Strategic management text and cases 7th edition pdf

Gregory G. Dess University of Texas at Dallas

G. T. Lumpkin Syracuse University

Alan B. Eisner Pace University

Gerry McNamara Michigan State University

SEVENTH EDITION

strategic management

text and cases

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STRATEGIC MANAGEMENT: TEXT AND CASES, SEVENTH EDITION Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2014 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2012, 2010, and 2008. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.

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

This book is printed on acid-free paper.

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ISBN 978-0-07-786252-7 MHID 0-07-786252-X

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Library of Congress Cataloging-in-Publication Data

Dess, Gregory G. Strategic management : text and cases / Gregory G. Dess, G.T. Lumpkin, Alan B. Eisner, Gerry McNamara.—Seventh edition. pages cm Includes bibliographical references and index. ISBN 978-0-07-786252-7 (alk. paper)—ISBN 0-07-786252-X (alk. paper) 1. Strategic planning. I. Lumpkin, G. T. II. Eisner, Alan B. III. Title. HD30.28.D4743 2014 658.4’012—dc23 2013029306

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

www.mhhe.com

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To my family, Margie and Taylor; my parents, Bill and Mary Dess; and Walter Descovich

–Greg

To my lovely wife, Vicki, and my students and colleagues

–Tom

To my family, Helaine, Rachel, and Jacob

–Alan

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

–Gerry

DEDICATION

dedication

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

G. T. (Tom) Lumpkin is the Chris J. Witting Chair and Professor of Entrepreneurship at Syracuse University in New York. Prior to joining the faculty at Syracuse, Tom was the Kent Hance Regents Endowed Chair and Professor of Entrepreneurship at Texas Tech University. His research interests include entrepreneurial orientation, opportunity recognition, strategy-making processes, social entrepreneurship, and innovative forms of organizing work. He has published numerous research articles in journals such as Strategic Management Journal, Academy of Management Journal, Academy of Management Review, Journal of Business Venturing, and Entrepreneurship: Theory and Practice. He is a member of the editorial review boards of Strategic Entrepreneurship Journal, Entrepreneurship Theory & Practice, and the Journal of Business Venturing. He received his PhD in management from the University of Texas at Arlington and MBA from the University of Southern California.

ABOUT THE AUTHORS

about the authors

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

Gerry McNamara is a Professor of Management at Michigan State University. He received his PhD from the Carlson School of Management at the University of Minnesota. His research focuses on strategic decision making, organizational risk taking, and mergers and acquisitions. His research has been published in numerous journals, including the Academy of Management Journal, Strategic Management Journal, Organization Science, Organizational Behavior and Human Decision Processes, Journal of Management, and Journal of International Business Studies. His research on mergers and acquisitions has been abstracted in the New York Times, Bloomberg Businessweek, The Economist, and Financial Week. He is currently an Associate Editor for the Academy of Management Journal.

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PREFACE

preface

Welcome to the Seventh Edition of Strategic Management: Text and Cases! We are all very pleased with the positive market response to our previous edition. Below is some of the encouraging feedback we have received from our reviewers:

The text is thorough and all-inclusive. I don’t need to refer to another book as a back-up. It addresses all aspects of strategic management from the initial inspiration of a vision to the nuts and bolts of putting the plan to work. It is well structured; it is clear how each chapter not only builds on the previous ones, but also how analysis, formulation, and implementation are interrelated.

Lois Shelton, California State University, Northridge

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

William Sannwald, San Diego State University

It is very easy for students to read because it presents strategy concepts in a simple but comprehensive manner. It covers important developments in the strategic management field that are usually ignored by other textbooks (e.g., concepts like social networks and social capital, the balanced scorecard, and new forms of organizational structure).

Moses Acquaah, University of North Carolina at Greensboro

Content is current and easy for students to grasp; good graphs and charts to illustrate important points in the chapter. Book is well organized around the AFI framework.

Lise Anne D. Slatten, University of Louisiana at Lafayette

It is the best written textbook for the undergraduate course that I have come across. Application materials tie concepts to real-world practice.

Justin L. Davis, University of West Florida

The Dess text takes a practical/easy approach to explain very difficult subject matter. It integrates a number of real-life scenarios to aid the student in their comprehension of key concepts. The standout of the text is the Reflecting on Career Implications. These end-of-chapter questions aid the student in applying their learning to their workplace in a manner that promotes career success.

Amy Patrick, Wilmington University

The Dess book overcomes many of the limitations of the last book I used in many ways: (a) presents content in a very interesting and engrossing manner without compromising the depth and comprehensiveness, (b) inclusion of timely and interesting illustrative examples, (c) includes an excellent array of long, medium, and short cases that can be used to balance depth and variety, and (d) EOC exercises do an excellent job of complementing the chapter content.

Sucheta Nadkami, Drexel University

We are always striving to improve our work, and we are most appreciative of the extensive and constructive feedback that many strategy professionals have graciously given us. As always,

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we have worked hard to incorporate their ideas into the Seventh Edition—and we acknowledge them by name later in the Preface.

We believe we have made valuable improvements throughout our many revised editions of Strategic Management. At the same time, we strive to be consistent and “true” to our original overriding objective: a book that satisfies three R’s: relevant, rigorous, and readable. That is, our tagline (paraphrasing the well-known Secret deodorant commercial) is: “Strong enough for the professor; made for the student.” And we are pleased that we have received feedback (such as the comments on the previous page) that is consistent with what we are trying to accomplish.

To continue to earn the support of strategy instructors (and students!) we try to use an engaging writing style that minimizes unnecessary jargon and covers all of the traditional bases. We also integrate some central themes throughout the book—such as globalization, technology, ethics, environmental sustainability, and entrepreneurship—that are vital in understanding strategic management in today’s global economy. We draw on short examples from business practice to bring concepts to life by providing 85 Strategy Spotlights (more detailed examples in sidebars).

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

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

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

What’s New? Highlights of the Seventh Edition We have endeavored to add new material to the chapters that reflects both the feedback that we have received from our reviewers as well as the challenges that face today’s managers. Thus, we all invested an extensive amount of time carefully reviewing a wide variety of books, academic and practitioner journals, and the business press.

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

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PREFACE

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

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

• Well over half of our “Strategy Spotlights” (sidebar examples) are brand new, and many of the others have been thoroughly updated. Although we have reduced the number of Spotlights from the previous edition to conserve space, we still have a total of 85—by far the most in the strategy market. We focus on bringing the most important strategy concepts to life in a concise and highly readable manner. And we work hard to eliminate unnecessary detail that detracts from the main point we are trying to make. Also, consistent with our previous edition, many of the Spotlights focus on three “hot” issues that are critical in leading today’s organizations: ethics, environmental sustainability, and crowdsourcing.

• We have added a new feature—Issue for Debate—at the end of each chapter. We have pretested these situations and find that students become very engaged (and often animated!) in discussing an issue that has viable alternative points of view. It is an exciting way to drive home key strategy concepts. For example, in Chapter 1, Seventh Generation is faced with a situation that confronts their values, and they must decide whether or not to provide their products to some of their largest customers. In Chapter 3, some interesting tradeoffs arose when The World Triathlon Corporation expanded their exclusive branding of Ironman to products that didn’t reflect the “spirit” of the brand. And, in Chapter 6, Delta Airlines’ diversification into the oil business via their acquisition of an oil refinery poses an issue for some interesting alternative points of view.

• Throughout the chapters, we provide many excerpts from interviews with top executives from Adam Bryant’s The Corner Office. Such viewpoints provide valuable perspectives from leading executives and help to drive home the value and purpose of key strategy concepts. For example, we include the perspectives of Tim Brown (CEO of IDEO) on employee empowerment, John Stumpf (CEO of Wells Fargo) on strategy implementation, and Gordon Bethune (former CEO of Continental Airlines) on the importance of incentive systems.

• We have completely rewritten the “Reflecting on Career Implications . . .” feature that we introduced in the Sixth Edition of Strategic Management. Based on reviewer feedback, we directed our attention to providing insights that are closely aligned with and directed to three distinct issues faced by our readers: prepare them for a job interview (e.g., industry analysis), help them with current employers or their career in general, or help them find potential employers and decide where to work. We feel this feature is significantly improved and should be of more value to students’ professional development.

Key content changes for the chapters include:

• Chapter 1 makes a strong business case for environmental sustainability and draws on Porter’s concept of “shared value” that was initially introduced in the Sixth Edition. Such issues advance the notion that firms should go far beyond a narrow focus on shareholder returns. Further, shared value promotes practices that enhance the competitiveness of the company while simultaneously advancing the social and economic conditions in which it operates.

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• Chapter 2 makes the distinction between “hard trends” and “soft trends” that was articulated by Dan Burrus in his recent book Flash Foresight. This distinction is important in determing the importance of current trends and their evolution over time. Soft trends are something that might happen and a probability with which it might happen can be assigned. In contrast, hard trends are based on measurable facts, events, or objects—they are something that will happen. We provide the example of how the identification of hard trends (in technology) led the renowned Mayo Clinic to develop a CD to help customers to access useful medical information. This initiative provided the Mayo Clinic with significant financial and nonfinancial benefits!

• Chapter 4 addresses two issues that are important to not only developing human capital in organizations but also for students entering—or enhancing their success in—an organization: mentorship versus sponsorship and the “trap” of ineffective networks. Knowing the distinction between mentors and sponsors has valuable implications for one’s career. Mentors may provide coaching and advice, and prepare one for the next position. Sponsors, on the other hand, are typically somebody in a senior position who can advocate and facilitate career moves. We also draw on research that suggests three types of “network traps” that professionals should work hard to avoid: the wrong structure, the wrong relationship, and the wrong behavior.

• Chapter 6 discusses when actions taken to change the scope of businesses in which a corporation competes lead to positive outcomes for the firm. We highlight the characteristics of both acquisitions and divestitures that lead to positive outcomes. With acquisitions, we focus on how the characteristics of the acquiring firm as well as the acquisition itself lead to positive reactions by the stock market to the announcement of the deal. With divestitures, we draw on the work by the Boston Consulting Group to highlight seven principles for effective divestitures.

• Chapter 7 looks into the hidden costs of offshoring. In recent years, many firms have moved parts of their operations to lower wage countries. In many cases, they have found that the expected cost savings were illusory. We discuss seven reasons why firms would not achieve the anticipated savings through offshoring and provide examples of firms that have benefited by bringing their operations back home.

• Chapter 8 includes an examination of crowdfunding, a rapidly growing means to finance entrepreneurial ventures. Crowdfunding involves drawing relatively small amounts of funding from a wide net of investors to provide potentially large pools of capital for entrepreneurial ventures. We discuss both the tremendous potential as well as the pitfalls of crowdfunding for entrepreneurs. Knowing that some of our students may want to be investors in these ventures, we also discuss issues that crowdfunding investors should consider when looking into these investment opportunities.

• Chapter 9 addresses how firms can build effective boards of directors. We identify how firms need to go beyond standard categories, such as insider versus outsider board members, to develop favorable board dynamics. We also discuss how the structure of boards has changed over the past 25 years.

• Chapter 10 examines the costs and benefits of nurturing strong relationships to ensure cooperation and achieve high levels of performance. Over the past 30 years, many scholars have argued that relational systems, where decisions regarding how to facilitate control and coordination are driven by relationships rather than bureaucratic systems and contracts, are superior to more traditional control systems. We examine this issue and discuss how relational systems have both advantages and disadvantages. We conclude with a brief discussion of when managers may want to rely more on relationship systems and when they may want to rely more on formal structure and reward systems.

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• Chapter 11 introduces the concept of “competency companions,” an important idea for managers to consider in developing their leadership ability. The idea is that leaders can benefit most by identifying and developing complementary strengths instead of continually working on already great qualities that they may possess. For example, a leader who has a strong competence in developing innovative ideas can extend that competency by developing strong communication skills.

• Chapter 13 updates our Appendix: Sources of Company and Industry Information. Here, we owe a big debt to Ruthie Brock and Carol Byrne, library professionals at the University of Texas at Arlington. These ladies have graciously provided us with comprehensive and updated information that is organized in a range of issues. These include competitive intelligence, annual report collections, company rankings, business websites, and strategic and competitive analysis. Such information is invaluable in analyzing companies and industries.

• Alan Eisner, our case editor, has worked hard to further enhance our excellent case package.

• Approximately half of our cases are author-written (much more than the competition).

• We have updated our users’ favorite cases, creating fresh stories about familiar companies to minimize instructor preparation time and “maximize freshness” of the content.

• We have added 6 exciting new cases to the lineup, including Boston Beer, Campbell Soup, Kickstarter, and Zynga.

• We have also extensively updated 23 familiar cases, including Apple, eBay, Ford, Johnson & Johnson, and many others.

• A major focus on fresh and current cases on familiar firms. • Many videos on the Online Learning Center (OLC) or Connect to match the cases.

What Remains the Same: Key Features of Earlier Editions Let’s now briefly address some of the exciting features that remain from the earlier editions.

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

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

PREFACE

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in a world where success is revered, and failure is quickly pushed to the side. However, some of the greatest opportunities to learn—both for individuals and organizations— come from studying what goes wrong.”* We’ll see how, for example, Borders went from enjoying enormous success as an innovative firm—with revenues of nearly $4 billion in 2005—to bankruptcy six years later. We will also explore why Daimler’s “ultra-urban” Smart car—despite its initial acclaim—has cost the firm $5.3 billion in cumulative losses over the years. And we’ll explore why Cisco’s eagerness to enter the digital video market via its acquisition of Pure Digital Technologies didn’t pan out.

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

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

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

• “Reflecting on Career Implications” for each chapter. This feature—at the end of each chapter—will help instructors drive home the immediate relevance/value of strategy concepts. It focuses on how an understanding of key concepts helps business students early in their careers.

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

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

• Extensive use of sidebars. We include 85 sidebars (or about seven per chapter) called “Strategy Spotlights.” The Strategy Spotlights not only illustrate key points but also increase the readability and excitement of new strategy concepts.

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

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

*Personal communication, June 20, 2005.

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PREFACE

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

• Excellent Case Studies. We have selected an excellent collection of current and classic cases for this edition, carefully including a wide variety of cases matched to key strategic concepts and organized to create maximum flexibility. We have a balance of short, concise, and longer, comprehensive cases while maintaining currency and name recognition of our cases with many new and updated classroom-tested cases. We also have updated many of the favorites from the Sixth Edition, such as Apple, eBay, Ford, Johnson & Johnson, and many others.

Student Support Materials Online Learning Center (OLC) The following resources are available to students via the publisher’s OLC at www.mhhe.com/ dess7e :

• Chapter quizzes students can take to gauge their understanding of material covered in each chapter.

• A selection of PowerPoint slides for each chapter. • Links to strategy simulations the Business Strategy Game & GLO-BUS. Both provide

a powerful and constructive way of connecting students to the subject matter of the course with a competition among classmates on campus and around the world.

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

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

• Assurance of Learning Ready. Assurance of Learning is an important element of many accreditation standards. Dess 7e is designed specifically to support your Assurance of Learning initiatives. Each chapter in the book begins with a list of numbered learning objectives that appear throughout the chapter, as well as in the end-of-chapter questions and exercises. Every test bank question is also linked to one of these objectives, in addition to level of difficulty, topic area, Bloom’s Taxonomy level, and AACSB skill area. EZ Test, McGraw-Hill’s easy-to-use test bank software, can search the test bank by these and other categories, providing an engine for targeted Assurance of Learning analysis and assessment.

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• AACSB Statement. The McGraw-Hill Companies is a proud corporate member of AACSB International. Understanding the importance and value of AACSB accreditation, Dess 7e has sought to recognize the curricula guidelines detailed in the AACSB standards for business accreditation by connecting selected questions in Dess 7e and the test bank to the general knowledge and skill guidelines found in the AACSB standards. The statements contained in Dess 7e are provided only as a guide for the users of this text. The AACSB leaves content coverage and assessment within the purview of individual schools, the mission of the school, and the faculty. While Dess 7e and the teaching package make no claim of any specific AACSB qualification or evaluation, we have labeled selected questions within Dess 7e according to the six general knowledge and skills areas.

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

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

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

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

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

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PREFACE

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

McGraw-Hill Connect™ Management Less Managing. More Teaching. Greater Learning. McGraw-Hill Connect Management is an online assignment and assessment solution that connects students with the tools and resources thev’ll need to achieve success.

• McGraw-Hill Connect Management Features. Connect Management offers a number of powerful tools and features to make managing assignments easier, so faculty can spend more time teaching. With Connect Management, students can engage with their coursework anytime and anywhere, making the learning process more accessible and efficient. Connect Management offers you the features described below.

• There are chapter quizzes for the 12 chapters, consisting of 15–25 multiple- choice questions, testing students’ overall comprehension of concepts presented in the chapter.

• There are 2 specially crafted interactives for each of the 12 chapters that drill students in the use and application of the concepts and tools of strategic analysis.

• Connect also includes special case exercises for approximately one-third of the 35 cases in this edition that require students to develop answers to a select number of the assignment questions.

• Additionally, there will be financial analysis exercises related to the case exercises. • The majority of the Connect exercises are automatically graded, thereby

simplifying the task of evaluating each class member’s performance and monitoring the learning outcomes.

• Student Progress Tracking. Connect Management keeps instructors informed about how each student, section, and class is performing, allowing for more productive use of lecture and office hours. The progress-tracking function enables you to

• View scored work immediately and track individual or group performance with assignment and grade reports.

• Access an instant view of student or class performance relative to learning objectives.

• Collect data and generate reports required by many accreditation organizations, such as AACSB.

• Smart Grading. When it comes to studying, time is precious. Connect Management helps students learn more efficiently by providing feedback and practice material when they need it, where they need it. When it comes to teaching, your time also is precious. The grading function enables you to

• Have assignments scored automatically, giving students immediate feedback on their work and side-by-side comparisons with correct answers.

• Access and review each response, manually change grades, or leave comments for students to review.

• Reinforce classroom concepts with practice tests and instant quizzes.

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• Simple Assignment Management. With Connect Management, creating assignments is easier than ever, so you can spend more time teaching and less time managing. The assignment management function enables you to

• Create and deliver assignments easily with selectable test bank items. • Streamline lesson planning, student progress reporting, and assignment grading to

make classroom management more efficient than ever. • Go paperless with online submission and grading of student assignments.

• Instructor Library. The Connect Management Instructor Library is your repository for additional resources to improve student engagement in and out of class. You can select and use any asset that enhances your lecture. The Connect Management Instructor Library includes

• Instructor Manual • Case Teaching Notes • PowerPoint ® files • Test Bank

Videos A set of videos related to both chapters and selected cases can be found on the Online Learning Center (OLC) or Connect to support your classroom or student lab, or for home viewing. These thought-provoking video clips are available upon adoption of this text.

Online Learning Center (OLC) The instructor section of www.mhhe.com/dess7e also includes the Instructor’s Manual, PowerPoint Presentations, Case Grid, and Case Study Teaching Notes as well as additional resources.

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

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

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

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

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

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

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

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

2. Deep integration of content and tools. Not only do you get single sign-on with Connect and Create, you also get deep integration of McGraw-Hill content and content engines right in Blackboard. Whether you’re choosing a book for your course or building Connect assignments, all the tools you need are right where you want them—inside of Blackboard.

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

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

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

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

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

The Reviewer Hall of Fame

Moses Acquaah, University of North Carolina–Greensboro

Todd Alessandri, Northeastern University

Larry Alexander, Virginia Polytechnic Institute

Brent B. Allred, College of William & Mary

Allen C. Amason, University of Georgia

Kathy Anders, Arizona State University

Lise Anne D. Slatten, University of Louisiana at Lafayette

Peter H. Antoniou, California State University, San Marcos

Dave Arnott, Dallas Baptist University Marne L. Arthaud-Day, Kansas State University

Jay Azriel, York University of Pennsylvania Jeffrey J. Bailey, University of Idaho

Dennis R. Balch, University of North Alabama

Bruce Barringer, University of Central Florida

Barbara R. Bartkus, Old Dominion University

Barry Bayon, Bryant University Brent D. Beal, Louisiana State University

Joyce Beggs, University of North Carolina–Charlotte

Michael Behnam, Suffolk University

Kristen Bell DeTienne, Brigham Young University

Eldon Bernstein, Lynn University David Blair, University of Nebraska at Omaha

Daniela Blettner, Tilburg University

Dusty Bodie, Boise State University

William Bogner, Georgia State University

Scott Browne, Chapman University

Jon Bryan, Bridgewater State College

Charles M. Byles, Virginia Commonwealth University

Mikelle A. Calhoun, Valparaiso University

Thomas J. Callahan, University of Michigan, Dearborn

Samuel D. Cappel, Southeastern Louisiana State University

Gary Carini, Baylor University

Shawn M. Carraher, University of Texas, Dallas

Tim Carroll, University of South Carolina

Don Caruth, Amberton University

Maureen Casile, Bowling Green State University

Gary J. Castrogiovanni, Florida Atlantic University

Radha Chaganti, Rider University

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PREFACE

Erick PC Chang, Arkansas State University

Theresa Cho, Rutgers University

Bruce Clemens, Western New England College

Betty S. Coffey, Appalachian State University

Wade Coggins, Webster University, Fort Smith Metro Campus

Susan Cohen, University of Pittsburgh

George S. Cole, Shippensburg University

Joseph Coombs, Texas A & M University

Christine Cope Pence, University of California, Riverside

James J. Cordeiro, SUNY Brockport

Stephen E. Courter, University of Texas at Austin

Jeffrey Covin, Indiana University

Keith Credo, Auburn University

Deepak Datta, University of Texas at Arlington

James Davis, Utah State University

Justin L. Davis, University of West Florida

David Dawley, West Virginia University

Helen Deresky, State University of New York, Plattsburgh

Rocki-Lee DeWitt, University of Vermont

Jay Dial, Ohio State University

Michael E. Dobbs, Arkansas State University

Jonathan Doh, Villanova University

Tom Douglas, Clemson University

Meredith Downes, Illinois State University

Jon Down, Oregon State University

Alan E. Ellstrand, University of Arkansas

Dean S. Elmuti, Eastern Illinois University

Clare Engle, Concordia University

Mehmet Erdem Genc, Baruch College, CUNY

Tracy Ethridge, Tri-County Technical College

William A. Evans, Troy State University, Dothan

Frances H. Fabian, University of Memphis

Angelo Fanelli, Warrington College of Business

Michael Fathi, Georgia Southwestern University

Carolyn J. Fausnaugh, Florida Institute of Technology

Tamela D. Ferguson, University of Louisiana at Lafayette

David Flanagan, Western Michigan University

Dave Foster, Montana State University

Isaac Fox, University of Minnesota

Deborah Francis, Brevard College

Steven A. Frankforter, Winthrop University

Vance Fried, Oklahoma State University

Karen Froelich, North Dakota State University

Naomi A. Gardberg, CNNY Baruch College

J. Michael Geringer, California Polytechnic State University

Diana L. Gilbertson, California State University, Fresno

Matt Gilley, St. Mary’s University

Debbie Gilliard, Metropolitan State College–Denver

Yezdi H. Godiwalla, University of Wisconsin–Whitewater

Sanjay Goel, University of Minnesota, Duluth

Sandy Gough, Boise State University

Allen Harmon, University of Minnesota, Duluth

Niran Harrison, University of Oregon

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Paula Harveston, Berry College

Ahmad Hassan, Morehead State University

Donald Hatfield, Virginia Polytechnic Institute

Kim Hester, Arkansas State University

Scott Hicks, Liberty University

John Hironaka, California State University, Sacramento

Alan Hoffman, Bentley College

Gordon Holbein, University of Kentucky

Stephen V. Horner, Pittsburg State University

Jill Hough, University of Tulsa

John Humphreys, Eastern New Mexico University

James G. Ibe, Morris College

Jay J. Janney, University of Dayton

Lawrence Jauch, University of Louisiana–Monroe

Dana M. Johnson, Michigan Technical University

Homer Johnson, Loyola University, Chicago

James Katzenstein, California State University, Dominguez Hills

Joseph Kavanaugh, Sam Houston State University

Franz Kellermanns, University of Tennessee

Craig Kelley, California State University, Sacramento

Donna Kelley, Babson College

Dave Ketchen, Auburn University

John A. Kilpatrick, Idaho State University

Helaine J. Korn, Baruch College,CUNY

Stan Kowalczyk, San Francisco State University

Daniel Kraska, North Central State College

Donald E. Kreps, Kutztown University

Jim Kroeger, Cleveland State University

Subdoh P. Kulkarni, Howard University

Ron Lambert, Faulkner University

Theresa Lant, New York University

Ted Legatski, Texas Christian University

David J. Lemak, Washington State University–Tri-Cities

Cynthia Lengnick-Hall, University of Texas at San Antonio

Donald L. Lester, Arkansas State University

Wanda Lester, North Carolina A&T State University

Benyamin Lichtenstein, University of Massachusetts at Boston

Jun Lin, SUNY at New Paltz

Zhiang (John) Lin, University of Texas at Dallas

Dan Lockhart, University of Kentucky

John Logan, University of South Carolina

Franz T. Lohrke, Samford University

Kevin Lowe, University of North Carolina, Greensboro

Leyland M. Lucas, Morgan State University

Doug Lyon, Fort Lewis College

Rickey Madden, Ph.D., Presbyterian College

James Maddox, Friends University

Ravi Madhavan, University of Pittsburgh

Paul Mallette, Colorado State University

Santo D. Marabella, Moravian College

Catherine Maritan, Syracuse University

Daniel Marrone, Farmingdale State College, SUNY

Sarah Marsh, Northern Illinois University

John R. Massaua, University of Southern Maine

Hao Ma, Bryant College

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Larry McDaniel, Alabama A&M University

Jean McGuire, Louisiana State University

Abagail McWilliams, University of Illinois, Chicago

Ofer Meilich, California State University–San Marcos

John E. Merchant, California State University, Sacramento

John M. Mezias, University of Miami

Michael Michalisin, Southern Illinois University at Carbondale

Doug Moesel, University of Missouri–Columbia

Fatma Mohamed, Morehead State University

Mike Montalbano, Bentley University

Debra Moody, University of North Carolina, Charlotte

Gregory A. Moore, Middle Tennessee State University

James R. Morgan, Dominican University and UC Berkeley Extension

Sara A. Morris, Old Dominion University

Carolyn Mu, Baylor University

Stephen Mueller, Northern Kentucky University

John Mullane, Middle Tennessee State University

Chandran Mylvaganam, Northwood University

Sucheta Nadkarni, Drexel University

Anil Nair, Old Dominion University V.K. Narayanan, Drexel University

Maria L. Nathan, Lynchburg College

Louise Nemanich, Arizona State University

Charles Newman, University of Maryland, University College

Stephanie Newport, Austin Peay State University

Gerry Nkombo Muuka, Murray State University Bill Norton, University of Louisville

Yusuf A. Nur, SUNY Brockport

Jeffrey R. Nystrom, University of Colorado

William Ross O’Brien, Dallas Baptist University

d.t. ogilvie, Rutgers University

Floyd Ormsbee, Clarkson University

Karen L. Page, University of Wyoming

Jacquelyn W. Palmer, University of Cincinnati

Julie Palmer, University of Missouri, Columbia

Gerald Parker, Saint Louis University

Daewoo Park, Xavier University

Ralph Parrish, University of Central Oklahoma

Amy Patrick, Wilmington University

Douglas K. Peterson, Indiana State University

Edward Petkus, Mary Baldwin College

Michael C. Pickett, National University

Peter Ping Li, California State University, Stanislaus

Michael W. Pitts, Virginia Commonwealth University

Laura Poppo, Virginia Tech

Steve Porth, Saint Joseph’s University

Jodi A. Potter, Robert Morris University

Scott A. Quatro, Grand Canyon University

Nandini Rajagopalan, University of Southern California

Annette L. Ranft, Florida State University

Abdul Rasheed, University of Texas at Arlington

Devaki Rau, Northern Illinois University

George Redmond, Franklin University

Kira Reed, Syracuse University

PREFACE

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Clint Relyea, Arkansas State University

Barbara Ribbens, Western Illinois University

Maurice Rice, University of Washington

Violina P. Rindova, University of Texas, Austin

Ron Rivas, Canisius College

David Robinson, Indiana State University– Terre Haute

Kenneth Robinson, Kennesaw State University

Simon Rodan, San Jose State University

Patrick R. Rogers, North Carolina A&T State University

John K. Ross III, Texas State University, San Marcos

Robert Rottman, Kentucky State University

Matthew R. Rutherford, Gonzaga University

Carol M. Sanchez, Grand Valley State University

William W. Sannwald, San Diego State University

Yolanda Sarason, Colorado State University

Marguerite Schneider, New Jersey Institute of Technology

Roger R. Schnorbus, University of Richmond

Terry Sebora, University of Nebraska–Lincoln

John Seeger, Bentley College

Jamal Shamsie, Michigan State University

Mark Shanley, University of Illinois at Chicago

Lois Shelton, California State University, Northridge

Herbert Sherman, Long Island University

Weilei Shi, Baruch College–CUNY

Chris Shook, Auburn University

Jeremy Short, University of Oklahoma

Mark Simon, Oakland University, Michigan

Rob Singh, Morgan State University

Bruce Skaggs, University of Massachusetts

Wayne Smeltz, Rider University

Anne Smith, University of Tennessee

Andrew Spicer, University of South Carolina

James D. Spina, University of Maryland

John Stanbury, George Mason University & Inter-University Institute of Macau, SAR China

Timothy Stearns, California State University, Fresno

Elton Stephen, Austin State University

Charles E. Stevens, University of Wyoming

Alice Stewart, Ohio State University

Ram Subramanian, Grand Valley State University

Roy Suddaby, University of Iowa

Michael Sullivan, UC Berkeley Extension

Marta Szabo White, Georgia State University

Stephen Takach, University of Texas at San Antonio

Justin Tan, York University, Canada

Qingju Tao, Lehigh University

Linda Teagarden, Virginia Tech

Bing-Sheng Teng, George Washington University

Alan Theriault, University of California–Riverside

Tracy Thompson, University of Washington, Tacoma

Karen Torres, Angelo State University

Robert Trumble, Virginia Commonwealth University

Francis D. (Doug) Tuggle, Chapman University

K.J. Tullis, University of Central Oklahoma

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Craig A. Turner, Ph.D., East Tennessee State University

Beverly Tyler, North Carolina State University

Rajaram Veliyath, Kennesaw State University

S. Stephen Vitucci, Tarleton State University– Central Texas

Jay A. Vora, St. Cloud State University

Bruce Walters, Louisiana Tech University

Jorge Walter, Portland State University

Edward Ward, St. Cloud State University N. Wasilewski, Pepperdine University Andrew Watson, Northeastern University

Larry Watts, Stephen F. Austin University

Paula S. Weber, St. Cloud State University

Kenneth E. A. Wendeln, Indiana University Robert R. Wharton, Western Kentucky University Laura Whitcomb, California State University– Los Angeles

Scott Williams, Wright State University

Diana Wong, Bowling Green State University

Beth Woodard, Belmont University

John E. Wroblewski, State University of New York–Fredonia

Anne York, University of Nebraska, Omaha

Michael Zhang, Sacred Heart University

Monica Zimmerman, Temple University

Second, the authors would like to thank several faculty colleagues who were particularly helpful in the review, critique, and development of the book and supplementary materials. Greg’s colleagues at the University of Texas at Dallas also have been helpful and supportive. These individuals include Mike Peng, Joe Picken, Kumar Nair, John Lin, Larry Chasteen, Seung-Hyun Lee, Tev Dalgic, and Jane Salk. His administrative assistant, Mary Vice, has been extremely helpful. Three doctoral students, Brian Pinkham, Steve Saverwald and Ciprian Stan, have provided many useful inputs and ideas, along with a research associate, Kimberly Flicker. He also appreciates the support of his dean and associate dean, Hasan Pirkul and Varghese Jacob, respectively. Tom would like to thank Gerry Hills, Abagail McWilliams, Rod Shrader, Mike Miller, James Gillespie, Ron Mitchell, Kim Boal, Keith Brigham, Jeremy Short, Tyge Payne, Bill Wan, Andy Yu, Abby Wang, Johan Wiklund, Mike Haynie, Alex McKelvie, Denis Gregoire, Alejandro Amezcua, Maria Minniti, Cathy Maritan, Ravi Dharwadkar, and Pam Brandes. Spe- cial thanks also to Jeff Stambaugh for his valuable contributions. Tom also extends a special thanks to Benyamin Lichtenstein for his support and encouragement. Both Greg and Tom wish to thank a special colleague, Abdul Rasheed at the University of Texas at Arlington, who cer- tainly has been a valued source of friendship and ideas for us for many years. He provided many valuable contributions to all editions. Alan thanks his colleagues at Pace University and the Case Association for their support in developing these fi ne case selections. Special thanks go to Jamal Shamsie at Michigan State University for his support in developing the case selections for this edition. Gerry thanks all of his colleagues at Michigan State University for their help and support over the years. He also thanks his mentor, Phil Bromiley, as well as the students and former students he has had the pleasure of working with, including Becky Luce, Cindy Devers, Federico Aime, Mike Mannor, Bernadine Dykes, Mathias Arrfelt, Kalin Kolev, Seungho Choi, Rob Davison, Dustin Sleesman, Danny Gamache, Adam Steinbach, and Daniel Chaffi n.

Third, we would like to thank the team at McGraw-Hill for their outstanding support throughout the entire process. As we work on the book through the various editions, we always appreciate their hard work and recognize how so many people “add value” to our fi nal package! This began with John Biernat, formerly publisher, who signed us to our original contract. He

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was always available to us and provided a great deal of support and valued input throughout sev- eral editions. Presently, in editorial, Paul Ducham, managing director, executive brand manager Mike Ablassmeir, and senior development editor Laura Griffi n, kept things on track, responded quickly to our seemingly endless needs and requests, and offered insights and encouragement. We appreciate their expertise—as well as their patience! Once the manuscript was completed and revised, content project manager Harvey Yep expertly guided it through the print produc- tion process. Pam Verros provided excellent design, photo selection, and artwork guidance. Susan Lombardi, content project manager, did a superb job adding value to our supplementary materials and digital content. We also appreciate marketing manager Elizabeth Trepkowski and marketing specialist Liz Steiner for their energetic, competent, and thorough marketing efforts. Last, but certainly not least, we thank MHE’s 70-plus outstanding book reps—who serve on the “front lines”—as well as many in-house sales professionals based in Dubuque, Iowa. Clearly, they deserve a lot of credit (even though not mentioned by name) for our success.

Fourth, we acknowledge the valuable contributions of many of our strategy colleagues for their excellent contributions to our supplementary and digital materials. Such content really adds a lot of value to our entire package! We are grateful to Pauline Assenza, Western Connecticut State University, for her superb work on case teaching notes as well as chapter and case PowerPoints. We thank Doug Sanford, Towson University, for his expertise in developing several pedagogical features, including the teaching notes for the “Learning from Mistakes . . .” and carefully reviewing our Instructor Manual’s chapters. Justin Davis, University of West Florida, along with Noushi Rahman, Pace University, deserve our thanks for their hard work in developing excellent digital materials for Connect. And fi nally, we thank Christine Pence, University of California–Riverside, for her important contributions in revising our test bank and Todd Moss, Oregon State University, for his hard work in putting together an excellent set of videos online, along with the video grid that links videos to chapter material.

Finally, we would like to thank our families. For Greg this includes his parents, William and Mary Dess, who have always been there for him. His wife, Margie, and daughter, Taylor, have been a constant source of love and companionship. He would like to acknowledge his late uncle, Walter Descovich. Uncle Walt was truly a member of Tom Brokaw’s Greatest Genera- tion. He served in the U.S. Navy during World War II—where he learned electronics —and later became a superintendent at Consolidated Edison in New York City. He, his wife, Eleanor, and his family have been an inspiration to Greg over the years. Tom thanks his wife, Vicki, for her constant love and companionship. Tom also thanks Lee Hetherington and Thelma Lumpkin for their inspiration, as well as his mom, Katy, and his sister, Kitty, for a lifetime of support. Alan thanks his family—his wife, Helaine, and his children, Rachel and Jacob—for their love and support. He also thanks his parents, Gail Eisner and the late Marvin Eisner, for their support and encouragement. Gerry thanks his wife, Gaelen, for her love, support, and friendship and his children, Megan and AJ, for their love and the joy they bring to his life. He also thanks his parents, Gene and Jane, for their encouragement and support in all phases of his life.

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Learning from Mistakes In 1997, Daimler AG introduced an “ultra-urban” car at the Frankfurt Motor Show amid much fanfare. 1 Envisioned by Nicholas Hayek (inventor of Swatch Watch) and Mercedes- Benz, it received acclaim for its innovation, advanced engineering, and functionality as well as being simply fun to drive. Over one million were sold worldwide before it entered the U.S. market a decade later. What was this car that was transforming the urban transportation market? It was the Smart fortwo—a pocket-sized two-seater, high- efficiency vehicle made with cutting-edge materials that were as light as they were strong and had an impressively engineered Mercedes-Benz engine that made it fun to drive.

On January 16, 2008, the first Smart fortwo streaked through the streets of Manhattan, New York. The Smart fortwo was an immediate sensation in the United States, with sales of 24,600 units in its first year. With rising gas prices, a buoyant economy, and increasingly ecologically- aware consumers, Daimler had not only found a market, but also it was blazing a trail all across the United States. However, sales quickly dropped—just 20,000 cars were sold over the following three years. So where did Smart take a wrong turn?