part 1 Strategic Analysis
Chapter 1
Strategic Management: Creating Competitive Advantages.... 2 (1-2)
What Is Strategic Management?……………………………..…….….…….….….. 8 (1-5)
Defining Strategic Management…………………………………………………………..….…….….… 8 (1-5)
The Four Key Attributes of Strategic Management……………………………….….….…….….. 9 (1-6)
The Strategic Management Process…………………………………………………. 10 (1-7)
Intended versus Realized Strategies……………………………………………………………………… 10 (1-7)
Strategy Analysis……………………………………………………………………………………………….. 12 (1-7)
Strategy Formulation………………………………………………………………………………..….….… 14 (1-8)
Strategy Implementation………………………………………………………………………..….….……. 14 (1-8)
The Role of Corporate Governance
and Stakeholder Management…………………………………….….…….….…….. 15 (1-8)
Alternative Perspectives of Stakeholder Management…………………….….…….….…….….. 16 (1-10)
Social Responsibility and Environmental Sustainability:
Moving beyond the Immediate Stakeholders………………………………….….…….…. 18 (1-11)
The Strategic Management Perspective:
An Imperative throughout the Organization……………………………………. 22 (1-13)
Ensuring Coherence in Strategic Direction……………………….….…….…... 23 (1-14)
Organizational Vision………………………………………………………………………….….…….…... 24 (1-14)
Mission Statements…………………………………………………………………………………………….. 26 (1-16)
Strategic Objectives……………………………………………………………………………….…….….… 27 (1-17)
Issue for Debate 29 (1-19)
Reflecting on Career Implications……………………………………..….….…….. 29 (1-20)
Summary……………………………………………………………………………….…….… 30 (1-22)
Chapter 1
Strategic Management:
Creating Competitive Advantages
Summary/Objectives
At the heart of strategic management is the question: “How and why do some firms
outperform others?” The challenge to managers is to develop and implement strategies that will
provide competitive advantages that will be sustainable over time. This chapter is divided into
five sections.
1. The first section addresses the broad question: “What is strategic management?”
Here, we define strategic management as “consisting of the analysis, decisions, and
actions an organization undertakes to create and sustain competitive advantages.” We
also address the four key attributes of strategic management: concern with overall
objectives; involvement of multiple stakeholders; incorporation of short- and long-
term perspectives; and recognition of tradeoffs between effectiveness and efficiency.
We also introduce the concept of “ambidextrous behaviors”—the need to combine
alignment and adaptability.
2. The second section discusses the strategic management process. Here, we present the
three processes—analysis, formulation, and implementation—that provide the
framework for the overall organization of the thirteen chapters of the book.
3. The third section focuses on the vital role of corporate governance, which is essential
to ensuring that the actions of a firm’s management are consistent with the goals of its
owners—the shareholders. We also address stakeholder management. It must be taken
into account throughout the strategic management process. Although the interests of
stakeholders may, at times, conflict, we discuss how firms are able to achieve
“symbiosis” among stakeholders wherein various interests are considered
interdependent and can be attained simultaneously. We address the importance of
social responsibility, including environmental sustainability, as well as challenges
associated with making the case for sustainability initiatives.
4. The fourth section addresses today’s greater need for a strategic management
perspective throughout the organization. With the emergence of the knowledge of
economy and globalization, leaders must mobilize people throughout the
organization.
5. The fifth section discusses the need for organizations to attain consistency in their
vision, mission, and strategic objectives. Collectively, they form a hierarchy of goals.
Lecture/Discussion Outline
We begin the chapter in LEARNING FROM MISTAKES with a clever quote from
Arthur Martinez, Sears’s former chairman: “Today’s peacock is tomorrow’s feather duster” to
help illustrate the rapid turnover among the Fortune 500 firms over a period of time. With rapid
changing technologies and intensified global competition success can be temporary.
The SUPPLEMENT below, from a recent article in The Economist, provides some
additional insight.
Extra Example: Rapid Turnover among Industry Leaders
In the 1950s and 1960s the corporate world was ruled by cabals of giants—by the “Big Three” in American cars and
broadcasting and the “Seven Sisters” in global oil. C. Wright Mills, a sociologist, complained that America was
ruled by a tiny elite. J.K. Galbraith, an economist, argued that there was not much difference between state planning
as practiced by the Russians and corporate planning as practiced by General Motors.
Today’s corporate world could hardly be more different. Time is being compressed: Google was incorporated only in
1998 but is now one of the world’s biggest companies. Geography too is being tightened: who would have guessed
in Galbraith’s day that one of the world’s leading aircraft-makers would be Brazilian (Embraer) or that one of the
most innovative clothes brands would be Spanish (Zara)? In 1980 a corporation in the top fifth of its industry had
only a 10 percent chance of falling out of that tier in five years. Eighteen years later that chance had risen to 25
percent.
Source: Anonymous. 2013. The transience of power. The Economist. March 16: 70.
Discussion Question 1: What are the implications for your careers? (This is a rather
general question, but it might help remind students that they must be sensitive to changes
Teaching Tip: By raising the “career implications” question, you will have the
opportunity to briefly introduce the concept of the sustainability of competitive
advantage(s), i.e., the criteria of rare, valuable, difficult to copy (imitate and substitute)
The opening case is about a firm that most students were probably familiar with—and
probably patronized—Groupon. It helps to illustrate our opening theme that achieving success in
The case serves to illustrate the two perspectives of leadership that we discuss:
Discussion Question 2: What lessons can we learn from Groupon’s declining performance?
Response guidelines: There are many lessons students can learn from Groupon. First, there was
an exceptionally high level of overconfidence on Mason’s and Lefkofsky’s part. Although its
market valuation was originally much higher than the initial $6 billion pre-IPO offer from
Google, the firm’s value sank rather rapidly. Second, it is rather apparent that
We then emphasize that leaders can have a very positive impact on organizations and
point out such well-known leaders in business as Jack Welch (former GE chairman), Andy Grove
Discussion Question 3: What are some other examples of executives who have overcome
significant challenges (over which they had relatively little control) and guided their firm
to a high level of success in their industry?
INSIGHTS FROM EXECUTIVES, Melvin Alexander, CPA, on page 7 provides a
Discussion Question 4: What are some other short- and long-term implications of this
legislation?
The SUPPLEMENT below provides an interesting insight on some of the downsides of
Obamacare from the perspective of a practicing surgeon—who is also an adjunct scholar at the
Extra Example: A Surgeon’s Perspective on Obamacare
A recent Boston University/Harvard Medical School study suggests that up to 80 percent of people participating in
the Obamacare’s Medicaid expansion have been shifted off their private insurance. These patients’ plans—that they
liked, and were told they could keep—did not meet Affordable Care Act requirements, and were eliminated.
Healthcare.gov offered them Medicaid.
But the irony doesn’t stop there. Even if my patients save money by no longer paying premiums, they suffer in the
long run by being trapped in a subpar health-care system. A Medicaid card does not translate into quality medical
care. In some cases, it does not translate into medical care at all.
Only 45 percent of doctors are now accepting new Medicaid patients, according to a recent survey by the health-care
company Merritt Hawkins. The number has dropped from 55 percent in the past five years. In some cities—Dallas
and Minneapolis, for example—as few as 23 percent of doctors are seeing new Medicaid patients. As Obamacare
vastly expands the number of patients on the Medicaid rolls—three million new patients, by last count—this
threatens these patients’ well-being . . . up to 80 percent of these new Medicaid patients previously had private
insurance. Thanks to Obamacare, they have been shunted into a second-class health-care system.
Source: Singer, J.A. 2014. Obamacare shunts my patients into Medicaid. Wall Street Journal. October 21: A13.
I. What Is Strategic Management?
We point out that it is very important for managers to see their jobs as more than just
custodians of the “status quo.” Rather, they must proactively anticipate change and continually
A. Defining Strategic Management
We define strategic management as “consisting of the analysis, decisions, and actions an
First, strategic management entails three on-going processes: analysis, decisions, and
Second, the essence of strategic management is the study of why some firms outperform
others. We draw on Michael Porter’s work to make the important distinction between strategy
Discussion Question 5: Are you familiar with some firms that created advantages in the
marketplace that were very temporary?
B. The Four Key Attributes of Strategic Management
Here, we address four key attributes of strategic management. Strategic management is
directed toward organizational goals and objectives; includes multiple stakeholders in decision
EXHIBIT 1.1 provides our definition of strategic management and these four attributes.
Discussion Question 6: What are some examples of leaders who failed to incorporate
some of these attributes in their decision making? What were the implications?
The SUPPLEMENT below points out the importance of a key attribute of strategic
Extra Example: When a Firm Needs Farmers and Vikings
Executives who excel at execution resemble Nordic Vikings, who attacked when they saw an unprotected spot and
retreated when they realized they could not win, maneuvering their longboats toward the next opportunity. Once
Vikings seized a bit of land, however, they often remained to farm it. Over time, they came to value the security of
protecting what they had, more than the adventure of pursuing new opportunities.
Organizations are susceptible to a similar dynamic. As a business matures, early entrepreneurs leave for new
adventures or settle into safe routines at the firm. New employees join the company for its perceived stability, not for
adventure. What started as a Viking outpost becomes a farming community. Companies with too few Vikings on the
payroll struggle to execute with sufficient urgency. That is why soon after assuming control of a portfolio company,
Garantia’s (a producer of rainwater tanks) executives would implement a trainee program to attract the best and
brightest college graduates, a practice the firm has continued as it has expanded. These graduates provide a steady
stream of Vikings and exert constant pressure on executives who might otherwise lapse into the comfort of farm life.
Source: Sull, D. 2010. Are you ready to rebound? Harvard Business Review. 88(3): 74
Discussion Question 7: Are companies you are familiar with or work at comprised of
Vikings or farmers? Would your answer vary over time?
Discussion Question 8: When should firms hire more Vikings? How about farmers?
We close the section with a brief introduction of the concept of “ambidextrous
behaviors”—the ability to both be proactive in taking advantage of future opportunities, as well
how one can become an ambidextrous leader. Ask:
Discussion Question 9: Do you know of any managers or executives who have exhibited
ambidextrous behaviors? How?
II. The Strategic Management Process
We restate the three ongoing processes in strategic management—analysis, decisions, and
A. Intended Versus Realized Strategies
EXHIBIT 1.2 draws on the influential work of Henry Mintzberg of McGill University.
He distinguishes between “intended” and “realized” strategies, and we provide the example of
Discussion Question 10: What are some other examples of “unrealized” or emergent
strategies?
EXHIBIT 1.3 depicts the strategic management process and indicates how it ties into the
chapters in the book. And, consistent with the discussion in the text, the two-way arrows convey
the interactive nature of the process.
Teaching Tip: Refer back to the opening case of Groupon’s poor performance. When
discussing EXHIBIT 1.3, it would be helpful to ask the class to illustrate how this exhibit
The next three subsections address each of the three key strategic management processes:
B. Strategy Analysis
Strategy analysis consists of, in effect, the “advance work” that must be done in order to
effectively formulate and implement strategies. Many strategies fail because managers may want
1. Analyzing Organization Goals and Objectives (Chapter 1)
2. Analyzing the External Environment (Chapter 2)
3. Assessing the Internal Environment (Chapter 3)
4. Assessing a Firm’s Intellectual Assets (Chapter 4)
C. Strategy Formulation
A firm’s strategy is formulated at several levels. First, business-level strategy addresses
the issue of how firms compete in an industry to gain competitive advantage. Second, corporate-
level strategy focuses on two issues: (1) what businesses to compete in, and (2) how businesses
1. Formulating Business Level Strategies (Chapter 5)
2. Formulating Corporate Level Strategies (Chapter 6)
3. Formulating International Level Strategies (Chapter 7)
4. Entrepreneurial Strategy and Competitive Dynamics (Chapter 8)
D. Strategy Implementation
Clearly, effective strategies are of little value if they are not properly implemented.
Implementing strategies involves strategic controls and organizational designs; coordination and
integration among activities within the firm, as well as with customers and suppliers; and
effective leadership.
1. Strategic Control and Corporate Governance (Chapter 9)
2. Creating Effective Organizational Designs (Chapter 10)
3. Strategic Leadership: Excellence, Ethics and Change (Chapter 11)
4. Fostering Corporate Entrepreneurship (Chapter 12)
5. Analyzing Strategic Management Cases (Chapter 13)
III. The Role of Corporate Governance and Stakeholder Management
We discuss three important and related concepts: corporate governance, stakeholder
Corporate governance addresses the relationship between various participants in
EXHIBIT 1.4 illustrates these three participants.
(Corporate governance is discussed in much more detail in Chapter 9. However, it is such
a “hot” topic, that we wanted to introduce it in the text’s opening chapter.)
Discussion Question 11: What are some other recent examples of poor corporate
governance? (Examples would include Bank of America, Brocade, Countrywide
Financial, etc.)
Discussion Question 12: What are the causes of such poor governance?
We address some examples of extremely high executive pay—in many cases the pay is
The SUPPLEMENT below provides some information on the increased rapid turnover of
CEOs among large firms and the growing pressure that CEOs face from investors and other
stakeholders.
Extra Example: CEOs Face More Pressure from Boards and a Variety of Stakeholders
CEOs are spending less time at the helm: the tenure of the average American CEO has plunged from about ten years
in the 1990s to five-and-a-half as of 2013. Those who disappoint are held to account: 80 percent of CEOs of the
S&P companies are ousted before retirement. CEOs must confront a growing army of critics from within the
capitalist system. CEOs also face a growing army of critics from outside the Board. Banks have been chided for sins
such as interest-rate rigging (Barclays), money-laundering (HSBC) and illicit dealings with Iran (Standard
Chartered).
Source: Anonymous. 2013. The transience of power. The Economist. March 16: 70.
Teaching Tip: As we note, executive compensation is a very “hot” topic and might be a
subject that you would like to spend some time on (even though we address corporate
governance issues in much more detail in Chapter 9). It is early in the term and this might get
many students’ “blood pressure” up and lead to spirited debates. You might also ask “How much
is too much?” Some students may argue “whatever the market conditions are, because of the
The SUPPLEMENT below provides some interesting insights between developed versus
Extra Example: The West Has Much Lower Confidence in Capitalism
The great majority, not surprisingly, have a “favorable” view of corporations whether they come from developed (82
percent) or emerging (86 percent) markets. However, the general public’s view of corporations is far less favorable.
Interestingly, people in developed markets—including the U.S., U.K., Germany, Japan and Hong Kong—retain
especially skeptical views.
Only 52 percent of the public in developed markets have a “favorable” view of corporations, compared
with 72 percent in emerging markets such as China, Brazil, India, Mexico and Turkey.
Nearly 60 percent of the public in emerging markets favor corporations that are “strong and influential”
because they are “engines of innovation and economic growth.” Just over one-third of the public in
developed markets agree.
In developed markets, 45 percent say corporations have “too much influence over government,” compared
with 30 percent in emerging economies.
Source: Baer, D.A. 2014. The West’s Bruised Confidence in Capitalism. Wall Street Journal. September 22: A17.
A. Alternative Perspectives on Stakeholder Management
In this section we recognize, of course, that there are often conflicting demands among an
organization’s stakeholders. However, managers need to acknowledge the interdependence
EXHIBIT 1.5 lists seven key stakeholder groups and the nature of their claims.
1. Zero-Sum or Symbiosis
We address the many stakeholder challenges faced by Wal-Mart.
Discussion Question 13: What are some ways Wal-Mart’s stakeholder demands may
conflict? How might they be highly interdependent and positively (or negatively) related
to each other?
STRATEGY SPOTLIGHT 1.2 discusses how firms such as Nike, Walmart, and Patagonia
Discussion Question 14: Can you give other examples of other such collective
initiatives? And, in your example, have all stakeholders benefitted (or been penalized)
equally?
B. Social Responsibility and Environmental Sustainability: Moving Beyond the
Immediate Stakeholders
1. Social Responsibility
Managers must consider the needs of the broader community-at-large and act in a socially
The following SUPPLEMENT summarizes some of the central points in the debate as to
the value of corporations to devote significant resources to corporate social responsibility:
Extra Example: Stakeholders Versus Shareholders
Although corporate social responsibility may appear to be an “apple-pie virtue,” it is quite controversial. Below are
some of the chief arguments for and against it:
Proponents will claim that it…
BURNISHES A COMPANY’S REPUTATION. In the wake of corporate scandals, corporate social responsibility
builds goodwill—and can pay off when scandals or regulatory scrutiny inevitably arise.
ATTRACTS TALENT. Many young professionals expect their employers to be active in social issues. Membership
in Netimpact.org, a network of socially-conscious MBA graduates, jumped from 4,000 in 2002 to 10,000 in 2004.
On the other hand, Detractors will argue that it…
COSTS TOO MUCH. Giving by corporate foundations reached an all-time high of $3.6 billion last year. However, it
can come at the expense of other priorities, such as research and development, and is rarely valued by Wall Street.
IS MISGUIDED. Many corporate executives believe, as economist Milton Friedman does, that the role of business
is to generate profits for shareholders—not to spend others’ money for some perceived social benefit.
Source: Grow, B., Hamm, S. & Lee, Louise. 2005. The debate over doing good. Business Week, August 15: 76-78.
Teaching Tip: You could likely generate some interesting debate by asking students to
take alternative positions on this issue. Perhaps, assign one student to the “pro” position
and one to the “con” position. Also, give them a chance to rebut the other person’s