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Exercise
NEWER FACULTY: Ask students to scan the current mainstream media for examples of companies that are launching
new products or services. Identify whether the company seems to be emphasizing ways that it has lowered costs (and
will compete on the basis of price) or ways that it is adding features (and will compete on the basis of uniqueness). Or,
does the company seem to be trying to do both? JetBlue offers an example of a firm that allowed their competitive position
to become stuck in the middle. After the students’ presentations, you may want to extend the discussion to talk about whether
What Strategy Is: Gaining and Sustaining
Competitive Advantage LO 1–3
POWERPOINT SLIDES 19–20
EXERCISE
If you are teaching a capstone course that meets broad program-level learning objectives, such as critical reasoning skills and
decision-making skills, as well as discipline-specific strategy learning objectives, the Wall Street Journal article, “GE set to
exit retail lending” (8/30/13), offers material for one such exercise. You can begin exploring the concept of competitive
advantage by contrasting shareholder value creation under Jack Welch and destruction under Jeff Immelt and then discuss the
role that GE Capital played in both of these trends. What changed in the external environment to cause the crown jewels to
become a liability? Then challenge the students to use critical reasoning skills to (a) identify specific information in the
article that is relevant to making that determination and (b) evaluate the validity of that information. From that point you
could move into a discussion of decision-making skills. What information would you want to know in order to determine
whether Immelt is making the right choice for GE Capital? What other alternative solutions might the company consider?
AACSB 2015 Standard 9 Analytical thinking
DISCUSSION TOPICS
NEWER FACULTY: Industry effects describe the underlying economic structure of the industry. Firm effects, or the actions
managers take, tend to be more important in determining firm performance. Since this is a strategy class, it’s good to know
the decisions that managers make can have significant (good or bad) impacts on the firm. Industry and firm effects are
INTERDEPENDENT. Firms can create or influence the structure of their industry. You may want to bring in some
background here and mention that if we were in the perfectly competitive environment often used in economics, strategy
would not be important. In a perfectly competitive market, all the firms are identical and therefore none have superior
performance relative to the rest. Perfect markets though do make the math easier for us to get through those econ courses.
EXPERIENCED FACULTY: Given that traditional U.S. firms such as IBM have over 70 percent of their employees and
over 60 percent of their revenues outside the United States (in 2009), what is an appropriate definition of a “U.S.
firm”? Is there any special consideration a firm should have for its “home country”? A “U.S. firm” typically will have
its headquarters inside the U.S. So where the CEO and senior leaders are located is the “home” of the firm. Historically,
where the company is incorporated and what stock market its shares are listed on have also been used to denote a home
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However, in a global economy, the corporation must make decisions based on what is best for the variety of stakeholders.
END OF CHAPTER DISCUSSION QUESTION 3
As noted in the chapter, research found that firm effects are more important than industry effects. What does this
mean? Can you think of situations where this might not be true? It means that, in general, how a company is run is more
important than the success or failure of an industry as a whole. For instance, an oil company (that should be making
1.2 Stakeholders and Competitive
Advantage LO 1–4
POWERPOINT SLIDES 19–26
DISCUSSION TOPICS
NEWER FACULTY: Stakeholders are organizations, groups, and individuals who have a vested interest in the performance and
survival of the firm. Stakeholder strategy is a framework that connects corporate governance, business ethics, and strategic
leadership and thus helps managers think through these issues in a holistic fashion. Stakeholder theory is a theoretical
framework that is concerned with how different stakeholders create and trade value. Instructors can discuss the importance of
public companies and their influence on our daily life. Students need to understand the interdependent relationships between
these organizations and the average citizen. Then, discuss the importance of the public companies’ stakeholders and why
companies need to take good care of them. The answer is, “It is an interdependent relationship.” Only by taking care of the
stakeholders can they create a win–win, with mutually beneficial results to both companies and to society. This section sets a
foundation that allows instructors to talk later about social responsibilities.
NEWER FACULTY: Tap into the students’ very real experience of the impacts of the recent financial crisis on society and its
trust in business institutions. How has their trust in the financial system changed? What impacts might a loss of trust have on
financial firms’ ability to operate? (See “Life on Wall Street grows less risky” The Wall Street Journal 9/9/13.)
EXERCISE
Corporations are increasing their use of social media to stay in touch with their stakeholders. They use company blogs,
Twitter feeds, and Facebook postings to communicate the firm’s message in a positive way. They also have begun to pay
attention to and engage with third party websites, such as Yelp and blogs written by others. This exercise on the use of
blogging by large companies can be used to discuss the communication of strategies by these firms. Here is a link to the
BusinessWeek article about Dell’s response to a negative customer blog that generated a flurry of other negative customer
responses (http://buswk.co/RPOWr). Ask students to search for a large company that includes a blog on its official website.
Ask them to determine: What seems to be the primary purpose of the blog that you found? Does the blog seem to be updated
regularly? Does the blog allow users to post comments or questions? If so, what type of stakeholders post most of the
comments and how effectively does the company respond? Students may enjoy surfing the Web for companies that make
some of their favorite products. We have suggested a large firm because big and well-known firms have more of an Internet
presence than newer startup ventures. Another alternative for this exercise is to look for the corporation’s Twitter postings or
their Facebook fan page. We selected blogging for the exercise because that media format provides enough length for the
message to be captured fairly quickly. It is also a less restrictive communication tool and provides room for a wide diversity
of uses between different firms. This exercise lends itself well to blended or online courses. AACSB 2015 Standard 9
Information technology and statistics/quantitative methods impacts on business practices to include data creation, data
sharing, data analytics, data mining, data reporting, and storage between and across organizations including related ethical
issues
END OF CHAPTER DISCUSSION GROUP EXERCISE
Students in Oklahoma, New Jersey, Louisiana, Texas, Japan, Nepal, and other areas around the world that have recently
experienced natural disasters will be able to relate to this topic. This exercise can be used to push students to address this
problem from the perspective of a senior leader, such as a mayor, a governor, or the head of FEMA, rather than an individual
person or one functional discipline. Before breaking the students into small groups for discussion, you might want to work as
INTEGRATION
Interactive Sequencing: Internal and External Stakeholders
This click-drag sequencing activity starts with chronological ordering of some black swan events, as discussed in the
textbook. Then, the students are asked to consider the benefits and contributions of several different types of stakeholders
by answering two multiple choice questions from the text material. The student must read the textbook and then drag the
elements to the correct locations in both stages of this activity. Difficulty: Medium Blooms: Understand AACSB:
Analytic The instructor can expand on the concepts from this interactive by discussing recent activist stockholder
activities at firms such as Apple (Carl Icahn’s push for stock buybacks) and others pulled from the headlines.
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END OF CHAPTER ETHICAL/SOCIAL ISSUES
AACSB 2015 Standard 9 Ethical understanding and reasoning (able to identify ethical issues and address the issues in a
socially responsible manner) or Social responsibility, including sustainability, and ethical behavior and approaches to
management
Choose one of the companies discussed in the chapter (such as BP, Target, Threadless, Twitter, or Facebook). By
looking at the company’s annual report on its web page or conducting an Internet search for news about the
company, identify instances where the company has acted ethically or showed its interest in a key stakeholder—or
where it has failed to do so. Encourage the students to draw a distinction between illegal behavior and actions that are legal,
but might be considered unethical under one or more value systems.
Corporate leaders are responsible for setting the firm’s strategies to gain and sustain a competitive advantage. Should
managers be only concerned about the company’s financial performance? What responsibility do company managers
have for other consequences of their strategies? For example, should Walmart try to mitigate the negative impact its
arrival in communities can have on small locally owned stores? Should Apple be concerned about the working
conditions at Foxconn (the company that manufactures Apple’s devices such as the iPhone and the iPad in China)?
Why or why not? Explain. The senior leadership should be accountable for the firm’s performance and its relationship with
both internal and external stakeholders. As noted in the chapter, those stakeholders will include the community. However, the
influence of the community stakeholders is quite often small relative to many other groups. Generally, consumer-oriented
firms such as Walmart should care particularly about the reception they receive when moving into a new location. However,
it is not Walmart’s responsibility to use its competitive advantage to subsidize small locally owned stores that may have
Other than Whole Foods, think of company examples where “doing things right” and acting in the interests of broader
stakeholders (rather than just stockholders alone) have produced a stronger competitive advantage. Why was this the
case? Challenge students to identify firms whose products they prefer due to the firm’s reputation for social responsibility.
Do these firms create a higher “willingness to pay” among their customers or do they command a larger market share? Some
examples include Tom’s of Maine, Starbucks, and Ben & Jerry’s. Starbucks is a great example for a dialogue about how
1.2 Stakeholders and Competitive Advantage
Lo 1–5
POWERPOINT SLIDES 27–31
Strategy Highlight 1.2
END OF CHAPTER DISCUSSION QUESTION 2
PowerPoint Slide 31: The BP Horizon environmental disaster shows the consequences of failure to live up to the expectations
of society for corporate social responsibility. One might argue that they were effective in responding to stakeholder concerns
after the fact, by setting up processes for rapid payment of claims, supporting fishing communities, and running
advertisements for tourism. Others will fault their performance after the fact, arguing that the CEO at the time was too
standoffish and that the firm took too long to recognize and solve the technical issues and stop the leak. You might invite
14
students to research BP/Amoco safety incidents. They will find that one of the reasons the U.S. government was unwilling to
DISCUSSION TOPICS
NEWER FACULTY: Stakeholder impact analysis is a decision tool with which managers can recognize, assess, and address the
needs of different stakeholders to allow the firm to perform optimally and act as a good corporate citizen. Stakeholder impact
analysis is a five–step analysis. Who are our stakeholders? What are our stakeholders’ interests? What opportunities and
threats do our stakeholders present? What economic, legal, ethical, and philanthropic responsibilities do we have to our
stakeholders? What should we do to effectively address the stakeholder concerns?
Possible examples to illustrate the five-step stakeholder impact analysis could be BP’s relationships with its shareholders and
U.S. government agencies. Another possibility is Nestle’s relationships with its shareholders, its customers, and nutrition
activists. If you choose the Nestle example, you may want to ask students to read the comments about Nestle in its social
media pages. A way to make this discussion more interesting if you have journalism, public relations, public health, or
communications majors in your course, would be to invent an “event” for Nestle or use the real event for BP. Then ask
selected students to “report” on the incident from a few different perspectives and ask other students to present the company’s
position, as if they were the CEO. AACSB 2015 Standard 9 Social responsibility, including sustainability, and ethical
behavior and approaches to management and written and oral communication
EXPERIENCED FACULTY: A more complex example that one might use for stakeholder impact analysis is the U.S. auto
industry during the recent financial crisis and the impact on its supplier stakeholders. Financial weakness in suppliers of
specialized parts can make it impossible for an auto manufacturer to continue to produce cars or to recover production levels
after the crisis. However, the auto manufacturers were going through or approaching bankruptcy themselves, so throwing
financial lifelines or even paying the bills was challenging. Invite students to step through the five-step process with this
example. A similar example that might be more salient for some groups is the relationship between the home building
industry and its relationship with skilled tradesmen. AACSB 2015 Standard 9 Systems and processes in organizations,
including planning and design, production/operations, supply chains, marketing, and distribution
INTEGRATION
Interactive Labeling: Identifying Social Responsibilities
This click-drag matching activity builds student comprehension of the Stakeholder Impact Analysis. In particular, it
builds upon step 4 and the concept of Corporate Social Responsibility for the students. The student must read the
application examples provided and move the correct type of social responsibility to the box provided. Then the student
will answer three further questions. Difficulty: Medium Blooms: Apply AACSB: Analytic The instructor can expand on
the concepts from the Click and Drag by having students discuss the variety of social responsibilities surrounding
Strategy Highlight 1.2 about the Deepwater Horizon oil spill.
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EXERCISE
National differences may cause the definitions of corporate social responsibilities to differ across national borders. Also, the
relationship between “doing well” and “doing good” is perhaps not yet clear enough to guide business practices. That means
the causal relationships are not clear. If you have international students represented in your class this would be an interesting
topic for small group discussion.
1.3 The AFI Strategy Framework
POWERPOINT SLIDES 32–34
DISCUSSION TOPICS
NEWER FACULTY: You might consider using discussion of a popular movie that illustrates strategy, such as “Master and
Commander” or “Braveheart.” What were the keys to the hero’s success? These types of examples will enable you to bring
out the importance of careful analysis, a well-formulated strategy, and effective implementation. Each also offers illustrations
of effective and ineffective strategic leadership. AACSB 2015 Standard 9 Leading in organizational situations
END OF CHAPTER DISCUSSION QUESTION 1
Consider the brief description of Target’s stakeholder relationships and combine that information with your
experience shopping in a Target store. How might Target’s stakeholders (in particular, its employees, customers, local
communities, and suppliers) influence the manager’s decisions about building competitive advantage in the analysis
stage of the AFI framework? How might Target gather information from its stakeholders to inspire a better customer
experience in the formulation stage in order to differentiate? Or in order to lower costs? Brainstorm (by jotting down
as many ideas as you can think of) about how key stakeholders may affect (or be affected by) the implementation
stage. We recommend dividing the class into groups of 3–4 for small group discussion and assigning some groups to
represent each stakeholder group: customers, employees, suppliers, shareholders, and the local community. Ask them to
Research
Update
“Product and
environmental social
performance: Varying
effect on firm
performance,”
Satish
Jayachandran1,*, Kartik
Kalaignanam1, Meike Eilert,
Strategic Management
Journal, Volume 34, Issue 10,
pages 1255–1264, October
2013
EXPERIENCED FACULTY: These researchers disaggregate corporate social performance
into product social performance (“actions of a firm include meeting consumer needs
effectively and efficiently while avoiding ethical and regulatory problems”) and
environmental social performance (“diligent policy of limiting the negative impact that
its business has on the natural environment as well as acting to sustain the natural
environment proactively”). They find that product social performance has a positive
impact on firm performance (Tobin’s Q) and that environmental social performance
was not related to firm performance. They suggest that environmental social
performance is harder for shareholders to diagnose. They also found a negativity bias,
in that the negative effect of poor product social performance was greater than the
positive effect of good product social performance. This suggests that shareholders
punish negative social performance. This research can be incorporated into your course
with a class discussion on how a firm’s product social performance and environmental
social performance impact students’ purchasing behavior. Marketing students could be
invited to discuss how they might raise consumer awareness of a firm’s superior
environmental social performance.
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1.4 Implications for Strategists
POWERPOINT SLIDE 35
DISCUSSION TOPIC
NEWER FACULTY: A nice video to illustrate the implications for strategists is this one by James Goth, Partner and Managing
Director of BCG, Competitive Advantage. He discusses the meaning of competitive advantage and strategy.
Strategy Term Project: Initial Firm Selection &
Review
The goal of this course-long project is to provide a tangible application of many of the concepts discussed in the text. By the
end of the project, students will not only have practice in using key strategic management components and processes to
increase understanding of the material, but also will be able to conduct a complete strategic management analysis of any
company.
This first task is to identify a firm to study for this course-long project. In the text, we suggest two methods for choosing a
firm. The easiest and most consistent method will be to select a medium– or large-sized public company to study. The
secondary approach of selecting a local firm can provide challenges regarding the appropriate collection of data. Even if a
student works at the firm, there are quite often proprietary limits on the data (especially financial and competitive data) that
these firms will allow to be used for such a project. Be sure the student checks with the local firm on data availability.
Of course, as the instructor you may choose to assign firms or provide a list of acceptable firms for the student to select from.
As you are kicking off this project, now is a good time to discuss appropriate data sources with your students. There is a lot
of information available on the Internet. Unfortunately, a lot of it is nonsense, or is at least heavily flawed or biased.
Encourage your students to stay away from websites such as “I hate Company X” and to focus on reputable news and market
outlets for the bulk of their information. They should use a variety of sources, because even highly esteemed sources like The
Wall Street Journal and The New York Times can be biased in choosing their reporting topics and tone.
Once the firm is selected, it’s time for the students to start gathering information on the history of the firm, its current top
management team, and the primary business model for the firm (How does the firm make most of its money?). The goal of
this first assignment is basic familiarization with the firm and a check to be sure data sources are forthcoming and reputable.
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my
Strategy
If you are about to embark on a new career, what effect should the likelihood of industry growth play in your
decision? It should have some effect, but it is not likely to be the most important concern. If your only goal is to become the
Why could growth rates be an important consideration? Why not? A high growth rate indicates more and faster
advancement. If, for example, you are planning on a career in accounting, you might focus your job search on firms in
growing segments of the market such as power, pharmacy services, or property insurance rather than homebuilding or
How do you expect this list to look five years from now? Which three to five industries do you expect to top the list,
and which three to five industries will be at the bottom of the list? Why? This exercise speaks to the challenge of
formulating a strategy of high uncertainty on key data. We suggest that students be challenged to choose one industry that
they think will be high growth or low growth and justify their position with logic that draws on information that they do
INTEGRATION
Running Case: HP
While offering each student the opportunity to explore and analyze the company of his/her choice can add interest to the
exercise, there are many advantages for an instructor when the entire class works on the same firm. Connect allows you to
do this with a running case for a single firm that encompasses every chapter in the textbook and tracks the Strategy Term
Project. Inside Connect each new module of the Strategy Term Project is available in the chapter activities. Hewlett
Packard is used as an exemplar running case. If your term project is a team activity, these modules may be used to give
the teams an idea of the type of information and analysis needed for their own firm by running through the HP examples.
Each module can be individually modified and assigned per the instructor’s desires.
If you choose a term project for your course, you may want to consider inviting a local company representative to your
classroom during the first week to speak to the students about the firm’s strategies and values.