Strategic Management

1 THIRTEENTH EDITION. Strategic Management CONCEPTS AND CASES. Fred R. David Francis Marion University Florence, South Carolina Prentice Hall Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo Strategic Management CONCEPTS AND CASES. Editorial Director: Sally Yagan Manager, Visual Research: Beth Brenzel Editor in Chief: Eric Svendsen Manager, Rights and Permissions: Zina Arabia Acquisitions Editor: Kim Norbuta Image Permission Coordinator: Cynthia Vincenti Product Development Manager: Ashley Santora Manager, Cover Visual Research & Permissions: Editorial Project Manager: Claudia Fernandes Karen Sanatar Editorial Assistant: Meg O'Rourke Cover Art: Vetta TM Collection Dollar Bin: Director of Marketing: Patrice Lumumba Jones istockphoto Marketing Manager: Nikki Ayana Jones Editorial Media Project Manager: Ashley Lulling Marketing Assistant: Ian Gold Production Media Project Manager: Lisa Rinaldi Senior Managing Editor: Judy Leale Full-Service Project Management : Thistle Hill Associate Production Project Manager: Publishing Services, LLC.

2 Ana Jankowski Composition: Integra Software Services, Ltd. Operations Specialist: Ilene Kahn Printer/Binder: Courier/Kendallville Art Director: Steve Frim Cover Printer: Lehigh-Phoenix Color/Hagerstown Text and Cover Designer: Judy Allan Text Font: 10/12 Times Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on appropriate page within text. Copyright 2011, 2009, 2007 by Pearson Education, Inc., publishing as Prentice Hall, One Lake Street, Upper Saddle River, New Jersey 07458. All rights reserved. Manufactured in the United States of America. This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. To obtain permission(s) to use material from this work, please submit a written request to Pearson Education, Inc.

3 , Permissions Department, One Lake Street, Upper Saddle River, New Jersey 07458. Many of the designations by manufacturers and seller to distinguish their products are claimed as trademarks. Where those designations appear in this book, and the publisher was aware of a trademark claim, the designations have been printed in initial caps or all caps. Library of Congress Cataloging-in-Publication Data David, Fred R. Strategic Management : concepts and cases / Fred R. David. 13th ed. p. cm. Includes bibliographical references and index. ISBN-13: 978-0-13-612098-8 (casebound). ISBN-10: 0-13-612098-9 (casebound). 1. Strategic planning. 2. Strategic planning Case studies. I. Title. 2011. '012 dc22. 2009052036. 10 9 8 7 6 5 4 3 2. ISBN 10: 0-13-612098-9. ISBN 13: 978-0-13-612098-8. To Joy, Forest, Byron, and Meredith . my wife and children . for their encouragement and love. Brief Contents Preface xvii Acknowledgments xxiii Part 4. About the Author xxvii Strategy Evaluation 284. Chapter 9.

4 Part 1 Strategy Review, Evaluation, Overview of Strategic Management 2 and Control 284. Chapter 1 Part 5. The Nature of Strategic Management 2. Key Strategic - Management Topics 308. THE COHESION CASE: MCDONALD'S 2009 27. Chapter 10. Part 2 Business Ethics/Social Responsibility/. Strategy Formulation 40 Environmental Sustainability 308. Chapter 2 Chapter 11. The Business Vision and Mission 40 Global/International Issues 328. Chapter 3 Part 6. The External Assessment 58. Strategic - Management Case Chapter 4 Analysis 346. The Internal Assessment 90 How to Prepare and Present Chapter 5 a Case Analysis 346. strategies in Action 130 Name Index 359. Chapter 6 Subject Index 363. Strategy Analysis and Choice 172. Part 3. Strategy Implementation 210. Chapter 7. Implementing strategies : Management and Operations Issues 210. Chapter 8. Implementing strategies : Marketing, Finance/. Accounting, R&D, and MIS Issues 250. vii Contents Preface xvii What Is Our Business? 43. Vision versus Mission 45 & The Process of Developing Vision Acknowledgments xxiii and Mission Statements 46.

5 About the Author xxvii Importance (Benefits) of Vision and Mission Statements 47. Part 1 A Resolution of Divergent Views 48. Overview of Strategic Management 2 Characteristics of a Mission Statement 49. A Declaration of Attitude 49 & A Customer Chapter 1 Orientation 50 & Mission Statement Components 51. The Nature of Strategic Management 2 Writing and Evaluating Mission Statements 53. MCDONALD'S CORPORATION: DOING GREAT ASSURANCE OF LEARNING EXERCISES 56. IN A WEAK ECONOMY 4. Assurance of Learning Exercise 2A: Evaluating Mission What Is Strategic Management ? 5 Statements 56. Defining Strategic Management 6 & Stages of Assurance of Learning Exercise 2B: Writing a Vision and Mission Strategic Management 6 & Integrating Intuition Statement for McDonald's Corporation 56. and Analysis 7 & Adapting to Change 8 Assurance of Learning Exercise 2C: Writing a Vision and Mission Key Terms in Strategic Management 9 Statement for My University 57. Competitive Advantage 9 & Strategists 10 & Vision and Mission Assurance of Learning Exercise 2D: Conducting Mission Statement Statements 11 & External Opportunities and Threats 11& Research 57.

6 Internal Strengths and Weaknesses 12 & Long-Term Objectives 13. & strategies 13 & Annual Objectives 13 & Policies 14. The Strategic - Management Model 14 Chapter 3. Benefits of Strategic Management 16 The External Assessment 58. Financial Benefits 17 & Nonfinancial Benefits 18 DUNKIN' BRANDS, INC.: DOING GREAT IN A WEAK. Why Some Firms Do No Strategic Planning 18 ECONOMY 60. Pitfalls in Strategic Planning 19 The Nature of an External Audit 61. Guidelines for Effective Strategic Management 19 Key External Forces 61 & The Process of Performing an External Audit 62. Comparing Business and Military Strategy 21. The Industrial Organization (I/O) View 63. THE COHESION CASE: MCDONALD'S. CORPORATION 2009 27 Economic Forces 63. ASSURANCE OF LEARNING EXERCISES 37 Social, Cultural, Demographic, and Natural Environment Assurance of Learning Exercise 1A: Gathering Strategy Forces 66. Information 37 Political, Governmental, and Legal Forces 68. Assurance of Learning Exercise 1B: Strategic Planning Technological Forces 69.

7 For My University 37. Competitive Forces 71. Assurance of Learning Exercise 1C: Strategic Planning Competitive Intelligence Programs 72 & Market Commonality at a Local Company 38. and Resource Similarity 74. Assurance of Learning Exercise 1D: Getting Familiar with SMCO 38. Competitive Analysis: Porter's Five-Forces Model 74. Part 2 Rivalry Among Competing Firms 75 & Potential Entry of Strategy Formulation 40 New Competitors 76 & Potential Development of Substitute Products 77 & Bargaining Power of Suppliers 77 & Bargaining Chapter 2 Power of Consumers 77. The Business Vision and Mission 40 Sources of External Information 78. WAL-MART: DOING GREAT IN A WEAK ECONOMY 42 Forecasting Tools and Techniques 78. What Do We Want to Become? 43 Making Assumptions 79. ix x CONTENTS. Industry Analysis: The External Factor Evaluation (EFE) Chapter 5. Matrix 80 strategies in Action 130. The Competitive Profile Matrix (CPM) 81 VOLKSWAGEN AG: DOING GREAT IN A WEAK. ASSURANCE OF LEARNING EXERCISES 86 ECONOMY.

8 HOW? 132. Assurance of Learning Exercise 3A: Developing an EFE Matrix for Long-Term Objectives 133. McDonald's Corporation 86 The Nature of Long-Term Objectives 133 & Financial versus Assurance of Learning Exercise 3B: The External Strategic Objectives 134 & Not Managing by Assessment 86 Objectives 135. Assurance of Learning Exercise 3C: Developing an EFE Matrix for The Balanced Scorecard 135. My University 87. Types of strategies 136. Assurance of Learning Exercise 3D: Developing a Competitive Levels of strategies 138. Profile Matrix for McDonald's Corporation 87. Integration strategies 139. Assurance of Learning Exercise 3E: Developing a Competitive Profile Matrix for My University 87 Forward Integration 139 & Backward Integration 140. & Horizontal Integration 141. Chapter 4 Intensive strategies 141. The Internal Assessment 90 Market Penetration 141 & Market Development 142. & Product Development 142. , INC.: DOING GREAT IN A WEAK. ECONOMY. HOW? 92 Diversification strategies 143.

9 Related Diversification 144 & Unrelated Diversification 144. The Nature of an Internal Audit 93. Key Internal Forces 93 & The Process of Performing an Internal Defensive strategies 146. Audit 93 Retrenchment 146 & Divestiture 148 & Liquidation 149. The Resource-Based View (RBV) 96 michael Porter's Five generic strategies 151. Integrating Strategy and Culture 97 Cost Leadership strategies (Type 1 and Type 2) 152 & Differentiation strategies (Type 3) 153 & Focus strategies (Type 4 and Type 5) 154. Management 99. & strategies for Competing in Turbulent, High-Velocity Planning 100 & Organizing 100 & Motivating 101 & Staffing Markets 155. 102 & Controlling 102 & Management Audit Checklist of Questions 103. Means for Achieving strategies 155. Cooperation Among Competitors 155 & Joint Venture/. Marketing 103. Partnering 156 & Merger/Acquisition 158 & First Mover Customer Analysis 103 & Selling Products/Services 103 & Advantages 161 & Outsourcing 161. Product and Service Planning 104 & Pricing 105 & Distribution 105 & Marketing Research 106 & Cost/Benefit Analysis 106 &.

10 Strategic Management in Nonprofit and Governmental Marketing/Audit Checklist of Questions 106 Organizations 162. Educational Institutions 162 & Medical Organizations 163. Finance/Accounting 106. & Governmental Agencies and Departments 163. Finance/Accounting Functions 107 & Basic Types of Financial Ratios 108 & Finance/Accounting Audit Checklist 113 Strategic Management in Small Firms 164. Production/Operations 113 ASSURANCE OF LEARNING EXERCISES 168. Production/Operations Audit Checklist 115 Assurance of Learning Exercise 5A: What strategies Should McDonald's Pursue in 2011 2013? 168. Research and Development 115. Assurance of Learning Exercise 5B: Examining Strategy Articles 168. Internal and External R&D 116 & Research and Development Audit 117 Assurance of Learning Exercise 5C: Classifying Some Year 2009. strategies 169. Management Information Systems 117. Assurance of Learning Exercise 5D: How Risky Are Various Strategic -Planning Software 118 & Management Information Alternative strategies ?