Balanced scorecard board query questions appendix

Strategic Management for the
Capstone Business Simulation® and Comp-XM®:

Analysis and Assessment

taping, Web distribution, or information storage and retrieval systems without the written permission of the

author, Michael L. Pettus. mpettus@millikin.edu

Joseph Mahoney, Ph.D.

Caterpillar Chair in Strategic Management
University of Illinois
Associate Editor, Strategic Management Journal

2

Acknowledgments

3

Michael L. Pettus earned a PhD in strategic management from the University of Illinois in 1997 and has more than 30 years of global experience in airline, airfreight and trucking industries. He is published in the Academy of Management Journal, the Strategic Management Journal, and many leading practitioner journals. He is the author of Growth from Chaos (2003: Praeger) which explores corporate growth in deregulated transportation industries. This book, Strategic Management for the Capstone Business Simulation and Comp - XM, which is now in its 6th edition, explains how the content of strategic management is integrated into business
simulations.

Chapter 1 ..................................................................................................... 15 Managing Environmental Turbulence ..................................................... 15 Chapter 2 ..................................................................................................... 37 Industry Analysis and Industry Evolution for the 21st Century ............ 37 Chapter 3 ..................................................................................................... 59 Utilizing Internal Analysis to Build Competitive Advantage Over
Rivals ............................................................................................................ 59 Chapter 4 ..................................................................................................... 79 Business Level Strategy .............................................................................. 79 Chapter 5 ..................................................................................................... 97 Analysis of Markets and Positioning......................................................... 97 Chapter 6 ................................................................................................... 121 Growth by Internal Development ........................................................... 121 Chapter 7 ................................................................................................... 141 Corporate Level Strategies and Restructuring ...................................... 141 Chapter 8 ................................................................................................... 167 Growth Via Strategic Alliances ............................................................... 167 Chapter 9 ................................................................................................... 191 Acquisition Strategies ............................................................................... 191 Chapter 10 ................................................................................................. 215 International Strategies ............................................................................ 215 Chapter 11 ................................................................................................. 245 Strategic Leadership Decision Making ................................................... 245 Chapter 12 ................................................................................................. 267 Wealth Creation ........................................................................................ 267 Chapter 13 ................................................................................................. 283 Conducting Case Analysis: An Exercise in Wealth Creation ............... 283 Chapter 14 ................................................................................................. 295 Comp-XM® ............................................................................................... 295 Appendix .................................................................................................... 313 Glossary ..................................................................................................... 315 Index ........................................................................................................... 321

6

Industry Analysis and Industry Evolution for the 21st Century ............ 37 Learning and Assessment Goals .....................................................................................38 The Competitive Environment in the 21st Century ......................................................39 Industry Structure ...........................................................................................................40 Industry Classification ....................................................................................................40 Porter’s Five Forces .........................................................................................................42 Potential Entrants (Threat of New Entrants) ............................................................. 42 Bargaining Power of Suppliers ................................................................................. 43 Bargaining Power of Buyers ..................................................................................... 43 Threat of Substitutes ................................................................................................. 43 Degree of Rivalry ...................................................................................................... 44 Industry Analysis Using Porter’s Five Forces Model ...................................................45 Industry Evolution ...........................................................................................................46 Introduction Stage ..................................................................................................... 47 Growth Stage ............................................................................................................ 47 Maturity Stage
........................................................................................................... 47 Decline Stage ............................................................................................................ 48 Industry Forces During Introduction Stage............................................................... 50 Industry Forces During Growth Stage ...................................................................... 50 Industry Forces During Maturity Stage .................................................................... 51 Industry Forces During Decline Stage ...................................................................... 51 The Upside of Declining Industries .......................................................................... 52 Discussion Questions .......................................................................................................53 References .........................................................................................................................54 Intel Mini Case .................................................................................................................55 Harvard Business Cases for Chapter 2 ..........................................................................57

7

8

Professor Case for Chapter 4 ..........................................................................................96

Market Segmentation of the Airline Industry…………………….………………99

ProductPositioning…………………………………………………………………101

Product Variable ..................................................................................................... 110

Price Variable.......................................................................................................... 111

Proctor and Gamble (P&G) Mini Case .......................................................................117

Harvard Business Cases for Chapter 5 ........................................................................119

Internal Development Strategies ..................................................................................123

Market Penetration .................................................................................................. 123

Internal Development and Capstone Simulation ........................................................130

Growth by Market Penetration................................................................................ 130

References .......................................................................................................................137

Starbucks Mini Case ......................................................................................................139

Corporate Level Strategies and Restructuring ...................................... 141 Learning and Assessment Goals ...................................................................................142 Diversification ................................................................................................................143 Diversification and Performance ............................................................................ 143 Diversification and Value Chain Analysis .............................................................. 145 Same Industry Diversification ......................................................................................146 Related Industry Diversification ..................................................................................147 Unrelated Industry Diversification ..............................................................................148 Diversification and Risk ......................................................................................... 148 Business Strengths and Industry Attractiveness ........................................................149 Industry Attractiveness ........................................................................................... 150 Business Strength .................................................................................................... 151 Restructuring .................................................................................................................152 Downsizing ............................................................................................................. 152 Downscoping .......................................................................................................... 153 Realignment ............................................................................................................ 154 Restructuring and the Capstone Simulation ...............................................................154 Discussion Questions .....................................................................................................160 References
.......................................................................................................................161 General Electric (G.E.) Mini Case ...............................................................................165 Harvard Business Cases for Chapter 7 ........................................................................166 Professor Case for Chapter 7 ........................................................................................166

Chapter 8 ................................................................................................... 167

Acquisition Strategies ............................................................................... 191 Learning and Assessment Goals ...................................................................................192 Impact of the Global Recession on Mergers and Acquisitions .................................193 Attributes of Successful Acquisitions ...........................................................................197 Access to International Markets.............................................................................. 197 ....................................................... 198 Synergies Resulting from Economies of Scale Synergies Resulting from Economies of Scope ...................................................... 198 Reduce Costs of New Product Development .......................................................... 198 Entry into More Attractive Industries ..................................................................... 199 Problems with Acquisitions ..........................................................................................199 .................................................................................................... 199 Paying Too Much Inability to Achieve Synergies ................................................................................ 199 Failure to Retain Key Personnel ............................................................................. 200 Too Much Debt ....................................................................................................... 200 Invest in Mature Industries ..................................................................................... 201 Process for Achieving Successful Acquisitions ............................................................202 Due Diligence ......................................................................................................... 202 Engage in Friendly Acquisitions ............................................................................. 202 Maximize Resource Utilization .............................................................................. 202 Diversify Into Firms That Have Strong Brand Names ........................................... 203 Acquire High Growth Firms ................................................................................... 204 Hostile Acquisitions .......................................................................................................204 .........................................................................................205 Are Acquisitions Beneficial?

Acquisitions as a Source of Innovation ........................................................................206 Discussion Questions .....................................................................................................208 References .......................................................................................................................209 Pfizer Mini Case .............................................................................................................212 Harvard Business Cases for Chapter 9
........................................................................213 Professor Case for Chapter 9 ........................................................................................213

Chapter 11 ................................................................................................. 245

Strategic Leadership Decision Making ................................................... 245 Learning and Assessment Goals ...................................................................................246 Strategic Leadership ......................................................................................................247 Customers .......................................................................................................................249 Employees .......................................................................................................................250 Collective Bargaining Organizations ...........................................................................251 Shareholders ...................................................................................................................252 Board of Directors .........................................................................................................252 Investment Community .................................................................................................253 Senior Managers and Ethical Decision Making ..........................................................253 Strategic Leadership and Growth ………………………………………………......255 Scandals and Strategic Leadership ..............................................................................257 Industry Evolution and Strategic Leadership .............................................................258 Introduction ............................................................................................................. 258 Growth .................................................................................................................... 259 Maturity................................................................................................................... 259 Decline .................................................................................................................... 260 Discussion Questions .....................................................................................................261 References .......................................................................................................................262 Hershey Mini Case .........................................................................................................264 Harvard Business Cases for Chapter 11 ......................................................................265 Professor Case for Chapter 11 ......................................................................................265

Conducting Case Analysis: An Exercise in Wealth Creation ............... 283 Industry Structure .........................................................................................................286 Competitive Dynamics for the Capstone Simulation .................................................289 Wealth Creation Measures ...........................................................................................290 Conclusion ......................................................................................................................291 Recommendations ..........................................................................................................293

Chapter 14 ................................................................................................. 295

15

Learning and Assessment Goals
1.Understand why we are in a recession within the U.S.

6.Understand how firms can maintain competitive positions in times of economic turbulence.

16

for dating U.S. recessions. The NBER defines an economic recession as: “a significant decline in [the] economic activity spread across the country, lasting more than a few months, normally visible in a reduction in real GDP growth, real personal income, employment (non-farm payrolls), industrial production, and wholesale-retail sales1.” Academics, economists, policy makers, and businesses defer to the determination measurement by the NBER for the precise dating of a recession’s onset and end2. A depression is a severe economic downturn that results in a decline in real GDP exceeding 10% and is a recession lasting three or more years3. Table 1.1 identifies the conditions in the Great Depression of the 1930’s and current (2007-2010) economic condition.

U.S. Economic Collapse
What happened was caused by a combination of two factors. The first factor was people losing their jobs causing them not to be able to pay their mortgages. In the U.S., significant job losses have been going on since December 2007 and have accelerated in September 2008. In 2008, 2.6 million jobs were lost. From January through April of 2009, 2.6 million jobs were also lost.

The rise of advanced economies in Russia, Brazil, India, and China increased the total global labor pool dramatically. Recent improvements in communication and education in these countries has allowed workers to compete more effectively with workers in traditionally strong economies, such as the United States. This surge in labor supply has provided downward pressure on wages and contributed to unemployment.

The second major component of the plan would give banks capital with which to lend. Banks that receive new government assistance will have to cut the salaries and perks of their executives and sharply limit dividends and some corporate acquisitions16.

The third piece of the plan would use the last $350 billion that the Treasury has

G.M. has not turned a profit since 2004. Between 2004-2008, G.M. has lost 82 billion dollars25. G.M.’s stock was trading at $70/share in June 2000. On March 30, 2009 the stock was trading at $3.62. In May 2009, the stock was trading at $0.7526.

Because of these conditions, G.M. has had to borrow money from the
government. As part of President Obama’s bailout plan, G.M. borrowed $15.4 billion27. In addition, G.M. was forced to borrow an additional $4 billion during the first quarter of 2009 to stay in business28. In addition, G.M. eliminated its Pontiac division and cut 21,000 employees29. On May 16, 2009, G.M. began to close 1100 of its dealerships30. On June 1, 2009, GM went into Chapter 11 bankruptcy protection (4th largest filing of all time: Table 1.2).