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Strategic Management 3
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Instructor Manual
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END OF CHAPTER SMALL GROUP EXERCISE 1
POWERPOINT SLIDE 55
As discussed in the chapter, a balanced scorecard views the performance of an organization through four lenses:
customer, innovation and learning, internal business, and financial. According to surveys from Bain & Company (a
consulting firm), in recent years about 60 percent of firms in both public and private sectors have used a balanced
scorecard for performance measures. (See http://www.thepalladiumgroup.com for examples.) With your group,
create a balanced scorecard for the business school at your university. You might start by looking at your school’s
web page for a mission or vision statement. Then divide up the four perspectives among the team members to develop
some key elements for each one. It may be helpful to remember the four key balanced-scorecard questions from the
chapter (see Exhibit 5.8):
For this exercise, I will use Georgia Tech as the example.
How do customers view us?
Customers (students and employers) view GT highly. The college attracts high-quality undergraduate and graduate students
who fuel superior school rankings and employment numbers.
Second in the nation and #1 public school for MBA job placement
How do we create value?
What core competence do we need?
The GT business school focuses on providing an innovative, truly first-rate education. Students are viewed as being well
How do shareholders view us? (For public universities, the shareholders are the taxpayers who invest their taxes into
the university.)
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5.1 Competitive Advantage and Firm Performance
LO 5-5
POWERPOINT SLIDES 25–27
EXAMPLES
POWERPOINT SLIDE 25
NEWER FACULTY: The second integrative framework is the triple bottom line. This approach does not have the widespread
appeal of the balanced scorecard, but there are signs that organizations are increasingly asked to address these “triple
concerns.” Students will often have strong views for or against a triple-bottom-line approach. Some will think the firm should
stick to the financials, while others will want the firms to push for more progress in the social and ecological areas.
POWERPOINT SLIDE 25
EXPERIENCED FACULTY: Refer students to the Corporate Responsibility section of Chevron’s website. It offers a thorough
example of a triple-bottom-line approach, including community and environment, as well as related internal factors, such as
workforce health and safety and ethical behavior. You might want to open a discussion on the effectiveness of annual
reporting on Corporate Responsibility. AACSB 2015 Standard 9 Social responsibility, including sustainability, and ethical
behavior and approaches to management
POWERPOINT SLIDE 26
Resource-dependent industries have long used a triple-bottom-line approach to competitive advantage. Their businesses have
major impacts on the environment, whether through mining or drilling. Moreover, access to these resources is normally
granted at the will of the local or national government. As a result, demonstrating commitments to society is usually an
important factor in determining which of the rivals in the industry will be given access to any particular source of resources.
You may want to draw students’ attention back to Strategy Highlight 1.2 in Chapter 1 on BP. As a result, these firms have
clear linkages between contributions to society, protection of the environment, and profitability. In the context of Exhibit 5.9,
the overlapping space between these three circles is much larger for resource-based industries than for many other industries.
STRATEGY SMART VIDEO EXAMPLE
POWERPOINT SLIDE 60
Dr. Karl-Henrik Robèrt talks about the triple bottom line in a nonprofit organization.
INTEGRATION
Video Case Analysis: The Triple Bottom Line
This video case analysis provides students an opportunity to consider the perspective of a mining company executive
running the business with varying changing climates going forward. This video is about eight minutes long and has five
embedded questions contained in it. Difficulty: Medium Blooms: Apply AACSB: Analytic
Video Case Tips: We suggest setting the “attempts” policy to “revise the previous attempt” for video cases. This enables
students to watch parts of the video and edit their answers without needing to watch the entire video again for each
attempt at the questions.
Follow-Up Activity: The instructor can expand on the concepts in this video case by discussing the similarities and
differences between Rio Tinto and Interface carpets as described in Strategy Highlight 5.1.
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Strategy Highlight 5.1
POWERPOINT SLIDE 27: INTERFACE: THE WORLD’S FIRST SUSTAINABLE COMPANY
One was that, as a business-to-business firm (that most students have never heard of), it is not incentivized to produce big
corporate events to build an ecologically sound reputation in the mind of the consumer. The former CEO, Ray Anderson,
spoke passionately about the synergies he found in building products better for the environment and also creating more
financial profits for his firm. An example of his speeches can be found at the TED conference in 2009, which can be accessed
using this link (http://bit.ly/cNXiV3). Mr. Anderson passed away in the summer of 2011, but his books live on. AACSB 2015
Standard 9 Social responsibility, including sustainability, and ethical behavior and approaches to management
END OF CHAPTER DISCUSSION QUESTION 3
POWERPOINT SLIDE 27
Interface, Inc. is discussed in Strategy Highlight 5.1. It may seem unusual for a business-to-business (B2B) carpet
company to be using a triple-bottom-line approach for their strategy. What other industries do you think could
productively use this approach? How would it change their customer perceptions if they did? AACSB 2015 Standard 9
Social responsibility, including sustainability, and ethical behavior and approaches to management
Students will undoubtedly come up with a variety of industries that could effectively use the triple-bottom-line approach. The
fashion and shoe industries are two such examples. Customers in both of these industries are extremely concerned with the
ever-changing trends and the push toward social responsibility. Many of the companies in these industries manufacture in
third-world countries, employing work standards and wages that are below those in the U.S. Garnering the “Made in USA”
DISCUSSION TOPIC
POWERPOINT SLIDE 26
Consumer products with high plastic content are also focus points for a triple-bottom-line strategy. Lego is recruiting 100
researchers to redesign its bricks for the first time since 1963 in response to consumer preferences for products that are
produced more sustainably. In 2014, Lego used 77,000 metric tons of petroleum in producing its bricks. Ask students to
identify other firms that might benefit from taking the same actions as Lego. (See “Lego tries to build a better brick” L Chao
7/14/15 The Wall Street Journal.)
POWERPOINT SLIDE 26
Ask students to share how a firm’s sustainability practices influence their behaviors as consumers. In other words, based on a
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END OF CHAPTER SMALL GROUP EXERCISE 2
POWERPOINT SLIDE 56
At the next big family gathering, you want to impress your grandparents with the innovative ideas you have learned
in business school. They have decades of experience in investing in the stock market and, from their college days,
believe that economic profitability is the primary responsibility of business. You would like to convince them that a
triple-bottom-line approach is the modern path to stronger economic performance. With your group members,
prepare a casual yet informative speech that you can use to persuade them. They probably will not listen for more
than two minutes, so you know you have to be clear and concise with interesting examples. You may want to reinforce
your argument by consulting the article “The Bottom Line of Corporate Good” by Ryan Scott published in Forbes (at
www.forbes.com). Present your speech in whatever way your instructor requests—to your group, the entire class, or
post a video on YouTube. AACSB 2015 Standard 9 Oral communication
Use this guideline on generational differences as a foundation for considering different perspectives.
Baby Boomers (born between 1947 and 1963) now make up the oldest cohort of the work force. This group was parented by
their sheer number in a market-driven economy.
Generation X, or Xers (born between 1964 and 1979). This group’s formative experiences were framed by familial and
financial insecurity. They grew up amidst rising rates of divorce and recession. Where the sexual revolution of the Boomers
brought free expression and experimentation, the threat of AIDS brought Xers fear and caution. During adolescence and early
adulthood, their political world view was shaped by, well, pretty much nothing. Described as “slackers,” and scorned for a
world view that begins and ends with themselves, even their moniker is about something that never happened.
place of common interest as a shared physical space. They may also be self-centered as a generation, defined a bit by the
technology of iPods and iPhones, Facebook and YouTube.
Students will often have strong views for or against a triple-bottom-line approach. Some will think the firm should stick to
the financials, while others will want the firm to push for more progress in the social and ecological areas. Require students
to draw a clear relationship between a firm’s triple-bottom-line performance and its shareholder value creation performance.
protect it for future generations.
This is an ideal assignment to use for assessment of critical reasoning skills and communication skills. Consider including
these elements in your grading rubric:
• Demonstrate literacy by ability to orally communicate ideas clearly, using advanced vocabulary, correct grammar, and
correct business terminology.
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5.2 Business Models: Putting Strategy into Action
LO 5-6
POWERPOINT SLIDES 28–39
STRATEGY SMART VIDEO EXAMPLE
POWERPOINT SLIDE 63
An example of the razor–razor-blade business model is given in the brief video in this slide.
EXAMPLES
Subscription: These models are one of the reasons behind the trend to “cut the cable” as people move away from cable
television to various streaming services. Consumers object to paying a monthly fee for many channels when they are not
being used.
Pay as You Go: You are likely to have students who live in apartments in which water is supplied without metering (as in a
subscription model, even though it might be buried in the total rent) and in houses where water is sold on a “pay as you go”
model. Ask students to compare how the difference in business models impacts their consumption.
Freemium: There are a wide variety of freemium models with different ways to restrict features for the unpaid or free
version of the product:
• Feature limited: Limit the amount of features in the free version of the product. The additional features only accessible in
of storage space is provided for free but the user must pay to upgrade to a larger storage capacity.
• Seat limited: A free trial of a software product limited to a number of workstations. The idea is that a few people in a
company can try a product or service and make a recommendation to the company decision makers whether or not to buy
the product or service for the enterprise. Examples include team-based software such as Microsoft Team Foundation
Server for software developers.
minimal flight service, but allows customers to pay exorbitant prices for upgrades. See “Examples of well-known business
models” BPlans.co.uk Apr 3, 2013.
Agency versus Retail Model in book publishing: Under the retail model, book publishers would sell books to retailers at a
fixed price. Retailers would then set their own price on the book and profit the difference between their sell price and the cost
to buy the book from the publisher. E-book retailers have devalued that model. Due to the number of Amazon customers,
prices for retailers such as Amazon and force the retailers to also agree to the agency model. Under the agency model,
publishers’ e-book profits are increased and e-book prices are kept closer to prices of physical books. See “eBook sales
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models: Wholesale vs agency” Ljinteractive.com Apr 4, 2013. However, a 2012 antitrust investigation by the DOJ into
whether Apple and major publishers had conspired to raise prices of e-books using the agency model led to settlements from
number of industries. Travel agents, printed newspapers, and music distributors have already been impacted. Now, however,
taxis (Uber & Lyft), small hotels (Airbnb), and realtors (Zillow & Trulia) are front and center for a change in business
models stimulated by the capabilities of the Internet.
Bundling: Cineplex is experimenting with bundling a ticket to see a movie in the theater with a future electronic download of
the movie shortly before it goes to market as a DVD. If you use this example, you might ask the students to describe how this
Strategy Highlight 5.2
POWERPOINT SLIDES 26–27: AIRBNB: TAPPING THE VALUE OF UNUSED SPACE
STRATEGY SMART VIDEO
POWERPOINT SLIDES 64 AND 26
You might want to show one of these commercials as an introduction to this strategy highlight to make sure everyone
understands what Airbnb does before class.
DISCUSSION TOPICS
For college students, a printer-ink cartridge example may be more far more salient than razor blades (see “In search of a
printer you won’t want to destroy” J Stern 3/25/15 The Wall Street Journal). If this industry is in need of disruption, as
suggested by the reporter, then what might such a disruption look like? What would provide the incentive for a disruptor to
arise?
The Internet is changing the economics of subscription models, especially in television and newspaper media businesses. Ask
students to discuss the impact of digital access to news on newspaper and cable television business models (see “For New
York Times, a gamble on give-aways” LI Alpert 8/3/15 The Wall Street Journal and “Behind Time Warner chief’s cord-cutter
pitch” K Hagey 4/13/15 The Wall Street Journal).
Threadless is an example of a firm building on its customer base to use new products and also to participate in the
design and vetting of popular designs. In the spring of 2013, Disney and Pixar Animation announced an expansion of
its partnership with Threadless. Previous successes have been shirts for Disney villains, Toy Story, and the Muppets,
made from designs based on winning submissions of an art contest. The current launch is for T-shirts designed to
coincide with the summer 2013 sequel of Monsters University by Disney and Pixar Animation. The designs were
chosen from 487 submissions by artists around the world. With Disney’s long history of expertise in designing clothing
to coincide with movie launches, why do you think the company has decided to partner with Threadless? How does
this help Disney build competitive advantage? What other firms use this crowdsourcing technique? Where else might
this type of business model show up in the future?
Disney has skills in both licensing and in creatively promoting movies to their target audiences. Crowdsourcing with
Threadless enables them to leverage both competencies and engage a young demographic with their movies and characters.
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END OF CHAPTER DISCUSSION QUESTION 4
The chapter highlights several firms that are developing business models around a “sharing economy.” The idea being
that assets not currently in use by their owners (cars, car seats, homes, rooms, etc.) can be rented to (shared with)
others. What other industries can you think of that can be disrupted by this new business model? Where do you see
“excess” space or other assets that could perhaps be utilized more efficiently?
Cars and homes are obvious in the consumer space, because they represent an individual’s most valuable assets. Other
5.3 Implications for Strategists
POWERPOINT SLIDES 40–42
EXERCISES
EXPERIENCED FACULTY: Here is good exercise in critical reasoning skills that focuses particularly on the student’s skills in
triangulation, sense-making, evaluative judgments, and logical argument. You can introduce it with a humorous video that
demonstrates the risks of jumping to conclusions based on one perspective. Ask the student to choose a publicly traded firm.
If they are doing the Strategic Management Term Project in the textbook, then that firm would be the ideal choice.
Otherwise, they could choose a firm for which they might like to work or that they are researching for another class. Then I
ask them to watch the firm’s most recent earnings presentation or other presentation to Wall Street analysts and read an
article in the business press on the earnings results published after the presentation. Then I ask them to write a paper
addressing these questions: What was one area that one or more analysts seemed most concerned about? In what way did
his/her view differ from that of the company? Why do you think that was? How did the company portray its performance in
this area? What did it identify as logical arguments and evidence to support its view of performance or future prospects?
What was the perspective of the business press reporter? Was he/she more or less positive than the company? Why? After
reviewing all three different perspectives how would you evaluate the firm’s performance? Which evidence did you find most
persuasive in reaching this conclusion? Why? AACSB 2015 Standard 9 Financial theories, analysis, reporting, and markets
and Making sound decisions and exercising good judgment under uncertainty
NEWER FACULTY: In the electronics retail industry, Circuit City filed for bankruptcy in the spring of 2009, but Best Buy
continues on. Financial data for Best Buy and Circuit City at the time just prior to the bankruptcy are provided in the table on
the next page. Refer students to the financial ratios presented in Table 1 in the “How to Conduct a Case Analysis” module at
the end of the textbook. Then, ask them to calculate some of the key profitability, activity, leverage, liquidity, and market
ratios for Best Buy and Circuit City. Ask them to seek signs of performance differentials between these two firms that may
have indicated problems at Circuit City in 2007. AACSB 2015 Standard 9 Application of knowledge (able to translate
knowledge of business and management into practice)
20
Key Financial Data for Best Buy and Circuit City
In Millions of US$ (except for per share items)
Best Buy Y/E
Mar. 2008
Best Buy Y/E
Mar. 2007
Circuit City Y/E
Mar. 2008
Circuit City Y/E
Mar. 2007
Total revenue
40,023.00
35,934.00
11,743.69
12,429.75
Cost of revenue, total
30,477.00
27,165.00
9,318.17
9,501.44
Gross profit
9,546.00
8,769.00
2,425.52
2,928.32
Selling/general/admin. expenses, total
7,385.00
6,770.00
2,770.10
2,841.62
Total operating expense
37,862.00
33,935.00
12,097.27
12,409.43
Operating income
2,161.00
1,999.00
–353.58
20.33
Income before tax
2,228.00
2,130.00
–353.58
20.33
Income after tax
1,413.00
1,378.00
–321.35
–10.18
Net income
1,407.00
1,377.00
–319.9
–8.28
Diluted weighted average shares
452.9
496.2
165.13
170.45
Dividends per share—common stock
0.46
0.36
0.16
0.12
Diluted normalized EPS
3.12
2.79
–1.69
0.83
Cash and equivalents
1,438.00
1,205.00
296.06
141.14
Short-term investments
64
2,588.00
1.37
598.34
Cash and short-term investments
1,502.00
3,793.00
297.42
739.48
Accounts receivable—trade, net
549
548
330.6
382.56
Total receivables, net
549
548
488.71
425.28
Total inventory
4,708.00
4,028.00
1,573.56
1,636.51
Total current assets
7,342.00
9,081.00
2,439.72
2,883.51
Property/plant/equipment, total—gross
5,608.00
4,904.00
2,485.60
2,221.33
Accumulated depreciation, total
–2,302.00
–1,966.00
–1,448.28
–1,300.30
Goodwill, net
1,088.00
919
118.03
121.77
Intangibles, net
102
81
18.4
19.29
Long-term investments
605
318
–
–
Other long-term assets, total
315
233
132.46
61.69
Total assets
12,758.00
13,570.00
3,745.93
4,007.28
Accounts payable
4,297.00
3,934.00
912.09
922.21
Accrued expenses
1,348.00
1,322.00
317.51
380.22
Other current liabilities, total
935
985
364.5
404.44
Total current liabilities
6,769.00
6,301.00
1,605.69
1,714.03
Total long-term debt
627
590
57.05
50.49
Total debt
816
650
68.63
57.65
Other liabilities, total
838
443
544.43
451.52
Total liabilities
8,274.00
7,369.00
2,242.76
2,216.04
Common stock, total
41
48
84.43
85.34
Additional paid-in capital
8
430
319.57
344.14
Retained earnings (accumulated deficit)
3,933.00
5,507.00
981.11
1,336.32
Total equity
4,484.00
6,201.00
1,503.17
1,791.24
Total liabilities and shareholders’ equity
12,758.00
13,570.00
3,745.93
4,007.28
Total common shares outstanding
410.58
480.65
168.86
170.69
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Extended Discussion
Though Google and Microsoft have approached the market from different directions, they are now key competitors in
areas such as Internet search, computer applications, and computer operating systems. One particularly interesting area
of competition may be in the mobile phone operating systems.
The chapter discusses three perspectives of competitive advantage. If Microsoft is successful in claiming a
significant share of the burgeoning smartphone market, will the economic, accounting, or shareholder
perspective be affected first? Which firm’s performance would be the most affected by this type of market shift?
The economic and shareholder values (return on stock price plus dividends) will be the first indications of competitive
advantage. A firm will have a competitive advantage if its economic value created (V-C) is greater than a competitor’s.
The cost (C) of the Windows 7 phone and perceived value (V) can both be measured when the phone hits the market.
Additionally, the total return to shareholders is an external performance metric, which captures all the available
information about a firm’s past, current, and future performance. Using the efficient-market hypothesis, Microsoft’s
share price should provide the most objective performance indicator. Given Apple’s extremely loyal customer base and
the iPhone’s unique features, it is reasonable to assume that both Google’s Android and RIM’s BlackBerry would be
impacted the most by this market shift. For Android users and nonbusiness users of the BlackBerry, the Windows 7
phone is more closely viewed as a substitute than the iPhone.
How might the strategic diversification from software to include hardware manufacture (Google acquired
Motorola and Microsoft acquired Nokia’s handset business) impact the competitive advantage of these two firms
versus Apple as measured by accounting profitability or shareholder value? It levels the playing field. Hardware
manufacturers often have more tangible assets than software firms (impacting ROA) and software firms enjoy higher
P/E ratios than hardware firms.
What qualitative elements are important for these firms? How would you rate Google and Microsoft on these
aspects? Many of the qualitative elements that are important to these two firms are intangible assets (brand image,
intellectual property, innovation, quality, and customer service, and so on). Exhibit 5.2 in the text illustrates the
2015 World Smartphone Market Share
Operating System
% share
Android (Google open system)
82.8
Apple (iPhone)
13.9
Microsoft
2.6
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Strategy Term Project: Mission, Goals, and the
Strategic Management Process
Term Project Module 5
In this section, students will collect and evaluate data on the measurement of competitive advantage at their focal firm.
AACSB 2015 Standard 9 Financial theories, analysis, reporting, and markets
Based on information in the annual reports or that published on the firm’s website, summarize what the firm views as
the reasons for its successes (either past or expected in the future). Search for both quantitative and qualitative
success factors provided in the report.
Does the firm seem most focused on the economic, accounting, or shareholder perspective of its competitive
advantage? Give quotes or information from these sources to support your view.
Many firms are now including annual corporate social responsibility (CSR) reports on their websites. See whether
your firm does so. If not, are there other indications of a triple-bottom-line approach, including social and ecological
elements in the firm’s strategies?
my
Strategy
POWERPOINT SLIDE 54
How much is an MBA worth to you?
Here, we encourage the student to take what he/she has learned about competitive advantage and apply it to his/her personal
In Chapter 2, the myStrategy box asked how much you would be willing to pay for the job you want—for a job that
reflects your values. Here, we look at a different issue relating to worth: How much an MBA is worth over the course
of your career. You’ve narrowed your options to either (1) a two-year full-time MBA program or (2) an executive
MBA program at the same institution that is 18 months long with classes every other weekend. Let’s also assume the
price for tuition, books, and fees is $30,000 for the full-time program and $90,000 for the Executive MBA. Which
MBA program should you chose? Consider the value, price, and cost concepts we have discussed in your analysis.
INTEGRATION
HP Running Case: Module 5
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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It’s a no-brainer, right? You go for the full-time MBA program, because it’s cheaper by $60,000. Think again…
The concepts of economic value (V), price (P), and cost (C) can help you to make a much more informed decision. Let’s
begin with C, in this case the total an MBA program would cost you, not just the sticker price. C also includes your
opportunity cost, which captures the cost of the second-best alternative you forgo based on your decision to get an MBA.
Based on total cost considerations alone, it would be better to choose the executive MBA option, assuming you value it more
than $90,000. This seems to be an easy hurdle to cross, because salaries frequently double after completing an MBA. If your
salary was to double from $50,000 to $100,000, it would take you less than two years to break even (in regard to total out-of-
pocket outlays).
You would choose the day MBA option over the executive MBA program only if you valued the differences in the day
program by more than $115,000. These differences include more in-class time, two years to concentrate on your studies, and
time spent networking with fellow MBA students. Given the significant opportunity costs for students to attend two-year full-
