Copyright 2015 2019 clout pay pty ltd all rights reserved

des13959_fm_i-xliv.indd i 01/04/18 10:01 AM

GREGORY G. DESS University of Texas at Dallas

GERRY McNAMARA Michigan State University

ALAN B. EISNER Pace University

SEUNG-HYUN (SEAN) LEE University of Texas at Dallas

text & cases

ninth edition

STRATEGIC MANAGEMENT

Final PDF to printer

des13959_fm_i-xliv.indd ii 01/12/18 05:08 PM

STRATEGIC MANAGEMENT: TEXT AND CASES, NINTH EDITION

Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2019 by McGraw- Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2016, 2014, and 2012. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.

Some ancillaries, including electronic and print components, may not be available to customers outside the United States.

This book is printed on acid-free paper.

1 2 3 4 5 6 7 8 9 0 LWI 21 20 19 18

ISBN 978-1-259-81395-5 (bound edition) MHID 1-259-81395-9 (bound edition)

ISBN 978-1-259-89997-3 (loose-leaf edition) MHID 1-259-89997-7 (loose-leaf edition)

ISBN 978-1-259-89994-2 (instructor’s edition) MHID 1-259-89994-2 (instructor’s edition)

Portfolio Director: Michael Ablassmeir Lead Product Developer: Kelly Delso Product Developer: Anne Ehrenworth Executive Marketing Manager: Debbie Clare Content Project Managers: Harvey Yep (Core), Bruce Gin (Assessment) Buyer: Susan K. Culbertson Design: Matt Diamond Content Licensing Specialists: DeAnna Dausener (Image and Text) Cover Image: ©Anatoli Styf/Shutterstock Compositor: SPi Global

All credits appearing on page or at the end of the book are considered to be an extension of the copyright page.

Library of Congress Cataloging-in-Publication Data

Names: Dess, Gregory G., author. | McNamara, Gerry, author. | Eisner, Alan B., author. Title: Strategic management : text and cases / Gregory G. Dess, University of Texas at Dallas, Gerry McNamara, Michigan State University, Alan B. Eisner, Pace University. Description: Ninth edition. | New York, NY : McGraw-Hill Education, [2019] Identifiers: LCCN 2017052281 | ISBN 9781259813955 (alk. paper) Subjects: LCSH: Strategic planning. Classification: LCC HD30.28 .D4746 2019 | DDC 658.4/012—dc23 LC record available at https://lccn.loc.gov/2017052281

The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites.

mheducation.com/highered

Final PDF to printer

iii

des13959_fm_i-xliv.indd iii 02/19/18 12:28 PM

To my family, Margie and Taylor and my parents, the late Bill and Mary Dess; and Michael Wood

To my first two academic mentors—Charles Burden and Les Rue (of Georgia State University)

–Greg

To my wonderful wife, Gaelen, my children, Megan and AJ; and my parents, Gene and Jane

–Gerry

To my family, Helaine, Rachel, and Jacob

–Alan

To my family, Hannah, Paul and Stephen; and my parents, Kenny and Inkyung.

–Sean

DEDICATION

dedication

Final PDF to printer

iv

des13959_fm_i-xliv.indd iv 01/12/18 05:08 PM

Gregory G. Dess is the Andrew R. Cecil Endowed Chair in Management at the University of Texas at Dallas. His primary research interests are in strategic management, organization- environment relationships, and knowledge management. He has published numerous articles on these subjects in both academic and practitioner-oriented journals. He also serves on the editorial boards of a wide range of practitioner-oriented and academic journals. In August 2000, he was inducted into the Academy of Management Journal’s Hall of Fame as one of its charter members. Professor Dess has conducted executive programs in the United States, Europe, Africa, Hong Kong, and Australia. During 1994 he was a Fulbright Scholar in Oporto, Portugal. In 2009, he received an honorary doctorate from the University of Bern (Switzerland). He received his PhD in Business Administration from the University of Washington (Seattle) and a BIE degree from Georgia Tech.

Gerry McNamara is the Eli Broad Professor of Management at Michigan State University. His research draws on cognitive and behavioral theories to explain strategic phenomena, including strategic decision making, mergers and acquisitions, and environmental assessments. His research has been published in the Academy of Management Journal, the Strategic Management Journal, Organization Science, Organizational Behavior and Human Decision Processes, the Journal of Applied Psychology, the Journal of Management, and the Journal of International Business Studies. Gerry’s research has also been abstracted in the Wall Street Journal, Harvard Business Review, New York Times, Bloomberg Businessweek, the Economist, and Financial Week. He serves as an Associate Editor for the Strategic Management Journal and previously served as an Associate Editor for the Academy of Management Journal. He received his PhD from the University of Minnesota.

ABOUT THE AUTHORS

about the authors

©He GaoPhoto provided by the author

Final PDF to printer

v

des13959_fm_i-xliv.indd v 01/12/18 05:08 PM

Alan B. Eisner is Professor of Management and Department Chair, Management and Management Science Department, at the Lubin School of Business, Pace University. He received his PhD in management from the Stern School of Business, New York University. His primary research interests are in strategic management, technology management, organizational learning, and managerial decision making. He has published research articles and cases in journals such as Advances in Strategic Management, International Journal of Electronic Commerce, International Journal of Technology Management, American Business Review, Journal of Behavioral and Applied Management, and Journal of the International Academy for Case Studies. He is the former Associate Editor of the Case Association’s peer-reviewed journal, The CASE Journal.

Seung-Hyun Lee is a Professor of strategic management and international business and the Area Coordinator of the Organization, Strategy, and International Management area at the Jindal School of Business, University of Texas at Dallas. His primary research interests lie on the intersection between strategic management and international business spanning from foreign direct investment to issues of microfinance and corruption. He has published in numerous journals including Academy of Management Review, Journal of Business Ethics, Journal of International Business Studies, Journal of Business Venturing, and Strategic Management Journal. He received his MBA and PhD from the Ohio State University.

©Seung-Hyun Lee©Alan B. Eisner

Final PDF to printer

vi

des13959_fm_i-xliv.indd vi 01/04/18 10:01 AM

PREFACE

Welcome to the Ninth Edition of Strategic Management: Text and Cases! As noted on the cover, we are happy to introduce Seung- Hyun Lee to the author team. Greg has known Seung since we both joined the faculty at the University of Texas at Dallas in 2002. Seung has developed a very distinguished publication record in both strategic management and international business/international management and he has made many important contributions in these areas in the present edition. In particular, his international expertise has been particularly valuable in further “globalizing” our book.

We appreciate the constructive and positive feedback that we have received on our work. Here’s some of the encouraging feedback we have received from our reviewers:

The Dess book comprehensively covers the fundamentals of strategy and supports concepts with research and managerial insights.

Joshua J. Daspit, Mississippi State University

Very engaging. Students will want to read it and find it hard to put down.

Amy Grescock, University of Michigan, Flint

Very easy for students to understand. Great use of business examples throughout the text.

Debbie Gilliard, Metropolitan State University, Denver

I use Strategic Management in a capstone course required of all business majors, and students appreciate the book because it synergizes all their business education into a meaningful and understandable whole. My students enjoy the book’s readability and tight organization, as well as the contemporary examples, case studies, discussion questions, and exercises.

William Sannwald, San Diego State University

The Dess book overcomes many of the limitations of the last book I used in many ways: (a) presents content in a very interesting and engrossing manner without compromising the depth and comprehensiveness, (b) inclusion of timely and interesting illustrative examples, and (c) EOC exercises do an excellent job of complementing the chapter content.

Sucheta Nadkami, University of Cambridge

The content is current and my students would find the real-world examples to be extremely interesting. My colleagues would want to know about it and I would make extensive use of the following features: “Learning from Mistakes,” “Strategy Spotlights,” and “Issues for Debate.” I especially like the “Reflecting on Career Implications” feature. Bottom line: the authors do a great job of explaining complex material and at the same time their use of up-to-date examples promotes learning.

Jeffrey Richard Nystrom, University of Colorado at Denver

We always strive to improve our work and we are most appreciative of the extensive and thoughtful feedback that many strategy professionals have graciously given us. We endeavored to incorporate their ideas into the Ninth Edition—and we acknowledge them by name later in the Preface.

We believe we have made valuable improvements throughout our many revised editions of Strategic Management. At the same time, we strive to be consistent and “true” to our original overriding objective: a book that satisfies three R’s—rigor, relevance, and readable. And we are

preface

Final PDF to printer

vii

des13959_fm_i-xliv.indd vii 01/04/18 10:01 AM

pleased that we have received feedback (such as the comments on the previous page) that is consistent with what we are trying to accomplish.

What are some of the features in Strategic Management that reinforce the 3 R’s? First, we build in rigor by drawing on the latest research by management scholars and insights from management consultants to offer a current a current and comprehensive view of strategic issues. We reinforce this rigor with our “Issues for Debate” and “Reflecting on Career Implications. . .” that require students to develop insights on how to address complex issues and understand how strategy concepts can enhance their career success. Second, to enhance relevance, we provide numerous examples from management practice in the text and “Strategy Spotlights” (sidebars). We also increase relevance by relating course topic and examples to current business and societal themes, including environmental sustainability, ethics, globalization, entrepreneurship, and data analytics. Third, we stress readability with an engaging writing style with minimal jargon to ensure an effective learning experience. This is most clearly evident in the conversational presentations of chapter opening “Learning from Mistakes” and chapter ending “Issues for Debate.”

Unlike other strategy texts, we provide three separate chapters that address timely topics about which business students should have a solid understanding. These are the role of intellectual assets in value creation (Chapter 4), entrepreneurial strategy and competitive dynamics (Chapter 8), and fostering entrepreneurship in established organizations (Chapter 12). We also provide an excellent and thorough chapter on how to analyze strategic management cases.

In developing Strategic Management: Text and Cases, we certainly didn’t forget the instructors. As we all know, you have a most challenging (but rewarding) job. We did our best to help you. We provide a variety of supplementary materials that should help you in class preparation and delivery. For example, our chapter notes do not simply summarize the material in the text. Rather (and consistent with the concept of strategy), we ask ourselves: “How can we add value?” Thus, for each chapter, we provide numerous questions to pose to help guide class discussion, at least 12 boxed examples to supplement chapter material, and three detailed “teaching tips” to further engage students. For example, we provide several useful insights on strategic leadership from one of Greg’s colleagues, Charles Hazzard (formerly Executive Vice President, Occidental Chemical). Also, we completed the chapter notes—along with the entire test bank—ourselves. That is, unlike many of our rivals, we didn’t simply farm the work out to others. Instead, we felt that such efforts help to enhance quality and consistency—as well as demonstrate our personal commitment to provide a top-quality total package to strategy instructors. With the Ninth Edition, we also benefited from valued input by our strategy colleagues to further improve our work.

Let’s now address some of the key substantive changes in the Ninth Edition. Then we will cover some of the major features that we have had in previous editions.

WHAT’S NEW? HIGHLIGHTS OF THE NINTH EDITION We have endeavored to add new material to the chapters that reflects the feedback we have received from our reviewers as well as the challenges today’s managers face. Thus, we all invested an extensive amount of time carefully reviewing a wide variety of books, academic and practitioner journals, and the business press.

We also worked hard to develop more concise and tightly written chapters. Based on feedback from some of the reviewers, we have tightened our writing style, tried to eliminate redundant examples, and focused more directly on what we feel is the most important content in each chapter for our audience. The overall result is that we were able to update our material, add valuable new content, and—at the same time—shorten the length of the chapters.

Final PDF to printer

viii

des13959_fm_i-xliv.indd viii 01/04/18 10:01 AM

Here are some of the major changes and improvements in the Ninth Edition:

· Big Data/Data Analysis. A central theme of the Ninth Edition, it has become a leading and highly visible component of a broader technological phenomena—the emergence of digital technology. Such initiatives have the potential to enable firms to better customize their product and service offerings to customers while more efficiently and fully using the resources of the company. Throughout the text, we provide examples from a wide range of industries and government. This includes discussions of how Coca Cola uses data analytics to produce consistent orange juice, IBM’s leveraging of big data to become a healthcare solution firm, Caterpillar’s use of data analytics to improve machine reliability and to identify needed service before major machine failures, and Digital Reasoning’s efforts to use data analytics to enhance the ability of firms to control employees and avoid illegal and unethical behavior.

· Greater coverage of international business/international management (IB/IM from new co-author). As we noted at the beginning of the Preface, we have invited Seung-Hyun Lee, an outstanding IB/IM scholar, to join the author team and we are very pleased that he has accepted! Throughout the book we have included many concepts and examples of IB/IM that reflects the growing role of international operations for a wide range of industries and firms. We discuss how differences in national culture impact the negotiation of contracts and whether or not to adapt human resource practices when organizations cross national boundaries. We also include a discussion of how corporate governance practices differ across countries and discuss in depth how Japan is striving to develop balanced governance practices that incorporate elements of U.S. practices while retaining, at its core, elements of traditional Japanese practices. Additionally, we discuss why conglomerate firms thrive in Asian markets even as this form of organization has gone out of favor in the United States and Europe. Finally, we discuss research that suggests that firms in transition economies can improve their innovative performance by focusing on learning across boundaries within the firm compared to learning from outside partners.

· “Executive Insights: The Strategic Management Process.” Here, we introduce a nationally recognized leader and explore several key issues related to strategic management. The executive is William H. McRaven, a retired four-star admiral who leads the nation’s second largest system of higher education. As chief executive officer of the UT System, he oversees 14 institutions that educate 217,000 students and employ 20,000 faculty and more than 70,000 health care professionals, researchers, and staff. He is perhaps best known for his involvement in Operation Neptune Spear, in which he commanded the U.S. Navy Special Forces who located and killed al Qaeda leader Osama bin Laden. We are very grateful for his valuable contribution!

· Half of the 12 opening “Learning from Mistakes” vignettes that lead off each chapter are totally new. Unique to this text, they are all examples of what can go wrong, and they serve as an excellent vehicle for clarifying and reinforcing strategy concepts. After all, what can be learned if one simply admires perfection?

· Over half of our “Strategy Spotlights” (sidebar examples) are brand new, and many of the others have been thoroughly updated. Although we have reduced the number of Spotlights from the previous edition to conserve space, we still have a total of 64—by far the most in the strategy market. We focus on bringing the most important strategy concepts to life in a concise and highly readable manner. And we work hard to eliminate unnecessary detail that detracts from the main point we are trying to make. Also, consistent with our previous edition, many of the Spotlights focus on two

PREFACE

Final PDF to printer

ix

des13959_fm_i-xliv.indd ix 01/04/18 10:01 AM

“hot” issues that are critical in leading today’s organizations: ethics and environmental sustainability—as well as data analytics in this edition.

Key content changes for the chapters include:

· Chapter 1 addresses three challenges for executives who are often faced with similar sets of opposing goals which can polarize their organizations. These challenges, or paradoxes, are called (1) the innovation paradox, the tension between existing products and new ones—stability and change; (2) the globalization paradox, the tension between global connectedness and local needs; and, (3) the obligation paradox, the tension between maximizing shareholder returns and creating benefits for a wide range of stakeholders— employees, customers, society, etc. We also discuss three theaters of practice that managers need to recognize in order to optimize the positive impact of the corporate social responsibility (CSR) initiatives. These are (1) Focusing on philanthropy, (2) Improving operational effectiveness, and (3) Transforming the business model.

· Chapter 2 introduces the concept of big data/data analytics—a technology that affects multiple segments of the general environment. A highly visible component of the digital economy, such technologies are altering the way business is conducted in a wide variety of sectors—government, industry, and commerce. We provide a detailed example of how it has been used to monitor the expenditures of federal, state, and local governments.

· Chapter 3 includes a discussion on program hiring to build human capital. With program hiring, firms offer employment to promising graduates without knowing which specific job the employee will fill. Firms employing this tactic believe it allows them to meet changing market conditions by hiring flexible employees who desire a dynamic setting. We also include a discussion of how Coca Cola is leveraging data analytics to produce orange juice that is consistent over time and can be tailored to meet local market tastes.

· Chapter 4 discusses research that has found that millennials have a different definition of diversity and inclusion than prior generations. That is, millennials look upon diversity as the blending of different backgrounds, experiences, and perspectives within a team, i.e., cognitive diversity. Earlier generations—the X-Generation and the Boomer Generation— tended to view diversity as a representation of fairness and protection for all regardless of gender, race, religion, etc. An important implication is that while many millennials believe that differences of opinion enable teams to excel, relatively few of them feel that their leaders share this perspective. The chapter also provides a detailed example of how data analytics can increase employee retention.

· Chapter 5 examines how firms can create strong competitive positions in platform markets. In platform markets, firms act as intermediaries between buyers and sellers. Success is largely based on the ability of the firm to be the de facto provider of this matching process. We discuss several actions firms can take to stake out a leadership position in these markets. In addition, we include a discussion of research outlining how firms can develop organizational structures and policies to draw on customer interactions to improve their innovativeness. The key finding from this research is that it is critical for firms to empower and incent front line employees to look for and share innovative insights they take away from customer interactions.

· Chapter 6 includes a section on different forms of strategic alliances and when they are most appropriate. In discussing the differences between contractual alliances, equity alliances, and joint ventures, students can better understand the range of options they

Final PDF to printer

x

des13959_fm_i-xliv.indd x 01/04/18 10:01 AM

have to build cooperative arrangements with other firms and the factors that influence the choice among these options.

· Chapter 7 explains two important areas in which culture can play a key role in managing organizations across national boundaries. First, we discuss situations in which it is best to not adapt one’s company culture—even if it conflicts with the culture country in which the firm operates. We provide the example of Google’s human resource policy of providing employees with lots of positive feedback during performance reviews. Why? Google feels that this is a key reason for its outstanding success in product innovation. Second, we address some of the challenges that managers encounter when they negotiate contracts across national boundaries. We discuss research that identifies several elements of negotiating behaviors that help to identify cultural differences.

· Chapter 8 identifies factors investors can examine when evaluating the risk of crowdfunded ventures. When firms raise funds through crowdfunding, they often have limited business and financial histories and haven’t yet built up a clear reputation. This raises the risks investors face. We identify some factors investors can look into to clarify the worthiness and risk of firms who are raising financial resources through crowdfunding.

· Chapter 9 discusses the increasingly important role that activist investors have in the corporate governance of publicly-traded firms. Activist investors are investors who take small but significant ownership stakes in large firms, typically 5 to 10 percent ownership, and push for major strategic changes in the firm. These activist investors are often successful, winning 70 percent of the shareholder votes they champion and have forced the exit of leaders of several large firms. Additionally, we discuss a corner of Wall Street where women dominate, as corporate governance heads at major institutional investors. These institutional investors hold large blocks of stock in all major corporations. As a result, these female leaders are in a position to push for governance changes in these corporations to make them more responsive to the concerns of investors, such as increasing opportunities for female corporate leaders.

· Chapter 10 discusses how firms can organize to improve their innovativeness. Often managers look to outside partners to learn new skills and access new knowledge to improve their innovative performance. We discuss research that suggests that efforts to look to create novel combinations of knowledge within the firm offer greater potential to generate stronger innovation performance. The key advantage of internal knowledge is that it is proprietary and potentially more applicable to the firm’s innovation efforts.

· Chapter 11 includes discussions of multiple firms that have changed their leadership and control systems to respond to challenges they’ve faced. This includes Marvin Ellison’s efforts to revive JC Penney after prior bad leadership, Target’s efforts to change its supply chain system to meet changing customer demands, and the decision procedures JC Johnson Inc. has put in place to improve its ability to lead its industry in sustainability efforts.

· Chapter 12 highlights the potential to learn from innovation failures. Too often, firms become risk averse in their behavior in order to avoid failure. We discuss how this can result in missing truly innovative opportunities. Drawing off research by Julian Birkinshaw, we discuss the need for firms to get their employees to take bold innovation actions and steps firms can take to learn from failed innovation efforts to be more effective in future innovation efforts. We also discuss research on the consequences of losing star innovation employees. Firms worry about the loss of key innovation personnel, but research shows that while there are costs associated with the loss of star

PREFACE

Final PDF to printer

xi

des13959_fm_i-xliv.indd xi 01/04/18 10:01 AM

innovators, there are also potential benefits. Firms that lose key innovators typically experience a loss in exploitation-oriented innovation, but they also often see an increase in exploration-oriented innovation.

· Chapter 13 provides an example of how the College of Business Administration at Towson University successfully introduced a “live” business case completion across all of it strategic management sections. The “description” and the “case completion checklist” includes many of the elements of the analysis-decision-action cycle in case analysis that we address in the chapter.

· Chapter 13 updates our Appendix: Sources of Company and Industry Information. Here, we owe a big debt to Ruthie Brock and Carol Byrne, library professionals at the University of Texas at Arlington. These ladies have provided us with comprehensive and updated information for the Ninth Edition that is organized in a range of issues. These include competitive intelligence, annual report collections, company rankings, business websites, and strategic and competitive analysis. Such information is invaluable in analyzing companies and industries. We are always amazed by the diligence, competence—and good cheer—that Ruthie and Carol demonstrate when we impose on them every two years!

· We have worked hard to further enhance our excellent case package with a major focus on fresh and current cases on familiar firms. · More than half of our cases are author-written (much more than the competition). · We have updated our users favorite cases, creating fresh stories about familiar

companies to minimize instructor preparation time and “maximize freshness” of he content.

· We have added several exciting new cases to the lineup including Blackberry and Ascena (the successor company to Ann Talyor).

· We have also extensively updated 28 familiar cases with the latest news. · Our cases are familiar yet fresh with new data and problems to solve.

WHAT REMAINS THE SAME: KEY FEATURES OF EARLIER EDITIONS Let’s now briefly address some of the exciting features that remain from the earlier editions.

· Traditional organizing framework with three other chapters on timely topics. Crisply written chapters cover all of the strategy bases and address contemporary topics. First, the chapters are divided logically into the traditional sequence: strategy analysis, strategy formulation, and strategy implementation. Second, we include three chapters on such timely topics as intellectual capital/knowledge management, entrepreneurial strategy and competitive dynamics, and fostering corporate entrepreneurship and new ventures.

· “Learning from Mistakes” chapter-opening cases. To enhance student interest, we begin each chapter with a case that depicts an organization that has suffered a dramatic performance drop, or outright failure, by failing to adhere to sound strategic management concepts and principles. We believe that this feature serves to underpin the value of the concepts in the course and that it is a preferred teaching approach to merely providing examples of outstanding companies that always seem to get it right. After all, isn’t it better (and more challenging) to diagnose problems than admire perfection? As Dartmouth’s Sydney Finkelstein, author of Why Smart Executives Fail,

Final PDF to printer

xii

des13959_fm_i-xliv.indd xii 01/04/18 10:01 AM

PREFACE

notes: “We live in a world where success is revered, and failure is quickly pushed to the side. However, some of the greatest opportunities to learn—for both individuals and organizations—come from studying what goes wrong.”* We’ll see how, for example, why Frederica Marchionni, the CEO that Land’s End hired in 2015, failed to spearhead the revival of the brand. Her initiatives geared toward taking the brand upscale turned out to be too much of a shock to the firm’s customer base as well as the firm’s family culture and wholesome style. As noted by a former executive, “It doesn’t look like Land’s End anymore. There was never the implication that if you wore Lands’ End you’d be on the beach on Nantucket living the perfect life.” We’ll also explore the bankruptcy of storied law firm Dewey & LeBoeuf LLP. Their failure can be attributed to three major issues: a reliance on borrowed money, making large promises about compensation to incoming partners (which didn’t sit well with their existing partners!), and a lack of transparency about the firm’s financials.

· “Issue for Debate” at the end of each chapter. We find that students become very engaged (and often animated!) in discussing an issue that has viable alternate points of view. It is an exciting way to drive home key strategy concepts. For example, in Chapter 1, Seventh Generation is faced with a dilemma that confronts their values and they must decide whether or not to provide their products to some of their largest customers. At issue: While they sympathize (and their values are consistent) with the striking workers at the large grocery chains, should they cross the picket lines? In Chapter 4, we discuss an issue that can be quite controversial: Does offering financial incentives to employees to lose weight actually work? We will explain a study by professors and medical professionals who conducted a test to explore this issue. And, in Chapter 7, we address Medtronic’s decision to acquire Covidien, an Irish-based medical equipment manufacturer for $43 billion. Its primary motive: Lower its taxes by moving its legal home to Ireland—a country that has lower rates of taxation on corporations. Some critics may see such a move as unethical and unpatriotic. Others would argue that it will help the firm save on taxes and benefit their shareholders.

· “Insights from Research.” We include six of this feature in the Ninth Edition—and half of them are entirely new. Here, we summarize key research findings on a variety of issues and, more importantly, address their relevance for making organizations (and managers!) more effective. For example, in Chapter 2 we discuss findings from a meta- analysis (research combining many individual studies) to debunk several myths about older workers—a topic of increasing importance, given the changing demographics in many developed countries. In Chapter 4, we address a study that explored the viability of re-hiring employees who had previously left the organizations. Such employees, called “boomerangs” may leave an organization for several reasons and such reasons may strongly influence their willingness to return to the organization. In Chapter 5, we summarize a study that looked at how firms can improve their innovativeness by drawing on interactions with customers but only if the firm empowers front line employees to lead innovative efforts and provides incentives to motivate employees to do so. In Chapter 10, we discuss research on firms in transition economies that found firms which learn from both external partners and by spanning boundaries within the firm can improve their innovation. However, learning between units within the firm produced higher innovation performance.

*Personal Communication, June 20, 2005.

Final PDF to printer

xiii

des13959_fm_i-xliv.indd xiii 01/04/18 10:01 AM

· “Reflecting on Career Implications. . .” We provide insights that are closely aligned with and directed to three distinct issues faced by our readers: prepare them for a job interview (e.g., industry analysis), help them with current employers or their career in general, or help them find potential employers and decide where to work. We believe this will be very valuable to students’ professional development.

· Consistent chapter format and features to reinforce learning. We have included several features in each chapter to add value and create an enhanced learning experience. First, each chapter begins with an overview and a list of key learning objectives. Second, as previously noted, the opening case describes a situation in which a company’s performance eroded because of a lack of proper application of strategy concepts. Third, at the end of each chapter there are four different types of questions/exercises that should help students assess their understanding and application of material:

1. Summary review questions. 2. Experiential exercises. 3. Application questions and exercises. 4. Ethics questions.

Given the centrality of online systems to business today, each chapter contains at least one exercise that allows students to explore the use of the web in implementing a firm’s strategy.

· Key Terms. Approximately a dozen key terms for each chapter are identified in the margins of the pages. This addition was made in response to reviewer feedback and improves students’ understanding of core strategy concepts.

· Clear articulation and illustration of key concepts. Key strategy concepts are introduced in a clear and concise manner and are followed by timely and interesting examples from business practice. Such concepts include value-chain analysis, the resource- based view of the firm, Porter’s five-forces model, competitive advantage boundaryless organizational designs, digital strategies, corporate governance, ethics, data analytics, and entrepreneurship.

· Extensive use of sidebars. We include 64 sidebars (or about five per chapter) called “Strategy Spotlights.” The Strategy Spotlights not only illustrate key points but also increase the readability and excitement of new strategy concepts.

· Integrative themes. The text provides a solid grounding in ethics, globalization, environmental substainability, and technology. These topics are central themes throughout the book and form the basis for many of the Strategy Spotlights.

· Implications of concepts for small businesses. Many of the key concepts are applied to start-up firms and smaller businesses, which is particularly important since many students have professional plans to work in such firms.

· Not just a textbook but an entire package. Strategic Management features the best chapter teaching notes available today. Rather than merely summarizing the key points in each chapter, we focus on value-added material to enhance the teaching (and learning) experience. Each chapter includes dozens of questions to spur discussion, teaching tips, in-class group exercises, and about a dozen detailed examples from business practice to provide further illustrations of key concepts.

Final PDF to printer

xiv

des13959_fm_i-xliv.indd xiv 01/04/18 10:01 AM

PREFACE

TEACHING RESOURCES Instructor’s Manual (IM) Prepared by the textbook authors, along with valued input from our strategy colleagues, the accompanying IM contains summary/objectives, lecture/discussion outlines, discussion questions, extra examples not included in the text, teaching tips, reflecting on career implications, experiential exercises, and more.

Test Bank Revised by Christine Pence of the University of California-Riverside, the test bank contains more than 1,000 true/false, multiple-choice, and essay questions. It is tagged with learning objectives as well as Bloom’s Taxonomy and AACSB criteria.

· Assurance of Learning Ready. Assurance of Learning is an important element of many accreditation standards. Dess 9e is designed specifically to support your Assurance of Learning initiatives. Each chapter in the book begins with a list of numbered learning objectives that appear throughout the chapter. Every test bank question is also linked to one of these objectives, in addition to level of difficulty, topic area, Bloom’s Taxonomy level, and AACSB skill area. EZ Test, McGraw-Hill’s easy-to-use test bank software, can search the test bank by these and other categories, providing an engine for targeted Assurance of Learning analysis and assessment.

· AACSB Statement. The McGraw-Hill Companies is a proud corporate member of AACSB International. Understanding the importance and value of AACSB accreditation, Dess 9e has sought to recognize the curricula guidelines detailed in the AACSB standards for business accreditation by connecting selected questions in Dess 9e and the test bank to the general knowledge and skill guidelines found in the AACSB standards. The statements contained in Dess 9e are provided only as a guide for the users of this text. The AACSB leaves content coverage and assessment within the purview of individual schools, the mission of the school, and the faculty. While Dess 9e and the teaching package make no claim of any specific AACSB qualification or evaluation, we have labeled selected questions within Dess 9e according to the six general knowledge and skills areas.

· Computerized Test Bank Online. A comprehensive bank of test questions is provided within a computerized test bank powered by McGraw-Hill’s flexible electronic testing program, EZ Test Online (www.eztestonline.com). EZ Test Online allows you to create paper and online tests or quizzes in this easy-to-use program. Imagine being able to create and access your test or quiz anywhere, at any time, without installing the testing software! Now, with EZ Test Online, instructors can select questions from multiple McGraw-Hill test banks or author their own and then either print the test for paper distribution or give it online.

· Test Creation. · Author/edit questions online using the 14 different question-type templates. · Create printed tests or deliver online to get instant scoring and feedback. · Create question pools to offer multiple versions online—great for practice. · Export your tests for use in WebCT, Blackboard, and Apple’s iQuiz. · Compatible with EZ Test Desktop tests you’ve already created. · Sharing tests with colleagues, adjuncts, TAs is easy.

Final PDF to printer

xv

des13959_fm_i-xliv.indd xv 01/04/18 10:01 AM

· Online Test Management. · Set availability dates and time limits for your quiz or test. · Control how your test will be presented. · Assign points by question or question type with drop-down menu. · Provide immediate feedback to students or delay until all finish the test. · Create practice tests online to enable student mastery. · Your roster can be uploaded to enable student self-registration.

· Online Scoring and Reporting. · Automated scoring for most of EZ Test’s numerous question types. · Allows manual scoring for essay and other open response questions. · Manual rescoring and feedback are also available. · EZ Test’s grade book is designed to easily export to your grade book. · View basic statistical reports.

· Support and Help. · User’s guide and built-in page-specific help. · Flash tutorials for getting started on the support site. · Support website: www.mhhe.com/eztest. · Product specialist available at 1-800-331-5094. · Online training: http://auth.mhhe.com/mpss/workshops/.

PowerPoint Presentation Prepared by Pauline Assenza of Western Connecticut State University, it consists of more than 400 slides incorporating an outline for the chapters tied to learning objectives. Also included are instructor notes, multiple-choice questions that can be used as Classroom Performance System (CPS) questions, and additional examples outside the text to promote class discussion.

Final PDF to printer

Connect content is authored by the world’s best subject matter experts, and is available to your class through a simple and intuitive interface.

The Connect eBook makes it easy for students to access their reading material on smartphones and tablets. They can study on the go and don’t need internet access to use the eBook as a reference, with full functionality.

Multimedia content such as videos, simulations, and games drive student engagement and critical thinking skills.

©McGraw-Hill Education

Connect’s assignments help students contextualize what they’ve learned through application, so they can better understand the material and think critically.

Connect will create a personalized study path customized to individual student needs through SmartBook®.

SmartBook helps students study more efficiently by delivering an interactive reading experience through adaptive highlighting and review.

McGraw-Hill Connect® is a highly reliable, easy-to- use homework and learning management solution that utilizes learning science and award-winning adaptive tools to improve student results.

73% of instructors who use Connect

require it; instructor satisfaction increases by 28% when Connect

is required.

Homework and Adaptive Learning

Quality Content and Learning Resources

Over 7 billion questions have been answered, making McGraw-Hill

Education products more intelligent, reliable, and precise.

Using Connect improves retention rates by 19.8 percentage points, passing rates by 12.7 percentage points, and exam

scores by 9.1 percentage points.

www.mheducation.com/connect

©Hero Images/Getty Images

More students earn As and Bs when they

use Connect.

Connect Insight® generates easy-to-read reports on individual students, the class as a whole, and on specific assignments.

The Connect Insight dashboard delivers data on performance, study behavior, and effort. Instructors can quickly identify students who struggle and focus on material that the class has yet to master.

Connect automatically grades assignments and quizzes, providing easy-to-read reports on individual and class performance.

Connect integrates with your LMS to provide single sign-on and automatic syncing of grades. Integration with Blackboard®, D2L®, and Canvas also provides automatic syncing of the course calendar and assignment-level linking.

Connect offers comprehensive service, support, and training throughout every phase of your implementation.

If you’re looking for some guidance on how to use Connect, or want to learn tips and tricks from super users, you can find tutorials as you work. Our Digital Faculty Consultants and Student Ambassadors offer insight into how to achieve the results you want with Connect.

Trusted Service and Support

Robust Analytics and Reporting

xviii

des13959_fm_i-xliv.indd xviii 01/04/18 10:01 AM

PREFACE

The Business Strategy Game and GLO-BUS Online Simulations Both allow teams of students to manage companies in a head-to-head contest for global market leadership. These simulations give students the immediate opportunity to experiment with various strategy options and to gain proficiency in applying the concepts and tools they have been reading about in the chapters. To find out more or to register, please visit www.mhhe.com/ thompsonsims.

ADDITIONAL RESOURCES FOR COURSE DESIGN AND DELIVERY Create Craft your teaching resources to match the way you teach! With McGraw-Hill Create, www.mcgrawhillcreate.com, you can easily rearrange chapters, combine material from other content sources, and quickly upload content you have written, like your course syllabus or teaching notes. Find the content you need in Create by searching through thousands of leading McGraw-Hill textbooks. Arrange your book to fit your teaching style. Create even allows you to personalize your book’s appearance by selecting the cover and adding your name, school, and course information. Order a Create book and you’ll receive a complimentary print review copy in three to five business days or a complimentary electronic review copy (eComp) via email in about one hour. Go to www.mcgrawhillcreate.com today and register. Experience how McGraw- Hill Create empowers you to teach your students your way.

E-Book Options E-books are an innovative way for students to save money and to “go green.” McGraw-Hill’s e-books are typically 40 percent of bookstore price. Students have the choice between an online and a downloadable CourseSmart e-book.

Through CourseSmart, students have the flexibility to access an exact replica of their textbook from any computer that has Internet service, without plug-ins or special software via the version, or create a library of books on their hard drive via the downloadable version. Access to CourseSmart e-books is one year.

Features: CourseSmart e-books allow students to highlight, take notes, organize notes, and share the notes with other CourseSmart users. Students can also search terms across all e-books in their purchased CourseSmart library. CourseSmart e-books can be printed (5 pages at a time).

More info and purchase: Please visit www.coursesmart.com for more information and to purchase access to our e-books. CourseSmart allows students to try one chapter of the e-book, free of charge, before purchase.

McGraw-Hill Higher Education and Blackboard McGraw-Hill Higher Education and Blackboard have teamed up. What does this mean for you?

1. Your life, simplified. Now you and your students can access McGraw-Hill’s Connect and Create right from within your Blackboard course—all with one single sign-on. Say goodbye to the days of logging in to multiple applications.

2. Deep integration of content and tools. Not only do you get single sign-on with Connect and Create, you also get deep integration of McGraw-Hill content and content engines

Final PDF to printer

xix

des13959_fm_i-xliv.indd xix 01/04/18 10:01 AM

right in Blackboard. Whether you’re choosing a book for your course or building Connect assignments, all the tools you need are right where you want them—inside Blackboard.

3. Seamless gradebooks. Are you tired of keeping multiple gradebooks and manually synchronizing grades into Blackboard? We thought so. When a student completes an integrated Connect assignment, the grade for that assignment automatically (and instantly) feeds into Blackboard grade center.

4. A solution for everyone. Whether your institution is already using Blackboard or you just want to try Blackboard on your own, we have a solution for you. McGraw-Hill and Blackboard can now offer you easy access to industry-leading technology and content, whether your campus hosts it or we do. Be sure to ask your local McGraw-Hill representative for details.

McGraw-Hill Customer Care Contact Information At McGraw-Hill, we understand that getting the most from new technology can be challenging. That’s why our services don’t stop after you purchase our products. You can email our product specialists 24 hours a day to get product training online. Or you can search our knowledge bank of Frequently Asked Questions on our support website. For customer support, call 800-331- 5094, email hmsupport@mcgraw-hill.com, or visit www.mhhe.com/support. One of our technical support analysts will be able to assist you in a timely fashion.

ACKNOWLEDGMENTS Strategic Management represents far more than just the joint efforts of the three co-authors. Rather, it is the product of the collaborative input of many people. Some of these individuals are academic colleagues, others are the outstanding team of professionals at McGraw-Hill, and still others are those who are closest to us—our families. It is time to express our sincere gratitude.

First, we’d like to acknowledge the dedicated instructors who have graciously provided their insights since the inception of the text. Their input has been very helpful in both pointing out errors in the manuscript and suggesting areas that needed further development as additional topics. We sincerely believe that the incorporation of their ideas has been critical to improving the final product. These professionals and their affiliations are:

The Reviewer Hall of Fame Moses Acquaah, University of North Carolina-Greensboro Todd Alessandri, Northeastern University Larry Alexander, Virginia Polytechnic Institute Thomas H. Allison, Washington State University Brent B. Allred, College of William & Mary

Allen C. Amason, Georgia Southern University Kathy Anders, Arizona State University Jonathan Anderson, University of West Georgia Peter H. Antoniou, California State University- San Marcos Dave Arnott, Dallas Baptist University

Marne L. Arthaud-Day, Kansas State University Dr. Bindu Arya, University of Missouri— St. Louis Jay A. Azriel, York College of Pennsylvania Jeffrey J. Bailey, University of Idaho David L. Baker, PhD, John Carroll University

Final PDF to printer

xx

des13959_fm_i-xliv.indd xx 01/04/18 10:01 AM

PREFACE

Dennis R. Balch, University of North Alabama Bruce Barringer, University of Central Florida Barbara R. Bartkus, Old Dominion University Barry Bayon, Bryant University Brent D. Beal, Louisiana State University Dr. Patricia Beckenholdt, Business and Professional Programs, University of Maryland, University College Joyce Beggs, University of North Carolina-Charlotte Michael Behnam, Suffolk University Kristen Bell DeTienne, Brigham Young University Eldon Bernstein, Lynn University Lyda Bigelow, University of Utah David Blair, University of Nebraska at Omaha Daniela Blettner, Tilburg University Dusty Bodie, Boise State University William Bogner, Georgia State University David S. Boss, PhD, Ohio University Scott Browne, Chapman University Jon Bryan, Bridgewater State College

Charles M. Byles, Virginia Commonwealth University

Mikelle A. Calhoun, Valparaiso University

Thomas J. Callahan, University of Michigan–Dearborn

Samuel D. Cappel, Southeastern Louisiana State University

Gary Carini, Baylor University

Shawn M. Carraher, University of Texas–Dallas

Tim Carroll, University of South Carolina Don Caruth, Amberton University

Maureen Casile, Bowling Green State University

Gary J. Castrogiovanni, Florida Atlantic University

Radha Chaganti, Rider University

Erick PC Chang, Arkansas State University

Tuhin Chaturvedi, Joseph M. Katz Graduate School of Business, University of Pittsburgh

Jianhong Chen, University of New Hampshire

Tianxu Chen, Oakland University

Andy Y. Chiou, SUNY Farmingdale State College

Theresa Cho, Rutgers University

Timothy S. Clark, Northern Arizona University

Bruce Clemens, Western New England College

Betty S. Coffey, Appalachian State University

Wade Coggins, Webster University-Fort Smith Metro Campus

Susan Cohen, University of Pittsburgh

George S. Cole, Shippensburg University

Joseph Coombs, Virginia Commonwealth University

Christine Cope Pence, University of California-Riverside

James J. Cordeiro, SUNY Brockport Stephen E. Courter, University of Texas at Austin

Jeffrey Covin, Indiana University

Keith Credo, Auburn University

Joshua J. Daspit, PhD, Mississippi State University

Deepak Datta, University of Texas at Arlington James Davis, Utah State University Justin L. Davis, University of West Florida David Dawley, West Virginia University Daniel DeGravel, California State University Northridge, David Nazarian College of Business and Economics

Final PDF to printer

xxi

des13959_fm_i-xliv.indd xxi 01/04/18 10:01 AM

Helen Deresky, State University of New York-Plattsburgh Rocki-Lee DeWitt, University of Vermont Jay Dial, Ohio State University Michael E. Dobbs, Arkansas State University Jonathan Doh, Villanova University Dr. John Donnellan, NJCU School of Business Tom Douglas, Clemson University Jon Down, Oregon State University Meredith Downes, Illinois State University Alan E. Ellstrand, University of Arkansas Dean S. Elmuti, Eastern Illinois University Clare Engle, Concordia University Mehmet Erdem Genc, Baruch College, CUNY Tracy Ethridge, Tri-County Technical College William A. Evans, Troy State University-Dothan Frances H. Fabian, University of Memphis Angelo Fanelli, Warrington College of Business Michael Fathi, Georgia Southwestern University Carolyn J. Fausnaugh, Florida Institute of Technology

Tamela D. Ferguson, University of Louisiana at Lafayette

David Flanagan, Western Michigan University

Kelly Flis, The Art Institutes

Karen Ford-Eickhoff, University of North Carolina Charlotte

Dave Foster, Montana State University

Isaac Fox, University of Minnesota

Charla S. Fraley, Columbus State Community College–Columbus, Ohio

Deborah Francis, Brevard College

Steven A. Frankforter, Winthrop University

Vance Fried, Oklahoma State University

Karen Froelich, North Dakota State University

Naomi A. Gardberg, Baruch College, CUNY

Joe Gerard, Western New England University

J. Michael Geringer, Ohio University

Diana L. Gilbertson, California State University–Fresno

Matt Gilley, St. Mary’s University

Debbie Gilliard, Metropolitan State College-Denver

Yezdi H. Godiwalla, University of Wisconsin–Whitewater

Sanjay Goel, University of Minnesota-Duluth

Sandy Gough, Boise State University

Amy Gresock, PhD The University of Michigan, Flint

Vishal K. Gupta, The University of Mississippi

Dr. Susan Hansen, University of Wisconsin–Platteville

Allen Harmon, University of Minnesota–Duluth

Niran Harrison, University of Oregon

Paula Harveston, Berry College

Ahmad Hassan, Morehead State University

Donald Hatfield, Virginia Polytechnic Institute

Kim Hester, Arkansas State University

Scott Hicks, Liberty University

John Hironaka, California State University–Sacramento

Anne Kelly Hoel, University of Wisconsin– Stout

Alan Hoffman, Bentley College

Gordon Holbein, University of Kentucky

Final PDF to printer

xxii

des13959_fm_i-xliv.indd xxii 01/04/18 10:01 AM

PREFACE

Stephen V. Horner, Pittsburg State University Jill Hough, University of Tulsa John Humphreys, Eastern New Mexico University James G. Ibe, Morris College Jay J. Janney, University of Dayton Lawrence Jauch, University of Louisiana-Monroe Dana M. Johnson, Michigan Technical University Homer Johnson, Loyola University, Chicago Marilyn R. Kaplan, Naveen Jindal School of Management, University of Texas–Dallas James Katzenstein, California State University– Dominguez Hills Joseph Kavanaugh, Sam Houston State University Franz Kellermanns, University of Tennessee Craig Kelley, California State University-Sacramento Donna Kelley, Babson College Dave Ketchen, Auburn University John A. Kilpatrick, Idaho State University Dr. Jaemin Kim, Stockton University Brent H. Kinghorn, Emporia State University

Helaine J. Korn, Baruch College, CUNY Stan Kowalczyk, San Francisco State University Daniel Kraska, North Central State College Donald E. Kreps, Kutztown University Jim Kroeger, Cleveland State University Subdoh P. Kulkarni, Howard University Ron Lambert, Faulkner University Theresa Lant, New York University Jai Joon Lee, California State University Sacramento Ted Legatski, Texas Christian University David J. Lemak, Washington State University–Tri-Cities Cynthia Lengnick-Hall, University of Texas at San Antonio Donald L. Lester, Arkansas State University Wanda Lester, North Carolina A&T State University Krista B. Lewellyn, University of Wyoming Benyamin Lichtenstein, University of Massachusetts at Boston Jun Lin, SUNY at New Paltz Zhiang (John) Lin, University of Texas at Dallas

Dan Lockhart, University of Kentucky John Logan, University of South Carolina Franz T. Lohrke, Samford University Kevin B. Lowe, Graduate School of Management, University of Auckland Leyland M. Lucas, Morgan State University Doug Lyon, Fort Lewis College Rickey Madden, PhD, Presbyterian College James Maddox, Friends University Ravi Madhavan, University of Pittsburgh Paul Mallette, Colorado State University Santo D. Marabella, Moravian College Catherine Maritan, Syracuse University Daniel Marrone, Farmingdale State College, SUNY Sarah Marsh, Northern Illinois University Jim Martin, Washburn University John R. Massaua, University of Southern Maine Hao Ma, Bryant College Larry McDaniel, Alabama A&M University Jean McGuire, Louisiana State University

Final PDF to printer

xxiii

des13959_fm_i-xliv.indd xxiii 01/04/18 10:01 AM

Abagail McWilliams, University of Illinois-Chicago Ofer Meilich, California State University– San Marcos

John E. Merchant, California State University–Sacramento

John M. Mezias, University of Miami

Michael Michalisin, Southern Illinois University at Carbondale

Doug Moesel, University of Missouri-Columbia

Fatma Mohamed, Morehead State University

Mike Montalbano, Bentley University

Debra Moody, University of North Carolina–Charlotte

Gregory A. Moore, Middle Tennessee State University

James R. Morgan, Dominican University and UC Berkeley Extension

Ken Morlino, Wilmington University

Sara A. Morris, Old Dominion University

Todd W. Moss, PhD, Syracuse University

Carolyn Mu, Baylor University

Stephen Mueller, Northern Kentucky University

John Mullane, Middle Tennessee State University

Chandran Mylvaganam, Northwood University Sucheta Nadkarni, Cambridge University Anil Nair, Old Dominion University V.K. Narayanan, Drexel University Maria L. Nathan, Lynchburg College Louise Nemanich, Arizona State University Charles Newman, University of Maryland, University College Stephanie Newport, Austin Peay State University Gerry Nkombo Muuka, Murray State University Bill Norton, University of Louisville Dr. Jill E. Novak Texas A&M University Roman Nowacki, Northern Illinois University Yusuf A. Nur, SUNY Brockport Jeffrey Richard Nystrom, University of Colorado– Denver William Ross O’Brien, Dallas Baptist University d.t. ogilvie, Rutgers University Floyd Ormsbee, Clarkson University Dr. Mine Ozer, SUNY-Oneonta Dr. Eren Ozgen, Troy University-Dothan Campus

Karen L. Page, University of Wyoming Jacquelyn W. Palmer, University of Cincinnati Julie Palmer, University of Missouri–Columbia Daewoo Park, Xavier University Gerald Parker, Saint Louis University Ralph Parrish, University of Central Oklahoma Amy Patrick, Wilmington University John Pepper, The University of Kansas Douglas K. Peterson, Indiana State University Edward Petkus, Mary Baldwin College Michael C. Pickett, National University Peter Ping Li, California State University-Stanislaus Michael W. Pitts, Virginia Commonwealth University Laura Poppo, Virginia Tech Steve Porth, Saint Joseph’s University Jodi A. Potter, Robert Morris University Scott A. Quatro, Grand Canyon University Nandini Rajagopalan, University of Southern California

Final PDF to printer

xxiv

des13959_fm_i-xliv.indd xxiv 01/04/18 10:01 AM

PREFACE

Annette L. Ranft, North Carolina State University Abdul Rasheed, University of Texas at Arlington Devaki Rau, Northern Illinois University George Redmond, Franklin University Kira Reed, Syracuse University Clint Relyea, Arkansas State University Barbara Ribbens, Western Illinois University Maurice Rice, University of Washington Violina P. Rindova, University of Texas–Austin Ron Rivas, Canisius College David Robinson, Indiana State University–Terre Haute Kenneth Robinson, Kennesaw State University Simon Rodan, San Jose State University Patrick R. Rogers, North Carolina A&T State University John K. Ross III, Texas State University–San Marcos Robert Rottman, Kentucky State University Matthew R. Rutherford, Gonzaga University Carol M. Sanchez, Grand Valley State University Doug Sanford, Towson University

William W. Sannwald, San Diego State University Yolanda Sarason, Colorado State University Marguerite Schneider, New Jersey Institute of Technology Roger R. Schnorbus, University of Richmond Terry Sebora, University of Nebraska–Lincoln John Seeger, Bentley College Jamal Shamsie, Michigan State University Mark Shanley, University of Illinois at Chicago Ali Shahzad, James Madison University Lois Shelton, California State University–Northridge Herbert Sherman, Long Island University Weilei Shi, Baruch College, CUNY Chris Shook, Auburn University Jeremy Short, University of Oklahoma Mark Simon, Oakland University– Michigan Rob Singh, Morgan State University Bruce Skaggs, University of Massachusetts Lise Anne D. Slattern, University of Louisiana at Lafayette

Wayne Smeltz, Rider University Anne Smith, University of Tennessee Andrew Spicer, University of South Carolina James D. Spina, University of Maryland John Stanbury, George Mason University & Inter-University Institute of Macau, SAR China Timothy Stearns, California State University–Fresno Elton Stephen, Austin State University Charles E. Stevens, University of Wyoming Alice Stewart, Ohio State University Mohan Subramaniam, Carroll School of Management Boston College Ram Subramanian, Grand Valley State University Roy Suddaby, University of Iowa Michael Sullivan, UC Berkeley Extension Marta Szabo White, Georgia State University Stephen Takach, University of Texas at San Antonio Justin Tan, York University, Canada Qingjiu Tao, PhD, James Madison University Renata A. Tarasievich, University of Illinois at Chicago

Final PDF to printer

xxv

des13959_fm_i-xliv.indd xxv 01/04/18 10:01 AM

Linda Teagarden, Virginia Tech Bing-Sheng Teng, George Washington University Alan Theriault, University of California–Riverside Tracy Thompson, University of Washington–Tacoma Karen Torres, Angelo State University Mary Trottier, Associate Professor of Management, Nichols College Robert Trumble, Virginia Commonwealth University Francis D. (Doug) Tuggle, Chapman University K.J. Tullis, University of Central Oklahoma Craig A. Turner, PhD, East Tennessee State University Beverly Tyler, North Carolina State University

Rajaram Veliyath, Kennesaw State University S. Stephen Vitucci, Tarleton State University– Central Texas Jay A. Vora, St. Cloud State University Valerie Wallingford, Ph.D., Bemidji State University Jorge Walter, Portland State University Bruce Walters, Louisiana Tech University Edward Ward, St. Cloud State University N. Wasilewski, Pepperdine University Andrew Watson, Northeastern University Larry Watts, Stephen F. Austin University Marlene E. Weaver, American Public University System Paula S. Weber, St. Cloud State University Kenneth E. A. Wendeln, Indiana University

Robert R. Wharton, Western Kentucky University Laura Whitcomb, California State University-Los Angeles Scott Williams, Wright State University Ross A. Wirth, Franklin University Gary Wishniewsky, California State University East Bay Diana Wong, Bowling Green State University Beth Woodard, Belmont University John E. Wroblewski, State University of New York-Fredonia Anne York, University of Nebraska- Omaha Michael Zhang, Sacred Heart University Monica Zimmerman, Temple University

Second, we would like to thank the people who have made our two important “features” possible. The information found in our six “Insights from Research” was provided courtesy of www.businessminded.com, an organization founded by K. Matthew Gilley, PhD (St. Mary’s University) that transforms empirical management research into actionable insights for business leaders. We appreciate Matt’s graciousness and kindness in helping us out. And, of course, our “Executive Insights: The Strategic Management Process” would not have been possible without the gracious participation of Admiral William H. McRaven, Retired who is presently Chancellor of the University of Texas System, and Jana Pankratz, Executive Director.

Third, the authors would like to thank several faculty colleagues who were particularly helpful in the review, critique, and development of the book and supplementary materials. Greg’s and Sean’s colleagues at the University of Texas at Dallas also have been helpful and supportive. These individuals include Mike Peng, Joe Picken, Kumar Nair, John Lin, Larry

Final PDF to printer

xxvi

des13959_fm_i-xliv.indd xxvi 01/04/18 10:01 AM

PREFACE

Chasteen, Tev Dalgic, and Livia Markoczy. His administrative assistant, Shalonda Hill, has been extremely helpful. Four doctoral students, Brian Pinkham, Steve Sauerwald, Kyun Kim, and Canan Mutlu, have provided many useful inputs and ideas. He also appreciates the support of his dean and associate dean, Hasan Pirkul and Varghese Jacob, respectively. Greg wishes to thank a special colleague, Abdul Rasheed at the University of Texas at Arlington, who certainly has been a valued source of friendship and ideas for us for many years. He provided many valuable contributions to the Ninth Edition. Gerry thanks all of his colleagues at Michigan State University for their help and support over the years. He also thanks his mentor, Phil Bromiley, as well as the students and former students he has had the pleasure of working with, including Cindy Devers, Federico Aime, Mike Mannor, Bernadine Dykes, Mathias Arrfelt, Kalin Kolev, Seungho Choi, Danny Gamache, and Adam Steinbach. Alan thanks his colleagues at Pace University and the Case Association for their support in developing these fine case selections. Special thanks go to Jamal Shamsie at Michigan State University for his support in developing the case selections for this edition.

Fourth, we would like to thank the team at McGraw-Hill for their outstanding support throughout the entire process. As we work on the book through the various editions, we always appreciate their hard work and recognize how so many people “add value” to our final package. This began with John Biernat, formerly publisher, who signed us to our original contract. He was always available to us and provided a great deal of support and valued input throughout several editions. Presently, in editorial, Susan Gouijnstook, managing director, director Mike Ablassmeir, senior product developers Anne Ehrenworth and Katharine Glynn (of Piper Editorial) kept things on track, responded quickly to our seemingly endless needs and requests, and offered insights and encouragement. We appreciate their expertise—as well as their patience! Once the manuscript was completed and revised, content project manager Harvey Yep expertly guided it through the content and assessment production process. Matt Diamond provided excellent design and artwork guidance. We also appreciate executive marketing manager Debbie Clare and marketing coordinator Brittany Berholdt for their energetic, competent, and thorough marketing efforts. Last, but certainly not least, we thank MHE’s 70-plus outstanding book reps—who serve on the “front lines”—as well as many in-house sales professionals based in Dubuque, Iowa. Clearly, they deserve a lot of credit (even though not mentioned by name) for our success.

Fifth, we acknowledge the valuable contributions of many of our strategy colleagues for their excellent contributions to our supplementary and digital materials. Such content really adds a lot of value to our entire package! We are grateful to Pauline Assenza at Western Connecticut State University for her superb work on case teaching notes as well as chapter and case PowerPoints. Justin Davis, University of West Florida, along with Noushi Rahman, Pace University, deserve our thanks for their hard work in developing excellent digital materials for Connect. Thanks also goes to Noushi Rahman for developing the Connect IM that accompanies this edition of the text. And, finally, we thank Christine Pence, University of California-Riverside, for her important contributions in revising our test bank and chapter quizzes, and Todd Moss, Oregon State University, for his hard work in putting together an excellent set of videos online, along with the video grid that links videos to chapter material.

Finally, we would like to thank our families. For Greg this includes his parents, William and Mary Dess, who have always been there for him. His wife, Margie, and daughter, Taylor, have been a constant source of love and companionship. His father, a career U. S. Air Force pilot took his “final flight” on May 22, 2015. Truly a member of Tom Brokaw’s “Greatest Generation,” he completed flight school before his 21st birthday and flew nearly 30 missions over Japan in World War II as a B-29 bomber pilot before he turned 23. His wife, five children, and several

Final PDF to printer

xxvii

des13959_fm_i-xliv.indd xxvii 01/04/18 10:01 AM

grandchildren truly miss him. Gerry thanks his wife, Gaelen, for her love, support, and friendship; and his children, Megan and AJ, for their love and the joy they bring to his life. He also thanks his current and former PhD students who regularly inspire and challenge him. Alan thanks his family—his wife, Helaine, and his children, Rachel and Jacob—for their love and support. He also thanks his parents, Gail Eisner and the late Marvin Eisner, for their support and encouragement. Sean thanks his wife, Hannah, and his two boys, Paul and Stephen, for their unceasing love and care. He also thanks his parents, Kenny and Inkyung Lee for being there whenever needed.

Final PDF to printer

xxviii

A GUIDED TOUR

LEARNING OBJECTIVES Learning Objectives numbered L05.1, L05.2, L05.3, etc., with corresponding icons in the margins to indicate where learning objectives are covered in the text.

LEARNING FROM MISTAKES Learning from Mistakes vignettes are examples of where things went wrong. Failures are not only interesting but also sometimes easier to learn from. And students realize strategy is notjustabout “right or wrong” answers, but requires critical thinking.

STRATEGY SPOTLIGHT These boxes weave themes of ethics, globalization, and technology into every chapter of the text, providing students with a thorough grounding necessary for understanding strategic management. Select boxes incorporate crowdsourcing, environmental sustainability, and ethical themes.

a guided

tour

chapter

After reading this chapter, you should have a good understanding of the following learning objectives:

1 LO1-1 The definition of strategic management and its four key attributes. LO1-2 The strategic management process and its three interrelated and principal

activities.

LO1-3 The vital role of corporate governance and stakeholder management, as well as how “symbiosis” can be achieved among an organization’s stakeholders.

LO1-4 The importance of social responsibility, including environmental sustainability, and how it can enhance a corporation’s innovation strategy.

LO1-5 The need for greater empowerment throughout the organization. LO1-6 How an awareness of a hierarchy of strategic goals can help an

organization achieve coherence in its strategic direction.

Strategic Management Creating Competitive Advantages

©Anatoli Styf/Getty Images

What makes the study of strategic management so interesting? Things can change so rapidly! Some start-ups can disrupt industries and become globally recognized names in just a few years. The rankings of the world’s most valuable firms can dramatically change in a rather brief period of time. On the other hand, many impressive, high-flying firms can struggle to reclaim past glory or even fail. Recall just four that begin with the letter “b”—Blackberry, Blockbuster, Borders, and Barings. As colorfully (and ironically!) noted by Arthur Martinez, Sears’s former Chairman: “Today’s peacock is tomorrow’s feather duster.”1

Consider the following:2

• At the beginning of 2007, the three firms in the world with the highest market values were Exxon Mobil, General Electric, and Gazprom (a Russian natural gas firm). By early 2017, three high tech firms headed the list—Apple, Alphabet (parent of Google), and Microsoft.

• Only 74 of the original 500 companies in the S&P index were still around 40 years later. And McKinsey notes that the average company tenure on the S&P 500 list has fallen from 61 years in 1958 to about 20 in 2016.

• With the dramatic increase of the digital economy, new entrants are shaking up long-standing industries. Note that Alibaba is the world’s most valuable retailer—but holds no inventory; Airbnb is the world’s largest provider of accommodations—but owns no real estate; and Uber is the world’s largest car service but owns no cars.

• A quarter century ago, how many would have predicted that a South Korean firm would be a global car giant, than an Indian firm would be one of the world’s largest technology firms, and a huge Chinese Internet company would list on an American stock exchange?

• Fortune magazine’s annual list of the 500 biggest companies now features 156 emerging- market firms. This compares with only 18 in 1995!

To remain competitive, companies often must bring in “new blood” and make significant changes in their strategies. But sometimes a new CEO’s initiatives makes things worse. Let’s take a look at Lands’ End, an American clothing retailer.3

Lands’ End was founded in 1963 as a mail order supplier of sailboat equipment by Gary Comer. As business picked up, he expanded the business into clothing and home furnishings and moved the company to Dodgeville, Wisconsin, in 1978 where he was its CEO until he stepped down in 1990. The firm was acquired by Sears in 2002, but later spun off in 2013. A year later it commenced trading on the NASDAQ stock exchange.

Targeting Middle America, companies like Lands’ End, the GAP Inc., and J. C. Penney have had a hard time in recent years positioning themselves in the hotly contested clothing industry. They are squeezed on the high end by brands like Michael Kors Holdings Ltd. and Coach, Inc. On the lower end, fast-fashion retailers including H&M operator Hennes & Mauritz AB are applying pressure by churning out inexpensive, runway-inspired styles.

LEARNING FROM MISTAKES

4.3 STRATEGY SPOTLIGHT MILLENNIALS HAVE A DIFFERENT DEFINITION OF DIVERSITY AND INCLUSION THAN PRIOR GENERATIONS A recent study by Deloitte and the Billie Jean King Leadership Initiative (BJKLI) shows that, in general, Millennials see the con- cepts of diversity and inclusion through a vastly different lens. The study analyzed the responses of 3,726 individuals who came from a wide variety of backgrounds with representation across gender, race/ethnicity, sexual orientation, national sta- tus, veteran status, disabilities, level within an organization, and tenure with an organization. The respondents were asked 62 questions about diversity and inclusion and the findings demon- strated a snapshot of shifting generational mindsets.

Millennials (born between 1977 to 1995) look upon diver- sity as the blending of different backgrounds, experiences, and perspectives within a team—which is known as cognitive diver- sity. They use this word to describe the mix of unique traits that help to overcome challenges and attain business objectives. For Millennials, inclusion is the support for a collaborative environ- ment, and leadership at such an organization must be transpar- ent, communicative, and engaging. According to the study, when defining diversity, Millennials are 35 percent more likely to focus on unique experiences, whereas 21 percent of non-Millennials are more likely to focus on representation.

The X-generation (born between 1965 and 1976) and Boomer generation (born between 1946 and 1964) have a different take.

These generations view diversity as a representation of fairness and protection for all—regardless of gender, race, religion, ethnic- ity, or sexual orientation. Here, inclusion is the integration of indi- viduals of all demographics into one workplace. It is the right thing to do, that is, a moral and legal imperative to achieve compliance and equality—regardless of whether it benefits the business. The study found that when asked about the business impact on diver- sity, Millennials are 71 percent more likely to focus on teamwork. In contrast, 28 percent of non-Millennials are more likely to focus on fairness of opportunity.

The study’s authors contend that the disconnect between the traditional definitions of diversity and inclusion and those of Millennials can create problems for businesses. For example, clashes may occur when managers do not permit Millennials to express themselves freely. The study found that while 86 percent of Millennials feel that differences of opinion allow teams to excel, only 59 percent believe that their leaders share this perspective.

The study suggests that a company with an inclusive culture promotes innovation. And it cites research by IBM and Morgan Stanley that shows that companies with high levels of innovation achieve the quickest growth in profits and that radical innova- tion outstrips incremental change by generating 10 times more shareholder value.

Sources: Dishman, L. 2015. Millennials have a different definition of diversity and inclusion. fastcompany.com, May 18: np; and Anonymous. 2015. For millennials inclusion goes beyond checking traditional boxes, according to a new Deloitte-- Billie Jean King Leadership Initiative Study. prnewswire.com, May 13: np.

11.2 ENVIRONMENTAL SUSTAINABILITY, ETHICSSTRATEGY SPOTLIGHT FAMILY LEADERSHIP SUSTAINS THE CULTURE OF SC JOHNSON SC Johnson, the maker of Windex, Ziploc bags, and Glade Air Fresheners, is known as one of the most environmentally con- scious consumer products companies. The family-owned company is run by Fisk Johnson, the fifth generation of the family to serve as firm CEO. It is the 35th largest privately owned firm, with 13,000 employees and nearly $10 billion in sales. Over the decades, the firm has built and reinforced its reputation for environmental con- sciousness. Being privately owned by the Johnson family is part of it. Fisk Johnson put it this way, “Wall Street rewards that short- termism. . . . We are in a very fortunate situation to not have to worry about those things, and we’re very fortunate that we have a family that is principled and has been very principled.”

Fisk uses the benefits of dedicated family ownership to work in both substantive and symbolic ways. On the substantive side, he has implemented systems in place to improve its environ- mental performance. For example, with its Greenlist process, the firm rates the ingredients it uses or is considering using. It then rates each ingredient on several criteria, including biodegrad- ability and human toxicity, and gives the ingredient a score rang-

3 (better or best) from about 20 percent to over 50 percent from 2001 to 2016.

Fisk uses stories from decisions in the past as it acts to sustain its culture of environmental consciousness. In using stories to rein- force the environmental focus within the firm and to explain it to external stakeholders, Fisk Johnson draws on stories relating to decisions his father made as well as ones he’s made. Most promi- nently, he uses a story about a decision his father made to stop using chlorofluorocarbons in the firm’s aerosol products. “Our first decision to unilaterally remove a major chemical occurred in 1975, when research began suggesting that chlorofluorocar- bons (CFCs) in aerosols might harm Earth’s ozone layer. My father was CEO at the time, and he decided to ban them from all the company’s aerosol products worldwide. He did so several years before the government played catch-up and banned the use of CFCs from everyone’s products.” He goes on to say, “You look back on that decision today, in light of the strong laws that came in, and that was a very prescient decision.” This story is especially effective since it highlights his father’s willingness and ability to take actions that can lead both the government and industry rivals to change. A second story outlines the firm’s decision to remove chlorine as an ingredient in its Saran Wrap. In the late 1990s, regu-

xxix

EXHIBITS Both new and improved exhibits in every chapter provide visual presentations of the most complex concepts covered to support student comprehension.

REFLECTING ON CAREER IMPLICATIONS This section before the summary of every chapter consists of examples on how understanding of key concepts helps business students early in their careers.

INSIGHTS The “Insights” feature is new to this edition. “Insights from Executives” spotlight interviews with executives from worldwide organizations about current issues salient to strategic management. “Insights from Research” summarize key research findings relevant to maintaining the effectiveness of an organization and its management.

industries? There are several reasons. With regard to the collection period, grocery stores operate mostly on a cash basis, hence a very short collection period. Semiconductor manu- facturers sell their output to other manufacturers (e.g., computer makers) on terms such as 2/15 net 45, which means they give a 2 percent discount on bills paid within 15 days and start charging interest after 45 days. Skilled-nursing facilities also have a longer collection period than grocery stores because they typically rely on payments from insurance companies.

The industry norms for return on sales also highlight differences among these industries. Grocers, with very slim margins, have a lower return on sales than either skilled-nursing facil- ities or semiconductor manufacturers. But how might we explain the differences between

Financial Ratio Semiconductors Grocery Stores Skilled-Nursing Facilities

Quick ratio (times) 1.9 0.6 1.3

Current ratio (times) 3.6 1.7 1.7

Total liabilities to net worth (%) 35.1 72.7 82.5

Collection period (days) 48.6 3.3 36.5

Assets to sales (%) 131.7 22.1 58.3

Return on sales (%) 24 1.1 3.1

Source: Dun & Bradstreet. Industry Norms and Key Business Ratios, 2010–2011. One Year Edition, SIC #3600–3699 (Semiconductors); SIC #5400–5499 (Grocery Stores); SIC #8000–8099 (Skilled-Nursing Facilities). New York: Dun & Bradstreet Credit Services.

EXHIBIT 3.10 How Financial Ratios Differ across Industries

Admiral William H. McRaven, Retired Chancellor, University of Texas System

BIOSKETCH University of Texas Chancellor William H. McRaven, a retired four-star admiral, leads the nation’s second largest system of higher education. As chief executive officer of the UT System since January 2015, he oversees 14 institutions that educate 217,000 students and employ 20,000 faculty and more than 70,000 health care professionals, researchers, and staff.

Prior to becoming chancellor, McRaven, a Navy SEAL, was the commander of U.S. Special Operations Command during which time he led a force of 69,000 men and women and was responsible for conducting counter-terrorism operations world- wide. McRaven is also a recognized national authority on U.S. foreign policy and has advised presidents George W. Bush and Barack Obama and other U.S. leaders on defense issues. His acclaimed book, Spec. Ops: Case Studies in Special Operations Warfare: Theory and Practice, has been published in several lan-

SEAL—helps young people move past self-imposed limits of physical and mental endurance and build confidence in themselves to lead others. The result is a person who is capable of leading in an environment of constant stress, chaos, failure and hardships. In fact, to me, basic SEAL training was a lifetime sampling of micro-challenges I would later face while leading people and organizations all crammed into six months.

Question 2. In leading Neptune Spear, what were the key leadership decisions you made to build an organization to accomplish this task?

The majority of the key leadership decisions that in past enabled us to accomplish this task began before I took command of the organization—but as a member of the

organization and its number 2 leader over a period of years, I had been an engaged student in the trial, error, and the ulti- mate development of what my old boss, General Stan McChrystal, called a “team of teams.” You see, our operational envi- ronment was changing at an incredibly rapid pace. Unlike any time in our history the rate of change was—and is—no longer

INSIGHTS from executives1.1

THE STRATEGIC MANAGEMENT PROCESS

Overview People often think that older workers are less motivated and less healthy, resist change and are less trusting, and have more trouble balancing work and family. It turns out these assumptions just aren’t true. By challenging these stereotypes in your organization, you can keep your employees working.

What the Research Shows In a 2012 paper published by Personnel Psychology, research- ers from the University of Hong Kong and the University of Georgia examined 418 studies of workers’ ages and stereotypes. A meta-analysis—a study of studies—was conducted to find out if any of the six following stereotypes about older workers—as compared with younger workers—was actually true:

• They are less motivated. • They are less willing to participate in training and

career development. • They are more resistant to change. • They are less trusting. • They are less healthy. • They are more vulnerable to work-family imbalance.

retain, and encourage mature employees’ continued involve- ment in workplaces because they have much to offer in the ways of wisdom, experience, and institutional knowledge. The alternative is to miss out on a growing pool of valuable human capital.

How can you deal with age stereotypes to keep older workers engaged? The authors suggest three effective ways:

• Provide more opportunities for younger and older workers to work together.

• Promote positive attributes of older workers, like experience, carefulness, and punctuality.

• Engage employees in open discussions about stereotypes.

Adam Bradshaw of the DeGarmo Group Inc. has sum- marized research on addressing age stereotypes in the workplace and offers practical advice. For instance, make sure hiring practices identify factors important to the job other than age. Managers can be trained in how to spot age stereotypes and can point out to employees why the stereo- types are often untrue by using examples of effective older workers. Realize that older workers can offer a competitive advantage because of skills they possess that competitors

INSIGHTS from Research2.1

NEW TRICKS: RESEARCH DEBUNKS MYTHS ABOUT OLDER WORKERS

Reflecting on Career Implications . . . This chapter discusses both the long-term focus of strategy and the need for coherence in strategic direction. The following questions extend these themes by asking students to consider their own strategic goals and how they fit with the goals of the firms in which they work or would seek employment.

Attributes of Strategic Management: The attributes of strategic management described in this chapter are applicable to your personal careers as well. What are your overall goals and objectives? Who are the stakeholders you have to consider in making your career decisions (family, community, etc.)? What trade- offs do you see between your long-term and short-term goals?

Intended versus Emergent Strategies: While you may have planned your career trajectory carefully, don’t be too tied to it. Strive to take advantage of new opportunities as they arise. Many promising career opportunities may “emerge” that were not part of your intended career strategy or your specific job assignment. Take initiative by pursuing opportunities to get additional training (e.g., learn a software or a statistical package), volunteering for a short-term overseas assignment, etc. You may be in a better position to take advantage of such emergent opportunities if you take the effort to prepare for

them. For example, learning a foreign language may position you better for an overseas opportunity.

Ambidexterity: In Strategy Spotlight 1.1, we discussed the four most important traits of ambidextrous individuals. These include looking for opportunities beyond the description of one’s job, seeking out opportunities to collaborate with others, building internal networks, and multitasking. Evaluate yourself along each of these criteria. If you score low, think of ways in which you can improve your ambidexterity.

Strategic Coherence: What is the mission of your organization? What are the strategic objectives of the department or unit you are working for? In what ways does your own role contribute to the mission and objectives? What can you do differently in order to help the organization attain its mission and strategic objectives?

Strategic Coherence: Setting strategic objectives is important in your personal career as well. Identify and write down three or four important strategic objectives you want to accomplish in the next few years (finish your degree, find a better-paying job, etc.). Are you allocating your resources (time, money, etc.) to enable you to achieve these objectives? Are your objectives measurable, timely, realistic, specific, and appropriate?

xxx

des13959_fm_i-xliv.indd xxx 01/04/18 10:01 AM

xxxi

des13959_fm_i-xliv.indd xxxi 01/04/18 10:01 AM

PART 1 STRATEGIC ANALYSIS 1 Strategic Management: Creating Competitive Advantages 2

2 Analyzing the External Environment of the Firm: Creating Competitive Advantages 34

3 Assessing the Internal Environment of the Firm 70

4 Recognizing a Firm’s Intellectual Assets: Moving beyond a Firm’s Tangible Resources 102

PART 2 STRATEGIC FORMULATION 5 Business-Level Strategy: Creating and Sustaining Competitive

Advantages 138

6 Corporate-Level Strategy: Creating Value through Diversification 172

7 International Strategy: Creating Value in Global Markets 202

8 Entrepreneurial Strategy and Competitive Dynamics 236

PART 3 STRATEGIC IMPLEMENTATION 9 Strategic Control and Corporate Governance 266

10 Creating Effective Organizational Designs 300

11 Strategic Leadership: Creating a Learning Organization and an Ethical Organization 332

12 Managing Innovation and Fostering Corporate Entrepreneurship 360

PART 4 CASE ANALYSIS 13 Analyzing Strategic Management Cases 392

Cases C-1

Indexes I-1

BRIEF CONTENTS

brief contents

Final PDF to printer

xxxii

des13959_fm_i-xliv.indd xxxii 01/04/18 10:01 AM

PART 1 STRATEGIC ANALYSIS

CHAPTER 1 Strategic Management: Creating Competitive Advantages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Learning from Mistakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

What Is Strategic Management? . . . . . . . . . . . . . . . . . 6 Defining Strategic Management . . . . . . . . . . . . . . . . . . . . . . 6 The Four Key Attributes of Strategic Management . . . . . . . 7

1.1 STRATEGY SPOTLIGHT

Ambidextrous Behaviors: Combining Alignment and Adaptability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

The Strategic Management Process . . . . . . . . . . . . . . 9 Intended versus Realized Strategies . . . . . . . . . . . . . . . . . . . 10 Strategy Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Strategy Formulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Strategy Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

1.1 INSIGHTS FROM EXECUTIVES

The Strategic Management Process . . . . . . . . . . . . . . . . . . . . .14

The Role of Corporate Governance and Stakeholder Management . . . . . . . . . . . . . . . . . . 16 Alternative Perspectives of Stakeholder Management . . . . .17 Social Responsibility and Environmental Sustainability:

Moving beyond the Immediate Stakeholders . . . . . . . . . 18 1.2 STRATEGY SPOTLIGHT

How Walmart Deploys Green Energy on an Industrial Scale—And Makes Money at It . . . . . . . . . . . . . . . . . . . . . .21

The Strategic Management Perspective: An Imperative Throughout the Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

1.3 STRATEGY SPOTLIGHT

Strategy and the Value of Inexperience . . . . . . . . . . . . . . . . . 23

Ensuring Coherence in Strategic Direction . . . . . . . . 23 Organizational Vision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Mission Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Strategic Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

1.4 STRATEGY SPOTLIGHT

How Perceptual Limited Succeeded by Rallying Around the Founder’s Original Mission . . . . . . . . . . . . . . . . . . . . 27

Issue for Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Reflecting on Career Implications . . . . . . . . . . . . . . . . . . . . . 29 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Experiential Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Application Questions & Exercises . . . . . . . . . . . . . . . . . . . . . 30 Ethics Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

CHAPTER 2 Analyzing the External Environment of the Firm: Creating Competitive Advantages . . . . . . . . . . . . .34

Learning from Mistakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Enhancing Awareness of the External Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 The Role of Scanning, Monitoring, Competitive

Intelligence, and Forecasting . . . . . . . . . . . . . . . . . . . . . 37 2.1 STRATEGY SPOTLIGHT Ethics

Ethical Guidelines on Competitive Intelligence: United Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

SWOT Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

The General Environment . . . . . . . . . . . . . . . . . . . . . . 41 The Demographic Segment . . . . . . . . . . . . . . . . . . . . . . . . . 43 The Sociocultural Segment . . . . . . . . . . . . . . . . . . . . . . . . . 43 The Political/Legal Segment . . . . . . . . . . . . . . . . . . . . . . . . 43

2.1 INSIGHTS FROM RESEARCH

New Tricks: Research Debunks Myths about Older Workers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

The Technological Segment . . . . . . . . . . . . . . . . . . . . . . . . . 45 2.2 STRATEGY SPOTLIGHT Ethics

The Conflict Minerals Legislation: Implications for Supply Chain Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

The Economic Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 The Global Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

CONTENTS

contents

Final PDF to printer

xxxiii

des13959_fm_i-xliv.indd xxxiii 01/04/18 10:01 AM

Relationships among Elements of the General Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Data Analytics: A Technology That Affects Multiple Segments of the General Environment . . . . . . . . . . . . . 47 2.3 STRATEGY SPOTLIGHT Data Analytics

How Big Data Can Monitor Federal, State, and Local Government Expenditures . . . . . . . . . . . . . . . . . . . . . . . . 49

The Competitive Environment . . . . . . . . . . . . . . . . . . 50 Porter’s Five Forces Model of Industry Competition . . . . . 50

2.4 STRATEGY SPOTLIGHT

Apple Flexes Its Muscle When It Comes to Negotiating Rental Rates for Its Stores in Malls . . . . . . . . . . . . . . . . . . .53

How the Internet and Digital Technologies Are Affecting the Five Competitive Forces . . . . . . . . . . . . . . . . . . . . . . 55 2.5 STRATEGY SPOTLIGHT

Buyer Power in Legal Services: The Role of the Internet . . . . 58

Using Industry Analysis: A Few Caveats . . . . . . . . . . . . . . . 59 Strategic Groups within Industries . . . . . . . . . . . . . . . . . . . .61 Issue for Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Reflecting on Career Implications . . . . . . . . . . . . . . . . . . . . . 64 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Experiential Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Application Questions & Exercises . . . . . . . . . . . . . . . . . . . . . 66 Ethics Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

CHAPTER 3 Assessing the Internal Environment of the Firm . . .70

Learning from Mistakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71

Value-Chain Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Primary Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

3.1 STRATEGY SPOTLIGHT

Chipotle’s Efficient Operations . . . . . . . . . . . . . . . . . . . . . . . . .74

Support Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 3.2 STRATEGY SPOTLIGHT Data

The Algorithm for Orange Juice . . . . . . . . . . . . . . . . . . . . . . . 77

3.3 STRATEGY SPOTLIGHT

Schmitz Cargobull: Adding Value to Customers via IT . . . . . . 78

Interrelationships among Value-Chain Activities within and across Organizations . . . . . . . . . . . . . . . . . . . . . . . . 78

Integrating Customers into the Value Chain . . . . . . . . . . . . 78 Applying the Value Chain to Service Organizations . . . . . . 80

Resource-Based View of the Firm . . . . . . . . . . . . . . . 81 Types of Firm Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . .81 Firm Resources and Sustainable Competitive

Advantages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 3.4 STRATEGY SPOTLIGHT

Printed in Taiwan: Path Dependence in 3D Printing . . . . . . . 85

3.5 STRATEGY SPOTLIGHT

Amazon Prime: Very Difficult for Rivals to Copy . . . . . . . . . . 86

The Generation and Distribution of a Firm’s Profits: Extending the Resource-Based View of the Firm . . . . . 88

Evaluating Firm Performance: Two Approaches . . . 90 Financial Ratio Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Integrating Financial Analysis and Stakeholder

Perspectives: The Balanced Scorecard . . . . . . . . . . . . . . 93 Issue for Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Reflecting on Career Implications . . . . . . . . . . . . . . . . . . . . . 96 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97 Experiential Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97 Application Questions & Exercises . . . . . . . . . . . . . . . . . . . . . 98 Ethics Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

CHAPTER 4 Recognizing a Firm’s Intellectual Assets: Moving beyond a Firm’s Tangible Resources . . . .102

Learning from Mistakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103

The Central Role of Knowledge in Today’s Economy . . . . . . . . . . . . . . . . . . . . . . . . . . 104 Human Capital: The Foundation of Intellectual Capital . . . . . . . . . . . . . . . . . . . . . . . . . . 107

4.1 STRATEGY SPOTLIGHT Environmental Sustainability

Can Green Strategies Attract and Retain Talent? . . . . . . . . . . 108

Attracting Human Capital . . . . . . . . . . . . . . . . . . . . . . . . . 108 Developing Human Capital . . . . . . . . . . . . . . . . . . . . . . . . .110

4.1 INSIGHTS FROM RESEARCH

Welcome Back! Recruiting Boomerang Employees . . . . . . . . .111

Retaining Human Capital . . . . . . . . . . . . . . . . . . . . . . . . . .114

Final PDF to printer

xxxiv

des13959_fm_i-xliv.indd xxxiv 01/04/18 10:01 AM

CONTENTS

Enhancing Human Capital: Redefining Jobs and Managing Diversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115 4.2 STRATEGY SPOTLIGHT

Want to Increase Employee Retention? Try Data Analytics . .116

4.3 STRATEGY SPOTLIGHT

Millennials Have a Different Definition of Diversity and Inclusion than Prior Generations . . . . . . . . . . . . . . . . . . . 118

The Vital Role of Social Capital . . . . . . . . . . . . . . . . 118 How Social Capital Helps Attract and Retain Talent . . . . .119 Social Networks: Implications for Knowledge

Management and Career Success . . . . . . . . . . . . . . . . . .119 4.4 STRATEGY SPOTLIGHT

Picasso versus Van Gogh: Who Was More Successful and Why? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .122

The Potential Downside of Social Capital . . . . . . . . . . . . . 123

Using Technology to Leverage Human Capital and Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 Using Networks to Share Information . . . . . . . . . . . . . . . . 124 Electronic Teams: Using Technology to Enhance

Collaboration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 Codifying Knowledge for Competitive Advantage . . . . . . 126

4.5 STRATEGY SPOTLIGHT

How SAP Taps Knowledge Well Beyond Its Boundaries . . . . .127

Protecting the Intellectual Assets of the Organization: Intellectual Property and Dynamic Capabilities . . . 128 Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . 129 Dynamic Capabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 Issue for Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .130 Reflecting on Career Implications . . . . . . . . . . . . . . . . . . . . .131 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .131 Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132 Experiential Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132 Application Questions & Exercises . . . . . . . . . . . . . . . . . . . . .132 Ethics Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133

PART 2 STRATEGIC FORMULATION

CHAPTER 5 Business-Level Strategy: Creating and Sustaining Competitive Advantages . . . . . . . . . . 138

Learning from Mistakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .139

Types of Competitive Advantage and Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 Overall Cost Leadership. . . . . . . . . . . . . . . . . . . . . . . . . . . .141

5.1 STRATEGY SPOTLIGHT Environmental Sustainability Primark Strives to Balance Low Costs with Environmental

Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .143 Differentiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

5.1 INSIGHTS FROM RESEARCH Linking Customer Interactions to Innovation: The Role

of the Organizational Practices. . . . . . . . . . . . . . . . . . . . .147 5.2 STRATEGY SPOTLIGHT Data Analytics Caterpillar Digs into the Data to Differentiate Itself . . . . . . . .148

Focus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 5.3 STRATEGY SPOTLIGHT Data Analytics Luxury in the E-Commerce World . . . . . . . . . . . . . . . . . . . . .151

Combination Strategies: Integrating Overall Low Cost and Differentiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 5.4 STRATEGY SPOTLIGHT Expanding the Profit Pool in the Sky . . . . . . . . . . . . . . . . . . .153

Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 Atlas Door: A Case Example . . . . . . . . . . . . . . . . . . . . . . . 155 Are Atlas Door’s Competitive Advantages Sustainable? . . .156 Strategies for Platform Markets . . . . . . . . . . . . . . . . . . . . . 158

Industry Life-Cycle Stages: Strategic Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 Strategies in the Introduction Stage . . . . . . . . . . . . . . . . . . .161 Strategies in the Growth Stage . . . . . . . . . . . . . . . . . . . . . . .161 Strategies in the Maturity Stage . . . . . . . . . . . . . . . . . . . . . 162 Strategies in the Decline Stage. . . . . . . . . . . . . . . . . . . . . . 163 Turnaround Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

5.5 STRATEGY SPOTLIGHT How Mindy Grossman Led HSN’s Remarkable

Turnaround . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 Issue for Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .166 Reflecting on Career Implications . . . . . . . . . . . . . . . . . . . . .166 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .167 Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .167 Experiential Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .167 Application Questions & Exercises . . . . . . . . . . . . . . . . . . . . .168 Ethics Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .168 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .168

Final PDF to printer

xxxv

des13959_fm_i-xliv.indd xxxv 01/04/18 10:01 AM

CHAPTER 6 Corporate-Level Strategy: Creating Value through Diversification . . . . . . . . . . . . . . . . . . . . 172

Learning from Mistakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .173

Making Diversification Work: An Overview . . . . . . . 174 Related Diversification: Economies of Scope and Revenue Enhancement . . . . . . . . . . . . . . . . . . . . . . . 175 Leveraging Core Competencies . . . . . . . . . . . . . . . . . . . . . .175

6.1 STRATEGY SPOTLIGHT Data Analytics

IBM: The New Health Care Expert . . . . . . . . . . . . . . . . . . . .177

Sharing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .178

Enhancing Revenue and Differentiation . . . . . . . . . 178 Related Diversification: Market Power . . . . . . . . . . 179 Pooled Negotiating Power . . . . . . . . . . . . . . . . . . . . . . . . . 179 Vertical Integration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

6.2 STRATEGY SPOTLIGHT Environmental Sustainability

Tesla Breaks Industry Norms by Vertically Integrating . . . . .180

Unrelated Diversification: Financial Synergies and Parenting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 Corporate Parenting and Restructuring . . . . . . . . . . . . . . 182 Portfolio Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183 Caveat: Is Risk Reduction a Viable Goal of

Diversification? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185

The Means to Achieve Diversification . . . . . . . . . . . 186 Mergers and Acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . . 186

6.3 STRATEGY SPOTLIGHT Ethics

Valeant Pharmaceuticals Jacks Up Prices after Acquisitions but Loses in the End. . . . . . . . . . . . . . . . . . . . . . . . . . . . .189

6.4 STRATEGY SPOTLIGHT

The Wisdom of Crowds: When Do Investors See Value in Acquisitions?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .190

Strategic Alliances and Joint Ventures . . . . . . . . . . . . . . . 192 6.5 STRATEGY SPOTLIGHT

Ericsson and Cisco Join Forces to Respond to the Changing Telecommunications Market . . . . . . . . . . . . . . . . . . . . . . . 193

Internal Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193

How Managerial Motives Can Erode Value Creation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194 Growth for Growth’s Sake . . . . . . . . . . . . . . . . . . . . . . . . . 194 Egotism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 Antitakeover Tactics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195

Issue for Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .196 Reflecting on Career Implications . . . . . . . . . . . . . . . . . . . . .197 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .197 Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .198 Experiential Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .198 Application Questions & Exercises . . . . . . . . . . . . . . . . . . . . .198 Ethics Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .198 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .198

CHAPTER 7 International Strategy: Creating Value in Global Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . 202

Learning from Mistakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203

The Global Economy: A Brief Overview . . . . . . . . . . 204 Factors Affecting a Nation’s Competitiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 Factor Endowments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 Demand Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 Related and Supporting Industries . . . . . . . . . . . . . . . . . . 206 Firm Strategy, Structure, and Rivalry . . . . . . . . . . . . . . . . 206 Concluding Comment on Factors Affecting a Nation’s

Competitiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206 7.1 STRATEGY SPOTLIGHT

India and the Diamond of National Advantage . . . . . . . . . . 207

International Expansion: A Company’s Motivations and Risks . . . . . . . . . . . . . . . . . . . . . . . . 208 Motivations for International Expansion . . . . . . . . . . . . . 208 Potential Risks of International Expansion . . . . . . . . . . . . .210

7.2 STRATEGY SPOTLIGHT Ethics

Counterfeit Drugs: A Dangerous and Growing Problem . . . . 213 7.3 STRATEGY SPOTLIGHT

When to Not Adapt Your Company’s Culture—Even If It Conflicts with the Local Culture . . . . . . . . . . . . . . . . . . . .214

Global Dispersion of Value Chains: Outsourcing and Offshoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .214

Achieving Competitive Advantage in Global Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216 Two Opposing Pressures: Reducing Costs and Adapting

to Local Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .216 International Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .217 Global Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .219 Multidomestic Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . 220

Final PDF to printer

xxxvi

des13959_fm_i-xliv.indd xxxvi 01/04/18 10:01 AM

CONTENTS

7.4 STRATEGY SPOTLIGHT

Challenges Involving Cultural Differences That Managers May Encounter When Negotiating Contracts across National Boundaries . . . . . . . . . . . . . . . . . . . . . . . . . . . .221

Transnational Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222 7.5 STRATEGY SPOTLIGHT

Panasonic’s China Experience Shows the Benefits of Being a Transnational . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224

Global or Regional? A Second Look at Globalization . . . 224

Entry Modes of International Expansion . . . . . . . . . 226 Exporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226 Licensing and Franchising . . . . . . . . . . . . . . . . . . . . . . . . . 227 Strategic Alliances and Joint Ventures . . . . . . . . . . . . . . . 228 Wholly Owned Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 229 Issue for Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230 Reflecting on Career Implications . . . . . . . . . . . . . . . . . . . . .231 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .231 Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232 Experiential Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232 Application Questions & Exercises . . . . . . . . . . . . . . . . . . . . 232 Ethics Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233

CHAPTER 8 Entrepreneurial Strategy and Competitive Dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236

Learning from Mistakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237

Recognizing Entrepreneurial Opportunities . . . . . . 238 Entrepreneurial Opportunities . . . . . . . . . . . . . . . . . . . . . . 239

8.1 STRATEGY SPOTLIGHT

Seeing Opportunity in the Bright Side . . . . . . . . . . . . . . . . . 240

8.2 STRATEGY SPOTLIGHT Environmental Sustainability

mOasis Leverages Technology to Improve Water Efficiency for Farmers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .241

Entrepreneurial Resources . . . . . . . . . . . . . . . . . . . . . . . . . 242 Entrepreneurial Leadership . . . . . . . . . . . . . . . . . . . . . . . . 246

Entrepreneurial Strategy . . . . . . . . . . . . . . . . . . . . . 247 Entry Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247

8.3 STRATEGY SPOTLIGHT

Casper Sleep Aims to Be the Warby Parker of Mattresses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249

Generic Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250

8.4 STRATEGY SPOTLIGHT

Shakespeare & Co.: Using Technology to Create a New Local Bookstore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252

Combination Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . 252

Competitive Dynamics . . . . . . . . . . . . . . . . . . . . . . . 253 New Competitive Action . . . . . . . . . . . . . . . . . . . . . . . . . . 253 Threat Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254 Motivation and Capability to Respond . . . . . . . . . . . . . . . 256 Types of Competitive Actions . . . . . . . . . . . . . . . . . . . . . . 256 Likelihood of Competitive Reaction . . . . . . . . . . . . . . . . . 258

8.5 STRATEGY SPOTLIGHT Ethics

Cleaning Up in the Soap Business . . . . . . . . . . . . . . . . . . . . 259

Choosing Not to React: Forbearance and Co-opetition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259

Issue for Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260 Reflecting on Career Implications . . . . . . . . . . . . . . . . . . . . .261 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .261 Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262 Application Questions & Exercises . . . . . . . . . . . . . . . . . . . . 262 Ethics Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263

PART 3 STRATEGIC IMPLEMENTATION CHAPTER 9 Strategic Control and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266

Learning from Mistakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .267

Ensuring Informational Control: Responding Effectively to Environmental Change . . . . . . . . . . . 268 A Traditional Approach to Strategic Control . . . . . . . . . . 268 A Contemporary Approach to Strategic Control . . . . . . . 269

Attaining Behavioral Control: Balancing Culture, Rewards, and Boundaries . . . . . . . . . . . . . . . . . . . . . 270 Building a Strong and Effective Culture . . . . . . . . . . . . . . 270 Motivating with Rewards and Incentives . . . . . . . . . . . . . . .271

9.1 STRATEGY SPOTLIGHT

Using Pictures and Stories to Build a Customer-Oriented Culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .272

Final PDF to printer

xxxvii

des13959_fm_i-xliv.indd xxxvii 01/04/18 10:01 AM

9.1 INSIGHTS FROM RESEARCH

Inspire Passion—Motivate Top Performance . . . . . . . . . . . . . .274

Setting Boundaries and Constraints . . . . . . . . . . . . . . . . . .275 Behavioral Control in Organizations: Situational

Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276 9.2 STRATEGY SPOTLIGHT Data Analytics

Using Data Analytics to Enhance Organizational Control . . .277

Evolving from Boundaries to Rewards and Culture . . . . . 277

The Role of Corporate Governance . . . . . . . . . . . . . 278 The Modern Corporation: The Separation of Owners

(Shareholders) and Management . . . . . . . . . . . . . . . . . 279 Governance Mechanisms: Aligning the Interests of

Owners and Managers . . . . . . . . . . . . . . . . . . . . . . . . . 280 9.3 STRATEGY SPOTLIGHT Ethics

How Women Have Come to Dominate a Corner of Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284

CEO Duality: Is It Good or Bad? . . . . . . . . . . . . . . . . . . . 285 External Governance Control Mechanisms . . . . . . . . . . . 286

9.4 STRATEGY SPOTLIGHT

The Rise of the Privately Owned Firm . . . . . . . . . . . . . . . . . 288

9.5 STRATEGY SPOTLIGHT Ethics

Japanese Government Pushes for Governance Reform . . . . . 289

Corporate Governance: An International Perspective . . . 290 Issue for Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292 Reflecting on Career Implications . . . . . . . . . . . . . . . . . . . . 293 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293 Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294 Experiential Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294 Application Questions & Exercises . . . . . . . . . . . . . . . . . . . . 294 Ethics Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295

CHAPTER 10 Creating Effective Organizational Designs . . . . . 300

Learning from Mistakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .301

Traditional Forms of Organizational Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302 Patterns of Growth of Large Corporations: Strategy-

Structure Relationships . . . . . . . . . . . . . . . . . . . . . . . . 302 Simple Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304 Functional Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304 Divisional Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306

10.1 STRATEGY SPOTLIGHT

Whole Foods Centralizes to Improve Efficiency . . . . . . . . . . 307

Matrix Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308 10.2 STRATEGY SPOTLIGHT

Where Conglomerates Prosper . . . . . . . . . . . . . . . . . . . . . . . 309

International Operations: Implications for Organizational Structure . . . . . . . . . . . . . . . . . . . . . . . .310

Global Start-Ups: A Recent Phenomenon . . . . . . . . . . . . .312 10.3 STRATEGY SPOTLIGHT

Global Start-Up, BRCK, Works to Bring Reliable Internet Connectivity to the World . . . . . . . . . . . . . . . . . . . . . . . . .313

How an Organization’s Structure Can Influence Strategy Formulation . . . . . . . . . . . . . . . . . . . . . . . . . . .313

Boundaryless Organizational Designs . . . . . . . . . . 314 The Barrier-Free Organization . . . . . . . . . . . . . . . . . . . . . . .314

10.4 STRATEGY SPOTLIGHT Environmental Sustainability

The Business Roundtable: A Forum for Sharing Best Environmental Sustainability Practices . . . . . . . . . . . . . .316

10.1 INSIGHTS FROM RESEARCH

Where Employees Learn Affects Financial Performance . . . .317

10.5 STRATEGY SPOTLIGHT

Cloudflare Sees the Need for Structure . . . . . . . . . . . . . . . . .318

The Modular Organization . . . . . . . . . . . . . . . . . . . . . . . . .318 The Virtual Organization . . . . . . . . . . . . . . . . . . . . . . . . . . 320 Boundaryless Organizations: Making Them Work . . . . . . 321

Creating Ambidextrous Organizational Designs . . 324 Ambidextrous Organizations: Key Design Attributes . . . . 325 Why Was the Ambidextrous Organization the Most

Effective Structure? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 Issue for Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326 Reflecting on Career Implications . . . . . . . . . . . . . . . . . . . . .327 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .327 Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328 Experiential Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328 Application Questions & Exercises . . . . . . . . . . . . . . . . . . . . 328 Ethics Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329

CHAPTER 11 Strategic Leadership: Creating a Learning Organization and an Ethical Organization . . . . . 332

Learning from Mistakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333

Final PDF to printer

xxxviii

des13959_fm_i-xliv.indd xxxviii 01/04/18 10:01 AM

CONTENTS

Leadership: Three Interdependent Activities . . . . . 334 Setting a Direction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Designing the Organization . . . . . . . . . . . . . . . . . . . . . . . . 335

11.1 STRATEGY SPOTLIGHT

Marvin Ellison Attempts to Turn JC Penney Co. Inc. Around . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336

Nurturing a Culture Committed to Excellence and Ethical Behavior . . . . . . . . . . . . . . . . . . . . . . . . . . 336 11.2 STRATEGY SPOTLIGHT Environmental Sustainability,

Ethics

Family Leadership Sustains the Culture of SC Johnson . . . . 337

Getting Things Done: Overcoming Barriers and Using Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338 Overcoming Barriers to Change . . . . . . . . . . . . . . . . . . . . 338

11.3 STRATEGY SPOTLIGHT

Overcoming Supply Chain Limitations at Target . . . . . . . . . 339

Using Power Effectively . . . . . . . . . . . . . . . . . . . . . . . . . . . 339 11.4 STRATEGY SPOTLIGHT

The Use of “Soft” Power at Siemens . . . . . . . . . . . . . . . . . . . .341

Emotional Intelligence: A Key Leadership Trait . . . 341 Self-Awareness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342 Self-Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342 Motivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343 Empathy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343 Social Skill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343 Emotional Intelligence: Some Potential Drawbacks and

Cautionary Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344

Creating a Learning Organization . . . . . . . . . . . . . . 344 Inspiring and Motivating People with a Mission

or Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345 Empowering Employees at All Levels . . . . . . . . . . . . . . . . 345 Accumulating and Sharing Internal Knowledge . . . . . . . . 346 Gathering and Integrating External Information . . . . . . . 346 Challenging the Status Quo and Enabling Creativity . . . . 347

Creating an Ethical Organization . . . . . . . . . . . . . . . 348 Individual Ethics versus Organizational Ethics . . . . . . . . . 348

11.5 STRATEGY SPOTLIGHT Environmental Sustainability, Ethics

Green Energy: Real or Just a Marketing Ploy? . . . . . . . . . . . 349

Integrity-Based versus Compliance-Based Approaches to Organizational Ethics . . . . . . . . . . . . . . . . . . . . . . . . 350

Role Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351

Corporate Credos and Codes of Conduct . . . . . . . . . . . . . 352 Reward and Evaluation Systems . . . . . . . . . . . . . . . . . . . . 352 Policies and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . 353 Issue for Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353 Reflecting on Career Implications . . . . . . . . . . . . . . . . . . . . 354 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355 Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355 Experiential Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356 Application Questions & Exercises . . . . . . . . . . . . . . . . . . . . 356 Ethics Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356

CHAPTER 12 Managing Innovation and Fostering Corporate Entrepreneurship . . . . . . . . . . . . . . . . . . . . . . . . . 360

Learning from Mistakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .361

Managing Innovation . . . . . . . . . . . . . . . . . . . . . . . . 362 Types of Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362

12.1 STRATEGY SPOTLIGHT

MiO Drops Change the Beverage Game . . . . . . . . . . . . . . . . 363

Challenges of Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . 364 Cultivating Innovation Skills . . . . . . . . . . . . . . . . . . . . . . . 365

12.2 STRATEGY SPOTLIGHT

Procter & Gamble Strives to Remain Innovative. . . . . . . . . . 366

12.3 STRATEGY SPOTLIGHT Environmental Sustainability

Fair Oaks Farms Sees the Power of Waste . . . . . . . . . . . . . . 368

Defining the Scope of Innovation . . . . . . . . . . . . . . . . . . . 368 Managing the Pace of Innovation . . . . . . . . . . . . . . . . . . . 369 Staffing to Capture Value from Innovation . . . . . . . . . . . . 369 Collaborating with Innovation Partners . . . . . . . . . . . . . . 370 The Value of Unsuccessful Innovation . . . . . . . . . . . . . . . 370

12.1 INSIGHTS FROM RESEARCH

You Can Adapt to the Loss of a Star Employee . . . . . . . . . . .371

Corporate Entrepreneurship . . . . . . . . . . . . . . . . . . . 373 Focused Approaches to Corporate Entrepreneurship . . . .374

12.4 STRATEGY SPOTLIGHT

Big Firms Use NVGs and Business Incubators to Trigger Creativity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .375

Dispersed Approaches to Corporate Entrepreneurship . . .375 Measuring the Success of Corporate Entrepreneurship

Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377

Final PDF to printer

xxxix

des13959_fm_i-xliv.indd xxxix 01/04/18 10:01 AM

Real Options Analysis: A Useful Tool . . . . . . . . . . . . 378 Applications of Real Options Analysis to Strategic

Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379 12.5 STRATEGY SPOTLIGHT

Saving Millions with Real Options at Intel . . . . . . . . . . . . . . 380

Potential Pitfalls of Real Options Analysis . . . . . . . . . . . . 380

Entrepreneurial Orientation . . . . . . . . . . . . . . . . . . . 381 Autonomy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381 Innovativeness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382 Proactiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383 Competitive Aggressiveness . . . . . . . . . . . . . . . . . . . . . . . . 384 Risk Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384 Issue for Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 385 Reflecting on Career Implications . . . . . . . . . . . . . . . . . . . . 386 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 386 Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387 Experiential Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387 Application Questions & Exercises . . . . . . . . . . . . . . . . . . . . 387 Ethics Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388

PART 4 Case Analysis CHAPTER 13 Analyzing Strategic Management Cases . . . . . . 392

Why Analyze Strategic Management Cases? . . . . . . . . . . . . 393 13.1 STRATEGY SPOTLIGHT

Analysis, Decision Making, and Change at Sapient Health Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395

How to Conduct a Case Analysis . . . . . . . . . . . . . . . 395 Become Familiar with the Material . . . . . . . . . . . . . . . . . . 396

13.2 STRATEGY SPOTLIGHT

Using a Business Plan Framework to Analyze Strategic Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397

Identify Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397 Conduct Strategic Analyses . . . . . . . . . . . . . . . . . . . . . . . . 398 Propose Alternative Solutions . . . . . . . . . . . . . . . . . . . . . . 400 Make Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . 400

How to Get the Most from Case Analysis . . . . . . . . 401 Useful Decision-Making Techniques in Case Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 404 Integrative Thinking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 404 Asking Heretical Questions . . . . . . . . . . . . . . . . . . . . . . . . 406

13.3 STRATEGY SPOTLIGHT

Integrative Thinking at Red Hat, Inc. . . . . . . . . . . . . . . . . . 406

Conflict-Inducing Techniques . . . . . . . . . . . . . . . . . . . . . . 407 13.4 STRATEGY SPOTLIGHT

Making Case Analysis Teams More Effective . . . . . . . . . . . . 408

Following the Analysis-Decision-Action Cycle in Case Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411

13.5 STRATEGY SPOTLIGHT

Case Competition Assignment . . . . . . . . . . . . . . . . . . . . . . . .416

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .417 Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .417 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .417 Appendix 1 to Chapter 13: Financial Ratio Analysis . . . . . . .418 Appendix 2 to Chapter 13: Sources of Company and

Industry Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .427

Final PDF to printer

xl

des13959_fm_i-xliv.indd xl 01/04/18 10:01 AM

CASES

1 ROBIN HOOD Hypothetical/Classic Robin Hood and his Merrymen are in trouble, as wealthy travelers are avoiding Sherwood Forest. This classic case is an excellent introduction to strategic management using a nonbusiness context. . . . . . . . . . C2

2 THE GLOBAL CASINO INDUSTRY IN 2017 Casino Industry The dominance of Las Vegas and Atlantic City in the global market has been challenged by the development of several casinos along a strip in the former Portuguese colony of Macau. More recently, this growth of casinos has spread to other locations across Asia-Pacific. All of these new locations are hoping to grab a share of the gambling revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . C3

3 MCDONALD’S IN 2017 Restaurant Change is in the air at the world’s largest burger chain. Only 20% of millennials have even tried a Big Mac and McDonald’s is worried. It has removed high fructose corn syrup from its buns, changed from the use of liquid margarine to real butter, decided to use chicken that has been raised without antibiotics, and switched to cage- free eggs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C7

4 ZYNGA: IS THE GAME OVER? Mutimedia & Online Games Zynga not only struggled to remain relevant in the gaming industry but also fought to seem attractive to investors. During the past four years, the company had a new CEO almost every year. . . . . . . . . . . . . . . . . . . . C13

5 QVC Retail QVC is finally beginning to see cracks emerge in a business model that has relied on impulsive purchases

by television viewers. The home shopping channel’s U.S. sales fell 6% during the last part of 2016, the first drop in seven years on its home turf. It was especially troubling that this decline extended into the crucial year-end holiday period. . . . . . . . . . . . . . . . . . . . . . . . C19

6 MICROFINANCE: GOING GLOBAL . . . AND GOING PUBLIC?

Finance With the global success of the microfinance concept, the number of private microfinance institutions exploded and the initial public offerings for these institutions was on the rise. This transfer of control to public buyers creates a fiduciary duty of the bank’s management to maximize shareholder value. Will this be a good thing for these typically “do good” banks? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C24

7 WORLD WRESTLING ENTERTAINMENT Entertainment 2017 offered new challenges for WWE’s potent mix of shaved, pierced, and pumped-up muscled hunks; buxom, scantily clad, and sometimes cosmetically enhanced beauties; and body-bashing clashes of good versus evil that had resulted in an empire that claimed over 35 million fans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C27

8 GREENWOOD RESOURCES: A GLOBAL SUSTAINABLE VENTURE IN THE MAKING

Natural Resources GreenWood manager Jeff Nuss narrowed the field from 20 possible investment sites to two strategic alternatives. Which tree plantation investment in rural China should Jeff proceed with? . . . . . . . . . . . . . . . . . . . . . . . . . . . C32

9 FRESHDIRECT: HOW FRESH IS IT? Grocery FreshDirect, a New York City–based online grocer, claimed, “Our food is fresh, our customers are spoiled.” Recently, however, many consumers questioned the freshness of the food delivered. . . . . . . . . . . . . . . . . . C46

10 DIPPIN’ DOTS: IS THE FUTURE FROZEN? Ice Cream Dippin’ Dots Ice Cream is faced with mounting competition for its flagship tiny beads of ice cream that are made and served at super-cold temperatures. Will their new distribution partners bring them in from the cold?. . . . C58

cases

Final PDF to printer

xli

des13959_fm_i-xliv.indd xli 01/04/18 10:01 AM

11 KICKSTARTER AND CROWDFUNDING Crowdfunding Crowdfunding allows ventures to draw on relatively small contributions from a relatively large number of individuals using the Internet, without standard financial intermediaries. KickStarter offers a platform for crowdfunding of new ventures, but the field is crowded. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C68

12 EMIRATES AIRLINE IN 2017 Airlines Emirates faced its biggest challenge from the drop in oil prices and the growth in terrorist attacks that have led to a decline in demand. Many companies, particularly in the Middle East, have been cutting back on travel for their employees, reducing the premium revenue that Emirates has been generating from first and business class passengers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C75

13 CIRQUE DU SOLEIL Entertainment Cirque du Soleil’s business triumphs mirrored its high- flying aerial stunts, but poorly received shows over the last few years and a decline in profits have caused executives at Cirque to announce restructuring and refocusing efforts—shifting some of the attention away from their string of successful shows toward several other potential business ventures. . . . . . . . . . . . . . . . C82

14 PIXAR Movies Disney CEO Bob Iger worked hard to clinch the deal to acquire Pixar, whose track record has made it one of the world’s most successful animation companies. Iger realized, however, that he must try to protect Pixar’s creative culture while also trying to carry that culture over to some of Disney’s animation efforts. . . . . . . . C86

15 CAMPBELL: HOW TO KEEP THE SOUP SIMMERING

Processed and Packaged Goods In 2017, Campbell Soup neared the boiling point with numerous challenges, the most important to remain attractive to health-conscious consumers. CEO Denise Morrison tried to turn the company focus toward fresh food categories, with its fresh food division called “Campbell Fresh.” However, the company still failed to accomplish an impressive comeback. . . . . . . . . . . . . C91

16 HEINEKEN Beer Heineken can lay claim to a brand that may be the closest thing to a global beer brand. But in the United States and Europe sales are relatively flat. Heineken owns more than 175 smaller or regional brands of beer. Would the move to launch Bintang, which is its biggest selling beer brand in Indonesia, into the UK and select European markets be successful? . . . . . . . . . . . . . . C102

17 FORD: NO LONGER JUST AN AUTO COMPANY?

Automotive Ford’s new CEO Mark Fields announced that Ford would focus not only on advanced new vehicles but on changing the way the world moves by solving today’s growing global transportation challenges. Are Fields and Ford up to the challenge? . . . . . . . . . . . . . . . . . C107

18 GENERAL MOTORS IN 2017 Automotive GM has fallen from its dominant position in the domestic auto business, is dismantling operations in Russia, and is selling off its Opel unit in Europe to Peugeot. Will CEO Mary Barra be able to bring back the glory with a series of new investments such as in electric vehicles, ride sharing fleets, and driverless cars? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C120

19 JOHNSON & JOHNSON Pharmaceuticals, Personal Care Products, Medical Devices CEO Alex Gorsky has been growing J&J by acquisition, while granting autonomy to the firms that it absorbs. While independence cultivates an entrepreneurial attitude, the units are not pursuing collaborative opportunities across units. How can J&J combine collaboration and autonomy without unraveling the J&J entrepreneurial spirit? . . . . . . . . . . . . . . . . . . . . C128

20 AVON: A NEW ERA? Cosmetics Rookie CEO Shari McCoy spun off 80% of Avon’s domestic business in an attempt save the firm. Can McCoy save the remaining business and return the iconic, direct selling company to profitable growth?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C133

Final PDF to printer

xlii

des13959_fm_i-xliv.indd xlii 01/04/18 10:01 AM

CASES

21 THE BOSTON BEER COMPANY: POISED FOR GROWTH

Beer The Boston Beer Company was facing a difficult competitive environment with direct competition from both larger and smaller breweries and from premium imported beers. While further growth would be beneficial in terms of revenue, growing too large could negatively affect the company’s status as a craft brewery and the perceptions of its customers. . . . . . . . . . . . C144

22 NINTENDO’S SWITCH Video Games In 2017 Nintendo launched a new gaming console system named Nintendo Switch. Would the new Joy- Con Controllers and flexible play features be enough to boost consumer numbers and investors’ confidence? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C154

23 TATA STARBUCKS: HOW TO BREW A SUSTAINABLE BLEND FOR INDIA

Coffee Would Starbucks and Tata under new CEO Sumi Ghosh’s leadership finally be able to brew a new blend of success in the competitive and complex Indian café market? While management appeared proud of the joint venture’s early performance, some critical strategic choices would need to be made to ensure the long-term success of Starbucks in India. . . . . . . . . . . . . . . . . . C165

24 WEIGHT WATCHERS INTERNATIONAL INC. Weight Loss Weight Watchers was reinventing weight loss for a new generation and hoping profits would jump off the scale. A new “Beyond the Scale” advertising campaign that featured the entrepreneur and talk show host, Oprah Winfrey, claiming that she had lost 40 pounds by using Weight Watchers program. . . . . . . . . . . . . . . . . . . . C173

25 SAMSUNG ELECTRONICS 2017 Consumer Electronics Samsung rushed the Note 7 to market ahead of Apple’s anticipated iPhone 7. The tendency of the Note 7 to burst into flames from a poor battery design subsequently led Samsung to engage in one of its most extensive and costly recalls and to eventually kill the new product. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C184

26 PROCTER & GAMBLE Consumer Products Procter & Gamble was the world’s largest consumer products conglomerate, with billion-dollar brands such as Tide, Crest, Pampers, Gillette, Right Guard, and Duracell. However, sales were down as consumers were coping with the economic downturn by switching to P&G’s lower-priced brands. . . . . . . . . . . . . . . . . . . . C189

27 APPLE INC.: IS THE INNOVATION OVER? Computers, Consumer Electronics CEO Tim Cook had driven the stock price up 175% since the death of founder Steve Jobs. Yet Cook was criticized for being too cautious about entering new product categories, pursuing acquisitions, and driving employees to achieve stretch goals. Would Apple be able to innovative without Jobs? . . . . . . . . . . . . . . . . . . . C195

28 JETBLUE AIRLINES: GETTING OVER THE “BLUES”?

Airline This airline’s start-up success story is facing new challenges as operational problems have surfaced and another new pilot is in the CEO’s seat. . . . . . . . . . . C208

29 UNITED WAY WORLDWIDE Nonprofit As a nonprofit organization, it was imperative for United Way Worldwide to get the necessary support at the local level in order to achieve its stated organizational goals. Would Gallagher’s various strategies be successfully implemented, or was the nonprofit’s very mission perhaps no longer relevant? . . . . . . . . . . . . . . . . . . . .C218

30 EBAY Internet The online auction pioneer was entering a critical period. There were questions of what was right for the company to increase shareholder value over the long term, as well as operational issues related to search engine optimization and online security. . . . . . . . . C227

31 JAMBA JUICE: MIXING IT UP & STARTING AFRESH

Smoothies/QSR After years of same-store declines, activist investors were pressuring CEO Dave Pace for a turnaround.

Final PDF to printer

xliii

des13959_fm_i-xliv.indd xliii 01/04/18 10:01 AM

Jamba has gradually expanded its product line over the past several years to appeal to a broader palate, but was the company biting off more than it could chew? . . C241

32 BLACKBERRY LIMITED: IS THERE A PATH TO RECOVERY?

Mobile Phones, Software Blackberry CEO John Chen was hired to get the former dominating smartphone producer back to profitability. However, Blackberry stock was trading for less than $7 a share, that is, only a fraction of the $139 price in 2008. Chen has to navigate the rumors of a sale to Samsung and hostile takeovers, while refocusing the firm. Will Chen and Blackberry survive? . . . . . . . . C250

33 ASCENA: ODDS OF SURVIVAL IN SPECIALTY RETAIL?

Retail, Women’s Fashion Ascena was just starting to digest Ann Taylor, its most recent acquisition in women’s apparel. However, 2017

was shaping up to be the worst year in apparel retail in a decade as ten major apparel retailers filed for bankruptcy and many others teetered on the brink. Could Ascena transcend the industry and drive sales forward or was this one acquisition too many? . . . . C263

Indexes

Company I-1

Name I-11

Subject I-27

Final PDF to printer

des13959_fm_i-xliv.indd xliv 01/04/18 10:01 AM

Final PDF to printer

des13959_ch01_001-033.indd 1 01/04/18 10:03 AM

Chapter 1 Introduction

and Analyzing Goals and Objectives

Chapter 4 Assessing Intellectual

Capital

Chapter 2 Analyzing

the External Environment

Chapter 3 Analyzing

the Internal Environment

Chapter 13 Case

Analysis

Case Analysis

Strategy Formulation Strategy Implementation

Strategy Analysis

Chapter 5 Formulating

Business-Level Strategies

Chapter 8 Entrepreneurial

Strategy and Competitive

Dynamics

Chapter 6 Formulating Corporate-

Level Strategies

Chapter 7 Formulating International

Strategies

Chapter 9 Strategic

Control and Corporate

Governance

Chapter 12 Fostering Corporate

Entrepreneur- ship

Chapter 10 Creating Effective

Organizational Designs

Chapter 11 Strategic Lead-

ership Excel- lence, Ethics, and Change

The Strategic Management Process

Final PDF to printer

chapter

After reading this chapter, you should have a good understanding of the following learning objectives:

1 LO1-1 The definition of strategic management and its four key attributes. LO1-2 The strategic management process and its three interrelated and principal

activities.

LO1-3 The vital role of corporate governance and stakeholder management, as well as how “symbiosis” can be achieved among an organization’s stakeholders.

LO1-4 The importance of social responsibility, including environmental sustainability, and how it can enhance a corporation’s innovation strategy.

LO1-5 The need for greater empowerment throughout the organization. LO1-6 How an awareness of a hierarchy of strategic goals can help an

organization achieve coherence in its strategic direction.

Strategic Management Creating Competitive Advantages

©Anatoli Styf/Shutterstock

PART 1: STRATEGIC ANALYSIS

What makes the study of strategic management so interesting? Things can change so rapidly! Some start-ups can disrupt industries and become globally recognized names in just a few years. The rankings of the world’s most valuable firms can dramatically change in a rather brief period of time. On the other hand, many impressive, high-flying firms can struggle to reclaim past glory or even fail. Recall just four that begin with the letter “b”—Blackberry, Blockbuster, Borders, and Barings. As colorfully (and ironically!) noted by Arthur Martinez, Sears’s former Chairman: “Today’s peacock is tomorrow’s feather duster.”1

Consider the following:2

• At the beginning of 2007, the three firms in the world with the highest market values were Exxon Mobil, General Electric, and Gazprom (a Russian natural gas firm). By early 2017, three high tech firms headed the list—Apple, Alphabet (parent of Google), and Microsoft.

• Only 74 of the original 500 companies in the S&P index were still around 40 years later. And McKinsey notes that the average company tenure on the S&P 500 list has fallen from 61 years in 1958 to about 20 in 2016.

• With the dramatic increase of the digital economy, new entrants are shaking up long-standing industries. Note that Alibaba is the world’s most valuable retailer—but holds no inventory; Airbnb is the world’s largest provider of accommodations—but owns no real estate; and Uber is the world’s largest car service but owns no cars.

• A quarter century ago, how many would have predicted that a South Korean firm would be a global car giant, than an Indian firm would be one of the world’s largest technology firms, and a huge Chinese Internet company would list on an American stock exchange?

• Fortune magazine’s annual list of the 500 biggest companies now features 156 emerging- market firms. This compares with only 18 in 1995!

To remain competitive, companies often must bring in “new blood” and make significant changes in their strategies. But sometimes a new CEO’s initiatives makes things worse. Let’s take a look at Lands’ End, an American clothing retailer.3

Lands’ End was founded in 1963 as a mail order supplier of sailboat equipment by Gary Comer. As business picked up, he expanded the business into clothing and home furnishings and moved the company to Dodgeville, Wisconsin, in 1978 where he was its CEO until he stepped down in 1990. The firm was acquired by Sears in 2002, but later spun off in 2013. A year later it commenced trading on the NASDAQ stock exchange.

Targeting Middle America, companies like Lands’ End, the GAP Inc., and J. C. Penney have had a hard time in recent years positioning themselves in the hotly contested clothing industry. They are squeezed on the high end by brands like Michael Kors Holdings Ltd. and Coach, Inc. On the lower end, fast-fashion retailers including H&M operator Hennes & Mauritz AB are applying pressure by churning out inexpensive, runway-inspired styles.

To spearhead a revival of the brand, Lands’ End hired a new CEO, Frederica Marchionni, in February 2015. However, since her arrival, the firm’s stock price has suffered, same store sales declined for all six quarters of her tenure, and the firm kept losing money. It reported a loss of $19.5 million for the year ending January 29, 2016—compared to a $73.8 million profit for the previous year. (And, things didn’t get better—it lost another $7.7 million in the first half of 2016.)

LEARNING FROM MISTAKES

PART 1: STRATEGIC ANALYSIS

4 PART 1 :: STRATEGIC ANALYSIS

So, what went wrong? Lands’ End was always known for its wholesome style and corporate culture. Its founder, Gary Comer, who liked to dress casually in jeans and sweaters, had fostered a familial culture. However, things dramatically changed when Ms. Marchionni arrived. Prior to taking the position, she had struck a deal to only spend one week a month in Dodgeville—preferring instead to spend most of her time in an office in New York’s garment district. Also, unlike her predecessors, she had private bathrooms in both of her offices—such perks didn’t seem to fit well with the firm’s culture.

Given Marchionni’s background at high-end names like Ferrari and Dolce & Gabbana, she tried to inject more style into the maker of outdoorsy, casual clothes. She added slimmer-fits, stiletto heels and a new line of activewear. In presentations, according to those attending, she derided the company’s boxy sweaters and baggy pants as “ugly,” asking “Who would wear that?” A photo shoot for a line took place in the Marshall Islands—a very costly location, according to people familiar with the situation. She overhauled the catalog, hired celebrity photographers, and hired a Vogue stylist for input. She also added new price points—including the Canvas line which sells for as much as 30 percent more than the traditional Lands’ End collection.

At the end of the day, it appeared that Ms. Marchionni was never able to get Lands’ End employees to buy into her vision. And as losses piled up quickly, the board became concerned that she was trying to make too many changes too quickly. Perhaps, she was not given enough time to turn things around—but her approach to re-invent the apparel brand may have been too much of a shock for its customer base as well as the firm’s family culture and wholesome style. Maybe Lee Eisenberg, the firm’s former creative director, said it best: “It doesn’t look like Lands’ End anymore. There was never the implication that if you wore Lands’ End you’d be on a beach on Nantucket living the perfect life.” Marchionni resigned on September 26, 2016—underscoring, as noted by Fortune.com, how futile it must be to take such a Middle American brand upscale.

Discussion Questions 1. What actions could Ms. Marchionni have taken to improve Lands’ End’s prospects for success

in the marketplace? 2. Did Lands’ End make the right choice in selecting her for the CEO position? Why? Why not?

Today’s leaders face a large number of complex challenges in the global marketplace. In considering how much credit (or blame) they deserve, two perspectives of leadership come immediately to mind: the “romantic” and “external control” perspectives.4 First, let’s look at the romantic view of leadership. Here, the implicit assumption is that the leader is the key force in determining an organization’s success—or lack thereof.5 This view dominates the popular press in business magazines such as Fortune, Bloomberg Businessweek, and Forbes, wherein the CEO is either lauded for his or her firm’s success or chided for the organiza- tion’s demise.6 Consider, for example, the credit that has been bestowed on leaders such as Jack Welch, Andrew Grove, and Herb Kelleher for the tremendous accomplishments when they led their firms, General Electric, Intel, and Southwest Airlines, respectively.

Similarly, Apple’s success in the last decade has been attributed almost entirely to the late Steve Jobs, its former CEO, who died on October 5, 2011.7 Apple’s string of hit products, such as iMac computers, iPods, iPhones, and iPads, is a testament to his genius for devel- oping innovative, user-friendly, and aesthetically pleasing products. In addition to being a

romantic view of leadership situations in which the leader is the key force determining the organization’s success—or lack thereof.

CHAPTER 1 :: STRATEGIC MANAGEMENT 5

des13959_ch01_001-033.indd 5 01/04/18 10:03 AM

perfectionist in product design, Jobs was a master showman with a cult following. During his time as CEO between 1997 and 2011, Apple’s market value soared by over $300 billion!

On the other hand, when things don’t go well, much of the failure of an organization can also, rightfully, be attributed to the leader.8 Clearly, actions undertaken by Ms. Marchionni to move Lands’ End upscale backfired and hampered its performance. In contrast, Apple fully capitalized on emerging technology trends with a variety of products, including sophis- ticated smartphones.

The effect—for good or for bad—that top executives can have on a firm’s market value can be reflected in what happens when one of them leaves their firm.9 For example, look what occurred when Kasper Rorsted stepped down as CEO of the German packaged-goods firm Henkel in January, 2016 to become CEO of Adidas: Henkel immediately lost $2 billion in market capitalization, and Adidas gained $1 billion. On the other hand, when Viacom announced that executive chairman Sumner Redstone was stepping down, the firm gained $1.1 billion of market valuation in 30 minutes!

However, such an emphasis on the leader reflects only part of the picture. Consider another perspective, called the external control view of leadership. Here, rather than making the implicit assumption that the leader is the most important factor in determining organi- zational outcomes, the focus is on external factors that may positively (or negatively) affect a firm’s success. We don’t have to look far to support this perspective. Developments in the general environment, such as economic downturns, new technologies, governmental legisla- tion, or an outbreak of major internal conflict or war, can greatly restrict the choices that are available to a firm’s executives. For example, several book retailers, such as Borders and Waldenbooks, found the consumer shift away from brick-and-mortar bookstores to online book buying (e.g., Amazon) and digital books an overwhelming environmental force against which they had few defenses.

Looking back at the opening Lands’ End case, it was clear that Ms. Marchionni faced challenges in the external environment over which she had relatively little control. As noted, chains targeting Middle America such as Lands’ End were squeezed on both the higher end by brands such as Coach Inc. and on the lower end by Hennes & Mauritz AB. And as noted by an analyst, her potential for success was adversely affected by “the worst consumer soft goods market in eight years.”10

Before moving on, it is important to point out that successful executives are often able to navigate around the difficult circumstances that they face. At times it can be refreshing to see the optimistic position they take when they encounter seemingly insurmountable odds. Of course, that’s not to say that one should be naive or Pollyannaish. Consider, for example, how one CEO, discussed next, is handling trying times.11

Name a general economic woe, and chances are that Charles Needham, CEO of Metorex, is dealing with it.

• Market turmoil has knocked 80 percent off the shares of South Africa’s Metorex, the mining company that he heads.

• The plunge in global commodities is slamming prices for the copper, cobalt, and other minerals Metorex unearths across Africa. The credit crisis makes it harder to raise money.

• Fighting has again broken out in the Democratic Republic of Congo, where Metorex has a mine and several projects in development.

Such problems might send many executives to the window ledge. Yet Needham appears unruffled as he sits down at a conference table in the company’s modest offices in a Johannesburg suburb. The combat in northeast Congo, he notes, is far from Metorex’s mine. Commodity prices are still high, in historical terms. And Needham is confident he can raise enough capital, drawing on relationships with South African banks. “These are the kinds of things you deal with, doing business in Africa,” he says.

external control view of leadership situations in which external forces—where the leader has limited influence—determine the organization’s success.

Final PDF to printer

6 PART 1 :: STRATEGIC ANALYSIS

des13959_ch01_001-033.indd 6 01/04/18 10:03 AM

WHAT IS STRATEGIC MANAGEMENT? Given the many challenges and opportunities in the global marketplace, today’s managers must do more than set long-term strategies and hope for the best.12 They must go beyond what some have called “incremental management,” whereby they view their job as making a series of small, minor changes to improve the efficiency of their firm’s operations.13 Rather than seeing their role as merely custodians of the status quo, today’s leaders must be proac- tive, anticipate change, and continually refine and, when necessary, make dramatic changes to their strategies. The strategic management of the organization must become both a pro- cess and a way of thinking throughout the organization.

Defining Strategic Management Strategic management consists of the analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantages. This definition captures two main elements that go to the heart of the field of strategic management.

First, the strategic management of an organization entails three ongoing processes: analyses, decisions, and actions. Strategic management is concerned with the analysis of strategic goals (vision, mission, and strategic objectives) along with the analysis of the internal and external environments of the organization. Next, leaders must make strategic decisions. These decisions, broadly speaking, address two basic questions: What industries should we compete in? How should we compete in those industries? These questions also often involve an organization’s domestic and international operations. And last are the actions that must be taken. Decisions are of little use, of course, unless they are acted on. Firms must take the necessary actions to implement their strategies. This requires leaders to allocate the necessary resources and to design the organization to bring the intended strategies to reality.

Second, the essence of strategic management is the study of why some firms outperform others.14 Thus, managers need to determine how a firm is to compete so that it can obtain advantages that are sustainable over a lengthy period of time. That means focusing on two fundamental questions:

• How should we compete in order to create competitive advantages in the marketplace? Managers need to determine if the firm should position itself as the low-cost producer or develop products and services that are unique and will enable the firm to charge premium prices. Or should they do some combination of both?

• How can we create competitive advantages in the marketplace that are unique, valuable, and difficult for rivals to copy or substitute? That is, managers need to make such advantages sustainable, instead of temporary.

Sustainable competitive advantage cannot be achieved through operational effective- ness alone.15 The popular management innovations of the last two decades—total qual- ity, just-in-time, benchmarking, business process reengineering, outsourcing—are all about operational effectiveness. Operational effectiveness means performing similar activities better than rivals. Each of these innovations is important, but none lead to sustainable competitive advantage because everyone is doing them. Strategy is all about being differ- ent. Sustainable competitive advantage is possible only by performing different activities from rivals or performing similar activities in different ways. Companies such as Walmart, Southwest Airlines, and IKEA have developed unique, internally consistent, and difficult- to-imitate activity systems that have provided them with sustained competitive advan- tages. A company with a good strategy must make clear choices about what it wants to accomplish. Trying to do everything that your rivals do eventually leads to mutually destructive price competition, not long-term advantage.

strategic management the analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantages.

strategy the ideas, decisions, and actions that enable a firm to succeed.

competitive advantage a firm’s resources and capabilities that enable it to overcome the competitive forces in its industry(ies).

operational effectiveness performing similar activities better than rivals.

LO 1-1 The definition of strategic management and its four key attributes.

Final PDF to printer

CHAPTER 1 :: STRATEGIC MANAGEMENT 7

des13959_ch01_001-033.indd 7 01/04/18 10:03 AM

The Four Key Attributes of Strategic Management Before discussing the strategic management process, let’s briefly talk about four attri- butes of strategic management.16 It should become clear how this course differs from other courses that you have had in functional areas, such as accounting, marketing, opera- tions, and finance. Exhibit 1.1 provides a definition and the four attributes of strategic management.

First, strategic management is directed toward overall organizational goals and objectives. That is, effort must be directed at what is best for the total organization, not just a single functional area. Some authors have referred to this perspective as “organizational versus individual rationality.”17 That is, what might look “rational” or ideal for one functional area, such as operations, may not be in the best interest of the overall firm. For example, opera- tions may decide to schedule long production runs of similar products to lower unit costs. However, the standardized output may be counter to what the marketing department needs to appeal to a demanding target market. Similarly, research and development may “overen- gineer” the product to develop a far superior offering, but the design may make the product so expensive that market demand is minimal.

As noted by David Novak, CEO of Yum Brands:18

I tell people that once you get a job you should act like you run the place. Not in terms of ego, but in terms of how you think about the business. Don’t just think about your piece of the business. Think about your piece of the business and the total business. This way, you’ll always have a broader perspective.

Second, strategic management includes multiple stakeholders in decision making.19 Stakeholders are those individuals, groups, and organizations that have a “stake” in the suc- cess of the organization, including owners (shareholders in a publicly held corporation), employees, customers, suppliers, the community at large, and so on. (We’ll discuss this in more detail later in this chapter.) Managers will not be successful if they focus on a single stakeholder. For example, if the overwhelming emphasis is on generating profits for the owners, employees may become alienated, customer service may suffer, and the suppliers may resent demands for pricing concessions.

Third, strategic management requires incorporating both short-term and long-term perspec- tives.20 Peter Senge, a leading strategic management author, has referred to this need as a “creative tension.”21 That is, managers must maintain both a vision for the future of the organization and a focus on its present operating needs. However, financial markets can exert significant pressures on executives to meet short-term performance targets. Studies have shown that corporate leaders often take a short-term approach to the detriment of creating long-term shareholder value.

Andrew Winston addresses this issue in his recent book, The Big Pivot:22

Consider the following scenario: You are close to the end of the quarter and you are faced with a project that you are certain will make money. That is, it has a guaranteed positive net present value (NPV). But, it will reduce your earnings for this quarter. Do you invest?

stakeholders individuals, groups, and organizations that have a stake in the success of the organization. These include owners (shareholders in a publicly held corporation), employees, customers, suppliers, and the community at large.

EXHIBIT 1.1 Strategic Management Concepts

Definition: Strategic management consists of the analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantages.

Key Attributes of Strategic Management

• Directs the organization toward overall goals and objectives. • Includes multiple stakeholders in decision making. • Needs to incorporate short-term and long-term perspectives. • Recognizes trade-offs between efficiency and effectiveness.

Final PDF to printer

8 PART 1 :: STRATEGIC ANALYSIS

des13959_ch01_001-033.indd 8 01/04/18 10:03 AM

A research study posed this question to 400 CFOs and a majority said they would not do it. Further, 80 percent of the executives would decrease R&D spending, advertising, and general maintenance. So, what occurs when you cut back on these investments to prop up short-term earnings every quarter? Logically, you don’t invest in projects with favorable paybacks and you underspend on initiatives that build longer-term value. Thus, your earnings targets in the future quarters actually get more difficult to hit.

Fourth, strategic management involves the recognition of trade-offs between effectiveness and efficiency. Some authors have referred to this as the difference between “doing the right thing” (effectiveness) and “doing things right” (efficiency).23 While managers must allocate and use resources wisely, they must still direct their efforts toward the attainment of overall organizational objectives. As noted by Meg Whitman, Hewlett-Packard’s CEO, “Less than perfect strategy execution against the right strategy will probably work. A 100% execution against the wrong strategy won’t.” 24

Successful managers must make many trade-offs. It is central to the practice of strategic management. At times, managers must focus on the short term and efficiency; at other times, the emphasis is on the long term and expanding a firm’s product-market scope in order to anticipate opportunities in the competitive environment.

To summarize, leaders typically face many difficult and challenging decisions. In a 2016 article in the Harvard Business Review, Wendy Smith and her colleagues provide some valu- able insights in addressing such situations.25 The author team studied corporations over many years and found that senior executives are often faced with similar sets of opposing goals, which can polarize their organizations. Such tensions or paradoxes fall into three cate- gories, which may be related to three questions that many leaders view as “either/or” choices.

• Do we manage for today or for tomorrow? A firm’s long-term survival requires taking risks and learning from failure in the pursuit of new products and services. However, companies also need consistency in their products and services. This depicts the tension between existing products and new ones, stability and change. This is the innovation paradox. For example, in the late 1990s, IBM’s senior leaders saw the Internet wave and felt the need to harness the new technology. However, the firm also needed to sustain its traditional strength in client-server markets. Each strategy required different structures, cultures, rewards, and metrics—which could not easily be executed in tandem.

• Do we stick to boundaries or cross them? Global supply chains can be very effective, but they may also lack flexibility. New ideas can emerge from innovation activities that are dispersed throughout the world. However, not having all the talent and brains in one location can be costly. This is the tension between global connectedness and local needs, the globalization paradox. In 2009, NASA’s director of human health and performance started an initiative geared toward generating new knowledge through collaborative cross-firm and cross-disciplinary work. Not too surprisingly, he faced strong pushback from scientists interested in protecting their turf and their identities as independent experts. Although both collaboration and independent work were required to generate new innovations, they posed organizational and cultural challenges.

• Whom do we focus on, shareholders or stakeholders? Clearly, companies exist to create value. But managers are often faced with the choice between maximizing shareholder gains while trying to create benefits for a wide range of stakeholders— employees, customers, society, etc. However, being socially responsible may bring down a firm’s share price, and prioritizing employees may conflict with short-term shareholders’ or customers’ needs. This is the obligation paradox. Paul Polman, Unilever’s CEO, launched the Unilever Sustainable Living Plan in 2010. The goal was to double the size of the business over 10 years, improve the health and well-being of more than a billion people, and cut the firm’s environmental impact in half. He

effectiveness tailoring actions to the needs of an organization rather than wasting effort, or “doing the right thing.”

efficiency performing actions at a low cost relative to a benchmark, or “doing things right.”

Final PDF to printer

CHAPTER 1 :: STRATEGIC MANAGEMENT 9

LO 1-2 The strategic management process and its three interrelated and principal activities.

1.1 STRATEGY SPOTLIGHT AMBIDEXTROUS BEHAVIORS: COMBINING ALIGNMENT AND ADAPTABILITY A study involving 41 business units in 10 multinational compa- nies identified four ambidextrous behaviors in individuals. Such behaviors are the essence of ambidexterity, and they illustrate how a dual capacity for alignment and adaptability can be woven into the fabric of an organization at the individual level.

They take time and are alert to opportunities beyond the confines of their own jobs. A large computer company’s sales manager became aware of a need for a new software module that nobody currently offered. Instead of selling the customer something else, he worked up a business case for the new module. With man- agement’s approval, he began working full time on its development.

They are cooperative and seek out opportunities to com- bine their efforts with others. A marketing manager for Italy was responsible for supporting a newly acquired subsidiary. When frustrated about the limited amount of contact she had with her peers in other countries, she began discussions with them. This led to the creation of a European marketing forum that meets quarterly to discuss issues, share best practices, and collaborate on marketing plans.

They are brokers, always looking to build internal net- works. When visiting the head office in St. Louis, a Canadian plant manager heard about plans for a $10 million investment for a new tape manufacturing plant. After inquiring further about the plans and returning to Canada, he contacted a regional man- ager in Manitoba, who he knew was looking for ways to build his business. With some generous support from the Manitoba government, the regional manager bid for, and ultimately won, the $10 million investment.

They are multitaskers who are comfortable wearing more than one hat. Although an operations manager for a major cof- fee and tea distributor was charged with running his plant as effi- ciently as possible, he took it upon himself to identify value-added services for his clients. By developing a dual role, he was able to manage operations and develop a promising electronic module that automatically reported impending problems inside a coffee vending machine. With corporate funding, he found a subcontrac- tor to develop the software, and he then piloted the module in his own operations. It was so successful that it was eventually adopted by operations managers in several other countries.

A recent Harvard Business Review article provides some useful insights on how one can become a more ambidextrous leader. Consider the following questions:

• Do you meet your numbers? • Do you help others? • What do you do for your peers? Are you just their

in-house competitor? • When you manage up, do you bring problems—or

problems with possible solutions? • Are you transparent? Managers who get a reputation

for spinning events gradually lose the trust of peers and superiors.

• Are you developing a group of senior-managers who know you and are willing to back your original ideas with resources?

Sources: Birkinshaw, J. & Gibson, C. 2004. Building ambidexterity into an organization. MIT Sloan Management Review, 45(4): 47–55; and Bower, J. L. 2007. Solve the succession crisis by growing inside-out leaders. Harvard Business Review, 85(11): 90–99.

argued that such investments would lead to greater profits over the long term; whereas a singular focus on short-term profits would have adverse effects on society and the environment. His arguments were persuasive to many; however, there have been many challenges in implementing the plan. Not surprisingly, it has caused uncertainty among senior executives that has led to anxiety and fights over resource allocation.

Some authors have developed the concept of “ambidexterity” (similar to the aforemen- tioned “innovation paradox”), which refers to a manager’s challenge to both align resources to take advantage of existing product markets and proactively explore new opportuni- ties.26 Strategy Spotlight 1.1 discusses ambidextrous behaviors that are essential for success in today’s challenging marketplace.

THE STRATEGIC MANAGEMENT PROCESS We’ve identified three ongoing processes—analyses, decisions, and actions—that are central to strategic management. In practice, these three processes—often referred to as strategy analysis, strategy formulation, and strategy implementation—are highly interdependent and do not take place one after the other in a sequential fashion in most companies.

ambidexterity the challenge managers face of both aligning resources to take advantage of existing product markets and proactively exploring new opportunities.

10 PART 1 :: STRATEGIC ANALYSIS

des13959_ch01_001-033.indd 10 01/04/18 10:03 AM

EXHIBIT 1.2 Realized Strategy and Intended Strategy: Usually Not the Same Realized Strategy

Emergent Strategy

Unrealized Strategy

De lib

er at

e St

ra te

gy

Intended Strategy

Intended versus Realized Strategies Henry Mintzberg, a management scholar at McGill University, argues that viewing the strategic management process as one in which analysis is followed by optimal decisions and their subsequent meticulous implementation neither describes the strategic management process accurately nor prescribes ideal practice.27 He sees the business environment as far from predictable, thus limiting our ability for analysis. Further, decisions are seldom based on optimal rationality alone, given the political processes that occur in all organizations.28

Taking into consideration the limitations discussed above, Mintzberg proposed an alter- native model. As depicted in Exhibit 1.2, decisions following from analysis, in this model, constitute the intended strategy of the firm. For a variety of reasons, the intended strategy rarely survives in its original form. Unforeseen environmental developments, unanticipated resource constraints, or changes in managerial preferences may result in at least some parts of the intended strategy remaining unrealized.

Consider an important trend affecting law firms:

Many of the leading corporations have reduced their need for outside legal services by increasingly expanding their in-house legal departments.29 For example, companies and financial institutions spent an estimated $41 billion on their internal lawyers in 2014, a 22 percent increase since 2011. And a survey of 1,200 chief legal officers found that 63 percent of respondents are now “in-sourcing” legal work they used to send out to law firms or other service providers. In response, many large law firms have been forced to move away from commodity practices such as basic commercial contracts to more specialized areas like cross-border transactions and global regulatory issues.

Thus, the final realized strategy of any firm is a combination of deliberate and emergent strategies.

Next, we will address each of the three key strategic management processes—strategy analysis, strategy formulation, and strategy implementation—and provide a brief overview of the chapters.

Exhibit 1.3 depicts the strategic management process and indicates how it ties into the chapters in the book. Consistent with our discussion above, we use two-way arrows to con- vey the interactive nature of the processes.

strategic management process strategy analysis, strategy formulation, and strategy implementation.

intended strategy strategy in which organizational decisions are determined only by analysis.

realized strategy strategy in which organizational decisions are determined by both analysis and unforeseen environmental developments, unanticipated resource constraints, and/or changes in managerial preferences.

Source: Adapted from Mintzberg, H. & Waters, J. A., “Of Strategies: Deliberate and Emergent,” Strategic Management Journal, Vol. 6, 1985, pp. 257–272.

Final PDF to printer

CHAPTER 1 :: STRATEGIC MANAGEMENT 11

des13959_ch01_001-033.indd 11 01/04/18 10:03 AM

EXHIBIT 1.3 The Strategic Management Process

Chapter 1 Introduction

and Analyzing Goals and Objectives

Chapter 4 Assessing Intellectual

Capital

Chapter 2 Analyzing

the External Environment

Chapter 3 Analyzing

the Internal Environment

Chapter 13 Case

Analysis

Case Analysis

Strategy Formulation Strategy Implementation

Strategy Analysis

Chapter 5 Formulating

Business-Level Strategies

Chapter 8 Entrepreneurial

Strategy and Competitive

Dynamics

Chapter 6 Formulating Corporate-

Level Strategies

Chapter 7 Formulating International

Strategies

Chapter 9 Strategic

Control and Corporate

Governance

Chapter 12 Fostering Corporate

Entrepreneur- ship

Chapter 10 Creating Effective

Organizational Designs

Chapter 11 Strategic Lead-

ership Excel- lence, Ethics, and Change

Before moving on, we point out that analyzing the environment and formulating strategies are, of course, important activities in the strategic management process. However, nothing happens until resources are allocated and effective strategies are successfully implemented. Rick Spielman, General Manager of the Minnesota Vikings (of the National Football League), provides valuable insight on this issue.30 He recalls the many quarterbacks that he has inter- viewed over the past 25 years and notes that many of them can effectively draw up plays on the whiteboard and “you sit there and it’s like listening to an offensive coordinator.” However, that is not enough. He points out, “Now can he translate that and make those same decisions and those same type of reads in the two and a half seconds he has to get rid of the ball?”

Final PDF to printer

12 PART 1 :: STRATEGIC ANALYSIS

des13959_ch01_001-033.indd 12 01/04/18 10:03 AM

Strategy Analysis

We measure, study, quantify, analyze every single piece of our business. . . . But then you’ve got to be able to take all that data and information and transform it into change in the organization and improvements in the organization and the formalization of the business strategy.

—Richard Anderson, CEO of Delta Air Lines31

Strategy analysis may be looked upon as the starting point of the strategic management pro- cess. It consists of the “advance work” that must be done in order to effectively formulate and implement strategies. Many strategies fail because managers may want to formulate and implement strategies without a careful analysis of the overarching goals of the organization and without a thorough analysis of its external and internal environments.

Analyzing Organizational Goals and Objectives (Chapter 1) A firm’s vision, mission, and strategic objectives form a hierarchy of goals that range from broad statements of intent and bases for competitive advantage to specific, measurable strategic objectives.

Analyzing the External Environment of the Firm (Chapter 2) Managers must monitor and scan the environment as well as analyze competitors. Two frameworks are provided: (1) The general environment consists of several elements, such as demographic and economic seg- ments, and (2) the industry environment consists of competitors and other organizations that may threaten the success of a firm’s products and services.

Assessing the Internal Environment of the Firm (Chapter 3) Analyzing the strengths and relationships among the activities that constitute a firm’s value chain (e.g., operations, mar- keting and sales, and human resource management) can be a means of uncovering potential sources of competitive advantage for the firm.32

Assessing a Firm’s Intellectual Assets (Chapter 4) The knowledge worker and a firm’s other intellectual assets (e.g., patents) are important drivers of competitive advantages and wealth creation. We also assess how well the organization creates networks and relation- ships as well as how technology can enhance collaboration among employees and provide a means of accumulating and storing knowledge.33

Strategy Formulation

“You can have the best operations. You can be the most adept at whatever it is that you’re doing. But, if you have a bad strategy, it’s all for naught.”

—Fred Smith, CEO of FedEx34

Strategy formulation is developed at several levels. First, business-level strategy addresses the issue of how to compete in a given business to attain competitive advantage. Second, corporate-level strategy focuses on two issues: (a) what businesses to compete in and (b) how businesses can be managed to achieve synergy; that is, they create more value by work- ing together than by operating as standalone businesses. Third, a firm must develop inter- national strategies as it ventures beyond its national boundaries. Fourth, managers must formulate effective entrepreneurial initiatives.

Formulating Business-Level Strategy (Chapter 5) The question of how firms compete and outperform their rivals and how they achieve and sustain competitive advantages goes to the heart of strategic management. Successful firms strive to develop bases for competitive advantage, which can be achieved through cost leadership and/or differentiation as well as by focusing on a narrow or industrywide market segment.35

Formulating Corporate-Level Strategy (Chapter 6) Corporate-level strategy addresses a firm’s portfolio (or group) of businesses. It asks: (1) What business (or businesses) should

strategy analysis study of firms’ external and internal environments, and their fit with organizational vision and goals.

strategy formulation decisions made by firms regarding investments, commitments, and other aspects of operations that create and sustain competitive advantage.

Final PDF to printer

CHAPTER 1 :: STRATEGIC MANAGEMENT 13

des13959_ch01_001-033.indd 13 01/04/18 10:03 AM

we compete in? and (2) How can we manage this portfolio of businesses to create synergies among the businesses?

Formulating International Strategy (Chapter 7) When firms enter foreign markets, they face both opportunities and pitfalls.36 Managers must decide not only on the most appro- priate entry strategy but also how they will go about attaining competitive advantages in international markets.37

Entrepreneurial Strategy and Competitive Dynamics (Chapter 8) Entrepreneurial activity aimed at new value creation is a major engine for economic growth. For entrepreneurial initiatives to succeed, viable opportunities must be recognized and effective strategies must be formulated.

Strategy Implementation

“We could leave our strategic plan on an airplane, and it wouldn’t matter. It’s all about execution.”

—John Stumpf, CEO of Wells Fargo38

Clearly, sound strategies are of no value if they are not properly implemented.39 Strategy implementation involves ensuring proper strategic controls and organizational designs, which includes establishing effective means to coordinate and integrate activities within the firm as well as with its suppliers, customers, and alliance partners.40 Leadership plays a central role to ensure that the organization is committed to excellence and ethical behavior. It also promotes learning and continuous improvement and acts entrepreneurially in creating new opportunities.

Strategic Control and Corporate Governance (Chapter 9) Firms must exercise two types of strategic control. First, informational control requires that organizations continually moni- tor and scan the environment and respond to threats and opportunities. Second, behavioral control involves the proper balance of rewards and incentives as well as cultures and bound- aries (or constraints). Further, successful firms (those that are incorporated) practice effec- tive corporate governance.

Creating Effective Organizational Designs (Chapter 10) Firms must have organizational structures and designs that are consistent with their strategy. In today’s rapidly changing competitive environments, firms must ensure that their organizational boundaries—those internal to the firm and external—are more flexible and permeable.41 Often, organizations develop strategic alliances to capitalize on the capabilities of other organizations.

Creating a Learning Organization and an Ethical Organization (Chapter 11) Effective lead- ers set a direction, design the organization, and develop an organization that is committed to excellence and ethical behavior. In addition, given rapid and unpredictable change, lead- ers must create a “learning organization” so that the entire organization can benefit from individual and collective talents.

Fostering Corporate Entrepreneurship (Chapter 12) Firms must continually improve and grow as well as find new ways to renew their organizations. Corporate entrepreneurship and innovation provide firms with new opportunities, and strategies should be formulated that enhance a firm’s innovative capacity.

Chapter 13, “Analyzing Strategic Management Cases,” provides guidelines and sugges- tions on how to evaluate cases in this course. Thus, the concepts and techniques discussed in the first 12 chapters can be applied to real-world organizations.

In the “Executive Insights: The Strategic Management Process” sidebar we include an interview that the authors conducted with Admiral William H. McRaven, Retired. His distinguished career includes being commander of the U.S. Special Operations Command, and he led Operation Neptune Spear that led to the demise of al Qaeda’s leader, Osama bin

strategy implementation actions made by firms that carry out the formulated strategy, including strategic controls, organizational design, and leadership.

Final PDF to printer

14 PART 1 :: STRATEGIC ANALYSIS

des13959_ch01_001-033.indd 14 01/04/18 10:03 AM

Admiral William H. McRaven, Retired Chancellor, University of Texas System

BIOSKETCH University of Texas Chancellor William H. McRaven, a retired four-star admiral, leads the nation’s second largest system of higher education. As chief executive officer of the UT System since January 2015, he oversees 14 institutions that educate 217,000 students and employ 20,000 faculty and more than 70,000 health care professionals, researchers, and staff.

Prior to becoming chancellor, McRaven, a Navy SEAL, was the commander of U.S. Special Operations Command during which time he led a force of 69,000 men and women and was responsible for conducting counter-terrorism operations world- wide. McRaven is also a recognized national authority on U.S. foreign policy and has advised presidents George W. Bush and Barack Obama and other U.S. leaders on defense issues. His acclaimed book, Spec. Ops: Case Studies in Special Operations Warfare: Theory and Practice, has been published in several lan- guages. He is noted for his involvement in Operation Neptune Spear, in which he commanded the U.S. Navy Special forces who located and killed al Qaeda leader Osama bin Laden.

McRaven has been recognized for his leadership numerous times by national and international publications and organizations. In 2011, he was the first runner-up for Time magazine’s Person of the Year. In 2012, Foreign Policy magazine named McRaven one of the nation’s Top 10 Foreign Policy Experts and one of the Top 100 Global Thinkers. And in 2014, Politico named McRaven one of the Politico 50, citing his leadership as instrumental in cutting through Washington bureaucracy.

McRaven graduated from the University of Texas at Austin in 1977 with a degree in journalism and received his master’s degree from the Naval Postgraduate School in Monterey in 1991. In 2012, the Texas Exes honored McRaven with a Distinguished Alumnus Award. Source: www.utsystem.edu/chancellor/biography

Question 1. What leadership lessons did you take away from SEAL training and leadership of SEAL Team 3?

The foundation of effective leadership is being able to lead yourself. This may sound strange, but it is true. Most initial military training—perhaps no more note- worthy than in that training crucible to become a Navy

SEAL—helps young people move past self-imposed limits of physical and mental endurance and build confidence in themselves to lead others. The result is a person who is capable of leading in an environment of constant stress, chaos, failure and hardships. In fact, to me, basic SEAL training was a lifetime sampling of micro-challenges I would later face while leading people and organizations all crammed into six months.

Question 2. In leading Neptune Spear, what were the key leadership decisions you made to build an organization to accomplish this task?

The majority of the key leadership decisions that in past enabled us to accomplish this task began before I took command of the organization—but as a member of the

organization and its number 2 leader over a period of years, I had been an engaged student in the trial, error, and the ulti- mate development of what my old boss, General Stan McChrystal, called a “team of teams.” You see, our operational envi- ronment was changing at an incredibly rapid pace. Unlike any time in our history the rate of change was—and is—no longer linear, it is exponential.

The enemy I faced in Iraq, Afghanistan, Africa, Asia and across the world adapted quickly to our methods of warfare. Using technology, social media and global transportation, they presented tactical and operational problems that today’s special operations forces had never seen before. Consequently, our organizations

had to adapt to this rapidly changing threat. We had to build a flat chain of command that empowered the lead- ers below us. We had to reduce our own bureaucracy so we could make timely decisions. We had to constantly communicate so everyone understood the commander’s intent and the strategic direction in which we were head- ing. We had to collaborate in ways that had never been done in the history of special operations warfare. The team of teams we built enabled all of our organizations to derive strength from each other and work together to be successful. It required us to break away from the hierarchical structure—the command structure—that had defined the American military for hundreds of years.

We formed a formal and informal network of subject mat- ter experts bound together by a common mission, using technology to partner in new ways, brought together through operational incentives, and a bottom-up desire with top-down support to solve the most complex prob- lems facing our nation. Essentially, we structured our

INSIGHTS from executives1.1

THE STRATEGIC MANAGEMENT PROCESS

Final PDF to printer

CHAPTER 1 :: STRATEGIC MANAGEMENT 15

des13959_ch01_001-033.indd 15 01/04/18 10:03 AM

organization and our processes to use our size, our talent and our operational diversity to achieve an unparalleled level of collaboration in pursuit of common goals.

Though leadership, effective processes, and a trust-based organizational culture had significant parts to play in the success of Neptune Spear, no one should forget it was the actions of well-trained, committed, confident and fiercely determined young Americans who were responsible for the positive outcome of that operation.

Question 3. What lessons have you taken from your military career as you lead a very different type of organization as Chancellor of the University of Texas?

Actually, the duties, responsibilities and organizational relationships are remarkably similar. I am still a servant leader, but instead of serving my country at the national level, I serve the people of Texas. For years as a flag offi- cer I had a frequent and direct relationship with the U.S. Congress; I now have a similar responsibility to inform and respond to the Texas Legislature. Instead of the Secretary of Defense and his staff, and the Chairman of the Joint Chiefs and his staff, providing oversight and guidance, I have the Board of Regents. And the four- teen institutions for which I feel directly responsible are led by very mature professionals who expect a high level of empowerment and autonomy—much like the mature professionals of the large and diverse organizations I commanded over the last decade.

This does not mean, of course, that I approach situa- tions or lead our incredible System the exact same way as I led Special Operations Command—it simply means that I have a comfortable context for the relationships I must build and sustain. The lessons I bring from the military feed off of that—I may have context for these relationships, but I also realize this is a different environ- ment and I must first understand the conditions of the higher education environment before I go about making changes. Understanding the environment—specifically, conducting a strategic assessment—was the focus of my effort for the second half of my first year in office. I knew as the senior leader, I first needed to learn and appreciate the conditions under which we were operat- ing. Another lesson I brought was the importance of establishing relationships early by getting out as much as possible and seeing and listening to others—inside my organization primarily, but also reaching out to stake- holders who lie outside the System. Additionally, I knew from my time in the military that communication and

collaboration—and an organizational culture that rein- forces both those things—are critical keys to success.

The aforementioned concept of a “team of teams” was probably the single most valuable organizational change in the history of the modern military, and it continues and matures even today. Navy SEALs work with the Army Special Forces. The Special Forces work with the conven- tional infantry. The infantry work with the naval aviators. The pilots and crews work with the logisticians. We all work with the intelligence and law enforcement communi- ties and the locals on the ground. And every day we talk. We would look at a problem, and we were finding solu- tions at a speed unheard of in the past. In other words, everyone has to contribute their ideas—not just listen.

Here at the University of Texas System, I believe we can build our own “team of teams” and we are in the process of doing so. We will use our size, our talent and our diversity to collaborate on difficult issues, and in an environment of competing demands, we will prioritize our objectives so we do not waste effort on inconsequential goals. As the second largest university system in the United States we must apply our resources to those priorities and cut away where we are not effective. And much like my last organization, our rapidly changing environment requires us to constantly innovate to get ahead of our problems while never losing sight of our mission and our objectives.

Question 4. How did you see personal integrity and organizational ethics play out in your military career? Can you provide some examples of actions you took to build or sustain an ethical organization?

You always have to reinforce three main principles of a good organization. That is, all your actions must be moral, legal, and ethical. If you fail to comply with those foundational elements, you and your organiza- tion will fail. It all starts with your personal integrity. Maintaining your personal integrity is hard. Being good all the time is difficult. Making the right decisions in the face of temptation is challenging, but you quickly learn that bad decisions have consequences, consequences that are rarely worth the momentary lapse in judgment.

If you do the right thing, particularly when no one is watch- ing, you will be rewarded many times over. The only way to build and sustain an ethical organization is for you, the leader, to demonstrate the qualities you want the organi- zation to uphold. Everyone is watching you—whether you know it or not. The littlest actions and the smallest deci- sions are all closely observed. The culture begins at the top.

Laden. He recently became Chancellor of the University of Texas System. His experience as an effective leader in both military and university organizations provides valuable insights into the strategic management processes: analysis, formulation, and implementation.

Let’s now address two concepts—corporate governance and stakeholder management— that are critical to the strategic management process.

Final PDF to printer

16 PART 1 :: STRATEGIC ANALYSIS

des13959_ch01_001-033.indd 16 01/04/18 10:03 AM

THE ROLE OF CORPORATE GOVERNANCE AND STAKEHOLDER MANAGEMENT Most business enterprises that employ more than a few dozen people are organized as cor- porations. As you recall from your finance classes, the overall purpose of a corporation is to maximize the long-term return to the owners (shareholders). Thus, we may ask: Who is really responsible for fulfilling this purpose? Robert Monks and Neil Minow provide a useful definition of corporate governance as “the relationship among various participants in determining the direction and performance of corporations. The primary participants are (1) the shareholders, (2) the management (led by the chief executive officer), and (3) the board of directors.”42 This relationship is illustrated in Exhibit 1.4.

The board of directors (BOD) are the elected representatives of the shareholders charged with ensuring that the interests and motives of management are aligned with those of the owners (i.e., shareholders). In many cases, the BOD is diligent in fulfilling its purpose. For example, Intel Corporation, the giant $58 billion maker of microprocessor chips, practices sound governance. Its BOD follows guidelines to ensure that its members are independent (i.e., are not members of the executive management team and do not have close personal ties to top executives) so that they can provide proper oversight; it has explicit guidelines on the selection of director candidates (to avoid “cronyism”). It provides detailed procedures for formal evaluations of directors and the firm’s top officers.43 Such guidelines serve to ensure that management is acting in the best interests of shareholders.44

Recently, there has been much criticism as well as cynicism by both citizens and the business press about the poor job that management and the BODs of large corporations are doing. We only have to look at the scandals at firms such as Arthur Andersen, Best Buy, Olympus, Enron, Volkswagen, and Wells Fargo.45 Such malfeasance has led to an erosion of the public’s trust in corporations. For example, according to the 2014 CNBC/Burson- Marsteller Corporation Perception Indicator, a global survey of 25,000 individuals, only 52 percent of the public in developed markets has a favorable view of corporations.46 Forty- five percent felt corporations have “too much influence over the government.” More than half of the U.S. public said “strong and influential” corporations are “bad” even if they are promoting innovation and growth, and only 9 percent of the public in the United States says corporate CEOs are “among the most respected” in society.

Perhaps, part of the responsibility—or blame—lies with boards of directors who are often not delivering on their core mission: providing strong oversight and strategic support for management’s efforts to create long-term value.47 In a 2013 study by McKinsey & Co., only

corporate governance the relationship among various participants in determining the direction and performance of corporations. The primary participants are (1) the shareholders, (2) the management (led by the chief executive officer), and (3) the board of directors.

LO 1-3 The vital role of corporate governance and stakeholder management, as well as how “symbiosis” can be achieved among an organization’s stakeholders.

EXHIBIT 1.4 The Key Elements of Corporate Governance Management

(Headed by the chief executive officer)

Shareholders (Owners)

Board of Directors (Elected by the shareholders to represent their interests)

Final PDF to printer

CHAPTER 1 :: STRATEGIC MANAGEMENT 17

des13959_ch01_001-033.indd 17 01/04/18 10:03 AM

34 percent of 772 directors agreed that the boards on which they served fully comprehended their firm’s strategies. And only 22 percent claimed their boards were completely aware of how their firms created value. Finally, a mere 16 percent claimed their boards had a strong understanding of the dynamics of their firms’ industries.

One area in which public anger is most pronounced is the excessive compensation of the top executives of well-known firms. It is now clear that much of the bonus pay awarded to executives on Wall Street in the past was richly undeserved.48 Case in point, 2011 was a poor year for financial stocks: 35 of the 50 largest financial company stocks fell that year. The sector lost 17 percent—compared to flat performance for the Standard & Poor’s 500. However, even as the sector struggled, the average pay of finance company CEOs rose 20.4 percent. For example, JPMorgan CEO Jamie Dimon was the highest-paid banker—with $23.1 million in compensation, an 11 percent increase from the previous year. The firm’s shareholders didn’t do as well—the stock fell 20 percent.49