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Dess/Lumpkin/Eisner McGraw-Hill 2011

Strategic Management 5e

TEACHING TIPS FROM YOUR COLLEAGUES

(1) Explaining the concept of strategic fit by Stephen Horner, Arkansas State University (2) Improving both individuals and groups learning effectiveness with the revise and resubmit model by Andy Yu, University of Southern Indiana (3) Prohibiting use of laptops in class by Brian Pinkham, University of Texas at Dallas (4) Minimizing cheating on exams by Liliana Nordtvedt, University of Texas at Arlington (5) An intensive start to the semester by Theodore A. Khoury, Oregon State University p. 2 p. 2 p. 3 p. 3 p. 3

AUTHOR TEACHING TIPS

(1) Using dialectical inquiry in the classroom (2) Using some quotations at the beginning of the course syllabus to help set a learning culture for the class (3) Using experiential exercises in strategic management: Two examples (4) The use of peer ratings in the strategic management course (5) Teaching the controversial issue of outsourcing/offshoring: Supported by a video clip p. 4 p. 4 p. 5 p. 5 p. 6

AUTHOR CHAPTER UPDATES

The Concept of Shared Value: Moving Beyond CSR Tuition Increases: Some Students Have Very Low Bargaining Power Amazons Prime: Very Difficult for Rivals to Copy Video Conferencing: Allowing Employees to Communicate Face-to-Face over Long Distances Chapter 5: KFCs Franchiser-Franchisee Relationships: Not Very Good Chapter 6: A Gourmet Deli Firm Leverages its Core Competence and Creates a New Business Chapter 7: Why Shells Innovative Gasoline Product Backfired in Holland Chapter 8: iSold It: A Venture that Didnt Sell Chapter 9: Sustaining Corporate Culture Chapter 10: Shared Values: A Key to Successful Boundaryless Cost Cutting Chapter 11: A Hospitals Unique Approach to Empowerment Chapter 12: HTC and Microsoft: A Failed Marriage? Chapter 1: Chapter 2: Chapter 3: Chapter 4: p. 7 p. 9 p. 10 p. 11 p. 12 p. 13 p. 14 p. 15 p. 16 p. 17 p. 18 p. 19

CASE UPDATES: DLE FIFTH EDITION

Case Number 23: Case Number 27: Case Number 38: Case Number 40: Apple, Inc. Southwest Airlines: Does LUV Last? eBay: Expanding into Asia: FreshDirect: Delivering the Goods? p. 20 p. 21 p. 22 p. 23

Dess/Lumpkin/Eisner McGraw-Hill 2011

Strategic Management 5e
TEACHING TIPS FROM YOUR COLLEAGUES
(1) Explaining the concept of strategic fit by Stephen Horner, Arkansas State University

I have found that when explaining the idea of strategic fit that students sometimes have difficulty grasping this rather abstract concept. I wish for students to understand that strategic management is all about relating the firm to its environment. Firm managers must understand the environmental conditions they face and the capabilities at the firms disposal and find ways of meeting environmental dictates. I take a two step approach to explaining this. First, I compare the concept to playing poker. The deck from which the cards are dealt represents the external environmental conditions a firm faces, and the hand one is dealt and the skill of the player represents the resources and capabilities the firm possesses. How a player chooses to play that hand is a combination (among other things) of the cards in her/his hand, the behaviors of the other players at the table, the stakes, and, of course, the players skill. At this point I can usually see that students are beginning to warm up to the metaphor. In some cases, Ive had students volunteer that even a skilled player can play with a bad hand. We usually dont get through the metaphor without some allusion to the song, The Gambler (youve got to know when to hold em, know when to fold em, etc.). I generally am able to judge from the responses and the looks of recognition of students faces that this begins to make the concept accessible to their current frames of reference. Then, I try to give a fairly sound example of a firm that has effectively matched its capabilities with environmental conditions. For me, Apple has consistently been exemplary with its introduction of the iMac, iPod, iPhone and, iPad. I supplement this with recognition of some of Apples failures (e.g., Newton, Lisa, etc.) and point out the success of some of their newer products remains to be seen. Another example might be GEs early forays into plastics. (2) Improving both individuals and groups learning effectiveness with the revise and resubmit model by Andy Yu, University of Southern Indiana

To enhance the learning effectiveness of students final group projects, I adopt a revise and resubmit (R&R) model to coach this process. I found this model very helpful not only to improve students learning outcomes but also to prevent groupthink or free-riders. Its very important that students be divided into groups by their expertise and/or aptitude (see The Basadur Creative Problem Solving Profile: http://www.basadur.com/profile/description.htm), not purely by their own choice to ensure each team has diversified and complementary capabilities. Additionally, there are two stages, individual and group, to finishing the project. At the individual stage, I ask each student to develop and R&R a one-page thought paper. The following is an example that I introduce as Entrepreneurial Orientation (EO, text pages 447-457), an entrepreneurialtype strategy at the corporate level, and ask students to develop a strategic business plan with Lumpkin and Desss article in 2005 The Role of Entrepreneurial Orientation in Stimulating Corporate Entrepreneurship, (Academy of Management Executive, 19: 147-156) as a supplemental reading. The first half of your final group project is your INDEPENDENT and INDIVIDUAL work to help XYZ Company analyze possible opportunities, problems, strategies, and solutions with EO. The three writing stages (A, B, and C) are a series of steps to help you fine-tune your idea and the input for your second half of the GROUP project. Employing a revise and resubmit model, I will help you work on the same idea

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twice (Stages B & C). Stage A is data collection and analysis to identify problems or opportunities. Stages B and C are idea development (using this four-paragraph framework in your paper: problem/opportunity, strategy and solution, limitation/difficulty, and contribution). Between Stages B and C, you must make an appointment with me to further discuss your revision. At the end of this process, you will have a satisfactory and solid idea for your following group work. At the group stage, each group must 1) exchange individual papers and pick one idea they like best, 2) further develop the idea, 3) submit their group proposal, and 4) set a timeline to finish the project. Likewise, the group proposal (#3) should be revised and resubmitted in a timely basis. (3) Prohibiting use of laptops in class by Brian Pinkham, University of Texas at Dallas

I often worry that prohibiting laptops in the classroom will incite a mob among unhappy students. However, at the end of each term I get the same feedback: I hated giving up my laptop, but I got so much more out of your class. To execute this well, I recommend a few things for professors and lecturers. First, put it in your syllabus. This way, the rules are clearly laid out, and not arbitrary. Second, talk about the policy the first day. The typical student has a strong relationship with their technology, but hiding behind computer screens, working on assignments due in the next class, and instant messaging stymie the learning process. Removing the laptops refocuses their energy on class material and, most importantly, discussion. Third, engage the students. Encourage students to take an active role in their learning process rather than just taking notes. Drawing students into discussion and using student-driven examples emphasizes the twoway process (teacher and student) of contributing to classroom learning. (4) Minimizing cheating on exams by Liliana Nordtvedt, University of Texas at Arlington

I have come up with a series of steps that I follow in order to avoid cheating on my examinations. The first thing I do is to create different versions of the test. The questions are the same, but the order of the answers differs. I make sure students know about this ahead of time. Second, I always make sure that I make the exact number of copies of the exam as there are students. I hand each test to each student (a different version to students to students sitting right next to each other) and make sure that not one student gets extra copies that they can take outside and share with others. In addition, I require every student to return their scantron forms and their exam, both signed. Third, if the classroom permits, I ask students to sit leaving a chair in between. When this is not possible, I only let students sit together in the front rows. Fourth, I tell them that they are not to have their cell phones, cameras, iPods, PDAs, or any electronic devices with them. (5) An intensive start to the semester by Theodore A. Khoury, Oregon State University

One of the best assets of the DLE book deals with the flow and the overall introduction of strategy concepts to students. I find that beginning the semester with a more intensive start yields great payback in the finish, towards the end of the semester when it is often more difficult to keep the students working hard and staying motivated to learn new material. In my view, the first four chapters provide an excellent set of levers to get a handle on the boundaries of strategy in terms of the analysis tools, the vocabulary of terms, and dimensions of the external and internal environment. I spend a lot of time reinforcing all of the concepts of these chapters continuously during the first two weeks of the course by circling back to previously discussed concepts in each lecture, so that students are able to use the best terms and concepts to analyze all the other strategy problems or cases throughout the term. The case analyses are of a higher quality earlier on in the semester and midway throughout the term; most students are quite confident in the classroom discussions, which make for more participative lectures. Theres a lot of payback in doing more quality assurance of how the students are learning in the initial chapters. Given the flow of the book, I find it best to front-load the course with more reading in the first third of the term, while also spending the necessary time to reinforce all the foundational concepts that are introduced in the initial chapters so the students and discussions are stronger earlier on in the term.

Dess/Lumpkin/Eisner McGraw-Hill 2011

Strategic Management 5e
AUTHOR TEACHING TIPS
(1) Using dialectical inquiry in the classroom We have found that it is very useful to introduce the concept of dialectical inquiry. We discuss this concept on pages 479-480 (Chapter 13) and distinguish it from the more familiar concept of devils advocate. Dialectical inquiry is a very valuable tool to stimulate debate in the classroom during discussion. We like to set up a situation in a case where there are two obvious alternatives and at some point in the discussion ask the students to address the underlying assumptions of each of these two alternatives (i.e., these and antitheses). Then, we encourage them to arrive at a synthesis which typically combines the best elements of each alternative. As a personal example, one of the authors daughters had to make a decision between going to the movies or taking a last-minute babysitting job. The thesis was to go to the movie, but lose the money from the job. The antithesis was to take the job, but upset her friends. A potential synthesis was to take the job, but offer to reschedule the movie and buy popcorn and drinks for her friends to make up for it. (Result, she decided to just go to the movies ). (2) Using some quotations at the beginning of the course syllabus to help set a learning culture for the class Obviously, there are virtually an infinite number of quotations that you could select from. A few that we have used to help set the tone or culture are included below. You never know who is swimming naked until the tide rolls out. Warren Buffett Excellence is a habit, not an act. Author Unknown You wont become a general unless you become a good first lieutenant. Colin Powell, former U.S. Secretary of State and Four Star General Life is a mystery to be lived, not a problem to be solved. William Butler Yeats (Irish Poet) One of the things about leadership is that you cannot be a moderate, balanced, thoughtful articulator of policy. Youve got to be on the lunatic fringe. Jack Welch (former CEO, GE) The more you sweat in training, the less you bleed in war General George Patton, U.S. Army

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This is the true joy of life: the being used up for a purpose recognized by yourself as a mighty one; being a force of nature instead of a feverish, selfish little clod of ailments and grievances, complaining that the world will not devote itself to making you happy. George Bernard Shaw (3) Using experiential exercises in strategic management: Two examples We have included two experiential exercises in the Instructors Resource CD-ROM: Plastico, Inc. and Atkinson Company (Note: At the end of the Instructors Manual folder). We have found that these exercises are very valuable in illustrating key strategic management concepts, while also bringing a fun element that really engages students. Often, we have used these exercises prior to a major examination or student presentations as a means of providing the students with, in effect, a day offsince neither exercise requires them to prepare materials for the class session. Below is a brief recap of each exercise: Plastico, Inc. is about a firm that has received a very poor product evaluation from Consumer Reports. Students play the roles of various executives that must solve the problem in a very short period of time. There is conflict built into the roles to simulate what often happens in organizations when problematic decisions must be made very quickly. Some of the concepts that the exercise illustrates are: why quality must be an organization-wide effort; the advantages of cross-functional coordination; the corrosive effects of conflict; activities essential to effective strategic leadership; and, the need to distinguish between symptoms and problems. Atkinson Company deals with a firm that faces retrenchment. Students must rank order 8 sales managers in terms of layoff priority. They are provided with a brief scenario of the companys situation and a biosketch of each manager (including personal, educational, and performance information). Some of the concepts that the exercise illustrates are: the need to consider organization-wide goals and objectives; the short- and long-term implications of organizational decisions; the need to incorporate multiple stakeholders in decision making, and the value of empowerment (i.e., what would be the benefit of getting the sales managers involved in the decision). (4) The use of peer ratings in the strategic management course The use of peer ratings has multiple advantages. They are generally seen as fair, although some students may sometimes complain that their evaluations are lower than they think they should have been. However, we have found that this doesnt happen too often. A major advantage, of course, is that it saves the instructor from being jury and judge when students complain about another students shirking, uncooperativeness, lack of contribution, etc. To be most effective, they should be completed at the end of the final class meeting or at the completion of all group assignments. Below are some of the details that are cut and pasted from one of our syllabi. All group members are expected to do their fair share of work on the assignments. Fortunately, in about 85 to 90 percent of the groups--based on our experience--this is the case. Unfortunately, that leaves (historically) approximately 10-15 percent of the groups in which inequities occur. Since I do not know which groups have such a problem, I will use peer evaluations for all groups. For such a system to work, everyone must be honest and fair. First, if a group member(s) is making only a nominal contribution and/or is overly difficult to work with, the other groups member(s) may expel them/her/him from the groups and this individual must complete the written assignment individually within two weeks of the due date (It will be graded without biasto the same standards as the group assignments.). Second, all groups will multiply the number of people in their group by 100 points and assign the total points among the members. All members must receive between 80 and 120 (per evaluator) points. Each member's individual grade on the

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assignment will be determined by multiplying the group grade on the assignment by their total peer points (including their own rating) divided by 100 times the number of people in their group. The instructor reserves the right to assign students to a groupor form another groupto even out group sizes, if necessary. EXAMPLE: Group Grade = 80/100, four students Student A - total peer ratings = 440 Individual Grade = 80 X 1.1 = 88 Student B - total peer ratings = 360 Individual Grade = 80 X.9 = 72 Students C and D - total peer ratings = 400 Individual Grade = 80 X 1.0 = 80 The instructor maintains the right to disregard self-ratings that are substantially higher than peer ratings. (5) Teaching the controversial issue of outsourcing/offshoring. It is supported by a video clip IS OUTSOURCING KILLING AMERICA? and helps to build on DLE, fifth edition material on the topic in Chapter 7 (pages 246 248).

The DLE author team would like to thank Professor Jim Walsh, University of Michigan, for granting us permission to include his brief video: The Delmar Dog Butler: Is Outsourcing Killing America? to the Instructors Online Learning Center as a video update www.mhhe.com/dess5e. The video provides a rather balanced perspective on the issue and should lead to spirited debate and discussion in your class. Next, is a brief overview that Professor Walsh has provided: Is outsourcing killing America? General Electrics CEO sidesteps this question and argues that America needs more engineers. He tells us that GE is forced to look to India for talent. Steve Relles, a GE computer programmer with 15 years of experience, sees it differently. The Indian engineers work for a fraction of his pay. GE sent his job to India. With two small children at home, Steves wife Rose goes to work and he opens a business picking up dog poop from his neighbors yards. Outraged, some wonder what is happening to America. Others see Americas future in their can-do attitude. The story does not end there, of course. Indian programmers are people too. Shageesh and Betta are husband and wife computer programmers in Bangalore, India. They work for ten cents on the dollar; they are also world class engineers. Their jobs are a reward for years of hard work and a means to a better life. Shageesh and Betta and Steve and Rose are more alike than different. ______________________________________________________________________________________ Some questions you may wish to pose: Is outsourcing killing America? Should our jobs be protected? Is outsourcing exploiting Shageesh and Betta? Should they be paid more? Pressed to deliver shareholder wealth and social justice, what do we really want from companies like GE? And, what does this mean for us? How are we to live in a global economy? The Delmar Dog Butler raises these questions and asks us to think hard about their answers.

Dess/Lumpkin/Eisner McGraw-Hill 2011

Strategic Management 5e
AUTHOR CHAPTER UPDATES AND TIPS Chapter 1: Strategic Management: Creating Competitive Advantages
On page 22, we address the concept of shared value. In contrast to the typical approach in corporate social responsibility, shared value strives for a more win-win perspective among multiple stakeholders.

The Concept of Shared Value: Moving Beyond CSR Capitalism is typically viewed as an unparalleled vehicle for meeting human needs, improving efficiency, creating jobs, and building wealth. However, a narrow conceptualization of capitalism has prevented business from harnessing its full potential to meet societys broader challenges. The opportunities have always been there but have been overlooked. Businesses acting as businesses, not as charitable donors, are the most powerful force for addressing the pressing issues that we face. The moment for a new conception of capitalism is now; societys needs are large and growing, while customers, employees, and a new generation of young people are asking business to step up. The purpose of the corporation must be redefined as creating shared value, not just profit per se. This will drive the next wave of innovation and productivity growth in the global economy. It will also reshape capitalism and its relationship to society. Perhaps most important of all, learning how to create shared value is our best chance to legitimize business again. The concept of shared value can be defined as policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in which it operates. Shared value creation focuses on identifying and expanding the connections between societal and economic progress. Shared value is not about personal values. Nor is it about sharing the value created by firmsa redistribution approach. Instead it is about expanding the total pool of economic and social value. A good example of this difference is the fair trade movement in purchasing: Fair trade aims to increase the proportion of revenue that goes to poor farmers by paying them higher prices for the same crops. Though this may be a noble sentiment, fair trade is mostly about redistribution rather than expanding the overall amount of value created. A shared value perspective, however, focuses on improving growing techniques and strengthening the local cluster of supporting suppliers and other institutions in order to increase farmers efficiency, yields, product quality, and sustainability. This leads to a bigger pie of revenue and profits that benefits both farmers and the companies that buy from them. Early studies of cocoa farmers in the Ivory Coast, for example, suggest that while fair trade can increase farmers incomes by 10 to 20 percent, shared value investments can raise their incomes by more than 300 percent! Initial investment and time may be required to implement new procurement practices and developing the cluster. However, the return will be greater economic value and broader strategic benefits for all participants.

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Sources: Porter, M. E. & Kramer, M. R. 2011. Creating shared value. Harvard Business Review, 89(1/2): 62-77. A similar concept is conscious capitalism; and, Sheth, J. N. 2007. Firms of endearment: How worldclass companies profit form passion and purpose. Philadelphia, PA: Wharton Publishing.

Question to Consider: Can you think of other examples where corporations have been able to accomplish win-win relationships with multiple stakeholders? Hint: Bring in issues about environmental sustainability.

Chapter 2: Analyzing the External Environment of the Firm

On pages 58-59, we address the topics of buyer and supplier power. To illustrate this we address an issue that should be interesting to many of your students. It should generate some lively discussion.

Tuition Increases: Sometimes Students Have Very Low Bargaining Power Students at the University of California at Berkeley got hit with a 32 percent tuition fee increase in 2010. They protested by taking over a classroom building. As noted by Forbes writer, Asher Hawkins: It was a futile effort. Students who are already embarked on a four-year program are something of a captive audience, and Californias state coffers are empty. After the increase, the tuition and fees for in-state undergraduate students for the 2010-2011 academic year will come to over $10,000 a year. Although this may seem like a reasonable price for a high-quality education, there could be more price increases ahead. At some state schools the risk of sharp tuition increases are quite high. A study was conducted by Forbes in which university financial data, state budgets, and tuition levels were analyzed to come up with a danger list. These are state schools that are most likely to raise tuition or cut the quality of the educational experience over the next four-year period. And, it should be something for students to consider when deciding where to go for undergraduate school. Five of the ten schools on the high-risk short list were part of the University of California system. A big contributing factor is the states enormous budget deficit. And, since Berkeley and UCLA have 10 to 12 applicants for every available spot, they are easy targets for legislators looking for ways to balance the budget. A spokesman for the UC system, Peter King agrees: The factors employed by Forbes to generate this ranking list capture well the perfect storm that has enveloped the University of California system. On January 8, 2011, California Governor Jerry Brown proposed cutting a combined $1 billion from the University of California and California State Systems, which had a combined $5.6 billion general fund budget in 2010. Mark Yudof, President of the UC Systems stated: The collective tuition payments made by UC students for the first time in history would exceed what the state contributes to the Systems general fund. Sources: Hawkins, A. 2010. Tuition risk. Forbes. May 10: 36; and, Woo, S. 2011. California Governor unveils spending plan. www.wsj.com. January 11: np.

Questions to Consider: Are universities exploiting their bargaining position vis--vis their students? Why? Why not?

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Chapter 3: Assessing the Internal Environment of the Firm

On page 96, we address a resource that has been very difficult for rivals to copyAmazons Prime. Given the popularity of Amazon among many students this should spark a high level of interest.

Amazons Prime: Very Difficult for Rivals to Copy Amazon Prime is a free shipping service which guarantees delivery of products within two days for an annual fee of $79. According to Bloomberg Businessweek, it may be the most ingenious and effective customer loyalty program in all of e-commerce, if not retail in general. It converts casual shoppers, who gorge on the gratification of having purchases reliably appear two days after they order, into Amazon addicts. Analysts describe Prime as one of the main factors driving Amazons stock priceup nearly 300 percent from 2008 to 2010. Also, it is one of the main reasons why Amazons sales grew 30 percent during the recession while other retailers suffered. Perhaps most important: it has proven to be extremely hard for rivals to copy. Why? It enables Amazon to exploit its wide selection, low prices, network of third-party merchants, and finely tuned distribution system, while also keying off that faintly irrational human need to maximize the benefits of a club you have already paid to join. Prime was introduced in 2004. It was the result of a years-long search for the right loyalty program. An Amazon software engineer named Charlie Ward first suggested the idea of a free shipping service via a suggestion box feature on Amazons internal website. Bing Gordon, an Amazon board member and venture capitalist, came up with the Prime name. Other executives, including Chief Executive Jeffrey Bezos, devised the two-day shipping offerwhich exploited Amazons ability to accelerate the handling of individual items in its distribution. Now, six years into the programs creation, rivalsboth online and offhave realized the increasing threat posed by Prime and are rushing to try to respond. In October, 2010, a consortium of more than 20 retailers, including Barnes and Noble, Sports Authority, and Toys R Us, banded together to offer their own copycat $79, two-day shipping program, ShopRunner, which applies to products across their websites. However, as noted by the Fiona Dias, the executive who administers the program: As Amazon added more merchandising categories to Prime, retailers started feeling the pain. They have finally come to understand that Amazon is an existential threat and that Prime is the fuel of the engine. Source: Stone, B. 2010. Whats in the box? Instant gratification. Bloomberg Businessweek. November 29December 2010: 39-40.

Questions to Consider: Do you feel that Amazons Prime is a sustainable resource? Why? Why not? What happens when rivals offer free shipping (without membership fees)?

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Chapter 4: Recognizing a Firms Intellectual Assets: Moving Beyond a Firms Tangible Resources
On page 144, we address an emerging topicvideo conferencing. Perhaps many of your students have experienced this at work recently.

Videoconferencing: Allowing Employees to Communicate Face-to- Face over Long Distances Cisco Systems has recognized that collaboration would be the biggest technological trend of the next decade, driving productivity gains of 5 to 10 percent per year. It has created a strong portfolio of collaboration technologies, including TelePresence; WebEx; phones that run over the Internet; devices that produce, distribute, and archive videos; and hardware that can carry, distribute, and manage communications traffic no matter the origin or destination. Internally, the use of these technologies has helped make Ciscos workforce one of the most distributed, connected, and productive in the world. Employees have experiencedand drivena cultural revolution of not only information-sharing, but also teamwork and transparency. In a recent year, for example, TelePresence usage has increased 10 times while WebEx conferencing usage has soared by 25 times. In addition, video postings have grown by more than 11 times on the companys website. Cisco recently launched a new videoconferencing product, Umi TelePresence that is aimed at the consumer market. It costs $599 (for the camera, console, cables, and remote control that constitute the system) and comes with an unlimited calling plan that runs $25 a month. What makes the product more expensive is that you might have to purchase a second or third Umi for family members, simply because it takes at least two to tango when it comes to video calling. However, corporations could also use such home systems to allow global employees to connect with headquarters during business hours. As noted by Srinath Narasimhan, CEO of Tata Communications, remote employees are loath to go to the office for a 3 A.M. call in a video suite. However, with a home setup, these employees could stumble out of bed and into a meetingas long as they remember to comb their hair first! Sources: Copeland, M. V. 2010. The new global worker gadget: videophones. Fortune, November 15: 36; Sidhu, I. Doing Both. Boston: Harvard Business Press; and, Baig, E. C. 2010. Umi TelePresence brings videoconferencing home. www.usatoday.com. December 2: np.

Questions to Consider: Is this a good substitute for face-to-face meetings? Why? Why not? Hint: You may address the fact that it may limit the ability to pick up on verbal and nonverbal cues as well as negate opportunities for social bonding.

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Chapter 5: Business-Level Strategy: Creating and Sustaining Competitive Advantage

In the introductory portion of this chapter we address the importance of firms looking beyond their boundaries and creating important relationships with customers and suppliers. Below, we address how KFC did a poor job managing its relationship with a very important customer baseits franchisees.

KFCs Franchiser-Franchisee Relationships: Not Very Good Recently, a battle over strategy divided top management and franchise owners at KFC. Many franchise owners became upset with KFCs new strategy that moved away from its Southern fried heritage and moved towards promoting grilled chicken and sandwiches. In early 2009, CEO Roger Eaton introduced grilled chicken in a move to target health conscious consumers in todays changing society. However, many franchise owners were disappointed with this strategy. Further, in January 2010, the KFC National Council and Advertising Cooperative (which represents all U.S. franchises), sued KFC to gain control of their own ad strategy. This civil war erupted when the company introduced grilled chicken with the slogan Unthink KFC. To make matters worse, after a year in the market, reports stated that grilled chicken accounted for only about 16 percent of all on the bone chicken sold. Also, an internal survey of 642 franchisees showed almost 50 percent of the stores grilled chicken was thrown away! One glaring example of miscommunication regarding business strategy between management and franchise owners occurred when KFC launched a grilled chicken giveaway on Oprah, a wildly popular television program, in May 2009. Management told franchisees to expect a couple hundred customers to redeem online coupons at each store. However, thousands showed up expecting free grilled chicken. One franchise owner said, The cost to the franchisee was much larger than they said, and that the promotion cost her almost $15,000! This started a continued downfall in trust between management and owners. KFC canceled the promotion, and CEO Eaton apologized to customers in an online video. Disagreements between KFC management and franchise owners over strategy led to decreased sales and store closings. KFCs franchisees were upset with the decision to push grilled chicken and claimed that it hurts the brand. They sued KFC and do a lot of their own advertising to promote fried chicken at their stores. Sources: Helm, B. 2010. At KFC, a battle among the chicken-hearted. Bloomberg Businessweek, August 16: 19; De Nies, Y. 2010. Kentucky fried fight. http://abcnews.go.com. August 17: np; and, Morran, C. 2010. Squabble between KFC & franchisees over advertising goes to court. http://consumerist.com. September 20: np. We thank Jason Hirsch for his valued contributions.

Questions to Consider: If you were CEO of KFC how would you resolve this issue? Should you offer some type of refund for the money the franchises have lost on these promotions? Why? Why not?

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Chapter 6: Corporate-Level Strategy: Creating Value through Diversification

On page 222, we discuss how firms can leverage their core competence. Below, we discuss a delicatessen that has been very successful.

A Gourmet Deli Firm Leverages its Core Competence and Creates a New Business In 1982, when Ari Weinzweig and Paul Saginaw opened Zingermans Delicatessen in Ann Arbor, Michigan, their goal was to offer a world-class corned-beef sandwich. By 2003, Zingermans was named The Coolest Small Company in America by Inc. magazine. Today, the Zingermans Community of Businessesincluding seven businesses--employs more than 500 people and generates annual sales of more than $35 million. In 1994, the firm created a training arm, ZingTrain, to develop and deliver seminars on how to hire, fire, and inspire people. The program, mainly targeted at managers and small-business owners, promises tips, tools, and techniques to be more effective at every stepfrom hiring to the exit interview. At one session, the 15 participants included four managers form a pizza chain, a furniture store owner, two nonprofit executives, a co-owner of an Italian ice-cart business, and a journalist. During the session, the leaders drew on Zingermans culture, discussing the compact in which employees take responsibility for their trainings effectiveness. There were also tips for writing a great job description. Sources: Kanter, R. M. 2009. Mergers that stick. Harvard Business Review, 87 (10): 121-125; OBrien, C. 2008. ZingTrain keeps retail workers on the right track. newhope360.com. October 1: np; and, www.zingtrain.com.

Question to Consider: Can you think of other firms that have successful leveraged their core competence?

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Chapter 7: International Strategy: Creating Value in Global Markets

On page 252, we address the concept of global strategies. Below, we provide an example of how a strategy in one country did not work in another country.

Why Shells Innovative Gasoline Product Backfired in Holland Not every consumer wants eco-friendly goods, and relatively few will pay more for them. However, every day more customers are including environmental factors in their buying decisions. And, what sells in one place might not in another. Consider, for example, Shell Oils (part of the Royal Dutch/Shell Group) experience in marketing Pura, a new, cleaner-burning gasoline in two very different countries. According to Mark Weintraub, Shells Director of Sustainable Development Strategy, the firm used a sustainable development lens to identify a need for cleaner fuels in Thailand. As is the case in much of Asia, the combination of dense cities and high traffic volume was damaging air quality in Bangkok and elsewhere. A cleaner burning fuel such as Pura, which produced less sulfur and other harmful emissions, seemed like a winner. In an example of superior eco-design, Shell developed just such a fuel by converting natural gas to a zero-sulfur liquid and then mixing it with regular diesel. Shell touted the blend as providing more complete combustion to reduce smoke emissions and restore lost engine performance. And, ShellThailand chairman Khun Vajrabhaya claimed that: Motorists should experience better performance of their vehicles within 2-3 tank-fulls of Shell Pura diesel. From our road tests on diesel-engine vehicles in both Thailand and the United Kingdom, black smoke was satisfactorily reduced. Even though Shell charged a 7.5 cent a gallon premium, Pura gained market share and sales have been very strong. In short, the launch was a complete success. Shell assumed that it could use the same pitch when it rolled out Pura in other countries. However, the launch in the Netherlands fell flat. Why? Shell later realized that emphasizing how cleanerburning fuel protects a cars engine was not resonating in Holland. The message was more important in Thailand where people are much more concerned about gasoline quality and the effect of impurities on engine performance and quality of life. Clearly, the green pitch never went over very well in Hollandeven though the country is full of customers who say that they will buy green. It is just that the need to clean the local city air is not as pressing a concern as it is in Asia. Eventually, Shell relaunched Pura in Holland under the name V-Power and marketed it by stressing enhanced engine power. Sources: Esty, D. C. & Winston, A. S. 2009. Green to Gold. Hoboken, NJ: Wiley; Peckham, J. 2002. Shell spots premium diesel opportunity for GTL blend. Diesel Fuel News. February 4: np; and, www.showashell.co.jp.

Question to Consider: Can you think of other examples of products and services that failed when transferred across national boundaries?

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Chapter 8: Entrepreneurial Strategy and Competitive Dynamics

In this chapter we address entrepreneurial initiatives. Some were successful, some failed. Below, is an example of the latter.

iSold It: A Venture that Didnt Sell The wildly successful eBay concept allowed individuals to sell to the world. Perhaps, not surprisingly, the business of intermediating such sales quickly took off. It was even portrayed in the movie The 40-year-old virgin. iSold It was one of the champions of this model and quickly gained popularity, as it made eBay access easier for people who did not want the hassle of researching prices, online postings, and money collection. The company began in December 2003 by helping customers sell their unwanted stuff on eBaybasically acting as an intermediary and charging a percentage of the sales price. More recently however, the company stopped selling franchises and is retracting many of the franchises already sold, due to financial losses. How did the company go from a top franchise pick by Entrepreneur magazine in 2006, to the firm in full retreat that we see today? In 2005, the idea of a store helping customers sell their unwanted things on eBay was very popular, resulting in 7,000 of these types of stores opening around the US. In June 2006, Entrepreneur magazine named iSold It Hotter than hot, and ranked the firm 30th among other Fastest-Growing Franchises. What is more, in 2007 iSold It actually earned the top spot in the Entrepreneurs New Franchise Rankings, listing a start-up cost of $105,000 per location! At the time, it seemed that selling other peoples stuff online and collecting a fee had endless potential. The firm researched the potential sale price, wrote the product description, posted the ads on eBay, monitored the auction, responded to any emails, collected the proceeds from the sale, and finally mailed the purchaser the product. The firm did not guarantee that the product would sell and had selection standards about what they tried to sellthey have to put in the same amount of effort whether the product sells for $75 or $1,000. If the advertised product did not sell, the firm still paid eBays listing fee. iSold Its founders realized that the firm was growing at a rate above their capabilities, so they stepped aside and hired outside help. In 2004, Ken Sully, a former VP of Mail Boxes Etc., came on board as the new CEO. Ken standardized the firms operations and made it possible for a store to be installed and set up in 48 hours. iSold Its founders saw no end in sight for the firms growth, stating in 2006 that, weve created this brick-and-mortar interface to the Internet, predicting that with the growth of Internet trade, their firm was in a position to capitalize on it. By June 2006, the firm had sold 800 franchises. Although iSold It knew that people could sell their own merchandise online, they overestimated their willingness to pay an intermediary 20 - 30% of the sales price for the convenience of listing their products and collecting the money. Entrepreneur magazine in January 2010 called the eBay drop-off store concept ridiculous, as customers quickly learned how to sell their stuff by themselves. With low barriers to entry in this industry, many copycat firms quickly entered the market. In early 2007, iSold It stopped selling new franchises, and is quickly losing the ones they sold. Sources: Anonymous, 2006. 2006 Fastest-growing franchise rankings. Entrepreneur. http://entrepreneur.com, October 2010: np; Anonymous, 2007. Rising stars. Entrepreneur. http://entrepreneur.com, October 2010: np; Edersheim Kalb, P. 2009 Cranky consumer: Hiring middlemen to sell stuff on eBay. Wall Street Journal, New York, NY, January 29: D2; Ohngren, K. 2010. Kaboom! A look back at the wacky franchise ideas that exploded (and imploded) in an instant. Meet you at the eBay store. Entrepreneur. January 38(1): 120-104; and, Wilson, S. 2006. Hotter than hot. Entrepreneur. June 34(6): 72-81; April 35(4): 108-111. We thank Ciprian Stan for his valued contribution.

Questions to Consider: Can you think of items that people may have consigned to iSold It? Without the benefit of hindsight, why do you think people thought this venture would succeed?

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Chapter 9: Strategic Control and Corporate Governance

On page 318, we address sustaining effective culture. Below, we highlight what a few large firms are doing to sustain their cultures effectively.

Sustaining Corporate Culture 1. The Purple Promise FedEx: Since day one, its basic philosophy of doing business, as stated by Chair, CEO and President Frederick W. Smith, has been People, Service and Profit. Its motto is 100% Customer Satisfaction. The FedEx philosophy is represented in the following policies: achieve no layoffs, guarantee fair treatment, use surveys to obtain feedback and guide action, promote from within, share profits and maintain an open-door policy. Over the years, FedEx has established a corporate culture based on delivering quality customer service, and cultivating a "whatever it takes" attitude that filters down from the top. "In these challenging times, our strong FedEx culture is a strategic advantage. It is based on the Purple Promise, which empowers our team members to make every FedEx experience outstanding. Our people and our culture are the reasons we've received this great honor" said Frederick Smith commenting after FedEx was named among FORTUNE magazines Best Companies to Work for for many years including the most recent survey. 2. Take care of employees Wegmans: Wegmans vice president, Nicole Wegman, sums up the companys employee-focused culture like this If we take care of our people, they will take care of our customers. Wegmans offers salaries above its competitors, the company hires only highly-qualified employees, gives most full and part time employees free health coverage and employee scholarship program, sends employees to international learning excursions and offers opportunities for career advancement. Wegmans employees are central to the consistent execution of its business model. The companys values of caring, respect, high standards, making a difference in the community and empowerment become shared values - the key to turning a saying on a poster into behavior that employees demonstrate every day in their interactions with each other and with customers. Sources: Jackson, Schuler & Werner. 2009. Managing Human Resources (10th ed.). South-Western; FedEx Named Among FORTUNE Magazine's 2009 "Best Companies to Work For" http://news.van.fedex.com/node/12590, 1/22/ 2009; and Wheeler, J., Wegmans Food Markets: How Two Halves Make More Than a Whole. Progressive Grocer, Aug/Sep 2009. Vol. 88, Issue 6, p48.

Questions to Consider: What do you see as some of the other ways to sustain organizational culture? Do you know of any initiatives that failed?

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Chapter 10: Creating Effective Organizational Designs

On page 374, we discuss boundaryless organizations. The example below discusses how boundarylessness can help firms reduce administrative costs.

Shared values: A Key to Successful Boundaryless Cost Cutting Sometimes even boundaryless organizations need to tighten their organizational belts. Managers can use a combination of different actions that will produce opportunities for administrative cost savings. Crossdepartment and program elimination ideas are usually necessary when companies are aiming for 30 percent or more cost savings. There are different strategies that managers can use to reduce overhead costs by up to 30 percent. The strategies are discussed below: Coordinate parallel activities Departments often buy supplies without regard to what others are ordering. When multiple departments coordinate their efforts, the savings can be large. Shift the burden to the most efficient location Budget season is the time to bring up crossdepartment trade-offs. It may also be time to consider outsourcing activities or work groups. Eliminate duplicated analysis Many departments may be analyzing the same event from multiple angles. An efficient way is to make one department in charge of analyzing the event and incorporating input from other key departments. Eliminate low-value forums Organize a cross-department audit of all regularly scheduled meetings to figure out which ones can be repurposed, consolidated or eliminated. Eliminate programs If the department cannot reach the savings target through actions described above, it will have to eliminate entire tasks or programs conducted by that department. Reduce the burden you place on others Seek out opportunities to tell other departments how they are over serving you.

Source: Coyne, K., Coyne, S., and Coyne, E., 2010. When youve Got to Cut Costs Now. Harvard Business Review, 88(5): 74-82.

Questions to Consider: What are some other boundaryless ways to cut administrative overhead? Are there some that might backfire? Hint: Discuss some of the short-term, long-term tradeoffs.

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Chapter 11: Strategic Leadership: Creating Learning Organization and an Ethical Organization
On page 402, we discuss empowermenta key element of a learning organization. Below, we provide a rather innovative application of this concept.

A Hospitals Unique Approach to Empowerment Beth Israel Deaconess is a medical center formed by the merger of two Harvard teaching hospitals. Early in 2009, it was facing a projected $20 million annual loss after several year of profitability. CEO Paul Levy held a meeting to discuss layoffs. He expressed concern that cutbacks would affect low-wage employees, such as housekeepers, and he floated what he thought would be an unpopular idea: protecting some of those low-paying jobs by reducing salary and benefits of higher-paid employeesincluding many sitting in the auditorium. To his surprise, the room erupted in applause! His candid response for help led to countless suggestions for cost savings. This included an offer by the 13 medical department heads to save 10 jobs through personal donations totaling $350,000. Such efforts ultimately reduced the number of planned layoffs by 75 percent. Source: Heifetz, R., Grashow, A., & Linsky, M. 2009. Harvard Business Review, 87(4): 67.

Questions to Consider: Do you think this approach would work at other types of organizations? Why? Why not? Hint: You may discuss the importance of an organizations culture as well as widely dispersed compensation amounts among employees.

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Chapter 12: Managing Innovation and Fostering Corporate Entrepreneurship

In this chapter we discuss the importance of corporate entrepreneurship. Below, we point out the importance of selecting the proper partners in such initiatives.

HTC and Microsoft: A Failed Marriage? In April 2006, Bloomberg Businessweek described HTC as, the hottest tech outfit you never heard of, but oh how the times have changed. Founded in 1997 as a contract manufacturer, the company has long been the world's top maker of mobile handsets using Microsofts Windows Mobile operating system. HTC has several strategic partnerships including partners such as Intel, Texas Instruments, and Qualcomm. HTC is known for its innovation and is consistently highly ranked by insiders and consumers alike. It is constantly broadening the range of devices it offers introducing devices to support specific applications that meet the increasingly diverse needs of its customers and partners. Currently listed in Bloomberg Businessweek as number 47 of Most Innovative Companies, HTC Chief Executive Peter Chou says: Innovation is not a one-time jobinnovation is a journeyhardware innovation is less than half the battle, when it comes to the handheld market. Lets take a look at what happens when corporate entrepreneurship fails to add value through innovation. HTC paired its proprietary intuitive user interface, Sense, with Windows Mobile version 6.5, Microsofts mobile operating system, to create the HD2 Smartphone available through T-Mobile. It features a luxurious 4.3 inch touch screen, Qualcomm Snapdragon processor (same one that powers Googles Nexus One), 5- megapixel camera with flash and all in sleek design that fits in a shirt pocket! Just one catch, Microsofts operating system is soon-to-be-obsolete and its new Windows Mobile 7 is not backwards-compatible. Bottom line: Consumers are spending $199 on two year contracts with T-mobile to have a phone that wont work! What went wrong? Although Microsoft was one of the first to recognize the power of handhelds, it struggled to look past its ideas of a handheld computer to a more intuitive Smartphone. This allowed Microsoft to slip in the market as it attempted to perfect its software. Microsoftas first moverwas the market leader. However, Blackberry followed and took over the corporate market while Apples iPhone ruled the consumer market. In three months, Microsoft Smartphone subscribers slipped down to 15.7 percent of the smartphone market of January of 2010, according to comScore. HTC has a long history of pairing with Microsoft to innovate in the handheld market. Unfortunately, this partnership of corporate entrepreneurs could not overcome the poor mix of Microsofts baffling software with HTCs elegant hardware. All of this reinforces the fact that, according to Bloomberg Businessweek, even innovative companies can be hobbled by suppliers peddling out-of-date technology. Sources: HTC. 2010. About HTC. HTC.com, np; Einhorn, M. and Arndt, B. 2010. The 50 Most Innovative Companies. Bloomberg Businessweek. April 25: 34-40; and, Jaroslovsky, R. 2010. HTCs Elegant DeadEnd Phone. Bloomberg Businessweek, April 25: 42. We thank Kimberly Kentfield for her valued contributions.

Question to Consider: Can you think of other instance in which a corporate venture failed because of poor partner selection?

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Updates on Cases: DLE Fifth Edition

Case # 23 Apple Inc. In September 2010, Apple announced a new Apple TV which allows the users to watch their favorite HD movies and TV shows for only $99. The old Apple TV had its own hard drive which could fill up as you stored shows and movies in them. Whereas, the new Apple TV does not come with a hard drive which makes it smaller and cheaper but one cannot store movies in them anymore. The new device is designed to play videos as it streams from the Internet rather than storing them so there is no problem of hard disk getting full. Apple expects sales of its new Apple TV to top one million units by late December 2010. References: Apple, Inc. website, http://www.apple.com/pr/library/2010/09/01appletv.html. Apple, Inc. website, http://www.apple.com/pr/library/2010/12/21appletv.html. Review: A better Apple TV doesn't beat competition, http://finance.yahoo.com/news/Review-A-betterApple-TV-apf-981041940.html?x=0.

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Case # 27 Southwest Airlines: Does LUV Last? In September 2010, CEO Gary Kelly made his boldest corporate move to date. Southwest announced that it would buy AirTran Airways for $1.4 billion, increasing both its revenue and its capacity by nearly 25 percent in a single stroke. Southwest plans to use AirTrans base in Atlanta to build on its strategy of attracting more business travelers. It opens the door to Atlanta, the worlds busiest airport, provides expertise on international flights and expands its foothold in New York and Washington. With this takeover, Southwest added 37 more destinations and got to eliminate AirTran, the second-biggest discounter, as a competitor. AirTrans 8,000 employees will be added to Southwests highly unionized work force of 35,000. Southwest employees have raised the concern of the merger diluting the companys specific culture. As Southwest finds itself at a pivotal moment, all eyes are on Southwest to see whether the company will continue to hold its famous culture or lose its Southwest way. Kelly drew a competitive line when he decided not to charge passengers for their bags, in contrast to the $20 or more slapped on for a checked suitcase on many flights a surcharge that rang up $2.7 billion for the airlines, according to the U.S. Department of Transportations Bureau of Transportation Statistics. He didn't want employees to face customer wrath for an issue that would have gone against the essence of Southwest. Southwest, which lets customers check two pieces of luggage for free (as long as they are not overweight or over-sized), also doesnt charge fees to change non-refundable tickets. Bags Fly Free has proven to be a strong marketing campaign for Southwest. By Kellys calculations, Southwest has grabbed nearly $1 billion in annual market share thanks in large part to people avoiding bag fees. References: Hall, Cheryl, Southwest Airlines CEO is defining himself as a leader without bag fees, The Dallas Morning News, 4/19/2010. MacCartney, Scott, Next Southwest Campaign: No Change Fees, The Wall Street Journal, 10/29/2010. Ovide, Shira, Southwest-AirTran: Are Free Bags an Endangered Species? The Wall Street Journal, 9/27/2010. Hall, Robert, Bags and Relationships Fly Free, ABA Bank Marketing, 09/2010. Mouawad, Jad, Pushing 40, Southwest is Still Playing the Rebel, The New York Times, 11/20/2010. Schlangenstein, Mary and Hughes, John, Southwest Risks Keep-It-Simple Focus to Spur Growth, BusinessWeek, 09/28/2010.

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Case # 38 eBay: Expanding into Asia In December 2010, it was announced that eBay Inc.s PayPal business will set up an international ecommerce hub in Chongqing, China, as the company aims to boost exports from the nation by helping merchants conduct faster cross-border trade. PayPal agreed with Chongqings municipal government to set up the center to offer foreign exchange settlement, telesales, training, verification and other services. Helping local companies connect with global customers will boost eBays transaction volume from China more than 80 percent to $4 billion this year, according to Chief Executive Officer, John Donahoe. eBay is counting on PayPal and local partnerships to expand revenue from China after failing to gain a foothold to compete against Alibaba Group. In December 2010, eBay Inc. acquired Milo, a leading local shopping engine that provides consumers access to accurate, real-time, local store inventory and pricing, giving them even more choice and flexibility when shopping online. By acquiring Milo and integrating its technology into the eBay.com platform and mobile offerings, eBay will be able to provide consumers with access to millions of products from approximately 50,000 stores across all 50 U.S. states. Additionally, eBay sellers will have the opportunity to reach more shoppers. The company plans to integrate Milo into its RedLaser iPhone app for comparison shopping via barcode scanning in the next few days. So a shopper will be able to stand in a store and price compare with other local merchants, complete the transaction through eBay's shopping cart or PayPal, get an electronic receipt and then pick up the item in the local store. eBay Inc. has also acquired Critical Path Software, a leading mobile application developer that has worked with eBay for more than two years to help deliver popular mobile apps such as the eBay for iPhone app, and StubHub, eBay Classifieds and Shopping.com iPhone applications. Critical Path Software's proven mobile development capabilities will play an integral role in enabling eBay to accelerate improvements to the mobile experience for customers globally.

References: EBays Paypal to Set Up Global E-Commerce Hub in China, www.businessweek.com, 12/29/2010. Corcoran, Cate T., EBay acquires Milo, Women's Wear Daily, 12/3/2010, Vol. 200 Issue 116. eBay Acquires Milo, a Leading Local Shopping Engine, 12/2/2010, http://investor.ebay.com/releasedetail.cfm?ReleaseID=534359. eBay Acquires Industry Leading Mobile Application Developer, 12/15/2010, http://investor.ebay.com/releasedetail.cfm?ReleaseID=537196.

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Case # 40 FreshDirect: Delivering the Goods? One of the biggest obstacles to the growth of online ordering of groceries has been the inability to view and touch food--particularly fresh produce and meat. Now, leading online grocer FreshDirect has created its own system to resolve this challenge. FreshDirect has introduced a Daily Produce Rating System, which it said gives shoppers "a foolproof way to ensure that the ripest fruits and crunchiest veggies are consistently delivered to their doorsteps." The Daily Produce Rating System is based on a daily inspection of all produce in stock by a quality assurance team. Rating criteria include taste, color, firmness and ripeness. Rankings are based on an easy ratings scale: five stars signify "never better, the best we've seen"; four stars indicate "great/delicious"; three stars mean "good/ reliably decent"; two stars indicate "average/inconsistent quality/generally OK"; and one star signals "below average/expect wide inconsistency in quality/probably out of season." Results are updated each morning on FreshDirect's Web site to let customers know which fruits and veggies are the best bets for deliveries to be received on the following day. The system aims to simulate the in-store shopping experience, allowing the grocers to showcase their best stuff and customers to decide what looks good. Rick Braddock, chairman & chief executive of Fresh Direct, also decided to upgrade FreshDirects Web site, using the companys internal database to profile customers and serve a customized online experience. For example, the sites software can now analyze order patterns, reminding customers of their favorite products and suggesting other items they might like, a marketing tool that has worked well for Netflix and Amazon. In addition, the database recognizes whether a visiting customer is a new, infrequent, lapsed or loyal customer and serves appropriate messages and ads. Reference: Bruder, J. At FreshDirect, Reinvention After a Crisis www.nytimes.com, 8/11/2010. http://www.freshdirect.com/brandpop.jsp?brandId=fd_ratings.