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STRATEGY FORMULATIONAND IMPLEMENTATIONManager’s challengeHow did a struggling regional chain of stores overtake the giant of consumerElectronics retailing? Circuit City expanded the big-box warehouse concept toConsumer electronics in the 1980s and quickly became the place to go for Televisions and stereos. A strategy of locating stores in lower-priced second-tier shopping areas paid off because customers were willing to drive the extraMile for the wide selection, low prices, and terrific customer service. Circuit City easily sidesteppedthe competition and grew rapidly. As recently as 1999, the chain was the800-pound gorilla of the industry. Yet, within only a couple of years, Circuit Cityhad practically been overrun by Best Buy, which raced past the leader to becomethe nation’s Number 1 consumer electronics store in 2001. By early 2005, Best BuyHad 608 stores compared to Circuit City’s 599 and nearly $25 billion in revenuecompared to Circuit City’s $9.7 billion. Since then, Best Buy has continued toExpand its yellow-tag logo adorning more than 900 spacious stores located inhigh-traffic areas and stocked with the latest in consumer electronics. Circuit Cityis now ranked at Number 3, behind Best Buy and Wal-Mart. What went wrong?The differing fates of Circuit City and Best Buy can be attributed to corporatestrategy. After struggling to turn things around, longtime CEO Allen McCulloughresigned and was recently replaced by Philip Schoonover, who was lured awayfrom competitor Best Buy.1

How did managers at Best Buy formulate and implement strategies that helpedthe company overtake a large, sophisticated chain like Circuit City? If you werethe new CEO of Circuit City, what strategies might you adopt to help the companyregain a competitive edge?

The story of Circuit City and Best Buy illustrates the importance of strategicplanning. Managers at Best Buy formulated and implemented strategies that madethe chain the player to beat in consumer electronics retailing, while Circuit Citymanagers failed to respond to increased competition and changing customer expectations.Top managers are analyzing the situation and considering strategies thatcan ignite growth and revive the company.Every company is concerned with strategy. Genentech grew into a biotech powerhouse,with a 42 percent increase in sales and a 72 percent increase in earnings in2005, based on a strategy of concentrating resources on scientific research thataddresses the largest unmet medical needs.2 McDonald’s devised a new strategy ofdownsizing its menu items and adding healthier products in response to changes inthe environment. Supersize french fries and soft drinks were eliminated in favor offresh salads and low-fat items to counter public accusations that the fast-food iconwas responsible for Americans’ expanding waistlines and growing health problems.In the auto industry, PSA Peugeot Citroën SA adopted a strategy of being afierce product innovator, coming out with 25 new models within a three-year periodStrategic blunders can hurt a company. For example, Mattel suffered inrecent years by losing sight of its core business and trying to compete as a maker of

computer games. Kodak stumbled by failing to plan for the rapid growth of digitalphotography, assuming sales of film and paper would stay strong for years to come.Between 2001 and 2005, Kodak’s earnings dropped about 60 percent as interest infilm-photography tanked.3Managers at Mattel, McDonald’s, Kodak, and Peugeot are all involved in strategicmanagement. They are finding ways to respond to competitors, cope with difficultenvironmental changes, meet changing customer needs, and effectively useavailable resources. Research has shown that strategic thinking and planning positivelyaffects a firm’s performance and financial success.4 Strategic planning hastaken on new importance in today’s world of globalization, deregulation, advancingtechnology, and changing demographics and lifestyles. Managers are responsiblefor positioning their organizations for success in a world that is constantlychanging. Today’s top companies thrive by changing the rules of an industry totheir advantage or by creating entirely new industries.5 For example, when LindsayOwens-Jones was running L’Oreal’s U.S. division in the early 1980s, he was told bycolleagues that European brands such as Lancôme could never compete with establishedU.S. brands. Owens-Jones refused to accept that, and his strategic decisionschanged the whole face of U.S. cosmetics counters. Today, as CEO, Owens-Jones isaggressively promoting L’Oreal’s brands globally, gaining huge market share inAsia, Africa, and other parts of the world.6In this chapter, we focus on the topic of strategic management. First we definecomponents of strategic management and then discuss a model of thestrategic management process. Next we examine several models of strategyformulation. Finally, we will discuss the tools managers use to implement theirstrategic plans.

Thinking strategicallyChapter 7 provided an overview of the types of goalsand plans that organizations use. In this chapter, we willexplore strategic management, which is consideredone specific type of planning. Strategic planning in forprofitbusiness organizations typically pertains to competitiveactions in the marketplace. In nonprofit organizationssuch as the Red Cross or The Salvation Army,strategic planning pertains to events in the external environment.The final responsibility for strategy restswith top managers and the chief executive. For an organizationto succeed, the CEO must be actively involvedin making the tough choices and trade-offs that defineand support strategy.7 However, senior executives atsuch companies as General Electric, 3M, and Johnson &Johnson want middle- and low-level managers to thinkstrategically. Some companies also are finding ways toget front-line workers involved in strategic thinkingand planning.Strategic thinking means to take the long-term viewand to see the big picture, including the organizationand the competitive environment, and to consider howthey fit together. Understanding the strategy concept,the levels of strategy, and strategy formulation versusimplementation is an important start toward strategicthinking.

As a potential new manager, practice thinking strategically by studying your department’sor your organization’s environment, market, and competitors. Thinkabout what the long-term future might hold and how you think the company can best be positioned to stay competitive.

What Is Strategic Management?

Strategic management is the set of decisions and actions used to formulate and implementstrategies that will provide a competitively superior fit between the organizationand its environment so as to achieve organizational goals.8 Managers askquestions such as, “What changes and trends are occurring in the competitive environment?Who are our competitors and what are their strengths and weaknesses?Who are our customers? What products or services should we offer, and how canwe offer them most efficiently? What does the future hold for our industry, and howcan we change the rules of the game?” Answers to these questions help managersmake choices about how to position their organizations in the environment with respectto rival companies.9 Superior organizational performance is not a matter ofluck. It is determined by the choices that managers make. Top executives use strategicmanagement to define an overall direction for the organization, which is thefirm’s grand strategy.

Grand StrategyGrand strategy is the general plan of major action by which a firm intends toachieve its long-term goals.10 Grand strategies fall into three general categories:growth, stability, and retrenchment. A separate grand strategy can also be definedfor global operations.Go to the ethical dilemma on page 265 that pertains to corporate grandstrategy.

Growth

Growth can be promoted internally by investingin expansion or externally by acquiringadditional business divisions. Internal growthcan include development of new or changedproducts, such as Motorola’s Razr mobilephone and Toyota’s hybrid Camry sedan, orexpansion of current products into new markets,such as Avon’s selling of products inmall kiosks. External growth typically involvesdiversification, which means the acquisitionof businesses that are related to currentproduct lines or that take the corporation intonew areas, such as Procter & Gamble’s purchaseof Iams Company, which makes Iamsand Eukanuba pet foods, and Gillette Company,which makes the Mach 3 and Fusionrazors.11 The number of companies choosingto grow through merger and acquisition inrecent years has been astounding, as organizations

strive to acquire the size and resourcesto compete on a global scale, to investgrand strategy The generalplan of major action by whichan organization intends toachieve its long-term goals.239in new technology, and to control distribution channels and guarantee access to markets.For example, Citibank and Travelers merged to form Citigroup, which thenacquired Sears’ credit card portfolio. Boeing Co. acquired McDonnell Douglas, tomove more aggressively into defense contracting, and Hughes Electronics Corp.’sSpace & Communications Division to tap into growth opportunities in space travel.12

Stability

Stability, sometimes called a pause strategy, means that the organization wants toremain the same size or grow slowly and in a controlled fashion. The corporationwants to stay in its current business, such as Allied Tire Stores, whose motto is, “Wejust sell tires.” After organizations have undergone a turbulent period of rapidgrowth, executives often focus on a stability strategy to integrate strategic businessunits and ensure that the organization is working efficiently. Mattel is currentlypursuing a stability strategy to recover from former CEO Jill Barad’s years of bigacquisitions and new businesses. The current top executive is seeking only modestnew ventures to get Mattel on a slower-growth, more stable course.13

Retrenchment

Retrenchment means that the organization goes through a period of forced decline byeither shrinking current business units or selling off or liquidating entire businesses.The organization may have experienced a precipitous drop in demand for its productsor services, prompting managers to order across-the-board cuts in personneland expenditures. For example, Kodak laid off 12,000 workers when the bottomdropped out of the film photography business. As troubles deepened at GeneralMotors, managers terminated thousands of employees, closed plants to kill off excesscapacity, and put the corporation’s finance subsidiary up for sale.14 Managersoften use a period of retrenchment to stabilize a company and attempt to restoreprofitability and competitiveness.Liquidation means selling off a business unit for the cash value of the assets, thusterminating its existence. An example is the liquidation of Minnie Pearl FriedChicken. Divestiture involves the selling off of businesses that no longer seem centralto the corporation. JCPenney sold its Eckerd chain of drugstores to focus on thecorporation’s core business of department stores and Internet and catalog sales.Studies show that between 33 percent and 50 percent of all acquisitions are later divested.When Figgies International Inc. sold 15 of its 22 business divisions, includingcrown jewel Rawlings Sporting Goods, and when Italy’s Fiat sold its aerospaceunit, both corporations were going through periods of retrenchment, also calleddownsizing.15

Global StrategyIn addition to the three preceding alternatives—growth, stability, and retrenchment—companies may pursue a separate grand strategy as the focus of global business. Intoday’s global corporations, senior executives try to formulate coherent strategies toprovide synergy among worldwide operations for the purpose of fulfilling commongoals. Asystematic strategic planning process for deciding on the appropriate strategic

alternative should be used. The grand strategy of growth is a major motivation forboth small and large businesses going international. Each country or region representsa new market with the promise of increased sales and profits.In the international arena, companies face a strategic dilemma between globalintegration and national responsiveness. The various global strategies are shown inExhibit 8.1. Recall from Chapter 4 that the first step toward a greater internationalpresence is when companies begin exporting domestically produced products toselected countries. Because the organization is domestically focused, with only afew exports, managers have little need to pay attention to issues of either local

responsiveness or global integration. Organizations that pursue further internationalexpansion must decide whether they want each global affiliate to act autonomouslyor whether activities should be standardized and centralized across countries. Thischoice leads managers to select a basic grand strategy alternative such as globalizationversus multidomestic strategy. Some corporations may seek to achieve bothglobal integration and national responsiveness by using a transnational strategy.

Globalization

When an organization chooses a strategy of globalization, it means that its productdesign and advertising strategies are standardized throughout the world.16 Thisapproach is based on the assumption that a single global market exists for many consumerand industrial products. The theory is that people everywhere want to buy thesame products and live the same way. People everywhere want to drink Coca-Colaand eat McDonald’s hamburgers.17Aglobalization strategy can help an organizationreap efficiencies by standardizing product design and manufacturing, using commonsuppliers, introducing products around the world faster, coordinating prices,and eliminating overlapping facilities. For example, Gillette Company has large productionfacilities that use common suppliers and processes to manufacture productswhose technical specifications are standardized around the world.18

Globalization enables marketing departments alone to save millions of dollars.One consumer products company reports that, for every country where the same commercial

runs, the company saves $1 million to $2 million in production costs alone.More millions have been saved by standardizing the look and packaging of brands.19

Multidomestic Strategy

When an organization chooses a multidomestic strategy, it means that competitionin each country is handled independently of industry competition in other countries.Thus, a multinational company is present in many countries, but it encourages marketing,advertising, and product design to be modified and adapted to the specificneeds of each country.20 Many companies reject the idea of a single global market They have found that the French do notdrink orange juice for breakfast, thatlaundry detergent is used to wash dishesin parts of Mexico, and that people in theMiddle East prefer toothpaste that tastesspicy. Service companies also have tocarefully consider their global strategy.The 7-Eleven convenience store chainuses a multidomestic strategy becausethe product mix, advertising approach,and payment methods need to be tailoredto the preferences, values, and governmentregulations in different parts ofthe world. For example, credit card use israre in Japan and Germany. In Japan, customerslike to use convenience stores topay utility and other bills. 7-Eleven Japanalso set up a way for people to pick upand pay for purchases made over theInternet at their local 7-Elevens.21

Transnational StrategyA transnational strategy seeks toachieve both global integration and nationalresponsiveness.22 A true transnationalstrategy is difficult to achieve, because one goal requires close global coordinationwhile the other goal requires local flexibility. However, many industries arefinding that, although increased competition means they must achieve global efficiency,growing pressure to meet local needs demands national responsiveness.23

One company that effectively uses a transnational strategy is Caterpillar, Inc., aheavy equipment manufacturer. Caterpillar achieves global efficiencies by designingits products to use many identical components and centralizing manufacturingof components in a few large-scale facilities. However, assembly plants located ineach of Caterpillar’s major markets add certain product features tailored to meetlocal needs.24

Although most multinational companies want to achieve some degree of globalintegration to hold costs down, even global products may require some customizationto meet government regulations in various countries or some tailoring to fitconsumer preferences. In addition, some products are better suited for standardizationthan others. Most large multinational corporations with diverse products andservices will attempt to use a partial multidomestic strategy for some product or

service lines and global strategies for others. Coordinating global integration with aresponsiveness to the heterogeneity of international markets is a difficult balancingact for managers, but it is increasingly important in today’s global business world.

Purpose of Strategy

Within the overall grand strategy of an organization, executives define an explicitstrategy, which is the plan of action that describes resource allocation and activitiesfor dealing with the environment, achieving a competitive advantage, and attainingthe organization’s goals. Competitive advantage refers to what sets the organizationapart from others and provides it with a distinctive edge for meeting customerneeds in the marketplace. The essence of formulating strategy is choosing how theorganization will be different.25 Managers make decisions about whether the companywill perform different activities or will execute similar activities differentlythan competitors do. Strategy necessarily changes over time to fit environmental

conditions, but to remain competitive, companies develop strategies that focus oncore competencies, develop synergy, and create value for customers.

Exploit Core Competence

A company’s core competence is something the organization does especially wellin comparison to its competitors. A core competence represents a competitiveadvantage because the company acquires expertise that competitors do not have. Acore competence may be in the area of superior research and development, experttechnological know-how, process efficiency, or exceptional customer service.26 AtVF, a large apparel company that owns Vanity Fair, Nautica, Wrangler, and TheNorth Face, strategy focuses on the company’s core competencies of operationalefficiency and merchandising know-how. When VF bought The North Face, forexample, its distribution systems were so poor that stores were getting ski apparelat the end of winter and camping gear at the end of summer. The company’s operatingprofit margin was minus 35 percent. Managers at VF revamped The NorthFace’s sourcing, distribution, and financial systems and within five years doubledsales to $500 million and improved profit margins to a healthy 13 percent. “For VFit was easy, and it’s not easy for everybody” said one retail analyst referring to thecompany’s application of its core competencies.27 Gaylord Hotels, which has largehotel and conference centers in several states as well as the Opryland complex nearNashville, Tennessee, thrives based on a strategy of superior service for large groupmeetings.28 Robinson Helicopter succeeds through superior technological knowhowfor building small, two-seater helicopters used for everything from policepatrols in Los Angeles to herding cattle in Australia.29 In each case, leaders identifiedwhat their company does especially well and built strategy around it.

Build Synergy

When organizational parts interact to produce a joint effect that is greater than thesum of the parts acting alone, synergy occurs. The organization may attain a specialadvantage with respect to cost, market power, technology, or management skill.When properly managed, synergy can create additional value with existing resources,providing a big boost to the bottom line.30 Synergy was one motivation for the FedEx

acquisition of Kinko’s Inc. Kinko’s document delivery and office services complementFedEx’s package delivery and give FedEx a greater presence among small and midsizedbusinesses, a market it has long coveted. By providing full-service counters inKinko’s stores, FedEx also has the potential to double its locations over the next fewyears, particularly overseas, where Kinko’s has centers in eight countries.31

Synergy can also be obtained by good relations with suppliers or by strongalliances among companies. Yahoo!, for example, uses partnerships, such as a recentdeal with Verizon Communications, to help boost its number of paying subscribersto nearly 12 million.32

Deliver Value

Delivering value to the customer is at the heart of strategy. Value can be defined asthe combination of benefits received and costs paid. Managers help their companiescreate value by devising strategies that exploit core competencies and attain synergy.To compete with the rising clout of satellite television, for example, cable companiessuch as Adelphia and Charter Communications are trying to provide bettervalue with cable value packages that offer a combination of basic cable, digital premiumchannels, video on demand, and high-speed Internet for a reduced cost. TheSwedish retailer IKEA has become a global cult brand by offering beautiful, functionalproducts at modest cost, thus delivering superior value to customers.33

Consider how Save-A-Lot has grown into one of the most successful grocerychains in the United States with a strategy based on exploiting core competencies,building synergy, and providing value to customers.

When most supermarket executives look at the inner city, they see peeling paint, low-incomecustomers, rampant crime, and low profits. Save-A-Lot looks at the inner city and sees opportunity.Save-A-Lot was started in the late 1970s, when Bill Moran noticed that low-incomeand rural areas were poorly served by large supermarkets. Moran began opening smallstores in low-rent areas and stocking them with a limited number of low-priced staples.Moran hand-wrote price signs and built crude shelves out of particle board. He made hisown labels from low-quality paper, which suppliers then slapped on generic products.Save-A-Lot has thrived ever since by using its core competency of cost efficiency, whichenables the stores to sell goods at prices 40 percent lower than major supermarkets. Unlikethe typical supermarket, which is about 45,000 square feet, Save-A-Lot stores use a compact16,000-square-foot no-frills format, targets areas with dirt-cheap rent, and courts householdsearning less than $35,000 a year. Save-A-Lot stores don’t have bakeries, pharmacies,or grocery baggers. Labor costs are kept ultra low. For example, whereas most grocery managerswant employees to keep displays well-stocked and tidy, Save-A-Lot managers tell peopleto let the displays sell down before restocking.Save-A-Lot has obtained synergy by developing good relationships with a few coresuppliers. Most supermarkets charge manufacturers slotting fees to put their productson shelves, but not Save-A-Lot. In addition, the company doesn’t ask suppliers to takeback damaged goods. It just sticks up a hand-written “Oops” sign and marks prices evenlower. Customers love it. Now, even branded food makers want a slice of the Save-A-Lotpie. Procter & Gamble, for example, developed a lower-priced version of Folgers, and thechain also sells a low-priced brand of cheese from Kraft and a cereal from General Mills.The value customers get from Save-A-Lot is based not just on low prices, but also convenienceand the quality. Doc Otis Roper, who makes $8 an hour as a recycling worker, saysthe Save-A-Lot is a blessing for its combination of low prices and convenience. He used tohave to ride the bus to buy groceries or shop at convenience stores where prices were highand quality low. Now, he walks five blocks to Save-A-Lot and gets quality goods at a priceeven lower than Wal-Mart’s.34

As a new manager, can you identify the core competence of your team or departmentand identify ways that it can contribute to the overall organization’sstrategy? Who are your team’s or department’s customers, and how can youdeliver value?

Levels of Strategy

Another aspect of strategic management concerns the organizational level to whichstrategic issues apply. Strategic managers normally think in terms of three levels ofstrategy—corporate, business, and functional—as illustrated in Exhibit 8.2.35

Corporate-Level Strategy

The question “What business are we in?” is the cornerstoneof corporate-level strategy. Corporate-level strategypertains to the organization as a whole and the combinationof business units and product lines that make up thecorporate entity. Strategic actions at this level usuallyrelate to the acquisition of new businesses; additions ordivestments of business units, plants, or product lines;and joint ventures with other corporations in new areas.An example of corporate-level strategy is Brunswick,which was once associated primarily with billiard tablesand bowling gear. CEO George Buckley is transformingBrunswick into the “Toyota of boating” by selling off unprofitablebusinesses and buying up companies such asSea Pro, Hatteras, and Princecraft to give Brunswick aslice of every boating niche. The beefed-up BrunswickBoat Group, combined with the corporation’s MercuryMarine engine division and a rapidly growing boat instrumentationbusiness, has given Brunswick a dominantposition in the boat industry.36

Business-Level Strategy

The question “How do we compete?” is the focus of businesslevelstrategy. Business-level strategy pertains to eachbusiness unit or product line. It focuses on how the business unit competes within itsindustry for customers. Many companies have opened e-commerce units as a part ofbusiness-level strategy. For example, NutriSystem Inc. was bankrupt a decade ago,but managers reinvented the company as an Internet distributor, shipping customersa month’s worth of shelf-stable diet food. People can track their progress online and

get virtual counseling when they need a boost. The Internet strategy and a new approachto advertising pushed sales from just $27 million in 2002 to about $150 millionin 2005.37

Strategic decisions at the business level concern amount of advertising, directionand extent of research and development, product changes, new-product development,equipment and facilities, and expansion or contraction of product and servicelines. Here’s how managers at the Los Angeles Times are trying to revive the strugglingpaper with a new business-level strategy

Baquet and other managers believe the new business-level strategy at the LosAngeles Times will help them find a profitable niche as the newspaper industry continuesto grapple with how to remain relevant in a changing world where peoplehave myriad sources of information and less time for reading in-depth stories in thedaily paper.

Functional-Level Strategy

The question “How do we support the business-level competitive strategy?” is the concernof functional-level strategy. It pertains to the major functional departments withinthe business unit. Functional strategies involve all of the major functions, includingfinance, research and development, marketing, and manufacturing. The functionallevelstrategy for NutriSystem’s marketing department, for example, is to featurereal-life customers in direct-response print and television ads that steer dieters tothe company’s Web site. Extended pitches for NutriSystem on the QVC shoppingchannel, for example, drive approximately 11 percent of sales.39 Another example offunctional-level strategy is Procter & Gamble’s research and development department,which is taking a new approach to stay competitive in the slow-growing consumerproducts industry. Instead of developing new products in the lab and thentesting them with consumers, researchers are spending hours with customers,watching them do laundry, clean the floor, or apply makeup, looking for nuisancesthat a new product might solve. Then they go into the lab with a goal of addressingthe concerns of real-life customers.40

the strategic management processThe overall strategic management process is illustrated in Exhibit 8.3. It beginswhen executives evaluate their current position with respect to mission, goals, andstrategies. They then scan the organization’s internal and external environmentsand identify strategic factors that might require change. Internal or external eventsmight indicate a need to redefine the mission or goals or to formulate a new strategyat either the corporate, business, or functional level. The final stage in the strategicmanagement process is implementation of the new strategy.

Strategy Formulation Versus Implementation

Strategy formulation includes the planning and decision making that lead to theestablishment of the firm’s goals and the development of a specific strategic plan.41

Strategy formulation may include assessing the external environment and internalproblems and integrating the results into goals and strategy. This process is incontrast to strategy implementation, which is the use of managerial and organizationaltools to direct resources toward accomplishing strategic results.42 Strategyimplementation is the administration and execution of the strategic plan. Managersmay use persuasion, new equipment, changes in organization structure, or a revisedreward system to ensure that employees and resources are used to make formulatedstrategy a reality.

Situation Analysis

Formulating strategy often begins with an assessment of the internal and externalfactors that will affect the organization’s competitive situation. Situation analysistypically includes a search for SWOT—strengths, weaknesses, opportunities, andthreats—that affect organizational performance. Situation analysis is important toall companies but is crucial to those considering globalization because of the diverseenvironments in which they will operate. External information about opportunitiesand threats may be obtained from a variety of sources, including customers, governmentreports, professional journals, suppliers, bankers, friends in other organizations,consultants, or association meetings. Many firms hire special scanningorganizations to provide them with newspaper clippings, Internet research, andanalyses of relevant domestic and global trends. In addition, many companies arehiring competitive intelligence professionals to scope out competitors, as we discussedin Chapter 3.Executives acquire information about internal strengths and weaknessesfrom a variety of reports, including budgets, financial ratios, profit and lossstatements, and surveys of employee attitudes and satisfaction. Managers spend80 percent of their time giving and receiving information. Through frequentface-to-face discussions and meetings with people at all levels of the hierarchy,executives build an understanding of the company’s internal strengths andweaknesses.

Internal Strengths and Weaknesses

Strengths are positive internal characteristics that the organization can exploit toachieve its strategic performance goals. Weaknesses are internal characteristics thatmight inhibit or restrict the organization’s performance. Some examples of what executivesevaluate to interpret strengths and weaknesses are given in Exhibit 8.4. Theinformation sought typically pertains to specific functions such as marketing, finance,production, and R&D. Internal analysis also examines overall organizationstructure, management competence and quality, and human resource characteristics.Based on their understanding of these areas, managers can determine theirstrengths or weaknesses compared with other companies.

External Opportunities and Threats

Threats are characteristics of the external environment that may prevent the organizationfrom achieving its strategic goals. Opportunities are characteristics of

the external environment that have the potential tohelp the organization achieve or exceed its strategicgoals. Executives evaluate the external environmentwith information about the nine sectors described inChapter 3. The task environment sectors are the mostrelevant to strategic behavior and include the behaviorof competitors, customers, suppliers, and the laborsupply. The general environment contains those sectorsthat have an indirect influence on the organizationbut nevertheless must be understood and incorporatedinto strategic behavior. The general environmentincludes technological developments, the economy,legal-political and international events, and socioculturalchanges. Additional areas that might reveal opportunitiesor threats include pressure groups, interestgroups, creditors, natural resources, and potentiallycompetitive industries.Kraft Foods provides an example of how situationanalysis can be used to help executives formulate thecorrect strategy.

formulating corporate-level strategy

Portfolio Strategy

Individual investors often wish to diversify in an investment portfolio with somehigh-risk stocks, some low-risk stocks, some growth stocks, and perhaps a fewincome bonds. In much the same way, corporations like to have a balanced mix ofbusiness divisions called strategic business units (SBUs). An SBU has a uniquebusiness mission, product line, competitors, and markets relative to other SBUs inthe corporation.44 Executives in charge of the entire corporation generally define thegrand strategy and then bring together a portfolio of strategic business units to carryit out. Portfolio strategy pertains to the mix of business units and product lines thatfit together in a logical way to provide synergy and competitive advantage for the

corporation. Managers don’t like to become too dependent on one business. Forexample, at United Technologies Corp. (UTC), the aerospace-related business unitshave been struggling through one of the worst slumps in history. However, UTC’sOtis Elevator division is keeping the corporation’s sales and profits strong. Otis hasa commanding share of the worldwide market for new elevators and escalators. Inaddition, the unit provides a steady revenue stream from elevator maintenance,repair, and upgrade. The elevators in the Waldorf-Astoria, for example, wereinstalled in 1931 and have been steadily upgraded by Otis ever since.45 One usefulway to think about portfolio strategy is the BCG matrix.

The BCG Matrix

The BCG (for Boston Consulting Group) matrix is illustrated in Exhibit 8.5. TheBCG matrix organizes businesses along two dimensions—business growth rateand market share.46 Business growth rate pertains to how rapidly the entire industryis increasing. Market share defines whether a business unit has a larger or smallershare than competitors. The combinations of high and low market share and highand low business growth provide four categories for a corporate portfolio.The star has a large market share in a rapidly growing industry. The star isimportant because it has additional growth potential, and profits should be plowedinto this business as investment for future growth and profits. The star is visible andattractive and will generate profits and a positive cash flow even as the industrymatures and market growth slows.The cash cow exists in a mature, slow-growth industry but is a dominant businessin the industry, with a large market share. Because heavy investments in

advertising and plant expansion are no longer required, the corporation earns apositive cash flow. It can milk the cash cow to invest in other, riskier businesses.The question mark exists in a new, rapidly growing industry, but has only a smallmarket share. The question mark business is risky: It could become a star, or it couldfail. The corporation can invest the cash earned from cash cows in question marks

with the goal of nurturing them into future stars.The dog is a poor performer. It has only a small share of a slow-growth market.The dog provides little profit for the corporation and may be targeted for divestmentor liquidation if turnaround is not possible.The circles in Exhibit 8.5 represent the business portfolio for a hypothetical corporation.Circle size represents the relative size of each business in the company’s portfolio.Most large organizations, such as General Electric (GE), have businesses in morethan one quadrant, thereby representing different market shares and growth rates.

formulating business-level strategyNow we turn to strategy formulation within the strategic business unit, in whichthe concern is how to compete. The same three generic strategies—growth, stability,and retrenchment—apply at the business level, but they are accomplished throughcompetitive actions rather than the acquisition or divestment of business divisions.One model for formulating strategy is Porter’s competitive strategies, which providesa framework for business unit competitive action.

Porter’s Competitive Forces and Strategies

Michael E. Porter studied a number of business organizations and proposed thatbusiness-level strategies are the result of five competitive forces in the company’s environment.48 More recently, Porter examined the impact of the Internet on businesslevelstrategy.49 New Web-based technology is influencing industries in both positiveand negative ways, and understanding this impact is essential for managers to accuratelyanalyze their competitive environments and design appropriate strategicactions.

Five Competitive Forces

Exhibit 8.6 illustrates the competitive forces that exist in a company’s environmentand indicates some ways Internet technology is affecting each area. These forces helpdetermine a company’s position vis-à-vis competitors in the industry environment.1. Potential new entrants. Capital requirements and economies of scale are examplesof two potential barriers to entry that can keep out new competitors. It isfar more costly to enter the automobile industry, for instance, than to start a

specialized mail-order business. In general, Internet technology has made itmuch easier for new companies to enter an industry by curtailing the needfor such organizational elements as an established sales force, physicalassets such as buildings and machinery, or access to existing supplier andsales channels.2. Bargaining power of buyers. Informed customers become empowered customers.The Internet provides easy access to a wide array of information about products,services, and competitors, thereby greatly increasing the bargainingpower of end consumers. For example, a customer shopping for a car cangather extensive information about various options, such as wholesaleprices for new cars or average value for used vehicles, detailed specifications,repair records, and even whether a used car has ever been involved in anaccident.3. Bargaining power of suppliers. The concentration of suppliers and the availability ofsubstitute suppliers are significant factors in determining supplier power. Thesole supplier of engines to a manufacturer of small airplanes will have greatpower, for example. The impact of the Internet in this area can be both positiveand negative. That is, procurement over the Web tends to give a company greaterpower over suppliers, but the Web also gives suppliers access to a greater numberof customers, as well as the ability to reach end users. Overall, the Internettends to raise the bargaining power of suppliers.4. Threat of substitute products. The power of alternatives and substitutes for acompany’s product may be affected by changes in cost or in trends such asincreased health consciousness that will deflect buyer loyalty. Companies in

the sugar industry suffered from the growth of sugar substitutes; manufacturersof aerosol spray cans lost business as environmentally conscious consumerschose other products. The Internet created a greater threat of newsubstitutes by enabling new approaches to meeting customer needs. Forexample, offers of low-cost airline tickets over the Internet hurt traditionaltravel agencies.5. Rivalry among competitors. As illustrated in Exhibit 8.6, rivalry among competitorsis influenced by the preceding four forces, as well as by cost and product differentiation.With the leveling force of the Internet and information technology, ithas become more difficult for many companies to find ways to distinguishthemselves from their competitors, which intensifies rivalry.Porter referred to the “advertising slugfest” when describing the scramblingand jockeying for position that often occurs among fierce rivals within an industry.Famous examples include the competitive rivalry between Pepsi and Coke,between UPS and FedEx, and between The Home Depot and Lowe’s. The rivalrybetween Gillette Company (recently purchased by Procter & Gamble) and Schick,the No. 2 maker of razors (now owned by Energizer), may soon be just as heated.Although Gillette is still way ahead, the introduction of the Schick Quattro and amassive advertising campaign helped Schick’s 2003 sales grow 149 percent, whileGillette’s razor sales slipped. In the two years after the Quattro was introduced,Schick’s market share for replacement blades jumped 6 percent, while Gillette’sdeclined. In the fall of 2005, Schick brought out a battery-powered version ofQuattro, which is aimed directly at stealing market shared from Gillette’sM3Power. Gillette took the next shot with its announcement of the new Fusionfive-blade razor.50

Competitive Strategies

In finding its competitive edge within these five forces, Porter suggests that acompany can adopt one of three strategies: differentiation, cost leadership, or focus.The organizational characteristics typically associated with each strategy are summarizedin Exhibit 8.7.1. Differentiation. The differentiation strategy involves an attempt to distinguishthe firm’s products or services from others in the industry. The organizationmay use advertising, distinctive product features, exceptional service, or newtechnology to achieve a product perceived as unique. The differentiation strategycan be profitable because customers are loyal and will pay high prices for theproduct. Examples of products that have benefited from a differentiation strategyinclude Harley-Davidson motorcycles, Snapper lawn equipment, and Gore-Texfabrics, all of which are perceived as distinctive in their markets. When lawnequipment maker Simplicity bought Snapper, for example, one of the first thingsexecutives did was pull Snapper products out of Wal-Mart. Whereas most manufacturersdo whatever they can to sell through the giant retailer, Simplicity’s managersrecognized that selling mowers at Wal-Mart was incompatible with theirstrategy, which emphasizes quality, dependability, durability, and cachet ratherthan high volume and low cost. Customers can buy a lawn mower at Wal-Martfor less than a hundred bucks, but the least expensive Snapper is about $350 andis built to last for decades.51 Service companies such as Starbucks, Whole FoodsMarket, and IKEA can also use a differentiation strategy. The Unlocking InnovativeSolutions Through People box describes how corporate culture helps theFour Seasons differentiate itself in the hotel industry.Companies that pursue a differentiation strategy typically need strong marketingabilities, a creative flair, and a reputation for leadership.52 A differentiationstrategy can reduce rivalry with competitors if buyers are loyal to a company’sbrand. Successful differentiation can also reduce the bargaining power of largebuyers because other products are less attractive, which also helps the firm fightoff threats of substitute products. In addition, differentiation erects entry barriers

Strategy Organizational Characteristics Differentiation Acts in a flexible, loosely knit way, with strong coordination among departments Strong capability in basic rewards Creative flair, thinks “out of the box” Strong marketing abilities Rewards employee innovation Corporate reputation for quality or technological leadership Cost Leadership Strong central authority; tight cost controls Maintains standard operating procedures Easy-to-use manufacturing technologies Highly efficient procurement and distribution systems Close supervision, finite employee empowerment Focus Frequent, detailed control reports May use combination of above policies directed at particular strategic target Values and rewards flexibility and customer intimacy Measures cost of providing service and maintaining customer loyalty Pushes empowerment to employees with customer contact

in the form of customer loyalty that a new entrant into the market would havedifficulty overcoming.

2. Cost leadership.With a cost leadership strategy, the organization aggressivelyseeks efficient facilities, pursues cost reductions, and uses tight cost controls toproduce products more efficiently than competitors. Alow-cost position meansthat the company can undercut competitors’ prices and still offer comparablequality and earn a reasonable profit. Comfort Inn and Motel 6 are low-pricedalternatives to Four Seasons or Marriott. Enterprise Rent-A-Car is a low-pricedalternative to Hertz.Being a low-cost producer provides a successful strategy to defend againstthe five competitive forces in Exhibit 8.6. For example, the most efficient,low-cost company is in the best position to succeed in a price war while stillmaking a profit. Likewise, the low-cost producer is protected from powerfulcustomers and suppliers, because customers cannot find lower prices elsewhere,and other buyers would have less slack for price negotiation withsuppliers. If substitute products or potential new entrants occur, the low-costproducer is better positioned than higher-cost rivals to prevent loss of marketshare. The low price acts as a barrier against new entrants and substituteproducts.

3. Focus. With a focus strategy, the organization concentrateson a specific regional market or buyergroup. The company will use either a differentiationor cost leadership approach, but only for a narrowtarget market. Save-A-Lot, described earlier, uses afocused cost leadership strategy, putting stores inlow-income areas. Another example is low-costleader Southwest Airlines, which was founded in1971 to serve only three cities—Dallas, Houston,and San Antonio—and didn’t fly outside of Texasfor the first eight years of its history. Managersaimed for controlled growth, gradually moving intonew geographic areas where Southwest could provideshort-haul service from city to city. By using afocus strategy, Southwest was able to grow rapidlyand expand to other markets.54 Edward JonesInvestments, a St. Louis-based brokerage house,uses a focused differentiation strategy, building itsbusiness in rural and small town America and providing

clients with conservative, long-term investmentadvice. According to management consultantPeter Drucker, the safety-first orientation meansEdward Jones delivers a product “that no WallStreet house has ever sold before: peace of mind.”55

Managers think carefully about which strategywill provide their company with its competitiveadvantage. Gibson Guitar Corp., famous in the musicworld for its innovative, high-quality products,found that switching to a low-cost strategy tocompete against Japanese rivals such as Yamaha andIbanez actually hurt the company. When managersrealized people wanted Gibson products because oftheir reputation, not their price, they went back to adifferentiation strategy and invested in new technologyand marketing.56 In his studies, Porter found that some businesses did notconsciously adopt one of these three strategies and were stuck with no strategicadvantage. Without a strategic advantage, businesses earned below-averageprofits compared with those that used differentiation, cost leadership, or focusstrategies. Similarly, a five-year study of management practices in hundreds ofbusinesses, referred to as the Evergreen Project, found that a clear strategic directionwas a key factor that distinguished winners from losers.57

Because the Internet is having such a profound impact on the competitiveenvironment in all industries, it is more important than ever that companiesdistinguish themselves through careful strategic positioning in the marketplace.58

The Internet tends to erode both cost-leadership and differentiation advantagesby providing new tools for managing costs and giving consumers greater accessto comparison shopping. However, managers can find ways to incorporate theInternet into their strategic approaches in a way that provides unique value tocustomers in an efficient way. Sears, for example, uses the Web to showcase itsline of Kenmore appliances, building the brand’s reputation by providingdetailed information in a relatively inexpensive way.

Partnership Strategies

So far, we have been discussing strategies that are based on how to compete withother companies. An alternative approach to strategy emphasizes collaboration. Insome situations, companies can achieve competitive advantage by cooperating with

other firms rather than competing. Partnershipstrategies are becoming increasinglypopular as firms in all industriesjoin with other organizations to promoteinnovation, expand markets, and pursuejoint goals. Partnering was once a strategyadopted primarily by small firmsthat needed greater marketing muscle orinternational access. Today, however, ithas become a way of life for most companies,large and small. The question is nolonger whether to collaborate, but ratherwhere, how much, and with whom tocollaborate.60

Competition and cooperation oftenexist at the same time. Procter & Gambleand Clorox are fierce rivals in cleaningproducts and water purification, butboth companies profited by collaboratingon a new plastic wrap. P&G researchersinvented a wrap that sealstightly only where it is pressed, but P&Gdidn’t have a plastic wrap category.Managers negotiated a joint venturewith Clorox to market the wrap underthe well-established Glad brand name,and Glad Press & Seal became one of the company’s most popular products. Thetwo competitors continued the collaboration with the introduction of Glad ForceFlex trash bags, which make use of a stretchable plastic invented in P&G’s labs.61

The Internet is both driving and supporting the move toward partnershipthinking. The ability to rapidly and smoothly conduct transactions, communicateinformation, exchange ideas, and collaborate on complex projects via the Internetmeans that companies such as Citigroup, Dow Chemical, and Herman Miller havebeen able to enter entirely new businesses by partnering in business areas thatwere previously unimaginable.62 Many companies, including Target, Circuit City,Lands’ End, and Golfsmith International, are gaining a stronger online presenceby partnering with Amazon.com. Amazon maintains the site and processes orders,while the retailers fill the orders from their own warehouses. The arrangementgives Amazon a new source of revenue and frees the retailers to focus on theirbricks-and-mortar business while also gaining new customers online.63

Mutual dependencies and partnerships have become a fact of life, but thedegree of collaboration varies. Organizations can choose to build cooperative relationshipsin many ways, such as through preferred suppliers, strategic businesspartnering, joint ventures, or mergers and acquisitions. Exhibit 8.8 illustrates thesemajor types of strategic business relationships according to the degree of collaborationinvolved. With preferred supplier relationships, a company such as Wal-Mart,for example, develops a special relationship with a key supplier such as Procter &Gamble that eliminates intermediaries by sharing complete information and reducingthe costs of salespeople and distributors. Preferred supplier arrangementsprovide long-term security for both organizations, but the level of collaboration isrelatively low. Strategic business partnering requires a higher level of collaboration.Five of the largest hotel chains—Marriott International, Hilton Hotels Corp.,Six Continents, Hyatt Corp., and Starwood Hotels and Resorts Worldwide Inc.—partnered to create their own Web site, Travelweb.com, to combat the growingpower of intermediaries such as Expedia and Hotels.com. According to one seniorvice president, the hotels felt a need to “take back our room product, and . . . sellit the way we want to sell it and maximize our revenues.” At the same time,

some chains are striving to build more beneficial partnerships with the third-partybrokers.64

A still higher degree of collaboration is reflected in joint ventures, which areseparate entities created with two or more active firms as sponsors. For example,International Truck and Engine Corporation has a joint venture with Ford MotorCompany to build midsized trucks and diesel engine parts.65 MTV Networks wasoriginally created as a joint venture of Warner Communications and American Express.In a joint venture, organizations share the risks and costs associated with thenew venture.Mergers and acquisitions represent the ultimate step in collaborative relationships.U.S. business has been in the midst of a tremendous merger and acquisitionboom. Consider the frenzied deal-making in the telecom industry alone. Sprintacquired Nextel and Verizon Communications purchased MCI. SBC CommunicationsInc. acquired AT&T and took over the storied brand name, then announcedplans to buy BellSouth, making AT&T once again the giant in the telecommunicationsindustry.66

Using these various partnership strategies, today’s companies simultaneouslyembrace competition and cooperation. Few companies can go it alone under aconstant onslaught of international competition, changing technology, and newregulations. Most businesses choose a combination of competitive and partnershipstrategies that add to their overall sustainable advantage.67

formulating functional-level strategyFunctional-level strategies are the action plans adopted by major departments tosupport the execution of business-level strategy. Major organizational functionsinclude marketing, production, finance, human resources, and research and development.Senior managers in these departments adopt strategies that are coordinatedwith the business-level strategy to achieve the organization’s strategicgoals.68

For example, consider a company that has adopted a differentiation strategyand is introducing new products that are expected to experience rapid growth. Thehuman resources department should adopt a strategy appropriate for growth,which would mean recruiting additional personnel and training middle managersfor movement into new positions. The marketing department should undertake testmarketing, aggressive advertising campaigns, and consumer product trials. Thefinance department should adopt plans to borrow money, handle large cash investments,

and authorize construction of new production facilities.A company with mature products or a low-cost strategy will have differentfunctional strategies. The human resources department should develop strategies for retaining and developing a stable work force, including transfers, advancements,and incentives for efficiency and safety. Marketing should stress brand loyaltyand the development of established, reliable distribution channels. Productionshould maintain long production runs, routinization, and cost reduction. Financeshould focus on net cash flows and positive cash balances.

strategy implementation and controlThe final step in the strategic management process is implementation—how strategyis put into action. Some people argue that strategy implementation is the mostdifficult and important part of strategic management.69 No matter how brilliant theformulated strategy, the organization will not benefit if it is not skillfully implemented.Today’s competitive environment requires growing recognition of the needfor more dynamic approaches to implementing strategies.70 Strategy is not a static,analytical process; it requires vision, intuition, and employee participation. Effectivestrategy implementation requires that all aspects of the organization be in congruencewith the strategy and that every individual’s efforts be coordinated towardaccomplishing strategic goals.71

Strategy implementation involves using several tools—parts of the firm thatcan be adjusted to put strategy into action—as illustrated in Exhibit 8.9. Once anew strategy is selected, it is implemented through changes in leadership, structure,information and control systems, and human resources.72 Implementationinvolves regularly making difficult decisions about doing things in a way thatsupports rather than undermines the organization’s chosen strategic approach.Remaining chapters of this book examine in detail topics such as leadership,organizational structure, information and control systems, and human resourcemanagement. The Manager’s Shoptalk box gives some further tips for implementingstrategy.

LeadershipThe primary key to successful strategy implementation is leadership. Leadershipis the ability to influence people to adopt the new behaviors needed for strategyimplementation. An important part of implementing strategy is building consensus.People throughout the organization must believe in the new strategy andhave a strong commitment to achieving the vision and goals. Leadership meansusing persuasion, motivating employees, and shaping culture and values to supportthe new strategy. Managers can make speeches to employees, build coalitions

of people who support the new strategic direction, and persuade middle managersto go along with their vision for the company. At IBM, for example, CEO SamPalmisano is using leadership to get people throughout the organization alignedwith a new strategy focused on getting IBM intimately involved in revamping andeven running customers’ business operations. To implement the new approach,Palmisano dismantled the executive committee that previously presided over

strategic initiatives and replaced it with committees made up of people from allover the company. He’s investing tons of money to teach managers at all levelshow to lead rather than control their staff. And he is talking to people all over thecompany, appealing to their sense of pride and uniting them behind this newvision and strategy.73 With a clear sense of direction and a shared purpose,employees feel motivated, challenged, and empowered to pursue new strategicgoals. Another way leaders build consensus and commitment is through broadparticipation. When people participate in strategy formulation, implementation iseasier because managers and employees already understand the reasons for thenew strategy and feel more committed to it.

Structural DesignStructural design typically begins with the organization chart. It pertains to managers’responsibilities, their degree of authority, and the consolidation of facilities,departments, and divisions. Structure also pertains to such matters as centralizationversus decentralization, the design of job tasks, and the organization’s productiontechnology. Structure will be discussed in detail in Chapter 10.In many cases, implementing a new strategy requires making changes in organizationalstructure, such as adding or changing positions, reorganizing to teams,redesigning jobs, or shifting managers’ responsibility and accountability. At IBM,the company is being reorganized into teams that will work directly with customers;Palmisano believes that breaking down functional and hierarchical boundariesis the only way IBM can find out what customers want and deliver it fast. Asthe company moves into new businesses such as insurance claims processing andsupply-chain optimization, IBM assigns SWAT teams to work with a handful ofinitial clients, for example. Practically every job in the giant corporation is beingredefined to support the new strategy.74

Information and Control Systems

Information and control systems include reward systems, pay incentives, budgets forallocating resources, information technology systems, and the organization’s rules,policies, and procedures. Changes in these systems represent major tools for puttingstrategy into action. For example, managers can reassign resources from researchand development to marketing if a new strategy requires increased advertising butno product innovations. Managers and employees must also be rewarded foradhering to the new strategy and making it a success.75

At General Electric, described earlier in the chapter, CEO Jeff Immelt is tyingmanager’s compensation to their ability to come up with new ideas, demonstrate

improved customer service, generate growth, and boost sales. For example, 20 percentof division managers’ bonuses is based on how well the business is improvingits ability to meet customer needs.76 Executives at ConAgra, maker of HealthyChoice and Banquet brands, instituted top-down cost controls in the corporation’soperating units and developed new systems for pooling resources to reduce purchasing,warehousing, and transportation costs.77 Retailers such as Wal-Mart andDollar General made masterful use of sophisticated information technology tosupport a low-cost strategy by accelerating checkout, managing inventory, andcontrolling distribution. Kmart, by contrast, performed poorly on implementationbecause of weak information and control systems that leave unpopular merchandiselanguishing on store shelves and hot items frequently out of stock.78 New informationtechnology can also be used to support differentiation strategies, such asby enabling collaborative design of new products or customizing products andservices to exact customer specification.

Human ResourcesThe organization’s human resources are its employees. The human resource functionrecruits, selects, trains, transfers, promotes, and lays off employees to achieve strategicgoals. Training employees can help them understand the purpose and importanceof a new strategy or help them develop the necessary skills and behaviors.Newstrategies involve change, which naturally generates some resistance. Sometimesemployees may have to be let go and replaced. One newspaper shifted its strategyfrom an evening to a morning paper to compete with a large newspaper from anearby city. The new strategy required a change from working days to working from1 P.M. to about midnight or so, fostering resentment and resistance among departmentheads. In order to implement it, 80 percent of the department heads had to belet go because they refused to cooperate. New people were recruited and placed inthose positions, and the morning newspaper strategy was a resounding success.79

At IBM, employees in administration and computer repair are being let go by thethousands, replaced by people skilled in business operations as well as technology.80

implementation during turbulent timesThe challenges of implementing strategy continue to escalate with the increasedcomplexity and turbulence in today’s business environment. Many managers feelconfident that they have found the right strategy to provide a competitive advantage,but they are less optimistic about their ability to implement it. Three issuesthat are particularly critical for implementing strategy during turbulent times area global mind-set, paying close attention to corporate culture, and embracing theInternet and other information technologies.

Global Mind-SetTo implement strategies on a global scale, managers need to adopt a global mind-setand be aware of varying implementation issues. Flexibility and openness emerge asmandatory leadership skills. Structural issues are more complex, as managersstruggle to find the right mix to achieve the desired level of global integration andlocal responsiveness, as we discussed earlier. Information, control, and reward systemshave to fit the values and incentives within the local cultures. Finally, therecruitment, training, transfer, promotion, and layoff of international humanresources create an array of problems not confronted in North America. To be effectiveinternationally, managers have to apply a global perspective to strategy implementation.For example, one well-respected multinational formed a task force ofU.S. employees to review and revise workforce policies in connection with a newstrategy. Employees from different levels and functional areas met for months andsent out employee surveys to all U.S.-based facilities to get wider input. The finaldraft was reviewed and approved by top executives. They were surprised when the

streamlined workforce manual, which reduced the number of policies from 120to 10 core ones, was met with resistance and even hostility by the overseas units.Managers’ lack of a global mind-set led them to assume incorrectly that the internationalunits would accept whatever was handed down from U.S. headquarters.Another multinational that used a worldwide task force for a similar process hadmuch greater success with implementation.81

Corporate CultureAt the same time managers need a global mind-set, they also have to create andmaintain a cohesive corporate culture that supports strategy. Culture is the link betweenstrategy and performance outcomes, and different culture styles are bettersuited to different strategic directions.82 Recall our discussion of different types ofculture and the high-performance culture from Chapter 3. A study of the world’smost admired companies, as reported annually in Fortune magazine, found that

managers in these organizations pay close attention to culture and to the values thatcontribute to strategic success.83 Managers want to develop a culture that is orientedtoward performance—that encourages in everyone the behaviors and attitudesneeded to meet the company’s strategic goals and holds everyone responsible forsuccess.84 One example comes from Ansys, a developer of engineering simulationproducts used to predict product design behavior in manufacturing operations.Ansys has more than two dozen sales offices on three continents and a network ofpartners in 40 countries. Serving diverse customers around the world with superiortechnology requires both a commitment to a global mind-set as well as a culture ofintense customer focus. Ansys managers built a family-like high-performance culturethat embraces customers as well as employees. Employees are committed to thevision of meeting customers’ emerging technology needs. Because people feelappreciated and cared about, they feel safe taking risks that lead to better productsand better service. One key aspect is, as one executive put it, “giving people enoughleeway, enough rope, but not letting them hang themselves.” Employees areempowered with decision making authority, but the company has in place systemsthat prevent people from possibly taking a hard fall.85

Information TechnologyA final concern for managers implementing strategy during turbulent times is toincorporate the Internet and other information technology. Dell pioneered the use ofan online system to let customers configure computers to their exact specificationsand submit the order over the Web, saving the cost of salespeople. Online masscustomization is now used by many firms to decrease costs while enhancing theirproduct mix and building their brand reputation.86 Another company that successfullyuses the Internet to implement strategy is independent toy retailer Kazoo &Company. Owner Diane Nelson competes with giant retailers such as Wal-Mart byusing a differentiation strategy, focusing primarily on selling educational, nonviolenttoys. She considered franchising as a way to grow the business, but decidedthat expanding via a Web site would better enable the company to maintain itsdistinctiveness. Kazoo.com quickly became a go-to site for people seeking specialtytoys, and Nelson negotiated deals with some vendors who will send productsdirectly to customers who order online. About 40 percent of Kazoo’s business isnow online, and at least a quarter of that comes from overseas