Strategic Management And Business Policy : Globalization, Innovation And Sustainability, 15th Edition Solution Manual
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PART A
SUGGESTIONS FOR TEACHING
STRATEGIC MANAGEMENT
SUGGESTIONS FOR TEACHING
STRATEGIC MANAGEMENT
SUGGESTIONS FOR TEACHING STRATEGIC MANAGEMENT
Strategic management ... Business policy ... Strategy. Whatever its name, it’s typically considered a “capstone”
course in most business schools. Its primary job is to examine a business firm as a whole and to integrate the various
functional disciplines. It generally includes industry analysis and competitive strategy with a healthy dose of SWOT
analysis. It may also include corporate governance and/or social responsibility and ethics, depending upon the
instructor. The course is generally expected to take a practical view of how business corporations actually function
“in the real world.” Nevertheless, there are many ways to teach strategic management. Some people are strong
proponents of “the case method.” Others argue that simulations are the best method of giving students a “hands-on”
understanding of strategic decision making. A number of instructors also use experiential exercises, group projects,
and audio-visual presentations. Very few, if any, argue for a straight lecture/discussion type of strategy course at the
undergraduate and master’s level. Each approach, however, has its strengths and weaknesses.
Lecture/discussion, for example, is a good way to communicate a lot of information and to critically analyze
theoretical concepts. In a strategy course, however, the emphasis is typically on developing integrative and problem-
solving skills. This is a weakness of the lecture/discussion approach.
The simulation, in contrast, is an excellent method to develop these skills and to put learning in the hands of the
student rather than in the hands of the instructor. It also emphasizes strategy implementation, an aspect of strategic
management often receiving little emphasis in most strategy courses. Its weaknesses include turning the instructor
from a teacher into an administrator. If teams are used, there is a strong tendency for students to let the “computer
geeks” take charge of decision making as the objective turns from strategy making to “playing the game.”
The Case Method
The most popular as well as the most perceived effective approach to teaching strategic management is the case
method. Its strengths include a real-world orientation (believed to generate student involvement) and the ability to
focus on developing decision-making skills by taking an integrative and conceptual, yet action-oriented approach.
This method may not go well, however, if the instructor is inexperienced in the use of cases and/or the students are
not motivated to do more than a superficial reading of the cases. A capable case instructor must be able to force the
typical student to go beyond satisficing at a very low level (e.g., “In my opinion, they ought to fire the CEO.”).
If given a free rein, the average undergraduate tends to “Monday morning quarterback” the case. For example, if
everyone knows that Hershey Foods successfully developed and marketed a new type of sugar-free candy this year,
there is a strong tendency to recommend this solution rather than other alternative courses of action. As a result, an
instructor new to the case method must ensure that students truly understand that the best solution to any case
problem is not (a) the one the instructor mentions, (b) what the company actually did, or (c) the most obvious
solution. The best solution comes from the best analysis. This means that the instructor must work hard to ensure
that students don’t take the easy route by merely stating the symptoms as if they were underlying problems and
going immediately to their desired solution without regard for other alternatives.
Possible Course Syllabus and Outlines
A number of policy instructors, including us, have a strong bias in favor of 75-minute classes meeting twice a week.
Open class discussion or oral presentations of complex strategy cases usually require at least an hour’s worth of
time. Given the usual rigmarole involved in starting and ending a class, it is very difficult to handle a case well in a
50-minute period unless the case is analyzed over two class sessions. The course outlines you see below have been
developed with generic activities. Instructors should explore MyManagementLab to review all possible activities in
which students can participate.
One other variable, which complicates the development of a course outline, is the decision concerning the timing of
the lectures on strategic management. Some instructors choose to spend the first part of their course lecturing over
the book while the students quickly read the chapters. Others attempt to intersperse lectures with case discussions or
presentations. The key question seems to be: How much information do students need before they can competently
Strategic management ... Business policy ... Strategy. Whatever its name, it’s typically considered a “capstone”
course in most business schools. Its primary job is to examine a business firm as a whole and to integrate the various
functional disciplines. It generally includes industry analysis and competitive strategy with a healthy dose of SWOT
analysis. It may also include corporate governance and/or social responsibility and ethics, depending upon the
instructor. The course is generally expected to take a practical view of how business corporations actually function
“in the real world.” Nevertheless, there are many ways to teach strategic management. Some people are strong
proponents of “the case method.” Others argue that simulations are the best method of giving students a “hands-on”
understanding of strategic decision making. A number of instructors also use experiential exercises, group projects,
and audio-visual presentations. Very few, if any, argue for a straight lecture/discussion type of strategy course at the
undergraduate and master’s level. Each approach, however, has its strengths and weaknesses.
Lecture/discussion, for example, is a good way to communicate a lot of information and to critically analyze
theoretical concepts. In a strategy course, however, the emphasis is typically on developing integrative and problem-
solving skills. This is a weakness of the lecture/discussion approach.
The simulation, in contrast, is an excellent method to develop these skills and to put learning in the hands of the
student rather than in the hands of the instructor. It also emphasizes strategy implementation, an aspect of strategic
management often receiving little emphasis in most strategy courses. Its weaknesses include turning the instructor
from a teacher into an administrator. If teams are used, there is a strong tendency for students to let the “computer
geeks” take charge of decision making as the objective turns from strategy making to “playing the game.”
The Case Method
The most popular as well as the most perceived effective approach to teaching strategic management is the case
method. Its strengths include a real-world orientation (believed to generate student involvement) and the ability to
focus on developing decision-making skills by taking an integrative and conceptual, yet action-oriented approach.
This method may not go well, however, if the instructor is inexperienced in the use of cases and/or the students are
not motivated to do more than a superficial reading of the cases. A capable case instructor must be able to force the
typical student to go beyond satisficing at a very low level (e.g., “In my opinion, they ought to fire the CEO.”).
If given a free rein, the average undergraduate tends to “Monday morning quarterback” the case. For example, if
everyone knows that Hershey Foods successfully developed and marketed a new type of sugar-free candy this year,
there is a strong tendency to recommend this solution rather than other alternative courses of action. As a result, an
instructor new to the case method must ensure that students truly understand that the best solution to any case
problem is not (a) the one the instructor mentions, (b) what the company actually did, or (c) the most obvious
solution. The best solution comes from the best analysis. This means that the instructor must work hard to ensure
that students don’t take the easy route by merely stating the symptoms as if they were underlying problems and
going immediately to their desired solution without regard for other alternatives.
Possible Course Syllabus and Outlines
A number of policy instructors, including us, have a strong bias in favor of 75-minute classes meeting twice a week.
Open class discussion or oral presentations of complex strategy cases usually require at least an hour’s worth of
time. Given the usual rigmarole involved in starting and ending a class, it is very difficult to handle a case well in a
50-minute period unless the case is analyzed over two class sessions. The course outlines you see below have been
developed with generic activities. Instructors should explore MyManagementLab to review all possible activities in
which students can participate.
One other variable, which complicates the development of a course outline, is the decision concerning the timing of
the lectures on strategic management. Some instructors choose to spend the first part of their course lecturing over
the book while the students quickly read the chapters. Others attempt to intersperse lectures with case discussions or
presentations. The key question seems to be: How much information do students need before they can competently
analyze their first comprehensive strategic management case? This is completely up to the instructor. We believe
that a use of the strategic audit will help students to competently analyze their first comprehensive case even if they
have not gone beyond corporate strategy in Chapter 7. We have found this point to be a good time to begin oral
presentations, for example. The first case should, however, emphasize strategy formulation over implementation and
be reasonably easy to analyze with each following case increasing in difficulty.
that a use of the strategic audit will help students to competently analyze their first comprehensive case even if they
have not gone beyond corporate strategy in Chapter 7. We have found this point to be a good time to begin oral
presentations, for example. The first case should, however, emphasize strategy formulation over implementation and
be reasonably easy to analyze with each following case increasing in difficulty.
SAMPLE COURSE SYLLABUS
COURSE TITLE: STRATEGIC MANAGEMENT
————————————————————————————————————
Class Times & Location:
Course Web Site:
Instructor Information:
Office & Office Hours:
————————————————————————————————————
COURSE DESCRIPTION:
This course serves as a cohesive map for strategic management. It is designed to integrate the
accepted theories in the area with real-world applications to provide students with the basic
knowledge and skills needed for strategic management. Lecture and class assignments given in
the course are intended to help students understand the needs of modern public and private
organizations, including emerging national and international trends.
COURSE OBJECTIVES
By the end of the course, students should be able to understand the basic elements of planning
and implementing strategy.
RESOURCES
TEXTBOOK: Strategic Management and Business Policy: Globalization, Innovation, and
Sustainability, 15th Edition by T. Wheelen, J. Hunger, A. Hoffman, and C. Bamford.
SOFTWARE: MyManagementLab (This is an optional resource, see
www.mymanagementlab.com for more information.)
LIBRARY & INTERNET RESOURCES: Students are encouraged to use the university library
and the Internet for research and to complete assignments when necessary.
COURSE COMPONENTS
EXAMS: A designated number of exams and a final exam will test students’
understanding of the materials discussed in class and in the assigned readings.
CASE ASSIGNMENTS: Students will answer discussion questions from case applications
assigned in the text. The goal is for students to apply the information discussed to these
real-world situations to the concepts and principles presented in the course.
IN-CLASS EXERCISES: Throughout the semester, students are expected to be prepared to
discuss issues relevant to the course and to participate in team exercises. For these
exercises, students will be required to be actively involved to receive credit—for
example, making substantive comments, answering questions, and preparing short
presentations. Points will be awarded by the instructor based on individual and group
participation. Students should bring their textbook to class as part of their participation
grade. Material for in-class assignments can be found at the conclusion of each
chapter—–see Ethical Dilemmas and Team Exercises.
COURSE TITLE: STRATEGIC MANAGEMENT
————————————————————————————————————
Class Times & Location:
Course Web Site:
Instructor Information:
Office & Office Hours:
————————————————————————————————————
COURSE DESCRIPTION:
This course serves as a cohesive map for strategic management. It is designed to integrate the
accepted theories in the area with real-world applications to provide students with the basic
knowledge and skills needed for strategic management. Lecture and class assignments given in
the course are intended to help students understand the needs of modern public and private
organizations, including emerging national and international trends.
COURSE OBJECTIVES
By the end of the course, students should be able to understand the basic elements of planning
and implementing strategy.
RESOURCES
TEXTBOOK: Strategic Management and Business Policy: Globalization, Innovation, and
Sustainability, 15th Edition by T. Wheelen, J. Hunger, A. Hoffman, and C. Bamford.
SOFTWARE: MyManagementLab (This is an optional resource, see
www.mymanagementlab.com for more information.)
LIBRARY & INTERNET RESOURCES: Students are encouraged to use the university library
and the Internet for research and to complete assignments when necessary.
COURSE COMPONENTS
EXAMS: A designated number of exams and a final exam will test students’
understanding of the materials discussed in class and in the assigned readings.
CASE ASSIGNMENTS: Students will answer discussion questions from case applications
assigned in the text. The goal is for students to apply the information discussed to these
real-world situations to the concepts and principles presented in the course.
IN-CLASS EXERCISES: Throughout the semester, students are expected to be prepared to
discuss issues relevant to the course and to participate in team exercises. For these
exercises, students will be required to be actively involved to receive credit—for
example, making substantive comments, answering questions, and preparing short
presentations. Points will be awarded by the instructor based on individual and group
participation. Students should bring their textbook to class as part of their participation
grade. Material for in-class assignments can be found at the conclusion of each
chapter—–see Ethical Dilemmas and Team Exercises.
GRADING
Percentage Points
In-Class Exercises/Participation 10% 50
Case Assignments (4 at 25 points each) 20% 100
Exam(s) 50% 250
Final Exam 20% 100
TOTAL POINTS 500
NOTE:
Class attendance and participation in class discussion is expected and absences
will affect your final grade.
The due dates for assignments are non-negotiable and late work will be
penalized.
All assignments are to be professional in appearance and typed to receive full
credit.
COURSE POLICIES
CLASSROOM BEHAVIOR: Classroom behavior that interferes with either the instructor’s ability to
conduct the class or the ability of students to benefit from the instruction is not acceptable.
Students engaging in improper classroom behavior may have points deducted from their total
points in the course, or if the situation warrants, be reprimanded to the university’s committee on
student discipline.
ACADEMIC HONESTY AND APPEALS: Students are expected to maintain the highest standards of
academic integrity. Behavior that violates these standards is not acceptable. Examples are the
use of unauthorized material, communication with fellow students during an examination,
attempting to benefit from the work of another student, and similar behavior that defeats the
intent of an examination or other class work. Cheating on exams, plagiarism, improper
acknowledgement of sources in essays, and the use of a single essay or paper in more than
one course without permission are considered very serious offences and shall be grounds for
disciplinary action as outlined in the current General Catalogue.
Percentage Points
In-Class Exercises/Participation 10% 50
Case Assignments (4 at 25 points each) 20% 100
Exam(s) 50% 250
Final Exam 20% 100
TOTAL POINTS 500
NOTE:
Class attendance and participation in class discussion is expected and absences
will affect your final grade.
The due dates for assignments are non-negotiable and late work will be
penalized.
All assignments are to be professional in appearance and typed to receive full
credit.
COURSE POLICIES
CLASSROOM BEHAVIOR: Classroom behavior that interferes with either the instructor’s ability to
conduct the class or the ability of students to benefit from the instruction is not acceptable.
Students engaging in improper classroom behavior may have points deducted from their total
points in the course, or if the situation warrants, be reprimanded to the university’s committee on
student discipline.
ACADEMIC HONESTY AND APPEALS: Students are expected to maintain the highest standards of
academic integrity. Behavior that violates these standards is not acceptable. Examples are the
use of unauthorized material, communication with fellow students during an examination,
attempting to benefit from the work of another student, and similar behavior that defeats the
intent of an examination or other class work. Cheating on exams, plagiarism, improper
acknowledgement of sources in essays, and the use of a single essay or paper in more than
one course without permission are considered very serious offences and shall be grounds for
disciplinary action as outlined in the current General Catalogue.
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COURSE OUTLINE 16-WEEK COURSE: SEMESTER
Week Assigned Reading Generic Activities—see
MyManagementLab for actual
activities that correspond with this
text
1
Chapter 1 Basic Concepts of Strategic
Management
Module Management Strategy
In-class discussion: Strategy (Chapter 1)
2 Chapter 2 Corporate Governance In-class exercise: Building Constraints
(Chapter 2)
3 Chapter 3 Social Responsibility and Ethics in
Strategic Management
Case #1 (Chapter 3)
4 Chapter 4 Environmental Scanning and
Industry Analysis
In-class discussion: Scanning (Chapter
4)
5 Chapter 5 Organizational Analysis and
Competitive Advantage
In-class discussion: Working with Apple
6 Chapter 6 Strategy Formulation and
Business Strategy
Case #2 (Chapter 6)
7 Exam 1
8 Chapter 7 Strategy Formulation: Corporate
Strategy
In-class discussion: Corporations Need
Direction (Chapter 7)
9 Chapter 8 Strategy Formulation: Functional
Strategy and Strategic Choice
Case #1 (Chapter 8)
10 Chapter 9 Strategy Implementation: Global
Strategy
In-class discussion: Successful
Expatriates
11 Chapter 10 Strategy Implementation:
Organizing and Structure
In-class exercise: Team Building
(Chapter 10)
12 Chapter 11 Strategy Implementation:
Staffing and Directing
Case #2: Hiring Decisions (Chapter 11)
13 Chapter 12 Evaluation and Control In-class exercise: Evaluating the
Evaluation (Chapter 12)
14 Chapter 13 Suggestions for Case Analysis In-class discussion: Using Financials
(Chapter 13)
15 Putting It All Together Case Presentation
Final Exam
Week Assigned Reading Generic Activities—see
MyManagementLab for actual
activities that correspond with this
text
1
Chapter 1 Basic Concepts of Strategic
Management
Module Management Strategy
In-class discussion: Strategy (Chapter 1)
2 Chapter 2 Corporate Governance In-class exercise: Building Constraints
(Chapter 2)
3 Chapter 3 Social Responsibility and Ethics in
Strategic Management
Case #1 (Chapter 3)
4 Chapter 4 Environmental Scanning and
Industry Analysis
In-class discussion: Scanning (Chapter
4)
5 Chapter 5 Organizational Analysis and
Competitive Advantage
In-class discussion: Working with Apple
6 Chapter 6 Strategy Formulation and
Business Strategy
Case #2 (Chapter 6)
7 Exam 1
8 Chapter 7 Strategy Formulation: Corporate
Strategy
In-class discussion: Corporations Need
Direction (Chapter 7)
9 Chapter 8 Strategy Formulation: Functional
Strategy and Strategic Choice
Case #1 (Chapter 8)
10 Chapter 9 Strategy Implementation: Global
Strategy
In-class discussion: Successful
Expatriates
11 Chapter 10 Strategy Implementation:
Organizing and Structure
In-class exercise: Team Building
(Chapter 10)
12 Chapter 11 Strategy Implementation:
Staffing and Directing
Case #2: Hiring Decisions (Chapter 11)
13 Chapter 12 Evaluation and Control In-class exercise: Evaluating the
Evaluation (Chapter 12)
14 Chapter 13 Suggestions for Case Analysis In-class discussion: Using Financials
(Chapter 13)
15 Putting It All Together Case Presentation
Final Exam
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COURSE OUTLINE 12-WEEK COURSE: SEMESTER
Week Assigned Reading Generic Activities—see
MyManagementLab for actual
activities that correspond with this
text
1
Chapter 1 Basic Concepts of Strategic
Management
Module Management Strategy
In-class discussion: Strategy (Chapter 1)
2 Chapter 2 Corporate Governance In-class exercise: Building Constraints
(Chapter 2)
3 Chapter 3 Social Responsibility and Ethics in
Strategic Management
Case #1 (Chapter 3)
4 Chapter 4 Environmental Scanning and
Industry Analysis
In-class discussion: Scanning (Chapter
4)
Week Assigned Reading Generic Activities—see
MyManagementLab for actual
activities that correspond with this
text
1
Chapter 1 Basic Concepts of Strategic
Management
Module Management Strategy
In-class discussion: Strategy (Chapter 1)
2 Chapter 2 Corporate Governance In-class exercise: Building Constraints
(Chapter 2)
3 Chapter 3 Social Responsibility and Ethics in
Strategic Management
Case #1 (Chapter 3)
4 Chapter 4 Environmental Scanning and
Industry Analysis
In-class discussion: Scanning (Chapter
4)
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PART B
CHAPTER NOTES
CHAPTER NOTES
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CHAPTER ONE
BASIC CONCEPTS OF STRATEGIC MANAGEMENT
This chapter sets the stage for the study of strategic management and business policy. It summarizes research
supporting the conclusion that those corporations that are able to learn from their experiences and manage
strategically perform at a higher level than corporations that do not. It describes a number of triggering events that
act to initiate strategic change in most organizations. A normative model of strategic management is presented as the
basic structure underlying the book. Key concepts are defined and explained as part of the discussion of the model.
The chapter also introduces the strategic audit as a method of operationalizing strategic decision making.
LEARNING OBJECTIVES
1. Discuss the benefits of strategic management.
2. Explain how globalization, innovation, and environmental sustainability influence strategic management.
3. Discuss the differences between the theories of organizations.
4. Discuss the activities where learning organizations excel.
5. Describe the basic model of strategic management and its components.
6. Identify some common triggering events that act as stimuli for strategic change.
7. Explain strategic decision-making modes.
8. Use the strategic audit as a method of analyzing corporate functions and activities.
TOPICS OUTLINE COVERED
1.
BASIC CONCEPTS OF STRATEGIC MANAGEMENT
This chapter sets the stage for the study of strategic management and business policy. It summarizes research
supporting the conclusion that those corporations that are able to learn from their experiences and manage
strategically perform at a higher level than corporations that do not. It describes a number of triggering events that
act to initiate strategic change in most organizations. A normative model of strategic management is presented as the
basic structure underlying the book. Key concepts are defined and explained as part of the discussion of the model.
The chapter also introduces the strategic audit as a method of operationalizing strategic decision making.
LEARNING OBJECTIVES
1. Discuss the benefits of strategic management.
2. Explain how globalization, innovation, and environmental sustainability influence strategic management.
3. Discuss the differences between the theories of organizations.
4. Discuss the activities where learning organizations excel.
5. Describe the basic model of strategic management and its components.
6. Identify some common triggering events that act as stimuli for strategic change.
7. Explain strategic decision-making modes.
8. Use the strategic audit as a method of analyzing corporate functions and activities.
TOPICS OUTLINE COVERED
1.
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organizational approaches that would position a company to achieve strong returns. Sustainability refers to a set of
business practices that focus on the triple bottom line for an organization. Each of these is a new frontier that is
impacting the way in which businesses develop and implement strategy.
1-2. Organizational strategy can be divided roughly into two categories: a) formulation and b)
implementation. Although there is legitimate crossover between the two, how would you characterize
the issues involved in each effort?
There are four basic phases of strategic management. Phase 1 is basic financial planning, phase 2 is forecast-based
planning, phase 3 is externally oriented strategic planning, and phase 4 is strategic management. Phases 1, 2, and 3
are all considered part of the formulation category. Each of these stages suggests the need to scan the internal and
external environment and develop a plan adapting to projections and forecast. The last phase, strategic management,
is about the choices an organization makes to implement the planned strategy. In this stage, everyone across the
organization is enlisted to support the strategic goals.
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
1-3. Why has strategic management become so important in business?
Research indicates that organizations that engage in strategic management generally outperform those that do not.
The attainment of an appropriate match or fit between an organization’s environment and its strategy, structure, and
processes has positive effects on the organization’s performance. The three most highly rated benefits of strategic
management are a clearer sense of a firm’s strategic vision, a sharper focus on what is strategically important, and an
improved understanding of a rapidly changing environment. As the world’s environment continually changes and
becomes increasingly complex, strategic management is used by today’s corporations as one way to make the
environment more manageable.
1-4. How does strategic management typically evolve in a company?
Strategic management in a corporation appears to evolve through four sequential phases according to Gluck,
Kaufman, and Walleck. Beginning with basic financial planning, it develops into forecast-
business practices that focus on the triple bottom line for an organization. Each of these is a new frontier that is
impacting the way in which businesses develop and implement strategy.
1-2. Organizational strategy can be divided roughly into two categories: a) formulation and b)
implementation. Although there is legitimate crossover between the two, how would you characterize
the issues involved in each effort?
There are four basic phases of strategic management. Phase 1 is basic financial planning, phase 2 is forecast-based
planning, phase 3 is externally oriented strategic planning, and phase 4 is strategic management. Phases 1, 2, and 3
are all considered part of the formulation category. Each of these stages suggests the need to scan the internal and
external environment and develop a plan adapting to projections and forecast. The last phase, strategic management,
is about the choices an organization makes to implement the planned strategy. In this stage, everyone across the
organization is enlisted to support the strategic goals.
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
1-3. Why has strategic management become so important in business?
Research indicates that organizations that engage in strategic management generally outperform those that do not.
The attainment of an appropriate match or fit between an organization’s environment and its strategy, structure, and
processes has positive effects on the organization’s performance. The three most highly rated benefits of strategic
management are a clearer sense of a firm’s strategic vision, a sharper focus on what is strategically important, and an
improved understanding of a rapidly changing environment. As the world’s environment continually changes and
becomes increasingly complex, strategic management is used by today’s corporations as one way to make the
environment more manageable.
1-4. How does strategic management typically evolve in a company?
Strategic management in a corporation appears to evolve through four sequential phases according to Gluck,
Kaufman, and Walleck. Beginning with basic financial planning, it develops into forecast-
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approach is that all motivation comes from the top and lower units may simply go through the motions in order to
please the boss. The likelihood of fresh, new strategic concepts at lower levels of the organization becomes less, the
more the stimulus for strategic planning comes from above.
1-6. Why are strategic decisions different from other kinds of decisions?
Strategic decisions deal with the long-run future of the entire organization and have three characteristics that
differentiate them from other types of decisions: (1) they are rare—strategic decisions are unusual and typically
have no precedent to follow; (2) they are consequential—strategic decisions commit substantial resources and
demand a great deal of commitment; and (3) they are directive—strategic decisions set precedents for lesser
decisions and future actions throughout the organization. See Top Decisions: Strategic Decision-Making in
Organizations by Hickson, Butler, Cray, Mallory, and Wilson for further discussion.
1-7. When is the planning mode of strategic decision making superior to the entrepreneurial and adaptive
modes?
The planning mode is generally superior to the entrepreneurial and adaptive modes when the organization is fairly
large, when knowledge is spread throughout the organization, and when the organization has at least a moderate
amount of time to engage in strategic planning. The book proposes that the planning mode is more rational and thus
a better way of making most strategic decisions. It may not, however, always be possible.
please the boss. The likelihood of fresh, new strategic concepts at lower levels of the organization becomes less, the
more the stimulus for strategic planning comes from above.
1-6. Why are strategic decisions different from other kinds of decisions?
Strategic decisions deal with the long-run future of the entire organization and have three characteristics that
differentiate them from other types of decisions: (1) they are rare—strategic decisions are unusual and typically
have no precedent to follow; (2) they are consequential—strategic decisions commit substantial resources and
demand a great deal of commitment; and (3) they are directive—strategic decisions set precedents for lesser
decisions and future actions throughout the organization. See Top Decisions: Strategic Decision-Making in
Organizations by Hickson, Butler, Cray, Mallory, and Wilson for further discussion.
1-7. When is the planning mode of strategic decision making superior to the entrepreneurial and adaptive
modes?
The planning mode is generally superior to the entrepreneurial and adaptive modes when the organization is fairly
large, when knowledge is spread throughout the organization, and when the organization has at least a moderate
amount of time to engage in strategic planning. The book proposes that the planning mode is more rational and thus
a better way of making most strategic decisions. It may not, however, always be possible.
Loading page 12...
strategies. If they hope to be successful, however, they must have at least some rudimentary (even though unstated)
position they take in terms of getting and keeping customers or clients.
A1-4. What information is needed for the proper formulation of strategy? Why?
In order to properly formulate strategy, it is essential to have information on the important variables in both the
external and internal environments of the corporation. This includes general forces in the societal environment as
well as the more easy-to-identify groups such as customers and competitors in the task environment. A corporation
needs to have this information in order to identify a need it can fulfill via its corporate mission. It is also important to
have information on the corporation’s structure, culture, and resources. A corporation needs to have this information
in order to assess its capabilities to satisfy a customer’s need by making and/or distributing a product or service.
Information on both the internal and external environments can also help a corporation predict likely opportunities
and threats. Long-term strategies can be designed with these in mind.
A1-5. Reconcile the strategic decision-making process depicted in Fig. 1.5 with the strategic management
model depicted in Fig. 1.2.
The strategic management model depicts the key input variables (internal and external environments) and the key
output factors (mission, objectives, strategy, and policies). It shows how strategy formulation, implementation, and
evaluation and control are related, and how a change in any one factor (e.g., corporate objectives) affects other
factors (e.g., strategies, policies, programs, budgets, procedures, evaluation and control techniques). This model,
however, does not depict how these output factors are generated. In contrast, the strategic decision-making model
depicts how the process of strategic management happens in the form of strategic decisions. It is a series of
interrelated activities depicted as eight distinct steps. These two models therefore complement each other and are
position they take in terms of getting and keeping customers or clients.
A1-4. What information is needed for the proper formulation of strategy? Why?
In order to properly formulate strategy, it is essential to have information on the important variables in both the
external and internal environments of the corporation. This includes general forces in the societal environment as
well as the more easy-to-identify groups such as customers and competitors in the task environment. A corporation
needs to have this information in order to identify a need it can fulfill via its corporate mission. It is also important to
have information on the corporation’s structure, culture, and resources. A corporation needs to have this information
in order to assess its capabilities to satisfy a customer’s need by making and/or distributing a product or service.
Information on both the internal and external environments can also help a corporation predict likely opportunities
and threats. Long-term strategies can be designed with these in mind.
A1-5. Reconcile the strategic decision-making process depicted in Fig. 1.5 with the strategic management
model depicted in Fig. 1.2.
The strategic management model depicts the key input variables (internal and external environments) and the key
output factors (mission, objectives, strategy, and policies). It shows how strategy formulation, implementation, and
evaluation and control are related, and how a change in any one factor (e.g., corporate objectives) affects other
factors (e.g., strategies, policies, programs, budgets, procedures, evaluation and control techniques). This model,
however, does not depict how these output factors are generated. In contrast, the strategic decision-making model
depicts how the process of strategic management happens in the form of strategic decisions. It is a series of
interrelated activities depicted as eight distinct steps. These two models therefore complement each other and are
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this assignment on the first day of class and then use the second day to discuss Chapter 1 and the various strategic
decisions people have found. This is a good way to encourage student participation in the class.
decisions people have found. This is a good way to encourage student participation in the class.
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CHAPTER TWO
CORPORATE GOVERNANCE
This chapter describes the basic governance mechanisms of the corporation: the board of directors and top
management. These are the people who are primarily tasked with the strategic management process if the
corporation is to have long-term success in accomplishing its mission. The responsibilities of both are described and
explained. It proposes a board of directors’ continuum on which boards can be placed in terms of their involvement
in strategic management. Agency theory is contrasted with stewardship theory. The chapter explains how the
composition of the board can affect both its performance and that of the corporation. It also describes the impact of
the Sarbanes-Oxley Act on corporate governance in the United States and trends in corporate governance around the
world. Top management is discussed in terms of executive leadership, strategic vision, and managing the strategic
planning process.
LEARNING OBJECTIVES
1. Describe the role and responsibilities of the board of directors in corporate governance.
2. Explain how the composition of a board can affect its operation.
3. Describe the impact of the Sarbanes-Oxley Act on corporate governance in the United States.
4. Discuss trends in corporate governance.
5. Explain how executive leadership is an important part of strategic management.
TOPICS OUTLINE COVERED
1. Role of the Board of Directors
a. Responsibilities of the Board
b. Board of Directors Composition
c. Nomination and Election of Board Members
d. Organization of the Board
e. Impact of the Sarbanes-Oxley Act on U.S. Corporate Governance
f. Improving Governance
g. Evaluating Governance
h. Avoiding Governance Improvements
i. Trends in Corporate Governance
2. The Role of Top Management
a. Responsibilities of Top Management
SUGGESTED ANSWERS TO MYMANAGEMENTLAB QUESTIONS
2-1. What are the roles and responsibilities of an effective and active board of directors?
The board of directors is required by law to direct the affairs of the corporation, but not to manage them. Stuart has
written that a board is responsible for (1) effective leadership, (2) strategy of the organization, (3) the balance of risk
and initiative, (4) succession planning, and (5) sustainability. The role of the board is to carry out three basic tasks:
(1) monitor; (2) evaluate and influence; and (3) initiate and determine.
2-2. What are the issues that suggest the need for oversight of a particular company’s management team?
The board of directors holds the top management team responsible for implementing and guiding the strategy set
forth. There are several red flags that would indicate the need for oversight of a management team. When the
corporate objectives are not being met, management teams may be at fault. When a clear vision is not articulated,
the CEO must be responsible. Also, when the strategic planning process is not being monitored by the top
management team, oversight may be called for.
CORPORATE GOVERNANCE
This chapter describes the basic governance mechanisms of the corporation: the board of directors and top
management. These are the people who are primarily tasked with the strategic management process if the
corporation is to have long-term success in accomplishing its mission. The responsibilities of both are described and
explained. It proposes a board of directors’ continuum on which boards can be placed in terms of their involvement
in strategic management. Agency theory is contrasted with stewardship theory. The chapter explains how the
composition of the board can affect both its performance and that of the corporation. It also describes the impact of
the Sarbanes-Oxley Act on corporate governance in the United States and trends in corporate governance around the
world. Top management is discussed in terms of executive leadership, strategic vision, and managing the strategic
planning process.
LEARNING OBJECTIVES
1. Describe the role and responsibilities of the board of directors in corporate governance.
2. Explain how the composition of a board can affect its operation.
3. Describe the impact of the Sarbanes-Oxley Act on corporate governance in the United States.
4. Discuss trends in corporate governance.
5. Explain how executive leadership is an important part of strategic management.
TOPICS OUTLINE COVERED
1. Role of the Board of Directors
a. Responsibilities of the Board
b. Board of Directors Composition
c. Nomination and Election of Board Members
d. Organization of the Board
e. Impact of the Sarbanes-Oxley Act on U.S. Corporate Governance
f. Improving Governance
g. Evaluating Governance
h. Avoiding Governance Improvements
i. Trends in Corporate Governance
2. The Role of Top Management
a. Responsibilities of Top Management
SUGGESTED ANSWERS TO MYMANAGEMENTLAB QUESTIONS
2-1. What are the roles and responsibilities of an effective and active board of directors?
The board of directors is required by law to direct the affairs of the corporation, but not to manage them. Stuart has
written that a board is responsible for (1) effective leadership, (2) strategy of the organization, (3) the balance of risk
and initiative, (4) succession planning, and (5) sustainability. The role of the board is to carry out three basic tasks:
(1) monitor; (2) evaluate and influence; and (3) initiate and determine.
2-2. What are the issues that suggest the need for oversight of a particular company’s management team?
The board of directors holds the top management team responsible for implementing and guiding the strategy set
forth. There are several red flags that would indicate the need for oversight of a management team. When the
corporate objectives are not being met, management teams may be at fault. When a clear vision is not articulated,
the CEO must be responsible. Also, when the strategic planning process is not being monitored by the top
management team, oversight may be called for.
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SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
2-3. When does a corporation need a board of directors?
A board of directors is needed to protect the interests of the corporation’s owners, its shareholders. By law, when a
company incorporates, it must have a board of directors—even if the stock is held only by the founder and his/her
spouse. A good case can be made that a small, closely held corporation has no need for a board. Because the owners
are likely to compose both top management and board membership, the board becomes superfluous at best, and may
even create more problems than it solves by getting in the way of management’s quick response to opportunities and
threats. The board meets only to satisfy legal requirements. Even when stock is more widely owned in a publicly
held corporation, the board may be composed of nothing but a few insiders who occupy key executive positions and
a few friendly outsiders who go along with the CEO on all major issues. Nevertheless, the rationale for the board of
directors seems to be changing from simply one of safeguarding stockholder investments to a broader role of
buffering the corporation from its task environment and forcing management to manage strategically. If nothing
else, the board can do the corporation a great service by simply offering top management a different point of view.
The board’s connections to key stakeholders in the corporation’s task environment can also provide invaluable
2-3. When does a corporation need a board of directors?
A board of directors is needed to protect the interests of the corporation’s owners, its shareholders. By law, when a
company incorporates, it must have a board of directors—even if the stock is held only by the founder and his/her
spouse. A good case can be made that a small, closely held corporation has no need for a board. Because the owners
are likely to compose both top management and board membership, the board becomes superfluous at best, and may
even create more problems than it solves by getting in the way of management’s quick response to opportunities and
threats. The board meets only to satisfy legal requirements. Even when stock is more widely owned in a publicly
held corporation, the board may be composed of nothing but a few insiders who occupy key executive positions and
a few friendly outsiders who go along with the CEO on all major issues. Nevertheless, the rationale for the board of
directors seems to be changing from simply one of safeguarding stockholder investments to a broader role of
buffering the corporation from its task environment and forcing management to manage strategically. If nothing
else, the board can do the corporation a great service by simply offering top management a different point of view.
The board’s connections to key stakeholders in the corporation’s task environment can also provide invaluable
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they can provide excellent advice to the CEO. Having a CEO from another firm serve on a corporation’s board of
directors results in an interlocking directorate between the two corporations. The text points out that this is a good
way to obtain inside information about an uncertain environment and objective expertise about potential strategies
and tactics. For these and other reasons, well-interlocked firms are better able to survive in a highly competitive
environment. This is a good reason for allowing a firm’s CEO to serve on the boards of other companies. The CEO
is likely to bring back information and contacts that can be very useful to the corporation.
There is a down side, however, to allowing a CEO to sit on the boards of other firms. For one thing, serving on
another company’s board requires time and energy devoted to something other than the job he/she is paid to fulfill.
Given the increasing pressure placed on board members, such service is becoming increasingly onerous. Because of
this, the typical CEO now sits on only one board in addition to his/her own—down from two additional boards in the
1990s. Consequently, a board should work closely with its CEO to decide which other boards are most useful to the
company for the CEO to join.
2-6. What would be the impact if the only insider on a corporation’s board were the CEO?
One result would be a board composed primarily of outsiders who would be objective, but also dependent upon the
CEO for information about the company and its activities. Thanks to Sarbanes-Oxley and other actions by the New
York Stock Exchange, this appears to be a trend in most U.S. Fortune 500 companies. As of 2007, the typical U.S.
Fortune 500 board had an average of ten directors, only two of whom being insiders.
directors results in an interlocking directorate between the two corporations. The text points out that this is a good
way to obtain inside information about an uncertain environment and objective expertise about potential strategies
and tactics. For these and other reasons, well-interlocked firms are better able to survive in a highly competitive
environment. This is a good reason for allowing a firm’s CEO to serve on the boards of other companies. The CEO
is likely to bring back information and contacts that can be very useful to the corporation.
There is a down side, however, to allowing a CEO to sit on the boards of other firms. For one thing, serving on
another company’s board requires time and energy devoted to something other than the job he/she is paid to fulfill.
Given the increasing pressure placed on board members, such service is becoming increasingly onerous. Because of
this, the typical CEO now sits on only one board in addition to his/her own—down from two additional boards in the
1990s. Consequently, a board should work closely with its CEO to decide which other boards are most useful to the
company for the CEO to join.
2-6. What would be the impact if the only insider on a corporation’s board were the CEO?
One result would be a board composed primarily of outsiders who would be objective, but also dependent upon the
CEO for information about the company and its activities. Thanks to Sarbanes-Oxley and other actions by the New
York Stock Exchange, this appears to be a trend in most U.S. Fortune 500 companies. As of 2007, the typical U.S.
Fortune 500 board had an average of ten directors, only two of whom being insiders.
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meetings and agenda. This should improve the board’s ability to properly evaluate top management. If the
Chair can’t be separated from the CEO, select a Lead Director from among the outside directors.
Use a committee composed of outsiders to nominate potential new directors. This will help to ensure that
potential members are not friends of top management who may owe more allegiance to the CEO than to the
shareholders.
Nominate people to the board who have knowledge valuable to the board and who have expertise of value
to top management. These should be people who will have the respect of top management and who can
both advise and criticize top management as needed. Make sure that they are diverse in terms of
background and experience.
Require board members to own substantial amounts of stock in the corporation to ensure that they have a
personal as well as professional stake in the welfare of the corporation.
Allow shareholders to nominate people for election to director.
A2-2. Is there a conflict between agency theory and the concept of organizational stakeholders?
Agency theory is concerned with problems that occur in relationships between principals (owners) and their agents
(top management). Because agents are, in effect, “hired hands,” their interests are not usually aligned with those of
the owner (stockholders) of a corporation. Consequently, agency theory is primarily interested in ways to better
align these two sets of interests, such as management owning significant shares of stock or having a strong financial
stake in the long-term performance of the corporation via long
Chair can’t be separated from the CEO, select a Lead Director from among the outside directors.
Use a committee composed of outsiders to nominate potential new directors. This will help to ensure that
potential members are not friends of top management who may owe more allegiance to the CEO than to the
shareholders.
Nominate people to the board who have knowledge valuable to the board and who have expertise of value
to top management. These should be people who will have the respect of top management and who can
both advise and criticize top management as needed. Make sure that they are diverse in terms of
background and experience.
Require board members to own substantial amounts of stock in the corporation to ensure that they have a
personal as well as professional stake in the welfare of the corporation.
Allow shareholders to nominate people for election to director.
A2-2. Is there a conflict between agency theory and the concept of organizational stakeholders?
Agency theory is concerned with problems that occur in relationships between principals (owners) and their agents
(top management). Because agents are, in effect, “hired hands,” their interests are not usually aligned with those of
the owner (stockholders) of a corporation. Consequently, agency theory is primarily interested in ways to better
align these two sets of interests, such as management owning significant shares of stock or having a strong financial
stake in the long-term performance of the corporation via long
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answering the fifth discussion question: Would you like to work for a transformational leader?
ADDITIONAL TEACHING MODULE
CORPORATE GOVERNANCE STYLES
Just as boards of directors vary widely on a continuum of involvement in the strategic management process, so do
top management teams. For example, a top management team with a low involvement in strategic management will
tend to be functionally oriented and will focus its energies on day-to-day operational problems; this type of team is
likely either to be disorganized or to have a dominant CEO who continues to identify with his or her old division. In
contrast, a top management team with high involvement will be active in strategic planning. It will try to get division
managers involved in planning so that top management will have more time to scan the environment for challenges
and opportunities.
Both the board of directors and top management can be placed on a matrix that reflects four basic styles of corporate
governance.
Styles of Corporate Governance
Degree of Involvement
by
Top Management
High Entrepreneurship
Management
Partnership
Management
Low
Chaos
Management
Marionette
Management
Low High
Degree of Involvement by Board of Directors
Chaos Management
When both the board of directors and top management have little involvement in the strategic management process,
their style is referred to as chaos management. The board waits for top management to bring it proposals. Top
management is operationally oriented and continues to carry out strategies, policies, and programs specified by the
founding entrepreneur who died years ago. The basic strategic philosophy seems to be, “If it was good enough for
old J.B., it’s good enough for us.” There is no strategic management being done here.
ADDITIONAL TEACHING MODULE
CORPORATE GOVERNANCE STYLES
Just as boards of directors vary widely on a continuum of involvement in the strategic management process, so do
top management teams. For example, a top management team with a low involvement in strategic management will
tend to be functionally oriented and will focus its energies on day-to-day operational problems; this type of team is
likely either to be disorganized or to have a dominant CEO who continues to identify with his or her old division. In
contrast, a top management team with high involvement will be active in strategic planning. It will try to get division
managers involved in planning so that top management will have more time to scan the environment for challenges
and opportunities.
Both the board of directors and top management can be placed on a matrix that reflects four basic styles of corporate
governance.
Styles of Corporate Governance
Degree of Involvement
by
Top Management
High Entrepreneurship
Management
Partnership
Management
Low
Chaos
Management
Marionette
Management
Low High
Degree of Involvement by Board of Directors
Chaos Management
When both the board of directors and top management have little involvement in the strategic management process,
their style is referred to as chaos management. The board waits for top management to bring it proposals. Top
management is operationally oriented and continues to carry out strategies, policies, and programs specified by the
founding entrepreneur who died years ago. The basic strategic philosophy seems to be, “If it was good enough for
old J.B., it’s good enough for us.” There is no strategic management being done here.
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Marionette Management
Probably the rarest form of strategic management style, marionette management occurs when the board of directors
is deeply involved in strategic decision making, but top management is primarily concerned with operations. Such a
Probably the rarest form of strategic management style, marionette management occurs when the board of directors
is deeply involved in strategic decision making, but top management is primarily concerned with operations. Such a
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Business Management