Strategic management global cultural perspectivesfor profit and non profit

PART ONE: AN OVERVIEW OF THE STRATEGICPLANNING PROCESS1. An Introduction to the Strategic Planning Process (SPP2. Contemporary Issues in the Strategic Planning ProcessPART TWO: STRATEGY FORMULATION3. External Strategic Audit4. Internal Strategic Audit5. Strategic Options—Corporate Level6. Strategic Choice Options—Business and Functional LevelsPART THREE: IMPLEMENTATION, EVALUATION AND CONTROL7. Implementing Strategies in the Business and Functional Levels8. Evaluation and Control in Strategic PlanningPART FOUR: THE STRATEGIC PLANNING PROCESS IN THE NONPROFIT SECTOR 9. A Strategic Planning Process (SPP) Model for the Nonprofit Sector10. Strategic Market for the Public and the Nonprofit SectorsPART FIVE: THE GLOBAL ENVIRONMENT11. A Framework of Global Strategic Planning12. Doing Business with Newly Emerging Market (NEM) Economies

Strategic Management Global Cultural Perspectives

for Profit and Non-Profit Organizations

M a r i o s I K a t s i o l o u d e s , P h D

Professor of Management School of Business and Management American University of Sharjah United Arab Emirates

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3 Globalization I Katsioloudes, Marios I Global strategic planning II Title.

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05 06 07 08 09 10 10 9 8 7 6 5 4 3 2 1

Famagusta, Cyprus, whose citizens have inspired and

challenged me throughout my life

Foreword x

Acknowledgments xiv

Introduction xv

PART ONE: AN OVERVIEW OF THE STRATEGIC PLANNINGPROCESS 1

1 An Introduction to the Strategic Planning Process (SPP) 3

Introduction 3 The Importance of Strategic Management and Planning 4 Dynamic Strategic Management Process 7 Important Terms in Strategic Management 8 Strategic Levels 14 Stakeholders and Stakeholder Management 20 Organizational Strategists 24 The Case for Planning 31 Cultural Influences on the Strategic Planning Process 31 The Strategic Importance of Understanding the Global Environment 32 Summary 33 Discussion Questions 33 Endnotes 34. 2 Contemporary Issues in the Strategic Planning Process 37

Introduction 37 Diversity: The Changing Workplace 38 Corporate Social Responsibility and Ethics 39 Benchmarking 46 Technology as a Strategic Weapon 47 Small Business and Entrepreneurship 50 Strategic Management in Nonprofit and Public Organizations 59 Overview of Global Strategic Planning 61 Summary 62 Discussion Questions 63 Endnotes 63.

vii

PART TWO: STRATEGY FORMULATION 67

3 External Strategic Audit 69

Introduction 69 SWOT Analysis 69 Environmental Scanning and the Value of Information 73 The Role of the Environment 76 The Concept of Strategic Groups 77 Industry Analysis 82 Forecasting 88 Industry Financial Averages 92 Summary 94 Discussion Questions 94 Endnotes 95. 4 Internal Strategic Audit 99

Introduction 99 SWOT Analysis 100 The Mckinsey 7-S Framework 104 The Balanced Scorecard 106 Porter’s Value Chain Approach 108 Functional Areas of the Business and Strategic Management 110 Organizational Structure 114 Organizational Culture 122 Financial Ratio Analysis 127 Summary 130 Discussion Questions 131 Endnotes 132. 5 Strategic Options—Corporate Level 135

Introduction 135 Corporate Strategy 135 Growth Strategies 136 Stability Strategy 149 Retrenchment Strategies 150 Portfolio Management Approaches 152 Niche Strategy 157 Summary 159 Discussion Questions 160 Endnotes 160. 6 Strategic Choice Options—Business and Functional Levels 165

Introduction 165 Business-Level Strategies 165 Porter’s Generic Competitive Strategies 170 The Importance of Risk Propensity in Strategic Decisions 176 The Impact of the Quality Movement 179 Functional Level Strategy 182 Summary 191 Discussion Questions 192 Endnotes 192. PART THREE: IMPLEMENTATION, EVALUATION AND CONTROL 197

7 Implementing Strategies in the Business and Functional Levels 199

Introduction 199 What Is Implementation? Why Is It So Important? 200 Programs, Budgets, and Procedures 202 Organization Structure as a Strategic Implementation Variable 204 Organizational Culture as a Strategic Implementation Variable 209 Managerial Leadership as a Strategic Implementation Variable 214 Summary 219 Discussion Questions 219 Endnotes 220.

Evaluation and Control in Strategic Planning 223

Introduction 223 The Importance of Strategic Control 224 The Process of Evaluating Strategies 228 Six Evaluation and Control Process Steps 234 Summary 239 Discussion Questions 240 Endnotes 240. PART FOUR: THE STRATEGIC PLANNINGPROCESS IN THE NONPROFIT SECTOR 243

9 A Strategic Planning Process (SPP) Model for the Nonprofit Sector 245

Introduction 245 Public-Private Distinctions and Strategic Management 248 Summary 266 Discussion Questions 267 Endnotes 267. 10 Strategic Market for the Public and the Nonprofit Sectors 269

Introduction 269 The Importance of Strategic Marketing 270 Profit versus Nonprofit Marketing 271 Marketing Research 274 Identification of Competitors 279 Fund Raising as a Strategic Marketing Technique 281 Are Marketing, Selling, and Development the Same? 286 Is Marketing Needed in the Nonprofit Organization? 288 Orientation Toward Marketing 289 Advertising 296 The Marketing Plan 303 Summary 306 Discussion Questions 306 Endnotes 307. PART FIVE: THE GLOBAL ENVIRONMENT 309

11 A Framework of Global Strategic Planning 311

Introduction 311 Overview of Global Strategic Planning 312 Global Political Economy: Foreign Direct Investment (FDI), Trade, Financial Flow, and Technology Transfer 314 FDI Prospects 320 Prospects for Major Host and Home Countries 322 The Role of the Transnational Corporations (TNCs) 323 The Strategic Planner in a Global Multicultural Environment 327 Summary 330 Discussion Questions 330 Endnotes 331. 12 Doing Business with Newly Emerging Market (NEM) Economies 333

Introduction 333 The Reform Process 335 Market Conditions and Strategic Management/Planning 356 Poland, Hungary, and the Czech Republic: Reform Process 368 Summary 372 Discussion Questions 372 Endnotes 373. Index 375

Hundreds, if not thousands, of books have been published on the subject

of strategic planning and the strategic planning process (SPP) Some of these books are highly theoretical in nature, while others are ‘‘how-to’’ primers Some of these books take a quantitative approach to the subject, while others take a general, conceptual approach Still other books, present rigid, structured, grid-like format

Among these thousands of books published on strategic planning, Global Strategic Planning; Cultural Perspectives for Profit and Nonprofit Organiza-tions uniquely achieves a delicate balance between the theoretical and the practical, the quantitative, and the conceptual approaches The author of this well-organized and highly readable book presents all of the classical elements

of strategic planning, including the most important aspect of strategic plan implementation

More, I believe what truly distinguishes and differentiates this book from many of its strategic planning counterparts is the inclusion of (as well as the emphasis on) the intangible (i.e., or the ‘‘soft’’) aspects of strategic planning, including the all-important concepts of globalization, leadership, and culture

If an organization’s board (as well as its senior and middle management) fail to focus on and achieve a deep understanding of these subjects and their importance, I believe that the SPP (and, even more importantly, the implementation of the plan itself), will ultimately fail

Before I comment further on globalization, leadership, and culture, allow

me to present some of my own views on strategic planning Never before has

it been more important for organizations (either for-profit or nonprofit) to engage actively and seriously in the SPP It is trite (yes, still true) change is more rapid than ever A strategic plan can and should be a template (i.e., a frame of reference) for an organization In a fast-changing world, opportuni-ties are more numerous than before, challenges arise without notice, and instant global communications accelerate the decision-making process Thus,

‘‘in the heat of battle when emotions and enthusiasms are high,’’ such opportunities and challenges must be overlayed against the ever-present

x

template of the organization’s strategic plan, to ascertain if there is a ‘‘good

fit,’’ or if there is any incongruity

The SPP and the implementation of the strategic plan forces each function,

each division, and each and every component of the organization ‘‘to think.’’

Thinking is very hard work that can, unfortunately, always be put off

to tomorrow Organizations must not-allow this to occur The SPP puts all

the pieces of the organization through a structured process, facilitated

by a common language that permits the examination (and the reexamination)

of all facets of the organizations The process serves to challenge

assumptions, common beliefs, and ‘‘givens,’’ as well as all those unwritten

‘‘sacred cows.’’

Further, the SPP is an excellent communications vehicle If managed

sensitively but strongly, the SPP can serve to improve both communication

and understanding between all parts of the organization Through a

skilfully-managed, well-executed SPP, ‘‘silos’’ become obvious to all and tend to

crumble

Now on to what I believe are the truly distinguishing aspects of this

book: globalization, leadership, and culture First, let me highlight this

book’s emphasis on globalization It is all too easy (if not glib) to say ‘‘we

are global,’’ ‘‘we are going global,’’ or ‘‘we run our businesses globally.’’ That

of the matter is that very, very few organizations truly are global and run

their businesses globally Many companies may have a significant amount

of business outside their ‘‘home country,’’ but that alone does not make them

global To be truly global and to truly run an organization globally (i.e.,

to think, act, plan, execute, and allocate resources within a global context) is

not only extremely difficult, but is also one of the biggest challenges facing

organizations today

Some questions about globalization that must be considered include all of

the following: Does the board and the senior management truly think and

act within the context of a ‘‘borderless world?’’ Does the composition of

the board include a significant number of members of different nationalities?

Do the board members have a good awareness and understanding of the

most important attitudes of the cultures of the major geographical regions

citizens of the countries within those regions? Is the majority of the research

and development (R&D) done in the ‘‘home country?’’ At the organization’s

headquarters, are there a significant number of second country nationals?

Does the allocation of capital reflect a global view and understanding? The

answers to these and many other questions will present a very clear answer

as to whether or not an organization is truly run globally

In addition to discussing globalization, this book also talks about

leadership, clearly highlighting its importance in the SPP, as well as in the

implementation of the strategic plan The author is eminently correct in

emphasizing the role of leadership within an organization If anything,

xi

leadership (or, perhaps, the lack of it), is the decisive factor in the degree of success or failure of the process, its implementation, and indeed of the business itself

Leaders are sine qua non for any successful enterprise Leaders do not fit

a mold or stereotype; the fact of the matter is, you will ‘‘know them when you see them.’’ Leaders come in all shapes and sizes—tall/short, thin/fat, young/old, great orators/not-so-great public speakers, etc But, the truly great organizations will also have great, well-admired leaders Among their array of attributes, great leaders will have a vision That vision will be communicated clearly and continuously, throughout the organization, and,

as a result, the leader will achieve enthusiastic ‘‘buy in’’ from all of the organization’s constituencies

Jack Welsh, Harold Geneen, Floris Maljers, Winston Churchill, Harry Truman, Charles de Gaulle, Conrad Adenauer, Alfred P Sloan, Henry Ford, Tom Watson, etc, are all great leaders Yet, each one is very different from all of the others Were any of these leaders specifically trained to be

a leader? One of a board’s most important (if not crucial) responsibilities is

to find the leaders of the future; to create and preserve a culture in which leaders are attracted, thrive, and rise the top An old saying applies, ‘‘cream rises to the top.’’ Management’s responsibility is to recognize it, preserve it, and promote it

In addition to the aspects of globalization and leadership, this book further focuses on culture Culture is a ‘‘soft’’ (or, intangible) element To my knowledge, this book is one of the few on strategic planning that gives significant attention and focus to culture within the context of strategic planning as a whole An awareness and understanding of the various cultures extant within an organization is crucial to the successful implementation

of the strategic plan

But, having said that, what exactly is culture? The author of this book defines very clearly culture; then, he goes on to describe its elements and attributes as applied to strategic planning Describing the culture of a com-pany (particularly a globally-oriented organization), is extremely difficult There are numerous cultures that exist within an organization (e.g., the cultures of the parent company, its regional subsidiaries, those within acquisitions and joint ventures, and also those of each of the countries in which the firm operates) Thus, in a global enterprise there are organizational cultures, as well as both country- and regional-specific cultures

A truly global organization (with a board and management composed of significant and broad-based diversity) is not merely aware of, but also under-stands and deals with the cultural issues day-in and day-out, as an integral part of managing the ongoing business There are very few organizations that

‘‘get it right.’’ However, those that do, have a tremendous competitive advantage

Organizations may not have world class abilities and performance in each

and every one of the functions and in each segment of their business; yet, they

can be world leaders in their industry How? It results from a leader with a

vision who communicates that vision clearly to each and every part of the

global organization and the management is representative of the various

nationalities and cultures encompassed within the business ‘‘Winning’’ (i.e.,

increased profits year after year) develops both pride and a ‘‘can-do’’ attitude

throughout the organization As a result, success is perpetuated, and a

company culture grows and thrives

In sum, this book presents a clear, comprehensive, very readable

exposi-tion of the SPP, as well as of the implementaexposi-tion of the strategic plan The

inclusion of globalization, leadership, and culture as integral components of

the process is what sets this book apart from many others The author

emphasizes that the culmination of the strategic planning exercise must be a

living, breathing, vibrant, useful, and relevant document—the strategic plan

itself The document should be used and referred to on an ongoing basis,

rather than just presented to the board once every five years for approval and

stashed away in a file cabinet to gather dust If the latter occurs, then

management (and the board) has failed in its leadership role, and, in fact, the

entire exercise may prove to be counterproductive to the organization as

a whole

I hope that you will take this opportunity to explore the SPP within the

context of globalization, leadership, and culture as presented in this book

You will not be disappointed!

James A Kennedy Formerly Chairman and Chief Executive Officer

National Starch & Chemical Company

This second edition, under its new title Strategic Management: Global Cultural Perspectives for Profit and Nonprofit Organizations, would have been impossible to research, update, and bring to its present form if it weren’t for the contributions of a number of individuals First, I would like to express

my sincere gratitude to Maggie Smith, Senior Editor of the Elsevier Group, for her guidance, patience, understanding, and encouragement throughout this process Furthermore, Maggie is to be credited with the new title of this text I would also like to thank Dennis McGonagle of the Elsevier Group for his overall assistance and direction during this revision

My gratitude also goes to Dr Robert Nale of Coastal Carolina University, South Carolina, for his contribution to the first, and in extent to the second, edition of the text Both editions are based on a 1997 text, Strategic Planning: Theory and Cases, which we coauthored

My appreciation also goes to Elena Gregoriou, my research assistant, at Intercollege, Nicosia-Cyprus, for her hard work, dedication, professionalism, and attention to detail I would also like to thank Devon Gabourel, a graduate student at Galen University, San Ignacio, Cayo District, in Belize for his assistance in finalizing the exhibits in this second edition

Finally, I would like to express my appreciation to all the individuals who have read and commented on both editions of this text: Dr Constantinos Markides of the London Business School, the U.K.; Mr Robert Hennessy of the National Starch & Chemical Company (retired); Dr Tunde Durosomo

of Wilmington, Delaware; Dr Susanne Weber of the Phillips University of Marburg, Germany; Mr Michael Sarris of the World Bank, Washington, D.C.; Dr Paul Kleindorfer of the Wharton School, University of Pennsylva-nia, Philadelphia, PA; Dr Tom Burns of the Organization and Management Group, Philadelphia, PA; and Dr George Baourakis of the Mediterranean Agronomic Institute of Chania, Crete-Greece

Last but not least, I would like to thank all my students who have studied strategy under my instruction throughout my academic career Their objectivity and criticism have been an inspiration and encouragement to continue to teach, research, and write on this topic Thank you all

xiv

Stated simply, the strategic planning process (SPP) helps organizations

identify what they intend to achieve and how they will go about achieving it

The magnitude of this challenge is greater today than ever before, and one is

reminded of the ancient curse: ‘‘May you live in interesting times!’’ Firms face

continuous pressures to become more competitive on many critical fronts

For one, the global economy represents a competitive arena, which

appears to increase both in size and complexity each day Also, our own

domestic economy is one, which is increasingly characterized by rapid

change During the past few years, such terms as restructuring, downsizing,

and rightsizing have become commonplace Another critical front

organiza-tions face—whether they are for-profit or nonprofit—is that of culture

Culture can be the national culture of the country in which the organization

operates in; culture can also be the organization’s own culture

Organiza-tional culture can either facilitate or hinder the SPP, as well as the

implementation of the strategic plan

All of this would seem to render strategic planning (at least, in some

people’s minds) rather unnecessary, since changes come much too quickly Of

course, I would argue that these situations make planning even more

important, albeit more difficult, to virtually all organizations In the final

analysis, a key to organizational success revolves around the ability of an

organization to offer products to customers, which they perceive as having

greater value This increases competitiveness and often enables the firm to

earn above-average profits

Of course, not all the answers are in this book Because the focus is

consistently on the SPP, though, I am hopeful that you (the educator, the

student, the executive, the planner) will be better able to develop a

frame-work within which you can identify and deal with as many situations as

possible

The uniqueness of this book is evidenced by the fact that, in addition to

the more types of traditional types of information on the SPP for the

for-profit sector, there is also a plethora of information regarding the process for

the nonprofit sector Most importantly, what distinguishes this book from

xv

other books on the market today, is the impact of culture (both national and organizational) from a global perspective and of organizational leadership on the SPP, whether in the for-profit or the nonprofit sector

My hope is that the pedagogical features presented are helpful to you As you will see, the approach is relatively simple throughout An introductory paragraph is presented and the text of the chapter then follows, with several discussion questions at the end, to help you recall the important points Within each chapter, I have tried to be straight-forward in my presentation, presenting examples, which are often drawn from current business publi-cations In addition, an Instructor’s Manual with a test bank is available to those educators intending to adopt the book for instruction Instructors can also use cases for analysis and discussion from the publisher’s website The chapter material in this textbook is divided into five parts, with a total

of 12 chapters Below is a brief summary of what I have covered in each part All chapters have a segment on the impact of culture on the SPP

Part One: An Overview of the Strategic Planning Process (SPP) includes two chapters In Chapter 1, I present the SPP, including the importance of vision, mission, the board of directors, objectives, strategies, the various stakeholders, and the strategic levels all within the SPP model In Chapter 2, I present information on social responsibility, business ethics, benchmarking, global strategies, the nonprofit sector, small business and entrepreneurship, and technology

Part Two: Strategy Formulation includes four chapters In Chapter 3, I address the external environment of the organization, introducing concepts such as opportunities and threats, environmental scanning, industry analysis, Porter’s five forces model, strategic groups, forecasting techniques, the general environment, industry financial averages, and the External Factor Evaluation and Competitive Profile matrices In Chapter 4, I discuss the internal environment of the organization as it pertains to the strengths and weaknesses, value chain, functional areas, organizational structure, organi-zational culture, financial ratio analysis, and financial ratio analysis In Chapter 5,1 introduce corporate-wide strategic options available to the organization, such as portfolio analysis, growth strategies, diversification strategies, joint ventures, mergers, acquisitions, and niche strategies In Chapter 6, I offer strategic choices at the business and functional levels of the organization The concepts addressed here are business level strategies, competitive advantage, Porter’s generic strategies, Strategic Business Units (SBUs), market life cycle, Total Quality Management (TQM), reengineering, and risk propensity

Part Three: Implementation, Evaluation, and Control in the Strategic Planning Process (SPP) consists of two chapters In Chapter 7, I address the implementation aspect of the SPP and discuss such topics as organizational culture and structure, leadership, budgets, programs, policies, and potential

implementation barriers that organizations might encounter In Chapter 8, I

deal with the evaluation and control aspect and address such topics as

performance measures, types of control, a strategy evaluation framework,

and common performance measurement problems

Part Four: The Strategic Planning Process (SPP) for the Nonprofit Sector

also consists of two chapters In Chapter 9,1 discuss the overall importance

of the SPP to nonprofits In that context, I differentiate between profit and

nonprofit organizations in terms of the SPP, discuss reasons for nonprofit

organizations engaging in strategic planning, and the importance of such

roles as volunteers and boards of directors In Chapter 10,1 extend my

coverage to the unique role that marketing plays in the nonprofit sector I

address the ways that nonprofit organizations attempt to market themselves,

various appropriate marketing strategies and how they differ between profit

and nonprofit organizations, and the strategic execution of fund-raising

Part Five: The Strategic Planning Process (SPP) in the Global Environment

consists of two chapters in which the nature of global competition and its

implications to the SPP is presented In Chapter 11, I provide a framework

for global strategic planning In Chapter 12, I address the strategic and

cultural implications of doing business in newly emerging market (NEM)

economies In that context, the importance of globalization is discussed, as

are some examples of how domestic companies face increasing global

competition The regionalization of international markets is also discussed

Finally, the importance of culture and cultural values is presented within the

context of global strategic planning In addition, contribution of the global

strategic planner to a successful strategic planning process is discussed within

the framework of the multicultural environment

This book’s approach to the strategic planning process is unique in that it

goes beyond the traditional application for the for-profit sector by addressing

issues for the nonprofit sector and global aspects of strategic planning Most

importantly, this book measures the impact of cultural, organizational,

national, and global issues, whether in the for-profit or the nonprofit sector,

and provides examples, exercises, and solutions to make this key part of

international management and strategic planning easier and more successful

Marios Katsioloudes, Ph.D

Professor of Management School of Business and Management American University of Sharjah

United Arab Emirates

An Overview

of the Strategic Planning Process

Tom Peters’s words illustrate a strategic management approach to what may

be a generally held fallacy on the part of many students who are taking

a course in strategic management There is a tendency to look at a successful

organization and conclude that since everything seems to be working well, no

changes are necessary—in other words, ‘‘If it ain’t broke, don’t fix it!’’ All

options cannot be chosen simultaneously, but sound reasons should underlie

why they are not being chosen The study of strategic management/planning

is largely about that kind of investigation

Further, it is about choosing courses of action in an integrated fashion and

continually ensuring that the course of action selected continues to be the

most appropriate one In other words, doing what you are (or have been)

doing may really be the best option, but you can only be sure of that

as a result of continuous investigation

The Importance of Strategic Management

and Planning

Before even attempting to offer a definition of what strategic planning is, it isimportant to state that when some organizations want to change, they planfor it, and this planned change is part of the overall management approach.Traditionally, management activities have been planning, organizing,recruiting, selecting, leading, communicating, relating, problem solving,decision making, negotiating, conflict utilizing, training, controlling, reward-ing, evaluating, and innovating But management is more than this, and it

is subject to continuous change R Alec Mackenzie takes a three-dimensionalview of the management process as it is presented in Exhibit 1.1 This modelfocuses on the basic elements of management activities: people, who createthe need for leadership to influence people to achieve desired objectives;things that create the need for administration; and ideas, which create theneed for conceptual thinking Three functions permeate the work process:problem analysis, decision making, and communication Then, we see thatthe other aspects of management flow from these components Successful

management is the integration of all the parts without neglecting the rest of

the functions Mackenzie envisions a sequential connection among many of

these elements: The objectives of an undertaking have been clearly stated, and

then planning and organizing follow, which lead to the need for staffing,

directing, and controlling in terms of the dynamic plan The cyclical

approach to management provides a unified concept for fitting together the

management activities, as well as for distinguishing leadership,

adminis-trative, and strategic planning functions Through this dynamic process, it

is likely that circles of activities could be added within this basic paradigm

as changes require them

Another point that needs to be made here is that each element in the

management process is culturally conditioned Thus, managerial activities

or interpretations of basic functions may differ from culture to culture This

is why business schools offer courses in international business, comparative

management, and so on and why several companies offer training sessions

that address cultural sensitivity issues and cross-cultural management

approaches

Like most people, you have probably worked somewhere during your life

as a student or as a practitioner, even if only part-time You might have held

jobs in retail sales, fast-food chains, restaurants, or the construction industry

As an employee, did you feel as if the organization had some sort of

a strategic plan for success? If so, did you understand how your specific job

was integrated into the organization’s grand scheme? While it may not have

been immediately obvious, such things as your job training and subsequent

performance analyses should have represented the organization’s strategic

direction, although unfortunately, that is not always the case.1

For example, if you worked as a waitperson in a restaurant, was your

objective to get the customers in and out quickly, or was it to encourage

a long eating cycle with appetizers and before- and after-dinner drinks?

Did the restaurant provide a relatively limited menu of certain kinds of foods,

or was it a buffet, intended to satisfy a wide range of customer tastes? Each

of these approaches implies a specific strategy followed by that organization

In considering these simple questions, you can begin to understand the

importance of strategic planning The organization has defined itself in terms

of what it wants to be and how it will compete within its industry As that

industry becomes increasingly complex, you can begin to appreciate just how

challenging this concept can be to even the most experienced managers

Ask yourself another question Are the organizations you worked for

still viable, ongoing businesses? If so, do they still operate in essentially

the same way they did when you worked there? If not, you can begin to see

just how much change has become a part of our everyday organizational

lives This decade has been characterized as one of ‘‘chaos’’ and ‘‘turbulence’’

for corporations.2 Furthermore, such terms as reengineering, mergers,

acquisitions, downsizing, rightsizing, revitalization, Total Quality ment (TQM), and paradigm shifts have become commonplace Strategicmanagement and planning provide a framework for seeking profitableways for the organization to adapt to change and, in many cases, anticipatethe change and make it work for them.

Manage-Even in the relatively rare cases where significant change is notexperienced, strategic management and planning give the organization

a framework in which to operate most efficiently and effectively in theirenvironment Although more terms will be defined more precisely later inthis chapter, for now the definition of strategic planning is the process

by which a system maintains its competitiveness within its work environment

by determining where the organization is, where it wants to go, and how

it wishes to get there.3In other words, strategic planning involves examiningwhat strategies will enable the corporation or association to prosper inthe future This definition applies equally to the largest profit-orientedorganization as it does to the smallest, nonprofit organization

Why Plan?

Is planning important? In some ways, it’s difficult to imagine anyone sayingthat it isn’t However, planning is an emotional experience for many people,and not always a particularly pleasant one Martin Gimpel and StephenDakin suggest that there is a fundamental paradox in human behavior thatrelates to planning: As the world becomes increasingly unpredictable, we tend

to seek out and rely upon forecasts and predictions to tell us what to do.4

If one thought about it a great deal, the sheer unpredictability of theworld might well render us virtually helpless and unable to deal with oureveryday existence In that context, planning may, at the very least, provide

us with the means of possibly uncovering elements of control, which weoverlooked previously In other words, trying to predict our future is superior

to giving up and allowing our future to simply happen to us

In an old television sports drink commercial, basketball star ShaquilleO’Neill discusses with his grandchildren the changes that have taken place inthe NBA He mentions a few things, which were challenging, but he says thatnothing was as difficult as the moving basket The commercial ends with himattempting a slam dunk shot in a basket, which moves suddenly at the lastsecond To some extent, businesses in many industries face a similar situation

in terms of rapidly shifting consumer demands, product innovation, andcompetition that is truly global, just to name a few Perhaps at no other timehas strategic planning been more relevant and critical to an organization’ssuccess Having the aforementioned in mind is important, but it is equallysignificant to state that while planning for change is advisable, we live in

a work culture marked by unpredictability, innovation, and very rapid

alteration of the status quo Consequently, in the twenty-first century, ultra

stability has to become an organizational norm—that is, building dynamic

change into the process, for greater planning flexibility

In the context of the emotional nature of planning mentioned earlier, it

may be that perhaps we are all overreacting a bit Henry Mintzberg, a noted

management and strategy scholar, points out that the planning literature has

bemoaned environmental turbulence for some time.5 In addition, he points

out that not only is the current decade described as turbulent, but the

previous decade (which had already been called turbulent) is redefined as

having been stable He points out that this has been evident in the planning

literature of the 1960s through and including the 1990s.6

Of course, this is really neither unusual nor unique to planning

Analogously, many of us remember our first automobile with great fondness,

even though at the time we might not actually have been all that fond of it As

cars became more sophisticated and our driving experiences more mundane

than adventurous, we look nostalgically to the ‘‘good old days.’’ In other

words, the memories of what we have experienced become filtered We may

not remember it inaccurately; we may simply remember the more positive

aspects This is also true for ‘‘turbulent times.’’ After all, we got through

them, so perhaps they weren’t really all that bad!

Mintzberg’s point is well taken, however, and should not be dismissed

The turbulence we experience is not imagined However, ‘‘while it was

planning that experienced the turbulence, it was the environment that

got labeled turbulent!’’7 We might be well advised to recognize the

limitations of an overemphasis on planning and consider developing an

overall ‘‘vision’’ rather than a precisely defined strategic plan In this sense, if

something unexpected happens, and history would suggest that it will, and

the organization’s vision is well developed, the organization will adapt to the

situation and learn from it ‘‘Put more boldly, if you have no vision but only

formal plans, then every unpredicted change in the environment makes

you feel like your sky is falling.’’8 As it will be discussed, this vision might

also be called, or at least reflected in, the organization’s mission

By now, you may have begun to see how complex this process can be

In order to help you make more sense of our discussion, a simple model

is presented that will hopefully give some structure to it all Then some

important terms and concepts will be presented and defined, and the pieces

of the model in the following four chapters will be developed

Dynamic Strategic Management Process

As you are undoubtedly aware, regardless of the level at which they exist,

strategies are not always successful Part of the explanation for this is that

others have strategies, too This means that your strategy cannot bedeveloped in a vacuum; it must be dynamic That being the case, weconceptualize strategic planning as a continuous process and define thedynamic strategic management process as one that involves the formulation

of a strategy, the implementation of the strategy, and the evaluation of thestrategy’s success This simple idea is illustrated in Exhibit 1.2

Important Terms in Strategic Management

by other store chains His success was of mammoth proportion, making

Dynamic Strategic Management Process

MISSION

GOALS

OBJECTIVES

STRATEGY EVALUATION AND CONTROL

STRATEGY IMPLEMENTATION

STRATEGY FORMULATION

Exhibit 1.3

Selected Mission Statements Merck & Co., Inc.

‘‘The mission of Merck is to provide society with superior products and services

by developing innovations and solutions that improve the quality of life and

satisfy customer needs, and to provide employees with meaningful work and

advancement opportunities, and investors with a superior rate of return.’’

www.merck.com/about/mission.html

Southwest Airlines

‘‘The mission of Southwest Airlines is dedication to the highest quality

of Customer Service delivered with a sense of warmth, friendliness,

individual pride, and Company Spirit.’’ www.southwest.com/about swa/

mission.html

Central Intelligence Agency (CIA) of the United States

‘‘We are the eyes and ears of the nation and at times its hidden hand We

accomplish this mission by:

 Collecting intelligence that matters.

 Providing relevant, timely, and objective all-source analysis.

 Conducting covert action at the direction of the President to preempt

threats or achieve United States policy objectives’’ www.cia.gov/cia/

information/mission.html

Google

‘‘Google’s mission is to organize the world’s information and make it

universally accessible and useful.’’ www.google.com/corporate/

Kodak

customers with the solutions they need to capture, store, process, output

and communicate images—anywhere, anytime We will derive our

competi-tive advantage by delivering differentiated, cost-effeccompeti-tive solutions—

including consumables, hardware, software, systems and services—quickly

and with flawless quality All this is thanks to our diverse team of energetic,

results-oriented employees with the world-class talent and skills necessary to

sustain Kodak as the world leader in imaging’’ www.kodak.com/US/en/corp/

careers/why/valueesmission.jhtml

Microsoft

‘‘At Microsoft, we work to help people and businesses throughout the world

realize their full potential This is our mission Everything we do reflects this

mission and the values that make it possible.’’ www.microsoft.com/mscorp/

Wal-Mart a major competitor to the more established Kmart, Sears,and J.C Penney.9

There may be a possible disadvantage of narrowly defining theorganizational mission in terms of the limiting effect it might have inchoosing strategic opportunities, as well as perhaps limiting the organiza-tion’s response to environmental changes There is perhaps no moreilluminating example of this than that presented by John Naisbitt in hisbook, Megatrends He suggested that railroads narrowly defined theirindustry as ‘‘railroading’’ rather than the broader, more comprehensivedefinition of ‘‘transportation.’’10His point was that this should have allowedthem to better compete with trucking and airline companies in the market oftransportation of both people and goods This comparison is not simply one

of semantics: Decisions related to such things, as scheduling and operationalefficiency would perhaps have been better thought out

A state-supported educational university with which the author is familiarproposed a change several years ago that involved the building of studentdormitories Prior to this, the school served commuter students exclusively

Exhibit 1.3 continued

Domino’s Pizza

‘‘Exceptional People On A Mission to Be The Best Pizza Delivery Company In The World: This is part of Domino’s ‘Vision and Guiding Principles’ including these statements:

 ‘We Demand Integrity

 Our People Come First

 We Take Great Care of Our Customers

 We Make Perfect 10 Pizzas Every Day

 We Operate With Smart Hustle and Positive Energy’ www.bized.ac.uk/ compfact/domino/dom8.html

BMW

‘‘BMW Group worldwide mission statement is: ‘To be the most successful premium manufacturer in the industry.’’ www.bmweducation.co.uk/coFacts/ view.asp?docID=26&topicID=1

easyJet

‘‘To provide our customers with safe, good value, point-to-point air services.

To effect and to offer a consistent and reliable product and fares appealing to leisure and business markets on a range of European routes To achieve this

we will develop our people and establish lasting relationships with our suppliers.’’ www.easyjet.com/EN

As the university grew, it decided that providing space for resident students

would be the next logical step in its growth and applied to the state for

permission to begin raising funds and identifying designs for the buildings

The state maintained that no approval could be granted until the institution

first rewrote its mission statement At that time, students in the author’s

business policy course found that requirement, while important, to be an

unnecessary impediment to beginning the process What the state had in

mind, however, was of critical importance They wanted to ensure that the

institution had thought through all of the implications that such a move

entailed Such things as security personnel, food service, and laundry

facilities, for example, were completely inadequate for a resident student

population In other words, the school needed to redefine its business in

such a way that these and other items were explicitly addressed

Precisely what should organizations in general address in their mission

statement? Fred David suggests that there are nine questions that should

be answered by the firm’s mission:11

1 Who are your customers?

2 What are your major products or services?

3 Where do you compete?

4 Is technology a primary concern?

5 Are you committed to economic objectives?

6 What are your organizational philosophies?

7 What are your distinctive competencies or major competitive

advantages?

8 Is your public image a major concern?

9 What is your firm’s attitude toward employees?

Answering these questions should, at the very least, assist management in

understanding what the organization is all about As one might hope,

research does tend to support the intuitive conclusion that a comprehensively

developed mission statement is generally associated with high-performing

organizations.12

As you examine the mission statement examples in Exhibit 1.3,

ask yourself how many of these questions have been answered by the

companies listed As an example, does easyJet’s mission statement give any

indication of their attitude toward employees? At first glance, one might

say no As you will see, though, employees are an important component

of an organization’s constituents Viewed in that context, the phrase ‘‘we

will develop our people’’ represents an approach that is certainly suggestive

of the firm’s responsive employee attitude

Before leaving this important area, perhaps one additional example would

be illustrative Consider the activities of Sears—before being acquired by

Kmart in 2005—over the past several years It could be argued that theyhave defined and redefined themselves a number of times with regard to theircustomers, product lines, market, and distinctive competencies Seeingthemselves as direct competitors to Kmart and Wal-Mart, they tried

a discount pricing approach.13 When this proved to be unsuccessful, theyreturned to their previous pricing structures but pared down their wideproduct line availability.14 Finding themselves unable to react to rapidchanges in the industry, they undertook massive restructuring.15 Mostrecently, they have significantly changed their traditional catalog sales as

a major part of their operation.16

Sears was once known as the place ‘‘where America shops.’’ Throughoutthese organizational changes, though, it became difficult for customers

to determine exactly what Sears was and what market they served

As a result, market share and profitability suffered.17 While their problemscannot be tied completely to their mission statement, it does appear thatmore careful attention to the nine critical mission statement componentsmight have served them somewhat better

Goals and Objectives

Goals are defined as open-ended statements of planned accomplishment,while objectives are defined as being the desired end result of thisplanned accomplishment The terms are often confused with each other,but they are most certainly not the same things Simply stated, objectivesprovide specificity generally lacking in a statement of goals For example,during the 1980s, Toyota spoke of a goal known as ‘‘Global 10,’’ whichwas to capture one-tenth of the world’s auto market Its more specificobjective (though still in line with its goal) was to sell 6 million cars bythe year 2000.18

If objectives provide specificity for goals, goals might be said to providefocus for the organization’s mission statement If the organization is profit-oriented, these goals should in some way be aimed at creating profit for theowners At one time, this focus might have been characterized as oneintended to maximize shareholder wealth A more precise view here might bemaximizing shareholder wealth within organizational and environmentalconstraints A number of these constraints will be introduced shortly andexpanded upon in a later chapter A principal means of measuring success

in this area is often thought to be the firm’s return on investment (ROI).There is a danger, however, in too strong a reliance on ROI, which hasbeen pointed out by many management scholars over the years At the veryleast, ROI might easily create pressures for the organization to invest its timeand resources in activities that produce benefits in the short run, often at the

expense of the long run To help the organization guard against this potential

problem, Peter Drucker recommends that the firm adopt secondary goals

in a number of areas: market share, innovation, productivity, physical

and financial resources, manager performance and development, worker

performance and attitude, and social responsibility.19

As an example of how these three pieces might fit together, Exhibit 1.4

presents a portion of an organization’s mission, one logical goal that might

flow from that mission and four objectives that would be related to achieving

that goal

In this brief example, both your organizational goals and objectives can

be seen as defining what you wish to accomplish and when you wish to

accomplish it While such statements are important for providing focus,

one should immediately realize that there is a critical omission: how you

wish to accomplish this This missing piece is your strategy

Strategy

In its simplest terms, the word strategy refers to the method of achievement,

a planned operation in the execution of a project A more comprehensive

definition of organizational strategy might be a match between the

organization’s internal capabilities and its external relationships.20 This

definition takes into account the organization’s mission, objectives, and

goals In the simple example just offered, your sales increase strategy might

include such things as remaining open longer, increasing the distribution

of your product, and heavier promotion In other words, your strategies will

be chosen in terms of how they will help you to achieve the things, thatyou have identified as important and vital to your success.

Of course, you encounter examples of strategies every day in manydifferent contexts If an organization’s goal is to increase the diversity of itsworkforce in the coming year, objectives will need to be established in terms

of their current situation and what they would like it to become If they feel,for example, that women are underrepresented in management, theirobjective might be that at least five qualified women should be hired and/

or promoted to management during the next twelve months Strategies might

be chosen in such a way as to improve their selection processes, their trainingand development processes, and their recruitment activities

Perhaps strategies developed in organizations can be more easilyconceptualized if one looks at them in terms of their scope This can beillustrated by examining still another facet of organizational strategy:strategic level

Strategic Levels

Organizations are often graphically represented as pyramids with topmanagement, middle management, first-line managers, and nonmanagerialemployees in descending order As shown in Exhibit 1.5, a variation will beused on that characterization to represent the three levels of organizationalstrategic planning: corporate level, business level, and functional level

As you see, this is an inverted pyramid and represents the relative scope

of the strategies generally addressed at each level

Strategic Levels

CORPORATE LEVEL

BUSINESS LEVEL

FUNCTIONAL LEVEL

Corporate Level

At the corporate level, strategies tend to have the broadest scope It is at

this level, for instance, where the organization’s statement of its mission

would be accomplished Determining what business the organization is in

would obviously suggest a strategic focus After all, we need to know what

we are all about before we can begin to decide what we want to do The

organization makes an important initial determination here with regard to

what industry (or industries) it intends to compete with This is often referred

to as the organization’s grand strategy, which is defined by John A Pearce

as being the comprehensive plan by which the firm intends to achieve

its objectives.21 This concept, as well as a number of other activities

involved at this level, will be addressed in chapters that follow

Business Unit Level

Once established, the business level sets strategies related to ensuring that

the organization is competing or performing within the areas delineated in

the mission At this level, one can conceptualize the organization in terms

of strategic business units or, as they are more commonly known, SBUs

The notion of SBUs has to do with the grouping of a firm’s similar products

or services, as well as the number of industries in which the firm competes,

and follows closely the organization’s diversification We will discuss this

concept, as well as other related activities associated with decisions at the

business level, later

Functional Level

The functional level relates to the strategies employed in the various

functional areas (i.e., human resources, production, marketing, finance,

research and development, etc.) of the organization As we are sure you have

learned in previous courses, the contemporary view of organizations is that

they are systems of interrelated parts, so it should come as no surprise to find

that functional strategies, although developed within these different areas,

are also interrelated Managers must analyze and develop strategies in

the context of how they will affect, or be affected by, other functional areas

in achieving overall organizational goals and objectives

As an example, have you ever been motivated to buy a product you have

seen advertised on sale and found that it was out of stock? On a relatively

small scale, this is exactly the interrelationship we are discussing In this case,

the marketing department, in an attempt to increase sales, advertised the

product at a reduced price Production may not have manufactured enough

of the product in anticipation of demand, or the purchasing department may

have failed to secure enough of the product (or raw materials) In anticipation

of fall semester orientation and registration at your institution, what would

be the effect of the Human Resources department failing to hire a sufficientnumber of temporary (or perhaps even student) workers to handlethe increased workload? This strategy at this level of the organization will

be discussed in more detail in a later chapter

Strategy Formulation

How do we go about formulating strategies? In an organizationalenvironment, who is actually responsible for strategy formulation? Whatshould we address in our strategy? These questions are important, both toask as well as to answer Recognition of the complexity of the strategicmanagement process is an important first step toward formulating strategiesthat will ultimately be appropriate for our needs In approaching strategyinitially, the organization needs to establish a base from which realistic andachievable plans can be formulated At the foundation of such a base is theorganization’s evaluation of their strengths, weaknesses, opportunities, andthreats This analysis is generally referred to as a SWOT analysis

Although this will be discussed in later chapters, you might see a relativelyobvious means of categorizing these elements For instance, you probablyhave a good intuitive feel for what strengths and weaknesses are Further,you probably realize that examining both constitutes an internal analysis.These are the things that exist within the organization over which they mayexercise some degree of control What might be somewhat less clear, though

no less accurate, is that an examination of opportunities and threats is

an external analysis Similarly, these are things that are outside of theorganization and largely outside of their control as well

For instance, as the Malcolm Baldrige National Quality Award (U.S.government’s annual award for quality in manufacturing, service, smallbusiness, education, and health care) winners, Boeing, Cadillac, FederalExpress, IBM, Xerox, Motorola, and others have all established product/service quality as definite strengths.22Hallmark, on the other hand, has seenits market share erode as the buying habits of its consumers have shiftedaway from specialty shops to discounters, supermarkets, and other one-stopshopping areas Recognizing an apparent weakness in distribution, Hallmark

is investigating the implications of a move away from their traditionalcard shops.23

Seeing that acid cleaning of finished steel was a market being abandoned

by the big steelmakers, World Class Processing—a company in Pennsylvaniathat processed steel for a fee—saw an opportunity to serve that marketniche profitably They are now considering opening additional plants in the

United State and Mexico.24 Tobacco companies, on the other hand,

increasingly see threats regarding the safety of cigarettes, as well as a hefty

per-pack tax (the so-called ‘‘sin tax’’) to help fund universal health care costs

Philip Morris, one of the major companies in the industry, has taken a

number of steps related to dealing with this threat, including diversification

into ‘‘safer’’ industries, contributions to the arts designed to improve their

corporate image, and a $10 billion lawsuit against ABC for accusing them of

lacing cigarettes with extra nicotine to make them more addictive.25 What

one aims for, of course, is developing strategies designed to maximize

strengths, minimize weaknesses, capitalize on opportunities, and deal

proactively with threats

Intuition in Strategy Formulation

No discussion of strategy formulation and planning is complete without

addressing the important topic of intuition Webster’s defines intuition as

‘‘the supposed power of the mind to grasp a truth without recourse to reason;

knowledge by quick apprehension.’’26A strict interpretation of this definition

describes what is often thought (perhaps incorrectly) to be the quintessential,

intuitive, ‘‘fly by the seat of the pants,’’ action-oriented manager This is an

image that seems to have a very positive cultural appeal to many people

From the standpoint of strategic planning, though, perhaps that might not

be the preferred mode of operation

So how should intuition enter into strategy formulation? Perhaps a better

question might be, should intuition be a part of strategy formulation? What

would one hope to gain with the addition of intuition in the formulation

stage of the strategic planning process? The need for conceptual skills at the

top management layer of the organization is well known.27 This so-called

‘‘big picture’’ orientation might be enhanced by the intuitive manager’s

ability to ‘‘distill tangible and intangible factors and to see the forest without

getting lost in the trees.’’28

There is a tendency to assume that since intuitive decision making ought to

be relatively quick, we are at least able to avoid the kinds of problems related

to an overanalysis of a situation Also, within today’s turbulent, chaotic

business environment, an intuitive strategist might well see some important

intangible factor that our normal quantitative analyses, no matter how

comprehensive, might consider insignificant In this sense, it seems somewhat

paradoxical, but as our quantitative models become increasingly

sophisti-cated, intuitive analyses may actually become more critical This is not,

however, to suggest that strategists should ignore or even discount

quantitative analyses: Intuition is neither the opposite of quantitative analysis

nor an attempt to eliminate quantitative analysis.29

If the preceding statement is true, then exactly what is intuition in theorganizational sense? In an examination of the literature, Orlando Behlingand Norman Eckel found six different conceptualizations of managerialintuition These conceptualizations saw intuition as a paranormal power orsixth sense (similar to the dictionary definition presented earlier); apersonality trait; an unconscious process; a set of actions; distilled experience;and an implied, residual category.30 They discount the paranormal/sixthsense and residual categories, but the very existence of the remaining fourpresents a challenge in terms of how an organization might wish to providetraining in the development of intuition, should it wish to attempt tocapitalize on any possible advantages.

In examining the potentially negative aspect of intuitive decision making,Paul Schoemaker and J Edward Russo suggest that there are two commonflaws in intuitive decisions that must be considered.31First, intuitive decisionssuffer from inconsistency Decision makers fail to realize how much suchthings as memory, distractions, and fatigue can influence their application ofcriteria from one time to another Second, intuitive decisions may reflect adistortion of information (i.e., an over- or underrepresentation of certainthings), depending on how available the information is, when you areexposed to it, and so on Their point is that these flaws increase the likelihoodthat intuitive judgments will be suboptimal

Perhaps suggesting a contingency approach can summarize the pros andcons of intuitive decisions There will surely be decisions where time is veryshort and/or situations where a thorough analysis is neither feasible norpossible On such occasions, strategists must make rapid judgment callsabout the organization’s direction, which are impossible to justify, at least in

a quantitative sense This, of course, would call for an intuitive decision.When the situation lends itself relatively well to a quantitative analysis andtime pressures are not as critical, perhaps intuition should play a minor(if any) part in the decision Following the conceptualization of intuition asdistilled experience mentioned earlier, one would assume that the moredecisions managers make in their rise through the organization, the morethey will develop their intuitive powers

Related to the preceding point, Stephen Harper reports an example fromIBM A young manager was given the responsibility of overseeing a majorproject, which turned out to be a disaster When Thomas Watson, Jr calledthe manager into his office, he asked him if he knew why he had been called

in The young manager said, ‘‘To be fired!’’ Watson replied, ‘‘Fired? We can’tafford to let you go We just gave you a $10 million education We want you

to stay around and show what you learned!’’32 If we assume that intuitioncan produce beneficial leaps beyond strict quantitative analysis and that itseems to be a skill that can be developed, the implication for its place inthe strategic planning process would seem to be that it can be a valuable

part Logic would also seem to suggest that it should be just that: a part

of the process

One should not presume that it is an either/or situation Intuitive and

quantitative analysis should be thought of as forming two distinct parts of

a total analysis In the contingency framework, neither should be dominant

when both are available The most successful strategies are likely to be

those that integrate the two

Strategy Implementation

The implementation of strategy is arguably the most important stage in

the process for one reason: Without successful implementation, an

organization’s strategy is really nothing more than a fantasy.33 In fact, one

could very convincingly argue that implementation should not be a separate

part of the process at all Rather, it should be considered explicitly in the

formulation stage so that any resulting strategy is in fact implementable.34

To demonstrate the close connection these two stages must have, we

have positioned this particular stage adjacent to the formulation stage in

our model

The implementation stage will be addressed in greater detail in a later

chapter, but it is clearly the point at which the organization’s strategies and

policies are translated into action Steven Floyd and Bill Woolridge suggest

that a strategic consensus, whereby managers at different levels share

understanding and common commitment to the strategy, will aid in its

implementation.35 Demonstration of this understanding and commitment

often involves a refinement of the strategies into programs, budgets, and

procedures A program is simply a statement of the activities necessary for

accomplishing the strategy, a budget is a statement of the program in terms

of dollars, and procedures are the sequential steps that describe (often in

great detail) precisely how a particular task is to be accomplished.36

Strategy Evaluation and Control

Finally, the evaluation and control stage of the process is the point at which

the results of a given strategy are monitored In this fashion, changes can

be made where appropriate From a learning standpoint, strategists

and planners can get an idea what has gone as expected, what hasn’t, and

why Although this aspect will be addressed in more detail in a later chapter,

let us consider a brief example

In 1991, Kmart established a goal of reaching $35 billion in discount store

sales by 1996 By 1994, they had grown at less than half the rate necessary to

achieve that goal Their strategy has been to keep some specialty retail stores

(like Builders Square) and to modernize their core discount stores.37During

1991, as part of the new plan, Kmart opened the first Kmart Supercenter inMedina, Ohio, offering a full-service grocery along with general merchandisetwenty-four hours a day, seven days a week There seems to be little questionthat results have fallen short of expectations, but the explanation is lessclear The new stores are an improvement over the old ones, and pricingseems appropriate The answer may be in the level of service provided

by Kmart’s employees (associates) and the leadership provided by chairmanJoseph Antonini The Kmart associates, long known for their willingness

to help and cheerful demeanor, may actually be a deciding factor.38

If this is true, what should Kmart’s response (i.e., control) be? At thevery least, one would assume that the corporate goals should be recast toreflect reality If $35 billion in sales was unrealistic by 1996, what figurewas achievable? If customer service was a problem, new training programsneeded to be identified and implemented At that point, the organizationshould carefully monitor progress toward the new sales goal to determinewhether these corrections are effective While this is by no means an easyprocess to complete, it is nevertheless an important one Between 1996and early 2000 Kmart had its ups and downs, especially ‘‘feeling’’ the threatfrom rivals Wal-Mart and Target Dismal holiday sales and the erosion ofsupplier confidence led Kmart to file for Chapter 11 bankruptcy in 2002

It emerged from Chapter 11 in 2003 and then acquired Sears in 2005,forming both chains’ new parent, Sears Holdings

Stakeholders and Stakeholder Management

Stakeholders (or constituents) are those individuals and organizations thatdirectly and indirectly influence, or are influenced by, the organization’soperation Some fairly obvious examples of stakeholders in the context ofthe definition are such groups as suppliers, customers, the local community,the government, competitors, and, as we suggested earlier, employees Each

of these groups can be seen as having influence on, or being influenced by,what the organization does James Bowditch and Anthony Buono suggestthat in a narrow sense, stakeholders are the individuals or groups onwhich the organization is dependent for its survival.39A glance at Exhibit 1.6should help persuade you that this is not an overstatement The relativeextent to which each stakeholder’s influence is perceived to be important,

of course, helps determine how the concerns of these groups should beintegrated in the strategy formulation

Stakeholder management is defined as managing the organization inrecognition of the fact that success depends on the contributions of itsstakeholders, and management’s goal should be to create value and further

the interests of all its stakeholders.40 In theory, the organization managed

with its stakeholders in mind should reap a number of benefits For example,

employees will be more willing to make sacrifices, suppliers might be more

inclined to provide the best prices and quality, and customers should develop

greater loyalty and provide better feedback.41This should, in turn, translate

into greater investor interest and activity as such firms translate these benefits

into performance Although the stakeholder approach may seem rather

simplistic and/or unrealistic, it is not By way of a simple illustration, try to

list the various stakeholders for the college or university you attend

Obviously, you, as a student, certainly are a part of one of the most

important groups The community in which your institution exists would be

another one As with virtually all organizations, the government (state and

federal) is an important one as well This is especially true if your institution

is government-supported Faculty, alumni, staff personnel, and so forth

would be others Suppose your institution decided to make a drastic change

in its curriculum Which stakeholder group’s concerns would be most

important? Which would be second most important, and so on?

Of course, no answer to these questions can be absolutely correct,

although you might have answered that the student concerns ought to take

precedence If so, why would you think that? The answer lies in your intuitive

ordering of stakeholders into priorities This allows the organization to be

Stakeholders

Customers

Board of Directors

Special Interest Groups

Competitors

Management

Distributors Suppliers

Unions

Creditors

ORGANIZATION

Trade Associations

Employees Community

Government (State, Local, Federal)