Strategic Management A Competitive Advantage Approach Concepts and Cases 17Th Global Edition Fred R David All Chapter
Strategic Management A Competitive Advantage Approach Concepts and Cases 17Th Global Edition Fred R David All Chapter
Strategic Management A Competitive Advantage Approach Concepts and Cases 17Th Global Edition Fred R David All Chapter
STRATEGIC
MANAGEMENT
A Competitive Advantage Approach
Concepts and Cases
17th
Edition
Fred R. David, Forest R. David,
and Meredith E. David
STRATEGIC
MANAGEMENT
Concepts and Cases
A COMPETITIVE ADVANTAGE APPROACH
Fred R. David
Francis Marion University
Florence, South Carolina
Forest R. David
Strategic Planning Consultant
Ocean Isle Beach, North Carolina
Meredith E. David
Baylor University
Waco, Texas
Acknowledgments of third-party content appear on the appropriate page within the text.
The rights of Fred R. David, Forest R. David, and Meredith E. David to be identified as the authors of this work have been
asserted by them in accordance with the Copyright, Designs and Patents Act 1988.
Authorized adaptation from the United States edition, entitled Strategic Management: Concepts and Cases, 17th Edition, ISBN
978-0-135-17394-7 by Fred R. David, Forest R. David, and Meredith E. David, published by Pearson Education © 2020.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or
by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the
publisher or a license permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd,
Saffron House, 6–10 Kirby Street, London EC1N 8TS. For information regarding permissions, request forms, and the
appropriate contacts within the Pearson Education Global Rights and Permissions department, please visit
www.pearsoned.com/permissions/.
All trademarks used herein are the property of their respective owners. The use of any trademark in this text does not vest in
the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any
affiliation with or endorsement of this book by such owners.
This eBook is a standalone product and may or may not include all assets that were part of the print version. It also does not
provide access to other Pearson digital products like Revel. The publisher reserves the right to remove any material in this
eBook at any time.
Preface 15
Acknowledgments 25
Glossary 659
5
Preface 15 Exercise 1B: Enter Coca-Cola Vitals into the Strategic Planning
Template 66
Acknowledgments 25 Set 2: Strategic Planning for My University 66
Exercise 1C: Perform SWOT Analysis for My University 66
About the Authors 27 Set 3: Strategic Planning to Enhance My Employability 67
Exercise 1D: Perform SWOT Analysis on Myself 67
PART 1 Overview of Strategic Set 4: Individual versus Group Strategic Planning 67
Management 30 Exercise 1E: How Detrimental Are Various Pitfalls in Strategic
Planning? 67
Chapter 1 The Nature of Strategic
Management 31
PART 2 Strategy Formulation 70
What Is Strategic Management? 32
EXEMPLARY STRATEGIST SHOWCASED: COACH VINCE Chapter 2 Business Vision and Mission 71
LOMBARDI 32 Core Values Statements: What Is Our Foundation? 72
Strategic Planning 33 • The Strategic-Management Model 34 EXEMPLARY STRATEGIST SHOWCASED: FREDERICK W. SMITH,
ETHICS CAPSULE 1: WHAT ETHICS VARIABLE IS MOST FOUNDER AND CEO OF FEDEX CORPORATION 72
IMPORTANT IN DOING BUSINESS? 35 GLOBAL CAPSULE 2: LINKEDIN: CLEAR CORE VALUES, VISION,
Stages of Strategic Management 35 AND MISSION LEAD TO GLOBAL PROMINENCE 73
Integrating Analysis and Intuition 36 Vision Statements: What Do We Want to Become? 73
Adapting to Change 37 Characteristics of a Vision Statement 74
GLOBAL CAPSULE 1: MOBIKE: GLOBAL BIKE RENTING TAKES Vision Statement Analysis 75
OFF LIKE A JET PLANE 38 Mission Statements: What Is Our Business? 75
Key Terms in Strategic Management 38 Characteristics of a Mission Statement 76
Competitive Advantage 38 • Strategists 38 Components of a Mission Statement 77
• Vision and Mission Statements 39 • External
Opportunities and Threats 40 • Internal Strengths and ETHICS CAPSULE 2: FACEBOOK: CHANGING OUR MISSION TO
Weaknesses 40 • Long-Term Objectives 41 ENHANCE OUR ETHICS AND INTEGRITY 79
• Strategies 41 • SWOT Analysis 42 • Annual The Importance (Benefits) of Vision and Mission
Objectives 42 • Policies 44 Statements 79
Benefits of Engaging in Strategic Management 44 The Process of Developing Vision and Mission Statements 81
Financial Benefits 45 • Nonfinancial Benefits 45 Evaluating and Writing Mission Statements 81
Why Some Firms Do No Strategic Planning 46 IMPLICATIONS FOR STRATEGISTS 83
Pitfalls in Strategic Planning 46 IMPLICATIONS FOR STUDENTS 84
Comparing Business and Military Strategies 46 Chapter Summary 84
Developing Employability Skills 48 Key Terms and Concepts 85
IMPLICATIONS FOR STRATEGISTS 49 Issues for Review and Discussion 85
IMPLICATIONS FOR STUDENTS 50 ASSURANCE-OF-LEARNING EXERCISES 86
Chapter Summary 51 Set 1: Strategic Planning for Coca-Cola 86
Key Terms and Concepts 51 Exercise 2A: Develop an Improved Coca-Cola Vision Statement 86
Issues for Review and Discussion 52 Exercise 2B: Develop an Improved Coca-Cola Mission Statement 86
MINI-CASE ON TESLA, INC. (TSLA): WHAT AMERICAN COMPANY Exercise 2C: Compare Coca-Cola’s Mission Statement to a Rival
DOES THE BEST JOB OF STRATEGIC PLANNING, AND HOW IS IT Firm’s 87
DONE? 53 Set 2: Strategic Planning for My University 87
Web Resources 54 Exercise 2D: Compare Your University’s Vision and Mission Statements to
Those of a Rival Institution 87
Current Readings 54
Set 3: Strategic Planning for Myself 87
Endnotes 55
Exercise 2E: Develop a Vision and Mission Statement for
THE COHESION CASE: COCA-COLA COMPANY, 2018 56 Yourself 87
ASSURANCE-OF-LEARNING EXERCISES 65 Set 4: Individual versus Group Strategic Planning 88
Set 1: Strategic Planning for Coca-Cola 65 Exercise 2F: What Is the Relative Importance of Each of the Nine
Exercise 1A: Gather Strategy Information for Coca-Cola Company 65 Components of a Mission Statement? 88
7
MINI-CASE ON FORD MOTOR COMPANY (F): EVALUATE Set 4: Individual versus Group Strategic Planning 118
FORD’S VISION FOR THE FUTURE AND MISSION FOR THE Exercise 3H: What External Forces Are Most Important in Strategic
PRESENT 89 Planning? 118
Web Resources 90 MINI-CASE ON SAM’S CLUB: SAM’S CLUB IS BOOMING IN
Current Readings 90 CHINA 119
Endnotes 91 Web Resources 120
Current Readings 120
Chapter 3 The External Assessment 93 Endnotes 121
EXEMPLARY STRATEGIST SHOWCASED: BEN SILBERMANN,
CEO AND COFOUNDER OF PINTEREST 94 Chapter 4 The Internal Assessment 123
The External Assessment Phase of Strategy Formulation 95 The Internal Assessment Phase of Strategy Formulation 124
Key External Forces 95 • The Actionable-Quantitative- EXEMPLARY STRATEGIST SHOWCASED: ELON MUSK, CEO
Comparative-Divisional (AQCD) Test 95
AND COFOUNDER OF TESLA, INC. AND SPACE EXPLORATION
10 External Forces that Impact Organizations 96 TECHNOLOGIES CORPORATION (SPACEX) 124
Economic Forces 96 • Social, Cultural, Demographic, and Resource-Based View 125 • Key Internal Forces 125
Environment (SCDE) Forces 97 • Political, Governmental, and
Legal Forces 97 ETHICS CAPSULE 4: THE SAGEBRUSH LIZARD VERSUS THE BIG
OIL MAN 126
ETHICS CAPSULE 3: PRESERVE ALASKA WILDLIFE OR BOOST
ALASKA ECONOMY? 98 Management 126
Technological Forces 99 • Competitive Forces 100 Planning 127 • Organizing 127 • Motivating 127
• Controlling 128 • Integrating Strategy and Culture 129
GLOBAL CAPSULE 3: WHAT COMPANY IS GROWING FASTEST • Management Audit Checklist of Questions 130
GLOBALLY? 101
Marketing 131
Porter’s Five-Forces Model 101
Marketing Research and Target Market Analysis 131 • Product
Rivalry among Competing Firms 102 • Potential Entry of New Planning 132 • Pricing 133 • Promotion 133
Competitors 103 • Potential Development of Substitute
Products 103 • Bargaining Power of Suppliers 103 • GLOBAL CAPSULE 4: BITCOIN: THE NEW GLOBAL
Bargaining Power of Consumers 104 CURRENCY 134
Key Sources of Information for an External Audit 105 Channels of Distribution 134 • Marketing Audit
Checklist of Questions 135
Forecasting and Making Assumptions 105
Finance and Accounting 135
Making Assumptions 106
Finance and Accounting 135 • Financial Ratios 136
The External Factor Evaluation Matrix 107 • Finance and Accounting Audit Checklist 138
Steps to Develop an EFE Matrix 107 • Step 1: Develop a Full and
Management Information Systems 140
Narrow List of Key External Factors 107 • Step 2: Assign Weights
to Key External Factors 108 • Step 3: Assign Ratings to Key Business Analytics 140
External Factors 108 • Step 4: Obtain Weighted Scores 108 The Internal Factor Evaluation (IFE) Matrix 141
• Step 5: Obtain Total Weighted Score 108 • An Example EFE The Actionable-Quantitative-Comparative-Divisional (AQCD)
Matrix 109 Test 141 • Steps in Developing an IFE Matrix 142 • Step 1:
The Competitive Profile Matrix 110 Develop a Full and Narrow List of Key Internal Factors 142 • Step 2:
IMPLICATIONS FOR STRATEGISTS 112 Assign Weights to Key Internal Factors 142 • Step 3: Assign
Ratings to Key Internal Factors 142 • Step 4: Obtain Weighted
IMPLICATIONS FOR STUDENTS 113 Scores 143 • Step 5: Obtain Total Weighted Score 143 • An
Chapter Summary 114 Example IFE Matrix 144
Key Terms and Concepts 114 IMPLICATIONS FOR STRATEGISTS 145
Issues for Review and Discussion 114 IMPLICATIONS FOR STUDENTS 146
ASSURANCE-OF-LEARNING EXERCISES 115 Chapter Summary 146
Set 1: Strategic Planning for Coca-Cola 115 Key Terms and Concepts 147
Exercise 3A: Develop an EFE Matrix for Coca-Cola 115 Issues for Review and Discussion 147
Exercise 3B: Develop a Competitive Profile Matrix for Coca-Cola 116
ASSURANCE-OF-LEARNING EXERCISES 149
Set 2: Strategic Planning for My University 116
Set 1: Strategic Planning for Coca-Cola 149
Exercise 3C: Develop an EFE Matrix for Your College or
Exercise 4A: Perform a Financial Ratio Analysis for Coca-Cola 149
University 116
Exercise 4B: Construct an IFE Matrix for Coca-Cola 149
Exercise 3D: Develop a Competitive Profile Matrix for Your College or
University 116 Set 2: Strategic Planning for My University 149
Set 3: Strategic Planning to Enhance My Employability 117 Exercise 4C: Construct an IFE Matrix for Your College or University 149
Exercise 3E: How Competitive Is Your State among All States for Finding Set 3: Strategic Planning for Myself 150
a Job? 117 Exercise 4D: Construct an IFE Matrix for Yourself 150
Exercise 3F: Compare and Contrast CareerBuilder, Glassdoor, Monster Set 4: Individual versus Group Strategic Planning 150
Jobs, and ZipRecruiter 117 Exercise 4E: What Internal Functional Areas Are Most Important to
Exercise 3G: A Template Competency Test 117 Examine in Strategic Planning? 150
MINI-CASE ON PROCTER & GAMBLE (P&G) COMPANY: Exercise 5D: The Key to Personal Strategic Planning: Simultaneously
WHAT COMPANY IS BEST MANAGED IN THE UNITED Build and Borrow 185
STATES? 151 Set 4: Individual versus Group Strategic Planning 185
Web Resources 152 Exercise 5E: What Is the Best Mix of Strategies for Coca-Cola
Current Readings 152 Company? 185
Endnotes 153 MINI-CASE ON FACEBOOK (FB): SHOULD FACEBOOK
ACQUIRE, COOPERATE, OR JUST STAY FIERCE RIVALS WITH
Chapter 5 Strategies in Action 155 LINKEDIN? 187
Long-Term Objectives 156 Web Resources 187
Characteristics and Benefits of Objectives 156 Current Readings 188
EXEMPLARY STRATEGIST SHOWCASED: TIM COOK, CEO OF Endnotes 188
APPLE, INC. 156
Financial versus Strategic Objectives 157 • Avoid Managing by Chapter 6 Strategy Analysis and Choice 191
Crisis, Hope, Extrapolation, and Mystery (CHEM) 158 Strategy Analysis and Choice 192
Types of Strategies 158 EXEMPLARY STRATEGIST SHOWCASED: DAVID GREEN, CEO
Levels of Strategies 159 OF HOBBY LOBBY 192
Integration Strategies 160 The Process of Generating and Selecting Strategies 193
Forward Integration 160 • Backward Integration 161 The Strategy-Formulation Analytical Framework 193
• Horizontal Integration 162 Stage 1: The Input Stage 194 • Stage 2: The Matching
Intensive Strategies 163 Stage 194 • Stage 3: The Decision Stage 194
Market Penetration 163 • Market Development 163 The SWOT Matrix 195
GLOBAL CAPSULE 5: HOW CAN A FIRM DETERMINE WHERE TO ETHICS CAPSULE 6: AS WE STRATEGIZE WE MUST NOT
INITIATE NEW BUSINESS? USE GROSS DOMESTIC PRODUCT JEOPARDIZE ANIMAL WELFARE 196
(GDP) AS A GUIDE. 164
The Strategic Position and Action Evaluation (SPACE)
Product Development 164 Matrix 197
Diversification Strategies 165 Steps in Performing SPACE Analysis 198 • SPACE Matrix
Related Diversification 166 • Unrelated Diversification 166 Quadrants 199 • SPACE Matrix 202
Defensive Strategies 166 The Boston Consulting Group (BCG) Matrix 202
Retrenchment 166 • Divestiture 167 • Liquidation 168 The Internal-External (IE) Matrix 206
Value Chain Analysis and Benchmarking 169 The Grand Strategy Matrix 208
Benchmarking 171 The Decision Stage: The QSPM 210
Michael Porter’s Two Generic Strategies 172 Positive Features and Limitations of the QSPM 214
Cost Leadership 172 • Differentiation 173
How to Estimate Costs Associated with
Means for Achieving Strategies 174 Recommendations 214
BUILD from Within to Grow 174 • BORROW from Others to GLOBAL CAPSULE 6: INDIA’S ECONOMY IS BOOMING 214
Grow 174 • BUY Others to Grow 176
Cultural Aspects of Strategy Analysis and Choice 216
ETHICS CAPSULE 5: ARE CEOS LESS ETHICAL TODAY THAN IN
THE PAST? 176 The Politics of Strategy Analysis and Choice 216
First-Mover Advantages 177 IMPLICATIONS FOR STRATEGISTS 217
Strategic Management in Nonprofit and Small Firms 178 IMPLICATIONS FOR STUDENTS 218
Educational Institutions 178 • Governmental Agencies and Chapter Summary 218
Departments 179 • Small Firms 179 Key Terms and Concepts 219
IMPLICATIONS FOR STRATEGISTS 180 Issues for Review and Discussion 219
IMPLICATIONS FOR STUDENTS 181 ASSURANCE-OF-LEARNING EXERCISES 221
Chapter Summary 181 Set 1: Strategic Planning for Coca-Cola 221
Key Terms and Concepts 182 Exercise 6A: Perform a SWOT Analysis for Coca-Cola 221
Issues for Review and Discussion 182 Exercise 6B: Develop a SPACE Matrix for Coca-Cola 221
ASSURANCE-OF-LEARNING EXERCISES 183 Exercise 6C: Develop a BCG Matrix for Coca-Cola 222
Set 1: Strategic Planning for Coca-Cola 183 Exercise 6D: Develop a QSPM for Coca-Cola 222
Exercise 5A: Develop Hypothetical Coca-Cola Company Set 2: Strategic Planning for My University 222
Strategies 183
Exercise 6E: Develop a BCG Matrix for My University 222
Exercise 5B: Should Coca-Cola Build, Borrow, or Buy
Set 3: Strategic Planning to Enhance My Employability 223
in 2020–2021? 184
Exercise 6F: Perform QSPM Analysis on Myself 223
Set 2: Strategic Planning for My University 184
Exercise 5C: Develop Alternative Strategies for Your University 184 Exercise 6G: A Template Competency Test 223
Set 3: Strategic Planning for Myself 185 Set 4: Individual versus Group Strategic Planning 224
Exercise 6H: How Severe Are Various Subjective Threats in Set 3: Strategic Planning to Enhance My Employability 262
Strategic Planning? 224 Exercise 7D: Marketing Yourself to Best Achieve Your Career
MINI-CASE ON THE BOSTON CONSULTING GROUP: WHAT Objectives 262
AMERICAN FIRM HELPS THE MOST COMPANIES DO STRATEGIC Set 4: Individual versus Group Strategic Planning 263
PLANNING? 225 Exercise 7E: What Are the Most Important Benefits of Having a Diverse
Web Resources 226 Workforce? 263
Current Readings 226 MINI-CASE 7 ON DE BEERS GROUP OF COMPANIES: DE BEERS
Endnotes 227 SHIFTS ITS MARKET SEGMENTATION STRATEGY 264
Web Resources 265
PART 3 Strategy Implementation 228 Current Readings 266
Endnotes 267
Chapter 7 Implementing Strategies: Manage-
ment and Marketing Issues 229 Chapter 8 Implementing Strategies: Finance and
EXEMPLARY STRATEGIST SHOWCASED: INDRA NOOYI, Accounting Issues 269
FORMER CEO OF PEPSICO 230 EXEMPLARY STRATEGIST SHOWCASED: JAMIE DIMON, CEO
Transitioning from Formulating to Implementing JPMORGAN CHASE 270
Strategies 231 Capital Structure 271
The Need for Clear Annual Objectives 231 EPS/EBIT Analysis: Steps to Complete 272 • EPS/EBIT Analysis: An
Establish Policies 233 Example 273 • EPS/EBIT Analysis: Limitations 275
ETHICS CAPSULE 7: DO FIRMS NEED A POLICY AGAINST Projected Financial Statements 275
WORKPLACE PHUBBING? 235 The Free Excel Strategic Planning Template at
www.strategyclub.com 276
Allocate Resources and Manage Conflict 235
Allocate Resources 235 • Manage Conflict 236 ETHICS CAPSULE 8: PROJECTED FINANCIAL STATEMENT
MANIPULATION 277
Match Structure with Strategy 236
GLOBAL CAPSULE 8: THE LEAST (AND MOST) CORRUPT
Types of Organizational Structure 237
COUNTRIES IN THE WORLD FOR DOING BUSINESS 277
The Functional Structure 237 • The Divisional
Steps to Develop Projected Financial S tatements 278 •
Nonprofit
Structure 238 • The Strategic Business Unit
Organizations 279 • P&G’s Actual F inancial Statements 279
Structure 240 • The Matrix Structure 240
• P&G’s Projected Financial S tatements 281 • P&G’s Retained
Do’s and Don’ts in Developing Organizational Charts 242 Earnings Data Table 283
How to Depict an Organizational Chart 243 Corporate Valuation 284
Strategic Production/Operations Issues 245 Corporate Valuation Methods 284
Restructuring and Reengineering 246 • Manage Resistance to Manage Financial Ratios, IPOs, and Bonds 286
Change 246 • Decide Where and How to Produce Goods 247
Financial Ratio Analyses 286 • Go Public with an
Strategic Human Resource Issues 247 IPO? 287 • Issue Bonds to Raise Capital? 288
Link Performance and Pay to Strategy 248 • Balance Work Life IMPLICATIONS FOR STRATEGISTS 288
and Home Life 248 • Promote Diversity 249 • Use Caution
in Hiring a Rival’s Employees 250 • Create a Strategy-Supportive IMPLICATIONS FOR STUDENTS 289
Culture 250 • Use Caution in Monitoring Employees’ Social Chapter Summary 290
Media 251 • Develop a Corporate Well-Being Program 252 Key Terms and Concepts 290
Strategic Marketing Issues 252 Issues for Review and Discussion 290
Segment and Target Markets Effectively 252 • Product ASSURANCE-OF-LEARNING EXERCISES 291
Positioning 253 • Perceptual Mapping 254 Set 1: Strategic Planning for Coca-Cola 291
GLOBAL CAPSULE 7: FOUR GUIDELINES TO FOLLOW IN GLOBAL Exercise 8A: Perform an EPS/EBIT Analysis for Coca-Cola 291
MARKETING 254 Exercise 8B: Prepare Projected Financial Statements for Coca-Cola 292
Engage Customers in Social Media 256 Exercise 8C: Determine the Cash Value of Coca-Cola 292
IMPLICATIONS FOR STRATEGISTS 257 Exercise 8D: Prepare Projected Financial Ratios for Coca-Cola 292
IMPLICATIONS FOR STUDENTS 258 Set 2: Strategic Planning for My University 293
Chapter Summary 259 Exercise 8E: Determine the Cash Value of My University 293
Key Terms and Concepts 259 Set 3: Strategic Planning to Enhance My Employability 293
Issues for Review and Discussion 259 Exercise 8F: Developing Personal Financial Statements 293
ASSURANCE-OF-LEARNING EXERCISES 261 Exercise 8G: A Template Competency Test 293
Set 1: Strategic Planning for Coca-Cola 261 Set 4: Individual versus Group Strategic Planning 294
Exercise 7A: Compare and Contrast Coca-Cola’s Marketing Expenses Exercise 8H: How Severe Are the Seven Limitations to EPS/EBIT
versus Rival Firms 261 Analysis? 294
Exercise 7B: Diagram an Existing and Proposed Organizational Chart for MINI-CASE ON HASBRO, INC.: NERF WANTS TO TAKE OVER
Coca-Cola 261 BARBIE DOLL: THE CASE OF HASBRO, INC. 296
Set 2: Strategic Planning for My University 262 Web Resources 296
Exercise 7C: Develop a Perceptual Map for My University 262 Current Readings 296
PART 4 Strategy Evaluation and Whistle-Blowing 331 • Avoid Bribery 332 • Workplace
Romance 332
Governance 298
Environmental Sustainability 334
Chapter 9 S trategy Evaluation and GLOBAL CAPSULE 10: INDIA IS TURNING GARBAGE INTO
Governance 299 CASH 334
The Strategy-Evaluation Process 300 Sustainability Reports and the Environmental Protection Agency
EXEMPLARY STRATEGIST SHOWCASED: ANTHONY WOOD, (EPA) 335 • International Standardization Organization (ISO)
Certification 336
FOUNDER AND CEO OF ROKU, INC. 300
GLOBAL CAPSULE 9: WHAT COUNTRY’S NEW STRATEGY IS
Corporate Social Responsibility (CSR) 338
CALLED “VISION 2030”? 302 ETHICS CAPSULE 10: TOMS SHOES, INC.: SHOES ARE MAGIC,
PUT SHOES ON EVERY CHILD ON THE PLANET 339
Three Strategy-Evaluation Activities 302
Food Suppliers and Livestock Welfare 339 • Wildlife
Reviewing Bases of Strategy 303 • Measuring Organizational
Welfare 340 • What Firms Are the Best CSR Stewards? 340
Performance 304 • Taking Corrective Actions 306
IMPLICATIONS FOR STRATEGISTS 342
The Balanced Scorecard 307
IMPLICATIONS FOR STUDENTS 342
Boards of Directors: Governance Issues 308
Challenges in Strategic Management 310 Chapter Summary 343
The Art or Science Issue 311 • The Visible or Hidden Issue 311 Key Terms and Concepts 343
ETHICS CAPSULE 9: ACHIEVING EXEMPLARY BUSINESS ETHICS
Issues for Review and Discussion 343
THROUGH EXEMPLARY TRANSPARENCY 312 ASSURANCE-OF-LEARNING EXERCISES 344
Promote Workplace Democracy 312 • Contingency Planning 313 Set 1: Strategic Planning for Coca-Cola 344
• Auditing 314 Exercise 10A: Does Coca-Cola or PepsiCo Win on Sustainability? 344
Guidelines for Effective Strategic Management 314 Set 2: Strategic Planning for My University 344
Exercise 10B: How Does My University Compare to Others on the Use of
IMPLICATIONS FOR STRATEGISTS 317
Green Power? 344
IMPLICATIONS FOR STUDENTS 317 Set 3: Strategic Planning for Myself 345
Chapter Summary 318 Exercise 10C: What Is My Business Ethics Quotient? 345
Key Terms and Concepts 318 Set 4: Individual versus Group Strategic Planning 346
Issues for Review and Discussion 318 Exercise 10D: How Potentially Severe Are the Various Reasons Why
ASSURANCE-OF-LEARNING EXERCISES 319 Workplace Romance Should Be Discouraged? 346
Set 1: Strategic Planning for Coca-Cola 319 MINI-CASE ON CHICK-FIL-A: WHAT COMPANY HAS THE MOST
Exercise 9A: Develop a Balanced Scorecard for Coca-Cola 319 ETHICAL BUSINESS CULTURE? 347
Set 2: Strategic Planning for My University 320 Web Resources 348
Exercise 9B: Prepare a Strategy Evaluation Report for My Current Readings 348
University 320 Endnotes 349
Set 3: Strategic Planning to Enhance My Employability 320
Chapter 11 Global and International Issues 351
Exercise 9C: A Balanced Scorecard to Evaluate My Professional versus
Personal Objectives 320 The Nature of Doing Business Globally 352
Set 4: Individual versus Group Strategic Planning 321 EXEMPLARY STRATEGIST: ANDRE CALANTZOPOULOS, CEO OF
Exercise 9D: How Important Are Various Guidelines for Effective PHILIP MORRIS INTERNATIONAL 352
Strategic Management? 321 Multinational Firms 353 • Labor Unions 354 • Tax
Rates 354
MINI-CASE ON TJX COMPANIES, INC. (TJX): SECRET STRATEGIC
PLANNING WORKS GREAT FOR TJX 323 Advantages and Disadvantages of Doing Business
Web Resources 324 Globally 355
Current Readings 324 The Global Challenge 356
Endnotes 325 Outsourcing and Reshoring 357
U.S. versus Foreign Business Culture 358
Communication Differences across Countries 360
PART 5 Key Strategic-Management
Business Culture across Countries 361
Topics 326
Mexico 361
Chapter 10 Business Ethics, Environmental ETHICS CAPSULE 11: WHICH TWO U.S.-BASED AIRLINES ARE
Sustainability, and Corporate Social WORST ON CUSTOMER SERVICE? 361
Responsibility 327 Japan 362 • China 362 • India 363
EXEMPLARY STRATEGIST SHOWCASED: BILL GATES, FORMER Business Climate across Countries 363
CEO AND CHAIRMAN OF MICROSOFT CORPORATION 328 The African Continent 364 • China 365 • Indonesia 365 •
Why “Good Ethics Is Good Business” 329 India 365
Does It Pay to Be Ethical? 329 • How to Establish an Ethics GLOBAL CAPSULE 11: CHINA AIMS FOR SUPERIORITY IN
Culture 330 QUANTUM COMPUTING 366
Whistle-Blowing, Bribery, and Workplace Romance 331 Mexico 366
13
Pressmaster/Shutterstock
MOST COMPANIES DO STRATEGIC
chapter concepts, the new mini-cases focus on the PLANNING?
following companies: The answer to the question posed above might be the Boston Consulting Group (BCG) headquartered
in Boston, Massachusetts. A worldwide management-consulting firm founded in 1963, BCG had rev-
• Chapter 1: Tesla, Inc. enues of $6.3 billion in 2017 and more than 16,000 employees. BCG’s President and CEO is Rich
Lesser. BCG was ranked third among Fortune’s “100 Best Companies to Work For” in 2017 and was
• Chapter 2: Ford Motor Company ranked first among Consulting Magazine’s 2016 “Best Firms to Work For.”
In formulating strategies, some firms use BCG’s Advantage Matrix to portray on the x-axis the
• Chapter 3: Sam’s Club “size of a firm’s competitive advantage (Low versus High)” and on the y-axis “the number of ap-
proaches a firm can use to achieve competitive advantage (Low versus High).” Based on these two
• Chapter 4: Procter & Gamble (P&G) axes, strategic implications for firms located in one of four quadrants can be labeled, according to
Within each chapter, a new EXEMPLARY Anthony Wood, Founder and CEO
of Roku, Inc.
STRATEGIST, GLOBAL CAPSULE, and
Andriy Popov/123RF
Strategist Capsules—one at the beginning TOMS Shoes, Inc.: Shoes Are Magic, Put Shoes on Every Child on the Planet
respective shoe or pair of sunglasses purchased. Another key te -
of each chapter to showcase an individual that
Yongju Kwon/Shutterstock
is employing strategic management exception- activities, including the One Day Without Shoes initiative aimed at
raising global awareness of health risks associated with not wear -
ing shoes. Supporters of TOMS have the opportunity to volunteer
ally well. for service trips to countries where the company’s donations will be
distributed to local communities in need. On their website, www
15
Exemplary Strategist Capsules Global Capsules focus on the Ethics Capsules address the
Chapter focus on the following people: following topics: following issues:
1 Legendary Coach of the Green Bay Mobike: Global Bike Renting Takes off What Ethics Variable Is Most Important
Packers—Vince Lombardi Like a Jet Plane in Doing Business?
2 CEO and Founder of FedEx LinkedIn: Clear Core Values, Facebook: Changing Our Mission to
Corporation—Frederick Smith Vision, and Mission Lead to Global Enhance Our Ethics and Integrity
Prominence
3 CEO and Cofounder of Pinterest— What Company Is Growing Fastest Preserve Alaska Wildlife or Boost Alaska
Ben Silbermann Globally? Economy?
4 CEO and Cofounder of Tesla and Bitcoin: The New Global Currency The Sagebrush Lizard versus the Big Oil
SpaceX—Elon Musk Man
5 CEO of Apple, Inc.—Tim Cook How Can a Firm Determine Where to Are CEOs Less Ethical Today Than in
Initiate New Business? Use GDP as a the Past?
Guide
6 CEO of Hobby Lobby—David Green India’s Economy Is Booming As We Strategize We Must Not
Jeopardize Animal Welfare
7 Former CEO of PepsiCo—Indra Four Guidelines to Follow in Global Do Firms Need a Policy against
Nooyi Marketing Workplace Phubbing?
8 CEO of JPMorgan Chase, Jamie The Least (and Most) Corrupt Projected Financial Statement
Dimon Countries in the World for Doing Manipulation
Business
9 CEO and Founder of Roku Inc.— What Country’s New Strategy Is Achieving Exemplary Business Ethics
Anthony Wood Called “Vision 2030”? through Exemplary Transparency
10 CEO (former) and Chairman of India Is Turning Garbage into Cash TOMS Shoes, Inc.: Shoes Are Magic, Put
Microsoft—Bill Gates Shoes on Every Child on the Planet
11 CEO of Philip Morris International— China Aims for Superiority in Which Two U.S.-Based Airlines Are
Andre Calantzopoulos Quantum Computing Worst on Customer Service?
Assurance-of-Learning Exercises —nearly all new and, for the first time ever, organized into
four sets as follows that apply chapter concepts, tools, and techniques:
Set 1: Strategic Planning for Coca-Cola—25 exercises apply chapter material to the Coca-
Cola Cohesion Case to prepare students for doing case analysis on for-profit companies.
Set 2: Strategic Planning for My University—12 exercises apply chapter material to your
college or university to prepare students for doing case analysis on nonprofit organizations.
Set 3: Strategic Planning to Enhance My Employability—14 exercises apply chapter
material to individuals instead of companies to prepare students for making career choices.
Set 4: Individual versus Group Strategic Planning—11 exercises apply chapter material
by comparing the effectiveness of individual versus group decisions; these are fun, in-class
group exercises that yield “a winning individual and winning group” for each activity.
Chapter 4: THE INTERNAL ASSESSMENT—this chapter has been revamped and shortened;
the marketing material is enhanced; new examples abound throughout; the ratings for an IFE
Matrix now match the EFE Matrix ratings in form and meaning.
Chapter 5: STRATEGIES IN ACTION—new material includes Blue Ocean Strategy, Value
Chain Analysis, Porter’s Two Generic Strategies, and the need for firms to “BUILD, BOR-
ROW, or BUY.”
Chapter 6: STRATEGY ANALYSIS AND CHOICE—the presentation of this chapter that in-
cludes SWOT, BCG, IE, SPACE, GRAND, and QSPM analyses is enhanced and shortened;
two new pages reveal how to estimate costs of recommendations.
Chapter 7: IMPLEMENTING STRATEGIES: MANAGEMENT AND MARKETING ISSUES—
the title of this chapter changed to reflect new marketing material; our new coauthor is a
marketing professor at Baylor University; this chapter is fully updated and enhanced, espe-
cially with new target marketing, segmentation, and positioning analyses.
Chapter 8: IMPLEMENTING STRATEGIES: FINANCE AND ACCOUNTING I SSUES—the
title of this chapter changed since marketing material moved; there is enhanced presentation
of financial and accounting tools, such as EPS/EBIT analysis, Corporate Valuation, and Pro-
jected Financial Statements; a new running example for P&G is provided; numerous author
comments are given regarding the strategic planning template at www.strategyclub.com.
Chapter 9: STRATEGY EVALUATION AND GOVERNANCE—the title of this chapter changed
due to excellent new material on corporate governance being presented.
Chapter 10: BUSINESS ETHICS, ENVIRONMENTAL SUSTAINABILITY, AND CORPORATE
SOCIAL RESPONSIBILITY—this chapter provides updated and new coverage of ethics, work-
place romance, hiring away rival firms’ employees, wildlife welfare, and sustainability. This text
reveals why “good ethics is good business” and why this is a strategic issue. The sustainability
discussion is improved to promote and encourage firms to conduct operations with respect for
the environment, an important concern for consumers, companies, society, and AACSB.
Chapter 11: GLOBAL AND INTERNATIONAL ISSUES—this chapter is enhanced and short-
ened but provides new coverage of cultural and conceptual strategic-management differ-
ences across countries. Doing business globally has become a necessity in most industries.
Part 6: STRATEGIC MANAGEMENT CASE ANALYSIS—this section that follows all chapters
has been totally rewritten to be more concise and revealing for students performing case analysis.
Chapter Quizzes
Every chapter has quizzes written by the textbook authors so you can as-
sess your students’ understanding of chapter learning objectives.
Management Concepts
Strategy Model/Process
Benchmarking
Strategy Types
Vision/Mission
Key Strategic
Statements
EFE Matrix
IFE Matrix
Strategies
Matrix
3 3 5 4 5 4 3 5 4 3
Case 1 Honda Motor Co., Ltd.
Case 2 The Gap Inc.
Case 3 Samsung Electronics Co., Ltd.
Case 4 Lenovo Group Limited
Case 5 Dick’s Sporting Goods
Case 6 11 Bit Studios S.A.
Case 7 JPMorgan & Chase Co.
Case 8 PPB Group Berhad
Case 9 Nestlé S.A.
Case 10 Domino’s Pizza, Inc.
Case 11 PetMed Express, Inc.
Case 12 AstraZeneca plc
Case 13 Shell plc
Case 14 The Walt Disney Company
Case 15 Adidas AG
Case 16 Shoprite Holdings Ltd.
Case 17 Woolworths Group
Case 18 Microsoft Corporation
Case 19 Amazon.com
Case 20 Nike, Inc.
Case 21 Under Armour, Inc.
Case 22 Polaris Industries, Inc.
Case 23 PT Matahari Putra Prima Tbk.
Case 24 Emirates Group
Case 25 General Electric, Inc.
Case 26 Barwa Group
Case 27 Starbucks Corporation
Case 28 PepsiCo, Inc.
Case 29 National Audubon Society
Case 30 MTN Group Limited
2
First Mover Advantages
4
SWOT Matrix
A01_DAVI1405_17_GE_FM.indd 21
4
SPACE Matrix
5
BCG & IE Matrices
3
Grand Strategy & QSPM
4
Organizational Structure
2
Organizational Culture
Product Position
5
EPS-EBIT Analysis
Projected Financial
6
Statements
5
Company Valuation
3
Balanced Scorecard
1
Governance
2
Business Ethics
Environmental
2
Sustainability
CONCEPTS-BY-CASES MATRIX 21
04/05/22 9:37 PM
22 Preface
In addition, we offer more coverage on important topics, such as business ethics, social re-
sponsibility, and sustainability, than any other strategic-management textbook, including topics
such as bribery, workplace romance, devising codes of ethics, taking a position (or not) on so-
cial issues, and preserving wildlife—topics that
other textbooks do not mention, even though
companies continually face strategic decisions The Association to Advance Collegiate
in these areas. Schools of Business (AACSB) Interna-
We also offer more overage of global/interna- tional increasingly advocates a more
tional issues than any other strategic-management skills-oriented, practical approach
textbook, including topics such as how business in business books, which this text
provides, rather than a theory-based
culture, taxes, tariffs, political stability, and eco-
approach.
nomic conditions vary across countries—all
framed from a strategic-planning perspective.
Lastly, this textbook is trusted across five
continents to provide students (and managers) the latest skills and concepts needed to effectively
formulate and efficiently implement a strategic plan—a game plan, if you will—that can lead to
sustainable competitive advantages for any type of business. This text meets all AACSB Inter-
national guidelines for the strategic-management course at both the graduate and undergraduate
levels, and previous editions have been used at more than 500 colleges and universities globally.
Supplements available
to instructors at www.
pearsonglobaleditions.com Features of the Supplement
Chapter Instructor’s Resource • Chapter-by-chapter summaries
Manual • Chapter Outlines with teaching tips
authored by Forest David • Answers to end-of-chapter Review Questions
• Answers to the end-of-chapter Assurance-of-Learning Exercises
• Answers to the end-of-chapter two Mini-Case Questions
• Examples and activities not in the main book
Case Instructor’s Manual • Case abstract followed by a complete strategic plan for the firm
authored by Forest David • Vision and mission statements
• External and internal assessments with ratio analyses
• Analyses that include SWOT, BCG, IE, SPACE, GRAND, QSPM
• Recommendations and projected financial statements
Test Bank Over 1,500 multiple-choice and true/false questions with these annotations:
authored by Ramachandran • Difficulty level (1 for straight recall, 2 for some analysis, 3 for complex analysis)
Subramanian from Stetson • Type (multiple-choice, true/false, and essay questions)
University • Learning Objective (the concept the question supports)
• AACSB learning standard (Written and Oral Communication; Ethical Understanding and Reasoning;
Analytical Thinking; Information Technology; Interpersonal Relations and Teamwork; Diverse and
Multicultural Work; Reflective Thinking; Application of Knowledge)
Supplements available
to instructors at www.
pearsonglobaleditions.com Features of the Supplement
Computerized TestGen TestGen allows instructors to:
• Customize, save, and generate classroom tests
• Edit, add, or delete questions from the Test Item files
• Analyze test results
• Organize a database of tests and student results.
PowerPoint Presentation PowerPoints meet accessibility standards for students with disabilities. Features include, but are not
authored by Ramachandran limited to:
Subramanian from Stetson • Keyboard and Screen Reader access
University • Alternative text for images
• High color contrast between background and foreground colors
• Image Library includes graphs, tables, and equations.
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 individuals
whose published research is referenced in this edition are listed alphabetically in the Name Index.
To all individuals involved in making this text so popular and successful, we are indebted and
thankful. Thank you also Dr. Yajiang Wang at Hebei University for your emails to us regarding
the weights versus ratings in an IFE Matrix.
Many special persons and reviewers contributed valuable material and suggestions for this
edition. We would like to thank our colleagues and friends at Baylor University, Auburn Uni-
versity, Mississippi State University, East Carolina University, the University of South Carolina,
Campbell University, the University of North Carolina at Pembroke, and Francis Marion Univer-
sity. We have taught strategic management or marketing courses at all these universities. Scores
of students and professors at these schools helped shape the development of this text.
We 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 be-
come associated. We hope you come to share our enthusiasm for the rich subject area of strategic
management and for the systematic learning approach taken in this text. We want to welcome
and invite your suggestions, ideas, thoughts, comments, and questions regarding any part of this
text or the ancillary materials.
Please contact Dr. Fred R. David at freddavid9@gmail.com, or write him at the School of
Business, Francis Marion University, Florence, SC 29501. We sincerely appreciate and need your
input to continually improve this text in future editions. Your willingness to draw our attention to
specific errors or deficiencies in coverage or exposition will especially be appreciated.
Thank you for using this text.
—Fred R. David
—Forest R. David
—Meredith E. David
25
Fred R. David, Forest R. David, and Meredith E. David are a father–son-daughter team that have
published more than 50 articles in journals such as Academy of Management Review, Academy of
Management Executive, Journal of Applied Psychology, Long Range Planning, International Jour-
nal of Management, Journal of Business Strategy, and Advanced Management Journal. Six recent
journal articles by the authors, listed below, are changing the way strategic-management courses are
taught.
David, Meredith E. and Fred R. David, “Strategic Planning for Individuals: A Proposed
Framework and Method,” SAM Advanced Management Journal, (Winter 2018).
David, Fred R., Meredith E. David, and Forest R. David, “The Integration of Marketing
Concepts in Strategic Management Courses: An Empirical Analysis,” SAM Advanced
Management Journal, (Winter 2017).
David, Fred R., Meredith E. David, and Forest R. David, “How Important Is Finance Coverage
in Strategic Management? A Content Analysis of Textbooks,” International Journal of
Business, Marketing, and Decision Sciences (IJBMDS), 4, no. 1, (Winter 2016), pp. 64–78.
David, Fred R., Forest R. David, and Meredith E. David, “Benefits, Characteristics, Components,
and Examples of Customer-Oriented Mission Statements,” International Journal of
Business, Marketing, and Decision Sciences (IJBMDS), 9, no. 1, (Fall 2016), pp. 1–14.
David, Meredith E., Fred R. David, and Forest R. David, “The Quantitative Strategic Planning
Matrix: A New Marketing Tool,” Journal of Strategic Marketing, 3, (April 2016), pp. 1–11.
David, Meredith E. and Fred R. David, “Are Key Marketing Topics Adequately Covered in
Strategic Management?” Journal of Strategic Marketing, 24, (March 2016), pp. 1–13.
Fred has been lead author of this textbook for three decades. This text is a
global leader in the field of strategic management providing an applications,
practitioner-approach to the discipline. About 500 colleges and universities cur-
rently use this textbook across about 20 countries. With a Ph.D. in Management
from the University of South Carolina, Dr. David is currently the TranSouth
Professor of Strategic Planning at Francis Marion University in Florence, South
Carolina. He has published more than 100 academic journal articles and cases.
Fred R. David
Forest has been sole author of the Case Instructor’s Manual for seven editions
of this textbook. This Manual provides extensive teachers’ notes (solutions)
for all the cases. Forest has also been sole author of the Chapter Instructor’s
Manual, Case MyLab, and Chapter MyLab ancillaries, as well as the free
Excel Student Template found on the author website (www.strategyclub.
com). Forest has published more than 80 strategic management cases, ar-
ticles, and papers. He has taught strategic-management courses at Mississippi
State University and Francis Marion University, and management courses at
Campbell University.
Forest R. David
27
Meredith E. David
1
Chapter 10: Business Ethics, Environmental Sustainability, and Social Responsibility
Feedback Loop
The External
Assessment
Chapter 3
Implementing Implementing
Strategy
Business Strategy Strategies: Strategies:
Strategies Evaluation
Vision and Analysis and Management Finance and
in Action and
Mission Choice and Marketing Accounting
Chapter 5 Governance
Chapter 2 Chapter 6 Issues Issues
Chapter 9
Chapter 7 Chapter 8
The
Internal
Assessment
Chapter 4
FIGURE 1-1
The Comprehensive, Integrative Strategic-Management Model
Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 1
(February 1989): 91. See also Anik Ratnaningsih, Nadjadji Anwar, Patdono Suwignjo, and Putu
Artama Wiguna, “Balance Scorecard of David’s Strategic Modeling at Industrial Business for National
Construction Contractor of Indonesia,” Journal of Mathematics and Technology, no. 4 (October 2010): 20.
30
ASSURANCE-OF-LEARNING EXERCISES
The following exercises are found at the end of this chapter:
SET 1: Strategic Planning for Coca-Cola
EXERCISE 1A: Gather Strategy Information for Coca-Cola Company
EXERCISE 1B: Enter Coca-Cola Vitals into the Strategic Planning Template
MyLab Management
Improve Your Grade!
If your instructor is using MyLab Management, visit www.pearson.com/mylab/management
for videos, simulations, and writing exercises.
31
C
hapter 1 provides an overview of strategic management, introduces a practical, integra-
tive model of the strategic-management process (illustrated in Figure 1-1), and defines
basic activities and terms in strategic management. The primary focus of this textbook
is on “learning by doing.” From this text, students learn “how to do strategic planning.” The
integrative model reveals the “layout of this text” and the “process of strategic planning” so
students can follow the journey in a meaningful way.
An exciting new feature of this edition at the beginning of each chapter is an exemplary strate-
gist capsule to showcase a famous strategist for doing an exemplary job applying strategic-planning
concepts, tools, and techniques. The first person featured for excellent strategic-management prac-
tices is Vince Lombardi, former head coach and General Manager of the Green Bay Packers pro-
fessional football team. At the end of each chapter, a new, one-page, mini-case on a company is
provided with respective questions that apply various concepts, tools, and techniques presented.
The legendary football coach of the Green Bay Packers, Vince Lombardi
(1913–1970) changed a losing culture into a winning culture. Founded
in 1919 and headquartered in the small, frigid Wisconsin town of Green
Bay, the Packers are the only nonprofit, community-owned major league
professional sports team in the United States. The third-oldest franchise
in the National Football League (NFL), the Packers were perennial losers
until Vince Lombardi took over in 1959 as head coach and general man-
ager. The very existence of the Packer franchise was in jeopardy when
Stock Photo
Formulating strategies such as deciding what to produce and where, when, and how to
compete is what leads to a sustainable competitive advantage. Even the best strategies must
be implemented well through operational- or tactical-level activities like hiring and motivating
employees, cutting costs, benchmarking, outsourcing, securing financing, and keeping facilities
warm (or cool). Implementation activities are vitally important and must be monitored by strate-
gists, but effectively formulated strategies, more so than operational tactics, is generally what
leads to sustained competitive advantages.
To gain a sustainable competitive advantage, firms need to provide unique products and
services. Uniqueness matters. For example, Apple’s computers, iPads, and iPhones all run on
Apple’s unique operating system; the only way to have an iPhone is to also be a user of Apple’s
operating system. To assure “effective uniqueness,” firms must accept concessions in the strategy
process to gain a sustainable competitive as exemplified in the Apple example. Another example
is Rolex, and the company not offering cheaper lines of watches. Rolex has resisted increasing
market share by offering new cheaper product lines to attract new customers. Instead, Rolex has
maintained its unique reputation and market share as the top luxury watch brand in the world.
Rolex, and all successful firms, thus make tradeoffs and tough decisions throughout the process
of developing, producing, and selling products.
Chapter 2 discusses core values, vision, and mission—items that represent the starting point
for developing and nurturing a firm’s uniqueness. Everything in strategy flows from a particular
firm’s core values, vision, and mission, and all successful firms are different (unique) from rival
firms in some key ways.
The term strategic management is used at many colleges and universities as the title for the
capstone course in business administration. This course integrates material from all business
courses, and in addition, introduces new strategic-management concepts and techniques being
widely used by firms. Two special features of this text are a Cohesion Case (on Coca-Cola) and
end-of-chapter assurance-of-learning exercises, as described in Table 1-1.
Strategic Planning
The term strategic management in this text is used synonymously with the term strategic plan-
ning. 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 planning 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 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 plan-
ning. Following that boom, however, strategic planning was cast aside during the 1980s as vari-
ous 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 an athletic 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 are so slim 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, pro-
cedures, and operations in lieu of other, “less desirable” courses of action.
Identifying an organization’s existing vision, mission, objectives, and strategies is the logi-
cal starting point for strategic management because a firm’s present situation and condition may
preclude certain strategies and may even dictate a particular course of action. Every organiza-
tion has a vision, mission, objectives, and strategy, even if these elements are not consciously
designed, written, or communicated. The answer to where an organization is going can be deter-
mined largely by where the organization has been!
The strategic-management process is dynamic and continuous. A change in any one of the
major components in the model can necessitate a change in any or all of the other components.
For instance, various third-world countries coming online could represent a major opportunity
and require a change in long-term objectives and strategies; a failure to accomplish annual objec-
tives might require a change in policy; or a major competitor’s change in strategy might require
a change in the firm’s mission. The activities represented in Figure 1-1 are not independent silos;
they represent an interrelated process. Thus, activities for strategy formulation, implementation,
and evaluation should be performed on a continual basis, not just at the end of the year or semi-
annually. The strategic-management process never really ends.
In Figure 1-1, perhaps the most important “activity” is the feedback loop because strategy
must be thought of as a “verb rather than a noun.” The stages of strategic management (formula-
tion, implementation, and evaluation) are so fluid as to be virtually indistinguishable when one
starts and the other ends. Continuous feedback enables firms to readily adapt to changing condi-
tions; when anyone is preparing an external or internal assessment or even implementing strategies,
they should be mindful of the firm’s vision and mission. The feedback loop reveals that a change
in any strategic-planning activity can impact any or all other activities. For example, changes in
a firm’s mission can impact all other activities; everything a firm does should be mission driven.
Note in Figure 1-1 that business ethics, social responsibility, environmental sustainability,
and international issues impact all activities in the model, as discussed in Chapters 10 and 11,
respectively. Regarding business ethics, recent research revealed in the Ethics Capsule 1 con-
cludes that “trustworthiness” is the most important variable in doing business.
ETHICS CAPSULE 1
What Ethics Variable Is Most Important in Doing Business?
Professor Cuddy explains, “From an evolutionary perspective, it
was more crucial to our survival that we know quickly whether a
person(s) deserves our trust.” In other words, for nearly a million
Library/Getty Images
says competence is evaluated today only after trust is established
because physically and psychologically, man today is the result of
various traits being promoted and others extinguished over the
millennia, and trustworthiness is number one according to these
researchers.
Curry, Fiske, and Glick go on to say that focusing too much
Who Is This Approaching? today on displaying your strengths or that you are smart, whether
in a job interview or in seeking to do business with someone, can
Three professors from Harvard Business School, Amy Cuddy, Susan backfire. Cuddy says, “A warm, trustworthy person who is also
Fiske, and Peter Glick, recently revealed in a new book, Presence, strong elicits admiration, but only after you’ve established trust does
that the most important variable in doing business with someone your strength become a gift, rather than a threat.”
you do not know is trustworthiness. The authors say that within
seconds of meeting someone, people determine first and foremost Based on Jenna Goudreau, A Harvard psychologist says people judge
the extent that the person is trustworthy. They say that variable is you based on 2 criteria when they first meet you, http://www.aol.com/
far more important than competence, intelligence, looks, strength, article/2016/01/16/a-harvard-psychologist-says-people-judge-you-
height, and numerous other variables. based-on-2-criteria/21298315/?cps=gravity_4816_5749740174701162847
The strategic-management process is not as cleanly divided and neatly performed in practice
as the strategic-management model suggests. Strategists do not go through the process in lock-
step fashion. Generally, there is give-and-take among hierarchical levels of an organization. To
develop a strategic plan, many organizations conduct formal meetings semiannually to discuss
and update the firm’s vision, mission, opportunities, threats, strengths, weaknesses, strategies,
objectives, policies, and performance. These meetings are commonly held off premises and are
called retreats. The rationale for periodically conducting strategic-management meetings away
from the work site is to encourage more creativity and candor from participants. Good communi-
cation and feedback are needed throughout the strategic-management process.
Application of the strategic-management process is typically more formal in larger and well-
established organizations. Formality refers to the extent that participants, responsibilities, author-
ity, duties, and “basic approach” are objective and clear rather than subjective and vague. Smaller
businesses tend to be less formal. Firms that compete in complex, rapidly changing environ-
ments, such as technology companies, tend to be more formal in strategic planning. Firms that
have many divisions, products, markets, and technologies also tend to be more formal in apply-
ing strategic-management concepts. Greater formality in applying the strategic-management
process is usually positively associated with organizational success.2
Because no organization has unlimited resources, strategists must decide which alterna-
tive strategies will benefit the firm most. Strategy-formulation decisions commit an organiza-
tion 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 effi-
ciently. Strategy implementation includes developing a strategy-supportive culture, creating an
organizational structure, redirecting marketing efforts, preparing budgets, developing and using
information systems, devising tactics, and linking employee compensation to organizational
performance.
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 on 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 constantly change. 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.
Formulation, implementation, and evaluation of strategy activities occur at three hierarchi-
cal 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 objec-
tives, 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 busi-
ness; 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.3
Based on past experiences, judgment, and feelings, most people recognize that intuition
is essential to making good strategic decisions. Some managers and owners of businesses pro-
fess to have extraordinary abilities for using intuition alone in devising brilliant strategies. For
example, Will Durant, who organized General Motors (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.”4 Albert Einstein acknowledged the impor-
tance 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.”5
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 inte-
grating 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 intui-
tive 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.6 Drucker says, “I believe in intu-
ition 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.”7 In a
sense, the strategic-management process is an attempt to duplicate what goes on in the mind of a
brilliant, intuitive person who knows the business and assimilates and integrates that knowledge
through analysis in formulating strategies.
As Henderson notes:
The accelerating rate of change today is producing a business world in which custom-
ary 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.8
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 evi-
denced by how the drop in oil prices caught so many firms by surprise. Firms, like organisms,
must be “adept at adapting” or they will not survive.
To survive, all organizations must astutely identify and adapt to change, as the Chinese Mobike
Company does as revealed in the Global Capsule 1 on page 38. The strategic-management process
is aimed at allowing organizations to adapt effectively to change over the long run. Waterman 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.9
GLOBAL CAPSULE 1
Natasha-Aleksandra/Shutterstock
countries may be clear, but on a competi- like. GPS and wireless technology built
tive map showing the real flow of financial into the bike enable Mobike to track the
and industrial activity, as well as idea shar- bike’s whereabouts. No docking stations
ing, the boundaries have largely disap- are needed. This type of small business
peared. The speedy flow of information has likely would be viable in many cities all
eaten away at national boundaries so that over the globe.
people worldwide readily see for themselves In the United States, the largest bike-
how other people live and work. We have share fleet resides in Dallas, Texas where
become a borderless world with global citi- 18,000 bikes flood Dallas streets and users
zens, global competitors, global customers, Follow Me Biking are not required to use racks; racks are
global suppliers, global distributors, and required in New York City. The rackless
global entrepreneurs. business model is the norm in China, but
There are millions of start-up businesses rolling out services there, and in Dallas, bikes end up in trees, creeks, yards, and block
globally. For example, Mobike in Beijing, China, is a bicycle-sharing sidewalks.
business with more than 100 million users who use the com-
pany’s 6 million “connected” bikes. Members pay a fee for the Source: Based on Clifton Leaf, “Ideas Know No Borders,” Fortune, August 1,
privilege and retrieve a bike from one docking station and return 2017, p. 10. Also, Ken Smith, “A Bike-Share Invasion From China,”
it to another, but recently Mobike members simply download the Bloomberg Businessweek, November 13, 2017, p. 22. Also, Eliot Brown, “It’s
company app, find a bike near them, scan a code to unlock it, the Wild West for Bike Sharing,” March 27, 2018, p. B4.
Competitive Advantage
Strategic management is all about gaining and maintaining competitive advantage. This term
can be defined as any activity a firm does especially well compared with activities done by
rival firms, or any resource a firm possesses that rival firms desire. For example, having fewer
fixed assets than rival firms can provide major competitive advantages. Apple Inc. has virtually
no manufacturing facilities of its own, whereas rival Sony owns 57 electronics factories. Apple
relies almost entirely on contract manufacturers for production of its products.
Normally, a firm can sustain a competitive advantage for only a certain period because of rival
firms imitating and undermining that advantage. Thus, it is not adequate simply to obtain competitive
advantage. A firm must strive to achieve sustained competitive advantage by doing the following:
1. Continually adapting to changes in external trends and events and internal capabilities,
competencies, and resources.
2. Effectively formulating, implementing, and evaluating strategies that capitalize on those factors.
3. Offering products that are unique and not easily duplicated by rivals.
4. Accepting tradeoffs by deciding what not to do; no firm can be everything to everybody.
Strategists
Strategists are the individuals most responsible for the success or failure of an organization. They
have various job titles, such as chief executive officer, chief strategy officer, president, owner,
chair of the board, executive director, chancellor, dean, and 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 indus-
try 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).
The chief strategy officer (CSO) position has become common in many organizations. Hundreds
of companies have appointed a new chief strategy officer in the last couple of years, including Talon
International, TeleTech, Fleet Complete, Ringler Associates, LRES, Amber Engine, Beaver-Visitec
International, Momentum Worldwide, PGi, TIA, World Surf League, Bank of Hawaii, Snapdeal,
Oramed, Saatva, Centrillion, Geisinger Health System, and Amplifi Commerce.
Strategists differ as much as organizations do, and these differences must be considered
in the formulation, implementation, and evaluation of strategies. Strategists differ in their atti-
tudes, values, ethics, willingness to take risks, concern for social responsibility, concern for
profitability, concern for short-run versus long-run aims, and management style; some will not
even consider various types of strategies because of their personal philosophies. The founder of
Hershey, Milton Hershey, built the company so that he could afford to manage an orphanage.
From corporate profits, Hershey today cares for about 850 boys and 950 girls in its boarding
school for pre-K through grade 12.
Athletic coaches are also strategists. Football, basketball, baseball, soccer, and in fact many ath-
letic contests are often won or lost based on a team’s game plan. For example, a basketball coach may
plan to fast break and play up-tempo, rather than play more half-court, if the players are smaller and
faster, or if the team has more depth than the opposing team. Some inspirational, strategic-planning-
related quotes from legendary National Football League (NFL) coaches are provided in Table 1-2.
Long-Term Objectives
Objectives can be defined as specific results that an organization seeks to achieve in pursuing
its mission. Long term means more than one year. Objectives are essential for organizational
success because they provide direction; aid in evaluation; foster synergy; reveal priorities;
focus coordination; and provide a basis for effective planning, organizing, motivating, and
controlling activities. Objectives should be challenging, measurable, consistent, reasonable,
and clear. In a multidimensional firm, objectives are needed both for the overall company and
each division.
Headquartered in New York City, Foot Locker, Inc. recently posted the following long-term
objectives on its corporate website (paraphrased):
1. Annual revenues: $7.5 billion
2. Annual revenues per square foot: $500
3. EBIT margin: 11 percent
4. Profit margin: 7 percent
5. Return on invested capital: 14 percent
6. Inventory turnover: 3+ times
In contrast, Macy’s, Inc.’s Annual Report lists as objectives to “to grow sales profitably” and
“to maximize total shareholder return.” Avoid vagueness like this throughout a strategic-planning
project!
Strategies
Strategies are the means by which long-term objectives will be achieved. Business strategies
may include geographic expansion, diversification, acquisition, product development, market
penetration, retrenchment, divestiture, liquidation, and joint venture. Strategies are potential
actions that require top-management decisions and significant amounts of the firm’s resources.
They affect an organization’s long-term prosperity, typically for at least five years, and thus
are future oriented. Strategies also have multifunctional and multidivisional consequences and
require consideration of both the external and internal factors facing the firm.
Strategies currently being pursued by Amazon are described in Table 1-4.
Source: Based on Jeremy Bowman, “3 Reasons Amazon Is Opening a Brick-and-Mortar Bookstore Chain,”
https://www.aol.com/article/finance/2017/06/07/3-reasons-amazon-is-opening-a-brick-and-mortar-bookstore-
chain/22130842/
SWOT Analysis
Strengths-Weaknesses-Opportunities-Threats (SWOT) Analysis is an important matching
tool that helps managers develop four types of strategies: SO (strengths-opportunities) strate-
gies, WO (weaknesses-opportunities) strategies, ST (strengths-threats) strategies, and WT
(weaknesses-threats) strategies.11 Matching key external and internal factors is a critically impor-
tant activity in strategic planning. Note in Table 1-5 that the resultant strategies 1, 2, 3, and 4 are
SO, WO, ST, and WT strategies, respectively. SWOT analysis is explained further in Chapter 6,
but the matching of external with internal factors to generate strategies results in a SWOT Matrix
as illustrated in Figure 1-2.
Annual Objectives
Annual objectives are short-term milestones that organizations must achieve to reach long-
term objectives. Like long-term objectives, annual objectives should be measurable, quan-
titative, challenging, realistic, consistent, and prioritized. They must also be established at
the corporate, divisional, and functional levels in a large organization. Annual objectives
should be stated in terms of management, marketing, finance/accounting, and production
accomplishments. A set of annual objectives is needed for each long-term objective. These
TABLE 1-5 Matching Key External and Internal Factors to Formulate Strategies
Key Internal Factor Key External Factor Resultant Strategy
S1: Demand for Dunkin Donuts + O1: Desire for healthy products = SO1: Dunkin Donuts elimi-
up 6 percent annually (internal up 8 percent annually (external nated all artificial dyes and colors
strength) opportunity) in its donuts in 2018
W1: Insufficient production + O2: Exit of two major foreign = WO1: Purchase competitors’
capacity by 1 million units competitors from the area production facilities
annually (internal weakness) (external opportunity)
S2: R&D has developed four + T1: Sugary drink consumption = ST1: Spend $1 million to
new products in twelve months is declining 5 percent annually promote healthiness of four new
(internal strength) (external threat) products
W2: Poor employee morale + T2: Healthcare costs rose 7 = WT1: Implement a new
(internal weakness) percent last year (external threat) corporate wellness program
FIGURE 1-2
The Basic SWOT Matrix Format
43
Policies
Policies are the means by which annual objectives will be achieved. Policies include guide-
lines, rules, and procedures established to support efforts to achieve stated objectives. Policies
are guides to decision making and address repetitive or recurring situations. Usually, policies
are stated in terms of management, marketing, finance/accounting, production/operations, R&D,
and MIS activities. They may be established at the corporate level and apply to an entire orga-
nization, at the divisional level and apply to a single division, or they may be established at the
functional level and apply to particular operational activities or departments.
Like annual objectives, policies are especially important in strategy implementation because
they outline an organization’s expectations of its employees and managers. Policies allow con-
sistency and coordination within and between organizational departments. For example, IBM
recently instituted a new policy requiring employees to work from an IBM office rather than work-
ing remotely, reversing a 30-year policy. IBM had previously for decades boasted that more than
40 percent of its employees worked remotely, but the company’s new policy is aimed at improving
employee collaboration and accelerating the pace of work. The policy is also aimed at reversing
IBM’s two consecutive quarters of declining revenue. Several large companies are following the
IBM lead, recalling at-home employees, including Yahoo, Bank of America, and Aetna Inc.
Greater
Deeper/Improved
Commitment THE RESULT
Enhanced Understanding
Communication a. To achieve All Managers and
a. Of others’ views
objectives Employees on a
a. Dialogue b. Of what the firm
b. To implement Mission to Help the
b. Participation is doing/planning
strategies Firm Succeed
and why
c. To work hard
FIGURE 1-3
Benefits to a Firm that Does Strategic Planning