Strategic Management, 4e Teacher’s Resource CHAPTER 1 What … · 2020. 3. 26. · alphabet...

Strategic Management, 4e Teacher’s Resource Manual

1-1 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of

McGraw-Hill Education.

CHAPTER 1

What Is Strategy?

Teacher’s Resource Manual: Implementation Guide

Learning Objectives

ChapterCase 1: Tesla’s Secret Strategy

1.1 What Strategy Is: Gaining and Sustaining Competitive Advantage (LO 1-1, LO 1-2)

CONNECT® INTEGRATION

Whiteboard Animation: Role of Strategy in a Firm's Quest for Competitive Advantage


Case Analysis: What Strategy Is: Gaining Competitive Advantage at Nvidia


Whiteboard Animation: What Is Competitive Advantage?

1.2 Vision, Mission, and Values (LO 1-3, LO 1-4, LO 1-5)


Video Case: Mission Statements and Competitive Advantage


Whiteboard Animation: The Strategic Decision Process

1.3 The AFI Strategy Framework (LO 1-6)

1.4 Implications for Strategic Leaders

End of Chapter: Discussion Questions


HP Running Case: Module 1

myStrategy

CHAPTER CONTENTS




Teacher’s Resource Manual: Implementation Guide

This improved Teacher’s Resource Manual (TRM), formerly the Instructor’s Manual (IM), supports delivery of your

chosen curriculum and pedagogy. This manual contains more than just guidance on how to cover concepts discussed in the

fourth edition of Strategic Management; it also provides tips and best practices for how to utilize the full product suite (from

the textbook to SmartBook® to Connect

®). In addition, this manual includes a variety of supplemental teaching resources to

enhance your ability to create an engaging learning experience for your students. Regardless of whether you teach in face-to-

face traditional classrooms, blended (flipped) classrooms, online environments, or hybrid formats, you’ll find everything you

need in this improved resource.

The TRM follows the order of the textbook outline for each chapter and is divided into sections for each learning objective.

Each section identifies the relevant PowerPoint slides from both the Lecture slides and the Supplemental Lecture slides (more

on this below). This eases your preparation time for class as you can adjust slides as needed to ensure your students stay

actively engaged throughout each session.

WHAT INSTRUCTOR RESOURCES ARE AVAILABLE?

Within each section of the TRM you will find an assortment of examples, exercises, Connect® Integration assignments,

updates on the latest research, Strategy Smart Video discussions, and end-of-chapter discussion questions and exercises from

which you can choose to enhance your students’ learning and engagement. Where the activities are related to program-level

learning objectives established by AACSB 2015 Standard 9, the learning objective has been identified for you.

Within the Instructor Resources Tab, located in the Connect® Library, the following Instructor Resources can be found:

Teacher’s Resource Manual

PowerPoints (Accessible)

Test Bank

Create™ Case Support

MiniCase Support

Strategy Term Project

Video Resources

Capsim’s Capstone Simulation

1) This Teacher’s Resource Manual is posted by chapter.

2) Two sets of ADA-accessible PowerPoints are available with each chapter:

a. Lecture slides cover chapter concepts and exhibits.

b. Supplemental Lecture slides cover:

i. ChapterCases

ii. Strategy Highlights

iii. Implications for Strategic Leaders

iv. End-of-chapter myStrategy and Small Group Exercises

v. Take-Away Concepts

vi. Key Terms

vii. Strategy Smart Video selections (not part of the book, but an additional resource found here)

3) Test Bank questions are posted by chapter. You will find a variety of question types within the test bank such as

Matching, Ranking, Multiple Choice, Select-All-That-Apply, True/False, Short Answer, and Essays to test student

mastery across Bloom’s Taxonomy (i.e. Understand, Apply, and Analyze). Due to the evolving needs around

generating high-quality print test experiences, McGraw-Hill Education provides a free copy of the industry-leading

test generation software TestGen® to users (more details can be found within the Instructor Resources tab under




“Test Bank”). Furthermore, due to its limitations to function with the latest browsers and operating systems,

McGraw-Hill Education has discontinued EZ-Test Online. Some of the robust new features present in TestGen®,

include:

Cross-platform software compatibility with Windows and Mac

Multiple LMS export formats, including Blackboard, Moodle, Desire2Learn, and Sakai

Highly customizable formatting and editing option

4) Create™ Case Support (all cases are available in Create™ and selected ones in HBS)

a. A case matrix that identifies the industry sector covered by each case, as well as the primary and secondary

chapter alignments

b. One-page case abstract for quick overview of each case

c. Case Teaching Notes for instructor use only

d. Case Financials in Excel files for the exhibit data in the most popular cases

e. Case Strategic Financial Analysis template

f. Instructions on How to Download SEC Financial Data into Excel Spreadsheets

5) MiniCase Support (all MiniCases are located in Part Four of the book)

a. MiniCase Matrix that identifies chapter alignment

b. MiniCase Teaching Notes comprising suggested answers to the MiniCases discussion questions. In some

instance, they also provide specific additional article and video resources to accompany each MiniCase.

6) Strategy Term Project

a. Modules for students on how to conduct a strategic management analysis of a company of their choosing;

there is one module per chapter so that students can build upon their analysis and tie each section of their

analysis to specific chapter concepts.

b. Running Case Teaching Notes that cover the strategy term project found in Connect®. HP is used as the

example firm to demonstrate how pieces of the term project align with each chapter.

7) Video Resources

a. The Video Grid and Guide provides links to supplemental video resources to accompany both the

MiniCases and full-length Create™ cases.

b. The Video Library provides links to all the assignable videos in Connect®.

8) A link to Capsim’s Capstone Simulation is provided; this simulation allows students to apply their knowledge of

key strategy concepts.

How can SmartBook® enhance my students’ performance?

The LearnSmart®

-powered SmartBook® is assignable through Connect

®, McGraw-Hill’s online assignment and assessment

system. One of the first fully adaptive and individualized study tools designed for students, it creates for them a personalized

learning experience, giving them the opportunity to practice and challenge their understanding of core strategy concepts. The

reporting tools within SmartBook® show where students are struggling to understand specific concepts.

Typically, SmartBook® is assigned by module (chapter), and instructors can set which learning objectives to cover as well as

the number of probes the student will see for each assignment. Instructors also set the number of points a SmartBook®

module is worth in the course. Usually, applying a minimal number of points for completion of each module is enough to

encourage students to read the chapter. Many instructors assign these modules to be completed before the class or online

session.

SmartBook® provides several diagnostic tools for instructors to gauge which concepts their students struggle to understand.

Below is the set of adaptive assignment reports available in SmartBook®:

Progress Overview: View student progress broken down by module

Student Details: View student progress details plus completion level breakdown for each module

Module Details: View information on how your class performed on each section of their assigned modules

Practice Quiz: This gives you a quick overview of the quizzes results for your students




Missed Questions

Metacognitive Skills

By selecting “Module Details” the instructor finds the results for the students in the class overall. These details reveal where

in the chapters students might be struggling. The module gives the chapter section, average time spent, average questions per

student correct/total, and the percentage of correctness (number of assigned items). Information about the most challenging

sections for students can help instructors refine the focus of the next classroom or online session.

For more detailed analysis, SmartBook® captures students’ confidence in their competency using the “Metacognitive Skills”

report. Below (a recreation of the Metacognitive Skills report), we find the second student is confident and mostly correct

(91% in the correct & aware column) while the first student “doesn’t know what she doesn’t know” (39% in the far-right

column).

STUDENT CORRECT

and

AWARE

CORRECT and

UNAWARE

INCORRECT

and AWARE

INCORRECT

and UNAWARE

Student 1 61% 0% 0% 39%

Student 2 91% 0% 3% 5%

Student 3 81% 0% 0% 19%

Student 4 83% 0% 0% 17%

Student 5 76% 0% 3% 21%

Student 6 66% 0% 9% 25%

Student 7 77% 0% 3% 12%

Student 8 91% 0% 2% 7%

Student 9 93% 0% 2% 5%

Student 10 70% 0% 6% 25%

Application Exercises, Quizzes, and Test Bank

What resources are available at the book level?

Connect® offers a wealth of content for both students and instructors. Application Exercises require students to apply key

concepts to close the knowing and doing gap, while providing instant feedback for the student and progress tracking for the

instructor. Before getting into chapter-level assignments, let’s look at the book-level assignments available.

Four exercises are available for instructors to assign beyond the chapter materials. These are 1) MiniCase Case Analyses, 2)

Case Strategic Financial Analyses (SFAs), 3) Financial Ratio Reviews, and 4) Case Exercises.

1) To encourage analytical thinking, each MiniCase from Part Four of the book is also an assignable application

exercise (MiniCase Case Analysis). Each MiniCase is followed by four to five multiple-choice questions that

assess students’ understanding of the key issues presented in the MiniCase.

2) The Case SFA provides assignable key ratio comparisons for the Create™-only full-length cases available with the

textbook. These require the student to analyze the case financial statements and calculate answers to several ratios in

the spreadsheet. The Case SFAs engage students’ financial analysis skills—skills many professors have identified as

requiring more practice among their students.

3) Financial Ratio Reviews give students the opportunity to further hone their financial analysis skills; review

exercises cover each type of financial ratio (activity, leverage, liquidity, market and profitability).

4) Case Exercises, which are new to this edition of Strategic Management, focus on the key symptoms and influences

of a problem a firm might be facing, followed by a series of questions that help students understand how the firm

eventually achieves a solution to that problem (or asks students to suggest a solution). Case Exercises for this edition

accompany the most popular full-length cases: Amazon, Apple, BestBuy, Facebook, McDonald’s, and Tesla.

What resources are available for each chapter and how should I integrate them in my course?

Consider assigning one or two Application Exercises per chapter. They are built around chapter learning objectives, so the

instructor can choose based on his/her focus for each specific chapter. Several types of application exercises are available in

each chapter. The newest addition is the Whiteboard Animation series, comprising four- to five-minute videos on key




concepts or concepts that tend to challenge students the most. Each animation is accompanied by three to four multiple-

choice questions to check student attention and comprehension. Comprehensive Case Analyses and Video Cases each

feature firms and industries different than those discussed in the textbook. Finally, Click-and-Drag exercises help students

actively demonstrate their understanding of the associated learning objectives. Application Exercises can be assigned as

preparatory exercises due before class (this is especially good for flipped classrooms), or after class as concept

comprehension checks. Applications Exercises will generally be assigned as homework or practice as part of the overall class

grade. A general rule of thumb would be to make application exercises worth 5 to 10 points each since these require time and

thought.

To find the Applications in Connect®, go to “Add Assignment” and then select “Question Bank.” Application Exercises are

organized by chapter. Instructors have the option to select for one attempt only, but they may want to give students unlimited

or multiple attempts on the first few assignments to give students a chance to learn and navigate the system. (As the course

progresses, instructors may want to tighten up the time on task and reduce the number of attempts to complete each exercise).

Chapter quizzes and full chapter test banks are available for assignment, and like the Application Exercises, are organized

by chapter. The value applied to each question should be relatively low because numerous questions are usually assigned for

each chapter. As such, make these questions worth 1 or 2 points each. The feedback given to students is time-flexible.

Selecting feedback to be displayed after the assignment due date helps to keep students from giving the correct answers to

other students while the questions are still available. For this reason, it is suggested that no feedback to quizzes and test bank

exams be made available until after the assignment is due.

When should I assign these digital components?

To fully utilize the power of the digital components, instructors will often assign the SmartBook® reading and adaptive

learning probes before class meets. Application Exercises can be completed either before or after class; if they are completed

before class, they can sometimes serve as good springboards for class discussions. The chapter quiz makes a good check on

comprehension of the material and may work best if assigned after each class period. The test bank serves as a good resource

for building mid-term or final exams.

More detailed information on SmartBook® and Connect

® is available through several resources at McGraw-Hill. A good

starting point is your local Learning Technology Representative, who can be found here:

http://www.mheducation.com/highered/platforms/connect/features-educators.html

Course Preparation

Helpful Suggestions Regarding Assignment Policies: Connect® gives instructors a wide array of flexibility in making

assignments and creating grading policies. Instructors may choose to:

assign as many assignments as appropriate given the level and time commitment expected for the class,

determine point values for each question/application that works within the total course percentages,

make available multiple attempts per assignment with options of accepting the highest score or averaging all the

attempts together (several attempts are particularly good for homework assignments),

deduct points for late assignment submissions (percentage deduction per hour/day/week/etc.) or create hard deadlines

thus accepting no late submissions,

show feedback on application/questions immediately upon submission or at the time the assignment is due for the whole

class, create new assignments or questions from scratch, or edited versions from a variety of provided resources.

Throughout the TRM for each chapter, we will integrate materials from the Lecture PowerPoint slides, Supplemental

Lecture slides, Connect® Application Exercises, end-of-chapter activities, and MiniCases. This integration of resources will

allow for a cohesive presentation of the relevant resources at your disposal, helping you to convey these topics effectively

and efficiently to your students.

http://www.mheducation.com/highered/platforms/connect/features-educators.html




CHAPTER 1

Learning Objectives LO 1-1 Explain the role of strategy in a firm’s quest for competitive advantage.

LO 1-2 Define competitive advantage, sustainable competitive advantage, competitive disadvantage, and competitive parity.

LO 1-3 Describe the roles of vision, mission, and values in a firm’s strategy.

LO 1-4 Evaluate the strategic implications of product-oriented and customer-oriented vision statements.

LO 1-5 Justify why anchoring a firm in ethical core values is essential for long-term success.

LO 1-6 Explain the AFI strategy framework.

What enables some firms to gain and then sustain their competitive advantage over time? Why do once-great firms fail? How

can a firm’s managers influence performance? Strategic management is the integrative management field that combines

analysis, formulation, and implementation in the quest for competitive advantage. Many students will relate to strategy

through sports analogies. You may want to start the course by discussing the contrast between a powerful sports dynasty and

its weaker competitors. In the United States, compare the Yankees to the Cubs. Why does U-Conn appear in the NCAA

Men’s and Women’s Basketball Final Four so frequently? In other countries, you might compare Man U or Real Madrid to

your local football club or discuss the ability of Mercedes to overwhelm the traditional strength of Ferrari in Formula 1. How

have these teams built and implemented strategies? What successes have they seen? What resources do they have that their

weaker rivals lack?

A chapter opening case on Tesla and two strategy highlights are included in the chapter for tangible applications of the

theoretical frameworks discussed.

ChapterCase 1 Tesla’s Secret Strategy The opening ChapterCase discusses the story of the founding of Tesla. CEO Elon Musk wrote a public blog in 2006 that

basically laid out the plans for the first decade of the firm. He seems to be doing quite well with his ‘secret plan’.

INSTRUCTOR SUPPLEMENT SLIDES 3-5

DISCUSSION TOPICS

In February 2017 Tesla Motors became just Tesla. After the Solar City purchase was approved in November of 2016, the

firm is repositioning itself as the “world’s first vertically integrated sustainable energy company.” Tesla now has solar panels

and soon will have solar roof tiles for generating electricity. Then they are making batteries for storing energy. Finally, they

produce cars, SUVs and have announced plans to semi-tracker trailer truck to consume the electricity. (See “Elon Musk’s

Tesla Drops ‘Motors’ From Name,” The Wall Street Journal, February 1, 2017.)

https://www.wsj.com/articles/elon-musks-tesla-drops-motors-from-name-1485962012

https://www.wsj.com/articles/elon-musks-tesla-drops-motors-from-name-1485962012




CONSIDER THIS DISCUSSION QUESTIONS

INSTRUCTOR SUPPLEMENT SLIDE 6

1. Do you agree with the assessment that Elon Musk and Tesla successfully fulfilled their first master plan

published in 2006? Why or why not? Buttress your arguments.

Given the uncertainty of the electric vehicle industry especially in 2006 most would agree Tesla has done an amazing job of

meeting their plans. Ultimately though they need to scale up the model 3 cars to really complete the plan. Thus the argument

against their successful execution is most tangible in “step 3” largely due to delays in the Model X SUV. Their version of

“don’t tell anyone” can be seen in the little to no sales and advertisement budgets for the firm.

2. As of today, does Tesla have a good strategy? Why or why not? How do you know?

The chapter covers this question in some detail. The firm seems set up with a compelling vision from diagnosis and also a

guiding policy. The biggest question is the execution of their coherent actions in scaling up both the battery factory and the

auto assembly lines in a cost effective manner with the required high quality of products.

3. Describe the rationale behind Tesla’s new master plan. How does this new strategy help Tesla fulfill its

vision? “Master Plan, Part Deux” in its entirety is on Tesla’s blog: https://www.tesla.com/blog/master-plan-

part-deux.

After a decade in electric vehicles, Tesla was ready to move to its next stage of the master plan as an integrated sustainable

energy company. The acquisition of Solar City and commercialization of solar roof panels drives the clean energy generation

which is stored in the “powerwall” and other types of batteries while the vehicles become exemplars of uses of the energy

(including semi-trucks as announced in the fall of 2017).

4. Apply the three-step process for crafting a good strategy outlined in the chapter (diagnose the competitive

challenge, derive a guiding policy, and implement a set of coherent actions) to each element of the new master

plan. On which steps of the new master plan has Tesla made the most progress? Explain. Also, which

recommendations would you have for Elon Musk? Support your arguments with examples and observations.

Tesla is putting out a master plan for the long term and in concert with Mr. Musk’s views on the need for sustainable clean

energy sources, they have diagnosed this area as not only a business opportunity (which some question as viable) but a larger

need for society. To accomplish this challenge, they have again laid out a guiding policy with coherent steps for the firm to

follow. Students may argue that the self-driving capability and making money from your own car is beyond the integrated

energy company vision. Though Tesla inspires many people, especially the millennial and generation Z segments,

profitability is still elusive and inconsistent. This is especially a concern as the aspirations of the master plan require large

investments in new areas to be successful.

STRATEGY SMART VIDEO


This slide links to a two-minute interview with a Tesla customer who speaks about his Tesla car and home battery storage.

https://www.tesla.com/blog/master-plan-part-deux

https://www.tesla.com/blog/master-plan-part-deux




1.1 What Strategy Is: Gaining and Sustaining Competitive Advantage

LO 1-1 Explain the role of strategy in a f i rm’s quest for competit ive advantage.

LECTURE SLIDES 4–9

DISCUSSION TOPICS Strategy is a set of goal-directed actions a firm intends to take in its quest to gain and sustain competitive advantage relative

to competitors. A good strategy consists of three elements: A diagnosis of the competitive challenge, a guiding policy to

address the competitive challenge, and a set of coherent actions to implement the firm’s guiding policy. The strategic

management process, therefore, is a never-ending cycle of analysis, formulation, implementation, and feedback. Strategy is

neither grandiose statements, a failure to face a competitive challenge, nor operational effectiveness. Different plans and

activities may be called a “strategy,” but like operational effectiveness, they are not part of our definition for this textbook.

Pricing strategies, Six Sigma, and other programs are more likely to be tools for improvement and not lead to a competitive

advantage.

AACSB 2015 Standard 9 Integrating knowledge across fields

INTEGRATION

Whiteboard Animation: Role of Strategy in a Firm's Quest for

Competitive Advantage

This animated video covers strategy, which is inherently competitive, is a juxtaposition of competitive challenges and the

resources that can be marshaled by the firm. This activity is important because as a manager, you must be able to articulate

the role of strategy in a firm’s quest for competitive advantage. The blending of military and business strategy is discussed.

Difficulty: Medium

Blooms: Apply

AACSB: Analytics




INTEGRATION

Case Analysis: What Strategy Is: Gaining Competitive Advantage at

Nvidia

This case analysis provides the students an opportunity to think through the three elements of a good strategy with a

complementary application from the textbook. The case also helps students see the value in learning from failures. The case

here ties closely to the materials in the beginning sections of Chapter 1. Students will read the case and then answer the four

questions following it.

Follow-Up Activity: The instructor can expand on the concepts in this case analysis by comparing some of the business

decisions made by Nvidia and Apple. Many students may not be familiar with Nvidia as a firm, but they may find some of

their favorite gaming devices are powered by Nvidia products. We find students sometimes lacking in business-to-business

experiences and firms such as Nvidia, which are not retail oriented, can enhance their conceptual application and give

students thought-provoking business examples.

Difficulty: Medium

Blooms: Evaluate

AACSB: Analytic



This slide links to a two-minute video by Michael Porter who wrote one of the most widely read HBR articles of all time,

“What is Strategy?”

END OF CHAPTER SMALL GROUP EXERCISE 1


1. The chapter applies the three elements of a good strategy to Tesla for insights into the company’s possible

competitive advantage. As a group, choose a different firm that is well known to the students. Assign the

competitive challenges and company guiding policies and search the internet for information about the firm’s

actions. As a group discuss key actions the firm has taken and decide if they seem to be coherent. Does the

firm demonstrate measures of a competitive advantage? If yes, does it look to be sustainable?

Students should choose a public company they know pretty well and have access to the internet to look up information about

the firm to be able to give a reasonable answer to this question. The group will want to look up the key success factors for the

firm from either the website or a recent annual report. Have the students move through each of the three steps in the good

strategy methodology to reach a conclusion about how the firm is positioned. They should be on the lookout for some of the

bad strategy elements such as “grandiose statements” while they are researching the firm.






This slide links to an eight-minute interview with renowned investor Warren Buffet. The first two-minutes speak to his view

of competitive advantage.

LO 1-2 Define compet it ive advantage, susta inable competit ive advantage, competit ive disadvantage, and com petit ive parity.

LECTURE SLIDES 10-17

Competitive advantage is always relative, not absolute. Explain the differences among competitive disadvantage, competitive

parity, temporary competitive advantage, and sustainable competitive advantage. Competitive advantage has to come from

performing different activities or performing the same activities differently than rivals are doing.

If you chose to start the course with a sports analogy for competition and your group of students have a high level of

engagement with that topic, you might want to reintroduce it at this point in your lecture with a sports-related example. Long

an industry leader, ask students to consider what new strategies ESPN could pursue to combat the industry trend of customers

trying to cut cable bills that might be more effective than firing talent. (See “ESPN Tightens Its Belt as Pressure on It

Mounts,” The Wall Street Journal, July 10, 2015.) This example tends to resonate with students because their age group is in

the forefront of the trend to replace cable TV with streaming options, such as Hulu, Netflix, and Amazon Prime.

INTEGRATION

Whiteboard Animation: What Is Competitive Advantage?

This animated video uses a track and field race analogy to address the key concepts of competitive advantage, and it is

important because competition is at the heart of business.

Difficulty: Medium

Blooms: Apply

AACSB: Analytics

DISCUSSION TOPIC

For more advanced classes McKinsey Quarterly, September 2015 offers a video interview, “Capturing Southeast Asia’s

Financial System Opportunity.” After showing the video in class, invite students to brainstorm ideas on how a firm might

gain and sustain a competitive advantage in this arena.

If you are teaching a capstone course that meets broad program-level learning objectives, such as critical reasoning skills and

decision-making skills, as well as discipline-specific strategy learning objectives, the Wall Street Journal article, “GE Set to

Exit Retail Lending” (August 30, 2013), offers material for one such exercise. You can begin exploring the concept of

competitive advantage by contrasting shareholder value creation under Jack Welch and destruction under Jeff Immelt and

then discuss the role that GE Capital played in both of these trends. What changed in the external environment to cause the

crown jewels to become a liability? Then challenge the students to use critical reasoning skills to (a) identify specific

information in the article that is relevant to making that determination and (b) evaluate the validity of that information. From

that point you could move into a discussion of decision-making skills. What information would you want to know in order to

http://www.wsj.com/articles/espn-tightens-its-belt-as-pressure-on-it-mounts-1436485852

http://www.wsj.com/articles/espn-tightens-its-belt-as-pressure-on-it-mounts-1436485852

http://www.mckinsey.com/videos/video?vid=4492848494001&plyrid=2399849255001&Height=270&Width=480

http://www.mckinsey.com/videos/video?vid=4492848494001&plyrid=2399849255001&Height=270&Width=480

http://online.wsj.com/article/SB10001424127887324324404579043251576214402.html?mod=djem_jiewr_MG_domainid

http://online.wsj.com/article/SB10001424127887324324404579043251576214402.html?mod=djem_jiewr_MG_domainid

http://www.ge.com/




determine whether Immelt is making the right choice for GE Capital? What other alternative solutions might the company

consider?

AACSB 2015 Standard 9 Analytical thinking



This slide links to a two-minute video by Michael Porter on critical aspects of good management including the importance of

having the right goals for the organization.




1.2 Vision, Mission, and Values

LO1-3 Descr ibe the roles of vis ion, mission, and values in a f i rm’s strategy.


Building a great company has some similarities to building a great house. Using this analogy to start the chapter should

resonate for many students. It is a helpful way to introduce the idea of vision and yet still tie it to something tangible that

must be implemented (building that great new home).

EXAMPLES

Stanford University’s Leadership in Focus center offers great materials for the classroom. Although the emphasis is on

leadership and organizational behavior, several of the cases are well suited to a strategy course. One option that fits in well in

this section is a video case of Roger Deromedi, Kraft CEO, describing the process of developing a vision for the firm.

(URL is https://www.leadershipinfocus.net/presentations/212/play/.) It includes suggested discussion questions.

Many years ago, Intel recognized that their mission of focusing on memory chips was made obsolete by industry evolution

and they shifted to microprocessor chips for large computers, servers, desktops, and later laptops (see Chapter 3, Learning

Objective 3-5 for an opportunity to revisit this example). Now a rapid consumer shift to mobile devices is making adherence

to that mission both less profitable and riskier. Both Intel and its rival AMD are experiencing profit downturns. AMD seems

to be taking strategic actions to engineer a turnaround during the market shift while retaining the same mission and vision

(see “AMD Cuts 5% of Workforce,” The Wall Street Journal, October 1, 2015 and “AMD Reports a Loss of 26% on

Revenue Decline,” The Wall Street Journal, October 15, 2015). Intel’s CEO, Brian Krzanich, in contrast, appears to be

changing the firm’s mission and strategic vision to focus on the “Internet of Things” (see “Intel CEO Sccelerates Shift

from PCs,” The Wall Street Journal, June 2, 2015).

DISCUSSION TOPICS Currently, Chinese companies such as Baidu, BYD, and Lenovo aspire to world leadership. These companies set their

ambitious goals when they were only a fraction of the size of the companies they were chasing. Indeed, they were so small

that initially the market leaders did not even recognize them as potential competitors; many had never competed outside their

domestic markets. Yet all made global leadership their mission, with goals so ambitious they exceeded the firms’ existing

resources and capabilities by a large margin. Ask students to identify what challenges these firms needed to overcome and

how they might measure success.

INTEGRATION

Video Case: The Power of a Miss ion: Chris t ine Benninger ,

President Humane Society of Si l icon Val ley

https://www.leadershipinfocus.net/

https://www.leadershipinfocus.net/presentations/212/play/

https://www.leadershipinfocus.net/presentations/212/play/.)

https://www.wsj.com/articles/amd-to-restructure-and-cut-5-of-workforce-1443732224

http://www.wsj.com/articles/amd-reports-a-loss-but-revenue-down-less-than-expected-1444943539

http://www.wsj.com/articles/amd-reports-a-loss-but-revenue-down-less-than-expected-1444943539

http://www.wsj.com/articles/intel-ceo-accelerates-shift-from-pcs-1433201084

http://www.wsj.com/articles/intel-ceo-accelerates-shift-from-pcs-1433201084

http://www.baidu.com/

http://www.byd.com/

http://www.lenovo.com/




This video case analysis provides students an opportunity to consider the value of a strong vision and mission in attracting

talented staff and rebuilding an organization. This video is less than five minutes long and has four embedded questions

contained in it.

Video Case Tips: We suggest setting the “attempts” policy to “revise the previous attempt” for video cases. This enables

students to watch parts of the video and edit their answers without needing to watch the entire video again for each attempt at

the questions. Note the video stops at the questions and the student must enter an answer for it to proceed.

Follow-Up Activity: The instructor can expand on the concepts in this video case by discussing how this nonprofit changed

the products and services it provided in order to survive and thus serve its customers (the pet adopting families) better in the

long-run. This may also be a starting point for a discussion of the contrasts between impactful vision statements at nonprofits

such as Teach for America and the Humane Society versus the for-profit firms’ vision statements shown in the textbook.

Difficulty: Medium

Blooms: Apply

AACSB: Analytic



This slide links to a less than two-minute video of Steve Jobs and a bit about his vision of the world.

Strategy Highlight 1.1 INSTRUCTOR SUPPLEMENT SLIDES 8-9: TEACH FOR AMERICA: HOW WENDY KOPP INSPIRES FUTURE

LEADERS

Education is a subject most students will readily relate to. An example of an organization with an inspiring vision is Teach

for America. While some question the long-term effectiveness of Ivy League students teaching in blighted urban areas or

impoverished rural areas for two years, there is no doubt that the organization is quite successful in terms of its ability to

recruit a large pool of applicants each year and to generate passion. One of the interesting notes at the website is that the

program has over 20,000 alumni and 67 percent of them are still in the educational field (and half of those are teachers in the

classroom). Inspiring visions and missions (such as TFA’s) provide intrinsic motivations for employees and customers alike.

END OF CHAPTER SMALL GROUP EXERCISE 2


2. Strategy Highlight 1.1 discusses the importance of the inspiring vision developed at Teach for America. In

your group search the internet for other nonprofit organizations (Red Cross, Habitat for Humanity, etc.).

Which of them has vision or mission statements that are appealing to donors, employees, and clients? Do

these statements seem relevant in today’s environment or are they outdated? What improvements can you

create for these organizational statements?




If students are not familiar with nonprofit organizations you may want to offer Red Cross, The Humane Society (relevant to a

Connect® chapter exercise) or Habit for Humanity as examples of national organizations. Ask the students to consider if the

mission statement speaks to them or seems more like something their parents or grandparents might connect with.

INTEGRATION

Whiteboard Animation: The Strategic Decision Process

This animated video covers reviews the roles of vision, mission, and values in the strategic management and decision

processes. Climbing Mount Everest is a key example discussed as an application of mission, vision and values.

Difficulty: Medium

Blooms: Apply

AACSB: Analytics

LO1-4 Evaluate the strategic impl icat ions of product -oriented and customer-oriented vis ion statements.


Although a product-centric view can potentially limit a company’s strategic options, it can also help a company to refocus.

Shell Canada provides an example of how dealing with the question, “What are we about?” led to a refocusing of the

company and as a consequence, superior performance. Although the majority owner was Royal Dutch Shell, Shell Canada

was more or less independent; its shares were traded on the Toronto Stock Exchange. In the 1980s, Shell Canada was a

widely diversified business with interests not only in oil and gas exploration and distribution, but also in activities ranging

from chemicals to forestry. Although it had performance comparable to the industry average, Shell Canada’s executives

began to focus on the firm’s mission during this time. After some soul searching, the company’s managers realized that Shell

Canada was at its heart a low-cost producer of oil and gas. With this new clarity of mission, Shell Canada began to sell off its

peripheral businesses to refocus on oil and gas. In 2007, Royal Dutch Shell bought, at a cost of $8.7 billion, the remaining 22

percent of shares that it didn’t already own. By refocusing on oil and gas, Shell Canada was able to apply its core competency

to increase the value created for customers, and to do this at a low cost. Its mission statement helped Shell Canada focus on

the activities that yielded the greatest returns.



This slide links to a less than three-minute video of several well-known brands and their respective vision statements.

http://www.shell.com/




END OF CHAPTER ETHICAL/SOCIAL ISSUES 2

2. The list below shows a sample of various vision/mission statements. Match the company with its

corresponding statement. Also identify whether the statements are principally customer-oriented or product-

oriented.

Below is the answer key for the chapter matching questions.

Vision/Mission Statement Type of

Statement

Company

To be our customers’ favorite place and way to

eat and drink.

Customer McDonald’s

To supply the consumer and our customers

with the finest, high-quality products.

Customer Dole Foods

To help women feel great about themselves

and their potential.

Customer Spanx

To provide a global trading platform where

practically anyone can trade practically

anything.

Customer eBay

To operate the best omni-channel specialty

retail business in America.

Product Barnes & Noble’s

To be financially successful through great

people consistently delivering outstanding

food, drinks, and service in an inviting

atmosphere.

Product Darden Restaurants

To be America’s best run, most profitable

automotive retailer.

Product AutoNation

Bringing the best to everyone we touch and

being the best in everything we do.

Customer Estee Lauder

To develop the social infrastructure to give

people the power to build a global community

that works for all of us.

Customer Facebook

To give everyone the power to create and share

ideas and information instantly, without

barriers.

Customer Twitter




To be the best worldwide provider of higher-

value staffing services and the center for

quality employment opportunities.

Product Manpower

To sell food in a fast, friendly environment

that appeals to price conscious, health-minded

consumers.

Product KFC

To build the future infrastructure of commerce. Product Alibaba

LO1-5 Just i fy why anchoring a f i rm in ethical core values is imperative for long -term success.

LECTURE SLIDE 28



This slide links to a two-minute video of the cultural values of Nordstrom’s, a firm perennially on the “best places to work”

lists in the United States.

DISCUSSION TOPICS

What responsibility do lower-level executives at Enron bear for not reporting questionable practices by the firms’ leadership?

Why do you think only one employee initially came forward to report the irregularities and help with the investigation?

Lower-level executives have an ethical responsibility to report questionable practices, beginning by questioning the authority,

and moving outside the company if necessary. We don’t know how many employees really knew about the fraud underway at

Enron versus how many “just heard rumors.” Still with over 20,000 employees at Enron, and another 30,000 at Arthur

Anderson, it is clear some people knew and did nothing about it. Whistle-blowing is a difficult choice and there are many

factors to consider, but the fact that so few came forward says that the actions were in alignment with the values and culture

of the firm actually practiced, even if it was at odds with their stated values.

AACSB 2015 Standard 9 Ethical understanding and reasoning

Strategy Highlight 1.2 INSTRUCTOR SUPPLEMENT SLIDES 10-11: MERCK: RECONFIRMING ITS CORE VALUES

Merck illustrates how a firm’s values define both what it should do and what it should not do. This strategy highlight offers

the opportunity to illustrate that a firm’s strategy is—and should be—constrained by its core values. These values guide a

firm on strategies on which it should embark and strategies that it should avoid or abandon. It also does a nice job of

illustrating that strategic planning involves many decisions that are legal but may not conform to the firm’s ethical values.




END OF CHAPTER ETHICAL/SOCIAL ISSUES 1

1. In the discussion about Merck (Strategy Highlight 1.2) it is clear the firm has followed a socially responsible

path by donating more than 1 billion drug treatments to remedy river blindness in remote African

communities. Yet Merck must also meet shareholder responsibilities and make profits on drugs in use in

more affluent societies. How should a responsible firm make these trade-offs? What steps can strategic

leaders take to guide organizations on these challenging issues?

The connection that we want students to make is to link strategy development back to the direction provided by the firm’s

vision, mission, and values. The firm’s values should constrain the firm’s actions to the way that the firm wants to do

business. The vision and mission should offer directional guidance of what to do AND what not to do. More detailed

guidelines should also be offered to managers at various levels throughout the company to provide clear frames of reference

on overall strategic goals to provide a context for decision making. Leaders also need to create a firm culture that supports the

values. Selection and retention of employees needs to reinforce these cultural values.

This is an excellent topic for an in-depth class exercise on ethical considerations in strategy. If your course requires an

assessment on ethics and social responsibility, then you could require the students to write a position paper recommending a

strategy position for Merck on pricing of critical drugs in impoverished regions, that addresses both patient needs and firm

profit objectives. Such an assignment could be used either in an online course or a classroom setting.

AACSB 2015 Standard 9 Ethical understanding and reasoning

EXAMPLES

You might want to use an example to show that firms with lax ethical values hurt more than their shareholders. Using a giant

Ponzi scheme, Bernie Madoff, with the help of several employees in his investment securities firm, defrauded high-profile

institutional and individual investors such as the bank HSBC, Banco Santander, Human Rights First, the International

Olympic Committee, film producer and CEO of DreamWorks Animation Jeffrey Katzenberg, actor Kevin Bacon, and Nobel

Peace Prize winner Elie Wiesel. Madoff’s fraud totaled an estimated $65 billion. He was sentenced to 150 years

imprisonment and fines of more than $170 billion. (“Q&A on Madoff Case,” The Wall Street Journal, March 12, 2009.)

Businesses also have an ability to influence the ethical decisions of other organizations. The recent FIFA scandal offers a

great example of this. Corporate sponsors of football (soccer) had not taken action during years of rumors of FIFA

corruption, but in 2015 that changed. Coca-Cola, Emirates, Sony, and other firms have used their sponsorship dollars to make

a statement about ethics and integrity. (See “FIFA Corruptions Scandal Pressures Soccer Governing Body’s Sponsors,” The

Wall Street Journal, May 31, 2015.)

A Stanford University video case addresses making ethical decisions. Michael Marks, former Chairman and CEO of

Flextronics discusses such a decision in “Right, Wrong, or Just Business?”

1.3 Explain the AFI strategy framework. LECTURE SLIDES 29-35

The Analyze, Formulate and Implement framework is the organizing principle of this book. It seeks to capture the

interdependent relationships needed for organizations to generate competitive advantage. The framework can help managers

formulate and implement strategies that will lead to superior performance.

EXAMPLES

https://www.wsj.com/articles/SB123005811322430633

http://www.wsj.com/articles/scandal-in-world-soccer-pressures-sponsors-1432861411

https://www.leadershipinfocus.net/presentations/378/play/




You might consider using discussion of a popular movie that illustrates strategy, such as Master and Commander or

Braveheart. What were the keys to the hero’s success? These types of examples will enable you to bring out the importance

of careful analysis, a well-formulated strategy, and effective implementation. Each also offers illustrations of effective and

ineffective strategic leadership.

1.4 Implications for Strategic Leaders INSTRUCTOR SUPPLEMENT SLIDES 13-16

DISCUSSION TOPIC A nice 14-minute video to illustrate the implications for strategists is this one by James Goth, Partner and Managing Director

of BCG, Competitive Advantage. He discusses the meaning of competitive advantage and strategy.

AACSB 2015 Standard 9 Thinking creatively and Application of knowledge

RELATED MINICASE Instructors may want to consider assigning and discussing the following MiniCase that covers topics found in this chapter.

All MiniCases have assignable McGraw-Hill Connect® case questions available.

Minicase 1: Michael Phelps: The Role of Strategy in Olympics and Business

END OF CHAPTER DISCUSSION QUESTIONS 1. The text discusses strategic trade-offs that are different between Walmart and Nordstrom even though they

are in the same industry. Think of another industry that you know fairly well and select two firms there that

also have made very different choices for these trade-offs. Describe some of the differences between these

firms. What type of trade-off decisions have these firms made?

Ideally this question would be assigned in advance and the students would be encouraged to consider profits in deciding

which firm has a competitive advantage. Some examples that could provide rich dialogue are Coca Cola versus Pepsi in the

soft drink industry (especially attractive if you are using a Cola Wars case in your course), Barnes & Noble versus Amazon in

the textbook industry, or McDonalds versus Wendy’s in quick service restaurants. To take a more international perspective,

consider Uber’s competition in China with Didi Kualdi (see “Inside Uber’s Fight with Its Chinese Nemesis, Didi

Kualdi.” The Wall Street Journal, September 3, 2015). Students will have a natural tendency to fall into the trap of basing

their assessment of competitive advantage on the consumer preferences of a sample size of one (themselves). You can use

this discussion to emphasize strategic management as a firm-level discipline in which all methods of measuring competitive

advantage depend, at least in part, on firm profitability.

2. What characteristics does an effective mission statement have?

A mission statement describes what a company does and why it does it. A clear and compelling mission statement can assist

the company in reaching for stretch goals. The mission statement in most organizations should be customer-oriented.

Customer-oriented defines the mission in terms of solutions for customer needs. An example would be Disney’s (“Make

people happy”). Product-oriented defines the business in terms of goods or services provided. Examples here would be CSX

(“the safest, most progressive North American railroad”) and Intel’s mission from 2000 (“the preeminent building-block

supplier to the Internet economy”). Students will see the basic differences in customer and product orientations fairly quickly.

http://en.wikipedia.org/wiki/Master_and_Commander:_The_Far_Side_of_the_World

http://en.wikipedia.org/wiki/Braveheart

https://www.youtube.com/watch?v=bfRp9PhPDME

http://www.barnesandnoble.com/

http://www.amazon.com/

http://www.mcdonalds.com/

http://www.wendys.com/

http://www.wsj.com/articles/inside-ubers-fight-with-its-chinese-nemesis-didi-kuaidi-1441234010

http://www.wsj.com/articles/inside-ubers-fight-with-its-chinese-nemesis-didi-kuaidi-1441234010

http://www.thewaltdisneycompany.com/

http://www.csx.com/

http://www.intel.com/




However, they don’t always see the difference between a customer-oriented mission and listening to the customer. We use

the Henry Ford “horse and buggy” example, but sometimes students want something more contemporary. An additional

example we’ve used is Steve Jobs at Apple. Until the innovation of MP3 players (and especially the iPod), customers never

knew they needed our entire music collection to carry around with them in their pockets!

http://livepage.apple.com/




3. The “job to do” approach discussed with the Clayton Christensen milk-shake example can be useful in a

variety of settings. Even when we are the customers ourselves we don’t always look for better solutions

because we get into routines and habits. Think about a situation you sometimes find frustrating in your own

life or one you hear others complaining about frequently. Instead of focusing on the annoyance, can you take

a step back and look for the real job that needed doing when the frustration occurred? What other options

can be developed to “do the job” that may lead to less irritation in these situations?

Many students will bring work experience to the classroom and this can present some opportunities for discussion about

frustrations but really anyone can take this perspective. The founder of Kinko’s got tired of standing in line to make copies

while he was in college, so he found a way to rent some copy machines and opened a small storefront that went nationwide

before selling to FedEx. The founders of Google just wanted to make a search engine that would be useful on the burgeoning

internet. Airbnb was started because the founders needed to pay the rent and had some air mattresses they decided to rent out

on a web-site to strangers coming to town for a convention.

INTEGRATION

HP Running Case: Module 1 While offering each student the opportunity to explore and analyze the company of his/her choice can add interest to the

exercise, there are many advantages for an instructor when the entire class works on the same firm. Connect® allows you to

do this with a running case for a single firm that encompasses every chapter in the textbook and tracks the Strategy Term

Project. Inside Connect® each new module of the Strategy Term Project is available in the chapter activities. Hewlett Packard

is used as an exemplar running case. If your term project is a team activity, these modules may be used to give the teams an

idea of the type of information and analysis needed for their own firm by running through the HP examples. Each module can

be individually modified and assigned per the instructor’s desires.

If you choose a term project for your course, you may want to consider inviting a local company representative to your

classroom during the first week to speak to the students about the firm’s strategies and values.

Strategy Term Project: Initial Firm Selection & Review

TERM PROJECT MODULE 1 The goal of this course-long project is to provide a tangible application of many of the concepts discussed in the text. By the

end of the project, students will not only have practice in using key strategic management components and processes to

increase understanding of the material, but also will be able to conduct a complete strategic management analysis of any

company.

This first task is to identify a firm to study for this course-long project. In the text, we suggest two methods for choosing a

firm. The easiest and most consistent method will be to select a medium- or large-sized public company to study. The

secondary approach of selecting a local firm can provide challenges regarding the appropriate collection of data. Even if a

student works at the firm, there are quite often proprietary limits on the data (especially financial and competitive data) that

these firms will allow to be used for such a project. Be sure the student checks with the local firm on data availability.




Of course, as the instructor you may choose to assign firms or provide a list of acceptable firms for the student to select from.

As you are kicking off this project, now is a good time to discuss appropriate data sources with your students. There is a lot

of information available on the Internet. Unfortunately, a lot of it is nonsense, or is at least heavily flawed or biased.

Encourage your students to stay away from websites such as “I hate Company X” and to focus on reputable news and market

outlets for the bulk of their information. They should use a variety of sources, because even highly esteemed sources like The

Wall Street Journal and The New York Times can be biased in choosing their reporting topics and tone.

Once the firm is selected, it’s time for the students to start gathering information on the history of the firm, its current top

management team, and the primary business model for the firm (How does the firm make most of its money?). The goal of

this first assignment is basic familiarization with the firm and a check to be sure data sources are forthcoming and reputable.

myStrategy INSTRUCTOR SUPPLEMENT SLIDE 18: HOW MUCH ARE YOUR VALUES WORTH TO YOU?

Here, we encourage the student to take what he/she has learned about competitive advantage and apply it to his/her personal

career. Encourage students to spend a few minutes looking at themselves to discover their own competitive advantages.

AACSB 2015 Standard 9 Reflective thinking (able to understand oneself in the context of society)

1. Identify your personal values. How do you expect these values to affect your work life or your career choice?

These questions are meant to be personal but we offer a few thoughts on them. Values should play some part, but it is not likely to be the most important influence. If your only goal is to become head of a large company, market growth and expansion may become a high priority. However, success can be found in many places, and it is usually more important to find a company with good leadership (firm effects) than to worry solely about market growth (industry effects).

2. How much less salary would (did) you accept to find employment with a company that is aligned with your values?

Studies have shown that once workers get above a certain “pay the bills” space financially, intrinsic rewards often become more important than money. We have found a wide variance of answers when we have run this exercise in our classes.

3. How much are you willing to “pay for pay” if your dream job is in management consulting or investment banking?

Encourage students to consider work/family life balance and recognize the implications of long hours and extensive travel

that usually accompany high-paying jobs.



MiniCase 1 Michael Phelps: The Role of Strategy in Olympics and Business

DISCUSSION QUESTIONS

1. Olympians generally do not turn into global phenomena. One reason is that they only are highlighted

every four years; e.g., not too many people follow competitive swimming or downhill skiing (think

Lindsey Vonn) outside the Olympics. How did Michael Phelps turn into a “global brand”?

Michael Phelps’ (MP) performance in the pool led to an unprecedented eight Olympic gold medals and

seven new world records at the 2008 Beijing Olympics.

Meanwhile, Carlisle, Phelps’ manager, had been building up MP’s exposure on the global market

gradually, focusing particularly on Asia (preparatory to the Beijing games) and the virtual world. For

example, MP’s Facebook page, which he posted on and maintained himself, had 7.6 million “phans” (now

more than 9 million). He also became a favorite presence on Twitter and YouTube. The combination of

performance and marketing turned him into a global brand.

Phelps continued his record-breaking achievements with six more medals at the 2012 London Olympics.

He added six more medals at the Rio de Janeiro games in 2016, cementing his position as one of the

greatest athletes of all time, ensuring that his brand would not fade for lack of performance.

2. What role did strategy play in Phelps achieving success in and out of the pool? What general lessons

can be learned?

Phelps and his team set a goal of making him a global brand. He began with a valuable asset, his rather

unique physique—a long thin torso, which reduces drag; an arm span of 6 feet 7 inches (204 cm), which is

disproportionate to his 6-foot-4-inch (193 cm) height; relatively short legs for a person of his height; and

his size-14 feet that work like flippers due to hypermobile ankles. This asset served as the basis for a

strategy. He trained under his coach’s direction, so that he could maximize his performance in the Olympic

games. Meanwhile, his manager developed and implemented a marketing plan, focused on social media,

positioning MP as a clean-cut, healthy living, super-athlete. The first phase of this strategy was

implemented successfully when MP won a record-breaking haul of gold medals. The marketing plan then

had credibility and a global brand was established.

This is a straightforward example of a successful strategy. Begin with a valuable asset and use it as the

cornerstone of a strategy to achieve a well-defined goal. Then ensure that the strategy is being

implemented as designed.

3. Which approach to the strategy process did Michael Phelps, his coach, and manager use? Why was

this approach successful?

Phelps, his coach and his manager appear to have used the top-down strategic management process. The

three first established a single goal: for MP to win a gold medal in each of his events during the 2008

Beijing Olympics. They formulated a strategy to reach this goal and then implemented it. There is no

evidence that they planned for different scenarios, or that they anticipated the possibility of new elements of

the strategy emerging (planned emergence.) The approach was successful because while ambitious, the

goal was feasible, given MP’s remarkable physical talents. The strategy was well crafted and in the end,

executed as planned. The record number of medals achieved and a marketing plan that helped build MP

into a global brand proved the success of the strategy.

4. Phelps was embroiled in a number of controversies outside the pool. What impact did these

shortcomings have on his brand value? What do these incidents tell you about maintaining and

increasing brand value over time?



The incidents tarnished Phelps’ reputation as an athlete who followed a healthy lifestyle. It could

potentially have had a major negative impact on his sponsors. One of them, Kellogg’s, dropped him when

the images of him using a bong came to light. Recreational drug use was inconsistent with their image as a

family brand. However, the strength of Phelps’ brand proved remarkably resilient, as his other sponsors,

such as Subway, Louis Vuitton, and Visa (to name a few) stayed with him despite two subsequent DUI

incidents. MP’s image as an overall “nice guy” appears to give him a Teflon coating.

(It should be noted here that if MP’s positive image had not been as strong as it was to begin with, the

fallout from these incidents could have been more severe. Other star athletes, such as Tiger Woods (marital

infidelity), Lance Armstrong (performance-enhancing drugs), and Michael Vick (dogfighting), saw many, if

not all, of their lucrative sponsorships melt away when their “scandals” became public.)

After he announced his retirement following the Rio Olympics, MP added another facet to his image. He is

now a proud family man, with a photogenic wife and son, who feature in his social media postings. And,

yes, “niceness” is still a big part of his image.

5. What does Michael Phelps need to do if he wants to play a similar transformative role in the

marketing and sponsoring of swimming as Michael Jordan achieved in basketball?

Michael Jordan partnered with Nike in 1985 to endorse Air Jordan basketball shoes. This was a natural fit:

basketball shoes endorsed by one of the greatest basketball players. By 1988, the Jumpman logo had

replaced the Nike swoosh on Air Jordans. The Jumpman logo now adorns a variety of footwear and

athletic clothing. It remains one of the most popular brands of basketball shoe, even as it has branched into

other sports, such as football. Jordan earns $110 million a year from the Jumpman brand.

Phelps has partnered with Aqua Sphere to launch his own line of swimwear. This is consistent with

branding something close to his professional accomplishments. Winning six gold medals at the Rio

Olympics, while wearing his MP design swimwear created instant credibility for the brand. However, the

market for swimwear is not as big as the market for shoes and established brands such as Speedo, Arena,

and TYR are not likely to give up their market shares without a fight. So emulating the scale of Jordan’s

success will be challenging.

Additional resources:

Baker, Liana. 2015. “Phelps Challenges Former Sponsor Speedo with New Brand.” Reuters, December 22, 2015.

http://www.reuters.com/article/us-swimming-phelps-sponsor/phelps-challenges-former-sponsor-speedo-with-new-

brand-idUSKBN0U52EA20151223.

Phelps, Robert. 2014. “Will Bad Boy Michael Phelps Lose His Lucrative Brand Sponsors?” Adweek, October 6,

2014. http://www.adweek.com/brand-marketing/will-bad-boy-michael-phelps-lose-his-lucrative-brand-sponsors-

160591/.

Badenhausen, Kurt. 2017. “Michael Jordan Leads the NBA’s Biggest Shoe Deals at $110 Million this Year.”

Forbes, June 9, 2017. https://www.forbes.com/sites/kurtbadenhausen/2017/06/09/the-nbas-biggest-shoe-

deals/#244643d21520.

http://www.adweek.com/brand-marketing/will-bad-boy-michael-phelps-lose-his-lucrative-brand-sponsors-160591/

http://www.adweek.com/brand-marketing/will-bad-boy-michael-phelps-lose-his-lucrative-brand-sponsors-160591/

Case Overview

The case is written from the perspectives of Larry Page, CEO of Alphabet and Sundar Pichai, CEO of Google. The case focuses on opportunities and challenges faced by Alphabet’s largest business unit, Google. The case discusses Google’s history, its business model, and its role in Alphabet as it diversi-fies into other businesses.

Google was founded by Larry Page and Sergey Brin in 1998. The founders met as doctoral students at Stanford University, and started to create a method to index and rank pages across the web, dubbed PageRank. Page and Brin transformed these algorithms into a full-fledged search engine. After explo-sive growth of the engine, Google was able to secure venture capital funding from legendary firms KPCB and Sequoia Capital. Google’s growth was accelerated when it licensed its search technology to Yahoo in 2000, allowing it to break into Yahoo’s 180 million user base. In 2001, Googled hired Eric Schmidt as CEO of the company, a seasoned executive that would help the company navigate its growth. With Schmidt at the helm, Google made its initial public offering in 2004 for eight percent of the company. Google became a behemoth in search through its partnerships with AOL and Yahoo, as well as its own organic growth. The use of the search engine drove advertising revenue to the company. Throughout the next decade, Google began to roll out new products to expand its reach of users, creating an entire ecosystem across the web. The acquisitions of YouTube and Android provided gateways into growing segments of video and mobile respectively. Google was notorious for investing in large, riskier ventures as well, known as “moonshots.” To provide more transparency to investors, Page and Brin announced that it would restructure the company as Alphabet. This allowed Google to operate as its own company, and clearly separate from other long-term “bets.”

Google has traditionally focused on consumer facing products. As the company moves towards competing in hardware-based markets such as smartphones and home services, it is strategically rationalizing its product portfolio to align with product cycles. At the core of Google’s consumer products is search, which captured two trillion queries in 2016. Android, Google’s open source smart-phone operating system, has led the way for Google to capture 85 percent of the global mobile oper-ating system market. Google has expanded its search capabilities with other consumer products such as Chrome, Maps, and Gmail. YouTube continues to drive strong user growth through the explosion of video content. It originally purchased YouTube for $1.4 billion, and it has grown to generate over $4 billion in revenue for Google.

Alphabet’s Google

T E AC H I N G N OT E

MHE-FTR-055

1259927628

REvISEd: SEPTEMBER 27, 2017

Professor Frank T. Rothaermel prepared this case from public sources. The author gratefully acknowledges the contributrions of david R. King and Christopher Zahrt on an earlier version, and Austin Guenther for research assistance. This case is developed for the purpose of class discus-sion. This case is not intended to be used for any kind of endorsement, source of data, or depiction of efficient or inefficient management. All opinions expressed, and all errors and omissions, are entirely the author’s. © Rothaermel, 2017.

2

Teaching Note — Alphabet’s Google

Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction, distribution, or posting online without the prior written consent of McGraw-Hill Education.

Advertising represents Google’s largest revenue stream, stemming originally from search, but now coming in many forms in varying products. Adwords and AdSence were used to directly monetize the search platform. Adwords auctions off “keywords” of a search, while AdSense formulated keywords from a website, and then matched it with Google’s keyword inventory. Google also acquired double Click to enter the display ad business, which brought in $2.5 billion annually by 2015. AdMob, another key acquisition, allowed for Google to take hold in the mobile advertising space through various apps.

Competition in Google’s advertising space has intensified, mostly by the way of Facebook. Facebook used its Pages, Instagram, and Messenger services to advertise to its two billion monthly active users in 2017. Facebook has also stressed the value of its advertising service linked to its social media data, which saw an average price per ad increase by 140 percent. Other players have attempted to take the dominant share of online advertising; however, they have been mostly unsuccessful. In 2017, verizon acquired Yahoo to enter the online advertising market, but with only six percent share remaining.

Many challenges lie ahead for Google in terms of advertising. Facebook has been successful in its mobile strategy and is emerging as the dominant player in mobile. Google faces regulatory challenges in the European Union, as high online advertising share mixes with privacy concerns. Lastly, Google needs to find better ways to sift through bad content that alienates their top tier advertising partners.

As Alphabet continues to implement an M-form structure to administer unrelated diversification, the adjacent business units will have a significant impact on Google. Most notably, the Waymo sub-sidiary has the potential to enter a multibillion-dollar market. The uncertainty of this venture along with Google’s core competencies present new opportunities and challenges to the firm. There is also the question of Alphabet managing this new structure while securing future growth and profitability. It needs to continue to innovate, even as it tries to retain the top talent that can create and commer-cialize new products. The road ahead comes with challenges in its core business in advertising, as well as the new corporate structure and accompanying moonshots of Alphabet.

Key Concepts

• BusinessModel

• CompetitiveStrategy

• PlatformStrategy

• InnovationandTechnologyStrategy

• CorporateStrategy

• UnrelatedDiversification

• ProfitPools

• OrganizationalStructure

Teaching Note —Alphabet’s Google

3Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction, distribution, or posting online without the prior written consent of McGraw-Hill Education.

Suggested Discussion Questions

1. What is Google’s business model? How is it making money?

2. Who are Google’s main competitors? What and who should Google worry about? What should Sundar Pichai do about these challenges? Provide recommendations, be specific.

3. How is Google using platform strategy? What are some strengths and some weaknesses of this approach?

4. What type of diversification strategy is Alphabet pursuing? What organizational structure is Alphabet using? What is the rationale behind this structure and diversification strategy?

Suggested Answers

1. What is Google’s business model? How is it making money?

Who – The main stakeholders for Google are the end-users of Google’s consumer products and the advertisers. The users take advantage of Google’s wide product and service offering, mostly for free. The large network of users and data is attractive for advertisers to spend their ad dollars. Advertisers are especially attracted to Google for its ability to match ads with users in a fine-grained and targeted fashion, based on individual data collected for each user.

What – Google’s free services and simple user experience creates an entire ecosystem for its users. Google’s products are used throughout daily life in the form of search, mobile, maps, and other activi-ties. Google’s services are “sticky” once a user is locked into its ecosystem, e.g., Gmail, YouTube, Search, Maps, and Android.

How – The product portfolio continues to grow in terms of consumer products. Google uses its core capabilities in search infrastructure to enhance its Android platform, create an “assistant” through Google Home, and develop visual search through Google Photos.

Why – As the number of interactions that Google makes with its users grows, the stronger the network effect of its platform growth. The data generated from users turns into insights that can be sold to advertisers to target customers in very specific ways.

See Exhibit TN-1 for the Why, What, Who, and How of Business Models Framework.

Google makes money by creating opportunities for advertisers to reach an audience through a growing ecosystem. As the breadth of Google’s products and services grow, so does the data needed to generate individual profiles and insights for its customers.

4



2. Who are Google’s main competitors? What and who should Google worry about? What should Sundar Pichai do about these challenges? Provide recommendations, be specific.

Google’s main competitors are Facebook, Apple, Microsoft, and Amazon. Google should worry about competitors that are taking market share, or that have the potential to take market share of its advertising business. Specifically, Google should worry about Facebook. Over the last few years, Google and Facebook have captured basically all the new digital ad spend. New entrants like Snap are creating ripples, but the dominant players continue to provide products attractive for advertis-ing spend. Facebook, however, has used its four main products (Facebook, Instagram, Messenger, and WhatsApp) to “own the mobile screen.” As users move more exclusively to the mobile environment, Facebook has been able to take a larger share of the screen time and interactions with users. This has translated to greater earnings and share of advertising dollars by Facebook. Facebook is continuing to excel in mobile, creating a big challenge for Google, see Exhibit TN-2, “Google Ad Revenue vs Competitors, 2012–2016.”

Sundar Pichai should invest in leveraging the entire user ecosystem to create more value for adver-tisers. Facebook has done a great job in moving into mobile swiftly to take advantage of customer habits. Google has the internal and acquisition capabilities to extend beyond the smartphone, and develop a larger ecosystem to interact with users. New products and investments such as the “Google Assistant” in Google Home and its Nest infrastructure are starting to show this may help in imple-menting this strategy. Improving share of its mobile devices itself, which embed several services also helps in creating a larger ecosystem. Other smaller services such as Photos and Google Flights may be able to all come together to bring data about a customer that can be attractive for advertisers, beyond social media.

The “trillion dollars” killer app for Alphabet could potentially be Waymo. If Alphabet’s self-driving unit succeeds in developing and commercializing an operating system for self-driving cars, it could gain a significant market share because it is independent from individual car makers. The model is Android and mobile devices. If Waymo can repeat this success in the autonomous vehicle industry, Google is to reap not only more but as much more unique data about each individual, allowing for much more fine-grained service offerings and ad targeting.

3. How is Google using platform strategy? What are some strengths and some weaknesses of this approach?

Google is using platform strategy to drive users to its ecosystem, which enhances the value of the overall platform for earlier users, and most importantly, for Google’s advertisers. Specific plat-forms include Android, Google drive, Waze, and YouTube. Together, these platforms form a greater ecosystem.

Using the framework shown in Exhibit TN-3, the platform can be broken down further:

Owner – Google creates the platform for users, developers, and advertisers to interact. It often uses a free or open source platform to draw in users with low switching costs.



Providers – Hardware OEMs such as Samsung and LG act as providers in the platform. These hard-ware partners allow Google to focus on the platform software itself, not necessarily the accompanying hardware. This tactic, however, is changing as Google invests in HTC and other hardware components such as Nest.

Producers – App developers and content creators serve as the producers in the platform. Having a robust marketplace of apps is essential for Google to attract users to its Android platform. Also, YouTube’s success is based on the centralized source of user created content, which has generated “YouTube stars” with millions of subscribers.

Consumers – The user base of Android and other Google products creates the entire ecosystem for Google. Having friends, family, and co-workers on the same platform enhances the value of Google’s products. People can easily message, share photos, share videos, and collaborate via Google’s portfolio.

Strengths – Google continues to grow its platform base by the development of new products. It has expanded from just search, then moved on to Maps, YouTube, docs, and other services.

Weaknesses – The platform has not been able to grow into the social media space. Google has failed with Google+ and other social media ventures. Users spend valuable time on social media, and currently Google has not been able to add that data into its platform to increase its value.

4. What type of diversification strategy is Alphabet pursuing? What organizational structure is Alphabet using? What is the rationale behind this structure and diversification strategy?

In 2017, Alphabet was the second most valuable technology company globally (with some $650 bil-lion in market cap), just behind Apple, but ahead of Microsoft, Amazon, and Facebook (in that order). Alphabet pursues unrelated diversification, and administers its conglomerate through the M-form structure (see Exhibit TN-4).

To manage its high degree of unrelated diversification more effectively, Google put in place a multi-divisional structure overseen by Alphabet, a corporate holding company. Alphabet’s 10 business units start with Google’s core businesses (search, ads, apps, YouTube, Android, Chrome, and Google maps) in a single unit joined by Google X (artificial intelligence, high-altitude balloons providing global inter-net connectivity), Waymo (self-driving cars), Nest (smart homes), Access & Energy (broadband fiber services), verily (life sciences, smart contact lenses), Calico (longevity research), Side Walk Labs (urban innovation), Google ventures (venture capital investments in early phase startups), and Google Capital (venture capital investments in later-stage startups, similar to corporate venture capital investments). This sweeping restructuring allows the sprawling conglomerate to separate its highly profitable search and advertising business from its “moon shots,” such as providing wireless Internet connectivity via high-altitude balloons or developing contact lenses that double as a computer monitor and provide real-time information to the wearer.

6



Google continues to dominate the revenue streams for Alphabet—accounting for more than 90 percent of total revenues (see Exhibit 1 in case). Google is a standalone strategic business unit within Alphabet and has its own profit and loss responsibility. Google is run by CEO Sundar Pichai. Although Google started as an online search and advertising company, it now offers software applications (Google docs, word processing, spreadsheet, e-mail, interactive calendar, and presentation software) hosted on the cloud (Google drive), and operating systems (Chrome OS for the web and Android for mobile applications), among many other online products and services.

The push towards unrelated diversification will be key for Alphabet as it moves to highly com-petitive industries, such as autonomous driving with Waymo. Investors will be able to see the direct investment into these businesses, allowing for Alphabet to enter markets that require large invest-ments, and therefore create significant value for the firm. direct investment into autonomous driving technology will help Waymo to create a leadership position in this space. As Alphabet moves forward, its leaders will need to gain new competencies in managing the shift from a focused technology com-pany to a diverse conglomerate.

Teaching Tip: At this juncture, a good follow-up question is to discuss sources of value creation and costs for Alphabet with its M-form structure. The table shown in Exhibit TN-5 is helpful in categorizing student answers and in guiding the discussion

Recent Updates

In the first half of 2017, Android held 67 percent market share in the U.S., while Apple’s iOS held 31 percent. Globally, during the same time period, Android’s lead over Apple’s iOS was even wider: Android held 85 percent for smartphone operating systems, dwarfing Apple’s 15 percent.1[i]

In the fall of 2017, Google announced that it would acquire HTC’s, a Taiwanese smartphone maker, engineering group that developed the Google Pixel phone for $1.1 billion.2[i],3[ii] With this, Google is making a commitment to handset manufacturing, unlike in the Motorola deal which was more moti-vated by intellectual property considerations. Integrating HTC’s smartphone unit within Google will allow engineers to more tightly integrate hardware and software. This in turn will allow Google to dif-ferentiate its high-end Pixel phone more from the competition, especially Apple’s new release iPhone X and Samsung’s Galaxy 8 line of phone, including the Note 8.

Additional Resources

1. Articles

• VanAlstyne,M.W.,G.G.Parker,andS.P.Choudary,“Pipelines,Platforms,andtheNewRulesofStrategy,” Harvard Business Review, April 2016.

• R.AmitandC.Zott,“CreatingValuethroughBusinessModelInnovation,”MIT Sloan Management Review, 53, no. 3 (Spring 2012): 41–49.



• J.Nicas,D.Strumpf,andD.Mattioli, “Google JumpsBack IntoHardwareWith$1.1BillionHTCdeal,” Wall Street Journal, September 20, 2017, http://on.wsj.com/2yGFXx5 .

• D. Gallagher and J.Wong, “What GoogleWantsWith HTC’s Smartphone Business,”Wall Street Journal, September 21, 2017, http://on.wsj.com/2huxdWP.

2. Videos

• “It’sHere.MeetYourGoogleAssistant.”https://www.youtube.com/watch?v=W_BeK48-Bzc (0:30).

• “GoogleYearinSearch2016”Ashortvideoofthingsthathappenedin2014summarizedfromwhat people searched. https://www.youtube.com/watch?v=KIviy7L_lo8 (2:00).“Nest’s Tony Fadell,” A video of Nest’s Founder Tony Fadell discussing How its Thermostat is different http://fortune.com/2015/01/15/glass-to-exit-google-x-report-to-nests-tony-fadell/ (2:38).

• “Where’sGoogleGoingNext?”TEDinterviewwithLarryPage.http://www.ted.com/talks/larry_page_where_s_google_going_next?language=en (23:30)

• “InspiringGoogleStory—LarryPage.”LarryPagediscussingriskandfailureindecisiontofoundGoogle with Sergey Brin versus completing Ph.d. at Stanford. https://www.youtube.com/watch?v=f_eiMKp4QW8 (6:53).

8



ExHibiT TN-1 The Why, What, Who, and How of Business Models Framework

Source: Adapted from Amit, R. and C. Zott, “Creating value through business model innovation,” MIT Sloan Management Review, vol. 53, no. 3, 2012, 41-49.

What activities need to beperformed to create and

deliver the offeringsto customers?

Why does the businessmodel create value?

(revenue + cost models)

What?

Why?

How are the offerings to thecustomers created?(linking of activities)

How?Who?Who are the main

stakeholders performingthe activities?



ExHibiT TN-2 Google Ad Revenue vs Competitors, 2012–2016

Source: depiction of data from “Google privacy-policy change faces new scrutiny in EU,” Wall Street Journal, accessedJanuary24, 2017.

70

60

50

40

30

20

10

0

36

35

34

33

32

31

30

29

2012 2013 2014 2015 2016

Google Facebook Microsoft Google Market Share

Ad R

even

ue in

$Bill

ions

Goog

le M

arke

t Sha

re %

10



ExHibiT TN-3 The Players in a Platform Ecosystem

Source: Adapted from Marshall W. van Alstyne, Geoffrey G. Parker, and Sangeet Paul Choudary, “Pipelines, Platforms, and the New Rules of Strategy,” Harvard Business Review, April 2016.

PLATFORM

CONSUMERSPRODUCERSValue and dataexchange and

feedback

Controller of platform IPand arbiter of who mayparticipate and in what ways

Interfaces for theplatform

Creators of theplatform’s offerings

Buyers or users ofthe offerings

PROVIDERS

OWNER



ExHibiT TN-4 Alphabet’s Multidivisional Structure (M-form) with Its Strategic Business Units, Including Google’s Businesses

Source: Rothaermel, F.T. (2018), Strategic Management, 4th edition. Burr Ridge, IL: McGraw-Hill.

ALPHABET

GOOGLE

GOOGLE X

WAYMO

NEXT

ACCESS & ENERGY

VERILY

CALICO

SIDE WALKLABS

GOOGLEVENTURES

GOOGLECAPITAL

Search Ads Apps YouTube Android Chrome Google Maps

Artificial intelligence High-altitude balloons providingglobal internet connectivity

Venture capital investmentsin later-stage startups

Corporate venturecapital (CVC) investments

Life sciences Smart contact lenses

Self-driving cars

Smart homes

Longevity research

Urban innovation

Venture capital investments in early phase startups

Broadband fiber services

12



ExHibiT TN-5 vertical Integration and diversification: Sources of value Creation and Costs

Source: Rothaermel, F.T. (2018), Strategic Management, 4th edition. Burr Ridge, IL: McGraw-Hill.

Corporate Strategy Sources of Value Creation (V) Sources of Costs (C)

Vertical Integration • Canlowercosts• Canimprovequality• Canfacilitateschedulingandplanning---------------------------------------------------------------------• Facilitatinginvestmentsinspecialized

assets• Securingcriticalsuppliesand

distributionchannels

• Canincreasecosts• Canreducequality• Canreduceflexibility---------------------------------------------------------------------• Increasingpotentialforlegal

repercussions

RelatedDiversification • Economiesofscope• Economiesofscale• Financialeconomies

• Restructuring• Internalcapitalmarkets

• Coordinationcosts• Influencecosts

UnrelatedDiversification • Financialeconomies• Restructuring• Internalcapitalmarkets

• Influencecosts



Endnotes

1 IdC, Smartphone OS Market Share, 2017 Q1 https://www.idc.com/promo/smartphone-market-share/os

2 J.Nicas,D.Strumpf,andD.Mattioli,“GoogleJumpsBackIntoHardwareWith$1.1BillionHTCDeal,”Wall Street Journal, last modified September 20, 2017, http://on.wsj.com/2yGFXx5.

3 ]D.GallagherandJ.Wong,“WhatGoogleWantsWithHTC’sSmartphoneBusiness,”Wall Street Journal, last modified September 21, 2017, https://www.wsj.com/articles/what-google-wants-with-htcs-smartphone-business-1505983282.

Strategic Management, 4e Teacher’s Resource CHAPTER 1 What … · 2020. 3. 26. · alphabet...

Documents

Transcript of Strategic Management, 4e Teacher’s Resource CHAPTER 1 What … · 2020. 3. 26. · alphabet...