Strategy management and business policy globlization innovation and sustainability 14th global edtion

Strategy management and business policy globlization innovation and sustainability 14th global edtion Strategy management and business policy globlization innovation and sustainability 14th global edtion Strategy management and business policy globlization innovation and sustainability 14th global edtion Strategy management and business policy globlization innovation and sustainability 14th global edtion Strategy management and business policy globlization innovation and sustainability 14th global edtion Strategy management and business policy globlization innovation and sustainability 14th global edtion Strategy management and business policy globlization innovation and sustainability 14th global edtion

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Strategic Management and business Policy

Globalization, Innovation, and Sustainability

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FOURTEENTH EDITION

Strategic Management

Policy

GLOBALIZATION, INNOVATION, AND SUSTAINABILITY

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Thomas L Wheelen

Formerly with University of Virginia,

Trinity College, Dublin, Ireland

J David Hunger

Iowa State University,

St John’s University

Policy

GLOBALIZATION, INNOVATION,

AND SUSTAINABILITY

Boston Columbus Indianapolis New York San Francisco Upper Saddle River

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FOURTEENTH EDITION

Alan N Hoffman

University of Notre Dame

GlObal EDITION

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Brief Contents

C H A P T E R 1 Basic Concepts of Strategic Management 36

C H A P T E R 2 Corporate Governance 74

C H A P T E R 3 Social Responsibility and Ethics in Strategic Management 102

C H A P T E R 4 Environmental Scanning and Industry Analysis 124

C H A P T E R 5 Internal Scanning: Organizational Analysis 160

PART THREE Strategy Formulation 195

C H A P T E R 6 Strategy Formulation: Situation Analysis and Business Strategy 196

C H A P T E R 7 Strategy Formulation: Corporate Strategy 218

C H A P T E R 8 Strategy Formulation: Functional Strategy and Strategic Choice 248

PART fOUR Strategy Implementation and Control 277

C H A P T E R 9 Strategy Implementation: Organizing for Action 278

C H A P T E R 1 0 Strategy Implementation: Staffing and Directing 308

C H A P T E R 1 1 Evaluation and Control 336

PART fIVE Introduction to Case Analysis 365

C H A P T E R 1 2 Suggestions for Case Analysis 366

PART SIx Cases in Strategic Management 393

GLOSSARY 803

NAmE INDEx 815

SUBJECT INDEx 820

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About the Authors 31

C H A P T E R 1 Basic Concepts of Strategic Management 36

The Study of Strategic Management 38

Phases of Strategic Management 38Benefits of Strategic Management 39

Globalization, Innovation, and Sustainability: Challenges to Strategic Management 41

Impact of Globalization 42Impact of Innovation 43

Global Issue: REGIONAL TRADE ASSOCIATIONS REPLACE NATIONAL TRADE BARRIERS 43

Impact of Sustainability 44

Theories of Organizational Adaptation 45 Creating a Learning Organization 46 Basic Model of Strategic Management 47

Environmental Scanning 48Strategy Formulation 50Strategy Implementation 53Evaluation and Control 55Feedback/Learning Process 55

Initiation of Strategy: Triggering Events 56 Strategic Decision Making 57

What Makes a Decision Strategic 57Mintzberg’s Modes of Strategic Decision Making 58Strategic Decision-Making Process: Aid to Better Decisions 59

The Strategic Audit: Aid to Strategic Decision Making 60

End of Chapter Summary 61APPENDIx 1.A Strategic Audit of a Corporation 66

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C H A P T E R 2 Corporate Governance 74

Role of the Board of Directors 77

Responsibilities of the Board 78Members of a Board of Directors 80Innovation Issue: JCPENNEY AND INNOVATION 81

Strategy Highlight: AGENCY THEORY VERSUS STEWARDSHIP THEORY

IN CORPORATE GOVERNANCE 83

Nomination and Election of Board Members 86Organization of the Board 87

Impact of the Sarbanes–Oxley Act on U.S Corporate Governance 88

Global Issue: GLOBAL BUSINESS BOARD ACTIVISm AT YAHOO! 90

Trends in Corporate Governance 91

The Role of Top Management 92

Responsibilities of Top Management 92

Sustainability Issue: CEO PAY AND CORPORATE PERfORmANCE 93

End of Chapter Summary 96

C H A P T E R 3 Social Responsibility and Ethics in Strategic Management 102

Social Responsibilities of Strategic Decision Makers 104

Responsibilities of a Business Firm 104Sustainability 107

Corporate Stakeholders 108

Sustainability Issue: mARKS & SPENCER LEADS THE WAY 108

Strategy Highlight: JOHNSON & JOHNSON CREDO 111

Ethical Decision Making 111

Some Reasons for Unethical Behavior 112

Global Issue: HOW RULE-BASED AND RELATIONSHIP-BASED GOVERNANCE SYSTEmS AffECT ETHICAL BEHAVIOR 113

Innovation Issue: TURNING A NEED INTO A BUSINESS TO SOLVE THE NEED 115

Encouraging Ethical Behavior 116 End of Chapter Summary 118

C H A P T E R 4 Environmental Scanning and Industry Analysis 124

Environmental Scanning 126

Identifying External Environmental Variables 126

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Sustainability Issue: GREEN SUPERCARS 128

Global Issue: SUVs POWER ON IN CHINA 136

Identifying External Strategic Factors 137

Industry Analysis: Analyzing the Task Environment 138

Porter’s Approach to Industry Analysis 138Industry Evolution 142

Innovation Issue: TAKING STOCK Of AN OBSESSION 143

Categorizing International Industries 143International Risk Assessment 144Strategic Groups 144

Strategic Types 146Hypercompetition 146Using Key Success Factors to Create an Industry Matrix 147

Competitive Intelligence 148

Sources of Competitive Intelligence 149

Strategy Highlight: EVALUATING COmPETITIVE INTELLIGENCE 150

Monitoring Competitors for Strategic Planning 151

Forecasting 152

Danger of Assumptions 152Useful Forecasting Techniques 152

The Strategic Audit: A Checklist for Environmental Scanning 154 Synthesis of External Factors—EFAS 154

C H A P T E R 5 Internal Scanning: Organizational Analysis 160

A Resource-Based Approach to Organizational Analysis 162

Core and Distinctive Competencies 162Using Resources to Gain Competitive Advantage 163Determining the Sustainability of an Advantage 164

Business Models 166 Value-Chain Analysis 167

Industry Value-Chain Analysis 168Corporate Value-Chain Analysis 169

Scanning Functional Resources and Capabilities 170

Basic Organizational Structures 171Corporate Culture: The Company Way 172

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Global Issue: mANAGING CORPORATE CULTURE fOR GLOBAL COmPETITIVE ADVANTAGE: ABB VS PANASONIC 174

Strategic Marketing Issues 174Innovation Issue: DOCOmO mOVES AGAINST THE GRAIN 176

Strategic Financial Issues 177Strategic Research and Development (R&D) Issues 178Strategic Operations Issues 180

Strategic Human Resource (HRM) Issues 181

Sustainability Issue: THE OLYmPIC GAmES—SOCHI 2014 AND RIO 2016 184

Strategic Information Systems/Technology Issues 185

The Strategic Audit: A Checklist for Organizational Analysis 187 Synthesis of Internal Factors 187

PART THREE Strategy Formulation 195

C H A P T E R 6 Strategy Formulation: Situation Analysis and Business Strategy 196

Situational Analysis: SWOT Approach 198

Generating a Strategic Factors Analysis Summary (SFAS) Matrix 198Finding a Propitious Niche 199

Review of Mission and Objectives 202 Business Strategies 203

Porter’s Competitive Strategies 203

Global Issue: THE NIKE SHOE STRATEGY VS THE NEW BALANCE SHOE STRATEGY 205

Innovation Issue: CHEGG AND COLLEGE TExTBOOKS 208

Cooperative Strategies 209

Sustainability Issue: STRATEGIC SUSTAINABILITY—ESPN 210

C H A P T E R 7 Strategy Formulation: Corporate Strategy 218

Corporate Strategy 220 Directional Strategy 220

Growth Strategies 221

Strategy Highlight: TRANSACTION COST ECONOmICS ANALYZES VERTICAL GROWTH STRATEGY 225

International Entry Options for Horizontal Growth 226

Global Issue: GLOBAL ExPANSION IS NOT ALWAYS A PATH TO ExPANSION 226

Controversies in Directional Growth Strategies 230

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Stability Strategies 231Retrenchment Strategies 232

Portfolio Analysis 234

BCG Growth-Share Matrix 234

Sustainability Issue: GENERAL mOTORS AND THE ELECTRIC CAR 236

Advantages and Limitations of Portfolio Analysis 237Managing a Strategic Alliance Portfolio 238

Corporate Parenting 239

Innovation Issue: TO RED HAT OR NOT? 239

Developing a Corporate Parenting Strategy 240Horizontal Strategy and Multipoint Competition 241 End of Chapter Summary 241

C H A P T E R 8 Strategy Formulation: Functional Strategy and Strategic Choice 248

Functional Strategy 250

Marketing Strategy 250Financial Strategy 251Research and Development (R&D) Strategy 253Operations Strategy 254

Global Issue: WHY DOESN’T STARBUCKS WANT TO ExPAND TO ITALY? 255

Purchasing Strategy 256

Sustainability Issue: HOW HOT IS HOT? 257

Logistics Strategy 258Innovation Issue: WHEN AN INNOVATION fAILS TO LIVE UP TO ExPECTATIONS 258

Human Resource Management (HRM) Strategy 259Information Technology Strategy 259

The Sourcing Decision: Location of Functions 260 Strategies to Avoid 263

Strategic Choice: Selecting the Best Strategy 263

Constructing Corporate Scenarios 264The Process of Strategic Choice 269

Developing Policies 270

C H A P T E R 9 Strategy Implementation: Organizing for Action 278

Strategy Implementation 280 Who Implements Strategy? 281

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What Must Be Done? 282

Developing Programs, Budgets, and Procedures 282

Sustainability Issue: A BETTER BOTTLE—ECOLOGIC BRANDS 283

Achieving Synergy 286

How Is Strategy to Be Implemented? Organizing for Action 287

Structure Follows Strategy 287Stages of Corporate Development 288Innovation Issues: THE P&G INNOVATION mACHINE STUmBLES 289

Organizational Life Cycle 292Advanced Types of Organizational Structures 294Reengineering and Strategy Implementation 297Six Sigma 298

Designing Jobs to Implement Strategy 299

International Issues in Strategy Implementation 300

International Strategic Alliances 300Stages of International Development 301

Global Issue: OUTSOURCING COmES fULL CIRCLE 302

Centralization Versus Decentralization 302 End of Chapter Summary 304

C H A P T E R 1 0 Strategy Implementation: Staffing and Directing 308

Staffing 310

Staffing Follows Strategy 311Selection and Management Development 313Innovation Issue: HOW TO KEEP APPLE “COOL” 313

Problems in Retrenchment 315International Issues in Staffing 317

Leading 319

Sustainability Issue: PANERA AND THE “PANERA CARES COmmUNITY CAfÉ” 319

Managing Corporate Culture 320Action Planning 324

Management by Objectives 326Total Quality Management 326International Considerations in Leading 327

Global Issue: CULTURAL DIffERENCES CREATE ImPLEmENTATION PROBLEmS IN mERGER 329

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C H A P T E R 1 1 Evaluation and Control 336

Evaluation and Control in Strategic Management 338 Measuring Performance 338

Appropriate Measures 338Types of Controls 339Innovation Issue: REUSE Of ELECTRIC VEHICLE BATTERIES 340

Activity-Based Costing 341Enterprise Risk Management 342Primary Measures of Corporate Performance 342Balanced Scorecard Approach: Using Key Performance Measures 345

Sustainability Issue: E-RECEIPTS 345

Primary Measures of Divisional and Functional Performance 347Responsibility Centers 348

Using Benchmarking to Evaluate Performance 349International Measurement Issues 350

Global Issue: COUNTERfEIT GOODS AND PIRATED SOfTWARE: A GLOBAL PROBLEm 352

Strategic Information Systems 352

Enterprise Resource Planning (ERP) 353Radio Frequency Identification (RFID) 353Divisional and Functional is Support 354

Problems in Measuring Performance 354

Short-Term Orientation 354Goal Displacement 356

Guidelines for Proper Control 357 Strategic Incentive Management 357

C H A P T E R 1 2 Suggestions for Case Analysis 366

The Case Method 368 Researching the Case Situation 368 Financial Analysis: A Place to Begin 369

Analyzing Financial Statements 369Common-Size Statements 373Z-Value and the Index of Sustainable Growth 373Useful Economic Measures 374

Format for Case Analysis: The Strategic Audit 375

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End of Chapter Summary 377APPENDIx 12.A Resources for Case Research 379APPENDIx 12.B Suggested Case Analysis Methodology Using the Strategic Audit 381APPENDIx 12.C Example of Student-Written Strategic Audit 384

PART SIx Cases in Strategic Management 393

(Contributors: Dan R Dalton, Richard A Cosier, and Cathy A Enz)

A plant location decision forces a confrontation between the board of directors and the CEO regarding an issue in social responsibility and ethics.

(Contributor: Laurence J Stybel)

Managers question the company’s strategic direction and how it is being managed by its founder and CEO Company growth has resulted not only in disorganization and confusion among employees, but

in poor overall performance How should the board deal with the company’s founder?

(Contributors: Steven M Cox and Shawana P Johnson)

When Jim Willis, Marketing VP, learns that the launch date for the company’s new satellite will be late

by at least a year, he is told by the company’s president to continue using the earlier published date for the launch When Jim protests that the use of an incorrect date to market contracts is unethical,

he is told that spacecraft are never launched on time and that it is common industry practice to list unrealistic launch dates If a realistic date was used, no one would contract with the company.

(Contributors: Gamewell D Gantt, George A Johnson, and John A Kilpatrick)

A questionable accounting practice by the company being audited puts a new CPA in a difficult position Although the practice is clearly wrong, she is being pressured by her manager to ignore it because it is common in the industry.

(Contributors: Clifton D Petty, and Michael R Shirley)

In 2009, Battle Sports Science, headquartered in Omaha, Nebraska, was built with a focus on

“enhancing safety for athletes.” Specifically, the company wanted to protect young athletes who might have suffered a concussion Battle Sports Science attempted to gain market attention for its US$149.99 impact indicator (chin strap) through endorsements, and had enlisted a number of NFL players The company hoped to sell the device to sports programs (schools) as well as to individual players.

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S E C T I O N D International Issues in Strategic management

(Contributor: Alan N Hoffman)

In 2007, A123 was developing its hybrid electric vehicle business A123 entered into a partnership with Cobasys to introduce lithium-ion batteries into the automotive market A123 also entered into an agreement with GM to use their batteries in the Saturn Vue Plug-in Hybrid development program and

to co-develop a lithium-ion battery for the Chevrolet Volt A123 faced cash flow shortages after its

2009 IPO and its ultimate survival was threatened by its diminishing funds for continued operations.

(Contributors: Nathan Nebbe and J David Hunger)

This forestry cooperative has the right to harvest, transport, and sell fallen mahogany trees in

La Muralla National Park of Honduras Although the cooperative has been successful thus far, it is facing some serious issues: low prices for its product, illegal logging, deforestation by poor farmers, and possible world trade restrictions on the sale of mahogany.

(Contributor: Patricia A Ryan)

Google, an online company that provides a reliable Internet search engine, was founded in 1998 and soon replaced Yahoo as the market leader in Internet search engines By 2010, Google was one of the strongest brands in the world Nevertheless, its growth by acquisition strategy was showing signs

of weakness Its 2006 acquisition of YouTube had thus far not generated significant revenue growth

Groupon, a shopping Web site, rebuffed Google’s acquisition attempt in 2010 Is it time for a strategic change?

In 2012, more than half of all Amazon sales came from computers, mobile devices including the Kindle, Kindle Fire, and Kindle Touch, and other electronics, as well as general merchandise from home and garden supplies to groceries, apparel, jewelry, health and beauty products, sports and outdoor equipment, tools, and auto and industrial supplies Amazon was at a crossroads with regard

to its push into technology versus its general merchandise Amazon also faced other challenges, including those from state governments that wanted it to collect sales taxes so it would not adversely compete against local businesses.

Blue Nile Inc has developed into the largest online retailer of diamond engagement rings Unlike traditional jewelry retailers, Blue Nile operates completely store-front-free, without in-person consultation services The business conducts all sales online or by phone, and sales include both engagement (70%) and non-engagement (30%) categories Blue Nile’s vision is to educate its customer base so customers can make an informed, confident decision no matter what event they are celebrating It wants to make the entire diamond-buying process easy and hassle-free.

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I N D U S T R Y T W O : ENTERTAINmENT AND LEISURE

(Contributors: Nick Falcone, Eric Halbruner, Ellie A Fogarty, and Joyce Vincelette)

Groupon began as a local Chicago discount service and became a global phenomenon seemingly overnight It was a great idea The company was the first of its kind and changed the way consumers spend, shop, and think about discounts But how could Groupon, based on such innovation and having experienced such exceptional growth, be in such a precarious position? A wave of competition had swelled, including the likes of technology giants and both general and niche daily deals services, all replicating Groupon’s business model How could Groupon compete against large companies and their expansive resources?

On September 18, 2011, Netflix CEO and co-founder Reed Hastings announced on the Netflix blog that the company was splitting its DVD delivery service from its online streaming service, rebranding its DVD delivery service Qwikster, as a way to differentiate it from its online streaming service, and creating a new Web site for it Three weeks later, in response to customer outrage and confusion, Hastings rescinded the decision to rebrand the DVD delivery service Qwikster and reintegrated it into Netflix Nevertheless, only five weeks after the initial split, Netflix acknowledged that it had lost 800,000 U.S subscribers and expected to lose many more, thanks both to the Qwikster debacle and the price hike the company had decided was necessary to cover increasing content costs.

(Contributors: Michael J Keeffe, John K Ross III, Sherry K Ross, Bill J Middlebrook, and Thomas L Wheelen)

With its “fun ship,” Carnival Cruises changed the way people think of ocean cruises The cruise became more important than the destination Through acquisition, Carnival expanded its product line

to encompass an entire range of industry offerings How can Carnival continue to grow in the industry

it now dominates?

(Contributors: Zachary Burkhalter, Daniel Zuller, Concetta Bagnato, Joyce Vincelette, and Ellie A Fogarty)

Zynga built its company around social gaming This new type of gaming transformed the gaming industry on multiple levels and across various platforms Zynga originally built its games using the Facebook platform and then capitalized on the company’s unique method of social networking to capture audiences around the world However, this strong reliance on Facebook and changes in consumer gaming practices caused some concern among outside investors as to the future of Zynga.

The Boston Beer Company, founded in 1984 by Jim Koch, is viewed as pioneer in the American craft beer revolution Brewing over one million barrels of 25 different styles of beer, Boston Beer is the sixth-largest brewer in the United States Even though overall domestic beer sales declined 1.2% in

2010, sales of craft beer have increased 20% since 2002, with Boston Beer’s increasing 22% from

2007 to 2009 How can the company continue its rapid growth in a mature industry?

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CASE 16 Panera Bread Company (2010): Still Rising Fortunes? 565

(Contributors: Joyce P Vincelette and Ellie A Fogarty)

Panera Bread is a successful bakery-café known for its quality soups and sandwiches Even though Panera’s revenues and net earnings have been rising rapidly, new unit expansion throughout North America has fueled this growth Will revenue growth stop once expansion slows? The retirement

of CEO Ronald Shaich, the master baker who created the “starter” for the company’s phenomenal growth, is an opportunity to rethink Panera’s growth strategy.

(Contributors: Patricia Harasta and Alan N Hoffman)

Whole Foods Market is the world’s leading retailer of natural and organic foods The company differentiates itself from competitors by focusing on innovation, quality, and service excellence, allowing it to charge premium prices Although the company dominates the natural/organic foods category in North America, it is facing increasing competition from larger food retailers like Wal- Mart, who are adding natural/organic foods to their offerings.

(Contributor: J David Hunger)

Founded in Florida in 1953, Burger King has always trailed behind McDonald’s as the second-largest fast-food hamburger chain in the world Although its total revenues dropped only slightly from 2009, its 2010 profits dropped significantly, due to high expenses Burger King’s purchase by an investment group in 2010 was an opportunity to rethink the firm’s strategy.

(Contributor: Roy A Cook)

Church & Dwight, the maker of ARM & HAMMER Baking Soda, has used brand extension to successfully market multiple consumer products based on sodium bicarbonate Searching for a new growth strategy, the firm turned to acquisitions Can management successfully achieve a balancing act based on finding growth through expanded uses of sodium bicarbonate while assimilating a divergent group of consumer products into an expanding international footprint?

(Contributors: Ram Subramanian and Pradeep Gopalakrishna)

Under Armour’s footwear sales declined by 4.5% during the second quarter of 2009 and showed

a 16.6% decline in the first six months of 2010 compared to 2009 This was in contrast to its performance apparel, the company’s core category, which saw a 32.2% uptick over 2009 Under Armour had tremendous growth opportunities in the apparel category in China However, CEO Kevin Plank wanted Under Armour to be a leading player in the field of athletic footwear.

Founded in 2006 by Blake Mycoskie, TOMS Shoes is an American footwear company based in Santa Monica, California Although TOMS Shoes is a for-profit business, its mission is more like that of a not-for-profit organization The firm’s reason for existence is to donate to children in need one new pair of shoes for every pair of shoes sold By 2010, the company had sold over one million pairs of shoes How should the company plan its future growth?

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CASE 22 Best Buy Co Inc (2009): A Sustainable Customer-Centricity Model? 625

Best Buy, the largest consumer electronics retailer in the United States, operates 4000 stores in North America, China, and Turkey It distinguishes itself from competitors by deploying a differentiation strategy based on superior service rather than low price The recent recession has stressed its finances and the quality of its customer service How can Best Buy continue to have innovative products, top- notch employees, and superior customer service while facing increased competition, operational costs, and financial stress?

(Contributors: Christine B Buenafe and Joyce P Vincelette)

Rosetta Stone’s mission was to change the way people learn languages The company blended language learning with technology at a time when globalization connected more and more individuals and institutions to each other How should the company move forward? Would it be appropriate for Rosetta Stone to offer products like audio books or services in order to increase market share? Which international markets could provide the company with a successful future?

(Contributor: Kathryn E Wheelen)

With annual revenues of US$12.7 billion and 9200 stores in 35 states, Dollar General is the largest

of the discount “dollar stores” in the United States Although far smaller than its “big brothers”

Wal-Mart and Target, Dollar General has done very well during the recent economic recession In

2011, it planned to open 625 new stores in three new states Given that the company has a substantial long-term debt, is this the right time to expand its operations?

Founded in 1990, iRobot was one of the first companies to introduce robotic technology into the consumer market Employing over 500 robotic professionals, the firm planned to lead the robotics industry Unfortunately, its largest revenue source, home care robots, is a luxury good and vulnerable

to recessions Many of iRobot’s patents are due to expire by 2019 The firm is highly dependent upon suppliers to make its consumer products and the U.S government for its military sales What is the best strategy for its future success?

S E C T I O N

Tesla Motors was founded in 2004 to produce electric automobiles Its first car, the Tesla Roadster, sold for US$101,000 It could accelerate from 0 to 60 mph in 3.9 seconds, and cruise for 236 miles

on a single charge In contrast to existing automakers, Tesla sold and serviced its cars through the Internet and its own Tesla stores With the goal of building a full line of electric vehicles, Tesla Motors faces increasing competition from established automakers How can Tesla Motors succeed in an industry dominated by giant global competitors?

(Contributors: Alan N Hoffman and J David Hunger)

Delta used mergers and acquisitions (M&A) successfully to solidify its strong position as a leader in the airline industry It has gone through five M&As since 1953, including the most recent acquisition

of Northwest Airlines (Northwest), which turned Delta into an airline with major operations in every region of the world The Northwest merger took a toll on Delta’s financial position, however, by contributing to its high long-term debt.

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In 2012, top management began cautiously exploring opportunities for entering new markets, routes, and partnerships in order to boost market share Management was also searching for ways to reduce costs and expenses in an industry that was rapidly consolidating into fewer major national and international players Delta is considering purchasing from Conoco.

TomTom, an Amsterdam-based company that provides navigation services and devices, led the navigation systems market in Europe and is second in popularity in the United States However, the company is facing increasing competition from other platforms using GPS technology, like cell phones and Smartphones with built-in navigation functions As its primary markets in the United States and Europe mature, how can the company ensure its future growth and success?

S E C T I O N G

The financial services industry was, by definition, volatile, and GE Capital was particularly hard hit by the economic recession of 2008 With the credit markets illiquid and financial markets falling,

GE Capital found it was overexposed to commercial real estate and foreign residential mortgages

At this point, GE’s parent corporation stepped in, began reorganizing GE Capital, and significantly downsized the unit GE Capital hoped to see continued sustainable earnings growth with growing margins and lower portfolio risk, and to return money to investors and resume paying dividends to its parent company

AB Electrolux is currently the world’s second-largest appliance maker, behind Whirlpool Electrolux has over 50,000 employees in more than 50 countries around the world Its headquarters are in Stockholm, Sweden.

As the social and demographic trends continue to evolve, so do the opportunities afforded to Electrolux The most significant demographic shift globally is the growing middle class in Asia, which includes families with incomes between US$6000 and US$30,000 It is estimated that by 2020 there will be one billion more people in the global middle class than there were in 2010 Correlated with rising incomes worldwide, homeownership has also increased at a substantial rate, giving rise to increased demand for consumer durables such as refrigerators, washing machines, and dishwashers.

(Contributors: Moustafa H Abdelsamad, Hitesh (John) Adhia, David B Croll, Bernard A

Morin, Lawrence C Pettit Jr., Kathryn E Wheelen, Richard D Wheelen, Thomas L

Wheelen II, and Thomas L Wheelen)

By the 1990s, Apple, the first company to mass-market a personal computer, had become a minor player in an industry dominated by Microsoft After being expelled from the company in 1985, founder Steve Jobs returned as CEO in 1997 to reenergize the firm The introduction of the iPod in 2001, followed by the iPad, catapulted Apple back into the spotlight However, in 2011 Jobs was forced to take his third medical leave, leading to questions regarding his ability to lead Apple How can Apple continue its success? How dependent is the company on Steve Jobs?

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CASE 32 Dell Inc.: Changing the Business Model (Mini Case) 771

Dell, once the largest PC vendor in the world, is now battling with Acer for second place in the global

PC market Its chief advantages—direct marketing and power over suppliers—no longer provides

a competitive advantage The industry’s focus has shifted from desktop PCs to mobile computing, software, and technology services, areas of relative weakness for Dell Is it time for Dell to change its strategy?

Logitech, the world’s leading provider of computer peripherals, was on the forefront of mouse, keyboard, and videoconferencing technology By 2010, however, Logitech’s products were threatened

by new technologies, such as touchpads, that could replace both the mouse and keyboard As the peripherals market begins to disintegrate, Logitech is considering a change in strategy.

(Contributors: Joseph Kavanaugh, Joshua Warne, and Carol J Cumber)

The billboard, sign, and outdoor advertising industry in the United States is almost as old as the Colonies Lighted billboards, roadside signs, neon lights, and other forms of display are part of our everyday environment The newest segment of the industry, digital signage, is driven by 21st-century technologies in computers, peripherals, graphics, and new sources of light—liquid crystal display (LCD), light-emitting diodes (LED), and others Less than 20 years old, the digital segment (sales of US$2.14 billion) was estimated to be 17.8% of the outdoor signage industry in 2008 This note reviews the digital signage industry and explores the forces that are driving this emerging segment of the advertising, messaging, and sign industry.

GLOSSARY 803

NAmE INDEx 815

SUBJECT INDEx 820

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Dedicated to

SPECIAL DEDICATION TO TOm WHEELEN

Tom originated this book in the late 1970s and with his friend David Hunger brought the first edition

to fruition in 1982 What a ride it has been! After battling bone cancer, Tom died in Saint Petersburg, Florida, on December 24, 2011 It was Tom’s idea from the very beginning to include the latest research

and useful material written in such a way that the typical student could read and understand the book without outside assistance That has been a key reason for the success of the book through its many editions Tom’s last months were spent working with the two new co-authors to map out the direction for

the 14th edition We thank you, Tom, and bid you a fond farewell! This 14th edition is for you.

J David Hunger Alan N Hoffman Charles E Bamford

This is a special dedication to Thomas L Wheelen, co-author, father, and best friend, May 30, 1935 – December 24, 2011 This is the 14th edition of SMBP the creation you and

Mr Hunger started due to your friendship at the McIntire School of Commerce at UVA with that adjoining door! It is not very often that two co-authors become the best of friends, but you both did

That was a very special gift that Tom treasured until the end We are so glad you were able to meet as the dynamic foursome to discuss the 14th edition of SMBP! The new addition of co-authors Alan Hoffman and Chuck Bamford gave you and Mr Hunger the ability to relax and smell the roses

We have come full circle with you being back at UVA! You were an amazing friend, visionary, teacher, and leader! Thank you for pushing us to be who we are today! You were very blessed to have two children as your best friends! You will never know how much you are missed!

Dad – chailleann againn go mbainfidh tú agus grá agat Tá do Spiorad na hÉireann le linn i gcónaí!

GNPD KEW and RDW Betty, Kari and Jeff, Maddie and Megan, Suzi and Nick, Summer and Kacey, Lori,

Merry, Dylan, and newborn Edan Also to Wolfie (arf!).

David Hunger

To Will Hoffman, the greatest son in the world and to our saint Wendy Appel

In memory of my good friend, Tom Wheelen, via con dios Thank you, Tom and David.

Alan Hoffman

To Yvonne, for your support, advice, encouragement, love, and confidence To David and Tom, for your

confidence, council, and mental energy in the revision of this remarkable text.

Chuck Bamford

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Welcome to the 14th edition of Strategic Management and Business Policy! All of the

chapters have been updated, and most of the cases are new and different We have added

several brand-new cases (Early Warning: Concussion Risk and the Case of the Impact

Sensing Chinstrap, A123, Amazon, Blue Nile, Groupon, Netflix, Zynga, Under Armour, General Electric, AB Electrolux, Tesla Motors, Delta Airlines, and The U.S Digital Signage Industry Note) for a total of 13 new cases! Many of the cases are exclusive to this

edition! Although we still make a distinction between full-length and mini cases, we have interwoven them throughout the book to better identify them with their industries

This edition revamps the theme that runs throughout all 12 chapters We utilize a

three-legged approach consisting of globalization, innovation, and sustainability These three

strategic issues comprise the cornerstone that all organizations must build upon to push their businesses forward Each chapter incorporates specific vignettes about these three themes

We continue to be the most comprehensive and practical strategy book on the market, with chapters ranging from corporate governance and social responsibility to competitive strat-egy, functional strategy, and strategic alliances

fEATURES NEW TO THIS 14TH EDITION

For the first time in 30 years, the 14th edition has added two new authors to the text Alan Hoffman, a major contributor to the 13th edition, is a former textbook author and world-renowned author of strategy business cases, and Chuck Bamford, who was a student of Tom Wheelen and David Hunger back in 1980 at the University of Virginia (McIntire School of Commerce), has authored four other textbooks They join J David Hunger and bring a fresh perspective to this extraordinarily well-researched and practically crafted text In that vein, this edition of the text has:

Globalization (which we view as an expectation of business), and Innovation (which is the single most important element in achieving competitive advantage) appear in every chapter of the text

opening vignettes examining companies such as: Five Guys, RIM (BlackBerry), HP’s Board of Directors, Tata Motors, Costco, and Pfizer among many others

under-standing of competitive advantage

strategy implementation

Twelve new comprehensive cases and one new Industry Note have been added to support the 13 popular full-length cases and 8 mini-cases carried forward from past editions Thir-teen of the cases in the 14th edition are brand new and one case is an updated favorite from

23

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past editions Of the 34 cases appearing in this book, 20 are exclusive and do not appear in other books.

Concussion Risk and the Case of the Impact Sensing Chinstrap).

and Zynga).

HOW THIS BOOK IS DIffERENT fROm OTHER STRATEGY TExTBOOKS

This book contains a Strategic Management Model that runs through the first 11 chapters and is made operational through the Strategic Audit, a complete case analysis methodology

The Strategic Audit provides a professional framework for case analysis in terms of external and internal factors and takes the student through the generation of strategic alternatives and implementation programs

To help the student synthesize the many factors in a complex strategy case, we oped three useful techniques:

This reduces the external opportunities and threats to the 8 to 10 most important external factors facing management

This reduces the internal strengths and weaknesses to the 8 to 10 most important internal factors facing management

This condenses the 16 to 20 factors generated in the EFAS and IFAS tables into the 8 to

10 most important (strategic) factors facing the company These strategic factors become the basis for generating alternatives and act as a recommendation for the company’s future direction

Suggestions for case analysis are provided in Appendix 12.B (end of Chapter 12) and

contain step-by-step procedures on how to use a strategic audit in analyzing a case This appendix includes an example of a student-written strategic audit Thousands of students

around the world have applied this methodology to case analysis with great success The

Case Instructor’s Manual contains examples of student-written strategic audits for each of

the full-length comprehensive strategy cases

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This edition contains many of the same features and content that helped make previous editions successful Some of the features include the following:

Societal Environment:

General forces

Natural Environment:

Resources and climate Task Environment:

Industry analysis Structure:

Chain of command Culture:

Beliefs, expectations, values Resources:

Assets, skills, knowledge

Activities needed to accomplish

a plan Cost of the programs Sequence

of steps needed to

Reason for What results to accomplish

by when Plan to achieve the mission &

Broad guidelines for decision making

Internal

External

Programs and Tactics Budgets Procedures Performance

Objectives Strategies Policies

Actual results

Putting Strategy into Action

Strategy Implementation:

Developing Long-range Plans

Strategy Formulation:

Monitoring Performance

Evaluation and Control:

Gathering Information

Environmental Scanning:

Feedback/Learning: Make corrections as needed

For the next nine months, the company attempted to implement the plan, and the result

by the third quarter of 2006 was a staggering US$5.6 billion loss that would end up being a that they needed a CEO who could really implement the plan Someone with an operations Alan Mulally, the President and CEO of Boeing’s Commercial Airlines unit He stated that "These damental business reality that customer demand is shifting to smaller, more efficient vehicles.”

Mulally immediately eliminated the Ford dividend which had been a staple of the blue chip company for decades He sold off Volvo, Aston-Martin, Jaguar, and Land the historic Mercury line of vehicles and focused all of the company’s energy on two time, he secured US$23.6 billion in lines of credit to help the company through the change

sales plummet in 2009, Ford was able to thrive In fact, Ford was the only American auto

■ Understand strategic decision-making modes

■ Explain how globalization and mental sustainability influence strategic management

environ-■ Understand the basic model of strategic management and its components

Learning Objectives

After reading this chapter, you should be able to:

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for simulations, tutorials, and end-of-chapter problems

basic concepts of Strategic

Management

2

runs throughout the first 11 chapters

as a unifying concept (Explained in

and Business

Policy

to operationalize the strategic decision-making process, serves

as a checklist in case analysis

(Chapter 1)

■ Monitor: By acting through its committees, a board can keep abreast of developments

might have overlooked A board should at the minimum carry out this task

■ Evaluate and influence: A board can examine management’s proposals, decisions, and

actions; agree or disagree with them; give advice and offer suggestions; and outline natives More active boards perform this task in addition to monitoring

■ Initiate and determine: A board can delineate a corporation’s mission and specify

stra-tegic options to its management Only the most active boards take on this task in addition

to the two previous ones

Board of Directors’ Continuum

A board of directors is involved in strategic management to the extent that it carries out the

board of directors’ continuum shown in Figure 2–1 shows the possible degree of

involve-ment (from low to high) in the strategic manageinvolve-ment process Boards can range from phantom boards with no real involvement to catalyst boards with a very high degree of involvement 9 Research suggests that active board involvement in strategic management is positively related

to a corporation’s financial performance and its credit rating 10 Highly involved boards tend to be very active They take their tasks of monitoring, evaluating and influencing, and initiating and determining very seriously; they provide advice when the strategic management process places them in the active participation or even catalyst positions Although 74% of public corporations have periodic board meetings devoted primarily to the review of overall company strategy, the boards may not have had much influence in generating the plan itself 11 The same 2011 global survey of directors by McKinsey & Company found that 44% of respondents reviewed and approved management’s proposed strategy, 41%

then assigned to execute Those boards reporting high influence typically shared a common

DEGREE OF INVOLVEMENT IN STRATEGIC MANAGEMENT Low

(Passive)

Rubber Stamp Phantom

Never knows anything; no degree of involvement.

Formally reviews selected issues that officers bring to its attention.

Involved to a limited degree

in the mance or review

perfor-of selected key decisions, indicators, or programs of managment.

Approves, questions, and makes final de- sion, strategy, policies, and objectives Has active board Performs fiscal and management audits.

Takes the leading role in establishing and modifying the mission, objectives, strategy, and policies It has

a very active strategy committee.

Permits officers

to make all decisions It votes as the officers recom- mend on action issues.

Minimal Review Nominal Participation Active Participation Catalyst

High

(Active)

FIGURE 2–1 Board of Directors’ Continuum

by permission

the roles, responsibilities, and interactions of top management and the board of directors and includes the impact of the Sarbanes–Oxley Act

(Chapter 2)

CHAPTER 3 Social Responsibility and Ethics in Strategic Management 71

efficiency of a business Friedman thus referred to the social responsibility of business as a

“fundamentally subversive doctrine” and stated that:

There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which

is to say, engages in open and free competition without deception or fraud 1

Following Friedman’s reasoning, the management of Coca-Cola was clearly guilty of misusing corporate assets and negatively affecting shareholder wealth The millions spent in social services could have been invested in new product development or given back as dividends to the shareholders Instead of Coca-Cola’s management acting on its own, shareholders could have decided which charities to support

Carroll’s Four Responsibilities of Business

Friedman’s contention that the primary goal of business is profit maximization is only one side Byron, Distinguished Professor of Ethics at Georgetown University and past President of Just as a person needs food to survive and grow, so does a business corporation need profits maximization of profits cannot be the primary obligation of business 2

As shown in Figure 3–1 , Archie Carroll proposed that the managers of business

organi-zations have four responsibilities: economic, legal, ethical, and discretionary 3

1 Economic responsibilities of a business organization’s management are to produce goods

and services of value to society so that the firm may repay its creditors and increase the wealth of its shareholders

2 Legal responsibilities are defined by governments in laws that management is expected

to obey For example, U.S business firms are required to hire and promote people based race, gender, or religion

3 Ethical responsibilities of an organization’s management are to follow the generally held

beliefs about behavior in a society For example, society generally expects firms to work with the employees and the community in planning for layoffs, even though no law may require this The affected people can get very upset if an organization’s management fails

to act according to generally prevailing ethical values

4 Discretionary responsibilities are the purely voluntary obligations a corporation assumes

Examples are philanthropic contributions, training the hard-core unemployed, and viding day-care centers The difference between ethical and discretionary responsibilities many expect an organization to fulfill ethical ones 4

pro-Discretionary Ethical Legal Economic

Social Responsibilities

FIGURE 3–1 Responsibilities

of Business

SOURCE: Suggested by Archie Carroll in A B Carroll, “A Three Dimensional Conceptual Model of Corporate with Global Stakeholders: A Present and Future Challenge,” Academy of Management Executive (May 2004), Organizational Stakeholders,” Business Horizons (July–August 1991), pp 39 – 48

exam-ined in detail in terms of how they affect strategic decision making They include the process of stakeholder analysis

and the concept of social capital (Chapter 3)

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■ Two chapters deal with issues in

strat-egy implementation, such as

orga-nizational and job design, as well as strategy-manager fit, action planning, corporate culture, and international

strategic alliances (Chapters 9 and 10)

control explains the importance of

measurement and centives to organiza-tional performance

in-(Chapter 11)

128 PART 2 Scanning the Environment

approximately 75,000 Nanos a year Although Tata Motors had intended to initially sell really retrenched and the Nano looks to be based in India for a long time to come

SOURCES: S Philip, “Chairman Tata Seeks to Salvage World’s Cheapest Nano Car,” Bloomberg (August 21, wheels-of-fire-tata-motors.html ); D Welch and N Lakshman, “My Other Car Is a Tata,” Business Week

(January 14, 2008), pp 33 – 34

Scanning and analyzing the external environment for opportunities and threats is necessary for the firm to be able to understand its competitive environment and its place in that environment; however, it is not enough to provide an organization with a competitive advantage

are likely to determine whether a firm will be able to take advantage of opportunities while

avoiding threats This internal scanning, often referred to as organizational analysis , is

con-cerned with identifying, developing, and taking advantage of an organization’s resources and competencies

A Resource-Based Approach to Organizational Analysis

CORE AND DISTINCTIVE COMPETENCIES

Resources are an organization’s assets and are thus the basic building blocks of the

human assets (the number of employees, their skills, and motivation), and intangible

as-sets (such as its technology [patents and copyrights], culture, and reputation) 1 Capabilities

refer to a corporation’s ability to exploit its resources They consist of business processes example, a company’s marketing capability can be based on the interaction among its marketing specialists, distribution channels, and salespeople A capability is functionally based stantly being changed and reconfigured to make them more adaptive to an uncertain environ-

ment, they are called dynamic capabilities 2 A competency is a cross-functional integration

and coordination of capabilities For example, a competency in new product development

the division A core competency is a collection of competencies that crosses divisional

one division 3 For example, a core competency of Avon Products is its expertise in to-door selling FedEx has a core competency in its application of information technology become a weakness 4 Although it is typically not an asset in the accounting sense, a core competency is a very valuable resource—it does not “wear out” with use In general, the

environment as well as on the task environment Topics include

fore-casting and Miles and Snow’s typology in addition to competitive

intelligence techniques and Porter’s industry analysis (Chapter 4)

framework of the resource-based view of the firm (Chapter 5)

supply chain management, and corporate reputation (Chapter 5)

use of specially designed EFAS, IFAS, and SFAS tables

Reason for

What

results to

accomplish

by when Plan to achieve the

mission & Broad guidelines for decision making

id li

Activities

d d h Cost of the Sequence f

Internal

External

Objectives

Strategies Policies

Actual results

By 2012, however, its U.S division generated only 2.2% growth in its same-store sales even as the recession was fading Target, Macy’s, Kohl’s Costco, GAP, Kroger, and even The Home Depot were all growing faster than Wal-Mart At about the same time, Microsoft, whose software had grown to dominate personal computers worldwide, saw its revenue growth over the five-year period from 2007 to 2012 slow to just 6.6% The company’s stock price had been virtually flat since 2002, an indication that investors no longer perceived this an isolated phenomenon? What could be done, if anything, to reinvigorate these giants?

A research study by Matthew Olson, Derek van Bever, and Seth Verry attempts to provide

an answer After analyzing the experiences of 500 successful companies over a 50-year period, This included a diverse set of corporations, such as Levi Strauss, 3M, Apple, Bank One, Caterpillar, revenue growth at each of these firms suddenly stopped and even turned negative! Olson, van corporations lost 74% of their market capitalization in the decade surrounding a growth stall

46% of the firms were able to return to moderate or high growth within the decade When

of this group was able to return to moderate or high growth

At Levi Strauss & Company, for example, sales topped US$7 billion in 1996—extending growth that had more than doubled over the previous decade From that high-water mark,

C H A P T E R 9

■ Construct matrix and network structures

to support flexible and nimble tional strategies

organiza-■ Decide when and if programs such as reengineering, Six Sigma, and job rede- sign are appropriate methods of strategy implementation

■ Understand the centralization versus decentralization issue in multinational corporations

■ Develop programs, budgets, and dures to implement strategic change

proce-■ Understand the importance of achieving synergy during strategy implementation

■ List the stages of corporate development stage

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Costco: Leading from the Front

Costco was founded in 1983 upon several simple foundations , such as marking everything up by no more than 15% (ever), paying and treating employees well, and providing a more upscale experience in the warehouse retail world Today, the company is the largest (by sales) in the industry despite having fewer store locations than its rival Sam’s Club In 2011, the company racked up sales of US$93 billion and had more than 60 million members who pay for the privilege of shopping there

One of the most stunning elements of the Costco success story is the way it has handled the staffing and leading elements of the business Employees at the company make an average are part-time employees During the recession that hit the globe from 2008–2011, the company dustry plagued by turnover Employees at Costco know what they are doing and actively help customers

Interestingly, the staffing model morphs into leading with the approach that the company takes to executive compensation The former CEO and co-founder of Costco had a salary of age for Fortune 500 CEOs in 2012 was US$9.6 million The senior management team is similarly compensated, leading to an “all in for the good of the company” approach to the business

In addition to leading with salary, the CEO made it a part of his yearly effort to visit all

560 stores in nine countries This visible leading-from-the-front approach caught employees off out food, and working the food court In fact, the company has held tightly to the idea that a they opened their first hotdog stand in a store, and it is the price today Costco sells more than

90 million hotdogs a year

■ Formulate effective action plans when MBO and TQM are determined to

be appropriate methods of strategy implementation

■ Understand the link between strategy and staffing decisions

■ Match the appropriate manager to the strategy

■ Understand how to implement an tive downsizing program

effec-■ Discuss important issues in effectively staffing and directing international expansion

strategy implementation:

274

General forces Natural Environment:

Resources and climate Task Environment:

Industry analysis Structure:

Chain of command Culture:

Beliefs, expectations, values Resources:

Assets, skills, knowledge

Activities needed to accomplish

Reason for What results to accomplish

by when Plan to achieve the mission & Broad guidelines for decision making

Activities

d d h Cost of the Sequence f

Internal

External

Objectives Strategies Policies

Actual results

Environmental Scanning:

ra-tios, recommendations for oral and written analysis, and ideas for further research

(Chapter 12)

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CHAPTER 12 Suggestions for Case Analysis 343

342

Analysis Strategic Audit Heading (+) Factors (−) Factors Comments

I Current Situation

A Past Corporate Performance Indexes

B Strategic Posture:

Current Mission Current Objectives Current Strategies Current Policies

SWOT Analysis Begins:

II Corporate Governance

A Board of Directors

B Top Management

III External Environment (EFAS):

Opportunities and Threats (SWOT)

A Natural Environment

B Societal Environment

C Task Environment (Industry Analysis)

IV Internal Environment (IFAS):

Strengths and Weaknesses (SWOT)

3 Research and Development

4 Operations and Logistics

5 Human Resources

6 Information Technology

V Analysis of Strategic Factors (SFAS)

A Key Internal and External Strategic Factors (SWOT)

B Review of Mission and Objectives

SWOT Analysis Ends Recommendation Begins:

VI Alternatives and Recommendations

A Strategic Alternatives—pros and cons

B Recommended Strategy

VII Implementation VIII Evaluation and Control

FIGURE 12–1 Strategic Audit Worksheet

NOTE: See the complete Strategic Audit on pages 34 – 41 It lists the pages in the book that discuss each of the eight headings

Instructor’s Manual and on the Prentice Hall Web site ( www.prenhall.com/wheelen ).

Using case analysis is one of the best ways to understand and remember the strategic ment process By applying to cases the concepts and techniques you have learned, you will

manage-of information The use manage-of cases to examine actual situations brings alive the field manage-of strategic the reasons why the use of cases in disciplines from agribusiness to health care is increasing throughout the world

End of Chapter SUMMARY

Go to mymanagementlab.com to complete the problems marked with this icon

activity ratio (p 335 ) Altman’s Z-Value Bankruptcy Formula (p 339 )

annual report (p 335 ) common-size statement (p 339 ) constant dollars (p 340 )

gross domestic product (GDP) (p 340 ) index of sustainable growth (p 340 ) leverage ratio (p 335 ) liquidity ratio (p 335 ) prime interest rate (p 340 ) profitability ratio (p 335 )

ratio analysis (p 335 ) SEC 10-K form (p 335 ) SEC 14-A form (p 335 ) strategic audit worksheet (p 341 )

K E Y T E R M S

Go to mymanagementlab.com for Auto-graded writing questions as well as the following Assisted-graded writing questions: 1-1 What ratios would you use to begin your analysis of a case?

1-2 What are the fi ve crucial steps to follow in basic fi nancial analysis?

1-3 MyManagementLab Only—comprehensive writing assignment for this chapter

D I S C U S S I O N Q U E S T I O N S

1-4 Why should you begin a case analysis with a financial

analysis? When are other approaches appropriate?

1-5 What are common-size financial statements? What is

1-6 When should you gather information outside a case?

What should you look for?

1-7 When is inflation an important issue in conducting case analysis? Why bother?

1-8 How can you learn what date a case took place?

time-tested strategic audit and is designed to help dents organize and structure daily case preparation

stu-in a brief period of time The worksheet works exceedingly well for checking the level of daily stu-dent case preparation—especially for open class dis-

cussions of cases (Chapter 12)

CHAPTER 5 Internal Scanning: Organizational Analysis 155

Every day, about 17 truckloads of used diesel engines and other parts are dumped at a ceiving facility at Caterpillar’s remanufacturing plant in Corinth, Mississippi The filthy iron engines are then broken down by two workers, who manually hammer and drill for half a day until they have taken every bolt off the engine and put each component into its own bin The profit This system works at Caterpillar because, as a general rule, 70% of the cost to build manufacturing process over again with materials that are essentially free and which already for the next product, eliminating waste, and cutting costs Caterpillar’s management was so

re-in 2005 The unit earned more than US$1 billion re-in sales re-in 2005 and re-in 2012 employed more than 8500 workers in 16 countries

Caterpillar’s remanufacturing unit was successful not only because of its capability of wringing productivity out of materials and labor, but also because it designed its products for

In order to achieve this, Caterpillar asks its designers to check a “Reman” box on Caterpillar’s

used in order to take them back—known as the art of reverse logistics This is achieved by

Caterpillar’s excellent relationship with its dealers throughout the world, as well as through nancial incentives For example, when a customer orders a crankshaft, that customer is offered crankshaft to Caterpillar The products also should be built for performance with little regard engine is very similar to a new engine and might perform even better

Monitoring the external environment is only one part of environmental scanning gists also need to scan a corporation’s internal environment to identify its resources, capabilities, and competencies What are its strengths and weaknesses? At Caterpillar, management more desirable It took advantage of its strengths in manufacturing and distribution to offer a could not afford a new Caterpillar engine It also happened to be an environmentally friendly, sustainable business model Caterpillar’s management felt that remanufacturing thus provided them with a strategic advantage over competitors who don’t remanufacture This is an moving into a new profitable position on its value chain 87

brand (p 142 ) business model (p 132 ) capabilities (p 128 )

capital budgeting (p 143 ) competency (p 128 ) conglomerate structure (p 138 )

continuum of sustainability (p xx ) core competencies (p 128 ) corporate culture (p 138 )

K E Y T E R M S

material covered in each chapter helps the reader apply strategic concepts to an actual situation

270 PART 4 Strategy Implementation and Control

budget (p 251 ) cellular/modular organization (p 263 ) geographic-area structure (p 269 ) job design (p 265 ) matrix of change (p xx ) matrix structure (p 260 ) multinational corporation (MNC) (p 266 )

network structure (p 262 ) organizational life cycle (p 258 ) procedure (p 252 ) product-group structure (p 269 ) program (p 248 ) reengineering (p 263 ) Six Sigma (p 264 )

stages of corporate development (p 255 )

stages of international development (p 267 )

strategy implementation (p 246 ) structure follows strategy (p 253 ) synergy (p 252 ) virtual organization (p 262 )

K E Y T E R M S

Go to mymanagementlab.com for Auto-graded writing questions as well as the following Assisted-graded writing questions:

Strategy implementation is where “the rubber hits the road.” Environmental scanning and process The failure to carry a strategic plan into the day-to-day operations of the workplace is

For a strategy to be successfully implemented, it must be made action-oriented This is done through a series of programs that are funded through specific budgets and contain new strategy as the new Fiat Group CEO in 2004 He attacked the lethargic, bureaucratic system responsibility He and other managers worked to reduce the number of auto platforms from was cut from 26 to 18 months By 2008, the Fiat auto unit was again profitable Marchionne

This chapter explains how jobs and organizational units can be designed to support a change in strategy We will continue with staffing and directing issues in strategy implementation in the next chapter

in which they are discussed let the reader keep track of important concepts as they are introduced in each chapter

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■ Learning objectives begin each chapter.

industries Many of the cases are about well-known, publicly held corporations—ideal subjects for further research by students wishing to “update” the cases

Both the text and the cases have been class-tested in strategy courses and revised based

on feedback from students and instructors The first 11 chapters are organized around a strategic management model that begins each chapter and provides a structure for both con-tent and case analysis We emphasize those concepts that have proven to be most useful in understanding strategic decision making and in conducting case analysis Our goal was to make the text as comprehensive as possible without getting bogged down in any one area

Extensive endnote references are provided for those who wish to learn more about any ticular topic All cases are about actual organizations The firms range in size from large, established multinationals to small, entrepreneurial ventures, and cover a broad variety of issues As an aid to case analysis, we propose the strategic audit as an analytical technique

par-SUPPLEmENTS Instructor Resource Center

At www.pearsonglobaleditions.com/Wheelen, instructors can access teaching resources

available with this text in a downloadable, digital format Registration is simple and gives you immediate access to new titles and editions Please contact your Pearson sales representative for your access code As a registered faculty member, you can download resource files and receive immediate access and instructions for installing course management content on your campus server In case you ever need assistance, our dedicated technical support team is ready

to assist instructors with questions about the media supplements that accompany this text Visit

http://247.pearsoned.com for answers to frequently asked questions and toll-free user

support phone numbers The Instructor Resource Center provides the following electronic resources

Instructor’s manuals

Two comprehensive Instructor’s Manuals have been carefully constructed to accompany this book The first one accompanies the concepts chapters; the second one accompanies the cases

Concepts Instructor’s Manual

To aid in discussing the 12 strategy chapters, the Concepts Instructor’s Manual includes:

meth-ods and suggested course syllabi

discus-sion questions, and suggestions for using end-of-chapter cases/exercises and part-ending cases, plus additional discussion questions (with answers) and lecture modules

Case Instructor’s Manual

To aid in case method teaching, the Case Instructor’s Manual includes detailed suggestions

for its use, teaching objectives, and examples of student analyses for each of the full-length comprehensive cases This is the most comprehensive instructor’s manual available in strategic management A standardized format is provided for each case:

1 Case Abstract

2 Case Issues and Subjects

3 Steps Covered in the Strategic Decision-Making Process

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4 Case Objectives

5 Suggested Classroom Approaches

6 Discussion Questions

7 Case Author’s Teaching Note (if available)

8 Student-Written Strategic Audit (if appropriate)

9 EFAS, IFAS, and SFAS Exhibits

10 Financial Analysis—ratios and common-size income statements (if appropriate)

PowerPoint Slides

PowerPoint slides, provided in a comprehensive package of text outlines and figures sponding to the text, are designed to aid the educator and supplement in-class lectures

corre-Test Item file

The Test Item File contains over 1200 questions, including multiple-choice, true/false, and essay questions Each question is followed by the correct answer, AACSB category, and difficulty rating

TestGen

TestGen software is preloaded with all of the Test Item File questions It allows instructors to

manually or randomly view test questions, and to add, delete, or modify test-bank questions

as needed to create multiple tests

VIDEO LIBRARY

Videos illustrating the most important subject topics are available at:

videos and corresponding assessment and simulations for Pearson textbooks

Contact your local Pearson representative to request access

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CourseSmart eTextbooks were developed for students looking to save the cost on required

or recommended textbooks Students simply select their eText by title or author and chase immediate access to the content for the duration of the course using any major credit card With a CourseSmart eText, students can search for specific keywords or page numbers, take notes online, print out reading assignments that incorporate lecture notes, and book-mark important passages for later review For more information or to purchase a CourseSmart

pur-eTextbook, visit www.coursesmart.co.uk.

Acknowledgments

We would like to thank the many people at Pearson who helped make this edition possible

We are especially grateful to our senior project manager, Karalyn Holland, who managed to keep everything on an even keel We also would like to thank Stephanie Wall, Sarah Holle, Norine Strang, Judy Leale, Estelle Simpson, Michael Joyce, Michael McGee, Bernard Ollila, Erin Gardner, and Brooks Hill-Whilton and everyone at Pearson who guided the book through the production and marketing processes Special thanks to Dave Ostrow at Pearson for his hard work in the trenches

*This product may not be available in all markets For more details, please visit www.coursesmart.co.uk or contact your local Pearson representative.

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We are very thankful to Paul D Maxwell, St Thomas University, Miami, FL; Terry J

Schindler, University of Indianapolis; Anne Walsh, La Salle University; Angelo Camillo,

Woodbury University ; Jeannine L Scherenberg, Rockford College; William Reisel, St John’s

University ; Ronaldo Parente, Florida International University; Roxana Wright, Plymouth

State University ; J Barry Dickinson, Holy Family University; Theodore E Davis, Jr., PhD,

SUNY College at Buffalo ; Manzoor Chowdhury, Lincoln University; David Olson, California

State University at Bakersfield ; and Janis Dietz, University of La Verne for their constructive

criticism of the 14th edition

We are especially thankful to the many students who tried out the cases we chose to include in this book Their comments helped us find any flaws in the cases before the book went to the printer

We also offer a big thanks to the many case authors who have provided us with lent cases for the 14th edition of this book We consider many of these case authors to be our friends A special thanks to you!! The adage is true: The path to greatness is through others

excel-Alan Hoffman would like to thank the following colleagues for their valuable insight, support, and feedback during the writing process: Janet Forte, Kathy Connolly, Robert Frisch, Barbara Gottfried, Bonnie Kornman, Gail Goldman, Janyce Lee, Raj Sisodia, Ken Kornman, Donna Gallo, Jeff Shuman, Linda Edelman, Anna Forte, Emily Murphy, Tatiana Manolova, Michael Montalbano, Goli Eshghi, Marie Rock, Deb Kennedy, Linda Bee, Alex Zampieron, Alyssa Goldman, Jill Brown, Natalia Gold, Jayne Pollack, Aileen Cordette, Andrea Harding, Martha Bailey, Lew Sudarsky, Ed Ottensmeyer, Tim Stearns, Gloria Larson, Christopher Forte, Sam Vitali, Michael Page, Chip Wiggins, Vicki Lafarge, Dorothy Feldmann, Duncan Spelman, Josh Senn, Gary Cordette, Bob Cronin, Joe Goldman, Ed Harding, Anne Nelson, Tao Yue, Dianne Bevelander, Rick Vitali, Catherine Usoff, Beverley Earle, and William Wiggins Special thanks to Joyce Vincelette, Kathryn Wheelen, Patricia Ryan, Jim Schwartz and Pamela Goldberg

Lastly, to the many strategy instructors and students who have relayed to us their thoughts about teaching the strategy course: We have tried to respond to your problems and concerns as best we could by providing a comprehensive yet usable text coupled with recent and complex cases To you, the people who work hard in the strategy trenches, we acknowledge our debt

This book is yours

Charlotte, North Carolina

Pearson would like to thank and acknowledge the following people for their work on the Global Edition:

Contributors

Caroline Akhras

Notre Dame University, Lebanon

Jon and Diane Sutherland

Universiti Teknologi MARA, Malaysia

Goh Yuan Sheng Victor

Singapore Management University, Singapore

Khalil Ghazzawi

Rafik Hariri University, Lebanon

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About the Authors

Thomas L Wheelen, May 30, 1935 – December 24, 2011 DBA, MBA, BS Cum Laude

(George Washington University, Babson College, and Boston College, respectively), College, MBA (1961); Boston College, BS cum laude (1957) Teaching Experience: Visiting Professor—

Trinity College—University of Dublin (Fall 1999); University of South Florida—Professor of Strategic Management (1983–2008); University of Virginia - McIntire School of Commerce;

Ralph A Beeton Professor of Free Enterprise (1981–1985); Professor (1974–1981); Associate

Professor (1971–1974); and Assistant Professor (1968–1971); Visiting Professor—University of

Arizona (1979–1980 and Northeastern University (Summer 1975, 1977, and 1979) Academic,

Industry and Military Experience: University of Virginia College of Continuing Education:

(1) Coordinator for Business Education (1978–1983, 1971–1976)—approved all ate courses offered at seven Regional Centers and approved faculty; (2) Liaison Faculty and Consultant to the National Academy of the FBI Academy (1972–1983) and; (3) developed, sold, and conducted over 200 seminars for local, state, and national governments, and compa-

undergradu-nies for the McIntire School of Commerce and Continuing Education General Electric

USNR—assistant supply officer aboard nuclear support tender (1957–1960) Publications:

(1) Monograph, An Assessment of Undergraduate Business Education in the United States

(with J D Hunger), 1980; (2) Books: 60 books published; 14 books translated into eight

lan-guages (Arabic, Bahasa-Indonesian, Chinese, Chinese Simplified, Greek, Italian, Japanese,

Portuguese, and Thai) ; (3) Books—co-author with J D Hunger—five active books: Strategic

Management and Business Policy , 10th edition (2006); Cases in Strategic Management and

Business Policy , 10th edition (2006); Concepts in Strategic Management and Business Policy, 10th edition (2006); Strategic Management and Business Policy, 10th edition; International

Edition (2006); and Essentials of Strategic Management, 3rd edition (2003); (4) Co-editor:

Developments in Information Systems (1974) and Collective Bargaining in the Public Sector (1977); and (5) Co-developer of software—STrategic Financial ANalyzer (ST FAN) (1993,

1990, 1989—different versions); (6) Articles—authored over 40 articles that have appeared

in such journals as the Journal of Management, Business Quarterly, Personnel Journal, SAM

Advanced Management Journal, Journal of Retailing, International Journal of Management,

and the Handbook of Business Strategy; (6) Cases—have about 280 cases appearing in over

83 text and case books, as well as the Business Case Journal, Journal of Management Case

Studies, International Journal of Case Studies and Research , and the Case Research Journal

Awards: (1) Fellow elected by the Society for Advancement of Management in 2002; (2)

the Text and Academic Authors Association in 2000; (4) the 1999 Phil Carroll Advancement of

Management Award in Strategic Management from the Society for Advancement of

Manage-ment; (5) 1999 McGuffey Award for Excellence and Longevity for Strategic Management and

Business Policy, 6th edition, from the Text and Academic Authors Association; (6) 1996/97 Teaching Incentive Program Award for teaching undergraduate strategic management; (7) Fulbright, 1996–1997, to Ireland but had to turn it down; (8) Endowed Chair, Ralph A

Beeton Professor, at University of Virginia (1981–1985); (9) a Sesquicentennial Associateship research grant from the Center for Advanced Studies at the University of Virginia, 1979–1980;

(10) Small Business Administration (Small Business Institute), supervised undergraduate team that won District, Regional III, and Honorable Mention Awards; and (11) awards for

31

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two articles Associations: Dr Wheelen served on the Board of Directors of the Adhia Mutual

Fund, the Society for Advancement of Management, and on the Editorial Board and as

Asso-ciate Editor of SAM Advanced Management Journal He served on the Board of Directors of

Lazer Surgical Software Inc and the Southern Management Association, and on the Editorial

Boards of the Journal of Management and Journal of Management Case Studies, the Journal

of Retail Banking, the Case Research Journal, and the Business Case Journal He was Vice President of Strategic Management for the Society for the Advancement of Management, and President of the North American Case Research Association Dr Wheelen was a member of the Academy of Management, Beta Gamma Sigma, the Southern Management Association, the North American Case Research Association, the Society for Advancement of Management, the Society for Case Research, the Strategic Management Association, and the World Associa-

tion for Case Method Research and Application He has been listed in Who’s Who in Finance

and Industry, Who’s Who in the South and Southwest, and Who’s Who in American Education.

J David Hunger, Ph.D (Ohio State University), is currently Strategic Management Scholar

in Residence at Saint John’s University in Minnesota He is also Professor Emeritus at Iowa State University where he taught for 23 years He previously taught at George Mason Univer-sity, the University of Virginia, and Baldwin-Wallace College He worked in brand manage-ment at Procter & Gamble Company, as a selling supervisor at Lazarus Department Store, and served as a Captain in U.S Army Military Intelligence He has been active as a consultant and trainer to business corporations, as well as to state and federal government agencies He

has written numerous articles and cases that have appeared in the Academy of Management

Journal, International Journal of Management, Human Resource Management, Journal of Business Strategies, Case Research Journal, Business Case Journal, Handbook of Business Strategy, Journal of Management Case Studies, Annual Advances in Business Cases, Journal

of Retail Banking, SAM Advanced Management Journal, and Journal of Management, among

others Dr Hunger is a member of the Academy of Management, the North American Case search Association, the Society for Case Research, the North American Management Society, the Textbook and Academic Authors Association, and the Strategic Management Society He

Re-is past-President of the North American Case Research Association, the Society for Case Research, and the Iowa State University Press Board of Directors He also served as a Vice President of the U.S Association for Small Business and Entrepreneurship He was Academic Director of the Pappajohn Center for Entrepreneurship at Iowa State University He has served

on the editorial review boards of SAM Advanced Management Journal, the Journal of

Busi-ness Strategies, and Journal of Business Research He has served on the board of directors of

the North American Case Research Association, the Society for Case Research, the Iowa State University Press, and the North American Management Society He is co-author with Thomas

L Wheelen of Strategic Management and Business Policy and Essentials of Strategic

Man-agement plus Concepts in Strategic Management and Business Policy and Cases in Strategic

Management and Business Policy , as well as Strategic Management Cases (PIC: Preferred

Individualized Cases), and a monograph assessing undergraduate business education in the

United States The 8th edition of Strategic Management and Business Policy received the

McGuffey Award for Excellence and Longevity in 1999 from the Text and Academic Authors Association Dr Hunger received the Best Case Award given by the McGraw-Hill Publishing Company and the Society for Case Research in 1991 for outstanding case development He is

listed in various versions of Who’s Who, including Who’s Who in the United States and Who’s

Who in the World He was also recognized in 1999 by the Iowa State University College of Business with its Innovation in Teaching Award and was elected a Fellow of the Teaching and Academic Authors Association and of the North American Case Research Association

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Alan N Hoffman, MBA, DBA (Indiana University), is Professor of Strategic

Manage-ment at Bentley University in Waltham, Massachusetts He is the former Director of the MBA Program at Bentley University He served as the course coordinator and Visiting Professor

of Strategic Management for the Global Strategy course in the OneMBA Program at the Rotterdam School of Management at Erasmus University, Rotterdam, The Netherlands He

is also the owner of Dr Alan N Hoffman Investment Management, founded in 1995 His major areas of interest include strategic management, global competition, investment strategy,

design thinking, and technology Professor Hoffman is coauthor of The Strategic

Manage-ment Casebook and Skill Builder textbook (with Hugh O’Neill) His academic publications have appeared in the Academy of Management Journal, Human Relations, the Journal of

Business Ethics , the Journal of Business Research, and Business Horizons He has authored

more than 30 strategic management cases, including The Boston YWCA, Ryka Inc., Liz Claiborne, Ben & Jerry’s, Cisco Systems, Sun Microsystems, Palm Inc., Handspring, eBay, AOL/Time Warner, McAfee, Apple Computer, TiVo Inc., Wynn Resorts, TomTom, Blue Nile,

GE, Amazon, Netflix, Delta Airlines, A123, Tesla Motors, and Whole Foods Market He is the recipient of the 2004 Bentley University Teaching Innovation Award for his course: “The Or-ganizational Life Cycle—The Boston Beer Company Brewers of Samuel Adams Lager Beer.”

He teaches strategic management in many executive programs and also teaches business to artists at The Massachusetts College of Art and Design

Charles E Bamford, Ph.D (University of Tennessee), MBA (Virginia Tech), and BS

(University of Virginia) He is an adjunct professor at the University of Notre Dame, where

he has been awarded the EMBA Professor of the Year Award three times Chuck worked in industry for 12 years prior to pursuing his Ph.D His last position was as the Manager of Busi-ness Analysis (Mergers & Acquisitions, Dispositions, and Business Consulting) for Dominion Bankshares Corporation (now Wells Fargo) For the past 20 years, Chuck has been an active consultant as the Founder of Bamford Associates, LLC He has worked with thousands of managers in the development of implementable strategic plans and an entrepreneurial orienta-tion to growth

His research has been published in the Strategic Management Journal, Journal of Business

Venturing, Entrepreneurship Theory & Practice, Journal of Business Research, Journal of Business Strategies, Journal of Technology Transfer , and Journal of Small Business Manage-

ment, among others Chuck has co-authored four textbooks and is the author of the fiction

novel Some Things Are Never Forgiven (Penguin Press).

He has taught courses in strategy and entrepreneurship at the undergraduate, graduate, and executive levels His teaching experience includes courses taught at universities in Scotland, Hungary, and the Czech Republic He was a Professor and held the Dennis Thompson Chair

of Entrepreneurship at Queens University of Charlotte and previously held positions as an Associate Professor at Texas Christian University and at the University of Richmond He has taught Executive MBA courses at The University of Notre Dame, Texas Christian University, Tulane University, and at Queens University of Charlotte

Chuck has won 18 individual teaching excellence awards during his career, including

9 Executive MBA Professor of the Year Awards He is also a Noble Foundation Fellow in Teaching Excellence

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P A R T 1

Introduction to

and Business

Policy

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General forces

Natural Environment:

Resources and

climate

Task Environment:

a plan Cost of the

programs

Sequence

do the job

Reason for existence

What results to accomplish

by when Plan to

achieve the mission &

objectives Broad

guidelines for decision making

l h

Pl Plan t o

hi he

B Bro d ad

id li

A Acti i ivi ities

d d h

CCost off thhe

Environmental

Scanning:

C H A P T E R 1

My Management Lab®

basic concepts of

Strategic

Management

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Ford—A Study in Strategic Planning

The 21st-century story of the power of strategic planning and implementation for Ford Motor Company really starts in January 2006.

Ford announced a US$1.6 billion loss in North American operations and a ing loss of market share Then CEO and grandson of the founder, William Clay (Bill) Ford announced the “Way Forward”—a surprisingly clear strategy document to lead the company back to profitability by 2008 and reduce costs by over US$6 billion by 2010 The entire document was only 16 pages long and clearly laid out the way that Ford was going to change the direction of the company This was a corporate-level change document in the classic planning mode of strategy.

continu-For the next nine months, the company attempted to implement the plan, and the result

by the third quarter of 2006 was a staggering US$5.6 billion loss that would end up being a loss of over US$12 billion before the year was out Bill Ford and the Board of Directors realized that they needed a CEO who could really implement the plan Someone with an operations approach and the willingness to make the tough decisions required by that plan They tapped Alan Mulally, the President and CEO of Boeing’s Commercial Airlines unit He stated that "These business results are clearly unacceptable We are committed to dealing decisively with the fun- damental business reality that customer demand is shifting to smaller, more efficient vehicles.”

Mulally immediately eliminated the Ford dividend which had been a staple of the blue chip company for decades He sold off Volvo, Aston-Martin, Jaguar, and Land Rover to other companies and sold most of Ford’s stock holdings in Mazda He shut down the historic Mercury line of vehicles and focused all of the company’s energy on two vehicle lines: Ford and Lincoln In what now looks even more brilliant than it did at the time, he secured US$23.6 billion in lines of credit to help the company through the change

It turned out to be prescient When the other American automobile companies saw their sales plummet in 2009, Ford was able to thrive In fact, Ford was the only American auto

• Identify some common triggering events that act as stimuli for strategic change

• Understand strategic decision-making modes

• Use the strategic audit as a method of alyzing corporate functions and activities

an-• Understand the benefits of strategic management

• Explain how globalization and mental sustainability influence strategic management

environ-• Understand the basic model of strategic management and its components

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company that didn’t require a government bailout If not for the bailout moneys from the U.S government, Ford may well have become the only American automaker that remained.

The results speak for themselves In early 2012, Ford announced that for the calendar year of 2011 it earned US$20.2 billion in net income and US$8.8 billion in pre-tax profit, which was the third year in a row it reported an increase in annual profits Ford has moved into the solid #2 spot for worldwide sales of vehicles and has reduced its total debt position to less than US$13 billion Mulally credits the results to a companywide focus on

a strategy that matters to customers.

SOURCES: R Jones, “‘Way Forward’ for Ford Looking Long and Hard,” MSNBC (2011), http://www msnbc.msn.com/id/10988134/ns/business-autos/t/way-forward-ford-looking-long-hard/; “Ford Hits

Another Big Pothole,” BusinessWeek (October 23, 2006), http://www.businessweek.com/

financial-advice; http://media.ford.com/article_display.cfm?article_id=24203/; N Vardy, “Ford: An

stories/2006-10-23/ford-hits-another-big-potholebusinessweek-business-news-stock-market-and-All American Success Story,” MSN Money (December 14, 2011), http://money.msn.com/top-

stocks/post.aspx?post=f7a06d6b-9b5f-48fd-ac35-0a1d0747a582; http://topics.nytimes.com/top/news/

business/companies/ford_motor_company/index.html; http://media.ford.com/article_display.cfm?article_

id=35878.

PHASES OF STRATEgIC MANAgEMENT

Many of the concepts and techniques that deal with strategic management have been developed and used successfully by business corporations as large as General Electric and as small as the newest startup Over time, business practitioners and academic researchers have expanded and refined these concepts Initially, strategic management was of most use to large corporations operating in multiple industries Increasing risks of error, costly mistakes, and even economic ruin are causing today’s professional managers in all organizations to take strategic management seriously in order to keep their companies competitive in an increas-ingly volatile environment

As managers attempt to better deal with their changing world, a firm generally evolves

Phase 1—Basic financial planning: Managers initiate serious planning when they are

requested to propose the following year’s budget Projects are proposed on the basis of very little analysis, with most information coming from within the firm The sales force usually provides the small amount of environmental information Such simplistic opera-tional planning only pretends to be strategic management, yet it is quite time consuming

Normal company activities are often suspended for weeks while managers try to cram ideas into the proposed budget The time horizon is usually one year

Strategic management is a set of managerial decisions and actions that help determine the

long-term performance of an organization It includes environmental scanning (both external and internal), strategy formulation (strategic or long-range planning), strategy implementa-

tion, and evaluation and control Originally called business policy, strategic management

has advanced substantially with the concentrated efforts of researchers and practitioners

Today we recognize both a science and an art to the application of strategic management techniques

The Study of Strategic Management

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Phase 2—Forecast-based planning: As annual budgets become less useful at stimulating

long-term planning, managers attempt to propose five-year plans At this point, they consider projects that may take more than one year In addition to internal information, managers gather any available environmental data—usually on an ad hoc basis—and extrapolate current trends five years into the future This phase is also time consuming, often involving a full month or more of managerial activity to make sure all the proposed budgets fit together The process gets very political as managers compete for larger shares

of limited funds Seemingly endless meetings take place to evaluate proposals and justify assumptions The time horizon is usually three to five years

Phase 3—Externally oriented (strategic) planning: Frustrated with highly political yet

ineffectual five-year plans, top management takes control of the planning process by initiating strategic planning The company seeks to increase its responsiveness to chang-ing markets and competition by thinking strategically Planning is taken out of the hands

of lower-level managers and concentrated in a planning staff whose task is to develop strategic plans for the corporation Consultants often provide the sophisticated and in-novative techniques that the planning staff uses to gather information and forecast future trends Organizations start competitive intelligence units Upper-level managers meet once a year at a resort “retreat” led by key members of the planning staff to evaluate and update the current strategic plan Such top-down planning emphasizes formal strat-egy formulation and leaves the implementation issues to lower-management levels Top management typically develops five-year plans with help from consultants but minimal input from lower levels

Phase 4—Strategic management: Realizing that even the best strategic plans are

worth-less without the input and commitment of lower-level managers, top management forms planning groups of managers and key employees at many levels, from various departments and workgroups They develop and integrate a series of strategic plans aimed at achieving the company’s primary objectives Strategic plans at this point detail the implementation, evaluation, and control issues Rather than attempting to perfectly forecast the future, the plans emphasize probable scenarios and contingency strategies The sophisticated annual five-year strategic plan is replaced with strategic thinking at all levels of the organization throughout the year Strategic information, previously available only centrally to top management, is available virtually to people throughout the organization Instead of a large centralized planning staff, internal and external planning consultants are available to help guide group strategy discussions

Although top management may still initiate the strategic planning process, the ing strategies may come from anywhere in the organization Planning is typically interactive across levels and is no longer strictly top down People at all levels are now involved

result-General Electric, one of the pioneers of strategic planning, led the transition from strategic

around the world had also begun the conversion to strategic management

BENEFITS OF STRATEgIC MANAgEMENT

Strategic management emphasizes long-term performance Many companies can manage short-term bursts of high performance, but only a few can sustain it over a longer period of

time For example, of the original Fortune 500 companies listed in 1955, only 6 of the Top

25 in that original list are still in the Top 25 as of 2012 and 10 of the original companies are

no longer in business To be successful in the long-run, companies must not only be able to

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