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In what ways do you think the subject matter in this strategic management course will differ from that of previous courses you have taken? Students should be able to identify two main differences. The first is the integrative nature of the strategic management course. All aspects of the strategic management process (Exhibit 1-6 on page 13) involve inputs from various functional areas. Previous courses in functional areas such as finance and production typically involved silo thinking delving deeply into a specific area. In a strategic management course, in contrast, the focus is on integration. The second difference is the level in the organization in which strategic decisions are made. This usually involves the top level as the Harley-Davidson example in the question above illustrates. 1. List five potentially vulnerable areas of a firm without a stated company mission. A good way to approach this question is to look at each of the mission statement components discussed in the chapter and ask what would happen to the firm if this component were not included. Without a mission, the following areas could be vulnerable: identification of competitors because of lack of definition of basic product or service identification of competitors because of lack of definition of primary market no common agreement among employees regarding growth and profitability no sense of the basic philosophy beliefs, values, etc. confusion about the public image that the company wants to project confusion about its own strengths and weaknesses 2. Define the term social responsibility. Find an example of a company action that was legal but not socially responsible. Defend your example on the basis of your definition. The chapter discusses social responsibility and an organizations role in acting responsibly. While an organization has inside and outside stakeholders (see Exhibit 2-13 on page 48), social responsibility means that the claims of insiders be subordinated to the greater good of society. What this means is that such issues as pollution, the disposal of solid and liquid wastes, and the conservation of natural resources should be the principal considerations in strategic decision making (page 48). To look at a company that acted legally but not in a socially responsible manner is an interesting exercise. An example may be a paper company that cuts trees that it has under contract (legal) but does not plant new trees (not acting in a socially responsible manner).

1. Briefly describe two important changes in the remote environment of U.S. business in each of the following areas: a. Economic b. Social c. Political

d. Technological e. Ecological Various sources can be used to identify changes in the above mentioned areas. Magazines such as BusinessWeek and Fortune, newspapers such as The New York Times and The Wall Street Journal, and various Internet sites are good sources. The continuing slowdown in the U.S. economy is an economic trend worth investigating. Companies are reluctant to make new investments until the economy gets back on track. A second trend is the increase in outsourcing to Asian countries such as China and India. Many U.S. companies are manufacturing their goods in China and moving their back office and customer call centers to India. This means loss of jobs in the U.S. BusinessWeek, in a recent issue, described how the family structure is changing in the U.S. We are seeing an increase in single family homes. This social trend has important implications for companies in various areas: child care, food, etc. Similarly, another social trend is the strident demand to recognize same sex marriages as legitimate and include such couples in an organizations benefits program. A recent political trend relates to an economic trend cited above. As more and more jobs are moving offshore, political leaders are getting into the act in an effort to assuage their local constituencies. Some states are contemplating enacting laws against moving jobs overseas. Similarly, the U.S. government is backing U.S. businesses in their fight against European businesses through political lobbying. The Internet continues to have a profound technological impact on business and society. It forces traditional businesses to rethink their business models and also impacts a businesss interface with its customers. Wireless transmission is yet another technological change that impacts businesses. Such a mode of transmission breaks open geographic boundaries. Changes in worldwide weather caused primarily by pollution are a major ecological trend. Weather patterns are becoming less predictable and therefore more challenging to business and society. The continued need to recycle earths scarce resources is another major ecological trend. 2. Who in the firm should be responsible for industry analysis? Assume that the firm does not have a strategic planning department. Typically, it should be the responsibility of the CEO or the top management team. Only they are likely to have the broad enough perspective to define the industry correctly and provide a model to gather trends and determine their impact. Of course, input from lower level managers (particularly managers from the manufacturing and marketing functions) is vital because they act as boundary spanners for the firm and may have access to key data. 1. Which factors complicate environmental analysis at the global level (as compared to domestic)? Which factors are making such analysis easier?

As pointed out above, the multiple political, economic, legal, social, and cultural environments faced by global firms complicate the environmental analysis process. Monitoring the constant changes in each market is difficult and time consuming. In addition, data may not be available and the reliability of the available data may be questionable. 2. Do you agree with the suggestion that soon all industries will need to evaluate global environments? It is very likely that soon all industries will need to evaluate global environments because most businesses are becoming global. Take the example of a small clothing retailer who competes only in the domestic market. Globalization affects this retailer because its competitors may be sourcing their clothes from foreign countries. The local retailer may not have a cost advantage and therefore may have to monitor the global environment for opportunities and threats. 3. Which industries operate almost devoid of global competition? Which inherent immunities do they enjoy? It is possible that certain types of service industries operate almost devoid of global competition. Take a local company that does lawn mowing and snow plowing. Because it is a service company where the service has to be performed at the clients site (house), it does not face foreign competition. That is the immunity it enjoys the fact that one cannot separate the service from the site. outcomes of business strategies. 1. What is the resource-based view of the firm? Give examples of three different types of resources. Pages 150-159 describe the resource-based view (RBV) of the firm in which the basic premise is that firms differ in fundamental ways because each firm possesses a unique bundle of resources, which are used to develop competencies. These competencies provide a competitive advantage to the firm when certain conditions are met. An example of a tangible asset, the first type of resource, would be the fleet of cars owned by Hertz Rent-A-Car Company. An example of an intangible asset would the Coca-Cola brand name owned by the company. Ability to effectively miniaturize electronic products that Sony has is an example of organizational capability. 2. What are three characteristics that make resources more, or less, valuable? Provide an example of each. The following are the characteristics that make a resource more, or less, valuable: Competitive superiority example, SouthWest Airlines low cost structure

Resource scarcity example, Coors access to Rocky Mountain spring water Inimitability Marks and Spencers human resources practices and supply chain management Appropriability Disneys ownership of the Mickey Mouse brand name Durability Johnson and Johnsons Tylenol brand name Substitutability Nucors access to low cost inputs.

1. What of the 15 grand strategies does your company use?. Depending on the area the student comes from, there may or may not be examples of firms pursuing each of the 15 grand strategy options. For example, students living in small cities may not get examples of firms pursuing, perhaps, conglomerate diversification. Most common strategies would be concentrated growth, market development, and product development.

2. Distinguish between the following pairs of grand strategies: a. Horizontal and vertical integration Horizontal integration (pages 208-209) occurs when a firm acquires one or more similar firms operating at the same stage of the production-marketing chain. Vertical integration (pages 209-210) involves the acquisition of firms that supply it with inputs or are customers for its outputs. Exhibit 6-9 on page 209 illustrates the difference between horizontal and vertical integration. b. Conglomerate and concentric diversification Concentric diversification (page 210) involves the acquisition of businesses that are related to the acquiring firm in terms of technology, markets, or products. When a firm acquires a business because it represents the most promising investment opportunity available, it is pursuing conglomerate diversification (pages 210-211). Here, little concern is paid to creating product-market synergy with existing businesses. c. Product development and innovation Product development (pages 206-207) involves the substantial modification of existing products or the creation of new but related products that can be marketed to current customers through established channels. Innovation, on the other hand, occurs when firms seek to introduce products based on original or novel ideas. The underlying rationale is to create a new product life cycle and thereby make similar existing products obsolete (page 207). d. Joint venture and strategic alliance

When firms lack a necessary component for success in a particular competitive environment, they overcome this obstacle by forming a separate company (called the joint venture) that is created and operated for the benefit of the co-owners (parents). This is described on page 218. Strategic alliances are distinguished from joint ventures because the companies involved do not take an equity position in one another. These are typically partnerships that exist for a defined period during which partners contribute their skills and expertise to a cooperative project (page 218).

3. Identify firms that use one of the eight specific options shown in Exhibit 6-4 under the grand strategies of concentration, market development, and product development. Concentration Increasing present customers rate of use: Wendys Supersizing option Attracting competitors customers: AT&T in long distance telephones Attracting nonusers to buy product: Pitching the ability to send digital pictures through the Internet to entice people to buy computers Market development Opening additional geographic markets: Dells expansion to China Attracting other market segments: Arm and Hammer baking soda as refrigerator deodorizer Product development Developing new product features: Tylenol PM Developing quality variations: PCs with varying capabilities Developing additional models and sizes: Sony TV Next three all together

1. What are three activities or capabilities a firm should possess to support a low-cost leadership strategy? Use Exhibit 7-2 to help you answer this question. Can you give an example of a company that has done this? Exhibit 7-2 on page 232 portrays the organizational capabilities, the skills, and the value chain to support a cost leadership strategy. Key skills include: process engineering skills, low-cost distribution system, products or service designed for ease of manufacture or delivery. A good use of these skills is seen at SouthWest Airlines. It keeps its operations simple and is highly efficient at execution. 2. What are three activities or capabilities a firm should possess to support a differentiation-based strategy? Use Exhibit 7-3 to help you answer this question. Can you give an example of a company that has done this? From Exhibit 7-3 (page 234), it is clear that to support a differentiation strategy an organization should possess skills such as strong marketing capabilities, product engineering,

strong capabilities in basic research, etc. Rolex (watches) is a good example to use in this context. 3. What are three ways a firm can incorporate the advantage of speed in its business? Use Exhibit 7-4 to help you answer this question. Can you give an example of a company that has done this? To support speed as the basis for competitive advantage, qualities that a firm must possess include (page 237) process engineering skills, high levels of automation, flexible manufacturing capabilities, etc. Dell Computers excels in the area of speed in customer service.

4. Using Exhibits 7-8 and 7-9, describe situations or conditions under which horizontal integration and concentric diversification would be preferred strategic choices. According to Exhibit 7-8 (page 248), the strategies of horizontal integration and concentric diversification make sense when the firm wants to maximize its strengths and seeks an external solution to this. Thus, a firm may have a strong distribution network (e.g. CocaCola) and leverages this by buying another company in the same industry that could benefit from its distribution network. Similarly, according to Exhibit 7-9 (page 250), horizontal integration makes sense when the firm finds itself in a weak competitive position in a rapidly growing market. The company would choose concentric diversification when it is in a weak competitive position and the market is growing slowly.

1. How does strategic analysis at the corporate level differ from strategic analysis at the business unit level? How are they related? Strategic analysis at the corporate level centers on domain choice. The key question addressed is: What businesses should we be in that would maximize value to our stockholders? Related to this question is the issue of resource allocation among the businesses owned. In contrast, business unit strategy focuses on creating competitive advantage in the industry. The two levels of strategy are related because decisions about resource allocation at the corporate level will affect the choices at the business unit level. 2. What does patching refer to and describe and illustrate two rules that might guide managers to build value in their businesses. Pages 276-278 describe the patching approach. Patching is the process by which corporate executives routinely remap businesses to match rapidly changing market opportunities. It can take the form of adding, splitting, transferring, exiting, or combining chunks of

businesses. Patching is critical in turbulent and rapidly changing markets, and less so in stable environments. Exhibit 8-11 on page 278 summarizes the simple rules that form the core of the patching approach. One simple rule focuses on how a key process is executed. For example, Dell Computer has simple rules for order taking and order processing that minimizes delays and emphasizes accuracy. A second rule focuses on identifying the firms boundaries and helps in evaluating opportunities. Otis Elevator is very clear in their business definition. They stick to moving people and machinery up, down, or sideways over small distances efficiently. Thus, they are unlikely to get into the airline business.

1. How do functional tactics differ from corporate and business strategies? Pages 293-295 describe the role of functional tactics. Functional tactics are the key, routine activities that must be undertaken in each functional area marketing, finance, production/operations, R&D, and human resource management to provide the businesss products and services. In a sense, functional tactics translate thought (grand strategy) into action designed to accomplish specific short-term objectives. Exhibit 9-4 on page 294 identifies the differences between functional tactics and corporate and business strategy using the example of General Cinema Corporation. 2. What key concerns must functional tactics address in marketing? Finance? POM? Personnel? The example of General Cinema Corporation shown in Exhibit 9-4 on page 294 helps answer this question. In addition, Appendix 9 covers functional tactics in detail. In the finance area (Exhibit 9-C, page 315) functional tactics must address issues such as the kind of financing arrangement to be used for expansion, providing financial help to key suppliers, and the firms dividend policy. In marketing (Exhibit 9-B, page 314) the areas covered could be: What product mix should we offer to attract our customers? What should our pricing policy be? In operations (Exhibit 9-A, page 313): How to get economies of scale? Where should we locate our manufacturing facilities? In personnel: What should be our recruitment methods? How should we compensate our employees? 3. How do policies aid strategy implementation? Illustrate your answer. Pages 295 to 299 cover the role of policies. While specific functional tactics provide guidance and initiate action implementing a businesss strategy, employees also need to be empowered to make decisions or fulfill customer needs. Policies provide this empowerment. They are directives designed to control decisions while defining allowable discretion within which operational personnel can execute business activities. 4. Use Exhibits 9-9 and 9-10 to explain five executive bonus compensation plans.

Exhibit 9-9 (page 306) describes the five types of executive bonus compensation plans and Exhibit 9-10 (page 307) matches each plan to the strategic goal of the organization. Stock option grants give the right to purchase stock in the future at a price set now. It is a good plan to use in corporate turnaround and growth situations, when operations need to be globalized and in a restructuring situation. In a restricted stock plan, shares are given to executives who are prohibited from selling them for a specific time period. They are good to use when the goal is to increase assets under management and when there is a need to streamline operations. When bonus income is deferred in a series of annual installments, the plan is called a golden handcuff. This is a good plan to use when the goal is to reduce corporate turnover. Golden parachutes give executives the right to collect the bonus if they lose their position due to takeover, firing, retirement, or resignation. When the goal is to defend against unfriendly takeovers or there is a need to evaluate suitors objectively, a golden parachute is useful. Finally, a cash based bonus system pays a bonus based on accounting performance measures such as return on equity. This system is used when the goal is to grow the share price incrementally or to improve operational efficiency.

5. Why are short-term objectives needed when long-term objectives are already available? Short-term objectives operationalize long-term objectives. In other words, while long-term objectives help in ensuring that the firm is pursuing its strategy in the long-term, it needs several short-term measures to guide immediate thinking. As pointed out on page 288, if we commit to a 20 percent gain in revenue over five years (long-term objective), what is our specific target or objective in revenue during the current year, month, or week to indicate that we are making progress (short-term objectives)?

1. What key structural considerations must be incorporated into strategy implementation? Why does structural change often lag a change in strategy? Structure should match the organizations strategy. In other words, structure is a key factor in ensuring the successful implementation of strategy. For example, one of the tenets in structuring an organization is that a firm in several lines of business that are somehow related should employ a multi-divisional structure. This is because the staff within each division would then have the power to make decisions based on their specific knowledge of their product-market.

2. Which organizational structure is most appropriate for successful strategy implementation? Explain how state of development affects your answer. The organizational structure that is most appropriate for successful strategy implementation is one that lets the people in the organization execute the strategy. For example, a conglomerate has several unrelated businesses. Each business is unique and the organization may have different business level strategies for each business. The people working in each business must have the autonomy to execute their businesss strategy. Thus, a strategic business unit structure is most apt here. As a firm moves from being a single product or single dominant business firm to a multiple product one, its structure should evolve from a functional structure to a multi-divisional structure.

3. What is organizational culture? Why is it important? Explain two different situations a firm might face in managing the strategy-culture relationship. Organizational culture is covered in pages 345-352. Organizational culture is the set of important assumptions (often unstated) that members of an organization share in common. An organizations culture is similar to an individuals personality. Culture is important because in much the same way as personality influences the behavior of an individual, culture shapes employees opinions and actions. Exhibit 10-14 portrays in matrix form the strategy-culture relationship. Implementation of a new strategy is largely concerned with adjustments in structure, staff, systems, people, style all of which are influenced by and, in turn, influence culture. Consequently, managing the strategy-culture relationship requires sensitivity to the interaction between the changes necessary to implement the new strategy and the compatibility or fit between those changes and the firms culture.

1. Distinguish strategic control from operating control. Give an example of each. Strategic controls allow organizations to track a strategy as it is being implemented, detect problems or changes in its underlying premises, and make necessary adjustments. For example, if the strategy was based on certain assumptions about a competitor, strategic control reexamines those assumptions. While strategic controls attempt to steer the company over an extended period (usually five years or more), operational controls provide postaction evaluation and control over short periods usually from one month to one year.

2. Explain the differences between implementation controls, strategic surveillance, and special alert controls. Give an example of each. Implementation control is designed to assess whether the overall strategy should be changed in light of the results associated with the incremental actions that implement the overall strategy. An example would be a companys strategy to expand into multiple international

markets. Implementation control would look at the success in each market to determine if the overall strategy needs to be changed. Strategic surveillance is designed to monitor a broad range of events inside and outside the firm that are likely to affect the course of its strategy. An example would be monitoring the turnover among key managers when the company embarks on a radically new strategy. A special alert control is the thorough, and often rapid, reconsideration of the firms strategy, because of a sudden, unexpected event. Disney rethought its whole animation strategy when its big budget movie Treasure Planet unexpectedly failed at the box office. 3. What are five key elements of quality management? How are quality imperative and continuous improvement related to strategic and operational control? Pages 373-376 identify and describe ten key elements of quality management. They are: define quality and customer value; develop a customer orientation; focus on the companys business processes; develop customer and supplier partnerships; take a preventive approach; adopt an error-free attitude; get the facts first; encourage every manager and employee to participate; create an atmosphere of total employment; and strive for continuous improvement. Companies worldwide have adopted the point of view that operational control is best achieved through a pervasive commitment to quality, which is seen as essential to strategic success in the twenty-first century.

4. Is it realistic that a commitment to continuous improvement could actually replace operational controls? Strategic controls? Managers in other cultures, most notably Japan, have for some time achieved operational control by seeking their units continuous improvement. This way, a commitment to continuous improvement can actually replace operational controls. However, it may not replace strategic controls because strategic controls track strategy as it is being implemented. In other words, continuous improvement may not have the high-level perspective needed for strategic control. 5. How is the balanced scorecard approach similar to continuous improvement? How is it different? The balanced scorecard methodology adapts the TQM ideas of customer-defined quality, continuous improvement, employee empowerment, and measurement-based management/feedback into an expanded methodology that includes traditional financial data and results. It is different from TQM in that it creates a double-loop feedback process feedback around internal business process outputs as in TQM, and a feedback loop around the outcomes of business strategies.