Building an organization capable of good strategy execution entails

Crafting and Executing Strategy

Core Concepts Analytical Tools Cases

The Quest for Competitive Advantage

Instructor’s Manual to accompany

SEVENTEENTH EDITION

Arthur A. Thompson, Jr. The University of Alabama

A.J. Strickland The University of Alabama

John E. Gamble University of South Alabama

Table of Contents Section 1 The Seventeenth Edition: Instructor Resources, Chapter Features,

and Case Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Section 2 Using a Strategy Simulation in Your Course: The Compelling Benefi ts, What’s Involved, and How to Proceed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Section 3 Organizing Your Course, Developing a Syllabus, and Suggestions for Using the Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Section 4 Sample Syllabi and Daily Course Outlines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Section 5 Test Bank for Chapters 1-12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

Chapter 1 What Is Strategy and Why Is It Important? . . . . . . . . . . . . . . . . . . . . . . . 99

Chapter 2 Leading the Process of Crafting and Executing Strategy . . . . . . . . . . . . 115

Chapter 3 Evaluating a Company’s External Environment . . . . . . . . . . . . . . . . . . . . 143

Chapter 4 Evaluating a Company’s Resources and Competitive Position . . . . . . . . 171

Chapter 5 The Five Generic Competitive Strategies—Which One to Employ? . . . . 199

Chapter 6 Supplementing the Chosen Competitive Strategy—Other Important Strategy Choices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219

Chapter 7 Strategies for Competing in Foreign Markets . . . . . . . . . . . . . . . . . . . . . 243

Chapter 8 Diversifi cation—Strategies for Managing a Group of Businesses . . . . . . 269

Chapter 9 Ethical Business Strategies, Social Responsibility, and Environmental Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303

Chapter 10 Building an Organization Capable of Good Strategic Execution . . . . . . . 329

Chapter 11 Managing Internal Operations: Actions That Promote Good Strategy Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351

Chapter 12 Corporate Culture and Leadership: Keys to Good Strategy Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369

Section 6 Lecture Notes for Chapters 1-12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393

Chapter 1 What Is Strategy and Why Is It Important? . . . . . . . . . . . . . . . . . . . . . . . 495

Chapter 2 Leading the Process of Crafting and Executing Strategy . . . . . . . . . . . . 401

Chapter 3 Evaluating a Company’s External Environment . . . . . . . . . . . . . . . . . . . . 413

Chapter 4 Evaluating a Company’s Resources and Competitive Position . . . . . . . . 429

Chapter 5 The Five Generic Competitive Strategies—Which One to Employ? . . . . 441

Chapter 6 Supplementing the Chosen Competitive Strategy—Other Important Strategy Choices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451

Chapter 7 Strategies for Competing in Foreign Markets . . . . . . . . . . . . . . . . . . . . . 465

Chapter 8 Diversifi cation—Strategies for Managing a Group of Businesses . . . . . . 475

Chapter 9 Ethical Business Strategies, Social Responsibility, and Environmental Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 491

3

4

Chapter 10 Building an Organization Capable of Good Strategic Execution . . . . . . . 501

Chapter 11 Managing Internal Operations: Actions That Promote Good Strategy Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 511

Chapter 12 Corporate Culture and Leadership: Keys to Good Strategy Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 519

Section 7 Teaching Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 529

Case 1 Whole Foods Market in 2008—Vision, Core Values, and Strategy . . . . . 530

Case 2 Costco Wholesale Corp. in 2008—Mission, Business Model, and Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 549

Case 3 JetBlue Airways: A Cadre of New Managers Takes Control . . . . . . . . . . 567

Case 4 Competition in the Golf Equipment Industry in 2008 . . . . . . . . . . . . . . . . 579

Case 5 Competition in the Movie Rental Industry in 2008: Netfl ix and Blockbuster Battle for Market Leadership . . . . . . . . . . . . . . . 593

Case 6 Dell, Inc. in 2008—Can It Overtake Hewlett-Packard as the Worldwide Leader in Personal Computers? . . . . . . . . . . . . . . . . . . . 619

Case 7 Apple, Inc. in 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 639

Case 8 Panera Bread Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 661

Case 9 Rogers’ Chocolates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 673

Case 10 Nucor Corporation—Competing Against Low-Cost Foreign Imports. . . . 687

Case 11 Competition in Video Game Consoles: The State of the Battle for Supremacy in 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 705

Case 12 Nintendo’s Strategy for the Wii —Good Enough to Beat Xbox 360 and PlayStation 3? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 717

Case 13 Corona Beer: From a Local Mexican Player to a Global Brand . . . . . . . . 729

Case 14 Google’s Strategy in 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 741

Case 15 The Challenges Facing eBay in 2008—Time for Changes in Strategy . . . 753

Case 16 Loblaw Companies Limited: Preparing for Wal-Mart Supercenters . . . . . 771

Case 17 Research in Motion: Managing Explosive Growth . . . . . . . . . . . . . . . . . . 783

Case 18 Adidas in 2008: Has Corporate Restructuring Increased Shareholder Value? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 795

Case 19 PepsiCo’s Diversifi cation Strategy in 2008 . . . . . . . . . . . . . . . . . . . . . . . 805

Case 20 Robin Hood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 819

Case 21 Dilemma at Devil’s Den . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 827

Case 22 Wal-Mart Stores, Inc. in 2008—Management’s Initiatives to Transform the Company and Curtail Wal-Mart Bashing . . . . . . . . . . . . 833

Case 23 Southwest Airlines in 2008: Culture, Values, and Operating Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 851

Case 24 Shangri-La Hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 865

Case 25 E & J Gallo Winery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 875

Case 26 Detecting Unethical Practices at Supplier Factories: The Monitoring and Compliance Challenges . . . . . . . . . . . . . . . . . . . . . . 883

1section Instructor Resources,

Chapter Features, and Case Overview

Section 1 Instructor Resources, Chapter Features and Case Overview6

INSTRUCTOR RESOURCES We strived to achieve four goals in preparing this package of Instructor Resources for the 17th Edition:

1. To equip you with all the resources and pedagogical tools you’ll need to design and deliver a course that is on the cutting-edge and solidly in the mainstream of what students need to know about crafting and executing winning strategies.

2. To give you wide fl exibility in putting together a course syllabus that you are comfortable with and proud of.

3. To give you a smorgasbord of options to draw from in keeping the nature of student assignments varied and interesting.

4. To help you deliver a course with upbeat tempo that wins enthusiastic applause from students.

We believe the contents of the package will be particularly informative and helpful to faculty members teaching the strategy course for the fi rst time but we have also tried to embellish the content with ideas and suggestions that will prove valuable to experienced faculty looking for ways to refurbish their course offering and/or to keep student assignments varied and interesting.

A QUICK OVERVIEW OF THE ENTIRE INSTRUCTOR RESOURCE PACKAGE The Instructor’s Manual for Crafting & Executing Strategy contains:

A quick look at the topical focus of the text’s 12 chapters (Section 1).

An overview of the 26 cases in the text, along with a grid profi ling the strategic issues that come into play in each case (Section 1 and Section 3).

A discussion of the reasons to use a strategy simulation as an integral part of your strategy course. The two web-based strategy simulations—The Business Strategy Game or GLO-BUS—that are companions to this text incorporate the very kinds of strategic thinking, strategic analysis, and strategic decision- making described in the text chapters and connect beautifully to the chapter content. The automated online nature of both simulations entails minimal administrative time and effort on the instructor’s part. You will be pleasantly shocked (and pleased!!) at the minimal time it will take you to incorporate use of GLO-BUS or The Business Strategy Game and the added degree of student excitement and energy that either of these competition-based strategy simulations brings to the course—see Section 2 for more details.

Tips and suggestions for effectively using either GLO-BUS or The Business Strategy Game in your course (covered in both Section 2 and Section 3).

The merits of encouraging your students to go to the Web site for the text and take the self-scoring chapter quizzes that measure their command of the concepts and analytical tools presented in the 12 chapters (covered in both Section 1 and Section 3).

Ideas and suggestions on course design and course organization (Section 3 and Section 4).

Recommendations for sequencing the case assignments and guidance about how to use the cases effectively (Section 3).

Our recommendations regarding which cases are particularly appropriate for written case assignments and oral team presentations (Section 3).

7Crafting & Executing Strategy 17th Edition

Two sample course syllabi (Section 4).

Five sample schedules of class activities and daily assignments for 15-week terms; 3 sample schedules of class activities for 10-week terms; and 3 sample daily course schedules for 5-week terms. (Section 4).

A Test Bank for the 12 chapters that consists of 1100+ questions (Section 5).

A set of Lecture Notes for each of the 12 chapters (Section 6).

A comprehensive teaching note for each of the 26 cases in Crafting & Executing Strategy (Section 7).

In addition to the Instructor’s Manual, the support package for adopters also includes:

An Online Learning Center (OLC) The instructor section of www.mhhe.com/thompson includes the Instructor’s Manual and other instructional resources. Your McGraw-Hill representative can arrange delivery of instructor support materials in a format-ready Standard Cartridge for Blackboard, WebCT and other web-based educational platforms.

PowerPoint Slides To facilitate delivery preparation of your lectures and to serve as chapter outlines, you’ll have access to comprehensive PowerPoint presentations for each of the 12 chapters. hat the authors have developed for their own classes. The collection includes 500+ professional-looking slides displaying core concepts, analytical procedures, key points, and all the fi gures in the text chapters.

Accompanying Case Videos Nine of the cases (Costco Wholesale, JetBlue Airways, Competition in the Movie Rental Industry, Dell, Panera Bread, Competition in Video Games, Google’s Strategy in 2008, Wal-Mart, and Southwest Airlines) have accompanying videotape segments that can be shown in conjunction with the case discussions. Suggestions for using each video are contained in the teaching note for that case.

Accompanying Chapter Videos There are accompanying videos for the chapters that you can show in conjunction with your lectures.

A Comprehensive Test Bank and EZ Test Software There is a 1100+-question test bank, consisting of both multiple choice questions and short answer/essay questions that you can use in conjunction with McGraw- Hill’s EZ Test electronic testing software to create tests from chapter- or topic-specifi c lists. The EZ Test software enables allows instructors to add their own questions to those that appear in the test bank. The EZ Test program gives you the capability to create and print multiple versions of the test and to administer the test via the Web at www.eztestonline.com. Tests can also be exported into a course management system such as WebCT, BlackBoard, PageOut, and Apple’s iQuiz.

Instructor’s Resource CD-ROM All instructor supplements are available to text adopters in this one-stop multimedia resource, including case and chapter videos, the complete Instructor’s Manual, EZ Test software, and PowerPoint slides.

All these Instructor Resources included in the Crafting & Executing Strategy package gives you the capability to custom-tailor your course using most any combination of the following powerful and proven teaching/learning techniques:

 Lectures (supported by Lecture Notes, PowerPoint slides, and chapter videos).

 Case discussions (supported by comprehensive teaching notes and the videos accompanying nine of the cases).

 Oral team presentations on one or more assigned cases.

 Use of either GLO-BUS or The Business Strategy Game to serve as an integrative, capstone exercise. Both simulations are a breeze to administer, are automatically graded, and provide detailed data in the form of a Learning Assurance Report showing how each student in your class performed vis-à-vis all students at all schools worldwide that have played the simulation over the last 12 months (a population of 20,000+ in the case of GLO-BUS and 40,000+ in the case of The Business Strategy Game).

Section 1 Instructor Resources, Chapter Features and Case Overview8

 Use of the chapter-end Assurance of Learning exercises that may be coupled with instructor-developed scoring rubrics to assess course or program learning objectives. The exercises may also be assigned for class discussion, oral team presentations, or written reports not linked to course embedded assessment.

 Each chapter also contains Exercises for Simulation Participants that tightly connect chapter concepts to the issues and decisions that students wrestle with when competing in either The Business Strategy Game or GLO-BUS; these exercises are also appropriate for use with other strategy simulations.

The ability to choose among the above options, backed by the array of support materials in the Instructor Resources package, give you enormous course design fl exibility and provides you with a powerful kit of teaching/learning tools. We’ve done our very best to ensure that the 17th Edition package will work especially well for you in the classroom, help you economize on the time needed to be well-prepared for each class, and cause students to conclude that your course is one of the very best they have ever taken—from the standpoint of both enjoyment and learning a lot.

What to Expect in the 17th Edition In preparing our revision of the text chapters for this 17th edition, we have strived to hit the bulls-eye with respect to both content and teaching/learning effectiveness. The overriding objective has been to do three things exceptionally well:

 Thoroughly explain core concepts and analytical tools in language that students can grasp. The discussions have been carefully crafted to maximize understanding and facilitate correct application.

 Provide fi rst-rate examples at every turn. Illustrating the connection and application of core concepts and analytical tools to real-world circumstances correctly is the only effective way to convince readers that the subject matter merits close attention and deals directly with what every student needs to know about crafting, implementing, and executing business strategies in today’s market environments.

 Incorporate well-settled strategic management principles, recent research fi ndings and contributions to the literature of strategic management, the latest thinking of prominent academics and practitioners in the fi eld, and the practices and behavior of real world companies—weaving these things into each chapter is essential to keep the content solidly in the mainstream of contemporary strategic thinking.

In addition, we have made a point of highlighting important strategy-related developments that permeate the world economy and many industries—the continuing march of industries and companies to wider globalization, the growing scope and strategic importance of collaborative alliances, the spread of high-velocity change to more industries and company environments, and how advancing Internet technology is driving fundamental changes in both strategy and internal operations in companies across the world. There is also coverage of corporate governance, the keys to successful diversifi cation, and how Six Sigma, best practices, benchmarking, proper workforce compensation, and a strategy-supportive corporate culture act to promote operating excellence and effective strategy execution.

We believe this 17th edition incorporates all of the necessary elements to support your delivery of a successful undergraduate or MBA strategic management course. Chapter discussions cut straight to the chase about what students really need to know. Our explanations of core concepts and analytical tools refl ect current research and are covered in enough depth to truly add value for the student--the rationale being that a shallow explanation carries almost no instructional value. All the chapters are fl ush with convincing examples that students can easily relate to. There’s a straightforward, integrated fl ow from one chapter to the next. We have deliberately adopted a pragmatic, down-to-earth writing style, not only to better communicate to an audience of students (who, for the most part, will soon be practicing managers) but also to convince readers that the subject matter deals directly what managers and companies do in the real world. All of the chapters have accompanying videos.

And, thanks to the excellent case research and case writing being done by colleagues in strategic management, this edition contains a set of high-interest cases with unusual ability to work magic in the classroom. Great cases make it far easier for you to drive home valuable lessons in the whys and hows of successfully crafting and executing strategy.

9Crafting & Executing Strategy 17th Edition

Organization, Content, and Features of the Text Chapters The 17th Edition has been reorganized to more closely link strategic leadership with the strategic management process discussed in Chapter 2 and to consolidate the discussion of strategies supporting a company’s competitive strategy that were previously included in Chapters 6 and 8 of the 16th edition into a single chapter. As with all prior revisions, we worked diligently to make sure that this edition delivers quantum improvements in overall content appeal and ease of student comprehension. As a consequence, we think you’ll be amply convinced that no other leading text does a better job of setting forth the principles of strategic management and linking these principles to both sound theory and best practices.

Furthermore, the refreshing facelift given to every chapter as concerns sharper defi nitions, more thorough explanations, and highly relevant current examples has made the chapter presentations easier for students to read and understand. Effective communication of core concepts and analytical tools in the chapters reduces the need for detailed lectures on your part and frees time for more in-class debate and discussion, coverage of late- breaking stories in the business press, and other means of driving home the principles of strategy.

No other leading strategy text comes close to matching our treatment of the resource-based theory of the fi rm. The relevance and role of company resources and competitive strengths is prominently and comprehensively integrated into our coverage of crafting both single-business and multi-business strategies. Chapters 3 through 8 make it crystal clear that a company’s strategy must be matched both to its external market circumstances and to its internal resources and competitive capabilities. Moreover, Chapters 10, 11, and 12 on various aspects of executing strategy have a strong resource-based perspective that also makes it crystal clear how and why the tasks of assembling intellectual capital and building core competencies and competitive capabilities are absolutely critical to successful strategy execution and operating excellence.

No other leading strategy text comes close to matching our coverage of business ethics, values, social responsibility, and environmental sustainability. We have embellished the highly important chapter on “Ethical Business Strategies, Social Responsibility, and Environmental Sustainability” with new discussions and material so that it can better fulfi ll the important functions of (1) alerting students to the role and importance of incorporating business ethics, social responsibility, and environmental sustainability into decision-making and (2) addressing the accreditation requirements of the AACSB that business ethics be visibly and thoroughly embedded in the core curriculum. Moreover, there are substantive discussions of the roles of values and ethics in Chapters 1, 2, 10, and 12, thus providing you with a very meaty and comprehensive treatment of business ethics and socially responsible behavior as it applies to crafting and executing company strategies.

The following rundown summarizes the topical focus of each of the 12 chapters in the 17th Edition of Crafting & Executing Strategy:

Chapter 1 is focused directly on “what is strategy and why is it important?” There are substantive discussions of what is meant by the term strategy, the different elements of a company’s strategy, and why management efforts to craft a company’s strategy tend to be squarely aimed at building sustainable competitive advantage. Considerable emphasis is given to how and why a company’s strategy is partly planned and partly reactive and why a company’s strategy tends to evolve over time. There’s an important section discussing what is meant by the term business model and how it relates to the concept of strategy. The thrust of this fi rst chapter is to convince students that good strategy + good strategy execution = good management. The chapter is a perfect accompaniment for your opening day lecture on what the course is all about and why it matters.

Chapter 2 concerns the managerial process of actually crafting and executing a strategy—it makes a great assignment for the second day of class and is a perfect follow-on to your fi rst day’s lecture. The focal point of the chapter is the fi ve-step managerial process of crafting and executing strategy: (1) forming a strategic vision of where the company is headed and why, (2) the managerial importance of developing a balanced scorecard of objectives and performance targets that measure the company’s progress, (3) crafting a strategy to achieve these targets and move the company toward its market destination, (4) implementing and executing the strategy, and (5) monitoring progress and making corrective adjustments as needed. Students are introduced to such core concepts as strategic visions, mission statements, strategic versus fi nancial objectives, and strategic intent. An all-new section underscores that this 5-step process requires

Section 1 Instructor Resources, Chapter Features and Case Overview10

strong strategic leadership. There’s a robust discussion of why all managers are on a company’s strategy- making, strategy-executing team and why a company’s strategic plan is a collection of strategies devised by different managers at different levels in the organizational hierarchy. The chapter winds up with a concise but meaty section on corporate governance.

Chapter 3 sets forth the now-familiar analytical tools and concepts of industry and competitive analysis and demonstrates the importance of tailoring strategy to fi t the circumstances of a company’s industry and competitive environment. The standout feature of this chapter is a presentation of Michael Porter’s “fi ve forces model of competition” that we think is the clearest, most straightforward discussion of any text in the fi eld. Globalization and Internet technology are treated as potent driving forces capable of reshaping industry competition—their roles as change agents have become factors that most companies in most industries must reckon with in forging winning strategies.

Chapter 4 presents the resource-based view of the fi rm and convincingly argues why a company’s strategy must be built around its resources, competencies, and competitive capabilities. The roles of core competencies and organizational resources and capabilities in creating customer value are center stage in the discussions of company resource strengths and weaknesses. SWOT analysis is cast as a simple, easy-to-use way to assess a company’s resources and overall situation. There is solid coverage of value chain analysis, benchmarking, and competitive strength assessments—standard tools for appraising a company’s relative cost position and market standing vis-à-vis rivals. An important feature of this chapter is a table showing how key fi nancial and operating ratios are calculated and how to interpret them; students will fi nd this table handy in doing the number-crunching needed to evaluate whether a company’s strategy is delivering good fi nancial performance.

Chapter 5 deals with a company’s quest for competitive advantage and is framed around the fi ve generic competitive strategies—low-cost leadership, differentiation, best-cost provider, focused differentiation, and focused low-cost.

A much revamped Chapter 6 extends the coverage of the previous chapter and deals with what other strategic actions a company can take to complement its choice of a basic competitive strategy and to employ a strategy that is wisely matched to both industry and competitive conditions and to company resources and capabilities. The chapter features sections on what use to make of strategic alliances and collaborative partnerships; merger and acquisition strategies; vertical integration strategies; outsourcing strategies; and the broad strategy options for companies competing in six representative industry and competitive situations: (1) emerging industries, (2) rapid growth industries; (3) mature, slow-growth industries, (4) stagnant or declining industries, (5) turbulent, high velocity industries, and (6) fragmented industries. The concluding section of this chapter covers fi rst-mover advantages and disadvantages, including the fi rst-mover benefi ts of pursuing a blue ocean strategy.

Chapter 7 explores the full range of strategy options for competing in foreign markets: export strategies, licensing, franchising, multicountry strategies, global strategies, and collaborative strategies involving heavy reliance on strategic alliances and joint ventures. The spotlight is trained on two strategic issues unique to competing multinationally: (1) whether to customize the company’s offerings in each different country market to better match the tastes and preferences of local buyers or whether to offer a mostly standardized product worldwide and (2) whether to employ essentially the same basic competitive strategy in the markets of all countries where it operates or whether to modify the company’s competitive approach country-by- country as may be needed to fi t the specifi c market conditions and competitive circumstances it encounters. There’s also coverage of the special issues of competing in the markets of emerging countries and the strategies that local companies in emerging countries can use to defend against global giants.