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END OF CHAPTER ETHICAL/SOCIAL ISSUES EXERCISE 1
In the discussion about Merck (Strategy Highlight 2.1), it is clear the firm has followed a socially responsible path by
donating more than 1 billion drug treatments to remedy river blindness in remote African communities. Yet Merck
must also meet shareholder responsibilities (as discussed in Chapter 1) and make profits on drugs in use in more
affluent societies. How should a responsible firm make these trade-offs? What steps can strategic leaders take to guide
organizations on these challenging issues?
The connection that we want students to make is to link strategy development back to the direction provided by the firm’s
vision, mission, and values. The firm’s values should constrain the firm’s actions to the way that the firm wants to do
business. The vision and mission should offer directional guidance of what to do AND what not to do. More detailed
Students should consider the impact on cost of capital due to low profits and its subsequent effects on funds to develop new
and Written and oral communication
If you want to engage students in a classroom exercise, in addition to this Merck issue, assign one or two related
pharmaceutical ethical issues, for example firms that buy the rights to “underpriced” drugs and then jack up the prices (see
“Turing to cut price of drug Daraprim after increase sparks outcry” JD Rockoff 9/23/15 The Wall Street Journal which
describes Turing’s decision to raise the price of a drug from $13.50 per tablet to $750 per tablet) or firms that charge much
more for most drugs in the U.S. than they do in other countries where prices are negotiated by national health programs.
Research Update
Wang, T. and Bansal, P. (2012), Social responsibility in new ventures: profiting from a long-term orientation. Strat. Mgmt. J.,
33: 1135–1153. doi: 10.1002/smj.1962
EXPERIENCED FACULTY: Discussion of this recent research offers an opportunity to expand upon the concept that CSR
does not come free and resource-constrained firms are often unable or unwilling to allocate management time and money to
it. “By furthering social good and going beyond legal requirements, CSR activities help create business value, develop
strategic resources, and insure against risks, but also cost money, distract managers, and aggravate relationships between
principals and agents.” New ventures’ liability of newness was found to amplify the negative effects and suppress the
positive effects of CSR. However, they also found that new ventures whose strategic decisions have a long-term
orientation, versus those with a short-term focus, were able to attenuate the impacts of their liability of newness by
integrating CSR into their activities.
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2.2 Strategic Leadership LO 2–4
POWERPOINT SLIDES 22–27
EXAMPLES
You may want to open the topic of strategic leadership with a discussion about what a leader is. A video case that could be
used to start that discussion is “What is a leader?” Col. Gayle Colvin, U.S. Air Force, from Stanford Leadership in Focus.
NEWER FACULTY: You may want to give the students a deeper understanding of what the Level-5 leadership pyramid means
for their own careers. You might describe it thus: Taken together, you become an effective and ethical leader by sequentially
mastering each of the five steps in the strategic leadership pyramid. Your training in college allows you to become a highly
capable individual who can make productive contributions. If you take a first job immediately after your undergraduate
degree, you will likely begin your corporate career in a functional area that was your focus or major in college (e.g.,
accounting, operations management, marketing, finance). As you move down the learning curve through group work in
college and on-the-job training, you develop the ability to work effectively with others to achieve team objectives. With these
skills, you move to Level-2 leadership. As responsibilities come to you, you will be able to develop and demonstrate the
ability to organize resources efficiently and effectively to achieve strategic objectives. At Level 3, you have become an
effective manager—someone who produces results. Levels 4 and 5 require a stronger element of strategic leadership than the
(Chapter 12).
STRATEGY SMART VIDEO EXAMPLE
POWERPOINT SLIDE 71:
NEWER FACULTY: Strategic leadership refers to the behaviors and styles of executives that influence others to achieve
organizational goals. The three roles of a leader are interpersonal, informational, and decisional. According to the upper-
echelons theory, organizational outcomes including strategic choices and performance levels reflect the values of the top
management team (the individuals at the upper echelons, or levels, of an organization). The theory states that executives
interpret situations through the lens of their unique perspectives, shaped by personal circumstances, values, and experiences.
The Level-5 leadership pyramid (Exhibit 2.4) is a conceptual framework that shows leadership progression through five
distinct, sequential levels. Jim Collins in Good to Great found that all the companies he identified as great were led by Level–
5 executives.
EXERCISE
This exercise can be used to assess critical reasoning skills, such as applying weights to multiple objectives and evaluating
issues from multiple perspectives. Invite students to name a leader with whom they are familiar (work, school, home, or
community) and try to identify behaviors of that person that exemplify each of the five levels of leadership. Encourage
students to identify both positive and negative traits and behaviors. Challenge the students to weigh the positives and
negatives and explain why they believe some are more important than others. AACSB 2015 Standard 9 Leading in
organizational situations
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DISCUSSION TOPICS
Consider the situation at JCPenney in 2011–2013 (see “Investor William Ackman targets JCPenney’s CEO” 8/8/13 The Wall
Street Journal; “Penney wounded by deep staff cuts” 4/14/13 The Wall Street Journal; and a video). Ron Johnson was
brought in to save JCP from sharply declining competitiveness. He completely re-envisioned the firm’s strategy, customer
experience, store layout, and pricing position. He closed underperforming stores and retrained/replaced staff. Sadly, he lost
even more customers in the process. The board of directors fired him and brought back the previous CEO (who had been
replaced due to underperformance). Upper echelon’s theory: How did Ron Johnson’s previous experience and perspectives
gained as head of Apple’s retail operations shape his strategic thinking at JCP?
EXPERIENCED FACULTY: Another such example is Stephen Elop’s leadership of Nokia. He came to Nokia from a senior
leadership position at Microsoft. He chose a unique strategy for Nokia in the handset space by eschewing both Nokia’s own
OS, Symbian (Apple and Blackberry strategy) and Google’s Android (all other successful firms), in favor of the weakest
market share at that time, Microsoft OS. His strategy was a large enough failure to nearly sink the firm. To salvage the
2.2 Strategic Leadership LO 2–5
POWERPOINT SLIDES 28–31
END OF CHAPTER DISCUSSION QUESTION 3
This chapter introduces three different levels appropriate for strategic considerations (see Exhibit 2.5). In what
situations would some of these levels be more important than others? For example, what issues might be considered
by the corporate level? What do you see as the primary responsibilities of corporate-level executives? When might the
business-level managers bear more responsibility for considering how to respond to an issue? In what situations,
might the functional-level managers have a primary responsibility for considering an issue? How should the
organization ensure the proper attention to each level of strategy as needed?
The “Where, How, Implementation” questions can be quite useful to help students think about a particular strategic decision
and which level of strategy it represents. Balance of the strategic levels is difficult and can be an area where many companies
falter. In larger organizations, the strategic responsibilities will reside in different individuals and teams. This helps assure
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EXERCISE
This can be used as a small group exercise in class or as a quiz to assess decision making skills (ability to identify a problem).
Assign five newspaper articles or mini–cases for students to read and ask them to identify for each one the firm’s key problem
and whether its solution will be a functional-, business-, or corporate-level strategy. AACSB 2015 Standard 9 Framing
problems
Here are some possible examples that you might use:
Source
Problem
Level
Porsche Mini Case
What is the appropriate level of product diversification from sports
cars?
Corporate
Starbucks Strategy Highlight
Should we add a line of Frappuccino products?
Functional
Instagram
Can we gain revenue with advertising without losing our competitive
advantage with users?
Business
Apple
How can Apple differentiate its next iPad more effectively from the
Samsung Galaxy to increase customers’ willingness to pay?
Business
Yahoo
Should we sell our stake in Alibaba?
Corporate
Twitter
How can we compete more effectively with Facebook for ad revenue?
Business
INTEGRATION
Case and Interactive Labeling: Formulating Strategy Across Levels
This click-drag labeling activity starts with a brief case using IBM as an additional example of the different levels of
strategy. This complements the book’s discussion. The student must read the textbook and also the case provided here.
Then, the student will drag the elements to the correct locations in both columns of this activity. Next the student will
answer three related questions following the interactive activity. Difficulty: Easy Blooms: Evaluate AACSB: Analytic
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2.2 Strategic Leadership LO 2–6
POWERPOINT SLIDES 33–46
EXAMPLES
NEWER FACULTY: Top-down strategic planning is typically performed by senior managers and strategy specialists on a 3- or
5-year cycle. The output is usually a detailed book (or PDF file these days) with analysis of current positions and plans for
future growth. In scenario planning, critical elements are to create a diverse set of “what if” plans in the formulation stage and
then to drive forward with a dominant strategic plan in the implementation phase. Planned emergence is the less formal
process that tends to emerge from the “bottom–up” of the organization. The Mintzberg framework reflects the strategy that it
may be driven from the top or the bottom of the organization. Exhibits 2.7 and 2.8, show how the AFI framework overlays on
the scenario planning process. This provides an opportunity to walk through the strategy-making process.
To conduct successful scenario planning, managers need current information. The network-equipment giant Cisco Systems
has invested huge sums in technology to generate just this kind of data. Cisco’s senior executives can track daily customer
order data from its sales teams around the globe with up–to-the-minute accuracy. Walmart’s CEO Mike Duke indicates that
he too is using real-time sales data tracking, enabling top executives to monitor daily sales of each of the over 8,500 Walmart
tasted so fresh. Its source was snow pack, purified and filtered in the slow percolation process through the mountain’s
geological layers and enhanced on the way with healthy amounts of calcium, potassium, and magnesium. Eventually, Japan
Railways set up vending machines on 1,000 railroad platforms in and around Tokyo, and home delivery of water, juices, and
coffee followed. The employee’s proposal had turned an expensive engineering problem into a multimillion-dollar business.
Because Japan Railways was willing to define its business as broader than just being in railroads, it was able to capture the
emergent strategy and diversify into drinking water. In contrast, given its product-oriented vision to be the safest, most
progressive North American railroad, it is doubtful that CSR Railroad would have reacted in a similar fashion had it
opportunity generated more than $5 billion in revenue a few years later.
Patsy Sherman—Scotchgard—3M: In 1953 researchers at 3M were working with fluorocarbons to be sold as coolant liquid
in air conditioning equipment. One of the researchers noticed, after accidentally spilling some coffee on her shoe, that the
residue of fluorocarbons turned the coffee into small beads of liquids without staining. After observing this unique
experiment Sherman contacted the chemist Sam Smith, and together they began developing a product that could actually
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Arthur Fry and Spencer Silver—Post-it Notes—3M: In 1968 Dr. Silver, who was a senior chemist in 3M’s central research
lab, had developed a high quality adhesive that was easily peeled off from the surfaces it adhered to. This particular discovery
interesting question is not so much as to how firms allow for serendipity to grow to a successful innovation, but how the firm
promotes the emergence of such a serendipity. It is well known that 3M fosters innovation and allows its employees to
dedicate 15 percent of its time to pursue projects that the employees consider good potential innovations for the firm. In great
part the embracement of this culture is what led the prior products to success. A less open firm would simply have shut both
projects down.
thought of a fastening system that contained both parts (one similar to the fabrics and the other to the burr). He set himself
out to the task of identifying the appropriate combination of materials in order to build the ideal fastening machine he had
envisioned. In spite of the high level of skepticism and laughter that his idea initially generated, he joined efforts with a
weaver from the French textile industry and began a joint R&D effort for the product. Through trial and error he found out
that nylon provided the best grip over other fabrics like cotton. By 1955 Mestral filed a patent for his product named Velcro
angina in the second stage of clinical trials, a promising side effect was reported. Patients taking the drug were presenting
erections. Pfizer decided to change direction and invested $340MM to conduct a new Phase II trial to test the effect on
impotent men. Could an individual have capitalized on this serendipitous discovery? No, expertise in managing the FTC
review process, clinical trials, and marketing to doctors is required. The firm’s structure and culture is clearly supporting
serendipity and helping transform it into a successful product.
INTEGRATION
Case Analysis: Planned Emergent Strategy
This case and multiple choice question activity builds student comprehension of the planned emergence form of strategy
by examining a case about the development of Post-it Notes by 3M Corporation. The student must read the case provided,
as well as the relevant textbook section, and answer the related questions in this exercise. Difficulty: Medium Blooms:
Evaluate AACSB: Analytic
Follow-Up Activity: The instructor can expand on the concepts from this case analysis by having students discuss
another example of this strategy formation process—this one concerning Starbucks in Strategy Highlight 2.2 (text page
46). There are similarities in corporate culture and personal persistence that are present in both applications of this
concept. Class or small group discussions can also be created around the similarities and differences in the three
approaches to strategy: strategic planning, scenario planning, and planned emergence. What would the development of
Post-it Notes or Frappuccino have looked like using one of the other two approaches?
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DISCUSSION TOPICS
Scenario planning may become more widely used going forward if the economic, political, and technological forces keep
changing rapidly. The global power shift from the west toward Asia would make a good discussion that ties sociopolitical
uncertainties to scenario planning. In 2016, a good choice for scenario analysis discussion might be the uncertainties created
by the U.S. presidential election.
Working professional students may find the explosion in the supply of shale gas to be an interesting area of analysis. Some
major areas of uncertainty are (1) whether or not the U.S. will allow natural gas to be exported to increase demand and (2) the
extent to which environmental concerns for fresh water aquifer contamination or earthquake inducement may limit supply.
This discussion creates for different scenarios in a 2×2 matrix with different supply/demand balances. Teams could be
assigned one of the four quadrants and asked to develop implications for multiple supporting industries (chemical
manufacturing, energy-intensive manufacturing, gas transportation, etc.), as well as the gas production firms.
END OF CHAPTER DISCUSSION QUESTION 2
In what situations is top-down planning likely to be superior to bottom-up emergent strategy development?
Top-down strategic planning is usually best in relatively stable environments. Emergent strategy is preferred in more
uncertain times. However the Mintzberg framework identifies that combining the two approaches is likely to yield the best
results. An organization in today’s environment should strive to be flexible enough to adjust the proportion of top-down and
END OF CHAPTER DISCUSSION QUESTION 4
Identify an industry that is undergoing intense competition or is being featured in the business press. Discuss how
scenario planning might be used by competitors to prepare for future events. Can some industries benefit more than
others from this type of process? Explain why.
Industries that by their nature need to make “big bets” are often users of scenario planning. This would include the oil
industries. It would also include other major extraction companies (Alcoa, for example) and capital intensive industries such
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Strategy Highlight 2.2
POWERPOINT SLIDES 45–46
“Starbucks CEO: It’s Not What We Do” This highlight illustrates serendipity and emergent strategy.
DISCUSSION TOPICS
There are two key points we like to bring out about this Strategy Highlight. The first is what type of risks was the store
manager taking to offer a drink on the menu after it had been turned down by the executive committee? In some
organizations, this would be cause for termination. So not only was the store manager relentless in pursuit of the idea, she
may have been putting her job on the line. Second is the idea that the organization must be willing to accept ideas that
“emerge,” and implement them even if they were not driven by senior leadership. Ask students what conclusions they might
draw about how firm culture and processes for experimentation and decision making authority may impact firm innovation.
EXERCISES
EXPERIENCED FACULTY: Shell predicts that in 2025 most of our energy will continue to be generated from fossil fuels but
20 percent will come from alternative energy sources like wind, solar, and hydro power. Given Shell’s past success in using
2008), managers at Shell began to formulate strategic plans for a future with a strong OPEC (the cartel of oil-exporting
countries) and an accompanying drastic rise in oil prices. When the price of crude oil suddenly surged to over $80 a barrel in
the late 1970s, Shell was well-positioned to take advantage of this new situation; other oil companies were scrambling to
adjust. Shell activated one of its alternative strategic plans that detailed how to obtain crude oil from North Sea drilling, to
which the firm had already secured the rights. In the early 1980s, Shell made strategic preparations to take advantage of
END OF CHAPTER DISCUSSION SMALL GROUP EXERCISE 2
POWERPOINT SLIDE 65
In many situations, promising ideas emerge from the lower levels of an organization, only to be discarded
before they can be implemented. It was only extraordinary tenacity and disregard for the policy of selling
only corporate-approved drinks that permitted the Frappuccino to “bloom” within Starbucks (see Strategy
Highlight 2.2).
Some scholars have suggested that companies set aside up to 2 percent of their budgets for any manager with budget control
to be able to invest in new ideas within the company.i Thus, someone with a $100,000 annual budget to manage would be
What problems would need to be addressed to introduce this angel-network idea into a firm? Use a firm someone in
your group has worked for or knows well to discuss possible issues of widely distributing small funding level
approvals across the firm.
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This exercise builds on some of the ideas applied in the Starbucks Strategy Highlight, combined with thoughts from Gary
Hamel’s book The Future of Management (Harvard 2007). It also integrates some of the real options concepts, because these
“seeds” of funding spread throughout the organization will enable limited funding of many different ideas and give each
project some time to get traction without it being a “bet the business” decision.
of Starbucks, as a key success factor in the industry, and as the most valuable asset on the balance sheet. Encourage your
marketing majors to explore the risks associated with independent, bottom-up experimentation with elements of strategy that
have high brand impact. How might relationships with franchisees been harmed by offering products in company-operated
stores that were not available to partners?
2.4 Implications for Strategists
POWERPOINT SLIDES 47–50
END OF CHAPTER SMALL GROUP EXERCISE 1
POWERPOINT SLIDE 64
Discuss within your group methods that the STEM Education Coalition might use to gain partners,
particularly business organizations, that will help them make sure STEM education is a national policy
priority. Given the budget crisis, how can they persuade congressional representatives to support funding?
How does funding for STEM education affect job opportunities for business majors?
Some students are likely to focus on obvious “What’s in it for me?” issues like less scholarship and loan money available to
business school students as resources are targeted to support STEM students. You can use a quote from Isaac Asimov to
Although group members may not be STEM majors, brainstorm ideas about how you might advise businesses to
modify their operations or to expand/transform their operations in order to find opportunities in the Global Trends
initiatives over the next 15 years. Choose a business of interest to the group. Then consider scenarios in which the
business may thrive as one of the five trends develop. For example, the majority of businesses might want to ask,
“What if threats to cyber–security increase?” Or, “What if water resources become more scarce? How would this
affect production or demand for the goods produced?” Your group may also consider businesses or industries that
may decline as a result of the trends.
This is another opportunity to identify the business implications of scenario planning. In addition to industries that may
decline, ask students to consider industries that may be off–shored as a lead in to the myStrategy section in Chapter 3.
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What additional developmental opportunities might prepare business majors for playing key roles in facing the
Global Trends 2030? What skills will you need in order to manage effectively the STEM employees who are central to
innovation?
This is a great opportunity to introduce the concept of Competency Development plans that may arise at the firm level in
Chapter 4 and appear in the myStrategy section in Chapter 4. The discussion may start out with a very student–oriented
cognitive bias, yielding ideas like “Take a course in Physics or Electrical Engineering.” While the new MOOC trend does
Strategy Term Project: Mission, Goals, and the
Strategic Management Process
Term Project Module 2
Search for a vision, mission statement, and statement of values for your chosen firm. Note that not all organizations
publish these statements specifically, so you may need to make inferences from the available information. Relevant
information is often available at the firm’s website (though it may take some searching) or is contained in its annual
reports. You may also interview a manager of the firm or contact Investor Relations. You may also be able to compare
the official statement with the business press coverage of the firm.
First, the student will search for the firms’ mission statement. Remember some firms use the term mission and vision
interchangeably, so the student may need to adapt a vision statement as the mission if it is appropriate.
Identify the major goals of the company.
Trace any changes in strategy that you can identify over time. Try to determine whether the strategic changes of your
selected firm are a result of intended strategies, emergent strategies, or some combination of both.
INTEGRATION
HP Running Case: Module 2
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. Hewlett-Packard is provided as an example firm your students can use to see what information and analysis
would be helpful to cover this portion of the term project.
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my
Strategy
POWERPOINT SLIDE 63
How much are your values worth to you?
Identify your personal values. How do you expect these values to affect your work life or your career choice?
These questions are meant to be personal but we offer a few thoughts on them. Values should play some part, but it is not
likely to be the most important influence. If your only goal is to become head of a large company, market growth and
How much less salary would (did) you accept to find employment with a company that is aligned with your values?
How much are you willing to “pay for pay” if your dream job is in management consulting or investment banking?
i Hamel, G. (2007), The Future of Management (Boston, MA: Harvard Business School Publishing).