Griffin Mgmt12e IM Ch05

CHAPTER 7
Managing Strategy and Strategic Planning

CHAPTER SUMMARY
The competitive environment of business is becoming increasingly complex. Devising successful
strategies is a complex task affected by many factors. This chapter discusses how organizations manage
strategy and strategic planning. Chapter 7 begins by examining the nature of strategic management
including its components and alternatives. The authors then describe the kinds of analyses needed for
firms to formulate their strategies. Next, the text examines how organizations first formulate and then
implement business-level strategies, followed by a parallel discussion at the corporate strategy level. The
chapter concludes with a discussion of international and global strategies.
LEARNING OBJECTIVES
After covering this chapter, students should be able to:
1. Discuss the components of strategy, types of strategic alternatives, and the distinction between
strategy formulation and strategy implementation.
2. Describe how to use SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis in
formulating strategy.
3. Identify and describe various alternative approaches to business-level strategy formulation.
4. Describe how business-level strategies are implemented.
5. Identify and describe various alternative approaches to corporate-level strategy formulation.
6. Describe how corporate-level strategies are implemented.
7. Discuss international and global strategies.
MANAGEMENT IN ACTION
Stay Hungry
The opening case discusses the very successful marketing campaign for The Hunger Games: Catching
Fire, the second installment in the popular movie series. Led by Lionsgate marketing department, who
used a social media strategist, they developed a multiplatform campaign designed to engage fans. The
first mission of the campaign was connecting with fans through Facebook and Twitter. The campaign
was a success and overlapped into the tactical plan of appealing first to core fans then broadening the
reach to those not yet invested in the books or movies. Some facets of the campaign called for synergies
between traditional and online media. When managers can develop and implement effective strategies
integrating product rollouts and social media they can achieve considerable success.
Discussion Starter: The Hunger Games franchise consists of only three novels, adapted
into four films. In February 2015, Lionsgate CEO Jon Feltheimer revealed they were
“actively looking at some development and thinking about prequel and sequel
possibilities” for the Hunger Games franchise. Ask students if they feel this is a good
idea. Would they go see a sequel?
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Management 12e by Ricky W. Griffin
LECTURE OUTLINE
I. THE NATURE OF STRATEGIC MANAGEMENT
A strategy is a comprehensive plan for accomplishing an organization’s goals.

Strategic management is a comprehensive and ongoing process aimed at formulating and
implementing effective strategies. Strategic management is a way of approaching business
opportunities and challenges.
Effective strategies are those that promote a superior alignment between the organization and its
environment and the achievement of strategic goals.
A. The Components of Strategy
1. A distinctive competence is something the organization does exceptionally well. It is an
organizational strength possessed by only a small number of competing firms.
Management Update: For decades, Volvo has been associated with exceptionally safe
cars. Other car makers seem unable or unwilling to compete with Volvo in those areas.
Teaching Tip: Emphasize for students that a distinctive competence always exists in a
limited area and does not imply competencies in other areas. For example, Volvos are not
known for their sporty performance or their trend-setting appearance. In another example,
Wal-Mart has a distinctive competence in keeping prices low, but it is not especially
good at offering high-quality products or exceptional service.
2. The scope specifies the range of markets in which an organization will compete.
Global Connection: For an international business, the scope component of strategy
specifies in which foreign markets the firm intends to compete.
3. Resource deployment specifies how an organization will distribute its resources across
the areas in which it competes.
Global Connection: For an international business, the resource deployment component
of strategy determines the concentration of firm resources and efforts in various markets.
B. Levels of Strategy
1. Business-level strategy consists of the set of strategic alternatives that an organization
chooses as it conducts business in a particular industry or market.
2. Corporate-level strategy consists of the set of strategic alternatives from which an
organization chooses as it manages its operations simultaneously across several
industries and several markets.
Teaching Tip: Strongly distinguish between business- and corporate-level strategies.
Extra Example: A good example that helps distinguish between business- and
corporate-level strategies is PepsiCo. Among other things, PepsiCo owns Pepsi soft
drinks and Frito-Lay (Doritos, Ruffles, etc.). Determining which businesses PepsiCo will
own is part of its corporate-level strategy; deciding how each separate business will
compete is part of its business-level strategy.
Teaching Tip: An additional level of strategy is functional level. This refers to strategies
developed for specific functional areas such as marketing, finance, and so forth.
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 79
Chapter 7: Managing Strategy and Strategic Planning
C. Strategy Formulation and Implementation

1. Strategy formulation is the set of processes involved in creating or determining the
strategies of the organization; it focuses on the content of strategies.
2. Strategy implementation is the methods by which strategies are operationalized or
executed within the organization; it focuses on the processes through which strategies are
achieved.
3. Deliberate strategy is a plan of action than an organization chooses and implements to
support specific goals.
4. Emergent strategy is a pattern of action that develops over time in an organization in
the absence of missions and goals, or despite missions and goals.
Discussion Starter: Was Volkswagen’s reintroduction of the Beetle reflects a deliberate
or an emergent strategy? (In reality, it has elements of both—VW knew it needed to do
something, which reflects deliberation. The new Beetle was first developed as a concept
car and only produced when there was unexpectedly strong response to it.)
II. USING SWOT ANALYSIS TO FORMULATE STRATEGY
The starting point in formulating strategy is usually SWOT analysis.

SWOT is an acronym that stands for Strengths, Weaknesses, Opportunities, and Threats.
The best strategies (1) exploit opportunities and strengths, (2) neutralize threats, and (3) avoid (or
correct) weaknesses.
A. Evaluating an Organization’s Strengths
Organizational strengths are skills and capabilities that enable an organization to conceive of
and implement its strategies.
SWOT analysis divides organizational strengths into two categories: common strengths and
distinctive competencies.
1. Common organizational strengths
a. A common strength is a skill or capability held by numerous competing firms.
b. Competitive parity exists when large numbers of competing firms are able to
implement the same strategy.
2. Distinctive competencies
a. A distinctive competence is a strength possessed by only a small number of
competing firms.
b. Organizations that exploit their distinctive competencies often obtain a competitive
advantage and attain above-normal economic performance.
3. Imitation of distinctive competencies
a. Strategic imitation is the practice of duplicating another organization’s distinctive
competence and thereby implementing a valuable strategy.
b. A sustained competitive advantage is a competitive advantage that exists after all
attempts at strategic imitation have ceased.
Reasons a distinctive competence might not be imitable:

a. Its acquisition or development may depend on unique historical circumstances that
other firms cannot replicate.
b. Its nature and character might not be known or understood by competing firms.
c. It is based on complex social phenomena like teamwork or culture.
Extra Example: Price competition is among the easiest strategies to imitate. For
example, any time an airline lowers its prices to attract new customers, competing
airlines are able to imitate its strategy within hours.
Discussion Starter: If a low-price strategy is easily imitated, is it likely to lead to a

sustainable competitive advantage? Students should realize that that is unlikely. On the
other hand, how has low pricing created a sustainable competitive advantage for Wal-
Mart? Hint: The students should examine how the low prices are achieved. They will find
that Wal-Mart’s actions, such as automating many functions and developing close
relationships with suppliers, are themselves not readily imitated.
Extra Example: During World War II, Coca-Cola’s CEO decreed that every U.S. soldier
abroad should have access to a 5-cent bottle of Coke. With government assistance, the
firm built 64 overseas bottling plants. This early entry into global markets gave Coke an
advantage over Pepsi that it has never relinquished.
B. Evaluating an Organization’s Weaknesses
Organizational weaknesses are skills and capabilities that do not enable (and may limit) an
organization to choose and implement strategies that support its mission
An organization has two ways of addressing weaknesses. It may need to make investments to
obtain the strengths required to implement strategies that support its mission. Or it may need
to modify its mission to meet its skills and capabilities.
In practice, organizations have a difficult time focusing on weaknesses.
A firm has a competitive disadvantage when it is not implementing valuable strategies that
are being implemented by competing firms.
C. Evaluating an Organization’s Opportunities and Threats
This requires analyzing an organization’s environment.
1. Organizational opportunities are areas in the environment that, if exploited, may
generate higher performance.
2. Organizational threats are areas in the environment that increases the difficulty of an
organization’s achieving high performance.
Discussion Starter: Do students think it is easier to assess environment opportunities
and threats or organizational strengths and weaknesses. While the latter are more
“immediate,” such analysis may also pose threats to individuals within the organization.
Cross-Reference: Porter’s five forces model of the competitive environment discussed in

Chapter 3 can be used to characterize the extent of opportunity and threat in an
organization’s environment. Porter’s five forces are the level of rivalry, power of
suppliers, power of buyers, threat of substitutes, and threat of new entrants.
Group Exercise: Have small groups of students outline a hypothetical SWOT analysis of
a local firm and/or your college or university.
III. FORMULATING BUSINESS-LEVEL STRATEGIES

Teaching Tip: Reinforce again the distinction between business- and corporate-level
strategies. Use the PepsiCo example to illustrate formulation and implementation across
different levels to remind students of the distinctions.
There are three approaches to formulating business-level strategy.
A. Porter’s Generic Strategies
1. Differentiation strategy is a strategy in which an organization seeks to distinguish itself
from competitors through the quality of its products or services
Teaching Tip: Note the examples listed in Table 7.1 of the text. As you discuss Porter’s
generic strategies, ask students to suggest other examples.
2. Overall cost leadership strategy attempts to gain a competitive advantage by reducing
its costs below the costs of competing firms.
3. Focus strategy concentrates on a specific market, product line, or group of buyers.
Global Connection: A good example of the focus strategy is cosmetics and personal care
products maker Aveda, which only manufactures products that are made from natural,
botanical ingredients. The firm’s products are designed to appeal to customers who are
interested in ecology, the environment, or animal’s rights.
B. The Miles and Snow Typology
1. Prospector strategy is a strategy in which the firm encourages creativity and flexibility
and is often decentralized.
Global Connection: Sony also uses a prospector strategy. The firm is constantly on the
alert for new product ideas and/or ways to extend its current products into new markets.
2. Defender strategy focuses on lowering costs and improving the performance of current
products.
Extra Example: Another good example of a defender is Domino’s Pizza. After losing
ground to Pizza Hut and Little Caesar’s, Domino’s has been aggressively working to
protect its current market share and gain back what was lost. In contrast to Sony which is
a prospector, Matsushita is a defender in the consumer electronics industry.
3. Analyzer strategy attempts to maintain its current businesses and to be somewhat
innovative in new business.
Extra Example: Dell Computer also uses an analyzer strategy. Its expansion outside of
the personal computer market has been slow and gradual, and it keeps as its primary
orientation the protection of its lucrative direct sales niche.
4. Reactor strategy has no consistent strategic approach; drifts with events, reacting to but
failing to anticipate or influence those events.
Extra Example: Kmart might be a good example of a reactor. After once ruling the
discount world, the firm grew complacent and was eventually passed by Wal-Mart. It had
to merge with Sears in order to have a chance of survival.
C. Strategies Based on the Product Life Cycle
Product life cycle is a model that portrays how sales volume for products changes over the
life of products. Different stages of the life cycle call for different strategies.
1. Introduction stage—demand may be very high and sometimes outpacing the firm’s
ability to supply the product. Strategies focus on increasing production, keeping quality
high, and managing inventories and cash flow.
2. Growth stage—more firms begin producing the product and sales continue to grow.
Strategies focus on ensuring quality and delivery and beginning to differentiate. The
threat of new entrants in this phase could threaten an organization’s competitive
advantage so strategies to slow the entry of competitors are important.
3. Maturity stage—overall demand growth for a product begins to slow down and the
number of new firms producing the product begins to decline. Product differentiation is
still important but keeping costs low and beginning the search for new products or
services are also important strategic considerations.
4. Decline stage—demand for the product or technology decreases, the number of
organizations producing the product drops, and total sales decline. Organizations that fail
to anticipate the decline stage in earlier stages may go out of business. Those that
differentiate their product, keep their costs low, or develop new products or services may
do well during this stage.
Discussion Starter: Ask students to identify examples of current products or services
that appear to be at each stage of the product life cycle.
Global Connection: Some firms extend product life cycles by introducing them into
less-developed foreign markets. For example, a line of home appliances that is entering
the decline stage in Japan, Europe, or the United States might be seen as advanced
technology in less developed regions.
IV. IMPLEMENTING BUSINESS-LEVEL STRATEGIES
A. Implementing Porter’s Generic Strategies

Teaching Tip: Note the role and importance of basic business functions in implementing
business strategies.
1. Differentiation strategy
a. Marketing and sales must emphasize the high-quality, high-value image of the
organization’s products or services.
b. Accounting and finance controls the flow of funds without discouraging the
creativity needed to constantly develop new products and services to meet customer
needs.
c. Manufacturing must emphasize quality and meeting specific customer needs, rather
than simply reducing costs.
d. Culture must emphasize creativity, innovation, and response to customer needs.
Extra Example: The human resource function can also help implement a differentiation
strategy by hiring people who can do high-quality work and training them to perform to
the quality standards set by the firm.
2. Overall cost leadership strategy
a. Marketing and sales focus on simple product attributes and how these attributes
meet customer needs in a low-cost and effective manner. Advertising emphasizes
the value of the product rather than on special features.
b. Accounting and finance reduce costs through tight financial and accounting
controls. Success depends on costs lower than competitors.
c. Manufacturing emphasizes increased volume of production to reduce the per unit

costs of manufacturing. Products are designed both to meet customer needs and to
be easily manufactured.
d. Culture tends to focus on improving the efficiency of manufacturing, sales, and
other business functions.
Discussion Starter: Ask students to suggest circumstances where a firm that is using one
generic strategy might choose to implement a different generic strategy.
B. Implementing Miles and Snow’s Strategies
1. Prospectors need to encourage creativity and flexibility. Decentralization often
facilitates this.
2. Defenders tend to downplay creativity and innovation, focusing efforts on lowering costs
or improving performance of current products. Prospectors often switch to defenders.
3. Analyzers must maintain their current businesses and be somewhat innovative in new
businesses. They have tight accounting and financial controls as well as high flexibility,
efficient production as well as customized products, and creativity along with low costs.
Discussion Starter: Again, ask why a firm that is successfully pursuing one of Miles and
Snow’s strategies might appropriately decide to implement a different one.
Group Exercise: Have groups of students identify differences and similarities between
Porter’s generic strategies and Miles and Snow’s strategies.
V. FORMULATING CORPORATE-LEVEL STRATEGIES
Teaching Tip: Again, reinforce the distinction between business-level and corporate-
level strategies. Use again the PepsiCo example to remind students of the differences.
Most large businesses are engaged in several businesses, industries, and markets.
Each business or set of businesses within such a firm is frequently referred to as a strategic business
unit, or SBU.
The most important strategic issue at the corporate level concerns the extent and nature of
organizational diversification.
Extra Example: PepsiCo is organized around two SBUs—packaged drinks (Pepsi,
Lipton, etc.) and snack foods (Frito-Lay).
Diversification is the number of different businesses that an organization is engaged in and the
extent to which these businesses are related to one another
A. Single-Product Strategy
Single-product strategy is a strategy in which an organization manufactures just one product
or service and sells it in a single geographic market.
Because survival depends on a single product, an organization works very hard to make the
product a success. If the product is not accepted by the market or is replaced by a new
product, the organization will suffer.
B. Related Diversification
Related diversification is a strategy in which an organization operates in several businesses
that are somehow linked with one another
1. Bases of relatedness include common technology, common distribution network,

common marketing skills, common brand names and reputation, and common customers.
Discussion Starter: Ask students to identify the bases of relatedness between Starbucks
coffee and Starbucks ice cream.
Extra Example: Ford’s purchase of Jaguar a few years ago (it is now owned by Tata
Motors) was an example of related diversification.
2. Advantages of related diversification
a) Reduces an organization’s dependence on any one of its business activities and thus
reduces economic risk.
b) Reduces the overhead costs associated with managing any one business.
c) Allows an organization to exploit its strengths and capabilities in more than one
business (creates synergies).
d) Synergy exists among a set of businesses when the businesses’ economic value
together is greater than their economic value separately.
Extra Example: A recent trend is a reduction in the number of businesses, to create an
organization that consists of SBUs that are highly related. Examples include Vivendi’s
divestiture of publishing and water utilities in order to focus on electronic media.
Georgia Pacific sold its timber units and refocused on building and paper products.
Extra Example: When Georgia Pacific considered separating its paper products division
from its building products division and creating two companies, investors failed to
support the firm, showing that the separation was not seen as creating synergy.
C. Unrelated Diversification
Unrelated diversification is a strategy in which an organization operates multiple businesses
that are not logically associated with one another.
1. Presumed benefits: businesses that use this strategy should have stable performance over
time and resource allocation advantages.
2. Actual disadvantages: Corporate-level managers may not know enough about the
unrelated businesses to provide helpful strategic guidance or to allocate capital
appropriately. Also, because organizations that implement unrelated diversification fail
to exploit important synergies, they are at a competitive disadvantage compared to firms
that use related diversification. Almost all organizations have abandoned unrelated
diversification as a corporate-level strategy.
Extra Example: General Electric is perhaps the most successful firm today that still uses
unrelated diversification. GE owns businesses in such disparate industries as aircraft
engines, appliances, finance and insurance, and plastics.
Extra Example: Seagram’s, a large liquor company, once bought MCA, an

entertainment business, from Matsushita Electric. This represents a case of unrelated
diversification.
VI. IMPLEMENTING CORPORATE-LEVEL STRATEGIES
A. Becoming a Diversified Firm

1. A firm can diversify by internal development of its own new products and services
within the boundaries of its traditional business operations.
Extra Example: The Limited, which began as a women’s clothing chain, added units
such as Structure, a men’s clothing chain, Limited Express for more trendy, less
expensive styles, and Limited, Too, for children’s fashions. In addition, the firm
developed concepts that became the White Barn Candle Co. and Bath and Body Works.
2. A firm can also become diversified by replacing its former suppliers and customers.
a) Backward vertical integration occurs when a firm stops buying supplies from
other companies and begins to provide its own supplies.
b) Forward vertical integration occurs when a firm stops selling to one customer
and sells instead to that customer’s customers.
Extra Example: In the 1990s, Disney used forward vertical integration when it opened a
chain of retail stores to sell Disney products directly to consumers, rather than going
through other retailers, as it had done in the past.
Extra Example: Many petroleum firms have implemented both backward and forward
vertical integration—they extract petroleum, refine it, distribute it, and retail it.
3. Another common way for business to diversify is through mergers and acquisitions.
Management Update: With the decline in the stock market that began in 2001, mergers
and acquisitions are no longer as popular as they were in the 1990s. Companies that
merge today are finding it hard to obtain financing for the giant deals.
a) A merger is the purchase of one firm by another firm of approximately the same
size.
Extra Example: Daimler-Benz and Chrysler merged in 1998, creating the world’s third-
largest automobile company. Citibank and Traveler’s Insurance merged, creating
Citigroup, the largest financial services firm in the U.S. More recent mega-mergers
include the Kmart-Sears and the Kraft-Heinz mergers
b) An acquisition is the purchase of a firm by a firm that is considerably larger.
Extra Example: The Limited has grown by acquisition. It purchased Lane Bryant and
later sold it. It also purchased Victoria’s Secret intimates stores and Abercrombie and
Fitch, a popular brand of clothing geared toward young adults.
B. Managing Diversification
The two major tools for managing diversification are organization structure and portfolio
management techniques. The text covers organization structure in Chapter 10.
Portfolio management techniques are methods of determining which businesses to engage in
and how to manage these businesses to maximize corporate performance.
1. BCG (for Boston Consulting Group) matrix is a method of evaluating businesses
relative to the growth rate of their market and the organization’s share of the market.
The matrix uses two factors to evaluate an organization’s set of businesses: market
growth rate and market share. The matrix classifies the types of businesses that a
diversified firm can engage in.
a) Dogs are businesses that have a very small share of a market that is not expected to
grow.
b) Cash cows are businesses that have a large share of a market that is not expected to
grow substantially. Milked for cash to support question marks and stars.
c) Question marks are businesses that have only a small share of a quickly growing
market.
d) Stars are businesses that have the largest share of a rapidly growing market.
Group Exercise: Have groups of students research and collect information about a large
diversified firm. (Disney, General Motors, Sears, or Procter and Gamble) Then have the
groups classify the firm’s various businesses into the four cells of the BCG matrix.
Teaching Tip: Use Figure 7.3 as a framework for discussing the BCG matrix.
2. GE Business Screen
A more sophisticated approach than the BCG matrix, using a nine-cell matrix. Note that
using the GE Business Screen parallels the application of SWOT analysis.
Teaching Tip: General Electric developed the Business Screen as a refinement and
extension of the BCG matrix. Use Figure 7.4 to illustrate.
Group Exercise: If you had your students do the exercise discussed earlier (classifying a
firm’s businesses into BCG matrix cells), have them repeat the exercise (using the same
information) for the GE Business Screen.
VII. INTERNATIONAL AND GLOBAL STRATEGIES
A. Developing International and Global Strategies

Managers of international firms face more complexity and uncertainty in formulating and
implementing strategies, but their firms also may be able to exploit three sources of
competitive advantages unavailable to domestic firms.
1. International firms can better exploit global efficiencies.
a) Location efficiencies allow firms to locate facilities wherever they can best obtain a
cost or differentiation advantage.
Global Connection: Microsoft employs many software engineers in India to produce
programs for the firm. This is a location efficiency because they are able to obtain high-
quality work at a much lower cost than in the U.S.
b) Economies of scale enable firms to lower their per unit cost of production because
they are manufacturing in large quantities in facilities that serve several regions.
c) Economies of scope lowers production costs per unit by sharing expenses across
broader product lines.
2. Multimarket flexibility gives firms the ability to respond to changes in one region by
making changes to their operations in other regions.
3. Worldwide learning is another advantage for international firms because firms can adopt
best practices from wherever they are developed.
4. In practice, however, international firms are not usually able to exploit all three of these
advantages simultaneously. For example, location efficiencies require centralization,
while worldwide learning requires a more decentralized approach.
B. Strategic Alternatives for International Business
International businesses typically adopt one of four strategic alternatives in their attempt to
balance the three goals of global efficiencies, multimarket flexibility, and worldwide learning.
1. Firms that use the home replication strategy apply the distinctive competences they
developed in their home market to the foreign markets that they enter. This strategy
works best when the firm’s competences are valuable in many different types of markets.
2. The multidomestic strategy is used by firms that manage a portfolio of international
business as relatively autonomous and independent units. This strategy works best when
national demands for customization are high.
3. Firms following a global strategy are doing exactly the opposite of those using a
multidomestic strategy. That is, they are standardizing across all countries. This strategy
works best for a commodity-like product or in an industry that demands high efficiency.
4. Firms that pursue both centralization and decentralization at the same time, using
whichever approach makes more sense in the particular circumstances, are using a
transnational strategy. This strategy works best for complex industries and for
companies with highly-skilled international managers.
END OF CHAPTER QUESTIONS
Questions for Review

1. Define the four parts of a SWOT analysis.
A SWOT analysis consists of an analysis of the internal strengths and weaknesses of a firm, and of
the external opportunities and threats for the firm.
2. Describe the relationship between a distinctive competency, a competitive advantage, and a
sustained competitive advantage.
A distinctive competency is an internal strength or capability that is possessed by only a few firms.
When a firm is able to successfully exploit a distinctive competency, it may obtain a competitive
advantage over its rivals. When the firm is able to maintain a competitive advantage over its rivals
for an extended period of time, it becomes a sustained competitive advantage.
3. List and describe Porter’s generic strategies and the Miles and Snow typology of strategies.
Porter’s generic strategies include: (1) differentiation—the firm seeks to distinguish itself from
competitors through the quality of its products or services; (2) overall cost leadership—the firm
attempts to gain a competitive advantage by reducing its costs below the costs of competing firms;
(3) focus—the firm concentrates on a specific market, product line, or group of buyers.
Miles and Snow’s typology includes: (1) prospector—a highly innovative firm that is constantly
seeking out new markets and new opportunities and is oriented toward growth and risk taking;
(2) defender—concentrates on protecting current markets, maintaining stable growth, and serving
current customers; (3) analyzer—combines elements of prospectors and defenders; (4) reactor—has
no consistent strategic approach, drifts with events, reacting to but failing to anticipate or influence
these events.
4. What are the characteristics of businesses in each of the four cells of the BCG matrix?
A Star is a business with a large market share that competes in a rapidly growing industry. A Cash
Cow also has a large market share but in an industry with a slow growth rate. A Question Mark
business has only a small market share in a rapidly growing industry, while a Dog has a small
market share of a slow-growth industry.
Questions for Analysis

5. Describe the process that an organization follows when using a deliberate strategy. How does
this process differ when an organization implements an emergent strategy?
A firm using a deliberate strategy will identify problems, gather and analyze information, formulate
alternative courses of action, choose the best alternative, and then work to implement the chosen
strategy. The process will be rational and systematic. On the other hand, an emergent strategy is one
that is not planned in a formal or rational way, but rather it just emerges as a pattern in a series of
actions. Actions are not pre-planned. When a firm notices that certain actions lead to desirable
outcomes, those actions are repeated.
6. Which strategy should a firm develop first—its business-level or its corporate-level strategy?
Describe the relationship between a firm’s business- and corporate-level strategies.
Both must be developed together, at the same time. Decisions made at the corporate level, such as to
increase or decrease diversification, will then require changes in the firm’s business-level strategy.
Decisions made at the business level, for example to pursue a differentiation strategy, will require
changes at the corporate-level also. Most firms that are just being founded have only a single
business, and in those firms, the business-level strategy will be developed first. However, for a
diversified firm, corporate and business strategies are formulated and implemented simultaneously.
7. Volkswagen sold its original Beetle automobile in the United States until the 1970s. The
original Beetle was made of inexpensive materials, was built using an efficient mass
production technology, and offered few options. Then, in the 1990s, Volkswagen introduced its
new Beetle, which has a distinctive style, provides more optional features, and is priced for
upscale buyers. What was Volkswagen’s strategy with the original Beetle—product
differentiation, low cost, or focus? Which strategy did Volkswagen implement with its new
Beetle? Explain your answers.
The original Beetle was clearly part of a low cost strategy with its emphasis on efficiency, inexpensive
components, lack of distinguishing features, and low price. The new Beetle signals a switch to a
differentiation strategy because of its style, customization, up-scale target market, and higher price.
Questions for Application

8. Assume that you are the owner and manager of a small business. Write a strategy for your
business. Be sure to include each of the three primary strategic components.
Students’ answers will vary depending on the type of business they choose. Students should write a
business-level strategy. The strategy should include a description of their intended distinctive
competencies, scope, and resource deployment.
9. Interview a manager and categorize the business- and corporate-level strategies of his or her
organization according to Porter’s generic strategies, the Miles and Snow typology, and extent
of diversification.
Answers will, of course, vary. Students who interview a manager of a smaller firm will not likely
find a firm that seems to be a prospector, however, or one that is very diversified because such firms
tend to be larger businesses. It is also unlikely, of course, that any manager will categorize his or her
business as a reactor.
10. Give an example of a corporation following a single-product strategy, a related diversification
strategy, and an unrelated diversification strategy. What level of performance would you
expect from each firm, based on its strategy? Examine the firm’s profitability to see whether
your expectations were accurate.
Students’ answers will vary, but here is an example: “Toys 'R' Us is following a single-product
strategy because their only business unit is focused solely on the retail sale of toys and other items
for children. That strategy allows them to dominate that market, and the firm has done so. However,
it also makes them vulnerable if that particular market changes, which is happening at this time as
discount stores and online retailers are taking over the industry.
Yum! Brands, the owner of Pizza Hut, Long John Silver’s, Kentucky Fried Chicken, Taco Bell, and
A&W, is following a related diversification strategy focused on the fast-food industry. This strategy
allows the development of shared competencies and synergies, while spreading overhead costs
across all the businesses. This strategy is expected to have the highest returns, and Yum! Brands is
in fact highly profitable due to synergies and shared competencies.
Sara Lee Corporation is pursuing unrelated diversification with products such as Jimmy Dean sausage,
Playtex underwear, Hanes hosiery, Kiwi shoe polish, Earth Grains bread, and Ambi Pur air fresheners.
This strategy should provide stable performance over time and allow the sharing of resources.
However, the strategy also runs the risk of spreading management talent too thin so that none of the
businesses receives enough attention to really thrive. Sara Lee is, in fact, experiencing low performance
at this time in its businesses, compared to less diversified firms competing in the same industries.”
END OF CHAPTER EXERCISES
Building Effective Decision-Making Skills

I. Purpose
This exercise will encourage students to consider how a SWOT analysis would be performed in a
real organization, including which sources should be used, and the validity of the information at
those sources.
II. Format
This decision-making exercise can be performed by individuals or groups. It should take about 30
minutes to complete.
III. Follow-Up
A. List the sources you will use to obtain information about the firm’s strengths, weaknesses,
opportunities, and threats.
B. Then ask yourself: For what types of information are data readily available on the Internet?
What categories of data are difficult or impossible to find on the Internet? (Note: When using
the Internet, be sure to provide specific websites or URLs.)
C. Next, rate each source in terms of its probable reliability.
There will be considerable variation in students’ answers to these three questions. Students
should notice that there are a variety of likely sources, and that the sources differ a great deal
in their reliability. Students should recognize that information about forces in the external
environment is easier to obtain than information about the internal environment. In addition,
companies don’t typically publish information that might cast the firm in a negative light, such
as information about weaknesses. The Internet provides easy access to many diverse types of
information. However, the reliability of the information is often questionable, and students
should be careful about relying on web-based data, unless they can verify the source’s
credentials.
D. Finally, ask yourself how confident you’d be in basing decisions on the information that
you’ve obtained?
Again, answers will vary, but students will recognize that it is difficult to get reliable
information about some issues. When that is true, decision makers will make choices based on
the information they have, but they should be aware of times when their choices may be based
on faulty information. This awareness may lead them to compensate for their lack of
confidence, for example, by developing multiple contingency plans or performing statistical
sensitivity analyses to check the robustness of their choices.
Building Effective Conceptual Skills

I. Purpose
This in-class game demonstrates concepts about competition and cooperation through the use of a
prisoner’s dilemma situation.
II. Format
This game will take about 20 minutes to play through once. It can also effectively be played twice.
Follow-up and discussion time will vary.
III. Follow-Up
Before playing this game in class, discuss the concepts of game theory and especially the prisoner’s
dilemma situation. Explain how competition gives the best results in some circumstances, while
cooperation gives better results in other circumstances. This concept may be difficult for students to
grasp, given the way that American business education focuses almost exclusively on competition.
The main message of this game is: “It’s nice to be nice, to the nice.” Students will find that
competition is the preferred mode when rivals are behaving competitively, and cooperation is
preferred in situations where rivals are willing to be cooperative. In a mixed case, faced with some
rivals that are cooperative and some that are competitive, the cooperative firms can band together
and effectively compete against the competitive firms by using their combined power.
You will need at least one board game of Trouble, by Milton Bradley, or a generic equivalent of that
game. In the game, four players move pieces around a board in an attempt to complete the course
first. When players land on an occupied space, they send their opponent’s piece back to the start.
It’s best to have one game for each four students. If you cannot do that, it’s best to have at least four
games so that students can watch each strategy being played out. However, it’s possible to play the
game with just one set if volunteers come forward to play the game in front of the entire class.
There are four different rule sets, which can be played simultaneously, and then the results reported
to the class. Alternatively, the rule sets can be played sequentially.
For all rules sets: Four players per game. Each player uses only 2 pieces, not 4 (in order to make the
game play faster). Players start moving pieces on their first roll of the dice, rather than waiting for a
specific number (again, for speed).
Rule Set 1: This is the cooperative game. Players should try not to land on an occupied space, and
they may never send any of their opponent’s pieces back to the start. If they must land on an
occupied space, the player should put their piece in the next free spot, not displacing his or her
opponent.
Rule Set 2: This is the competitive game. Players must land on occupied spaces if possible, and they
must always send their opponent’s piece back to the start when they do.
Rule Set 3: This is the mixed case, “wolf among the sheep” game. One player is chosen at the start
to be the competitive one, and the group is informed. During play, the competitive player plays by
Rule Set 2, sending his or her opponent’s pieces back to the start whenever possible. The three
cooperative players play by Rule Set 1. That is, they may never send opponent’s pieces back to the
start.
Rule Set 4: This is the mixed case, “retaliation” game. One player is chosen at the start to be the
competitive one, and the group is informed. During play, the competitive player plays by Rule Set 2,
sending his or her opponent’s pieces back to the start whenever possible. The three cooperative
players play by Rule Set 1, when they are facing another cooperative player. That is, they should not
send a cooperative player’s pieces back to the start. However, the three cooperative players play by
Rule Set 2, when they are facing the competitive player. That is, they should try to send the
competitive player’s pieces back to the start whenever possible.
Students will find that the cooperative game (#1) goes quickly and smoothly. All players do about
equally well, except for the random nature of the dice roll. Students sometimes say this game is
“boring.” However, remind them that boring is undesirable in a board game, but might be very
desirable in industries where “excitement” might mean loss of jobs or bankruptcy.
Students will find that the competitive game (#2) takes the longest, as players must constantly start
over. All players do about equally poorly. This game may be more fun than Game 1, but again,
remind students that in real life, intense competition can be damaging and expensive.
Students will find that the wolf-among-the-sheep game (#3) seems very unfair, as the competitive
student has a strong advantage. Explain to students that this is the case that prevails when some
competitors compete strongly and others do not. It’s also analogous to situations such as one student
cheating on an exam while all the others are honest.
Students will find that retaliation game (#4) seems to be fair, because the competitive student often
does not win. This is the situation in which some rivals cooperate for mutual benefit with other
trusted rivals, while competitive rivals find that the others “gang up” and use their combined power
to squash any competitive tactics. This is analogous to the situation where the honest students study
together to help each other, excluding the cheating student from the study group.
A. Break into small groups and play the board game according to the instructions you receive
from your professor.
B. Present your group’s results to the class.
C. Analyze the results reported by every group and be prepared to share your thoughts about the
outcomes.
Although there is a random element in this game, results are likely to be as reported above.
Explain the outcomes, and then ask the students, “What do you learn about business
competition and cooperation from this game?” Another good approach is to ask students to
name business situations in which this type of thinking about cooperation and competition
could be useful. Students will be able to think of examples such as in managing their careers
and relationships at work, industry competition, and so on.
MANAGEMENT AT WORK
The Most Admired Strategist of the Twentieth Century

As a leader of the African National Congress (ANC), Nelson Mandela played a significant role in
planning the strategy of the organization dedicated to the overthrow of the apartheid regime in South
Africa. A sentence of life in prison forced Mandela to embrace a long-term strategy. Mandela never
ceased pursuing strategies designed to ensure the fall of the current regime and the success of the new
government. The government released Mandela from prison in 1990, after 27 years. In 1994, the ANC
won 62 percent of the country’s first election in which members of all races could vote. The people voted
Nelson Mandela as the president.
Management Update: In the most recent election, held in 2014, the ANC continued to
win the majority of seats in Congress and has been the governing party in South Africa
since the end of apartheid.
1. Case Question 1: In what ways can the strategies of an organization like the African National
Congress (ANC) be compared to those of a business organization? In order to respond to this
question, focus on the chapter sections entitled “The Nature of Strategic Management” and “Using
SWOT Analysis to Formulate Strategy.”
Both use strategic management to approach their opportunities and challenges in an ongoing process
aimed at formulating and implementing effective strategies aligned with their environment and
goals. Both want to accomplish their mission by exploiting opportunities and strengths while
neutralizing its threats and avoiding (or correcting) its weaknesses.
2. Case Question 2: “Always keep your eye on the long-term goal,” advises Norman Chorn:
[A]t every set-back and obstacle, [Nelson Mandela] kept his sights fixed on his
objective and did not get distracted. He recognized that he would have to adjust
his approach as the circumstances changed, but he never wavered in his goal.
Strategic leadership is about having a longer term, big-picture view of your goal.
It means that you have to be flexible in the particular tactics that you use….
[W]ith every step you take, you should be able to explain how it gets you closer
to your final objective.
First, explain in your own words what Nelson Mandela’s long-term goal was. Then show (as
precisely as possible) how one or two of his strategic decisions was aimed directly at that long-term
goal. How might he (or you) have been distracted in each case by the appeal of a shorter-term
tactic?
His goal was the overthrow of Apartheid and the end of racial repression in South Africa and a
united government elected by the free people. Mandela’s decision to use violence to fight violent
oppression helped achieve a long-term goal of keeping the people united so there would be a
country, and a people, to govern after Apartheid ended. His refusal to acceptance freedom from jail
if he renounced his acceptance of violence reinforced this goal of a united people, under one
leadership. Mandela could have been easily distracted from either strategy. As he saw the results of
violence, he was surely reconsidering his decision. He could easily have left jail behind him if he
agreed to the terms. Because those terms contradicted his political stance, he refused.
3. Case Question 3: According to Paul H. Schoemaker,
What Nelson Mandela offers aspiring strategic leaders is a living example of how
complex societal forces, uncompromising values, and key moments of decision can
be woven together over time, and across political, legal and economic domains,
into a compelling vision.
In what ways might the contemporary CEO of a large organization put these lessons to use? To
approach this question, first imagine a scenario in which such a CEO is faced with opportunities and
challenges analogous to those faced by Mandela. Then offer a series of suggestions (as concrete as
possible) on how he or she apply lessons learned from Mandela’s experience.
CEOs can learn that a compelling vision gives direction and purpose to a cause. A newly hired
female CEO of a high-tech firm notices the only other female employees work in a secretarial
capacity. She may envision a firm with female employees at all levels and in all areas of
production. She may begin by asking questions of the managers and staff, getting a good sense of
the culture of the firm. The CEO may then identify ways to enact her vision, such as actively
recruiting female coders and promoting some secretaries into other areas of production. She should
keep the long-term objective in mind and work slowly toward her goals.
4. Case Question 4: A former anti-apartheid leader recalls that Mandela did not try to lead the
movement away from armed resistance. He was, however, “a great leader because he recognized
that the movement had become a civil insurrection, a largely nonviolent struggle. A great leader is
one who recognizes where the movement is and leads it accordingly, not one who says, ‘Do it my
way!’”
First, explain in your own words what Nelson Mandela’s long-term goal was. Then explain why, as
a strategic tactic, nonviolence was ultimately more consistent than violence with Mandela’s long-
term goal. What features in the ANC’s social and political environment dictated that nonviolence
would ultimately be necessary for Mandela to reach his long-term goal?
Mandela’s long-term goal was a united, free country. Mandela did not want to use violence but he
witnessed peaceful protests be met with violence from the government. The violence from the
government was escalating and the younger people were willing to fight back. He knew if he did
not sanction the violence, the united resistance could split and become ineffective. Mandela
realized that time was on his side as Apartheid was an unsustainable practice that would break down
eventually.

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CHAPTER 7

Managing Strategy and Strategic Planning

A strategy is a comprehensive plan for accomplishing an organization’s goals.

C. Strategy Formulation and Implementation

II. USING SWOT ANALYSIS TO FORMULATE STRATEGY

The starting point in formulating strategy is usually SWOT analysis.

Reasons a distinctive competence might not be imitable:

Discussion Starter: If a low-price strategy is easily imitated, is it likely to lead to a

Cross-Reference: Porter’s five forces model of the competitive environment discussed in

III. FORMULATING BUSINESS-LEVEL STRATEGIES

IV. IMPLEMENTING BUSINESS-LEVEL STRATEGIES

A. Implementing Porter’s Generic Strategies

c. Manufacturing emphasizes increased volume of production to reduce the per unit

V. FORMULATING CORPORATE-LEVEL STRATEGIES

1. Bases of relatedness include common technology, common distribution network,

Extra Example: Seagram’s, a large liquor company, once bought MCA, an

VI. IMPLEMENTING CORPORATE-LEVEL STRATEGIES

A. Becoming a Diversified Firm

VII. INTERNATIONAL AND GLOBAL STRATEGIES

A. Developing International and Global Strategies

END OF CHAPTER QUESTIONS

Questions for Review

Questions for Analysis

Questions for Application

END OF CHAPTER EXERCISES

Building Effective Decision-Making Skills

Building Effective Conceptual Skills

The Most Admired Strategist of the Twentieth Century

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