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Contents Preface xxix PART ONE Introduction to Strategic Management and Business Policy 1 Chapter 1 Basic Concepts in Strategic Management 1 1.1 The Study of Strategic Management 3 Phases of Strategic Management 3 Benefits of Strategic Management 5 1.2 Globalization and Electronic Commerce: Challenges to Strategic Management 6 Impact of Globalization 6 Global Issue: Regional Trade Associations Replace National Trade Barriers 7 Electronic Commerce 7 1.3 Theories of Organizational Adaptation 8 1.4 Creating a Learning Organization 9 1.5 Basic Model of Strategic Management 10 Environmental Scanning 10 Strategy Formulation 12 Strategy Highlight 1.1: Do You Have a Good Mission Statement? 13 Strategy Implementation 16 Evaluation and Control 17 Feedback/Learning Process 18 1.6 Initiation of Strategy: Triggering Events 18 Strategy Highlight 1.2: Triggering Event at Sun Microsystems 19 1.7 Strategic Decision Making 20 What Makes a Decision Strategic? 20 Mintzberg's Modes of Strategic Decision Making 20 Strategic Decision-Making Process: Aid to Better Decisions 21 1.8 The Strategic Audit: Aid to Strategic Decision Making 23 1.9 Conclusion 24 Appendix 1.A Strategic Audit of a Corporation 26 Chapter 2 Corporate Governance 34 2.1 Role of the Board of Directors 36 Responsibilities of the Board 36 Members of a Board of Directors 39 xi xii CONTENTS Strategy Highlight 2.1: Agency Theory Versus Stewardship Theory in Corporate Governance 41 Global Issue: POSCO Adds an International Director 42 Nomination and Election of Board Members 44 Organization of the Board 44 Impact of the Sarbanes-Oxley Act on U.S. Corporate Governance 46 Trends in Corporate Governance 47 2.2 The Role of Top Management 48 Responsibilities of Top Management 48 Strategy Highlight 2.2: CEO Hubris at Disney? 51 2.3 Conclusion 52 Chapter 3 Ethics and Social Responsibility in Strategic Management 55 3.1 Social Responsibilities of Strategic Decision Makers 56 Responsibilities of a Business Firm 57 Corporate Stakeholders 59 3.2 Ethical Decision Making 61 Strategy Highlight 3.1: The Johnson & Johnson Credo 62 Some Reasons for Unethical Behavior 62 Strategy Highlight 3.2: Unethical Practices at Enron and WorldCom Exposed by Whistle-Blowers 63 Global Issue: How Rule-Based and Relationship-Based Governance Systems Affect Ethical Behavior 64 Encouraging Ethical Behavior 66 3.3 Conclusion 68 PART ENDING VIDEO CASE: Newbury Comics, Inc. 70 PART TWO Scanning the Environment 71 Chapter 4 Environmental Scanning and Industry Analysis 71 4.1 Environmental Scanning 73 Identifying External Environmental Variables 73 Global Issue: Identifying Potential Markets in Developing Nations 79 Identifying External Strategic Factors 81 4.2 Industry Analysis: Analyzing the Task Environment 82 Porter's Approach to Industry Analysis 82 Industry Evolution 86 Categorizing International Industries 87 International Risk Assessment 87 Strategic Groups 88 CONTENTS Strategic Types 88 Hypercompetition 89 Strategy Highlight 4.1: Microsoft in a Hypercompetitive Industry 90 Using Key Success Factors to Create an Industry Matrix 91 4.3 Competitive Intelligence 92 Sources of Competitive Intelligence 93 Strategy Highlight 4.2: Evaluating Competitive Intelligence 94 Monitoring Competitors for Strategic Planning 94 4.4 Forecasting 95 Danger of Assumptions 95 Using Forecasting Techniques 96 4.5 The Strategic Audit: A Checklist for Environmental Scanning 97 4.6 Synthesis of External Factors-EFAS 97 4.7 Conclusion 99 Appendix 4.A Competitive Analysis Techniques 101 Chapter 5 Internal Scanning: Organizational Analysis 104 5.1 A Resource-Based Approach to Organizational Analysis 106 Core and Distinctive Competencies 106 Using Resources to Gain Competitive Advantage 107 Determining the Sustainability of an Advantage 108 5.2 Business Models 110 5.3 Value-Chain Analysis 111 Industry Value-Chain Analysis 112 Corporate Value-Chain Analysis 113 5.4 Scanning Functional Resources and Capabilities 114 Basic Organizational Structures 114 Corporate Culture: The Company Way 116 Global Issue: Managing Corporate Culture for Global Competitive Advantage: ABB Versus Matsushita 117 Strategic Marketing Issues 117 Strategic Financial Issues 119 Strategic Research and Development (R&D) Issues 120 Strategy Highlight 5.1: A Problem of Technology Transfer at Xerox Corporation 121 Strategic Operations Issues 123 Strategic Human Resource Management (HRM) Issues 125 Strategic Information Systems/Technology Issues 127 xiii xiv CONTENTS 5.5 The Strategic Audit: A Checklist for Organizational Analysis 129 5.6 Synthesis of Internal Factors 129 5.7 Conclusion 131 PART ENDING VIDEO CASE: Newbury Comics, Inc. 134 PART THREE Strategy Formulation 137 Chapter 6 Strategy Formulation: Situation Analysis and Business Strategy 137 6.1 Situational Analysis: SWOT Analysis 138 Generating a Strategic Factors Analysis Summary (SFAS) Matrix 139 Finding a Propitious Niche 142 Global Issue: SAB Defends Its Propitious Niche 143 6.2 Review of Mission and Objectives 143 6.3 Generating Alternative Strategies by Using a TOWS Matrix 144 6.4 Business Strategies 145 Porter's Competitive Strategies 145 Strategy Highlight 6.1: Grim Reaper Uses Focused Differentiation Strategy 149 Cooperative Strategies 156 6.5 Conclusion 161 Chapter 7 Strategy Formulation: Corporate Strategy 163 7.1 Corporate Strategy 164 7.2 Directional Strategy 165 Growth Strategies 165 Strategy Highlight 7.1: Transaction Cost Economics Analyzes Vertical Growth Strategy 168 Strategy Highlight 7.2: Screening Criteria for Concentric Diversification 171 International Entry Options 171 Global Issue: Wal-Mart Looks to International Markets for Growth 172 Controversies in Directional Growth Strategies 174 Stability Strategies 175 Retrenchment Strategies 176 Strategy Highlight 7.3: Turnaround Strategy at IBM 177 7.3 Portfolio Analysis 179 BCG Growth-Share Matrix 179 GE Business Screen 181 Advantages and Limitations of Portfolio Analysis 182 7.4 Corporate Parenting 183 Developing a Corporate Parenting Strategy 184 CONTENTS xv Horizontal Strategy and Multipoint Competition 185 7.5 Conclusion 185 Chapter 8 Strategy Formulation: Functional Strategy and Strategic Choice 188 8.1 Functional Strategy 189 Marketing Strategy 190 Financial Strategy 191 Research and Development (R&D) Strategy 192 Operations Strategy 193 Global Issue: International Differences Alter Whirlpool's Operations Strategy 194 Purchasing Strategy 195 Logistics Strategy 196 Strategy Highlight 8.1: Staples Uses Internet to Replenish Inventory from 3M 197 Human Resource Management (HRM) Strategy 197 Information Technology Strategy 198 8.2 The Sourcing Decision: Location of Functions 198 8.3 Strategies to Avoid 201 8.4 Strategic Choice: Selecting of the Best Strategy 201 Constructing Corporate Scenarios 202 Process of Strategic Choice 207 8.5 Developing Policies 208 8.6 Conclusion 209 PART ENDING VIDEO CASE: Newbury Comics, Inc. 212 PART FOUR Strategy Implementation and Control 213 Chapter 9 Strategy Implementation: Organizing for Action 213 9.1 Strategy Implementation 214 9.2 Who Implements Strategy? 215 9.3 What Must Be Done? 216 Developing Programs, Budgets, and Procedures 216 Achieving Synergy 218 9.4 How Is Strategy to Be Implemented? Organizing for Action 219 Structure Follows Strategy 219 Stages of Corporate Development 220 Strategy Highlight 9.1: The Founder of the Modem Blocks Transition to Stage II 224 Organizational Life Cycle 224 Advanced Types of Organizational Structures 226 xvi CONTENTS Reengineering and Strategy Implementation 229 Six Sigma 230 Designing Jobs to Implement Strategy 231 Strategy Highlight 9.2: Designing Jobs with the Job Characteristics Model 232 9.5 International Issues in Strategy Implementation 232 Global Issue: Multiple Headquarters: A Sixth Stage of International Development? 234 9.6 Conclusion 236 Chapter 10 Strategy Implementation: Staffing and Directing 238 10.1 Staffing 240 Staffing Follows Strategy 240 Selection and Management Development 243 Strategy Highlight 10.1: How Hewlett-Packard Identifies Potential Executives 244 Problems in Retrenchment 245 International Issues in Staffing 246 10.2 Leading 248 Managing Corporate Culture 248 Strategy Highlight 10.2: Admiral Assimilates Maytag's Culture 252 Action Planning 253 Management By Objectives 254 Total Quality Management 255 International Considerations in Leading 256 Global Issue: Cultural Differences Create Implementation Problems in Merger 258 10.3 Conclusion 258 Chapter 11 Evaluation and Control 261 11.1 Evaluation and Control in Strategic Management 263 11.2 Measuring Performance 263 Appropriate Measures 263 Types of Controls 265 Activity-Based Costing 266 Enterprise Risk Management 267 Primary Measures of Corporate Performance 267 Strategy Highlight 11.1: Eyeballs and MUUs: Questionable Performance Measures 269 Primary Measures of Divisional and Functional Performance 273 International Measurement Issues 276 Global Issue: Piracy: 15%-20% of China's Goods Are Counterfeit 277 CONTENTS 11.3 Strategic Information Systems 278 Enterprise Resource Planning (ERP) 278 Divisional and Functional IS Support 279 11.42 Problems in Measuring Performance 279 Short-Term Orientation 279 Goal Displacement 280 11.5 Guidelines for Proper Control 282 Strategy Highlight 11.2: Some Rules of Thumb in Strategy 282 11.6 Strategic Incentive Management 283 11.7 Conclusion 285 PART ENDING VIDEO CASE: Newbury Comics, Inc. 288 PART FIVE Other Strategic Issues 291 Chapter 12 Strategic Issues in Managing Technology and Innovation 291 12.1 The Role of Management 293 Strategy Highlight 12.1: Examples of Innovation Emphasis in Mission Statements 294 12.2 Environmental Scanning 295 External Scanning 295 Internal Scanning 298 12.3 Strategy Formulation 299 Product Versus Process R&D 299 Technology Sourcing 300 Importance of Technological Competence 302 Global Issue: Use of Intellectual Property at Huawei Technologies 302 Categories of Innovation 303 Product Portfolio 305 12.4 Strategy Implementation 305 Developing an Innovative Entrepreneurial Culture 305 Organizing for Innovation: Corporate Entrepreneurship 306 Strategy Highlight 12.2: How Not to Develop an Innovative Organization 309 12.5 Evaluation and Control 309 Evaluation and Control Techniques 309 Evaluation and Control Measures 311 12.6 Conclusion 312 Chapter 13 Strategic Issues in Entrepreneurial Ventures and Small Businesses 316 13.1 Importance of Small Business and Entrepreneurial Ventures 317 xviii CONTENTS Global Issue: Entrepreneurship: Some Countries Are More Supportive Than Others 318 Definition of Small-Business Firms and Entrepreneurial Ventures 319 The Entrepreneur as a Strategist 319 13.2 Use of Strategic Planning and Strategic Management 319 Degree of Formality 320 Usefulness of the Strategic Management Model 320 Usefulness of the Strategic Decision-Making Process 320 13.3 Issues in Corporate Governance 324 Boards of Directors and Advisory Boards 324 Impact of the Sarbanes-Oxley Act 324 13.4 Issues in Environmental Scanning and Strategy Formulation 325 Sources of Innovation 326 Factors Affecting a New Venture's Success 327 Strategy Highlight 13.1: Suggestions for Locating an Opportunity and Formulating a Business Strategy 329 13.5 Issues in Strategy Implementation 330 Substages of Small Business Development 330 Transfer of Power and Wealth in Family Businesses 332 13.6 Issues in Evaluation and Control 334 13.7 Conclusion 335 Chapter 14 Strategic Issues in Not-For-Profit Organizations 338 14.1 Why Not-For-Profit? 340 Global Issue: Which Is Best for Society: Business or Not-For-Profit? 341 Importance of Revenue Source 341 Sources of Not-For-Profit Revenue 342 Patterns of Influence on Strategic Decision Making 343 Usefulness of Strategic Management Concepts and Techniques 343 14.2 Impact of Constraints on Strategic Management 344 Impact on Strategy Formulation 345 Impact of Strategy Implementation 346 Impact on Evaluation and Control 346 14.3 Not-for-Profit Strategies 347 Strategic Piggybacking 348 Strategy Highlight 14.1: Resources Needed for Successful Strategic Piggybacking 349 CONTENTS xix Mergers 349 Strategic Alliances 349 14.4 Conclusion 350 PART SIX Introduction to Case Analysis 353 Chapter 15 Suggestions for Case Analysis 353 15.1 The Case Method 355 15.2 Researching the Case Situation 355 15.3 Financial Analysis: A Place to Begin 356 Analyzing Financial Statements 356 Global Issue: Financial Statements of Multinational Corporations: Not Always What They Seem 359 Common-Size Statements 359 Z-Value, Index of Sustainable Growth, and Free Cash Flow 360 Useful Economic Measures 360 15.4 Format for Case Analysis: The Strategic Audit 361 15.5 Conclusion 363 Appendix 15.A Resources for Case Research 365 Appendix 15.A Suggested Case Analysis Methodology Using the Strategic Audit 368 Appendix 15.A Example of a Student-Written Strategic Audit 371 Endnotes 376 PART SEVEN Cases in Strategic Management 1-1 SECTION A Corporate Governance, Social Responsibility, and Executive Leadership case 1 The Recalcitrant Director at Byte Products, Inc.: Corporate Legality versus Corporate Responsibility 1-5 (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. case 2 The Wallace Group 2-1 (Contributor: Laurence J. Stybel) Managers question the strategic direction of the company 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 poorer overall performance. How should the board deal with the founder of the company? case 3 Boeing Fires Its CEO 3-1 (Contributors: Kathryn Wheelen, Richard Wheelen, Thomas L. Wheelen II, and Thomas L. Wheelen) xx CONTENTS new and exclusive new On February 25, 2005, Boeing's Chairman of the Board Lewis Platt was informed of a romantic affair between Boeing's President and Chief Executive Officer, Harry Stonecipher, and a female executive. The involved woman had notified not only Platt, but also the company's legal and ethics executives. What action should the board take? SECTION B Ethics and Social Responsibility case 4 The Audit 4-1 (Contributors: John A. Kilpatrick, Gamewell D. Gantt, and George A. Johnson) 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. case 5 Everyone Does It 5-1 (Contributors: Stephen 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 was 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. SECTION C International Issues in Strategic Management case 6 GlaxoSmithKline's Retaliation Against Cross-Border Sales of Prescription Drugs 6-1 (Contributors: Rebecca Morris and Sara Smith Shull) Double-digit increases in costs for health care and pharmaceutical drugs were driving a number of people in the United States to purchase cheaper drugs from Canadian pharmacies via the Internet. In response, GlaxoSmithKline, the second-largest pharmaceutical firm in the world, stopped supplying Canadian drug wholesalers that were exporting drugs to the United States. Portrayed as a powerful, mean-spirited company more concerned with profits than with the health and well-being of its consumers, the company struggled to repair its public image in both Canada and the United States. case 7 Starbucks' International Operations 7-1 (Contributors: Samjib Dutta and K. Subhadra) The growing saturation of the U.S. market in coffee houses was driving Starbucks to look outside North America for continued growth. This presented a dilemma. Even though Starbucks' North American coffee houses continued to be profitable, the firm's international operations were losing money. Analysts felt that the company should rethink its entry strategy for international markets. case 8 Turkcell: The Only Turk on Wall Street 8-1 (Contributor: Sue Greenfeld) Having more than 60% of the Turkish market for mobile phones, Turkcell was the only Turkish company listed on the New York Stock Exchange. With three additional Turkish competitors entering the market and an onerous 66% tax burden, management wondered how it should position the company for success in the coming years. What strategies will enable Turkcell to become one of the largest mobile communications operator in Europe? case 9 Guajilote Cooperativo Forestal: Honduras 9-1 (Contributors: Nathan Nebbe and J. David Hunger) This forestry cooperative has the right to harvest, transport, and sell fallen mahogany trees in La Muralla National Park of Honduras. Although the cooperative has been successful thus far, it was facing some serious issues: low prices for its product, illegal logging, deforestation by poor farmers, and possible world trade restrictions on the sale of mahogany. exclusive CONTENTS xxi SECTION D General Issues in Strategic Management INDUSTRY ONE: INFORMATION TECHNOLOGY case 10 Apple Computer and Steve Jobs (2006): Pixar and Walt Disney Company 10-1 (Contributor: Thomas L. Wheelen) Apple, the first company to mass-market a personal computer, had been the darling of Wall Street in the 1980s, but by the mid-1990s, the company was in serious difficulty. After being expelled from the company in 1985, Steve Jobs returned as CEO in 1997 to reenergize the firm. The introduction of the iPod in 2001 catapulted Apple back into the spotlight. How can Apple continue its success and avoid becoming just another niche company? How dependent is the company on Steve Jobs? case 11 McAfee 2005: Anti-virus and Anti-spyware 11-1 (Contributors: Bethany Sweesy and Alan N. Hoffman) Founded as McAfee Associates in 1989 to market anti-virus software, McAfee had successfully competed against market leader Symantec to become a major provider of computer security software. Microsoft's announcement that it was entering the security business rocked the industry. What strategy should McAfee pursue to continue as a market leader in the computer security industry? INDUSTRY TWO: INTERNET COMPANIES case 12 eBay Inc. 12-1 (Contributors: Darrin Kuykendall, Vineet Walia, and Alan N. Hoffman) By 2002, eBay had successfully captured the lion's share of the American online auction market and was attempting to do the same globally. Meg Whitman, its CEO, was considering multiple strategic alternatives with the goal of becoming the "World's Online Marketplace." In their emphasis on growth, management was aware that they needed to take care not to dilute brand value or company image, but instead to focus on leveraging the firm's core competencies. case 13 Amazon.com: An E-Commerce Retailer 13-1 (Contributors: Patrick Collins, Robert J. Mockler, and Marc Gartenfeld) Initially an online bookstore, Amazon.com successfully expanded to become the world's premier online retailer. Although it earned its first operating profit in 2002, the company still lost $150 million that year. Amazon was meeting its goals of increasing market share, greater product offerings, and overall sales growth, but was under growing pressure to produce consistent profits and prove that its business model worked financially over the long term. case 14 Google: An Internet Search Service Company 14-1 (Contributors: Josep Teye-Kofi, Robert J. Mockler, and Marc Gartenfeld) Google, an online company that provided a reliable Internet search engine, was founded in 1998 by two Stanford Ph.D. students. Google soon replaced Yahoo as the market leader in Internet search engines. The issue by 2005 was how to develop an effective differentiating enterprise-wide strategy, especially for the company's internet search segment. case 15 AOL Time Warner Inc.-A Bad Idea from the Start? 15-1 (Contributors: Vineet Walia, Irene Hagenbuch Sanjana, Stacy Foster, and Alan N. Hoffman) The $183 billion acquisition of Time Warner by the Internet provider American Online (AOL) in 2001 was criticized as one of worst mergers of all time. Even though revenues increased for the combined company in 2001 and 2002, both operating and net income dropped significantly. The stock price fell from $64.75 in 2001 to $9.90 in 2003. Management was examining various turnaround strategies to make the company profitable once again. new and exclusive new new xxii CONTENTS INDUSTRY THREE: RECREATION AND TRANSPORTATION case 16 Harley-Davidson, Inc., 2006 16-1 (Contributors: Patricia A. Ryan and Thomas L. Wheelen) Harley-Davidson is a modern success story of a company that turned itself around by emphasizing quality manufacturing and image marketing. Encouraged by the high market demand for Harley's motorcycles in the 1980s and 1990s, competitors increasingly challenged Harley's dominant position. Meanwhile, Harley's sales were slowing as the Baby Boomers, the firm's target market, continued to age. case 17 JetBlue Airlines' Success Story 17-1 (Contributors: Sanjib Dutta and Shirisha Regani) JetBlue Airways in 2003 was a three-year-old no-frills low-cost American airline modeled on Southwest Airlines. It earned profits when most in the industry were posting losses and facing bankruptcy. The company cut costs, but also added services, such as a personal television set and a comfortable leather seat for every passenger. Even though JetBlue focused on a market niche with little competition, analysts wondered if the company's success could be maintained as the company grew. case 18 Carnival Corporation plc (2006): Twelve Distinct Brands Serving Seven Continents 18-1 (Contributors: Thomas L. Wheelen, Michael J. Keeffe, John K. Ross, III, and Bill J. Middlebrook) With its "fun ships," Carnival Cruises changed the way people think of ocean cruises. The cruise has become more important than the destination. Through acquisition, Carnival expanded its product line to encompass an entire range of industry offerings. How can Carnival continue to grow in the industry it now dominates? INDUSTRY FOUR: MASS MERCHANDISING case 19 Wal-Mart Stores, Inc.: Under Attack (2006) 19-1 (Contributors: James W. Camerius and J. David Hunger) Wal-Mart's low prices, wide selection, and courteous service generated high sales and profits, but its stores tended to drive local stores out of business. The union contended that Wal-Mart underpaid its workers and offered them substandard benefits. Wal-Mart's hard stance with suppliers was portrayed by others as an abuse of power. Management faced lawsuits alleging discrimination against women and underage workers operating dangerous machinery. The company had become a lightning rod for any and all criticism against big business. What should management do? case 20 The Home Depot, Inc. (2006): Executive Leadership 20-1 (Contributors: J. David Hunger and Thomas L. Wheelen) Home Depot is the world's largest home improvement retailer. CEO Bob Nardelli was hired from GE to replace the founders and to increase sales to the professional market. Nardelli's aggressive management style contrasted with the company's supportive corporate culture to generate conflict and employee turnover. With sales at an all-time high and solid earnings per share, why was the financial community downgrading Home Depot stock and why were the shareholders so upset? INDUSTRY FIVE: SPECIALTY RETAILERS case 21 Gap Inc.: A Specialty Apparel Retailer 21-1 (Contributors: Joanna Tochowicx, Robert J. Mockler, and Marc Gartenfeld) Composed of Banana Republic, Gap, and Old Navy retail divisions, Gap, Inc., in September 2002 reported its 28th straight month of sales declines in stores open at least one year and a net loss for the year. New product lines in the Gap stores were no longer appealing to regular customers and failed to attract new ones. Overexpansion resulted in higher operating costs and in lower sales per individual store. What should management do to turn around the Gap division and thus return the company to profitability? new and exclusive new and exclusive new and exclusive new and exclusive CONTENTS xxiii case 22 Tiffany & Co.: A Specialty Fine Jewelry Retailer 22-1 (Contributors: Marcia Chan, Robert J. Mockler, and Marc Gartenfeld) Tiffany was a retailer, designer, manufacturer, and distributor of luxury goods and specialty fine jewelry. It was known for luxury brand quality, craftsmanship, and value jewelry, but faced a number of strong competitors. Even though the company had almost twice as many stores (82) outside the United States than it did within the United States (44), its international stores produced less than 42% of overall net sales. How could the company increase its international sales and thus boost its overall sales and profits? INDUSTRY SIX: ENTREPRENEURIAL VENTURES case 23 Oprah Winfrey-The Story of an Entrepreneur 23-1 (Contributors: A. Mukund and A. Neela Radhinka) One of the world's most well-known media personalities, Oprah Winfrey headed Forbes' list of highest- paid entertainers. Not content with acting and hosting The Oprah Winfrey Show, Winfrey founded her own movie studio, Harpo Productions, to produce feature films and to publish her own magazine in partnership with Hearst Magazines. Despite being owner of a huge business empire, Winfrey could not read a balance sheet and tended to make sudden decisions on the basis of "gut feel." case 24 Inner-City Paint Corporation (Revised) 24-1 (Contributors: Donald K. Kuratoko and Norman J. Gierlasinski) Inner-City Paint Corporation makes paint for sale to contractors in the Chicago area. The founder's lack of management knowledge is creating difficulties for the firm, and the firm is in financial difficulty. Unless something is done soon, it may go out of business. INDUSTRY SEVEN: MANUFACTURING case 25 Hasbro, Inc. 25-1 (Contributors: Kristina Fogg, Robert J. Mockler, and Marc Gartenfeld) Hasbro was the second-largest toy maker in the United States after Mattel, but was facing difficulty in 2005. Revenue in the U.S. toy industry had fallen from $318.9 million a year earlier to $263 million in 2005. Major retail outlets, such as Toys R' Us and FAO Schwarz, were in bankruptcy. Hasbro, the maker of Monopoly, GI Joe, My Little Pony, and Transformers, needed to develop an effective strategy if it was to survive and prosper against aggressive competition in a changing industry. case 26 The Haier Group: U.S. Expansion 26-1 (Contributors: JongJun Lu, Robert J. Mockler, and Marc Gartenfeld) Already a market leader in China, Haier was rapidly expanding into Europe and the Americas. The Chinese company faced a number of long-term decisions needed to build an American presence. The main problem for Haier was how to differentiate itself from General Electric, Whirlpool, Maytag, and Electrolux in major appliances and from Sony, Panasonic, Philips, and LG in electronics to achieve a winning competitive advantage. case 27 Invacare Corporation 2004 27-1 (Contributors: Walter E. Greene and Jeff Totten) Invacare had grown from a minor player in home medical equipment to the world's largest manufacturer of home medical equipment, such as wheelchairs, respiratory equipment, hospital-type beds, and motorized scooters. Although the company was well positioned to take advantage of an aging population's growing need for health care, government regulations were making things difficult. The challenge for Invacare's executive team was to decide how to deal with restrictive government regulations and an increasingly competitive industry. new new new xxiv CONTENTS case 28 The Carey Plant 28-1 (Contributors: Thomas L. Wheelen and J. David Hunger) The Carey Plant had been a profitable manufacturer of quality machine parts until being acquired by the Gardner Company. Since its acquisition, the plant has been plagued by labor problems, increasing costs, leveling sales, and decreasing profits. Gardner Company's top management is attempting to improve the plant's performance and better integrate its activities with those of the corporation by selecting a new person to manage the plant. INDUSTRY EIGHT: BEVERAGE/FOOD case 29 Hershey Foods Company: Board of Directors and Stakeholders Conflict over Sale 29-1 (Contributor: Cynthia Clark Williams) The CEO of the Hershey Trust Company (HTC), which owned 77% voting control of the Hershey Foods Company, was facing one of the most challenging decisions of his 25-year career as a trust officer: whether or not to recommend to his board that the American chocolate-making icon be sold. Hershey Foods' profit margins had been steadily declining against strong competition from competitors Nestle and Mars, but the firm's new CEOs had introduced a turnaround strategy. case 30 Panera Bread Company: Rising Fortunes? 30-1 (Contributors: Joyce Vincelette and Ted Repetti) Panera Bread was a successful bakery-café known for its quality soups and sandwiches. Even though Panera's revenues and net earnings were rising rapidly, new unit expansion (419 new stores over three years) had fueled this growth. The growth rate of average annualized unit volumes and year-to-year comparable sales had actually dropped from 9.1% and 12.0%, respectively, in 2000 to only 0.2% and 0.5% in 2003. Growth was slowing. Management was now looking for new growth strategies. case 31 Whole Foods Market (2005): Will There Be Enough Organic Food to Satisfy a Growing Demand? 31-1 (Contributors: Patricia Harasta and Alan N. Hoffman) Whole Foods Market was the world's leading retailer of natural and organic foods, with 172 stores in North America and the United Kingdom. The supply of natural and organic foods was not keeping up with steadily increasing demand and could become a serious problem for the company. As the industry attracted more competitors, new prime locations were becoming harder to find. Whole Foods' CEO was uncertain about how to meet the company's aggressive growth targets. case 32 Church & Dwight Builds a Corporate Profile 32-1 (Contributor: Roy A. Cook) Church & Dwight, the maker of Arm & Hammer baking soda, has used line extension to successfully market multiple consumer products based on sodium bicarbonate. Searching for a new growth strategy, the firm has turned to acquisitions. Can management successfully achieve a balancing act based on finding growth through expanded uses of sodium bicarbonate while assimilating a divergent group of consumer products into an expanding international footprint? SECTION D Issues in Not-For-Profit Organizations case 33 A.W.A.R.E.: Always Wanted a Riding Experience 33-1 (Contributors: John K. Ross, III and Eric G. Kirby) A.W.A.R.E is a not-for-profit therapeutic horseback riding organization in San Marcos, Texas. Increasing expenses and declining revenues create a cash flow problem. With the Executive Director retiring for health reasons, the board has to decide what must be done to save the organization. CONTENTS SECTION E Mini-Cases case 34 Intel Corporation 34-1 (Contributor: J. David Hunger) Although more than 80% of the world's personal computers and servers used its microprocessors, Intel was facing strong competition from AMD in a maturing market. Sales growth was slowing. Profits were expected to rise only 5% in 2006 compared to 40% annual growth previously. The new CEO decided to reinvent Intel to avoid a fate of eventual decline. case 35 AirTran Holdings, Inc. 35-1 (Contributor: Maryanne M. Rouse) AirTran (known as ValuJet before a disastrous crash in the Everglades) was the second largest low-fare scheduled airline (after Southwest) in the United States in terms of departures and along with Southwest the only U.S. airline to post a profit in 2004. The company's labor costs as a percentage of sales were the lowest in the industry. Will AirTran continue to be successful in this highly competitive industry? case 36 Boise Cascade/OfficeMax 36-1 (Contributor: Maryanne M. Rouse) Boise Cascade, an integrated manufacturer and distributor of paper, packaging, and wood products, purchased OfficeMax, third-largest office supplies catalog retailer (after Staples and Office Depot), in 2003. Soon thereafter, Boise announced that it was selling its land, plants, headquarters location, and even its name to an equity investment firm. On completion of the sale in 2004, the company assumed the name of OfficeMax. Can this manufacturer become a successful retailer? case 37 Dell, Inc. 37-1 (Contributor: J. David Hunger) Dell was the largest PC vendor in the world, but its chief advantages-direct marketing and power over suppliers-were losing their punch. The percentage of 2005 PC sales via the phone and Internet fell in the United States as the sales through U.S. retail stores rose-a channel in which Dell was absent. By 2006, the once torrid-growth in PC sales had slowed to about 5% a year. How should Dell adjust to its changing environment? case 38 Six Flags 38-1 (Contributor: Patricia A. Ryan ) Known for its fast roller coasters and adventure rides, Six Flags had successfully built a group of regional theme and water parks in the United States. Nevertheless, the company had not turned a profit since 1998. Long-term debt had increased to 61% of total assets by 2005. New management was implementing a retrenchment strategy, but industry analysts were unsure if this would be enough to save the company. case 39 H. J. Heinz Company 39-1 (Contributor: Maryanne M. Rouse) Heinz, a manufacturer and marketer of processed food products, pursued global growth via market penetration and acquisitions. Unfortunately, its modest sales growth was primarily from its acquisitions. Now that the firm had divested a number of lines of businesses and brands to Del Monte Foods, analysts wondered how a 20% smaller Heinz would grow its sales and profits in this very competitive industry. case 40 Lowe's Companies, Inc. 40-1 (Contributor: Maryanne M. Rouse) As the second-largest U.S. "big box" home improvement retailer (behind Home Depot), Lowe's competed in a highly fragmented industry. The company had grown with the increase in home ownership and had no plans to expand internationally. With more than 1,000 stores in 2004, Lowe's intended to increase its U.S. presence with 150 store openings per year in 2005 and 2006. Were there limits to Lowe's current growth strategy? CONTENTS case 41 Nike, Inc. 41-1 (Contributor: Maryanne M. Rouse) Nike was the largest maker of athletic footwear and apparel in the world with a U.S. market share exceeding 40%. Because almost all its products were manufactured by 700 independent contractors (99% of which were in Southeast Asia), Nike was a target of activists opposing manufacturing practices in developing nations. Although industry sales growth in athletic footwear was slowing, Nike refused to change its product mix in 2002 to suit Foot Locker, the dominant global footwear retailer. Was it time for Nike to change its strategy and practices? case 42 Outback Steakhouse, Inc. 42-1 (Contributor: Maryanne M. Rouse) With 1,185 restaurants in 50 states and 21 foreign countries, OSI was one of the largest casual dining restaurant companies in the world. In addition to Outback Steakhouse, the company was composed of Carrabba's Italian Grill, Fleming's Prime Steakhouse & Wine Bar, Bonefish Grill, Roy's, Lee Roy Selmon's, Cheeseburger in Paradise, and Paul Lee's Chinese Kitchen. Analysts wonder how long OSI could continue to grow by adding new types of restaurants to its portfolio. case 43 Movie Gallery, Inc. 43-1 (Contributor: J. David Hunger) Movie Gallery was the second largest North American video retail rental company, specializing in the rental and sale of movies and video games through its Movie Gallery and Hollywood Entertainment stores. Growing through acquisitions, the company was heavily in debt. The recent rise of online video rental services, such as Netflix, was cutting into retail store revenues and reducing the company's cash flow. With just $135 million in cash at the end of 2005, Movie Gallery's management found itself facing possible bankruptcy. Additional Mini-Cases Available on the Companion Web Site at www. prenhall.com/wheelen web case 1 Eli Lilly & Company 1-1 (Contributor: Maryanne M. Rouse) A leading pharmaceutical company, Eli Lilly produced a wide variety of ethical drugs and animal health products. Despite an array of new products, the company's profits declined after the firm lost patent protection for Prozac. The FDA found quality problems at several of the company's manufacturing sites, resulting in a delay of new product approvals. How should Lilly position itself in a very complex industry? web case 2 Tech Data Corporation 2-1 (Contributor: Maryanne M. Rouse) Tech Data, a distributor of information technology and logistics management, had rapidly grown through acquisition to become the second-largest global IT distributor. Sales and profits had been declining, however, since 2001. As computers become more like a commodity, the increasing emphasis on direct distribution by manufacturers threatened wholesale distributors such as Tech Data. web case 3 Stryker Corporation 3-1 (Contributor: Maryanne M. Rouse) Stryker was a leading maker of specialty medical and surgical products, a market expected to show strong sales growth. Stryker marketed its products directly to hospitals and physicians in the United States and 100 other countries. Given the decline in the number of hospitals due to consolidation and cost containment efforts by government programs and health care insurers, the industry expected continued downward pressure on prices. How could Stryker effectively deal with these developments to continue its growth? new and exclusive CONTENTS web case 4 Sykes Enterprises 4-1 (Contributor: Maryanne M. Rouse) Sykes provided outsourced customer relationship management services worldwide in a highly competitive, fragmented industry. Like its customers, Sykes had recently been closing its call centers in America and moving to Asia in order to reduce costs. Small towns felt betrayed by the firm's decision to leave-especially after they had provided financial incentives to attract the firm. Nevertheless, declining revenue and net income caused the company's stock to drop to an all-time low. web case 5 Pfizer, Inc. 5-1 (Contributor: Maryanne M. Rouse) With its acquisition in 2000 of rival pharmaceutical firm Warner-Lambert for its Lipitor prescription drug, Pfizer had become the world's largest ethical pharmaceutical company in terms of sales. Already the leading company in the United States, Pfizer's purchase of Pharmacia in 2002 moved Pfizer from fourth to first place in Europe. Will large size hurt or help the company's future growth and profitability in an industry facing increasing scrutiny? web case 6 Williams-Sonoma 6-1 (Contributor: Maryanne M. Rouse) Williams-Sonoma was a specialty retailer of home products. Following a related diversification growth strategy, the company operated 415 Williams-Sonoma, Pottery Barn, and Hold Everything retail stores throughout North America. Its direct sales segment included six retail catalogs and three e-commerce sites. The company must deal with increasing competition in this fragmented industry characterized by low entry barriers. web case 7 Tyson Foods, Inc. 7-1 (Contributor: Maryanne M. Rouse) Tyson produced and distributed beef, chicken, and pork products in the United States. It acquired IBP, a major competitor, but had been the subject of lawsuits by its employees and the EPA. How should management deal with its poor public relations and position the company to gain and sustain competitive advantage in an industry characterized by increasing consolidation and intense competition? web case 8 Southwest Airlines Company 8-1 (Contributor: Maryanne M. Rouse) The fourth largest U.S. airline in terms of passengers carried and second largest in scheduled domestic departures, Southwest was the only domestic airline to remain profitable in 2001. Emphasizing high- frequency, short-haul, point-to-point, and low-fare service, the airline had the lowest cost per available seat mile flown of any U.S. major passenger carrier. Can Southwest continue to be successful as competitors increasingly imitate its competitive strategy? Additional Mini-Cases Available on the Companion Web Site at www. prenhall.com/wheelen web case 1 Palm, Inc. WC1-1 (Contributor: Maryanne M. Rouse) Palm, the founder and market leader of the personal digital assistant (PDA), competes in the handheld device, operating system software, and wireless service categories. In 2002, Palm faced increasing competition across its product line. The company decided to spin off its handheld operating system in 2003, but the separation was causing conflict within the firm. xxviii CONTENTS web case 2 Pfizer, Inc. WC2-1 (Contributor: Maryanne M. Rouse) With its acquisition in 2000 of rival pharmaceutical firm Warner-Lambert for its Lipitor prescription drug, Pfizer became the world's largest ethical pharmaceutical company in terms of sales. Already the leading company in the United States, Pfizer's purchase of Pharmacia in 2002 moved Pfizer from fourth to first place in Europe. Will large size hurt or help the company's future growth and profitability in an industry facing increasing scrutiny? web case 3 Williams-Sonoma WC3-1 (Contributor: Maryanne M. Rouse) Williams-Sonoma is a specialty retailer of home products. Following a related diversification growth strategy, the company operates 415 Williams-Sonoma, Pottery Barn, and Hold Everything retail stores throughout North America. Its direct sales segment includes six retail catalogs and three e-commerce sites. The company must deal with increasing competition in this fragmented industry characterized by low entry barriers. web case 4 Tyson Foods, Inc. WC5-1 (Contributor: Maryanne M. Rouse) Tyson produces and distributes beef, chicken, and pork products in the United States. It recently acquired IBP, a major competitor, but has been the subject of lawsuits by its employees and the EPA. How should management deal with its poor public relations and position the company to gain and sustain competitive advantage in an industry characterized by increasing consolidation and intense competition?
Library of Congress Subject Headings for this publication:
Strategic planning.
Strategic planning -- Case studies.