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Strategic
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A Competitive AdvAntAge ApproACh
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Strategic
ManageMent
Sixteenth
edition
concepts and cases
A Competitive AdvAntAge ApproACh
globAl
edition
Fred r. David
Francis Marion University
Florence, South Carolina
Forest r. David
Strategic Planning Consultant
Boston
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Printed and bound by Vivar in Malaysia
Brief Contents
Preface
15
Acknowledgments
26
About the Authors
27
Chapter 1
Strategic Management Essentials
31
The Cohesion Case: nesTlé s.a., 2016 (nsRGY)
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Appendix
Glossary
54
Outside-USA Strategic Planning 67
Ethics, Social Responsibility, and Sustainability
Types of Strategies 119
Vision and Mission Analysis 157
The Internal Audit 177
The External Audit 217
Strategy Generation and Selection 247
Strategy Implementation 285
Strategy Execution 321
Strategy Monitoring 359
Guidelines for Case Analysis
95
385
657
Name Index
Subject Index
667
673
5
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Contents
Preface
15
Acknowledgments
26
About the Authors
27
Assurance of Learning Exercise 1E: Strategic Planning
at Nestlé S.A. 65
Assurance of Learning Exercise 1F: Interview Local Strategists 65
Chapter 2 Outside-USA Strategic Planning
Chapter 1 Strategic Management Essentials
31
exemplaRY CompanY showCased: sinGapoRe aiRlines
limiTed (sia) 32
What Is a Cohesion Case?
Management 33
33 •
Defining Strategic
35
Key Terms in strategic management
Competitive Advantage
36
•
36
Strategists 36
aCademiC ReseaRCh Capsule 1-1: when aRe Chief
sTRaTeGY offiCeRs (Csos) hiRed/appoinTed? 37
Vision and Mission Statements 38 • External Opportunities and
Threats 38 • Internal Strengths and Weaknesses 39 • LongTerm Objectives 40 • Strategies 40 • Annual
Objectives 40 • Policies 41
The strategic-management model 42
Benefits of engaging in strategic management
43
aCademiC ReseaRCh Capsule 1-2: whaT aCTiviTY
is mosT impoRTanT in The sTRaTeGiC-manaGemenT
pRoCess? 43
Financial Benefits
44 •
Nonfinancial Benefits 45
why some firms do no strategic planning 45
pitfalls in strategic planning 46
Comparing Business and military strategy 46
impliCaTions foR sTRaTeGisTs 48
impliCaTions foR sTudenTs 49
Chapter summary 49
Key Terms and Concepts 50
Issues for Review and Discussion
50
mini-Case on RYanaiR limiTed (RYaaY): is RYanaiR’s
weBsiTe iTs sTRaTeGiC maRKeTinG Tool? 52
Current Readings
Endnotes 53
exemplaRY CompanY showCased: honda moToR
CompanY (hmC) 68
The nature of doing Business Globally 68
Multinational Firms 70 • Different Languages
Globally 71 • Labor Unions across Europe 71
aCademiC ReseaRCh Capsule 2-1: how manY lanGuaGes
aRe TheRe GloBallY? 71
stages of strategic management 33
integrating intuition and analysis 34
Adapting to Change
67
53
The Cohesion Case: nesTlé s.a., 2016 54
assuRanCe of leaRninG exeRCises 63
Assurance of Learning Exercise 1A: Assess Singapore Airlines’ Most
Recent Quarterly Performance Data 63
Assurance of Learning Exercise 1B: Gather Strategy Information
on Nestlé S.A. 64
Assurance of Learning Exercise 1C: Get Familiar with the Free Excel
Student Template 64
Assurance of Learning Exercise 1D: Evaluate an Oral Student
Presentation 64
advantages and disadvantages of doing
Business Globally 72
The Global Challenge 73
Tax Rates and Tax inversions 74
Tax Rates
74
aCademiC ReseaRCh Capsule 2-2: how do fiRms deCide
wheRe To expand? 74
Tax Inversions
76
american versus foreign Business Culture
Communication Differences across Countries
76
78
Business Culture across Countries 79
Mexico’s Business Culture 79 • Japan’s Business
Culture 80 • China’s Business Culture 81 • India’s Business
Culture 82
Business Climate across Countries
82
Africa’s Business Climate 83 • China’s Business
Climate 84 • Brazil’s Business Climate 85 • Indonesia’s
Business Climate 85 • India’s Business Climate 85 • Japan’s
Business Climate 86 • Mexico’s Business Climate 86 •
Vietnam’s Business Climate 87
impliCaTions foR sTRaTeGisTs 88
impliCaTions foR sTudenTs 88
Chapter summary 89
Key Terms and Concepts 89
Issues for Review and Discussion
89
assuRanCe of leaRninG exeRCises
90
Assurance of Learning Exercise 2A: Nestlé S.A. Wants to Enter Africa. Help
Them. 90
Assurance of Learning Exercise 2B: Assess Differences in Culture across
Countries 91
Assurance of Learning Exercise 2C: Honda Motor Company Wants to Do
Business in Vietnam. Help Them. 91
Assurance of Learning Exercise 2D: Does My University Recruit in Foreign
Countries? 92
mini-Case on aiRBus GRoup se (aiR.pa): how well is
aiRBus peRfoRminG GloBallY? 92
Current Readings
Endnotes 93
93
7
8
COnTEnTS
Chapter 3 Ethics, Social Responsibility, and
Sustainability 95
diversification strategies
Related Diversification
exemplaRY CompanY showCased: BanK audi s.a.l
96
Does It Pay to Be Ethical?
aCademiC ReseaRCh Capsule 3-1: whaT Can we leaRn
fRom hiGh-peRfoRmanCe Companies? 98
99
aCademiC ReseaRCh Capsule 3-2: who is pRone To Be
uneThiCal in a Business? 99
whistle-Blowing, Bribery, and workplace Romance
Whistle-Blowing
Romance 102
100 • Avoid Bribery
social Responsibility and policy
101
•
100
Workplace
environmental sustainability
111
impliCaTions foR sTRaTeGisTs 111
impliCaTions foR sTudenTs 112
Chapter summary 112
Key Terms and Concepts 112
Issues for Review and Discussion
113
mini-Case on eTihad aiRwaYs: how eThiCal and
susTainaBle is eTihad aiRwaYs? 116
Current Readings 116
Endnotes 117
120
122
Levels of Strategies
integration strategies
124
intensive strategies
•
140 •
Joint Venture and
Private-Equity Acquisitions
142
Backward Integration 126
Market Development
128 •
141
142
•
Outsourcing and Reshoring
142
strategic management in nonprofit, Governmental, and small
firms 144
148
150
Assurance of Learning Exercise 4A: Market Development for
Petronas 150
Assurance of Learning Exercise 4B: Alternative Strategies
for Petronas 150
Assurance of Learning Exercise 4C: Private-Equity Acquisitions 150
Assurance of Learning Exercise 4D: The Strategies of Nestlé S.A.:
2015–2017 151
Assurance of Learning Exercise 4E: Lessons in Doing Business
Globally 151
Assurance of Learning Exercise 4F: What are Petronas’ Strategies in
2015–2017? 151
Assurance of Learning Exercise 4G: What Strategies Are Most Risky? 151
Assurance of Learning Exercise 4H: Explore Bankruptcy 152
Assurance of Learning Exercise 4I: Examine Strategy Articles 152
Assurance of Learning Exercise 4J: Classify Some Strategies 152
154
Chapter 5 Vision and Mission Analysis
•
Product
157
exemplaRY CompanY showCased: samsunG eleCTRoniCs
Co. limiTed (ssnlf) 158
Vision Statement Analysis
128
Market Penetration 128
Development 129
•
vision statements: what do we want to Become?
124
Forward Integration 125 •
Horizontal Integration 127
138
138
aCademiC ReseaRCh Capsule 4-1: aRe inTeRnaTional
allianCes moRe effeCTive wiTh CompeTiToRs oR
nonCompeTiToRs? 139
Current Readings
Endnotes 154
Characteristics and Benefits of Objectives 121 • Financial versus
Strategic Objectives 121 • Avoid Not Managing by Objectives 122
Types of strategies
133
mini-Case on TiGeR BRands limiTed: is TiGeR BRands
sTRaTeGiCallY ReadY To CompeTe and CoopeRaTe? 153
119
exemplaRY CompanY showCased: peTRonas
(pGas.Kl) 120
long-Term objectives
Cooperation among Competitors
Partnering 138
assuRanCe of leaRninG exeRCises
Assurance of Learning Exercise 3A: Sustainability and Nestlé 113
Assurance of Learning Exercise 3B: How Does My Municipality Compare
To Others on Being Pollution-Safe? 114
Assurance of Learning Exercise 3C: Compare Nestlé versus Mars, Inc. on
Social Responsibility 114
Assurance of Learning Exercise 3D: How Do You Rate Nestlé’s
Sustainability Efforts? 114
Assurance of Learning Exercise 3E: The Ethics of Spying on
Competitors 115
Chapter 4 Types of Strategies
means for achieving strategies
Chapter summary 147
Key Terms and Concepts 148
Issues for Review and Discussion
112
assuRanCe of leaRninG exeRCises
Liquidation
134
aCademiC ReseaRCh Capsule 4-2: whaT aTTRiBuTes do
GReaT enTRepReneuRs possess? 146
impliCaTions foR sTRaTeGisTs 146
impliCaTions foR sTudenTs 147
109
Food Suppliers and Animal Welfare
132 •
Educational Institutions 144 • Medical
Organizations 145 • Governmental Agencies and
Departments 145 • Small Firms 145
105
What Firms Are the Best Stewards? 106 • Sustainability
Reports 107 • The Office of Environmental Affairs 108 •
ISO 14000/14001 Certification 108
wildlife welfare
Divestiture
•
First Mover Advantages
Social Policies on
130
131
Tactics to facilitate strategies
aCademiC ReseaRCh Capsule 3-3: does iT paY To Be
soCiallY ResponsiBle? 104
104 •
Unrelated Diversification
Cost Leadership Strategies (Type 1 and Type 2) 135 • Differentiation
Strategies (Type 3) 136 • Focus Strategies (Type 4 and Type 5) 137
Merger/Acquisition
103
Design and Articulate a Social Policy
Retirement 104
131
•
michael porter’s five Generic strategies
97
How to Establish an Ethics Culture
defensive strategies
Retrenchment
why “Good ethics is Good Business” 96
129
130
158
159
mission statements: what is our Business? 160
The process of developing vision and mission statements
The importance (Benefits) of vision and mission
statements 162
161
COnTEnTS
aCademiC ReseaRCh Capsule 5-1: The mission sTaTemenT/
fiRm peRfoRmanCe linKaGe 162
A Resolution of Divergent Views
management information systems
163
Characteristics of a mission statement
A Customer Orientation
Internal and External Research and Development 199 •
and Development Audit 200
200
aCademiC ReseaRCh Capsule 6-2: new TRends in
manaGinG BiG daTa 201
165
Components of a mission statement 165
evaluating and writing mission statements 166
Management Information Systems Audit
Two Mission Statements Critiqued 167 • Five Mission Statements
Revised 167 • Two Mission Statements Proposed 167
value Chain analysis
impliCaTions foR sTRaTeGisTs 169
impliCaTions foR sTudenTs 170
The internal factor evaluation matrix
Chapter summary 170
Key Terms and Concepts 171
Issues for Review and Discussion
172
mini-Case on CiTizen holdinGs CompanY limiTed (Cizn):
does CiTizen holdinGs’ have a CleaR vision oR
mission? 174
175
Chapter 6 The Internal Audit
178
aCademiC ReseaRCh Capsule 6-1: does RBv TheoRY
deTeRmine diveRsifiCaTion TaRGeTs? 181
182
Planning 184 • Organizing 185 • Motivating 186
• Staffing 186 • Controlling 187 • Management Audit
Checklist of Questions 187
marketing 188
Customer Analysis 188 • Selling Products
and Services 188 • Product and Service
Planning 189 • Pricing 189 • Distribution 190
• Marketing Research 190 • Cost/Benefit
Analysis 190 • Marketing Audit Checklist of Questions
finance and accounting
191
191
197
Production/Operations Audit Checklist
Research and development
199
198
211
Assurance of Learning Exercise 6A: Develop a Corporate IFE Matrix for
Volkswagen Group 211
Assurance of Learning Exercise 6B: Should Volkswagen Deploy More (or
Less) Resources Outside of Europe? 211
Assurance of Learning Exercise 6C: Apply Breakeven Analysis 212
Assurance of Learning Exercise 6D: Perform a Financial Ratio Analysis for
Nestlé 212
Assurance of Learning Exercise 6E: Construct an IFE Matrix for
Nestlé 212
Assurance of Learning Exercise 6F: Analyze Your College or University’s
Internal Strategic Situation 213
mini-Case on BanK of China limiTed (BaChf): whaT is The
naTuRe of BanK of China’s GRowTh? 213
Current Readings
Endnotes 214
214
exemplaRY CompanY showCased: miChelin
(mGddf) 218
The purpose and nature of an external audit
219
Ten external forces That affect organizations
221
Economic Forces 221 • Social, Cultural, Demographic, and
Natural Environment Forces 223 • Political, Governmental, and
Legal Forces 224 • Technological Forces 226 • Competitive
Forces 227
porter’s five-forces model
229
Rivalry Among Competing Firms 230 • Potential Entry
of New Competitors 231 • Potential Development
of Substitute Products 231 • Bargaining Power of
Suppliers 231 • Bargaining Power of Consumers 232
sources of external information 232
forecasting Tools and Techniques 232
Finance/Accounting Functions 191 • Financial
Ratios 192 • Breakeven Analysis 195 • Finance/Accounting
Audit Checklist 197
production/operations
210
assuRanCe of leaRninG exeRCises
Key External Forces 219 • The Process of Performing an External
Audit 220 • The Industrial Organization (I/O) View 221
Key Internal Forces 179 • The Process of Performing
an Internal Audit 180 • The Resource-Based View 181
integrating strategy and Culture
management 184
204
Chapter 7 The External Audit 217
177
exemplaRY CompanY showCased: vodafone GRoup
plC (vod) 178
The nature of an internal audit
202
Chapter summary 209
Key Terms and Concepts 209
Issues for Review and Discussion
Assurance of Learning Exercise 5A: Examine Potential Changes Needed in
a Firm’s Vision/Mission 172
Assurance of Learning Exercise 5B: Studying an Alternative View of
Mission Statement Content 172
Assurance of Learning Exercise 5C: Evaluate Mission
Statements 173
Assurance of Learning Exercise 5D: Evaluate the Vision and Mission
Statements of Unilever, Nestlé’s Competitor 173
Assurance of Learning Exercise 5E: Selecting the Best Vision and Mission
Statements in a Given Industry 174
Assurance of Learning Exercise 5F: Write an Excellent Vision and Mission
Statement for Novartis AG 174
Current Readings
Endnotes 175
Benchmarking
201
201
impliCaTions foR sTRaTeGisTs 206
impliCaTions foR sTudenTs 208
171
assuRanCe of leaRninG exeRCises
Research
200
Managing Voluminous Consumer Data
164
9
Making Assumptions
233 •
Business Analytics
The external factor evaluation matrix
The Competitive profile matrix 236
235
impliCaTions foR sTRaTeGisTs 239
impliCaTions foR sTudenTs 240
Chapter summary 240
Key Terms and Concepts 241
Issues for Review and Discussion
241
234
10
COnTEnTS
assuRanCe of leaRninG exeRCises
242
Assurance of Learning Exercise 7A: Michelin and Africa: An External
Assessment 242
Assurance of Learning Exercise 7B: Preparing a CPM for Michelin Based
on Countries Rather Than Companies 243
Assurance of Learning Exercise 7C: Develop Divisional Michelin EFE
Matrices 243
Assurance of Learning Exercise 7D: Developing an EFE Matrix for Nestlé
S.A. 243
Assurance of Learning Exercise 7E: The External Audit 244
Assurance of Learning Exercise 7F: Develop a Competitive Profile Matrix
for Michelin 244
Assurance of Learning Exercise 7G: Develop a Competitive Profile Matrix
for Nestlé 244
Assurance of Learning Exercise 7H: Analyzing Your College or University’s
External Strategic Situation 244
mini-Case on woolwoRThs limiTed (wow): is
woolwoRThs losinG iTs edGe To aldi? 245
Assurance of Learning Exercise 8D: Develop a SWOT Matrix for Nestlé
S.A. 279
Assurance of Learning Exercise 8E: Develop a SPACE Matrix for Nestlé
S.A. 279
Assurance of Learning Exercise 8F: Develop a BCG Matrix for Nestlé
S.A. 279
Assurance of Learning Exercise 8G: Develop a QSPM for
Nestlé S.A. 280
Assurance of Learning Exercise 8H: Develop a SPACE Matrix for
Unilever 280
Assurance of Learning Exercise 8I: Develop a BCG Matrix for your College
or University 280
Assurance of Learning Exercise 8J: Develop a QSPM for a Company That
You Are Familiar With 280
Assurance of Learning Exercise 8K: Formulate Individual Strategies 281
mini-Case on hYundai moToR CompanY (hYmTf): how
would a BCG foR hYundai looK liKe? 281
Current Readings
Endnotes 282
Current Readings 245
Endnotes 245
282
Chapter 9 Strategy Implementation
Chapter 8 Strategy Generation
and Selection 247
exemplaRY CompanY showCased: unileveR plC (ul)
The strategy analysis and Choice process
248
248
The Process of Generating and Selecting Strategies 248
The strategy-formulation analytical framework
The Input Stage 251 • The Matching Stage
• The Decision Stage 251
250
251
aCademiC ReseaRCh Capsule 8-1: a new ie maTRix
Projected Financial Statement Analysis for D. R. Horton
Corporate valuation
264
269
Cultural aspects of strategy analysis and Choice 270
The politics of strategy analysis and Choice 270
Boards of directors: Governance issues 271
aCademiC ReseaRCh Capsule 8-2: how manY BoaRd of
diReCToRs memBeRs aRe ideal? 273
impliCaTions foR sTRaTeGisTs 274
impliCaTions foR sTudenTs 274
276
assuRanCe of leaRninG exeRCises
292
293
strategic finance/accounting issues 295
eps/eBiT analysis: acquire needed Capital 296
projected financial statements 300
The Grand strategy matrix 265
The decision stage: The Quantitative strategic planning matrix
(Qspm) 266
Chapter summary 275
Key Terms And Concepts 276
Issues for Review and Discussion
strategic marketing issues 286
social media marketing 287
market segmentation 289
product positioning and perceptual mapping
Author Commentary
The swoT matrix 251
The strategic position and action evaluation
(spaCe) matrix 254
The Boston Consulting Group (BCG) matrix 258
The internal-external (ie) matrix 261
Positive Features and Limitations of the QSPM
285
exemplaRY CompanY showCased: RoYal duTCh shell
plC (Rds.a) 286
278
Assurance of Learning Exercise 8A: Should Unilever Penetrate Southeast
Asia Further? 278
Assurance of Learning Exercise 8B: Perform a SWOT Analysis for
Unilever’s Global Operations 278
Assurance of Learning Exercise 8C: Prepare a BCG Matrix for Unilever 278
302
304
aCademiC ReseaRCh Capsule 9-1: when should we
oveRpaY To aCQuiRe a fiRm? 306
Corporate Valuation Methods
306
ipos, Cash management, and Corporate Bonds
308
Go Public With An IPO? 308 • Keep Cash Offshore is Earned
Offshore? 309 • Issue Corporate Bonds for What Purpose? 309
strategic Research and development (R&d) issues
strategic management information
systems (mis) issues 311
Mobile Tracking of Employees
309
312
impliCaTions foR sTRaTeGisTs 312
impliCaTions foR sTudenTs 313
Mobile Apps for Customers
313
Chapter summary 313
Key Terms and Concepts 314
Issues for Review and Discussion
314
assuRanCe of leaRninG exeRCises
316
Assurance of Learning Exercise 9A: Prepare an EPS/EBIT Analysis for
Royal Dutch Shell Plc 316
Assurance of Learning Exercise 9B: Develop a Product-Positioning Map
for Nestlé S.A. 316
Assurance of Learning Exercise 9C: Perform an EPS/EBIT Analysis for
Nestlé S.A. 316
11
COnTEnTS
Assurance of Learning Exercise 9D: Prepare Projected Financial
Statements for Nestlé S.A. 317
Assurance of Learning Exercise 9E: Determine the Cash Value of
Nestlé S.A. 317
Assurance of Learning Exercise 9F: Develop a Product-Positioning Map
for Your College 317
Assurance of Learning Exercise 9G: Do Banks Require Projected Financial
Statements? 318
mini-Case on TaTa moToRs limiTed (TTm)
Current Readings
Endnotes 319
319
mini-Case on hoRizon phaRma (hznp): does hoRizon
phaRma have a foRmal sTRuCTuRe? 356
Current Readings
Endnotes 357
357
318
Chapter 11 Strategy Monitoring
359
exemplaRY CompanY showCased: Bhp
BilliTon (Bhp) 360
Chapter 10 Strategy Execution 321
exemplaRY CompanY showCased: aCCenTuRe
plC (aCn) 322
Transitioning from formulating to implementing
strategies 322
The need for Clear annual objectives 324
The need for Clear policies 327
allocate Resources and manage Conflict 327
Allocate Resources
Assurance of Learning Exercise 10D: Explore Objectives 355
Assurance of Learning Exercise 10E: Understanding Your University’s
Culture 356
327 •
Manage Conflict
329
match structure with strategy 329
Types of organizational structure 330
The Functional Structure 330 • The Divisional
Structure 331 • The Strategic Business Unit (SBU)
Structure 333 • The Matrix Structure 334
dos and don’ts in developing organizational
Charts 335
aCademiC ReseaRCh Capsule 10-1: whY is The Coo
posiTion BeinG deleTed in manY oRGanizaTions? 337
strategic production/operations issues 338
Restructuring and Reengineering 338 • Manage Resistance
to Change 339 • Decide Where and How to Produce
Goods 339 • Employee Stock Ownership Plans (ESOPs) 340
strategic human Resource issues
341
Linking Performance and Pay to Strategy 341 • Balance Work Life
and Home Life 343 • Develop a Diverse Workforce 344
aCademiC ReseaRCh Capsule 10-2: how do women vs.
men Ceos peRfoRm? 345
Use Caution in Hiring a Rival’s Employees 345 • Create a StrategySupportive Culture 348 • Use Caution in Monitoring Employees’
Social Media 349 • Develop a Corporate Wellness Program 349
impliCaTions foR sTRaTeGisTs 351
impliCaTions foR sTudenTs 352
Chapter summary 353
Key Terms and Concepts 353
Issues for Review and Discussion
The Process of Evaluating Strategies
360
363
The Three strategy-evaluation activities
364
Reviewing Bases of Strategy 364 • Measuring Organizational
Performance 366 • Taking Corrective Actions 367
The Balanced scorecard 369
published sources of strategy-evaluation information 371
Characteristics of an Effective Strategy Evaluation System 371
Contingency planning 372
auditing 373
Twenty-first-Century Challenges in strategic management 374
The Art or Science Issue 374 • The Visible or Hidden
Issue 375 • The Top-Down or Bottom-Up Approach 376
Guidelines for effective strategic management
376
impliCaTions foR sTRaTeGisTs 378
impliCaTions foR sTudenTs 378
Chapter summary 379
Key Terms and Concepts 379
Issues for Review and Discussion
379
assuRanCe of leaRninG exeRCises
380
Assurance of Learning Exercise 11A: Evaluate BHP Billiton’s
Strategies 380
Assurance of Learning Exercise 11B: Prepare a Strategy-Evaluation Report
for Nestlé S.A. 381
Assurance of Learning Exercise 11C: Prepare a Balanced Scorecard for
Nestlé S.A. 381
Assurance of Learning Exercise 11D: Evaluate Your University’s
Strategies 381
mini-Case on BRoadCom limiTed (avGo): how Could a
BalanCed sCoReCaRd BenefiT BRoadCom? 382
Current Readings
Endnotes 382
382
Appendix Guidelines for Case Analysis 385
353
assuRanCe of leaRninG exeRCises
The strategy-evaluation process, Criteria, and methods
355
Assurance of Learning Exercise 10A: Develop an Organizational Chart for
Accenture Plc 355
Assurance of Learning Exercise 10B: Assess Accenture’s Philanthropy
Efforts 355
Assurance of Learning Exercise 10C: Revise Nestlé’s Organizational
Chart 355
what is a strategic-management Case? 386
Guidelines for preparing Case analyses 386
The Need for Practicality 386 • The Need for
Justification 386 • The Need for Realism 386 • The Need for
Specificity 386 • The Need for Originality 387 • The Need to
Contribute 387
The Case method versus lecture approach
The Cross-Examination
387
387
12
COnTEnTS
preparing a written Case analysis
388
strategic-management Cases
The Executive Summary 388 • The Comprehensive Written
Analysis 388 • Steps in Preparing a Comprehensive Written
Analysis 388
making an oral presentation
389
Controlling Your Voice 389 • Managing Body
Language 389 • Speaking from Notes 390 •
Visual Aids 390 • Answering Questions 390
Tips for success in Case analysis
Constructing
390
Sample Case Analysis Outline 391 • Recommended Time Allocation
for Presenting a Case Analysis 393
Assurance of Learning Exercise: Strategic Planning for Gruma SAB 393
Glossary
657
Name Index
Subject Index
667
673
397
Cases
Service Firms
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Krispy Kreme Doughnuts, Inc., 2015 398
Domino’s Pizza, Inc., 2013 405
Dunkin’ Brands Group, Inc., 2015 415
United Parcel Service, Inc., 2013 423
FedEx Corporation, 2015 434
Citigroup Inc., 2015 443
JPMorgan Chase & Co., 2013 452
Polaris Industries, Inc., 2013 463
The Emirates Group, 2014 472
Walt Disney Company, 2013 481
Facebook, Inc., 2015 491
World Wildlife Fund for Nature
(WWF), 2015 499
Manufacturing Firms
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
Ford Motor Company, 2015 508
Bayerische Motoren Werke (BMW) Group, 2013 518
Exxon Mobil Corporation, 2013 525
Embraer S.A., 2013 536
Apple Inc., 2015 545
International Business Machines (IBM) Corporation, 2015
Microsoft Corporation, 2013 563
Lenovo Group Limited, 2013 572
Nikon Corporation, 2013 581
Netgear, Inc., 2013 588
Crocs, Inc., 2013 596
L’Oréal SA, 2013 606
Avon Products, Inc., 2013 614
Revlon, Inc., 2015 622
Under Armour, Inc., 2013 630
Pearson PLC, 2013 639
Snyder’s-Lance, Inc., 2013 648
554
13
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Preface
Why Adopt This Text?
this textbook is trusted across five continents to provide managers the latest skills and concepts needed to effectively formulate and efficiently implement a strategic plan—a game plan,
if you will—that can lead to sustainable competitive advantage for any type of business. the
association to advance collegiate Schools of Business (aacSB) international increasingly
advocates a more skills-oriented, practical approach in business books, which this text provides,
rather than a theory-based approach. Strategic Management Concepts and Cases: A Competitive
Advantage Approach meets all aacSB international guidelines for the strategic-management
course at both the graduate and undergraduate levels, and previous editions have been used at
more than 500 colleges and universities globally. We believe you will find this sixteenth edition
to be the best textbook available for communicating both the excitement and value of strategic
management. concise and exceptionally well organized, this text is now available in english,
chinese, Spanish, thai, german, Japanese, Farsi, indonesian, indian, Vietnamese, and arabic. a
version in russian is being negotiated. in addition to universities, hundreds of companies, organizations, and governmental bodies use this text as a management guide.
an MBa student using this text recently wrote the following:
Dear Dr. David: i am in the midst of my MBa at adams State University here in
colorado. i’m 7 of 12 classes in with a 4.0 average. as a result, i’ve been through about
14 textbooks (not to mention the 60 or so i went through for my BBa at the University
of california (Uc)-Berkeley. this is the first time i’ve written to the author of a textbook.
Why? Because the David book is by far the best textbook i have ever used. it’s clear. it’s
accurate. it’s not full of opinion masquerading as fact! You, sir, are to be commended.
Usually when i spend an insane amount of money on a text, i’m broke. But your text is
worth every cent, and i’ll keep it forever. Well done sir! respectively, eric Seiden, MBa
Student in Littleton, colorado (august 10, 2015)
eric n. Sims, a professor who has used this text for his classes at Sonoma State University in
california, says:
i have read many strategy books. i am going to use the David book. What i like—to steal
a line from alabama coach nick Saban—is your book teaches “a process.” i believe at
the end of your book, you can actually help a company do strategic planning. in contrast,
other books teach a number of near and far concepts related to strategy.
a recent reviewer of this textbook shares his opinion:
One thing i admire most about the David text is that it follows the fundamental sequence
of strategy formulation, implementation, and evaluation. there is a basic flow from
vision/mission to internal/external environmental scanning, to strategy development,
selection, implementation, and evaluation. this has been, and continues to be, a hallmark
of the David text. Many other strategy texts are more disjointed in their presentation, and
thus confusing to the student, especially at the undergraduate level.
New to This Edition
1. this 16th edition is 40 percent new and improved from the prior edition.
2. a brand new COHESION CASE on nestlé S.a. (2016) is provided. nestlé is one of the
largest and most successful food producing companies in the world, known for its innovations and effective management. Students apply strategy concepts to nestlé at the end of
each chapter through new, innovative assurance of Learning exercises.
15
16
PREFACE
3. Brand-new one-page MINI-CASES appear at the end of each chapter, complete with questions designed to apply chapter concepts. Provided for the first time ever in this text, the
mini-cases focus on the following companies:
chapter 1: ryanair Holdings PLc
chapter 2: airbus group Se
chapter 3: etihad airways
chapter 4: tiger Brands
chapter 5: citizen Holdings company
chapter 6: Bank of china
chapter 7: Woolworths Limited
chapter 8: Hyundai Motor company
chapter 9: tata Motors Limited
chapter 10: Horizon Pharma
chapter 11: Broadcom Limited
4. Original, half-page ACADEMIC RESEARCH CAPSULES are presented in each chapter
to showcase how new strategic-management research is impacting business practice. two
capsules per chapter are provided—for the first time ever in this text.
5. at the end of each chapter are new sections titled IMPLICATIONS FOR STRATEGISTS
and IMPLICATIONS FOR STUDENTS that highlight how companies can best gain and
sustain competitive advantages.
6. Brand new and updated EXEMPLARY COMPANY CAPSULES appear at the beginning
of each chapter and showcase a company that is employing strategic management exceptionally well. the capsules focus on the following companies:
chapter 1: Singapore airlines Limited
chapter 2: Honda Motor company
chapter 3: Bank audi
chapter 4: Petronas
chapter 5: Samsung electronics Limited
chapter 6: Vodafone
chapter 7: Michelin
chapter 8: Unilever
chapter 9: royal Dutch Shell
chapter 10: accenture
chapter 11: BHP Billiton Limited
7. chapter 2, Outside–USa Strategic Planning, is shortened by 30 percent but provides new
coverage of cultural and conceptual strategic-management differences across countries.
Doing business globally has become a necessity in most industries.
8. chapter 3, ethics, Social responsibility, and Sustainability, provides extensive new coverage of ethics, workplace romance, flirting, hiring away rival firms’ employees, wildlife
welfare, and sustainability. “good ethics is good business.”
9. chapter 5, Vision and Mission analysis, is 60 percent new, due to current research and
practice that reveals the need for “these statements to be more customer-oriented.” Unique
to strategic-management texts, the sustainability discussion is strengthened in this edition
to promote and encourage firms to conduct operations with respect for the environment—
an important concern for consumers, companies, society, and aacSB international.
10. twenty-four unique ASSURANCE OF LEARNING EXERCISES appear at the end
of chapters to apply chapter concepts. the exercises prepare students for strategicmanagement case analysis. an additional excellent exercise for each chapter is provided in
the Chapter Instructor’s Resource Manual.
11. More than 200 new EXAMPLES bring the chapters to life.
12. at the end of chapters are 33 new REVIEW QUESTIONS related to chapter content.
13. all the current readings at the end of the chapters are new, and up-to-date research and
theories of seminal thinkers are included. However, practical aspects of strategic management are center stage and the trademark of this text.
14. every sentence and paragraph has been scrutinized, modified, clarified, streamlined,
updated, and improved to enhance the content and caliber of presentation.
preface
15. an enhanced, continually updated AUTHOR WEBSITE (www.strategyclub.com) provides new author videos, case and chapter updates, sample case analyses, and the popular,
Free eXceL StUDent teMPLate. the template enables students to more easily
develop strategic-planning matrices, tables, and analyses needed for case analysis.
New Case Features
1. all 29 cases focus on exciting, well-known companies, effective for students to apply strategy concepts.
2. all 29 cases are undisguised, featuring real organizations in real industries using real
names (nothing is fictitious in any case).
3. all 29 cases feature an organization and industry undergoing strategic change.
4. all 29 cases provide ample, excellent quantitative information, so students can prepare a
defensible strategic plan.
5. all 29 cases are written in a lively, concise writing style that captures the reader’s interest.
6. all 29 cases are “comprehensive,” focusing on multiple business functions, rather than a
single problem or issue.
7. all 29 cases provide an organizational chart and a vision and mission statement—
important strategy concepts.
8. all 29 cases are supported by an excellent teacher’s note, provided to professors in a new
Case Instructor’s Resource Manual.
9. all 29 cases facilitate coverage of all strategy concepts, but as revealed in the new
concepts by cases Matrix, some cases especially exemplify some concepts, enabling professors to effectively use an assortment of cases with various chapters in the text.
10. all 29 cases have been class-tested to ensure that they are interesting, challenging, and
effective for illustrating strategy concepts.
11. all 29 cases appear in no other textbooks, thus offering a truly fresh, new, up-to-date learning platform.
12. the 29 cases represent an excellent mix of firms performing really well and some performing very poorly, including 12 service-based organizations, and 17 manufacturing-based
firms.
13. all 29 case companies have excellent websites in english that provide detailed financial
information, history, sustainability statements, ethics statements, and press releases, so students can easily access current information to apply strategy concepts.
Time-Tested Features
1. this text meets all aacSB international guidelines that support a practitioner orientation
rather than a theory/research approach. it offers a skills-oriented process for developing a
vision and mission statement; performing an external audit; conducting an internal assessment; and formulating, implementing, and evaluating strategies.
2. the author’s writing style is concise, conversational, interesting, logical, lively, and supported by numerous current examples.
3. a simple, integrative strategic-management model appears in all chapters and on the inside
back cover. the model is widely used by strategic-planning consultants and companies
worldwide.
4. an exciting, new cohesion case on nestlé S.a. (2016) follows chapter 1 and is revisited
at the end of each chapter, allowing students to apply strategic-management concepts and
techniques to a real company as the text develops, thus preparing students for case analysis
as the course evolves.
5. end-of-chapter assurance of Learning exercises apply chapter concepts and techniques
in a challenging, meaningful, and enjoyable manner. twenty-four exercises apply
text material to the cohesion case; while others apply textual material to a college or
university and some exercises send students into the business world to explore important
strategy topics.
17
18
PREFACE
6. there is excellent pedagogy, including Learning Objectives opening each chapter as
well as Key terms, current readings, Discussion Questions, and assurance of Learning
exercises ending each chapter.
7. the various strategy-formulation issues are outstanding, covering topics such as business
ethics, global versus domestic operations, vision and mission, matrix analysis, partnering,
joint venturing, competitive analysis, value chain analysis, governance, and matrices for
assimilating and evaluating information.
8. Strategy-implementation issues are covered thoroughly and include items such as corporate culture, organizational structure, outsourcing, marketing concepts, financial analysis,
business ethics, whistleblowing, bribery, pay and performance linkages, and workplace
romance.
9. a systematic, analytical “process” is presented that includes nine matrices: iFeM, eFeM,
cPM, SWOt, Bcg, ie, granD, SPace, and QSPM.
10. Both the chapter material and case material is published in color.
11. chapters-only and e-book versions of the text are available.
12. custom-case publishing is available whereby an instructor can combine chapters from
this text with cases from a variety of sources or select any number of the 29 cases
provided.
13. For the chapter material, an outstanding ancillary package includes a comprehensive
Chapter Instructor’s Resource Manual, Case Instructor’s Resource Manual, test Bank,
testgen, and chapter PowerPoints, and vastly improved MyLab products to promote
assurance of learning.
Why Is This Text Different/Better Than Other
Strategic-Management Texts?
Strategic Management Concepts and Cases: A Competitive Advantage Approach is by far the
most practical, skills-oriented strategic management textbook on the market. this text is designed
to enable students to learn “how to do strategic planning,” rather than simply memorize seminal
theories in strategy. Students using this text follow an integrative model that appears in every
chapter as the “process” unfolds. Students learn how to construct strategic planning matrices, such
as the Strengths, Weaknesses, Opportunities, and threats (SWOt) and the Boston consulting
group (Bcg) matrices. readers also learn how to perform strategic-planning analyses, such as
earnings-per-share/earnings-before-interest-and-taxes (ePS/eBit) and corporate valuation. the
focus throughout this text is on “learning by doing.” this overarching, differentiating aspect has
been improved with every edition and has led to this text becoming perhaps the leading strategicmanagement text globally, now available in 10 languages. the practical, skills-oriented approach is
manifested through eight specific features:
1. a cohesion case that appears after chapter 1 with 24 end-of-chapter assurance of learning
exercises, many that apply concepts to the cohesion case, thus allowing students to gain
practice doing strategic planning by performing analysis. no other strategic-management
textbook provides a cohesion case or an array of end-of-chapter exercises.
2. a strategy formulation analytical framework in chapter 8 integrates nine widely used
planning matrices (iFeM, eFeM, cPM, SWOt, Bcg, ie, SPace, granD, and QSPM)
into three stages (input, Matching, and Decision), which guide the strategic-planning
process in all companies. Firms gather strategic information (input), array key external
with internal factors (Matching), and then make strategic decisions (Decision).
3. a far wider coverage of strategy topics than any other strategic-management textbook,
for two primary reasons: (a) as firms formulate and implement strategies, a wide variety
of functional business topics arise and (b) as the capstone, integrative course in nearly all
Schools of Business, strategic management entails students applying functional business
skills to case companies.
preface
4. this text provides 29 comprehensive, exciting, exceptionally up-to-date cases designed
to apply chapter concepts as students develop a strategic plan for the case companies. For
example, every case includes (a) the company’s vision/mission statements (if the firm has
one); (b) the company’s by-segment revenue breakdown (since allocating resources divisions is perhaps the key strategy decision made by firms); (c) the company’s organizational
chart (since structure is a key strategy topic); and (d) the company’s financial statements
so students can show the impact of a proposed strategic plan on a firm’s financial statements. thus, the cases take a total-firm, multifunctional approach, which by definition is
the nature of strategic management. in addition, this text offers end-of-chapter mini-cases
to further apply chapter concepts.
5. More coverage of business ethics, social responsibility, and sustainability is provided in
this text than in any other strategic-management textbook, including topics such as bribery,
workplace romance, devising codes of ethics, taking a position (or not) on social issues,
and wildlife welfare—topics that other textbooks do not mention, even though companies
continually face strategic decisions in these areas.
6. this text offers more coverage of global/international issues than any other strategicmanagement textbook, including topics such as how business culture and practice vary
across countries, as well as how taxes, tariffs, political stability, and economic conditions
vary across countries—all framed from a strategic planning perspective.
7. the conversational, concise writing style is supported by hundreds of current examples,
all aimed at arousing and maintaining the reader’s interest as the “process” unfolds from
start to finish. the unique writing style is in stark contrast to some strategic-management
books that seem to randomly present theory and research for the sake of discussion, rather
than material being presented in a logical flow that emulates the actual practice of strategic
planning among companies and organizations.
8. this text is supported by outstanding ancillaries, including author-developed manuals, and
an author website at www.strategyclub.com that offers practical author-developed videos,
templates, sample case analyses, special resources, and even a Facebook page for the text.
Pearson education also offers outstanding support materials for instructors and students.
For more information, visit www.pearsonglobaleditions.com/David.
Instructor Resources
at the instructor resource center, www.pearsonglobaleditions.com/David, instructors can easily register to gain access to a variety of instructor resources available with this text in downloadable format. if assistance is needed, our dedicated technical support team is ready to help with the
media supplements that accompany this text. Visit https://support.pearson.com/getsupport/s/
for answers to frequently asked questions and toll-free user support phone numbers.
the following supplements are available with this text:
•
•
•
•
•
Case Instructor’s Resource Manual
Chapter Instructor’s Resource Manual
Test Bank
TestGen® Computerized Test Bank
PowerPoint Presentation
Sample of Universities Recently Using This Textbook
abraham Baldwin agricultural college
adelphi University
akron institute
albany State University
albertus Magnus college
albright college
alcorn State University
alvernia University
ambassador college
amberton University
american intercontinental
University—Weston
american international college
american international continental (aiU)
University—Houston
american international University
american University
anderson University
19
20
PREFACE
angelo State University
aquinas college
arizona State University—Polytechnic
campus
art institute of california
averett University
avila University
azusa Pacific University
Baker college—Flint
Baldwin Wallace college
Barry University
Belhaven University—Jackson
Bellevue University
Belmont abbey college
Benedictine University
Black Hills State University
Bloomsburg University
Briar cliff University
Brooklyn college
Broward college—central
Broward college—north
Broward college—South
Bryant & Stratton—Orchard Park
Buena Vista University—Storm Lake
caldwell college
california Polytechnic State University
california State University—Sacramento
california State University—San
Bernadino
california University of Pa
calumet college
capella University
carlow University
carson-newman college
catawba college
catholic University of america
cedar crest college
central connecticut State University
central Michigan University
central new Mexico community college
central Washington University
chatham University
chestnut Hill college
chicago State University
christian Brothers University
claflin University
clarion University of Pennsylvania
clarkson college
clatsop community college
cleveland State University
college of William & Mary
colorado State University—Pueblo
columbia college
columbia Southern University—Online
concordia University
concordia University Wisconsin
curry college
cuyahoga community college
Daniel Webster college
Davis & elkins college
Delaware State University
Delaware technology & community
college—Dover
Delaware technology & community
college—Wilmington
DePaul University—Loop campus
east Stroudsburg University
eastern Michigan University
eastern Oregon University
eastern Washington University
ecPi college of technology—charleston
ecPi computer institute
elmhurst college
embry-riddle aero University—Prescott
Ferrum college
Florida agricultural & Mechanical
University
Florida Southern college
Florida State University
Florida technical college—Deland
Florida technical college—Kissimmee
Florida technical college—Orlando
Fort Valley State college
Francis Marion University
Fresno Pacific University
Frostburg State University
george Fox University
georgetown college
georgia Southern University
georgia Southwestern State University
Hampton University
Harding University
Harris Stowe State University
Herzing college—Madison
Herzing college—new Orleans
Herzing college—Winter Park
Herzing University—atlanta
High Point University
preface
Highline community college
Hofstra University
Hood college
Hope international University
Houghton college
Huntingdon college
indiana University Bloomington
indiana Wesleyan caPS
iona college
iowa Lakes community college—
emmetsburg
Jackson community college
Jackson State University
John Brown University
Johnson & Wales—charlotte
Johnson & Wales—colorado
Johnson & Wales—Miami
Johnson & Wales—rhode island
Johnson c. Smith University
Kalamazoo college
Kansas State University
Keene State college
Kellogg community college
La Salle University
Lake Michigan college
Lebanon Valley college
Lee University
Lehman college of cUnY
Liberty University
Limestone college—gaffney
Lincoln Memorial University
Loyola college Business center
Loyola college—chennai
Loyola University—Maryland
Lyndon State college
Madonna University
Manhattan college
Manhattanville college
Marian University—indiana
Marshall University
Marshall University graduate college
Marymount University—arlington
Medgar evers college
Medical careers institute/newport news
Mercer University—atlanta
Mercer University—Macon
Miami-Dade college—Homestead
Miami-Dade college—Kendal
Miami-Dade college—north
Miami-Dade college—Wolfson
Michigan State University
Mid-america christian
Millersville University
Mississippi University for Women
Morgan State University
Morrison college of reno
Mount Marty college—South Dakota
Mount Mercy University
Mount Wachusett community college
Mt. Hood community college
Mt. Vernon nazarene
Mti Western Business college
Muhlenberg college
Murray State University
new england college
new Mexico State University
new York University
north carolina Wesleyan college
north central college
north central State college
northwest arkansas community college
northwestern college
northwood University—cedar Hill
notre Dame of Maryland University
nyack college
Oakland University
Ohio Dominican University
Oklahoma christian University
Oklahoma State University
Olivet college
Oral roberts University
Pace University—Pleasantville
Park University
Penn State University—abington
Penn State University—Hazleton
Pensacola State college
Philadelphia University
Point Park University
Prince george’s community college
Queens college of cUnY
richard Stockton University
rider University
roger Williams University
Saint edwards University
Saint Leo University
Saint Mary’s college
Saint Mary’s college—indiana
Saint Xavier University
21
22
PREFACE
San antonio college
Santa Fe college
Savannah State University
Shippensburg University
Siena Heights University
Southern nazarene University
Southern new Hampshire University
Southern Oregon University
Southern University—Baton rouge
Southern Wesleyan University
Southwest Baptist University
Southwest University
St. Bonaventure University
St. Francis University
St. Louis University
St. Martins University
Sterling college
Stevenson University
Strayer University—Dc
texas a&M University—commerce
texas a&M University—texarkana
texas a&M—San antonio
texas tech University
the college of St. rose
the Masters college
tri-county technical college
trinity christian college
troy State University
troy University—Dothan
troy University—Main campus
troy University—Montgomery
University of alabama—Birmingham
University of arkansas—Fayetteville
University of Findlay
University of Houston—clearlake
University of Louisiana at Monroe
University of Maine at augusta
University of Maine—Fort Kent
University of Maryland
University of Maryland—college Park
University of Massachusetts—Boston
Harbor
University of Massachusetts—Dartmouth
University of Miami
University of Michigan—Flint
University of Minnesota—crookston
University of Mobile
University of Montevallo
University of nebraska—Omaha
University of nevada Las Vegas
University of new Orleans
University of north texas
University of north texas—Dallas
University of Pikeville
University of Sioux Falls
University of South Florida
University of St. Joseph
University of tampa
University of texas—Pan american
University of the incarnate Word
University of toledo
Upper iowa University
Valley city State University
Virginia community college System
Virginia State University
Virginia tech
Wagner college
Wake Forest University
Washington University
Webber international University
Webster University
West chester University
West Liberty University
West Valley college
West Virginia Wesleyan college
Western connecticut State University
Western Kentucky University
Western Michigan University
Western Washington University
William Jewell college
Williams Baptist college
Winona State University
Winston-Salem State University
WSU Vancouver
preface
The Case Rationale
case analysis remains the primary learning vehicle used in most strategic-management classes,
for five important reasons:
1. analyzing cases gives students the opportunity to work in teams to evaluate the internal
operations and external issues facing various organizations and to craft strategies that can
lead these firms to success. Working in teams gives students practical experience in solving
problems as part of a group. in the business world, important decisions are generally made
within groups; strategic-management students learn to deal with overly aggressive group
members as well as timid, noncontributing group members. this experience is valuable
because strategic-management students are near graduation and soon enter the working
world full time.
2. analyzing cases enables students to improve their oral and written communication skills
as well as their analytical and interpersonal skills by proposing and defending particular
courses of action for the case companies.
3. analyzing cases allows students to view a company, its competitors, and its industry concurrently, thus simulating the complex business world. through case analysis, students
learn how to apply concepts, evaluate situations, formulate strategies, and resolve implementation problems.
4. analyzing cases allows students to apply concepts learned in many business courses.
Students gain experience dealing with a wide range of organizational problems that impact
all the business functions.
5. analyzing cases gives students practice in applying concepts, evaluating situations, formulating a “game plan,” and resolving implementation problems in a variety of business and
industry settings.
The Case MyLab Testing Feature
the new case MyLab testing feature assures that the cases are excellent for testing student
learning of the key strategic-management concepts, thus serving as a great mechanism for professors to achieve aacSB’s assurance of Learning Objectives. this new testing feature simplifies grading for professors in both traditional and online class settings.
the case MyLab testing feature includes multiple-choice questions for each case, comprised of Basic questions that simply test whether the student read the case before class, and
Applied questions that test the student’s ability to apply various strategic-management concepts.
in addition, there are certain Discussion questions for each case. this testing feature enables
professors to determine, before class if desired, whether students (1) read the case in Basic
terms, and/or (2) are able to Apply strategy concepts to resolve issues in the case. For example,
the MyLab case Basic question may be: in what country is Krispy Kreme Doughnuts, inc.
headquartered? Whereas a MyLab case Applied question may be: What are three aspects of
the organizational chart given in the Krispy Kreme Doughnuts, inc. case that violate strategicmanagement guidelines?
The New Concepts by Cases Matrix
all 29 cases facilitate coverage of all strategy concepts, but as revealed by purple cells, some
cases especially exemplify some key strategy concepts. the purple cells reveal which concepts
are tested with multiple-choice questions in the MyLab. the concepts by cases matrix enables
professors to effectively utilize different cases to assure student learning of various chapter
concepts. note from the purple boxes that two, three, or four cases are used to test each strategic-management concept. this new, innovative ancillary promises to elevate the case learning
method to new heights in teaching strategic management.
23
Case number
Service Firms
case 1
Krispy Kreme Doughnuts, inc.
case 2
Domino’s Pizza, inc.
case 3
Dunkin’ Brands group, inc.
case 4
United Parcel Service, inc.
case 5
Fedex corporation
case 6
citigroup inc.
case 7
JPMorgan chase & co.
case 8
Polaris industries, inc.
case 9
the emirates group
case 10
Walt Disney company
case 11
Facebook, inc.
case 12
World Wildlife Fund
Manufacturing Firms
case 13
Ford Motor company
case 14
Bayerische Motoren Werke (BMW)
case 15
exxon Mobil corporation
case 16
embraer S.a.
case 17
apple inc.
case 18
international Business Machines corporation
case 19
Microsoft corporation
case 20
Lenovo group Limited
case 21
nikon corporation
case 22
netgear, inc.
case 23
crocs, inc.
case 24
L’Oréal Sa.
case 25
avon Products, inc.
case 26
revlon, inc.
case 27
Under armour, inc.
case 28
Pearson Plc.
case 29
Snyder’s-Lance, inc.
Porter's Five Generic
Strategies
Strategy Types
IFE Matrix
Value Chain Analysis
Financial Ratios &
Breakeven
Resource Based View
EFE Matrix
Porter’s Five Forces
Competitive Profile Matrix
Vision/Mission Statements
Strategy Model/Process
cONcepTS BY caSeS MaTrIX
Key StrategicManagement Concepts
24
Foreign Business Culture
Environmental Sustainability
Business Ethics
Balanced Scorecard
Company Valuation
Projected Financial
Statements
EPS-EBIT Analysis
Market Segmentation &
Production
Human Resources
Management
Organizational Culture
Organizational Structure
Governance
Grand Strategy & QSPM
BCG & IE Matrices
SPACE Matrix
SWOT Matrix
Outsourcing
First Mover Advantages
cONcepTS BY caSeS MaTrIX
25
Acknowledgments
Many persons have contributed time, energy, ideas, and suggestions for improving this text over
many editions. the strength of this text is largely attributed to the collective wisdom, work,
and experiences of strategic-management professors, researchers, students, and practitioners.
names of particular individuals whose published research is referenced in this edition are listed
alphabetically in the name index. to all individuals involved in making this text so popular and
successful, we are indebted and thankful.
Many special persons and reviewers contributed valuable material and suggestions for this
edition. We would like to thank our colleagues and friends at auburn University, Mississippi
State University, east carolina University, the University of South carolina, campbell
University, the University of north carolina at Pembroke, and Francis Marion University. We
have taught strategic management at all these universities. Scores of students and professors at
these schools helped shape the development of this text.
We thank the following guest writers who contributed a case(s) to this sixteenth edition:
Meredith e. David, Baylor University
Mark L. Frigo, DePaul University
Debora J. gilliard, Metropolitan State University of Denver
David Lynn Hoffman, Metropolitan State University of Denver
edward Moore, Liberty University
alvaro Polanco, Baylor University
Lori radulovich, Baldwin Wallace University
raj Selladurai, indiana University northwest
Diana tsaw, california Lutheran University
John D. Varlaro, Johnson & Wales University
Jason Willoughby, elizabethtown community college
We thank you, the reader, for investing the time and effort to read and study this text. it
will help you formulate, implement, and evaluate strategies for any organization with which
you become associated. We hope you come to share our enthusiasm for the rich subject area of
strategic management and for the systematic learning approach taken in this text. We welcome
and invite your suggestions, ideas, thoughts, comments, and questions regarding any part of
this text or the ancillary materials. Please contact Dr. Fred r. David at the following e-mail:
freddavid9@gmail.com, or write him at the School of Business, Francis Marion University,
Florence, Sc 29501. We sincerely appreciate and need your input to continually improve this
text in future editions. Your willingness to draw our attention to specific errors or deficiencies
in coverage or exposition will especially be appreciated.
thank you for using this text.
Fred r. David and Forest r. David
Global Acknowledgments
Pearson would also like to thank and acknowledge the following people for reviewing the global
edition content and sharing their feedback to help improve the material
nazih K. el-Jor, Lebanese american University
georg Hauer, Stuttgart technology University of applied Sciences
goh See Kwong, taylor’s University
anneleen Michiels, University of Leuven
Sununta Siengthai, asian institute of technology
26
About the Authors
Fred r. and Forest r. David, a father–son team, have published more than
50 articles in journals such as Academy of Management Review, Academy
of Management Executive, Journal of Applied Psychology, Long Range
Planning, International Journal of Management, Journal of Business Strategy,
and Advanced Management Journal. Fred and Forest’s recent article titled
“Mission Statement theory and Practice: a content analysis and new
Direction,” published in the International Journal of Business, Marketing, and
Decision Sciences, is changing the way organizations devise and use vision
and mission statements.
Fred and Forest are coauthors of Strategic Management: Concepts and
Cases—A Competitive Advantage Approach that has been on a two-year
revision cycle since 1987, when the first edition was published. this text has
been a leader in the field of strategic management for almost three decades,
providing an applications, practitioner-approach to the discipline. More than
500 colleges and universities have used this textbook over the years. For seven
editions of this book, Forest has been sole author of the Case Instructor’s
Resource Manual, having developed extensive teachers’ notes (solutions) for
all the cases. Forest is author of the case MyLab and chapter MyLab ancillaries, as well as the free excel Student template found on the author website
(www.strategyclub.com).
the authors actively assist businesses globally in doing strategic planning.
they have written and published more than 100 strategic-management cases.
they were keynote speakers in September 2015 in Monterrey, Mexico, at the
“XXii congreso industrial,” the largest congress of industrial engineering
in Latin america. they were also invited keynote speakers at the Pearson
international Forum in Monterrey, Mexico, delivering a one-hour presentation
to 80 Spanish-speaking management professors.
With a Ph.D. in Management from the University of South carolina, Fred
is the tranSouth Professor of Strategic Planning at Francis Marion University
in Florence, South carolina. Forest has taught strategic-management courses
at Mississippi State University, campbell University, and Francis Marion
University.
Fred R. David
Forest R. David
27
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Strategic
ManageMent
concepts and cases
A Competitive AdvAntAge ApproACh
Source: © musicman.Shutterstock
1
30
Strategic Management
Essentials
learning Objectives
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After studying this chapter, you should be able to do the following:
1-1. Describe the strategic-management process.
1-2. Discuss the three stages of strategy formulation, implementation, and evaluation
activities.
1-3. Explain the need for integrating analysis and intuition in strategic management.
1-4. Define and give examples of key terms in strategic management.
1-5. Illustrate the comprehensive strategic-management model.
1-6. Describe the benefits of engaging in strategic management.
1-7. Explain why some firms do no strategic planning.
1-8. Describe the pitfalls in actually doing strategic planning.
1-9. Discuss the connection between business and military strategy.
assurance Of learning exercises
The following exercises are found at the end of this chapter:
exercise 1a
exercise 1b
exercise 1c
exercise 1D
exercise 1e
exercise 1f
Assess Singapore Airlines’ Most Recent Quarterly
Performance Data
Gather Strategy Information on Nestlé S.A.
Get Familiar with the Free Excel Student Template
Evaluate an Oral Student Presentation
Strategic Planning at Nestlé S.A.
Interview Local Strategists
31
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Strategic ManageMent
W
hen CEOs from the big three U.S. automakers—Ford, General Motors (GM), and
Chrysler—showed up several years ago without a clear strategic plan to ask congressional leaders for bailout monies, they were sent home with instructions to develop
a clear strategic plan for the future. Austan Goolsbee, one of President Barack Obama’s top
economic advisers, said, “Asking for a bailout without a convincing business plan was crazy.”
Goolsbee also said, “If the three auto CEOs need a bridge, it’s got to be a bridge to somewhere,
not a bridge to nowhere.”1 This text gives the instructions on how to develop a clear strategic
plan—a bridge to somewhere rather than nowhere.
The chapter provides an overview of strategic management. It introduces a practical, integrative model of the strategic-management process, and it defines basic activities and terms in
strategic management.
At the beginning of each chapter, a different company is showcased doing an exemplary
job applying strategic-planning concepts, tools, and techniques. The first company featured for
excellent strategic management practices is Singapore Airlines, Ltd., ranked amongst the top 15
carriers worldwide and one of the best managed companies in the world. In 2010, Goh Choon
Phong was made the CEO of the flag carrier of Singapore. At the end of each chapter, a new,
one-page, mini-case on a company is provided with respective questions that examine various
concepts, tools, and techniques presented.
What Is Strategic Management?
Once there were two company presidents who competed in the same industry. These two
presidents decided to go on a camping trip to discuss a possible merger. They hiked deep into
the woods. Suddenly, they came upon a grizzly bear that rose up on its hind legs and snarled.
Instantly, the first president took off his knapsack and got out a pair of jogging shoes. The second
president said, “Hey, you can’t outrun that bear.” The first president responded, “Maybe I can’t
exemplary cOmpany shOwcaseD
Singapore Airlines Limited (SIA)
A 5-star airline, Singapore Airlines (SIA) operates the world’s longest
non-stop commercial flight from Singapore to Los Angeles and Newark
and other trans-Pacific flights, and provides passenger services across
more than 30 countries.
Strategically well managed, its diversified businesses include aircraft handling and engineering. SIA owns SilkAir, an airline company
overseeing regional flights catering to small capacity requirements in
secondary cities, and Tigerair, a low fare airline that serves 37 destinations across 12 countries. In Asia, SilkAir helps passengers travel in over
30 cities. The company is the official sponsor of Singapore’s national
football team and has continued to market the iconic Singapore Girl, a
prominent element that depicts the flight attendants of the airline and
is pegged as the central image for the brand.
SIA was acknowledged as the best Asian airline in the Business
Traveler Awards 2014. According to a survey by Fortune in 2015, it
was ranked as the best international airline for business travel and
best customer service. The airline has often ranked as one of the most
admired company in the world outside the United States. Apart from
being acknowledged for their service and efficient operations, SIA has
also been commended for
SIA’s 2014–2015 Annual Report reveals that the company carried 18,737 passengers that fiscal year, up from 18,628 the previous
year, and had
revenue
of
$15,566 million, up from
$15,244 the
prior year. In
their
2014–
2015 Annual
Report, the company reported net profits of $368 million, up from
$359 million the prior year.
In July 2015, SIA reported that its net profit in the first quarter was
twice the amount made in the previous year due to lower oil prices,
hence, lower fuel expenses for the airline. The airline saw a net profit of
SGD $91.2 million ($67 million), up 162 percent from the same period
in the previous year. In July 2015, all talks about acquiring a stake in
South Korea’s Jeju Air had ended. Instead SIA chose to respond to
budget airlines, which were a bigger threat for SIA with their increasing
market share in Southeast Asia, by focusing on expanding in Australia,
Thailand, and India. An investment in Jeju Air would have given it more
access in North Asia, including China.
Source: Based on company documents.
CHAPTER1 • STRATEgiCMAnAgEMEnTESSEnTiAlS
outrun that bear, but I surely can outrun you!” This story captures the notion of strategic management, which is to gain and sustain competitive advantage.
What Is a Cohesion Case?
A distinguishing, popular feature of this text is the Cohesion Case, named so because a written
case on a company appears at the end of this chapter, and then all other chapters feature
end-of-chapter Assurance of Learning Exercises to apply strategic-planning concepts, tools,
and techniques to the Cohesion Case company. Nestlé S.A. is featured as the new Cohesion
Case in this edition, because Nestlé is a well-known, well-managed global firm undergoing
strategic change. By working through the Nestlé-related exercises at the end of each chapter, students become well prepared to develop an effective strategic plan for any company
assigned to them (or their team) to perform a strategic-management case analysis. Case analysis is a core part of almost every strategic-management course globally.
Defining Strategic Management
Strategic management is the art and science of formulating, implementing, and evaluating
cross-functional decisions that enable an organization to achieve its objectives. As this definition implies, strategic management focuses on integrating management, marketing, finance
and accounting, production and operations, research and development (R&D), and information systems to achieve organizational success. The term strategic management in this text is
used synonymously with the term strategic planning. The latter term is more often used in
the business world, whereas the former is often used in academia. Sometimes the term strategic management is used to refer to strategy formulation, implementation, and evaluation, with
strategic planning referring only to strategy formulation. The purpose of strategic management
is to exploit and create new and different opportunities for tomorrow; long-range planning, in
contrast, tries to optimize for tomorrow the trends of today.
The term strategic planning originated in the 1950s and was popular between the mid-1960s
and the mid-1970s. During these years, strategic planning was widely believed to be the answer
for all problems. At the time, much of corporate America was “obsessed” with strategic planning.
Following that boom, however, strategic planning was cast aside during the 1980s as various
planning models did not yield higher returns. The 1990s, however, brought the revival of strategic planning, and the process is widely practiced today in the business world. Many companies
today have a chief strategy officer (CSO). McDonald’s hired a new CSO in October 2015.
A strategic plan is, in essence, a company’s game plan. Just as a football team needs a good
game plan to have a chance for success, a company must have a good strategic plan to compete
successfully. Profit margins among firms in most industries are so slim that there is little room
for error in the overall strategic plan. A strategic plan results from tough managerial choices
among numerous good alternatives, and it signals commitment to specific markets, policies, procedures, and operations in lieu of other, “less desirable” courses of action.
The term strategic management is used at many colleges and universities as the title for the
capstone course in business administration. This course integrates material from all business
courses, and, in addition, introduces new strategic-management concepts and techniques being
widely used by firms in strategic planning.
Stages of Strategic Management
The strategic-management process consists of three stages: strategy formulation, strategy
implementation, and strategy evaluation. Strategy formulation includes developing a vision and
a mission, identifying an organization’s external opportunities and threats, determining internal
strengths and weaknesses, establishing long-term objectives, generating alternative strategies,
and choosing particular strategies to pursue. Strategy-formulation issues include deciding what
new businesses to enter, what businesses to abandon, whether to expand operations or diversify,
whether to enter international markets, whether to merge or form a joint venture, and how to
avoid a hostile takeover.
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Strategic ManageMent
Because no organization has unlimited resources, strategists must decide which alternative strategies will benefit the firm most. Strategy-formulation decisions commit an organization to specific products, markets, resources, and technologies over an extended period of time.
Strategies determine long-term competitive advantages. For better or worse, strategic decisions
have major multifunctional consequences and enduring effects on an organization. Top managers
have the best perspective to understand fully the ramifications of strategy-formulation decisions;
they have the authority to commit the resources necessary for implementation.
Strategy implementation requires a firm to establish annual objectives, devise policies,
motivate employees, and allocate resources so that formulated strategies can be executed.
Strategy implementation includes developing a strategy-supportive culture, creating an effective
organizational structure, redirecting marketing efforts, preparing budgets, developing and using
information systems, and linking employee compensation to organizational performance.
Strategy implementation often is called the “action stage” of strategic management.
Implementing strategy means mobilizing employees and managers to put formulated strategies into
action. Often considered to be the most difficult stage in strategic management, strategy implementation requires personal discipline, commitment, and sacrifice. Successful strategy implementation
hinges on managers’ ability to motivate employees, which is more an art than a science. Strategies
formulated but not implemented serve no useful purpose.
Interpersonal skills are especially critical for successful strategy implementation. Strategyimplementation activities affect all employees and managers in an organization. Every division
and department must decide on answers to questions such as “What must we do to implement
our part of the organization’s strategy?” and “How best can we get the job done?” The challenge
of implementation is to stimulate managers and employees throughout an organization to work
with pride and enthusiasm toward achieving stated objectives.
Strategy evaluation is the final stage in strategic management. Managers desperately need
to know when particular strategies are not working well; strategy evaluation is the primary means
for obtaining this information. All strategies are subject to future modification because external and internal factors constantly change. Three fundamental strategy-evaluation activities are
(1) reviewing external and internal factors that are the bases for current strategies, (2) measuring
performance, and (3) taking corrective actions. Strategy evaluation is needed because success
today is no guarantee of success tomorrow! Success always creates new and different problems;
complacent organizations experience demise.
Formulation, implementation, and evaluation of strategy activities occur at three hierarchical levels in a large organization: corporate, divisional or strategic business unit, and functional.
By fostering communication and interaction among managers and employees across hierarchical
levels, strategic management helps a firm function as a competitive team. Most small businesses
and some large businesses do not have divisions or strategic business units; they have only the
corporate and functional levels. Nevertheless, managers and employees at these two levels should
be actively involved in strategic-management activities.
Peter Drucker says the prime task of strategic management is thinking through the overall
mission of a business—
that is, of asking the question, “What is our business?” This leads to the setting of objectives, the development of strategies, and the making of today’s decisions for tomorrow’s
results. This clearly must be done by a part of the organization that can see the entire business; that can balance objectives and the needs of today against the needs of tomorrow; and
that can allocate resources of men and money to key results.2
Integrating Intuition and Analysis
Edward Deming once said, “In God we trust. All others bring data.” The strategic-management
process can be described as an objective, logical, systematic approach for making major decisions
in an organization. It attempts to organize qualitative and quantitative information in a way that
allows effective decisions to be made under conditions of uncertainty. Yet strategic management
is not a pure science that lends itself to a nice, neat, one-two-three approach.
Based on past experiences, judgment, and feelings, most people recognize that intuition is
essential to making good strategic decisions. Intuition is particularly useful for making decisions
CHAPTER1 • STRATEgiCMAnAgEMEnTESSEnTiAlS
in situations of great uncertainty or little precedent. It is also helpful when highly interrelated
variables exist or when it is necessary to choose from several plausible alternatives. Some managers and owners of businesses profess to have extraordinary abilities for using intuition alone
in devising brilliant strategies. For example, Will Durant, who organized GM, was described by
Alfred Sloan as “a man who would proceed on a course of action guided solely, as far as I could
tell, by some intuitive flash of brilliance. He never felt obliged to make an engineering hunt for
the facts. Yet at times, he was astoundingly correct in his judgment.”3 Albert Einstein acknowledged the importance of intuition when he said, “I believe in intuition and inspiration. At times
I feel certain that I am right while not knowing the reason. Imagination is more important than
knowledge, because knowledge is limited, whereas imagination embraces the entire world.”4
Although some organizations today may survive and prosper because they have intuitive
geniuses managing them, many are not so fortunate. Most organizations can benefit from strategic management, which is based on integrating intuition and analysis in decision making.
Choosing an intuitive or analytic approach to decision making is not an either-or proposition.
Managers at all levels in an organization inject their intuition and judgment into strategicmanagement analyses. Analytical thinking and intuitive thinking complement each other.
Operating from the I’ve-already-made-up-my-mind-don’t-bother-me-with-the-facts mode
is not management by intuition; it is management by ignorance.5 Drucker says, “I believe in
intuition only if you discipline it. ‘Hunch’ artists, who make a diagnosis but don’t check it out
with the facts, are the ones in medicine who kill people, and in management kill businesses.”6
As Henderson notes:
The accelerating rate of change today is producing a business world in which customary
managerial habits in organizations are increasingly inadequate. Experience alone was an
adequate guide when changes could be made in small increments. But intuitive and experience-based management philosophies are grossly inadequate when decisions are strategic
and have major, irreversible consequences.7
In a sense, the strategic-management process is an attempt to duplicate what goes on in the mind
of a brilliant, intuitive person who knows the business and assimilates and integrates that knowledge using analysis to formulate effective strategies.
Adapting to Change
The strategic-management process is based on the belief that organizations should continually
monitor internal and external events and trends so that timely changes can be made as needed.
The rate and magnitude of changes that affect organizations are increasing dramatically, as
evidenced by how the drop in oil prices caught so many firms by surprise. Firms, like organisms,
must be “adept at adapting” or they will not survive. To survive, all organizations must astutely
identify and adapt to change. The strategic-management process is aimed at allowing organizations to adapt effectively to change over the long run. Waterman noted:
In today’s business environment, more than in any preceding era, the only constant is
change. Successful organizations effectively manage change, continuously adapting their
bureaucracies, strategies, systems, products, and cultures to survive the shocks and prosper
from the forces that decimate the competition.8
On a political map, the boundaries between countries may be clear, but on a competitive
map showing the real flow of financial and industrial activity, the boundaries have largely
disappeared. The speedy flow of information has eaten away at national boundaries so that
people worldwide readily see for themselves how other people live and work. We have become
a borderless world with global citizens, global competitors, global customers, global suppliers,
and global distributors! Many firms headquartered in the United States are challenged by outside-U.S.–based companies in many industries. For example, Toyota, Honda, Yamaha, Suzuki,
Volkswagen, Samsung, and Kia have huge market shares in the United States.
The need to adapt to change leads organizations to key strategic-management questions,
such as “What kind of business should we become?” “Are we in the right field(s)?” “Should
we reshape our business?” “What new competitors are entering our industry?” “What strategies
35
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Strategic ManageMent
should we pursue?” “How are our customers changing?” “Are new technologies being developed
that could put us out of business?”
The Internet promotes endless comparison shopping, enabling consumers worldwide to
band together to demand discounts. The Internet has transferred power from businesses to individuals. Buyers used to face big obstacles when attempting to get the best price and service, such
as limited time and data to compare, but now consumers can quickly scan hundreds of vendor
offerings. Both the number of people shopping online and the average amount they spend is
increasing dramatically. Digital communication has become the name of the game in marketing. Consumers today are flocking to blogs, sending tweets, watching and posting videos on
YouTube, and spending hours on Tumbler, Facebook, Reddit, Instagram, and LinkedIn, instead
of watching television, listening to the radio, or reading newspapers and magazines. Facebook
recently unveiled features that further marry these social sites to the wider Internet. Facebook
users can now log onto various business shopping sites from their social site, so their friends can
see what items they have purchased from what companies. Facebook wants their members to use
their identities to manage all their online identities. Most traditional retailers boost in-store sales
using their websites to promote in-store promotions.
Key Terms in Strategic Management
Before we further discuss strategic management, we should define nine key terms: competitive
advantage, strategists, vision and mission statements, external opportunities and threats, internal strengths and weaknesses, long-term objectives, strategies, annual objectives, and policies.
Competitive Advantage
Strategic management is all about gaining and maintaining competitive advantage. This term
can be defined as any activity a firm does especially well compared to activities done by rival
firms, or any resource a firm possesses that rival firms desire.
Having fewer fixed assets than rival firms can provide major competitive advantages. For
example, Apple has virtually no manufacturing facilities of its own, and rival Sony has 57 electronics factories. Apple relies almost entirely on contract manufacturers for production of all its
products, whereas Sony owns its own plants. Having fewer fixed assets has enabled Apple to
remain financially lean.
According to CEO Paco Underhill of Envirosell, “Where it used to be a polite war, it’s now
a 21st-century bar fight, where everybody is competing with everyone else for the customers’
money.” Shoppers are “trading down: Nordstrom is taking customers from Neiman Marcus and
Saks Fifth Avenue, T.J. Maxx and Marshalls are taking customers from most other stores in the
mall, and Family Dollar is taking revenues from Walmart.9 Getting and keeping competitive
advantage is essential for long-term success in an organization. In mass retailing, big-box companies, such as Walmart, Best Buy, and Sears, are losing competitive advantage to smaller stores,
reflecting the dramatic shift in mass retailing to becoming smaller. As customers shift more to
online purchases, less brick and mortar is definitely better for sustaining competitive advantage in retailing. Walmart Express stores of less than 40,000 square feet each, rather than its
185,000-square-foot Supercenters, and Office Depot’s new 5,000-square-foot stores are examples of smaller is better.
Normally, a firm can sustain a competitive advantage for only a certain period because
of rival firms imitating and undermining that advantage. Thus, it is not adequate simply to
obtain competitive advantage. A firm must strive to achieve sustained competitive advantage
by (1) continually adapting to changes in external trends and events and internal capabilities,
competencies, and resources; and (2) effectively formulating, implementing, and evaluating
strategies that capitalize on those factors.
Strategists
Strategists are the individuals most responsible for the success or failure of an organization.
They have various job titles, such as chief executive officer, president, owner, chair of the board,
executive director, chancellor, dean, and entrepreneur. Jay Conger, professor of organizational
CHAPTER1 • STRATEgiCMAnAgEMEnTESSEnTiAlS
37
behavior at the London Business School and author of Building Leaders, says, “All strategists
have to be chief learning officers. We are in an extended period of change. If our leaders aren’t
highly adaptive and great models during this period, then our companies won’t adapt either,
because ultimately leadership is about being a role model.”
Strategists help an organization gather, analyze, and organize information. They track industry and competitive trends, develop forecasting models and scenario analyses, evaluate corporate
and divisional performance, spot emerging market opportunities, identify business threats, and
develop creative action plans. Strategic planners usually serve in a support or staff role. Usually
found in higher levels of management, they typically have considerable authority for decision
making in the firm. The CEO is the most visible and critical strategic manager. Any manager
who has responsibility for a unit or division, responsibility for profit and loss outcomes, or direct
authority over a major piece of the business is a strategic manager (strategist).
In the last few years, the position of CSO has become common in many organizations, including Sun Microsystems, Network Associates, Clarus, Lante, Marimba, Sapient,
Commerce One, BBDO, Cadbury Schweppes, General Motors, Ellie Mae, Cendant, Charles
Schwab, Tyco, Campbell Soup, Morgan Stanley, and Reed-Elsevier. This corporate officer
title represents recognition of the growing importance of strategic planning in business. Franz
Koch, the CSO of German sportswear company Puma AG, was recently promoted to CEO of
Puma. When asked about his plans for the company, Koch said on a conference call, “I plan
to just focus on the long-term strategic plan.” Academic Research Capsule 1-1 reveals when
CSOs are most often hired.
Strategists differ as much as organizations do, and these differences must be considered in
the formulation, implementation, and evaluation of strategies. Strategists differ in their attitudes,
values, ethics, willingness to take risks, concern for social responsibility, concern for profitability, concern for short-run versus long-run aims, and management style—some will not even consider various types of strategies because of their personal philosophies. The founder of Hershey,
Milton Hershey, built the company so that he could afford to manage an orphanage. From corporate profits, Hershey today cares for about 900 boys and 1,000 girls in its boarding school for
pre-K through grade 12.
Athletic coaches are also strategists. Football, basketball, baseball, soccer, and in fact most
athletic contests are often won or lost based a team’s game plan. For example, a basketball coach
may plan to fast break and play up-tempo, rather than play more half court, if the players are
smaller and faster, or if the team has more depth than the opposing team. A few great college basketball coaches today are Mike Krzyzewski at Duke, John Calipari at Kentucky, Jim Boeheim at
Syracuse, and Tom Izzo at Michigan State. Great college basketball coaches years ago included
John Wooden, Jim Valvano, Dean Smith, and Bobby Knight. Another great coach of yesteryear
was Nolan Richardson, who developed excellent game plans and, in 1994, as the first black head
coach at a major university in the South, led the Arkansas Razorbacks men’s basketball team to
acaDemic research capsule 1-1
When Are Chief Strategy Officers (CSOs) Hired/Appointed?
An increasing number of firms are employing a chief strategy officer
(CSO). In an article published in 2014, Menz and Sheef examined
200 S&P 500 firms over a 5-year period to examine what factors
contribute to firms hiring a CSO and what factors contribute to a
CSO affecting a firm’s financial performance. Of the sampled firms,
on average, during the study, 42 percent employed a CSO. Although
many factors may lead to a firm’s decision to appoint a CSO, the
authors focused on five key areas that prior research suggests as
most important and most likely to lead to a CSO appointment:
1) As the business portfolio increases (e.g., the firm becomes more
diversified)
2)
3)
4)
5)
As acquisition activity expands
As alliance activity increases
As a firm’s size grows
As top management team interdependence increases
Results of the Menz and Sheef study reveal that an increase in
management interdependence and growth in acquisition activity
were most commonly associated with hiring a new CSO.
Source: Based on Markus Menz and Christine Sheef, “Chief Strategy
Officers: Contingency Analysis of Their Presence in Top Management
Teams,” Strategic Management Journal 35, no. 3 (March 2014): 461–471.
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Strategic ManageMent
Table 1-1 Ten Famous, Strategic-Planning–Relevant Quotes from NFL Coaches
1. “Perfection is not attainable. But if we chase perfection, we can catch excellence.” —Vince Lombardi, Head Coach Green Bay Packers (1959–67)
2. “Leadership is a matter of having people look at you and gain confidence…. If you’re in control,
they’re in control.” —Tom Landry, Head Coach Dallas Cowboys (1960–88)
3. “On a team, it’s not the strength of the individual players, but it is the strength of the unit and
how they all function together.” —Bill Belichick, Head Coach New England Patriots (2000–
Present), New York Jets (1999), Cleveland Browns (1991–95)
4. “If you want to win, do the ordinary things better than anyone else does them day in and day
out.” —Chuck Noll, Head Coach Pittsburgh Steelers (1969–91)
5. “Leaders are made, they are not born. They are made by hard effort, which is the price which all
of us must pay to achieve any goal that is worthwhile.” —Vince Lombardi, Head Coach Green
Bay Packers (1959–67)
6. “Try not to do too many things at once. Know what you want, the number one thing today and
tomorrow. Persevere and get it done.” —George Allen, Head Coach Los Angeles Rams (1957,
1966–70), Chicago Bears (1958–65), Washington Redskins (1971–77)
7. “You fail all the time, but you aren’t a failure until you start blaming someone else.” —Bum Phillips, Head Coach Houston Oilers (1975–80), New Orleans Saints (1981–85)
8. “Success demands singleness of purpose.” —Vince Lombardi, Head Coach Green Bay Packers
(1959–67)
9. “Stay focused. Your start does not determine how you’re going to finish.” —Herm Edwards,
Head Coach New York Jets (2001–05), Kansas City Chiefs (2006–08)
10. “Nobody who ever gave his best regretted it.” —George S. Halas, Head Coach Chicago Bears
(1933–42, 1946–55, 1958–67)
Source: A variety of sources.
win the NCAA college basketball national championship versus Duke.10 Switching to football,
some inspirational, strategic-planning–related quotes from legendary National Football League
(NFL) coaches are provided in Table 1-1.
Vision and Mission Statements
Many organizations today develop a vision statement that answers the question “What do we
want to become?” Developing a vision statement is often considered the first step in strategic
planning, preceding even development of a mission statement. Many vision statements are a single sentence. For example, the vision statement of Stokes Eye Clinic in Florence, South Carolina,
is “Our vision is to take care of your vision.”
Mission statements are “enduring statements of purpose that distinguish one business from
other similar firms. A mission statement identifies the scope of a firm’s operations in product and
market terms.”11 It addresses the basic question that faces all strategists: “What is our business?”
A clear mission statement describes the values and priorities of an organization. Developing a
mission statement compels strategists to think about the nature and scope of present operations
and to assess the potential attractiveness of future markets and activities. A mission statement
not only broadly charts the future direction of an organization but it also serves as a constant
reminder to its employees of why the organization exists and what the founders envisioned when
they put their fame and fortune (and names) at risk to breathe life into their dreams.
External Opportunities and Threats
External opportunities and external threats refer to economic, social, cultural, demographic,
environmental, political, legal, governmental, technological, and competitive trends and events
that could significantly benefit or harm an organization in the future. Opportunities and threats
are largely beyond the control of a single organization—thus the word external. Some general
categories of opportunities and threats are listed in Table 1-2, but be mindful that dollars, numbers, percentages, ratios, and quantification are essential, so strategists can assess the magnitude
CHAPTER1 • STRATEgiCMAnAgEMEnTESSEnTiAlS
Table 1-2 Some General Categories of Opportunities and Threats
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Availability of capital can no longer be taken for granted.
Consumers expect green operations and products.
Marketing is moving rapidly to the Internet.
Commodity food prices are increasing.
An oversupply of oil is driving oil and gas prices down.
Computer hacker problems are increasing.
Intense price competition is plaguing most firms.
Unemployment and underemployment rates remain high globally.
Interest rates are low but rising.
Product life cycles are becoming shorter.
State and local governments are financially weak.
Drug cartel–related violence is increasing in Mexico.
Winters are colder and summers are hotter than usual.
Birth rates are declining in most countries.
Global markets offer the highest growth in revenues.
New laws are passed.
Competitors introduce new products.
National catastrophes occur.
The value of the Euro is rebounding.
The separation between the rich and poor is growing.
Social media networking is greatly expanding.
The Russian ruble has dropped 60 percent in value.
of opportunities and threats and take appropriate actions. For example, in Table 1-2, rather than
saying “Marketing is moving rapidly to the Internet,” strategists who take the time to do research
would find, for example, that “spending on online advertisements globally rose about 25 percent
in 2014, according to eMarketer, and represented about 39 percent of total advertising spending
in the United States.12 Strategies must be formulated and implemented based on specific factual
information to the extent possible—because so much is at stake in having a good game plan.
External trends and events are creating a different type of consumer and consequently a need
for different types of products, services, and strategies. Many companies in many industries face
the severe threat of online sales eroding brick-and-mortar sales. A competitor’s strength could be
a threat, or a rival firm’s weakness could be an opportunity.
A basic tenet of strategic management is that firms need to formulate strategies to take
advantage of external opportunities and avoid or reduce the impact of external threats. For this
reason, identifying, monitoring, and evaluating external opportunities and threats are essential for
success. This process of conducting research and gathering and assimilating external information
is sometimes called environmental scanning or industry analysis. Lobbying is one activity that
some organizations use to influence ex...
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