Table Of Content

This page intentionally left blank Strategic Management CONCEPTS AND CASES Editorial Director: Sally Yagan Editor in Chief: Eric Svendsen Acquisitions Editor: Kim Norbuta Product Development Manager: Ashley Santora Editorial Project Manager: Claudia Fernandes Editorial Assistant: Meg O’Rourke Director of Marketing: Patrice Lumumba Jones Marketing Manager: Nikki Ayana Jones Marketing Assistant: Ian Gold Senior Managing Editor: Judy Leale Associate Production Project Manager: Ana Jankowski Operations Specialist: Ilene Kahn Art Director: Steve Frim Text and Cover Designer: Judy Allan Manager, Visual Research: Beth Brenzel Manager, Rights and Permissions: Zina Arabia Image Permission Coordinator: Cynthia Vincenti Manager, Cover Visual Research & Permissions: Karen Sanatar Cover Art: Vetta TM Collection Dollar Bin: istockphoto Editorial Media Project Manager: Ashley Lulling Production Media Project Manager: Lisa Rinaldi Full-Service Project Management: Thistle Hill Publishing Services, LLC Composition: Integra Software Services, Ltd. Printer/Binder: Courier/Kendallville Cover Printer: Lehigh-Phoenix Color/Hagerstown Text Font: 10/12 Times Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on appropriate page within text. Copyright © 2011, 2009, 2007 by Pearson Education, Inc., publishing as Prentice Hall, One Lake Street, Upper Saddle River, New Jersey 07458. All rights reserved. Manufactured in the United States of America. This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. To obtain permission(s) to use material from this work, please submit a written request to Pearson Education, Inc., Permissions Department, One Lake Street, Upper Saddle River, New Jersey 07458. Many of the designations by manufacturers and seller to distinguish their products are claimed as trademarks. Where those designations appear in this book, and the publisher was aware of a trademark claim, the designations have been printed in initial caps or all caps. 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. This page intentionally left blank This page intentionally left blank Brief Contents Preface xvii Acknowledgments xxiii About the Author xxvii Part 1 Overview of Strategic Management 2 Chapter 1 The Nature of Strategic Management 2 THE COHESION CASE: MCDONALD’S — 2009 27 Part 2 Strategy Formulation 40 Chapter 2 The Business Vision and Mission 40 Chapter 3 The External Assessment 58 Chapter 4 The Internal Assessment 90 Chapter 5 Strategies in Action 130 Chapter 6 Strategy Analysis and Choice 172 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 346 How to Prepare and Present a Case Analysis 346 Name Index 359 Subject Index 363 vii This page intentionally left blank 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 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 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 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 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 x 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 Linking Performance and Pay to Strategies 231 Managing Resistance to Change 234 Creating a Strategy-Supportive Culture 235 Production/Operations Concerns When Implementing Strategies 236 Human Resource Concerns When Implementing Strategies 237 Employee Stock Ownership Plans (ESOPs) 239 & Balancing Work Life and Home Life 240 & Benefits of a Diverse Workforce 242 & Corporate Wellness Programs 242 ASSURANCE OF LEARNING EXERCISES 248 Assurance of Learning Exercise 7A: Revising McDonald’s Organizational Chart 248 Assurance of Learning Exercise 7B: Do Organizations Really Establish Objectives? 248 Assurance of Learning Exercise 7C: Understanding My University’s Culture 249 Chapter 8 Implementing Strategies: Marketing, Finance/Accounting, R&D, and MIS Issues 250 The Nature of Strategy Implementation 252 JOHNSON & JOHNSON (J&J): DOING GREAT IN A WEAK ECONOMY. HOW? 252 Current Marketing Issues 253 New Principles of Marketing 254 & Advertising Media 256 & Purpose-Based Marketing 257 Market Segmentation 257 Does the Internet Make Market Segmentation Easier? 259 Product Positioning 260 Finance/Accounting Issues 261 Acquiring Capital to Implement Strategies 262 New Source of Funding 266 & Projected Financial Statements 266 & Projected Financial Statement for Mattel, Inc. 268 & Financial Budgets 271 & Evaluating the Worth of a Business 273 & Deciding Whether to Go Public 275 Research and Development (R&D) Issues 275 Management Information Systems (MIS) Issues 277 ASSURANCE OF LEARNING EXERCISES 282 Assurance of Learning Exercise 8A: Developing a Product- Positioning Map for McDonald’s 282 Assurance of Learning Exercise 8B: Performing an EPS/EBIT Analysis for McDonald’s 282 Assurance of Learning Exercise 8C: Preparing Projected Financial Statements for McDonald’s 282 Assurance of Learning Exercise 8D: Determining the Cash Value of McDonald’s 283 Assurance of Learning Exercise 8E: Developing a Product- Positioning Map for My University 283 Assurance of Learning Exercise 8F: Do Banks Require Projected Financial Statements? 283 CONTENTS xi Part 4 Strategy Evaluation 284 Chapter 9 Strategy Review, Evaluation, and Control 284 FAMILY DOLLAR STORES: DOING GREAT IN A WEAK ECONOMY. HOW? 286 The Nature of Strategy Evaluation 286 The Process of Evaluating Strategies 290 A Strategy-Evaluation Framework 290 Reviewing Bases of Strategy 290 & Measuring Organizational Performance 292 & Taking Corrective Actions 294 The Balanced Scorecard 295 Published Sources of Strategy-Evaluation Information 297 Characteristics of an Effective Evaluation System 298 Contingency Planning 299 Auditing 300 Twenty-First-Century Challenges in Strategic Management 301 The Art of Science Issue 301 & The Visible or Hidden Issue 301 & The Top-Down or Bottom-Up Approach 302 ASSURANCE OF LEARNING EXERCISES 306 Assurance of Learning Exercise 9A: Preparing a Strategy-Evaluation Report for McDonald’s Corp. 306 Assurance of Learning Exercise 9B: Evaluating My University’s Strategies 306 Part 5 Key Strategic-Management Topics 308 Chapter 10 Business Ethics/Social Responsibility/ Environmental Sustainability 308 WALT DISNEY: DOING GREAT IN A WEAK ECONOMY. HOW? 310 Business Ethics 311 Code of Business Ethics 312 & An Ethics Culture 313 & Bribes 314 & Love Affairs at Work 314 Social Responsibility 315 Social Policy 315 & Social Policies on Retirement 316 Environmental Sustainability 317 What Is a Sustainability Report? 317 & Lack of Standards Changing 318 & Obama Regulations 318 & Managing Environmental Affairs in the Firm 319 & Should Students Receive Environmental Training? 319 & Reasons Why Firms Should “Be Green” 320 & Be Proactive, Not Reactive 320 & ISO 14000/14001 Certification 320 & Electric Car Networks Are Coming 321 & The March 2009 Copenhagen Meeting 322 ASSURANCE OF LEARNING EXERCISES 326 Assurance of Learning Exercise 10A: Does McDonald’s Have a Code of Business Ethics? 326 Assurance of Learning Exercise 10B:The Ethics of Spying on Competitors 326 Assurance of Learning Exercise 10C:Who Prepares a Sustainability Report? 327 Chapter 11 Global/International Issues 328 MARRIOTT INTERNATIONAL: DOING GREAT IN A WEAK ECONOMY. HOW? 330 Multinational Organizations 331 Advantages and Disadvantages of International Operations 332 The Global Challenge 333 Globalization 334 & A Weak Economy 335 United States versus Foreign Business Cultures 335 The Mexican Culture 337 & The Japanese Culture 338 & Communication Differences Across Countries 338 Worldwide Tax Rates 339 Joint Ventures in India 339 ASSURANCE OF LEARNING EXERCISES 343 Assurance of Learning Exercise 11A: McDonald’s Wants to Enter Africa. Help Them. 343 Assurance of Learning Exercise 11B: Does My University Recruit in Foreign Countries? 343 Assurance of Learning Exercise 11C: Assessing Differences in Culture Across Countries 343 Assurance of Learning Exercise 11D: How Well Traveled Are Business Students at Your University? 344 Part 6 Strategic-Management Case Analysis 346 How to Prepare and Present a Case Analysis 346 What Is a Strategic-Management Case? 348 Guidelines for Preparing Case Analyses 348 The Need for Practicality 348 & The Need for Justification 348 & The Need for Realism 348 & The Need for Specificity 349 & The Need for Originality 349 & The Need to Contribute 349 Preparing a Case for Class Discussion 349 The Case Method versus Lecture Approach 349 & The Cross- Examination 350 Preparing a Written Case Analysis 350 The Executive Summary 350 & The Comprehensive Written Analysis 351 & Steps in Preparing a Comprehensive Written Analysis 351 Making an Oral Presentation 351 Organizing the Presentation 351 & Controlling Your Voice 352 & Managing Body Language 352 & Speaking from Notes 352 & Constructing Visual Aids 352 & Answering Questions 353 & Tips for Success in Case Analysis 353 & Content Tips 353 & Process Tips 354 & Sample Case Analysis Outline 355 xii 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 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 CONTENTS xiii