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Chapter One Strategic Management: Creating Competitive Advantages

After studying this chapter, you should have a good understanding of::

After studying this chapter, you should have a good understanding of: the definition of strategic management and its four key attributes the strategic management process and its three interrelated and principal activities why stakeholder management is so critical in the strategic management process and how “symbiosis” can be achieved among an organization’s stakeholders the key environmental forces that are creating more unpredictable change and requiring greater empowerment throughout the organization how an awareness of a hierarchy of strategic goals can help an organization to achieve coherence in its strategic direction Learning Objectives TRANSPARENCY- 3

Strategic Management Concepts:

Definition: “Strategic management consists of the analysis, decisions, and actions an organization undertakes in order to create and sustain competitive advantages.” Key Attributes of Strategic Management: Directs the organization toward overall goals and objectives. Involves the inclusion of multiple stakeholders in decision making. Needs to incorporate short-term and long-term perspectives. Recognizes tradeoffs between efficiency and effectiveness. Strategic Management Concepts Exhibit 1.1 TRANSPARENCY- 4

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The Strategic Management Process Chapter 1 Analyzing Goals and Objectives Chapter 2 Analyzing the External Environment Chapter 3 Analyzing the Internal Environment Chapter 4 Assessing Intellectual Capital Chapter 5 Formulating Business-Level Strategies Chapter 7 Formulating International Strategies Chapter 6 Formulating Corporate-Level Strategies Chapter 8 Formulating Internet Strategies Chapter 9 Implementation: Strategic Controls Chapter 10 Implementation: Organization Design Chapter 11 Strategic Leadership: Excellence, Ethics, and Change Chapter 12 Strategic Leadership: Fostering Entrepreneurship Strategy Analysis Strategy Formulation Strategy Implementation Chapter 13 Case Analysis Exhibit 1.2 TRANSPARENCY- 5

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Excellent versus Poor Boards of Directors Fortune magazine recently pinpointed some of the key attributes of some excellent and poor boards of directors. Hall of Fame A good board is hard to find, but a few draw raves year after year. Coca-Cola This feisty board isn’t afraid to make waves, nixing CEO’s Doug Daft’s plan to acquire Quaker Oats last year. Intel Its big-name directors regularly assess one another’s performance, a rarity in the boardroom. Pfizer This year the Wharton School named this board—packed with heavy hitters—the second best in the nation. Target The proof is in the performance. This unflashy board has presided over years of solid returns. Texas Instruments Deadly serious about good governance, TI’s board had near-perfect attendance in 2000. Hall of Shame Entrenched, clubby, blind to shareholder concerns: These boards just don’t get it. Advanced Micro Devices Talk about weak: This board slavishly kowtows to omnipotent founder/CEO Jerry Sanders. Archer Daniels Midland As the stock falls near ten-year lows, the family-controlled board twiddles its thumbs. Maxxam With loads of common and preferred stock, CEO/Chairman Charles Hurwitz has most of the voting power. Occidental Petroleum Its board pays CEO Ray Irani obscene amounts even as the company underperforms its peers. Warnaco This board, dominated by Chairman/CEO Linda Wachner, seems to exist solely to redefine excessive CEO pay. Source: Boyle, M. 2001. The dirty half-dozen: America’s worst boards. Fortune , May 14: 250. With permission. Exhibit 1.3 TRANSPARENCY- 6

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Social Responsibility at McDonald’s: Some Elements Supporting more than 200 Ronald McDonald Houses in 19 countries (providing comfort and care to children and their families) Eliminating 150,000 tons of recycled products and more than one million tons of corrugated cardboard in the U.S. over a ten-year period As part of their diversity program, more than 30 percent of their franchisees are now women or minority and in 1999, McDonald’s purchased approximately $3 billion worth of goods and services from women and minority suppliers Providing about $5 million in educational assistance through a variety of scholarships Partnered with Chicago’s Field Museum to restore Sue—the largest Tyrannosaurus Rex fossil ever discovered in a laboratory for public viewing Source: McDonald’s Corporation 1999 Annual Report, page 6. Exhibit 1.4 TRANSPARENCY- 7

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Brainpower Weighs In PRODUCT PRICE WEIGHT in pounds PRICE per pound Pentium III 800MHz microprocessor $851.00 0.01984 $42,893.00 Viagra (tablet) $8.00 0.00068 $11,766.00 Gold (ounce) $301.70 0.0625 $4,827.20 Herm è s scarf $275.00 0.14 $1,964.29 Palm V $449.00 0.26 $1,726.92 Saving Private Ryan on DVD $34.99 0.04 $874.75 Cigarettes (20) $4.00 0.04 $100.00 Who Moved My Cheese ? by Spencer Johnson $19.99 0.49 $40.80 Mercedes-Benz E-class four-door sedan $78,445.00 4,134.00 $18.98 The Competitive Advantage of Nations by Michael Porter $40.00 2.99 $13.38 Chevrolet Cavalier four-door sedan $17,770.00 2,630.00 $6.76 Hot-rolled steel (ton) $370.00 2,000.00 $0.19 Source: Colvin, G. 2000. We’re worth our weight in Pentium Chips. Fortune , March 20: 68. Exhibit 1.5 TRANSPARENCY- 8

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Comparing Wellpoint Health Network’s Vision and Mission Vision WELLPOINT will redefine our industry : Through a new generation of consumer-friendly products that put individuals back in control of their future. Mission The WELLPOINT companies provide health security by offering a choice of quality branded health and related financial services designed to meet the changing expectations of individuals, families and their sponsors throughout a lifelong relationship. Source: Company Records Exhibit 1.6 TRANSPARENCY- 9

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Strategic Objectives Strategic Objectives (Financial) Increase sales growth 6 to 8 percent and accelerate core net earnings per share growth to 13 to 15 percent in each of the next five years (Procter & Gamble) Generate Internet-related revenue of $1.5 billion. (Automation) Increase the contribution of Banking Group earnings from investments, brokerage and insurance from 16 percent to 25 percent (Wells Fargo) Cut corporate overhead costs by $30 million per year (Fortune brands) Exhibit 1.7 Strategic Objectives (Nonfinancial) Capitalize on e-commerce (Federal Express) We want a majority of our customers,when surveyed, to say they consider Wells Fargo the best financial institution in the community (Wells Fargo) We want to operate 6,000 stores by 2010—up from 3000 in the year 2000 (Walgreen’s) Develop a smart card strategy that will help us play a key role in shaping online payments (American Express) Reduce greenhouse gases by 10 percent (from a 1990 base) by 2010 (BP Amoco) Source: Company Documents and Annual Reports TRANSPARENCY- 10

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