Crafting and Executing Strategy the Quest for Competitive Advantage Concepts and Cases Arthur a. Thompson, Jr., A.J. Strickland III, John E. Gamble

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Crafting and Executing Strategy the Quest for Competitive Advantage Concepts and Cases Arthur a. Thompson, Jr., A.J. Strickland III, John E. Gamble

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  • Crafting and Executing Strategy

    The QuesT for CompeTiTive AdvAnTAge

    Concepts and Cases

  • Crafting and Executing Strategy

    The QuesT for CompeTiTive AdvAnTAge

    Concepts and Cases

    NiNeteeNth editioN

    Arthur A. Thompson, Jr.The University of Alabama

    margaret A. peterafDartmouth College

    John e. gambleUniversity of South Alabama

    A.J. strickland, iiiThe University of Alabama

  • CRAFTING AND EXECUTING STRATEGYLoculine sinatio nsunte ad publius, crescepotam acchuis acesta detorte conos vividii se consul horaetilin terferehena, con diesseredo, puliam tea publiciaecis iamEperest acricae simoves sinatudestu moraecem nonsultor la molum hui pat, nestrum dintra implinv ercerfictum involius, nos fatilium latum ne crem notimovis. Castemus, sederebatam imus re perisCupiortus vit, dit. Artil ventill aribule gerobus ac iam inemum in percertem hostiquam adductorum nonsciam mo ex muntelic tum obus consimu spernum, cut pertem me arisularit.

    Hucientus, vium publius picupio nveret L. Interid rehem popublii si pliis ego virmihi linatque tela vit, prae audet ce te terra?

    Opientu spicam abisqui dernimorit; nemora re tessunum quam erfec furnuntem ta, sederete

    This book is printed on acid-free paper.

    1 2 3 4 5 6 7 8 9 0 CCW/CCW 0 9 8 7 6 5 4

    ISBN 0-07-286163-0Opientu spicam abisqui dernimori: name

    Library of Congress Cataloging-in-Publication Data

    to our families and especially our spouses:hasseline, Paul, and Kitty

    copyright page

    FPO

  • vi vii

    A rthur A. Thompson, Jr., earned his B.S. and Ph.D. degrees in economics from The University of Tennessee, spent three years on the economics faculty at Virginia Tech, and served on the faculty of The University of Alabamas College of Commerce and Business Administration for 24 years. In 1974 and again in 1982, Dr. Thompson spent semester-long sabbaticals as a vis-iting scholar at the Harvard Business School.

    His areas of specialization are business strategy, competition and market analysis, and the economics of business enterprises. In addition to publishing over 30 articles in some 25 different professional and trade publications, he has authored or co-authored five textbooks and six computer-based simulation exercises that are used in colleges and universities worldwide.

    Dr. Thompson spends much of his off-campus time giving presentations, putting on management development programs, working with companies, and helping operate a business simulation enterprise in which he is a major partner.

    Dr. Thompson and his wife of 48 years have two daughters, two grandchil-dren, and a Yorkshire terrier.

    M argaret A. peteraf is currently Associate Dean and Professor of Man-agement in the Mitchell College of Business at the University of South Alabama. His teaching specialty at USA is strategic management and he also conducts a course in strategic management in Germany, which is spon-sored by the University of Applied Sciences in Worms.

    Dr. Gambles research interests center on strategic issues in entrepreneur-ial, health care, and manufacturing settings. His work has been published in various scholarly journals and he is the author or co-author of more than 30 case studies published in an assortment of strategic management and strate-gic marketing texts. He has done consulting on industry and market analysis for clients in a diverse mix of industries.

    Professor Gamble received his Ph.D. in management from The University of Alabama in 1995. Dr. Gamble also has a Bachelor of Science degree and a Master of Arts degree from The University of Alabama.

    J ohn e. gamble is currently Associate Dean and Professor of Management in the Mitchell College of Business at the University of South Alabama. His teaching specialty at USA is strategic management and he also conducts a course in strategic management in Germany, which is sponsored by the Uni-versity of Applied Sciences in Worms.

    Dr. Gambles research interests center on strategic issues in entrepreneur-ial, health care, and manufacturing settings. His work has been published in various scholarly journals and he is the author or co-author of more than 30 case studies published in an assortment of strategic management and strate-gic marketing texts. He has done consulting on industry and market analysis for clients in a diverse mix of industries.

    Professor Gamble received his Ph.D. in management from The University of Alabama in 1995. Dr. Gamble also has a Bachelor of Science degree and a Master of Arts degree from The University of Alabama.

    D r. A. J. (Lonnie) strickland, a native of North Georgia, attended the Uni-versity of Georgia, where he received a bachelor of science degree in math and physics in 1965. Afterward he entered the Georgia Institute of Technology, where he received a master of science in industrial management. He earned a Ph.D. in business administration from Georgia State University in 1969. He currently holds the title of Professor of Strategic Management in the Graduate School of Business at The University of Alabama.

    Dr. Stricklands experience in consulting and executive development is in the strategic management area, with a concentration in industry and competitive analysis. He has developed strategic planning systems for such firms as The Southern Company, BellSouth, South Central Bell, American Telephone and Telegraph, Gulf States Paper, Carraway Methodist Medi-cal Center, Delco Remy, Mark IV Industries, Amoco Oil Company, USA Group, General Motors, and Kimberly Clark Corporation (Medical Prod-ucts). He is a very popular speaker on the subject of implementing strategic change and serves on several corporate boards.

    AbouT The AuThors

  • viii ix

    entrepreneurial leadership and commit the enterprise to conducting business in a fashion shrewdly calculated to produce good performance. A strategy pro-vides a roadmap to operate by a prescription for doing business, a game plan for building customer loyalty and winning a sustainable competitive advantage over rivals. The second need is that of molding the independent decisions and actions initi-ated by departments, managers, and employees across the company into a coordinated, company wide game plan. Absent a strategy, managers have no framework for weaving many different action initiatives into a cohesive whole, no plan for uniting crossdepart-ment operations into a team effort.

    Crafting implementing, and executing strategy are thus core management functions. Am ongoing all the things managers do, nothingoing all the things ng affects a compa-nys ultimate success or failure more fundamentally than how well its management team charts.

    prefACe firsT LeveL heAdBanks are the leaders of the financial-services industry. They are the place where we often wind up when we are seeking a loan to purchase a new automobile, tuition for college or a professional school, financial advice on how to invest our savings, credit to begin a new business, a safe deposit box to protect our most valuable documents, a checking account to pay for purchases of goods and services, or a credit or debit card so we can conve-niently keep track of when and where we spend our money. Increasingly today, financial firms other than banks are selling us these same services, but banks still head the list of financial-service providers in many markets.

    Preface Second Level HeadThe banking industry, composed of thousands of private and state-owned companies worldwide, affects the welfare of every other industry and the economy as a whole. As many nations in Asia, Europe, and Latin America have recently discovered, when banks stop lending and stop accepting the risks that go with it, the rest of the economy often falls apart, with plunging land and security prices, lengthening unemployment lines, fail-ing businesses, and bankrupt households.

    Preface Third Level Head The United States experienced, albeit tempo-rarily, the effects of banking breakdown and its consequences for the daily functioning of the financial system when the tragedy of 9/11 struck the nations leading financial center, New York City. The destruction of the World Trade Center temporarily shut down the critical back-office operations of several leading banking and securities firms, creating uncertainty in the minds of thousands of investors about the timely recovery of their invested funds. Fortunately, both the banks and security dealers themselves and the U.S. central bank, the Federal critical back-office operations of several leading banking and securities firms, creating Reserve System, responded quickly to the crisis

    and, within days, restored key services and a measure of calm to the financial market-place. Still, the shock and uncertainty in the wake of the World Trade Centers collapse helped to push the slowing U.S. eccollege or a professional school, financial advice on how to invest our savings, credit to begin a new business, a safe deposit box to protect our most valuable documents, a checking account to pay for purchases of goods and services, or a credit or debit card so we can conveniently keep track of when and where we spend our money. Increasingly today, financial firms other than banks are selling us these same services, but banks still head the list of financial-service providers in many markets.

    Preface Fourth Level Head The banking industry, composed of thousands of private and state-owned companies worldwide, affects the welfare of every other industry and the economy as a whole. As many nations in Asia, Europe, and Latin America have recently discovered, when banks stop lending and stop accepting the risks that go with it, the rest of the economy often falls apart, with plunging land and security prices, lengthening unemployment lines, failing businesses, and bankrupt households.

    Broadeningthefirmsproductlinetocloseoffvacantnichesandgapstowould-bechallengers.

    Introducingmodelsorbrandsthatmatchthecharacteristicschallengersmodelsalready have or might have.

    Keepingpriceslowonmodelsthatmostcloselymatchcompetitorsofferings.

    The United States experienced, albeit temporarily, the effects of banking breakdown and its consequences for the daily functioning of the financial system when the tragedy of 9/11 struck the nations leading financial center, New York City. The destruction of the World Trade Center temporarily shut down the critical back-office operations of several leading banking and securities firms, creating uncertainty in the minds of thousands of investors about the timely recovery of their invested funds. Fortunately, both the banks and security dealers themselves and the U.S. central bank, the Federal critical back-office operations of several leading banking and securities firms, creating Reserve System, responded quickly to the crisis and, within days, restored key services and a measure of calm to the financial marketplace. Still, the shock and uncertainty in the wake of the World Trade Centers collapse helped to push the slowing U.S. economy into a recession. Lets face it: Healthy banks and healthy economies just seem to go together.

    Arthur A. Thompson, Jr.

    Margaret A. Peteraf

    John E. Gamble

    A.J. Strickland III

    prefACe

  • x xi

    PArT OnE Concepts and Techniques for Crafting and Executing Strategy

    PArT TwO Cases in Crafting and Executing StrategySection A: The Manager as Chief Strategy Maker and Strategy Implementer

    1 ANdreA JuNgs MAKeover of AvoN Products, iNc. 000 2 the solAr feeder 000 3 ANdreA JuNgs MAKeover of AvoN Products, iNc. 000 4 the solAr feeder 000

    Section B: Crafting Strategy in Single Business Companies

    25 ANdreA JuNgs MAKeover of AvoN Products, iNc. 000 26 the solAr feeder 000 27 ANdreA JuNgs MAKeover of AvoN Products, iNc. 000

    Section A: Introduction and Overview

    1 wHAT IS STrATEGy AnD DEvELOPInG A STrATEGIC vISIOn: wHy IS IT IMPOrTAnT? 00THE FIvE TASkS OF STrATEGIC MAnAGEMEnT AnD STrATEGIC vISIOn AnD MISSIOn FIrST DIrECTIOn-SETTInG TASk 00

    Developing a Strategic Cision and Business Mission 00Setting Objectives 00Crafting a Strategy 00what Does a Companys Strategy Consist Of? 00

    Implementing and Executing the Strategy 00

    Evaluating Performacne, Monitoring New Development, and Initiating Corrective Adjustments 00

    wHO PErFOrMS THE FIvE TASkS OF STrATEGIC MAnAGEMEnT? 00Is Strategy Making an Individual responsibility or a Group Task? 00Is There a role for Full-Time Strategic Planners? 00The Strategic role of the Board of Directores 00

    THE BEnEFITS OF A STrATEGIC APPrOACH TO MAnAGInG 00

    iLLusTrATion CApsuLes1.1 Examples of Company Mission and Vision Statements of Company

    Mission and Vision of Company Mission and Vision Statements 00

    1.2 Strategic and Financial Objectives of Well-Known Corporations 00

    1.3 A Strategy Example: McDonalds 00

    2 THE MAnAGErIAL PrOCESS OF CrAFTInG AnD ExECuTInG STrATEGy 00wHAT DOES THE STrATEGy-MAkInG, STrATEGy-ExECuTInG PrOCESS EnTAIL? 00DEvELOPInG A STrATEGIC vISIOn: PHASE 1 OF THE STrATEGy-MAkInG, STrATEGy-ExECuTInG PrOCESS 00

    A Strategic vision Covers Different Ground than the Typical Mission Statement 00Communicating the Strategic vision 00Linking the vision/Mission with Company values 00

    THE FIvE TASkS OF STrATEGIC MAnAGEMEnT AnD STrATEGIC vISIOn AnD MISSIOn FIrST DIrECTIOn-SETTInG TASk 00

    Developing a Strategic Cision and Business Mission 00Setting Objectives 00Crafting a Strategy 00what Does a Companys Strategy Consist Of? 00

    PArT OnE Concepts and Techniques for Crafting and Executing Strategy 00

    TAbLe of ConTenTsbrief ConTenTs

    1 WhAt is strAtegy ANd develoPiNg A strAtegic visioN: Why is it iMPortANt? 00

    2 the three strAtegy-MAKiNg tAsKs: develoPiNg A strAtegic visioN, settiNg obJectives, ANd crAftiNg A strAtegy 00

    3 iNdustry ANd coMPetitive ANAlysis 00 4 evAluAtiNg coMPANy resources

    ANd coMPetitive cAPAbilities 103

    5 strAtegy ANd coMPetitive AdvANtAge 000 6 MAtchiNg strAtegy to A coMPANys situAtioN 000 7 strAtegy ANd coMPetitive AdvANtAge

    iN diversified coMPANies 000

    8 evAluAtiNg the strAtegies of diversified coMPANies 000 9 iMPleMeNtiNg strAtegy: buildiNg orgANizAtioN 000 10 iMPleMeNtiNg strAtegy: suPPort systeMs, ANd reWArds 000

    InDExES name i-1 Organization i-12

  • xiixii

    pArT 1Concepts and Techniques for Crafting and Executing Strategy

    PArT TwO Cases in Crafting and Executing StrategySection A: Crafting Strategy in the Single-Business Companies

    1 Andrea Jungs Makeover of Avon Products, Inc. 000Arthur A. Thompson, The University of Alabama

    2 The Solar Feeder 000Michele Reeser, The University of Alabama

    3 Andrea Jungs Makeover of Avon Products, Inc. 000Michele Reeser, The University of Alabama

    4 The Solar Feeder 000Arthur A. Thompson, The University of Alabama

    Section B: Crafting Strategy in Single Business Companies

    25 Andrea Jungs Makeover of Avon Products, Inc. 000Arthur A. Thompson, The University of Alabama

    26 The Solar Feeder 000Arthur A. Thompson, The University of Alabama

    27 Andrea Jungs Makeover of Avon Products, Inc. 000Arthur A. Thompson, The University of Alabama

    InDExES name i-1 Organization i-12

  • Clearly, a company has a responsibility to make a profit an...