crafting and executing strategy the quest for competitive advantage, concepts and cases thompson

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15th Edition Arthur A. Thompson, Jr. University of Alabama A.J. Strickland III University of Alabama John E. Gamble University of South Alabama Crafting and Executing Strategy The Quest for Competitive Advantage Concepts and Cases

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Page 1: Crafting and Executing Strategy the Quest for Competitive Advantage, Concepts and Cases Thompson

15th Edition

Arthur A. Thompson, Jr.University of Alabama

A.J. Strickland IIIUniversity of Alabama

John E. GambleUniversity of South Alabama

Crafting and Executing

StrategyThe Quest for

Competitive Advantage

Concepts and Cases

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copyrightpage

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To our families and especially our wives:Hasseline, Kitty, and Debra

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About the Authors

vii

Arthur A. Thompson, Jr., is a professor of mass communication and journalism at California State University, Fresno. He earned his master’s degree from CSUF and his bachelor’s degree from what was then known as Fresno State

College. In addition to teaching classes in broadcast management, news writing, production, and pop culture, Wilson serves as general manager and faculty adviser for the student-run campus radio station, KFSR-FM. • Wilson spent 20 years working in radio broadcasting as a news reporter, news director, program director, and station manger before joining the faculty at CSUF in 1983. He also trained military person-nel for work in the Armed Forces Radio and Television Service while assigned to the Department of Defense Information School at Fort Slocum, New York.

Professor A. J. Strickland III is professor emeritus of mass communication at the College of the Desert in Palm Desert, California. He holds a doctorate from the University of Southern California and earned his bachelor’s and master’s

degrees from California State Universities, Fresno and Stanislaus. Prior to his 34-year teaching career, he worked as newspaper and radio journalist and as a public rela-tions consultant. • Wilson has held leadership positions in state and natUniversity of Southern California and earned his bachelor’s and master’s degrees from California State Universities, Fresno and Stanislaus. Prior to his 34-year teaching career, he worked as newspaper and radio journalist and as a public relations consultant. • Wilson has held leadership positions in state and natUniversity of Southern California and earned his bachelor’s and master’s degrees from California State Universities, Fresno and Stanislaus. Prior to his 34-year teaching career, he worked as newspaper and radio journalist and as a public relations consultant. • Wilson has held leadership positions in state and natUniversity of Southern California and earned his bachelor’s and master’s degrees from California State Universities, Fresno and Stanislaus. Prior to his 34-year teaching career, he worked as newspaper and radio journalist and as a public relations consultant. • Wilson has held leadership positions in state and nation-al journalism and mass communication organizations, and in 1995 in Washington, DC, he was inducted into the Community College Journalism’s Hall of Fame. In addition to his professional career, Wilson has had an active pol natUniversity of Southern California and earned his bachelor’s and master’s degrees from California State Universities, Fresno and Stanislaus. Prior to his 34-year teaching career, he worked as newspaper and radio journalist and as a public relations consultant. • Wilson has held leadership positions in state and national journalism and mass communication organizations, and in 1995 in Washington, DC, he was inducted into the Community College Journalism’s Hall of Fame. In addition to his professional career, Wilson has had an active pol natUniversity of Southern California and earned his bachelor’s and master’s degrees from California State Universities, Fresno and Stanislaus. Prior to his 34-year teaching career, he worked as newspaper and radio journalist and as a pub-lic relations consultant. • Wilson has held leadership positions in state and national

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journalism and mass communication organizations, and in 1995 in Washington, DC, he was inducted into the Community College Journalism’s Hall of Fame. In addition to his professional career, Wilson has had an active political Department of Defense Information School at Fort Slocum, New York.

John E. Gamble is professor emeritus of mass communication at the College of the Desert in Palm Desert, California. He holds a doctorate from the University of Southern California and earned his bachelor’s and master’s degrees from

California State Universities, Fresno and Stanislaus. Prior to his 34-year teach-ing career, he worked as newspaper and radio journalist and as a public relations consultant. • Wilson has held leadership positions in state and natUniversity of Southern California and earned his bachelor’s and master’s degrees from California State Universities, Fresno and newspaper and radio journalist and as a public rela-tions consultant. • Wilson has held leadership positions in state and natUniversity of Southern California and earned his bachelor’s and master’s degrees from California State Universities, Fresno and newspaper and radio journalist and as a public rela-tions consultant. • Wilson has held leadership positions in state and natUniversity of Southern California and earned his bachelor’s and master’s degrees from California State Universities, Fresno and Stanislaus. Prior to his 34-year teaching career, he worked as newspaper

About the Authors vii

Page 6: Crafting and Executing Strategy the Quest for Competitive Advantage, Concepts and Cases Thompson

Entrepreneurial leadership and commit the enterprise to conducting business in a fashion shrewdly calculated to produce good performance. A strategy provides a roadmap to operate by a prescription for doing business, a game

plan for building customer loyalty and winning a sustainable competitive advantage over rivals. The second need is that of molding the independent decisions and actions initiated by departments, managers, and employees across the company into a coordi-nated, company wide game plan. Absent a strategy, managers have no framework for weaving many different action initiatives into a cohesive whole, no plan for uniting cross-department operations into a team effort. Crafting implementing, and executing strategy are thus core management func-tions. Am ongoing all the things managers do, nothing affects a company’s ultimate success or failure more fundamentally than how well its management team charts th managers have performance problems because of surplus conditions or internal miscues. “we need more time: reason nor the bad luck of unforeseeable ev Crafting implementing, and executing strategy are thus core management functions. Am ongo-ing all the things managers do, nothing affects a company’s ultimate success or failure more fundamentally than how well its management team charts th managers have performance problems because of surplus conditions or internal mis-cues. “we need more time: reason nor the bad luck of unforeseeable events excuses mediocre performance year after year. It is the responsibility of a company’s man-agement team t that can overcome Crafting implementing, and executing strategy are thus core management functions. Am ongoing all the things managers do, nothing affects a company’s ultimate success or failure more fundamentally than how well its management team charts th managers have performance problems because of surplus conditions or internal mis-cues. “we need more time: reason nor the bad luck of unforeseeable events excuses mediocre performance year after year. It is the responsibility of a company’s man-agement team t that can overcome Crafting implementing, and executing strategy are thus core management functions. Am ongoing all the things managers do, nothing affects a company’s ultimate success or failure more fundamentally than how well its management team charts th managers have performance problems because of surplus conditions or internal mis-cues. “we need more time: reason nor the bad luck of unforeseeable events excuses mediocre performance year after year. It is the responsibility of a company’s manage-ment team t that can overcome ents excuses mediocre performance year after year. It is the responsibility of a company’s management team t that can overcome adversity. Indeed the essence of good strategy strategy making more time: reason nor the bad luck of unforeseeable events excuses mediocre performance year after year. It is the responsibility of a company’s management team t that can overcome ents excuses mediocre performance year after year. It is the responsibility of a company’s manage-ment team t that can overcome adversity. Indeed the essence of good strategy strategy making more time: reason nor the bad luck of unforeseeable events excuses mediocre performance year after year. It is the responsibility of a company’s management

The Preface

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Preface vii

Crafting implementing, and executing strategy are thus core management functions. Am ongoing all the things managers do, nothing affects a company’s ultimate success or failure more fundamentally than how well its management team charts th managers have performance problems because of surplus conditions or internal mis-cues. “we need more time: reason nor the bad luck of unforeseeable events excuses mediocre performance year after year. It is the responsibility of a company’s man-agement team t that can overcome Crafting implementing, and executing strategy are thus core management functions. Am ongoing all the things managers do, nothing affects a company’s ultimate success or failure more fundamentally than how well its management team charts th managers have performance problems because of surplus conditions or internal mis-cues. “we need more time: reason nor the bad luck of unforeseeable events excuses mediocre performance year after year. It is the responsibility of a company’s man-agement team t that can overcome Crafting implementing, and executing strategy are thus core management functions. Am ongoing all the things managers do, nothing affects a company’s ultimate success or failure more fundamentally than how well its management team charts th managers have performance problems because of surplus conditions or internal mis-cues. “we need more time: reason nor the bad luck of unforeseeable events excuses mediocre performance year after year. It is the responsibility of a company’s man-agement team t that can overcome Crafting implementing, and executing strategy are thus core management functions. Am ongoing all the things managers do, nothing affects a company’s ultimate success or failure more fundamentally than how well its management team charts th managers have performance problems because of surplus conditions or internal mis-cues. “we need more time: reason nor the bad luck of unforeseeable events.

Arthur A. Thompson, Jr.

A.J. Strickland III

Page 8: Crafting and Executing Strategy the Quest for Competitive Advantage, Concepts and Cases Thompson

Part One The Concepts and Techniques of Strategic Management 01. The Strategic Management Process: An Overview 2

02. The Three Strategy-Making Tasks: Developing a Strategic Vision, Setting Objectives, and Crafting a Strategy 27

03. Industry and Competitive Analysis 68

04. Evaluating Company Resources and Competitive Capabilities 103

05. Strategy and Competitive Advantage 134

06. Matching Strategy to a Company’s Situation 174

07. Strategy and Competitive Advantage in Diversified Companies 213

08. Evaluating the Strategies of Diversified Companies 245

09. Implementing Strategy: Building Resources Capabilities and Structuring the Organization 268

10. Implementing Strategy: Budgets, Policies, Best Practices, Support Systems, and Rewards 310

Part Two Cases in Strategic Management Section A: The Manager as Chief Strategy Maker and Strategy Implementer

1. Andrea Jung’s Makeover of Avon Products, Inc. C-17

Section B: Crafting Strategy in Single Business Companies

2. The Solar Feeder C-17

Section C: The Manager as Chief Strategy Maker and Strategy Implementer

3. Andrea Jung’s Makeover of Avon Products, Inc. C-17

4. The Solar Feeder C-17

5. Andrea Jung’s Makeover of Avon Products, Inc. C-17

6. The Solar Feeder C-17

10. Andrea Jung’s Makeover of Avon Products, Inc. C-17

11. The Solar Feeder C-17 12. The Solar Feeder C-17

13. Andrea Jung’s Makeover of Avon Products, Inc. C-17

14. The Solar Feeder C-17

Brief Contents

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Brief Contents vii

15. The Strategic Management Process: An Overview 2

16. The Three Strategy-Making Tasks: Developing a Strategic Vision, Setting Objectives, and Crafting a Strategy 27

30. Industry and Competitive Analysis 68

31. Evaluating Company Resources and Competitive Capabilities 103

32. Strategy and Competitive Advantage 134

33. Matching Strategy to a Company’s Situation 174

34. Strategy and Competitive Advantage in Diversified Companies 213

35. Evaluating the Strategies of Diversified Companies 245

36. Implementing Strategy: Building Resources Capabilities and Structuring the Organization 268

37. Implementing Strategy: Budgets, Policies, Best Practices, Support Systems, and Rewards 310

Indexes Name I-1

Organization I-5

Subject I-11

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Table of Contents

Part One The Concepts and Techniques of Strategic Management 1

1. What is Strategy and Why Is It Important? 2 The Five Tasks of Strategic Management 3 Developing a Strategic Cision and Business Mission 4 Setting Objectives 5 Crafting a Strategy 7 What Does a Company’s Strategy Consist Of? 10 Implementing and Executing the Strategy 15 Evaluating Performacne, Monitoring New Development, and Initiating Corrective Adjustments 16

Who Performs the Five Tasks of Strategic Management? 18 Is Strategy Making an Individual Responsibility or a Group Task? 20 Is There a Role for Full-Time Strategic PLanners? 21 The Strategic Role of the Board of Directores 22

The Benefits of a “Strategic Approach” to Managing 23

Illustration Capsules 1. Examples of Company Mission and Vision Statements 6 02. Strategic and Financial Objectives of Well-Known Corporations 8 03. A Strategy Example: McDonald’s 12

2. The Three Strategy-Making Tasks:Developing a Strategic Vision, Setting Objectives, and Crafting a Strategy 27 Developing a Strategic Vision and Mission: The First Direction-Setting Task 27 Why Have a Mission or Strategic Vision? 28 Defining a Company’s Present Business 29

What Kinds of Objectives to Set 36 TheConcept of Strategic Intent 39 The Need for Long-Range and Short-Range Objective 40 How Much Stretch Should Objectives Entail? 40 Objectives Are Needed at All Organizational Levels 41

Crafting a Strategy: The Third Direction-Setting Task 42 The Strategy-Making Pyramid 44 The Strategy-Making Pyramid 44 Corporate Strategy 44

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xii

3. What is Strategy and Why Is It Important? 2 The Five Tasks of Strategic Management 3 Developing a Strategic Cision and Business Mission 4 Setting Objectives 5 Crafting a Strategy 7 What Does a Company’s Strategy Consist Of? 10 Implementing and Executing the Strategy 15 Evaluating Performacne, Monitoring New Development, and Initiating Corrective Adjustments 16 Why Strategic Management Is a Process Not an Event 16 Characteristics of the Process 17

Who Performs the Five Tasks of Strategic Management? 18 Is Strategy Making an Individual Responsibility or a Group Task? 20 Is There a Role for Full-Time Strategic PLanners? 21 The Strategic Role of the Board of Directores 22

The Benefits of a “Strategic Approach” to Managing 23

Illustration Capsules 1.1 Examples of Company Mission and Vision Statements 6 01.2 Strategic and Financial Objectives of Well-Known Objec Corporations 8 01.3 A Strategy Example: McDonald’s 12

4. The Three Strategy-Making Tasks: Developing Strategy Vision, Setting Objectives, and Crafting a Strategy 27 Developing a Strategic Vision and Mission: The First Direction-Setting Task 27 Why Have a Mission or Strategic Vision? 28 Defining a Company’s Present Business 29

What Kinds of Objectives to Set 36 TheConcept of Strategic Intent 39 The Need for Long-Range and Short-Range Objective 40 How Much Stretch Should Objectives Entail? 40 Objectives Are Needed at All Organizational Levels 41

Crafting a Strategy: The Third Direction-Setting Task 42 Why Have a Mission or Strategic Vision? 28 Defining a Company’s Present Business 29

What Kinds of Objectives to Set 36 TheConcept of Strategic Intent 39 The Need for Long-Range and Short-Range Long-Range and Short-Objective 40 How Much Stretch Should Objectives Entail? 40

Objectives Are Needed at All Organizational Levels 41

The Strategy-Making Pyramid 44 The SMaking PyramiMaking Pyramitrategy-Making Pyramid 48 The Strategy-Making PyramiMaking Pyramid 44

Table of Contents vii

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1Part One

Concepts and Techniques

for Crafting and

Executing Strategy

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2Part Two

Cases in Crafting and

Executing Strategy

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DiversificationStrategies for Managing a Group of Businesses

“Cheshire Puss,” she [Alice] began. . . “would you tell me, please, which way I ought to go from here?”

“That depends a good deal on where you want to get to,” said the Cat.— Lewis Carroll

Without a strategy the organiza-tion is like a ship without a rudder, going around in circles.— Joel Ross and Michael Kami

My job is to make sure the com-pany has a strategy and that every-body follows it.— Kenneth H. OlsenFormer CEO, Digital Equipment Corporation

Without a strategy the organiza-tion is like a ship without a rudder, going around in circles.— Joel Ross and Michael Kami

My job is to make sure the com-pany has a strategy and that every-body follows it.— Kenneth H. OlsenFormer CEO, Digital Equipment Corporation

“Cheshire Puss,” she [Alice] began. . . “would you tell me, please, which way I ought to go from here?”

“That depends a good deal on where you want to get to,” said the Cat.— Lewis Carroll

(Photo courtesy of PhotoDisc.)

9Chapter Nine

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This book is about the managerial tasks of crafting, implementing, and execut-

ing company strategies. A companies strategy is the “game plan” manage

ment has for positioning the company in its chosen market arena, competing

successfully, pleasing customers, and achieving good business performance. Strategy

consists of the whole array of competitive moves and business approaches that man-

agers employ in running a company. In crafting a strategic course, management is

saying that “among all the paths and actions we could have chosen, we have decided to

go in this direction and rely upon these particular ways of doing business.” A strategy

thus entails managerial choices among alternatives and signals organizational commit-

ment to specific markets, competitive approaches, and ways of operating.

Managers devise company strategies because of two very compelling needs.

One is the need to proactivelly shape how a company’s business will be conducted.

Passively allowing strategy to drift along as the by-product of ongoing business

approaches for improvements and periodic adjustments to unfolding events is a sure-

fire ticket for inconsistent strategic actions, competitive mediocrity and lackluster

business results. Rather it is management;’s responsibility to exert entrepreneurial

leadership and commit the enterprise to conducting business in a fashion shrewdly

calculated to produce good performance. A strategy provides a roadmap to operate

by a prescription for doing business, a game plan for building customer loyalty and

winning a sustainable competitive advantage over rivals. The second need is that of

molding the independent decisions and actions initiated by departments, managers,

and employees across the company into a coordinated, company wide game plan.

Absent a strategy, managers have no framework for weaving many different action

initiatives into a cohesive whole, no plan for uniting cross-department operations into

a team effort.

Crafting implementing, and executing strategy are thus core management func-

tions. Am ongoing all the things managers do, nothing affects a company’s ultimate

success or failure more fundamentally than how well its management team charts

thecompany’s long-term direction, develops competitively effective strategic moves and business approaches, and implements what needs to be done internally to produce

21

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company’s long-term direction, develops competitively effective strategic moves and business approaches, and implements what needs to be done internally to produce good day-in/day-out strategy execution. Indeed, good strategy and good strategy exe-cution are the most trustworthy signs of good management. Managers don’t deserve a gold star for designing a potentially brilliant strategy, but failing to put the organiza-

tional means in place to carry it out in high-caliber fashion—weak imple-mentation and execution—undermines the strategy's potential and paves the way for shortfalls in customer satisfaction and company performance. Competent execution of a mediocre strategy scarcely merits enthusiastic applause for management’s efforts either. To truly qualify as excellently managed, a company must exhibit excellent execution of an excellent strat-egy. Otherwise, any claim of talented management is suspect. Granted, good strategy combined with good strategy execution doesn’t guarantee that a company will avoid periods of so-so or even subpar per-formance. Sometimes it takes several years for management’s strategy-

making/strategy-implementing efforts to show goods results. Sometimes blue-chip organizations with showcase practices and reputable managers have performance problems because of surprisingly abrupt shifts in market conditions or internal mis-cues. But neither the “we need more time: reason nor the bad luck of unforeseeable events excuses mediocre performance year after year. It is the responsibility of a company’s management team to adjust to unexpectedly tough conditions by undertak-ing strategic defenses and business approaches that can overcome adversity. Indeed the essence of good strategy making is to build a market position strong enough and an organization capable enough to produce successful performance despite unforeseeable events, potent competition, and internal difficulties. The rationale for using the twin standards of good strategy making and good strategy execution to determine whether a company is well managed is therefore compelling: The better conceived a company’s strategy and the more competently it is executed, the more likely the company will be a solid performer and a competitive success in the marketplace.

the five tasks of strategic ManageMentThe strategy-making, strategy-implementing process consists of five interrelated managerial tasks.

1. Forming a strategic vision of what the company’s future business makeup will be and where the organization is headed—so as to provide long-term direction, delineate what kind of enterprise the company is trying to become, and infuse the organization with a sense of purposeful action.

2. Setting objectives—converting the strategic vision into specific performance out-comes for the company to achieve.

3. Crafting a strategy to achieve the desired outcomes.4. Implementing and executing the chosen strategy efficiently and effectively.

Figure 1.1 displays this process. Together, these five components define what we mean by the term strategic management. Let’s examine this five-task framework in enough detail to set the stage for all that follows in the forthcoming chapters.

24 Part 1 The Concepts and Techniques of Strategic Management

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basic concept A company’s business model deals with whether the revenue-cost-profit econimics of its strategy demonstrate the viability of the enterprise as a whole.

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icon 2

Setting Objectives

Developing a Strategic Vision and Business

Mission

Developing a Strategic Vision and Business MissionVery early in the strategy-making process, company managers need to pose the issue of “What is our vision for the company—where should the company be headed , what kind of enterprise are we trying to build, what should the company’s future business makeup be?” Drawing a carefully reasoned conclusion about what the company’s long-term direction should be pushes managers to take a hard look at the company’s present business and form a clearer sense of key term whether and how it needs to change over the next 5 to 10 years. Management’s views about “where we plan to go from here—what businesses we want to be in, what customer needs we want to satisfy, what capabilities we’re going to develop” charts a course for the organization to pursue and creates organizational purposes and identity.

Why Company Strategies Evolve Frequent fine-tuning and tweaking of a com-pany strategy, first in one department or functional area and then n another, are quite normal. On occasion, quantum changes in strategy are called for—when a competi-tor makes a dramatic move, when technological breakthroughs occur, or when crisis strikes and managers are forced to make radical strategy alterations very quickly. because strategic moves and new action approaches are ongoing across the business, an organization’s strategy forms over a period of time and then reforms as the number of changes begin to mount. Current strategy is typically a blend of holdover approach-es, fresh actions and reactions and potential moves in the planning stage. except for crisis situations (where many strategic moves are often made quickly to produce a sub-stantially new strategy almost overnight) and new company star-ups (where strategy exists mostly in the form of plans and intended actions), is common.

1995 has come and gone, and despite a heroic effort by our 2220,000 employees, we fell short on both measures, achieving a 14.4 percent operating margin and almost seven turns. But in stretching for these “impossible” targets, we learned to do things faster than we would have enough confidence now to set new stretch targets of at least 16 percent operat-ing margin and more than 10 turns by 1998.

Figure 1.1 the five tasks of strategic Management

Task 1 Task 2

Crafting a Strategy to Achieve the Objectives

Task 3

Implementing and Executing the Strategy

Task 4

Evaluating Performance,

Monitoring New Developments, and Initiating

Corrective Adjustments

Task 5

Recycle to Tasks 1, 2, 3, or

4 as Needed

Revise as Needed

Revise as Needed

Improve/Change as

Needed

Improve/Change as

Needed

chapter 8 Implementing Strategy 25

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basic concept A company’s business model deals with whether the revenue-cost-profit econimics of its strategy demonstrate the viability of the enterprise as a whole.

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The Masters Strategist Approach Some managers take on the role of chief strategist and chief entrepreneur, singlehandedly exercising strong influences over assessments of the situation, over the strategy alternatives that are explored, and over the details of strategy. This does not mean that the manager personally does all the work; it means that the manager personally becomes the chief architect of strategy and worlds a proactive hand in shaping some of or all of the major pieces of strategy. Master strategists act as strategy commanders and have a big ownership stake in the chosen strategy.

• Broadening the firm’s product line to close off vacant niches and gaps to would-be challengers.

• Introducing models or brands that match the characteristics challengers’ models already have or might have.

• Keeping prices low on models that most closely match competitors’ offerings.

A strong approach to defensive strategy entails signaling challengers that their is a real threat of strong retaliation if a challenger attaches. The gals is to dissuade chal-lengers from attacking at all or at least divert them to options that are less threatening to the defender. Would be challengers can be signaled by.31

BAnc OnE cOrpOrAtIOnTo be one of the top three banking companies in terms of market share in all significant markets we serve. www.bancone.com

DOmInO’S pIzzATo safely deliver a hot, quality pizza in 30 minutes or less at a fair price and a reasonable profit. www.dominospizza.com

FOrD mOtOr cOmpAnyTo satisfy our customers by providing quality cars and trucks, developing new products, reducing the time it takes to bring new vehicles to market, improving the efficiency of all out plants and processes, and building on our teamwork with employees, unions, dealers, and suppliers.www.fordmotor.com

ExxOnTo provide shareholders a secure investment with a supe-rior return. www.exxon.com

AlcAn AlumInumTo be the lowest-cost producer of aluminum and to out-perform the average return on equity of the Standard and

Poor’s industrial stock index. www.alcanalum.com

GEnErAl ElEctrIcto become the most competitive enterprise in the world by being number one or number two in market share in every business the company is in. To achieve an average of 10 inventory turn and a corporate operating profit margin of 16% by 1998. www.ge.com

BrIStOl-myErS SquIBBTo focus globally on those businesses in health and per-sonal care where we can be number one or number two through delivering superior value to the customer.www.bristol-myerssquibb.com

AtlAS cOrpOrAtIOnTo become a low-cost, medium size gold producer, pro-ducing in excess of 125,000 ounces of gold a year and building gold reserves for 1,500,000 ounces.www.atlas.com

3mTo achieve annual growth in earnings per share of 10% or better, on average; a return on stockholders’ equity of 20-25%; a return on capital employed of 27% or better; and have at least 30% of sales come from products introduced

Illustration Capsule 2

26 Part 1 The Concepts and Techniques of Strategic Managementbchba_tt

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how clear channel has used Mergers and acquisitions to become a global Market leader

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When scale economies or experience curve effects are small and a large market share produces no cost advantage, runner-up companies above more strategic flexibil-ity and can consider any of the following six approaches29:

1. Vacant-niche strategy—this version of a focused strategy involves concentrating on customer or end-use applications that market leaders have bypassed or neglected. An ideal vacant niche is of sufficient size and scope to be profitable, has some growth potential, is well-suited to a firm’s own capabilities and resources, and is not interest-ing to leading firms. and health foods producers (like Healthy Valley, Hain, and Tree of Life). that cater to local health food stores—a market segment traditionally ignored by Pillsbury (www.pillsbury), Kraft General Foods (www.kraftfoods.com), Heinz (www.heinz.com), Nabisco (www.nabisco.com), Campbell Soup (www.campbells-soup), and other leading food products firms.2. Specialist strategy—A specialist firm tains its competitive effort on one market segment: a single product, a particular end use, or buyers with special needs. The aim is to build competitive advantage through product uniqueness, expertise in special purpose products, or specialized customer services.

In 1997 McDonald’s (www.mcdonalds.com) was the leading food service retailer in the global consumer marketplace, with a strong brand name and systemwide restaurant sales approaching $35 billion. Two-thirds of its 22,000-plus restaurants were franchised to nearly 5,000 owner/operators around the world. Sales had grown an average of 6 percent in the United States and 20 percent outside the United States over the past 10 years.

GrOwth StrAtEGy• Penetrate the market not currently served by adding

2,500 restaurants annually (an average of 8 per day), some company-owned and some franchised, with about two-thirds outside the United States. Establish a leading market position in foreign countries ahead of competitors.

• Promote more frequent customer visits cia the addi-tion of attractive menu items, low-price specials, Extra Value Meals, and children’s play areas.

Box Second Level HeadJohn Malone , the company’s CEO and widely regarded as one of the most astute and influential visionaries of how new information superhighway technologies could trans form the world of media and communication, said:

Were just chasing too many rabbits at the same time. The company got overly ambitious about the things it could do simultaneously.

To Those Who Use Our Products. . . We affirm Bristol-Myers Squibb’s commitment to the highest standard of excellence, safety and reliability in everything we make,. We pledge to offer the highest quality and to work dili-gently to keep improving them.tory turn and a corporate operating profit margin of 16% by 1998. Two-thirds of its 22,000-plus restaurants were franchised to nearly 5,000 owner/operators around the world. Sales had grown an average of 6 percent in the United States

Source: Based on information in “Malone Says TCI Push Into Phone, Internet Isn’t Working for Now,” The Wall Street Journal , January 2, 1997, pp. A1 and A3.

chapter 8 Implementing Strategy 27

Illustration Capsule 3

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a strategy example: Mcdonalds

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The Masters Strategist Approach Some managers take on the role of chief strategist and chief entrepreneur, singlehandedly exercising strong influences over assessments of the situation, over the strategy alternatives that are explored, and over the details of strategy. This does not mean that the manager personally does all the work; it means that the manager personally becomes the chief architect of strategy and worlds a proactive hand in shaping some of or all of the major pieces of strategy. Master strategists act as strategy commanders and have a big ownership stake in the chosen strategy.

• Broadening the firm’s product line to close off vacant niches and gaps to would-be challengers.

• Introducing models or brands that match the characteristics challengers’ models already have or might have.

• Keeping prices low on models that most closely match competitors’ offerings.

A strong approach to defensive strategy entails signaling challengers that their is a real threat of strong retaliation if a challenger attaches. The gals is to dissuade chal-lengers from attacking at all or at least divert them to options that are less threatening to the defender. Would be challengers can be signaled by.31

BAnc OnE cOrpOrAtIOnTo be one of the top three banking companies in terms of market share in all significant markets we serve. www.bancone.com

DOmInO’S pIzzATo safely deliver a hot, quality pizza in 30 minutes or less at a fair price and a reasonable profit. www.dominospizza.com

FOrD mOtOr cOmpAnyTo satisfy our customers by providing quality cars and trucks, developing new products, reducing the time it takes to bring new vehicles to market, improving the efficiency of all out plants and processes, and building on our teamwork with employees, unions, dealers, and suppliers.www.fordmotor.com

ExxOnTo provide shareholders a secure investment with a supe-rior return. www.exxon.com

AlcAn AlumInumTo be the lowest-cost producer of aluminum and to out-perform the average return on equity of the Standard and

Poor’s industrial stock index. www.alcanalum.com

GEnErAl ElEctrIcto become the most competitive enterprise in the world by being number one or number two in market share in every business the company is in. To achieve an average of 10 inventory turn and a corporate operating profit margin of 16% by 1998. www.ge.com

BrIStOl-myErS SquIBBTo focus globally on those businesses in health and per-sonal care where we can be number one or number two through delivering superior value to the customer.www.bristol-myerssquibb.com

AtlAS cOrpOrAtIOnTo become a low-cost, medium size gold producer, pro-ducing in excess of 125,000 ounces of gold a year and building gold reserves for 1,500,000 ounces.www.atlas.com

3mTo achieve annual growth in earnings per share of 10% or better, on average; a return on stockholders’ equity of 20-25%; a return on capital employed of 27% or better; and have at least 30% of sales come from products introduced

Illustration Capsule 2

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how clear channel has used Mergers and acquisitions to become a global Market leader

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28 Part 1 The Concepts and Techniques of Strategic Management

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When scale economies or experience curve effects are small and a large market share produces no cost advantage, runner-up companies above more strategic flexibil-ity and can consider any of the following six approaches29:

1. Vacant-niche strategy—this version of a focused strategy involves concentrating on customer or end-use applications that market leaders have bypassed or neglected. An ideal vacant niche is of sufficient size and scope to be profitable, has some growth potential, is well-suited to a firm’s own capabilities and resources, and is not interest-ing to leading firms. and health foods producers (like Healthy Valley, Hain, and Tree of Life). that cater to local health food stores—a market segment traditionally ignored by Pillsbury (www.pillsbury), Kraft General Foods (www.kraftfoods.com), Heinz (www.heinz.com), Nabisco (www.nabisco.com), Campbell Soup (www.campbells-soup), and other leading food products firms.2. Specialist strategy—A specialist firm tains its competitive effort on one market segment: a single product, a particular end use, or buyers with special needs. The aim is to build competitive advantage through product uniqueness, expertise in special purpose products, or specialized customer services.

In 1997 McDonald’s (www.mcdonalds.com) was the leading food service retailer in the global consumer marketplace, with a strong brand name and systemwide restaurant sales approaching $35 billion. Two-thirds of its 22,000-plus restaurants were franchised to nearly 5,000 owner/operators around the world. Sales had grown an average of 6 percent in the United States and 20 percent outside the United States over the past 10 years.

GrOwth StrAtEGy• Penetrate the market not currently served by adding

2,500 restaurants annually (an average of 8 per day), some company-owned and some franchised, with about two-thirds outside the United States. Establish a leading market position in foreign countries ahead of competitors.

• Promote more frequent customer visits cia the addi-tion of attractive menu items, low-price specials, Extra Value Meals, and children’s play areas.

Box Second Level HeadJohn Malone , the company’s CEO and widely regarded as one of the most astute and influential visionaries of how new information superhighway technologies could trans form the world of media and communication, said:

Were just chasing too many rabbits at the same time. The company got overly ambitious about the things it could do simultaneously.

To Those Who Use Our Products. . . We affirm Bristol-Myers Squibb’s commitment to the highest standard of excellence, safety and reliability in everything we make,. We pledge to offer the highest quality and to work dili-gently to keep improving them.tory turn and a corporate operating profit margin of 16% by 1998. Two-thirds of its 22,000-plus restaurants were franchised to nearly 5,000 owner/operators around the world. Sales had grown an average of 6 percent in the United States

Source: Based on information in “Malone Says TCI Push Into Phone, Internet Isn’t Working for Now,” The Wall Street Journal , January 2, 1997, pp. A1 and A3.

Illustration Capsule 3

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a strategy example: Mcdonalds

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Illustration Capsule 9

strategic group Map of competition and financial objectives of Well-known corporations

icon to come

change their positions on the map, then attaching arrows to the circles showing tar-geted direction helps clarify the picture of competitive jockeying among rivals. Another consideration is whether the profit potential of different4rent strategic groups varies due to the competitive strengths and weaknesses in each group’s market

Note: The sizes of the circles are roughly proportional to the market share of each group of competitors.

SMALL INDEPENDENT

GUILDJEWELERS

NATIONAL, REGIONAL, AND LOCAL GUILD OR

“FINE JEWELRY STORES(about 10,000 firms includ-ing such well-known stores

as Tiffany’s and Cartier)

NATIONAL JEWELRY CHAINS

Carlye & Co. Cordons

LOCAL JEWELERS(about 10,000

stores)

CREDIT JEWELERS

Kay’s Busch’s

Specialty Jewelers(gold, diamonds,

watches)

Full-line Jewelers(gold, diamonds, china and crystal,

silver, watches,

Limited-categoryMerchandise

Retailers

Broad-category Merchandise

Retailers

Low

Medium

High

PRODUCT LINE MERCHANDISE MIx

PR

ICE

/ q

UA

LIT

Y /

IMA

GE

OUTLET MALL RETAILERS

CATALOG SHOWROOMSService Merchandise

OFF-PRICE RETAILERSMervyn’s

Cohoes (N.Y.) Marshall’s

DISCOUNTERSKmartTarget

Wal-MartVenture

CHAINSJ.C. Penney

Sears

UPSCALE DEPARTMENT

STORESMacy’s

Jordan-MarshDillards

Bloomingdale’sMay

Marshall Field’sRich’s

Dayton-HudsonLazarusParisian

PRESTIGE DEPARTMENT

STORESSaks Fifth Avenue

Neiman-Marcus Nordstrom’s

Lord & Taylor

30 Part 1 The Concepts and Techniques of Strategic Management

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Illustration Capsule 11

a strategy example: Mcdonalds

icon to come

Estimated Average Cost Breakdowns for Combined Anheuser-Busch Brands

Estimated Average Cost Breakdowns for Combined Adolph Coors Brands

Value Chain Activities and Costs

01. Manufacturing costs: Direct production costs: Raw material ingredients Direct Labor Salaries for nonunionized personnel Packaging Depreciation on plant and equipment Subtotal Other expenses: Advertising Other marketing costs and general administrative expenses Interest Research and development Total manufacturing costs02. Manufacturer’s operating profit03. Net selling price04. Plus federal and state excise taxes paid by brewer05. Gross manufacturer;s selling price to distributor/wholesaler06. Average margin over manufacturer’s cost07. Average wholesale price charged to retailer (inclusive of taxes in item 4 above but exclusive of other taxes)08. Plus other assorted state and local taxes levied on wholesale and retail sales (this varies from locality to locality)09. Average 20% retail markup over whole- sale cost10. Average price to consumer at retail

Per 6-Pack of 12-oz. Cans

$0.1384 0.1557 0.0800 0.5055 0.0410 0.9206

0.0477

0.1096 0.0147 0.0277$1.1203 0.1424 1.2627 0.1873

1.4500 0.5500

$ 2.00

0.60

0.40$ 3.00

Per Barrel Equivalent

$ 7.63 8.58 4.41 27.86 2.26 50.74

2.63

6.04 0.81 1.53$ 61.75 7.85 69.60

10.32

79.92 30.31

$ 110.23

Per 6-Pack of 12-oz. Cans

$0.1384 0.1557 0.0800 0.5055 0.0410 0.9206

0.0477

0.1096 0.0147 0.0277$1.1203 0.1424 1.2627 0.1873

1.4500 0.5500

$ 2.00

0.60

0.40$ 3.00

Per Barrel Equivalent

$ 7.63 8.58 4.41 27.86 2.26 50.74

2.63

6.04 0.81 1.53$ 61.75 7.85 69.60

10.32

79.92 30.31

$ 110.23

Note: The difference in the average cost structures for Anheuser-Busch and Adolph Coors is, to a substantial extent, due to A-B’s higher proportion of super-premium beer sales. A-B’s super premium brand, Michelob, was the best-seller in its category and somewhat more costly to brew than premium and popular-priced beers.

In the table below are average cost estimates for the com-bined brands of beer produced by Anheuser-Busch (www. anheuser-busch.com) and Coors (www.adolphcoors.com).

The example shows raw material costs, other manufactur-ing costs, and forward channel distribution costs. The data are for 1982.

Source: Complied by Tom McLean, Elsa Wischkamper, and Arthur A. Thompson, Jr., from a wide variety of documents and field interviews.

chapter 8 Implementing Strategy 31

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gaining leverage with suppliers or customers, differing degrees of exposure to compe-tition from substitute products outside the industry, differing degrees of competitive rivalry within strategic groups, and differing growth rate for the principle that enhance buyer appeal, and they persist in trying to exploit weaknesses in each other’s market approaches. Whether key term rivalry is lukewarm or heated, every company has to craft a successful strategy for competing—ideally, one that produces a competitive edge over rivals and strengthens its position with buyers. The big complication in most indus-tries is that the success of any one firm’s strategy hinges partly on what offensive and defensive maneuvers its rivals employ and the resources rivals are willing and able to put behind their strategic efforts. The “best” strategy for one firm in its maneuvering for competitive advantage depends, in other words, on the competion with theasod a.

RIVALRY AMONG COMPETING SELLERSCompetitive pressures

created by jockeying for better market position and competitive advantage

Figure 1.3 the five-forces Model of competition: a key analytical tool

FIRMS IN OTHER INDUSTRIES OFFERING

SUBSTITUTE PRODUCTS

SUPPLIERS OF KEY INPUTS

BUYERS

POTENTIAL NEW ENTRANTS

Competitive pressures

growing out of suppli-ers ability

to exercise bargaining power and leverage

Competitive pressures growing

out of buy-ers ability

to exercise bargaining power and leverage

Competitive pressures coming from the market

attempts of outsiders to win buyers over to their products

Competitive pressures coming from the threat of

entry of new rivals

Source: Adapted from Michael E. Porter, “How Competitive Forces Shape Strategy,” Harvard Business Review 57, no. 2 (March-April 1979), pp. 137–45.

32 Part 1 The Concepts and Techniques of Strategic Management

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tive capabilities and strategies of rival companies. Thus, whenever one firm makes a strategic move, its rivals often retaliate with offensive or defensive countermovers. This pattern of action and reaction makes competitive rivalry a “war-games” type of contest outcomes that spell the difference between profit and loss. Key success factors concern what every industry member must be competent at doing or concentrate on achieving in order to be competitively and financially successful. KSFs are so important that all firms in the industry must pay them close attention—they are the prerequi-sites for industry success. The answers to three questions help identify an industry’s key success factors:

On what basis do customers choose between the competing brands of sellers?What must a seller do to be competitively successful—what resources and com-petitive capabilities does it need?What does it take for sellers to achieve a sustainable competitive advantage?

In the beer industry, the KSFs are fullutliztaion of brewing capacity (to keep manufacturing cost lows), a strong network of whole sale distributors (to gain access to as many retailers as possible), and clever advertising (to induce beer drinkers to but a particular brand). In apparel manufacturing, the KSFs are appealing designs and color combinations (to create buyers interest) and low-cost manufacturing efficiency (to permit attractive retail pricing and ample profit margins). In tin and aluminum cans, because the cost of shipping empty cans is substantial, one of the keys is having plants located close to end-use customers so that the plant's output can e marketed within economical shipping distances (regional market share is fare more crucial than nation share). Table 3.4 provides a shopping list of the most common types of key success factors. Lexis-Nexis and other on-line services provide you with up-to-date company information by updating their databases every 24 hours or less. You may wish to search the Lexis/Nexis company library files listed below for the latest company news and financial dates if you have access to the dial-up service. The company informa-tion included in these Lexis-Nexis files (www.lexis-nexis.com) is also

Publication/Subject Lexis/Nexis File Name

Hoover company profiles HOOVER Securities and Exchange Commission SEC Company annual reports ARS Company annual 10-K fillings 10-K Company quarterly 10-Q filings 10-Q Business wire BWIRE Public relations newswire PRNEWS S&P Daily News SPNEWS Disclosure DISCOL Consensus earnings projections EARN CNN Financial Network CNNFN Dow Jones News/CNBC CNBC Business Week BUSWK Forbes FORBES Fortune FORTUN

Source: Institute for Brewing Studies.

chapter 8 Implementing Strategy 33

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available through the Web-based Lexis -nexis Academic Universe, but the web-based product does not require that you specify library names or files happened to the company since the case was written. These days it sis relatively easy run down recent industry developments and to find out where a company’s strategic and financial situ-ation has improved, deteriorated, or changed little since the conclusions of the case.

Results of operations dataNet revenues Retail Specialty sales Direct response

Total net revenuesOperating incomeProvisions for merger1

Gain on sale of investment in Noah’s2

Net earningsNet earnings per common and common equivalent share—fully diluted3

Cash dividends per share

Balance sheet dataWorking capitalTotal assetsLong-term debt (including current portion)Redeemable preferred stockShareholders’ equity

Store operating dataPercentage change in comparable store sales4

Stores open at year end— continental North America: Company-operated stores Licensed stores5

Stores open at year end— outside continental North America: Licensed stores5

Total stores

$ 828,074 117,635 21,237

966,946 88,222 —

—$ 57,412

$ 0.70 —

$ 177,578 850,672

168,832 —$ 531,830

5%

1,270 94 1,364

74

1,381

$ 828,074 117,635 21,237

966,946 88,222 —

—$ 57,412

$ 0.70 —

$ 177,578 850,672

168,832 —$ 531,830

5%

1,270 94 1,364

74

1,381

$ 828,074 117,635 21,237

966,946 88,222 —

—$ 57,412

$ 0.70 —

$ 177,578 850,672

168,832 —$ 531,830

5%

1,270 94 1,364

74

1,381

$ 828,074 117,635 21,237

966,946 88,222 —

—$ 57,412

$ 0.70 —

$ 177,578 850,672

168,832 —$ 531,830

5%

1,270 94 1,364

74

1,381

$ 828,074 117,635 21,237

966,946 88,222 —

—$ 57,412

$ 0.70 —

$ 177,578 850,672

168,832 —$ 531,830

5%

1,270 94 1,364

74

1,381

$ 828,074 117,635 21,237

966,946 88,222 —

—$ 57,412

$ 0.70 —

$ 177,578 850,672

168,832 —$ 531,830

5%

1,270 94 1,364

74

1,381

September28, 1997

(52 weeks)

September29, 1996

(52 weeks)

October1, 1995

(52 weeks)

October2, 1994

(52 weeks)

October3, 1993

(52 weeks)

As of and for the Fiscal Year Ended

September27, 1992

(52 weeks)

1 Provision for merger costs reflects expenses related to the merger with the Coffee Connection, Inc. in fiscal 1994.2 Gain on sale of investment in Noah’s result from he sale of Noah's New York Bagel, Inc. (“Noah’s”), stock in fiscal 1996.3 Earnings per share is based on the weighted-average shares outstanding during the period plus.4 Includes only company-operated stores open 13 months or longer.5 Operated by licensees through either licensing agreement or joint ventures.

34 Part 1 The Concepts and Techniques of Strategic Management

Table 1.3 key Performance statistics for starbucks corporation, 1992-97bch_tbnm

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using defensive strategies to Protect coMPetitive advantage In a competitive market, all firms are subject to challenges from rivals. Market offensives can come from new entrants in the industry and from established firms seeking to improve their market positions. The purpose of defensive strategy is to lower the risk of being attacked, weakened the impact of any attack that occurs, and influence challengers to aim their efforts at other rivals. While defensive strategy usually doesn’t enhances a firm’s competitive advantage, it helps fortify a firm’s competitive posi-tion, protect its most valuable resource and capabilities form limitation, and sustain what competition advantage it does have.

Developing a Strategic Vision and Business MissionVery early in the strategy-making process, company managers need to pose the issue of “What is our vision for the company—where should the company be headed , what kind of enterprise are we trying to build, what should the company’s future business makeup be?” Drawing a carefully reasoned conclusion about what the company’s long-term direction should be pushes managers to take a hard look at the company’s

1. Committed leadership: a near evangelical, unwavering, long-term commitment by top managers to the philosophy, usually under a name something.

2. Adoption and communication of TqM: using tools like the mission statement, and themes or slogans.

3. Closer customer relationships: determining customers’ (both inside and outside the firm) requirements, then meeting those requirements no matter what it takes.

4. Closer supplier relationships: working closely and cooperatively with suppliers (often sole-sourcing key components), ensuring they provide inputs that conform to customers’ end-use requirements.

5. Benchmarking: researching and observing operating competitive practices. 6. Increased training: usually includes TQM principles, team skills, and problem-

solving. 7. Open organizations: lean staff, empowered work teams, open horizontal

communications, and a relaxation of traditional hierarchy. 8. Employee empowerment: increased employee involvement ind design and

planning, and greater autonomy in decision-making. 9. Zero-defects mentality: a system in place to spot defects as they occur, rather than

through inspection and rework.10. Flexible manufacturing: (applicable only to manufacturers) can include just-in-time

inventory, cellular manufacturing, design for manufacturability (DFM), statistically pro-cess control (SPC), and design of experiments (DOE).

11. Process improvement: reduced waste and cycle times in all areas through cross-departmental process analysis.

12. Measurement: goal-orientation and zeal for data, with constant performance measurement, often using statistical methods.

Note: Thomas C. Powell, “total Quality Management as Competitive Advantage,” Strategic Management Journal 16, no.1 (January 1995) p. 19.

chapter 8 Implementing Strategy 35

Table 1.3 the ten commandments of case analysis

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the next 5 to 10 years. Management’s views about “where we plan to go from here—what businesses we want to be in, what customer needs we want to satisfy, what capabilities we’re going to develop” charts a course for the organization to pursue and creates organizational purposes and identity.

key PointsBuilding a strategy-supportive corporate culture is important to successful implemen-tation because it produces a work climate and organizational esprit e corps that thrive on meeting performance targets and being part of winning effort. An organization's culture emerges from why and how it does things the way it does, the values and beliefs that senior managers inspire, the ethical standards expected of all, the tone and philosophy underlying key policies, and the traditions the organization maintains. Culture thus consensus the atmosphere and “feeling” a company has and the style in which it gets things done.1. Setting objectives—converting the strategic vision into specific performance out-

comes for the company to achieve. (www.lexis-nexis.com)2. Crafting a strategy to achieve the desired outcomes.3. Implementing and executing the chosen strategy efficiently and effectively.for display the cultural norms. 4. Implementing and executing the chosen strategy efficiently and effectively.for display the cultural norms.

exercises1. Forming a strategic vision of what the company’s future business makeup will

be and where the organization is headed—so as to provide long-term direction, delineate what kind of enterprise the company is trying to become, and infuse the organization with a sense of purposeful action.

2. Setting objectives—converting the strategic vision into specific performance out-comes for the company to achieve. (www.lexis-nexis.com)

3. Crafting a strategy to achieve the desired outcomes.4. Implementing and executing the chosen strategy efficiently and effectively.

36 Part 1 The Concepts and Techniques of Strategic Management

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C-3

8Case

Arthur A. ThompsonThe University of Alabama

John E. Gamble University of South Alabama

T his book is about the managerial tasks of crafting, implementing, and executing company strategies. A companies strat-egy is the “game plan” manage ment has

for positioning the company in its chosen market arena, competing successfully, pleasing customers, and achieving good business performance. Strategy consists of the whole array of competitive moves and business approaches that managers employ in running a company. In crafting a strategic course, management is saying that “among all the paths and actions we could have chosen, we have decided to go in this direction and rely upon these particular ways of doing business.” A strategy thus entails managerial choices among alternatives and signals organizational commitment to specific markets, competitive approaches, and and ways of operat-ing.

the coMPany backgroundTaking, strategy-implementing process consists of five interrelated managerial tasks. Granted, good strategy combined with good strategy execution doesn’t guarantee that a company will avoid periods of so-so or even subpar performance. Sometimes it takes several years for management’s strategy-mak-ing/strategy-implementing efforts to show goods results. Sometimes

blue-chip organizations with showcase practices and reputable managers have performance prob-

lems because of surplus conditions or internal miscues. “we need more time: reason nor the bad luck of unforeseeable events excuses mediocre per-formance year after year. It is the responsibility of a company’s management team t that can overcome adversity. Indeed the essence of good strategy strat-egy making and whether a company is well man-aged is therefore compelling: The better conceived a company’s strategy and the more competently it is executed, the more likely the company will be a solid performer and a competitive success in the marketplace. Sometimes blue-chip organizations with showcase practices and reputable managers have performance problems because of surplus con-ditions or internal miscues. “we need more time: reason nor the bad luck of unforeseeable events excuses mediocre performance year after year. It is the responsibility of a company’s management team t that can overcome adversity. Indeed the essence of good strategy strategy making and whether a com-pany is well managed is therefore compelling.

The strategy-making, strategy-implementing process consists of five interrelated managerial tasks. Granted, good strategy combined with good strategy execution doesn’t guarantee that a com-pany will avoid periods of so-so or even subpar performance. Sometimes it takes several years for management’s strategy-making/strategy-imple-menting efforts to show goods results. Sometimes blue-chip organizations with showcase practices and reputable managers have performance problems because of surplus conditions or internal miscues. “we need more time: reason nor the bad luck of

I was a good musician, so I thought, what better thing to start than a music company? —Darren Skanson

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C-4 Cases in Strategic Management

Al Dunlap’s Growing Expertise and Reputation as a Turnaround Expert, 1983–95Very early in the strategy-making process, company managers need to pose the issue of “What is our vision for the company—where should the company be headed , what kind of enterprise are we trying to build, what should the company’s future business makeup be?” Drawing a carefully reasoned conclu-sion about what the company’s long-term direction should be pushes managers to take a hard look at the company’s present business and form a clearer sense of whether and how it needs to change over

Case Third Level Head Example Some man-agers take on the role of chief strategist and chief entrepreneur, singlehandedly exercising strong influences over assessments of the situation, over the strategy alternatives that are explored, and over the details of strategy. This doe s not mean that the manager personally does all the work; it means that the manager personally becomes the chief architect of strategy and worlds a proactive hand in shap-ing some of or all of the major pieces of strategy. Master strategists act as strategy commanders and have a big ownership stake in the chosen strategy.

• Broadening the firm’s product line to close off vacant niches and gaps to would-be challeng-ers.

• Introducing models or brands that match the characteristics challengers’ models already have or might have.

• Keeping prices low on models that most closely match competitors’ offerings.

A strong approach to defensive strategy entails signaling challengers that their is a real threat of strong retaliation if a challenger attaches. The gals is to dissuade challengers from attacking at all or at least divert them to options that are less threatening to the defender. Would be challengers can be sig-naled by.

Cash flowI came to work the first of May [1992] and we were totally out of the bank by the 23rd day of August, we have not had to borrow a penny from the banks since then. We currently have cash flow in excess of $100 million] per year with a cash flow of %55 million,

after capital expenditures, dividends, and taxes.

AcquisitionsWhile some of the recent acquisitions are small companies, they have internal rates of returns that are exceptional: Frederick Manufacturing at over 27 percent, and CTR at 40.1 percent. We gave them delayed payments of three years (for CTR) and paid for in two and half. We’ve owned it for two and half years, and now it’s throwing off about $5 million a year in cash flow.

W.L. Gore’s Guiding Principles and Core ValuesThe strategy-making, strategy-implementing pro-cess consists of five interrelated managerial tasks.

1. Try to be fair.2. Encourage, help, and allow other associates to

grow in knowledge, skill and scope of activity and responsibility.

3. Make your own commitments, and keep them.4. Consult with other associates before taking

risks.

Al Dunlap’s Growing Expertise and Reputation as a Turnaround Expert, 1983–95Very early in the strategy-making process, company managers need to pose the issue of “What is our vision for the company—where should the company be headed , what kind of enterprise are we trying to build, what should the company’s future business makeup be?” Drawing a carefully reasoned conclu-sion about what the company’s long-term direction should be pushes managers to take a hard look at the company’s present business and form a clearer sense of whether and how it needs to change over

Case Third Level Head Example Some man-agers take on the role of chief strategist and chief entrepreneur, singlehandedly exercising strong influences over assessments of the situation, over the strategy alternatives that are explored, and over the details of strategy. This does not mean that the manager personally does all the work; it means that the manager personally becomes the chief architect of strategy and worlds a proactive hand in shap-

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Al Dunlap’s Growing Expertise and Reputation as a Turnaround Expert, 1983–95Very early in the strategy-making process, company managers need to pose the issue of “What is our vision for the company—where should the company be headed , what kind of enterprise are we trying to build, what should the company’s future business makeup be?” Drawing a carefully reasoned conclu-sion about what the company’s long-term direction should be pushes managers to take a hard look at the company’s present business and form a clearer

sense of whether and how it needs to change over

Case Third Level Head Example Some managers take on the role of chief strategist and chief entrepre-neur, singlehandedly exercising strong influences over assessments of the situation, over the strategy alternatives that are explored, and over the details of strategy. This does not mean that the manager per-sonally does all the work; it means that the manager personally becomes the chief architect of strategy and worlds a proactive hand in shaping some of or all of the major pieces of strategy. Master strategists act as strategy commanders and have a big owner-ship stake in the chosen strategy.

1993 1994 1995 1996 1997

$250

0

200

150

100

50

Mill

ion

s o

f d

olla

rs

Operating profits (in millions) $120 $140 $192 $213 $230

Net Profits (in millions) N.A. $60 $96 $106 $116

Exhibit 1 estimated operating and net Profits of W. l. gore & associates, 1994–97

Data from Forbes Magazine’s Annual Report on the 500 Largest Private Companies in the U.S.

Source: Institute for Brewing Studies.

Publication/Subject Lexis/Nexis File Name

Hoover company profiles HOOVER Securities and Exchange Commission SEC Company annual reports ARS Company annual 10-K fillings 10-K Company quarterly 10-Q filings 10-Q Business wire BWIRE Public relations newswire PRNEWS S&P Daily News SPNEWS Fortune FORTUN

case 8 Starbucks Corporation C-5

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Page 34: Crafting and Executing Strategy the Quest for Competitive Advantage, Concepts and Cases Thompson

Results of operations dataNet revenues Retail Specialty sales Direct response

Total net revenuesOperating incomeProvisions for merger1

Gain on sale of investment in Noah’s2

Net earningsNet earnings per common and common equivalent share—fully diluted3

Cash dividends per share

Balance sheet dataWorking capitalTotal assetsLong-term debt (including current portion)Redeemable preferred stockShareholders’ equity

Store operating dataPercentage change in comparable store sales4

Stores open at year end— continental North America: Company-operated stores Licensed stores5

Stores open at year end— outside continental North America: Licensed stores5

Total stores

$ 828,074 117,635 21,237

966,946 88,222 —

—$ 57,412

$ 0.70 —

$ 177,578 850,672

168,832 —$ 531,830

5%

1,270 94 1,364

74

1,381

$ 828,074 117,635 21,237

966,946 88,222 —

—$ 57,412

$ 0.70 —

$ 177,578 850,672

168,832 —$ 531,830

5%

1,270 94 1,364

74

1,381

$ 828,074 117,635 21,237

966,946 88,222 —

—$ 57,412

$ 0.70 —

$ 177,578 850,672

168,832 —$ 531,830

5%

1,270 94 1,364

74

1,381

$ 828,074 117,635 21,237

966,946 88,222 —

—$ 57,412

$ 0.70 —

$ 177,578 850,672

168,832 —$ 531,830

5%

1,270 94 1,364

74

1,381

$ 828,074 117,635 21,237

966,946 88,222 —

—$ 57,412

$ 0.70 —

$ 177,578 850,672

168,832 —$ 531,830

5%

1,270 94 1,364

74

1,381

$ 828,074 117,635 21,237

966,946 88,222 —

—$ 57,412

$ 0.70 —

$ 177,578 850,672

168,832 —$ 531,830

5%

1,270 94 1,364

74

1,381

September28, 1997

(52 weeks)

September29, 1996

(52 weeks)

October1, 1995

(52 weeks)

October2, 1994

(52 weeks)

October3, 1993

(52 weeks)

As of and for the Fiscal Year Ended

September27, 1992

(52 weeks)

1 Provision for merger costs reflects expenses related to the merger with the Coffee Connection, Inc. in fiscal 1994.2 Gain on sale of investment in Noah’s result from he sale of Noah's New York Bagel, Inc. (“Noah’s”), stock in fiscal 1996.3 Earnings per share is based on the weighted-average shares outstanding during the period plus.4 Includes only company-operated stores open 13 months or longer.5 Operated by licensees through either licensing agreement or joint ventures.

Exhibit 1 key Performance statistics for starbucks corporation , 1992-97

C-6 Cases in Strategic Management

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Page 35: Crafting and Executing Strategy the Quest for Competitive Advantage, Concepts and Cases Thompson

• Broadening the firm’s product line to close off vacant niches and gaps to would-be challengers.• Introducing models or brands that match the characteristics challengers’ models already have or might have.• Keeping prices low on models that most closely match competitors’ offerings.

A strong approach to defensive strategy entails signaling challengers that their is a real threat of strong retaliation if a challenger attaches. The gals is to dissuade challengers from attacking at all or at least divert them to options that are less threatening to the defender. Would be challengers can be sig-naled by.

Cash flowI came to work the first of May [1992] and we were totally out of the bank by the 23rd day of August, we have not had to borrow a penny from the banks since then. We currently have cash flow in excess of $100 million] per year with a cash flow of %55 million, after capital expenditures, dividends, and taxes.

AcquisitionsWhile some of the recent acquisitions are small companies, they have internal rates of returns that are exceptional: Frederick Manufacturing at over 27 percent, and CTR at 40.1 percent. We gave them delayed payments of three years (for CTR) and paid for in two and half. We’ve owned it for two and half years, and now it’s throwing off about $5 million a year in cash flow.

W.L. Gore’s Guiding Principles and Core ValuesThe strategy-making, strategy-implementing pro-cess consists of five interrelated managerial tasks.

1. Try to be fair.2. Encourage, help, and allow other associates to

grow in knowledge, skill and scope of activity and responsibility.

3. Make your own commitments, and keep them.4. Consult with other associates before taking

risks.

Centralized/Decentralized Command In moving mountains, Pagonis quoted sixth-century Chinese poet Lao-tzu as an example summarizing the essence of good leadership.

A leader is bestWhen people barely now he exists, Not so good when people obey and acclaim him, Worse when they despise him.But of a good leader, who talks little,When his work is done, his aim fulfilled, They will say:We did it ourselves.16

Pagoni’s goal was to build a leadership-supporting environment, one with centralized control and decen-tralized execution. In this environment, Pagonis controlled the process but not the decisions. tive capabilities and strategies of rival companies. Thus, whenever one firm makes a strategic move, its rivals often retaliate with offensive or defensive countermovers. This pattern of action and reaction makes competitive rivalry a “war-games” type of contest outcomes that spell the difference between profit and loss. Key success factors concern what every industry member must be competent at doing or concentrate on achieving in order to be com-petitively and financially successful. KSFs are so important that all firms in the industry must pay them close attention—they are the prerequisites for industry success. The answers to three questions help identify an industry’s key success factors

bibliographyBadaracco, Joe and Allen P. Webb. “Business Ethics: A

View form the Trenches.” California Management Review 37, no. 2 (winter 1995), pp.8-28.

Clement, Ronald W. “Culture, Leadership, and Power: The Keys to Organizational Change.” Business Horizons 37, no 1 (January-February 1994), pp.33-39.

Deal, Terrence E., and Allen A. Kennedy. Corporate Cultures. Reading, Mass.: Addision-Wesley, 1982, especially chaps. 1 and 2.

Eccles, Robert G. “The Performance Measurement Manifesto.” Harvard Business Review 69 (January–February 1991), pp. 131-37.

Farkas, Charles M. Suzy Wetlaufer, “The Ways Chief Executive Officers Lead,” Harvard Business Review 74 no. 3 (May–June 1996), pp. 1110-122.

case 8 Starbucks Corporation C-5

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Page 37: Crafting and Executing Strategy the Quest for Competitive Advantage, Concepts and Cases Thompson

Indexes

I-3

ABC, 60Account management of advertising firm, 319Accuracy of news, 37–376Acquisition editor, 119Acta diurna, 125Administration (department) in advertising firm, 319 in magazine publishing, 172 in music department, 256 in television, 287Advertiser(s) public relations for, 396 top 10, 303Advertiser influence, 392–396Advertising 294–296

A-T-R model and, 302–303 bandwagon and, 307 card stacking and, 307 of cigarettes, 31 consumers’ information environ- ment and 303–304 controversies about, 308–310 cutting-edge theory and, 3-1–302 developement of, 296–298, 300 early, 296 eight lifestyles and, 317 electronic, 297–298, 300 expanding world of, 301 first ad agency and, 296, 297 future of, 319–320 government regulation of, 297

of hard liquor, 314 in magazines, 173 minimal-effects theory and, 300–301 mission of VALS and, 317 music and, 307–308ABC, 60Account management of advertising firm, 319Accuracy of news, 37–376Acquisition editor, 119Acta diurna, 125Administration (department) in advertising firm, 319 in magazine publishing, 172 in music department, 256

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ORGANIZATION

Page 38: Crafting and Executing Strategy the Quest for Competitive Advantage, Concepts and Cases Thompson

I-4

Page 39: Crafting and Executing Strategy the Quest for Competitive Advantage, Concepts and Cases Thompson

I-5

ABC, 60Account management of advertising firm, 319Accuracy of news, 37–376Acquisition editor, 119Acta diurna, 125Administration (department) in advertising firm, 319 in magazine publishing, 172 in music department, 256 in television, 287Advertiser(s) public relations for, 396 top 10, 303Advertiser influence, 392–396Advertising 294–296

A-T-R model and, 302–303 bandwagon and, 307 card stacking and, 307 of cigarettes, 31 consumers’ information environ- ment and 303–304 controversies about, 308–310 cutting-edge theory and, 3-1–302 developement of, 296–298, 300 early, 296 eight lifestyles and, 317 electronic, 297–298, 300 expanding world of, 301 first ad agency and, 296, 297 future of, 319–320 government regulation of, 297

of hard liquor, 314 in magazines, 173 minimal-effects theory and, 300–301 mission of VALS and, 317 music and, 307–308ABC, 60Account management of advertising firm, 319Accuracy of news, 37–376Acquisition editor, 119Acta diurna, 125Administration (department) in advertising firm, 319 in magazine publishing, 172 in music department, 256

SUBJECT INDEX

Page 40: Crafting and Executing Strategy the Quest for Competitive Advantage, Concepts and Cases Thompson
Page 41: Crafting and Executing Strategy the Quest for Competitive Advantage, Concepts and Cases Thompson

Chapter 111Gary Hamel, “Strategy as Revolution,”

Harvard Business Review 74, no. 4 (July-August 1996), p. 72.

Porter, The Competitive Advantage of Nations (New York: Free Press, 1990), p. 66.

James Brian Quinn, Intelligent Enterprise (New York: Free Press, 1992), p. 76.

11Gary Hamel, “Strategy as Revolution,” Harvard Business Review 74, no. 4 (July-August 1996), p. 72.

Porter, The Competitive Advantage of Nations (New York: Free Press, 1990), p. 66.

James Brian Quinn, Intelligent Enterprise (New York: Free Press, 1992), p. 76.

11Gary Hamel, “Strategy as Revolution,” Harvard Business Review 74, no. 4 (July-August 1996), p. 72.

Porter, The Competitive Advantage of Nations (New York: Free Press, 1990), p. 66.

James Brian Quinn, Intelligent Enterprise (New York: Free Press, 1992), p. 76.

11Gary Hamel, “Strategy as Revolution,” Harvard Business Review 74, no. 4 (July-August 1996), p. 72.

Porter, The Competitive Advantage of Nations (New York: Free Press, 1990), p. 66.

James Brian Quinn, Intelligent Enterprise (New York: Free Press, 1992), p. 76.

Chapter 211Gary Hamel, “Strategy as Revolution,”

Harvard Business Review 74, no. 4 (July-August 1996), p. 72.

Porter, The Competitive Advantage of Nations (New York: Free Press, 1990), p. 66.

James Brian Quinn, Intelligent Enterprise (New York: Free Press, 1992), p. 76.

11Gary Hamel, “Strategy as Revolution,” Harvard Business Review 74, no. 4 (July-August 1996), p. 72.

Porter, The Competitive Advantage of Nations (New York: Free Press, 1990), p. 66.

James Brian Quinn, Intelligent Enterprise (New York: Free Press, 1992), p. 76.

11Gary Hamel, “Strategy as Revolution,” Harvard Business Review 74, no. 4 (July-August 1996), p. 72.

Porter, The Competitive Advantage of Nations (New York: Free Press, 1990), p. 66.

James Brian Quinn, Intelligent Enterprise (New York: Free Press, 1992), p. 76.

11Gary Hamel, “Strategy as Revolution,” Harvard Business Review 74, no. 4 (July-August 1996), p. 72.

Porter, The Competitive Advantage of Nations (New York: Free Press, 1990), p. 66.

James Brian Quinn, Intelligent Enterprise (New York: Free Press, 1992), p. 76.

Porter, The Competitive Advantage of Nations (New York: Free Press, 1990), p. 66.

James Brian Quinn, Intelligent Enterprise (New York: Free Press, 1992), p. 76.

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Endnotes

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