Summary
# Overview and features of the strategic management textbook
### Core idea
- Provides managers with practical skills and latest concepts for strategic plan formulation and implementation to achieve sustainable competitive advantage [13](#page=13).
- Emphasizes a skills-oriented, practical approach, aligning with AACSB-International guidelines [13](#page=13).
- Offers an effective process for developing a clear strategic plan, not just theoretical concepts [13](#page=13).
- Follows a logical flow: strategy formulation, implementation, and evaluation [13](#page=13).
### Key facts
- The textbook is used globally and translated into multiple languages [13](#page=13).
- Hundreds of companies, organizations, and governmental bodies use it as a management guide [13](#page=13).
- The fifteenth edition is 40 percent new and improved from the prior edition [14](#page=14).
- Chapter 2, "Outside-USA Strategic Planning," is expanded 30 percent with global coverage [14](#page=14).
- Chapter 3, "Ethics/Social Responsibility/Sustainability," is expanded 30 percent with new coverage [14](#page=14).
- An updated Cohesion Case on adidas AG is provided for application of concepts [14](#page=14).
- New or improved Assurance of Learning Exercises are at the end of all chapters [14](#page=14).
- A new boxed insert at the beginning of each chapter highlights companies excelling in strategic management [14](#page=14).
- All chapters feature new examples and updated narrative on theory and concepts [14](#page=14).
- An Excel Student Template is provided free at www.strategyclub.com for easy application of concepts [14](#page=14).
- All 26 cases are on well-known companies, undisguised, and feature organizations undergoing strategic change [14](#page=14).
- Cases include ample quantitative information, financial statements, and organizational charts [14](#page=14).
- All cases have websites providing detailed financial information and sustainability/ethics statements [15](#page=15).
### Key concepts
- The text offers a skills-oriented process for developing vision/mission, auditing, assessing, and evaluating strategies [15](#page=15).
- A simple, integrative strategic-management model is present in all chapters and on the inside front cover [15](#page=15).
- The model is widely used by strategic planning consultants and companies [15](#page=15).
- End-of-chapter exercises apply concepts in a challenging, meaningful, and enjoyable way [15](#page=15).
- Excellent pedagogy includes learning objectives, key terms, current readings, and discussion questions [15](#page=15).
- Coverage includes strategy formulation issues like ethics, global operations, and various analytical matrices [15](#page=15).
- Coverage includes strategy implementation issues like culture, structure, outsourcing, and financial analysis [15](#page=15).
- A systematic, analytical "process" is presented, including nine matrices: IFEM, EFEM, CPM, SWOT, BCG, IE, GRAND, SPACE, and QSPM [15](#page=15).
### Implications
---
# Analysis of Pearson plc's strategic position and future in the educational publishing market
### Core idea
* Pearson plc is identified as a manufacturing firm within the context of strategic case studies [29](#page=29).
* The company is analyzed for its strategic position and future prospects in the educational publishing market.
### Key facts
* Pearson plc's stock symbol is PSORF [29](#page=29).
* Its headquarters are located in London, UK [29](#page=29).
* The company's URL is www.pearson.com [29](#page=29).
* Pearson plc employed 37,000 individuals as of the case year [29](#page=29).
* In 2013, Pearson plc reported a profit of 824 million dollars [29](#page=29).
* Revenue for Pearson plc in 2013 was 8,094 million dollars [29](#page=29).
* Profit margin for Pearson plc in 2013 was 10.2 percent [29](#page=29).
* The case analysis year for Pearson plc is 2013 [29](#page=29).
* Pearson plc is included in a matrix of concepts by cases, appearing in topical content areas 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, and 12 [30](#page=30).
### Key concepts
* Case studies provide a primary learning vehicle in strategic management [26](#page=26).
* Case analysis allows students to evaluate internal and external organizational issues and craft strategies [26](#page=26).
* Case analysis helps develop oral and written communication, analytical, and interpersonal skills [26](#page=26).
* Case analysis simulates the complex business world by viewing companies, competitors, and industries concurrently [26](#page=26).
* Case analysis enables the application of concepts learned in various business courses to organizational problems [26](#page=26).
* The "Concepts by Cases Matrix" organizes companies based on their inclusion in various topical content areas within the study [30](#page=30).
* The inclusion of specific companies in topical content areas indicates their relevance to those strategic concepts [30](#page=30).
### Implications
* Pearson plc's inclusion in multiple topical content areas suggests a broad applicability of its case study to various strategic management concepts [30](#page=30).
* The data provided (employees, financials, profit margin) offers a snapshot for comparative analysis within the educational publishing market [29](#page=29).
* The case study approach emphasizes practical application of strategic management principles [26](#page=26).
* The "Case MyLab Testing Feature" aims to improve student learning assessment by providing gradeable outcomes for cases [27](#page=27).
* This feature allows professors to test basic comprehension and application of strategic-management concepts [27](#page=27).
### Common pitfalls
* Ensuring accurate financial conversions from foreign currencies (e.g., GBP to USD) is crucial for comparative analysis [29](#page=29).
* Interpreting profit margins requires understanding the specific industry and company context [29](#page=29).
---
* Strategic management integrates formulation, implementation, and evaluation to achieve organizational objectives and sustained competitive advantage [37](#page=37).
* The process aims to exploit and create future opportunities, contrasting with long-range planning which optimizes current trends [37](#page=37).
* Pearson PLC is identified in a "Concepts by Cases Matrix" as a manufacturing firm [31](#page=31).
* Pearson PLC's inclusion in the matrix indicates it does not have declining revenues or net income [31](#page=31).
* Pearson PLC does not appear to have strategy formulation emphasis in the matrix [31](#page=31).
* Pearson PLC has business ethics issues included [31](#page=31).
* Pearson PLC has sustainability issues included [31](#page=31).
* Pearson PLC has segment financial data included [31](#page=31).
* Pearson PLC is headquartered outside the United States [31](#page=31).
* Pearson PLC is featured for excellent performance [36](#page=36).
* Strategic management: The art and science of formulating, implementing, and evaluating cross-functional decisions to achieve organizational objectives [37](#page=37).
* Strategic planning: Used synonymously with strategic management in the business world, though sometimes refers only to formulation [37](#page=37).
* Competitive advantage: Anything a firm does especially well compared to rival firms [40](#page=40).
* Sustained competitive advantage: Achieved by continually adapting to internal and external changes and effectively formulating, implementing, and evaluating strategies [40](#page=40).
* Strategy formulation: Includes vision/mission, external opportunities/threats, internal strengths/weaknesses, objectives, and strategy selection [37](#page=37).
* Strategy implementation: The "action stage" requiring annual objectives, policies, employee motivation, and resource allocation [38](#page=38).
* Strategy evaluation: The final stage to review factors, measure performance, and take corrective actions [38](#page=38).
* Intuition: Essential for good strategic decisions, especially in uncertain situations, but must be disciplined by facts [38](#page=38).
* Analysis: The systematic approach to organizing information for effective decision-making under uncertainty [38](#page=38).
* Strategic management requires integrating diverse business functions to ensure organizational success [37](#page=37).
* Effective strategic management is crucial for achieving and maintaining competitive advantage in slim-margin industries [37](#page=37).
* Organizations must continually monitor and adapt to internal and external changes to survive and prosper [39](#page=39).
* The digital age and internet empower consumers, shifting power from businesses and necessitating adaptation in marketing and sales strategies [40](#page=40).
- > **Tip:** The strategic-management process combines intuition with analytical thinking, recognizing that neither alone is sufficient for optimal decision-making [38](#page=38)
---
## Strategic management essentials
* Strategic management provides a systematic, logical, and rational approach to formulating and implementing strategies to shape an organization's future [46](#page=46).
* It enables organizations to be proactive in controlling their destiny rather than merely reacting to events [46](#page=46).
* The process emphasizes communication, understanding, and commitment from all levels of management and employees [47](#page=47).
* E-commerce offers competitive advantages through direct selling and global communication, reducing costs and improving service [41](#page=41).
* Strategists are individuals responsible for an organization's success, often holding titles like CEO, president, or entrepreneur [41](#page=41).
* Corporate Strategy Officers (CSOs) have emerged as a key role, recognizing the growing importance of strategic planning [41](#page=41).
* Vision statements answer "What do we want to become?", while mission statements define "What is our business?" [42](#page=42).
* External opportunities and threats include economic, social, technological, and competitive trends beyond an organization's control [42](#page=42).
* Internal strengths and weaknesses relate to controllable activities performed exceptionally well or poorly within functional areas [43](#page=43).
* Long-term objectives are specific results sought, typically measured over more than one year [43](#page=43).
* Strategies are the means to achieve long-term objectives, affecting long-term prosperity and requiring significant resources [43](#page=43).
* Annual objectives are short-term milestones crucial for strategy implementation and resource allocation [44](#page=44).
* Policies are guidelines, rules, and procedures supporting the achievement of annual objectives [44](#page=44).
* The strategic-management process involves formulation, implementation, and evaluation, with continuous feedback and adaptation [45](#page=45) [46](#page=46).
* Formality in strategic management application is positively associated with the cost, comprehensiveness, accuracy, and success of planning [46](#page=46).
* Organizations using strategic management show improvements in sales, profitability, and productivity [47](#page=47).
* Nonfinancial benefits include enhanced awareness of threats, improved competitor understanding, and reduced resistance to change [48](#page=48).
* Military strategy and business strategy share the aim of gaining competitive advantage and exploiting strengths against weaknesses [50](#page=50).
* **Strategists:** Individuals leading strategic decision-making, requiring adaptability and role-modeling [41](#page=41).
* **Vision Statement:** An aspirational declaration of the organization's future desired state [42](#page=42).
* **Mission Statement:** A concise definition of the organization's purpose, scope, and values [42](#page=42).
* **Environmental Scanning:** The process of researching, gathering, and assimilating external information [42](#page=42).
* **Relative Strengths/Weaknesses:** Strengths and weaknesses are determined in comparison to competitors [43](#page=43).
* **Strategic-Management Model:** A framework illustrating the dynamic and continuous process of strategy formulation, implementation, and evaluation [45](#page=45).
* **Empowerment:** Strengthening employee effectiveness by encouraging participation, initiative, and imagination [47](#page=47).
### Pitfalls
---
## Strategic management principles from military strategy
* Business strategy formulation and implementation share fundamental similarities with military strategy, focusing on competition rather than conflict [51](#page=51).
* Superior strategy can overcome an opponent's numerical or resource advantages [51](#page=51).
* Alexander the Great's success illustrates the importance of an excellent strategic plan [51](#page=51).
* Napoleon's downfall occurred when he failed to adapt his strategies to changing warfare conditions [51](#page=51).
* Sun Tzu's "The Art of War" provides applicable principles for modern business strategy [51](#page=51).
* "The Art of War" is used outside military contexts for competitive endeavors like business acquisitions and office politics [51](#page=51).
* Many Japanese companies require "The Art of War" for top executives [51](#page=51).
* Western business managers find inspiration and advice for competitive situations in "The Art of War" [51](#page=51).
* Coaches like Bill Belichick and football coaches have applied lessons from "The Art of War" [51](#page=51).
* Excerpts from "The Art of War" highlight principles like deception, speed, knowing the enemy, and adapting tactics [52](#page=52).
* **Adaptability:** Organizations must adapt to change and continuously improve to succeed [51](#page=51).
* **Proactive approach:** Firms should influence, anticipate, and initiate actions rather than just respond [53](#page=53).
* **Strategic positioning:** Brilliant strategists achieve objectives through tactical positioning well in advance [52](#page=52).
* **Knowing the enemy and oneself:** This is crucial for victory; ignorance leads to certain defeat [52](#page=52).
* **Deception in strategy:** Mimicking distance when near, and closeness when far, can lure opponents [52](#page=52).
* **Avoiding strength, striking weakness:** An army, like water, should avoid stronger areas and attack weaker ones [52](#page=52).
* **Winning without fighting:** Subduing the enemy without battle is the supreme excellence [52](#page=52).
* **Calculating and estimating:** Triumph comes from thorough calculation, while little computation leads to defeat [52](#page=52).
* **Sustaining advantage:** When a decisive advantage is gained, skillful leaders do not press on but hold position [52](#page=52).
* Strategic management provides a logical, systematic, and objective approach to determining future direction [53](#page=53).
* Effective strategists plan and control their plans, unlike poor strategists who try to control people [53](#page=53).
* Case analysis should emphasize competitive advantages, how to sustain them, and overcome disadvantages [51](#page=51).
* Prescriptive, insightful, and forward-looking analysis is preferred over being merely descriptive [51](#page=51).
* Firms often fail to change strategies when environmental and competitive conditions dictate [51](#page=51).
* Haphazard strategic planning can lead to dysfunctional outcomes [54](#page=54).
---
## Adidas AG’s financial position and competitive landscape
### Key financial data
* Total assets for adidas AG were 11,525 million euros as of June 30, 2013, a decrease of 4.7% from the previous year [65](#page=65).
* Total current assets decreased by 4.7% to 6,720 million euros, with a notable 92.2% drop in short-term financial assets [65](#page=65).
* Inventories saw a 4.0% decrease to 2,611 million euros [65](#page=65).
* Total non-current assets decreased by 4.7% to 4,805 million euros [65](#page=65).
* Goodwill decreased by 18.3% to 1,288 million euros [65](#page=65).
* Total equity was 5,463 million euros as of June 30, 2013, a slight decrease of 0.5% [66](#page=66).
* Retained earnings increased by 6.2% to 4,652 million euros [66](#page=66).
* Total current liabilities decreased by 10.7% to 4,130 million euros [66](#page=66).
* Short-term borrowings significantly decreased by 67.0% to 163 million euros [66](#page=66).
* Total non-current liabilities decreased by 2.2% to 1,934 million euros [66](#page=66).
* Net sales for the first half of 2013 were 7,134 million euros, a decrease of 2.8% from the prior year [66](#page=66).
* Gross profit increased by 1.5% to 3,575 million euros in the first half of 2013, representing 50.1% of net sales [66](#page=66).
* Operating profit increased by 4.2% to 693 million euros in the first half of 2013 [67](#page=67).
* Net income for the first half of 2013 was 481 million euros, a 6.0% increase [67](#page=67).
### Competitive landscape and strategic considerations
* Nike secured the rights to the British athletics team footwear and apparel until 2020 after a legal dispute with adidas [65](#page=65).
* This new Nike contract is reportedly worth 15 million pounds (23.44 million dollars), double the previous deal [65](#page=65).
* Acquisitions are suggested as a strategy for adidas to gain market share against Nike, potentially targeting companies like Callaway Golf or Under Armour [65](#page=65).
* The document provides exercises to analyze Singapore Airlines' performance and gather strategy information on adidas AG, including identifying strengths, weaknesses, opportunities, and threats [68](#page=68).
* Competitors include Columbia Sportswear, Puma SE, Nike, Under Armour, and Callaway Golf [63](#page=63) [64](#page=64).
* Puma designs and markets footwear, apparel, and accessories under Puma, Tretorn, and Cobra Golf labels, with Kering owning a majority stake [63](#page=63).
* Nike, the world's largest shoe and apparel company, reported revenues of 25.3 billion dollars for the fiscal year ending May 31, 2013 [64](#page=64).
* Under Armour is noted as a rising star in athletic apparel, popular with young athletes, and focuses on moisture-wicking fabrics [64](#page=64).
* Callaway Golf, a company potentially of interest for acquisition by adidas, is seeking a turnaround after not making an annual profit since 2008 [64](#page=64).
* Adidas’s own brand portfolio includes Training, Outdoor, Sport Style, Y-3, Porsche Design Sport, SLVR, Reebok, and the TaylorMade-adidas Golf segment [61](#page=61) [62](#page=62).
* Reebok aims to be the leading fitness brand, focusing on empowering people to be "fit for life" [62](#page=62).
---
## Outside-USA strategic planning
* Global considerations significantly impact virtually all strategic decisions, moving beyond national boundaries for business survival [74](#page=74).
* A global strategy aims to meet worldwide customer needs with the highest value at the lowest cost, integrating actions against competitors into a global plan [80](#page=80).
* In mid-2013, the USA surpassed China as the country with the highest prospects for foreign direct investment (FDI) [74](#page=74).
* Exports from the USA account for only 11 percent of its GDP, indicating significant room for international business growth [74](#page=74).
* Singapore's high export-to-GDP ratio (156 percent) is due to importing and re-exporting oil and other products [74](#page=74).
* Honda Motor Company is a prime example of a company that has grown dramatically through a well-conceived global rollout [74](#page=74).
* Multinational corporations (MNCs) face increased complexity due to numerous variables and relationships compared to domestic firms [77](#page=77).
* Home Depot closed its stores in China after failing to consider local culture and customs, illustrating a pitfall of international expansion [77](#page=77).
* Unemployment rates vary greatly across Europe, impacting consumer disposable income and a country's financial attractiveness [77](#page=77).
* MNCs face risks such as asset expropriation, currency losses, unfavorable contract interpretations, and trade barriers [78](#page=78).
* The U.S. economy is becoming less insular, with a global economy and monetary system emerging [79](#page=79).
* China and India are key locations for shifts in production systems, reducing response times to market changes [79](#page=79).
* Africa is increasingly attractive for business, with five of the world's fastest-growing economies projected to be in sub-Saharan Africa by 2018 [80](#page=80).
* Corporate tax rates vary significantly by country, with Bermuda having a zero percent corporate income tax rate [80](#page=80).
* **Multinational Corporations (MNCs):** Organizations conducting business operations across national borders, facing more complex strategic management due to a wider array of variables and relationships [77](#page=77).
* **Globalization:** The process of doing business worldwide, where strategic decisions prioritize global profitability over domestic considerations [80](#page=80).
* **Protectionism:** The practice of countries imposing tariffs, taxes, and regulations on foreign firms to favor domestic companies, which economists argue harms the world economy [79](#page=79).
* **Global Strategy:** A strategy designed to meet worldwide customer needs at the lowest cost, involving global product design, production, and marketing, and integrating competitive actions into a worldwide plan [80](#page=80).
* **Economies of Scale:** Achieved through global operations, allowing for larger-scale production, better efficiencies, higher sales volumes, and lower-price offerings [78](#page=78).
* Firms that remain purely domestic competitors in globalizing industries face significant risk and potential attack on their home markets [75](#page=75).
* Strategic decisions must consider competitors, markets, prices, suppliers, governments, and customers worldwide, as price and quality need to be globally competitive [74](#page=74).
* Diversifying operations across a wider number of markets can absorb excess capacity, reduce unit costs, and spread economic risks [78](#page=78).
* Understanding and adapting to different social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive forces is crucial for international success [77](#page=77).
* **Tip:** Firms should conduct extensive research, seek expert advice, and potentially obtain insurance (like from OPIC) to mitigate risks before entering international markets [78](#page=78).
* Shareholders expect substantial revenue growth, making global business a key strategy to achieve this [74](#page=74).
---
## Business culture differences and their impact on international strategy
* Understanding diverse business cultures is crucial for U.S. managers to compete globally [82](#page=82).
* Cultural differences influence negotiation, communication, and overall business interactions [83](#page=83) [85](#page=85).
* Ignoring cultural norms can lead to misunderstandings and hinder strategic effectiveness [84](#page=84).
* In Japan, business relations revolve around *Wa*, emphasizing group harmony and social cohesion [82](#page=82).
* In China, business behavior is driven by *guanxi*, or personal relations [82](#page=82).
* In South Korea, *inhwa* (harmony based on hierarchical relationships) is important [82](#page=82).
* European management styles tend to be more participatory the farther north on the continent [83](#page=83).
* European workers often have more frequent vacations and holidays than U.S. workers [83](#page=83).
* Many Europeans resent pay-for-performance and objective reward systems [83](#page=83).
* U.S. managers often prioritize being friendly, while Asian and European managers may exercise authority without this concern [83](#page=83).
* Japanese managers prioritize 'everlasting customers' and the start of the selling process, unlike many Americans who focus on one-time sales [84](#page=84).
* Americans value time as an asset, while many foreigners prioritize relationships [84](#page=84).
* In Mexico, employers expect allegiance and often provide benefits beyond pay, creating a paternalistic dynamic [86](#page=86).
* Mexicans stress collectivism, continuity, and cooperation, contrasting with U.S. individualism and competition [86](#page=86).
* In Japan, age and status are paramount, influencing all social and business situations [87](#page=87).
* Brazilians prioritize relationship building over strict schedules and dress elegantly [88](#page=88).
* German business communication is formal, and punctuality is extremely important [88](#page=88) [89](#page=89).
* Egyptians prefer to do business with those they know and respect, emphasizing personal relationships [89](#page=89) [90](#page=90).
* In China, punctuality is important, and arriving late is an insult [90](#page=90).
* In India, women with college degrees are often expected to prioritize family over career, leading to gender disparities in management [90](#page=90).
* *Wa* in Japan: emphasis on group harmony and consensus, impacting business decisions and communication [87](#page=87).
* *Guanxi* in China: importance of personal connections and relationships in business dealings [82](#page=82).
* *Inhwa* in South Korea: harmony derived from respecting hierarchical relationships [82](#page=82).
* Paternalism in Mexico: employers provide more than salary, expecting loyalty in return [86](#page=86).
* *Nemaswashio* in Japan: supervisors privately alerting employees to changes rather than in meetings [84](#page=84).
---
## International business landscape: ease of doing business and economic factors
### Key facts and rankings
- The World Bank and International Finance Corporation rank countries by ease of doing business, from 1 (best) to 183 (worst) [92](#page=92).
- Morocco improved its ranking by 21 places in 2012 by simplifying construction permits, tax compliance, and increasing protections for minority shareholders [92](#page=92).
- Singapore is rated the best country globally for ease of doing business [96](#page=96).
- Table 2-6 lists top nations for doing business across continents, with Singapore, Hong Kong, and New Zealand in the top 3 for East Asia/Pacific [92](#page=92).
- Table 2-7 summarizes African countries' economic situations, with South Africa rated highest and Angola lowest for doing business [94](#page=94).
- Table 2-8 lists Asian countries by ease of doing business, with Singapore, South Korea, and Malaysia in the top 3 [96](#page=96).
- Table 2-9 shows European countries' ease of doing business, with the UK, Sweden, and Germany leading [98](#page=98).
- Table 2-10 ranks North and South American countries, with the USA, Canada, and Chile at the top [100](#page=100).
### Union membership in Europe
- Union membership varies significantly across Europe, from 74 percent in Finland to 8 percent in France [92](#page=92).
- Despite low membership, French unions can effectively mobilize workers through strikes [92](#page=92).
- The EU average union membership is 23 percent, compared to 11 percent in the USA [92](#page=92).
- Union membership is trending downward across Europe, with few exceptions seeing recent gains [93](#page=93).
### Economic and business trends in Africa
- 23 African countries held democratic elections in 2012, a significant increase from 1989 [93](#page=93).
- African currencies are stabilizing, with countries fundraising for infrastructure development [93](#page=93).
- Investors are increasingly looking to Africa due to low interest rates and slow growth elsewhere [93](#page=93).
- African companies like Shoprite, Dangote Group, and Ecobank are expanding across the continent [93](#page=93).
- Consumer spending in Africa is projected to double from $500 billion in 2012 to $1 trillion in 2020 [93](#page=93).
- Marriott is expanding its presence in sub-Saharan Africa with new hotels planned in Ghana, Nigeria, and Ethiopia [93](#page=93).
- The McKinsey Global Institute estimates that 40 percent of Africans live in urban areas, with discretionary income households set to increase by 50 percent [94](#page=94).
- Foreign direct investment in Africa increased by 600 percent from 2000 to 2009 [94](#page=94).
- Walmart acquired South African retailer Massmart Holdings for USD 4.6 billion, gaining access to 290 stores in 13 African countries [94](#page=94).
- Many multinational companies like Nokia, Coca-Cola, and Unilever have established distribution networks or presence in multiple African countries [94](#page=94).
- Africa possesses significant natural resources, including oil, gold, chromium, and platinum [94](#page=94).
- The stereotype of Africa is shifting from subsistence farmers to smartphone-carrying urban consumers [95](#page=95).
- Africa has the world's largest deposits of platinum, chrome, and diamonds [95](#page=95).
### Economic conditions in China
### Business environment in the Philippines and Taiwan
### India's economic and educational landscape
### Germany's economic position and challenges
### Mexico's manufacturing and investment climate
### Global business considerations for strategic analysis
---
## Ethics, social responsibility, and sustainability in strategic management
* Ethics, social responsibility, and sustainability are distinct but interrelated concepts impacting strategic management .
* Good ethics is considered good business and a prerequisite for effective strategic management .
* Firms are increasingly scrutinized for ethical, social, and environmental conduct due to media and disclosure mandates .
* Social responsibility involves actions beyond legal requirements to protect or enhance well-being .
* Sustainability focuses on protecting, mending, and preserving the natural environment .
* The Institute of Business Ethics found that ethical companies consistently outperform non-ethical ones .
* Unethical behavior can be very expensive, with large payouts for fraud suits against companies like Enron and WorldCom .
* Ethical breaches include misleading advertising, environmental harm, and discrimination .
* Executives face increased scrutiny, shortening CEO tenure .
* New ethics issues include internet fraud, hacking, and identity theft .
* **Business ethics**: Principles of conduct guiding decision-making and behavior within organizations .
* **Corporate sustainability reports**: Documents discussing a firm's efforts related to the environment .
* **Whistle-blowing**: Encouraging employees to report unethical practices .
* **ISO 14000 and 14001**: Standards related to environmental management .
* **Workplace romance**: The ethics surrounding romantic relationships in the workplace .
* **Wildlife concern**: The strategic importance of protecting wildlife .
* Firms need a clear code of business ethics to address emerging issues like internet fraud and foreign business practices .
* A code of ethics is insufficient; periodic ethics workshops are needed to ensure understanding and application .
* Rewards for upholding the code and punishments for violations reinforce its importance .
* All strategic decisions have ethical ramifications .
### Example
- > **Example:** Nestlé has a Supplier Code setting non-negotiable minimum standards for its 165,000 suppliers and 680,000 farmers to uphold Nestlé's values of fairness and integrity
* A code of ethics can be dismissed as a public relations tactic if not actively promoted and enforced .
* Ignoring ethical implications in strategy formulation, implementation, or evaluation can lead to significant financial and reputational damage .
---
## Ethics, social responsibility, and sustainability
### An ethics culture
- An ethics culture should permeate organizations and guide behavior .
- Interactive games like "The Word Ethic" can be effective for ethics training .
- Codes of conduct manual outlines ethical expectations and provides examples of common situations .
- Strategists bear the moral risks and are responsible for developing and enforcing ethical codes .
- Managers have a responsibility to provide ethics leadership through example and influence .
- Managers should understand the risks of exceeding instructions and crossing ethical boundaries .
- Lack of character and integrity in leaders destroys people, spirit, and performance .
- Societal economic strength is directly linked to the trust and confidence in the ethics of institutions .
- Unethical behavior leads to headaches, inefficiency, and waste .
- More firms believe that ethics training and culture create a strategic advantage .
### Whistle-blowing
- Failing to report ethical violations can lead to discharge .
- The Securities and Exchange Commission (SEC) has strengthened whistle-blowing policies .
- Whistle-blowers can receive up to 25 percent of proceeds from legal proceedings against firms for wrongdoing .
- Examples of significant whistle-blower payouts include Brad Birkenfeld ($104 million) and another unnamed individual ($38 million) .
- Large corporations like Pfizer and Eli Lilly have faced substantial whistle-blower settlements .
- IRS whistle-blower awards are mandated to be between 15 to 30 percent of the amount recouped in large-scale cases .
- Ethics training programs should include CEO messages, code of ethics discussion, and reporting procedures .
- Firms can align ethical and strategic decision-making by integrating ethics into planning and appraisals .
### Bribes
- Bribery is the offering, giving, receiving, or soliciting of anything of value to influence actions in a public or legal duty .
- The U.S. Foreign Corrupt Practices Act (FCPA) governs bribery and is enforced more strictly .
- The Dodd-Frank Act allows whistle-blowers in bribery cases to receive up to 30 percent of recovered sums .
- Bribery suits can expose firms to shareholder lawsuits .
- Pfizer paid USD 60.2 million to settle accusations of bribery overseas .
- The UK's Bribery Law forbids bribing foreign or domestic officials for competitive advantage and carries a 10-year prison sentence .
- The UK Bribery Act applies to private businesspersons and holds individuals liable even if they didn't realize it was a bribe .
### Workplace romance
### Social responsibility
### Social policy
### Environmental sustainability
### ISO 14000/14001 certification
### Wildlife
---
* This section focuses on ethics, social responsibility, and sustainability in business, providing context for how companies are evaluated beyond financial performance .
* These ethical and sustainability considerations are increasingly important for competitive advantage and stakeholder perception .
* Fairmont and Shangri-La Hotels removed shark fin soup from menus due to overfishing concerns .
* The European Parliament mandated sharks be landed with fins attached to combat finning .
* Approximately 75 million sharks are killed annually for their fins, with the EU as a major exporter .
* Arctic sea ice reached a record low in 2012, impacting polar bear habitats .
* Over 25,000 elephants are killed annually for ivory, despite international trade bans .
* Wildlife damage to U.S. crops and infrastructure exceeds 28 billion dollars annually .
* U.S. solar power installations were on pace to double in 2012 compared to the previous eleven years combined .
* The U.S. solar power industry grew 71 percent in 2012 and was projected to grow 20-40 percent annually through 2016 .
* 76 songbird species in the USA have declined dramatically in the last two decades .
* 67 out of 800 bird species in the USA are endangered, with Hawaiian birds facing the greatest peril .
* Commercial fishing, pollution, and ocean warming have decimated fisheries, marine life, and coral reefs globally .
* Trawl fishing destroys coral reefs and results in significant by-catch .
* **Sustainability:** Companies are increasingly evaluated on their environmental and social performance, which can create a competitive advantage or disadvantage .
* **Corporate Social Responsibility (CSR):** Consumers and stakeholders expect companies to go beyond legal requirements to be socially responsible .
* **Environmental Management Systems (EMS):** ISO 14001 specifies requirements for an EMS .
* **Ethical Leadership:** Ethical behavior is crucial for building stakeholder trust and avoiding negative perceptions .
* **Long-Term Objectives:** These represent desired results from strategies, typically spanning two to five years, and should be quantitative, measurable, and hierarchical .
* **Business Strategies:** Sixteen types are defined and exemplified, including Porter's generic strategies (cost leadership, differentiation, focus) .
* Firms face increasing pressure from stakeholders (employees, customers, shareholders) to demonstrate ethical and sustainable practices .
* Social media platforms play a role in constantly comparing companies on sustainability and ethics .
* Proactively conserving and preserving the natural environment is a key way for firms to be socially responsible .
* Developing corporate sustainability reports, while not always legally required, builds stakeholder confidence .
* Strategic planning is essential for making informed, long-term investment decisions and avoiding costly mistakes .
---
## Strategy types and implementation
- Organizations employ various strategies to achieve objectives, requiring choices and trade-offs that risk resources for uncertain future outcomes .
- Strategies can be categorized into integration, intensive, diversification, and defensive types .
- Effective strategy formulation, implementation, and evaluation are critical for organizational success .
- Objectives provide direction, aid evaluation, establish priorities, and minimize conflicts .
- Financial objectives focus on revenue, earnings, dividends, and profit margins .
- Strategic objectives focus on market share, delivery speed, design-to-market time, and product quality .
- Not managing by objectives includes extrapolation, crisis management, subjectives, and hope .
- There are 11 alternative strategies an enterprise could pursue .
- Organizations often pursue a combination of strategies, but this can be risky .
- In large firms, strategies exist at corporate, divisional, functional, and operational levels .
- In small firms, strategies exist at company, functional, and operational levels .
- **Financial vs. Strategic Objectives:** Often involves trade-offs; long-term strategic objectives are crucial for sustaining competitive advantage .
- **Integration Strategies:** Allow firms to gain control over distributors, suppliers, or competitors .
- **Forward Integration:** Gaining ownership or control over distributors or retailers .
- **Backward Integration:** Seeking ownership or increased control of a firm's suppliers .
- **Horizontal Integration:** Seeking ownership or increased control over competitors .
- **Intensive Strategies:** Require intensive efforts to improve a firm's competitive position with existing products .
- **Market Penetration:** Increasing market share for present products in present markets through greater marketing efforts .
- **Market Development:** Introducing present products or services into new geographic areas .
- **Product Development:** Seeking increased sales by improving present products or developing new ones .
- Managers' annual bonuses or merit pay should be based on both long-term and annual objectives .
- Pursuing too many strategies can spread resources thin and allow competitors to gain an advantage .
- Integration strategies are most effective when industries are growing .
- Horizontal integration is effective when economies of scale provide major competitive advantages .
- Market penetration is effective when current markets are not saturated and usage rates can be increased .
---
### Michael Porter's Five Generic Strategies
* Generic strategies are based on cost leadership, differentiation, or focus .
* **Cost leadership**: Producing standardized products at low per-unit cost for price-sensitive consumers .
* Type 1: Low-cost strategy targeting a wide range of customers with the lowest market price .
* Type 2: Best-value strategy targeting a wide range of customers with the best price-value offering .
* **Differentiation** (Type 3): Producing unique products and services for relatively price-insensitive consumers .
* **Focus**: Producing products and services for small groups of consumers .
* Type 4: Low-cost focus strategy targeting a niche group at the lowest market price .
* Type 5: Best-value focus strategy targeting a niche group at the best price-value offering .
### Cost Leadership Strategies (Type 1 and Type 2)
* Pursued in conjunction with differentiation; key cost elements include economies of scale, learning curve, capacity utilization, and linkages .
* Effective when buyers are price-sensitive, differentiation is limited, buyers are indifferent to brands, or buyers have significant bargaining power .
* Achieved by performing value chain activities more efficiently or revamping the value chain to bypass cost-producing activities .
* Effective when:
* Price competition is vigorous .
* Rival products are identical with readily available supplies .
* Few ways exist to differentiate products valued by buyers .
* Buyers use the product similarly .
* Buyer switching costs are low .
* Buyers are large with significant bargaining power .
* Newcomers use low introductory prices .
* Risks include imitation by competitors, technological breakthroughs, and shifts in buyer interest .
* Example firms: Walmart, McDonald's, Black & Decker .
### Differentiation Strategies (Type 3)
* Requires careful study of buyer needs and preferences .
* Can lead to higher prices and customer loyalty .
* Differentiation bases can include superior service, parts availability, design, performance, or convenience .
* Risk that unique products are not valued enough to justify higher prices, or that competitors can imitate features .
### Focus Strategies (Type 4 and Type 5)
---
## Strategies for competing in turbulent markets
* Turbulent, high-velocity markets characterized by rapid change require strategic choices to react, anticipate, or lead .
* Leading change involves pioneering new technologies and products, setting industry standards .
* The U.S. defense industry is an example of a turbulent market with shifts towards higher technology .
* Industries like telecommunications, biotech, software, and Internet-based sectors are high-velocity .
* Even industries like toys, banking, and publishing are experiencing faster change .
* United Technologies diversified by acquiring Goodrich Corp. and a stake in a Rolls Royce joint venture to compete in turbulent markets .
### Cooperation among competitors
* Strategic alliances between competitors are increasingly used, requiring distinct contributions from each firm .
* A major risk in cooperative agreements is the unintended transfer of skills or technology .
* Airline alliances (Star, SkyTeam, Oneworld) are prominent examples of competitor cooperation .
* Google's YouTube and Universal Music Group formed Vevo to provide a music-video service, with Google contributing technology and Universal content .
* Asian and European firms often enter alliances for learning, while U.S. firms may prioritize cost reduction .
### Joint venture and partnering
* Joint ventures are temporary partnerships to capitalize on opportunities, often with shared equity .
* Other cooperative arrangements include R&D partnerships, cross-distribution, and cross-licensing .
* Joint ventures globalize operations, minimize risk, and pursue opportunities too complex or risky for a single firm .
* More than 10,000 joint ventures form annually, exceeding mergers and acquisitions .
* Walmart's joint venture with Mexico's Cifra exemplifies benefiting from partnering with a foreign company .
* Common problems causing joint ventures to fail include lack of operational manager involvement and unequal partner support .
### Merger/Acquisition
* Mergers unite organizations of about equal size, while acquisitions involve one firm purchasing another .
* Takeovers or hostile takeovers occur when an acquisition is not desired by both parties .
* Common reasons for merger and acquisition failure include integration difficulties and inadequate evaluation of the target .
* Same-industry combinations have predominated in recent mergers and acquisitions .
* Leveraged buyouts (LBOs) involve management and investors using borrowed funds to buy shareholders out .
### Private-equity acquisitions
* Private-equity firms acquire companies with the intent to sell them later at a higher price .
* Secondary buyouts are acquisitions where PE firms buy companies from other PE firms .
* Dividend recapitalizations involve borrowing money to fund dividend payouts, a practice criticized for burdening companies with debt .
### First mover advantages
### Outsourcing and reshoring
---
## Vision and mission analysis
* Vision and mission statements are foundational to strategic management .
* Developing a vision and mission is the crucial first step in the strategic management process .
* A clear vision statement should be established before the mission statement .
* Many firms change their vision and mission due to economic shifts, like Microsoft entering the smartphone business or IBM focusing on business analytics .
* Vision and mission statements are often found in annual reports, displayed on company premises, and distributed with company information .
* These statements are also part of internal reports, including loan requests, supplier agreements, and business plans .
* Peter Drucker's guidelines from the mid-1970s heavily influence current thought on mission statements .
* Many corporations in the USA have not yet developed a formal vision or mission statement .
* Firms that systematically revisit and treat their vision and mission as living documents realize great benefits .
* A vision statement answers the question, "What do we want to become?" and should be short, ideally one sentence .
* A mission statement answers the question, "What is our business?" and declares an organization's "reason for being." .
* A mission statement is also known as a creed statement, statement of purpose, statement of philosophy, or statement of beliefs .
* The process of developing a mission statement is as important as the resulting document itself .
* Drucker stated that a mission statement is the foundation for priorities, strategies, plans, and work assignments .
* The question "What is our business?" is almost always difficult, and the right answer is rarely obvious .
* Strategists who focus only on administrative and tactical concerns may overlook developing vision and mission statements .
* Clear vision and mission statements benefit other strategic management activities .
* A mission statement serves as the starting point for the design of jobs and organizational structures .
* Not all organizations have formal vision or mission statements, but an increasing number are developing them .
* Some companies develop mission statements out of trend rather than genuine commitment, but those that actively use them gain advantages .
* Johnson & Johnson is cited as an example of a firm that benefits from reviewing vision and mission statements regularly .
### Examples
- > **Example:** PepsiCo's vision, "to continually improve all aspects of the world in which we operate—environment, social, economic—creating a better tomorrow than today," is considered too vague because it doesn't
- reveal their beverage and food business
- > **Example:** Dell's vision, "to create a company culture where environmental excellence is second nature," is also deemed too vague, as "environmental" is unclear in its use and doesn't sufficiently
- describe their computer business
---
## Vision and mission statement analysis
* Vision and mission statements define an organization's purpose and future aspirations.
* A mission statement answers "What is our business?" while a vision statement answers "What do we want to become?".
* While profit is a primary motivator, vision and mission statements are essential for motivating workforces and aligning stakeholders.
* Shared vision and mission statements create common interests and lift employees beyond the monotony of daily work.
* A good vision statement reveals the type of business a firm engages in, avoiding overly vague descriptions.
* The process of developing vision and mission statements should involve as many managers as possible to foster commitment.
* An outside consultant can sometimes manage the development process more effectively due to unbiased views.
* Clear vision and mission statements are needed before strategy formulation and implementation can begin.
* Firms with formalized mission statements have shown higher returns on shareholders' equity.
* Some studies indicate a positive relationship between mission statements and organizational performance.
* Reuben Mark emphasizes the need for a simple, elevated global vision rather than differing messages in various cultures.
* Divergent views among managers can be revealed and resolved through the mission statement development process.
* **Vision statement:** Answers "What do we want to become?" .
* **Mission statement:** Answers "What is our business?" .
* **Stakeholders:** Individuals and groups with a stake or claim on a company, including employees, stockholders, customers, governments, etc .
* **Emotional bond:** Created when an individual personally identifies with a firm's values and behavior, turning intellectual agreement into a sense of mission .
* **Customer orientation:** Mission statements should identify customer needs and how the firm fulfills them .
* **Reconciliatory:** A mission statement should reconcile differing stakeholder claims and concerns .
* **Distinctive competence/Self-concept:** The firm's major competitive advantage, a key component of an effective mission statement .
* Involvement in developing these statements increases manager and employee commitment to the organization's strategy .
* Unresolved disagreement over vision and mission can lead to significant strategic errors and organizational failure .
* Developing vision and mission statements during times of success is crucial, as success can obsolete the behaviors that achieved it .
* Organizations that fail to develop clear statements lose opportunities to present themselves favorably to stakeholders .
* A good mission statement provides criteria for selecting among alternative strategies and generates strategic options .
* Focusing on the "self-concept" or "distinctive competence" component is critical for demonstrating how a firm can gain and sustain competitive advantage .
### Characteristics of a mission statement
### Mission statement components
---
## The internal audit process and its components
* The internal audit identifies and evaluates a firm's strengths and weaknesses across functional areas .
* It forms the basis for establishing objectives and strategies to capitalize on strengths and overcome weaknesses .
* Strategic management requires a detailed assessment of all internal areas .
* Functional areas include management, marketing, finance/accounting, production/operations, R&D, and MIS .
* Functional areas can differ for non-profit or service organizations (e.g., hospitals, universities) .
* Distinctive competencies are strengths that competitors cannot easily match or imitate .
* Gathering and assimilating information from representative managers and employees is crucial .
* Key internal factors (strengths and weaknesses) should be identified and prioritized .
* A task force of managers from different units should determine the 20 most important strengths and weaknesses .
* Effective coordination among all functional areas is essential for strategic management success .
* Ansoff noted a transition from single-function focus to multi-function focus for success .
* **Distinctive competencies** are internal strengths that provide a competitive advantage .
* **Resource-Based View (RBV)**: Internal resources are key to achieving and sustaining competitive advantage .
* RBV categorizes resources into physical, human, and organizational .
* Resources are valuable if rare, hard to imitate, or not easily substitutable .
* **Organizational culture**: A pattern of behavior that shapes the workplace and can be a strength or weakness .
* Cultural products include values, beliefs, rites, language, symbols, and heroes .
* Performing an internal audit improves understanding of how jobs and departments fit into the organization .
* Internal audits serve as a forum for improving communication across departments .
* Failure to understand interrelationships among functional areas can be detrimental .
* Financial ratio analysis exemplifies the complexity of inter-functional relationships .
* A firm's unique resources and capabilities should be developed and exploited for competitive advantage .
* Organizational culture is remarkably resistant to change and can significantly impact strategy .
* Strategic management involves identifying and leveraging changes in internal and external factors .
---
## Analysis of organizational culture and management functions
* Organizational culture significantly influences business decisions and must be evaluated during an internal strategic-management audit.
* Culture and strategy must work together; a supportive culture facilitates strategy implementation, while an antagonistic one can be counterproductive.
* Management functions (planning, organizing, motivating, staffing, controlling) are crucial for strategic success.
* Cultural products include rituals, myths, sagas, stories, folktales, symbols, language, metaphors, ceremonies, values, beliefs, and heroes .
* Integrating two cultures during acquisitions can be challenging if their characteristics differ significantly .
* Strongly held beliefs can blind managers to changing external conditions and inhibit strategic management .
* Planning is the essential bridge to the future, increasing the likelihood of achieving desired results .
* Organizing aims to achieve coordinated effort by defining task and authority relationships .
* Motivating involves influencing people to accomplish specific objectives and includes leadership, group dynamics, communication, and organizational change .
* Staffing, or human resource management, includes activities like recruiting, training, and managing employee relations .
* Controlling ensures actual operations conform to planned operations and involves establishing standards, measuring performance, comparing results, and taking corrective action .
* Marketing is the process of anticipating, creating, and fulfilling customer needs and wants .
* Seven basic functions of marketing are customer analysis, selling, product/service planning, pricing, distribution, marketing research, and cost/benefit analysis .
* Advertising spending varies, with about 3 percent of revenues being normal, though it can differ by industry .
* Modern marketing increasingly relies on technology for online marketing, social media, and customer relationship management .
* Test marketing is an effective product and service planning technique to forecast sales and avoid losses .
* Pricing decisions are affected by consumers, governments, suppliers, distributors, and competitors .
* Distribution involves warehousing, channels, coverage, and logistics, often utilizing intermediaries like wholesalers and retailers .
* Marketing research systematically gathers and analyzes data to identify strengths and weaknesses .
* Cost/benefit analysis assesses costs, benefits, and risks of marketing decisions, often using indicators like net present value (NPV) and benefit-cost ratio (BCR) .
* Financial condition is a key measure of a firm's competitive position and attractiveness to investors .
* **Organizational culture:** The shared values, beliefs, and behaviors within a firm, impacting strategic alignment and implementation .
* **Synergy:** A 2 + 2 = 5 effect achieved when employees and managers work together toward clear objectives, resulting in competitive advantages .
* **Work specialization:** Breaking down tasks into jobs, an advantage highlighted by Adam Smith in pin manufacturing .
* **Delegating authority:** Empowering employees with responsibility and accountability, embedded in the strategic-management process .
---
## Financial ratio analysis and breakeven analysis
* Financial ratios and breakeven analysis are key tools for internal auditing and strategic assessment.
* Ratio analysis involves comparing a firm's financial health over time and against industry averages and competitors.
* Breakeven analysis helps determine the sales volume needed to cover costs, highlighting the impact of price and cost changes.
* Financial ratios are computed from income statements and balance sheets and represent a snapshot in time .
* Comparing ratios over time (trend analysis) and to industry averages provides more meaningful insights .
* Key financial ratios are categorized into five types: liquidity, leverage, activity, profitability, and growth .
* Liquidity ratios assess a firm's ability to meet short-term obligations .
* Leverage ratios measure the extent of a firm's financing through debt .
* Activity ratios gauge the effectiveness of resource utilization .
* Profitability ratios measure management's effectiveness in generating returns on sales and investment .
* Growth ratios assess a firm's ability to maintain its economic position .
* The breakeven (BE) point is the quantity of units sold where total revenues equal total costs .
* Lowering prices increases the breakeven point in terms of units sold .
* Increasing fixed costs also raises a firm's breakeven quantity .
* A combination of price decreases and fixed cost increases dramatically raises the breakeven quantity .
* Variable costs, when increased, also raise the breakeven point .
* The formula for breakeven quantity is Total Fixed Costs / (Price per Unit - Variable Costs per Unit) .
* Financial ratios can signal strengths or weaknesses in various functional areas, not just finance .
* Nonprofit organizations can also benefit from creative ratio analysis .
* Trend analysis incorporates both time and industry average dimensions for financial ratios .
* Ratio analysis should be conducted by comparing over time, against industry norms, and against key competitors (#page=203,205) .
* Breakeven analysis is a supply-side (costs only) analysis and doesn't predict sales likelihood .
* Breakeven analysis assumes constant fixed costs and average variable costs per unit, and that production equals sales .
* In multiproduct companies, breakeven analysis assumes a constant sales mix .
* Financial ratio analysis provides a means of evaluating historical trends and identifying large percentage changes .
---
## Internal audit tools and concepts
* Internal audits assess a firm's strengths and weaknesses to inform strategic planning and gain competitive advantage .
* Effectively managing information systems is crucial for competitive advantage and managerial decision-making .
* Value chain analysis (VCA) helps identify cost advantages or disadvantages across all organizational activities .
* Research and Development (R&D) audits question resource allocation, personnel qualifications, and technological competitiveness .
* Management Information Systems (MIS) collect, code, store, synthesize, and present data to answer operating and strategic questions .
* VCA involves dividing a firm's operations into specific activities, attaching costs, and identifying competitive cost strengths and weaknesses .
* Benchmarking measures value chain activities against rivals to identify and improve upon "best practices" .
* The Internal Factor Evaluation (IFE) Matrix summarizes and evaluates major internal strengths and weaknesses .
* Data becomes information when evaluated, filtered, condensed, analyzed, and organized for a specific purpose .
* Companies can gain competitive advantage by being efficient and effective along various parts of their value chain .
* Benchmarking data can be obtained from published reports, trade publications, suppliers, customers, and rival firms .
* **MIS Audit Questions:** Focus on manager usage, leadership presence, data update frequency, cross-functional input, security measures, competitor awareness, user-friendliness, user understanding of competitive advantage, training, and continuous improvement .
* **Value Chain:** A firm's business activities from raw materials to customer service, with total revenues minus total costs yielding value .
* **Core Competence:** A value chain activity a firm performs exceptionally well .
* **Distinctive Competence:** A core competence that evolves into a major competitive advantage .
* **IFE Matrix Steps:**
* List key internal factors (strengths and weaknesses), being specific and actionable .
* Assign weights (0.0 to 1.0) reflecting industry importance; weights must sum to 1.0 .
* Assign ratings (1-4) indicating major/minor weakness or strength; strengths get 3 or 4, weaknesses get 1 or 2 .
* Multiply weight by rating for each factor to get a weighted score .
* Sum weighted scores to get the total weighted score, ranging from 1.0 (weak) to 4.0 (strong), with 2.5 being average .
* **Actionable Factors:** Factors that provide insight into strategies, rather than just data points .
* Internal audits are vital for organizational health and gaining competitive advantages .
* Effective MIS improves managerial decision-making and provides a basis for competitive advantage or disadvantage .
* VCA helps monitor price and cost competitiveness against rivals .
---
## External audit process and key forces
* An external audit identifies and evaluates trends and events outside a firm's control to reveal opportunities and threats for strategic formulation .
* The process involves gathering, assimilating, and analyzing external information from multiple managers and employees to foster understanding and commitment .
* Key external factors should be actionable, measurable, and applicable to competing firms, with implications for long-term and annual objectives .
* External forces impact products, services, markets, and organizations worldwide .
* Competitive intelligence and information on economic, social, cultural, demographic, environmental, political, governmental, legal, and technological trends are crucial .
* Sources for this information include magazines, trade journals, newspapers, the internet, libraries, suppliers, distributors, salespersons, customers, and competitors .
* Managers collectively identify and prioritize the most important external opportunities and threats .
* External forces are categorized into: economic; social, cultural, demographic, and natural environment; political, governmental, and legal; technological; and competitive .
* **Industrial Organization (I/O) view:** Advocates that external (industry) factors are more critical than internal ones for achieving competitive advantage .
* Performance is primarily determined by industry forces like economies of scale and barriers to entry .
* Effective strategy relies on integrating both external and internal factors .
* **Actionable factors:** External factors that have clear strategic implications and allow for actionable responses, unlike nebulous statements .
* **External audit purpose:** To develop a finite list of actionable opportunities and threats for a firm .
* Changes in external forces necessitate changes in product development, market positioning, service offerings, and acquisition/divestiture strategies .
* Increased global competition requires businesses to adapt, innovate, and invent to succeed .
* Understanding external trends helps organizations develop a clear mission and design strategies to achieve long-term objectives .
### Economic forces
* Economic factors directly impact the attractiveness of various strategies, influencing costs of capital, discretionary income, and demand for goods .
* Interest rates, disposable income, inflation rates, money market rates, and tax rates are key economic variables to monitor .
* The value of the dollar significantly affects companies differently based on industry and location, impacting exports, imports, and foreign sales .
* A strong dollar makes U.S. goods more expensive abroad, potentially worsening the trade deficit .
* A weak dollar makes U.S. goods cheaper internationally, helping combat deflation and reducing the trade deficit .
### Social, cultural, demographic, and natural environment forces
* These forces profoundly influence products, services, markets, and customers .
* Demographic shifts, such as an aging U.S. population and increasing racial/ethnic diversity, create new opportunities and challenges .
* Global population growth suggests that remaining solely domestic is an increasingly risky strategy .
* Trends like increased outdoor activities benefit sporting goods companies .
### Political, governmental, and legal forces
---
## External audit: competitive and technological forces
### Technological forces
* The Internet has transformed business by accelerating product life cycles, improving distribution, creating new offerings, and breaking down geographic market limitations .
* It has lowered entry barriers and redefined relationships with suppliers, creditors, customers, and competitors .
* Companies like Papa John's leverage technology for online orders and loyalty programs .
* Technological shifts challenge established firms, as seen with Japanese electronics makers struggling against competitors like Apple and Google .
* Online reputation management is a growing industry, with businesses increasingly monitoring online content and reviews .
* The rise of social media empowers customers and makes online reputation management essential .
* Organizations are creating Chief Information Officer (CIO) and Chief Technology Officer (CTO) roles to manage IT's strategic importance .
* Technological advancements create opportunities and threats, impacting products, services, markets, and competitive positions .
* These advancements can create new markets, render products obsolete, and alter cost structures .
* No industry is immune to technological change, making technology management a key responsibility for strategists .
* Critical technology decisions should not be delegated without understanding their strategic implications .
* Industries like communications, electronics, aeronautics, and pharmaceuticals are more volatile due to technology than others .
### Competitive forces
* An external audit requires identifying rivals and assessing their strengths, weaknesses, capabilities, and strategies .
* Collecting competitor information is crucial for strategy formulation .
* Identifying competitors can be challenging due to multidivisional firms and private company data limitations .
* Key questions about competitors involve their strengths, weaknesses, objectives, and likely responses to trends .
* Competitive companies strive to increase market share, use vision/mission to guide decisions, and continuously improve .
* Competitive Intelligence (CI) is a systematic and ethical process to gather and analyze competitor information .
* Effective CI helps identify competitor weaknesses (opportunities) and strengths (threats) .
* Ethical CI methods include hiring executives, reverse engineering, customer surveys, site visits, and public database searches .
* Misconceptions about CI include it being resource-intensive, violating antitrust laws, or being unethical .
* Discussions with competitors about price or market intentions can violate antitrust statutes .
* An effective CI program provides industry understanding, identifies competitor vulnerabilities, and anticipates competitor moves .
* Market commonality (number/significance of markets competed in with rivals) and resource similarity (comparability of internal resources) help analyze rivalry .
* Porter's Five-Forces Model analyzes competitive intensity through rivalry, potential entry, substitutes, supplier power, and consumer power .
---
## External factor evaluation matrix and competitive profile matrix
* The external audit is a vital part of strategic management, assessing economic, social, technological, and competitive information .
* Effective external audits help identify opportunities and threats, enabling firms to pursue effective strategies and avoid demise .
* Forecasting is crucial for making educated assumptions about future trends and events, guiding current decisions .
* The External Factor Evaluation (EFE) Matrix summarizes and evaluates key external factors .
* A Competitive Profile Matrix (CPM) identifies a firm's major competitors and their strengths/weaknesses relative to the firm .
* Quantitative forecasts are suitable when historical data is available and relationships are expected to remain stable .
* Assumptions are best present estimates of the impact of major external factors beyond a manager's control .
* Accurate forecasts can provide significant competitive advantages .
* **EFE Matrix Development:**
* Identify 20 key external factors (opportunities and threats), prioritizing specificity and data .
* Assign weights (0.0 to 1.0) based on relative industry importance; weights must sum to 1.0 .
* Assign ratings (1-4) indicating how effectively the firm's strategies respond to each factor .
* Calculate weighted scores by multiplying weight by rating .
* Sum weighted scores for a total EFE score (1.0 to 4.0) .
* **CPM Development:**
* Critical success factors in a CPM include both internal and external issues .
* Ratings range from 1 (major weakness) to 4 (major strength) .
* Unlike EFE, CPM factors are not grouped into opportunities and threats .
* Ratings and scores for rival firms are compared to the sample firm .
* Avoid assigning the same rating to firms within a CPM analysis .
* The total EFE score of 4.0 indicates an outstanding response to industry opportunities and threats .
* A total EFE score of 1.0 suggests strategies are not capitalizing on opportunities or avoiding threats .
* CPM comparisons provide important internal strategic information .
* Even small differences in weights in CPM/EFE/IFE reveal perceptions of relative factor importance .
* Firms that do not monitor and evaluate external forces may pursue ineffective strategies and face demise .
---
## Strategy generation and selection
* Strategy analysis and choice involve subjective decisions based on objective information to generate, evaluate, and select courses of action .
* This chapter introduces frameworks to help strategists choose among alternatives, considering behavioral, political, ethical, and social responsibility aspects .
* Alternative strategies are derived from the firm's vision, mission, objectives, and audit information, building on past successful strategies .
* A manageable set of attractive alternative strategies must be developed, with their advantages, disadvantages, trade-offs, costs, and benefits determined .
* All managers and employees who participated in previous strategy formulation activities should be involved in identifying and evaluating alternatives for commitment .
* Proposed strategies should be listed and ranked by participants based on attractiveness, from 1 (should not be implemented) to 4 (definitely should be implemented) .
* Unilever's recent activities include divesting the Skippy brand for approximately 700 million dollars and increasing its stake in Hindustan Unilever for around 2.45 billion euros .
* Unilever acquired T2, an Australian tea company, for approximately 57 million Australian dollars, strengthening its position as the world's largest tea company .
* **Strategy-Formulation Analytical Framework:** A three-stage process: Input Stage (EFE, IFE, CPM), Matching Stage (SWOT, SPACE, BCG, IE, Grand Strategy Matrix), and Decision Stage (QSPM) .
* **Input Stage:** Summarizes basic information from External Factor Evaluation (EFE), Internal Factor Evaluation (IFE), and Competitive Profile Matrix (CPM) .
* **Matching Stage:** Focuses on generating feasible strategies by aligning key external and internal factors using tools like SWOT, SPACE, BCG, IE, and Grand Strategy Matrices .
* **Decision Stage:** Uses the Quantitative Strategic Planning Matrix (QSPM) to objectively evaluate and select strategies based on input from Stage 1 .
* **SWOT Matrix:** A matching tool to develop four types of strategies: SO (strengths-opportunities), WO (weaknesses-opportunities), ST (strengths-threats), and WT (weaknesses-threats) .
* **SO Strategies:** Utilize a firm's strengths to take advantage of external opportunities .
* **WO Strategies:** Aim to improve internal weaknesses by taking advantage of external opportunities .
* **ST Strategies:** Use a firm's strengths to avoid or reduce the impact of external threats .
* **WT Strategies:** Defensive tactics to reduce internal weaknesses and avoid external threats .
* **SPACE Matrix:** A Stage 2 tool with four quadrants (aggressive, conservative, defensive, competitive) indicated by internal (Financial Position, Competitive Position) and external (Stability Position, Industry Position) dimensions .
* Integrating intuition and analysis is crucial for all nine strategy-formulation framework techniques .
* Analytical tools should facilitate communication and discussion, not diminish them, to avoid personal biases playing a dominant role .
* Matching external opportunities and threats with internal strengths and weaknesses is key to generating feasible strategies .
* **Tip:** Always be specific when stating factors and strategies in a SWOT Matrix to avoid ambiguity .
* **Tip:** The "SO, ST, WO, WT" notation after each strategy in a SWOT Matrix reveals the rationale behind its formulation .
* **Tip:** The purpose of Stage 2 matching tools is to generate feasible alternatives, not to select the best ones for implementation .
### Limitations
* **SWOT Matrix Limitations:**
---
## SPACE matrix analysis
* The SPACE Matrix evaluates a firm's strategic position by plotting average scores on four key dimensions: Financial Position (FP), Competitive Position (CP), Stability Position (SP), and Industry Position (IP) .
* A directional vector derived from these scores suggests whether aggressive, competitive, defensive, or conservative strategies are most appropriate .
* Variables for the SPACE Matrix are derived from EFE and IFE matrices, and common factors like ROI, leverage, liquidity, and cash flow .
* FP and IP dimensions are scored from +1 (worst) to +7 (best), while SP and CP are scored from -1 (best) to -7 (worst) .
* Competitors are used for FP and CP comparisons; other industries are used for IP and SP comparisons .
* Scores for each dimension are averaged, then plotted on the SPACE Matrix axes; the sums of the axis scores form a new intersection point .
* The directional vector from the origin to this intersection point indicates the recommended strategy type .
* Specific strategies should be recommended based on the company and matrix results, avoiding vague terms like "expand" .
* A bank example resulted in a directional vector suggesting competitive strategies .
* Hewlett-Packard's SPACE Matrix analysis indicated a defensive position .
* **Aggressive Quadrant:** Suggests leveraging internal strengths to exploit external opportunities, overcome weaknesses, and avoid threats .
* **Conservative Quadrant:** Implies staying close to core competencies and avoiding excessive risks, often involving market and product development .
* **Defensive Quadrant:** Indicates a need to address internal weaknesses and avoid external threats, potentially through retrenchment or divestiture .
* **Competitive Quadrant:** Suggests strategies like backward, forward, and horizontal integration, along with market penetration and development .
## Boston Consulting Group (BCG) Matrix
* The BCG Matrix is a portfolio analysis tool that graphically portrays differences among an organization's autonomous divisions based on their relative market share position and industry growth rate .
* It helps multidivisional firms manage their business portfolio by categorizing divisions into four types: Question Marks, Stars, Cash Cows, and Dogs .
* Relative market share position is the ratio of a division's market share to the largest rival's market share .
* The x-axis typically has a midpoint of 0.50 for relative market share position .
* The y-axis represents industry growth rate in sales, often ranging from -20 to +20 percent .
* The size of each circle represents the proportion of corporate revenue generated by a business unit .
* Pie slices within circles indicate the proportion of corporate profits generated by each division .
* An example BCG Matrix shows five divisions with varying revenues, profits, relative market share, and industry growth rates .
* Divisions can evolve over time, moving counterclockwise (dogs -> question marks -> stars -> cash cows) or clockwise .
* Limitations include oversimplification, lack of temporal perspective, and ignoring other strategic variables like market size .
* **Question Marks (Quadrant I):** Low relative market share in a high-growth industry; high cash needs, low cash generation; require decisions on strengthening or selling .
## Internal-External (IE) Matrix
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## Strategy generation and selection tools
* The Quantitative Strategic Planning Matrix (QSPM) is an analytical technique used in Stage 3 of strategy formulation to objectively determine the relative attractiveness of feasible alternative strategies .
* It integrates inputs from Stage 1 (EFE, IFE, CPM) and Stage 2 (SWOT, SPACE, BCG, IE, Grand Strategy Matrices) analyses .
* Cultural aspects and political maneuvering are significant, often unquantifiable, factors in strategy choice .
* The board of directors plays a crucial governance role, overseeing management and safeguarding stakeholder interests .
* The Grand Strategy Matrix positions organizations in one of four quadrants based on competitive position and market growth .
* Quadrant I firms are in a strong position and should focus on market/product development or integration .
* Quadrant II firms are in a growing market but lack competitiveness, requiring evaluation of their approach .
* Quadrant III firms in slow-growth markets with weak positions need drastic changes like retrenchment or diversification .
* Quadrant IV firms have strong positions in slow-growth markets and can pursue diversification .
* The QSPM's left column lists key external and internal factors with their weights from EFE/IFE matrices .
* The QSPM's top row lists feasible alternative strategies derived from Stage 2 matrices .
* Attractiveness Scores (AS) range from 1 (not attractive) to 4 (highly attractive) .
* Total Attractiveness Scores (TAS) are calculated by multiplying weights by AS for each factor/strategy row .
* Sum Total Attractiveness Scores (STAS) are the sum of TAS in each strategy column, indicating overall attractiveness .
* A QSPM example for a retail computer store showed a higher STAS (3.64) for buying new land and building a larger store versus renovating the existing one (3.27) .
* Another QSPM example for Starbucks indicated Strategy 2 (Open 400 Stores in Middle East Asia/Africa) was more attractive with an STAS of 2.41 .
* **IE Matrix:** Visual tool to represent a firm's EFE and IFE scores, guiding strategic decisions with segments plotted by revenue and profit .
* **Grand Strategy Matrix:** A two-dimensional matrix based on competitive position and market growth to identify appropriate strategies .
* **Quantitative Strategic Planning Matrix (QSPM):** An objective analytical tool to evaluate and prioritize alternative strategies based on weighted key factors .
* **Attractiveness Score (AS):** A numerical rating of how attractive a strategy is relative to others for a specific key factor .
* **Total Attractiveness Score (TAS):** The weighted score for a strategy based on a single key factor .
* **Sum Total Attractiveness Score (STAS):** The overall score for a strategy, representing the cumulative attractiveness across all key factors .
* **Organizational Culture:** The shared values, beliefs, and norms that influence how a firm does business and impacts strategy implementation .
* **Politics of Strategy Choice:** The internal power dynamics, coalitions, and maneuvering that can influence strategic decisions .
* **Governance:** The oversight and direction of a corporate enterprise by a board of directors, ensuring alignment with strategic objectives and stakeholder interests .
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## Board of directors' role in strategy generation and selection
* Boards of directors are increasingly proactive in monitoring and reviewing executive performance, acting as representatives of shareholders .
* The trend is towards greater board member accountability with smaller boards, averaging 12 members .
* Boards play a crucial role in ensuring publicly issued documents accurately represent a firm's status and have a duty to audit or evaluate strategy .
* Shareholders are concerned about executives receiving large bonuses when stock prices decline .
* Hewlett-Packard directors, among others, now use secure online platforms for business and meet bi-monthly for strategic discussions .
* 740 lawsuits were filed against directors regarding merger deals in 2012 .
* The Sarbanes-Oxley Act mandated separating CEO and chairman roles, requiring financial experts on audit committees and increasing their meeting frequency .
* Sweden requires 25 percent female representation on boards, while Norway mandates 40 percent .
* Women hold about 13 percent of board seats at S&P 500 firms .
* Minorities hold just 8.8 percent of board seats at S&P 1,500 companies .
* The European Union proposed legislation requiring at least 40 percent female board representation by 2020 .
* **Principles of good governance** include limiting executives on the board, requiring board members to own significant equity, mandating high meeting attendance, and prohibiting the CEO from being Chairperson .
* **Audit committees** are becoming commonplace, providing board-level attention to accounting and financial policies .
* **Nominating committees** propose candidates for the board and senior officers .
* **Compensation committees** evaluate top executive performance and determine employment terms .
* A **strategy audit** conducted annually by the board, similar to financial audits, is recommended .
* Increased legal pressure leads to directors taking a more active role in strategy analysis and choice .
* Board involvement aims to curtail lawsuits against members for issues like fraud, omissions, and lack of due diligence .
* The Sarbanes-Oxley Act shifted power from CEOs to directors and ended the previous "country club" board atmosphere .
* Progressive firms recognize the value of diverse perspectives from women and minorities on boards .
* Boards should provide greater input and advice in strategy formulation to ensure long-term firm needs are met .
* Liability insurance for directors has become exceptionally expensive, prompting resignations .
---
## Strategy implementation: Marketing and Information Systems
* Strategy implementation relies on effective marketing, finance, R&D, and management information systems.
* Less than 10 percent of formulated strategies are successfully implemented due to execution failures.
* Effective strategy implementation requires manager and employee understanding and commitment to the business.
* Royal Dutch Shell pic, a global oil and gas leader, is highlighted for its effective strategy implementation .
* Marketing is crucial for strategy success, involving building two-way customer relationships and soliciting feedback .
* Companies should encourage customers to create wikis and share thoughts on company websites .
* Social networking sites and video sites are becoming more effective marketing channels than traditional media .
* Negative publicity travels rapidly online, posing a significant threat to companies .
* The growth of smartphones in developing nations opens up new markets for online marketing .
* Internet advertising is rapidly expanding, with increased ad sizes and video pre-roll ads .
* Social media ad spending in the USA was projected to double between 2012 and 2016 .
* Mobile advertising grew 95 percent in the first half of 2012 .
* Google and Facebook were dominant players in display advertising in 2012 .
* **Market segmentation**: Subdividing a market into distinct subsets of customers based on needs and buying habits .
* Aids in implementing strategies like market development and diversification .
* Allows firms to operate with limited resources by avoiding mass production and distribution .
* Directly affects marketing mix variables: product, place, promotion, and price .
* Examples of segmentation bases include geographic, demographic, psychographic, and behavioral variables .
* **Retention-Based Segmentation**: Tagging active customers based on risk of cancellation, retention worth, and appropriate tactics .
* **Product positioning (Perceptual Mapping)**: Developing schematic representations comparing products/services to competitors on key industry dimensions .
* Requires selecting differentiating criteria, diagramming a map, plotting competitors, and identifying competitive areas or niches .
* Key rules include looking for vacant niches, avoiding serving multiple segments with one strategy, and not positioning in the middle unless there are only two competitors .
* **Marketing Mix Variables**: Product, Place, Promotion, and Price are influenced by market segmentation .
* Companies must adapt marketing strategies to leverage social media and online communities effectively .
* Customer opinions and online conversations are increasingly important for product development and marketing .
---
## Finance and accounting issues in strategy implementation
* Finance and accounting are critical for strategy implementation, focusing on acquiring capital, developing projected financial statements, budgeting, and business valuation .
* Key decisions requiring financial policies include debt vs. equity financing, leasing vs. buying assets, dividend payouts, accounting methods, and managing accounts receivable .
* Companies ranked by "Financial Soundness" in a Fortune report included Apple, McDonald's, Exxon Mobil, and Intel .
* Two primary sources for acquiring capital are debt and equity .
* EPS/EBIT analysis is used to determine the optimal mix of debt and stock for raising capital .
* Corporate bonds are issued to investors as a way to raise capital, similar to borrowing from a bank .
* EPS is net income divided by shares outstanding, and EBIT is earnings before interest and taxes .
* Stock buybacks are increasing, sometimes financed by debt, partly due to overseas cash holdings and tax implications .
* Projected financial statement analysis forecasts the results of strategic actions and is required by financial institutions for capital requests .
* **Product Positioning:** A strategy that uniquely distinguishes a company from competitors, aiming for customers to expect slightly less service than delivered ("underpromise and overdeliver") .
* **Perceptual Map:** A tool showing consumer perceptions of products on key dimensions (e.g., sportiness vs. affordability) .
* Products close on the map are perceived as similar .
* Can identify market segments and vacant niches .
* **Ideal Points:** Represent consumers' preferred combinations of product attributes on a perceptual map, indicating market segments when clustered .
* **EPS/EBIT Analysis:** Compares the impact of debt versus stock financing on earnings per share under different earnings before interest and taxes (EBIT) scenarios .
* The goal is to yield the highest EPS values, reflecting the objective of maximizing shareholders' wealth .
* Graphs can visualize break-even points where financing alternatives become equally attractive .
* **Projected Financial Statements:** Forecast income statements and balance sheets used to assess the financial feasibility of strategic implementation scenarios .
* Prepare income statement first, then balance sheet .
* Use the percentage-of-sales method for many income statement items, but not for interest, dividends, or taxes .
* Retained Earnings (RE) link the income statement to the balance sheet and are a cumulative figure .
* Cash is the plug figure to balance the balance sheet .
* Effective product positioning requires exceeding customer expectations after setting them .
* Perceptual maps help marketers allocate promotional spending more effectively and identify opportunities for new products .
* Choosing between debt and equity financing requires careful analysis to maximize EPS and shareholder value .
---
## Strategy implementation issues
### Financial budgeting
* Financial budgets detail how funds will be obtained and spent for a specific period .
* They are a method for obtaining productive and profitable use of an organization's resources .
* Budgets can be viewed as the planned allocation of a firm's resources based on future forecasts .
* Common types include cash, operating, sales, profit, factory, capital, expense, divisional, variable, flexible, and fixed budgets .
* Cash budgets are particularly important for companies in financial difficulty .
* Limitations of financial budgets: can be cumbersome, overly expensive, a substitute for objectives, hide inefficiencies, and be instruments of tyranny .
* To minimize negative effects, subordinate participation in budget preparation is recommended .
### Company valuation
* Evaluating business worth is central to strategy implementation, especially for acquisitions or divestitures .
* Valuation is not an exact science; it requires financial facts, common sense, and intuitive judgment .
* Factors not always reflected on financial statements (customer base, patents) can affect value .
* Three main approaches to valuation: what a firm owns, what it earns, or what it will bring in the market .
* **Net worth/Stockholders' Equity:** Sum of common stock, additional paid-in capital, and retained earnings, minus goodwill and intangibles .
* Goodwill arises when a firm pays more than book value for an acquisition .
* FASB Rule 142 requires annual assessment of goodwill value .
* **Earnings Approach:** Firm's worth based on future net profits; a rule of thumb is five times current annual profit .
* **Price-Earnings Ratio Method:** Market price of common stock divided by annual earnings per share, multiplied by average net income .
* **Outstanding Shares Method:** Number of shares outstanding multiplied by market price per share (market value/capitalization) .
* A premium is paid beyond book value for control; a discount is when the purchase price is less than market value .
* Goodwill write-downs signal an admission of poor budgeting for acquisitions .
* Business evaluations are routine for various reasons beyond sales/acquisitions: employee plans, taxes, retirement, expansion, banking, etc. .
### Research and development (R&D) issues
* R&D personnel are integral to strategy implementation by developing and improving products .
* R&D strategies link external opportunities with internal strengths and objectives .
* R&D policies can emphasize product/process improvements, basic/applied research, leadership, manual processes, spending levels, internal/external R&D, and researcher sources .
* R&D policy varies significantly between rival firms .
* Effective interactions between R&D and other functional departments are crucial .
### Management Information Systems (MIS) issues
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## Business analytics and strategy implementation
* Business analytics uses data mining to create predictive models that support business decisions .
* It enables firms to learn from experience and make current/future decisions based on prior information .
* Mathematical models in business analytics enhance decision-making across all organizational levels and strategic management stages .
* Business analytics is used to improve marketing efficiency and reduce expenses, for example, by withholding retention offers from customers who would stay anyway .
* It helps manage fraudulent transactions across various business areas like invoices, credit card purchases, and insurance claims .
* IBM is aggressively pursuing business analytics, aiming to increase its market share against Oracle .
* IBM's business analytics revenues are substantial and growing rapidly compared to the industry average .
* IBM acquired SPSS for USD 1.2 billion to strengthen its position in the business analytics consulting sector .
* Microsoft's PowerPivot offers data-mining capabilities but is less powerful than dedicated business analytics software .
* IBM completed a risk assessment project for the New York City Fire Department using business analytics .
* **Business analytics**: A key distinguishing feature is its predictive nature, moving beyond retrospective analysis .
* **Data mining**: The process of deriving robust predictive models from data to support numerous business decisions .
* **Management Information System (MIS)**: Plays a critical role in strategy implementation by providing leadership and training for employees .
* Predictive models transform art into science by generalizing vast amounts of data to uncover behavioral patterns for resource optimization .
* Business analytics can dramatically enhance decision-making at all organizational levels .
* Effective strategy implementation relies on cooperation among functional and divisional managers .
* Marketing departments often implement strategies requiring sales increases in new areas or with improved products .
* Finance and accounting managers must devise cost-effective and low-risk strategy implementation approaches .
* R&D managers are key to transferring or developing new technologies for strategy implementation .
* MIS managers are increasingly responsible for leadership and training in strategy implementation .
* The combined activities of marketing, finance/accounting, R&D, and MIS are crucial for organizational success .
- > **Tip:** When performing strategic management case analyses, leverage specific knowledge from your major (e
- g
- , marketing, finance, MIS) to recommend how a firm can gain and sustain competitive advantage
- >
---
## Strategy execution and its management implications
- Strategy implementation is distinct from formulation, focusing on operational efficiency and managing forces during action .
- Implementation success relies heavily on effective management of various organizational aspects and proactive handling of change .
- Implementing strategies involves concrete actions like altering sales territories, building facilities, and changing pricing .
- Management issues central to implementation include setting objectives, devising policies, allocating resources, and managing change .
- Managers and employees should be involved early in strategy implementation to ensure motivation and alignment with organizational interests .
- Establishing annual objectives is a decentralized activity crucial for resource allocation, manager evaluation, and progress monitoring .
- Policies act as specific guidelines and rules to facilitate recurring problem-solving and direct strategy implementation .
- Resource allocation involves financial, physical, human, and technological resources, and its effectiveness depends on strategic prioritization .
- Conflict arising from interdependency and resource competition is unavoidable and requires management through avoidance, defusion, or confrontation .
- Organizational structure must align with strategy; changes in strategy often necessitate structural adjustments .
- **Strategy formulation vs. implementation:** Formulation is about positioning forces *before* action, focusing on effectiveness and requiring intuitive skills; implementation is managing forces *during* action, focusing on efficiency and requiring motivational
- **Annual objectives:** These are essential for implementation, serving as guidelines, performance standards, and motivational tools. They must be measurable, consistent, reasonable, challenging, clear, communicated, time-bound, and linked to rewards
- **Policies:** These are instruments for implementation, setting boundaries for administrative actions and clarifying expectations to guide behavior .
- **Resource allocation:** This process assigns financial, physical, human, and technological resources to achieve strategic priorities, though politics and short-term pressures can hinder effectiveness .
- **Conflict management:** Conflict, though sometimes energizing, must be managed to prevent negative organizational consequences. Approaches include avoidance, defusion, and confrontation .
- **Structure and strategy alignment:** Structure dictates how objectives and policies are formed and how resources are allocated; therefore, strategy changes often require structural reorientation .
- Strategy implementation requires a shift in responsibility to divisional and functional managers, necessitating their involvement in formulation .
- Clear communication of objectives and rationale is vital for buy-in and support from all organizational levels .
- Overemphasis on achieving objectives can lead to undesirable conduct like faking numbers or distorting records; managers must be vigilant .
- Ineffective organizational structures exhibit symptoms like too many management levels, excessive meetings, and unachieved objectives .
- The choice of strategy can be shaped by structural feasibility, and structure itself can influence strategic selection .
- > **Tip:** Strategies formulated must be workable, so if a new strategy requires massive structural changes, it might not be an attractive choice, demonstrating how structure can shape strategy
- > **Tip:** Symptoms of an ineffective organizational structure can include too many management levels, too many meetings, too much attention on interdepartmental conflicts, and too many unachieved objectives
- Implementation problems arise if strategy decisions surprise middle and lower-level managers .
- Resource allocation can be hindered by protectionism, short-term financial focus, politics, vague targets, risk aversion, and lack of knowledge .
---
## Organizational structures for strategy execution
### Divisional structure
* **Advantages:** Clear accountability, local control, career development, delegation of authority, competitive internal climate, easy addition of new products/regions, strict control over products/customers/regions .
* **Disadvantages:** Costly, duplication of functional activities, requires skilled management, needs elaborate control system, potential for dysfunctional inter-divisional competition, limited sharing of ideas/resources, potential for special treatment of certain divisions .
* **Divisional structure by geographic area:** Appropriate when strategies need tailoring to different regions. Allows local decision-making and regional coordination .
- **Divisional structure by product:** Most effective when specific products/services need emphasis or differ substantially. Allows strict product line control but may need skilled management. General Motors, DuPont, Microsoft, and Procter
* **Divisional structure by customer:** Effective when a few major customers are paramount and diverse services are provided. Caters to defined customer groups like colleges, secondary schools, or commercial schools .
* **Divisional structure by process:** Organizes activities by how work is performed, with departments accountable for profits/revenues. Example: manufacturing divisions for electrical work, glass cutting, welding, etc. .
### Strategic Business Unit (SBU) structure
* **Purpose:** Facilitates strategy implementation in large, multidivisional organizations where control and evaluation become difficult .
* **Mechanism:** Groups similar divisions into SBUs, delegating authority to senior executives reporting to the CEO .
* **Advantages:** Improves coordination between similar divisions, channels accountability, makes corporate planning and control more manageable .
* **Disadvantages:** Requires an additional management layer (increasing salary expenses), role of group vice president can be ambiguous .
* **Example:** News Corp reorganized into Entertainment and Publishing SBUs. Coca-Cola uses three SBUs: The Americas Beverages, Outside-The-Americas Beverages, and Outside-The-Americas Bottlers .
### Matrix structure
* **Nature:** Most complex design, relying on both vertical and horizontal flows of authority and communication .
* **Disadvantages:** Higher overhead due to more management positions, dual budget authority, dual sources of reward/punishment, shared authority, dual reporting channels, need for extensive communication .
* **Advantages:** Clear project objectives, employees see work results, easy project shutdown, facilitates use of special equipment/personnel, functional resources shared, allows expertise division among projects .
* **Requirements for effectiveness:** Participative planning, training, clear roles, excellent communication, mutual trust .
* **Application:** Used when multiple variables (product, customer, technology, geography, function) have roughly equal strategic priorities .
### Developing organizational charts
* **CEO title:** Reserve for the top executive; use "president" for division heads .
* **Other titles:** Use "chief," "vice president," or "manager" for functional executives .
* **Chairperson vs. Chairman:** "Chairperson" is preferred .
* **Separating roles:** A movement exists to split Chairperson and CEO positions .
* **Reporting lines:** COO typically has division presidents reporting to them; functional executives report directly to the CEO .
* **Unity of command:** Each employee should have only one boss .
* **Divisional basis:** Consider if divisions should be based on geography, customer, product, or process for maximum effectiveness .
* **Structure indicators:** "President" titles with financial segments suggest a divisional structure; large firms might benefit from SBU structure. Declining performance signals a need to alter structure .
### Restructuring
* **Definition:** Reducing firm size (employees, divisions, levels) to improve efficiency and effectiveness. Also called downsizing, rightsizing, or delayering .
### Linking performance and pay to strategies
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## Strategy execution and human resource management
* Strategy execution involves managing change, fostering a supportive culture, and addressing production and human resource concerns.
* Effective strategy implementation hinges on aligning organizational culture, production capabilities, and human resource management with strategic goals.
* Human resource concerns, such as managing resistance to change and balancing work-life, are critical for successful strategy execution.
* Performance-pay plans should capture attention, be understood, improve communication, pay out appropriately, and lead to better company performance .
* Resistance to change is a significant threat to strategy implementation, often manifesting as sabotage, absenteeism, or unwillingness to cooperate .
* Three strategies for managing change are force change (fast but low commitment), educative change (slow but higher commitment), and rational/self-interest change (most desirable) .
* The rational change strategy involves employee participation, incentives, clear communication, and feedback .
* Changing a firm's culture to fit a new strategy is usually more effective than changing a strategy to fit an existing culture .
* Production processes constitute over 70 percent of a firm's total assets, making production-related decisions critical for strategy success .
* Just-in-time (JIT) production significantly reduces strategy implementation costs by minimizing inventory .
* Human resource problems in strategy implementation often stem from disrupted social/political structures, mismatched aptitudes, or inadequate top management support .
* Employee Stock Ownership Plans (ESOPs) empower employees as owners, reduce alienation, and offer tax benefits .
* Work and family strategies, such as flexible scheduling and childcare assistance, are becoming competitive advantages .
* Corporate wellness programs can yield impressive returns on investment, saving companies millions on healthcare costs .
* **Managing resistance to change:** Requires developing an organizational climate where change is seen as an opportunity, not a threat .
* **Strategy-supportive culture:** Involves preserving, emphasizing, and building on cultural aspects that align with new strategies, or changing antagonistic aspects .
* **Production and operations concerns:** Encompass decisions on plant size, location, equipment, inventory control, quality control, and technological innovation .
* **Human resource concerns:** Involve managing social and political structures, matching individuals to tasks, and ensuring top management support .
* **Employee Stock Ownership Plans (ESOPs):** A benefit plan enabling employees to purchase company stock, fostering an ownership culture .
* **Work-life balance strategies:** Initiatives designed to help employees manage demands of both personal and professional lives .
* **Corporate wellness programs:** Initiatives aimed at improving employee health and well-being, often leading to cost savings and reduced turnover .
* **Glass ceiling:** An invisible barrier preventing women and minorities from reaching top management positions .
* Successful strategy implementation requires proactive management of change and employee engagement .
* Aligning organizational culture with strategy is crucial, with cultural change often being more effective than strategy adaptation .
* Investing in human resource management, including training, fair compensation, and supportive policies, is essential for strategy execution .
---
## Strategy execution and evaluation
- Strategy implementation means change, and it is where the "real work" begins after strategies are formulated .
- Successful strategy implementation requires motivated managers and employees, discipline, and hard work .
- Management issues central to strategy implementation include matching structure to strategy, linking pay to performance, creating a conducive climate for change, managing political relationships, fostering a supportive culture, adapting operations,
- Establishing annual objectives, devising policies, and allocating resources are common strategy-implementation activities .
- Strategy evaluation is vital for organizational well-being, alerting management to problems before they become critical .
- Strategy evaluation involves examining strategy bases, comparing expected to actual results, and taking corrective actions .
- Adequate and timely feedback is crucial for effective strategy evaluation .
- BHP Billiton is a large multinational mining and petroleum company that has reinvented itself by continually evaluating and correcting its strategies .
- BHP Billiton ranked 115th largest and 20th most profitable company globally in 2013 .
- Prescriptive strategy analysis focuses on gaining and sustaining competitive advantage, being insightful, forward-looking, and analytical rather than descriptive .
- Resistance to change is a significant factor in strategy implementation .
- Corporate wellness programs are becoming increasingly popular as a means to support employee health and longevity .
- Six Sigma is a methodology focused on process improvement and defect reduction .
- A glass ceiling refers to invisible barriers that prevent women and minorities from advancing to senior positions .
- Employee Stock Ownership Plans (ESOPs) can be a way to align employee interests with company performance .
- The nature of strategy evaluation is complex, sensitive, and essential for organizational success .
- Contingency planning is important in strategy evaluation .
- Auditing plays a role in strategy evaluation .
- Effective strategy implementation requires motivated and disciplined managers and employees .
- Vague descriptions and generalities should be avoided in strategy analysis; great ideas need great analysis .
- Strategy evaluation requires systematic review, assessment, and control of strategy execution .
- Overly close evaluation of strategies can be counterproductive and expensive .
- BHP Billiton's long-term incentive plan (LTIP) awards for executives are tied to total shareholder return exceeding peer companies by an average of 5.5 percent per year .
- A single individual can sabotage strategy implementation efforts .
- Contriving numbers to satisfy top managers can undermine strategy evaluation .
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## Strategy evaluation
- Strategy evaluation is a critical part of the strategic management process, ensuring firms adapt to dynamic environments .
- It involves appraising performance, identifying flaws, and making necessary adjustments to maintain competitive advantage .
- Strategy evaluation assesses performance through metrics like asset growth, profitability, and sales increases .
- Success in the short term does not guarantee long-term success; environments change rapidly .
- Dynamic environments necessitate continuous strategy evaluation, as past success is not a predictor of future results .
- J.C. Penney's and Hewlett-Packard's struggles illustrate how quickly firms can falter due to unpredicted market shifts .
- Strategy evaluation is more challenging today due to increased environmental complexity and faster obsolescence of plans .
- Strategy evaluation should be continuous, not periodic, to monitor progress and allow timely corrective actions .
- People are crucial in strategy evaluation; involvement fosters commitment and aids in identifying issues .
- **Rumelt's four criteria for strategy evaluation:** Consistency, Consonance, Feasibility, and Advantage .
- **Consistency:** A strategy should not create conflicting goals or policies .
- **Consonance:** Strategies must adapt to the external environment and its changing trends .
- **Feasibility:** A strategy must be achievable within the organization's physical, human, and financial resources .
- **Advantage:** A strategy should create or maintain a competitive edge through superior resources, skills, or position .
- **Strategy-evaluation framework:** Involves reviewing the bases of strategy (IFE/EFE matrices), measuring organizational performance, and taking corrective actions .
- **Reviewing bases of strategy:** Involves preparing and comparing revised IFE and EFE Matrices to assess changes in internal and external factors .
- **Measuring organizational performance:** Compares planned results to actual results, investigates deviations, and evaluates progress toward objectives using both quantitative and qualitative criteria .
- **Corrective actions:** Changes made to reposition a firm, potentially involving altering structure, replacing personnel, revising objectives, or developing new policies .
- Firms must remain vigilant and avoid complacency, as even successful companies can face rapid decline .
- Empowered employees, while beneficial for innovation, can pose risks if not managed effectively within a framework of accountability .
- Continuous monitoring of internal and external factors is essential to detect changes that may necessitate strategy revision .
- Failure to achieve objectives can stem from ineffective strategies, poor implementation, or unrealistic goals, not just poor employee performance .
- Corrective actions aim to improve a firm's position to leverage strengths, opportunities, and mitigate threats and weaknesses .
- Relying solely on short-term operating results for strategy appraisal can be misleading .
- Waiting until problems occur to evaluate strategies can be too late, like closing the barn door after the horses have escaped .
### The Balanced Scorecard
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## Strategy monitoring principles
- Strategy evaluation requires economical, meaningful, and timely information that provides a true picture of events .
- The evaluation system should facilitate action, be action-oriented, foster mutual understanding, and be simple, not cumbersome .
- Effective evaluation systems are useful, not complex, and cater to the organization's unique characteristics .
- Contingency plans are alternative plans for unexpected events, aiming to minimize threats and capitalize on opportunities .
- Fortune annually evaluates companies on nine attributes, including people management, innovativeness, and quality of management .
- Published sources primarily focus on large, publicly held businesses but their data can evaluate smaller firms .
- Too much information or too many controls can be detrimental to strategy evaluation .
- Timely information is crucial, but accuracy is secondary to timeliness when depicting the present .
- Evaluations should portray situations fairly, especially during economic downturns .
- Strategy evaluation should not dominate decisions but foster trust and common sense .
- Large organizations need more elaborate systems due to coordination difficulties, while small companies may rely on daily communication .
- Contingency plans should be simple and only cover high-priority areas .
- Common contingency plans address competitor withdrawal, unmet sales objectives, and demand exceeding plans .
- Contingency planning can benefit from alternative strategies not selected for implementation .
- Contingency planning offers benefits like quick response, crisis management, and manager adaptability .
- The five-step process for contingency planning involves identifying events, timing, pros/cons, developing plans, and setting trigger points .
- Auditing is a systematic process of objectively obtaining and evaluating evidence regarding economic actions and events .
- The shift from GAAP to IFRS involves costs for businesses, training for professionals, and potential global comparison benefits .
- IFRS adoption is expected to simplify accounting, aid global capital raising, but may increase costs for some firms and lead to regulatory challenges .
- **Effective Evaluation System Characteristics:** Economical, meaningful, timely, true picture, action-oriented, fosters mutual understanding, simple, useful .
- **Contingency Planning:** Proactive planning for unforeseen events to mitigate threats and seize opportunities .
- **Auditing:** Objective evaluation of financial assertions against established criteria, ensuring adherence to principles like GAAP or IFRS .
- **Art vs. Science in Strategy:** Strategic management can be viewed as a systematic science or an intuitive art; a balanced approach is often best .
- **Visible vs. Hidden Strategies:** Decision on whether strategic plans should be open or secret within the firm, balancing benefits of input and motivation against risks of competitive disclosure .
- **Top-Down vs. Bottom-Up Approach:** Debate on whether strategy formulation should be driven by top executives or involve lower-level employees .
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## Guidelines for case analysis
* Strategic-management cases describe an organization's external and internal conditions and issues concerning its mission, strategies, objectives, and policies .
* The case method is often called "learning by doing" .
* Effective case analysis requires practicality, justification, realism, specificity, and originality .
* No case provides all necessary information; strategists must make and state reasonable assumptions .
* Supplement case information with internet and library research .
* Justification for decisions and implementation plans are crucial; there is no single "right" answer .
* Recommendations must be realistic and feasible, considering an organization's means and capital requirements .
* Avoid broad generalizations; use specific data like ratios, percentages, numbers, and dollar estimates .
* Put yourself back in time to when strategic decisions were being made; base recommendations on available information then .
* Written case analyses should be structured, detailed, and avoid jargon, vague words, and inappropriate language .
* Use short sentences, simple words, and subheadings in written reports .
* Use active voice, examples, and exhibits like charts and graphs to enhance clarity .
* An executive summary is typically three to five pages plus exhibits .
* A comprehensive written analysis applies the entire strategic-management process and is usually around 10 pages plus exhibits .
* Oral presentations are graded on content (quality, correctness, logic) and delivery (attentiveness, clarity, persuasiveness) .
* Effective speaking rate is 100-125 words per minute .
* Maintain good posture, eye contact, and use appropriate body language during presentations .
* Visual aids should be legible, use color effectively, and avoid complete sentences .
* Field questions at the end of the presentation; be polite, confident, and avoid defensiveness .
* **Practicality:** Making reasonable assumptions and proceeding despite incomplete information .
* **Justification:** Providing strong support for decisions and implementation plans .
* **Realism:** Ensuring recommendations are within an organization's capabilities and financial means .
* **Specificity:** Using concrete data and details rather than broad statements .
* **Originality:** Developing your own sound recommendations based on the case facts, even if different from the company's actual actions .
* **Contribution:** Participating effectively in group analyses, being open-minded, and a good listener .
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## Ryanair holdings, plc - 2011
* Ryanair's strategy focuses on offering the lowest fares while generating ancillary revenues to offset lower ticket prices .
* The company employs a low-cost, no-frills model with operational efficiencies and a strong emphasis on ancillary services .
* Ryanair was founded in 1985 and adopted a low-fares model inspired by Southwest Airlines, growing to 72.1 million passengers by March 2011 .
* The airline operates over 1,500 flights daily across 27 countries, serving 160 destinations .
* Ryanair is Europe's largest low-cost carrier and second-largest airline by passengers carried .
* Its vision is to be Europe's leading scheduled passenger airline through improved and expanded low-fares service .
* The mission is to offer low fares that increase passenger traffic while maintaining cost containment and operational efficiencies .
* The company's Code of Business Conduct & Ethics emphasizes ethical practices and compliance with laws .
* Ryanair uses a single aircraft model, the Boeing 737-800, to minimize training and maintenance costs .
* Productivity-based incentives, such as commissions for onboard sales and payments based on flight hours, contribute to lower costs .
* Ryanair prioritizes punctuality, fewer lost bags, and fewer cancellations over other customer services .
* Ancillary revenues, including hotel bookings, car rentals, and baggage fees, are a significant revenue stream .
* Passengers must book and pay for fares on the Ryanair website or call center, with fees for call center bookings .
* An online check-in fee applies, and boarding passes must be printed .
* Ryanair operates one of the youngest fleets, with an average age of 2.94 years as of March 31, 2010 .
* The company reported a 26 percent increase in profits to 400.7 million euros for the year ended March 31, 2011 .
* Total operating revenues increased by 21 percent to 3,629.5 million euros, driven by fare increases, passenger growth, and ancillary fees .
* **Low Fares Strategy:** Targeting fare-conscious travelers by offering significantly lower ticket prices than competitors .
* **Ancillary Services:** Generating additional revenue through non-ticket items such as hotel reservations, car rentals, and various service fees .
* **Cost Containment:** Ruthless focus on minimizing operating costs through single aircraft type, secondary airports, efficient workforce, and use of contractors .
* **Internet Use:** Utilizing the internet for all ticket purchases and check-ins to reduce administrative costs .
* **"No-Frills" Model:** Offering basic services and charging for extras, aligning with the low-cost strategy .
* **Passenger Charter:** A commitment to specific service standards including lowest fares, punctuality, and clear communication, despite criticism .
* **Value Chain Activities:** Operations, human resource management, customer service, internet use, and ancillary revenues are key elements for strategy implementation .
* **Load Factor:** Measures the percentage of available capacity filled by revenue-paying passengers; Ryanair's load factor for fiscal 2010 was 82 percent .
---
## Ryanair Holdings, plc financial overview and external factors
### Financials (Year Ended March 31, 2011)
* Total current assets: 3,477.6 million euros .
* Total assets: 8,596.0 million euros .
* Total current liabilities: 1,827.0 million euros .
* Total noncurrent liabilities: 3,815.1 million euros .
* Shareholders' equity: 2,953.9 million euros .
* Total operating revenues: 3,629.5 million euros .
* Total operating expenses: 3,113.3 million euros .
* Operating profit: 516.2 million euros .
* Profit before tax: 450.6 million euros .
* Profit for the year: 400.7 million euros .
* Basic earnings per ordinary share: 26.97 euros .
### External Factors: Government Regulation
* **Commission for Aviation Regulation (CAR):** Issues operator licenses, can revoke them, and decides on airport slot coordination .
* **Irish Aviation Authority (IAA):** Oversees aviation safety and technical aspects, issues airworthiness certificates .
* **Department of Transportation (DOT):** Implements EU and Irish air transportation legislation, including EU 261 .
* **EU 261 Regulations:** Require compensation for denied boarding, flight cancellation, and delays, which Ryanair views as unfair .
* Short-haul airlines may pay 250 euros per passenger for inconvenience .
* Ryanair paid 88 million pounds in claims related to EU 261 in the previous year .
* Ryanair added a 2 pounds fee partly to cover EU 261 costs, potentially earning up to 150 million pounds annually from it .
### External Factors: Fuel
* Fuel costs represented 34.1 percent of total operating expenses in fiscal 2010 .
* Ryanair actively engages in fuel hedging to minimize losses from price increases .
* Ryanair is 90 percent hedged for fiscal year 2012 at 820 dollars per metric ton .
* Anticipates higher oil prices and expects full-year fuel costs to increase by approximately 350 million euros .
### External Factors: Airline Industry and Competition
* The European airline industry is highly competitive, featuring low-fare, traditional, and charter airlines .
* A Telegraph survey indicated that Ryanair's total cost with fees could exceed British Airways' fare .
* Competition exists from ground and sea transportation, particularly high-speed rail in Europe .
### Future Challenges for Ryanair
### Ryanair's Controversial Flight Through Restricted Airspace
---
## Emirates Group and UPS competitive landscape and strategies
### Emirates Group - Competitive Landscape
* Emirates' largest direct competitors include Singapore Airlines, British Airways, Delta, Middle East Airlines, and flydubai .
* Dubai is strategically located eight hours by air from 75 percent of the world's population .
* Dubai International Airport is projected to become the world's busiest airport by 2016, with a new airport, Al Maktoum Airport, opening in late 2013 .
### Singapore Airlines Group
* Operates 101 planes, with an average age of six years and seven months, and 30 more on order .
* Operates the Airbus 380 (19 in operation) and Boeing 777 (58 in operation) .
* Has 20 subsidiaries, including SIA Cargo, SIA Engineering Company, SilkAir, Scoot, and Tradewinds Tours and Travel .
* Profits were down $756 million to $336 million in fiscal year 2012, a 69 percent reduction, while revenues grew by $333 million to $14.8 billion .
* Both Singapore Air and Emirates are luxury airlines offering premium services .
### flydubai
* Started by the government of Dubai in 2008, supported by Emirates initially but not part of the Emirates Group .
* Operates as a discount airline provider .
* As of early 2013, served 52 markets, primarily in the Middle East, with select markets in Eastern Europe and India .
* Operates 28 planes with an average aircraft age of less than two years .
* Does not publicly disclose financial information .
* Identified as a potential large threat to Emirates due to growing demand for low-price flights globally .
### Middle East Airlines (MEA)
* Founded in 1945, serving cities in the Middle East, West Africa, and Europe .
* Joined SkyTeam in 2012 .
* Operates 19 aircraft with an average age of less than four years, with 10 planes on order .
* Reported revenues of $637 million with profits of $62 million in 2011 .
### British Airways
* Member of the Oneworld Alliance and the largest carrier by fleet size in the UK .
* Operates over 250 aircraft with 50 more on order, serving the entire world .
* Had revenues of USD 14.8 billion in 2011 .
### Delta
* Major US airline and a member of the SkyTeam Alliance .
* Operates over 5,000 flights daily, plus an additional 2,500 through Delta Connection .
* Reports revenues of $14 billion and net income of $854 million in 2011 .
### Strategic Alliances in the Airline Industry
* Formed in the 1990s to improve competitiveness, enabling joint benefits for service gaps, marketing, and frequent-flier programs .
### Emirates and Qantas Partnership
### United Parcel Service (UPS) - Overview and History
### UPS - Vision, Mission, and Sustainability
### UPS - Culture, Ethics, and Structure
### UPS - Strategy and Market Trends
### UPS - Segments and Financials
### UPS - Key Operational Data (Exhibit 3)
---
* In 2012, UPS's International Package Operations saw a 3.2% increase in export package volume but a 1.2% decrease in domestic volume .
* Average revenue per piece for UPS export packages decreased by 2.6% in 2012, while domestic revenue per piece decreased by 1.8% .
* Total UPS revenue in 2012 was 12,124 million dollars, a 1.0% decrease from the previous year .
* UPS Supply Chain and Freight segment managed supply chains in over 195 countries and territories, utilizing more than 35 million square feet of distribution space as of December 2012 .
* UPS is the second-largest freight forwarding company in the USA and among the top six internationally .
* UPS's business-to-business volume showed no growth in 2012, attributed partly to the migration of traditional retail to online retail .
* For calendar 2012, UPS's overall volume grew 2.8 percent .
* UPS's income statements show total revenue of 54,127 million dollars in 2012 .
* Compensation and benefits were the largest operating expense for UPS in 2012, totaling 33,102 million dollars .
* UPS's operating profit significantly decreased from 6,080 million dollars in 2011 to 1,343 million dollars in 2012 .
* Net income for UPS dropped sharply from 3,804 million dollars in 2011 to 807 million dollars in 2012 .
* UPS's balance sheet shows total assets of 38,863 million dollars at December 31, 2012 .
* Pension and Postretirement Benefit Obligations increased significantly for UPS from 5,505 million dollars in 2011 to 11,068 million dollars in 2012 .
* Customer preference is shifting away from paying a premium for overnight delivery, favoring waiting an extra day .
* UPS anticipates growth in exports of high-tech products to developing nations, aligning with goals to double U.S. exports by 2015 .
* Companies are planning to modify distribution networks to handle increased volume at East Coast ports after the Panama Canal expansion around 2015 .
* Approximately 40 percent of total UPS shipments are business-to-consumer, a figure expected to grow .
* UPS competes with USPS, FedEx, and DHL International .
* USPS incurred a record loss of 15.9 billion dollars for its fiscal year 2012, largely due to a mandate for retirement health fund prefunding .
* FedEx is the world's number-one express transportation provider, delivering about 3.5 million packages daily .
* FedEx is investing in a new international express and cargo hub in Shanghai, China, by 2017 .
* FedEx has been actively acquiring companies internationally, such as Opek Sp. z o.o. and TATEX, to enhance operational efficiencies and international growth .
* DHL is a major express delivery and logistics company, operating through four divisions: Express, Global Forwarding and Freight Forwarding, Mail, and Supply Chain .
* UPS is seeking acquisitions similar to TNT Express in Europe to extend its global services, particularly in Asia, Australia, South America, and Africa .
* Amazon.com is positioned to capitalize on the growing trend of online shopping and digital content consumption .
---
## Amazon.com financials and strategic considerations
* Consolidated net sales grew from $19.166 billion in 2008 to $34.204 billion in 2010 .
* Net income increased from $645 million in 2008 to $1.152 billion in 2010 .
* Total assets grew from $13.813 billion in 2009 to $18.797 billion in 2010 .
* Advertising and promotional costs increased significantly from $593 million in 2009 to $890 million in 2010 .
* First quarter 2011 profits decreased by 33 percent, despite a 38 percent revenue increase .
* First quarter 2011 spending on fulfillment rose to $855 million from $546 million year-over-year .
* First quarter 2011 spending on technology and content rose to $579 million from $366 million year-over-year .
### Strategic initiatives and considerations
* Amazon uses e-mail campaigns, portal advertising, and sponsored searches for advertising .
* The Associates Program contracts with other websites to drive customer traffic to Amazon for a commission .
* Amazon Prime membership, introduced in 2006, costs USD 79 per year for free express two-day shipping .
* Prime members increased Amazon purchases by 150 percent in 2010, contributing to sales growth .
* Amazon's distribution network expanded with 13 new distribution centers in 2010, totaling 52 .
* Fulfillment capacity grew to 26.1 million square feet by the end of 2010 .
* Amazon invests in proprietary technology and licenses external technology for innovation .
* New developments include an iPhone app for price comparison and a subscription service for TV viewing .
* Amazon employs approximately 33,700 people as of December 2010, supplemented by contractors .
* Key future strategic questions involve diversification, competition, international market prioritization, technology acquisition, growth strategy risks, financial goal integration, and cyber attack mitigation .
* Sales of electronics and general merchandise drive revenue increases in early 2011 .
* Amazon is aggressively expanding its cloud computing business (Amazon Web Service) .
### Customer service and experience
* Customer service is a key component, with a culture focused on serving customers .
* Continuous innovation aims to provide convenience, fast fulfillment, and efficient service .
* Features like One-Click purchases, "Look Inside the Book," and customer reviews enhance the shopping experience .
* Amazon has over 130 million customer accounts and over 2 million active seller accounts .
* Trust is critical to Amazon's success, built on secure transactions and reliable fulfillment .
* Website navigation is designed to be intuitive and simple .
### Future outlook and challenges
---
## Netflix marketing and subscriber growth analysis
* Netflix's subscriber growth shows seasonal patterns, peaking from October to March .
* Marketing expenses are detailed, with a notable increase in gross subscriber additions and a decrease in subscriber acquisition cost in 2010 .
* Marketing expenses increased by 23.6% from 2009 to 2010 .
* Subscriber acquisition cost decreased by 29.2% in 2010 compared to 2009 .
* Gross subscriber additions increased by 74.7% in 2010 compared to 2009 .
* Netflix was named the number one e-commerce company for customer satisfaction by the American Customer Satisfaction Index (ACSI) in December 2010 .
* Netflix's revenue is derived from monthly subscription fees in the United States and international markets .
* In September 2010, Netflix launched an unlimited streaming plan without DVDs in Canada .
* The U.S. home entertainment subscription service market is a 66 billion dollars business expected to grow to 84 billion dollars by 2013 .
* In 2010, approximately 85 percent of Netflix subscribers used the unlimited streaming plan without DVDs or the one or two DVD-out unlimited plans .
* The lowest-priced Netflix streaming plan was 7.99 dollars per month, with one or two DVD-out plans at 9.99 and 14.99 dollars per month .
* Blu-ray disc customers paid a surcharge of 1 to 4 dollars for plans .
* Increased revenues were driven by a 41.3 percent growth in the number of subscribers .
* Average monthly revenue per subscriber declined by 8.3 percent due to the growth of lower-priced plans .
* Subscriptions in the one- and two-out plans grew by 69.8 percent, while other plans declined by 15.0 percent in 2010 .
* Over one-third of new subscribers chose the unlimited streaming plan without DVDs in the fourth quarter of 2010 .
* Content deals are becoming more expensive, and competitors are imitating Netflix's services .
* Netflix has committed to growing its streaming entertainment business for future revenue growth .
* **Subscriber Acquisition Cost (SAC):** Defined as total marketing expenses divided by total gross subscriber additions .
* **Market Segments:** Netflix operates in two segments: United States and international .
* **Streaming Video Market Segments:** Video-on-demand (VOD), ad-supported, and subscription .
* **Product Substitution:** Consumers use multiple entertainment sources, impacting Netflix's service value .
* **Content Acquisition:** Netflix acquires content through direct purchases, revenue sharing, and licensing agreements .
* **Content Library:** The value of DVD and streaming content libraries is significant .
* **Customer Satisfaction:** A key metric for Netflix, as evidenced by ACSI recognition .
---
## Gap Inc. financial performance and marketing strategy .
### Key financial highlights
* Gap Inc. net sales increased by 3 percent in 2010 .
* The company achieved its highest operating margin in a decade at 13.4 percent in 2010 .
* Gap distributed USD 2.2 billion to shareholders through repurchases and dividends in 2010 .
* Same-store sales increased by 8 percent for the four weeks ending April 30, 2011 .
* Old Navy North America and Banana Republic North America saw double-digit same-store sales growth (14% and 11%) in April 2011 .
* Gap North America reported a 2 percent increase in same-store sales in April 2011, a reversal from a negative 6 percent in the prior year .
* International same-store sales in April 2011 were negative 1 percent, an improvement from negative 5 percent the previous year .
* Net sales for the four weeks ending April 30, 2011, were USD 1.15 billion, up 9.5 percent year-over-year .
* First-quarter 2011 saw a 3 percent decline in same-store sales across all Gap divisions .
* First-quarter 2011 sales were USD 3.30 billion, a 1 percent decrease from the prior year .
* Gap's total revenue for fiscal year 2010 was USD 14.664 billion .
* The U.S. region accounted for 71% of net sales in fiscal year 2010 .
### Marketing and technology initiatives
* Gap's marketing strategy focuses on global customer reconnection through product, place, price, and promotion .
* Gap partnered with Visa Inc. to deliver real-time discounts and promotions via SMS text messages to opt-in customers .
* Facebook marketing includes offering deals to nearby customers through a "Deals" feature linked to the "Places" function .
* Gap is expanding its European and franchise store base and exploring opportunities in China and fragmented European markets .
* Marketing campaigns have historically used black-and-white imagery and celebrities .
* Gap sponsored commercial projects like Bravo Network's Project Runway and Sony Film's Memoirs of a Geisha .
* Old Navy stores and visual merchandising were upgraded with creative marketing support .
* Gap stores enhanced lighting and added new fixtures .
* The new online system was recognized as one of "the best e-commerce sites in retail" by the New York Times .
* Gap's websites offer an interactive experience, including recommendation services based on customer preferences and size .
### Future outlook
* CEO Glenn Murphy emphasized the need for Gap to be a "consistent performer." .
* Gap North America was the only division with a same-store sales decline (1 percent) in fiscal 2010 .
* The company is increasingly turning to overseas markets for growth .
---
## Walt Disney Company's organizational structure and segments
* Disney operates as a diversified conglomerate within the entertainment and media broadcasting industry, organized into five strategic business units (SBUs) .
* Disney's vision is "to make people happy." .
* The company is led by a president, chief executive officer, and director; there is no COO, but a Chairman of Walt Disney International functions similarly .
* Disney's five SBUs are: media networks, parks and resorts, studio entertainment, consumer products, and interactive media .
* Media networks is the largest SBU, contributing 45 percent of revenues in 2012 .
* Parks and resorts revenue grew 10 percent in 2012, driven by increases at most theme parks .
* Studio entertainment revenues decreased 8 percent in 2012, despite a 17 percent increase in operating income .
* Consumer products revenues increased 7 percent in 2012, with operating income up 15 percent .
* Interactive media revenues decreased 14 percent in 2012, resulting in an operating loss .
* Disney's 2012 income statement showed a 17.4 percent increase in net income .
* As of 2012, Disney had $2.45 billion in "projects in progress" and $25 billion in goodwill .
* **Media Networks:** This segment includes ABC Television Network, ABC-owned Television Stations Group, ABC Studios, Disney Channels Worldwide, and Radio Disney, among others .
* **Parks and Resorts:** Encompasses 10 divisions including Disneyland Resorts, Walt Disney World Resort, Disney Cruise Line, and Walt Disney Imagineering .
* **Studio Entertainment:** Produces live-action and animated films, direct-to-video programming, and musical recordings, distributed under various labels like Marvel, Touchstone, and Pixar .
* **Consumer Products:** Focuses on licensing, manufacturing, publishing, and retailing a wide array of products based on Disney characters .
* **Interactive Media:** Develops and delivers games and media for smartphones and tablets, facing challenges with profitability .
* Disney's significant goodwill balance (USD 25 billion) represents a substantial portion of its assets, which can be a concern .
* The company's long-term debt of approximately USD 10 billion requires significant servicing .
* Disney faces intense competition across all its SBUs from major media conglomerates and entertainment providers .
* Acquisitions like Lucasfilm for USD 4.05 billion indicate a strategy to expand its entertainment property portfolio .
### Competition
* Direct competitors include NBC Universal, Paramount Pictures, Time Warner, CBS Corp., News Corp., Carnival Corp., and Royal Caribbean .
* Indirect competition exists from all family entertainment businesses, including hotels, restaurants, and water parks .
* A new large, state-run theme park in Shanghai poses a significant threat to Disney's Shanghai park opening in 2015 .
---
## Staples' business strategy and operations
* Staples faces intense competition and a declining market for traditional office supplies due to the shift towards digital operations .
* The company is adapting by expanding into delivery services, international markets, and offering a broader range of products and services beyond traditional office supplies .
* Staples is the largest office supply retailer in the United States, with approximately 1,900 of its 2,200 stores in North America .
* In 2010, sales increased only 1.1 percent to USD 24.55 billion, and the stock price fell 7 percent .
* Staples operates internationally in 24 countries, with a stronger revenue growth in international stores despite better margins in North America .
* The company's fiscal year ends at the end of January .
* Staples has over USD 4 billion in goodwill on its balance sheet .
* Office supplies constitute nearly 50 percent of Staples' revenue, with business machines accounting for another 30 percent .
* Staples pays a quarterly stock dividend with a relatively low payout ratio of 29 percent .
* Founded in 1985, Staples opened its first store in 1986 and has since grown significantly through acquisitions and expansion .
* A key acquisition was Corporate Express NV in 2008, expanding Staples' business offerings in Europe .
- **"Staples Soul" program:** Emphasizes providing superior value through low prices, broad selection, quality products, convenient locations, easy-to-use websites, reliable delivery, and excellent customer service, with a focus on diversity, the
* **Business Segments:**
* North American Retail: Operates retail stores across the US and Canada .
* North American Delivery: Includes Staples Contract, Staples Business Advantage, Staples Business Delivery, and Quill .
* International Operations: Encompasses operations in Asia/Pacific, Europe, and South America .
* **Hub-and-spoke distribution network:** Enables rapid and efficient shipping to stores, minimizing on-site inventory .
* **Customer database:** Used to identify purchase trends by customer, customer type, and region for targeted marketing .
* **Evolving product mix:** Staples is expanding into digital devices (e.g., NOOK reader) and developing store-branded products for higher margins .
* **Staples.com:** Offers over 30,000 products for online ordering, with options for in-store pickup or direct delivery .
* **Electric trucks:** Investment in electric vehicles for delivery aims to reduce fuel costs, though with longer payback periods .
* **Marketing strategy:** Utilizes catchphrases ("Yeah, we've got that," "That was easy"), the "Easy Button," product placement, targeted advertising, and a rewards program to build brand visibility and loyalty .
* **Financial performance:** In 2010, saw a decrease in net income for the quarter and a drop in stock performance relative to the NASDAQ Composite Index .
* The shift to digital operations and the "paperless office" trend pose a significant threat to traditional office supply sales .
* International expansion is crucial for future growth, particularly in countries with higher expected GDP growth than the USA, and where competitors are less established .
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## Office supply industry overview and competitive landscape
* The office supply industry is characterized by intense price competition and a shift towards international expansion and broadening product/service offerings due to slowing growth and changing demand patterns .
* Companies historically operated by buying in volume, moving mass quantities quickly, and focusing on inventory management and distribution .
* The industry faces challenges from a move towards paperless transactions and online competitors .
* The U.S. office supply industry generated over 80 billion dollars in annual revenue, with forecasts for growth to nearly 88 billion dollars by 2013 .
* The five-year average growth rate was less than 1 percent, a decrease from the 3 percent growth rate observed from 2004-2008 .
* Staples is significantly larger than Office Depot and OfficeMax combined, based on comparative data .
* Office Depot opened its first store in 1986 and operates three divisions: North American Retail, North American Business Solutions, and International .
* OfficeMax, incorporated in 1988, has approximately 1,000 superstores and its contract division accounts for 51 percent of its sales .
* OfficeMax annual revenues declined from 8.267 billion dollars in 2008 to 7.150 billion dollars in 2010 .
* Office Depot reported a loss of 15 million dollars in the first quarter of 2011, with a revenue drop of 3 percent .
* In the second quarter of 2011, Office Depot reported a loss of 29 million dollars on sales of 2.7 billion dollars .
* Office Depot's North American Retail division saw sales decline 2 percent in Q2 2011, though furniture and storage item sales increased .
* Office Depot's North American Business Solutions Division (BSD) reported Q2 2011 sales down 2 percent, but operating profit increased significantly .
* Office Depot's International division reported Q2 2011 sales up 6 percent in USD but down 5 percent in constant currency .
* Office Depot has a vision statement and a values statement emphasizing integrity, innovation, inclusion, customer focus, and accountability .
* Office Depot operates in three divisions: North American Retail, North American Business Solutions, and International, with significant store counts in each .
- Financial performance data for Office Depot's divisions in Q4 and Year-to-Date 2010 vs. 2009 shows mixed results with declines in sales for most divisions and reduced operating profits in the
* Office Depot's income statements show an operating loss in 2010 and net losses from continuing operations in 2010 and 2009 .
* Office Depot's balance sheets indicate a decrease in total assets from 2008 to 2010 and a decline in total stockholders' equity .
- **Industry Consolidation and Competition:** The industry is dominated by a few large players (Staples, Office Depot, OfficeMax) with similar business models, leading to intense price competition and the need for
* **Shift to Online and International Markets:** Companies are undertaking substantial international expansion and strengthening their online presence to offset domestic market challenges .
* **Diversification:** There is a suggestion for major office supply firms to diversify beyond traditional office products, citing Staples' move into selling e-readers as an example .
* **Strategic Alliances:** Staples' alliance with Buro Schoch Direct AG in Switzerland exemplifies a strategy to gain local market expertise and serve international accounts .
* **Operational Efficiencies:** Survival in the competitive landscape depends on superior strategic planning and operational efficiencies .
* **Green Initiatives:** Office Depot highlights its numerous "green" accolades and initiatives, including recycling programs and LEED certifications, indicating a focus on sustainability .
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## Competitive landscape and future outlook for office supply companies
* Office supply companies like Office Depot, Staples, and OfficeMax share similar business models, leading to intense competition where strategic planning and operational efficiency are key differentiators for survival .
* Secondary competitors such as Wal-Mart, Kmart, and Target, along with online retailers, are actively capturing market share from the dominant players .
* Staples is the world's largest office products supplier with approximately 2,240 stores globally and significant revenue growth in 2010, though operating cash flow decreased due to inventory and receivables .
* OfficeMax faced declining net income and sales in early 2011, planning store closures in the US while expanding in Mexico .
* Office Depot was recognized by the U.S. Postal Service for its partnership, offering postal services in its retail locations nationwide .
* Office Depot engaged in marketing promotions, such as a sweepstakes for small business owners, in partnership with NASCAR .
* The industry faces intense price competition, pushing firms to consider diversification or a stronger online focus .
* Emerging economies and global expansion are suggested as potential growth avenues, evidenced by Staples' strategic alliance in Switzerland .
* Companies are exploring additional product categories and services, like furniture, cleaning products, and print services, to counteract declines in traditional office products .
* The survival of major office supply firms hinges on superior strategic planning and operational efficiencies .
* There is a strategic imperative for these companies to adapt to evolving market dynamics, potentially by shifting to an online-first model or expanding into new geographical markets .
* Partnerships, like Office Depot's with USPS, can provide revenue streams and customer engagement opportunities .
---
## Domino's Pizza and the QSR Industry Landscape
* The quick-service restaurant (QSR) industry exhibits a bimodal customer distribution, attracting both bargain-minded consumers and more affluent individuals .
* Domino's is strategically positioned to target the larger group of value-seeking customers through frequent sales and discounts .
* The company also appeals to quality-conscious value shoppers by introducing higher-quality products like artisan pizzas .
* The US pizza delivery market is mature, but carry-out revenues continue to grow .
* Domino's is the market leader in delivery and second largest in carry-out within the USA .
* Pizza delivery is underdeveloped internationally, presenting opportunities for firms like Domino's .
* Growing health consciousness and government pressure for nutrition labeling are key concerns for QSRs .
* Accurate nutrition labeling is challenging for customizable items like pizzas due to ingredient variations .
* Domino's offers gluten-free crust as a health-conscious menu option .
* Barriers to entry in the restaurant industry are relatively low, but rivalry is high .
* Small entrepreneurs face challenges competing with larger franchises due to economies of scale in purchasing .
* International markets are showing stronger growth than domestic markets for many QSRs .
* QSRs were projected to see a three percent sales increase and 1.5 percent order increase in 2012 .
* Domino's has extensive "Code of Ethics" documents for employees and executives .
* The company has a strong corporate citizenship record, notably with St. Jude Children's Research Hospital, donating over USD 12 million since 2006 .
* The Pizza Partners Foundation, funded by team members and franchisees, has disbursed nearly USD 12 million since 1986 to aid team members in crisis .
* **Nutrition concerns:** The industry faces increasing demand for health-conscious options and government mandates for nutrition labeling, posing complexity for customizable products .
* **Barriers to entry:** While physical entry is easy, achieving competitive scale and cost advantages requires significant capital, favoring established players .
* **Economic factors:** The dual market of budget-conscious and affluent consumers requires targeted strategies; international expansion offers significant growth potential .
* **Ethics and corporate citizenship:** Domino's emphasizes ethical conduct and demonstrates commitment through significant charitable contributions and employee support programs .
* Domino's must continue to balance value offerings with perceived quality improvements to capture a broad customer base .
* International expansion remains a critical avenue for growth, requiring careful consideration of market expertise and corporate structure .
* The company needs a clear three-year strategic plan to navigate future growth and market challenges .
* Addressing nutrition labeling complexities could be enhanced by leveraging technology like the PULSE system .
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## Carnival corporation plc cruise industry analysis .
### Company overview and strategy
* Carnival Corporation & plc is the largest and one of the most successful cruise lines globally .
* The company operates a dual listed company (DLC) structure, incorporated in Panama (Carnival Corp.) and England and Wales (Carnival plc) .
* Carnival's mission is to deliver exceptional vacation experiences through well-known brands catering to diverse lifestyles and budgets at outstanding value .
* The strategy focuses on reaching every tier of the cruise market, providing services regardless of vacationer's budget, itinerary, geography, demographics, or psychographics .
* Carnival's goal is to offer the ultimate fun experience and meet needs for luxury, elegance, shorter vacations, exotic destinations, or land/sea packages .
### Brands and fleet
- Carnival operates a portfolio of 10 cruise brands including Carnival Cruise Lines, Holland America Line, Princess Cruises, Seabourn, AIDA Cruises, Costa Cruises, Cunard, Ibero Cruises, P&O Cruises (UK), and P&O
* As of November 2010, the company operated 98 cruise ships with a total passenger capacity of 191,464 lower berths .
* Carnival continuously introduces new ships, with 10 new ships scheduled for delivery between May 2012 and March 2016 .
* New ship orders include a 3,700-passenger vessel for Costa Cruises and two 3,250-passenger ships for AIDA Cruises .
### Financial performance and investments
* Carnival reported record revenues of 14.469 billion dollars in 2010 and net income of 1.978 billion dollars .
* The company carried 9.1 million passengers in 2010, an increase from 8.5 million in 2009 .
* Significant investment is made in ships, including substantial amounts committed to ships under construction .
* Property and equipment, net of accumulated depreciation, stood at 30.967 billion dollars in 2010 .
* Advertising expenses were approximately 507 million dollars in fiscal year 2010 .
### Marketing and sales
* Carnival sells cruises mainly through travel agents, offering standard commissions of 10 percent plus potential volume-based incentives .
* Marketing activities include websites, seminars, direct-response marketing, and various media channels (TV, magazine, radio) .
* The company utilizes social media platforms like Facebook and Twitter, with one North American brand accepting bookings via Facebook in January 2011 .
* An interactive website offers features like discounted cruises, singles cruises, and special deals to entice vacationers .
### Industry overview and demographics
* The multinight cruise industry experienced significant growth but remains a small part of the global vacation market .
* The market is sensitive to consumer discretionary income, leading consumers to seek deals and discounts .
* Worldwide, the cruise industry generated revenues of 29.34 billion dollars in 2010, a 9.5 percent increase from 2009 .
* Carnival holds the highest market share at 52.9 percent, followed by Royal Caribbean (27.6 percent) and NCL (9.8 percent) .
* The average age of cruise passengers has fallen, with a surge in interest from those aged 25 and older with household earnings of 40,000 dollars or more .
* Most cruise vacationers travel with their spouse (75 percent) .
* Key reasons for choosing cruise travel over non-cruise travel include good value, offering something for everyone, and hassle-free experience .
### Barriers to entry and environmental issues
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## Analysis of JPMorgan Chase & Co.'s strategic position and future
* JPMorgan Chase & Co. (JPM) is a large financial holding company with a global presence and a long history, serving clients for over 200 years .
* JPM operates under two main brands, JPMorgan and Chase, targeting different customer segments with distinct services .
* The company's strategy focuses on international expansion, small business growth, commodities, branch network expansion, and private client business growth .
* As of mid-2013, JPM had over USD 2.3 trillion in total assets and employed more than 240,000 people globally .
* JPM is one of the oldest financial institutions, tracing its roots back to 1799 and J.P. Morgan & Co. .
* Significant past acquisitions include Bank One Corp. Chemical Banking Corp. First Chicago Corp. and The Chase Manhattan Corp. .
* In 2011, JPM earned a record USD 19 billion in net income, despite losses from its mortgage business .
* JPM reinstated its annual dividend in April 2011 at $1.00 per share, increasing it to $1.20 in April 2012 .
* Total goodwill at JPM was USD 48 billion, indicating a history of acquisitions .
* In 2012, JPM’s total assets were $2.359 trillion, with total liabilities of $2.155 trillion and total equity of USD 204 billion .
* North America accounted for 81 percent of JPM's revenues and 86 percent of net income in 2012 .
* **Organizational Structure:** Some analysts point to organizational design issues, including numerous CEOs, dual-title positions, and unclear brand distinctions .
* **Ethics Issues:** Despite a strong code of conduct, JPM has faced ethical challenges, including overcharging military families for mortgages and the "London whale" trading incident .
* **International Expansion Strategy:** JPM aims to increase its global presence by expanding asset management, investment banking, and treasury services in Asia, Latin America, Africa, and the Middle East .
* **Small Business Growth:** The Chase brand is focused on supporting U.S. small businesses, providing significant credit and acting as a leading SBA lender to women- and minority-owned businesses .
* **Commodities Business:** Following the acquisition of Sempra, JPM is a top-three global firm in commodity dealings, expecting increased demand from emerging markets .
* **Physical Branch Growth:** JPM continues to grow its physical branch network, recognizing the value of face-to-face interaction for certain financial services .
* **Investment Bank:** This segment generates substantial revenue from both interest and non-interest sources, advising clients on strategy, capital raising, and derivatives .
* **Retail Financial Services:** This segment includes bank branches, ATMs, mortgages, and real estate, serving a large customer base through extensive networks .
* **Card Services and Auto:** JPM is a major credit card issuer, providing financing through credit card loans and auto financing for dealerships, schools, and universities .
* JPM's strong performance in net income and dividends contrasts with revenue declines in some segments, suggesting a focus on profitability despite market shifts .
* The company's commitment to physical branches highlights a strategic balance between digital and traditional banking, acknowledging customer preferences for personal interaction .
* Past acquisitions have significantly shaped JPM's scale and market position, though recent years have seen a pause in major M&A activity .
* Ethical lapses, such as the mortgage overcharging and trading losses, pose reputational and regulatory risks that require ongoing management .
* Organizational complexity and potential for unclear reporting lines could hinder agility or decision-making .
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## Procter & Gamble company analysis
* P&G focuses on beauty, personal care, health, and household products after divesting its food business.
* The company aims to improve lives through superior quality products and achieve leadership in sales, profit, and value creation.
* P&G operates with financial objectives of faster market growth, high single-digit to low double-digit EPS growth, and at least 90 percent free cash flow productivity.
* P&G sold its Pringles snack line to Diamond Foods for USD 1.5 billion .
* In fiscal 2010, P&G achieved sales of $78.9 billion and net earnings of $12.7 billion .
* P&G has 250 brand products, with 24 billion-dollar brands contributing about 70 percent of annual revenues .
* Pampers diapers are P&G's top product, with over USD 9 billion in annual sales .
* P&G invested nearly USD 2 billion in research & development in 2010 .
* North America accounts for approximately 42 percent of P&G’s revenues .
* P&G markets over 100 brands in Western Europe, accounting for about 25 percent of total sales .
* Asia is a primary growth target, representing over three billion consumers .
* **Global Business Units (GBUs):** P&G is organized into three GBUs: Beauty and Grooming, Health and Well-Being, and Household Care .
* **Brand Franchises:** P&G focuses on improving existing product lines and expanding consumers into existing brand franchises to build scale and reduce costs .
* **Innovation:** P&G learns from both successful and failed product launches to drive innovation .
* **Market Share Focus:** P&G aims for market leadership in various categories, such as 10 percent share for Olay skin cream and 70 percent for Gillette male razor blades .
* **Developing Markets:** P&G seeks to accelerate growth in developing markets like Brazil and India, focusing on affordability, accessibility, and brand awareness .
* The divestiture of the food business allows P&G to concentrate resources on core beauty, personal care, health, and household products.
* P&G's significant R&D investment signals a commitment to continued innovation and new product development.
* The focus on developing markets suggests a strategy to tap into growing consumer bases and economies.
* Declining sales in some household products like bleach and batteries indicate a need for strategic adjustments in those categories.
### Competitor comparison
* Johnson & Johnson (J&J) is a major competitor, with its consumer division primarily competing with P&G.
* Colgate-Palmolive competes in oral care, personal care, home care, and pet nutrition.
* Kimberly-Clark competes in personal care, consumer tissue, and healthcare segments.
* J&J has a strong financial performance with consistent earnings growth and dividend increases .
* P&G's gross margin was 51.29 percent, compared to J&J's 69.49 percent and Kimberly-Clark's 33.27 percent .
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## Avon products, inc. analysis
* Avon, a major direct-seller of cosmetics, faces significant challenges due to past ineffective strategies and ongoing bribery investigations.
* Despite struggles in the US, its direct-selling model remains strong in emerging economies, leveraging a large global sales force.
* The company needs a clear strategic plan to capitalize on the growing global beauty industry and its existing advantages.
* Avon is the world's fifth-largest cosmetics and fragrance firm, with 6.4 million independent sales representatives globally .
* 85 percent of Avon's revenue is generated from outside the United States .
* Avon reported a net loss of $38.2 million in 2012, a significant drop from $517.8 million net income in 2011 .
* North American sales declined 12 percent in Q2 2013, impacted by a 13 percent decrease in active sales representatives .
* Avon's beauty products segment accounted for 72 percent of company sales in 2012 .
* In 2012, Avon spent $253.6 million on advertising and $75.2 million on R&D .
* The Avon Foundation for Women, founded in 1955, is the largest corporate-affiliated philanthropic organization for women globally .
* Avon announced plans in late 2012 to cut approximately 1,500 jobs globally and exit South Korea and Vietnam markets .
* Direct selling grew approximately 30 percent between 2006 and 2012, reaching a USD 150 billion global market .
* **Direct-selling business model:** Avon's primary model relies on independent contractors selling products through catalogs and a website, with a significant portion of sales historically from these representatives .
* **Empowering women:** Since its inception, Avon has focused on providing economic opportunities and independence for women .
* **Geographic organizational structure:** Avon operates with a divisional structure organized by geographic regions, reporting to the CEO .
* **Product segments:** Avon categorizes its business into Beauty, Fashion, and Home segments .
* **Competitive landscape:** Avon competes with major beauty companies like L'Oreal, Mary Kay, Revlon, Estee Lauder, Coty, and Procter & Gamble .
* **Emerging markets advantage:** The direct-selling model is particularly effective in emerging economies with less developed retail infrastructure, which plays to Avon's strength .
* Avon's reliance on a declining direct-selling model in the US presents a significant weakness.
* The company's strong presence in emerging markets offers a substantial growth opportunity if leveraged effectively.
* Effective management of its global sales force is critical for Avon's competitive advantage.
* The pending bribery investigations and past ineffective strategies create reputational and financial risks.
* The global beauty industry's growth rate of 6 percent presents a positive market outlook for Avon's future.
- > **Tip:** Analyze how Avon's historical strengths in emerging markets can be optimized to offset the challenges faced in more developed markets
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## Revlon's financial and operational position
* Revlon faces significant financial challenges, particularly a large debt load, while implementing restructuring and focusing on operational efficiency .
* The company relies heavily on mass retailers and chain drug stores for sales, with Wal-Mart being a significant channel .
* Revlon's strategy involves leveraging its brand reputation and focusing on core cosmetic and fragrance businesses after divesting healthcare products .
* Revlon had a debt load of USD 1.1 billion by the end of 2010 .
* In 2010, Revlon spent USD 24 million on research and development, employing 140 people .
* Wal-Mart accounted for 22 percent of Revlon's sales in 2010 .
* The company operates U.S. production facilities in Oxford, North Carolina, and Irvington, New Jersey .
* Revlon's vision is "Glamour, Excitement and Innovation through High-quality Products at Affordable Prices." .
* Revlon's mission is to emerge as the leader in cosmetic and personal care globally .
* In 2008, Revlon reduced debt by USD 100 million through asset sales and a stock offering .
* In April 2009, Alan Ennis became Revlon's fourth CEO since 2000 .
* A worldwide organizational realignment aimed to improve efficiency, eliminate management layers, and consolidate operations .
* This restructuring saved $30 million, with $15 million impacting 2009 results .
* Revlon supports women's health programs and has invested over USD 65 million in medical research and education .
* **Debt Risk:** Revlon faces risks related to its substantial debt, including potential inability to meet payments or refinance on favorable terms .
* **Globalization of Operations:** Consolidation of manufacturing and distribution facilities has improved operating efficiency and capital asset utilization .
* **Brand Refocus:** Following Ronald Perelman's leveraged buyout, Revlon divested healthcare products to refocus on cosmetics and fragrances .
* **Direct Sales Model:** Avon relies on a large force of sales representatives for its revenue, with efforts to integrate online sales support for them .
* **Product Diversification:** Revlon's product categories include cosmetics, hair color, beauty tools, fragrances, antiperspirants/deodorants, and skincare .
* The high debt load poses a significant ongoing challenge and potential constraint on future investment and strategic initiatives .
* Revlon's reliance on mass retailers makes it sensitive to the sales strategies and performance of major partners like Wal-Mart .
* The company's restructuring efforts aim to improve profitability and streamline operations, which could lead to greater financial stability if successful .
* Revlon's commitment to social responsibility may enhance brand image and consumer loyalty, particularly among its target demographic .
* The focus on affordable luxury aligns with consumer behavior during economic downturns, potentially benefiting Revlon's market position .
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## L'Oréal's financial and competitive position
* L'Oréal's revenue in 2012 was 22.46 billion euros, with net income of 2.87 billion euros .
* Total assets for L'Oréal in 2012 were 29.53 billion euros, and total liabilities were 8.59 billion euros .
* Shareholders' equity for L'Oréal in 2012 was 20.93 billion euros .
* In Q1 2013, L'Oréal reported total revenue of 5.93 billion euros .
* Goodwill increased by almost 5 billion euros in 2011, but long-term debt was being paid down .
### L'Oréal's product divisions and sales performance
* L'Oréal operates in five product groupings: L'Oréal LUXE, Consumer Products, Professional Products, Active Cosmetics, and The Body Shop .
* L'Oréal LUXE sales grew 8.1 percent in Q1 2013, driven by acquisitions like Clarisonic .
* Consumer Products sales increased by 5.5 percent in Q1 2013 .
* Professional Products sales saw a slight decrease of 0.4 percent in Q1 2013 .
* Active Cosmetics sales rose by 6.2 percent in Q1 2013 .
* The Body Shop sales increased by 0.8 percent in Q1 2013 .
* L'Oréal showed strong performance in the Africa/Middle East region with 11.8 percent sales growth in Q1 2013 .
### Competitive landscape and market position
* L'Oréal is the world's largest beauty products company by revenue, number of employees, and net income .
* It holds the highest profit margin and revenue per employee among its competitors .
* Key competitors include Estée Lauder, Avon, Coty, Mary Kay, and Revlon .
* Estée Lauder has annual sales of about 10 billion dollars and net income of about 1 billion dollars .
* Avon is the largest direct-seller of cosmetics and beauty items, with 6.4 million independent sales representatives globally .
* Coty is a leading maker of beauty products, with significant sales in nail care, nail polish, and fragrances .
* Revlon operates in over 100 countries, with the USA being its largest market .
* Mary Kay is a privately-owned direct-selling company with over 2.4 million independent sales representatives .
### Future strategic considerations for L'Oréal
* L'Oréal created L’Oréal KSA, a joint venture in Saudi Arabia to better understand and meet local needs .
* Similar joint ventures could be pursued in other emerging markets like Africa and South America .
* Potential acquisitions include struggling firms like Avon, Coty, or cosmetic divisions of larger companies like Procter & Gamble .
* Improving online selling operations is a key area for development .
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## Analysis of Dr Pepper Snapple Group's strategic position and future in the beverage market
* DPS is the third-largest beverage producer in North America, facing strong competition from Coca-Cola and PepsiCo .
* The company's strategy focuses on building brands, high-growth categories, high-margin channels, and improving efficiency .
* DPS's future growth depends on strategic decisions regarding acquisitions, diversification, geographic expansion, and divestments .
* DPS offers over 50 brands, with six in the top 10 non-cola soft drinks and nine leading their flavor categories .
* In 2010, DPS sales grew by almost 2 percent, but profits were lower than in 2009, contrasting with Coca-Cola's 13.3 percent revenue growth and PepsiCo's 33.8 percent revenue growth .
* For Q2 2011, DPS volume declined 3 percent, though Dr Pepper Fountain volume grew 5 percent .
* Snapple volume sales increased 8 percent in Q2 2011, while Hawaiian Punch volume was flat due to a price increase .
- Approximately 40 percent of DPS volume is distributed via company-owned networks, another 40 percent via third-party distributors (including Coke and PepsiCo bottlers), and the rest via warehouse direct and foodservice
* DPS operates 24 production plants and over 200 distribution centers in North America and the Caribbean .
* In 2010, DPS had net sales of 5.636 billion dollars and income from operations of 1.025 billion dollars .
* The beverage industry is highly concentrated, with Coca-Cola, PepsiCo, and DPS accounting for over 90 percent of industry revenues .
* **Brand Development:** DPS focuses on flavored soft drinks as a "sweet spot" in the industry to gain market share .
* **Distribution Strategy:** Reliance on competitors like Coca-Cola and PepsiCo for distribution is identified as a key strategic issue and potentially dangerous .
* **Health and Wellness Trend:** A significant trend influencing the industry, leading to reduced demand for high-calorie carbonated drinks and increased demand for healthier alternatives .
* **Market Channels:** DPS directly serves bottlers/distributors and retailers; strong relationships are crucial .
* **Competitive Landscape:** DPS is a distant third behind Coca-Cola and PepsiCo, struggling to compete head-to-head internationally and domestically .
- **International Focus vs. North America Focus:** Coca-Cola and PepsiCo have strong international sales (74 percent and over 40 percent respectively), while DPS generates about 89 percent of its revenues in
* DPS must navigate complex distribution agreements with its main competitors .
* The shift towards healthier beverage options requires DPS to adapt its product portfolio and marketing efforts .
* Growing consolidated retailers and foodservice customers require strong relationships for effective market penetration .
* DPS faces a significant challenge in growing market share and competing internationally against the scale of Coca-Cola and PepsiCo .
### Future Outlook and Strategic Questions
* How can DPS achieve satisfactory growth levels for shareholders ?
* What mix of acquisitions, joint ventures, licensing, and internal growth should be pursued ?
* Should DPS diversify into product markets like snacks, as PepsiCo has successfully done ?
* What geographic growth options are most advantageous for DPS ?
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## Coca-Cola Company financial and operational overview (2010-2011)
* Coca-Cola maintained strong financial performance and global reach through 2010-2011, with significant revenue growth driven by acquisitions and international market expansion .
* The company operates globally across six segments, with North America being the largest revenue generator .
* Coca-Cola faces intense competition from major rivals like PepsiCo and Dr Pepper Snapple Group .
* Coca-Cola is the world's largest beverage company, offering around 400 brands and over 3,000 beverage products .
* In Q2 2011, profit rose 18 percent to 2.8 billion dollars on 12.74 billion dollars revenue, aided by bottler acquisition .
* Total revenue for 2010 was 35.1 billion dollars, with net income at 11.8 billion dollars .
* Total assets reached 72.9 billion dollars by December 31, 2010 .
* North America generated 31.7 percent of net operating revenues in 2010 .
* Eurasia & Africa segment saw a 12 percent unit case volume increase in 2010 .
* Latin America achieved 6 percent case volume growth in 2010 and has been Coke's largest operating case volume group for three years .
* Europe showed zero-percent unit case volume growth in 2010, with increases only in some Western European countries .
* Coca-Cola is Africa's largest private-sector employer with 55,000 employees .
* The company acquired Coca-Cola Enterprises, renaming it Coca-Cola Refreshments USA .
* **Operating Segments:** Coca-Cola is structured into North America, Latin America, Europe, Eurasia & Africa, Pacific, and Bottling Investments .
* **Brand Portfolio:** Owns top soft-drink brands like Coca-Cola, Diet Coke, Fanta, and Sprite, plus others like Minute Maid and Powerade .
* **Financial Stability:** Coca-Cola stock showed resilience during market downturns in August 2011 .
* **Global Distribution:** Products are sold in over 200 countries through diverse outlets, with over 1.4 billion servings consumed daily .
* **Strategic Acquisitions:** Acquisitions, such as Coca-Cola Enterprises and mineral water company Apollinaris, bolster the portfolio (#page=591, 595) .
* **Emerging Markets Focus:** Significant investments are planned for Africa and Russia, with strong growth in China and India .
* **Bottling Investments Strategy:** Long-term strategy involves reducing ownership interests in bottlers and selling interests to investee bottlers .
* **Competitor Landscape:** Primary rivals are PepsiCo (with a significant food business) and Dr Pepper Snapple Group .
* The company's strong performance in emerging markets signals a key growth driver for future revenue (#page=591, 595) .
* Strategic acquisitions of bottlers and beverage companies are crucial for expanding market share and product offerings (#page=591, 595, 596) .
* The competitive pressures from PepsiCo, especially in the food sector, necessitate strategic considerations for Coca-Cola to remain competitive (#page=596, 597) .
* Health concerns and regulatory pressures regarding soft drinks present challenges that require product innovation and marketing adjustments .
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## Pearson plc's strategic position and future in the educational publishing market
* Pearson is the world's largest education company and book publisher, operating across education, financial news, and consumer publishing segments .
* The company aims to be the world's leading learning company, helping individuals make progress through learning in a brain-based economy .
* Pearson was founded in 1844 as a building and engineering firm, later evolving into a media and education giant .
* Key acquisitions include Penguin Books Ladybird Books National Computer Systems Dorling Kindersley eCollege and Certiport .
* In late 2012, Pearson agreed to merge its Penguin Books division with Bertelsmann's Random House to form Penguin Random House, a joint venture where Pearson owns 47 percent .
* Pearson operates across four main business groupings: Pearson International Education, Pearson North American Education, Professional Education, and FT Group .
* In 2012, Pearson generated total revenues of GBP 5.059 billion, with North America contributing GBP 2.658 billion .
* Pearson Education brands include Bug Club, Edexcel, Financial Times Publishing, Fronter, MyEnglishLab, and BBC Active .
* Pearson's strategy focuses on long-term organic investment in content, digital products and services, international expansion (especially in China, India, Africa, and Latin America), and efficiency .
* Digital revenues represented 33 percent of total sales (GBP 2 billion) in 2012 .
* The company seeks to "add services to our content, usually enabled by technology" .
- Pearson Education brands dominate specific academic areas: Prentice Hall in higher education, Addison Wesley and Benjamin Cummings in computing/science, Longman in humanities/social sciences, and Allyn and Bacon in social sciences/education
* Pearson reorganized its education divisions in 2013 into Pearson International Education, Pearson North American Education, and Professional Education .
* The merger of Penguin Books with Random House indicates a strategic shift in consumer publishing, while Pearson retains its educational brand rights .
* The emphasis on emerging markets and the addition of board members with expertise in these areas signals a focus on future growth .
* Revenue declines in three regions in 2012, with only slight increases in the USA, suggest ongoing market challenges requiring strategic adaptation .
* The continued integration of digital learning technologies and services is central to Pearson's strategy to remain competitive .
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## Pearson's financial performance and market position
* Pearson's total revenues in 2012 were 6,112 million pounds, increasing from 5,862 million pounds in 2011 .
* Continuing operations generated 5,059 million pounds in revenue in 2012, up from 4,817 million pounds in 2011 .
* Discontinued operations brought in 1,053 million pounds in 2012, a slight increase from 1,045 million pounds in 2011 .
* North American segment had 2012 operating profits of 536 million pounds .
* Pearson's International Education segment reported 2012 operating profits of 216 million pounds .
* FT Group reported 2012 operating profits of 49 million pounds .
* Penguin Group reported 2012 revenue of 1,053 million pounds and operating profits of 98 million pounds .
* E-book revenue accounted for 17 percent of Penguin's global revenue in 2012 .
* Total U.S. college enrollments declined 2 percent in 2012, while the higher education publishing market declined 6 percent .
* The textbook publishing market declined 15 percent in 2012 .
* Pearson's earnings per share (EPS) in 2012 was lower than both McGraw-Hill and John Wiley .
* Pearson's operating profit in 2012 was 515 million pounds, a significant decrease from 1,118 million pounds in 2011 .
* Profit for the year from continuing operations was 286 million pounds in 2012, down from 885 million pounds in 2011 .
* Total assets for Pearson in 2012 were 11,348 million pounds, an increase from 11,244 million pounds in 2011 .
* Total liabilities in 2012 were 5,638 million pounds, an increase from 5,282 million pounds in 2011 .
* Pearson's North American segment saw significant growth in student registrations for MyLab (11 percent) and eCollege (3 percent) .
* Pearson's Connection Education in North America served over 43,000 students, a 31 percent increase .
* Wall Street English (WSE) experienced a 15 percent increase in student enrollments in China .
* The FT Group saw digital subscriptions increase 18 percent to almost 316,000 users .
* Pearson agreed to merge Penguin Group with Bertelsmann’s Random House to form Penguin Random House, with Pearson owning 47 percent .
* The changing publishing landscape is characterized by e-books, book renting, sharing, and digital alternatives, increasing risk .
* Pearson faces intense competition from rivals like McGraw-Hill, John Wiley, Houghton Mifflin, and Thomson Reuters .
* McGraw-Hill divested its education division, renaming the company McGraw-Hill Financial .
* John Wiley & Sons reported a slight revenue decline and a 15 percent decrease in net income for Q2 2012 .
* Houghton Mifflin Harcourt Publishing Company filed for bankruptcy in 2012 .
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### Competitors
* Luxury automobile brands like Lexus, Mercedes-Benz, BMW, Acura, Cadillac, Audi, and Infiniti experienced a 15 percent sales increase in the USA in 2012 .
* Growth in luxury vehicle sales outpaces overall automobile category growth, indicating fierce global competition .
* Volkswagen (VW) aims to double its U.S. market share to 4 percent by 2014 and become the world's largest carmaker by 2018 .
* Mercedes-Benz sales surged 11 percent in January 2013, aiming to overtake BMW in luxury-auto deliveries .
* Toyota's Lexus saw a 23 percent sales increase in the USA in 2012 and is projected for at least 10 percent growth in 2013 .
* Audi manufactures vehicles in seven global facilities and has been a majority subsidiary of VW since 1966 .
* Audi introduced a computerized control system, multimedia interface (MMI), potentially an improvement over BMW's iDrive .
### Business Culture in Germany
* German companies are typically led by individuals with technical expertise, often delegating tasks to other specialists with minimal oversight .
* Meetings in Germany start punctually, with attendees expected to be well-researched in their areas of expertise .
* German communication is direct and to the point, with supervisors providing straightforward feedback .
* Professional dress in Germany is standard but less strictly defined than in the UK, USA, or Asia .
### The Future (BMW Focus)
* China surpassed the USA as BMW's largest international market in 2012 .
* BMW is implementing a retail concept similar to Apple stores, featuring "BMW Genius Everywhere" staff to provide product information .
* A pilot program for the "BMW Genius Everywhere" concept began in the USA in late 2013, with a full launch by early 2014 .
* The new BMW i3 electric car is slated for sale in early 2014 .
### Apple Inc. - 2011 Analysis (Context for Tech Trends)
* Apple sold 4.69 million iPads in Q1 2011, reaching 20 million units since its debut .
* Tablets like the iPad are impacting PC sales, with HP's PC sales plunging 23 percent in Q1 2011 .
* Global tablet sales were projected to reach 70 million in 2011 and 246 million within three years .
* Microsoft Windows sales fell 4.4 percent in Q1 2011, and Apple surpassed Microsoft in net income for the first time in 20 years .
* Apple's success in iPads, iPhones, and Macs led to it replacing Microsoft as the world's most valuable technology company in 2010 .
* Apple's organizational structure is functional, with geographically based reporting segments .
* Apple's net sales increased 52 percent in 2010, with net income rising 70 percent; the company had zero long-term debt .
* The Americas segment generated more sales, while Europe generated greater profits for Apple in 2010 .
* iPhone and related products were the highest sales growth category for Apple in 2010, increasing by 93 percent .
* iPhone and related products constituted 38 percent of Apple's total sales in 2010 .
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## Microsoft Corporation, 2013
* Microsoft is the world's largest software company facing diverse competition across its product segments .
* The company is undergoing organizational restructuring and leadership transition with a new CEO expected .
* Microsoft's strategy involves diversifying away from the declining PC market into areas like cloud technology and devices .
* Microsoft's fiscal year ends June 30th; revenues were USD 73 billion in fiscal year 2012 .
* Key products include Windows operating systems, Office suite, Xbox, and Surface tablets .
* Microsoft acquired Skype Technologies for USD 8.6 billion in 2011 .
* The company is opening Microsoft Stores across the USA to cope with increased demand .
* In fiscal year 2013, Business Division revenues were up 8 percent, Server and Tools up 11 percent, and Windows up 23 percent .
* Net income dropped 26.7 percent in fiscal year 2012 .
* Goodwill increased to USD 13.4 billion in fiscal year 2012, reflecting acquisition costs .
* Approximately 52 percent of Microsoft's 2012 revenues are derived from the USA .
* **Organizational structure:** Microsoft uses a division-by-product structure, recently shifting to a division-by-function approach focusing on operating systems, apps, cloud technology, and devices .
* **Surface Tablet performance:** Sales were significantly lower than expected, impacting Windows 8 adoption and the transition from the PC market .
* **Windows Division vulnerability:** Relies heavily on PC manufacturers, making it vulnerable to declining worldwide PC sales .
* **Server and Tools Division:** A major contributor, driven by products like Windows Server and Microsoft SQL, with revenue from licensing agreements .
* **Online Services Division:** Generates revenue through advertising (Bing, MSN) but incurred significant operating losses due to goodwill impairment from aQuantive acquisition .
* **Microsoft Business Division:** Largest segment by revenue and operating income, driven by Microsoft Office, but faces competition from Web-based alternatives .
* **Entertainment and Devices Division:** Led by Xbox 360, includes Skype and Windows Phone, but faced declining Xbox sales and questions regarding the Skype acquisition cost .
* **Goodwill as an indicator:** A high goodwill balance (USD 13.4 billion) signifies significant historical overpayment for acquisitions .
* Microsoft's transition away from PCs is challenged by weak Surface tablet sales .
* Over-reliance on the Windows operating system makes the Windows Division vulnerable to PC market decline .
* Past acquisition misjudgments (e.g., aQuantive, Skype) have led to substantial goodwill, impacting profitability .
* The company's organizational restructuring aims to improve engineering and cross-company collaboration .
* Microsoft's strategy to compete on price with Surface, even at initial loss, could be key to revitalizing other product sales .
* **Operating Systems:** Competes with Apple and Google (Android) .
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## Competitive landscape and market trends in technology
* The technology industry is highly dynamic with rapid innovation and emerging competitors .
* Market shifts are driven by increasing demand for mobile devices over traditional PCs .
* Cloud computing is a significant growth area, offering cost savings but raising security concerns .
* Smartphone shipments rose from 50 million in 2005 to over 650 million in 2012, with projections exceeding 1.2 billion by 2016 .
* Emerging markets, particularly China and India, are key drivers of smartphone growth .
* Google's Android holds a dominant 75 percent market share in smartphones due to its open-source nature .
* Microsoft's Windows 8 is challenged by Android's market dominance .
* Nokia's switch to Windows 8 aims to differentiate its products and boost sales after a significant decline .
* Cloud services are projected to generate $100 billion in revenue by 2016, up from $40 billion in 2011 .
* Lenovo Group Limited is the second-largest PC vendor globally, with operations in over 60 countries .
* Lenovo's revenue increased by 14.5 percent to USD 33.8 billion in fiscal 2012/2013, with net income up 33 percent .
* Lenovo entered the smartphone market in 2012 and is now the second-largest provider in China .
* Chinese smartphone makers like Xiaomi are becoming serious competitors globally .
* Lenovo acquired IBM's PC business in 2005, significantly enhancing its global market access and brand .
* Lenovo's strategy includes protecting its commercial PC and China business while attacking high-growth opportunities in emerging markets with smartphones, tablets, and smart TVs .
* Lenovo's mobile Internet and digital home business accounted for 11 percent of total revenue in Q3 2012 .
* Apple leads competitors in profit margin and earnings per share (EPS) .
* HP is experiencing financial struggles, partly due to the shift towards mobile devices .
* Nokia, formerly the largest mobile phone vendor, has seen its market share decline due to smartphones from Apple and Android devices .
* **Open source software:** Allows modification and distribution, driving platform adoption like Android .
* **Vertical integration:** Lenovo's strategy to control manufacturing and avoid supplier reliance, ensuring speed and inventory management .
* **Geographic-based organizational structure:** Lenovo's shift to regional business units to stay close to customers .
* **Smart transformation:** The trend towards "smart" features in PC, communications, and TV industries .
* The rise of mobile devices and emerging markets presents both opportunities and threats for established technology companies .
* Companies need agile strategies to adapt to rapid technological change and new rivals .
---
## Netgear's strategic position and future in the networking hardware market
* Netgear operates in a highly competitive industry where products are often perceived as commodities, requiring strategic focus on pricing, distribution, and product differentiation .
* The company faces challenges from both large, established rivals and smaller, agile competitors, necessitating a clear strategic plan for continued success .
- Netgear's revenues were USD 1.27 billion in 2012, with growth driven by its Retail Business Unit (RBU) and the integration of its AirCard acquisition into the Service Provider Business Unit
* In Q2 2013, RBU revenue grew 3 percent year-over-year, while SPBU revenue increased 58 percent sequentially and 20 percent year-over-year .
* The company reports operating income by geographic region, with Americas being the largest segment in 2012, followed by EMEA and APAC .
* Netgear’s R&D spending in 2012 was USD 61 million, representing 4.8 percent of revenues, an increase from the prior year .
* All manufacturing is outsourced to third parties, primarily in mainland China or Vietnam, with component parts sourced from a few suppliers, posing a supply chain risk .
* Netgear's global sales channels include thousands of resellers, retailers like Best Buy and Walmart, and broadband service providers .
* Best Buy and Ingram Micro each account for 10 percent or more of Netgear's revenues .
* Netgear acquired AVAAK, Inc. in July 2012 for USD 24.0 million in cash to enhance its smart home market presence .
* The company has zero long-term debt on its balance sheet .
* Netgear’s mission is to be the innovative leader in connecting the world to the Internet .
* The company targets home users with aesthetically pleasing, lower-priced products and businesses with more robust, higher-speed, and secure solutions .
* Products are categorized into commercial business networking, broadband access, and network connectivity .
* Netgear utilizes Original Design Manufacturer (ODM) and In-House Development methodologies for product development .
* The firm’s organizational structure includes three business units: retail, commercial, and service provider, and three geographic territories: Americas, EMEA, and APAC .
* Competitive pricing and prominent store placement are critical due to products being viewed as commodities .
* The company's reliance on third-party manufacturers and a few component suppliers presents a significant threat if disruptions or quality issues arise .
* The industry's fate is tied to the PC market, which is declining, though external storage needs are growing .
* Netgear's size is considerably smaller than major rivals like Cisco Systems and Western Digital, impacting its competitive leverage .
* Potential acquisition targets exist, such as Western Digital or Cisco, or Netgear itself could pursue acquisitions to gain economies of scale .
* There are concerns about potential over-reliance on CEO Patrick Lo, with no clear successor identified .
---
## Glossary of Strategic Management Terms
### Key Concepts and Definitions
* **Capacity utilization**: The extent to which a manufacturing plant's output reaches its potential output; higher utilization is better to avoid idle equipment .
* **Capital budgeting**: A basic finance function involving the allocation and reallocation of capital and resources to projects, products, and assets .
* **Cash budget**: A financial budget forecasting future cash receipts and disbursements from operations, investments, and financing .
* **Cash cows**: BCG Matrix quadrant for divisions with high market share in low-growth industries; they generate excess cash .
* **Champions**: Individuals strongly identified with a firm's new idea/product/service, whose futures are linked to its success .
* **Chief Information Officer (CIO)**: External manager focusing on a firm's technical, information gathering, and social media relationships with stakeholders .
* **Chief Technology Officer (CTO)**: Internal manager focusing on technical issues like data acquisition, processing, and software/hardware .
* **Code of business ethics**: A written document outlining expected employee and manager behavior and conduct .
* **Combination strategy**: Pursuing two or more strategies simultaneously .
* **Communication**: Crucial in strategic management for gathering, assimilating, and evaluating information effectively .
* **Competitive advantage**: Anything a firm does exceptionally well compared to rivals, such as unique capabilities or desirable assets .
* **Competitive analysis**: The process of gathering and analyzing competitor data to gain and sustain competitive advantages .
* **Competitive Intelligence (CI)**: A systematic and ethical process for gathering and analyzing competitor information and business trends to further business goals .
* **Competitive Position (CP)**: SPACE Matrix dimension measuring an organization’s competitiveness using factors like market share, product quality, and customer loyalty .
* **Competitive Profile Matrix (CPM)**: A strategic planning tool identifying major competitors and their strengths/weaknesses relative to a sample firm .
* **Competitive quadrant**: In SPACE Matrix analysis, a directional vector pointing to the lower right quadrant suggests competitive strategies like horizontal integration .
* **Concern for employees**: A mission statement component assessing if employees are valued as assets .
* **Concern for public image**: A mission statement component on responsiveness to social, community, and environmental concerns .
* **Concern for survival, growth, and profitability**: A mission statement component indicating the firm's pursuit of these objectives .
* **Conflict**: A disagreement between two or more parties on one or more issues .
* **Confrontation**: A conflict reduction method involving members exchanging views to appreciate other perspectives or holding meetings to resolve differences .
* **Conservative quadrant**: In SPACE Matrix analysis, a directional vector pointing to the upper left suggests conservative strategies like market penetration .
* **Consistency**: A strategy evaluation criterion to determine if a strategy supports overall firm objectives and policies .
* **Consonance**: Examining sets of trends, not just individual ones, when evaluating strategies .
* **Contingency plans**: Alternative plans for use if certain key events do not occur as expected .
---
### Focus of pages 671-680
* The provided document content for pages 671-680 consists entirely of name and subject indexes [671-680.
* These sections do not contain substantive information directly related to the strategic position or future of Pearson plc in the educational publishing market.
* The name index lists individuals and their page references, likely from the main body of the text [671-674.
* The subject index provides keywords and page references for topics covered within the document [675-682.
* Therefore, no specific details or analysis of Pearson plc's strategy or future can be extracted from this particular page range.
---
* The document presents a comprehensive model of the strategic management process .
* This model outlines a structured approach to strategic planning, widely adopted in business and academia .
* The strategic management process is depicted as a series of interconnected chapters .
* Chapter 3 focuses on strategy formulation .
* Strategy formulation includes vision and mission analysis (Chapter 5), internal audit (Chapter 6), and external audit (Chapter 7) .
* Strategy generation and selection is covered in Chapter 8 .
* Strategy implementation is detailed in Chapters 9 and 10 .
* Strategy monitoring (also referred to as execution) is covered in Chapter 11 .
* Strategy evaluation is part of the strategy implementation phase .
* The process integrates and organizes all chapters within the text .
* The model highlights a comprehensive approach to strategy .
* It also features a simple and straightforward approach to strategic planning .
* The model addresses strategic planning outside the USA .
* Ethics, social responsibility, and sustainability are considered integral to the strategic management process .
* The structured model implies a systematic and logical progression for developing and executing business strategies .
* Its widespread use suggests its effectiveness in guiding organizations through strategic decision-making .
* The inclusion of external and internal audits emphasizes the importance of situational analysis in strategy formulation .
* The sequential nature of the chapters implies a dependency between strategic phases .
* The model's design facilitates a holistic view of the entire strategy lifecycle .
---
# Military strategy's influence on business strategy
### Core idea
* Strategic management involves formulating, implementing, and evaluating strategies to achieve organizational goals [38](#page=38).
* The process integrates objective analysis with intuition and judgment, especially in uncertain or rapidly changing environments [38](#page=38) [39](#page=39).
* Adapting to continuous internal and external changes is crucial for organizational survival and success [39](#page=39).
### Key facts
* Strategy implementation is the "action stage" requiring discipline, commitment, and interpersonal skills [38](#page=38).
* Strategy evaluation confirms if strategies are working by reviewing factors, measuring performance, and taking corrective actions [38](#page=38).
* Strategic management activities occur at corporate, divisional, and functional levels [38](#page=38).
* Edward Deming emphasized trusting data over relying solely on intuition [38](#page=38).
* Albert Einstein noted imagination's importance over knowledge, as imagination is boundless [39](#page=39).
* The Washington Post Company diversified into hospice and home health care due to newspaper industry decline [39](#page=39).
* The Internet has shifted power to consumers, enabling global comparison shopping and discounts [40](#page=40).
* Key terms in strategic management include competitive advantage, strategists, vision/mission, opportunities/threats, strengths/weaknesses, objectives, strategies, and policies [40](#page=40).
### Key concepts
* **Competitive advantage:** Anything a firm does exceptionally well compared to rivals [40](#page=40).
* Can stem from ample cash reserves or fewer fixed assets [40](#page=40).
* Sustained competitive advantage requires continuous adaptation to external trends and internal capabilities [40](#page=40).
* **Strategists:** Individuals most responsible for an organization's success or failure, often in top management roles [41](#page=41).
* They gather, analyze, and organize information, track trends, and develop action plans [41](#page=41).
* Chief Strategy Officers (CSOs) are an emerging role recognizing strategic planning's importance [41](#page=41).
* **Vision statement:** Answers "What do we want to become?" and is often the first step in strategic planning [42](#page=42).
* **Mission statement:** An enduring statement of purpose distinguishing a firm and identifying its business scope [42](#page=42).
* **External opportunities and threats:** Trends and events beyond an organization's control that can benefit or harm it [42](#page=42).
* **Internal strengths and weaknesses:** Controllable activities performed exceptionally well or poorly within an organization [43](#page=43).
* These arise in functional areas like management, marketing, and R&D [43](#page=43).
* Determined relative to competitors or the firm's own objectives [43](#page=43).
* **Long-term objectives:** Specific results sought over more than one year, providing direction and aiding evaluation [43](#page=43).
* **Strategies:** The means by which long-term objectives are achieved, affecting long-term prosperity [43](#page=43).
### Implications
---
## Military strategy's influence on business strategy
* Strategy's roots lie in military operations, with terms like "objective" and "mission" originating from battlefield challenges [50](#page=50).
* A key objective for both business and military strategy is gaining competitive advantage [50](#page=50).
* Both business and military organizations leverage their strengths to exploit competitors' weaknesses [50](#page=50).
* The word "strategy" derives from the Greek "strategos," meaning military general [50](#page=50).
* Business strategy is formulated assuming competition, while military strategy assumes conflict [51](#page=51).
* Alexander the Great, undefeated and an empire builder, is still a benchmark for military leaders [51](#page=51).
* Napoleon's victories often came against opponents using outdated strategies, and his losses were against those who thought afresh [51](#page=51).
* Sun Tzu's "The Art of War" offers principles applicable to business strategy for survival and growth [51](#page=51).
* "The Art of War" teaches how to win without direct battle by outsmarting opponents [51](#page=51).
* Many Japanese companies require "The Art of War" for top executives [51](#page=51).
* NFL coach Bill Belichick and Brazilian football coaches have used "The Art of War" for game preparation [51](#page=51).
* Effective business strategy, like military strategy, requires continuous attention to changing external and internal conditions and insightful adaptations [50](#page=50).
* The element of surprise provides significant competitive advantages in both military and business strategy [50](#page=50).
* Information systems providing data on competitors' strategies and resources are vital in both fields [50](#page=50).
* Superior strategy formulation and implementation can overcome an opponent's numerical or resource superiority [51](#page=51).
* Military strategists have refined insights over centuries that can benefit business strategists [51](#page=51).
* Adaptability and continuous improvement are crucial for success in both business and military contexts [51](#page=51).
* Winning without fighting, as advocated by Sun Tzu, is the supreme excellence and can be applied to business [52](#page=52).
* Knowing the enemy and oneself is crucial for success; ignorance in either leads to equal chances or certain defeat [52](#page=52).
* Attacking enemy weakness and avoiding strength is a core principle from "The Art of War" applicable to business [52](#page=52).
* Business strategists can draw valuable lessons from military thinkers regarding planning and execution [50](#page=50).
* Sun Tzu's principles are applied to various non-military competitive endeavors, including corporate strategy and acquisitions [51](#page=51).
* Companies can gain competitive advantage by analyzing opponents' plans to identify shortcomings and strengths, and by probing for weaknesses [52](#page=52).
* Brilliant strategists may use illusion and obscured confrontation areas to divide opponents' forces [52](#page=52).
* Calculating, estimating, analyzing, and positioning are critical for triumph in competitive situations, with little computation leading to defeat [52](#page=52).
---
- Adidas's Wholesale segment experienced revenue growth in 2012, driven by Adidas brand strength offsetting Reebok declines [57](#page=57).
- Adidas's Wholesale gross profit grew eight percent to EUR 3.840 billion in 2012 [57](#page=57).
- Adidas's Wholesale operating profit improved ten percent to EUR 2.965 billion in 2012 [57](#page=57).
- Adidas's Wholesale segment increased in most regions in 2012, except for North America where sales declined nine percent [57](#page=57).
- Adidas Sport Performance wholesale revenues grew six percent in 2012, with double-digit increases in football, running, basketball, and outdoor categories [57](#page=57).
- Reebok wholesale revenues decreased twenty-eight percent in 2012, mainly due to discontinuation of the NFL license agreement [57](#page=57).
- Adidas's Retail revenues increased fourteen percent in 2012 [57](#page=57).
- Adidas Retail Segmental operating profit increased twenty-two percent to EUR 724 million in 2012 [57](#page=57).
- Retail sales increased across all regions, notably in the UK, Germany, and France [57](#page=57).
- European Emerging Markets sales rose nineteen percent, with Russia leading [57](#page=57).
- Sport Performance revenues grew eleven percent in 2012, while Sport Style sales rose twenty percent [57](#page=57).
- Reebok sales rose twelve percent in Retail, while Adidas brand store sales rose seven percent [57](#page=57).
- At year-end 2012, the Retail segment operated 2,446 stores, an increase of 62 stores [57](#page=57).
- Adidas opened 323 new stores and closed 261 stores in 2012 [57](#page=57).
- Adidas opened 250 new concept stores and closed 110 in 2012 [57](#page=57).
- The number of concept stores increased by 82 to 1,437 in 2012 [57](#page=57).
- Sales from Adidas and Reebok e-commerce platforms increased sixty-eight percent in 2012 [57](#page=57).
- The discontinuation of a major license agreement (NFL) had a significant negative impact on Reebok's wholesale business [57](#page=57).
- Strong performance in Retail segments and e-commerce can mitigate declines in other business areas [57](#page=57).
- Strategic focus on growing categories like football, running, basketball, and outdoor can drive wholesale revenue growth [57](#page=57).
- Expansion and modernization of the retail footprint (new stores, concept stores) can lead to significant revenue and profit increases [57](#page=57).
- Diversification of product lines and brands within the wholesale segment is crucial for resilience [57](#page=57).
---
# Analysis of athletic apparel and footwear brands and their market positions
### Core idea
* adidas AG is a leading European sportswear manufacturer, second globally behind Nike, selling products in 170 countries [56](#page=56).
* The company operates through three segments: Wholesale, Retail, and Other Business, encompassing various brands and product lines [56](#page=56).
### Key facts
* adidas is headquartered in Herzogenaurach, Germany, and owns brands like Reebok, TaylorMade-adidas Golf, and Rockport [56](#page=56).
* Founded by Adolf Adi Dassler, the company's origins trace back to 1920, with its name derived from his first and last names [56](#page=56).
* adidas acquired Reebok International Ltd. in January 2006, significantly expanding its global presence [56](#page=56).
* In Q2 2013, adidas reported revenue declines in Wholesale and Other Businesses, with Western Europe sales down 11 percent [57](#page=57).
* Latin America was the best-performing region for adidas in Q2 2013, with sales growing 21 percent [57](#page=57).
* Total adidas revenues declined 4 percent to EUR 3.383 billion in Q2 2013 [57](#page=57).
* Wholesale sales grew 2 percent in 2012, driven by adidas brand strength offsetting Reebok declines [57](#page=57).
* Retail revenues increased 14 percent in 2012, with significant growth in e-commerce platforms (up 68 percent) [57](#page=57).
* Production is primarily outsourced to third-party suppliers, with 76 percent located in Asia [58](#page=58).
* China accounted for 31 percent of adidas' total suppliers in 2012 [58](#page=58).
* In 2012, adidas footwear suppliers produced approximately 244 million pairs of shoes [58](#page=58).
* Apparel production saw a significant increase in Turkey in 2012, with 84 percent of volume sourced from Asia [59](#page=59).
* R&D expenses increased 12 percent in 2012, reaching EUR 128 million [59](#page=59).
* adidas was included in several sustainability indexes for consecutive years, including the Dow Jones Sustainability Indexes [60](#page=60).
### Key concepts
* **Strategic Focus Areas:** Key product areas include Football, Basketball, Training, Outdoor, and Sport Style, each with specific market strategies [60](#page=60) [61](#page=61).
* **Brand Portfolio:** adidas manages a diverse brand portfolio, including the core adidas brand, Reebok (focused on fitness), TaylorMade-adidas Golf (golf equipment), and Rockport (leather footwear) [56](#page=56) [62](#page=62).
* **Sales Channels:** The company utilizes a multi-channel approach, including Wholesale (supplying retailers) and Retail (operating its own stores and e-commerce) [56](#page=56) [59](#page=59).
* **Production Strategy:** Production is largely outsourced to independent manufacturers, primarily in Asia, highlighting a global supply chain model [58](#page=58).
* **Sustainability Commitment:** adidas consistently ranks on sustainability indexes, indicating a strong focus on corporate social responsibility [60](#page=60).
### Implications
* adidas' reliance on outsourced production in Asia presents both cost advantages and supply chain risks [58](#page=58).
* Growth in the Retail segment and e-commerce suggests a strategic shift towards direct consumer engagement [57](#page=57).
* The company's strong presence in football sponsorship and event licensing is a key strategy for market dominance [60](#page=60).
* Diversification into lifestyle and fashion brands like Y-3 and SLVR aims to capture broader consumer segments [61](#page=61).
---
* The document section primarily discusses the strategic management implications of operating in international markets, using examples and general principles rather than specific analyses of athletic apparel brands.
* It highlights the increasing globalization of business and the necessity for firms to consider international competition and opportunities.
* Global considerations now impact virtually all strategic decisions, as country boundaries no longer define business limits [74](#page=74).
* The USA, once replaced by China, regained the top spot for foreign direct investment prospects in mid-2013 due to factors like lower energy costs and respect for human rights [74](#page=74).
* In contrast to the USA's 11 percent of GDP from exports, Germany exports 35.3 percent and Singapore 156 percent of their GDPs [74](#page=74).
* Multinational corporations (MNCs) conduct business operations across national borders [77](#page=77).
* MNCs face numerous risks including asset expropriation, currency losses, unfavorable contract interpretations, and trade barriers [78](#page=78).
* Protectionism involves countries imposing tariffs and regulations to favor domestic companies [79](#page=79).
* Foreign revenue exceeds 50 percent of total company revenues for hundreds of U.S. firms, including major corporations [79](#page=79).
* 95 percent of the world's population lives outside the USA, with this group growing 70 percent faster than the U.S. population [79](#page=79).
- **Globalization:** A world market has emerged from distinct national markets, driven by mass communication and high technology creating similar consumption patterns. Remaining a domestic competitor in a globalizing industry is
* **Multinational Corporations (MNCs):** Organizations operating across national borders; their strategic management is more complex due to increased variables and relationships [77](#page=77).
* **Global Competitiveness:** Companies are ranked by Fortune for their global competitiveness, indicating its importance in the business landscape [76](#page=76).
* **Foreign Direct Investment (FDI):** Investment made by a company or individual from one country into business interests located in another country [74](#page=74).
* **International Business Risks:** MNCs face unique risks like expropriation, currency fluctuations, and varying legal interpretations [78](#page=78).
* **Protectionism:** Policies enacted by governments to protect domestic industries from foreign competition [79](#page=79).
* Firms increasingly need to consider international markets for growth, as domestic markets may offer limited expansion potential [75](#page=75) [79](#page=79).
* Understanding diverse social, cultural, environmental, political, governmental, legal, technological, and competitive forces is crucial for MNCs [77](#page=77).
* Firms must balance being globally competitive with being nationally responsive [78](#page=78).
* Joint ventures and partnerships are becoming common for domestic and foreign firms to navigate international markets [79](#page=79).
* Globalization drives functional specialization, looking beyond low-cost labor to factors like energy costs, resources, inflation, and trade regulations [79](#page=79).
### Advantages and disadvantages of international operations
* **Advantages:**
* Gaining new customers and increasing revenues [78](#page=78).
* Absorbing excess capacity, reducing unit costs, and spreading economic risks [78](#page=78).
* Establishing low-cost production facilities near resources or labor [78](#page=78).
---
# Global and ethical considerations in strategic management
### Core idea
* The global marketplace has emerged, making it risky for companies to rely solely on domestic markets [75](#page=75).
* International firms (multinational corporations) face a more complex strategic management process due to increased variables [77](#page=77).
* Globalization drives strategic decisions based on global profitability, aiming to meet worldwide customer needs at the lowest cost [80](#page=80).
### Key facts
* Mass communication and high technology have created similar consumption patterns globally [75](#page=75).
* Walmart is the largest company globally by revenue, employing 2.1 million people worldwide [75](#page=75).
* International firms face risks like asset expropriation and currency losses due to exchange rate fluctuations [78](#page=78).
* The U.S. Foreign Corrupt Practices Act monitors business practices in many areas for multinational corporations [78](#page=78).
* Protectionism involves countries imposing tariffs and regulations to favor domestic companies [79](#page=79).
* In 2012, corporate tax rates ranged from 10 percent in Serbia to 35 percent in the USA [81](#page=81) [82](#page=82).
* Many U.S. companies keep cash offshore to avoid U.S. corporate taxes on foreign earnings [81](#page=81).
### Key concepts
* Multinational organizations conduct business across national borders and face a more complex strategic management process [77](#page=77).
* **Global strategy** aims to meet worldwide customer needs at the highest value and lowest cost, integrating actions against competitors globally [80](#page=80).
* **Protectionism** refers to measures taken by countries to favor domestic firms over foreign ones [79](#page=79).
* **Globalization** is the process of doing business worldwide, making strategic decisions based on global profitability [80](#page=80).
* Corporate tax rates significantly influence strategic decisions regarding facility location and acquisitions [81](#page=81).
* Cultural differences pose significant challenges for U.S. managers in international business [82](#page=82) [83](#page=83).
### Implications
* Companies that ignore global competition risk being attacked by more aggressive international players [75](#page=75).
* Multinational corporations require more time and effort to evaluate external trends and events due to geographic and cultural differences [77](#page=77).
* Firms can gain new customers, absorb excess capacity, and establish low-cost production facilities through international operations [78](#page=78).
* International operations can lead to economies of scale, allowing for higher sales volumes and lower-price offerings [78](#page=78).
* U.S. companies may reincorporate in foreign countries to reduce their tax burden [81](#page=81).
* Understanding and adapting to different business cultures is crucial for U.S. managers to compete successfully in world markets [82](#page=82).
- > **Tip:** Nearly 95 percent of the world's population lives outside the USA, representing significant growth opportunities [79](#page=79)
- > **Example:** Home Depot failed in China due to a lack of consideration for local culture and customs, alongside historically cheap labor and apartment living [77](#page=77)
-
---
### Cultural differences impacting business practices
* Time is viewed as an asset in the USA, while relationships are prioritized by many foreigners [84](#page=84).
* Personal touching and distance norms vary; Arabs and Africans stand closer than Americans [84](#page=84).
* Family roles, religious factors, modesty, team spirit, collectivity, and patience are valued differently across cultures [84](#page=84).
* Punctuality is highly valued in the USA but not universally revered [84](#page=84).
* Eating habits and etiquette (e.g., belching, sampling food, leaving food) differ significantly [84](#page=84).
* Etiquette rules regarding seating, food, and greetings vary; bowing is common in many countries [84](#page=84).
* Americans often do business with strangers, unlike in Mexico and Japan where relationships are mandatory first [84](#page=84).
* Nepotism is practiced in some countries, and values regarding sexual harassment and discrimination differ [84](#page=84).
* Feng shui influences office furniture arrangements in China [84](#page=84).
* Nemawashi (private consultation before meetings) is expected in Japan [84](#page=84).
* Foreign workforces are difficult to change; the system or culture drives managers [85](#page=85).
* Americans can be perceived as intrusive, manipulative, or garrulous in cross-cultural communication [85](#page=85).
* Italians, Germans, and French do not soften criticism with praise like Americans [85](#page=85).
* Israelis are accustomed to fast-paced meetings and dislike U.S. informality [85](#page=85).
* British executives find U.S. executives chatter too much [85](#page=85).
* Europeans may feel infantilized by Americans asking them to wear name tags [85](#page=85).
* Indians perceive U.S. executives as inattentive if they do not ask for clarification [85](#page=85).
* Silence is appropriate during Malaysian or Japanese negotiations, but not in Israel [85](#page=85).
* Asking about personal weekends can be intrusive to foreigners who separate business and private lives [85](#page=85).
### Business culture specific to countries
- Mexico: Authoritarian society valuing agreeable, respectful, obedient workers; harmony over conflict; paternalistic employers; family work model; collectivism, continuity, cooperation; business often at restaurants; preserving honor and saving face are critical;
- Japan: Emphasis on group loyalty and consensus (Wa); decisions evaluated for long-term group effect; discussions disruptive to Wa happen informally; entertaining strengthens Wa; managers are reserved and introspective; age and
- Brazil: Men greet with handshakes and eye contact; women with kisses; hugging and backslapping for close friends; dress with flair, err on the side of over-dressing; avoid public criticism; interrupting
- Germany: Business communication is formal, home is informal; invitees must bring gifts; punctuality is critical, never early; strict table manners (Continental style); directness bordering on bluntness; adhere to strict agendas;
- Egypt: Greetings based on social class/religion; handshakes among same sex, prolonged with smile; women extend hand first to men; gifts with right or both hands; do not sit until told;
- China: Formal greetings, oldest greeted first; handshakes common; gifts have specific meanings; arrive on time for home visits; eat heartily, use chopsticks, try everything; rarely do business with strangers; position
### Business climate and rankings
---
### Africa: Emerging Opportunities and Challenges
* African countries are increasingly attracting investors due to stabilizing currencies and infrastructure development initiatives [93](#page=93).
* Companies like Shoprite Group, Dangote Group, and Ecobank Transnational are expanding significantly across the continent [93](#page=93).
* Reasons for this expansion include a rapidly growing middle class, strong GDP growth, and increasing food demand [93](#page=93).
* Challenges remain, such as unreliable infrastructure, but consumer spending is projected to double by 2020 [93](#page=93).
* Multinational corporations are actively establishing a presence, with significant hotel and retail expansions occurring (#page=93, page=95) [93](#page=93) [95](#page=95).
* Africa holds substantial natural resources, including oil, gold, chromium, and platinum [94](#page=94).
* Urbanization is increasing, with a growing number of households having discretionary income [94](#page=94).
* Ease-of-doing-business rankings vary significantly, with South Africa being highest and Angola lowest among sampled countries [94](#page=94).
### China: Economic Powerhouse and Evolving Landscape
* China's economy is experiencing accelerating growth, making it the world's second-largest economy by GDP [95](#page=95).
* Rapid growth has led to challenges including pollution, inequality, and corruption [95](#page=95).
* Rising wage rates are occurring as demand for workers is expected to outstrip supply [96](#page=96).
* China is a major trading partner for many countries and its bilateral trade with India is set to double [96](#page=96).
* Ease-of-doing-business ranking is impacted by factors like human rights and intellectual property issues [96](#page=96).
* Some Western retailers have struggled in China due to price competition from local businesses [96](#page=96).
* Chinese companies are increasing their investments in Japan [96](#page=96).
### Philippines: Growth in Services and Outsourcing
* The Philippines has become a leader in call-center jobs, overtaking India [97](#page=97).
* The country's business culture emphasizes delivering excellent service [97](#page=97).
* Filipinos often work non-standard hours to accommodate U.S. business time zones [97](#page=97).
* The economy relies significantly on overseas workers and remittances [97](#page=97).
* Internet penetration is low compared to other emerging economies, but growing [97](#page=97).
### Taiwan: Export-Driven Economy
* Taiwan has a dynamic, export-driven capitalist economy with decreasing state involvement [97](#page=97).
* Strong trade surpluses and significant foreign reserves characterize its economy [97](#page=97).
* Numerous Taiwanese brands are global leaders in their respective industries [97](#page=97).
### India: Reforms and Growing Opportunities
* India has eased foreign ownership rules in retail and other sectors to spur investment [97](#page=97).
* The government is working to narrow its budget deficit and has reduced fuel subsidies [98](#page=98).
### Germany: European Economic Strength and Auto Industry Challenges
### Mexico: Resurgent Manufacturing and Proximity Advantage
---
## Ethics, social responsibility, and sustainability in strategic management
* Business ethics, social responsibility, and sustainability are distinct yet interrelated concepts impacting strategic management .
* Ethical conduct and social responsibility are considered good business and financial returns .
* A strong commitment to ethical conduct consistently leads to better company performance .
* Social responsibility involves actions beyond legal requirements to protect or enhance living things .
* Sustainability relates to an organization's operations and actions that protect, mend, and preserve the natural environment .
* Polluting the environment is considered unethical, irresponsible, and often illegal .
* Ethical breaches can be costly, with major class-action lawsuits against companies like Enron and WorldCom .
* Examples of unethical business actions include misleading advertising, environmental harm, and discrimination .
* New media outlets and disclosure mandates increasingly reveal ethical breaches .
* The pressure for performance has shortened CEO tenures .
* A clear code of business ethics is needed due to emerging ethical issues .
* Internet fraud, hacking, and identity theft are current unethical activities .
* Business ethics are principles of conduct within organizations that guide decision-making and behavior .
* Good business ethics is a prerequisite for good strategic management .
* Seven principles of admirable business ethics include trustworthiness, open-mindedness, honoring commitments, honesty, community citizenship, accounting integrity, and the Golden Rule .
* Strategists (CEOs, owners) are primarily responsible for ensuring ethical principles are practiced .
* All strategy formulation, implementation, and evaluation decisions have ethical ramifications .
* A code of ethics is a guide for employees but can be seen as a public relations tactic if not properly implemented .
* Bad ethics can derail even the best strategic plans .
* Unethical behavior can lead to significant financial penalties and reputational damage .
* Increased scrutiny means personal and professional decisions of executives are highly vulnerable .
* Social media and disclosure mandates accelerate the spread of information about corporate dealings .
* To ensure a code of ethics is effective, periodic workshops are needed to sensitize employees .
* Reinforcing ethical codes through rewards for upholding and punishments for violating them is crucial .
### Common pitfalls
* A code of ethics can be dismissed as a public relations stunt or mere window dressing .
---
### Ethics culture
* An ethics culture needs to permeate organizations to promote ethical behavior .
* Interactive tools like business ethics board games can help create an ethics culture .
* Codes of conduct manuals outline ethical expectations and provide examples of common situations .
* Strategists bear moral risks and are responsible for developing, communicating, and enforcing ethical codes .
* Managers have a responsibility to provide ethics leadership through example and education .
* Managers should avoid crossing the line between right and wrong, as superiors may blame them for exceeding instructions .
* A lack of character and integrity in management destroys people, spirit, and performance, with the spirit of an organization originating from its top leaders .
* Unethical business practices lead to headaches, inefficiency, and waste; trust and confidence in ethics strengthen economic strength .
* Ethics training and an ethics culture are increasingly seen as creating a strategic advantage .
### Whistle-blowing
* Failing to report an ethical violation can lead to discharge .
* Whistle-blowing policies require employees to report unethical violations they discover .
* Whistle-blowers can receive up to 25 percent of the proceeds from legal proceedings against firms for wrongdoing .
* The IRS program mandates awards of 15 to 30 percent of recouped amounts in large-scale cases .
* Ethics training programs should include CEO messages, codes of ethics, and procedures for reporting unethical behavior .
* Firms align ethical and strategic decision-making by incorporating ethics into planning, performance appraisals, and monitoring .
### Bribery
* Bribery is the offering, giving, receiving, or soliciting of anything of value to influence actions related to a duty .
* The U.S. Foreign Corrupt Practices Act (FCPA) and the Dodd-Frank Act govern bribery and reward whistle-blowers .
* Bribery suits can expose firms to shareholder lawsuits .
* The UK's Bribery Law forbids bribing officials for competitive advantage and makes "failure to prevent bribery" an offense .
* Facilitation payments are not a valid defense under the British Bribery Law .
* Paying bribes is illegal and unethical in the USA, but sometimes acceptable in foreign countries .
* Increased enforcement of bribery laws is occurring globally, even in countries where such practices were once common .
### Workplace romance
* Workplace romance is an intimate relationship between two consenting employees .
* Sexual harassment, defined as unwelcome sexual advances, is illegal, unethical, and detrimental to organizations .
* Organizations should manage workplace romance rather than strictly forbid it, as some romances can enhance performance .
### Social responsibility
### Environmental sustainability
---
### ISO 14000 and 14001 certification
* ISO 14000 refers to a series of voluntary environmental standards .
* The ISO 14000 family focuses on minimizing environmental harm from activities and improving environmental performance .
* ISO 14001 is a set of standards for environmental compliance adopted by thousands of firms .
* ISO 14001 requires an Environmental Management System (EMS) to be implemented .
* An EMS under ISO 14001 requires commitment to pollution prevention and continual improvement .
* Firms must identify environmental impacts from activities, products, and services .
* Performance objectives must link to policies of pollution prevention, continual improvement, and compliance .
* Metrics must be established to measure environmental objectives and targets .
* An audit of the EMS operations is required .
* Corrective actions must be taken for deviations from the EMS .
* Not being certified with ISO 14001 can be a strategic disadvantage .
### Wildlife and environmental issues
* South Korea planned to resume whaling despite a 1986 moratorium, causing international concern .
* Fairmont Hotels and Shangri-La Hotels removed shark fin soup from menus due to declining shark populations .
* Overfishing for shark fins has drastically reduced many shark species, with some classified as "near-threatened" .
* The European Parliament mandated sharks be landed with fins attached to prevent finning .
* About 75 million sharks are killed annually for their fins, making the EU a major exporter .
* Arctic sea ice shrank to a record low in 2012, impacting polar bears' threatened species designation .
* Over 25,000 elephants are killed annually for ivory, despite an international trade ban since 1989 .
* Wildlife resurgence in the USA leads to over 28 billion dollars in annual damage costs .
### Solar power and sustainability
* The US saw significant growth in solar power installation in 2012, with continued annual growth projected .
* Subsidies and utility purchase requirements encourage solar power development to cut greenhouse gas emissions .
* Thousands of companies are considering solar panels as part of their sustainability efforts .
### Environmental stewardship for songbirds and coral reefs
* Songbird populations have declined due to environmental imbalance, dirty air/water, and habitat destruction .
* Coral reefs are decimated by commercial fishing, pollution runoff, and ocean warming from carbon dioxide emissions .
* Trawl fishing destroys coral reefs and yields significant by-catch .
### Strategic implications of ethics and sustainability
---
# Corporate tax rates and their impact on international business
### Core idea
* Corporate tax rates vary significantly across countries, influencing strategic decisions for international businesses [80](#page=80) [81](#page=81).
* Global profitability, rather than just domestic considerations, drives strategic decisions under globalization [80](#page=80).
* Tax rate differences incentivize companies to locate operations or reincorporate in lower-tax jurisdictions [80](#page=80) [81](#page=81).
### Key facts
* Bermuda has a zero corporate income tax rate, while Ireland has 12.5 percent [80](#page=80).
* Many internet companies establish European headquarters in Ireland to benefit from its lower tax rate [80](#page=80).
* Japan recently cut its corporate tax rate, leaving the USA with the highest among developed nations [81](#page=81).
* Top combined statutory tax rates among developed countries (excluding the USA) fell from 48 percent in the early 1980s to less than 25 percent in 2013 [81](#page=81).
* Carnival is incorporated in Panama and pays an effective tax rate of less than 1 percent, despite its U.S. headquarters [81](#page=81).
* In 2012, top national statutory corporate tax rates ranged from 10 percent in Serbia to 35 percent in the USA [81](#page=81) [82](#page=82).
* Table 2-4 lists 2012 corporate tax rates for various countries, showing a wide range [82](#page=82).
### Key concepts
* High corporate tax rates deter domestic investment and encourage tax avoidance or evasion [81](#page=81).
* The U.S. tax system can lead to companies being cash-rich overseas but cash-poor domestically due to repatriation taxes [81](#page=81).
* Companies may borrow money domestically while holding substantial cash reserves abroad to avoid higher U.S. taxes [81](#page=81).
* Some U.S. companies reincorporate in foreign countries by acquiring foreign firms to reduce their tax burden [81](#page=81).
* The USA taxes company profits earned abroad, unlike most developed countries which tax only domestic earnings [81](#page=81).
* Flat tax systems, when adopted, often trigger a surge in foreign direct investment [81](#page=81).
### Implications
* Tax rates are crucial factors in decisions about where to build facilities, establish stores, or acquire companies [80](#page=80) [81](#page=81).
* Lowering U.S. corporate tax rates could potentially reward domestic investment, reduce unemployment, and spur growth [81](#page=81).
* Companies shift income to lower-tax countries to reduce their overall tax bills [81](#page=81).
* Eaton Corp. saved approximately 160 million dollars annually by relocating its headquarters to Ireland [81](#page=81).
* The U.S. competes with other nations for investment, making its high corporate tax rate a disadvantage [81](#page=81).
* Countries imposing protectionist measures like tariffs and taxes can harm global economies by inhibiting trade [79](#page=79).
### Common pitfalls
* Ignoring competitor tax strategies can lead to competitive disadvantages [80](#page=80).
* Underestimating foreign competitors' strengths in markets with different tax advantages [78](#page=78).
* Firms may face complexities in managing multiple monetary systems across international operations [78](#page=78).
---
# The importance of ethics, social responsibility, and sustainability in strategic management
### Core idea
* Strategic management increasingly requires consideration of global ethical, social responsibility, and sustainability factors [100](#page=100).
* Success in global markets depends on competitive pricing and quality against worldwide alternatives [100](#page=100).
* International engagement offers potential advantages that may offset drawbacks for many firms [100](#page=100).
### Key facts
* Africa's urban population is 40 percent, with discretionary income expected to increase significantly [94](#page=94).
* Foreign direct investment in Africa increased 600 percent from 2000 to 2009 [94](#page=94).
* China's GDP growth averaged over 9 percent annually for decades, surpassing Japan as the second-largest economy [95](#page=95).
* China's economic growth has led to pollution and inequality, raising concerns about political unrest [95](#page=95).
* Minimum wages in China have risen, impacting global prices and contributing to inflation [96](#page=96).
* The Philippines is a leading country for call-center jobs, generating significant revenue and growing annually [97](#page=97).
* Taiwan has a dynamic, export-driven capitalist economy with consistently high GDP growth [97](#page=97).
* India is allowing greater foreign investment in retail, airlines, and broadcasting to spur growth [97](#page=97).
* Germany's economy is healthy despite challenges in Europe, but it lags in electric car development [98](#page=98).
* Mexico has re-energized its automobile manufacturing, becoming a major global exporter [99](#page=99).
* Mexico's average wage plus benefits is 3.50 dollars per hour, making it competitive with China [99](#page=99).
### Key concepts
* Global strategy involves companies operating and competing internationally [82](#page=82).
* Globalization refers to the increasing interconnectedness of economies and cultures worldwide [82](#page=82).
* Multinational corporations operate in multiple countries, adapting strategies to local conditions [79](#page=79).
* Ease of Doing Business rankings (e.g., Table 2-7, 2-8, 2-9, 2-10) provide insights into a country's regulatory environment (#page=94,96,98,100) [100](#page=100) [94](#page=94) [96](#page=96) [98](#page=98).
* China's per capita GDP is significantly lower than that of the USA and Japan, indicating its status as an emerging economy [95](#page=95).
* The Philippines' economy is heavily reliant on overseas workers and remittances [97](#page=97).
* Germany faces skilled labor shortages due to an aging population and emigration of highly educated professionals [99](#page=99).
* Mexico's proximity to the USA is a key advantage for manufacturing and distribution [99](#page=99).
* The world population has surpassed 7 billion, emphasizing the need for businesses to seek opportunities beyond national boundaries [100](#page=100).
### Implications
* Companies need to evaluate their global scope and compare it with rivals to identify strategic opportunities [100](#page=100).
* Failure to offer globally competitive products and services can lead to a firm's extinction [100](#page=100).
---
* Good ethics is a prerequisite for good strategic management; good ethics is good business .
* Ethical behavior in business life is the right thing to do and pays off in financial returns .
* A rising tide of consciousness about business ethics is sweeping the globe, impacting all strategic decisions .
* Business relationships are built mostly on mutual trust and reputation; unethical actions lead to inefficiency and waste .
* Social responsibility refers to actions beyond legal requirements to protect or enhance well-being .
* Sustainability relates to operations that protect, mend, and preserve the natural environment .
* Unethical actions can be expensive, with major class-action legal fraud suits against companies like Enron and WorldCom .
* Examples of unethical business actions include misleading advertising, environmental harm, poor product safety, and insider trading .
* Recent ethical breaches include misleading marketing claims by Avon and L'Oreal, and resume padding by Yahoo's CEO .
* Executives and managers are increasingly vulnerable to scrutiny for personal and professional missteps .
* Social media and disclosure mandates like Sarbanes-Oxley quickly spread information about ethical breaches .
* The average CEO tenure has shortened due to increased pressure and scrutiny on performance .
* New ethics issues include internet fraud, hacking, viruses, and identity theft .
* Whistle-blowing policies encourage employees to report unethical violations .
* Whistle-blowers can receive up to 25 percent of recovered proceeds from legal proceedings against firms .
* Brad Birkenfeld received USD 104 million for reporting UBS's tax evasion scheme .
* Bribery is the offering, giving, receiving, or soliciting of an item of value to influence actions .
* The U.S. Foreign Corrupt Practices Act (FCPA) governs bribery and is being enforced more strictly .
* Pfizer paid USD 60.2 million to settle an investigation into overseas bribery .
- **Seven Principles of Admirable Business Ethics:** Be trustworthy, openminded, honor commitments, do not misrepresent, be a responsible community citizen, utilize accounting to identify questionable activities, and follow the Golden Rule
* **Code of business ethics:** Principles of conduct guiding decision-making and behavior within organizations .
* **Ethics culture:** An ethical atmosphere that needs to permeate organizations, fostered through interactive games and ethical leadership .
* **Whistle-blowing:** Policies requiring employees to report unethical violations they discover .
* **Bribery:** Influencing actions of an official or other person by offering or giving an item of value .
* Bad ethics can derail even the best strategic plans .
### Common pitfalls
---
### Bribery and corruption
* The U.S. Justice Department and SEC released guidance on the Foreign Corrupt Practices Act (FCPA) to address company concerns about ambiguity and self-investigation costs .
* Examples of bribery include lavish trips for government officials and payments for entertainment .
* The UK Bribery Act is more stringent than the FCPA, forbidding bribery of domestic or foreign officials for competitive advantage .
* The UK law defines "failure to prevent bribery" as an offense and does not accept facilitation payments as a defense .
* Great Britain's Bribery Act applies to bribes between private businesspersons, with individuals liable even if unaware it was a bribe .
* The British Serious Fraud Office (SFO) enforces the act, with penalties up to 10 years imprisonment and unlimited fines .
* Many nations are increasing anti-corruption efforts, leading companies to implement programs to comply with laws like the FCPA and SFO .
* Payments to bribe officials are illegal and unethical in the USA, but accepted in some foreign countries where even tipping can be considered bribery .
* Organizations like the World Bank, IMF, EU, and UN advocate for anti-bribery initiatives .
* Stepped-up enforcement of bribery laws means practices like lavish dinners and expensive gifts for business associates are riskier .
* Pharmaceutical companies are under investigation for alleged bribery to boost sales and speed drug approvals .
* Four types of violations are reviewed: bribing doctors, paying sales agents who bribe doctors, paying hospital committees, and paying regulators .
* Johnson & Johnson and Pfizer settled bribery allegations for tens of millions of dollars .
* Hewlett-Packard and Siemens AG are being investigated for bribery related to government contracts .
* The U.S. FCPA prohibits paying or offering to pay foreign officials for business advantage .
* The U.S. Dodd-Frank Act encourages reporting of bribery by whistleblowers, rewarding them with 10-30 percent of financial sanctions .
### Workplace romance
* Workplace romance involves intimate, consensual relationships between employees, distinct from illegal sexual harassment .
* Organizations should manage workplace romance rather than strictly forbid it, as policies can be intrusive .
* Some romances can improve work performance through enhanced morale, communication, and creativity .
* Detrimental effects of workplace romance include favoritism, breached confidentiality, reduced work quality, personal arguments affecting work, tensions among coworkers, potential for sexual harassment claims, and conflicts of interest .
* Managers can be held personally liable for damages arising from workplace romance in some states .
* Guidelines for workplace romance help defend against harassment charges, outline risks, specify penalties, promote fairness, ensure legal compliance, and signal a serious approach .
* Guidelines should apply to all employees and discourage relationships with power differences, like supervisor-subordinate .
* Company policies generally discourage workplace romance, as risks often outweigh benefits .
* CEOs and company leaders have resigned due to inappropriate relationships violating codes of ethics .
### Social responsibility
---
# Corporate sustainability and environmental responsibility
### Core idea
- Businesses are increasingly pressured to demonstrate substantive green efforts to customers and stakeholders .
- Environmental responsibility is no longer just a trend but an expectation, often codified in law .
- Proactive environmental strategies can create competitive advantages and enhance stakeholder relations .
### Key facts
- A bad sustainability record harms a firm's market standing and invites regulatory scrutiny .
- Sustainability reports disclose a firm's environmental impact, labor practices, and ethics .
- Walmart encourages suppliers and employees to adopt personal sustainability projects and provides sustainability reports as a benchmark .
- Many companies are incorporating solar power, such as Walmart and Kohl's, and offering environmentally friendly products like Home Depot .
- Managers and employees can be held personally liable for environmental wrongdoings if they ignore or conceal pollution problems .
- Previously vague terms like "organic" and "green" now have more specific connotations and legal challenges arise if claims are unsubstantiated .
- Managing environmental affairs is shifting from a technical function to a core operational responsibility, often reporting to the COO .
- Preserving the environment is important due to consumer demand, public opinion, advocacy groups, evolving regulations, lender scrutiny, and investor/supplier preferences .
- Proactive environmental policies view pressures as opportunities, leading to actions like green product development and waste reduction .
- Reactive environmental policies, changing only when forced, result in high cleanup costs and reduced market share .
- Songbird declines may indicate broader environmental imbalance, such as pollution or habitat destruction .
- Commercial fishing, pollution, and ocean warming are devastating coral reefs and marine life .
### Key concepts
- **Sustainability report:** A document disclosing a firm's operational impact on the natural environment, including labor, sourcing, energy, environmental impact, and ethics .
- **Green product lines:** Products that are biodegradable or made from recycled materials, meeting consumer demand for environmentally safe options .
- **Environmental management system (EMS):** A series of practices and procedures to manage environmental impact, a key requirement of ISO 14001 .
- **Proactive environmental strategy:** Developing and implementing strategies that go beyond minimum legal requirements to preserve the environment .
- **Reactive environmental strategy:** Changing practices only when forced by law or consumer pressure, leading to negative consequences .
- **ISO 14000/14001:** A family of voluntary international standards for environmental management and performance certification .
- **Environmental stewardship:** Acting as a responsible guardian of the natural environment to protect resources and ecosystems .
### Implications
- Companies face increasing challenges to substantiate their environmental claims due to evolving standards and legal scrutiny .
- Environmental management must be integrated across all employee and manager levels, not just a specialist function .
- Failure to achieve ISO 14001 certification can be a strategic disadvantage, as organizations are expected to minimize environmental harm .
### Common pitfalls
---
# Ethical business practices and social responsibility
### Core idea
* Ethical business practices and social responsibility are increasingly critical for a firm's reputation and success .
* Environmental sustainability and ethical conduct are interconnected strategic issues for all organizations .
* Consumers, stakeholders, and regulators expect firms to act responsibly and sustainably .
### Key facts
* A sustainability report discloses a firm's environmental impact, labor practices, and business ethics .
* Walmart works with its suppliers to ensure they provide sustainability reports, using it as a benchmark .
* The Global Reporting Initiative provides guidelines for sustainability reports .
* Employee wellness programs can be considered part of sustainability efforts .
* Harming the environment can be unethical, illegal, and costly, leading to personal liability for managers .
* "Green" terminology on products now carries more specific and legally challenged connotations due to lack of standards .
* Consumers and employees increasingly demand assurance that green claims are substantive and true .
* Environmental issues such as ozone depletion, global warming, and waste management are significant challenges .
* Proactive environmental policies, rather than reactive ones, lead to better business outcomes .
* The International Organization for Standardization (ISO) develops sustainability standards, including ISO 14000 and ISO 14001 .
* ISO 14001 provides a universal standard for environmental compliance and requires an Environmental Management System (EMS) .
* Shark finning is a practice leading to drastic population declines of shark species .
* The European Parliament mandated that sharks be landed with fins attached to combat finning .
* 75 million sharks are killed annually for their fins, with the EU being a major exporter .
* Songbird populations have declined significantly, indicating broader environmental imbalances .
* Ocean health, impacted by commercial fishing and pollution, is vital for economic and social futures .
* Being environmentally proactive is now expected and often legally mandated .
* Ethical business practices and social responsibility can provide a competitive advantage .
### Key concepts
* **Sustainability Report:** A document disclosing a firm's operations' impact on the natural environment, labor practices, and ethics .
* **Green Products:** Products that are biodegradable or made from recycled materials, which are increasingly in demand .
* **Environmental Management System (EMS):** A series of practices and procedures implemented under ISO 14001 to manage environmental impact .
* **Proactive vs. Reactive Environmental Policy:** Proactive policies view environmental challenges as opportunities, while reactive policies only change when forced by law or pressure .
### Implications
### Common pitfalls
---
# Defensive strategies including retrenchment, divestiture, and liquidation
### Core idea
* Defensive strategies are employed when an organization is experiencing declining sales and profits .
* These strategies involve regrouping through cost and asset reduction or selling parts or all of the company .
### Key facts
* Retrenchment involves cost and asset reduction to reverse declining sales and profit .
* Divestiture is the sale of a division or part of an organization .
* Liquidation involves selling all of a company's assets for their tangible worth .
* Organizations struggling to survive may employ a combination of these defensive strategies simultaneously .
* Example of retrenchment: Callaway Golf cut 12 percent of its workforce .
* Example of retrenchment: Deutsche Bank AG cut 1,000 jobs from its investment bank segment .
* Example of divestiture: Dean Foods sold its WhiteWave-AIpro organic dairy business .
* Example of liquidation: Big Sky Farms, a Canadian hog producer, liquidated .
### Key concepts
* Retrenchment aims to regain control and efficiency by reducing expenses and assets .
* Divestiture is often used to shed underperforming or non-core business units .
* Liquidation is typically the last resort when a company cannot be saved .
### Implications
* Defensive strategies are pursued when an organization faces significant challenges .
* These strategies signal a need for significant organizational change and refocusing .
* Successful implementation can lead to a leaner, more focused, and potentially revitalized organization .
* The choice among retrenchment, divestiture, or liquidation depends on the severity of the decline and the potential for recovery .
* Pursuing a combination of defensive strategies may be necessary for firms in severe distress .
---
### Retrenchment
* Regroups through cost and asset reduction to reverse declining sales and profits .
* Also known as a turnaround or reorganizational strategy .
* Designed to fortify an organization's basic distinctive competence .
* Involves working with limited resources and facing external pressures .
* Actions include selling assets, pruning product lines, closing marginal businesses or factories, automating, reducing employees, and instituting expense controls .
* **Bankruptcy Types:**
* Chapter 7: Liquidation procedure for businesses with no hope of operating successfully. Assets are sold for tangible worth .
* Chapter 9: Applies to municipalities .
* Chapter 11: Allows organizations to reorganize and recover .
* Chapter 12: Special relief for family farmers with specific debt limits .
* Chapter 13: Reorganization plan for small, individual-owned businesses with debt limits .
* **Guidelines for effective retrenchment:**
* When a firm has a distinct competence but consistently misses objectives .
* When the organization is a weaker competitor in its industry .
* When plagued by inefficiency, low profitability, poor morale, or stockholder pressure .
* When strategic managers have failed to capitalize on opportunities or overcome weaknesses .
* When rapid growth necessitates major internal reorganization .
### Divestiture
* Selling a division or part of an organization .
* Often used to raise capital for acquisitions or investments .
* Can be part of a retrenchment strategy to eliminate unprofitable, capital-intensive, or ill-fitting businesses .
* A popular strategy to focus on core businesses and reduce diversification .
* **Guidelines for effective divestiture:**
* When retrenchment has failed to achieve improvements .
* When a division requires more resources than the company can provide for competitiveness .
* When a division is responsible for overall poor company performance .
### Liquidation
---
# Case analysis and student guidance on strategic recommendations
### Core idea
* Strategic management case analysis requires specific recommendations that provide competitive advantages .
* Recommendations should be introduced early as supporting material for justified expenditures .
* Recommendation pages should summarize suggestions from the entire analysis, not introduce new information .
* Explaining why certain feasible strategies were *not* chosen is valuable, focusing on competitive advantage and disadvantage .
### Key facts
* Educational institutions are increasingly using strategic management techniques to address population shifts and online degree threats .
* The US hospital industry faces declining margins, excess capacity, and rising healthcare costs, often due to reactive strategies .
* Government agencies use strategic management for cost-effective service delivery, though with less autonomy than private firms .
* Strategic management is vital for small firms, enhancing growth and prosperity, often conducted informally .
* A lack of strategic management knowledge is a major obstacle for many small business owners .
* Small firms engaging in strategic management outperform those that do not .
### Key concepts
* Recommendations are defined as alternative strategies selected for implementation .
* Hospitals are shifting towards home and community-based care, requiring decentralized networks and physician collaboration .
* The internet is shifting power balance between doctor, patient, and hospitals as patients research ailments online .
* Governmental strategists have limited autonomy due to legislative and political control over decisions and resources .
* Entrepreneurs are role models, driving a national obsession with starting businesses .
* Corporate layoffs contribute to an explosion of small businesses and new ideas .
* Strategic management enables organizations to be efficient and effective, fostering proactive decision-making .
### Implications
* Student case analysis must lead to concrete, competitive recommendations .
* Justifying expenditures for recommendations is crucial in case projects .
* Non-profit and corporate websites may have different considerations for posting strategic plans .
* Understanding how strategic planning differs between governmental organizations and educational institutions is important .
* Analyzing why some mergers and acquisitions fail provides insights into strategic execution .
* The strategic management process allows for proactive rather than reactive decision making .
* Training strategists to anticipate and respond to questions is necessary due to potential philosophical shifts .
### Common pitfalls
* A lack of sufficient capital hinders small firms from exploiting external opportunities .
---
# Types of strategies and their application
### Core idea
* Strategies provide direction for organizations to achieve their objectives.
* Various strategy types cater to different organizational goals and market conditions.
* Strategic choices involve trade-offs and cannot typically pursue many strategies simultaneously.
### Key facts
* Intensive strategies involve market penetration, market development, and product development .
* Diversification strategies include related and unrelated diversification .
* Integration strategies encompass forward, backward, and horizontal integration .
* Retrenchment strategies are used when an organization needs to improve efficiency or shed non-vital operations .
* Divestiture involves selling a division or part of an organization .
* Liquidation is the sale of all assets .
* Cost leadership, differentiation, and focus are Porter's generic strategies .
* Cooperative arrangements like joint ventures can achieve strategic objectives .
* Mergers and acquisitions are common strategies, but many fail .
* Turbulent, high-velocity markets may require different strategic approaches .
### Key concepts
* **Market penetration:** Increasing market share for existing products in existing markets .
* **Market development:** Selling existing products to new markets .
* **Product development:** Developing new products for existing markets .
* **Related diversification:** Expanding into new businesses that are strategically related to current operations .
* **Unrelated diversification:** Expanding into new businesses that have no strategic relationship with current operations .
* **Forward integration:** Gaining control over distributors or retailers .
* **Backward integration:** Gaining control over the firm's suppliers .
* **Horizontal integration:** Merging with or acquiring competitors .
* **Retrenchment:** Strategic decision intended to improve the firm's efficiency .
* **Divestiture:** Selling a firm or a major component of a firm .
* **Generic strategies:** Michael Porter's framework for competitive advantage (cost leadership, differentiation, focus) .
* **Joint venture:** A new business entity formed by two or more firms to achieve a specific purpose .
### Implications
---
# Developing and evaluating vision and mission statements for organizations
### Core idea
* Vision statements answer "What do we want to become?" and mission statements answer "What is our business?" .
* Developing vision and mission statements is the foundational first step in strategic management .
* A clear mission statement is essential for setting objectives and formulating strategies .
* The process of developing these statements is as important as the final documents, fostering commitment and resolving divergent views .
### Key facts
* Vision statements should be short, ideally one sentence, with input from as many managers as possible .
* A clear vision provides the foundation for a comprehensive mission statement .
* Samsung's vision is "Samsung is dedicated to developing innovative technologies and efficient processes that create new markets, enrich people's lives and continue to make Samsung a digital leader." .
* Peter Drucker stated that asking "What is our business?" is synonymous with asking "What is our mission?" .
* Mission statements can be referred to as creed, purpose, philosophy, beliefs, or business principles statements .
* Many US corporations have not yet developed formal vision or mission statements, but an increasing number are .
* Companies that systematically revisit and treat vision/mission statements as living documents realize great benefits .
* Profit alone is not sufficient to motivate people; both profit and vision are needed .
* Shared vision creates common interests that can elevate workers beyond daily monotony .
* A vision statement must reveal the type of business the firm engages in to be effective .
* The process of developing statements provides an opportunity to gain support from all managers .
* Outside consultants can sometimes manage the development process more effectively due to unbiased views .
### Key concepts
* **Vision statement:** Answers "What do we want to become?"; should be aspirational and forward-looking .
* **Mission statement:** Answers "What is our business?"; a declaration of an organization's reason for being .
* **Stakeholders:** Individuals and groups with a claim on the company; their claims often conflict and a mission statement should reconcile these .
* **Emotional bond:** Developed through the mission statement process, fostering a "sense of mission" beyond intellectual agreement .
* **Customer orientation:** Mission statements should identify customer needs and how the firm fulfills them, focusing on utility rather than just products .
### Implications
* Clear vision and mission statements are prerequisites for formulating and implementing strategies .
* Involvement of managers and employees in developing statements leads to greater commitment and support for strategic activities .
* Divergent views among managers can be revealed and resolved through the mission statement development process .
* Failing to develop clear vision and mission statements results in a lost opportunity to present the organization favorably to stakeholders .
### Common pitfalls
### Mission statement components
---
* A clear business vision and mission provide direction for all planning activities and are the first step in strategic management .
* Well-designed vision and mission statements are essential for formulating, implementing, and evaluating strategy .
* Developing and communicating a clear vision and mission are commonly overlooked tasks in strategic management .
* Nine essential components serve as a framework for evaluating and writing mission statements .
* Organizations usually reexamine their vision and mission statements annually .
* Effective mission statements stand the test of time .
* The nine components are: Customers, Products or Services, Markets, Technology, Concern for Survival, Growth, and Profitability, Philosophy, Self-Concept, Concern for Public Image, and Concern for Employees .
* Dell's mission statement is considered strong, lacking only one of the nine components .
* L'Oreal's mission statement is considered weak, lacking six of the nine components .
* **Customers:** Identifying who the organization serves .
* **Products or Services:** Defining what the organization offers .
* **Markets:** Specifying where the organization operates or sells .
* **Technology:** Describing the technological approaches used .
* **Concern for Survival, Growth, and Profitability:** Indicating the organization's financial objectives .
* **Philosophy:** Outlining the core beliefs and values guiding the organization .
* **Self-Concept:** Defining the organization's identity and how it differentiates itself .
* **Concern for Public Image:** Stating the organization's commitment to its reputation and societal role .
* **Concern for Employees:** Describing the organization's approach to its workforce .
* A company's vision and mission can represent either a competitive advantage or disadvantage .
* A clear vision and mission help strategists, managers, and employees achieve a heightened sense of purpose .
* Without clear vision and mission statements, short-term actions can be counterproductive to long-term interests .
* The "self-concept" or "distinctive competence" component is crucial for gaining and sustaining competitive advantage .
- > **Tip:** When evaluating or developing mission statements, go beyond just including a word for a component; the statement should be informative, inspiring, enduring, and motivate stakeholders
- > **Example:** A mission statement that simply says "We value our customers" is less effective than one that explains *how* they value them, such as "We listen to our customers,
- anticipate their needs, and act to create value in their eyes"
---
# The internal audit process in strategic management
### Core idea
* The internal audit identifies and evaluates a firm's strengths and weaknesses in functional business areas .
* Internal strengths and weaknesses are foundational for establishing objectives and strategies .
* The goal is to capitalize on strengths and overcome weaknesses to gain competitive advantage .
### Key facts
* The internal audit examines management, marketing, finance/accounting, production/operations, R&D, and MIS .
* Distinctive competencies are internal strengths not easily matched by competitors .
* The process involves gathering, assimilating, and evaluating information about firm operations .
* Representative managers and employees from throughout the firm should participate .
* A task force may determine the 20 most important organizational strengths and weaknesses .
* Financial ratio analysis can reveal issues across multiple functional areas .
* Organizational culture is a critical internal factor that can be a strength or weakness .
### Key concepts
* **Resource-Based View (RBV):** Emphasizes internal resources over external factors for sustainable competitive advantage .
* Resources are categorized as physical, human, and organizational .
* Resources must be rare, hard to imitate, or not easily substitutable for competitive advantage .
* **Value Chain Analysis (VCA):** A strategic management tool (mentioned as a tool to be discussed) .
* **Benchmarking:** A strategic management tool (mentioned as a tool to be discussed) .
* **Cost/Benefit Analysis:** A strategic management tool (mentioned as a tool to be discussed) .
* **Organizational Culture:** The pattern of behavior developed by an organization; it can be a major strength or weakness .
* Cultural products include values, beliefs, rites, language, and heroes .
### Implications
* Performing an internal audit enhances employee understanding of how their jobs fit the organization .
* It serves as a forum for improving communication between departments .
* A failure to understand interrelationships between functional areas can be detrimental .
* Success increasingly depends on a judicious combination of several functional influences, not just one .
* Organizational culture can inhibit strategic management if beliefs are too strong or resistant to change .
* Strategies that capitalize on cultural strengths can be implemented more easily .
### Common pitfalls
* Overemphasis on one functional area at the expense of others .
---
# Analyzing the internal and external environment
### Core idea
* Internal audit assesses a firm's management, marketing, finance, accounting, production, operations, R&D, and MIS .
* Distinctive competencies are strengths not easily matched or imitated by competitors .
* The resource-based view (RBV) emphasizes internal resources over external factors for competitive advantage .
### Key facts
* Internal audit involves gathering and assimilating information about firm operations .
* Representative managers and employees should participate in identifying strengths and weaknesses .
* Performing an internal audit improves communication by fostering understanding between departments .
* A task force of managers from different units should identify the 20 most important strengths and weaknesses .
* Financial ratio analysis can reveal issues in marketing, management, R&D, or MIS .
* Organizational culture is a pattern of behavior developed to cope with external adaptation and internal integration .
* Organizational culture includes values, beliefs, rites, rituals, ceremonies, myths, stories, language, metaphors, symbols, and heroes .
* Google has an informal culture; Procter & Gamble has a rigid culture .
* The five basic functions of management are planning, organizing, motivating, staffing, and controlling .
### Key concepts
* **Distinctive competencies:** Firm strengths that provide a competitive advantage .
* **Resource-Based View (RBV):** Theory positing that internal resources are key to sustained competitive advantage .
* RBV categorizes resources into physical, human, and organizational .
* For a resource to be valuable, it must be rare, hard to imitate, or not easily substitutable .
* **Organizational Culture:** The shared values, beliefs, and norms that guide employee behavior .
* Culture can be a major strength or weakness, impacting strategy implementation .
* Culture must support strategy and foster competence and enthusiasm .
* **Management Functions:**
* Planning: Preparing for the future, setting objectives, devising strategies .
* Organizing: Defining task and authority relationships to achieve coordinated effort .
* Motivating: Influencing people to accomplish specific objectives .
* Staffing: Personnel management activities like recruiting and training .
* Controlling: Ensuring actual results align with planned results .
### Implications
### Common pitfalls
---
## Analyzing the internal environment: functional areas
* Internal analysis identifies an organization's strengths and weaknesses across functional areas .
* Understanding these functional areas is crucial for effective strategy formulation and evaluation .
* Key functional areas examined include management, marketing, finance, and accounting .
### Management and controlling
* The controlling function ensures actual operations align with planned operations .
* Controlling involves establishing standards, measuring performance, comparing actual to planned, and taking corrective action .
* Effective measurement of individual performance can be challenging due to potential confrontation and time constraints .
* Methods for performance appraisal include graphic rating scales, behaviorally anchored rating scales, and critical incident methods .
### Marketing
* Marketing is the process of defining, anticipating, creating, and fulfilling customer needs .
* Key marketing functions include customer analysis, selling, product/service planning, pricing, distribution, marketing research, and opportunity analysis .
* Customer analysis involves evaluating needs, desires, and wants through surveys and data analysis .
* Effective selling relies on advertising, sales promotion, publicity, and personal selling .
* Advertising spending varies, with approximately three percent of revenues being typical, though it can differ by industry .
* Modern marketing increasingly leverages technology for online marketing, social media, and customer relationship management .
* Product and service planning includes test marketing, brand positioning, and customer service .
* Test marketing helps forecast sales and avoid losses on weak products or ineffective approaches .
* Pricing decisions are influenced by consumers, governments, suppliers, distributors, and competitors .
* Distribution involves managing warehousing, channels, coverage, and inventory .
* Marketing research systematically gathers and analyzes data about marketing-related problems .
* Cost/benefit analysis assesses costs, benefits, and risks of marketing decisions, comparing estimated benefits to total costs .
* Key cost/benefit indicators include net present value (NPV) and benefit-cost ratio (BCR) .
### Finance and accounting
* Financial condition is a key indicator of a firm's competitive position and investor attractiveness .
* Financial ratio analysis is a primary method for identifying financial strengths and weaknesses .
* Finance functions include investment, financing, and dividend decisions .
* Liquidity ratios assess a firm's ability to meet short-term obligations .
* Leverage ratios measure the extent of a firm's debt financing .
---
## Analyzing the internal and external environment
### Breakeven analysis
* Breakeven point (BE) is the quantity of units a firm must sell for total revenues to equal total costs .
* Lowering prices increases the breakeven point in units sold .
* Increasing fixed costs (FC) raises the breakeven quantity .
* Examples of fixed costs include stores, plants, and advertising .
* Increasing variable costs (VC) also raises the breakeven point .
* The formula for breakeven quantity is: Total Fixed Costs / (Price per unit - Variable Costs per unit) .
* Limitations of breakeven analysis include:
* It's a supply-side analysis, ignoring demand .
* Assumes constant fixed costs in the short run .
* Assumes constant average variable costs per unit .
* Assumes quantity produced equals quantity sold .
* In multiproduct firms, assumes constant sales mix .
### Production and operations
* Capacity utilization measures a plant's output relative to its potential output .
* Production/operations transform inputs into goods and services .
* Schroeder identified five decision areas in production/operations management: process, capacity, inventory, workforce, and quality .
* Cross-training employees can improve efficiency, quality, productivity, and job satisfaction .
* Strategic decisions have implications for production and operations .
* Low-cost provider: longer runs, fewer changes .
* High-quality provider: more quality efforts, skilled workers .
* Great customer service: more service people, rapid response .
* First to introduce new products: higher R&D and retraining costs .
* Highly automated: high capital investment, reduced flexibility .
* Minimize layoffs: employee security, loyalty, retention .
* Trends include extending supplier payment terms and quitting business with unsafe factories .
### Research and development
* R&D is critical for survival, especially for product development strategies .
### Management information systems (MIS)
### Value chain analysis (VCA)
---
## The internal factor evaluation (IFE) matrix
* The IFE Matrix is a strategy-formulation tool that summarizes and evaluates a business's major internal strengths and weaknesses .
* It provides a basis for identifying and evaluating relationships among functional areas .
* Requires intuitive judgments; scientific appearance doesn't imply an all-powerful technique .
* Focus on understanding factors is more important than exact numbers .
* The IFE Matrix is constructed as a summary step in an internal strategic-management audit .
* It should list up to 20 key internal factors, both strengths and weaknesses, with strengths listed first .
* Factors should be specific, using percentages, ratios, and comparative numbers .
* "Actionable" factors providing strategic insight are preferred over mere data points .
* Weights for each factor range from 0.0 (not important) to 1.0 (all-important), summing to 1.0 .
* Ratings are 1 (major weakness), 2 (minor weakness), 3 (minor strength), or 4 (major strength) .
* Strengths must have ratings of 3 or 4; weaknesses must have ratings of 1 or 2 .
* Weighted scores are calculated by multiplying weight by rating for each factor .
* Total weighted scores range from 1.0 (weak internally) to 4.0 (strong internally), with an average of 2.5 .
* A factor can be included twice if it is both a strength and a weakness .
* No more than 30 percent of key factors should be financial ratios .
* **Actionable factors**: Factors that provide insight for pursuing strategies, rather than just stating data .
* **Industry-based weights**: Weights assigned to factors based on their relative importance for success in the industry .
* **Company-based ratings**: Ratings (1-4) assigned to factors based on whether they represent a weakness or strength for the specific company .
* **Total weighted score**: The sum of the weighted scores of all factors in the IFE Matrix .
* Provides important information for strategy formulation, guiding specific actions like hiring or improving problem areas .
* Helps identify which factors are most important for success in an industry .
* Highlights areas needing immediate attention (e.g., repair problems, declining revenue segments) .
* Encourages managers and employees to participate in determining the firm's future .
* Fosters communication among functional and divisional managers about business conditions .
* Can lead to an improved collective understanding of the business .
---
## Analyzing the external environment
* The external audit identifies key opportunities and threats outside a firm's control .
* It focuses on actionable factors with strategic implications, not an exhaustive list .
* The external audit is part of the broader strategic-management process .
* External forces are categorized into economic, social/cultural/demographic/environmental, political/governmental/legal, technological, and competitive .
* Gathering competitive intelligence and information on external trends is crucial .
* Key external factors should be measurable, applicable to competitors, and hierarchical .
* The Industrial Organization (I/O) view emphasizes external factors as primary drivers of competitive advantage .
* Economic forces like interest rates, disposable income, and GDP trends directly impact strategy attractiveness .
* Social, cultural, demographic, and environmental changes significantly affect products, services, and customers .
* Political, governmental, and legal factors can create both opportunities and threats for organizations .
* **Actionable factors:** External factors selected for strategic planning must have clear strategic implications .
* **Industrial Organization (I/O) view:** External industry factors are considered more important than internal factors for competitive advantage .
* **Economic variables:** Factors like interest rates, disposable income, and currency values influence market demand and capital costs .
* **Social, cultural, demographic, and environmental variables:** Trends like aging populations, changing demographics, and environmental awareness shape consumer behavior and markets .
* **Political, governmental, and legal forces:** These include regulations, government policies, and political stances, which can impact business operations and profitability .
- > **Tip:** When identifying external factors, quantify them where possible and ensure they directly inform strategic decisions
* Changes in external forces necessitate adjustments in product development, market segmentation, and business acquisitions/divestitures .
* The I/O perspective suggests firms should compete in attractive industries and understand key external relationships within them .
* Economic trends can create advantages for discount retailers and require strategic responses from others .
* Demographic shifts, like an aging population, present opportunities for specific industries such as healthcare and leisure .
* Political and legal changes, such as new healthcare mandates or debates on Internet sales tax, can significantly impact business models .
- > **Example:** A rising GDP in Brazil is an actionable economic factor that might prompt a firm to open new stores there, whereas "the stock market is rising" is not
- actionable
---
## Competitive forces analysis
* Identifying rival firms and their strengths, weaknesses, capabilities, opportunities, threats, objectives, and strategies is crucial for external audits .
* Competition is often intense, requiring firms to continually adapt, innovate, and improve to gain advantage .
* Effective competitive intelligence (CI) programs provide a general understanding of the industry and competitors, identify vulnerabilities, and anticipate competitor moves .
* Competitors are firms offering similar products/services in the same market, be it geographic or product segments .
* Market commonality is the number and significance of markets a firm shares with rivals .
* Resource similarity is the extent to which a firm's internal resources are comparable to a rival's .
* 95 percent of information needed for strategic decisions is publicly available and accessible .
* Unethical tactics like bribery or hacking should never be used; information can be gathered ethically .
* Common ethical CI sources include trade journals, online databases, customer surveys, and monitoring competitors' public information .
* Misconceptions about CI include it requiring extensive resources, violating antitrust laws, or being unethical .
* Discussions with competitors about pricing or market intentions can violate antitrust statutes .
* Competitive intelligence can be gathered by hiring rival executives, reverse engineering products, or conducting site visits .
* Salespersons can be valuable intelligence agents, with gathering CI included in their job descriptions .
* Cl programs aim to understand the industry, identify competitor vulnerabilities, and anticipate threats to a firm's market position .
* Characteristics of a successful Cl program include flexibility, usefulness, timeliness, and cross-functional cooperation .
* **Porter's Five-Forces Model** is a widely used framework for analyzing competitive intensity within an industry .
* The five forces are: rivalry among competing firms, potential entry of new competitors, potential development of substitute products, bargaining power of suppliers, and bargaining power of consumers .
* **Rivalry** intensifies with more competitors, similar size/capability, declining demand, price cutting, and easy brand switching .
* **Barriers to entry** include economies of scale, technology, brand loyalty, capital requirements, and government regulations .
* **Substitute products** limit prices that can be charged before consumers switch, thus capping profits .
* **Supplier bargaining power** is high with few suppliers, few substitutes for raw materials, or high switching costs .
* **Consumer bargaining power** is significant when customers buy in volume, products are standard, or sellers face falling demand .
* Intense competition, especially in lower-return industries, makes a market unattractive for profit-making .
* Firms must identify potential new entrants and monitor their strategies to counterattack and capitalize on strengths .
* The presence of substitute products puts a ceiling on prices and profit margins .
---
### Forecasting and assumptions
* Forecasting involves educated assumptions about future trends and events .
* It is complex due to technological innovation, cultural changes, competitors, and economic instability .
* Managers rely on published forecasts to identify external opportunities and threats .
* Implicit forecasts guide daily decisions; the goal is to make them more accurate than rivals .
* Quantitative forecasts are best with historical data and stable relationships .
* No forecast is perfect; sufficient time must be devoted to understanding their bases .
* Assumptions are the best present estimates of external factors impacting performance .
* Reasonable assumptions, based on available information, are essential for strategy formulation .
* Deviations from assumptions signal the need for corrective actions .
### External Factor Evaluation (EFE) Matrix
* The EFE matrix summarizes and evaluates economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information .
* **Steps to develop an EFE Matrix:**
* List key external factors (opportunities first, then threats), aiming for 20 specific, actionable items .
* Assign weights (0.0 to 1.0) reflecting each factor's importance to industry success; weights must sum to 1.0 .
* Assign ratings (1-4) indicating the firm's strategic response effectiveness (4=superior, 1=poor) .
* Multiply each factor's weight by its rating for a weighted score .
* Sum all weighted scores to get the total weighted score .
* Highest possible total EFE score is 4.0, lowest is 1.0; the average is 2.5 .
* A high score indicates outstanding response to opportunities and threats .
* Quantify factors with percentages, ratios, and comparative numbers whenever possible .
- > **Tip:** Factors should be "actionable," not vague statements like "the economy is bad
- "
### Competitive Profile Matrix (CPM)
* The CPM identifies a firm's major competitors and their strengths/weaknesses relative to a sample firm .
* Weights and total weighted scores have the same meaning as in an EFE Matrix .
* Critical success factors in a CPM include both internal and external issues .
* Ratings in a CPM indicate strengths or weaknesses (4=major strength, 1=major weakness) .
---
### External audit exercises
- Exercise 7F focuses on developing a Competitive Profile Matrix (CPM) for Michelin and its competitors .
- Exercise 7G focuses on developing a CPM for adidas AG and its competitors .
- An external audit requires identifying and evaluating opportunities and threats from economic, social, and technological trends .
- Exercise 7E involves conducting an external audit for a chosen company, identifying 10 opportunities and 10 threats .
- Useful websites for external information include MarketWatch, Hoovers, and Yahoo Finance .
- Exercise 7I involves analyzing the college or university's external strategic situation, identifying opportunities and threats .
- Class participation can help prioritize external factors for a college or university .
### Strategy generation and selection chapter overview
- Chapter 8 introduces a three-stage framework for choosing among alternative strategies .
- Key matrices covered include SWOT, SPACE, BCG, IE, and QSPM .
- The chapter discusses behavioral, political, ethical, and social responsibility considerations in strategy .
- The roles of intuition, organizational culture, and the board of directors in strategy selection are explored .
- Assurance of learning exercises are provided for Unilever and adidas AG, covering various strategic analysis tools .
---
# The five basic functions of management in strategic planning
### Core idea
- Management functions are essential for strategic planning and assessing organizational strengths/weaknesses .
- These five functions are planning, organizing, motivating, staffing, and controlling .
- They are crucial for preparing for the future and achieving desired results .
### Key facts
- Planning involves preparing for the future, setting objectives, and devising strategies .
- Organizing establishes task and authority relationships to coordinate efforts .
- Motivating influences human behavior to accomplish specific objectives .
- Staffing encompasses all personnel and human resource management activities .
- Controlling ensures actual operations align with planned operations .
### Key concepts
- **Planning:** The bridge between present and future; essential for strategy formulation .
- **Organizing:** Determines who does what and reports to whom; creates structure .
- **Motivating:** Involves leadership, group dynamics, communication, and organizational change .
- **Staffing:** Crucial for strategy implementation; includes recruitment, training, and HR management .
- **Controlling:** Ensures actual performance matches planned standards through measurement and correction .
### Implications
- Effective management functions lead to synergy, where combined efforts yield greater results (2+2=5 effect) .
- Weaknesses in any management function can hinder strategy implementation and evaluation .
- Integrating these functions supports proactive rather than reactive strategic management .
- Managers must continually assess and improve in these functional areas .
- Controlling is particularly important for strategy evaluation .
---
# Marketing strategy and internal audit considerations
### Advertising and promotion
* Online advertising rates are increasingly based on sales rather than expected viewership .
* This cost-per-sale model ensures advertisements are free if no sales result .
* Social media platforms like Facebook allow precise audience targeting for advertisements .
* E-books are becoming an advertising outlet, with ads targeted by content and reader demographics .
### Product and service planning
* Key activities include test marketing, brand positioning, warranties, packaging, and customer service .
* Test marketing allows testing of alternative plans and forecasting future sales for new products .
* Consumer goods companies use test marketing more frequently than industrial goods companies .
* Hershey used test marketing in China for a new condensed milk candy and established an innovation center .
### Pricing
* Pricing strategies include everyday low prices, clearance sales, and promotional offers like free services .
* Five major stakeholders influencing pricing decisions are consumers, governments, suppliers, distributors, and competitors .
* Government regulations can impact price fixing, discrimination, and advertising .
* Coordinating discounts, credit terms, or production to maintain high prices can be illegal .
* A strengthening dollar can force U.S. multinationals to choose between raising local prices or losing market share .
* Internet price comparison shopping has significantly reduced profit margins .
* Retailers like Target and Best Buy offer price matching to combat showrooming .
### Distribution
* Distribution involves warehousing, channels, retail locations, sales territories, and transportation .
* Intermediaries (wholesalers, retailers) are common as many producers lack direct marketing resources .
* Evaluating distribution channels involves economic, control, and adaptive criteria .
### Marketing research
* Marketing research systematically gathers, records, and analyzes data on marketing problems .
* Strong marketing research skills are a strength for pursuing generic strategies .
* Competitor analysis is a significant source of strategic ideas .
### Cost/benefit analysis
* This involves assessing costs, benefits, and risks of marketing decisions .
* The process includes computing total costs, estimating total benefits, and comparing them .
* Key cost-benefit indicators include net present value (NPV), present value of benefits (PVB), and benefit cost ratio (BCR) .
* Formulas for cost-benefit analysis include:
### Finance and accounting
---
## Breakeven analysis and its limitations
### Core idea
* Breakeven analysis helps determine the sales volume needed to cover all costs.
* It assists in understanding the impact of changes in costs and pricing on profitability.
### Key facts
* Joy's Day Care has fixed costs of 600 dollars per month (200 dollars insurance + 400 dollars rent) .
* Variable costs per student per day are 8 dollars (snacks of 2 dollars + meals of 6 dollars) .
* The target revenue per child per day is 12 dollars .
* The contribution margin per child per day is 4 dollars (12 dollars revenue - 8 dollars variable costs) .
* Breakeven units (children) in June (20 workdays) is 150 children .
* Joy needs to care for 8 children daily to make a profit .
* With a helper and increased price, Joy needs 7 students per day to break even .
### Key concepts
* Contribution margin is the difference between selling price per unit and variable cost per unit.
* Breakeven point in units is calculated as Fixed Costs / Contribution Margin per Unit.
* Breakeven analysis can be used to evaluate different business scenarios by adjusting costs and prices.
### Limitations of breakeven analysis
* It is a supply-side analysis, not accounting for likely sales volume at various prices .
* Assumes fixed costs remain constant, which may not hold with increased production scale .
* Assumes average variable costs are constant per unit of output within the likely sales range .
* Assumes quantity produced equals quantity sold, ignoring inventory changes .
* For multiproduct companies, it assumes a constant sales mix .
### Finance and accounting audit questions
* Assess financial strengths and weaknesses through ratio analysis .
* Determine the ability to raise short-term and long-term capital .
* Evaluate sufficiency of working capital .
* Check effectiveness of capital budgeting procedures .
* Review reasonableness of dividend payout policies .
* Assess investor and stockholder relations .
* Verify experience and training of financial managers .
* Determine if the firm's debt situation is excellent .
### Production and operations
---
# Breakeven analysis and its implications for pricing and costs
### Core idea
* The breakeven point (BEP) is the quantity of units a firm must sell for total revenues to equal total costs .
* Lowering prices increases the breakeven point in units sold .
* Increasing fixed costs raises the breakeven quantity .
### Key facts
* The breakeven point formula is: $BE Quantity = \frac{TFC}{(Price - VC)}$ .
* TFC represents total fixed costs .
* Price represents the price per unit .
* VC represents variable costs per unit .
* Lowering prices and increasing fixed costs simultaneously can drastically increase the breakeven quantity .
* Increasing variable costs also raises the breakeven point .
* A breakeven chart visualizes the intersection of total revenue and total cost lines to show the BEP .
### Key concepts
* Lowering prices to compete can be a drawback if it significantly increases the breakeven point .
* Firms with lower fixed costs, like Apple and Amazon, have a competitive advantage in tough economic times due to lower breakeven points .
* A "catastrophic double whammy" occurs when a firm lowers prices and increases fixed costs, significantly raising its breakeven quantity .
* If a firm does not break even, it will incur losses .
### Implications
* Breakeven analysis highlights how pricing and cost strategies dramatically affect a firm's financial condition .
* Understanding the breakeven concept is crucial, especially during recessionary periods .
### Limitations of breakeven analysis
* It is a supply-side analysis, ignoring potential sales volumes at different prices .
* Assumes fixed costs remain constant, which is not true with increased production scale .
* Assumes average variable costs are constant per unit of output .
* Assumes production quantity equals sales quantity (no inventory changes) .
* In multiproduct companies, it assumes a constant sales mix .
- > **Tip:** While breakeven analysis provides valuable insights into cost and pricing strategies, it's important to remember its limitations and complement it with other analytical tools for a comprehensive financial
- picture
---
### Value chain analysis
* Value chain analysis (VCA) identifies costs of organizational activities from raw material procurement to customer service .
* VCA aims to reveal low-cost advantages or disadvantages across the entire value chain .
* It helps a firm understand its strengths and weaknesses relative to competitors and over time .
* Complex interrelationships exist, where one value chain activity can impact others positively or negatively .
* For example, exceptional customer service might be costly but reduce returns and increase revenue .
* Cost and price differences can originate from activities of suppliers, distributors, creditors, or shareholders .
* The initial step in VCA is dividing operations into specific activities or business processes .
* Costs, both in time and money, are then attached to each discrete activity .
* Cost data is converted into information by identifying competitive cost strengths and weaknesses .
* VCA supports the Resource-Based View (RBV) by examining assets and capabilities for distinctive competence .
* A firm's total value chain costs define its overall cost of doing business .
* Firms should determine where cost advantages and disadvantages exist compared to rivals .
* Value chains vary significantly across industries; a paper company's chain differs from a tech company's .
* A core competence is a VCA activity a firm performs exceptionally well .
* A core competence becomes a distinctive competence when it evolves into a major competitive advantage .
* Walmart uses VCA for tight inventory control and volume purchasing .
* Computer companies often compete aggressively on the distribution end of the value chain .
* Price competitiveness is crucial for mass retailers and computer firms .
* Figure 6-7 provides an example value chain for a manufacturing firm .
* Figure 6-8 illustrates transforming value chain activities into sustained competitive advantage .
### Benchmarking
* Benchmarking measures a firm’s VCA against rivals to assess competitiveness .
* It involves measuring value chain activity costs across an industry to identify "best practices" .
* The goal is to duplicate or improve upon these best practices to enhance competitiveness .
* Benchmarking identifies and improves value chain activities where rivals have comparative advantages .
* Gaining access to other firms’ VCA and associated costs can be challenging .
---
# Developing an internal factor evaluation (IFE) matrix
### Core idea
- Summarizes and evaluates major internal strengths and weaknesses of a business .
- Provides a basis for identifying and evaluating relationships among functional areas .
- Requires intuitive judgments, not a purely scientific approach .
### Key facts
- Developed in five steps .
- List key internal factors, including both strengths and weaknesses (recommend 20 total) .
- List strengths first, then weaknesses .
- Assign weights from 0.0 (not important) to 1.0 (all-important) to each factor .
- The sum of all weights must equal 1.0 .
- Assign a rating of 1 (major weakness) to 4 (major strength) to each factor .
- Strengths must receive a rating of 3 or 4; weaknesses must receive a rating of 1 or 2 .
- Multiply each factor's weight by its rating to get a weighted score .
- Sum all weighted scores to get the total weighted score for the organization .
### Key concepts
- **Weights**: Indicate the relative importance of a factor for success in the industry, regardless of whether it's a strength or weakness .
- **Ratings**: Are company-based, reflecting the factor's strength or weakness within the organization .
- **Actionable factors**: Are specific and provide insight for strategy, unlike general statements .
- **Quantitative data**: Use percentages, ratios, and numbers for specificity .
- **Dual nature**: A factor can be listed twice if it is both a strength and a weakness for the firm .
### Implications
- Total weighted scores range from 1.0 (low) to 4.0 (high), with an average of 2.5 .
- Scores well below 2.5 indicate a weak internal position .
- Scores significantly above 2.5 indicate a strong internal position .
- Provides important information for strategy formulation, guiding actions on key factors .
- For multidivisional firms, each division should construct an IFE Matrix, then integrate them .
- Limit financial ratios to no more than 30% of key factors .
- > **Tip:** Thorough understanding of the factors is more important than the numerical outcomes
- > **Example:** A factor like "our Quick Ratio is 2
---
# Strategic planning concepts and tools
### Core idea
* Strategic planning aims to gain and sustain competitive advantage .
* Internal audits identify and evaluate strengths and weaknesses crucial for strategy formulation .
* Tools like the IFE Matrix provide essential information for formulating competitive strategies .
### Key facts
* Benchmarking is a popular improvement tool; mission/vision statements and customer surveys are most used (77%) .
* SWOT analysis (72%) and informal benchmarking (68%) are also highly used .
* Performance benchmarking (49%) and best practice benchmarking (39%) are used less but expected to grow .
* Gaining access to other firms' value chain activities can be challenging and costly .
* Consulting firms gather and distribute benchmarking data without identifying sources .
* The Internal Factor Evaluation (IFE) Matrix summarizes and evaluates major internal strengths and weaknesses .
* An IFE Matrix can have a total weighted score ranging from 1.0 (weak) to 4.0 (strong), with 2.5 being average .
* In multidivisional firms, each division should construct its own IFE Matrix, integrated into a corporate matrix .
### Key concepts
* **Benchmarking:** A tool for improvement; includes informal, performance, and best practice benchmarking .
* **Value Chain Analysis (VCA):** Transforming activities into sustained competitive advantage .
* **Internal Factor Evaluation (IFE) Matrix:** A strategy-formulation tool to assess internal functional areas .
- Involves listing key internal factors (strengths and weaknesses) .
- Assigning weights (0.0 to 1.0) based on industry importance .
- Assigning ratings (1-4): 1=major weakness, 2=minor weakness, 3=minor strength, 4=major strength .
- Strengths receive ratings of 3 or 4; weaknesses receive 1 or 2 .
- Multiplying weight by rating to get a weighted score .
- Summing weighted scores to get the total IFE score .
* **Actionable factors:** Factors providing insight for strategies, e.g., "chocolate division’s ROI increased" .
* **Core competence:** A key concept in strategic planning .
* **Distinctive competencies:** Also vital for strategic planning .
### Implications
* An internal audit helps gain competitive advantages over rivals .
* The IFE Matrix guides strategy formulation, e.g., hiring more staff or improving store appearance .
### Common pitfalls
---
# Organizational culture and its strategic implications
### Core idea
- Organizational culture refers to the shared values, beliefs, and norms within a firm .
- A strong organizational culture can be a key internal strength, impacting strategy formulation and implementation .
- Assessing culture is a vital part of the internal audit process .
### Key facts
- Cultural products are empirical indicators of organizational culture .
- Fifteen aspects of an organization's culture can be assessed to understand its nature .
- The internal audit process involves evaluating a firm's resources, capabilities, structure, and strategies .
- Employee involvement in the internal audit process can energize and mobilize them .
- Companies use internal audits to gain competitive advantages .
### Key concepts
- **Organizational culture**: The collective programming of the mind distinguishing the members of one category of people from another .
- **Cultural products**: Observable manifestations of a culture, such as observable rituals, ceremonies, or language .
- **Internal audit**: A systematic assessment of a firm's internal operations to identify strengths and weaknesses .
- **Distinctive competencies**: Strengths that rival firms or potential entrants do not exhibit .
- **Resource-based view (RBV)**: A perspective that emphasizes how firms' resources and capabilities can lead to sustained competitive advantage .
### Implications
- A strong culture aligned with strategy can significantly enhance a firm's performance .
- Weaknesses in culture can impede strategic initiatives and create barriers to change .
- Understanding cultural norms is crucial for successful international strategy implementation .
- Cultural assessments provide insights that complement financial ratio analysis .
- Strategic planning benefits from a deep understanding of how culture influences decision-making and operations .
### Common pitfalls
- Overreliance on numbers without explaining their strategic implications can bore an audience .
- Sole reliance on financial ratios is an ineffective means of deriving internal strengths and weaknesses .
---
# The external audit process and its importance in strategic management
### Core idea
* An external audit identifies opportunities and threats beyond a firm's control .
* It focuses on key variables that enable actionable strategic responses .
* External forces significantly impact products, services, markets, and organizations .
* The process involves gathering, assimilating, and evaluating external information .
### Key facts
* The external audit is part of the strategic-management process, fitting between strategy formulation and implementation .
* External forces are categorized into economic, social/cultural/demographic/environmental, political/governmental/legal, technological, and competitive .
* External factors must be specific, quantifiable, and actionable for strategic planning .
* Information for the external audit can be gathered from managers, employees, magazines, trade journals, newspapers, the Internet, libraries, suppliers, distributors, salespersons, customers, and competitors .
* A prioritized list of key external factors can be obtained by ranking them by importance .
* Key external factors should be important for objectives, measurable, applicable to all competitors, and hierarchical .
* A final list of key external factors should be communicated widely within the organization .
* The Industrial Organization (I/O) view emphasizes external industry factors as more critical for competitive advantage than internal factors .
* I/O theorists believe firm performance is more dependent on industry properties (e.g., economies of scale, barriers to entry) than internal resources .
### Key concepts
* **Actionable factors:** External factors that have clear strategic implications and allow for specific firm responses .
* **Industrial Organization (I/O) View:** A strategic management perspective that posits external industry forces are the primary drivers of competitive advantage .
* **Competitive positioning:** According to I/O advocates, competitive advantage is largely determined by a firm's position within its industry .
* **Economic forces:** Trends impacting capital costs, consumer spending, and market attractiveness (e.g., interest rates, GDP, unemployment) .
* **Social, cultural, demographic, and environmental forces:** Trends shaping lifestyles, consumer behavior, and population characteristics (e.g., aging population, racial/ethnic shifts, environmental consciousness) .
* **Political, governmental, and legal forces:** Factors related to government regulation, policy, and legislation that can create opportunities or threats .
### Implications
* Changes in external forces necessitate adjustments in product development, market segmentation, services, and business acquisitions/divestitures .
* An aging U.S. population presents opportunities for industries like healthcare, financial services, travel, and leisure .
* Geographic shifts in population can reveal opportunities for locating new facilities and focusing marketing efforts .
* Political stances and social issue support by companies can impact international expansion and create backlash .
* Government regulations, such as healthcare mandates, can influence employment strategies (e.g., shift to part-time workers) .
* The value of a currency (e.g., a weak U.S. dollar) can significantly impact export competitiveness, import costs, and company profits .
---
## Technological forces
* Technological forces significantly alter product life cycles, distribution speed, and market limitations .
* They can lower entry barriers and redefine industry relationships .
* Technological advancements create new markets and can render existing products obsolete .
* The Internet has changed product life cycles, distribution speed, and traditional geographic market limitations .
* Online ordering for Papa John's exceeded fifty percent of all orders via their website .
* Small and midsize businesses spent approximately 1.3 billion dollars in 2011 on online reputation management tools .
* The emergence of social media empowers opinionated customers and makes online reputation monitoring essential .
* Companies are creating Chief Information Officer (CIO) and Chief Technology Officer (CTO) roles to manage IT in strategy .
* CIOs focus on managing stakeholder relationships, while CTOs focus on technical issues like data and systems .
* Technological changes can reduce or eliminate cost barriers between businesses .
* High-tech industries are highly sensitive to technological opportunities and threats .
* Technology management is considered a key responsibility for strategists .
* **CIO:** Manages the firm's relationship with stakeholders, focusing on information strategy .
* **CTO:** Focuses on technical issues such as data acquisition, processing, and system acquisition .
* **E-commerce capitalization:** Organizations establish CIO and CTO roles to effectively leverage online opportunities .
* Technological advancements can create new competitive advantages that are more powerful than existing ones .
* Firms must reverse thinking that limits technology expenditures to what's left after other requirements .
* Critical technology decisions should not be delegated to lower levels or made without understanding strategic implications .
- ---
## Competitive forces
* Identifying rivals and assessing their strengths, weaknesses, and strategies is crucial for strategy formulation .
* Competition is often intense and can be described as cut-throat .
* Porter's Five-Forces Model is a widely used framework for analyzing competitive forces .
* Gathering and evaluating information on competitors is essential for successful strategy formulation .
* Many multidivisional firms and privately-held firms do not readily disclose competitive information .
* Walgreens and CVS exemplify intense competition on price and customer service .
### Common pitfalls
---
## External audit process and its importance in strategic management
### Forecasting tools and techniques
- Forecasts are educated assumptions about future trends and events .
- Forecasting is complex due to technological innovation, cultural changes, new products, competitors, government, and economic instability .
- Managers often use published forecasts to identify external opportunities and threats .
- We all make implicit forecasts daily; the question is how best to forecast .
- Assumptions for forecasts must be based on facts, figures, trends, and research .
- Accurate forecasts provide major competitive advantages and are vital for strategic management success .
- Forecasting tools are categorized into quantitative and qualitative techniques .
- Quantitative forecasts are best when historical data is available and relationships are expected to remain stable .
- No forecast is perfect; strategists must study underlying bases and develop internal forecasts .
- > **Tip:** Accurate forecasts can provide a significant competitive edge and are essential for strategic success
### Making assumptions
- Planning is impossible without assumptions .
- Assumptions are the "best present estimates of the impact of major external factors" .
- Strategists deal with variables that cannot be controlled or predicted with 100 percent accuracy .
- Reasonable assumptions based on available information are necessary for strategy formulation .
- Assumptions are needed for future trends and events that significantly affect the business .
- Assumptions serve as checkpoints for strategy validity; deviations signal the need for corrective action .
- Firms with the best information generally make the most accurate assumptions, leading to competitive advantages .
### Industry analysis: The external factor evaluation matrix
- The EFE matrix summarizes and evaluates economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information .
- It involves five steps: listing key factors, assigning weights, assigning ratings, calculating weighted scores, and summing weighted scores .
- Key external factors should be specific, actionable, and quantified where possible .
- Weights range from 0.0 (not important) to 1.0 (very important), summing to 1.0 .
- Ratings are from 1 (poor) to 4 (superior) and indicate how effectively the firm's strategies respond to the factor .
- Highest possible total weighted score is 4.0, lowest is 1.0; the average is 2.5 .
- A score of 4.0 indicates outstanding response to opportunities and threats .
- A score of 1.0 indicates strategies are not capitalizing on opportunities or avoiding threats .
### The competitive profile matrix (CPM)
---
### Developing an external audit
* **Purpose of external audit information:** To identify external opportunities and threats before formulating strategies .
* **Sources of external information:** Internet, newspapers, magazines, economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive trends .
* **Key websites for external information:**
* marketwatch.multexinvestor.com
* hoovers.com
* moneycentral.msn.com
* finance.yahoo.com
* clearstation.com
* us.etrade.eom/e/t/invest/markets .
### Developing a CPM
* **Purpose of CPM development:** To practice evaluating competitive positions and assimilating information .
* **CPM key activity:** Monitoring competitors' performance and strategies .
* **Example companies for CPM development:** Michelin, Bridgestone, Goodyear Tire and Rubber Company; Nike, Puma, Under Armour, Callaway Golf .
### Analyzing a college or university's external strategic situation
* **Class exercise objective:** Determine major external opportunities and threats for a college or university .
* **Exercise steps:**
* List 10 opportunities and 10 threats .
* Rank order factors from most important to least important [10](#page=10) [1](#page=1) .
* Create a prioritized list based on class consensus .
---
# Social, cultural, demographic, and environmental forces shaping business strategy
### Core idea
* Social, cultural, demographic, and environmental changes significantly impact products, services, markets, and customers across all organization types .
* These forces create both opportunities and threats that challenge organizations .
* Understanding these shifts is crucial for adapting strategies to new consumer needs and market dynamics .
### Key facts
* Asian Americans are the best-educated, highest-earning, and fastest-growing racial group in the US .
* The US population is aging, with individuals aged 65 and older projected to rise significantly .
* By 2075, the US is projected to have no single racial or ethnic majority .
* The global population is growing, presenting opportunities for firms to expand beyond domestic markets .
* US households are increasingly composed of single individuals or those living with unrelated people, and online purchasing is growing .
* The trend toward an older US population benefits industries like hospitality, luxury goods, healthcare, and financial services .
* Japan has the world's longest-living population, with a significant increase in centenarians projected in the US .
* Migration trends within the US from Northeast/Midwest to Sunbelt/West have slowed but still represent strategic opportunities .
### Key concepts
* The aging US population creates demand for specific products and services related to health, finance, travel, and leisure .
* Shifting demographics and changing lifestyles necessitate new products, services, and strategies to meet evolving consumer needs .
* Environmental awareness is increasing, evidenced by a resurgence in outdoor activities like fishing and hunting .
* Global population growth suggests an expanding pool of potential international customers .
### Implications
* Organizations must adapt to changing social values, cultural norms, and demographic compositions to remain competitive .
* Strategic decisions regarding location, marketing, and product development must consider regional and demographic shifts .
* Businesses need to anticipate and respond to trends impacting consumer behavior and preferences .
---
## Competitive forces and intelligence
* Identifying rival firms and their strengths, weaknesses, capabilities, opportunities, threats, objectives, and strategies is crucial for external audits .
* Competitive intelligence (CI) is a systematic and ethical process for gathering and analyzing competitor information to support business goals .
* Competition intensity varies across industries; some are highly volatile (communications, electronics), others less so (textile, forestry) .
* Identifying competitors can be challenging due to multidivisional firms, private ownership, and lack of divisional financial reporting .
* Intense competition is exemplified by businesses like Walgreens/CVS, auto dealerships, and Dollar General/Family Dollar battling on price and service .
* Seven characteristics of competitive companies include striving for market share, using vision/mission, continuous improvement, adaptation, growth via acquisition, hiring top talent, and global cost competitiveness .
* Legal and ethical methods for obtaining competitive intelligence include hiring rival executives, reverse engineering, customer surveys, site visits, online databases, public government information, trade publication monitoring, and salespersons' input .
* Internet is an excellent medium for gathering CI .
* Information from employees, managers, suppliers, distributors, customers, creditors, and consultants is vital for superior intelligence .
* 95 percent of information needed for strategic decisions is publicly available .
* Sources of competitive information include trade publications .
* The definition of competitive intelligence (CI) involves systematic and ethical information gathering and analysis of competitor activities and general business trends .
* Misperceptions about business intelligence among U.S. executives include requiring extensive resources, equating it with espionage, and viewing it as unethical .
* Discussions about price, market, or geography with a competitor can violate antitrust statutes .
* An effective CI program has three basic objectives: general industry understanding, identifying competitor vulnerabilities, and anticipating competitor moves .
* Competitive information is applicable for strategy formulation, implementation, and evaluation .
* Characteristics of a successful CI program include flexibility, usefulness, timeliness, and cross-functional cooperation .
* The role of a director of competitive analysis involves planning, data collection/analysis, process facilitation, timely dissemination, special issue research, and identifying important information .
* A firm's position is tenuous if it's not significantly faster than its competitor; being half as fast is terminal .
* Major competitors' weaknesses can represent external opportunities for a firm .
* Major competitors' strengths may represent key threats to a firm's strategy .
* Firms need to overcome outdated attitudes that downplay the importance of competitive intelligence, especially in global markets .
* An effective CI program enables all areas of a firm to access consistent and verifiable information for decision-making .
* All organizational members, from CEO to custodians, can be valuable intelligence agents .
-
---
# External Factor Evaluation (EFE) matrix for industry analysis
### Core idea
- The EFE matrix helps strategists summarize and evaluate external information to understand a firm's industry .
- It identifies future occurrences that could significantly affect the firm and requires reasonable assumptions .
- Accurate assumptions, based on the best available information, can lead to major competitive advantages .
### Key steps in developing an EFE matrix
- **Step 1:** List key external factors (opportunities and threats), aiming for 20 specific, actionable factors with quantitative data where possible .
- **Step 2:** Assign a weight from 0.0 to 1.0 to each factor, reflecting its importance to industry success; weights must sum to 1.0 .
- **Step 3:** Assign a rating from 1 to 4 to each factor, indicating the firm's strategic response effectiveness (4=superior, 3=above average, 2=average, 1=poor) .
- **Step 4:** Multiply each factor's weight by its rating to calculate a weighted score .
- **Step 5:** Sum all weighted scores to determine the total weighted score for the organization .
### Interpretation of total weighted score
- The highest possible total weighted score is 4.0; the lowest is 1.0; the average is 2.5 .
- A score of 4.0 signifies an outstanding response to opportunities and threats .
- A score of 1.0 indicates strategies are not capitalizing on opportunities or avoiding threats .
### Key facts
- The EFE matrix encompasses economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information .
- Opportunities often receive higher weights, but severe threats can also get high weights .
- Weights are industry-based, while ratings are company-based .
- Both opportunities and threats can receive any rating from 1 to 4 .
- Quantifying factors with percentages, ratios, and comparative numbers is crucial .
- Factors should be "actionable" rather than vague statements .
### Examples
- > **Example:** For a local cinema complex, "Trend toward healthy eating eroding concession sales" (threat) received a weight of 0
- 12, and the firm's response rating was 4 (superior)
- > **Example:** For Netflix, the growth in Internet users globally was a key external factor with a weight of 0
- 08, resulting in a total weighted score of 2
- 73
### Related tools
- The Competitive Profile Matrix (CPM) is similar to the EFE matrix but identifies competitors' strengths and weaknesses relative to a sample firm .
- CPM critical success factors include both internal and external issues, with ratings reflecting strengths (4=major, 3=minor) and weaknesses (2=minor, 1=major) .
---
## External factor evaluation matrix (EFE) application and interpretation
* EFE matrices assimilate and evaluate external information meaningfully for decision-making .
* The aim is to help understand competitive positioning and relative strengths/weaknesses.
* Weights indicate perceived relative importance of factors, even small differences matter .
* An actual EFE matrix example for Netflix is presented with opportunities and threats .
- Opportunities for Netflix included membership growth, rising movie ticket prices, Blockbuster's store closures, increased internet users, smart TV introduction, rising cable bills, rising DVD prices, computer/video game usage, and smartphone
- Threats for Netflix included high unemployment, Blockbuster's release advantages, Blockbuster's plan variety, Blockbuster's rental options, Redbox kiosk expansion, rising content licensing costs, Coinstar/Verizon streaming entry, YouTube/Paramount streaming, identity theft risk,
* The Netflix EFE matrix shows weighted scores summing to 2.35 .
* A Competitive Profile Matrix (CPM) example compares three companies across critical success factors .
* Ratings in CPMs indicate: 1 = major weakness, 2 = minor weakness, 3 = minor strength, 4 = major strength .
* Company 2 in an example CPM is the weakest with a total weighted score of 2.50 .
* Another CPM shows Company 3 has the best market share, inventory system, and price competitiveness in one example .
* Company 1 in one CPM has the best price .
### Key concepts
* Factors often included in analysis beyond critical success factors: breadth of product line, sales distribution, proprietary advantages, facility location, production capacity, union relations, technological advantages, e-commerce expertise .
* A CPM for Royal Caribbean Cruises (RCC) is shown, highlighting its rival Carnival Corporation's larger fleet and better financial position .
* RCC's strength lies in having the nicest ships, led by its Oasis ship .
* Developing external assessments aims for gaining and sustaining competitive advantage .
* Emphasize how and why particular factors yield competitive advantage .
### Implications
* A higher EFE score suggests a better overall external position, but doesn't imply precise percentage superiority .
* Small differences in weights (e.g., 0.08 vs. 0.06) can highlight significant perceptions of factor importance .
* CPMs help identify which company excels in specific critical success factors, like product quality or market share .
* The goal of external assessment tools like EFE and CPM is to inform strategic decision-making by clarifying competitive landscapes .
- > **Tip:** Avoid assigning duplicate ratings on any row in a CPM
- > **Tip:** The rating values in a CPM (1-4) represent specific levels of strength or weakness
- > **Tip:** While simplified for examples, real-world EFE and CPM analyses should include more critical success factors
---
# Strategy generation and selection framework
### Core idea
* Strategy analysis and choice aims to determine the best actions for a firm to achieve its mission and objectives .
* Alternative strategies are derived from the firm's vision, mission, objectives, and audit information .
* A systematic approach is crucial to avoid making poor choices, as highlighted by Rudiirs Law .
### Key facts
* The process involves generating, evaluating, and selecting a manageable set of attractive alternative strategies .
* Involvement of managers and employees from all departments is recommended for understanding and commitment .
* Participants need access to external and internal audit information to crystallize strategy ideas .
* Proposed strategies should be listed, discussed, and ranked by participants .
* A ranking scale (1 = not implement, 4 = definitely implement) helps prioritize strategies .
### Key concepts
* A three-stage decision-making framework integrates important strategy-formulation techniques .
* **Stage I: Input Stage:** Summarizes basic input information using EFE Matrix, IFE Matrix, and CPM .
* **Stage II: Matching Stage:** Generates feasible strategies by aligning key external and internal factors using SWOT, SPACE, BCG, IE, and Grand Strategy Matrices .
* **Stage III: Decision Stage:** Objectively evaluates feasible strategies using the Quantitative Strategic Planning Matrix (QSPM) .
* All tools require integration of intuition and analysis .
* Analytical tools should facilitate, not diminish, communication, avoiding over-reliance on numbers .
### Implications
* The matching stage focuses on aligning internal resources and skills with external opportunities and risks .
* Matching key external and internal factors is critical for generating feasible alternative strategies .
* Strategies can be categorized as offensive (using strengths on opportunities) or defensive (addressing weaknesses and threats) .
* The SWOT Matrix helps develop SO, WO, ST, and WT strategies .
* SO strategies leverage strengths to exploit opportunities .
* WO strategies improve weaknesses by using opportunities .
* ST strategies use strengths to avoid or reduce threats .
* WT strategies reduce weaknesses and avoid threats, often being defensive tactics .
* Specificity in stating factors and strategies, and using notation like "S1, O2," is important for clarity .
* Stage 2 tools generate strategies; selection for implementation occurs later .
### Common pitfalls
* Over-reliance on quantitative tools can create a false sense of certainty and reduce dialogue .
---
# Strategy generation and selection tools and frameworks
### Core idea
- Strategy formulation involves identifying, evaluating, and selecting alternative strategies .
- A comprehensive framework integrates strategy formulation techniques into a three-stage decision-making process .
### Key facts
- The strategy-formulation framework includes an input stage, a matching stage, and a decision stage .
- Stage 1 (Input) uses EFE Matrix, IFE Matrix, and Competitive Profile Matrix (CPM) .
- Stage 2 (Matching) uses SWOT Matrix, SPACE Matrix, BCG Matrix, IE Matrix, and Grand Strategy Matrix .
- Stage 3 (Decision) uses the Quantitative Strategic Planning Matrix (QSPM) .
- Strategy is defined as the match between an organization's internal resources and opportunities/risks from external factors .
- The SWOT Matrix helps develop SO, WO, ST, and WT strategies .
- The SPACE Matrix indicates whether aggressive, conservative, defensive, or competitive strategies are most appropriate .
### Key concepts
- **Input Stage:** Summarizes basic input information needed for strategy formulation, quantifying subjectivity early on .
- **Matching Stage:** Focuses on generating feasible alternative strategies by aligning key external and internal factors .
- **Decision Stage:** Objectively evaluates feasible alternative strategies using input information from Stage 1 .
- **SWOT Matrix:**
- SO strategies: Use strengths to take advantage of opportunities .
- WO strategies: Improve weaknesses by taking advantage of opportunities .
- ST strategies: Use strengths to avoid or reduce the impact of threats .
- WT strategies: Reduce internal weaknesses and avoid external threats (defensive) .
- **SPACE Matrix Axes:**
- Financial Position (FP): Internal .
- Competitive Position (CP): Internal .
- Stability Position (SP): External (volatility of profits/revenues) .
- Industry Position (IP): External (industry characteristics) .
### Implications
- Involvement of managers and employees in strategy generation fosters understanding and commitment .
- Analytical tools should facilitate, not diminish, communication and prevent overreliance on personal biases .
- Matching key external and internal factors is crucial for generating feasible alternative strategies .
### Common pitfalls
---
### The Boston Consulting Group (BCG) Matrix
* The BCG Matrix graphically portrays differences among divisions based on relative market share and industry growth rate .
* Relative market share position is the ratio of a division's market share to that of its largest rival .
* The y-axis represents the industry growth rate in sales, typically in percentage terms .
* Divisions are categorized into four quadrants: Question Marks, Stars, Cash Cows, and Dogs .
* **Question Marks:** Low relative market share in high-growth industries; high cash needs, low generation. Strategies: strengthen or sell .
* **Stars:** High relative market share in high-growth industries; best long-term growth/profitability. Strategies: invest heavily, integrate, penetration, development .
* **Cash Cows:** High relative market share in low-growth industries; generate excess cash. Strategies: manage for longevity, product development, diversification; retrenchment/divestiture if weak .
* **Dogs:** Low relative market share in slow or no-growth industries; weak internal/external position. Strategies: liquidate, divest, retrenchment .
* Divisions often evolve through the matrix in a counterclockwise motion: dogs -> question marks -> stars -> cash cows -> dogs .
* **Limitations:** Oversimplification, no temporal qualities (snapshot), ignores other variables like market size .
- > **Tip:** The size of the circle represents corporate revenue proportion, and the pie slice indicates profit proportion
### The Internal-External (IE) Matrix
* The IE Matrix positions divisions in a nine-cell display, plotting IFE total weighted scores (x-axis) against EFE total weighted scores (y-axis) .
* Similar to BCG, circle size denotes sales contribution, and pie slices show profit contribution .
* **Axes Definitions:**
* IFE scores: Weak (1.0-1.99), Average (2.0-2.99), Strong (3.0-4.0) .
* EFE scores: Low (1.0-1.99), Medium (2.0-2.99), High (3.0-4.0) .
* **Strategy Implications by Region:**
* Cells I, II, IV: Grow and build (intensive or integrative strategies) .
* Cells III, V, VII: Hold and maintain (market penetration, product development) .
* Cells VI, VIII, IX: Harvest or divest .
* Successful organizations aim for a portfolio around Cell I .
* Firms often prepare both BCG and IE matrices, and projected versions, for before-and-after analysis .
### The Grand Strategy Matrix
* Based on competitive position (weak/strong) and market growth (slow/rapid) .
* **Quadrant I (Strong Competitive Position, Rapid Market Growth):** Focus on current markets/products; integration if excessive resources; related diversification if single-product dependent .
* **Quadrant II (Weak Competitive Position, Rapid Market Growth):** Evaluate current approach; consider intensive strategies; horizontal integration if lacking competence; divestiture/liquidation as last resort .
### The Quantitative Strategic Planning Matrix (QSPM)
---
## Quantitative strategic planning matrix (QSPM)
- QSPM is a tool to evaluate the attractiveness of feasible strategies .
- It requires integrating external and internal factors identified in prior analyses .
- QSPM can examine strategies sequentially or simultaneously, with no limit on the number evaluated .
- QSPM involves assigning weights to key external and internal factors .
- Attractiveness Scores (AS) are assigned to each strategy for each factor .
- Total Attractiveness Scores (TAS) are calculated by multiplying weights by AS .
- Sum Total Attractiveness Scores (STAS) are the sum of TAS for each strategy .
- Higher STAS indicate more attractive strategies .
- The magnitude of difference between STAS shows relative desirability .
- AS scores should range from 1 to the number of strategies being evaluated .
- AS scores should be rational, defensible, and reasonable, not mere guesses .
- **Attractiveness Scores (AS):** A rating from 1 to 4 indicating how attractive a strategy is relative to other options, given a specific factor .
- **Total Attractiveness Scores (TAS):** The product of a factor's weight and its AS for a given strategy .
- **Sum Total Attractiveness Scores (STAS):** The sum of TAS for all factors for a particular strategy, indicating its overall attractiveness .
- **Row-by-row preparation:** QSPM should be developed by considering each factor across all strategies, not by evaluating strategies column by column .
- **Dashes for non-impact:** If a factor does not significantly impact a strategy choice, a dash can be used, indicating no AS is recorded .
- QSPM ensures that pertinent external and internal factors are integrated into decision-making .
- It reduces the likelihood of overlooking or inappropriately weighting key factors .
- The tool highlights important relationships affecting strategy decisions .
- Subjective decisions are necessary, but incremental choices improve the probability of the best strategic outcomes .
- QSPM can be used by various organization types and sizes .
- Leaving many rows blank indicates factors that do not significantly impact the choice between strategies, which is good procedure .
- Relying solely on intuitive judgments and educated assumptions .
- Ratings and attractiveness scores require judgmental decisions, even if based on objective information .
- The QSPM is only as good as the prerequisite information and matching analyses .
## Cultural aspects of strategy choice
## Politics of strategy choice
## Governance issues
---
### Assurance of Learning Exercises
* **Exercise 8A: Should Unilever Penetrate Southeast Asia Further?**
* Focuses on investigating a region to determine expansion viability .
* Requires researching competitive climate, business culture, and rivals' operations .
* Goal is to develop recommendations based on current and potential operations .
* **Exercise 8B: Perform a SWOT Analysis for Unilever’s Global Operations**
* Practices performing a SWOT analysis on a global business segment .
* Involves reviewing annual reports and industry/competitive information .
* Requires developing a global SWOT Matrix with strategies in SO, ST, WO, and WT quadrants .
* **Exercise 8C: Preparing a BCG Matrix for Unilever**
* Provides practice in preparing BCG Matrices by product and region segments .
* Involves reviewing annual reports and Form 10-K .
* Requires an executive summary of strategic implications .
* **Exercise 8D: Developing a SWOT Matrix for adidas AG**
* Focuses on developing a SWOT Matrix, a widely used strategy formulation technique .
* Requires matching key external and internal factors to generate strategies .
* Involves constructing a nine-cell diagram and recording strategies in SO, WO, ST, and WT cells .
* **Exercise 8E: Developing a SPACE Matrix for adidas AG**
* Aims to determine if adidas should pursue aggressive, conservative, competitive, or defensive strategies .
* Requires developing a SPACE Matrix and elaborating on the directional vector's implications .
* **Exercise 8F: Developing a BCG Matrix for adidas AG**
* Provides practice in developing BCG Matrices for multidivisional organizations .
* Helps identify divisions needing fewer resources or divestment .
* Requires data on divisions, revenues, profits, relative market share, and industry growth rate .
* **Exercise 8G: Developing a QSPM for adidas AG**
* Offers practice in developing a Quantitative Strategic Planning Matrix (QSPM) .
---
# Strategy formulation analytical framework
### Core idea
- Integrates strategy-formulation techniques into a three-stage decision-making framework .
- Applicable to all organization sizes and types to identify, evaluate, and select strategies .
- Combines intuition and analytical tools for strategic decisions .
### Key facts
- The framework has three stages: Input, Matching, and Decision .
- Stage 1 (Input) uses EFE Matrix, IFE Matrix, and CPM .
- Stage 2 (Matching) generates feasible strategies using SWOT, SPACE, BCG, IE, and Grand Strategy Matrices .
- Stage 3 (Decision) uses the Quantitative Strategic Planning Matrix (QSPM) .
- Quantifies subjectivity in early stages to facilitate strategy generation and evaluation .
- Matching external opportunities/threats with internal strengths/weaknesses is crucial for strategy generation .
- Strategists are responsible and accountable for strategic decisions, not analytic tools .
- Analytical tools should facilitate, not diminish, communication and organizational learning .
### Key concepts
- **Input Stage:** Summarizes basic information needed for strategy formulation .
- **Matching Stage:** Focuses on generating feasible strategies by aligning external and internal factors. Strategy is defined as an organization's match of internal resources with external opportunities/risks .
- **Decision Stage:** Objectively evaluates feasible alternative strategies using input from Stage 1 .
- **SWOT Matrix:** A matching tool to develop SO, WO, ST, and WT strategies .
- SO: Use strengths to take advantage of opportunities .
- WO: Improve weaknesses by taking advantage of opportunities .
- ST: Use strengths to avoid or reduce threats .
- WT: Reduce weaknesses and avoid threats (defensive tactics) .
- **SPACE Matrix:** Indicates whether aggressive, conservative, defensive, or competitive strategies are most appropriate. Axes include Financial Position (FP), Competitive Position (CP), Stability Position (SP), and Industry Position (IP) .
### Implications
- Provides an objective basis for selecting specific strategies through QSPM .
- Helps overcome personal biases, politics, and emotions in decision-making .
- Enables organizations to develop strategies that capitalize on strengths and opportunities, and mitigate weaknesses and threats .
- Can reveal the rationale behind chosen strategies by linking them to specific internal/external factors .
### Common pitfalls
- Risk of a false sense of certainty from a numbers-oriented planning process .
---
# Portfolio analysis using the Boston Consulting Group (BCG) matrix
### Core idea
- The BCG Matrix helps multidivisional organizations manage their business portfolio by analyzing divisions' relative market share and industry growth rate .
- It graphically portrays differences among divisions to aid in strategy formulation .
- The matrix categorizes divisions into four types: Question Marks, Stars, Cash Cows, and Dogs .
### Key facts
- Relative market share position is the ratio of a division's market share to the largest rival's market share .
- The BCG matrix uses the Jt-axis for relative market share and the y-axis for industry growth rate .
- The midpoint on the x-axis is typically 0.50, and the y-axis can range from -20 to +20 percent .
- Each circle in the matrix represents a division, with size indicating revenue proportion and a pie slice showing profit proportion .
- Divisions can evolve over time, often moving counterclockwise (Dogs to Question Marks to Stars to Cash Cows) .
### Key concepts
- **Question Marks:** Low relative market share in a high-growth industry; high cash needs, low cash generation. Strategies: strengthen or sell .
- **Stars:** High relative market share in a high-growth industry; best long-run growth and profitability. Strategies: substantial investment to maintain dominance .
- **Cash Cows:** High relative market share in a low-growth industry; generate excess cash. Strategies: manage to maintain position, product development, diversification, or retrenchment/divestiture if weakening .
- **Dogs:** Low relative market share in a slow or no-market-growth industry; weak internal and external position. Strategies: liquidation, divestiture, or retrenchment .
### Implications
- The matrix highlights cash flow and investment needs of different divisions .
- It suggests strategies like integration, penetration, development, diversification, retrenchment, divestiture, or liquidation based on quadrant placement .
- Organizations aim to achieve a portfolio primarily composed of Stars .
- The matrix provides a snapshot and does not inherently reflect industry growth over time .
### Common pitfalls
- Viewing every business as strictly one of the four categories can be an oversimplification .
- The matrix is a static snapshot and lacks temporal qualities to show industry changes over time .
- Other variables like market size and competitive advantages are also important for strategic decisions .
---
# The Quantitative Strategic Planning Matrix (QSPM) for strategy evaluation
### Core idea
* The QSPM is the primary analytical technique for objectively determining the relative attractiveness of feasible alternative strategies .
* It uses input from Stage 1 (internal/external factor analysis) and Stage 2 (matching analysis) to evaluate strategies .
* The QSPM objectively indicates which alternative strategies are best based on key external and internal success factors .
### Key facts
* The QSPM comprises Stage 3 of the strategy-formulation analytical framework .
* It requires good intuitive judgment like other strategy-formulation tools .
* The QSPM's left column lists key external and internal factors from EFE and IFE Matrices .
* The top row lists feasible alternative strategies derived from Stage 2 matching matrices .
* Strategies should be stated in specific terms, not general ones .
* Only strategies within a given set are evaluated relative to each other .
* A minimum of 10 external and 10 internal key success factors should be included .
* Weights assigned to factors in the QSPM are identical to those in the EFE and IFE Matrices .
### Key concepts
* **Attractiveness Scores (AS):** Numerical values (1=not attractive, 4=highly attractive) indicating strategy attractiveness relative to a key factor .
* AS is assigned if the factor affects the choice of strategies .
* If one strategy receives a dash (factor doesn't affect choice), all others must also receive a dash in that row .
* AS scores range from 1 to the number of strategies being evaluated in a set .
* **Total Attractiveness Scores (TAS):** Calculated by multiplying factor weights by AS for each row ($TAS = Weight \times AS$) .
* **Sum Total Attractiveness Scores (STAS):** The sum of TAS in each strategy column, indicating overall strategy attractiveness .
* Higher STAS indicate more attractive strategies .
### Implications
* The QSPM helps strategists evaluate alternative strategies objectively .
* It provides a quantitative basis for making strategic choices .
* The magnitude of differences between STAS indicates the relative desirability of strategies .
* Each AS score assigned should have a rationale and be defensible .
* Leaving about half of the rows blank (dash) in a QSPM is considered good procedure if factors don't impact choices .
### Common pitfalls
* Failure to make strategies specific enough .
* Comparing strategies from different sets .
---
# Governance issues and the role of the board of directors
### Core idea
* Governance is the act of oversight and direction of a corporate enterprise by a board of directors .
* Boards of directors are elected by ownership to guide management and protect shareholder interests .
* Boards are increasingly held accountable for firm performance and face lawsuits for mismanagement .
### Key facts
* A board of directors is a group entrusted with the overall direction of a corporation .
* Governance ensures long-term strategic objectives are set and achieved with integrity and responsibility .
* Shareholders are demanding better board governance and direct involvement .
* Boards are more autonomous, mindful of legal scrutiny, and responsive to audits and compliance .
* Boards are more reluctant to approve excessive compensation and perks .
* New accounting rules and corporate governance codes require extensive financial disclosure .
* Hewlett-Packard's directors use private websites for confidential briefing information .
* The trend in the USA is towards greater board accountability with smaller boards averaging 12 members .
* The Sarbanes-Oxley Act led to boardroom overhauls, separating CEO and Chairman roles .
* Sweden and Norway have laws requiring significant female representation on boards .
* Audit committees are becoming commonplace and review accounting and financial policies .
* Boards are expected to conduct annual strategy audits similar to financial audits .
### Key concepts
* **Board of Directors Duties and Responsibilities:**
* Control and oversight over management (select CEO, evaluate performance, set salaries) .
* Adherence to legal prescriptions (comply with laws, pass bylaws, approve budgets) .
* Consideration of stakeholders' interests (monitor quality, employee well-being, community relations) .
* Advancement of stockholders' rights (preserve equity, stimulate growth, declare dividends) .
* **Principles of good governance:**
* Limited executive representation on the board (max two) .
* Executives excluded from audit, compensation, or nominating committees .
* Mandatory significant equity ownership for board members .
* Minimum meeting attendance requirement (75%) .
### Implications
### Common pitfalls
---
# Strategy implementation through marketing, finance, and information systems
### Core idea
* Strategy implementation requires effective marketing, finance, and information systems for success .
* Less than 10 percent of formulated strategies are successfully implemented due to execution failures .
* Successful strategy implementation demands manager and employee involvement and commitment .
### Key facts
* Marketing involves building two-way relationships with consumers and soliciting their input .
* Companies should encourage employees to create wikis for sharing information across the firm .
* Social networking sites and video sites are increasingly effective for reaching customers .
* Internet advertising is growing rapidly, with larger and more intrusive ads becoming common .
* Market segmentation and product positioning are central to strategy implementation in marketing .
* Geographic and demographic bases are the most commonly employed for segmenting markets .
* Retention-based segmentation uses customer data to predict cancellation risk, retention profitability, and effective tactics .
* Product positioning involves creating schematic representations comparing products to competitors .
* Perceptual maps help assess various strategy implementation approaches by plotting competitors on key criteria .
* Finance and accounting are critical for raising needed capital to implement strategies .
* Research and development (R&D) is also central to strategy implementation, with firms potentially contracting R&D externally .
* Management information systems (MIS) determine the success of strategy implementation efforts .
### Key concepts
* **Market segmentation**: Subdividing a market into distinct subsets of customers based on needs and buying habits .
* **Product positioning**: Developing representations of how products/services compare to competitors on key industry success dimensions .
* **Perceptual map**: A two-dimensional diagram showing competitor products/services based on specified criteria .
* **Vacant niche**: An unserved segment in a market, representing a strategic opportunity on a perceptual map .
* **Retention-based segmentation**: A process of tagging customers to manage retention efforts efficiently .
* **Business analytics/Data mining**: Tools enabling retention-based segmentation through historical data analysis .
### Implications
* Market segmentation allows firms to operate with limited resources by avoiding mass production, distribution, and advertising .
* Effective product positioning requires uniquely distinguishing a company from competitors and exceeding customer expectations .
* Internet-based marketing offers more precise targeting of consumer segments than traditional media .
* Matching supply and demand through segmentation can optimize production levels and minimize stock-outs .
### Common pitfalls
---
# Strategy formulation, implementation, and evaluation process
### Core idea
* Strategy implementation, formulation, and evaluation form a comprehensive management model .
* Marketing and finance/accounting are critical functional areas for strategy implementation .
### Marketing issues in strategy implementation
* Marketing strategy implementation involves numerous variables affecting success .
* Key marketing decisions include advertising interactivity, social media leverage, distribution channels, advertising mix, customer concentration, pricing strategy, warranty policies, and sales compensation .
* Modern marketing focuses on two-way relationships and customer involvement in product development and service .
* Encouraging customer participation through wikis and incentivizing idea sharing on company websites fosters interaction and learning .
* New marketing principles emphasize collaboration, participation, listening to conversations, attraction over selling, and embracing instant messaging .
* Social networking and online business present opportunities but also threats, with negative publicity spreading rapidly online .
* The increasing use of smartphones in developing nations opens larger markets for online marketing .
* Companies are shifting marketing dollars from traditional media to social networking and video sites due to increased internet usage by younger demographics .
* Internet advertising is growing, with trends towards larger, more intrusive ads and mixed editorial/advertising content on blogs .
* Social media and mobile advertising spending are projected to significantly increase .
### Market segmentation and product positioning
* Market segmentation and product positioning are central to strategy implementation in marketing .
* Market segmentation is the subdivision of a market into distinct customer subsets based on needs and buying habits .
* Market segmentation is crucial for strategies requiring increased sales through new markets/products, enables operation with limited resources, and directly impacts marketing mix variables .
* Targeting regional tastes and modifying products for different preferences is a key segmentation strategy .
* Segmenting markets helps match supply and demand, leading to more predictable patterns and minimizing stock-outs .
* Retention-based segmentation tags customers based on risk of cancellation, retention worth, and appropriate retention tactics .
* The internet facilitates market segmentation by enabling precise targeting and the formation of virtual communities .
* Product positioning involves creating schematic representations of how products/services compare to competitors on key industry dimensions .
* Steps for product positioning include selecting criteria, creating a map, plotting competitors, identifying competitive areas, and developing a marketing plan .
* Effective product positioning uniquely distinguishes a company and leads customers to expect slightly less service than delivered ("underpromise and overdeliver") .
* Perceptual maps visually represent consumer perceptions and can aid in identifying market niches and competitive groupings .
* Ideal points on perceptual maps indicate consumer preferences and can reveal market segments or demand voids .
### Finance and accounting issues
* Key finance and accounting concepts for strategy implementation include acquiring capital, developing projected financials, budgeting, and business valuation .
---
## Strategy implementation through financial analysis
### EPS/EBIT analysis
* EPS/EBIT analysis helps compare financing alternatives by analyzing Earnings Per Share (EPS) and Earnings Before Interest and Taxes (EBIT) .
* Stock buybacks can signal optimism but may divert cash from growth opportunities .
* The choice between stock and debt financing depends on stock prices, interest rates, and bond prices .
* Low interest rates make debt financing more attractive, while high stock prices might favor stock issuance .
* EPS/EBIT charts can reveal break-even points where one financing alternative becomes more or less attractive than another .
* The highest EPS values indicate the best financing alternatives for maximizing shareholder wealth .
* The slope of the EPS/EBIT lines is influenced by stock price, interest rates, number of shares, and capital needs .
- > **Example:** Gateway Computers' EPS/EBIT analysis suggests using stock in recession/normal conditions and debt in boom conditions
- Boeing's analysis shows similar patterns, favoring stock in recession/normal and debt in boom conditions
* Dividend payments can lower common stock EPS values, and this row is often absent in basic EPS/EBIT analysis .
### Projected financial statements
* Projected financial statement analysis forecasts the outcomes of strategic actions and implementation decisions .
* It helps forecast the impact of decisions like increasing promotion, salaries, R&D, or selling stock .
* Financial institutions often require projected financial statements when a business seeks capital .
* Projected statements allow for computing financial ratios under different scenarios, offering insights into feasibility .
* The Sarbanes-Oxley Act promotes more diligent and less optimistic preparation of projected financial statements .
- > **Tip:** Projected financial statements should be prepared "reasonably rather than too optimistically" to avoid misleading stakeholders
* **Steps for Projected Financial Analysis:**
- 1
- Prepare the projected income statement before the balance sheet, starting with accurate sales forecasts
- 2
- Use the percentage-of-sales method for most income statement expenses, but treat interest, dividends, and taxes independently
- 3
- Calculate projected net income
- 4
- Subtract dividends from net income to get retained earnings (RE), then add this to the prior year's RE on the balance sheet
### Financial budgets
### Company valuation
---
## Strategy implementation: R&D and MIS issues
### Research and development (R&D) issues
* R&D personnel are crucial for developing new and improving existing products to facilitate strategy implementation .
* R&D tasks include technology transfer, process adaptation to local conditions, and product alteration to meet specific tastes .
* Strategies like product development and market penetration rely heavily on successful R&D .
* Companies rely on new product development for profitability and growth due to shortened product life cycles .
* Successful R&D strategies link external opportunities with internal strengths and organizational objectives .
* **R&D policy options include:**
* Emphasizing product or process improvements .
* Stressing basic or applied research .
* Being R&D leaders or followers .
* Developing robotics or manual processes .
* Spending high, average, or low amounts on R&D .
* Performing R&D internally or contracting it out .
* Using university or private-sector researchers .
* **Guidelines for deciding between in-house vs. external R&D:**
* In-house R&D is preferred if technical progress is slow, market growth is moderate, and entry barriers are high .
* Major R&D effort is risky if technology changes rapidly and the market grows slowly .
* Obtain R&D expertise externally if technology changes slowly and the market grows quickly .
* Acquire a well-established firm if both technical progress and market growth are fast .
* **Three major R&D approaches for strategy implementation:**
* **Pioneer:** First to market new technological products; glamorous but risky .
* **Innovative Imitator:** Develop similar products after a pioneer proves the market; requires strong R&D and marketing .
* **Low-Cost Producer:** Mass-produce less expensive versions of new products; requires significant investment in plant and equipment .
* Collaboration in R&D is increasing due to competitive pressures, rising costs, and faster development schedules .
### Management Information Systems (MIS) issues
* Effective MIS, which gathers, assimilates, and evaluates information, is a key competitive advantage .
* Information is recognized as a valuable organizational asset that can be controlled and managed .
### Business analytics
---
## Strategy execution
* Strategy implementation is fundamentally different from strategy formulation .
* Successful strategy formulation does not guarantee successful strategy implementation .
* Change comes through implementation and evaluation, not just the plan .
### Key facts
* Strategy implementation is primarily an operational process, focusing on efficiency .
* Strategy formulation is primarily an intellectual process, focusing on effectiveness .
* Strategy implementation requires coordination among many individuals, unlike formulation .
* Implementing strategies involves actions like altering sales territories, adding departments, or changing pricing .
* The shift in responsibility from strategists to divisional/functional managers can cause implementation problems .
* Divisional and functional managers should be involved in strategy formulation and implementation to align interests .
* Firms need to gather and distribute competitive intelligence to benchmark efforts .
* Annual objectives are a decentralized activity involving all managers .
### Key concepts
* Strategy implementation requires special motivation and leadership skills .
* Management issues central to strategy implementation include annual objectives, policies, and resource allocation .
* Organizational structure is crucial in strategy implementation .
* Restructuring and reengineering are key management issues in implementation .
* Developing a strategy-supportive culture is vital for implementation .
* Adapting production and operations processes is a key implementation task .
* Linking performance and pay to strategies is critical for successful implementation .
* Annual objectives serve as guidelines, a basis for resource allocation, and a performance standard .
* Annual objectives are a major instrument for monitoring progress towards long-term goals .
* Objectives should be measurable, consistent, reasonable, challenging, clear, and communicated .
* Objectives should state quantity, quality, cost, and time, and be verifiable .
### Implications
* A technically imperfect plan implemented well achieves more than a perfect plan that is not .
* Managers and employees are motivated more by perceived self-interests than organizational interests unless they coincide .
* Genuine personal commitment from strategists is a powerful motivational force for implementation .
### Common pitfalls
---
## Strategy formulation, implementation, and evaluation process
* Policies are specific guidelines that facilitate solving recurring problems and guide strategy implementation .
* Resource allocation is a central management activity that allows for strategy execution by prioritizing according to annual objectives .
* Organizational structure dictates how objectives, policies, and resources are established and allocated, thus influencing strategy implementation .
* Clear annual objectives increase the likelihood of achieving personal and organizational aims .
* Policies set boundaries, constraints, and limits on administrative actions .
* Organizations have financial, physical, human, and technological resources for achieving objectives .
* Conflict, a disagreement between parties, is unavoidable and can arise from differing expectations or incompatible personalities .
* Changes in strategy often necessitate changes in organizational structure .
* Symptoms of ineffective organizational structures include too many management levels or meetings .
* The functional structure is the simplest and least expensive, grouping tasks by business function .
* The divisional structure is decentralized and can be organized by geographic area, product, customer, or process .
* The Strategic Business Unit (SBU) structure groups similar divisions into units to improve coordination and accountability .
* The matrix structure uses both vertical and horizontal flows of authority and communication, leading to increased complexity .
* Policies serve as instruments for strategy implementation, clarifying expectations and providing a basis for control .
* Resource allocation can be influenced by politics or personal factors if not managed strategically, leading to deferral of strategic activities .
* Conflict management approaches include avoidance, defusion, and confrontation .
* Structure should follow strategy to facilitate the firm's strategic pursuits .
* Functional structures promote specialization but can lead to short-term thinking and communication problems .
* Divisional structures offer clear accountability and local control but can be costly due to duplication and require skilled management .
* A divisional structure by product is effective when specific products or services require special emphasis .
* An SBU structure makes planning and control by the corporate office more manageable .
* Matrix structures can result in higher overhead costs and dual reporting channels .
* Tying rewards and sanctions to annual objectives increases the likelihood of achieving them .
* Effective resource allocation, supported by personnel, controls, and commitment, is crucial for strategy implementation .
* Managing conflict is essential to prevent dysfunctional consequences and can help identify problems .
---
### Restructuring and reengineering
* Restructuring, also known as downsizing or rightsizing, reduces firm size (employees, divisions, levels) to improve efficiency and effectiveness .
* Restructuring is primarily concerned with shareholder well-being .
* Reengineering (process management, innovation, redesign) reconfigures work and processes to improve cost, quality, service, and speed .
* Reengineering focuses on how work is done, not usually the organizational structure or job loss .
* Six Sigma is a quality improvement technique aiming to monitor, measure, and improve processes, eliminating defects .
* Restructuring is often driven by benchmarking and aims for cost reduction, but can reduce employee commitment and innovation .
* Avon Products restructured by reducing six commercial business units to two (Developed and Developing Markets) .
- > **Tip:** Restructuring decisions are strategic (long-term, affecting all functions), while reengineering decisions are tactical (short-term, function-specific)
### Linking performance and pay to strategies
* The Dodd-Frank Act grants shareholders advisory votes on executive compensation .
* To improve compensation, companies should ensure transparency, reward long-term performance, base pay on company performance, extend bonus horizons, and increase equity between workers and executives .
* Pay differences across countries can cause resentment; in Japan, seniority and harmony are prioritized over performance .
* A dual bonus system based on annual and long-term objectives is becoming common .
* For employees, profit and cash flow are increasingly used for incentives instead of stock price .
* Gain sharing requires employees to meet performance targets, with bonuses for exceeding objectives .
* Five tests for a performance-pay plan include: capturing attention, employee understanding, improving communication, timely payouts, and better company performance .
* A combination of rewards like salary raises, stock options, and recognition can encourage strategic implementation .
- > **Example:** PepsiCo shifted from stock price to profit and cash flow for manager incentives, enabling them to lower capital spending as a percentage of sales
### Managing resistance to change
* Resistance to change is a significant threat to strategy implementation, manifesting as sabotage, absenteeism, or unwillingness to cooperate .
* People resist change due to fear of economic loss, inconvenience, uncertainty, and disruption of social patterns .
* Common strategies for managing change are force change (fast but low commitment), educative change (slow but high commitment), and rational/self-interest change (appeals to personal advantage) .
* The rational change strategy involves employee participation, motivation/incentive, clear communication, and feedback .
* Viewing change as a continuous process, rather than a project, is crucial for modern organizations .
* Involving affected individuals in decision-making and providing training can minimize resistance .
### Creating a strategy-supportive culture
* Organizations should preserve cultural aspects that support new strategies and change those that are antagonistic .
* Changing a firm's culture to fit a new strategy is usually more effective than changing strategy to fit the culture .
### Production and operations concerns
---
## Human resource issues in strategy implementation
* Strategy implementation can fail due to insufficient attention to human resource dimensions .
* Key human resource issues include disruption of social/political structures, mismatch of individual aptitudes with tasks, and inadequate top management support .
* Employee resistance can occur as roles, power, and prerogatives change during implementation .
* Involving employees in the strategy process builds commitment and reduces resentment .
* Labor cost-saving tactics can include salary freezes, hiring freezes, and layoffs .
* Employee Stock Ownership Plans (ESOPs) empower employees to work as owners and offer tax benefits .
* ESOPs can reduce worker alienation, stimulate productivity, and provide tax-deductible debt payments .
* Setting up an ESOP involves significant initial fees ($50,000) and annual administration costs ($15,000) .
* The USA ranks below several Nordic countries and Canada in wage equality for women .
* Work and family strategies, such as elder care and flexible scheduling, are increasingly offered as competitive advantages .
* The "glass ceiling" is an invisible barrier preventing women and minorities from top management positions .
* Diversity in the workforce can improve a company's return on equity .
* Corporate wellness programs show impressive returns on investment, sometimes as high as six to one .
* Wellness programs can lead to savings on health-care costs and reduced employee turnover .
* **Employee Stock Ownership Plans (ESOPs):** Tax-qualified plans where employees buy company stock, fostering an ownership culture .
* **Balancing Work Life and Home Life:** Strategies companies use to help employees manage personal and professional responsibilities, becoming a competitive advantage .
* **Glass Ceiling:** An unseen barrier limiting career advancement for women and minorities in many organizations .
* **Diverse Workforce:** A workforce mirroring the diversity of customers, potentially leading to improved organizational health and financial performance .
* **Corporate Wellness Programs:** Initiatives designed to improve employee health, reduce healthcare costs, and enhance productivity .
* Failing to address human resource issues can cause strategy implementation to fail .
* ESOPs can be a strategic tool for employee engagement and financial benefits, but require significant investment .
* Implementing work-life balance strategies is essential for attracting and retaining talent in today's workforce .
* Promoting diversity and addressing the glass ceiling are crucial for both ethical and performance reasons .
* Corporate wellness programs are increasingly seen as strategic investments with tangible financial returns .
* Wellness programs can influence hiring decisions, with healthiness becoming a factor .
---
## Strategy evaluation process
* Strategy evaluation is vital for organizational well-being and involves examining strategy bases, comparing expected vs. actual results, and taking corrective actions .
* It's essential because external and internal environments change, rendering even the best strategies obsolete .
* Strategy evaluation is complex, sensitive, and requires timely feedback to be effective .
* Excessive evaluation can be costly and counterproductive, while too little leads to worse problems .
* Strategy evaluation must have both long-run and short-run focus, as strategies may not show short-term results until it's too late .
* Dynamic environments and rapid obsolescence of plans make strategy evaluation increasingly difficult .
* Empowered employees can lead to dysfunctional behavior if goals are pressured without adequate oversight .
* Strategy evaluation should be continuous, not just periodic, to establish and monitor benchmarks .
* Success in one year is no guarantee of success the next; firms must continually evaluate and be wary of rivals .
* Timely evaluations alert management to problems before they become critical .
* BHP Billiton is an example of a company that reinvents itself by continually evaluating strategies and taking corrective actions .
* **Rumelt's criteria for evaluating strategies:** Consistency, consonance, feasibility, and advantage .
* **Consistency:** Strategy should not present conflicting goals and policies; look for issue-based problems and interdepartmental bickering .
* **Consonance:** Strategy must be an adaptive response to external environmental trends and interactions .
* **Feasibility:** Strategy must be achievable within the enterprise's physical, human, and financial resources .
* **Advantage:** Strategy must create or maintain a competitive advantage through resources, skills, or position .
* **Strategy-evaluation framework:** Involves reviewing the bases of strategy, comparing expected vs. actual results, and taking corrective actions .
* **Revised EFE and IFE Matrices:** Used to review the underlying bases of strategy, focusing on changes in internal (management, marketing, finance, etc.) and external factors .
* **Corrective actions:** Almost always needed unless external/internal factors haven't changed and objectives are being met satisfactorily .
* Continuous evaluation and willingness to take corrective actions are crucial for sustained growth .
* Assumptions and expectations deviating from forecasts should trigger renewed strategy formulation .
* People are the differentiating factor in strategy evaluation, formulation, and implementation .
* Involvement in strategy evaluation fosters commitment among managers and employees to achieve objectives .
* A strategy-evaluation assessment matrix helps determine the necessary course of action based on environmental changes and progress towards objectives .
- > **Tip:** Waiting until the end of the year for evaluation is like closing the barn door after the horses have escaped
---
* Strategy evaluation requires comparing planned to actual progress toward objectives .
* Significant differences between planned and actual progress signal a need for corrective actions .
* External factors (competitors, economy) and internal factors (ineffective strategies, poor implementation) can prevent objective achievement .
* Front-line discovery of strategy ineffectiveness is valuable and should be encouraged .
* Key questions in strategy evaluation include checking if current strengths are still strengths and if new ones have emerged .
* Measuring performance involves comparing expected versus actual results and investigating deviations .
* Criteria for strategy evaluation should be measurable, verifiable, and predictive .
* Quantitative criteria like financial ratios are commonly used, comparing performance over time, against competitors, and industry averages .
* Qualitative criteria are important due to limitations of quantitative measures, addressing human factors and strategic balance .
* Corrective actions involve making changes to competitively reposition a firm for the future .
* **Measuring organizational performance:** This involves comparing expected results to actual results, investigating deviations, evaluating individual performance, and examining progress toward objectives .
* **Quantitative vs. Qualitative Criteria:** Strategy evaluation uses both financial ratios (quantitative) and human factors like employee satisfaction or production quality (qualitative) .
* **Corrective Actions:** These are necessary changes to alter an organization's structure, replace individuals, revise objectives, or modify strategies to improve future positioning .
* **Balanced Scorecard:** A strategy evaluation and control technique developed by Kaplan and Norton that balances financial measures with non-financial measures like product quality and customer service .
* **Balanced Scorecard Perspectives:** Evaluates strategy from financial performance, customer knowledge, internal business processes, and learning and growth .
* **Published Sources:** Publications like Fortune, Businessweek, and Industry Week provide strategy evaluation information, focusing on large, publicly held businesses .
* **Effective Evaluation System Characteristics:** Must be economical, meaningful, timely, provide a true picture, facilitate action, foster mutual understanding, be simple, and not overly restrictive .
* **Contingency Planning:** Developing alternative plans for unforeseen favorable or unfavorable events to minimize threats and capitalize on opportunities .
* **Auditing:** A systematic process to objectively obtain and evaluate evidence regarding assertions about economic actions and events, comparing them to established criteria .
* **Art vs. Science in Strategy:** Strategic management can be viewed as a science (systematic assessment, analysis) or an art (intuition, creativity), with a leaning towards science in complex environments .
* **Visible vs. Hidden Strategies:** Deciding whether strategies should be open to employees and stakeholders or kept secret from rivals .
* Failure to achieve objectives is not always due to poor performance and requires open communication to encourage support for evaluation .
* Effective control requires accurate forecasting, not just reporting past results .
* Human factors and qualitative aspects are crucial for understanding declining performance and can reveal underlying causes .
* Taking corrective actions can raise employee anxiety; participation in evaluation activities helps overcome resistance to change .
---
## Strategy evaluation process focus
* Effective strategy evaluation allows an organization to adapt quickly to changing conditions and capitalize on strengths, opportunities, and mitigate weaknesses or threats .
* Strategic management enables effective long-term decisions, efficient execution, and corrective actions for success, aided by computer networks and the Internet .
* A key to effective strategy evaluation is integrating intuition and analysis, avoiding polarization where one dominates the other .
* Strategic management is fundamentally a people process that fosters organizational communication and drives success through human contributions .
* Some strategic information should remain confidential to top managers to prevent dissemination beyond an inner circle .
* Reasons for openness in the strategy process include enabling stakeholder contribution, providing investors a basis for support, promoting democracy, and enhancing understanding and commitment .
* Reasons for secrecy include preventing rival firms from exploiting strategies, limiting criticism, protecting participants from recruitment by rivals, and hindering imitation or duplication of strategies .
* A working balance between visible and hidden strategy processes is essential for firm survival .
* The top-down approach posits that top executives possess the necessary experience and responsibility for key strategy decisions .
* The bottom-up approach advocates for the involvement of lower and middle-level managers and employees in strategy formulation for commitment and support .
* Current research, particularly in U.S. firms, supports the bottom-up approach, influenced by increased education and workforce diversity .
* The planning process is considered more important than the written plan, requiring continuous planning, measuring, and revising to prevent obsolescence .
* The rapid rate of environmental change makes the business environment more uncertain and plans prone to obsolescence .
* **Balanced Scorecard:** A tool used by organizations to gain and sustain competitive advantage by monitoring and evaluating progress toward stated objectives .
* **Auditing:** As it relates to strategy evaluation, it involves a systematic review process .
* **Consonance:** A strategic concept related to the alignment and harmony of strategies with the environment and internal capabilities .
* **Feasibility:** An evaluation criterion for strategies, assessing whether they can be realistically implemented .
* **Contingency plans:** Pre-defined actions to be taken if specific events occur, crucial for adapting to uncertainty .
* **Management by wandering around (MBWA):** A management style involving direct interaction with employees and operations, which can inform strategy evaluation .
* A working balance between transparency and secrecy in strategy processes is crucial but difficult to achieve .
* The bottom-up approach is increasingly supported due to workforce changes, suggesting greater involvement of all levels in planning .
* Continuous strategic planning, rather than a one-time written plan, is vital for organizational agility in a rapidly changing environment .
* Effective strategy evaluation helps shape a firm's future rather than being shaped by external forces .
* Polarization of analytical and intuitive issues can lead to discontinuous or imbalanced strategy evaluation .
* A written strategy plan can become obsolete quickly if managers do not engage in continuous planning, measuring, and revising .
---
# Market segmentation strategies and applications
### Core idea
- Market segmentation is the subdivision of a market into distinct subsets of customers based on needs and buying habits .
- It is crucial for implementing strategies like market development, product development, market penetration, and diversification .
- Market segmentation enables firms to operate with limited resources by avoiding mass production and advertising .
### Key facts
- Geographic and demographic bases are the most commonly employed for segmenting markets .
- Internet usage makes market segmentation easier as consumers naturally form online communities .
- Retention-based segmentation involves tagging customers with three values: risk of canceling, worth retaining, and appropriate retention tactics .
- Tagging customers uses historical data to predict future behavior and retention outcomes .
- Product positioning involves creating schematic representations of how products compare to competitors on key dimensions .
- Perceptual maps can identify vacant niches or areas where a company's products could be competitive .
- Consumers' ideal points on perceptual maps indicate desired combinations of dimensions, highlighting market segments .
### Key concepts
- Market segmentation allows small firms to compete with larger ones by maximizing per-unit profits and per-segment sales .
- Segmentation decisions directly affect marketing mix variables: product, place, promotion, and price .
- Targeting regional tastes is a dramatic new market-segmentation strategy, involving product modifications for local preferences .
- Segmenting industrial markets is more complex than consumer markets due to multiple applications and diverse customer groups .
- Segmentation helps match supply and demand by revealing predictable patterns within seemingly random fluctuations .
- Facebook targets mobile advertising based on apps users utilize, charging advertisers per app install .
### Implications
- Firms can implement strategies more effectively by understanding and targeting specific customer segments .
- Understanding customer needs and expectations, rather than firm assumptions, is paramount for service delivery .
- Companies can gain a competitive advantage by identifying unserved segments or vacant niches .
- An effective product positioning strategy uniquely distinguishes a company and sets manageable customer expectations .
- Underpromising and overdelivering is a key strategy for successful product positioning .
- Perceptual maps aid marketers in efficiently allocating promotional spending by illustrating competitive perceptions .
---
# Acquiring capital to implement strategies using EPS/EBIT analysis
### Core idea
- Strategy implementation often requires additional capital, with debt and equity as primary sources .
- EPS/EBIT analysis determines the optimal mix of debt and stock financing for raising capital to maximize Earnings Per Share (EPS) .
### Key facts
- Two basic sources of capital are debt and equity .
- EPS is net income divided by the number of shares outstanding .
- EBIT is earnings before interest and taxes, also known as operating income .
- EBT is earnings before tax, and EAT is earnings after tax .
- Companies issue corporate bonds to raise capital from investors, similar to borrowing from banks .
- Facebook's IPO in 2012 started at $38 per share but fell to $21 later .
- In 2012, companies sold nearly USD 584 billion of bonds in the USA through July .
- IBM authorized an additional USD 5 billion for its share repurchase program in Q3 2012 .
- Low interest rates spurred corporate bond issuance and stock buybacks in 2012/2013 .
### Key concepts
- EPS/EBIT analysis examines the impact of debt versus stock financing on EPS under various EBIT expectations .
- The goal is to find the financing alternative (all debt, all stock, or a combination) that yields the highest EPS .
- Theoretically, debt should be used if its cost is less than the return on investment .
- Too much debt can jeopardize stockholder returns and company survival in low-earning periods .
- Issuing stock can lead to dilution of ownership and affect stock price .
- EPS is widely considered the best measure of organizational performance for capital acquisition decisions .
- A graphical representation (EPS/EBIT chart) can visually show break-even points where financing alternatives are equally attractive .
- Companies can explore various debt/stock combination scenarios, e.g., 70/30 or 30/70 .
### Implications
- The optimal financing strategy can vary based on economic conditions (recession, normal, boom) .
- High stock prices, like in 2013/2014, can make stock financing attractive from a cost and demand perspective .
- Low interest rates make debt financing more appealing .
- If a firm is already highly leveraged, stock financing may be preferred regardless of EPS values .
- Dilution of ownership from stock issuance can be a concern due to hostile takeovers and mergers .
- Companies may prefer to keep cash overseas to avoid U.S. corporate income tax on dividends or stock purchases .
---
# Projected financial statement analysis for strategy implementation
### Core idea
- Projected financial statement analysis is a core technique for examining the expected results of strategic actions .
- It forecasts the impact of implementation decisions like increasing expenditures or raising capital .
- Financial institutions often require projected statements for capital-seeking businesses .
- It allows computation and comparison of projected financial ratios to assess feasibility .
### Key facts
- Companies are more diligent in preparing projected statements to avoid overly optimistic forecasts, influenced by Sarbanes-Oxley .
- Litten Company's projected statements assumed raising USD 45 million through debt and stock, 50 percent sales increase, and new facilities .
- Litten's strategies projected a sales increase from $100 million to $150 million and net income from $6 million to $9.75 million .
- Whole Foods Market's projections factored in new store openings, debt/stock financing, dividend payments, increased advertising, improved gross margin, and revenue growth .
- Whole Foods' projected operating margin increased significantly under the proposed plan .
- The SEC monitors projected numbers for misleading information or omissions, with CEOs/CFOs personally liable for accuracy .
- Financial budgets detail how funds are obtained and spent over a specified period .
- Cash budgets are a common financial budget type .
### Key concepts
- The percentage-of-sales method is used to project cost of goods sold and other expenses .
- Items like interest, dividends, and taxes are treated independently, not by percentage of sales .
- Retained earnings (RE) on the balance sheet is a cumulative number, linking the income statement and balance sheet .
- The cash account serves as a plug figure to balance the projected balance sheet .
- Remarks on projected statements explain significant changes and are essential for understanding pro formas .
- Financial budgets should focus on productive resource use, not just limiting expenditures .
- Financial budgets can become cumbersome, a substitute for objectives, or hide inefficiencies if not periodically evaluated .
- Subordinate participation in budget preparation can minimize negative impacts .
### Implications
- Projected statements help forecast the impact of strategic implementation decisions .
- Comparing projected financial ratios to historical data and industry averages reveals the feasibility of strategies .
- The Sarbanes-Oxley Act emphasizes the need for realistic projections, not overly optimistic ones .
- The cash account's "plug figure" nature may require adjustments to debt or equity if it's too large or small .
- Companies use varied terms for financial items, requiring attention to definitions (e.g., revenues vs. sales) .
### Common pitfalls
---
# Company valuation for strategy implementation
### Core idea
* Valuating a business is essential for implementing strategies like acquisitions, divestitures, or sales .
* Valuation is not an exact science, blending financial facts with common sense and judgment .
* Different valuation methods yield varying results; no single method is universally best .
* Requires both qualitative and quantitative skills .
### Key facts
* Thousands of business transactions occur annually, requiring financial worth assessment .
* Factors like customer loyalty, growth history, or patents may not be reflected on financial statements .
* Goodwill arises when a firm pays more than book value for an acquisition and is not ideal on a balance sheet .
* FASB Rule 142 requires annual admission if acquisition premiums (goodwill) were a waste .
* Goodwill/Total Assets ratio indicates the proportion of assets representing goodwill .
* A high goodwill ratio, like J.M. Smucker's 33.5%, can be concerning .
* Companies may suppress earnings to minimize taxes, impacting valuation based on profits .
* A goodwill write-down signifies an admission of a poor acquisition valuation .
* Acquiring at a discount is generally better for shareholders than paying a premium .
* Valuations are used for employee plans, taxes, retirement packages, mergers, and IRS audits .
* Even non-profit college football programs can be valued monetarily .
### Key concepts
* **Three main valuation approaches:**
* What a firm owns (net worth/shareholder's equity) .
* What a firm earns (future net profits) .
* What a firm will bring in the market (market price) .
* **Net worth calculation:** Sum of common stock, additional paid-in capital, and retained earnings, minus goodwill and intangibles .
* **Earnings-based valuation rule of thumb:** Business worth is five times current annual profit .
* **Price-earnings ratio method:** (Market price per share / Earnings per share) * Average net income .
* **Outstanding shares method:** Number of shares outstanding * Market price per share .
* **Premium:** Amount paid above book value in an acquisition .
* **Discount:** Purchase price less than stock price times shares outstanding .
### Implications
---
# Management information systems and business analytics
### Core idea
* Management information systems (MIS) are crucial for gathering, evaluating, and disseminating internal/external information to gain competitive advantage .
* Business analytics uses software to mine large datasets for decision-making, sometimes called predictive analytics or data mining .
* Effective MIS and business analytics facilitate strategic management by providing critical insights and enabling data-driven decisions .
### Key facts
* Firms excelling in information management gain competitive advantages .
* Information is recognized as a valuable organizational asset, similar to inventory or human resources .
* Good information systems can reduce costs, e.g., online orders shorten material ordering time and reduce inventory costs .
* Direct communication links between supply chain elements improve quality and service .
* Companies must secure communications and data over the internet against computer hackers .
* Dun & Bradstreet uses its extensive business information system for competitive advantage .
* Information technology enables remote work, allowing employees to work from anywhere, anytime .
### Key concepts
* **Management Information System (MIS):** A system for collecting, retrieving, and storing information to create competitive advantages and facilitate strategic management .
* **Business Analytics:** A MIS technique using software to analyze vast data volumes to support executive decision-making .
* **Data Mining:** The process of assessing and using an organization's aggregate experience, including customer, supplier, and rival interactions, to generate predictive models .
* **Predictive Models:** Generated from data mining to support business decisions, enabling learning from experience .
* **Commoditization:** As products become indistinguishable, competitive advantage increasingly relies on business process improvements .
* **Proprietary Business Intelligence:** Insights gained from business analytics that reveal customer behavior and competitor weaknesses for targeted strategies .
* **Predictive vs. Retrospective:** Business analytics is predictive, enabling learning from past data for current and future decisions .
### Implications
* MIS and business analytics enable firms to understand customer behavior better, leading to more effective marketing .
* These tools help slash expenses by optimizing retention offers and managing fraudulent transactions .
* Mathematical models from business analytics enhance decision-making at all organizational levels and stages of strategic management .
* IBM actively invests in business analytics, aiming to increase market share .
* The integration of marketing, finance, accounting, and MIS recommendations is essential for gaining and sustaining competitive advantage .
* Information systems managers are increasingly expected to provide leadership and training for all firm personnel .
---
# Strategy implementation: management issues and concepts
### Core idea
* Strategy implementation is translating strategic thought into action, requiring understanding and commitment from managers and employees .
* It is fundamentally more difficult and operational than strategy formulation, focusing on efficiency .
* Successful implementation depends on managing forces during action, unlike formulation's focus on positioning forces before action .
### Key facts
* Implementation affects an organization from top to bottom, across all functional and divisional areas .
* Technically imperfect plans implemented well achieve more than perfect plans that remain on paper .
* Implementation requires actions like altering sales territories, hiring employees, changing pricing, and building new facilities .
* The transition to implementation shifts responsibility to divisional and functional managers .
* Managers and employees are motivated by perceived self-interests, necessitating their involvement in strategy activities .
* Top-down communication is essential for developing bottom-up support during implementation .
* Competitive intelligence and benchmarking against best-in-class competitors can enhance focus .
* Starbucks implemented "lean production/operations" to eliminate idle employee time and unnecessary motions .
### Key concepts
- **Management issues central to implementation:** annual objectives, policies, resource allocation, structural changes, restructuring/reengineering, reward revision, minimizing resistance, matching managers, culture development, production/operations adaptation, HR function development, downsizing, and linking pay
* **Annual objectives:** decentralized, involve all managers, aid resource allocation, evaluate managers, monitor progress, and set priorities .
* **Purpose of annual objectives:** serve as guidelines, provide legitimacy, act as performance standards, motivate employees, and provide a basis for organizational design .
* **Characteristics of annual objectives:** measurable, consistent, reasonable, challenging, clear, communicated, time-dimensioned, and accompanied by rewards/sanctions .
* **Policies:** specific guidelines, methods, and practices supporting stated goals; they facilitate recurring problem-solving and guide strategy implementation .
* **Role of policies:** set boundaries, clarify expectations, provide management control, allow coordination, reduce managerial decision time, and clarify work responsibilities .
### Implications
* Implementation problems can arise from the shift in responsibility if decisions surprise middle/lower managers .
* Genuine personal commitment from strategists to implementation is a powerful motivational force .
* Clearly stated and communicated objectives are critical for success across all firm types and sizes .
* Tying rewards and sanctions to annual objectives reinforces their importance for successful strategy implementation .
* Overemphasis on achieving objectives can lead to undesirable conduct like faking numbers or distorting records .
* Policies should be stated in writing whenever possible to guide and direct behavior .
### Common pitfalls
* Strategy implementation efforts face major problems without understanding and commitment .
* Organizations often treat implementation circumstances as afterthoughts, focusing too much on developing the plan .
---
# Establishing and utilizing annual objectives for strategy execution
### Core idea
- Annual objectives are vital for strategy implementation, serving as the foundation for resource allocation and performance evaluation .
- They act as crucial instruments for tracking progress towards long-term goals and establishing organizational priorities .
- Establishing annual objectives is a decentralized process that should involve all managers to foster acceptance and commitment .
### Key facts
- Active participation in setting annual objectives leads to greater acceptance and commitment from managers .
- Annual objectives provide guidelines for action, direct efforts, and offer legitimacy to organizational activities .
- They serve as performance standards and important sources of employee motivation and incentives .
- Clearly stated objectives are critical for success across all firm types and sizes .
- Objectives should be measurable, consistent, reasonable, challenging, clear, communicated, time-bound, and linked to rewards/sanctions .
- Vague objectives like "improve communication" are not operational; objectives should state quantity, quality, cost, and time, and be verifiable .
- Terms like "maximize," "minimize," "as soon as possible," and "adequate" should be avoided in objective statements .
### Key concepts
- Annual objectives must be compatible with employee and manager values and supported by clearly stated policies .
- Tying rewards and sanctions to annual objectives reinforces their importance for successful strategy implementation .
- Objectives should form a supportive network across hierarchical levels, with horizontal consistency as important as vertical .
- For example, manufacturing must align with marketing capacity to avoid overproduction .
- Overemphasis on achieving objectives can lead to undesirable conduct like faking numbers or distorting records .
### Implications
- Well-conceived annual objectives, consistent with long-term goals, support effective strategy implementation .
- Annual objectives establish organizational, divisional, and departmental priorities .
- Clear annual objectives increase the likelihood of accomplishing personal and organizational aims .
- The rationale for objectives and strategies must be understood and clearly communicated throughout the organization .
- Competitor focus is essential at all levels, with employees benchmarking their efforts against best-in-class competitors .
### Common pitfalls
- Objectives are often stated in generalities with little operational usefulness .
- Overprotection of resources, emphasis on short-run financial criteria, and organizational politics can hinder effective resource allocation .
- Conflict arises from interdependency of objectives and competition for limited resources, requiring management .
---
# Organizational structures for strategy implementation
### Core idea
- Strategy implementation is significantly influenced by organizational structure .
- Structure dictates how objectives, policies, and resources are established and allocated .
- Alfred Chandler proposed that strategy changes necessitate corresponding structural changes .
- Structure can also shape the choice of strategies, favoring those that align with existing designs .
### Key facts
- There is no single optimal structure for every strategy or organization .
- Successful firms in an industry often adopt similar organizational structures .
- As organizations grow, structures generally evolve from simple to complex .
- Symptoms of ineffective structures include too many management levels and meetings .
- Seven basic types of organizational structures exist: functional, divisional (by geographic area, product, customer, process), SBU, and matrix .
- Functional structures are simple, inexpensive, and promote specialization .
- Divisional structures are decentralized and organized by geographic area, product, customer, or process .
- Southwest Airlines exemplifies a functional structure despite its size .
- Consumer goods companies often use divisional structures by product .
- Small firms tend to be functionally structured; medium firms divisionally; large firms use SBU or matrix .
### Key concepts
- **Functional structure:** Groups tasks by business function (e.g., production, marketing); simple, cost-effective, encourages specialization .
- **Divisional structure:** Decentralized, organized around specific units (product, region, customer, process); promotes accountability and local control .
- **Divisional by geographic area:** Tailors strategies to specific regions .
- **Divisional by product:** Emphasizes specific products or services; effective when products differ substantially .
- **Divisional by customer:** Caters to requirements of defined customer groups .
- **Divisional by process:** Organizes activities by how work is performed, with profit/revenue accountability .
- **Strategic Business Unit (SBU) structure:** Groups similar divisions into SBUs, delegating responsibility to a senior executive; improves coordination and accountability in large conglomerates .
- **Coordination:** Structure influences how resources are allocated and how well departments or divisions collaborate .
- **Accountability:** Clear accountability for sales and profit is a key advantage of divisional structures .
### Implications
- Changes in strategy often necessitate structural reorientation for effective implementation .
- Structure can limit strategic choices by favoring strategies that align with its design .
---
# Organizational structures and their implementation
### Core idea
* Organizational structures define reporting relationships and how activities are coordinated to implement strategy .
* Different structures are suited for different strategic needs and organizational complexities .
### Key facts
* Divisional structures can be organized by region, customer, or process .
* A divisional structure by customer is effective when a few major customers are paramount .
* Divisional structures by process group activities according to how work is performed, with profit/revenue accountability .
* The Strategic Business Unit (SBU) structure groups similar divisions, delegating authority to senior executives .
* A matrix structure involves both vertical and horizontal flows of authority and communication .
* Matrix structures can increase overhead due to more management positions and dual reporting lines .
### Key concepts
* **Divisional structure by customer:** Organizes activities around distinct customer groups .
* **Divisional structure by process:** Organizes activities based on the specific production or operational steps .
* **Strategic Business Unit (SBU) structure:** Groups similar divisions to improve coordination and accountability in large, multidivisional firms .
* **Matrix structure:** Combines functional and divisional chains of command, creating dual reporting relationships .
### Implications
* The choice of structure impacts strategy implementation effectiveness and organizational control .
* SBUs can simplify planning and control for large conglomerates but add management layers .
* Matrix structures facilitate the use of specialized personnel and sharing of resources .
* Effective matrix structures require clear communication, mutual trust, and defined roles .
* Declining financial performance can signal a need to alter the organizational structure .
- > **Tip:** When developing organizational charts, reserve the CEO title for the top executive and use "president" for division heads
- > **Tip:** Avoid having any executive report to more than one person to uphold the unity-of-command principle
---
# Production and operations concerns in strategy implementation
### Core idea
* Production and operations capabilities, limitations, and policies significantly impact strategy attainment .
* A major part of strategy implementation occurs at the production site, influencing success or failure .
* Adjustments in production systems are often required to implement various strategies across different organization types .
### Key facts
* Production processes typically represent over 70 percent of a firm's total assets .
* Decisions on plant size, location, product design, equipment, inventory, quality control, and technological innovation dramatically affect strategy implementation .
* Just-in-time (JIT) production significantly reduces strategy implementation costs by minimizing inventory .
* Harley-Davidson's adoption of JIT freed twenty-two million dollars tied up in inventory and reduced reorder lead time .
* Factors for locating production facilities include resource availability, wage rates, transportation costs, market location, political risks, and trainable employees .
* Some manufacturing operations are shifting from China to Mexico, Vietnam, or back to the USA due to these locational factors .
* Apple's production in China involves thousands of workers at contractors like Foxconn due to lower labor costs and flexible workforce availability .
* Chinese manufacturing operations can house employees and mobilize large numbers of workers rapidly, prioritizing speed over pay .
### Key concepts
* Production-related implementation concerns vary by strategy; for instance, adding bank branches involves site location analysis .
* Backward integration for a brewery requires revising the inventory control system .
* Unrelated diversification for a steel manufacturer necessitates improving the quality control system .
* Forward integration for a computer company involves altering shipping, packaging, and transportation systems .
* Huffy shifted from bike production to design, marketing, and distribution, contracting manufacturing to Asian and Mexican firms .
* Geographic clustering of component suppliers in Asia allows for last-minute product design changes and timely shipping .
### Implications
* Companies must consider production and operations policies that can enhance or inhibit the attainment of strategic objectives .
* Decisions made within the production environment have a direct and significant impact on the success or failure of implemented strategies .
* The structure of the workforce, as seen with Apple and Foxconn, is a critical operational consideration influenced by labor costs and flexibility .
* Organizations must carefully study and weigh various factors before deciding on production facility locations to optimize strategy implementation .
---
* Strategy implementation inherently means change and requires motivated managers and employees .
* Key management issues central to implementation include adapting production/operations processes and managing human resources .
* Successful implementation depends on support, discipline, and hard work .
* Companies are increasingly offering corporate wellness programs with impressive returns on investment, sometimes as high as six to one .
* Nearly 90 percent of employers offer wellness incentives or prizes, up from 59 percent in 2009 .
* J&J estimates wellness programs saved the company 250 million dollars in healthcare costs over a decade .
* SAS Institute reports voluntary turnover dropped to 4 percent due to its wellness program .
* Many firms are implementing wellness programs, requiring employees to get healthier or pay higher insurance premiums .
* Boston Market is reducing salt content in its menu items by 15 percent .
* A diverse workforce can be most effective when it mirrors the diversity of its customers .
* Asian companies' average return on equity improves significantly when more women hold high-level positions .
* Women tend to be stronger in collaboration and people development, while men may be stronger in individual decision-making .
* Corporate wellness programs focus on diet, exercise, stress management, and lifestyle changes .
* Examples of wellness initiatives include offering discounts for health check-ups, completing triathlons, or not using tobacco .
* Companies are promoting wellness through onsite exercise classes, weight management programs, and stress reduction techniques .
* Healthiness is increasingly becoming a hiring factor .
* Wellness of employees has become a strategic issue for many firms .
* A diverse workforce is seen as beneficial, with examples of women in leadership roles boosting financial performance .
* Industry transitions, like advertising agencies becoming multicultural, reflect changing diversity strategies .
* Implementing effective strategies requires linking performance and pay to these strategies .
* Creating an organizational climate conducive to change is crucial for strategy implementation .
* Managing political relationships and fostering a strategy-supportive culture are important aspects .
* Adapting production and operations processes is a direct concern for strategy implementation .
* Human resource management plays a vital role in successful strategy execution .
* Wellness programs can lead to significant healthcare cost savings and reduced employee turnover .
---
# The importance and components of corporate wellness programs
### Core idea
* Corporate wellness programs are increasingly implemented by firms to lower escalating healthcare costs and improve employee well-being .
* These programs are viewed as a strategic issue for many firms, aiming for healthier employees who contribute to lower company expenses .
### Key facts
* Nearly 90 percent of employers offer wellness incentives to employees who "get healthier" .
* Companies report impressive returns on investment, sometimes as high as six to one, for well-run wellness programs .
* Johnson & Johnson estimates wellness programs have saved them USD 250 million in healthcare costs over a decade .
* SAS Institute saw voluntary turnover drop to 4 percent, attributing it to their effective wellness program .
* 70 percent of SAS employees use the company's recreation center at least twice a week .
* Lowe's offers a USD 50 monthly discount on medical insurance for employees and dependents who do not use tobacco products .
* Whole Foods Market employees receive a 30 percent product discount for maintaining a documented healthy lifestyle .
* Wegman's Food Markets employees participated in an 8-week challenge focusing on fruit/vegetable intake and steps .
* Boston Market has reduced salt by 20 percent in key items and plans a 15 percent menu-wide reduction .
### Key concepts
* Wellness programs often incentivize healthier behaviors, such as dental cleanings or completing triathlons .
* Some programs link healthiness to insurance premiums, with healthier employees paying less .
* Lower health insurance premiums are offered to nonsmokers by an increasing percentage of large employers .
* Onsite exercise, yoga classes, and weight management programs are common offerings .
* Companies focus beyond diet and exercise, including stress management and support for life events like divorce or grief .
* Promoting a wellness culture includes practices like encouraging stair use, providing bicycle racks, conducting walking meetings, and offering stress breaks .
* Wellness programs counsel employees and aim for lifestyle changes, such as reducing trans fats and saturated fats .
* Seven key lifestyle habits identified for health and longevity include nutrition, hydration, rest, exercise, stress reduction, not smoking, and vitamin supplements .
* Healthiness is increasingly becoming a hiring factor, with health examinations sometimes part of the application process .
* The idea that society will cover individual health costs due to poor lifestyle choices is becoming unaffordable .
### Implications
* Wellness programs can lead to significant savings on healthcare costs for companies .
* Effective wellness programs can contribute to lower employee turnover rates .
* Promoting healthier lifestyles among employees is a growing strategic priority for many organizations .
* Companies are seeking ways to reduce their financial burden related to employee health issues .
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# The importance and process of strategy evaluation
### Core idea
* Strategy evaluation is vital because strategies become obsolete as environments change .
* It ensures stated objectives are achieved and alerts management to potential problems .
* Evaluation involves examining strategy bases, comparing expected to actual results, and taking corrective actions .
* Timely and adequate feedback is the cornerstone of effective strategy evaluation .
### Key facts
* Erroneous strategic decisions can have severe, irreversible penalties .
* Overemphasis on evaluation can be expensive and counterproductive; too little leads to worse problems .
* Success today does not guarantee success tomorrow; continuous evaluation is necessary .
* Strategy evaluation is becoming more difficult due to increasing environmental complexity and fewer certain planning horizons .
* Empowered employees can pose risks if accountability and goals are not managed carefully .
### Key concepts
* **Consistency:** A strategy should not present inconsistent goals and policies; conflicts can indicate inconsistency .
* **Consonance:** Strategies must adapt to external environmental trends and their interactions .
* **Feasibility:** A strategy must be possible within the organization's physical, human, and financial resources .
* **Advantage:** A strategy should create or maintain a competitive advantage based on resources, skills, or position .
* **Management by wandering around:** Essential for effective strategy evaluation at all levels .
* **Continuous evaluation:** Performed on an ongoing basis, not just at the end of periods .
### Implications
* Timely evaluations alert management to problems before they become critical .
* Continuous evaluation allows for establishing and monitoring progress benchmarks .
* Successful strategies combine patience with a willingness to take corrective actions .
* If assumptions deviate, strategy formulation may need to be renewed sooner than planned .
* People are critical to strategy evaluation, fostering commitment to objectives through involvement .
### Common pitfalls
* Relying solely on short-term financial results can be misleading .
* Complacency with current success can lead to future struggles .
* Waiting until problems occur to evaluate can be too late .
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# Challenges and complexities in strategy evaluation
### Core idea
* Strategy evaluation is vital for organizational well-being, alerting management to problems before they become critical .
* It involves examining strategy bases, comparing expected vs. actual results, and taking corrective actions .
* Effective strategy evaluation depends on adequate and timely feedback .
* Too much emphasis on evaluation can be expensive and counterproductive .
### Key facts
* Strategy evaluation aims to ensure stated objectives are being achieved .
* Erroneous strategic decisions can have severe, irreversible consequences .
* Success today is not a guarantee of success tomorrow; continuous evaluation is needed .
* Strategy evaluation is increasingly difficult due to environmental complexity and rapid change .
* Empowered employees acting entrepreneurially can sometimes put business well-being at risk .
* Strategy evaluation should be performed continuously, not just periodically .
### Key concepts
* **Rumelt's criteria** for evaluating strategies: consistency, consonance, feasibility, and advantage .
* **Consistency:** Strategy should not present conflicting goals or policies .
* **Consonance:** Strategy must be an adaptive response to external and internal trends .
* **Feasibility:** Strategy must be achievable within the firm's resources and capabilities .
* **Advantage:** Strategy must provide or maintain a competitive advantage .
* Strategy evaluation involves reviewing the underlying bases of strategy, measuring performance, and taking corrective actions .
* **Reviewing strategy bases** involves creating revised IFE and EFE matrices .
* **Measuring organizational performance** compares expected results with actual outcomes .
* Evaluation relies on both **quantitative** (financial ratios) and **qualitative** (human factors) criteria .
### Implications
* Timely evaluations can prevent situations from becoming critical .
* Failure to evaluate properly can create worse problems than too much evaluation .
* Continuous monitoring of external and internal factors for change is essential .
* Involvement in strategy evaluation fosters commitment to achieving objectives .
* Strategy evaluation enhances an organization's ability to adapt to changing circumstances .
### Common pitfalls
* Relying solely on short-term operating results for evaluation can be misleading .
---
# 21st-century challenges in strategic management
### Core idea
- Strategic management in the 21st century faces three primary challenges: whether the process is more art or science, whether strategies should be visible or hidden, and whether the approach should
### Key facts
* Strategy evaluation keeps strategists connected to organizational pulse and provides essential information for effective management .
* The Balanced Scorecard, developed by Kaplan and Norton, balances financial and non-financial measures in strategy evaluation .
* Published sources like Fortune, Businessweek, and Industry Week provide strategy evaluation information for large firms .
* Effective evaluation systems must be economical, meaningful, and provide timely information .
* Contingency plans are alternative plans to address unforeseen favorable or unfavorable events .
* Auditing is a systematic process to objectively obtain and evaluate evidence about economic actions and events .
* The shift to International Financial Reporting Standards (IFRS) is a significant accounting challenge, costing businesses millions .
* Strategists must decide if the process is more of an art (intuition, creativity) or a science (analysis, research) .
* Keeping strategies visible fosters democracy and participation, while secrecy can prevent competitive exploitation .
* Current research favors the bottom-up approach for strategy formulation, emphasizing employee involvement .
### Key concepts
* **Balanced Scorecard perspectives:** Financial performance, customer knowledge, internal business processes, and learning/growth .
* **Characteristics of effective evaluation:** Economical, meaningful, timely, accurate portrayal of reality, action-oriented, fostering mutual understanding .
* **Contingency plan benefits:** Quick response to change, prevention of panic, increased manager adaptability .
* **Five steps for effective contingency planning:** Identify events, determine timing, assess pros/cons, develop plans, identify trigger points .
* **Auditing definition:** Systematically obtaining and evaluating evidence of economic actions and events against established criteria .
* **Art vs. Science in Strategy:** Science emphasizes systematic assessment and analysis; Art emphasizes intuition and creativity .
* **Visible vs. Hidden Strategies:** Openness promotes participation; secrecy protects competitive intelligence .
* **Top-Down vs. Bottom-Up Approach:** Top-down relies on executive acumen; bottom-up involves those who implement strategies .
### Implications
* Strategy evaluation can lead to fundamentally new strategies and substantially increased earnings .
* The Balanced Scorecard aims to balance shareholder objectives with customer and operational objectives, acknowledging potential conflicts .
* In a complex, competitive business world, thorough research and analysis are critical for strategy formulation, not just intuition .
* Finding a working balance between visible and hidden strategies is essential for firms .
* Effective strategy evaluation allows adaptation to change, capitalization on opportunities, and mitigation of threats .
* Continuous planning, measuring, and revising are crucial as the business environment rapidly changes .
### Common pitfalls
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### Key discussion points
* BHP Billiton's success in the last decade requires evaluation of its current strategies .
* The accounting switch from GAAP to IFRS in the United States has implications to discuss .
* Learning IFRS standards independently could offer a competitive job market advantage .
* "Consonance" needs an example beyond Rumelt's initial illustration .
* Evaluating strategies continuously versus periodically has both pros and cons .
* The frequency of changing an organization's vision or mission should be considered in light of strategy evaluation .
* Mintzberg's "crafting" of strategies contrasts with formulating strategies through information assimilation .
* Debate whether strategic management is more art or science .
* Consider if strategic management should be a top-down or bottom-up process .
* Determine if strategic management should be a visible or hidden process within a firm .
### Applications and tools
* Develop a balanced scorecard for a company like BHP Billiton .
* Create a balanced scorecard for an educational institution .
* Discuss the concept and application of contingency planning .
* Identify key financial ratios useful for evaluating firm strategies .
### Process and system characteristics
* Determine the appropriate frequency for a firm to formally evaluate its strategies .
* Identify conditions under which corrective actions are not necessary in strategy evaluation .
* Define and discuss auditing as it relates to strategy evaluation .
* List 10 characteristics of an effective strategy evaluation system .
### Further exploration and current readings
* Identify admired companies and analyze their strategies .
* Investigate how a university department evaluates its strategies .
* Analyze firms that do or do not publish their strategic plans online .
- Current readings suggest exploring topics like performance feedback, science in strategy, corporate political activity, scenario planning, measures of success, corporate entrepreneurship, crowdsourcing for strategy, and understanding the "good, the bad,
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# Guidelines for preparing and delivering strategic management case analyses
### Core idea
* Strategic-management cases describe an organization's external and internal conditions, raising issues about its mission, strategies, and policies .
* The case method is "learning by doing," applying strategic concepts in realistic scenarios .
* Case analysis requires practicality, justification, realism, specificity, originality, and contribution [392-393](#page=392-393).
### Key facts
* No case provides complete information; strategists must make and state reasonable assumptions .
* Justification of recommendations and implementation plans is more important than the recommendations themselves .
* Recommendations must be realistic and within an organization's means, considering capital requirements [392-393](#page=392-393).
* Specificity is crucial; avoid generalizations and use ratios, numbers, and dollar estimates [392-393](#page=392-393).
* Originality involves considering all facts and proposing feasible alternatives based on information available at the time of decision-making .
* Teamwork is common, requiring open-mindedness and good listening skills .
* Preparing for class discussion involves reading, note-taking, analysis, and preparation to defend specific recommendations .
* The case method involves student-led discussions facilitated by the professor .
* Oral presentations are graded on content (quality, quantity, correctness) and delivery (clarity, dress, persuasiveness) .
* Written analyses are typically more structured and detailed than oral presentations .
### Key concepts
* **Practicality:** Make reasonable assumptions and clearly state them when information is missing .
* **Justification:** Support decisions with ample rationale and implementation proposals .
* **Realism:** Ensure recommendations are feasible and consider capital requirements [392-393](#page=392-393).
* **Specificity:** Answer what, why, when, how, where, and who; use data and avoid vagueness [392-393](#page=392-393).
* **Originality:** Recommend what you would have done based on past information, not necessarily what the company did .
* **Contribution:** Be a good listener and contributor in team settings, open to others' views .
* **Case Method:** Students actively participate, discuss, and defend analyses and recommendations .
* **Oral Presentation:** Focus on clear communication, engaging delivery, and persuasive arguments .
* **Written Analysis:** Emphasize structure, detail, specificity, and use of exhibits .
* **Competitive Advantage:** Emphasize how proposed strategies will gain and sustain competitive advantage (#page=394, 397) .
### Implications
* Failure to use specifics is the single major shortcoming of most case analyses .
* Cross-examination discussions are common, mirroring real business organizations .
### Common pitfalls
---
# Guidelines for case analysis and presentation
### Process tips for effective case analysis and presentation
* Encourage individual work, using team meetings primarily for assimilation .
* Invite questions throughout presentations if permitted .
* Maintain good posture, eye contact, voice tone, and confidence during presentations; avoid defensiveness .
* Prepare case analyses in advance to allow for reflection and practice; avoid procrastination .
* Adopt a positive attitude towards problem-solving .
* Understand professor's values and expectations .
* Develop a cooperative spirit in group work, leveraging members' complementary strengths .
* Divide into separate teams for external and internal analysis in group cases .
* Capitalize on group members' strengths; volunteer in areas of personal strength .
* Set team goals and budget time effectively .
* Foster group participation and interaction; avoid hasty judgments of members .
* Be prepared to do more than your share to advance the team's work .
* Treat case analysis as a real-world scenario, not a mechanical process .
* Assign a devil's advocate to uncover analysis flaws and prepare for questions .
* Limit group meetings to approximately two hours .
* Push ideas assertively but listen to others; follow discussion flow and get back on track .
* Develop a direct, assertive, and convincing presentation style; be concise and precise .
* Enjoy the case preparation process .
* Set aside personality differences in group cases .
* Write down drafts as soon as possible and allow written comments from group members .
* Adapt and be flexible, creative, and innovative .
* Ensure the case analysis looks professional and neat .
* Have someone else critique the presentation several days before the actual presentation .
* Invest time in building relationships with group members for increased openness and idea interchange .
* Be constructively critical of group work, be a good listener, and contributor; avoid dominating .
### Sample case analysis outline steps
---
## Operating and financial performance metrics
### Key performance indicators
* Revenue Passenger Miles (RPMs) measure market share, calculated as total passengers multiplied by miles flown .
* Ryanair's RPMs increased 14.4 percent from 39,202.3 million in fiscal 2009 to 44,841.1 million in fiscal 2010 .
* Available Seat Miles (ASMs) measure capacity, calculated as seats in the fleet multiplied by miles flown .
* Ryanair's ASMs increased 13.5 percent from 47,102.5 million in fiscal 2009 to 53,469.6 million in fiscal 2010 .
* The load factor, RPM divided by ASM, indicates the percentage of capacity utilized by paying passengers .
* Ryanair's load factor was 81 percent in fiscal 2009 (break-even 79 percent) and 82 percent in fiscal 2010 (break-even 73 percent) .
* Average yield per RPM is the average passenger revenue per revenue passenger flown .
* Ryanair's yield decreased from 0.060 euros in 2009 to 0.052 euros in 2010 .
* Cost per Available Seat Mile (CASM) is operating costs divided by ASMs, expressed in cents .
* Ryanair's CASM was 0.058 euros in fiscal 2009 and 0.047 euros in fiscal 2010 .
* The average booked passenger fare was 40.02 euros in 2009 and 34.95 euros in 2010 .
* Ancillary revenues per booked passenger were 10.21 euros in 2009 and 9.98 euros in 2010 .
### Financial highlights (Year Ended March 31)
* For the year ended March 31, 2011, Ryanair reported a 26 percent increase in profits to 400.7 million euros .
* Total operating revenues increased by 21 percent to 3,629.5 million euros in fiscal 2011 .
* Gross cash increased by 127.2 million euros to 2,940.6 million euros in fiscal 2011 .
* Adjusted basic Earnings Per Share (EPS) rose to 26.97 in fiscal 2011 from 21.59 in fiscal 2010 .
* Total operating expenses rose by 20 percent to 3,113.3 million euros in fiscal 2011 .
* Fuel costs represented 39 percent of total operating costs and increased by 37 percent to 1,226.7 million euros .
* Unit costs excluding fuel increased by 3 percent, while unit costs including fuel rose by 11 percent .
* The operating margin rose 1 percent to 14 percent, with operating profit increasing by 28 percent to 516.2 million euros .
* Financial information is prepared in accordance with International Financial Reporting Standards (IFRS) .
* Exceptional items related to volcanic ash in April-May 2010 were not included in the presented results .
* Exceptional items for the year ended March 31, 2011, reflected impairment of the Aer Lingus shareholding .
---
# External factors impacting Ryanair: regulation, fuel, and competition
### Government regulation
* The Commission for Aviation Regulation (CAR) issues and can revoke operator's licenses .
* CAR controls issuing airport slots if an airport is designated "fully coordinated" .
* The Irish Aviation Authority (IAA) oversees aviation safety and technical aspects in Ireland .
* IAA issues operator's certificates and ensures aircraft airworthiness certificates .
* The Department of Transportation (DOT) implements EU and international air transport legislation .
* EU Regulation 261 mandates compensation and assistance for denied boarding, cancellation, and delays .
* Ryanair views EU 261 as unfair, arguing compensation should be limited to ticket price in uncontrollable circumstances .
* Short-haul airlines must pay EUR 250 per passenger for denied boarding, cancellation, or long delays .
* Airlines may also need to provide meals, accommodation, and refunds under EU 261 .
* Ryanair paid GBP 88 million in claims related to EU 261 in the previous year .
* Ryanair's added GBP 2 fee is partly justified by EU 261 costs, potentially earning GBP 150 million annually .
* A new EU emissions trading scheme requires airlines to pay for carbon dioxide emissions starting January 2012 .
* Airlines estimate paying EUR 1.4 billion for carbon permits in 2012, rising to EUR 7 billion by 2020 .
### Fuel
* Fuel represented 34.1 percent of total operating expenses in fiscal 2010 .
* Ryanair actively engages in fuel hedging to minimize price increase risks .
* Ryanair is committed to not imposing a fuel surcharge on any fare .
* Ryanair is 90 percent hedged for fiscal year 2012 at $820 per metric ton ($82 per barrel) .
* Full year fuel costs are expected to increase by approximately EUR 350 million in fiscal 2012 .
* Jet fuel accounts for more than 40 percent of all costs for Emirates .
### Airline industry and competition
* The European airline industry is highly competitive with low-fare, traditional, and charter airlines .
* Competition occurs on fares, service time/frequency, service quality, amenities, and reputation .
* Ryanair believes state-owned competitors have advantages due to subsidies .
* The EU-U.S. Open Skies Agreement increased competition in the intra-EU market .
* A Telegraph survey showed Ryanair's total flight cost can exceed British Airways when all fees are added .
* The Single European Sky (SES) proposal aims to unify European air traffic control systems .
---
### Fuel price volatility
* Fuel is a significant operating cost for airlines, making them vulnerable to price fluctuations .
* UPS experienced a rise in fuel costs from 2.97 billion dollars in 2010 to 4.09 billion dollars in 2012 .
* Fuel surcharges are adjusted, as seen with UPS implementing reductions in fuel surcharges while increasing base rates .
* Weakening global economy leads to a shift towards cheaper shipping methods like ocean freight over premium air services, impacting fuel demand .
### Competition
* UPS faces competition from major players like FedEx and the United States Postal Service (USPS) .
* DHL International is also identified as a significant competitor .
* The document mentions Ryanair's strategy in relation to competition without specific details in this page range.
### Regulation
* The document does not directly detail regulatory impacts on Ryanair within this specific page range.
* However, it notes that companies outside the European Union cannot hold stakes of more than 49 percent in airlines, impacting acquisitions like UPS's deal with TNT Express .
* The USPS operates under a congressionally mandated prefunding requirement for retirement health benefits, significantly impacting its financial performance .
---
### Core idea
* Ryanair operates in a dynamic market influenced by external factors such as regulatory changes, fluctuating fuel prices, and intense competition from other airlines .
* Understanding these external forces is critical for strategic management and maintaining profitability .
### Key facts
* FedEx is investing USD 100 million in a new international express and cargo hub in Pudong, China, to handle significant parcel volumes by 2017 .
* FedEx is expanding its services across the USA, Canada, and Mexico, including new service centers for cross-border shipments .
* DHL is a major global player in express delivery and logistics, operating through four divisions: Express, Global Forwarding and Freight Forwarding, Mail, and Supply Chain .
* Amazon.com achieved over $34 billion in revenue in 2010 with $1.15 billion in income .
* Amazon's sales increased 51 percent in Q2 2011 compared to Q2 2010 .
* Online sales are projected to grow 10 percent annually between 2010 and 2014, reaching USD 249 billion by 2014 .
* Barnes & Noble is the largest brick-and-mortar bookseller in the U.S. with 1,357 stores .
* Borders Group filed for Chapter 11 bankruptcy in February 2011 due to struggles in the digital book market .
* Books-A-Million, the third-largest book retailer in the U.S., has remained profitable despite a sales reduction from 2007-2010 .
* Amazon's North America segment generated approximately 55 percent of total revenue in 2010 .
* Media sales at Amazon declined from 2009 to 2010, while electronics and general merchandise sales increased .
* Amazon spent USD 890 million on marketing and promotional costs in 2010 .
* Amazon Prime, a membership program, costs USD 79 per year and offers free express two-day shipping .
* Amazon Prime members increased their purchases by 150 percent after joining in 2010 .
* Amazon opened thirteen new distribution centers in 2010, bringing the total to 52 .
* Amazon's net sales increased from $24.5 billion in 2009 to $34.2 billion in 2010 .
* Amazon's net income rose to USD 1.15 billion in 2010 .
### Key concepts
- **Competitive Landscape:** The market is populated by major global players like FedEx and DHL, alongside significant online retailers such as Amazon.com, which has diversified beyond book sales into various product
* **E-commerce Growth:** The increasing availability of the internet globally fuels online sales growth, influencing consumer purchasing behavior and product information access .
- **Digital Publishing and E-readers:** The rise of digital publishing and e-readers (like Amazon's Kindle and Barnes & Noble's Nook) is reshaping the book industry, creating new competition and distribution models
* **Diversification and Expansion:** Companies like Amazon continuously expand their product and service offerings (e.g., cloud services, tablet computers, online marketplaces) and geographic reach through organic growth and acquisitions .
* **Customer Centricity and Loyalty Programs:** Amazon's strategy emphasizes customer focus, with programs like Amazon Prime designed to foster loyalty and drive repeat purchases .
* **Technological Innovation:** Amazon leverages proprietary technology for website design, personalization, fulfillment, and customer service, which is critical for its operational efficiency and customer experience .
### Implications
---
* External factors shaping Ryanair's strategy are primarily regulation, fuel costs, and competitive pressures .
* These factors significantly influence pricing, service offerings, and international expansion .
* Amazon.com's financial strength and diversified business pose a significant competitive threat .
* Netflix's aggressive content acquisition strategy and growing subscriber base challenge traditional media models .
* Fuel costs are a critical variable impacting operational expenses for airlines .
* Regulatory changes, such as amendments to copyright laws, can affect content distribution models .
* International expansion for companies like Netflix brings risks including regulatory, economic, and political instability .
* Marketing expenses for Netflix were USD 293.8 million in 2010, a 23.6% increase from 2009 .
* Subscriber acquisition cost for Netflix decreased by 29.2% from $25.48 in 2009 to $18.03 in 2010 .
* **Competition in streaming:** Key players include Amazon, Apple, Microsoft (VOD), Hulu, YouTube (ad-supported), and Netflix (subscription) .
* **Content is King:** The driving force behind strategic moves in the media industry, requiring significant investment .
* **Network effects:** High customer satisfaction and a loyal subscriber base make it difficult for competitors to displace Netflix .
* **Barriers to entry:** Industry barriers to entry are generally low in online streaming due to relatively low launch costs .
* **Product substitution:** Consumers use multiple entertainment sources, leading to high product substitution .
* **Amazon's competitive advantage:** Strong brand recognition, established online history, large customer base, and greater financial resources .
* **Netflix's reliance on Amazon:** Netflix depends on Amazon for a majority of its computing and data processing services .
* **DVD release windows:** Licensing agreements often dictate that Netflix cannot offer new DVD releases until 28 days after retail sale .
* Amazon's diversified business and financial strength present a formidable challenge to Netflix .
* Netflix's content acquisition costs are rising, and competitors are becoming better at imitation .
* Changes in copyright laws or distribution models could negatively impact Netflix's business .
* Increased regulation of data utilization practices could affect Netflix's merchandising technology .
* The home video rental business is transforming due to technology and streaming capabilities .
* Netflix's growth strategy relies heavily on expanding its streaming entertainment business .
---
* External factors like fluctuating fuel prices, stringent regulations, and intense competition significantly shape Ryanair's operational strategies and financial performance .
* Rising oil prices directly impact transportation costs and indirectly affect packaging material costs due to increased natural gas prices .
* Global trends include a significant consumer goods trade deficit for the United States, with countries like China and Vietnam experiencing high export growth rates .
* Trade restrictions, tariffs, quotas, and embargoes can increase costs or reduce apparel supply to the United States .
* The value of the U.S. dollar relative to other currencies was volatile in 2010, impacting companies with substantial international revenue .
* In the apparel industry, insufficient product differentiation and global branding can hinder the ability to command higher prices .
* Low labor costs are insufficient for success; companies need product differentiation and global branding .
* Producing more can lower costs and increase profitability due to economies of scale, but producing less can create exclusivity and added value .
* Rising cotton costs can impact prices, particularly for brands with less pricing flexibility .
* Acquisitions are a primary route for sales growth in mature industries like apparel .
* Licensing is a common practice offering revenue and cost savings in manufacturing and distribution .
* Consumers often wait for price reductions before purchasing, necessitating lower initial prices and larger end-of-season markdowns .
* An increasing number of discounters and outlet stores contribute to price declines .
* Consumers tend to purchase as the need arises, rather than in advance of the season .
* Increased lead times for offshore production make it difficult to respond to immediate customer needs, thus requiring domestic production for quicker responses .
* Distribution is critical, with customers demanding immediate availability and switching to substitutes if not met .
* Lean inventories lead to cost efficiencies that can be passed to customers .
* New point-of-sale technologies improve inventory tracking and retailer-vendor communication .
* Internet sales are forecasted to grow, but the intangible nature of online purchases (inability to see, touch, try on) remains a challenge .
* Companies with strong brand recognition offering fashion-right products at attractive prices are expected to outperform the industry .
* **Demographic/Economic Trends:** Demand in the apparel retail industry is driven by demographic groups and consumer preferences .
* **Global Trends:** International trade dynamics, including export/import growth rates and trade surpluses, influence the industry .
* **Pricing Strategy:** The interplay of promotional pricing, markdowns, and consumer willingness to wait for sales impacts pricing decisions .
* **Distribution Challenges:** Meeting customer demands for immediate availability while managing inventory costs and utilizing new technologies is crucial .
* **Competitive Landscape:** Gap faces competition from various apparel retailers, including Abercrombie & Fitch, American Eagle, V.F. Corp., Nordstrom’s, TJX Companies, H&M, and Zara .
### Common pitfalls
---
* Ryanair's performance is significantly influenced by external factors including regulatory changes, fluctuating fuel prices, and intense competition within the airline industry [468-478.
* The provided document pages focus on financial statements and company overviews for GAP Inc. and Walt Disney Company, not Ryanair [468-478.
* Specific financial data for Ryanair, such as earnings per share or balance sheet items, is not present in this page range [468-478.
* Information regarding fuel costs or their impact on Ryanair's operations is absent [468-478.
* Details about regulatory environments affecting Ryanair or its competitors are not included [468-478.
* Analysis of competitive landscapes for Ryanair is not provided in these pages [468-478.
* The pages contain financial exhibits and narrative descriptions for GAP Inc. and Walt Disney Company [468-478.
* Exhibit 4 on page 468 provides GAP's Statement of Earnings for 2009-2011.
* Exhibit 5 on page 469 shows GAP's Balance Sheet for 2009-2011.
* Exhibit 6 on page 470 details GAP's revenues by product brand and region for fiscal year 2010.
* Walt Disney Company's organizational structure and segment revenues are presented in Exhibits 1, 2, 3, 5, 6, 7, and 8 on pages 474-477.
* Disney's income statements and balance sheets for 2012 are in Exhibits 9 and 10 on pages 478.
* Disney's competition is detailed on page 478, including direct and indirect rivals.
* The document excerpts provided are irrelevant to the specific topic of "External factors impacting Ryanair: regulation, fuel, and competition."
* The content exclusively covers financial and strategic information for GAP Inc. and Walt Disney Company.
* No data or analysis related to Ryanair's external environment is present in pages 468-478.
* Without relevant content on Ryanair, this section cannot provide insights into how regulation, fuel, or competition impact the company.
* The current document pages do not offer any data to assess strategic challenges or opportunities for Ryanair.
* To address the topic, external information specifically on Ryanair's operating environment would be required.
---
- The provided pages discuss financial statements and business segments of Walt Disney Company and Staples, Inc., not external factors impacting Ryanair
* Walt Disney Company's unaudited balance sheets for 2012 and 2011 show total assets of $74,898 million and $72,124 million, respectively .
* Total liabilities and shareholders' equity for Walt Disney Company were $74,898 million in 2012 and $72,124 million in 2011 .
* Staples, Inc. reported total sales of USD 24.55 billion in 2010, with a 1.1 percent increase .
* Staples' CEO's pay package for 2010 increased 41 percent to USD 15.1 million .
* Staples reported quarterly net income of USD 198.2 million for the quarter ending April 30, 2011, a 28 percent drop from the prior quarter .
* Staples has over USD 4 billion in goodwill on its balance sheet as of early 2011 .
* Staples' mission is "to make it easy to buy office products" .
* Staples operates three business segments: North American Retail, North American Delivery, and International Operations .
* North American Delivery was Staples' most consistent segment, overtaking North American Retail in 2009 as the largest .
* Staples' International Operations segment contracted in 2010 after rapid sales growth in 2009 .
* Staples reported total sales of USD 24,545,113 thousand for the year ended January 29, 2011 .
* Staples' net income for the year ended January 29, 2011, was USD 881,948 thousand .
* Staples' total assets on January 29, 2011, were USD 13,911,667 thousand .
* Staples' total liabilities on January 29, 2011, were USD 13,911,667 thousand (implied by balance sheet total) .
* The Walt Disney Company acquired Lucasfilm in October 2012 for USD 4.05 billion .
* Lucasfilm's operations include Industrial Light & Magic, Skywalker Sound, LucasArts, Lucas Licensing, Lucasfilm Animation, Lucas Online, and Lucasfilm Singapore .
* Staples' "Staples Soul" program emphasizes providing superior value through low prices, broad selection, high-quality products, convenience, and excellent customer service .
* The "Staples Soul" program pillars include Ethics, Environment, Community, and Diversity .
* Staples utilizes a hub-and-spoke distribution network for efficient shipping .
* Staples invests in technology to maintain a customer database to identify purchase trends .
* Staples is expanding its product line into digital devices, partnering with Barnes & Noble for the NOOK color reader .
* Staples develops store-branded products, offering higher margins and greater control over supply and design .
* Staples.com offers over 30,000 products, with options for in-store pickup or direct delivery .
* Staples is exploring electric trucks for its delivery fleet, manufactured by Smith Electric Vehicles, to reduce fuel costs .
---
## External factors impacting the office supply industry
* The office supply industry faces significant external pressures from macroeconomic trends, technological advancements, and growing environmental concerns, impacting demand and business models .
* US stock market experienced a significant drop in August 2011, with S&P downgrading the credit rating from AAA to AA .
* Predicted US GDP growth for 2011 was 3.1-3.3 percent, but actual growth slowed to 1.8 percent in Q1 2011 .
* Unemployment rate forecasts for late 2011 ranged from 8.3 to 9.2 percent .
* Consumer spending remains speculative due to federal and state fiscal difficulties and depleted stimulus money .
* Rising oil and commodity prices are expected to continue pressuring consumer and business budgets .
* Traditional paper archival systems still account for 60 percent of document storage .
* Advances in mobile technologies like NOOK, Kindle, iPad, and iPhone negatively impact the office supply business .
* Environmental sustainability is an increasing concern, leading to "green" initiatives across the industry .
* The US office supply industry revenue was over 80 billion dollars annually, forecast to reach almost 88 billion by 2013 .
* Industry growth forecast showed a marked decrease from the previous five-year compound growth rate .
* Companies are investing in warehousing and fulfillment centers to manage inventory centrally .
* Staples is larger than Office Depot and OfficeMax combined .
* **Technological Shift:** The move towards digital record-keeping and document delivery reduces reliance on traditional paper products .
* **Environmental Consciousness:** Growing sensitivity to sustainability drives "green" initiatives and influences product demand patterns .
* **Industry Growth Slowdown:** A significant decrease in the industry's growth rate compared to previous periods, exacerbated by the recession .
* **Price Sensitivity:** Consumers and businesses are highly price-sensitive due to budget constraints and economic conditions .
* **Consolidation of Inventory:** Industry trend towards centralized warehousing and fulfillment centers to optimize distribution .
* **Shift in Demand Patterns:** Environmental initiatives and technological adoption lead to altered demand for office supply products and equipment .
* **Need for Diversification:** Companies may need to diversify away from traditional office products to remain competitive .
* **Focus on Operational Efficiency:** Survival in a highly competitive market depends on superior strategic planning and operational efficiencies .
* **International Expansion:** Companies are pursuing international expansion to compensate for slower domestic market growth .
* **Intense Price Competition:** The market is characterized by fierce price competition among major players and retailers like Wal-Mart, Kmart, and Target .
* **Over-reliance on Traditional Models:** The "paperless office" trend makes historical business models increasingly questionable .
* **Declining Revenues and Profits:** Many companies in the industry are struggling with falling sales and profitability .
---
## External factors impacting Domino's Pizza
* Domino's is the largest pizza delivery company in the USA with a 22.5 percent market share .
* Key rivals include Pizza Hut (division of Yum Brands), Papa John's, and Little Caesars .
* Pizza Hut is the largest competitor, with revenues over 60 percent greater than Domino's .
* Little Caesars was the fastest-growing pizza chain in 2010, with revenues up 13.6 percent .
* Domino's, Pizza Hut, and Papa John's collectively hold 51 percent of U.S. pizza delivery spending .
* Local "mom-and-pop" stores, frozen grocery store pizzas, and other fast-food options also compete .
* Internationally, Pizza Hut and Domino's are primary players, facing national and local restaurants .
* Pizza Inn Holdings is another competitor with over 300 franchised locations .
### Nutrition concerns
* Growing health-consciousness among consumers and government pressure for nutrition labeling are significant concerns .
* Domino's requires customers to manually calculate nutrition information from website data .
* Providing accurate nutrition labels is challenging due to infinite pizza ingredient combinations .
* Domino's offers gluten-free crust as an option for health-conscious customers .
* Many competitors, like Wendy's and Subway, market healthier options or have them readily available .
* Domino's and many pizza competitors offer few to no menu options for health-conscious consumers .
### Barriers to entry and economic factors
* Barriers to entry in the restaurant industry are relatively low, but rivalry is exceptionally high .
* Small entrepreneurs can open independent "mom-and-pop" establishments bypassing franchise fees .
* Larger franchises can negotiate better pricing on supplies, creating a disadvantage for small businesses .
* Consumer bargaining power is strong due to abundant restaurant options and intense price competition .
* The QSR market has a bimodal customer distribution: bargain-minded and affluent consumers .
* Domino's is strategically positioned to target bargain-minded customers with sales and discounts .
---
- The provided pages (512-522) do not contain information directly pertaining to Ryanair. The content focuses on Royal Caribbean Cruises Ltd. and Carnival Corporation & plc
* Therefore, a summary of "External factors impacting Ryanair: regulation, fuel, and competition" cannot be generated from this specific document extract.
- To complete the study guide on external factors impacting Ryanair, information from other sections of the document or different source materials would be required
---
* External factors significantly influence Ryanair's operations and strategy, including regulatory environments, volatile fuel prices, and intense competition within the airline industry .
* The cruise industry, relevant to this broader topic of external factors, is sensitive to consumer discretionary income and consumer searches for deals and discounts .
* Cruise ship companies face risks from seasonality, natural disasters (like hurricanes), and government regulations concerning ports, customs, labor, and safety .
* Environmental and health concerns, including waste and pollution, are critical external factors for cruise liners .
* Economic conditions such as unemployment, reduced discretionary income, inflation, recession, interest rates, and foreign exchange significantly impact the cruise ship business .
* Increases in fuel prices pose a direct risk, potentially forcing companies to increase service charges, which could reduce passenger numbers .
* Terrorism and security threats necessitate strict ship security procedures compliant with international agreements like the International Ship and Port Facility Security (ISPS) Code .
* Competition in the cruise industry is intense, with companies differentiating through diverse itineraries and innovative onboard amenities .
* Carnival Corporation is a dominant player, holding a 52.9 percent market share, with Royal Caribbean as the primary competitor at 27.6 percent .
* Royal Caribbean Cruises Ltd. operates multiple brands and aims to capture market share from Carnival, strategically hedging against rising oil prices .
* The multinational nature of cruise operations means companies must comply with various international laws, including antitrust and consumer protection laws .
* All oceangoing vessels require a country of registry, and due to restrictions, many commercial vessels, including cruise ships, fly non-U.S. flags .
* Cruise ship companies voluntarily agree to discharge graywater and treated blackwater only when ships are underway, not in port, adhering to industry standards .
* The maritime industry is governed by international standards like MARPOL for pollution prevention .
* Barriers to entry in the cruise industry are high, requiring significant investment, ship construction time, legal compliance, financing, and international market expertise .
* The cruise industry's growth is driven by passengers seeking value, convenience, and unique experiences, with destinations like the Caribbean being highly popular .
* Cruise vacation pricing can be significantly lower than land-based alternatives, contributing to industry growth .
* Economies of scale are a key strategic focus for companies like Carnival, despite potential future overcapacity concerns .
* Volatile fuel prices directly impact operating costs and necessitate hedging strategies to mitigate financial risk .
* Strict government regulations across different jurisdictions create compliance challenges and operational complexities .
* Intense competition drives innovation in offerings and requires companies to effectively differentiate their brands and services .
* Environmental concerns and regulations necessitate responsible waste management and discharge practices .
* Economic downturns can significantly reduce consumer discretionary spending, impacting demand for leisure travel like cruises .
* The financial strength and strategic positioning of competitors like Royal Caribbean are critical for understanding the competitive landscape .
* The ongoing development of new ships and the pursuit of economies of scale indicate a strategic focus on capacity and cost management .
---
* External factors significantly influence the financial services industry, including regulatory reforms, technological shifts like mobile payments, the persistent challenges in the mortgage market, and evolving consumer behaviors and competitive landscapes.
* The Dodd-Frank Wall Street Reform and Consumer Protection Act introduced significant changes, including prohibiting proprietary trading and establishing the Financial Stability Oversight Council .
* New regulations are expected to substantially increase fees for all financial institutions .
* Despite Dodd-Frank's aim to prevent "too big to fail" bailouts, large interconnected institutions may still necessitate government intervention in future crises .
* Mobile payment systems are emerging as a major challenge, with credit and debit cards projected to be replaced by integrated mobile, web, and point-of-sale options .
* In 2012, over five billion mobile phone users existed globally, yet only half had bank accounts .
* The market for global payments was projected to exceed 600 billion dollars by 2013 .
* Traditional banks may need strategic alliances to compete in the mobile payment arena .
* As of 2012, 52 million out of 76 million US homes had mortgages, with 4.7 million in a delinquent state .
* Around 2.5 million delinquent homes were worth less than their mortgages .
* The percentage of Americans owning checking accounts dropped from 92% to 88% between 2010 and 2011 .
* Bank overdraft fees cost Americans 31.6 billion dollars in 2011 .
* Consumer behavior is shifting from traditional bank cards to prepaid debit cards, with projected flows reaching 201.9 billion dollars by 2013 .
* Customer defections from large banks increased due to fees and poor service, benefiting credit unions and smaller banks .
* Credit unions added 1.3 million members in 2011, reaching a record 91.8 million .
* Online banks are gaining a competitive advantage over large banks .
* Payday lending companies are being used by individuals of medium incomes to avoid bank fees .
* **Regulatory Reform:** The impact of legislation like Dodd-Frank on banking practices, fees, and systemic risk .
* **Mobile Payments:** The disruptive potential of new payment technologies and the need for traditional banks to adapt or partner .
* **Mortgage Market Challenges:** Ongoing issues with delinquent mortgages and homes underwater, impacting financial stability (#page=542, 543) .
* **Shifting Consumer Behavior:** A trend towards reduced reliance on traditional banking services and increased use of alternative financial products like prepaid cards and online banking .
* **Competitive Landscape Evolution:** The rise of online banks, credit unions, and alternative lenders challenging incumbent large banks (#page=541, 543) .
* Financial institutions must prepare for a significant increase in compliance costs due to new regulations .
* Banks need to develop strategies to integrate or compete with mobile payment solutions to remain relevant .
* The persistent mortgage crisis poses ongoing risks and potential losses for banks involved in this sector (#page=542, 543) .
---
# Emirates Group's operational and financial performance
### Core idea
* Emirates Group comprises Emirates (airline) and Dnata (aviation ground handling) .
* The airline is the largest in the Middle East, flying to over 130 destinations globally .
* Emirates focuses on a premium service model, offering luxury amenities and high-quality service across all classes .
### Key facts
* Emirates carries 40 million passengers and 2.0 million tons of cargo annually with a fleet of over 170 aircraft and 230 on order .
* The company is the world's largest operator of Airbus A380 and Boeing 777 aircraft .
* Emirates has over 67,000 employees and annual revenues exceeding 73.1 billion Dirhams .
* The airline is government-owned by the Investment Corporation of Dubai but operates as an independent business entity .
* In fiscal year 2013, Emirates reported profit for the 25th consecutive year, with revenues up 17.4 percent .
* Dnata achieved record profits and revenues in fiscal year ending March 31, 2013 .
### Key concepts
* **Fleet Strategy:** Utilizes large aircraft like the Airbus A380 and Boeing 777 for passenger comfort and capacity .
* **Service Differentiation:** Offers premium services like private suites, onboard spas, and extensive entertainment options, even in economy class .
* **Financial Reporting:** Fiscal year ends March 31st; financial statements prepared under IFRS and reviewed by an unaffiliated institution .
* **Revenue Streams:** Passenger revenue is the largest, with cargo contributing significantly (15%) to the Emirates segment .
* **Dnata Segments:** Includes in-flight catering, airport operations, cargo, information technology, and travel services .
* **Geographic Diversification:** No single market accounts for more than 30 percent of revenues, indicating broad regional coverage .
### Implications
* The focus on premium services attracts high-end and business passengers, supporting higher ticket prices .
* Investment in a large, modern fleet with significant orders ensures future capacity and competitiveness .
* The pegging of the Dirham to the U.S. dollar minimizes currency fluctuation risks .
* Rising fuel prices represent a significant cost factor, impacting overall profitability .
* Dnata's growth is driven by both organic expansion and strategic acquisitions like Travel Republic and Alpha Flight Group .
* International markets now generate more revenue for Dnata than domestic ones .
---
# United Parcel Service (UPS) financial performance and operations
### Core idea
* UPS's financial performance is segmented into U.S. Domestic Package, International Package, and Supply Chain and Freight .
* The company aims for global expansion, notably through acquisitions like TNT Express .
* Key strategic focus areas include global healthcare distribution and leveraging e-commerce growth .
### Key facts
* The TNT Express acquisition was UPS's largest ever, costing USD 6.58 billion .
* UPS operates major air hubs across North America, Europe, and Asia .
* In 2012, the U.S. Domestic Package segment generated USD 32.8 billion in revenue but saw an operating profit decrease of approximately 87.8 percent .
* The International Package segment's revenue decreased by 1.0 percent in 2012, with a significant 49.2 percent drop in operating profit .
* Europe accounts for about half of UPS's international revenue .
* Supply Chain and Freight accounted for about 17 percent of total revenue and 10 percent of operating profits in 2012 .
* UPS's overall volume grew 2.8 percent in 2012 .
* More than half of UPS’s profits come from its U.S. operations .
### Key concepts
* **Segments:** U.S. Domestic Package, International Package, and Supply Chain and Freight are UPS's reporting segments .
* **Global Healthcare Strategy:** UPS invests in its healthcare network to become the world's largest medical products transporter, driven by globalization and emerging market demand .
* **SurePost Alliance:** An alliance with USPS where UPS handles long-haul ground transport and USPS manages final home delivery for nonurgent, lightweight shipments .
* **Freight Forwarder Role:** UPS acts as a third-party logistics provider and "travel agent" for cargo, organizing shipments without necessarily owning the transport assets .
* **External Issues:** Changing consumer behavior towards valuing cost over speed, increasing global exports, and the growth of internet and catalog purchasing are key trends .
### Implications
* The TNT Express acquisition is expected to nearly double UPS's business in Europe .
* Asia represents a new frontier for UPS with the fastest growth opportunities .
* The shift from traditional retail to online retail impacts business-to-business (B2B) volume negatively .
* E-commerce growth benefits UPS as consumers shop and return items online .
* UPS faces aggressive competition from FedEx, which aims to be the global leader .
* UPS needs a clear strategic plan to continue global service extension .
---
# Amazon.com's competitive environment and direct/indirect competitors
### Core idea
* Amazon faces a complex and evolving competitive landscape from various direct and indirect rivals .
* Competitors range from traditional brick-and-mortar stores to pure e-commerce players and technology companies .
* Amazon's expansion into new product and service areas creates new competitive fronts .
* International competitors, particularly from China, are emerging as significant threats .
### Key facts
* Direct competitors include brick-and-mortar retailers, online e-commerce websites, book publishers, distributors, manufacturers, and producers .
* Major brick-and-mortar competitors mentioned are Best Buy, Wal-Mart, Target, Sears, and Office Depot .
* Hybrid retailers (with both physical and online presence) have gained market share from pure e-tailers .
* International competitors like 360buy.com and China Dangdang pose significant challenges in Asian markets .
* Indirect competitors include providers of e-commerce services, media companies, comparison shopping websites, and web search engines .
* Download service competitors include Apple Computer, Google.com, Netflix, and Blockbuster .
* In book sales, major competitors include Barnes & Noble, Borders, and Books-A-Million .
* Barnes & Noble is the largest brick-and-mortar bookseller with a significant college bookstore presence .
* Borders filed for Chapter 11 bankruptcy in February 2011, facing significant financial difficulties .
* Books-A-Million is the third-largest book retailing chain in the US and has remained profitable despite sales reductions .
* Amazon's Prime membership program is considered a highly effective loyalty program, challenging rivals like Wal-Mart and Target .
### Key concepts
* **Brick-and-mortar advantage:** Consumers' inherent trust in a physical presence is an advantage for hybrid retailers .
* **International competition:** Companies like 360buy.com are founded on Amazon's model, leveraging large internet user bases .
* **E-reader competition:** Amazon's Kindle competes with devices like Apple's iPad and Barnes & Noble's Nook .
* **Service expansion:** Amazon's entry into areas like cloud music services and web services creates new competitive dynamics .
* **Acquisition strategy:** Acquiring companies like Zappos and Quidsi allows Amazon to enter new customer categories and gain market share .
* **Digital book market:** Companies like Borders struggled to gain traction in the digital book market .
### Implications
* Amazon must continuously innovate and expand its offerings to stay ahead of diverse competitors .
* The success of hybrid retailers highlights the ongoing importance of trust and physical presence for some consumers .
* International markets present significant growth opportunities but also require navigating strong local competitors .
* Competitors face challenges in matching Amazon's Prime program due to its integrated product selection and distribution .
### Common pitfalls
---
# Amazon's operational structure and financial performance
### Core idea
* Amazon's operational structure is divided into North America and International geographic segments .
* Its product mix falls into media, electronics/other general merchandise, and other services .
### Key facts
* In 2010, North America accounted for 55% of total revenue, with international sales making up 45% .
* Electronics and other general merchandise sales increased significantly from 2009 to 2010 .
* Media sales declined overall from 2009 to 2010 .
* By 2010, media comprised 43% of net sales, electronics 54%, and other services 3% .
* Advertising and promotional costs increased from 593 million dollars in 2009 to 890 million dollars in 2010 .
* Amazon employed approximately 33,700 people by the end of December 2010 .
* Thirteen new distribution centers were opened in 2010, totaling 52 centers .
* Fulfillment capacity expanded from 12 million square feet in 2006 to 26.1 million square feet by the end of 2010 .
### Key concepts
* Amazon's marketing strategy focuses on increasing website traffic, repeat purchases, product awareness, and brand building through email, portal advertising, and sponsored searches .
* The Associates Program involves contracting with other websites for customer referrals, paying commissions for resulting sales .
* Customer service is a critical component, emphasizing employee contact for problem resolution despite the online nature .
* Continuous innovation aims to provide customer convenience through fast fulfillment, efficient service, user-friendly functionality, and a trusted online environment .
* Amazon Prime, a fee-based membership program, offers express two-day shipping for 79 dollars per year, fostering customer loyalty .
* Amazon utilizes proprietary technology and licenses external technology, focusing development on innovation in digital initiatives, seller platforms, and web services .
* Trust is critical to Amazon's success, built on secure transactions, reliable fulfillment, and price discounts .
* Smartphone technology is leveraged for price comparison shopping, with an iPhone app allowing users to scan barcodes .
### Implications
* Amazon's expansion into TV viewing could challenge existing internet and traditional media providers .
* Competitors face challenges matching Amazon's Prime program success due to its extensive product selection and distribution .
* The company's growth in sales is partly attributed to the success of Amazon Prime members increasing their purchases .
### Financial performance
* Net sales increased from 24.5 billion dollars in 2009 to 34.2 billion dollars in 2010 .
* Net income increased from 902 million dollars in 2009 to 1.15 billion dollars in 2010 .
* Total assets increased from 13.8 billion dollars in 2009 to 18.8 billion dollars in 2010 .
* Total operating expenses increased from 23.38 billion dollars in 2009 to 32.798 billion dollars in 2010 .
---
# Amazon's technological advancements and future developments
### Core idea
* Amazon excels in website design, testing, and optimization, using technology to personalize customer experiences .
* The company's strategy focuses on innovation through developing proprietary software and acquiring external technology .
### Key facts
* Amazon invests in digital initiatives, seller platforms, and web services for essential operations like fulfillment and customer service .
* Trust is critical to Amazon's success, built on secure transactions, reliable fulfillment, and price discounts .
* New customer service developments include an iPhone app for price comparison and a subscription service for TV viewing .
* The iPhone app allows users to scan barcodes in retail stores and check for lower Amazon prices .
* Amazon is developing a subscription service for TV viewing, potentially competing with Netflix and Hulu .
* The company is building data centers for its Amazon Web Services (AWS) business .
* Amazon spent $579 million on technology and content in Q1 2011, up from $366 million the prior year .
* Amazon aggressively expands its cloud computing business .
### Key concepts
* Amazon utilizes proprietary technology and licenses technology from other companies .
* Continuous innovation is a management focus to enhance customer convenience, including fast fulfillment and efficient service .
* The company works to improve the shopping experience through intuitive and simple website navigation .
* Amazon aims to connect buyers with peer information on specific products .
* Smartphone technology is expected to grow as a tool for comparison shopping .
* Amazon's future development requires keeping up with technology advancements and considering acquisitions or partnerships for new technologies .
### Implications
* Amazon's expansion into TV viewing could challenge existing internet and traditional media providers .
* The company must balance focusing on product sales, consumer services, and various partnerships .
* Amazon needs strategies to maintain competitiveness across its diverse business areas .
* Acquiring companies with proprietary technology is an option for gaining necessary emerging technologies .
* Partnerships through contracts are another means of acquiring necessary emerging technologies .
---
# Amazon's role as a competitor and service provider to Netflix
### Core idea
* Amazon poses a dual threat to Netflix as both a direct competitor and a crucial service provider .
* Netflix is most concerned about Amazon due to its significant resources and established online presence .
### Key facts
* Amazon is a provider of Video on Demand (VOD) services, competing directly with Netflix's streaming model .
* Amazon offers Amazon Instant Video (VOD) with over 6,400 TV shows and 37,000 movies for streaming or download .
* Amazon's VOD prices start as low as 99 cents per title .
* Amazon Prime customers receive unlimited free video streaming for an annual fee of 79 dollars .
* Netflix relies on Amazon for the majority of its computing, data processing, and storage needs (cloud computing services) .
* Netflix states it cannot easily switch to another cloud provider, highlighting dependence .
* Amazon's media segment (books, music, videos) accounts for 52 percent of its sales .
* Amazon's overall sales for 2010 were 34 billion dollars, with 33,700 full-time employees .
* Amazon's media segment sales grew by 17 percent year-over-year in 2010 .
### Key concepts
* Amazon's diversified business model provides it with greater financial resources to invest in media services .
* Amazon's established brand recognition and large customer base give it a significant advantage in the competitive landscape .
* If Amazon aggressively lowers VOD prices, Netflix may struggle to compete due to Amazon's deeper financial pockets .
* Amazon's role as a cloud service provider to Netflix creates a complex, interdependent relationship .
* Amazon's "one-stop destination" format and expanded media offerings contribute to its forecasted growth .
### Implications
* Netflix's reliance on Amazon for cloud services presents a strategic vulnerability and potential conflict of interest .
* Amazon's potential to aggressively expand its VOD service could significantly disrupt Netflix's market position .
* The competition from Amazon intensifies the "content is king" battle in the streaming market .
* Netflix may face challenges if Amazon decides to leverage its financial strength to gain a larger share of the VOD market .
* Amazon's strategy of offering unlimited streaming to Prime members at a competitive price poses a direct challenge to Netflix's subscription model .
---
# Technological advancements and their impact on the entertainment industry
### Core idea
* Technological advancements rapidly transform the entertainment industry, blurring lines between media channels and creating new delivery models .
* Streaming technology and internet delivery are central to this transformation, shifting consumer demand towards on-demand, instant-gratification video content .
### Key facts
* Netflix began streaming content over the internet in 2007, becoming a major player in the digital entertainment landscape .
* Content is delivered seamlessly across web, cable, and television via streaming, impacting traditional distribution models .
* "Netflix ready devices" include PCs, Macs, Internet-connected TVs, game consoles, and mobile devices like iPhones and iPads .
* Netflix utilizes proprietary recommendation software, processing over 3 billion subscriber ratings to customize user experiences .
* Amazon offers a broad range of content, including video-on-demand (VOD) services, with over 6,400 TV shows and 37,000 movies available for streaming or download .
* Hulu and YouTube are key players in the ad-supported online video segment .
* RedBox, a DVD kiosk business, is rumored to enter the online streaming business .
* Amazon provides cloud computing services, including software, data processing, and storage, to Netflix .
### Key concepts
* **On-demand streaming:** Consumers expect instant access to video content, driving the shift from traditional media consumption .
* **Cross-platform content delivery:** Technology allows content to be accessed across various devices and platforms, eroding media distinctions .
* **Proprietary technology:** Companies like Netflix leverage custom software for recommendations, operations, and user interfaces to gain a competitive edge (#page=448, 450) .
* **Content licensing and acquisition:** Agreements with content manufacturers are crucial for streaming services, with "Content is King" driving strategic moves .
* **Bundling services:** Netflix offers combined streaming and DVD-by-mail plans to create a compelling value proposition and competitive advantage .
* **Network effects:** As a streaming service grows its subscriber base, content manufacturers may increasingly rely on it as a primary distributor, similar to Apple in music .
* **Digital convergence:** The lines between web, cable, and television are rapidly blurring due to technological advancements in content delivery .
### Implications
* Traditional cable and satellite TV providers face pressure as internet-connected TVs and streaming capabilities offer alternatives .
* Low barriers to entry in the online streaming business allow for quick start-ups, increasing competition .
* Advancements in technology and new streaming capabilities are dramatically changing the home video rental market .
* The dependence on cloud providers like Amazon presents a strategic risk due to reliance on a potential competitor .
* Changes in copyright laws and distribution models can adversely affect companies like Netflix .
---
# Netflix's business model and competitive landscape
### Core idea
* Netflix operates as a subscription-based streaming service with a hybrid model offering both streaming and DVD-by-mail .
* Its strategy is to build a large subscriber base by combining streaming and DVDs for a compelling value proposition .
* The company aims to leverage its brand, distribution, and proprietary merchandising platform as competitive advantages .
* Netflix's primary focus is on commercial-free streaming of TV shows and movies .
### Key facts
* Founded in 1997, Netflix became the world's largest Internet subscription service for streaming movies and TV episodes by 2007 .
* As of December 2010, Netflix had over 20 million members and offered over 100,000 DVD titles for rental by mail .
* Streaming content is available on over 200 "Netflix ready devices" including PCs, Macs, smart TVs, game consoles, and mobile devices .
* Pricing plans as of December 2010 varied based on the number of DVDs out, starting at USD 7.99 for unlimited streaming without DVDs .
* In 2010, Netflix's revenues were USD 2.4 billion with 2,180 full-time and 2,197 part-time employees .
* Netflix expanded internationally by offering an unlimited streaming plan without DVDs in Canada in September 2010 .
* Marketing expenses in 2010 were $293.8 million, a 23.6% increase from 2009, with subscriber acquisition cost decreasing to $18.03 .
### Key concepts
* **Content acquisition:** Netflix aggressively pursues new content deals, including a USD 1 billion five-year agreement with Epix .
* **Proprietary technology:** Netflix uses proprietary software for its recommendation engine, merchandising platform, and user interface to customize subscriber experience and maximize content utilization .
* **Superior service:** Focus on convenience, quick access, customization, and fast, reliable delivery enhances customer satisfaction and loyalty .
* **Hybrid model:** Combining streaming and DVD rentals offers a broader selection and competitive advantage, though the company expects streaming to eventually surpass DVDs .
* **Global expansion risks:** Internationalization involves significant resources, management attention, and exposure to regulatory, economic, political, and cultural risks .
### Implications
* Consumer demand for on-demand, instant-gratification video is reshaping the media industry .
* Netflix's growing subscriber base may compel content manufacturers to seek it as a primary distributor .
* Aggressive content deals, like with HBO, restrict competitor access, highlighting the "Content is King" principle .
* A shift to VOD could pose a significant threat to Netflix if competitors like Amazon aggressively compete on price .
* Low industry barriers to entry mean innovation and new technologies pose ongoing threats .
### Competitors
* **VOD Segment:** Amazon, Apple, Microsoft .
* **Ad-Supported Segment:** Hulu, YouTube .
* **Subscription Segment:** Netflix is the primary player, facing increasing competition .
- **Other Competitors:** DVD rental outlets (RedBox, Blockbuster), cable providers (Time Warner, Comcast), satellite providers (DIRECTV), telcos (AT&T, Verizon), online DVD rental sites, retailers (Best Buy, Wal-Mart), and internet providers (Amazon,
---
# Netflix's content acquisition and distribution strategies
### Core idea
* Netflix's core strategy is to grow a subscription business combining streaming and DVD-by-mail for a compelling content selection at a low monthly price .
* The company's competitive advantage lies in this combined offering, but it is expected to diminish as more content becomes internet-available .
* While internet delivery is growing, standard and high-definition DVDs are expected to remain primary viewing means for the foreseeable future .
### Key facts
* Netflix pursued new content deals, including a one billion dollars, five-year agreement with Epix in August 2010 .
* A deal with Starz provided access to over 2,500 movies and shows from Disney, Sony Pictures, and others .
* Netflix is pursuing streaming rights to current-season TV shows for prices of 100,000 dollars or more per episode .
* The company expanded internationally to Canada in September 2010 with an unlimited streaming plan .
* Netflix acquired content through direct purchases, revenue sharing, and license agreements with studios and distributors .
* DVDs are purchased in volume discounts or at rebates, while revenue sharing involves a low initial cost for a percentage of subscriber revenues .
### Key concepts
* "Content is King" is the driving force behind Netflix and competitor strategic moves, requiring deep cash pockets for new streaming content .
* Netflix acquires content through direct purchases, revenue sharing agreements, and license agreements .
* Revenue sharing agreements involve low initial costs in exchange for a percentage of subscriber revenues or a fee for a set period .
* Netflix's supply chain relies on channel providers for content delivery and is subject to contract non-renewal or renegotiation .
* Current licensing agreements typically require Netflix to wait 28 days after retail sale date for new DVD releases .
* Major studios have begun to shorten release times, simultaneously releasing movies on DVD and VOD, potentially reducing Netflix's demand .
* Netflix has contractual agreements with electronics partners to offer streaming content on Netflix-ready devices .
* Increases in postage rates for DVD delivery via the U.S. Postal Service can reduce profit margins and potentially increase subscription fees .
### Implications
* Rival firms, like HBO, have secured content deals with major studios, restricting Netflix's access for extended periods .
* The expiration of Netflix's deals with Disney and Sony in 2011 creates uncertainty about future content access .
* International expansion requires significant resources and exposes Netflix to regulatory, economic, and political risks, including cultural adaptation and currency fluctuations .
* If Netflix cannot acquire preferred content or sufficient DVD titles, subscriber satisfaction and operations will be negatively affected .
* If the cost to fulfill demand for new titles isn't covered by increased subscriber profits, Netflix's service value may diminish .
* Content owners negotiating exclusive deals with a limited number of outlets could diminish Netflix's value proposition if competitors gain exclusive access .
* Breaches in data security require significant resources and insurance, and interruptions in service can impact DVD shipping and movie streaming .
* Increased regulation of data utilization practices could affect Netflix's ability to use its proprietary merchandising technology .
---
# External issues affecting the apparel retail industry
### Demographic and economic trends
* Trends in the USD 14 trillion apparel retail industry are driven by consumer preferences of various demographic groups .
* Baby boomers, while still significant consumers, are shifting spending towards education, retirement, elder care, health, and leisure .
* The teen market (ages 15-19) is a powerful purchasing group, but retailers struggle to retain them into young adulthood .
* Generation Y/Millennials (approx. 71 million teens in the U.S.) are a maturing market attracting retailer attention .
* Consumers aged 20-34 accounted for 24 percent of apparel spending in early 2009, up from 23 percent the prior year .
* The U.S. faces high unemployment rates and low home prices, leading to job insecurity .
* Unemployment averaged 9.7 percent in 2010, with limited expected decline in coming years .
* Consumer Confidence Index was low at 54.1 in late 2010, but showed steady growth .
* Standard & Poor's projected 2.6 percent inflation-adjusted economic growth for 2011 .
* Disposable personal income increased by 3.2 percent in 2010 .
* Rising energy prices impact transportation costs and natural gas prices, affecting plastic packaging costs .
* Green, natural, and organic products are maintaining their position in the apparel market .
* "Natural" and "organic" products are regulated by the USDA's National Organic Program (NOP) .
### Global trends
* The U.S. had a consumer goods trade deficit of approximately 62.1 billion dollars in March 2011 .
* China and Vietnam have export growth rates exceeding 20 percent, with strong trade surpluses .
* Trade restrictions (tariffs, quotas, embargoes, safeguards, customs restrictions) can increase costs or reduce apparel supply .
* Labor strikes, work stoppages, or boycotts in the U.S. or foreign countries can adversely affect business .
* The value of the U.S. dollar was volatile relative to other international currencies in 2010, impacting companies with international revenue .
* Low labor costs are insufficient for success; companies need product differentiation and global branding .
* Companies must balance economies of scale for lower production costs with creating exclusivity by producing less .
* Rising cotton costs impact pricing, especially for value-focused retailers like Old Navy .
### Pricing
* Acquisitions are a primary growth path in mature industries like apparel .
* Consumers often wait for price reductions, leading vendors to lower introductory prices and use larger end-of-season markdowns .
* Increasing numbers of discounters and outlet stores contribute to price declines .
* Consumers now purchase as the need arises, rather than in advance of seasons .
### Distribution
---
### Gap Inc. sales performance analysis .
* Gap reported an 8 percent increase in same-store sales for the four-week period ending April 30, 2011 .
* This performance improved upon the prior year's period, which saw a 2 percent decline in same-store sales .
* All operating regions showed improved same-store sales .
* Old Navy North America experienced 14 percent same-store sales growth, and Banana Republic North America saw 11 percent growth .
* Gap's North America region posted a 2 percent growth, a significant improvement from a 6 percent decline the previous year .
* International regions reported a negative 1 percent growth, an improvement from negative 5 percent the prior year .
* Net sales for the four-week period ended April 30, 2011, increased by 9.5 percent to 1.15 billion dollars .
* For the first quarter of 2011, Gap experienced a 3 percent decline in same-store sales, contrasting with a 5 percent increase in the prior year's quarter .
* During the first quarter of 2011, all regions reported negative same-store sales growth .
* North America, Banana Republic North America, Old Navy North America, and International regions reported same-store sales declines of 3 percent, 1 percent, 2 percent, and 6 percent, respectively .
* Overall sales for the first quarter of 2011 decreased by 1 percent to 3.30 billion dollars, down from 3.33 billion dollars in the prior-year quarter .
* Gap's financial statements for 2009-2011 are presented in Exhibit 4 (Income Statement) and Exhibit 5 (Balance Sheet) .
* Exhibit 4 shows net sales fluctuating between 14.197 billion dollars in 2010 and 14.664 billion dollars in 2011 .
* Gross profit increased from 5.447 billion dollars in 2009 to 5.889 billion dollars in 2011 .
* Operating income showed a steady increase from 1.548 billion dollars in 2009 to 1.968 billion dollars in 2011 .
* Net earnings (loss) per share - basic were 1.89 dollars in 2011, compared to 1.59 dollars in 2010 and 1.35 dollars in 2009 .
* Exhibit 5 details Gap's assets, with total current assets decreasing from 4.664 billion dollars in 2010 to 3.926 billion dollars in 2011 .
* Merchandise inventory was 1.620 billion dollars in 2011 .
* Total assets decreased from 7.985 billion dollars in 2010 to 7.065 billion dollars in 2011 .
* Total liabilities also decreased from 3.094 billion dollars in 2010 to 2.985 billion dollars in 2011 .
* Total stockholders' equity saw a significant decrease from 4.891 billion dollars in 2010 to 4.080 billion dollars in 2011 .
* Accounts payable were 1.049 billion dollars in 2011 .
* Unredeemed gift cards, gift certificates, and credit vouchers amounted to 233 million dollars net of breakage in 2011 .
---
# Walt Disney Company's business segments and financial performance
### Core idea
* Walt Disney Company operates as a diversified media and entertainment conglomerate with five strategic business units (SBUs) .
* The company's vision is to "make people happy" .
* Disney's organizational structure is based on strategic business units (SBUs) .
### Key facts
* In Q3 of 2013, Disney earned S1.85 billion on revenue of USD 11.6 billion .
* Media Networks was the largest SBU in 2012, accounting for 45 percent of total revenues .
* Parks and Resorts revenue increased 10 percent to S12.9 billion in 2012 .
* Studio Entertainment revenues decreased 8 percent to S5.8 billion in 2012 .
* Consumer Products revenues increased 7 percent to S3.25 billion in 2012 .
* Interactive Media revenues decreased 14 percent to S845 million in 2012, incurring a loss .
* Total consolidated revenues increased 3 percent to S42.278 billion in 2012 .
* Total segment operating income increased 13 percent to S9.964 billion in 2012 .
* Disney has S25 billion in goodwill, representing one-third of total assets .
* Long-term debt remained stable at approximately S10 billion .
### Key concepts
- **Media Networks:** Includes ABC, ESPN, Disney Channel, and other cable networks; revenue growth driven by affiliate fees, advertising rates, and viewership, but limited by lower home entertainment revenue and increased
* **Parks and Resorts:** Comprises theme parks, cruise lines, hotels, and vacation clubs; revenue generated from ticket sales, hotel charges, merchandise, food, beverages, and vacation packages .
* **Studio Entertainment:** Encompasses live-action and animated films, music, and stage plays, distributed across theatrical, home, and television markets .
* **Consumer Products:** Licenses characters and brands for merchandise, publications, books, and magazines through partnerships with retailers and manufacturers .
* **Interactive Media:** Focuses on creating and delivering games and media for mobile devices and tablets, with games and subscription revenue increasing but the segment operating at a loss .
### Implications
* The Media Networks segment, particularly ESPN, is a significant driver of revenue and operating income .
* Increases in attendance and per capita guest spending are crucial for the Parks and Resorts segment's financial performance .
* The Studio Entertainment segment can be volatile due to film release success and box-office performance .
* Consumer Products offers consistent revenue growth through licensing and retail partnerships .
* The Interactive Media segment is a significant area of investment, currently operating at a loss but with potential for future growth .
* High levels of goodwill on the balance sheet can indicate potential risks if acquired assets lose value .
---
# Walt Disney Company's financial overview and strategic considerations
### Core idea
* Disney's 2012 financial statements show a 17.4 percent increase in net income .
* The company faces significant competition from media conglomerates and entertainment businesses globally .
* Strategic considerations include integrating Lucasfilm and developing the Shanghai theme park .
### Key facts
* Total revenues for Disney were 42,278 million dollars in 2012 .
* Net income was 5,682 million dollars in 2012 .
* Earnings per share (EPS) was 3.13 dollars in 2012 .
* Total assets were 74,898 million dollars in 2012 .
* Goodwill represented a significant portion of total assets, approximately 25,110 million dollars in 2012 .
* Long-term borrowings were approximately 10,697 million dollars in 2012 .
* Disney acquired Lucasfilm in October 2012 for 4.05 billion dollars .
### Key concepts
* Goodwill on the balance sheet is viewed critically, especially when it constitutes a large portion of total assets .
* Competition extends beyond direct media rivals to include all family entertainment businesses .
* The acquisition of Lucasfilm brings substantial entertainment technologies and franchise management opportunities .
* The interactive media segment has consistently not turned a profit .
* Strategic decisions are required to bolster profitable segments and improve underperforming ones .
### Implications
* The large amount of goodwill may indicate potential future impairment charges .
* Competition, especially the new state-run theme park in Shanghai, poses a significant future challenge .
* The integration of Lucasfilm requires strategic planning to maximize its value and manage associated goodwill .
* The online world presents both opportunities and threats that necessitate careful strategic decision-making .
* Focusing on improving the profitability of underperforming segments is crucial for sustained growth .
---
# Staples' operational structure, distribution, and inventory management
### Core idea
* Staples utilizes a hub-and-spoke distribution network to efficiently ship to stores, minimizing store-level inventory .
* Inventory management is critical due to store sizes averaging 20,000 sq. ft. and stocking over 7,000 products .
* Technology investments in customer databases help identify purchase trends for better inventory targeting .
* The company is adapting to trends of decreasing store and product counts by focusing on high-volume purchasers and targeted merchandise .
### Key facts
* Staples operates over 2,200 stores globally, with 1,900 in North America .
* The company maintains 125 distribution centers worldwide .
* North American Delivery is the largest and most consistent business segment .
* Staples China operates a multichannel platform with stores, express stores, and furniture stores .
* Corporate Express NV, acquired in 2008, significantly expanded European business offerings .
* Staples.com offers over 30,000 products, with orders often shipped to local stores for free pickup .
* Staples offers free delivery on purchases exceeding fifty dollars .
* The company purchased a fleet of electric trucks for delivery, aiming for fuel cost reduction .
* Staples developed over 2,000 store-branded products offering higher margins and control .
### Key concepts
* **Hub-and-spoke distribution:** Centralized centers (hubs) ship to retail locations (spokes), enabling quick and efficient store replenishment .
* **Customer database technology:** Used to track purchase trends by customer, type, and region to optimize inventory .
* **Shift to corporate/high-volume purchasers:** Maximizes store throughput and inventory efficiency by targeting specific customer segments .
* **Product mix evolution:** Expanding into digital devices (e.g., NOOK) and increasing own-brand products .
* **Synergy:** Leveraging operations and cross-selling opportunities across domestic and international units, particularly with Corporate Express .
* **Efficiency and cost minimization:** A historical focus driving lower prices and operational strategies .
### Implications
* Minimizing physical inventory accumulation at stores necessitates efficient online ordering and fulfillment .
* The success of new product ventures like the NOOK is not assured due to market competition .
* Developing store-branded products offers advantages in margins, supply control, design, and manufacturing .
* Electric trucks offer fuel cost savings but have higher upfront costs and lengthy investment payback times .
* The company faces internal control challenges, as indicated by lawsuits and embezzlement convictions, requiring robust safeguards .
* Integrating acquired operations and ensuring brand consistency across international channels remains a challenge .
---
# Staples' business segments and operational strategies
### Core idea
* Staples operates primarily through three main business segments: North American Delivery, North American Retail, and International Operations .
* The company's core operational strategies focus on efficiency, cost minimization, and leveraging technology for inventory management and customer insights .
### Key facts
* North American Delivery sales were USD 9,849.2 million in 2010, representing 2.2% growth .
* North American Retail sales were USD 9,529.8 million in 2010, with 1.8% growth .
* International Operations sales were USD 5,166.1 million in 2010, showing a 2.0% decrease .
* Staples.com offers over 30,000 products, with orders often shipped to local stores for free customer pickup .
* The company purchased a fleet of electric trucks in late 2010 to reduce fuel costs .
* Staples offers over 2,000 store-branded products to achieve higher margins and control .
### Key concepts
* **Hub-and-spoke distribution network:** Enables quick and efficient shipping to stores, minimizing store inventory .
* **Customer database:** Used to identify purchase trends by customer, type, and region, informing inventory and marketing .
* **Product mix evolution:** Shift towards digital devices (e.g., Barnes & Noble NOOK) and store-branded products .
* **Online sales integration:** Staples.com facilitates order processing and customer pickup or direct delivery .
* **Efficiency and cost minimization:** A historical primary focus driving lower customer prices .
* **Brand building:** Utilizes catchphrases ("That was easy."), the "Easy Button," product placement, and sponsorships (Staples Center) .
### Implications
* The shift toward smaller store sizes and product counts necessitates precise inventory management to avoid overstocking .
* Expanding into new product categories like e-readers involves competitive risks and may not guarantee exclusivity or success .
* Store-branded products offer higher margins and greater control, impacting sourcing and manufacturing strategies .
* The company faces challenges in integrating acquired international operations and delivering a consistent global brand message .
* Staples' focus on efficiency has led to legal challenges regarding employee classification and internal controls .
- > **Tip:** Staples' strategic shift towards corporate and high-volume purchasers aims to maximize store-level throughput with targeted merchandise
---
# External factors and trends impacting the office supply industry
### Core idea
* The office supply industry faces significant external challenges from macroeconomic shifts, technological advancements, and evolving consumer behavior .
* Companies must adapt to intense price competition and increasing market share grabs by non-traditional competitors and online retailers .
* Environmental sustainability is a persistent and growing trend influencing product demand and supply chain practices .
### Key facts
* U.S. stock market experienced a significant drop and credit rating downgrade in August 2011 .
* U.S. GDP growth slowed in early 2011, with forecasts for unemployment remaining high .
* Federal stimulus depletion is leading to state-level spending cuts, impacting disposable income .
* Rising global oil and commodity prices are pressuring consumer and business budgets .
* Traditional paper archival systems still account for 60 percent of document storage .
* The U.S. office supply industry revenue was projected to reach almost 88 billion dollars by 2013 .
* The five-year average growth rate for the industry was forecast at less than 1 percent .
* The previous five-year compound growth rate (2004-2008) was 3 percent .
* Companies are increasing international expansion and broadening product/service offerings .
### Key concepts
* **"Paperless office" is a gradual reality:** While not fully pervasive, technological innovations reduce consumption of traditional office products .
* **Digitalization of record-keeping and document delivery:** These trends negatively impact traditional office supply sales .
* **Impact of mobile technologies:** Devices like NOOK, Kindle, iPad, and iPhone are detrimental to the office supply business .
* **Environmental sustainability initiatives:** Competitors are adopting "green" practices in waste reduction and supply chain functions .
* **Shift in demand patterns:** Sustainability efforts will inevitably alter demand for office supply products .
* **Inventory management and distribution are critical:** Companies aim to move mass quantities quickly, investing in centralized warehousing and fulfillment .
* **Decreasing store sizes and distribution flexibility:** This trend accelerates as competitors optimize their logistics .
* **Intense price competition:** The big three firms and secondary retailers like Wal-Mart, Kmart, and Target compete fiercely .
### Implications
* Consumer and business spending is likely to remain restrained and price-sensitive .
* Companies must invest in international expansion and diversification of offerings to offset slowing domestic growth .
* Strategic planning and operational efficiencies are paramount for survival amidst intense competition .
* Diversification away from traditional office products may be necessary for long-term viability .
* Focus on emerging economies and global expansion is a strategy for growth .
---
# Office supply industry landscape and competitive analysis
### Core idea
* The US office supply industry revenue exceeds USD 80 billion annually, with slow growth forecast .
* Companies are expanding internationally and broadening product/service offerings due to slow domestic growth .
* Intense price competition exists among major players and secondary retailers like Walmart .
* The industry faces challenges from the shift to paperless transactions and online competitors .
### Key facts
* Industry revenue was over $80 billion annually, forecast to reach nearly $88 billion by 2013 .
* Five-year average growth rate was less than 1 percent, a decline from the prior 3 percent growth .
* Staples' revenue was $24.55 billion, Office Depot's $11.63 billion, and OfficeMax's USD 7.15 billion in 2011 .
* Staples had 2281 stores, Office Depot 1602, and OfficeMax 1050 .
* Staples operated 125 distribution centers, Office Depot 39, and OfficeMax 44 .
* Office Depot reported a net loss of $81.74 million, while Staples had $881.95 million net income .
* OfficeMax's annual revenues declined from $8.267 billion in 2008 to $7.150 billion in 2010 .
### Key concepts
* Inventory management and distribution are critical for success due to the need for quick mass merchandise movement .
* Companies invest in warehousing and fulfillment centers for centralized inventory management and tailored regional stocking .
* Competitors have decreased store sizes, prioritizing distribution flexibility .
* The "big three" (Staples, Office Depot, OfficeMax) have similar business models, making strategic planning and operational efficiencies crucial for survival .
* Diversification away from traditional office products and focus on emerging economies are potential future strategies .
### Implications
* Slowing industry growth necessitates international expansion and broader product/service offerings .
* The shift to paperless transactions challenges the historical business models of major players .
* Online competitors are actively gaining market share from established office supply firms .
* Strategic alliances, like Staples' with Buro Schoch Direct, can enhance global reach and service capabilities .
* Companies must adapt to changing consumer and business needs, possibly by offering new product categories like e-readers .
- > **Tip:** Understand that industry-wide struggles can be masked by individual company successes; focus on overall trends and competitive positioning
- > **Tip:** Consider how environmental initiatives ("green" practices) and social responsibility are becoming important factors in retail, as seen with Office Depot
---
# Office Depot's business overview and financial performance
### Core idea
* Office Depot is a provider of office products and services operating in North America, Europe, Asia, and Latin America .
* The company faces intense competition from rivals like Staples and OfficeMax, as well as general retailers and online competitors .
* Office Depot has experienced declining revenues and profitability in recent years, indicating a challenging financial situation .
### Key facts
* Founded in 1986, Office Depot had grown to 570 stores and USD 6 billion in sales by its 10th anniversary .
* The company operates three main divisions: North American Retail, North American Business Solutions (BSD), and International .
* North American Retail includes 1,147 stores selling office supplies, computer accessories, and furniture, also offering services like printing and PC support .
* North American BSD serves small to medium-sized customers via sales force, catalogs, and the Internet .
* The International division operates in 53 countries using various models including company-owned stores, joint ventures, and franchises .
* In 2010, Office Depot lost less money than in prior years but continued to lose money in quarters of 2011 .
* Total revenue for the period ending December 26, 2010, was USD 11.63 billion .
* Office Depot reported a net loss applicable to common shares of USD 81.74 million in 2010 .
* Total assets in 2010 were $4.57 billion, with total liabilities at $3.52 billion .
### Key concepts
* **Corporate Social Responsibility:** Office Depot emphasizes "green" initiatives, partnerships for sustainability, and support for women's business enterprises and multicultural opportunities .
* **Vision, Values, Ethics:** The company outlines a vision, values focused on integrity, innovation, inclusion, customer focus, and accountability, and a simple code of ethics emphasizing honesty .
* **Business Segments:** The division structure (Retail, BSD, International) aims to cater to different customer bases and geographic markets .
* **Financial Performance Trends:** Declining sales and operating profits across divisions in 2010 and 2009 highlight revenue challenges .
* **Competitive Landscape:** Office Depot competes directly with Staples and OfficeMax, facing price wars and market share battles .
* **E-commerce and Global Presence:** Office Depot utilizes websites in over 40 countries and offers services through these platforms .
### Implications
* The company's unprofitability and declining revenues suggest a need for significant strategic changes to ensure long-term survival .
* Intense price competition and market share challenges from large retailers and online businesses require innovative strategies .
* Office Depot's extensive "green" initiatives and corporate social responsibility efforts are a key part of its brand identity .
* Future success may depend on diversification, aggressive online strategies, or focusing on emerging markets .
* Partnerships, such as the one with the U.S. Postal Service, offer opportunities to expand service offerings and customer reach .
### Common pitfalls
* **Operating in an unprofitable industry:** The office supply industry itself is facing significant headwinds .
* **Intense price competition:** Constant pressure on pricing limits profitability and requires efficient operations .
---
# Domino's financial performance and balance sheet
### Core idea
* Domino's Pizza, Inc. is a large pizza delivery company with significant global presence and revenue streams from various segments .
* Financial performance shows revenue growth, with international stores and domestic supply chain being key contributors, while managing long-term debt .
* The balance sheet indicates a substantial total asset value and corresponding liabilities, with a notable stockholders' deficit .
### Key facts
* Domino's had sales exceeding S7.4 billion in 2012, with S3.6 billion from the USA .
* Total revenues for Domino's in 2012 were USD 1,678 million, a 1.6 percent increase from 2011 .
* The domestic supply chain segment generated the highest revenue in 2012, exceeding USD 942 million .
* International stores showed the highest revenue growth in 2012 at 8.0 percent .
* For 2012, net income was $112.392 million, and diluted earnings per share were $1.91 .
* Total assets in 2012 were $478,197 thousand, with total liabilities of $1,813,720 thousand .
* Long-term debt rose slightly to USD 1.53 billion in 2012 .
* Domino's reported zero goodwill on its balance sheet in 2013 .
* Approximately 96 percent of Domino's stores are franchisee-owned .
* Domino's requires all stores to use the PULSE Point-of-Sale system, with 98 percent of franchisee stores compliant .
### Key concepts
* **Business Segments:** Domino's financial reporting is divided into four key segments: domestic company-owned stores, domestic franchise stores, domestic supply chain, and international .
* **Backward Integration:** The domestic supply chain strategy provides control over ingredients and supplies, enabling lower prices and operational focus for store managers .
* **Franchisee Model Dominance:** The vast majority of Domino's stores globally are franchisee-owned, with company-owned stores often used for testing and turnaround efforts .
* **Royalty and Fee Revenue:** For domestic franchise and international stores, Domino's primary revenue comes from royalties and advertising fees, not direct store sales .
* **Balance Sheet Structure:** Assets include current assets, property, plant, and equipment, and other assets. Liabilities include current and long-term liabilities, followed by stockholders' deficit .
* **Stockholders' Deficit:** Domino's exhibits a stockholders' deficit, primarily due to a large retained deficit .
### Implications
* The strong reliance on franchisees requires effective incentive systems and oversight to maintain brand consistency and revenue flow .
* The backward integration through the supply chain offers a competitive advantage in cost control and product consistency .
* The significant long-term debt indicates leverage, which could impact financial flexibility .
* The increasing international revenue share highlights global expansion as a key growth driver .
* The PULSE system is critical for operational efficiency, accuracy, and royalty collection in a predominantly cash-based business .
---
# Royal Caribbean Cruises Ltd. brands, financials, and market position
### Core idea
* Royal Caribbean Cruises Ltd. (RCC) is the second-largest cruise line globally, operating a fleet of 40 ships under five distinct brands .
* RCC aims to deliver the best vacation experience for guests, generating superior returns for shareholders .
* The company focuses on delivering service with a friendly greeting, anticipating needs, and exceeding expectations .
### Key facts
* RCC operates under Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Club Cruises, and CDF Croisieres de France, with a 50 percent stake in TUI Cruises .
* Fiscal 2011 second quarter saw a 74 percent rise in net income to 93.5 million dollars and 10.4 percent revenue growth year-over-year .
* Total RCC revenue in Q2 2011 was 1,767.9 million dollars; total assets were 19.9 billion dollars .
* For full-year 2011, RCC projected earnings per share (EPS) between 2.85 and 2.95 dollars .
* 55 percent of passenger ticket revenues originate in the United States, and 45 percent from all other countries .
* The global cruise industry carried approximately 18.7 million passengers in 2010 and was estimated at 29.34 billion dollars for 2011 .
### Key brands and segments
* **Royal Caribbean International (RCL):** 22 ships, 62,000 berths; targets adults/families with value pricing and amenities like rock-climbing walls; has a loyalty program, Crown and Anchor Society .
* **Celebrity Cruises:** 10 ships, 20,500 berths; premium destination line operating unique ships like Solstice-class; offers personalized service, high-end dining, and luxury accommodations; loyalty program is Captain's Club .
- **Azamara Club Cruises (ACC):** Launched in 2007; 2 ships, 1,400 berths; targets affluent travelers with luxury amenities included (wine, gratuities); caters to North America, UK, Germany, Australia; loyalty program is
* **Pullmantur:** Madrid-based, 5 ships, 7,650 berths; targets Spanish, Portuguese, and Latin American customers; offers Mediterranean, Caribbean, Baltic, and Atlantic cruises; has a 49 percent interest in Pullmantur Air .
* **CDF Croisieres de France (CDF):** Based in France, targets French contemporary customers; currently leasing the Bleu de France (750 berths), will receive L'Horizon (over 900 berths) from Pullmantur .
* **TUI Cruises:** Joint venture with TUI AG; 2 ships with approximately 900 berths each; caters to German-speaking passengers with German as the primary onboard language .
### Market position and industry context
* RCC holds the second-largest market share in the cruise industry, though Carnival holds significantly more .
* The North American cruise market growth has slowed (0.9 percent 2006-2010), while Europe shows significant growth (12.4 percent) .
* "Short" cruises and appeal to specific age groups, along with "mega ships" and low prices, have boosted the industry's popularity .
* Asia is speculated as a future market but shows little growth currently, with Europe being the primary focus for expansion .
* Only 45 percent of the U.S. population has cruised; typical cruisers are 45+ years old with higher incomes and college degrees .
* Travel agencies still generate the majority of Royal Caribbean's bookings, supported by agent training and incentives .
* Social media (Facebook, Twitter) is increasingly important for marketing, though Carnival has a larger social media presence than RCC .
### Financial insights
* RCC's net income rose to 93.5 million dollars in Q2 2011, with double-digit year-over-year revenue growth for five consecutive quarters .
* Total revenues for 2010 were 6,752,504 thousand dollars, with total cruise operating expenses of 4,458,076 thousand dollars .
* Net income for 2010 was 547,467 thousand dollars, with basic EPS of 2.55 dollars and diluted EPS of 2.51 dollars .
---
# The global cruise industry landscape and customer demographics
### Core idea
* The global cruise industry is a multi-billion-dollar sector catering to diverse customer segments, from families to affluent travelers .
* While North America remains the largest market, Europe presents the most significant growth opportunity due to increasing passenger numbers and investment .
* Short cruises and family-friendly "mega ships" have boosted popularity, alongside luxury options for high-end travelers .
### Key facts
* The global cruise industry carried approximately 18.7 million passengers in 2010 and is estimated to be worth 29.34 billion dollars in 2011 .
* North American market growth slowed to 0.9 percent between 2006-2010 .
* Europe experienced substantial growth of 12.4 percent between 2006-2010 .
* Royal Caribbean Cruises Ltd. (RCC) is the world's second-largest cruise line, operating a fleet under five brands and holding a 50 percent stake in TUI Cruises .
* RCC's passenger capacity is approximately 92,300, set to increase with new ship deliveries .
* Carnival is the largest cruise line, holding nearly twice the market share of Royal Caribbean .
* Travel agencies still generate the majority of Royal Caribbean's bookings .
### Key concepts
* **Brands and Segmentation:** RCC operates diverse brands catering to specific markets:
* Royal Caribbean International: Families and adults seeking value, with amenities like rock-climbing walls .
* Celebrity Cruises: Premium destination cruises for experienced and affluent travelers, emphasizing personalized service and luxury .
* Azamara Club Cruises: High-end luxury brand targeting affluent guests, including butler service and inclusive amenities .
* Pullmantur: Focuses on Spanish, Portuguese, and Latin American customers .
* CDF Croisieres de France: Targets contemporary French customers, with French as the sole onboard language .
* TUI Cruises: Caters to German-speaking passengers with German as the primary language .
* **Loyalty Programs:** Brands like Crown and Anchor Society (RCL) and Captain's Club (Celebrity) encourage repeat business through rewards and exclusive benefits .
* **Digital Marketing:** Social media platforms like Facebook and Twitter are replacing traditional marketing, offering cost-effective advertising and direct consumer access .
* **Economies of Scale:** Larger "mega-ships" increase publicity and reduce per-passenger costs, making cruising more affordable .
### Customer demographics
* Only 45 percent of the United States population has ever taken a cruise .
* Cruisers are typically 45 years or older, with higher household incomes (average 93,000 dollars) and at least a college degree .
* Most cruisers vacation with a spouse, often bringing children under 18 .
* Cruisers are more likely to vacation in general than non-cruisers .
* Average cruise spending per person (including airfare and onboard expenses) is 1,880 dollars .
### Implications
---
# Carnival Corporation's history, strategy, and financial overview
### History
* Carnival Corporation was created in 1993, with its core brand, Carnival Cruise Lines, formed in 1972 .
* Key acquisitions include Holland America Line Seabourn Cruise Line Costa Cruises and Cunard Line .
* A major merger occurred with P&O Princess Cruises in 2003, creating a global vacation leader .
* Carnival partnered with The Cousteau Society in 2004 to restore the research vessel Calypso .
* Acquired Ibero Cruises in 2007, which targets the Spanish, Brazilian, and Argentinian markets .
* Carnival operates a dual-listed company (DLC) structure, incorporated in Panama and England .
### Strategy
* Carnival aims to reach every tier of the cruise market with its diverse brand portfolio .
* The company focuses on providing fun and exceptional vacation experiences for various lifestyles and budgets .
* Carnival uses a multi-brand strategy, including Carnival Cruise Lines, Princess Cruises, Holland America Line, and Seabourn, among others .
* Significant investment is made in customer service and supporting travel agents, who generate the majority of bookings .
* Marketing heavily utilizes social media (Facebook, Twitter) due to cost-effectiveness and reach, alongside traditional media .
* A strategy of introducing two to three new ships per year is employed to maintain and grow market share .
* Carnival prioritizes maintaining a competitive commission structure for travel agents .
### Financial Overview
* Carnival Corporation is the largest cruise line globally, holding over 50 percent of the market share .
* In fiscal year 2010, Carnival reported record revenues of $11 billion and net income of $1.978 billion .
* Total revenues for fiscal year 2010 were USD 14.469 billion .
* Total operating expenses were USD 9.092 billion in fiscal year 2010 .
* The company operates a large fleet, with 100 ships in 2011 and over 200,000 lower berths .
* Ships under construction represent a significant asset, with USD 696 million invested as of November 30, 2010 .
* Advertising and marketing expenses totaled USD 507 million in fiscal year 2010 .
* Carnival reports high occupancy rates, exceeding 105 percent, by industry standard calculation .
* Fuel is a major expense, representing 14.1 percent of total expenses in Q1 2011 .
* The company is traded on both the New York and London Stock Exchanges .
* Customer deposits are a substantial current liability, amounting to USD 2.805 billion in 2010 .
---
# Carnival corporation & plc industry overview and market position
### Core idea
* Carnival operates in the multinight cruise industry, a segment of the broader global vacation market .
* The industry is sensitive to consumer discretionary income, driving demand for deals and discounts .
* Carnival is a dominant player with the highest market share in the global cruise industry .
* New, larger ships are continually introduced to meet growing demand and achieve economies of scale .
### Key facts
* Carnival invests heavily in customer service and supports travel agents who receive standard 10 percent commissions .
* Marketing efforts include websites, direct-response marketing, various media, and partnerships with airline reservation systems .
* Carnival accepts direct bookings via telephone and its interactive website, offering discounts and special packages .
* Advertising expenses were USD 507 million in fiscal 2010 .
* Carnival had agreements for 10 new ships to be released between March 2010 and June 2014, increasing capacity by 13.7 percent .
* Over 13.445 million passengers cruised globally in 2009 .
* The Caribbean is the most popular destination, accounting for 37.02 percent of capacity in 2009 .
* Worldwide cruise industry revenue was an estimated USD 29.34 billion in 2010, up 9.5 percent from 2009 .
* Carnival held a 52.9 percent market share in 2010, followed by Royal Caribbean (27.6 percent) and NCL (9.8 percent) .
### Key concepts
* The cruise industry relies heavily on travel agents for sales and has expanded online and social media marketing channels .
* Passenger occupancy rates are consistently high, often exceeding 100 percent due to industry calculation methods .
* The industry appeals to a broad demographic, with a falling average age and a significant segment of younger adults with moderate incomes .
* Cruise vacations are perceived as a good value, offering more for the money compared to non-cruise alternatives .
* Barriers to entry are high, requiring substantial investment, long lead times for ships, and navigating complex legal and financial challenges .
* Environmental regulations govern wastewater discharge, with voluntary agreements among industry members to discharge only while ships are underway .
* Competition is intense, with companies differentiating through expanded itineraries and innovative onboard amenities .
### Implications
* Continued investment in new ships is crucial for maintaining and growing market share and capacity .
* Targeting diverse demographic groups, including younger adults, is key for future industry growth .
* The perceived value and convenience of cruises are significant drivers for consumer choice over land-based vacations .
* Navigating high barriers to entry and stringent environmental regulations are essential for new entrants and established players .
* Carnival's strong operating margins and profitability indicate effective cost management and pricing strategies .
### Risks
---
# JPMorgan Chase & Co. business segments and financial performance
### Core idea
* JPMorgan Chase & Co. operates under two primary brands: JPMorgan and Chase .
* The JPMorgan brand targets large corporations, governments, wealthy individuals, and institutional investors .
* The Chase brand is split into consumer and commercial banking businesses .
* JPM reports overall revenues and income, not segmented by the two brands due to overlap .
### Key facts
* JPM is the largest bank in the USA with over USD 2.3 trillion in total assets .
* It has over 240,000 employees in more than 60 countries .
* JPM operates under seven major business segments .
* North America accounts for 81 percent of JPM's revenues and 86 percent of net income .
* JPM reported record net income of USD 19 billion in 2011 .
* In 2012, JPM's total assets were over USD 2.359 trillion .
* Long-term debt has been declining for JPM in recent years .
### Key concepts
- **Consumer & Community Banking:** Includes traditional bank branches, ATMs, credit cards, home finance, retirement, investing, and merchant services (#page=533, 537). Saw a revenue increase of 9 percent in 2012
- **Corporate & Investment Bank:** Serves corporations, financial institutions, and government/institutional investors with services like M&A advisory, capital raising, and derivatives (#page=536, 537). Bond trading is a significant and risky part
* **Commercial Banking:** Covers business credit, corporate client banking, commercial term lending, and community development (#page=533, 537). Saw a 6 percent revenue increase in 2012 .
* **Asset Management:** Focuses on managing assets for clients. Revenue increased by 4 percent in 2012 .
* **Corporate/Private Equity:** Experienced a significant revenue decline of 128 percent in 2012 .
### Financial performance
* Total revenue in 2012 was $99.890 billion, a slight increase from $99.767 billion in 2011 .
* Overall net income in 2012 was $21.284 billion, up from $18.976 billion in 2011 .
* Return on Equity (ROE) for Consumer & Community Banking was 25 percent in 2012 .
* Corporate & Investment Bank had an ROE of 18 percent in 2012 .
* Corporate/Private Equity showed a negative net income of (USD 2,082) million in 2012 .
* The bank's income statement shows an unusual decline in revenue accompanied by an increase in net income .
* JPM reinstated its annual dividend in April 2011 and increased it in April 2012 .
---
# Procter & Gamble's business segments, financial performance, and global operations
### Core idea
* P&G operates three Global Business Units (GBUs): Beauty & Grooming, Health & Well-Being, and Household Care .
* The company divested its food business, including Pringles, to focus on beauty and personal care .
* P&G aims to improve consumers' lives with superior quality products, seeking leadership in sales, profit, and value creation .
* In 2010, P&G achieved sales of $78.9 billion and earnings of $12.7 billion .
### Key facts
* P&G has 24 billion-dollar brands, which account for approximately 70 percent of its total revenues .
* Pampers diapers and Tide detergent are P&G's top-selling products, with annual sales exceeding $9 billion and $5 billion respectively .
* North America represents about 42 percent of P&G's total revenues .
* In 2010, P&G's revenues increased by 2.9 percent to $78.9 billion, while profits declined by 5.2 percent to $12.7 billion .
* P&G had USD 95 billion in goodwill and intangibles as of 2010 .
* The company invested nearly USD 2 billion in research and development in 2010 .
* P&G products are sold in approximately 180 countries worldwide .
### Key concepts
* **Global Business Units (GBUs):** P&G organizes its operations into three main GBUs: Beauty & Grooming, Health & Well-Being, and Household Care .
* **Billion-Dollar Brands:** P&G has 24 brands that each generate over USD 1 billion in annual sales, signifying their importance to overall revenue and profitability .
* **Developing Markets Strategy:** P&G aims to accelerate growth in developing markets like Brazil and India, focusing on affordability, accessibility, and brand awareness .
- **Financial Objectives:** Key financial goals include increasing sales faster than market growth, achieving high single-digit to low double-digit EPS growth, and generating free cash flow productivity of at least 90
* **Brand Portfolio Optimization:** P&G is actively reducing the number of product lines and packaging ink colors to save costs and streamline operations .
### Implications
* Divesting from the food business allows P&G to concentrate resources on its core strengths in beauty and personal care .
* Focus on lower-end products by the new CEO indicates a strategic shift to cater to price-conscious consumers .
* Significant investment in R&D signals a commitment to innovation and new product development as a growth driver .
* Expansion into developing markets is crucial for future growth given their increasing consumer purchasing power .
* The high proportion of revenue from a few billion-dollar brands highlights the importance of brand management and marketing .
### Business Segment Breakdown
#### Beauty and Grooming GBU
* Comprises Beauty and Grooming divisions, contributing 34 percent of revenue and 36 percent of profits .
* Key brands include Head & Shoulders, Olay, Pantene, Braun, Fusion, and Gillette .
* Olay holds approximately 10 percent of the global facial skin care market share .
* Gillette Fusion and Mach 3 represent 70 percent of the global male razor blade market .
#### Health and Well-Being GBU
#### Household Care GBU
### Global Operations
---
# Avon's business model, financial performance, and strategic challenges
### Core idea
* Avon is a large direct-seller, primarily of cosmetics and beauty products, with a significant global sales force .
* The company struggles with poor management strategies, declining profits, and bribery investigations, impacting its financial performance .
* Direct selling is a key competitive advantage, especially in emerging markets with less developed retail infrastructure .
### Key facts
* Founded in 1886 by David McConnell as the California Perfume Company, evolving into Avon .
* The vast majority of Avon's sales (85 percent) come from outside the USA .
* Avon reported a net loss of $38.2 million in 2012, compared to a net income of $517.8 million in 2011 .
* In Q2 2013, revenue slipped 2 percent to USD 2.51 billion due to currency rates and North American sales .
* Avon's sales in North America declined 12 percent in Q2 2013, with a 13 percent drop in active sales representatives .
* Asia-Pacific sales fell 9 percent in Q2 2013, while Latin America and Europe, Middle East & Africa rose .
* Avon spent $253.6 million on advertising and $75.2 million on R&D in 2012 .
* Brazil is Avon's largest market, surpassing the USA in 2010 .
* Total revenue for Avon was $10.717 billion in 2012, with an operating profit of $314.8 million .
* Operating profit in North America was a loss of USD 214.9 million in 2012 .
* Avon's Beauty segment accounted for 72 percent of company sales in 2012 .
* Cash dividends paid out dropped to $0.75 per share in 2012 from $0.92 the prior year .
* Long-term debt increased to $2.62 billion in 2012 from $2.45 billion the prior year .
* Avon announced job cuts (1,500 globally) and exits from South Korea and Vietnam as part of a turnaround plan .
### Key concepts
* **Direct-selling model:** Relies on independent sales representatives, particularly effective in emerging markets lacking robust retail infrastructure .
* **Empowering women:** A historical cornerstone of Avon's brand, providing economic opportunity and independence .
* **Global brand with regional variations:** Avon operates globally but faces different market dynamics and competitive landscapes in each region .
* **Product diversification:** Avon sells a wide range of products beyond cosmetics, including jewelry, apparel, and home furnishings .
* **Competitive advantage:** Millions of motivated direct sellers globally are Avon's key advantage .
### Implications
* The decline in North American sales and active representatives highlights a challenge in the company's core market .
* Currency fluctuations significantly impact reported revenue .
* Strategic missteps, such as the lack of a COO, may have contributed to current challenges .
### Common pitfalls
---
### Shareholder's equity and financial position
* Total Avon shareholders' equity was USD 1,217.1 million at December 31, 2012 .
* This equity decreased to USD 1,570.4 million at December 31, 2011 .
* Common stock par value is USD 0.25 per share, with 1,500 million authorized shares issued .
* Additional paid-in capital was $2,119.6 million in 2012, up from $2,077.7 million in 2011 .
* Retained earnings significantly decreased from $4,726.1 million in 2011 to $4,357.8 million in 2012 .
* Accumulated other comprehensive loss increased from $(854.4) million in 2011 to $(876.7) million in 2012 .
* Treasury stock value was $(4,571.9) million in 2012, compared to $(4,566.3) million in 2011 .
* Total shareholders' equity was $1,233.3 million in 2012, down from $1,585.2 million in 2011 .
* Total liabilities and shareholders' equity stood at $7,382.5 million in 2012, a decrease from $7,735.0 million in 2011 .
### Revlon's financial performance and market context (pages 561-564)
* Revlon manufactures color cosmetics, hair color, skincare, fragrances, antiperspirants, deodorants, and beauty tools .
* Revlon competes with major consumer goods and beauty companies like Procter & Gamble, Unilever, L’Oreal, and Estee Lauder .
* Revlon's global market share in cosmetics declined from 4 percent in 2009 to 3 percent in 2010 .
* 2008 was Revlon's first year with positive net income since 1997, following years of losses .
* Revlon sales in Q2 2011 were USD 351.2 million, a 4 percent increase year-over-year .
* US sales increased by USD 15.6 million (8.7 percent) in Q2 2011, driven by Sinful Colors and Revlon ColorSilk .
* Asia Pacific sales grew USD 4.2 million (8.6 percent) in Q2 2011 due to China and Australia .
* Europe, Middle East, and Africa sales decreased USD 3.4 million (6.8 percent) in Q2 2011, impacted by the UK and Italy .
* Latin America sales decreased USD 1 million (3.5 percent) in Q2 2011, with Mexico and Venezuela showing lower sales .
* Canada sales dropped USD 2.24 million (11.5 percent) in Q2 2011 due to lower Revlon color cosmetic sales .
* In 2010, 55 percent of Revlon's sales were from the United States .
* Cosmetics, skincare, and fragrances accounted for 62 percent of Revlon's sales in 2010 .
* Revlon's vision is "Glamour, Excitement and Innovation through High-quality Products at Affordable Prices" .
* Revlon's mission is to become the world leader in cosmetic and personal care products .
* Demographic trends impacting the industry include an aging population and a growing Hispanic population in the US .
---
# Overview of major cosmetic companies and their financial performance
### Core idea
- Major cosmetic companies operate in a competitive global market with varying financial strengths and strategic approaches .
- Financial performance is influenced by economic conditions, international operations, competition, and company-specific strategies .
### Key facts
- Procter & Gamble (P&G) is a global giant with beauty and grooming contributing $19.5 billion in sales and $2.7 billion to profit in 2010 .
- L'Oreal, the world's largest cosmetics firm, saw sales reach USD 19.496 billion Euros in 2010 .
- Unilever achieved strong volume growth in 2010, driven by Personal Care brands and emerging markets .
- Avon is the world's leading direct seller of cosmetics, generating over USD 10 billion in annual revenue .
- Estee Lauder manufactures and markets products in 150 countries, with net sales of USD 7.796 billion in 2010 .
- Revlon had $1.321 billion in operating revenue in 2010, with a significant debt load of $1.1 billion .
### Key concepts
- **Market segmentation and reach:** Companies like P&G serve billions globally, while others like Avon focus on direct sales forces .
- **Brand portfolios:** Companies manage diverse brands across different product categories (e.g., P&G's beauty, health, household care) .
- **Strategic acquisitions:** Unilever's purchase of Alberto Culver for USD 3.7 billion shows consolidation trends .
- **Digital marketing and social media:** L'Oreal and Estee Lauder utilize platforms like Facebook for product promotion and engagement .
- **Targeting specific demographics:** Companies develop lines for men, youth, and specific ethnic markets .
### Implications
- Economic downturns can shift consumers from prestige to value brands, benefiting companies like Revlon .
- Emerging economies offer significant growth opportunities due to rapidly growing populations and middle classes .
- Fluctuations in currency exchange rates and inflation pose challenges for international operations .
- Intense competition necessitates strong marketing, product development, and distribution strategies .
- Social responsibility initiatives are increasingly highlighted in corporate reporting .
- > **Tip:** Understanding the interplay between global economic trends, competitive landscapes, and individual company strategies is crucial for assessing financial performance in the cosmetics industry
---
# L'Oréal's business segments and financial performance
### Core idea
* L'Oréal is the world's largest beauty products company, structured into three main branches: Cosmetics, The Body Shop, and Dermatology .
* The Cosmetics branch is further divided into four distinct sectors: Consumer Products, Professional Products, Luxury Products, and Active Cosmetics .
* The company emphasizes research and innovation as core principles since its inception in 1907 .
### Key facts
* In 2012, L'Oréal reported sales of 22.5 billion euros .
* As of 2013, L'Oréal employed 72,600 people worldwide and operated 43 production plants .
* The company has five worldwide research and development centers located in France, the USA, Japan, and China .
* For Q1 2013, L'Oréal reported sales of 5.93 billion euros, a 6.5 percent overall increase .
* The L'Oréal Luxe segment saw sales growth of 8.1 percent in Q1 2013, partly due to the acquisition of Clarisonic .
* In Q1 2013, Consumer Products sales increased by 5.5 percent .
* Professional Products segment sales decreased by 0.4 percent in Q1 2013 .
* Active Cosmetics division sales rose by 6.2 percent in Q1 2013 .
* The Body Shop segment sales increased by 0.8 percent in Q1 2013 .
* L'Oréal showed particularly strong performance in its L'Oréal Luxe segment and the Africa/Middle East region in Q1 2013 .
### Key concepts
* L'Oréal's mission statement is "Beauty for all," emphasizing enabling individuals to express personality, gain self-confidence, and connect with others .
* The company aims to offer the best in cosmetics innovation, focusing on quality, efficacy, and safety to meet diverse global beauty needs .
* L'Oréal views beauty as universal and science-driven, constantly exploring new territories and inventing future products inspired by global beauty rituals .
* The company is committed to the universalization of beauty through the diversity of its teams and brand portfolio .
* L'Oréal has been recognized for its sustainability efforts, receiving distinctions from the Global 100 Most Sustainable Corporations in the World .
* A significant portion of L'Oréal's global production (over 84 percent) is manufactured in compliance with ISO 9001, ISO 14001, and OHSAS 18001 certifications .
* L'Oréal's organizational structure combines divisional-by-geographic-region and divisional-by-product approaches .
* The famous advertising slogan evolved from "Because I’m worth it" to "Because you're worth it," and later to "Because we're worth it" to foster consumer involvement .
### Implications
* L'Oréal's strategic focus on acquiring global brands, exemplified by the potential acquisition of Magic Holdings International, indicates a drive for market expansion and penetration in fast-growing segments .
* The company's commitment to research and development, evidenced by its numerous R&D centers, suggests a continuous effort to innovate and introduce new products .
* L'Oréal's robust financial performance, with increasing revenues and net income in recent years, supports its ambitious global strategies and potential acquisitions .
* The company's sustainability initiatives and certifications position it favorably in an increasingly environmentally conscious market .
---
## L'Oréal's business segments and financial performance (Part 2)
### Dr Pepper Snapple Group (DPS) financial performance and operations
* Overall company sales for DPS were USD 5.6 billion in 2010, a 2 percent increase from 2009 .
* Profits in 2010 were down approximately 5 percent from the prior year .
* DPS experienced a significant loss in 2008 .
* Net sales for DPS in 2010 were $5,636 million, compared to $5,531 million in 2009 .
* Cost of sales in 2010 was $2,243 million, slightly up from $2,234 million in 2009 .
* Gross profit in 2010 was $3,393 million, an increase from $3,297 million in 2009 .
* Selling, general, and administrative expenses increased to $2,233 million in 2010 from $2,135 million in 2009 .
* Depreciation and amortization costs were USD 127 million in 2010 .
* Impairment of goodwill and intangible assets was zero in 2010 and 2009, but USD 1,039 million in 2008 .
* Income from operations in 2010 was $1,025 million, down from $1,085 million in 2009 .
* Net income in 2010 was $528 million, a decrease from $555 million in 2009 .
* Basic earnings per common share in 2010 were $2.19, up from $2.18 in 2009 .
* Diluted earnings per common share in 2010 were USD 2.17 .
* DPS employs approximately 20,000 people across North America and the Caribbean .
* The company operates 24 production plants and over 200 distribution centers .
* Approximately 40 percent of DPS volume is distributed through company-owned networks .
* Another 40 percent is distributed through third-party distributors .
* DPS segment results show net sales of $1,156 million for beverage concentrates and $4,098 million for packaged beverages in 2010 .
* Segment operating profit (SOP) was $745 million for beverage concentrates and $536 million for packaged beverages in 2010 .
* DPS is the third-largest beverage business in North America, behind Coca-Cola and PepsiCo .
### Competitive Landscape and Industry Trends
* The U.S. beverage manufacture and bottling industry comprises about 3,000 companies, but revenues are highly concentrated among the top three .
* Coca-Cola (Coke), PepsiCo (Pepsi), and DPS generate over 90 percent of the USD 70 billion in annual industry revenues .
* Economic stability is a significant factor influencing beverage companies, as carbonated soft drinks are discretionary items .
* Prices of commodities like aluminum, natural gas, resins, corn, and pulp impact industry margins .
* A major trend is increased consumer concern about health and wellness, leading to reduced demand for high-calorie drinks and growth in healthier alternatives .
### Coca-Cola Company (Coke)
---
## L'Oréal's business segments and financial performance
### Geographic segments and performance
* **Europe:** Faced challenges with zero-percent unit case volume growth in 2010.
* Positive growth observed in France (4%), Great Britain (4%), and Italy (2%).
* France and Italy represented 9% of European sector volume.
* Eastern Europe contributed 19% of volume.
* Successful brands included Aquarius, Nestea, and Powerade.
* Acquisitions: Apollinaris (Germany), Traficante (Italy).
* Water brands: Ciel, Valser, Toppur, Kropla Beskidu, Dasani.
* Marketing strategies included collaboration with Apple.
* **Latin America:** Achieved 6% case volume growth in 2010 with share gains across categories.
* Largest operating case volume group for three consecutive years.
* Top markets: USA, Mexico, Brazil.
* Acquisition: Jugos del Valle, S.A.B de C.V. to strengthen juice offerings.
* Focus on nutritional offerings: Minute Maid Forte (Mexico), flavored water (Colombia), Cepita Juice (Argentina).
* Digital marketing platform engagement exceeded 5 million visitors in Mexico and Brazil.
* **North America:** Continued volume and value share growth in 2010.
* Coke Zero achieved double-digit volume growth for the fourth consecutive year.
* Expanded contour package availability for single-drink and 2-liter bottles.
* Still brands (Glaceau, Powerade, Simply) outperformed the total still category.
* Focus for 2011: building healthy brands, customer relationships, and operating efficiently.
* **Eurasia & Africa:** Increased case volume by 12% in 2010.
* Led by 13% growth in India and South Africa.
* East & Central Africa and Turkey saw 12% growth.
* Success attributed to launching 150 products in fiscal 2009.
* Innovations: Maaza® Pulpy (India), Fruitopia® (Kenya), Dobriy® Apple Vanilla Cinnamon (Russia), Cappy Lemonade (Turkey).
* Burn energy drink introduced in five African markets.
### Competitors
### Soft Drink Industry Trends and Challenges
### Coca-Cola Company Achievements and Future Outlook
---
## Pearson plc: Business segments and financial performance
### Business segments
* Pearson is organized into three main business groupings: Pearson Education, Financial Times (FT) Group, and Penguin Group .
* Pearson Education encompasses digital learning, education publishing, and services .
* FT Group provides business information, including the Financial Times newspaper .
* Penguin Group is a consumer publishing division .
* In 2012, Pearson generated total revenues of 5.059 billion pounds .
* Pearson's 2012 revenues were:
* North American Education: 2.658 billion pounds .
* International Education: 1.568 billion pounds .
* Professional Education: 390 million pounds .
* Financial Times Group: 443 million pounds .
* Pearson Education provides textbooks and digital technologies across all ages .
* Pearson Education's North American brands include eCollege and Poptropica .
* Pearson's Prentice Hall division leads in higher education publishing across disciplines .
* FT Group offers business and financial news, data, and analysis in print and online .
* Pearson owns 47 percent of the new Penguin/Random House publishing company after merging Penguin Group with Bertelsmann's Random House .
* Penguin reported 2012 revenue of 1.053 billion pounds and operating profits of 98 million pounds .
### Financial performance
* Pearson reported increasing revenues but declining profits in 2012 .
* The decline in earnings in 2012 led to a decrease in retained earnings on Pearson's balance sheets .
* In 2012, total U.S. college enrollments declined by 2 percent, and the higher education publishing market declined by 6 percent .
* The textbook publishing market declined by 15 percent in 2012 .
* Pearson's 2012 operating profit was 515 million pounds, down from 1.118 billion pounds in 2011 .
* Earnings per share for profit from continuing and discontinued operations attributable to equity holders was 40.5 pence in 2012, down from 119.6 pence in 2011 .
* Pearson's FT group reported 2012 operating profits of 49 million pounds .
* Digital subscriptions for the FT increased 18 percent to almost 316,000 in 2012 .
* Pearson North America's 2012 operating profits were 536 million pounds .
---
# Competitive landscape of the cosmetics and fragrance industry
### Core idea
* The cosmetics and fragrance industry is highly competitive with global players vying for market share .
* Key players differentiate through brand portfolios, distribution models, and product innovation .
* Market dynamics are influenced by evolving consumer preferences and economic conditions .
### Key facts
* L'Oréal is a dominant global player with significant revenue and net income .
* Estée Lauder Companies has annual sales of around USD 10 billion and operates in over 150 countries .
* Avon Products is the world's largest direct-seller of cosmetics and beauty items .
* Mary Kay, Inc. is a privately-owned direct-selling company with sales of about USD 3.0 billion .
* Revlon, Inc. is a cosmetics leader with brands like Almay and Revlon ColorSilk .
* Coty, Inc. is a leading maker of beauty products, specializing in nail care, polish, and fragrances .
* L'Oréal's revenue was $22,462.7 million in 2012, with a gross profit of $15,875.0 million .
* Estée Lauder's revenue was $9.8 billion, and net income was $877 million in 2012 .
* Avon's revenue was $10.7 billion, with net income of $115.5 million in 2012 .
* Revlon's revenue was USD 1.4 billion in 2012 .
### Key concepts
* **Brand Licensing:** Companies like Estée Lauder license fragrances and cosmetics under various designer brand names .
* **Direct Selling Model:** Avon and Mary Kay utilize a direct-selling model relying on independent sales representatives .
* **Global Distribution:** Major companies aim for extensive global reach, selling products in numerous countries and points of sale .
* **Product Diversification:** Companies offer a wide range of products including skincare, makeup, fragrances, hair care, and toiletries .
* **Partnerships and Joint Ventures:** L'Oréal forms joint ventures, like L'Oréal KSA, to enhance market understanding and penetration .
* **Acquisition Potential:** L'Oréal considers acquiring struggling but strategically positioned firms like Avon or Coty .
* **Celebrity Endorsements:** Coty leverages celebrity partnerships to promote its products .
* **Competitive Advantage:** Direct sellers like Avon rely on their large network of motivated representatives as a key advantage .
### Implications
* Companies must continuously innovate to compete with rivals also striving for market dominance .
* Adapting to evolving sales channels, like the decline of direct selling in the USA for Avon, is crucial .
* Strategic plans are essential for future prosperity, even for market leaders .
* Emerging economies present opportunities for growth, as seen with Avon's success in Brazil .
---
# Dr Pepper Snapple Group (DPS) operations and financial performance
### Core idea
* DPS focuses on brand innovation, increased advertising, and expanded distribution to drive sales .
* The company operates with a mixed distribution model, combining direct-store-delivery and third-party networks .
* Financial performance in 2010 showed slight sales growth but a decrease in profits compared to 2009 .
### Key facts
* DPS introduced new product variations for brands like Canada Dry, 7UP, A&W, and Dr Pepper .
* Investments were made in Hydrive Energy LLC and the creation of Snapple Antioxidant water and Venom energy drink .
* New marketing campaigns featured celebrities like Dr. Dre and Gene Simmons for Dr Pepper .
* DPS expanded product availability through investing in coolers, vending machines, and fast-food fountains .
* The company added 31,000 fountain placements in 2008 and 14,000 McDonald's franchises in 2009 .
* Agreements with Pepsi Bottling Group and PepsiAmericas increased Crush availability .
* In 2010, DPS had sales of USD 5.6 billion, a 2 percent increase from 2009, but profits decreased by 5 percent .
* DPS operates 24 production plants and over 200 distribution centers in North America and the Caribbean .
* Approximately 40 percent of DPS volume is distributed through company-owned networks .
* In 2010, net sales were $5,636 million, with income from operations at $1,025 million .
### Key concepts
* **Brand Innovation:** Continuous product development and line extensions to meet consumer preferences .
* **Distribution Expansion:** Strategic placement of products in high-traffic areas and partnerships to increase market reach .
* **Marketing Investment:** Utilizing celebrity endorsements and digital advertising to boost brand visibility .
* **Direct-Store-Delivery (DSD) vs. Third-Party Distribution:** DPS employs a hybrid model for reaching diverse customer segments .
* **Segment Performance:** Beverage concentrates and packaged beverages are major revenue generators, with Latin America being a smaller segment .
### Implications
* Increased advertising and distribution efforts contributed to sales growth, especially for Snapple .
* The company's financial results indicate a need to manage costs and improve profitability despite sales increases .
* Diversification of product offerings and focus on emerging beverage categories are crucial for future growth .
* Competition with major players like Coca-Cola and PepsiCo requires strong brand positioning and efficient operations .
- > **Tip:** Pay attention to how DPS leverages brand equity and distribution partnerships to compete with larger rivals
-
---
# Starbucks Corporation's business operations and financial performance
### Core idea
* Starbucks is the world's largest coffee company, headquartered in Seattle, Washington .
* In early 2011, Starbucks' domestic sales (USD 9.1 billion in 2010) placed it third among U.S. chain restaurants, behind McDonald's and Subway .
* The company experienced strong sales growth in 2010, outperforming competitors like McDonald's and Subway .
### Key facts
* Starbucks has a strategic partnership with Green Mountain Coffee Roasters for the single-serve coffee market .
* Starbucks VIA instant coffee is expanding internationally, particularly in China, with plans to significantly increase store numbers there .
* The company sees a USD 377 million market for flavored coffee in the United States and holds a dominant ~75 percent domestic coffee market share .
* Starbucks has implemented a mobile payment plan in approximately 7,800 stores, allowing smartphone users to make purchases .
* The company recently ended its licensing agreement with Kraft for product distribution .
* Starbucks plans to open over 100 new stores in Brazil in 2011 .
* As of early 2011, Starbucks operated 16,635 stores across 50 countries, with 8,832 company-operated and 7,803 licensed stores .
* Starbucks was founded in 1971 in Seattle and went public in 1992 .
* In January 2011, Starbucks formed an alliance with India's Tata Group to leverage Indian premium Arabica beans .
* Starbucks employees are referred to as "partners" and are considered central to the "Starbucks Experience." .
* Starbucks' product portfolio includes Tazo tea, Ethos water, Seattle's Best coffee, and Torrefazione Italia coffee .
* Starbucks offers food items such as pastries, sandwiches, salads, oatmeal, and fruit cups .
### Key concepts
* **Growth Strategy:** Aggressive expansion in international markets (especially China) and product categories (flavored coffee, single-serve) .
* **Partnership Model:** Strategic alliances for market penetration and product development (e.g., Green Mountain Coffee Roasters, Tata Group) .
* **Digital Integration:** Adoption of mobile payment systems to enhance customer convenience and engagement .
* **Brand Portfolio Expansion:** Diversification beyond core coffee into teas, water, and other premium beverage brands .
* **Commitment to Quality and Ethics:** Emphasis on ethically sourced, high-quality Arabica beans and responsible farming practices .
* **Employee Focus:** The "partner" designation reflects a philosophy of shared passion and respect for employees .
* **Community Engagement:** Taking responsibility as a good neighbor and a force for positive action in communities .
### Implications
* Starbucks' strong performance suggests a successful adaptation to evolving consumer preferences and market trends .
* The aggressive expansion in China positions Starbucks to capitalize on the growing demand for coffee in that region .
* The focus on mobile payment and digital integration indicates a forward-looking approach to customer interaction and transaction efficiency .
---
### Marketing and brand evolution
* Starbucks partnered with Courtesy Products to offer in-room coffee service in up to 500,000 luxury hotel rooms .
* The company launched VIA instant coffee in 2009, entering the single-serve coffee market .
* Starbucks' average customer earns over $75,000 annually, though 17 percent earn less than $30,000 .
* In 2011, Starbucks unveiled a new logo featuring only the mermaid, allowing for flexibility beyond coffee .
* The My Starbucks Rewards Program offers a free drink after 15 purchases for Gold Level members .
### Financial overview and segments
* Starbucks experienced significant financial improvement from 2009 after closing 600 unprofitable U.S. stores .
* Company-owned stores generate 84 percent of Starbucks' worldwide revenues .
* Starbucks operates within three segments: USA, International, and Global Consumer Products Group .
* The Global Consumer Products Group includes packaged coffee, tea, VIA Ready Brew, and other branded products sold in grocery stores .
* In fiscal 2010, total net revenues were $10,707.4 million, with net earnings of $948.3 million .
* Total assets grew from $5,576.8 million in 2009 to $6,385.9 million in 2010 .
* Shareholders' equity increased from $3,045.7 million in 2009 to $3,674.7 million in 2010 .
* As of October 3, 2010, Starbucks operated 16,858 total retail stores globally .
* Company-operated stores were 8,833 (52% of total), with 11,131 in the US and 5,727 internationally .
* Licensed stores were 8,025 (48% of total), with 4,424 in the US and 3,601 internationally .
* Beverages consistently represented 75-76% of the retail sales mix for company-operated stores .
* In fiscal 2010, there were 2,126 international company-operated stores, with a net decrease of 15 stores that year .
* In fiscal 2010, there were 4,424 licensed stores in the U.S. and 5,044 licensed stores in the Americas region .
### Environmental concerns and competitors
* Starbucks faced criticism for wasting an estimated 6.2 million gallons of water daily due to running taps for dipper wells .
* The company committed to reducing water usage by 15 percent in company-owned stores by 2012 .
* Starbucks' primary competitor is Dunkin' Brands Group, operating Dunkin' Donuts and Baskin-Robbins .
* Dunkin' Brands operates over 16,000 franchise locations globally .
* In fiscal 2010, Dunkin' Brands reported operating income of $193.5 million on sales of $577.1 million .
### Future outlook and performance
* Starbucks reported second quarter 2011 earnings of USD 261.6 million, a 20.4 percent increase year-over-year .
* Revenue rose 10.3 percent to USD 2.79 billion in Q2 2011, with a 7 percent increase in same-store sales .
---
# BMW Group's performance, history, and competitive standing in the automotive industry
### Core idea
* BMW Group is a leading German automobile, motorcycle, and engine manufacturer, known for its premium brands and strong global presence .
* The company has a history of innovation, adapting from aircraft engines to motorcycles and then automobiles, with a focus on engineering excellence .
* BMW competes in the highly dynamic luxury automotive market, facing intense rivalry from established brands and evolving consumer demands for digital integration and sustainability .
### Key facts
* BMW Group sold 1.85 million cars and nearly 117,000 motorcycles worldwide in 2012, a record year .
* In January 2013, BMW achieved its highest January sales ever, delivering over 100,000 vehicles globally .
* BMW's premium lineup includes sedans, coupes, convertibles, and sport wagons across its series, along with X5 and Z4 models .
* The company operates 29 production and assembly facilities in 14 countries and has a dealer network in over 140 countries .
* BMW's brands include Mini and Rolls-Royce Motor Cars, alongside its motorcycle lines Motorrad and Husqvarna .
* In 2012, BMW's 1 Series, X3, 3 Series, and 5 Series models all saw significant sales increases .
* Rolls-Royce achieved record sales in 2012, its highest in 108 years .
* China became BMW's largest international market in 2012, surpassing the USA .
### Key concepts
* BMW's organizational structure is described as autocratic and functional, with a focus on specialized technical roles .
* The company's financial services segment offers purchase financing, leasing, and asset management .
* BMW collaborates with Toyota Motor Corporation on fuel-cell systems, sports vehicle components, and battery technologies .
* The company's circular blue and white logo evolved from Rapp Motorenwerke, symbolizing Bavaria and sometimes portrayed as an aircraft propeller .
* BMW has a history of producing successful aircraft engines, notably during WWI and WWII .
* BMW is engaged in a fierce competition with rivals like Audi, Mercedes-Benz, and Lexus for leadership in the luxury automotive market .
* A new supply-management system introduction caused temporary spare parts availability issues in mid-to-late 2013, affecting customer satisfaction .
### Implications
* BMW's sales growth across multiple models and regions demonstrates its strong market position in the premium segment .
* Competition in the luxury car market is intensifying, with brands like Audi and Mercedes-Benz actively vying for market share and sales leadership .
* The introduction of new retail concepts, inspired by Apple stores, indicates a focus on enhancing customer experience and product information delivery .
* BMW's strategic focus on Asia, particularly China, reflects its adaptation to global market shifts and growth opportunities .
* The company's ongoing investment in research and development, including battery technology and fuel-cell systems, signals a commitment to future mobility solutions .
* Challenges with internal systems, like the supply-management system, can negatively impact brand perception and customer loyalty, even for premium manufacturers .
---
# Apple's product portfolio and market position
### Core idea
* Apple designs, manufactures, and markets personal computers, mobile communication and media devices, and portable digital music players, alongside related software, services, and accessories .
* The company focuses on innovation and being a "first mover" with blockbuster new products, driving significant market capitalization growth .
### Key facts
* Apple sold 4.69 million iPads in Q1 2011, reaching 20 million since its April 2010 debut .
* In 2010, Apple surpassed Microsoft in market capitalization for the first time, becoming the world's most valuable technology company .
* By August 2011, Apple became the world's most valuable company, surpassing ExxonMobil .
* Apple operated 317 retail stores globally by September 2010 .
* Apple's revenues increased 52 percent and net income increased 70 percent in fiscal 2010 .
* Apple has zero long-term debt on its balance sheet as of fiscal 2010 .
* In fiscal 2010, iPhone sales increased by 93 percent, followed by desktops (43.4%) and peripherals (23%) .
### Key concepts
* **Product Portfolio:** Includes Macintosh (Mac) computers, iPhone, iPad, iPod, Apple TV, Xserve, software applications, operating systems (Mac OS X, iOS), and the iTunes Store .
* **Distribution Channels:** Apple sells products globally through its own retail stores, online stores, direct sales force, and third-party carriers, wholesalers, retailers, and value-added resellers .
* **Organizational Structure:** Functionally organized with geographically reported segments (Americas, Europe, Japan, Asia-Pacific, Retail) rather than divisions or SBUs .
* **Market Position:** Apple is recognized as a major innovator and "first mover" .
* **Competitive Landscape:** Competes with hardware manufacturers like HP and Dell, and software/service providers like Google and Microsoft .
* **Sales by Product:** .
* iPhone and related products: 38%
* Desktops: 10%
* Portables: 16% .
### Implications
* The success of products like the iPad is impacting PC sales, leading to reduced forecasts for competitors like HP and Dell .
* Apple's strong financial performance and lack of debt provide significant strategic flexibility .
* Apple's emphasis on direct customer contact through its retail stores is a key differentiator .
* Competitors like Microsoft face challenges from viruses and user frustration with the Windows ecosystem, leading some to consider Apple products .
---
# Apple Inc. in 2011: Products, strategy, and competitive environment
### Core idea
* Apple Inc. in 2011 operated as a technology company focused on computer hardware, but with significant revenue from its iPhone and iPad products .
* The company faced intense competition across its diverse product lines from major players like Microsoft, Google, and Hewlett-Packard .
* Apple's strategy involved innovative product development and a growing retail presence, aiming to maintain its market leadership .
### Key facts
* In 2011, iPhone and related products/services accounted for 38 percent of Apple's business .
* Apple's computer hardware faced direct competition from companies like Hewlett-Packard, Dell, Xerox, NCR, and IBM .
* Hewlett-Packard's Personal Systems Group competed with Apple computers, ranking as its second-largest revenue segment .
* Dell offered broad product ranges competing with Apple, with products contributing 81 percent of its total revenue in fiscal year 2011 .
* Microsoft competed with Apple through its Windows operating system and software offerings .
* Apple was expanding its retail presence, with over 300 stores globally, generating USD 3.9 billion in revenue in Q4 2010 alone .
* Apple was securing cloud music licensing deals with major record labels, aiming to gain an advantage over Google and Amazon .
* Apple's stock price experienced a decline from $700 in 2012 to $485 in early 2013, partly due to competition from Samsung's Android phones .
### Key concepts
* **Diversified Product Lines:** Apple's wide range of products, from computers to mobile devices, presented challenges in marketing mix for each line .
* **Direct vs. Indirect Competition:** Analysts considered Apple a direct competitor to hardware manufacturers like HP, but also indirectly to companies like Google, despite Google's lack of hardware manufacturing .
- **Operating System Dominance:** The historical decision not to license the Macintosh operating system to Microsoft was viewed as a significant business miscalculation, though Mac's OS was seen as technologically advanced
* **Retail Store Strategy:** Apple was revamping its retail stores, equipping employees with iPads and enhancing in-store technology to improve customer experience .
* **Emerging Market Strategy:** Apple planned to launch a discounted iPhone 5S model to target emerging markets with lower-income customers .
* **First-Mover Risk:** Being a premier "first mover" carried financial risks as rival firms quickly duplicated and offered enhanced products at lower prices .
### Implications
* Apple's success in cloud music licensing could provide a significant advantage over rivals if deals with major labels were secured .
* The increasing vulnerability of Windows systems to viruses was prompting some IT departments to consider incorporating Mac products .
* Apple's strategy to win market share in emerging markets with a lower-priced iPhone could potentially hurt profit margins but secure future customer bases .
* The company's large market capitalization of USD 320.89 billion in April 2011 indicated strong investor confidence .
---
# Microsoft corporation's business segments and financial performance
### Core idea
* Microsoft is a global software and hardware company focused on enabling individuals and businesses to reach their full potential .
* The company structure was revamped in August 2013 to focus on four new segments: operating systems, apps, cloud technology, and devices .
* Microsoft aims to diversify away from the declining PC market by focusing on devices and cloud services .
* Financial performance shows revenue growth but a significant drop in net income in fiscal year 2012 .
### Key facts
* The Windows Division revenue comes primarily from pre-installed Windows operating systems on PCs by manufacturers .
* The Server and Tools Division is the third most profitable, with revenues from Windows Server, Microsoft SQL, and Enterprise Services .
* Online Services Division, including Bing and MSN, generated advertising revenue but incurred significant operating losses due to a goodwill impairment from the aQuantive acquisition .
* Microsoft Business Division is the largest in revenue and operating income, driven by Microsoft Office System products .
* Entertainment and Devices Division includes Xbox, Skype, and Windows Phone, with Xbox sales declining but Xbox LIVE revenue increasing .
* Approximately 52 percent of Microsoft’s 2012 revenues were derived from the USA, with international revenues showing a consistent increase .
* Microsoft's goodwill increased to over 13 billion dollars in fiscal year 2012, reflecting past acquisition costs .
* R&D expenditures remained at 13 percent of revenue for three years, while sales and marketing expenses decreased as a percentage of revenue .
### Key concepts
* **Division-by-product structure:** Microsoft historically used a structure with distinct business lines, which was revised to a division-by-function model .
* **Goodwill impairment:** The Online Services Division experienced a large impairment due to the overvaluation of the aQuantive acquisition .
* **Strategic diversification:** Microsoft is actively moving away from PC reliance towards cloud services and device markets, like tablets .
* **Market share competition:** Microsoft faces intense competition across all its segments from major players like Apple, Google, IBM, and Oracle .
* **Emerging market strategy:** Microsoft's attempts to capture market share in emerging markets, such as with a lower-priced iPhone 5S by Apple, highlight the importance of this strategy .
### Implications
* The declining PC market poses a vulnerability for the Windows Division, necessitating diversification efforts .
* Dependence on the Microsoft Office System for the Business Division is tenuous due to growing Web-based competition .
* High acquisition costs, as seen with Skype, raise concerns about Microsoft's judgment in past acquisitions and its significant goodwill balance .
* Microsoft's lower earnings per share compared to rivals is partly attributed to a significantly larger number of shares outstanding .
### Common pitfalls
* **Surface tablet sales:** Poor sales of the Surface tablet suggest potential issues with pricing or market positioning against competitors like Apple .
* **Acquisition valuation:** A history of paying significantly above book value for acquisitions, leading to high goodwill, indicates a potential pitfall in strategic buying .
---
## Lenovo's business segments and financial performance
* Lenovo is diversifying beyond PCs into smartphones and other mobile devices, driven by market trends and a strategy of vertical integration .
* The company is strategically shifting focus towards growing smartphone demand, even if it means prioritizing market share over immediate profitability outside China .
* For fiscal 2012/2013 ending March 31, 2013, Lenovo's revenues increased 14.5 percent to 33.8 billion dollars, and net income rose 33 percent to 631 million dollars .
* Lenovo ranks second globally in PC sales, behind Hewlett-Packard .
* In China, Lenovo became the second-largest smartphone provider in 2012 with a 15 percent market share .
* Lenovo invested 793 million dollars in a mobile phone manufacturing and R&D facility in Wuhan, China .
* Lenovo acquired IBM's PC business in 2005 for 1.25 billion dollars plus 500 million dollars in assumed debt .
* Lenovo formed a PC joint venture with NEC in 2011, owning a 51 percent stake .
* Lenovo acquired the Brazil-based electronics company CCE in 2012 for a base price of 300 million reais .
* For the third quarter of 2012 ending December 2012, Lenovo reported a quarterly profit of 200.0 million dollars, a 30 percent increase year-over-year .
* Lenovo's third-quarter revenue grew 12 percent year-over-year to 9.4 billion dollars, with the majority still from PCs .
* Lenovo shipped 9.4 million smartphones in the third quarter of 2012, predominantly in China .
* Lenovo's PC business revenue in the third quarter of 2012 rose 7 percent to 7.9 billion dollars .
* Lenovo's global PC market share increased to 15.9 percent in the third quarter of 2012 .
* The mobile Internet and digital home (MIDH) business, mainly smartphone sales in China, contributed about one-tenth of Lenovo's third-quarter 2012 revenues, jumping 77 percent to 998 million dollars .
* Lenovo's third-quarter shipments of media tablets rose 77 percent to 800,000 units in 2012 .
* Lenovo's organizational structure is divisional by region, with new reporting units created in April 2012: China, Asia-Pacific/Latin America (APLA), Europe/Middle East/Africa (EMEA), and North America (#page=644, 646) .
* Lenovo emphasizes vertical integration in manufacturing to avoid supplier reliance and control costs, a strategy accelerated after a 2009 meeting .
* Lenovo is investing in key components and working closely with suppliers to drive innovation and differentiation .
* The company is focused on a "smart" transformation across PC, communications, and TV industries, evidenced by new smart television products and cloud computing services .
* Lenovo's strategy includes expanding into new geographic markets for smartphones beyond China, such as Russia, Indonesia, and India (#page=643, 646) .
* Lenovo ranks third worldwide in Smart Connected Devices (PCs, tablets, and smartphones) at the end of the third quarter of 2012 .
* Lenovo's diversification into smartphones is crucial for growth as PC demand declines, positioning the company against global rivals like Samsung and Apple .
* Vertical integration allows Lenovo to manage supply chain disruptions effectively, as demonstrated by its response to hard-drive shortages in 2011 .
* The shift to a geographic-based organizational structure aims to keep Lenovo closer to its customers .
---
# Competitive landscape and company profiles in the technology sector
### Core idea
* Lenovo employs a dual strategy: protect its core PC business and China operations, while aggressively pursuing high-growth opportunities in smartphones, tablets, and smart TVs in emerging markets .
* The technology sector is characterized by intense competition among global players with diverse strategies and market positions .
* Companies face challenges from evolving consumer preferences, new technologies, and aggressive rivals .
### Key facts
* In Q3 FY2013, Lenovo's "attack" businesses (smartphones, tablets, smart TVs) contributed 50 percent of total revenues .
* Lenovo's PC market share grew to 15.3 percent in FY2012/2013, trailing only HP .
* Apple generated USD 22.5 billion in revenue from China, Taiwan, and Hong Kong in FY2012 .
* HP announced plans to lay off approximately 27,000 employees due to declining profits in 2012 .
* Nokia was the world's largest mobile phone vendor from 1998-2012 but faced declining market share due to smartphones .
* The global smartphone market increased by 39 percent in 2012 by units shipped .
### Key concepts
* **Lenovo's two-pronged strategy:** Protecting existing markets while attacking new growth areas .
* **Market Share Dynamics:** Companies like Lenovo and HP compete closely for PC market share .
* **Diversification:** Companies like Dell are moving beyond their PC roots by acquiring tech firms in other areas .
* **Strategic Partnerships:** Nokia's partnership with Microsoft for Windows Phone operating system .
* **Product Line Overlap:** Lenovo's diverse product brands are becoming confusing to customers .
* **Eroding Differentiation:** Lenovo's Think Vantage software tools face competition from free alternatives .
### Implications
* Lenovo's strategy shows success in shifting revenue towards high-growth areas .
* Companies must adapt to market shifts, such as the impact of smartphones and tablets on PC sales .
* Acquisitions are a key strategy for diversification, as seen with Dell .
* Strong financial performance metrics like profit margin and EPS are critical differentiators, with Apple excelling .
* Global service and support are crucial for enterprise customers, an area where Apple faces challenges .
### Competitor Profiles
* **Apple Inc.:** Known for Mac computers, iPhone, iPad; strong in product design and innovation; faces challenges with China Mobile not selling iPhones and a declining China smartphone market share .
* **Dell, Inc.:** Third-largest PC vendor; strong corporate supplier; diversifying beyond PCs via acquisitions .
* **Fujitsu:** Third-largest IT services provider; strong global execution; offers cloud services .
* **Hewlett-Packard (HP):** Strong global PC presence; facing profit decline due to mobile device popularity; significant write-down related to Autonomy acquisition .
* **Toshiba Corporation:** Focus shifting towards consumer and small-business markets; less overlap with Lenovo's product lines .
---
# Netgear's business operations and financial overview
### Core idea
* Netgear develops and markets networking products for homes and businesses, focusing on performance and ease of use .
* Products are manufactured by third parties and sold through a global network of retailers and resellers .
* The company operates in three distinct business units: Retail (RBU), Commercial (CBU), and Service Provider (SPBU) .
### Key facts
* Headquartered in San Jose, California, with international headquarters in Cork, Ireland .
* Global operations in 25 nations with 850 employees .
* 2012 revenues were USD 1.27 billion, a 7.6 percent increase from 2011 .
* Q2 2013 net income was $14.0 million, down from $21.5 million the prior year .
* Netgear spent USD 61 million on R&D in 2012, representing 4.8 percent of revenues .
* All manufacturing is outsourced to third parties, primarily in mainland China or Vietnam .
* Global sales channels include thousands of VARs, DMRs, traditional retailers, and online retailers .
* Best Buy and Ingram Micro each account for 10 percent or greater of Netgear revenues .
* Netgear has zero long-term debt on its balance sheet .
### Key concepts
* **Competitive advantage:** Netgear aims for high performance, dependable, and easy-to-operate devices, though consumers often view these products as commodities .
* **Business units:** RBU focuses on home networking, CBU on low-cost business solutions, and SPBU on networking solutions for service providers .
* **Geographic territories:** Americas, Europe, Middle-East, and Africa (EMEA), and Asia Pacific (APAC) .
* **Product categories:** Commercial business networking, broadband access, and network connectivity .
* **R&D methodology:** Original Design Manufacturer (ODM) and In-House Development .
* **Outsourcing strategy:** Utilizes third parties for manufacturing, warehousing, and distribution logistics .
* **Financial trend:** Steady revenue increases but a recent drop in net income observed in income statements .
### Implications
* Reliance on third-party manufacturers and suppliers poses a risk if disruptions or quality issues occur .
* Dependence on a few large customers like Best Buy and Ingram Micro could impact revenue stability .
* The company's organizational structure has been noted as potentially too dependent on CEO Patrick Lo, with no clear successor identified .
* Expansion into new markets and product development through R&D are crucial for maintaining growth in a rapidly changing technology landscape .
### Common pitfalls
* The perception of networking products as commodities makes it challenging to differentiate and command premium pricing .
* Lack of long-term contracts with third-party manufacturers means these suppliers can also produce for competitors .
---
# Strategic planning framework components and tools
### Core idea
* Strategic planning frameworks involve stages that summarize input information, generate strategy alternatives, and objectively evaluate these alternatives .
* These frameworks utilize various matrices and analytical tools to aid in decision-making .
### Key facts
* **Input stage:** Summarizes basic input information needed to formulate strategies, including EFE, CPM, and IFE matrices .
* **Matching stage:** Focuses on generating feasible strategy alternatives by aligning internal and external factors using matrices like BCG, IE, SWOT, GRAND, and SPACE .
* **Decision stage:** Involves developing the Quantitative Strategic Planning Matrix (QSPM) to objectively evaluate feasible alternative strategies .
* **External Audit (Environmental Scanning):** Gathers and assimilates external information to identify opportunities and threats .
* **Internal Audit:** Gathers and assimilates internal information to identify strengths and weaknesses .
### Key concepts
* **Mission Statement:** An enduring statement of purpose that distinguishes a firm, answering "What is our business?" .
* Components include customers, products/services, markets, technology, survival/growth/profitability, philosophy, self-concept, public image, and employees .
* **Annual Objectives:** Short-term milestones (usually one year) needed to achieve long-term goals. They serve as a basis for resource allocation and performance evaluation .
* **Policies:** Guidelines, rules, and procedures that support efforts to achieve stated objectives and guide decision-making .
### Tools and Matrices
* **External Factor Evaluation (EFE) Matrix:** Summarizes and evaluates external information (economic, social, political, technological, competitive) .
* **Competitive Profile Matrix (CPM):** Identifies major competitors and their strengths/weaknesses relative to a sample firm .
* **Internal Factor Evaluation (IFE) Matrix:** Summarizes and evaluates a firm's major strengths and weaknesses across functional areas .
* **Boston Consulting Group (BCG) Matrix:** Analyzes divisions based on relative market share and industry growth rate, categorizing them as Stars, Question Marks, Cash Cows, or Dogs .
* **Internal-External (IE) Matrix:** Places divisions based on their IFE and EFE scores, guiding strategies for growth, hold, or harvest/divest .
* **Grand Strategy Matrix:** A four-quadrant tool based on competitive position and market growth, suggesting strategic alternatives .
- **SPACE Matrix:** Analyzes strategic direction based on four dimensions: Financial Position (FP), Competitive Position (CP), Industry Position (IP), and Environmental Stability (ES). It identifies aggressive, competitive, defensive, or conservative strategies
* **Quantitative Strategic Planning Matrix (QSPM):** Objectively determines the relative attractiveness of feasible alternative actions or strategies .
* **Attractiveness Scores (AS):** Numerical ratings indicating the relative attractiveness of a strategy given a specific factor .
### Implications
* **Communication:** Essential for gathering, assimilating, and evaluating information, leading to better understanding and commitment .
* **Cultural Products:** Values, beliefs, and symbols can be used by strategists to influence strategy formulation, implementation, and evaluation .
* **Resistance to Change:** A natural tendency that must be managed to avoid negative consequences like sabotage or non-cooperation .
---
* Focuses on the specific elements and methods used within strategic planning frameworks.
* Explains how these components and tools work together to guide an organization's strategic direction.
* The Resource-Based View (RBV) emphasizes internal resources for competitive advantage .
* Restructuring involves modifying command chains and reporting channels to enhance efficiency .
* Retrenchment is a strategy of cost and asset reduction to reverse declining performance .
* Reviewing underlying bases of strategy involves reassessing EFE and IFF matrices .
* Rightsizing (downsizing) reduces employees, divisions, or levels .
* SO strategies leverage internal strengths with external opportunities .
* ST strategies align internal strengths with external threats .
* Staffing includes recruiting, training, and managing employees .
* Stakeholders are individuals or groups with a claim on the company .
* Stars are high market share divisions in high-growth industries (BCG Matrix) .
* Strategic Business Unit (SBU) structure groups similar divisions .
* Strategic objectives are desired results like market share or lower costs .
* Strategic planning is the process of formulating an organization's game plan .
* The SPACE Matrix assesses strategy appropriateness (aggressive, conservative, defensive, competitive) .
* **Resource similarity** describes how comparable a firm's resources are to a rival's .
* **Revised EFE Matrix** reevaluates external opportunities and threats .
* **Revised IFF Matrix** reevaluates internal strengths and weaknesses .
* **Self-concept** in a mission statement refers to a firm's distinctive competence .
* **Self-interest change strategy** aims to convince individuals that change benefits them personally .
* **Six Sigma** is a process improvement technique to eliminate defects .
* **Social policy** guides behavior towards various stakeholder groups .
* **Social responsibility** involves actions beyond legal requirements to benefit well-being .
* **Stability position (SP)** in the SPACE Matrix relates to industry stability factors .
---
### Strategy execution elements
* Strategy execution focuses on performing the "doing" part of strategy .
* Key elements include managing structure, conflict, resistance to change, and resource allocation .
* Matching structure with strategy is critical for effective execution .
* Different organizational structures like functional, divisional, and matrix are employed .
* Human resource and production/operations concerns must be addressed during implementation .
* Linking performance and pay to strategies is a crucial motivational tool .
* Restructuring and reengineering are methods to align operations with strategy .
### Strategy formulation process
* Strategy formulation involves the analytical framework, input, and decision stages .
* The process includes considering cultural, governance, and political aspects .
* It contrasts with strategy implementation, focusing on the "thinking" rather than the "doing" .
### Strategy monitoring and evaluation
* Strategy monitoring involves activities like auditing and taking corrective actions .
* Key aspects include measuring organizational performance and reviewing the bases of strategy .
* Effective evaluation systems have specific characteristics .
* Contingency planning is important for dealing with unforeseen events .
* The distinction between visible and hidden strategies is relevant for monitoring .
* Top-down or bottom-up approaches can be used for strategic planning .
### Comprehensive strategic management model
* The strategic management process integrates various components .
* It includes internal and external audits, vision and mission analysis, strategy generation and selection .
* The model encompasses strategy formulation, implementation, execution, and monitoring .
* Ethics, social responsibility, and sustainability are integrated throughout the process .
* A simple and straightforward approach to strategic planning is presented .
* The framework is used to organize all chapters within the text .
---
## Common mistakes to avoid
- Review all topics thoroughly before exams
- Pay attention to formulas and key definitions
- Practice with examples provided in each section
- Don't memorize without understanding the underlying concepts
Glossary
| Term | Definition |
|------|------------|
| Planning | This is the managerial activity focused on preparing for the future, encompassing forecasting, setting objectives, devising strategies, developing policies, and establishing goals. It serves as the essential bridge between the present and the future, increasing the likelihood of achieving desired outcomes. |
| Organizing | This function involves creating a structure of task and authority relationships within an organization. It includes activities like organizational design, job specialization, defining job descriptions and specifications, establishing spans of control, ensuring unity of command, and coordinating efforts. |
| Motivating | This refers to the efforts directed towards shaping human behavior to achieve specific objectives. It encompasses leadership, group dynamics, communication, and managing organizational change to influence employees and managers towards desired outcomes. |
| Staffing | Also known as personnel management or human resource management, this function includes all activities related to managing an organization's workforce. It covers recruiting, interviewing, selecting, training, developing, evaluating, and compensating employees, as well as managing employee relations and legal compliance. |
| Controlling | This managerial function involves all activities aimed at ensuring that actual operations align with planned operations. It includes establishing performance standards, measuring performance, comparing actual results to standards, and taking corrective actions to address any discrepancies. |
| Strategic Planning | This is a formal process that allows an organization to proactively pursue strategies rather than merely reacting to external forces. It involves developing a mission, forecasting future events and trends, establishing objectives, and choosing specific strategies to achieve desired outcomes. |
| Synergy | This concept describes a situation where a team works together cohesively, resulting in an effect greater than the sum of individual efforts, often represented as "2 + 2 = 5." In an organizational context, it is achieved through clear objectives and coordinated efforts towards common goals. |
| Breakeven Point (BE) | The quantity of units a firm must sell for its total revenues to equal its total costs, indicating the point at which a company neither makes a profit nor incurs a loss. |
| Total Revenues (TR) | The total income generated from selling a specific quantity of goods or services at a given price. |
| Total Costs (TC) | The sum of all fixed and variable costs incurred by a firm in producing and selling its goods or services. |
| Fixed Costs (FC) | Expenses that do not change with the level of output or sales, such as rent, salaries, and insurance. |
| Variable Costs (VC) | Expenses that fluctuate directly with the level of production or sales, such as raw materials, direct labor, and sales commissions. |
| Breakeven Quantity Formula | The formula used to calculate the breakeven point in units: `BE Quantity = TFC / (price - VC)`, where TFC represents total fixed costs, price is the price per unit, and VC is the variable cost per unit. |
| Price Decrease Impact | A reduction in the selling price of a product leads to an increase in the breakeven point in terms of units sold, meaning more units must be sold to cover total costs. |
| Fixed Cost Increase Impact | An increase in fixed costs, such as adding more facilities or advertising, raises the total cost line and consequently increases the breakeven quantity required to achieve profitability. |
| Variable Cost Increase Impact | An increase in variable costs per unit, when total revenue remains constant, results in higher total costs and thus a higher breakeven point. |
| Cost-Volume-Profit (CVP) Analysis | A management accounting technique that examines the relationship between costs, sales volume, and profitability, with breakeven analysis being a fundamental component of CVP analysis. |
| Internal Factor Evaluation (IFE) Matrix | A strategy-formulation tool used in a strategic-management audit to summarize and evaluate the major strengths and weaknesses within a business's functional areas, providing a foundation for understanding relationships between these areas. |
| Key Internal Factors | The most significant strengths and weaknesses identified during an internal audit process, which are crucial for a firm's success and are used in constructing an IFE Matrix. |
| Weight | A numerical value assigned to each key internal factor, ranging from 0.0 (not important) to 1.0 (all-important), indicating its relative significance to achieving success within the firm's industry. The sum of all weights must equal 1.0. |
| Rating | A score assigned to each factor on a scale of 1 to 4, where 1 signifies a major weakness, 2 a minor weakness, 3 a minor strength, and 4 a major strength. Strengths must receive a rating of 3 or 4, and weaknesses a rating of 1 or 2. |
| Weighted Score | The result of multiplying a factor's assigned weight by its rating. This score quantifies the impact of each factor when considering its importance and its current performance level within the organization. |
| Total Weighted Score | The sum of all individual weighted scores for each factor in the IFE Matrix. This score provides an overall assessment of the organization's internal position, typically ranging from 1.0 (weak) to 4.0 (strong), with an average of 2.5. |
| Actionable Factor | An internal factor that provides specific insights into potential strategies to pursue, often expressed with quantitative data such as percentages, ratios, or comparative numbers, rather than vague statements. |
| Organizational Culture | The shared values, beliefs, norms, and assumptions that guide the behavior of individuals within an organization, influencing how work is done and how people interact. |
| Strategic Implications | The effects or consequences that organizational culture has on an organization's ability to formulate, implement, and achieve its long-term goals and competitive objectives. |
| Cultural Products | Tangible or intangible manifestations of organizational culture, such as symbols, stories, rituals, language, and artifacts, which provide insights into the underlying values and beliefs. |
| Empirical Indicators | Observable and measurable evidence used to assess or evaluate aspects of organizational culture, allowing for a more objective understanding of its presence and impact. |
| Internal Audit | A systematic evaluation of an organization's internal strengths and weaknesses across its various functional areas, including its culture, to inform strategic planning and decision-making. |
| Resource-Based View (RBV) | A strategic management perspective that emphasizes the importance of a firm's unique internal resources and capabilities as the primary source of sustainable competitive advantage. |
| Value Chain Analysis (VCA) | A framework used to examine the discrete activities within an organization that create value for customers, helping to identify sources of competitive advantage and areas for improvement, including cultural aspects. |
| Benchmarking | The process of comparing an organization's performance, processes, or practices against those of industry leaders or best-in-class companies to identify areas for improvement and set performance standards. |
| Distinctive Competencies | Unique strengths or capabilities that an organization possesses, which are difficult for competitors to imitate, and which contribute significantly to its competitive advantage. |
| Core Competence | A fundamental capability that distinguishes an organization from its competitors and provides a significant benefit to customers, often deeply embedded within the organizational culture. |
| External Factor Evaluation (EFE) Matrix | A strategic management tool used to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information. It helps strategists assess how effectively a firm's current strategies respond to external opportunities and threats. |
| Opportunities | Favorable external factors that a firm can potentially leverage to its advantage. In an EFE matrix, these are listed and evaluated for their importance and the firm's response. |
| Threats | Unfavorable external factors that could potentially harm a firm's performance or competitive position. In an EFE matrix, these are also listed and evaluated for their significance and the firm's mitigation strategies. |
| Actionable Factors | External factors that are specific, measurable, and can be directly addressed or influenced by a firm's strategies, rather than being vague or general conditions. |
| Competitive Profile Matrix (CPM) | A strategic tool used to identify a firm's major competitors and assess their strengths and weaknesses in relation to a sample firm's strategic position. It helps in comparative analysis of strategic capabilities. |
| Critical Success Factors (CSFs) | Key elements or attributes that are essential for a firm to achieve success within its industry. In a CPM, these can include both internal and external issues. |
| Market Commonality | The degree to which a firm competes with rivals in the same markets, considering both the number and significance of these shared markets. |
| Resource Similarity | The extent to which a firm's internal resources (e.g., assets, capabilities) are comparable to those of its rivals. |
| Quantitative Strategic Planning Matrix (QSPM) | An analytical technique used in strategy formulation to objectively determine the relative attractiveness of feasible alternative strategies by evaluating them against key external and internal success factors. |
| Key Factors | Critical external opportunities and threats, as well as internal strengths and weaknesses, identified from previous analytical stages (like the EFE and IFE matrices) that are used as the basis for evaluating strategies in the QSPM. |
| Strategic Alternatives | Feasible courses of action or strategies that an organization is considering implementing, derived from matching analyses (like SWOT, SPACE, BCG, IE, and Grand Strategy matrices), which are then evaluated within the QSPM. |
| Weights | Numerical values assigned to each key external and internal factor in the QSPM, identical to those used in the EFE and IFE matrices, representing their relative importance. |
| Attractiveness Scores (AS) | Numerical values (ranging from 1 to 4) assigned to each strategic alternative for a specific key factor, indicating how attractive that strategy is relative to others in capitalizing on strengths, improving weaknesses, exploiting opportunities, or avoiding threats. |
| Total Attractiveness Scores (TAS) | The product of multiplying the weight of a key factor by the Attractiveness Score (AS) assigned to a strategic alternative for that factor, indicating the strategy's attractiveness considering only that specific factor. |
| Sum Total Attractiveness Score (STAS) | The sum of all Total Attractiveness Scores (TAS) for a given strategic alternative across all relevant key factors, revealing which strategy is the most attractive within a set of alternatives. |
| Board of Directors | A group of individuals elected by a corporation's ownership to provide oversight and guidance to management, and to protect the interests of shareholders. |
| Champions | Individuals who are most strongly identified with a particular idea or product and whose personal futures are linked to its success, often assigned responsibility for major new initiatives. |
| Governance | The act of oversight and direction within a corporate enterprise, ensuring that long-term strategic objectives are established and that appropriate management structures are in place to achieve them while maintaining the corporation's integrity and responsibility. |
| Governance Issues | Concerns and challenges related to the system by which companies are directed and controlled, particularly focusing on the responsibilities and accountability of the board of directors. |
| Politics of Strategy Choice | The influence of internal political maneuvering, biases, personal preferences, and the formation of coalitions within an organization on the selection and implementation of strategies. |
| Shareholders | Owners of a corporation who elect the board of directors to oversee management and safeguard their investment interests. |
| Stakeholders | Various constituencies of a corporation, including employees, customers, the community, and governmental bodies, whose interests the board of directors is responsible for considering. |
| Market Segmentation | The process of dividing a broad consumer or business market, normally consisting of existing and potential customers, into sub-groups of consumers (known as segments) based on some type of shared characteristics. This allows businesses to target specific groups with tailored marketing strategies. |
| Product Positioning | The process of developing schematic representations that reflect how products or services compare to competitors on dimensions most important to success in the industry. It involves identifying target customers and then determining how to meet their needs and wants effectively. |
| Retention-Based Segmentation | A marketing strategy that involves tagging active customers with three key values: their risk of canceling service, their worthiness for retention based on predicted post-retention profit versus retention cost, and the most effective retention tactics to employ for "save-worthy" customers. |
| Geographic Segmentation | Dividing a market into different geographical units, such as nations, states, regions, counties, cities, or neighborhoods. This approach recognizes that consumer needs and preferences can vary significantly based on location. |
| Demographic Segmentation | Dividing a market into segments based on variables such as age, gender, family size, family life cycle, income, occupation, education, religion, race, and nationality. These are easily measurable characteristics of populations. |
| Psychographic Segmentation | Dividing a market into different segments based on social class, lifestyle, or personality characteristics. This approach delves into consumers' attitudes, values, interests, and opinions to understand their motivations. |
| Behavioral Segmentation | Dividing a market into segments based on consumer knowledge, attitudes, uses, or responses to a product. This includes variables like occasion for use, benefits sought, user status, usage rate, and loyalty status. |
| Perceptual Map | A visual representation used in product positioning that diagrams a two-dimensional space with specified criteria on each axis. It plots major competitors' products or services, helping companies identify market gaps and potential competitive advantages. |
| Niche | An unserved or underserved segment within a larger market. Identifying and targeting a niche can represent a significant strategic opportunity for a company. |
| Marketing Mix Variables | The set of controllable, tactical marketing tools that a firm blends to produce the response it wants in the target market. These typically include product, place (distribution), promotion, and price. |
| Virtual Communities | Groups of people who congregate on the web through websites that focus on specific topics. These communities allow for more precise targeting of consumer segments by marketers. |
| Company Valuation | The process of determining the economic worth or financial value of a business, which is crucial for implementing strategies like acquisitions, divestitures, or sales. |
| Net Worth (Shareholders' Equity) | The sum of a company's common stock, additional paid-in capital, and retained earnings, representing the owners' stake in the business. |
| Goodwill | An intangible asset that arises when a company acquires another firm and pays more than the book value for it, representing the premium paid for factors not otherwise reflected on the balance sheet. |
| Intangibles | Non-physical assets of a company, such as copyrights, patents, and trademarks, which contribute to its value but do not have a physical form. |
| Price-Earnings Ratio Method | A valuation approach that involves dividing the market price of a firm's common stock by its annual earnings per share and then multiplying this result by the firm's average net income over a specified period, typically five years. |
| Outstanding Shares Method (Market Capitalization) | A valuation method that calculates a company's worth by multiplying the total number of its outstanding shares by the current market price per share. |
| Premium | The amount a buyer is willing to pay above the book value or market price of a company's stock to gain control or acquire the business. |
| Discount | The difference when the purchase price of a company is less than the calculated market value based on outstanding shares and stock price. |
| Retained Earnings | The portion of a company's net income that is not distributed to shareholders as dividends but is reinvested back into the business. |
| Operating Income | The profit a company generates from its core business operations before accounting for interest and taxes, calculated as Gross Profit minus SG&A Expenses, Depreciation & Amortization, and Nonoperating Income/Expenses. |
| Gross Profit Margin | A profitability ratio calculated by dividing Gross Profit by Revenue, indicating the percentage of revenue that remains after deducting the Cost of Goods Sold. |
| SG&A Expense | Selling, General, and Administrative expenses, which are the costs incurred in the normal operation of a business, excluding the cost of goods sold and depreciation. |
| Business Analytics | A management information system (MIS) technique that utilizes software to analyze vast amounts of data, aiding executives in decision-making. It is also referred to as predictive analytics, machine learning, or data mining, and it allows for the assessment and utilization of an organization's collective experience as a strategic asset. |
| Data Mining | A process within business analytics that involves extracting valuable insights and patterns from large datasets. This technique is used to assess and leverage an organization's historical interactions with customers, suppliers, distributors, employees, and competitors to generate predictive models. |
| Management Information System (MIS) | A system that gathers, assimilates, and evaluates external and internal information to facilitate strategic management. An effective MIS is crucial for gaining competitive advantages, enabling actions like cross-selling, supplier monitoring, employee communication, activity coordination, and fund management. |
| Research and Development (R&D) | The process of developing new products and improving existing ones to support effective strategy implementation. R&D personnel are responsible for tasks such as technology transfer, process adjustment to local resources, market adaptation, and product alteration to meet specific tastes and specifications. |
| R&D Policy | Guidelines that dictate how a company approaches research and development activities. These policies can emphasize product or process improvements, the balance between basic and applied research, the firm's position as an R&D leader or follower, the type of processes to develop, R&D spending levels, whether R&D is performed internally or outsourced, and the use of university versus private-sector researchers. |
| Annual Objectives | These are specific, measurable, achievable, relevant, and time-bound goals set for a single year that are essential for strategy implementation, serving as a basis for resource allocation, manager evaluation, progress monitoring, and priority setting. |
| Strategy Execution | The process of implementing a company's strategic plan, which involves translating strategic goals into actionable steps and ensuring that organizational resources and efforts are aligned to achieve those goals. |
| Resource Allocation | The process of assigning an organization's financial, physical, human, and technological resources to specific divisions, departments, or activities to achieve desired objectives, guided by strategic priorities. |
| Policies | Specific guidelines, methods, procedures, rules, forms, and administrative practices established to support and encourage work toward stated goals, acting as instruments for strategy implementation by setting boundaries and clarifying expectations. |
| Competitive Intelligence | The systematic gathering and distribution of information about competitors' accomplishments, products, plans, actions, and performance, enabling all organizational members to benchmark their efforts against best-in-class competitors. |
| Hierarchy of Objectives | A structured system where annual objectives are established across different hierarchical levels of an organization, ensuring consistency and creating a network of supportive aims that align with long-term objectives. |
| Conflict Management | The process of addressing and resolving disagreements between individuals or groups within an organization that arise from interdependencies, competition for resources, differing expectations, or misunderstandings, aiming to prevent negative impacts on performance. |
| Decentralized Activity | A task or process that is not managed or controlled by a single central authority but is distributed among various individuals or groups within an organization, such as the establishment of annual objectives. |
| Performance Standards | Benchmarks or criteria used to evaluate the effectiveness and efficiency of individual or organizational performance, often derived from established objectives. |
| Motivation | The internal and external factors that stimulate desire and energy in people to be continually interested and committed to a job, role, or subject, or to make an effort to attain a goal. |
| Organizational Design | The process of structuring an organization to achieve its strategic goals, including defining roles, responsibilities, reporting relationships, and communication channels. |
| Corporate Wellness Programs | These are initiatives implemented by companies to promote the health and well-being of their employees, often involving incentives for healthy behaviors and resources for lifestyle improvement. |
| Return on Investment (ROI) | A metric used to evaluate the profitability of an investment, in this context, referring to the financial gains a company realizes from its corporate wellness programs relative to the costs incurred. |
| Wellness Incentives | Rewards or benefits offered to employees who engage in healthy behaviors or achieve specific health-related goals, such as monetary rewards for medical check-ups or participation in fitness challenges. |
| Health Insurance Premiums | The amount of money paid by an individual or employer to an insurance company for health coverage. Companies often adjust these premiums based on employee health behaviors, like smoking status. |
| Onsite Exercise Classes | Fitness activities, such as yoga or aerobics, that are offered at the company's premises, providing employees with convenient access to physical activity as part of a wellness program. |
| Tobacco-Free Facilities | A policy implemented by companies to prohibit smoking and other tobacco use within all of their operational buildings and grounds, aiming to improve employee health and reduce healthcare costs. |
| Voluntary Turnover | The rate at which employees choose to leave an organization. Effective wellness programs are cited as a factor in reducing this rate by improving employee satisfaction and well-being. |
| Stress Management | Strategies and techniques employed by individuals and organizations to cope with and reduce the negative effects of stress on physical and mental health, often a component of comprehensive wellness programs. |
| Physical Wellness | A dimension of overall well-being that focuses on the health of the body, including aspects like nutrition, exercise, and preventative healthcare, which are often addressed by corporate wellness initiatives. |
| Financial Wellness | A component of employee well-being that relates to an individual's financial health, including their ability to manage money, save, and plan for the future. Some wellness programs incorporate this aspect. |
| Spiritual Wellness | A dimension of well-being that pertains to an individual's sense of purpose, meaning, and connection to something larger than themselves. This can be supported through various company initiatives. |
| Healthy Lifestyle Documentation | The process by which employees provide evidence of maintaining healthy habits, such as regular exercise or healthy eating, often required to qualify for certain wellness program benefits or discounts. |
| Strategy Evaluation | The process of examining the underlying bases of a firm's strategy, comparing expected results with actual results, and taking corrective actions to ensure that performance conforms to plans. It is vital for alerting management to problems before they become critical. |
| Consistency (Rumelt's Criteria) | A criterion for evaluating strategies, ensuring that a strategy does not present conflicting goals and policies. Inconsistent strategies can manifest as persistent managerial problems, interdepartmental conflict, or issues that require constant escalation to top management for resolution. |
| Consonance (Rumelt's Criteria) | A criterion for strategy evaluation that requires examining sets of trends, not just individual ones, to ensure the strategy is an adaptive response to the external environment and its critical changes. It acknowledges that trends often interact, creating complex shifts. |
| Feasibility (Rumelt's Criteria) | A criterion for strategy evaluation that assesses whether a strategy can be implemented within the available physical, human, and financial resources of the enterprise. It considers both quantifiable financial limitations and less quantifiable but often more rigid limitations of organizational capabilities and individual skills. |
| Advantage (Rumelt's Criteria) | A criterion for strategy evaluation focused on whether a strategy provides for the creation or maintenance of a competitive advantage. This advantage typically stems from superiority in resources, skills, or strategic positioning, where a strong position can deter rivals and be self-sustaining. |
| Corrective Actions | The final activity in strategy evaluation, involving making changes to reposition a firm for the future. These actions can include altering organizational structure, replacing key individuals, revising objectives, developing new policies, or reallocating resources to address deviations from plans. |
| Measuring Organizational Performance | A key strategy evaluation activity that involves comparing expected results with actual results, investigating deviations from plans, evaluating individual performance, and examining progress toward stated objectives. This includes both quantitative and qualitative assessments. |
| Balanced Scorecard | A strategy evaluation and control technique developed by Robert Kaplan and David Norton, which balances traditional financial measures with non-financial metrics like product quality and customer service to provide a more comprehensive view of organizational performance and strategic alignment. |
| Contingency Plans | Alternative plans developed to be implemented if specific key events do not occur as anticipated, designed to minimize the impact of potential threats or capitalize on unexpected opportunities and ensure a timely response to changes. |
| Auditing | A systematic and objective process of obtaining and evaluating evidence about economic actions and events to determine their correspondence with established criteria, and then communicating the findings to relevant stakeholders. |
| Art vs. Science in Strategy | The debate over whether strategic management should be primarily based on systematic analysis, research, and objective evaluation (science) or on holistic thinking, intuition, creativity, and imagination (art), with the understanding that both approaches can be integrated. |
| Visible vs. Hidden Strategy | The strategic decision of whether to openly communicate strategies to all stakeholders within the firm to foster commitment and input, or to keep them secret from rivals and potentially some internal parties to maintain a competitive advantage through deception. |
| Top-Down vs. Bottom-Up Approach | Two contrasting philosophies for strategy formulation: the top-down approach, where top executives make key decisions based on their experience, and the bottom-up approach, which emphasizes the involvement of lower- and middle-level managers and employees in the process to ensure implementation support and commitment. |
| GAAS, GAAP, and IFRS | Acronyms representing accounting and auditing standards: Generally Accepted Auditing Standards (GAAS) and Generally Accepted Accounting Principles (GAAP) are traditional U.S. standards, while International Financial Reporting Standards (IFRS) are global standards increasingly being adopted to simplify and standardize financial reporting across countries. |
| Case Analysis | A detailed examination and evaluation of a specific situation, problem, or business scenario to understand its underlying factors, identify potential solutions, and recommend a course of action. |
| Oral Presentation | A verbal delivery of a case analysis to an audience, typically involving visual aids, where the presenter explains findings, supports recommendations, and engages with questions. |
| Mission Statement | A concise declaration of a company's purpose, defining its core business, target customers, and overall objectives, answering the question "What is our business?". |
| Vision Statement | An aspirational declaration of what a company aims to become in the future, outlining its long-term goals and desired state, answering the question "What do we want to become?". |
| Internal Assessment | The process of evaluating a company's internal strengths and weaknesses, including its financial health, organizational structure, marketing strategies, and operational capabilities. |
| External Assessment | The process of evaluating a company's external environment, including identifying major competitors, analyzing industry trends, and recognizing opportunities and threats. |
| SWOT Matrix | A strategic planning tool used to identify a company's Strengths, Weaknesses, Opportunities, and Threats, which helps in formulating strategies by aligning internal capabilities with external factors. |
| SPACE Matrix | A strategic management tool used to determine a company's strategic position by evaluating four dimensions: Financial Strength, Competitive Advantage, Environmental Stability, and Industry Strength. |
| BCG Matrix | The Boston Consulting Group (BCG) Matrix is a business tool that helps companies analyze their product lines or business units based on market share and market growth rate, categorizing them as stars, cash cows, question marks, or dogs. |
| IE Matrix | The Internal-External (IE) Matrix is a strategic management tool that plots business units based on their internal (IFE Matrix scores) and external (EFE Matrix scores) strategic positions, guiding strategic decisions. |
| Grand Strategy Matrix | A strategic planning tool that plots organizations based on their competitive position and market growth rate, suggesting four broad strategy types: aggressive, conservative, defensive, and competitive. |
| U.S. Domestic Package Segment | This segment of UPS focuses on the timely delivery of small packages within the United States, offering customers various delivery speed options from same-day to standard shipping, typically within one to three business days. |
| International Package Segment | This segment encompasses all of UPS's package operations conducted outside of the United States, providing a range of price and delivery options for urgent and traditional shipments across different countries and regions. |
| Supply Chain and Freight Segment | This division of UPS offers comprehensive logistics services, including freight forwarding, customs brokerage, distribution, UPS freight services for long-haul transportation, and financial solutions through UPS Capital, managing complex supply chains globally. |
| Freight Forwarder | A freight forwarder, also known as a forwarding agent, is a company or individual that organizes shipments for individuals or businesses, managing the transportation of goods from the manufacturer to the market or final distribution point without typically being the carrier themselves. |
| UPS Freight | This is the long-haul transportation segment of UPS, responsible for the long-distance movement of packages across all 50 U.S. states, several U.S. territories, and Mexico. |
| UPS Capital | This entity within UPS provides financial services to customers, including export and import financing, as well as solutions for protecting goods and managing payments. |
| SurePost | An alliance between UPS and the United States Postal Service (USPS) where UPS handles the long-haul ground transportation for non-urgent, lightweight shipments, and USPS completes the final delivery to the customer's home. |
| Average Daily Package Volume | This metric represents the total number of packages handled and delivered by UPS on an average day within a specific segment or region, often measured in thousands. |
| Average Revenue Per Piece | This is a key financial metric that indicates the average amount of revenue UPS generates for each individual package delivered within a particular service or segment. |
| Operating Profit | This represents the profit a company generates from its core business operations before accounting for interest expenses and taxes, calculated by subtracting total operating expenses from total revenue. |
| Operating Margin | This is a profitability ratio that measures how much profit a company makes for every dollar of sales, calculated by dividing operating profit by total revenue and expressed as a percentage. |
| TNT Express N.V. Acquisition | This refers to UPS's significant acquisition of TNT Express, an international courier delivery services company, aimed at expanding UPS's operations, particularly in Europe, and strengthening its global presence. |
| Brick-and-mortar retailers | Traditional physical stores that customers can visit to purchase goods, such as Best Buy, Wal-Mart, and Target, which compete with online retailers by offering a physical presence and established customer trust. |
| E-commerce websites | Online platforms where businesses sell products and services directly to consumers over the internet, representing a direct competitive threat to Amazon's online sales model. |
| Hybrid retailers | Retailers that operate both physical brick-and-mortar stores and an online e-commerce presence, attempting to leverage the advantages of both channels to compete in the market. |
| Pure e-tailers | Companies that exclusively operate online, selling goods and services through websites without a physical retail presence, directly competing with Amazon's primary business model. |
| Direct competitors | Businesses that offer similar products or services to the same customer base, directly vying for market share with Amazon, including other online retailers, physical stores, and product manufacturers. |
| Indirect competitors | Companies that do not offer the same products or services but compete for customer attention, time, or budget, such as media companies, comparison shopping websites, and search engines that influence purchasing decisions. |
| Fulfillment companies | Third-party businesses that specialize in managing inventory, warehousing, packing, and shipping orders for other companies, acting as an indirect competitor by providing essential infrastructure services. |
| Cloud service | A model of computing where resources like storage and processing power are delivered over the internet, exemplified by Amazon's music cloud service, which allows users to store and access digital content remotely. |
| Strategic alliance | A cooperative agreement between two or more companies to pursue a common goal, such as Amazon's alliance with McGraw-Hill to target the higher education market with Kindle devices. |
| Customer-centric company | A business philosophy that places the customer at the core of all operations and decision-making, aiming to understand and meet customer needs and desires, as stated in Amazon's mission. |
| Associates Program | An affiliate marketing program where Amazon partners with other websites to drive traffic and sales to Amazon.com, paying commissions for successful referrals, thereby expanding its reach. |
| Amazon Prime | A fee-based membership program offering benefits like free two-day shipping, designed to enhance customer loyalty and encourage increased purchasing frequency and variety from Amazon. |
| Cloud Computing Business | Refers to Amazon's aggressive expansion into providing computing services over the internet, including data centers and web services, which is a significant area of investment and revenue generation for the company. |
| Customer Loyalty Program | Programs designed to retain customers by offering benefits and incentives for continued patronage, with Amazon Prime being highlighted as a particularly effective example in the e-commerce sector. |
| Fulfillment Centers | Facilities dedicated to storing, processing, and shipping orders, with Amazon significantly expanding its network of these centers to ensure fast and reliable delivery of products to customers. |
| Innovation | A core management focus for Amazon, emphasizing continuous development and enhancement of proprietary software and the acquisition or licensing of external technologies to improve customer convenience and shopping experience. |
| iPhone Application | A mobile application developed by Amazon for iPhones, enabling users to scan product barcodes in physical stores and compare prices with Amazon.com, leveraging smartphone technology for comparison shopping. |
| Look Inside the Book / Search Inside the Book | Features integrated into Amazon's website that allow customers to preview book content digitally, enhancing the information-rich environment and aiding purchasing decisions by providing deeper product insights. |
| One-Click Purchases | A patented technology that allows customers to complete a purchase with a single click after their payment and shipping information has been stored, significantly streamlining the checkout process and enhancing convenience. |
| Proprietary Technology | Technology developed in-house by Amazon, which the company invests in and enhances to maintain a competitive edge and personalize customer shopping experiences across its various platforms and services. |
| Subscription for TV Viewing | A developing service by Amazon aimed at delivering content to television viewers over the internet, positioning Amazon as a competitor in the digital media streaming market against established players like Netflix and Hulu. |
| Technology and Content | A significant operating expense category for Amazon, encompassing investments in software development, digital initiatives, and content acquisition, crucial for maintaining and improving its technological infrastructure and service offerings. |
| Demographic Trends | Shifts in population characteristics such as age, income, and consumer preferences that significantly influence demand within the apparel retail industry. These trends dictate purchasing patterns and the types of products consumers seek. |
| Economic Trends | Factors related to the overall health of the economy, including unemployment rates, inflation, disposable income, and consumer confidence, which directly impact consumer spending power and the demand for apparel. |
| Global Trends | International developments such as trade deficits, export/import growth rates, and the impact of international competitors that influence the supply chain, costs, and market access for apparel retailers. |
| Trade Restrictions | Government-imposed limitations on international trade, such as tariffs, quotas, embargoes, and customs regulations, which can increase the cost or limit the availability of imported apparel. |
| Product Differentiation | The strategic process by which companies create unique products that stand out from competitors, allowing them to command higher prices and build brand loyalty in a competitive market. |
| Global Branding | The practice of establishing a consistent and recognizable brand identity across multiple international markets to enhance market presence and consumer recognition. |
| Economies of Scale | The cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output decreasing as the scale of production increases, making larger production runs more profitable. |
| Pricing Pressures | The competitive forces that compel retailers to lower prices, often due to the presence of discounters, outlet stores, and consumer willingness to wait for sales, impacting profit margins. |
| Promotional Pricing | A sales strategy involving temporary price reductions to stimulate demand, often leading to lower prices at introduction and larger end-of-season markdowns to clear inventory. |
| Lead Time | The duration between the initiation and completion of a production process, which for offshore manufacturing can be lengthy and make it difficult for companies to respond quickly to immediate customer needs. |
| Distribution Channels | The various pathways through which products reach the consumer, including physical retail stores, online platforms, and outlet stores, each with its own strategic implications. |
| Quick Response Time | The ability of a retailer to rapidly supply products to meet customer demand, which is crucial in the apparel industry where consumers may purchase substitutes if immediate availability is not met. |
| Compound Growth Rate | The average annual rate of growth over a specified period, assuming that profits are reinvested at the end of each year. It is calculated as the geometric progression ratio that provides a constant rate of growth over time. |
| Contract Business | A segment of an office supply company's operations that sells directly to medium to large businesses and government customers, offering negotiated contract pricing rather than item-by-item retail pricing. |
| Distribution Centers | Centralized facilities where companies stockpile inventories to service regional stores with products tailored to local demand, crucial for managing supply chains and achieving flexibility in distribution systems. |
| Global Expansion | The strategic initiative undertaken by companies in the office supply industry to broaden their market reach by establishing operations and sales in countries outside their home market. |
| Green Initiatives | Business practices and programs focused on environmental sustainability, such as reducing paper usage, implementing recycling programs, and offering eco-friendly products. |
| Inventory Management | The process of overseeing the ordering, storing, and tracking of inventory to ensure that the right amount of stock is available to meet demand without incurring excessive holding costs. |
| Market Share | The portion of a market controlled by a particular company or product, often expressed as a percentage of total sales in that industry. |
| Retail Outlets | Physical stores where office supply products are sold directly to end consumers, offering a standard range of products and often additional services like copying and printing. |
| Supply Chain | The network of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer, encompassing all stages from raw materials to final delivery. |
| Warehousing | The process of storing goods in a warehouse, typically for later sale or distribution, which is a significant investment for office supply companies to manage large inventories centrally. |
| Revenue | The total income generated by Domino's from its various business segments, including domestic company-owned stores, domestic franchise fees, domestic supply chain operations, and international sales, before deducting costs and expenses. |
| Cost of Sales | The direct costs attributable to the production and sale of goods and services sold by Domino's, including the cost of ingredients, manufacturing, and distribution for its supply chain operations. |
| General and Administrative Expenses | Costs incurred by Domino's that are not directly related to the production or delivery of its products, such as salaries for executive and administrative staff, office rent, and legal fees. |
| Income from Operations | The profit generated from Domino's core business activities after accounting for both the cost of goods sold and operating expenses, but before considering interest and taxes. |
| Interest Expense | The cost incurred by Domino's for borrowing money, typically from loans or bonds, which is paid to lenders. |
| Income Before Provision for Income Taxes | The profit earned by Domino's before the deduction of taxes, calculated by adding interest income and subtracting interest expense and other income/expenses from the income from operations. |
| Provision for Income Taxes | The amount of income tax that Domino's is liable to pay to the government based on its taxable income for a given period. |
| Net Income | The company's total profit for a period after all expenses, including taxes and interest, have been deducted from its total revenues. |
| Earnings Per Share (EPS) | A financial metric that represents the portion of a company's profit allocated to each outstanding share of common stock, indicating profitability on a per-share basis. |
| Current Assets | Assets of Domino's that are expected to be converted into cash, sold, or consumed within one year or the operating cycle, whichever is longer, such as cash, accounts receivable, and inventories. |
| Property, Plant, and Equipment (Net) | The net book value of Domino's tangible long-term assets used in its operations, including land, buildings, and equipment, after deducting accumulated depreciation. |
| Gross Profit | The profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services. |
| Income Before Tax | The profit of a company before the deduction of income taxes. |
| Profit Margin | A profitability ratio that measures how much profit is generated as a percentage of revenue. It is calculated as Net Income divided by Revenue. |
| Market Capitalization | The total market value of a company's outstanding shares of stock, calculated by multiplying the current share price by the total number of shares outstanding. |
| Direct-Seller | A business model where products are sold directly to consumers, typically through independent sales representatives rather than through retail stores. |
| Brand Names | Distinctive names, terms, designs, symbols, or any other features that identify one seller's good or service as distinct from those of other sellers. |
| Licensee | An entity that is granted permission by a licensor to use intellectual property, such as a brand name or patent, in exchange for royalties or fees. |
| Franchise | A business model where an individual or group (franchisee) is granted the right to operate a business under the brand and system of an established company (franchisor). |
| Beverage Concentrates | These are the core flavorings and ingredients that beverage companies sell to bottlers, who then add water, carbonation, and packaging to create the final beverage product. DPS produces these concentrates for many of its brands. |
| Direct-Store-Delivery (DSD) | A distribution model where the manufacturer or bottler delivers products directly to retail stores, bypassing intermediate distributors. This model allows for greater control over product placement and inventory management at the retail level. |
| Segment Operating Profit (SOP) | A measure of profitability for a specific business segment within a larger company. It represents the profit generated by that segment before accounting for unallocated corporate costs and other non-operating expenses. |
| Net Sales | The total revenue generated from the sale of goods and services after deducting returns, allowances, and discounts. This figure represents the top-line revenue of the company. |
| Income (Loss) from Operations | This metric indicates the profitability of a company's core business operations before considering interest expenses, taxes, and other non-operating income or expenses. It is a key indicator of operational efficiency. |
| Weighted Average Common Shares Outstanding | The average number of a company's common shares that are outstanding over a specific period, adjusted for any stock splits or issuances. This is used in the calculation of earnings per share. |
| Intangible Assets | Non-physical assets that have value, such as patents, trademarks, copyrights, and goodwill. These assets can contribute significantly to a company's competitive advantage and profitability. |
| Stockholders' Equity | The residual interest in the assets of a company after deducting liabilities. It represents the ownership stake of shareholders in the company and includes common stock, additional paid-in capital, and retained earnings. |
| Cost of Goods Sold (COGS) | The direct costs attributable to the production or purchase of the goods sold by a company during a period. This includes materials and direct labor costs. |
| Selling, General, and Administrative Expenses (SG&A) | Expenses incurred by a company in the normal course of business, excluding the cost of goods sold. This includes marketing, sales, and administrative costs. |
| Two-Prong Strategy | A business approach involving two distinct areas of focus: protecting existing core businesses and aggressively pursuing high-growth opportunities in emerging markets. |
| MIDH Revenues | Revenues generated from Mobile Internet Digital Home businesses, which include smartphones, tablets, and smart televisions. |
| Information Technology (IT) Company | A business that provides products and services related to the development, maintenance, and use of computer systems, software, and telecommunications. |
| Operating System (OS) | The fundamental software that manages computer hardware and software resources and provides common services for computer programs, such as Windows or iOS. |
| Profit Decline | A decrease in a company's profits over a specific period, often indicating financial challenges or increased competition. |
| Write Down | An accounting charge that reduces the book value of an asset when its market value has fallen significantly below its carrying value on the balance sheet. |
| Infrastructure-as-a-Service (IaaS) | A cloud computing service model that provides virtualized computing resources over the internet, including servers, storage, and networking. |
| Strategic Partnership | A formal agreement between two or more companies to collaborate on specific business objectives, sharing resources and expertise to achieve mutual benefits. |
| Retail Business Unit (RBU) | This business unit focuses on home networking, storage, and digital media products designed to connect users with the Internet and their digital content and devices. It is a key segment for Netgear's consumer market offerings. |
| Service Provider Business Unit (SPBU) | This unit provides networking solutions, including made-to-order and retail-proven whole-home networking systems, which are sold to service providers for distribution to their end customers. |
| Commercial Business Unit (CBU) | This business unit offers relatively low-cost networking, storage, and security solutions specifically tailored for business environments, providing essential infrastructure for smaller enterprises. |
| Ethernet Switches | Devices that connect multiple devices on a computer network, forwarding data packets between them. They are a fundamental component of local area networks (LANs). |
| Wireless Controllers | Devices that manage and control wireless access points, enabling centralized configuration and monitoring of Wi-Fi networks, particularly in business settings. |
| Routers | Networking devices that direct data traffic between different computer networks, including connecting a local network to the Internet. They are essential for enabling Internet access. |
| DOCSIS 3.0 | Data Over Cable Service Interface Specification version 3.0, a standard that allows for high-speed data transfer over existing cable television infrastructure, enabling faster internet services. |
| Channel Bonding | A feature of DOCSIS 3.0 that aggregates multiple downstream and upstream channels to increase data transfer speeds, significantly enhancing broadband performance. |
| MoCA (Multimedia over Coax Alliance) | A standard that enables high-speed data and video distribution over existing coaxial cable networks within a home, facilitating seamless connectivity for various devices. |
| Original Design Manufacturer (ODM) | A manufacturing approach where a company defines the product and its specifications, and then a third-party manufacturer develops, designs, and produces the product based on those requirements. |
| In-House Development | A product development methodology where the entire design and coordination process is managed internally by the company's own engineers, offering greater control over the development lifecycle. |
| Value Added Resellers (VARs) | Businesses that purchase products from a vendor and add value to them before reselling them to end-users, often by bundling services, software, or hardware. |
| Strategic Plan | A comprehensive game plan formulated and implemented to achieve sustainable competitive advantage for a business. |
| Strategic Management | The ongoing process of formulating, implementing, and evaluating strategies that enable an organization to achieve its objectives. |
| Competitive Advantage | A condition or circumstance that puts a company in a favorable or superior business position compared to its rivals. |
| Skills-Oriented Approach | An educational approach that emphasizes the practical application of knowledge and the development of specific abilities needed in a profession, as opposed to a purely theoretical one. |
| Theory-Based Approach | An educational approach that focuses on abstract concepts, principles, and research findings, often without direct emphasis on practical application. |
| Strategy Formulation | The process of developing a clear strategic plan, including defining vision and mission, scanning environments, and developing and selecting strategies. |
| Strategy Implementation | The process of putting formulated strategies into action, which involves aspects like corporate culture, organizational structure, and marketing. |
| Environmental Scanning | The process of gathering and analyzing information about the internal and external environments of an organization to identify opportunities and threats. |
| Assurance of Learning Exercises | Activities designed to help students apply chapter concepts and techniques, often used to assess student understanding and prepare them for case analysis. |
| Acquisition | The act of a company purchasing most or all of another company's shares to gain control. This is a common strategy for growth and market expansion. |
| Backward Integration | A strategy where a company purchases its suppliers to gain control over the inputs of its production process. This can lead to cost savings and improved supply chain reliability. |
| Bankruptcy | A legal process where a company that cannot repay its debts declares insolvency. This can result in the liquidation of assets or a restructuring of the business to attempt to become solvent again. |
| Business-Process Outsourcing (BPO) | The practice of contracting out specific business functions, such as customer service or payroll, to external third-party providers. This is often done to reduce costs or improve efficiency. |
| Combination Strategy | A strategic approach that involves pursuing multiple strategies simultaneously or in quick succession to achieve organizational goals. This allows for flexibility and adaptation to changing market conditions. |
| Cooperative Arrangements | Agreements between two or more independent organizations to work together towards a common goal, without merging or acquiring each other. These can take various forms, such as alliances or joint ventures. |
| Cost Leadership | A generic strategy where a company aims to be the lowest-cost producer in its industry. This is achieved through efficient operations, economies of scale, and tight cost control, allowing for competitive pricing. |
| De-integration | The process of divesting or selling off parts of a company's operations that were previously integrated, often to focus on core competencies or improve profitability. |
| Differentiation | A generic strategy focused on creating products or services that are perceived as unique and valuable by customers. This uniqueness allows the company to command a premium price and build strong brand loyalty. |
| Diversification Strategies | A corporate strategy that involves expanding into new industries or markets that are different from the company's current core business. This can reduce risk by spreading investments across various ventures. |
| Divestiture | The act of selling off a part of a company's business, such as a division or subsidiary. This is often done to streamline operations, raise capital, or exit unprofitable ventures. |
| Dividend Recapitalizations | A financial strategy where a company takes on new debt to pay a large dividend to its shareholders. This can be a way to return value to investors without selling the company. |
| Organizational Structure | The formal arrangement of roles, responsibilities, and reporting relationships within an organization, which dictates how objectives and policies are established and how resources are allocated. |
| Functional Structure | An organizational design where tasks and activities are grouped by business function, such as production, marketing, and finance, promoting specialization and efficient use of talent but potentially leading to narrow thinking and communication problems. |
| Divisional Structure | A decentralized organizational design where activities are grouped by geographic area, product, customer, or process, allowing for clear accountability and local control, but can be costly due to duplication of functions. |
| Divisional Structure by Geographic Area | A divisional structure organized based on distinct geographic regions, suitable for organizations whose strategies require tailoring to the specific needs of customers in different locations. |
| Divisional Structure by Product | A divisional structure organized around specific products or services, most effective when these items require special emphasis or differ substantially from each other. |
| Divisional Structure by Customer | A divisional structure organized to cater to the requirements of clearly defined customer groups, particularly effective when a few major customers are of paramount importance. |
| Divisional Structure by Process | A divisional structure where activities are organized according to the way work is performed, similar to a functional structure but with divisional process departments accountable for profits and revenues. |
| Strategic Business Unit (SBU) Structure | An organizational structure that groups similar divisions into larger units (SBUs) to improve coordination and delegate authority, making strategy implementation and corporate-level planning more manageable. |
| Span of Control | The number of subordinates a manager can effectively supervise; a large span of control can be a symptom of an ineffective organizational structure. |
| Concatenation | The linking together of several basic strategies, often resulting in an increase in the complexity of an organization's structure as it grows. |
| Reengineering | A process of fundamentally rethinking and redesigning business processes to achieve dramatic improvements in critical measures of performance, such as cost, quality, service, and speed. |
| Restructuring | The process of reorganizing a company's legal, financial, or operational structure, often to improve efficiency or adapt to changing market conditions. |
| Matrix Structure | A complex organizational design characterized by dual flows of authority and communication, both vertical and horizontal. This structure often involves employees reporting to multiple managers, leading to shared authority and potential complexities in communication and accountability. |
| Unity of Command Principle | A fundamental management principle stating that each employee should report to and be accountable to only one supervisor. This principle is often challenged in structures like the matrix, where dual reporting lines can exist. |
| Divisional Structure by Region | An organizational structure where divisions are organized based on geographical locations. This allows companies to better address the unique market conditions, customer preferences, and regulatory environments of different regions. |
| Chief Executive Officer (CEO) | The highest-ranking executive in a company, responsible for overall management and strategic direction. The title is typically reserved for the top executive of the entire firm. |
| Chief Operating Officer (COO) | A senior executive responsible for overseeing the day-to-day administrative and operational functions of a company. In many organizational structures, division presidents report directly to the COO. |
| Chief Financial Officer (CFO) | The executive responsible for managing the financial actions of a company, including financial planning, risk management, record-keeping, and financial reporting. |
| Chairperson of the Board | The presiding officer of a company's board of directors. It is increasingly common for this role to be separate from the CEO position to ensure better governance and oversight. |
| Consolidated Net Sales | The total revenue generated from all of Amazon's business segments and geographic regions, combined into a single figure for reporting purposes. |
| Geographic Segments | Amazon categorizes its operations into two primary geographic segments: North America and International, which are used for reporting financial performance and sales data. |
| Media Sales | Revenue generated from the sale of media products, which includes books, music, DVDs, and other related content, representing a significant portion of Amazon's historical sales. |
| Electronics and Other General Merchandise | This category encompasses a broad range of products sold by Amazon, including consumer electronics, toys, home goods, and apparel, and has shown significant growth in recent years. |
| Other Services | This segment includes non-retail activities that contribute to Amazon's revenue, such as Amazon Web Services (AWS), revenue from third-party seller sites, and income from co-branded credit card agreements. |
| Year-Over-Year Percentage Growth | A metric used to measure the increase or decrease in a company's financial performance, such as net sales, compared to the same period in the previous year. |
| Net Sales Mix | The proportion of total net sales contributed by different product categories or geographic segments, indicating the relative importance and performance of each. |
| Fulfillment | The process of receiving, processing, and delivering customer orders, which includes warehousing, inventory management, picking, packing, and shipping, and is a critical operational component for Amazon. |
| Hub-and-spoke distribution network | A distribution system where goods are sent from a central hub to various spokes, enabling efficient and quick shipment to individual locations without requiring them to hold significant inventory. |
| Multichannel platform | A business strategy that integrates various sales and marketing channels, such as physical stores, websites, and catalogs, to provide a seamless customer experience and reach a wider audience. |
| Product mix | The range of products a company offers for sale. Staples is evolving its product mix to include digital devices and expand its own branded products to improve margins and control over supply. |
| Retail store operations | The day-to-day management and functioning of physical retail locations, including stocking, customer service, and in-store services like copy centers and shipping. |
| Staples Contract | A business-to-business (B2B) operation within the North American Delivery segment that provides customized services and products to medium-sized and large companies. |
| Staples.com | The company's official website, which serves as a significant sales channel offering a vast selection of products and facilitating order processing and delivery options. |
| Supplier Code of Conduct | A set of ethical and operational standards that suppliers must adhere to, emphasizing compliance with labor and environmental laws and regulations, and often involving audits of their facilities. |
| Sustainable Procurement and Ethical Sourcing | Practices focused on acquiring goods and services in a way that minimizes environmental impact and ensures fair labor practices throughout the supply chain. |
| Throughput | The rate at which goods are processed or sold through a system. Maximizing store-level throughput is a key objective for Staples, particularly with high-volume corporate purchasers. |
| Paperless Office | A theoretical office environment where paper is largely or entirely eliminated through the widespread adoption of digital technologies for record-keeping, document creation, and communication. |
| Environmental Sustainability | A business practice and consumer concern focused on minimizing negative impacts on the environment, leading to initiatives like reducing waste, conserving resources, and adopting eco-friendly supply chains within industries. |
| Gross Domestic Product (GDP) Growth | The rate at which the total value of goods and services produced in a country increases over a specific period, indicating the overall health and expansion of the economy. |
| Unemployment Rate | The percentage of the labor force that is jobless and actively seeking employment, serving as a key indicator of economic conditions and consumer spending potential. |
| Consumer Confidence | The degree of optimism or pessimism consumers feel about the overall state of the economy and their personal financial situation, which significantly influences their willingness to spend. |
| Federal Stimulus Money | Funds provided by the federal government to boost economic activity, often through direct payments, tax breaks, or increased spending on public projects, which can impact state and local budgets when depleted. |
| Disposable Income | The amount of money that households have available for spending and saving after income taxes and other mandatory charges have been deducted, directly affecting consumer purchasing power. |
| Commodities Prices | The market value of raw materials such as oil, metals, and agricultural products, which can exert pressure on both consumer and business budgets when they rise significantly. |
| Price Sensitivity | The degree to which the price of a product or service affects consumer demand; in a price-sensitive market, even small price changes can lead to significant shifts in purchasing behavior. |
| Mobile Technologies | Devices such as smartphones and tablets that offer portable computing and internet access, which can alter consumer behavior and reduce reliance on traditional office supply products. |
| Distribution Systems | The methods and infrastructure used to move products from manufacturers or suppliers to end consumers, encompassing warehousing, transportation, and retail channels. |
| Dual Listed Company (DLC) | A corporate structure where two separate companies, incorporated in different jurisdictions, operate as a single economic entity, often for tax or regulatory advantages. Carnival Corporation and Carnival plc operate under this structure. |
| Fun Ship | A marketing term used by Carnival Cruise Lines to describe their vessels, emphasizing a lively, entertainment-focused, and family-friendly vacation experience. |
| Lower Berth | A standard passenger accommodation unit on a cruise ship, typically designed for two people. This is a common metric used for calculating ship capacity and pricing. |
| MARPOL 73/78 Convention | An international convention adopted by the International Maritime Organization (IMO) to prevent pollution from ships. It addresses six key areas of marine pollution: oil, noxious liquid substances, harmful substances in packaged form, sewage, garbage, and air pollution. |
| Passenger Capacity | The maximum number of passengers a cruise ship can accommodate, typically calculated based on a standard of two passengers per cabin. |
| Premium Cruise Lines | A category of cruise lines that offer a higher level of service, amenities, and often more exclusive experiences compared to contemporary or budget lines, but generally not as exclusive as luxury lines. |
| Spirit-Class Vessel | A specific class of cruise ship designed by Carnival Corporation, characterized by certain dimensions and features, with multiple ships launched in the early 2000s. |
| Strategy | A long-term plan of action designed to achieve a particular goal or set of goals. For Carnival, this includes market expansion, brand portfolio management, and new ship development. |
| Victualing | The provision of food and provisions for a ship or its crew and passengers. In the context of cruise expenses, it refers to the cost of food supplies. |
| Travel Agents | Intermediaries who sell cruises and vacation packages on behalf of companies like Carnival, typically receiving standard commissions and potential bonuses based on sales volume. |
| Occupancy Rate | A metric indicating how full a cruise ship is, calculated as the number of passengers carried relative to the ship's capacity. Rates exceeding 100% suggest more than two passengers per cabin on average. |
| Multinight Cruise Industry | The sector of the travel industry focused on cruise vacations lasting multiple nights, which is a component of the broader global vacation market. |
| Discretionary Income | The portion of a consumer's income that is available for spending on non-essential items and services after essential needs have been met. |
| Barriers to Entry | Obstacles that make it difficult for new companies to enter a particular industry, such as high initial investment costs, regulatory hurdles, and established competition. |
| Graywater | Wastewater generated from sources like galleys, laundries, and bathrooms (excluding sewage), which is typically collected for recycling, transfer, or discharge. |
| Blackwater | Wastewater that exclusively consists of human waste from toilets and urinals, along with drainage from medical facilities. |
| International Maritime Organization (IMO) | A specialized agency of the United Nations responsible for the safety and security of shipping and the prevention of marine pollution by ships. |
| MARPOL | The International Convention for the Prevention of Pollution from Ships, a comprehensive international treaty that aims to prevent and minimize pollution from ships. |
| Flag of Registry | The country under whose laws a ship is registered and operated, determining the regulations and oversight it is subject to. |
| Consumer & Community Banking | This segment encompasses traditional bank branches, ATMs, credit cards, home finance, retirement and investing services, and merchant services, catering to individual consumers and local communities. |
| Corporate & Investment Bank | This segment serves large multinational corporations, governments, wealthy individuals, and institutional investors, offering services such as advising on business strategy, raising capital through debt or equity, and derivative instruments. |
| Commercial Banking | This segment focuses on business credit, corporate client banking, commercial term lending, and community development, providing financial services to businesses of various sizes. |
| Asset Management | This segment involves managing investment portfolios for clients, including institutional investors and high-net-worth individuals, aiming to grow their assets over time. |
| Corporate/Private Equity | This segment includes the company's private equity investments and other corporate functions, which can result in significant fluctuations in revenue and net income. |
| Investment Bank | This division provides services such as advising on mergers and acquisitions, raising capital through debt and equity offerings, and trading derivative instruments for corporations, financial institutions, and institutional investors. |
| Retail Financial Services | This segment includes services offered through bank branches, ATMs, mortgages, and real estate, catering to the everyday banking needs of individual customers. |
| Card Services and Auto | This segment encompasses credit card operations and auto financing, managing a large portfolio of credit card loans and providing financing options through dealerships and educational institutions. |
| Noninterest Income | Revenue generated from sources other than interest, such as fees from banking services, investment banking activities, and credit card operations. |
| Interest Income | Revenue earned from lending activities, such as interest charged on loans and investments. |
| Return on Equity (ROE) | A profitability ratio that measures how effectively a company uses shareholder equity to generate profits. It is calculated as Net Income divided by Shareholder Equity. |
| Prestige Cosmetic Brands | High-end cosmetic products that are typically more expensive and associated with luxury and premium quality. |
| Value Brands | Cosmetic products that are offered at more affordable prices, appealing to consumers seeking cost-effectiveness. |
| Emerging Economies | Countries that are in the process of rapid industrialization and economic growth, often presenting new market opportunities. |
| Foreign Currency Exchange Rates | The value of one country's currency in relation to another country's currency, which can fluctuate and impact international business operations. |
| Emerging Middle Class | A growing segment of the population in developing countries with increasing disposable income, representing a significant consumer market. |
| Mass-Volume Retailers | Large retail stores that sell a wide variety of products at high volumes, often at competitive prices. |
| Direct Seller | A company that sells products directly to consumers, typically through independent sales representatives rather than traditional retail outlets. |
| Brand Categories | The classification of a company's products into distinct groups based on their market or function, such as beauty and grooming, health and well-being, or household care. |
| Skin Care Alternatives | A range of products designed to address various skin needs, from basic daily routines to specialized treatments like anti-aging regimens. |
| Luxury Products Category | A segment of a company's offerings that includes high-end items such as designer fragrances and premium cosmetics, often commanding higher prices. |
| Direct Sales Model | A business strategy where products are sold directly to consumers, bypassing traditional retail channels, often through a network of independent representatives. |
| Business Division | A segment within Microsoft that focuses on products and services aimed at businesses, contributing significantly to the company's revenue and operating income. |
| Cloud Computing | The delivery of computing services—including servers, storage, databases, networking, software, analytics, and intelligence—over the Internet ("the cloud") to offer faster innovation, flexible resources, and economies of scale. |
| Corporate Level Activity | A segment that encompasses all financial dealings and business activities not directly allocated to specific product segments, including costs for marketing, product support, legal, and finance. |
| Division-by-Function Structure | An organizational structure where the company is divided into departments based on specific functions or areas of expertise, such as operating systems, applications, cloud technology, and devices. |
| Enterprise Services | A component of Microsoft's Server and Tools Division that provides product support and consulting services, contributing a significant portion of the division's overall revenue. |
| Entertainment and Devices Segment | A business segment of Microsoft that includes products and services related to gaming and entertainment, such as the Xbox platform, Skype, and Windows Phone. |
| Fiscal Year | A period of 12 consecutive months that a company uses for accounting purposes. For Microsoft, this period ends on June 30th of each year. |
| Income Statement | A financial statement that reports a company's financial performance over a specific accounting period, detailing revenues, expenses, and the resulting net income or loss. |
| Licensing Agreements | Contracts that grant permission to use intellectual property, such as software, in exchange for payment. A significant portion of revenue for some Microsoft divisions is derived from these agreements. |
| Metro Design Language | A design system developed by Microsoft, characterized by clean typography, flat design, and vibrant colors, which influenced the rebranding of Microsoft's products and services. |
| Activity ratios | Metrics, such as inventory turnover and average collection period, used to measure the effectiveness of a firm's resource utilization. |
| Advantage | A criterion for evaluating strategies, used to determine if a particular strategy creates or enhances a firm's competitive superiority in a specific area of activity. |
| Aggressive quadrant | In a SPACE matrix analysis, this quadrant is indicated when the firm’s directional vector points to the upper right, suggesting the pursuit of aggressive strategies. |
| Avoidance | A conflict resolution method involving ignoring the problem or physically separating conflicting parties in the hope that the conflict will resolve itself. |
| Strategists | Individuals primarily responsible for an organization's success or failure, holding titles like CEO, president, owner, or entrepreneur, and tasked with gathering, analyzing, and organizing information to develop action plans. |
| External Opportunities and Threats | Trends and events in the economic, social, cultural, demographic, environmental, political, legal, governmental, technological, and competitive landscapes that could significantly benefit or harm an organization, largely beyond its direct control. |
| Internal Strengths and Weaknesses | Controllable activities within an organization, performed either exceptionally well or poorly, arising from functional areas like management, marketing, finance, operations, and R&D, and are evaluated relative to competitors. |
| Long-Term Objectives | Specific results that an organization aims to achieve over a period exceeding one year, providing direction, aiding evaluation, creating synergy, revealing priorities, and focusing coordination efforts. |
| Strategies | The specific means or actions by which long-term objectives are intended to be achieved, often involving significant resource allocation and impacting the organization's long-term prosperity. |
| Wholesale Segment | This segment of a company's business operations involves supplying products to other retailers globally, rather than selling directly to end consumers. |
| Retail Segment | This segment focuses on the direct sale of products to consumers through company-owned stores, factory outlets, concession stands, and e-commerce platforms. |
| Other Businesses Segment | This segment encompasses various specialized brands and operations that do not fall under the primary wholesale or retail categories, such as golf equipment or specific footwear brands. |
| Sport Performance | This category refers to products specifically designed and engineered for athletic activities, aiming to enhance an athlete's performance through advanced technology and materials. |
| Sport Style | This category encompasses fashion-forward athletic apparel and footwear that blends athletic aesthetics with lifestyle trends, targeting a broader consumer base beyond dedicated athletes. |
| Brand Equity | The commercial value derived from consumer perception of the brand name of a particular product or service, reflecting customer loyalty and recognition. |
| Direct-to-Consumer (DTC) | A sales strategy where a company sells its products directly to the end consumer, bypassing traditional intermediaries like wholesalers and retailers, often through online channels or company-owned stores. |
| Sustainability | An approach to business that considers environmental, social, and economic impacts, aiming for long-term viability and responsible corporate citizenship. |
| Retrenchment | A defensive strategy involving cost and asset reduction to reverse declining sales and profits. This strategy aims to make an organization leaner and more efficient to regain competitiveness. |
| Liquidation | The process of selling all of a company's assets, typically in parts, for their tangible worth. This is usually a last resort when a company can no longer operate profitably and aims to recover as much value as possible for stakeholders. |
| Defensive Strategies | A category of business strategies employed when an organization is facing declining performance or market position. These strategies focus on reducing risk, conserving resources, and stabilizing operations. |
| Vertical Integration | A strategy that involves gaining ownership or increased control over distributors, suppliers, or competitors. This can be achieved through forward integration, backward integration, or horizontal integration. |
| Forward Integration | A strategy where a firm gains ownership or increased control over its distributors or retailers. This can involve establishing direct sales channels or acquiring distribution networks. |
| Horizontal Integration | A strategy of seeking ownership or increased control over a firm's competitors. This is typically achieved through mergers, acquisitions, or takeovers of rival companies. |
| Strategic Recommendations | Specific, actionable suggestions for a firm to implement that are derived from a thorough case analysis, aimed at improving competitive advantage, achieving objectives, and enhancing overall organizational performance. |
| Market Penetration | A strategy focused on increasing a company's market share within its existing markets and with its existing products, typically achieved through aggressive pricing, increased promotion, or enhanced distribution channels. |
| Market Development | A strategy that involves introducing existing products into new geographic markets or customer segments, aiming to expand the company's reach and customer base beyond its current scope. |
| Product Development | A strategy that focuses on creating new products or improving existing ones to sell to current markets, aiming to meet evolving customer needs and maintain a competitive edge through innovation. |
| Breakeven Analysis | A business problem-solving technique used to determine the point at which total revenue equals total costs, indicating the level of sales needed to avoid losses. |
| Cost/Benefit Analysis | A strategic management tool that compares the costs of a proposed action or project with its expected benefits to determine its feasibility and desirability. |
| Management Information Systems (MIS) | The systems and processes used to collect, store, process, and disseminate information within an organization to support decision-making and strategic management. |
| Financial Ratio Analysis | The evaluation of a firm's financial health and performance by calculating and interpreting various ratios derived from its financial statements, which can reveal insights into marketing effectiveness, management policies, R&D outcomes, and MIS performance. |
| Industrial Organization (I/O) View | This perspective posits that external industry factors are more influential than internal firm factors in achieving competitive advantage, emphasizing that organizational performance is primarily dictated by industry forces and competitive positioning. |
| Economic Forces | These are factors related to the economy that directly impact the potential attractiveness of various business strategies, including interest rates, disposable income, stock prices, and global economic conditions, which can create opportunities or threats. |
| Social Forces | These encompass societal trends, values, and attitudes that influence consumer behavior, lifestyle choices, and the overall market landscape, thereby shaping business strategies and product development. |
| Cultural Forces | These refer to the shared beliefs, customs, traditions, and norms of a society that affect consumer preferences, communication styles, and business practices, requiring businesses to adapt their strategies to local and global cultural contexts. |
| Demographic Forces | These are changes in population characteristics such as age, gender, race, ethnicity, income, education level, and geographic distribution, which create shifts in consumer markets and demand for products and services. |
| Environmental Forces | This category includes factors related to the natural environment, such as climate change, resource availability, pollution, and conservation efforts, which present both challenges and opportunities for businesses to adopt sustainable practices and develop eco-friendly products. |
| Political Forces | These are influences stemming from government policies, regulations, legislation, and political stability, which can create opportunities or threats for businesses by affecting market access, operational costs, and competitive landscapes. |
| Governmental Forces | Similar to political forces, these relate to the actions and policies of government bodies at local, state, and federal levels, including their roles as regulators, subsidizers, employers, and customers, impacting business operations and strategies. |
| Legal Forces | These are the laws and legal frameworks that govern business conduct, including antitrust legislation, patent laws, employment laws, and consumer protection regulations, which businesses must adhere to and which can shape strategic decisions. |
| Technological Forces | These are advancements and innovations in technology that can dramatically alter products, services, markets, production processes, and competitive positions, creating new opportunities and rendering existing offerings obsolete. |
| Competitive Forces | These are factors related to the intensity of competition within an industry, including the actions of rival firms, new entrants, substitute products, and the bargaining power of buyers and suppliers, which significantly influence strategic planning. |
| Competitive Intelligence (CI) | A systematic and ethical process of gathering and analyzing information about competitors' activities and general business trends to support a business's strategic goals and decision-making. |
| EPS-EBIT Analysis | A financial evaluation method used to assess the attractiveness of debt versus stock as a source of capital for strategy implementation by analyzing Earnings Per Share (EPS) in relation to Earnings Before Interest and Taxes (EBIT). |
| Projected Financial Statements | Financial documents that forecast a company's future financial performance, used to reveal the potential impact of strategic recommendations and to secure funding. |
| Marketing Mix | The set of controllable, tactical marketing tools that a firm blends to produce the response it wants in the target market, typically comprising Product, Place, Promotion, and Price. |
| Demand Voids | Areas on a perceptual map that lack consumer ideal points, representing market opportunities where no current products or services fully satisfy consumer preferences. |
| Earnings Before Interest and Taxes (EBIT) | Also known as operating income, EBIT measures a company's profitability from its core business operations before accounting for interest expenses and income taxes. |
| Capital Structure | The mix of debt and equity a company uses to finance its operations and growth, where determining the optimal balance is crucial for successful strategy implementation. |
| Debt Financing | Raising capital by borrowing money, which creates a fixed obligation to repay the principal and interest, typically through loans or the issuance of bonds. |
| Equity Financing | Raising capital by selling ownership stakes in the company, usually through the issuance of common or preferred stock, which dilutes ownership but does not create fixed repayment obligations. |
| EPS/EBIT Analysis | A financial technique used to evaluate the impact of different financing strategies (debt vs. stock) on a company's earnings per share (EPS) under various expected levels of earnings before interest and taxes (EBIT). |
| Break-Even Point | In the context of EPS/EBIT analysis, this is the level of EBIT at which two different financing alternatives yield the same EPS, indicating the point where one option becomes more or less attractive than another. |
| Dilution of Ownership | The reduction in the percentage of ownership held by existing shareholders when a company issues new shares of stock to raise capital. |
| Cost of Capital | The rate of return a company must earn on its investments to satisfy its investors, often represented by the weighted average cost of debt and equity. |
| Stock Repurchase | When a company buys back its own shares from the open market, which can increase EPS by reducing the number of outstanding shares and is often done when a company has excess cash. |
| Corporate Bonds | Debt securities issued by corporations to raise capital from investors, carrying a promise to pay a fixed rate of interest and repay the principal at maturity. |
| Percentage-of-Sales Method | A technique used to project cost of goods sold and expense items on an income statement by applying historical percentages of sales to forecasted sales figures, assuming these relationships remain constant unless specific reasons dictate otherwise. |
| Retained Earnings (RE) | The portion of a company's net income that is not distributed to shareholders as dividends but is instead reinvested back into the business. It is a cumulative figure on the balance sheet, representing the total accumulated profits over time. |
| Plug Figure | An item on a projected balance sheet, typically cash, that is adjusted to ensure that total assets equal total liabilities and shareholders' equity, thereby balancing the financial statement. |
| Remarks | Explanations or comments provided on projected financial statements to clarify significant changes in financial items from a prior year to a projected year, adding meaning and context to the pro forma statements. |
| Financial Budget | A document that outlines how funds will be acquired and utilized over a specific period, serving as a plan for the allocation of an organization's resources to achieve strategic objectives effectively and profitably. |
| Organizational Chart | A diagram that visually represents the structure of an organization, showing the hierarchy of positions and reporting relationships between different departments and individuals. |
| Corporate Wellness | Programs and initiatives implemented by companies to promote the health and well-being of their employees, which have become increasingly important in strategic planning. |
| Organizational Commitment | The degree to which employees feel a sense of belonging and dedication to their organization, often fostered through understanding the business and involvement in strategy formulation. |
| Production/Operations | The functional area of a business responsible for the creation of goods or services, which plays a crucial role in the successful implementation of organizational strategies. |
| Employee Stock Ownership Plans (ESOPs) | A benefit plan where employees are granted ownership of company stock, serving as a strategic management concept to align employee interests with organizational success. |
| Emirates Group | A conglomerate based in Dubai, United Arab Emirates, comprising Emirates (the airline) and Dnata (an aviation ground-handling services company). |
| Dnata | A company specializing in aviation ground-handling services, operating at 20 airports, and a division of the Emirates Group. |
| Open-skies policy | A policy that allows foreign airlines to operate flights into and out of a country without restrictions, promoting competition and increased air traffic. |
| Google Now cards | A feature integrated into the Google Search app that provides passengers with relevant flight information, destination details, and real-time updates for flights booked through Emirates.com. |
| Dubai National Air Transport Association (Dnata) | The original name of the company that eventually evolved into Emirates Group, starting with airport operations, cargo, and agencies. |
| Divisional-by-product organizational design | An organizational structure where the company is divided into divisions based on the products or services offered, in this case, Emirates (airline) and Dnata (aviation services). |
| International Financial Reporting Standards (IFRS) | A set of accounting standards developed by the International Accounting Standards Board (IASB) to provide a common global language for business affairs so that company accounts are consistent and comparable across international boundaries. |
| Passenger load factor | The percentage of available seating capacity that is filled with passengers on a given flight or series of flights, indicating operational efficiency. |
| Operating costs | The expenses incurred by a company in its normal course of business operations, including fuel, staff salaries, and maintenance. |
| Finance costs | The expenses incurred by a company related to its borrowing activities, such as interest payments on loans and leases. |
| Content Acquisition | The process by which Netflix obtains the rights to stream or distribute movies and TV shows, often through direct purchases, revenue sharing agreements, or licensing deals with studios and distributors. |
| Distribution Strategy | Netflix's approach to making its content available to subscribers, encompassing both physical media like DVDs and digital streaming over the internet, and considering factors like delivery speed and platform compatibility. |
| Subscription-Based Model | A business model where customers pay a recurring fee, typically monthly, to access a service or product, in Netflix's case, for unlimited streaming of TV shows and movies. |
| Proprietary Recommendation Technology | A sophisticated software system developed by Netflix that analyzes user data and viewing history to provide personalized content suggestions, aiming to enhance user experience and content utilization. |
| Licensing Agreement | A legal contract that grants Netflix the right to use specific content for a defined period and under specified terms, often involving payments to content owners. |
| Video-on-Demand (VOD) | A system that allows users to select and watch video content at a time of their choosing, rather than at a scheduled broadcast time, often involving per-view charges or subscription access. |
| Ad-Supported Segment | A market segment within online video where content is offered for free to viewers, but revenue is generated through advertisements displayed during or alongside the content. |
| Subscriber Acquisition Cost (SAC) | The total cost incurred by Netflix to acquire a new subscriber, calculated by dividing total marketing expenses by the number of new subscribers gained during a specific period. |
| Cloud Computing Services | The provision of computing services—including servers, storage, databases, networking, software, analytics, and intelligence—over the Internet ("the cloud") to offer faster innovation, flexible resources, and economies of scale. Netflix relies on Amazon for these services. |
| Fulfillment Expenses | Costs associated with the operational aspects of delivering content to subscribers, including packaging, shipping, and managing inventory for physical media like DVDs. |
| Revenue Sharing Agreement | A contract where Netflix shares a percentage of its subscriber revenue with content providers in exchange for access to their content, often involving a lower initial cost compared to direct purchase. |
| Intellectual Property Laws | Legal frameworks that protect creations of the mind, such as inventions, literary and artistic works, designs, and symbols or names used in commerce. Netflix relies on these laws to protect its proprietary technology and brand. |
| Streaming | The continuous delivery of digital media content over the internet, allowing users to access and consume content in real-time without needing to download the entire file first. |
| Subscription Service | A business model where customers pay a recurring fee, typically monthly or annually, to access a product or service, such as streaming movies and TV shows. |
| Content Distributor | An entity responsible for making media content, such as movies and TV shows, available to consumers through various channels. |
| Digital Video Recorder (DVR) | An electronic device that records video in digital format to a hard disk drive or other digital storage medium. |
| Internet-Connected TV | A television set that can connect to the internet, enabling access to online content, applications, and streaming services. |
| Subscriber Acquisition Cost | The total cost incurred by a company to acquire a new customer or subscriber, often calculated by dividing total sales and marketing expenses by the number of new subscribers gained. |
| Blu-ray Disc | A digital optical disc storage format designed to supersede the DVD format, capable of storing much larger amounts of data. |
| Pay-Per-View (PPV) | A service that allows customers to purchase and watch specific programs or events on demand, typically for a one-time fee. |
| User Interface (UI) | The means by which a user interacts with a computer or electronic device, including screens, menus, and controls. |
| Projects in Progress | Capital expenditures on assets that are under construction or development but not yet completed or placed into service. Disney had $2.45 billion in projects in progress in 2012. |
| Long-term Debt | Financial obligations that are due more than one year from the balance sheet date. Disney had approximately $10 billion in long-term debt in 2012. |
| Segment Operating Income | The profit generated by a specific division or segment of a company before accounting for corporate-level expenses and taxes. The interactive segment of Disney reported a negative operating income. |
| Total Assets | The sum of all assets owned by a company, including current assets, long-term assets, and intangible assets. Disney's total assets were $74.898 billion in 2012. |
| Total Liabilities and Shareholders' Equity | The sum of all liabilities and equity of a company, which must equal the total assets. For Disney in 2012, this figure was $74.898 billion. |
| Equity in Income | The portion of the net income of an unconsolidated subsidiary or an investee company that is attributable to the investor. Disney reported $627 million in equity in income in 2012. |
| Noncontrolling Interests | The portion of equity ownership in a subsidiary that is not attributable to the parent company. Disney had $2.199 billion in noncontrolling interests in 2012. |
| North American Delivery | This business segment of Staples focuses on providing office supplies and related products directly to businesses and individual customers through a delivery service, operating primarily within North America. It represents a significant portion of Staples' sales and income. |
| North American Retail | This segment encompasses Staples' brick-and-mortar stores located in North America, offering a wide range of office products, furniture, and technology to consumers and businesses. These stores are a key touchpoint for customer interaction and sales. |
| International Operations | This segment includes Staples' business activities and sales conducted outside of North America, involving retail stores, delivery services, and other operations in various global markets. It reflects the company's efforts to expand its reach and customer base internationally. |
| Store-Branded Products | Products manufactured or sourced by a retailer and sold under its own brand name. Staples develops and offers a significant number of these products to compete with major brands and achieve higher profit margins. |
| Electric Trucks | Vehicles powered by electricity, used by Staples for delivery purposes. These trucks are part of the company's strategy to reduce fuel costs and environmental impact, despite higher initial investment costs. |
| Fair Labor Standards Act (FLSA) | A U.S. federal law that establishes minimum wage, overtime pay eligibility, recordkeeping, and child labor standards affecting full-time and part-time workers in the private sector and in federal, state, and local governments. Staples has faced lawsuits related to employee classification under this act. |
| Internal Control | The processes and procedures implemented by an organization to ensure the accuracy of financial reporting, operational efficiency, and compliance with laws and regulations. The case raises questions about the adequacy of Staples' internal controls. |
| Rewards Program | A marketing strategy designed to encourage customer loyalty and repeat purchases by offering incentives, such as discounts or points, for spending. Staples utilizes such programs to drive volume purchases. |
| Berths | A unit used to quantify a cruise ship's passenger capacity, calculated based on two passengers per cabin, even though many cabins can accommodate three or four passengers. |
| Cruise Operating Expenses | The direct costs associated with operating cruise ships, including commissions, transportation, onboard services, payroll, food, fuel, and other operational necessities. |
| Joint Venture | A business arrangement where two or more parties agree to pool their resources for the purpose of accomplishing a specific task or project, sharing in the profits and losses. |
| Market Position | A company's standing or ranking within its industry, often determined by factors such as market share, brand recognition, and competitive advantages. |
| Mega Ships | Very large cruise ships designed to carry a significant number of passengers, often featuring extensive amenities and entertainment options, which have contributed to the industry's growth and publicity. |
| Net Debt | The total debt of a company minus its cash and cash equivalents, representing the company's financial leverage after accounting for its liquid assets. |
| Net Revenue Yield | A key performance indicator in the cruise industry that measures a cruise line's revenue per available berth, providing insight into pricing and occupancy effectiveness. |
| Customer Demographics | The statistical characteristics of a population, such as age, income, education level, and family status, used to describe and segment potential or existing customers. |
| Global Cruise Industry | The worldwide network of companies, services, and infrastructure involved in providing cruise vacations to passengers across various international destinations. |
| Guest-to-Staff Ratio | A metric indicating the number of guests per staff member on a cruise ship, often used as an indicator of service quality and attentiveness. |
| High-End Travelers | Individuals with significant disposable income who seek luxury accommodations, premium services, and exclusive experiences during their vacations. |
| Loyalty Program | A marketing strategy designed to encourage customers to continue to patronize a business offering rewards and benefits for repeat purchases or engagement. |
| Luxury Cruising | A segment of the cruise industry that offers high-end accommodations, gourmet dining, personalized service, and exclusive amenities for affluent travelers. |
| Direct-selling business model | A sales strategy where independent contractors, rather than employees, sell products directly to consumers, often through catalogs, online platforms, or personal interactions, bypassing traditional retail channels. |
| Independent sales representatives | Individuals who are self-employed contractors, not employees, who sell products on behalf of a company, typically earning commissions on their sales and often recruiting other representatives. |
| Global bribery investigations | Legal inquiries into allegations that a company or its employees have offered or given money or other inducements to officials in foreign countries to gain or retain business or other improper advantages. |
| Currency rates | The value of one country's currency in relation to another country's currency, which can impact the reported revenue and profitability of multinational corporations when converting foreign earnings into their reporting currency. |
| Active sales representatives | The number of individuals currently engaged in selling products for a company, often tracked to gauge the health and reach of a direct-selling network. |
| Beauty segment | A business division that encompasses products related to cosmetics, fragrances, skin care, and personal care items. |
| Fashion segment | A business division that includes items such as fashion jewelry, watches, apparel, footwear, and children's products. |
| Home segment | A business division that comprises gift and decorative products, housewares, entertainment and leisure items, and nutritional products. |
| BMW Group | A globally renowned German company engaged in the manufacturing of automobiles, motorcycles, and engines, also owning the Mini marque and Rolls-Royce Motor Cars. |
| Motorrad | The brand under which BMW produces motorcycles, with notable models including the K 1200 GT, R 1200 RT, and F 800 S. |
| Rolls-Royce Motor Cars | A luxury automobile manufacturer that is a subsidiary of the BMW Group, known for its high-end vehicles. |
| Sport Wagons | A type of vehicle that combines features of a passenger car and a station wagon, often characterized by a more car-like chassis and a longer roofline. |
| Financial Services Segment | A division within BMW Group that offers services such as purchase financing, leasing, asset management, dealer financing, and management of corporate fleets. |
| Fuel-Cell System | A technology that generates electricity through a chemical reaction between hydrogen and oxygen, used in some vehicles as an alternative to traditional combustion engines. |
| Lightweight Technologies | Innovations and materials aimed at reducing the weight of vehicle components, contributing to improved fuel efficiency and performance. |
| Lithium-Air Batteries | An advanced type of battery technology that uses lithium and oxygen to store and release energy, offering potentially higher energy densities than conventional lithium-ion batteries. |
| Post-Lithium Battery Solution | Refers to research and development efforts focused on battery technologies that go beyond current lithium-based systems, exploring next-generation energy storage. |
| Supply-Management System | A system designed to oversee and optimize the flow of goods and services within a company's operations, from procurement to delivery. |
| Versailles Armistice Treaty | The treaty that ended World War I, which imposed restrictions on Germany, including limitations on aircraft engine production for BMW. |
| Luftwaffe | The German Air Force, which BMW produced aircraft engines for during the rearmament period of the 1930s and World War II. |
| Multinational Corporations (MNCs) | Large companies that operate in multiple countries, facing diverse risks such as asset expropriation, currency fluctuations, and trade barriers, while needing to balance global competitiveness with national responsiveness. |
| Global Strategy | A business approach that focuses on worldwide profitability rather than solely domestic considerations, aiming to meet global customer needs at the lowest cost by strategically locating production, research, and marketing activities. |
| Corporate Tax Rates | The percentage of a company's profits that is paid to the government as tax, which varies significantly by country and influences strategic decisions regarding facility location and acquisitions. |
| Protectionism | Government policies, such as tariffs, taxes, and regulations, imposed on foreign firms to favor domestic companies and industries, which economists generally argue harms the global economy by inhibiting trade. |
| Globalization | The process of conducting business on a worldwide scale, where strategic decisions are driven by global profitability, and products are designed, produced, and marketed to meet universal needs. |
| Tax Havens | Countries or jurisdictions that offer very low or zero corporate income tax rates, attracting multinational corporations to establish headquarters and conduct significant business operations there to reduce their overall tax burden. |
| Statutory Corporate Tax Rate | The officially published tax rate that a corporation is subject to on its profits, before any deductions or credits are applied. |
| Effective Tax Rate | The actual percentage of a company's profits paid in taxes, which can be significantly lower than the statutory rate due to various tax planning strategies, deductions, and credits. |
| Tax Inversion | A corporate strategy where a company reincorporates in a foreign country, often through acquiring a foreign firm, to reduce its tax burden, particularly by avoiding U.S. taxes on income earned abroad. |
| Foreign Direct Investment (FDI) | An investment made by a company or individual from one country into business interests located in another country, often triggered by favorable tax policies like a flat tax system. |
| Business Ethics | Principles of conduct within organizations that guide decision making and behavior. |
| Corporate Sustainability Reports | Documents detailing an organization's actions and performance related to protecting, mending, and preserving the natural environment. |
| Ethics | Principles of conduct that guide decision making and behavior, often considered the right thing to do. |
| Social Responsibility | Actions an organization takes beyond legal requirements to protect or enhance the well-being of living things. |
| Whistle-blowing | The act of encouraging individuals within a firm to report unethical or illegal activities. |
| Bonus System | A compensation plan that provides additional payment to employees or managers based on achieving specific performance targets or overall company success, serving as an incentive for strategic implementation. |
| Culture | The shared values, beliefs, attitudes, and behaviors that characterize an organization, which can either support or hinder the implementation of new strategies. |
| Decentralized Structure | An organizational design where decision-making authority is distributed among lower levels of management, allowing for greater flexibility and responsiveness in strategy implementation. |
| Divisional Structure by Geographic Area, Product, Customer, or Process | An organizational framework where the company is divided into self-contained units, each responsible for a specific geographic region, product line, customer segment, or operational process, facilitating focused strategy implementation within each division. |
| Downsizing | The planned reduction in the size of a company's workforce or operations, often undertaken to improve efficiency, reduce costs, or adapt to changing market conditions during strategy implementation. |
| Educative Change Strategy | An approach to managing change that involves providing information and education to employees to help them understand the rationale and benefits of a proposed strategy, aiming to foster commitment and reduce resistance. |
| Employee Stock Ownership Plans (ESOP) | A benefit plan that allows employees to purchase stock in their company, fostering a sense of ownership and potentially increasing motivation and alignment with strategic goals. |
| Establishing Annual Objectives | The process of setting clear, quantifiable goals that align with the overall strategy, providing direction and a basis for measuring progress during strategy implementation. |
| Force Change Strategy | A method of implementing change by issuing directives and enforcing compliance, which can be rapid but often results in low employee commitment and high resistance. |
| Furloughs | Temporary unpaid leaves of absence for employees, used as a cost-saving measure during strategy implementation or economic downturns as an alternative to permanent layoffs. |
| Subscription-Based Streaming | A business model where customers pay a recurring fee, typically monthly or annually, to access a library of digital content, such as movies and TV shows, over the internet. |
| Content Licensing Agreements | Contracts between content owners (like studios) and distributors (like Netflix) that grant the right to stream or distribute specific content for a defined period and often for a fee. |
| Fulfillment Operations | The processes involved in receiving, processing, and delivering customer orders, including managing inventory, packaging, and shipping. |
| Product Substitution | The ability of consumers to replace one product or service with another that fulfills a similar need, which is high in the entertainment industry due to the variety of viewing options. |
| Revenue Sharing Agreements | Contracts where a company pays content providers a percentage of the revenue generated from distributing that content, often with an initial low cost or upfront payment. |
| Exchange Rate Risk | The risk that the value of a company's investments or earnings will be affected by fluctuations in currency exchange rates, particularly relevant for international operations. |
| E-commerce | The buying and selling of goods and services over the internet. |
| Market Penetration Rate | The percentage of a target market that has adopted a specific product or service, indicating the level of adoption within that market. |
| Strategic Business Unit (SBU) | A distinct division or unit within a larger corporation that operates with its own strategy, objectives, and market, allowing for focused management and resource allocation. Disney organizes its operations into five such family entertainment segments. |
| Media Networks | This is Disney's largest strategic business unit, encompassing television networks, cable channels, and radio stations. It generates revenue through affiliate fees, advertising, and viewership of its programming, including major sports broadcasts. |
| Parks and Resorts | This segment includes Disney's theme parks, cruise lines, hotels, and vacation clubs worldwide. Revenue is primarily derived from ticket sales, hotel stays, and sales of merchandise, food, and beverages within these locations. |
| Studio Entertainment | This segment is responsible for the production and distribution of live-action and animated motion pictures, musical recordings, and live-stage plays. It also includes revenue from licensing film rights to third-party studios. |
| Consumer Products | This segment involves partnering with licensees, manufacturers, publishers, and retailers to design, promote, and sell a wide range of products based on Disney characters. Offerings include character merchandise, publications, and the operation of Disney Stores. |
| Interactive Media | This segment focuses on the creation and delivery of games and media content for digital platforms such as smartphones and tablets. It generates revenue through game sales, subscriptions, and advertising. |
| Affiliate Fees | Payments made by cable or satellite providers to content providers (like Disney's cable networks) for the right to broadcast their channels to subscribers. These fees are a significant revenue source for Disney's Media Networks segment. |
| Per Capita Guest Spending | A metric used in the Parks and Resorts segment to measure the average amount of money spent by each guest. This includes spending on admissions, food, beverages, merchandise, and other services. |
| Total Consolidated Revenues | The sum of all revenues generated by all segments of the company, after eliminating intersegment transactions. This provides an overall picture of the company's top-line performance. |
| Business Segments | Office Depot operates in three distinct divisions: North American Retail, North American Business Solutions (BSD), and International. Each segment focuses on different customer bases and sales channels for office products and services. |
| Division Operating Profit | This metric represents the profit generated by a specific business segment before accounting for corporate-level charges. It is used to evaluate the financial performance of individual divisions within Office Depot. |
| Operating Expenses | These are the costs incurred by a business in its normal course of operations, excluding the cost of goods sold. They include expenses like selling, general, and administrative costs. |
| Operating Income or Loss | This is the profit or loss generated from a company's core business operations after deducting operating expenses from gross profit. It excludes non-operating income and expenses. |
| Total Liabilities | The total amount of money a company owes to external parties, including short-term debts (like accounts payable) and long-term debts. |
| Total Stockholders' Equity | The residual interest in the assets of an entity after deducting all its liabilities. It represents the ownership stake in the company. |
| Arabica Beans | High-quality coffee beans that Starbucks sources globally, with a focus on ethical sourcing and responsible growing practices, representing a significant portion of their product offerings. |
| Company-Operated Stores | Retail locations owned and managed directly by Starbucks Corporation, which generate a substantial majority of the company's worldwide revenue. |
| Company-Owned Retail Stores | See Company-Operated Stores. |
| Consumer Products Group | A business segment of Starbucks that includes packaged coffee and tea, Starbucks VIA Ready Brew, and other branded products sold through grocery and convenience stores. |
| Fair Trade Certified | A certification indicating that coffee has been sourced and produced under conditions that ensure fair prices and ethical treatment for farmers and workers, such as Starbucks' offering of Fair Trade Certified whole bean coffee from Rwanda. |
| Financial Performance | The measurement of a company's overall financial health and success over a specific period, often analyzed through income statements and balance sheets. |
| Global Consumer Products Group | See Consumer Products Group. |
| Green Mountain Coffee Roasters | A company with which Starbucks formed a strategic partnership to enter the fast-growing single-serve coffee market, particularly through Keurig brewers. |
| Licensed Stores | Retail locations operated by third-party partners under license from Starbucks Corporation, contributing to the company's global reach and revenue streams. |
| Case Method | A pedagogical approach to studying strategic management where students learn by analyzing real-world organizational situations, often referred to as "learning by doing." |
| Strategic-Management Case | A document that details an organization's external and internal circumstances, presenting issues related to its mission, strategies, objectives, and policies, designed to provide practical application of strategic management concepts. |
| Practicality in Case Analysis | The principle of making reasonable assumptions about missing information, clearly stating these assumptions, and proceeding with analysis and decision-making, mirroring real-world business scenarios where complete information is rarely available. |
| Justification in Case Analysis | The critical requirement to provide ample support and reasoning for recommended strategies and implementation plans, acknowledging that decisions are often irreversible once resources are committed. |
| Realism in Case Analysis | The necessity to propose courses of action that are feasible within an organization's financial and operational capabilities, considering the capital required for implementation and the potential advantages and disadvantages of various alternatives. |
| Specificity in Case Analysis | The importance of providing precise details (what, why, when, how, where, and who) in case analyses, using quantifiable data such as ratios, percentages, numbers, and dollar estimates, rather than making broad generalizations. |
| Originality in Case Analysis | The practice of generating and defending feasible alternative strategies based on the information available at the time of the strategic decisions, rather than simply recommending what the company actually did or planned to do. |
| Case for Class Discussion | A case that has been read and analyzed by students prior to class, with notes taken on external and internal factors, and prepared to offer and defend specific recommendations during classroom discourse. |
| Written Case Analysis | A structured and detailed report that applies strategic management concepts to a specific organization, which can range from an executive summary focusing on particular aspects to a comprehensive analysis of the entire strategic management process. |
| Executive Summary (Case Analysis) | A focused written case analysis, typically three to five pages in length, that concentrates on a specific aspect of the strategic management process, such as evaluating existing strategies or proposing new recommendations. |
| Comprehensive Written Analysis | A detailed written case analysis that applies the entire strategic management process to an organization, simulating the role of a consultant providing recommendations for the company's future, usually around 10 pages in length. |
| Oral Case Analysis Presentation | A verbal delivery of a strategic management case analysis to a class, graded on both the content (quality, correctness, and appropriateness of analysis) and the delivery (clarity, persuasiveness, and audience engagement). |
| Financial Objectives | P&G aims to achieve specific financial goals, including increasing sales at a rate faster than market growth, delivering high single-digit to low double-digit earnings per share (EPS) growth, and generating free cash flow productivity of at least 90 percent. |
| Global Operations | Procter & Gamble conducts business across multiple geographic regions, including North America, Western Europe, Central and Eastern Europe/Middle East/Africa (CEEMEA), Latin America, and Asia, selling products in approximately 180 countries worldwide. |
| Strategic Business Units (SBUs) | These are distinct operational divisions within a company, which P&G refers to as Global Business Units (GBUs), each focused on specific product categories and markets. |
| Billion-Dollar Sellers | This refers to P&G products that achieve annual sales exceeding $1 billion, representing a significant portion of the company's overall revenue and demonstrating brand strength and market penetration. |
| Free Cash Flow Productivity | A financial metric indicating the efficiency with which a company converts its earnings into free cash flow, with P&G targeting at least 90 percent productivity. |
| Goodwill and Intangibles | These are significant assets on a company's balance sheet; goodwill arises from acquisitions where the purchase price exceeds the fair value of identifiable net assets, while intangibles include assets like patents and trademarks. |
| Research & Development (R&D) | Investment in activities aimed at innovation and the creation of new products or improvement of existing ones, which P&G significantly increased to drive international product introductions. |
| Developed Markets | Mature economies with high levels of industrialization and income, such as North America and Western Europe, which are established revenue sources for P&G. |
| Developing Markets | Economies that are in the process of industrialization and economic growth, often characterized by increasing consumer purchasing power and are targeted by P&G for accelerated growth. |
| Product Portfolio | The complete range of products and services offered by a company, encompassing all its hardware, software, and related offerings. |
| Personal Computer Revolution | The significant shift in the 1970s and 1980s where personal computers became accessible and widely adopted by individuals and businesses, transforming computing. |
| Mobile Computing | The ability to use computing devices, such as smartphones and tablets, while on the move, enabling access to information and applications from various locations. |
| Operating System | The fundamental software that manages a computer's hardware and software resources, providing a platform for applications to run. Examples include Mac OS X and iOS. |
| First Mover | A company that is the first to introduce a new product, technology, or business model into the market, often gaining a competitive advantage. |
| Functional Organization | An organizational structure where departments are grouped by specialized functions, such as engineering, marketing, and finance, rather than by product lines or business units. |
| Segment Sales | Revenue generated from specific geographical regions or product categories that a company reports separately for financial analysis. |
| Direct Sales | Selling products or services directly to customers without the use of intermediaries like wholesalers or retailers. |
| Value-Added Resellers (VARs) | Companies that combine hardware and software products from multiple vendors and add value through customization, integration, or support services before reselling them. |
| Just-in-Time Manufacturing | A production strategy where materials and components are delivered and products are manufactured only as they are needed, aiming to reduce inventory and waste. |
| Test Marketing | A product and service planning technique where an organization tests alternative marketing plans and forecasts future sales of new products in a controlled environment, allowing for the identification of weak products and ineffective marketing approaches before large-scale production. |
| Pricing Strategy | The approach a company takes to setting prices for its products or services, which can include options like everyday low prices, clearance sales, permanent price cuts, or promotional pricing, aiming to influence consumer behavior and achieve business objectives. |
| Marketing Research | The systematic gathering, recording, and analyzing of data about problems related to the marketing of goods and services, used to uncover critical strengths and weaknesses and support all major business functions. |
| Liquidity Ratios | Financial ratios that measure a firm's ability to meet its maturing short-term obligations, indicating its capacity to pay off debts that are due within one year. |
| Leverage Ratios | Financial ratios that measure the extent to which a firm has been financed by debt, indicating the proportion of borrowed funds relative to equity in the company's capital structure. |
| Profitability Ratios | Financial ratios that measure management's overall effectiveness by assessing the returns generated on sales and investment, indicating the company's ability to generate profit. |
| Growth Ratios | Financial ratios that measure a firm's ability to maintain its economic position in the growth of the economy and industry, tracking the percentage growth in sales, net income, earnings per share, and dividends per share. |
| Breakeven Point | The quantity of units that a firm must sell for its total revenues to equal its total costs, representing the point at which the company neither makes a profit nor incurs a loss. |
| Contingency Planning | The process of developing alternative strategies or courses of action that can be implemented if certain anticipated events occur, providing flexibility and preparedness for unexpected changes in the environment. |
| Auditing (in Strategy Evaluation) | A systematic examination and verification process used in strategy evaluation to assess the effectiveness and efficiency of strategic management activities and to ensure compliance with plans and objectives. |
| Cloud Music Service | A service that allows users to store and stream music from remote servers over the internet. Apple was in competition with Google and Amazon to establish a strong presence in this emerging market, securing deals with major record labels. |
| Direct Sales Approach | A business strategy where a company sells its products directly to customers without intermediaries. Dell utilized this approach to drive down costs and manage inventory effectively, impacting its competitive positioning. |
| Competitive Environment | The landscape of companies and factors that influence a firm's ability to compete in a market. For Apple in 2011, this included hardware manufacturers like HP and Dell, as well as software giants like Microsoft and search engine companies like Google. |
| Personal Systems Group | A business segment focused on personal computers and related hardware. For Hewlett-Packard, this segment was a significant contributor to revenue but ranked lower in profitability compared to other segments. |
| Enterprise Solutions | Services and products designed to meet the needs of large organizations, often involving IT infrastructure, applications, and business processes. Dell offered these as part of its broader service portfolio. |
| External Audit | A process focused on identifying and evaluating trends and events beyond the control of a single firm, aiming to uncover key opportunities and threats that inform strategic decision-making. |
| Industry Analysis | The process of examining the external environment of an industry to understand its structure, competitive forces, and potential for profitability, often used interchangeably with external audit. |
| Social, Cultural, Demographic, and Natural Environment Forces | External factors encompassing societal values, lifestyles, population characteristics (age, race, gender), and environmental concerns that shape consumer behavior and market demand. |
| Political, Governmental, and Legal Forces | External factors related to government policies, regulations, laws, and political stability that can create opportunities or impose constraints on businesses. |
| Active Cosmetics | This business segment of L'Oréal includes products primarily sold in pharmacies, such as those under the Vichy and La Roche Posay brands, focusing on health and beauty for specific skin needs. |
| Cosmetics | This is one of L'Oréal's main business branches, further divided into four distinct sectors: Consumer Products, Professional Products, Luxury Products, and Active Cosmetics, covering a broad range of beauty items. |
| Dermatology | L'Oréal's dermatology unit, Galderma S.A., operates as a joint venture with Nestle, focusing on research and products related to skin health and medical treatments. |
| L'Oréal Luxe | This premium segment of L'Oréal's business features high-end brands such as Lancome, Giorgio Armani, and Yves Saint Laurent Beauté, offering luxury cosmetics, skincare, and fragrances. |
| Professional Products | This segment is dedicated to hair care products designed for use by professional hairdressers in salons, including well-known brands like Kérastase, Redken, and Matrix. |
| The Body Shop | This is a distinct business branch of L'Oréal, known for its natural and ethically sourced beauty products, operating a global retail store network. |
| Multinational Corporation (MNC) | An organization that conducts business operations across national borders. The strategic management process for MNCs is more complex due to a greater number of variables and relationships, including diverse social, cultural, environmental, political, legal, and competitive factors. |
| Corporate Tax Rate | The percentage of a company's profits that is paid as tax to the government. Variations in corporate tax rates across countries significantly influence strategic decisions regarding the location of manufacturing facilities, retail stores, and mergers or acquisitions. |
| Business Culture | The set of historical, cultural, and religious forces that motivate and drive people's behavior in a business context within a specific country or region. Understanding these differences is crucial for managers to compete successfully in international markets and avoid misunderstandings or misinterpretations. |
| Wa | A Japanese concept that emphasizes group harmony and social cohesion. In Japanese business, Wa requires all members of a group to agree and cooperate, leading to extensive discussion and compromise to maintain group unity. |
| Guanxi | A Chinese concept referring to personal relationships and connections, which are central to business behavior and interactions. Building and maintaining strong guanxi is often essential for successful business dealings in China. |
| Inhwa | A South Korean concept that emphasizes harmony based on respect for hierarchical relationships, including obedience to authority. This principle influences business interactions and decision-making processes within South Korean organizations. |
| Nepotism | The practice of showing favoritism to relatives or friends, especially by giving them jobs or positions of power. While viewed negatively in some cultures, it is practiced in various forms in different countries and can be an obstacle for managers accustomed to different meritocratic systems. |
| Feng Shui | A traditional Chinese practice focused on harnessing natural forces to create harmony and balance in an environment. U.S. managers in China may need to consider feng shui principles when arranging office furniture and spaces to align with local beliefs and worker comfort. |
| Nemawashio | A Japanese business practice where supervisors privately inform individuals of upcoming changes before they are announced in a formal meeting. This process aims to build consensus and avoid disrupting group harmony, reflecting a preference for indirect communication and preparation. |
| Marketing | The process of defining, anticipating, creating, and fulfilling customer needs and wants for products and services, encompassing customer analysis, selling, product planning, pricing, distribution, research, and opportunity analysis. |
| Customer Analysis | The examination and evaluation of consumer needs, desires, and wants, involving surveys, information analysis, market positioning, customer profiling, and segmentation strategies. |
| Product and Service Planning | Activities related to test marketing, product and brand positioning, warranties, packaging, features, quality, product deletion, and customer service, crucial for product development and diversification. |
| Perceptual Mapping | A technique used in product positioning to visually represent consumer perceptions of products or brands on a two-dimensional map. The axes of the map represent key criteria that differentiate products, allowing companies to identify competitive groupings and potential market niches. |
| Break-Even Point (in EPS/EBIT Analysis) | The specific level of Earnings Before Interest and Taxes (EBIT) at which two different financing alternatives (e.g., debt vs. stock) yield the same Earnings Per Share (EPS). This point indicates where the attractiveness of one financing option shifts relative to another. |
| Commission for Aviation Regulation (CAR) | The CAR is the regulatory body responsible for issuing and potentially revoking operator licenses for airlines, adhering to European Union (EU) law. It also has the authority to designate airports as "fully coordinated," which grants it control over the allocation of landing and departure slots. |
| Irish Aviation Authority (IAA) | The IAA is the governmental agency overseeing aviation safety and technical standards within Ireland. It is responsible for issuing operator certificates and ensuring compliance with regulations related to air safety, aircraft certification, personnel licensing, maintenance, and the implementation of EU legislation. |
| Department of Transportation (DOT) | The DOT is the government department tasked with implementing EU and Irish legislation, as well as international standards pertaining to air transportation. It is responsible for enacting laws, such as the one requiring compensation and assistance for passengers affected by denied boarding, flight cancellations, and significant delays. |
| EU 261 | This refers to EU legislation that mandates airlines to provide compensation and assistance to passengers in cases of denied boarding, flight cancellation, or long delays. Airlines are required to pay a set amount per passenger for inconvenience and may also need to cover costs for rerouting, refunds, meals, and accommodation. |
| Fuel Hedging | Fuel hedging is a strategy employed by airlines to mitigate the financial risk associated with fluctuating fuel prices. It involves purchasing future fuel supplies at a predetermined price to minimize potential losses if market prices increase. |
| Single European Sky (SES) | The SES is a European Commission initiative aimed at reforming and harmonizing air traffic control systems across Europe. The goal is to create a more efficient, cost-effective, and environmentally friendly air traffic management system by consolidating national agencies and control centers. |
| Low-fare Airlines | These are airlines that compete primarily on price, offering significantly lower ticket prices compared to traditional carriers. They often achieve this through a no-frills service model, operating from secondary airports, and charging extra for ancillary services. |
| Traditional Airlines | These are established airlines that typically offer a wider range of services, including checked baggage, in-flight meals, and entertainment, often at higher price points than low-fare carriers. They usually operate from major airports and cater to a broader spectrum of travelers. |
| Charter Airlines | These airlines provide flights on a chartered basis, meaning the entire aircraft is hired for a specific purpose, such as for tour operators or sports teams. Some charter airlines may also offer scheduled services. |
| EU-U.S. Open Skies Agreement | This agreement between the European Union and the United States liberalizes air transport services between the two regions. It allows carriers from each region to offer services within the other's market, leading to increased competition. |
| European Union Emissions Trading Scheme | This is a cap-and-trade system designed to reduce greenhouse gas emissions. Airlines operating within the EU are required to pay for the carbon dioxide they emit, either through free allowances or by purchasing permits on the open market. |
| Strategic Alliances | These are cooperative agreements between airlines that allow them to jointly offer services, share resources, and expand their networks. Benefits include improved marketing, expanded route options for passengers, and enhanced frequent-flyer programs. |
| Sustained Competitive Advantage | A competitive advantage that a firm can maintain over a certain period by continually adapting to changes in external trends and events, as well as internal capabilities, competencies, and resources, while effectively formulating, implementing, and evaluating strategies. |