Create a PowerPoint Presentation. The final product will be no longer than 20 slides including the title page and reference page. Students will use the note section of the PowerPoint to discuss, explain and support the reasoning for information presented in each slide.

Create a PowerPoint Presentation. The final product will be no longer than 20 slides including the title page and reference page. Students will use the note section of the PowerPoint to discuss, explain and support the reasoning for information presented in each slide.
Purpose: This assignment is the first of three assignments. Students will use the tools and apply concepts learned in this and previous business courses to demonstrate an understanding of how organizations develop and manage strategies to establish, safeguard and sustain its position in a competitive market.Monitoring competitors? performance is a key aspect of performing an external environment analysis. This assignment provides students the opportunity to evaluate the competitive position of one of the organizations listed below and integrate that information in an External Factor Evaluation (EFE) matrix and Competitive Profile Matrices (CPM).Students will present a PowerPoint presentation that meets the standards of an effective presentation. Learn about creating an effective PowerPoint presentation at:Ten Tips for Effective PowerPoint Presentationshttp://www.lifehack.org/articles/featured/10-tips-for-more-effective-powerpoint-presentations.html
Instructions:Students will perform an external analysis on an industry where a company from the list below operates and competes. Alternative companies/industries may be studied but only with the instructor?s prior approval.T. CrossFitbitCitrixRiverbed TechnologyDarden RestaurantsThe paper should focus on factors related to the company?s industry and the environment that it and its competitors make. The factors to measure are those identified in SWOT, 5 Forces, PESTEL, EFE, and CPM.
In completing the assignment, students will perform research on the selected company, its industry, and its competitors and respond to the required steps below:Step 1: Create a PowerPoint Presentation. The final product will be no longer than 20 slides including the title page and reference page. Students will use the note section of the PowerPoint to discuss, explain and support the reasoning for information presented in each slide.Step 2: Review assignment grading rubric.Step 3: In completing the assignment, students are required to support the reasoning using in-text citations and a reference list. If information is taken from a source document, it has to be cited and referenced. Both in-text citations and an associated reference list are required. View the sample APA paper under Week 1 content. Students may also look under Course Resources>>Student Toolbox for APA resources.Step 4: Complete an External Environmental Analysis:Use tools, concepts and information from your own research to perform an external analysis of the company?s environment. Include the following:Company overviewIndustry analysis2) Competitive analysis. [Use the company?s closest competitors plus the selected company.]3) Techniques Analysis: PESTEL, Five Forces, OT from SWOT, EFE, and CPM.Trends: Discuss trends significant to the industry and company and discuss key areas of uncertainty related to trends or events that potentially could impact the company?s strategy.Utilize the Notes section to support each slideStep 5: Using the grading rubric, ensure all required elements are presented in the presentation.Step 6: Proofread for organization, spelling, and grammar and completeness.Use the spell and grammar check in MS Word as a first measure;Have someone who has excellent English skills to proof the paper;Step 7: Submit the presentation in the Assignment Folder.
Saylor URL: http://www.saylor.org/books Saylor.org1This text was adapted by The Saylor Foundation under a CreativeCommons Attribution-NonCommercial-ShareAlike 3.0 License withoutattribution as requested by the work?s original creator or licensee.Saylor URL: http://www.saylor.org/books Saylor.org2PrefaceTeaching strategic management classes can be a very difficult challenge for professors. In mostbusiness schools, strategic management is a ?capstone? course that requires students to draw oninsights from various functional courses they have completed (such as marketing, finance, andaccounting) to understand how top executives make the strategic decisions that drive whetherorganizations succeed or fail. Many students have very little experience with major organizationalchoices. This undermines many students? engagement in the course.Our book is designed to enhance student engagement. A good product in any industry matches whatcustomers want and need, and the textbook industry is no exception. It is well documented thatmany of today?s students are visual learners. To meet students? wants and needs (and thereby createa much better teaching experience for professors), our book offers the following:? Several graphic displays in each chapter that summarize key concepts in a visuallyappealing format.Chapter 1 “Mastering Strategy: Art and Science”, for example, offers graphicdisplays on (1) the ?5 Ps? of strategy; (2) intended, emergent, and realized strategies; (3) strategy inancient times; (4) military strategy; and (5) the evolution of strategic management as a field of study.The idea for the graphic displays was inspired by the visually rich and popular series on businesspublished by DK Publishing.? Rich, illustrative examples drawn from companies that are relevant to manystudents. As part of our emphasis on examples, each chapter uses one company as an ongoingexample to bring various concepts to life. In Chapter 1 “Mastering Strategy: Art and Science”, Apple isused as the ongoing example.? A ?strategy at the movies? feature in each chapter that links course concepts with apopular motion picture. In Chapter 1 “Mastering Strategy: Art and Science”, for example, wedescribe how The Social Network illustrates intended, emergent, and realized strategies.Politicians in many states are paying more and more attention over time to the cost of a collegeeducation, including the high prices of most textbooks. It is therefore reasonable to expect an everincreasingnumber of professors to seek modestly priced textbooks. Professors still want to beSaylor URL: http://www.saylor.org/books Saylor.org3assured of quality, of course. Both of us are endowed chairs at Research I universities. We have longtrack records of publishing our research in premier journals, and we have served in a variety ofeditorial and review board roles for such journals. Finally, we recognize that professors want tominimize their switching costs when adopting a new book. Although every textbook is a little unique,our table of contents offers a structure and topic coverage that parallels what market leading booksprovide.Saylor URL: http://www.saylor.org/books Saylor.org4Chapter 1Mastering Strategy: Art and ScienceLEARNING OBJECTIVESAfter reading this chapter, you should be able to understand and articulate answers to the followingquestions:1. What are strategic management and strategy?2. Why does strategic management matter?3. What elements determine firm performance?Strategic Management: A Core Concern for AppleThe Opening of the Apple StoreImage courtesy of Neil Bird, http://www.flickr.com/photos/nechbi/2058929337.March 2, 2011, was a huge day for Apple. The firm released its much-anticipated iPad2, a thinner andfaster version of market-leading Apple?s iPad tablet device. Apple also announced that a leading publisher,Random House, had made all seventeen thousand of its books available through Apple?s iBookstore.Apple had enjoyed tremendous success for quite some time. Approximately fifteen million iPads were soldin 2010, and the price of Apple?s stock had more than tripled from early 2009 to early 2011.Saylor URL: http://www.saylor.org/books Saylor.org5But future success was far from guaranteed. The firm?s visionary founder Steve Jobs was battling serioushealth problems. Apple?s performance had suffered when an earlier health crisis had forced Jobs to stepaway from the company. This raised serious questions. Would Jobs have to step away again? If so, howmight Apple maintain its excellent performance without its leader?Meanwhile, the iPad2 faced daunting competition. Samsung, LG, Research in Motion, Dell, and othermanufacturers were trying to create tablets that were cheaper, faster, and more versatile than the iPad2.These firms were eager to steal market share by selling their tablets to current and potential Applecustomers. Could Apple maintain leadership of the tablet market, or would one or more of its rivalsdominate the market in the years ahead? Even worse, might a company create a new type of device thatwould make Apple?s tablets obsolete?Saylor URL: http://www.saylor.org/books Saylor.org61.1 Defining Strategic Management and StrategyLEARNING OBJECTIVES1. Learn what strategic management is.2. Understand the key question addressed by strategic management.3. Understand why it is valuable to consider different definitions of strategy.4. Learn what is meant by each of the 5 Ps of strategy.What Is Strategic Management?Issues such as those currently faced by Apple are the focus of strategic management because they helpanswer the key question examined by strategic management??Why do some firms outperform otherfirms?? More specifically, strategic management examines how actions and events involving topexecutives (such as Steve Jobs), firms (Apple), and industries (the tablet market) influence a firm?ssuccess or failure. Formal tools exist for understanding these relationships, and many of these tools areexplained and applied in this book. But formal tools are not enough; creativity is just as important tostrategic management. Mastering strategy is therefore part art and part science.This introductory chapter is intended to enable you to understand what strategic management is and whyit is important. Because strategy is a complex concept, we begin by explaining five different ways to thinkabout what strategy involves (Figure 1.1 “Defining Strategy: The Five Ps”). Next, we journey across manycenturies to examine the evolution of strategy from ancient times until today. We end this chapter bypresenting a conceptual model that maps out one way that executives can work toward masteringstrategy. The model also provides an overall portrait of this book?s contents by organizing the remainingnine chapters into a coherent whole.Defining Strategy: The Five PsDefining strategy is not simple. Strategy is a complex concept that involves many different processes andactivities within an organization. To capture this complexity, Professor Henry Mintzberg of McGillUniversity in Montreal, Canada, articulated what he labeled as ?the 5 Ps of strategy.? According toMintzberg, understanding how strategy can be viewed as a plan, as a ploy, as a position, as a pattern, andSaylor URL: http://www.saylor.org/books Saylor.org7as a perspective is important. Each of these five ways of thinking about strategy is necessary forunderstanding what strategy is, but none of them alone is sufficient to master the concept. [1]Figure 1.1 Defining Strategy: The Five PsImages courtesy of Thinkstock (first); Dave, K., Short, J., Combs, J., & Terrell, W. (2011). Tales ofGarc?n: The Franchise Players. Irvington, Wikipedia (third); Old Navy (fourth); James DuncanDavidson from Portland, USA (fifth).Strategy as a PlanSaylor URL: http://www.saylor.org/books Saylor.org8Strategic plans are the essence of strategy, according to one classic view of strategy. A strategic plan is acarefully crafted set of steps that a firm intends to follow to be successful. Virtually every organizationcreates a strategic plan to guide its future. In 1996, Apple?s performance was not strong, and Gilbert F.Amelio was appointed as chief executive officer in the hope of reversing the company?s fortunes. In aspeech focused on strategy, Amelio described a plan that centered on leveraging the Internet (which at thetime was in its infancy) and developing multimedia products and services. Apple?s subsequent successselling over the Internet via iTunes and with the iPad can be traced back to the plan articulated in 1996. [2]A business model should be a central element of a firm?s strategic plan. Simply stated, a business modeldescribes the process through which a firm hopes to earn profits. It probably won?t surprise you to learnthat developing a viable business model requires that a firm sell goods or services for more than it coststhe firm to create and distribute those goods. A more subtle but equally important aspect of a businessmodel is providing customers with a good or service more cheaply than they can create it themselves.Consider, for example, large chains of pizza restaurants such as Papa John?s and Domino?s.Franchises such as Pizza Hut provide an example of a popular business model that has been successful worldwide.Saylor URL: http://www.saylor.org/books Saylor.org9Image courtesy of Derek Jensen, http://wikimediafoundation.org/wiki/File:Bremen-indiana-pizza-hut.jpg.Because these firms buy their ingredients in massive quantities, they pay far less for these items than anyfamily could (an advantage called economies of scale). Meanwhile, Papa John?s and Domino?s havedeveloped specialized kitchen equipment that allows them to produce better-tasting pizza than can becreated using the basic ovens that most families rely on for cooking. Pizza restaurants thus can makebetter-tasting pizzas for far less cost than a family can make itself. This business model provides healthymargins and has enabled Papa John?s and Domino?s to become massive firms.Strategic plans are important to individuals too. Indeed, a well-known proverb states that ?he who fails toplan, plans to fail.? In other words, being successful requires a person to lay out a path for the future andthen follow that path. If you are reading this, earning a college degree is probably a key step in yourstrategic plan for your career. Don?t be concerned if your plan is not fully developed, however. Life is fullof unexpected twists and turns, so maintaining flexibility is wise for individuals planning their careerstrategies as well as for firms.For firms, these unexpected twists and turns place limits on the value of strategic planning. Formerheavyweight boxing champion Mike Tyson captured the limitations of strategic plans when he noted,?Everyone has a plan until I punch them in the face.? From that point forward, strategy is less about aplan and more about adjusting to a shifting situation. For firms, changes in the behavior of competitors,customers, suppliers, regulators, and other external groups can all be sources of a metaphorical punch inthe face. As events unfold around a firm, its strategic plan may reflect a competitive reality that no longerexists. Because the landscape of business changes rapidly, other ways of thinking about strategy areneeded.Strategy as a PloyA second way to view strategy is in terms of ploys. A strategic ploy is a specific move designed to outwit ortrick competitors. Ploys often involve using creativity to enhance success. One such case involves themighty Mississippi River, which is a main channel for shipping cargo to the central portion of the UnitedSaylor URL: http://www.saylor.org/books Saylor.org10States. Ships traveling the river enter it near New Orleans, Louisiana. The next major port upriver isLouisiana?s capital, Baton Rouge. A variety of other important ports exist in states farther upriver.Many decades ago, the governor of Louisiana was a clever and controversial man named Huey Long.Legend has it that Long ordered that a bridge being constructed over the Mississippi River in Baton Rougebe built intentionally low to the ground. This ploy created a captive market for cargo because very largebarges simply could not fit under the bridge. Large barges using the Mississippi River thus needed tounload their cargo in either New Orleans or Baton Rouge. Either way, Louisiana would benefit. Of course,owners of ports located farther up the river were not happy.Ploys can be especially beneficial in the face of much stronger opponents. Military history offers quite afew illustrative examples. Before the American Revolution, land battles were usually fought by twoopposing armies, each of which wore brightly colored clothing, marching toward each other across openfields. George Washington and his officers knew that the United States could not possibly defeat bettertrainedand better-equipped British forces in a traditional battle. To overcome its weaknesses, theAmerican military relied on ambushes, hit-and-run attacks, and other guerilla moves. It even broke anunwritten rule of war by targeting British officers during skirmishes. This was an effort to reduce theopponent?s effectiveness by removing its leadership.Centuries earlier, the Carthaginian general Hannibal concocted perhaps the most famous ploy ever.Saylor URL: http://www.saylor.org/books Saylor.org11Hannibal?s clever use of elephants to cross the Alps provides an example of a strategic ploy.Image courtesy of Wikipedia, http://en.wikipedia.org/wiki/File:Hannibal3.jpg.Carthage was at war with Rome, a scary circumstance for most Carthaginians given their far weakerfighting force. The Alps had never been crossed by an army. In fact, the Alps were considered such atreacherous mountain range that the Romans did not bother monitoring the part of their territory thatbordered the Alps. No horse was up to the challenge, but Hannibal cleverly put his soldiers on elephants,and his army was able to make the mountain crossing. The Romans were caught completely unpreparedand most of them were frightened by the sight of charging elephants. By using the element of surprise,Hannibal was able to lead his army to victory over a much more powerful enemy.Saylor URL: http://www.saylor.org/books Saylor.org12Ploys continue to be important today. In 2011, a pizzeria owner in Pennsylvania was accused of making arather unique attempt to outmaneuver two rival pizza shops. According to police, the man tried tosabotage his competitors by placing mice in their pizzerias. If the ploy had not been discovered, the twoshops could have suffered bad publicity or even been shut down by authorities because of health concerns.Although most strategic ploys are legal, this one was not, and the perpetrator was arrested. [3]Strategy as a PatternStrategy as pattern is a third way to view strategy. This view focuses on the extent to which a firm?s actionsover time are consistent. A lack of a strategic pattern helps explain why Kmart deteriorated intobankruptcy in 2002. The company was started in the late nineteenth century as a discount departmentstore. By the middle of the twentieth century, consistently working to be good at discount retailing had ledKmart to become a large and prominent chain.By the 1980s, however, Kmart began straying from its established strategic pattern. Executives shifted thefirm?s focus away from discount retailing and toward diversification. Kmart acquired large stakes inchains involved in sporting goods (Sports Authority), building supplies (Builders Square), office supplies(OfficeMax), and books (Borders). In the 1990s, a new team of executives shifted Kmart?s strategy again.Brands other than Kmart were sold off, and Kmart?s strategy was adjusted to emphasize informationtechnology and supply chain management. The next team of executives decided that Kmart?s strategywould be to compete directly with its much-larger rival, Walmart. The resulting price war left Kmartcrippled. Indeed, this last shift in strategy was the fatal mistake that drove Kmart into bankruptcy. Today,Kmart is part of Sears Holding Company, and its prospects remain uncertain.In contrast, Apple is very consistent in its strategic pattern: It always responds to competitive challengesby innovating. Some of these innovations are complete busts. Perhaps the best known was the Newton, atablet-like device that may have been ahead of its time. Another was the Pippin, a video game systemintroduced in 1996 to near-universal derision. Apple TV, a 2007 offering intended to link televisions withthe Internet, also failed to attract customers. Such failures do not discourage Apple, however, and enoughof its innovations are successful that Apple?s overall performance is excellent. However, there are risks toSaylor URL: http://www.saylor.org/books Saylor.org13following a pattern too closely. A consistent pattern can make a company predictable, a possibility thatApple must guard against in the years ahead.Strategy as a PositionViewing strategy as a plan, a ploy, and a pattern involve only the actions of a single firm. In contrast, thenext P?strategy as position?considers a firm and its competitors. Specifically, strategy as position refersto a firm?s place in the industry relative to its competitors. McDonald?s, for example, has long been andremains the clear leader among fast-food chains. This position offers both good and bad aspects forMcDonald?s. One advantage of leading an industry is that many customers are familiar with and loyal toleaders. Being the market leader, however, also makes McDonald?s a target for rivals such as Burger Kingand Wendy?s. These firms create their strategies with McDonald?s as a primary concern. Old Navy offersanother example of strategy as position. Old Navy has been positioned to sell fashionable clothes atcompetitive prices.Old Navy occupies a unique position as the low-cost strategy within the Gap Inc.?s fleet of brands.Image courtesy of Lindsey Turner, http://www.flickr.com/photos/theogeo/2148416495.Saylor URL: http://www.saylor.org/books Saylor.org14Old Navy is owned by the same corporation (Gap Inc.) as the midlevel brand the Gap and upscale brandBanana Republic. Each of these three brands is positioned at a different pricing level. The firm hopes thatas Old Navy?s customers grow older and more affluent, they will shop at the Gap and then eventually atBanana Republic. A similar positioning of different brands is pursued by General Motors through itsChevrolet (entry level), Buick (midlevel), and Cadillac (upscale) divisions.Firms can carve out a position by performing certain activities in a different manner than their rivals. Forexample, Southwest Airlines is able to position itself as a lower-cost and more efficient provider by notoffering meals that are common among other airlines. In addition, Southwest does not assign specificseats. This allows for faster loading of passengers. Positioning a firm in this manner can only beaccomplished when managers make trade-offs that cut off certain possibilities (such as offering meals andassigned seats) to place their firms in a unique strategic space. When firms position themselves throughunique goods and services customers value, business often thrives. But when firms try to please everyone,they often find themselves without the competitive positioning needed for long-term success. Thusdeciding what a firm is not going to do is just as important to strategy as deciding what it is going to do. [4]To gain competitive advantage and greater success, firms sometimes change positions. But this can be arisky move. Winn-Dixie became a successful grocer by targeting moderate-income customers. When thefirm abandoned this established position to compete for wealthier customers and higher margins, theresults were disastrous. The firm was forced into bankruptcy and closed many stores. Winn-Dixieeventually exited bankruptcy, but like Kmart, its future prospects are unclear. In contrast to firms such asWinn-Dixie that change positions, Apple has long maintained a position as a leading innovator in variousindustries. This positioning has served Apple well.Strategy as a PerspectiveThe fifth and final P shifts the focus to inside the minds of the executives running afirm. Strategy as perspective refers to how executives interpret the competitive landscape around them.Because each person is unique, two different executives could look at the same event?such as a newcompetitor emerging?and attach different meanings to it. One might just see a new threat to his or herfirm?s sales; the other might view the newcomer as a potential ally.Saylor URL: http://www.saylor.org/books Saylor.org15An old clich? urges listeners to ?make lemons into lemonade.? A good example of applying this ideathrough strategy as perspective is provided by local government leaders in Sioux City, Iowa. Rather thanpetition the federal government to change their airport?s unusual call sign?SUX?local leaders decided toleverage the call sign to attract the attention of businesses and tourists to build their city?s economic base.An array of clothing and other goods sporting the SUX name is available at http://www.flysux.com. Somestrategists such as these local leaders are willing to take a seemingly sour situation and see the potentialsweetness, while other executives remain fixated on the sourness.Executives who adopt unique and positive perspectives can lead firms to find and exploit opportunitiesthat others simply miss. In the mid-1990s, the Internet was mainly a communication tool for academicsand government agencies. Jeff Bezos looked beyond these functions and viewed the Internet as a potentialsales channel. After examining a number of different markets that he might enter using the Internet,Bezos saw strong profit potential in the bookselling business, and he began selling books online. Today,the company he created?Amazon?has expanded far beyond its original focus on books to become adominant retailer in countless different markets. The late Steve Jobs at Apple appeared to take a similarperspective; he saw opportunities where others could not, and his firm has reaped significant benefits as aresult.KEY TAKEAWAY? Strategic management focuses on firms and the different strategies that they use to become and remainsuccessful. Multiple views of strategy exist, and the 5 Ps described by Henry Mintzberg enhanceunderstanding of the various ways in which firms conceptualize strategy.EXERCISES1. Have you developed a strategy to manage your career? Should you make it more detailed? Why or whynot?2. Identify an example of each of the 5 Ps of strategy other than the examples offered in this section.3. What business that you visit regularly seems to have the most successful business model? What makesthe business model work?Saylor URL: http://www.saylor.org/books Saylor.org16[1] Mintzberg, H. 1987. The strategy concept I: Five Ps for strategy. California Management Review, 30(1), 11?24.[2] Markoff, J. 1996, May 14. Apple unveils strategic plan of small steps. New York Times. Retrievedfrom http://www.nytimes.com/1996/05/14/business/apple-unveils-strategic -plan-of-small-steps.html[3] Reuters. 2011, March 1. Philadelphia area pizza owner used mice vs. competition?police. Retrieved fromnews.yahoo.com/s/nm/20110301/od_uk_nm/oukoe_uk_crime_pizza[4] Porter, M. E. 1996, November?December. What is strategy? Harvard Business Review, 61?79.Saylor URL: http://www.saylor.org/books Saylor.org171.2 Intended, Emergent, and Realized StrategiesLEARNING OBJECTIVES1. Learn what is meant by intended and emergent strategies and the differences between them.2. Understand realized strategies and how they are influenced by intended, deliberate, and emergentstrategies.A few years ago, a consultant posed a question to thousands of executives: ?Is your industry facingovercapacity and fierce price competition?? All but one said ?yes.? The only ?no? came from themanager of a unique operation?the Panama Canal! This manager was fortunate to be in charge of aventure whose services are desperately needed by shipping companies and that offers the only simpleroute linking the Atlantic and Pacific Oceans. The canal?s success could be threatened if transoceanicshipping was to cease or if a new canal were built. Both of these possibilities are extremely remote,however, so the Panama Canal appears to be guaranteed to have many customers for as long asanyone can see into the future.When an organization?s environment is stable and predictable, strategic planning can provideenough of a strategy for the organization to gain and maintain success. The executives leading theorganization can simply create a plan and execute it, and they can be confident that their plan willnot be undermined by changes over time. But as the consultant?s experience shows, only a fewexecutives?such as the manager of the Panama Canal?enjoy a stable and predictable situation.Because change affects the strategies of almost all organizations, understanding the concepts ofintended, emergent, and realized strategies is important (Figure 1.2 “Strategic Planning andLearning: Intended, Emergent, and Realized Strategies”). Also relevant are deliberate andnonrealized strategies. The relationships among these five concepts are presented in Figure 1.3 “AModel of Intended, Deliberate, and Realized Strategy”. [1]Figure 1.2 Strategic Planning and Learning: Intended, Emergent, and Realized StrategiesIntended and Emergent StrategiesFigure 1.3 A Model of Intended, Deliberate, and Realized StrategySaylor URL: http://www.saylor.org/books Saylor.org18Reproduced with permissionAn intended strategy is the strategy that an organization hopes to execute. Intended strategies are usuallydescribed in detail within an organization?s strategic plan. When a strategic plan is created for a newventure, it is called a business plan. As an undergraduate student at Yale in 1965, Frederick Smith had tocomplete a business plan for a proposed company as a class project. His plan described a delivery systemthat would gain efficiency by routing packages through a central hub and then pass them to theirdestinations. A few years later, Smith started Federal Express (FedEx), a company whose strategy closelyfollowed the plan laid out in his class project. Today, Frederick Smith?s personal wealth has surpassed $2billion, and FedEx ranks eighth among the World?s Most Admired Companies accordingto Fortune magazine. Certainly, Smith?s intended strategy has worked out far better than even he couldhave dreamed.[2]Emergent strategy has also played a role at Federal Express. An emergent strategy is an unplannedstrategy that arises in response to unexpected opportunities and challenges. Sometimes emergentstrategies result in disasters. In the mid-1980s, FedEx deviated from its intended strategy?s focus onpackage delivery to capitalize on an emerging technology: facsimile (fax) machines. The firm developed aservice called ZapMail that involved documents being sent electronically via fax machines between FedExSaylor URL: http://www.saylor.org/books Saylor.org19offices and then being delivered to customers? offices. FedEx executives hoped that ZapMail would be asuccess because it reduced the delivery time of a document from overnight to just a couple of hours.Unfortunately, however, the ZapMail system had many technical problems that frustrated customers.Even worse, FedEx failed to anticipate that many businesses would simply purchase their own faxmachines. ZapMail was shut down before long, and FedEx lost hundreds of millions of dollars followingits failed emergent strategy. In retrospect, FedEx had made a costly mistake by venturing outside of thedomain that was central to its intended strategy: package delivery. [3]Emergent strategies can also lead to tremendous success. Southern Bloomer Manufacturing Company wasfounded to make underwear for use in prisons and mental hospitals. Many managers of such institutionsbelieve that the underwear made for retail markets by companies such as Calvin Klein and Hanes issimply not suitable for the people under their care. Instead, underwear issued to prisoners needs to besturdy and durable to withstand the rigors of prison activities and laundering. To meet these needs,Southern Bloomers began selling underwear made of heavy cotton fabric.An unexpected opportunity led Southern Bloomer to go beyond its intended strategy of servinginstitutional needs for durable underwear. Just a few years after opening, Southern Bloomer?sperformance was excellent. It was servicing the needs of about 125 facilities, but unfortunately, this wascreating a vast amount of scrap fabric. An attempt to use the scrap as stuffing for pillows had failed, so thescrap was being sent to landfills. This was not only wasteful but also costly.One day, cofounder Don Sonner visited a gun shop with his son. Sonner had no interest in guns, but hequickly spotted a potential use for his scrap fabric during this visit. The patches that the gun shop sold toclean the inside of gun barrels were of poor quality. According to Sonner, when he ?saw one of thoseflimsy woven patches they sold that unraveled when you touched them, I said, ?Man, that?s what I can do??with the scrap fabric. Unlike other gun-cleaning patches, the patches that Southern Bloomer sold did notgive off threads or lint, two by-products that hurt guns? accuracy and reliability. The patches quicklybecame popular with the military, police departments, and individual gun enthusiasts. Before long,Southern Bloomer was selling thousands of pounds of patches per month. A casual trip to a gun storeunexpectedly gave rise to a lucrative emergent strategy. [4]Saylor URL: http://www.saylor.org/books Saylor.org20Realized StrategyA realized strategy is the strategy that an organization actually follows. Realized strategies are a product ofa firm?s intended strategy (i.e., what the firm planned to do), the firm?s deliberate strategy (i.e., the partsof the intended strategy that the firm continues to pursue over time), and its emergent strategy (i.e., whatthe firm did in reaction to unexpected opportunities and challenges). In the case of FedEx, the intendedstrategy devised by its founder many years ago?fast package delivery via a centralized hub?remains aprimary driver of the firm?s realized strategy. For Southern Bloomers Manufacturing Company, realizedstrategy has been shaped greatly by both its intended and emergent strategies, which center on underwearand gun-cleaning patches.In other cases, firms? original intended strategies are long forgotten. A nonrealized strategy refers to theabandoned parts of the intended strategy. When aspiring author David McConnell was struggling to sellhis books, he decided to offer complimentary perfume as a sales gimmick. McConnell?s books never didescape the stench of failure, but his perfumes soon took on the sweet smell of success. The CaliforniaPerfume Company was formed to market the perfumes; this firm evolved into the personal care productsjuggernaut known today as Avon. For McConnell, his dream to be a successful writer was a nonrealizedstrategy, but through Avon, a successful realized strategy was driven almost entirely by opportunisticallycapitalizing on change through emergent strategy.Strategy at the MoviesThe Social NetworkDid Harvard University student Mark Zuckerberg set out to build a billion-dollar company with morethan six hundred million active users? Not hardly. As shown in 2010?s The Social Network, Zuckerberg?soriginal concept in 2003 had a dark nature. After being dumped by his girlfriend, a bitter Zuckerbergcreated a website called ?FaceMash? where the attractiveness of young women could be voted on. Thisevolved first into an online social network called Thefacebook that was for Harvard students only. Whenthe network became surprisingly popular, it then morphed into Facebook, a website open to everyone.Facebook is so pervasive today that it has changed the way we speak, such as the word friend being usedSaylor URL: http://www.saylor.org/books Saylor.org21as a verb. Ironically, Facebook?s emphasis on connecting with existing and new friends is about asdifferent as it could be from Zuckerberg?s original mean-spirited concept. Certainly, Zuckerberg?semergent and realized strategies turned out to be far nobler than the intended strategy that began hisadventure in entrepreneurship.The Social Network demonstrates how founder Mark Zuckerberg?s intended strategy gave way toan emergent strategy via the creation of Facebook.Image courtesy of Robert Scoble, http://www.flickr.com/photos/scobleizer/5179377698.KEY TAKEAWAY? Most organizations create intended strategies that they hope to follow to be successful. Over time,however, changes in an organization?s situation give rise to new opportunities and challenges.Organizations respond to these changes using emergent strategies. Realized strategies are a product ofboth intended and realized strategies.EXERCISES1. What is the difference between an intended and an emergent strategy?2. Can you think of a company that seems to have abandoned its intended strategy? Why do you suspect itwas abandoned?Saylor URL: http://www.saylor.org/books Saylor.org223. Would you describe your career strategy in college to be more deliberate or emergent? Why?[1] Mintzberg, H., & Waters, J. A. 1985. Of strategies, deliberate and emergent. Strategic Management Journal, 6,257?272.[2] Donahoe, J. A. 2011, March 10. Forbes: Fred Smith?s fortune grows to $.21B. Memphis Business Journal.Retrieved fromhttp://www.bizjournals.com/memphis/news/2011/03/10/forbes-fred-smiths-fortune-growsto.html;Fortune: FedEx 8th ?most admired? company in the world. Memphis Business Journal. Retrievedfrom http://www.bizjournals .com/memphis/news/2011/03/03/fortune-fedex-8th-most- admired.html[3] Funding Universe. FedEx Corporation. Retrieved fromhttp://www.fundinguniverse.com/company –histories/FedEx-Corporation-Company-History.html[4] Wells, K. 2002. Floating off the page: The best stories from the Wall Street Journal?s middle column. New York:Simon & Shuster. Quote from page 97.Saylor URL: http://www.saylor.org/books Saylor.org231.3 The History of Strategic ManagementLEARNING OBJECTIVES1. Consider how strategy in ancient times and military strategy can provide insights to businesses.2. Describe how strategic management has evolved into a field of study.Those who cannot remember the past are condemned to repeat it.– George Santayana, The Life of ReasonSantayana?s quote has strong implications for strategic management. The history of strategic managementcan be traced back several thousand years. Great wisdom about strategy can be acquired byunderstanding the past, but ignoring the lessons of history can lead to costly strategic mistakes that couldhave been avoided. Certainly, the present offers very important lessons; businesses can gain knowledgeabout what strategies do and do not work by studying the current actions of other businesses. But thissection discusses two less obvious sources of wisdom: (1) strategy in ancient times and (2) militarystrategy. This section also briefly traces the development of strategic management as a field of study.Strategy in Ancient TimesPerhaps the earliest-known discussion of strategy is offered in the Old Testament of theBible. [1] Approximately 3,500 years ago, Moses faced quite a challenge after leading his fellow Hebrewsout of enslavement in Egypt. Moses was overwhelmed as the lone strategist at the helm of a nation thatmay have exceeded one million people. Based on advice from his father-in-law, Moses began delegatingauthority to other leaders, each of whom oversaw a group of people. This hierarchical delegation ofauthority created a command structure that freed Moses to concentrate on the biggest decisions andhelped him implement his strategies (Figure 1.4 “Strategy in Ancient Times”). Similarly, the demands ofstrategic management today are simply too much for a chief executive officer (the top leader of acompany) to handle alone. Many important tasks are thus entrusted to vice presidents and otherexecutives.Saylor URL: http://www.saylor.org/books Saylor.org24In ancient China, strategist and philosopher Sun Tzu offered thoughts on strategy that continue to bestudied carefully by business and military leaders today. Sun Tzu?s best-known work is The Art of War. Asthis title implies, Sun Tzu emphasized the creative and deceptive aspects of strategy.One of Sun Tzu?s ideas that has numerous business applications is that winning a battle without fighting isthe best way to win. Apple?s behavior in the personal computer business offers a good example of this ideain action. Many computer makers such as Toshiba, Acer, and Lenovo compete with one another basedprimarily on price. This leads to price wars that undermine the computer makers? profits. In contrast,Apple prefers to develop unique features for its computers, features that have created a fiercely loyal set ofcustomers. Apple boldly charges far more for its computers than its rivals charge for theirs. Apple doesnot even worry much about whether its computers? software is compatible with the software used by mostother computers. Rather than fighting a battle with other firms, Apple wins within the computer businessby creating its own unique market and by attracting a set of loyal customers. Sun Tzu would probablyadmire Apple?s approach.Perhaps the most famous example of strategy in ancient times revolves around the Trojan horse.According to legend, Greek soldiers wanted to find a way to enter the gates of Troy and attack the cityfrom the inside. They devised a ploy that involved creating a giant wooden horse, hiding soldiers insidethe horse, and offering the horse to the Trojans as a gift. The Trojans were fooled and brought the horseinside their city. When night arrived, the hidden Greek soldiers opened the gates for their army, leading toa Greek victory. In modern times, the term Trojan horse refers to gestures that appear on the surface tobe beneficial to the recipient but that mask a sinister intent. Computer viruses also are sometimes referredto as Trojan horses.A far more noble approach to strategy than the Greeks? is attributed to King Arthur of Britain. Unlike thehierarchical approach to organizing Moses used, Arthur allegedly considered himself and each of hisknights to have an equal say in plotting the group?s strategy. Indeed, the group is thought to have held itsmeetings at a round table so that no voice, including Arthur?s, would be seen as more important than theothers. The choice of furniture in modern executive suites is perhaps revealing. Most feature rectangularmeeting tables, perhaps signaling that one person?the chief executive officer?is in charge.Saylor URL: http://www.saylor.org/books Saylor.org25Another implication for strategic management offered by King Arthur and his Knights of the Round Tableinvolves the concept of mission. Their vigorous search to find the Holy Grail (the legendary cup used byJesus and his disciples at the Last Supper) serves as an exemplar for the importance of a central missionto guide organizational strategy and actions.Lessons Offered by Military StrategyKey military conflicts and events have shaped the understanding of strategic management (Figure 1.5“Classic Military Strategy”). Indeed, the word strategy has its roots in warfare. The Greekverb strategos means ?army leader? and the idea of stratego (from which we get the word strategy) refersto defeating an enemy by effectively using resources. [2]A book written nearly five hundred years ago is still regarded by many as an insightful guide forconquering and ruling territories. Niccol? Machiavelli?s 1532 book The Prince offers clever recipes forsuccess to government leaders. Some of the book?s suggestions are quite devious, and theword Machiavellianis used today to refer to acts of deceit and manipulation.Two wars fought on American soil provide important lessons about strategic management. In the late1700s, the American Revolution pitted the American colonies against mighty Great Britain. TheAmericans relied on nontraditional tactics, such as guerilla warfare and the strategic targeting of Britishofficers. Although these tactics were considered by Great Britain to be barbaric, they later became widelyused approaches to warfare. The Americans owed their success in part to help from the French navy,illustrating the potential value of strategic alliances.Nearly a century later, Americans turned on one another during the Civil War. After four years ofhostilities, the Confederate states were forced to surrender. Historians consider the Confederacy to havehad better generals, but the Union possessed greater resources, such as factories and railroad lines. Asmany modern companies have discovered, sometimes good strategies simply cannot overcome a strongeradversary.Two wars fought on Russian soil also offer insights. In the 1800s, a powerful French invasion force wasdefeated in part by the brutal nature of Russian winters. In the 1940s, a similar fate befell German forcesSaylor URL: http://www.saylor.org/books Saylor.org26during World War II. Against the advice of some of his leading generals, Adolf Hitler ordered his army toconquer Russia. Like the French before them, the Germans were able to penetrate deep into Russianterritory. As George Santayana had warned, however, the forgotten past was about to repeat itself.Horrific cold stopped the German advance. Russian forces eventually took control of the combat, andHitler committed suicide as the Russians approached the German capital, Berlin.Five years earlier, Germany ironically had benefited from an opponent ignoring the strategic managementlessons of the past. In ancient times, the Romans had assumed that no army could cross a mountain rangeknown as the Alps. An enemy general named Hannibal put his men on elephants, crossed the mountains,and caught Roman forces unprepared. French commanders made a similar bad assumption in 1940.When Germany invaded Belgium (and then France) in 1940, its strategy caught French forces by surprise.The top French commanders assumed that German tanks simply could not make it through a thicklywooded region known as the Ardennes Forest. As a result, French forces did not bother preparing a strongdefense in that area. Most of the French army and their British allies instead protected against a small,diversionary force that the Germans had sent as a deception to the north of the forest. German forcesmade it through the forest, encircled the allied forces, and started driving them toward the ocean. Manythousands of French and British soldiers were killed or captured. In retrospect, the French generals hadignored an important lesson of history: Do not make assumptions about what your adversary can andcannot do. Executives who make similar assumptions about their competitors put their organizations?performance in jeopardy.Strategic Management as a Field of StudyUniversities contain many different fields of study, including physics, literature, chemistry, computerscience, and engineering. Some fields of study date back many centuries (e.g., literature), while others(such as computer science) have emerged only in recent years. Strategic management has been importantthroughout history, but the evolution of strategic management into a field of study has mostly taken placeover the past century. A few of the key business and academic events that have helped the field developare discussed next (Figure 1.6 “The Modern History of Strategic Management”).Saylor URL: http://www.saylor.org/books Saylor.org27The ancient Chinese strategist Sun Tzu made it clear that strategic management is part art. But it is alsopart science. Major steps toward developing the scientific aspect of strategic management were taken inthe early twentieth century by Frederick W. Taylor. In 1911, Taylor published The Principles of ScientificManagement. The book was a response to Taylor?s observation that most tasks within organizations wereorganized haphazardly. Taylor believed that businesses would be much more efficient if managementprinciples were derived through scientific investigation. In The Principles of Scientific Management,Taylor stressed how organizations could become more efficient through identifying the ?one best way? ofperforming important tasks. Implementing Taylor?s principles was thought to have saved railroadcompanies hundreds of millions of dollars. [3] Although many later works disputed the merits of trying tofind the ?one best way,? Taylor?s emphasis on maximizing organizational performance became the coreconcern of strategic management as the field developed.Also in the early twentieth century, automobile maker Henry Ford emerged as one of the pioneers ofstrategic management among industrial leaders. At the time, cars seemed to be a luxury item for wealthypeople. Ford adopted a unique strategic perspective, however, and boldly offered the vision that he wouldmake cars the average family could afford. Building on ideas about efficiency from Taylor and others, Fordorganized assembly lines for creating automobiles that lowered costs dramatically. Despite his wisdom,Ford also made mistakes. Regarding his company?s flagship product, the Model T, Ford famously stated,?Any customer can have a car painted any color that he wants so long as it is black.? When rivalautomakers provided customers with a variety of color choices, Ford had no choice but to do the same.In 1912, Harvard University became the first higher education institution to offer a course focused on howbusiness executives could lead their organizations to greater success. The approach to maximizingperformance within this ?business policy? course was consistent with Taylor?s ideas. Specifically, the goalof the business policy course was to identify the one best response to any given problem that anorganization confronted. By finding and pursuing this ideal solution, the organization would have the bestchance of enjoying success.In the 1920s, A&W Root Beer became the first franchised restaurant chain. Franchising involves anorganization (called a franchisor) granting the right to use its brand name, products, and processes toSaylor URL: http://www.saylor.org/books Saylor.org28other organizations (known as franchisees) in exchange for an up-front payment (a franchise fee) and apercentage of franchisees? revenues (a royalty fee). This simple yet powerful business model allowsfranchisors to grow their brands rapidly and provides franchisees with the safety of a proven businessformat. Within a few decades, the franchising business model would fuel incredible successes for manyfranchisors and franchisees across a variety of industries. Today, for example, both Subway andMcDonald?s have more than thirty thousand restaurants carrying their brand names.The acceptance of strategic management as a necessary element of business school programs took a majorstep forward in 1959. A widely circulated report created by the Ford Foundation recommended that allbusiness schools offer a ?capstone? course. The goal of this course would be to integrate knowledge acrossdifferent business fields such as marketing, finance, and accounting to help students devise better ideasfor addressing complex business problems. Rather than seeking a ?one best way? solution, as advocatedby Taylor and Harvard?s business policy course, this capstone course would emphasize students? criticalthinking skills in general and the notion that multiple ways of addressing a problem could be equallysuccessful in particular. The Ford Foundation report was a key motivator that led US universities to createstrategic management courses in their undergraduate and master of business administration programs.In 1962, business and academic events occurred that seemed minor at the time but that would later giverise to huge changes. Building on the business savvy that he had gained as a franchisee, Sam Waltonopened the first Walmart in Rogers, Arkansas. Relying on a strategy that emphasized low prices and highlevels of customer service, Walmart grew to 882 stores with a combined $8.4 billion dollars in annualsales by 1985. A decade later, sales reached $93.6 billion across nearly 3,000 stores. In 2010, Walmartwas the largest company in the world. In recent years, Walmart has arguably downplayed customerservice in favor of cutting costs. Time will tell whether deviating from Sam Walton?s original strategicpositioning will hurt the company.Also in 1962, Harvard professor Alfred Chandler published Strategy and Structure: Chapters in theHistory of the Industrial Enterprise. This book describes how strategy and organizational structure needto be consistent with each other to ensure strong firm performance, a lesson that Moses seems to haveSaylor URL: http://www.saylor.org/books Saylor.org29mastered during the Hebrews? exodus from Egypt. Many people working in the field of strategicmanagement consider Chandler?s book to be the first work of strategic management research.Two pivotal events that firmly established strategic management as a field of study took place in 1980.One was the creation of the Strategic Management Journal. The introduction of the journal offered aforum for researchers interested in building knowledge about strategic management. Much like importantnew medical findings appear in the Journal of the American Medical Association and the New EnglandJournal of Medicine, the Strategic Management Journal publishes pathbreaking insights about strategicmanagement.The second pivotal event in 1980 was the publication of Competitive Strategy: Techniques for AnalyzingIndustries and Competitors by Harvard professor Michael Porter. This book offers concepts such as fiveforces analysis and generic strategies that continue to strongly influence how executives choose strategiesmore than thirty years after the book?s publication. Given the importance of these concepts, both fiveforces analysis and generic strategies are discussed in detail in Chapter 3 “Evaluating the ExternalEnvironment” and Chapter 5 “Selecting Business-Level Strategies”, respectively.Many consumers today take web-based shopping for granted, but this channel for commerce was createdless than two decades ago. The 1995 launch of Amazon by founder Jeff Bezos was perhaps the pivotalevent in creating Internet-based commerce. In pursuit of its vision ?to be earth?s most customer-centriccompany,? Amazon has diversified far beyond its original focus on selling books and has evolved into adominant retailer. Powerful giants have stumbled badly in Amazon?s wake. Sears had sold great varietiesof goods (even including entire houses) through catalogs for many decades, as had JCPenney. Neitherfirm created a strong online sales presence to keep pace with Amazon, and both eventually dropped theircatalog businesses. As often happens with old and large firms, Sears and JCPenney were outmaneuveredby a creative and versatile upstart.Ethics have long been an important issue within the strategic management field. Attention to the need forexecutives to act ethically when creating strategies increased dramatically in the early 2000s when a seriesof companies such as Enron Corporation, WorldCom, Tyco, Qwest, and Global Crossing were found tohave grossly exaggerated the strength of their performance. After a series of revelations about fraud andSaylor URL: http://www.saylor.org/books Saylor.org30corruption, investors in these firms and others lost billions of dollars, tens of thousands of jobs were lost,and some executives were sent to prison.Like ethics, the implications of international competition are of central interest to strategic management.Provocative new thoughts on the nature of the international arena were offered in 2005 by Thomas L.Friedman. In his book The World Is Flat: A Brief History of the Twenty-First Century, Friedman arguesthat many of the advantages that firms in developed countries such as the United States, Japan, and GreatBritain take for granted are disappearing. One implication is that these firms will need to improve theirstrategies if they are to remain successful.Looking to the future, it appears likely that strategic management will prove to be more important thanever. In response, researchers who are interested in strategic management will work to build additionalknowledge about how organizations can maximize their performance. Executives will need to keep trackof the latest scientific findings. Meanwhile, they also must leverage the insights that history offers on howto be successful while trying to avoid history?s mistakes.KEY TAKEAWAY? Although strategic management as a field of study has developed mostly over the last century, theconcept of strategy is much older. Understanding strategic management can benefit greatly by learningthe lessons that ancient history and military strategy provide.EXERCISES1. What do you think was the most important event related to strategy in ancient times?2. In what ways are the strategic management of business and military strategy alike? In what ways are theydifferent?3. Do you think executives are more ethical today as a result of the scandals in the early 2000s? Why or whynot?[1] Bracker, J. 1980. The historical development of the strategic management concept.Academy of ManagementReview, 5(2), 219?224.Saylor URL: http://www.saylor.org/books Saylor.org31[2] Bracker, J. 1980. The historical development of the strategic management concept.Academy of ManagementReview, 5(2), 219?224.Saylor URL: http://www.saylor.org/books Saylor.org321.4 Understanding the Strategic Management ProcessLEARNING OBJECTIVES1. Learn the strategic management process.2. Understand the four steps in the strategic management process.Modeling the Strategy ProcessStrategic management is a process that involves building a careful understanding of how the world ischanging, as well as a knowledge of how those changes might affect a particular firm. CEOs, such as lateApple-founder Steve Jobs, must be able to carefully manage the possible actions that their firms mighttake to deal with changes that occur in their environment. We present a model of the strategicmanagement process in Figure 1.7 “Overall Model of the Strategic Management Process”. This model alsoguides our presentation of the chapters contained in this book.Figure 1.7 Overall Model of the Strategic Management ProcessSaylor URL: http://www.saylor.org/books Saylor.org33The strategic management process begins with an understanding of strategy and performance. As we havenoted in this introductory chapter, strategic management is both an art and a science, and it involvesmultiple conceptualizations of the notion of strategy drawn from recent and ancient history. In Chapter 2“Leading Strategically”, we focus on how leading strategically is needed if the firm is to achieve the longtermstrong performance companies such as Apple have attained. Consequently, how managersunderstand and interpret the performance of their firms is often central to understanding strategy.Environmental and internal scanning is the next stage in the process. Managers must constantly scan theexternal environment for trends and events that affect the overall economy, and they must monitorchanges in the particular industry in which the firm operates. For example, Apple?s decision to create theiPhone demonstrates its ability to interpret that traditional industry boundaries that distinguished thecellular phone industry and the computer industry were beginning to blur. At the same time, firms mustevaluate their own resources to understand how they might react to changes in the environment. Forexample, intellectual property is a vital resource for Apple. Between 2008 and 2010, Apple filed morethan 350 cases with the US Patent and Trademark Office to protect its use of such terms as apple, pod,and safari.[1]A classic management tool that incorporates the idea of scanning elements both external and internal tothe firm is SWOT (strengths, weaknesses, opportunities, and threats) analysis. Strengths and weaknessesare assessed by examining the firm?s resources, while opportunities and threats refer to external eventsand trends. The value of SWOT analysis parallels ideas from classic military strategists such as Sun Tzu,who noted the value of knowing yourself as well as your opponent. Chapter 3 “Evaluating the ExternalEnvironment” examines the topic of evaluating the external environment in detail, and Chapter 4“Managing Firm Resources” presents concepts and tools for managing firm resources.Saylor URL: http://www.saylor.org/books Saylor.org34The importance of knowing yourself and your opponent is applicable to the knowledge of strategicmanagement for business, military strategy, and classic strategy games such as chess.Strategy formulation is the next step in the strategic management process. This involves developingspecific strategies and actions. Certainly, part of Apple?s success is due to the unique products it offers themarket, as well as how these products complement one another. A customer can buy an iPod that playsmusic from iTunes?all of which can be stored in Apple?s Mac computer. [2] In Chapter 5 “SelectingBusiness-Level Strategies”, we discuss how selecting business-level strategies helps to provide firms witha recipe that can be followed that will increase the likelihood that their strategies will be successful.In Chapter 6 “Supporting the Business-Level Strategy: Competitive and Cooperative Moves”, we presentinsights on how firms can support the business-level strategy through competitive and cooperativemoves. Chapter 7 “Competing in International Markets” presents possibilities for firms competing ininternational markets, and Chapter 8 “Selecting Corporate-Level Strategies” focuses on selectingcorporate-level strategies.Saylor URL: http://www.saylor.org/books Saylor.org35Strategy implementation is the final stage of the process. One important element of strategyimplementation entails crafting an effective organizational structure and corporate culture. For example,part of Apple?s success is due to its consistent focus on innovation and creativity that Steve Jobs describedas similar to that of a start-up. Chapter 9 “Executing Strategy through Organizational Design” offers ideason how to manage these elements of implementation. The final chapter explores how to lead an ethicalorganization through corporate governance, social responsibility, and sustainability.KEY TAKEAWAY? Strategic management is a process that requires the ability to manage change. Consequently, executivesmust be careful to monitor and to interpret the events in their environment, to take appropriate actionswhen change is needed, and to monitor their performance to ensure that their firms are able to surviveand, it is hoped, thrive over time.EXERCISES1. Who makes the strategic decisions for most organizations?2. Why is it important to view strategic management as a process?3. What are the four steps of the strategic management process?4. How is chess relevant to the study of strategic management? What other games might help teachstrategic thinking?[1] Apple Inc. litigation. Wikipedia. Retrieved from en.wikipedia.org/wiki/Apple_Inc._ litigation[2] Inside CRM Editors. Effective strategies Apple uses to create loyal customers [Online article]. Retrievedfrom http://www.insidecrm.com/features/strategies-apple-loyal -customersSaylor URL: http://www.saylor.org/books Saylor.org361.5 ConclusionThis chapter provides an overview of strategic management and strategy. Ideas about strategy spanmany centuries, and modern understanding of strategy borrows from ancient strategies as well asclassic militaries strategies. You should now understand that there are numerous ways toconceptualize the idea of strategy and that effective strategic management is needed to ensure thelong-term success of firms. The study of strategic management provides tools to effectively manageorganizations, but it also involves the art of knowing how and when to apply creative thinking.Knowledge of both the art and the science of strategic management is needed to help guideorganizations as their strategies emerge and evolve over time. Such tools will also help you effectivelychart a course for your career as well as to understand the effective strategic management of theorganizations for which you will work.EXERCISES1. Think about the best and worst companies you know. What is extraordinary (or extraordinarily bad) aboutthese firms? Are their strategies clear and focused or difficult to define?2. If you were to write a ?key takeaway? section for this chapter, what would you include as the materialyou found most interesting?Saylor URL: http://www.saylor.org/books Saylor.org37Chapter 2Leading StrategicallyLEARNING OBJECTIVESAfter reading this chapter, you should be able to understand and articulate answers to the followingquestions:1. What are vision, mission, and goals, and why are they important to organizations?2. How should executives analyze the performance of their organizations?3. In what ways can having a celebrity CEO and a strong entrepreneurial orientation help or harm anorganization?Questions Are Brewing at StarbucksStarbucks?s global empire includes this store in Seoul, South Korea.Image courtesy of Wikimedia,http://commons.wikimedia.org/wiki/File:Starbucks-seoul.JPG.Saylor URL: http://www.saylor.org/books Saylor.org38March 30, 2011, marked the fortieth anniversary of Starbucks first store opening for business in Seattle,Washington. From its humble beginnings, Starbucks grew to become the largest coffeehouse company inthe world while stressing the importance of both financial and social goals. As it created thousands ofstores across dozens of countries, the company navigated many interesting periods. The last few yearswere a particularly fascinating era.In early 2007, Starbucks appeared to be very successful, and its stock was worth more than $35 per share.By 2008, however, the economy was slowing, competition in the coffee business was heating up, andStarbucks?s performance had become disappointing. In a stunning reversal of fortune, the firm?s stock wasworth less than $10 per share by the end of the year. Anxious stockholders wondered whether Starbucks?sdecline would continue or whether the once high-flying company would return to its winning ways.Riding to the rescue was Howard Schultz, the charismatic and visionary founder of Starbucks who hadstepped down as chief executive officer eight years earlier. Schultz again took the helm and worked to turnthe company around by emphasizing its mission statement: ?to inspire and nurture the human spirit?oneperson, one cup and one neighborhood at a time.? [1]About a thousand underperforming stores were shutdown permanently. Thousands of other stores closed for a few hours so that baristas could be retrained tomake inspiring drinks. Food offerings were revamped to ensure that coffee?not breakfast sandwiches?were the primary aroma that tantalized customers within Starbucks?s outlets.By the time Starbucks?s fortieth anniversary arrived, Schultz had led his company to regain excellence,and its stock price was back above $35 per share. In March 2011, Schultz summarized the situation bynoting that ?over the last three years, we?ve completely transformed the company, and the health ofStarbucks is quite good. But I don?t think this is a time to celebrate or run some victory lap. We?ve got a lotof work to do.? [2] Indeed, important questions loomed. Could performance improve further? How longwould Schultz remain with the company? Could Schultz?s eventual successor maintain Schultz?sentrepreneurial approach as well as keep Starbucks focused on its mission?[1] Our Starbucks mission statement. Retrieved from http://www.starbucks.com/about-us/companyinformation/mission-statement.Accessed March 31, 2011.Saylor URL: http://www.saylor.org/books Saylor.org39[2] Starbucks CEO: Can you ?get big and stay small? [Review of the book Onward: How Starbucks fought for its lifewithout losing its soul by Howard Schultz]. 2011, March 28. NPR Books. Retrievedfrom http://www.npr.org/2011/03/28/134738487/starbucks-ceo-can-you-get-big-and-stay-small.Saylor URL: http://www.saylor.org/books Saylor.org402.1 Vision, Mission, and GoalsLEARNING OBJECTIVES1. Define vision and mission and distinguish between them.2. Know what the acronym SMART represents.3. Be able to write a SMART goal.The Importance of VisionGood business leaders create a vision, articulate the vision, passionately own the vision, and relentlesslydrive it to completion.– Jack Welch, former CEO of General ElectricMany skills and abilities separate effective strategic leaders like Howard Schultz from poor strategicleaders. One of them is the ability to inspire employees to work hard to improve their organization?sperformance. Effective strategic leaders are able to convince employees to embrace lofty ambitions andmove the organization forward. In contrast, poor strategic leaders struggle to rally their people andchannel their collective energy in a positive direction.As the quote from Jack Welch suggests, a vision is one key tool available to executives to inspire thepeople in an organization (Figure 2.1 “The Big Picture: Organizational Vision”). An organization?s visiondescribes what the organization hopes to become in the future. Well-constructed visions clearly articulatean organization?s aspirations. Avon?s vision is ?to be the company that best understands and satisfies theproduct, service, and self-fulfillment needs of women?globally.? This brief but powerful statementemphasizes several aims that are important to Avon, including excellence in customer service,empowering women, and the intent to be a worldwide player. Like all good visions, Avon sets a highstandard for employees to work collectively toward. Perhaps no vision captures high standards better thanthat of aluminum maker Alcoa. This firm?s very ambitious vision is ?to be the best company in the world?in the eyes of our customers, shareholders, communities and people.? By making clear their aspirations,Alcoa?s executives hope to inspire employees to act in ways that help the firm become the best in theworld.Saylor URL: http://www.saylor.org/books Saylor.org41The results of a survey of one thousand five hundred executives illustrate how the need to create aninspiring vision creates a tremendous challenge for executives. When asked to identify the most importantcharacteristics of effective strategic leaders, 98 percent of the executives listed ?a strong sense of vision?first. Meanwhile, 90 percent of the executives expressed serious doubts about their own ability to create avision. [1] Not surprisingly, many organizations do not have formal visions. Many organizations that dohave visions find that employees do not embrace and pursue the visions. Having a well-formulated visionemployees embrace can therefore give an organization an edge over its rivals.Mission StatementsIn working to turnaround Starbucks, Howard Schultz sought to renew Starbucks?s commitment toits mission statement: ?to inspire and nurture the human spirit?one person, one cup and oneneighborhood at a time.? A mission such as Starbucks?s states the reasons for an organization?s existence.Well-written mission statements effectively capture an organization?s identity and provide answers to thefundamental question ?Who are we?? While a vision looks to the future, a mission captures the keyelements of the organization?s past and present.Organizations need support from their key stakeholders, such as employees, owners, suppliers, andcustomers, if they are to prosper. A mission statement should explain to stakeholders why they shouldsupport the organization by making clear what important role or purpose the organization plays insociety. Google?s mission, for example, is ?to organize the world?s information and make it universallyaccessible and useful.? Google pursued this mission in its early days by developing a very popular Internetsearch engine. The firm continues to serve its mission through various strategic actions, including offeringits Internet browser Google Chrome to the online community, providing free e-mail via its Gmail service,and making books available online for browsing.Saylor URL: http://www.saylor.org/books Saylor.org42Many consider Abraham Lincoln to have been one of thegreatest strategic leaders in modern history.Image courtesy of Alexander Gardner,http://wikimediafoundation.org/wiki/File:Abraham_Lincoln_head_on_shoulders_photo_portrait.jpg.One of Abraham Lincoln?s best-known statements is that ?a house divided against itself cannot stand.?This provides a helpful way of thinking about the relationship between vision and mission. Executives askfor trouble if their organization?s vision and mission are divided by emphasizing different domains. Someuniversities have fallen into this trap. Many large public universities were established in the late 1800swith missions that centered on educating citizens. As the twentieth century unfolded, however, creatingscientific knowledge through research became increasingly important to these universities. Manyuniversity presidents responded by creating visions centered on building the scientific prestige of theirschools. This created a dilemma for professors: Should they devote most of their time and energy toteaching students (as the mission required) or on their research studies (as ambitious presidentsdemanded via their visions)? Some universities continue to struggle with this trade-off today and remainhouses divided against themselves. In sum, an organization is more effective to the extent that its visionand its mission target employees? effort in the same direction.Pursuing the Vision and Mission through SMART GoalsAn organization?s vision and mission offer a broad, overall sense of the organization?s direction. To worktoward achieving these overall aspirations, organizations also need to create goals?narrower aims thatshould provide clear and tangible guidance to employees as they perform their work on a daily basis. Themost effective goals are those that are specific, measurable, aggressive, realistic, and time-bound. An easySaylor URL: http://www.saylor.org/books Saylor.org43way to remember these dimensions is to combine the first letter of each into one word: SMART.Employees are put in a good position to succeed to the extent that an organization?s goals are SMART.A goal is specific if it is explicit rather than vague. In May 1961, President John F. Kennedy proposed aspecific goal in a speech to the US Congress: ?I believe that this nation should commit itself to achievingthe goal, before this decade is out, of landing a man on the moon and returning him safely to theearth.? [2]Explicitness such as was offered in this goal is helpful because it targets people?s energy. A fewmoments later, Kennedy made it clear that such targeting would be needed if this goal was to be reached.Going to the moon, he noted, would require ?a major national commitment of scientific and technicalmanpower, materiel and facilities, and the possibility of their diversion from other important activitieswhere they are already thinly spread.? While specific goals make it clear how efforts should be directed,vague goals such as ?do your best? leave individuals unsure of how to proceed.A goal is measurable to the extent that whether the goal is achieved can be quantified. PresidentKennedy?s goal of reaching the moon by the end of the 1960s offered very simple and clear measurability:Either Americans would step on the moon by the end of 1969 or they would not. One of Coca-Cola?scurrent goals is a 20 percent improvement to its water efficiency by 2012 relative to 2004 water usage.Because water efficiency is easily calculated, the company can chart its progress relative to the 20 percenttarget and devote more resources to reaching the goal if progress is slower than planned.A goal is aggressive if achieving it presents a significant challenge to the organization. A series ofresearch studies have demonstrated that performance is strongest when goals are challenging butattainable. Such goals force people to test and extend the limits of their abilities. This can result inreaching surprising heights. President Kennedy captured this theme in a speech in September 1962: ?Wechoose to go to the moon. We choose to go to the moon in this decade?not because [it is] easy, butbecause [it is] hard, because that goal will serve to organize and measure the best of our energies andskills.?In the case of Coca-Cola, reaching a 20 percent improvement will require a concerted effort, but the goalcan be achieved. Meanwhile, easily achievable goals tend to undermine motivation and effort. Consider asituation in which you have done so well in a course that you only need a score of 60 percent on the finalSaylor URL: http://www.saylor.org/books Saylor.org44exam to earn an A for the course. Understandably, few students would study hard enough to score 90percent or 100 percent on the final exam under these circumstances. Similarly, setting organizationalgoals that are easy to reach encourages employees to work just hard enough to reach the goals.It is tempting to extend this thinking to conclude that setting nearly impossible goals would encourageeven stronger effort and performance than does setting aggressive goals. People tend to get discouragedand give up, however, when faced with goals that have little chance of being reached. If, for example,President Kennedy had set a time frame of one year to reach the moon, his goal would have attractedscorn. The country simply did not have the technology in place to reach such a goal. Indeed, Americansdid not even orbit the moon until seven years after Kennedy?s 1961 speech. Similarly, if Coca-Cola?s waterefficiency goal was 95 percent improvement, Coca-Cola?s employees would probably not embrace it. Thusgoals must also be realistic, meaning that their achievement is feasible.You have probably found that deadlines are motivating and that they help you structure your work time.The same is true for organizations, leading to the conclusion that goals should be time-bound throughthe creation of deadlines. Coca-Cola has set a deadline of 2012 for its water efficiency goal, for example.The deadline for President Kennedy?s goal was the end of 1969. The goal was actually reached a fewmonths early. On July 20, 1969, Neil Armstrong became the first human to step foot on the moon.Incredibly, the pursuit of a well-constructed goal had helped people reach the moon in just eight years.Saylor URL: http://www.saylor.org/books Saylor.org45Americans landed on the moon eight years after President Kennedy set a moon landing as a keygoal for the United States.Image courtesy of NASA Apollo Archive,http://upload.wikimedia.org/wikipedia/commons/8/8b/5927_NASA.jpg.The period after an important goal is reached is often overlooked but is critical. Will an organization reston its laurels or will it take on new challenges? The US space program again provides an illustrativeexample. At the time of the first moon landing, Time magazine asked the leader of the team that built themoon rockets about the future of space exploration. ?Given the same energy and dedication that tookthem to the moon,? said Wernher von Braun, ?Americans could land on Mars as early as 1982.? [3] No newgoal involving human visits to Mars was embraced, however, and human exploration of space was deemphasizedin favor of robotic adventurers. Nearly three decades after von Braun?s proposed timeline forreaching Mars expired, President Barack Obama set in 2010 a goal of creating by 2025 a new spacevehicle capable of taking humans beyond the moon and into deep space. This would be followed in themid-2030s by a flight to orbit Mars as a prelude to landing on Mars. [4] Time will tell whether these goalsinspire the scientific community and the country in general (Figure 2.4 “Be SMART: Vision, Mission,Goals, and You”).KEY TAKEAWAY? Strategic leaders need to ensure that their organizations have three types of aims. A vision states whatthe organization aspires to become in the future. A mission reflects the organization?s past and present bystating why the organization exists and what role it plays in society. Goals are the more specific aims thatorganizations pursue to reach their visions and missions. The best goals are SMART: specific, measurable,aggressive, realistic, and time-bound.EXERCISES1. Take a look at the website of your college or university. What is the organization?s vision and mission?Were they easy or hard to find?Saylor URL: http://www.saylor.org/books Saylor.org462. As a member of the student body, do you find the vision and mission of your college or university to bemotivating and inspirational? Why or why not?3. What is an important goal that you have established for your career? Could this goal be improved byapplying the SMART goal concept?[1] Quigley, J. V. 1994. Vision: How leaders develop it, share it, and sustain it. Business Horizons, 37(5), 37?41.[2] Key documents in the history of space policy: 1960s. National Aeronautics and Space Administration. Retrievedfrom http://history.nasa.gov/spdocs.html#1960s[3] The Moon: Next, Mars and beyond. 1969, July 15. Time. Retrievedfromhttp://www.time.com/time/magazine/article/0,9171,901107,00.html[4] Amos, J. 2010, April 15. Obama sets Mars goal for America. BBC News. Retrieved fromhttp://news.bbc.co.uk/2/hi/8623691.stmSaylor URL: http://www.saylor.org/books Saylor.org472.2 Assessing Organizational PerformanceLEARNING OBJECTIVES1. Understand the complexities associated with assessing organizational performance.2. Learn each of the dimensions of the balanced scorecard framework.3. Learn what is meant by a ?triple bottom line.?Organizational Performance: A Complex ConceptOrganizational performance refers to how well an organization is doing to reach its vision, mission, andgoals. Assessing organizational performance is a vital aspect of strategic management. Executives mustknow how well their organizations are performing to figure out what strategic changes, if any, to make.Performance is a very complex concept, however, and a lot of attention needs to be paid to how it isassessed.Two important considerations are (1) performance measures and (2) performance referents (Figure 2.5“How Organizations and Individuals Can Use Financial Performance Measures and Referents”).A performance measure is a metric along which organizations can be gauged. Most executives examinemeasures such as profits, stock price, and sales in an attempt to better understand how well theirorganizations are competing in the market. But these measures provide just a glimpse of organizationalperformance. Performance referents are also needed to assess whether an organization is doing well. Aperformance referent is a benchmark used to make sense of an organization?s standing along aperformance measure. Suppose, for example, that a firm has a profit margin of 20 percent in 2011. Thissounds great on the surface. But suppose that the firm?s profit margin in 2010 was 35 percent and that theaverage profit margin across all firms in the industry for 2011 was 40 percent. Viewed relative to these tworeferents, the firm?s 2011 performance is cause for concern.Using a variety of performance measures and referents is valuable because different measures andreferents provide different information about an organization?s functioning. The parable of the blind menand the elephant?popularized in Western cultures through a poem by John Godfrey Saxe in thenineteenth century?is useful for understanding the complexity associated with measuring organizationalSaylor URL: http://www.saylor.org/books Saylor.org48performance. As the story goes, six blind men set out to ?see? what an elephant was like. The first mantouched the elephant?s side and believed the beast to be like a great wall. The second felt the tusks andthought elephants must be like spears. Feeling the trunk, the third man thought it was a type of snake.Feeling a limb, the fourth man thought it was like a tree trunk. The fifth, examining an ear, thought it waslike a fan. The sixth, touching the tail, thought it was like a rope. If the men failed to communicate theirdifferent impressions they would have all been partially right but wrong about what ultimately mattered.Figure 2.5 How Organizations and Individuals Can Use Financial Performance Measures andReferentsSaylor URL: http://www.saylor.org/books Saylor.org49This story parallels the challenge involved in understanding the multidimensional nature of organizationperformance because different measures and referents may tell a different story about the organization?sperformance. For example, the Fortune 500 lists the largest US firms in terms of sales. These firms aregenerally not the strongest performers in terms of growth in stock price, however, in part because they areso big that making major improvements is difficult. During the late 1990s, a number of Internet-centeredbusinesses enjoyed exceptional growth in sales and stock price but reported losses rather than profits.Many investors in these firms who simply fixated on a single performance measure?sales growth?absorbed heavy losses when the stock market?s attention turned to profits and the stock prices of thesefirms plummeted.The story of the blind men and the elephant provides a metaphor for understanding thecomplexities of measuring organizational performance.Image courtesy of Hanabusa Itcho,http://en.wikipedia.org/wiki/File:Blind_monks_examining_an_elephant.jpg.The number of performance measures and referents that are relevant for understanding an organization?sperformance can be overwhelming, however. For example, a study of what performance metrics were usedwithin restaurant organizations? annual reports found that 788 different combinations of measures andSaylor URL: http://www.saylor.org/books Saylor.org50referents were used within this one industry in a single year. [1]Thus executives need to choose a rich yetlimited set of performance measures and referents to focus on.The Balanced ScorecardTo organize an organization?s performance measures, Professor Robert Kaplan and Professor DavidNorton of Harvard University developed a tool called the balanced scorecard. Using the scorecard helpsmanagers resist the temptation to fixate on financial measures and instead monitor a diverse set ofimportant measures (Figure 2.6 “Beyond Profits: Measuring Performance Using the BalancedScorecard”). Indeed, the idea behind the framework is to provide a ?balance? between financial measuresand other measures that are important for understanding organizational activities that lead to sustained,long-term performance. The balanced scorecard recommends that managers gain an overview of theorganization?s performance by tracking a small number of key measures that collectively reflect fourdimensions: (1) financial, (2) customer, (3) internal business process, and (4) learning and growth. [2]Financial MeasuresFinancial measures of performance relate to organizational effectiveness and profits. Examples includefinancial ratios such as return on assets, return on equity, and return on investment. Other commonfinancial measures include profits and stock price. Such measures help answer the key question ?How dowe look to shareholders??Financial performance measures are commonly articulated and emphasized within an organization?sannual report to shareholders. To provide context, such measures should be objective and be coupled withmeaningful referents, such as the firm?s past performance. For example, Starbucks?s 2009 annual reporthighlights the firm?s performance in terms of net revenue, operating income, and cash flow over a fiveyearperiod.Customer MeasuresSaylor URL: http://www.saylor.org/books Saylor.org51Customer measures of performance relate to customer attraction, satisfaction, and retention. Thesemeasures provide insight to the key question ?How do customers see us?? Examples might include thenumber of new customers and the percentage of repeat customers.Starbucks realizes the importance of repeat customers and has taken a number of steps to satisfy and toattract regular visitors to their stores. For example, Starbucks rewards regular customers with free drinksand offers all customers free Wi-Fi access. [3] Starbucks also encourages repeat visits by providing cardswith codes for free iTunes downloads. The featured songs change regularly, encouraging frequent repeatvisits.Internal Business Process MeasuresInternal business process measures of performance relate to organizational efficiency. These measureshelp answer the key question ?What must we excel at?? Examples include the time it takes to manufacturethe organization?s good or deliver a service. The time it takes to create a new product and bring it tomarket is another example of this type of measure.Organizations such as Starbucks realize the importance of such efficiency measures for the long-termsuccess of its organization, and Starbucks carefully examines its processes with the goal of decreasingorder fulfillment time. In one recent example, Starbucks efficiency experts challenged their employees toassemble a Mr. Potato Head to understand how work could be done more quickly. [4] The aim of thisexercise was to help Starbucks employees in general match the speed of the firm?s high performers, whoboast an average time per order of twenty-five seconds.Learning and Growth MeasuresLearning and growth measures of performance relate to the future. Such measures provide insight to tellthe organization, ?Can we continue to improve and create value?? Learning and growth measures focus oninnovation and proceed with an understanding that strategies change over time. Consequently,developing new ways to add value will be needed as the organization continues to adapt to an evolvingenvironment. An example of a learning and growth measure is the number of new skills learned byemployees every year.Saylor URL: http://www.saylor.org/books Saylor.org52One way Starbucks encourages its employees to learn skills that may benefit both the firm and individualsin the future is through its tuition reimbursement program. Employees who have worked with Starbucksfor more than a year are eligible. Starbucks hopes that the knowledge acquired while earning a collegedegree might provide employees with the skills needed to develop innovations that will benefit thecompany in the future. Another benefit of this program is that it helps Starbucks reward and retain highachievingemployees.Measuring Performance Using the Triple Bottom LineRalph Waldo Emerson once noted, ?Doing well is the result of doing good. That?s what capitalism is allabout.? While the balanced scorecard provides a popular framework to help executives understand anorganization?s performance, other frameworks highlight areas such as social responsibility. One suchframework, the triple bottom line, emphasizes the three Ps of people (making sure that the actions of theorganization are socially responsible), the planet (making sure organizations act in a way that promotesenvironmental sustainability), and traditional organization profits. This notion was introduced in theearly 1980s but did not attract much attention until the late 1990s.The triple bottom line emphasizes the three Ps of people (social concerns), planet (environmentalconcerns), and profits (economic concerns).Reproduced with permissionIn the case of Starbucks, the firm has made clear the importance it attaches to the planet by creating anenvironmental mission statement (?Starbucks is committed to a role of environmental leadership in allSaylor URL: http://www.saylor.org/books Saylor.org53facets of our business?) in addition to its overall mission. [5] In terms of the ?people? dimension of thetriple bottom line, Starbucks strives to purchase coffee beans harvested by farmers who work underhumane conditions and are paid reasonable wages. The firm works to be profitable as well, of course.KEY TAKEAWAY? Organizational performance is a multidimensional concept, and wise managers rely on multiple measuresof performance when gauging the success or failure of their organizations. The balanced scorecardprovides a tool to help executives gain a general understanding of their organization?s current level ofachievement across a set of four important dimensions. The triple bottom line provides another tool tohelp executives focus on performance targets beyond profits alone; this approach stresses theimportance of social and environmental outcomes.EXERCISES1. How might you apply the balanced scorecard framework to measure performance of your college oruniversity?2. Identify a measurable example of each of the balanced scorecard dimensions other than the examplesoffered in this section.3. Identify a mission statement from an organization that emphasizes each of the elements of the triplebottom line.[1] Short, J. C., & Palmer, T. B. 2003. Organizational performance referents: An empirical examination of theircontent and influences. Organizational Behavior and Human Decision Processes, 90, 209?224.[2] Kaplan, R. S., & Norton, D. 1992, February. The balanced scorecard: Measures that drive performance. HarvardBusiness Review, 70?79.[3] Miller, C. 2010, June 15. Aiming at rivals, Starbucks will offer free Wi-Fi. New York Times. Section B, p. 1.[4] Jargon, J. 2009, August 4. Latest Starbucks buzzword: ?Lean? Japanese techniques. Wall Street Journal, p. A1.[5] Our Starbucks mission statement. Retrieved on March 31, 2011, fromhttp://www.starbucks.com/aboutus/company-information/mission-statement.Accessed March 31, 2011.Saylor URL: http://www.saylor.org/books Saylor.org542.3 The CEO as CelebrityLEARNING OBJECTIVES1. Understand the benefits and costs of CEO celebrity status.2. List and define the four types of CEOs based on differences in fame and reputation.3. Be able to offer an example of each of the four types of CEOsBenefits and Costs of CEO CelebrityThe nice thing about being a celebrity is that when you bore people, they think it?s their fault.Henry Kissinger, former US Secretary of StateThe word celebrity quickly brings to mind actors, sports stars, and musicians. Some CEOs, such as BillGates, Oprah Winfrey, Martha Stewart, and Donald Trump, also achieve celebrity status. Celebrity CEOsare not a new phenomenon. In the early twentieth century, industrial barons such as Henry Ford, John D.Rockefeller, and Cornelius Vanderbilt were household names. However, in the current era of mass andinstant media, celebrity CEOs have become more prevalent and visible (Figure 2.7 “CEO”). [1]Cornelius Vanderbilt was one of the earliest celebrity CEOs; Vanderbilt University serves as hislegacy.Saylor URL: http://www.saylor.org/books Saylor.org55Image courtesy of Mathew Brady and Michel Vuijlsteke,http://en.wikipedia.org/wiki/File:Cornelius_Vanderbilt_Daguerrotype2.jpg.Both benefits and costs are associated with CEO celebrity. As the quote from Henry Kissinger suggests,celebrity confers a mystique and reverence that can be leveraged in a variety of ways. CEO celebrity canserve as an intangible asset for the CEO?s firm and may increase opportunities available to the firm.Hiring or developing a celebrity CEO may increase stock price, enhance a firm?s image, and improve themorale of employees and other stakeholders. However, employing a celebrity CEO also entails risks for anorganization. Increased attention to the firm via the celebrity CEO means any gaps between actual andexpected firm performance are magnified. Further, if a celebrity CEO acts in an unethical or illegalmanner, chances are that the CEO?s firm will receive much more media attention than will other firmswith similar problems. [2]There are also personal benefits and risks associated with celebrity for the CEO. Celebrity CEOs tend toreceive higher compensation and job perks than their colleagues. Celebrity CEOs are likely to enjoyincreased prestige power, which facilitates invitations to serve on the boards of directors of other firmsand creates opportunities to network with other ?managerial elites.? Celebrity also can provide CEOs witha ?benefit of the doubt? effect that protects against quick sanctions for downturns in firm performanceand stock price. However, celebrity also creates potential costs for individuals. Celebrity CEOs face largerand more lasting reputation erosion if their job performance and behavior is inconsistent with theircelebrity image. Celebrity CEOs face increased personal media scrutiny, and their friends and family mustoften endure increased attention into their personal and public lives. Accordingly, wise CEOs will attemptto understand and manage their celebrity status. [3]Types of CEOsIcons are CEOs possessing both fame and strong reputations. The icon CEO combines style and substancein the execution of his or her job responsibilities. Mary Kay Ash, Richard Branson, Bill Gates, and WarrenBuffett are good examples of icons. The late Mary Kay Ash founded Mary Kay Cosmetics Corporation. Thefirm?s great success and Ash?s unconventional motivational methods, such as rewarding salesSaylor URL: http://www.saylor.org/books Saylor.org56representatives with pink Cadillacs, made her famous. Partly because she emphasized helping otherwomen succeed and ethical business practices, Mary Kay Ash also had a very positive reputation. RichardBranson has created an empire with more than four hundred companies, including Virgin AtlanticAirways and Virgin Records. Branson?s celebrity status led him to star in his own reality-based show. Hehas also appeared on television series such as Baywatch and Friends, in addition to several cameoappearances in major motion pictures. Bill Gates, founder and former CEO of Microsoft, also has fameand a largely positive reputation. Gates is a proverbial ?household name? in the tradition of Ford,Rockefeller, and Vanderbilt. He also is routinely listed among Time magazine?s ?100 Most InfluentialPeople? and has received ?rock star? receptions in India and Vietnam in recent years.Former Microsoft CEO Bill Gates exemplifies a CEO who has reached iconstatus.Image courtesy of World Economic Forum,http://en.wikipedia.org/wiki/File:Bill_Gates_in_WEF_,2007.jpg.Warren Buffett is perhaps the best-known executive in the United States. As CEO of Berkshire Hathaway,he has accumulated wealth estimated at $62 billion and was the richest person in the world as of March2008. Buffett?s business insights command a level of respect that is perhaps unrivaled. Many in theinvestment and policymaking communities pay careful attention to his investment choices and hiscommentary on economic conditions. Despite Buffett?s immense wealth and success, his reputationcenters on humility and generosity. Buffett avoids the glitz of Wall Street and has lived for fifty years in ahouse he bought in Omaha, Nebraska, for $31,000. Meanwhile, his 2006 donation of approximately $30billion to the Bill and Melinda Gates Foundation was the largest charitable gift in history.Saylor URL: http://www.saylor.org/books Saylor.org57CEOs who display high levels of relative fame but low levels of reputation are in the group calledscoundrels. These CEOs are well known but vilified. The late Leona Helmsley was a prototypicalscoundrel. Leona Helmsley?s life was a classic rags-to-riches story. Born to immigrant parents, Helmsleybecame a billionaire through her work as the head of an extensive hotel and real estate empire. Whilecertainly famous, her reputation was anything but positive, as reflected by her nickname: the Queen ofMean. During Helmsley?s trial for tax fraud, her housekeeper quoted her as proclaiming, ?We don?t paytaxes. Only the little people pay taxes.? Following twenty-one months in jail, Helmsley was required toperform 750 hours of community service. One hundred fifty hours were added to this sentence after it wasdiscovered that employees had performed some of her service hours. Helmsley?s apparent arrogance,combined with her cruelty to employees and her reputation as the ultimate workplace bully, cemented herposition as a scoundrel.The corporate governance scandals of the early 2000s revealed several CEOs as scoundrels. Perhaps thebest known were Kenneth Lay and Dennis Kozlowski. Both men rose to prominence as their firms? successand stock prices soared but were undone by dubious activities. Lay was once revered as the son of a poorminister who founded Enron and built it into a giant in the energy business. In 2001, however, he becamethe face of corporate abuses in the United States after Enron?s collapse led to scenes, captured ontelevision, of employees left jobless and with retirement accounts full of worthless Enron stock. Lay wasconvicted of fraud in 2006 but died before sentencing.Also born to a poor family, Kozlowski started at Tyco as an accountant and worked his way up to theexecutive suite. In May 2001, a BusinessWeek cover story lauded Kozlowski as ?the most aggressive CEO?in the country and detailed his strategy for building Tyco into the next General Electric by usingacquisitions to gain the first or second position in all the industries in which it competed. By 2002,Kozlowski?s reputation was in jeopardy. He was indicted for avoiding more than $1 million in sales taxeson art purchases. Media stories described in detail a $2 million birthday party Kozlowski threw for hiswife (billing half of it to Tyco as a company function), a $19 million apartment Tyco purchased for him,and $11 million worth of furnishings for the apartment (including an infamous $6,000 shower curtain).Accusations that Kozlowski and another Tyco executive stole hundreds of millions of dollars from the firmultimately led to a prison sentence of eight to twenty-five years.Saylor URL: http://www.saylor.org/books Saylor.org58Hidden gems are CEOs who lack fame but possess positive reputations. These CEOs toil in relativeobscurity while leading their firms to success. Their skill as executives is known mainly by those in theirown firm and by their competitors. In many cases, the firm has some renown due to its success, but theCEO stays unknown. For example, consider the case of Anne Mulcahy. Mulcahy, CEO of Xerox, startedher career at Xerox as a copier salesperson. Despite building an excellent reputation by rescuing Xeroxfrom near bankruptcy, Mulcahy eschews fame and publicity. While being known for successfully leadingXerox by example and being willing to fly anywhere to meet a customer, she avoids stock analysts andreporters.Silent killers are the fourth and final group of CEOs. These CEOs are overlooked and ignored sources ofharm to their firms. While scoundrels are closely monitored and scrutinized by the media, it may be toolate before the poor ethics or incompetence of the silent killers is detected. In this sense, silent killers aresometimes worse than scoundrels. One example of a silent killer is Harding Lawrence, former CEO ofdefunct Braniff International. Lawrence initiated a massive expansion of the airline following industryderegulation in the late 1970s. The result was a bloated firm, ill-equipped to survive the extremelycompetitive setting that evolved in the early 1980s. Howard Putnam, the CEO of a small regional carriernamed Southwest Airlines, was hired in a failed effort to save the company. By the time Braniff wentbankrupt, Putnam was left to explain its demise, and the name of the main culprit was all but forgotten.Ironically, had Putnam declined the opportunity to try to save Braniff, perhaps he and not Herb Kelleherwould have become an icon at the helm of Southwest.Strategy at the MoviesIron ManHas Tony Stark gone crazy? This was the question that many stakeholders of Stark Industries were askingthemselves in the 2008 blockbuster Iron Man. Tony Stark, CEO of Stark Industries, stunned hisshareholders, employees, and the world when he announced that he was changing Stark Industries?mission from being one of the world?s leading weapons manufacturers to being a socially responsible,clean energy producer. Following his announcement, Stark faced fierce opposition from his board ofdirectors, employees, the media, and clients such as the US military. The changes at Stark IndustriesSaylor URL: http://www.saylor.org/books Saylor.org59attracted tremendous attention in part because of the glamorous Stark?s status as a celebrity CEO.Initially, Stark is seen by the public as a scoundrel that pays little attention to the social impact hiscompany makes. After shifting the direction of Stark Industries, however, Stark is viewed as an icon thatis just as attentive to the social performance of the company as he is to its financial performance. IronMan illustrates that while changing elements such as firm mission and CEO status is difficult, it is notimpossible.Iron Man: The Greatest Creation of Fictional Celebrity CEO Tony StarkImage courtesy of Pop Culture Geek, http://www.flickr.com/photos/popculturegeek/4858995531.Celebrity RehabilitationAnything I say or do is now at risk of showing up on the front page of a national daily newspaper andtherefore, I need to be much more conscious about the implications of everything that I say or do in allsituations.John Mackey, CEO of Whole Foods MarketSaylor URL: http://www.saylor.org/books Saylor.org60Achieving the level of success that brings about celebrity is seldom a completely smooth process. Evenwell-regarded celebrity CEOs seldom have totally untarnished reputations. Bill Gates has been portrayedas a ruthless and devious genius, for example, while General Electric CEO Jack Welch was attacked inmedia outlets for an extramarital affair.One of the more interesting recent cases of a tarnished reputation centers on John Mackey, founder andCEO of Whole Foods Market. His strategy of offering organic food and high levels of service allowedWhole Foods to carve out a profitable and growing niche in an industry whose overall margins have beensqueezed as Walmart?s Supercenters have gained market share. Under Mackey?s leadership, Whole Food?sstock price tripled from 2001 to 2006. Mackey?s efforts to make food supplies healthier and his teamworkcenteredmanagement approach attracted publicity, and he appeared headed for icon status.But in 2007 Mackey and Whole Foods were embarrassed by the revelation that Mackey had beenanonymously posting negative information about a rival, Wild Oats, online. Through his online persona?rahodeb? (a scrambling of his wife?s name), Mackey asserted that Wild Oats? stock was overpriced andthat the firm was headed toward bankruptcy. This was viewed by some observers as a possible effort tomanipulate Wild Oats? stock price prior to a proposed acquisition by Whole Foods. Meanwhile, in e-mailsto other Whole Foods executives, Mackey noted that the acquisition of Wild Oats could allow them toavoid ?nasty price wars.? This caught the eye of Federal Trade Commission (FTC) regulators who wereconcerned about the antitrust implications of the acquisition.Whole Foods CEO John Mackey?s celebrity status was amplified when it was revealed that he had posted negativeinformation online about competitor Wild Oats.Saylor URL: http://www.saylor.org/books Saylor.org61Image courtesy of Joe M500, http://en.wikipedia.org/wiki/File:John_Mackey,_of_Whole_Foods_in_2009.jpg.What should a CEO do when his or her reputation takes a hit? As the old saying goes, honesty is the bestpolicy. An example is offered by David Neeleman, founder and CEO of JetBlue. The reputations of JetBlueand Neeleman took a severe blow after a widely reported February 2007 debacle in which travelers werestranded in airplanes for excessive periods of time during a busy holiday weekend. Neeleman took a giantstep toward restoring both his and JetBlue?s reputation by issuing a public, heartfelt apology. He not onlyissued a written apology to customers but also bought full-page advertisements in newspapers, posted avideo apology online, and created a new ?bill of rights? for JetBlue customers.Mackey apologized for his actions via his blog in 2008. As part of this apology, Mackey acknowledged thathe had failed to recognize how expectations change when one becomes a celebrity. Mackey noted thatwhen Whole Foods was a smaller company, ?I was seldom interviewed and few people knew or cared whoI was. I wasn?t a public figure and had no desire to become one.? As his company grew, however, Mackeybecame subject to more scrutiny. As Mackey put it, ?At some point in the past 10 years I went from being arelatively unknown person to becoming a public figure. I regret not having the wisdom to recognize thisfact until very recently.?[4] A big part of managing celebrity status is realizing that one is in fact a celebrity.KEY TAKEAWAY? The media exposure common to modern CEOs provides the opportunity for such top executives to reachcelebrity status. While this status can provide positive benefits to their firms such as increasedperformance, CEOs should be aware of and manage the potential for increased scrutiny associated withthis status.EXERCISES1. Can you identify another example of a celebrity CEO, such as Cornelius Vanderbilt, that existed prior tothe 1900s?2. Identify examples of icons, scoundrels, hidden gems, and silent killers other than the examples offered inthis section.Saylor URL: http://www.saylor.org/books Saylor.org623. Would you enjoy the media attention associated with CEO celebrity, or would you prefer to hide from thelimelight? Does your answer have implications for your future career choices?[1] This section of the chapter is adapted from Ketchen, D., Adams, G., & Shook, C. 2008. Understanding andmanaging CEO celebrity. Business Horizons, 51(6), 529?534.[2] Ranft, A. L., Zinko, R., Ferris, G. R., & Buckley, M. R. 2006. Marketing the image of management: The costs andbenefits of CEO reputation. Organizational Dynamics, 35(3), 279?290.[3] Wade, J. B., Porac, J. F., Pollock, T. G., & Graffin, S. D. 2008. Star CEOs: Benefit or burden? OrganizationalDynamics, 37(2), 203?210.[4] John Mackey?s blog. 2008, May 21. Re: Apology. Retrievedfromhttp://www2.wholefoodsmarket.com/blogs/jmackey/2008/05/21/back-to-blogging/#more-26.Saylor URL: http://www.saylor.org/books Saylor.org632.4 Entrepreneurial OrientationLEARNING OBJECTIVES1. Understand how thinking and acting entrepreneurially can help organizations and individuals.2. List and define the five dimensions of an entrepreneurial orientation.The Value of Thinking and Acting EntrepreneuriallyWhen asked to think of an entrepreneur, people typically offer examples such as Howard Schultz, Est?eLauder, and Michael Dell?individuals who have started their own successful businesses from the bottomup that generated a lasting impact on society. But entrepreneurial thinking and doing are not limited tothose who begin in their garage with a new idea, financed by family members or personal savings. Somepeople in large organizations are filled with passion for a new idea, spend their time championing a newproduct or service, work with key players in the organization to build a constituency, and then find waysto acquire the needed resources to bring the idea to fruition. Thinking and behaving entrepreneurially canhelp a person?s career too. Some enterprising individuals successfully navigate through the environmentsof their respective organizations and maximize their own career prospects by identifying and seizing newopportunities (Figure 2.8 “Understanding Entrepreneurial Orientation”). [1]As a college student, Michael Dell demonstrated an entrepreneurialorientation by starting a computer-upgrading business in his dorm room.He later founded Dell Inc.Image courtesy of Ilan Costica,http://en.wikipedia.org/wiki/File:Michael_Dell_at_Oracle_OpenWorld.JPG.Saylor URL: http://www.saylor.org/books Saylor.org64In the 1730s, Richard Cantillon used the French term entrepreneur, or literally ?undertaker,? to refer tothose who undertake self-employment while also accepting an uncertain return. In subsequent years,entrepreneurs have also been referred to as innovators of new ideas (Thomas Edison), individuals whofind and promote new combinations of factors of production (Bill Gates? bundling of Microsoft?sproducts), and those who exploit opportunistic ideas to expand small enterprises (Mark Zuckerberg atFacebook). The common elements of these conceptions of entrepreneurs are that they do something newand that some individuals can make something out of opportunities that others cannot.Entrepreneurial orientation (EO) is a key concept when executives are crafting strategies in the hopes ofdoing something new and exploiting opportunities that other organizations cannot exploit. EO refers tothe processes, practices, and decision-making styles of organizations that act entrepreneurially. [2] Anyorganization?s level of EO can be understood by examining how it stacks up relative to five dimensions: (1)autonomy, (2) competitive aggressiveness, (3) innovativeness, (4) proactiveness, (5) and risk taking.These dimensions are also relevant to individuals.AutonomyAutonomy refers to whether an individual or team of individuals within an organization has the freedomto develop an entrepreneurial idea and then see it through to completion. In an organization that offershigh autonomy, people are offered the independence required to bring a new idea to fruition, unfetteredby the shackles of corporate bureaucracy. When individuals and teams are unhindered by organizationaltraditions and norms, they are able to more effectively investigate and champion new ideas.Some large organizations promote autonomy by empowering a division to make its own decisions, set itsown objectives, and manage its own budgets. One example is Sony?s PlayStation group, which was createdby chief operating officer (COO) Ken Kutaragi, largely independent of the Sony bureaucracy. In time, thePlayStation business was responsible for nearly all Sony?s net profit. Because of the success generated bythe autonomous PlayStation group, Kutaragi later was tapped to transform Sony?s core consumerelectronics business into a PlayStation clone. In some cases, an autonomous unit eventually becomescompletely distinct from the parent company, such as when Motorola spun off its successfulsemiconductor business to create Freescale.Saylor URL: http://www.saylor.org/books Saylor.org

 
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