Business Policy And Strategy Project

Strategic Management Concepts and Cases A Competitive Advantage Approach

 

 

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Strategic Management Concepts and Cases A Competitive Advantage Approach Fourteenth Edition

Fred R. David Francis Marion University

Florence, South Carolina

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Library of Congress Cataloging-in-Publication Data David, Fred R.

Strategic management concepts and cases: a competitive advantage approach / Fred R. David. — 14th ed. p. cm. Previously published under title: Strategic management. ISBN-13: 978-0-13-266423-3 ISBN-10: 0-13-266423-2 1. Strategic planning. 2. Strategic planning—Case studies. I. Title.

HD30.28.D385 2013 658.4’012—dc23 2011035610

10 9 8 7 6 5 4 3 2 1

ISBN 10: 0-13-266423-2 ISBN 13: 978-0-13-266423-3

 

 

To Spikes and Aubie David— for fifteen years of love.

 

 

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Brief Contents

Preface xv

Acknowledgments xxiii

About the Author xxvii

PART 1 Overview of Strategic Management 2 Chapter 1 The Nature of Strategic Management 2

THE COHESION CASE: THE WALT DISNEY COMPANY—2011 24

PART 2 Strategy Formulation 42 Chapter 2 The Business Vision and Mission 42 Chapter 3 The External Assessment 60 Chapter 4 The Internal Assessment 92 Chapter 5 Strategies in Action 130 Chapter 6 Strategy Analysis and Choice 170

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

PART 4 Strategy Evaluation 284 Chapter 9 Strategy Review, Evaluation, and Control 284

PART 5 Key Strategic-Management Topics 308 Chapter 10 Business Ethics/Social Responsibility/Environmental

Sustainability 308 Chapter 11 Global/International Issues 328

PART 6 Strategic-Management Case Analysis 358 How to Prepare and Present a Case Analysis 358

Name Index 371

Subject Index 379

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Contents

Preface xv

Acknowledgments xxiii

About the Author xxvii

PART 1 Overview of Strategic Management 2

Chapter 1 The Nature of Strategic Management 2 WINNEBAGO INDUSTRIES INC.: EXCELLENT STRATEGIC MANAGEMENT SHOWCASED 4

What Is Strategic Management? 5 Defining Strategic Management 5 ■ Stages of Strategic Management 5 ■ Integrating Intuition and Analysis 6 ■ Adapting to Change 7

Key Terms in Strategic Management 8 Competitive Advantage 8 ■ Strategists 9 ■ Vision and Mission Statements 10 ■ External Opportunities and Threats 10 ■ Internal Strengths and Weaknesses 11 ■ Long- Term Objectives 11 ■ Strategies 11 ■ Annual Objectives 11 ■ Policies 12

The Strategic-Management Model 13 Benefits of Strategic Management 15

Financial Benefits 15 ■ Nonfinancial Benefits 16

Why Some Firms Do No Strategic Planning 16 Pitfalls in Strategic Planning 17 Guidelines for Effective Strategic Management 17 Comparing Business and Military Strategy 19 Special Note to Students 20

THE COHESION CASE: THE WALT DISNEY COMPANY—2011 24 ASSURANCE OF LEARNING EXERCISES 38 Assurance of Learning Exercise 1A: Compare Business Strategy with Military Strategy 38 Assurance of Learning Exercise 1B: Gather Strategy Information 39 Assurance of Learning Exercise 1C: Update the Walt Disney Cohesion Case 39 Assurance of Learning Exercise 1D: Strategic Planning for My University 40 Assurance of Learning Exercise 1E: Strategic Planning at a Local Company 40 Assurance of Learning Exercise 1F: Get Familiar with SMCO 41

PART 2 Strategy Formulation 42

Chapter 2 The Business Vision and Mission 42 DOLLAR GENERAL CORPORATION: EXCELLENT STRATEGIC MANAGEMENT SHOWCASED 44

What Do We Want to Become? 45 What Is Our Business? 45

Vision versus Mission 47 ■ The Process of Developing Vision and Mission Statements 47

Importance (Benefits) of Vision and Mission Statements 48

A Resolution of Divergent Views 48

Characteristics of a Mission Statement 49 A Declaration of Attitude 49 ■ A Customer Orientation 51 ■ Mission Statement Components 51

Writing and Evaluating Mission Statements 52 Special Note to Students 52

ASSURANCE OF LEARNING EXERCISES 56 Assurance of Learning Exercise 2A: Compare Dollar General’s Mission Statement to Family Dollar’s Mission Statement 56 Assurance of Learning Exercise 2B: Evaluate Mission Statements 57 Assurance of Learning Exercise 2C: Write a Vision and Mission Statement for the Walt Disney Company 57 Assurance of Learning Exercise 2D: Write a Vision and Mission Statement for My University 58 Assurance of Learning Exercise 2E: Conduct Mission Statement Research 58 Assurance of Learning Exercise 2F: Evaluate a Mission Proposal 58

Chapter 3 The External Assessment 60 The Nature of an External Audit 62

WELLS FARGO & COMPANY: EXCELLENT STRATEGIC MANAGEMENT SHOWCASED 62 Key External Forces 63 The Process of Performing an External Audit 64

The Industrial Organization (I/O) View 65 Economic Forces 65 Social, Cultural, Demographic, and Natural Environment Forces 67 Political, Governmental, and Legal Forces 68

American Labor Unions 69

Technological Forces 71 Competitive Forces 72

Competitive Intelligence Programs 74 ■ Market Commonality and Resource Similarity 75

Competitive Analysis: Porter’s Five-Forces Model 75 Rivalry Among Competing Firms 76 ■ Potential Entry of New Competitors 77 ■ Potential Development of Substitute Products 77 ■ Bargaining Power of Suppliers 78 ■ Bargaining Power of Consumers 78

Sources of External Information 79 Forecasting Tools and Techniques 79

Making Assumptions 80

Industry Analysis: The External Factor Evaluation (EFE) Matrix 80 The Competitive Profile Matrix (CPM) 83 Special Note to Students 84

ASSURANCE OF LEARNING EXERCISES 87 Assurance of Learning Exercise 3A: Competitive Intelligence (CI) Certification 87 Assurance of Learning Exercise 3B: Develop Divisional Walt Disney EFE Matrices 88 Assurance of Learning Exercise 3C: Develop an EFE Matrix for Walt Disney 88

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x CONTENTS

Assurance of Learning Exercise 3D: Perform an External Assessment 89 Assurance of Learning Exercise 3E: Develop an EFE Matrix for My University 89 Assurance of Learning Exercise 3F: Develop Divisional Walt Disney CPMs 90 Assurance of Learning Exercise 3G: Develop a Competitive Profile Matrix for Walt Disney 90 Assurance of Learning Exercise 3H: Develop a Competitive Profile Matrix for My University 90

Chapter 4 The Internal Assessment 92 The Nature of an Internal Audit 94

PEARSON PLC: EXCELLENT STRATEGIC MANAGEMENT SHOWCASED 94 Key Internal Forces 95 ■ The Process of Performing an Internal Audit 96

The Resource-Based View (RBV) 97 Integrating Strategy and Culture 98 Management 100

Planning 100 ■ Organizing 102 ■ Motivating 102 ■ Staffing 103 ■ Controlling 103 ■ Management Audit Checklist of Questions 104

Marketing 104 Customer Analysis 104 ■ Selling Products/Services 104 ■ Product and Service Planning 106 ■ Pricing 106 ■ Distribution 107 ■ Marketing Research 107 ■ Cost/ Benefit Analysis 107 ■ Marketing Audit Checklist of Questions 108

Finance/Accounting 108 Finance/Accounting Functions 108 ■ Basic Types of Financial Ratios 109 ■ Finance/Accounting Audit Checklist 114

Production/Operations 115 Production/Operations Audit Checklist 116

Research and Development 116 Internal and External R&D 117 ■ Research and Development Audit 118

Management Information Systems 118 Management Information Systems Audit 118

Value Chain Analysis (VCA) 119 Benchmarking 121

The Internal Factor Evaluation (IFE) Matrix 122 Special Note to Students 123

ASSURANCE OF LEARNING EXERCISES 128 Assurance of Learning Exercise 4A: Apply Breakeven Analysis 128 Assurance of Learning Exercise 4B: Develop Divisional Disney IFEMs 128 Assurance of Learning Exercise 4C: Perform a Financial Ratio Analysis for Walt Disney 128 Assurance of Learning Exercise 4D: Construct an IFE Matrix for Walt Disney 129 Assurance of Learning Exercise 4E: Construct an IFE Matrix for My University 129

Chapter 5 Strategies in Action 130 Long-Term Objectives 132

EXXONMOBIL CORPORATION: EXCELLENT STRATEGIC MANAGEMENT SHOWCASED 132

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

The Balanced Scorecard 135 Types of Strategies 135

Levels of Strategies 136

Integration Strategies 138 Forward Integration 138 ■ Backward Integration 139 ■ Horizontal Integration 140

Intensive Strategies 141 Market Penetration 141 ■ Market Development 141 ■ Product Development 142

Diversification Strategies 143 Related Diversification 144 ■ Unrelated Diversification 145

Defensive Strategies 146 Retrenchment 146 ■ Divestiture 147 ■ Liquidation 148

Michael Porter’s Five Generic Strategies 148 Cost Leadership Strategies (Type 1 and Type 2) 150 ■ Differentiation Strategies (Type 3) 151 ■ Focus Strategies (Type 4 and Type 5) 152 ■ Strategies for Competing in Turbulent, High-Velocity Markets 152

Means for Achieving Strategies 153 Cooperation Among Competitors 153 ■ Joint Venture/ Partnering 153 ■ Merger/Acquisition 155 ■ Private-Equity Acquisitions 157 ■ First Mover Advantages 157 ■ Outsourcing 158

Strategic Management in Nonprofit and Governmental Organizations 159

Religious Facilities 160 ■ Educational Institutions 160 ■ Medical Organizations 160 ■ Governmental Agencies and Departments 161

Strategic Management in Small Firms 161 Special Note to Students 161

ASSURANCE OF LEARNING EXERCISES 165 Assurance of Learning Exercise 5A: Develop Hypothetical Disney Strategies 165 Assurance of Learning Exercise 5B: Evaluate Disney Divisions in Terms of Porter’s Strategies 165 Assurance of Learning Exercise 5C: What Strategies Should Disney Pursue in 2013? 166 Assurance of Learning Exercise 5D: Examine Strategy Articles 166 Assurance of Learning Exercise 5E: Classify Some Year 2011 Strategies 167 Assurance of Learning Exercise 5F: How Risky Are Various Alternative Strategies? 168 Assurance of Learning Exercise 5G: Develop Alternative Strategies for My University 168 Assurance of Learning Exercise 5H: Lessons in Doing Business Globally 169

Chapter 6 Strategy Analysis and Choice 170 The Nature of Strategy Analysis and Choice 172

NETFLIX, INC.: EXCELLENT STRATEGIC MANAGEMENT SHOWCASED 172 The Process of Generating and Selecting Strategies 173

A Comprehensive Strategy-Formulation Framework 174 The Input Stage 175 The Matching Stage 175

The Strategic Position and Action Evaluation (SPACE) Matrix 178 ■ The Boston Consulting Group (BCG) Matrix 182 ■ The Internal- External (IE) Matrix 186 ■ The Grand Strategy Matrix 189

The Decision Stage 190 The Quantitative Strategic Planning Matrix (QSPM) 191 Positive Features and Limitations of the QSPM 194

 

 

CONTENTS xi

Cultural Aspects of Strategy Choice 196

The Politics of Strategy Choice 196

Governance Issues 197

Special Note to Students 200 ASSURANCE OF LEARNING EXERCISES 203 Assurance of Learning Exercise 6A: Perform a SWOT Analysis for Disney’s Parks & Resorts Business Segment 203 Assurance of Learning Exercise 6B: Develop a SWOT Matrix for Walt Disney 204 Assurance of Learning Exercise 6C: Develop a SPACE Matrix for Disney’s Media Networks Business Segment 204 Assurance of Learning Exercise 6D: Develop a SPACE Matrix for Walt Disney 205 Assurance of Learning Exercise 6E: Develop a BCG Matrix for Walt Disney 205 Assurance of Learning Exercise 6F: Develop a QSPM for Walt Disney 205 Assurance of Learning Exercise 6G: Formulate Individual Strategies 206 Assurance of Learning Exercise 6H: The Mach Test 206 Assurance of Learning Exercise 6I: Develop a BCG Matrix for My University 208 Assurance of Learning Exercise 6J: The Role of Boards of Directors 208 Assurance of Learning Exercise 6K: Locate Companies in a Grand Strategy Matrix 208

PART 3 Strategy Implementation 210

Chapter 7 Implementing Strategies: Management and Operations Issues 210

HALLIBURTON COMPANY: EXCELLENT STRATEGIC MANAGEMENT SHOWCASED 212

The Nature of Strategy Implementation 213 Management Perspectives 214

Annual Objectives 215

Policies 217

Resource Allocation 219

Managing Conflict 219

Matching Structure with Strategy 220 The Functional Structure 221 ■ The Divisional Structure 222 ■ The Strategic Business Unit (SBU) Structure 225 ■ The Matrix Structure 227 ■ Some Do’s and Don’ts in Developing Organizational Charts 227

Restructuring and Reengineering 230 Restructuring 230 ■ Reengineering 231

Linking Performance and Pay to Strategies 231

Managing Resistance to Change 234

Creating a Strategy-Supportive Culture 235

Production/Operations Concerns When Implementing Strategies 236

Human Resource Concerns When Implementing Strategies 237 Employee Stock Ownership Plans (ESOPs) 239 ■ Balancing Work Life and Home Life 240 ■ Benefits of a Diverse Workforce 242 ■ Corporate Wellness Programs 242

Special Note to Students 244 ASSURANCE OF LEARNING EXERCISES 247

Assurance of Learning Exercise 7A: The Hershey Company Needs Your Help 247

Assurance of Learning Exercise 7B: Draw an Organizational Chart Using a Free, Online Template 248 Assurance of Learning Exercise 7C: Revise Walt Disney’s Organizational Chart 248 Assurance of Learning Exercise 7D: Do Organizations Really Establish Objectives? 249 Assurance of Learning Exercise 7E: 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 WHOLE FOODS MARKET INC.: EXCELLENT STRATEGIC MANAGE- MENT SHOWCASED 252

Current Marketing Issues 253 New Principles of Marketing 254 ■ Advertising Media 255 ■ Purpose-Based Marketing 256

Market Segmentation 256 Retention-Based Segmentation 257 ■ Does the Internet Make Market Segmentation Easier? 259

Product Positioning 259 Finance/Accounting Issues 261

Acquiring Capital to Implement Strategies 261 ■ Projected Financial Statements 264 ■ Projected Financial Statement Analysis for Whole Foods Market 268 ■ Financial Budgets 270 Evaluating the Worth of a Business 272 ■ Deciding Whether to Go Public 275

Research and Development (R&D) Issues 275 Management Information Systems (MIS) Issues 277

Business Analytics 278

Special Note to Students 278 ASSURANCE OF LEARNING EXERCISES 281 Assurance of Learning Exercise 8A: Develop Divisional Product Positioning Maps for Walt Disney 281 Assurance of Learning Exercise 8B: Gain Practice Developing Product Positioning Maps 282 Assurance of Learning Exercise 8C: Perform an EPS/EBIT Analysis for Walt Disney 282 Assurance of Learning Exercise 8D: Prepare Projected Financial Statements for Walt Disney 282 Assurance of Learning Exercise 8F: Develop a Product-Positioning Map for My University 283 Assurance of Learning Exercise 8G: Do Banks Require Projected Financial Statements? 283

PART 4 Strategy Evaluation 284

Chapter 9 Strategy Review, Evaluation, and Control 284

The Nature of Strategy Evaluation 286 MCDONALD’S CORPORATION: EXCELLENT STRATEGIC MANAGEMENT SHOWCASED 286 The Process of Evaluating Strategies 290

A Strategy-Evaluation Framework 291 Reviewing Bases of Strategy 291 ■ Measuring Organizational Performance 292 ■ Taking Corrective Actions 295

The Balanced Scorecard 296

 

 

xii CONTENTS

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 302 ■ The Top-Down or Bottom-Up Approach 303

Special Note to Students 303 ASSURANCE OF LEARNING EXERCISES 306 Assurance of Learning Exercise 9A: Examine 100 Balanced Scorecards 306 Assurance of Learning Exercise 9B: Prepare a Strategy-Evaluation Report for Walt Disney 306 Assurance of Learning Exercise 9C: Evaluate My University’s Strategies 307

PART 5 Key Strategic-Management Topics 308

Chapter 10 Business Ethics/Social Responsibility/ Environmental Sustainability 308

GENERAL MOTORS (GM) CORP.: EXCELLENT STRATEGIC MANAGEMENT SHOWCASED 310

Business Ethics 311 Code of Business Ethics 312 ■ An Ethics Culture 312 ■ Bribes 314 ■ Love Affairs at Work 315

Social Responsibility 316 Social Policy 316 ■ Social Policies on Retirement 317

Environmental Sustainability 317 ■ What Is a Sustainability Report? 319 ■ Lack of Standards Changing 319 ■ Federal Regulations 320 ■ Managing Environmental Affairs in the Firm 320 ■ Should Students Receive Environmental Training? 320 ■ Reasons Why Firms Should “Be Green” 321 ■ Be Proactive, Not Reactive 321 ■ ISO 14000/14001 Certification 321 ■ Electric Car Networks Are Here 322

Special Note to Students 323 ASSURANCE OF LEARNING EXERCISES 326 Assurance of Learning Exercise 10A: How Does My Municipality Compare to Others on Being Pollution-Safe? 326 Assurance of Learning Exercise 10B: Evaluate Disney’s Standards of Business Conduct 326 Assurance of Learning Exercise 10C: Compare and Evaluate Sustainability Reports 326 Assurance of Learning Exercise 10D: The Ethics of Spying on Competitors 327 Assurance of Learning Exercise 10E: Who Prepares a Sustainability Report? 327

Chapter 11 Global/International Issues 328 AMAZON.COM: EXCELLENT STRATEGIC MANAGEMENT SHOW- CASED 330

Multinational Organizations 333 Advantages and Disadvantages of International Operations 333 The Global Challenge 334

Globalization 335

Corporate Tax Rates Globally 335

United States versus Foreign Business Cultures 337 Communication Differences Across Countries 339 Business Culture Across Countries 339

Mexico—Business Culture 339 ■ Japan—Business Culture 340 ■ Brazil—Business Culture 342 ■ Germay—Business Culture 342 ■ Egypt—Business Culture 343 ■ China— Business Culture 343 ■ India—Business Culture 344 ■ Nigeria—Business Culture 345

Business Climate Across Countries/Continents 345 African Countries 345 ■ China 347 ■ Philippines 348 ■ Taiwan 349 India 349 ■ Germany 350 ■ Mexico 351

Special Note to Students 352 ASSURANCE OF LEARNING EXERCISES 355 Assurance of Learning Exercise 11A: Compare Business Cultures Across Countries 355 Assurance of Learning Exercise 11B: Staples Wants to Enter Africa. Help Them. 355 Assurance of Learning Exercise 11C: Does My University Recruit in Foreign Countries? 356 Assurance of Learning Exercise 11D: Assess Differences in Culture Across Countries 356 Assurance of Learning Exercise 11E: How Well Traveled Are Business Students at My University? 356

PART 6 Strategic-Management Case Analysis 358

How to Prepare and Present a Case Analysis 358 What is a Strategic-Management Case? 360 Guidelines for Preparing Case Analyses 360

The Need for Practicality 360 ■ The Need for Justification 360 ■ The Need for Realism 360 ■ The Need for Specificity 360 ■ The Need for Originality 361 ■ The Need to Contribute 361

Preparing a Case for Class Discussion 361 The Case Method versus Lecture Approach 361

The Cross-Examination 362