Essay questions (please list the main points of your answers and explain the reasoning for each main point; please take the slides from Blackboard as the reference when answering these questions):

Please describe the Michael Porter's Five Generic Strategies.

Please describe the major principles of good governance.

What are the “Seven Principles of Admirable Business Ethics”?

What are the advantages of global business?

What are the cultural differences between U.S. and foreign managers?

Attached is the book and the powerpoints

Note: there ate 11 PowerPoints, they will all be sent in pieces.

NO PLAGERISM , must be page long per question.Full-Circle Learning MyLab™: Learning Full Circle for Marketing, Management, Business Communication, and Intro to Business BEFORE CLASS DSMs, pre-lecture homework, eText AFTER CLASS Writing Space,Video Cases, Quizzes/ Tests MyLab Decision Sims,Videos, and Learning Catalytics DURING CLASS Strategic ManageMent concepts and cases A Competitive AdvAntAge ApproACh This page intentionally left blank Strategic ManageMent Sixteenth edition concepts and cases A Competitive AdvAntAge ApproACh globAl edition Fred r. David Francis Marion University Florence, South Carolina Forest r. David Strategic Planning Consultant Boston Columbus Cape Town Mexico City Dubai Indianapolis London São Paulo New York Madrid Sydney San Francisco Milan Hong Kong Munich Seoul Paris Amsterdam Montréal Singapore Toronto Delhi Taipei Tokyo Vice President, Business Publishing: Donna Battista Editor-in-Chief: Stephanie Wall Acquisitions Editor: Daniel tylman Editorial Assistant: Linda albelli Managing Editor, Global Edition: Steven Jackson Associate Project Editor, Global Edition: Paromita Banerjee Vice President, Product Marketing: Maggie Moylan Director of Marketing, Digital Services and Products: Jeanette Koskinas Field Marketing Manager: Lenny ann raper Product Marketing Assistant: Jessica Quazza Team Lead, Program Management: ashley Santora Program Manager: claudia Fernandes Team Lead, Project Management: Jeff Holcomb Project Manager: ann Pulido Project Manager, Global Edition: Purnima narayanan Operations Specialist: carol Melville Senior Manufacturing Controller, Global Edition: trudy Kimber Creative Director: Blair Brown Art Director: Janet Slowik Vice President, Director of Digital Strategy & Assessment: Paul gentile Manager of Learning Applications: Paul Deluca Digital Editor: Brian Surette Director, Digital Studio: Sacha Laustsen Digital Studio Manager: Diane Lombardo Digital Studio Project Manager: robin Lazrus Digital Studio Project Manager: alana coles Digital Studio Project Manager: Monique Lawrence Media Production Manager, Global Edition: Vikram Kumar Assistant Media Producer, Global Edition: Pallavi Pandit Full-Service Project Management and Composition: integra Interior Designer: integra Cover Image: © Westend61 Premium/Shutterstock acknowledgements of third party content appear on the appropriate page within the text, which constitutes an extension of this copyright page with the exception of the photo of the chocolate candies that appear throughout the text and is credited to Danny Kosmayer/123rf. PearSOn aLWaYS Learning and MYManageMentLaB® are exclusive trademarks owned by Pearson education, inc. or its affiliates in the U.S. and/or other countries. Pearson Education Limited edinburgh gate Harlow essex cM20 2Je england and associated companies throughout the world Visit us on the World Wide Web at: www.pearsonglobaleditions.com © Pearson education Limited 2017 the rights of Fred r. David and Forest r. David to be identified as the authors of this work have been asserted by them in accordance with the copyright, Designs and Patents act 1988. Authorized adaptation from the United States edition, entitled Strategic Management: A Competitive Advantage Approach, Concepts and Cases, 16th Edition, ISBN 978-0-13-416784-8 by Fred r. David and Forest r. David, published by Pearson Education © 2017. all rights reserved. no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a license permitting restricted copying in the United Kingdom issued by the copyright Licensing agency Ltd, Saffron House, 6–10 Kirby Street, London ec1n 8tS. all trademarks used herein are the property of their respective owners. the use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners. iSBn 10: 1-292-14849-7 iSBn 13: 978-1-292-14849-6 British Library Cataloguing-in-Publication Data a catalogue record for this book is available from the British Library 10 9 8 7 6 5 4 3 2 1 typeset in times nrMt Pro by integra Software Services, inc. Printed and bound by Vivar in Malaysia Brief Contents Preface 15 Acknowledgments 26 About the Authors 27 Chapter 1 Strategic Management Essentials 31 The Cohesion Case: nesTlé s.a., 2016 (nsRGY) Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Chapter 11 Appendix Glossary 54 Outside-USA Strategic Planning 67 Ethics, Social Responsibility, and Sustainability Types of Strategies 119 Vision and Mission Analysis 157 The Internal Audit 177 The External Audit 217 Strategy Generation and Selection 247 Strategy Implementation 285 Strategy Execution 321 Strategy Monitoring 359 Guidelines for Case Analysis 95 385 657 Name Index Subject Index 667 673 5 This page intentionally left blank Contents Preface 15 Acknowledgments 26 About the Authors 27 Assurance of Learning Exercise 1E: Strategic Planning at Nestlé S.A. 65 Assurance of Learning Exercise 1F: Interview Local Strategists 65 Chapter 2 Outside-USA Strategic Planning Chapter 1 Strategic Management Essentials 31 exemplaRY CompanY showCased: sinGapoRe aiRlines limiTed (sia) 32 What Is a Cohesion Case? Management 33 33 • Defining Strategic 35 Key Terms in strategic management Competitive Advantage 36 • 36 Strategists 36 aCademiC ReseaRCh Capsule 1-1: when aRe Chief sTRaTeGY offiCeRs (Csos) hiRed/appoinTed? 37 Vision and Mission Statements 38 • External Opportunities and Threats 38 • Internal Strengths and Weaknesses 39 • LongTerm Objectives 40 • Strategies 40 • Annual Objectives 40 • Policies 41 The strategic-management model 42 Benefits of engaging in strategic management 43 aCademiC ReseaRCh Capsule 1-2: whaT aCTiviTY is mosT impoRTanT in The sTRaTeGiC-manaGemenT pRoCess? 43 Financial Benefits 44 • Nonfinancial Benefits 45 why some firms do no strategic planning 45 pitfalls in strategic planning 46 Comparing Business and military strategy 46 impliCaTions foR sTRaTeGisTs 48 impliCaTions foR sTudenTs 49 Chapter summary 49 Key Terms and Concepts 50 Issues for Review and Discussion 50 mini-Case on RYanaiR limiTed (RYaaY): is RYanaiR’s weBsiTe iTs sTRaTeGiC maRKeTinG Tool? 52 Current Readings Endnotes 53 exemplaRY CompanY showCased: honda moToR CompanY (hmC) 68 The nature of doing Business Globally 68 Multinational Firms 70 • Different Languages Globally 71 • Labor Unions across Europe 71 aCademiC ReseaRCh Capsule 2-1: how manY lanGuaGes aRe TheRe GloBallY? 71 stages of strategic management 33 integrating intuition and analysis 34 Adapting to Change 67 53 The Cohesion Case: nesTlé s.a., 2016 54 assuRanCe of leaRninG exeRCises 63 Assurance of Learning Exercise 1A: Assess Singapore Airlines’ Most Recent Quarterly Performance Data 63 Assurance of Learning Exercise 1B: Gather Strategy Information on Nestlé S.A. 64 Assurance of Learning Exercise 1C: Get Familiar with the Free Excel Student Template 64 Assurance of Learning Exercise 1D: Evaluate an Oral Student Presentation 64 advantages and disadvantages of doing Business Globally 72 The Global Challenge 73 Tax Rates and Tax inversions 74 Tax Rates 74 aCademiC ReseaRCh Capsule 2-2: how do fiRms deCide wheRe To expand? 74 Tax Inversions 76 american versus foreign Business Culture Communication Differences across Countries 76 78 Business Culture across Countries 79 Mexico’s Business Culture 79 • Japan’s Business Culture 80 • China’s Business Culture 81 • India’s Business Culture 82 Business Climate across Countries 82 Africa’s Business Climate 83 • China’s Business Climate 84 • Brazil’s Business Climate 85 • Indonesia’s Business Climate 85 • India’s Business Climate 85 • Japan’s Business Climate 86 • Mexico’s Business Climate 86 • Vietnam’s Business Climate 87 impliCaTions foR sTRaTeGisTs 88 impliCaTions foR sTudenTs 88 Chapter summary 89 Key Terms and Concepts 89 Issues for Review and Discussion 89 assuRanCe of leaRninG exeRCises 90 Assurance of Learning Exercise 2A: Nestlé S.A. Wants to Enter Africa. Help Them. 90 Assurance of Learning Exercise 2B: Assess Differences in Culture across Countries 91 Assurance of Learning Exercise 2C: Honda Motor Company Wants to Do Business in Vietnam. Help Them. 91 Assurance of Learning Exercise 2D: Does My University Recruit in Foreign Countries? 92 mini-Case on aiRBus GRoup se (aiR.pa): how well is aiRBus peRfoRminG GloBallY? 92 Current Readings Endnotes 93 93 7 8 COnTEnTS Chapter 3 Ethics, Social Responsibility, and Sustainability 95 diversification strategies Related Diversification exemplaRY CompanY showCased: BanK audi s.a.l 96 Does It Pay to Be Ethical? aCademiC ReseaRCh Capsule 3-1: whaT Can we leaRn fRom hiGh-peRfoRmanCe Companies? 98 99 aCademiC ReseaRCh Capsule 3-2: who is pRone To Be uneThiCal in a Business? 99 whistle-Blowing, Bribery, and workplace Romance Whistle-Blowing Romance 102 100 • Avoid Bribery social Responsibility and policy 101 • 100 Workplace environmental sustainability 111 impliCaTions foR sTRaTeGisTs 111 impliCaTions foR sTudenTs 112 Chapter summary 112 Key Terms and Concepts 112 Issues for Review and Discussion 113 mini-Case on eTihad aiRwaYs: how eThiCal and susTainaBle is eTihad aiRwaYs? 116 Current Readings 116 Endnotes 117 120 122 Levels of Strategies integration strategies 124 intensive strategies • 140 • Joint Venture and Private-Equity Acquisitions 142 Backward Integration 126 Market Development 128 • 141 142 • Outsourcing and Reshoring 142 strategic management in nonprofit, Governmental, and small firms 144 148 150 Assurance of Learning Exercise 4A: Market Development for Petronas 150 Assurance of Learning Exercise 4B: Alternative Strategies for Petronas 150 Assurance of Learning Exercise 4C: Private-Equity Acquisitions 150 Assurance of Learning Exercise 4D: The Strategies of Nestlé S.A.: 2015–2017 151 Assurance of Learning Exercise 4E: Lessons in Doing Business Globally 151 Assurance of Learning Exercise 4F: What are Petronas’ Strategies in 2015–2017? 151 Assurance of Learning Exercise 4G: What Strategies Are Most Risky? 151 Assurance of Learning Exercise 4H: Explore Bankruptcy 152 Assurance of Learning Exercise 4I: Examine Strategy Articles 152 Assurance of Learning Exercise 4J: Classify Some Strategies 152 154 Chapter 5 Vision and Mission Analysis • Product 157 exemplaRY CompanY showCased: samsunG eleCTRoniCs Co. limiTed (ssnlf) 158 Vision Statement Analysis 128 Market Penetration 128 Development 129 • vision statements: what do we want to Become? 124 Forward Integration 125 • Horizontal Integration 127 138 138 aCademiC ReseaRCh Capsule 4-1: aRe inTeRnaTional allianCes moRe effeCTive wiTh CompeTiToRs oR nonCompeTiToRs? 139 Current Readings Endnotes 154 Characteristics and Benefits of Objectives 121 • Financial versus Strategic Objectives 121 • Avoid Not Managing by Objectives 122 Types of strategies 133 mini-Case on TiGeR BRands limiTed: is TiGeR BRands sTRaTeGiCallY ReadY To CompeTe and CoopeRaTe? 153 119 exemplaRY CompanY showCased: peTRonas (pGas.Kl) 120 long-Term objectives Cooperation among Competitors Partnering 138 assuRanCe of leaRninG exeRCises Assurance of Learning Exercise 3A: Sustainability and Nestlé 113 Assurance of Learning Exercise 3B: How Does My Municipality Compare To Others on Being Pollution-Safe? 114 Assurance of Learning Exercise 3C: Compare Nestlé versus Mars, Inc. on Social Responsibility 114 Assurance of Learning Exercise 3D: How Do You Rate Nestlé’s Sustainability Efforts? 114 Assurance of Learning Exercise 3E: The Ethics of Spying on Competitors 115 Chapter 4 Types of Strategies means for achieving strategies Chapter summary 147 Key Terms and Concepts 148 Issues for Review and Discussion 112 assuRanCe of leaRninG exeRCises Liquidation 134 aCademiC ReseaRCh Capsule 4-2: whaT aTTRiBuTes do GReaT enTRepReneuRs possess? 146 impliCaTions foR sTRaTeGisTs 146 impliCaTions foR sTudenTs 147 109 Food Suppliers and Animal Welfare 132 • Educational Institutions 144 • Medical Organizations 145 • Governmental Agencies and Departments 145 • Small Firms 145 105 What Firms Are the Best Stewards? 106 • Sustainability Reports 107 • The Office of Environmental Affairs 108 • ISO 14000/14001 Certification 108 wildlife welfare Divestiture • First Mover Advantages Social Policies on 130 131 Tactics to facilitate strategies aCademiC ReseaRCh Capsule 3-3: does iT paY To Be soCiallY ResponsiBle? 104 104 • Unrelated Diversification Cost Leadership Strategies (Type 1 and Type 2) 135 • Differentiation Strategies (Type 3) 136 • Focus Strategies (Type 4 and Type 5) 137 Merger/Acquisition 103 Design and Articulate a Social Policy Retirement 104 131 • michael porter’s five Generic strategies 97 How to Establish an Ethics Culture defensive strategies Retrenchment why “Good ethics is Good Business” 96 129 130 158 159 mission statements: what is our Business? 160 The process of developing vision and mission statements The importance (Benefits) of vision and mission statements 162 161 COnTEnTS aCademiC ReseaRCh Capsule 5-1: The mission sTaTemenT/ fiRm peRfoRmanCe linKaGe 162 A Resolution of Divergent Views management information systems 163 Characteristics of a mission statement A Customer Orientation Internal and External Research and Development 199 • and Development Audit 200 200 aCademiC ReseaRCh Capsule 6-2: new TRends in manaGinG BiG daTa 201 165 Components of a mission statement 165 evaluating and writing mission statements 166 Management Information Systems Audit Two Mission Statements Critiqued 167 • Five Mission Statements Revised 167 • Two Mission Statements Proposed 167 value Chain analysis impliCaTions foR sTRaTeGisTs 169 impliCaTions foR sTudenTs 170 The internal factor evaluation matrix Chapter summary 170 Key Terms and Concepts 171 Issues for Review and Discussion 172 mini-Case on CiTizen holdinGs CompanY limiTed (Cizn): does CiTizen holdinGs’ have a CleaR vision oR mission? 174 175 Chapter 6 The Internal Audit 178 aCademiC ReseaRCh Capsule 6-1: does RBv TheoRY deTeRmine diveRsifiCaTion TaRGeTs? 181 182 Planning 184 • Organizing 185 • Motivating 186 • Staffing 186 • Controlling 187 • Management Audit Checklist of Questions 187 marketing 188 Customer Analysis 188 • Selling Products and Services 188 • Product and Service Planning 189 • Pricing 189 • Distribution 190 • Marketing Research 190 • Cost/Benefit Analysis 190 • Marketing Audit Checklist of Questions finance and accounting 191 191 197 Production/Operations Audit Checklist Research and development 199 198 211 Assurance of Learning Exercise 6A: Develop a Corporate IFE Matrix for Volkswagen Group 211 Assurance of Learning Exercise 6B: Should Volkswagen Deploy More (or Less) Resources Outside of Europe? 211 Assurance of Learning Exercise 6C: Apply Breakeven Analysis 212 Assurance of Learning Exercise 6D: Perform a Financial Ratio Analysis for Nestlé 212 Assurance of Learning Exercise 6E: Construct an IFE Matrix for Nestlé 212 Assurance of Learning Exercise 6F: Analyze Your College or University’s Internal Strategic Situation 213 mini-Case on BanK of China limiTed (BaChf): whaT is The naTuRe of BanK of China’s GRowTh? 213 Current Readings Endnotes 214 214 exemplaRY CompanY showCased: miChelin (mGddf) 218 The purpose and nature of an external audit 219 Ten external forces That affect organizations 221 Economic Forces 221 • Social, Cultural, Demographic, and Natural Environment Forces 223 • Political, Governmental, and Legal Forces 224 • Technological Forces 226 • Competitive Forces 227 porter’s five-forces model 229 Rivalry Among Competing Firms 230 • Potential Entry of New Competitors 231 • Potential Development of Substitute Products 231 • Bargaining Power of Suppliers 231 • Bargaining Power of Consumers 232 sources of external information 232 forecasting Tools and Techniques 232 Finance/Accounting Functions 191 • Financial Ratios 192 • Breakeven Analysis 195 • Finance/Accounting Audit Checklist 197 production/operations 210 assuRanCe of leaRninG exeRCises Key External Forces 219 • The Process of Performing an External Audit 220 • The Industrial Organization (I/O) View 221 Key Internal Forces 179 • The Process of Performing an Internal Audit 180 • The Resource-Based View 181 integrating strategy and Culture management 184 204 Chapter 7 The External Audit 217 177 exemplaRY CompanY showCased: vodafone GRoup plC (vod) 178 The nature of an internal audit 202 Chapter summary 209 Key Terms and Concepts 209 Issues for Review and Discussion Assurance of Learning Exercise 5A: Examine Potential Changes Needed in a Firm’s Vision/Mission 172 Assurance of Learning Exercise 5B: Studying an Alternative View of Mission Statement Content 172 Assurance of Learning Exercise 5C: Evaluate Mission Statements 173 Assurance of Learning Exercise 5D: Evaluate the Vision and Mission Statements of Unilever, Nestlé’s Competitor 173 Assurance of Learning Exercise 5E: Selecting the Best Vision and Mission Statements in a Given Industry 174 Assurance of Learning Exercise 5F: Write an Excellent Vision and Mission Statement for Novartis AG 174 Current Readings Endnotes 175 Benchmarking 201 201 impliCaTions foR sTRaTeGisTs 206 impliCaTions foR sTudenTs 208 171 assuRanCe of leaRninG exeRCises Research 200 Managing Voluminous Consumer Data 164 9 Making Assumptions 233 • Business Analytics The external factor evaluation matrix The Competitive profile matrix 236 235 impliCaTions foR sTRaTeGisTs 239 impliCaTions foR sTudenTs 240 Chapter summary 240 Key Terms and Concepts 241 Issues for Review and Discussion 241 234 10 COnTEnTS assuRanCe of leaRninG exeRCises 242 Assurance of Learning Exercise 7A: Michelin and Africa: An External Assessment 242 Assurance of Learning Exercise 7B: Preparing a CPM for Michelin Based on Countries Rather Than Companies 243 Assurance of Learning Exercise 7C: Develop Divisional Michelin EFE Matrices 243 Assurance of Learning Exercise 7D: Developing an EFE Matrix for Nestlé S.A. 243 Assurance of Learning Exercise 7E: The External Audit 244 Assurance of Learning Exercise 7F: Develop a Competitive Profile Matrix for Michelin 244 Assurance of Learning Exercise 7G: Develop a Competitive Profile Matrix for Nestlé 244 Assurance of Learning Exercise 7H: Analyzing Your College or University’s External Strategic Situation 244 mini-Case on woolwoRThs limiTed (wow): is woolwoRThs losinG iTs edGe To aldi? 245 Assurance of Learning Exercise 8D: Develop a SWOT Matrix for Nestlé S.A. 279 Assurance of Learning Exercise 8E: Develop a SPACE Matrix for Nestlé S.A. 279 Assurance of Learning Exercise 8F: Develop a BCG Matrix for Nestlé S.A. 279 Assurance of Learning Exercise 8G: Develop a QSPM for Nestlé S.A. 280 Assurance of Learning Exercise 8H: Develop a SPACE Matrix for Unilever 280 Assurance of Learning Exercise 8I: Develop a BCG Matrix for your College or University 280 Assurance of Learning Exercise 8J: Develop a QSPM for a Company That You Are Familiar With 280 Assurance of Learning Exercise 8K: Formulate Individual Strategies 281 mini-Case on hYundai moToR CompanY (hYmTf): how would a BCG foR hYundai looK liKe? 281 Current Readings Endnotes 282 Current Readings 245 Endnotes 245 282 Chapter 9 Strategy Implementation Chapter 8 Strategy Generation and Selection 247 exemplaRY CompanY showCased: unileveR plC (ul) The strategy analysis and Choice process 248 248 The Process of Generating and Selecting Strategies 248 The strategy-formulation analytical framework The Input Stage 251 • The Matching Stage • The Decision Stage 251 250 251 aCademiC ReseaRCh Capsule 8-1: a new ie maTRix Projected Financial Statement Analysis for D. R. Horton Corporate valuation 264 269 Cultural aspects of strategy analysis and Choice 270 The politics of strategy analysis and Choice 270 Boards of directors: Governance issues 271 aCademiC ReseaRCh Capsule 8-2: how manY BoaRd of diReCToRs memBeRs aRe ideal? 273 impliCaTions foR sTRaTeGisTs 274 impliCaTions foR sTudenTs 274 276 assuRanCe of leaRninG exeRCises 292 293 strategic finance/accounting issues 295 eps/eBiT analysis: acquire needed Capital 296 projected financial statements 300 The Grand strategy matrix 265 The decision stage: The Quantitative strategic planning matrix (Qspm) 266 Chapter summary 275 Key Terms And Concepts 276 Issues for Review and Discussion strategic marketing issues 286 social media marketing 287 market segmentation 289 product positioning and perceptual mapping Author Commentary The swoT matrix 251 The strategic position and action evaluation (spaCe) matrix 254 The Boston Consulting Group (BCG) matrix 258 The internal-external (ie) matrix 261 Positive Features and Limitations of the QSPM 285 exemplaRY CompanY showCased: RoYal duTCh shell plC (Rds.a) 286 278 Assurance of Learning Exercise 8A: Should Unilever Penetrate Southeast Asia Further? 278 Assurance of Learning Exercise 8B: Perform a SWOT Analysis for Unilever’s Global Operations 278 Assurance of Learning Exercise 8C: Prepare a BCG Matrix for Unilever 278 302 304 aCademiC ReseaRCh Capsule 9-1: when should we oveRpaY To aCQuiRe a fiRm? 306 Corporate Valuation Methods 306 ipos, Cash management, and Corporate Bonds 308 Go Public With An IPO? 308 • Keep Cash Offshore is Earned Offshore? 309 • Issue Corporate Bonds for What Purpose? 309 strategic Research and development (R&d) issues strategic management information systems (mis) issues 311 Mobile Tracking of Employees 309 312 impliCaTions foR sTRaTeGisTs 312 impliCaTions foR sTudenTs 313 Mobile Apps for Customers 313 Chapter summary 313 Key Terms and Concepts 314 Issues for Review and Discussion 314 assuRanCe of leaRninG exeRCises 316 Assurance of Learning Exercise 9A: Prepare an EPS/EBIT Analysis for Royal Dutch Shell Plc 316 Assurance of Learning Exercise 9B: Develop a Product-Positioning Map for Nestlé S.A. 316 Assurance of Learning Exercise 9C: Perform an EPS/EBIT Analysis for Nestlé S.A. 316 11 COnTEnTS Assurance of Learning Exercise 9D: Prepare Projected Financial Statements for Nestlé S.A. 317 Assurance of Learning Exercise 9E: Determine the Cash Value of Nestlé S.A. 317 Assurance of Learning Exercise 9F: Develop a Product-Positioning Map for Your College 317 Assurance of Learning Exercise 9G: Do Banks Require Projected Financial Statements? 318 mini-Case on TaTa moToRs limiTed (TTm) Current Readings Endnotes 319 319 mini-Case on hoRizon phaRma (hznp): does hoRizon phaRma have a foRmal sTRuCTuRe? 356 Current Readings Endnotes 357 357 318 Chapter 11 Strategy Monitoring 359 exemplaRY CompanY showCased: Bhp BilliTon (Bhp) 360 Chapter 10 Strategy Execution 321 exemplaRY CompanY showCased: aCCenTuRe plC (aCn) 322 Transitioning from formulating to implementing strategies 322 The need for Clear annual objectives 324 The need for Clear policies 327 allocate Resources and manage Conflict 327 Allocate Resources Assurance of Learning Exercise 10D: Explore Objectives 355 Assurance of Learning Exercise 10E: Understanding Your University’s Culture 356 327 • Manage Conflict 329 match structure with strategy 329 Types of organizational structure 330 The Functional Structure 330 • The Divisional Structure 331 • The Strategic Business Unit (SBU) Structure 333 • The Matrix Structure 334 dos and don’ts in developing organizational Charts 335 aCademiC ReseaRCh Capsule 10-1: whY is The Coo posiTion BeinG deleTed in manY oRGanizaTions? 337 strategic production/operations issues 338 Restructuring and Reengineering 338 • Manage Resistance to Change 339 • Decide Where and How to Produce Goods 339 • Employee Stock Ownership Plans (ESOPs) 340 strategic human Resource issues 341 Linking Performance and Pay to Strategy 341 • Balance Work Life and Home Life 343 • Develop a Diverse Workforce 344 aCademiC ReseaRCh Capsule 10-2: how do women vs. men Ceos peRfoRm? 345 Use Caution in Hiring a Rival’s Employees 345 • Create a StrategySupportive Culture 348 • Use Caution in Monitoring Employees’ Social Media 349 • Develop a Corporate Wellness Program 349 impliCaTions foR sTRaTeGisTs 351 impliCaTions foR sTudenTs 352 Chapter summary 353 Key Terms and Concepts 353 Issues for Review and Discussion The Process of Evaluating Strategies 360 363 The Three strategy-evaluation activities 364 Reviewing Bases of Strategy 364 • Measuring Organizational Performance 366 • Taking Corrective Actions 367 The Balanced scorecard 369 published sources of strategy-evaluation information 371 Characteristics of an Effective Strategy Evaluation System 371 Contingency planning 372 auditing 373 Twenty-first-Century Challenges in strategic management 374 The Art or Science Issue 374 • The Visible or Hidden Issue 375 • The Top-Down or Bottom-Up Approach 376 Guidelines for effective strategic management 376 impliCaTions foR sTRaTeGisTs 378 impliCaTions foR sTudenTs 378 Chapter summary 379 Key Terms and Concepts 379 Issues for Review and Discussion 379 assuRanCe of leaRninG exeRCises 380 Assurance of Learning Exercise 11A: Evaluate BHP Billiton’s Strategies 380 Assurance of Learning Exercise 11B: Prepare a Strategy-Evaluation Report for Nestlé S.A. 381 Assurance of Learning Exercise 11C: Prepare a Balanced Scorecard for Nestlé S.A. 381 Assurance of Learning Exercise 11D: Evaluate Your University’s Strategies 381 mini-Case on BRoadCom limiTed (avGo): how Could a BalanCed sCoReCaRd BenefiT BRoadCom? 382 Current Readings Endnotes 382 382 Appendix Guidelines for Case Analysis 385 353 assuRanCe of leaRninG exeRCises The strategy-evaluation process, Criteria, and methods 355 Assurance of Learning Exercise 10A: Develop an Organizational Chart for Accenture Plc 355 Assurance of Learning Exercise 10B: Assess Accenture’s Philanthropy Efforts 355 Assurance of Learning Exercise 10C: Revise Nestlé’s Organizational Chart 355 what is a strategic-management Case? 386 Guidelines for preparing Case analyses 386 The Need for Practicality 386 • The Need for Justification 386 • The Need for Realism 386 • The Need for Specificity 386 • The Need for Originality 387 • The Need to Contribute 387 The Case method versus lecture approach The Cross-Examination 387 387 12 COnTEnTS preparing a written Case analysis 388 strategic-management Cases The Executive Summary 388 • The Comprehensive Written Analysis 388 • Steps in Preparing a Comprehensive Written Analysis 388 making an oral presentation 389 Controlling Your Voice 389 • Managing Body Language 389 • Speaking from Notes 390 • Visual Aids 390 • Answering Questions 390 Tips for success in Case analysis Constructing 390 Sample Case Analysis Outline 391 • Recommended Time Allocation for Presenting a Case Analysis 393 Assurance of Learning Exercise: Strategic Planning for Gruma SAB 393 Glossary 657 Name Index Subject Index 667 673 397 Cases Service Firms 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Krispy Kreme Doughnuts, Inc., 2015 398 Domino’s Pizza, Inc., 2013 405 Dunkin’ Brands Group, Inc., 2015 415 United Parcel Service, Inc., 2013 423 FedEx Corporation, 2015 434 Citigroup Inc., 2015 443 JPMorgan Chase & Co., 2013 452 Polaris Industries, Inc., 2013 463 The Emirates Group, 2014 472 Walt Disney Company, 2013 481 Facebook, Inc., 2015 491 World Wildlife Fund for Nature (WWF), 2015 499 Manufacturing Firms 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. Ford Motor Company, 2015 508 Bayerische Motoren Werke (BMW) Group, 2013 518 Exxon Mobil Corporation, 2013 525 Embraer S.A., 2013 536 Apple Inc., 2015 545 International Business Machines (IBM) Corporation, 2015 Microsoft Corporation, 2013 563 Lenovo Group Limited, 2013 572 Nikon Corporation, 2013 581 Netgear, Inc., 2013 588 Crocs, Inc., 2013 596 L’Oréal SA, 2013 606 Avon Products, Inc., 2013 614 Revlon, Inc., 2015 622 Under Armour, Inc., 2013 630 Pearson PLC, 2013 639 Snyder’s-Lance, Inc., 2013 648 554 13 This page intentionally left blank Preface Why Adopt This Text? this textbook is trusted across five continents to provide managers the latest skills and concepts needed to effectively formulate and efficiently implement a strategic plan—a game plan, if you will—that can lead to sustainable competitive advantage for any type of business. the association to advance collegiate Schools of Business (aacSB) international increasingly advocates a more skills-oriented, practical approach in business books, which this text provides, rather than a theory-based approach. Strategic Management Concepts and Cases: A Competitive Advantage Approach meets all aacSB international guidelines for the strategic-management course at both the graduate and undergraduate levels, and previous editions have been used at more than 500 colleges and universities globally. We believe you will find this sixteenth edition to be the best textbook available for communicating both the excitement and value of strategic management. concise and exceptionally well organized, this text is now available in english, chinese, Spanish, thai, german, Japanese, Farsi, indonesian, indian, Vietnamese, and arabic. a version in russian is being negotiated. in addition to universities, hundreds of companies, organizations, and governmental bodies use this text as a management guide. an MBa student using this text recently wrote the following: Dear Dr. David: i am in the midst of my MBa at adams State University here in colorado. i’m 7 of 12 classes in with a 4.0 average. as a result, i’ve been through about 14 textbooks (not to mention the 60 or so i went through for my BBa at the University of california (Uc)-Berkeley. this is the first time i’ve written to the author of a textbook. Why? Because the David book is by far the best textbook i have ever used. it’s clear. it’s accurate. it’s not full of opinion masquerading as fact! You, sir, are to be commended. Usually when i spend an insane amount of money on a text, i’m broke. But your text is worth every cent, and i’ll keep it forever. Well done sir! respectively, eric Seiden, MBa Student in Littleton, colorado (august 10, 2015) eric n. Sims, a professor who has used this text for his classes at Sonoma State University in california, says: i have read many strategy books. i am going to use the David book. What i like—to steal a line from alabama coach nick Saban—is your book teaches “a process.” i believe at the end of your book, you can actually help a company do strategic planning. in contrast, other books teach a number of near and far concepts related to strategy. a recent reviewer of this textbook shares his opinion: One thing i admire most about the David text is that it follows the fundamental sequence of strategy formulation, implementation, and evaluation. there is a basic flow from vision/mission to internal/external environmental scanning, to strategy development, selection, implementation, and evaluation. this has been, and continues to be, a hallmark of the David text. Many other strategy texts are more disjointed in their presentation, and thus confusing to the student, especially at the undergraduate level. New to This Edition 1. this 16th edition is 40 percent new and improved from the prior edition. 2. a brand new COHESION CASE on nestlé S.a. (2016) is provided. nestlé is one of the largest and most successful food producing companies in the world, known for its innovations and effective management. Students apply strategy concepts to nestlé at the end of each chapter through new, innovative assurance of Learning exercises. 15 16 PREFACE 3. Brand-new one-page MINI-CASES appear at the end of each chapter, complete with questions designed to apply chapter concepts. Provided for the first time ever in this text, the mini-cases focus on the following companies: chapter 1: ryanair Holdings PLc chapter 2: airbus group Se chapter 3: etihad airways chapter 4: tiger Brands chapter 5: citizen Holdings company chapter 6: Bank of china chapter 7: Woolworths Limited chapter 8: Hyundai Motor company chapter 9: tata Motors Limited chapter 10: Horizon Pharma chapter 11: Broadcom Limited 4. Original, half-page ACADEMIC RESEARCH CAPSULES are presented in each chapter to showcase how new strategic-management research is impacting business practice. two capsules per chapter are provided—for the first time ever in this text. 5. at the end of each chapter are new sections titled IMPLICATIONS FOR STRATEGISTS and IMPLICATIONS FOR STUDENTS that highlight how companies can best gain and sustain competitive advantages. 6. Brand new and updated EXEMPLARY COMPANY CAPSULES appear at the beginning of each chapter and showcase a company that is employing strategic management exceptionally well. the capsules focus on the following companies: chapter 1: Singapore airlines Limited chapter 2: Honda Motor company chapter 3: Bank audi chapter 4: Petronas chapter 5: Samsung electronics Limited chapter 6: Vodafone chapter 7: Michelin chapter 8: Unilever chapter 9: royal Dutch Shell chapter 10: accenture chapter 11: BHP Billiton Limited 7. chapter 2, Outside–USa Strategic Planning, is shortened by 30 percent but provides new coverage of cultural and conceptual strategic-management differences across countries. Doing business globally has become a necessity in most industries. 8. chapter 3, ethics, Social responsibility, and Sustainability, provides extensive new coverage of ethics, workplace romance, flirting, hiring away rival firms’ employees, wildlife welfare, and sustainability. “good ethics is good business.” 9. chapter 5, Vision and Mission analysis, is 60 percent new, due to current research and practice that reveals the need for “these statements to be more customer-oriented.” Unique to strategic-management texts, the sustainability discussion is strengthened in this edition to promote and encourage firms to conduct operations with respect for the environment— an important concern for consumers, companies, society, and aacSB international. 10. twenty-four unique ASSURANCE OF LEARNING EXERCISES appear at the end of chapters to apply chapter concepts. the exercises prepare students for strategicmanagement case analysis. an additional excellent exercise for each chapter is provided in the Chapter Instructor’s Resource Manual. 11. More than 200 new EXAMPLES bring the chapters to life. 12. at the end of chapters are 33 new REVIEW QUESTIONS related to chapter content. 13. all the current readings at the end of the chapters are new, and up-to-date research and theories of seminal thinkers are included. However, practical aspects of strategic management are center stage and the trademark of this text. 14. every sentence and paragraph has been scrutinized, modified, clarified, streamlined, updated, and improved to enhance the content and caliber of presentation. preface 15. an enhanced, continually updated AUTHOR WEBSITE (www.strategyclub.com) provides new author videos, case and chapter updates, sample case analyses, and the popular, Free eXceL StUDent teMPLate. the template enables students to more easily develop strategic-planning matrices, tables, and analyses needed for case analysis. New Case Features 1. all 29 cases focus on exciting, well-known companies, effective for students to apply strategy concepts. 2. all 29 cases are undisguised, featuring real organizations in real industries using real names (nothing is fictitious in any case). 3. all 29 cases feature an organization and industry undergoing strategic change. 4. all 29 cases provide ample, excellent quantitative information, so students can prepare a defensible strategic plan. 5. all 29 cases are written in a lively, concise writing style that captures the reader’s interest. 6. all 29 cases are “comprehensive,” focusing on multiple business functions, rather than a single problem or issue. 7. all 29 cases provide an organizational chart and a vision and mission statement— important strategy concepts. 8. all 29 cases are supported by an excellent teacher’s note, provided to professors in a new Case Instructor’s Resource Manual. 9. all 29 cases facilitate coverage of all strategy concepts, but as revealed in the new concepts by cases Matrix, some cases especially exemplify some concepts, enabling professors to effectively use an assortment of cases with various chapters in the text. 10. all 29 cases have been class-tested to ensure that they are interesting, challenging, and effective for illustrating strategy concepts. 11. all 29 cases appear in no other textbooks, thus offering a truly fresh, new, up-to-date learning platform. 12. the 29 cases represent an excellent mix of firms performing really well and some performing very poorly, including 12 service-based organizations, and 17 manufacturing-based firms. 13. all 29 case companies have excellent websites in english that provide detailed financial information, history, sustainability statements, ethics statements, and press releases, so students can easily access current information to apply strategy concepts. Time-Tested Features 1. this text meets all aacSB international guidelines that support a practitioner orientation rather than a theory/research approach. it offers a skills-oriented process for developing a vision and mission statement; performing an external audit; conducting an internal assessment; and formulating, implementing, and evaluating strategies. 2. the author’s writing style is concise, conversational, interesting, logical, lively, and supported by numerous current examples. 3. a simple, integrative strategic-management model appears in all chapters and on the inside back cover. the model is widely used by strategic-planning consultants and companies worldwide. 4. an exciting, new cohesion case on nestlé S.a. (2016) follows chapter 1 and is revisited at the end of each chapter, allowing students to apply strategic-management concepts and techniques to a real company as the text develops, thus preparing students for case analysis as the course evolves. 5. end-of-chapter assurance of Learning exercises apply chapter concepts and techniques in a challenging, meaningful, and enjoyable manner. twenty-four exercises apply text material to the cohesion case; while others apply textual material to a college or university and some exercises send students into the business world to explore important strategy topics. 17 18 PREFACE 6. there is excellent pedagogy, including Learning Objectives opening each chapter as well as Key terms, current readings, Discussion Questions, and assurance of Learning exercises ending each chapter. 7. the various strategy-formulation issues are outstanding, covering topics such as business ethics, global versus domestic operations, vision and mission, matrix analysis, partnering, joint venturing, competitive analysis, value chain analysis, governance, and matrices for assimilating and evaluating information. 8. Strategy-implementation issues are covered thoroughly and include items such as corporate culture, organizational structure, outsourcing, marketing concepts, financial analysis, business ethics, whistleblowing, bribery, pay and performance linkages, and workplace romance. 9. a systematic, analytical “process” is presented that includes nine matrices: iFeM, eFeM, cPM, SWOt, Bcg, ie, granD, SPace, and QSPM. 10. Both the chapter material and case material is published in color. 11. chapters-only and e-book versions of the text are available. 12. custom-case publishing is available whereby an instructor can combine chapters from this text with cases from a variety of sources or select any number of the 29 cases provided. 13. For the chapter material, an outstanding ancillary package includes a comprehensive Chapter Instructor’s Resource Manual, Case Instructor’s Resource Manual, test Bank, testgen, and chapter PowerPoints, and vastly improved MyLab products to promote assurance of learning. Why Is This Text Different/Better Than Other Strategic-Management Texts? Strategic Management Concepts and Cases: A Competitive Advantage Approach is by far the most practical, skills-oriented strategic management textbook on the market. this text is designed to enable students to learn “how to do strategic planning,” rather than simply memorize seminal theories in strategy. Students using this text follow an integrative model that appears in every chapter as the “process” unfolds. Students learn how to construct strategic planning matrices, such as the Strengths, Weaknesses, Opportunities, and threats (SWOt) and the Boston consulting group (Bcg) matrices. readers also learn how to perform strategic-planning analyses, such as earnings-per-share/earnings-before-interest-and-taxes (ePS/eBit) and corporate valuation. the focus throughout this text is on “learning by doing.” this overarching, differentiating aspect has been improved with every edition and has led to this text becoming perhaps the leading strategicmanagement text globally, now available in 10 languages. the practical, skills-oriented approach is manifested through eight specific features: 1. a cohesion case that appears after chapter 1 with 24 end-of-chapter assurance of learning exercises, many that apply concepts to the cohesion case, thus allowing students to gain practice doing strategic planning by performing analysis. no other strategic-management textbook provides a cohesion case or an array of end-of-chapter exercises. 2. a strategy formulation analytical framework in chapter 8 integrates nine widely used planning matrices (iFeM, eFeM, cPM, SWOt, Bcg, ie, SPace, granD, and QSPM) into three stages (input, Matching, and Decision), which guide the strategic-planning process in all companies. Firms gather strategic information (input), array key external with internal factors (Matching), and then make strategic decisions (Decision). 3. a far wider coverage of strategy topics than any other strategic-management textbook, for two primary reasons: (a) as firms formulate and implement strategies, a wide variety of functional business topics arise and (b) as the capstone, integrative course in nearly all Schools of Business, strategic management entails students applying functional business skills to case companies. preface 4. this text provides 29 comprehensive, exciting, exceptionally up-to-date cases designed to apply chapter concepts as students develop a strategic plan for the case companies. For example, every case includes (a) the company’s vision/mission statements (if the firm has one); (b) the company’s by-segment revenue breakdown (since allocating resources divisions is perhaps the key strategy decision made by firms); (c) the company’s organizational chart (since structure is a key strategy topic); and (d) the company’s financial statements so students can show the impact of a proposed strategic plan on a firm’s financial statements. thus, the cases take a total-firm, multifunctional approach, which by definition is the nature of strategic management. in addition, this text offers end-of-chapter mini-cases to further apply chapter concepts. 5. More coverage of business ethics, social responsibility, and sustainability is provided in this text than in any other strategic-management textbook, including topics such as bribery, workplace romance, devising codes of ethics, taking a position (or not) on social issues, and wildlife welfare—topics that other textbooks do not mention, even though companies continually face strategic decisions in these areas. 6. this text offers more coverage of global/international issues than any other strategicmanagement textbook, including topics such as how business culture and practice vary across countries, as well as how taxes, tariffs, political stability, and economic conditions vary across countries—all framed from a strategic planning perspective. 7. the conversational, concise writing style is supported by hundreds of current examples, all aimed at arousing and maintaining the reader’s interest as the “process” unfolds from start to finish. the unique writing style is in stark contrast to some strategic-management books that seem to randomly present theory and research for the sake of discussion, rather than material being presented in a logical flow that emulates the actual practice of strategic planning among companies and organizations. 8. this text is supported by outstanding ancillaries, including author-developed manuals, and an author website at www.strategyclub.com that offers practical author-developed videos, templates, sample case analyses, special resources, and even a Facebook page for the text. Pearson education also offers outstanding support materials for instructors and students. For more information, visit www.pearsonglobaleditions.com/David. Instructor Resources at the instructor resource center, www.pearsonglobaleditions.com/David, instructors can easily register to gain access to a variety of instructor resources available with this text in downloadable format. if assistance is needed, our dedicated technical support team is ready to help with the media supplements that accompany this text. Visit https://support.pearson.com/getsupport/s/ for answers to frequently asked questions and toll-free user support phone numbers. the following supplements are available with this text: • • • • • Case Instructor’s Resource Manual Chapter Instructor’s Resource Manual Test Bank TestGen® Computerized Test Bank PowerPoint Presentation Sample of Universities Recently Using This Textbook abraham Baldwin agricultural college adelphi University akron institute albany State University albertus Magnus college albright college alcorn State University alvernia University ambassador college amberton University american intercontinental University—Weston american international college american international continental (aiU) University—Houston american international University american University anderson University 19 20 PREFACE angelo State University aquinas college arizona State University—Polytechnic campus art institute of california averett University avila University azusa Pacific University Baker college—Flint Baldwin Wallace college Barry University Belhaven University—Jackson Bellevue University Belmont abbey college Benedictine University Black Hills State University Bloomsburg University Briar cliff University Brooklyn college Broward college—central Broward college—north Broward college—South Bryant & Stratton—Orchard Park Buena Vista University—Storm Lake caldwell college california Polytechnic State University california State University—Sacramento california State University—San Bernadino california University of Pa calumet college capella University carlow University carson-newman college catawba college catholic University of america cedar crest college central connecticut State University central Michigan University central new Mexico community college central Washington University chatham University chestnut Hill college chicago State University christian Brothers University claflin University clarion University of Pennsylvania clarkson college clatsop community college cleveland State University college of William & Mary colorado State University—Pueblo columbia college columbia Southern University—Online concordia University concordia University Wisconsin curry college cuyahoga community college Daniel Webster college Davis & elkins college Delaware State University Delaware technology & community college—Dover Delaware technology & community college—Wilmington DePaul University—Loop campus east Stroudsburg University eastern Michigan University eastern Oregon University eastern Washington University ecPi college of technology—charleston ecPi computer institute elmhurst college embry-riddle aero University—Prescott Ferrum college Florida agricultural & Mechanical University Florida Southern college Florida State University Florida technical college—Deland Florida technical college—Kissimmee Florida technical college—Orlando Fort Valley State college Francis Marion University Fresno Pacific University Frostburg State University george Fox University georgetown college georgia Southern University georgia Southwestern State University Hampton University Harding University Harris Stowe State University Herzing college—Madison Herzing college—new Orleans Herzing college—Winter Park Herzing University—atlanta High Point University preface Highline community college Hofstra University Hood college Hope international University Houghton college Huntingdon college indiana University Bloomington indiana Wesleyan caPS iona college iowa Lakes community college— emmetsburg Jackson community college Jackson State University John Brown University Johnson & Wales—charlotte Johnson & Wales—colorado Johnson & Wales—Miami Johnson & Wales—rhode island Johnson c. Smith University Kalamazoo college Kansas State University Keene State college Kellogg community college La Salle University Lake Michigan college Lebanon Valley college Lee University Lehman college of cUnY Liberty University Limestone college—gaffney Lincoln Memorial University Loyola college Business center Loyola college—chennai Loyola University—Maryland Lyndon State college Madonna University Manhattan college Manhattanville college Marian University—indiana Marshall University Marshall University graduate college Marymount University—arlington Medgar evers college Medical careers institute/newport news Mercer University—atlanta Mercer University—Macon Miami-Dade college—Homestead Miami-Dade college—Kendal Miami-Dade college—north Miami-Dade college—Wolfson Michigan State University Mid-america christian Millersville University Mississippi University for Women Morgan State University Morrison college of reno Mount Marty college—South Dakota Mount Mercy University Mount Wachusett community college Mt. Hood community college Mt. Vernon nazarene Mti Western Business college Muhlenberg college Murray State University new england college new Mexico State University new York University north carolina Wesleyan college north central college north central State college northwest arkansas community college northwestern college northwood University—cedar Hill notre Dame of Maryland University nyack college Oakland University Ohio Dominican University Oklahoma christian University Oklahoma State University Olivet college Oral roberts University Pace University—Pleasantville Park University Penn State University—abington Penn State University—Hazleton Pensacola State college Philadelphia University Point Park University Prince george’s community college Queens college of cUnY richard Stockton University rider University roger Williams University Saint edwards University Saint Leo University Saint Mary’s college Saint Mary’s college—indiana Saint Xavier University 21 22 PREFACE San antonio college Santa Fe college Savannah State University Shippensburg University Siena Heights University Southern nazarene University Southern new Hampshire University Southern Oregon University Southern University—Baton rouge Southern Wesleyan University Southwest Baptist University Southwest University St. Bonaventure University St. Francis University St. Louis University St. Martins University Sterling college Stevenson University Strayer University—Dc texas a&M University—commerce texas a&M University—texarkana texas a&M—San antonio texas tech University the college of St. rose the Masters college tri-county technical college trinity christian college troy State University troy University—Dothan troy University—Main campus troy University—Montgomery University of alabama—Birmingham University of arkansas—Fayetteville University of Findlay University of Houston—clearlake University of Louisiana at Monroe University of Maine at augusta University of Maine—Fort Kent University of Maryland University of Maryland—college Park University of Massachusetts—Boston Harbor University of Massachusetts—Dartmouth University of Miami University of Michigan—Flint University of Minnesota—crookston University of Mobile University of Montevallo University of nebraska—Omaha University of nevada Las Vegas University of new Orleans University of north texas University of north texas—Dallas University of Pikeville University of Sioux Falls University of South Florida University of St. Joseph University of tampa University of texas—Pan american University of the incarnate Word University of toledo Upper iowa University Valley city State University Virginia community college System Virginia State University Virginia tech Wagner college Wake Forest University Washington University Webber international University Webster University West chester University West Liberty University West Valley college West Virginia Wesleyan college Western connecticut State University Western Kentucky University Western Michigan University Western Washington University William Jewell college Williams Baptist college Winona State University Winston-Salem State University WSU Vancouver preface The Case Rationale case analysis remains the primary learning vehicle used in most strategic-management classes, for five important reasons: 1. analyzing cases gives students the opportunity to work in teams to evaluate the internal operations and external issues facing various organizations and to craft strategies that can lead these firms to success. Working in teams gives students practical experience in solving problems as part of a group. in the business world, important decisions are generally made within groups; strategic-management students learn to deal with overly aggressive group members as well as timid, noncontributing group members. this experience is valuable because strategic-management students are near graduation and soon enter the working world full time. 2. analyzing cases enables students to improve their oral and written communication skills as well as their analytical and interpersonal skills by proposing and defending particular courses of action for the case companies. 3. analyzing cases allows students to view a company, its competitors, and its industry concurrently, thus simulating the complex business world. through case analysis, students learn how to apply concepts, evaluate situations, formulate strategies, and resolve implementation problems. 4. analyzing cases allows students to apply concepts learned in many business courses. Students gain experience dealing with a wide range of organizational problems that impact all the business functions. 5. analyzing cases gives students practice in applying concepts, evaluating situations, formulating a “game plan,” and resolving implementation problems in a variety of business and industry settings. The Case MyLab Testing Feature the new case MyLab testing feature assures that the cases are excellent for testing student learning of the key strategic-management concepts, thus serving as a great mechanism for professors to achieve aacSB’s assurance of Learning Objectives. this new testing feature simplifies grading for professors in both traditional and online class settings. the case MyLab testing feature includes multiple-choice questions for each case, comprised of Basic questions that simply test whether the student read the case before class, and Applied questions that test the student’s ability to apply various strategic-management concepts. in addition, there are certain Discussion questions for each case. this testing feature enables professors to determine, before class if desired, whether students (1) read the case in Basic terms, and/or (2) are able to Apply strategy concepts to resolve issues in the case. For example, the MyLab case Basic question may be: in what country is Krispy Kreme Doughnuts, inc. headquartered? Whereas a MyLab case Applied question may be: What are three aspects of the organizational chart given in the Krispy Kreme Doughnuts, inc. case that violate strategicmanagement guidelines? The New Concepts by Cases Matrix all 29 cases facilitate coverage of all strategy concepts, but as revealed by purple cells, some cases especially exemplify some key strategy concepts. the purple cells reveal which concepts are tested with multiple-choice questions in the MyLab. the concepts by cases matrix enables professors to effectively utilize different cases to assure student learning of various chapter concepts. note from the purple boxes that two, three, or four cases are used to test each strategic-management concept. this new, innovative ancillary promises to elevate the case learning method to new heights in teaching strategic management. 23 Case number Service Firms case 1 Krispy Kreme Doughnuts, inc. case 2 Domino’s Pizza, inc. case 3 Dunkin’ Brands group, inc. case 4 United Parcel Service, inc. case 5 Fedex corporation case 6 citigroup inc. case 7 JPMorgan chase & co. case 8 Polaris industries, inc. case 9 the emirates group case 10 Walt Disney company case 11 Facebook, inc. case 12 World Wildlife Fund Manufacturing Firms case 13 Ford Motor company case 14 Bayerische Motoren Werke (BMW) case 15 exxon Mobil corporation case 16 embraer S.a. case 17 apple inc. case 18 international Business Machines corporation case 19 Microsoft corporation case 20 Lenovo group Limited case 21 nikon corporation case 22 netgear, inc. case 23 crocs, inc. case 24 L’Oréal Sa. case 25 avon Products, inc. case 26 revlon, inc. case 27 Under armour, inc. case 28 Pearson Plc. case 29 Snyder’s-Lance, inc. Porter's Five Generic Strategies Strategy Types IFE Matrix Value Chain Analysis Financial Ratios & Breakeven Resource Based View EFE Matrix Porter’s Five Forces Competitive Profile Matrix Vision/Mission Statements Strategy Model/Process cONcepTS BY caSeS MaTrIX Key StrategicManagement Concepts 24 Foreign Business Culture Environmental Sustainability Business Ethics Balanced Scorecard Company Valuation Projected Financial Statements EPS-EBIT Analysis Market Segmentation & Production Human Resources Management Organizational Culture Organizational Structure Governance Grand Strategy & QSPM BCG & IE Matrices SPACE Matrix SWOT Matrix Outsourcing First Mover Advantages cONcepTS BY caSeS MaTrIX 25 Acknowledgments Many persons have contributed time, energy, ideas, and suggestions for improving this text over many editions. the strength of this text is largely attributed to the collective wisdom, work, and experiences of strategic-management professors, researchers, students, and practitioners. names of particular individuals whose published research is referenced in this edition are listed alphabetically in the name index. to all individuals involved in making this text so popular and successful, we are indebted and thankful. Many special persons and reviewers contributed valuable material and suggestions for this edition. We would like to thank our colleagues and friends at auburn University, Mississippi State University, east carolina University, the University of South carolina, campbell University, the University of north carolina at Pembroke, and Francis Marion University. We have taught strategic management at all these universities. Scores of students and professors at these schools helped shape the development of this text. We thank the following guest writers who contributed a case(s) to this sixteenth edition: Meredith e. David, Baylor University Mark L. Frigo, DePaul University Debora J. gilliard, Metropolitan State University of Denver David Lynn Hoffman, Metropolitan State University of Denver edward Moore, Liberty University alvaro Polanco, Baylor University Lori radulovich, Baldwin Wallace University raj Selladurai, indiana University northwest Diana tsaw, california Lutheran University John D. Varlaro, Johnson & Wales University Jason Willoughby, elizabethtown community college We thank you, the reader, for investing the time and effort to read and study this text. it will help you formulate, implement, and evaluate strategies for any organization with which you become associated. We hope you come to share our enthusiasm for the rich subject area of strategic management and for the systematic learning approach taken in this text. We welcome and invite your suggestions, ideas, thoughts, comments, and questions regarding any part of this text or the ancillary materials. Please contact Dr. Fred r. David at the following e-mail: freddavid9@gmail.com, or write him at the School of Business, Francis Marion University, Florence, Sc 29501. We sincerely appreciate and need your input to continually improve this text in future editions. Your willingness to draw our attention to specific errors or deficiencies in coverage or exposition will especially be appreciated. thank you for using this text. Fred r. David and Forest r. David Global Acknowledgments Pearson would also like to thank and acknowledge the following people for reviewing the global edition content and sharing their feedback to help improve the material nazih K. el-Jor, Lebanese american University georg Hauer, Stuttgart technology University of applied Sciences goh See Kwong, taylor’s University anneleen Michiels, University of Leuven Sununta Siengthai, asian institute of technology 26 About the Authors Fred r. and Forest r. David, a father–son team, have published more than 50 articles in journals such as Academy of Management Review, Academy of Management Executive, Journal of Applied Psychology, Long Range Planning, International Journal of Management, Journal of Business Strategy, and Advanced Management Journal. Fred and Forest’s recent article titled “Mission Statement theory and Practice: a content analysis and new Direction,” published in the International Journal of Business, Marketing, and Decision Sciences, is changing the way organizations devise and use vision and mission statements. Fred and Forest are coauthors of Strategic Management: Concepts and Cases—A Competitive Advantage Approach that has been on a two-year revision cycle since 1987, when the first edition was published. this text has been a leader in the field of strategic management for almost three decades, providing an applications, practitioner-approach to the discipline. More than 500 colleges and universities have used this textbook over the years. For seven editions of this book, Forest has been sole author of the Case Instructor’s Resource Manual, having developed extensive teachers’ notes (solutions) for all the cases. Forest is author of the case MyLab and chapter MyLab ancillaries, as well as the free excel Student template found on the author website (www.strategyclub.com). the authors actively assist businesses globally in doing strategic planning. they have written and published more than 100 strategic-management cases. they were keynote speakers in September 2015 in Monterrey, Mexico, at the “XXii congreso industrial,” the largest congress of industrial engineering in Latin america. they were also invited keynote speakers at the Pearson international Forum in Monterrey, Mexico, delivering a one-hour presentation to 80 Spanish-speaking management professors. With a Ph.D. in Management from the University of South carolina, Fred is the tranSouth Professor of Strategic Planning at Francis Marion University in Florence, South carolina. Forest has taught strategic-management courses at Mississippi State University, campbell University, and Francis Marion University. Fred R. David Forest R. David 27 This page intentionally left blank Strategic ManageMent concepts and cases A Competitive AdvAntAge ApproACh Source: © musicman.Shutterstock 1 30 Strategic Management Essentials learning Objectives This page intentionally left blank After studying this chapter, you should be able to do the following: 1-1. Describe the strategic-management process. 1-2. Discuss the three stages of strategy formulation, implementation, and evaluation activities. 1-3. Explain the need for integrating analysis and intuition in strategic management. 1-4. Define and give examples of key terms in strategic management. 1-5. Illustrate the comprehensive strategic-management model. 1-6. Describe the benefits of engaging in strategic management. 1-7. Explain why some firms do no strategic planning. 1-8. Describe the pitfalls in actually doing strategic planning. 1-9. Discuss the connection between business and military strategy. assurance Of learning exercises The following exercises are found at the end of this chapter: exercise 1a exercise 1b exercise 1c exercise 1D exercise 1e exercise 1f Assess Singapore Airlines’ Most Recent Quarterly Performance Data Gather Strategy Information on Nestlé S.A. Get Familiar with the Free Excel Student Template Evaluate an Oral Student Presentation Strategic Planning at Nestlé S.A. Interview Local Strategists 31 32 Strategic ManageMent W hen CEOs from the big three U.S. automakers—Ford, General Motors (GM), and Chrysler—showed up several years ago without a clear strategic plan to ask congressional leaders for bailout monies, they were sent home with instructions to develop a clear strategic plan for the future. Austan Goolsbee, one of President Barack Obama’s top economic advisers, said, “Asking for a bailout without a convincing business plan was crazy.” Goolsbee also said, “If the three auto CEOs need a bridge, it’s got to be a bridge to somewhere, not a bridge to nowhere.”1 This text gives the instructions on how to develop a clear strategic plan—a bridge to somewhere rather than nowhere. The chapter provides an overview of strategic management. It introduces a practical, integrative model of the strategic-management process, and it defines basic activities and terms in strategic management. At the beginning of each chapter, a different company is showcased doing an exemplary job applying strategic-planning concepts, tools, and techniques. The first company featured for excellent strategic management practices is Singapore Airlines, Ltd., ranked amongst the top 15 carriers worldwide and one of the best managed companies in the world. In 2010, Goh Choon Phong was made the CEO of the flag carrier of Singapore. At the end of each chapter, a new, one-page, mini-case on a company is provided with respective questions that examine various concepts, tools, and techniques presented. What Is Strategic Management? Once there were two company presidents who competed in the same industry. These two presidents decided to go on a camping trip to discuss a possible merger. They hiked deep into the woods. Suddenly, they came upon a grizzly bear that rose up on its hind legs and snarled. Instantly, the first president took off his knapsack and got out a pair of jogging shoes. The second president said, “Hey, you can’t outrun that bear.” The first president responded, “Maybe I can’t exemplary cOmpany shOwcaseD Singapore Airlines Limited (SIA) A 5-star airline, Singapore Airlines (SIA) operates the world’s longest non-stop commercial flight from Singapore to Los Angeles and Newark and other trans-Pacific flights, and provides passenger services across more than 30 countries. Strategically well managed, its diversified businesses include aircraft handling and engineering. SIA owns SilkAir, an airline company overseeing regional flights catering to small capacity requirements in secondary cities, and Tigerair, a low fare airline that serves 37 destinations across 12 countries. In Asia, SilkAir helps passengers travel in over 30 cities. The company is the official sponsor of Singapore’s national football team and has continued to market the iconic Singapore Girl, a prominent element that depicts the flight attendants of the airline and is pegged as the central image for the brand. SIA was acknowledged as the best Asian airline in the Business Traveler Awards 2014. According to a survey by Fortune in 2015, it was ranked as the best international airline for business travel and best customer service. The airline has often ranked as one of the most admired company in the world outside the United States. Apart from being acknowledged for their service and efficient operations, SIA has also been commended for SIA’s 2014–2015 Annual Report reveals that the company carried 18,737 passengers that fiscal year, up from 18,628 the previous year, and had revenue of $15,566 million, up from $15,244 the prior year. In their 2014– 2015 Annual Report, the company reported net profits of $368 million, up from $359 million the prior year. In July 2015, SIA reported that its net profit in the first quarter was twice the amount made in the previous year due to lower oil prices, hence, lower fuel expenses for the airline. The airline saw a net profit of SGD $91.2 million ($67 million), up 162 percent from the same period in the previous year. In July 2015, all talks about acquiring a stake in South Korea’s Jeju Air had ended. Instead SIA chose to respond to budget airlines, which were a bigger threat for SIA with their increasing market share in Southeast Asia, by focusing on expanding in Australia, Thailand, and India. An investment in Jeju Air would have given it more access in North Asia, including China. Source: Based on company documents. CHAPTER1 • STRATEgiCMAnAgEMEnTESSEnTiAlS outrun that bear, but I surely can outrun you!” This story captures the notion of strategic management, which is to gain and sustain competitive advantage. What Is a Cohesion Case? A distinguishing, popular feature of this text is the Cohesion Case, named so because a written case on a company appears at the end of this chapter, and then all other chapters feature end-of-chapter Assurance of Learning Exercises to apply strategic-planning concepts, tools, and techniques to the Cohesion Case company. Nestlé S.A. is featured as the new Cohesion Case in this edition, because Nestlé is a well-known, well-managed global firm undergoing strategic change. By working through the Nestlé-related exercises at the end of each chapter, students become well prepared to develop an effective strategic plan for any company assigned to them (or their team) to perform a strategic-management case analysis. Case analysis is a core part of almost every strategic-management course globally. Defining Strategic Management Strategic management is the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives. As this definition implies, strategic management focuses on integrating management, marketing, finance and accounting, production and operations, research and development (R&D), and information systems to achieve organizational success. The term strategic management in this text is used synonymously with the term strategic planning. The latter term is more often used in the business world, whereas the former is often used in academia. Sometimes the term strategic management is used to refer to strategy formulation, implementation, and evaluation, with strategic planning referring only to strategy formulation. The purpose of strategic management is to exploit and create new and different opportunities for tomorrow; long-range planning, in contrast, tries to optimize for tomorrow the trends of today. The term strategic planning originated in the 1950s and was popular between the mid-1960s and the mid-1970s. During these years, strategic planning was widely believed to be the answer for all problems. At the time, much of corporate America was “obsessed” with strategic planning. Following that boom, however, strategic planning was cast aside during the 1980s as various planning models did not yield higher returns. The 1990s, however, brought the revival of strategic planning, and the process is widely practiced today in the business world. Many companies today have a chief strategy officer (CSO). McDonald’s hired a new CSO in October 2015. A strategic plan is, in essence, a company’s game plan. Just as a football team needs a good game plan to have a chance for success, a company must have a good strategic plan to compete successfully. Profit margins among firms in most industries are so slim that there is little room for error in the overall strategic plan. A strategic plan results from tough managerial choices among numerous good alternatives, and it signals commitment to specific markets, policies, procedures, and operations in lieu of other, “less desirable” courses of action. The term strategic management is used at many colleges and universities as the title for the capstone course in business administration. This course integrates material from all business courses, and, in addition, introduces new strategic-management concepts and techniques being widely used by firms in strategic planning. Stages of Strategic Management The strategic-management process consists of three stages: strategy formulation, strategy implementation, and strategy evaluation. Strategy formulation includes developing a vision and a mission, identifying an organization’s external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objectives, generating alternative strategies, and choosing particular strategies to pursue. Strategy-formulation issues include deciding what new businesses to enter, what businesses to abandon, whether to expand operations or diversify, whether to enter international markets, whether to merge or form a joint venture, and how to avoid a hostile takeover. 33 34 Strategic ManageMent Because no organization has unlimited resources, strategists must decide which alternative strategies will benefit the firm most. Strategy-formulation decisions commit an organization to specific products, markets, resources, and technologies over an extended period of time. Strategies determine long-term competitive advantages. For better or worse, strategic decisions have major multifunctional consequences and enduring effects on an organization. Top managers have the best perspective to understand fully the ramifications of strategy-formulation decisions; they have the authority to commit the resources necessary for implementation. Strategy implementation requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed. Strategy implementation includes developing a strategy-supportive culture, creating an effective organizational structure, redirecting marketing efforts, preparing budgets, developing and using information systems, and linking employee compensation to organizational performance. Strategy implementation often is called the “action stage” of strategic management. Implementing strategy means mobilizing employees and managers to put formulated strategies into action. Often considered to be the most difficult stage in strategic management, strategy implementation requires personal discipline, commitment, and sacrifice. Successful strategy implementation hinges on managers’ ability to motivate employees, which is more an art than a science. Strategies formulated but not implemented serve no useful purpose. Interpersonal skills are especially critical for successful strategy implementation. Strategyimplementation activities affect all employees and managers in an organization. Every division and department must decide on answers to questions such as “What must we do to implement our part of the organization’s strategy?” and “How best can we get the job done?” The challenge of implementation is to stimulate managers and employees throughout an organization to work with pride and enthusiasm toward achieving stated objectives. Strategy evaluation is the final stage in strategic management. Managers desperately need to know when particular strategies are not working well; strategy evaluation is the primary means for obtaining this information. All strategies are subject to future modification because external and internal factors constantly change. Three fundamental strategy-evaluation activities are (1) reviewing external and internal factors that are the bases for current strategies, (2) measuring performance, and (3) taking corrective actions. Strategy evaluation is needed because success today is no guarantee of success tomorrow! Success always creates new and different problems; complacent organizations experience demise. Formulation, implementation, and evaluation of strategy activities occur at three hierarchical levels in a large organization: corporate, divisional or strategic business unit, and functional. By fostering communication and interaction among managers and employees across hierarchical levels, strategic management helps a firm function as a competitive team. Most small businesses and some large businesses do not have divisions or strategic business units; they have only the corporate and functional levels. Nevertheless, managers and employees at these two levels should be actively involved in strategic-management activities. Peter Drucker says the prime task of strategic management is thinking through the overall mission of a business— that is, of asking the question, “What is our business?” This leads to the setting of objectives, the development of strategies, and the making of today’s decisions for tomorrow’s results. This clearly must be done by a part of the organization that can see the entire business; that can balance objectives and the needs of today against the needs of tomorrow; and that can allocate resources of men and money to key results.2 Integrating Intuition and Analysis Edward Deming once said, “In God we trust. All others bring data.” The strategic-management process can be described as an objective, logical, systematic approach for making major decisions in an organization. It attempts to organize qualitative and quantitative information in a way that allows effective decisions to be made under conditions of uncertainty. Yet strategic management is not a pure science that lends itself to a nice, neat, one-two-three approach. Based on past experiences, judgment, and feelings, most people recognize that intuition is essential to making good strategic decisions. Intuition is particularly useful for making decisions CHAPTER1 • STRATEgiCMAnAgEMEnTESSEnTiAlS in situations of great uncertainty or little precedent. It is also helpful when highly interrelated variables exist or when it is necessary to choose from several plausible alternatives. Some managers and owners of businesses profess to have extraordinary abilities for using intuition alone in devising brilliant strategies. For example, Will Durant, who organized GM, was described by Alfred Sloan as “a man who would proceed on a course of action guided solely, as far as I could tell, by some intuitive flash of brilliance. He never felt obliged to make an engineering hunt for the facts. Yet at times, he was astoundingly correct in his judgment.”3 Albert Einstein acknowledged the importance of intuition when he said, “I believe in intuition and inspiration. At times I feel certain that I am right while not knowing the reason. Imagination is more important than knowledge, because knowledge is limited, whereas imagination embraces the entire world.”4 Although some organizations today may survive and prosper because they have intuitive geniuses managing them, many are not so fortunate. Most organizations can benefit from strategic management, which is based on integrating intuition and analysis in decision making. Choosing an intuitive or analytic approach to decision making is not an either-or proposition. Managers at all levels in an organization inject their intuition and judgment into strategicmanagement analyses. Analytical thinking and intuitive thinking complement each other. Operating from the I’ve-already-made-up-my-mind-don’t-bother-me-with-the-facts mode is not management by intuition; it is management by ignorance.5 Drucker says, “I believe in intuition only if you discipline it. ‘Hunch’ artists, who make a diagnosis but don’t check it out with the facts, are the ones in medicine who kill people, and in management kill businesses.”6 As Henderson notes: The accelerating rate of change today is producing a business world in which customary managerial habits in organizations are increasingly inadequate. Experience alone was an adequate guide when changes could be made in small increments. But intuitive and experience-based management philosophies are grossly inadequate when decisions are strategic and have major, irreversible consequences.7 In a sense, the strategic-management process is an attempt to duplicate what goes on in the mind of a brilliant, intuitive person who knows the business and assimilates and integrates that knowledge using analysis to formulate effective strategies. Adapting to Change The strategic-management process is based on the belief that organizations should continually monitor internal and external events and trends so that timely changes can be made as needed. The rate and magnitude of changes that affect organizations are increasing dramatically, as evidenced by how the drop in oil prices caught so many firms by surprise. Firms, like organisms, must be “adept at adapting” or they will not survive. To survive, all organizations must astutely identify and adapt to change. The strategic-management process is aimed at allowing organizations to adapt effectively to change over the long run. Waterman noted: In today’s business environment, more than in any preceding era, the only constant is change. Successful organizations effectively manage change, continuously adapting their bureaucracies, strategies, systems, products, and cultures to survive the shocks and prosper from the forces that decimate the competition.8 On a political map, the boundaries between countries may be clear, but on a competitive map showing the real flow of financial and industrial activity, the boundaries have largely disappeared. The speedy flow of information has eaten away at national boundaries so that people worldwide readily see for themselves how other people live and work. We have become a borderless world with global citizens, global competitors, global customers, global suppliers, and global distributors! Many firms headquartered in the United States are challenged by outside-U.S.–based companies in many industries. For example, Toyota, Honda, Yamaha, Suzuki, Volkswagen, Samsung, and Kia have huge market shares in the United States. The need to adapt to change leads organizations to key strategic-management questions, such as “What kind of business should we become?” “Are we in the right field(s)?” “Should we reshape our business?” “What new competitors are entering our industry?” “What strategies 35 36 Strategic ManageMent should we pursue?” “How are our customers changing?” “Are new technologies being developed that could put us out of business?” The Internet promotes endless comparison shopping, enabling consumers worldwide to band together to demand discounts. The Internet has transferred power from businesses to individuals. Buyers used to face big obstacles when attempting to get the best price and service, such as limited time and data to compare, but now consumers can quickly scan hundreds of vendor offerings. Both the number of people shopping online and the average amount they spend is increasing dramatically. Digital communication has become the name of the game in marketing. Consumers today are flocking to blogs, sending tweets, watching and posting videos on YouTube, and spending hours on Tumbler, Facebook, Reddit, Instagram, and LinkedIn, instead of watching television, listening to the radio, or reading newspapers and magazines. Facebook recently unveiled features that further marry these social sites to the wider Internet. Facebook users can now log onto various business shopping sites from their social site, so their friends can see what items they have purchased from what companies. Facebook wants their members to use their identities to manage all their online identities. Most traditional retailers boost in-store sales using their websites to promote in-store promotions. Key Terms in Strategic Management Before we further discuss strategic management, we should define nine key terms: competitive advantage, strategists, vision and mission statements, external opportunities and threats, internal strengths and weaknesses, long-term objectives, strategies, annual objectives, and policies. Competitive Advantage Strategic management is all about gaining and maintaining competitive advantage. This term can be defined as any activity a firm does especially well compared to activities done by rival firms, or any resource a firm possesses that rival firms desire. Having fewer fixed assets than rival firms can provide major competitive advantages. For example, Apple has virtually no manufacturing facilities of its own, and rival Sony has 57 electronics factories. Apple relies almost entirely on contract manufacturers for production of all its products, whereas Sony owns its own plants. Having fewer fixed assets has enabled Apple to remain financially lean. According to CEO Paco Underhill of Envirosell, “Where it used to be a polite war, it’s now a 21st-century bar fight, where everybody is competing with everyone else for the customers’ money.” Shoppers are “trading down: Nordstrom is taking customers from Neiman Marcus and Saks Fifth Avenue, T.J. Maxx and Marshalls are taking customers from most other stores in the mall, and Family Dollar is taking revenues from Walmart.9 Getting and keeping competitive advantage is essential for long-term success in an organization. In mass retailing, big-box companies, such as Walmart, Best Buy, and Sears, are losing competitive advantage to smaller stores, reflecting the dramatic shift in mass retailing to becoming smaller. As customers shift more to online purchases, less brick and mortar is definitely better for sustaining competitive advantage in retailing. Walmart Express stores of less than 40,000 square feet each, rather than its 185,000-square-foot Supercenters, and Office Depot’s new 5,000-square-foot stores are examples of smaller is better. Normally, a firm can sustain a competitive advantage for only a certain period because of rival firms imitating and undermining that advantage. Thus, it is not adequate simply to obtain competitive advantage. A firm must strive to achieve sustained competitive advantage by (1) continually adapting to changes in external trends and events and internal capabilities, competencies, and resources; and (2) effectively formulating, implementing, and evaluating strategies that capitalize on those factors. Strategists Strategists are the individuals most responsible for the success or failure of an organization. They have various job titles, such as chief executive officer, president, owner, chair of the board, executive director, chancellor, dean, and entrepreneur. Jay Conger, professor of organizational CHAPTER1 • STRATEgiCMAnAgEMEnTESSEnTiAlS 37 behavior at the London Business School and author of Building Leaders, says, “All strategists have to be chief learning officers. We are in an extended period of change. If our leaders aren’t highly adaptive and great models during this period, then our companies won’t adapt either, because ultimately leadership is about being a role model.” Strategists help an organization gather, analyze, and organize information. They track industry and competitive trends, develop forecasting models and scenario analyses, evaluate corporate and divisional performance, spot emerging market opportunities, identify business threats, and develop creative action plans. Strategic planners usually serve in a support or staff role. Usually found in higher levels of management, they typically have considerable authority for decision making in the firm. The CEO is the most visible and critical strategic manager. Any manager who has responsibility for a unit or division, responsibility for profit and loss outcomes, or direct authority over a major piece of the business is a strategic manager (strategist). In the last few years, the position of CSO has become common in many organizations, including Sun Microsystems, Network Associates, Clarus, Lante, Marimba, Sapient, Commerce One, BBDO, Cadbury Schweppes, General Motors, Ellie Mae, Cendant, Charles Schwab, Tyco, Campbell Soup, Morgan Stanley, and Reed-Elsevier. This corporate officer title represents recognition of the growing importance of strategic planning in business. Franz Koch, the CSO of German sportswear company Puma AG, was recently promoted to CEO of Puma. When asked about his plans for the company, Koch said on a conference call, “I plan to just focus on the long-term strategic plan.” Academic Research Capsule 1-1 reveals when CSOs are most often hired. Strategists differ as much as organizations do, and these differences must be considered in the formulation, implementation, and evaluation of strategies. Strategists differ in their attitudes, values, ethics, willingness to take risks, concern for social responsibility, concern for profitability, concern for short-run versus long-run aims, and management style—some will not even consider various types of strategies because of their personal philosophies. The founder of Hershey, Milton Hershey, built the company so that he could afford to manage an orphanage. From corporate profits, Hershey today cares for about 900 boys and 1,000 girls in its boarding school for pre-K through grade 12. Athletic coaches are also strategists. Football, basketball, baseball, soccer, and in fact most athletic contests are often won or lost based a team’s game plan. For example, a basketball coach may plan to fast break and play up-tempo, rather than play more half court, if the players are smaller and faster, or if the team has more depth than the opposing team. A few great college basketball coaches today are Mike Krzyzewski at Duke, John Calipari at Kentucky, Jim Boeheim at Syracuse, and Tom Izzo at Michigan State. Great college basketball coaches years ago included John Wooden, Jim Valvano, Dean Smith, and Bobby Knight. Another great coach of yesteryear was Nolan Richardson, who developed excellent game plans and, in 1994, as the first black head coach at a major university in the South, led the Arkansas Razorbacks men’s basketball team to acaDemic research capsule 1-1 When Are Chief Strategy Officers (CSOs) Hired/Appointed? An increasing number of firms are employing a chief strategy officer (CSO). In an article published in 2014, Menz and Sheef examined 200 S&P 500 firms over a 5-year period to examine what factors contribute to firms hiring a CSO and what factors contribute to a CSO affecting a firm’s financial performance. Of the sampled firms, on average, during the study, 42 percent employed a CSO. Although many factors may lead to a firm’s decision to appoint a CSO, the authors focused on five key areas that prior research suggests as most important and most likely to lead to a CSO appointment: 1) As the business portfolio increases (e.g., the firm becomes more diversified) 2) 3) 4) 5) As acquisition activity expands As alliance activity increases As a firm’s size grows As top management team interdependence increases Results of the Menz and Sheef study reveal that an increase in management interdependence and growth in acquisition activity were most commonly associated with hiring a new CSO. Source: Based on Markus Menz and Christine Sheef, “Chief Strategy Officers: Contingency Analysis of Their Presence in Top Management Teams,” Strategic Management Journal 35, no. 3 (March 2014): 461–471. 38 Strategic ManageMent Table 1-1 Ten Famous, Strategic-Planning–Relevant Quotes from NFL Coaches 1. “Perfection is not attainable. But if we chase perfection, we can catch excellence.” —Vince Lombardi, Head Coach Green Bay Packers (1959–67) 2. “Leadership is a matter of having people look at you and gain confidence…. If you’re in control, they’re in control.” —Tom Landry, Head Coach Dallas Cowboys (1960–88) 3. “On a team, it’s not the strength of the individual players, but it is the strength of the unit and how they all function together.” —Bill Belichick, Head Coach New England Patriots (2000– Present), New York Jets (1999), Cleveland Browns (1991–95) 4. “If you want to win, do the ordinary things better than anyone else does them day in and day out.” —Chuck Noll, Head Coach Pittsburgh Steelers (1969–91) 5. “Leaders are made, they are not born. They are made by hard effort, which is the price which all of us must pay to achieve any goal that is worthwhile.” —Vince Lombardi, Head Coach Green Bay Packers (1959–67) 6. “Try not to do too many things at once. Know what you want, the number one thing today and tomorrow. Persevere and get it done.” —George Allen, Head Coach Los Angeles Rams (1957, 1966–70), Chicago Bears (1958–65), Washington Redskins (1971–77) 7. “You fail all the time, but you aren’t a failure until you start blaming someone else.” —Bum Phillips, Head Coach Houston Oilers (1975–80), New Orleans Saints (1981–85) 8. “Success demands singleness of purpose.” —Vince Lombardi, Head Coach Green Bay Packers (1959–67) 9. “Stay focused. Your start does not determine how you’re going to finish.” —Herm Edwards, Head Coach New York Jets (2001–05), Kansas City Chiefs (2006–08) 10. “Nobody who ever gave his best regretted it.” —George S. Halas, Head Coach Chicago Bears (1933–42, 1946–55, 1958–67) Source: A variety of sources. win the NCAA college basketball national championship versus Duke.10 Switching to football, some inspirational, strategic-planning–related quotes from legendary National Football League (NFL) coaches are provided in Table 1-1. Vision and Mission Statements Many organizations today develop a vision statement that answers the question “What do we want to become?” Developing a vision statement is often considered the first step in strategic planning, preceding even development of a mission statement. Many vision statements are a single sentence. For example, the vision statement of Stokes Eye Clinic in Florence, South Carolina, is “Our vision is to take care of your vision.” Mission statements are “enduring statements of purpose that distinguish one business from other similar firms. A mission statement identifies the scope of a firm’s operations in product and market terms.”11 It addresses the basic question that faces all strategists: “What is our business?” A clear mission statement describes the values and priorities of an organization. Developing a mission statement compels strategists to think about the nature and scope of present operations and to assess the potential attractiveness of future markets and activities. A mission statement not only broadly charts the future direction of an organization but it also serves as a constant reminder to its employees of why the organization exists and what the founders envisioned when they put their fame and fortune (and names) at risk to breathe life into their dreams. External Opportunities and Threats External opportunities and external threats refer to economic, social, cultural, demographic, environmental, political, legal, governmental, technological, and competitive trends and events that could significantly benefit or harm an organization in the future. Opportunities and threats are largely beyond the control of a single organization—thus the word external. Some general categories of opportunities and threats are listed in Table 1-2, but be mindful that dollars, numbers, percentages, ratios, and quantification are essential, so strategists can assess the magnitude CHAPTER1 • STRATEgiCMAnAgEMEnTESSEnTiAlS Table 1-2 Some General Categories of Opportunities and Threats • • • • • • • • • • • • • • • • • • • • • • Availability of capital can no longer be taken for granted. Consumers expect green operations and products. Marketing is moving rapidly to the Internet. Commodity food prices are increasing. An oversupply of oil is driving oil and gas prices down. Computer hacker problems are increasing. Intense price competition is plaguing most firms. Unemployment and underemployment rates remain high globally. Interest rates are low but rising. Product life cycles are becoming shorter. State and local governments are financially weak. Drug cartel–related violence is increasing in Mexico. Winters are colder and summers are hotter than usual. Birth rates are declining in most countries. Global markets offer the highest growth in revenues. New laws are passed. Competitors introduce new products. National catastrophes occur. The value of the Euro is rebounding. The separation between the rich and poor is growing. Social media networking is greatly expanding. The Russian ruble has dropped 60 percent in value. of opportunities and threats and take appropriate actions. For example, in Table 1-2, rather than saying “Marketing is moving rapidly to the Internet,” strategists who take the time to do research would find, for example, that “spending on online advertisements globally rose about 25 percent in 2014, according to eMarketer, and represented about 39 percent of total advertising spending in the United States.12 Strategies must be formulated and implemented based on specific factual information to the extent possible—because so much is at stake in having a good game plan. External trends and events are creating a different type of consumer and consequently a need for different types of products, services, and strategies. Many companies in many industries face the severe threat of online sales eroding brick-and-mortar sales. A competitor’s strength could be a threat, or a rival firm’s weakness could be an opportunity. A basic tenet of strategic management is that firms need to formulate strategies to take advantage of external opportunities and avoid or reduce the impact of external threats. For this reason, identifying, monitoring, and evaluating external opportunities and threats are essential for success. This process of conducting research and gathering and assimilating external information is sometimes called environmental scanning or industry analysis. Lobbying is one activity that some organizations use to influence ex...

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