Gap inc 2011 case study strategic management

Strategic Management Concepts and Cases A Competitive Advantage Approach

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Strategic Management Concepts and Cases A Competitive Advantage Approach Fourteenth Edition

Fred R. David Francis Marion University

Florence, South Carolina

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Library of Congress Cataloging-in-Publication Data David, Fred R.

Strategic management concepts and cases: a competitive advantage approach / Fred R. David. — 14th ed. p. cm. Previously published under title: Strategic management. ISBN-13: 978-0-13-266423-3 ISBN-10: 0-13-266423-2 1. Strategic planning. 2. Strategic planning—Case studies. I. Title.

HD30.28.D385 2013 658.4'012—dc23 2011035610

10 9 8 7 6 5 4 3 2 1

ISBN 10: 0-13-266423-2 ISBN 13: 978-0-13-266423-3

To Spikes and Aubie David— for fifteen years of love.

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Brief Contents

Preface xv

Acknowledgments xxiii

About the Author xxvii

PART 1 Overview of Strategic Management 2 Chapter 1 The Nature of Strategic Management 2

THE COHESION CASE: THE WALT DISNEY COMPANY—2011 24

PART 2 Strategy Formulation 42 Chapter 2 The Business Vision and Mission 42 Chapter 3 The External Assessment 60 Chapter 4 The Internal Assessment 92 Chapter 5 Strategies in Action 130 Chapter 6 Strategy Analysis and Choice 170

PART 3 Strategy Implementation 210 Chapter 7 Implementing Strategies: Management and Operations

Issues 210 Chapter 8 Implementing Strategies: Marketing, Finance/Accounting, R&D,

and MIS Issues 250

PART 4 Strategy Evaluation 284 Chapter 9 Strategy Review, Evaluation, and Control 284

PART 5 Key Strategic-Management Topics 308 Chapter 10 Business Ethics/Social Responsibility/Environmental

Sustainability 308 Chapter 11 Global/International Issues 328

PART 6 Strategic-Management Case Analysis 358 How to Prepare and Present a Case Analysis 358

Name Index 371

Subject Index 379

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Contents

Preface xv

Acknowledgments xxiii

About the Author xxvii

PART 1 Overview of Strategic Management 2

Chapter 1 The Nature of Strategic Management 2 WINNEBAGO INDUSTRIES INC.: EXCELLENT STRATEGIC MANAGEMENT SHOWCASED 4

What Is Strategic Management? 5 Defining Strategic Management 5 ■ Stages of Strategic Management 5 ■ Integrating Intuition and Analysis 6 ■ Adapting to Change 7

Key Terms in Strategic Management 8 Competitive Advantage 8 ■ Strategists 9 ■ Vision and Mission Statements 10 ■ External Opportunities and Threats 10 ■ Internal Strengths and Weaknesses 11 ■ Long- Term Objectives 11 ■ Strategies 11 ■ Annual Objectives 11 ■ Policies 12

The Strategic-Management Model 13 Benefits of Strategic Management 15

Financial Benefits 15 ■ Nonfinancial Benefits 16

Why Some Firms Do No Strategic Planning 16 Pitfalls in Strategic Planning 17 Guidelines for Effective Strategic Management 17 Comparing Business and Military Strategy 19 Special Note to Students 20

THE COHESION CASE: THE WALT DISNEY COMPANY—2011 24 ASSURANCE OF LEARNING EXERCISES 38 Assurance of Learning Exercise 1A: Compare Business Strategy with Military Strategy 38 Assurance of Learning Exercise 1B: Gather Strategy Information 39 Assurance of Learning Exercise 1C: Update the Walt Disney Cohesion Case 39 Assurance of Learning Exercise 1D: Strategic Planning for My University 40 Assurance of Learning Exercise 1E: Strategic Planning at a Local Company 40 Assurance of Learning Exercise 1F: Get Familiar with SMCO 41

PART 2 Strategy Formulation 42

Chapter 2 The Business Vision and Mission 42 DOLLAR GENERAL CORPORATION: EXCELLENT STRATEGIC MANAGEMENT SHOWCASED 44

What Do We Want to Become? 45 What Is Our Business? 45

Vision versus Mission 47 ■ The Process of Developing Vision and Mission Statements 47

Importance (Benefits) of Vision and Mission Statements 48

A Resolution of Divergent Views 48

Characteristics of a Mission Statement 49 A Declaration of Attitude 49 ■ A Customer Orientation 51 ■ Mission Statement Components 51

Writing and Evaluating Mission Statements 52 Special Note to Students 52

ASSURANCE OF LEARNING EXERCISES 56 Assurance of Learning Exercise 2A: Compare Dollar General’s Mission Statement to Family Dollar’s Mission Statement 56 Assurance of Learning Exercise 2B: Evaluate Mission Statements 57 Assurance of Learning Exercise 2C: Write a Vision and Mission Statement for the Walt Disney Company 57 Assurance of Learning Exercise 2D: Write a Vision and Mission Statement for My University 58 Assurance of Learning Exercise 2E: Conduct Mission Statement Research 58 Assurance of Learning Exercise 2F: Evaluate a Mission Proposal 58

Chapter 3 The External Assessment 60 The Nature of an External Audit 62

WELLS FARGO & COMPANY: EXCELLENT STRATEGIC MANAGEMENT SHOWCASED 62 Key External Forces 63 The Process of Performing an External Audit 64

The Industrial Organization (I/O) View 65 Economic Forces 65 Social, Cultural, Demographic, and Natural Environment Forces 67 Political, Governmental, and Legal Forces 68

American Labor Unions 69

Technological Forces 71 Competitive Forces 72

Competitive Intelligence Programs 74 ■ Market Commonality and Resource Similarity 75

Competitive Analysis: Porter’s Five-Forces Model 75 Rivalry Among Competing Firms 76 ■ Potential Entry of New Competitors 77 ■ Potential Development of Substitute Products 77 ■ Bargaining Power of Suppliers 78 ■ Bargaining Power of Consumers 78

Sources of External Information 79 Forecasting Tools and Techniques 79

Making Assumptions 80

Industry Analysis: The External Factor Evaluation (EFE) Matrix 80 The Competitive Profile Matrix (CPM) 83 Special Note to Students 84

ASSURANCE OF LEARNING EXERCISES 87 Assurance of Learning Exercise 3A: Competitive Intelligence (CI) Certification 87 Assurance of Learning Exercise 3B: Develop Divisional Walt Disney EFE Matrices 88 Assurance of Learning Exercise 3C: Develop an EFE Matrix for Walt Disney 88

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Assurance of Learning Exercise 3D: Perform an External Assessment 89 Assurance of Learning Exercise 3E: Develop an EFE Matrix for My University 89 Assurance of Learning Exercise 3F: Develop Divisional Walt Disney CPMs 90 Assurance of Learning Exercise 3G: Develop a Competitive Profile Matrix for Walt Disney 90 Assurance of Learning Exercise 3H: Develop a Competitive Profile Matrix for My University 90

Chapter 4 The Internal Assessment 92 The Nature of an Internal Audit 94

PEARSON PLC: EXCELLENT STRATEGIC MANAGEMENT SHOWCASED 94 Key Internal Forces 95 ■ The Process of Performing an Internal Audit 96

The Resource-Based View (RBV) 97 Integrating Strategy and Culture 98 Management 100

Planning 100 ■ Organizing 102 ■ Motivating 102 ■ Staffing 103 ■ Controlling 103 ■ Management Audit Checklist of Questions 104

Marketing 104 Customer Analysis 104 ■ Selling Products/Services 104 ■ Product and Service Planning 106 ■ Pricing 106 ■ Distribution 107 ■ Marketing Research 107 ■ Cost/ Benefit Analysis 107 ■ Marketing Audit Checklist of Questions 108

Finance/Accounting 108 Finance/Accounting Functions 108 ■ Basic Types of Financial Ratios 109 ■ Finance/Accounting Audit Checklist 114

Production/Operations 115 Production/Operations Audit Checklist 116

Research and Development 116 Internal and External R&D 117 ■ Research and Development Audit 118

Management Information Systems 118 Management Information Systems Audit 118

Value Chain Analysis (VCA) 119 Benchmarking 121

The Internal Factor Evaluation (IFE) Matrix 122 Special Note to Students 123

ASSURANCE OF LEARNING EXERCISES 128 Assurance of Learning Exercise 4A: Apply Breakeven Analysis 128 Assurance of Learning Exercise 4B: Develop Divisional Disney IFEMs 128 Assurance of Learning Exercise 4C: Perform a Financial Ratio Analysis for Walt Disney 128 Assurance of Learning Exercise 4D: Construct an IFE Matrix for Walt Disney 129 Assurance of Learning Exercise 4E: Construct an IFE Matrix for My University 129

Chapter 5 Strategies in Action 130 Long-Term Objectives 132

EXXONMOBIL CORPORATION: EXCELLENT STRATEGIC MANAGEMENT SHOWCASED 132

The Nature of Long-Term Objectives 133 ■ Financial versus Strategic Objectives 133 ■ Not Managing by Objectives 134

The Balanced Scorecard 135 Types of Strategies 135

Levels of Strategies 136

Integration Strategies 138 Forward Integration 138 ■ Backward Integration 139 ■ Horizontal Integration 140

Intensive Strategies 141 Market Penetration 141 ■ Market Development 141 ■ Product Development 142

Diversification Strategies 143 Related Diversification 144 ■ Unrelated Diversification 145

Defensive Strategies 146 Retrenchment 146 ■ Divestiture 147 ■ Liquidation 148

Michael Porter’s Five Generic Strategies 148 Cost Leadership Strategies (Type 1 and Type 2) 150 ■ Differentiation Strategies (Type 3) 151 ■ Focus Strategies (Type 4 and Type 5) 152 ■ Strategies for Competing in Turbulent, High-Velocity Markets 152

Means for Achieving Strategies 153 Cooperation Among Competitors 153 ■ Joint Venture/ Partnering 153 ■ Merger/Acquisition 155 ■ Private-Equity Acquisitions 157 ■ First Mover Advantages 157 ■ Outsourcing 158

Strategic Management in Nonprofit and Governmental Organizations 159

Religious Facilities 160 ■ Educational Institutions 160 ■ Medical Organizations 160 ■ Governmental Agencies and Departments 161

Strategic Management in Small Firms 161 Special Note to Students 161

ASSURANCE OF LEARNING EXERCISES 165 Assurance of Learning Exercise 5A: Develop Hypothetical Disney Strategies 165 Assurance of Learning Exercise 5B: Evaluate Disney Divisions in Terms of Porter’s Strategies 165 Assurance of Learning Exercise 5C: What Strategies Should Disney Pursue in 2013? 166 Assurance of Learning Exercise 5D: Examine Strategy Articles 166 Assurance of Learning Exercise 5E: Classify Some Year 2011 Strategies 167 Assurance of Learning Exercise 5F: How Risky Are Various Alternative Strategies? 168 Assurance of Learning Exercise 5G: Develop Alternative Strategies for My University 168 Assurance of Learning Exercise 5H: Lessons in Doing Business Globally 169

Chapter 6 Strategy Analysis and Choice 170 The Nature of Strategy Analysis and Choice 172

NETFLIX, INC.: EXCELLENT STRATEGIC MANAGEMENT SHOWCASED 172 The Process of Generating and Selecting Strategies 173

A Comprehensive Strategy-Formulation Framework 174 The Input Stage 175 The Matching Stage 175

The Strategic Position and Action Evaluation (SPACE) Matrix 178 ■ The Boston Consulting Group (BCG) Matrix 182 ■ The Internal- External (IE) Matrix 186 ■ The Grand Strategy Matrix 189

The Decision Stage 190 The Quantitative Strategic Planning Matrix (QSPM) 191 Positive Features and Limitations of the QSPM 194

CONTENTS xi

Cultural Aspects of Strategy Choice 196

The Politics of Strategy Choice 196

Governance Issues 197

Special Note to Students 200 ASSURANCE OF LEARNING EXERCISES 203 Assurance of Learning Exercise 6A: Perform a SWOT Analysis for Disney’s Parks & Resorts Business Segment 203 Assurance of Learning Exercise 6B: Develop a SWOT Matrix for Walt Disney 204 Assurance of Learning Exercise 6C: Develop a SPACE Matrix for Disney’s Media Networks Business Segment 204 Assurance of Learning Exercise 6D: Develop a SPACE Matrix for Walt Disney 205 Assurance of Learning Exercise 6E: Develop a BCG Matrix for Walt Disney 205 Assurance of Learning Exercise 6F: Develop a QSPM for Walt Disney 205 Assurance of Learning Exercise 6G: Formulate Individual Strategies 206 Assurance of Learning Exercise 6H: The Mach Test 206 Assurance of Learning Exercise 6I: Develop a BCG Matrix for My University 208 Assurance of Learning Exercise 6J: The Role of Boards of Directors 208 Assurance of Learning Exercise 6K: Locate Companies in a Grand Strategy Matrix 208

PART 3 Strategy Implementation 210

Chapter 7 Implementing Strategies: Management and Operations Issues 210

HALLIBURTON COMPANY: EXCELLENT STRATEGIC MANAGEMENT SHOWCASED 212

The Nature of Strategy Implementation 213 Management Perspectives 214

Annual Objectives 215

Policies 217

Resource Allocation 219

Managing Conflict 219

Matching Structure with Strategy 220 The Functional Structure 221 ■ The Divisional Structure 222 ■ The Strategic Business Unit (SBU) Structure 225 ■ The Matrix Structure 227 ■ Some Do's and Don’ts in Developing Organizational Charts 227

Restructuring and Reengineering 230 Restructuring 230 ■ Reengineering 231

Linking Performance and Pay to Strategies 231

Managing Resistance to Change 234

Creating a Strategy-Supportive Culture 235

Production/Operations Concerns When Implementing Strategies 236

Human Resource Concerns When Implementing Strategies 237 Employee Stock Ownership Plans (ESOPs) 239 ■ Balancing Work Life and Home Life 240 ■ Benefits of a Diverse Workforce 242 ■ Corporate Wellness Programs 242

Special Note to Students 244 ASSURANCE OF LEARNING EXERCISES 247

Assurance of Learning Exercise 7A: The Hershey Company Needs Your Help 247

Assurance of Learning Exercise 7B: Draw an Organizational Chart Using a Free, Online Template 248 Assurance of Learning Exercise 7C: Revise Walt Disney’s Organizational Chart 248 Assurance of Learning Exercise 7D: Do Organizations Really Establish Objectives? 249 Assurance of Learning Exercise 7E: Understanding My University’s Culture 249

Chapter 8 Implementing Strategies: Marketing, Finance/Accounting, R&D, and MIS Issues 250

The Nature of Strategy Implementation 252 WHOLE FOODS MARKET INC.: EXCELLENT STRATEGIC MANAGE- MENT SHOWCASED 252

Current Marketing Issues 253 New Principles of Marketing 254 ■ Advertising Media 255 ■ Purpose-Based Marketing 256

Market Segmentation 256 Retention-Based Segmentation 257 ■ Does the Internet Make Market Segmentation Easier? 259

Product Positioning 259 Finance/Accounting Issues 261

Acquiring Capital to Implement Strategies 261 ■ Projected Financial Statements 264 ■ Projected Financial Statement Analysis for Whole Foods Market 268 ■ Financial Budgets 270 Evaluating the Worth of a Business 272 ■ Deciding Whether to Go Public 275

Research and Development (R&D) Issues 275 Management Information Systems (MIS) Issues 277

Business Analytics 278

Special Note to Students 278 ASSURANCE OF LEARNING EXERCISES 281 Assurance of Learning Exercise 8A: Develop Divisional Product Positioning Maps for Walt Disney 281 Assurance of Learning Exercise 8B: Gain Practice Developing Product Positioning Maps 282 Assurance of Learning Exercise 8C: Perform an EPS/EBIT Analysis for Walt Disney 282 Assurance of Learning Exercise 8D: Prepare Projected Financial Statements for Walt Disney 282 Assurance of Learning Exercise 8F: Develop a Product-Positioning Map for My University 283 Assurance of Learning Exercise 8G: Do Banks Require Projected Financial Statements? 283

PART 4 Strategy Evaluation 284

Chapter 9 Strategy Review, Evaluation, and Control 284

The Nature of Strategy Evaluation 286 MCDONALD’S CORPORATION: EXCELLENT STRATEGIC MANAGEMENT SHOWCASED 286 The Process of Evaluating Strategies 290

A Strategy-Evaluation Framework 291 Reviewing Bases of Strategy 291 ■ Measuring Organizational Performance 292 ■ Taking Corrective Actions 295

The Balanced Scorecard 296

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Published Sources of Strategy-Evaluation Information 297 Characteristics of an Effective Evaluation System 298 Contingency Planning 299 Auditing 300 Twenty-First-Century Challenges in Strategic Management 301

The Art of Science Issue 301 ■ The Visible or Hidden Issue 302 ■ The Top-Down or Bottom-Up Approach 303

Special Note to Students 303 ASSURANCE OF LEARNING EXERCISES 306 Assurance of Learning Exercise 9A: Examine 100 Balanced Scorecards 306 Assurance of Learning Exercise 9B: Prepare a Strategy-Evaluation Report for Walt Disney 306 Assurance of Learning Exercise 9C: Evaluate My University’s Strategies 307

PART 5 Key Strategic-Management Topics 308

Chapter 10 Business Ethics/Social Responsibility/ Environmental Sustainability 308

GENERAL MOTORS (GM) CORP.: EXCELLENT STRATEGIC MANAGEMENT SHOWCASED 310

Business Ethics 311 Code of Business Ethics 312 ■ An Ethics Culture 312 ■ Bribes 314 ■ Love Affairs at Work 315

Social Responsibility 316 Social Policy 316 ■ Social Policies on Retirement 317

Environmental Sustainability 317 ■ What Is a Sustainability Report? 319 ■ Lack of Standards Changing 319 ■ Federal Regulations 320 ■ Managing Environmental Affairs in the Firm 320 ■ Should Students Receive Environmental Training? 320 ■ Reasons Why Firms Should “Be Green” 321 ■ Be Proactive, Not Reactive 321 ■ ISO 14000/14001 Certification 321 ■ Electric Car Networks Are Here 322

Special Note to Students 323 ASSURANCE OF LEARNING EXERCISES 326 Assurance of Learning Exercise 10A: How Does My Municipality Compare to Others on Being Pollution-Safe? 326 Assurance of Learning Exercise 10B: Evaluate Disney’s Standards of Business Conduct 326 Assurance of Learning Exercise 10C: Compare and Evaluate Sustainability Reports 326 Assurance of Learning Exercise 10D: The Ethics of Spying on Competitors 327 Assurance of Learning Exercise 10E: Who Prepares a Sustainability Report? 327

Chapter 11 Global/International Issues 328 AMAZON.COM: EXCELLENT STRATEGIC MANAGEMENT SHOW- CASED 330

Multinational Organizations 333 Advantages and Disadvantages of International Operations 333 The Global Challenge 334

Globalization 335

Corporate Tax Rates Globally 335

United States versus Foreign Business Cultures 337 Communication Differences Across Countries 339 Business Culture Across Countries 339

Mexico—Business Culture 339 ■ Japan—Business Culture 340 ■ Brazil—Business Culture 342 ■ Germay—Business Culture 342 ■ Egypt—Business Culture 343 ■ China— Business Culture 343 ■ India—Business Culture 344 ■ Nigeria—Business Culture 345

Business Climate Across Countries/Continents 345 African Countries 345 ■ China 347 ■ Philippines 348 ■ Taiwan 349 India 349 ■ Germany 350 ■ Mexico 351

Special Note to Students 352 ASSURANCE OF LEARNING EXERCISES 355 Assurance of Learning Exercise 11A: Compare Business Cultures Across Countries 355 Assurance of Learning Exercise 11B: Staples Wants to Enter Africa. Help Them. 355 Assurance of Learning Exercise 11C: Does My University Recruit in Foreign Countries? 356 Assurance of Learning Exercise 11D: Assess Differences in Culture Across Countries 356 Assurance of Learning Exercise 11E: How Well Traveled Are Business Students at My University? 356

PART 6 Strategic-Management Case Analysis 358

How to Prepare and Present a Case Analysis 358 What is a Strategic-Management Case? 360 Guidelines for Preparing Case Analyses 360

The Need for Practicality 360 ■ The Need for Justification 360 ■ The Need for Realism 360 ■ The Need for Specificity 360 ■ The Need for Originality 361 ■ The Need to Contribute 361

Preparing a Case for Class Discussion 361 The Case Method versus Lecture Approach 361

The Cross-Examination 362

Preparing a Written Case Analysis 362 The Executive Summary 362 ■ The Comprehensive Written Analysis 362 ■ Steps in Preparing a Comprehensive Written Analysis 363

Making an Oral Presentation 363 Organizing the Presentation 363 ■ Controlling Your Voice 364 ■ Managing Body Language 364 ■ Speaking from Notes 364 ■ Constructing Visual Aids 364 ■ Answering Questions 364 ■ Tips for Success in Case Analysis 364 ■ Content Tips 365 ■ Process Tips 365 ■ Sample Case Analysis Outline 366 STEPS IN PRESENTING AN ORAL CASE ANALYSIS 367 Oral Presentation—Step 1: Introduction (2 minutes) 367 Oral Presentation—Step 2: Mission/Vision (4 minutes) 367 Oral Presentation—Step 3: Internal Assessment (8 minutes) 368 Oral Presentation—Step 4: External Assessment (8 minutes) 368 Oral Presentation—Step 5: Strategy Formulation (14 minutes) 368 Oral Presentation—Step 6: Strategy Implementation (8 minutes) 369 Oral Presentation—Step 7: Strategy Evaluation (2 minutes) 369 Oral Presentation—Step 8: Conclusion (4 minutes) 369

Name Index 371 Subject Index 379

Cases

Service Firms MOVIE/MUSIC STREAMING 1. Netflix, Inc. — 2011, Lori Radulovich 3 2. Amazon.com, Inc. — 2011, M. Jill Austin and Ralph I. Williams Jr. 15

RETAIL DRUG STORES 3. CVS Caremark Corporation — 2011, Alen Badal 27 4. Walgreen Company — 2011, Sharynn M. Tomlin 35

APPAREL STORES 5. V.F. Corporation — 2011, John J. Burbridge Jr. and Coleman R. Rich 46 6. Gap, Inc. — 2011, Sharynn M. Tomlin 54

OFFICE SUPPLY STORES 7. Staples, Inc. — 2011, William J. Donoher 66 8. Office Depot, Inc. — 2011, Wayne E. Smith 78

AIRLINES 9. Southwest Airlines Company — 2011, Amit J. Shah and Michael L. Monahan 87 10. United Continental Holdings, Inc. — 2011, Charles M. Byles 98 11. Ryanair Holdings, plc — 2011, Charles M. Byles 111

CRUISE LINES 12. Royal Caribbean Cruises Ltd. — 2011, Mary R. Dittman 123 13. Carnival Corporation & plc — 2011, Mernoush Banton 132

FINANCIAL INSTITUTIONS 14. Bank of America Corporation — 2011, Fred R. David 143 15. E*TRADE Financial Corporation — 2011, Amit J. Shah and Michael L. Monahan 149

TELECOMMUNICATIONS 16. Verizon Communications, Inc. — 2011, Deana M. Raffo 157

Manufacturing Firms BOOK PUBLISHING 17. The McGraw-Hill Companies, Inc. — 2011, Vijaya Narapareddy 166

PERSONAL CARE PRODUCTS 18. Procter & Gamble Company — 2011, Alen Badal 175 19. Estée Lauder Companies, Inc.— 2011, Sharynn M. Tomlin 185 20. Revlon, Inc. — 2011, M. Jill Austin and Laura M. Buckner 196

PHARMACEUTICAL 21. Bristol-Meyers Squibb — 2011, Gail J. Robin 207 22. Eli Lilly & Company — 2011, Gail J. Robin 216

BEVERAGE 23. Dr Pepper Snapple Group, Inc. — 2011, Joseph S. Harrison 225 24. Coca-Cola Company — 2011, Alen Badal 235 25. Starbucks Corporation — 2011, Marlene M. Reed and Rochelle R. Brunson 244

COMPUTERS 26. Dell, Inc. — 2011, Matthew Baker and Anne M. Walsh 252 27. Apple, Inc. — 2011, Mernoush Banton 262

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Preface

Why the Need for This New Edition? The world is dramatically different than it was two years ago. The global economic recovery has created a business environment that is quite different and more complex than it was when the previous edition of this text was published. Thousands of businesses are now flourishing and consumers are again buying discretionary products. Tight credit markets remain, as do high unemployment and high food prices, but millions of new entrepreneurs have entered the business world globally. Democracy is taking hold in the Middle East, and China has replaced Japan as the world’s second largest in gross domestic product. Business firms today are leaner and meaner than ever, so gaining and sustaining competitive advantage is harder than ever. Intense price competition, rapid technological change, and social networking have altered marketing to its core. Opportunities and threats abound today all over the world, includ- ing Africa. This new edition reveals how to conduct effective strategic planning in this new world order.

Since the prior edition, thousands of liquidations, bankruptcies, divestitures, mergers, al- liances, and partnerships captured the news. Private equity firms returned to the spotlight by taking hundreds of firms public and acquiring hundreds more. Corporate scandals highlighted the need for improved business ethics and corporate disclosure of financial transactions. Downsizing, rightsizing, and reengineering contributed to a permanently altered corporate landscape. Thousands of firms began doing business globally, and thousands more closed their global operations. Thousands prospered, and yet thousands failed in the last two years as more industries commoditized, making strategic management an even more important factor in being successful. Long-held competitive advantages, such as print media, news, and entertainment, eroded in recent years, and new avenues for competitive advantage formed. This new edition captures the complexity of this new business environment.

There is less room for error today in the formulation and implementation of a strategic plan. This new edition provides an effective approach for developing a clear strategic plan. Changes made in this edition are aimed squarely at illustrating the effect of new business concepts and techniques on strategic-management theory and practice. Due to the magnitude of recent changes affecting companies, cultures, and countries, every page of this edition has been up- dated. This textbook is one of the most widely read strategic-management books in the world, perhaps the most widely read. This text is now published in 10 languages.

What Is New in This Edition? This 14 th edition is 40 percent different than the prior edition and is positioned to be the leader and best choice globally for teaching strategic management. Here is a summary of what is new in this edition:

• Chapter 11 , “Global/International Issues,” is expanded 70 percent. There is extensive new coverage of cultural and conceptual strategic-management differences across countries. Doing business globally has become a necessity in most industries because nearly all strategic decisions today are affected by global issues and concerns. Every case company in this edition does business globally, providing students ample opportunity to evaluate and consider international aspects of doing business.

• A brand new Cohesion Case on the Walt Disney Company (2011)—this is one of the most successful, well-known, and best managed global companies in the world—students apply strategy concepts to Walt Disney at the end of each chapter through new Assurance of Learning Exercises.

• Sixty percent brand new or improved Assurance of Learning Exercises appear at the end of all chapters to apply chapter concepts; the exercises prepare students for strategic- management case analysis.

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• A new “Special Note to Students” paragraph is provided at the end of every chapter to guide students in developing and presenting a case analysis that reveals recommendations for how a firm can best gain and sustain competitive advantage. The whole notion of how to gain and sustain competitive advantage is strengthened throughout this edition. Note the brand new subtitle heading for this book: “A Competitive Advantage Approach.”

• A brand-new boxed insert at the beginning of each chapter showcases a company doing strategic management exceptionally well.

• Nearly all brand-new examples throughout the chapters. • Extensive new narrative on strategic management theory and concepts in every chapter to

illustrate the new business world order. • On average, 15 brand-new review questions at the end of each chapter. • Brand-new color photographs bring this new edition to life and illustrate companies and

concepts. • All new current readings at the end of each chapter; new research and theories of semi-

nal thinkers in strategy development, such as Ansoff, Chandler, Porter, Hamel, Prahalad, Mintzberg, and Barney, are provided in the chapters; practical aspects of strategic manage- ment, however, are still center stage and the trademark of this text.

• Chapter 10 , “Business Ethics/Social Responsibility/Environmental Sustainability,” is expanded 40 percent, providing extensive new coverage of ethics and sustainability because this text emphasizes that “good ethics is good business.” Unique to strategic- management texts, the sustainability discussion is strengthened to promote and encour- age firms to conduct operations in an environmentally sound manner. Respect for the natural environment has become an important concern for consumers, companies, society, and AACSB-International.

• Twenty-seven brand-new cases—grouped by industry; great mix of profit/nonprofit, large/ small, and manufacturing/service organizations; all the cases have a 2011–2012 time set- ting; all the cases are “comprehensive” in the sense that each focuses on multiple business functions rather than addressing one particular business problem or issue; all cases are un- disguised and feature real organizations in real industries using real names and real places (nothing is fictitious in any case); all cases feature an organization “undergoing strategic change,” thus offering students up-to-date issues to evaluate and consider; all cases are written in a lively, concise writing style that captures the reader’s interest and establishes a time setting, usually in the opening paragraph; all cases provide excellent quantitative information such as numbers, ratios, percentages, dollar values, graphs, statistics, and maps so students can prepare a more specific, rational, and defensible strategic plan for the or- ganization; all cases provide excellent information about the industry and competitors; all cases include 2010 financial statements for the firm; all cases are supported by an excellent teacher’s note. All cases in this text are fun, exciting, and effective for teaching strategic management concepts and techniques.

Chapters: Time-Tested Features This edition continues to offer many special time-tested features and content that have made this text so successful for over 20 years. Historical trademarks of this text that are strengthened in this edition are described below.

• This text meets AACSB-International guidelines that support a practitioner orientation rather than a theory/research approach. It offers a skills-oriented approach to developing a vision and mission statement; performing an external audit; conducting an internal assess- ment; and formulating, implementing, and evaluating strategies.

• The author’s writing style is concise, conversational, interesting, logical, lively, and sup- ported by numerous current examples throughout.

• A simple, integrative strategic-management model appears in all chapters and on the inside front cover of the text. This model is widely used for strategic planning among consultants and companies worldwide. At the start of each chapter, the section of the comprehensive strategy model covered in that chapter is highlighted and enlarged so students can see the

PREFACE xvii

focus of each chapter in the basic unifying comprehensive model. One reviewer said, “One thing I have admired about David’s text is that he follows the fundamental sequence of strategy formulation, implementation, and evaluation. There is a basic flow from vision/ mission to internal/external environmental scanning to strategy development, selection, implementation, and evaluation. This has been, and continues to be, a hallmark of the David text. Many other strategy texts are more disjointed in their presentation, and thus confusing to the student, especially at the undergraduate level.”

• A Cohesion Case follows Chapter 1 and is revisited at the end of each chapter. This Cohesion Case allows students to apply strategic-management concepts and techniques to a real organization as chapter material is covered, which readies students for case analysis in the course.

• End-of-chapter Assurance of Learning Exercises effectively apply concepts and techniques in a challenging, meaningful, and enjoyable manner. Seventeen exercises apply text mate- rial to the Cohesion Case; eleven exercises apply textual material to a college or university; another nine exercises send students into the business world to explore important strategy topics. The exercises are relevant, interesting, and contemporary.

• There is excellent pedagogy in this text, including notable quotes and objectives to open each chapter, and key terms, current readings, discussion questions, and experiential exer- cises to close each chapter.

• There is excellent coverage of strategy formulation issues, such as business ethics, global versus domestic operations, vision/mission, matrix analysis, partnering, joint venturing, competitive analysis, governance, and guidelines for conducting an internal/external strat- egy assessment.

• There is excellent coverage of strategy implementation issues such as corporate culture, organizational structure, outsourcing, marketing concepts, financial analysis, and business ethics.

• A systematic, analytical approach is presented in Chapter 6 , including matrices such as the SWOT, BCG, IE, GRAND, SPACE, and QSPM.

• The chapter material is again published in a four-color format. • A chapters-only paperback version of the text is available. • Custom-case publishing is available whereby an instructor can combine chapters from this

text with cases from a variety of sources or select any number of cases desired from the 27 cases in the full text.

Cases: Time-Tested Features

• This edition contains the most current set of cases in any strategic-management text on the market. All cases include year-end 2010 financial data and information.

• The cases focus on well-known firms in the news making strategic changes. All cases are undisguised, and most are exclusively written for this text to reflect current strategic- management problems and practices. These are all “student-friendly” cases.

• Organized conveniently by industry (usually two competing firms per industry), the cases feature a great mix of domestic and international firms.

• All cases have been class tested to ensure that they are interesting, challenging, and effec- tive for illustrating strategic-management concepts.

• All cases provide complete financial information about the firm, as well as an organiza- tional chart and a vision and mission statement for the organization if those were available.

• All of the cases are comprehensive in the sense that each provides a full description of the firm and its operations rather than focusing on one issue or problem such as a plant closing. Each case thus lends itself to students preparing a three-year strategic plan for the firm.

• The Case Information Matrix and Case Description Matrix provided in the preface reveal (1) topical areas emphasized in each case and (2) contact and location information for each case company. These matrices provide suggestions on how the cases deal with concepts in the 11 chapters.

xviii PREFACE

Instructor’s Resource Center At www.pearsonhighered.com/irc , instructors can access a variety of print, digital, and presenta- tion resources available with this text in downloadable format. Registration is simple and gives you immediate access to new titles and new editions. As a registered faculty member, you can download resource files and receive immediate access and instructions for installing course management content on your campus server.

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Author Website The Strategic Management Club Online at www.strategyclub.com contains templates and links to help students save time in performing analyses and make presentations look professional.

Special Note to Professors Thank you for considering this text. This new edition provides exceptionally up-to-date coverage of strategic-management concepts, theory, research, and techniques. Every sentence and paragraph has been scrutinized, modified, clarified, deleted, streamlined, updated, and/or improved to enhance the content and caliber of presentation. The basic structure of this edition stays with 11 chapters, but there are many new examples, concepts, readings, exercises, and review questions in every chapter—and a new Cohesion Case on the Walt Disney Company. The improvements in readability and coverage are dramatic. Every chapter features strategic-management concepts and practices presented in a clear, focused, and relevant manner with hundreds of new examples integrated throughout.

The skills-oriented, practitioner perspective that historically has been the foundation of this text is enhanced and strengthened in this edition. New and expanded coverage of strategic- management theories and research in the text reflect companies’ new perspective on doing business. To survive and prosper in this global economic recovery, organizations must build and sustain competitive advantage. This text is now trusted around the world to provide future and present managers the latest skills and concepts needed to effectively formulate and efficiently implement a strategic plan—a game plan, if you will—that can lead to sustainable competitive advantage for any type of business.

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PREFACE xix

The reviewers and I believe you will find this edition to be the best strategic-management textbook available for communicating both the excitement and value of strategic management. Concise and exceptionally well organized, this text is now published in English, Chinese, Spanish, Thai, German, Japanese, Farsi, Indonesian, Indian, and Arabic. A version in Russian is being negotiated. On five continents, this text is widely used in colleges and universities at both the graduate and undergraduate levels. In addition, thousands of companies, organizations, and governmental bodies use this text as a management guide, making it perhaps the most widely used strategic planning book in the world.

This textbook meets all AACSB-International guidelines for the strategic-management course at both the graduate and undergraduate levels, and previous editions have been used at more than 500 colleges and universities.

A Sample of Universities Presently Using This Textbook You can trust this textbook to meet all your needs. Although very widely used around the world, a sample of colleges and universities using the prior (13th) edition of this text in English in the United States is given here:

Albany State University

Alcorn State University

Alvernia University

Ambassador College

American International College

Anderson University

Angelo State University

Aquinas College

Bellevue University

Belmont Abbey College

Benedictine University

Briar Cliff University

Brooklyn College

California State University–Long Beach

California Lutheran University

Carnegie Mellon University

Catawba College

Central Connecticut State University

Central Washington University

Chatam University

Chicago State University

Claflin University

Clarion University of Pennsylvania

Clarkson College

Cleveland State University

Columbia College

Concordia University

Delaware State University

Depaul University–Loop Campus

Dominican University

Eastern Michigan University

Eastern Oregon University

Eastern Washington University

East Stroudsburg University

Elmhurst College

Faulkner University

Florida Institute of Technology

Fort Valley State College

Francis Marion University

Fresno Pacific University

Frostburg State University

George Fox University

Georgetown College

George Washington University

Georgia Southwestern State University

Hampton University

Harding University

Hofstra University

Indiana University–Kokomo

Indiana Wesleyan University

Iona College

Jackson Community College

Jamestown College

John Brown University

Johnson & Wales University–Charlotte

Johnson & Wales University–Denver

Johnson & Wales University–Providence

Kansas State University

Keene State College

Kellogg Community College

La Salle University

Limestone College

xx PREFACE

Loyola College, Bush Center

Loyola University, Maryland

Madonna University

Marshall University

Mercer University

Mesa State College

Miami-Dade College

Middle Georgia College

Millersville University

Millsaps College

Morgan State University

Morrison College of Reno

Mount Hood Community College

Murray State University

New England College

New Mexico State University

New York University

North Carolina Wesleyan College

Norfolk State University

North Central College

Northwest Arkansas Community College

Oakland University

Ohio Dominican University

Ohio State University–Main Campus

Oklahoma State University

Oral Roberts University

Pace University–Pleasantville

Palm Beach State College

Park University

Penn State University–Abington

Penn State University–University Park

Philadelphia University

Point Park University

Queens College of CUNY

Quinnipiac University

Rider University

Robert Morris College

Roger Williams University

Saint Cloud State University

Saint Leo University

Saint Mary’s College

Saint Xavier University

Sam Houston State University

San Antonia College

Savannah State University

Seton Hall University

Siena Heights University

South Carolina State University

Southern New Hampshire University

Southern University–Baton Rouge

Southern Utah University

Southern Wesleyan University

Southwest Baptist University

St. Bonaventure University

St. Joseph College

St. Louis University

St. Thomas University

Texarkana College

Texas A&M University–Commerce

Texas A&M University–Texarkana

Texas Tech University

Three Rivers Community College

Troy University–Dothan

Troy University–Main Campus

Troy University–Montgomery

University of Alabama–Birmingham

University of Arkansas–Fayetteville

University of Colorado–Boulder

University of Hawaii–Manoa

University of Louisiana–Monroe

University of Maine–Augusta

University of Maine–Fort Kent

University of Maryland–College Park

University of Miami

University of Michigan–Flint

University of Minnesota–Crookston

University of Mobile

University of Nevada–Las Vegas

University of New Orleans

University of North Texas–Dallas

University of Pennsylvania

University of San Francisco

University of Texas–El Paso

University of Texas–Pan American

University of Texas–San Antonio

University of The Incarnate Word

PREFACE xxi

University of Toledo

University of Nevada–Reno

University of New Orleans

University of North Texas

University of Toledo

Valley City State University

VCCS

Virginia State University

Virginia Tech–Blacksburg

Wagner College

Washington University

Webster University

Western Connecticut State University

Western Kentucky University

Western Michigan University

Widener University

William Jewell College

Williams Baptist College

Winona State University

Winston-Salem State University

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Acknowledgments

Many persons have contributed time, energy, ideas, and suggestions for improving this text over 14 editions. The strength of this text is largely attributed to the collective wisdom, work, and ex- periences of strategic-management professors, researchers, students, and practitioners. Names of particular individuals whose published research is referenced in this edition of this text are listed alphabetically in the Name Index. To all individuals involved in making this text so popular and successful, I am indebted and thankful.

Many special persons and reviewers contributed valuable material and suggestions for this edition. I would like to thank my colleagues and friends at Auburn University, Mississippi State University, East Carolina University, and Francis Marion University. I have served on the management faculty at all these universities. Scores of students and professors at these schools helped shape the development of this text. Many thanks go to the following 23 reviewers whose comments shaped this 14th edition:

Moses Acquaah, The University of North Carolina at Greensboro

Charles M. Byles, Virginia Commonwealth University

Charles J. Capps III, Sam Houston State University

Neil Dworkin, Western Connecticut State University

Jacalyn M. Florn, University of Toledo

John Frankenstein, Brooklyn College/City University of New York

Bill W. Godair, Landmark College, Community College of Vermont

Carol Jacobson, Purdue University

Susan M. Jensen, University of Nebraska at Kearney

Dmitry Khanin, California State University at Fullerton

Thomas E. Kulik, Washington University at St. Louis

Jerrold K. Leong, Oklahoma State University

Trina Lynch-Jackson, Indiana University

Elouise Mintz, Saint Louis University

Raza Mir, William Paterson University

Gerry N. Muuka, Murray State University

Lori Radulovich, Baldwin-Wallace College

Thomas W. Sharkey, University of Toledo

Frederick J. Slack, Indiana University of Pennsylvania

Daniel Slater, Union University

Jill Lynn Vihtelic, Saint Mary’s College

Michael W. Wakefield, Colorado State University–Pueblo

Don Wicker, Brazosport College

Individuals who develop cases for the North American Case Research Association Meeting, the Midwest Society for Case Research Meeting, the Eastern Case Writers Association Meeting, the European Case Research Association Meeting, and Harvard Case Services are vitally important for continued progress in the field of strategic-management. From a research perspective, writing strategic-management cases represents a valuable schol- arly activity among faculty. Extensive research is required to structure strategic-management cases in a way that exposes strategic issues, decisions, and behavior. Pedagogically, strategic- management cases are essential for students in learning how to apply concepts, evaluate

xxiii

xxiv ACKNOWLEDGMENTS

situations, formulate a “game plan,” and resolve implementation problems. Without a continu- ous stream of updated cases, the strategic-management course and discipline would lose much of its energy and excitement.

Professors who teach this course supplement lecture with simulations, guest speakers, expe- riential exercises, class projects, and/or outside readings. Case analysis, however, is typically the backbone of the learning process in most strategic-management courses across the country. Case analysis is almost always an integral part of this course.

Analyzing strategic-management cases gives students the opportunity to work in teams to evaluate the internal operations and external issues facing various organizations and to craft strategies that can lead these firms to success. Working in teams gives students practical experience solving problems as part of a group. In the business world, important decisions are generally made within groups; strategic-management students learn to deal with overly aggressive group members and also timid, noncontributing group members. This experience is valuable as strategic-management students near graduation and enter the working world full time.

Students can improve their oral and written communication skills as well as their analyti- cal and interpersonal skills by proposing and defending particular courses of action for the case companies. Analyzing cases allows students to view a company, its competitors, and its industry concurrently, thus simulating the complex business world. Through case analysis, students learn how to apply concepts, evaluate situations, formulate strategies, and resolve implementation problems. Instructors typically ask students to prepare a three-year strategic plan for the firm. Analyzing a strategic-management case entails students applying concepts learned across their entire business curriculum. Students gain experience dealing with a wide range of organizational problems that impact all the business functions.

The following people wrote cases that were selected for inclusion in this 14th edition. These persons helped develop the most current compilation of cases ever assembled in a strategic- management text:

Dr. M. Jill Austin, Middle Tennessee State University

Dr. Alen Badal, The Union Institute

Matthew Baker, La Salle University

Dr. Mernoush Banton, Florida International University

Dr. Rochelle R. Brunson, Baylor University

Laura Buckner, Middle Tennessee State University

Dr. John J. Burbridge, Elon University

Dr. Charles M. Byles, Virginia Commonwealth University

Mary R. Dittman, Francis Marion University

Dr. William (Bill) J. Donoher, Missouri State University

Joseph S. Harrison, University of Richmond

Dr. Michael L. Monahan, Frostburg State University

Dr. Vijaya Narapareddy, University of Denver

Dr. Lori Radulovich, Baldwin-Wallace College

Dr. Deana M. Raffo, Middle Tennessee State University

Dr. Marlene Reed, Baylor University

Dr. Coleman R. Rich, Elon University

Dr. Gail J. Robin, Baker College

Dr. Amit J. Shah, Frostburg State University

Dr. Wayne E. Smith, Argosy University

Dr. Sharynn M. Tomlin, Angelo State University

Dr. Anne M. Walsh, La Salle University

Ralph I. Williams Jr., Middle Tennessee State University

ACKNOWLEDGMENTS xxv

I especially appreciate the wonderful work completed by the 14th edition ancillary authors as follows:

Case Instructor’s Manual —Forest R. David

Instructor’s Manual —Amit J. Shah

Test Bank—Maureen Steddin

PowerPoints —Brad Cox

Scores of Prentice Hall employees and salespersons have worked diligently behind the scenes to make this text a leader in strategic management. I appreciate the continued hard work of all those professionals, such as Sally Yagan, Kim Norbuta, Claudia Fernandes, and Ilene Kahn.

I also want to thank you, the reader, for investing the time and effort to read and study this text. It will help you formulate, implement, and evaluate strategies for any organization with which you become associated. I hope you come to share my enthusiasm for the rich subject area of strategic management and for the systematic learning approach taken in this text.

Finally, I want to welcome and invite your suggestions, ideas, thoughts, comments, and questions regarding any part of this text or the ancillary materials. Please call me at 910-612- 5343, e-mail me at freddavid9@gmail.com, or write me at the School of Business, Francis Marion University, Florence, SC 29501. I sincerely appreciate and need your input to continu- ally improve this text in future editions. Your willingness to draw my attention to specific errors or deficiencies in coverage or exposition will especially be appreciated.

Thank you for using this text. Fred R. David

This page intentionally left blank

About the Author

Dr. Fred R. David’s February 2011 Business Horizons article titled “What Are Business Schools Doing for Business Today?” is changing the way many busi- ness schools view their curricula. Dr. David is the sole author of two main- stream strategic-management textbooks: (1) Strategic Management: Concepts and Cases and (2) Strategic-Management Concepts . These texts have been on a two-year revision cycle since 1986, when the first edition was published. These texts are among the best if not the best-selling strategic-management textbooks in the world and have been used at more than 500 colleges and universities, including Harvard University, Duke University, Carnegie-Mellon University, Johns Hopkins University, the University of Maryland, University of North Carolina, University of Georgia, San Francisco State University, University of South Carolina, and Wake Forest University.

This textbook has been translated and published in Chinese, Japanese, Farsi, Spanish, Indonesian, Indian, Thai, German, and Arabic and is widely used across Asia and South America. It is the best-selling strategic-management textbook in Mexico, China, Peru, Chile, and Japan, and is number two in the United States. Approximately 90,000 students read Dr. David’s textbook annually as well as thousands of businesspersons. The book has led the field of strategic management for more than a decade in providing an applica- tions/practitioner approach to the discipline.

A native of Whiteville, North Carolina, Fred David received a BS degree in math- ematics and an MBA from Wake Forest University before being employed as a bank man- ager with United Carolina Bank. He received a PhD in Business Administration from the University of South Carolina, where he majored in General Management with an emphasis in Strategic Management. Currently the TranSouth Professor of Strategic Management at Francis Marion University (FMU) in Florence, South Carolina, Dr. David has also taught at Auburn University, Mississippi State University, East Carolina University, the University of South Carolina, and the University of North Carolina at Pembroke. He is the author of 153 referred publications, including 41 journal articles and 56 proceedings publications. David has articles published in such journals as Academy of Management Review , Academy of Management Executive , Journal of Applied Psychology , Long Range Planning , and Advanced Management Journal.

Dr. David received a Lifetime Honorary Professorship Award from the Universidad Ricardo Palma in Lima, Peru. He delivered the keynote speech at the 21st Annual Latin American Congress on Strategy hosted by the Centrum School of Business in Peru. He has provided an eight-hour Strategic Planning Workshop to the faculty at Pontificia Universidad Catolica Del in Lima, Peru, and an eight-hour Case Writing/Analyzing Workshop to the faculty at Utah Valley State College in Orem, Utah. He has received numerous awards, including FMU’s Board of Trustees Research Scholar Award, the university’s Award for Excellence in Research given annually to the best faculty researcher on campus, and the Phil Carroll Advancement of Management Award, given annually by the Society for the Advancement of Management (SAM) to a management scholar for outstanding contributions in management research. Dr. David serves on the Board of Directors of SAM. He has given collegiate graduation commencement addresses several times at Troy University.

xxvii

xxviii CASE INFORMATION MATRIX

Case Company Stock Symbol

Headquarters City, State Web Site URL Address #Employees

Profits/ Revenues/%

(2010) (in millions)

WALT DISNEY CO. DIS Burbank, CA http://www.disney.go.com 149,000 3,963/38,063/10.4

SERVICE FIRMS

Movie/Music Streaming

1. Netflix, Inc. NFLX Los Gatos, CA http://www.netflix.com 2,500 160/2,162/7.4

2. Amazon.com, Inc. AMZN Seattle, WA http://www.amazon.com 33,700 1,152/34,204/3.3

Retail Drug Stores

3. CVS Caremark Corp. CVS Woonsocket, RI http://www.info.cvscaremark. com

200,000 3,424/96,413/3.5

4. Walgreen Co. WAG Deerfield, IL http://www.walgreens.com 177,000 2,091/67,420/3.1

Apparel Stores

5. V.F. Corp. VFC Greensboro, NC http://www.vfc.com 45,700 571/7,702/7.4

6. Gap, Inc. GPS San Francisco, CA http://www.gapinc.com 135,000 1,102/14,197/7.7

Office Supply Stores

7. Staples, Inc. SPLS Farmingham, MA http://www.staples.com 54,149 881/25,545/3.4

8. Office Depot, Inc. ODP Boca Raton, FL http://www.officedepot.com 41,000 34/11,633/0.3

Airlines

9. Southwest Airlines LUV Dallas, TX http://www.southwest.com 34,901 459/12,104/3.8

10. United Continental Holdings UAL Chicago, IL www.unitedcontinental holdings.com

86,000 253/23,229/.01

11. Ryanair Holdings, plc RYAAY Dublin, Ireland http://www.ryanair.ie 7,168 413/4,043/10.2

Cruise Lines

12. Royal Caribbean International RCL Miami, FL http://www.royalcaribbean.com 57,200 547/6,752/8.1

13. Carnival Corp. & plc CCL Miami, FL http://www.carnivalcorp.com 85,200 1,978/14,469/13.6

Financial Institutions

14. Bank of America BAC Charlotte, NC http://www.bankofamerica.com 286,951 –2,238/134,194/–1.6

15. E*TRADE Financial Corp. ETFC New York, NY http://www.etrade.com 2,962 –28/2,077/-.01

Telecommunications

16. Verizon Communications, Inc. VZ New York, NY http://www.verizon.com 194,400 2,549/106,565/2.4

Case Information Matrix

http://www.disney.go.com
http://www.netflix.com
http://www.amazon.com
http://www.info.cvscaremark.com
http://www.info.cvscaremark.com
http://www.walgreens.com
http://www.vfc.com
http://www.gapinc.com
http://www.staples.com
http://www.officedepot.com
http://www.southwest.com
http://www.ryanair.ie
http://www.royalcaribbean.com
http://www.carnivalcorp.com
http://www.bankofamerica.com
http://www.etrade.com
http://www.verizon.com
www.unitedcontinentalholdings.com
www.unitedcontinentalholdings.com
CASE INFORMATION MATRIX xxix

Case Company Stock Symbol

Headquarters City, State Web Site URL Address #Employees

Profits/ Revenues/%

(2010) (in millions)

MANUFACTURING FIRMS

Book Publishing

17. McGraw-Hill Companies, Inc. MHP New York, NY http://www.mcgraw-hill.com 21,000 828/6,168/13.4

Personal Care Products

18. Procter & Gamble Co. PG Cincinnati, OH http://www.pg.com 127,000 12,736/78,938/16.1

19. Estee Lauder Companies EL New York, NY http://www.elcompanies.com 31,200 478/7,795/6.1

20. Revlon, Inc. REV New York, NY http://www.revlon.com 4,800 327/1,321/24.7

Pharmaceuticals

21. Bristol-Meyers Squibb BMY New York, NY http://www.bms.com 28,000 3,102/19,484/15.9

22. Eli Lillys & Company LLY Indianapolis, IN http://www.lilly.com 38,350 5.069/23,076/21.9

Beverage

23. Dr Pepper Snapple Group, Inc.

DPS Plano, TX http://www.drpeppersnapple. com

19,000 528/5,636/9.4

24. Coca-Cola Co. COKE Charlotte, NC http://www.cokebottling.com 5,200 38/1,442/2.6

25. Starbucks Corp. SBUX Seattle, WA http://www.starbucks.com 137,000 945/10,707/8.8

Computers

26. Dell, Inc. DELL Round Rock, TX http://www.dell.com 94,300 2,635/61,494/4.3

27. Apple, Inc. AAPL Cupertino, CA http://www.apple.com 46,600 14,013/65,225/21.5

http://www.mcgraw-hill.com
http://www.pg.com
http://www.elcompanies.com
http://www.revlon.com
http://www.bms.com
http://www.lilly.com
http://www.drpeppersnapple.com
http://www.drpeppersnapple.com
http://www.cokebottling.com
http://www.starbucks.com
http://www.dell.com
http://www.apple.com
xxx CASE DESCRIPTION MATRIX

Case Description Matrix

Topical Content Areas (Y = Yes and N = No) 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Cohesion Case: Walt Disney Company—2011 Y Y Y Y Y Y Y Y Y Y Y N N N

SERVICE FIRMS Movie/Music Streaming

1. Netflix, Inc. – 2011 Y Y Y N Y Y Y Y Y N N Y N N 2. Amazon.com, Inc. – 2011 Y Y Y Y Y Y Y Y Y N N N N N

Retail Drug Stores 3. CVS Caremark Corp. – 2011 Y Y Y Y Y Y Y Y Y Y Y Y N N

4. Walgreen Co. – 2011 Y Y Y Y Y Y Y Y Y N N Y N N

Apparel Stores 5. VF Corp. – 2011 Y Y Y Y Y Y Y Y Y N N Y N N

6. The Gap, Inc. – 2011 Y Y Y N Y Y Y Y Y N N N N N

Office Supply Stores

7. Staples, Inc. – 2011 Y Y Y Y Y Y Y Y Y N N Y N N 8. Office Depot, Inc. – 2011 Y Y Y Y Y Y Y Y Y Y Y Y N N

Airlines 9. Southwest Airlines Co. – 2011 Y Y Y Y Y N Y Y Y N N N N N

10. United Continental Holdings, Inc. – 2011 Y Y Y Y Y Y Y Y Y N N Y N N

11. Ryanair Holdings, plc – 2011 Y Y Y Y Y Y Y Y N N N Y N Y

Cruise Lines

12. Royal Caribbean Cruises Ltd. – 2011 Y Y Y Y Y Y Y Y Y N N N N N 13. Carnival Corp. and plc – 2011 Y Y Y Y Y Y Y Y Y N N N N N

Financial Institutions

14. Bank of America – 2011 Y Y Y Y Y N Y Y N Y Y Y N N 15. E*TRADE Financial Corp. – 2011 Y Y Y Y Y N Y Y Y Y Y Y N N

Telecommunications

16. Verizon Communications, Inc. – 2011 Y Y Y Y Y N Y Y N Y Y N N N

MANUFACTURING FIRMS Book Publishing

17. The McGraw-Hill Companies – 2011 Y Y Y Y Y Y Y Y Y N N Y N N Personal Care Products

18. Procter & Gamble Co. – 2011 Y Y Y Y Y N Y Y Y N Y N N Y 19. Estee Lauder Companies – 2011 Y Y Y Y N N Y Y Y N N Y N N

20. Revlon, Inc. – 2011 Y Y Y Y N N Y Y Y N N N N N

Pharmaceutical

21. Bristol-Meyers Squibb – 2011 Y Y Y Y Y N Y Y Y N N N N N 22. Eli Lilly & Company – 2011 Y Y Y Y Y N Y Y Y N N Y N N

Beverage

23. Dr Pepper Snapple Group, Inc. – 2011 Y Y Y N Y Y Y Y Y N Y Y N N 24. Coca-Cola Company – 2011 Y Y Y Y Y Y Y Y Y N N N N N

25. Starbucks Corp. – 2011 Y Y Y Y Y Y Y Y Y N N N N N

Computers

26. Dell, Inc. – 2011 Y Y Y Y Y N Y Y Y N N N N N 27. Apple, Inc. – 2011 Y Y Y Y Y N N Y Y N N N N N

1. Year-end 2010 Financial Statements Provided?

2. Organizational Chart Provided?

3. Does Company Do Business Outside the United States?

4. Is a Vision or Mission Statement Provided?

5. Business Ethics Issues Included?

6. Sustainability Issues Included?

7. Strategy Formulation Emphasis?

8. Strategy Implementation Emphasis?

9. By-Segment Financial Data Included?

10. Firm Has Declining Revenues?

11. Firm Has Declining Net Income?

12. Case Company Appears in Text for First Time Ever?

13. Case Company Appeared in Prior Edition and Updated Now?

14. Firm Headquartered Outside the United States?

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“Notable Quotes” “If we know where we are and something about how we got there, we might see where we are trending—and if the outcomes which lie natu- rally in our course are unacceptable, to make timely change.” —Abraham Lincoln

“Without a strategy, an organization is like a ship without a rudder, going around in circles. It’s like a tramp; it has no place to go.” —Joel Ross and Michael Kami

“Plans are less important than planning.” —Dale McConkey

“The formulation of strategy can develop com- petitive advantage only to the extent that the

process can give meaning to workers in the trenches.” —David Hurst

“Most of us fear change. Even when our minds say change is normal, our stomachs quiver at the prospect. But for strategists and managers today, there is no choice but to change.” —Robert Waterman Jr.

“If a man takes no thought about what is dis- tant, he will find sorrow near at hand. He who will not worry about what is far off will soon find something worse than worry.” —Confucius

“Integrity = Longevity” —Michael Johnson, CEO of Herbalife

Assurance of Learning Exercise 1A Compare Business Strategy With Military Strategy

Assurance of Learning Exercise 1B Gather Strategy Information

Assurance of Learning Exercise 1C Update the Walt Disney Cohesion Case

Assurance of Learning Exercise 1D Strategic Planning for My University

Assurance of Learning Exercise 1E Strategic Planning at a Local Company

Assurance of Learning Exercise 1F Get Familiar With SMCO

ChAptEr OBjECtivEs After studying this chapter, you should be able to do the following:

1. Describe the strategic-management process.

2. Explain the need for integrating analysis and intuition in strategic management.

3. Define and give examples of key terms in strategic management.

4. Discuss the nature of strategy formulation, implementation, and evaluation activities.

5. Describe the benefits of good strategic management.

6. Discuss the relevance of Sun Tzu’s The Art of War to strategic management.

7. Discuss how a firm may achieve sustained competitive advantage.

AssurAnCE OF LEArning ExErCisEs

pArt 1 OvErviEw OF strAtEgiC MAnAgEMEnt

The Nature of Strategic Management

1

4 Part 1 • Overview Of Strategic ManageMent

When CEOs from the big three American automakers, Ford, General Motors (GM), and Chrysler, showed up without a clear strategic plan to ask congressional leaders for bailout monies, they were sent home with instructions to develop a clear strategic plan for the future. Austan Goolsbee, one of President Obama’s top economic advisers, said, “Asking for a bailout without a convincing business plan was crazy.” Goolsbee also said, “If the three auto CEOs need a bridge, it’s got to be a bridge to somewhere, not a bridge to nowhere.”1 This textbook gives the instructions on how to develop a clear strategic plan—a bridge to somewhere rather than nowhere.

This chapter provides an overview of strategic management. It introduces a practical, in- tegrative model of the strategic-management process; it defines basic activities and terms in strategic management.

This chapter also introduces the notion of boxed inserts. A boxed insert at the beginning of each chapter reveals how some firms are doing really well competing in a weak global economy. The firms showcased are prospering as their rivals weaken. Each boxed insert examines the strategies of firms doing great amid high unemployment, rising interest rates, unavailability of credit, rising consumer demand, and intense price competition.

The boxed insert beginning each chapter showcases excellent strategic management. The first company featured for excellent performance is Winnebago Industries Inc.

Excellent Strategic Management Showcased

Winnebago industries inc.

Winnebago was recognized for the tenth consecutive year in 2011 as the nation’s top-selling motor home manufacturer. The recreational vehicle (RV) manufacturer has an excellent strategic plan. Winnebago posted an incredible 112 percent increase in revenues in fiscal 2010 and profits of $10.2 million.

Winnebago hired 350 new employees in the last twelve months as dealer inventory for its vehicles increased 21 percent. Winnebago dealers sold more Class A and Class C motor homes combined than any other manufacturer’s dealer group in calendar 2010, achieving 18.8 percent market share. The company recently became the top-selling Class A market leader for the first time since 1981, achieving a Class A market share for calendar 2010 of 19.5 percent compared to 16.6 percent the prior year. Winnebago’s Class A diesel market share was 15.2 percent in calendar 2010, up from 11.4 percent the prior year, while the company’s Class A gas market segment grew to 23.7 percent from 22.9 percent.

Despite high gas prices, shrinking consumer credit, rising raw ma- terial costs and stubborn high unemployment, Winnebago is success- fully offering new, innovative products and marketing its vehicles and trailers to all comers, but especially to retirees, who purchase an RV mainly to experience traveling and camping with fellow retirees. They enjoy camping with fellow RV-ers, grilling out, and in this way making new friends each day while traveling—rather than staying at a motel and meeting few to no new friends.

Based in Forest City, Iowa, Winnebago’s new CEO Randy Potts faces major competitors include Fleetwood, Coachman, and Thor Industries. Winnebago recently received the Quality Circle Award from the Recreation Vehicle Dealers Association—an award that the com- pany has received every year since 1996.

Winnebago’s Vice President of Sales and Marketing Roger Martin said in 2011: “We’re very pleased that Statistical Surveys once

again report Winnebago to be the number one manufac- turer of motor homes in the United States. We congratu- late our loyal e m p l o y e e s and our strong dealer network in achieving this top selling posi- tion for the tenth consecutive year. We work very hard to develop exciting new products and to provide support for our dealers and retail customers in the form of what we believe are industry-leading sales and service programs. We are pleased that these efforts have resulted in continued success in the retail market. We are particularly pleased with our market share performance in the Class A gas and diesel motor home market segments, due in part to the success of our new 2011 lineup featuring many innovative industry-exclusive features and floorplans.”

For the three months ending May 28, 2011, Winnebago’s rev- enues rose to $135.6 million from $134.8 million the prior year.

Source: Company documents. Also, Timothy Martin, “Winnebago Logs Another Profit,” Wall Street Journal, October 15, 2010, p. B6.

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Walt Disney is featured as the new Cohesion Case because it is a well-known global firm undergoing strategic change and is very well managed. By working through Walt Disney related Assurance of Learning Exercises at the end of each chapter, you will be well prepared to develop an effective strategic plan for any company assigned to you this semester. The end-of-chapter exercises apply chapter tools and concepts.

What Is Strategic Management? Once there were two company presidents who competed in the same industry. These two presidents decided to go on a camping trip to discuss a possible merger. They hiked deep into the woods. Suddenly, they came upon a grizzly bear that rose up on its hind legs and snarled. Instantly, the first president took off his knapsack and got out a pair of jogging shoes. The second president said, “Hey, you can’t outrun that bear.” The first president responded, “Maybe I can’t outrun that bear, but I surely can outrun you!” This story cap- tures the notion of strategic management, which is to achieve and maintain competitive advantage.

Defining Strategic Management Strategic management can be defined as the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives. As this definition implies, strategic management focuses on integrating management, marketing, finance/ accounting, production/operations, research and development, and information systems to achieve organizational success. The term strategic management in this text is used synonymously with the term strategic planning. The latter term is more often used in the business world, whereas the former is often used in academia. Sometimes the term strategic management is used to refer to strategy formulation, implementation, and evaluation, with strategic planning referring only to strategy formulation. The purpose of strategic management is to exploit and create new and differ- ent opportunities for tomorrow; long-range planning, in contrast, tries to optimize for tomorrow the trends of today.

The term strategic planning originated in the 1950s and was very popular between the mid-1960s and the mid-1970s. During these years, strategic planning was widely believed to be the answer for all problems. At the time, much of corporate America was “obsessed” with strategic planning. Following that “boom,” however, strategic planning was cast aside dur- ing the 1980s as various planning models did not yield higher returns. The 1990s, however, brought the revival of strategic planning, and the process is widely practiced today in the busi- ness world.

A strategic plan is, in essence, a company’s game plan. Just as a football team needs a good game plan to have a chance for success, a company must have a good strategic plan to compete successfully. Profit margins among firms in most industries are so slim that there is little room for error in the overall strategic plan. A strategic plan results from tough mana- gerial choices among numerous good alternatives, and it signals commitment to specific markets, policies, procedures, and operations in lieu of other, “less desirable” courses of action.

The term strategic management is used at many colleges and universities as the title for the capstone course in business administration. This course integrates material from all business courses. The Strategic Management Club Online at www.strategyclub.com offers many benefits for strategic management students.

Stages of Strategic Management The strategic-management process consists of three stages: strategy formulation, strategy implementation, and strategy evaluation. Strategy formulation includes developing a vision and mission, identifying an organization’s external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objectives, generating alternative strategies, and choosing particular strategies to pursue. Strategy-formulation issues include deciding what new businesses to enter, what businesses to abandon, how to allocate resources, whether to ex- pand operations or diversify, whether to enter international markets, whether to merge or form a joint venture, and how to avoid a hostile takeover.

www.strategyclub.com
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Because no organization has unlimited resources, strategists must decide which al- ternative strategies will benefit the firm most. Strategy-formulation decisions commit an organization to specific products, markets, resources, and technologies over an extended period of time. Strategies determine long-term competitive advantages. For better or worse, strategic decisions have major multifunctional consequences and enduring effects on an or- ganization. Top managers have the best perspective to understand fully the ramifications of strategy-formulation decisions; they have the authority to commit the resources necessary for implementation.

Strategy implementation requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed. Strategy implementation includes developing a strategy-supportive culture, creating an ef- fective organizational structure, redirecting marketing efforts, preparing budgets, developing and utilizing information systems, and linking employee compensation to organizational performance.

Strategy implementation often is called the “action stage” of strategic management. Implementing strategy means mobilizing employees and managers to put formulated strategies into action. Often considered to be the most difficult stage in strategic management, strategy implementation requires personal discipline, commitment, and sacrifice. Successful strategy implementation hinges upon managers’ ability to motivate employees, which is more an art than a science. Strategies formulated but not implemented serve no useful purpose.

Interpersonal skills are especially critical for successful strategy implementation. Strategy- implementation activities affect all employees and managers in an organization. Every division and department must decide on answers to questions such as “What must we do to implement our part of the organization’s strategy?” and “How best can we get the job done?” The challenge of implementation is to stimulate managers and employees throughout an organization to work with pride and enthusiasm toward achieving stated objectives.

Strategy evaluation is the final stage in strategic management. Managers desperately need to know when particular strategies are not working well; strategy evaluation is the primary means for obtaining this information. All strategies are subject to future modification because external and internal factors are constantly changing. Three fundamental strategy-evaluation ac- tivities are (1) reviewing external and internal factors that are the bases for current strategies, (2) measuring performance, and (3) taking corrective actions. Strategy evaluation is needed because success today is no guarantee of success tomorrow! Success always creates new and different problems; complacent organizations experience demise.

Strategy formulation, implementation, and evaluation activities occur at three hierarchical levels in a large organization: corporate, divisional or strategic business unit, and functional. By fostering communication and interaction among managers and employees across hierarchical levels, strategic management helps a firm function as a competitive team. Most small businesses and some large businesses do not have divisions or strategic business units; they have only the corporate and functional levels. Nevertheless, managers and employees at these two levels should be actively involved in strategic-management activities.

Peter Drucker says the prime task of strategic management is thinking through the overall mission of a business:

…that is, of asking the question, “What is our business?” This leads to the setting of objectives, the development of strategies, and the making of today’s decisions for tomor- row’s results. This clearly must be done by a part of the organization that can see the entire business; that can balance objectives and the needs of today against the needs of tomorrow; and that can allocate resources of men and money to key results.2

Integrating Intuition and Analysis Edward Deming once said, “In God we trust. All others bring data.” The strategic-management process can be described as an objective, logical, systematic approach for making major deci- sions in an organization. It attempts to organize qualitative and quantitative information in a way that allows effective decisions to be made under conditions of uncertainty. Yet strategic manage- ment is not a pure science that lends itself to a nice, neat, one-two-three approach.

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Based on past experiences, judgment, and feelings, most people recognize that intuition is essential to making good strategic decisions. Intuition is particularly useful for making deci- sions in situations of great uncertainty or little precedent. It is also helpful when highly interre- lated variables exist or when it is necessary to choose from several plausible alternatives. Some managers and owners of businesses profess to have extraordinary abilities for using intuition alone in devising brilliant strategies. For example, Will Durant, who organized GM, was de- scribed by Alfred Sloan as “a man who would proceed on a course of action guided solely, as far as I could tell, by some intuitive flash of brilliance. He never felt obliged to make an engi- neering hunt for the facts. Yet at times, he was astoundingly correct in his judgment.”3 Albert Einstein acknowledged the importance of intuition when he said, “I believe in intuition and inspiration. At times I feel certain that I am right while not knowing the reason. Imagination is more important than knowledge, because knowledge is limited, whereas imagination embraces the entire world.”4

Although some organizations today may survive and prosper because they have intuitive geniuses managing them, most are not so fortunate. Most organizations can benefit from strategic management, which is based upon integrating intuition and analysis in decision making. Choosing an intuitive or analytic approach to decision making is not an either–or proposition. Managers at all levels in an organization inject their intuition and judgment into strategic-management analyses. Analytical thinking and intuitive thinking complement each other.

Operating from the I’ve-already-made-up-my-mind-don’t-bother-me-with-the-facts mode is not management by intuition; it is management by ignorance.5 Drucker says, “I believe in intuition only if you discipline it. ‘Hunch’ artists, who make a diagnosis but don’t check it out with the facts, are the ones in medicine who kill people, and in management kill businesses.”6 As Henderson notes:

The accelerating rate of change today is producing a business world in which custom- ary managerial habits in organizations are increasingly inadequate. Experience alone was an adequate guide when changes could be made in small increments. But intuitive and experience-based management philosophies are grossly inadequate when decisions are strategic and have major, irreversible consequences.7

In a sense, the strategic-management process is an attempt both to duplicate what goes on in the mind of a brilliant, intuitive person who knows the business and to couple it with analysis.

Adapting to Change The strategic-management process is based on the belief that organizations should continually monitor internal and external events and trends so that timely changes can be made as needed. The rate and magnitude of changes that affect organizations are increasing dramatically, as evi- denced by how the global economic recession has caught so many firms by surprise. Firms, like organisms, must be “adept at adapting” or they will not survive.

For 30 years, Lowe’s Company and Home Depot Inc. have been and remain fierce competi- tors trying to adapt better than the other to changing consumer needs. Home Depot is the larger firm and is reporting faster growing revenues and profits, but Lowe’s CEO Robert Niblock says his company is moving quickly to showcase tools and appliances on the Internet as expertly as in stores. Lowe’s revenues are about $49 billion annually compared to Home Depot’s $68 billion. Home Depot’s CEO Frank Blake has recently added 19 centralized distribution centers so store workers can spend more time waiting on shoppers. Both firms are hiring thousands of part-time workers, transitioning away from full-time employees, to keep labor costs down and create a price competitive advantage.

The second-largest bookstore chain in the United States, Borders Group, declared bank- ruptcy in 2011 as the firm had not adapted well to changes in book retailing from traditional bookstore shopping to customers buying online, preferring digital books to hard copies, and even renting rather than buying books. Borders is second in number of stores behind Barnes & Noble, which also is struggling to survive in an industry rapidly going digital and moving away from brick-and-mortar stores. Based in Ann Arbor, Michigan, Borders Group operates 676 stores nationwide, but was on the brink of financial collapse before being acquired in July 2011 by Direct Brands, a division of Phoenix, Arizona–based Najafi Companies.

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To survive, all organizations must astutely identify and adapt to change. The strategic- management process is aimed at allowing organizations to adapt effectively to change over the long run. As Waterman has noted:

In today’s business environment, more than in any preceding era, the only constant is change. Successful organizations effectively manage change, continuously adapting their bureaucracies, strategies, systems, products, and cultures to survive the shocks and prosper from the forces that decimate the competition.8

Online social networking, rising food prices, and high energy prices are external changes that are transforming business and society today. On a political map, the boundaries between countries may be clear, but on a competitive map showing the real flow of financial and industrial activity, the boundaries have largely disappeared. The speedy flow of information has eaten away at na- tional boundaries so that people worldwide readily see for themselves how other people live and work. We have become a borderless world with global citizens, global competitors, global custom- ers, global suppliers, and global distributors! U.S. firms are challenged by large rival companies in many industries. To say U.S. firms are being challenged in the automobile industry is an under- statement. But this situation is true in many industries.

The need to adapt to change leads organizations to key strategic-management questions, such as “What kind of business should we become?” “Are we in the right field(s)?” “Should we reshape our business?” “What new competitors are entering our industry?” “What strategies should we pursue?” “How are our customers changing?” “Are new technologies being devel- oped that could put us out of business?”

The Internet has changed the way we organize our lives; inhabit our homes; and relate to and interact with family, friends, neighbors, and even ourselves. The Internet promotes endless comparison shopping, which thus enables consumers worldwide to band together to demand dis- counts. The Internet has transferred power from businesses to individuals. Buyers used to face big obstacles when attempting to get the best price and service, such as limited time and data to compare, but now consumers can quickly scan hundreds of vendor offerings. Both the number of people shopping online and the average amount they spend is increasing dramatically. Digital communication has become the name of the game in marketing. Consumers today are flocking to blogs, short-post forums such as Twitter, video sites such as YouTube, and social networking sites such as Facebook, Myspace, and LinkedIn instead of television, radio, newspapers, and magazines. Facebook and Myspace recently unveiled features that further marry these social sites to the wider Internet. Users on these social sites now can log on to many business shopping sites with their IDs from their social site so their friends can see what items they have purchased on various shopping sites. Both of these social sites want their members to use their IDs to man- age all their online identities. Most traditional retailers have learned that their online sales can boost in-store sales as they utilize their websites to promote in-store promotions.

Key Terms in Strategic Management Before we further discuss strategic management, we should define nine key terms: competitive advantage, strategists, vision and mission statements, external opportunities and threats, internal strengths and weaknesses, long-term objectives, strategies, annual objectives, and policies.

Competitive Advantage Strategic management is all about gaining and maintaining competitive advantage. This term can be defined as “anything that a firm does especially well compared to rival firms.” When a firm can do something that rival firms cannot do, or owns something that rival firms desire, that can represent a competitive advantage. For example, having ample cash on the firm’s balance sheet can provide a major competitive advantage. Some cash-rich firms are buying distressed rivals. For example, Dish Network Corp. in mid-2011 acquired (for $1 billion) the satellite com- pany DBSD North America based in Reston, Virginia, which was operating under bankruptcy protection. The acquisition gave Dish Network access to varied broadband spectrums. Dish Network is also trying to acquire bankrupt satellite operator Terrestar Networks, which would allow Dish Network to launch mobile video or satellite Internet services.