(THIRTEENTH EDITION

Concepts in

Strategic
Management
and Business
Policy
TOWARD GLOBAL SUSTAINABILITY
International Edition
Thomas L. Wheelen
Formerly with University of Virginia
Trinity College, Dublin, Ireland

J. David Hunger
Iowa State University
St. John's University

PEARSON
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DAN ROBERTSON

TARA TRIPP

MOLLY MEINERS

MATT ROBINSON

CAROLYN TWIST

MATT MESAROS

JENNIFER ROSEN

JOE VIRZI

SHALON MILLER

DOROTHY ROSENE


AMANDA VOLZ

JAMI MINARD

KELLEEN ROWE

BRITNEY WALKER

WILLIAM MINERICH

RICH ROWE

MADELEINE WATSON

EMILY MITCHELL

PEYTON ROYTEK

BEN WEBER

JILINE MIX

SENG SAECHAO

DANIEL WELLS

JULIE MOREL

STEVE SARTORI


MARK WHEELER

RAFAEL MORENO

LYNDA SAX

LIZ WILDES

TRACY MORSE

BOB SCANLON

MICHELLE WILES

OLIVIA MOUG

MARCUS SCHERER

BRIAN WILLIAMS

DOLLY MUNIZ

KIMBERLY SCHEYVING

ERIN WILLIAMS

TRICIA MURPHY

HEIDI SCHICK (Miller)


CINDY WILLIAMSON

LAUREN MURROW

BRAD SCHICK

RACHEL WILLIS

AMBER MYLLION (Parks)

CHRIS SCHMIDT

SIMON WONG

LINDA NELSON

DEBORAH SCHMIDT

KIMBERLY WOODS

LYNNE NICLAIR

MOLLY SCHMIDT

JACKIE WRIGHT

BOB NISBET

CORRINA SCHULTZ


HEATHER WRUBLESKY

BETSY NIXON

WHITNEY SEAGO

GEORGE YOUNG

TOM NIXON

CHRISTIANA SERLE

MARY ZIMMERMANN

LAURA NOAH

MARTHA SERNAS

KACIE ZIN


Brief Contents
CHAPTER

Introduction to Strategic Management and Business Policy 25
1 Basic Concepts of Strategic Management 26
2 Corporate Governance 66

CHAPTER


3 Social Responsibility and Ethics in Strategic Management 94

PART ONE
CHAPTER

PART TWO Scanning the Environment 117
CHAPTER

4 Environmental Scanning and Industry Analysis 118
5 Internal Scanning Organizational Analysis 160

CHAPTER

PART THREE Strategy Formulation 197

6 Strategy Formulation: Situation Analysis and Business Strategy 198
7 Strategy Formulation: Corporate Strategy 228
8 Strategy Formulation: Functional Strategy and Strategic Choice 260

CHAPTER
CHAPTER
CHAPTER

PART FOUR

Strategy Implementation and Control 293
9 Strategy Implementation: Organizing for Action 294

CHAPTER
CHAPTER

CHAPTER

0
1 1
1

Strategy Implementation: Staffing and Directing 324
Evaluation and Control 352

PART FIVE Introduction
CHAPTER

12

to Case Analysis 387

Suggestions for Case Analysis 388

PART SIX WEB CHAPTERS Other
WEB CHAPTER
WEB CHAPTER



WEB CHAPTER
GLOSSARY 417
NAME INDEX 427
SUBJECT INDEX 433

Strategic Issues


A Strategic Issues in Managing Technology and Innovation
B Strategic Issues in Entrepreneurial Ventures and Small Businesses
C Strategic Issues in Not-For-Profit Organizations


Can ants
Preface 19
PART ONE Introduction to Strategic Management and Business Policy 25
CHAPTER 1

Basic Concepts of Strategic Management 26
1.1 The Study of Strategic Management 29

Phases of Strategic Management 29
Benefits of Strategic Management 30
1.2 Globalization and Environmental Sustainability: Challenges

to Strategic Management 31
Impact of Globalization 32
Impact of Environmental Sustainability 32
Global Issue: REGIONAL TRADE ASSOCIATIONS REPLACE NATIONAL TRADE BARRIERS 33
Environmental Sustainability Issue: PROJECTED EFFECTS OF CLIMATE CHANGE 36

1.3 Theories of Organizational Adaptation 36
1.4 Creating a Learning Organization 37
1.5 Basic Model of Strategic Management 38

Environmental Scanning 40
Strategy Formulation 41

Strategy Highlight 1.1: DO YOU HAVE A GOOD MISSION STATEMENT? 42

Strategy Implementation 45
Evaluation and Control 46
Feedback/Learning Process 47
1.6 Initiation of Strategy: Triggering Events 47
Strategy Highlight 1.2: TRIGGERING EVENT AT UNILEVER 48

1.7 Strategic Decision Making 49

What Makes a Decision Strategic 49
Mintzberg's Modes of Strategic Decision Making 49
Strategic Decision-Making Process: Aid to Better Decisions 51
1.8 The Strategic Audit: Aid to Strategic Decision-Making 52

1.9 End of Chapter Summary 53
APPENDIX 1.A Strategic Audit of a Corporation 58


CONTENTS

CHAPTER

2 Corporate Governance 66
2.1 Role of the Board of Directors 69
Responsibilities of the Board 69
Members of a Board of Directors 72
Strategy Highlight 2.1: AGENCY THEORY VERSUS STEWARDSHIP THEORY

IN CORPORATE GOVERNANCE 74

Nomination and Election of Board Members 77
Organization of the Board 78
Impact of the Sarbanes-Oxley Act on U.S. Corporate Governance 79
Global Issue: CORPORATE GOVERNANCE IMPROVEMENTS THROUGHOUT THE WORLD 80

Trends in Corporate Governance 81
2.2 The Role of Top Management 82
Responsibilities of Top Management 82
Environmental Sustainability Issue: CONFLICT AT THE BODY SHOP 83
2.3 End of Chapter Summary 86

CHAPTER

3

Social Responsibility and Ethics in Strategic Management 94
3.1 Social Responsibilities of Strategic Decision Makers 96
Responsibilities of a Business Firm 96
Sustainability: More than Environmental? 99
Corporate Stakeholders 99
Environmental Sustainability Issue: THE DOW JONES SUSTAINABILITY INDEX 100
Strategy Highlight 3.1: JOHNSON & JOHNSON CREDO

102

3.2 Ethical Decision Making 103
Some Reasons for Unethical Behavior 103
Strategy Highlight 3.2: UNETHICAL PRACTICES AT ENRON AND WORLDCOM EXPOSED

BY "WHISTLE-BLOWERS" 104

Global Issue: HOW RULE-BASED AND RELATIONSHIP-BASED GOVERNANCE SYSTEMS
AFFECT ETHICAL BEHAVIOR 105

Encouraging Ethical Behavior 107
3.3 End of Chapter Summary 110

Ending Case for Part One: BLOOD BANANAS 114

PART TWO Scanning the Environment
CHAPTER

117

4 Environmental Scanning and Industry Analysis 118
4.1 Environmental Scanning 122
Identifying External Environmental Variables 122


CONTENTS

Environmental Sustamability Issue: MEASURING AND SHRINKING YOUR PERSONAL
CARBON FOOTPRINT 124

Global Issue: IDENTIFYING POTENTIAL MARKETS IN DEVELOPING NATIONS 131

Identifying External Strategic Factors 132
4.2 Industry Analysis: Analyzing the Task Environment 133

Porter's Approach to Industry Analysis 134
Industry Evolution 138

Categorizing International Industries 138
International Risk Assessment 139
Strategic Groups 139
Strategic Types 141
Hypercompetition 141
Using Key Success Factors to Create an Industry Matrix 142
Strategy Highlight 4.1: MICROSOFT IN A HYPERCOMPETITIVE INDUSTRY 142
4.3 Competitive Intelligence 144

Sources of Competitive Intelligence 145
Strategy Highlight 4.2: EVALUATING COMPETITIVE INTELLIGENCE 146

Monitoring Competitors for Strategic Planning 146
4.4 Forecasting 147

Danger of Assumptions 147
Useful Forecasting Techniques 148
4.5 The Strategic Audit: A Checklist for Environmental

Scanning 149
4.6 Synthesis of External Factors—EFAS 150
4.7 End of Chapter Summary 151
APPENDIX 4.A Competitive Analysis Techniques 157

CHAPTER

5 Internal Scanning: Organizational Analysis 160
5.1 A Resource-Based Approach to Organizational Analysis 162

Core and Distinctive Competencies 162

Using Resources to Gain Competitive Advantage 163
Determining the Sustainability of an Advantage 164
5.2 Business Models 166
5.3 Value-Chain Analysis 167
Strategy Highlight 5.1: A NEW BUSINESS MODEL AT SMARTYPIG 168

Industry Value-Chain Analysis 169
Corporate Value-Chain Analysis 170


CONTENTS

Scanning Functional Resources and Capabilities 171

5.4

Basic Organizational Structures 171
Corporate Culture: The Company Way 173
Global Issue: MANAGING CORPORATE CULTURE FOR GLOBAL COMPETITIVE
ADVANTAGE: ABB VERSUS MATSUSHITA 174

Strategic Marketing Issues 175
Strategic Financial Issues 177
Strategic Research and Development (R&D) Issues 178
Strategic Operations Issues 180
Strategic Human Resource (HRM) Issues 182
Environmental Sustainability Issue: USING ENERGY EFFICIENCY FOR COMPETITIVE
ADVANTAGE AND QUALITY OF WORK LIFE 185

Strategic Information Systems/Technology Issues 186

5.5 The Strategic Audit: A Checklist for Organizational Analysis 187
5.6 Synthesis of Internal Factors 188
5.7 End of Chapter Summary 189
Ending Case for Part Two: BOEING BETS THE COMPANY 194

PART THREE
CHAPTER

Strategy Formulation 197

6 Strategy Formulation: Situation Analysis and Business Strategy 198
6.1 Situation Analysis: SWOT Analysis 200

Generating a Strategic Factors Analysis Summary (SFAS) Matrix 200
Finding a Propitious Niche 201
Global Issue: SAB DEFENDS ITS PROPITIOUS NICHE 205

6.2 Review of Mission and Objectives 205
6.3 Generating Alternative Strategies by Using a TOWS Matrix 206
6.4 Business Strategies 207

Porter's Competitive Strategies 207
Environmental Sustainability Issue: PATAGONIA USES SUSTAINABILITY
AS DIFFERENTIATION COMPETITIVE STRATEGY 211

Cooperative Strategies 219
6.5 End of Chapter Summary 223

CHAPTER


7 Strategy Formulation: Corporate Strategy 228
7.1 Corporate Strategy 230
7.2 Directional Strategy 230

Growth Strategies 231


CONTENTS

Strategy Highlight 7.1: TRANSACTION COST ECONOMICS ANALYZES VERTICAL

GROWTH STRATEGY 234
Global Issue: COMPANIES LOOK TO INTERNATIONAL MARKETS

FOR HORIZONTAL GROWTH 236
Strategy Highlight 7.2: SCREENING CRITERIA FOR CONCENTRIC DIVERSIFICATION 239

Controversies in Directional Growth Strategies 240
Stability Strategies 241
Retrenchment Strategies 242
7.3 Portfolio Analysis 244
BCG Growth-Share Matrix 245
Environmental Sustainability Issue: GENERAL MOTORS AND THE ELECTRIC CAR

GE Business Screen 247
Advantages and Limitations of Portfolio Analysis 249
Managing a Strategic Alliance Portfolio 249
7.4 Corporate Parenting 250
Developing a Corporate Parenting Strategy 251
Horizontal Strategy and Multipoint Competition 252

7.5 End of Chapter Summary 253

CHAPTER

8

Strategy Formulation: Functional Strategy and Strategic Choice 260
8.1 Functional Strategy 262

Marketing Strategy 262
Financial Strategy 263
Research and Development (R&D) Strategy 265
Operations Strategy 266
Global Issue: INTERNATIONAL DIFFERENCES ALTER WHIRLPOOL'S OPERATIONS

STRATEGY

267

Purchasing Strategy 268
Environmental Sustainability Issue: OPERATIONS NEED FRESH WATER

AND LOTS OF IT! 269

Logistics Strategy 270
Human Resource Management (HRM) Strategy 270
Information Technology Strategy 271
8.2 The Sourcing Decision: Location of Functions 271
8.3 Strategies to Avoid 274
8.4 Strategic Choice: Selecting the Best Strategy 275

Constructing Corporate Scenarios 275
Process of Strategic Choice 281

246


CONTENTS

8.5 Developing Policies 282
8.6 End of Chapter Summary 283
Ending Case for Part Three: KMART AND SEARS: STILL STUCK IN THE MIDDLE? 290

PART FOUR Strategy Implementation and Control 293
CHAPTER 9

Strategy Implementation: Organizing for Action 294
9.1 Strategy Implementation 296
9.2 Who Implements Strategy? 297
9.3 What Must Be Done? 297

Developing Programs, Budgets, and Procedures 298
Environmental Sustainability Issue: FORD'S SOYBEAN SEAT FOAM PROGRAM 298
Strategy Highlight 9.1: THE TOP TEN EXCUSES FOR BAD SERVICE

301

Achieving Synergy 302
9.4 How Is Strategy to Be Implemented? Organizing for Action 302

Structure Follows Strategy 303

Stages of Corporate Development 304
Organizational Life Cycle 307
Advanced Types of Organizational Structures 309
Reengineering and Strategy Implementation 312
Six Sigma 313
Designing Jobs to Implement Strategy 314
Strategy Highlight 9.2: DESIGNING JOBS WITH THE JOB CHARACTERISTICS MODEL 315

9.5 International Issues in Strategy Implementation 315

International Strategic Alliances 316
Stages of International Development 317
Global Issue: MULTIPLE HEADQUARTERS: A SIXTH STAGE OF INTERNATIONAL
DEVELOPMENT? 318

Centralization Versus Decentralization 318
9.6 End of Chapter Summary 320
CHAPTER 1 0

Strategy Implementation: Staffing and Directing

324

10.1 Staffing 326
Staffing Follows Strategy 327
Selection and Management Development 329
Strategy Highlight 10.1: HOW HEWLETT - PACKARD IDENTIFIES POTENTIAL EXECUTIVES 330

Problems in Retrenchment 332
International Issues in Staffing 333



CONTENTS

10.2 Leading 335

Managing Corporate Culture 335
Environmental Sustainahiiiry Issue: ABBOTT LABORATORIES' NEW PROCEDURES
FOR GREENER COMPANY CARS 336

Action Planning 340
Management by Objectives 342
Total Quality Management 342
International Considerations in Leading 343
Global Issue: CULTURAL DIFFERENCES CREATE IMPLEMENTATION PROBLEMS
IN MERGER 345

10.3 End of Chapter Summary 346

CHAPTER 1 1

Evaluation and Control 352
11.1 Evaluation and Control in Strategic Management 354
11.2 Measuring Performance 356

Appropriate Measures 356
Types of Controls 356
Activity-Based Costing 358
Enterprise Risk Management 359
Primary Measures of Corporate Performance 359

Environmental Sustainability Issue: HOW GLOBAL WARMING COULD AFFECT
CORPORATE VALUATION 364

Primary Measures of Divisional and Functional Performance 366
International Measurement Issues 368
Global Issue: COUNTERFEIT GOODS AND PIRATED SOFTWARE:
A GLOBAL PROBLEM 370

11.3 Strategic Information Systems 371

Enterprise Resource Planning (ERP) 371
Radio Frequency Identification (RFID) 372
Divisional and Functional IS Support 372
11.4 Problems in Measuring Performance 372

Short-Term Orientation 373
Goal Displacement 374
11.5 Guidelines for Proper Control 375
Strategy Highlight 11.1: SOME RULES OF THUMB IN STRATEGY 375

11.6 Strategic Incentive Management 376
11.7 End of Chapter Summary 378
Ending Case for Part Four: HEWLETT-PACKARD BUYS EDS 384


CONTENTS
PART FIVE
CHAPTER

Introduction to Case Analysis 387


1 2 Suggestions for Case Analysis 388
12.1 The Case Method 389
12.2 Researching the Case Situation 390
12.3 Financial Analysis: A Place to Begin 3910

Analyzing Financial Statements 393
Environmental Sustainability Issue: IMPACT OF CARBON TRADING 394
Global Issue: FINANCIAL STATEMENTS OF MULTINATIONAL CORPORATIONS:
NOT ALWAYS WHAT THEY SEEM 395

Common-Size Statements 395
Z-value and Index of Sustainable Growth 395
Useful Economic Measures 396
12.4 Format for Case Analysis: The Strategic Audit 397
12.5 End of Chapter Summary 399
APPENDIX 12.A Resources for Case Research 401
APPENDIX 12.B Suggested Case Analysis Methodology Using the Strategic Audit 404
APPENDIX 12.0 Example of a Student-Written Strategic Audit 407
Ending Case for Part Five: IN THE GARDEN 415

PART SIX WEB CHAPTERS Other Strategic
WEB CHAPTER

A

Issues

Strategic Issues in Managing Technology and Innovation
1 The Role of Management

Strategy Highlight 1: EXAMPLES OF INNOVATION EMPHASIS IN MISSION STATEMENTS

2 Environmental Scanning

External Scanning
Internal Scanning
3 Strategy Formulation

Product vs. Process R&D
Technology Sourcing
Global Issue: USE OF INTELLECTUAL PROPERTY AT HUAWEI TECHNOLOGIES

Importance of Technological Competence
Categories of Innovation
Product Portfolio
4 Strategy Implementation

Developing an Innovative Entrepreneurial Culture
Organizing for Innovation: Corporate Entrepreneurship
Strategy Highlight 2: HOW NOT TO DEVELOP AN INNOVATIVE ORGANIZATION


CONTENTS

5 Evaluation and Control
Evaluation and Control Techniques
Evaluation and Control Measures
6 End of Chapter Summary

WEB CHAPTER B


Strategic Issues in Entrepreneurial Ventures and Small Businesses
I Importance of Small Business and Entrepreneurial Ventures
Global Issue: ENTREPRENEURSHIP: SOME COUNTRIES ARE MORE
SUPPORTIVE THAN OTHERS

Definition of Small-Business Firms and Entrepreneurial Ventures
The Entrepreneur as Strategist
2 Use of Strategic Planning and Strategic Management
Degree of Formality
Usefulness of the Strategic Management Model
Usefulness of the Strategic Decision-Making Process
3 Issues in Corporate Governance
Boards of Directors and Advisory Boards
Impact of the Sarbanes-Oxley Act
4 Issues in Environmental Scanning and Strategy Formulation
Sources of Innovation
Factors Affecting a New Venture's Success
Strategy Highlight 1: SUGGESTIONS FOR LOCATING AN OPPORTUNITY
AND FORMULATING A BUSINESS STRATEGY

5 Issues in Strategy Implementation
Substages of Small Business Development
Transfer of Power and Wealth in Family Businesses
6 Issues in Evaluation and Control
7 End of Chapter Summary

WEB CHAPTER C

Strategic Issues in Not for Profit Organizations

-

-

I Why Not-for-Profit?
Global Issue: WHICH IS BEST FOR SOCIETY: BUSINESS
OR NOT-FOR-PROFIT?

2 Importance of Revenue Source
Sources of Not-for-Profit Revenue
Patterns of Influence on Strategic Decision Making
Usefulness of Strategic Management Concepts
and Techniques


CONTENTS

3 Impact of Constraints on Strategic Management
Impact on Strategy Formulation
Impact on Strategy Implementation
Impact on Evaluation and Control
4 Not-for-Profit Strategies
Strategic Piggybacking
Strategy Highlight 1: RESOURCES NEEDED FOR SUCCESSFUL STRATEGIC PIGGYBACKING

Mergers
Strategic Alliances
5 End of Chapter Summary
GLOSSARY 417
NAME INDEX 427

SUBJECT INDEX 433


Preface
Welcome to the 13th edition of Concepts in Strategic Management and Business Policy: Toward
Global Sustainability. We have examined the latest books, academic journals, and business publications to find the most relevant research, concepts, and techniques in the growing field of strategic management for inclusion. In addition, there are special issue chapters (dealing with technology,
entrepreneurship, and not-for-profit strategic issues) on the Web site (www.pearsonhighered.com/
wheelen). We continue to be the most comprehensive strategy book on the market, with chapter
topics ranging from corporate governance and social responsibility to competitive strategy, functional strategy, and strategic alliances.
This edition continues with the theme that runs throughout all 12 chapters: global
environmental sustainability. This theme complements the existing Global Issues theme carried
forward from past editions. Environmental sustainability has become a strategic issue that
will become even more important in the years ahead, as all of us struggle to deal with the
consequences of climate change, global warming, and energy availability.

FEATURES FOCUSED ON ENVIRONMENTAL SUSTAINABILITY
Each chapter contains a boxed insert dealing with an issue in environmental sustainability.
in Each chapter ends with Eco Bits, interesting tidbits of ecological information, such as the
number of plastic bags added to landfills each year.
5a Special sections on sustainability are found in Chapters 1 and 3.
n A section on the natural environment is included in the societal and task environments in
Chapter 4.

HOW THIS BOOK IS DIFFERENT FROM OTHER
STRATEGY TEXTBOOKS
This book contains a Strategic Management Model that runs through the first 11 chapters
and is made operational through the Strategic Audit, a complete case analysis methodology.
The Strategic Audit provides a professional framework for case analysis in terms of external
and internal factors and takes the student through the generation of strategic alternatives and
implementation programs.

To help the student synthesize the many factors in a complex strategy case, we developed
three useful techniques:
External Factor Analysis (EFAS) Table in Chapter 4
This reduces the external Opportunities and Threats to the 8 to 10 most important external
factors facing management.
mi Internal Factor Analysis (IFAS) Table in Chapter 5
This reduces the internal Strengths and Weaknesses to the 8 to 10 most important internal
factors facing management.
in Strategic Factor Analysis Summary (SFAS) Matrix in Chapter 6
This condenses the 16 to 20 factors generated in the EFAS and IFAS Tables into the 8 to 10
most important (strategic) factors facing the company. These strategic factors become the
basis for generating alternatives and a recommendation for the company's future direction.


PREFACE
Suggestions for Case Analysis are provide('. in Appendix 12.B (end of Chapter 12) and
contain step-by-step procedures for how to use the Strategic Audit in analyzing a case. This
appendix includes an example of a student-wriaen Strategic Audit. Thousands of students
around the world have applied this methodology to case analysis with great success.

TIME-TESTED FEATURES
This edition contains many of the same features and content that helped make previous
editions successful. Some of the features are the following:

it A Strategic Management Model runs
throughout the first 11 chapters as a unifying
concept. (Explained in Chapter 1)

APPENDIX 1


.A

Strategic Audit
of a Corporation
I. Current Situation
A. currant Performance

11.3trateple Posenaa

ta The Strategic Audit, a way to operationalize
the strategic decision-making process, serves as
a checklist in case analysis. (Chapter 1)
II. Corporate Governance
.aiof Otnete.
uEnooes..-.
Fl. 2- . Board of Directors ContInuUrn


DEGREE OF INVOLVEMENT IN STRATEGIC MANAGEMENT

*.

Low
(Passive)

thud
(Active)

•casyst
Never knows

whet to do, S
enytlans no
degree of
'tiwolvement.

Pam. officers Formally reviews Involved to a
Appian..
Takes the
In maks el
selected imam limited degree gammons, end lasagne Isle Sr
decisions. It
awl officers
in the parlor-
makes final de- estedishing
voles as the
bring to itsmanse or review Malone me- and ma:Eying
oaken) moony attention.
el selected key Won, strategy.
tits ntiesion.
mend on actam
declaim's.
policies. and
issue.
indicator. or
ottisctives. Has strategy, and
programs or
active board
palsies. It hes
menages..
committeee,

every ache
Performs fiscal alnategy
and management atkits

1—
SOURCE T. L. Wbvelen sml 1. O kfungvk (Bawd of Diwarm, Coruinuunx"Co,nialo C 1.11, W.. and Flue.
,NP nn..

Replanted

Corporate governance is examined in terms of the
roles, responsibilities, and interactions of top
management and the board of directors and includes
the impact of the Sarbanes-Oxley Act. (Chapter 2)

FIGURE 3.-1
Responsibilities
of Business

.................
SOURCE: Based on A. B. Carroll. "A Three Dimensional Conceptual Model of Corporate Performance," Academy
01..Wmaemen, Review (October IP.). pp. 497-505, A.B. Carroll, "Managing Ethically with Global Stakeholders
A Present and Eumre Challenge. - Academy of Management Esenaive (May 2009). pp. 116-120:
I)od A. 0 ) C.)°,
ThePyramidofCptSclResoniby:TwardthMolngemfOrsiadolStkeh.
Business Horizon, (July-August 1991). pp. 39,8.

a Social responsibility and managerial ethics are
examined in detail in terms of how they affect
strategic decision making. They include the

process of stakeholder analysis and the concept of
social capital. (Chapter 3)


PREFACE

(k 4.1

n Equal emphasis is placed on environmental
scanning of the societal environment as well as on
the task environment. Topics include forecasting.
and Miles and Snow's typology in addition to
competitive intelligence techniques and Porter's
industry analysis. (Chapter 4)

Environmental Scanning
Before m orgardzation can beMn Arany formulationA Inust sato Me external environmem
identify passIble oppornindies and threats and in irnemal environment for monglis and •aknesses. Environmental damning is the monitoring, evaluation. ansl dissemination of information
Fran the menial and internal ernmonmenh ln key people within the corporation. A 0orpomM011
uses this tool to amid srtangc mrprise and to ensuic 45 long-Moo health. Mocardi has found a
pminve relationship between ono insnmentel manning and profits. , Approximately 70% of exec.
uti yes around the world slam Ma dicta] .meal embonmeneal and business trends am increasingly important to omparate sormegy. according M a 2008 mrvey by NkKinsey SC Company)

IDENTIFYING EXTERNAL ENVIRONMENTAL VARIABLES
In undertaking envinanmema/ mmoning, stn.& managers must Iwo Ee dvare of the many
sodiables within a mrporation't natural. sodetal. and task environments (um Figure 1-31. The

n Core and distinctive competencies are examined within the framework of the resource-based
view of the firm. (Chapter 5)
• Organizational analysis includes material on business models, supply chain management,

and corporate reputation. (Chapter 5)
n Internal and external strategic factors are emphasized through the use of specially designed
EFAS, IFAS, and SFAS tables. (Chapters 4, 5, and 6)
n Functional strategies are examined in light of outsourcing. (Chapter 8)

Two chapters deal with issues in strategy implementation,
such as organizational and job design plus strategy-manager
fit, action planning, corporate culture, and international
strategic alliances. (Chapters 9 and 10)

strategy
implementation:
organizing for Action
i0,ned
e

s.d.d.omm,omdmm

10
strategy
implementation:
staffing and Directing

it to rapidly pinny to doomne Nodlt Pmaricat rtrmling

CHAPTER

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a A separate chapter on evaluation and control explains the importance of measurement
and incentives to organizational performance. (Chapter 11)




PREFACE
a Suggestions for in-depth case analysis provide a

complete listing of financial ratios, recommendations

for oral and written analysis, and ideas for further
research. (Chapter 12)

Financial Ratio Analysis

1. Lg... f Pallas



Cant. ascots

Omen! mum

010en1 linbirmes

Decimal

A Morraerm iniricenif of .e amnio/5
acmes 0 nay In Mon-term fawn
Moriaemi assem how roam of current
amen art avail.. io cams men doily sf
lianilities.

Quick (acid IMO ratio

Cannel asseis - Inventory

Decimal

Cans. Ifubilaias

Memarts the coent., eh.y to payer
its MorMenn (.1galfoito from (ammo
assets, excluding inventories.

Invenfory to ma

Inventory

DecurralA moan. of invent, Imarani :nemeses

Meting capital Correm assets - Carrera Om este. in want me cushion of caom
current arse. over corona ikoillOm may
he Woven. untioniebte Menem in
inveniem
CaM ♦ Cash opivalents

Cash redo

Deem.

CVrcnl liebilida

Strategic ?WI/
Worksheet

Mmmres me extent to totter, the
company's 41,111:21 is in 11M s 3-1511
eauivalents) shows lane (nu. of ale

slosneie Atunt Hemline

cum. on11gnriontmm M.. from cash
or vetteetert arse..

1. emit...Won
A. Ma C.malue PerfuTmeaa

B.

.Vmryk Pa.)
Mbni.
Rimes Oaimarm
center Memegim
Curteni Polio.

2. Malltabillty Rados

`in profit after tams

Net pm& margin

Net sales

Goa. path marg.

Percei.ge

71101,110W MI2.0)03-cox 1(0100 ere
generated ny moll dollar ie kb

Sales - Cow of goods sap

Percenlage

NO profit after Mom

Pemenlage

Indicates ihe io1a1 margin asailaok to
cover other examv hoyond 32.50 of goods
cold and silll yield a pun.

Realm rot inve.nment
(ROD

alVoif Analysis Bryn

MOM.. ale (me of earn Oil 3.1.11

a.ssets anti. iu tie cart,m, a measure
of management efficiency. it Mows the
return on an die aswis under in alatml.

R. Corporaie Gamow.
Bona

reg1111[3x of ,IMIre fleanetng.

B. Top ataneman.

rte. Entrain *IETABli
Oppartmellesandlle.m..3:111

Roam on equity

Net pros aher taxes

1ROE)

SMrOaddemi satiny

Pentenetge

aratetrer the mw ar return on aie hook

Dollars

Sluiem the allereas eamorgx 0m-rued Me

per sf.re

fi Mare of common stock.

saute of Mare.... total investing..
the company.

Boa.) Ernerainvera

Earnings per share

. Tack Env* ilnitiony

(EPS)

re. Iminial Enviceneneat
Wealurnam

Net protit after taxes Preferred stock dividends

Average nan.a.of
common rheas

, Coma. lumen.
J. Activity team

B. Came Caine

Mn soles
Inventory

Wenn), annum,

Comer. Rammer

Decimal

Measures the number of nines 31. asen95
4150111353 of link.ted pads wit mama
over ix mid luting a period ot

1. Maitre,
Samee

usually a mat.

3 limeammeS Der.prmini

Days or Inventory

Inventory

a. Opery:w ar LeMaies

Oat's

Coo of pm., sold 361

Hunian P.orema

memare3 rsm number of one day, worth
of inventory tat a company Ism on Mina ar
any given Mem

a talon.. Symarn
V. Amy. al.lemegIe F.onISIMS1
A. Ivry Irm.m.lesremal
Brmegie Fano. (SWOT
B Rome alm arra Otiomma
SWOT Amine, Ends.* likglOS • • ,

•

Sm". altermam--rometl min
B. Roamuneadol Sonegy
VIE Imaleraestailaa
vIII.PraMaclea and Cannel

mcoss sem amop. 2.. a rat

ensure

^ d.

=eta

m The Strategic Audit Worksheet is based on the time-tested
Strategic Audit and is designed to help students organize and
structure daily case preparation in a brief period of time. The
worksheet works exceedingly well for checking the level of
daily student case preparation—especially for open class
discussions of cases. (Chapter 12)

Special chapters deal with strategic issues in managing technology and innovation,
entrepreneurial ventures and small businesses, and not-for-profit organizations.
(Web Chapters A, B, and C, respectively) These issues are often ignored by other strategy
textbooks, but are available on this book's Web site at www.pearsonhighered.com/wheelen.
STRATEGIC PRACTICE

An experiential exercise focusing on the

material covered in each chapter helps the
reader to apply strategic concepts to an
actual situation.

EXERCHE

Each year. intliler magazine publisloec nn ankle entitled.

west Airline. , Genera l Electric. Doll Computer. Microsoft

`America's Most Admired Companies' It lists the 10 most ad-

Johnson & Johnson. Staribucks. FedEx. and IBA.I. 1 •'

mired companies in the United States and in the

34,151(1.

Fortune's mnkirup are bused on scoring publicly held ,ornra-

nies on what it calls “eight key attributes of reputation": innovation. people management. use of corporate as

SONAZI)

msminsibility. quality of managers ent financial usualness.
long-tenn investment value, and quality of products/services. In
2008, Femme asked tiny Group to saucy more than 3.700 people from multiple &dust rie-s. Respond.nts were asked to 1133cise
the compank, they admired nrost&goalless of industry.
fortune has been publishing this list sin& 19142. The 2008 Fortune

of the top 19 most admired I) S. companies were i,tart-

X Why did the most admired U.S. fmn in 2004 (Wal-Man)
drop off the 10 ten listing in 20023!
M Why did Apple go from not even being on Me 10131 US.
listing in 2901 to No. 1 in 2908?
Al Which emu appeamd on both top 10 lists? Why'

off the list from 2004 200g
and why did alien get included?

10 Why did some tinn drop

A What companies should be on the nub31 admired 11 ,t this
ye-at? Wiry?

ing with #1): Apple, Berkshite Hatnaway, General Electric,
Google, Toyota Motor. Starbucks, F3dEx. Procter & Gamble.
Johnson & Johns, and Goldman Sachs Group. The next 10
most admired were (from 11 to 20): TIrget, Southwest Airlines,
Amenean Express. BMW. Costeo Wholesale, Nlicro.soll.
United Nireel Service. Cisco Systems. 3M. and Nordstami. 114
Four years earlier in 2004. the list of 10 most admired
U.S. companies was: Wal-Mart. Ber :shim Hathaway, South-

Try One of These Exercises
1. Go to the library and lind a "Most Admired Companies"
Fortune ankle Inert the 1081..ls or early NOtts and com-

pare (hot list 10 the 11111.1 one. (Sec worw.fo.noe coin for

the Ian,. list.) Which Companies 01,0 fallen out o1 the top
10.2 Rick one of the communes and investigate why it 0
110 longer on the list.

n A list of key terms and the pages in which they are discussed enable the reader to keep
track of important concepts as they are introduced in each chapter.


PREFACE

• Learning objectives begin each chapter.
n Each Part ends with a short case that acts to integrate the material discussed within
the previous chapters.
The text has been class-tested in strategy courses and revised based on feedback from
students and instructors. The first 11 chapters are organized around a Strategic Management
Model that begins each chapter and provides a structure for both content and case analysis.
We emphasize those concepts that have proven to be most useful in understanding strategic
decision making and in conducting case analysis. Our goal was to make the text as comprehensive as possible without getting bogged down in any one area. Endnote references are provided for those who wish to learn more about any particular topic.

SUPPLEMENTS
Instructor supplements are available to adopting instructors for download at www.pearsonhighered
.com/irc or via your Prentice Hall representative. The following support materials have been developed to accompany the 13th edition:
Instructor Resource Center
At www.pearsonhighered.com/irc, instructors can access teaching resources available with this
text in downloadable, digital format. Registration is simple and gives you immediate access to
new titles and new editions. As a registered faculty member, you can download resource files and
receive immediate access and instructions for installing course management content on your
campus server. In case you ever need assistance, our dedicated technical support team is ready
to assist instructors with questions about the media supplements that accompany this text. Visit
for answers to frequently asked questions and toll-free user support

phone numbers. The Instructor Resource Center provides the following electronic resources.
Instructor's Manual
To aid in discussing the 12 strategy chapters as well as the three web special issue chapters,
the Concepts Instructor's Manual includes:
n Suggestions for Teaching Strategic Management. These include various teaching methods
and suggested course syllabi.
Chapter Notes. These include summaries of each chapter, suggested answers to discussion
questions, and suggestions for using end-of-chapter cases/exercises and part-ending cases,
plus additional discussion questions (with answers) and lecture modules.
PowerPoint Slides
PowerPoint slides, provided in a comprehensive package of text outlines and figures
corresponding to the text, are designed to aid the educator and supplement in-class lectures.
Test Item File
This Test Item File contains over 1,200 questions, including multiple-choice, true/false, and
essay questions. Each question is followed by the correct answer, page reference, AACSB
category, and difficulty rating.
TestGen
TestGen software is preloaded with all of the Test Item File questions. It allows instructors to
manually or randomly view test questions, and to add, delete, or modify test-bank questions
as needed to create multiple tests.


PREFACE

Videos on DVD
Exciting and high-quality video clips help deliver engaging topics to the classroom to help
students better understand the concepts explained in the textbook. Please contact your local
representative to receive a copy of the DVD.

Acknowledgments

We thank the many people at Prentice Hall who helped to make this edition possible. We thank
our editor, Kim Norbuta. We are especially grateful to Kim's project manager, Claudia
Fernandes, who managed to keep everything on an even keel. We also thank Becca Groves and
Emily Bush, who took the book through the production process.
In addition, we express our appreciation to Wendy Klepetar, Management Department Chair
of Saint John's University and the College of Saint Benedict, for her support and provision of the
resources so helpful to revise a textbook. Both of us acknowledge our debt to Dr. William Shenkir
and Dr. Frank S. Kaulback, former Deans of the McIntire School of Commerce of the University
of Virginia, for the provision of a work climate most supportive to the original development of
this book.
Lastly, to the many strategy instructors and students who have moaned to us about their problems with the strategy course: We have tried to respond to your problems and concerns as best we
could by providing a comprehensive yet usable text coupled with recent and complex cases. To you,
the people who work hard in the strategy trenches, we acknowledge our debt. This book is yours.
T. L. W
Saint Petersburg, Florida

J. D. H.
St. Joseph, Minnesota


PART

Introduction to

and Business
Policy


1
basic concept

CHAPTER

How does a company become successful and stay successful? Certainly not
by playing it safe and following the traditional ways of doing business! Taking a
strategic risk is what General Electric (GE) did when it launched its Ecomagination
strategic initiative in 2005. According to Jeffrey Immelt, Chairman and CEO:
Ecomagination is GE's commitment to address challenges, such as the need for cleaner,
more efficient sources of energy, reduced emissions, and abundant sources of clean water.
And we plan to make money doing it. Increasingly for business, "green" is green)
Immelt announced in a May 9, 2005, conference call that the company planned to more
than double its spending on research and development from $700 million in 2004 to $1.5 billion by 2010 for cleaner products ranging from power generation to locomotives to water processing. The company intended to introduce 30 to 40 new products, including more efficient
lighting and appliances, over the next two years. It also expected to double revenues from businesses that made wind turbines, treat water, and reduce greenhouse-emitting gases to at least
$20 billion by 2010. In addition to working with customers to develop more efficient power generators, the company planned to reduce its own emission of greenhouse gases by 1% by 2012
and reduce the intensity of those gases 30% by 2008. 2 In 2006, GE's top management informed
the many managers of its global business units that in the future they would be judged not only
by the usual measures, such as return on capital, but that they would also be accountable for
achieving corporate environmental objectives.
Ecomagination was a strategic change for GE, a company that had previously been condemned by environmentalists for its emphasis on coal and nuclear power and for polluting the
Hudson and Housatonic rivers with polychlorinated biphenyls (PCBs) in the 1980s. Over the
years, GE had been criticized for its lack of social responsibility and for its emphasis on profitability and financial per4ormance over social and environmental objectives. What caused GE's
management to make this strategic change?
In the 18 months before launching its new environmental strategy, GE invited managers
from companies in various industries to participate in two-day "dreaming sessions" during
which they were asked to imagine life in 2015—and the products they, as customers, would
need from GE. The consensus was a future of rising fuel costs, restrictive environmental regulations, and growing consumer expectations for cleaner technologies, especially in the energy industry. Based on this conclusion, GE's management made the strategic decision to move in a new


earning Objectives
After reading this chapter, you should be able to:
Understand the benefits of strategic

management

• Identify some common triggering events
that act as stimuli for strategic change

n Explain how globalization and
environmental sustainability influence
strategic management

E Understand strategic decision-making
modes

• Understand the basic model of strategic
management and its components

• Use the strategic audit as a method of
analyzing corporate functions and
activities

Environmental
Scanning:

Strategy
Formulation:

Strategy
Implementation:

Evaluation
and Control:

Gathering
Information

Developing
Long-range Plans

Putting Strategy
into Action

Monitoring
Performance

External:
Opportunities
and Threats

Natural
Environment
Resources and
climate

Societal
Environment:
General forces

Task
Environment
Industry analysis

Mission
Reason for
existence

Objectives
What
results to
accomplish
by when

Strategies
Plan to
achieve the
mission &
objectives

Policies
Broad
guidelines
for decision
making

Programs
Activities
needed to
accomplish
a plan

Budgets
Cost of the

programs

Procedures
Sequence
of steps
needed to
do the job

Internal:
Strengths and
Weaknesses

Performance
Actual results

Structure:
Chain of command

Culture:
Beliefs, expectations,
values

Resources:
Assets, skills,
competencies,
knowledge

V
Feedback/Learning: Make corrections as needed
lagfir:ENMENNEfflignieninerMERFA

27