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Industry Six—Specialty Retailing
CASE
24
Best Buy Co. Inc.: Sustainable
Customer Centricity Model?
Alan N. Hoffman
BEST BUY CO. INC., HEADQUARTERED IN RICHFIELD, MINNESOTA, was a specialty retailer of
consumer electronics. It operated over 1,100 stores in the United States, accounting for 19%
of the market. With approximately 155,000 employees, it also operated over 2,800 stores
in Canada, Mexico, China, and Turkey. The company’s subsidiaries included Geek Squad,
Magnolia Audio Video, and Pacific Sales. In Canada, Best Buy operated under both the
Best Buy and Future Shop labels.
Best Buy’s mission was to make technology deliver on its promises to customers. To accomplish this, Best Buy helped customers realize the benefits of technology and technological
changes so they could enrich their lives in a variety of ways through connectivity: “To make life
fun and easy,”1 as Best Buy put it. This was what drove the company to continually increase the
tools to support customers in the hope of providing end-to-end technology solutions.
As a public company, Best Buy’s top objectives were sustained growth and earnings. This was
accomplished in part by constantly reviewing its business model to ensure that it was satisfying customer needs and desires as effectively and completely as possible. The company strived to have not
only extensive product offerings but also highly trained employees with extensive product knowledge. The company encouraged its employees to go out of their way to help customers understand
what these products could do and how customers could get the most out of the products they purchased. Employees recognized that each customer was unique and thus determined the best method
to help that customer achieve maximum enjoyment from the product(s) purchased.
This case was prepared by Professor Alan N. Hoffman, Bentley University and Erasmus University. Copyright ©2010
by Alan N. Hoffman. The copyright holder is solely responsible for case content. Reprint permission is solely granted
to the publisher, Prentice Hall, for Strategic Management and Business Policy, 13th Edition (and the international and
electronic versions of this book) by the copyright holder, Alan N. Hoffman. Any other publication of the case (translation, any form of electronics or other media) or sale (any form of partnership) to another publisher will be in violation
of copyright law, unless Alan N. Hoffman has granted an additional written permission. Reprinted by permission.
The author would like to thank MBA students Kevin Clark, Leonard D’Andrea, Amanda Genesky, Geoff Merritt, Chris
Mudarri, and Dan Fowler for their research. No part of this publication may be copied, stored, transmitted, reproduced,
or distributed in any form or medium whatsoever without the permission of the copyright owner, Alan N. Hoffman.
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From a strategic standpoint, Best Buy moved from being a discount retailer (a low price
strategy) to a service-oriented firm that relied on a differentiation strategy. In 1989, Best
Buy changed the compensation structure for sales associates from commission-based to noncommissioned-based, which resulted in consumers having more control over the purchasing
process and in cost savings for the company (the number of sales associates was reduced). In 2005,
Best Buy took customer service a step further by moving from peddling gadgets to a customercentric operating model. It was now gearing up for another change to focus on store design and
providing products and services in line with customers’ desire for constant connectivity.
Company History2
From Sound of Music to Best Buy
Best Buy was originally known as Sound of Music. Incorporated in 1966, the company
started as a retailer of audio components and expanded to retailing video products in the early
1980s with the introduction of the videocassette recorder to its product line. In 1983, the company changed its name to Best Buy Co. Inc. (Best Buy). Shortly thereafter, Best Buy began
operating its existing stores under a “superstore” concept by expanding product offerings and
using mass marketing techniques to promote those products.
Best Buy dramatically altered the function of its sales staff in 1989. Previously, the sales
staff worked on a commission basis and was more proactive in assisting customers coming into
the stores as a result. Since 1989, however, the commission structure has been terminated and
sales associates have developed into educators that assist customers in learning about the products offered in the stores. The customer, to a large extent, took charge of the purchasing
process. The sales staff’s mission was to answer customer questions so that the customers
could decide which product(s) fit their needs. This differed greatly from their former mission
of simply generating sales.
In 2000, the company launched its online retail store: BestBuy.com. This allowed customers a choice between visiting a physical store and purchasing products online, thus expanding Best Buy’s reach among consumers.
Expansion Through Acquisitions
In 2000, Best Buy began a series of acquisitions to expand its offerings and enter international
markets:
2000: Best Buy acquired Magnolia Hi-Fi Inc., a high-end retailer of audio and video products
and services, which became Magnolia Audio Video in 2004. This acquisition allowed
Best Buy access to a set of upscale customers.
2001: Best Buy entered the international market with the acquisition of Future Shop Ltd, a
leading consumer electronics retailer in Canada. This helped Best Buy increase revenues,
gain market share, and leverage operational expertise. The same year, Best Buy also
opened its first Canadian store. In the same year, the company purchased Musicland, a
mall-centered music retailer throughout the United States (divested in 2003).
2002: Best Buy acquired Geek Squad, a computer repair service provider, to help develop a
technological support system for customers. The retailer began by incorporating in-store
Geek Squad centers in its 28 Minnesota stores and expanding nationally and then internationally in subsequent years.
CASE 24
Best Buy Co. Inc.: Sustainable Customer Centricity Model?
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2005: Best Buy opened the first Magnolia Home Theater “store-within-a-store” (located
within the Best Buy complex).
2006: Best Buy acquired Pacific Sales Kitchen and Bath Centers Inc. to develop a new customer base: builders and remodelers. The same year, Best Buy also acquired a 75% stake
in Jiangsu Five Star Appliance Co., Ltd, a China-based appliance and consumer electronics retailer. This enabled the company to access the Chinese retail market and led to the
opening of the first Best Buy China store on January 26, 2007.
2007: Best Buy acquired Speakeasy Inc., a provider of broadband, voice, data, and information technology services, to further its offering of technological solutions for customers.
2008: Through a strategic alliance with the Carphone Warehouse Group, a UK-based provider
of mobile phones, accessories, and related services, Best Buy Mobile was developed.
After acquiring a 50% share in Best Buy Europe (with 2,414 stores) from the Carphone
Warehouse, Best Buy intended to open small-store formats across Europe in 2011.3 Best
Buy also acquired Napster, a digital download provider, through a merger to counter the
falling sales of compact discs. The first Best Buy Mexico store was opened.
2009: Best Buy acquired the remaining 25% of Jiangsu Five Star. Best Buy Mobile moved into
Canada.
Industry Environment
Industry Overview
Despite the negative impact the financial crisis had on economies worldwide, in 2008 the consumer electronics industry managed to grow to a record high of US$694 billion in sales—a
nearly 14% increase over 2007. In years immediately prior, the growth rate was similar: 14%
in 2007 and 17% in 2006. This momentum, however, did not last. Sales dropped 2% in 2009,
the first decline in 20 years for the electronics giant.
A few product segments, including televisions, gaming, mobile phones, and Blu-ray players, drove sales for the company. Television sales, specifically LCD units, which accounted for
77% of total television sales, were the main driver for Best Buy, as this segment alone accounted for 15% of total industry revenues. The gaming segment continued to be a bright spot
for the industry as well, as sales were expected to have tremendous room for growth. Smartphones were another electronics industry segment predicted to have a high growth impact on
the entire industry.
The consumer electronics industry had significant potential for expansion into the global
marketplace. There were many untapped markets, especially newly developing countries.
These markets were experiencing the fastest economic growth while having the lowest ownership rate for gadgets.4 Despite the recent economic downturn, the future for this industry was
optimistic. A consumer electronics analyst for the European Market Research Institute predicted that the largest growth will be seen in China (22%), the Middle East (20%), Russia
(20%), and South America (17%).5
Barriers to Entry
As globalization spread and use of the Internet grew, barriers to entering the consumer electronics industry were diminished. When the industry was dominated by brick-and-mortar companies, obtaining the large capital resources needed for entry into the market was a barrier for
those looking to gain any significant market share. Expanding a business meant purchasing or
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leasing large stores that incurred high initial and overhead costs. However, the Internet significantly reduced the capital requirements needed to enter the industry. Companies like Amazon.
com and Dell utilized the Internet to their advantage and gained valuable market share.
The shift toward Internet purchasing also negated another once strong barrier to entry: customer loyalty. The trend was that consumers would research products online to determine which
one they intended to purchase and then shop around on the Internet for the lowest possible price.
Even though overall barriers were diminished, there were still a few left, which a company
like Best Buy used to its advantage. The first, and most significant, was economies of scale. With
over 1,000 locations, Best Buy used its scale to obtain cost advantages from suppliers due to high
quantity of orders. Another advantage was in advertising. Large firms had the ability to increase
advertising budgets to deter new entrants into the market. Smaller companies generally did not
have the marketing budgets for massive television campaigns, which were still one of the most
effective marketing strategies available to retailers. Although Internet sales were growing, the
industry was still dominated by brick-and-mortar stores. Most consumers looking for electronics—
especially major electronics—felt a need to actually see their prospective purchases in person.
Having the ability to spend heavily on advertising helped increase foot traffic to these stores.
Internal Environment
Finance
While Best Buy’s increase in revenue was encouraging (see Exhibit 1), recent growth had
been fueled largely by acquisition, especially Best Buy’s fiscal year 2009 revenue growth. At
the same time, net income and operating margins had been declining (see Exhibits 2 and 3).
Although this could be a function of increased costs, it was more likely due to pricing pressure. Given the current adverse economic conditions, prices of many consumer electronic
products had been forced down by economic and competitive pressures. These lower prices
caused margins to decline, negatively affecting net income and operating margins.
$20,000
$15,000
In Millions
EXHIBIT 1
Quarterly Sales,
Best Buy Co., Inc.
2005
2006
2007
$10,000
2008
2009
$5,000
$0
2010
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
SOURCE: Best Buy Co., Inc.
EXHIBIT 2
$1,000
2005
$800
In Millions
Quarterly Net
Income,
Best Buy Co., Inc.
2006
$600
2007
$400
2008
2009
$200
2010
$0
1st Qtr
SOURCE: Best Buy Co., Inc.
2nd Qtr
3rd Qtr
4th Qtr
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Best Buy Co. Inc.: Sustainable Customer Centricity Model?
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EXHIBIT 3
10.00%
Operating Margin,
Best Buy Co., Inc.
8.00%
2006
6.00%
2007
4.00%
2008
2005
2009
2.00%
2010
0.00%
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
SOURCE: Best Buy Co., Inc.
$2,000
$1,500
In Millions
EXHIBIT 4
Long Term Debt
and Cash,
Best Buy Co., Inc.
Long term Debit
Cash
$1,000
$500
$0
2005
2006
2007
2008
2009
SOURCE: Best Buy Co., Inc.
EXHIBIT 5
Accounts Receivable
and Inventory,
Best Buy Co., Inc.
$5,000
$4,000
Inventory
Accounts receivable
$3,000
$2,000
$1,000
$0
2005
2006
2007
2008
2009
SOURCE: Best Buy Co., Inc.
Best Buy’s long-term debt increased substantially from fiscal 2008 to 2009 (see Exhibit 4),
which was primarily due to the acquisition of Napster and Best Buy Europe. The trend in available cash has been a mirror image of long-term debt. Available cash increased from fiscal 2005
to 2008 and then was substantially lower in 2009 for the same reason.
While the change in available cash and long-term debt were not desirable, the bright side
was that this situation was due to the acquisition of assets, which led to a significant increase
in revenue for the company. Ultimately, the decreased availability of cash would seem to be
temporary due to the circumstances. The more troubling concern was the decline in net income
and operating margins, which Best Buy needed to find a way to turn around. If the problems
with net income and operating margins were fixed, the trends in cash and long-term debt would
also begin to turn around.
At first blush, the increase in accounts receivable and inventory was not necessarily alarming since revenues were increasing during this same time period (see Exhibit 5). However,
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closer inspection revealed a 1% increase in inventory from fiscal 2008 to 2009 and a 12.5% increase in revenue accompanied by a 240% increase in accounts receivable. This created a potential risk for losses due to bad debts. (For complete financial statements, see Exhibits 6 and 7.)
Marketing
Best Buy’s marketing goals were four-fold: (1) to market various products based on the customer
centricity operating model, (2) to address the needs of customer lifestyle groups, (3) to be at the
forefront of technological advances, and (4) to meet customer needs with end-to-end solutions.
Best Buy prided itself on customer centricity that catered to specific customer needs and
behaviors. Over the years, the retailer created a portfolio of products and services that complemented one another and added to the success of the business. These products included seven
distinct brands domestically, as well as other brands and stores internationally:
Best Buy: This brand offered a wide variety of consumer electronics, home office products,
entertainment software, appliances, and related services.
Best Buy Mobile: These stand-alone stores offered a wide selection of mobile phones, accessories, and related e-services in small-format stores.
Geek Squad: This brand provided residential and commercial product repair, support, and installation services both in-store and on-site.
Magnolia Audio Video: This brand offered high-end audio and video products and related
services.
Napster: This brand was an online provider of digital music.
Pacific Sales: This brand offered high-end home improvement products primarily including
appliances, consumer electronics, and related services.
Speakeasy: This brand provided broadband, voice, data, and information technology services
to small businesses.
Starting in 2005, Best Buy initiated a strategic transition to a customer-centric operating model,
which was completed in 2007. Prior to 2005, the company focused on customer groups such as affluent professional males, young entertainment enthusiasts, upscale suburban mothers, and technologically advanced families.6 After the transition, Best Buy focused more on customer lifestyle
groups such as affluent suburban families, trendsetting urban dwellers, and the closely knit families of Middle America.7 To target these various segments, Best Buy acquired firms with aligned
strategies, which were used as a competitive advantage against its strongest competition, such as
Circuit City and Wal-Mart. The acquisitions of Pacific Sales, Speakeasy, and Napster, along with
the development of Best Buy Mobile, created more product offerings, which led to more profits.
Marketing these different types of products and services was a difficult task. That was why
Best Buy’s employees had more training than competitors. This knowledge service was a valueadded competitive advantage. Since the sales employees no longer operated on a commission-based
pay structure, consumers could obtain knowledge from salespeople without being subjected to
high-pressure sales techniques. This was generally seen to enhance customer shopping satisfaction.
Operations
Best Buy’s operating goals included increasing revenues by growing its customer base, gaining more market share internationally, successfully implementing marketing and sales strategies in Europe, and having multiple brands for different customer lifestyles through M&A
(Merger and Acquisition).
Domestic Best Buy store operations were organized into eight territories, with each territory divided into districts. A retail field officer oversaw store performance through district
CASE 24
Best Buy Co. Inc.: Sustainable Customer Centricity Model?
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managers, who met with store employees on a regular basis to discuss operations strategies
such as loyalty programs, sales promotion, and new product introductions.8 Along with domestic operations, Best Buy had an international operation segment, originally established in
connection with the acquisition of Canada-based Future Shop.9
In fiscal 2009, Best Buy opened up 285 new stores in addition to the European acquisition of 2,414 Best Buy Europe stores, relocated 34 stores, and closed 67 stores.
Human Resources
The objectives of Best Buy’s human resources department were to provide consumers with
the right knowledge of products and services, to portray the company’s vision and strategy
on an everyday basis, and to educate employees on the ins and outs of new products and services. Best Buy employees were required to be ethical and knowledgeable. This principle
started within the top management structure and filtered down from the retail field officer
through district managers, and through store managers to the employees on the floor. Every
employee must have the company’s vision embedded in their service and attitude.
Despite Best Buy’s efforts to train an ethical and knowledgeable employee force, there were
some allegations and controversy over Best Buy employees, which gave the company a bad black
eye in the public mind. One lawsuit claimed that Best Buy employees had misrepresented the
manufacturer’s warranty in order to sell its own product service and replacement plan. The lawsuit accused Best Buy of “entering into a corporate-wide scheme to institute high-pressure sales
techniques involving the extended warranties” and “using artificial barriers to discourage consumers who purchased the ‘complete extended warranties’ from making legitimate claims.”10
In a more recent case (March 2009), the U.S. District Court granted Class Action certification to allow plaintiffs to sue Best Buy for violating its “Price Match” policy. According to
the ruling, the plaintiffs alleged that Best Buy employees would aggressively deny consumers
the ability to apply the company’s “price match guarantee.”11 The suit also alleged that Best
Buy had an undisclosed “Anti-Price Matching Policy,” where the company told its employees
not to allow price matches and gave financial bonuses to employees who complied.
Competition
Brick-and-Mortar Competitors
Wal-Mart Stores Inc., the world’s largest retailer, with revenues over US$405 billion, operated worldwide and offered a diverse product mix with a focus on being a low-cost provider.
In recent years, Wal-Mart increased its focus on grabbing market share in the consumer electronics industry. In the wake of Circuit City’s liquidation,12 Wal-Mart was stepping up efforts
by striking deals with Nintendo and Apple that would allow each company to have their own
in-store displays. Wal-Mart also considered using Smartphones and laptop computers to drive
growth.13 It was refreshing 3,500 of its electronics departments and was beginning to offer a
wider and higher range of electronic products. These efforts should help Wal-Mart appeal to
the customer segment looking for high quality at the lowest possible price.14
GameStop Corp. was the leading video game retailer with sales of almost US$9 billion as
of January 2009, in a forecasted US$22 billion industry. GameStop operated over 6,000 stores
throughout the United States, Canada, Australia, and Europe, as a retailer of both new and used
video game products including hardware, software, and gaming accessories.15
The advantage GameStop had over Best Buy was the number of locations: 6,207
GameStop locations compared to 1,023 Best Buy locations. However, Best Buy seemed to
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have what it took to overcome this advantage—deep pockets. With significantly higher net income, Best Buy could afford to take a hit to its margins and undercut GameStop prices.16
RadioShack Corp. was a retailer of consumer electronic goods and services including flat
panel televisions, telephones, computers, and consumer electronic accessories. Although the
company grossed revenues of over US$4 billion from 4,453 locations, RadioShack consistently lost market share to Best Buy. Consumers had a preference for RadioShack for audio
and video components, yet preferred Best Buy for their big box purchases.17
Second tier competitors were rapidly increasing. Wholesale shopping units were becoming more popular, and companies such as Costco and BJ’s had increased their piece of the consumer electronics pie over the past few years. After Circuit City’s bankruptcy, mid-level
electronics retailers like HH Gregg and Ultimate Electronics were scrambling to grab Circuit
City’s lost market share. Ultimate Electronics, owned by Mark Wattles, who was a major investor in Circuit City, had a leg up on his competitors. Wattles was on Circuit City’s board of
executives and had firsthand access to profitable Circuit City stores. Ultimate Electronics
planned to expand its operations by at least 20 stores in the near future.
Online Competitors
Amazon.com Inc., since 1994, had grown into the United States’ largest online retailer with
revenues of over US$19 billion in 2008 by providing just about any product imaginable
through its popular website. Created as an online bookstore, Amazon soon ventured out into
various consumer electronic product categories including computers, televisions, software,
video games, and much more.18
Amazon.com gained an advantage over its supercenter competitors as Amazon was able to
maintain a lower cost structure compared to brick-and-mortar companies such as Best Buy. Amazon was able to push those savings through to its product pricing and selection/diversification.
With an increasing trend in the consumer electronic industry to shop online, Amazon.com was
positioned perfectly to maintain strong market growth and potentially steal some market share
away from Best Buy.
Netflix Inc. was an online video rental service, offering selections of DVDs and Blu-ray
discs. Since its establishment in 1997, Netflix had grown into a US$1.4 billion company. With
over 100,000 titles in its collection, the company shipped for free to approximately 10 million
subscribers. Netflix began offering streaming downloads through its website, which eliminated the need to wait for a DVD to arrive.
Netflix was quickly changing the DVD market, which had dramatically impacted brickand-mortar stores such as Blockbuster and Hollywood Video and retailers who offered DVDs
for sale. In a responsive move, Best Buy partnered with CinemaNow to enter the digital movie
distribution market and counter Netflix and other video rental providers.19
Core Competencies
Customer Centricity Model
Most players in the consumer electronics industry focused on delivering products at the lowest cost (Wal-Mart—brick-and-mortar, Amazon—web-based). Best Buy, however, took a different approach by providing customers with highly trained sales associates who were
available to educate customers regarding product features. This allowed customers to make
informed buying decisions on big-ticket items. In addition, with the Geek Squad, Best Buy
was able to offer and provide installation services, product repair, and ongoing support. In
short, Best Buy provided an end-to-end solution for its customers.
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Best Buy used its customer centricity model, which was built around a significant database of customer information, to construct a diversified portfolio of product offerings. This allowed the company to offer different products in different stores in a manner that matched
customer needs. This in turn helped keep costs lower by shipping the correct inventory to the
correct locations. Since Best Buy’s costs were increased by the high level of training needed
for sales associates and service professionals, it had been important that the company remain
vigilant in keeping costs down wherever it can without sacrificing customer experience.
The tremendous breadth of products and services Best Buy was able to provide allowed
customers to purchase all components for a particular need within the Best Buy family. For example, if a customer wanted to set up a first-rate audio-visual room at home, he or she could
go to the Magnolia Home Theater store-within-a-store at any Best Buy location and use the
knowledge of the Magnolia or Best Buy associate in the television and audio areas to determine which television and surround sound theater system best fit their needs. The customer
could then employ a Geek Squad employee to install and set up the television and home theater system. None of Best Buy’s competitors offered this extensive level of service.
Successful Acquisitions
Through its series of acquisitions, Best Buy had gained valuable experience in the process of
integrating companies under the Best Buy family. The ability to effectively determine where
to expand was important to the company’s ability to differentiate itself in the marketplace.
Additionally, Best Buy was also successfully integrating employees from acquired companies. Best Buy had a significant global presence, which was important because of the maturing domestic market. This global presence provided the company with insights into
worldwide trends in the consumer electronics industry and afforded access to newly developing markets. Best Buy used this insight to test products in different markets in its constant effort to meet and anticipate customer needs.
Retaining Talent
Analyzing Circuit City’s demise, many experts concluded one of the major reasons for the
company’s downfall was that Circuit City let go of their most senior and well-trained sales
staff in order to cut costs. Best Buy, on the other hand, had a reputation for retaining talent
and was widely recognized for its superior service. Highly trained sales professionals had become a unique resource in the consumer electronics industry, where technology was changing at an unprecedented rate, and was a significant source of competitive advantage.
Challenges Ahead
Economic Downturn
Electronics retailers like Best Buy sold products that could be described as “discretionary
items, rather than necessities.”20 During economic recessions, however, consumers had less
disposable income to spend. While there was optimism about a possible economic turnaround
in 2010 or 2011, if the economy continued to stumble, this could present a real threat to sellers of discretionary products.
In order to increase sales revenues, many retailers, including Best Buy, offered customers
low interest financing through their private-label credit cards. These promotions were tremendously successful for Best Buy. From 2007 to 2009, these private-label credit card purchases
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accounted for 16%–18% of Best Buy’s domestic revenue. Due to the credit crisis, however, the
Federal Reserve issued new regulations that could restrict companies from offering deferred
interest financing to customers. If Best Buy and other retailers were unable to extend these
credit lines, it could have a tremendous negative impact on future revenues.21
Pricing and Debt Management
The current depressed economic conditions, technological advances, and increased competition
put a tremendous amount of pricing pressure on many consumer electronics products. This was a
concern for all companies in this industry. The fact that Best Buy did not compete strictly on price
structure alone made this an even bigger concern. Given the higher costs that Best Buy incurred
training employees, any pricing pressure that decreased margins put stress on Best Buy’s financial strength. In addition, the recent acquisition of Napster and the 50% stake in Best Buy Europe
significantly increased Best Buy’s debt and reduced available cash. Even in prosperous times, debt
management was a key factor in any company’s success, and it became even more important during the economic downturn. (See Exhibits 6 and 7 for Best Buy’s financial statements.)
Products and Service
As technology improved, product life cycles, as well as prices, decreased. As a result, margins decreased. Under Best Buy’s service model, shorter product life cycles increased training costs. Employees were forced to learn new products with higher frequency. This was not
only costly but also increased the likelihood that employees would make mistakes, thereby
tarnishing Best Buy’s service record and potentially damaging one of its most important,
if not the most important, differentiators. In addition, more resources would be directed at
research of new products to make sure Best Buy continued to offer the products consumers
desire.
One social threat to the retail industry was the growing popularity of the online marketplace. Internet shoppers could browse sites searching for the best deals on specific products.
This technology allowed consumers to become more educated about their purchases, while
creating increased downward price pressure. Ambitious consumers could play the role of a
Best Buy associate themselves by doing product comparisons and information gathering without a trip to the store. This emerging trend created a direct threat to companies like Best Buy,
which had 1,023 stores in its domestic market alone. One way Best Buy tried to continue the
demand for brick-and-mortar locations and counter the threat of Internet-based competition
was by providing value-added services in stores. Customer service, repairs, and interactive
product displays were just a few examples of these services.22
Leadership
The two former CEOs of Best Buy, Richard Shultze and Brad Anderson, were extremely successful at making the correct strategic moves at the appropriate times. With Brad Anderson
stepping aside in June 2009, Brian Dunn replaced him as the new CEO. Although Dunn
worked for the company for 24 years and held the key positions of COO and President during his tenure, the position of CEO brought him to a whole new level and presented new challenges, especially during the economic downturn. He was charged with leading Best Buy into
the world of increased connectivity. This required a revamping of products and store setups
to serve customers in realizing their connectivity needs. This was a daunting task for an experienced CEO, let alone a new CEO who had never held the position.
EXHIBIT 6 Consolidated Balance Sheets, Best Buy Co., Inc.
$ in millions, except per share and share amounts
February 28, 2009
ASSETS
Current Assets:
Cash and cash equivalents
Short-term investments
Receivables
Merchandise inventories
Other current assets
March 1, 2008
$498
11
1,868
4,753
1,062
$1,438
64
549
4,708
583
8,192
7,342
755
2,013
4,060
112
732
1,752
3,057
67
Less accumulated depreciation
6,940
2,766
5,608
2,302
Net property and equipment
Goodwill
Tradenames
Customer Relationships
Equity and Other Investments
Other Assets
4,174
2,203
173
322
395
367
3,306
1,088
97
5
605
315
$15,826
$12,758
$4,997
479
459
1,382
281
783
54
$4,297
531
373
975
404
156
33
8,435
1,109
1,126
513
6,769
838
627
40
—
—
41
41
205
4,714
(317)
8
3,933
502
4,643
4,484
$15,826
$12,758
Total current assets
Property and Equipment:
Land and buildings
Leasehold improvements
Fixtures and equipment
Property under capital lease
Total Assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
Unredeemed gift card liabilities
Accrued compensation and related expenses
Accrued liabilities
Accrued income taxes
Short-term debt
Current portion of long-term debt
Total current liabilities
Long-Term Liabilities
Long-Term Debt
Minority Interests
Shareholders’ Equity:
Preferred stock, $1.00 par value: Authorized — 400,000 shares; Issued
and outstanding — none
Common stock, $0.10 par value: Authorized — 1.0 billion shares; Issued and
outstanding — 413,684,000 and 410,578,000 shares, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive (loss) income
Total shareholders’ equity
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
SOURCE: Best Buy Co., Inc. 2009 Form 10-K, p. 56.
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EXHIBIT 7 Consolidated Statements of Earnings, Best Buy Co., Inc.
$ in millions, except per share amounts
February 28,
2009
March 1,
2008
March 3,
2007
$45,015
34,017
$40,023
30,477
$35,934
27,165
10,998
8,984
78
66
9,546
7,385
—
—
8,769
6,770
—
—
Operating income
Other income (expense)
Investment income and other
Investment impairment
Interest expense
1,870
2,161
1,999
35
(111)
(94)
129
—
(62)
162
—
(31)
Earnings before income tax expense, minority
interests and equity in income (loss) of affiliates
Income tax expense
1,700
2,228
2,130
Fiscal Years Ended
Revenue
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Restructuring charges
Goodwill and tradename impairment
Minority interests in earnings
Equity in income (loss) of affiliates
Net earnings
Earnings per share
Basic
Diluted
Weighted-average common shares outstanding
(in millions)
Basic
Diluted
674
815
752
(30)
(3)
(1)
7
(3)
—
$1,003
$1,407
$1,377
$2.43
$2.39
$3.20
$3.12
$2.86
$2.79
412.5
422.9
439.9
452.9
482.1
496.2
SOURCE: Best Buy Co., Inc. 2009 Form 10-K, p. 57.
Wal-Mart
Best Buy saw its largest rival, Circuit City, go bankrupt. However, a new archrival, Wal-Mart,
was expanding into consumer electronics and stepping up competition in a price war Wal-Mart
hoped to win. Best Buy needed to face the competition not by lowering prices, but by coming
up with something really different. Best Buy had to determine the correct path to improve its
ability to differentiate itself from competitors, which was increasingly difficult given an
adverse economic climate and the company’s financial stress. How Best Buy could maintain
innovative products, top-notch employees, and superior customer service while facing increased competition and operational costs was an open question.
CASE 24
Best Buy Co. Inc.: Sustainable Customer Centricity Model?
24-13
NOTES
1. Best Buy Co. Inc., Form 10-K. Securities and Exchange Com-
13. Z. Bissonnette, “Wal-Mart Looks to Expand Electronics
mission, February 28, 2009.
Ibid.
Ibid.
Greg Keller, “Threat Grows by Ipod and Laptop,” The Columbus Dispatch, May 18, 2009, http://www.dispatch.com/live/
content/business/stories/2009/05/18/greener_gadgets.
ART_ART_05-18-09_A9_TMDSJR8.html (July 10, 2009).
Larry Magid, “Consumer Electronics: The Future Looks
Bright,” CBSNews.com. May 2, 2008, http://www.cbsnews
.com/stories/2008/05/02/scitech/pcanswer/main4067008.shtml
(July 10, 2009).
Best Buy Co. Inc., Form 10-K, 2009.
Ibid.
Ibid.
Ibid.
Manhattan Institute for Policy Research, “They’re Making a Federal Case Out of It . . . in State Court,” Civil Justice Report 3. 2001,
http://www.manhattan-institute.org/html/cjr_3_part2.htm.
“Best Buy Bombshell,” HD Guru, March 21, 2009, http://
hdguru.com/best-buy-bombshell/400/.
Circuit City Stores Inc. was an American retailer in brand-name
consumer electronics, personal computers, entertainment software, and (until 2000) large appliances. The company opened
its first store in 1949 and liquidated its final American retail
stores in 2009 following a bankruptcy filing and subsequent
failure to find a buyer. At the time of liquidation, Circuit City
was the second largest U.S. electronics retailer, after Best Buy.
Business,” Bloggingstocks.com, May 18, 2009, http://www
.bloggingstocks.com/2009/05/18/wal-mart-looks-to-expand
-electronics-business/.
N. Maestrie, “Wal-Mart Steps Up Consumer Electronics Push,”
Reuters, May 19, 2009, http://www.reuters.com/article/technology
News/idUSTRE54I4TR20090519.
Capital IQ, “GameStop Corp. Corporate Tearsheet,” Capital
IQ, 2009.
E. Sherman, “GameStop Faces Pain from Best Buy, downloading,” BNET Technology, June 24, 2009, http://industry
.bnet.com/technology/10002329/gamestop-faces-pain-from
-best-buy-downloading/.
T. Van Riper, “RadioShack Gets Slammed,” Forbes.com,
February 17, 2006, http://www.forbes.com/2006/02/17/
radioshack-edmondson-retail_cx_tr_0217radioshack.html.
Capital IQ, “Amazon.com Corporate Tearsheet,” Capital IQ,
2009.
T. Kee, “Netflix Beware: Best Buy Adds Digital Downloads
with CinemaNow Deal,” paidContent.org. June 5, 2009,
http://paidcontent.org/article/419-best-buy-adds-digital-moviedownloads-with-cinemanow-deal/.
Best Buy Co., Inc., Form 10-K, 2009.
Ibid.
Ibid.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
14.
15.
16.
17.
18.
19.
20.
21.
22.
Strategic Management and Business Policy
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Brief Contents
PART one Introduction to Strategic Management and Business Policy 35
CHAPTER
CHAPTER
CHAPTER
1   Basic Concepts of Strategic Management 36
2   Corporate Governance 74
3   Social Responsibility and Ethics in Strategic Management 102
PART two Scanning the Environment 123
CHAPTER
CHAPTER
4   Environmental Scanning and Industry Analysis 124
5   Internal Scanning: Organizational Analysis 160
PART three Strategy Formulation 195
CHAPTER
CHAPTER
CHAPTER
6   Strategy Formulation: Situation Analysis and Business Strategy 196
7   Strategy Formulation: Corporate Strategy 218
8   Strategy Formulation: Functional Strategy and Strategic Choice 248
PART four Strategy Implementation and Control 277
CHAPTER
CHAPTER
CHAPTER
9   Strategy Implementation: Organizing for Action 278
1 0   Strategy Implementation: Staffing and Directing 308
1 1   Evaluation and Control 336
PART five Introduction to Case Analysis 365
CHAPTER
1 2   Suggestions for Case Analysis 366
PART six Cases in Strategic Management 393
Glossary  803
Name Index  815
Subject Index  820
5
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Contents
Preface  23
About the Authors   31
PART one Introduction to Strategic Management and Business Policy  35
CHAPTER
1
Basic Concepts of Strategic Management  36
The Study of Strategic Management   38
Phases of Strategic Management  38
Benefits of Strategic Management  39
Globalization, Innovation, and Sustainability: Challenges to Strategic Management   41
Impact of Globalization  42
Impact of Innovation  43
Global Issue: REGIONAL TRADE ASSOCIATIONS REPLACE NATIONAL TRADE BARRIERS  43
Impact of Sustainability  44
Theories of Organizational Adaptation   45
Creating a Learning Organization   46
Basic Model of Strategic Management   47
Environmental Scanning  48
Strategy Formulation  50
Strategy Implementation  53
Evaluation and Control  55
Feedback/Learning Process  55
Initiation of Strategy: Triggering Events   56
Strategic Decision Making   57
What Makes a Decision Strategic  57
Mintzberg’s Modes of Strategic Decision Making  58
Strategic Decision-Making Process: Aid to Better Decisions  59
The Strategic Audit: Aid to Strategic Decision Making   60
End of Chapter Summary  61
Appendix 1.A Strategic Audit of a Corporation  66
7
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8
CONTENTS
CHAPTER
2
Corporate Governance  74
Role of the Board of Directors   77
Responsibilities of the Board  78
Members of a Board of Directors  80
Innovation Issue: JCPenney and Innovation   81
Strategy Highlight: AGENCY THEORY VERSUS STEWARDSHIP THEORY
IN CORPORATE GOVERNANCE  83
Nomination and Election of Board Members  86
Organization of the Board  87
Impact of the Sarbanes–Oxley Act on U.S. Corporate Governance  88
Global Issue: GLOBAL BUSINESS BOARD ACTIVISM AT YAHOO!  90
Trends in Corporate Governance  91
The Role of Top Management   92
Responsibilities of Top Management  92
Sustainability Issue: CEO PAY AND CORPORATE PERFORMANCE  93
End of Chapter Summary  96
CHAPTER
3
Social Responsibility and Ethics in Strategic Management  102
Social Responsibilities of Strategic Decision Makers   104
Responsibilities of a Business Firm  104
Sustainability  107
Corporate Stakeholders  108
Sustainability Issue: MARKS & SPENCER LEADS THE WAY  108
Strategy Highlight: JOHNSON & JOHNSON CREDO  111
Ethical Decision Making   111
Some Reasons for Unethical Behavior  112
Global Issue: HOW RULE-BASED AND RELATIONSHIP-BASED GOVERNANCE SYSTEMS
AFFECT ETHICAL BEHAVIOR  113
Innovation Issue: Turning a Need into a Business to Solve the Need   115
Encouraging Ethical Behavior  116
End of Chapter Summary  118
PART two Scanning the Environment  123
CHAPTER
4
Environmental Scanning and Industry Analysis  124
Environmental Scanning  126
Identifying External Environmental Variables  126
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9
Sustainability Issue: GREEN SUPERCARS  128
Global Issue: SUVs POWER ON IN CHINA  136
Identifying External Strategic Factors  137
Industry Analysis: Analyzing the Task Environment   138
Porter’s Approach to Industry Analysis  138
Industry Evolution  142
Innovation Issue: TAKING STOCK OF AN OBSESSION   143
Categorizing International Industries  143
International Risk Assessment  144
Strategic Groups  144
Strategic Types  146
Hypercompetition  146
Using Key Success Factors to Create an Industry Matrix  147
Competitive Intelligence  148
Sources of Competitive Intelligence  149
Strategy Highlight: EVALUATING COMPETITIVE INTELLIGENCE  150
Monitoring Competitors for Strategic Planning  151
Forecasting  152
Danger of Assumptions  152
Useful Forecasting Techniques  152
The Strategic Audit: A Checklist for Environmental Scanning   154
Synthesis of External Factors—EFAS   154
End of Chapter Summary  156
CHAPTER
5
Internal Scanning: Organizational Analysis  160
A Resource-Based Approach to Organizational Analysis   162
Core and Distinctive Competencies  162
Using Resources to Gain Competitive Advantage  163
Determining the Sustainability of an Advantage  164
Business Models  166
Value-Chain Analysis  167
Industry Value-Chain Analysis  168
Corporate Value-Chain Analysis  169
Scanning Functional Resources and Capabilities   170
Basic Organizational Structures  171
Corporate Culture: The Company Way  172
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CONTENTS
Global Issue: MANAGING CORPORATE CULTURE FOR GLOBAL COMPETITIVE
ADVANTAGE: ABB VS. PANASONIC  174
Strategic Marketing Issues  174
Innovation Issue: DoCoMo Moves against the Grain   176
Strategic Financial Issues  177
Strategic Research and Development (R&D) Issues  178
Strategic Operations Issues  180
Strategic Human Resource (HRM) Issues  181
Sustainability Issue: THE OLYMPIC GAMES—SOCHI 2014 AND RIO 2016  184
Strategic Information Systems/Technology Issues  185
The Strategic Audit: A Checklist for Organizational Analysis   187
Synthesis of Internal Factors   187
End of Chapter Summary  189
PART three Strategy Formulation  195
CHAPTER
6
Strategy Formulation: Situation Analysis and Business Strategy  196
Situational Analysis: SWOT Approach   198
Generating a Strategic Factors Analysis Summary (SFAS) Matrix  198
Finding a Propitious Niche  199
Review of Mission and Objectives   202
Business Strategies  203
Porter’s Competitive Strategies  203
Global Issue: THE NIKE SHOE STRATEGY VS. THE NEW BALANCE SHOE STRATEGY  205
Innovation Issue: CHEGG and College Textbooks   208
Cooperative Strategies  209
Sustainability Issue: STRATEGIC SUSTAINABILITY—ESPN  210
End of Chapter Summary  214
CHAPTER
7
Strategy Formulation: Corporate Strategy  218
Corporate Strategy  220
Directional Strategy  220
Growth Strategies  221
Strategy Highlight: TRANSACTION COST ECONOMICS ANALYZES VERTICAL
GROWTH STRATEGY  225
International Entry Options for Horizontal Growth  226
Global Issue: GLOBAL EXPANSION IS NOT ALWAYS A PATH TO EXPANSION  226
Controversies in Directional Growth Strategies  230
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11
Stability Strategies  231
Retrenchment Strategies  232
Portfolio Analysis  234
Bcg Growth-Share Matrix  234
Sustainability Issue: GENERAL MOTORS AND THE ELECTRIC CAR  236
Advantages and Limitations of Portfolio Analysis  237
Managing a Strategic Alliance Portfolio  238
Corporate Parenting  239
Innovation Issue: To Red Hat or Not?   239
Developing a Corporate Parenting Strategy  240
Horizontal Strategy and Multipoint Competition  241
End of Chapter Summary  241
CHAPTER
8
Strategy Formulation: Functional Strategy and Strategic Choice  248
Functional Strategy  250
Marketing Strategy  250
Financial Strategy  251
Research and Development (R&D) Strategy  253
Operations Strategy  254
Global Issue: WHY DOESN’T STARBUCKS WANT TO EXPAND TO ITALY?  255
Purchasing Strategy  256
Sustainability Issue: HOW HOT IS HOT?  257
Logistics Strategy  258
Innovation Issue: When an Innovation Fails to Live Up to Expectations   258
Human Resource Management (HRM) Strategy  259
Information Technology Strategy  259
The Sourcing Decision: Location of Functions   260
Strategies to Avoid   263
Strategic Choice: Selecting the Best Strategy   263
Constructing Corporate Scenarios  264
The Process of Strategic Choice  269
Developing Policies  270
End of Chapter Summary  271
PART four Strategy Implementation and Control  277
CHAPTER
9
Strategy Implementation: Organizing for Action  278
Strategy Implementation  280
Who Implements Strategy?   281
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CONTENTS
What Must Be Done?   282
Developing Programs, Budgets, and Procedures  282
Sustainability Issue: A BETTER BOTTLE—ECOLOGIC BRANDS  283
Achieving Synergy  286
How Is Strategy to Be Implemented? Organizing for Action   287
Structure Follows Strategy  287
Stages of Corporate Development  288
Innovation Issues: The P&G Innovation Machine Stumbles   289
Organizational Life Cycle  292
Advanced Types of Organizational Structures  294
Reengineering and Strategy Implementation  297
Six Sigma  298
Designing Jobs to Implement Strategy  299
International Issues in Strategy Implementation   300
International Strategic Alliances  300
Stages of International Development  301
Global Issue: OUTSOURCING COMES FULL CIRCLE  302
Centralization Versus Decentralization  302
End of Chapter Summary  304
CHAPTER
10
Strategy Implementation: Staffing and Directing  308
Staffing  310
Staffing Follows Strategy  311
Selection and Management Development  313
Innovation Issue: HOW TO KEEP APPLE “COOL”   313
Problems in Retrenchment  315
International Issues in Staffing  317
Leading  319
Sustainability Issue: PANERA AND THE “PANERA CARES COMMUNITY CAFÉ”  319
Managing Corporate Culture  320
Action Planning  324
Management by Objectives  326
Total Quality Management  326
International Considerations in Leading  327
Global Issue: CULTURAL DIFFERENCES CREATE IMPLEMENTATION
PROBLEMS IN MERGER  329
End of Chapter Summary  330
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CHAPTER
11
13
Evaluation and Control  336
Evaluation and Control in Strategic Management   338
Measuring Performance  338
Appropriate Measures  338
Types of Controls  339
Innovation Issue: REUSE OF ELECTRIC VEHICLE BATTERIES   340
Activity-Based Costing  341
Enterprise Risk Management  342
Primary Measures of Corporate Performance  342
Balanced Scorecard Approach: Using Key Performance Measures  345
Sustainability Issue: E-RECEIPTS  345
Primary Measures of Divisional and Functional Performance  347
Responsibility Centers  348
Using Benchmarking to Evaluate Performance  349
International Measurement Issues  350
Global Issue: COUNTERFEIT GOODS AND PIRATED SOFTWARE: A GLOBAL PROBLEM  352
Strategic Information Systems   352
Enterprise Resource Planning (ERP)  353
Radio Frequency Identification (RFID)  353
Divisional and Functional is Support  354
Problems in Measuring Performance   354
Short-Term Orientation  354
Goal Displacement  356
Guidelines for Proper Control   357
Strategic Incentive Management   357
End of Chapter Summary  359
PART five
CHAPTER
12
Introduction to Case Analysis  365
Suggestions for Case Analysis  366
The Case Method   368
Researching the Case Situation   368
Financial Analysis: A Place to Begin   369
Analyzing Financial Statements  369
Common-Size Statements  373
Z-Value and the Index of Sustainable Growth  373
Useful Economic Measures  374
Format for Case Analysis: The Strategic Audit   375
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CONTENTS
End of Chapter Summary  377
Appendix 12.A Resources for Case Research  379
Appendix 12.B Suggested Case Analysis Methodology Using the Strategic Audit  381
Appendix 12.C Example of Student-Written Strategic Audit  384
PART six
Cases in Strategic Management   393
SECTION A
case
Corporate Governance: Executive Leadership
1 The Recalcitrant Director at Byte Products, Inc.: Corporate Legality versus
Corporate Responsibility  399
(Contributors: Dan R. Dalton, Richard A. Cosier, and Cathy A. Enz)
A plant location decision forces a confrontation between the board of directors and the CEO
regarding an issue in social responsibility and ethics.
case
2 The Wallace Group  405
(Contributor: Laurence J. Stybel)
Managers question the company’s strategic direction and how it is being managed by its founder and
CEO. Company growth has resulted not only in disorganization and confusion among employees, but
in poor overall performance. How should the board deal with the company’s founder?
SECTION B
case
Business Ethics
3 Everyone Does It  415
(Contributors: Steven M. Cox and Shawana P. Johnson)
When Jim Willis, Marketing VP, learns that the launch date for the company’s new satellite will be late
by at least a year, he is told by the company’s president to continue using the earlier published date
for the launch. When Jim protests that the use of an incorrect date to market contracts is unethical,
he is told that spacecraft are never launched on time and that it is common industry practice to list
unrealistic launch dates. If a realistic date was used, no one would contract with the company.
case
4 The Audit  419
(Contributors: Gamewell D. Gantt, George A. Johnson, and John A. Kilpatrick)
A questionable accounting practice by the company being audited puts a new CPA in a difficult
position. Although the practice is clearly wrong, she is being pressured by her manager to ignore it
because it is common in the industry.
SECTION C
case
new
Corporate Social Responsibility
5 Early Warning or False Sense of Security? Concussion Risk and the Case of the
Impact-Sensing Football Chinstrap  421
(Contributors: Clifton D. Petty, and Michael R. Shirley)
In 2009, Battle Sports Science, headquartered in Omaha, Nebraska, was built with a focus on
“enhancing safety for athletes.” Specifically, the company wanted to protect young athletes who might
have suffered a concussion. Battle Sports Science attempted to gain market attention for its US$149.99
impact indicator (chin strap) through endorsements, and had enlisted a number of NFL players. The
company hoped to sell the device to sports programs (schools) as well as to individual players.
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case
International Issues in Strategic Management
6 A123 Systems: A New Lithium-Ion Battery System for Electric
and Hybrid Cars  425
(Contributor: Alan N. Hoffman)
In 2007, A123 was developing its hybrid electric vehicle business. A123 entered into a partnership
with Cobasys to introduce lithium-ion batteries into the automotive market. A123 also entered into an
agreement with GM to use their batteries in the Saturn Vue Plug-in Hybrid development program and
to co-develop a lithium-ion battery for the Chevrolet Volt. A123 faced cash flow shortages after its
2009 IPO and its ultimate survival was threatened by its diminishing funds for continued operations.
new
case
15
7 Guajilote Cooperativo Forestal, Honduras  441
(Contributors: Nathan Nebbe and J. David Hunger)
This forestry cooperative has the right to harvest, transport, and sell fallen mahogany trees in
La Muralla National Park of Honduras. Although the cooperative has been successful thus far, it is
facing some serious issues: low prices for its product, illegal logging, deforestation by poor farmers,
and possible world trade restrictions on the sale of mahogany.
SECTION E
General Issues in Strategic Management
I N D U S T R Y O N E :    INTERNET COMPANIES
case
8 Google Inc. (2010): The Future of the Internet Search Engine  447
(Contributor: Patricia A. Ryan)
Google, an online company that provides a reliable Internet search engine, was founded in 1998 and
soon replaced Yahoo as the market leader in Internet search engines. By 2010, Google was one of
the strongest brands in the world. Nevertheless, its growth by acquisition strategy was showing signs
of weakness. Its 2006 acquisition of YouTube had thus far not generated significant revenue growth.
Groupon, a shopping Web site, rebuffed Google’s acquisition attempt in 2010. Is it time for a strategic
change?
case
9 Amazon.com, Inc.: Retailing Giant to High-Tech Player?  461
(Contributor: Alan N. Hoffman)
new
case
In 2012, more than half of all Amazon sales came from computers, mobile devices including the
Kindle, Kindle Fire, and Kindle Touch, and other electronics, as well as general merchandise from
home and garden supplies to groceries, apparel, jewelry, health and beauty products, sports and
outdoor equipment, tools, and auto and industrial supplies. Amazon was at a crossroads with regard
to its push into technology versus its general merchandise. Amazon also faced other challenges,
including those from state governments that wanted it to collect sales taxes so it would not adversely
compete against local businesses.
10 Blue Nile, Inc.: “Stuck in the Middle” of the Diamond Engagement
Ring Market  473
(Contributor: Alan N. Hoffman)
new
Blue Nile Inc. has developed into the largest online retailer of diamond engagement rings. Unlike
traditional jewelry retailers, Blue Nile operates completely store-front-free, without in-person
consultation services. The business conducts all sales online or by phone, and sales include both
engagement (70%) and non-engagement (30%) categories. Blue Nile’s vision is to educate its
customer base so customers can make an informed, confident decision no matter what event they
are celebrating. It wants to make the entire diamond-buying process easy and hassle-free.
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I N D U S T R Y T W O :    ENTERTAINMENT AND LEISURE
case
11 Groupon Inc.: Daily Deal or Lasting Success?  489
(Contributors: Nick Falcone, Eric Halbruner, Ellie A. Fogarty, and Joyce Vincelette)
new
case
Groupon began as a local Chicago discount service and became a global phenomenon seemingly
overnight. It was a great idea. The company was the first of its kind and changed the way consumers
spend, shop, and think about discounts. But how could Groupon, based on such innovation and having
experienced such exceptional growth, be in such a precarious position? A wave of competition had
swelled, including the likes of technology giants and both general and niche daily deals services, all
replicating Groupon’s business model. How could Groupon compete against large companies and
their expansive resources?
12 Netflix Inc.: The 2011 Rebranding/Price Increase Debacle  509
(Contributor: Alan N. Hoffman)
new
case
On September 18, 2011, Netflix CEO and co-founder Reed Hastings announced on the Netflix blog
that the company was splitting its DVD delivery service from its online streaming service, rebranding
its DVD delivery service Qwikster, as a way to differentiate it from its online streaming service, and
creating a new Web site for it. Three weeks later, in response to customer outrage and confusion,
Hastings rescinded the decision to rebrand the DVD delivery service Qwikster and reintegrated it
into Netflix. Nevertheless, only five weeks after the initial split, Netflix acknowledged that it had lost
800,000 U.S. subscribers and expected to lose many more, thanks both to the Qwikster debacle and the
price hike the company had decided was necessary to cover increasing content costs.
13 Carnival Corporation & plc (2010)  521
(Contributors: Michael J. Keeffe, John K. Ross III, Sherry K. Ross, Bill J. Middlebrook,
and Thomas L. Wheelen)
With its “fun ship,” Carnival Cruises changed the way people think of ocean cruises. The cruise
became more important than the destination. Through acquisition, Carnival expanded its product line
to encompass an entire range of industry offerings. How can Carnival continue to grow in the industry
it now dominates?
case
14 Zynga, Inc. (2011): Whose Turn Is It?  541
(Contributors: Zachary Burkhalter, Daniel Zuller, Concetta Bagnato, Joyce Vincelette,
and Ellie A. Fogarty)
new
Zynga built its company around social gaming. This new type of gaming transformed the gaming
industry on multiple levels and across various platforms. Zynga originally built its games using the
Facebook platform and then capitalized on the company’s unique method of social networking to
capture audiences around the world. However, this strong reliance on Facebook and changes in
consumer gaming practices caused some concern among outside investors as to the future of Zynga.
I N D U S T R Y T H R E E :    FOOD AND BEVERAGE
case
15 The Boston Beer Company: Brewers of Samuel Adams Boston Lager
(Mini Case)  561
(Contributor: Alan N. Hoffman)
The Boston Beer Company, founded in 1984 by Jim Koch, is viewed as pioneer in the American craft
beer revolution. Brewing over one million barrels of 25 different styles of beer, Boston Beer is the
sixth-largest brewer in the United States. Even though overall domestic beer sales declined 1.2% in
2010, sales of craft beer have increased 20% since 2002, with Boston Beer’s increasing 22% from
2007 to 2009. How can the company continue its rapid growth in a mature industry?
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16 Panera Bread Company (2010): Still Rising Fortunes?  565
(Contributors: Joyce P. Vincelette and Ellie A. Fogarty)
Panera Bread is a successful bakery-café known for its quality soups and sandwiches. Even though
Panera’s revenues and net earnings have been rising rapidly, new unit expansion throughout North
America has fueled this growth. Will revenue growth stop once expansion slows? The retirement
of CEO Ronald Shaich, the master baker who created the “starter” for the company’s phenomenal
growth, is an opportunity to rethink Panera’s growth strategy.
case
17 Whole Foods Market (2010): How to Grow in an Increasingly
Competitive Market? (Mini Case)  589
(Contributors: Patricia Harasta and Alan N. Hoffman)
Whole Foods Market is the world’s leading retailer of natural and organic foods. The company
differentiates itself from competitors by focusing on innovation, quality, and service excellence,
allowing it to charge premium prices. Although the company dominates the natural/organic foods
category in North America, it is facing increasing competition from larger food retailers like WalMart, who are adding natural/organic foods to their offerings.
case
18 Burger King (Mini Case)  595
(Contributor: J. David Hunger)
Founded in Florida in 1953, Burger King has always trailed behind McDonald’s as the second-largest
fast-food hamburger chain in the world. Although its total revenues dropped only slightly from 2009,
its 2010 profits dropped significantly, due to high expenses. Burger King’s purchase by an investment
group in 2010 was an opportunity to rethink the firm’s strategy.
case
19 Church & Dwight: Time to Rethink the Portfolio?  599
(Contributor: Roy A. Cook)
Church & Dwight, the maker of ARM & HAMMER Baking Soda, has used brand extension to
successfully market multiple consumer products based on sodium bicarbonate. Searching for a new
growth strategy, the firm turned to acquisitions. Can management successfully achieve a balancing act
based on finding growth through expanded uses of sodium bicarbonate while assimilating a divergent
group of consumer products into an expanding international footprint?
I N D U S T R Y F O U R :    APPAREL
case
20 Under Armour  609
(Contributors: Ram Subramanian and Pradeep Gopalakrishna)
new
case
Under Armour’s footwear sales declined by 4.5% during the second quarter of 2009 and showed
a 16.6% decline in the first six months of 2010 compared to 2009. This was in contrast to its
performance apparel, the company’s core category, which saw a 32.2% uptick over 2009. Under
Armour had tremendous growth opportunities in the apparel category in China. However, CEO Kevin
Plank wanted Under Armour to be a leading player in the field of athletic footwear.
21 TOMS Shoes (Mini Case)  621
(Contributor: J. David Hunger)
Founded in 2006 by Blake Mycoskie, TOMS Shoes is an American footwear company based in Santa
Monica, California. Although TOMS Shoes is a for-profit business, its mission is more like that of a
not-for-profit organization. The firm’s reason for existence is to donate to children in need one new
pair of shoes for every pair of shoes sold. By 2010, the company had sold over one million pairs of
shoes. How should the company plan its future growth?
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22 Best Buy Co. Inc. (2009): A Sustainable Customer-Centricity Model?  625
(Contributor: Alan N. Hoffman)
Best Buy, the largest consumer electronics retailer in the United States, operates 4000 stores in North
America, China, and Turkey. It distinguishes itself from competitors by deploying a differentiation
strategy based on superior service rather than low price. The recent recession has stressed its finances
and the quality of its customer service. How can Best Buy continue to have innovative products, topnotch employees, and superior customer service while facing increased competition, operational costs,
and financial stress?
I N D U S T R Y F I V E :    SPECIALTY RETAILING
case
23 Rosetta Stone Inc.: Changing the Way People Learn Languages  639
(Contributors: Christine B. Buenafe and Joyce P. Vincelette)
Rosetta Stone’s mission was to change the way people learn languages. The company blended
language learning with technology at a time when globalization connected more and more individuals
and institutions to each other. How should the company move forward? Would it be appropriate for
Rosetta Stone to offer products like audio books or services in order to increase market share? Which
international markets could provide the company with a successful future?
case
24 Dollar General Corporation: 2011 Growth Expansion Plans (Mini Case)  655
(Contributor: Kathryn E. Wheelen)
With annual revenues of US$12.7 billion and 9200 stores in 35 states, Dollar General is the largest
of the discount “dollar stores” in the United States. Although far smaller than its “big brothers”
Wal-Mart and Target, Dollar General has done very well during the recent economic recession. In
2011, it planned to open 625 new stores in three new states. Given that the company has a substantial
long-term debt, is this the right time to expand its operations?
case
25 iRobot: Finding the Right Market Mix?  661
(Contributor: Alan N. Hoffman)
Founded in 1990, iRobot was one of the first companies to introduce robotic technology into the
consumer market. Employing over 500 robotic professionals, the firm planned to lead the robotics
industry. Unfortunately, its largest revenue source, home care robots, is a luxury good and vulnerable
to recessions. Many of iRobot’s patents are due to expire by 2019. The firm is highly dependent upon
suppliers to make its consumer products and the U.S. government for its military sales. What is the
best strategy for its future success?
SECTION f
I N D U S T R Y si x : Transportation
case
26 Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956  671
(Contributor: Alan N. Hoffman)
new
case
Tesla Motors was founded in 2004 to produce electric automobiles. Its first car, the Tesla Roadster,
sold for US$101,000. It could accelerate from 0 to 60 mph in 3.9 seconds, and cruise for 236 miles
on a single charge. In contrast to existing automakers, Tesla sold and serviced its cars through the
Internet and its own Tesla stores. With the goal of building a full line of electric vehicles, Tesla Motors
faces increasing competition from established automakers. How can Tesla Motors succeed in an
industry dominated by giant global competitors?
27 Delta Air Lines (2012): Navigating an Uncertain Environment  687
(Contributors: Alan N. Hoffman and J. David Hunger)
new
Delta used mergers and acquisitions (M&A) successfully to solidify its strong position as a leader in
the airline industry. It has gone through five M&As since 1953, including the most recent acquisition
of Northwest Airlines (Northwest), which turned Delta into an airline with major operations in every
region of the world. The Northwest merger took a toll on Delta’s financial position, however, by
contributing to its high long-term debt.
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19
In 2012, top management began cautiously exploring opportunities for entering new markets, routes,
and partnerships in order to boost market share. Management was also searching for ways to reduce
costs and expenses in an industry that was rapidly consolidating into fewer major national and
international players. Delta is considering purchasing from Conoco.
case
28 TomTom: New Competition Everywhere!  707
(Contributor: Alan N. Hoffman)
TomTom, an Amsterdam-based company that provides navigation services and devices, led the
navigation systems market in Europe and is second in popularity in the United States. However, the
company is facing increasing competition from other platforms using GPS technology, like cell phones
and Smartphones with built-in navigation functions. As its primary markets in the United States and
Europe mature, how can the company ensure its future growth and success?
SECTION G
I N D U S T R Y S E V E N :    MANUFACTURING
case
29 General Electric, GE Capital, and the Financial Crisis of 2008: The Best of the
Worst in the Financial Sector?  721
(Contributor: Alan N. Hoffman)
new
case
The financial services industry was, by definition, volatile, and GE Capital was particularly hard
hit by the economic recession of 2008. With the credit markets illiquid and financial markets falling,
GE Capital found it was overexposed to commercial real estate and foreign residential mortgages.
At this point, GE’s parent corporation stepped in, began reorganizing GE Capital, and significantly
downsized the unit. GE Capital hoped to see continued sustainable earnings growth with growing
margins and lower portfolio risk, and to return money to investors and resume paying dividends to its
parent company
30 AB Electrolux: Challenging Times in the Appliance Industry  737
(Contributor: Alan N. Hoffman)
new
AB Electrolux is currently the world’s second-largest appliance maker, behind Whirlpool. Electrolux
has over 50,000 employees in more than 50 countries around the world. Its headquarters are in
Stockholm, Sweden.
As the social and demographic trends continue to evolve, so do the opportunities afforded to
Electrolux. The most significant demographic shift globally is the growing middle class in Asia, which
includes families with incomes between US$6000 and US$30,000. It is estimated that by 2020 there
will be one billion more people in the global middle class than there were in 2010. Correlated with
rising incomes worldwide, homeownership has also increased at a substantial rate, giving rise to
increased demand for consumer durables such as refrigerators, washing machines, and dishwashers.
I N D U S T R Y E I G H T :    INFORMATION TECHNOLOGY
case
31 Apple Inc.: Performance in a Zero-Sum World Economy  749
(Contributors: Moustafa H. Abdelsamad, Hitesh (John) Adhia, David B. Croll, Bernard A.
Morin, Lawrence C. Pettit Jr., Kathryn E. Wheelen, Richard D. Wheelen, Thomas L.
Wheelen II, and Thomas L. Wheelen)
By the 1990s, Apple, the first company to mass-market a personal computer, had become a minor
player in an industry dominated by Microsoft. After being expelled from the company in 1985, founder
Steve Jobs returned as CEO in 1997 to reenergize the firm. The introduction of the iPod in 2001,
followed by the iPad, catapulted Apple back into the spotlight. However, in 2011 Jobs was forced to
take his third medical leave, leading to questions regarding his ability to lead Apple. How can Apple
continue its success? How dependent is the company on Steve Jobs?
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32 Dell Inc.: Changing the Business Model (Mini Case)  771
(Contributor: J. David Hunger)
Dell, once the largest PC vendor in the world, is now battling with Acer for second place in the global
PC market. Its chief advantages—direct marketing and power over suppliers—no longer provides
a competitive advantage. The industry’s focus has shifted from desktop PCs to mobile computing,
software, and technology services, areas of relative weakness for Dell. Is it time for Dell to change
its strategy?
case
33 Logitech (Mini Case)  777
(Contributor: Alan N. Hoffman)
Logitech, the world’s leading provider of computer peripherals, was on the forefront of mouse,
keyboard, and videoconferencing technology. By 2010, however, Logitech’s products were threatened
by new technologies, such as touchpads, that could replace both the mouse and keyboard. As the
peripherals market begins to disintegrate, Logitech is considering a change in strategy.
case
34 Daktronics (A): The U.S. Digital Signage Industry 2010  783
(Contributors: Joseph Kavanaugh, Joshua Warne, and Carol J. Cumber)
new
The billboard, sign, and outdoor advertising industry in the United States is almost as old as the
Colonies. Lighted billboards, roadside signs, neon lights, and other forms of display are part of our
everyday environment. The newest segment of the industry, digital signage, is driven by 21st-century
technologies in computers, peripherals, graphics, and new sources of light—liquid crystal display
(LCD), light-emitting diodes (LED), and others. Less than 20 years old, the digital segment (sales of
US$2.14 billion) was estimated to be 17.8% of the outdoor signage industry in 2008. This note reviews
the digital signage industry and explores the forces that are driving this emerging segment of the
advertising, messaging, and sign industry.
Glossary  803
Name Index  815
Subject Index  820
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Dedicated to
SPECIAL DEDICATION TO TOM WHEELEN
Tom originated this book in the late 1970s and with his friend David Hunger brought the first edition
to fruition in 1982. What a ride it has been! After battling bone cancer, Tom died in Saint Petersburg,
Florida, on December 24, 2011. It was Tom’s idea from the very beginning to include the latest research
and useful material written in such a way that the typical student could read and understand the book
without outside assistance. That has been a key reason for the success of the book through its many
­editions. Tom’s last months were spent working with the two new co-authors to map out the direction for
the 14th edition. We thank you, Tom, and bid you a fond farewell! This 14th edition is for you.
J. David Hunger
Alan N. Hoffman
Charles E. Bamford
This is a special dedication to Thomas L. Wheelen, co-author, father, and best friend,
May 30, 1935 – December 24, 2011. This is the 14th edition of SMBP the creation you and
Mr. Hunger started due to your friendship at the McIntire School of Commerce at UVA with that
adjoining door! It is not very often that two co-authors become the best of friends, but you both did.
That was a very special gift that Tom treasured until the end. We are so glad you were able to meet as
the dynamic foursome to discuss the 14th edition of SMBP! The new addition of co-authors
Alan Hoffman and Chuck Bamford gave you and Mr. Hunger the ability to relax and smell the roses.
We have come full circle with you being back at UVA! You were an amazing friend, visionary,
teacher, and leader! Thank you for pushing us to be who we are today! You were very blessed to
have two children as your best friends! You will never know how much you are missed!
Dad – chailleann againn go mbainfidh tú agus grá agat. Tá do Spiorad na hÉireann le linn i gcónaí!
GNPD KEW and RDW
Betty, Kari and Jeff, Maddie and Megan, Suzi and Nick, Summer and Kacey, Lori,
Merry, Dylan, and newborn Edan. Also to Wolfie (arf!).
David Hunger
To Will Hoffman, the greatest son in the world. . . . and to our saint Wendy Appel.
In memory of my good friend, Tom Wheelen, via con dios. Thank you, Tom and David.
Alan Hoffman
To Yvonne, for your support, advice, encouragement, love, and confidence. To David and Tom, for your
confidence, council, and mental energy in the revision of this remarkable text.
Chuck Bamford
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Preface
Welcome to the 14th edition of Strategic Management and Business Policy! All of the
­chapters have been updated, and most of the cases are new and different. We have added
several brand-new cases (Early Warning: Concussion Risk and the Case of the Impact
Sensing Chinstrap, A123, Amazon, Blue Nile, Groupon, Netflix, Zynga, Under Armour,
General Electric, AB Electrolux, Tesla Motors, Delta Airlines, and The U.S. Digital
Signage Industry Note) for a total of 13 new cases! Many of the cases are exclusive to this
edition! Although we still make a distinction between full-length and mini cases, we have
interwoven them throughout the book to better identify them with their industries.
This edition revamps the theme that runs throughout all 12 chapters. We utilize a threelegged approach consisting of globalization, innovation, and sustainability. These three
strategic issues comprise the cornerstone that all organizations must build upon to push their
businesses forward. Each chapter incorporates specific vignettes about these three themes.
We continue to be the most comprehensive and practical strategy book on the market, with
chapters ranging from corporate governance and social responsibility to competitive strategy, functional strategy, and strategic alliances.
Features New to this 14th Edition
For the first time in 30 years, the 14th edition has added two new authors to the text. Alan
Hoffman, a major contributor to the 13th edition, is a former textbook author and worldrenowned author of strategy business cases, and Chuck Bamford, who was a student of Tom
Wheelen and David Hunger back in 1980 at the University of Virginia (McIntire School of
Commerce), has authored four other textbooks. They join J. David Hunger and bring a fresh
perspective to this extraordinarily well-researched and practically crafted text. In that vein,
this edition of the text has:
â– 
â– 
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Vignettes on Sustainability (which is widely defined as Business Sustainability),
­Globalization (which we view as an expectation of business), and Innovation (which is
the single most important element in achieving competitive advantage) appear in every
chapter of the text.
Every example, chapter opening, and story has been updated. This includes chapter
­opening vignettes examining companies such as: Five Guys, RIM (BlackBerry), HP’s
Board of Directors, Tata Motors, Costco, and Pfizer among many others.
Resource-based analysis (Chapter 5) has been added to the toolbox of students’ understanding of competitive advantage.
Extensive additions have been made to the text on strategy research.
Current consulting practices have been added to the topics of strategy formulation and
strategy implementation.
Thirteen new full-length cases have been added:
Twelve new comprehensive cases and one new Industry Note have been added to support
the 13 popular full-length cases and 8 mini-cases carried forward from past editions. Thirteen of the cases in the 14th edition are brand new and one case is an updated favorite from
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Pref ace 
past editions. Of the 34 cases appearing in this book, 20 are exclusive and do not appear in
other books.
â– 
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One of the new cases deals with corporate social responsibility issues (Early Warning:
Concussion Risk and the Case of the Impact Sensing Chinstrap).
Two of the new cases deal with international issues (A123, AB Electrolux).
Two of the new cases involve Internet companies (Amazon, Blue Nile).
Three of the new cases deal with Entertainment and Leisure (Groupon, Netflix,
and Zynga).
One new case deals with sports and apparel clothing (Under Armour).
One new Industry Note concerns digital signage. (Daktronics).
One new case concerns the financial crisis of 2008 (GE Capital).
Two new cases deal with transportation (Delta Airlines, Tesla Motors)
How this Book is Different from
other Strategy Textbooks
This book contains a Strategic Management Model that runs through the first 11 chapters
and is made operational through the Strategic Audit, a complete case analysis methodology.
The Strategic Audit provides a professional framework for case analysis in terms of external
and internal factors and takes the student through the generation of strategic alternatives and
implementation programs.
To help the student synthesize the many factors in a complex strategy case, we developed three useful techniques:
â– 
â– 
â– 
The External Factor Analysis (EFAS) Table in Chapter 4
This reduces the external opportunities and threats to the 8 to 10 most important external
factors facing management.
The Internal Factor Analysis (IFAS) Table in Chapter 5
This reduces the internal strengths and weaknesses to the 8 to 10 most important internal
factors facing management.
The Strategic Factor Analysis Summary (SFAS) Matrix in Chapter 6
This condenses the 16 to 20 factors generated in the EFAS and IFAS tables into the 8 to
10 most important (strategic) factors facing the company. These strategic factors become
the basis for generating alternatives and act as a recommendation for the company’s
­future direction.
Suggestions for case analysis are provided in Appendix 12.B (end of Chapter 12) and
contain step-by-step procedures on how to use a strategic audit in analyzing a case. This
appendix includes an example of a student-written strategic audit. Thousands of students
around the world have applied this methodology to case analysis with great success. The
Case Instructor’s Manual contains examples of student-written strategic audits for each of
the full-length comprehensive strategy cases.
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Title: Strategic Management
and Business Policy     Server: Jobs4
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Features
This edition contains many of the same features and content that helped make previous
­editions successful. Some of the features include the following:
CHAPTER
â– 
1
basic concepts of
Strategic
Management
Environmental
Scanning:
Gathering
Information
External
Natural
Environment:
Learning Objectives
After reading this chapter, you should be able to:
â– 
â– 
â– 
Strategy
Formulation:
Strategy
Implementation:
Evaluation
and Control:
Developing
Long-range Plans
Putting Strategy
into Action
Monitoring
Performance
Resources and
climate
â– 
â– 
Understand the basic model of strategic
management and its components
Identify some common triggering events
that act as stimuli for strategic change
Understand strategic decision-making
modes
Use the strategic audit as a method of analyzing corporate functions and activities
The 21st-century story of the power of strategic planning and
implementation for Ford Motor Company really starts in January 2006.
Ford announced a US$1.6 billion loss in North American operations and a continuing loss of market share. Then CEO and grandson of the founder, William Clay (Bill) Ford
Objectives
What
results
l to
accomplish
h
by when
Societal
Environment:
â– 
Ford—A Study in Strategic Planning
Mission
Reason for
existence
Understand the benefits of strategic
management
Explain how globalization and environmental sustainability influence strategic
management
General forces
Task
Environment:
announced the “Way Forward”—a surprisingly clear strategy document to lead the company
Strategies
Plan to
achieve
the
hi
he
mission &
objectives
Industry analysis
PART
back to profitability by 2008 and reduce costs by over US$6 billion by 2010. The entire document was only 16 pages long and clearly laid out the way that Ford was going to change the
Policies
Broad
guidelines
id li
for decision
making
Internal
direction of the company. This was a corporate-level change document in the classic planning
Programs
and Tactics
Activities
d d to
needed
accomplishh
a plan
mode of strategy.
Budgets
1
For the next nine months, the company attempted to implement the plan, and the result
Cost of the
programs
Procedures
Sequence
off steps
needed to
do the job
Structure:
Chain of command
Culture:
by the third quarter of 2006 was a staggering US$5.6 billion loss that would end up being a
loss of over US$12 billion before the year was out. Bill Ford and the Board of Directors realized
Performance
that they needed a CEO who could really implement the plan. Someone with an operations
Actual results
Beliefs, expectations,
values
approach and the willingness to make the tough decisions required by that plan. They tapped
Resources:
Alan Mulally, the President and CEO of Boeing’s Commercial Airlines unit. He stated that “These
Assets, skills,
competencies,
knowledge
business results are clearly unacceptable. We are committed to dealing decisively with the fundamental business reality that customer demand is shifting to smaller, more efficient vehicles.”
Introduction to
Mulally immediately eliminated the Ford dividend which had been a staple of the
blue chip company for decades. He sold off Volvo, Aston-Martin, Jaguar, and Land
Feedback/Learning: Make corrections as needed
Rover to other companies and sold most of Ford’s stock holdings in Mazda. He shut down
the historic Mercury line of vehicles and focused all of the company’s energy on two
MyManagementLab
®
vehicle lines: Ford and Lincoln. In what now looks even more brilliant than it did at the
Improve Your Grade!
CH A P T E R 2
Over 10 million students improved their results using the Pearson MyLabs.Visit mymanagementlab.com
for simulations, tutorials, and end-of-chapter problems.
â– 
2
A strategic management model
runs throughout the first 11 chapters
as a unifying concept. (Explained in
Chapter 1)
â– 
â– 
time, he secured US$23.6 billion in lines of credit to help the company through the change.
Corporate GovernanceIt turned45out to be prescient. When the other American automobile companies saw their
sales plummet in 2009, Ford was able to thrive. In fact, Ford was the only American auto
Monitor: By acting through its committees, a board can keep abreast of developments
inside and outside the corporation, bringing to management’s attention developments it
might have overlooked. A board should at the minimum carry out this task.
Evaluate and influence: A board can examine management’s proposals, decisions, and
actions; agree or disagree with them; give advice and offer suggestions; and outline alternatives. More active boards perform this task in addition to monitoring.
Initiate and determine: A board can delineate a corporation’s mission and specify strategic options to its management. Only the most active boards take on this task in addition
â– 
to the two previous ones.
Board of Directors’ Continuum
A board of directors is involved in strategic management to the extent that it carries out the
three tasks of monitoring, evaluating and influencing, and initiating and determining. The
board of directors’ continuum shown in Figure 2–1 shows the possible degree of involvement (from low to high) in the strategic management process. Boards can range from phantom
boards with no real involvement to catalyst boards with a very high degree of involvement.9
CHthat
A P Tactive
E R 3board
Social
Responsibility
and Ethicsmanagement
in Strategic Management
71
Research suggests
involvement
in strategic
is positively related
to a corporation’s financial performance and its credit rating.10
Highly
boards
tend tothus
be very
active.
take their
tasks of monitoring,
efficiency
of involved
a business.
Friedman
referred
to They
the social
responsibility
of businessevaluas a
ating
and
influencing,
and
initiating
and
determining
very
seriously;
they
provide
advice
when
“fundamentally subversive doctrine” and stated that:
necessary and keep management alert. As depicted in Figure 2–1, their heavy involvement in
There is one and only one social responsibility of business—to use its resources and engage in
the strategic management process places them in the active participation or even catalyst posiactivities designed to increase its profits so long as it stays within the rules of the game, which
tions.
Although 74% of public corporations have periodic board meetings devoted primarily to
is to say, engages in open and free competition without deception or fraud.1
the review of overall company strategy, the boards may not have had much influence in genFollowing
theglobal
management
Coca-Cola
was clearly
of
erating
the planFriedman’s
itself.11 Thereasoning,
same 2011
survey ofofdirectors
by McKinsey
& guilty
Company
misusing
corporate
assets and negatively
affecting
shareholder
wealth.proposed
The millions
spent41%
in
found that
44% of respondents
reviewed and
approved
management’s
strategy,
social
services
couldwith
havemanagement,
been investedand
in new
development
or given
back as divideveloped
strategy
11% product
developed
strategy, which
management
was
dends
to the shareholders.
Coca-Cola’s
management
acting
on…
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