach there’?

As there are many different viewpoints in strategic management process, within the limitation of this thesis, a model of Strategic management is rebuilt up based on 2 models of Thompson and Strickland (which are Five Tasks of Strategic maragement model and The Stralegy making pyranid model), to present the relations among major steps in the process

Figure 1.1: Strategic Management Model

SEARS

External analysis swor Internal analysis

‘Opportunities & Analysis Strengths &

Source: Based on Arthur Thompson and Strickland, Strategic Management:

Concepts and Cases, 10th edition, McGraw Hill Companies, the Five Tasks of

Strategic management Model and the Strategy Making Pyramid model.

It can be scen that there are several steps in that model:

- Firstly, the strategic management process begins with the identification of vision and mission of the company, which is to answer the questions “Where will the company go?”

- Secondly, the strategist should analyze the environment, including, external and internal one, this is to answer the question “Where is the company

om

now?” and “What does the company have

- Thirdly, the strategists have to set its own objectives, these objectives is in

shorter time Uhau the vision and mission, they mmght be armual or in several

‘years and are very specific ‘They can be illustrated as the milestones in the

way that the company would like to go

- Fourthly, sller kuowing the poit of departure and of destination, the strategist has to draw out how the company can reach there, by what means,

and what resources it has to prepare for, that is called a strategy

Then, the manager will organize to implement the strategy

During the process of strategy umplementation, it needs the evaluation and

monitoring, to revise if the way it goes is right and the best way and if there is

another better way Lo go, as ihe envirorament chauges very quickly Thal is why

adjustments might be made in all steps from redefining vision and mission, setting objectives, to formulating strategy and implementation

Therefore, it can be concluded that strategic management is an interrelated process, not a group of single activities; all of the steps have the close relations with one amotHor

Following parts in this chapter will review the theoretical aspects of this model

3 Strategic vision and business mission

As described in the above parl, a strategic management process begins with the

identification of vision and mission of the company

According to Thompson and Strickland, a strategic vision is a roadmap of a

company‘s fulure — the direction i is headed, the busmess position i mlends to

stake out, and the capabilities it plans to develop A company’s mission is what a

company is currently seeking ta do for its customers From these definitions, it can

be seen that the vision is for the long-term [Lture of the company, while the mission

is for the current business If a company ‘s mission does not only include the current

‘business but alsc mention where the company is headed and what it will become in

the future, then the mission merge inlo the vision, or we have beth vision and

Mussion im one statement

To become effectively communicate within and outside of the company, a company's vision and mission should meet ensure following characters; 1- ‘The current business of the company 2- The long-term strategic course that the company will pursue 3- The statement should be clear, exciting, and inspiring Normally, the vision and mission is not to make a profit and therefore, not related to specific figures and numbers

4 Selling objectives

The third step afler establishing strategie vision and business mission in the model

is setting objectives Objectives can be defined as specific performance target converted from the vision and mission They represent the commitment of leaders

lo achieve specific porformance targets within a specific lime frame Withoal objectives, vision and mission are only dreams

Unlike vision and mission, objectives should be very specific and can be ilhistrated

by numbers and figures In general, objectives are divided isto 2 types

- Financial objectives: They are related to financial performance like growth in revenues and earnings, reduction in cost, higher dividends, better financial ratio (Return on assets, return on equity, earning per share )

- Strategic objectives: They are related to other non-financial performance like

higher product quality and customer service than competitors, a bigger market share, higher brand awareness, more loyalty of customers, more qualified human resource

§, External environment analysis

External environment is the environment which affects directly or indirectly to the activities of a company but the company hardly impacts or changes this It includes macro environment (economics, politics, socio-cultural and technology) and

industry (or competitive) environment, which can be illustrated in the following

figure This environment creates opportunities or threats for the company

Figure 1.2: External environment

Source: www.bolender.com

5.1 Macro environment analysis

When mentioning macro environment, the “PEST” analysis technique is often uscd, that is the analysis of 4 factors “Politics, Liconomies, Socio-culture and Technology”

5.11 Analyze political-ogal cnvironment

‘The goal of the analysis in politicallegal environment is to identify impacts of politics and legal system on the stable and sustainable development of the organization, Legal enviroranent includes legal system and politie system (like policies of the Government, politic environment in both domestic and international)

A politic stability and an open, convenient legal environment will facilitate investors to start up and develop their organization in the long run

5.1.2 Analyze cconomic environment

The economic environment is factors and forces which impact the capability of production and supplying (supply favior) as well as and the abilily and willing to buy product/servives (demand factor) Some most important factors of the economic

environment are the economic system, economy condition, interest rate, inflation

rale and exchange rate

5.1.3 Analyze socio-cultural environment

Socio-cultural environment includes values and standards accepted and respected

by a society or a specific culture including viewpoints in lifestyle and consuming: attitude, traditional habits and customs; interests of the society; level of knowledge

To identify and catch up with consuming tendencies will bring competitiveness and success for the company The main goal of analysis the social-cullural environment

is the attitude and behavior of actors and customers who have a direct relationship with the company The social environment also includes factors like population, the

growth rale and distribution of the population, structure of age and gender, mcome.

Analysis of these factors will help the company to estimate the market volume and exploit the right characteristics of the market to look for a profit

5.14 Analyze technology environment

Technology progress is a basic factor to develop the economy Tn developing countries with low technology level like Vietnam, the successful transfer and adoption of technology from foreign countries decide the sustainable growth of the

ceoriomy,

The development of technology, especially information and communication tectmology affect positively to the activity of a company in all activities, First il decreases the cost of transportation and communication Secondly, it promotes the innovation and creativeness, increases productivity and creates new added values

Thirdly, information tectmology and) communication combine with other technologies are usefid means to enhance the management effectiveness l'ourthly,

it can affect to the barrier of entrance into the industry and quickly restructure the

competition within the imdusiry

Therefore, one of important things that a company needs to do is usually research

on new technology, development level of techmology, lo fake oppuortumitics

brought by technology progress in order to enhance its competitiveness

5.2 Industry analysis: Porter’s Five Forces model

Porter’s five forces framework evaluates entry barriers suppliers, customers,

substitute products, and rivalry in the industry

Figure 1.3: Five Forces Model

Source: Michael Porter, 1980

Those five competitive forces appear in every industry and every market They

determine the intensity of competition and therefore the profitability and

attractiveness of an industry Based on the information derived from the Five Forces

analysis, managers can decide how to influence or to exploit particular

characteristics of their industry to improve the firm’s position

5.2.1 Intensity of Rivalry

This force describes the intensity of competition between existing players in an

industry in which firms strive for a competitive advantage over their rivals

Economists measure rivalry by indicators of industry concentration A high concentration ratio indicates that the largest firms hold a high concentration of

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market share, the industry is concentrated or less competitive A low concentration ratio indicates that many rivals, none of which hos a significant market share, characterize the industry The market is competitive

‘The intensity of rivalry is commonly based on the firms’ aggressiveness in order to gain an advantage It is influenced by the industry characteristics such as

= The number of competitors: A large numbers of competitors increase rivalry because more firms must compete for the same customers and resources, ‘The rivalry is more intense if there are many small or equally sized competitors, rivalry is less when an industry has a market leader

- Market growth: In a slow growth market, firms have to compete for market share On the contrary, firms are easy to improve revermes in an expanding

market

- Iligh fixed costs: If total costs are mostly fixed costs, the firm must produce

uear capacity Lo allain the lowes! wot cosls The firm must sell a large

quantity of product, that lead to a fight for market share and an incrcase in

rivalry

- Level of product differentiation: Low level of product differentiation is associated with higher level of rivalry Industries where products are commodities have greater rivalry, industries where competitors can

diflerentiate their products have less rivalry

- Switching costs: Rivalry is reduced if there is a significant cost associated

with the decision to buy a product from an aliemalive supplier

§.2.2 Threat of New Entrants

This not only existing rivals thal make a lbreal fo Grins a an indusizy, the possibility

that new firms may enter the industry also affects competition New entrants to an

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industry can raise the level of competition, thercby reducing its attractiveness

Llowever, there are barriers to entry

Barriers lo cnlry are urique industry characteristics Barners maintain the level of

profits for those already in the industry because they reduce the rate of new

entrants Barriers to entry arise from several sources such as:

- Goverment regulations: The principal role of the government in a markel is

to preserve competition through anti-trust actions Besides, goverment

restricts competition through regulations Industries such as public utilities

are considered natural monopolies, as it has been more efficient to have one

company rather than to permit many compames to compete in a local market

- Patents and proprietary knowledge: Tdeas and knowledge that provide

compelilive advantages are considered private property, so that, preventing

others from using the knowledge and thus creating a barrier to entry

- Asset specificily: Assei specificity is the extent to which the fimn’s assets can

be utilized to produce a different product Potential cntrants are reluctant to invest in highly specialized assets that cannot he sold or converted inta other

uses

- Leonomies of Scale: ‘The existence of an economy of scale (minimum size

requirements for profitable operations) creates a barrier to entry

- Exit barricrs: Barriers to oxit are similar to barriers to entry Exit barriers limit the ability of a firm to leave the market Ligh barriers to leave an indusby increase rivaky High exit barriers cause a firm 1o remain in an industry, even when the business is not profitable “A common exit barrier is asset specificity If the plant and equipment required for manufacturing a product is highly specialized, they cannot easily be sold to other buyers in another industry

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Table 1.1: Industry’s entry and exit barriers

Easy to Enter if Difficult to Enter if

- Common technology - Patented or proprietary know-how + Lite brand franchise - Dillicully in brand switching

- Access to distribution channels - Restricted distribution channels

- Low seale direshold - High seale tesbold

Easy to Exit if Difficult to Exit if

- Independent businesses - Interrelated businesses

5.2.3 Bargaining Power of Buyers

Buyers are the people or organizations who create demand in an industry The

power of buyers is the impact that customers have on a producing industry

Tf buyer power is slroug, the relationship to the producing industry is near to a

monopoly, a market in which there are many suppliers and one buyer Under such

market conditions, the buyer sets the price

5.2.4 Bargaining Power of Supplicrs

Suppliers can have a significant impact on a company’s profitability Jf suppliers have high bargaining power over a company, then the company’s industry is less

allractive

3

A producing industry requires raw materials, labor components This requirement leads to buyer-supplier relationships between the industry and the firms that provide the materials used to create products Suppliers, if powerful, can influent the producing industry, such as selling, at a high price to capture some of the industry's profits

The industry often faces a high pressure lrom their supplicrs or buyers This

relationship can potentially affect its profitability

Table 1.2: Bargaining powers of suppliers and buyers

Buyers are powerful if Buyers are weak if

- A few buyers with significant| - Many different buyers, no buyer market share and many sellers has any particular influence on

~The industry is nota key suppying | — Produel-ar pee

- Low switching costs: products are distribution or retailing

- Buyers threaten backward] - Producers threaten forward

Supplier is powerful if Suppliers are weak if

- Many buyers and few dominant | - Many competitive suppliers

suppliers - Low switching costs: produeis are

- No substitutes for the particular] standardized

- High switching costs fiom one] _ ty industry is a key customer

supplier to another

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In the Five Forces model, substitute products refer to products in other industries A

threat of substitules exists when a product’s demand is affected by the price change

of a substitute product (product’s price clasticity), Tho more substitutes are

available, the more elastic the demand becomes Net only constrains the firms’

ability to raise prices, the substitule products also lower industry allractiveness and

profitability

The threat of substitutes is determined by factors like:

- Brand loyally of customers

- Close customer relationships

Switching costs for customers

- ‘The relative price for performance of substitutes

- Current trends

6 Internal analysis

6.1 Value chain analysis

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Figure 1-4: Value chain

activities and its contribution in final products of the business Value chain is

defined as a chain of activities The final products pass through all activities in the

value chain And at each activity, the products gain some added value The valuable

meaning in this concept is that the chain of activities contributes to final products

more added value than summing up individually added value of each activities

The value chain divides all activities of an organization into 2 categorizese: primary activities and support activities,

The primary activities include inbound logistic, operations, outbound logistic, marketing and sales, and service

The support activities include administrative infrastructure management, human resource management, information technology, and procurement

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In analyzing cach activity of the value chain, managers can determine the organization’s strength and weakmess in each activity in relationship with organization's objective and strategy It also helps to campare those acitivities to other organizations to assess the effectiveness in each activities

6.2 Process to identity sustainable competitive advantages

Figure 1-5: Process to identify sustainable competitive advantages

SUSTAINABLE COMPETITIVE ADVANTAGES

- Resources are all Qhe things that the organization has in order lo use itt

organization’s business activities Resources can be tangible or intangible,

Tangible resources: such as material, capital, building, machine, etc

- Intangible resources: such as brand name, know-how, R&D, information, ete

- Capabilities are resources when they are used for business activity purposes

- Core competencies found among the capabilities of the organization These are

critical key factor leading to success business

- Distinctive competencies: a dislinctive competency oveurs when an

organizational strength cannot be easily matched or imitate by a competitor

1?

Distinctive competency brings the organization moving over the competitors and showing the better performance

- Sustainable competitive advantage: is the abildy to do some thing that

competitors cannot do or at least cannot do nearly as well

Distinctive competencies in long run become sustainable competitive advantages

Typically, the developing a sustainable competitive advantage results from taking advantage of one or more disLinctive compolencies and building some type of

strategic superiority

There are five conditions to determine a distinctive competency to become

sustainable competitive advantage here are

is used in this case and it has become an effective tool for strategists The following

part mentions several theoretical reviews in this technique

7.1 What is SWOT?

SWOT analysis can be understood as the analysis of major strengths, weaknesses,

Opporiimilies and Lhreats of a company in order to supply useful information for the

use and combination of resources and capability of the company under its current competitive environment

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‘An opportunity is major favorable situation ina company's environment A threat is

a major unfavorable situation in a company‘s environment.”

Strength is something a company docs well or a characleristic that gives i enhance

competitiveness A company's weakness is something a company lacks or does

poorly in comparison to others*

SWOT analysis includes analysis of external environment factors that the company

has to cope with (opportunities and threats), as well as intemal environment factors

within the company (strengths and weakness) The Company should focus on major opportunities and threats and core strengths and basic weakness, which have great impact on the company's long-term development

‘The SWOT analysis process must ensure some certain criteria of specificity,

accuracy, reality and feasibility, as these results will be used by the company to

impaets of external threals and minimive the company‘s own weaknesses

This technique is considered as a critical step in the business strategy planing process of the company when the company wanls to develop and build up its prestige and brand-name It is widely used in many big, corporations all over the

world,

* John A Pearce II and Richard B Robisou, (Universily of Phoenix), Strategic managemen! — Formutalion,

Implamanintin and Contect, Peduinn, McCraw Hill Companies, page 202

3 Anlhnr Thompson and Sticklands, Strategic Management: Concepts and Casen,10th edition, McGraw Hill, page 105,

186

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7.2 SWOT matrix

To help strategist have an overview of all major opportunities and threats and core strengths and basic weakness, a SWO'l matrix is built to combine logically the 4 factors of strengths, wealmess, opportunities and threats of the company as in the following model together with its according strategy:

Table 1.3: Model of SWOT matrix

Major opportunities (Q) Major threats (T)

Ownstrengths Strategies to make use of Strategies to prevent threats

(8) opportunitics through the through the company's

company‘s own strengths (3-O) own strengths (8-T)

Weaknesses Strategies io make use of Strategies to prevent threats

ww) opportunities through the minimize through the minimize

8 Strategy selection

Choosing an appropriale stalogy, basically, involves careful considerations to ensure that the option selected will work in practice Strategic options that may be relevant in different situations need to be weighed up against each other The three

most importanl criteria are suilability, acceptability and feasibility

8.1 Suitability

Ilaving a view of relationships between the internal and external environment, an

organization then needs Lo consider whether a stralegy is suitable or nol For

example, does it build on organization’s strengths and environmental opportunities? Does it match the arganization’s objectives?

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82 Acceptability

Acceptabibty concems with whether a strategy will be acceptable to an organization and its stakeholders (mainly shareholders, employees and customers) It is related to the expected performance outcomes, returns, risks and stakeholder reactions

Retum deals with the benefits expected by the stakeholders For example, shareholders would expect the increase of their wealth, employees would expect

improvement in their carvers and customers would expel betler value for money

Stakeholders’ reactions deal with anticipating reactions of stakeholders Shareholders could oppose the issuing of uew shares, cmployces and unious could oppose outsourcing for fear of losing their jobs, customers could have concems over a merger about quality and support

8&3 Feasibility

Feasibility is concerned with whether strategic plans can go in practice and whether the organization has sufficient resources to carry out those plans Resources include fimds, people, lime and informahon

‘Lhe most popular approaches to select strategies include the GRA‘! Model

Those potential strategics should be evaluated and compared to choose the most proper strategy, based on the GREAT model, which stands for Gain, Risk, Expense, Achievable and Time Criteria are weighted according to their importance to the company Strategies are marked form 1 to 5 for cach criterion, of which T is the worst, 3 is medium and 5 is the best Basically, businesses are suggested to pursue

strategies gel good marks

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Table 1.4: Appropriate strategies selection (GREAT model)

9 Formulating a strategy

After analysis the external environment and internal strengths and weaknesses, the strategist has information necessary to formulate a strategy There are different levels of strategy depending on the characters of the company

9.1 Levels of strategy - The Strategy making pyramid

The number of levels of strategy depends on whether the company currently is in a

single business unit or is diversified In a diversified company, there are four levels

of strategy, which are corporate strategy, Business Strategy, Functional Strategy,

and Operation Strategy, as illustrated in the Figure below In a single business

company, the corporate strategy and business strategy merge into one, so there are only three levels of strategy, which are Business Strategy, Functional Strategy, and

Operation Strategy.

Figure 1.6: The strategic making pyramid model in a diversified company

Responsibility „ —

of carporate- level managers

‘major functional activities Tncrional Stratgies

vision

Rosponsibiity of plant

munagers, geographic unit

managers, and lower-level

supervisar

Source: Arthur Thompson and Stricklands, Strategic Management: Concepts and

Cases, 10th edition, McGraw Hill, page 45

9.2 Specific strategy at different levels

9.2.1 Corporate strategy

Corporate strategy is the strategy for a diversified company aiming at identifying

industries that the company can have long-term and sustainable profit The

responsibility of making corporate strategy belongs to corporate-level managers

Based on the company‘s resources and capabilities, strategists might have different choices: Either concentrate to only one industry, or vertically integrate (backward or

forward), or diversify into various ones (related or unrelated)

- Strategy of concentrating to only one industry: This is a strategy in which the company will concentrate all of its resources to only one industry and gain

success from that On one hand, this strategy has an advantage that all

resources of the company are centered and exploited at the highest level to reach the highest effectiveness

Vertical integration slrategy: This is the strategy in which a company try lo

enter into its upstream suppliers and its downstream buyers’ activities There

are three types of vertical integration strategies: backward (upstream) vertical

iu gration, [forward (downstream) verlical integration, and balanced (both

upstream and downstream) vertical integration

© Backward vertical integration is the vertical integration strategy in

which the company enters the activity of producing its current inputs

co Forward vertical integration is the vertical integration strategy in

which the company enters the activity of distribution and sells its

current products

© Balanced vertical integration is the strategy in which a company runs

in all of activities from raw materials to final delivery to final

customers

© Vertical inlegralion helps the company being more active in controlling its overall activities, reduce the transaction cost and reduce

the dependant level on external suppliers

Horizontal integration strategy: Horizontal integration is the strategy in

which a company tries to sell a kind of product in different markets This is

implemented when a company takes over or merges with another company

in the same industry and produces the same products/services with Uke current company Llorizontal integration allows the economies of scale and

cconomies of scupe, which save ø lol of money

Diversification Strategy: Diversification strategy is the strategy in which a company seeks to enter into new products or new market segment There are

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thrce major types of diversification: concentric diversification, congromelat

diversification and horizontal diversification:

© Concentric diversification: ‘This is the strategy in which a company acquires or develops new products ar services which are closely

related to its core business or technology to enter one or more new markets

© Conglomerate diversification: This is the strategy in which a company

enters (ibrough acquisition or merger) an entirely different markel thai

has little or no synergy with its core business or technology

© Horizontal diversification: This is the strategy in which a company develops or acquires new products that are different from its core business or technology, but which may appeal to its cturent

customers

The Innitation of diversification strategy is that the resources of the company arc

spread out to so many business units, which leads to the difficulties in management

and control the resources So the company has to know which level to diversify and when to slop diversilying Oue another problem is the combination among differcut

business units to support one another and reach the common goals

- Is the business’s target market narrow or broad?

- Does the company pursue a competitive advantage based on low cost or differentiation?

Krom these answers of these 2 questions above, managers will identify 5 ways of approach to compete in the industry as follows:

Figure 1.7: Model of business strategies

‘Type of Competitive Advantage Being Pursued

According to this strategy, a company competes its competitors by low cost,

which can be brought from economics of seale and mimmixstion of

differentiation ‘Ihis strategy does not allow the company to pursue various

market segments bul only a broad spectrum of average customers 10 cul cost

The disadvantage of this strategy is that the competitors can look for other ways of operations with lower expense by applying advanced technology or imitate the way the company does Another disadvantage is that when pursuing the low cost strategy, company might look for cutting cost by all

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ways As a result, the image of the company might be affected, and customers will not loyal and might easily move to use other products at higher price but higher quality of new competitors when they have opportunity Iherefore, a low cost suategy is only sustainable if the low cost

is from doing differently and operating effectively

A broad differentiation strategy: This stralegy aims al differentiating the company’s product and service from competitors’ to serve a broad spectrum

of customers An objective of differentiation strategy is to gain the

competitive advantage by designing one (or several) different features of product or service ‘this strategy allows the company to set a higher price

than the average price of other competitors

Differentiation stratcgy has an advantage of high brand loyalty of customers Buyers are willing to pay a higher price as the product/service satisfies best their demand Also, suppliers are willing lo supply as the impul price cant be set high The limitation of this strategy, however, is the difficulty in long-

term and sustainable differentiation

A best-cost provider strategy: Lhis strategy aims at combining between low

cost and upscale differentiation to have the best costs and prices relative to

producers of products with comparable quality and features The custamers

of this strategies is in general above average (but nol the highest) level, who have certain demand and can pay for a reasonable (but not low) price This

xiralegy 1s noi casv lo inplement, as the company bas to allocate il resources

at the same time to low cost and differentiation It can only do this by a consistent process of applying advanced technology and managing’operating

as a whole process

© A locused or market niche strategy based on lower cost: This stralegy

aims at serving a niche market at a lower cost than competitors

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o A focused or market niche strategy based on differentiation: This

strategy aims at serving a niche market and outstanding its

competitors by customizing its product or service

In summary, when choosing a business strategy at a certain business, strategist has

to decide which market segment the company will foous on, at low cost or higher cost with differemiation Clear viewpoints will help managers design clear and

sound strategies to reach success Companies in the mid way will fail to compete, as

they will not know how to allocate their resources,

9.2.3 Functional strategy

Functional strategy relates to a strategy for running a major functional activity or

process within a business, It might be a strategy of human resource, finance, R&D, production, marketing, and so on ‘Ihe responsibility of making functional strategy belongs to heads of functional activities within a business unit or division

Therefore, the analysis and choosing the Fun ional simicgy will depend much on

the organizational structure of the business unit

Tn general, objectives of lunetional strategies improve and enhance effechveness of basic fictional activities within the business They aim at forming core

competencies and capabilities to maintain and enhance its positions in the market

and under the eye of customers The most important role of a unctional sualogy is

to support the company's overall business strategy Failure in choosing adequate

fumetional strategies resulls in [allure in the whole detailed implementation of the

company,

9.2.4 Operating strategy

Operating strategy is a strategy relates to managing a key unit like a plant, a disibulion contre or a sale distriol and managing daily operation tasks These operating strategy are normally applied when the company has various unit at

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various locations, Within the rescarch arcas of this thesis, operating strategy will not

be mentioned in details

10.Strategy implementation

After analyzed and selected, a strategy is then translated into organizational action

However, the implementation is nol easy TL requires an organization to establish

annual objectives, set policies, motivate employees and allocate resources to

execute formulated strategies The implementation consists of developing a supportive cullure, creating an elleclive organizational struclure, preparing budgels,

utilizing information systems, and also includes determining which strategies

should be implemented first

In general, all managers find implementation the most difficult aspect of the strategic management, more difficult than either strategic analysis or strategy formulation Most companies have strategios, but fewer achieve them A Fortune Magazine study suggested that 70% of 10 CIOs who fail do so not because of bad strategy, but because of bad execution.’ In another study of 200 companies in the Times 1000, 80% of directors said they had the right strategies but only 14% thought they were implementing them well.’

Programs, budgels and procedures implement the selected sialegy The implementation involves the firm’s resources and its staffs’ motivation to achieve objectives The way in which the strategy is implemented can have a significant

impact on whelher iL will be successful

The implementation might not succeed if the strategy is misunderstood or the

organization fails to truly motivale people to work with enthusiasm towards ils

objectives I'urthermore, managers must be aware of the effects each new strategy

7 R Charan, G Colvin (1999), “Why CEOs Fail”, Fortune Maza-ine, 21 Jun 1999

51 Cobbald & @ Lawrie (2001), “Why da onty ane third of UK companies achieve strategic sccess?", 200 11d, May

2001

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will have on the human resource For instance, how much change does the strategy call for, how quickly must, they provide for that change ‘I'he answers help decide whether to allow time for employees to gain experience, to introduce training or to hire new employees

In addition, organizations need to iranslate their broad strategy statement into a

number of spegilic work assignments They develop detailed action plans listing action steps and assigning responsibility to a specific individual for accomplishing

each of those steps They also seta due date and estimale the resources required bo

accomplish cach step,

11 Strategy evaluation

Strategy evaluation involves examining either how the strategy has been implemented or its outcomes The evaluation involves monitoring results, comparing to best practices, cvaluating the effcctiveness and efficiency of the process and controlling for variances as well Organizations have to adjust the process if necessary such as changing the schedule, changing the action steps, changing the strategy or finally changing the objective

If it is impossible to achieve the metrics and timetables, the expectations are unrealistic and the stralogy will defititely fail Tt the cvalumtion determines that processes are not working, or results are not as expected, then the strategy should be modified or reformulated

Both management and employees are involved in strategy evaluation, as they view the implemented strategy from different perspectives Tor example, a worker can

recognize a problem ina specific nmplemertalion step thal management would not

be able to identify

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CHAPTER 2: ANALYZE THE CASE OF

PETROVIETNAM UNIVERSITY - PVU

This chapter i based on presented theories in chapter 1 to study the case of Petro Vietnam University Main content of this chapter ix the analysis factors affect to the organisation Including internal factors, external factors and finally the SWOT

model will be used to analyze the strengths, weaknesses, opportunities, and threats

of PVU

1, PVU Project — ‘I'he imperative

On 09/3/2006 the Prime Minister has approved the "Strategy to develop the Vietnam Oil and Gas Sector toward 2015 and orientation to 2025" which emphasizes the importance and urgency of the taining and development of human resource of oil and gas, as well as the development and planning of training and scientific research establishments of the Vietnam Oil and Gas Group (PVN Group)

followed up development slralegy of the sector,

Training and human resource developments were identified as an urgent and

strategie task of PVN

Uspecially in the context of oil and gas industry world flourished both in science and technology as well as increasing levels of international competition, the Group has expanded exploration and exploitation petroleun in many countries on multiple continents with different international partners AS a result the quantity and quality requirements for human resources of oil and gas become increasingly urgent for PVN to be active and enhance the integration and international competitiveness of the Group themselves

With the wgent demand of luman resources for the PVN, while the base of higher

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