Essentials of Contemporary Management 7th Edition Jones Solutions Manual
Essentials of Contemporary Management 7th Edition Jones Solutions Manual
Essentials of Contemporary Management 7th Edition Jones Solutions Manual
Chapter 06
Planning, Strategy, and Competitive
Advantage
CHAPTER CONTENTS
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Chapter 06 - Planning, Strategy, and Competitive Advantage
LEARNING OBJECTIVES
LO 6-1. Identify the three main steps of the planning process and explain
the relationship between planning and strategy.
KEY DEFINITIONS/TERMS
differentiation strategy: Distinguishing an
business-level plan: Divisional managers’ organization’s products from the products of
decisions pertaining to divisions’ long-term goals, competitors on dimensions such as product design,
overall strategy, and structure. quality, or after-sales service.
business-level strategy: A plan that indicates how diversification: Expanding a company’s business
a division intends to compete against its rivals in an operations into a new industry in order to produce
industry new kinds of valuable goods or services.
concentration on a single industry: Reinvesting a exporting: Making products at home and selling
company’s profits to strengthen its competitive them abroad.
position in its current industry.
focused differentiation strategy: Serving only one
corporate-level plan: Top management’s decisions segment of the overall market and trying to be the
pertaining to the organization’s mission, overall most differentiated organization serving that
strategy, and structure. segment.
corporate-level strategy: A plan that indicates in focused low-cost strategy: Serving only one
which industries and national markets an segment of the overall market and trying to be the
organization intends to compete. lowest-cost organization serving that segment.
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Chapter 06 - Planning, Strategy, and Competitive Advantage
planning: Identifying and selecting appropriate wholly owned foreign subsidiary: Production
goals and courses of action; one of the four operations established in a foreign country
principal tasks of management. independent of any local direct involvement.
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Chapter 06 - Planning, Strategy, and Competitive Advantage
CHAPTER OVERVIEW
This chapter explores the manager’s role both as planner and as strategist. First, we discuss the nature and
importance of planning, the kinds of plans managers develop, and the levels at which planning takes
place. Second, we discuss the three major steps in the planning process: (1) determining an organization’s
mission and major goals, (2) choosing or formulating strategies to realize the mission and goals, and (3)
selecting the most effective ways to implement and put these strategies into action. We also examine
several techniques, such as scenario planning and SWOT analysis that can help managers improve the
quality of their planning. We discuss a range of strategies managers can use to give their companies a
competitive advantage over their rivals. By the end of this chapter, students will understand the vital role
managers carry out when they plan, develop, and implement strategies to create a high-performing
organization.
LECTURE OUTLINE
Despite its growth, 2013 was not a good year for Toys ―R‖ Us. Net sales were down, and the company’s
net loss was $1 billion. To counteract this trend, the company announced a plan it called ―TRU
Transformation.‖ The plan was grounded in consumer research and customer insights and was anchored
by three guiding principles—Easy, Expert, Fair.
The plan identified four areas of weaknesses for Toys ―R‖ Us and discussed how the weaknesses could be
turned into strengths. First, the retailer said that it had provided a weak customer experience both in stores
and online. Toys ―R‖ Us therefore sought to make stores easy, uncluttered places with a well-trained sales
staff. Second, there was a perception that prices at Toys ―R‖ Us were higher than at other retailers. The
company wanted to be sure that its prices were perceived as fair by reducing the many exclusions to its
price-matching policy. Third, the retailer had struggled with inventory management. Customers often
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Chapter 06 - Planning, Strategy, and Competitive Advantage
found that sought-after items were out of stock The company was expanding its ability to ship online
orders from stores and distribution centers in order to get the right goods into stores at the right times, and
it was increasing clearance sales to move stagnant merchandise. Finally, the company was assessing its
business structure and operations to increase efficiency and effectiveness. One year into the ―TRU
Transformation‖ plan, Toys ―R‖ Us saw significant progress.
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Chapter 06 - Planning, Strategy, and Competitive Advantage
C. Differentiation Strategy
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Chapter 06 - Planning, Strategy, and Competitive Advantage
LECTURE ENHANCERS
Mission statements can be defined as ―enduring statements of purpose that distinguish one organization
from similar enterprises.‖ A mission statement should define the exact nature of a company’s business for
each of its group of stakeholders with which it is involved. Business Weeks Magazine reports that firms
with well-crafted mission statements have a 30% higher return on certain financial measures than firms
that lack such documents. In addition, a number of academic studies suggest there is a positive
relationship between mission statements and organizational performance.
Researchers suggest that a well-crafted mission statement can insure unanimity of purpose, arouse
positive feelings about the firm, provide direction, serve as a focal point, provide a basis for objectives
and strategies, and resolve divergent views among managers.
In every organization, there a differing views among managers regarding direction and appropriate
strategies. Discussing these issues in the course of developing a mission statement can help resolve these
divergent views. This can be especially important to firms facing restructuring, downsizing, or faltering
performance.
A mission statement should also be inspiring. The reader should want to be a part of an organization after
reading it. It should also be enduring, project a sense of worth, intent, and effectively communicate shared
organizational expectations. The intrinsic value of the firm’s product should also be clearly articulated.
Some research suggests that there is a great deal of room for improvement in the mission statements of
some companies. The expected payoff from improving its mission statement is enhanced communication,
understanding, and commitment among managers and employees. This translates into enhanced
individual and organizational performance.
Adapted from” It’s Time to Redraft Your Mission Statement,” Journal of Business Strategy, Vol. 24, No.1,
p. 11.
Consider the horrors of 9/11 and the anthrax scares that followed, the Enron scandal, and the economic
jitters caused by heightened tensions in the Middle East. Each of these occurrences has contributed
significantly to the turbulence of the current business environment. If scenario planning was unable to
help managers foresee and prepare for these specific developments, does that mean that it should be
discredited as a managerial activity? Not if you understand what scenario planning is designed to do,
believes Paul Schoemaker, a research director at the University of Pennsylvania’s Wharton School. He
says scenario planning was never intended to be substitute for crisis planning. It is, in fact, the opposite of
a one-track preparation for a single event. If a company is using scenario planning to prepare for specific
crises, they are missing the point. The purpose of scenario planning is to broaden the array of possible
future paths that are being contemplated by an organization. Those future paths can hold either
opportunities or threats. If a company sees that they are on a different path than the one they are expected
to be on, scenario planning provides the option to switch.
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Chapter 06 - Planning, Strategy, and Competitive Advantage
Below are a few examples of companies that have engaged in scenario planning. Past events have taught
them to prepare for the future by envisioning a variety of paths that may need to be traveled, given the
uncertainty in which we all live.
WHAT IF your risk profile shifts dramatically? U.S. insurers rethought risk-sharing in the wake of 1992's
Hurricane Andrew, which caused a then-record $16.8 billion in losses. Primary insurers (think Allstate)
began to share risk more broadly among themselves and sell off more to reinsurers (think Lloyds of
London), which provide surplus coverage for major losses. These insurers upgraded their computer
models to predict payouts and avoid overextending themselves. As a result, the insurance industry expects
to fare better today even though the damages from future attacks could easily surpass those of Hurricane
Andrew.
WHAT IF demand suddenly falls off? How can a company quickly find allies who could help it
consolidate the industry and save jobs? Arrow Electronics (Melville, N.Y.), a distributor of electronic
components and computer products, faced such a dilemma when computer sales flattened in 1985. Arrow,
the industry's scrappy No. 2 player, was able to acquire the No. 3 player. This swift move catapulted
Arrow to the No.1 position, which it still holds. Chairman Stephen Kaufman says his company's outward
focus has enabled it to react more quickly than its competitors. Companies today should take a cue from
Arrow reviewing their competitive landscape and thinking through merger scenarios.
WHAT IF global events disrupt your supply chain? Compare General Motors' plight in the days after
September 11th to Dell's. GM had to close down factories in Ontario due to parts delays at the Canadian
border. Dell, which has built one of the world's best supply chain networks, chartered an airliner to fly
parts from Taiwan to its Texas factory, ran factories day and night, and converted three 18-wheel trucks
into mobile technology and support facilities in order to supply 24,000 computers to New York City and
Washington, D.C.
WHAT IF prices drop precipitously? The high-cost producer sets the price during boom times, and most
competitors make money. In difficult times, the low-cost producer sets the price, thereby controlling the
level of competitors' profit margins. Intel has cut
prices on its microprocessors by 35%. Dell halved its prices and still makes money—not so for some of
its competitors. The speed of the economy's decline underscores the importance of relative cost position.
Therefore, firms must scrutinize their purchasing costs and cycle times relative to their competitors, detect
the inefficient processes, and fix them.
Adapted from “Five Reasons why You Still Need Scenario Planning,” Harvard Management Update,
June 2002 and “How to Think Strategically in a Recession, Harvard Management Update, November
2001
MANAGEMENT IN ACTION
DISCUSSION
1. Describe the three steps of planning. Explain how they are related.
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Chapter 06 - Planning, Strategy, and Competitive Advantage
The first step in planning involves determining the organization’s mission and goals. The second step is
formulating strategy in which managers analyze the organization’s current situation and then conceive
and develop the strategies necessary to attain the organization’s mission and goals. The third step is
strategy implementation, in which managers decide how to allocate the resources and responsibilities
required to put those strategies into action so that change will occur within the organization. The first
step, determining the organization’s mission and goals, guides the following two steps in the planning
process by defining which strategies are appropriate and which are inappropriate.
2. What is the relationship among corporate-, business-, and functional-level strategies, and how do they
create value for an organization?
A corporate-level strategy is a plan that indicates in which industries and national markets an organization
intends to compete. A business-level strategy indicates how a division intends to compete against its
rivals in an industry. A functional-level strategy is a plan of action that managers of individual functions
can follow to improve the ability of each function to perform its task-specific activities. In a planning
process, it is important that there is a consistency in planning across the three divisions. When
consistency is achieved, the organization operates with increasing efficiency and effectiveness.
3. Pick an industry and identify four companies in the industry that pursue one of the four main business-
level strategies (low-cost, focused low-cost, etc.).
Within the commercial airline industry, American Airlines attempts to differentiate itself by maintaining a
reputation of providing superior service on a national level. Jet Blue pursues a focused differentiation
strategy, since it also attempts to distinguish itself by providing superior service but only in secondary
hubs. Southwest has successfully executed a low cost strategy for many years. Sprint Airlines is also
pursuing a low cost strategy, but like Jet Blue, is restricted to servicing only secondary hubs.
Related diversification is a strategy that entails entering a new business or industry with the intention of
creating a competitive advantage by capitalizing on a current strength or core competency. Related
diversification adds values to the company when managers can find ways for its various divisions or
business units to share their valuable skills or resources so that synergy is created. Vertical integration is a
strategy that entails entering a new business that either produces inputs for the company’s products
(backward vertical integration) or assists in the distribution or selling of the company’s products (forward
vertical integration).
ACTION
6. Ask a manager about the kinds of planning exercises he or she regularly uses. What are the purposes of
these exercises, and what are their advantages or disadvantages?
(Note to Instructors: Student answers will vary. The answers could include the techniques given below,
or similar planning techniques.)
The text discusses two types of strategy planning, SWOT Analysis and the Five Forces Model. SWOT
analysis is the process by which managers identify organizational strengths (S), weaknesses (W),
environmental opportunities (O) and threats (T.) Based on the results of this analysis, managers at the
different levels of the organization then select the corporate-, business-, and functional-level strategies to
best position an organization to achieve its mission and goals.
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Chapter 06 - Planning, Strategy, and Competitive Advantage
Michael Porter created the Five Forces Model to help managers identify forces in the environment that are
potential threats. He identified five principal factors that are major threats because they affect how much
profit organizations competing with the same industry can expect to make. These five forces include:
1. The level of rivalry among organizations in an industry
2. The potential for entry into an industry
3. The power of the suppliers
4. The power of the customer
5. Substitute products.
7. Ask a manager to identify the corporate- and business-level strategies used by his or her organization.
A corporate-level strategy is a plan of action concerning which industries and countries an organization
should invest its resources in to achieve its mission and goals. Corporate-level strategies that managers
use include: (1) concentration on a single business, (2) diversification, (3) international expansion, and (4)
vertical integration.
AACSB: Analytic
Pick a well-known business organization that has received recent press coverage and that provides its
annual reports at its Web site. From the information in the articles and annual reports, answer these
questions:
(Note to Instructors: Prior to assigning this activity, it would be beneficial to ensure that your
institution’s library maintains ten years of stockholder reports. Otherwise, it could be an extremely time
consuming process for your students to track down this information. An alternative is to reduce the length
of time covered by the assignment. Students’ answers will vary based on the company that they have
chosen.)
(Note to Instructors: Students’ answers may vary. The answer given below is indicative.)
Victory Suitings Inc. was a clothing line established in 1970. It was mainly aimed at businessmen and
executives. Its suits and other formal wear were in great demand among the business class. The company
began its production with shirts, trousers, and suits, but quickly moved onto ties and shoes. In 2004, it
decided to expand its market by establishing a clothing line exclusively for children called Victory
Kidswear. This establishment focused on casual and formal clothes for children. Today, it attracts many
customers toward both its clothing lines.
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Chapter 06 - Planning, Strategy, and Competitive Advantage
2. What business-level strategy does the company seem to be pursuing in this industry? Why?
When the company first started, it pursued a focused differentiation strategy, in which it only served the
business -class. Later, it used a differentiation strategy wherein it introduced formal wear for children
which were absent in most of its competitors. This allowed the company to appeal to all kinds of
consumers and to establish its own brand image.
The company is pursuing the corporate-level strategy of concentration on a single industry, wherein it has
never detached itself from the clothing line. This allowed the managers to increase its efficiency as it is
only focusing on a single industry. It has also used the related diversification strategy, wherein it has tried
to create a competitive advantage within its own organization. Through related diversification, the
company has obtained synergy, wherein the two divisions coordinate their actions to improve the
performance of the company.
4. Have there been any major changes in its strategy recently? Why?
The company has not made any recent changes to its strategies because focusing on a single industry has
allowed the company to satisfy all the customers’ needs. If there is an indication of an increased level of
competition, the company can pursue other strategies to expands its businesses.
AACSB: Analytic
MANAGING ETHICALLY
1. Either by yourself or in a group, decide if this business practice of paying bribes is ethical or unethical.
In a market economy, it is assumed that an organization’s ability to generate revenue is the result of its
ability to develop a quality product with an attractive price and successfully market it. By distorting free
market mechanisms over the long run, can impede the ability of a nation’s economy to grow. Bribery also
impedes economic growth by discouraging foreign direct investment from investors who are unwilling to
incur the additional cost of paying a bribe to a middleman who adds no value to the end product.
Allowing a small handful of government officials to benefit at the expense of an entire nation and its
economy is clearly an unethical and unbalanced situation.
2. Should IBM allow its foreign divisions to pay bribes if all other companies are doing so?
The payment of bribes violates the U.S. Foreign Corruption Practices Act, which forbids payment of
bribes by U.S. companies to secure contracts abroad. Companies in violation of this law can be
prosecuted in the U.S. Also, IBM takes a rigorous stance toward ethical issues. Allowing the practice of
bribery would send the wrong message to its employees. Mature ethical development requires that
managers remain committed to their organization’s values, regardless of what is going on around them.
3. If bribery is common in a particular country, what effect would this likely have on the nation’s
economy and culture?
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Chapter 06 - Planning, Strategy, and Competitive Advantage
Bribery by its competitors, according to one U.S. government study, cost American business $11 billion
in a single year. In Germany, a legislator estimated that companies in his nation spend as much as $5.6
billion a year on bribes. Clearly, the diversion of such a large amount of any nation’s resources from its
production efforts creates inefficiency in its economy and is therefore counterproductive to growth.
Bribery also encourages a creeping erosion of honesty, trust, and other human values that rest at the
foundation of a healthy culture.
AACSB: Analytic
AACSB: Reflective Thinking
Form groups of three or four people, and appoint one member as the spokesperson who will communicate
your findings to the class when called on by the instructor.
1. Using SWOT analysis, analyze the pros and cons of each alternative.
A. Option #1: Buy abroad, lower prices, and pursue low cost strategy.
PROS:
We can effectively compete with the threats of Target and Wal-Mart, focus upon attracting a larger
volume of customers, and thereby increase our market share. Also, relationships we build with foreign
suppliers may serve as means of allowing us to create a new opportunity by expanding our sales into
foreign markets. Doing this strategy will make our low-cost clothing a strength and eliminate the potential
weakness of our high-end clothing.
CONS:
A great deal of time must first be devoted to research, if this strategy is to be implemented effectively. To
make our low-cost clothing into a strength, we must first identify a reliable foreign manufacturer capable
of producing high quality clothing at a lower cost. We must then build a relationship with them and
determine a way of maintaining control over a manufacturing process that is occurring in a distant part of
the world. Also, our marketing department must develop less expensive ways of effectively reaching our
target audience. Sufficient resources (time, money, and knowledge) must be made available to conduct
this research.
CONS:
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Chapter 06 - Planning, Strategy, and Competitive Advantage
This strategy is expensive. To make high-end clothing into a strength, we will have to increase spending
on product design or R&D to differentiate their product, forcing costs upward as a result. We must spend
more money on advertising, in an attempt to create a unique image for our store. In addition, it may prove
difficult to develop a competitive advantage that allows the consumer to perceive us as superior and
unique, in comparison to well-established boutiques. Even if we match the high quality of their products,
we may not be able to provide the individual attention that is found at smaller stores. The entrenched
brand loyalty that many of these boutiques enjoy can be hard to overcome. Therefore, pursuing this
strategy could develop a weakness instead of a strength for our company.
CONS:
We may be courting disaster, since it is very difficult to pursue both of these strategies at the same time.
Very few companies have successfully done so. Differentiation usually causes costs to rise, which makes
discount pricing prohibitive. Porter refers to this as ―stuck-in-the-middle.‖ As a result, the threats posed
by the low-cost clothing companies and the boutique companies will increase and the broad range of our
clothing will become a major weakness.
2. Think about the various clothing retailers in your local malls and city, and analyze the choices they
have made about how to compete with one another along the f low cost and differentiation dimensions.
One way high-end retailers attempt to differentiate themselves is by providing a great deal of customer
service. Salespersons are always available to assist customers and answer their questions. Their return
policy is usually very liberal. Other examples of personalized customer service include keeping track of
customers’ birthdays and telephoning to alert them of special events or promotions related to their
favorite brands. These stores also use attractive physical appearance as a means of differentiating
themselves from their low cost competitors. Their stores are brightly lit and attractive, the aisles are wider
and carpeted, and soft music is played. Displays are attractive and merchandise is always neatly arranged.
While both types of retailers hold sales to attract customers, low cost retailers engage in this promotional
technique much more frequently. The low cost competitors usually have fewer salespersons available to
assist customers and their buildings are less appealing visually.
BE THE MANAGER
Questions
1. List the supermarket chains in your city and identify their strengths and weaknesses.
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Chapter 06 - Planning, Strategy, and Competitive Advantage
Answers to this question will vary, depending upon the area of the country in which the students reside
and the size of the local shopping area. You could recommend using a SWOT approach to compare the
various each of the competitors in your specific area. This industry has many different types of
competitors, ranging from mass merchandisers such as Meijers and Kmart to small mom-and-pop grocers
and farmers' markets. After identifying all of the competitors, students can begin analysis of each using
the planning tools presented in the chapter.
Discounters such as Cub and Aldi (www.aldifoods.com) are using a low-cost strategy. Specialty retailers
such as Wild Oats and Whole Foods are using a differentiation strategy.
3. What kind of supermarket would do best against the competition? What kind of business-level strategy
should it pursue?
The response to this question depends upon the variety of competitors identified in the first question.
Answers should include a rationale that explains why a particular strategy would work. For example, if
students feel that a new store should use a focused differentiation strategy to compete effectively, possible
justifications may include demographic data that is descriptive of households in the surrounding
community or awareness of a potentially lucrative market niche currently untapped by the competition.
AACSB: Analytic
Case Synopsis: Microsoft CEO Satya Nadella Looks to Future Beyond Windows
Microsoft had come to be perceived as an out-of-touch behemoth that relied too much on its
Windows operating system and failed to move into new markets, like mobile. The company’s
new CEO, Satya Nadella, has aggressively looked outside of Windows to develop new business
models. Since December, Microsoft has bought two small companies that focus on mobile
productivity apps. In Nadella’s first year, Microsoft stock rose 14 percent, and sales increased 12
percent. Also, the new CEO, unlike his predecessor Steve Ballmer, is popular with investors,
venture capitalists, and startups.
The big issue Nadella faces is how to generate more revenue with new software and features,
such as cloud subscriptions and free apps that replace pricey Windows and Office licenses.
Windows, which once dominated computing and ran on more than 90 percent of computing
devices, now runs on 11 percent of computers and gadgets.
Nadella uses the Power BI dashboard to track and compile huge amounts of information on
product usage and financial performance to see what works and what doesn’t. Nadella also
measures and coordinates executive performance with metrics from the dashboard. Nadella has
also changed the way engineering teams are structured, eliminating testers to speed up software
releases and adding data scientists and designers to the teams.
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Chapter 06 - Planning, Strategy, and Competitive Advantage
Questions
1. What kind of planning missteps helped cause Microsoft’s decline over the past few years?
Microsoft relied too much on its Windows operating system and failed to move into new markets,
like mobile. Key products such as Microsoft Office—the suite of applications that includes Word
and Excel—had been designed around Windows, with only parts converted to work on Apple’s
iOS and Google’s Android systems.
2. How is Nadella trying to eliminate some of the bureaucracy that has hurt the company’s
ability to innovate?
Nadella told employees at a town hall that they should skip meetings if they don’t really need to
be there. And he’s advised workers to come to him directly if they feel the bureaucracy is stifling.
Nadella also changed the way engineering teams are structured, eliminating testers to speed up
software releases and adding data scientists and designers to the teams. He’s looking at cutting
some middle managers to make decisions faster and to eliminate layers of bureaucracy.
3. What business strategies has Nadella implemented that will help revitalize the technology
giant?
Microsoft bought two small companies that focus on mobile productivity apps and released a
new dashboard for data analysis. Nadella uses the Power BI dashboard to track and compile
huge amounts of information on product usage and financial performance to see what works and
what doesn’t. Nadella also measures and coordinates executive performance with metrics from
the dashboard.
AACSB: Analytic
SUPPLEMENTAL FEATURES
SELF-ASSESSMENT(S)
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These Instructor’s PowerPoint slides can be used to supplement the lecture material.
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