[SOLVED] Final project McDonald’s, management homework help – Business Finance

The attachment is our final project and i decided to chose  McDonald’s .I just need to do the  Introduction, question 1, question 2, question 3, question 4, and question 5(SWOT & Matrices)! The pages have to be around 25-30 pages. Please write as much as you can, use charts, pics, data, tables if need them. Any other questions please ask me! Thank you! I appreciate it!!Dr. Eva Dodd-Walker
Business Strategy
Business Strategy
MBA6611 Case Analysis—Paper Template
Instructions:
1. SPACING: The assignment should be double-spaced. The “Reference” section should
be single-spaced with double spacing between entries.
2. FONT SIZE: Use Times Roman 12-point font.
3. FORMAT: Number all pages (bottom of page), and indent new paragraphs 5 spaces.
Use the APA writing style to properly cite and reference all research
material.
4. LENGTH:
The body of the paper (Introduction to Conclusion) cannot exceed 30
pages.
5. RESEARCH:
Effective research references many sources. (Use sources less than or
equal to 10 years old.) Some basic references include the following:
a.
b.
c.
d.
Your textbook
Finance.yahoo.com and MSNmoney.com
Hoovers.com
Company Profile and Industry Profile:
Business Source Premier (Enhanced)
Datamonitor reports from Troy’s electronic databases
(http://library.troy.edu/databases_business.html)
e. The company’s website
f. Small Business Administration (www.sba.gov)
g. Wikipedia’s references or sources (NOT Wikipedia)
6. INSTRUCTION PAGE: You must delete the instruction page; that is, the title page is
the first page of the report.
“Company Name” Case Analysis Page 1 of 20
Dr. Eva Dodd-Walker
Business Strategy
COMPANY NAME
(Case Analysis)
Group #–Section #
Specialist A
Specialist B
Specialist C
Specialist D
Specialist E
Specialist F
Presentation Date
“Company Name” Case Analysis Page 2 of 20
Dr. Eva Dodd-Walker
Business Strategy
SPECIALIST ASSIGNMENT
Introduction………………………………………………………………………..Specialist #1
Question 1………………………………………………………………………….Specialist #1
Question 2 (Financial Matrices)……………………………………….………….Specialist #2
Question 3………………………………………………………………………….Specialist #3
Question 4………………………………………………………………………….Specialist #4
Question 5 (SWOT & GS Matrices)……………………………………..……….Specialist #5
Question 6a&b………………………………………….………………………….Specialist #5
Question 6c (Pro forma Statements).…………………………..………………….Specialist #6
Question 7………………………………………………………………………….Specialist #6
Update & Conclusion…………………………………………….……………….Specialist #6
INTRODUCTION
State your intentions/plans for the paper. Give an overview of the paper, and indicate
the year of your case. You should provide a brief company history as well as an industry
summary. The industry analysis should include a discussion of the industry’s total revenue,
compound annual growth rate, major product categories, and competitors. (The CAGR is
needed to position the company in the Grand Strategy Matrix.)
“Company Name” Case Analysis Page 3 of 20
Dr. Eva Dodd-Walker
Business Strategy
CASE ANALYSIS
Question 1:
Identify the firm’s apparent current mission. Then briefly review the firm’s
current objectives and strategies. [Please note that you must evaluate the
firm’s mission statement.]
Mission Statement:
Mission Statement Evaluation:
Component
1
2
3
4
5
6
Company
Company Objectives:
Company Strategies:
“Company Name” Case Analysis Page 4 of 20
7
8
9
Question 2:
Dr. Eva Dodd-Walker
Business Strategy
How would you describe the firm’s current financial condition? [Use
financial ratios and other pertinent income and balance sheet data to support
your analysis.]
Historical Financial Analysis: [You must explain the trends in each of the five
categories—liquidity ratios, asset utilization ratios, leverage ratios,
profitability ratios, and market ratios. Use the end points for your assessment
of the period.]
Competitor Financial Analysis: [You must explain your company’s positioning in each of
the five categories—liquidity ratios, asset utilization ratios, leverage ratios,
profitability ratios, and market ratios.]
Overall Financial Health or Evaluation:
“Company Name” Case Analysis Page 5 of 20
Question 3:
Dr. Eva Dodd-Walker
Business Strategy
Outline and discuss the firm’s external opportunities and threats, using any
analytical model(s) you believe are relevant.
[You must analyze the General Environment, Industry Environment, and the firm’s strategic
group to determine this information.]
“Company Name” Case Analysis Page 6 of 20
Question 4:
Dr. Eva Dodd-Walker
Business Strategy
Outline and discuss the firm’s internal strengths and weaknesses using any
analytical model(s) you believe are relevant.
[Strengths and weaknesses will include information from the financial analysis.]
“Company Name” Case Analysis Page 7 of 20
Dr. Eva Dodd-Walker
Business Strategy
Question 5:
Based on your analysis:
a. Revise the firm’s mission and objectives if necessary.
b. Develop and discuss corporate and business strategies that you
recommend to achieve the firm’s mission and objectives.
Mission and Objective Revisions:
Alternative Solutions or Strategies: [Your SWOT Matrix should contain your final
selection of strategies; that is, you must integrate the “desired” strategies from the Grand
Strategy Matrix. You will discuss in detail the top three strategies in this section.]
Strategy 1: [Identify the strategy and discuss how it will solve the company’s problems or
help it reach its goals.]
Strategy 2: [Identify the strategy and discuss how it will solve the company’s problems or
help it reach its goals.]
Strategy3: [Identify the strategy and discuss how it will solve the company’s problems or
help it reach its goals.]
“Company Name” Case Analysis Page 8 of 20
Question 6:
Dr. Eva Dodd-Walker
Business Strategy
Outline and discuss the specific actions needed for implementation of your
chosen strategy. This should include the following:
a. Specific strategies and long-term objectives in such areas as marketing,
human resources, finance, operations, and information systems as
appropriate.
b.
Specify specific annual objectives and the policies for achieving these
objectives, in areas such as marketing, human resources, finance,
operations, and information systems as appropriate.
c.
Specify the results you can expect, including pro forma financial
statements.
Recommended Strategy: [You must choose “one” strategy to implement.]
Implementation of Selected Strategy:
a. Management:
b. Marketing:
c. Operations:
d. Accounting/Finance:
e. Research & Development:
Proforma Financial Statements:
“Company Name” Case Analysis Page 9 of 20
Question 7:
Dr. Eva Dodd-Walker
Business Strategy
Recommend procedures for strategy review and evaluation. Include specific
measures that you will utilize.
Projected Financial Ratios: [Discuss the impact of the selected strategy.]
Balanced Scorecard: [You must list the important annual objectives necessary to achieve
the firm’s long-term goals.]
Rumelt’s Criteria: [Evaluate the selected strategy relative to Rumelt’s Criteria.]
“Company Name” Case Analysis Page 10 of 20
Dr. Eva Dodd-Walker
Business Strategy
UPDATE
What has happened since the case was written? (Note: If this is a real-time case, this section
is omitted.)
CONCLUSION
Provide a summary. Overall, what do you think about the company?
“Company Name” Case Analysis Page 11 of 20
Dr. Eva Dodd-Walker
Business Strategy
REFERENCES
David, F.R. (2005). Strategic management: Concepts and cases (10e). Upper Saddle River,
New Jersey: Pearson-Prentice Hall.
MBA Comprehensive Questions. (2002). Sorrell College of Business, Troy University.
(Add additional research sources to this list, and list the sources in alphabetical and
chronological order using the APA format!)
“Company Name” Case Analysis Page 12 of 20
Dr. Eva Dodd-Walker
Business Strategy
APPENDIX A: FINANCIAL RATIOS
“Company Name” Case Analysis Page 13 of 20
Dr. Eva Dodd-Walker
Business Strategy
Financial Ratios: Historical Comparison
Case Year-2
Case Year-1
Case Year
Assessment
Liquidity Ratios
Current Ratio
Quick Ratio
Asset Utilization Ratios
Inventory Turnover
DSI
AR Turnover
DSO (ACP)
Fixed Asset Turnover
Total Asset Turnover
Debt Management Ratios
Debt Ratio
TIE
Profitability Ratios
Gross Margin
Operating Margin
Profit Margin
BEP
ROA
ROE
Market Ratios
P/E
P/CF
M/B
Assessment Notation: P=Positive Trend, N=Negative Trend, Dash=No Change.
“Company Name” Case Analysis Page 14 of 20
Dr. Eva Dodd-Walker
Business Strategy
Financial Ratios: Competitor Comparison
Company
Competitor
Case Year
Competitor
Industry
Liquidity Ratios
Current Ratio
Quick Ratio
Asset Utilization Ratios
Inventory Turnover
DSI
AR Turnover
DSO (ACP)
Fixed Asset Turnover
Total Asset Turnover
Debt Management Ratios
Debt Ratio
TIE
Profitability Ratios
Gross Margin
Operating Margin
Profit Margin
BEP
ROA
ROE
Market Ratios
P/E
P/CF
M/B
Assessment Notation: S=Strength, W=Weakness, Dash=Neutral.
“Company Name” Case Analysis Page 15 of 20
Assessment
Dr. Eva Dodd-Walker
Business Strategy
APPENDIX B: STRATEGIC MATRICES
“Company Name” Case Analysis Page 16 of 20
Dr. Eva Dodd-Walker
Business Strategy
SWOT MATRIX
Strengths
SWOT MATRIX
Your Company
Weaknesses
1
2
3
4
5
1
2
3
4
5
1
2
1
2
1
2
1
2
Opportunities
1
2
3
4
5
Threats
1
2
3
4
5
“Company Name” Case Analysis Page 17 of 20
Dr. Eva Dodd-Walker
Business Strategy
GRAND STRATEGY MATRIX (David, 2005)
RAPID MARKET GROWTH
Quadrant II
Quadrant I
Your Company (Example)
WEAK
COMPETITIVE
POSITION
STRONG
COMPETITIVE
POSITION
Quadrant III
Quadrant IV
SLOW MARKET GROWTH
“Company Name” Case Analysis Page 18 of 20
Dr. Eva Dodd-Walker
Business Strategy
APPENDIX C: PRO-FORMA STATEMENTS
“Company Name” Case Analysis Page 19 of 20
Dr. Eva Dodd-Walker
Business Strategy
APPENDIX D: EXTRA CREDIT MATRICES
EFE Matrix
CP Matrix
IFE Matrix
QSPM Matrix
“Company Name” Case Analysis Page 20 of 20
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Strategic Management
CONCEPTS AND CASES
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Library of Congress Cataloging-in-Publication Data
David, Fred R.
Strategic management: concepts and cases / Fred R. David.—13th ed.
p. cm.
Includes bibliographical references and index.
ISBN-13: 978-0-13-612098-8 (casebound)
ISBN-10: 0-13-612098-9 (casebound)
1. Strategic planning. 2. Strategic planning—Case studies. I. Title.
HD30.28.D385 2011
658.4’012—dc22
2009052036
10 9 8 7 6 5 4 3 2
ISBN 10:
0-13-612098-9
ISBN 13: 978-0-13-612098-8
THIRTEENTH EDITION
Strategic Management
CONCEPTS AND CASES
Fred R. David
Francis Marion University
Florence, South Carolina
Prentice Hall
Boston Columbus Indianapolis New York San Francisco Upper Saddle River
Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto
Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo
To Joy, Forest, Byron, and Meredith—
my wife and children—
for their encouragement and love.
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Brief Contents
Preface xvii
About the Author xxvii
Part 4
Strategy Evaluation 284
Part 1
Overview of Strategic Management 2
Chapter 9
Strategy Review, Evaluation,
and Control 284
Acknowledgments xxiii
Chapter 1
The Nature of Strategic Management 2
THE COHESION CASE: MCDONALD’S — 2009 27
Part 5
Key Strategic-Management Topics 308
Part 2
Strategy Formulation 40
Chapter 10
Business Ethics/Social Responsibility/
Environmental Sustainability 308
Chapter 2
The Business Vision and Mission 40
Chapter 11
Global/International Issues 328
Chapter 3
The External Assessment 58
Part 6
Strategic-Management Case
Analysis 346
Chapter 4
The Internal Assessment 90
Chapter 5
Strategies in Action 130
Chapter 6
Strategy Analysis and Choice 172
How to Prepare and Present
a Case Analysis 346
Name Index 359
Subject Index 363
Part 3
Strategy Implementation 210
Chapter 7
Implementing Strategies: Management
and Operations Issues 210
Chapter 8
Implementing Strategies: Marketing, Finance/
Accounting, R&D, and MIS Issues 250
vii
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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
Key External Forces 61 & The Process of Performing an External
Audit 62
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
Forecasting Tools and Techniques 78
Making Assumptions 79
ix
x
CONTENTS
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
Chapter 4
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
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
Levels of Strategies 138
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
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
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
CONTENTS
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
Assurance of Learning Exercise 6G: Developing a BCG Matrix for
My University 208
Assurance of Learning Exercise 6H: The Role of Boards of
Directors 208
Assurance of Learning Exercise 6I: Locating Companies in a Grand
Strategy Matrix 209
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
xi
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 ProductPositioning 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 ProductPositioning Map for My University 283
Assurance of Learning Exercise 8F: Do Banks Require Projected
Financial Statements? 283
xii
CONTENTS
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 CrossExamination 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
Outline 355
CONTENTS
STEPS IN PRESENTING AN ORAL CASE ANALYSIS 356
Oral Presentation—Step 1: Introduction (2 minutes) 356
Oral Presentation—Step 2: Mission/Vision (4 minutes) 356
Oral Presentation—Step 3: Internal Assessment (8 minutes) 356
Oral Presentation—Step 4: External Assessment (8 minutes) 357
Oral Presentation—Step 5: Strategy Formulation (14 minutes) 357
xiii
Oral Presentation—Step 6: Strategy Implementation (8 minutes) 357
Oral Presentation—Step 7: Strategy Evaluation (2 minutes) 358
Oral Presentation—Step 8: Conclusion (4 minutes) 358
Name Index 359
Subject Index 363
xiv
CONTENTS
Cases
HOSPITALITY/ENTERTAINMENT
1. Walt Disney Company — 2009, Mernoush Banton
1
2. Merryland Amusement Park — 2009, Gregory Stone
14
AIRLINES
3. JetBlue Airways Corporation — 2009, Mernoush Banton
4. AirTran Airways, Inc. — 2009, Charles M. Byles
26
37
RETAIL STORES
5. Family Dollar Stores, Inc. — 2009, Joseph W. Leonard
50
6. Wal-Mart Stores, Inc. — 2009, Amit J. Shah and Michael L. Monahanat
7. Whole Foods Market, Inc. — 2009, James L. Harbin and Patricia
Humphrey
73
8. Macy’s, Inc. — 2009, Rochelle R. Brunson and Marlene M. Reed
83
INTERNET BASED
9. Yahoo! Inc. — 2009, Hamid Kazeroony
10. eBay Inc. — 2009, Lori Radulovich
91
99
FINANCIAL
11. Wells Fargo Corporation — 2009, Donald L. Crooks, Robert S. Goodman,
and John Burbridge
111
RESTAURANTS
12. Krispy Kreme Doughnuts (KKD) — 2009, John Burbridge and
Coleman Rich
120
13. Starbucks Corporation — 2009, Sharynn Tomlin
129
NONPROFIT
14. The United States Postal Service (USPS) — 2009, Fred and
Forest David 138
15. National Railroad Passenger Corporation (AMTRAK) — 2009,
Kristopher J. Blanchard
150
16. Goodwill of San Francisco, San Mateo and Marin Counties — 2009,
Mary E. Vradelis 158
TRANSPORTATION
17. Harley-Davidson, Inc. — 2009, Carol Pope and Joanne Mack
18. Ford Motor Company — 2009, Alen Badal
166
176
FOOD
19. Kraft Foods Inc. — 2009, Kristopher J. Blanchard
184
20. Hershey Company — 2009, Anne Walsh and Ellen Mansfield
PERSONAL CARE
21. Johnson & Johnson — 2009, Sharynn Tomlin, Matt Milhauser,
Bernhard Gierke, Thibault Lefebvre, and Mario Martinez
201
22. Avon Products Inc. — 2009, Rochelle R. Brunson and
Marlene M. Reed
212
BEVERAGE
23. Molson Coors — 2009, Amit J. Shah
24. PepsiCo — 2009, John and Sherry Ross
220
232
192
59
CONTENTS
HEALTH CARE
25. Pfizer, Inc. — 2009, Vijaya Narapareddy
243
26. Merck & Company Inc. — 2010, Mernoush Banton
252
SPORTS
27. Nike, Inc. — 2010, Randy Harris
261
28. Callaway Golf Company — 2009, Amit J. Shah
272
ENERGY
29. Chevron Corporation — 2009, Linda Herkenhoff
282
xv
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Preface
Why the Need for This New Edition?
The global economic recession has created a business world today that is quite different
and more complex than it was just two years ago when the previous edition of this text
was published. Thousands of businesses have vanished, and consumers have become
extremely price sensitive and oftentimes reluctant purchasers of products and services.
Very tight credit markets, high unemployment, and millions of new entrepreneurs have
also changed the business landscape. Business firms that have survived the last three
years of global economic turmoil are today leaner and meaner than ever before.
Gaining and sustaining competitive advantage is harder than ever. Social networking
and e-commerce have altered marketing to its core since the prior edition. This new edition reveals how to conduct effective strategic planning in this new world order.
Since the prior edition, thousands of liquidations, bankruptcies, divestitures, mergers, alliances, and partnerships captured the news. Corporate scandals highlighted the
need for improved business ethics and corporate disclosure of financial transactions.
Downsizing, rightsizing, and reengineering contributed to a permanently altered corporate landscape. Thousands of firms began doing business globally, and thousands more
closed their global operations. Thousands prospered, and yet thousands failed in the last
two years as the global recession spared few. Long-held competitive advantages have
eroded as new ones formed. This new edition captures the complexity of this world business environment.
Both the challenges and opportunities facing organizations of all sizes today are
greater than ever. There is less room than ever for error in the formulation and implementation of a strategic plan. This new edition provides a systematic effective approach
for developing a clear strategic plan, even in the worst of times. Changes made in this
edition are aimed squarely at illustrating the effect of new business concepts and techniques on strategic-management theory and practice.
Due to the magnitude of recent changes affecting companies, cultures, and countries,
every page of this edition has been updated. The first edition of this text was published in
1986. Since then, this textbook has grown to be one of the most widely read strategicmanagement books, perhaps the most widely read, in the world. This text is now published
in nine languages.
What Is New in This Edition?
This edition includes exciting new features, changes, and content designed to position this
text as the clear leader and best choice for teaching strategic management. Here is a summary of what is new in this edition:
• A new Chapter 10, “Business Ethics/Social Responsibility/Environmental
Sustainability”; there is extensive new coverage of ethics and sustainability because this
text emphasizes that “good ethics is good business.” Unique to strategic-management
texts, the natural environment discussion is strengthened in this edition to promote and
encourage firms to conduct operations in an environmentally sound manner. Respect for
the natural environment has become an important concern for consumers, companies,
society, and AACSB-International.
• A new Chapter 11, “Global/International Issues”; there is extensive new coverage
of cultural and conceptual strategic-management differences across countries.
Doing business globally has become a necessity, rather than a luxury in most
industries because nearly all strategic decisions today are affected by global
xviii
PREFACE
•
•
•
•
•
•
•
•
•
•
•
issues and concerns. Every case company in this edition does business globally,
providing students ample opportunity to evaluate and consider international
aspects of doing business.
A new boxed insert at the beginning of each chapter showcases a company that has
done exceptionally well in the 2008–2010 global economic recession and reveals their
strategy.
Hundreds of new examples abound in every chapter.
A new cohesion case on McDonald’s Corporation (2010); this is one of the most
successful, well-known, and best managed global companies in the world; students
apply strategy concepts to McDonald’s at the end of each chapter through new
Assurance of Learning Exercises.
Thirty-two new tables in the chapters to better capture key strategic-management
concepts.
A revised comprehensive strategic management model to reflect the new chapters.
Extensive new narrative on strategic management theory and concepts in every
chapter to illustrate the new business world order.
On average, 15 new review questions at the end of each chapter.
Forty-eight new Assurance of Learning Exercises at the end of chapters that apply
chapter concepts; the exercises prepare students for strategic-management case
analysis.
Twenty-four new color photographs bring the edition to life and illustrate
companies/concepts.
All new current readings at the end of each chapter; new research and theories of
seminal thinkers in strategy development, such as Ansoff, Chandler, Porter,
Hamel, Prahalad, Mintzberg, and Barney are provided in the chapters; practical
aspects of strategic management, however, are still center stage and the trademark
of this text below.
Twenty-nine new cases—grouped by industry; great mix of profit/nonprofit,
large/small, and manufacturing/service organizations; all the cases have a
2009–2010 time setting; all the cases are “comprehensive” in the sense that each
focuses on multiple business functions, rather than addressing one particular business problem or issue; all the cases are undisguised and feature real organizations
in real industries using real names and real places (nothing is fictitious in any
case); all the cases feature an organization “undergoing strategic change,” thus
offering students up-to-date issues to evaluate and consider; all the cases are
written in a lively, concise writing style that captures the reader’s interest and
establishes a time setting, usually in the opening paragraph; all the cases provide
excellent quantitative information such as numbers, ratios, percentages, dollar values, graphs, statistics, and maps so students can prepare a more specific, rational,
and defensible strategic plan for the organization; all the cases provide excellent
information about the industry and competitors.
This edition continues to offer many special time-tested features and content that have
made this text so successful for over 20 years. Historical trademarks of this text that are
strengthened in this edition are described below.
Chapters: Time-Tested Features
• This text meets AACSB-International guidelines that support a practitioner orientation rather than a theory/research approach. It offers a skills-oriented approach
to developing a vision and mission statement; performing an external audit; conducting an internal assessment; and formulating, implementing, and evaluating
strategies.
• The author’s writing style is concise, conversational, interesting, logical, lively, and
supported by numerous current examples throughout.
PREFACE
• A simple, integrative strategic-management model appears in all chapters and on the
inside front cover of the text. This model is widely used for strategic planning
among consultants and companies worldwide. One reviewer said, “One thing I have
admired about David’s text is that he follows the fundamental sequence of strategy
formulation, implementation, and evaluation. There is a basic flow from
mission/purposes to internal/external environmental scanning to strategy development, selection, implementation, and evaluation. This has been, and continues to be,
a hallmark of the David text. Many other strategy texts are more disjointed in their
presentation, and thus confusing to the student, especially at the undergraduate
level.”
• A Cohesion Case follows Chapter 1 and is revisited at the end of each chapter. This
Cohesion Case allows students to apply strategic-management concepts and techniques to a real organization as chapter material is covered, which readies students
for case analysis in the course.
• End-of-chapter Assurance of Learning Exercises effectively apply concepts
and techniques in a challenging, meaningful, and enjoyable manner. Eighteen
exercises apply text material to the Cohesion Case; 10 apply textual material to
a college or university; another 10 exercises send students into the business world
to explore important strategy topics. The exercises are relevant, interesting, and
contemporary.
• There is excellent pedagogy in this text, including notable quotes and objectives to
open each chapter, and key terms, current readings, discussion questions, and experiential exercises to close each chapter.
• There is excellent coverage of strategy formulation issues, such as business ethics,
global versus domestic operations, vision/mission, matrix analysis, partnering, joint
venturing, competitive analysis, governance, and guidelines for conducting an
internal/external strategy assessment.
• There is excellent coverage of strategy implementation issues such as corporate
culture, organizational structure, outsourcing, marketing concepts, financial analysis,
and business ethics.
• A systematic, analytical approach is presented in Chapter 6, including matrices such
as the SWOT, BCG, IE, GRAND, SPACE, and QSPM.
• The chapter material is again published in a four-color format.
• A chapters-only paperback version of the text is available.
• Custom-case publishing is available whereby an instructor can combine chapters
from this text with cases from a variety of sources or select any number of cases
desired from the 29 cases in the full text.
• For the chapter material, the outstanding ancillary package includes a comprehensive
Instructor’s Manual, computerized test bank, and PowerPoints.
*The comprehensive strategic-management model is displayed on the inside front cover
of the text. At the start of each chapter, the section of the comprehensive strategy model
covered in that chapter is highlighted and enlarged so students can see the focus of each
chapter in the basic unifying comprehensive model.
*The Case Information Matrix and Case Description Matrix provided in the preface reveal
(1) topical areas emphasized in each case and (2) contact and location information for each
case company. These matrices provide suggestions on how the cases deal with concepts in
the 11 chapters.
Cases: Time-Tested Features
• This edition contains the most current set of cases in any strategic-management
text on the market. All cases include year-end 2009 financial data and
information.
• The cases focus on well-known firms in the news making strategic changes. All
cases are undisguised, and most are exclusively written for this text to reflect
xix
xx
PREFACE
•
•
•
•
•
•
current strategic-management problems and practices. These are all “studentfriendly” cases.
Organized conveniently by industry (usually two competing firms per industry),
the cases feature a great mix of small business, international, and not-for-profit
firms.
All cases have been class tested to ensure that they are interesting, challenging, and
effective for illustrating strategic-management concepts.
All the cases provide complete financial information about the firm, as well as an
organizational chart and a vision and mission statement for the organization if those
were available.
Customized inclusion of cases to comprise a tailored text is available to meet the special needs of some professors.
For the cases, the outstanding ancillary package includes an elaborate Case Solutions
Manual and support from the www.strategyclub.com Web site.
All of the cases are comprehensive in the sense that each provides a full description
of the firm and its operations rather than focusing on one issue or problem such as a
plant closing. Each case thus lends itself to students preparing a three-year strategic
plan for the firm.
Special Note to Students
Welcome to strategic management. This is a challenging and exciting capstone course that
will allow you to function as the owner or chief executive officer of different organizations.
Your major task in this course will be to make strategic decisions and to justify those decisions through oral and written communication. Strategic decisions determine the future
direction and competitive position of an enterprise for a long time. Decisions to expand
geographically or to diversify are examples of strategic decisions.
Strategic decision-making occurs in all types and sizes of organizations, from Exxon
and IBM to a small hardware store or small college. Many people’s lives and jobs are
affected by strategic decisions, so the stakes are very high. An organization’s very survival
is often at stake. The overall importance of strategic decisions makes this course especially
exciting and challenging. You will be called upon in this course to demonstrate how your
strategic decisions could be successfully implemented.
In this course, you can look forward to making strategic decisions both as an individual and as a member of a team. No matter how hard employees work, an organization is in
real trouble if strategic decisions are not made effectively. Doing the right things (effectiveness) is more important than doing things right (efficiency). For example, many
American newspapers are faltering as consumers increasingly switch to interactive media
for news.
You will have the opportunity in this course to make actual strategic decisions,
perhaps for the first time in your academic career. Do not hesitate to take a stand and
defend specific strategies that you determine to be the best, based on tools and concepts in
this textbook. The rationale for your strategic decisions will be more important than the
actual decision, because no one knows for sure what the best strategy is for a particular
organization at a given point in time. This fact accents the subjective, contingency nature
of the strategic-management process.
Use the concepts and tools presented in this text, coupled with your own intuition, to
recommend strategies that you can defend as being most appropriate for the organizations
that you study. You will also need to integrate knowledge acquired in previous business
courses. For this reason, strategic management is often called a capstone course; you may
want to keep this book for your personal library.
A trademark of this text is its practitioner and applications orientation. This book presents techniques and content that will enable you to actually formulate, implement, and
PREFACE
evaluate strategies in all kinds of profit and nonprofit organizations. The end-of-chapter
Assurance of Learning Exercises allow you to apply what you’ve read in each chapter to
the new McDonald’s Cohesion Case and to your own university.
Definitely visit the Strategic Management Club Online at www.strategyclub.com. The
templates and links there will save you time in performing analyses and will make your
work look professional. Work hard in this course and have fun. Good luck!
xxi
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Acknowledgments
Many persons have contributed time, energy, ideas, and suggestions for improving this text
over 12 editions. The strength of this text is largely attributed to the collective wisdom,
work, and experiences of strategic-management professors, researchers, students, and
practitioners. Names of particular individuals whose published research is referenced in
this edition of this text are listed alphabetically in the Name Index. To all individuals
involved in making this text so popular and successful, I am indebted and thankful.
Many special persons and reviewers contributed valuable material and suggestions for
this edition. I would like to thank my colleagues and friends at Auburn University,
Mississippi State University, East Carolina University, and Francis Marion University. I have
served on the management faculty at all these universities. Scores of students and professors
at these schools helped shape the development of this text. Many thanks go to the following
15 reviewers of the prior edition whose comments shaped this thirteenth edition:
Moses Acquaah, The University of North Carolina at Greensboro
Charles M. Byles, Virginia Commonwealth University
Charles J. Capps III, Sam Houston State University
Neil Dworkin, Western Connecticut State University
John Frankenstein, Brooklyn College/City University of New York
Bill W. Godair, Landmark College, Community College of Vermont
Carol Jacobson, Purdue University
Susan M. Jensen, University of Nebraska at Kearney
Thomas E. Kulik, Washington University at St. Louis
Jerrold K. Leong, Oklahoma State University
Trina Lynch-Jackson, Indiana University NW, Purdue Calumet, Calumet College of
St. Joseph, Indiana Wesleyan University
Raza Mir, William Paterson University
Thomas W. Sharkey, University of Toledo
Jill Lynn Vihtelic, Saint Mary’s College
Michael W. Wakefield, Colorado State University–Pueblo
Individuals who develop cases for the North American Case Research Association
Meeting, the Midwest Society for Case Research Meeting, the Eastern Case Writers
Association Meeting, the European Case Research Association Meeting, and Harvard
Case Services are vitally important for continued progress in the field of strategic management. From a research perspective, writing strategic management cases represents a valuable scholarly activity among faculty. Extensive research is required to structure business
policy cases in a way that exposes strategic issues, decisions, and behavior. Pedagogically,
strategic management cases are essential for students in learning how to apply concepts,
evaluate situations, formulate a “game plan,” and resolve implementation problems.
Without a continuous stream of updated business policy cases, the strategic-management
course and discipline would lose much of its energy and excitement.
Professors who teach this course supplement lecture with simulations, guest speakers,
experiential exercises, class projects, and/or outside readings. Case analysis, however, is
typically the backbone of the learning process in most strategic-management courses
across the country. Case analysis is almost always an integral part of this course.
Analyzing strategic-management cases gives students the opportunity to work in
teams to evaluate the internal operations and external issues facing various organizations
and to craft strategies that can lead these firms to success. Working in teams gives students
practical experience solving problems as part of a group. In the business world, important
decisions are generally made within groups; strategic-management students learn to deal
xxiv
ACKNOWLEDGMENTS
with overly aggressive group members and also timid, noncontributing group members.
This experience is valuable as strategic-management students near graduation and soon
enter the working world a full time.
Students can improve their oral and written communication skills as well as their analytical and interpersonal skills by proposing and defending particular courses of action for
the case companies. Analyzing cases allows students to view a company, its competitors,
and its industry concurrently, thus simulating the complex business world. Through case
analysis, students learn how to apply concepts, evaluate situations, formulate strategies, and
resolve implementation problems. Instructors typically ask students to prepare a three-year
strategic plan for the firm. Analyzing a strategic-management case entails students applying
concepts learned across their entire business curriculum. Students gain experience dealing
with a wide range of organizational problems that impact all the business functions.
The following people wrote cases that were selected for inclusion in this thirteenth
edition. These persons helped develop the most current compilation of cases ever assembled in a strategic-management text:
Dr. Alen Badal, The Union Institute
Dr. Mernoush Banton, Florida International University
Dr. Rochelle R. Brunson, Baylor University
Dr. John J. Burbridge, Elon University
Dr. Charles M. Byles, Virginia Commonwealth University
Dr. Donald Crooks, Wagner College
Forest R. David, MBA, Francis Marion University
Dr. James Harbin, Texas A&M University–Texarkana
Dr. Randall D. Harris, California State University–Stanislaus
Dr. Linda Herkenhoff, Saint Mary’s College
Dr. Patricia Humphrey, Texas A&M University–Texarkana
Dr. Hamid H. Kazeroony, William Penn University
Dr. Joe W. Leonard, Miami University
Dr. Joanne Mack, Alverno College
Dr. Ellen Mansfield, La Salle University
Dr. Vijaya Narapareddy, University of Denver
Dr. Carol V. Pope, Alverno College
Dr. Lori Radulovich, Baldwin-Wallace College
Dr. John Ross III, Southwest Texas State University–San Marcos
Sherry Ross, Southwest Texas State University–San Marcos
Dr. Amit J. Shah, Frostburg State University
Dr. Greg Stone, Regent University
Dr. Sharynn M. Tomlin, Angelo State University
Mary Vradelis, Consultant in Berkeley, California
Dr. Anne M. Walsh, La Salle University
Scores of Prentice Hall employees and salespersons have worked diligently behind the
scenes to make this text a leader in strategic management. I appreciate the continued hard
work of all those professionals, such as Sally Yagan, Kim Norbuta, Claudia Fernandes,
Ann Pulido, and Ana Jankowski.
I also want to thank you, the reader, for investing the time and effort to read and study
this text. It will help you formulate, implement, and evaluate strategies for any organization with which you become associated. I hope you come to share my enthusiasm for the
rich subject area of strategic management and for the systematic learning approach taken
in this text.
ACKNOWLEDGMENTS
Finally, I want to welcome and invite your suggestions, ideas, thoughts, comments,
and questions regarding any part of this text or the ancillary materials. Please call me at
910-612-5343, fax me at 910-579-5132, e-mail me at freddavid9@gmail.com, or write me
at the School of Business, Francis Marion University, Florence, SC 29501. I sincerely
appreciate and need your input to continually improve this text in future editions. Your
willingness to draw my attention to specific errors or deficiencies in coverage or exposition
will especially be appreciated.
Thank you for using this text.
Fred R. David
xxv
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About the Author
Dr. Fred R. David is the sole author of two mainstream strategicmanagement textbooks: (1) Strategic Management: Concepts and
Cases, and (2) Strategic-Management Concepts. These texts have been
on a two-year revision cycle since 1986 when the first edition was published. They are among the best if not the best-selling strategicmanagement textbooks in the world and have been used at more than
500 colleges and universities, including Harvard University, Duke
University, Carnegie-Mellon University, Johns Hopkins University, the
University of Maryland, University of North Carolina, University of
Georgia, San Francisco State University, University of South Carolina,
and Wake Forest University.
This textbook has been translated and published in Chinese,
Japanese, Farsi, Spanish, Indonesian, Indian, Thai, and Arabic and is
widely used across Asia and South America. It is the best-selling
strategic-management textbook in Mexico, China, Peru, Chile, Japan, and number two in
the United States. Approximately 90,000 students read Dr. David’s textbook annually as
well as thousands of businesspersons. The book has led the field of strategic management for more than a decade in providing an applications/practitioner approach to the
discipline.
A native of Whiteville, North Carolina, Fred David received a BS degree in mathematics and an MBA from Wake Forest University before being employed as a bank
manager with United Carolina Bank. He received a PhD in Business Administration
from the University of South Carolina, where he majored in management. Currently the
TranSouth Professor of Strategic Management at Francis Marion University (FMU) in
Florence, South Carolina, Dr. David has also taught at Auburn University, Mississippi
State University, East Carolina University, the University of South Carolina, and the
University of North Carolina at Pembroke. He is the author of 152 referred publications,
including 40 journal articles and 55 proceedings publications. David has articles published in such journals as Academy of Management Review, Academy of Management
Executive, Journal of Applied Psychology, Long Range Planning, and Advanced
Management Journal.
Dr. David received a Lifetime Honorary Professorship Award from the Universidad
Ricardo Palma in Lima, Peru. He delivered the keynote speech at the twenty-first Annual
Latin American Congress on Strategy hosted by the Centrum School of Business in
Peru. Dr. David recently delivered an eight-hour Strategic Planning Workshop to the
faculty at Pontificia Universidad Catolica Del in Lima, Peru, and an eight-hour Case
Writing/ Analyzing Workshop to the faculty at Utah Valley State College in Orem,
Utah. He has received numerous awards, including FMU’s Board of Trustees Research
Scholar Award, the university’s Award for Excellence in Research given annually to the
best faculty researcher on campus, and the Phil Carroll Advancement of Management
Award, given annually by the Society for the Advancement of Management (SAM) to a
management scholar for outstanding contributions in management research. He recently
gave the graduation commencement speech at Troy University.
xxviii
CASE COMPANY INFORMATION MATRIX
Case Information Matrix
Case Company
Stock Symbol Headquarters
Web Site Address
2008
Revenues
#Employees in $millions
Cohesion Case
McDonald’s Corp.
MCD
Oak Brook, IL
www.mcdonalds.com
400,000
23,522
DIS
Burbank, CA
Kansas City, MO
www.disney.com
150,000
100
37,843
0.890

Airlines
3. JetBlue Airways
4. AirTran Airways
JBLU
AAI
Forest Hills, NY
Orlando, FL
www.jetblue.com
www.airtran.com
10,047
7,850
3,388
2,552
Retail Stores
5. Family Dollar Stores
6. Wal-Mart Stores
7. Whole Foods Market
8. Macy’s
FDO
WMT
WFMI
M
Charlotte, NC
Bentonville, AR
Austin, TX
Cincinnati, Ohio
www.familydollar.com
www.walmartstores.com
www.wholefoodsmarket.com
www.macysinc.com
25,000
2.1M
46,800
167,000
6,983
405,607
7,953
24,892
Internet Based
9. Yahoo
10. eBay Inc.
YHOO
EBAY
Sunnyvale, CA
San Jose, CA
www.yahoo.com
www.ebay.com
13,600
16,200
7,208
8,541
Financial
11. Wells Fargo
WFC
San Francisco, CA
www.wellsfargo.com
272,800
52,389
Restaurants
12. Krispy Kreme
13. Starbucks Corporation
KKD
SBUX
Winston-Salem, NC
Seattle, WA
www.krispykreme.com
www.starbucks.com
2,700
176,000
383
10,383
Washington, DC
www.usps.com
764,000
75,000
Washington, DC
San Francisco, CA
of San Francisco,
San Mateo and
Marin Counties
www.amtrak.com
www.sfgoodwill.org/
storeLocations2.aspx
19,000
500
2,400
28.1
10,100
213,000
5,971
146,277
98,000
12,800
42,201
5,132
SERVICE FIRMS
Hospitality/Entertainment
1. Walt Disney Co.
2. Merryland Amusement
Park
Nonprofit
14. The United States
Postal Service 15. Amtrak (NRPC) 16. Goodwill Industries
MANUFACTURING
Transportation
17. Harley-Davidson
18. Ford Motor
HOG
FORD
Milwaukee, WI
Dearborn, MI
www.harlety-davidson.com
www.ford.com
Food
19. Kraft Foods
20. Hershey Foods
KFT
HSY
Norfield, IL
Hershey, PA
www.kraft.com
www.hersheys.com
(continued)
CASE COMPANY INFORMATION MATRIX
xxix
Case Information Matrix (continued)
Case Company
Stock Symbol Headquarters
Web Site Address
2008
Revenues
#Employees in $millions
Personal Care
21. Johnson & Johnson
JNJ
www.jnj.com
118,700
63,747
22. Avon Products
AVP
New
Brunswick, NJ
New York, NY
www.avon.com
42,000
10,690
Beverage
23. Molson Coors
TAP
Denver, CO
www.molsoncoors.com
14,000
4,774
Brewing
24. PepsiCo
PEP
Purchase, NY
www.pepsico.com
198,000
43,251
Health Care
25. Pfizer
26. Merck
PFE
MRK
New York, NY
www.pfizer.com
Whitehouse Station, NJ www.merck.com
81,800
55,200
48,296
23,850
Sports
27. Nike
28. Callaway Golf
NKE
ELY
Beaverton, OR
Carlsbad, CA
www.nike.com
www.callawaygolf.com
32,500
2,700
18,627
1,117
Energy
29. Chevron
CVX
San Ramon, CA
www.chevron.com
67,000
273,005
xxx
CASE COMPANY INFORMATION MATRIX
Case Description Matrix
Topical Content Areas (Y = Yes and N = No)
1
2
3
4
5
6
7
8
9 10 11 12 13 14
Cohesion Case – McDonald’s Corp.
Y Y Y Y Y Y Y Y Y N N Y Y N
Service Firms
Hospitality/Entertainment
1. Walt Disney Company
2. Merryland Amusement Park
Y Y Y Y Y Y Y Y Y N N Y Y N
Y Y Y Y Y Y Y Y Y Y Y Y Y N
Airlines
3. JetBlue Airways
4. AirTran Airways
Y N Y Y Y Y Y Y Y Y N Y Y N
Y Y Y Y Y Y Y Y Y Y Y Y Y N
Retail Stores
5. Family Dollar Stores
6. Wal-Mart Stores
7. Whole Foods Market
8. Macy’s
Y
Y
Y
Y
Internet Based
9. Yahoo
10. eBay Inc.
Y Y Y N Y Y Y Y Y Y Y Y Y N
Y Y Y Y Y Y Y Y Y N Y Y Y N
Financial
11. Wells Fargo
Y Y Y Y Y Y Y Y N N Y Y Y Y
Restaurants
12. Krispy Kreme
13. Starbucks Corporation
Y Y N Y Y Y Y Y Y N N Y Y N
Y Y Y Y Y Y Y Y Y Y N Y Y Y
Nonprofit
14. The United States Postal Service
15. Amtrak
16. Goodwill Industries of San Francisco,
San Mateo and Marin Counties
Y
Y
Y
Y
Y
Y
Y
Y
N
N
N
N
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
N
N
N
N
N
N
N
N
Y
Y
Y
Y
Y
Y
Y
Y
N
N
N
N
Y Y N N Y Y Y Y Y N Y Y Y N
Y N Y Y Y Y Y Y Y Y Y Y Y N
Y N Y Y Y Y Y Y Y Y Y Y Y N
Manufacturing Firms
Transportation
17. Harley-Davidson
18. Ford Motor
Y Y Y Y Y Y Y Y Y N N Y Y N
Y Y Y Y Y Y Y Y Y N Y Y Y N
Food
19. Kraft Foods
20. Hershey Foods
Y Y Y N Y Y Y Y Y Y N Y Y N
Y Y Y Y Y Y Y Y Y Y Y Y Y N
Personal Care
21. Johnson & Johnson
22. Avon Products
Y Y Y N Y Y Y Y Y Y Y Y Y N
Y Y Y N Y Y Y Y Y N N Y Y N
Beverage
23. Molson Coors Brewing
24. PepsiCo
Y Y Y Y Y Y Y Y Y Y Y Y Y Y
Y N Y N Y Y Y Y Y N N Y Y N
Health Care
25. Pfizer
26. Merck
Y Y Y Y Y Y Y Y Y N N Y Y Y
Y Y Y Y Y Y Y Y Y N Y Y Y N
(continued)
CASE COMPANY INFORMATION MATRIX
Case Description Matrix (continued)
Topical Content Areas (Y = Yes and N = No)
1
2
3
4
5
6
7
8
9 10 11 12 13 14
Sports
27. Nike
28. Callaway Golf Company
Y N Y N Y Y Y Y Y N Y Y Y N
Y Y Y Y Y Y Y Y Y N N Y Y N
Energy
29. Chevron
Y Y Y Y Y N Y Y Y Y Y Y Y N
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
Year-end 2006 Financial Statements Included?
Is Organizational Chart Included?
Does Company Do Business Outside the United States?
Is a Vision or Mission Statement Included?
E-Commerce Issues Included?
Natural Environment Issues Included?
Strategy Formulation Emphasis?
Strategy Implementation Included?
By-Segment Financial Data Included?
Firm Has Declining Revenues?
Firm Has Declining Net Income?
Discussion of Competitors is Provided?
Case Appears in Text for the First Time Ever?
Is Firm Headquartered Outside the United States?
xxxi
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Strategic Management
CONCEPTS
PART 1
Overview of Strategic Management
CHAPTER 1
The Nature of Strategic
Management
CHAPTER OBJECTIVES
After studying this chapter, you should be able to do the following:
1. Describe the strategic-management
process.
5. Describe the benefits of good
strategic management.
2. Explain the need for integrating
analysis and intuition in strategic
management.
6. Discuss the relevance of Sun Tzu’s The
Art of War to strategic management.
3. Define and give examples of key terms
in strategic management.
7. Discuss how a firm may achieve
sustained competitive advantage.
4. Discuss the nature of strategy
formulation, implementation, and
evaluation activities.
Assurance of
Learning Exercise 1A
Assurance of
Learning Exercise 1B
Assurance of
Learning Exercise 1C
Assurance of
Learning Exercise 1D
Gathering Strategy
Information
Strategic Planning for My
University
Strategic Planning at a
Local Company
Getting Familiar with SMCO
Source: Shutterstock/Photographer Jim Lopes
“Notable Quotes”
“If we know where we are and something about how we got
there, we might see where we are trending—and if the outcomes which lie naturally in our course are unacceptable,
to make timely change.”
—Abraham Lincoln
“Most of us fear change. Even when our minds say change
is normal, our stomachs quiver at the prospect. But for
strategists and managers today, there is no choice but
to change.”
—Robert Waterman Jr.
“Without a strategy, an organization is like a ship without
a rudder, going around in circles. It’s like a tramp; it has
no place to go.”
—Joel Ross and Michael Kami
“If a man takes no thought about what is distant,
he will find sorrow near at hand. He who will not worry
about what is far off will soon find something worse
than worry.”
—Confucius
“Plans are less important than planning.”
—Dale McConkey
“The formulation of strategy can develop competitive
advantage only to the extent that the process can give
meaning to workers in the trenches.”
—David Hurst
4
PART 1 • OVERVIEW OF STRATEGIC MANAGEMENT
When CEOs from the big three American automakers, Ford, General Motors (GM), and
Chrysler, showed up without a clear strategic plan to ask congressional leaders for bailout
monies, they were sent home with instructions to develop a clear strategic plan for the
future. Austan Goolsbee, one of President Obama’s top economic advisers, said, “Asking
for a bailout without a convincing business plan was crazy.” Goolsbee also said, “If the
three auto CEOs need a bridge, it’s got to be a bridge to somewhere, not a bridge to
nowhere.”1 This textbook gives the instructions on how to develop a clear strategic plan—
a bridge to somewhere rather than nowhere.
This chapter provides an overview of strategic management. It introduces a practical,
integrative model of the strategic-management process; it defines basic activities and terms
in strategic management.
This chapter also introduces the notion of boxed inserts. A boxed insert is provided in
each chapter to examine how some firms are doing really well competing in a global economic recession. Some firms are strategically capitalizing on the harsh business climate
and prospering as their rivals weaken. These firms are showcased in this edition to reveal
how those companies achieved prosperity. Each boxed insert examines the strategies of
firms doing great amid the worst recession in almost 30 years, the biggest stock market
decline since 1937, high unemployment, record high and then record low oil prices, low
consumer confidence, low interest rates, bankruptcies, liquidations, unavailability of
credit, falling consumer demand for almost everything, and intense price competition as
Doing Great in a Weak Economy
MCDonald’s Corporation
W
hen most firms were struggling in 2008,
McDonald’s increased its revenues from $22.7
billion in 2007 to $23.5 billion in 2008. Headquartered
in Oak Brook, Illinois McDonald’s net income nearly
doubled during that time from $2.4 billion to
$4.3 billion—quite impressive. Fortune magazine in
2009 rated McDonald’s as their 16th “Most Admired
Company in the World” in terms of their management
and performance.
McDonald’s added 650 new outlets in 2009
when many restaurants struggled to keep their doors
open. McDonald’s low prices and expanded menu
items have attracted millions of new customers
away from sit-down chains and independent eateries.
Jim Skinner, CEO of McDonald’s, says, “We do so well
because our strategies have been so well planned
out.” McDonald’s served about 60 million customers
every day in 2009, 2 million more than in 2008. Nearly
80 percent of McDonald’s are run by franchisees
(or affiliates).
CHAPTER 1 • THE NATURE OF STRATEGIC MANAGEMENT
McDonald’s in 2009 spent $2.1 billion to remodel
many of its 32,000 restaurants and build new ones at
a more rapid pace than in recent years. This is in stark
contrast to most restaurant chains that are struggling
to survive, laying off employees, closing restaurants,
and reducing expansion plans. McDonald’s restaurants
are in 120 countries. Going out to eat is one of the first
activities that customers cut in tough times. A rising
U.S. dollar is another external factor that hurts
McDonald’s. An internal weakness of McDonald’s is
that the firm now offers upscale coffee drinks like lattes
and cappuccinos in over 7,000 locations just as budgetconscious consumers are cutting back on such extravagances. About half of McDonald’s 31,000 locations are
outside the United States.
But McDonald’s top management team says everything the firm does is for the long term. McDonald’s
for several years referred to their strategic plan as
“Plan to Win.” This strategy has been to increase sales
at existing locations by improving the menu, remodeling dining rooms, extending hours, and adding
snacks. The company has avoided deep price cuts on
its menu items. McDonald’s was only one of three
large U.S. firms that saw its stock price rise in 2008.
The other two firms were Wal-Mart and Family Dollar
Stores.
Other strategies being pursued currently by
McDonald’s include replacing gasoline-powered cars
with energy-efficient cars, lowering advertising rates,
halting building new outlets on street corners
where nearby development shows signs of weakness,
boosting the firm’s coffee business, and improving
the drive-through windows to increase sales and
efficiency.
McDonald’s receives nearly two thirds of its revenues from outside the United States. The company
has 14,000 U.S. outlets and 18,000 outlets outside the
United States. McDonald’s feeds 58 million customers
every day. The company operates Hamburger University
in suburban Chicago. McDonald’s reported that first
quarter 2009 profits rose 4 percent and same-store
sales rose 4.3 percent across the globe. Same-store
sales in the second quarter of 2009 were up another
4.8 percent.
Source: Based on Janet Adamy, “McDonald’s Seeks Way to Keep
Sizzling,” Wall Street Journal (March 10, 2009): A1, A11. Also, Geoff
Colvin, “The World’s Most Admired Companies,” Fortune (March 16,
2009): 76–86.
consumers today purchase only what they need rather than what they want. Societies
worldwide confront the most threatening economic conditions in nearly a century. The
boxed insert in each chapter showcases excellent strategic management under harsh
economic times.
The first company featured for excellent performance in the global recession is
McDonald’s Corporation, also showcased as the Cohesion Case in this 13th edition.
McDonald’s is featured as the Cohesion Case also because it is a well-known global firm
undergoing strategic change and well managed. By working through McDonald’s-related
Assurance of Learning Exercises at the end of each chapter, you will be well prepared to
develop an effective strategic plan for any company assigned to you this semester. The
end-of-chapter exercises apply chapter tools and concepts.
What Is Strategic Management?
Once there were two company presidents who competed in the same industry. These two
presidents decided to go on a camping trip to discuss a possible merger. They hiked deep
into the woods. Suddenly, they came upon a grizzly bear that rose up on its hind legs and
snarled. Instantly, the first president took off his knapsack and got out a pair of jogging
shoes. The second president said, “Hey, you can’t outrun that bear.” The first president
responded, “Maybe I can’t outrun that bear, but I surely can outrun you!” This story
captures the notion of strategic management, which is to achieve and maintain competitive
advantage.
5
6
PART 1 • OVERVIEW OF STRATEGIC MANAGEMENT
Defining Strategic Management
Strategic Management VS. Strategic
Planning
the purpose of strategic management
Strategic Planing:
1. 1950s: originated
2. 1960s~1970s: very popular
3. 1980s: cast aside
4. 1990s: revival 复苏
Strategic-management 3 process:
1. Strategy formulation:
*vision & mission
*external opportunitis
*internal strengths and weakness
*LT objectives
*Resource allocation
…Etc.
2. Strategy implementation
3. Strategy evaluation
Strategic management can be defined as the art and science of formulating, implementing,
and evaluating cross-functional decisions that enable an organization to achieve its objectives. As this definition implies, strategic management focuses on integrating management,
marketing, finance/accounting, production/operations, research and development, and
information systems to achieve organizational success. The term strategic management in
this text is used synonymously with the term strategic planning. The latter term is more
often used in the business world, whereas the former is often used in academia. Sometimes
the term strategic management is used to refer to strategy formulation, implementation, and
evaluation, with strategic planning referring only to strategy formulation. The purpose of
strategic management is to exploit and create new and different opportunities for tomorrow;
long-range planning, in contrast, tries to optimize for tomorrow the trends of today.
The term strategic planning originated in the 1950s and was very popular between the
mid-1960s and the mid-1970s. During these years, strategic planning was widely believed
to be the answer for all problems. At the time, much of corporate America was “obsessed”
with strategic planning. Following that “boom,” however, strategic planning was cast aside
during the 1980s as various planning models did not yield higher returns. The 1990s,
however, brought the revival of strategic planning, and the process is widely practiced
today in the business world.
A strategic plan is, in essence, a company’s game plan. Just as a football team needs a
good game plan to have a chance for success, a company must have a good strategic plan
to compete successfully. Profit margins among firms in most industries have been so
reduced by the global economic recession that there is little room for error in the overall
strategic plan. A strategic plan results from tough managerial choices among numerous
good alternatives, and it signals commitment to specific markets, policies, procedures, and
operations in lieu of other, “less desirable” courses of action.
The term strategic management is used at many colleges and universities as the subtitle for the capstone course in business administration. This course integrates material from
all business courses. The Strategic Management Club Online at www.strategyclub.com
offers many benefits for business policy and strategic management students. Professor
Hansen at Stetson University provides a strategic management slide show for this entire
text (www.stetson.edu/~rhansen/strategy).
Stages of Strategic Management
The strategic-management process consists of three stages: strategy formulation, strategy
implementation, and strategy evaluation. Strategy formulation includes developing a vision
and mission, identifying an organization’s external opportunities and threats, determining
internal strengths and weaknesses, establishing long-term objectives, generating alternative
strategies, and choosing particular strategies to pursue. Strategy-formulation issues include
deciding what new businesses to enter, what businesses to abandon, how to allocate resources,
whether to expand operations or diversify, whether to enter international markets, whether to
merge or form a joint venture, and how to avoid a hostile takeover.
Because no organization has unlimited resources, strategists must decide which alternative strategies will benefit the firm most. Strategy-formulation decisions commit an
organization to specific products, markets, resources, and technologies over an extended
period of time. Strategies determine long-term competitive advantages. For better or
worse, strategic decisions have major multifunctional consequences and enduring effects
on an organization. Top managers have the best perspective to understand fully the ramifications of strategy-formulation decisions; they have the authority to commit the resources
necessary for implementation.
Strategy implementation requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be
executed. Strategy implementation includes developing a strategy-supportive culture,
creating an effective organizational structure, redirecting marketing efforts, preparing
budgets, developing and utilizing information systems, and linking employee compensation to organizational performance.
CHAPTER 1 • THE NATURE OF STRATEGIC MANAGEMENT
Strategy implementation often is called the “action stage” of strategic management.
Implementing strategy means mobilizing employees and managers to put formulated strategies into action. Often considered to be the most difficult stage in strategic management,
strategy implementation requires personal discipline, commitment, and sacrifice. Successful
strategy implementation hinges upon managers’ ability to motivate employees, which is more
an art than a science. Strategies formulated but not implemented serve no useful purpose.
Interpersonal skills are especially critical for successful strategy implementation.
Strategy-implementation activities affect all employees and managers in an organization.
Every division and department must decide on answers to questions, such as “What must we
do to implement our part of the organization’s strategy?” and “How best can we get the job
done?” The challenge of implementation is to stimulate managers and employees throughout
an organization to work with pride and enthusiasm toward achieving stated objectives.
Strategy evaluation is the final stage in strategic management. Managers desperately need
to know when particular strategies are not working well; strategy evaluation is the primary
means for obtaining this information. All strategies are subject to future modification because
external and internal factors are constantly changing. Three fundamental strategy-evaluation
activities are (1) reviewing external and internal factors that are the bases for current strategies,
(2) measuring performance, and (3) taking corrective actions. Strategy evaluation is needed
because success today is no guarantee of success tomorrow! Success always creates new and
different problems; complacent organizations experience demise.
Strategy formulation, implementation, and evaluation activities occur at three hierarchical levels in a large organization: corporate, divisional or strategic business unit, and functional. By fostering communication and interaction among managers and employees across
hierarchical levels, strategic management helps a firm function as a competitive team. Most
small businesses and some large businesses do not have divisions or strategic business units;
they have only the corporate and functional levels. Nevertheless, managers and employees at
these two levels should be actively involved in strategic-management activities.
Peter Drucker says the prime task of strategic management is thinking through the
overall mission of a business:
. . . that is, of asking the question, “What is our business?” This leads to the setting of
objectives, the development of strategies, and the making of today’s decisions for
tomorrow’s results. This clearly must be done by a part of the organization that can see
the entire business; that can balance objectives and the needs of today against the needs
of tomorrow; and that can allocate resources of men and money to key results.2
Integrating Intuition and Analysis
Edward Deming once said, “In God we trust. All others bring data.” The strategicmanagement process can be described as an objective, logical, systematic approach for
making major decisions in an organization. It attempts to organize qualitative and quantitative information in a way that allows effective decisions to be made under conditions
of uncertainty. Yet strategic management is not a pure science that lends itself to a nice,
neat, one-two-three approach.
Based on past experiences, judgment, and feelings, most people recognize that
intuition is essential to making good strategic decisions. Intuition is particularly useful for
making decisions in situations of great uncertainty or little precedent. It is also helpful
when highly interrelated variables exist or when it is necessary to choose from several
plausible alternatives. Some managers and owners of businesses profess to have extraordinary abilities for using intuition alone in devising brilliant strategies. For example, Will
Durant, who organized GM, was described by Alfred Sloan as “a man who would proceed
on a course of action guided solely, as far as I could tell, by some intuitive flash of brilliance. He never felt obliged to make an engineering hunt for the facts. Yet at times, he was
astoundingly correct in his judgment.”3 Albert Einstein acknowledged the importance of
intuition when he said, “I believe in intuition and inspiration. At times I feel certain that
I am right while not knowing the reason. Imagination is more important than knowledge,
because knowledge is limited, whereas imagination embraces the entire world.”4
7
8
PART 1 • OVERVIEW OF STRATEGIC MANAGEMENT
Although some organizations today may survive and prosper because they have intuitive geniuses managing them, most are not so fortunate. Most organizations can benefit
from strategic management, which is based upon integrating intuition and analysis in decision making. Choosing an intuitive or analytic approach to decision making is not an
either–or proposition. Managers at all levels in an organization inject their intuition and
judgment into strategic-management analyses. Analytical thinking and intuitive thinking
complement each other.
Operating from the I’ve-already-made-up-my-mind-don’t-bother-me-with-the-facts
mode is not management by intuition; it is management by ignorance.5 Drucker says,
“I believe in intuition only if you discipline it. ‘Hunch’ artists, who make a diagnosis but
don’t check it out with the facts, are the ones in medicine who kill people, and in management kill businesses.”6 As Henderson notes:
The accelerating rate of change today is producing a business world in which customary managerial habits in organizations are increasingly inadequate. Experience
alone was an adequate guide when changes could be made in small increments. But
intuitive and experience-based management philosophies are grossly inadequate
when decisions are strategic and have major, irreversible consequences.7
In a sense, the strategic-management process is an attempt both to duplicate what goes
on in the mind of a brilliant, intuitive person who knows the business and to couple it with
analysis.
Adapting to Change
The strategic-management process is based on the belief that organizations should continually monitor internal and external events and trends so that timely changes can be
made as needed. The rate and magnitude of changes that affect organizations are
increasing dramatically as evidenced how the global economic recession has caught so
many firms by surprise. Firms, like organisms, must be “adept at adapting” or they will
not survive.
Corporate bankruptcies and defaults more than doubled in 2009 from an already bad
2008 year. All industries were hit hard, especially retail, chemicals, autos, and financial.
As lenders tightened restrictions on borrowers, thousands of firms could not avoid bankruptcy. Even the economies of China, Japan, and South Korea stalled as demand for their
goods from the United States and Europe dried up. China’s annual growth slowed from 13
percent in 2007 to 9 percent in 2008 and then 5 percent for 2009. Consumer confidence
indexes were falling all over the world as were housing prices.
Nine of 10 stocks in the S&P 1500 lost value in 2008. The Nasdaq composite index
fell 40.5 percent in 2008, its worst year ever. S&P 500 stocks lost 38.5 percent of their
value in 2008, the worst year since 1937. The Dow Jones Industrial Average lost 33.8 percent of its value in 2008, the worst loss since 1931 as shareholders lost $6.8 trillion in
wealth. Only three S&P 500 stocks rose in 2008: Family Dollar up 38 percent, making
it the best performer in the S&P 500; Wal-Mart Stores up 18 percent; and McDonald’s
up nearly 6 percent. The biggest decliner on the Dow in 2008 was GM, whose stock fell
87 percent. Citigroup lost 77 percent of its stock value in 2008. Even General Electric lost
56 percent of its value. Fannie Mae and Freddie Mac each slid 98 percent as did Fleetwood
Enterprises, which makes recreational vehicles. And losses were also extensive worldwide.
For example, Vanguard’s Europe/Pacific Index, composed of stocks firms based on those
continents, fell 43 percent in 2008.
To survive, all organizations must astutely identify and adapt to change. The strategicmanagement process is aimed at allowing organizations to adapt effectively to change over
the long run. As Waterman has noted:
In today’s business environment, more than in any preceding era, the only constant is
change. Successful organizations effectively manage change, continuously adapting
their bureaucracies, strategies, systems, products, and cultures to survive the shocks
and prosper from the forces that decimate the competition.8
CHAPTER 1 • THE NATURE OF STRATEGIC MANAGEMENT
E-commerce and globalization are external changes that are transforming business
and society today. On a political map, the boundaries between countries may be clear, but
on a competitive map showing the real flow of financial and industrial activity, the boundaries have largely disappeared. The speedy flow of information has eaten away at national
boundaries so that people worldwide readily see for themselves how other people live and
work. We have become a borderless world with global citizens, global competitors, global
customers, global suppliers, and global distributors! U.S. firms are challenged by large
rival companies in many industries. To say U.S. firms are being challenged in the automobile industry is an understatement. But this situation is true in many industries.
The need to adapt to change leads organizations to key strategic-management questions, such as “What kind of business should we become?” “Are we in the right
field(s)?” “Should we reshape our business?” “What new competitors are entering our
industry?” “What strategies should we pursue?” “How are our customers changing?”
“Are new technologies being developed that could put us out of business?”
Key Terms in Strategic Management
Before we further discuss strategic management, we should define nine key terms: competitive advantage, strategists, vision and mission statements, external opportunities and threats,
internal strengths and weaknesses, long-term objectives, strategies, annual objectives, and
policies.
Competitive Advantage
Strategic management is all about gaining and maintaining competitive advantage. This
term can be defined as “anything that a firm does especially well compared to rival firms.”
When a firm can do something that rival firms cannot do, or owns something that rival firms
desire, that can represent a competitive advantage. For example, in a global economic recession, simply having ample cash on the firm’s balance sheet can provide a major competitive
advantage. Some cash-rich firms are buying distressed rivals. For example, BHP Billiton,
the world’s largest miner, is seeking to buy rival firms in Australia and South America.
Freeport-McMoRan Copper & Gold Inc. also desires to expand its portfolio by acquiring
distressed rival companies. French drug company SanofiAventis SA also is acquiring distressed rival firms to boost its drug development and diversification. Cash-rich Johnson &
Johnson in the United States also is acquiring distressed rival firms. This can be an excellent
strategy in a global economic recession.
Having less fixed assets than rival firms also can provide major competitive advantages in a global recession. For example, Apple has no manufacturing facilities of its own,
and rival Sony has 57 electronics factories. Apple relies exclusively on contract manufacturers for production of all of its products, whereas Sony owns its own plants. Less fixed
assets has enabled Apple to remain financially lean with virtually no long-term debt. Sony,
in contrast, has built up massive debt on its balance sheet.
CEO Paco Underhill of Envirosell says, “Where it used to be a polite war, it’s now a
21st-century bar fight, where everybody is competing with everyone else for the customers’
money.” Shoppers are “trading down,” so Nordstrom is taking customers from Neiman
Marcus and Saks Fifth Avenue, T.J. Maxx and Marshalls are taking customers from most
other stores in the mall, and even Family Dollar is taking revenues from Wal-Mart.9 Getting
and keeping competitive advantage is essential for long-term success in an organization.
The Industrial/Organizational (I/O) and the Resource-Based View (RBV) theories of organization (as discussed in Chapters 3 and 4, respectively) present different perspectives on
how best to capture and keep competitive advantage—that is, how best to manage strategically. Pursuit of competitive advantage leads to organizational success or failure. Strategic
management researchers and practitioners alike desire to better understand the nature and
role of competitive advantage in various industries.
Normally, a firm can sustain a competitive advantage for only a certain period due to
rival firms imitating and undermining that advantage. Thus it is not adequate to simply obtain
competitive advantage. A firm must strive to achieve sustained competitive advantage by
9
10
PART 1 • OVERVIEW OF STRATEGIC MANAGEMENT
(1) continually adapting to changes in external trends and events and internal capabilities,
competencies, and resources; and by (2) effectively formulating, implementing, and evaluating strategies that capitalize upon those factors. For example, newspaper circulation in the
United States is steadily declining. Most national newspapers are rapidly losing market
share to the Internet, and other media that consumers use to stay informed. Daily newspaper
circulation in the United States totals about 55 million copies annually, which is about the
same as it was in 1954. Strategists ponder whether the newspaper circulation slide can be
halted in the digital age. The six broadcast networks—ABC, CBS, Fox, NBC, UPN, and
WB—are being assaulted by cable channels, video games, broadband, wireless technologies,
satellite radio, high-definition TV, and digital video recorders. The three original broadcast
networks captured about 90 percent of the prime-time audience in 1978, but today their
combined market share is less than 50 percent.10
An increasing number of companies are gaining a competitive advantage by using the
Internet for direct selling and for communication with suppliers, customers, creditors, partners, shareholders, clients, and competitors who may be dispersed globally. E-commerce
allows firms to sell products, advertise, purchase supplies, bypass intermediaries, track inventory, eliminate paperwork, and share information. In total, e-commerce is minimizing the
expense and cumbersomeness of time, distance, and space in doing business, thus yielding
better customer service, greater efficiency, improved products, and higher profitability.
The Internet has changed the way we organize our lives; inhabit our homes; and relate
to and interact with family, friends, neighbors, and even ourselves. The Internet promotes
endless comparison shopping, which thus enables consumers worldwide to band together
to demand discounts. The Internet has transferred power from businesses to individuals.
Buyers used to face big obstacles when attempting to get the best price and service, such as
limited time and data to compare, but now consumers can quickly scan hundreds of vendor
offerings. Both the number of people shopping online and the average amount they spend
is increasing dramatically. Digital communication has become the name of the game in
marketing. Consumers today are flocking to blogs, short-post forums such as Twitter,
video sites such as YouTube, and social networking sites such as Facebook, MySpace, and
LinkedIn instead of television, radio, newspapers, and magazines. Facebook and MySpace
recently unveiled features that further marry these social sites to the wider Internet. Users
on these social sites now can log on to many business shopping sites with their IDs from
their social site so their friends can see what items they have purchased on various shopping sites. Both of these social sites want their members to use their IDs to manage all their
online identities. Most traditional retailers have learned that their online sales can boost
in-store sales as they utilize their Web sites to promote in-store promotions.
Strategists
Strategists are the individuals who are most responsible for the success or failure of an organization. Strategists have various job titles, such as chief executive officer, president, owner,
chair of the board, executive director, chancellor, dean, or entrepreneur. Jay Conger, professor of organizational behavior at the London Business School and author of Building
Leaders, says, “All strategists have to be chief learning officers. We are in an extended period
of change. If our leaders aren’t highly adaptive and great models during this period, then our
companies won’t adapt either, because ultimately leadership is about being a role model.”
Strategists help an organization gather, analyze, and organize information. They track
industry and competitive trends, develop forecasting models and scenario analyses, evaluate
corporate and divisional performance, spot emerging market opportunities, identify business
threats, and develop creative action plans. Strategic planners usually serve in a support or
staff role. Usually found in higher levels of management, they typically have considerable
authority for decision making in the firm. The CEO is the most visible and critical strategic
manager. Any manager who has responsibility for a unit or division, responsibility for
profit and loss outcomes, or direct authority over a major piece of the business is a strategic
manager (strategist). In the last five years, the position of chief strategy officer (CSO) has
emerged as a new addition to the top management ranks of many organizations, including
Sun Microsystems, Network Associates, Clarus, Lante, Marimba, Sapient, Commerce One,
CHAPTER 1 • THE NATURE OF STRATEGIC MANAGEMENT
BBDO, Cadbury Schweppes, General Motors, Ellie Mae, Cendant, Charles Schwab, Tyco,
Campbell Soup, Morgan Stanley, and Reed-Elsevier. This new corporate officer title represents recognition of the growing importance of strategic planning in the business world.11
Strategists differ as much as organizations themselves, and these differences must be
considered in the formulation, implementation, and evaluation of strategies. Some strategists will not consider some types of strategies because of their personal philosophies.
Strategists differ in their attitudes, values, ethics, willingness to take risks, concern for
social responsibility, concern for profitability, concern for short-run versus long-run aims,
and management style. The founder of Hershey Foods, Milton Hershey, built the company
to manage an orphanage. From corporate profits, Hershey Foods today cares for over a
thousand boys and girls in its School for Orphans.
Vision and Mission Statements
Many organizations today develop a vision statement that answers the question “What do
we want to become?” Developing a vision statement is often considered the first step
in strategic planning, preceding even development of a mission statement. Many vision
statements are a single sentence. For example, the vision statement of Stokes Eye Clinic in
Florence, South Carolina, is “Our vision is to take care of your vision.”
Mission statements are “enduring statements of purpose that distinguish one business
from other similar firms. A mission statement identifies the scope of a firm’s operations in
product and market terms.”12 It addresses the basic question that faces all strategists:
“What is our business?” A clear mission statement describes the values and priorities of an
organization. Developing a mission statement compels strategists to think about the nature
and scope of present operations and to assess the potential attractiveness of future markets
and activities. A mission statement broadly charts the future direction of an organization.
A mission statement is a constant reminder to its employees of why the organization exists
and what the founders envisioned when they put their fame and fortune at risk to breathe
life into their dreams. Here is an example of a mission statement for Barnes & Noble:
Our mission is to operate the best specialty retail business in America, regardless
of the product we sell. Because the product we sell is books, our aspirations must
be consistent with the promise and the ideals of the volumes which line our
shelves. To say that our mission exists independent of the product we sell is to
demean the importance and the distinction of being booksellers. As booksellers we
are determined to be the very best in our business, regardless of the size, pedigree,
or inclinations of our competitors. We will continue to bring our industry nuances
of style and approaches to bookselling which are consistent with our evolving
aspirations. Above all, we expect to be a credit to the communities we serve, a
valuable resource to our customers, and a place where our dedicated booksellers
can grow and prosper. Toward this end we will not only listen to our customers
and booksellers but embrace the idea that the Company is at their service.
(www.missionstatements.com)
External Opportunities and Threats
External opportunities and external threats refer to economic, social, cultural, demographic, environmental, political, legal, governmental, technological, and competitive
trends and events that could significantly benefit or harm an organization in the future.
Opportunities and threats are largely beyond the control of a single organization—thus the
word external. In a global economic recession, a few opportunities and threats that face
many firms are listed here:
•
•
•
•
•
Availability of capital can no longer be taken for granted.
Consumers expect green operations and products.
Marketing has moving rapidly to the Internet.
Consumers must see value in all that they consume.
Global markets offer the highest growth in revenues.
11
12
PART 1 • OVERVIEW OF STRATEGIC MANAGEMENT
• As the price of oil has collapsed, oil rich countries are focused on supporting their
own economies, rather than seeking out investments in other countries.
• Too much debt can crush even the best firms.
• Layoffs are rampant among many firms as revenues and profits fall and credit
sources dry up.
• The housing market is depressed.
• Demand for health services does not cha…
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