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Strategic ManagementCONCEPTS AND CASES

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Library of Congress Cataloging-in-Publication DataDavid, Fred R.

Strategic management: concepts and cases / Fred R. David.—13th ed.p. cm.

Includes bibliographical references and index.ISBN-13: 978-0-13-612098-8 (casebound)ISBN-10: 0-13-612098-9 (casebound)1. Strategic planning. 2. Strategic planning—Case studies. I. Title.

HD30.28.D385 2011658.4'012—dc22

2009052036

10 9 8 7 6 5 4 3 2

ISBN 10: 0-13-612098-9ISBN 13: 978-0-13-612098-8

THIRTEENTH EDITION

Strategic ManagementCONCEPTS AND CASES

Fred R. DavidFrancis Marion UniversityFlorence, South Carolina

Prentice HallBoston Columbus Indianapolis New York San Francisco Upper Saddle River

Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal TorontoDelhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo

To Joy, Forest, Byron, and Meredith—my wife and children—

for their encouragement and love.

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Brief Contents

Preface xvii

Acknowledgments xxiii

About the Author xxvii

Part 1Overview of Strategic Management 2

Chapter 1The Nature of Strategic Management 2THE COHESION CASE: MCDONALD’S — 2009 27

Part 2Strategy Formulation 40

Chapter 2The Business Vision and Mission 40

Chapter 3The External Assessment 58

Chapter 4The Internal Assessment 90

Chapter 5Strategies in Action 130

Chapter 6Strategy Analysis and Choice 172

Part 3Strategy Implementation 210

Chapter 7Implementing Strategies: Management and Operations Issues 210

Chapter 8Implementing Strategies: Marketing, Finance/Accounting, R&D, and MIS Issues 250

Part 4Strategy Evaluation 284

Chapter 9Strategy Review, Evaluation, and Control 284

Part 5Key Strategic-Management Topics 308

Chapter 10Business Ethics/Social Responsibility/Environmental Sustainability 308

Chapter 11Global/International Issues 328

Part 6Strategic-Management Case Analysis 346How to Prepare and Present a Case Analysis 346

Name Index 359

Subject Index 363

vii

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Contents

Preface xvii

Acknowledgments xxiii

About the Author xxvii

Part 1Overview of Strategic Management 2

Chapter 1The Nature of Strategic Management 2

MCDONALD’S CORPORATION: DOING GREAT IN A WEAK ECONOMY 4

What Is Strategic Management? 5Defining Strategic Management 6 & Stages of Strategic Management 6 & Integrating Intuition and Analysis 7 & Adapting to Change 8

Key Terms in Strategic Management 9Competitive Advantage 9 & Strategists 10 & Vision and MissionStatements 11 & External Opportunities and Threats 11&Internal Strengths and Weaknesses 12 & Long-Term Objectives 13& Strategies 13 & Annual Objectives 13 & Policies 14

The Strategic-Management Model 14Benefits of Strategic Management 16

Financial Benefits 17 & Nonfinancial Benefits 18

Why Some Firms Do No Strategic Planning 18Pitfalls in Strategic Planning 19Guidelines for Effective Strategic Management 19Comparing Business and Military Strategy 21

THE COHESION CASE: MCDONALD’S CORPORATION—2009 27

ASSURANCE OF LEARNING EXERCISES 37Assurance of Learning Exercise 1A: Gathering Strategy Information 37

Assurance of Learning Exercise 1B: Strategic Planning for My University 37

Assurance of Learning Exercise 1C: Strategic Planning at a Local Company 38

Assurance of Learning Exercise 1D: Getting Familiar with SMCO 38

Part 2Strategy Formulation 40

Chapter 2The Business Vision and Mission 40

WAL-MART: DOING GREAT IN A WEAK ECONOMY 42

What Do We Want to Become? 43

What Is Our Business? 43Vision versus Mission 45 & The Process of Developing Vision and Mission Statements 46

Importance (Benefits) of Vision and Mission Statements 47

A Resolution of Divergent Views 48

Characteristics of a Mission Statement 49A Declaration of Attitude 49 & A Customer Orientation 50 & Mission Statement Components 51

Writing and Evaluating Mission Statements 53

ASSURANCE OF LEARNING EXERCISES 56Assurance of Learning Exercise 2A: Evaluating Mission Statements 56

Assurance of Learning Exercise 2B: Writing a Vision and MissionStatement for McDonald’s Corporation 56

Assurance of Learning Exercise 2C: Writing a Vision and MissionStatement for My University 57

Assurance of Learning Exercise 2D: Conducting Mission StatementResearch 57

Chapter 3The External Assessment 58

DUNKIN' BRANDS, INC.: DOING GREAT IN A WEAKECONOMY 60

The Nature of an External Audit 61Key External Forces 61 & The Process of Performing an ExternalAudit 62

The Industrial Organization (I/O) View 63

Economic Forces 63

Social, Cultural, Demographic, and Natural EnvironmentForces 66

Political, Governmental, and Legal Forces 68

Technological Forces 69

Competitive Forces 71Competitive Intelligence Programs 72 & Market Commonalityand Resource Similarity 74

Competitive Analysis: Porter’s Five-Forces Model 74

Rivalry Among Competing Firms 75 & Potential Entry of New Competitors 76 & Potential Development of SubstituteProducts 77 & Bargaining Power of Suppliers 77 & BargainingPower of Consumers 77

Sources of External Information 78

Forecasting Tools and Techniques 78Making Assumptions 79

ix

Industry Analysis: The External Factor Evaluation (EFE)Matrix 80The Competitive Profile Matrix (CPM) 81

ASSURANCE OF LEARNING EXERCISES 86Assurance of Learning Exercise 3A: Developing an EFE Matrix forMcDonald’s Corporation 86

Assurance of Learning Exercise 3B: The External Assessment 86

Assurance of Learning Exercise 3C: Developing an EFE Matrix forMy University 87

Assurance of Learning Exercise 3D: Developing a CompetitiveProfile Matrix for McDonald’s Corporation 87

Assurance of Learning Exercise 3E: Developing a CompetitiveProfile Matrix for My University 87

Chapter 4The Internal Assessment 90

AMAZON.COM, INC.: DOING GREAT IN A WEAKECONOMY. HOW? 92

The Nature of an Internal Audit 93Key Internal Forces 93 & The Process of Performing an InternalAudit 93

The Resource-Based View (RBV) 96Integrating Strategy and Culture 97Management 99

Planning 100 & Organizing 100 & Motivating 101 & Staffing102 & Controlling 102 & Management Audit Checklist ofQuestions 103

Marketing 103Customer Analysis 103 & Selling Products/Services 103 &

Product and Service Planning 104 & Pricing 105 & Distribution105 & Marketing Research 106 & Cost/Benefit Analysis 106 &

Marketing/Audit Checklist of Questions 106

Finance/Accounting 106Finance/Accounting Functions 107 & Basic Types of FinancialRatios 108 & Finance/Accounting Audit Checklist 113

Production/Operations 113Production/Operations Audit Checklist 115

Research and Development 115Internal and External R&D 116 & Research and DevelopmentAudit 117

Management Information Systems 117Strategic-Planning Software 118 & Management InformationSystems Audit 119

Value Chain Analysis (VCA) 119Benchmarking 120

The Internal Factor Evaluation (IFE) Matrix 122

ASSURANCE OF LEARNING EXERCISES 128Assurance of Learning Exercise 4A: Performing a Financial RatioAnalysis for McDonald’s Corporation (MCD) 128

Assurance of Learning Exercise 4B: Constructing an IFE Matrix forMcDonald’s Corporation 128

Assurance of Learning Exercise 4C: Constructing an IFE Matrix forMy University 128

Chapter 5Strategies in Action 130

VOLKSWAGEN AG: DOING GREAT IN A WEAK ECONOMY. HOW? 132

Long-Term Objectives 133The Nature of Long-Term Objectives 133 & Financial versusStrategic Objectives 134 & Not Managing by Objectives 135

The Balanced Scorecard 135Types of Strategies 136

Levels of Strategies 138

Integration Strategies 139Forward Integration 139 & Backward Integration 140& Horizontal Integration 141

Intensive Strategies 141Market Penetration 141 & Market Development 142& Product Development 142

Diversification Strategies 143Related Diversification 144 & Unrelated Diversification 144

Defensive Strategies 146Retrenchment 146 & Divestiture 148 & Liquidation 149

Michael Porter’s Five Generic Strategies 151Cost Leadership Strategies (Type 1 and Type 2) 152 & DifferentiationStrategies (Type 3) 153 & Focus Strategies (Type 4 and Type 5) 154& Strategies for Competing in Turbulent, High-Velocity Markets 155

Means for Achieving Strategies 155Cooperation Among Competitors 155 & Joint Venture/Partnering 156 & Merger/Acquisition 158 & First MoverAdvantages 161 & Outsourcing 161

Strategic Management in Nonprofit and GovernmentalOrganizations 162

Educational Institutions 162 & Medical Organizations 163& Governmental Agencies and Departments 163

Strategic Management in Small Firms 164

ASSURANCE OF LEARNING EXERCISES 168Assurance of Learning Exercise 5A: What Strategies ShouldMcDonald’s Pursue in 2011–2013? 168

Assurance of Learning Exercise 5B: Examining Strategy Articles 168

Assurance of Learning Exercise 5C: Classifying Some Year 2009Strategies 169

Assurance of Learning Exercise 5D: How Risky Are VariousAlternative Strategies? 169

Assurance of Learning Exercise 5E: Developing AlternativeStrategies for My University 170

Assurance of Learning Exercise 5F: Lessons in Doing BusinessGlobally 170

Chapter 6Strategy Analysis and Choice 172

APPLE: DOING GREAT IN A WEAK ECONOMY. HOW? 174

The Nature of Strategy Analysis and Choice 175The Process of Generating and Selecting Strategies 175

x CONTENTS

A Comprehensive Strategy-Formulation Framework 176The Input Stage 177The Matching Stage 177

The Strengths-Weaknesses-Opportunities-Threats (SMOT) Matrix178 & The Strategic Position and Action Evaluation (SPACE) Matrix 181 & The Boston Consulting Group (BCG) Matrix 185 &

The Internal-External (IE) Matrix 188 & The Grand Strategy Matrix 191

The Decision Stage 192The Quantitative Strategic Planning Matrix (QSPM) 192& Positive Features and Limitations of the QSPM 195

Cultural Aspects of Strategy Choice 196The Politics of Strategy Choice 196Governance Issues 198

ASSURANCE OF LEARNING EXERCISES 205Assurance of Learning Exercise 6A: Developing a SWOT Matrix forMcDonald’s 205

Assurance of Learning Exercise 6B: Developing a SPACE Matrix forMcDonald’s 205

Assurance of Learning Exercise 6C: Developing a BCG Matrix forMcDonald’s 205

Assurance of Learning Exercise 6D: Developing a QSPM forMcDonald’s 206

Assurance of Learning Exercise 6E: Formulating IndividualStrategies 206

Assurance of Learning Exercise 6F: The Mach Test 206

Assurance of Learning Exercise 6G: Developing a BCG Matrix forMy University 208

Assurance of Learning Exercise 6H: The Role of Boards of Directors 208

Assurance of Learning Exercise 6I: Locating Companies in a GrandStrategy Matrix 209

Part 3Strategy Implementation 210

Chapter 7Implementing Strategies: Management and Operations Issues 210

GOOGLE: DOING GREAT IN A WEAK ECONOMY.HOW? 212

The Nature of Strategy Implementation 213Management Perspectives 214

Annual Objectives 215Policies 217Resource Allocation 219Managing Conflict 220Matching Structure with Strategy 220

The Functional Structure 222 & The Divisional Structure 222& The Strategic Business Unit (SBU) Structure 225 & The MatrixStructure 226 & Some Do’s and Don’ts in DevelopingOrganizational Charts 228

Restructuring, Reengineering, and E-Engineering 229Restructuring 230 & Reengineering 231

Linking Performance and Pay to Strategies 231Managing Resistance to Change 234Creating a Strategy-Supportive Culture 235Production/Operations Concerns When ImplementingStrategies 236Human Resource Concerns When Implementing Strategies 237

Employee Stock Ownership Plans (ESOPs) 239 & Balancing WorkLife and Home Life 240 & Benefits of a Diverse Workforce 242& Corporate Wellness Programs 242

ASSURANCE OF LEARNING EXERCISES 248Assurance of Learning Exercise 7A: Revising McDonald’sOrganizational Chart 248

Assurance of Learning Exercise 7B: Do Organizations ReallyEstablish Objectives? 248

Assurance of Learning Exercise 7C: Understanding My University’sCulture 249

Chapter 8Implementing Strategies: Marketing,Finance/Accounting, R&D, and MIS Issues 250The Nature of Strategy Implementation 252

JOHNSON & JOHNSON (J&J): DOING GREAT IN A WEAKECONOMY. HOW? 252

Current Marketing Issues 253New Principles of Marketing 254 & Advertising Media 256& Purpose-Based Marketing 257

Market Segmentation 257Does the Internet Make Market Segmentation Easier? 259

Product Positioning 260Finance/Accounting Issues 261Acquiring Capital to Implement Strategies 262

New Source of Funding 266 & Projected Financial Statements 266 & Projected Financial Statement for Mattel, Inc. 268 & Financial Budgets 271 & Evaluating the Worth of a Business 273 & Deciding Whether to Go Public 275

Research and Development (R&D) Issues 275Management Information Systems (MIS) Issues 277

ASSURANCE OF LEARNING EXERCISES 282Assurance of Learning Exercise 8A: Developing a Product-Positioning Map for McDonald’s 282

Assurance of Learning Exercise 8B: Performing an EPS/EBITAnalysis for McDonald’s 282

Assurance of Learning Exercise 8C: Preparing Projected FinancialStatements for McDonald’s 282

Assurance of Learning Exercise 8D: Determining the Cash Value ofMcDonald’s 283

Assurance of Learning Exercise 8E: Developing a Product-Positioning Map for My University 283

Assurance of Learning Exercise 8F: Do Banks Require ProjectedFinancial Statements? 283

CONTENTS xi

Part 4Strategy Evaluation 284

Chapter 9Strategy Review, Evaluation, and Control 284

FAMILY DOLLAR STORES: DOING GREAT IN A WEAKECONOMY. HOW? 286

The Nature of Strategy Evaluation 286The Process of Evaluating Strategies 290

A Strategy-Evaluation Framework 290Reviewing Bases of Strategy 290 & Measuring OrganizationalPerformance 292 & Taking Corrective Actions 294

The Balanced Scorecard 295Published Sources of Strategy-Evaluation Information 297Characteristics of an Effective Evaluation System 298Contingency Planning 299Auditing 300Twenty-First-Century Challenges in Strategic Management 301

The Art of Science Issue 301 & The Visible or Hidden Issue 301& The Top-Down or Bottom-Up Approach 302

ASSURANCE OF LEARNING EXERCISES 306Assurance of Learning Exercise 9A: Preparing a Strategy-EvaluationReport for McDonald’s Corp. 306

Assurance of Learning Exercise 9B: Evaluating My University’sStrategies 306

Part 5Key Strategic-Management Topics 308

Chapter 10Business Ethics/Social Responsibility/Environmental Sustainability 308

WALT DISNEY: DOING GREAT IN A WEAK ECONOMY.HOW? 310

Business Ethics 311Code of Business Ethics 312 & An Ethics Culture 313 & Bribes314 & Love Affairs at Work 314

Social Responsibility 315Social Policy 315 & Social Policies on Retirement 316

Environmental Sustainability 317What Is a Sustainability Report? 317 & Lack of StandardsChanging 318 & Obama Regulations 318 & ManagingEnvironmental Affairs in the Firm 319 & Should Students ReceiveEnvironmental Training? 319 & Reasons Why Firms Should “BeGreen” 320 & Be Proactive, Not Reactive 320 & ISO14000/14001 Certification 320 & Electric Car Networks AreComing 321 & The March 2009 Copenhagen Meeting 322

ASSURANCE OF LEARNING EXERCISES 326Assurance of Learning Exercise 10A: Does McDonald’s Have aCode of Business Ethics? 326

Assurance of Learning Exercise 10B: The Ethics of Spying onCompetitors 326

Assurance of Learning Exercise 10C: Who Prepares a SustainabilityReport? 327

Chapter 11Global/International Issues 328

MARRIOTT INTERNATIONAL: DOING GREAT IN A WEAKECONOMY. HOW? 330

Multinational Organizations 331Advantages and Disadvantages of InternationalOperations 332The Global Challenge 333

Globalization 334 & A Weak Economy 335

United States versus Foreign Business Cultures 335The Mexican Culture 337 & The Japanese Culture 338 &

Communication Differences Across Countries 338

Worldwide Tax Rates 339Joint Ventures in India 339

ASSURANCE OF LEARNING EXERCISES 343Assurance of Learning Exercise 11A: McDonald’s Wants to EnterAfrica. Help Them. 343

Assurance of Learning Exercise 11B: Does My University Recruit inForeign Countries? 343

Assurance of Learning Exercise 11C: Assessing Differences inCulture Across Countries 343

Assurance of Learning Exercise 11D: How Well Traveled AreBusiness Students at Your University? 344

Part 6Strategic-Management Case Analysis 346How to Prepare and Present a Case Analysis 346

What Is a Strategic-Management Case? 348Guidelines for Preparing Case Analyses 348

The Need for Practicality 348 & The Need for Justification 348 & The Need for Realism 348 & The Need forSpecificity 349 & The Need for Originality 349 & The Need toContribute 349

Preparing a Case for Class Discussion 349The Case Method versus Lecture Approach 349 & The Cross-Examination 350

Preparing a Written Case Analysis 350The Executive Summary 350 & The Comprehensive WrittenAnalysis 351 & Steps in Preparing a Comprehensive WrittenAnalysis 351

Making an Oral Presentation 351Organizing the Presentation 351 & Controlling Your Voice 352 & Managing Body Language 352 & Speaking fromNotes 352 & Constructing Visual Aids 352 & AnsweringQuestions 353 & Tips for Success in Case Analysis 353 &

Content Tips 353 & Process Tips 354 & Sample Case AnalysisOutline 355

xii CONTENTS

STEPS IN PRESENTING AN ORAL CASE ANALYSIS 356Oral Presentation—Step 1: Introduction (2 minutes) 356Oral Presentation—Step 2: Mission/Vision (4 minutes) 356Oral Presentation—Step 3: Internal Assessment (8 minutes) 356Oral Presentation—Step 4: External Assessment (8 minutes) 357Oral Presentation—Step 5: Strategy Formulation (14 minutes) 357

Oral Presentation—Step 6: Strategy Implementation (8 minutes) 357Oral Presentation—Step 7: Strategy Evaluation (2 minutes) 358Oral Presentation—Step 8: Conclusion (4 minutes) 358

Name Index 359

Subject Index 363

CONTENTS xiii

xiv CONTENTS

Cases

HOSPITALITY/ENTERTAINMENT1. Walt Disney Company — 2009, Mernoush Banton 1

2. Merryland Amusement Park — 2009, Gregory Stone 14

AIRLINES3. JetBlue Airways Corporation — 2009, Mernoush Banton 26

4. AirTran Airways, Inc. — 2009, Charles M. Byles 37

RETAIL STORES5. Family Dollar Stores, Inc. — 2009, Joseph W. Leonard 50

6. Wal-Mart Stores, Inc. — 2009, Amit J. Shah and Michael L. Monahanat 59

7. Whole Foods Market, Inc. — 2009, James L. Harbin and Patricia Humphrey 73

8. Macy’s, Inc. — 2009, Rochelle R. Brunson and Marlene M. Reed 83

INTERNET BASED9. Yahoo! Inc. — 2009, Hamid Kazeroony 91

10. eBay Inc. — 2009, Lori Radulovich 99

FINANCIAL11. Wells Fargo Corporation — 2009, Donald L. Crooks, Robert S. Goodman,

and John Burbridge 111

RESTAURANTS12. Krispy Kreme Doughnuts (KKD) — 2009, John Burbridge and

Coleman Rich 120

13. Starbucks Corporation — 2009, Sharynn Tomlin 129

NONPROFIT14. The United States Postal Service (USPS) — 2009, Fred and

Forest David 138

15. National Railroad Passenger Corporation (AMTRAK) — 2009,Kristopher J. Blanchard 150

16. Goodwill of San Francisco, San Mateo and Marin Counties — 2009,Mary E. Vradelis 158

TRANSPORTATION17. Harley-Davidson, Inc. — 2009, Carol Pope and Joanne Mack 166

18. Ford Motor Company — 2009, Alen Badal 176

FOOD19. Kraft Foods Inc. — 2009, Kristopher J. Blanchard 184

20. Hershey Company — 2009, Anne Walsh and Ellen Mansfield 192

PERSONAL CARE21. Johnson & Johnson — 2009, Sharynn Tomlin, Matt Milhauser,

Bernhard Gierke, Thibault Lefebvre, and Mario Martinez 201

22. Avon Products Inc. — 2009, Rochelle R. Brunson and Marlene M. Reed 212

BEVERAGE23. Molson Coors — 2009, Amit J. Shah 220

24. PepsiCo — 2009, John and Sherry Ross 232

CONTENTS xv

HEALTH CARE25. Pfizer, Inc. — 2009, Vijaya Narapareddy 243

26. Merck & Company Inc. — 2010, Mernoush Banton 252

SPORTS27. Nike, Inc. — 2010, Randy Harris 261

28. Callaway Golf Company — 2009, Amit J. Shah 272

ENERGY29. Chevron Corporation — 2009, Linda Herkenhoff 282

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Preface

Why the Need for This New Edition?The global economic recession has created a business world today that is quite differentand more complex than it was just two years ago when the previous edition of this textwas published. Thousands of businesses have vanished, and consumers have becomeextremely price sensitive and oftentimes reluctant purchasers of products and services.Very tight credit markets, high unemployment, and millions of new entrepreneurs havealso changed the business landscape. Business firms that have survived the last threeyears of global economic turmoil are today leaner and meaner than ever before.Gaining and sustaining competitive advantage is harder than ever. Social networkingand e-commerce have altered marketing to its core since the prior edition. This new edi-tion reveals how to conduct effective strategic planning in this new world order.

Since the prior edition, thousands of liquidations, bankruptcies, divestitures, merg-ers, alliances, and partnerships captured the news. Corporate scandals highlighted theneed for improved business ethics and corporate disclosure of financial transactions.Downsizing, rightsizing, and reengineering contributed to a permanently altered corpo-rate landscape. Thousands of firms began doing business globally, and thousands moreclosed their global operations. Thousands prospered, and yet thousands failed in the lasttwo years as the global recession spared few. Long-held competitive advantages haveeroded as new ones formed. This new edition captures the complexity of this world busi-ness environment.

Both the challenges and opportunities facing organizations of all sizes today aregreater than ever. There is less room than ever for error in the formulation and imple-mentation of a strategic plan. This new edition provides a systematic effective approachfor developing a clear strategic plan, even in the worst of times. Changes made in thisedition are aimed squarely at illustrating the effect of new business concepts and tech-niques on strategic-management theory and practice.

Due to the magnitude of recent changes affecting companies, cultures, and countries,every page of this edition has been updated. The first edition of this text was published in1986. Since then, this textbook has grown to be one of the most widely read strategic-management books, perhaps the most widely read, in the world. This text is now publishedin nine languages.

What Is New in This Edition?This edition includes exciting new features, changes, and content designed to position thistext as the clear leader and best choice for teaching strategic management. Here is a sum-mary of what is new in this edition:

• A new Chapter 10, “Business Ethics/Social Responsibility/EnvironmentalSustainability”; there is extensive new coverage of ethics and sustainability because thistext emphasizes that “good ethics is good business.” Unique to strategic-managementtexts, the natural environment discussion is strengthened in this edition to promote andencourage firms to conduct operations in an environmentally sound manner. Respect forthe natural environment has become an important concern for consumers, companies,society, and AACSB-International.

• A new Chapter 11, “Global/International Issues”; there is extensive new coverageof cultural and conceptual strategic-management differences across countries.Doing business globally has become a necessity, rather than a luxury in mostindustries because nearly all strategic decisions today are affected by global

issues and concerns. Every case company in this edition does business globally,providing students ample opportunity to evaluate and consider internationalaspects of doing business.

• A new boxed insert at the beginning of each chapter showcases a company that hasdone exceptionally well in the 2008–2010 global economic recession and reveals theirstrategy.

• Hundreds of new examples abound in every chapter.• A new cohesion case on McDonald’s Corporation (2010); this is one of the most

successful, well-known, and best managed global companies in the world; studentsapply strategy concepts to McDonald’s at the end of each chapter through newAssurance of Learning Exercises.

• Thirty-two new tables in the chapters to better capture key strategic-managementconcepts.

• A revised comprehensive strategic management model to reflect the new chapters.• Extensive new narrative on strategic management theory and concepts in every

chapter to illustrate the new business world order.• On average, 15 new review questions at the end of each chapter.• Forty-eight new Assurance of Learning Exercises at the end of chapters that apply

chapter concepts; the exercises prepare students for strategic-management caseanalysis.

• Twenty-four new color photographs bring the edition to life and illustratecompanies/concepts.

• All new current readings at the end of each chapter; new research and theories ofseminal thinkers in strategy development, such as Ansoff, Chandler, Porter,Hamel, Prahalad, Mintzberg, and Barney are provided in the chapters; practicalaspects of strategic management, however, are still center stage and the trademarkof this text below.

• Twenty-nine new cases—grouped by industry; great mix of profit/nonprofit,large/small, and manufacturing/service organizations; all the cases have a2009–2010 time setting; all the cases are “comprehensive” in the sense that eachfocuses on multiple business functions, rather than addressing one particular busi-ness problem or issue; all the cases are undisguised and feature real organizationsin real industries using real names and real places (nothing is fictitious in anycase); all the cases feature an organization “undergoing strategic change,” thusoffering students up-to-date issues to evaluate and consider; all the cases arewritten in a lively, concise writing style that captures the reader’s interest andestablishes a time setting, usually in the opening paragraph; all the cases provideexcellent quantitative information such as numbers, ratios, percentages, dollar val-ues, graphs, statistics, and maps so students can prepare a more specific, rational,and defensible strategic plan for the organization; all the cases provide excellentinformation about the industry and competitors.

This edition continues to offer many special time-tested features and content that havemade this text so successful for over 20 years. Historical trademarks of this text that arestrengthened in this edition are described below.

Chapters: Time-Tested Features• This text meets AACSB-International guidelines that support a practitioner orien-

tation rather than a theory/research approach. It offers a skills-oriented approachto developing a vision and mission statement; performing an external audit; con-ducting an internal assessment; and formulating, implementing, and evaluatingstrategies.

• The author’s writing style is concise, conversational, interesting, logical, lively, andsupported by numerous current examples throughout.

xviii PREFACE

• A simple, integrative strategic-management model appears in all chapters and on theinside front cover of the text. This model is widely used for strategic planningamong consultants and companies worldwide. One reviewer said, “One thing I haveadmired about David’s text is that he follows the fundamental sequence of strategyformulation, implementation, and evaluation. There is a basic flow frommission/purposes to internal/external environmental scanning to strategy develop-ment, selection, implementation, and evaluation. This has been, and continues to be,a hallmark of the David text. Many other strategy texts are more disjointed in theirpresentation, and thus confusing to the student, especially at the undergraduatelevel.”

• A Cohesion Case follows Chapter 1 and is revisited at the end of each chapter. ThisCohesion Case allows students to apply strategic-management concepts and tech-niques to a real organization as chapter material is covered, which readies studentsfor case analysis in the course.

• End-of-chapter Assurance of Learning Exercises effectively apply conceptsand techniques in a challenging, meaningful, and enjoyable manner. Eighteenexercises apply text material to the Cohesion Case; 10 apply textual material toa college or university; another 10 exercises send students into the business worldto explore important strategy topics. The exercises are relevant, interesting, andcontemporary.

• There is excellent pedagogy in this text, including notable quotes and objectives toopen each chapter, and key terms, current readings, discussion questions, and experi-ential exercises to close each chapter.

• There is excellent coverage of strategy formulation issues, such as business ethics,global versus domestic operations, vision/mission, matrix analysis, partnering, jointventuring, competitive analysis, governance, and guidelines for conducting aninternal/external strategy assessment.

• There is excellent coverage of strategy implementation issues such as corporateculture, organizational structure, outsourcing, marketing concepts, financial analysis,and business ethics.

• A systematic, analytical approach is presented in Chapter 6, including matrices suchas the SWOT, BCG, IE, GRAND, SPACE, and QSPM.

• The chapter material is again published in a four-color format.• A chapters-only paperback version of the text is available.• Custom-case publishing is available whereby an instructor can combine chapters

from this text with cases from a variety of sources or select any number of casesdesired from the 29 cases in the full text.

• For the chapter material, the outstanding ancillary package includes a comprehensiveInstructor’s Manual, computerized test bank, and PowerPoints.

*The comprehensive strategic-management model is displayed on the inside front coverof the text. At the start of each chapter, the section of the comprehensive strategy modelcovered in that chapter is highlighted and enlarged so students can see the focus of eachchapter in the basic unifying comprehensive model.*The Case Information Matrix and Case Description Matrix provided in the preface reveal(1) topical areas emphasized in each case and (2) contact and location information for eachcase company. These matrices provide suggestions on how the cases deal with concepts inthe 11 chapters.

Cases: Time-Tested Features• This edition contains the most current set of cases in any strategic-management

text on the market. All cases include year-end 2009 financial data andinformation.

• The cases focus on well-known firms in the news making strategic changes. Allcases are undisguised, and most are exclusively written for this text to reflect

PREFACE xix

xx PREFACE

current strategic-management problems and practices. These are all “student-friendly” cases.

• Organized conveniently by industry (usually two competing firms per industry),the cases feature a great mix of small business, international, and not-for-profitfirms.

• All cases have been class tested to ensure that they are interesting, challenging, andeffective for illustrating strategic-management concepts.

• All the cases provide complete financial information about the firm, as well as anorganizational chart and a vision and mission statement for the organization if thosewere available.

• Customized inclusion of cases to comprise a tailored text is available to meet the spe-cial needs of some professors.

• For the cases, the outstanding ancillary package includes an elaborate Case SolutionsManual and support from the www.strategyclub.com Web site.

• All of the cases are comprehensive in the sense that each provides a full descriptionof the firm and its operations rather than focusing on one issue or problem such as aplant closing. Each case thus lends itself to students preparing a three-year strategicplan for the firm.

Special Note to StudentsWelcome to strategic management. This is a challenging and exciting capstone course thatwill allow you to function as the owner or chief executive officer of different organizations.Your major task in this course will be to make strategic decisions and to justify those deci-sions through oral and written communication. Strategic decisions determine the futuredirection and competitive position of an enterprise for a long time. Decisions to expandgeographically or to diversify are examples of strategic decisions.

Strategic decision-making occurs in all types and sizes of organizations, from Exxonand IBM to a small hardware store or small college. Many people’s lives and jobs areaffected by strategic decisions, so the stakes are very high. An organization’s very survivalis often at stake. The overall importance of strategic decisions makes this course especiallyexciting and challenging. You will be called upon in this course to demonstrate how yourstrategic decisions could be successfully implemented.

In this course, you can look forward to making strategic decisions both as an individ-ual and as a member of a team. No matter how hard employees work, an organization is inreal trouble if strategic decisions are not made effectively. Doing the right things (effec-tiveness) is more important than doing things right (efficiency). For example, manyAmerican newspapers are faltering as consumers increasingly switch to interactive mediafor news.

You will have the opportunity in this course to make actual strategic decisions,perhaps for the first time in your academic career. Do not hesitate to take a stand anddefend specific strategies that you determine to be the best, based on tools and concepts inthis textbook. The rationale for your strategic decisions will be more important than theactual decision, because no one knows for sure what the best strategy is for a particularorganization at a given point in time. This fact accents the subjective, contingency natureof the strategic-management process.

Use the concepts and tools presented in this text, coupled with your own intuition, torecommend strategies that you can defend as being most appropriate for the organizationsthat you study. You will also need to integrate knowledge acquired in previous businesscourses. For this reason, strategic management is often called a capstone course; you maywant to keep this book for your personal library.

A trademark of this text is its practitioner and applications orientation. This book pre-sents techniques and content that will enable you to actually formulate, implement, and

evaluate strategies in all kinds of profit and nonprofit organizations. The end-of-chapterAssurance of Learning Exercises allow you to apply what you’ve read in each chapter tothe new McDonald’s Cohesion Case and to your own university.

Definitely visit the Strategic Management Club Online at www.strategyclub.com. Thetemplates and links there will save you time in performing analyses and will make yourwork look professional. Work hard in this course and have fun. Good luck!

PREFACE xxi

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Acknowledgments

Many persons have contributed time, energy, ideas, and suggestions for improving this textover 12 editions. The strength of this text is largely attributed to the collective wisdom,work, and experiences of strategic-management professors, researchers, students, andpractitioners. Names of particular individuals whose published research is referenced inthis edition of this text are listed alphabetically in the Name Index. To all individualsinvolved in making this text so popular and successful, I am indebted and thankful.

Many special persons and reviewers contributed valuable material and suggestions forthis edition. I would like to thank my colleagues and friends at Auburn University,Mississippi State University, East Carolina University, and Francis Marion University. I haveserved on the management faculty at all these universities. Scores of students and professorsat these schools helped shape the development of this text. Many thanks go to the following15 reviewers of the prior edition whose comments shaped this thirteenth edition:

Moses Acquaah, The University of North Carolina at Greensboro

Charles M. Byles, Virginia Commonwealth University

Charles J. Capps III, Sam Houston State University

Neil Dworkin, Western Connecticut State University

John Frankenstein, Brooklyn College/City University of New York

Bill W. Godair, Landmark College, Community College of Vermont

Carol Jacobson, Purdue University

Susan M. Jensen, University of Nebraska at Kearney

Thomas E. Kulik, Washington University at St. Louis

Jerrold K. Leong, Oklahoma State University

Trina Lynch-Jackson, Indiana University NW, Purdue Calumet, Calumet College of St. Joseph, Indiana Wesleyan University

Raza Mir, William Paterson University

Thomas W. Sharkey, University of Toledo

Jill Lynn Vihtelic, Saint Mary’s College

Michael W. Wakefield, Colorado State University–Pueblo

Individuals who develop cases for the North American Case Research AssociationMeeting, the Midwest Society for Case Research Meeting, the Eastern Case WritersAssociation Meeting, the European Case Research Association Meeting, and HarvardCase Services are vitally important for continued progress in the field of strategic manage-ment. From a research perspective, writing strategic management cases represents a valu-able scholarly activity among faculty. Extensive research is required to structure businesspolicy cases in a way that exposes strategic issues, decisions, and behavior. Pedagogically,strategic management cases are essential for students in learning how to apply concepts,evaluate situations, formulate a “game plan,” and resolve implementation problems.Without a continuous stream of updated business policy cases, the strategic-managementcourse and discipline would lose much of its energy and excitement.

Professors who teach this course supplement lecture with simulations, guest speakers,experiential exercises, class projects, and/or outside readings. Case analysis, however, istypically the backbone of the learning process in most strategic-management coursesacross the country. Case analysis is almost always an integral part of this course.

Analyzing strategic-management cases gives students the opportunity to work inteams to evaluate the internal operations and external issues facing various organizationsand to craft strategies that can lead these firms to success. Working in teams gives studentspractical experience solving problems as part of a group. In the business world, importantdecisions are generally made within groups; strategic-management students learn to deal

with overly aggressive group members and also timid, noncontributing group members.This experience is valuable as strategic-management students near graduation and soonenter the working world a full time.

Students can improve their oral and written communication skills as well as their ana-lytical and interpersonal skills by proposing and defending particular courses of action forthe case companies. Analyzing cases allows students to view a company, its competitors,and its industry concurrently, thus simulating the complex business world. Through caseanalysis, students learn how to apply concepts, evaluate situations, formulate strategies, andresolve implementation problems. Instructors typically ask students to prepare a three-yearstrategic plan for the firm. Analyzing a strategic-management case entails students applyingconcepts learned across their entire business curriculum. Students gain experience dealingwith a wide range of organizational problems that impact all the business functions.

The following people wrote cases that were selected for inclusion in this thirteenthedition. These persons helped develop the most current compilation of cases ever assem-bled in a strategic-management text:

Dr. Alen Badal, The Union Institute

Dr. Mernoush Banton, Florida International University

Dr. Rochelle R. Brunson, Baylor University

Dr. John J. Burbridge, Elon University

Dr. Charles M. Byles, Virginia Commonwealth University

Dr. Donald Crooks, Wagner College

Forest R. David, MBA, Francis Marion University

Dr. James Harbin, Texas A&M University–Texarkana

Dr. Randall D. Harris, California State University–Stanislaus

Dr. Linda Herkenhoff, Saint Mary’s College

Dr. Patricia Humphrey, Texas A&M University–Texarkana

Dr. Hamid H. Kazeroony, William Penn University

Dr. Joe W. Leonard, Miami University

Dr. Joanne Mack, Alverno College

Dr. Ellen Mansfield, La Salle University

Dr. Vijaya Narapareddy, University of Denver

Dr. Carol V. Pope, Alverno College

Dr. Lori Radulovich, Baldwin-Wallace College

Dr. John Ross III, Southwest Texas State University–San Marcos

Sherry Ross, Southwest Texas State University–San Marcos

Dr. Amit J. Shah, Frostburg State University

Dr. Greg Stone, Regent University

Dr. Sharynn M. Tomlin, Angelo State University

Mary Vradelis, Consultant in Berkeley, California

Dr. Anne M. Walsh, La Salle University

Scores of Prentice Hall employees and salespersons have worked diligently behind thescenes to make this text a leader in strategic management. I appreciate the continued hardwork of all those professionals, such as Sally Yagan, Kim Norbuta, Claudia Fernandes,Ann Pulido, and Ana Jankowski.

I also want to thank you, the reader, for investing the time and effort to read and studythis text. It will help you formulate, implement, and evaluate strategies for any organiza-tion with which you become associated. I hope you come to share my enthusiasm for therich subject area of strategic management and for the systematic learning approach takenin this text.

xxiv ACKNOWLEDGMENTS

Finally, I want to welcome and invite your suggestions, ideas, thoughts, comments,and questions regarding any part of this text or the ancillary materials. Please call me at910-612-5343, fax me at 910-579-5132, e-mail me at freddavid9@gmail.com, or write meat the School of Business, Francis Marion University, Florence, SC 29501. I sincerelyappreciate and need your input to continually improve this text in future editions. Yourwillingness to draw my attention to specific errors or deficiencies in coverage or expositionwill especially be appreciated.

Thank you for using this text.

Fred R. David

ACKNOWLEDGMENTS xxv

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About the Author

Dr. Fred R. David is the sole author of two mainstream strategic-management textbooks: (1) Strategic Management: Concepts andCases, and (2) Strategic-Management Concepts. These texts have beenon a two-year revision cycle since 1986 when the first edition was pub-lished. They are among the best if not the best-selling strategic-management textbooks in the world and have been used at more than500 colleges and universities, including Harvard University, DukeUniversity, Carnegie-Mellon University, Johns Hopkins University, theUniversity of Maryland, University of North Carolina, University ofGeorgia, San Francisco State University, University of South Carolina,and Wake Forest University.

This textbook has been translated and published in Chinese,Japanese, Farsi, Spanish, Indonesian, Indian, Thai, and Arabic and iswidely used across Asia and South America. It is the best-sellingstrategic-management textbook in Mexico, China, Peru, Chile, Japan, and number two inthe United States. Approximately 90,000 students read Dr. David’s textbook annually aswell as thousands of businesspersons. The book has led the field of strategic manage-ment for more than a decade in providing an applications/practitioner approach to thediscipline.

A native of Whiteville, North Carolina, Fred David received a BS degree in mathe-matics and an MBA from Wake Forest University before being employed as a bankmanager with United Carolina Bank. He received a PhD in Business Administrationfrom the University of South Carolina, where he majored in management. Currently theTranSouth Professor of Strategic Management at Francis Marion University (FMU) inFlorence, South Carolina, Dr. David has also taught at Auburn University, MississippiState University, East Carolina University, the University of South Carolina, and theUniversity of North Carolina at Pembroke. He is the author of 152 referred publications,including 40 journal articles and 55 proceedings publications. David has articles pub-lished in such journals as Academy of Management Review, Academy of ManagementExecutive, Journal of Applied Psychology, Long Range Planning, and AdvancedManagement Journal.

Dr. David received a Lifetime Honorary Professorship Award from the UniversidadRicardo Palma in Lima, Peru. He delivered the keynote speech at the twenty-first AnnualLatin American Congress on Strategy hosted by the Centrum School of Business inPeru. Dr. David recently delivered an eight-hour Strategic Planning Workshop to thefaculty at Pontificia Universidad Catolica Del in Lima, Peru, and an eight-hour CaseWriting/ Analyzing Workshop to the faculty at Utah Valley State College in Orem,Utah. He has received numerous awards, including FMU’s Board of Trustees ResearchScholar Award, the university’s Award for Excellence in Research given annually to thebest faculty researcher on campus, and the Phil Carroll Advancement of ManagementAward, given annually by the Society for the Advancement of Management (SAM) to amanagement scholar for outstanding contributions in management research. He recentlygave the graduation commencement speech at Troy University.

xxviii CASE COMPANY INFORMATION MATRIX

Case Information Matrix

Case Company Stock Symbol Headquarters Web Site Address #Employees

2008Revenuesin $millions

Cohesion Case

McDonald’s Corp. MCD Oak Brook, IL www.mcdonalds.com 400,000 23,522

SERVICE FIRMS

Hospitality/Entertainment

1. Walt Disney Co. DIS Burbank, CA www.disney.com 150,000 37,843

2. Merryland Amusement Park

Kansas City, MO 100 0.890

Airlines

3. JetBlue Airways JBLU Forest Hills, NY www.jetblue.com 10,047 3,388

4. AirTran Airways AAI Orlando, FL www.airtran.com 7,850 2,552

Retail Stores

5. Family Dollar Stores FDO Charlotte, NC www.familydollar.com 25,000 6,983

6. Wal-Mart Stores WMT Bentonville, AR www.walmartstores.com 2.1M 405,607

7. Whole Foods Market WFMI Austin, TX www.wholefoodsmarket.com 46,800 7,953

8. Macy’s M Cincinnati, Ohio www.macysinc.com 167,000 24,892

Internet Based

9. Yahoo YHOO Sunnyvale, CA www.yahoo.com 13,600 7,208

10. eBay Inc. EBAY San Jose, CA www.ebay.com 16,200 8,541

Financial

11. Wells Fargo WFC San Francisco, CA www.wellsfargo.com 272,800 52,389

Restaurants

12. Krispy Kreme KKD Winston-Salem, NC www.krispykreme.com 2,700 383

13. Starbucks Corporation SBUX Seattle, WA www.starbucks.com 176,000 10,383

Nonprofit14. The United States

Postal Service -Washington, DC www.usps.com 764,000 75,000

15. Amtrak (NRPC) - Washington, DC www.amtrak.com 19,000 2,400

16. Goodwill Industries San Francisco, CA of San Francisco, San Mateo and Marin Counties

www.sfgoodwill.org/storeLocations2.aspx

500 28.1

MANUFACTURING

Transportation

17. Harley-Davidson HOG Milwaukee, WI www.harlety-davidson.com 10,100 5,971

18. Ford Motor FORD Dearborn, MI www.ford.com 213,000 146,277

Food

19. Kraft Foods KFT Norfield, IL www.kraft.com 98,000 42,201

20. Hershey Foods HSY Hershey, PA www.hersheys.com 12,800 5,132

(continued)