SPECIAL DEDICATION TO DAVID HUNGER
A special dedication in honor of David Hunger to his colleagues, friends, and students—
It is our hope and prayer that you found, and continue to find, some joy in your study of Strategic Management and Business Policy and, perhaps, experience a sense of the passion behind the subject matter presented in this textbook. It was originated by two men who were the best of
friends and colleagues, Dr. Tom Wheelen (May 30, 1935 – December 24, 2011) and our Dad, Dr. J. David Hunger (May 17, 1941 – April 10, 2014). This will be the first edition we will see without a handwritten note in the front and a dedication to us all. Dad came alive discussing strategy, case management, theory, entrepreneurship, and the daily happenings in the field of
management. Even relaxing at the end of the day, he could be found thumbing through a Business Week or journal. Colleagues always knew when he was in their presentations because he was fully
engaged, offering questions and happy to share in an animated dialogue. Students speak fondly of being in his class. His dedication to the field never ended. Even up to a month before he died
(still undergoing chemotherapy) he insisted on travelling by train from Minnesota to Chicago for a Case Research Conference to run a panel. We are so proud and thankful that Drs. Alan Hoffman and Chuck Bamford knew Tom and Dad and are carrying the torch forward. As his 4 daughters
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4 DEDICATED
and 6 grandchildren, we miss him daily. We lost him far too soon. Finally, our mom, Betty Hunger, who lived with the authorship of this textbook for three quarters of their 45 years together
and joked that it was their 5th child, wishes to express just how much she misses Dad and looks forward to seeing him again.
Betty, Kari and Jeff, Madison and Megan, Suzi and Nick, Summer and Kacey, Lori and Derek, Merry and Dylan, and Edan and Greyson.
We love you David/Dad/GrandDad.
To Will Hoffman, the greatest son in the world…. and to our saint Wendy Appel. …. and to Jodi L. Silton, thank you for your kindness and understanding.
Alan Hoffman
To Yvonne, for your support, advice, encouragement, love, and confidence. To my children Ada, Rob, and Sean and my grandchildren Silas, Isaac, and Clara.
Chuck Bamford
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Brief Contents
PART ONE Introduction to Strategic Management and Business Policy 33 C H A P T E R 1 Basic Concepts of Strategic Management 34 C H A P T E R 2 Corporate Governance 72 C H A P T E R 3 Social Responsibility and Ethics in Strategic Management 102
PART TWO Scanning the Environment 123 C H A P T E R 4 Environmental Scanning and Industry Analysis 124 C H A P T E R 5 Organizational Analysis and Competitive Advantage 164
PART THREE Strategy Formulation 199 C H A P T E R 6 Strategy Formulation: Business Strategy 200 C H A P T E R 7 Strategy Formulation: Corporate Strategy 224 C H A P T E R 8 Strategy Formulation: Functional Strategy and Strategic Choice 250
PART FOUR Strategy Implementation and Control 279 C H A P T E R 9 Strategy Implementation: Global Strategy 280 C H A P T E R 1 0 Strategy Implementation: Organizing and Structure 294 C H A P T E R 1 1 Strategy Implementation: Staffing and Directing 324 C H A P T E R 1 2 Evaluation and Control 348
PART FIVE Introduction to Case Analysis 377 C H A P T E R 1 3 Suggestions for Case Analysis 378
PART SIx Cases in Strategic Management 1-1 GLOSSARY G-1
NAME INDEx I-1
SUBJECT INDEx I-6
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Contents
Preface 21 About the Authors 29
PART ONE Introduction to Strategic Management and Business Policy 33
C H A P T E R 1 Basic Concepts of Strategic Management 34 The Study of Strategic Management 37
Phases of Strategic Management 37
Benefits of Strategic Management 38
Globalization, Innovation, and Sustainability: Challenges to Strategic Management 39
Impact of Globalization 40
Impact of Innovation 41
Global Issue: ASEAN: REGIONAL TRADE ASSOCIATIONS 42
Impact of Sustainability 42
Theories of Organizational Adaptation 44
Creating a Learning Organization 44
Basic Model of Strategic Management 46
Environmental Scanning 46
Strategy Formulation 48
Strategy Implementation 52
Evaluation and Control 53
Feedback/Learning Process 54
Initiation of Strategy: Triggering Events 54
Strategic Decision Making 55
What Makes a Decision Strategic? 55
Mintzberg’s Modes of Strategic Decision Making 56
Strategic Decision-Making Process: Aid to Better Decisions 57
The Strategic Audit: Aid to Strategic Decision Making 58
End of Chapter Summary 59
APPENDIx 1.A Strategic Audit of a Corporation 64
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C H A P T E R 2 Corporate Governance 72 Role of the Board of Directors 75
Responsibilities of the Board 76
Board of Directors Composition 79
Innovation Issue: JCPENNEY AND INNOVATION 80
Strategy Highlight: AGENCY THEORY VERSUS STEWARDSHIP THEORY IN CORPORATE GOVERNANCE 81
Nomination and Election of Board Members 85
Organization of the Board 86
Impact of Sarbanes–Oxley on U.S. Corporate Governance 87
Global Issue: GLOBAL BUSINESS BOARD ACTIVISM AT YAHOO! 88
Improving Governance 89
Evaluating Governance 89
Avoiding Governance Improvements 90
Trends in Corporate Governance 90
The Role of Top Management 91
Responsibilities of Top Management 92
Sustainability Issue: CEO PAY AND CORPORATE PERFORMANCE 92
End of Chapter Summary 95
C H A P T E R 3 Social Responsibility and Ethics in Strategic Management 102 Social Responsibilities of Strategic Decision Makers 104
Responsibilities of a Business Firm 104
Sustainability 107
Sustainability Issue: MARkS & SPENCER LEADS THE WAY 108
Corporate Stakeholders 108
Stakeholder Analysis 109
Strategy Highlight: JOHNSON & JOHNSON CREDO 111
Ethical Decision Making 111
Some Reasons for Unethical Behavior 112
Global Issue: HOW RULE-BASED AND RELATIONSHIP-BASED GOVERNANCE SYSTEMS AFFECT ETHICAL BEHAVIOR 113
Innovation Issue: TURNING A NEED INTO A BUSINESS TO SOLVE THE NEED 115
Encouraging Ethical Behavior 116
Views on Ethical Behavior 117
End of Chapter Summary 119
CONTENTS 7
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PART TWO Scanning the Environment 123
C H A P T E R 4 Environmental Scanning and Industry Analysis 124 Aspects of Environmental Scanning 126
Identifying External Environmental Variables 127
Sustainability Issue: GREEN SUPERCARS 128
Strategic Importance of the External Environment 129
Scanning the Societal Environment: Steep Analysis 129
Global Issue: SUVS POWER ON IN CHINA 137
Identifying External Strategic Factors 139
Industry Analysis: Analyzing the Task Environment 139
Porter’s Approach to Industry Analysis 140
Industry Evolution 144
Categorizing International Industries 144
Innovation Issue: TAkING STOCk OF AN OBSESSION 145
International Risk Assessment 146
Strategic Groups 146
Strategic Types 147
Hypercompetition 148
Using Key Success Factors to Create an Industry Matrix 149
Competitive Intelligence 150
Sources of Competitive Intelligence 151
Strategy Highlight EVALUATING COMPETITIVE INTELLIGENCE 152
Monitoring Competitors for Strategic Planning 153
Forecasting 154
Danger of Assumptions 154
Useful Forecasting Techniques 154
The Strategic Audit: A Checklist for Environmental Scanning 156
Synthesis of External Factors 156
End of Chapter Summary 158
C H A P T E R 5 Organizational Analysis and Competitive Advantage 164 A Resource-Based Approach to Organizational Analysis—Vrio 166
Core and Distinctive Competencies 166
Using Resources/Capabilities to Gain Competitive Advantage 169
8 CONTENTS
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Business Models 170
Value-Chain Analysis 172
Industry Value-Chain Analysis 172
Corporate Value-Chain Analysis 174
Scanning Functional Resources and Capabilities 175
Basic Organizational Structures 175
Culture 177
Global Issue: MANAGING CORPORATE CULTURE FOR GLOBAL COMPETITIVE ADVANTAGE: ABB VS. PANASONIC 179
Strategic Marketing Issues 179
Innovation Issue: DOCOMO MOVES AGAINST THE GRAIN 181
Strategic Financial Issues 182
Strategic Research and Development (R&D) Issues 183
Strategic Operations Issues 185
Strategic Human Resource Management (HRM) Issues 187
Strategic Information Systems/Technology Issues 189
Sustainability Issue: THE OLYMPIC GAMES—LONDON 2012/SOCHI 2014/RIO 2016 & TOkYO 2020 190
The Strategic Audit: A Checklist for Organizational Analysis 192
Synthesis of Internal Factors (IFAS) 192
End of Chapter Summary 194
PART THREE Strategy Formulation 199
C H A P T E R 6 Strategy Formulation: Business Strategy 200 A Framework for Examining Business Strategy 202
Generating a Strategic Factors Analysis Summary (SFAS) Matrix 203
Finding Market Niches 205
Mission and Objectives 206
Business Strategies 207
Porter’s Competitive Strategies 207
Global Issue: HAS EMIRATES REACHED THE LIMIT OF GLOBALIZATION? 209
Innovation Issue: CHEGG AND COLLEGE TExTBOOkS 212
Sustainability Issue: STRATEGIC SUSTAINABILITY—ESPN 214
Cooperative Strategies 215
Strategic Alliances 216
End of Chapter Summary 220
CONTENTS 9
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C H A P T E R 7 Strategy Formulation: Corporate Strategy 224 Corporate Strategy 226
Directional Strategy 226
Growth Strategies 227
Strategy Highlight: TRANSACTION COST ECONOMICS ANALYZES VERTICAL Growth StrateGy 230
Global Issue: GLOBAL ExPANSION IS NOT ALWAYS A PATH TO GROWTH 232
Controversies in Directional Growth Strategies 233
Stability Strategies 234
Retrenchment Strategies 235
Portfolio Analysis 237
BCG Growth-Share Matrix 238
Sustainability Issue: GENERAL MOTORS AND THE ELECTRIC CAR 240
Advantages and Limitations of Portfolio Analysis 241
Managing a Strategic Alliance Portfolio 241
Corporate Parenting 242
Innovation Issue: TO RED HAT OR NOT? 243
Developing a Corporate Parenting Strategy 244
Horizontal Strategy and Multipoint Competition 244
End of Chapter Summary 245
C H A P T E R 8 Strategy Formulation: Functional Strategy and Strategic Choice 250 Functional Strategy 252
Marketing Strategy 252
Financial Strategy 254
Research and Development (R&D) Strategy 255
Operations Strategy 256
Global Issue: WHY IS STARBUCkS AFRAID OF ITALY? 257
Purchasing Strategy 258
Sustainability Issue: HOW HOT IS HOT? 259
Innovation Issue: WHEN AN INNOVATION FAILS TO LIVE UP TO ExPECTATIONS 260
Logistics Strategy 261
Human Resource Management (HRM) Strategy 261
Information Technology Strategy 262
10 CONTENTS
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The Sourcing Decision: Location of Functions 262
Strategies To Avoid 265
Strategic Choice: Constructing Scenarios 265
Constructing Corporate Scenarios 266
The Process of Strategic Choice 271
Using Policies to Guide Strategic Choices 273
End of Chapter Summary 273
PART FOUR Strategy Implementation and Control 279
C H A P T E R 9 Strategy Implementation: Global Strategy 280 International Entry 282
International Coordination 284
International Strategic Alliances 285
Stages of International Development 285
International Employment 286
Measurement of Performance 288
End of Chapter Summary 290
C H A P T E R 1 0 Strategy Implementation: Organizing and Structure 294 Strategy Implementation 296
Who Implements Strategy? 297
What Must Be Done? 297
Developing Programs, Budgets, and Procedures 297
Sustainability Issue: A BETTER BOTTLE—ECOLOGIC BRANDS 298
Achieving Synergy 302
How Is Strategy To Be Implemented? Organizing for Action 303
Structure Follows Strategy 303
Stages of Corporate Development 304
Innovation Issue: THE P&G INNOVATION MACHINE STUMBLES 305
Organizational Life Cycle 309
Flexible Types of Organizational Structure 310
The Matrix Structure 310
Network Structure—The Virtual Organization 312
Global Issue: OUTSOURCING COMES FULL CIRCLE 313
Cellular/Modular Organization: A New Type of Structure? 314
CONTENTS 11
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Reengineering and Strategy Implementation 314
Six Sigma 315
Designing Jobs to Implement Strategy 316
Centralization Versus Decentralization 317
End of Chapter Summary 318
C H A P T E R 1 1 Strategy Implementation: Staffing and Directing 324 Staffing 326
Staffing Follows Strategy 327
Selection and Management Development 329
Innovation Issue: HOW TO kEEP APPLE “COOL” 329
Problems in Retrenchment 331
Leading 333
Managing Corporate Culture 333
Sustainability Issue: PANERA AND THE “PANERA CARES COMMUNITY CAFé” 334
Action Planning 338
Management by Objectives 340
Total Quality Management 341
Global Issue: CULTURAL DIFFERENCES CREATE IMPLEMENTATION PROBLEMS in MerGer 342
End of Chapter Summary 342
C H A P T E R 1 2 Evaluation and Control 348 Measuring Performance 350
Appropriate Measures 350
Types of Controls 351
Innovation Issue: SOLAR POWER AND THE GRID 352
Activity-Based Costing 353
Enterprise Risk Management 354
Primary Measures of Corporate Performance 354
Sustainability Issue: THE END OF THE CASH REGISTER RECEIPT 357
Balanced Scorecard Approach: Using Key Performance Measures 358
Primary Measures of Divisional and Functional Performance 360
Responsibility Centers 360
Using Benchmarking To Evaluate Performance 362
12 CONTENTS
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Global Issue: Counterfeit Goods And PirAted softwAre: A GlobAl Problem 363
Strategic Information Systems 363
Enterprise Resource Planning 364
Radio Frequency Identification and Near Field Communication 364
Divisional and Functional is Support 365
Problems in Measuring Performance 365
Short-Term Orientation 366
Goal Displacement 367
Guidelines for Proper Control 368
Aligning Incentives 369
End of Chapter Summary 371
PArt fiVe Introduction to Case Analysis 377
C h A P t e r 1 3 Suggestions for Case Analysis 378 The Case Method 380
Researching the Case Situation 380
Financial Analysis: A Place to Begin 381
Analyzing Financial Statements 381
Common-Size Statements 385
Z-Value and the Index of Sustainable Growth 385
Useful Economic Measures 386
Format for Case Analysis: The Strategic Audit 386
End of Chapter Summary 389
APPendix 13.A Resources for Case Research 391
APPendix 13.b Suggested Case Analysis Methodology Using the Strategic Audit 393
APPendix 13.C Example of Student-Written Strategic Audit 396