CH-1 Strategic Management: Creating Competitive Advantages – Strategic Management: Creating Competitive Advantages : Book Guide

Chapter 1 Strategic Management: Creating Competitive Advantages Summary/Objectives At the heart of strategic management is the question: “How and why do some firms outperform others?” The challenge to managers is to develop and implement strategies that will provide competitive advantages that will be sustainable over time. This chapter is divided into five sections. 1. The first section addresses the broad question: “What is strategic management?” Here, we define strategic management as: “consisting of the analysis, decisions, and actions an organization undertakes to create and sustain competitive advantages.” We also address the four key attributes of strategic management: concern with overall objectives; involves multiple stakeholders; incorporates short- and long-term perspectives; and recognizes tradeoffs between effectiveness and efficiency. We also introduce the concept of “ambidextrous behaviors”— the need to combine alignment and adaptability. 2. The second section discusses the strategic management process. Here, we present the three processes—analysis, formulation, and implementation—that provide the framework for the overall organization of the thirteen chapters of the book. 3. The third section focuses on the vital role of corporate governance, which is essential to ensuring that the actions of a firm’s management are consistent with the goals of its owners—the shareholders. We also address stakeholder management. It must be taken into account throughout the strategic management process. Although the interests of stakeholders may, at times, conflict, we discuss how firms are able to achieve “symbiosis” among stakeholders wherein various interests are considered interdependent and can be attained simultaneously. We address the importance of social responsibility, including environmental sustainability. We also introduce the concept of “shared value.” 4. The fourth section addresses today’s greater need for a strategic management perspective throughout the organization. With the emergence of the knowledge economy and globalization, leaders must mobilize people throughout the organization. 5. The fifth section discusses the need for organizations to attain consistency in their vision, mission, and strategic objectives. Collectively, they form a hierarchy of goals. Lecture/Discussion Outline We begin the chapter with a clever quote from Arthur Martinez, Sears’ former chairman: “Today’s peacock is tomorrow’s feather duster” to help illustrate the rapid turnover among the Fortune 500 firms over a period of time. With rapid changing technologies and intensified global competition success can be very temporary. The SUPPLEMENT below provides some additional insight from a recent article in The Economist.  Extra Example: Rapid Turnover among Industry Leaders In the 1950s and 1960s the corporate world was ruled by cabals of giants—by the “Big Three” in American cars and broadcasting and the “Seven Sisters” in global oil. C. Wright Mills, a sociologist, complained that America was ruled by a tiny elite. J.K. Galbraith, an economist, argued that there was not much difference between state planning as practiced by the Russians and corporate planning as practiced by General Motors. Today’s corporate world could hardly be more different. Time is being compressed: Google was incorporated only in 1998 but is now one of the world’s biggest companies. Geography too is being tightened: who would have guessed in Galbraith’s day that one of the world’s leading aircraft-makers would be Brazilian (Embraer) or that one of the most innovative clothes brands would be Spanish (Zara)? IN 1980 a corporation in the top fifth of its industry had only a 10 percent chance of falling out of that tier in five years. Eighteen years later that chance had risen to 25 percent. Source: Anonymous. 2013. The transience of power. The Economist. March 16: 70.  Discussion Question 1: What are the implications for your careers? (This is a rather general question but it might help remind students that they must be sensitive to changes in industry dynamics that could provide new opportunities—as well as, perhaps, erode opportunities that they may have thought they had in a particular industry.) Teaching Tip: By raising the “career implications” question, you will have the opportunity to briefly introduce the concept of the sustainability of competitive advantage(s), i.e., the criteria of rare, valuable, difficulty to copy (imitate and substitute) that we will address at length in Chapters 3 and 5. The point that can be made is that students should strive to develop skills and capabilities that satisfy these four criteria to enjoy greater career success. This helps to illustrate some very practical implications of strategy concepts and heighten student interest. Answer: Changes in industry dynamics can significantly impact career trajectories by creating new opportunities or rendering existing roles obsolete. Staying adaptable and continuously updating skills can help leverage emerging trends, while awareness of industry shifts helps in navigating potential threats. Proactively seeking growth areas and being flexible in career plans can turn these changes into advantages. The opening case is about a firm that most students were probably familiar with—and probably patronized—Borders. It helps to illustrate our opening theme that achieving success in an industry—or even surviving—for a long time can be very challenging for companies of any size. Borders is a firm that failed because it did not respond effectively to changes in the competitive environment. It also, of course, points out how a firm’s strategy can become irrelevant if another firm (Amazon) has a superior business model. The case serves to illustrate the two perspectives of leadership that we discuss: “romantic” (where leaders can have a significant impact on organizational outcomes) and “external control” (where leaders are highly constrained by factors beyond their control). Ask:  Discussion Question 2: What lessons can we learn from Borders’ failure? Response guidelines: This question asks students to examine the fit between Borders’ strategy and the competitive environment. The strategy was based on assumptions about the book buying behavior of consumers and the value to consumers of a bookstore experience. Borders assumed that most consumers bought books at bookstores and enjoyed the bookstore experience, which included snacks, coffee, and a comfortable place to read. Borders’ assumption was that because consumers enjoyed the bookstore experience, they would be willing to pay more for books than they could by buying the books online through Amazon. The reality was a stark contrast. Consumers were willing to buy books through Amazon and appreciated the savings. Therefore, Borders was at a distinct disadvantage. It recognized the problem too late, and all measures to make up the competitive disadvantage were inadequate. The main lesson from Borders’ failure is that past success is not an assurance of future success. To survive, firms must continuously monitor the environment for growing trends among, for example, consumers and competitors. Firms must then respond to these trends in a timely and effective manner. Answer: Borders’ failure teaches us the importance of adaptability and staying attuned to industry changes. A rigid strategy and inability to embrace new business models can lead to obsolescence. Firms must continuously innovate and respond to competitive pressures to maintain relevance and avoid being outpaced by more agile competitors.  Discussion Question 3: What was their most critical error? Why? Response guidelines: This question has a number of possible responses. Students should appreciate some of the major strategic shortcomings that Borders suffered. These include: • Its misinterpretation of the way that consumers viewed the Internet, and Internet companies like Amazon, as legitimate alternatives to bookstores. • Its overreliance on providing a bookstore experience, which required a large capital investment. • Its failure to react to the trend of Internet book buying. There is no way to prove that any of these was the “most” critical error. Students should appreciate that the combination of these errors all contributed to Borders’ failure. Answer: Borders' most critical error was its failure to adapt to the digital revolution and e-commerce trends, particularly exemplified by its sluggish response to Amazon's rise. By not investing in a robust online presence and digital strategy, Borders missed the opportunity to compete effectively in a changing market, leading to its eventual decline.  Discussion Question 4: What could Best Buy, a firm now facing a powerful challenge from Amazon, learn from Borders? Response guidelines: This question is an opportunity for students to generalize the lessons of Borders to other firms and industries. In class discussions, students could suggest a number of lessons including: • Develop a strong in-house online capability for selling products and giving consumers information about products. • Monitor Amazon’s web operations and capabilities, such as offering coupons, customer reviews, and linking to social media, and imitate them as appropriate on the Best Buy website. • Keep up with consumer buying habits including use of coupons, reliance on installation, and tech support. It may be very useful to have students develop a long list. Each item would be aimed at neutralizing a shortcoming in Borders’ strategy. It may also be useful to develop new items that would not have applied at the time that Borders went bankrupt. The importance of Facebook, crowdsourcing, and Twitter may affect Best Buy’s operations in ways that Borders would not have understood a couple of years ago. We then emphasize that leaders can have a very positive impact on organizations and point out such well known leaders in business as Jack Welch (former GE chairman), Andy Grove (former CEO, Intel), Herb Kelleher (Chairman, Southwest Airlines), and the late Steve Jobs (Apple). Answer: Best Buy could learn from Borders by proactively embracing digital transformation and enhancing its e-commerce capabilities. Investing in online platforms, leveraging data analytics, and creating unique in-store experiences can help Best Buy remain competitive. Adapting swiftly to changing consumer preferences and technological advancements is crucial to avoiding Borders' fate. STRATEGY SPOTLIGHT 1.1 discusses the fallout from the on-going economic crisis in Europe. We address several of the implications for national economies, public policy, and industries.  Discussion Question 5: What are some other short- and long-term implications for this crisis? We discuss the “external control” perspective. We provide several examples of natural disasters (Hurricane Katrina and Japan’s earthquake and tsunami) that students are familiar with that have had a dramatic effect on both thousands of peoples’ lives and multiple industries—as well as a man-made disaster (BP’s oil well disaster in April, 2010). We provide the example of how one CEO (Charles Needham of a South African mining company) has been able to successfully maneuver around several major challenges (i.e., market turmoil, the plunge in global commodities, and political instability in the Democratic Republic of Congo). Answer: In the short term, this crisis could lead to immediate financial strain and operational adjustments, including layoffs or store closures. Long-term implications might involve a strategic shift towards digital and omnichannel strategies, greater investment in technology, and a reevaluation of competitive positioning to ensure sustainable growth and resilience against future disruptions.  Discussion Question 6: What are some other examples of executives who have overcome significant challenges (over which they had relatively little control) and guided their firm to a high level of success in their industry? Answer: One example is Howard Schultz, who transformed Starbucks by turning it from a regional coffee bean seller into a global café phenomenon despite early financial struggles and competition. Another is Satya Nadella, who revitalized Microsoft by shifting its focus to cloud computing and open-source technologies amidst a rapidly evolving tech landscape. Additionally, Indra Nooyi steered PepsiCo through significant changes and challenges, including health-conscious consumer trends, by diversifying the company’s product line and focusing on sustainability. These leaders excelled despite external pressures and market uncertainties. I. What Is Strategic Management? We point out that it is very important for managers to see their jobs as more than just custodians of the “status quo.” Rather, they must proactively anticipate change and continually refine as well as, when necessary, make significant changes to their strategies. This has become particularly important as competitive environments become characterized by increasing rates of unpredictable change. A. Defining Strategic Management We define strategic management as “consisting of the analysis, decisions, and actions an organization undertakes in order to create and sustain competitive advantages.” We believe this definition captures two main elements of the field of strategic management. First, strategic management entails three on-going processes: analysis, decisions, and actions. That is, managers must analyze the internal and external environment as well as their hierarchy of goals in order to formulate and implement strategies. Second, the essence of strategic management is the study of why some firms outperform others. We draw on Michael Porter’s work to make the important distinction between strategy and operational effectiveness. Managers must create advantages that are sustainable over a period of time, instead of merely temporary. That is: How can we create competitive advantages in the marketplace that are not only unique and valuable but also difficult for competitors to copy or substitute? (This perspective, of course, draws upon the resource base view of the firm that we address in detail in Chapters 3 and 5.)  Discussion Question 7: Are you familiar with some firms that created advantages in the marketplace that were very temporary? Answer: Yes, several firms have experienced temporary advantages. For instance, Blockbuster once dominated video rental but failed to adapt to digital streaming, leading to its decline. Similarly, MySpace enjoyed early dominance in social networking but was overshadowed by Facebook’s superior platform. Kodak had a leading position in film photography but struggled to transition to digital technology, causing it to lose its competitive edge. These examples highlight how temporary advantages can quickly erode without ongoing innovation and adaptation. B. The Four Key Attributes of Strategic Management Here, we address four key attributes of strategic management. Strategic management is directed toward organizational goals and objectives; includes multiple stakeholders in decision making; incorporates both short-term and long-term perspectives; and, recognizes tradeoffs between effectiveness and efficiency. EXHIBIT 1.1 provides our definition of strategic management and these four attributes.  Discussion Question 8: What are some examples of leaders who failed to incorporate some of these attributes in their decision-making? What were the implications? Answer: One notable example is Nokia's former CEO, Stephen Elop, who struggled to adapt to the smartphone revolution, leading to a significant loss of market share to competitors like Apple and Samsung. Similarly, Yahoo's Marissa Mayer faced challenges by not effectively addressing the company’s declining relevance and competition, ultimately leading to Yahoo’s sale to Verizon. Another example is Kodak’s leadership, which failed to transition from film to digital photography, resulting in bankruptcy. These failures underscore the critical need for leaders to embrace innovation and adapt to market changes. The SUPPLEMENT below points out the importance of a key attribute of strategic management: recognizing trade-offs between efficiency and effectiveness.  Extra Example: When a Firm Needs Farmers and Vikings Executives who excel at execution resemble Nordic Vikings, who attacked when they saw an unprotected spot and retreated when they realized they could not win, maneuvering their longboats toward the next opportunity. Once Vikings seized a bit of land, however, they often remained to farm it. Over time, they came to value the security of protecting what they had, more than the adventure of pursuing new opportunities. Organizations are susceptible to a similar dynamic. As a business matures, early entrepreneurs leave for new adventures or settle into safe routines at the firm. New employees join the company for its perceived stability, not for adventure. What started as a Viking outpost becomes a farming community. Companies with too few Vikings on the payroll struggle to execute with sufficient urgency. That is why soon after assuming control of a portfolio company, Garantia’s (a producer of rainwater tanks) executives would implement a trainee program to attract the best and brightest college graduates, a practice the firm has continued as it has expanded. These graduates provide a steady stream of Vikings and exert constant pressure on executives who might otherwise lapse into the comfort of farm life. Source: Sull, D. 2010. Are you ready to rebound? Harvard Business Review. 88(3): 74  Discussion Question 9: Are companies you are familiar with or work at comprised of Vikings or farmers? Would your answer vary over time? Answer: Companies often exhibit traits of both Vikings and farmers at different times. For instance, a tech startup may initially be more Viking-like, with a focus on aggressive growth and innovation, but as it matures, it may adopt a more farmer-like approach, emphasizing stability and efficiency. Over time, a company's strategy may shift depending on market conditions and internal goals. Discussion Question 10: When should firms hire more Vikings? How about farmers? Answer: Firms should hire more Vikings during periods of rapid growth or when entering new markets to drive innovation and capture opportunities. Conversely, farmers are crucial when a company needs to focus on operational efficiency, sustainability, and incremental improvements, especially during stabilization or consolidation phases. We provide the humorous example of British bus drivers (to illustrate the problems with an overemphasis on means versus ends). It may be interesting to ask:  Discussion Question 11: What are the underlying causes of the British bus driver problem? (e.g., culture; reward and evaluation system; total lack of empowerment; employee selection; leadership, etc.) Answer: The British bus driver problem often stems from a combination of factors. A rigid culture and outdated reward and evaluation systems can lead to low morale and disengagement among drivers. Insufficient empowerment and autonomy restrict their ability to address issues proactively. Additionally, ineffective employee selection and leadership practices can fail to align drivers' motivations with company goals. These underlying causes collectively contribute to inefficiencies and dissatisfaction within the workforce. We close the section with a brief introduction of the concept of “ambidextrous behaviors” – the ability to both be proactive in taking advantage of future opportunities as well as in exploiting an existing resource base. STRATEGY SPOTLIGHT 1.2 illustrates this concept by providing four examples of ambidextrous behaviors. We also provide some suggestions on how one can become an ambidextrous leader.” Ask:  Discussion Question 12: Do you know of any managers or executives who have exhibited ambidextrous behaviors? How? Answer: Yes, Satya Nadella is a prime example of an ambidextrous leader. At Microsoft, he balanced the need for operational efficiency with fostering innovation. Nadella continued to enhance existing products while also pushing into new areas like cloud computing and AI, exemplifying exploration and exploitation. Similarly, Jeff Bezos has demonstrated ambidextrous behavior at Amazon, maintaining the efficiency of the e-commerce model while consistently investing in diverse innovations like AWS and Prime. These leaders effectively manage current operations while pioneering future growth. II. The Strategic Management Process We restate the three on-going processes in strategic management—analysis, decisions, and actions—that are typically referred to as analysis, formulation, and implementation. A. Intended Versus Realized Strategies EXHIBIT 1.2 draws on the influential work of Henry Mintzberg of McGill University. He distinguishes between “intended” and “realized” strategies and we provide the example of how China’s fast growing middle class and associated demand for luxury goods has helped cargo carriers rebound from the recent recession.  Discussion Question 13: What are some other examples of “unrealized” or emergent strategies? Answer: Unrealized or emergent strategies often arise from unexpected opportunities or shifts in the market. For example, Twitter initially started as a podcasting platform but evolved into a social media platform based on user feedback and emergent uses. Similarly, IBM’s pivot from hardware to cloud computing and artificial intelligence was not part of its original strategy but emerged from recognizing new market demands. Similarly, Netflix’s shift from DVD rentals to streaming was driven by changes in technology and consumer behavior, reflecting an emergent strategy. EXHIBIT 1.3 depicts the strategic management process and indicates how it ties into the chapters in the book. And, consistent with the discussion in the text, the two-way arrows convey the interactive nature of the process. Teaching Tip: Refer back to the opening case of Borders’ poor performance. When discussing EXHIBIT 1.3, it would be helpful to ask the class to illustrate how this exhibit can be useful in outlining the issues surrounding this case and how some of the problems may have been avoided with careful attention to these aspects of analysis, formulation, and implementation. The next three subsections address each of the three key strategic management processes: analysis, formulation, and implementation. B. Strategy Analysis Strategy analysis consists of, in effect, the “advance work” that must be done in order to effectively formulate and implement strategies. Many strategies fail because managers may want to formulate and implement strategies without a careful analysis of the overarching goals of the organization, as well as a thorough analysis of its external and internal environment. 1. Analyzing Organization Goals and Objectives (Chapter 1) 2. Analyzing the External Environment (Chapter 2) 3. Assessing the Internal Environment (Chapter 3) 4. Assessing a Firm's Intellectual Assets (Chapter 4) C. Strategy Formulation A firm’s strategy is formulated at several levels. First, business-level strategy addresses the issue of how firms compete in an industry to gain competitive advantage. Second, corporate-level strategy focuses on two issues: (1) what businesses to compete in, and, (2) how businesses can be managed to achieve synergy, that is, create more value by working together than if they operated as a stand-alone entity. Third, firms must develop international strategies as they expand beyond their national boundaries. And, fourth, managers must develop entrepreneurial strategies and be aware of the competitive dynamics in their industry. 1. Formulating Business Level Strategies (Chapter 5) 2. Formulating Corporate Level Strategies (Chapter 6) 3. Formulating International Level Strategies (Chapter 7) 4. Entrepreneurial Strategy and Competitive Dynamics (Chapter 8) D. Strategy Implementation Clearly, effective strategies are of little value if they are not properly implemented. Implementing strategies involves strategic controls and organizational designs; coordination and integration among activities within the firm as well as with customers and suppliers; and effective leadership. 1. Strategic Control and Corporate Governance (Chapter 9) 2. Creating Effective Organizational Designs (Chapter 10) 3. Strategic Leadership: Excellence, Ethics and Change (Chapter 11) 4. Fostering Corporate Entrepreneurship (Chapter 12) 5. Analyzing Strategic Management Cases (Chapter 13) III. The Role of Corporate Governance and Stakeholder Management We discuss three important and related concepts: corporate governance, stakeholder management, and social responsibility. Clearly, these topics (especially corporate governance) have generated quite a bit of controversy in the early 2000’s and the topic should lead to some spirited discussion. Corporate governance addresses the relationship between various participants in determining the overall direction and performance of corporations. It consists of three primary participants—shareholders, management, and the board of directors. EXHIBIT 1.4 illustrates these three participants. (Corporate governance is discussed in much more detail in Chapter 9. However, it is such a “hot” topic, that we wanted to introduce it in the text’s opening chapter.)  Discussion Question 14: What are some other recent examples of poor corporate governance? (Examples would include Bank of America, Brocade, Countrywide Financial, etc.) Answer: Recent examples of poor corporate governance include Theranos, where leadership misled investors and regulators about the capabilities of its technology, and Wirecard, which engaged in massive accounting fraud and financial misrepresentation. Both cases highlight severe governance failures, including lack of oversight and accountability.  Discussion Question 15: What are the causes of such poor governance? Answer: Causes of poor governance often include weak internal controls, inadequate board oversight, and a lack of transparency. These issues can be exacerbated by a corporate culture that prioritizes short-term gains over ethical practices, leading to unchecked executive power and financial misconduct. We address some examples of extremely high executive pay—in many cases that is disproportionate to how well the CEO’s firm performed (see examples from the financial industry). The SUPPLEMENT below provides some information on the increased rapid turnover of CEOs among large firms and the growing pressure that CEOs face from investors and other stakeholders.  Extra Example: CEOs Face More Pressure from Boards and a Variety of Stakeholders CEOs are spending less time at the helm: the tenure of the average American CEO has plunged from about ten years in the 1990s to five-and-a-half today. Those who disappoint are held to account: 80 percent of CEOS of the S&P companies are ousted before retirement. CEOs must confront a growing army of critics from within the capitalistic system: consider how much Apple’s CEO Tim Cook has been criticized by angry investors. CEOs also face a growing army of critics from outside the Board. Banks have been chided for sins such as interest-rate rigging (Barclays), money-laundering (HSBC) and illicit dealings with Iran (Standard Chartered). Source: Anonymous. The transience of power. The Economist. March 16: 70. Teaching Tip: As we note, executive compensation is a very “hot” topic and might be a subject that you would like to spend some time on (even though we address corporate governance issues in much more detail in Chapter 9). It is early in the term and this might get many students’ “blood pressure” up and lead to spirited debates. You might also ask “How much is too much?” Some students may argue “whatever the market conditions are because of the market for scarce talent,” others may state that “it should depend on how much others make—such as the next highest executive at a firm (or a multiple of the lowest paid in the corporation—such as the case at Whole Foods, Inc.),” and still others may believe that “managers should not receive entrepreneurial rewards without taking entrepreneurial risks (e.g., the case of Welch at GE and Eisner at Disney who earned around $1 billion during their tenures)—since such executives joined the company when it was already very successful and there was little employment risk—not to mention the risk of one’s personal financial assets (i.e., “skin in the game”).” Or, of course, you could take one of these positions and see how the class reacts—consider asking individual students to take a position and others to rebut it, etc. A. Alternative Perspectives on Stakeholder Management In this section we recognize, of course, that there are often conflicting demands among an organization’s stakeholders. However, managers need to acknowledge the interdependence among stakeholders and strive to achieve symbiosis, that is, the recognition that stakeholders are interdependent upon one another for their success and well being. We briefly review (addressed in Chapter 3) how Outback Steakhouse found that there were positive relationships between employee attitudes, customer satisfaction, and revenue increases. EXHIBIT 1.5 lists seven key stakeholder groups and the nature of their claims. 1. Zero-Sum or Symbiosis We address the many stakeholder challenges faced by Wal-Mart.  Discussion Question 16: What are some ways Wal-Mart’s stakeholder demands may conflict? How might they be highly interdependent and positively (or negatively) related to each other? Answer: Wal-Mart’s stakeholder demands can conflict in various ways. For example, cost-cutting measures to satisfy shareholders might lead to reduced wages for employees, creating tension between profitability and employee satisfaction. Conversely, initiatives to improve working conditions could increase operational costs, impacting shareholder returns. These demands are interdependent: better employee conditions can enhance productivity and customer satisfaction, potentially leading to long-term profitability, while short-term cost reductions might undermine long-term stakeholder relationships. Balancing these conflicting demands requires careful strategic alignment. STRATEGY SPOTLIGHT 1.3 discusses the role that NGOs (non-governmental organizations) play in society. Clearly, NGOs include a wide range of groups and organizations—in terms of mission and size.  Discussion Question 17: Can you give other examples of how NGOs have played a positive (and negative) role in our society? And, in your example, have all stakeholders benefitted (or were penalized) equally? Answer: Positive Role: NGOs like Médecins Sans Frontières have provided critical medical aid in crisis zones, significantly improving healthcare access in underserved areas. Their work benefits patients and local communities but can strain local resources. Negative Role: In contrast, some NGOs have faced criticism for mismanagement or lack of transparency, such as the controversy surrounding the Red Cross’s handling of disaster relief funds. While their intentions were positive, the misallocation of resources led to negative impacts on affected communities. Not all stakeholders benefit equally, as mismanagement can disproportionately affect those in greatest need. B. Social Responsibility and Environmental Sustainability: Moving Beyond the Immediate Stakeholders 1. Social Responsibility Managers must consider the needs of the broader community-at-large and act in a socially responsible manner. Social responsibility is the expectation that businesses or individuals will strive to improve the overall welfare of a society. The following SUPPLEMENT summarizes some of the central points in the debate as to the value of corporations to devote significant resources to corporate social responsibility:  Extra Example: Stakeholders Versus Shareholders Although corporate social responsibility may appear to be an “apple-pie virtue,” it is quite controversial. Below are some of the chief arguments for and against it: Proponents will claim that it… BURNISHES A COMPANY’S REPUTATION. In the wake of corporate scandals, corporate social responsibility builds goodwill—and can pay off when scandals or regulatory scrutiny inevitably arise. ATTRACTS TALENT. Many young professionals expect their employers to be active in social issues. Membership in Netimpact.org, a network of socially-conscious MBA graduates, jumped from 4,000 in 2002 to 10,000 in 2004. On the other hand, Detractors will argue that it… COSTS TOO MUCH. Giving by corporate foundations reached an all-time high of $3.6 billion last year. However, it can come at the expense of other priorities, such as research and development, and is rarely valued by Wall Street. IS MISGUIDED. Many corporate executives believe, as economist Milton Friedman does, that the role of business is to generate profits for shareholders—not to spend others’ money for some perceived social benefit. Source: Grow, B., Hamm, S. & Lee, Louise. 2005. The debate over doing good. Business Week, August 15: 76-78. Teaching Tip: You could likely generate some interesting debate by asking students to take alternative positions on this issue. Perhaps, assign one student to the “pro” position and one to the “con” position. Also, give them a chance to rebut the other person’s perspective. You could then ask a few others to join the debate by taking their preferred side on this issue. (The debate could become more spirited by raising very “intense” issues such as natural disasters, including Hurricane Katrina in August, 2005.) 2. The Concept of “Shared Value” This section is new to the sixth edition and draws on a recent article in Harvard Business Review (2011) by Michael Porter and Mark Cramer. Shared value can be defined as policies and operating practices that enhance the competiveness of a company while simultaneously advancing the economic and social conditions in which it operates. The section includes the example of: shared value investments by Olam International’s, a cashew producer, efforts to cut shipping costs by employing people in local processing plants.  Discussion Question 18: Can you think of other examples of firms that have benefitted from “shared value” initiatives? (We find that this is an interesting and worthwhile topic to discuss in strategic management classes because many students still have a very “zero-sum” mentality regarding stakeholder management, i.e., any initiatives that don’t provide an immediate financial return should not be undertaken. Examples that we use in this section (and elsewhere in the text) will (hopefully!) broaden their perspective. Answer: Firms like Unilever have benefited from shared value initiatives through their Sustainable Living Plan, which integrates social and environmental goals into business operations. This approach has enhanced their brand reputation and driven consumer loyalty. Patagonia is another example, leveraging its environmental commitment to build strong customer relationships and drive growth while promoting sustainable practices. Discussion Question 19: What are basic drivers of sustainability initiatives? Can you name some other companies that exhibit such behavior? Answer: Basic drivers of sustainability initiatives include regulatory compliance, consumer demand for ethical practices, and long-term cost savings through efficiency. Companies like Tesla and IKEA exemplify this behavior; Tesla’s focus on renewable energy and electric vehicles aligns with sustainability goals, while IKEA invests in sustainable sourcing and circular economy practices to reduce environmental impact and meet customer expectations. The SUPPLEMENT below addresses another example from Porter’s article on “shared value”—that addresses an issue that is becoming increasingly important for both individuals and companies—health and health care costs.  Extra Example: Johnson & Johnson’s Wellness Programs Pay Off! Leading companies have found that because of lost workdays and diminished employee productivity, poor health costs them far more than health benefits do. Johnson & Johnson has helped employees stop smoking (a two-thirds reduction in the past ten years) and has implemented many other wellness programs. Such initiatives have saved the company $250 million on health care costs—a return of $2.71 for every dollar spent on wellness over a recent six-year period. Further, J&J has benefited from a more present and productive workforce. Source: Porter, M. E. & Kramer, M. R. 2011. Creating shared value. Harvard Business Review, 89 (1/2): 62-77. The SUPPLEMENT below addresses an issue that serves to illustrate the complexity of gauging a product’s score on a sustainability index. Wal-Mart’s initiative was applauded by environmentalists. In practice, however, it is very difficult process to assign sustainability scores.  Extra Example: Developing Sustainability Indicies and Product Scores—Not so Easy! In mid-2009, Wal-Mart shocked the retailing world by announcing that the company would spearhead an audacious effort to create a “sustainability index” that would reassure the environmental and social impact f every product sold in its stores. Needless to say, this put a lot of pressure on its suppliers. Many balked at Wal-Mart’s call to create labels that could blaze from the shelf like a scarlet letter. According to Len Saurers, P&G’s vice president of global sustainability: “So much has to go into a sustainability score and there are so many variables, the question is whether you can come up with a number that’s accurate enough to drive meaningful decisions.” The problem with any consumer scoring system is that ultimately consumption is about trade-offs. All products—no matter how “green”—impact the planet in some way. Consider a few examples: 1. Aquafina’s bottles (even the caps and labels) are 100% recyclable. But, how green can containers be when 80% of water bottles are not recycled? 2. A certain CFL light bulb uses 75% less energy than a traditional incandescent. But, is the energy saved worth the risk of mercury exposure from a broken CFL? 3. Crest’s lightweight tube saves energy in shipping. But, is that savings offset by the cardboard box needed to protect the tube? 4. Nike uses at least 5% organic cotton in all cotton-containing apparel. But, growing cotton uses a lot of water. Does that contribute to scarcity? Source: Keegan, P. 2011. The trouble with green product ratings. Fortune. July 25: 130-134. 3. The Triple Bottom Line: Incorporating Financial as well as Environmental and Social Costs Next, we state that many companies are measuring what they call the “triple bottom line”. Such a technique involves an assessment of environmental, social, and financial performance. We state that environmental sustainability is now a value embraced by most successful corporations.  Discussion Question 20: Do you know of organizations that may have, in effect, used the “triple bottom line” approach to assess environmental, social, and financial performance? Answer: Yes, several organizations use the "triple bottom line" approach to evaluate their performance across environmental, social, and financial dimensions. For example, Unilever integrates sustainability into its business strategy, focusing on reducing environmental impact while promoting social well-being and maintaining financial growth. Patagonia also exemplifies this approach by prioritizing environmental conservation and ethical practices alongside financial success. Another example is the B Corporation movement, where certified companies meet rigorous standards for social and environmental performance, accountability, and transparency. It is important to stress that when considering the “triple bottom line,” there are not always trade offs. At times, firms can attain symbiosis—that is attain increase their effectiveness in attaining multiple bottom lines simultaneously. STRATEGY SPOTLIGHT 1.4 addresses Wal-Mart and International Paper’s successful initiatives. STRATEGY SPOTLIGHT 1.4 discusses the “business case” for sustainability and provides examples from two well known firms: Wal-Mart and International Paper. We close the section with a brief discussion of SRI (Socially Responsible Investing). SRI recognizes that corporate responsibility and societal concerns are important considerations in investment decisions. And, investors can “do well by doing good,” as the cliché goes. IV. The Strategic Management Perspective: An Imperative throughout the Organization There is an emerging need for empowerment and a strategic management perspective throughout organizations. This is primarily due to today’s increasingly complex, interconnected, and ever-changing global economy. We reinforce this point with the quotation from MIT’s Peter Senge, perhaps the best-known writer in the area of organizational learning. To develop and mobilize people and other organizational assets, leaders are required throughout the organization. As noted by MIT’s Peter Senge, there is a need for three types of leaders: local line leaders, executive leaders, and internal networkers. The SUPPLEMENT below provides and interesting and colorful perspective on the need for empowerment throughout organizations.  Extra Example: Avoid the heroes and drones imagery in organizations! Sally Helgesen, author of The Web of Inclusion: A new Architecture for Building Great Organizations, expresses the need for leaders throughout the organization. She asserts that many organizations “fall prey to the heroes-and-drones syndrome, exalting the value of those in powerful positions while implicitly demeaning the contributions of those who fail to achieve top rank. Culture and processes in which leaders emerge at all levels, both up and down as well as across the organization, typify today’s high performing firms. Source: Helgesen, S. 1996. Leading from the grassroots. In Hesselbein, F. Goldsmith, M. & Beckhard, R. (Eds.) The leader of the future: 19-24, San Francisco: Jossey-Bass. We provide examples of empowerment at both the Virgin Group that is well known for its culture and informal structure as well as Nancy Snyder’s efforts to bring about transformational change at Whirlpool.  Discussion Question 21: With regard to Whirlpool’s initiatives, what do you think would be some of the key challenges in bringing about change? Answer: Whirlpool's initiatives to drive change may face challenges such as balancing innovation with cost efficiency, as sustainable technologies can be expensive to develop and implement. Additionally, achieving widespread adoption of new practices across a global supply chain can be complex due to varying regulatory standards and resource availability. Resistance to change from employees or stakeholders accustomed to traditional methods could also hinder progress. Furthermore, maintaining consistent communication and demonstrating the long-term value of these changes to investors and consumers is crucial for successful transformation. We close this section with STRATEGY SPOTLIGHT 1.5 that further reinforces the benefits of broad involvement throughout the organization in the strategic management process. It is about the filming of the movie, Gorillas in the Mist, and points out the value of inexperience. The SUPPLEMENT below emphasizes the importance of empowering people throughout the organization. At USA Mortgage, the CEO realized, belatedly, the importance of having his middle managers involved in planning sessions.  Extra Example: The Value of Bringing in Middle Level Managers for Planning Sessions Doug Schukar was very excited when his residential mortgage bank in St. Louis, USA Mortgage, increased the loans in funded from $113 million in January 2009 to $1.2 billion by the end of the year. While other lenders struggled, he boosted his sales efforts. However, by failing to keep key middle managers informed of growth plans such as acquisitions, he let them get blindsided by the huge volume of work that came from the company’s rapid expansion. Result: Almost all resigned, and he had to hire replacements. Today he includes middle managers in annual and quarterly planning sessions. Source: Harnish, V. 2011. Five ways to get your strategy right. Fortune. April 11: 42. V. Ensuring Coherence in Strategic Direction Successful organizations express priorities through stated goals and objectives that form a hierarchy of goals that includes its vision, mission, and strategic objectives. What visions lack in specificity, they make up for in their ability to evoke powerful and compelling mental images. On the other hand, strategic objectives tend to be more specific and provide a more direct means of determining if the organization is moving toward broader, overall goals. EXHIBIT 1.6 depicts the hierarchy of goals and its relationship to two attributes: general versus specific and time horizon. A. Organizational Vision An organizational vision has been described as a goal that is “massively inspiring, overarching, and long-term.” It should represent a destination and evoke passion. We review a study of 1,500 senior leaders that points out the importance of “a strong sense of vision” as well as “strategy formulation to achieve a vision.” We state the visions of four organizations—Disney, Medtronic, Wells Fargo, and McDonald’s. We also assert that a vision statement often contains a slogan, diagram, or picture—whatever grabs attention—and provide such examples as “Beat Xerox” (Canon) and “To take the world boating” (Outboard Marine Corporation). The SUPPLEMENT below (going back in history nearly one hundred years) provides an example of a vision emerging from the middle levels of the organization. Unfortunately, the top executives ignored it.  Extra Example: David Sarnoff’s Visionary Leadership In 1906, a young Russian immigrant found work as an office boy at Marconi Wireless Telegraph Company. He clawed his way up to Chief Inspector at the age of 22. And, ever watchful for ways to advance his career, he decided to attend a demonstration of a new kind of circuit—one that could generate continuous electromagnetic waves. The young man returned to work, convinced he had seen the future. Memos flew. He described how music could be broadcast to hundreds of thousands of homes at once, and from a single transmitter. Every family in America would buy a “radio box.” And Marconi would manufacture and sell every one. He wondered why executives couldn’t see that there would be millions of dollars to be made. The company’s more senior managers thought he had lost his mind. After all, they were in the telegraph business. Years later, Marconi Wireless became RCA, the Radio Corporation of America. And former office boy, David Sarnoff became its president. As for those fellows he worked with, history lost track of them. Source: Provided by CSX Intermodal (undated). We acknowledge their contribution.  Discussion Question 22: Would executives in companies with which you are familiar been more receptive to such initiatives by lower-ranking executives? Why? Why not? Answer: Executives in companies might be more receptive to initiatives from lower-ranking employees if these initiatives align with strategic goals or offer clear business benefits. Companies with a culture of innovation and open communication, such as Google or IBM, often encourage contributions from all levels. However, in more hierarchical or traditional organizations, lower-ranking suggestions may face resistance due to established decision-making processes or a lack of visibility. The receptiveness largely depends on the company's leadership style and openness to grassroots ideas. We close the section with a brief discussion of some of the reasons that visions fail: • The Walk Doesn’t Match the Talk • Irrelevance • Not the Holy Grail • Too Much Focus Lead to Missed Opportunities • An Ideal Future Not Reconciled with the Present The SUPPLEMENT below is another example of a well known firm—Komatsu—which faltered when it placed too much focus on its vision and missed opportunities.  Extra Example How Komatsu “Encircled” Caterpillar Faced with the challenge of rival Caterpillar’s entry into Komatsu’s protected home market, Ryoichi Kawai, then CEO of Komatsu, focused the whole company on beating Caterpillar. “Maru-C” became the rally cry which meant “Encircle Caterpillar.” And, to make the enemy visible and omnipresent, Kawai purchased the largest Caterpillar bulldozer available and placed it on the roof of Komatsu headquarters. The story is well-known of how Kawai leveraged his aggression against Caterpillar into a highly disciplined and effective process of building up Komatsu’s strengths and market position. (In fact, it became the most-used Harvard case study.) However, there was a lesser-known downside. The two decades of focusing on a “life-and-death battle” with Caterpillar prevented Komatsu from identifying new opportunities in related areas of business and from pursuing genuine breakthrough innovations in its core earthmoving-equipment business. Eventually, Tetsuya Katada took over and formally abolished the “Maru-C” slogan and removed all the symbols Kawai had built to represent the Caterpillar battle. The result was successful expansion into related areas, such as robotics, and several fundamentally different and highly innovative products, such as earthmoving equipment for undersea operations. Source: Bruch, H. & Ghoshal, S. 2004. A bias for action. Boston: Harvard Business School.  Discussion Question 23: What are some effective (or ineffective) organization visions with which you are familiar? Why are they successful (or unsuccessful)? (We have found that many students—especially those with a fair amount of work experience—may be somewhat cynical primarily because the “walk doesn’t match the talk”.) Answer: Effective organizational visions are clear, inspiring, and align with actual practices. For example, Tesla's vision of accelerating the world's transition to sustainable energy resonates due to its consistent innovation and market impact. In contrast, ineffective visions may be vague or fail to reflect true priorities, such as a company promising sustainability but neglecting environmental practices. The success of a vision hinges on authentic commitment and visible alignment between stated goals and day-to-day operations. When there's a disconnect, it undermines credibility and employee trust. B. Mission Statements A company’s mission statement differs from its vision in that it encompasses both the purpose of the company as well as the basis for competition and competitive advantages. Teaching Tip: Many students may have a very “cynical” perspective about mission statements. They may view them as empty platitudes or public relations statements. And, they may have been in organizations where managers did not “walk the talk.” You might, for example, ask them to critique the university’s mission statement. Alternatively, you may ask if any of them have worked in organizations that had mission statements and ask them if the mission statements were effective and if management “walked the talk” EXHIBIT 1.7 contains the Vision Statement and Mission Statement of WellPoint Health Network, a $62 billion managed health care organization. This exhibit helps to distinguish between these two strategy concepts. Effective mission statements incorporate the concept of stakeholder management, and suggest that organizations must respond to multiple constituencies if they are to survive and prosper. They have the greatest impact when they are used to reflect an organization’s enduring, overarching strategic priorities and competitive positioning. We provide the mission statements of Federal Express and Brinker International (whose restaurant chains include Chili’s and On the Border). The two examples serve to illustrate how mission statements can vary in length and detail. Few mission statements identify profit or any financial indicator as the sole purpose of the firm. Good mission statements must communicate why an organization is special and different. At times, mission statements can, and should, change when competitive positions dramatically change or when the firm is faced with new threats and opportunities. STRATEGY SPOTLIGHT 1.6 provides an example of how The James Irvine Foundation narrowed its mission — many social and environmental issues to challenges facing California’s youth.  Discussion Question 24: Can you think of other organizations that have successfully (or unsuccessfully) changed their mission? What can explain their success (or lack thereof)? Answer: Apple’s successful shift from focusing on computers to becoming a leader in consumer electronics and digital services demonstrates effective mission evolution. This success can be attributed to strong leadership, continuous innovation, and a clear focus on user experience. Conversely, Kodak’s failure to transition from film to digital photography highlights challenges in adapting a mission to changing market demands. Kodak's downfall was due to resistance to change, lack of investment in new technology, and underestimating the impact of digital disruption. The SUPPLEMENT below points out how Haier Group, a large Chinese appliance manufacturer, eliminates distance to customers by adopting various measures and strategies. “Serving customers with quality” became part of their mission statement.  Extra Example: The Mission of Haier Group’s CEO: Getting Closer to Customers Zhang Ruimin, CEO of the Haier Group, realized that having a sole focus on generating huge profits today could not ensure his company’s survival tomorrow. He chooses to focus on quality instead. He did so by following insights from Peter Drucker’s management book, whose words Zhang took to heart: “There is only one valid definition of business purpose: to create a customer.” This insight prompted Haier Group to explore opportunities to create customers in the era of cyberspace and the Internet. The result was an Internet and telephone marketing network and a physical logistics and services network that allows Haier to excel in determining customers’ needs, rapidly delivering products, and after-sales services in both rural and urban areas all over China. Another step Zhang has taken is to invert Haier’s organizational pyramid. He truly believes that only people on the front lines can have a deep understanding of customer’s needs. Therefore, employees who directly face customers should be at the top, and senior executives should support them so that they can deliver on their commitments to customers. Zhang eloquently expresses his philosophy in the following words:: “All decision I make must be consistent with the ever-changing external environment. If they aren’t, the consequences may not emerge right away, but once danger shows up, it will be too late; like the Titanic, my company will have no time to change course.” Source: Zhang, R. 2009. What I learned from Peter Drucker: Distance has been eliminated. www.hbr.org. November: np.  Discussion Question 25: Can you think of other measures to eliminate the distance between a company and its customers? Answer: To reduce the distance between a company and its customers, organizations can implement measures such as leveraging social media for real-time feedback, utilizing customer relationship management (CRM) systems for personalized interactions, and hosting regular customer engagement events. Additionally, involving customers in product development through co-creation can strengthen relationships and enhance customer loyalty. Discussion Question 26: Can inverting the organizational pyramid really work? What would companies gain by doing so? What would they lose? Answer: Inverting the organizational pyramid, where front-line employees are prioritized over upper management, can foster increased innovation, agility, and employee empowerment by valuing their direct customer insights. However, it may also lead to challenges such as potential confusion in decision-making processes and a need for more robust communication channels to maintain strategic alignment. We close our discussion of mission statements with STRATEGY SPOTLIGHT 1.7. Here, we discuss why the James Irvine Foundation changed from a philanthropic foundation with a broad mission of “promoting the welfare of the people of California” to a narrow mission that focuses on the education of youth ages 14 to 24. C. Strategic Objectives Strategic objectives are used to operationalize the mission statement. That is, they help to provide guidance on how the organization can fulfill or move toward the “higher goals” in the goal hierarchy—the mission and vision. EXHIBIT 1.8 lists several strategic objectives divided into financial and nonfinancial objectives. While most of these objectives are directed toward generating greater profits and returns for the owners of the business, others are directed at customers or the society-at-large (such as BP Amoco’s objective to reduce greenhouse gases over an extended period of time). For objectives to be meaningful, they must satisfy several criteria. They must be: • Measurable • Specific • Appropriate • Realistic • Timely Objectives that satisfy such criteria provide many benefits to the organization. These include: (1) channel employees throughout the organization toward common goals, (2) motivate and inspire employees to higher levels of commitment and effort, (3) help to resolve conflicts when they arise, and (4) provide a yardstick for rewards and incentives. There are, of course, other objectives that are even more specific that are often referred to as short-term objectives. These are essential components of “action plans” that are vital in the implementation of a firm’s strategy. (We address these in more detail in Chapter 9.) We provide the example of how Textron implements its strategic objectives. Organizations must ensure consistency throughout the organization when it implements strategic objectives. The SUPPLEMENT below discusses how Textron, a conglomerate with $12 billion in 2012 revenues, ensures that its corporate goals are effectively implemented.  Extra Example: How Textron Implements its Strategic Objectives At Textron, each business unit identifies “improvement priorities” that it must act upon to realize the performance outlined in the firm’s overall strategic plan. Each improvement priority is translated into action items with clearly defined accountabilities, timetables, and key performance indicators (KPIs) that enable executives to tell how a unit is delivering on a priority. Improvement priorities and action items cascade to every level at the firm—lowest levels in each of the firm’s 10 business units. Says Lewis Campbell, Textron’s CEO: “Everyone needs to know: ‘If I have only one hour to work, here’s what I’m going to focus on.’ Our goal deployment process makes each individual’s accountabilities and priorities clear.” Source: Mankins, M. M. & Steele, R. 2005. Turning great strategy into great performance. Harvard Business Review, 83(5): 66-73. I VI. Issue for Debate This is an issue that should generate a lot of student interest--given the importance of values in the formulation and implementation of strategies. The issue should evoke some spirited debate because Seventh Generation is faced with a dilemma. That is, if they cross the picket line they will be violating, in effect, a key part of their company values. On the other hand, if they refuse to provide product to the grocers, they would likely destroy relationships with valuable customers. To begin the discussion, you might consider asking two students to take a side (i.e., cross or not cross the picket line) on the debate. This helps, in effect, to polarize the class. Have the students debate the points of why their course of action would be preferred. After hearing the two sides, take a vote to see where the class stands on the issue. You’ll likely find a split within the class. At this point, introduce the concept of dialectical inquiry, that we discuss in Chapter 13. Here, identify what might be considered the "thesis" (cross the picket line and provide the grocers with your product) and "antithesis" (don't cross the picket line and "honor" your company values--after all, Seventh Generation felt the strikers had a just cause). Ask the class who the stakeholders are (customers, employees, suppliers, union, owners/shareholders, etc), and how they are affected by each of these two options (many of these are mentioned in the second paragraph of the case--you might also address the importance of attracting and retaining talent as an important consideration in making such decisions). SEVEN GENERATION’S SOLUTION: You will probably get some creative ideas and, perhaps, even something close to Seventh Generation's creative resolution to the apparent dilemma: A group called the “Values and Operating Principles Committee” (VOPS) was formed within Seventh Generation to solve the issue. While likely using a dialectic inquiry approach, they decided to continue to send their merchandise to the store, but take the profits attributable to the sales at those stores and donate them to the union’s strike fund. This allowed for shelf space to be maintained as well as the relationship with both the strikers and their customers (grocers). The broader learning point to reiterate with this "debate" is for students to strive to avoid the "tyranny of the 'go'/'no go'" and instead seek more creative solutions. Dialectical inquiry is a useful means to this end--this decision making process helps to address how various stakeholders are affected by the "thesis" and "antithesis" and a more creative solution "synthesis" is often likely to emerge. During the course, especially when analyzing cases, it is helpful to draw on this example to encourage students to employ this decision making approach when faced with two opposing alternatives. There can often be a third synthesis of ideas that will meet more stakeholder needs and desires. QUESTIONS: 1. How important should Seventh Generation’s values be considered when deciding what to do? Answer: Students may have a variety of perspectives on this issue--often reflecting how important they feel that non-economic factors should be in making important decisions. You might point out that Seventh Generation's mission is very specific regarding its sensitivity to broader stakeholder groups. Seventh Generation’s values are crucial in decision-making, as they drive the company's commitment to environmental sustainability, social responsibility, and ethical practices. Aligning decisions with these values ensures consistency with their brand identity and strengthens customer trust. Ignoring these values could undermine their mission and damage reputation. Therefore, integrating values into strategic choices is essential for long-term success and maintaining stakeholder confidence. 2. How can Seventh Generation solve this dilemma? Answer: This, of course, is addressed above in the "Summary." It will be most interesting to see what "synthesis" students come up with--and, again, emphasize the usefulness of dialectical inquiry in decision making. Seventh Generation can solve this dilemma by clearly defining their values and integrating them into every aspect of their decision-making process. They should establish robust criteria for evaluating decisions to ensure alignment with their sustainability and ethical standards. Engaging stakeholders for feedback and maintaining transparency can help balance competing interests. Additionally, investing in innovative solutions that uphold their values while addressing operational challenges will support their mission and long-term goals.  VII. Reflecting on Career Implications Below, we provide some suggestions on how you can lead the discussion on the career implications for the material in Chapter 1.  Attributes of Strategic Management: The attributes of strategic management described in this chapter are applicable to your personal careers as well. What are your overall goals and objectives? Who are the stakeholders you have to consider in making your career decisions (family, community, etc.)? What tradeoffs do you see between your long-term and short-term goals? Students should be aware of the context of their jobs and future careers. Ask students to describe their jobs, and they are likely to list the tasks they complete each day. Now ask them why their jobs are successful for them, and do not accept the salary as an answer. They should be trying to establish a base for the kind of career they want. Do they want to travel a lot or stay in their community? Do they want to raise children? Do they want to improve the world? How so? I enjoy telling stories of friends who took jobs right out of college that paid a high salary but were very challenging. Some of these friends burned out at a young age. The goal here is to get students to think about their careers as part of their life plans – to be balanced with their other goals of marriage, family, and service. You may not get an overwhelmingly positive response, but you will likely plant seeds that some students will appreciate.  Intended versus Emergent Strategies: While you may have planned your career trajectory carefully, don’t be too tied to it. Strive to take advantage of new opportunities as they arise. Many promising career opportunities may “emerge” that were not part of your intended career strategy or your specific job assignment. Take initiative by pursuing opportunities to get additional training (e.g., learn a software or a statistical package), volunteering for a short-term overseas assignment, etc. You may be in a better position to take advantage of such emergent opportunities if you take the effort to prepare for them. For example, learning a foreign language may position you better for an overseas opportunity. It may be useful to ask students how they chose their major. Was this major the same one they initially considered after high school? Some students will probably have changed their major at some point. You may get some stories about how hard their original choice was, or that there were unexpected challenges along the way. Now you can use the discussion as an analogy. Future career paths are likely to be filled with unexpected challenges, and it may be advisable to consider alternatives. Most executives have worked in a variety of jobs and organizations during their careers. An alternative and supplemental approach may be to share your own career path, or your choice of major in college, if either has evolved in unexpected ways. Students usually appreciate knowing this about their instructors. The point with these discussions is to get students to expect or even plan for unexpected job changes during their careers. They should be exploring activities to learn what they like and what they are good at.  Ambidexterity: In Strategy Spotlight 1.2, we discussed the four most important traits of ambidextrous individuals. These include looking for opportunities beyond the description of one’s job, seeking out opportunities to collaborate with others, building internal networks, and multitasking. Evaluate yourself along each of these criteria. If you score low, think of ways in which you can improve your ambidexterity. Ask students to list examples of how they have exhibited these traits in their employment histories. Then ask them to share these with a classmate, a think-pair-share type of activity. The sharing with a classmate may spark a discussion of various ways that each student could pursue ambidextrous capabilities. The main value is awareness. Students will probably understand the need for ambidextrous capabilities, but may not think about them very deeply or understand how to apply them to their work life.  Strategic Coherence: What is the mission of your organization? What are the strategic objectives of the department or unit you are working for? In what ways does your own role contribute to the mission and objectives? What can you do differently in order to help the organization attain its mission and strategic objectives? Students should understand how their efforts are helping their employers to succeed. One approach would be to have students list three or four activities they do in their jobs. Then rank the activities according to the strategic importance to their firm. I would ask students to share their rankings. Ask how each of their work activities contributes to their employers’ competitive advantage. Then I would ask them to think of ways to increase the time and energy they spend on such strategic activities and decrease their time and energy investment in other activities. One caveat is that all of us have to spend some time and energy on non-strategic activities, but students should be aware of the difference.  Strategic Coherence: Setting strategic objectives is important in your personal career as well. Identify and write down three or four important strategic objectives you want to accomplish in the next few years (finish your degree, find a better paying job, etc.). Are you allocating your resources (time, money, etc.) to enable you to achieve these objectives? Are your objectives measurable, timely, realistic, specific, and appropriate? It may be useful to ask students if they spend any time and energy in activities that do not contribute to their strategic objectives. Then ask why these activities are not productive. This line of questioning may help to clarify the difference between the productive and unproductive activities, and it clarifies the types of activities that are productive. After this discussion, then the students are more likely to be ready for a discussion of objectives that are measurable, timely, realistic, specific, and appropriate.  VIII. Summary We began this introductory chapter by defining strategic management and articulating some of its key attributes. Strategic management is defined as “consisting of the analysis, decisions, and actions an organization undertakes to create and sustain competitive advantages.” The issue of how and why some firms outperform others in the marketplace is central to the study of strategic management. Strategic management has four key attributes: it is directed at overall organizational goals, includes multiple stakeholders, incorporates both short-term and long-term perspectives, and incorporates trade-offs between efficiency and effectiveness. The second section discussed the strategic management process. Here, we paralleled the above definition of strategic management and focused on three core activities in the strategic management process—strategy analysis, strategy formulation, and strategy implementation. We noted how each of these activities is highly interrelated to and interdependent on one another. We also discussed how each of the 12 chapters fit into the three core activities and provided a summary of the opening vignettes in each chapter. Next, we introduced two important and interrelated concepts—corporate governance and stakeholder management. Corporate governance consists of three primary elements—management, boards of directors, shareholders (owners) — which play the key role in determining a corporation’s strategic direction. Stakeholder management addresses the individuals (and organizations) that must be taken into account throughout the strategic management process. We identified several key stakeholders in all organizations, and the nature of their claims. Successful firms go beyond an overriding focus on satisfying solely the interests of owners. Rather, they recognize the inherent conflicts that arise among the demands of the various stakeholders as well as the need to endeavor to attain “symbiosis”—that is, interdependence and mutual benefit—among the various stakeholder groups. We also addressed environmental sustainability and how the application of “social innovation” can be beneficial to both firms and society. In the fourth section, we discussed the rate of unpredictable change that managers face today. Managers and employees throughout the organization must have a strategic management perspective and become more empowered. The final section addressed the need for consistency between a firm’s vision, mission, and strategic objectives. Collectively, they form an organization’s hierarchy of goals. Visions should evoke powerful and compelling mental images. However, they are not very specific. Strategic objectives, on the other hand, are much more specific and are vital to ensuring that the organization is striving toward fulfilling its vision and mission. Chapter 1: Strategic Management: Creating Competitive Advantages Analyze your university (or college) from the stakeholder concept. Identify the stakeholders and the nature of their claims on the organization. What are the implications for administrators? Teaching suggestions: You might want to begin by asking the students to identify the difference between shareholders and stakeholders in the context of the university. Discussion should be oriented towards identifying the various stakeholder groups mentioned in the text, such as: *Customers : students, alumni, recruiting organizations, organizations using research outputs from the university, *Employees : teaching staff including faculty, research associates, teaching associates and the non-teaching or administrative staff, operational staff, *Suppliers : funding organizations and donors, stationery and teaching equipment suppliers, suppliers of utilities, etc., *Community : taxpayers and the general public who have expectations from the university and can influence its functioning and funding and, of course, the state would be the owner in the case of a state university. You might then want to ask whether stakeholder management is Zero sum or symbiotic? (We address this topic and provide a detailed example of Procter & Gamble in Chapter 1). This would be an interesting issue with which to generate discussion. You can play the role of a devil’s advocate to enliven the discussion. It can be argued that if faculty and other employees desire higher salaries, this would require that the “customers” have to pay more for their services. Similarly, more funds for research would mean lesser funds for the administrative and support staff. Taxpayers would want to pay less, which means increased tuition burden to the students and so on. This would bring out the competing and conflicting nature of the claims of the various stakeholder groups. You might want to then highlight the value of stakeholder symbiosis. Stakeholders are dependent upon each other for their success and well-being. 1. Top quality research needs excellent financial and support facilities. And, administrators must recognize that in order to ensure the effective functioning of the university neither the teaching staff nor the support staff should be starved. Further, research can also enhance the ability of the university to generate external funds. 2. Similarly, customers cannot expect to have better quality education unless they are prepared to pay for it. Alternatively, taxpayers need to pay a certain level of taxes in order to maintain the university at a reasonable level of performance. 3. Universities also have the social responsibility of inculcating right attitude, and shaping the integrity and character of the students, so that they become good citizens in all walks of life. You might then want to ask the students to give examples of other social responsibilities of universities. Some of the social responsibilities that can be discussed are: setting example in terms of waste recycling, promoting environment friendly campus and research lab facilities, being involved with community services, ensuring diversity in the recruiting of students, staff, and faculty, to mention a few. Conclusion: The expectations of various stakeholder groups are not constant over time and keep changing with changes in technology, globalization and other societal changes. An administrator would have to recognize this dynamic nature of stakeholder management and strive towards achieving mutual benefit through stakeholder symbiosis. End-of-Chapter Teaching Notes Chapter 1: Strategic Management, Creative Competitive Advantages Summary Review Questions 1. How is “strategic management” defined in the text, and what are its four key attributes? Response: Strategic management is the analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantages. The four key attributes of strategic management are that it: • Directs the organization toward overall goals and objectives • Includes multiple stakeholders in decision-making • Needs to incorporate short-term and long-term objectives • Recognizes trade-offs between efficiency and effectiveness Answer: Strategic management is defined as the process of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives. Its four key attributes are: (1) it involves a long-term perspective, (2) it requires alignment of organizational goals and resources, (3) it includes analyzing the competitive environment, and (4) it focuses on achieving and sustaining competitive advantage. 2. Briefly discuss the three key activities in the strategic management process. Why is it important for managers to recognize the interdependent nature of these activities? Response: The three key attributes in the strategic management process are analyses, decisions, and actions. Analyses, also called strategy analysis, refers to managers’ development of an understanding of the organization’s internal and external environment, and the organization’s overarching goals. These understandings are an important prerequisite for the strategic management process. Decisions, also called strategy formulation, refer to the overall plans that firms develop to compete and outperform their rivals. These plans exploit the results of analyses, in that firms try to use their strengths, limit weaknesses, exploit opportunities, and defend against threats simultaneously. Actions, also called strategy implementation, refer to ensuring that proper strategic controls and organizational designs are put in place to carry out the strategy. The interdependent nature of these activities stems from various feedback mechanisms that occur as managers implement their firms’ strategies. Unforeseen environmental developments, unanticipated resource constraints, and/or changes in managerial preferences will force firms to modify their intended strategy, combining it with an emergent strategy, and resulting in a realized strategy. The realized strategy will in turn be modified by further unforeseen events. The continually modified realized strategy will consist of refined analyses, decisions, and actions that are constantly being updated. Answer: The three key activities in the strategic management process are strategy formulation, strategy implementation, and strategy evaluation. Recognizing their interdependence is crucial because successful strategy execution requires aligning these activities to ensure that formulated strategies are effectively implemented and continually assessed for performance and adjustments. 3. Explain the concept of “stakeholder management.” Why shouldn’t managers be solely interested in stockholder management, that is, maximizing the returns for owners of the firm—its shareholders. Response: Stakeholder management is where multiple individuals or groups, who have a stake in or can influence an organization’s performance, are included in the strategic management process. So, top managers will be interested in satisfying the needs of shareholders and other stakeholders such as customers, suppliers, employees, creditors, government, and the community. Managers who are interested solely in stockholder management are likely to make decisions that satisfy short-term profit objectives. These decisions might include downsizing, neglect of asset maintenance, or put pressure on suppliers to lower prices. However, these decisions are likely to adversely affect long-term performance. Top managers who pay attention to all stakeholders are less likely to make decisions counter to the firm’s objective of long-term profit maximization. Answer: Stakeholder management involves addressing the interests and needs of all parties affected by an organization, including employees, customers, suppliers, and the community. Managers shouldn't focus solely on stockholder management because balancing stakeholder interests can enhance long-term sustainability and reputation, which ultimately benefits shareholders as well. 4. What is “corporate governance”? What are its three key elements and how can it be improved? Response: Corporate governance is defined in the text as the relationship among various participants in determining the direction and performance of corporations. The primary participants are (1) the shareholders, (2) the management (led by the chief executive officer), and (3) the board of directors. Corporate governance is designed to focus the efforts of the CEO on maximizing long-term shareholder wealth. The board of directors is elected or chosen by shareholders, and is charged with monitoring and evaluating CEO performance. Corporate governance can be improved by including other stakeholder representatives on the board of directors. These other members would ensure that top management will respond to these interests and become more socially responsible in addition to earning profits. Managers will respond to and exploit overlapping stakeholder interests, which can lead to increased long-term profits. Another way to improve corporate governance is to align managerial incentives with organizational performance. This alignment is often done through incentive-based pay or compensation through stock options. Rather than pursuing self-interest such as perks and salary, top managers will be motivated to make their organizations succeed. Answer: Corporate governance refers to the systems and processes that ensure a company is directed and controlled in a manner that is accountable and transparent. Its three key elements are the board of directors, executive management, and shareholder rights. Improvement can be achieved through enhanced board independence, clearer accountability mechanisms, and better shareholder engagement. 5. How can “symbiosis” (interdependence, mutual benefit) be achieved among a firm’s stakeholders? Response: Stakeholder management will, in part, be tricky because of competing interests. For example, customers may want lower prices while shareholders might want higher prices (which may lead to higher profits). However, stakeholder symbiosis can also result because stakeholders depend on each other for success and well-being. Firms can achieve stakeholder symbiosis by learning stakeholder interests and looking for overlaps. For example Outback Steakhouse discovered that employees and customers both benefited by employing staff who agreed with the company’s principles and beliefs. Such staffs tended to have lower turnover and more satisfied customers. Inclusion of stakeholders such as the community, government, and environmental groups can also increase a firm’s reputation. For example, firms that use a triple bottom line and evaluate their performance in financial, social, and environmental dimensions are likely to have good reputations with customers, governments, and the community at large. Answer: Symbiosis among a firm’s stakeholders can be achieved by fostering collaborative relationships where each party benefits from the success of others, such as through fair practices, shared goals, and transparent communication. This approach creates a positive feedback loop that enhances overall organizational performance and stakeholder satisfaction. 6. Why do firms need to have a greater strategic management perspective and empowerment in the strategic management process throughout the organization? Response: In today’s complex and dynamic business environment, top managers do not have all the answers. Rather, top managers will be responsible for communicating their firms’ strategies to lower-level managers, and in turn empower these managers with discretion to respond quickly and appropriately to opportunities as they arise. Such empowerment enables a firm to respond more quickly to the needs of customers and stakeholders, thus improving competitiveness. Answer: Firms need a greater strategic management perspective and empowerment throughout the organization to ensure that all levels align with strategic goals, adapt to changes effectively, and leverage diverse insights and capabilities. This approach enhances responsiveness and fosters a culture of shared responsibility and initiative. 7. What is meant by a “hierarchy of goals”? What are the main components of it, and why must consistency be achieved among them? Response: An organization’s hierarchy of goals refers to goals ranging from, at the top, those that are less specific yet able to evoke powerful and compelling mental images, to, at the bottom, those that are more specific and measurable. The main components are, at the top, the organizational vision, which evokes powerful and compelling mental images, the mission statement, which includes both the purpose of the organization, its scope of operations, and the basis of its competitive advantage, and the strategic objectives, which include shorter-term, s[ecofoc. And measurable goals that guide middle-level managers as they implement the mission statement. There must be consistency among these goals in order to maximize employee motivation and a sense of equity and fairness when rewards are allocated. Inconsistency among the goals between any level can result in confusion among employees as to what the firm values, and subsequently to loss of identification with the firm, loss of motivation, and turnover. Answer: A "hierarchy of goals" refers to a structured framework where goals are organized in levels, from broad, long-term strategic goals to specific, short-term operational objectives. Its main components are: (1) vision and mission, (2) strategic goals, and (3) tactical and operational goals. Consistency among them is crucial to ensure that all levels of the organization work towards the same overarching objectives, promoting coherence and effective goal achievement. Experiential Exercise Using the Internet or library sources, select four organizations—two in the private sector and two in the public sector. Find their mission statements. Complete the following exhibit by identifying the stakeholders that are mentioned. Evaluate the differences between firms in the private sector and those in the public sector. Response: This exercise is intended to highlight the differences between private and public sector organizations. Students are likely to discover that private sector organizations will focus more on customers and employees. Public sector organizations are likely to focus more on the community at large or broader groups such as taxpayers, the government, or people with a common problem or interest. An interesting extension of this exercise is to reverse it. Offer a couple of other stakeholder groups, such as the Rainforest Coalition, an organization promoting higher ethical standards for lawyers, or Greenpeace, and ask students what organizations will have these as stakeholders. Then ask why. This exercise is designed to allow students to appreciate some of the advantages to organizations of having multiple diverse stakeholders. Answer: To complete the exercise, you would gather mission statements from four organizations—two private and two public. Identify mentioned stakeholders, such as customers, employees, or communities. Typically, private sector mission statements emphasize profitability and customer satisfaction, while public sector ones often focus on service delivery and public welfare. This reflects the difference in objectives: profit for private firms and public value for government entities. Application Questions Exercises 1. Go to the Internet and look up one of these company sites: www.walmart.com, www.ge.com, or www.ford.com. What are some of the key events that would represent the “romantic” perspective of leadership? What are some of the key events that depict the “external control” perspective of leadership? Response: For these companies, students may have to look a bit to get to the information on company leadership. Usually at the bottom of the first page is a link to “about us”. Interestingly, for Ford, the link to “The Ford story” takes you to social media, not information about Ford. There, customers can share their stories about their experiences with Ford products. For www.walmart.com, the Wal-Mart story includes information related to the romantic perspective of leadership, in which the leader determines organizational success. Sam Walton had a vision about retailing as a way to satisfy customers, and his idealistic vision is repeated throughout the website. You have to look a bit for this information, though. It’s buried in links placed at the bottom of the page. For the external control perspective, Wal-Mart simply satisfied a latent demand of consumers for a wide assortment of goods at the lowest possible prices. For http://www.ge.com, the GE website includes information on the romantic perspective of leadership. There is a link to all the early leaders of GE, back to 1892. No link to Thomas Edison, though, was easily available. There were also links to various leaders and what they are doing to make GE successful. For the external control perspective, GE claims to be responding to market and society needs in various ways, from products to corporate hiring practices. For www.ford.com, the Ford website includes information on its historical roots, which is linked to the romantic perspective of leadership. It takes a couple of clicks, but you can get to Henry Ford’s vision of paying workers $5 a day in 1914. The company still carries the Ford name, which suggests that a long-standing corporate culture drives decision-making. There are also links to corporate governance and the members of the board of directors. These emphasize the importance of these leaders for representing Ford’s perspective to outside interests. For the external control perspective, Ford offers a number of explanations for its organizational success, such as great styling, a strong presence in social media, and descriptions of competitive advantages such as flexible, global production and cost savings. And Ford’s sustainability report emphasizes its responsiveness to various stakeholders and social responsibility. Answer: On Walmart's site, key events representing the "romantic" perspective of leadership include founder Sam Walton's innovative retail strategies and expansion efforts. Events reflecting the "external control" perspective might include responses to market challenges and regulatory pressures, such as adapting to economic downturns or changes in labor laws. 2. Select a company that competes in an industry in which you are interested. What are some of the recent demands that stakeholders have placed on this company? Can you find examples of how the company is trying to develop “symbiosis” (interdependence and mutual benefit) among its stakeholders? (Use the Internet and library resources.) Response: This exercise enable students to see how stakeholders other than shareholders are affecting corporate governance. To extend students’ findings, ask them to look up legislative issues related to other issues such as global warming, fair trade (in agricultural goods), and conflict-free diamonds. Answer: For example, in the technology sector, Apple faces stakeholder demands for improved environmental sustainability and ethical labor practices. Apple has responded by increasing its use of recycled materials and enhancing supply chain transparency, fostering symbiosis by addressing environmental concerns and improving working conditions, which in turn supports its brand reputation and operational stability. 3. Provide examples of companies that are actively trying to increase the amount of empowerment in the strategic management process throughout the organization. Do these companies seem to be having positive outcomes? Why? Why not? Response: Students may come up with numerous examples of empowerment. A Google search of “employee empowerment” will yield more than 800,000 hits, and lots of good examples. Most of the information is positive, but for the negative side, check the infamous stories of Nick Leeson, who brought down Barings Bank, and Jerome Kerviel, who hurt Societe Generale. And the recent downfall of AIG has been linked to the poor monitoring, and excess empowerment, of its division that get involved in credit default swaps and collateralized debt obligations. In these cases, lower-level managers were empowered but not supervised, made poor decisions, and cost their firms dearly. The lesson is that empowerment has associated risks, and managers have to strive for a most effective balance between empowerment and control. Answer: Companies like Google and Toyota are actively increasing empowerment by encouraging employee input in decision-making and fostering a culture of innovation. These approaches often lead to positive outcomes such as enhanced employee engagement and creativity, which can drive business growth and improve problem-solving. 4. Look up the vision statements and/or mission statements for a few companies. Do you feel that they are constructive and useful as a means of motivating employees and providing a strong strategic direction? Why? Why not? (Note: Annual reports, along with the Internet, may be good sources of information.) Response: Students will likely come up with a few examples. An interesting exercise is to first ask students if they are excited by the statements. If not, then ask how the statements should be changed to increase interest. It would then be useful to steer students into a discussion of what the firm is all about – what does the firm do that is interesting. Then to how a firm can back up its claims. The result of the discussion is that mission and vision statements relate to firm policies. Vision and mission statements from companies like Microsoft and Tesla often provide clear, aspirational goals that can motivate employees by aligning their efforts with a compelling purpose. Effective statements inspire and guide actions, while vague or overly broad statements may lack impact and fail to provide strong strategic direction. Answer: Many companies’ vision and mission statements are effective in motivating employees and providing strategic direction when they are clear, inspiring, and aligned with organizational goals. However, vague or generic statements may fail to engage employees or guide strategic decision-making effectively. Ethics Questions 1. A company focuses solely on short-term profits to provide the greatest return to the owners of the business (i.e., the shareholders in a publicly held firm). What ethical issues could this raise? Response: Short-term focus may result in long-term loss. For example, look at Arthur Anderson. That company is alleged to have increased short-term profits by linking consulting contracts with favorable auditing opinions. The increase in short-term profits was balanced by bankruptcy in the longer-run. Other examples are the banking industry’s focus on exploiting the home mortgage industry in the 200s, and the Mernie Madoff scandal. Answer: Focusing solely on short-term profits may lead to unethical practices such as cost-cutting at the expense of employee welfare, environmental damage, or compromising product quality. This approach can prioritize immediate gains over long-term sustainability and social responsibility. 2. A firm has spent some time—with input from managers at all levels—in developing a vision statement and a mission statement. Over time, however, the behavior of some executives is contrary to these statements. Could this raise some ethical issues? Response: From the perspective of lower-level managers, the inconsistency between the mission and vision statements, and the behavior of the executives, will cause cognitive dissonance. The lower-level managers will wonder what the firm really values, and will possibly lose motivation, identification with the firm, pride, and desire to stay with the firm. Answer: Yes, when executives' behavior contradicts the vision and mission statements, it can undermine trust, lead to ethical inconsistencies, and erode the company's credibility and employee morale. EXPERIENTIAL EXERCISES Exercise 1 Plastico, Inc.: A Strategic Decision-Making Exercise I. INTRODUCTION/LEARNING OBJECTIVES Plastico is a role-play exercise designed to provide participants with a "hands-on" appreciation for important strategic management concepts such as the importance of vision, mission, and objectives; total quality management, cross-functional coordination, reward structures, and strategic leadership. Participants assume the role of managers faced with a major problem: A forthcoming Consumer Reports article contends that one of the firm's major new product lines is substandard. Immediate action is required. Further, the role play is designed to stimulate conflict caused by the characters' parochial functional area perspectives, diverse backgrounds, and hidden agendas. To aggravate the situation, Kim Johnson (Vice President and the principal character in the role play) is portrayed as an aloof, bottom-line-oriented executive, with little concern or awareness for the operation for which he/she is responsible and accountable. This role play can be used at any point in the course. However, since issues relating to both strategy formulation and implementation are important learning objectives, we suggest that it is most effective after most of the chapters have been assigned. Accordingly, the major learning objectives are: 1. the importance of a clearly articulated vision, mission statements, and strategic objectives, 2. why quality must be an organization-wide effort, 3. the advantages of cross-functional coordination, 4. the importance of effective reward structures, and 5. important activities essential to successful leadership. II. PROCEDURES: CONDUCTING THE ROLE PLAY EXERCISE The following four steps are a useful approach for conducting the role play. Guidelines are provided for allocating time. If your class sessions are 50 minutes or less, conduct the role play and the "debriefing/discussion" in separate sessions. Step 1: (5 minutes) Distribute the two-page scenario to all participants (overview, the scenario, major players, organization chart). Step 2: (15 minutes) Participant preparation a. Divide participants into five equal groups. Distribute the same role to all members in each group. b. Have each group study the role assigned to them. Encourage the participants to actively "assume the role," i.e., use the information provided to "become the character." c. With two or three minutes to go, select one person from each group to act out the role in front of the room. d. Select outgoing people; otherwise the role play may bog down. This is especially important for the role of Kim Johnson. e. Suggest to the group playing Kim Johnson that they should begin the role play by asking the other characters what they perceive the problem to be—otherwise the role play may become a dialogue between two people. Step 3: (30 minutes) Acting out the role play Have the players take seats in a semi-circle in the front of the room. Kim Johnson should open the meeting. Approximately 10 minutes into the role play, you may consider asking the players to go back to their groups and spend about 5 minutes discussing how to complete the rest of the role play. (You can assign different people to continue their group's role—this usually piques interest/enthusiasm.) Note: Make sure each participant is provided with a nameplate. Otherwise the exercise will become “bogged down” as the role players become confused. Step 4: (30 minutes) Debriefing/Discussion III. LEADING THE DISCUSSION After the role playing is completed, the discussion consists of two parts. First, the instructor may pose the three questions in (A) below to stimulate discussions. Here, class members who did not "act out" one of the roles are given the opportunity to provide insights on what they observed. We have found that students often tend to focus more on symptoms (e.g., interpersonal conflict) than on underlying problems (e.g., lack of cross functional coordination, unclear and inconsistent strategic objectives). The students' preoccupation with symptoms can become a "strawman" which can be used by the instructor to stress the importance of a strategic management orientation. This, and other important issues, is the focus of the more in-depth discussion (B) that follows the three "lead-off" questions below. A. Lead-off Questions: Getting the Discussion Started Pose the following questions: 1) Is the situation depicted in the role play realistic? The role play invariably elicits a high level of emotional involvement and some students may feel that the intensity of conflict is greater than that which occurs in the "real world." However, point out that in the "real world" practicing managers often have hidden agendas, functional area biases and perceptions of inequities. Also, emphasize that emotions would definitely run much higher if actual careers and livelihoods were at stake. 2) What are Plastico's key problems? Students tend to focus more on symptoms than on underlying problems. Often, poor interpersonal relationships are emphasized instead of issues related to a firm's strategy and structure. For example, the resentment that many of the managers express toward Kim Johnson may actually be attributed to his personal characteristics (symptoms) instead of his being the only manager who participants in profit sharing (problem). 3) What are the sources of conflict? Here, as with question 2, students often tend to focus on interpersonal sources of conflict (e.g., the hiring of an old college friend, differences in educational background, and tenure with the company). Again, strategic issues such as poorly defined objectives, lack of coordination among functional areas, and inappropriate reward systems are seldom mentioned by role play participants. B. Relating the Role Play to Strategic Management. We find it useful to focus the discussion on the five issues below. These issues cover a range of topics on both strategy formulation and strategy implementation. 1) Importance of a clearly articulated vision, mission statement, and strategic objectives. These are the three critical attributes necessary for a firm to achieve "coherence in strategic direction" (addressed in the latter part of Chapter 1). In the case of Plastico, there did not appear to be an adequate emphasis on any of these three elements. A great deal of conflict and dysfunctional behavior, as well as declining performance, can reasonably be attributed to this. • How might "coherence in strategic direction" improve Plastico's effectiveness? A vision, mission statement, and strategic objectives would help to reduce conflict, clarify direction, instill motivation toward common ends, and so on. Further, it should be pointed out that mission statements serve to provide standards for ethical behavior—a potentially key issue given that Plastico may have to decide what to do with "substandard" products. (Exhibit 1 provides a summary of this question.) 2) The advantages of cross-functional coordination. Several chapters point out the benefits of cross-functional coordination, i.e., integration across value chain activities. • How might Plastico benefit from cross-functional coordination? (Exhibit 2 may help to structure discussion on this issue.) First, it lists some of the types of conflicts that may arise among functional departments. Here, it may be useful to ask participants for examples of such conflicts. The second part of Exhibit 2 provides three potential benefits of cross-functional coordination. Clearly, at Plastico, one department is responsible for quality control and this is a source of much of the conflict. Point out, or ask for, the potential benefits of the Quality Control Department working more directly with the other departments—Engineering and R&D, Manufacturing, and Marketing. A key point would be the greater emphasis on Total Quality Management, i.e., all departments would have greater input and the likelihood of quality being designed and built into the products would be greater. 3) The importance of reward structures. The importance of effective reward systems is addressed in Chapter 9. The reward system at Plastico caused resentment among the top management team, because Kim Johnson was the only manager receiving a bonus. Since the other managers' compensation was not tied to the attainment of strategic goals, motivation and morale seemed to suffer. • How can Plastico's reward system be improved? a. Compensation could be tied more directly to the attainment of overall organizational goals. b. More, if not all, managers could be involved in incentive compensation programs. c. Greater control systems could be implements to detect and monitor performance. (Recall that Plastico's quality problems that were revealed in the Consumer Reports article seemed to catch management by surprise.) 4) Successful strategic leadership. This final issue—the central focus of Chapter 11—helps to synthesize many of the learning objectives of this exercise. • Assess Kim Johnson's approach to leadership. How can it be improved? (Use Exhibit 3.) At first glance, this may appear to be a relatively difficult question to address. After all, a role play implicitly provides different perspectives to each role player on a variety of issues. However, students typically find fault with Kim Johnson's leadership regarding his/her aloofness, lack of direction, favoritism (i.e., his hiring of Kerry Smith as Manger of Quality Control—an "old college friend"), too "bottom line oriented," and so on. It may be useful to use Exhibit 3 to illustrate the activities essential to successful strategic leadership when addressing the question of how Kim's leadership can be improved. Kim Johnson might consider: SETTING A DIRECTION. • Focus on the "essentials" of the business, i.e., quality and efficient production. (Note: Given the strong desire of Pat Ackerman, CEO, to expand the business, this will likely involve persuading him to limit growth.) • Developing a contingency plan to deal with problems such as the bad press associated with the upcoming Consumer Reports article. (This could include retaining a public relations firm, or assessing the quality of finished goods inventory using statistical sampling techniques.) DESIGNING THE ORGANIZATION. • Enhancing coordination across functional areas via committees, task forces, etc. (Addressed in issue #2 above.) • Implementing reward systems that motivate individuals toward desired objectives. (addressing issue #3 above.) • Providing functional managers more input into the budgeting process. (This may alleviate feelings of inequity perceived by Robin Cooper in Engineering.) INSTILLING A CULTURE COMMITTED TO EXCELLENCE AND ETHICAL BEHAVIOR. • Restoring Plastico's commitment to excellence in quality through periodic meetings, newsletters, awards, incentives, etc. • Developing a company credo that guides ethical behavior. (For example, without ethical guidelines to the contrary, managers may have a strong temptation to ship shoddy merchandise if they feel intense pressure to meet production quotas. Such poor quality goods would undermine the public's trust in Plastico.) Exhibit 1 ENSURING COHERENCE IN STRATEGIC DIRECTION VISION • Describes aspirations for the future without specifying means to achieve ends. • Must be inspirational • Must be communicated through a mission statement and through persuasive leadership MISSION STATEMENTS • Mission statements establish boundaries to guide strategy formulation. • Mission statements establish standards for organizational performance along multiple dimensions. • Mission statements suggest standards for individual ethical behavior. STRATEGIC OBJECTIVES • Address both financial and non-financial issues • Can be reached with a stretch • Incorporate the dimension of time • Facilitate reasoned tradeoffs • Reduce conflict • Can be measured • Avoid unintended consequences Exhibit 2 THE IMPORTANCE OF CROSS-FUNCTIONAL COORDINATION EXAMPLES OF INTERDEPARTMENTAL CONFLICTS: • R&D versus Manufacturing • Sales versus Logistics • Marketing versus Quality Control CROSS-FUNCTIONAL COORDINATION: • Can break down barriers between functional departments • Recognized that all departments are responsible for quality (not just a quality control department) • Can help a firm achieve all forms of competitive advantages—differentiation, overall cost leadership, and integrated differentiation and overall cost leadership. Exhibit 3 THREE KEY LEADERSHIP ACTIVITIES • Setting a direction • Designing the organization • Instilling a culture committed to excellence and ethical behavior PLASTICO, INC.: OVERVIEW It is February 15 and Kim Johnson, V.P. of The Outdoor Toys Division, has assembled the Division Management team to address an urgent problem. For the next 30 minutes, you will assume the role of either Kim Johnson or one of Kim's four managers. Immediate action has been mandated by Pat Ackerman, CEO of Plastico. THE SCENARIO Plastico, Inc. was started 10 years ago as a manufacturer of heavy-duty outdoor plastic toys (sandboxes, playhouses, pool toys) by Pat Ackerman, a highly driven entrepreneur with a background in marketing. To cope with the extreme seasonality of the business and to ensure its continued growth, 3 years ago Ackerman acquired two manufacturers: a producer of children's clothes and a manufacturer of children's furniture. For the last two years, sales and profits have increased 20 percent and 10 percent respectively—a level of performance that Ackerman has come to expect. The breakdown for each of the division last year was: Outdoor Toys - $65 million; Children's Clothes - $20 million; and Children's Furniture - $10 million. However, this year's sales for the Toy Division are expected to decrease to $55 million, the first sales decrease in the company's history. Ackerman is more concerned about the reason for the sales decrease than "just the numbers." Sales of the new line of picnic tables/patio furniture had appeared to be very promising at the Winter Trade Show where $10 million in retail orders were accepted. This trade show is particularly important because it is where manufacturers introduce new lines to major retailers who, in turn, place orders for the summer selling season. However, Ackerman has recently heard rumors about Plastico's faltering quality. Just this morning, February 15, he was stunned when he received a fax of a forthcoming Consumer Reports article stating that the new Outdoor Toys' spring product line was substandard. The timing of the Consumer Reports article could not be worse. Although no shipments have been sent to retailers, 50 percent of the initial orders have been manufactured and are in the warehouse awaiting shipments to retailers. The balance of the production is expected to be completed by the end of the month. New product lines have always accounted for a large portion of annual sales increases, so the bad press will dramatically hurt sales and will erode Plastico's excellent quality image. Furthermore, Outdoor Toys' lower sales (and profits) will substantially reduce funds available for the growth of the other two divisions. Kim Johnson has been summoned to report to Ackerman's office to explain the reason for decreased sales and the negative Consumer Reports rating. Ackerman has also made it clear he wants immediate solution to these problems. Johnson's four managers have been assembled and informed that "hard answers" are needed within 30 minutes. (Exhibit 1 provides an organization chart and an introduction to the major players.) EXHIBIT 1: MAJOR PLAYERS AND ORGANIZATION CHART MAJOR PLAYERS Kim Johnson, Vice President — Outdoor Toys Division Johnson, 45-years-old, came to Plastico five years ago. Kim has a BS degree from a large state university and extensive manufacturing experience. Kim has become accustomed to the "creature comforts" that annual profit-sharing bonuses have supported. The profit-sharing plan, in which only Mr. Ackerman the divisional vice presidents participate has, in some recent years, effectively doubled Johnson's annual compensation. Johnson believes in hiring good people and providing them with as much autonomy as possible. Robin Cooper, Director of Engineering and R&D. Cooper is a 32 year old who has been with Plastico for four years. Robin has an MS degree in Mechanical Engineering from a small, private college. Chris Baker, Manager of Manufacturing. With eight years of service, Baker has the longest tenure of the four managers. Chris completed only two years of college and is 50 years old. Kerry Smith, Manager of Quality Control. Kim Johnson hired an "old college friend," Smith, to be quality control manager six months ago. Kerry is 45 years old and as a BBA degree. Lynn Robertson, Manager of Marketing. Lynn Robertson is a hard-charging, aggressive 25 year old with an MBA from a prestigious Ivy League school. Lynn has been with Plastico for two years. Plastico, Inc.: Role of "Kim Johnson," Vice President, Outdoor Toys Division Wow! I've never heard Pat Ackerman so angry and upset. I'm afraid the Consumer Reports article may be a symptom of broader problems. And now, in 30 minutes, I'm supposed to solve all of them. But frankly, I've overextended myself financially and must do everything I can to salvage some profit sharing compensation this year. I've always resented the way he wants my division to fund the growth of the clothes and furniture divisions. As I see it, these are nothing more than Pat's pet projects intended to boost his ego. I'd like to suggest to Pat that he divest them, but first I'd better build a heck of a strong case. If Ackerman hadn't taken his eye off the ball by buying these two new companies three years ago, I wouldn't be faced with the prospect of losing out on my bonus for the first time in five years. I do have some nagging concerns: Was I correct in cutting Robin Cooper's R&D budget by 20 percent? Is Chris Baker just coasting to retirement? With that much experience, Chris should have known something was wrong. Should I have hired a close friend like Kerry Smith as QC manager? Maybe Kerry doesn't understand our products well enough, and the other managers are reluctant to confront Kerry because they know about our friendship. I also wonder a little about Lynn Robertson in Marketing. All Lynn seems to be concerned about is protecting sales. We need an aggressive person in Marketing, but pushing products through R&D may hurt our quality in the long run. All I know is, we better have solid, specific answers in 30 minutes. Plastico, Inc.: Role of "Chris Baker," Manager of Manufacturing If Pat Ackerman hadn't decided three years ago to acquire the clothes and furniture divisions, we'd be in a lot better shape. We used to make quality products. Now, we have to speed up production of our Outdoor Toy products just to provide money for these two new divisions. Johnson's no better. Kim's just interested in the "bottom line." I guess I would be too if I were getting that bonus each year! I had a hunch that these products had problems. But let Johnson's buddy, Kerry, in Quality Control earn that new salary. If there were problems, they should have been caught in QC—that's their job. Maybe it's not all Kerry's fault. If Lynn Robertson in Marketing hadn't pushed these products through R&D, we wouldn't be in this fix. Cooper and I introduced plenty of new product lines before Robertson and Smith arrived on the scene. Their very short-term orientation is going to ruin this company. We should either rework or scrap this batch of poor quality goods in the warehouse waiting to be shipped. It's better to take a small hit now to preserve our long-term viability. But, I'd better not say too much. I have two kids in college and I'm counting on a pension from this place. Plastico, Inc.: Role of "Robin Cooper," Director of Engineering and R&D I can just see it coming now! Kerry Smith is going to point the finger at me for the problem with the picnic table line, something to do with my skimping on the development process of the plastic. Smith was hired by Kim Johnson and can do no wrong. I do not understand the loyalty anyway—all Smith cares about is Smith, Smith, and Smith! Kim Johnson knows I'm committed to the firm and really want to leave my mark. I always said, "Plastico is my second family." I've always put in the extra hours without complaining to get new product lines out in time for the Winter Trade Snow—even when Johnson cut my budget twice to boost profits and reallocate funds to Quality Control to hire Kerry Smith. And I've constantly tried to keep the firm at the forefront of plastic technology used for "playtime" activities and devices. Even on a drastically reduced budget, we did a good job developing that plastic. I still do not see how R&D is the problem. I think it has to be something manufacturing is doing in the production process. I tried to explain to Chris Baker that the production process and molding of the plastic for the picnic tables could not be sped up or the plastic would not set properly. Of course, that would mean getting approval to change the production line and Baker is afraid to do anything that might be new or different from the old way of doing things. All Baker cares about is keeping the plant at a certain capacity and not one unit of production less. All I know is that I am not taking the fall—no matter what "Fancy" Quality Control Kerry Smith has to say in today's meeting. Plastico, Inc.: Role of "Lynn Robertson," Manager of Marketing If I hadn't pushed this new product line through R&D, we would have missed this selling season altogether. If it were up to Robin Cooper in R&D, they'd still be testing and developing this product. It would be nice if Chris Baker were more concerned about manufacturing quality products instead of just hanging on until retirement. Also, I guess I really resent Kerry Smith. To get this job, I had to put myself $40,000 in debt getting my MBA; Kerry just had to be Kim's friend! If Kerry had only known something about our products, we wouldn't have produced those lousy picnic tables and patio furniture. I know one thing for sure; Johnson is going to expect an answer from me. I guess that's why he hired me—this organization needs some fresh blood. Let's face it: In business you have to take risks. I bet Baker will suggest we just dump these defective products—even though they are 50 percent of our initial orders! Consumer Reports doesn't run this company! If we sell them overseas, we would at least get something for them. Well, I'm not going to get an ulcer over it. If things don't work out, I'll take my degree elsewhere and get a better job! Maybe even one with profit sharing! Plastico, Inc.: Role of "Kerry Smith," Manager of Quality Control Even though Kim Johnson and I go way back, I am not sure that Kim or any of the managers of Plastico are really committed to quality. I am not taking the fall for this crisis. I have had four good jobs prior to this one and I can easily get another. Quality Control is such a hot area right now with the Japanese firms breathing down everyone's necks, that I can find a job—no problem! I think Kim wanted to be like everyone else and show to corporate headquarters, the board, and industry analysts that Plastico was committed to quality. I think that hiring me was really window dressing. Kim never really made any changes at Plastico to show commitment to quality and never got the other managers involved. Kim also never really made it clear how I was supposed to go about making this a quality firm. Everyone here is just concerned with getting the new product line out in time for the Winter Trade Show to get the summer orders—no matter what! The conversations I have had with Robin Cooper have been barely civil and no matter what I say, Cooper shoots it down. I guess Cooper is bitter about losing some R&D funds and blames me. Chris Baker is really easy to talk to and will "yes-you-to-death" about ideas that could improve quality in production, but never takes any action. Baker does not want to do anything that might rock the boat and change the status quo. Baker's only concern is keeping the production line at full capacity. Forget Lynn Robertson—all Robertson cares about is looking good at the trade show and getting the orders in. Of course, Robertson thinks the answer to everything is that fancy MBA, and does not need input from anyone else to get his job done. Kim Johnson is probably the worst offender here. I've never worked with someone concerned about a profit sharing bonus enough to avoid changes toward quality that may disrupt the bonus pool in the short-term. Well, I will just have to see what Kim has to say at this meeting. Solution Manual for Strategic Management: Creating Competitive Advantages Gregory G. Dess, Alan Eisner, G.T. (Tom) Lumpkin, Gerry McNamara 9780077636081, 9781259245558