5/30/2016
University of Phoenix: Management
PRINTED BY: cherylesowell2012@email.phoenix.edu. Printing is for personal, private
use only. No part of this book may be reproduced or transmitted without publisher’s prior
permission. Violators will be prosecuted.
https://phoenix.vitalsource.com/#/books/9781119092988/cfi/6/36!/4/2/48/10/8/2@0:78.4
1/44
5/30/2016
University of Phoenix: Management
“There is a fundamental disconnect between the providers of education and the
consumers of education… . At Khan Academy we’re 100% focused on the learning side.”
Salman Khan, founder of the Khan Academy
© Clayton de Souza/dpa/Corbis
https://phoenix.vitalsource.com/#/books/9781119092988/cfi/6/36!/4/2/48/10/8/2@0:78.4
2/44
5/30/2016
University of Phoenix: Management
10
Strategy and Strategic Management
Insight and hard work deliver results
CHAPTER QUICK START
Strategic management is one of the most significant planning challenges faced by
managers. All organizations face a complex array of forces. Uncertainties of many types—
market, economic, political, social, and more—must be understood and analyzed in order
to craft strategies for competitive success. As with organizations, each of us faces personal
life and career challenges that test our abilities with strategic management. We, too, need
to make and implement strategies to achieve our goals.
Key Takeaways
Discuss the process and importance of strategic management.
Identify the essential elements in strategic analysis.
Explain alternative corporate strategies.
Explain alternative businesslevel strategies.
Describe the foundations for strategy implementation.
what to look for inside >
MANAGEMENT IS REAL
analysis> MAKE DATA YOUR FRIEND
Disposable Workers Becoming Indispensable to Business Profits
choices> THINK BEFORE YOU ACT
Double Irish with a Dutch Sandwich
ethics> KNOW RIGHT FROM WRONG
Life and Death at an Outsourcing Factory
insight> LEARN ABOUT YOURSELF
Get And Stay Ahead With Critical Thinking
wisdom> LEARN FROM ROLE MODELS
Wendy Kopp Tackles Culture of Low Achievement
SKILLS MAKE YOU VALUABLE
EVALUATE Career Situations:
What Would You Do?
REFLECT On the SelfAssessment:
https://phoenix.vitalsource.com/#/books/9781119092988/cfi/6/36!/4/2/48/10/8/2@0:78.4
3/44
5/30/2016
University of Phoenix: Management
Intuitive Ability
CONTRIBUTE To the Class Exercise:
Strategic Scenarios
MANAGE A Critical Incident:
Kickstarting a Friend’s Business Idea
COLLABORATE On the Team Activity:
Contrasting Strategies
ANALYZE The Case Study:
Dunkin’ Donuts: Betting Dollars on Donuts
Don’t take the opening photo of Sal Khan too lightly. His innovative online Khan academy
has the goal of “changing education for the better by providing a free worldclass
education for anyone anywhere.” The success of Kahn helped spur the development of
MOOCs—massive open online courses—as “disrupters” of the traditional university
model of facetoface delivery of paypercredit courses. Some MOOCs are free. They’re
being launched in increasing numbers from top universities, and startups like Coursera
and Udacity are marketing them on a global scale. What’s the future of these online
alternatives? Will MOOCs make higher education more accessible and affordable? Will
they change the traditional college experience for better or worse? Or, will they soon fade
away and be remembered as just another passing trend?1
Our institutions of higher education are taking center stage among industries facing
strategic challenges—MOOCs are on the move, politicians are attacking college costs,
graduates worry about paying off student loans. University, government, andbusiness
leadership is being tested by changing times, tastes, and technologies. And Fast Company
magazine says, “If you want to make a difference as a leader, you’ve got to make time for
strategy.”2
Leaders struggling with strategy need to remember lessons from the past. There was a
time when Henry Ford could say: “The customer can have any color he wants as long as
it’s black.” Those days are long gone for businesses large and small, they’re gone for
hospitals and local governments, and they’re gone for universities as well. A senior IBM
executive described this shift in strategic landscape as the “difference between a bus
which follows a set route, and a taxi which goes where customers tell it to go.”3
There are a lot of strategy and strategic management ideas and insights in this chapter. As
you read and think about them, remember that everything applies equally well to your
own career. What’s your personal strategy for career and life success? Are you acting like
a bus following a set route, a taxi following opportunities, or some combination of both?
Strategic Management
TAKEAWAY 1 What is strategic management?
LEARN MORE ABOUT | Competitive advantage • Strategy and strategic intent • Levels
of strategy
Strategic management process
Forces and challenges like those just described confront managers in all organizations
https://phoenix.vitalsource.com/#/books/9781119092988/cfi/6/36!/4/2/48/10/8/2@0:78.4
4/44
5/30/2016
University of Phoenix: Management
and industries. Today’s environment places a great premium on “competitive advantage”
and how it is achieved—or not—through “strategy” and “strategic management.”4
Competitive Advantage
The term competitive advantage describes an organization’s ability to use resources so
well that it performs better than the competition. Typical sources of competitive
advantage are:5
Competitive advantage is the ability to do something so well that one
outperforms competitors.
Technology—using technology to gain operating efficiencies, market exposure, and
customer loyalty.
Cost and quality—operating with greater efficiency and product or service quality.
Knowledge and speed—doing better at innovation and speed of delivery to market for
new ideas.
Barriers to entry—creating a market stronghold that is protected from entry by
others.
Financial resources—having better investments or loss absorption potential than
competitors.
Achieving and retaining competitive advantage is an increasingly difficult challenge to
master. Whenever organizations do things very well, rivals try to duplicate and copy their
approach. The ultimate goal is creating sustainable competitive advantage—
competitive advantage that is durable and difficult or costly for others to copy or imitate.
When you think sustainable competitive advantage, think about Apple’s iPad. One analyst
observes: “Apple moved the goal posts before most of their competitors even took the
field.”6 The iPad was first to market as an innovative product linking design, technology,
and customer appeal. It was also backed by Apple’s superefficient supply chain, which
made it a highmargin product. The iPad is still a top seller, but tablet consumers can
now choose competing products offering many similar features. Lawsuits between Apple
and Samsung over copyrights, such as the “slide to unlock” feature, illustrate what is at
stake in the battles for competitive advantage.7
Sustainable competitive advantage is the ability to outperform rivals in
ways that are difficult or costly to imitate.
Strategy and Strategic Intent
If sustainable competitive advantage is the goal, “strategy” is the means to achieve it.8 A
strategy is a comprehensive action plan that identifies the longterm direction for an
organization and that guides resource utilization to achieve sustainable competitive
advantage. It is a “best guess” about what must be done for future success in the face of
competition and changing market conditions. And, it usually involves risk taking. At
Facebook, for example, the firm’s mission is “to give people the power to share and make
the world more open and connected.”9 Given this mission, CEO Mark Zuckerberg
struggled to match a webbased and computerfocused legacy strategy with new trends in
mobile. He made an important decision to commit the company to a “mobile first”
https://phoenix.vitalsource.com/#/books/9781119092988/cfi/6/36!/4/2/48/10/8/2@0:78.4
strategy that shifted the direction for innovation and app development away from
5/44
5/30/2016
University of Phoenix: Management
strategy that shifted the direction for innovation and app development away from
computers and toward smartphones. The new strategy quickly paid off with increased
mobile ad revenues and a higher share price.10
A strategy is a comprehensive plan guiding resource allocation to achieve long
term organization goals.
Just as with our personal assets, organizational resources like time, money, and people
get wasted when they are spent on things that don’t result in real accomplishments. The
presence of a strategy helps ensure that resources are used with consistent strategic
intent—that is, with all energies directed toward accomplishing a longterm target or
goal.11 In the Facebook case just described, CEO Mark Zuckerberg backed his mobile first
strategy by halting any company meeting he was attending where someone began by
talking about computers instead of smartphones.12 Patagonia backs its commitment to
sustainability in the apparel industry by programs like Common Thread, which reduces
use of new materials by allowing customers to return purchased items for repair, reuse,
and recycling.13
Strategic intent focuses and applies organizational energies on a unifying and
compelling goal.
Management&PopularCulture
Strategy Shift to FreetoPlay Changes the Game
GABRIEL BOUYS/AFP/Getty Images
World of Warcraft … Marvel Heroes … Angry Birds … who wants to pay to play? As it
turns out, fewer and fewer people want to pay. Gone are the days when World of
Warcraft subscriptions were surging and Angry Birds downloads reached 2 billion.
When Warcraft subscribers fell 40% and Birds profits dropped 50%, game makers
realized it was time for change. They are quickly shifting strategy toward mobile and
“freemium”—use your smartphone and play for free, but purchase extras such as short
cuts, unique powers, or new content. A venture investor in Gazillion Entertainment,
maker of Marvel Heroes, says: “There are lots of companies that go through twists and
https://phoenix.vitalsource.com/#/books/9781119092988/cfi/6/36!/4/2/48/10/8/2@0:78.4
6/44
5/30/2016
University of Phoenix: Management
turns. We believe a lot of risk in this company is behind it.”
Levels of Strategy
Google buys Nest Labs for $3.2 billion … Rovio Lets Angry Birds Roam Free …
Chip maker thrives on virtual manufacturing.
These headlines display the three levels of strategy in organizations shown in Figure 10.1.
At the corporate level of strategy, Google adds to its business lines by purchasing the
smarthome company Nest Labs. At the business level of strategy, Rovio Entertainment
shifts from selling Angry Birds to offering it free but selling addon features. At the
functional level of strategy, a semiconductor chip maker operates with a virtual factory.14
In order to really understand the stories behind these headlines, you need to understand
the strategy and how it fits with both the business purpose and the current competitive
conditions.
CorporateLevel Strategy
At the highest level, corporate strategy directs the organization as a whole toward
sustainable competitive advantage. It describes the scope of operations by answering this
corporatelevel strategic question: “In what industries and markets should we compete?”
The purpose of corporate strategy is to set direction and guide resource allocations for the
entire enterprise. It identifies how large and complex organizations can compete across
multiple industries and markets. General Electric, for example, owns more than 100
businesses in a wide variety of areas, including aircraft engines, appliances, capital
services, medical systems, and power systems. Typical corporatelevel strategic decisions
for GE relate to initiatives such as new business acquisitions and existing business
expansions and cutbacks.
A corporate strategy sets longterm direction for the total enterprise.
BusinessLevel Strategy
Business strategy sets the direction for a single business unit or product line. It
involves asking and answering this businesslevel strategic question: “How are we going
to compete for customers in this industry and market?” Typical business strategy
decisions include choices about product and service mix, facilities locations, and new
technologies. Business strategy is the corporate strategy in singleproduct enterprises.
The term strategic business unit (SBU) is often used to describe a business that operates
as part of a larger enterprise, such as online retailer Zappos within the Amazon umbrella
and smart home firm Nest Labs within Google’s suite of businesses.
A business strategy identifies how a division or strategic business unit will
compete in its product or service domain.
Whereas the enterprise on a whole will have a corporate strategy, each SBU will have its
own focused business strategy. Porsche Automobile Holding SE, for example, is owned by
Volkswagen Group. Historically a twodoor sports car company, Porsche adjusted its
business strategy and successfully marketed a sport utility vehicle, the Cayenne, that
became the brand’s volume sales leader. It was followed by another success—a fourdoor
sedan, the Panamera.15 These shifts in businesslevel strategy, which are core to Porsche
operations, don’t bear directly on the corporatelevel strategy of Volkswagen as a whole.
https://phoenix.vitalsource.com/#/books/9781119092988/cfi/6/36!/4/2/48/10/8/2@0:78.4
7/44
5/30/2016
University of Phoenix: Management
FIGURE 10.1 Corporatelevel strategy, businesslevel strategy, and functional
strategy.
wisdom> LEARN FROM ROLE MODELS
> “We can provide an excellent education for kids in lowincome communities … they
can achieve at the highest levels.”
Wendy Kopp Tackles Culture of Low Achievement
PressTelegram, Stephen Carr/© AP/Wide World Photos
Wendy Kopp, founder and CEO of Teach for America, proposed the creation of her
nonprofit organization in an undergraduate thesis at Princeton University. Two short
decades later, her strategic leadership had inspired more than 38,000 teacher
participants and reached more than 3 million children nationwide. Kopp’s vision as a
college student was to “eliminate educational inequities,” regardless of a child’s family
https://phoenix.vitalsource.com/#/books/9781119092988/cfi/6/36!/4/2/48/10/8/2@0:78.4
8/44
5/30/2016
University of Phoenix: Management
income. That vision still guides Teach for America’s strategy.
Kopp’s ability to engage in continuous change and performance enhancement is part
of her organization’s success story. “Change is Possible,” states the organization’s
website: “We can provide an excellent education for kids in lowincome communities
… they can achieve at the highest levels.” Part of Kopp’s strategy was to identify target
“priority regions” like Detroit and Memphis. Well over half of the regions in need have
requested math and science teachers. The demand for subject areas such as early
childhood education, special education, and Spanish/bilingual education remains
strong.
Teach for America’s goal is to help children growing up in poverty beat what Kopp
calls “the culture of low achievement.” Her strategy is to enlist highachieving, recent
college graduates and professionals to make a difference by serving twoyear teaching
stints in lowincome urban and rural communities. That’s a teachable moment!
FIND THE INSPIRATION
How much of Teach for America’s success is due to Kopp’s clear and
compelling vision for social change? What lessons on the link between
vision and strategy does this example offer organizations across all
industries? Is it easier to inspire people to implement strategy in a
nonprofit context with a social mission than it is in a business that is
profit driven? How can the leader of a forprofit business generate strong
employee commitment to the firm’s strategy and vision?
Functional Strategy
Functional strategy guides the use of organizational resources to implement business
strategy. The functionallevel strategic question is: “How can we best utilize resources
within a function to implement our business strategy?” Answers to this question might
focus on ways to improve products, gain efficiencies, and enhance customer service. The
attention in functional strategy focuses on activities within a specific functional area such
as marketing, manufacturing, finance, or human resources. Picochip, for example,
produces specialized microchips using a “virtual” model where all chip production is
outsourced. CEO Nigel Toon says what the firm saves from not having expensive factories
it invests in research and development on stateoftheart chip designs.16
A functional strategy guides activities within one specific area of operations.
Strategic Management Process
Developing strategy for an organization may seem like a deceptively simple task: Find out
what products and services customers want, provide these at the best possible price, and
make sure competitors can’t easily copy what you are doing. In practice, this can get very
complicated.17 The reality is that strategies don’t just happen; they must be developed
and then implemented effectively. At the same time that managers in one organization
are doing all of this, their competitors are trying to do the exact same thing—only better.
Succeeding in this mix of competitive pressures depends on strategic management,
the process of formulating and implementing strategies to accomplish longterm goals
and sustain competitive advantage.
https://phoenix.vitalsource.com/#/books/9781119092988/cfi/6/36!/4/2/48/10/8/2@0:78.4
9/44
5/30/2016
University of Phoenix: Management
Strategic management is the process of formulating and implementing
strategies.
FIGURE 10.2 Major elements in the strategic management process.
As shown in Figure 10.2, the strategic management process begins with strategic
analysis to assess the organization, its environment, its competitive positioning, and its
current strategies. Next in the process is strategy formulation, developing a new or
revised strategy. The final phase is strategy implementation, using resources to put
strategies into action, and then evaluating results so that the implementation can be
improved or the strategy changed. As the late management consultant and guru Peter
Drucker once said: “The future will not just happen if one wishes hard enough. It requires
decision—now. It imposes risk—now. It requires action—now. It demands allocation of
resources, and above all, it requires work—now.”18
Strategic analysis is the process of analyzing the organization, the
environment, and the organization’s competitive position and current strategies.
Strategy formulation is the process of crafting strategies to guide the
allocation of resources.
Strategy implementation is the process of putting strategies into action.
Learning Check 1
TAKEAWAYQUESTION 1 What is strategic management?
BE SURE YOU CAN • define competitive advantage, strategy, and strategic intent •
explain the concept of sustainable competitive advantage • differentiate corporate,
business, and functional strategies • differentiate strategy formulation from strategy
implementation • list the major phases in the strategic management process
Essentials of Strategic Analysis
TAKEAWAY 2 What are the essentials of strategic analysis?
LEARN MORE ABOUT | Analysis of mission, values, objectives
SWOT analysis of organization and environment
https://phoenix.vitalsource.com/#/books/9781119092988/cfi/6/36!/4/2/48/10/8/2@0:78.4
10/44
5/30/2016
University of Phoenix: Management
Five forces analysis of industry attractiveness
When it comes to the essentials of strategic analysis, there is a core set of strategic
questions that any top manager should be prepared to answer. (1) What is our business
mission? (2) Who are our customers? (3) What do our customers value? (4) What have
been our results? (5) What is our plan?19
Analysis of Mission, Values, and Objectives
The strategic management process begins with an analysis of mission, values, and
objectives. This sets the stage for assessing the organization’s resources and capabilities,
as well as opportunities and threats in its external environment.
Mission and Stakeholders
The mission or purpose of an organization describes its reason for existence in
society.20 Strategy consultant Michael Hammer believes that a mission should represent
what the strategy or underlying business model is trying to accomplish. In order to clarify
mission he suggests asking: “What are we moving to?” “What is our dream?” “What kind
of a difference do we want to make in the world?” “What do we want to be known for?”21
A mission statement expresses the organization’s reason for existence in
society.
Patagonia’s mission is to “Build the best product, cause no unnecessary harm, use
business to inspire and implement solutions to the environmental crisis.”22 This mission
statement identifies not only a business direction but also a distinctive value commitment
that gives Patagonia a unique identity as it competes with much larger rivals in its
industry.
A clear sense of mission helps inspire the support and respect of an organization’s
stakeholders. These are individuals and groups—including customers, shareholders,
employees, suppliers, creditors, community groups, future generations, and others—who
are directly affected by the organization and its accomplishments. Figure 10.3 gives an
example of how stakeholder interests can be linked with an organization’s mission.
Stakeholders are individuals and groups directly affected by the organization
and its strategic accomplishments.
https://phoenix.vitalsource.com/#/books/9781119092988/cfi/6/36!/4/2/48/10/8/2@0:78.4
11/44
5/30/2016
University of Phoenix: Management
FIGURE 10.3 External stakeholders as strategic constituencies in an
organization’s mission statement.
Core Values and Culture
Organizational values and culture should be analyzed in the strategic management
process to determine how well they align with the mission.23 Core values are broad
beliefs about what is or is not appropriate behavior. Patagonia founder and chairman
Yvon Chouinard says: “Most people want to do good things, but don’t. At Patagonia it’s an
essential part of your life.”24 He leads Patagonia with a personal commitment to
sustainability and expects the firm to live up to it as a core value. Among other things,
Patagonia donates employee time and 1+% of sales to support environmental groups,
uses recycled polyester and organic cotton, and emphasizes “simplicity and utility” in
product designs.25
Core values are broad beliefs about what is or is not appropriate behavior.
The presence of core values helps build a clear organizational identity. It gives the
organization a sense of character as seen through the eyes of employees and external
stakeholders. This character is part of what is called organizational culture or the
predominant value system of the organization as a whole.26 A clear and strong
organizational culture helps guide the behavior of members in ways that are consistent
with the organization’s mission and core values. When browsing Patagonia’s website for
job openings, for example, the message about the corporate culture is clear: “We’re
especially interested in people who share our love of the outdoors, our passion for quality,
and our desire to make a difference.”27
Organizational culture is the predominant value system for the organization
as a whole.
Objectives
Whereas a mission statement lays out an organization’s purpose and core values set
https://phoenix.vitalsource.com/#/books/9781119092988/cfi/6/36!/4/2/48/10/8/2@0:78.4
12/44
5/30/2016
University of Phoenix: Management
standards for accomplishing it, operating objectives direct activities toward key
performance areas. Typical operating objectives for a business include the following:28
Operating objectives are specific results that organizations try to accomplish.
Profitability—operating with a net profit.
Sustainability—helping to preserve, not exploit, the environment.
Social responsibility—acting as a good community citizen.
Financial health—acquiring capital; earning positive returns.
Cost efficiency—using resources well to operate at low cost.
Customer service—meeting customer needs and maintaining loyalty.
Product quality—producing highquality goods or services.
Market share—gaining a specific share of possible customers.
Human talent—recruiting and maintaining a highquality workforce.
Innovation—developing new products and processes.
Wellchosen operating objectives can turn a broad sense of mission into specific
performance targets. In the case of Patagonia, mission, values, and operating objectives
fit together as a coherent whol…
