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Strategic ManageMent concepts and cases

A Competitive AdvAntAge ApproACh

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Fred r. David Francis Marion University Florence, South Carolina

Forest r. David Strategic Planning Consultant

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Strategic ManageMent concepts and cases

A Competitive AdvAntAge ApproACh

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Brief Contents

5

Preface 15

Acknowledgments 26

About the Authors 27

Chapter 1 Strategic Management Essentials 31 The Cohesion Case: nesTlé s.a., 2016 (nsRGY) 54

Chapter 2 Outside-USA Strategic Planning 67 Chapter 3 Ethics, Social Responsibility, and Sustainability 95 Chapter 4 Types of Strategies 119 Chapter 5 Vision and Mission Analysis 157 Chapter 6 The Internal Audit 177 Chapter 7 The External Audit 217 Chapter 8 Strategy Generation and Selection 247 Chapter 9 Strategy Implementation 285 Chapter 10 Strategy Execution 321 Chapter 11 Strategy Monitoring 359

Appendix Guidelines for Case Analysis 385

Glossary 657

Name Index 667

Subject Index 673

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Contents

Preface 15

Acknowledgments 26

About the Authors 27

Chapter 1 Strategic Management Essentials 31 exemplaRY CompanY showCased: sinGapoRe aiRlines limiTed (sia) 32 What Is a Cohesion Case? 33 • Defining Strategic Management 33

stages of strategic management 33 integrating intuition and analysis 34

Adapting to Change 35

Key Terms in strategic management 36 Competitive Advantage 36 • Strategists 36

aCademiC ReseaRCh Capsule 1-1: when aRe Chief sTRaTeGY offiCeRs (Csos) hiRed/appoinTed? 37 Vision and Mission Statements 38 • External Opportunities and Threats 38 • Internal Strengths and Weaknesses 39 • Long- Term Objectives 40 • Strategies 40 • Annual Objectives 40 • Policies 41

The strategic-management model 42 Benefits of engaging in strategic management 43

aCademiC ReseaRCh Capsule 1-2: whaT aCTiviTY is mosT impoRTanT in The sTRaTeGiC-manaGemenT pRoCess? 43 Financial Benefits 44 • Nonfinancial Benefits 45

why some firms do no strategic planning 45 pitfalls in strategic planning 46 Comparing Business and military strategy 46

impliCaTions foR sTRaTeGisTs 48 impliCaTions foR sTudenTs 49

Chapter summary 49 Key Terms and Concepts 50 Issues for Review and Discussion 50 mini-Case on RYanaiR limiTed (RYaaY): is RYanaiR’s weBsiTe iTs sTRaTeGiC maRKeTinG Tool? 52 Current Readings 53 Endnotes 53 The Cohesion Case: nesTlé s.a., 2016 54 assuRanCe of leaRninG exeRCises 63 Assurance of Learning Exercise 1A: Assess Singapore Airlines’ Most Recent Quarterly Performance Data 63 Assurance of Learning Exercise 1B: Gather Strategy Information on Nestlé S.A. 64 Assurance of Learning Exercise 1C: Get Familiar with the Free Excel Student Template 64 Assurance of Learning Exercise 1D: Evaluate an Oral Student Presentation 64

Assurance of Learning Exercise 1E: Strategic Planning at Nestlé S.A. 65 Assurance of Learning Exercise 1F: Interview Local Strategists 65

Chapter 2 Outside-USA Strategic Planning 67 exemplaRY CompanY showCased: honda moToR CompanY (hmC) 68

The nature of doing Business Globally 68 Multinational Firms 70 • Different Languages Globally 71 • Labor Unions across Europe 71

aCademiC ReseaRCh Capsule 2-1: how manY lanGuaGes aRe TheRe GloBallY? 71

advantages and disadvantages of doing Business Globally 72 The Global Challenge 73 Tax Rates and Tax inversions 74

Tax Rates 74

aCademiC ReseaRCh Capsule 2-2: how do fiRms deCide wheRe To expand? 74 Tax Inversions 76

american versus foreign Business Culture 76 Communication Differences across Countries 78

Business Culture across Countries 79 Mexico’s Business Culture 79 • Japan’s Business Culture 80 • China’s Business Culture 81 • India’s Business Culture 82

Business Climate across Countries 82 Africa’s Business Climate 83 • China’s Business Climate 84 • Brazil’s Business Climate 85 • Indonesia’s Business Climate 85 • India’s Business Climate 85 • Japan’s Business Climate 86 • Mexico’s Business Climate 86 • Vietnam’s Business Climate 87

impliCaTions foR sTRaTeGisTs 88 impliCaTions foR sTudenTs 88

Chapter summary 89 Key Terms and Concepts 89 Issues for Review and Discussion 89 assuRanCe of leaRninG exeRCises 90 Assurance of Learning Exercise 2A: Nestlé S.A. Wants to Enter Africa. Help Them. 90 Assurance of Learning Exercise 2B: Assess Differences in Culture across Countries 91 Assurance of Learning Exercise 2C: Honda Motor Company Wants to Do Business in Vietnam. Help Them. 91 Assurance of Learning Exercise 2D: Does My University Recruit in Foreign Countries? 92

mini-Case on aiRBus GRoup se (aiR.pa): how well is aiRBus peRfoRminG GloBallY? 92 Current Readings 93 Endnotes 93

7

Chapter 3 Ethics, Social Responsibility, and Sustainability 95

exemplaRY CompanY showCased: BanK audi s.a.l 96 why “Good ethics is Good Business” 96

Does It Pay to Be Ethical? 97

aCademiC ReseaRCh Capsule 3-1: whaT Can we leaRn fRom hiGh-peRfoRmanCe Companies? 98 How to Establish an Ethics Culture 99

aCademiC ReseaRCh Capsule 3-2: who is pRone To Be uneThiCal in a Business? 99

whistle-Blowing, Bribery, and workplace Romance 100 Whistle-Blowing 100 • Avoid Bribery 101 • Workplace Romance 102

social Responsibility and policy 103 aCademiC ReseaRCh Capsule 3-3: does iT paY To Be soCiallY ResponsiBle? 104 Design and Articulate a Social Policy 104 • Social Policies on Retirement 104

environmental sustainability 105 What Firms Are the Best Stewards? 106 • Sustainability Reports 107 • The Office of Environmental Affairs 108 • ISO 14000/14001 Certification 108

wildlife welfare 109 Food Suppliers and Animal Welfare 111

impliCaTions foR sTRaTeGisTs 111 impliCaTions foR sTudenTs 112

Chapter summary 112 Key Terms and Concepts 112 Issues for Review and Discussion 112 assuRanCe of leaRninG exeRCises 113 Assurance of Learning Exercise 3A: Sustainability and Nestlé 113 Assurance of Learning Exercise 3B: How Does My Municipality Compare To Others on Being Pollution-Safe? 114 Assurance of Learning Exercise 3C: Compare Nestlé versus Mars, Inc. on Social Responsibility 114 Assurance of Learning Exercise 3D: How Do You Rate Nestlé’s Sustainability Efforts? 114 Assurance of Learning Exercise 3E: The Ethics of Spying on Competitors 115

mini-Case on eTihad aiRwaYs: how eThiCal and susTainaBle is eTihad aiRwaYs? 116 Current Readings 116 Endnotes 117

Chapter 4 Types of Strategies 119 exemplaRY CompanY showCased: peTRonas (pGas.Kl) 120

long-Term objectives 120 Characteristics and Benefits of Objectives 121 • Financial versus Strategic Objectives 121 • Avoid Not Managing by Objectives 122

Types of strategies 122 Levels of Strategies 124

integration strategies 124 Forward Integration 125 • Backward Integration 126 • Horizontal Integration 127

intensive strategies 128 Market Penetration 128 • Market Development 128 • Product Development 129

diversification strategies 129 Related Diversification 130 • Unrelated Diversification 130

defensive strategies 131 Retrenchment 131 • Divestiture 132 • Liquidation 133

michael porter’s five Generic strategies 134 Cost Leadership Strategies (Type 1 and Type 2) 135 • Differentiation Strategies (Type 3) 136 • Focus Strategies (Type 4 and Type 5) 137

means for achieving strategies 138 Cooperation among Competitors 138 • Joint Venture and Partnering 138

aCademiC ReseaRCh Capsule 4-1: aRe inTeRnaTional allianCes moRe effeCTive wiTh CompeTiToRs oR nonCompeTiToRs? 139 Merger/Acquisition 140 • Private-Equity Acquisitions 141

Tactics to facilitate strategies 142 First Mover Advantages 142 • Outsourcing and Reshoring 142

strategic management in nonprofit, Governmental, and small firms 144

Educational Institutions 144 • Medical Organizations 145 • Governmental Agencies and Departments 145 • Small Firms 145

aCademiC ReseaRCh Capsule 4-2: whaT aTTRiBuTes do GReaT enTRepReneuRs possess? 146 impliCaTions foR sTRaTeGisTs 146 impliCaTions foR sTudenTs 147

Chapter summary 147 Key Terms and Concepts 148 Issues for Review and Discussion 148 assuRanCe of leaRninG exeRCises 150 Assurance of Learning Exercise 4A: Market Development for Petronas 150 Assurance of Learning Exercise 4B: Alternative Strategies for Petronas 150 Assurance of Learning Exercise 4C: Private-Equity Acquisitions 150 Assurance of Learning Exercise 4D: The Strategies of Nestlé S.A.: 2015–2017 151 Assurance of Learning Exercise 4E: Lessons in Doing Business Globally 151 Assurance of Learning Exercise 4F: What are Petronas’ Strategies in 2015–2017? 151 Assurance of Learning Exercise 4G: What Strategies Are Most Risky? 151 Assurance of Learning Exercise 4H: Explore Bankruptcy 152 Assurance of Learning Exercise 4I: Examine Strategy Articles 152 Assurance of Learning Exercise 4J: Classify Some Strategies 152

mini-Case on TiGeR BRands limiTed: is TiGeR BRands sTRaTeGiCallY ReadY To CompeTe and CoopeRaTe? 153 Current Readings 154 Endnotes 154

Chapter 5 Vision and Mission Analysis 157 exemplaRY CompanY showCased: samsunG eleCTRoniCs Co. limiTed (ssnlf) 158

vision statements: what do we want to Become? 158 Vision Statement Analysis 159

mission statements: what is our Business? 160 The process of developing vision and mission statements 161 The importance (Benefits) of vision and mission statements 162

8 COnTEnTS

aCademiC ReseaRCh Capsule 5-1: The mission sTaTemenT/ fiRm peRfoRmanCe linKaGe 162 A Resolution of Divergent Views 163

Characteristics of a mission statement 164 A Customer Orientation 165

Components of a mission statement 165 evaluating and writing mission statements 166

Two Mission Statements Critiqued 167 • Five Mission Statements Revised 167 • Two Mission Statements Proposed 167

impliCaTions foR sTRaTeGisTs 169 impliCaTions foR sTudenTs 170

Chapter summary 170 Key Terms and Concepts 171 Issues for Review and Discussion 171 assuRanCe of leaRninG exeRCises 172 Assurance of Learning Exercise 5A: Examine Potential Changes Needed in a Firm’s Vision/Mission 172 Assurance of Learning Exercise 5B: Studying an Alternative View of Mission Statement Content 172 Assurance of Learning Exercise 5C: Evaluate Mission Statements 173 Assurance of Learning Exercise 5D: Evaluate the Vision and Mission Statements of Unilever, Nestlé’s Competitor 173 Assurance of Learning Exercise 5E: Selecting the Best Vision and Mission Statements in a Given Industry 174 Assurance of Learning Exercise 5F: Write an Excellent Vision and Mission Statement for Novartis AG 174

mini-Case on CiTizen holdinGs CompanY limiTed (Cizn): does CiTizen holdinGs’ have a CleaR vision oR mission? 174 Current Readings 175 Endnotes 175

Chapter 6 The Internal Audit 177 exemplaRY CompanY showCased: vodafone GRoup plC (vod) 178

The nature of an internal audit 178 Key Internal Forces 179 • The Process of Performing an Internal Audit 180 • The Resource-Based View 181

aCademiC ReseaRCh Capsule 6-1: does RBv TheoRY deTeRmine diveRsifiCaTion TaRGeTs? 181

integrating strategy and Culture 182 management 184

Planning 184 • Organizing 185 • Motivating 186 • Staffing 186 • Controlling 187 • Management Audit Checklist of Questions 187

marketing 188 Customer Analysis 188 • Selling Products and Services 188 • Product and Service Planning 189 • Pricing 189 • Distribution 190 • Marketing Research 190 • Cost/Benefit Analysis 190 • Marketing Audit Checklist of Questions 191

finance and accounting 191 Finance/Accounting Functions 191 • Financial Ratios 192 • Breakeven Analysis 195 • Finance/Accounting Audit Checklist 197

production/operations 197 Production/Operations Audit Checklist 198

Research and development 199

Internal and External Research and Development 199 • Research and Development Audit 200

management information systems 200 Managing Voluminous Consumer Data 200

aCademiC ReseaRCh Capsule 6-2: new TRends in manaGinG BiG daTa 201 Management Information Systems Audit 201

value Chain analysis 201 Benchmarking 202

The internal factor evaluation matrix 204 impliCaTions foR sTRaTeGisTs 206 impliCaTions foR sTudenTs 208

Chapter summary 209 Key Terms and Concepts 209 Issues for Review and Discussion 210 assuRanCe of leaRninG exeRCises 211 Assurance of Learning Exercise 6A: Develop a Corporate IFE Matrix for Volkswagen Group 211 Assurance of Learning Exercise 6B: Should Volkswagen Deploy More (or Less) Resources Outside of Europe? 211 Assurance of Learning Exercise 6C: Apply Breakeven Analysis 212 Assurance of Learning Exercise 6D: Perform a Financial Ratio Analysis for Nestlé 212 Assurance of Learning Exercise 6E: Construct an IFE Matrix for Nestlé 212 Assurance of Learning Exercise 6F: Analyze Your College or University’s Internal Strategic Situation 213

mini-Case on BanK of China limiTed (BaChf): whaT is The naTuRe of BanK of China’s GRowTh? 213 Current Readings 214 Endnotes 214

Chapter 7 The External Audit 217 exemplaRY CompanY showCased: miChelin (mGddf) 218

The purpose and nature of an external audit 219 Key External Forces 219 • The Process of Performing an External Audit 220 • The Industrial Organization (I/O) View 221

Ten external forces That affect organizations 221 Economic Forces 221 • Social, Cultural, Demographic, and Natural Environment Forces 223 • Political, Governmental, and Legal Forces 224 • Technological Forces 226 • Competitive Forces 227

porter’s five-forces model 229 Rivalry Among Competing Firms 230 • Potential Entry of New Competitors 231 • Potential Development of Substitute Products 231 • Bargaining Power of Suppliers 231 • Bargaining Power of Consumers 232

sources of external information 232 forecasting Tools and Techniques 232

Making Assumptions 233 • Business Analytics 234

The external factor evaluation matrix 235 The Competitive profile matrix 236

impliCaTions foR sTRaTeGisTs 239 impliCaTions foR sTudenTs 240

Chapter summary 240 Key Terms and Concepts 241 Issues for Review and Discussion 241

COnTEnTS 9

assuRanCe of leaRninG exeRCises 242 Assurance of Learning Exercise 7A: Michelin and Africa: An External Assessment 242 Assurance of Learning Exercise 7B: Preparing a CPM for Michelin Based on Countries Rather Than Companies 243 Assurance of Learning Exercise 7C: Develop Divisional Michelin EFE Matrices 243 Assurance of Learning Exercise 7D: Developing an EFE Matrix for Nestlé S.A. 243 Assurance of Learning Exercise 7E: The External Audit 244 Assurance of Learning Exercise 7F: Develop a Competitive Profile Matrix for Michelin 244 Assurance of Learning Exercise 7G: Develop a Competitive Profile Matrix for Nestlé 244 Assurance of Learning Exercise 7H: Analyzing Your College or University’s External Strategic Situation 244

mini-Case on woolwoRThs limiTed (wow): is woolwoRThs losinG iTs edGe To aldi? 245 Current Readings 245 Endnotes 245

Chapter 8 Strategy Generation and Selection 247

exemplaRY CompanY showCased: unileveR plC (ul) 248 The strategy analysis and Choice process 248

The Process of Generating and Selecting Strategies 248

The strategy-formulation analytical framework 250 The Input Stage 251 • The Matching Stage 251 • The Decision Stage 251

The swoT matrix 251 The strategic position and action evaluation (spaCe) matrix 254 The Boston Consulting Group (BCG) matrix 258 The internal-external (ie) matrix 261

aCademiC ReseaRCh Capsule 8-1: a new ie maTRix 264 The Grand strategy matrix 265 The decision stage: The Quantitative strategic planning matrix (Qspm) 266

Positive Features and Limitations of the QSPM 269

Cultural aspects of strategy analysis and Choice 270 The politics of strategy analysis and Choice 270 Boards of directors: Governance issues 271

aCademiC ReseaRCh Capsule 8-2: how manY BoaRd of diReCToRs memBeRs aRe ideal? 273 impliCaTions foR sTRaTeGisTs 274 impliCaTions foR sTudenTs 274

Chapter summary 275 Key Terms And Concepts 276 Issues for Review and Discussion 276 assuRanCe of leaRninG exeRCises 278 Assurance of Learning Exercise 8A: Should Unilever Penetrate Southeast Asia Further? 278 Assurance of Learning Exercise 8B: Perform a SWOT Analysis for Unilever’s Global Operations 278 Assurance of Learning Exercise 8C: Prepare a BCG Matrix for Unilever 278

Assurance of Learning Exercise 8D: Develop a SWOT Matrix for Nestlé S.A. 279 Assurance of Learning Exercise 8E: Develop a SPACE Matrix for Nestlé S.A. 279 Assurance of Learning Exercise 8F: Develop a BCG Matrix for Nestlé S.A. 279 Assurance of Learning Exercise 8G: Develop a QSPM for Nestlé S.A. 280 Assurance of Learning Exercise 8H: Develop a SPACE Matrix for Unilever 280 Assurance of Learning Exercise 8I: Develop a BCG Matrix for your College or University 280 Assurance of Learning Exercise 8J: Develop a QSPM for a Company That You Are Familiar With 280 Assurance of Learning Exercise 8K: Formulate Individual Strategies 281 mini-Case on hYundai moToR CompanY (hYmTf): how would a BCG foR hYundai looK liKe? 281 Current Readings 282 Endnotes 282

Chapter 9 Strategy Implementation 285 exemplaRY CompanY showCased: RoYal duTCh shell plC (Rds.a) 286

strategic marketing issues 286 social media marketing 287 market segmentation 289 product positioning and perceptual mapping 292

Author Commentary 293

strategic finance/accounting issues 295 eps/eBiT analysis: acquire needed Capital 296 projected financial statements 300

Projected Financial Statement Analysis for D. R. Horton 302

Corporate valuation 304 aCademiC ReseaRCh Capsule 9-1: when should we oveRpaY To aCQuiRe a fiRm? 306 Corporate Valuation Methods 306

ipos, Cash management, and Corporate Bonds 308 Go Public With An IPO? 308 • Keep Cash Offshore is Earned Offshore? 309 • Issue Corporate Bonds for What Purpose? 309

strategic Research and development (R&d) issues 309 strategic management information systems (mis) issues 311

Mobile Tracking of Employees 312

impliCaTions foR sTRaTeGisTs 312 impliCaTions foR sTudenTs 313 Mobile Apps for Customers 313

Chapter summary 313 Key Terms and Concepts 314 Issues for Review and Discussion 314 assuRanCe of leaRninG exeRCises 316 Assurance of Learning Exercise 9A: Prepare an EPS/EBIT Analysis for Royal Dutch Shell Plc 316 Assurance of Learning Exercise 9B: Develop a Product-Positioning Map for Nestlé S.A. 316 Assurance of Learning Exercise 9C: Perform an EPS/EBIT Analysis for Nestlé S.A. 316

10 COnTEnTS

Assurance of Learning Exercise 9D: Prepare Projected Financial Statements for Nestlé S.A. 317 Assurance of Learning Exercise 9E: Determine the Cash Value of Nestlé S.A. 317 Assurance of Learning Exercise 9F: Develop a Product-Positioning Map for Your College 317 Assurance of Learning Exercise 9G: Do Banks Require Projected Financial Statements? 318

mini-Case on TaTa moToRs limiTed (TTm) 318 Current Readings 319 Endnotes 319

Chapter 10 Strategy Execution 321 exemplaRY CompanY showCased: aCCenTuRe plC (aCn) 322

Transitioning from formulating to implementing strategies 322 The need for Clear annual objectives 324 The need for Clear policies 327 allocate Resources and manage Conflict 327

Allocate Resources 327 • Manage Conflict 329

match structure with strategy 329 Types of organizational structure 330

The Functional Structure 330 • The Divisional Structure 331 • The Strategic Business Unit (SBU) Structure 333 • The Matrix Structure 334

dos and don’ts in developing organizational Charts 335

aCademiC ReseaRCh Capsule 10-1: whY is The Coo posiTion BeinG deleTed in manY oRGanizaTions? 337

strategic production/operations issues 338 Restructuring and Reengineering 338 • Manage Resistance to Change 339 • Decide Where and How to Produce Goods 339 • Employee Stock Ownership Plans (ESOPs) 340

strategic human Resource issues 341 Linking Performance and Pay to Strategy 341 • Balance Work Life and Home Life 343 • Develop a Diverse Workforce 344

aCademiC ReseaRCh Capsule 10-2: how do women vs. men Ceos peRfoRm? 345 Use Caution in Hiring a Rival’s Employees 345 • Create a Strategy- Supportive Culture 348 • Use Caution in Monitoring Employees’ Social Media 349 • Develop a Corporate Wellness Program 349

impliCaTions foR sTRaTeGisTs 351 impliCaTions foR sTudenTs 352

Chapter summary 353 Key Terms and Concepts 353 Issues for Review and Discussion 353 assuRanCe of leaRninG exeRCises 355 Assurance of Learning Exercise 10A: Develop an Organizational Chart for Accenture Plc 355 Assurance of Learning Exercise 10B: Assess Accenture’s Philanthropy Efforts 355 Assurance of Learning Exercise 10C: Revise Nestlé’s Organizational Chart 355

Assurance of Learning Exercise 10D: Explore Objectives 355 Assurance of Learning Exercise 10E: Understanding Your University’s Culture 356

mini-Case on hoRizon phaRma (hznp): does hoRizon phaRma have a foRmal sTRuCTuRe? 356 Current Readings 357 Endnotes 357

Chapter 11 Strategy Monitoring 359 exemplaRY CompanY showCased: Bhp BilliTon (Bhp) 360

The strategy-evaluation process, Criteria, and methods 360 The Process of Evaluating Strategies 363

The Three strategy-evaluation activities 364 Reviewing Bases of Strategy 364 • Measuring Organizational Performance 366 • Taking Corrective Actions 367

The Balanced scorecard 369 published sources of strategy-evaluation information 371 Characteristics of an Effective Strategy Evaluation System 371 Contingency planning 372 auditing 373 Twenty-first-Century Challenges in strategic management 374

The Art or Science Issue 374 • The Visible or Hidden Issue 375 • The Top-Down or Bottom-Up Approach 376

Guidelines for effective strategic management 376 impliCaTions foR sTRaTeGisTs 378 impliCaTions foR sTudenTs 378

Chapter summary 379 Key Terms and Concepts 379 Issues for Review and Discussion 379 assuRanCe of leaRninG exeRCises 380 Assurance of Learning Exercise 11A: Evaluate BHP Billiton’s Strategies 380 Assurance of Learning Exercise 11B: Prepare a Strategy-Evaluation Report for Nestlé S.A. 381 Assurance of Learning Exercise 11C: Prepare a Balanced Scorecard for Nestlé S.A. 381 Assurance of Learning Exercise 11D: Evaluate Your University’s Strategies 381

mini-Case on BRoadCom limiTed (avGo): how Could a BalanCed sCoReCaRd BenefiT BRoadCom? 382 Current Readings 382 Endnotes 382

Appendix Guidelines for Case Analysis 385 what is a strategic-management Case? 386 Guidelines for preparing Case analyses 386

The Need for Practicality 386 • The Need for Justification 386 • The Need for Realism 386 • The

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