This Document Contains Chapters 1 to 2 Chapter 1 - Nature of Strategic Management Overview Chapter 1 introduces the basic terms in strategic management. This chapter presents the comprehensive model for strategic planning that appears in each subsequent chapter and provides a unifying, logical flow for the entire textbook. This chapter describes the benefits of doing strategic planning, the drawbacks of not doing strategic planning, and the pitfalls of doing strategic planning incorrectly. Learning Objectives: 1. Discuss the nature and role of a chief strategy officer (CSO). 2. Describe the strategic-management process. 3. Explain the need for integrating analysis and intuition in strategic management. 4. Define and give examples of key terms in strategic management. 5. Discuss the nature of strategy formulation, implementation, and evaluation activities. 6. Describe the benefits of good strategic management. 7. Discuss the relevance of Sun Tzu’s The Art of War to strategic management. 8. Discuss how a firm may achieve sustained competitive advantage. Teaching Tips 1. Spend about 40 minutes going over the comprehensive strategic management model in Figure 1-1, highlighting each component part with examples. This is the best way to cover the terms introduced in the chapter. Pull up the new and improved author website for this textbook, because it has great resources for students. The URL is www.strategyclub.com 2. The Edward Deming quote mentioned in Chapter 1 (In God We Trust, All Others Bring the Data) is vitally important in this course, because students tend to use vague terms throughout their case analysis. Vagueness is detrimental to development of any strategic plan. Therefore, highlight and emphasize the relevance and importance of the Deming quote and tell students that vagueness is disastrous in this course. Strategies must be formulated to the extent possible on factual, specific, underlying key internal and external factors, rather than trying to formulate strategies based on general statements, opinion, or intuition. 3. Highlight Figure 1-2 on “the benefits of doing strategic planning.” Use that exhibit to emphasize the many benefits of doing strategic planning, as well as the drawbacks of not doing strategic planning. 4. Ask students to raise their hand if they played football, basketball, or soccer for the college/university. Ask several of those athletes to “tell the class how important having a good game plan is to the success of an athletic team.” Associate their answers to the importance of a business having a good game plan, i.e., strategic plan. 5. Regarding the “Comparing Business and Military Strategy” section, emphasize to students that there are countless examples in military history where a superior army was defeated by a smaller army that had a better strategic plan. The famous general, Alexander the Great, who never lost a battle, said (paraphrased): “I’d rather face an army of lions led by a sheep, than an army of sheep led by a lion.” That quote emphasizes the importance of strategic planning, and having an excellent strategist. 6. All 48 end-of-chapter review questions are excellent to go over in class. Sometimes in class, the authors will assign every student a question and give the class 10 minutes to develop answers and then let each student give the class the answer, and then comment on the answer (answers to all questions are given later in this manual). This is a great way to promote teacher/student interaction. 7. Ask students to read the PepsiCo Cohesion Case presented after Chapter 1 because a third of all the end-of-chapter exercises apply chapter concepts to the PepsiCo case – thus preparing students for developing a case analysis on their assigned company. Divide students into 3 or 4 person teams within the first two weeks of class and assign to them one of the 29 cases in the book, and schedule a day for the teams to each give a 20 minute oral presentation revealing their recommended three-year strategic plan for the firm. The authors and most professors using this book use this approach. 8. The authors’ favorite exercise at the end of Chapter 1 is 1D titled “Strategic Planning for My University.” You could spend a whole class day on this exercise alone. Definitely spend some time on this exercise because associated exercises at the end of each chapter apply strategy concepts to your college/university. Students are very knowledgeable about their university and their opinions differ widely as to strengths/weaknesses and opportunities/threats/strategies. Thus, spending class time working through this exercise will reveal to students how opinions vary regarding the importance of various factors/issues; opinions also vary in companies doing strategic planning. We use this exercise also to facilitate teacher/student interaction as well as student/student interaction, which is especially beneficial to do early in the semester. 9. It is important to spend some class time also on Exercise 1B that applies the strategic management process to the PepsiCo Cohesion Case. Make sure students understand the basic strategic planning process as applied to PepsiCo and revealed in that exercise. Associated exercises at the end of other chapters utilize the information obtained from Exercise 1B and collectively help prepare students for performing case analysis on their assigned company. 10. Read the “Special Note to Students” at the end of this chapter and explain its importance to students. 11. Skip over to the last three pages in book (before the cases start) and go through that basic timeline/outline for a strategic management case analysis – so students will know what is expected of them in terms of preparing their case analysis/project for the course. Refer back to these three pages often in the course. 12. For the first time ever, the Excel Student Template is available FREE for students at the new and improved author website at www.strategyclub.com. Your students will find this template to be immensely helpful in this course. Plus, three example strategic management case projects provided are there as a guide for students to follow. Answers to End-of-Chapter Review Questions 1. Strengths and weaknesses should be determined relative to competitors, or by elements of being, or relative to a firm’s own objectives. Explain. Answer: This is a true statement. An internal factor, such as ROI of 4%, can be stated much better as, ROI of 4% vs. Industry Avg. of 14%, or ROI of 4% vs. Company Objective of 2%, or ROE of 4% vs. negative 4% the prior year. Relative strength/weakness deficiency or superiority is vital information in formulating strategies, and is much better than a single number with no comparison over time or to industry average. An example of “elements of being” would be that Firm A owns 10,000 acres of oil lands. 2. Explain why internal strengths and weaknesses should be stated in divisional terms to the extent possible. Answer: Perhaps the biggest strategic decision facing firms is the extent to allocate monies/resources across divisions/segments, so the underlying information to make those decisions needs to be stated in divisional terms, to the extent possible. For example, say that PepsiCo’s Frito Lay division’s ROI rose to 10% from 5% the prior year, rather than saying PepsiCo Inc.’s ROI is 6%. Factors to be included in formulating strategies should be actionable, i.e., should be conducive to determining what specific strategies would benefit the firm given that factor. So, factors stated in divisional terms are excellent. 3. Explain why both internal and external factors should be stated in specific terms, i.e., using #’s, %’s, $’s, ratios, and comparisons over time, to the extent possible. Answer: Business people already know the vague generalities, and desperately need to know the specifics, in order to decide among many available good alternative strategies. Thus, the underlying external opportunities/threats must be stated in specific terms so give guidance in formulating and selecting alternative strategies. Thus, avoid saying “Canada’s GDP is increasing.” Instead, say “Canada’s expected GDP next year is 6% and Mexico’s expected GDP is 3%.” Words such as increasing, decreasing, growing, and expanding can mean virtually anything. Avoid vagueness. Vagueness is not helpful in making tough resource allocation decisions among divisions, regions, product, etc. 4. Compare and contrast the near-end-of-chapter quotes by Alexander the Great and Bear Bryant regarding the importance of strategic planning in military or athletic settings. How applicable are those quotes in a business setting? Discuss. Answer: A famous quote by Alexander the Great was: “Greater is an army of sheep led by a lion, than an army of lions led be a sheep.” This quote reveals the overwhelming importance of an excellent strategic plan, and in particular an excellent leader (strategist) for any organization to succeed. The quote suggests the leader, who devises the game plan, is more important than the actual manpower. A similar quote by the legendary Alabama football coach Bear Bryant went something like this: I will defeat the opposing coach’s team with my players, but if given a week’s notice, I could defeat the opposing coach’s team with his players and he take my players. This quote reveals Coach Bryant’s confidence in his coaching staff developing a superior game plan given whatever players are available. In a business setting, the CEO or owner of the business, as chief strategist, must be better than rival CEOs for his/her firm to do well. 5. Are “strategic management” and “strategic planning” synonymous terms? Explain. Answer: The term “strategic management” in this text is used synonymously with the term “strategic planning.” The latter term is more often used in the business world, whereas the former is often used in academia. Sometimes the term “strategic management” is used to refer to strategy formulation, implementation, and evaluation, with “strategic planning” referring only to strategy formulation. 6. What are the three stages in strategic management? Which stage is more analytical? Which relies most on empowerment to be successful? Which relies most on statistics? Justify your answers. Answer: The three stages of strategic management are: strategy formulation, strategy implementation, and strategy evaluation. Because it is the decision-making stage of strategic management, strategy formulation is the most analytical stage. The strategy implementation stage relies most on empowerment to be successful, and hinges upon managers’ ability to motivate employees, which is more an art than a science. Strategy evaluation relies the most on statistics, as it deals with reviewing external and internal factors, measuring performance, and analyzing variances between expected vs. actual outcomes. 7. Why do many firms move too hastily from vision/mission development to devising alternative strategies? Answer: Firms that move too hastily from vision and mission development to devising alternative strategies are overlooking two important steps in the strategic management process: 1) identify and evaluate internal strengths/weaknesses and 2) identify and evaluate external opportunities/threats. Reasons why many firms are negligent in this regard include 1) laziness, 2) lack of time, 3) lack of knowledge, 4) unwillingness to do research to find specific facts and figures, and 5) unaware that matching key external with internal factors is a key to strategy formulation. 8. Why are strategic planning retreats often conducted away from the work site? How often should firms have a retreat, and who should participate in them? Answer: The rationale for periodically conducting strategic-management meetings away from the work site is to encourage more creativity and candor from participants. Good communication and feedback are needed throughout the strategic-management process in order to 1) formulate effective strategies and 2) achieve understanding and commitment that are vital to strategy implementation. 9. Distinguish between long-range planning and strategic planning. Answer: Long-range planning is striving to optimize for tomorrow the trends of today, whereas strategic planning is striving to exploit and create new and different opportunities for tomorrow. Strategic planning requires much more work and diligence as indicated by the activities and stages described in the chapter. 10. Compare a company’s strategic plan with a football team’s game plan. Answer: A strategic plan is, in essence, a company’s game plan. Just as a football team needs a good game plan to have a chance for success, a company must have a good strategic plan to compete successfully. Weaker teams with a better game plan very often defeat stronger teams, and the same thing happens in the business world. 11. Describe the three activities that comprise strategy evaluation. Answer: The three fundamental strategy-evaluation activities are (1) review external and internal factors that are the bases for current strategies, (2) measure performance, and (3) take corrective actions. The first activity involves determining whether strength/weakness/opportunity/threat facts and figures have changed, which is actually facilitated by activity two, that involves comparing actual performance to expected results across regions and products. The third activity can include altering a firm’s vision/mission/objectives/strategies/policies/procedures/organizational chart, etc. 12. How important do you think “being adept at adapting” is for business firms? Explain. Answer: Being adept at adapting is vital for survival of business firms (and organisms). The strategic-management process is based on the belief that an organization’s survival can depend on how well the firm continually monitors internal and external events and trends and makes timely changes as needed. 13. Compare the opossum and turtle to the woolly mammoth and saber tooth tiger in terms of being adept at adapting. Answer: Species that adapt well to their changing environment are, like companies, able to survive, while those that do not adapt, are more likely to perish and become extinct. The opossum and turtle have been on earth for millions of years, while the saber tooth tiger and woolly mammoth became extinct about 11,000 years ago. 14. As cited in the chapter, Edward Deming, a famous businessman, once said, “In God we trust. All others bring data.” What did Deming mean in terms of developing a strategic plan? Answer: The strategic-management process can be described as an objective, logical, systematic approach for making major business decisions in an organization. The process attempts to organize qualitative and quantitative information in a way that allows effective decisions to be made under conditions of uncertainty. Mr. Deming insisted on facts and figures because he knew that vague generalities were not helpful in choosing among many attractive alternative strategies. Mr. Deming insisted on seeing #’s, $’s, ratios, and %’s across regions and products in order to best chart a path forward for any organization. 15. What strategies do you believe can save newspaper companies from extinction? Answer: Newspaper companies could invest more in Internet technologies, including developing nice aps for smartphones, and charging for the aps. Also, they could charge for an online subscription. Perhaps they could shift to a business model of giving away newspapers, while simultaneously enticing advertisers to advertise more, given the expected increased circulation from “free at newsstands and nominal fee for delivery.” Free is a good price, if expenses can be exceeded by advertising revenue. But any strategies pursued should be determined after thorough analysis as described in this text, rather than haphazardly determined. 16. Distinguish between the concepts of mission and vision. Answer: Mission statements are “enduring statements of purpose that distinguish one business from other similar firms.” Visions statements answer the question “What do we want to become?” A vision statement should be one sentence, whereas a mission statement is several sentences, but less than 200 words. 17. Your university has fierce competitors. List three external opportunities and three external threats that face your university. Answer: Opportunities – 1) The blackboard collaborate technology for online classes has become easier, more popular, and less expensive. 2) The USA economy and GDP is growing 6% annually. 3) Construction costs for building new buildings is declined 14% year-over-year. Threats – 1) The local tech school has cheaper tuition and easier classes that transfer into our university. 2) Our rival firms all offer a BBA Degree online. 3) There is an 8% decline in population in the last few months in our county. 18. List three internal strengths and three internal weaknesses that characterize your university. Answer: Strengths – 1) Our College of Business is AACSB accredited at both the BBA and MBA levels. 2) Our average classroom size is 19 students. 3) Our university has a new Nursing Program and Building. Weaknesses – 1) Only 50% of our business faculty hold a PhD in business. 2) Our university lacks sufficient dorm space for students. 3) Our university lacks sufficient parking for students and faculty. 19. List reasons why objectives are essential for organizational success. Answer: Objectives are essential for organizational success because they state direction, aid in evaluation, create synergy, reveal priorities, focus coordination, and provide a basis for effective planning, organizing, motivating, and controlling activities. 20. List four strategies and a hypothetical example of each. Answer: Business strategies include geographic expansion, diversification, acquisition, product development, market penetration, retrenchment, divestiture, liquidation, and joint ventures. Student answers as to examples of each could vary widely. 21. List six characteristics of annual objectives. Answer: Like long-term objectives, annual objectives should be measurable, quantitative, challenging, realistic, consistent, and prioritized. 22. Why are policies especially important in strategy formulation? Answer: Policies, like annual objectives, are especially important in strategy implementation because they outline an organization’s expectations of its employees and managers. Policies allow consistency and coordination within and between organizational departments. Policies can be broad and include rules, regulations, and procedures. 23. What is a “retreat” and why do firms take the time and spend the money to have these? Answer: Retreats are formal meetings conducted semiannually to discuss and update the firm’s vision/mission, opportunities/threats, strengths/weaknesses, strategies, objectives, policies, and performance. Retreats are commonly held off-premises to encourage more creativity and candor from participants. The feeling is that off-premise retreat facilitates communication, shared understanding, and commitment. 24. Discuss the notion of strategic planning being more formal versus informal in an organization. On a 1 to 10 scale from formal to informal, what number best represents your view of the most effective approach? Why? Answer: Formality refers to the extent that participants, responsibilities, authority, duties, and approach are specified. Application of the strategic-management process is typically more formal in larger and well-established organizations. Smaller businesses tend to be less formal. Firms that compete in complex, rapidly changing environments, such as technology companies, tend to be more formal in strategic planning. Firms that have many divisions, products, markets, and technologies also tend to be more formal in applying strategic-management concepts. Greater formality in applying the strategic-management process is usually positively associated with the cost, comprehensiveness, accuracy, and success of planning across all types and sizes of organizations. Informality too often invites guessing, laziness, politics, and emotion, which are generally not good in strategic planning. 25. List ten guidelines for making the strategic-planning process effective. Arrange your guidelines in prioritized order of importance in your opinion. Answer: Table 1-2 presents 17 guidelines for the strategic-planning process to be effective: 1. It should be a people process more than a paper process. 2. It should be a learning process for all managers and employees. 3. It should be words supported by numbers rather than numbers supported by words. 4. It should be simple and non-routine. 5. It should vary assignments, team memberships, meeting formats, and even the planning calendar. 6. It should challenge the assumptions underlying the current corporate strategy. 7. It should welcome bad news. 8. It should welcome open-mindedness and a spirit of inquiry and learning. 9. It should not be a bureaucratic mechanism. 10. It should not become ritualistic, stilted, or orchestrated. 11. It should not be too formal, predictable, or rigid. 12. It should not contain jargon or arcane planning language. 13. It should not be a formal system of control. 14. It should not disregard qualitative information. 15. It should not be controlled by “technicians.” 16. Do not pursue too many strategies at once. 17. Continually strengthen the “good ethics is good business” policy. 26. List what you feel are the five most important lessons for business that can be garnered from The Art of War book. Answer: Both business and military organizations must adapt to change and constantly improve to be successful. Table 1-3 provides narrative excerpts from The Art of War, but some of the following especially apply to business. ● Analyze the enemy’s plans so that you will know his shortcomings as well as his strong points. ● An army should be likened to water. Just as flowing water avoids the heights and hastens to the lowlands, so an army should avoid strength and strike weakness. ● Unskilled leaders work out their conflicts in courtrooms and battlefields. Brilliant strategists rarely go to battle or to court; they generally achieve their objectives through tactical positioning well in advance of any confrontation. ● When you do decide to challenge a rival, much calculating, estimating, analyzing, and positioning bring triumph. ● Skillful leaders do not let a strategy inhibit creative counter-movement. ● When a decisive advantage is gained over a rival, skillful leaders do not press on. They hold their position and give their rivals the opportunity to surrender or merge. ● Brilliant strategists forge ahead with illusion, obscuring the areas of major confrontation, so that opponents divide their forces in an attempt to defend many areas. 27. What is the fundamental difference between business strategy and military strategy in terms of basic assumptions? Answer: The fundamental difference between military and business strategy is that business strategy is formulated, implemented, and evaluated with an assumption of competition, whereas military strategy is based on an assumption of conflict. 28. Explain why the strategic management class is often is called a “capstone course.” Answer: Strategic management is commonly called a capstone course because students’ major responsibility in this class is to use all knowledge gained in prior courses to chart the future direction of different organizations. Students have the opportunity in this course to utilize their marketing, finance, management, MIS, and accounting knowledge. 29. What aspect of strategy formulation do you think requires the most time? Why? Answer: Important aspects of strategy formulation include developing a business mission, performing an external audit, conducting an internal audit, generating alternative strategies, and choosing among alternative strategies. Performing an external audit generally takes the most time. For example, identifying competitors’ strengths and weaknesses is an essential aspect of the external audit. Effective use of the Internet can reduce the time required for performing an external audit. 30. Why is strategy implementation often considered the most difficult stage in the strategic-management process? Answer: Strategy implementation is often considered to be the most difficult stage in strategic management because it requires discipline, sacrifice, commitment, and hard work from all employees and managers. It is always more difficult to do something than to say you’re going to do it. 31. Why is it so important to integrate intuition and analysis in strategic management? Answer: No analytical tools can capture all aspects of a given organization’s culture and situation. Nor can analytical tools assimilate all the subjective information that must be considered in strategic management, such as personalities, emotions, values, beliefs, customs, and ethical factors. However, analytical tools are essential to utilize in strategic planning because they have been developed over many years using actual data, and are effective for assimilating facts and figures. Intuition alone is insufficient for making good strategic decisions. Based on one’s past experiences, judgment, and “gut” feelings, intuition is especially under time constraints, and in assigning weights and ratings in planning matrices. Strategists must integrate intuition and analysis in strategic management, but in the view of this author, analysis is more important than intuition. Unfortunately, too many firms rely too heavily on intuition, and some disastrously rely exclusively on intuition. 32. Explain the importance of a vision and mission statement. Answer: Reaching agreement on a formal vision and mission statement can greatly facilitate the process of reaching agreement on an organization’s strategies, objectives, and policies. Organizational success depends on reasonable agreement on key issues, so a clear, jointly developed and supported, vision and mission statement are essential in strategic management. 33. Discuss relationships among objectives, strategies, and policies. Answer: Long-term objectives and strategies are products of strategy formulation. Short-term (annual) objectives and policies are products of strategy implementation. Firms should translate long-term objectives into annual objectives. Strategies should be supported with clear policies. 34. Why do you think some chief executive officers fail to use a strategic-management approach to decision making? Answer: Various reasons listed and described in Chapter 1 include: Lack of knowledge or experience in strategic planning. Poor reward structures. Firefighting. Waste of time. Too expensive. Laziness. Content with success. Fear of failure. Overconfidence. Prior bad experience. Self-interest. Fear of the unknown. Honest difference of opinion. Suspicion. 35. Discuss the importance of feedback in the strategic-management model. Answer: As indicated in the strategic-management model, feedback is critically important. Changes can occur at any stage in the process and impact all other strategic-management activities. Feedback allows these changes to be identified and adjustments to be made. Feedback promotes the creation of a climate for two-way communication and, thus, allows esprit de corps to be achieved in an organization. 36. How can strategists best ensure that strategies will be effectively implemented? Answer: Strategists can best assure that strategies formulated will be effectively implemented by involving as many managers as possible in the strategy formulation process. It is important to communicate effectively why changes are needed, and how managers and employees will benefit from the expected results. Good communication yields good understanding yields good commitment, which is essential for good implementation (See Figure 1-2). 37. Give an example of a recent political development that changed the overall strategy of an organization. Answer: Gun control legislation is pending at the federal level and in some state legislatures, which has led to increased demand for ammunition and various guns. So, companies that make ammo and guns have increased production in the short-term, but in the long-term, some are diversifying into related products and services, such as hunting and fishing products. 38. Who are the major competitors of your college or university? What are their strengths and weaknesses? What are their strategies? How successful are these institutions compared to your college? Answer: Answers to this question will vary by institution. But, online courses and online degrees are becoming commonplace. Two year schools are continually offering 100 and 200 level classes more cheaply and “easier” than four year schools, that are more and more focusing on graduate schools. Schools are also becoming more student-friendly, modifying curriculum to be more “practical,” and even offering certifications in some areas. Identifying the major competitors of our college or university involves assessing other educational institutions within the same geographical area or those offering similar programs and degrees. Strengths and weaknesses, as well as strategies, can vary widely among competitors. One major competitor might be a nearby public university known for its extensive range of academic programs and research opportunities. Its strengths could include state-of-the-art facilities, a diverse student body, and strong ties to local industries for internships and job placements. However, weaknesses might include larger class sizes, bureaucratic processes, and limited personalized attention for students. Another competitor could be a prestigious private college renowned for its small class sizes and personalized attention from faculty. Its strengths might include a close-knit community, rigorous academic standards, and a strong alumni network. However, weaknesses could include higher tuition costs and fewer resources compared to larger universities. In terms of strategies, each competitor might focus on differentiating themselves through academic excellence, research initiatives, student support services, or extracurricular activities. Success can be measured through various metrics such as student retention rates, graduation rates, job placement rates, and rankings in national and international surveys. Comparing these institutions to our college or university involves evaluating factors such as student satisfaction, academic reputation, financial stability, and overall institutional performance. While some competitors may excel in certain areas, our college may have its own unique strengths that appeal to students and contribute to its success. It's important to conduct thorough research and analysis to understand the competitive landscape and identify opportunities for improvement and differentiation. This answer provides a structured approach to identifying major competitors of a college or university, assessing their strengths, weaknesses, and strategies, and comparing them to the institution in question. 39. Would strategic-management concepts and techniques benefit foreign businesses as much as domestic firms? Justify your answer. Answer: The answer to this question is YES. But, management style and culture varies considerably across countries as will be elaborated upon in Chapter 11. For example, northern European countries tend to be more participative in management style, whereas southern European countries tend to be more autocratic (as does Mexico). Many foreign businesses are using strategic-management concepts and techniques effectively. This textbook is very widely used globally, being the best seller in Japan, China, and Mexico. 40. What do you believe are some potential pitfalls or risks in using a strategic-management approach to decision making? Answer: Thirteen risks are listed under the “Pitfalls in Strategic Planning” section of Chapter 1. But, there is a risk of too little top management support for the process. There is a risk of too little involvement by line managers and employees. There is a risk that top managers will underestimate the importance of understanding and commitment. 41. In your opinion, what is the single major benefit of using a strategic-management approach to decision making? Justify your answer. Answer: The single major benefit is the potential for improved understanding of the business and industry on the part of all managers and employees. Understanding generally leads to increased commitment, which, in turn, leads to creativity, innovativeness, and overall cooperativeness. The process is more important than the plan. Also, the strategic-management process allows an organization to initiate and influence, rather than just respond and react to its environment. That is, it allows an organization to be proactive, rather than reactive, in controlling its own destiny. Strategic-management concepts provide an objective basis for allocating resources and for reducing internal conflicts that can arise when subjectivity alone is the basis for major decisions. 42. Compare business strategy and military strategy. Answer: As discussed in the latter part of this chapter, business and military strategy are similar in many respects. Many of the ideas utilized in business strategy were first developed as a part of military strategy. Both military and business organizations have competitors. A fundamental difference between military and business strategy is that business strategy is formulated, implemented, and evaluated with the assumption of competition, while military strategy is based on an assumption of conflict. For example, if your forces of 10,000 men are X, and your enemy of 10,000 men are Y, with other variables being equal, which of the following strategic positions would you prefer to launch an attack: A, B, C, or D, and why? In a military sense, and business sense for companies, life or death could hang in the balance, depending on your choice among strategies. 43. Why is it important for all business majors to study strategic management since most students will never become a chief executive officer or even a top manager in a large company? Answer: Strategic management takes place at multiple levels within an organization. Although most students may never become the CEO of a corporation, they may become the “branch manager” or department head or manager. In these roles, they may be asked to participate in development of a strategic plan. Employees at all levels are frequently asked to contribute to development of their firm’s strategic plan. Thus, an understanding of the strategic-management process is important, perhaps for the career development of any business major. 44. Describe the content available on the strategy club website at www.strategyclub.com. Answer: The strategy club website provides the new, free, excel Student Template designed to help students generate the matrices required for case analyses. The site also provides several sample student case presentations and other resources to benefit strategic management students. 45. List four financial and four nonfinancial benefits of a firm engaging in strategic planning. Answer: Businesses engaging in strategic planning experience many financial benefits, including: 1) significant improvement in sales, profitability, and productivity compared to firms without strategic planning activities, 2) superior long-term financial performance relative to their industry, 3) seem to make more informed decisions with good anticipation of both short and long-term consequences, and 4) better prepared for fluctuations in their external and internal environments. In addition to the financial benefits, firms using strategic planning also experience nonfinancial benefits that include 1) an enhanced awareness of external threats, 2) an improved understanding of competitors’ strategies, 3) increased employee productivity, 4) reduced resistance to change, and 5) a clearer understanding of performance-reward relationships. 46. Why is it that a firm can sustain a competitive advantage normally for only a limited period of time? Answer: A firm can sustain a competitive advantage for only a certain period of time due to rival firms continually trying to imitate and duplicate strategies, products, and services of the lead firm, in order to take market share from the leader, and build their own competitive advantage. 47. Why is it not adequate to simply obtain competitive advantage? Answer: Rival firms will constantly attempt to undermine firms with competitive advantages and try to imitate/duplicate those advantages/products/services – and perhaps offer similar products at much lower prices. Organizations must constantly strive to achieve sustained competitive advantage by continually evaluating their own strategies/products/services as well as rival firms efforts to undermine and overcome. 48. How can a firm best achieve sustained competitive advantage? Answer: Sustained competitive advantage can best be achieved by 1) continually adapting to changes in external trends and events and internal capabilities, competencies, and resources, and by 2) effectively formulating, implementing, and evaluating strategies that capitalize upon those factors. Answers to the End-of-Chapter Assurance of Learning Exercises ASSURANCE OF LEARNING EXERCISE 1A: COMPARE BUSINESS STRATEGY WITH MILITARY STRATEGY Answer: All nine of the military maxims listed in this exercise do have direct business applications, as indicated below. Rankings as to relative importance with rationales will vary by industry and situation. 1. Objective – Numerous benefits of objectives are given in Chapters 1 & 5; objectives are vital for business success. 2. Offensive – As revealed in Chapters 5 & 6, being aggressive is appropriate in many business strategy settings, but not all. Sometimes defensive strategies are best, such as retrenchment and divestiture. 3. Mass – This is almost always applicable in business setting. Rarely can firms pursue a little bit of many strategies. In contrast, tough strategic decisions must generally be made among many alternative strategies that could benefit the firm – and then commit substantial resources to the chosen direction. 4. Economy of Force – Businesses must cull unprofitable and secondary endeavors, and focus on profitable, growth segments and areas. 5. Maneuver – Gaining and sustaining competitive advantage is a huge need for businesses; this can be achieved by knowing the rival firms and continuously putting those firms at a disadvantage in terms of price and service 6. Unity of Command – Businesses commonly assign a “champion” for new products, i.e., a lead person. In addition, businesses increasingly delegate accountability and responsibility to a President of various segments. 7. Security – Businesses continuously gather and analyze competitive information trying to never let rival firms surprise them with new products/services/strategies. 8. Surprise – Businesses do seek to put rival firms out of business by aggressively identifying and attacking their weak areas in unsuspecting ways. 9. Simplicity – Businesses realize that good communication leads to excellent understanding which leads to high commitment and that to achieve these ends, simplicity rather than complexity is necessary. ASSURANCE OF LEARNING EXERCISE 1B: GATHER STRATEGY INFORMATION FOR PEPSICO Answer: The following are possible external opportunities/threats and internal strengths/weaknesses taken directly from the PepsiCo Cohesion Case. The instructions request ten for each category. Make sure students see the difference in internal vs. external factors. Ask students to note the need to be as specific as possible in stating each factor. Ask students to keep this information for use in later exercises. Remind students that: PAB = PepsiCo Americas Beverage PAF = PepsiCo Americas Foods LAF = Latin America Foods AMEA = Asia, Middle East, & Africa QFNA = Quaker Foods North America FLNA = Frito-Lay North America Strengths: 1. FLNA is the largest salty snack provider in the USA. 2. PepsiCo is excellent in innovating/changing products to match local tastes and cultures globally. 3. PepsiCo is the largest food and beverage company in Russia, India, and the Middle East and is number two in Mexico, and is in the top five in Brazil, Turkey, Vietnam, the Philippines, and Thailand. 4. PepsiCo just replaced Coke as the product sold at all Burger Kings in China. 5. PepsiCo has a large, new R&D facility in Shanghai, China. 6. PepsiCo is cutting 8,700 jobs as part of an aggressive cost-cutting program. 7. PAF’s revenues in 2012 increased to 36.6% from 34.8%. 8. PepsiCo’s revenues from Russia increased 2.36% in 2012. 9. PepsiCo’s Europe operating profits increased 9.9% in 2012. 10. PepsiCo’s European revenues rose 5% in Q1 of 2013. 11. About 17% of PepsiCo’s North American revenue comes from Wal-Mart. 12. PepsiCo and Anheuser-Busch InBev cooperate extensively in marketing. 13. FLNA has 40% of the global salty snack market and 64% of that market in the USA. 14. FLNA generates 40% of PepsiCo’s operating profits. Weaknesses: 1. For Q1 of 2013, PepsiCo’s earnings fell to $1.08 billion from $1.13 billion a year earlier 2. PepsiCo’s four business units (PAF, PAB, Europe, and AMEA) does not match its six reportable segments (PAB, FLNA, QFNA, LAF, Europe, and AMEA). 3. PAB revenues dropped to 32.7% of the company total in 2012 from 33.7%. 4. PepsiCo’s revenues from Mexico dropped 17.29% in 2012. 5. AMEA’s operating profit dropped 15.9% in 2012. 6. PAB operating profit dropped 10.3% in 2012 to $2.937 B. 7. QFNA operating profit declined 12.8% in 2012. 8. PepsiCo’s non-carbonated drink volume (Gatorade and Tropicana) dropped by 1% in Q1 2013, while Coca-Cola’s comparable products rose 6%. 9. PepsiCo’s AMEA region revenue dropped 14% in Q1 of 2013. 10. PAB revenue dropped 0.6% in Q1 of 2103. Opportunities: 1. Fountain soda accounts for about a quarter of soft drink sales volume in China. 2. Coca-Cola’s sparking beverage volume growth in Q1 of 2013 grew only 2% in Brazil. 3. For Q1 of 2013, Coca-Cola’s revenues dropped 1% in North America, 2% in Europe, and 4% in Pacific. 4. DPS derives 90% of its revenue from North America; 70% of that total comes from carbonated drinks. 5. Mondelez’s top management would support a merger with PepsiCo. 6. The energy drinks category of the beverage industry is growing 8% annually. Threats: 1. Coca-Cola is changing all its plastic bottles to its green PlantBottle by 2020. 2. Kellogg just acquired P&G’s Pringles business. 3. PepsiCo lags Coca-Cola in revenue per employee, return on investment, and long-term debt. 4. Coca-Cola generates 70% of its revenue and 80% of its operating profit from outside the USA. 5. The carbonated beverage consumption growth rate is about zero in North America and developed markets. 6. Coca-Cola is investing over $4 billion in China between 2012 and 2015. 7. Coca-Cola revenues in Q1 of 2013 grew 8% in both India and Russia, and 18% in Thailand. 8. Coca-Cola’s sparking beverage volume growth in Q1 of 2013 grew 15% in Russia, 30% in India, 38% in Thailand, and 6% in China. 9. DPS has started to distribute its products in Australia, China, Japan, South Korea, and Malaysia. 10. DPS holds the #1 position in the flavored non-cola market in the USA with a market share of 40%. 11. Mondelez has the leading market share in salty snacks outside the USA in every country. 12. Monster Beverage posted 35% growth in Q4 of 2012 in energy drinks and sells its products in 90 countries. 13. Per capita soda consumption of the USA has been declining for years, and is now 44 gallons per person, down from 54 gallons in 1998. The percentage consumption is dropping 1% annually in the USA. 14. USA and many other consumers globally are becoming much more health conscious – shunning sugary, carbonated drinks. The volume of packaged food is declining while the volume of fresh food in increasing. 15. Coca-Cola has reduced the size of its cans from 8.0 ounces to 7.5 ounces to bring the calorie count below 100. ASSURANCE OF LEARNING EXERCISE 1C: UPDATE THE PEPSICO COHESION CASE Answer: PepsiCo is continually in the news and posts company news releases at their website www.pepsico.com. Simply click on the News & Press Releases icon and read all the up-to-date news about PepsiCo. Or simply go to a site such as www.finance.yahoo.com and enter PepsiCo’s stock symbol (PEP) and then click on Headlines. Select several articles and prepare your executive summary based on that information. ASSURANCE OF LEARNING EXERCISE 1D: STRATEGIC PLANNING FOR YOUR UNIVERSITY Answer: Ask students to keep results of this exercise because, at the end of each chapter, at least one exercise applies chapter material to your university. Make sure students see the difference in internal vs. external factors. Ask students to note the need to be as specific as possible in stating each factor. While answers to this exercise will vary for each institution, a sample is provided below. Strengths: 1. Location in a state capital with several Fortune 500 companies nearby 2. $200 million technology donation has resulted in high-tech facilities 3. Diverse (28%) student body and faculty, up from 21% three years prior 4. Visionary presidential leadership 5. Nationally-ranked programs in nursing and business 6. Athletic teams performing excellent, raising college visibility 7. Tuition 15% lower than peer institutions 8. Our engineering and life sciences buildings are new and modern 9. We operate at full capacity in our dorms Weaknesses: 1. Urban campus with limited space for expanding campus 2. Police arrests on campus rising 5% annually 3. Gyms and athletic facilities 30 years old 4. Food service complaints up 11% vs. prior year 5. 30% of faculty are near retirement age and drawing high salaries 6. Student activity surveys indicate 14% decline in satisfaction 7. Alumni giving declining 10% annually 8. 30% of classes taught by adjunct faculty 9. Student/faculty ratio of 51 to 1 is higher than peer institutions Opportunities: 1. 14% increase in percentage of minority students enrolling in college vs. prior year 2. Need for adult education programs in the area growing 15% annually 3. Demand for international and online programs growing 20% annually 4. Large local firms seek new certification programs from the institution 5. Demand for nursing graduates growing 12% annually 6. The USA GDP is rising 1% annually 7. Social media use is growing 6% annually in North and South America 8. Demand for engineers is growing 5% annually in the USA Threats: 1. Pressure from state to admit marginal students in order to provide increased access for underserved minority students 2. Local two-year institutions offer courses 20% cheaper and less rigorous 3. 15% decline in international student applications 4. 12% annual decline in state funding levels 5. Major rival peer institutions offer and heavily market online degrees in our area 6. State population declining 4% annually 7. Unemployment rate stable at 9.0% causing many would-be students to have to work 8. The number of high school graduate is dropping 3% annually 9. The number of two-year tech school students is growing 8% annually 10. Demand for liberal arts degree students is declining 6% annually ASSURANCE OF LEARNING EXERCISE 1E: STRATEGIC PLANNING AT A LOCAL COMPANY Answer: Answers will vary for each student. The following questions could be used to guide the class discussion. ● How many of the organizations used formal as opposed to informal planning? How did this vary by size and type of firm? ● How many of the firms had a written vision and/or mission statement? How did this vary by size and type of firm? ● Did the people interviewed recognize the benefits of strategic planning? How did they inform the organizations’ employees of the strategic plans and the benefits of strategic planning? ● What would the students recommend in terms of changes to the strategic planning process used by the businesses they evaluated? ASSURANCE OF LEARNING EXERCISE 1F: GETTING FAMILIAR WITH THE STRATEGY CLUB ONLINE Answer: For the first time ever, the popular Excel Student Template is provided free to all students who use this textbook. Just go to the www.strategyclub.com website. Widely used for more than a decade by both students and businesses, and improved dramatically just for this edition, the Excel Student Template enables students to more easily apply strategic management concepts while engaging in assurance of learning exercises or case analysis. Using the Template, students can devote more time to applying strategy concepts and less time to the mechanics of formatting strategy matrices, tables, and PowerPoints. ASSURANCE OF LEARNING EXERCISE 1G: GETTING FAMILIAR WITH MYLAB Answer: For the first time ever with any strategic management text, a Case MyLab ancillary enables professors to systematically utilize cases to monitor student learning of stragegic management concepts. The authors have identified 29 key strategic management concepts, and written the 15th ed. cases in a manner to exemplify those concepts. All 29 cases now include coverage of most strategy concepts, but the Concepts by Cases matrix given earlier in this manual reveals which cases are designed for monitoring student learning of various strategy concepts. The before-class MyLab testing feature includes 25 multiple choice questions for each case –10 Basic questions that test if the student simply read the case before class and 15 Applied questions that test the student’s ability to apply various strategic management concepts. In addition, there are 2 Discussion questions per case. This testing feature enables professors to determine, before class if desired, whether students 1) read the case and 2) are able to apply strategy concepts to resolve issues in the case. Example MyLab case questions for the Applied questions are something like this: What two components recommended for inclusion in a mission statement are missing in the Nikon statement? Example Basic Questions would be like: In what country is L’Oreal headquartered? The Case MyLab product helps assure that the cases apply the concepts, but in addition the ancillary simplifies grading for professors and helps achieve AACSB's key assurance of learning objectives – even in purely or partly online class settings. Chapter 2 - Business Vision and Mission Overview Chapter 2 describes the nature and role of vision and mission statements in strategic planning, and provides specific guidelines on how to develop these statements. Both characteristics and components that should be included in these statements are provided, as are numerous examples. In this course, students should become proficient devising and improving vision and mission statement documents, and this chapter provides the foundation for that knowledge. Learning Objectives: 1. Describe the nature and role of vision and mission statements in strategic management. 2. Discuss why the process of developing a mission statement is as important as the resulting document. 3. Identify the components of mission statements. 4. Discuss how clear vision and mission statements can benefit other strategic-management activities. 5. Evaluate mission statements of different organizations. Teaching Tips 1. Use the following two quotes in this chapter to discuss the importance of vision/mission statements in strategic management, one quote near the beginning of the chapter and the other ends the chapter. Near the beginning of the chapter: 1) “You are never going to get anyone to charge the machine guns only for financial objectives. It has got to be something that makes people feel better, feel a part of something.” At the end of the chapter: 2) Three people were at work on a construction site. . . . Few of us can build cathedrals, but to the extent we can see the cathedral in whatever cause we are following, the job seems more worthwhile.” 2. Emphasize that the vision and mission of a firm should be so compelling that readers should want to invest in the firm, work for the firm, be proud of the firm, respect the firm, and realize what the firm is all about. The list of characteristics in Table 2-3 is especially important. 3. Among the nine components of a mission statement, we think the most important is self concept (distinctive competence). Make sure students realize the “self concept” component is critical for revealing competitive advantage to customers, potential customers, and all stakeholders. For example for PepsiCo, why should we drink Pepsi vs. Coke and invest in PepsiCo vs. Coca-Cola, i.e., where in the mission statement of Pepsi is their self concept. The “self concept” component is much more than “what the firm thinks of itself.” See the end-of-chapter exercise that deals with the PepsiCo vision/mission. 4. Read the “Special Note to Students” at the end of this chapter and explain its importance to students. 5. Go through the end-of-chapter review questions since they apply chapter concepts. Most professors also go through all the end-of-chapter exercises for this chapter. In this way, class time is spent in a more interactive way with students, rather than straight lecture. To help ensure students’ attention, consider having Test 1 (on Chapters 1-6) and Test 2 (on Chapters 7-11) be composed of at least one half verbatim end-of-chapter review questions. Answers to End-of-Chapter Review Questions 1. List four components and four guidelines that the J. Crew mission statement fails to exhibit. Write a new and improved mission for J. Crew. Answer: The J. Crew mission statement given at the beginning of Chapter 2 arguably includes none of the nine components, and only one characteristic (less than 250 words) prescribed in Chapter 2. Thus, a new and improved proposed mission statement is given below. “J. Crew is a global clothing retailer known for its cashmere cardigans, Capri pants, jeans, khakis, and Madewell women’s clothing. We use the latest technology to develop the highest quality fabrics to create leading fashion clothing for both men and women. We believe good ethics is good business and take of our employees who deliver exceptional service to our customers globally. We strive to be leading corporate citizens in all communities where we operate.” 2. Note at the www.jcrew.com website, a vision statement is not given. Write a recommended vision statement for J. Crew given their strategies. Answer: We aspire to become the leading supplier of fashion clothing for men and women around the world. 3. Explain how a firm such as J. Crew can be doing well, but does not have an effective vision or mission statement. Answer: There are hundreds of key management, marketing, finance, MIS, accounting, manufacturing, and economic variables that impact organizational performance, and hundreds more external variables. Thus, having or not having a vision or mission statement does not cause high performance. Research does suggest however that having a clear vision and mission statement are indicative of excellent strategic planning, which does correlate highly with organizational performance. But it is obviously possible for a firm such as J. Crew to do excellent strategic planning, without having an excellent vision and mission. 4. Some excellent nine-component mission statements consist of just two sentences. Write a two-sentence mission statement for a company of your choice. Answer: “J. Crew is a global clothing retailer known for its cashmere cardigans, Capri pants, jeans, khakis, and Madewell women’s clothing. We use the latest technology, believe good ethics is good business, honor our employees, care for our customers, and strive to be leading corporate citizens in all communities where we operate.” 5. How do you think an organization can best align company mission with employee mission? Answer: Through involvement, people become committed to an organization. An organization can align company mission with employee mission by including as many individuals as possible in the process of developing mission statements. The process of developing a mission statement should create an “emotional bond” and “sense of shared mission” between the organization and its employees. This is especially true in the USA, but employee involvement and participation are not utilized in countries such as Mexico because there that management practice would be viewed as showing weakness. 6. What are some different names for “mission statement,” and where will you likely find a firm’s mission statement? Answer: A mission statement is sometimes called a creed statement, a statement of purpose, a statement of philosophy, a statement of beliefs, a statement of business principles, or a statement “defining our business.” A good place to look for a company’s mission statement is on the firm’s website or its annual report, but many organizations also have the statement engraved and publically visible at its stores or facilities. 7. If your company does not have a vision or mission statement, describe a good process for developing these documents. Answer: Select several articles and/or web sites about these statements and ask all managers to read these as background information. Then, managers should prepare a vision or mission statement for the organization. A facilitator or committee should then merge these statements into a single document and distribute the draft statements to all managers. A request for modifications, additions, and deletions is needed next, along with a meeting to revise the document. 8. Explain how developing a mission statement can help resolve divergent views among managers in a firm. Answer: The question “What is our business?” can create controversy. Raising the question often reveals different opinions/views/beliefs among strategists in the organization. Individuals who have worked together for a long time may realize that they are in fundamental disagreement. Negotiation, compromise, and eventual agreement on important issues is needed in forming or revising a mission statement. Then, managers can “be on the same page” and focus on more specific strategy formulation activities. 9. Drucker says that the most important time to seriously reexamine the firm’s vision/mission is when the firm is very successful. What is this? Answer: The most important time to ask seriously “What do we want to become?” and “What is our business?” is when a company has been successful. Success obsoletes the very behavior that achieved it, and creates new realities and different problems. A very successful firm is the target of rival firms who try to imitate, duplicate, reverse engineer their products, and take market share from the leading firms. 10. Explain why a mission statement should not include monetary amounts, numbers, percentages, ratios, goals, or objectives. Answer: A mission statement is broad in scope for three reasons. First, it allows for the generation and consideration of a range of feasible alternative objectives and strategies without unduly stifling management creativity. Excess specificity would limit the potential of creative growth for the organization. Second, a mission statement needs to be broad to reconcile differences among, and appeal to, an organization’s diverse stakeholders. Thus, a mission statement should be reconciliatory. Third, it is simply premature in the mission statement to reveal goals and objectives, which should be determined after the internal and external assessment, as illustrated in the comprehensive strategic planning model. 11. Discuss the meaning of the following statement: “Good mission statements identify the utility of a firm’s products to its customers.” Answer: A good mission statement reflects the anticipations of customers. Organizations should identify customers’ needs and then provide a product or service to fulfill those needs. For example, AT&T’s mission statement focuses on communication rather than on telephones; Exxon-Mobil’s mission statement focuses on energy rather than on oil or gas; Union Pacific’s mission statement focuses on transportation rather than on railroads; and Universal Studio’s mission statement focuses on entertainment rather than on movies. 12. Distinguish between the “self-concept” and the “philosophy” components in a mission statement. Give an example of each for your university. Answer: The self-concept component of a mission statement describes a firm’s distinctive competence or major competitive advantage. The philosophy component of a mission statement refers to the basic beliefs, values, aspirations, and ethical priorities of the firm. Self-Concept: Overlooking the Atlantic Ocean, our college is AACSB accredited at both the BBA and MBA levels. Philosophy: We treat all students with respect and admiration. 13. When someone or some company is “on a mission” to achieve something, many times they cannot be stopped. List three things in prioritized order that you are “on a mission” to achieve in life. Answer: 1) To daily eat healthy. 2) To daily be a good steward of the natural environment. 3) To daily build up rather than break down people. 14. Compare and contrast vision statements with mission statements in terms of composition and importance. Answer: Many organizations develop both a mission statement and a vision statement. Whereas the mission statement answers the question, “What is our business?” the vision statement answers the question, “What do we want to become?” Both statements are essential for firm success. The vision is one sentence, whereas the mission is several sentences, and includes nine components. 15. Do local service stations need to have written vision and mission statements? Why or why not? Answer: Less formality and detail characterize strategic management in small businesses such as a local service station. However, local service stations are not immune to competitive pressures, changes in technology, changes in demographic factors, and resistance to change. Therefore, it is recommended that even the smallest organization develop written vision and mission statements to enhance efforts to secure bank financing and to develop good supplier, customer, and employee relationships. 16. Why do you think organizations that have a comprehensive mission statement tend to be high performers? Does having a comprehensive mission cause high performance? Answer: Having a comprehensive mission statement does not guarantee or cause high performance. However, a comprehensive mission statement can contribute significantly to high performance, because ideally it conveys the intent and aspirations of all employees and managers who by working together achieve synergy. Having an excellent mission statement also provides a firm foundation for effective strategic planning, rather than ad hoc guessing about what actions would be best to take in the future. 17. Explain why a mission statement should not include strategies and objectives. Answer: A mission statement should not include strategies and objectives because the statement needs to be broad in scope to effectively provide a basis for performing an external and internal audit and for generating and selecting among alternative strategies. Including specific strategies and objectives in a mission statement could reduce the level of innovative and creative thinking in an organization and jeopardize the potential for the statement to be widely accepted by all managers and employees. Acceptance of a clear mission is a prerequisite for gaining acceptance for strategies and objectives to pursue. In addition, it is simply premature in the mission to include strategies and objectives where are determined after the mission is decided upon. 18. What is your college or university’s self-concept? How would you state that in a mission statement? Answer: Ranked #1 nationally in International Business, the Darla Moore College of Business at the University of South Carolina trains students to be knowledgeable, comfortable, and effective in business across varied country settings. 19. Explain the principal value of a vision and mission statement. Answer: Whereas the mission statement answers the question, “What is our business?” the vision statement answers the question, “What do we want to become?” Both the vision statement and the mission statement ensure unanimity of purpose within the organization and make important statements about “who the firm is” and “what it wants to become” to outside stakeholders. The two statements provide a firm foundation for effective strategic planning. The statements provide direction and help motivate employees/managers. Table 2-3 lists ten benefits of having a clear mission statement: 1) achieve clarity of purpose among all managers and employees; 2) provide a basis for all other strategic planning activities; 3) provide direction; 4) provide a focal point for all stakeholders of the firm; 5) resolve divergent views among managers; 6) promote a sense of shared expectations among all managers and employees; 7) project a sense of worth and intent to all stakeholders; 8) project an organized, motivated organization worthy of support; 9) achieve higher organizational performance; and 10) achieve synergy among all managers and employees. 20. Why is it important for a mission statement to be reconciliatory? Answer: A mission statement needs to be reconciliatory because the claims of a firm's various stakeholders often conflict. For example, employees desire high wages yet customers desire low prices. An effective mission statement reconciles (reduces/mitigates) major differences among key stakeholders. 21. In your opinion, what are the three most important components that should be included when writing a mission statement? Why? Answer: All nine components described in Chapter 2 are important, but three are particularly important: 1) self concept (reveals the firm’s distinctive competence or competitive advantage), 2) philosophy (reveals that the firm is ethical in all aspects), and 3) technology (reveals that the firm is up-to-date technologically rather than being out-of-date). 22. How would the mission statements of a for-profit and a nonprofit organization differ? Answer: The mission statements of profit versus nonprofit organizations would not differ in the characteristics or the components specified for inclusion in effective statements. 23. Write a vision and mission statement for an organization of your choice. Answer: This is a worthwhile class exercise. Ask students to do this individually, and then exchange papers for grading. Have grading done based on inclusion of 9 components and 8 characteristics. 24. Conduct a search on the Internet with the keywords “vision statement” and “mission statement.” Find various company statements and evaluate the documents. Write a one-page, single-spaced report on your findings. Answer: This is a worthwhile activity for students to perform as a homework assignment followed by class discussion of the assortment of statements identified. 25. Who are the major stakeholders of the bank that you do business with locally? What are the major claims of those stakeholders? Answer: The major stakeholders of a bank include commercial customers, consumer customers, shareholders, communities, managers, and employees. Each stakeholder group relies upon the organization. Customers expect the bank to perform in a manner that protects them financially. Shareholders expect the firm to be profitable. Local communities rely upon the bank to provide jobs, credit, and to pay taxes. Employees rely upon the bank for wages and salaries. 26. List seven characteristics of a mission statement. Answer: Table 2-4 lists eight characteristics that may be included in students’ lists: 1) it is broad in scope and does not include monetary amounts, numbers, percentages, ratios, or objectives; 2) it is less than 250 words; 3) it is inspiring; 4) it identifies the utility of a firm’s products; 5) it reveals whether the firm is socially responsible; 6) it reveals whether the firm is environmentally responsible; 7) it includes nine components (customers, products and services, markets, technology, concern for survival/growth/profits, philosophy, self-concept, concern for public image, concern for employees); and 8) it is enduring and can reconcile differences among and appeal to an organization’s diverse stakeholders. 27. List eight benefits of having a clear mission statement. Answer: Table 2-3 lists ten benefits that may be included in students’ lists: 1) achieve clarity of purpose among all managers and employees; 2) provide a basis for all other strategic planning activities; 3) provide direction; 4) provide a focal point for all stakeholders of the firm; 5) resolve divergent views among managers; 6) promote a sense of shared expectations among all managers and employees; 7) project a sense of worth and intent to all stakeholders; 8) project an organized, motivated organization worthy of support; 9) achieve higher organizational performance; and 10) achieve synergy among all managers and employees. 28. How often do you feel a firm’s vision and mission statement should be changed? Answer: Vision and mission statements should be evaluated on a regular basis, at least annually, to determine if they are still appropriate. Firms may wish to change the statements both in times of crisis and in times of success. The vision and mission should be modified as needed to “stay in tune” with the company and its environment. Well written statements oftentimes are not changed for 3 to 5 years. Answers to the End-of-Chapter Assurance of Learning Exercises ASSURANCE OF LEARNING EXERCISE 2A: DEVELOP AN IMPROVED J. CREW MISSION STATEMENT Answer: The mission statement components are: 1. Customers 2. Products or services 3. Markets 4. Technology 5. Concern for survival, growth, and profitability 6. Philosophy 7. Self-concept 8. Concern for public image 9. Concern for employees Improved Mission Statement A possible J. Crew mission statement is as follows: “We sell cashmere cardigans, Capri pants, jeans, khakis, and other high quality clothing products to young professionals around the world (1, 2, 3). We strive to maximize our shareholders’ value by utilizing the latest technology to monitor consumer trends and exceed consumer expectations (5, 4). We believe in the golden rule in all that we do, strive to be exemplary citizens in all communities where we have operations (6, 8). We deeply appreciate and care for our employees (9). Quality is our highest priority. Always has been, always will be (7).” ASSURANCE OF LEARNING EXERCISE 2B: EVALUATE MISSION STATEMENTS Answer: Advance Auto Parts It is the Mission of Advance Auto Parts to provide personal vehicle owners and enthusiasts with the vehicle related products and knowledge that fulfill their wants and needs at the right price. Our friendly, knowledgeable and professional staff will help inspire, educate and problem-solve for our customers. Barnes & Noble Our mission is to operate the best specialty retail business in America, regardless of the product we sell. Because the product we sell is books, our aspirations must be consistent with the promise and the ideals of the volumes which line our shelves. To say that our mission exists independent of the product we sell is to demean the importance and the distinction of being booksellers. As booksellers we are determined to be the very best in our business, regardless of the size, pedigree or inclinations of our competitors. We will continue to bring our industry nuances of style and approaches to bookselling, which are consistent with our evolving aspirations. Above all, we expect to be a credit to the communities we serve, a valuable resource to our customers, and a place where our dedicated booksellers can grow and prosper. Toward this end we will not only listen to our customers and booksellers but embrace the idea that the Company is at their service. Estee Lauder The guiding vision of The Estee Lauder Companies is "Bringing the best to everyone we touch". By "The best", we mean the best products, the best people and the best ideas. These three pillars have been the hallmarks of our Company since it was founded by Mrs. Estee Lauder in 1946. They remain the foundation upon which we continue to build our success today. Family Dollar Stores For Our Customers A compelling place to shop. . . by providing convenience and low prices For Our Associates A compelling place to work. . . by providing exceptional opportunities and rewards for achievement For Our Investors A compelling place to invest. . . by providing outstanding returns. FedEx FedEx will produce superior financial returns for shareowners by providing high value-added supply chain, transportation, business and related information services through focused operating companies. Customer requirements will be met in the highest quality manner appropriate to each market segment served. FedEx will strive to develop mutually rewarding relationships with its employees, partners and suppliers. Safety will be the first consideration in all operations. Corporate activities will be conducted to the highest ethical and professional standards. Ford Motor Company We are a global family with a proud heritage passionately committed to providing personal mobility for people around the world. Source: Based on http://www.missionstatements.com/fortune_500_mission_statements.html Evaluation Matrix of Mission Statements–Solutions
Components AAuto B&N ELauder FDollar FedEx Ford
Customers Yes Yes Yes Yes Yes
Products Yes No Yes Yes Yes
Markets No Yes Yes No No
Technology Yes No No No No
Concern for Survival, Growth, Profitability No No No Yes Yes
Philosophy Yes Yes Yes Yes Yes
Self-concept Yes Yes Yes Yes Yes
Concern for public image Yes Yes Yes No Yes
Concern for employees Yes Yes Yes Yes Yes
ASSURANCE OF LEARNING EXERCISE 2C: WRITE A VISION AND MISSION STATEMENT FOR PEPSICO Answer: The statements will vary from student to student but should include the nine essential components of mission statements. Sample statements are provided below. Nine Essential Components of Mission Statements 1. Customers 2. Products 3. Markets 4. Technology 5. Concern for Survival, Growth, Profitability 6. Philosophy 7. Self-Concept 8. Concern for Public Image 9. Concern for Employees Existing Mission – Lacks three components: Customers, Technology, and Self-Concept PepsiCo’s mission is given on their website as follows: “To be the world's (3) premier consumer products company focused on convenient foods and beverages (2). We seek to produce financial rewards to investors (5) as we provide opportunities for growth and enrichment to our employees (9), our business partners and the communities in which we operate (8). And in everything we do, we strive for honesty, fairness and integrity (6).” (www.pepsico.com) Improved Mission – Includes all nine components. “To be the world's (3) premier consumer products company focused on convenient foods and beverages (2). We seek to produce financial rewards to investors (5) as we provide opportunities for growth and enrichment to our employees (9), our business partners and the communities in which we operate (8). We strive to use the latest technology (4) to deliver outstanding products at low prices (7) for our customers (1). And in everything we do, we strive for honesty, fairness and integrity (6).” ASSURANCE OF LEARNING EXERCISE 2D: COMPARE YOUR COLLEGE/UNIVERSITY’S VISION AND MISSION STATEMENTS TO A LEADING RIVAL INSTITUTION Answer: Key - Nine Essential Components of Mission Statements 1. Customers 2. Products 3. Markets 4. Technology 5. Concern for Survival, Growth, Profitability 6. Philosophy 7. Self-Concept 8. Concern for Public Image 9. Concern for Employees The vision statement and mission statement for the author’s School of Business is given below: Existing Vision Statement The School of Business at Francis Marion University strives to provide the highest quality baccalaureate and master’s degree business programs offered at a small comprehensive university in the southeastern United States. Existing Mission Statement Accredited at both the graduate and undergraduate levels, the School of Business at Francis Marion University has a mission to teaching, research, and service. Nearly our entire faculty holds a doctorate in the area in which they teach. Our small classroom environment promotes interaction among students and faculty. We teach students to think logically, communicate effectively, develop an understanding and appreciation of the global business environment, and be guided by high ethical standards. Our students develop conceptual and analytical skills needed to be successful leaders in both private and public institutions. Our internship program and placement efforts actively assist students in finding meaningful jobs. Our faculty conducts research and service activities that enhance the region's economic and industrial development. Most of our undergraduate students major in management, marketing, accounting, finance, business economics, management information systems, or general business and earn a Bachelor of Business Administration degree. Other School of Business students major in economics or computer science and receive a Bachelor of Arts of Bachelor of Science degree. Our graduate students receive a Master of Business Administration degree and may become certified in Health Management. The School of Business seeks students locally and globally of all ages and ethnic backgrounds and serves them in a friendly, considerate manner. ASSURANCE OF LEARNING EXERCISE 2E: CONDUCT MISSION STATEMENT RESEARCH Answer: Ask students to search the websites of local businesses to see which businesses have posted their mission statements on their websites. The students could then contact one or more of these businesses and ask the questions suggested by the exercise. Encourage your students to ask the businesses why they posted their mission statement on their website. ASSURANCE OF LEARNING EXERCISE 2F: EVALUATE A MISSION PROPOSAL Answer: Key - Nine Essential Components of Mission Statements 1. Customers 2. Products 3. Markets 4. Technology 5. Concern for Survival, Growth, Profitability 6. Philosophy 7. Self-Concept 8. Concern for Public Image 9. Concern for Employees Delta Air Lines’ Actual Mission Statement – Includes no components adequately “We—Delta's employees, customers, and community partners together form a force for positive local and global change, dedicated to bettering standards of living and the environment where we and our customers live and work." A Proposed Mission Statement for Delta Air Lines Delta has a vested interest in employees (9), customers, shareholders, local and global environments, by promoting diversity (7), superior customer service (1), maintaining profitability (5), and continually investing in the improvement of the environment (8). We encourage positive partnerships and understand that the ability to continually progress, transform, and expand our business is vital for continued sustainability as a leader in the global airline industry (2, 3). We utilize the latest technological advancements to keep customers safe while providing great returns to our shareholders (4). Solution Manual for Strategic Management: A Competitive Advantage Approach, Concepts and Cases Fred R. David, Forest R. David 9780133444797, 9780135173947, 9780134167848, 9780135199978
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