MGT401 - Discussion 8

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Interactive Activity 8 Content Introduction Learning Outcomes 1. Understand the contribution of various functional areas e.g. production, marketing, purchasing and supply management to the overall well-being of the organization 2. Communicate issues, results and recommendations coherently, and effectively regarding appropriate strategies for different situations. Reading Required Chapter 8. Strategy Formation: Functional Strategy and Strategic Choice Textbook: Wheelen, T. L., Hunger, D., Hoffman, A. N., & Bamford, C. E. (2014). Concepts in strategic management and business policy (14th ed.). Upper Saddle River, NJ: Prentice Hall. ISBN-13: 9780133126129 (print), 9780133126433 (e-text) Recommended Liao, H., Li, D., Zhou, T., Huang, B., Zhang, H., Chen, B., & Peng, S. (2021). The role of functional strategies in global plant distribution. Ecography, 44(4), 493–503. Test your knowledge Question 1 Are functional strategies interdependent, or can they be formulated independently of other functions? ……………………………………………………………………………………………………… ……………………………………………………………………………………………………… ……………………………………………………………………………………………………… ……………………………………………………………………………………………………… ……………………………………………………………………………………………………… ……………………………………………………………………………………………………… ……………………………………………………………………………………………………… ……………………………………………………………………………………………………… ……………………………………………………………………………………………………… ……………………………………………………………………………………………………… …………………………………………… Question 2 What is the relationship of policies to strategies? ……………………………………………………………………………………………………… ……………………………………………………………………………………………………… ……………………………………………………………………………………………………… ……………………………………………………………………………………………………… ……………………………………………………………………………………………………… ……………………………………………………………………………………………………… ……………………………………………………………………………………………………… ……………………………………………………………………………………………………… ……………………………………………………………………………………………………… ……………………………………………………………………………………………………… …………………………………………… Strategic Management and Business Policy Globalization, Innovation, and Sustainability For these Global Editions, the editorial team at Pearson has collaborated with educators across the world to address a wide range of subjects and requirements, equipping students with the best possible learning tools. This Global Edition preserves the cutting-edge approach and pedagogy of the original, but also features alterations, customization and adaptation from the North American version. Global edition Global edition Global edition Strategic Management and Business Policy Globalization, Innovation, and Sustainability FOURTEENTH edition FOURTEENTH edition Pearson Global Edition Wheelen Hunger Hoffman Bamford This is a special edition of an established title widely used by colleges and universities throughout the world. Pearson published this exclusive edition for the benefit of students outside the United States and Canada. If you purchased this book within the United States or Canada you should be aware that it has been imported without the approval of the Publisher or Author. Thomas L. Wheelen • J. David Hunger Alan N. Hoffman • Charles E. Bamford FOURTEENTH EDITION Strategic Management and Business Policy GLOBALIZATION, INNOVATION, AND SUSTAINABILITY # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 1 A01_WHEE0811_14_GE_FM.indd 1 Title: Strategic Management and Business Policy     Server: Jobs4 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:26 PM This page is intentionally left blank. # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 2 A01_WHEE0811_14_GE_FM.indd 2 Title: Strategic Management and Business Policy     Server: Jobs4 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:26 PM FOURTEENTH EDITION Strategic Management and Business Policy Global EDITION Globalization, Innovation, and Sustainability Thomas L. Wheelen Formerly with University of Virginia, Trinity College, Dublin, Ireland Alan N. Hoffman Boston Delhi University of Notre Dame Columbus Cape Town Mexico City Iowa State University, St. John’s University Charles E. Bamford Bentley University Amsterdam J. David Hunger Indianapolis New York San Francisco Upper Saddle River Milan Paris Montreal Singapore Taipei Dubai London Madrid São Paulo Sydney Hong Kong Munich Seoul # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 3 A01_WHEE0811_14_GE_FM.indd 3 Title: Strategic Management and Business Policy     Server: Jobs4 Toronto Tokyo C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:26 PM Editor in Chief: Stephanie Wall Acquisitions Editor: Daniel Tylman Acquisitions Editor, Global Editions: Debapriya Mukherjee Project Editor, Global Editions: Suchismita Ukil Program Management Lead: Ashley Santora Program Manager: Sarah Holle Editorial Assistant: Bernard Ollila Director of Marketing: Maggie Moylan Marketing Manager: Erin Gardner Marketing Assistant: Gianni Sandri Project Management Lead: Judy Leale Project Manager: Karalyn Holland Head of Learning Asset Acquisition, Global Editions: Laura Dent Media Producer, Global Editions: M. Vikram Kumar Senior Manufacturing Controller, Production, Global Editions: Trudy Kimber Procurement Specialist: Michelle Klein Creative Director: Blair Brown Central Design Manager: Jayne Conte Cover Design: PreMedia Global Cover Image: © majeczka/Shutterstock VP, Director of Digital Strategy & Assessment: Paul Gentile Digital Editor: Brian Surette Digital Development Manager: Robin Lazrus MyLab Project Manager: Joan Waxman Digital Project Manager: Alana Coles Media Project Manager: Lisa Rinaldi Full-Service Project Management: S4Carlisle Publishing Services Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on the appropriate page within text. Additional photo/image credits: Sustainability issue, LehaKok/Shutterstock; Innovation issue, ssuaphotos/Shutterstock; Global issue, Rob Wilson/Shutterstock; Strategy highlight, Triff/Shutterstock; Chapter opener globe, Nelson Marques/Shutterstock. Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: © Pearson Education Limited 2015 The rights of Thomas L. Wheelen, J. David Hunger, Alan N. Hoffman, and Charles E. Bamford to be identified as the authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. Authorized adaptation from the United States edition, entitled Strategic Management and Business Policy, 14th edition, ISBN 978-0-13-312614-3, by Thomas L. Wheelen, J. David Hunger, Alan N. Hoffman, and Charles E. Bamford, published by Pearson Education © 2015. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a license permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS. All trademarks used herein are the property of their respective owners. The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners. ISBN 10: 1-292-06081-6 ISBN 13: 978-1-292-06081-1 ISBN 13: 978-1-292-06794-0 (Print) (PDF) British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library 10 9 8 7 6 5 4 3 2 1 14 13 12 11 Typeset in 10/12 Times LT Std by S4Carlisle Publishing Services Printed and bound by Courier Kendallville in The United States of America # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 4 A01_WHEE0811_14_GE_FM.indd 4 Title: Strategic Management and Business Policy     Server: Jobs4 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:26 PM Brief Contents PART one Introduction to Strategic Management and Business Policy 35 CHAPTER CHAPTER CHAPTER 1   Basic Concepts of Strategic Management 36 2   Corporate Governance 74 3   Social Responsibility and Ethics in Strategic Management 102 PART two Scanning the Environment 123 CHAPTER CHAPTER 4   Environmental Scanning and Industry Analysis 124 5   Internal Scanning: Organizational Analysis 160 PART three Strategy Formulation 195 CHAPTER CHAPTER CHAPTER 6   Strategy Formulation: Situation Analysis and Business Strategy 196 7   Strategy Formulation: Corporate Strategy 218 8   Strategy Formulation: Functional Strategy and Strategic Choice 248 PART four Strategy Implementation and Control 277 9   Strategy Implementation: Organizing for Action 278 C H A P T E R 1 0   Strategy Implementation: Staffing and Directing 308 C H A P T E R 1 1   Evaluation and Control 336 CHAPTER PART five Introduction to Case Analysis 365 C H A P T E R 1 2   Suggestions for Case Analysis 366 PART six Cases in Strategic Management 393 Glossary  803 Name Index  815 Subject Index  820 5 # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 5 A01_WHEE0811_14_GE_FM.indd 5 Title: Strategic Management and Business Policy     Server: Jobs4 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:26 PM This page is intentionally left blank. # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 6 A01_WHEE0811_14_GE_FM.indd 6 Title: Strategic Management and Business Policy     Server: Jobs4 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:26 PM Contents Preface  23 About the Authors   31 PART one Introduction to Strategic Management and Business Policy  35 CHAPTER 1 Basic Concepts of Strategic Management  36 The Study of Strategic Management   38 Phases of Strategic Management  38 Benefits of Strategic Management  39 Globalization, Innovation, and Sustainability: Challenges to Strategic Management   41 Impact of Globalization  42 Impact of Innovation  43 Global Issue: REGIONAL TRADE ASSOCIATIONS REPLACE NATIONAL TRADE BARRIERS  43 Impact of Sustainability  44 Theories of Organizational Adaptation   45 Creating a Learning Organization   46 Basic Model of Strategic Management   47 Environmental Scanning  48 Strategy Formulation  50 Strategy Implementation  53 Evaluation and Control  55 Feedback/Learning Process  55 Initiation of Strategy: Triggering Events   56 Strategic Decision Making   57 What Makes a Decision Strategic  57 Mintzberg’s Modes of Strategic Decision Making  58 Strategic Decision-Making Process: Aid to Better Decisions  59 The Strategic Audit: Aid to Strategic Decision Making   60 End of Chapter Summary  61 Appendix 1.A Strategic Audit of a Corporation  66 7 # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 7 A01_WHEE0811_14_GE_FM.indd 7 Title: Strategic Management and Business Policy     Server: Jobs4 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:26 PM 8 CONTENTS CHAPTER 2 Corporate Governance  74 Role of the Board of Directors   77 Responsibilities of the Board  78 Members of a Board of Directors  80 Innovation Issue: JCPenney and Innovation   81 Strategy Highlight: AGENCY THEORY VERSUS STEWARDSHIP THEORY IN CORPORATE GOVERNANCE  83 Nomination and Election of Board Members  86 Organization of the Board  87 Impact of the Sarbanes–Oxley Act on U.S. Corporate Governance  88 Global Issue: GLOBAL BUSINESS BOARD ACTIVISM AT YAHOO!  90 Trends in Corporate Governance  91 The Role of Top Management   92 Responsibilities of Top Management  92 Sustainability Issue: CEO PAY AND CORPORATE PERFORMANCE  93 End of Chapter Summary  96 CHAPTER 3 Social Responsibility and Ethics in Strategic Management  102 Social Responsibilities of Strategic Decision Makers   104 Responsibilities of a Business Firm  104 Sustainability  107 Corporate Stakeholders  108 Sustainability Issue: MARKS & SPENCER LEADS THE WAY  108 Strategy Highlight: JOHNSON & JOHNSON CREDO  111 Ethical Decision Making   111 Some Reasons for Unethical Behavior  112 Global Issue: HOW RULE-BASED AND RELATIONSHIP-BASED GOVERNANCE SYSTEMS AFFECT ETHICAL BEHAVIOR  113 Innovation Issue: Turning a Need into a Business to Solve the Need   115 Encouraging Ethical Behavior  116 End of Chapter Summary  118 PART two Scanning the Environment  123 CHAPTER 4 Environmental Scanning and Industry Analysis  124 Environmental Scanning  126 Identifying External Environmental Variables  126 # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 8 A01_WHEE0811_14_GE_FM.indd 8 Title: Strategic Management and Business Policy     Server: Jobs4 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:26 PM CONTENTS 9 Sustainability Issue: GREEN SUPERCARS  128 Global Issue: SUVs POWER ON IN CHINA  136 Identifying External Strategic Factors  137 Industry Analysis: Analyzing the Task Environment   138 Porter’s Approach to Industry Analysis  138 Industry Evolution  142 Innovation Issue: TAKING STOCK OF AN OBSESSION   143 Categorizing International Industries  143 International Risk Assessment  144 Strategic Groups  144 Strategic Types  146 Hypercompetition  146 Using Key Success Factors to Create an Industry Matrix  147 Competitive Intelligence  148 Sources of Competitive Intelligence  149 Strategy Highlight: EVALUATING COMPETITIVE INTELLIGENCE  150 Monitoring Competitors for Strategic Planning  151 Forecasting  152 Danger of Assumptions  152 Useful Forecasting Techniques  152 The Strategic Audit: A Checklist for Environmental Scanning   154 Synthesis of External Factors—EFAS   154 End of Chapter Summary  156 CHAPTER 5 Internal Scanning: Organizational Analysis  160 A Resource-Based Approach to Organizational Analysis   162 Core and Distinctive Competencies  162 Using Resources to Gain Competitive Advantage  163 Determining the Sustainability of an Advantage  164 Business Models  166 Value-Chain Analysis  167 Industry Value-Chain Analysis  168 Corporate Value-Chain Analysis  169 Scanning Functional Resources and Capabilities   170 Basic Organizational Structures  171 Corporate Culture: The Company Way  172 # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 9 A01_WHEE0811_14_GE_FM.indd 9 Title: Strategic Management and Business Policy     Server: Jobs4 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:26 PM 10 CONTENTS Global Issue: MANAGING CORPORATE CULTURE FOR GLOBAL COMPETITIVE ADVANTAGE: ABB VS. PANASONIC  174 Strategic Marketing Issues  174 Innovation Issue: DoCoMo Moves against the Grain   176 Strategic Financial Issues  177 Strategic Research and Development (R&D) Issues  178 Strategic Operations Issues  180 Strategic Human Resource (HRM) Issues  181 Sustainability Issue: THE OLYMPIC GAMES—SOCHI 2014 AND RIO 2016  184 Strategic Information Systems/Technology Issues  185 The Strategic Audit: A Checklist for Organizational Analysis   187 Synthesis of Internal Factors   187 End of Chapter Summary  189 PART three Strategy Formulation  195 CHAPTER 6 Strategy Formulation: Situation Analysis and Business Strategy  196 Situational Analysis: SWOT Approach   198 Generating a Strategic Factors Analysis Summary (SFAS) Matrix  198 Finding a Propitious Niche  199 Review of Mission and Objectives   202 Business Strategies  203 Porter’s Competitive Strategies  203 Global Issue: THE NIKE SHOE STRATEGY VS. THE NEW BALANCE SHOE STRATEGY  205 Innovation Issue: CHEGG and College Textbooks   208 Cooperative Strategies  209 Sustainability Issue: STRATEGIC SUSTAINABILITY—ESPN  210 End of Chapter Summary  214 CHAPTER 7 Strategy Formulation: Corporate Strategy  218 Corporate Strategy  220 Directional Strategy  220 Growth Strategies  221 Strategy Highlight: TRANSACTION COST ECONOMICS ANALYZES VERTICAL GROWTH STRATEGY  225 International Entry Options for Horizontal Growth  226 Global Issue: GLOBAL EXPANSION IS NOT ALWAYS A PATH TO EXPANSION  226 Controversies in Directional Growth Strategies  230 # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 10 A01_WHEE0811_14_GE_FM.indd 10 Title: Strategic Management and Business Policy     Server: Jobs4 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:26 PM CONTENTS 11 Stability Strategies  231 Retrenchment Strategies  232 Portfolio Analysis  234 Bcg Growth-Share Matrix  234 Sustainability Issue: GENERAL MOTORS AND THE ELECTRIC CAR  236 Advantages and Limitations of Portfolio Analysis  237 Managing a Strategic Alliance Portfolio  238 Corporate Parenting  239 Innovation Issue: To Red Hat or Not?   239 Developing a Corporate Parenting Strategy  240 Horizontal Strategy and Multipoint Competition  241 End of Chapter Summary  241 CHAPTER 8 Strategy Formulation: Functional Strategy and Strategic Choice  248 Functional Strategy  250 Marketing Strategy  250 Financial Strategy  251 Research and Development (R&D) Strategy  253 Operations Strategy  254 Global Issue: WHY DOESN’T STARBUCKS WANT TO EXPAND TO ITALY?  255 Purchasing Strategy  256 Sustainability Issue: HOW HOT IS HOT?  257 Logistics Strategy  258 Innovation Issue: When an Innovation Fails to Live Up to Expectations   258 Human Resource Management (HRM) Strategy  259 Information Technology Strategy  259 The Sourcing Decision: Location of Functions   260 Strategies to Avoid   263 Strategic Choice: Selecting the Best Strategy   263 Constructing Corporate Scenarios  264 The Process of Strategic Choice  269 Developing Policies  270 End of Chapter Summary  271 PART four Strategy Implementation and Control  277 CHAPTER 9 Strategy Implementation: Organizing for Action  278 Strategy Implementation  280 Who Implements Strategy?   281 # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 11 A01_WHEE0811_14_GE_FM.indd 11 Management and Business Policy     Server: Jobs4 Title: Strategic C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:26 PM 12 CONTENTS What Must Be Done?   282 Developing Programs, Budgets, and Procedures  282 Sustainability Issue: A BETTER BOTTLE—ECOLOGIC BRANDS  283 Achieving Synergy  286 How Is Strategy to Be Implemented? Organizing for Action   287 Structure Follows Strategy  287 Stages of Corporate Development  288 Innovation Issues: The P&G Innovation Machine Stumbles   289 Organizational Life Cycle  292 Advanced Types of Organizational Structures  294 Reengineering and Strategy Implementation  297 Six Sigma  298 Designing Jobs to Implement Strategy  299 International Issues in Strategy Implementation   300 International Strategic Alliances  300 Stages of International Development  301 Global Issue: OUTSOURCING COMES FULL CIRCLE  302 Centralization Versus Decentralization  302 End of Chapter Summary  304 CHAPTER 10 Strategy Implementation: Staffing and Directing  308 Staffing  310 Staffing Follows Strategy  311 Selection and Management Development  313 Innovation Issue: HOW TO KEEP APPLE “COOL”   313 Problems in Retrenchment  315 International Issues in Staffing  317 Leading  319 Sustainability Issue: PANERA AND THE “PANERA CARES COMMUNITY CAFÉ”  319 Managing Corporate Culture  320 Action Planning  324 Management by Objectives  326 Total Quality Management  326 International Considerations in Leading  327 Global Issue: CULTURAL DIFFERENCES CREATE IMPLEMENTATION PROBLEMS IN MERGER  329 End of Chapter Summary  330 # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 12 A01_WHEE0811_14_GE_FM.indd 12 Title: Strategic Management and Business Policy     Server: Jobs4 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:26 PM CONTENTS CHAPTER 11 13 Evaluation and Control  336 Evaluation and Control in Strategic Management   338 Measuring Performance  338 Appropriate Measures  338 Types of Controls  339 Innovation Issue: REUSE OF ELECTRIC VEHICLE BATTERIES   340 Activity-Based Costing  341 Enterprise Risk Management  342 Primary Measures of Corporate Performance  342 Balanced Scorecard Approach: Using Key Performance Measures  345 Sustainability Issue: E-RECEIPTS  345 Primary Measures of Divisional and Functional Performance  347 Responsibility Centers  348 Using Benchmarking to Evaluate Performance  349 International Measurement Issues  350 Global Issue: COUNTERFEIT GOODS AND PIRATED SOFTWARE: A GLOBAL PROBLEM  352 Strategic Information Systems   352 Enterprise Resource Planning (ERP)  353 Radio Frequency Identification (RFID)  353 Divisional and Functional is Support  354 Problems in Measuring Performance   354 Short-Term Orientation  354 Goal Displacement  356 Guidelines for Proper Control   357 Strategic Incentive Management   357 End of Chapter Summary  359 PART five CHAPTER 12 Introduction to Case Analysis  365 Suggestions for Case Analysis  366 The Case Method   368 Researching the Case Situation   368 Financial Analysis: A Place to Begin   369 Analyzing Financial Statements  369 Common-Size Statements  373 Z-Value and the Index of Sustainable Growth  373 Useful Economic Measures  374 Format for Case Analysis: The Strategic Audit   375 # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 13 A01_WHEE0811_14_GE_FM.indd 13 Management and Business Policy     Server: Jobs4 Title: Strategic C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:26 PM 14 CONTENTS End of Chapter Summary  377 Appendix 12.A Resources for Case Research  379 Appendix 12.B Suggested Case Analysis Methodology Using the Strategic Audit  381 Appendix 12.C Example of Student-Written Strategic Audit  384 PART six Cases in Strategic Management   393 SECTION A case 1 Corporate Governance: Executive Leadership  he Recalcitrant Director at Byte Products, Inc.: Corporate Legality versus T Corporate Responsibility  399 (Contributors: Dan R. Dalton, Richard A. Cosier, and Cathy A. Enz) A plant location decision forces a confrontation between the board of directors and the CEO regarding an issue in social responsibility and ethics. case 2 The Wallace Group  405 (Contributor: Laurence J. Stybel) Managers question the company’s strategic direction and how it is being managed by its founder and CEO. Company growth has resulted not only in disorganization and confusion among employees, but in poor overall performance. How should the board deal with the company’s founder? SECTION B case 3 Business Ethics Everyone Does It  415 (Contributors: Steven M. Cox and Shawana P. Johnson) When Jim Willis, Marketing VP, learns that the launch date for the company’s new satellite will be late by at least a year, he is told by the company’s president to continue using the earlier published date for the launch. When Jim protests that the use of an incorrect date to market contracts is unethical, he is told that spacecraft are never launched on time and that it is common industry practice to list unrealistic launch dates. If a realistic date was used, no one would contract with the company. case 4 The Audit  419 (Contributors: Gamewell D. Gantt, George A. Johnson, and John A. Kilpatrick) A questionable accounting practice by the company being audited puts a new CPA in a difficult position. Although the practice is clearly wrong, she is being pressured by her manager to ignore it because it is common in the industry. SECTION C case 5 Corporate Social Responsibility  arly Warning or False Sense of Security? Concussion Risk and the Case of the E Impact-Sensing Football Chinstrap  421 (Contributors: Clifton D. Petty, and Michael R. Shirley) new In 2009, Battle Sports Science, headquartered in Omaha, Nebraska, was built with a focus on “enhancing safety for athletes.” Specifically, the company wanted to protect young athletes who might have suffered a concussion. Battle Sports Science attempted to gain market attention for its US$149.99 impact indicator (chin strap) through endorsements, and had enlisted a number of NFL players. The company hoped to sell the device to sports programs (schools) as well as to individual players. # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 14 A01_WHEE0811_14_GE_FM.indd 14 Title: Strategic Management and Business Policy     Server: Jobs4 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:26 PM CONTENTS SECTION D 15 International Issues in Strategic Management case 6 A123 Systems: A New Lithium-Ion Battery System for Electric and Hybrid Cars  425 (Contributor: Alan N. Hoffman) new case 7 In 2007, A123 was developing its hybrid electric vehicle business. A123 entered into a partnership with Cobasys to introduce lithium-ion batteries into the automotive market. A123 also entered into an agreement with GM to use their batteries in the Saturn Vue Plug-in Hybrid development program and to co-develop a lithium-ion battery for the Chevrolet Volt. A123 faced cash flow shortages after its 2009 IPO and its ultimate survival was threatened by its diminishing funds for continued operations. Guajilote Cooperativo Forestal, Honduras  441 (Contributors: Nathan Nebbe and J. David Hunger) This forestry cooperative has the right to harvest, transport, and sell fallen mahogany trees in La Muralla National Park of Honduras. Although the cooperative has been successful thus far, it is facing some serious issues: low prices for its product, illegal logging, deforestation by poor farmers, and possible world trade restrictions on the sale of mahogany. SECTION E General Issues in Strategic Management I N D U S T R Y O N E :    INTERNET COMPANIES case 8 Google Inc. (2010): The Future of the Internet Search Engine  447 (Contributor: Patricia A. Ryan) Google, an online company that provides a reliable Internet search engine, was founded in 1998 and soon replaced Yahoo as the market leader in Internet search engines. By 2010, Google was one of the strongest brands in the world. Nevertheless, its growth by acquisition strategy was showing signs of weakness. Its 2006 acquisition of YouTube had thus far not generated significant revenue growth. Groupon, a shopping Web site, rebuffed Google’s acquisition attempt in 2010. Is it time for a strategic change? case 9, Inc.: Retailing Giant to High-Tech Player?  461 (Contributor: Alan N. Hoffman) new case 10 In 2012, more than half of all Amazon sales came from computers, mobile devices including the Kindle, Kindle Fire, and Kindle Touch, and other electronics, as well as general merchandise from home and garden supplies to groceries, apparel, jewelry, health and beauty products, sports and outdoor equipment, tools, and auto and industrial supplies. Amazon was at a crossroads with regard to its push into technology versus its general merchandise. Amazon also faced other challenges, including those from state governments that wanted it to collect sales taxes so it would not adversely compete against local businesses.  lue Nile, Inc.: “Stuck in the Middle” of the Diamond Engagement B Ring Market  473 (Contributor: Alan N. Hoffman) new Blue Nile Inc. has developed into the largest online retailer of diamond engagement rings. Unlike traditional jewelry retailers, Blue Nile operates completely store-front-free, without in-person consultation services. The business conducts all sales online or by phone, and sales include both engagement (70%) and non-engagement (30%) categories. Blue Nile’s vision is to educate its customer base so customers can make an informed, confident decision no matter what event they are celebrating. It wants to make the entire diamond-buying process easy and hassle-free. # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 15 A01_WHEE0811_14_GE_FM.indd 15 Management and Business Policy     Server: Jobs4 Title: Strategic C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:26 PM 16 CONTENTS I N D U S T R Y T W O :    ENTERTAINMENT AND LEISURE case 11 Groupon Inc.: Daily Deal or Lasting Success?  489 (Contributors: Nick Falcone, Eric Halbruner, Ellie A. Fogarty, and Joyce Vincelette) new case 12 Groupon began as a local Chicago discount service and became a global phenomenon seemingly overnight. It was a great idea. The company was the first of its kind and changed the way consumers spend, shop, and think about discounts. But how could Groupon, based on such innovation and having experienced such exceptional growth, be in such a precarious position? A wave of competition had swelled, including the likes of technology giants and both general and niche daily deals services, all replicating Groupon’s business model. How could Groupon compete against large companies and their expansive resources? Netflix Inc.: The 2011 Rebranding/Price Increase Debacle  509 (Contributor: Alan N. Hoffman) new case 13 On September 18, 2011, Netflix CEO and co-founder Reed Hastings announced on the Netflix blog that the company was splitting its DVD delivery service from its online streaming service, rebranding its DVD delivery service Qwikster, as a way to differentiate it from its online streaming service, and creating a new Web site for it. Three weeks later, in response to customer outrage and confusion, Hastings rescinded the decision to rebrand the DVD delivery service Qwikster and reintegrated it into Netflix. Nevertheless, only five weeks after the initial split, Netflix acknowledged that it had lost 800,000 U.S. subscribers and expected to lose many more, thanks both to the Qwikster debacle and the price hike the company had decided was necessary to cover increasing content costs. Carnival Corporation & plc (2010)  521 (Contributors: Michael J. Keeffe, John K. Ross III, Sherry K. Ross, Bill J. Middlebrook, and Thomas L. Wheelen) With its “fun ship,” Carnival Cruises changed the way people think of ocean cruises. The cruise became more important than the destination. Through acquisition, Carnival expanded its product line to encompass an entire range of industry offerings. How can Carnival continue to grow in the industry it now dominates? case 14 Zynga, Inc. (2011): Whose Turn Is It?  541 (Contributors: Zachary Burkhalter, Daniel Zuller, Concetta Bagnato, Joyce Vincelette, and Ellie A. Fogarty) new Zynga built its company around social gaming. This new type of gaming transformed the gaming industry on multiple levels and across various platforms. Zynga originally built its games using the Facebook platform and then capitalized on the company’s unique method of social networking to capture audiences around the world. However, this strong reliance on Facebook and changes in consumer gaming practices caused some concern among outside investors as to the future of Zynga. I N D U S T R Y T H R E E :    FOOD AND BEVERAGE case 15  he Boston Beer Company: Brewers of Samuel Adams Boston Lager T (Mini Case)  561 (Contributor: Alan N. Hoffman) The Boston Beer Company, founded in 1984 by Jim Koch, is viewed as pioneer in the American craft beer revolution. Brewing over one million barrels of 25 different styles of beer, Boston Beer is the sixth-largest brewer in the United States. Even though overall domestic beer sales declined 1.2% in 2010, sales of craft beer have increased 20% since 2002, with Boston Beer’s increasing 22% from 2007 to 2009. How can the company continue its rapid growth in a mature industry? # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 16 A01_WHEE0811_14_GE_FM.indd 16 Title: Strategic Management and Business Policy     Server: Jobs4 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:26 PM CONTENTS case 16 17 Panera Bread Company (2010): Still Rising Fortunes?  565 (Contributors: Joyce P. Vincelette and Ellie A. Fogarty) Panera Bread is a successful bakery-café known for its quality soups and sandwiches. Even though Panera’s revenues and net earnings have been rising rapidly, new unit expansion throughout North America has fueled this growth. Will revenue growth stop once expansion slows? The retirement of CEO Ronald Shaich, the master baker who created the “starter” for the company’s phenomenal growth, is an opportunity to rethink Panera’s growth strategy. case 17 Whole Foods Market (2010): How to Grow in an Increasingly Competitive Market? (Mini Case)  589 (Contributors: Patricia Harasta and Alan N. Hoffman) Whole Foods Market is the world’s leading retailer of natural and organic foods. The company differentiates itself from competitors by focusing on innovation, quality, and service excellence, allowing it to charge premium prices. Although the company dominates the natural/organic foods category in North America, it is facing increasing competition from larger food retailers like WalMart, who are adding natural/organic foods to their offerings. case 18 Burger King (Mini Case)  595 (Contributor: J. David Hunger) Founded in Florida in 1953, Burger King has always trailed behind McDonald’s as the second-largest fast-food hamburger chain in the world. Although its total revenues dropped only slightly from 2009, its 2010 profits dropped significantly, due to high expenses. Burger King’s purchase by an investment group in 2010 was an opportunity to rethink the firm’s strategy. case 19 Church & Dwight: Time to Rethink the Portfolio?  599 (Contributor: Roy A. Cook) Church & Dwight, the maker of ARM & HAMMER Baking Soda, has used brand extension to successfully market multiple consumer products based on sodium bicarbonate. Searching for a new growth strategy, the firm turned to acquisitions. Can management successfully achieve a balancing act based on finding growth through expanded uses of sodium bicarbonate while assimilating a divergent group of consumer products into an expanding international footprint? I N D U S T R Y F O U R :    APPAREL case 20 Under Armour  609 (Contributors: Ram Subramanian and Pradeep Gopalakrishna) new case 21 Under Armour’s footwear sales declined by 4.5% during the second quarter of 2009 and showed a 16.6% decline in the first six months of 2010 compared to 2009. This was in contrast to its performance apparel, the company’s core category, which saw a 32.2% uptick over 2009. Under Armour had tremendous growth opportunities in the apparel category in China. However, CEO Kevin Plank wanted Under Armour to be a leading player in the field of athletic footwear. TOMS Shoes (Mini Case)  621 (Contributor: J. David Hunger) Founded in 2006 by Blake Mycoskie, TOMS Shoes is an American footwear company based in Santa Monica, California. Although TOMS Shoes is a for-profit business, its mission is more like that of a not-for-profit organization. The firm’s reason for existence is to donate to children in need one new pair of shoes for every pair of shoes sold. By 2010, the company had sold over one million pairs of shoes. How should the company plan its future growth? # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 17 A01_WHEE0811_14_GE_FM.indd 17 Management and Business Policy     Server: Jobs4 Title: Strategic C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:26 PM 18 CONTENTS case 22 Best Buy Co. Inc. (2009): A Sustainable Customer-Centricity Model?  625 (Contributor: Alan N. Hoffman) Best Buy, the largest consumer electronics retailer in the United States, operates 4000 stores in North America, China, and Turkey. It distinguishes itself from competitors by deploying a differentiation strategy based on superior service rather than low price. The recent recession has stressed its finances and the quality of its customer service. How can Best Buy continue to have innovative products, topnotch employees, and superior customer service while facing increased competition, operational costs, and financial stress? I N D U S T R Y F I V E :    SPECIALTY RETAILING case 23 Rosetta Stone Inc.: Changing the Way People Learn Languages  639 (Contributors: Christine B. Buenafe and Joyce P. Vincelette) Rosetta Stone’s mission was to change the way people learn languages. The company blended language learning with technology at a time when globalization connected more and more individuals and institutions to each other. How should the company move forward? Would it be appropriate for Rosetta Stone to offer products like audio books or services in order to increase market share? Which international markets could provide the company with a successful future? case 24 Dollar General Corporation: 2011 Growth Expansion Plans (Mini Case)  655 (Contributor: Kathryn E. Wheelen) With annual revenues of US$12.7 billion and 9200 stores in 35 states, Dollar General is the largest of the discount “dollar stores” in the United States. Although far smaller than its “big brothers” Wal-Mart and Target, Dollar General has done very well during the recent economic recession. In 2011, it planned to open 625 new stores in three new states. Given that the company has a substantial long-term debt, is this the right time to expand its operations? case 25 iRobot: Finding the Right Market Mix?  661 (Contributor: Alan N. Hoffman) Founded in 1990, iRobot was one of the first companies to introduce robotic technology into the consumer market. Employing over 500 robotic professionals, the firm planned to lead the robotics industry. Unfortunately, its largest revenue source, home care robots, is a luxury good and vulnerable to recessions. Many of iRobot’s patents are due to expire by 2019. The firm is highly dependent upon suppliers to make its consumer products and the U.S. government for its military sales. What is the best strategy for its future success? SECTION f I N D U S T R Y si x : Transportation case 26 Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956  671 (Contributor: Alan N. Hoffman) new case 27 Tesla Motors was founded in 2004 to produce electric automobiles. Its first car, the Tesla Roadster, sold for US$101,000. It could accelerate from 0 to 60 mph in 3.9 seconds, and cruise for 236 miles on a single charge. In contrast to existing automakers, Tesla sold and serviced its cars through the Internet and its own Tesla stores. With the goal of building a full line of electric vehicles, Tesla Motors faces increasing competition from established automakers. How can Tesla Motors succeed in an industry dominated by giant global competitors? Delta Air Lines (2012): Navigating an Uncertain Environment  687 (Contributors: Alan N. Hoffman and J. David Hunger) new Delta used mergers and acquisitions (M&A) successfully to solidify its strong position as a leader in the airline industry. It has gone through five M&As since 1953, including the most recent acquisition of Northwest Airlines (Northwest), which turned Delta into an airline with major operations in every region of the world. The Northwest merger took a toll on Delta’s financial position, however, by contributing to its high long-term debt. # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 18 A01_WHEE0811_14_GE_FM.indd 18 Title: Strategic Management and Business Policy     Server: Jobs4 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:26 PM CONTENTS 19 In 2012, top management began cautiously exploring opportunities for entering new markets, routes, and partnerships in order to boost market share. Management was also searching for ways to reduce costs and expenses in an industry that was rapidly consolidating into fewer major national and international players. Delta is considering purchasing from Conoco. case 28 TomTom: New Competition Everywhere!  707 (Contributor: Alan N. Hoffman) TomTom, an Amsterdam-based company that provides navigation services and devices, led the navigation systems market in Europe and is second in popularity in the United States. However, the company is facing increasing competition from other platforms using GPS technology, like cell phones and Smartphones with built-in navigation functions. As its primary markets in the United States and Europe mature, how can the company ensure its future growth and success? SECTION G I N D U S T R Y S E V E N :    MANUFACTURING case 29  eneral Electric, GE Capital, and the Financial Crisis of 2008: The Best of the G Worst in the Financial Sector?  721 (Contributor: Alan N. Hoffman) new case 30 The financial services industry was, by definition, volatile, and GE Capital was particularly hard hit by the economic recession of 2008. With the credit markets illiquid and financial markets falling, GE Capital found it was overexposed to commercial real estate and foreign residential mortgages. At this point, GE’s parent corporation stepped in, began reorganizing GE Capital, and significantly downsized the unit. GE Capital hoped to see continued sustainable earnings growth with growing margins and lower portfolio risk, and to return money to investors and resume paying dividends to its parent company AB Electrolux: Challenging Times in the Appliance Industry  737 (Contributor: Alan N. Hoffman) new AB Electrolux is currently the world’s second-largest appliance maker, behind Whirlpool. Electrolux has over 50,000 employees in more than 50 countries around the world. Its headquarters are in Stockholm, Sweden. As the social and demographic trends continue to evolve, so do the opportunities afforded to Electrolux. The most significant demographic shift globally is the growing middle class in Asia, which includes families with incomes between US$6000 and US$30,000. It is estimated that by 2020 there will be one billion more people in the global middle class than there were in 2010. Correlated with rising incomes worldwide, homeownership has also increased at a substantial rate, giving rise to increased demand for consumer durables such as refrigerators, washing machines, and dishwashers. I N D U S T R Y E I G H T :    INFORMATION TECHNOLOGY case 31 Apple Inc.: Performance in a Zero-Sum World Economy  749 (Contributors: Moustafa H. Abdelsamad, Hitesh (John) Adhia, David B. Croll, Bernard A. Morin, Lawrence C. Pettit Jr., Kathryn E. Wheelen, Richard D. Wheelen, Thomas L. Wheelen II, and Thomas L. Wheelen) By the 1990s, Apple, the first company to mass-market a personal computer, had become a minor player in an industry dominated by Microsoft. After being expelled from the company in 1985, founder Steve Jobs returned as CEO in 1997 to reenergize the firm. The introduction of the iPod in 2001, followed by the iPad, catapulted Apple back into the spotlight. However, in 2011 Jobs was forced to take his third medical leave, leading to questions regarding his ability to lead Apple. How can Apple continue its success? How dependent is the company on Steve Jobs? # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 19 A01_WHEE0811_14_GE_FM.indd 19 Management and Business Policy     Server: Jobs4 Title: Strategic C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:26 PM 20 CONTENTS case 32 Dell Inc.: Changing the Business Model (Mini Case)  771 (Contributor: J. David Hunger) Dell, once the largest PC vendor in the world, is now battling with Acer for second place in the global PC market. Its chief advantages—direct marketing and power over suppliers—no longer provides a competitive advantage. The industry’s focus has shifted from desktop PCs to mobile computing, software, and technology services, areas of relative weakness for Dell. Is it time for Dell to change its strategy? case 33 Logitech (Mini Case)  777 (Contributor: Alan N. Hoffman) Logitech, the world’s leading provider of computer peripherals, was on the forefront of mouse, keyboard, and videoconferencing technology. By 2010, however, Logitech’s products were threatened by new technologies, such as touchpads, that could replace both the mouse and keyboard. As the peripherals market begins to disintegrate, Logitech is considering a change in strategy. case 34 Daktronics (A): The U.S. Digital Signage Industry 2010  783 (Contributors: Joseph Kavanaugh, Joshua Warne, and Carol J. Cumber) new The billboard, sign, and outdoor advertising industry in the United States is almost as old as the Colonies. Lighted billboards, roadside signs, neon lights, and other forms of display are part of our everyday environment. The newest segment of the industry, digital signage, is driven by 21st-century technologies in computers, peripherals, graphics, and new sources of light—liquid crystal display (LCD), light-emitting diodes (LED), and others. Less than 20 years old, the digital segment (sales of US$2.14 billion) was estimated to be 17.8% of the outdoor signage industry in 2008. This note reviews the digital signage industry and explores the forces that are driving this emerging segment of the advertising, messaging, and sign industry. Glossary  803 Name Index  815 Subject Index  820 # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 20 A01_WHEE0811_14_GE_FM.indd 20 Title: Strategic Management and Business Policy     Server: Jobs4 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:26 PM Dedicated to SPECIAL DEDICATION TO TOM WHEELEN Tom originated this book in the late 1970s and with his friend David Hunger brought the first edition to fruition in 1982. What a ride it has been! After battling bone cancer, Tom died in Saint Petersburg, Florida, on December 24, 2011. It was Tom’s idea from the very beginning to include the latest research and useful material written in such a way that the typical student could read and understand the book without outside assistance. That has been a key reason for the success of the book through its many ­editions. Tom’s last months were spent working with the two new co-authors to map out the direction for the 14th edition. We thank you, Tom, and bid you a fond farewell! This 14th edition is for you. J. David Hunger Alan N. Hoffman Charles E. Bamford This is a special dedication to Thomas L. Wheelen, co-author, father, and best friend, May 30, 1935 – December 24, 2011. This is the 14th edition of SMBP the creation you and Mr. Hunger started due to your friendship at the McIntire School of Commerce at UVA with that adjoining door! It is not very often that two co-authors become the best of friends, but you both did. That was a very special gift that Tom treasured until the end. We are so glad you were able to meet as the dynamic foursome to discuss the 14th edition of SMBP! The new addition of co-authors Alan Hoffman and Chuck Bamford gave you and Mr. Hunger the ability to relax and smell the roses. We have come full circle with you being back at UVA! You were an amazing friend, visionary, teacher, and leader! Thank you for pushing us to be who we are today! You were very blessed to have two children as your best friends! You will never know how much you are missed! Dad – chailleann againn go mbainfidh tú agus grá agat. Tá do Spiorad na hÉireann le linn i gcónaí! GNPD KEW and RDW Betty, Kari and Jeff, Maddie and Megan, Suzi and Nick, Summer and Kacey, Lori, Merry, Dylan, and newborn Edan. Also to Wolfie (arf!). David Hunger To Will Hoffman, the greatest son in the world. . . . and to our saint Wendy Appel. In memory of my good friend, Tom Wheelen, via con dios. Thank you, Tom and David. Alan Hoffman To Yvonne, for your support, advice, encouragement, love, and confidence. To David and Tom, for your confidence, council, and mental energy in the revision of this remarkable text. Chuck Bamford # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 21 A01_WHEE0811_14_GE_FM.indd 21 Management and Business Policy     Server: Jobs4 Title: Strategic C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:26 PM This page is intentionally left blank. # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 22 A01_WHEE0811_14_GE_FM.indd 22 Title: Strategic Management and Business Policy     Server: Jobs4 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:26 PM Preface Welcome to the 14th edition of Strategic Management and Business Policy! All of the ­chapters have been updated, and most of the cases are new and different. We have added several brand-new cases (Early Warning: Concussion Risk and the Case of the Impact Sensing Chinstrap, A123, Amazon, Blue Nile, Groupon, Netflix, Zynga, Under Armour, General Electric, AB Electrolux, Tesla Motors, Delta Airlines, and The U.S. Digital Signage Industry Note) for a total of 13 new cases! Many of the cases are exclusive to this edition! Although we still make a distinction between full-length and mini cases, we have interwoven them throughout the book to better identify them with their industries. This edition revamps the theme that runs throughout all 12 chapters. We utilize a threelegged approach consisting of globalization, innovation, and sustainability. These three strategic issues comprise the cornerstone that all organizations must build upon to push their businesses forward. Each chapter incorporates specific vignettes about these three themes. We continue to be the most comprehensive and practical strategy book on the market, with chapters ranging from corporate governance and social responsibility to competitive strategy, functional strategy, and strategic alliances. Features New to this 14th Edition For the first time in 30 years, the 14th edition has added two new authors to the text. Alan Hoffman, a major contributor to the 13th edition, is a former textbook author and worldrenowned author of strategy business cases, and Chuck Bamford, who was a student of Tom Wheelen and David Hunger back in 1980 at the University of Virginia (McIntire School of Commerce), has authored four other textbooks. They join J. David Hunger and bring a fresh perspective to this extraordinarily well-researched and practically crafted text. In that vein, this edition of the text has: Vignettes on Sustainability (which is widely defined as Business Sustainability), ­Globalization (which we view as an expectation of business), and Innovation (which is the single most important element in achieving competitive advantage) appear in every chapter of the text. ■ Every example, chapter opening, and story has been updated. This includes chapter ­opening vignettes examining companies such as: Five Guys, RIM (BlackBerry), HP’s Board of Directors, Tata Motors, Costco, and Pfizer among many others. ■ Resource-based analysis (Chapter 5) has been added to the toolbox of students’ understanding of competitive advantage. ■ Extensive additions have been made to the text on strategy research. ■ Current consulting practices have been added to the topics of strategy formulation and strategy implementation. ■ Thirteen new full-length cases have been added: ■ Twelve new comprehensive cases and one new Industry Note have been added to support the 13 popular full-length cases and 8 mini-cases carried forward from past editions. Thirteen of the cases in the 14th edition are brand new and one case is an updated favorite from 23 # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 23 A01_WHEE0811_14_GE_FM.indd 23 Management and Business Policy     Server: Jobs4 Title: Strategic C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:26 PM 24 Pref ace  past editions. Of the 34 cases appearing in this book, 20 are exclusive and do not appear in other books. One of the new cases deals with corporate social responsibility issues (Early Warning: Concussion Risk and the Case of the Impact Sensing Chinstrap). ■ Two of the new cases deal with international issues (A123, AB Electrolux). ■ Two of the new cases involve Internet companies (Amazon, Blue Nile). ■ Three of the new cases deal with Entertainment and Leisure (Groupon, Netflix, and Zynga). ■ One new case deals with sports and apparel clothing (Under Armour). ■ One new Industry Note concerns digital signage. (Daktronics). ■ One new case concerns the financial crisis of 2008 (GE Capital). ■ Two new cases deal with transportation (Delta Airlines, Tesla Motors) ■ How this Book is Different from other Strategy Textbooks This book contains a Strategic Management Model that runs through the first 11 chapters and is made operational through the Strategic Audit, a complete case analysis methodology. The Strategic Audit provides a professional framework for case analysis in terms of external and internal factors and takes the student through the generation of strategic alternatives and implementation programs. To help the student synthesize the many factors in a complex strategy case, we developed three useful techniques: The External Factor Analysis (EFAS) Table in Chapter 4 This reduces the external opportunities and threats to the 8 to 10 most important external factors facing management. ■ The Internal Factor Analysis (IFAS) Table in Chapter 5 This reduces the internal strengths and weaknesses to the 8 to 10 most important internal factors facing management. ■ The Strategic Factor Analysis Summary (SFAS) Matrix in Chapter 6 This condenses the 16 to 20 factors generated in the EFAS and IFAS tables into the 8 to 10 most important (strategic) factors facing the company. These strategic factors become the basis for generating alternatives and act as a recommendation for the company’s ­future direction. ■ Suggestions for case analysis are provided in Appendix 12.B (end of Chapter 12) and contain step-by-step procedures on how to use a strategic audit in analyzing a case. This appendix includes an example of a student-written strategic audit. Thousands of students around the world have applied this methodology to case analysis with great success. The Case Instructor’s Manual contains examples of student-written strategic audits for each of the full-length comprehensive strategy cases. # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 24 A01_WHEE0811_14_GE_FM.indd 24 Title: Strategic Management and Business Policy     Server: Jobs4 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:26 PM P re f ace 25 Features This edition contains many of the same features and content that helped make previous ­editions successful. Some of the features include the following: CHAPTER ■ 1 basic concepts of Strategic Management Environmental Scanning: Gathering Information External Mission Natural Environment: Reason for existence Resources and climate After reading this chapter, you should be able to: ■ ■ ■ Strategy Formulation: Strategy Implementation: Evaluation and Control: Developing Long-range Plans Putting Strategy into Action Monitoring Performance Understand the benefits of strategic management Explain how globalization and environmental sustainability influence strategic management ■ ■ ■ Understand the basic model of strategic management and its components Identify some common triggering events that act as stimuli for strategic change Understand strategic decision-making modes Use the strategic audit as a method of analyzing corporate functions and activities The 21st-century story of the power of strategic planning and implementation for Ford Motor Company really starts in January 2006. Ford announced a US$1.6 billion loss in North American operations and a continuing loss of market share. Then CEO and grandson of the founder, William Clay (Bill) Ford General forces Task Environment: announced the “Way Forward”—a surprisingly clear strategy document to lead the company Strategies Plan to achieve the hi he mission & objectives Industry analysis PART back to profitability by 2008 and reduce costs by over US$6 billion by 2010. The entire document was only 16 pages long and clearly laid out the way that Ford was going to change the Policies Broad guidelines id li for decision making Internal direction of the company. This was a corporate-level change document in the classic planning Programs and Tactics Activities d d to needed accomplishh a plan mode of strategy. Budgets Cost of the programs Procedures Sequence off steps needed to do the job Structure: Chain of command Culture: by the third quarter of 2006 was a staggering US$5.6 billion loss that would end up being a loss of over US$12 billion before the year was out. Bill Ford and the Board of Directors realized Performance that they needed a CEO who could really implement the plan. Someone with an operations Actual results approach and the willingness to make the tough decisions required by that plan. They tapped Resources: Alan Mulally, the President and CEO of Boeing’s Commercial Airlines unit. He stated that "These Assets, skills, competencies, knowledge business results are clearly unacceptable. We are committed to dealing decisively with the fundamental business reality that customer demand is shifting to smaller, more efficient vehicles.” Introduction to Mulally immediately eliminated the Ford dividend which had been a staple of the blue chip company for decades. He sold off Volvo, Aston-Martin, Jaguar, and Land Feedback/Learning: Make corrections as needed Rover to other companies and sold most of Ford’s stock holdings in Mazda. He shut down the historic Mercury line of vehicles and focused all of the company’s energy on two MyManagementLab ® vehicle lines: Ford and Lincoln. In what now looks even more brilliant than it did at the Improve Your Grade! CH A P T E R 2 Over 10 million students improved their results using the Pearson MyLabs.Visit for simulations, tutorials, and end-of-chapter problems. time, he secured US$23.6 billion in lines of credit to help the company through the change. Corporate GovernanceIt turned45out to be prescient. When the other American automobile companies saw their sales plummet in 2009, Ford was able to thrive. In fact, Ford was the only American auto Monitor: By acting through its committees, a board can keep abreast of developments inside and outside the corporation, bringing to management’s attention developments it might have overlooked. A board should at the minimum carry out this task. ■ Evaluate and influence: A board can examine management’s proposals, decisions, and actions; agree or disagree with them; give advice and offer suggestions; and outline alternatives. More active boards perform this task in addition to monitoring. ■ Initiate and determine: A board can delineate a corporation’s mission and specify strategic options to its management. Only the most active boards take on this task in addition ■ to the two previous ones. ■ Board of Directors’ Continuum A board of directors is involved in strategic management to the extent that it carries out the three tasks of monitoring, evaluating and influencing, and initiating and determining. The board of directors’ continuum shown in Figure 2–1 shows the possible degree of involvement (from low to high) in the strategic management process. Boards can range from phantom boards with no real involvement to catalyst boards with a very high degree of involvement.9 CHthat A P Tactive E R 3board Social Responsibility and Ethicsmanagement in Strategic Management 71 Research suggests involvement in strategic is positively related to a corporation’s financial performance and its credit rating.10 Highly boards tend tothus be very active. take their tasks of monitoring, efficiency of involved a business. Friedman referred to They the social responsibility of businessevaluas a ating and influencing, and initiating and determining very seriously; they provide advice when “fundamentally subversive doctrine” and stated that: necessary and keep management alert. As depicted in Figure 2–1, their heavy involvement in There is one and only one social responsibility of business—to use its resources and engage in the strategic management process places them in the active participation or even catalyst posiactivities designed to increase its profits so long as it stays within the rules of the game, which tions. Although 74% of public corporations have periodic board meetings devoted primarily to is to say, engages in open and free competition without deception or fraud.1 the review of overall company strategy, the boards may not have had much influence in genFollowing theglobal management Coca-Cola was clearly of erating the planFriedman’s itself.11 Thereasoning, same 2011 survey ofofdirectors by McKinsey & guilty Company misusing corporate assets and negatively affecting shareholder wealth.proposed The millions spent41% in found that 44% of respondents reviewed and approved management’s strategy, social services couldwith havemanagement, been investedand in new development or given back as divideveloped strategy 11% product developed strategy, which management was dends to the shareholders. Coca-Cola’s management acting on its own, shareholders then assigned to execute.Instead Those of boards reporting high influence typically shared a common could have decided which charities to support. Carroll’s Four Responsibilities of Business FIGURE 2–1 Board of Directors’ Continuum Friedman’s contention that the primary goal of business is profit maximization is only one side of an ongoing debate regarding corporate social responsibility (CSR). According to William J. DEGREE OF INVOLVEMENT IN STRATEGIC MANAGEMENT Byron, Distinguished Professor of Ethics at Georgetown University and past President of Low Catholic University of America, profits are merely a means to an end, not anHigh end in itself. (Passive) (Active) Just as a person needs food to survive and grow, so does a business corporation need profits to survive and grow. Minimal “Maximizing profits is like maximizing food.” Thus, contends Byron, Rubber Nominal Active 2 Phantom maximization Stamp of profits Review Participation cannot be theParticipation primary obligation of business.Catalyst As shown in Figure 3–1, Archie Carroll proposed that the managers of business organiNever knows Permits officers Formally reviews Involved to a Approves, Takes the3 have all four responsibilities: legal, ethical, andand discretionary. what to do, zations if to make selected issueseconomic, limited degree questions, leading role in anything; no degree of 1. involvement. decisions. It that officers in the perfor- makes final de- 3 The strategic audit, a way to operationalize the strategic ­decision-making process, serves as a checklist in case analysis. (Chapter 1) FIGURE 3–1 Corporate governance is examined in terms of the roles, responsibilities, and interactions of top management and the board of directors and includes the impact of the Sarbanes–Oxley Act. (Chapter 2) ■ Social responsibility and managerial ethics are examined in detail in terms of how they affect strategic decision ­making. They include the process of stakeholder analysis and the concept of social capital. (Chapter 3) establishing Discretionary Social Responsibilities Ethical Economic Strategic Management and Business Policy ■ Economic organization’s to produce goods votes as theresponsibilities bring to its of a business mance or review cisions management on misand are modifying and services to society so that thekey firm sion, maystrategy, repay its creditors and increase the officers recom-of value attention. of selected the mission, mend on policies, and objectives, decisions, wealth ofaction its shareholders. issues. indicators, or objectives. Has strategy, and 2. Legal responsibilities are defined by governments in board laws that management programs of active policies. It has is expected managment. committees. a very activepeople based to obey. For example, U.S. business firms are required to hire and promote Performs fiscal on their credentials rather than to discriminate on non-job-relatedstrategy characteristics such as and managecommittee. race, gender, or religion. ment audits. 3. Ethical responsibilities of an organization’s management are to follow the generally held SOURCE: T. L. Wheelen and J. D. Hunger, “Board of Directors’ Continuum,” Copyright © 1994 by Wheelen and Hunger Associates. Reprinted beliefs about behavior in a society. For example, society generally expects firms to work by permission. with the employees and the community in planning for layoffs, even though no law may require this. The affected people can get very upset if an organization’s management fails to act according to generally prevailing ethical values. 4. Discretionary responsibilities are the purely voluntary obligations a corporation assumes. Examples are philanthropic contributions, training the hard-core unemployed, and providing day-care centers. The difference between ethical and discretionary responsibilities is that few people expect an organization to fulfill discretionary responsibilities, whereas many expect an organization to fulfill ethical ones.4 Responsibilities of Business 1 For the next nine months, the company attempted to implement the plan, and the result Beliefs, expectations, values 2 A strategic management model runs throughout the first 11 chapters as a unifying concept. (Explained in Chapter 1) Ford—A Study in Strategic Planning Objectives What results l to accomplish h by when Societal Environment: Learning Objectives Legal SOURCE: Suggested by Archie Carroll in A. B. Carroll, “A Three Dimensional Conceptual Model of Corporate Performance,” Academy of Management Review (October 1979), pp. 497–505; A. B. Carroll, “Managing Ethically with Global Stakeholders: A Present and Future Challenge,” Academy of Management Executive (May 2004), pp. 114–120; and A. B. Carroll, “The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders,” Business Horizons (July–August 1991), pp. 39–48. # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 25 A01_WHEE0811_14_GE_FM.indd Title: Strategic 25 Management and Business Policy     Server: Jobs4 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:27 PM 26 Pref ace  Equal emphasis is placed on environmental scanning of the societal environment as well as on the task environment. Topics include forecasting and Miles and Snow’s typology in addition to competitive intelligence techniques and Porter’s industry analysis. (Chapter 4) ■ Core and distinctive competencies are examined within the framework of the resource-based view of the firm. (Chapter 5) ■ Organizational analysis includes material on business models, supply chain management, and corporate reputation. (Chapter 5) ■ Internal and external strategic factors are emphasized through the use of specially designed EFAS, IFAS, and SFAS tables. (Chapters 4, 5, and 6) ■ Functional strategies are examined in light of outsourcing. (Chapter 8) ■ CHAPTER 9 strategy implementation: organizing for Action Environmental Scanning: Gathering Information External Mission Natural Environment: Reason for existence Resources and climate Societal Environment: Strategy Formulation: Strategy Implementation: Evaluation and Control: Developing Long-range Plans Putting Strategy into Action Monitoring Performance Develop programs, budgets, and procedures to implement strategic change ■ Understand the importance of achieving synergy during strategy implementation List the stages of corporate development and the structure that characterizes each stage ■ ■ Identify the blocks to changing from one stage to another ■ Construct matrix and network structures to support flexible and nimble organizational strategies ■ Decide when and if programs such as reengineering, Six Sigma, and job redesign are appropriate methods of strategy implementation Understand the centralization versus decentralization issue in multinational corporations ■ For nearly five decades, Wal-Mart’s “everyday low prices” and low-cost position had enabled it to rapidly grow to dominate North America’s retailing landscape. By 2012, however, its U.S. division generated only 2.2% growth in its same-store General forces Task Environment: Industry analysis Internal the people’s car in India and then offer it in other developing markets, management has really retrenched and the Nano looks to be based in India for a long time to come. A Resource-Based Approach to Organizational Analysis Scanning and analyzing the external environment for opportunities and threats is necessary for the firm to be able to understand its competitive environment and its place in that environment; however, it is not enough to provide an organization with a competitive advantage. Once this external examination has been completed, the attention must turn to look within the corporation itself to identify internal strategic factors—critical strengths and weaknesses that are likely to determine whether a firm will be able to take advantage of opportunities while avoiding threats. This internal scanning, often referred to as organizational analysis, is concerned with identifying, developing, and taking advantage of an organization’s resources and competencies. CORE AND DISTINCTIVE COMPETENCIES Resources are an organization’s assets and are thus the basic building blocks of the organization. They include tangible assets (such as its plant, equipment, finances, and location), human assets (the number of employees, their skills, and motivation), and intangible assets (such as its technology [patents and copyrights], culture, and reputation).1 Capabilities refer to a corporation’s ability to exploit its resources. They consist of business processes and routines that manage the interaction among resources to turn inputs into outputs. For example, a company’s marketing capability can be based on the interaction among its marketing specialists, distribution channels, and salespeople. A capability is functionally based and is resident in a particular function. Thus, there are marketing capabilities, manufacturing capabilities, and human resource management capabilities. When these capabilities are constantly being changed and reconfigured to make them more adaptive to an uncertain environment, they are called dynamic capabilities.2 A competency is a cross-functional integration and coordination of capabilities. For example, a competency in new product development in one division of a corporation may be the consequence of integrating information systems capabilities, marketing capabilities, R&D capabilities, and production capabilities within the division. A core competency is a collection of competencies that crosses divisional boundaries, is widespread within the corporation, and is something that the corporation can do exceedingly well. Thus, new product development is a core competency if it goes beyond one division.3 For example, a core competency of Avon Products is its expertise in doorto-door selling. FedEx has a core competency in its application of information technology to all its operations. A company must continually reinvest in a core competency or risk its becoming a core rigidity or deficiency—that is, a strength that over time matures and may become a weakness.4 Although it is typically not an asset in the accounting sense, a core competency is a very valuable resource—it does not “wear out” with use. In general, the ■ Two chapters deal with issues in strategy implementation, such as organizational and job design, as well as strategy-manager fit, action planning, corporate culture, and international strategic alliances. (Chapters 9 and 10) ■ A separate chapter on evaluation and control explains the importance of ­measurement and incentives to organizational performance. (Chapter 11) sales even as the recession was fading. Target, Macy’s, Kohl’s Costco, GAP, Kroger, and even The Home Depot were all growing faster than Wal-Mart. At about the same time, Strategies Plan to achieve the hi he mission & objectives Microsoft, whose software had grown to dominate personal computers worldwide, saw its revenue growth over the five-year period from 2007 to 2012 slow to just 6.6%. The company’s Policies Broad guidelines id li for decision making stock price had been virtually flat since 2002, an indication that investors no longer perceived Programs and Tactics Activities d d to needed accomplishh a plan Microsoft as a growth company. What had happened to these two successful companies? Was Budgets Cost of the programs this an isolated phenomenon? What could be done, if anything, to reinvigorate these giants? A research study by Matthew Olson, Derek van Bever, and Seth Verry attempts to provide Procedures Sequence off steps needed to do the job Structure: Chain of command Culture: Resources: they found that 87% of the firms had suffered one or more serious declines in sales and profits. Actual results Beliefs, expectations, values Assets, skills, competencies, knowledge an answer. After analyzing the experiences of 500 successful companies over a 50-year period, Performance CHAPTER This included a diverse set of corporations, such as Levi Strauss, 3M, Apple, Bank One, Caterpillar, 10 Daimler-Benz, Toys“R”Us, and Volvo. After years of prolonged growth in sales and profits, revenue growth at each of these firms suddenly stopped and even turned negative! Olson, van strategy implementation: Staffing and Directing Scanning the Environment SOURCES: S. Philip, “Chairman Tata Seeks to Salvage World’s Cheapest Nano Car,” Bloomberg (August 21, 2012), (; A. K. Mishra, “Tata’s Nano:Fire!” Forbes (May 21, 2010), (; D. Welch and N. Lakshman, “My Other Car Is a Tata,” Business Week (January 14, 2008), pp. 33–34. After reading this chapter, you should be able to: ■ P ART 2 approximately 75,000 Nanos a year. Although Tata Motors had intended to initially sell Learning Objectives Objectives What results l to accomplish h by when 128 Learning Objectives Bever, and Verry called these long-term reversals in company growth stall points. On average, corporations lost 74% of their market capitalization in the decade surrounding a growth stall. After reading Even though the CEO and other members of top management were typically replaced, onlythis chapter, you should be able to: Feedback/Learning: Make corrections as needed 46% of the firms were able to return to moderate or high growth within the decade. When ■ Understand the link between strategy and ■ of this group was able to return to moderate or high growth. ■ slow growth was allowed to persist for more than 10 years, the delay was usuallystaffing fatal. Only 7% decisions MyManagementLab® ■ Match the appropriate manager to the strategy At Levi Strauss & Company, for example, sales topped US$7 billion in 1996—extending Improve Your Grade! ■ Understand how to implement an effecgrowth that had more than doubled over the previous decade. From that high-water mark, Over 10 million students improved their results using the Pearson MyLabs.Visit for simulations, tutorials, and end-of-chapter problems. 244 Environmental Scanning: Gathering Information External Mission Natural Environment: Reason for existence Resources and climate Societal Environment: Strategy Formulation: Strategy Implementation: Evaluation and Control: Developing Long-range Plans Putting Strategy into Action Monitoring Performance ■ tive downsizing program Discuss important issues in effectively staffing and directing international 245 expansion Assess and manage the corporate culture’s fit with a new strategy Formulate effective action plans when MBO and TQM are determined to be appropriate methods of strategy implementation Costco: Leading from the Front Costco was founded in 1983 upon several simple foundations, such as marking everything up by no more than 15% (ever), paying and treating employees well, and providing a more upscale experience in the warehouse retail world. Today, the company is the largest (by sales) in the industry despite having fewer store locations Objectives What results l to accomplish h by when General forces Task Environment: Industry analysis Internal than its rival Sam’s Club. In 2011, the company racked up sales of US$93 billion and had more Strategies Plan to achieve the hi he mission & objectives than 60 million members who pay for the privilege of shopping there. One of the most stunning elements of the Costco success story is the way it has handled Policies Broad guidelines id li for decision making the staffing and leading elements of the business. Employees at the company make an average Programs and Tactics Activities d d to needed accomplishh a plan salary of US$20.89/hour and 88% of employees receive health care benefits even though half Budgets Cost of the programs are part-time employees. During the recession that hit the globe from 2008–2011, the company Procedures Sequence off steps needed to do the job Structure: Chain of command Culture: had no layoffs. This has meant that the company enjoys some of the lowest turnover in an inPerformance dustry plagued by turnover. Employees at Costco know what they are doing and actively help Actual results customers. Beliefs, expectations, values Interestingly, the staffing model morphs into leading with the approach that the company takes to executive compensation. The former CEO and co-founder of Costco had a salary of Resources: Assets, skills, competencies, knowledge only US$325,000/year and his total compensation package was US$2.2 million when the average for Fortune 500 CEOs in 2012 was US$9.6 million. The senior management team is similarly compensated, leading to an “all in for the good of the company” approach to the business. In addition to leading with salary, the CEO made it a part of his yearly effort to visit all Feedback/Learning: Make corrections as needed MyManagementLab® Improve Your Grade! Over 10 million students improved their results using the Pearson MyLabs.Visit for simulations, tutorials, and end-of-chapter problems. 560 stores in nine countries. This visible leading-from-the-front approach caught employees off guard when he would repeatedly jump in and work at the stores: cleaning, stocking, giving out food, and working the food court. In fact, the company has held tightly to the idea that a hot dog and soda should cost a patron no more than US$1.50. That was the price in 1985 when they opened their first hotdog stand in a store, and it is the price today. Costco sells more than 90 million hotdogs a year. 274 275 ■ Suggestions for in-depth case analysis provide a complete listing of financial ratios, recommendations for oral and written analysis, and ideas for further research. (Chapter 12) # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 26 A01_WHEE0811_14_GE_FM.indd 26 Title: Strategic Management and Business Policy     Server: Jobs4 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:28 PM P re f ace ■ The strategic audit worksheet is based on the ­time-tested strategic audit and is designed to help students organize and structure daily case ­preparation in a brief period of time. The worksheet works ­exceedingly well for checking the level of daily student case preparation—especially for open class discussions of cases. (Chapter 12) FIGURE 12–1 Strategic Audit Worksheet 27 Analysis Strategic Audit Heading I. (+) Factors (−) Factors Comments Current Situation B. Strategic Posture: Current Mission Current Objectives Current Strategies Current Policies SWOT Analysis Begins: II. End of Ch Using ment be abl of info manag the re throug A. Past Corporate Performance Indexes Corporate Governance A. Board of Directors MyManagement B. Top Management III. External Environment (EFAS): Opportunities and Threats (SWOT) Go to A. Natural Environment B. Societal Environment IV. C. Task Environment (Industry Analysis) KEY TERMS A. Corporate Structure activity ratio (p. 335) Altman’s Z-Value Bankruptcy F (p. 339) annual report (p. 335) common-size statement (p. 339 constant dollars (p. 340) Internal Environment (IFAS): Strengths and Weaknesses (SWOT) B. Corporate Culture C. Corporate Resources 1. Marketing 2. Finance 3. Research and Development 4. Operations and Logistics MyManagement 5. Human Resources V. Go to 6. Information Technology 1-1. What ratios would you 1-2. What are the five crucia 1-3. MyManagementLab On Analysis of Strategic Factors (SFAS) A. Key Internal and External Strategic Factors (SWOT) B. Review of Mission and Objectives SWOT Analysis Ends. Recommendation Begins: VI. Alternatives and Recommendations DISCUSSION A. Strategic Alternatives—pros and cons 1-4. Why should you begin a analysis? When are othe B. Recommended Strategy VII. Implementation 1-5. What are common-size their value to case analy VIII. Evaluation and Control CHAPTER 5 Internal Scanning: Organizational Analysis NOTE: See the complete Strategic Audit on pages 34–41. It lists the pages in the book that discuss each of the eight headings. SOURCE: T. L. Wheelen and J. D. Hunger, “Strategic Audit Worksheet.” Copyright © 1985, 1986, 1987, 1988, 1989, 2005, and 2009 by T. L. Wheelen. Copyright © 1989, 2005, and 2009 by Wheelen and Hunger Associates. Revised 1991, 1994, and 1997. Reprinted by permission. Additional copies available for classroom use in Part D of the Case Instructor’s Manual and on the Prentice Hall Web site ( 155 End of Chapter SUMMA R Y 342 Every day, about 17 truckloads of used diesel engines and other parts are dumped at a receiving facility at Caterpillar’s remanufacturing plant in Corinth, Mississippi. The filthy iron engines are then broken down by two workers, who manually hammer and drill for half a day until they have taken every bolt off the engine and put each component into its own bin. The engines are then cleaned and remade at half of the cost of a new engine and sold for a tidy profit. This system works at Caterpillar because, as a general rule, 70% of the cost to build ■ something new is in the materials and 30% is in the labor. Remanufacturing simply starts the manufacturing process over again with materials that are essentially free and which already contain most of the energy costs needed to make them. The would-be discards become fodder for the next product, eliminating waste, and cutting costs. Caterpillar’s management was so impressed by the remanufacturing operation that they made the business a separate division in 2005. The unit earned more than US$1 billion in sales in 2005 and in 2012 employed more than 8500 workers in 16 countries. Caterpillar’s remanufacturing unit was successful not only because of its capability of wringing productivity out of materials and labor, but also because it designed its products for reuse. Before they are built new, remanufactured products must be designed for disassembly. In order to achieve this, Caterpillar asks its designers to check a “Reman” box on Caterpillar’s product development checklist. The company also needs to know where its products are being used in order to take them back—known as the art of reverse logistics. This is achieved by Caterpillar’s excellent relationship with its dealers throughout the world, as well as through financial incentives. For example, when a customer orders a crankshaft, that customer is offered a remanufactured one for half the cost of a new one—assuming the customer turns in the old crankshaft to Caterpillar. The products also should be built for performance with little regard for changing fashion. Since diesel engines change little from year to year, a remanufactured engine is very similar to a new engine and might perform even better. Monitoring the external environment is only one part of environmental scanning. Strategists also need to scan a corporation’s internal environment to identify its resources, capabilities, and competencies. What are its strengths and weaknesses? At Caterpillar, management clearly noted that the environment was changing in a way to make its remanufactured product 270distribution PART to 4 offer Strategy Implementation and Control more desirable. It took advantage of its strengths in manufacturing and a recycling service for its current customers and a low-cost alternative product for those who could not afford a new Caterpillar engine. It also happened to be an environmentally friendly, sustainable business model. Caterpillar’s management felt that remanufacturing thus provided them with a strategic advantage over competitors who don’t remanufacture. This is an example of a company using its capabilities in key functional areas to expand its business byStrategy implementation is where “the rubber hits the road.” Environmental scanning and moving into a new profitable position on its value chain.87 An experiential exercise focusing on the material covered in each chapter helps the reader apply strategic concepts to an actual situation. ■ A list of key terms and the pages in which they are discussed let the reader keep track of important ­concepts as they are introduced in ManagementLab® eachMy chapter. Go to to complete the problems marked with this icon . End of Chapter SUMMARY KEY TERMS brand (p. 142) business model (p. 132) capabilities (p. 128) capital budgeting (p. 143) competency (p. 128) conglomerate structure (p. 138) continuum of sustainability (p. xx) core competencies (p. 128) corporate culture (p. 138) strategy formulation are crucial to strategic management but are only the beginning of the process. The failure to carry a strategic plan into the day-to-day operations of the workplace is a major reason why strategic planning often fails to achieve its objectives. It is discouraging to note that in one study nearly 70% of the strategic plans were never successfully implemented.84 For a strategy to be successfully implemented, it must be made action-oriented. This is done through a series of programs that are funded through specific budgets and contain new detailed procedures. This is what Sergio Marchionne did when he implemented a turnaround strategy as the new Fiat Group CEO in 2004. He attacked the lethargic, bureaucratic system by flattening Fiat’s structure and giving younger managers a larger amount of authority and responsibility. He and other managers worked to reduce the number of auto platforms from 19 to six by 2012. The time from the completion of the design process to new car production was cut from 26 to 18 months. By 2008, the Fiat auto unit was again profitable. Marchionne reintroduced Fiat to the United States market in 2012 after a 27-year absence.85 This chapter explains how jobs and organizational units can be designed to support a change in strategy. We will continue with staffing and directing issues in strategy implementation in the next chapter. MyManagementLab® Go to to complete the problems marked with this icon. KEY TERMS budget (p. 251) cellular/modular organization (p. 263) geographic-area structure (p. 269) job design (p. 265) matrix of change (p. xx) matrix structure (p. 260) multinational corporation (MNC) (p. 266) network structure (p. 262) organizational life cycle (p. 258) procedure (p. 252) product-group structure (p. 269) program (p. 248) reengineering(p. 263) Six Sigma (p. 264) stages of corporate development (p. 255) stages of international development (p. 267) strategy implementation (p. 246) structure follows strategy (p. 253) synergy (p. 252) virtual organization (p. 262) MyManagementLab® Go to for Auto-graded writing questions as well as the following Assisted-graded writing questions: 1-1. How do timing tactics impact the strategy implementation efforts of a company? 1-2. What issues would you consider to be the most important for a company that is considering the use of a functional structure? 1-3. MyManagementLab Only—comprehensive writing assignment for this chapter. DISCUSSION QUESTIONS 1-4. How should a corporation attempt to achieve synergy 1-7. Is reengineering just another management fad, or does DESIGN SERVICES OF # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 27 among functions and business units? C/M/Y/K it offer something of lasting value? 1-5. How should an owner-manager prepare a company for 1-8. How is the cellular/modular structure different from A01_WHEE0811_14_GE_FM.indd 27 Management and Business Policy     Server:itsJobs4 movement from Stage I to Stage II? the network structure? Publishing Services Title: Strategic Short / Normal S4carlisle 5/20/14 12:28 PM 1-6. When should you gathe What should you look f 28   Pre f ace  ■ ■ Learning objectives begin each chapter. Timely, well-researched, and class-tested cases deal with interesting companies and industries. Many of the cases are about well-known, publicly held corporations—ideal subjects for further research by students wishing to “update” the cases. Both the text and the cases have been class-tested in strategy courses and revised based on feedback from students and instructors. The first 11 chapters are organized around a strategic management model that begins each chapter and provides a structure for both content and case analysis. We emphasize those concepts that have proven to be most useful in understanding strategic decision making and in conducting case analysis. Our goal was to make the text as comprehensive as possible without getting bogged down in any one area. Extensive endnote references are provided for those who wish to learn more about any particular topic. All cases are about actual organizations. The firms range in size from large, established multinationals to small, entrepreneurial ventures, and cover a broad variety of issues. As an aid to case analysis, we propose the strategic audit as an analytical technique. Supplements Instructor Resource Center At, instructors can access teaching resources available with this text in a downloadable, digital format. Registration is simple and gives you immediate access to new titles and editions. Please contact your Pearson sales representative for your access code. As a registered faculty member, you can download resource files and receive immediate access and instructions for installing course management content on your campus server. In case you ever need assistance, our dedicated technical support team is ready to assist instructors with questions about the media supplements that accompany this text. Visit for answers to frequently asked questions and toll-free user support phone numbers. The Instructor Resource Center provides the following electronic resources. Instructor’s Manuals Two comprehensive Instructor’s Manuals have been carefully constructed to accompany this book. The first one accompanies the concepts chapters; the second one accompanies the cases. Concepts Instructor’s Manual To aid in discussing the 12 strategy chapters, the Concepts Instructor’s Manual includes: ■ Suggestions for Teaching Strategic Management: These include various teaching methods and suggested course syllabi. ■ Chapter Notes: These include summaries of each chapter, suggested answers to discussion questions, and suggestions for using end-of-chapter cases/exercises and part-ending cases, plus additional discussion questions (with answers) and lecture modules. Case Instructor’s Manual To aid in case method teaching, the Case Instructor’s Manual includes detailed suggestions for its use, teaching objectives, and examples of student analyses for each of the full-length comprehensive cases. This is the most comprehensive instructor’s manual available in strategic management. A standardized format is provided for each case: 1. Case Abstract 2. Case Issues and Subjects 3. Steps Covered in the Strategic Decision-Making Process # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 28 A01_WHEE0811_14_GE_FM.indd 28 Title: Strategic Management and Business Policy     Server: Jobs4 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:28 PM P re f ace 29 4. Case Objectives 5. Suggested Classroom Approaches 6. Discussion Questions 7. Case Author’s Teaching Note (if available) 8. Student-Written Strategic Audit (if appropriate) 9. EFAS, IFAS, and SFAS Exhibits 10. Financial Analysis—ratios and common-size income statements (if appropriate) PowerPoint Slides PowerPoint slides, provided in a comprehensive package of text outlines and figures corresponding to the text, are designed to aid the educator and supplement in-class lectures. Test Item File The Test Item File contains over 1200 questions, including multiple-choice, true/false, and essay questions. Each question is followed by the correct answer, AACSB category, and difficulty rating. TestGen TestGen software is preloaded with all of the Test Item File questions. It allows instructors to manually or randomly view test questions, and to add, delete, or modify test-bank questions as needed to create multiple tests. VIDEO LIBRARY Videos illustrating the most important subject topics are available at: ■ MyLab – available for instructors and students, provides round the clock instant access to videos and corresponding assessment and simulations for Pearson textbooks. Contact your local Pearson representative to request access. CourseSmart* eTextbooks Online CourseSmart eTextbooks were developed for students looking to save the cost on required or recommended textbooks. Students simply select their eText by title or author and purchase immediate access to the content for the duration of the course using any major credit card. With a CourseSmart eText, students can search for specific keywords or page numbers, take notes online, print out reading assignments that incorporate lecture notes, and bookmark ­important passages for later review. For more information or to purchase a CourseSmart eTextbook, visit Acknowledgments We would like to thank the many people at Pearson who helped make this e­ dition possible. We are especially grateful to our senior project manager, Karalyn Holland, who managed to keep everything on an even keel. We also would like to thank Stephanie Wall, Sarah Holle, Norine Strang, Judy Leale, Estelle Simpson, Michael Joyce, Michael ­McGee, Bernard Ollila, Erin Gardner, and Brooks Hill-Whilton and everyone at Pearson who guided the book through the production and marketing processes. Special thanks to Dave Ostrow at Pearson for his hard work in the trenches. *This product may not be available in all markets. For more details, please visit or contact your local Pearson representative. # 111708   Cust: PE/NJ/B&E   Au: Wheelen  Pg. No. 29 A01_WHEE0811_14_GE_FM.indd 29 Management and Business Policy     Server: Jobs4 Title: Strategic C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 5/20/14 12:28 PM 30 Pref ace  We are very thankful to Paul D. Maxwell, St. Thomas University, Miami, FL; Terry J. Schindler, University of Indianapolis; Anne Walsh, La Salle University; Angelo Camillo, Woodbury University; Jeannine L Scherenberg, Rockford College; William Reisel, St. John’s University; Ronaldo Parente, Florida International University; Roxana Wright, Plymouth State University; J. Barry Dickinson, Holy Family University; Theodore E Davis, Jr., PhD, SUNY College at Buffalo; Manzoor Chowdhury, Lincoln Univ...
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1. Are functional strategies interdependent, or can they be formulated independently
of other functions?
The functional strategies formulated in a business are interdependent because all business
functions work together to achieve organizational goals. According to Wheelen et al. (2014),
functional strategies are approaches taken by a business to achieve its objectives, goa...

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