men

Formulation, Implementation, Eleventh Edition

and Control

John A. Pearce II
Villanova School of Business
Villanova University

Richard B. Robinson, Jr.

Moore School of Business
University of South Carolina

Boston Burr Ridge, IL Dubuque, IA Madison, Wl New York San Francisco St. Louis
Bangkok Bogota Caracas Kuala Lumpur Lisbon London Madrid Mexico City
Milan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto
PART ONE Key Terms 43
OVERVIEW OF STRATEGIC Questions for Discussion 43
Discussion Case: Anger over CEO Pay Has
MANAGEMENT 1 Put Directors on the Hot Seat 43
APPENDIX BB&T Vision, Mission,
Chapter 1
and Purpose 45
Strategic Management 2
The Nature and Value of Strategic Management 3 Chapter 3
Dimensions of Strategic Decisions 4 Corporate Social Responsibility and
Formality in Strategic Management 7 Business Ethics 50
Benefits of Strategic Management 9
Risks of Strategic Management 10 The Stakeholder Approach to Social
The Strategic Management Process 10 Responsibility 51
Strategic Management as a Process 14 The Dynamics of Social Responsibility 53
Summary 16 Types of Social Responsibility 56
Key Terms 16 Corporate Social Responsibility and
Questions for Discussion 16 Profitability 58
Discussion Case: Carlyle Changes Its Stripes 17 Sarbanes-Oxley Act of 2002 63
The New Corporate Governance
Structure 66
PART TWO Privatization as a Response to
STRATEGY FORMULATION 23 Sarbanes-Oxley 68
CSR s Effect on the Mission Statement 68
Social Audit 69
Chapter 2
Management Ethics 70
Company Mission 24 The Nature of Ethics in Business 70
What Is a Company Mission? 25 Satisfying Corporate Social
The Need for an Explicit Mission 25 Responsibility 71
Formulating a Mission 26 The Core of the CSR Debate 72
Basic Product or Service; Primary Market; Principal Mutual Advantages of Collaborative
Technology 26 Social Initiatives 74
Company Goals: Survival; Growth; Profitability 28 Five Principles of Successful Collaborative
Company Philosophy 30 Social Initiatives 75
Public Image 31 Assembling the Components 79
Company Self-Concept 32 The Limits of CSR Strategies 81
Newest Trends in Mission Components 34 The Future of CSR 81
An Exemplary Mission Statement 3 7 Approaches to Questions of Ethics 83
Boards of Directors 38 Codes of Business Ethics 84
Agency Theory 39 Major Trends in Codes of Ethics 86
How Agency Problems Occur 40 Summary 86
Problems That Can Result from Agency 41 Key Terms 87
Solutions to the Agency Problem 42 Questions for Discussion 87
Summary 42 Discussion Case: The Poverty Business 87

XXI
xxii Table of Contents

Chapter 4 Market Requirements and Product Characteristics 143

The External Environment 93 International Strategy Options 144
Competitive Strategies for Firms in Foreign
The Firm's External Environment 94 Markets 145
Remote Environment 94 Niche Market Exporting 145
Economic Factors 94 Licensing and Contract Manufacturing 146
Social Factors 95 Franchising 147
Political Factors 97
Joint Ventures 147
Technological Factors 98
Foreign Branching 149
Ecological Factors 99
Equity Investment 149
International Environment 102
Wholly Owned Subsidiaries 150
Industry Environment 102 Summary 150
How Competitive Forces Shape Strategy 102 Key Terms 151
Contending Forces 104 Questions for Discussion 151
Threat of Entry 105 Discussion Case: China Mobile's Hot Signal 152
Powerful Suppliers 108 APPENDIX Components of the Multinational
Powerful Buyers 108 Environment 154
Substitute Products 109
Jockeying for Position 110
Industry Analysis and Competitive Analysis 111 Chapter 6
Industry Boundaries 112 Internal Analysis 156
Industry Structure 113
SWOT Analysis: A Traditional Approach to Internal
Competitive Analysis 115
Analysis 159
Operating Environment 116
Using SWOT Analysis in Strategic Analysis 160
Competitive Position 116
Limitations of SWOT Analysis 163
Customer Profiles 116
Value Chain Analysis 164
Suppliers 118
Conducting a Value Chain Analysis 166
Creditors 118
Recognizing the Difficulty in Activity-Based Cost
Human Resources: Nature of the
Accounting 168
Labor Market 118
Resource-Based View of the Firm 170
Emphasis on Environmental Factors 119
Core Competencies 171
Summary 123
Three Basic Resources: Tangible Assets,
Key Terms 123
Intangible Assets, and Organizational
Questions for Discussion 123
Capabilities 171
Discussion Case: Siemens' Culture Clash 124
What Makes a Resource Valuable? 173
APPENDIX Sources for Environmental
Using the Resource-Based View in Internal
Forecasting 127
Analysis 177
Internal Analysis: Making Meaningful
Chapter 5
Comparisons 179
The Global Environment 129 Comparison with Past Performance 179
Globalization 130 Benchmarking: Comparison with Competitors 180
Development of a Global Corporation 130 Comparison with Success Factors in the
Why Firms Globalize 132 Industry 182
Strategic Orientations of Global Firms 133 Product Life Cycle 182
At the Start of Globalization 135 Summary 184
Complexity of the Global Environment 136 Key Terms 185
Control Problems of the Global Firm 137 Questions for Discussion 185
Global Strategic Planning 139 Discussion Case: Apple's Blueprint for Genius 185
Multidomestic Industries and Global APPENDIX A Key Resources across Functional
Industries 139 Areas 188
The Global Challenge 141 APPENDIX B Using Financial Analysis 189
 Table of Contents xxiii

Chapter 7 Stages of Industry Evolution and Business Strategy

Long-Term Objectives and Strategies 198 Choices 257
Competitive Advantage in Fragmented
Long-Term Objectives 199 Industries 263
Qualities of Long-Term Objectives 200 Competitive Advantage in Global Industries. 264
The Balanced Scorecard 202 Dominant Product/Service Businesses: Evaluating
Generic Strategies 203 and Choosing to Diversify to Build Value 265
Low-Cost Leadership 203 Grand Strategy Selection Matrix 266
Differentiation 204 Model of Grand Strategy Clusters 267
Focus 205 Opportunities for Building Value as a Basis for
The Value Disciplines 206
Choosing Diversification or Integration 269
Operational Excellence 207
Summary 270
Customer Intimacy 208 Key Terms 270
Product Leadership 210 Questions for Discussion 271
Grand Strategies 211
Discussion Case: DHL's American Strategy 271
Concentrated Growth 211
Market Development 214 Chapter 9
Product Development 216
Multibusiness Strategy 275
Innovation 216
Horizontal Integration 218 The Portfolio Approach: A Historical
Vertical Integration 220 Starting Point 278
Concentric Diversification 221 The BCG Growth-Share Matrix . 278
Conglomerate Diversification 221 The Industry Attractiveness-Business Strategy
Turnaround 224 Matrix 279
Divestiture 226 BCG's Strategic Environments Matrix 281
Liquidation 227 Limitations of Portfolio Approaches 282
Bankruptcy 227- The Synergy Approach: Leveraging Core
Joint Ventures 230 Competencies 286
Strategic Alliances 232 The Corporate Parent Role: Can It Add Tangible
Consortia, Keiretsus, and Chaebols 235 Value? 290
Selection of Long-Term Objectives and The Parenting Framework 290
Grand Strategy Sets 236 The Patching Approach 293
Sequence of Objectives and Strategy Summary 296
Selection 237 Key Terms 297
Designing a Profitable Business Model 237 Questions for Discussion 297
Summary 240 Discussion Case: eBay's Changing Identity 298
Key Terms 240
Questions for Discussion 240
PART THREE
Discussion Case: VW's New Strategic Plan for
the United States 241 STRATEGY IMPLEMENTATION,
CONTROL, AND INNOVATION 301
Chapter 8 Chapter 10
Business Strategy 245 Implementation 303
Evaluating and Choosing Business Strategies: Short-Term Objectives 305
Seeking Sustained Competitive Advantage 246 Qualities of Effective Short-Term Objectives 306
Evaluating Cost Leadership Opportunities 247 Functional Tactics That Implement Business
Evaluating Differentiation Opportunities 250 Strategies 309
Evaluating Speed as a Competitive Advantage 253 Differences between Business Strategies and
Evaluating Market Focus as a Way to Competitive Functional Tactics 310
Advantage 255 Outsourcing Functional Activities 312
xxiv Table of Contents

Empowering Operating Personnel: The Role Chapter 12

of Policies 313 Leadership and Culture 373
Creating Policies That Empower 315
Bonus Compensation Plans 317 Strategic Leadership: Embracing Change 376
Major Plan Types 317 Clarifying Strategic Intent 376
Matching Bonus Plans and Corporate Building an Organization 377
Goals 323 Shaping Organizational Culture 382
Summary 325 Recruiting and Developing Talented Operational
Key Terms 325 Leadership 385
Questions for Discussion 326 Organizational Culture 388
Discussion Case 1: A Better Look at the Boss's The Role of the Organizational Leader in Organizational
Pay 326 Culture 389
Discussion Case 2: He's Making Hay as CEOs Build Time in the Organization 389
Squirm 328 Emphasize Key Themes or Dominant Values 394
Discussion Case 3: Google Gives Employees Another Encourage Dissemination of Stories and Legends about
Option 329 Core Values 394
APPENDIX Functional Tactics 331 Institutionalize Practices That Systematically Reinforce
Desired Beliefs and Values 396
Adapt Some Very Common Themes in Their Own Unique
Chapter 11 Ways 396
Organizational Structure 337 Manage the Organizational Culture in a Global
Traditional Organizational Structures and Their Organization 396
Strategy-Related Pros and Cons 340 Manage the Strategy-Culture Relationship 397
Simple Organizational Structure 341 Summary 402
Functional Organizational Structure 341 Key Terms 403
Questions for Discussion 403
Divisional Structure 342
Discussion Case: The New Heat on Ford 403
Matrix Organizational Structure 345
Product-Team Structure 345
What a Difference a Century Makes 347 Chapter 13
Globalization , 347 Strategic Control 408
The Internet 349 Strategic Control 409
Speed 349 Establishing Strategic Controls 409
Initial Efforts to Improve the Effectiveness of Premise Control 410
Traditional Organizational Structures 350
Strategic Surveillance 412
Redefine the Role of Corporate Headquarters from Special Alert Control 412
Control to Support and Coordination 350
The Balanced Scorecard Methodology 416
Balance the Demands for Control/Differentiation with
Summary 421
the Need for Coordination/Integration 351
Key Terms 421
Restructure to Emphasize and Support Strategically
Questions for Discussion 421
Critical Activities 352
Discussion Case 1: Big Blue Wields the Knife
Creating Agile, Virtual Organizations 355
Again 422
Outsourcing—Creating a Modular
Discussion Case 2: Crunch Time for Boeing 423
Organization 356
Discussion Case 3: Unproductive Uncle Sam 424
Strategic Alliances 360
Toward Boundaryless Structures 362 Chapter 14
Ambidextrous Learning Organizations 364
Summary 366
Innovation and Entrepreneurship 426
Key Terms 367 What Is Innovation? 427
Questions for Discussion 367 Incremental Innovation 428
Discussion Case: The Secret of BMW's Breakthrough Innovation 434
Success 368 Risks Associated with Innovation 435
 Table of Contents xxv

What Is Entrepreneurship? 442 32. Citigroup Retail Banking Operations in the

Intrapreneurship 448 U.S. and Abroad: The Banking Industry 32-1
Summary 451 33. The Desert Palms Hotel & Casino 33-1
Key Terms 451 34. Fortune Magazine: The Magazine Publishing
Questions for Discussion 452 Industry 34-1
Discussion Case: At 3M, a Struggle between 35. FOX Relocation Management Corp. 35-1
Efficiency and Creativity 452 36. Jim Thompson Thai Silk Company 36-1
37. Killer Coke: The Campaign against
PART FOUR Coca-Cola 37-1
CASES 457 38. Managing Sexual Harassment at Coors
(A) and (B) 38-1
Guide to Strategic Management Case Analysis 458
39. Morgan Stanley: A Leading Global Financial
Section A BusinessWeek Cases 1-1 Services Firm 39-1
1. Planet Apple 1-1 40. Procter & Gamble: The Beauty/Feminine
2. Saving Starbucks'Soul 2-1 Care Segment of the Customer Goods
3. Facebook Faces Up 3-1 Industry 40-1
4. MySpace Goes Hollywood 4-1 41. Provide Commerce Inc: The Organic
5. AT&T Rebrands. Again 5-1 Perishable Goods Industry 41-1
6. Ice Cream Wars: Nestle vs. Unilever 6-1 42. Regal Entertainment Group: The Movie Theater
7. Getting Inside Google's gPhone 7-1 Segment of the Entertainment Industry 42-1
8. Microsoft in Europe: The Real Stakes 8-1 43. Ruth's Chris: The High Stakes of International
9. Philips Maps Out a New Direction 9-1 Expansion 43-1
10. Wal-Mart's Midlife Crisis 10-1 44. Schwartz & Co. LLP: The Accounting Services
11. VW's Plan to Triple U.S. Sales 11-1 Industry 44-1
12. Volvo Wants Rugged-and Safe 12-1 45. The Apollo Group, Inc. [University of
13. Getty Images'Future? 13-1 Phoenix] 45-1
14. SAP's Very Big Smajl Biz Challenge 14-1 46. Tiffany & Co.: A Specialty Fine Jewelry
15. Mittal & Son 15-1 Retailer 46-1
16. The Last Rajah 16-1 47. TIME For Kids Magazine 47-1
17. Nokia Aims Way Beyond Handsets 17-1 48. TiVo, Inc: TiVo vs. Cable and Satellite
18. Nintendo's Quirky Hit Game 18-1 DVR; Can TiVo Survive? 48-1
19. The Pet Economy 19-1 49. Warner Music Group Inc.: Recorded
20. The Battle to Be Top Dog-PetSmart vs. Music Segment-Entertainment and Media
Petco 20-1 Industry 49-1
21. Six Sigma Kick-Starts Starwood 21-1 50. Whole Foods Market 2007: Will There Be
22. Google's New Role: Venture Capitalist 22-1 Enough Organic Food to Satisfy the Growing
23. A Red-Hot Big Blue in India 23-1 Demand? 50-1
24. Radical Collaboration IBM Style 24-1
25. Jack Daniel's International Strategy 25-1 GLOSSARY G-1
26. Will Universal Music Take on iTunes? 26-1
27. The Arab World Wants Its MTV 27-1
28. Big Oil and Ethanol? 28-1 PHOTO CREDITS P
29. Exxon vs. ConocoPhillips on Going Green 29-1
30. German Companies Hop on Green NAME INDEX 1-1
Bandwagon 30-1
Section B Comprehensive Cases 31-1 SUBJECT INDEX 1-13
31. Aegis Analytical Corporation's Strategic
Alliances 31-1 CASE INDEX 1-22