Strategic Management Model
Gathering Information
Societal Environment: General forces
Natural Environment: Resources and
climate
Task Environment:
Industry analysis
Internal: Strengths and Weaknesses
Structure: Chain of command
Culture: Beliefs, expectations,
values
Resources: Assets, skills, competencies,
knowledge
External: Opportunities
and Threats
Developing Long-range Plans
Mission
Reason for existence Objectives
What results to accomplish by when
Strategies
Plan to achieve the mission & objectives
Policies
Broad guidelines for decision making
Environmental Scanning:
Strategy Formulation:
Feedback/Learning: Make corrections as needed
Putting Strategy into Action
Monitoring Performance
Programs
Activities needed to accomplish a plan
Budgets
Cost of the programs Procedures
Sequence of steps needed to do the job
Performance
Actual results
Strategy Implementation:
Evaluation and Control:
THIRTEENTH EDITION
Strategic Management
and Business Policy
TOWARD GLOBAL SUSTAINABILITY
This page intentionally left blank
THIRTEENTH EDITION
Thomas L. Wheelen Formerly with University of Virginia Trinity College, Dublin, Ireland
J. David Hunger Iowa State University St. John’s University
Strategic Management
and Business Policy
TOWARD GLOBAL SUSTAINABILITY
with major contributions by
Kathryn E. Wheelen
Alan N. Hoffman Bentley University
Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal
Toronto Delhi Mexico City Sa~o Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo
Editorial Director: Sally Yagan Editor in Chief: Eric Svendsen Senior Acquisitions Editor: Kim Norbuta Editorial Project Manager: Claudia Fernandes Editorial Assistant: Carter Anderson Director of Marketing: Patrice Lumumba Jones Senior Marketing Manager: Nikki Ayana Jones Marketing Assistant: Ian Gold Senior Managing Editor: Judy Leale Production Project Manager: Becca Groves Senior Operations Supervisor: Arnold Vila Operations Specialist: Cathleen Petersen Creative Director: Blair Brown
Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on the appropriate page within text.
Copyright © 2012, 2010, 2008, 2006, 2004 by Pearson Education, Inc., publishing as Prentice Hall. All rights reserved. Manufactured in the United States of America. This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. To obtain permission(s) to use material from this work, please submit a written request to Pearson Education, Inc., Permissions Department, One Lake Street, Upper Saddle River, New Jersey 07458, or you may fax your request to 201-236-3290.
Many of the designations by manufacturers and sellers to distinguish their products are claimed as trademarks. Where those designations appear in this book, and the publisher was aware of a trademark claim, the designations have been printed in initial caps or all caps.
Library of Congress Cataloging-in-Publication Data Wheelen, Thomas L.
Strategic management and business policy : toward global sustainability / Thomas L. Wheelen, J. David Hunger. — 13th ed.
p. cm. Includes bibliographical references and index. ISBN-13: 978-0-13-215322-5 ISBN-10: 0-13-215322-X
1. Strategic planning. 2. Strategic planning—Case studies. 3. Sustainability. I. Hunger, J. David, II. Title.
HD30.28.W43 2012 658.4'012—dc22
2011013549
Senior Art Director/Supervisor: Janet Slowik Cover Designer: Liz Harasymcuk Cover Photo: Courtesy of NASA/Shutterstock Interior Designer: Maureen Eide Media Project Manager, Editorial: Denise Vaughn Media Project Manager, Production: Lisa Rinaldi Full-Service Project Management: Emily Bush, S4Carlisle Publishing Services Composition: S4Carlisle Publishing Services Printer/Binder: Courier/Kendalville Cover Printer: Lehigh-Phoenix Color/Hagerstown Text Font: 10/12 Times Roman
10 9 8 7 6 5 4 3 2 1 ISBN 10: 0-13-215322-X ISBN 13: 978-0-13-215322-5
Dedicated to
KATHY, RICHARD, AND TOM BETTY, KARI AND JEFF, MADDIE AND MEGAN, SUZI AND NICK, SUMMER AND KACEY, LORI, MERRY AND DYLAN, AND WOOFIE (ARF!).
SPECIAL DEDICATION TO KATHRYN WHEELEN:
Kathryn has worked on every phase of the case section of this book. Until this edition, she also managed the construction of the Case Instructor’s Manual. She has done every job with a high level of dedication
and concern for both the case authors and the readers of this book.
NOLA AKALA
DAVID ALEVY
TARA ALGEO
DAVID ARMSTRONG
MIKE ASKEW
LAURA BAILEY
NICK BAKER
ALICIA BARNES
ASHLEY BARNES
ALICE BARR
SHERRY BARTEL
KENDRA BASSI
JAY BECKENSTEIN
JOSH BECKENSTEIN
NICOLE BELL
CATHY BENNETT
KATIE BOLLIN
SCOTT BORDEN
JENNIFER BOYLE
AUNDREA BRIDGES
SUZANNE BROWN
ALEXANDRA BUEHLER
KYLE BURDETTE
WHITNEY CAMERON
RUTH CARDIFF
AMY CAREY
MEGAN CARRICO
MARTI CARTER
ANDREA CATULLO-LINN
MEREDITH CHANDLER
LUKE CLAEYS
KAYLEE CLAYMORE
BRIAN COBB
JENNIFER COLE
TARYLL CONNOLLY
THAYNE CONRAD
DONNA CONROY
CAITLIN COUTHEN
MEGAN JOY COWART
CYNDI CRIMMINS
KASEY CROCKETT
DAN CURRIER
KELLY DAN
MICHLENE DAOUD HEALY
STACY DAVIS
FRANK DEL CASTILLO
MEREDITH DELA ROSA
CHRIS DELANEY
GEORGE DEVENNEY
DANA DODGE (Frick)
KATE DOLDER
BARBARA DONLON
HEIDI DRESSLER
TRACY DYBALSKI
BRIAN DYK
KIM ECK
TRISH EICHHOLD
KRISTIN ELBER
KELSEY ELLIOTT
KATIE EYNON
GENEVA FARROW
MARIA FELIBERTY
MIKE FINER
MICHELLE FINNERTY
CANDAS FLETCHER
ROBERT FLORY
MARCIA FLYNN
BRAD FORRESTER
MARGARET FRENCH
STEPHANIE FRITSON
MARK GAFFNEY
MICHELLE GARCIA-JUCHTER
SYBIL GERAUD
AMBER GOECKE
CAROLYN GOGOLIN
ADAM GOLDSTEIN
BETH GRUNFELD
MICAELA HAIDLE
GREG HAITH
DEMETRIUS HALL
BRIDGET HANNENBERG
BRYAN HARRELL
TARA HARTLEY
KENNY HARVEY
ALISON HASKINS
CAROL HAWKS
JENNIFER HEILBRUNN
CHRISTINE HENRY
LYNN HICKS
JULIE HILDEBRAND
DAUNNE HINGLE
WENDI HOLLAND
CHRISTY HUMENIUK
GENE HUMENIUK
ANDREA IORIO
SUSAN JACKSON
PAM JEFFRIES
BRITTANY JUCHNOWSKI
ANJALI JUSTUS
CHERYL KABB
LAURA KAPPES
GIA KAUL
JULIE KESTENBAUM
KARTAPURKH KHALSA
KIM KIEHLER
AMANDA KILLEEN
WALT KIRBY
MARY-JO KOVACH
ROBYN KOVAR
GREG KRAMP
DANIEL KRAUSS
MICHAEL KRISANDA
GINA LaMANTIA
CHAFIKA LANDERS
DOROTHY LANDRY
DUSTIN LANGE
ALIX LaSCOLA
JOE LEE
APRIL LEMONS
KIMBERLY LENAGHAN
This book is also dedicated to the following Prentice Hall/Pearson sales representatives who work so hard to promote this book:
vi
TRICIA LISCIO
BETH LUDWIG
CARY LUNA
JEMINA MACHARRY
KATIE MAHAN
LAURA MANN
PATRICIA MARTINEZ
CHRISTINA MASTROGIOVANNI
SONNY MATHARU
TONY MATHIAS
BROOK MATTHEWS
GEORGIA MAY
ALICIA MCAULIFFE
MASON McCARTNEY
KAREN McFADYEN
BRIAN McGARRY
MICHELLE McGOVERN
IRENE McGUINNESS
RYAN McHENRY
CRISTIN McMICHAEL
KEVIN MEASELLE
RAY MEDINA
KELLY MEIERHOFER
MOLLY MEINERS
MATT MESAROS
SHALON MILLER
JAMI MINARD
WILLIAM MINERICH
EMILY MITCHELL
JILINE MIX
JULIE MOREL
RAFAEL MORENO
TRACY MORSE
OLIVIA MOUG
DOLLY MUNIZ
TRICIA MURPHY
LAUREN MURROW
AMBER MYLLION (Parks)
LINDA NELSON
LYNNE NICLAIR
BOB NISBET
BETSY NIXON
TOM NIXON
LAURA NOAH
COLLEEN O’DELL
DEBBIE OGILIVE
SARI ORLANSKY
DAVE OSTROW
DARCEY PALMER
KRISTINA PARKER
TONI PAYNE
JULIANNE PETERSON
MELISSA PFISTNER
CANDACE PINATARO
BELEN POLTORAK
ELIZABETH POPIELARZ
MEGAN PRENDERGAST
NICOLE PRICE
JILL PROMESSO
LENNY ANN RAPER
JOSH RASMUSSEN
AMANDA RAY
SONYA REED
RICHARD RESCH
MARY RHODES
BRAD RITTER
DAN ROBERTSON
MATT ROBINSON
JENNIFER ROSEN
DOROTHY ROSENE
KELLEEN ROWE
RICH ROWE
PEYTON ROYTEK
SENG SAECHAO
STEVE SARTORI
LYNDA SAX
BOB SCANLON
MARCUS SCHERER
KIMBERLY SCHEYVING
HEIDI SCHICK (Miller)
BRAD SCHICK
CHRIS SCHMIDT
DEBORAH SCHMIDT
MOLLY SCHMIDT
CORRINA SCHULTZ
WHITNEY SEAGO
CHRISTIANA SERLE
MARTHA SERNAS
MARY SHAPIRO
BARBARA SHERRY
KEN SHIPBAUGH
DAVE SHULER
JESSICA SIEMINSKI
LEA SILVERMAN
AUTUMN SLAUGHTER
KRISTA SLAVICEK
SCOTT SMITH
ADRIENNE SNOW
LEE SOLOMONIDES
BEN STEPHEN
DAN SULLIVAN
JOHN SULLIVAN
LORI SULLIVAN
STEPHANIE SURFUS
AMANDA SVEC
CHRISTINA TATE
SARAH THOMAS
ABBY THORNBLADH
KATY TOWNLEY
ELIZABETH TREPKOWSKI
TARA TRIPP
CAROLYN TWIST
JOE VIRZI
AMANDA VOLZ
BRITNEY WALKER
MADELEINE WATSON
BEN WEBER
DANIEL WELLS
MARK WHEELER
LIZ WILDES
MICHELLE WILES
BRIAN WILLIAMS
ERIN WILLIAMS
CINDY WILLIAMSON
RACHEL WILLIS
SIMON WONG
KIMBERLY WOODS
JACKIE WRIGHT
HEATHER WRUBLESKY
GEORGE YOUNG
MARY ZIMMERMANN
KACIE ZIN
DEDICATION vii
This page intentionally left blank
Brief Contents
PART ONE Introduction to Strategic Management and Business Policy 1
C H A P T E R 1 Basic Concepts of Strategic Management 2 C H A P T E R 2 Corporate Governance 42 C H A P T E R 3 Social Responsibility and Ethics in Strategic Management 70
PART TWO Scanning the Environment 93
C H A P T E R 4 Environmental Scanning and Industry Analysis 94 C H A P T E R 5 Internal Scanning: Organizational Analysis 136
PART THREE Strategy Formulation 173
C H A P T E R 6 Strategy Formulation: Situation Analysis and Business Strategy 174 C H A P T E R 7 Strategy Formulation: Corporate Strategy 204 C H A P T E R 8 Strategy Formulation: Functional Strategy and Strategic Choice 236
PART FOUR Strategy Implementation and Control 269
C H A P T E R 9 Strategy Implementation: Organizing for Action 270 C H A P T E R 1 0 Strategy Implementation: Staffing and Directing 300 C H A P T E R 1 1 Evaluation and Control 328
PART FIVE Introduction to Case Analysis 363
C H A P T E R 1 2 Suggestions for Case Analysis 364
PART SIX WEB CHAPTERS Other Strategic Issues
W E B C H A P T E R A Strategic Issues in Managing Technology & Innovation W E B C H A P T E R B Strategic Issues in Entrepreneurial Ventures & Small Businesses W E B C H A P T E R C Strategic Issues in Not-For-Profit Organizations
PART SEVEN Cases in Strategic Management 1-1
GLOSSARY G-1
NAME INDEX I-1
SUBJECT INDEX I-7
ix
This page intentionally left blank
Contents
Preface xxix
PART ONE Introduction to Strategic Management and Business Policy 1
C H A P T E R 1 Basic Concepts of Strategic Management 2 1.1 The Study of Strategic Management 5
Phases of Strategic Management 5
Benefits of Strategic Management 6
1.2 Globalization and Environmental Sustainability: Challenges to Strategic Management 7
Impact of Globalization 8
Impact of Environmental Sustainability 8
Global Issue: REGIONAL TRADE ASSOCIATIONS REPLACE NATIONAL TRADE BARRIERS 9
Environmental Sustainability Issue: PROJECTED EFFECTS OF CLIMATE CHANGE 12
1.3 Theories of Organizational Adaptation 12
1.4 Creating a Learning Organization 13
1.5 Basic Model of Strategic Management 14
Environmental Scanning 16
Strategy Formulation 17
Strategy Highlight 1.1: DO YOU HAVE A GOOD MISSION STATEMENT? 18
Strategy Implementation 21
Evaluation and Control 22
Feedback/Learning Process 23
1.6 Initiation of Strategy: Triggering Events 23
Strategy Highlight 1.2: TRIGGERING EVENT AT UNILEVER 24
1.7 Strategic Decision Making 25
What Makes a Decision Strategic 25
Mintzberg’s Modes of Strategic Decision Making 25
Strategic Decision-Making Process: Aid to Better Decisions 27
1.8 The Strategic Audit: Aid to Strategic Decision-Making 28
1.9 End of Chapter Summary 29
APPENDIX 1.A Strategic Audit of a Corporation 34
xi
C H A P T E R 2 Corporate Governance 42 2.1 Role of the Board of Directors 45
Responsibilities of the Board 45
Members of a Board of Directors 48
Strategy Highlight 2.1: AGENCY THEORY VERSUS STEWARDSHIP THEORY IN CORPORATE GOVERNANCE 50
Nomination and Election of Board Members 53
Organization of the Board 54
Impact of the Sarbanes-Oxley Act on U.S. Corporate Governance 55
Global Issue: CORPORATE GOVERNANCE IMPROVEMENTS THROUGHOUT THE WORLD 56
Trends in Corporate Governance 57
2.2 The Role of Top Management 58
Responsibilities of Top Management 58
Environmental Sustainability Issue: CONFLICT AT THE BODY SHOP 59
2.3 End of Chapter Summary 62
C H A P T E R 3 Social Responsibility and Ethics in Strategic Management 70 3.1 Social Responsibilities of Strategic Decision Makers 72
Responsibilities of a Business Firm 72
Sustainability: More than Environmental? 75
Corporate Stakeholders 75
Environmental Sustainability Issue: THE DOW JONES SUSTAINABILITY INDEX 76
Strategy Highlight 3.1: JOHNSON & JOHNSON CREDO 78
3.2 Ethical Decision Making 79
Some Reasons for Unethical Behavior 79
Strategy Highlight 3.2: UNETHICAL PRACTICES AT ENRON AND WORLDCOM EXPOSED BY “WHISTLE-BLOWERS” 80
Global Issue: HOW RULE-BASED AND RELATIONSHIP-BASED GOVERNANCE SYSTEMS AFFECT ETHICAL BEHAVIOR 81
Encouraging Ethical Behavior 83
3.3 End of Chapter Summary 86
Ending Case for Part One: BLOOD BANANAS 90
PART TWO Scanning the Environment 93
C H A P T E R 4 Environmental Scanning and Industry Analysis 94 4.1 Environmental Scanning 98
Identifying External Environmental Variables 98
Environmental Sustainability Issue: MEASURING AND SHRINKING YOUR PERSONAL CARBON FOOTPRINT 100
xii CONTENTS
Global Issue: IDENTIFYING POTENTIAL MARKETS IN DEVELOPING NATIONS 107
Identifying External Strategic Factors 108
4.2 Industry Analysis: Analyzing the Task Environment 109
Porter’s Approach to Industry Analysis 110
Industry Evolution 114
Categorizing International Industries 114
International Risk Assessment 115
Strategic Groups 115
Strategic Types 117
Hypercompetition 117
Using Key Success Factors to Create an Industry Matrix 118
Strategy Highlight 4.1: MICROSOFT IN A HYPERCOMPETITIVE INDUSTRY 118
4.3 Competitive Intelligence 120
Sources of Competitive Intelligence 121
Strategy Highlight 4.2: EVALUATING COMPETITIVE INTELLIGENCE 122
Monitoring Competitors for Strategic Planning 122
4.4 Forecasting 123
Danger of Assumptions 123
Useful Forecasting Techniques 124
4.5 The Strategic Audit: A Checklist for Environmental Scanning 125
4.6 Synthesis of External Factors—EFAS 126
4.7 End of Chapter Summary 127
APPENDIX 4.A Competitive Analysis Techniques 133
C H A P T E R 5 Internal Scanning: Organizational Analysis 136 5.1 A Resource-Based Approach to Organizational Analysis 138
Core and Distinctive Competencies 138
Using Resources to Gain Competitive Advantage 139
Determining the Sustainability of an Advantage 140
5.2 Business Models 142
5.3 Value-Chain Analysis 143
Strategy Highlight 5.1: A NEW BUSINESS MODEL AT SMARTYPIG 144
Industry Value-Chain Analysis 145
Corporate Value-Chain Analysis 146
5.4 Scanning Functional Resources and Capabilities 147
Basic Organizational Structures 147
Corporate Culture: The Company Way 149
CONTENTS xiii
Global Issue: MANAGING CORPORATE CULTURE FOR GLOBAL COMPETITIVE ADVANTAGE: ABB VERSUS MATSUSHITA 150
Strategic Marketing Issues 151
Strategic Financial Issues 153
Strategic Research and Development (R&D) Issues 154
Strategic Operations Issues 156
Strategic Human Resource (HRM) Issues 158
Environmental Sustainability Issue: USING ENERGY EFFICIENCY FOR COMPETITIVE ADVANTAGE AND QUALITY OF WORK LIFE 161
Strategic Information Systems/Technology Issues 162
5.5 The Strategic Audit: A Checklist for Organizational Analysis 163
5.6 Synthesis of Internal Factors 164
5.7 End of Chapter Summary 165
Ending Case for Part Two: BOEING BETS THE COMPANY 170
PART THREE Strategy Formulation 173
C H A P T E R 6 Strategy Formulation: Situation Analysis and Business Strategy 174 6.1 Situation Analysis: SWOT Analysis 176
Generating a Strategic Factors Analysis Summary (SFAS) Matrix 176
Finding a Propitious Niche 177
Global Issue: SAB DEFENDS ITS PROPITIOUS NICHE 181
6.2 Review of Mission and Objectives 181
6.3 Generating Alternative Strategies by Using a TOWS Matrix 182
6.4 Business Strategies 183
Porter’s Competitive Strategies 183
Environmental Sustainability Issue: PATAGONIA USES SUSTAINABILITY AS DIFFERENTIATION COMPETITIVE STRATEGY 187
Cooperative Strategies 195
6.5 End of Chapter Summary 199
C H A P T E R 7 Strategy Formulation: Corporate Strategy 204 7.1 Corporate Strategy 206
7.2 Directional Strategy 206
Growth Strategies 207
Strategy Highlight 7.1: TRANSACTION COST ECONOMICS ANALYZES VERTICAL GROWTH STRATEGY 210
xiv CONTENTS
Global Issue: COMPANIES LOOK TO INTERNATIONAL MARKETS FOR HORIZONTAL GROWTH 212
Strategy Highlight 7.2: SCREENING CRITERIA FOR CONCENTRIC DIVERSIFICATION 215
Controversies in Directional Growth Strategies 216
Stability Strategies 217
Retrenchment Strategies 218
7.3 Portfolio Analysis 220
BCG Growth-Share Matrix 221
Environmental Sustainability Issue: GENERAL MOTORS AND THE ELECTRIC CAR 222
GE Business Screen 223
Advantages and Limitations of Portfolio Analysis 225
Managing a Strategic Alliance Portfolio 225
7.4 Corporate Parenting 226
Developing a Corporate Parenting Strategy 227
Horizontal Strategy and Multipoint Competition 228
7.5 End of Chapter Summary 229
C H A P T E R 8 Strategy Formulation: Functional Strategy and Strategic Choice 236 8.1 Functional Strategy 238
Marketing Strategy 238
Financial Strategy 239
Research and Development (R&D) Strategy 241
Operations Strategy 242
Global Issue: INTERNATIONAL DIFFERENCES ALTER WHIRLPOOL’S OPERATIONS STRATEGY 243
Purchasing Strategy 244
Environmental Sustainability Issue: OPERATIONS NEED FRESH WATER AND LOTS OF IT! 245
Logistics Strategy 246
Human Resource Management (HRM) Strategy 246
Information Technology Strategy 247
8.2 The Sourcing Decision: Location of Functions 247
8.3 Strategies to Avoid 250
8.4 Strategic Choice: Selecting the Best Strategy 251
Constructing Corporate Scenarios 251
Process of Strategic Choice 257
CONTENTS xv
8.5 Developing Policies 258
8.6 End of Chapter Summary 259
Ending Case for Part Three: KMART AND SEARS: STILL STUCK IN THE MIDDLE? 266
PART FOUR Strategy Implementation and Control 269
C H A P T E R 9 Strategy Implementation: Organizing for Action 270 9.1 Strategy Implementation 272
9.2 Who Implements Strategy? 273
9.3 What Must Be Done? 273
Developing Programs, Budgets, and Procedures 274
Environmental Sustainability Issue: FORD’S SOYBEAN SEAT FOAM PROGRAM 274
Strategy Highlight 9.1: THE TOP TEN EXCUSES FOR BAD SERVICE 277
Achieving Synergy 278
9.4 How Is Strategy to Be Implemented? Organizing for Action 278
Structure Follows Strategy 279
Stages of Corporate Development 280
Organizational Life Cycle 283
Advanced Types of Organizational Structures 285
Reengineering and Strategy Implementation 288
Six Sigma 289
Designing Jobs to Implement Strategy 290
Strategy Highlight 9.2: DESIGNING JOBS WITH THE JOB CHARACTERISTICS MODEL 291
9.5 International Issues in Strategy Implementation 291
International Strategic Alliances 292
Stages of International Development 293
Global Issue: MULTIPLE HEADQUARTERS: A SIXTH STAGE OF INTERNATIONAL DEVELOPMENT? 294
Centralization Versus Decentralization 294
9.6 End of Chapter Summary 296
C H A P T E R 1 0 Strategy Implementation: Staffing and Directing 300 10.1 Staffing 302
Staffing Follows Strategy 303
Selection and Management Development 305
Strategy Highlight 10.1: HOW HEWLETT-PACKARD IDENTIFIES POTENTIAL EXECUTIVES 306
Problems in Retrenchment 308
International Issues in Staffing 309
xvi CONTENTS
10.2 Leading 311
Managing Corporate Culture 311
Environmental Sustainability Issue: ABBOTT LABORATORIES’ NEW PROCEDURES FOR GREENER COMPANY CARS 312
Action Planning 316
Management by Objectives 318
Total Quality Management 318
International Considerations in Leading 319
Global Issue: CULTURAL DIFFERENCES CREATE IMPLEMENTATION PROBLEMS IN MERGER 321
10.3 End of Chapter Summary 322
C H A P T E R 1 1 Evaluation and Control 328 11.1 Evaluation and Control in Strategic Management 330
11.2 Measuring Performance 332
Appropriate Measures 332
Types of Controls 332
Activity-Based Costing 334
Enterprise Risk Management 335
Primary Measures of Corporate Performance 335
Environmental Sustainability Issue: HOW GLOBAL WARMING COULD AFFECT CORPORATE VALUATION 340
Primary Measures of Divisional and Functional Performance 342
International Measurement Issues 344
Global Issue: COUNTERFEIT GOODS AND PIRATED SOFTWARE: A GLOBAL PROBLEM 346
11.3 Strategic Information Systems 347
Enterprise Resource Planning (ERP) 347
Radio Frequency Identification (RFID) 348
Divisional and Functional IS Support 348
11.4 Problems in Measuring Performance 348
Short-Term Orientation 349
Goal Displacement 350
11.5 Guidelines for Proper Control 351
Strategy Highlight 11.1: SOME RULES OF THUMB IN STRATEGY 351
11.6 Strategic Incentive Management 352
11.7 End of Chapter Summary 354
Ending Case for Part Four: HEWLETT-PACKARD BUYS EDS 360
CONTENTS xvii
PART FIVE Introduction to Case Analysis 363
C H A P T E R 1 2 Suggestions for Case Analysis 364 12.1 The Case Method 365
12.2 Researching the Case Situation 366
12.3 Financial Analysis: A Place to Begin 366
Analyzing Financial Statements 369
Environmental Sustainability Issue: IMPACT OF CARBON TRADING 370
Global Issue: FINANCIAL STATEMENTS OF MULTINATIONAL CORPORATIONS: NOT ALWAYS WHAT THEY SEEM 371
Common-Size Statements 371
Z-value and Index of Sustainable Growth 371
Useful Economic Measures 372
12.4 Format for Case Analysis: The Strategic Audit 373
12.5 End of Chapter Summary 375
APPENDIX 12.A Resources for Case Research 377
APPENDIX 12.B Suggested Case Analysis Methodology Using the Strategic Audit 380
APPENDIX 12.C Example of a Student-Written Strategic Audit 383
Ending Case for Part Five: IN THE GARDEN 391
GLOSSARY G-1
NAME INDEX I-1
SUBJECT INDEX I-1
PART SIX WEB CHAPTERS Other Strategic Issues
W E B C H A P T E R A Strategic Issues in Managing Technology and Innovation 1 The Role of Management
Strategy Highlight 1: EXAMPLES OF INNOVATION EMPHASIS IN MISSION STATEMENTS
2 Environmental Scanning
External Scanning
Internal Scanning
3 Strategy Formulation
Product vs. Process R&D
Technology Sourcing
Global Issue: USE OF INTELLECTUAL PROPERTY AT HUAWEI TECHNOLOGIES
Importance of Technological Competence
Categories of Innovation
Product Portfolio
xviii CONTENTS
4 Strategy Implementation
Developing an Innovative Entrepreneurial Culture
Organizing for Innovation: Corporate Entrepreneurship
Strategy Highlight 2: HOW NOT TO DEVELOP AN INNOVATIVE ORGANIZATION
5 Evaluation and Control
Evaluation and Control Techniques
Evaluation and Control Measures
6 End of Chapter Summary
W E B C H A P T E R B Strategic Issues in Entrepreneurial Ventures and Small Businesses 1 Importance of Small Business and Entrepreneurial Ventures
Global Issue: ENTREPRENEURSHIP: SOME COUNTRIES ARE MORE SUPPORTIVE THAN OTHERS
Definition of Small-Business Firms and Entrepreneurial Ventures
The Entrepreneur as Strategist
2 Use of Strategic Planning and Strategic Management
Degree of Formality
Usefulness of the Strategic Management Model
Usefulness of the Strategic Decision-Making Process
3 Issues in Corporate Governance
Boards of Directors and Advisory Boards
Impact of the Sarbanes-Oxley Act
4 Issues in Environmental Scanning and Strategy Formulation
Sources of Innovation
Factors Affecting a New Venture’s Success
Strategy Highlight 1: SUGGESTIONS FOR LOCATING AN OPPORTUNITY AND FORMULATING A BUSINESS STRATEGY
5 Issues in Strategy Implementation
Substages of Small Business Development
Transfer of Power and Wealth in Family Businesses
6 Issues in Evaluation and Control
7 End of Chapter Summary
W E B C H A P T E R C Strategic Issues in Not-for-Profit Organizations 1 Why Not-for-Profit?
Global Issue: WHICH IS BEST FOR SOCIETY: BUSINESS OR NOT-FOR-PROFIT?
CONTENTS xix
2 Importance of Revenue Source
Sources of Not-for-Profit Revenue
Patterns of Influence on Strategic Decision Making
Usefulness of Strategic Management Concepts and Techniques
3 Impact of Constraints on Strategic Management
Impact on Strategy Formulation
Impact on Strategy Implementation
Impact on Evaluation and Control
4 Not-for-Profit Strategies
Strategic Piggybacking
Strategy Highlight 1: RESOURCES NEEDED FOR SUCCESSFUL STRATEGIC PIGGYBACKING
Mergers
Strategic Alliances
5 End of Chapter Summary
PART SEVEN Cases in Strategic Management 1-1
S E C T I O N A Corporate Governance and Social Responsibility: Executive Leadership
CASE 1 The Recalcitrant Director at Byte Products Inc.: Corporate Legality versus Corporate Responsibility 1-7 (Contributors: Dan R. Dalton, Richard A. Cosier, and Cathy A. Enz) A plant location decision forces a confrontation between the board of directors and the CEO regarding an issue in social responsibility and ethics.
CASE 2 The Wallace Group 2-1 (Contributor: Laurence J. Stybel) Managers question the company’s strategic direction and how it is being managed by its founder and CEO. Company growth has resulted not only in disorganization and confusion among employees, but in poor overall performance. How should the board deal with the company’s founder?
S E C T I O N B Business Ethics
CASE 3 Everyone Does It 3-1 (Contributors: Steven M. Cox and Shawana P. Johnson) When Jim Willis, Marketing VP, learns that the launch date for the company’s new satellite will be late by at least a year, he is told by the company’s president to continue using the earlier published date for the launch. When Jim protests that the use of an incorrect date to market contracts is unethical, he is told that spacecraft are never launched on time and that it is common industry practice to list unrealistic launch dates. If a realistic date was used, no one would contract with the company.
xx CONTENTS
CASE 4 The Audit 4-1 (Contributors: John A. Kilpatrick, Gamewell D. Gantt, and George A. Johnson) A questionable accounting practice by the company being audited puts a new CPA in a difficult position. Although the practice is clearly wrong, she is being pressured by her manager to ignore it because it is common in the industry.
S E C T I O N C International Issues in Strategic Management
CASE 5 Starbucks’ Coffee Company: The Indian Dilemma 5-1 (Contributors: Ruchi Mankad and Joel Sarosh Thadamalla) Starbucks is the world’s largest coffee retailer with over 11,000 stores in 36 countries and over 10,000 employees. The case focuses on India as a potential market for the coffee retailer, presenting information on India’s societal environment and beverage industry. Profiles are provided for various existing coffee shop chains in India. The key issue in the case revolves around the question: Are circumstances right for Starbucks to enter India?
CASE 6 Guajilote Cooperativo Forestal: Honduras 6-1 (Contributors: Nathan Nebbe and J. David Hunger) This forestry cooperative has the right to harvest, transport, and sell fallen mahogany trees in La Muralla National Park of Honduras. Although the cooperative has been successful thus far, it is facing some serious issues: low prices for its product, illegal logging, deforestation by poor farmers, and possible world trade restrictions on the sale of mahogany.
S E C T I O N D General Issues in Strategic Management
I N D U S T RY O N E : Information Technology CASE 7 Apple Inc.: Performance in a Zero-Sum World Economy 7-1
(Contributors: Kathryn E. Wheelen, Thomas L. Wheelen II, Richard D. Wheelen, Moustafa H. Abdelsamad, Bernard A. Morin, Lawrence C. Pettit, David B. Croll, and Thomas L. Wheelen) Apple, the first company to mass-market a personal computer, had become a minor player in an industry dominated by Microsoft. After being expelled from the company in 1985, founder Steve Jobs returned as CEO in 1997 to reenergize the firm. The introduction of the iPod in 2001, followed by the iPad, catapulted Apple back into the spotlight. However, in 2011 Jobs was forced to take his third medical leave, leading to questions regarding his ability to lead Apple. How can Apple continue its success? How dependent is the company on Steve Jobs?
CASE 8 iRobot: Finding the Right Market Mix? 8-1 (Contributor: Alan N. Hoffman) Founded in 1990, iRobot was among the first companies to introduce robotic technology into the consumer market. Employing over 500 robotic professionals, the firm planned to lead the robotics industry. Unfortunately, its largest revenue source, home care robots, are a luxury good and vulnerable to recessions. Many of iRobot’s patents are due to expire by 2019. The firm is highly dependent upon suppliers to make its consumer products and the U.S. government for military sales. What is the best strategy for its future success?
CASE 9 Dell Inc.: Changing the Business Model (Mini Case) 9-1 (Contributor: J. David Hunger) Dell, once the largest PC vendor in the world, is now battling with Acer for second place in the global PC market. Its chief advantages—direct marketing and power over suppliers—no longer provided a competitive advantage. The industry’s focus has shifted from desktop PCs to mobile computing, software, and technology services, areas of relative weakness for Dell. Is it time for Dell to change its strategy?
exclusive
new exclusive
new exclusive
new exclusive
CONTENTS xxi
CASE 10 Rosetta Stone Inc.: Changing the Way People Learn Languages 10-1 (Contributors: Christine B. Buenafe and Joyce P. Vincelette) Rosetta Stone’s mission was to change the way people learn languages. The company blended language learning with technology at a time when globalization connected more and more individuals and institutions to each other. How should the company move forward? Would it be appropriate for Rosetta Stone to offer products like audio books or services in order to increase market share? Which international markets could provide the company with a successful future?
CASE 11 Logitech (Mini Case) 11-1 (Contributor: Alan N. Hoffman) Logitech, the world’s leading provider of computer peripherals, was on the forefront of mouse, keyboard, and video conferencing technology. By 2010, however, Logitech’s products were threatened by new technologies, such as touch pads, that could replace both the mouse and keyboard. As the peripherals market begins to disintegrate, Logitech is considering a change in strategy.
I N D U S T RY T W O : INTERNET COMPANIES
CASE 12 Google Inc. (2010): The Future of the Internet Search Engine 12-1 (Contributor: Patricia A. Ryan) Google, an online company that provides a reliable Internet search engine, was founded in 1998 and soon replaced Yahoo as the market leader in Internet search engines. By 2010, Google was one of the strongest brands in the world. Nevertheless, its growth by acquisition strategy was showing signs of weakness. Its 2006 acquisition of YouTube had thus far not generated significant revenue growth. Groupon, a shopping Web site, rebuffed Google’s acquisition attempt in 2010. Is it time for a strategic change?
CASE 13 Reorganizing Yahoo! 13-1 (Contributors: P. Indu and Vivek Gupta) Yahoo! created the first successful Internet search engine, but by 2004 it was losing its identity. Was it a search engine, a portal, or a media company? On December 5, 2006, Yahoo’s CEO announced a reorganization of the company into three groups. It was hoped that a new mission statement and a new structure would make Yahoo leaner and more responsive to customers. Would this be enough to turn around the company?
I N D U S T RY T H R E E : ENTERTAINMENT AND LEISURE
CASE 14 TiVo Inc.: TiVo vs. Cable and Satellite DVR: Can TiVo survive? 14-1 (Contributors: Alan N. Hoffman, Randy Halim, Rangki Son, and Suzanne Wong) TiVo was founded to create a device capable of recording digitized video on a computer hard drive for television viewing. Even though revenues had jumped from $96 million in 2003 to $259 million in 2007, the company had never earned a profit. Despite many alliances, TiVo faced increasing competition from generic DVRs offered by satellite and cable companies. How long can the company continue to sell TiVo DVRs when the competition sells generic DVRs at a lower price or gives them away for free?
CASE 15 Marvel Entertainment Inc. 15-1 (Contributors: Ellie A. Fogarty and Joyce P. Vincelette) Marvel Entertainment was known for its comic book characters Captain America, Spider Man, the Fantastic Four, the Incredible Hulk, the Avengers, and the X-Men. With its 2008 self-produced films, Iron Man and The Incredible Hulk, Marvel had expanded out of comic books to become a leader in the entertainment industry. The company was no longer competing against other comic book publishers like DC Comics, but was now competing against entertainment giants like Walt Disney and NBC Universal. What should Marvel’s management do to ensure the company’s future success?
new exclusive
new exclusive
new exclusive
exclusive
xxii CONTENTS
CASE 16 Carnival Corporation and plc (2010) 16-1 (Contributors: Michael J. Keeffe, John K. Ross III, Sherry K. Ross, Bill J. Middlebrook, and Thomas L. Wheelen) With its “fun ship,” Carnival Cruises changed the way people think of ocean cruises. The cruise became more important than the destination. Through acquisition, Carnival expanded its product line to encompass an entire range of industry offerings. How can Carnival continue to grow in the industry it now dominates?
I N D U S T RY F O U R : TRANSPORTATION
CASE 17 Chrysler in Trouble 17-1 (Contributors: Barnali Chakraborty and Vivek Gupta) On April 30, 2009, Chrysler Motors, the third-largest auto manufacturer in the United States, filed for bankruptcy protection along with its 24 wholly owned U.S. subsidiaries. As a condition of the U.S. federal government’s loan of more than $8 billion, Fiat was given 20% of the new Chrysler Corporation with the option of increasing its stake to 51% by 2016 after the new company had repaid the federal government’s loan. What does Chrysler need to do to ensure the success of its partnership with Fiat?
CASE 18 Tesla Motors Inc. (Mini Case) 18-1 (Contributor: J. David Hunger) Tesla Motors was founded in 2004 to produce electric automobiles. Its first car, the Tesla Roadster, sold for $101,000. It could accelerate from zero to 60 mph in 3.9 seconds and cruise for 236 miles on a single charge. In contrast to existing automakers, Tesla sold and serviced its cars through the Internet and its own Tesla stores. With the goal of building a full line of electric vehicles, Tesla Motors faced increasing competition from established automakers. How could Tesla Motors succeed in an industry dominated by giant global competitors?
CASE 19 Harley-Davidson Inc. 2008: Thriving through a Recession 19-1 (Contributors: Patricia A. Ryan and Thomas Wheelen) Harley-Davidson 2008: Thriving Through Recession is a modern success story of a motorcycle company that turned itself around by emphasizing quality manufacturing and image marketing. After consistently growing through the 1990s, sales were showing signs of slowing as the baby boomers continued to age. Safety was also becoming an issue. For the first time in recent history, sales and profits declined in 2007 from 2006. Analysts wondered how the company would be affected in a recession. How does Harley-Davidson continue to grow at its past rate?
CASE 20 JetBlue Airways: Growing Pains? 20-1 (Contributors: Shirisha Regani and S. S. George) JetBlue Airways had been founded as a “value player” in the niche between full service airlines and low-cost carriers. Competition had recently intensified and several airlines were taking advantage of bankruptcy protection to recapture market share through price cuts. JetBlue’s operating costs were rising as a result of increasing fuel costs, aircraft maintenance expenses, and service costs. Has JetBlue been growing too fast and was growth no longer sustainable?
CASE 21 TomTom: New Competition Everywhere! 21-1 (Contributor: Alan N. Hoffman) TomTom, an Amsterdam-based company that provided navigation services and devices, led the navigation systems market in Europe and was second in popularity in the United States. However, the company was facing increasing competition from other platforms using GPS technology like cell phones and Smartphones with a built-in navigation function. As its primary markets in the United States and Europe mature, how can the company ensure its future growth and success?
new exclusive
exclusive
new
new exclusive
CONTENTS xxiii
new exclusive
I N D U S T RY F I V E : CLOTHING
CASE 22 Volcom Inc.: Riding the Wave 22-1 (Contributors: Christine B. Buenafe and Joyce P. Vincelette) Volcom was formed south of Los Angeles in 1991 as a clothing company rooted in the action sports of skateboarding, surfing, and snowboarding. By 2008, Volcom-branded products were sold throughout the United States and in over 40 countries. It did not own any manufacturing facilities, but instead worked with foreign contract manufacturers. As a primary competitor in the boardsports community, Volcom was committed to maintaining its brand, position, and lifestyle and needed to reassess its strategy.
CASE 23 TOMS Shoes (Mini Case) 23-1 (Contributor: J. David Hunger) Founded in 2006 by Blake Mycoskie, TOMS Shoes is an American footwear company based in Santa Monica, California. Although TOMS Shoes is a for-profit business, its mission is more like that of a not-for-profit organization. The firm’s reason for existence is to donate to children in need one new pair of shoes for every pair of shoes sold. By 2010, the company had sold over one million pairs of shoes. How should the company plan its future growth?
I N D U S T RY S I X : SPECIALTY RETAILING
CASE 24 Best Buy Co. Inc.: Sustainable Customer Centricity Model? 24-1 (Contributor: Alan N. Hoffman) Best Buy, the largest consumer electronics retailer in the United States, operates 4,000 stores in North America, China, and Turkey. Best Buy distinguishes itself from competitors by deploying a differentiation strategy based on superior service rather than low price. The recent recession has stressed its finances and the quality of its customer service. How can Best Buy continue to have innovative products, top-notch employees, and superior customer service while facing increased competition, operational costs, and financial stress?
CASE 25 The Future of Gap Inc. 25-1 (Contributor: Mridu Verma) Gap Inc. offered clothing, accessories, and personal care products under the Gap, Banana Republic, and Old Navy brands. After a new CEO introduced a turnaround strategy, sales increased briefly, then fell. Tired of declining sales, the board of directors hired Goldman Sachs to explore strategies to improve, ranging from the sale of its stores to spinning off a single division.
CASE 26 Rocky Mountain Chocolate Factory Inc. (2008) 26-1 (Contributors: Annie Phan and Joyce P. Vincelette) Rocky Mountain Chocolate Factory had five company-owned and 329 franchised stores in 38 states, Canada, and the United Arab Emirates. Even though revenues and net income had increased from 2005 through 2008, they had been increasing at a decreasing rate. Candy purchased from the factory by the stores had actually dropped 9% in 2008 from 2007. Was the bloom off the rose at Rocky Mountain Chocolate?
CASE 27 Dollar General Corporation (Mini Case) 27-1 (Contributor: Kathryn E. Wheelen) With annual revenues of $12.7 billion and 9,200 stores in 35 states, Dollar General is the largest of the discount “dollar stores” in the United States. Although far smaller than its “big brothers” Wal-Mart and Target, Dollar General has done very well during the recent economic recession. In 2011, it plans to open 625 new stores in three new states. Given that the company has substantial long-term debt, is this the right time to expand the company’s operations?
new exclusive
new exclusive
exclusive
new exclusive
xxiv CONTENTS
new exclusive
I N D U S T RY S E V E N : MANUFACTURING
CASE 28 Inner-City Paint Corporation (Revised) 28-1 (Contributors: Donald F. Kuratko and Norman J. Gierlasinski) Inner-City Paint makes paint for sale to contractors in the Chicago area. However, the founder’s lack of management knowledge is creating difficulties for the firm, and the company is in financial difficulty. Unless something is done soon, it may go out of business.
CASE 29 The Carey Plant 29-1 (Contributors: Thomas L. Wheelen and J. David Hunger) The Carey Plant was a profitable manufacturer of quality machine parts until it was acquired by the Gardner Company. Since its acquisition, the plant has been plagued by labor problems, increasing costs, leveling sales, and decreasing profits. Gardner Company’s top management is attempting to improve the plant’s performance and better integrate its activities with those of the corporation by selecting a new person to manage the plant.
I N D U S T RY E I G H T: FOOD AND BEVERAGE
CASE 30 The Boston Beer Company: Brewers of Samuel Adams Boston Lager (Mini Case) 30-1 (Contributor: Alan N. Hoffman) The Boston Beer Company was founded in 1984 by Jim Koch, viewed as the pioneer of the American craft beer revolution. Brewing over 1 million barrels of 25 different styles of beer, Boston Beer is the sixth-largest brewer in the United States. Even though overall domestic beer sales declined 1.2% in 2010, sales of craft beer have increased 20% since 2002, with Boston Beer’s increasing 22% from 2007 to 2009. How can the company continue its rapid growth in a mature industry?
CASE 31 Wal-Mart and Vlasic Pickles 31-1 (Contributor: Karen A. Berger) A manager of Vlasic Foods International closed a deal with Wal-Mart that resulted in selling more pickles than Vlasic had ever sold to any one account. The expected profit of one to two cents per jar was not sustainable, however, due to unplanned expenses. Vlasic’s net income plummeted and the company faced bankruptcy. Given that Wal-Mart was Vlasic’s largest customer, what action should management take?
CASE 32 Panera Bread Company (2010): Still Rising Fortunes? 32-1 (Contributors: Joyce Vincelette and Ellie A. Fogarty) Panera Bread is a successful bakery-café known for its quality soups and sandwiches. Even though Panera’s revenues and net earnings have been rising rapidly, new unit expansion throughout North America has fueled this growth. Will revenue growth stop once expansion slows? The retirement of CEO Ronald Shaich, the master baker who created the “starter” for the company’s phenomenal growth, is an opportunity to rethink Panera’s growth strategy.
CASE 33 Whole Foods Market (2010): How to Grow in an Increasingly Competitive Market? (Mini Case) 33-1 (Contributors: Patricia Harasta and Alan N. Hoffman) Whole Foods Market is the world’s leading retailer of natural and organic foods. The company differentiates itself from competitors by focusing on innovation, quality, and service excellence, allowing it to charge premium prices. Although the company dominates the natural/organic foods category in North America, it is facing increasing competition from larger food retailers, such as Wal- Mart, who are adding natural/organic foods to their offerings.
exclusive
new exclusive
new exclusive
new exclusive
CONTENTS xxv
CASE 34 Burger King (Mini Case) 34-1 (Contributor: J. David Hunger) Founded in Florida in 1953, Burger King has always trailed behind McDonald’s as the second-largest fast-food hamburger chain in the world. Although its total revenues dropped only slightly from 2009, its 2010 profits dropped significantly, due to high expenses. Burger King’s purchase by an investment group in 2010 was an opportunity to rethink the firm’s strategy.
CASE 35 Church & Dwight: Time to Rethink the Portfolio? 35-1 (Contributor: Roy A. Cook) Church & Dwight, the maker of ARM & HAMMER Baking Soda, has used brand extension to successfully market multiple consumer products based on sodium bicarbonate. Searching for a new growth strategy, the firm turned to acquisitions. Can management successfully achieve a balancing act based on finding growth through expanded uses of sodium bicarbonate while assimilating a divergent group of consumer products into an expanding international footprint?
S E C T I O N E Web Mini Cases Additional Mini Cases Available on the Companion Web Site at www.pearsonhighered.com/wheelen.
W E B C A S E 1 Eli Lily & Company (Contributor: Maryanne M. Rouse) A leading pharmaceutical company, Eli Lilly produces a wide variety of ethical drugs and animal health products. Despite an array of new products, the company’s profits declined after the firm lost patent protection for Prozac. In addition, the FDA found quality problems at several of the company’s manufacturing sites, resulting in a delay of new product approvals. How should Lily position itself in a very complex industry?
W E B C A S E 2 Tech Data Corporation (Contributor: Maryanne M. Rouse) Tech Data, a distributor of information technology and logistics management, has rapidly grown through acquisition to become the second-largest global IT distributor. Sales and profits have been declining, however, since 2001. As computers become more like a commodity, the increasing emphasis on direct distribution by manufacturers threaten wholesale distributors like Tech Data.
W E B C A S E 3 Stryker Corporation (Contributor: Maryanne M. Rouse) Stryker is a leading maker of specialty medical and surgical products, a market expected to show strong sales growth. Stryker markets its products directly to hospitals and physicians in the United States and 100 other countries. Given the decline in the number of hospitals due to consolidation and cost containment efforts by government programs and health care insurers, the industry expects continued downward pressure on prices. How can Stryker effectively deal with these developments?
W E B C A S E 4 Sykes Enterprises (Contributor: Maryanne M. Rouse) Sykes provides outsourced customer relationship management services worldwide in a highly competitive, fragmented industry. Like its customers, Sykes has recently been closing its call centers in America and moving to Asia in order to reduce costs. Small towns felt betrayed by the firm’s decision to leave—especially after providing financial incentives to attract the firm. Nevertheless, declining revenue and net income has caused the company’s stock to drop to an all-time low.
xxvi CONTENTS
new exclusive
new
www.pearsonhighered.com/wheelen
W E B C A S E 5 Pfizer Inc. (Contributor: Maryanne M. Rouse) With its acquisition in 2000 of rival pharmaceutical firm Warner-Lambert for its Lipitor prescription drug, Pfizer has become the world’s largest ethical pharmaceutical company in terms of sales. Already the leading company in the United States, Pfizer’s purchase of Pharmacia in 2002 moved Pfizer from fourth to first place in Europe. Will large size hurt or help the company’s future growth and profitability in an industry facing increasing scrutiny?
W E B C A S E 6 Williams-Sonoma (Contributor: Maryanne M. Rouse) Williams-Sonoma is a specialty retailer of home products. Following a related diversification growth strategy, the company operates 415 Williams-Sonoma, Pottery Barn, and Hold Everything retail stores throughout North America. Its direct sales segment includes six retail catalogues and three e-commerce sites. The company must deal with increasing competition in this fragmented industry characterized by low entry barriers.
W E B C A S E 7 Tyson Foods Inc. (Contributor: Maryanne M. Rouse) Tyson produces and distributes beef, chicken, and pork products in the United States. It acquired IBP, a major competitor, but has been the subject of lawsuits by its employees and the EPA. How should management deal with its poor public relations and position the company to gain and sustain competitive advantage in an industry characterized by increasing consolidation and intense competition?
W E B C A S E 8 Southwest Airlines Company (Contributor: Maryanne M. Rouse) The fourth-largest U.S. airline in terms of passengers carried and second-largest in scheduled domestic departures, Southwest was the only domestic airline to remain profitable in 2001. Emphasizing high- frequency, short-haul, point-to-point, and low-fare service, the airline has the lowest cost per available seat mile flown of any U.S. major passenger carrier. Can Southwest continue to be successful as competitors increasingly imitate its competitive strategy?
W E B C A S E 9 Outback Steakhouse Inc. (Contributor: Maryanne M. Rouse) With 1,185 restaurants in 50 states and 21 foreign countries, Outback (OSI) is one of the largest casual dining restaurant companies in the world. In addition to Outback Steakhouse, the company is composed of Carrabba’s Italian Grill, Fleming’s Prime Steakhouse & Wine Bar, Bonefish Grill, Roy’s, Lee Roy Selmon’s, Cheeseburger in Paradise, and Paul Lee’s Kitchen. Analysts wonder how long OSI can continue to grow by adding new types of restaurants to its portfolio.
W E B C A S E 10 Intel Corporation (Contributor: J. David Hunger) Although more than 80% of the world’s personal computers and servers use its microprocessors, Intel is facing strong competition from AMD in a maturing market. Sales growth is slowing. Profits are expected to rise only 5% in 2006 compared to 40% annual growth previously. The new CEO decides to reinvent Intel to avoid a fate of eventual decline.
W E B C A S E 11 AirTran Holdings Inc. (Contributor: Maryanne M. Rouse) AirTran (known as ValuJet before a disastrous crash in the Everglades) is the second-largest low- fare scheduled airline (after Southwest) in the United States in terms of departures and, along with Southwest, the only U.S. airline to post a profit in 2004. The company’s labor costs as a percentage of sales are the lowest in the industry. Will AirTran continue to be successful in this highly competitive industry?
CONTENTS xxvii
W E B C A S E 12 Boise Cascade/Office Max (Contributor: Maryanne M. Rouse) Boise Cascade, an integrated manufacturer and distributor of paper, packaging, and wood products, purchased OfficeMax, the third-largest office supplies catalogue retailer (after Staples and Office Depot), in 2003. Soon thereafter, Boise announced that it was selling its land, plants, headquarters location, and even its name to an equity investment firm. Upon completion of the sale in 2004, the company assumed the name of OfficeMax. Can this manufacturer become a successful retailer?
W E B C A S E 13 H. J. Heinz Company (Contributor: Maryanne M. Rouse) Heinz, a manufacturer and marketer of processed food products, pursued global growth via market penetration and acquisitions. Unfortunately, its modest sales growth was primarily from its acquisitions. Now that the firm has divested a number of lines of businesses and brands to Del Monte Foods, analysts wonder how a 20% smaller Heinz will grow its sales and profits in this very competitive industry.
W E B C A S E 14 Nike Inc. (Contributor: Maryanne M. Rouse) Nike is the largest maker of athletic footwear and apparel in the world with a U.S. market share exceeding 40%. Since almost all its products are manufactured by 700 independent contractors (99% of which are in Southeast Asia), Nike is a target of activists opposing manufacturing practices in developing nations. Although industry sales growth in athletic footwear is slowing, Nike refused to change its product mix in 2002 to suit Foot Locker, the dominant global footwear retailer. Is it time for Nike to change its strategy and practices?
W E B C A S E 15 Six Flags Inc.: The 2006 Business Turnaround (Contributor: Patricia A. Ryan) Known for its fast roller coasters and adventure rides, Six Flags has successfully built a group of regional theme and water parks in the United States. Nevertheless, the company has not turned a profit since 1998. Long-term debt had increased to 61% of total assets by 2005. New management is implementing a retrenchment strategy, but industry analysts are unsure if this will be enough to save the company.
W E B C A S E 16 Lowe’s Companies Inc. (Contributor: Maryanne M. Rouse) As the second-largest U.S. “big box” home improvement retailer (behind Home Depot), Lowe’s competes in a highly fragmented industry. The company has grown with the increase in home ownership and has no plans to expand internationally. With more than 1,000 stores in 2004, Lowe’s intended to increase its U.S. presence with 150 store openings per year in 2005 and 2006. Are there limits to Lowe’s current growth strategy?
W E B C A S E 17 Movie Gallery Inc. (Contributor: J. David Hunger) Movie Gallery is the second-largest North American video retail rental company, specializing in the rental and sale of movies and video games through its Movie Gallery and Hollywood Entertainment stores. Growing through acquisitions, the company is heavily in debt. The recent rise of online video rental services, such as Netflix, is cutting into retail store revenues and reducing the company’s cash flow. With just $135 million in cash at the end of 2005, Movie Gallery’s management finds itself facing possible bankruptcy.
xxviii CONTENTS
Preface
Welcome to the 13th edition of Strategic Management and Business Policy! Although the chapters are the same as those in the 12th edition, many of the cases are new and different. We completely revised seven of your favorite cases (Apple, Dell, Google, Carnival, Panera Bread, Whole Foods, and Church & Dwight) and added 12 brand-new ones (iRobot, Rosetta Stone, Logitech, Chrysler, Tesla Motors, TomTom, Volcom, TOMS Shoes, Best Buy, Dollar General, Boston Beer, and Burger King) for a total of 19 new cases! More than half of the cases in this book are new to this edition! Although we still make a distinction between full-length and mini cases, we have interwoven them throughout the book to better identify them with their industries.
This edition continues the theme that runs throughout all 12 chapters: global environmental sustainability. This strategic issue will become even more important in the years ahead, as all of us struggle to deal with the consequences of climate change, global warming, and energy availability. We continue to be the most comprehensive strategy book on the market, with chapters ranging from corporate governance and social responsibility to competitive strategy, functional strategy, and strategic alliances. To keep the size of the book manageable, we offer special issue chapters dealing with technology, entrepreneurship, and not-for-profit organiza- tions on the Web site (www.pearsonhighered.com/wheelen).
FEATURES NEW TO THIS 13th EDITION Nineteen New Cases: Both Full Length and Mini Length Eleven full-length new or updated comprehensive cases and eight mini-length cases have been added to support the 16 popular full-length cases carried forward from past editions. Twelve of the cases are brand new. Seven are updated favorites from past editions. Of the 35 cases appearing in this book, 22 are exclusive and do not appear in other books.
� Five of the new cases deal with technology issues (Apple, iRobot, Dell, Rosetta Stone, and Logitech).
� One of the new cases deals with the Internet (Google). � One new case involves entertainment (Carnival). � Three new cases are of old and new transportation firms (Chrysler, TomTom, and Tesla
Motors). � Two new cases are of entrepreneurial clothing companies (Volcom and TOMS Shoes). � Two new specialty retailing cases spotlight electronics (Best Buy) and variety (Dollar
General). � Five new cases come from the food, beverage, and restaurant industries (Boston Beer,
Panera Bread, Whole Foods Market, Burger King, and Church & Dwight).
HOW THIS BOOK IS DIFFERENT FROM OTHER STRATEGY TEXTBOOKS This book contains a Strategic Management Model that runs through the first 11 chapters and is made operational through the Strategic Audit, a complete case analysis methodology. The Strategic Audit provides a professional framework for case analysis in terms of external
xxix
www.pearsonhighered.com/wheelen
and internal factors and takes the student through the generation of strategic alternatives and implementation programs.
To help the student synthesize the many factors in a complex strategy case, we developed three useful techniques:
� External Factor Analysis (EFAS) Table in Chapter 4 This reduces the external Opportunities and Threats to the 8 to 10 most important exter- nal factors facing management.
� Internal Factor Analysis (IFAS) Table in Chapter 5 This reduces the internal Strengths and Weaknesses to the 8 to 10 most important internal factors facing management.
� Strategic Factor Analysis Summary (SFAS) Matrix in Chapter 6 This condenses the 16 to 20 factors generated in the EFAS and IFAS Tables into the 8 to 10 most important (strategic) factors facing the company. These strategic factors become the basis for generating alternatives and a recommendation for the company’s future direction.
Suggestions for Case Analysis are provided in Appendix 12.B (end of Chapter 12) and contain step-by-step procedures for how to use the Strategic Audit in analyzing a case. This appendix includes an example of a student-written Strategic Audit. Thousands of students around the world have applied this methodology to case analysis with great success. The Case Instructor’s Manual contains examples of student-written Strategic Audits for each of the full-length comprehensive strategy cases.
FEATURES FOCUSED ON ENVIRONMENTAL SUSTAINABILITY � Each chapter contains a boxed insert dealing with an issue in environmental sustainability.
� Each chapter ends with Eco Bits, interesting tidbits of ecological information, such as the number of plastic bags added to landfills each year.
� Special sections on sustainability are found in Chapters 1 and 3.
� A section on the natural environment is included in the societal and task environments in Chapter 4.
TIME-TESTED FEATURES This edition contains many of the same features and content that helped make previous editions success- ful. Some of the features are the following:
xxx PREFACE
� A Strategic Management Model runs through- out the first 11 chapters as a unifying concept. (Explained in Chapter 1)
� The Strategic Audit, a way to operationalize the strategic decision- making process, serves as a checklist in case analysis. (Chapter 1)
� Corporate governance is examined in terms of the roles, re- sponsibilities, and interactions of top management and the board of directors and includes the impact of the Sarbanes-Oxley Act. (Chapter 2)
� Social responsibility and managerial ethics are examined in detail in terms of how they affect strategic decision making. They include the process of stakeholder analysis and the concept of social capital. (Chapter 3)
� Equal emphasis is placed on environmental scan- ning of the societal environment as well as on the task environment. Topics include forecasting and Miles and Snow’s typology in addition to compet- itive intelligence techniques and Porter’s industry analysis. (Chapter 4)
Discretionary
Ethical
LegalEconomic
Social Responsibilities
FIGURE 3–1 Responsibilities
of Business
SOURCE: Based on A. B. Carroll, “A Three Dimensional Conceptual Model of Corporate Performance,” Academy of Management Review (October 1979), pp. 497–505; A. B. Carroll, “Managing Ethically with Global Stakeholders: A Present and Future Challenge,” Academy of Management Executive (May 2004), pp. 114–120; and A. B. Carroll, “The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders,” Business Horizons (July–August 1991), pp. 39–48.
� Core and distinctive competencies are examined within the framework of the resource- based view of the firm. (Chapter 5)
� Organizational analysis includes material on business models, supply chain management, and corporate reputation. (Chapter 5)
� Internal and external strategic factors are emphasized through the use of specially designed EFAS, IFAS, and SFAS tables. (Chapters 4, 5, and 6)
� Functional strategies are examined in light of outsourcing. (Chapter 8)
PREFACE xxxi
� Two chapters deal with issues in strategy implementation, such as organizational and job design plus strategy-manager fit, action planning, corporate culture, and international strate- gic alliances. (Chapters 9 and 10)
� A separate chapter on evaluation and control explains the importance of measurement and incentives to organizational performance. (Chapter 11)
� Suggestions for in-depth case analysis pro- vide a complete listing of financial ratios, rec- ommendations for oral and written analysis, and ideas for further research. (Chapter 12)
xxxii PREFACE
� The Strategic Audit Worksheet is based on the time-tested Strategic Audit and is designed to help students organize and structure daily case preparation in a brief period of time. The worksheet works exceedingly well for checking the level of daily student case preparation—especially for open class dis- cussions of cases. (Chapter 12)
� Special chapters deal with strategic issues in managing technology and innovation, entrepreneurial ventures and small businesses, and not-for-profit organizations. (Web Chapters A, B, and C, respectively) These issues are often ignored by other strategy textbooks, but are available on this book’s Web site at www.pearsonhighered.com/wheelen.
� An experiential exercise focusing on the material covered in each chapter helps the reader to apply strategic concepts to an actual situation.
� A list of key terms and the pages in which they are discussed enable the reader to keep track of important concepts as they are introduced in each chapter.
� Learning objectives begin each chapter. � Each Part ends with a short case that acts to integrate the material discussed within
the previous chapters. � Timely, well-researched, and class-tested cases deal with interesting companies and
industries. Many of the cases are about well-known, publicly held corporations—ideal subjects for further research by students wishing to “update” the cases.
Both the text and the cases have been class-tested in strategy courses and revised based on feedback from students and instructors. The first 11 chapters are organized around a Strategic Management Model that begins each chapter and provides a structure for both content and case analysis. We emphasize those concepts that have proven to be most useful in under- standing strategic decision making and in conducting case analysis. Our goal was to make the text as comprehensive as possible without getting bogged down in any one area. Endnote references are provided for those who wish to learn more about any particular topic. All cases are about actual organizations. The firms range in size from large, established multinationals to small, entrepreneurial ventures, and cover a broad variety of issues. As an aid to case analysis, we propose the Strategic Audit as an analytical technique.
PREFACE xxxiii
www.pearsonhighered.com/wheelen
SUPPLEMENTS Instructor Resource Center At www.pearsonhighered.com/irc, instructors can access teaching resources available with this text in downloadable, digital format. Registration is simple and gives you immediate ac- cess to new titles and new editions. As a registered faculty member, you can download re- source files and receive immediate access and instructions for installing course management content on your campus server. In case you ever need assistance, our dedicated technical sup- port team is ready to assist instructors with questions about the media supplements that ac- company this text. Visit http://247.pearsoned.com/ for answers to frequently asked questions and toll-free user support phone numbers. The Instructor Resource Center provides the fol- lowing electronic resources.
Instructor’s Manuals Two comprehensive Instructor’s Manuals have been carefully constructed to accompany this book. The first one accompanies the concepts chapters; the second one accompanies the cases.
Concepts Instructor’s Manual To aid in discussing the 12 strategy chapters as well as the three web special issue chapters, the Concepts Instructor’s Manual includes:
� Suggestions for Teaching Strategic Management: These include various teaching methods and suggested course syllabi.
� Chapter Notes: These include summaries of each chapter, suggested answers to discus- sion questions, and suggestions for using end-of-chapter cases/exercises and part-ending cases, plus additional discussion questions (with answers) and lecture modules.
Case Instructor’s Manual To aid in case method teaching, the Case Instructor’s Manual includes detailed suggestions for use, teaching objectives, and examples of student analyses for each of the full-length com- prehensive cases. This is the most comprehensive Instructor’s Manual available in strategic management. A standardized format is provided for each case:
1. Case Abstract
2. Case Issues and Subjects
3. Steps Covered in the Strategic Decision-Making Process
4. Case Objectives
5. Suggested Classroom Approaches
6. Discussion Questions
7. Case Author’s Teaching Note
8. Student-Written Strategic Audit, if appropriate
9. EFAS, IFAS, and SFAS Exhibits
10. Financial Analysis—ratios and common-size income statements, if appropriate
PowerPoint Slides PowerPoint slides, provided in a comprehensive package of text outlines and figures corre- sponding to the text, are designed to aid the educator and supplement in-class lectures.
xxxiv PREFACE
www.pearsonhighered.com/irc
http://247.pearsoned.com/
Test Item File This Test Item File contains over 1,200 questions, including multiple-choice, true/false, and essay questions. Each question is followed by the correct answer, page reference, AACSB category, and difficulty rating.
TestGen TestGen software is preloaded with all of the Test Item File questions. It allows instructors to manually or randomly view test questions, and to add, delete, or modify test-bank questions as needed to create multiple tests.
Videos on DVD Exciting and high-quality video clips help deliver engaging topics to the classroom to help students better understand the concepts explained in the textbook. Please contact your local representative to receive a copy of the DVD.
CourseSmart CourseSmart eTextbooks were developed for students looking to save on required or recom- mended textbooks. Students simply select their eText by title or author and purchase immedi- ate access to the content for the duration of the course using any major credit card. With a CourseSmart eText, students can search for specific keywords or page numbers, take notes online, print out reading assignments that incorporate lecture notes, and bookmark important passages for later review. For more information or to purchase a CourseSmart eTextbook, visit www.coursesmart.com.
Acknowledgments We thank the many people at Prentice Hall/Pearson who helped to make this edition possi- ble. We thank our editor, Kim Norbuta. We are especially grateful to Kim’s project manager, Claudia Fernandes, who managed to keep everything on an even keel. We also thank Becca Groves and Emily Bush, who took the book through the production process.
We are very thankful to Jeanne McNett, Assumption College; Bob McNeal, Alabama State University; Don Wicker, Brazosport College; Dan Kipley, Azusa Pacific University; Roxanna Wright, Plymouth State University; Kristl Davison, University of Mississippi; Francis Fabian, University of Memphis; Susan Fox-Wolfgramm, Hawaii Pacific University; Conrad Francis, Nova Southeastern University; and Gene Simko, Monmouth University for their constructive criticism of the 12th edition cases. They helped us to decide which of our favorite cases to keep and which to delete or update.
We are very grateful to Kathy Wheelen for her first-rate administrative support of the cases and to Alan N. Hoffman for helping us with the Case Instructor’s Manual. We are especially thankful to the many students who tried out the cases we chose to include in this book. Their comments helped us find any flaws in the cases before the book went to the printer.
In addition, we express our appreciation to Wendy Klepetar, Management Department Chair of Saint John’s University and the College of Saint Benedict, for her support and provision of the resources so helpful to revise a textbook. Both of us acknowledge our debt to