Strategic Management and Business Policy: Globalization, Innovation, and Sustainability (15th Edition) PDF

GLOBAL GLOBAL EDITION...

GLOBAL GLOBAL EDITION EDITION For these Global Editions, the editorial team at Pearson has Strategic Management collaborated with educators across the world to address a wide and Business Policy Strategic Management and Business Policy range of subjects and requirements, equipping students with the best Globalization, Innovation and Sustainability possible learning tools. This Global Edition preserves the cutting-edge Globalization, Innovation and Sustainability approach and pedagogy of the original, but also features alterations, customization, and adaptation from the North American version. FIFTEENTH EDITION Thomas L. Wheelen J. David Hunger Alan N. Hoffman Charles E. Bamford FIFTEENTH EDITION Hoffman Bamford Wheelen Hunger This is a special edition of an established title widely used by colleges and universities throughout the world. Pearson published this exclusive edition for the benefit of students outside the United States and Canada. If you purchased this book within the United States or Canada, EDITION GLOBAL you should be aware that it has been imported without the approval of the Publisher or Author. Pearson Global Edition Wheelen_15_1292215488_Final.indd 1 24/07/17 8:44 PM  Engage, Assess, Apply with MyLab Management® Engage, Assess, Apply with MyLab Management® Branching, Decision-Making Simulations—Put your students in the role L  earning Catalytics™—Is an interactive, student response tool that of manager as they make a series of decisions based on a realistic business uses students’ smartphones, tablets, or laptops to engage them in more challenge. The simulations change and branch based on their decisions, sophisticated tasks and thinking. Now included with MyLab with eText, creating various scenario paths. 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For students, single sign-on provides access to all the personalized learning resources that make studying more efficient and effective. ALWAYS LEARNING ALWAYS LEARNING Wheelen_15_1292215488_ifc_ibc_Final.indd 1 24/07/17 8:45 PM  FIFTEENTH EDITION GLOBAL EDITION Strategic Management and Business Policy GLOBALIZATION, INNOVATION, AND SUSTAINABILITY Thomas L. Wheelen J. David Hunger Formerly with University of Formerly with Iowa State University, Virginia, Trinity College, Dublin, St. John’s University Ireland Alan N. Hoffman Charles E. Bamford Bentley University University of Notre Dame A01_WHEE5488_15_GE_FM.indd 1 7/13/17 4:01 PM  Vice President, Business Publishing: Donna Battista Director of Production, Business: Jeff Holcomb Director of Portfolio Management: Stephanie Wall Senior Manufacturing Controller, Global Edition: Director, Courseware Portfolio Management: Kay Holman ­Ashley Dodge Content Producer, Global Edition: Pooja Aggarwal Senior Sponsoring Editor: Neeraj Bhalla Managing Producer, Business: Ashley Santora Associate Acquisitions Editor, Global Edition: Operations Specialist: Carol Melville Ishita Sinha Creative Director: Blair Brown Associate Project Editor, Global Edition: Paromita Manager, Learning Tools: Brian Surette Banerjee Content Developer, Learning Tools: Lindsey Sloan Editorial Assistant: Linda Siebert Albelli Managing Producer, Digital Studio, Arts and Vice President, Product Marketing: Roxanne Business: Diane Lombardo McCarley Digital Studio Producer: Darren Cormier Director of Strategic Marketing: Brad Parkins Digital Studio Producer: Alana Coles Strategic Marketing Manager: Deborah Strickland Media Production Manager, Global Edition: Product Marketer: Becky Brown ­Vikram Kumar Field Marketing Manager: Lenny Ann Kucenski Full-Service Project Management and Composi- Field Marketing Assistant: Kristen Compton tion: SPi Global Product Marketing Assistant: Jessica Quazza Interior Design: SPi Global Vice President, Production and Digital Studio, Arts Cover Art: kaband/Shutterstock and Business: Etain O’Dea Acknowledgments of third-party content appear on the appropriate page within the text. Pearson Education Limited KAO Two KAO Park Harlow CM17 9NA United Kingdom and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearsonglobaleditions.com © Pearson Education Limited 2018 The rights of Thomas L. Wheelen, J. David Hunger, Alan N. Hoffman, and Charles E. Bamford to be identi- fied as the authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. Authorized adaptation from the United States edition, entitled Strategic Management and Business Policy: Globalization, Innovation, and Sustainability, 15th Edition, ISBN 978-0-13-452205-0 by Thomas L. Wheelen, J. David Hunger, Alan N. Hoffman, and Charles E. Bamford, published by Pearson Education © 2018. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a license permitting restricted copying in the United Kingdom ­issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS. All trademarks used herein are the property of their respective owners. The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners. ISBN 10:    1-292-21548-8 ISBN 13: 978-1-292-21548-8 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library 10 9 8 7 6 5 4 3 2 1 Typeset in Times Ten Lt Std by SPi Global Printed and bound by Vivar in Malaysia A01_WHEE5488_15_GE_FM.indd 2 7/13/17 4:01 PM  Dedicated to TOM WHEELEN AND DAVID HUNGER Tom originated this book in the late 1970s and with his friend David Hunger brought the first edition to fruition in 1982. What a ride it was! We lost both of these extraordinary men in rapid succession. After battling bone cancer, Tom died in Saint Petersburg, Florida, on December 24, 2011. David died in St. Joseph, Minnesota on April 10, 2014 after fighting cancer himself. It was Tom’s idea from the very beginning to include the latest research and useful material written in such a way that the typical student could read and understand the book without outside assistance. That has been a key reason for the success of the book through its many editions. Tom and D ­ avid worked in adjoining offices at the McIntire School of Commerce at the University of Virginia where their lifelong collaboration blossomed. Tom’s last months were spent working with the two new co-authors to map out the direction for the 14th edition and we were fortunate to work with David through the early part of the 14th edition update until his fight against his cancer took prior- ity. We thank you both and bid you a fond farewell! This 15th edition is for you! Alan N. Hoffman Charles E. Bamford SPECIAL DEDICATION TO DAVID HUNGER A special dedication in honor of David Hunger to his colleagues, friends, and students— It is our hope and prayer that you found, and continue to find, some joy in your study of S ­ trategic Management and Business Policy and, perhaps, experience a sense of the passion behind the subject matter presented in this textbook. It was originated by two men who were the best of friends and colleagues, Dr. Tom Wheelen (May 30, 1935 – December 24, 2011) and our Dad, Dr. J. ­David Hunger (May 17, 1941 – April 10, 2014). This will be the first edition we will see ­without a handwritten note in the front and a dedication to us all. Dad came alive discussing ­strategy, case management, theory, entrepreneurship, and the daily happenings in the field of management. Even relaxing at the end of the day, he could be found thumbing through a Business Week or ­journal. Colleagues always knew when he was in their presentations because he was fully engaged, ­offering questions and happy to share in an animated dialogue. Students speak fondly of ­being in his class. His dedication to the field never ended. Even up to a month before he died (still ­undergoing ­chemotherapy) he insisted on travelling by train from Minnesota to Chicago for a Case ­Research ­Conference to run a panel. We are so proud and thankful that Drs. Alan Hoffman and Chuck Bamford knew Tom and Dad and are carrying the torch forward. As his 4 daughters A01_WHEE5488_15_GE_FM.indd 3 7/13/17 4:01 PM  4 Dedicated and 6 grandchildren, we miss him daily. We lost him far too soon. Finally, our mom, Betty ­Hunger, who lived with the authorship of this textbook for three quarters of their 45 years together and joked that it was their 5th child, wishes to express just how much she misses Dad and looks ­forward to seeing him again. Betty, Kari and Jeff, Madison and Megan, Suzi and Nick, Summer and Kacey, Lori and Derek, Merry and Dylan, and Edan and Greyson. We love you David/Dad/GrandDad. To Will Hoffman, the greatest son in the world…. and to our saint Wendy Appel. …. and to Jodi L. Silton, thank you for your kindness and understanding. Alan Hoffman To Yvonne, for your support, advice, encouragement, love, and confidence. To my children Ada, Rob, and Sean and my grandchildren Silas, Isaac, and Clara. Chuck Bamford A01_WHEE5488_15_GE_FM.indd 4 7/13/17 4:01 PM  Brief Contents part ONE Introduction to Strategic Management and Business Policy 33 C hapter 1 Basic Concepts of Strategic Management 34 C hapter 2 Corporate Governance 72 C hapter 3 Social Responsibility and Ethics in Strategic Management 102 part TWO Scanning the Environment 123 C hapter 4 Environmental Scanning and Industry Analysis 124 C hapter 5 Organizational Analysis and Competitive Advantage 164 part THREE Strategy Formulation 199 C hapter 6 Strategy Formulation: Business Strategy 200 C hapter 7 Strategy Formulation: Corporate Strategy 224 C hapter 8 Strategy Formulation: Functional Strategy and Strategic Choice 250 part FOUR Strategy Implementation and Control 279 C hapter 9 Strategy Implementation: Global Strategy 280 C hapter 1 0 Strategy Implementation: Organizing and Structure 294 C hapter 1 1 Strategy Implementation: Staffing and Directing 324 C hapter 1 2 Evaluation and Control 348 part FIVE Introduction to Case Analysis 377 C hapter 1 3 Suggestions for Case Analysis 378 Part Six Cases in Strategic Management 1-1 GLOSSARY G-1 NAME INDEX  I-1 SUBJECT INDEX  I-6 5 A01_WHEE5488_15_GE_FM.indd 5 7/13/17 4:01 PM  Contents Preface 21 About the Authors 29 PART ONE Introduction to Strategic Management and Business Policy 33 C hapter 1 Basic Concepts of Strategic Management 34 The Study of Strategic Management 37 Phases of Strategic Management 37 Benefits of Strategic Management 38 Globalization, Innovation, and Sustainability: Challenges to Strategic Management 39 Impact of Globalization 40 Impact of Innovation 41 Global Issue: ASEAN: REGIONAL TRADE ASSOCIATIONS 42 Impact of Sustainability 42 Theories of Organizational Adaptation 44 Creating a Learning Organization 44 Basic Model of Strategic Management 46 Environmental Scanning 46 Strategy Formulation 48 Strategy Implementation 52 Evaluation and Control 53 Feedback/Learning Process 54 Initiation of Strategy: Triggering Events 54 Strategic Decision Making 55 What Makes a Decision Strategic? 55 Mintzberg’s Modes of Strategic Decision Making 56 Strategic Decision-Making Process: Aid to Better Decisions 57 The Strategic Audit: Aid to Strategic Decision Making 58 End of Chapter Summary 59 Appendix 1.A Strategic Audit of a Corporation 64 6 A01_WHEE5488_15_GE_FM.indd 6 7/13/17 4:01 PM  C  ontents 7 C hapter 2 Corporate Governance 72 Role of the Board of Directors 75 Responsibilities of the Board 76 Board of Directors Composition 79 Innovation Issue: Jcpenney And Innovation  80 Strategy Highlight: Agency Theory Versus Stewardship Theory In Corporate Governance  81 Nomination and Election of Board Members 85 Organization of the Board 86 Impact of Sarbanes–Oxley on U.S. Corporate Governance 87 Global Issue: Global Business Board Activism At Yahoo! 88 Improving Governance 89 Evaluating Governance 89 Avoiding Governance Improvements 90 Trends in Corporate Governance 90 The Role of Top Management 91 Responsibilities of Top Management 92 Sustainability Issue: Ceo Pay And Corporate Performance  92 End of Chapter Summary 95 C hapter 3 Social Responsibility and Ethics in Strategic Management 102 Social Responsibilities of Strategic Decision Makers 104 Responsibilities of a Business Firm 104 Sustainability 107 Sustainability Issue: Marks & Spencer Leads The Way  108 Corporate Stakeholders 108 Stakeholder Analysis 109 Strategy Highlight: Johnson & Johnson Credo  111 Ethical Decision Making 111 Some Reasons for Unethical Behavior 112 Global Issue: How Rule-Based And Relationship-Based Governance Systems Affect Ethical Behavior  113 Innovation Issue: Turning A Need Into A Business To Solve The Need  115 Encouraging Ethical Behavior 116 Views on Ethical Behavior 117 End of Chapter Summary 119 A01_WHEE5488_15_GE_FM.indd 7 7/13/17 4:01 PM  8 Contents PART TWO Scanning the Environment 123 C hapter 4 Environmental Scanning and Industry Analysis 124 Aspects of Environmental Scanning 126 Identifying External Environmental Variables 127 Sustainability Issue: Green Supercars  128 Strategic Importance of the External Environment 129 Scanning the Societal Environment: Steep Analysis 129 Global Issue: Suvs Power On In China  137 Identifying External Strategic Factors 139 Industry Analysis: Analyzing the Task Environment 139 Porter’s Approach to Industry Analysis 140 Industry Evolution 144 Categorizing International Industries 144 Innovation Issue: Taking Stock Of An Obsession  145 International Risk Assessment 146 Strategic Groups 146 Strategic Types 147 Hypercompetition 148 Using Key Success Factors to Create an Industry Matrix 149 Competitive Intelligence 150 Sources of Competitive Intelligence 151 Strategy Highlight Evaluating Competitive Intelligence  152 Monitoring Competitors for Strategic Planning 153 Forecasting 154 Danger of Assumptions 154 Useful Forecasting Techniques 154 The Strategic Audit: A Checklist for Environmental Scanning 156 Synthesis of External Factors 156 End of Chapter Summary 158 C hapter 5 Organizational Analysis and Competitive Advantage 164 A Resource-Based Approach to Organizational Analysis—Vrio 166 Core and Distinctive Competencies 166 Using Resources/Capabilities to Gain Competitive Advantage 169 A01_WHEE5488_15_GE_FM.indd 8 7/13/17 4:01 PM  Contents 9 Business Models 170 Value-Chain Analysis 172 Industry Value-Chain Analysis 172 Corporate Value-Chain Analysis 174 Scanning Functional Resources and Capabilities 175 Basic Organizational Structures 175 Culture 177 Global Issue: Managing Corporate Culture For Global Competitive Advantage: Abb Vs. Panasonic  179 Strategic Marketing Issues 179 Innovation Issue: Docomo Moves Against The Grain  181 Strategic Financial Issues 182 Strategic Research and Development (R&D) Issues 183 Strategic Operations Issues 185 Strategic Human Resource Management (HRM) Issues 187 Strategic Information Systems/Technology Issues 189 Sustainability Issue: The Olympic Games—London 2012/Sochi 2014/Rio 2016 & Tokyo 2020 190 The Strategic Audit: A Checklist for Organizational Analysis 192 Synthesis of Internal Factors (IFAS) 192 End of Chapter Summary 194 PART THREE Strategy Formulation 199 C hapter 6 Strategy Formulation: Business Strategy 200 A Framework for Examining Business Strategy 202 Generating a Strategic Factors Analysis Summary (Sfas) Matrix 203 Finding Market Niches 205 Mission and Objectives 206 Business Strategies 207 Porter’s Competitive Strategies 207 Global Issue: HAS EMIRATES REACHED THE LIMIT OF GLOBALIZATION? 209 Innovation Issue: Chegg And College Textbooks  212 Sustainability Issue: Strategic Sustainability—Espn  214 Cooperative Strategies 215 Strategic Alliances 216 End of Chapter Summary 220 A01_WHEE5488_15_GE_FM.indd 9 7/13/17 4:01 PM  10 Contents C hapter 7 Strategy Formulation: Corporate Strategy 224 Corporate Strategy 226 Directional Strategy 226 Growth Strategies 227 Strategy Highlight: Transaction Cost Economics Analyzes Vertical Growth Strategy 230 Global Issue: Global Expansion Is Not Always A Path To Growth  232 Controversies in Directional Growth Strategies 233 Stability Strategies 234 Retrenchment Strategies 235 Portfolio Analysis 237 BCG Growth-Share Matrix 238 Sustainability Issue: General Motors And The Electric Car  240 Advantages and Limitations of Portfolio Analysis 241 Managing a Strategic Alliance Portfolio 241 Corporate Parenting 242 Innovation Issue: To Red Hat Or Not? 243 Developing a Corporate Parenting Strategy 244 Horizontal Strategy and Multipoint Competition 244 End of Chapter Summary 245 C hapter 8 Strategy Formulation: Functional Strategy and Strategic Choice 250 Functional Strategy 252 Marketing Strategy 252 Financial Strategy 254 Research and Development (R&D) Strategy 255 Operations Strategy 256 Global Issue: Why Is Starbucks Afraid Of Italy? 257 Purchasing Strategy 258 Sustainability Issue: How Hot Is Hot? 259 Innovation Issue: When An Innovation Fails To Live Up To Expectations  260 Logistics Strategy 261 Human Resource Management (Hrm) Strategy 261 Information Technology Strategy 262 A01_WHEE5488_15_GE_FM.indd 10 7/13/17 4:01 PM  Contents 11 The Sourcing Decision: Location of Functions 262 Strategies To Avoid 265 Strategic Choice: Constructing Scenarios 265 Constructing Corporate Scenarios 266 The Process of Strategic Choice 271 Using Policies to Guide Strategic Choices 273 End of Chapter Summary 273 PART FOUR Strategy Implementation and Control 279 C hapter 9 Strategy Implementation: Global Strategy 280 International Entry 282 International Coordination 284 International Strategic Alliances 285 Stages of International Development 285 International Employment 286 Measurement of Performance 288 End of Chapter Summary 290 C hapter 10 Strategy Implementation: Organizing and Structure 294 Strategy Implementation 296 Who Implements Strategy? 297 What Must Be Done? 297 Developing Programs, Budgets, and Procedures 297 Sustainability Issue: A Better Bottle—Ecologic Brands  298 Achieving Synergy 302 How Is Strategy To Be Implemented? Organizing for Action 303 Structure Follows Strategy 303 Stages of Corporate Development 304 Innovation Issue: The P&G Innovation Machine Stumbles  305 Organizational Life Cycle 309 Flexible Types of Organizational Structure 310 The Matrix Structure 310 Network Structure—The Virtual Organization 312 Global Issue: Outsourcing Comes Full Circle  313 Cellular/Modular Organization: A New Type of Structure? 314 A01_WHEE5488_15_GE_FM.indd 11 7/13/17 4:01 PM  12 Contents Reengineering and Strategy Implementation 314 Six Sigma 315 Designing Jobs to Implement Strategy 316 Centralization Versus Decentralization 317 End of Chapter Summary 318 C hapter 11 Strategy Implementation: Staffing and Directing 324 Staffing 326 Staffing Follows Strategy 327 Selection and Management Development 329 Innovation Issue: How To Keep Apple “Cool” 329 Problems in Retrenchment 331 Leading 333 Managing Corporate Culture 333 Sustainability Issue: Panera And The “Panera Cares Community Café” 334 Action Planning 338 Management by Objectives 340 Total Quality Management 341 Global Issue: Cultural Differences Create Implementation Problems in Merger 342 End of Chapter Summary 342 C hapter 12 Evaluation and Control 348 Measuring Performance 350 Appropriate Measures 350 Types of Controls 351 Innovation Issue: Solar Power And The Grid  352 Activity-Based Costing 353 Enterprise Risk Management 354 Primary Measures of Corporate Performance 354 Sustainability Issue: The End Of The Cash Register Receipt  357 Balanced Scorecard Approach: Using Key Performance Measures 358 Primary Measures of Divisional and Functional Performance 360 Responsibility Centers 360 Using Benchmarking To Evaluate Performance 362 A01_WHEE5488_15_GE_FM.indd 12 7/13/17 4:01 PM  Contents 13 Global Issue: Counterfeit Goods And Pirated Software: A Global Problem 363 Strategic Information Systems 363 Enterprise Resource Planning 364 Radio Frequency Identification and Near Field Communication 364 Divisional and Functional is Support 365 Problems in Measuring Performance 365 Short-Term Orientation 366 Goal Displacement 367 Guidelines for Proper Control 368 Aligning Incentives 369 End of Chapter Summary 371 PART FIVE Introduction to Case Analysis 377 C h ap t e r 13 Suggestions for Case Analysis 378 The Case Method 380 Researching the Case Situation 380 Financial Analysis: A Place to Begin 381 Analyzing Financial Statements 381 Common-Size Statements 385 Z-Value and the Index of Sustainable Growth 385 Useful Economic Measures 386 Format for Case Analysis: The Strategic Audit 386 End of Chapter Summary 389 Appendix 13.A Resources for Case Research 391 Appendix 13.B Suggested Case Analysis Methodology Using the Strategic Audit 393 Appendix 13.C Example of Student-Written Strategic Audit 396 PART SIX Cases in Strategic Management 1-1 SE C TION A Executive Leadership CASE 1 The Recalcitrant Director at Byte Products, Inc.: Corporate Legality versus Corporate Responsibility   1-7 (Contributors: Dan R. Dalton, Richard A. Cosier, and Cathy A. Enz) A plant location decision forces a confrontation between the board of directors and the CEO regarding an issue in social responsibility and ethics. A01_WHEE5488_15_GE_FM.indd 13 7/20/17 7:27 PM  14 Contents CASE 2 The Wallace Group   2-1 (Contributor: Laurence J. Stybel) Managers question the company’s strategic direction and how it is being managed by its founder and CEO. Company growth has resulted not only in disorganization and confusion among employees, but in poor overall performance. How should the board deal with the company’s founder? S E C T I O N B Business Ethics CASE 3 Everyone Does It   3-1 (Contributors: Steven M. Cox and Shawana P. Johnson) When Jim Willis, Marketing VP, learns that the launch date for the company’s new satellite will be late by at least a year, he is told by the company’s president to continue using the earlier published date for the launch. When Jim protests that the use of an incorrect date to market contracts is unethical, he is told that spacecraft are never launched on time and that it is common industry practice to list unrealistic launch dates. If a realistic date was used, no one would contract with the company. CASE 4 The Audit   4-1 (Contributors: Gamewell D. Gantt, George A. Johnson, and John A. Kilpatrick) A questionable accounting practice by the company being audited puts a new CPA in a difficult position. Although the practice is clearly wrong, she is being pressured by her manager to ignore it because it is common in the industry. S E C T I O N C Corporate Governance and Social Responsibility CASE 5  arly Warning or False Sense of Security? Concussion Risk and the Case of E the Impact-Sensing Football Chinstrap   5-1 (Contributors: Clifton D. Petty, and Michael R. Shirley) In 2009, Battle Sports Science, headquartered in Omaha, Nebraska, was built with a focus on “enhancing safety for athletes.” Specifically, the company wanted to protect young athletes who might have suffered a concussion. Battle Sports Science attempted to gain market attention for its US$149.99 impact indicator (chin strap) through endorsements, and had enlisted a number of NFL players. The company hoped to sell the device to sports programs (schools) as well as to individual players. CASE 6 The Storm of Governance Reform at the American Red Cross   6-1 (Contributors: Jill A. Brown and Anne Anderson) In early 2006, a U.S. Senate Finance Committee began investigating the American Red Cross following substantial concerns over the governance effectiveness of the organization and its Board of Governors. This investigation was prompted by concerns over Hurricane Katrina relief efforts, as well as governance concerns regarding the structure and processes of the ARC new Board. Consequently, the Finance Committee appointed an Independent Governance Advisory Panel to provide recommendations regarding how to overhaul the American Red Cross Board of Governors. CASE 7 Chipotle Mexican Grill, Inc.: Conscious Capitalism by Serving “Food With Integrity” 7-1 (Contributor: Alan N. Hoffman) People loved Chipotle Mexican Grill because of the tasty and healthy food as well as its edgy, trendy, cool brand image. Chipotle established itself as a successful company practicing “conscious capitalism” by serving “food with integrity”—its supply chain and corporate culture new were closely integrated from the time that ingredients were farmed, raised, harvested, and shipped to stores to the time the final product was placed on a customer’s serving tray. By 2014, the fast A01_WHEE5488_15_GE_FM.indd 14 7/13/17 4:01 PM  Contents 15 casual food market in the US became increasingly competitive and crowded with many new entrants. Being a public listed company, Chipotle had to meet Wall Street’s high expectations of growth and earnings. Living up to analysts’ expectations was becoming increasingly difficult for Chiptole. S E C T I O N D Privacy CASE 8 Google and the Right to Be Forgotten   8-1 (Contributor: Cynthia E. Clark) In 2009, Mario Costeja Gonzalez, a self-employed attorney casually “googled” himself and was startled by what came up on his computer screen. Prominently displayed in the search results was a brief legal notice that had appeared more than a decade earlier in a local newspaper, which new listed property seized and being auctioned by a government agency for nonpayments of debts. Costeja immediately realized that this information could damage his reputation as an attorney and decided to fight Google to request deletion of that data. S E C T I O N E International Issues in Strategic Management CASE 9 Harley Davidson: An Overreliance on Aging Baby Boomers   9-1 (Contributors: Alan N. Hoffman and Natalia Gold) At Harley Davidson, customers not only purchased a motorcycle, they bought the “rebel” lifestyle Harley signified. This rebel image took a long time to develop and constituted a major competitive advantage for Harley. Nothing promised the same excitement as being on the open road on a new Harley, its engine roaring, the wind whipping, the great open spaces of America just down the road. Harley Davidson specifically targeted a narrowly defined market of middle-aged males with disposable income. However, as US baby boomers got older, the company recognized that it had to look to new markets and demographics to expand sales. CASE 10 Uber: Feeling the Heat from Competitors and Regulators Worldwide   10-1 (Contributors: Alan N. Hoffman and Natalia Gold) Uber, originally known as “UberCab,” was started by Travis Kalanick and Garrett Camp in San Francisco, California, in 2009. The company grew rapidly and by 2015 it was providing carpooling services in 300 major cities in 58 countries around the world. As Uber moved forward into new territories, however, it got entangled in many regulatory and legal hassles. The company had to figure out how to sustain its lead in the heavily regulated, controversial, competitive, and new ever-changing taxi industry. Moreover, despite a landslide market share Uber was operating at a loss. How to lower costs and become profitable was another challenge for this young and aggressive company. S E C T I O N F General Issues in Strategic Management I N D U S T R Y O N E :   INTERNET COMPANIES CASE 11 Pandora Internet Radio (2014): Just Press Play   11-1 (Contributors: Gary Stenftennagel and Joyce Vincelette) Pandora Media was built around the idea of providing listeners with only the music that they love. To do so, Pandora fundamentally changed how people listened to music by allowing station customization and the ability to listen to music over the Internet. As technology changed, Pandora evolved from a Web site based radio provider and developed a mobile application where the new company could offer its services to customers whenever and wherever they wanted to listen to music. Monetizing the mobile product proved to be difficult and Pandora had not yet attained profitability. A01_WHEE5488_15_GE_FM.indd 15 7/13/17 4:01 PM  16 Contents CASE 1 2 Amazon.com, Inc.: Retailing Giant to High-Tech Player?   12-1 (Contributor: Alan N. Hoffman) In 2012, more than half of all Amazon sales came from computers, mobile devices including the Kindle, Kindle Fire, and Kindle Touch, and other electronics, as well as general merchandise from home and garden supplies to groceries, apparel, jewelry, health and beauty products, sports and outdoor equipment, tools, and auto and industrial supplies. Amazon was at a crossroads with regard to its push into technology versus its general merchandise. Amazon also faced other challenges, including those from state governments that wanted it to collect sales taxes so it would not adversely compete against local businesses. CASE 1 3 Blue Nile, Inc.: “Stuck in the Middle” of the Diamond Engagement Ring Market  13-1 (Contributor: Alan N. Hoffman) Blue Nile Inc. has developed into the largest online retailer of diamond engagement rings. Unlike traditional jewelry retailers, Blue Nile operates completely store-front-free, without in-person consultation services. The business conducts all sales online or by phone, and sales include both engagement (70%) and non-engagement (30%) categories. Blue Nile’s vision is to educate its customer base so customers can make an informed, confident decision no matter what event they are celebrating. It wants to make the entire diamond-buying process easy and hassle-free. I N D U S T R Y T W O :    ENTERTAINMENT AND LEISURE CASE 1 4 Groupon Inc.: Daily Deal or Lasting Success?   14-1 (Contributors: Nick Falcone, Eric Halbruner, Ellie A. Fogarty, and Joyce Vincelette) Groupon began as a local Chicago discount service and became a global phenomenon seemingly overnight. It was a great idea. The company was the first of its kind and changed the way consumers spend, shop, and think about discounts. But how could Groupon, based on such innovation and having experienced such exceptional growth, be in such a precarious position? A wave of competition had swelled, including the likes of technology giants and both general and niche daily deals services, all replicating Groupon’s business model. How could Groupon compete against large companies and their expansive resources? CASE 1 5 Netflix Inc.: The 2011 Rebranding/Price Increase Debacle   15-1 (Contributor: Alan N. Hoffman) On September 18, 2011, Netflix CEO and co-founder Reed Hastings announced on the Netflix blog that the company was splitting its DVD delivery service from its online streaming service, rebranding its DVD delivery service, Qwikster, as a way to differentiate it from its online streaming service, and creating a new Web site for it. Three weeks later, in response to customer outrage and confusion, Hastings rescinded the decision to rebrand the DVD delivery service, Qwikster, and reintegrated it into Netflix. Nevertheless, only five weeks after the initial split, Netflix acknowledged that it had lost 800,000 U.S. subscribers and expected to lose many more, thanks both to the Qwikster debacle and the price hike the company had decided was necessary to cover increasing content costs. CASE 1 6 Town Sports International Holdings, Inc.: Unsquashable   16-1 (Contributors: Sarah Stefanelli, Christina Marie Kopka, Jakub Libucha, and Joyce Vincelette) Town Sports International decided to move forward with its expansion strategy in order to new become the most recognized health club network, through both designing and building clubs and through selective acquisitions within its four major markets, Boston, New York, Washington D.C., and Philadelphia. Town Sports Int’l set out to accomplish this efficiently and effectively by living by its customer-centric mission, “Improving Lives Through Exercise.” A01_WHEE5488_15_GE_FM.indd 16 7/13/17 4:01 PM  Contents 17 CASE 1 7 Zynga, Inc. (2011): Whose Turn Is It?   17-1 (Contributors: Zachary Burkhalter, Daniel Zuller, Concetta Bagnato, Joyce Vincelette, and Ellie A. Fogarty) Zynga built its company around social gaming. This new type of gaming transformed the gaming industry on multiple levels and across various platforms. Zynga originally built its games using the Facebook platform and then capitalized on the company’s unique method of social networking to capture audiences around the world. However, this strong reliance on Facebook and changes in consumer gaming practices caused some concern among outside investors as to the future of Zynga. INDUSTRY THREE:   FOOD AND BEVERAGE CASE 1 8 The Boston Beer Company: Brewers of Samuel Adams Boston Lager (Mini Case)  18-1 (Contributor: Alan N. Hoffman) The Boston Beer Company, founded in 1984 by Jim Koch, is viewed as a pioneer in the American craft beer revolution. Brewing over one million barrels of 25 different styles of beer, Boston Beer is the sixth-largest brewer in the United States. Even though overall domestic beer sales declined 1.2% in 2010, sales of craft beer have increased 20% since 2002, with Boston Beer’s increasing 22% from 2007 to 2009. How can the company continue its rapid growth in a mature industry? CASE 1 9 Panera Bread Company (2010): Still Rising Fortunes?   19-1 (Contributors: Joyce P. Vincelette and Ellie A. Fogarty) Panera Bread is a successful bakery-café known for its quality soups and sandwiches. Even though Panera’s revenues and net earnings have been rising rapidly, new unit expansion throughout North America has fueled this growth. Will revenue growth stop once expansion slows? The retirement of CEO Ronald Shaich, the master baker who created the “starter” for the company’s phenomenal growth, is an opportunity to rethink Panera’s growth strategy. CASE 2 0 Whole Foods Market (2010): How to Grow in an Increasingly Competitive Market? (Mini Case)   20-1 (Contributors: Patricia Harasta and Alan N. Hoffman) Whole Foods Market is the world’s leading retailer of natural and organic foods. The company differentiates itself from competitors by focusing on innovation, quality, and service excellence, allowing it to charge premium prices. Although the company dominates the natural/organic foods category in North America, it is facing increasing competition from larger food retailers like Wal-Mart, who are adding natural/organic foods to their offerings. CASE 2 1 Burger King (Mini Case)   21-1 (Contributor: J. David Hunger) Founded in Florida in 1953, Burger King has always trailed behind McDonald’s as the second- largest fast-food hamburger chain in the world. Although its total revenues dropped only slightly from 2009, its 2010 profits dropped significantly, due to high expenses. Burger King’s purchase by an investment group in 2010 was an opportunity to rethink the firm’s strategy. CASE 2 2 Sonic Restaurants: Does Its Drive-In Business Model Limit Future Growth Potential?  22-1 (Contributors: Alan N. Hoffman and Natalia Gold) Sonic is an iconic American drive-in fast-food chain with nearly thousands of franchises established across the United States by 2014. As Sonic continued to expand, it ran into various new hurdles. The most daunting challenge was to enter urban environments where space was too scarce to make drive-in possible. At the same time, while the drive-in model was highly effective in the US, thanks to nostalgia, it did not have the same emotional appeal to international A01_WHEE5488_15_GE_FM.indd 17 7/13/17 4:01 PM  18 Contents consumers. Should Sonic move away from the drive-in model and reinvent itself? If so, would it become just another fast food burger joint with a customizable menu? And how could it compete with larger players such as McDonald’s and Burger King that already had a substantial urban and international presence? CASE 2 3 “Breaking Up is Hard to Do”: PepsiCo in 2014   23-1 (Contributor: Ram Subramanian) On April 17, 2014, Indra Nooyi, the Chief Executive Officer of the Purchase, New York-based PepsiCo, a diversified beverage and snack foods company, met with Ian Cook, the Presiding Director of the company’s Board, to discuss a response to Nelson Peltz’s (the head of Trian Fund new Management, an activist fund) latest call for breaking up the company into two independent entities. Peltz had threatened to approach the company’s stockholders directly if the Board did not accede to his demands. INDUSTRY FOUR:  APPAREL CASE 2 4 Under Armour   24-1 (Contributors: Ram Subramanian and Pradeep Gopalakrishna) Under Armour’s footwear sales declined by 4.5% during the second quarter of 2009 and showed a 16.6% decline in the first six months of 2010 compared to 2009. This was in contrast to its performance apparel, the company’s core category, which saw a 32.2% uptick over 2009. Under Armour had tremendous growth opportunities in the apparel category in China. However, CEO Kevin Plank wanted Under Armour to be a leading player in the field of athletic footwear. CASE 2 5 TOMS Shoes (Mini Case)   25-1 (Contributor: J. David Hunger) Founded in 2006 by Blake Mycoskie, TOMS Shoes is an American footwear company based in Santa Monica, California. Although TOMS Shoes is a for-profit business, its mission is more like that of a not-for-profit organization. The firm’s reason for existence is to donate to children in need one new pair of shoes for every pair of shoes sold. By 2010, the company had sold over one million pairs of shoes. How should the company plan its future growth? CASE 2 6 J.C. Penney Company, Inc.: Surviving the Ron Johnson (CEO) Era   26-1 (Contributor: Alan N. Hoffman) Ron Johnson, the architect behind Apple’s wildly successful retail stores and 15-year Target veteran, became American department store chain J.C. Penney’s new CEO in November 2011. The owner of J.C. Penney had high hopes for Johnson, who proceeded to make drastic changes new to the company including a new logo and a new spokesperson (Ellen DeGeneres). His vision included transforming 700 of the largest J.C. Penney stores into collections of some 100 branded shops with a central ”town square” gathering area for services. J.C. Penney fired Ron Johnson after just 17 months, following a disastrous decline in business directly attributable to the failure of the new business plan. INDUSTRY FIVE:  RETAILING CASE 2 7 Best Buy Co. Inc. (2009): A Sustainable Customer-Centricity Model?   27-1 (Contributor: Alan N. Hoffman) Best Buy, the largest consumer electronics retailer in the United States, operates 4000 stores in North America, China, and Turkey. It distinguishes itself from competitors by deploying a differentiation strategy based on superior service rather than low price. The recent recession has stressed its finances and the quality of its customer service. How can Best Buy continue to have innovative products, top-notch employees, and superior customer service while facing increased competition, operational costs, and financial stress? A01_WHEE5488_15_GE_FM.indd 18 7/13/17 4:01 PM  Contents 19 CASE 2 8 Target Corp’s Tarnished Reputation: Failure in Canada and a Massive Data Breach  28-1 (Contributors: Alan N. Hoffman and Natalia Gold) Target is a US mass-market discount store catering to shoppers seeking high quality products. In a crowded market, Target was eager to grow its business outside the US and online. It expanded to Canada in 2011 by acquiring a failed retailer. A move that seemed prudent actually saddled Target with inconveniently located stores and strained its logistics infrastructure. Closing down new its Canadian stores, Target focused on strengthening its online presence. But two massive data breach incidents in 2013 and 2014 affected over 100 million of its customers and weakened Target’s sales significantly. In order to keep its market share on a par with competitors such as Walmart and Amazon, Target clearly has challenges to be met. CASE 2 9 Staples: The Fierce Battle Between Brick and Mortar vs. Online Sales   29-1 (Contributors: Alan N. Hoffman and Natalia Gold) With a focus on convenience and a wide range of product offerings, Staples was the world’s largest office supplies retailer. The office supply sector had almost no barriers to entry as capital costs were low compared to other retail industries. No licensing requirements were necessary, new easing the burden on new entrants. The low level of differentiation of goods between one office supply store and the next, forced new entrants to provide either niche or specialty products to compete and often in the online realm. As the retail industry had been trending towards e-commerce, Staples’ traditional brick and mortar stores were costing it dearly. The global office supplies leader found it increasingly difficult to compete on the Internet. INDUSTRY SIX:  TRANSPORTATION CASE 3 0 Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956   30-1 (Contributor: Alan N. Hoffman) Tesla Motors was founded in 2004 to produce electric automobiles. Its first car, the Tesla Roadster, sold for US$101,000. It could accelerate from 0 to 60 mph in 3.9 seconds, and cruise for 236 miles on a single charge. In contrast to existing automakers, Tesla sold and serviced its cars through the Internet and its own Tesla stores. With the goal of building a full line of electric vehicles, Tesla Motors faces increasing competition from established automakers. How can Tesla Motors succeed in an industry dominated by giant global competitors? CASE 3 1 TomTom: New Competition Everywhere!   31-1 (Contributor: Alan N. Hoffman) TomTom, an Amsterdam-based company that provides navigation services and devices, led the navigation systems market in Europe and is second in popularity in the United States. However, the company is facing increasing competition from other platforms using GPS technology, like cell phones and Smartphones with built-in navigation functions. As its primary markets in the United States and Europe mature, how can the company ensure its future growth and success? INDUSTRY SEVEN:  MANUFACTURING CASE 3 2 General Electric, GE Capital, and the Financial Crisis of 2008: The Best of the Worst in the Financial Sector?   32-1 (Contributor: Alan N. Hoffman) The financial services industry was, by definition, volatile, and GE Capital was particularly hard hit by the economic recession of 2008. With the credit markets illiquid and financial markets falling, GE Capital found it was overexposed to commercial real estate and foreign residential mortgages. At this point, GE’s parent corporation stepped in, began reorganizing GE Capital, and significantly downsized the unit. GE Capital hoped to see continued sustainable earnings growth with growing margins and lower portfolio risk, and to return money to investors and resume paying dividends to its parent company. A01_WHEE5488_15_GE_FM.indd 19 7/13/17 4:01 PM  20 Contents CASE 3 3 Snap-on Tools: A Victim of Its Own Success   33-1 (Contributor: Alan N. Hoffman) For 93 years, Snap-on Tools had firmly established itself as an innovative premium tool manufacturer serving the automotive industry. In recent years, Snap-on Tools started to expand its product lines to engineering industries including aerospace, aviation, and oil and gas. It also new began to give technical education to build the skilled labor base in the US—its largest market that constituted 65% of all revenue. Snap-on feared that its overdependence on the US market could make its business and operations vulnerable to country-specific trends as well as increase the company’s exposure to local factors such as severe weather conditions, labor strikes, or changes in regulations. GLOSSARY    G-1 NAME INDEX    I-1 SUBJECT INDEX    I-6 A01_WHEE5488_15_GE_FM.indd 20 7/13/17 4:01 PM  Preface Welcome to the 15th edition of Strategic Management and Business Policy! All of the chapters have been updated and we have added one new chapter on Global Strategy. In addition, we have added 13 brand-new cases (Target, American Red Cross, Sonic Restaurants, Harley Davidson, Staples, Chipotle, Uber, Pandora Internet ­ Radio, Snap-on Tools, Google, Pepsi, Town Sports International, and JC Penney). Many of the cases are exclusive to this edition! Although we still make a distinction between full-length and mini cases, we have interwoven them throughout the book to better identify them with their industries. The theme that runs throughout all 13 chapters of this edition continues our view from the 14th edition that there are three strategic issues that comprise the corner- stone all organizations must build upon to push their businesses forward. Those are globalization, innovation, and sustainability. Each chapter incorporates specific ­vignettes about these three themes. We strive to be the most comprehensive and prac- tical strategy book on the market, with chapters ranging from corporate governance and social responsibility to competitive strategy, functional strategy, and strategic alliances. FEATURES NEW TO THIS 15TH EDITION This edition of the text has: A completely new Chapter (9) on Global Strategy. While we discuss globalization in every chapter of the book, including a Global Issues section in each chapter, we have called out a stand-alone chapter to address the key issues of entry, inter- national coordination, stages of international development, international employ- ment, and measurement of performance. New and updated vignettes on sustainability (which is widely defined as business sustainability), globalization (which we view as an expectation of business), and innovation (which is the single most important element in achieving competitive advantage) appear in every chapter of the text. Every example, chapter opening, and story has been updated. This includes chap- ter opening vignettes examining companies such as: Tesla, Pizza Hut, UNIQLO, Kärcher, Purbani Group, and United Airlines among many others. Resource-based analysis and more specifically the VRIO framework (Chapter 5) has been added to the toolbox of students’ understanding of core competencies and competitive advantage with a significant addition of material and a practical example. 21 A01_WHEE5488_15_GE_FM.indd 21 7/13/17 4:01 PM  22 Preface Extensive additions have been made to the text from both strategy research and practical experience. Thirteen new comprehensive cases have been added to support the 14 popular full- length cases and 6 mini-cases carried forward from past editions. Of the 33 cases appearing in this book, 19 are exclusive and do not appear in other books. One of the new cases deals with privacy (Google and the Right to Be Forgotten). One of the new cases deals with governance (American Red Cross). One of the new cases deals with conscious capitalism (Chipotle). Two of the new cases deal with international issues (Uber, Harley Davidson). One of the new cases involves Internet companies (Pandora Internet Radio). One of the new cases deals with Sports and Leisure (Town Sports Int’l). One of the new cases deals with Apparel (J.C. Penney). Three of the new cases deal with Food and Beverages (Pepsi, Sonic Restaurants). Two of the new cases deal with Retailing (Target, Staples). One of the new cases deals with Manufacturing (Snap-on Tools). HOW THIS BOOK IS DIFFERENT FROM OTHER STRATEGY TEXTBOOKS This book contains a Strategic Management Model that runs through the first 12 chap- ters and is made operational through the Strategic Audit, a complete case analysis methodology. The Strategic Audit provides a professional framework for case analysis in terms of external and internal factors and takes the student through the generation of strategic alternatives and implementation programs. To help the student synthesize the many factors in a complex strategy case, we developed three useful techniques: The External Factor Analysis (EFAS) Table in Chapter 4 This reduces the external opportunities and threats to the 8 to 10 most important external factors facing management. The Internal Factor Analysis (IFAS) Table in Chapter 5 This reduces the internal strengths and weaknesses to the 8 to 10 most important internal factors facing management. The Strategic Factor Analysis Summary (SFAS) Matrix in Chapter 6 This condenses the 16 to 20 factors generated in the EFAS and IFAS tables into the 8 to 10 most important (strategic) factors facing the company. These strategic factors become the basis for generating alternatives and act as a recommendation for the company’s future direction. Suggestions for case analysis are provided in Appendix 13.B (end of Chapter 13) and contain step-by-step procedures on how to use a strategic audit in analyzing a case. This appendix includes an example of a student-written strategic audit. Thousands of students around the world have applied this methodology to case analysis with great success. The Case Instructor’s Manual contains examples of student-written strategic audits for each of the full-length comprehensive strategy cases. A01_WHEE5488_15_GE_FM.indd 22 7/13/17 4:01 PM  P  reface 23 FEATURES This edition contains many of the same features and content that helped make previ- ous editions successful. Some of the features include the following: A strategic management Chapter 1 model runs throughout the Basic Concepts of Learning Objectives first 12 chapters as a unify- After reading this chapter, you should be able to: Strategic 1-1. Discuss the benefits of strategic 1-5. Describe the basic model of strategic man- management agement and its components ing concept. (Explained in 1-2. Explain how globalization, innovation, 1-6. Identify some common triggering events and environmental sustainability influence that act as stimuli for strategic change Management strategic management 1-7. Explain strategic decision-making modes 1-3. Discuss the differences between the theo- Chapter 1) 1-8. Use the strategic audit as a method ries of organizations of analyzing corporate functions and 1-4. Discuss the Activities where learning orga- activities nizations excel Toyota Motors Co. Environmental Strategy Strategy Evaluation In 1937, Kiichiro Toyoda founded the Toyota Motor Corporation, head- Scanning: Formulation: Implementation: and Control: quartered in Aichi Prefecture, Japan. The company, now headed by Akio Gathering Developing Putting Strategy Monitoring Information Long-range Plans into Action Performance Toyoda, the President and Representative Director, has a capital of around $179,399 million. Its primary business activities involve automotive manu- External Mission facturing. As of March 2016, the company employs around 348,977 people. Natural Reason for Objectives Environment: existence Sakichi Toyoda, the founder of Toyota Industries, set certain Guiding