MANAGEMENT 11TH EDITION GRIFFIN

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CHAPTER 8
Managing Strategy and Strategic Planning

CHAPTER SUMMARY
This chapter discusses how organizations manage strategy and strategic planning. It begins by examining
the nature of strategic management including its components and alternatives. It then describes the kinds
of analyses needed for firms to formulate their strategies. Next it examines how organizations first
formulate and then implement business strategies, followed by a parallel discussion at the corporate
strategy level. The chapter concludes with a discussion of international and global strategies.

LEARNING OBJECTIVES
After covering this chapter, students should be able to:
1. Discuss the components of strategy, types of strategic alternatives, and the distinction between
strategy formulation and strategy implementation.
2. Describe how to use SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis in
formulating strategy.
3. Identify and describe various alternative approaches to business-level strategy formulation.
4. Describe how business-level strategies are implemented.
5. Identify and describe various alternative approaches to corporate-level strategy formulation.
6. Describe how corporate-level strategies are implemented.

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Chapter 8: Managing Strategy and Strategic Planning

7. Discuss international and global strategies.

Toyota’s hybrid car, the Prius, is a huge success ever since it was launched in 2000 in the U.S. Its fuel
economy and its reduced emissions have attracted a loyal cadre of buyers. However, as the opening case
points out, Toyota has been affected by changes in the external environment. In general, hybrid cars sell
well when fuel prices are high. But when fuel prices fall, Americans tend to go in for larger cars and
SUVs. In addition, Toyota has to deal with the antipathy of its erstwhile supporter, Union of Concerned
Scientists (UCS), which is now accusing Toyota of joining with the other automakers to ask for lower
fuel economy standards.
Discussion Starter: Ask students to describe if they would buy a hybrid car? Would they buy a Prius
knowing that Toyota seeks lower CAFÉ standards as do the other car makers?

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 Chapter 8: Managing Strategy and Strategic Planning

LECTURE OUTLINE
I. THE NATURE OF STRATEGIC MANAGEMENT
A strategy is a comprehensive plan for accomplishing a firm’s goals.
Strategic management is a comprehensive and ongoing process aimed at formulating and
implementing effective strategies.
Effective strategies are those that promote a superior alignment between the firm and its
environment and the achievement of strategic goals.
A. The Components of Strategy
1. A distinctive competence is something a firm does exceptionally well.
Management Update: For decades, Volvo has been associated with cars that are exceptionally safe.
Other car makers seem unable or unwilling to compete with Volvo in those areas.

Teaching Tip: Emphasize for students that a distinctive competence always exists in a limited area and
does not imply competencies in other areas. For example, Volvos are not known for their sporty
performance or their trend-setting appearance. In another example, Wal-Mart has a distinctive
competence in keeping prices low, but it is not especially good at offering high-quality products or
exceptional service.
2. Scope specifies the range of markets in which a firm will compete.
Global Connection: For an international business, the scope component of strategy specifies in which
foreign markets the firm intends to compete.
3. Resource deployment specifies how a firm will distribute its resources across the areas in
which it competes.
Global Connection: For an international business, the resource deployment component of strategy
helps determine the relative concentration of firm resources and efforts in various markets.
B. Types of Strategic Alternatives
1. Business-level strategy consists of the set of strategic alternatives that a firm chooses
from as it conducts business in a particular industry or market.
2. Corporate-level strategy consists of the set of strategic alternatives that a firm chooses
from as it manages its operations simultaneously across several industries and several
markets.
Teaching Tip: Strongly reinforce the point here distinguishing between business- and corporate-level
strategies.

Extra Example: A good example that helps distinguish between business- and corporate-level
strategies is PepsiCo. Among other things, PepsiCo owns Pepsi soft drinks and Frito-Lay (Doritos,
Ruffles, etc.). Determining which businesses PepsiCo will own is part of its corporate-level strategy;
deciding how each separate business will compete is part of its business-level strategy.

Teaching Tip: An additional level of strategy is functional level. This refers to strategies developed for
specific functional areas such as marketing, finance, and so forth.

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Chapter 8: Managing Strategy and Strategic Planning

C. Strategy Formulation and Implementation

1. Strategy formulation—the set of processes involved in creating or determining the
strategies of the firm.
2. Strategy implementation—the methods by which strategies are operationalized or
executed within the business.
3. Deliberate strategy—a plan chosen and implemented in order to support specific goals.
4. Emergent strategy—a pattern of action that develops over time in the absence of missions
and goals, or despite missions and goals.
Discussion Starter: Ask students whether Volkswagen’s reintroduction of the Beetle reflects a
deliberate or an emergent strategy. (In reality, it has elements of both—VW knew it needed to do
something, which reflects deliberation. But the new Beetle itself was first developed as a concept car
and was only produced when there was unexpectedly strong response to it.)

II. USING SWOT ANALYSIS TO FORMULATE STRATEGY

SWOT—acronym that stands for Strengths, Weaknesses, Opportunities, and Threats.
The best strategies (1) exploit opportunities and strengths, (2) neutralize threats, and (3) avoid (or
correct) weaknesses.
A. Evaluating an Organization’s Strengths
Organizational strengths—skills and capabilities that enable a firm to conceive of and
implement its strategies.
1. Common organizational strengths—a capability possessed by a large number of
competing firms. Competitive parity exists when large numbers of competing firms are
able to implement the same strategy.
2. Distinctive competencies—a strength possessed by only a small number of competing
firms. Firms that exploit their distinctive competencies often obtain a competitive
advantage and attain above-normal economic performance.
3. Imitation of distinctive competencies—the practice of duplicating another firm’s
distinctive competence and thereby implementing a valuable strategy. A sustained
competitive advantage is a competitive advantage that exists after all attempts at strategic
imitation have ceased.
Reasons a distinctive competence might not be imitable:
a) Its acquisition or development may depend on unique historical circumstances that
other firms cannot replicate.
b) Its nature and character might not be known or understood by competing firms.
c) It is based on complex social phenomena like teamwork or culture.
Extra Example: Price competition is among the easiest strategies to imitate. For example, any time an
airline lowers its prices to attract new customers, competing airlines are able to imitate its strategy
within hours.

Discussion Starter: If a low-price strategy is easily imitated, is it likely to lead to a sustainable

competitive advantage? Students should realize that that is unlikely. On the other hand, how has low
pricing created a sustainable competitive advantage for Wal-Mart? Hint: The students should examine
how the low prices are achieved. They will find that Wal-Mart’s actions, such as automating many
functions and developing close relationships with suppliers, are themselves not readily imitated.

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 Chapter 8: Managing Strategy and Strategic Planning

Extra Example: During World War II, Coca-Cola’s CEO decreed that every U.S. soldier abroad
should have access to a 5-cent bottle of Coke. With government assistance, the firm built 64 overseas
bottling plants. This early entry into global markets gave Coke an advantage over Pepsi that it has never
relinquished.
B. Evaluating an Organization’s Weaknesses
Organizational weaknesses—skills and capabilities that do not enable a firm to choose and
implement strategies that support its mission
A firm has a competitive disadvantage when it is not implementing valuable strategies that are
being implemented by competing firms.
C. Evaluating an Organization’s Opportunities and Threats
1. Organizational opportunities—areas that may generate higher performance
2. Organizational threats—areas that make it difficult for a firm to perform at a high level
Discussion Starter: Ask students if they think it is easier to assess environment opportunities and
threats or organizational strengths and weaknesses. While the latter are more “immediate,” such
analysis may also pose threats to individuals within the organization.

Cross-Reference: Porter’s five forces model of the competitive environment discussed in Chapter 3
can be used to characterize the extent of opportunity and threat in an organization’s environment.
Porter’s five forces are the level of rivalry, power of suppliers, power of customers, threat of
substitutes, and threat of new entrants.

Group Exercise: Have small groups of students outline a hypothetical SWOT analysis of a local firm
and/or your college or university.

III. FORMULATING BUSINESS-LEVEL STRATEGIES

Teaching Tip: Reinforce again the distinction between business- and corporate-level strategies. Use
the PepsiCo example to illustrate formulation and implementation across different levels to remind
students of the distinctions.
There are three approaches to formulating business-level strategy.
A. Porter’s Generic Strategies
1. Differentiation strategy—firm seeks to distinguish itself from competitors through the
quality of its products or services
Teaching Tip: Note the examples listed in Table 8.1 of the text . As you discuss Porter’s generic
strategies, ask students to suggest other examples.
2. Overall cost leadership strategy—firm attempts to gain a competitive advantage by
reducing its costs below the costs of competing firms
3. Focus strategy—firm concentrates on a specific market, product line, or group of buyers
Global Connection: A good example of the focus strategy is cosmetics and personal care products
maker Aveda, which only manufactures products that are made from natural, botanical ingredients. The
firm’s products are designed to appeal to customers who are interested in ecology, the environment, or
animal’s rights.

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Chapter 8: Managing Strategy and Strategic Planning

B. The Miles and Snow Typology

1. Prospector strategy—seeks out new markets and new opportunities and is oriented
toward growth and risk taking; a highly innovative firm.
Global Connection: Sony also uses a prospector strategy. The firm is constantly on the alert for new
product ideas and/or ways to extend its current products into new markets.
2. Defender strategy—concentrates on protecting current markets, maintaining stable
growth, and serving current customers.
Extra Example: Another good example of a defender is Domino’s Pizza. After losing ground to Pizza
Hut and Little Caesar’s, Domino’s has been aggressively working to protect its current market share
and gain back what was lost. In contrast to Sony which is a prospector, Matsushita is a defender in the
consumer electronics industry.
3. Analyzer strategy—combines elements of prospectors and defenders.
Extra Example: Dell Computer also uses an analyzer strategy. Its expansion outside of the personal
computer market has been slow and gradual, and it keeps as its primary orientation the protection of its
lucrative direct sales niche.
4. Reactor strategy—has no consistent strategic approach; drifts with events, reacting to but
failing to anticipate or influence those events.
Extra Example: Kmart might be a good example of a reactor. After once ruling the discount world, the
firm grew complacent and was eventually passed by Wal-Mart. It had to merge with Sears in order to
have a chance of survival.
C. Strategies Based on the Product Life Cycle
Product life cycle—a four-stage model that shows how sales volume changes over the life of
products. Different stages of the life cycle call for different strategies
1. Introduction stage—demand may be very high and sometimes outpaces the firm’s ability
to supply the product. Strategies focus on increasing production, keeping quality high,
and managing cash flow.
2. Growth stage—more firms begin producing the product and sales continue to grow.
Strategies focus on improving quality and differentiating.
3. Maturity stage—overall demand growth for a product begins to slow down and the
number of new firms producing the product begins to decline. Strategies focus on
keeping costs low and introducing further refinements to the product.
4. Decline stage—demand for the product or technology decreases, the number of
organizations producing the product drops, and total sales decline. Strategies focus on
finding new uses or markets for the product and keeping costs low.
Discussion Starter: Ask students to identify examples of current products or services that appear to be
at each stage of the product life cycle.

Global Connection: Some firms extend product life cycles by introducing them into less-developed
foreign markets. For example, a line of home appliances that is entering the decline stage in Japan,
Europe, or the United States might be seen as advanced technology in less developed regions.

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 Chapter 8: Managing Strategy and Strategic Planning

IV. IMPLEMENTING BUSINESS-LEVEL STRATEGIES

A. Implementing Porter’s Generic Strategies
Teaching Tip: Note the role and importance of basic business functions in implementing business
strategies.
1. Differentiation strategy
a. Marketing and sales—emphasize the high-quality, high-value image of the
organization’s products or services.
b. Accounting and finance—control the flow of funds without discouraging the
creativity needed to constantly develop new products and services to meet customer
needs.
c. Manufacturing—emphasize quality and meeting specific customer needs, rather
than simply reducing costs.
d. Culture—emphasize creativity, innovation, and response to customer needs.
Extra Example: The human resource function can also help implement a differentiation strategy by
hiring people who can do high-quality work and training them to perform to the quality standards set by
the firm.
2.
Overall cost leadership strategy
a. Marketing and sales—focus on simple product attributes and how these product
attributes meet customer needs in a low-cost and effective manner.
b. Accounting and finance—reduce costs through tight financial and accounting
controls.
c. Manufacturing—emphasize increased volume of production to reduce the per unit
costs of manufacturing.
d. Culture—focus on improving the efficiency of manufacturing, sales, and other
business functions.
Discussion Starter: Ask students to suggest circumstances under which a firm that has successfully
been using one generic strategy might choose to implement a different generic strategy.
B. Implementing Miles and Snow’s Strategies
1. Prospectors need to encourage creativity and flexibility. Decentralization often
facilitates this.
2. Defenders tend to downplay creativity and innovation, focusing efforts on lowering costs
or improving the performance of current products.
3. Analyzers must maintain their current businesses and be somewhat innovative in new
businesses.
Discussion Starter: Again, solicit ideas about why a firm that is successfully pursuing one of Miles
and Snow’s strategies might appropriately decide to implement a different one.

Group Exercise: Have groups of students identify differences and similarities between Porter’s generic
strategies and Miles and Snow’s strategies.

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Chapter 8: Managing Strategy and Strategic Planning

V. FORMULATING CORPORATE-LEVEL STRATEGIES

Teaching Tip: Again, reinforce the distinction between business-level and corporate-level strategies.
Use again the PepsiCo example to remind students of the differences.
Most large businesses are engaged in several businesses, industries, and markets.
Each business or set of businesses within such a firm is frequently referred to as a strategic business
unit, or SBU.
Extra Example: PepsiCo is organized around two SBUs—packaged drinks (Pepsi, Lipton, etc.) and
snack foods (Frito-Lay).
Diversification—the number of different businesses that a firm is engaged in and the extent to which
these businesses are related to one another
A. Single-Product Strategy
Single-product strategy—manufacturing just one product or service and selling it in a single
geographic market
B. Related Diversification
Related diversification—operating multiple businesses that are related to one another
1. Bases of relatedness include common technology, common distribution network,
common marketing skills, common brand names and reputation, and common customers.
Discussion Starter: Ask students to identify the bases of relatedness between Starbucks coffee and
Starbucks ice cream.

Extra Example: Ford’s purchase of Jaguar a few years ago (it is now owned by Tata Motors) was an
example of related diversification.
2. Advantages of related diversification
a) Reduces a firm’s dependence on any one of its business activities and thus reduces
economic risk.
b) Reduces the overhead costs associated with managing any one business.
c) Allows a firm to exploit its strengths and capabilities in more than one business
(creates synergies).
d) Synergy exists among a set of businesses when the businesses’ economic value
together is greater than their economic value separately.

Extra Example: A recent trend in organizations today is a reduction in the number of businesses, to
create an organization that consists of SBUs that are highly related. Examples include Vivendi’s
divestiture of publishing and water utilities in order to focus on electronic media. In another example,
Georgia Pacific sold its timber units and refocused on building and paper products.

Extra Example: However, when Georgia Pacific considered separating its paper products division
from its building products division and creating two companies, investors failed to support the firm,
showing that the separation was not seen as creating synergy.

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 Chapter 8: Managing Strategy and Strategic Planning

C. Unrelated Diversification
Unrelated diversification—operating multiple businesses that are not related to one another
1. Presumed benefits: businesses that use this strategy should have stable performance over
time and resource allocation advantages.
2. Actual disadvantages: Corporate-level managers may not know enough about the
unrelated businesses to provide helpful strategic guidance or to allocate capital
appropriately. Also, because firms that implement unrelated diversification fail to exploit
important synergies, they are at a competitive disadvantage compared to firms that use
related diversification.
Extra Example: General Electric is perhaps the most successful firm today that still uses unrelated
diversification. GE owns businesses in such disparate industries as aircraft engines, appliances, finance
and insurance, and plastics.

Extra Example: Seagram’s, a large liquor company, once bought MCA, an entertainment business,
from Matsushita Electric. This represents a case of unrelated diversification.

VI. IMPLEMENTING CORPORATE-LEVEL STRATEGIES

A. Becoming a Diversified Firm
1. A firm can diversify by internal development of its own new products and services
within the boundaries of its traditional business operations.
Extra Example: The Limited, which began as a women’s clothing chain, added units such as
Structure, a men’s clothing chain, Limited Express for more trendy, less expensive styles, and Limited,
Too, for children’s fashions. In addition, the firm developed the concepts that became the White Barn
Candle Co. and Bath and Body Works.
2. A firm can also become diversified by replacing its former suppliers and customers.
a) Backward vertical integration—occurs when a firm stops buying supplies from
other companies and begins to provide its own supplies.
b) Forward vertical integration—occurs when a firm stops selling to one customer
and sells instead to that customer’s customers.
Extra Example: In the 1990s, Disney used forward vertical integration when it opened a chain of retail
stores to sell Disney products directly to consumers, rather than going through other retailers, as it had
done in the past.

Extra Example: Many petroleum firms have implemented both backward and forward vertical
integration—they extract petroleum, refine it, distribute it, and retail it.
3. Mergers and acquisitions—when two firms are combined
Management Update: With the decline in the stock market that began in 2001, mergers and
acquisitions are no longer as popular as they were in the 1990s. Companies that merge today are
finding it hard to obtain financing for the giant deals.

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Chapter 8: Managing Strategy and Strategic Planning

a) Merger—occurs when the two organizations being combined are approximately the
same size and a new firm is created.
Extra Example: Daimler-Benz and Chrysler merged in 1998, creating the world’s third-largest
automobile company. Citibank and Traveler’s Insurance merged, creating Citigroup, the largest
financial services firm in the U.S. More recent mega-mergers include the Newell-Rubbermaid and
the Kmart-Sears mergers
b) Acquisition—occurs when one of the firms buys the other outright.
Extra Example: The Limited has also grown by acquisition. It purchased Lane Bryant (clothes for
larger women) and later sold it. It also purchased Victoria’s Secret intimates stores and Abercrombie
and Fitch, a popular brand of clothing geared toward young adults.
B. Managing Diversification
Portfolio management techniques—methods that diversified firms use to make decisions about
what businesses to engage in and how to manage these multiple businesses.
1. BCG matrix—provides a framework for evaluating the relative performance of
businesses in which a diversified organization operates.
The matrix uses two factors to evaluate a firm’s set of businesses: market growth rate and
market share. The matrix classifies the types of businesses that a diversified firm can
engage in.
a) Dogs are businesses that have a very small share of a market that is not expected to
grow.
b) Cash cows are businesses that have a large share of a market that is not expected to
grow substantially.
c) Question marks are businesses that have only a small share of a quickly growing
market.
d) Stars are businesses that have the largest share of a rapidly growing market.
Group Exercise: Have groups of students research and collect information about a large diversified
firm. (Disney, General Motors, Sears, or Procter and Gamble would all make good examples.) Then
have the groups classify the firm’s various businesses into the four cells of the BCG matrix.

Teaching Tip: Use Figure 8.3 as a framework for discussing the BCG matrix.
2. GE Business Screen
A more sophisticated approach than the BCG matrix, using a nine-cell matrix. Note that
using the GE Business Screen parallels the application of SWOT analysis.
Teaching Tip: General Electric developed the Business Screen as a refinement and extension of the
BCG matrix.

Group Exercise: If you had your students do the exercise discussed earlier (classifying a firm’s
businesses into BCG matrix cells), have them repeat the exercise (using the same information) for the
GE Business Screen.

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 Chapter 8: Managing Strategy and Strategic Planning

VII. INTERNATIONAL AND GLOBAL STRATEGIES

A. Developing International and Global Strategies
Managers of international firms face more complexity and uncertainty in formulating and
implementing strategies, but their firms also may be able to exploit three sources of
competitive advantage.
1. International firms can better exploit global efficiencies.
a) Location efficiencies allow firms to locate facilities wherever they can best obtain a
cost or differentiation advantage.
Global Connection: Microsoft employs many software engineers in India to produce programs for the
firm. This is a location efficiency because they are able to obtain high-quality work at a much lower
cost than in the U.S.
b) Economies of scale enable firms to lower their per unit cost of production because
they are manufacturing in large quantities and in facilities that serve several
regions.
c) Economies of scope lower production costs per unit by sharing expenses across
broader product lines.
2. Multimarket flexibility gives firms the ability to respond to changes in one region by
making changes to their operations in other regions.
3. Worldwide learning is another advantage for international firms because firms can adopt
best practices from wherever they are developed.
4. In practice, however, international firms are not usually able to exploit all three of these
advantages simultaneously. For example, location efficiencies require centralization,
while worldwide learning requires a more decentralized approach.
B. Strategic Alternatives for International Business
1. Firms that use the home replication strategy apply the distinctive competences they
developed in their home market to the foreign markets that they enter. This strategy
works best when the firm’s competences are valuable in many different types of markets.
2. The multidomestic strategy is used by firms that manage a portfolio of international
business as relatively autonomous and independent units. This strategy works best when
national demands for customization are high.
3. Firms following a global strategy are doing exactly the opposite of those using a
multidomestic strategy. That is, they are standardizing across all countries. This strategy
works best for a commodity-like product or in an industry that demands high efficiency.
4. Firms that pursue both centralization and decentralization at the same time, using
whichever approach makes more sense in the particular circumstances, are using a
transnational strategy. This strategy works best for complex industries and for
companies with highly-skilled international managers.

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Chapter 8: Managing Strategy and Strategic Planning

END OF CHAPTER QUESTIONS

Questions for Review

1. Define the four parts of a SWOT analysis.
A SWOT analysis consists of an analysis of the internal strengths and weaknesses of a firm, and of
the external opportunities and threats for the firm.
2. Describe the relationship between a distinctive competency, a competitive advantage, and a
sustained competitive advantage.
A distinctive competency is an internal strength or capability that is possessed by only a few firms.
When a firm is able to successfully exploit a distinctive competency, it may obtain a competitive
advantage over its rivals. When the firm is able to maintain a competitive advantage over its rivals
for an extended period of time, it becomes a sustained competitive advantage.
3. List and describe Porter’s generic strategies and the Miles and Snow typology of strategies.
Porter’s generic strategies include: (1) differentiation—the firm seeks to distinguish itself from
competitors through the quality of its products or services; (2) overall cost leadership—the firm
attempts to gain a competitive advantage by reducing its costs below the costs of competing firms;
(3) focus—the firm concentrates on a specific market, product line, or group of buyers.
Miles and Snow’s typology includes: (1) prospector—a highly innovative firm that is constantly
seeking out new markets and new opportunities and is oriented toward growth and risk taking;
(2) defender—concentrates on protecting current markets, maintaining stable growth, and serving
current customers; (3) analyzer—combines elements of prospectors and defenders; (4) reactor—has
no consistent strategic approach, drifts with events, reacting to but failing to anticipate or influence
these events.
4. What are the characteristics of businesses in each of the four cells of the BCG matrix?
A Star is a business with a large market share that competes in a rapidly growing industry. A Cash
Cow also has a large market share but in an industry with a slow growth rate. A Question Mark
business has only a small market share in a rapidly growing industry, while a Dog has a small
market share of a slow-growth industry.

Questions for Analysis

5. Describe the process that an organization follows when using a deliberate strategy. How does this
process differ when an organization implements an emergent strategy?
A firm using a deliberate strategy will identify problems, gather and analyze information, formulate
alternative courses of action, choose the best alternative, and then work to implement the chosen
strategy. The process will be rational and systematic. On the other hand, an emergent strategy is one
that is not planned in a formal or rational way, but rather it just emerges as a pattern in a series of
actions. Actions are not pre-planned. When a firm notices that certain actions lead to desirable
outcomes, those actions are repeated.
6. Which strategy should a firm develop first—its business- level or its corporate-level strategy?
Describe the relationship between a firm’s business- and corporatelevel strategies.
Both must be developed together, at the same time. Decisions made at the corporate level, such as to
increase or decrease diversification, will then require changes in the firm’s business-level strategy.
Decisions made at the business level, for example to pursue a differentiation strategy, will require
changes at the corporate-level also. Most firms that are just being founded have only a single

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 Chapter 8: Managing Strategy and Strategic Planning

business, and in those firms, the business-level strategy will be developed first. However, for a
diversified firm, corporate and business strategies are formulated and implemented simultaneously.
7. Volkswagen sold its original Beetle automobile in the United States until the 1970s. The original
Beetle was made of inexpensive materials, was built using an efficient mass production technology,
and offered few options. Then, in the 1990s, Volkswagen introduced its new Beetle, which has a
distinctive style, provides more optional features, and is priced for upscale buyers. What was
Volkswagen’s strategy with the original Beetle—product differentiation, low cost, or focus? Which
strategy did Volkswagen implement with its new Beetle? Explain your answers.
The original Beetle was clearly part of a low cost strategy with its emphasis on efficiency, inexpensive
components, lack of distinguishing features, and low price. The new Beetle signals a switch to a
differentiation strategy because of its style, customization, up-scale target market, and higher price.

Questions for Application

8. Assume that you are the owner and manager of a small business. Write a strategy for your business.
Be sure to include each of the three primary strategic components.
Students’ answers will vary depending on the type of business they choose. Students should write a
business-level strategy. The strategy should include a description of their intended distinctive
competencies, scope, and resource deployment.
9. Interview a manager and categorize the business- and corporate-level strategies of his or her
organization according to Porter’s generic strategies, the Miles and Snow typology, and extent of
diversification.
Answers will, of course, vary. Students who interview a manager of a smaller firm will not likely
find a firm that seems to be a prospector, however, or one that is very diversified because such firms
tend to be larger businesses. It is also unlikely, of course, that any manager will categorize his or her
business as a reactor.
10. Give an example of a corporation following a single-product strategy, a related diversification
strategy, and an unrelated diversification strategy. What level of performance would you expect
from each firm, based on its strategy? Examine the firm’s profitability to see whether your
expectations were accurate.
Students’ answers will vary, but here is an example: “Toys 'R' Us is following a single-product
strategy because their only business unit is focused solely on the retail sale of toys and other items
for children. That strategy allows them to dominate that market, and the firm has done so. However,
it also makes them vulnerable if that particular market changes, which is happening at this time as
discount stores and online retailers are taking over the industry.
Yum! Brands, the owner of Pizza Hut, Long John Silver’s, Kentucky Fried Chicken, Taco Bell, and
A&W, is following a related diversification strategy focused on the fast-food industry. This strategy
allows the development of shared competencies and synergies, while spreading overhead costs
across all the businesses. This strategy is expected to have the highest returns, and Yum! Brands is
in fact highly profitable due to synergies and shared competencies.
Sara Lee Corporation is pursuing unrelated diversification with products such as Jimmy Dean sausage,
Playtex underwear, Hanes hosiery, Kiwi shoe polish, Earth Grains bread, and Ambi Pur air fresheners.
This strategy should provide stable performance over time and allow the sharing of resources.
However, the strategy also runs the risk of spreading management talent too thin so that none of the
businesses receives enough attention to really thrive. Sara Lee is, in fact, experiencing low performance
at this time in its businesses, compared to less diversified firms competing in the same industries.”

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Chapter 8: Managing Strategy and Strategic Planning

END OF CHAPTER EXERCISES

Building Effective Decision-Making Skills

I. Purpose
This exercise will encourage students to consider how a SWOT analysis would be performed in a
real organization, including which sources should be used, and the validity of the information at
those sources.
II. Format
This decision-making exercise can be performed by individuals or groups. It should take about 30
minutes to complete.
III. Follow-Up
A. List the sources you will use to obtain information about the firm’s strengths, weaknesses,
opportunities, and threats.
B. Then ask yourself: For what types of information are data readily available on the Internet?
What categories of data are difficult or impossible to find on the Internet? (Note: When using
the Internet, be sure to provide specific websites or URLs.)
C. Next, rate each source in terms of its probable reliability.
There will be considerable variation in students’ answers to these three questions. Students
should notice that there are a variety of likely sources, and that the sources differ a great deal
in their reliability. Students should recognize that information about forces in the external
environment is easier to obtain than information about the internal environment. In addition,
companies don’t typically publish information that might cast the firm in a negative light, such
as information about weaknesses. The Internet provides easy access to many diverse types of
information. However, the reliability of the information is often questionable, and students
should be careful about relying on web-based data, unless they can verify the source’s
credentials.
D. Finally, ask yourself how confident you’d be in basing decisions on the information that
you’ve obtained?
Again, answers will vary, but students will recognize that it is difficult to get reliable
information about some issues. When that is true, decision makers will make choices based on
the information they have, but they should be aware of times when their choices may be based
on faulty information. This awareness may lead them to compensate for their lack of
confidence, for example, by developing multiple contingency plans or performing statistical
sensitivity analyses to check the robustness of their choices.

Building Effective Conceptual Skills

I. Purpose
This in-class game demonstrates concepts about competition and cooperation through the use of a
prisoner’s dilemma situation.
II. Format
This game will take about 20 minutes to play through once. It can also effectively be played twice.
Follow-up and discussion time will vary.
III. Follow-Up
Before playing this game in class, discuss the concepts of game theory and especially the prisoner’s
dilemma situation. Explain how competition gives the best results in some circumstances, while
cooperation gives better results in other circumstances. This concept may be difficult for students to
grasp, given the way that American business education focuses almost exclusively on competition.

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 Chapter 8: Managing Strategy and Strategic Planning

The main message of this game is: “It’s nice to be nice, to the nice.” Students will find that
competition is the preferred mode when rivals are behaving competitively, and cooperation is
preferred in situations where rivals are willing to be cooperative. In a mixed case, faced with some
rivals that are cooperative and some that are competitive, the cooperative firms can band together
and effectively compete against the competitive firms by using their combined power.
You will need at least one board game of Trouble, by Milton Bradley, or a generic equivalent of that
game. In the game, four players move pieces around a board in an attempt to complete the course
first. When players land on an occupied space, they send their opponent’s piece back to the start.
It’s best to have one game for each four students. If you cannot do that, it’s best to have at least four
games so that students can watch each strategy being played out. However, it’s possible to play the
game with just one set if volunteers come forward to play the game in front of the entire class.
There are four different rule sets, which can be played simultaneously, and then the results reported
to the class. Alternatively, the rule sets can be played sequentially.
For all rules sets: Four players per game. Each player uses only 2 pieces, not 4 (in order to make the
game play faster). Players start moving pieces on their first roll of the dice, rather than waiting for a
specific number (again, for speed).
Rule Set 1: This is the cooperative game. Players should try not to land on an occupied space, and
they may never send any of their opponent’s pieces back to the start. If they must land on an
occupied space, the player should put their piece in the next free spot, not displacing his or her
opponent.
Rule Set 2: This is the competitive game. Players must land on occupied spaces if possible, and they
must always send their opponent’s piece back to the start when they do.
Rule Set 3: This is the mixed case, “wolf among the sheep” game. One player is chosen at the start
to be the competitive one, and the group is informed. During play, the competitive player plays by
Rule Set 2, sending his or her opponent’s pieces back to the start whenever possible. The three
cooperative players play by Rule Set 1. That is, they may never send opponent’s pieces back to the
start.
Rule Set 4: This is the mixed case, “retaliation” game. One player is chosen at the start to be the
competitive one, and the group is informed. During play, the competitive player plays by Rule Set 2,
sending his or her opponent’s pieces back to the start whenever possible. The three cooperative
players play by Rule Set 1, when they are facing another cooperative player. That is, they should not
send a cooperative player’s pieces back to the start. However, the three cooperative players play by
Rule Set 2, when they are facing the competitive player. That is, they should try to send the
competitive player’s pieces back to the start whenever possible.
Students will find that the cooperative game (#1) goes quickly and smoothly. All players do about
equally well, except for the random nature of the dice roll. Students sometimes say this game is
“boring.” However, remind them that boring is undesirable in a board game, but might be very
desirable in industries where “excitement” might mean loss of jobs or bankruptcy.
Students will find that the competitive game (#2) takes the longest, as players must constantly start
over. All players do about equally poorly. This game may be more fun than Game 1, but again,
remind students that in real life, intense competition can be damaging and expensive.
Students will find that the wolf-among-the-sheep game (#3) seems very unfair, as the competitive
student has a strong advantage. Explain to students that this is the case that prevails when some
competitors compete strongly and others do not. It’s also analogous to situations such as one student
cheating on an exam while all the others are honest.

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Chapter 8: Managing Strategy and Strategic Planning

Students will find that retaliation game (#4) seems to be fair, because the competitive student often
does not win. This is the situation in which some rivals cooperate for mutual benefit with other
trusted rivals, while competitive rivals find that the others “gang up” and use their combined power
to squash any competitive tactics. This is analogous to the situation where the honest students study
together to help each other, excluding the cheating student from the study group.
A. Break into small groups and play the board game according to the instructions you receive
from your professor.
B. Present your group’s results to the class.
C. Analyze the results reported by every group and be prepared to share your thoughts about the
outcomes.
Although there is a random element in this game, results are likely to be as reported above.
Explain the outcomes, and then ask the students, “What do you learn about business
competition and cooperation from this game?” Another good approach is to ask students to
name business situations in which this type of thinking about cooperation and competition
could be useful. Students will be able to think of examples such as in managing their careers
and relationships at work, industry competition, and so on.

MANAGEMENT AT WORK

ACTING ON A STRATEGIC VISION

The case contrasts the strategies of two video game competitors – Electronic Arts (EA) and Activision.
EA was on a high growth path till the last few years. It acquired video game companies, centralized
production, and churned out sequels. In contrast, Activision, under new leader, Robert Kotick, kept its
acquired studios independent and encouraged its own developers to become independent developers. By
2007, Activision had surpassed EA in revenues and in market capitalization.
Company Update: Activision is now called “Activision Blizzard.” In fiscal 2010, it reported revenues
of $4.4 billion and profits of $418 million. Its “Call of Duty” became the number one video game
franchise of all times.
1. Case Question 1: How might a SWOT analysis have helped Electronic Arts assess its slippage in
the videogame market?
SWOT is the acronym for Strengths, Weaknesses, Opportunities, and Threats. A SWOT analysis
would have revealed to EA that a key weaknesses was employee unhappiness at lack of
independence. Similarly, a key threat would have been the growth and success of Activision, which
used a different strategy.
2. Case Question 2: How might Porter’s generic strategies theory help to explain why Electronic Arts
lost its leadership in the videogame market to Activision Blizzard?
Electronic Arts used the strategy of differentiation to succeed in the video game industry. It
differentiated by creating a high value for its brand name games such as Madden NFL and used this
to achieve market success. It probably overdid the franchise approach in launching many editions of
its popular games, so much so that it lost its differentiation edge. Students are likely to discuss this
enthusiastically because they would used both companies’ games and are likely to be quite
discerning when it comes to the differences among these two players.

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 Chapter 8: Managing Strategy and Strategic Planning

3. Case Question 3: How would you use Miles and Snow typology theory to advise Activision
Blizzard on the best way to maintain its leadership in the videogame market?
Activision Blizzard is likely to be the “new” prospector in the industry, having usurped this position
from Electronic Arts. Electronic Arts has likely become the reactor. Activision Blizzard has to
consolidate its prospector position by continuously launching new products and create the
perception of being on the cutting edge.
4. Case Question 4: If you ran a small video game startup, what would be your strategy for competing
with EA and Activision Blizzard?
Using Porter’s generic strategy theory, the best bet for a start up would be as a niche player, since
competing as a broad-based player such as EA and Activision would require a lot of resources and
could also be risky. As a niche player, the startup should focus either on a demographic category or
a category of games.
5. Case Question 5: If you’re a videogame player, what aspects of Activision’s strategy have led to
your playing more (or fewer) of its games? If you’re not a videogame player, what aspects of
Activision Blizzard’s strategy might induce you to try a few of its games?
While responses will vary, this question is very likely to foster a high amount of discussion as
students can be expected to debate the relative merits of various video games.

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