Crafting and Executing Strategy the Quest for Competitive Advantage, Concepts and Cases Thompson

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Crafting andExecuting StrategyThe Quest for Competitive AdvantageConcepts and Cases15th EditionArthur A. Thompson, Jr.University of AlabamaA.J. Strickland IIIUniversity of AlabamaJohn E. GambleUniversity of South Alabamacopyright pagefdd_txTo our families and especially our wives: Hasseline, Kitty, and DebraAbout the Authorsfaa_ttA Prthur A. Thompson, Jr., is a professor of mass communication and journalism at California State University, Fresno. He earned his masters degree from CSUF and his bachelors degree from what was then known as Fresno State College. In addition to teaching classes in broadcast management, news writing, production, and pop culture, Wilson serves as general manager and faculty adviser for the student-run campus radio station, KFSR-FM. Wilson spent 20 years working in radio broadcasting as a news reporter, news director, program director, and station manger before joining the faculty at CSUF in 1983. He also trained military personnel for work in the Armed Forces Radio and Television Service while assigned to the Department of Defense Information School at Fort Slocum, New York.faa_txrofessor A. J. Strickland III is professor emeritus of mass communication at the College of the Desert in Palm Desert, California. He holds a doctorate from the University of Southern California and earned his bachelors and masters degrees from California State Universities, Fresno and Stanislaus. Prior to his 34-year teaching career, he worked as newspaper and radio journalist and as a public relations consultant. Wilson has held leadership positions in state and natUniversity of Southern California and earned his bachelors and masters degrees from California State Universities, Fresno and Stanislaus. Prior to his 34-year teaching career, he worked as newspaper and radio journalist and as a public relations consultant. Wilson has held leadership positions in state and natUniversity of Southern California and earned his bachelors and masters degrees from California State Universities, Fresno and Stanislaus. Prior to his 34-year teaching career, he worked as newspaper and radio journalist and as a public relations consultant. Wilson has held leadership positions in state and natUniversity of Southern California and earned his bachelors and masters degrees from California State Universities, Fresno and Stanislaus. Prior to his 34-year teaching career, he worked as newspaper and radio journalist and as a public relations consultant. Wilson has held leadership positions in state and national journalism and mass communication organizations, and in 1995 in Washington, DC, he was inducted into the Community College Journalisms Hall of Fame. In addition to his professional career, Wilson has had an active pol natUniversity of Southern California and earned his bachelors and masters degrees from California State Universities, Fresno and Stanislaus. Prior to his 34-year teaching career, he worked as newspaper and radio journalist and as a public relations consultant. Wilson has held leadership positions in state and national journalism and mass communication organizations, and in 1995 in Washington, DC, he was inducted into the Community College Journalisms Hall of Fame. In addition to his professional career, Wilson has had an active pol natUniversity of Southern California and earned his bachelors and masters degrees from California State Universities, Fresno and Stanislaus. Prior to his 34-year teaching career, he worked as newspaper and radio journalist and as a public relations consultant. Wilson has held leadership positions in state and nationalviiAbout the Authorsviijournalism and mass communication organizations, and in 1995 in Washington, DC, he was inducted into the Community College Journalisms Hall of Fame. In addition to his professional career, Wilson has had an active political Department of Defense Information School at Fort Slocum, New York.John E. Gamble is professor emeritus of mass communication at the College of the Desert in Palm Desert, California. He holds a doctorate from the University of Southern California and earned his bachelors and masters degrees from California State Universities, Fresno and Stanislaus. Prior to his 34-year teaching career, he worked as newspaper and radio journalist and as a public relations consultant. Wilson has held leadership positions in state and natUniversity of Southern California and earned his bachelors and masters degrees from California State Universities, Fresno and newspaper and radio journalist and as a public relations consultant. Wilson has held leadership positions in state and natUniversity of Southern California and earned his bachelors and masters degrees from California State Universities, Fresno and newspaper and radio journalist and as a public relations consultant. Wilson has held leadership positions in state and natUniversity of Southern California and earned his bachelors and masters degrees from California State Universities, Fresno and Stanislaus. Prior to his 34-year teaching career, he worked as newspaperThe PrefaceEntrepreneurial leadership and commit the enterprise to conducting business in a fashion shrewdly calculated to produce good performance. A strategy provides 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 initiated 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 cross-department operations into a team effort. Crafting implementing, and executing strategy are thus core management functions. Am ongoing all the things managers do, nothing affects a companys ultimate success or failure more fundamentally than how well its management team charts th managers have performance problems because of surplus conditions or internal miscues. we need more time: reason nor the bad luck of unforeseeable ev Crafting implementing, and executing strategy are thus core management functions. Am ongoing all the things managers do, nothing affects a companys ultimate success or failure more fundamentally than how well its management team charts th managers have performance problems because of surplus conditions or internal miscues. we need more time: reason nor the bad luck of unforeseeable events excuses mediocre performance year after year. It is the responsibility of a companys management team t that can overcome Crafting implementing, and executing strategy are thus core management functions. Am ongoing all the things managers do, nothing affects a companys ultimate success or failure more fundamentally than how well its management team charts th managers have performance problems because of surplus conditions or internal miscues. we need more time: reason nor the bad luck of unforeseeable events excuses mediocre performance year after year. It is the responsibility of a companys management team t that can overcome Crafting implementing, and executing strategy are thus core management functions. Am ongoing all the things managers do, nothing affects a companys ultimate success or failure more fundamentally than how well its management team charts th managers have performance problems because of surplus conditions or internal miscues. we need more time: reason nor the bad luck of unforeseeable events excuses mediocre performance year after year. It is the responsibility of a companys management team t that can overcome ents excuses mediocre performance year after year. It is the responsibility of a companys management team t that can overcome adversity. Indeed the essence of good strategy strategy making more time: reason nor the bad luck of unforeseeable events excuses mediocre performance year after year. It is the responsibility of a companys management team t that can overcome ents excuses mediocre performance year after year. It is the responsibility of a companys management team t that can overcome adversity. Indeed the essence of good strategy strategy making more time: reason nor the bad luck of unforeseeable events excuses mediocre performance year after year. It is the responsibility of a companys managementPrefaceviifpr_ttfpr_txfpr_auCrafting implementing, and executing strategy are thus core management functions. Am ongoing all the things managers do, nothing affects a companys ultimate success or failure more fundamentally than how well its management team charts th managers have performance problems because of surplus conditions or internal miscues. we need more time: reason nor the bad luck of unforeseeable events excuses mediocre performance year after year. It is the responsibility of a companys management team t that can overcome Crafting implementing, and executing strategy are thus core management functions. Am ongoing all the things managers do, nothing affects a companys ultimate success or failure more fundamentally than how well its management team charts th managers have performance problems because of surplus conditions or internal miscues. we need more time: reason nor the bad luck of unforeseeable events excuses mediocre performance year after year. It is the responsibility of a companys management team t that can overcome Crafting implementing, and executing strategy are thus core management functions. Am ongoing all the things managers do, nothing affects a companys ultimate success or failure more fundamentally than how well its management team charts th managers have performance problems because of surplus conditions or internal miscues. we need more time: reason nor the bad luck of unforeseeable events excuses mediocre performance year after year. It is the responsibility of a companys management team t that can overcome Crafting implementing, and executing strategy are thus core management functions. Am ongoing all the things managers do, nothing affects a companys ultimate success or failure more fundamentally than how well its management team charts th managers have performance problems because of surplus conditions or internal miscues. we need more time: reason nor the bad luck of unforeseeable events.Arthur A. Thompson, Jr. A.J. Strickland IIIBrief ContentsPart One The Concepts and Techniques of Strategic Management01. 02. 03. 04. 05. 06. 07. 08. 09. 10.The Strategic Management Process: An Overview 2 The Three Strategy-Making Tasks: Developing a Strategic Vision, Setting Objectives, and Crafting a Strategy 27 Industry and Competitive Analysis 68 Evaluating Company Resources and Competitive Capabilities 103 Strategy and Competitive Advantage 134 Matching Strategy to a Companys Situation 174 Strategy and Competitive Advantage in Diversified Companies 213 Evaluating the Strategies of Diversified Companies 245 Implementing Strategy: Building Resources Capabilities and Structuring the Organization 268 Implementing Strategy: Budgets, Policies, Best Practices, Support Systems, and Rewards 310Part Two Cases in Strategic ManagementSection A: The Manager as Chief Strategy Maker and Strategy Implementer1. 2.Andrea Jungs Makeover of Avon Products, Inc. C-17 The Solar Feeder C-17Section B: Crafting Strategy in Single Business Companies Section C: The Manager as Chief Strategy Maker and Strategy Implementer3. Andrea Jungs Makeover of Avon Products, Inc. C-17 4. The Solar Feeder C-17 5. Andrea Jungs Makeover of Avon Products, Inc. C-17 6. The Solar Feeder C-17 10. Andrea Jungs Makeover of Avon Products, Inc. C-17 11. The Solar Feeder C-17 12. The Solar Feeder C-17 13. Andrea Jungs Makeover of Avon Products, Inc. C-17 14. The Solar Feeder C-17Brief Contentsviifbt_tt15. 16. 30. 31. 32. 33. 34. 35. 36. 37.The Strategic Management Process: An Overview 2 The Three Strategy-Making Tasks: Developing a Strategic Vision, Setting Objectives, and Crafting a Strategy 27 Industry and Competitive Analysis 68 Evaluating Company Resources and Competitive Capabilities 103 Strategy and Competitive Advantage 134 Matching Strategy to a Companys Situation 174 Strategy and Competitive Advantage in Diversified Companies 213 Evaluating the Strategies of Diversified Companies 245 Implementing Strategy: Building Resources Capabilities and Structuring the Organization 268 Implementing Strategy: Budgets, Policies, Best Practices, Support Systems, and Rewards 310fbt_txIndexesName I-1 Organization I-5 Subject I-11xTable of ContentsPart One The Concepts and Techniques of Strategic Management 11. What is Strategy and Why Is It Important? 2The Five Tasks of Strategic Management 3Developing a Strategic Cision and Business Mission 4 Setting Objectives 5 Crafting a Strategy 7 What Does a Companys Strategy Consist Of? 10 Implementing and Executing the Strategy 15 Evaluating Performacne, Monitoring New Development, and Initiating Corrective Adjustments 16fto_ttfto_txWho Performs the Five Tasks of Strategic Management? 18Is Strategy Making an Individual Responsibility or a Group Task? 20 Is There a Role for Full-Time Strategic PLanners? 21 The Strategic Role of the Board of Directores 22The Benefits of a Strategic Approach to Managing 23Illustration Capsules1. Examples of Company Mission and Vision Statements 6 02. Strategic and Financial Objectives of Well-Known Corporations 8 03. A Strategy Example: McDonalds 122. The Three Strategy-Making Tasks:Developing a Strategic Vision, Setting Objectives, and Crafting a Strategy 27Developing a Strategic Vision and Mission: The First Direction-Setting Task 27Why Have a Mission or Strategic Vision? 28 Defining a Companys Present Business 29 What Kinds of Objectives to Set 36 TheConcept of Strategic Intent 39 The Need for Long-Range and Short-Range Objective 40 How Much Stretch Should Objectives Entail? 40 Objectives Are Needed at All Organizational Levels 41Crafting a Strategy: The Third Direction-Setting Task 42The Strategy-Making Pyramid 44 The Strategy-Making Pyramid 44 Corporate Strategy 44Table of Contentsvii3. What is Strategy and Why Is It Important? 2The Five Tasks of Strategic Management 3Developing a Strategic Cision and Business Mission 4 Setting Objectives 5 Crafting a Strategy 7 What Does a Companys Strategy Consist Of? 10 Implementing and Executing the Strategy 15 Evaluating Performacne, Monitoring New Development, and Initiating Corrective Adjustments 16 Why Strategic Management Is a Process Not an Event 16 Characteristics of the Process 17Who Performs the Five Tasks of Strategic Management? 18Is Strategy Making an Individual Responsibility or a Group Task? 20 Is There a Role for Full-Time Strategic PLanners? 21 The Strategic Role of the Board of Directores 22The Benefits of a Strategic Approach to Managing 23Illustration Capsules1.1 Examples of Company Mission and Vision Statements 6 01.2 Strategic and Financial Objectives of Well-Known Objec Corporations 8 01.3 A Strategy Example: McDonalds 124. The Three Strategy-Making Tasks: Developing Strategy Vision, Setting Objectives, and Crafting a Strategy 27Developing a Strategic Vision and Mission: The First Direction-Setting Task 27Why Have a Mission or Strategic Vision? 28 Defining a Companys Present Business 29 What Kinds of Objectives to Set 36 TheConcept of Strategic Intent 39 The Need for Long-Range and Short-Range Objective 40 How Much Stretch Should Objectives Entail? 40 Objectives Are Needed at All Organizational Levels 41Crafting a Strategy: The Third Direction-Setting Task 42Why Have a Mission or Strategic Vision? 28 Defining a Companys Present Business 29 What Kinds of Objectives to Set 36 TheConcept of Strategic Intent 39 The Need for Long-Range and Short-Range Long-Range and Short-Objective 40 How Much Stretch Should Objectives Entail? 40 Objectives Are Needed at All Organizational Levels 41 The Strategy-Making Pyramid 44 The SMaking PyramiMaking Pyramitrategy-Making Pyramid 48 The Strategy-Making PyramiMaking Pyramid 44xiibpu_nmPart OneConcepts and Techniques for Crafting and Executing Strategybpu_tt1Part TwoCases in Crafting and Executing Strategy2Chapter Nine9DiversificationStrategies for Managing a Group of Businesses(Photo courtesy of PhotoDisc.)Cheshire Puss, she [Alice] began. . . would you tell me, please, which way I ought to go from here? That depends a good deal on where you want to get to, said the Cat. Lewis CarrollMy job is to make sure the company has a strategy and that everybody follows it. Kenneth H. Olsen Former CEO, Digital Equipment CorporationMy job is to make sure the company has a strategy and that everybody follows it. Kenneth H. Olsen Former CEO, Digital Equipment CorporationWithout a strategy the organization is like a ship without a rudder, going around in circles. Joel Ross and Michael KamiWithout a strategy the organization is like a ship without a rudder, going around in circles. Joel Ross and Michael KamiCheshire Puss, she [Alice] began. . . would you tell me, please, which way I ought to go from here? That depends a good deal on where you want to get to, said the Cat. Lewis CarrollThis book is about the managerial tasks of crafting, implementing, and executing company strategies. A companies strategy is the game plan manage ment has for positioning the company in its chosen market arena, competingsuccessfully, pleasing customers, and achieving good business performance. Strategy consists of the whole array of competitive moves and business approaches that managers employ in running a company. In crafting a strategic course, management is saying that among all the paths and actions we could have chosen, we have decided to go in this direction and rely upon these particular ways of doing business. A strategy thus entails managerial choices among alternatives and signals organizational commitment to specific markets, competitive approaches, and ways of operating. Managers devise company strategies because of two very compelling needs. One is the need to proactivelly shape how a companys business will be conducted. Passively allowing strategy to drift along as the by-product of ongoing business approaches for improvements and periodic adjustments to unfolding events is a surefire ticket for inconsistent strategic actions, competitive mediocrity and lackluster business results. Rather it is management;s responsibility to exert entrepreneurial leadership and commit the enterprise to conducting business in a fashion shrewdly calculated to produce good performance. A strategy provides 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 initiated 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 cross-department operations into a team effort. Crafting implementing, and executing strategy are thus core management functions. Am ongoing all the things managers do, nothing affects a companys ultimate success or failure more fundamentally than how well its management team charts thecompanys long-term direction, develops competitively effective strategic moves and business approaches, and implements what needs to be done internally to produce2124Part 1 The Concepts and Techniques of Strategic Managementcompanys long-term direction, develops competitively effective strategic moves and business approaches, and implements what needs to be done internally to produce good day-in/day-out strategy execution. Indeed, good strategy and good strategy execution are the most trustworthy signs of good management. Managers dont deserve bchnt_tm_a a gold star for designing a potentially brilliant strategy, but failing to put the organizational means in place to carry it out in high-caliber fashionweak implementation and executionundermines the strategy's potential and paves basic concept the way for shortfalls in customer satisfaction and company performance. A companys business Competent execution of a mediocre strategy scarcely merits enthusiastic model deals with whether applause for managements efforts either. To truly qualify as excellently the revenue-cost-profit managed, a company must exhibit excellent execution of an excellent strateconimics of its strategy demonstrate the viability of egy. Otherwise, any claim of talented management is suspect. the enterprise as a whole. Granted, good strategy combined with good strategy execution doesnt guarantee that a company will avoid periods of so-so or even subpar performance. Sometimes it takes several years for managements strategybchnt_df_a making/strategy-implementing efforts to show goods results. Sometimes blue-chip organizations with showcase practices and reputable managers have performance problems because of surprisingly abrupt shifts in market conditions or internal miscues. But neither the we need more time: reason nor the bad luck of unforeseeable events excuses mediocre performance year after year. It is the responsibility of a companys management team to adjust to unexpectedly tough conditions by undertaking strategic defenses and business approaches that can overcome adversity. Indeed the essence of good strategy making is to build a market position strong enough and an organization capable enough to produce successful performance despite unforeseeable events, potent competition, and internal difficulties. The rationale for using the twin standards of good strategy making and good strategy execution to determine whether a company is well managed is therefore compelling: The better conceived a companys strategy and the more competently it is executed, the more likely the company will be a solid performer and a competitive success in the marketplace.bch_hathe five tasks of strategic ManageMentbch_txThe strategy-making, strategy-implementing process consists of five interrelated managerial tasks. 1. Forming a strategic vision of what the companys future business makeup will be and where the organization is headedso as to provide long-term direction, delineate what kind of enterprise the company is trying to become, and infuse the organization with a sense of purposeful action. 2. Setting objectivesconverting the strategic vision into specific performance outcomes for the company to achieve. 3. Crafting a strategy to achieve the desired outcomes. 4. Implementing and executing the chosen strategy efficiently and effectively. Figure 1.1 displays this process. Together, these five components define what we mean by the term strategic management. Lets examine this five-task framework in enough detail to set the stage for all that follows in the forthcoming chapters.bch_lniconchapter 8 Implementing Strategy 25bch_fgnmFigure 1.1 the five tasks of strategic ManagementTask 1 Task 2 Task 3 Task 4bch_fgttTask 5 Evaluating Performance, Monitoring New Developments, and Initiating Corrective AdjustmentsDeveloping a Strategic Vision and Business MissionSetting ObjectivesCrafting a Strategy to Achieve the ObjectivesImplementing and Executing the StrategyRevise as NeededRevise as NeededImprove/ Change as NeededImprove/ Change as NeededRecycle to Tasks 1, 2, 3, or 4 as Neededbch_hbDeveloping a Strategic Vision and Business MissionVery early in the strategy-making process, company managers need to pose the issue of What is our vision for the companywhere should the company be basic concept headed , what kind of enterprise are we trying to build, what should the A companys business companys future business makeup be? Drawing a carefully reasoned model deals with whether conclusion about what the companys long-term direction should be pushes the revenue-cost-profit managers to take a hard look at the companys present business and form econimics of its strategy a clearer sense of key term whether and how it needs to change over the demonstrate the viability of next 5 to 10 years. Managements views about where we plan to go from the enterprise as a whole. herewhat businesses we want to be in, what customer needs we want to satisfy, what capabilities were going to develop charts a course for the organization to pursue and creates organizational purposes and identity.bch_hcWhy Company Strategies Evolve Frequent fine-tuning and tweaking of a com-pany strategy, first in one department or functional area and then n another, are quite normal. On occasion, quantum changes in strategy are called forwhen a competitor makes a dramatic move, when technological breakthroughs occur, or when crisis strikes and managers are forced to make radical strategy alterations very quickly. because strategic moves and new action approaches are ongoing across the business, an organizations strategy forms over a period of time and then reforms as the number of changes begin to mount. Current strategy is typically a blend of holdover approaches, fresh actions and reactions and potential moves in the planning stage. except for crisis situations (where many strategic moves are often made quickly to produce a substantially new strategy almost overnight) and new company star-ups (where strategy exists mostly in the form of plans and intended actions), is common.bch_et1995 has come and gone, and despite a heroic effort by our 2220,000 employees, we fell short on both measures, achieving a 14.4 percent operating margin and almost seven turns. But in stretching for these impossible targets, we learned to do things faster than we would have enough confidence now to set new stretch targets of at least 16 percent operating margin and more than 10 turns by 1998.bchba_nm26 Part 1 The Concepts and Techniques of Strategic Managementbchba_ttIllustration Capsule 2how clear channel has used Mergers and acquisitions to become a global Market leaderBAnc OnE cOrpOrAtIOn bchba_hbTo be one of the top three banking companies in terms of market share in all significant markets we serve. www. bancone.com Poors industrial stock index. www.alcanalum.combchba_haGEnErAl ElEctrIcto become the most competitive enterprise in the world by being number one or number two in market share in every business the company is in. To achieve an average of 10 inventory turn and a corporate operating profit margin of 16% by 1998. www.ge.combchba_txDOmInOS pIzzATo safely deliver a hot, quality pizza in 30 minutes or less at a fair price and a reasonable profit. www.dominospizza.comFOrD mOtOr cOmpAnyTo satisfy our customers by providing quality cars and trucks, developing new products, reducing the time it takes to bring new vehicles to market, improving the efficiency of all out plants and processes, and building on our teamwork with employees, unions, dealers, and suppliers. www.fordmotor.comBrIStOl-myErS SquIBBTo focus globally on those businesses in health and personal care where we can be number one or number two through delivering superior value to the customer. www.bristol-myerssquibb.comAtlAS cOrpOrAtIOnTo become a low-cost, medium size gold producer, producing in excess of 125,000 ounces of gold a year and building gold reserves for 1,500,000 ounces. www.atlas.comExxOnTo provide shareholders a secure investment with a superior return. www.exxon.com3mTo achieve annual growth in earnings per share of 10% or better, on average; a return on stockholders equity of 2025%; a return on capital employed of 27% or better; and have at least 30% of sales come from products introducedAlcAn AlumInumTo be the lowest-cost producer of aluminum and to outperform the average return on equity of the Standard andbch_hdThe Masters Strategist Approach Some managers take on the role of chief strategist and chief entrepreneur, singlehandedly exercising strong influences over assessments of the situation, over the strategy alternatives that are explored, and over the details of strategy. This does not mean that the manager personally does all the work; it means that the manager personally becomes the chief architect of strategy and worlds a proactive hand in shaping some of or all of the major pieces of strategy. Master strategists act as strategy commanders and have a big ownership stake in the chosen strategy.bch_lbBroadening the firms product line to close off vacant niches and gaps to would-be challengers. Introducing models or brands that match the characteristics challengers models already have or might have. Keeping prices low on models that most closely match competitors offerings.A strong approach to defensive strategy entails signaling challengers that their is a real threat of strong retaliation if a challenger attaches. The gals is to dissuade challengers from attacking at all or at least divert them to options that are less threatening to the defender. Would be challengers can be signaled by.31chapter 8 Implementing Strategy27Illustration Capsule 3a strategy example: McdonaldsIn 1997 McDonalds (www.mcdonalds.com) was the leading food service retailer in the global consumer marketplace, with a strong brand name and systemwide restaurant sales approaching $35 billion. Two-thirds of its 22,000-plus restaurants were franchised to nearly 5,000 owner/operators around the world. Sales had grown an average of 6 percent in the United States and 20 percent outside the United States over the past 10 years.Box Second Level Head bchba_hcJohn Malone , the companys CEO and widely regarded as one of the most astute and influential visionaries of how new information superhighway technologies could trans form the world of media and communication, said:bchba_et Were just chasing too many rabbits at the same time. The company got overly ambitious about the things it could do simultaneously.To Those Who Use Our Products. . . We affirm Bristol-GrOwth StrAtEGy Penetrate the market not currently served by addingbchba_lb2,500 restaurants annually (an average of 8 per day), some company-owned and some franchised, with about two-thirds outside the United States. Establish a leading market position in foreign countries ahead of competitors. Promote more frequent customer visits cia the addition of attractive menu items, low-price specials, Extra Value Meals, and childrens play areas.Myers Squibbs commitment to the highest standard of excellence, safety and reliability in everything we make,. We pledge to offer the highest quality and to work diligently to keep improving them.tory turn and a corporate operating profit margin of 16% by 1998. Two-thirds of its 22,000-plus restaurants were franchised to nearly 5,000 owner/operators around the world. Sales had grown an average of 6 percent in the United Statesbchba_soSource: Based on information in Malone Says TCI Push Into Phone, Internet Isnt Working for Now, The Wall Street Journal , January 2, 1997, pp. A1 and A3.When scale economies or experience curve effects are small and a large market share produces no cost advantage, runner-up companies above more strategic flexibility and can consider any of the following six approaches29: 1. Vacant-niche strategythis version of a focused strategy involves concentrating on customer or end-use applications that market leaders have bypassed or neglected. An ideal vacant niche is of sufficient size and scope to be profitable, has some growth potential, is well-suited to a firms own capabilities and resources, and is not interesting to leading firms. and health foods producers (like Healthy Valley, Hain, and Tree of Life). that cater to local health food storesa market segment traditionally ignored by Pillsbury (www.pillsbury), Kraft General Foods (www.kraftfoods.com), Heinz (www.heinz.com), Nabisco (www.nabisco.com), Campbell Soup (www.campbellssoup), and other leading food products firms. 2. Specialist strategyA specialist firm tains its competitive effort on one market segment: a single product, a particular end use, or buyers with special needs. The aim is to build competitive advantage through product uniqueness, expertise in special purpose products, or specialized customer services.bchba_nm28 Part 1 The Concepts and Techniques of Strategic Managementbchba_ttIllustration Capsule 2how clear channel has used Mergers and acquisitions to become a global Market leaderBAnc OnE cOrpOrAtIOn bchba_hbTo be one of the top three banking companies in terms of market share in all significant markets we serve. www. bancone.com Poors industrial stock index. www.alcanalum.combchba_haGEnErAl ElEctrIcto become the most competitive enterprise in the world by being number one or number two in market share in every business the company is in. To achieve an average of 10 inventory turn and a corporate operating profit margin of 16% by 1998. www.ge.combchba_txDOmInOS pIzzATo safely deliver a hot, quality pizza in 30 minutes or less at a fair price and a reasonable profit. www.dominospizza.comFOrD mOtOr cOmpAnyTo satisfy our customers by providing quality cars and trucks, developing new products, reducing the time it takes to bring new vehicles to market, improving the efficiency of all out plants and processes, and building on our teamwork with employees, unions, dealers, and suppliers. www.fordmotor.comBrIStOl-myErS SquIBBTo focus globally on those businesses in health and personal care where we can be number one or number two through delivering superior value to the customer. www.bristol-myerssquibb.comAtlAS cOrpOrAtIOnTo become a low-cost, medium size gold producer, producing in excess of 125,000 ounces of gold a year and building gold reserves for 1,500,000 ounces. www.atlas.comExxOnTo provide shareholders a secure investment with a superior return. www.exxon.com3mTo achieve annual growth in earnings per share of 10% or better, on average; a return on stockholders equity of 2025%; a return on capital employed of 27% or better; and have at least 30% of sales come from products introducedAlcAn AlumInumTo be the lowest-cost producer of aluminum and to outperform the average return on equity of the Standard andbch_hdThe Masters Strategist Approach Some managers take on the role of chief strategist and chief entrepreneur, singlehandedly exercising strong influences over assessments of the situation, over the strategy alternatives that are explored, and over the details of strategy. This does not mean that the manager personally does all the work; it means that the manager personally becomes the chief architect of strategy and worlds a proactive hand in shaping some of or all of the major pieces of strategy. Master strategists act as strategy commanders and have a big ownership stake in the chosen strategy.bch_lbBroadening the firms product line to close off vacant niches and gaps to would-be challengers. Introducing models or brands that match the characteristics challengers models already have or might have. Keeping prices low on models that most closely match competitors offerings.A strong approach to defensive strategy entails signaling challengers that their is a real threat of strong retaliation if a challenger attaches. The gals is to dissuade challengers from attacking at all or at least divert them to options that are less threatening to the defender. Would be challengers can be signaled by.31chapter 8 Implementing Strategy29Illustration Capsule 3a strategy example: McdonaldsIn 1997 McDonalds (www.mcdonalds.com) was the leading food service retailer in the global consumer marketplace, with a strong brand name and systemwide restaurant sales approaching $35 billion. Two-thirds of its 22,000-plus restaurants were franchised to nearly 5,000 owner/operators around the world. Sales had grown an average of 6 percent in the United States and 20 percent outside the United States over the past 10 years.Box Second Level Head bchba_hcJohn Malone , the companys CEO and widely regarded as one of the most astute and influential visionaries of how new information superhighway technologies could trans form the world of media and communication, said:bchba_et Were just chasing too many rabbits at the same time. The company got overly ambitious about the things it could do simultaneously.To Those Who Use Our Products. . . We affirm Bristol-GrOwth StrAtEGy Penetrate the market not currently served by addingbchba_lb2,500 restaurants annually (an average of 8 per day), some company-owned and some franchised, with about two-thirds outside the United States. Establish a leading market position in foreign countries ahead of competitors. Promote more frequent customer visits cia the addition of attractive menu items, low-price specials, Extra Value Meals, and childrens play areas.Myers Squibbs commitment to the highest standard of excellence, safety and reliability in everything we make,. We pledge to offer the highest quality and to work diligently to keep improving them.tory turn and a corporate operating profit margin of 16% by 1998. Two-thirds of its 22,000-plus restaurants were franchised to nearly 5,000 owner/operators around the world. Sales had grown an average of 6 percent in the United Statesbchba_soSource: Based on information in Malone Says TCI Push Into Phone, Internet Isnt Working for Now, The Wall Street Journal , January 2, 1997, pp. A1 and A3.When scale economies or experience curve effects are small and a large market share produces no cost advantage, runner-up companies above more strategic flexibility and can consider any of the following six approaches29: 1. Vacant-niche strategythis version of a focused strategy involves concentrating on customer or end-use applications that market leaders have bypassed or neglected. An ideal vacant niche is of sufficient size and scope to be profitable, has some growth potential, is well-suited to a firms own capabilities and resources, and is not interesting to leading firms. and health foods producers (like Healthy Valley, Hain, and Tree of Life). that cater to local health food storesa market segment traditionally ignored by Pillsbury (www.pillsbury), Kraft General Foods (www.kraftfoods.com), Heinz (www.heinz.com), Nabisco (www.nabisco.com), Campbell Soup (www.campbellssoup), and other leading food products firms. 2. Specialist strategyA specialist firm tains its competitive effort on one market segment: a single product, a particular end use, or buyers with special needs. The aim is to build competitive advantage through product uniqueness, expertise in special purpose products, or specialized customer services.30Part 1 The Concepts and Techniques of Strategic Managementicon to comeIllustration Capsule 9strategic group Map of competition and financial objectives of Well-known corporationsHigh UPSCALE DEPARTMENT STORES Macys Jordan-Marsh Dillards Bloomingdales May Marshall Fields Richs Dayton-Hudson Lazarus Parisian CHAINS J.C. Penney SearsSMALL INDEPENDENT GUILD JEWELERSNATIONAL, REGIONAL, AND LOCAL GUILD OR FINE JEWELRY STORES (about 10,000 firms including such well-known stores as Tiffanys and Cartier)PRICE / qUALITY / IMAGEMediumNATIONAL JEWELRY CHAINS Carlye & Co. Cordons LOCAL JEWELERS (about 10,000 stores) CREDIT JEWELERS Kays BuschsPRESTIGE DEPARTMENT STORES Saks Fifth Avenue Neiman-Marcus Nordstroms Lord & TaylorCATALOG SHOWROOMS Service Merchandise OFF-PRICE RETAILERS Mervyns Cohoes (N.Y.) MarshallsDISCOUNTERS Kmart Target Wal-Mart VentureOUTLET MALL RETAILERS Low Specialty Jewelers (gold, diamonds, watches) Full-line Jewelers (gold, diamonds, china and crystal, silver, watches,Limited-category Merchandise RetailersBroad-category Merchandise RetailersPRODUCT LINE MERCHANDISE MIxbchba_fnNote: The sizes of the circles are roughly proportional to the market share of each group of competitors.change their positions on the map, then attaching arrows to the circles showing targeted direction helps clarify the picture of competitive jockeying among rivals. Another consideration is whether the profit potential of different4rent strategic groups varies due to the competitive strengths and weaknesses in each groups marketchapter 8 Implementing Strategy31icon to comeIllustration Capsule 11a strategy example: McdonaldsIn the table below are average cost estimates for the combined brands of beer produced by Anheuser-Busch (www. anheuser-busch.com) and Coors (www.adolphcoors.com). The example shows raw material costs, other manufacturing costs, and forward channel distribution costs. The data are for 1982.Estimated Average Cost Breakdowns for Combined Adolph Coors Brands Per 6-Pack of 12-oz. Cans Per Barrel EquivalentEstimated Average Cost Breakdowns for Combined Anheuser-Busch Brands Per 6-Pack of 12-oz. Cans Per Barrel Equivalentbchba_tbshValue Chain Activities and Costsbchba_tbcnbchba_tbln01. Manufacturing costs: Direct production costs: Raw material ingredients Direct Labor Salaries for nonunionized personnel Packaging Depreciation on plant and equipment Subtotal Other expenses: Advertising Other marketing costs and general administrative expenses Interest Research and development Total manufacturing costs 02. Manufacturers operating profit 03. Net selling price 04. Plus federal and state excise taxes paid by brewer 05. Gross manufacturer;s selling price to distributor/wholesaler 06. Average margin over manufacturers cost 07. Average wholesale price charged to retailer (inclusive of taxes in item 4 above but exclusive of other taxes) 08. Plus other assorted state and local taxes levied on wholesale and retail sales (this varies from locality to locality) 09. Average 20% retail markup over wholesale cost 10. Average price to consumer at retail$0.1384 0.1557 0.0800 0.5055 0.0410 0.9206 0.0477 0.1096 0.0147 0.0277 $1.1203 0.1424 1.2627 0.1873 1.4500 0.5500 $ 2.00 0.60 $ 0.40 3.00$7.63 8.58 4.41 27.86 2.26 50.74 2.63$0.1384 0.1557 0.0800 0.5055 0.0410 0.9206 0.0477 0.1096 0.0147 0.0277 $1.1203 0.1424 1.2627 0.1873 1.4500 0.5500 $ 2.00 0.60 $ 0.40 3.00$7.63 8.58 4.41 27.86 2.26 50.74 2.63bchba_tbtx6.04 0.81 1.53 $ 61.75 7.85 69.60 10.32 79.92 30.31 $ 110.236.04 0.81 1.53 $ 61.75 7.85 69.60 10.32 79.92 30.31 $ 110.23bchba_tbfnNote: The difference in the average cost structures for Anheuser-Busch and Adolph Coors is, to a substantial extent, due to ABs higher proportion of super-premium beer sales. A-Bs super premium brand, Michelob, was the best-seller in its category and somewhat more costly to brew than premium and popular-priced beers.bchba_tbsoSource: Complied by Tom McLean, Elsa Wischkamper, and Arthur A. Thompson, Jr., from a wide variety of documents and field interviews.32Part 1 The Concepts and Techniques of Strategic ManagementFigure 1.3 the five-forces Model of competition: a key analytical toolFIRMS IN OTHER INDUSTRIES OFFERING SUBSTITUTE PRODUCTSCompetitive pressures coming from the market attempts of outsiders to win buyers over to their productsSUPPLIERS OF KEY INPUTSCompetitive pressures growing out of suppliers ability to exercise bargaining power and leverageRIVALRY AMONG COMPETING SELLERS Competitive pressures created by jockeying for better market position and competitive advantageCompetitive pressures growing out of buyers ability to exercise bargaining power and leverageBUYERSCompetitive pressures coming from the threat of entry of new rivalsPOTENTIAL NEW ENTRANTSSource: Adapted from Michael E. Porter, How Competitive Forces Shape Strategy, Harvard Business Review 57, no. 2 (March-April 1979), pp. 13745.bch_fgsogaining leverage with suppliers or customers, differing degrees of exposure to competition from substitute products outside the industry, differing degrees of competitive rivalry within strategic groups, and differing growth rate for the principle that enhance buyer appeal, and they persist in trying to exploit weaknesses in each others market approaches. Whether key term rivalry is lukewarm or heated, every company has to craft a successful strategy for competingideally, one that produces a competitive edge over rivals and strengthens its position with buyers. The big complication in most industries is that the success of any one firms strategy hinges partly on what offensive and defensive maneuvers its rivals employ and the resources rivals are willing and able to put behind their strategic efforts. The best strategy for one firm in its maneuvering for competitive advantage depends, in other words, on the competion with theasod a.chapter 8 Implementing Strategy33tive capabilities and strategies of rival companies. Thus, whenever one firm makes a strategic move, its rivals often retaliate with offensive or defensive countermovers. This pattern of action and reaction makes competitive rivalry a war-games type of contest outcomes that spell the difference between profit and loss. Key success factors concern what every industry member must be competent at doing or concentrate on achieving in order to be competitively and financially successful. KSFs are so important that all firms in the industry must pay them close attentionthey are the prerequisites for industry success. The answers to three questions help identify an industrys key success factors: On what basis do customers choose between the competing brands of sellers? What must a seller do to be competitively successfulwhat resources and competitive capabilities does it need? What does it take for sellers to achieve a sustainable competitive advantage? In the beer industry, the KSFs are fullutliztaion of brewing capacity (to keep manufacturing cost lows), a strong network of whole sale distributors (to gain access to as many retailers as possible), and clever advertising (to induce beer drinkers to but a particular brand). In apparel manufacturing, the KSFs are appealing designs and color combinations (to create buyers interest) and low-cost manufacturing efficiency (to permit attractive retail pricing and ample profit margins). In tin and aluminum cans, because the cost of shipping empty cans is substantial, one of the keys is having plants located close to end-use customers so that the plant's output can e marketed within economical shipping distances (regional market share is fare more crucial than nation share). Table 3.4 provides a shopping list of the most common types of key success factors. Lexis-Nexis and other on-line services provide you with up-to-date company information by updating their databases every 24 hours or less. You may wish to search the Lexis/Nexis company library files listed below for the latest company news and financial dates if you have access to the dial-up service. The company information included in these Lexis-Nexis files (www.lexis-nexis.com) is alsoPublication/Subject Hoover company profiles Securities and Exchange Commission Company annual reports Company annual 10-K fillings Company quarterly 10-Q filings Business wire Public relations newswire S&P Daily News Disclosure Consensus earnings projections CNN Financial Network Dow Jones News/CNBC Business Week Forbes FortuneSource: Institute for Brewing Studies.bch_qdbch_luLexis/Nexis File Name HOOVER SEC ARS 10-K 10-Q BWIRE PRNEWS SPNEWS DISCOL EARN CNNFN CNBC BUSWK FORBES FORTUN34Part 1 The Concepts and Techniques of Strategic Managementbch_tbttbch_tbnmTable 1.3 key Performance statistics for starbucks corporation, 1992-97As of and for the Fiscal Year Ended September 28, 1997 (52 weeks) September 29, 1996 (52 weeks) October 1, 1995 (52 weeks) October 2, 1994 (52 weeks) October 3, 1993 (52 weeks) September 27, 1992 (52 weeks)bch_tbsh bch_tbcnbch_tbhsResults of operations data Net revenues Retail Specialty sales Direct response Total net revenues Operating income Provisions for merger1 Gain on sale of investment in Noahs2 Net earnings Net earnings per common and common equivalent sharefully diluted3 Cash dividends per share Balance sheet data Working capital Total assets Long-term debt (including current portion) Redeemable preferred stock Shareholders equity Store operating data Percentage change in comparable store sales4 Stores open at year end continental North America: Company-operated stores Licensed stores5 Stores open at year end outside continental North America: Licensed stores5 Total stores1 2 3 4 5$ 828,074 117,635 21,237 966,946 88,222 $ 57,412 $ 0.70 $ 828,074 117,635 21,237 966,946 88,222 $ 57,412 $ 0.70 $ 828,074 117,635 21,237 966,946 88,222 $ 57,412 $ 0.70 $ 828,074 117,635 21,237 966,946 88,222 $ 57,412 $ 0.70 $ 828,074 117,635 21,237 966,946 88,222 $ 57,412 $ 0.70 $ 828,074 117,635 21,237 966,946 88,222 $ 57,412 $ 0.70 bch_tbtx$ 177,578 850,672 168,832 $ 531,830$ 177,578 850,672 168,832 $ 531,830$ 177,578 850,672 168,832 $ 531,830$ 177,578 850,672 168,832 $ 531,830$ 177,578 850,672 168,832 $ 531,830$ 177,578 850,672 168,832 $ 531,8305% 1,270 94 1,3645% 1,270 94 1,3645% 1,270 94 1,3645% 1,270 94 1,3645% 1,270 94 1,3645% 1,270 94 1,36474 1,38174 1,38174 1,38174 1,38174 1,38174 1,381bch_tbfnProvision for merger costs reflects expenses related to the merger with the Coffee Connection, Inc. in fiscal 1994. Gain on sale of investment in Noahs result from he sale of Noah's New York Bagel, Inc. (Noahs), stock in fiscal 1996. Earnings per share is based on the weighted-average shares outstanding during the period plus. Includes only company-operated stores open 13 months or longer. Operated by licensees through either licensing agreement or joint ventures.available through the Web-based Lexis -nexis Academic Universe, but the web-based product does not require that you specify library names or files happened to the company since the case was written. These days it sis relatively easy run down recent industry developments and to find out where a companys strategic and financial situation has improved, deteriorated, or changed little since the conclusions of the case.chapter 8 Implementing Strategy35Table 1.3 the ten commandments of case analysis1. Committed leadership: a near evangelical, unwavering, long-term commitment by top managers to the philosophy, usually under a name something. 2. Adoption and communication of TqM: using tools like the mission statement, and themes or slogans. 3. Closer customer relationships: determining customers (both inside and outside the firm) requirements, then meeting those requirements no matter what it takes. 4. Closer supplier relationships: working closely and cooperatively with suppliers (often sole-sourcing key components), ensuring they provide inputs that conform to customers end-use requirements. 5. Benchmarking: researching and observing operating competitive practices. 6. Increased training: usually includes TQM principles, team skills, and problemsolving. 7. Open organizations: lean staff, empowered work teams, open horizontal communications, and a relaxation of traditional hierarchy. 8. Employee empowerment: increased employee involvement ind design and planning, and greater autonomy in decision-making. 9. Zero-defects mentality: a system in place to spot defects as they occur, rather than through inspection and rework. 10. Flexible manufacturing: (applicable only to manufacturers) can include just-in-time inventory, cellular manufacturing, design for manufacturability (DFM), statistically process control (SPC), and design of experiments (DOE). 11. Process improvement: reduced waste and cycle times in all areas through cross-departmental process analysis. 12. Measurement: goal-orientation and zeal for data, with constant performance measurement, often using statistical methods.Note: Thomas C. Powell, total Quality Management as Competitive Advantage, Strategic Management Journal 16, no.1 (January 1995) p. 19.bch_tblnusing defensive strategies to Protect coMPetitive advantageIn a competitive market, all firms are subject to challenges from rivals. Market offensives can come from new entrants in the industry and from established firms seeking to improve their market positions. The purpose of defensive strategy is to lower the risk of being attacked, weakened the impact of any attack that occurs, and influence challengers to aim their efforts at other rivals. While defensive strategy usually doesnt enhances a firms competitive advantage, it helps fortify a firms competitive position, protect its most valuable resource and capabilities form limitation, and sustain what competition advantage it does have.Developing a Strategic Vision and Business MissionVery early in the strategy-making process, company managers need to pose the issue of What is our vision for the companywhere should the company be headed , what kind of enterprise are we trying to build, what should the companys future business makeup be? Drawing a carefully reasoned conclusion about what the companys long-term direction should be pushes managers to take a hard look at the companys36Part 1 The Concepts and Techniques of Strategic Managementthe next 5 to 10 years. Managements views about where we plan to go from herewhat businesses we want to be in, what customer needs we want to satisfy, what capabilities were going to develop charts a course for the organization to pursue and creates organizational purposes and identity.bchsu_ttkey PointsBuilding a strategy-supportive corporate culture is important to successful implementation because it produces a work climate and organizational esprit e corps that thrive on meeting performance targets and being part of winning effort. An organization's culture emerges from why and how it does things the way it does, the values and beliefs that senior managers inspire, the ethical standards expected of all, the tone and philosophy underlying key policies, and the traditions the organization maintains. Culture thus consensus the atmosphere and feeling a company has and the style in which it gets things done. 1. Setting objectivesconverting the strategic vision into specific performance outcomes for the company to achieve. (www.lexis-nexis.com) 2. Crafting a strategy to achieve the desired outcomes. 3. Implementing and executing the chosen strategy efficiently and effectively. for display the cultural norms. 4. Implementing and executing the chosen strategy efficiently and effectively. for display the cultural norms.bchsu_txbchsu_lnbchex_ttexercises1. Forming a strategic vision of what the companys future business makeup will be and where the organization is headedso as to provide long-term direction, delineate what kind of enterprise the company is trying to become, and infuse the organization with a sense of purposeful action. 2. Setting objectivesconverting the strategic vision into specific performance outcomes for the company to achieve. (www.lexis-nexis.com) 3. Crafting a strategy to achieve the desired outcomes. 4. Implementing and executing the chosen strategy efficiently and effectively.bchex_lnbcs_nmCaseSebastion icon tocomeStarbucks CorporationArthur A. ThompsonThe University of Alabama8bcs_ttJohn E. GambleUniversity of South Alabamabcs_au bcs_afbcsop_qubcs_txTI was a good musician, so I thought, what better thing to start bcsop_quau than a music company? Darren Skansonhis book is about the managerial tasks of crafting, implementing, and executing company strategies. A companies strategy is the game plan manage ment has for positioning the company in its chosen market arena, competing successfully, pleasing customers, and achieving good business performance. Strategy consists of the whole array of competitive moves and business approaches that managers employ in running a company. In crafting a strategic course, management is saying that among all the paths and actions we could have chosen, we have decided to go in this direction and rely upon these particular ways of doing business. A strategy thus entails managerial choices among alternatives and signals organizational commitment to specific markets, competitive approaches, and and ways of operating.bcs_hathe coMPany backgroundTaking, strategy-implementing process consists of five interrelated managerial tasks. Granted, good strategy combined with good strategy execution doesnt guarantee that a company will avoid periods of so-so or even subpar performance. Sometimes it takes several years for managements strategy-making/strategy-implementing efforts to show goods results. Sometimes blue-chip organizations with showcase practices and reputable managers have performance prob-lems because of surplus conditions or internal miscues. we need more time: reason nor the bad luck of unforeseeable events excuses mediocre performance year after year. It is the responsibility of a companys management team t that can overcome adversity. Indeed the essence of good strategy strategy making and whether a company is well managed is therefore compelling: The better conceived a companys strategy and the more competently it is executed, the more likely the company will be a solid performer and a competitive success in the marketplace. Sometimes blue-chip organizations with showcase practices and reputable managers have performance problems because of surplus conditions or internal miscues. we need more time: reason nor the bad luck of unforeseeable events excuses mediocre performance year after year. It is the responsibility of a companys management team t that can overcome adversity. Indeed the essence of good strategy strategy making and whether a company is well managed is therefore compelling. The strategy-making, strategy-implementing process consists of five interrelated managerial tasks. Granted, good strategy combined with good strategy execution doesnt guarantee that a company will avoid periods of so-so or even subpar performance. Sometimes it takes several years for managements strategy-making/strategy-implementing efforts to show goods results. Sometimes blue-chip organizations with showcase practices and reputable managers have performance problems because of surplus conditions or internal miscues. we need more time: reason nor the bad luck ofC-3C-4Cases in Strategic Managementbcs_hbAl Dunlaps Growing Expertise and Reputation as a Turnaround Expert, 198395Very early in the strategy-making process, company managers need to pose the issue of What is our vision for the companywhere should the company be headed , what kind of enterprise are we trying to build, what should the companys future business makeup be? Drawing a carefully reasoned conclusion about what the companys long-term direction should be pushes managers to take a hard look at the companys present business and form a clearer sense of whether and how it needs to change overafter capital expenditures, dividends, and taxes. Acquisitions While some of the recent acquisitions are small companies, they have internal rates of returns that are exceptional: Frederick Manufacturing at over 27 percent, and CTR at 40.1 percent. We gave them delayed payments of three years (for CTR) and paid for in two and half. Weve owned it for two and half years, and now its throwing off about $5 million a year in cash flow.W.L. Gores Guiding Principles and Core ValuesThe strategy-making, strategy-implementing process consists of five interrelated managerial tasks. 1. Try to be fair. 2. Encourage, help, and allow other associates to grow in knowledge, skill and scope of activity and responsibility. 3. Make your own commitments, and keep them. 4. Consult with other associates before taking risks.bcs_hcCase Third Level Head Example Some managers take on the role of chief strategist and chief entrepreneur, singlehandedly exercising strong influences over assessments of the situation, over the strategy alternatives that are explored, and over the details of strategy. This doe s not mean that the manager personally does all the work; it means that the manager personally becomes the chief architect of strategy and worlds a proactive hand in shaping some of or all of the major pieces of strategy. Master strategists act as strategy commanders and have a big ownership stake in the chosen strategy.bcs_lnbcs_lbBroadening the firms product line to close off vacant niches and gaps to would-be challengers. Introducing models or brands that match the characteristics challengers models already have or might have. Keeping prices low on models that most closely match competitors offerings.Al Dunlaps Growing Expertise and Reputation as a Turnaround Expert, 198395Very early in the strategy-making process, company managers need to pose the issue of What is our vision for the companywhere should the company be headed , what kind of enterprise are we trying to build, what should the companys future business makeup be? Drawing a carefully reasoned conclusion about what the companys long-term direction should be pushes managers to take a hard look at the companys present business and form a clearer sense of whether and how it needs to change over Case Third Level Head Example Some managers take on the role of chief strategist and chief entrepreneur, singlehandedly exercising strong influences over assessments of the situation, over the strategy alternatives that are explored, and over the details of strategy. This does not mean that the manager personally does all the work; it means that the manager personally becomes the chief architect of strategy and worlds a proactive hand in shap-A strong approach to defensive strategy entails signaling challengers that their is a real threat of strong retaliation if a challenger attaches. The gals is to dissuade challengers from attacking at all or at least divert them to options that are less threatening to the defender. Would be challengers can be signaled by.Cash flow I came to work the first of May [1992] and we were totally out of the bank by the 23rd day of August, we have not had to borrow a penny from the banks since then. We currently have cash flow in excess of $100 million] per year with a cash flow of %55 million,bcs_etcase 8 Starbucks CorporationC-5bcs_fgnmExhibit 1 estimated operating and net Profits of W. l. gore &associates, 199497$250 200 Millions of dollarsbcs_fgtt15010050 0 1993 1994 1995 $120 $140 N.A. $60 $192 $96 1996 $213 $106 $230 $116 1997Operating profits (in millions) Net Profits (in millions)bcs_fgsoData from Forbes Magazines Annual Report on the 500 Largest Private Companies in the U.S.Al Dunlaps Growing Expertise and Reputation as a Turnaround Expert, 198395Very early in the strategy-making process, company managers need to pose the issue of What is our vision for the companywhere should the company be headed , what kind of enterprise are we trying to build, what should the companys future business makeup be? Drawing a carefully reasoned conclusion about what the companys long-term direction should be pushes managers to take a hard look at the companys present business and form a clearerPublication/Subjectsense of whether and how it needs to change over Case Third Level Head Example Some managers take on the role of chief strategist and chief entrepreneur, singlehandedly exercising strong influences over assessments of the situation, over the strategy alternatives that are explored, and over the details of strategy. This does not mean that the manager personally does all the work; it means that the manager personally becomes the chief architect of strategy and worlds a proactive hand in shaping some of or all of the major pieces of strategy. Master strategists act as strategy commanders and have a big ownership stake in the chosen strategy.Lexis/Nexis File Name HOOVER SEC ARS 10-K 10-Q BWIRE PRNEWS SPNEWS FORTUNHoover company profiles Securities and Exchange Commission Company annual reports Company annual 10-K fillings Company quarterly 10-Q filings Business wire Public relations newswire S&P Daily News FortuneSource: Institute for Brewing Studies.C-6Cases in Strategic ManagementExhibit 1 key Performance statistics for starbucks corporation , 1992-97As of and for the Fiscal Year Ended September 28, 1997 (52 weeks) Results of operations data Net revenues Retail Specialty sales Direct response Total net revenues Operating income Provisions for merger1 Gain on sale of investment in Noahs2 Net earnings Net earnings per common and common equivalent sharefully diluted3 Cash dividends per share Balance sheet data Working capital Total assets Long-term debt (including current portion) Redeemable preferred stock Shareholders equity Store operating data Percentage change in comparable store sales4 Stores open at year end continental North America: Company-operated stores Licensed stores5 Stores open at year end outside continental North America: Licensed stores5 Total stores1 2 3 4 5bcs_tbshSeptember 27, 1992 (52 weeks)September 29, 1996 (52 weeks)October 1, 1995 (52 weeks)October 2, 1994 (52 weeks)October 3, 1993 (52 weeks)bcs_tbcn$ 828,074 117,635 21,237 966,946 88,222 $ 57,412 $ 0.70 $ 828,074 117,635 21,237 966,946 88,222 $ 57,412 $ 0.70 $ 828,074 117,635 21,237 966,946 88,222 $ 57,412 $ 0.70 $ 828,074 117,635 21,237 966,946 88,222 $ 57,412 $ 0.70 $ 828,074 117,635 21,237 966,946 88,222 $ 57,412 $ 0.70 $ 828,074 117,635 21,237 966,946 88,222 $ 57,412 $ 0.70 $ 177,578 850,672 168,832 $ 531,830$ 177,578 850,672 168,832 $ 531,830$ 177,578 850,672 168,832 $ 531,830$ 177,578 850,672 168,832 $ 531,830$ 177,578 850,672 168,832 $ 531,830$ 177,578 850,672 168,832 $ 531,8305% 1,270 94 1,3645% 1,270 94 1,3645% 1,270 94 1,3645% 1,270 94 1,3645% 1,270 94 1,3645% 1,270 94 1,36474 1,38174 1,38174 1,38174 1,38174 1,38174 1,381Provision for merger costs reflects expenses related to the merger with the Coffee Connection, Inc. in fiscal 1994. Gain on sale of investment in Noahs result from he sale of Noah's New York Bagel, Inc. (Noahs), stock in fiscal 1996. Earnings per share is based on the weighted-average shares outstanding during the period plus. Includes only company-operated stores open 13 months or longer. Operated by licensees through either licensing agreement or joint ventures.case 8 Starbucks CorporationC-5Broadening the firms product line to close off vacant niches and gaps to would-be challengers. Introducing models or brands that match the characteristics challengers models already have or might have. Keeping prices low on models that most closely match competitors offerings. A strong approach to defensive strategy entails signaling challengers that their is a real threat of strong retaliation if a challenger attaches. The gals is to dissuade challengers from attacking at all or at least divert them to options that are less threatening to the defender. Would be challengers can be signaled by.Cash flow I came to work the first of May [1992] and we were totally out of the bank by the 23rd day of August, we have not had to borrow a penny from the banks since then. We currently have cash flow in excess of $100 million] per year with a cash flow of %55 million, after capital expenditures, dividends, and taxes. Acquisitions While some of the recent acquisitions are small companies, they have internal rates of returns that are exceptional: Frederick Manufacturing at over 27 percent, and CTR at 40.1 percent. We gave them delayed payments of three years (for CTR) and paid for in two and half. Weve owned it for two and half years, and now its throwing off about $5 million a year in cash flow.A leader is best When people barely now he exists, Not so good when people obey and acclaim him, Worse when they despise him. But of a good leader, who talks little, When his work is done, his aim fulfilled, They will say: We did it ourselves.16Pagonis goal was to build a leadership-supporting environment, one with centralized control and decentralized execution. In this environment, Pagonis controlled the process but not the decisions. tive capabilities and strategies of rival companies. Thus, whenever one firm makes a strategic move, its rivals often retaliate with offensive or defensive countermovers. This pattern of action and reaction makes competitive rivalry a war-games type of contest outcomes that spell the difference between profit and loss. Key success factors concern what every industry member must be competent at doing or concentrate on achieving in order to be competitively and financially successful. KSFs are so important that all firms in the industry must pay them close attentionthey are the prerequisites for industry success. The answers to three questions help identify an industrys key success factorsbibliographybcsar_ttW.L. Gores Guiding Principles and Core ValuesThe strategy-making, strategy-implementing process consists of five interrelated managerial tasks. 1. Try to be fair. 2. Encourage, help, and allow other associates to grow in knowledge, skill and scope of activity and responsibility. 3. Make your own commitments, and keep them. 4. Consult with other associates before taking risks. Centralized/Decentralized Command In moving mountains, Pagonis quoted sixth-century Chinese poet Lao-tzu as an example summarizing the essence of good leadership.Badaracco, Joe and Allen P. Webb. Business Ethics: A View form the Trenches. California Management Review 37, no. 2 (winter 1995), pp.8-28. Clement, Ronald W. Culture, Leadership, and Power: The Keys to Organizational Change. Business Horizons 37, no 1 (January-February 1994), pp.33-39. Deal, Terrence E., and Allen A. Kennedy. Corporate Cultures. Reading, Mass.: Addision-Wesley, 1982, bcsar_tx especially chaps. 1 and 2. Eccles, Robert G. The Performance Measurement Manifesto. Harvard Business Review 69 (January February 1991), pp. 131-37. Farkas, Charles M. Suzy Wetlaufer, The Ways Chief Executive Officers Lead, Harvard Business Review 74 no. 3 (MayJune 1996), pp. 1110-122.IndexesORGANIZATIONein_ttABC, 60 Account management of advertising firm, 319 Accuracy of news, 37376 Acquisition editor, 119 Acta diurna, 125 Administration (department) in advertising firm, 319 in magazine publishing, 172 in music department, 256 in television, 287 Advertiser(s) public relations for, 396 top 10, 303 Advertiser influence, 392396 Advertising 294296 A-T-R model and, 302303 bandwagon and, 307 card stacking and, 307 of cigarettes, 31 consumers information environment and 303304 controversies about, 308310 cutting-edge theory and, 3-1302 developement of, 296298, 300 early, 296 eight lifestyles and, 317 electronic, 297298, 300 expanding world of, 301 first ad agency and, 296, 297 future of, 319320 government regulation of, 297 of hard liquor, 314 in magazines, 173 minimal-effects theory and, 300301 mission of VALS and, 317 music and, 307308 ABC, 60 Account management of advertising firm, 319 Accuracy of news, 37376 Acquisition editor, 119 Acta diurna, 125 Administration (department) in advertising firm, 319 in magazine publishing, 172 in music department, 256ein_stein_txI-3I-4SUBJECT INDEXABC, 60 Account management of advertising firm, 319 Accuracy of news, 37376 Acquisition editor, 119 Acta diurna, 125 Administration (department) in advertising firm, 319 in magazine publishing, 172 in music department, 256 in television, 287 Advertiser(s) public relations for, 396 top 10, 303 Advertiser influence, 392396 Advertising 294296 A-T-R model and, 302303 bandwagon and, 307 card stacking and, 307 of cigarettes, 31 consumers information environment and 303304 controversies about, 308310 cutting-edge theory and, 3-1302 developement of, 296298, 300 early, 296 eight lifestyles and, 317 electronic, 297298, 300 expanding world of, 301 first ad agency and, 296, 297 future of, 319320 government regulation of, 297 of hard liquor, 314 in magazines, 173 minimal-effects theory and, 300301 mission of VALS and, 317 music and, 307308 ABC, 60 Account management of advertising firm, 319 Accuracy of news, 37376 Acquisition editor, 119 Acta diurna, 125 Administration (department) in advertising firm, 319 in magazine publishing, 172 in music department, 256I-5bchnt_ttEndnotesChapter 111Gary Hamel, Strategy as Revolution, Harvard Business Review 74, no. 4 (JulyAugust 1996), p. 72. 11Gary Hamel, Strategy as Revolution, Harvard Business Review 74, no. 4 (JulyAugust 1996), p. 72. Porter, The Competitive Advantage of Nations (New York: Free Press, 1990), p. 66. James Brian Quinn, Intelligent Enterprise (New York: Free Press, 1992), p. 76. James Brian Quinn, Intelligent Enterprise (New York: Free Press, 1992), p. 76. 11Gary Hamel, Strategy as Revolution, Harvard Business Review 74, no. 4 (JulyAugust 1996), p. 72. Porter, The Competitive Advantage of Nations (New York: Free Press, 1990), p. 66. James Brian Quinn, Intelligent Enterprise (New York: Free Press, 1992), p. 76. 11Gary Hamel, Strategy as Revolution, Harvard Business Review 74, no. 4 (JulyAugust 1996), p. 72. Porter, The Competitive Advantage of Nations (New York: Free Press, 1990), p. 66. James Brian Quinn, Intelligent Enterprise (New York: Free Press, 1992), p. 76. Porter, The Competitive Advantage of Nations (New York: Free Press, 1990), p. 66. James Brian Quinn, Intelligent Enterprise (New York: Free Press, 1992), p. 76.bchnt_habchnt_txPorter, The Competitive Advantage of Nations (New York: Free Press, 1990), p. 66. James Brian Quinn, Intelligent Enterprise (New York: Free Press, 1992), p. 76. 11Gary Hamel, Strategy as Revolution, Harvard Business Review 74, no. 4 (JulyAugust 1996), p. 72. Porter, The Competitive Advantage of Nations (New York: Free Press, 1990), p. 66. James Brian Quinn, Intelligent Enterprise (New York: Free Press, 1992), p. 76. 11Gary Hamel, Strategy as Revolution, Harvard Business Review 74, no. 4 (JulyAugust 1996), p. 72. Porter, The Competitive Advantage of Nations (New York: Free Press, 1990), p. 66. James Brian Quinn, Intelligent Enterprise (New York: Free Press, 1992), p. 76.Chapter 211Gary Hamel, Strategy as Revolution, Harvard Business Review 74, no. 4 (JulyAugust 1996), p. 72. Porter, The Competitive Advantage of Nations (New York: Free Press, 1990), p. 66. James Brian Quinn, Intelligent Enterprise (New York: Free Press, 1992), p. 76. 11Gary Hamel, Strategy as Revolution, Harvard Business Review 74, no. 4 (JulyAugust 1996), p. 72. Porter, The Competitive Advantage of Nations (New York: Free Press, 1990), p. 66.Size A 1/4 page x text measure 30p x 12p6Size B 1/3 page x text measure 30p x 16p8Size C 1/2 page x text measure 30p x 25pSize D 1/4 page x extended measure 38p x 12p6Size E 1/3 page x extended measure 38p x 16p8Size F 1/2 page x extended measure 38p x 25pSize G 2p side-by-side x text measure. 1p space between 14p6 x 12p6Size G 2p side-by-side x text measure. 1p space between 14p6 x 12p6Size G 2p side-by-side x text measure. 1p space between 14p6 x 12p6Size H 2p side-by-side x extended measure. 1p space between 18p6 x 16p8Size H 2p side-by-side x extended measure. 1p space between 18p6 x 16p8Size H 2p side-by-side x extended measure. 1p space between 18p6 x 16p8Chapter Opening Photo Square 18p x 18pTable of Contents Photo Resize chapter opening photo to be 13p wide. Let depth fall as needed

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