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grandchildren truly miss him. Gerry thanks his wife, Gaelen, for her love, support, and friendship; and his children, Megan and AJ, for their love and the joy they bring to his life. He also thanks his current and former PhD students who regularly inspire and challenge him. Alan thanks his family—his wife, Helaine, and his children, Rachel and Jacob—for their love and support. He also thanks his parents, Gail Eisner and the late Marvin Eisner, for their support and encouragement. Sean thanks his wife, Hannah, and his two boys, Paul and Stephen, for their unceasing love and care. He also thanks his parents, Kenny and Inkyung Lee for being there whenever needed.
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A GUIDED TOUR
LEARNING OBJECTIVES Learning Objectives numbered L05.1, L05.2, L05.3, etc., with corresponding icons in the margins to indicate where learning objectives are covered in the text.
LEARNING FROM MISTAKES Learning from Mistakes vignettes are examples of where things went wrong. Failures are not only interesting but also sometimes easier to learn from. And students realize strategy is notjustabout “right or wrong” answers, but requires critical thinking.
STRATEGY SPOTLIGHT These boxes weave themes of ethics, globalization, and technology into every chapter of the text, providing students with a thorough grounding necessary for understanding strategic management. Select boxes incorporate crowdsourcing, environmental sustainability, and ethical themes.
a guided
tour
chapter
After reading this chapter, you should have a good understanding of the following learning objectives:
1 LO1-1 The definition of strategic management and its four key attributes. LO1-2 The strategic management process and its three interrelated and principal
activities.
LO1-3 The vital role of corporate governance and stakeholder management, as well as how “symbiosis” can be achieved among an organization’s stakeholders.
LO1-4 The importance of social responsibility, including environmental sustainability, and how it can enhance a corporation’s innovation strategy.
LO1-5 The need for greater empowerment throughout the organization. LO1-6 How an awareness of a hierarchy of strategic goals can help an
organization achieve coherence in its strategic direction.
Strategic Management Creating Competitive Advantages
©Anatoli Styf/Getty Images
What makes the study of strategic management so interesting? Things can change so rapidly! Some start-ups can disrupt industries and become globally recognized names in just a few years. The rankings of the world’s most valuable firms can dramatically change in a rather brief period of time. On the other hand, many impressive, high-flying firms can struggle to reclaim past glory or even fail. Recall just four that begin with the letter “b”—Blackberry, Blockbuster, Borders, and Barings. As colorfully (and ironically!) noted by Arthur Martinez, Sears’s former Chairman: “Today’s peacock is tomorrow’s feather duster.”1
Consider the following:2
• At the beginning of 2007, the three firms in the world with the highest market values were Exxon Mobil, General Electric, and Gazprom (a Russian natural gas firm). By early 2017, three high tech firms headed the list—Apple, Alphabet (parent of Google), and Microsoft.
• Only 74 of the original 500 companies in the S&P index were still around 40 years later. And McKinsey notes that the average company tenure on the S&P 500 list has fallen from 61 years in 1958 to about 20 in 2016.
• With the dramatic increase of the digital economy, new entrants are shaking up long-standing industries. Note that Alibaba is the world’s most valuable retailer—but holds no inventory; Airbnb is the world’s largest provider of accommodations—but owns no real estate; and Uber is the world’s largest car service but owns no cars.
• A quarter century ago, how many would have predicted that a South Korean firm would be a global car giant, than an Indian firm would be one of the world’s largest technology firms, and a huge Chinese Internet company would list on an American stock exchange?
• Fortune magazine’s annual list of the 500 biggest companies now features 156 emerging- market firms. This compares with only 18 in 1995!
To remain competitive, companies often must bring in “new blood” and make significant changes in their strategies. But sometimes a new CEO’s initiatives makes things worse. Let’s take a look at Lands’ End, an American clothing retailer.3
Lands’ End was founded in 1963 as a mail order supplier of sailboat equipment by Gary Comer. As business picked up, he expanded the business into clothing and home furnishings and moved the company to Dodgeville, Wisconsin, in 1978 where he was its CEO until he stepped down in 1990. The firm was acquired by Sears in 2002, but later spun off in 2013. A year later it commenced trading on the NASDAQ stock exchange.
Targeting Middle America, companies like Lands’ End, the GAP Inc., and J. C. Penney have had a hard time in recent years positioning themselves in the hotly contested clothing industry. They are squeezed on the high end by brands like Michael Kors Holdings Ltd. and Coach, Inc. On the lower end, fast-fashion retailers including H&M operator Hennes & Mauritz AB are applying pressure by churning out inexpensive, runway-inspired styles.
LEARNING FROM MISTAKES
4.3 STRATEGY SPOTLIGHT MILLENNIALS HAVE A DIFFERENT DEFINITION OF DIVERSITY AND INCLUSION THAN PRIOR GENERATIONS A recent study by Deloitte and the Billie Jean King Leadership Initiative (BJKLI) shows that, in general, Millennials see the con- cepts of diversity and inclusion through a vastly different lens. The study analyzed the responses of 3,726 individuals who came from a wide variety of backgrounds with representation across gender, race/ethnicity, sexual orientation, national sta- tus, veteran status, disabilities, level within an organization, and tenure with an organization. The respondents were asked 62 questions about diversity and inclusion and the findings demon- strated a snapshot of shifting generational mindsets.
Millennials (born between 1977 to 1995) look upon diver- sity as the blending of different backgrounds, experiences, and perspectives within a team—which is known as cognitive diver- sity. They use this word to describe the mix of unique traits that help to overcome challenges and attain business objectives. For Millennials, inclusion is the support for a collaborative environ- ment, and leadership at such an organization must be transpar- ent, communicative, and engaging. According to the study, when defining diversity, Millennials are 35 percent more likely to focus on unique experiences, whereas 21 percent of non-Millennials are more likely to focus on representation.
The X-generation (born between 1965 and 1976) and Boomer generation (born between 1946 and 1964) have a different take.
These generations view diversity as a representation of fairness and protection for all—regardless of gender, race, religion, ethnic- ity, or sexual orientation. Here, inclusion is the integration of indi- viduals of all demographics into one workplace. It is the right thing to do, that is, a moral and legal imperative to achieve compliance and equality—regardless of whether it benefits the business. The study found that when asked about the business impact on diver- sity, Millennials are 71 percent more likely to focus on teamwork. In contrast, 28 percent of non-Millennials are more likely to focus on fairness of opportunity.
The study’s authors contend that the disconnect between the traditional definitions of diversity and inclusion and those of Millennials can create problems for businesses. For example, clashes may occur when managers do not permit Millennials to express themselves freely. The study found that while 86 percent of Millennials feel that differences of opinion allow teams to excel, only 59 percent believe that their leaders share this perspective.
The study suggests that a company with an inclusive culture promotes innovation. And it cites research by IBM and Morgan Stanley that shows that companies with high levels of innovation achieve the quickest growth in profits and that radical innova- tion outstrips incremental change by generating 10 times more shareholder value.
Sources: Dishman, L. 2015. Millennials have a different definition of diversity and inclusion. fastcompany.com, May 18: np; and Anonymous. 2015. For millennials inclusion goes beyond checking traditional boxes, according to a new Deloitte-- Billie Jean King Leadership Initiative Study. prnewswire.com, May 13: np.
11.2 ENVIRONMENTAL SUSTAINABILITY, ETHICSSTRATEGY SPOTLIGHT FAMILY LEADERSHIP SUSTAINS THE CULTURE OF SC JOHNSON SC Johnson, the maker of Windex, Ziploc bags, and Glade Air Fresheners, is known as one of the most environmentally con- scious consumer products companies. The family-owned company is run by Fisk Johnson, the fifth generation of the family to serve as firm CEO. It is the 35th largest privately owned firm, with 13,000 employees and nearly $10 billion in sales. Over the decades, the firm has built and reinforced its reputation for environmental con- sciousness. Being privately owned by the Johnson family is part of it. Fisk Johnson put it this way, “Wall Street rewards that short- termism. . . . We are in a very fortunate situation to not have to worry about those things, and we’re very fortunate that we have a family that is principled and has been very principled.”
Fisk uses the benefits of dedicated family ownership to work in both substantive and symbolic ways. On the substantive side, he has implemented systems in place to improve its environ- mental performance. For example, with its Greenlist process, the firm rates the ingredients it uses or is considering using. It then rates each ingredient on several criteria, including biodegrad- ability and human toxicity, and gives the ingredient a score rang-
3 (better or best) from about 20 percent to over 50 percent from 2001 to 2016.
Fisk uses stories from decisions in the past as it acts to sustain its culture of environmental consciousness. In using stories to rein- force the environmental focus within the firm and to explain it to external stakeholders, Fisk Johnson draws on stories relating to decisions his father made as well as ones he’s made. Most promi- nently, he uses a story about a decision his father made to stop using chlorofluorocarbons in the firm’s aerosol products. “Our first decision to unilaterally remove a major chemical occurred in 1975, when research began suggesting that chlorofluorocar- bons (CFCs) in aerosols might harm Earth’s ozone layer. My father was CEO at the time, and he decided to ban them from all the company’s aerosol products worldwide. He did so several years before the government played catch-up and banned the use of CFCs from everyone’s products.” He goes on to say, “You look back on that decision today, in light of the strong laws that came in, and that was a very prescient decision.” This story is especially effective since it highlights his father’s willingness and ability to take actions that can lead both the government and industry rivals to change. A second story outlines the firm’s decision to remove chlorine as an ingredient in its Saran Wrap. In the late 1990s, regu-
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EXHIBITS Both new and improved exhibits in every chapter provide visual presentations of the most complex concepts covered to support student comprehension.
REFLECTING ON CAREER IMPLICATIONS This section before the summary of every chapter consists of examples on how understanding of key concepts helps business students early in their careers.