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Mastering Strategic Management

Mastering Strategic Management

[Author removed at request of original publisher]

UNIVERSITY OF MINNESOTA LIBRARIES PUBLISHING EDITION, 2015. THIS EDITION ADAPTED FROM A WORK ORIGINALLY PRODUCED IN 2010 BY A PUBLISHER WHO HAS REQUESTED THAT IT NOT RECEIVE ATTRIBUTION.

MINNEAPOLIS, MN

Mastering Strategic Management by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.

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Contents

Publisher Information viii

About the Authors ix

Acknowledgments xi

Dedications xii

Preface xiii

Chapter 1: Mastering Strategy: Art and Science

1.1 Mastering Strategy: Art and Science 2 1.2 Defining Strategic Management and Strategy 4 1.3 Intended, Emergent, and Realized Strategies 13 1.4 The History of Strategic Management 18 1.5 Understanding the Strategic Management Process 26 1.6 Conclusion 29

Chapter 2: Leading Strategically

2.1 Leading Strategically 31 2.2 Vision, Mission, and Goals 33 2.3 Assessing Organizational Performance 42 2.4 The CEO as Celebrity 49 2.5 Entrepreneurial Orientation 58 2.6 Conclusion 66

Chapter 3: Evaluating the External Environment

3.1 Evaluating the External Environment 68 3.2 The Relationship between an Organization and Its Environment 70 3.3 Evaluating the General Environment 73 3.4 Evaluating the Industry 88 3.5 Mapping Strategic Groups 102 3.6 Conclusion 105

Chapter 4: Managing Firm Resources

4.1 Managing Firm Resources 107 4.2 Resource-Based Theory 110

4.3 Intellectual Property 121 4.4 Value Chain 129 4.5 Beyond Resource-Based Theory: Other Views on Firm Performance 134 4.6 SWOT Analysis 137 4.7 Conclusion 140

Chapter 5: Selecting Business-Level Strategies

5.1 Selecting Business-Level Strategies 142 5.2 Understanding Business-Level Strategy through “Generic Strategies” 144 5.3 Cost Leadership 148 5.4 Differentiation 152 5.5 Focused Cost Leadership and Focused Differentiation 159 5.6 Best-Cost Strategy 167 5.7 Stuck in the Middle 172 5.8 Conclusion 177

Chapter 6: Supporting the Business-Level Strategy: Competitive and Cooperative Moves

6.1 Supporting the Business-Level Strategy: Competitive and Cooperative Moves 179 6.2 Making Competitive Moves 182 6.3 Responding to Competitors’ Moves 191 6.4 Making Cooperative Moves 197 6.5 Conclusion 202

Chapter 7: Competing in International Markets

7.1 Competing in International Markets 204 7.2 Advantages and Disadvantages of Competing in International Markets 207 7.3 Drivers of Success and Failure When Competing in International Markets 220 7.4 Types of International Strategies 228 7.5 Options for Competing in International Markets 232 7.6 Conclusion 240

Chapter 8: Selecting Corporate-Level Strategies

8.1 Selecting Corporate-Level Strategies 242 8.2 Concentration Strategies 245 8.3 Vertical Integration Strategies 253 8.4 Diversification Strategies 258 8.5 Strategies for Getting Smaller 266 8.6 Portfolio Planning and Corporate-Level Strategy 270

8.7 Conclusion 273

Chapter 9: Executing Strategy through Organizational Design

9.1 Executing Strategy through Organizational Design 275 9.2 The Basic Building Blocks of Organizational Structure 279 9.3 Creating an Organizational Structure 284 9.4 Creating Organizational Control Systems 298 9.5 Legal Forms of Business 309 9.6 Conclusion 312

Chapter 10: Leading an Ethical Organization: Corporate Governance, Corporate Ethics, and Social Responsibility

10.1 Leading an Ethical Organization: Corporate Governance, Corporate Ethics, and Social Responsibility

314

10.2 Boards of Directors 316 10.3 Corporate Ethics and Social Responsibility 322 10.4 Understanding Thought Patterns: A Key to Corporate Leadership? 330 10.5 Conclusion 338

Please share your supplementary material! 339

Publisher Information

Mastering Strategic Management is adapted from a work produced and distributed under a Creative Commons license (CC BY-NC-SA) in 2011 by a publisher who has requested that they and the original author not receive attribution. This adapted edition is produced by the University of Minnesota Libraries Publishing through the eLearning Support Initiative.

This adaptation has reformatted the original text, and replaced some images and figures to make the resulting whole more shareable. This adaptation has not significantly altered or updated the original 2011 text. This work is made available under the terms of a Creative Commons Attribution-NonCommercial-ShareAlike license.

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About the Authors

Mastering Strategic Management is adapted from a work produced by a publisher who has requested that they and the original author not receive attribution. This adapted edition is produced by the University of Minnesota Libraries Publishing through the eLearning Support Initiative. Though the publisher has requested that they and the original author not receive attribution, this adapted edition reproduces all original text and sections of the book, except for publisher and author name attribution.

Unnamed Author

Unnamed Author serves as Lowder Eminent Scholar and Professor of Management at Auburn University. An award-winning educator, Unnamed Author has taught Strategic Management, Principles of Management, and Franchising. His research interests include strategic management, entrepreneurship, research methods, and strategic supply-chain management. He has published more than one hundred articles in journals such as Administrative Science Quarterly, Academy of Management Journal, and Strategic Management Journal. He has served on thirteen editorial boards, including those of Academy of Management Review, Strategic Management Journal, and Journal of Management Studies. He has served as associate editor for seven journals, including Academy of Management Journal, Journal of International Business Studies, and Organizational Research Methods. Unnamed Author serves on the teaching team for the Entrepreneurship Bootcamp for Veterans with Disabilities at Florida State University, has acted as an expert witness, and has assisted a variety of private and public sector entities with strategic planning. He is the former chair of the board of directors for the Alabama Launchpad (a statewide business plan competition) and currently serves on the Steering Committee for the Michelin Development–East Alabama (an entity that provides low-interest loans to fuel job creation).

Unnamed Author

Unnamed Author is the Rath Chair in Strategic Management at the University of Oklahoma. His award- winning teaching includes classes such as Principles of Management, Strategic Management, Entrepreneurship, and Management History. Unnamed Author’s research focuses on the determinants of firm and organizational performance. He has published more than fifty articles in such journals as Strategic Management Journal, Organization Science, Personnel Psychology, Organizational Behavior and Human Decision Processes, Academy of Management Learning and Education, and Journal of Management Education, among others. He is an associate editor for the Journal of Management and serves on the editorial board of Organizational Research Methods. He also coauthored the first Harvard Business School case in graphic novel format.

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Acknowledgments

We would like to thank the following reviewers. Their insightful feedback and suggestions for improving the material helped us make this a better text:

• Sonny Ariss, University of Toledo

• Keith Brigham, Texas Tech University

• Kalyan Chakravarty, California State University, Northridge

• Brian Connelly, Auburn University

• Carol Decker, Tennessee Wesleyan College

• Dr. Robert Edmonds, Maritime College, State University of New York

• Jeffrey Fahrenwald, Rockford College

• Barbara Good, Ursuline College

• Samuel Gray, New Mexico State University

• Cynthia Hanevy, Buena Vista University

• Thomas Little, University of Texas at Arlington

• Franz Lohrke, Samford University

• Aaron McKenny, University of Oklahoma

• Elouise Mintz, Saint Louis University

• Todd Moss, Oregon State University

• Jason Myrowitz, University of Wyoming

• Erin Nelson, DePaul University

• Don Neubaum, Oregon State University

• Pankaj Patel, Ball State University

• Paul Tomko, Cuyahoga Community College

• Thomas Towle, University of New Hampshire

• John Upson, University of West Georgia

• David Vequist, University of the Incarnate Word

• Miles Zachary, Texas Tech University

• Gregory Zerovnik, University of La Verne

Dedications

Unnamed Author

To Sharon, my wife and best friend. When the world leaves me flat, you keep me going. You are my harbor in the tempest.

Unnamed Author

To my beautiful wife, Tessa; son, Jack; and daughter, Ella. Thank you for your love and support during this challenging process.

Preface

Teaching strategic management classes can be a very difficult challenge for professors. In most business schools, strategic management is a “capstone” course that requires students to draw on insights from various functional courses they have completed (such as marketing, finance, and accounting) to understand how top executives make the strategic decisions that drive whether organizations succeed or fail. Many students have very little experience with major organizational choices. This undermines many students’ engagement in the course.

Our book is designed to enhance student engagement. A good product in any industry matches what customers want and need, and the textbook industry is no exception. It is well documented that many of today’s students are visual learners. To meet students’ wants and needs (and thereby create a much better teaching experience for professors), our book offers the following:

• Several graphic displays in each chapter that summarize key concepts in a visually appealing format.Chapter 1 “Mastering Strategy: Art and Science”, for example, offers graphic displays on (1) the “5 Ps” of strategy; (2) intended, emergent, and realized strategies; (3) strategy in ancient times; (4) military strategy; and (5) the evolution of strategic management as a field of study. The idea for the graphic displays was inspired by the visually rich and popular series on business published by DK Publishing.

• Rich, illustrative examples drawn from companies that are relevant to many students. As part of our emphasis on examples, each chapter uses one company as an ongoing example to bring various concepts to life. In Chapter 1 “Mastering Strategy: Art and Science”, Apple is used as the ongoing example.

• A “strategy at the movies” feature in each chapter that links course concepts with a popular motion picture. In Chapter 1 “Mastering Strategy: Art and Science”, for example, we describe how The Social Network illustrates intended, emergent, and realized strategies.

Meanwhile, working within the business model gives our book a significant price advantage over other textbooks. Politicians in many states are paying more and more attention over time to the cost of a college education, including the high prices of most textbooks. It is therefore reasonable to expect an ever-increasing number of professors to seek modestly priced textbooks. Professors still want to be assured of quality, of course. Both of us are endowed chairs at Research I universities. We have long track records of publishing our research in premier journals, and we have served in a variety of editorial and review board roles for such journals. Finally, we recognize that professors want to minimize their switching costs when adopting a new book. Although every textbook is a little unique, our table of contents offers a structure and topic coverage that parallels what market leading books provide.

Chapter 1: Mastering Strategy: Art and Science

Chapter 1: Mastering Strategy: Art and Science 1.1 Mastering Strategy: Art and Science 1.2 Defining Strategic Management and Strategy 1.3 Intended, Emergent, and Realized Strategies 1.4 The History of Strategic Management 1.5 Understanding the Strategic Management Process 1.6 Conclusion

1.1 Mastering Strategy: Art and Science

Learning Objectives

After reading this chapter, you should be able to understand and articulate answers to the following questions:

1. What are strategic management and strategy?

2. Why does strategic management matter?

3. What elements determine firm performance?

Strategic Management: A Core Concern for Apple

The Opening of the Apple Store

Lucius Kwok – Apple Store UK Opening Day – CC BY-SA 2.0.

March 2, 2011, was a huge day for Apple. The firm released its much-anticipated iPad2, a thinner and faster version of market-leading Apple’s iPad tablet device. Apple also announced that a leading publisher, Random House, had made all seventeen thousand of its books available through Apple’s iBookstore. Apple had enjoyed tremendous success for quite some time. Approximately fifteen million iPads were sold in 2010, and the price of Apple’s stock had more than tripled from early 2009 to early 2011.

But future success was far from guaranteed. The firm’s visionary founder Steve Jobs was battling serious health

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problems. Apple’s performance had suffered when an earlier health crisis had forced Jobs to step away from the company. This raised serious questions. Would Jobs have to step away again? If so, how might Apple maintain its excellent performance without its leader?

Meanwhile, the iPad2 faced daunting competition. Samsung, LG, Research in Motion, Dell, and other manufacturers were trying to create tablets that were cheaper, faster, and more versatile than the iPad2. These firms were eager to steal market share by selling their tablets to current and potential Apple customers. Could Apple maintain leadership of the tablet market, or would one or more of its rivals dominate the market in the years ahead? Even worse, might a company create a new type of device that would make Apple’s tablets obsolete?

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1.2 Defining Strategic Management and Strategy

Learning Objectives

1. Learn what strategic management is.

2. Understand the key question addressed by strategic management.

3. Understand why it is valuable to consider different definitions of strategy.

4. Learn what is meant by each of the 5 Ps of strategy.

What Is Strategic Management?

Issues such as those currently faced by Apple are the focus of strategic management because they help answer the key question examined by strategic management—“Why do some firms outperform other firms?” More specifically, strategic management examines how actions and events involving top executives (such as Steve Jobs), firms (Apple), and industries (the tablet market) influence a firm’s success or failure. Formal tools exist for understanding these relationships, and many of these tools are explained and applied in this book. But formal tools are not enough; creativity is just as important to strategic management. Mastering strategy is therefore part art and part science.

This introductory chapter is intended to enable you to understand what strategic management is and why it is important. Because strategy is a complex concept, we begin by explaining five different ways to think about what strategy involves (Table 1.1 “Defining Strategy: The Five Ps”). Next, we journey across many centuries to examine the evolution of strategy from ancient times until today. We end this chapter by presenting a conceptual model that maps out one way that executives can work toward mastering strategy. The model also provides an overall portrait of this book’s contents by organizing the remaining nine chapters into a coherent whole.

Defining Strategy: The Five Ps

Defining strategy is not simple. Strategy is a complex concept that involves many different processes and activities within an organization. To capture this complexity, Professor Henry Mintzberg of McGill University in Montreal, Canada, articulated what he labeled as “the 5 Ps of strategy.” According to Mintzberg, understanding how strategy can be viewed as a plan, as a ploy, as a position, as a pattern, and as a perspective is important. Each of these five ways of thinking about strategy is necessary for understanding what strategy is, but none of them alone is sufficient to master the concept (Mintzberg, 1987).

Table 1.1 Defining Strategy: The Five Ps

Plan – a carefully crafted set of steps that a firm intends to follow in order to be successful

Virtually every firm creates a strategic plan to guide its future. Plans are important to individuals too. If you are reading this, you probably have a career plan that requires a college degree.

Ploy – a specific move designed to outwit or trick competitors

A pizzeria owner in Pennsylvania once tried to sabotage his competitors by placing mice in their shops. Although most strategic ploys are lega, this one was not and the perpetrator was arrested.

Pattern – the degree of consistency in a firm’s strategic actions

Apple always responds to competitive challenges by innovating. Some of these innovations are complete busts, but enough are successful that Apple’s overall performance is excellent.

Position – a firm’s place in the industry relative to its competitors

Old Navy offers fashionable clothes at competitive prices. Old Navy is owned by the same corporation as the Gap and Banana Republic; each brand is positioned at a different pricing level.

Perspective – how executives interpret the competitive landscape around them

In the mid-1990s, the Internet was mainly a communication tool for academics and government. Jeff Bezos viewed the Internet as a sales channel and he began selling books online. Today, the company he created-Amazon.com-is a dominant retailer.

Strategy as a Plan

Strategic plans are the essence of strategy, according to one classic view of strategy. A strategic plan is a carefully crafted set of steps that a firm intends to follow to be successful. Virtually every organization creates a strategic plan to guide its future. In 1996, Apple’s performance was not strong, and Gilbert F. Amelio was appointed as chief executive officer in the hope of reversing the company’s fortunes. In a speech focused on strategy, Amelio described a plan that centered on leveraging the Internet (which at the time was in its infancy) and developing multimedia products and services. Apple’s subsequent success selling over the Internet via iTunes and with the iPad can be traced back to the plan articulated in 1996 (Markoff, 1996).

A business model should be a central element of a firm’s strategic plan. Simply stated, a business model describes the process through which a firm hopes to earn profits. It probably won’t surprise you to learn that developing a viable business model requires that a firm sell goods or services for more than it costs the firm to create and distribute those goods. A more subtle but equally important aspect of a business model is providing customers with a good or service more cheaply than they can create it themselves.

Consider, for example, large chains of pizza restaurants such as Papa John’s and Domino’s.

5 Mastering Strategic Management

Franchises such as Pizza Hut provide an example of a popular business model that has been successful worldwide.

Wikimedia Foundation – CC BY 2.0.

Because these firms buy their ingredients in massive quantities, they pay far less for these items than any family could (an advantage called economies of scale). Meanwhile, Papa John’s and Domino’s have developed specialized kitchen equipment that allows them to produce better-tasting pizza than can be created using the basic ovens that most families rely on for cooking. Pizza restaurants thus can make better-tasting pizzas for far less cost than a family can make itself. This business model provides healthy margins and has enabled Papa John’s and Domino’s to become massive firms.

Strategic plans are important to individuals too. Indeed, a well-known proverb states that “he who fails to plan, plans to fail.” In other words, being successful requires a person to lay out a path for the future and then follow that path. If you are reading this, earning a college degree is probably a key step in your strategic plan for your career. Don’t be concerned if your plan is not fully developed, however. Life is full of unexpected twists and turns, so maintaining flexibility is wise for individuals planning their career strategies as well as for firms.

For firms, these unexpected twists and turns place limits on the value of strategic planning. Former heavyweight boxing champion Mike Tyson captured the limitations of strategic plans when he noted, “Everyone has a plan until I punch them in the face.” From that point forward, strategy is less about a plan and more about adjusting to a shifting situation. For firms, changes in the behavior of competitors, customers, suppliers, regulators, and other external groups can all be sources of a metaphorical punch in the face. As events unfold around a firm, its strategic plan may reflect a competitive reality that no longer exists. Because the landscape of business changes rapidly, other ways of thinking about strategy are needed.

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Strategy as a Ploy

A second way to view strategy is in terms of ploys. A strategic ploy is a specific move designed to outwit or trick competitors. Ploys often involve using creativity to enhance success. One such case involves the mighty Mississippi River, which is a main channel for shipping cargo to the central portion of the United States. Ships traveling the river enter it near New Orleans, Louisiana. The next major port upriver is Louisiana’s capital, Baton Rouge. A variety of other important ports exist in states farther upriver.

Many decades ago, the governor of Louisiana was a clever and controversial man named Huey Long. Legend has it that Long ordered that a bridge being constructed over the Mississippi River in Baton Rouge be built intentionally low to the ground. This ploy created a captive market for cargo because very large barges simply could not fit under the bridge. Large barges using the Mississippi River thus needed to unload their cargo in either New Orleans or Baton Rouge. Either way, Louisiana would benefit. Of course, owners of ports located farther up the river were not happy.

Ploys can be especially beneficial in the face of much stronger opponents. Military history offers quite a few illustrative examples. Before the American Revolution, land battles were usually fought by two opposing armies, each of which wore brightly colored clothing, marching toward each other across open fields. George Washington and his officers knew that the United States could not possibly defeat better-trained and better-equipped British forces in a traditional battle. To overcome its weaknesses, the American military relied on ambushes, hit-and- run attacks, and other guerilla moves. It even broke an unwritten rule of war by targeting British officers during skirmishes. This was an effort to reduce the opponent’s effectiveness by removing its leadership.

Centuries earlier, the Carthaginian general Hannibal concocted perhaps the most famous ploy ever.

7 Mastering Strategic Management

Hannibal’s clever use of elephants to cross the Alps provides an example of a strategic ploy.

Wikipedia – public domain.

Carthage was at war with Rome, a scary circumstance for most Carthaginians given their far weaker fighting force. The Alps had never been crossed by an army. In fact, the Alps were considered such a treacherous mountain range that the Romans did not bother monitoring the part of their territory that bordered the Alps. No horse was up to the challenge, but Hannibal cleverly put his soldiers on elephants, and his army was able to make the mountain crossing. The Romans were caught completely unprepared and most of them were frightened by the sight of charging elephants. By using the element of surprise, Hannibal was able to lead his army to victory over a much more powerful enemy.

Ploys continue to be important today. In 2011, a pizzeria owner in Pennsylvania was accused of making a rather unique attempt to outmaneuver two rival pizza shops. According to police, the man tried to sabotage his competitors by placing mice in their pizzerias. If the ploy had not been discovered, the two shops could have

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suffered bad publicity or even been shut down by authorities because of health concerns. Although most strategic ploys are legal, this one was not, and the perpetrator was arrested (Reuters, 2011).

Strategy as a Pattern

Strategy as pattern is a third way to view strategy. This view focuses on the extent to which a firm’s actions over time are consistent. A lack of a strategic pattern helps explain why Kmart deteriorated into bankruptcy in 2002. The company was started in the late nineteenth century as a discount department store. By the middle of the twentieth century, consistently working to be good at discount retailing had led Kmart to become a large and prominent chain.

By the 1980s, however, Kmart began straying from its established strategic pattern. Executives shifted the firm’s focus away from discount retailing and toward diversification. Kmart acquired large stakes in chains involved in sporting goods (Sports Authority), building supplies (Builders Square), office supplies (OfficeMax), and books (Borders). In the 1990s, a new team of executives shifted Kmart’s strategy again. Brands other than Kmart were sold off, and Kmart’s strategy was adjusted to emphasize information technology and supply chain management. The next team of executives decided that Kmart’s strategy would be to compete directly with its much-larger rival, Walmart. The resulting price war left Kmart crippled. Indeed, this last shift in strategy was the fatal mistake that drove Kmart into bankruptcy. Today, Kmart is part of Sears Holding Company, and its prospects remain uncertain.

In contrast, Apple is very consistent in its strategic pattern: It always responds to competitive challenges by innovating. Some of these innovations are complete busts. Perhaps the best known was the Newton, a tablet-like device that may have been ahead of its time. Another was the Pippin, a video game system introduced in 1996 to near-universal derision. Apple TV, a 2007 offering intended to link televisions with the Internet, also failed to attract customers. Such failures do not discourage Apple, however, and enough of its innovations are successful that Apple’s overall performance is excellent. However, there are risks to following a pattern too closely. A consistent pattern can make a company predictable, a possibility that Apple must guard against in the years ahead.

Strategy as a Position

Viewing strategy as a plan, a ploy, and a pattern involve only the actions of a single firm. In contrast, the next P—strategy as position—considers a firm and its competitors. Specifically, strategy as position refers to a firm’s place in the industry relative to its competitors. McDonald’s, for example, has long been and remains the clear leader among fast-food chains. This position offers both good and bad aspects for McDonald’s. One advantage of leading an industry is that many customers are familiar with and loyal to leaders. Being the market leader, however, also makes McDonald’s a target for rivals such as Burger King and Wendy’s. These firms create their strategies with McDonald’s as a primary concern. Old Navy offers another example of strategy as position. Old Navy has been positioned to sell fashionable clothes at competitive prices.

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Old Navy occupies a unique position as the low-cost strategy within the Gap Inc.’s fleet of brands.

Lindsey Turner – clearance – CC BY 2.0.

Old Navy is owned by the same corporation (Gap Inc.) as the midlevel brand the Gap and upscale brand Banana Republic. Each of these three brands is positioned at a different pricing level. The firm hopes that as Old Navy’s customers grow older and more affluent, they will shop at the Gap and then eventually at Banana Republic. A similar positioning of different brands is pursued by General Motors through its Chevrolet (entry level), Buick (midlevel), and Cadillac (upscale) divisions.

Firms can carve out a position by performing certain activities in a different manner than their rivals. For example, Southwest Airlines is able to position itself as a lower-cost and more efficient provider by not offering meals that are common among other airlines. In addition, Southwest does not assign specific seats. This allows for faster loading of passengers. Positioning a firm in this manner can only be accomplished when managers make trade-offs that cut off certain possibilities (such as offering meals and assigned seats) to place their firms in a unique strategic space. When firms position themselves through unique goods and services customers value, business often thrives. But when firms try to please everyone, they often find themselves without the competitive positioning needed for long-term success. Thus deciding what a firm is not going to do is just as important to strategy as deciding what it is going to do (Porter, 1996).

To gain competitive advantage and greater success, firms sometimes change positions. But this can be a risky move. Winn-Dixie became a successful grocer by targeting moderate-income customers. When the firm abandoned this established position to compete for wealthier customers and higher margins, the results were disastrous. The firm was forced into bankruptcy and closed many stores. Winn-Dixie eventually exited bankruptcy, but like Kmart, its future prospects are unclear. In contrast to firms such as Winn-Dixie that change

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positions, Apple has long maintained a position as a leading innovator in various industries. This positioning has served Apple well.

Strategy as a Perspective

The fifth and final P shifts the focus to inside the minds of the executives running a firm. Strategy as perspective refers to how executives interpret the competitive landscape around them. Because each person is unique, two different executives could look at the same event—such as a new competitor emerging—and attach different meanings to it. One might just see a new threat to his or her firm’s sales; the other might view the newcomer as a potential ally.

An old cliché urges listeners to “make lemons into lemonade.” A good example of applying this idea through strategy as perspective is provided by local government leaders in Sioux City, Iowa. Rather than petition the federal government to change their airport’s unusual call sign—SUX—local leaders decided to leverage the call sign to attract the attention of businesses and tourists to build their city’s economic base. An array of clothing and other goods sporting the SUX name is available at http://www.flysux.com. Some strategists such as these local leaders are willing to take a seemingly sour situation and see the potential sweetness, while other executives remain fixated on the sourness.

Executives who adopt unique and positive perspectives can lead firms to find and exploit opportunities that others simply miss. In the mid-1990s, the Internet was mainly a communication tool for academics and government agencies. Jeff Bezos looked beyond these functions and viewed the Internet as a potential sales channel. After examining a number of different markets that he might enter using the Internet, Bezos saw strong profit potential in the bookselling business, and he began selling books online. Today, the company he created—Amazon—has expanded far beyond its original focus on books to become a dominant retailer in countless different markets. The late Steve Jobs at Apple appeared to take a similar perspective; he saw opportunities where others could not, and his firm has reaped significant benefits as a result.

Key Takeaway

• Strategic management focuses on firms and the different strategies that they use to become and remain successful. Multiple views of strategy exist, and the 5 Ps described by Henry Mintzberg enhance understanding of the various ways in which firms conceptualize strategy.

Exercises

1. Have you developed a strategy to manage your career? Should you make it more detailed? Why or why not?

2. Identify an example of each of the 5 Ps of strategy other than the examples offered in this section.

3. What business that you visit regularly seems to have the most successful business model? What makes the business model work?

11 Mastering Strategic Management

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References

Markoff, J. 1996, May 14. Apple unveils strategic plan of small steps. New York Times. Retrieved from http://www.nytimes.com/1996/05/14/business/apple-unveils-strategic -plan-of-small-steps.html.

Mintzberg, H. 1987. The strategy concept I: Five Ps for strategy. California Management Review, 30(1), 11–24. Porter, M. E. 1996, November–December. What is strategy? Harvard Business Review, 61–79. Reuters. 2011, March 1. Philadelphia area pizza owner used mice vs. competition—police. Retrieved from

news.yahoo.com/s/nm/20110301/od_uk_nm/oukoe_uk_crime_pizza.

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1.3 Intended, Emergent, and Realized Strategies

Learning Objectives

1. Learn what is meant by intended and emergent strategies and the differences between them.

2. Understand realized strategies and how they are influenced by intended, deliberate, and emergent strategies.

A few years ago, a consultant posed a question to thousands of executives: “Is your industry facing overcapacity and fierce price competition?” All but one said “yes.” The only “no” came from the manager of a unique operation—the Panama Canal! This manager was fortunate to be in charge of a venture whose services are desperately needed by shipping companies and that offers the only simple route linking the Atlantic and Pacific Oceans. The canal’s success could be threatened if transoceanic shipping was to cease or if a new canal were built. Both of these possibilities are extremely remote, however, so the Panama Canal appears to be guaranteed to have many customers for as long as anyone can see into the future.

When an organization’s environment is stable and predictable, strategic planning can provide enough of a strategy for the organization to gain and maintain success. The executives leading the organization can simply create a plan and execute it, and they can be confident that their plan will not be undermined by changes over time. But as the consultant’s experience shows, only a few executives—such as the manager of the Panama Canal—enjoy a stable and predictable situation. Because change affects the strategies of almost all organizations, understanding the concepts of intended, emergent, and realized strategies is important (Table 1.2 “Strategic Planning and Learning: Intended, Emergent, and Realized Strategies”). Also relevant are deliberate and nonrealized strategies. The relationships among these five concepts are presented in Figure 1.3 “A Model of Intended, Deliberate, and Realized Strategy” (Mintzberg & Waters, 1985).

Table 1.2 Strategic Planning and Learning: Intended, Emergent, and Realized Strategies

Intended Strategy Emergent Strategy Realized Strategy

David McConnell aspired to be a writer. When his books weren’t selling he decided to give out perfume as a gimmick.

The perfumes McConnell gave out with his books were popular, inspiring the foundation of the California Perfume Company.

The company changed its name to Avon in 1939, and its direct marketing system remained popular for decades. Avon is now available online and in retail outlets worldwide.

When father and son team Scott and Don Rasmussen were fired from the New England Whalers, they envisioned a cable television network that focused on sports events in the state of Connecticut.

As the network became successful, ESPN has branched out beyond the local softball games and demolition derbies that were first broadcasted.

ESPN is now billed as the worldwide leader in sports, owning several ESPN affiliates as well as production of ESPN magazine, ESPN radio, and broadcasting for ABC.

In 1977, a cash-strapped advertiser gave a radio station managed by Lowell Paxson 112 electric can openers to pay off an overdue bill. The can openers were offerend over the air for $9.95 and quickly sold out.

An idea emerged. Soon the radio station featured a regular show called “Suncoast Bargaineers.” In 1982, Paxson and a partner launched the Home Shopping Club on local cable television in Florida.

Today the Home Shopping Network has evolved into a retail powerhours. The company sells tens of thousands of products on television channels in several countries and over the internet.

Intended and Emergent Strategies

Figure 1.3 A Model of Intended, Deliberate, and Realized Strategy

An intended strategy is the strategy that an organization hopes to execute. Intended strategies are usually described in detail within an organization’s strategic plan. When a strategic plan is created for a new venture, it is called a business plan. As an undergraduate student at Yale in 1965, Frederick Smith had to complete a business plan for a proposed company as a class project. His plan described a delivery system that would gain efficiency

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by routing packages through a central hub and then pass them to their destinations. A few years later, Smith started Federal Express (FedEx), a company whose strategy closely followed the plan laid out in his class project. Today, Frederick Smith’s personal wealth has surpassed $2 billion, and FedEx ranks eighth among the World’s Most Admired Companies according to Fortune magazine. Certainly, Smith’s intended strategy has worked out far better than even he could have dreamed (Donahoe, 2011; Memphis Business Journal, 2011).

Emergent strategy has also played a role at Federal Express. An emergent strategy is an unplanned strategy that arises in response to unexpected opportunities and challenges. Sometimes emergent strategies result in disasters. In the mid-1980s, FedEx deviated from its intended strategy’s focus on package delivery to capitalize on an emerging technology: facsimile (fax) machines. The firm developed a service called ZapMail that involved documents being sent electronically via fax machines between FedEx offices and then being delivered to customers’ offices. FedEx executives hoped that ZapMail would be a success because it reduced the delivery time of a document from overnight to just a couple of hours. Unfortunately, however, the ZapMail system had many technical problems that frustrated customers. Even worse, FedEx failed to anticipate that many businesses would simply purchase their own fax machines. ZapMail was shut down before long, and FedEx lost hundreds of millions of dollars following its failed emergent strategy. In retrospect, FedEx had made a costly mistake by venturing outside of the domain that was central to its intended strategy: package delivery (Funding Universe).