Strategic mgmt & bus policy by thomas l. wheelen (10th edition)

STRATEGIC MANAGEMENT & BUSINESS POLICY10TH EDITION

THOMAS L. WHEELEN J. DAVID HUNGER

CHAPTER 1 Basic Concepts of Strategic Management

Basic Concepts of Strategic Management

GlobalizationInternationalization of markets and corporations

Global (worldwide) markets rather than national markets

Electronic CommerceUse of the Internet to conduct business transactions

Basis for competition on a more strategic level rather than traditional focus on product features and costs

Electronic Commerce -- Trends

• Forcing company transformation• Market access & branding changing –

disintermediation of traditional distribution channels

• Balance of power shift to consumer• Competition changing

Electronic Commerce -- Trends

• Pace of business increasing • Internet purchasing beyond traditional

boundaries• Knowledge key asset – source of

competitive advantage

Strategic Management Defined

Set of managerial decisions and actions that determines the long-run performance of a firm.

4 Phases of Strategic Management

1. Basic financial planning2. Forecast-based planning3. Externally-oriented planning4. Strategic management

Highly Rated Benefits

• Clearer sense of strategic vision• Sharper focus on strategic importance• Improved understanding of changing

environment

Not Always a Formal Process

• Where is the organization now? (not where do we hope it is)

• If no changes are made, where will the organization be in 1,2,5 or 10 years?

• What specific actions should management undertake?

• What are the risks and payoffs?

Basic Elements of the Strategic Management Process

Environmental Scanning Defined

Monitoring, evaluation, and disseminating information from external and internal environments –to key people in the firm

Environmental Variables

Environmental Scanning

SWOT Analysis

• Strengths – Weaknesses

• Opportunities - Threats

Strategy Formulation

Development of long-range plans for effective management of opportunities and threats in light of corporate strengths and weaknesses

Strategy Formulation

Mission Statement

• Purpose/reason for organization• Promotes shared expectations• Communicates public image• Who we are; what we do; what we

aspire to

Organizational Adaptation

Organization “fit” with environment

• Theory of population ecology• Institution theory• Strategic choice perspective• Organizational learning theory

Organizational Adaptation

Strategic flexibility

• Demands long-term commitment to development of critical resources

• Demands firm become a learning organization

Learning Organizations

An organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights

Learning Organizations

4 Chief Activities

• Systematic problem solving• New approach experimentation• Learning from experiences• Intra-organization knowledge transfer

Hierarchy of Strategy

Goals & Objectives

Corporate Goals/Objectives

–Profitability (net profit)–Growth–Resource utilization (ROE, ROI)–Market leadership

3 Types of Strategy

–Corporate strategy

–Business strategy

–Functional strategy

Corporate Strategy

–Stability–Growth–Retrenchment

Business Strategy

–Competitive strategies

–Cooperative strategies

Functional Strategy

–Technological leadership

–Technological followership

Strategic Decision-Making

Process

Strategic Decision Making

Strategic Decisions

–Rare

–Consequential

–Directive

Strategic Decision Making

Mintzberg’s Modes

–Entrepreneurial mode–Adaptive mode–Planning mode–Logical incrementalism

Hambrick and Fredrickson – Good Strategy

5 Elements of Good Strategy

1. Arenas2. Vehicles3. Differentiators4. Staging5. Economic logic

CHAPTER 2 Corporate Governance

Corporate Governance

The relationship among the board of directors, top management, and shareholders – determining the direction and performance of the corporation

Role of Board

–Monitor

–Evaluate and influence

–Initiate and determine

Board of Directors Continuum

Board of Directors

Members --

–Inside directors•“management directors”•Officers or execs employed by the firm

–Outside directors•“non-management directors”•Execs of other firms not employed by the board’s corporation

Agency Theory

Agency Problem ––Objectives of owners & agents in conflict–Difficult for owners to verify agent performance

Risk Sharing Problem ––Owners & agents risk assessment in conflict

Stewardship Theory

Executives more motivated to act in best interest of the corporation than their own self-interests. Theory that over time, senior executives tend to view corporation as extension of selves.

Board of Directors

When Outsiders can be considered Insiders

–Affiliated Directors–Retired Directors–Family Directors

Board of Directors

Codetermination

–The inclusion of a corporation’s employees on its board of directors

Board of Directors

Interlocking Directorates

–Direct Interlocking

–Indirect Interlocking

Board of Directors

Nominations & Elections

–Traditional Approach•CEO invitation to membership•Shareholders approval in annual proxy statement•All nominees usually elected

Board of Directors

Nominations & Elections

–Staggered Board Approach•Staggered terms of service/election

Board of Directors

Sarbanes-Oxley

–Code of Ethics

–Audit, Nominating, and Compensation Committees all outside directors

Board of Directors

Organization of the Board

–Size

•Charter & Bylaws Determination

Board of Directors

–Review & shaping of strategy–Pressure for corporate performance–Demand for executive stock ownership–Outside directors increasing–Impact of Sarbanes-Oxley

Board of Directors

Transformational leaders

–Change agents through vision for change

Board of Directors

Successful CEO’s

–Strategic vision–Passion for the company–Strong communication–charisma

Board of Directors

Executive Leadership

–Strategic vision–Role model

Board of Directors

Executive Leadership

–Communication of performance standards–Demonstrates confidence in abilities of followers

Strategic Management Process

Strategic Planning Staff

–Supports top management & business units in the strategic planning process

–Identify & analyze company-wide strategic issues–Generate strategic alternatives

–Facilitate business units in coordinating activities related to strategic planning process

CHAPTER 3 Ethics & Social Responsibility

Ethics & Social Responsibility

Broader responsibility --

Private corporations have responsibility to society that extend beyond making a profit

Social Responsibility

There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.

Milton Friedman

Carroll’s 4 Responsibilities

–Economic–Legal–Ethical–Discretionary

Carroll’s 4 Responsibilities

Corporate Stakeholders

Affect or are affected by the achievement of the corporation’s objectives

Corporate Stakeholders

Stakeholder Analysis –

–Primary stakeholder•Sufficient bargaining power to affect outcomes

–Secondary stakeholder•Indirect stake but are affected by corporation’s actions

–Stakeholder Input•Determine whether input is necessary

Ethical Behavior

“business ethics”

–Argument that there is no such thing … it is an oxymoron

Ethical Decision Making

Corporate practices --

–Massive write-downs and restatements of profit–Misclassification of expenses as capital expenditures–Pirating corporate assets for personal gain

Recent Survey Results --

–70% distrust business executives–Enron–WorldCom

Reasons for Unethical Behavior

Provocative Question --

–Why are businesspeople perceived to be acting unethically?

Perceptions caused by --

–Not aware of impropriety–Cultural norms and values vary–Governance systems based on rule or relationships–Differences in values between businesspeople and key stakeholders

Allport-Vernon-Lindzey Study of Values --

–Aesthetic–Economic–Political–Religious–Social–Theoretical

Most common reasons for bending rules --

–Organizational performance required it–Ambiguous or out of date rules–Pressure from others – everyone else does it

Moral Relativism

Morality is relative to some personal, social, or cultural standard and there is no method for deciding whether one decision is better than another.

Kohlberg’s Levels of Moral Development

1. Preconventional level

–Characterized by a concern for self•Personal interest•Avoidance of punishment

2. Conventional level

–Characterized consideration of society’s values•External code of conduct

3. Principled level

–Characterized by adherence to internal moral code

•Universal values or principles

Encouraging Ethical Behavior

Codes of Ethics

–Specifies how an organization expects its employees to behave on the job.

Guidelines for Ethical Behavior

–Ethics

–Morality

–Law

Approaches to Ethical Behavior

–Utilitarian•Judged by consequences

–Individual Rights•Fundamental rights in all decisions

–Justice•Distribution in equitable fashion

Approaches to Ethical Behavior

–Categorical imperative•“golden rule”•Means - Ends

Strategy Bits

192 U.S. companies surveyed --

–92% monitored employees use of e-mail/Internet

–26% monitored employees electronic activities all the time

–Almost none had checks in place to protect employees privacy

CHAPTER 4 Environmental Scanning and Industry Analysis

Environmental Scanning

Societal environment --

–Economic forces–Technological forces–Political-legal forces–Sociocultural forces

Societal Environment

Economic Forces --

–Regulate exchange of materials, money, energy and information

Technological Forces --

–Generate problem-solving inventions

Political-legal Forces --

–Allocate power; provide laws and regulations

Sociocultural Forces --

–Regulate values, mores, and customs of society

Task Environment

Task environment --

–Elements or groups that directly affect a corporation and are affected by it

Task Environment

Industry Analysis --

–In-depth examination of key factors within a corporation’s task environment

Variables in Societal Environment

Demographic Trends

Transformational Sociocultural Trends

8 Current Trends –

–Increasing environmental awareness–Growing health consciousness–Expanding seniors market–Impact of the Generation Y boomlet–Declining mass market–Changing pace and location of life–Changing household composition–Increasing diversity of workforce & market

International Societal Environments

Scanning the Task Environment

Ethical Behavior

“business ethics”

–Argument that there is no such thing … it is an oxymoron

Corporate practices --

–Massive write-downs and restatements of profit–Misclassification of expenses as capital expenditures–Pirating corporate assets for personal gain

External Strategic Factors

Strategic myopia --

–Willingness to reject unfamiliar as well as negative information

Issues Priority Matrix

Analyzing the Task Environment

Porter’s Approach to Industry Analysis

Threat of New Entrants –

–Economies of scale–Product differentiation–Capital requirements–Switching costs–Access to distribution channels–Cost disadvantages–Government policy

Rivalry Among Existing Firms –

–Number of competitors–Rate of industry growth–Product or service characteristics–Amount of fixed costs–Capacity–Height of exit barriers–Diversity of rivals

•Threat of Substitute Products or Services

•Bargaining Power of Buyers

•Bargaining Power of Suppliers

•Relative Power of Other Stakeholders

Industry Evolution

Fragmented Industry –

–No dominant industry

Industry Evolution

Consolidated Industry –

–Dominated by a few large firms

International Risk Assessment

Continuum of International Industries

Strategic Groups

Strategic Types

•Defenders•Prospectors•Analyzers•Reactors

General Types –

Competitive Intelligence

Called business intelligence

Gathering information on a company’s competitors

Forecasting

Forecasting Techniques --

–Extrapolation–Brainstorming–Expert opinion–Delphi technique–Statistical modeling–Scenario writing

Synthesis of External Factors -- EFAS

CHAPTER 5Internal Scanning: Organizational Analysis

Resource-Based Approach to Organizational Analysis

Internal strategic factors --

–Critical strengths and weaknesses that are likely to determine if the firm will be able to take advantage of opportunities while avoiding threats

•Resources

•Capabilities

•Competency

•Core competency

•Distinctive competency

Core and Distinctive Competencies

VRIO Framework --

–Value

–Rareness

–Imitability

–Organization

5-Step Approach Strategy Analysis --

1. Identify and classify resources2. Combine strengths into capabilities3. Appraise profit potential of capabilities4. Select strategy that best exploits 5. Identify resource gaps invest in weaknesses

Continuum of Sustainability

Sustainability of Advantage

Durability --

–Rate at which a firm’s underlying resources and capabilities depreciate or become obsolete

Imitability --

–Rate at which a firm’s underlying resources and capabilities can be duplicated by others

Core Competency can be imitated --

–Transparency–Transferability–Replicability

Business Models

Company’s method for making money in the current business environment.

Business Models

Types of Models --

–Customer Solutions Model–Profit Pyramid Model–Multi-Component System/Installed Base Model–Advertising Model–Switchboard Model

Business Models

Types of Models --

–Time Model–Efficiency Model–Blockbuster Model–Profit Multiplier Model–Entrepreneurial Model–De Facto Standard Model

Value-Chain Analysis

Linked set of value-creating activities beginning with basic raw material and ending with distributors getting final goods into hands of customers

Value-Chain Analysis

Typical Value Chain for a Manufactured Product

Corporate Value-Chain Analysis

•Primary activities

•Support activities

Corporation’s Value Chain

Scanning Functional Resources & Capabilities

Basic Organizational Structures --

–Simple structure–Functional structure–Divisional structure–Strategic business units (SBU’s)–Conglomerate structure

Basic Organizational Structures

Corporate Culture

Collection of beliefs, expectations, and values learned and shared by a corporation’s members and transmitted from one generation of employees to another

Strategic Marketing Issues

–Market Position & Segmentation–Marketing Mix–Product Life Cycle–Brand & Corporate Reputation

Product Life Cycle

Strategic Financial Issues

–Financial leverage

–Capital budgeting

Strategic Research & Development Issues

–R&D Intensity

–Technological Competence

–Technology Transfer

Technological Discontinuity

Strategic Human Resource Management Issues

HRM –

–Increasing use of teams–Union relations –Temporary workers–Quality of work life–Human diversity

Internal Factor Analysis Summary Table

CHAPTER 6Strategy Formulation: Situation Analysis & Business Strategy

Situational Analysis

Strategy formulation --

–Strategic planning or long-range planning•Develops mission, objectives, strategies, policies

--process of finding a strategic fit between external opportunities and internal strengths while working around external threats and internal weaknesses

IFAS – Maytag as Example

EFAS – Maytag as Example

SFAS Matrix

Niche --

–Need in the marketplace that is currently unsatisfied

Corporate Goal --

–Find propitious niche–Strategic window

SWOT --

–Internal•Strengths/Weaknesses

–External•Opportunities/Threats

TOWS Matrix

Business Strategy

Focuses on improving competitive position of company’s products or services within the specific industry or market segment

Porter’s Competitive Strategies

Competitive Strategy --

–Low cost–Differentiation–Direct competition–Focus on niche

Generic Competitive Strategies --

–Lower Cost strategy•Greater efficiencies than competitors

–Differentiation strategy•Unique/superior value, quality, features, service

Competitive Advantage --

–Determined by Competitive Scope•Breadth of the target market

Cost Leadership --

–Low-cost competitive strategy–Broad mass market–Efficient-scale facilities–Cost reductions–Cost minimization

Differentiation –

–Broad mass market–Unique product/service–Premiums charged–Less price sensitivity

Cost-Focus –

–Low-cost competitive strategy–Focus on market segment–Niche focused–Cost advantage in market segment

Differentiation Focus –

–Specific group or geographic market focus–Differentiation in target market–Special needs of narrow target market

Stuck in the middle –

–No competitive advantage–Below-average performance

Risks of Generic Strategies

Risks of Cost LeadershipCost leadership is not sustained:• Competitors imitate.• Technology changes.• Other bases for cost leadership erode.Proximity in differentiation is lost.Cost focusers achieve even lower cost in segments.

Risks of DifferentiationDifferentiation is not sustained:• Competitors imitate.• Bases for differentiation become less important to buyers.Cost proximity is lost.Differentiation focusers achieve even greater differentiation in segments.

Risks of FocusThe focus strategy is imitated:The target segment becomes structurally unattractive:• Structure erodes.• Demand disappears.Broadly targeted competitors overwhelm the segment:• The segment’s differences from other segments narrow.• The advantages of a broad line increase.New focusers subsegment the industry.

Risks of Cost LeadershipCost leadership is not sustained:• Competitors imitate.• Technology changes.• Other bases for cost leadership erode.Proximity in differentiation is lost.Cost focusers achieve even lower cost in segments.

Risks of DifferentiationDifferentiation is not sustained:• Competitors imitate.• Bases for differentiation become less important to buyers.Cost proximity is lost.Differentiation focusers achieve even greater differentiation in segments.

Risks of FocusThe focus strategy is imitated:The target segment becomes structurally unattractive:• Structure erodes.• Demand disappears.Broadly targeted competitors overwhelm the segment:• The segment’s differences from other segments narrow.• The advantages of a broad line increase.New focusers subsegment the industry.

8 Dimensions of Quality

Competitive Strategy

Industry Structure --

–Fragmented Industry–Consolidated Industry

Competitive Tactics

Timing Tactics --

–First mover–Late movers

Competitive Tactics

Market Location Tactics --

–Frontal Assault–Flanking Maneuver–Bypass Attack–Encirclement–Guerrilla Warfare

Competitive Tactics

Defensive Tactics --

–Raise structural barriers–Increase expected retaliation–Lower the inducement for attack

Cooperative Strategies

•Collusion•Strategic Alliances•Mutual service consortia•Joint ventures•Licensing arrangements•Value-chain partnerships

CHAPTER 7 Strategy Formulation: Corporate Strategy

Corporate Strategy

3 Key Issues –

–Firm’s directional strategy

–Firm’s portfolio strategy

–Firm’s parenting strategy

Corporate Directional Strategies

Corporate Strategy

Directional Strategy –

–Orientation toward growth•Expansion, contraction, status quo•Concentration or diversification•Internal development or acquisitions, mergers, or alliances

Corporate Strategy

Directional Strategy –

–3 Grand Strategies

•Growth strategies

•Stability strategies

•Retrenchment strategies

Corporate Strategy

Growth Strategies --

–External mechanisms

•Mergers

•Acquisitions

•Strategic alliances

Corporate Strategy

–2 Basic forms

•Concentration

•Diversification

Corporate Strategy

Basic Concentration Strategies --

–Vertical growth

–Horizontal growth

Corporate Strategy

Vertical Growth --

–Vertical integration•Full integration•Taper integration•Quasi-integration•Long-term contract

Corporate Strategy

Vertical Growth --

–Backward integration

–Forward integration

Corporate Strategy

Concentration --

–Horizontal Growth•Horizontal integration

Corporate Strategy

Basic Diversification Strategies --

–Concentric Diversification

–Conglomerate Diversification

Corporate Strategy

Concentric Diversification --

–Growth into related industry–Search for synergies

Corporate Strategy

Conglomerate diversification --

–Growth into unrelated industry–Concern with financial considerations

Corporate Strategy

International Entry Options --

–Exporting–Licensing–Franchising–Joint Ventures–Acquisitions–Green-Field Development

Corporate Strategy

International Entry Options --

–Production Sharing–Turnkey Operation–BOT Concept (Build, Operate, Transfer)–Management Contracts

Corporate Strategy

Stability Strategies --

–Pause/proceed with caution

–No change

–Profit strategies

Corporate Strategy

Retrenchment Strategies --

–Turnaround–Captive Company Strategy–Selling out–Bankruptcy–Liquidation

Corporate Strategy

Portfolio Analysis --

–Resource commitment on best products to ensure continued success

–Resource commitment on new costly products high risk

BCG Matrix (Portfolio Analysis)

GE Business Screen (Portfolio Analysis)

AWinners Winners

Question Marks

Average Businesses

EWinners

Losers

GLosers H

LosersProfit

Producers

Strong Average Weak

Medium

Business Strength/Competitive Position

Corporate Strategy

Corporate Parenting Strategy --

–Strategic factors–performance improvement–Analyze fit

CHAPTER 8 Strategy Formulation: Functional Strategy & Strategic Choice

Functional Strategy

The approach a functional area takes to achieve corporate and business unit objectives and strategies by maximizing resource productivity

Functional Strategy

Marketing Strategy –

–Pricing–Selling–Distribution

Functional Strategy

–Product development•Line extension

Functional Strategy

–Advertising and promotion•Push strategy•Pull strategy

Functional Strategy

–Pricing•Skim pricing•Penetration pricing•Dynamic pricing

Functional Strategy

Financial Strategy –

–Leveraged buyout–Reversed stock split–Tracking stock

Functional Strategy

R&D Strategy –

–Technological leader–Technological follower–Open innovation

Functional Strategy

Operations Strategy –

–Job shop–Connected line batch flow–Flexible manufacturing systems–Dedicated transfer lines–Mass production–Continuous improvement system–Modular manufacturing

Functional Strategy

Purchasing Strategy –

–Multiple sourcing–Sole sourcing–Just-in-time (JIT)–Parallel sourcing

Functional Strategy

Logistics Strategy –

–Centralization–Outsourcing–Internet

Functional Strategy

HRM Strategy –

–360 degree appraisal

Functional Strategy

Outsourcing errors –

–Activities that should not be outsourced–Wrong vendor selection–Writing poor contract–Overlooking personnel issues–Hidden costs of outsourcing–Failing to plan exit strategy

Proposed Outsourcing Matrix

Functional Strategy

Strategies to Avoid –

–3 Follow the leader–Hit another home run–Arms race–Do everything–Losing hand

Corporate Strategy

–External mechanisms

•Mergers

•Acquisitions

•Strategic alliances

Constructing Corporate Scenarios

Functional Strategy

Subjective Factors Affecting Decisions --

–Management’s attitude toward risk–Pressures from stakeholders–Pressures from corporate culture–Needs and desires of key managers

Stakeholder Priority Matrix

Strategic Choice

Avoiding the Consensus Trap --

–Devil’s Advocate

–Dialectical Inquiry

Strategic Choice

Evaluation of Strategic Alternatives --

–Mutual exclusivity–Success–Completeness–Internal consistency

CHAPTER 9 Strategy Implementation: Organizing for Action

Strategy Implementation

--Sum total of activities & choices required for strategic plan execution

--Strategy implementation through programs, budgets, and procedures

Key Implementation Questions –

–Who carries out strategic plan?–What needs doing for alignment w/ strategy?–How is work coordinated?

Programs –

–Action oriented

–Matrix of change•Feasibility•Sequence of execution•Location•Pace & nature of change•Stakeholder evaluations

The Matrix of Change

Achieving Synergy –

–Shared know-how–Coordinated strategies–Shared tangible resources

Achieving Synergy –

–Economies of scale or scope–Pooled negotiating power–New business creation

Structure follows strategy –

–New strategy is created–New administrative problems emerge–Economic performance declines–New appropriate structure is invented–Profit returns to previous level

Stages of Corporate Development –

–Stage I: Simple structure–Stage II: Functional structure–Stage III: Divisional structure–Stage IV: Beyond SBU’s

Blocks to Changing Stages –

–Loyalty to comrades–Task oriented–Single-mindedness–Working in isolation

Organizational Life Cycle

Changing Structural Characteristics of Modern Organizations

Advanced Types of Organizational Structures –

–Matrix•Temporary cross-functional task forces•Product/brand management•Mature matrix

Advanced Types of Organizational Structures –

–Network structure (virtual organization)

–Cellular organization

Network Structure

Six Sigma –

–Define–Measure–Analyze–Improve–Establish

Job design to implement strategy –

–Job enlargement–Job rotation–Job enrichment–Job characteristics model

International Issues –

–MNC’s–International Strategic Alliances

International Development Stages–

–Domestic company–Domestic company w/export division–Domestic company w/int’l division–MNC w/multidomestic emphasis–MNC w/global emphasis

Centralization vs. Decentralization–

–Product-group structure–Geographic-area structure

Geographic Area Structure

Strategic mgmt & bus policy by thomas l. wheelen (10th edition)

Documents

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Reply Brief of Plaintiffs-Appellants, Kirch v. Embarq Mgmt. Co., No. 11-3275 (10th Cir. Apr. 26 2012)

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Brief of Defendants-Appellees, Kirch v. Embarq Mgmt. Co., No. 11-3275 (10th Cir. Mar. 26 2012)

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