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Strategic Management CONCEPTS AND CASES


  1. Part 1 Overview of Strategic Management 2
    1. Chapter 1 The Nature of Strategic Management 2
  2. Part 2 Strategy Formulation 40
    1. Chapter 2 The Business Vision and Mission 40
    2. Chapter 3 The External Assessment 58
      1. The Nature of an External Audit 61
      2. The Industrial Organization (I/O) View 63
        Economic Forces 63
        Social, Cultural, Demographic, and Natural Environment Forces 66
        Political, Governmental, and Legal Forces 68
        Technological Forces 69
        Competitive Forces 71
      3. Competitive Analysis: Porter’s Five-Forces Model 74
      4. Sources of External Information 78
      5. Forecasting Tools and Techniques 78
      6. Industry Analysis: The External Factor Evaluation (EFE) Matrix 80
      7. The Competitive Profile Matrix (CPM) 81
    3. Chapter 4 The Internal Assessment 90
      1. The Nature of an Internal Audit 93
      2. The Resource-Based View (RBV) 96
      3. Integrating Strategy and Culture 97
      4. Management 99
      5. Marketing 103
      6. Finance/Accounting 106
      7. Production/Operations 113
      8. Research and Development 115
      9. Management Information Systems 117
      10. Value Chain Analysis (VCA) 119
      11. The Internal Factor Evaluation (IFE) Matrix 122
    4. Chapter 5 Strategies in Action 130
      1. Long-Term Objectives 133
      2. The Balanced Scorecard 135
      3. Types of Strategies 136
      4. Integration Strategies 139
      5. Intensive Strategies 141
      6. Diversification Strategies 143
      7. Defensive Strategies 146
      8. Michael Porter’s Five Generic Strategies 151
      9. Means for Achieving Strategies 155
      10. Strategic Management in Nonprofit and Governmental Organizations 162
      11. Strategic Management in Small Firms 164
    5. Chapter 6 Strategy Analysis and Choice 172
  3. Part 3 Strategy Implementation 210
    1. Chapter 7 Implementing Strategies: Management and Operations Issues 210
    2. Chapter 8 Implementing Strategies: Marketing, Finance/Accounting, R&D, and MIS Issues 250
  4. Part 4 Strategy Evaluation 284
    1. Chapter 9 Strategy Review, Evaluation, and Control 284
  5. Part 5 Key Strategic-Management Topics 308
    1. Chapter 10 Business Ethics/Social Responsibility/ Environmental Sustainability 308
    2. Chapter 11 Global/International Issues 328
  6. Part 6 Strategic-Management Case Analysis 346
    1. How to Prepare and Present a Case Analysis 346

Brief Contents
Preface xvii
Acknowledgments xxiii
About the Author xxvii

Part 1 Overview of Strategic Management 2

Chapter 1 The Nature of Strategic Management 2

MCDONALD’S CORPORATION: DOING GREAT IN A WEAK ECONOMY 4
What Is Strategic Management? 5
Defining Strategic Management 6 & Stages of Strategic Management 6 & Integrating Intuition and Analysis 7 & Adapting to Change 8
Key Terms in Strategic Management 9
Competitive Advantage 9 & Strategists 10 & Vision and Mission
Statements 11 & External Opportunities and Threats 11&
Internal Strengths and Weaknesses 12 & Long-Term Objectives 13
& Strategies 13 & Annual Objectives 13 & Policies 14
The Strategic-Management Model 14
Benefits of Strategic Management 16
Financial Benefits 17 & Nonfinancial Benefits 18
Why Some Firms Do No Strategic Planning 18
Pitfalls in Strategic Planning 19
Guidelines for Effective Strategic Management 19
Comparing Business and Military Strategy 21
THE COHESION CASE: MCDONALD’S CORPORATION—2009 27
ASSURANCE OF LEARNING EXERCISES 37
Assurance of Learning Exercise 1A: Gathering Strategy Information 37
Assurance of Learning Exercise 1B: Strategic Planning for My University 37
Assurance of Learning Exercise 1C: Strategic Planning at a Local Company 38
Assurance of Learning Exercise 1D: Getting Familiar with SMCO 38

Part 2 Strategy Formulation 40

Chapter 2 The Business Vision and Mission 40

WAL-MART: DOING GREAT IN A WEAK ECONOMY 42
What Do We Want to Become? 43
What Is Our Business? 43
Vision versus Mission 45 & The Process of Developing Vision and Mission Statements 46
Importance (Benefits) of Vision and Mission Statements 47
A Resolution of Divergent Views 48
Characteristics of a Mission Statement 49
A Declaration of Attitude 49 & A Customer Orientation 50 & Mission Statement Components 51
Writing and Evaluating Mission Statements 53
ASSURANCE OF LEARNING EXERCISES 56
Assurance of Learning Exercise 2A: Evaluating Mission Statements 56
Assurance of Learning Exercise 2B: Writing a Vision and Mission Statement for McDonald’s Corporation 56
Assurance of Learning Exercise 2C: Writing a Vision and Mission Statement for My University 57
Assurance of Learning Exercise 2D: Conducting Mission Statement Research 57

Chapter 3 The External Assessment 58

DUNKIN' BRANDS, INC.: DOING GREAT IN A WEAK ECONOMY 60

The Nature of an External Audit 61

The purpose of an external audit is to develop a finite list of opportunities that could benefit a firm and threats that should be avoided. As the term finite suggests, the external audit is not aimed at developing an exhaustive list of every possible factor that could influence the business; rather, it is aimed at identifying key variables that offer actionable responses. Firms should be able to respond either offensively or defensively to the factors by formulating strategies that take advantage of external opportunities or that minimize the impact of potential threats. Figure 3-1 illustrates how the external audit fits into the strategic-management process.

Key External Forces 61

Key External Forces External forces can be divided into five broad categories: (1) economic forces; (2) social, cultural, demographic, and natural environment forces; (3) political, governmental, and legal forces; (4) technological forces; and (5) competitive forces. Relationships among these forces and an organization are depicted in Figure 3-2. External trends and events, such as the global economic recession, significantly affect products, services, markets, and organizations worldwide. The U.S. unemployment rate climbed to over 9 percent in July 2009 as more than 2.5 million jobs were lost in the United States in 2008—the most since 1945 when the country downsized from the war effort. The rate is expected to rise to 10.1 percent. All sectors witness rising unemployment rates, except for education, health-care services, and government employment. Many Americans are resorting to minimum wage jobs to make ends meet.
Changes in external forces translate into changes in consumer demand for both industrial and consumer products and services. External forces affect the types of products developed, the nature of positioning and market segmentation strategies, the type of services offered, and the choice of businesses to acquire or sell. External forces directly affect both suppliers and distributors. Identifying and evaluating external opportunities and threats enables organizations to develop a clear mission, to design strategies to achieve long-term objectives, and to develop policies to achieve annual objectives.
The increasing complexity of business today is evidenced by more countries developing the capacity and will to compete aggressively in world markets. Foreign businesses and countries are willing to learn, adapt, innovate, and invent to compete successfully in the marketplace. There are more competitive new technologies in Europe and Asia today than ever before.
The Process of Performing an External Audit 62
The process of performing an external audit must involve as many managers and employees as possible. As emphasized in earlier chapters, involvement in the strategic-management process can lead to understanding and commitment from organizational members. Individuals appreciate having the opportunity to contribute ideas and to gain a better understanding of their firms’ industry, competitors, and markets.
To perform an external audit, a company first must gather competitive intelligence and information about economic, social, cultural, demographic, environmental, political, governmental, legal, and technological trends. Individuals can be asked to monitor various sources of information, such as key magazines, trade journals, and newspapers. These persons can submit periodic scanning reports to a committee of managers charged with performing the external audit. This approach provides a continuous stream of timely strategic information and involves many individuals in the external-audit process. The Internet provides another source for gathering strategic information, as do corporate, university, and public libraries. Suppliers, distributors, salespersons, customers, and competitors represent other sources of vital information.
Once information is gathered, it should be assimilated and evaluated. A meeting or series of meetings of managers is needed to collectively identify the most important opportunities and threats facing the firm. These key external factors should be listed on flip charts or a chalkboard. A prioritized list of these factors could be obtained by requesting that all managers rank the factors identified, from 1 for the most important opportunity/threat to 20 for the least important opportunity/threat. These key external factors can vary over time and by industry. Relationships with suppliers or distributors are often a critical success factor. Other variables commonly used include market share, breadth of competing products, world economies, foreign affiliates, proprietary and key account advantages, price competitiveness, technological advancements, population shifts, interest rates, and pollution abatement.
Freund emphasized that these key external factors should be (1) important to achieving long-term and annual objectives, (2) measurable, (3) applicable to all competing firms, and (4) hierarchical in the sense that some will pertain to the overall company and others will be more narrowly focused on functional or divisional areas.1 A final list of the most important key external factors should be communicated and distributed widely in the organization. Both opportunities and threats can be key external factors.

The Industrial Organization (I/O) View 63
Economic Forces 63
Social, Cultural, Demographic, and Natural Environment Forces 66
Political, Governmental, and Legal Forces 68
Technological Forces 69
Competitive Forces 71

Competitive Intelligence Programs 72 & Market Commonality and Resource Similarity 74

Competitive Analysis: Porter’s Five-Forces Model 74

Rivalry Among Competing Firms 75 & Potential Entry of New Competitors 76 & Potential Development of Substitute Products 77 & Bargaining Power of Suppliers 77 & Bargaining Power of Consumers 77

Sources of External Information 78

A wealth of strategic information is available to organizations from both published and unpublished sources. Unpublished sources include customer surveys, market research, speeches at professional and shareholders’ meetings, television programs, interviews, and conversations with stakeholders. Published sources of strategic information include periodicals, journals, reports, government documents, abstracts, books, directories, newspapers, and manuals. The Internet has made it easier for firms to gather, assimilate, and evaluate information.
There are many excellent Web sites for gathering strategic information, but six that the author uses routinely are listed here:
1.    http://marketwatch.multexinvestor.com
2.    http://moneycentral.msn.com
3.    http://finance.yahoo.com
4.    www.clearstation.com
5.    https://us.etrade.com/e/t/invest/markets
6.    www.hoovers.com
Most college libraries subscribe to Standard & Poor’s (S&P’s) Industry Surveys. These documents are exceptionally up-to-date and give valuable information about many different industries. Each report is authored by a Standard & Poor’s industry research analyst and includes the following sections:
1.    Current Environment
2.    Industry Trends
3.    How the Industry Operates
4.    Key Industry Ratios and Statistics
5.    How to Analyze a Company
6.    Glossary of Industry Terms
7.    Additional Industry Information
8.    References
9.    Comparative Company Financial Analysis

Forecasting Tools and Techniques 78

Forecasts are educated assumptions about future trends and events. Forecasting is a complex activity because of factors such as technological innovation, cultural changes, new products, improved services, stronger competitors, shifts in government priorities, changing social values, unstable economic conditions, and unforeseen events. Managers often must rely on published forecasts to effectively identify key external opportunities and threats.
A sense of the future permeates all action and underlies every decision a person makes. People eat expecting to be satisfied and nourished in the future. People sleep assuming that in the future they will feel rested. They invest energy, money, and time because they believe their efforts will be rewarded in the future. They build highways assuming that automobiles and trucks will need them in the future. Parents educate children on the basis of forecasts that they will need certain skills, attitudes, and knowledge when they grow up. The truth is we all make implicit forecasts throughout our daily lives. The question, therefore, is not whether we should forecast but rather how we can best forecast to enable us to move beyond our ordinarily unarticulated assumptions about the future. Can we obtain information and then make educated assumptions (forecasts) to better guide our current decisions to achieve a more desirable future state of affairs? We should go into the future with our eyes and our minds open, rather than stumble into the future with our eyes closed.15
Many publications and sources on the Internet forecast external variables. Several published examples include Industry Week’s “Trends and Forecasts,” BusinessWeek’s “Investment Outlook,” and Standard & Poor’s Industry Survey. The reputation and continued success of these publications depend partly on accurate forecasts, so published sources of information can offer excellent projections. An especially good Web site for industry forecasts is finance.yahoo.com. Just insert a firm’s stock symbol and go from there.
Sometimes organizations must develop their own projections. Most organizations forecast (project) their own revenues and profits annually. Organizations sometimes forecast market share or customer loyalty in local areas. Because forecasting is so important in strategic management and because the ability to forecast (in contrast to the ability to use a forecast) is essential, selected forecasting tools are examined further here.
Forecasting tools can be broadly categorized into two groups: quantitative techniques and qualitative techniques. Quantitative forecasts are most appropriate when historical data are available and when the relationships among key variables are expected to remain the same in the future. Linear regression, for example, is based on the assumption that the future will be just like the past—which, of course, it never is. As historical relationships become less stable, quantitative forecasts become less accurate.
No forecast is perfect, and some forecasts are even wildly inaccurate. This fact accents the need for strategists to devote sufficient time and effort to study the underlying bases for published forecasts and to develop internal forecasts of their own. Key external opportunities and threats can be effectively identified only through good forecasts. Accurate forecasts can provide major competitive advantages for organizations. Forecasts are vital to the strategic-management process and to the success of organizations.
Making Assumptions 79

Planning would be impossible without assumptions. McConkey defines assumptions as the “best present estimates of the impact of major external factors, over which the manager has little if any control, but which may exert a significant impact on performance or the ability to achieve desired results.”16 Strategists are faced with countless variables and imponderables that can be neither controlled nor predicted with 100 percent accuracy. Wild guesses should never be made in formulating strategies, but reasonable assumptions based on available information must always be made.
By identifying future occurrences that could have a major effect on the firm and by making reasonable assumptions about those factors, strategists can carry the strategic management process forward. Assumptions are needed only for future trends and events that are most likely to have a significant effect on the company’s business. Based on the best information at the time, assumptions serve as checkpoints on the validity of strategies. If future occurrences deviate significantly from assumptions, strategists know that corrective actions may be needed. Without reasonable assumptions, the strategy formulation process could not proceed effectively. Firms that have the best information generally make the most accurate assumptions, which can lead to major competitive advantages.

Industry Analysis: The External Factor Evaluation (EFE) Matrix 80

The Competitive Profile Matrix (CPM) 81

ASSURANCE OF LEARNING EXERCISES 86
Assurance of Learning Exercise 3A: Developing an EFE Matrix for McDonald’s Corporation 86
Assurance of Learning Exercise 3B: The External Assessment 86
Assurance of Learning Exercise 3C: Developing an EFE Matrix for My University 87
Assurance of Learning Exercise 3D: Developing a Competitive Profile Matrix for McDonald’s Corporation 87
Assurance of Learning Exercise 3E: Developing a Competitive Profile Matrix for My University 87

Conclusion

Increasing turbulence in markets and industries around the world means the external audit has become an explicit and vital part of the strategic-management process. This chapter provides a framework for collecting and evaluating economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information. Firms that do not mobilize and empower their managers and employees to identify, monitor, forecast, and evaluate key external forces may fail to anticipate emerging opportunities and threats and, consequently, may pursue ineffective strategies, miss opportunities, and invite organizational demise. Firms not taking advantage of the Internet are technologically falling behind.
A major responsibility of strategists is to ensure development of an effective externalaudit system. This includes using information technology to devise a competitive intelligence system that works. The external-audit approach described in this chapter can be used effectively by any size or type of organization. Typically, the external-audit process is more informal in small firms, but the need to understand key trends and events is no less important for these firms. The EFE Matrix and Porter’s Five-Forces Model can help strategists evaluate the market and industry, but these tools must be accompanied by good intuitive judgment. Multinational firms especially need a systematic and effective externalaudit system because external forces among foreign countries vary so greatly.

Chapter 4 The Internal Assessment 90

The Internal Assessment 90
AMAZON.COM, INC.: DOING GREAT IN A WEAK ECONOMY. HOW? 92

The Nature of an Internal Audit 93

Key Internal Forces 93 & The Process of Performing an Internal Audit 93

The Resource-Based View (RBV) 96

Integrating Strategy and Culture 97

Management 99

Planning 100 & Organizing 100 & Motivating 101 & Staffing 102 & Controlling 102 & Management Audit Checklist of Questions 103

Marketing 103

Customer Analysis 103 & Selling Products/Services 103 & Product and Service Planning 104 & Pricing 105 & Distribution 105 & Marketing Research 106 & Cost/Benefit Analysis 106 & Marketing/Audit Checklist of Questions 106

Finance/Accounting 106

Finance/Accounting Functions 107 & Basic Types of Financial Ratios 108 & Finance/Accounting Audit Checklist 113

Production/Operations 113

Production/Operations Audit Checklist 115

Research and Development 115

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

Management Information Systems 117

Strategic-Planning Software 118 & Management Information Systems Audit 119

Value Chain Analysis (VCA) 119

Benchmarking 120

The Internal Factor Evaluation (IFE) Matrix 122

ASSURANCE OF LEARNING EXERCISES 128
Assurance of Learning Exercise 4A: Performing a Financial Ratio Analysis for McDonald’s Corporation (MCD) 128
Assurance of Learning Exercise 4B: Constructing an IFE Matrix for McDonald’s Corporation 128
Assurance of Learning Exercise 4C: Constructing an IFE Matrix for My University 128

Conclusion
Management, marketing, finance/accounting, production/operations, research and development, and management information systems represent the core operations of most businesses. A strategic-management audit of a firm’s internal operations is vital to organizational health. Many companies still prefer to be judged solely on their bottomline performance. However, an increasing number of successful organizations are using the internal audit to gain competitive advantages over rival firms.
Systematic methodologies for performing strength-weakness assessments are not well developed in the strategic-management literature, but it is clear that strategists must identify and evaluate internal strengths and weaknesses in order to effectively formulate and choose among alternative strategies. The EFE Matrix, Competitive Profile Matrix, IFE Matrix, and clear statements of vision and mission provide the basic information needed to successfully formulate competitive strategies. The process of performing an internal audit represents an opportunity for managers and employees throughout the organization to participate in determining the future of the firm. Involvement in the process can energize and mobilize managers and employees.

Chapter 5 Strategies in Action 130

VOLKSWAGEN AG: DOING GREAT IN A WEAK ECONOMY. HOW? 132

Long-Term Objectives 133

The Nature of Long-Term Objectives 133 & Financial versus Strategic Objectives 134 & Not Managing by Objectives 135

The Balanced Scorecard 135

Types of Strategies 136

The model illustrated in Figure 5-1 provides a conceptual basis for applying strategic management. Defined and exemplified in Table 5-4, alternative strategies that an enterprise could pursue can be categorized into 11 actions: forward integration, backward integration, horizontal integration, market penetration, market development, product development, related diversification, unrelated diversification, retrenchment, divestiture, and liquidation. Each alternative strategy has countless variations. For example, market penetration can include adding salespersons, increasing advertising expenditures, couponing, and using similar actions to increase market share in a given geographic area.
Many, if not most, organizations simultaneously pursue a combination of two or more strategies, but a combination strategy can be exceptionally risky if carried too far. No organization can afford to pursue all the strategies that might benefit the firm. Difficult decisions must be made. Priority must be established. Organizations, like individuals, have limited resources. Both organizations and individuals must choose among alternative strategies and avoid excessive indebtedness.
Hansen and Smith explain that strategic planning involves “choices that risk resources” and “trade-offs that sacrifice opportunity.” In other words, if you have a strategy to go north, then you must buy snowshoes and warm jackets (spend resources) and forgo the opportunity of “faster population growth in southern states.” You cannot have a strategy to go north and then take a step east, south, or west “just to be on the safe side.” Firms spend resources and focus on a finite number of opportunities in pursuing strategies to achieve an uncertain outcome in the future. Strategic planning is much more than a roll of the dice; it is a wager based on predictions and hypotheses that are continually tested and refined by knowledge, research, experience, and learning. Survival of the firm itself may hinge on your strategic plan.
Organizations cannot do too many things well because resources and talents get spread thin and competitors gain advantage. In large diversified companies, a combination strategy is commonly employed when different divisions pursue different strategies. Also, organizations struggling to survive may simultaneously employ a combination of several defensive strategies, such as divestiture, liquidation, and retrenchment.

Levels of Strategies 138

The model illustrated in Figure 5-1 provides a conceptual basis for applying strategic management. Defined and exemplified in Table 5-4, alternative strategies that an enterprise could pursue can be categorized into 11 actions: forward integration, backward integration, horizontal integration, market penetration, market development, product development, related diversification, unrelated diversification, retrenchment, divestiture, and liquidation. Each alternative strategy has countless variations. For example, market penetration can include adding salespersons, increasing advertising expenditures, couponing, and using similar actions to increase market share in a given geographic area.
Many, if not most, organizations simultaneously pursue a combination of two or more strategies, but a combination strategy can be exceptionally risky if carried too far. No organization can afford to pursue all the strategies that might benefit the firm. Difficult decisions must be made. Priority must be established. Organizations, like individuals, have limited resources. Both organizations and individuals must choose among alternative strategies and avoid excessive indebtedness.
Hansen and Smith explain that strategic planning involves “choices that risk resources” and “trade-offs that sacrifice opportunity.” In other words, if you have a strategy to go north, then you must buy snowshoes and warm jackets (spend resources) and forgo the opportunity of “faster population growth in southern states.” You cannot have a strategy to go north and then take a step east, south, or west “just to be on the safe side.” Firms spend resources and focus on a finite number of opportunities in pursuing strategies to achieve an uncertain outcome in the future. Strategic planning is much more than a roll of the dice; it is a wager based on predictions and hypotheses that are continually tested and refined by knowledge, research, experience, and learning. Survival of the firm itself may hinge on your strategic plan.4
Organizations cannot do too many things well because resources and talents get spread thin and competitors gain advantage. In large diversified companies, a combination strategy is commonly employed when different divisions pursue different strategies. Also, organizations struggling to survive may simultaneously employ a combination of several defensive strategies, such as divestiture, liquidation, and retrenchment.

Integration Strategies 139

Forward Integration 139 & Backward Integration 140 & Horizontal Integration 141

Intensive Strategies 141

Market Penetration 141 & Market Development 142 & Product Development 142

Diversification Strategies 143

Related Diversification 144 & Unrelated Diversification 144

Defensive Strategies 146

Retrenchment 146 & Divestiture 148 & Liquidation 149

Michael Porter’s Five Generic Strategies 151

Cost Leadership Strategies (Type 1 and Type 2) 152 & Differentiation Strategies (Type 3) 153 & Focus Strategies (Type 4 and Type 5) 154 & Strategies for Competing in Turbulent, High-Velocity Markets 155

Means for Achieving Strategies 155

Cooperation Among Competitors 155 & Joint Venture/ Partnering 156 & Merger/Acquisition 158 & First Mover Advantages 161 & Outsourcing 161

Strategic Management in Nonprofit and Governmental Organizations 162

Educational Institutions 162 & Medical Organizations 163 & Governmental Agencies and Departments 163

Strategic Management in Small Firms 164

ASSURANCE OF LEARNING EXERCISES 168
Assurance of Learning Exercise 5A: What Strategies Should McDonald’s Pursue in 2011–2013? 168
Assurance of Learning Exercise 5B: Examining Strategy Articles 168
Assurance of Learning Exercise 5C: Classifying Some Year 2009 Strategies 169
Assurance of Learning Exercise 5D: How Risky Are Various Alternative Strategies? 169
Assurance of Learning Exercise 5E: Developing Alternative Strategies for My University 170
Assurance of Learning Exercise 5F: Lessons in Doing Business Globally 170

Conclusion
The main appeal of any managerial approach is the expectation that it will enhance organizational performance. This is especially true of strategic management. Through involvement in strategic-management activities, managers and employees achieve a better understanding of an organization’s priorities and operations. Strategic management allows organizations to be efficient, but more important, it allows them to be effective. Although strategic management does not guarantee organizational success, the process allows proactive rather than reactive decision making. Strategic management may represent a radical change in philosophy for some organizations, so strategists must be trained to anticipate and constructively respond to questions and issues as they arise. The 16 strategies discussed in this chapter can represent a new beginning for many firms, especially if managers and employees in the organization understand and support the plan for action.

Chapter 6 Strategy Analysis and Choice 172

APPLE: DOING GREAT IN A WEAK ECONOMY. HOW? 174
The Nature of Strategy Analysis and Choice 175
The Process of Generating and Selecting Strategies 175
A Comprehensive Strategy-Formulation Framework 176
The Input Stage 177
The Matching Stage 177
The Strengths-Weaknesses-Opportunities-Threats (SMOT) Matrix 178 & The Strategic Position and Action Evaluation (SPACE) Matrix 181 & The Boston Consulting Group (BCG) Matrix 185 & The Internal-External (IE) Matrix 188 & The Grand Strategy Matrix 191
The Decision Stage 192
The Quantitative Strategic Planning Matrix (QSPM) 192
& Positive Features and Limitations of the QSPM 195
Cultural Aspects of Strategy Choice 196
The Politics of Strategy Choice 196
Governance Issues 198
ASSURANCE OF LEARNING EXERCISES 205
Assurance of Learning Exercise 6A: Developing a SWOT Matrix for McDonald’s 205
Assurance of Learning Exercise 6B: Developing a SPACE Matrix for McDonald’s 205
Assurance of Learning Exercise 6C: Developing a BCG Matrix for McDonald’s 205
Assurance of Learning Exercise 6D: Developing a QSPM for McDonald’s 206
Assurance of Learning Exercise 6E: Formulating Individual Strategies 206
Assurance of Learning Exercise 6F: The Mach Test 206

Conclusion
The essence of strategy formulation is an assessment of whether an organization is doing the right things and how it can be more effective in what it does. Every organization should be wary of becoming a prisoner of its own strategy, because even the best strategies become obsolete sooner or later. Regular reappraisal of strategy helps management avoid complacency. Objectives and strategies should be consciously developed and coordinated and should not merely evolve out of day-to-day operating decisions.
An organization with no sense of direction and no coherent strategy precipitates its own demise. When an organization does not know where it wants to go, it usually ends up some place it does not want to be. Every organization needs to consciously establish and communicate clear objectives and strategies.
Modern strategy-formulation tools and concepts are described in this chapter and integrated into a practical three-stage framework. Tools such as the SWOT Matrix, SPACE Matrix, BCG Matrix, IE Matrix, and QSPM can significantly enhance the quality of strategic decisions, but they should never be used to dictate the choice of strategies. Behavioral, cultural, and political aspects of strategy generation and selection are always important to consider and manage. Because of increased legal pressure from outside groups, boards of directors are assuming a more active role in strategy analysis and choice. This is a positive trend for organizations.

Part 3 Strategy Implementation 210

Chapter 7 Implementing Strategies: Management and Operations Issues 210

GOOGLE: DOING GREAT IN A WEAK ECONOMY. HOW? 212
The Nature of Strategy Implementation 213
Management Perspectives 214
Annual Objectives 215
Policies 217
Resource Allocation 219
Managing Conflict 220
Matching Structure with Strategy 220
The Functional Structure 222 & The Divisional Structure 222
& The Strategic Business Unit (SBU) Structure 225 & The Matrix Structure 226 & Some Do’s and Don’ts in Developing Organizational Charts 228
Restructuring, Reengineering, and E-Engineering 229
Restructuring 230 & Reengineering 231
Linking Performance and Pay to Strategies 231
Managing Resistance to Change 234
Creating a Strategy-Supportive Culture 235
Production/Operations Concerns When Implementing Strategies 236
Human Resource Concerns When Implementing Strategies 237
Employee Stock Ownership Plans (ESOPs) 239 & Balancing Work Life and Home Life 240 & Benefits of a Diverse Workforce 242
& Corporate Wellness Programs 242
ASSURANCE OF LEARNING EXERCISES 248
Assurance of Learning Exercise 7A: Revising McDonald’s Organizational Chart 248
Assurance of Learning Exercise 7B: Do Organizations Really Establish Objectives? 248
Assurance of Learning Exercise 7C: Understanding My University’s Culture 249

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

The Nature of Strategy Implementation 252
JOHNSON & JOHNSON (J&J): DOING GREAT IN A WEAK ECONOMY. HOW? 252
Current Marketing Issues 253
New Principles of Marketing 254 & Advertising Media 256
& Purpose-Based Marketing 257
Market Segmentation 257
Does the Internet Make Market Segmentation Easier? 259
Product Positioning 260
Finance/Accounting Issues 261
Acquiring Capital to Implement Strategies 262
New Source of Funding 266 & Projected Financial Statements 266 & Projected Financial Statement for Mattel, Inc. 268 & Financial Budgets 271 & Evaluating the Worth of a Business 273 & Deciding Whether to Go Public 275
Research and Development (R&D) Issues 275
Management Information Systems (MIS) Issues 277
ASSURANCE OF LEARNING EXERCISES 282
Assurance of Learning Exercise 8A: Developing a Product-Positioning Map for McDonald’s 282
Assurance of Learning Exercise 8B: Performing an EPS/EBIT Analysis for McDonald’s 282
Assurance of Learning Exercise 8C: Preparing Projected Financial Statements for McDonald’s 282
Assurance of Learning Exercise 8D: Determining the Cash Value of McDonald’s 283
Assurance of Learning Exercise 8E: Developing a Product-Positioning Map for My University 283
Assurance of Learning Exercise 8F: Do Banks Require Projected Financial Statements? 283

Part 4 Strategy Evaluation 284

Chapter 9 Strategy Review, Evaluation, and Control 284

FAMILY DOLLAR STORES: DOING GREAT IN A WEAK ECONOMY. HOW? 286
The Nature of Strategy Evaluation 286
The Process of Evaluating Strategies 290
A Strategy-Evaluation Framework 290
Reviewing Bases of Strategy 290 & Measuring Organizational Performance 292 & Taking Corrective Actions 294
The Balanced Scorecard 295
Published Sources of Strategy-Evaluation Information 297
Characteristics of an Effective Evaluation System 298
Contingency Planning 299
Auditing 300
Twenty-First-Century Challenges in Strategic Management 301
The Art of Science Issue 301 & The Visible or Hidden Issue 301
& The Top-Down or Bottom-Up Approach 302
ASSURANCE OF LEARNING EXERCISES 306
Assurance of Learning Exercise 9A: Preparing a Strategy-Evaluation Report for McDonald’s Corp. 306
Assurance of Learning Exercise 9B: Evaluating My University’s Strategies 306

Part 5 Key Strategic-Management Topics 308

Chapter 10 Business Ethics/Social Responsibility/ Environmental Sustainability 308

WALT DISNEY: DOING GREAT IN A WEAK ECONOMY. HOW? 310
Business Ethics 311
Code of Business Ethics 312 & An Ethics Culture 313 & Bribes 314 & Love Affairs at Work 314 Social Responsibility 315
Social Policy 315 & Social Policies on Retirement 316
Environmental Sustainability 317
What Is a Sustainability Report? 317 & Lack of Standards Changing 318 & Obama Regulations 318 & Managing Environmental Affairs in the Firm 319 & Should Students Receive
Environmental Training? 319 & Reasons Why Firms Should “Be Green” 320 & Be Proactive, Not Reactive 320 & ISO 14000/14001 Certification 320 & Electric Car Networks Are
Coming 321 & The March 2009 Copenhagen Meeting 322
ASSURANCE OF LEARNING EXERCISES 326
Assurance of Learning Exercise 10A: Does McDonald’s Have a Code of Business Ethics? 326
Assurance of Learning Exercise 10B: The Ethics of Spying on Competitors 326
Assurance of Learning Exercise 10C: Who Prepares a Sustainability Report? 327

Chapter 11 Global/International Issues 328

MARRIOTT INTERNATIONAL: DOING GREAT IN A WEAK
ECONOMY. HOW? 330
Multinational Organizations 331
Advantages and Disadvantages of International Operations 332
The Global Challenge 333
Globalization 334 & A Weak Economy 335
United States versus Foreign Business Cultures 335
The Mexican Culture 337 & The Japanese Culture 338 & Communication Differences Across Countries 338
Worldwide Tax Rates 339
Joint Ventures in India 339
ASSURANCE OF LEARNING EXERCISES 343
Assurance of Learning Exercise 11A: McDonald’s Wants to Enter Africa. Help Them. 343
Assurance of Learning Exercise 11B: Does My University Recruit in Foreign Countries? 343
Assurance of Learning Exercise 11C: Assessing Differences in Culture Across Countries 343
Assurance of Learning Exercise 11D: How Well Traveled Are Business Students at Your University? 344

Part 6 Strategic-Management Case Analysis 346

How to Prepare and Present a Case Analysis 346

What Is a Strategic-Management Case? 348
Guidelines for Preparing Case Analyses 348
The Need for Practicality 348 & The Need for Justification 348 & The Need for Realism 348 & The Need for Specificity 349 & The Need for Originality 349 & The Need to Contribute 349
Preparing a Case for Class Discussion 349
The Case Method versus Lecture Approach 349 & The Cross-Examination 350
Preparing a Written Case Analysis 350
The Executive Summary 350 & The Comprehensive Written Analysis 351 & Steps in Preparing a Comprehensive Written Analysis 351
Making an Oral Presentation 351
Organizing the Presentation 351 & Controlling Your Voice 352 & Managing Body Language 352 & Speaking from Notes 352 & Constructing Visual Aids 352 & Answering
Questions 353 & Tips for Success in Case Analysis 353 & Content Tips 353 & Process Tips 354 & Sample Case Analysis

Name Index 359
Subject Index 363


     

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