Basic concepts of strategic management pdf

Strategic Management Model

Gathering Information

Societal Environment: General forces

Natural Environment: Resources and

climate

Task Environment:

Industry analysis

Internal: Strengths and Weaknesses

Structure: Chain of command

Culture: Beliefs, expectations,

values

Resources: Assets, skills, competencies,

knowledge

External: Opportunities

and Threats

Developing Long-range Plans

Mission

Reason for existence Objectives

What results to accomplish by when

Strategies

Plan to achieve the mission & objectives

Policies

Broad guidelines for decision making

Environmental Scanning:

Strategy Formulation:

Feedback/Learning: Make corrections as needed

Putting Strategy into Action

Monitoring Performance

Programs

Activities needed to accomplish a plan

Budgets

Cost of the programs Procedures

Sequence of steps needed to do the job

Performance

Actual results

Strategy Implementation:

Evaluation and Control:

THIRTEENTH EDITION

Strategic Management

and Business Policy

TOWARD GLOBAL SUSTAINABILITY

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THIRTEENTH EDITION

Thomas L. Wheelen Formerly with University of Virginia Trinity College, Dublin, Ireland

J. David Hunger Iowa State University St. John’s University

Strategic Management

and Business Policy

TOWARD GLOBAL SUSTAINABILITY

with major contributions by

Kathryn E. Wheelen

Alan N. Hoffman Bentley University

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Library of Congress Cataloging-in-Publication Data Wheelen, Thomas L.

Strategic management and business policy : toward global sustainability / Thomas L. Wheelen, J. David Hunger. — 13th ed.

p. cm. Includes bibliographical references and index. ISBN-13: 978-0-13-215322-5 ISBN-10: 0-13-215322-X

1. Strategic planning. 2. Strategic planning—Case studies. 3. Sustainability. I. Hunger, J. David, II. Title.

HD30.28.W43 2012 658.4'012—dc22

2011013549

Senior Art Director/Supervisor: Janet Slowik Cover Designer: Liz Harasymcuk Cover Photo: Courtesy of NASA/Shutterstock Interior Designer: Maureen Eide Media Project Manager, Editorial: Denise Vaughn Media Project Manager, Production: Lisa Rinaldi Full-Service Project Management: Emily Bush, S4Carlisle Publishing Services Composition: S4Carlisle Publishing Services Printer/Binder: Courier/Kendalville Cover Printer: Lehigh-Phoenix Color/Hagerstown Text Font: 10/12 Times Roman

10 9 8 7 6 5 4 3 2 1 ISBN 10: 0-13-215322-X ISBN 13: 978-0-13-215322-5

Dedicated to

KATHY, RICHARD, AND TOM BETTY, KARI AND JEFF, MADDIE AND MEGAN, SUZI AND NICK, SUMMER AND KACEY, LORI, MERRY AND DYLAN, AND WOOFIE (ARF!).

SPECIAL DEDICATION TO KATHRYN WHEELEN:

Kathryn has worked on every phase of the case section of this book. Until this edition, she also managed the construction of the Case Instructor’s Manual. She has done every job with a high level of dedication

and concern for both the case authors and the readers of this book.

NOLA AKALA

DAVID ALEVY

TARA ALGEO

DAVID ARMSTRONG

MIKE ASKEW

LAURA BAILEY

NICK BAKER

ALICIA BARNES

ASHLEY BARNES

ALICE BARR

SHERRY BARTEL

KENDRA BASSI

JAY BECKENSTEIN

JOSH BECKENSTEIN

NICOLE BELL

CATHY BENNETT

KATIE BOLLIN

SCOTT BORDEN

JENNIFER BOYLE

AUNDREA BRIDGES

SUZANNE BROWN

ALEXANDRA BUEHLER

KYLE BURDETTE

WHITNEY CAMERON

RUTH CARDIFF

AMY CAREY

MEGAN CARRICO

MARTI CARTER

ANDREA CATULLO-LINN

MEREDITH CHANDLER

LUKE CLAEYS

KAYLEE CLAYMORE

BRIAN COBB

JENNIFER COLE

TARYLL CONNOLLY

THAYNE CONRAD

DONNA CONROY

CAITLIN COUTHEN

MEGAN JOY COWART

CYNDI CRIMMINS

KASEY CROCKETT

DAN CURRIER

KELLY DAN

MICHLENE DAOUD HEALY

STACY DAVIS

FRANK DEL CASTILLO

MEREDITH DELA ROSA

CHRIS DELANEY

GEORGE DEVENNEY

DANA DODGE (Frick)

KATE DOLDER

BARBARA DONLON

HEIDI DRESSLER

TRACY DYBALSKI

BRIAN DYK

KIM ECK

TRISH EICHHOLD

KRISTIN ELBER

KELSEY ELLIOTT

KATIE EYNON

GENEVA FARROW

MARIA FELIBERTY

MIKE FINER

MICHELLE FINNERTY

CANDAS FLETCHER

ROBERT FLORY

MARCIA FLYNN

BRAD FORRESTER

MARGARET FRENCH

STEPHANIE FRITSON

MARK GAFFNEY

MICHELLE GARCIA-JUCHTER

SYBIL GERAUD

AMBER GOECKE

CAROLYN GOGOLIN

ADAM GOLDSTEIN

BETH GRUNFELD

MICAELA HAIDLE

GREG HAITH

DEMETRIUS HALL

BRIDGET HANNENBERG

BRYAN HARRELL

TARA HARTLEY

KENNY HARVEY

ALISON HASKINS

CAROL HAWKS

JENNIFER HEILBRUNN

CHRISTINE HENRY

LYNN HICKS

JULIE HILDEBRAND

DAUNNE HINGLE

WENDI HOLLAND

CHRISTY HUMENIUK

GENE HUMENIUK

ANDREA IORIO

SUSAN JACKSON

PAM JEFFRIES

BRITTANY JUCHNOWSKI

ANJALI JUSTUS

CHERYL KABB

LAURA KAPPES

GIA KAUL

JULIE KESTENBAUM

KARTAPURKH KHALSA

KIM KIEHLER

AMANDA KILLEEN

WALT KIRBY

MARY-JO KOVACH

ROBYN KOVAR

GREG KRAMP

DANIEL KRAUSS

MICHAEL KRISANDA

GINA LaMANTIA

CHAFIKA LANDERS

DOROTHY LANDRY

DUSTIN LANGE

ALIX LaSCOLA

JOE LEE

APRIL LEMONS

KIMBERLY LENAGHAN

This book is also dedicated to the following Prentice Hall/Pearson sales representatives who work so hard to promote this book:

vi

TRICIA LISCIO

BETH LUDWIG

CARY LUNA

JEMINA MACHARRY

KATIE MAHAN

LAURA MANN

PATRICIA MARTINEZ

CHRISTINA MASTROGIOVANNI

SONNY MATHARU

TONY MATHIAS

BROOK MATTHEWS

GEORGIA MAY

ALICIA MCAULIFFE

MASON McCARTNEY

KAREN McFADYEN

BRIAN McGARRY

MICHELLE McGOVERN

IRENE McGUINNESS

RYAN McHENRY

CRISTIN McMICHAEL

KEVIN MEASELLE

RAY MEDINA

KELLY MEIERHOFER

MOLLY MEINERS

MATT MESAROS

SHALON MILLER

JAMI MINARD

WILLIAM MINERICH

EMILY MITCHELL

JILINE MIX

JULIE MOREL

RAFAEL MORENO

TRACY MORSE

OLIVIA MOUG

DOLLY MUNIZ

TRICIA MURPHY

LAUREN MURROW

AMBER MYLLION (Parks)

LINDA NELSON

LYNNE NICLAIR

BOB NISBET

BETSY NIXON

TOM NIXON

LAURA NOAH

COLLEEN O’DELL

DEBBIE OGILIVE

SARI ORLANSKY

DAVE OSTROW

DARCEY PALMER

KRISTINA PARKER

TONI PAYNE

JULIANNE PETERSON

MELISSA PFISTNER

CANDACE PINATARO

BELEN POLTORAK

ELIZABETH POPIELARZ

MEGAN PRENDERGAST

NICOLE PRICE

JILL PROMESSO

LENNY ANN RAPER

JOSH RASMUSSEN

AMANDA RAY

SONYA REED

RICHARD RESCH

MARY RHODES

BRAD RITTER

DAN ROBERTSON

MATT ROBINSON

JENNIFER ROSEN

DOROTHY ROSENE

KELLEEN ROWE

RICH ROWE

PEYTON ROYTEK

SENG SAECHAO

STEVE SARTORI

LYNDA SAX

BOB SCANLON

MARCUS SCHERER

KIMBERLY SCHEYVING

HEIDI SCHICK (Miller)

BRAD SCHICK

CHRIS SCHMIDT

DEBORAH SCHMIDT

MOLLY SCHMIDT

CORRINA SCHULTZ

WHITNEY SEAGO

CHRISTIANA SERLE

MARTHA SERNAS

MARY SHAPIRO

BARBARA SHERRY

KEN SHIPBAUGH

DAVE SHULER

JESSICA SIEMINSKI

LEA SILVERMAN

AUTUMN SLAUGHTER

KRISTA SLAVICEK

SCOTT SMITH

ADRIENNE SNOW

LEE SOLOMONIDES

BEN STEPHEN

DAN SULLIVAN

JOHN SULLIVAN

LORI SULLIVAN

STEPHANIE SURFUS

AMANDA SVEC

CHRISTINA TATE

SARAH THOMAS

ABBY THORNBLADH

KATY TOWNLEY

ELIZABETH TREPKOWSKI

TARA TRIPP

CAROLYN TWIST

JOE VIRZI

AMANDA VOLZ

BRITNEY WALKER

MADELEINE WATSON

BEN WEBER

DANIEL WELLS

MARK WHEELER

LIZ WILDES

MICHELLE WILES

BRIAN WILLIAMS

ERIN WILLIAMS

CINDY WILLIAMSON

RACHEL WILLIS

SIMON WONG

KIMBERLY WOODS

JACKIE WRIGHT

HEATHER WRUBLESKY

GEORGE YOUNG

MARY ZIMMERMANN

KACIE ZIN

DEDICATION vii

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Brief Contents

PART ONE Introduction to Strategic Management and Business Policy 1

C H A P T E R 1 Basic Concepts of Strategic Management 2 C H A P T E R 2 Corporate Governance 42 C H A P T E R 3 Social Responsibility and Ethics in Strategic Management 70

PART TWO Scanning the Environment 93

C H A P T E R 4 Environmental Scanning and Industry Analysis 94 C H A P T E R 5 Internal Scanning: Organizational Analysis 136

PART THREE Strategy Formulation 173

C H A P T E R 6 Strategy Formulation: Situation Analysis and Business Strategy 174 C H A P T E R 7 Strategy Formulation: Corporate Strategy 204 C H A P T E R 8 Strategy Formulation: Functional Strategy and Strategic Choice 236

PART FOUR Strategy Implementation and Control 269

C H A P T E R 9 Strategy Implementation: Organizing for Action 270 C H A P T E R 1 0 Strategy Implementation: Staffing and Directing 300 C H A P T E R 1 1 Evaluation and Control 328

PART FIVE Introduction to Case Analysis 363

C H A P T E R 1 2 Suggestions for Case Analysis 364

PART SIX WEB CHAPTERS Other Strategic Issues

W E B C H A P T E R A Strategic Issues in Managing Technology & Innovation W E B C H A P T E R B Strategic Issues in Entrepreneurial Ventures & Small Businesses W E B C H A P T E R C Strategic Issues in Not-For-Profit Organizations

PART SEVEN Cases in Strategic Management 1-1

GLOSSARY G-1

NAME INDEX I-1

SUBJECT INDEX I-7

ix

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Contents

Preface xxix

PART ONE Introduction to Strategic Management and Business Policy 1

C H A P T E R 1 Basic Concepts of Strategic Management 2 1.1 The Study of Strategic Management 5

Phases of Strategic Management 5

Benefits of Strategic Management 6

1.2 Globalization and Environmental Sustainability: Challenges to Strategic Management 7

Impact of Globalization 8

Impact of Environmental Sustainability 8

Global Issue: REGIONAL TRADE ASSOCIATIONS REPLACE NATIONAL TRADE BARRIERS 9

Environmental Sustainability Issue: PROJECTED EFFECTS OF CLIMATE CHANGE 12

1.3 Theories of Organizational Adaptation 12

1.4 Creating a Learning Organization 13

1.5 Basic Model of Strategic Management 14

Environmental Scanning 16

Strategy Formulation 17

Strategy Highlight 1.1: DO YOU HAVE A GOOD MISSION STATEMENT? 18

Strategy Implementation 21

Evaluation and Control 22

Feedback/Learning Process 23

1.6 Initiation of Strategy: Triggering Events 23

Strategy Highlight 1.2: TRIGGERING EVENT AT UNILEVER 24

1.7 Strategic Decision Making 25

What Makes a Decision Strategic 25

Mintzberg’s Modes of Strategic Decision Making 25

Strategic Decision-Making Process: Aid to Better Decisions 27

1.8 The Strategic Audit: Aid to Strategic Decision-Making 28

1.9 End of Chapter Summary 29

APPENDIX 1.A Strategic Audit of a Corporation 34

xi

C H A P T E R 2 Corporate Governance 42 2.1 Role of the Board of Directors 45

Responsibilities of the Board 45

Members of a Board of Directors 48

Strategy Highlight 2.1: AGENCY THEORY VERSUS STEWARDSHIP THEORY IN CORPORATE GOVERNANCE 50

Nomination and Election of Board Members 53

Organization of the Board 54

Impact of the Sarbanes-Oxley Act on U.S. Corporate Governance 55

Global Issue: CORPORATE GOVERNANCE IMPROVEMENTS THROUGHOUT THE WORLD 56

Trends in Corporate Governance 57

2.2 The Role of Top Management 58

Responsibilities of Top Management 58

Environmental Sustainability Issue: CONFLICT AT THE BODY SHOP 59

2.3 End of Chapter Summary 62

C H A P T E R 3 Social Responsibility and Ethics in Strategic Management 70 3.1 Social Responsibilities of Strategic Decision Makers 72

Responsibilities of a Business Firm 72

Sustainability: More than Environmental? 75

Corporate Stakeholders 75

Environmental Sustainability Issue: THE DOW JONES SUSTAINABILITY INDEX 76

Strategy Highlight 3.1: JOHNSON & JOHNSON CREDO 78

3.2 Ethical Decision Making 79

Some Reasons for Unethical Behavior 79

Strategy Highlight 3.2: UNETHICAL PRACTICES AT ENRON AND WORLDCOM EXPOSED BY “WHISTLE-BLOWERS” 80

Global Issue: HOW RULE-BASED AND RELATIONSHIP-BASED GOVERNANCE SYSTEMS AFFECT ETHICAL BEHAVIOR 81

Encouraging Ethical Behavior 83

3.3 End of Chapter Summary 86

Ending Case for Part One: BLOOD BANANAS 90

PART TWO Scanning the Environment 93

C H A P T E R 4 Environmental Scanning and Industry Analysis 94 4.1 Environmental Scanning 98

Identifying External Environmental Variables 98

Environmental Sustainability Issue: MEASURING AND SHRINKING YOUR PERSONAL CARBON FOOTPRINT 100

xii CONTENTS

Global Issue: IDENTIFYING POTENTIAL MARKETS IN DEVELOPING NATIONS 107

Identifying External Strategic Factors 108

4.2 Industry Analysis: Analyzing the Task Environment 109

Porter’s Approach to Industry Analysis 110

Industry Evolution 114

Categorizing International Industries 114

International Risk Assessment 115

Strategic Groups 115

Strategic Types 117

Hypercompetition 117

Using Key Success Factors to Create an Industry Matrix 118

Strategy Highlight 4.1: MICROSOFT IN A HYPERCOMPETITIVE INDUSTRY 118

4.3 Competitive Intelligence 120

Sources of Competitive Intelligence 121

Strategy Highlight 4.2: EVALUATING COMPETITIVE INTELLIGENCE 122

Monitoring Competitors for Strategic Planning 122

4.4 Forecasting 123

Danger of Assumptions 123

Useful Forecasting Techniques 124

4.5 The Strategic Audit: A Checklist for Environmental Scanning 125

4.6 Synthesis of External Factors—EFAS 126

4.7 End of Chapter Summary 127

APPENDIX 4.A Competitive Analysis Techniques 133

C H A P T E R 5 Internal Scanning: Organizational Analysis 136 5.1 A Resource-Based Approach to Organizational Analysis 138

Core and Distinctive Competencies 138

Using Resources to Gain Competitive Advantage 139

Determining the Sustainability of an Advantage 140

5.2 Business Models 142

5.3 Value-Chain Analysis 143

Strategy Highlight 5.1: A NEW BUSINESS MODEL AT SMARTYPIG 144

Industry Value-Chain Analysis 145

Corporate Value-Chain Analysis 146

5.4 Scanning Functional Resources and Capabilities 147

Basic Organizational Structures 147

Corporate Culture: The Company Way 149

CONTENTS xiii

Global Issue: MANAGING CORPORATE CULTURE FOR GLOBAL COMPETITIVE ADVANTAGE: ABB VERSUS MATSUSHITA 150

Strategic Marketing Issues 151

Strategic Financial Issues 153

Strategic Research and Development (R&D) Issues 154

Strategic Operations Issues 156

Strategic Human Resource (HRM) Issues 158

Environmental Sustainability Issue: USING ENERGY EFFICIENCY FOR COMPETITIVE ADVANTAGE AND QUALITY OF WORK LIFE 161

Strategic Information Systems/Technology Issues 162

5.5 The Strategic Audit: A Checklist for Organizational Analysis 163

5.6 Synthesis of Internal Factors 164

5.7 End of Chapter Summary 165

Ending Case for Part Two: BOEING BETS THE COMPANY 170

PART THREE Strategy Formulation 173

C H A P T E R 6 Strategy Formulation: Situation Analysis and Business Strategy 174 6.1 Situation Analysis: SWOT Analysis 176

Generating a Strategic Factors Analysis Summary (SFAS) Matrix 176

Finding a Propitious Niche 177

Global Issue: SAB DEFENDS ITS PROPITIOUS NICHE 181

6.2 Review of Mission and Objectives 181

6.3 Generating Alternative Strategies by Using a TOWS Matrix 182

6.4 Business Strategies 183

Porter’s Competitive Strategies 183

Environmental Sustainability Issue: PATAGONIA USES SUSTAINABILITY AS DIFFERENTIATION COMPETITIVE STRATEGY 187

Cooperative Strategies 195

6.5 End of Chapter Summary 199

C H A P T E R 7 Strategy Formulation: Corporate Strategy 204 7.1 Corporate Strategy 206

7.2 Directional Strategy 206

Growth Strategies 207

Strategy Highlight 7.1: TRANSACTION COST ECONOMICS ANALYZES VERTICAL GROWTH STRATEGY 210

xiv CONTENTS

Global Issue: COMPANIES LOOK TO INTERNATIONAL MARKETS FOR HORIZONTAL GROWTH 212

Strategy Highlight 7.2: SCREENING CRITERIA FOR CONCENTRIC DIVERSIFICATION 215

Controversies in Directional Growth Strategies 216

Stability Strategies 217

Retrenchment Strategies 218

7.3 Portfolio Analysis 220

BCG Growth-Share Matrix 221

Environmental Sustainability Issue: GENERAL MOTORS AND THE ELECTRIC CAR 222

GE Business Screen 223

Advantages and Limitations of Portfolio Analysis 225

Managing a Strategic Alliance Portfolio 225

7.4 Corporate Parenting 226

Developing a Corporate Parenting Strategy 227

Horizontal Strategy and Multipoint Competition 228

7.5 End of Chapter Summary 229

C H A P T E R 8 Strategy Formulation: Functional Strategy and Strategic Choice 236 8.1 Functional Strategy 238

Marketing Strategy 238

Financial Strategy 239

Research and Development (R&D) Strategy 241

Operations Strategy 242

Global Issue: INTERNATIONAL DIFFERENCES ALTER WHIRLPOOL’S OPERATIONS STRATEGY 243

Purchasing Strategy 244

Environmental Sustainability Issue: OPERATIONS NEED FRESH WATER AND LOTS OF IT! 245

Logistics Strategy 246

Human Resource Management (HRM) Strategy 246

Information Technology Strategy 247

8.2 The Sourcing Decision: Location of Functions 247

8.3 Strategies to Avoid 250

8.4 Strategic Choice: Selecting the Best Strategy 251

Constructing Corporate Scenarios 251

Process of Strategic Choice 257

CONTENTS xv

8.5 Developing Policies 258

8.6 End of Chapter Summary 259

Ending Case for Part Three: KMART AND SEARS: STILL STUCK IN THE MIDDLE? 266

PART FOUR Strategy Implementation and Control 269

C H A P T E R 9 Strategy Implementation: Organizing for Action 270 9.1 Strategy Implementation 272

9.2 Who Implements Strategy? 273

9.3 What Must Be Done? 273

Developing Programs, Budgets, and Procedures 274

Environmental Sustainability Issue: FORD’S SOYBEAN SEAT FOAM PROGRAM 274

Strategy Highlight 9.1: THE TOP TEN EXCUSES FOR BAD SERVICE 277

Achieving Synergy 278

9.4 How Is Strategy to Be Implemented? Organizing for Action 278

Structure Follows Strategy 279

Stages of Corporate Development 280

Organizational Life Cycle 283

Advanced Types of Organizational Structures 285

Reengineering and Strategy Implementation 288

Six Sigma 289

Designing Jobs to Implement Strategy 290

Strategy Highlight 9.2: DESIGNING JOBS WITH THE JOB CHARACTERISTICS MODEL 291

9.5 International Issues in Strategy Implementation 291

International Strategic Alliances 292

Stages of International Development 293

Global Issue: MULTIPLE HEADQUARTERS: A SIXTH STAGE OF INTERNATIONAL DEVELOPMENT? 294

Centralization Versus Decentralization 294

9.6 End of Chapter Summary 296

C H A P T E R 1 0 Strategy Implementation: Staffing and Directing 300 10.1 Staffing 302

Staffing Follows Strategy 303

Selection and Management Development 305

Strategy Highlight 10.1: HOW HEWLETT-PACKARD IDENTIFIES POTENTIAL EXECUTIVES 306

Problems in Retrenchment 308

International Issues in Staffing 309

xvi CONTENTS

10.2 Leading 311

Managing Corporate Culture 311

Environmental Sustainability Issue: ABBOTT LABORATORIES’ NEW PROCEDURES FOR GREENER COMPANY CARS 312

Action Planning 316

Management by Objectives 318

Total Quality Management 318

International Considerations in Leading 319

Global Issue: CULTURAL DIFFERENCES CREATE IMPLEMENTATION PROBLEMS IN MERGER 321

10.3 End of Chapter Summary 322

C H A P T E R 1 1 Evaluation and Control 328 11.1 Evaluation and Control in Strategic Management 330

11.2 Measuring Performance 332

Appropriate Measures 332

Types of Controls 332

Activity-Based Costing 334

Enterprise Risk Management 335

Primary Measures of Corporate Performance 335

Environmental Sustainability Issue: HOW GLOBAL WARMING COULD AFFECT CORPORATE VALUATION 340

Primary Measures of Divisional and Functional Performance 342

International Measurement Issues 344

Global Issue: COUNTERFEIT GOODS AND PIRATED SOFTWARE: A GLOBAL PROBLEM 346

11.3 Strategic Information Systems 347

Enterprise Resource Planning (ERP) 347

Radio Frequency Identification (RFID) 348

Divisional and Functional IS Support 348

11.4 Problems in Measuring Performance 348

Short-Term Orientation 349

Goal Displacement 350

11.5 Guidelines for Proper Control 351

Strategy Highlight 11.1: SOME RULES OF THUMB IN STRATEGY 351

11.6 Strategic Incentive Management 352

11.7 End of Chapter Summary 354

Ending Case for Part Four: HEWLETT-PACKARD BUYS EDS 360

CONTENTS xvii

PART FIVE Introduction to Case Analysis 363

C H A P T E R 1 2 Suggestions for Case Analysis 364 12.1 The Case Method 365

12.2 Researching the Case Situation 366

12.3 Financial Analysis: A Place to Begin 366

Analyzing Financial Statements 369

Environmental Sustainability Issue: IMPACT OF CARBON TRADING 370

Global Issue: FINANCIAL STATEMENTS OF MULTINATIONAL CORPORATIONS: NOT ALWAYS WHAT THEY SEEM 371

Common-Size Statements 371

Z-value and Index of Sustainable Growth 371

Useful Economic Measures 372

12.4 Format for Case Analysis: The Strategic Audit 373

12.5 End of Chapter Summary 375

APPENDIX 12.A Resources for Case Research 377

APPENDIX 12.B Suggested Case Analysis Methodology Using the Strategic Audit 380

APPENDIX 12.C Example of a Student-Written Strategic Audit 383