Comprehensive Model of the
Business Ethics/Social Responsibility/
Environmental Sustainability Issues
Chapter 10:
SIMPLE AND
STRAIGHTFORWARD APPROACH
TO STRATEGIC PLANNING
Perform
External Audit
Chapter 3
Develop Vision
and Mission
Statements
Chapter 2
Strategic-Management Process
Establish
Long-Term
Objectives
Chapter 5
Generate,
Evaluate,
and Select
Strategies
Chapter 6
Implement
Strategies—
Management
Issues
Chapter 7
Implement
Strategies—
Marketing,
Finance,
Accounting, R&D,
and MIS Issues
Chapter 8
Measure
and Evaluate
Performance
Chapter 9
Perform
Internal Audit
Chapter 4
Chapter 11:
Strategy
Formulation
USED WIDELY AMONG BUSINESSES
AND ACADEMIA WORLDWIDE
Global/International Issues
Strategy
Implementation
Strategy
Evaluation
USED TO INTEGRATE AND ORGANIZE
ALL CHAPTERS IN THIS TEXT
Strategic
Management
Concepts and Cases
A Competitive Advantage Approach
This page intentionally left blank
Strategic
Management
Fifteenth
edition
Concepts and Cases
A Competitive Advantage Approach
Fred R. David
Francis Marion University
Florence, South Carolina
Forest R. David
Strategic Planning Consultant
Boston
Columbus
Amsterdam
Delhi
Indianapolis New York San Francisco
Cape Town Dubai
Mexico City
São Paulo
London Madrid
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Upper Saddle River
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Tokyo
Editor in Chief: Stephanie Wall
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Text Font: 10/12 Times
Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear
on the appropriate page within text with the exception of the Pepsi logo that appears throughout the text and is credited
to PSL Images/Alamy.
Microsoft® and Windows® are registered trademarks of the Microsoft Corporation in the U.S.A. and other countries.
Screen shots and icons reprinted with permission from the Microsoft Corporation. This book is not sponsored or
endorsed by or affiliated with the Microsoft Corporation.
Copyright © 2015, 2013, 2011, 2009, 2007 by Pearson Education, Inc. All rights reserved. Manufactured in the
United States of America. This publication is protected by Copyright, and permission should be obtained from the
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Many of the designations by manufacturers and sellers to distinguish their products are claimed as trademarks.
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Library of Congress Cataloging-in-Publication Data
David, Fred R.
Strategic management : concepts and cases : a competitive advantage approach/ Fred R. David and Forest R. David
Francis Marion University, Florence, South Carolina.—Fifteenth edition.
pages cm
ISBN-13: 978-0-13-344479-7
ISBN-10: 0-13-344479-1
1. Strategic planning. 2. Strategic planning—Case studies. I. David, Forest R. II. Title.
HD30.28.D385 2015
658.4’012—dc23
2013041984
10 9 8 7 6 5 4 3 2 1
ISBN 10: 0-13-344479-1
ISBN 13: 978-0-13-344479-7
Brief Contents
Preface
xv
Acknowledgments xxiii
About the Authors
xxv
Part 1 Overview of Strategic Management 2
Chapter 1
The Nature of Strategic Management
The Cohesion Case: Pepsico, Inc.—2014
3
24
Part 2 Strategy Formulation 40
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
The Business Vision and Mission 41
The External Assessment 59
The Internal Assessment 89
Strategies in Action 127
Strategy Analysis and Choice 165
Part 3 Strategy Implementation 204
Chapter 7
Chapter 8
Implementing Strategies: Management and Operations
Issues 205
Implementing Strategies: Marketing, Finance/Accounting, R&D,
and MIS Issues 245
Part 4 Strategy Evaluation
Chapter 9
280
Strategy Review, Evaluation, and Control
Part 5 Key Strategic-Management Topics
Chapter 10
Chapter 11
281
302
Business Ethics, Social Responsibility, and Environmental
Sustainability 303
Global and International Issues 325
Part 6 Strategic-Management Case Analysis
358
How to Prepare and Present a Case Analysis
Glossary
359
637
Name Index
649
Subject Index 653
v
This page intentionally left blank
Contents
Preface
What Is Our Business?
xv
Acknowledgments xxiii
About the Authors
xxv
Importance (Benefits) of Vision and Mission Statements 46
A Resolution of Divergent Views 46
Part 1 Overview of Strategic
Management 2
Characteristics of a Mission Statement
Five Guys Enterprises: Excellent Strategic
Management Showcased 4
5
Defining Strategic Management 5 ■ Stages of
Strategic Management 5 ■ Integrating Intuition and
Analysis 6 ■ Adapting to Change 7
Key Terms in Strategic Management
8
Competitive Advantage 8 ■ Strategists 9 ■ Vision
and Mission Statements 10 ■ External Opportunities and
Threats 10 ■ Internal Strengths and Weaknesses 10
■ Long-Term Objectives 11 ■ Strategies 11
Annual Objectives 11 ■ Policies 12
The Strategic-Management Model 13
Benefits of Strategic Management 14
Financial Benefits
15 ■ Nonfinancial Benefits
16
Why Some Firms Do No Strategic Planning 16
Pitfalls in Strategic Planning 16
Guidelines for Effective Strategic Management 17
Comparing Business and Military Strategy 18
Special Note to Students 19
The Cohesion Case: PepsiCo, Inc.—2014 24
Assurance Of Learning Exercises 35
Assurance of Learning Exercise 1A: Compare Business Strategy with
Military Strategy 35
Assurance of Learning Exercise 1B: Gather Strategy Information for
PepsiCo 36
Assurance of Learning Exercise 1C: Update the PepsiCo Cohesion
Case 36
Assurance of Learning Exercise 1D: Strategic Planning for Your
University 37
Assurance of Learning Exercise 1E: Strategic Planning at a Local
Company 37
Assurance of Learning Exercise 1F: Get Familiar with the Strategy Club
Website 38
Assurance of Learning Exercise 1G: Get Familiar with the Case MyLab 38
Part 2 Strategy Formulation
40
Chapter 2 The Business Vision and Mission 41
J. Crew Group, Inc.: Excellent Strategic Management
ShowcaseD 42
What Do We Want to Become?
43
48
A Declaration of Attitude 48 ■ A Customer
Orientation 49 ■ Mission Statement Components
Chapter 1 The Nature of Strategic
Management 3
What Is Strategic Management?
43
Vision versus Mission 45 ■ Vision Statement
Analysis 45 ■ The Process of Developing Vision and Mission
Statements 45
49
Writing and Evaluating Mission Statements 51
Special Note to Students 52
Assurance Of Learning Exercises
54
Assurance of Learning Exercise 2A: Develop an Improved Mission
Statement for J. Crew 54
Assurance of Learning Exercise 2B: Evaluate Mission Statements 54
Assurance of Learning Exercise 2C: Write a Vision and Mission Statement
for PepsiCo 55
Assurance of Learning Exercise 2D: Compare Your College or University’s
Vision Statement to a Leading Rival University 56
Assurance of Learning Exercise 2E: Conduct Mission Statement
Research 56
Assurance of Learning Exercise 2F: Evaluate a Mission Proposal for Delta
Airlines 56
Chapter 3 The External Assessment
59
The Nature of an External Audit 60
PetSmart, Inc.: Excellent Strategic Management
ShowcaseD 60
Key External Forces
Audit 62
61 ■ The Process of Performing an External
The Industrial Organization (I/O) View 63
Economic Forces 63
Social, Cultural, Demographic, and Natural Environment
Forces 65
Political, Governmental, and Legal Forces 66
Labor Unions
68
Technological Forces 70
Competitive Forces 71
Competitive Intelligence Programs 72 ■ Market Commonality
and Resource Similarity 73
Competitive Analysis: Porter’s Five-Forces Model 73
Rivalry Among Competing Firms 74 ■ Potential Entry of
New Competitors 74 ■ Potential Development of Substitute
Products 75 ■ Bargaining Power of Suppliers 75
■ Bargaining Power of Consumers 76
Sources of External Information 76
Forecasting Tools and Techniques 77
Making Assumptions
77
Industry Analysis: The External Factor Evaluation
Matrix 78
The Competitive Profile Matrix 79
Special Note To Students 81
vii
viii Contents
Assurance Of Learning Exercises 84
Assurance of Learning Exercise 3A: Competitive Intelligence (CI)
Certification 84
Assurance of Learning Exercise 3B: Develop Divisional PepsiCo EFE
Matrices 85
Assurance of Learning Exercise 3C: Develop an EFE Matrix for
PepsiCo 85
Assurance of Learning Exercise 3D: Perform an External Assessment 85
Assurance of Learning Exercise 3E: Develop an EFE Matrix for Your
University 86
Assurance of Learning Exercise 3F: Comparing PetSmart With PETCO
Animal Supplies 86
Assurance of Learning Exercise 3G: Develop a Competitive Profile Matrix
for PepsiCo 86
Assurance of Learning Exercise 3H: Develop a Competitive Profile Matrix
for Your University 87
Chapter 4 The Internal Assessment
The Nature of an Internal Audit
89
90
Priceline.com, Inc.: Excellent Strategic Management
Showcased 90
Key Internal Forces 91 ■ The Process of Performing an Internal
Audit 92
The Resource-Based View 93
Integrating Strategy and Culture
Management 96
94
Planning 96 ■ Organizing 98 ■ Motivating 99
■ Staffing 99 ■ Controlling 100 ■ Management Audit
Checklist of Questions 100
Marketing
100
Customer Analysis 101 ■ Selling Products and Services 101
■ Product and Service Planning 102 ■ Pricing 102
■ Distribution 103 ■ Marketing Research 103 ■ Cost/
Benefit Analysis 104 ■ Marketing Audit Checklist of
Questions 104
Finance and Accounting
104
Finance and Accounting Functions 104 ■ Basic Types of Financial
Ratios 106
Breakeven Analysis 109
Finance and Accounting Audit Checklist 111
Production and Operations
111
Production and Operations Audit Checklist
Research and Development
113
113
Internal and External Research and Development
and Development Audit 115
Management Information Systems
114 ■ Research
115
Management Information Systems Audit
115
Value Chain Analysis 115
Benchmarking
116
The Internal Factor Evaluation Matrix
Special Note to Students 120
118
Assurance Of Learning Exercises 123
Assurance of Learning Exercise 4A: Apply Breakeven Analysis 123
Assurance of Learning Exercise 4B: Comparing Priceline.com with
Expedia.com 124
Assurance of Learning Exercise 4C: Perform a Financial Ratio Analysis for
PepsiCo 124
Assurance of Learning Exercise 4D: Construct an IFE Matrix for
PepsiCo 124
Assurance of Learning Exercise 4E: Construct an IFE Matrix for Your
University 125
Chapter 5 Strategies in Action
127
Long-Term Objectives 128
The Nature of Long-Term Objectives 128
Barilla SpA: Excellent Strategic Management
Showcased 128
Financial versus Strategic Objectives 129 ■ Not Managing by
Objectives 130
Types of Strategies
130
Levels of Strategies 132
Integration Strategies
133
Forward Integration 133 ■ Backward
Integration 135 ■ Horizontal Integration
Intensive Strategies
136
137
Market Penetration 137 ■ Market Development
■ Product Development 138
Diversification Strategies
138
139
Related Diversification 140 ■ Unrelated Diversification
Defensive Strategies
141
142
Retrenchment 142 ■ Divestiture
143 ■ Liquidation
Michael Porter’s Five Generic Strategies
144
145
Cost Leadership Strategies (Type 1 and Type 2) 145
■ Differentiation Strategies (Type 3) 147 ■ Focus Strategies
(Type 4 and Type 5) 148 ■ Strategies for Competing in Turbulent,
High-Velocity Markets 149
Means for Achieving Strategies
149
Cooperation Among Competitors 149 ■ Joint Venture and
Partnering 150 ■ Merger/Acquisition 151 ■ Private-Equity
Acquisitions 153 ■ First Mover Advantages 153 ■ Outsourcing
and Reshoring 154
Strategic Management in Nonprofit and Governmental
Organizations 155
Educational Institutions 155 ■ Medical Organizations
■ Governmental Agencies and Departments 156
156
Strategic Management in Small Firms 157
Special Note to Students 157
Assurance Of Learning Exercises
160
Assurance of Learning Exercise 5A: Develop Hypothetical PepsiCo
Strategies 160
Assurance of Learning Exercise 5B: Barilla’s Actual Strategies 160
Assurance of Learning Exercise 5C: What Strategies Should PepsiCo
Pursue in 2014? 160
Assurance of Learning Exercise 5D: Examine Strategy Articles 161
Assurance of Learning Exercise 5E: Classify Some Year 2013 Strategies 161
Assurance of Learning Exercise 5F: How Risky Are Various Alternative
Strategies? 162
Assurance of Learning Exercise 5G: Develop Alternative Strategies for
Your University 162
Assurance of Learning Exercise 5H: Lessons in Doing Business Globally 163
Chapter 6 Strategy Analysis and Choice
The Nature of Strategy Analysis and Choice
165
166
The Process of Generating and Selecting Strategies 166
General Electric (GE) Company: Excellent Strategic
Management Showcased 166
A Comprehensive Strategy-Formulation Analytical
Framework 168
The Input Stage 169
The Matching Stage 169
The SWOT Matrix 169
Contents ix
The Strategic Position and Action Evaluation (SPACE) Matrix 172
The Boston Consulting Group (BCG) Matrix 177
The Internal-External (IE) Matrix 180
The Grand Strategy Matrix 183
The Decision Stage 185
The Quantitative Strategic Planning Matrix (QSPM) 185
Positive Features and Limitations of the QSPM
190
Cultural Aspects of Strategy Choice 190
The Politics of Strategy Choice 190
Governance Issues 191
Special Note to Students 194
Assurance Of Learning Exercises
197
206
The TJX Companies, Inc.: Excellent Strategic
Management Showcased 206
208
214
The Functional Structure 215 ■ The Divisional Structure 216
■ The Strategic Business Unit (SBU) Structure 219 ■ The Matrix
Structure 220 ■ Some Do’s and Don’ts in Developing
Organizational Charts 222
Restructuring
224
Employee Stock Ownership Plans (ESOPs) 232 ■ Balancing
Work Life and Home Life 233 ■ Benefits of a Diverse
Workforce 235 ■ Corporate Wellness Programs 235
Special Note to Students
237
Current Marketing Issues
247
New Principles of Marketing 248
Market Segmentation
249
Retention-Based Segmentation 250 ■ Does the Internet Make
Market Segmentation Easier? 252
Product Positioning/Perceptual Mapping 252
Finance and Accounting Issues 254
Acquiring Capital to Implement Strategies 255 ■ Projected
Financial Statements 260 ■ Projected Financial Statement
Analysis for Whole Foods Market 262 ■ Financial Budgets 263
■ Company Valuation 265 ■ Deciding Whether to Go
Public 269 ■ Research and Development (R&D) Issues 270
Management Information Systems (MIS) Issues
272
272
273
Assurance Of Learning Exercises
276
Assurance of Learning Exercise 8A: Develop Product Positioning Maps for
PepsiCo 276
Assurance of Learning Exercise 8B: Gain Practice Developing Perceptual
Maps 277
Assurance of Learning Exercise 8C: Perform an EPS/EBIT Analysis for
PepsiCo 277
Assurance of Learning Exercise 8D: Prepare Projected Financial
Statements for PepsiCo 277
Assurance of Learning Exercise 8E: Determine the Cash Value of
PepsiCo 278
Assurance of Learning Exercise 8F: Develop a Product-Positioning Map
for Your University 278
Assurance of Learning Exercise 8G: Do Banks Require Projected Financial
Statements? 278
Part 4 Strategy Evaluation 280
Chapter 9 Strategy Review, Evaluation,
and Control 281
Restructuring 224
Linking Performance and Pay to Strategies 225
Managing Resistance to Change 227
Creating a Strategy-Supportive Culture 228
Production and Operations Concerns When Implementing
Strategies 229
Human Resource Concerns When Implementing Strategies
Panera Bread Co.: Excellent Strategic Management
Showcased 246
Special Note to Students
Chapter 7 Implementing Strategies: Management
and Operations Issues 205
Management Perspectives
The Nature of Strategy Implementation 246
Business Analytics
Part 3 Strategy Implementation 204
Annual Objectives 209
Policies 211
Resource Allocation 213
Managing Conflict 213
Matching Structure with Strategy
240
Assurance of Learning Exercise 7A: Critique Corporate Organizational
Charts 240
Assurance of Learning Exercise 7B: Draw an Organizational Chart for
PepsiCo Using a Free, Online Template 241
Assurance of Learning Exercise 7C: Do Organizations Really Establish
Objectives? 241
Assurance of Learning Exercise 7D: Understanding Your University’s
Culture 242
Chapter 8 Implementing Strategies: Marketing,
Finance/Accounting, R&D, and MIS
Issues 245
Assurance of Learning Exercise 6A: Perform a SWOT Analysis for
PepsiCo 197
Assurance of Learning Exercise 6B: Develop a SWOT Matrix for
GE Capital 198
Assurance of Learning Exercise 6C: Develop a SPACE Matrix for
PepsiCo 198
Assurance of Learning Exercise 6D: Develop a BCG Matrix for
PepsiCo 199
Assurance of Learning Exercise 6E: Develop a QSPM for PepsiCo 199
Assurance of Learning Exercise 6F: Formulate Individual Strategies 199
Assurance of Learning Exercise 6G: The Mach Test 200
Assurance of Learning Exercise 6H: Develop a BCG Matrix for Your
University 201
Assurance of Learning Exercise 6I: The Role of Boards of Directors 201
Assurance of Learning Exercise 6J: Locate Companies in a Grand Strategy
Matrix 202
The Nature of Strategy Implementation
Assurance Of Learning Exercises
The Nature of Strategy Evaluation
282
International Business Machines (IBM): Excellent
Strategic Management Showcased 282
The Process of Evaluating Strategies
230
A Strategy-Evaluation Framework
285
286
Reviewing Bases of Strategy 286 ■ Measuring Organizational
Performance 288 ■ Taking Corrective Actions 289
The Balanced Scorecard 291
Published Sources of Strategy-Evaluation Information 292
x Contents
Characteristics of an Effective Evaluation System 293
Contingency Planning 294
Auditing 295
21st-Century Challenges in Strategic Management 296
The Art or Science Issue 296 ■ The Visible or Hidden Issue
■ The Top-Down or Bottom-Up Approach 297
Special Note to Students
Culture 340 ■ Egypt—Business Culture 341 ■ China—
Business Culture 342 ■ India—Business Culture 342
■ Nigeria—Business Culture 343
Business Climate Across Countries/Continents 344
296
297
Special Note to Students
Assurance Of Learning Exercises 300
Assurance of Learning Exercise 9A: Examine 100 Balanced
Scorecards 300
Assurance of Learning Exercise 9B: Prepare a Strategy-Evaluation Report
for PepsiCo 300
Assurance of Learning Exercise 9C: Evaluate Your University’s Strategies 300
Part 5 Key Strategic-Management
Topics 302
Chapter 10 Business Ethics, Social Responsibility,
and Environmental Sustainability 303
Business Ethics
304
Apple Inc.: Excellent Strategic Management
Showcased 304
Social Policy
312 ■ Social Policies on Retirement
312
Part 6 Strategic-Management Case
Analysis 358
The Cross-Examination
318
362
Preparing a Written Case Analysis
Assurance of Learning Exercise 10A: How Does Your Municipality
Compare to Others on Being Pollution-Safe? 320
Assurance of Learning Exercise 10B: Evaluate PepsiCo’s Global Code of
Conduct 321
Assurance of Learning Exercise 10C: Compare and Evaluate
Sustainability Reports 321
Assurance of Learning Exercise 10D: The Ethics of Spying on
Competitors 321
Assurance of Learning Exercise 10E: Who Prepares a Sustainability
Report? 322
Chapter 11 Global and International Issues 325
Domino’s Pizza: Excellent Strategic Management
Showcased 326
Multinational Organizations 329
Advantages and Disadvantages of International
Operations 330
The Global Challenge 331
332
Corporate Tax Rates Globally 332
United States versus Foreign Business Cultures 334
Communication Differences Across Countries 337
Business Culture Across Countries 337
Mexico—Business Culture 338 ■ Japan—Business Culture
■ Brazil—Business Culture 340 ■ Germany—Business
354
Assurance of Learning Exercise 11A: Compare Business Cultures Across
Countries 354
Assurance of Learning Exercise 11B: Staples Wants to Enter Africa to
Help Them 355
Assurance of Learning Exercise 11C: Does Your University Recruit in
Foreign Countries? 355
Assurance of Learning Exercise 11D: Assess Differences in Culture Across
Countries 355
Assurance of Learning Exercise 11E: How Well Traveled Are Business
Students at Your University? 356
Preparing a Case for Class Discussion 361
The Case Method versus Lecture Approach 361
Assurance Of Learning Exercises 320
Globalization
Assurance Of Learning Exercises
The Need for Practicality 360 ■ The Need for Justification 360
■ The Need for Realism 360 ■ The Need for Specificity 360
■ The Need for Originality 361 ■ The Need to Contribute 361
313
What Is a Sustainability Report? 314 ■ Lack of Standards
Changing 314 ■ Managing Environmental Affairs in
the Firm 315 ■ ISO 14000/14001 Certification 316
■ Wildlife 316 ■ Solar Power 317
Special Note to Students
352
What Is a Strategic-Management Case? 360
Guidelines for Preparing Case Analyses 360
311
Environmental Sustainability
345
How to Prepare and Present a Case
Analysis 359
Code of Business Ethics 306 ■ An Ethics Culture 307
■ Whistle-Blowing 307 ■ Bribes 308 ■ Workplace
Romance 309
Social Responsibility
Union Membership Across Europe 344 ■ African Countries
■ China 347 ■ Philippines 349 ■ Taiwan 349
■ India 349 ■ Germany 350 ■ Mexico 351
Making an Oral Presentation
363
Organizing the Presentation 363 ■ Controlling Your
Voice 364 ■ Managing Body Language 364 ■ Speaking from
Notes 364 ■ Constructing Visual Aids 364 ■ Answering
Questions 364
Tips for Success in Case Analysis
365
Content Tips 365 ■ Process Tips
Outline 366
366 ■ Sample Case Analysis
Steps in Presenting an Oral Case Analysis 367
Oral Presentation—Step 1: Introduction (2 minutes) 367
Oral Presentation—Step 2: Mission and Vision (4 minutes) 367
Oral Presentation—Step 3: Internal Assessment (8 minutes) 367
Oral Presentation—Step 4: External Assessment (8 minutes) 368
Oral Presentation—Step 5: Strategy Formulation (14 minutes) 368
Oral Presentation—Step 6: Strategy Implementation (8 minutes) 368
Oral Presentation—Step 7: Strategy Evaluation (2 minutes) 369
Oral Presentation—Step 8: Conclusion (4 minutes) 369
Glossary
637
Name Index
339
362
The Executive Summary 362 ■ The Comprehensive Written
Analysis 362 ■ Steps in Preparing a Comprehensive Written
Analysis 363
Subject Index
649
653
Cases
USA Headquartered
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
Dominos Pizza, Inc. 372
Spirit Airlines, Inc. 382
Buffalo Wild Wings, Inc. 391
Rite Aid Corp. 400
Best Buy Co. 410
Publix Super Markets, Inc. 420
JPMorgan Chase & Co. 430
Walt Disney Company 441
Lowe’s Companies, Inc. 451
United Parcel Service, Inc. 460
United States Postal Service 471
Crocs, Inc. 482
Snyder’s-Lance, Inc. 492
Netgear, Inc. 500
Polaris Industries, Inc. 508
Under Armour, Inc. 517
Avon Products, Inc. 526
Exxon Mobil Corporation 534
Microsoft Corporation 545
Outside-USA Headquartered
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
The Emirates Group 554
Royal Bank of Canada 563
Embraer S.A. 570
Bayerische Motoren Werke (BMW) Group
Davide Campari-Milano S.p.A. 586
L’Oréal Group SA 595
Nikon Corporation 603
Grupo Modelo S.A.B. 610
Pearson PLC 619
Lenovo Group Limited 628
579
xi
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Welcome Forest, and Thank You:
•
•
•
•
•
•
•
•
For joining me as a coauthor on this 15th edition
For preparing the Case Instructor’s Manual for this textbook and five previous editions
For writing 29 new, excellent cases included in this edition, and many cases in prior editions
For publishing many strategic management papers and articles with me and other authors
For your wise strategic-management counsel over many years as this textbook has evolved
For assisting students for many years through the Strategy Club (www.strategyclub.com) that now also
offers your free Excel Student Template
For developing an outstanding Case MyLab testing feature for this edition
For preparing the Chapter Instructor’s Manual for this edition
This page intentionally left blank
Preface
Why Adopt This Text?
This textbook is trusted around the world to provide managers the latest skills and concepts
needed to effectively formulate and efficiently implement a strategic plan—a game plan, if
you will—that can lead to sustainable competitive advantage for any type of business. The
Association to Advance Collegiate Schools of Business (AACSB) increasingly advocates a
more skills-oriented, practical approach in business books, which the David text provides,
rather than a theory-based approach. This textbook meets all AACSB-International guidelines
for the strategic-management course at both the graduate and undergraduate levels, and previous editions have been used at more than 500 colleges and universities around the world. We
believe you will find this edition to be the best textbook available for communicating both
the excitement and value of strategic management. Concise and exceptionally well organized, this text is now published in English, Chinese, Spanish, Thai, German, Japanese, Farsi,
Indonesian, Indian, and Arabic. A version in Russian is being negotiated. Not only universities, but also hundreds of companies, organizations, and governmental bodies use this text as
a management guide.
In contrast to many other strategic-management textbooks, the David book provides:
1. An effective process for developing a clear strategic plan, rather than simply presenting
seminal theories in strategy, and
2. An effective model or flow for actually doing strategic planning.
Eric N. Sims, a professor who in 2013 adopted the David book for his classes at Sonoma State
University in California, says:
“I have read many strategy books. I am going to use the David book. What I like—to steal
a line from Alabama coach Nick Saban—is your book teaches ‘a process.’ I believe at the
end of your book, you can actually help a company do strategic planning. In contrast, the
other books teach a number of near and far concepts related to strategy.”
A recent reviewer of this textbook says:
“One thing I admire most about the David text is that it follows the fundamental sequence
of strategy formulation, implementation, and evaluation. There is a basic flow from vision/
mission to internal/external environmental scanning, to strategy development, selection,
implementation, and evaluation. This has been, and continues to be, a hallmark of the
David text. Many other strategy texts are more disjointed in their presentation, and thus
confusing to the student, especially at the undergraduate level.”
New Chapter Features
1. The fifteenth edition is 40 percent new and improved from the prior edition.
2. Chapter 11, Global and International Issues, is expanded 30 percent with new coverage of
cultural and conceptual strategic-management differences across countries. Doing business
globally has become a necessity in most industries. Nearly all strategic decisions today are
affected by global issues and concerns.
3. Chapter 10, Business Ethics, Social Responsibility, and Environmental Sustainability, is
expanded 30 percent, providing extensive new coverage of ethics, workplace romance,
and sustainability. This text emphasizes that “good ethics is good business.” Unique to
strategic-management texts, the sustainability discussion is strengthened in this edition to
promote and encourage firms to conduct operations in an environmentally sound manner.
Respect for the natural environment has become an important concern for consumers, companies, society, and AACSB-International.
xv
xvi Preface
4. A brand new Cohesion Case on PepsiCo, Inc. (2013) is provided. PepsiCo is one of the
most successful, well-known, and best-managed global companies in the world. Students
apply strategy concepts to PepsiCo at the end of each chapter through brand new Assurance
of Learning Exercises.
5. Fifty percent new or improved Assurance of Learning Exercises appear at the end of all
chapters to apply chapter concepts. The exercises prepare students for strategic-management
case analysis.
6. A new boxed insert at the beginning of each chapter showcases a company doing strategic
management exceptionally well.
7. There are all new examples in all the chapters.
8. There is new narrative on strategic-management theory and concepts in every chapter.
9. On average, 10 new review questions are provided at the end of each chapter.
10. Twenty-two brand new color photographs bring this new edition to life and illustrate “the
practice of strategic management.”
11. All current readings at the end of all chapters are new, as new research and theories of seminal thinkers are included. However, practical aspects of strategic management are center
stage and the trademark of this text.
12. For the first time ever, the Excel Student Template is provided free at www.strategyclub.
com to all students who use this textbook. Widely used for more than a decade by both
students and businesses, and improved dramatically just for this edition, the free Excel
Student Template enables students to more easily apply strategic-management concepts
while engaging in assurance of learning exercises or case analysis. Using the Template,
students can devote more time to applying strategy concepts and less time to the mechanics
of formatting strategy matrices, tables, and PowerPoints.
13. Every sentence and paragraph has been scrutinized, modified, clarified, deleted, streamlined, updated, and improved to enhance the content and caliber of presentation.
New Case Features
1. All 29 cases have a 2013 time setting, offering students up-to-date issues to evaluate;
2. All 29 cases are on student-friendly, well-known companies, thus exciting and effective for
applying strategy concepts;
3. Ten of the 29 case companies (such as BMW and L’Oréal) are headquartered outside the
USA; the only strategy text with such a global offering;
4. All 29 cases are undisguised, featuring real organizations in real industries using real
names (nothing is fictitious in any case);
5. All 29 cases feature an organization and industry undergoing strategic change;
6. All 29 cases provide ample, excellent quantitative information, so students can prepare a
defensible strategic plan;
7. All 29 cases are written in a lively, concise writing style that captures the reader’s
interest;
8. All 29 cases are “comprehensive,” focusing on multiple business functions, rather than a
single problem or issue;
9. All 29 cases include current financial statements for the firm, so students can show the
impact of a proposed strategic plan;
10. All 29 cases provide an organizational chart and a vision and mission statement—
important strategy concepts;
11. All 29 cases are supported by an excellent teacher’s note, provided to professors in a new
Case Instructor’s Manual;
12. All 29 cases are available for inclusion in a customized tailored text to meet the special
needs of some professors;
13. All 29 cases facilitate coverage of all strategy concepts, but as revealed in the new
Concepts by Cases Matrix, some cases especially exemplify some concepts, enabling professors to effectively use various cases with various chapters in the text;
14. All 29 cases have been class-tested to ensure that they are interesting, challenging, and
effective for illustrating strategy concepts;
15. All 29 cases appear in no other textbooks, thus offering a truly fresh, new, up-to-date,
learning platform;
Preface xvii
16. The 29 case companies provide an excellent mix of firms performing really well and some
performing very poorly, including 13 service-based and 16 manufacturing-based firms, and
a good mix of small cap to large cap firms.
17. All 29 case companies have excellent websites in English that provide detailed financial
information, history, sustainability statements, ethics statements, and press releases, so students can easily access current information to apply strategy concepts.
18. For the first time ever with this textbook, all 29 cases are written by the authors, to ensure
maximum control and effectiveness in applying strategic-management concepts through
case analysis.
19. For the first time ever with any strategic-management text, a Case MyLab testing feature
has been carefully developed and designed specifically to apply strategic-management
concepts through case analysis. The Case MyLab product assures that the cases apply the
concepts, simplifies grading for professors, and achieves AACSB’s key assurance of learning objectives—even in purely or partly online class settings. The new Case MyLab testing
feature enables professors to use the cases to monitor student learning of strategy concepts,
as revealed in the Concepts by Cases Matrix given below.
Time-Tested Features
1. This text meets all AACSB-International guidelines that support a practitioner orientation
rather than a theory/research approach. This text offers a skills-oriented process for developing a vision and mission statement; performing an external audit; conducting an internal
assessment; and formulating, implementing, and evaluating strategies.
2. The author’s writing style is concise, conversational, interesting, logical, lively, and supported by numerous current examples.
3. A simple, integrative strategic-management model appears in all chapters and on the inside
front cover. The model is widely used by strategic planning consultants and companies
worldwide.
4. An exciting, new Cohesion Case on PepsiCo, Inc. follows Chapter 1 and is revisited at the
end of each chapter, allowing students to apply strategic-management concepts and techniques to a real company as chapter material is covered, thus preparing students for case
analysis as the course evolves.
5. End-of-chapter Assurance of Learning Exercises apply chapter concepts and techniques
in a challenging, meaningful, and enjoyable manner. Seventeen exercises apply text material to the Cohesion Case; 11 exercises apply textual material to a college or university;
another 9 exercises send students into the business world to explore important strategy
topics.
6. There is excellent pedagogy, including learning objectives opening each chapter and key
terms, current readings, discussion questions, and assurance of learning exercises ending
each chapter.
7. There is excellent coverage of strategy formulation issues, such as business ethics, global
versus domestic operations, vision and mission, matrix analysis, partnering, joint venturing, competitive analysis, value chain analysis, governance, and matrices for assimilating
and evaluating information.
8. There is excellent coverage of strategy implementation issues such as corporate
culture, organizational structure, outsourcing, marketing concepts, financial analysis,
business ethics, whistleblowing, bribery, pay and performance linkages, and workplace
romance.
9. A systematic, analytical “process” is presented that includes nine matrices: IFEM, EFEM,
CPM, SWOT, BCG, IE, GRAND, SPACE, and QSPM.
10. Both the chapter material and case material is published in four colors.
11. Chapters-only paperback and e-book versions of the text are available.
12. Custom-case publishing is available whereby an instructor can combine chapters from
this text with cases from a variety of sources or select any number of the 29 cases
provided.
13. For the chapter material, an outstanding ancillary package includes a comprehensive
Instructor’s Manual, Test Bank, TestGen, and Chapter PowerPoints.
xviii Preface
Instructor Supplements
At www.pearsonhighered.com/irc, instructors can access a variety of resources that accompany this new edition. Registration is easy, please contact your Pearson Sales Representative
who will provide you with the access information you need.
If you ever need assistance, our dedicated technical support team is ready to help with the
media supplements that accompany this text. Visit http://247.pearsoned.com/ for answers to
frequently asked questions and toll-free user support phone numbers.
The following supplements are available to adopting instructors:
Chapter Instructor’s Manual
Case Instructor’s Manual
Chapter PowerPoints
Test Bank
TestGen
•
•
•
•
•
CourseSmart Textbooks 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 reading assignments that incorporate lecture notes, and bookmark important
passages for later review. For more information or to purchase a CourseSmart eTextbook, visit
www.coursesmart.com.
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Campus
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Bernadino
Preface xix
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University
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ECPI College of Technology—Charleston
ECPI Computer Institute
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Johnson & Wales—Colorado
Johnson & Wales—Miami
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Johnson C. Smith University
Kalamazoo College
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Keene State College
Kellogg Community College
xx Preface
La Salle University
Lake Michigan College
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Lee University
Lehman College of CUNY
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Limestone College—Gaffney
Lincoln Memorial University
Loyola College Business Center
Loyola College—Chennai
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Lyndon State College
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Manhattan College
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Marian University—Indiana
Marshall University
North Central State College
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Northwestern College
Northwood University—Cedar Hill
Notre Dame of Maryland University
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Ohio Dominican University
Oklahoma Christian University
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Pace University—Pleasantville
Park University
Penn State University—Abington
Penn State University—Hazleton
Pensacola State College
Marshall University Graduate College
Marymount University—Arlington
Medgar Evers College
Medical Careers Institute/Newport News
Mercer University—Atlanta
Mercer University—Macon
Miami-Dade College—Homestead
Miami-Dade College—Kendal
Miami-Dade College—North
Miami-Dade College—Wolfson
Michigan State University
Mid-America Christian
Millersville University
Mississippi University for Women
Morgan State University
Morrison College of Reno
Mount Marty College—South Dakota
Philadelphia University
Point Park University
Prince George’s Community College
Queens College of CUNY
Richard Stockton University
Rider University
Roger Williams University
Saint Edwards University
Saint Leo University
Saint Mary’s College
Saint Mary’s College—Indiana
Saint Xavier University
San Antonio College
Santa Fe College
Savannah State University
Shippensburg University
Siena Heights University
Mount Mercy University
Mount Wachusett Community College
Mt. Hood Community College
Mt. Vernon Nazarene
MTI Western Business College
Muhlenberg College
Murray State University
New England College
New Mexico State University
New York University
North Carolina Wesleyan College
North Central College
Southern Nazarene University
Southern New Hampshire University
Southern Oregon University
Southern University—Baton Rouge
Southern Wesleyan University
Southwest Baptist University
Southwest University
St. Bonaventure University
St. Francis University
St. Louis University
St. Martins University
Sterling College
Preface xxi
Stevenson University
Strayer University—DC
Texas A&M University—Commerce
Texas A&M University—Texarkana
Texas A&M—San Antonio
Texas Tech University
The College of St. Rose
The Masters College
Tri-County Technical College
Trinity Christian College
Troy State University
Troy University—Dothan
Troy University—Main Campus
Troy University—Montgomery
University Alabama—Birmingham
University Maryland—College Park
University of Arkansas—Fayetteville
University of Findlay
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University of Louisiana at Monroe
University of Maine at Augusta
University of Maine—Fort Kent
University of Maryland
University of Massachusetts—Boston
Harbor
University of Massachusetts—Dartmouth
University of Miami
University of Michigan—Flint
University of Minnesota—Crookston
University of Mobile
University of Montevallo
University of Nebraska—Omaha
University of Nevada Las Vegas
University of New Orleans
University of North Texas
University of North Texas—Dallas
University of Pikeville
University of Sioux Falls
University of South Florida
University of St. Joseph
University of Tampa
University of Texas—Pan American
University of The Incarnate Word
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Virginia Community College System
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West Valley College
West Virginia Wesleyan College
Western Connecticut State University
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Western Michigan University
Western Washington University
William Jewell College
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Winona State University
Winston-Salem State University
WSU Vancouver
Sample of Countries Outside the USA Where This Textbook
is Very Widely Used
Mexico, China, Japan, Australia, Singapore, Canada, Indonesia, Pakistan, Iran, Kenya, Congo,
Hong Kong, India, England, Argentina, Equador, Zambia, Guam, Italy, Cyprus, Colombia,
Philippines, South Africa, Peru, Turkey, Malaysia, and Egypt
This page intentionally left blank
Acknowledgments
Many persons have contributed time, energy, ideas, and suggestions for improving this text
over 15 editions. The strength of this text is largely attributed to the collective wisdom, work,
and experiences of strategic-management professors, researchers, students, and practitioners.
Names of particular individuals whose published research is referenced in this edition are listed
alphabetically in the Name Index. To all individuals involved in making this text so popular and
successful, we are indebted and thankful.
Many special persons and reviewers contributed valuable material and suggestions for this
edition. We would like to thank our colleagues and friends at Auburn University, Mississippi
State University, East Carolina University, the University of South Carolina, Campbell
University, the University of North Carolina at Pembroke, and Francis Marion University. We
have taught strategic management at all these universities. Scores of students and professors
at these schools helped shape the development of this text. Many thanks go to the following
reviewers whose comments shaped the fourteenth and fifteenth editions:
Moses Acquaah, University of North Carolina at Greensboro
Gary L. Arbogast, Glenville State College
Charles M. Byles, Virginia Commonwealth University
Charles J. Capps III, Sam Houston State University
Neil Dworkin, Western Connecticut State University
Jacalyn M. Florn, University of Toledo
John Frankenstein, Brooklyn College/City University of New York
Bill W. Godair, Landmark College, Community College of Vermont
Carol Jacobson, Purdue University
Susan M. Jensen, University of Nebraska at Kearney
Dmitry Khanin, California State University at Fullerton
Thomas E. Kulik, Washington University at St. Louis
Jerrold K. Leong, Oklahoma State University
Trina Lynch-Jackson, Indiana University
Elouise Mintz, Saint Louis University
Raza Mir, William Paterson University
Gerry N. Muuka, Murray State University
Braimoh Oseghale, Fairleigh Dickinson University
Lori Radulovich, Baldwin-Wallace College
Thomas W. Sharkey, University of Toledo
Frederick J. Slack, Indiana University of Pennsylvania
Daniel Slater, Union University
Demetri Tsanacas, Ferrum College
Jill Lynn Vihtelic, Saint Mary’s College
Michael W. Wakefield, Colorado State University–Pueblo
Don Wicker, Brazosport College
We want to thank you, the reader, for investing the time and effort to read and study this text.
It will help you formulate, implement, and evaluate strategies for any organization with which
you become associated. We hope you come to share our enthusiasm for the rich subject area
of strategic management and for the systematic learning approach taken in this text. We want
xxiii
xxiv Acknowledgments
to welcome and invite your suggestions, ideas, thoughts, comments, and questions regarding
any part of this text or the ancillary materials. Please contact Dr. Fred R. David at the following
e-mail freddavid9@gmail.com, or write him at the School of Business, Francis Marion
University, Florence, SC 29501. We sincerely appreciate and need your input to continually
improve this text in future editions. Your willingness to draw my attention to specific errors or
deficiencies in coverage or exposition will especially be appreciated.
Thank you for using this text.
Fred R. David and Forest R. David
About the Authors
Fred R. and Forest R. David, a father–son team, have published more than
50 journal articles in outlets such as Academy of Management Review,
Academy of Management Executive, Journal of Applied Psychology, Long
Range Planning, International Journal of Management, Journal of Business
Strategy, and Advanced Management Journal. Fred and Forest’s February
2011 Business Horizons article titled “What are Business Schools Doing
for Business Today?” is changing the way many business schools view their
curricula.
Fred and Forest are coauthors of Strategic Management: Concepts and
Cases that has been on a two-year revision cycle since 1986 when the first edition was published. This text is among the best-selling strategic-management
textbooks in the world. This text has led the field of strategic management for
more than two decades in providing an applications, practitioner-approach to
the discipline. More than 500 colleges and universities have used this textbook
over the years, including Harvard University, Duke University, CarnegieMellon University, Johns Hopkins University, the University of Maryland,
University of North Carolina, University of Georgia, San Francisco State
University, University of South Carolina, Wake Forest University, and countless universities in Japan, China, Australia, Mexico, and the Middle East. For
six editions of this book, Forest has been sole author of the Case Instructor’s
Manual, having developed extensive teachers’ notes (solutions) for all the
cases. Forest is author of the Case MyLab ancillary and the free Excel Student
Template that accompany this fifteenth edition.
Fred and Forest actively assist businesses globally in doing strategic
planning. They have written and published more than 100 strategic management cases. Fred and Forest were recently keynote speakers at the Pearson
International Forum in Monterrey, Mexico. With a PhD in Management
from the University of South Carolina, Fred is the TranSouth Professor of
Strategic Planning at Francis Marion University (FMU) in Florence, South
Carolina. Forest has taught strategic-management courses at Mississippi State
University, Campbell University, and FMU.
Fred R. David
Forest R. David
xxv
xxvi About the Authors
The Case Rationale
Case analysis remains the primary learning vehicle used in most strategic-management classes,
for five important reasons:
1. Analyzing cases gives students the opportunity to work in teams to evaluate the internal
operations and external issues facing various organizations and to craft strategies that can
lead these firms to success. Working in teams gives students practical experience solving
problems as part of a group. In the business world, important decisions are generally made
within groups; strategic-management students learn to deal with overly aggressive group
members and also timid, noncontributing group members. This experience is valuable
because strategic-management students are near graduation and soon enter the working
world full-time.
2. Analyzing cases enables students to improve their oral and written communication skills
as well as their analytical and interpersonal skills by proposing and defending particular
courses of action for the case companies.
3. Analyzing cases allows students to view a company, its competitors, and its industry concurrently, thus simulating the complex business world. Through case analysis, students
learn how to apply concepts, evaluate situations, formulate strategies, and resolve implementation problems.
4. Analyzing cases allows students to apply concepts learned in many business courses.
Students gain experience dealing with a wide range of organizational problems that impact
all the business functions.
5. Analyzing cases gives students practice in applying concepts, evaluating situations, formulating a “game plan,” and resolving implementation problems in a variety of business and
industry settings.
Case MyLab Testing Feature
New to this edition is an enhanced MyLab with new cases that include gradeable outcomes.
As revealed in the new Concepts x Cases matrix below, student learning of 29 key strategicmanagement concepts can easily be tested by using the 29 fifteenth edition cases. This feature
assures that the cases are excellent for testing student learning of the key strategic-management
concepts, thus serving as a great mechanism for professors to achieve AACSB’s Assurance of
Learning Objectives. This new testing feature simplifies grading for professors in both traditional and online class settings.
The Case MyLab testing feature includes 25 multiple choice questions for each case, comprised of 10 Basic questions that simply test whether the student read the case before class, and
15 Applied questions that test the student’s ability to apply various strategic-management concepts. In addition, there are 2 Discussion questions per case. This testing feature enables professors to determine, before class if desired, whether students 1) read the case in Basic terms, and/
or 2) are able to Apply strategy concepts to resolve issues in the case. For example, the MyLab
case Basic question may be: In what country is BMW headquartered? Whereas, a MyLab case
Applied question may be: What are three aspects of the organizational chart given in the BMW
case that violate strategic-management guidelines? The Answers to these questions can be found
in the Case Instructor’s Manual.
The New Concepts by Cases Matrix
All 29 cases facilitate coverage of all strategy concepts, but as revealed below by purple cells,
some cases especially exemplify some key strategy concepts. The purple cells reveal which
concepts are tested with multiple choice questions in the MyLab. The Concepts by Cases matrix enables professors to effectively utilize various cases to assure student learning of various
chapter concepts. Note from the purple boxes that two, three, or four cases are used to test each
strategic-management concept. This new, innovative ancillary promises to elevate the case learning method to new heights in teaching strategic management.
About the Authors xxvii
Case Number
USA Headquartered
USA-Based Service Companies
Case 1
Domino’s Pizza, Inc.
Case 2
Spirit Airlines, Inc.
Case 3
Buffalo Wild Wings, Inc.
Case 4
Rite Aid Corp.
Case 5
Best Buy Co.
Case 6
Publix Super Markets, Inc.
Case 7
JPMorgan Chase & Co.
Case 8
Walt Disney Company
Case 9
Lowe’s Companies, Inc.
Case 10
United Parcel Service, Inc.
Case 11
United States Postal Service
USA-Based Manufacturing Companies
Case 12
Crocs, Inc.
Case 13
Snyder’s-Lance, Inc.
Case 14
Netgear, Inc.
Case 15
Polaris Industries, Inc.
Case 16
Under Armour, Inc.
Case 17
Avon Products, Inc.
Case 18
Exxon Mobil Corporation
Case 19
Microsoft Corporation
Outside-USA
Headquartered
Case 20
The Emirates Group
Case 21
Royal Bank of Canada
Case 22
Embraer S.A.
Case 23
Bayerische Motoren Werke
(BMW) Group
Case 24
Davide Campari-Milano S.p.A.
Case 25
L’Oréal Group
Case 26
Nikon Corporation
Case 27
Grupo Modelo S.A.B.
Case 28
Pearson PLC
Case 29
Lenovo Group Limited
Porter’s Five Generic
Strategies
Strategy Types
IFE Matrix
Value Chain Analysis
Financial Ratios &
Breakeven
Resource Based View
EFE Matrix
Porter’s Five Forces
Model
Competitive Profile
Matrix
Vision/Mission
Statements
Strategy Model/Process
Key StrategicManagement Concepts
xxviii Concepts by Cases Matrix
Foreign Business Culture
Environmental
Sustainability
Business Ethics
Balanced Scorecard
Company Valuation
Projected Financial
Statements
EPS-EBIT Analysis
Market Segmentation &
Product Position
Human Resource
Management
Organizational Culture
Organizational Structure
Governance
Grand Strategy Matrix &
QSPM
BCG & IE Matrices
SPACE Matrix
SWOT Matrix
Outsourcing
First Mover Advantages
Concepts by Cases Matrix xxix
xxx Concepts by Cases Matrix
The Case Synopses
USA-Based Service Companies
1. Domino’s Pizza, Inc. (DPZ)
Headquartered in Ann Arbor, Michigan, Domino’s is the second-largest pizza chain in the
USA behind Pizza Hut. Domino’s has over 9,700 delivery-only stores in about 65 countries and all 50 USA states. Among the 5,000 Domino’s in the USA, only about 400 are
company-owned, while the others are franchised. Domino’s offers a gluten free crust in all
its USA restaurants, the first national pizza delivery chain to offer such a product. Domino’s
has about 10,000 full-time employees.
2. Spirit Airlines (SAVE)
Headquartered in Miramar, Florida, Spirit Airlines is a rapidly growing, low-cost airline that
serves many locations in the Bahamas, Caribbean, Latin America, as well as about a dozen
USA cities. With an average fleet age of 4.4 years old, Spirit has the third youngest Airbus
fleet in the Americas after Virgin America and the Mexican airline Volaris. Spirit has on
order 108 Airbus A320s, including 45 A320neo (new engine option) aircraft, to be delivered
between 2012 and 2021. Spirit has about 2,600 full-time employees.
3. Buffalo Wild Wings (BWLD)
Headquartered in Minneapolis, Minnesota, Buffalo Wild Wings (BWW) is a casual dining
restaurant and sports bar that operates about 835 restaurants in 48 states in the USA and
Canada. BWW offers chicken wings and legs with many signature sauces and seasonings
as well as bottled beer, wine, and liquor. Only about 320 BWW restaurants are companyowned; the remaining are franchised. BWW plans to acquire other restaurant firms (maybe
Denny’s or Nathan’s Famous) and has about 2,700 full-time employees.
4. Rite Aid Corporation (RAD)
Headquartered in Camp Hill, Pennsylvania, Rite Aid is a distant third (behind CVS and
Walgreen) in the USA retail drugstore business. Rite Aid operates 4,700 drugstores in
31 states, fills prescriptions (about two-thirds of sales), and sells health and beauty aids,
convenience foods, greeting cards, and 3,000 Rite Aid brand products. About 60% of
Rite Aid stores are freestanding; about 50% have drive-through pharmacies. With 51,300
employees, Rite Aid has a strategic alliance with GNC to operate GNC stores within Rite
Aid stores.
5. Best Buy Company (BBY)
Headquartered in Richfield, Minnesota, Best Buy is a mass retailer of consumer electronics
products and services, including installation, maintenance, and technical support of movies,
computers, and phones. With over 1,400 stores in the USA and Canada and another 2,600
stores in Europe and China, Best Buy recently sold Napster to online mp3 store Rhapsody.
With 167,000 employees well trained and wearing the trademark blue shirts, Best Buy has a
problem in that many customers go to Best Buy, get educated, and then leave and purchase
online.
6. Publix Super Markets, Inc. (Employee Owned)
Headquartered in Lakeland, Florida, Publix is the largest ESOP (employee stock ownership
plan) in the USA; employees own 31% of Publix. More than two-thirds of all Publix’s are
in Florida, but some are in Alabama, Georgia, South Carolina, and Tennessee. Publix makes
some of its own bakery, deli, dairy goods, and fresh prepared foods. Many Publix’s include
a pharmacy and bank. Publix has about 140,000 employees, 1,086 supermarkets, cooking
schools, 8 distribution centers, and 9 manufacturing facilities.
7. JPMorgan Chase & Co. (JPM)
Headquartered in New York City, JPMorgan Chase is the USA’s largest bank holding
company with more than $2 trillion in assets, 5,500 branches in thirty states, and 260,000
employees. JPM is also among the nation’s top mortgage lenders and credit card issuers
(it holds some $132 billion in credit card loans). Founded in 1823 and now active in over
60 countries, JPM owns private equity firm One Equity Partners.
Concepts by Cases Matrix xxxi
8. Walt Disney Company (DIS)
Headquartered in Burbank, California, Disney competes in the family entertainment and
media broadcasting industry. Serving customers for nearly 100 years, Disney is a diversified conglomerate, owning ABC, ESPN, theme parks, cruise boats, cable networks, and
more. As a member of the DOW 30, Disney owns 8 television stations and 35 radio stations,
as well as Walt Disney Studios that produces films through Walt Disney Pictures, Disney
Animation, and Pixar.
9. Lowe’s Companies, Inc. (LOW)
Headquartered in Mooresville, North Carolina, Lowe’s is a nationwide chain of home
improvement superstores that plans to expand internationally. Lowe’s has more than 1,745
stores in 50 states and more than 30 locations in Canada and Mexico, second only to Home
Depot. With over 160,000 employees that focus on home maintenance, repair, remodeling
and decorating, Lowe’s is the second largest U.S. home appliance retailer after Sears.
10. United Parcel Service, Inc. (UPS)
Headquartered in Atlanta, Georgia, UPS is the world’s largest package delivery company
transporting more than 15 million packages and documents per business day in the USA
and 220 countries and territories. UPS operates a fleet of about 100,000 “brown” trucks,
vans, tractors, and motorcycles as well as 525 aircraft. UPS also offers logistics and
freight forwarding, and less-than-truckload (LTL) and truckload (TL) freight transportation through UPS Freight. With 222,000 employees, UPS is acquiring TNT Express for
$6.8 billion.
11. United States Postal Service (nonprofit)
The United States Postal Service (USPS) is an independent agency of the United States
government responsible for delivering mail. With over 574,000 workers and 218,000 vehicles, the USPS operates the largest vehicle fleet in the world. The USPS is legally obligated
to serve all Americans, regardless of geography, at uniform price and quality. The USPS
competes with UPS and FedEx, but is closing 252 of its 461 mail processing centers, eliminating 28,000 jobs, ending overnight delivery of first-class mail, and closing 3,700 local
post offices.
USA-Based Manufacturing Companies
12. Crocs, Inc. (CROX)
Headquartered in Niwot, Colorado, Crocs is a footwear company that offers colorful slipon, casual and athletic shoes made of closed-cell resin (Croslite); Jibbitz are Crocs’ decorative add-on charms. Crocs designs, develops, manufactures, markets, and distributes boots,
sandals, sneakers, mules, and flats in more than 90 countries. With manufacturing facilities
in Mexico, Italy, and China and distribution centers worldwide, Crocs has 4,150 employees.
Crocs, Inc. owns 180 retail stores, 92 outlet stores, 42 Web stores, and 158 kiosks in malls
worldwide.
13. Snyder’s-Lance, Inc. (LNCE)
Headquartered in Charlotte, North Carolina, Snyder’s-Lance manufactures and markets
snack foods such as Toastchee, Nipchee, and Captain’s Wafers. Snyder’s-Lance products
include pretzels, cookies, crackers, nuts, potato chips, cakes, and candy sold under the
Lance, Cape Cod, Tom’s, Archway, and Snyder’s brands at food retailers, mass merchants,
and convenience and club stores in the USA. Snyder’s-Lance primarily does business in the
USA and has 6,100 employees.
14. Netgear (NTGR)
Headquartered in San Jose, California, Netgear designs and produces Internet networking
equipment, such as adapters, hubs, routers, Ethernet switches, wireless controllers, media
servers, and interfaces. NETGEAR sells products through distributors such as Ingram
Micro and Tech Data, retailers such as Best Buy and RadioShack, as well as through
29,000 retail locations around the globe and 36,000 value-added resellers. With offices in
25 countries and 810 employees, Netgear generates about half of its revenue from outside
the USA.
xxxii Concepts by Cases Matrix
15. Polaris Industries, Inc. (PII)
Headquartered in Medina, Minnesota, Polaris designs, manufactures, and markets off-road,
all-terrain vehicles (ATVs), recreational and utility RANGER-brand vehicles, snowmobiles,
and even the Victory brand motorcycle. Polaris also produces and sells replacement parts
and accessories such as covers, tow hitches, cargo racks, saddlebags, helmets, and also
recreational apparel such as jackets, bibs, pants, and hats. With 3,900 employees and 30%
of its revenue derived from outside the USA, Polaris partners with Fuji Heavy Industries to
build engines.
16. Under Armour, Inc. (UA)
Headquartered in Baltimore, Maryland, Under Armour (UA) is a producer and marketer of
compression, fitted, and loose sports apparel, including athletic footwear; UA is the official
footwear supplier of Major League Baseball. UA dresses athletes from head (COLDGEAR)
to toe (Team Sock) with products are made from the company’s patented moisture wicking
and heat-dispersing fabrics that keeps athletes dry during workouts. With 1,800 employees,
UA sells its products online, by catalog, in company-owned and sporting goods stores,
worldwide.
17. Avon Products (AVP)
Headquartered in New York City, Avon Products is the world’s largest direct seller firm, and
by far the largest direct seller of cosmetics and beauty-related items. Avon is the fifth-largest
cosmetics and fragrance firm in the world. The company receives sales from catalogs and
online, but the vast majority of its sales come from about six million independent sales representatives in 110 countries. Since 1892, Avon has empowered women to be their own boss
and become leaders in communities and business. Avon is struggling to recover from poor
management and global bribery investigations.
18. Exxon Mobil Corporation (XOM)
Headquartered in Irving, Texas, Exxon Mobil is the world’s largest oil company and
engages in oil and gas exploration, production, supply, transportation, and marketing worldwide. With 24.9 billion barrels of proven oil reserves, Exxon’s 36 refineries in 20 countries
have a capacity of more than 6.2 million barrels per day. Exxon supplies refined products
to more than 25,000 gas stations in 100 countries. With operations on all continents except
Antarctica, Exxon has 82,000 employees and operates over 30,000 oil wells around the
world.
19. Microsoft Corporation (MSFT)
Headquartered in Redmond, Washington, Microsoft is the world’s largest software firm
with its core product being the Windows PC operating system and Office business productivity application suite sold in part through PC makers. Selling online and through resellers, Microsoft also designs and manufactures video game consoles (Xbox 360), enterprise
applications (Microsoft Dynamics), server and storage software, and digital music players
(Zune). With 90,000 employees, Microsoft also engages in online advertising and consulting services.
Outside USA-Based
Service Firms
Country HQ
20. The Emirates Group
UAE
Headquartered in Dubai in the United Arab Emirates, The Emirates Group is the parent of
Emirates, the largest airline in the Middle East, operating over 2,500 flights per week from
its hub at Dubai International Airport. Emirates flies to 120 cities in 70 countries and operates four of the world’s 10 longest non-stop commercial flights. With 50,000 employees
and 50 subsidiaries, The Emirates Group is wholly owned by the government of Dubai and
controlled by the Investment Corp. of Dubai. Emirates is very profitable and growing over
20% annually.
21. Royal Bank of Canada Canada
Headquartered in Toronto, Canada, Royal Bank of Canada (RBC) is Canada’s largest bank.
RBC provides a full range of services from commercial banking and wealth management
Concepts by Cases Matrix xxxiii
to insurance and capital markets services. With more than 1,000 locations in Canada and
operations in more than 50 countries, RBC sold its RBC Bank unit in the Southeast USA
to PNC Financial in 2012, but still owns investment bank RBC Dominion Securities and
RBC Wealth Management in the USA. Founded in 1864, RBC has about 68,000 full-time
employees.
Manufacturing Firms
22. Embraer S.A.
Brazil
Headquartered in Sao Paulo, Brazil, Embraer is one of the world’s top four aircraft
manufacturers, making commercial jets (55%) that seat between 30–120 passengers,
7 models of executive jets (20%), and military aircraft (12%). About 40% of its Embraer
sales are in North and South America. With 17,200 employees, Embraer is Brazil’s
largest exporter of industrial products. Embraer’s CEO, Frederico Curado, received the
2012 Tony Jannus Award, given annually for distinguished contributions to commercial
aviation.
23. Bayerische Motoren Werke (BMW) AG Germany
Headquartered in Munich, Bavaria, Germany, BMW is a large automobile, motorcycle and
engine manufacturing company founded in 1917. BMW is the parent company of RollsRoyce Motor Cars. With about 100,000 employees, BMW produces motorcycles under
the Motorrad and Husqvarna brands and is the sponsor of the 2012 Olympics in London.
Financial services bolster BMW’s bottom line, including purchase financing and leasing,
asset management, dealer financing, and corporate fleets. About 3,000 dealers worldwide
sell BMWs.
24. Campari Group S.p.A Italy
Headquartered in Milan, Italy, Gruppo Campari is the sixth largest producer of alcoholic
and non-alcoholic beverages worldwide. Campari owns a portfolio of over 40 brands,
including Wild Turkey bourbon. Campari markets and distributes drinks in more than 190
countries. With 2,270 employees, Campari is structured into three segments: spirits, wines,
and soft drinks. The Garavoglia family owns 51% of Campari, which is expanding through
acquisitions (it owns U.S. vodka maker Skyy Spirits) and by entering growing markets in
Asia and South America.
25. L’Oréal Group
France
Headquartered outside of Paris in Clichy, Hauts-de-Seine, France, L’Oréal is the world’s
largest cosmetics and beauty company. Specializing in hair color, skin care, sun protection, make-up, perfumes, and hair care, L’Oréal is the leading nanotechnology patentholder in the USA. L’Oréal recently opened a huge new factory in Indonesia. L’Oréal is
a listed company with 66,000 employees, but the founder’s daughter Liliane Bettencourt
and the Swiss food company Nestle each control over a quarter of the shares and voting
rights.
26. Nikon Corporation
Japan
Headquartered in Tokyo, Japan, Nikon develops, produces, and markets cameras, binoculars, microscopes, measurement instruments, imaging lenses, photographic enlargers,
and other imaging products such as Nikonos underwater film cameras. Nikon competes
with Canon, Casio, Kodak, Sony, Pentax, Panasonic, Fujifilm, and Olympus. With 24,000
employees and founded in 1917, Nikon is part of the huge Mitsubishi keiretsu, a group of
businesses linked by cross-ownership.
27. Grupo Modelo, S.A.B. de C.V.
Mexico
Headquartered in Mexico, Mexico, Grupo Modelo is among the largest beer producing,
distributing, and marketing firms in the world. Some of Modelo’s 13 beer brands include
Corona Extra, the number one Mexican beer sold in the world, Barrilito, Victoria, Estrella,
Medelo, and Paciffico. With 37,300 employees, Modelo also produces bottled water and
operates 960 convenience stores under the Extra name. With more than a 60% share of
the Mexican beer market and operating 8 breweries, Modelo was recently acquired by
Anheuser-Busch InBev.
xxxiv Concepts by Cases Matrix
28. Pearson plc England
Headquartered in London, England, Pearson is the largest education company and the
largest book publisher in the world. Pearson publishes market-leading books and newspapers in education (Prentice Hall, Longman & FT Press), consumer markets (Penguin,
Dorling Kindersley, and Ladybird), and business information (Financial Times). With about
40,000 employees, Pearson has two operating divisions: 1) Pearson Education, and 2) The
Financial Times Group. Pearson’s major competitor is McGraw-Hill.
29. Lenovo Group Limited China
Headquartered in Beijing, China, Lenovo designs, produces, and markets personal computers, workstations, servers, electronic storage, IT management software, and other related
products and services. The world’s second-largest PC vendor (behind HP), Lenovo markets the ThinkPad line of notebook computers and ThinkCentre line of desktops. With
26,300 employees, Lenovo sells directly to consumers and businesses, as well as through
online sales, company-owned stores, chain retailers, and major technology distributors and
vendors.
Strategic
Management
Concepts and Cases
A Competitive Advantage Approach
Part 1
Source: Pixland/Thinkstock
Overview of Strategic Management
MyManagementLab®
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Visit mymanagementlab.com for simulations, tutorials, and end-of-chapter problems.
2
1
The Nature of Strategic
Management
Chapter Objectives
After studying this chapter, you should be able to do the following:
1. Discuss the nature and role of a chief strategy officer (CSO).
2. Describe the strategic-management process.
3. Explain the need for integrating analysis and intuition in strategic management.
4. Define and give examples of key terms in strategic management.
5. Discuss the nature of strategy formulation, implementation, and evaluation
activities.
6. Describe the benefits of good strategic management.
7. Discuss the relevance of Sun Tzu’s The Art of War to strategic management.
8. Discuss how a firm may achieve sustained competitive advantage.
Assurance of Learning Exercises
The following exercises are found at the end of this chapter.
Exercise 1A
Exercise 1B
Exercise 1C
Exercise 1D
Exercise 1E
Exercise 1F
Exercise 1G
Compare Business Strategy with Military Strategy
Gather Strategy Information for PepsiCo
Update the PepsiCo Cohesion Case
Strategic Planning for Your University
Strategic Planning at a Local Company
Get Familiar With the Strategy Club Website
Get Familiar With the Case MyLab
3
4 Part 1 • Overview of Strategic Management
W
hen CEOs from the big three U.S. automakers—Ford, General Motors (GM),
and Chrysler—showed up a few years ago without a clear strategic plan to ask
congressional leaders for bailout monies, they were sent home with instructions to
develop a clear strategic plan for the future. Austan Goolsbee, one of President Barack Obama’s
top economic advisers, said, “Asking for a bailout without a convincing business plan was
crazy.” Goolsbee also said, “If the three auto CEOs need a bridge, it’s got to be a bridge to
somewhere, not a bridge to nowhere.”1 This textbook gives the instructions on how to develop a
clear strategic plan—a bridge to somewhere rather than nowhere.
This chapter provides an overview of strategic management. It introduces a practical,
integrative model of the strategic-management process; it defines basic activities and terms in
strategic management.
This chapter also introduces the notion of boxed inserts. A boxed insert at the beginning of
each chapter reveals how some firms are doing really well competing in a growing economy.
The firms showcased are utilizing excellent strategic management to prosper as their rivals
weaken. Each boxed insert examines the strategies of firms doing great amid rising consumer
demand and intense price competition. The first company featured for excellent performance is
the popular hamburger place, Five Guys Enterprises. Note that there are more than 1,000 Five
Guys grills in the United States and Canada.
PepsiCo is featured as the new Cohesion Case because it is a well-known global firm
undergoing strategic change and is well managed. By working through the PepsiCo–related
Assurance of Learning Exercises at the end of each chapter, you will be well prepared to develop
an effective strategic plan for any company assigned to you this semester. The end-of-chapter
exercises apply chapter tools and concepts.
Excellent Strategic Management Showcased
Five Guys Enterprises
Have you ever eaten at a Five Guys grill? Headquartered in Lorton,
Virginia, Five Guys Enterprises has grown every year for 25 years and
still is growing, thanks to excellent strategic management (and great
hamburgers served with all the peanuts you can eat). Five Guys Burgers
and Fries is a quick-service restaurant company that offers a simple
menu of burgers, fries, and hot dogs. With more than 1,000 stores
in the United States and Canada, Five Guys prides itself on u
sing only
top-notch ingredients, the best ground beef, rolls, and fries, and uses
only peanut oil; in keeping with the peanut theme, its restaurants serve
peanuts in bulk. Founded in 1986 by Jerry Murrell, his wife, and their
five sons (Jim, Matt, Chad, Ben, and Tyler), Five Guys grill succeeds every
day in taking business from all the larger fast food hamburger chains.
Five Guys’ strategy has always been to use only the best ingredients, do no advertising or marketing except by word-of-mouth, “treat
people right,” provide great employee pay and benefits, and offer
outstanding customer service. All 30,000-plus Five Guys employees
have access to the company’s Secret Shopper Bonus program in which
employees anonymously go check on operations at other stores. All
employees receive additional store-level bonuses to ensure that every
store provides great burgers with great service. Five Guys employees all
have a sense of ownership in their store because their compensation
package is tied to how well their store performs. Five Guys employees
are determined to “make your day” every time you visit their restaurant. Five Guys burgers are a bit pricey, but customers keep coming
back daily to
eat the freshly
prepared product in an upscale décor with
exceptional
service.
Another
Five Guys strategy is franchising (discussed in Chapter 5). About 800
Five Guys grills are owned by franchisees. All of the territory in both
the USA and Canada has been sold to franchisees, and Five Guys plans
to open its first restaurant in Great Britain in 2013, with plans to open
four in the UK in 2013. Murrell says in starting a business, do not rely
on banks, but rather rely on venture capitalists that include friends and
family. With more than $1 billion in revenue in 2013, Murrell, now 62,
gives this advice to all current and future businesspersons: “Treat your
employees and customers right. Find something you love to do and just
do it. Make sure your heart is in it. You can’t be everything to everybody.
You’ve got to be what you are. That’s all you can do.” Do a Google
search for “Jerry Murrell Video” to watch a 2-minute excellent video of
Murrell sharing lessons he learned in building Five Guys.
Source: Based on Lottie Joiner, “Five Guys Family Keeps It Simple,” USA
Today (July 30, 2012): 3B.
CHAPTER 1 • The Nature of Strategic Management 5
What Is Strategic Management?
Once there were two company presidents who competed in the same industry. These two
presidents decided to go on a camping trip to discuss a possible merger. They hiked deep into
the woods. Suddenly, they came upon a grizzly bear that rose up on its hind legs and snarled.
Instantly, the first president took off his knapsack and got out a pair of jogging shoes. The
second president said, “Hey, you can’t outrun that bear.” The first president responded, “Maybe
I can’t outrun that bear, but I surely can outrun you!” This story captures the notion of strategic
management, which is to achieve and maintain competitive advantage.
Defining Strategic Management
Strategic management can be defined as the art and science of formulating, implementing, and
evaluating cross-functional decisions that enable an organization to achieve its objectives. As
this definition implies, strategic management focuses on integrating management, marketing,
finance and accounting, production and operations, research and development, and information
systems to achieve organizational success. The term strategic management in this text is used
synonymously with the term strategic planning. The latter term is more often used in the
business world, whereas the former is often used in academia. Sometimes the term strategic
management is used to refer to strategy formulation, implementation, and evaluation and
strategic planning referring only to strategy formulation. The purpose of strategic management
is to exploit and create new and different opportunities for tomorrow; long-range planning, in
contrast, tries to optimize for tomorrow the trends of today.
The term strategic planning originated in the 1950s and was popular between the
mid-1960s and the mid-1970s. During these years, strategic planning was widely believed to be
the answer for all problems. At the time, much of corporate America was “obsessed” with strategic planning. Following that boom, however, strategic planning was cast aside during the 1980s
as various planning models did not yield higher returns. The 1990s, however, brought the revival
of strategic planning, and the process is widely practiced today in the business world. Many
companies today have a chief strategy officer (CSO).
A strategic plan is, in essence, a company’s game plan. Just as a football team needs a good
game plan to have a chance for success, a company must have a good strategic plan to compete
successfully. Profit margins among firms in most industries are so slim that there is little room
for error in the overall strategic plan. A strategic plan results from tough managerial choices
among numerous good alternatives, and it signals commitment to specific markets, policies,
procedures, and operations in lieu of other, “less desirable” courses of action.
The term strategic management is used at many colleges and universities as the title for the
capstone course in business administration. This course integrates material from all business
courses, and, in addition, introduces new strategic-management concepts and techniques being
widely used by firms in strategic planning.
Stages of Strategic Management
The strategic-management process consists of three stages: strategy formulation, strategy
implementation, and strategy evaluation. Strategy formulation includes developing a vision and
mission, identifying an organization’s external opportunities and threats, determining internal
strengths and weaknesses, establishing long-term objectives, generating alternative strategies,
and choosing particular strategies to pursue. Strategy-formulation issues include deciding what
new businesses to enter, what businesses to abandon, whether to expand operations or diversify,
whether to enter international markets, whether to merge or form a joint venture, and how to
avoid a hostile takeover.
Because no organization has unlimited resources, strategists must decide which alternative
strategies will benefit the firm most. Strategy-formulation decisions commit an organization
to specific products, markets, resources, and technologies over an extended period of time.
Strategies determine long-term competitive advantages. For better or worse, strategic decisions
have major multifunctional consequences and enduring effects on an organization. Top m
anagers
have the best perspective to understand fully the ramifications of strategy-formulation d ecisions;
they have the authority to commit the resources necessary for implementation.
6 Part 1 • Overview of Strategic Management
Strategy implementation requires a firm to establish annual objectives, devise policies,
motivate employees, and allocate resources so that formulated strategies can be executed.
Strategy implementation includes developing a strategy-supportive culture, creating an effective
organizational structure, redirecting marketing efforts, preparing budgets, developing and using
information systems, and linking employee compensation to organizational performance.
Strategy implementation often is called the “action stage” of strategic management.
Implementing strategy means mobilizing employees and managers to put formulated strategies
into action. Often considered to be the most difficult stage in strategic management, strategy
implementation requires personal discipline, commitment, and sacrifice. Successful strategy
implementation hinges on managers’ ability to motivate employees, which is more an art than a
science. Strategies formulated but not implemented serve no useful purpose.
Interpersonal skills are especially critical for successful strategy implementation.
Strategy-implementation activities affect all employees and managers in an organization.
Every division and department must decide on answers to questions such as “What must we
do to implement our part of the organization’s strategy?” and “How best can we get the job
done?” The challenge of implementation is to stimulate managers and employees throughout an
organization to work with pride and enthusiasm toward achieving stated objectives.
Strategy evaluation is the final stage in strategic management. Managers desperately need
to know when particular strategies are not working well; strategy evaluation is the primary
means for obtaining this information. All strategies are subject to future modification because
external and internal factors are constantly changing. Three fundamental strategy-evaluation
activities are (1) reviewing external and internal factors that are the bases for current strategies,
(2) measuring performance, and (3) taking corrective actions. Strategy evaluation is needed
because success today is no guarantee of success tomorrow! Success always creates new and
different problems; complacent organizations experience demise.
Formulation, implementation, and evaluation of strategy activities occur at three hierarchical
levels in a large organization: corporate, divisional or strategic business unit, and functional. By
fostering communication and interaction among managers and employees across hierarchical
levels, strategic management helps a firm function as a competitive team. Most small businesses
and some large businesses do not have divisions or strategic business units; they have only the
corporate and functional levels. Nevertheless, managers and employees at these two levels
should be actively involved in strategic-management activities.
Peter Drucker says the prime task of strategic management is thinking through the overall
mission of a business:
that is, of asking the question, “What is our business?” This leads to the setting of
objectives, the development of strategies, and the making of today’s decisions for
tomorrow’s results. This clearly must be done by a part of the organization that can see
the entire business; that can balance objectives and the needs of today against the needs of
tomorrow; and that can allocate resources of men and money to key results.2
Integrating Intuition and Analysis
Edward Deming once said, “In God we trust. All others bring data.” The strategic-management
process can be described as an objective, logical, systematic approach for making major
decisions in an organization. It attempts to organize qualitative and quantitative information in
a way that allows effective decisions to be made under conditions of uncertainty. Yet strategic
management is not a pure science that lends itself to a nice, neat, one-two-three approach.
Based on past experiences, judgment, and feelings, most people recognize that intuition
is essential to making good strategic decisions. Intuition is particularly useful for making
decisions in situations of great uncertainty or little precedent. It is also helpful when highly
interrelated variables exist or when it is necessary to choose from several plausible alternatives.
Some managers and owners of businesses profess to have extraordinary abilities for using
intuition alone in devising brilliant strategies. For example, Will Durant, who organized GM,
was described by Alfred Sloan as “a man who would proceed on a course of action guided
solely, as far as I could tell, by some intuitive flash of brilliance. He never felt obliged to make
an engineering hunt for the facts. Yet at times, he was astoundingly correct in his judgment.”3
Albert Einstein acknowledged the importance of intuition when he said, “I believe in intuition
CHAPTER 1 • The Nature of Strategic Management 7
and inspiration. At times I feel certain that I am right while not knowing the reason. Imagination
is more important than knowledge, because knowledge is limited, whereas imagination
embraces the entire world.”4
Although some organizations today may survive and prosper because they have intuitive
geniuses managing them, most are not so fortunate. Most organizations can benefit from
strategic management, which is based on integrating intuition and analysis in decision making.
Choosing an intuitive or analytic approach to decision making is not an either-or proposition.
Managers at all levels in an organization inject their intuition and judgment into strategic-
management analyses. Analytical thinking and intuitive thinking complement each other.
Operating from the I’ve-already-made-up-my-mind-don’t-bother-me-with-the-facts mode
is not management by intuition; it is management by ignorance.5 Drucker says, “I believe in
intuition only if you discipline it. ‘Hunch’ artists, who make a diagnosis but don’t check it out
with the facts, are the ones in medicine who kill people, and in management kill businesses.”6 As
Henderson notes:
The accelerating rate of change today is producing a business world in which customary
managerial habits in organizations are increasingly inadequate. Experience alone was
an adequate guide when changes could be made in small increments. But intuitive and
experience-based management philosophies are grossly inadequate when decisions are
strategic and have major, irreversible consequences.7
In a sense, the strategic-management process is an attempt to duplicate what goes on in the
mind of a brilliant, intuitive person who knows the business and assimilates and integrates that
knowledge using analysis to formulate effective strategies.
Adapting to Change
The strategic-management process is based on the belief that organizations should continually
monitor internal and external events and trends so that timely changes can be made as needed.
The rate and magnitude of changes that affect organizations are increasing dramatically, as
evidenced by how the global economic recession caught so many firms by surprise. Firms, like
organisms, must be “adept at adapting” or they will not survive.
One company trying hard to adapt is the Washington Post Company, best known as
publisher of the Washington Post newspaper that has a circulation of 525,000 in the Washington,
DC area. But the newspaper industry is in decline globally, so the Washington Post Company
recently diversified by acquiring Celtic Healthcare, a provider of hospice and home health care
facilities in Pennsylvania and Maryland. Treating patients at home instead of paying for hospital
stays is a much faster growing industry than selling newspapers. The Washington Post Company
also owns Kaplan, a well-known source of test preparation materials, and six TV stations.
To survive, all organizations must astutely identify and adapt to change. The strategic-
management process is aimed at allowing organizations to adapt effectively to change over the
long run. As Waterman has noted:
In today’s business environment, more than in any preceding era, the only constant is
change. Successful organizations effectively manage change, continuously adapting
their bureaucracies, strategies, systems, products, and cultures to survive the shocks and
prosper from the forces that decimate the competition.8
On a political map, the boundaries between countries may be clear, but on a c ompetitive
map showing the real flow of financial and industrial activity, the boundaries have largely
disappeared. The speedy flow of information has eaten away at national boundaries so that
people worldwide readily see for themselves how other people live and work. We have become
a borderless world with global citizens, global competitors, global customers, global s uppliers,
and global distributors! U.S. firms are challenged by large rival companies in many industries.
For example, Samsung recently surpassed Apple and Lenovo surpassed HP and Dell in
revenues.
The need to adapt to change leads organizations to key strategic-management questions,
such as “What kind of business should we become?” “Are we in the right field(s)?” “Should
we reshape our business?” “What new competitors are entering our industry?” “What strategies
8 Part 1 • Overview of Strategic Management
should we pursue?” “How are our customers changing?” “Are new technologies being d eveloped
that could put us out of business?”
The Internet promotes endless comparison shopping, which thus enables consumers
worldwide to band together to demand discounts. The Internet has transferred power from
businesses to individuals. Buyers used to face big obstacles when attempting to get the best
price and service, such as limited time and data to compare, but now consumers can quickly
scan hundreds of vendor offerings. Both the number of people shopping online and the average
amount they spend is increasing dramatically. Digital communication has become the name of
the game in marketing. Consumers today are flocking to blogs, sending tweets, watching and
posting videos on YouTube, and spending hours on Tumbler, Facebook, Reddit, Instagram,
and LinkedIn, instead of watching television, listening to the radio, or reading newspapers, and
magazines. Facebook and Myspace recently unveiled features that further marry these social
sites to the wider Internet. Users on these social sites now can log on to many business shopping
sites from their social site, so their friends can see what items they have purchased on various
shopping sites. Both of these social sites want their members to use their identities to manage
all their online identities. Most traditional retailers have learned that their online sales can boost
in-store sales if they use their websites to promote in-store promotions.
Key Terms in Strategic Management
Before we further discuss strategic management, we should define nine key terms: competitive
advantage, strategists, vision and mission statements, external opportunities and threats, internal
strengths and weaknesses, long-term objectives, strategies, annual objectives, and policies.
Competitive Advantage
Strategic management is all about gaining and maintaining competitive advantage. This term
can be defined as “anything that a firm does especially well compared to rival firms.” When a firm
can do something that rival firms cannot do or owns something that rival firms desire, that can
represent a competitive advantage. For example, having ample cash on the firm’s b alance sheet
can provide a major competitive advantage. Some cash-rich firms are buying distressed rivals.
Examples of cash-rich (cash as a percentage of total assets) companies today include Priceline.
com (63%), Altera (80%), Franklin Resources (51%), Gilead Sciences (57%), and Lorillard
(54%). Microsoft, Apple, and Samsung are cash rich, as is the Cohesion Case company, PepsiCo.
Having less fixed assets than rival firms also can provide major competitive advantages.
For example, Apple has no manufacturing facilities of its own, and rival Sony has 57 e lectronics
factories. Apple relies exclusively on contract manufacturers for production of all of its products,
whereas Sony owns its own plants. Less fixed assets has enabled Apple to remain financially lean
with virtually no long-term debt. Sony, in contrast, has built up massive debt on its balance sheet.
CEO Paco Underhill of Envirosell says, “Where it used to be a polite war, it’s now a
21st-century bar fight, where everybody is competing with everyone else for the customers’
money.” Shoppers are “trading down,” so Nordstrom is taking customers from Neiman Marcus
and Saks Fifth Avenue, TJ Maxx and Marshalls are taking customers from most other stores in
the mall, and Family Dollar is taking revenues from Walmart.9 Getting and keeping competitive advantage is essential for long-term success in an organization. In mass retailing, big-box
companies such as Walmart, Best Buy, and Sears are losing competitive advantage to smaller
stores, so there is a dramatic shift in mass retailing to becoming smaller. As customers shift
more to online purchases, less brick and mortar is definitely better for sustaining competitive
advantage in retailing. Walmart Express stores of less than 40,000 square feet each, rather
than 185,000-square-foot Supercenters, and Office Depot’s new 5,000-square-foot stores are
examples of smaller is better.
Normally, a firm can sustain a competitive advantage for only a certain period because
of rival firms imitating and undermining that advantage. Thus, it is not adequate to simply
obtain competitive advantage. A firm must strive to achieve sustained competitive advantage
by (1) continually adapting to changes in external trends and events and internal capabilities,
competencies, and resources; and by (2) effectively formulating, implementing, and evaluating
strategies that capitalize on those factors.
CHAPTER 1 • The Nature of Strategic Management 9
An increasing number of companies are gaining a competitive advantage by using the
Internet for direct selling and for communication with suppliers, customers, creditors, partners,
shareholders, clients, and competitors who may be dispersed globally. E-commerce allows firms
to sell products, advertise, purchase supplies, bypass intermediaries, track inventory, eliminate
paperwork, and share information. In total, e-commerce is minimizing the expense and
cumbersomeness of time, distance, and space in doing business, thus yielding better customer
service, greater efficiency, improved products, and higher profitability.
Strategists
Strategists are the individuals most responsible for the success or failure of an o rganization.
Strategists ...
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