This Document Contains Chapters 4 to 5 Chapter 4 - Types of Strategies Overview Chapter 4 provides basic guidelines for when various strategies have historically been most effective to use. This chapter also describes Porter’s generic strategies, outsourcing, reshoring, first-mover advantages, joint ventures, and partnering in the context of strategic planning. Chapter 4 concludes by describing strategic planning in nonprofit and governmental organizations. Learning Objectives: 1. Define and discuss secondary buyouts and dividend recapitalizations. 2. Identify the benefits and drawbacks of merging with another firm. 3. Discuss the value of establishing long-term objectives. 4. Identify 16 types of business strategies. 5. Identify numerous examples of organizations pursuing different types of strategies. 6. Discuss guidelines when particular strategies are most appropriate to pursue. 7. Discuss Porter’s five generic strategies. 8. Describe strategic management in nonprofit, governmental, and small organizations. 9. Discuss the nature and role of joint ventures in strategic planning. 10. Compare and contrast financial with strategic objectives. 11. Discuss the levels of strategies in large versus small firms. 12. Explain the first mover advantages concept. 13. Discuss recent trends in outsourcing and reshoring. Teaching Tips 1. Table 4-4 titled “Alternative Strategies Defined and Exemplified” is one of the most important pages in the book, so spend at least 30 minutes on that Table elaborating on those strategies, and tying in the guidelines (given also in Chapter 4) for when those strategies are good to pursue. Emphasize that no firm can do everything that will benefit the firm, due to high costs and limited resources, so tough decisions have to be made among many desirable alternative strategies. Some strategies can fit into two categories, but do not worry about this issue because this is a superior classification of types of strategies, compared for example to Porter’s 3 (or 5) generic strategy classification. 2. General guidelines for when various strategies have worked well historically are provided for each strategy type. Go over these lists so students will have a good feel for alternative strategies available to firms under various scenarios. 3. Near the end of this chapter, emphasize that all types of organizations can benefit immensely from strategic planning, including colleges, universities, zoos, churches, government agencies, startup businesses, hospitals, etc. – not just large corporations. Even nonprofit organizations have customers, employees, creditors, budgets, etc. The only difference between profit and nonprofit firms are 1) nonprofits do not pay taxes and 2) nonprofits do not have stock issuances as a source of capital. 4. At the end of Chapter 4, direct student attention to the “Special Note to Students” because this is important information as the team prepares and ultimately delivers their oral case analysis presentation later in the course. 5. Regarding the end-of-chapter review questions, consider assigning them all one day in class giving each student a question or two, and letting them tell the class the answer, with you commenting on their answers. Many professors find this to be a fun day in class and it goes pretty quickly. 6. Several of the end-of-chapter Assurance of Learning Exercises make excellent homework or classwork assignments to be completed as an individual or as a group of students. Answers to End-of-Chapter Review Questions 1. For Petronas, featured at the beginning of the chapter, give a hypothetical strategy for each of the following categories: market penetration, related diversification, divestiture, and retrenchment. Answer: Petronas is involved in the manufacture of lubricants from the formulation to marketing and distribution of heavy-duty engine oils. Petronas recently entered the Swiss market by introducing a range of premium grade automotive engine lubricants. Among the options available to Petronas in the exploitation of this opportunity is the use of a market penetration strategy, which might involve efforts to increase market share through the development of a robust sales network and the use of advertising and promotions campaigns targeted at customers willing to switch from rivals. Petronas’ logistics and maritime business is undertaken by its MISC Berhad subsidiary. MISC is Malaysia's leading maritime corporation with a focus on ship owning, ship operating, other shipping related activities, owning and operating of offshore floating facilities as well as marine repair, marine conversion and engineering and construction works. Many of these activities take place at marine ports across the globe. In an effort to expand control of such operations Petronas’ MISC might pursue a related diversification strategy operating its own port operations business. Petronas operates six distinct businesses including exploration & production of petrochemicals, gas & power, technology & engineering, logistics & maritime, downstream activities associated with the refining and selling of oil. A divestiture would occur if Petronas top managers decided sell one of its businesses resulting in a more narrow scope of businesses. Typically, such a divestiture would occur only after retrenchment (cost and asset reductions) efforts failed to reverse a decline in sales and profit. 2. For Petronas, featured at the beginning of the chapter, give a hypothetical strategy for each of the following categories: market development, unrelated diversification, backward integration, and product development. Answer: Petronas is involved in the manufacture of lubricants from the formulation to marketing and distribution of heavy-duty engine oils. Petronas recently entered the Swiss market by introducing a range of premium grade automotive engine lubricants. Among the options available to Petronas in the exploitation of this opportunity is market development, which might involve efforts to increase market share through the development of a robust sales network and the use of advertising and promotions campaigns targeted at customers willing to switch from rivals. Petronas’ logistics and maritime business is undertaken by its MISC Berhad subsidiary. MISC is Malaysia's leading maritime corporation with a focus on ship owning, ship operating, other shipping related activities, owning and operating of offshore floating facilities as well as marine repair, marine conversion and engineering and construction works. Many of these activities take place at marine ports across the globe. In an effort to expand control of such operations Petronas’ MISC might pursue a unrelated diversification strategy operating its own port operations business. Petronas operates six distinct businesses including exploration & production of petrochemicals, gas & power, technology & engineering, logistics & maritime, downstream activities associated with the refining and selling of oil. A backward integration would occur if Petronas top managers decided sell a part of its business creating a narrow scope of businesses. 3. Identify five situations when forward integration is a particularly good strategy. Answer: Students will base their answers on page 139 – see section “six guidelines when forward integration may be especially effective strategy.” 1. Control Over Distribution - When a company wants to gain more control over its distribution channels. 2. Improving Market Position - To enhance market presence and customer loyalty by owning retail or service outlets. 3. Reducing Costs - To cut out intermediaries and reduce costs associated with third-party services. 4. Enhancing Product Quality - To ensure consistent quality and better manage production standards. 5. Capturing More Value - When aiming to capture a greater share of the value chain and profit margins. 4. What three strategies defined in the chapter do you feel are most widely used by small businesses? Answer: 1. Cost Leadership - Small businesses often focus on minimizing costs to offer competitive prices and attract price-sensitive customers. 2. Differentiation - By offering unique products or services, small businesses can stand out in niche markets and build a loyal customer base. 3. Focus Strategy - Targeting specific market segments or geographic areas allows small businesses to tailor their offerings and leverage local expertise. 5. Should non-profit organizations post their strategic plan on their website? What about corporations? Why? Answer: Non-profit organizations should post their strategic plan on their website because they are just like for-profit companies except for two major differences: a. Non-profit organizations do not pay taxes. b. Non-profit organizations do not have shareholders to provide capital. 6. Give some guidelines of when divestiture is a particularly effective strategy. Answer: The guidelines can be found on page 147. Divestiture is particularly effective when: 1. Underperforming Assets - When a business unit is not meeting performance expectations and is draining resources. 2. Strategic Realignment - To refocus on core competencies and core business areas, enhancing overall strategic alignment. 3. Financial Pressure - To raise capital or reduce debt, improving financial stability. 4. Market Changes - When market conditions make a business unit less viable or less strategic compared to competitors. 7. For Adidas, what two strategies do you feel is best for that company to pursue going forward? Why? Answer: Students’ answers may vary. See the section “levels of strategies” on page 136. Adidas should focus on digital transformation to enhance its e-commerce capabilities and engage with tech-savvy consumers. Additionally, sustainability should be prioritized to strengthen its brand reputation and meet growing consumer demand for eco-friendly products. Both strategies align with current market trends and can drive long-term growth and competitive advantage. 8. Give some examples of Type 4 and Type 5 focus strategies according to Porter’s generic strategy approach. Answer: Students’ answers may vary. Examples include Milwaukee, Wisconsin-based Johnson Controls. In Porter’s generic strategy approach: • Type 4 Focus Strategy (Focused Cost Leadership): A budget airline like Southwest Airlines targets cost-sensitive travelers by offering lower prices with a no-frills service model. • Type 5 Focus Strategy (Focused Differentiation): A luxury brand like Rolls-Royce targets high-income consumers with premium, highly customized vehicles that offer unique features and exclusivity. 9. List three industries when cooperation among competitors is most likely and explain why. Answer: Students’ answers may vary; the three industries are airline, internet companies, and cellphone makers. 1. Pharmaceuticals - Competitors often collaborate on research and development to share costs and accelerate innovation in drug discovery. 2. Technology - Companies may cooperate on standard-setting and interoperability to ensure compatibility and enhance market growth. 3. Automotive - Manufacturers often work together on shared technologies, such as electric vehicle infrastructure, to advance industry standards and reduce costs. 10. Do a Google search on joint ventures. What important new concepts did you learn that were not presented in the chapter? Answer: Recent concepts in joint ventures include "Joint Venture Ecosystems," where multiple partners collaborate to create a network of interrelated ventures, and "Virtual Joint Ventures," which leverage digital tools for collaboration without physical presence. Another concept is "Equity vs. Non-Equity Joint Ventures," where equity joint ventures involve shared ownership and profits, while non-equity ones focus on collaboration without shared ownership. These concepts highlight evolving practices and flexibility in joint venture structures. 11. Identify three joint ventures that have worked especially well in the past. Answer: Students’ answers may vary. • Facebook with Skype • Nokia Corp with Microsoft • Wal-Mart with Mexico’s Cifra 1. Sony Ericsson - The joint venture between Sony and Ericsson combined expertise in electronics and telecommunications, creating a successful line of mobile phones. 2. Starbucks and PepsiCo - Their partnership in the Ready-to-Drink (RTD) coffee market has been highly successful, leveraging PepsiCo’s distribution network and Starbucks’ brand. 3. BMW and Toyota - Collaborated on hydrogen fuel cell technology and hybrid systems, benefiting from shared research and development to advance automotive innovation. 12. List four important reasons why many mergers and acquisitions fail. Answer: Students will base their answer on Table 4-5 on page 156 “Key Reasons Why Many Mergers and Acquisitions Fail.” 1. Cultural Mismatch - Differences in company cultures can lead to integration challenges and employee dissatisfaction. 2. Overestimated Synergies - Overestimating the potential cost savings or revenue enhancements can lead to unmet expectations. 3. Poor Integration Planning - Inadequate planning and execution of integrating operations, systems, and teams can hinder success. 4. Inaccurate Valuation - Overpaying for the acquired company due to inflated valuations can lead to financial strain and poor returns. 13. Explain how strategic management differs in governmental organizations as compared to educational institutions. Answer: Educational Institutions are more frequently using strategic management techniques and concepts. On the other hand, strategists in governmental organizations operate with less strategic autonomy than their counterparts in private firms. Public enterprises generally cannot diversify into unrelated businesses or merge with other firms. Governmental strategists usually enjoy little freedom in altering the missions or redirecting objectives. Legislators and politicians often have direct or indirect control over major decisions and resources. 14. Explain how and why Petronas has been so successful in recent years. Answer: As the National Oil Company (NOC) of Malaysia Petronas began operations in 1974 as a local regulator and manager of Malaysia’s domestic research capabilities. Throughout the 1980s, however, Petronas began to build gas and oil projects both upstream and downstream. The company moved into international markets in the 1990s. And, by the early 2000s it operated in over 55 countries. As a fully integrated oil and gas company that is involved in all activities from exploration to refining and distribution Petronas produces nearly 2 million barrels of oil equivalent (boe) per day. Petronas is seen as an industry leader in exploration and the management of difficult oil fields with a long-term view that results in its developing profitable assets in difficult places like South Sudan and Iraq. The company’s strategic efforts have led to almost 20% growth in production last year. The NOC of Malaysia Petronas also takes the lead in developing opportunities to transfer capabilities and technological know-how into the country via the development of joint ventures with foreign firms interested in investing in Malaysia. 15. List six characteristics of objectives and an example of each. Answer: Students should use Table 4-2 on page 133; “The Desired Characteristics of Objectives” 1) Quantitative 2) Measurable 3) Realistic 4) Understandable 5) Challenging 6) Hierarchical 7) Obtainable 8) Congruent across departments 1. Specific - Clearly defines what is to be achieved. Example: Increase online sales by 20% within the next 12 months. 2. Measurable - Quantifiable to track progress. Example: Achieve a customer satisfaction score of 90% or higher in the next quarter. 3. Achievable - Realistic and attainable within the given resources and constraints. Example: Launch a new product line within six months with a budget of $500,000. 4. Relevant - Aligns with broader business goals and priorities. Example: Reduce manufacturing costs by 10% to support the company’s goal of improving profitability. 5. Time-bound - Has a defined deadline for completion. Example: Complete the new website redesign by the end of the fiscal year. 6. Actionable - Provides clear steps or actions to achieve the goal. Example: Increase social media engagement by implementing a new content strategy and running weekly promotions. 16. In order of importance, rank six major benefits of a firm having objectives. Answer: Students should rank six major benefits from Table 4-3 “The Benefits of Having Clear Objectives” 1) Provide direction by revealing expectations 2) Allow by serving as standards 3) Establish priorities 4) Reduce uncertainty 5) Minimize conflicts 6) Stimulate exertion 7) Aid in allocation of resources 8) Aid in design of jobs 9) Provide basis for consistent decision making 1. Clear Direction - Objectives provide a focused path for the organization’s efforts and decisions. 2. Performance Measurement - They offer benchmarks to evaluate progress and success. 3. Motivation - Clear goals help motivate employees by setting tangible targets to achieve. 4. Resource Allocation - Objectives guide effective allocation of resources to priority areas. 5. Alignment - Ensures that departmental and individual efforts align with overall business goals. 6. Strategic Planning - Supports the development of actionable plans and strategies to achieve the desired outcomes. 17. Give a hypothetical example of forward integration, backward integration, and horizontal integration for Volkswagen. Answer: Forward integration: Volkswagen set up its own dealers to sell cars to customers. Backward integration: Volkswagen bought over its suppliers to be part of Volkswagen Company. Horizontal integration: Volkswagen either bought over its competitors, or merged with its competitors. 18. Give a hypothetical example of market penetration, market development, and product development for Toyota Motors. Answer: Students’ answers may vary. Market penetration: Toyota Motors increased it sales staff by another 20 percent. Market Development: Toyota Motors went into Vietnam market, a totally new market Product Development: Toyota Motors modifies its car design such as massaging driver seat. Market Penetration: Toyota increases its market share in the U.S. by offering aggressive promotions and discounts on its popular Camry model. Market Development: Toyota enters the electric vehicle market in India with its new hybrid model, targeting emerging consumer segments. Product Development: Toyota launches a new line of autonomous vehicles with advanced technology and features, expanding its product offerings in the luxury car segment. 19. Give a hypothetical example of related diversification and an example of unrelated diversification for Google. Answer: Related diversification: Google goes into live web cam conference/exhibition industry. Unrelated diversification: Google buys over a national airline. Related Diversification: Google expands into the smart home market by developing and integrating its own line of smart home devices, such as smart thermostats and security cameras, leveraging its expertise in artificial intelligence and data analytics. Unrelated Diversification: Google acquires a chain of organic grocery stores, entering the retail food industry, which is unrelated to its core business of technology and internet services. 20. Give a hypothetical example of retrenchment and divestiture for Wal-Mart. Answer: Student answers may vary. Retrenchment: Wal-Mart in its efforts to retard declining profits, reduce its workforce by 2%. Divestiture: Wal-Mart sells of its household product division to Robinsons. Retrenchment: Wal-Mart closes underperforming stores in specific regions to reduce costs and focus on more profitable locations. Divestiture: Wal-Mart sells its international operations in a particular country, such as Germany, to focus on strengthening its presence in more profitable markets like the U.S. and Canada. 21. When would market development generally be the preferred strategy over backward or forward integration? Answer: The followings are guidelines which market development would be the preferred strategy: • When new channels of distribution are available that are reliable, inexpensive and of good quality • When an organization is very successful at what it does • When new untapped or unsaturated markets exist • When an organization has the needed capital and human resources to manage expanded operations • When an organization has excess production capacity • When an organization’s basic industry is rapidly becoming global in scope. 22. Why can firms generally not pursue several or many of the strategies presented in this chapter? Answer: The reasons being that firms are not managing by objectives but by: • Managing by extrapolation – keep on doing the same things in the same ways because things are going well • Managing by Crisis – belief that true measure of a really good strategist is the ability to solve problems • Managing by Subjective – just the best; no general plans for direction • Managing by Hope – if we try and do not succeed, then we hope our second or third attempt will succeed 23. When should a firm diversify? Answer: The followings are the conditions: • Transferring competitively valuable expertise; technological know-how or other capabilities form one business to another. • Combining the related activities of separate businesses into a single operation to achieve lower cost • Exploring common use of a well-known brand name • Cross-business collaboration to create competitively valuable resource strengths and capabilities 24. List and describe the five types of bankruptcy. If your college or university had to declare bankruptcy, which type would be appropriate? Answer: The five types are; 1. Bankruptcy is a liquidation procedure used only when a corporation sees no hope of being able to operate successfully or to obtain the necessary creditor agreement. All the organization’s assets are sold in parts for their tangible worth. 2. Bankruptcy applies to municipalities. 3. Bankruptcy allows organizations to reorganize and come back after filing a petition for protection. 4. Bankruptcy was created by the Family Farmer Bankruptcy Act of 1986. This law became effective in 1987 and provides special relief to family farmers with debt equal to or less than $1.5million. 5. Bankruptcy is a reorganization plan but it is available only to small businesses owned by individuals with secured debts of less than $100,000 and secured debts of less than $340,000. Students’ answers may vary depending on the type of college. 25. Explain why you believe some analysts consider Michael Porter’s generic strategies to be too few and too vague. Answer: Students’ answers may be based on changing external factors – PESTE; which will greatly affect the strategic approach of companies in formulating their strategies. Some analysts consider Michael Porter’s generic strategies overly simplistic because they may not account for the complexities of modern markets and competitive dynamics. Critics argue that the strategies—cost leadership, differentiation, and focus—can be too rigid and may not fully capture the nuances of strategic positioning in rapidly evolving industries. They suggest that a more flexible, nuanced approach might better address today's diverse and fast-changing business environments. 26. Explain the difference between joint ventures and partnerships as a means for achieving various strategies. Answer: Joint ventures – two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity. Often, they form a separate organization and have shared equity ownership in the new entity. Joint ventures are used to pursue an opportunity that is too complex, uneconomical or risky for a single firm to pursue alone. 27. List the pros and cons of a hostile versus friendly takeover of another firm. Answer: 28. In order of importance, list six reasons why many mergers and acquisitions fail. Answer: See Table 4-5 “Key Reasons Why Many Mergers and Acquisitions Fail”: 1) Integration difficulties 2) Inadequate evaluation of target 3) Large or extraordinary debt 4) Inability to achieve synergy 5) Too much diversification 6) Managers overly focused on acquisitions 7) Too large an acquisition 8) Difficult to integrate different organizational cultures 9) Reduced employee morale due to layoffs and relocations 29. In order of importance, list six potential benefits of two firms merging. Answer: See Table 4-6 “Potential benefits of merging with or acquiring another firm” on page 156. Benefits listed below. 1) To provide improved capacity utilization 2) To make better use of the existing sales force 3) To reduce managerial staff 4) To gain economies of scale 5) To smooth out seasonal trends in sales 6) To gain access to new suppliers, distributors, customers, products, and creditors 7) To gain new technology 8) To reduce tax obligations 30. Give three hypothetical examples of firms being a “first mover.” Answer: Student answers may vary. Examples include: • Nokia is able to secure a technology which offers a very low cost in webcasting through mobile phones. • Nike pioneer’s a new technology which allows their running shoes to become skating shoes depending on the wearer’s whim. • BMW has invented a car which uses water instead of gasoline. 1. Tesla - Tesla is a first mover in the electric vehicle market, pioneering innovative battery technology and a network of superchargers before competitors. 2. Amazon - Amazon was a first mover in e-commerce, establishing a robust online retail platform and early adoption of cloud computing with AWS. 3. Netflix - Netflix was a first mover in streaming video, transitioning from DVD rentals to a subscription-based streaming model before many traditional media companies. 31. List three ways a country could prevent its companies from outsourcing jobs to other countries. Answer: Examples could include: • The home country could impose a levy or taxation on goods being produced from other countries. • The home country government could limit the quantum of goods being produced from other countries into the home country. • The home country government could be more liberal in granting work permits of low income countries to work in production facilities of home countries. 1. Impose Tariffs and Taxes - Implement higher tariffs or taxes on goods produced abroad to make outsourcing less economically attractive. 2. Offer Incentives - Provide tax breaks, subsidies, or grants to companies that keep jobs domestically or relocate jobs back to the home country. 3. Regulate Outsourcing - Enforce regulations or restrictions on outsourcing certain types of jobs or services, especially those deemed critical for national interests. 32. Explain how strategic planning differs across types and sizes of firms. Answer: Strategic management is vital for a large firms’ success as well as to small firms. However, there are numerous problems encountered by small firms in applying strategic management concepts. Examples include lack of both sufficient capital to exploit external opportunities and a day-to -day cognitive frame of reference. Strategic management in small firms is more informal than in large firms, but small firms that engage in strategic management outperform those that do not. 33. Identify three local businesses in your city. What three strategies do these three firms pursue? List the strategies in order of prevalence. Answer: Students will vary, depending on how they indentify the three local businesses in their own city. They will highlight different types of strategies and their order of prevalence. Local Coffee Shop - Differentiation: Offers unique blends and artisanal products to attract customers seeking a premium experience. Neighborhood Grocery Store - Cost Leadership: Focuses on competitive pricing and local sourcing to provide affordable products. Fitness Center - Market Penetration: Expands membership through promotions, referral programs, and community events to increase local market share. 34. What strategies are best for turbulent, high-velocity markets? Answer: The firm has the choice of whether to react, anticipate or lead the market in terms of its own strategies. To react would be a defensive strategy used to counter, for example, unexpected shifts in buyer tastes and technological breakthroughs. React-to-change strategy would not be as effective as the anticipate-change strategy; which would entail devising and following through with plans for dealing with expected changes. Firms could also strive to be in a position to lead the changes in high-velocity markets. 35. Based on the information given for Petronas, what three strategies are being pursued by the firm? Answer: Based on the information provided above it is evident that Petronas has pursued a vertical integration strategy in that it has control over the range of downstream activities from oil and gas exploration through to upstream activities associated with refining and distribution. Petronas has also focused its efforts on market development strategies in which it targets opportunities in difficult geographic environments (e.g. South Sudan and Iraq) that other companies may pass up. And, an evaluation of Petronas’ portfolio of businesses (as is discussed in [4-1] indicates a focus on the company’s efforts to pursue related diversification in that all of its distinct business operates within the context of the same petrochemicals sector at different points in the value chain. 36. Elaborate on this chapter’s “Special Note to Students” at the end, in terms of giving a case analysis presentation. Answer: In giving a case analysis presentation it should result in specific recommendations which best give the firm competitive advantages. The “Special Note to Students” typically advises on structuring a case analysis presentation by focusing on clear, concise, and well-supported arguments. It emphasizes the importance of presenting a thorough analysis of the case, including identification of key issues, evaluation of alternatives, and recommendations. Additionally, it encourages engaging storytelling and using visual aids effectively to communicate insights and conclusions to the audience. 37. Identify three companies that use outsourcing effectively and explain how and why those firms utilize this management approach. Answer: The three companies are J.P. Morgan, Chase & Co., and 3M Corp. Students will base their answers from material on page 159. Organizations that outsource are seeking to realize benefits or address one or more of the issues listed.” Answers to the End-of-Chapter Assurance of Learning Exercises ASSURANCE OF LEARNING EXERCISE 4A: MARKET DEVELOPMENT: PETRONAS Purpose Petronas is featured in the opening chapter case as a firm that engages in excellent strategic planning. The purpose of this exercise is to give you practice extending a company’s global strategy into new geographic regions. Instructions Step 1: Visit the Petronas website and review the company’s latest Annual Report. Especially assess where and in what respect does Petronas do business in Asia, Australia, and the Middle East. Identify six countries that Petronas currently does not do business with. Step 2: Based on your analysis in Step 1, evaluate the six countries identified in terms of their business culture, environment, and attractiveness for Petronas to begin doing business there. Step 3: Rank order the six countries identified and evaluated in terms of a proposed plan for Petronas to begin doing business in these places. Prepare a two-page executive summary to support your suggested plan. Teaching Notes Students’ answers may vary. ASSURANCE OF LEARNING EXERCISE 4B: ALTERNATIVE STRATEGIES FOR PETRONAS Purpose This exercise will give you practice labeling hypothetical strategies that a firm could pursue. Instructions For each of the strategies listed below, identify a hypothetical strategy that you believe may be good for Petronas to pursue. Refer to Chapter 4 for a description of the strategies. Forward Integration Backward Integration Horizontal Integration Market Penetration Market Development Product Development Related Diversification Unrelated Diversification Retrenchment Divestiture Liquidation Teaching Notes Students’ answers may vary; a hypothetical strategy may be as follows: • Forward Integration - franchising • Backward Integration - suppliers • Horizontal Integration – control over competitors- mergers, acquisitions • Market Penetration – increased market share through greater marketing efforts • Market Development – introducing products/services into new geographic areas • Product Development – increase sales through improving or modifying present product/service • Related Diversification – companies’ value chains possesses competitively valuable cross-business strategic fits • Unrelated Diversification – value chains are so dissimilar that no competitively valuable cross-business relationships exist. • Retrenchment – organisation regroups through cost and asset reduction to reverse declining sales and profits • Divestiture – selling a division or part of company • Liquidation – selling all company’s assets ASSURANCE OF LEARNING EXERCISE 4C: PRIVATE-EQUITY ACQUISITIONS Purpose As stock prices increase and companies become more cash-rich, private-equity firms such as Kohlberg Kravis Roberts (KKR) have jumped aggressively back into the business of acquiring and selling firms. Private-equity firms have unleashed a wave of new initial public offerings (IPOs), such as the IPO of Nielsen Holdings BV, the largest private-equity-backed IPO in the United States in five years. Apollo Global Management is a large private-equity firms that owns many companies. Some private-equity owned firms expected to go public soon include Bank United Inc., Kinder Morgan Inc., and Toys “R” Us Inc. The purpose of this exercise is to give you practice identifying and evaluating the nature and role of private-equity acquisitions in Europe. Instructions Step 1: Identify the top five IPOs in Europe in the last 12 months. Step 2: Identify the top five private-equity firms in Europe. Step 3: Prepare a two-page executive summary of the nature and role of private-equity acquisitions in Europe in the last 12 months. Include your expectations over the next 12 months for this activity to increase or decrease across Europe. Give supporting rationales. Teaching Notes Students’ answers will vary, depending on the companies they choose. However, they should refer to page 157, “Private – Equity Acquisitions.” ASSURANCE OF LEARNING EXERCISE 4D: THE STRATEGIES OF ADIDAS AG: 2013-2015 Purpose In performing strategic management case analysis, you can find information about the company’s actual and planned strategies. Comparing what is planned versus what you recommend is an important part of case analysis. Do not recommend what the firm actually plans, unless in-depth analysis of the situation reveals those strategies to be the best among all feasible alternatives. This exercise gives you experience conducting library and Internet research to determine what adidas AG plans to do in 2013-2015. Instructions Step 1: Go to Reebok and TaylorMade’s websites. Find some recent articles about these subsidiaries and the parent—adidas AG. Review adidas’ website also. Step 2: Prepare a three-page report titled “Strategies Being Pursued By adidas in 2011–2013.” Teaching Notes Depending on what subsidiaries the students have chosen, the strategies may be of varying types as follows: 1. Forward integration 2. Backward integration 3. Horizontal integration 4. Market penetration 5. Market development 6. Product development 7. Related diversification 8. Unrelated diversification 9. Retrenchment 10. Divestiture 11. Liquidation ASSURANCE OF LEARNING EXERCISE 4E: LESSONS IN DOING BUSINESS GLOBALLY Purpose The purpose of this exercise is to discover some important lessons learned by local businesses that do business internationally. Instructions Contact several local business leaders by telephone. Find at least three firms that engage in international or export operations. Visit the owner or manager of each business in person. Ask the business person to give you several important lessons that his or her firm has learned in globally doing business. Record the lessons on paper and report your findings to the class. Teaching Notes There are advantages and disadvantages in being global: Advantages: 1. Gain new customers 2. Absorb excess capacity, reduce unit costs and spread economic risks over a wider number of markets 3. Establish low cost production facilities in locations close to raw materials and / or cheap labor 4. Competition being less intensive or non-existence 5. Reduced tariffs, lower taxes and favorable political treatment 6. Able to learn technology, culture and business practices of foreign culture 7. Achieve economies of scale 8. Enhanced a firm’s power and prestige in domestic market Disadvantages: 1. Could be seized by nationalistic factions 2. Often little-understood social, cultural, demographic, environmental, political, governmental, legal, technological, economic and competitive forces 3. Overestimate overseas competitors’ weaknesses and expenses 4. Language, culture, and value system differ 5. Two or more monetary systems can complicate international business operations ASSURANCE OF LEARNING EXERCISE 4F: PETRONAS 2013-2015 Purpose In performing strategic management case analysis, you should find information about the company’s actual and planned strategies. Comparing what is planned versus what you recommend is an important part of case analysis. Do not recommend what the firm actually plans, unless in-depth analysis of the situation reveals those strategies to be the best among all feasible alternatives. This exercise gives you experience conducting library and Internet research to determine what Petronas plans to do in 2013-2015. Instructions Step 1: Go to the Petronas corporate web site. Study the information provided there. Step 2: Prepare a three-page report titled “Strategies Being Pursued by Petronas in 2013-2015.” Teaching Notes Students’ answers will vary, depending on their perception; and how they use the strategies found in the chapter. ASSURANCE OF LEARNING EXERCISE 4G: WHAT STRATEGIES ARE MOST RISKY? Purpose This exercise encourages you to think about the relative riskiness of various strategies. Instructions Step 1: List the strategies defined in Chapter 4 in order of low risk to high risk. Step 2: Write a synopsis that explains your rankings. Teaching Notes Students will use the notes in page 134, “Types of Strategies,” to define the types of strategies and their ranking of risk accordingly. ASSURANCE OF LEARNING EXERCISE 4H: EXPLORING BANKRUPTCY Purpose Bankruptcy is becoming more and more common among business firms. This exercise is designed to enhance your knowledge of bankruptcy. Instructions Identify five firms in your country that are operating under bankruptcy. Compare and contrast the nature of the bankruptcy among these firms. Teaching Notes Bankruptcy can be an effective method of retrenchment strategy. It allows the firm to avoid major debt obligations and union contracts. There are 5 major types of bankruptcies: 1. As a liquidation procedure – used only when a firm sees no hope of being able to operate successfully or to obtain the necessary creditor agreement. 2. Bankruptcies apply to municipalities. 3. Allows organizations to reorganize and come back after filing a petition for protection. 4. Family Farmer Bankruptcy Act, 1986; provides special relief to family farmers with debt equal to or less than $1.5million. 5. A reorganization plan similar to the one above, but it is available only to small businesses owned by individual with unsecured debts of less than $100,000 and secured debts of less than $350,000. ASSURANCE OF LEARNING EXERCISE 4I: EXAMINING STRATEGY ARTICLES Purpose Strategy articles can be found weekly in journals, magazines, and newspapers. By reading and studying strategy articles, you can gain a better understanding of the strategic management process. Several of the best journals in which to find corporate strategy articles are: Advanced Management Journal, Business Horizons, Long Range Planning, Journal of Business Strategy, and Strategic Management Journal. These journals are devoted to reporting the results of empirical research in management. They apply Strategic management concepts to specific organizations and industries. They introduce new strategic management techniques and provide short case studies on selected firms. Other good journals in which to find strategic management articles are Harvard Business Review, Sloan Management Review, California Management Review, Academy of Management Review, Academy of Management Journal, Academy of Management Executive, Journal of Management, and Journal of Small Business Management. In addition to journals, many magazines regularly publish articles that focus on business strategies. Several of the best magazines in which to find applied strategy articles are: Dun’s Business Month, Fortune, Forbes, Business Week, Inc, and Industry Week. Newspapers such as USA Today, Wall Street Journal, New York Times, and Barrons cover strategy events when they occur—for example, a joint venture announcement, a bankruptcy declaration, a new advertising campaign start, acquisition of a company, divestiture of a division, a chief executive officer’s hiring or firing, or a hostile takeover attempt. In combination, journal, magazine, and newspaper articles can make the strategic management course more exciting. These sources provide information about the strategies of for-profit and non-profit organizations. Instructions Step 1: Go to your college library and find a recent journal article that focuses on a strategic management topic. Select your article from one of the journals listed previously, not from a magazine. Copy the article and bring it to class. Step 2: Give a three-minute oral report summarizing the most important information in your article. Include comments giving your personal reaction to the article. Pass your article around in class. Teaching Notes Student answers will vary. There are no correct or incorrect answers, but student participations are extremely important. ASSURANCE OF LEARNING EXERCISE 4J: CLASSIFYING SOME STRATEGIES Purpose This exercise can improve your understanding of various strategies by giving you experience classifying strategies. This skill will help you use the strategy-formulation tools presented later. Consider the following 12 (actual or possible) strategies by various firms: 1. Dunkin’ Donuts is increasing the number of its U.S. stores from 5,500 to 15,000. 2. Brown-Forman Corp. sold its Hartmann luggage and leather-goods business. 3. Motorola, which makes TVs, acquired Terayon Communication, a supplier of TV equipment. 4. Macy’s department stores is adding bistros and Starbucks coffee shops at many of its stores. 5. Dell just allowed Wal-Mart to begin selling its computers. This was its first move away from direct mail order selling of computers. 6. Motorola cut 7,500 additional jobs. 7. Hilton Hotels is building 55 new properties in Russia, the United Kingdom, and Central America. 8. Video-sharing website YouTube launched its services into nine new countries. 9. Cadbury Schweppes PLC is slashing 7,500 jobs, shedding product variations, and closing factories globally. 10. General Electric sold its plastics division for $11.6 million to Saudi Basic Industries Corp. of Saudi Arabia. 11. Cadbury Schweppes PLC, the maker of Trident gum, just bought Turkish gum maker Intergum. 12. Limited Brands is selling its Express and Limited divisions to focus on its Victoria’s Secret and Bath & Body Works divisions. Instructions Step 1: On a separate sheet of paper, write down numbers 1 to 12. These numbers correspond to the strategies described. Step 2: What type of strategy best describes the 12 actions cited? Indicate your answers. Step 3: Exchange papers with a classmate, and grade each other’s paper as your instructor gives the right answers. Teaching Notes Students may consider Michael Porter’s Five Generic Strategies in their answers: • Cost Leadership Strategies – low cost or best-value • Differentiation strategies • Focus strategies – low cost or best value focus strategy. Chapter 5 - Vision and Mission Analysis Overview Chapter 5 describes the nature and role of vision and mission statements in strategic planning, and provides specific guidelines on how to develop these statements. Both characteristics and components that should be included in these statements are provided, as are numerous examples. In this course, students should become proficient devising and improving vision and mission statement documents, and this chapter provides the foundation for that knowledge. Learning Objectives: 1. Describe the nature and role of vision and mission statements in strategic management. 2. Discuss why the process of developing a mission statement is as important as the resulting document. 3. Identify the components of mission statements. 4. Discuss how clear vision and mission statements can benefit other strategic-management activities. 5. Evaluate mission statements of different organizations. Teaching Tips 1. Use the following two quotes in this chapter to discuss the importance of vision/mission statements in strategic management, one quote near the beginning of the chapter and the other ends the chapter. Near the beginning of the chapter: 1) “You are never going to get anyone to charge the machine guns only for financial objectives. It has got to be something that makes people feel better, feel a part of something.” At the end of the chapter: 2) Three people were at work on a construction site. . . . Few of us can build cathedrals, but to the extent we can see the cathedral in whatever cause we are following, the job seems more worthwhile.” 2. Emphasize that the vision and mission of a firm should be so compelling that readers should want to invest in the firm, work for the firm, be proud of the firm, respect the firm, and realize what the firm is all about. The list of characteristics in Table 5-3 is especially important. 3. Among the nine components of a mission statement, we think the most important is self concept (distinctive competence). Make sure students realize the “self concept” component is critical for revealing competitive advantage to customers, potential customers, and all stakeholders. For example for PepsiCo, why should we drink Pepsi vs. Coke and invest in PepsiCo vs. Coca-Cola, i.e., where in the mission statement of Pepsi is their self concept. The “self concept” component is much more than “what the firm thinks of itself.” 4. Read the “Special Note to Students” at the end of this chapter and explain its importance to students. 5. Go through the end-of-chapter review questions since they apply chapter concepts. Most professors also go through all the end-of-chapter exercises for this chapter. In this way, class time is spent in a more interactive way with students, rather than straight lecture. To help ensure students’ attention, consider having Test 1 (on chapter 1 and Chapters 4-8) and Test 2 (on Chapters 2-3 and Chapters 9-11) be composed of at least one half verbatim end-of-chapter review questions. Answers to End-of-Chapter Review Questions 1. Develop (or find) a mission statement for Samsung Electronics. Analyze the company’s mission statement in light of the guidelines in Chapter 5. Answer: Samsung does not have a formal mission statement. However, given its myriad businesses, excellent performance, and focus on innovation the following mission statement may encapsulate all relevant elements of an effective mission statement discussed on p. 178: “For over 70 years, Samsung has been dedicated to making a better world by providing customers with a diverse array of products that span advanced technology, semiconductors, skyscraper and plant construction, petrochemicals, fashion, medicine, finance, hotels, and more. With a continuous focus on sustainable growth through innovation, the provision of reliable products, the development of talented people, and a socially responsible approach to doing business Samsung will continue to take the world in imaginative new directions!” Samsung’s customers are identified as the buyers of an array of products ranging from advanced technology to fashion, finance, and hotels. The mission statement clearly indicates a broad geographic focus in that Samsung businesses san the “world”. Its focus on innovation and the development of advanced technology is emphasized while doing so in the context of achieving “sustainable growth”. The ethical priorities of the company are indicated in its drive to doing business in a “socially responsible” fashion with a clear concern for the needs of all of the firm’s stakeholders. 2. Summarize Samsung’s successful global strategy for the last decade. Can that strategy be as successful in 2014? Explain. Answer: Samsung Electronics Company (SEC) was founded in 1969. Since that time it has grown into the largest manufacturer in Korea with a leading role in investment, product development, marketing, and technology development. Since its inception SEC has broadened its product range to include five major product categories: (1) television receivers, VCRs, audio systems, camcorders and DVD players in consumer electronics; (2) refrigerators, microwave ovens, and washing machines in home appliances; (3) personal computers, monitors, hard-disk drives and printers in personal computers and peripherals; (4) facsimile machines, CDMA digital cellular phones, pagers, fiber optics, and PABX and public switching systems in information and communication, and (5) DRAMs, SRAMs, and ASICs in semiconductors. Early on, Samsung Group Founder, B.C. Lee, sought to make SEC one of the largest manufacturers of electronics goods in the world (Kang, 1996, p. 20). SEC has since achieved this objective by pursuing growth through related diversification across the consumer electronics spectrum while penetrating markets once dominated by American (re RCA, GTE) and Japanese companies (re Sony). Samsung now has strong competitive positions in businesses that share technological capabilities. Given its long-term performance, its focus on innovation, and its push into higher margin businesses while competing effectively in lower margin businesses, it is clear that Samsung has the capacity to remain competitive for the foreseeable future. 3. See if you can find a vision statement for Samsung. If not, write a proposed vision statement for the company. Answer: Samsung’s vision statement is as follows: “Samsung is dedicated to developing innovative technologies and efficient processes that create new markets, enrich people's lives and continue to make Samsung a digital leader.” Source: http://www.samsung.com/us/aboutsamsung/samsung_group/values_and_philosophy/ The vision statement is an excellent declaration of what Samsung intends to become. 4. Should the mission statement components vary in importance depending on type of business? If yes, how would their relative importance vary for Samsung versus Singapore Airlines? Answer: Mission statement components should reflect the rasion d’etre of the particular business in question. And, the strategies that the business formulates and executes necessarily reflect the competitive reality of the environment in which the business competes. For instance, Samsung is a global leader in electronics (its flagship business). Its mission statement should reflect a greater importance on the development of technology than should Singapore Airlines, which operates in a more service-oriented environment. 5. List three things you are on a mission to accomplish in the next three years. How relevant is the concept of vision/ mission to an individual in their personal and professional life? Explain. Answer: Students’ answer will vary; students should refer to page 173 “The Process of Developing Vision and Mission Statements.” 1. Advance in Career - Secure a promotion or transition to a higher-level position in my field. 2. Acquire New Skills - Obtain a certification or degree relevant to my professional growth. 3. Improve Health - Develop and maintain a consistent fitness and wellness routine. The concept of vision/mission is highly relevant to both personal and professional life, as it provides direction, motivation, and clarity. It helps individuals set clear goals, stay focused, and align their actions with long-term objectives. 6. Conduct a Google search for the key words “mission statement.” What are the two best websites in your opinion that provides example mission statements? Answer: Mission statements vary amongst companies depending on their Objectives and hence students answer will vary. Two of the best websites for example mission statements are: 1. MindTools - Offers a comprehensive guide and examples of mission statements tailored to various industries and purposes. 2. Smartsheet - Provides a collection of sample mission statements along with practical advice on crafting and using them effectively in business contexts. 7. Write a vision statement for your university. Write a vision statement for your School (or College) of Business within the university. Answer: Students answer will vary. Students should bear in mind that in writing a Vision statement, it should answer the question: “What do we want to become?” University Vision Statement: "To be a global leader in innovative education, fostering a diverse community of scholars and professionals dedicated to advancing knowledge and societal progress." School of Business Vision Statement: "To transform future business leaders through cutting-edge research, dynamic learning experiences, and a commitment to ethical practices, driving excellence and innovation in the global business landscape." 8. If you just purchased a 10-employee company, how would you establish a clear vision and mission? Answer: Students should refer to page 177 “Mission Statement Components” to write the answer. These are: 1) Customers – Who are the firm’s customers? 2) Products or services – What are the firm’s, major products / services? 3) Markets – Geographically, where does the firm compete? 4) Technology – Is the firm technologically current? 5) Concern for survival, growth and profitability – Is the firm committed to growth and financial soundness? 6) Philosophy – What are the basic belief, values, aspirations and ethical priorities of the firm? 7) Self-concept – What is the firm’s distinctive competence or major competitive advantage? 8) Concern for public image – Is the firm responsive to social, community, and environmental concerns? 9) Concern for employees – Are employees a valuable asset of the firms? To establish a clear vision and mission for a 10-employee company, start by engaging with employees to understand their perspectives and aspirations. Define the company’s core values and long-term goals, then craft a vision statement that reflects these elements and inspires the team. Develop a mission statement that outlines the company’s purpose, key activities, and target market. Communicate these statements clearly and consistently to align the team’s efforts and drive strategic focus. 9. Identify from the Internet six mission statement examples. Evaluate the six statements and bring your analysis to class. Answer: Student answers will vary, depending on which mission statements they identify from the internet. Students should use the “Characteristics of a Mission Statement,” on page 176 and “Writing and Evaluating Mission Statements,” on page 179 for their answers. There are six mission statement examples: 1. Google: "To organize the world's information and make it universally accessible and useful." 2. Tesla: "To accelerate the world's transition to sustainable energy." 3. Nike: "To bring inspiration and innovation to every athlete in the world." 4. Amazon: "To be Earth's most customer-centric company where customers can find and discover anything they might want to buy online." 5. Microsoft: "To empower every person and every organization on the planet to achieve more." 6. Apple: "To create the best products on earth, and to leave the world better than we found it." Analysis: • Google and Amazon focus on broad, impactful goals that emphasize accessibility and customer-centricity. • Tesla and Nike highlight innovation and transformative impact, aiming for sustainability and inspiration. • Microsoft and Apple emphasize empowerment and product excellence, with a strong commitment to global reach and quality. These statements are effective in articulating each company’s core purpose and strategic direction. 10. How and why could the process of developing a vision and mission statement vary across countries? Answer: Consumer characteristics between countries are different. In the PEST (Political, Economic, Social, and Technology) analysis; the result will show that consumers are different for every country. Therefore, different vision and mission statements enable the organization to meet the needs and demands of different market segments and trends; and able to obtain a competitive advantage over its competitors. 11. In rank order of importance, list six benefits of having a clearly defined vision and mission statement. Answer: There may be varied answers. However students’ answers are taken from “Ten Benefits of Having a Clear Mission and Vision,” Table 5-2, page 175. Ranking may vary depending on the students’ perception, as follows: 1) Achieve clarity of purpose among all managers and employees. 2) Provide a basis for all other strategic planning activities, including the internal and external assessment, establishing objectives, developing strategies, choosing among alternative strategies, devising policies, establishing organizational structure, allocating resources, and evaluating performance. 3) Provide direction. 4) Provide a focal point for all stakeholders of the firm. 5) Resolve divergent views among managers. 6) Promote a sense of shared expectations among all managers and employees. 7) Project a sense of worth and intent to all stakeholders. 8) Project an organized, motivated organization worthy of support. 9) Achieve higher organizational performance. 10) Achieve synergy among all managers and employees. 12. Only the fairy story ends “they lived happily ever after.” What is the relevance of this statement to the concepts vision and mission statement? Answer: The objectives of vision and mission statements are about what the company aims to be and what it does. These direct every employee, such as the decision-makers and every employee of the company to work towards achieving the common goal. Achievement of this desired outcome brings happiness to everyone, just like how the fairy story ends “they lived happily ever after”, which is the ultimate desired outcome for the company. 13. Explain the meaning and significance of the term “reconciliatory” in developing mission statements. Answer: Company comprises of shareholders and stakeholders. Each group may have different views and objectives. “Reconciliatory” in developing mission statements explains the need to put aside different interest of different groups in the company so as to effectively ensure the success of the business. Stakeholders and shareholder affect and are affected by an company’s strategies, yet the claims and concerns of diverse groups vary and often conflict. 14. List the nine mission statement components. Give an example of each component for your college or university. Answer: Students will give an example of his/her college or university from the list of nine mission statement components as stated in page 177; “Mission Statement Components” These are: 1) Customers – Students 2) Products or services – Education 3) Markets – Depending on the country of the college. 4) Technology – School’s computer labs; teaching aids such as desktops etc 5) Concern for survival, growth and profitability – School’s annual intake of students 6) Philosophy – College or University mission such as “The preferred education pathway” - to provide quality education to students enrolled in the school 7) Self-concept – Quality standard, high ranking 8) Concern for public image – Recycling papers, ensuring papers are used both sides. Students that have a good conduct in and out of school 9) Concern for employees – Teachers of the University are well-provided in terms of welfare such as not over-working them or providing them a Teachers’ Lounge to unwind; continual training for teachers. 1. Purpose: The core reason for the institution's existence. Example: To provide high-quality education and research opportunities. 2. Values: Fundamental beliefs guiding actions and decisions. Example: Commitment to academic integrity and diversity. 3. Target Audience: The primary group the institution serves. Example: Undergraduate and graduate students from diverse backgrounds. 4. Offerings: The programs, services, or products provided. Example: A range of undergraduate and graduate degree programs. 5. Quality Standards: The level of excellence the institution aims to achieve. Example: Striving for academic excellence and innovative research. 6. Competitive Advantage: What sets the institution apart from others. Example: Strong emphasis on experiential learning and global partnerships. 7. Vision Alignment: How the mission supports long-term goals. Example: Preparing students to be leaders in their fields, aligning with future workforce needs. 8. Community Impact: The institution’s role in the broader community. Example: Engaging in local outreach and community service initiatives. 9. Innovation: Commitment to advancing knowledge and practices. Example: Investing in cutting-edge technology and research facilities. 15. In order of importance, rank seven characteristics of a mission statement. Answer: Student answers may vary and they will choose the ranking from “Characteristics of a Mission Statement,” page 176, Table 5-3. These are: 1) Broad in scope; do not include monetary amounts, numbers, percentages, ratios or objectives 2) Less than 250 words in length 3) Inspiring 4) Identify the utility of a firm’s products 5) Reveal that the firm is socially responsible 6) Include nine components – customers, products or services, markets, technology, concern for survival/growth/profits, philosophy, self-concept, concern for public image, concern for employees. 7) Reconciliatory 8) Enduring 1. Clarity - Clear and easily understood purpose and goals. 2. Purpose - Defines the core reason for the organization’s existence. 3. Values - Reflects the fundamental beliefs guiding actions. 4. Target Audience - Identifies who the organization serves. 5. Offerings - Describes the products or services provided. 6. Competitive Advantage - Highlights what differentiates the organization. 7. Vision Alignment - Shows how the mission supports long-term objectives. 16. Write a vision and mission statement for a local restaurant in your area. Answer: Students’ answers will vary, but they should bear in mind “The Process of Developing Vision and Mission Statements,” page 173. Vision Statement: "To be the community's favorite gathering spot, known for exceptional dining experiences and a warm, welcoming atmosphere." Mission Statement: "To deliver high-quality, locally-sourced meals with outstanding service, while fostering a friendly environment that brings people together." 17. Write an excellent sentence for Samsung, which includes four mission statement components. Answer: With a continuous focus on sustainable growth through innovation, the provision of reliable products, the development of talented people, and a socially responsible approach to doing business Samsung will continue to take the world in imaginative new directions! 18. Within a given industry, compare the mission statements of three companies in your country versus three competing companies in the United States. How did they differ? Answer: Port Operators Dubai Ports (DP) World of Dubai, United Arab Emirates: “A global approach to a local business environment where excellence, innovation and profitability drive our core business philosophy of exceptional customer service.” Source: http://web.dpworld.com/about-dp-world/vision-mission-and-values/#jeXmCRYAwlOVe3D1.99 Ports America, United States: “Ports America provides creative and innovative infrastructure solutions for ports, cargo carriers and cargo owners. Therefore, as a company we are committed to the following principles: • Provide the highest quality customer experience in our industry. • Create long-term value for our customers and stakeholders. • Provide an excellent and safe work environment.” Source: http://www.portsamerica.com/mvv.html Both companies are port operators with DP World operating out of Jebel Ali in Dubai, the United Arab Emirates while Ports America is based in New Jersey, United States of America. As can be seen neither of the two mission statements speaks comprehensively to the components of a mission statement discussed in the chapter. For instance, the DP World mission statement discusses only the global scope of the company’s operations, and its focus on excellence, innovation, and profitability. It fails to discuss how the company relates to the broader social context, its employees, or the range of products that the company offers. The Ports America mission statement is slightly more detailed in that it identifies its commercial priorities as creating and innovating infrastructure solutions for ports, cargo carriers, and cargo owners. This mission statement clearly identifies the company’s customers and the markets in which it competes. It also indicates the company’s focus on creating long-term value as well as its focus on creating an excellent work environment for employees. However, the mission statement fails to address the company’s approach to ethics and social responsibility. Property Developers Damac Properties of Dubai, United Arab Emirates: “At the heart of DAMAC Properties’ culture lies the desire to deliver for its customers – from the selection of the company’s development partners such as architects, designers, contractors – to the handover of keys, DAMAC Properties endeavors to keep its promise to make sure every detail is flawless. To ensure developments are delivered to the highest possible standards, DAMAC Properties provides the right working environment for talented employees, selects only the right partners, develops projects in prime locations, and uses the most sophisticated building materials. Only by operating this way can DAMAC Properties guarantee a track record of delivery for customers to help realize its vision of being the leading luxury developer in the Middle East. “ Source: http://www.damacproperties.com/en/article/about-damac-properties/mission-and-vision.html Toll Brothers, United States of America: “Toll Brothers is the nation's leading builder of luxury homes. We have a unique commitment to customer satisfaction, backed by our two-phase pre-settlement inspection, featuring a checklist of hundreds of items. We've sold over 82,000 luxury homes in prestigious locations throughout 19 states. Our unwavering commitment to our customers can be seen in our quality, service, and value.” Source: http://www.tollbrothers.com/about Both companies are property developers. Damac operates out of Dubai, the United Arab Emirates while Toll Brothers is based in Pennsylvania, United States of America. The Damac Properties mission statement speaks comprehensively to the components of a mission statement discussed in the chapter. Specifically, the Damac mission statement clearly identifies its customers and the markets in which it operates, the standards by which it operates, the needs of it “talented employees”. It fails, however, to discuss the company’s approach to growth and business ethics. The Toll Brothers mission statement is somewhat less comprehensive. While it speaks to the products that it makes and the focus on customer needs the mission statement omits any discussion of the needs of its employees, its approach to business ethics, its distinctive competencies, or how it will sustain growth. The focus here is primarily on past successes. Holding Companies Dubai World of Dubai, United Arab Emirates: “Our Mission is to generate global socio-economic growth and sustainable stakeholder wealth through diversified investments, executing innovative projects and key strategic partnerships.” Source: http://www.dubaiworld.ae/our-vision-and-mission/ Berkshire Hathaway, United States: Berkshire Hathaway is the largest holding company in the United States of America. It is managed by the world’s most famous investor, CEO Warren Buffett, who has chosen not to develop a mission statement for Berkshire Hathaway. 19. Does Singapore Airlines have its vision and mission statement posted on its website? Should the company? Why or why not? Answer: The Singapore Airlines mission statement can be found on the company’s website. It reads as follows: “Singapore Airlines is a global company dedicated to providing air transportation services of the highest quality and to maximizing returns for the benefit of its shareholders and employees.” Source: http://www.singaporeair.com/en_UK/about-us/ Companies should place their mission statement on their websites because the website provides an opportunity to communicate its values and mission to all stakeholders in the most visible of ways. 20. How often do you think a firm’s vision and mission statements should be changed? Why? Answer: Change is the only constant factor in the world, and a firm’s vision and mission statements should be reviewed annually, taking into considerations SWOT analysis and PESTLE analysis to evaluate changes in the external environment as well as the firm’s capabilities in meeting these changes, so as to chart the direction of the growth of the firm. The firm’s vision and mission are the core values of the company, and its resources are directed towards these in achieving its objectives. 21. Explain how a mission statement can be “reconciliatory.” Give an example. Answer: A company comprises of shareholders who are the owners of the company and its stakeholders. These stakeholders include employees, managers, stock-holders, board of directors, customers, suppliers, distributors, creditors, governments, unions, competitors, environmental groups, and the general public. These two groups may have different objectives and hence a mission statement needs to be broad based to effectively reconcile differences and appeal to these groups. 22. Do local fast food restaurants need a mission statement posted in their place of business? Why or why not? Answer: Students’ answer may vary. When a restaurant posted a mission statement in the place of business, allows consumers to know the aims and standards of the business which may prompt the customers to purchase the food. Although fast food restaurants generally have a common focal point – to provide customers quickly with food at a low affordable price, many fast food restaurants have other components in their mission statements. For example, McDonald’s is eager to portray the business as health-conscious providing consumers with a choice of healthy meals, which is particularly important for a society concerned with obesity and health. Yes, local fast food restaurants benefit from posting a mission statement in their place of business. It reinforces the restaurant's values and commitment to quality, guiding employee behavior and customer interactions. A visible mission statement also helps differentiate the restaurant from competitors and builds customer trust by clearly communicating its core purpose and standards. 23. Find 5 mission statements on the Internet. Evaluate the statements in terms of six characteristics. Answer: Dubai Ports (DP) World of Dubai, United Arab Emirates: “A global approach to a local business environment where excellence, innovation and profitability drive our core business philosophy of exceptional customer service.” Source: http://web.dpworld.com/about-dp-world/vision-mission-and-values/#jeXmCRYAwlOVe3D1.99 Ports America, United States: “Ports America provides creative and innovative infrastructure solutions for ports, cargo carriers and cargo owners. Therefore, as a company we are committed to the following principles: • Provide the highest quality customer experience in our industry. • Create long-term value for our customers and stakeholders. • Provide an excellent and safe work environment.” Source: http://www.portsamerica.com/mvv.html Damac Properties of Dubai, United Arab Emirates: “At the heart of DAMAC Properties' culture lies the desire to deliver for its customers – from the selection of the company’s development partners such as architects, designers, contractors – to the handover of keys, DAMAC Properties endeavors to keep its promise to make sure every detail is flawless. To ensure developments are delivered to the highest possible standards, DAMAC Properties provides the right working environment for talented employees, selects only the right partners, develops projects in prime locations, and uses the most sophisticated building materials. Only by operating this way can DAMAC Properties guarantee a track record of delivery for customers to help realize its vision of being the leading luxury developer in the Middle East. Source: http://www.damacproperties.com/en/article/about-damac-properties/mission-and-vision.html Toll Brothers, United States of America: “Toll Brothers is the nation's leading builder of luxury homes. We have a unique commitment to customer satisfaction, backed by our two-phase pre-settlement inspection, featuring a checklist of hundreds of items. We've sold over 82,000 luxury homes in prestigious locations throughout 19 states. Our unwavering commitment to our customers can be seen in our quality, service, and value.” Source: http://www.tollbrothers.com/about Dubai World of Dubai, United Arab Emirates: “Our Mission is to generate global socio-economic growth and sustainable stakeholder wealth through diversified investments, executing innovative projects and key strategic partnerships.” Source: http://www.dubaiworld.ae/our-vision-and-mission/ 24. Referring to the end of Chapter 5, explain how a team of students should couch their mission statement discussion of slides in a presentation. Answer: Students should not only include the nine components and nine characteristics of mission statement, focusing on competitive advantage but should look at how the firm could best gain competitive advantage, by analyzing PESTLE. In a presentation, a team of students should introduce their mission statement discussion by first explaining its importance and relevance to the organization. Each slide should clearly outline key components of the mission statement, such as purpose, values, and target audience. Use concise text and engaging visuals to illustrate how the mission guides strategic decisions and aligns with organizational goals. Conclude with a summary of how the mission statement drives the organization's actions and success. 25. List the four most important characteristics of a mission statement for a small retail store. Explain. Answer: Students’ answer may vary, the characteristics are selected from Table 5-3, page 176: “Characteristics of a Mission Statement.” These are: 1) Broad in scope; do not include monetary amounts, numbers, percentages, ratios or objectives 2) Less than 250 words in length 3) Inspiring 4) Identify the utility of a firm’s products 5) Reveal that the firm is socially responsible 6) Include nine components – customers, products or services, markets, technology, concern for survival/growth/profits, philosophy, self-concept, concern for public image, concern for employees. 7) Reconciliatory 8) Enduring 1. Clarity - Clearly communicates the store’s purpose and goals to both customers and employees. 2. Customer Focus - Defines who the store serves and what unique value it provides. 3. Values - Reflects the core principles guiding the store’s operations and customer interactions. 4. Differentiation - Highlights what sets the store apart from competitors, emphasizing its unique offerings or service aspects. These characteristics ensure the mission statement effectively guides operations and connects with customers. Answers to the End-of-Chapter Assurance of Learning Exercises ASSURANCE OF LEARNING EXERCISE 5A: EXAMINING POTENTIAL CHANGES NEEDED IN A FIRM’S VISION/MISSION Purpose Samsung Electronics is featured in the opening chapter insert as a firm that engages in excellent strategic planning. This exercise gives you practice examining the change or needed change in a company’s vision and mission statements, given a change in the company’s product offerings. Visit the Samsung corporate website. Samsung’s vision statement is posted on their website, as: “Samsung is dedicated to developing innovative technologies and efficient processes that create new markets, enrich people’s lives and continue to make Samsung a digital leader.” The company’s mission statement is called a statement of philosophy and also is given on the corporate website. Samsung does an excellent job in strategic management. Instructions Step 1: Evaluate Samsung’s vision and mission statements in light of the characteristics and components in Chapter 5. Step 2: Write improved vision and mission statements for Samsung Electronics given: a) shortcomings of the statements based on Chapter 5 concepts, and b) Samsung’s new products being rolled out globally. Teaching Notes Students may give varying answers. However, students’ answers should be based on “Mission Statement Components,” pages 177-178; and “Characteristics of a Mission Statement” Table 5-3, page 176. The Mission Statement Components are: 1) Customers – Who are the firm’s customers? 2) Products or services – What are the firm’s, major products / services? 3) Markets – Geographically, where does the firm compete? 4) Technology – Is the firm technologically current? 5) Concern for survival, growth and profitability – Is the firm committed to growth and financial soundness? 6) Philosophy – What are the basic belief, values, aspirations and ethical priorities of the firm? 7) Self-concept – What is the firm’s distinctive competence or major competitive advantage? 8) Concern for public image – Is the firm responsive to social, community, and environmental concerns? 9) Concern for employees – Are employees a valuable asset of the firms? The Characteristics of a Mission Statement are: 1. Broad in scope; do not include monetary amounts, numbers, percentages, ratios or objectives 2. Less than 250 words in length 3. Inspiring 4. Identify the utility of a firm’s products 5. Reveal that the firm is socially responsible 6. Include nine components – customers, products or services, markets, technology, concern for survival/growth/profits, philosophy, self-concept, concern for public image, concern for employees. 7. Reconciliatory 8. Enduring ASSURANCE OF LEARNING EXERCISE 5B: STUDYING AN ALTERNATIVE VIEW OF MISSION STATEMENT CONTENT Purpose This exercise presents a somewhat different view of mission statements as compared to concepts presented in Chapter 5. For example, according to Bart (1997), a mission statement consists of three essential components: 1. Key market – Who is your target client/customer? 2. Contribution – What product or service do you provide to that client? 3. Distinction – What makes your product or service unique, so that the client would choose you? For example, if you locate McDonald’s mission statement on the Internet, Bart’s essential components are covered in the following ways: 1. Key Market: the fast food customer world-wide 2. Contribution: tasty and reasonably-priced food prepared in a high-quality manner 3. Distinction: delivered consistently (world-wide) in a low-key décor and friendly atmosphere. Another example is Courtyard by Marriott, which provides travellers with economy and quality lodging. Its key components are: 1. Key Market: economy and quality minded travellers 2. Contribution: moderate priced lodging 3. Distinction: consistently perceived as clean, comfortable, well-maintained, and attractive, staffed by friendly, attentive and efficient people Instructions Compare and contrast the guidelines presented by Bart with the guidelines presented in Chapter 5. Source: Based on information at 1) Christopher K. Bart. “Sex, Lies, and Mission Statements.” Business Horizons, pp. 9–18, November–December, 1997, and 2) www.wikipedia.com. Teaching Notes Bart’s guidelines and those in Chapter 5 are similar – the difference is the phrasing of words, for example Bart’s Key Market is similar to Customers and Markets. ASSURANCE OF LEARNING EXERCISE 5C: EVALUATING MISSION STATEMENTS Purpose A business mission statement is an integral part of strategic management. It provides direction for formulating, implementing, and evaluating strategic activities. This exercise will give you practice evaluating mission statements, a skill that is a prerequisite to writing a good mission statement. The mission statement for adidas is given below: “The adidas Group strives to be the global leader in the sporting goods industry with sports brands built on a passion for sports and a sporting lifestyle. We are dedicated to consistently delivering outstanding financial results. We are innovation and design leaders who seek to help athletes of all skill levels achieve peak performance with every product we bring to market. We are consumer focused and therefore we continuously improve the quality, look, feel and image of our products and our organizational structures to match and exceed consumer expectations and to provide them with the highest value. We are a global organization that is socially and environmentally responsible, creative and financially rewarding for our employees and shareholders. We are committed to continuously strengthening our brands and products to improve our competitive position.” Instructions Step 1: On a separate sheet of paper, write the nine mission statement components down the left side. Step 2: Write “yes” or “no” beside each number to indicate whether you feel the adidas mission statement has included the respective component. For any component that you record a “no,” write a good sentence to encompass that component. Step 3: Turn your paper in to your instructor for a classwork grade. Teaching Notes Students’ answers may vary, depending on their perceptions. However, the answers should be based on the following nine components: 1. Customers 2. Products / Services 3. Markets 4. Technology 5. Concern for survival, growth and profitability 6. Philosophy 7. Self-concept 8. Concern for public image 9. Concern for employees ASSURANCE OF LEARNING EXERCISE 5D: EVALUATING THE MISSION STATEMENT OF UNDER ARMOUR—A COMPETITOR OF ADIDAS AG Purpose There is always room for improvement in regard to an existing vision and mission statement. Under Armour was founded in 1996 by former University of Maryland football player Kevin Plank. Under Armour sportswear is designed to keep athletes cool, dry and light throughout the course of a game, practice or workout. The technology behind Under Armour’s diverse product assortment is complex, but the advice is simple: wear HeatGear® when it’s hot, ColdGear® when it’s cold, and AllSeasonGear® between the extremes (www.underarmour.com). Visit the Under Armour website and locate their mission statement. Instructions Step 1: On a separate sheet of paper, write the nine mission statement components down the lefthand side. Step 2: Write “yes” or “no” beside each number to indicate whether you feel the Under Armour mission statement has included the respective component. For any component that you record a “no,” write a good sentence to encompass that component. Step 3: Turn your paper in to your instructor for a classwork grade. Teaching Notes The nine components are: 1. Customers 2. Products / Services 3. Markets 4. Technology 5. Concern for survival, growth and profitability 6. Philosophy 7. Self-concept 8. Concern for public image 9. Concern for employees Students’ answers will vary depending on their perception of Under Armour mission statement. ASSURANCE OF LEARNING EXERCISE 5E: SELECTING THE BEST VISION AND MISSION STATEMENTS IN A GIVEN INDUSTRY Purpose This exercise is designed to get you familiar with existing vision and mission statements in an industry of your choosing. Instructions Identify 10 companies in an industry that you are interested in working in one day. Find the companies’ vision and mission statements. Keep searching until you have found five vision statements and five mission statements. The statements do not have to be from the same companies. Rank your five vision statements and your five mission statements in order of attractiveness, with 1 being the best and 5 being the worst. Teaching Notes The characteristics of a Mission Statement as well as a Vision Statement are the source for students’ answer. These are: Mission statement: • It is a declaration of attitude and outlook, broad in scope. “What is our business?” • It allows for the generation and consideration of a range of feasible alternative objectives and strategies without unduly stifling management creativity. • Furthermore, a mission statement needs to be broad to reconcile differences effectively, among, and appeal to, an organization’s diverse stakeholders, individuals and groups of individuals who have a special stake or claim on the company. • It reflects judgments about future growth directions and strategies that are based on forward – looking external and internal analyses. Vision Statements: • Should be short, preferably one sentence, • Should be established first and foremost. • Should answer the question: “what do we want to become?” ASSURANCE OF LEARNING EXERCISE 5F: WRITING AN EXCELLENT VISION AND MISSION STATEMENT FOR NOVARTIS AG Purpose This exercise is designed to give you practice developing from scratch or improving an existing vision and mission statement. Instructions Step 1: Go to the Novartis AG website and look for the company’s vision statement and mission statement. Recall from Chapter 5 that companies use different names or titles for these documents. Step 2: Prepare an improved vision and mission statement for Novartis AG whether or not you were able to find these statements on the company’s website or in the firm’s Annual Report. Teaching Notes The process of developing vision and mission statement should form the basis for students’ answers. These are: 1. Select several articles about these statements and ask all managers to read these as background information 2. A facilitator should then merge these statements into a single document and distribute draft statements to all managers 3. Meeting is called to revise the document 4. Hence, all managers have input and support final draft Solution Manual for Strategic Management: Concepts and Cases Fred R. David, Forest R. David 9781292016894
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