Chapter 1

What Is Strategy?

©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
 The AFI Strategy Framework

Jump to Appendix 1 long image

description
©McGraw-Hill Education.
 Chapter 1 Outline

1.1 What Strategy Is: Gaining and Sustaining

Competitive Advantage
– What Is Competitive Advantage?
– Industry vs. Firm Effects in Determining Firm Performance

1.2 Stakeholders and Competitive Advantage

– Stakeholder Strategy
– Stakeholder Impact Analysis

1.3 The AFI Strategy Framework

1.4 Implications for the Strategist

©McGraw-Hill Education.
 Learning Objectives

LO 1-1 Explain the role of strategy in a firm’s quest for

competitive advantage.
LO 1-2 Define competitive advantage, sustainable
competitive advantage, competitive
disadvantage, and competitive parity.
LO 1-3 Differentiate the roles of firm effects and
industry effects in determining firm
performance.
LO 1-4 Evaluate the relationship between stakeholder
strategy and sustainable competitive
advantage.
LO 1-5 Conduct a stakeholder impact analysis.
©McGraw-Hill Education.
 What Strategy Is: Gaining and Sustaining
Competitive Advantage

©McGraw-Hill Education.
 Strategic Management

Strategic Management: an integrative management

field that combines analysis, formulation, and
implementation in the quest for competitive advantage

©McGraw-Hill Education.
 Strategy

• Strategy: a set of goal-directed actions a firm takes

to gain and sustain superior performance relative to
competitors
• To achieve superior performance, companies
compete for resources:
– New ventures: for financial and human capital
– Existing companies: for profitable growth
– Charities: for donations
– Universities: for the best students and professors
– Sports teams: championships
– Celebrities: media attention

©McGraw-Hill Education.
 Elements of a Good Strategy

• Analysis
– Diagnosis of the competitive challenge
• Formulation
– Guiding policy to address the competitive challenge
• Implementation
– A set of coherent actions to implement the firm’s guiding
policy

©McGraw-Hill Education.
 Elements of a Good Strategy: Analysis

• Analysis
– Diagnosis of the competitive challenge
– Accomplished through strategy analysis of the firm’s
internal and external environments

Example: Twitter
• Competitive challenge: grow its user base
– Become more valuable for online advertisers
– Also: Facebook allows advertisers to target their online ads
precisely based on demographic data

©McGraw-Hill Education.
 Elements of a Good Strategy: Formulation

• Formulation
– Guiding policy to address the competitive challenge
– Accomplished through strategy formulation, resulting in
the firm’s corporate, business, and functional strategies

Example: Twitter
• Rather than formulating a guiding policy to grow active core
users, Twitter defined its user base more broadly.
• Defined users into 3 types to compare with Facebook
• User types were hard to track and less valuable to advertisers.

©McGraw-Hill Education.
 Elements of a Good Strategy: Implementation

• Implementation
– A set of coherent actions to implement the firm’s guiding
policy
– Accomplished through strategy implementation

Example: Twitter
• Different user definitions confused management and limited
guidance for employees.
• Consequences of the unclear mission:
• Frustration among managers and engineers
• Turnover of key personnel
• Internal turmoil resulted, including management demotions
and promotions of CEO friends.

©McGraw-Hill Education.
 Competitive Advantage

• Competitive Advantage: a firm that achieves

superior performance relative to other competitors
in the same industry or the industry average
– Always relative, not absolute
• To assess competitive advantage:
– Compare firm performance to a benchmark
• Performance of other firms in the same industry
• An industry average

©McGraw-Hill Education.
 Competitive Advantage: Examples

• In digital advertising: Google

– Google has a competitive advantage over Facebook,
Twitter, and Yahoo
• In smartphones: Apple
– Apple has achieved a competitive advantage over
Samsung, Microsoft, and BlackBerry

©McGraw-Hill Education.
 Competitive Advantage: Key Points

• Competitive Advantage
– Superior performance relative to other competitors in the
same industry or the industry average
• Sustainable Competitive Advantage
– Outperforming competitors or the industry average over a
prolonged period of time
• Competitive Disadvantage
– Underperformance relative to other competitors in the
same industry or the industry average
• Competitive Parity
– Performance of two or more firms at the same level

©McGraw-Hill Education.
 Strategy Is About Creating Superior Value

• The rewards of superior value creation and capture

are profitability and market share.
– Sam Walton (Walmart): offered lower prices.
– Steve Jobs (Apple): “put a ding in the universe.”
– Mark Zuckerberg (Facebook): made the world open and
connected.
– Larry Page and Sergey Brin (Google): made information
accessible.

©McGraw-Hill Education.
 Strategic Positioning

• Stake out a unique position within an industry to

provide value to customers, while controlling costs.
• The greater the difference between value creation
and cost:
– the greater the firm’s economic contribution.
– the more likely it will gain competitive advantage.

©McGraw-Hill Education.
 Strategic Positioning Requires Trade-offs

• Managers must make conscious trade-offs.

– Enables competitive advantage
• In the retail industry, for example:
– Walmart: “everyday low prices”
– Nordstrom’s: professional sales people in a luxury setting

©McGraw-Hill Education.
 Unique Positioning

• The key to successful strategy: combine activities for a unique

position in an industry
• Competitive advantage has to come from:
– performing different activities or
– performing the same activities differently than rivals

• Example: Walmart’s strategic activities strengthen its position

as cost leader
– Big stores in rural locations
– Low corporate overhead
– Low base wages

©McGraw-Hill Education.
 Strategy Highlight 1.1 (1 of 2)

• Threadless: an online design community and apparel store

• Let consumers “work for them”
– Community members vote on which t-shirt designs they like best.

• Leverages the wisdom of the crowds

• At Threadless, the customers play a critical role across the
entire value chain.
– From idea generation to design, marketing, sales forecasting, and
distribution

©McGraw-Hill Education.
 Strategy Highlight 1.1 (2 of 2)

• Business model translates market research and design into

quick sales.
– Good understanding of the market
– Design contest participation
• Threadless has sold every T-shirt it has printed.
• Has a cult-like following
• It is outperforming established companies
– American Eagle, Old Navy, and Urban Outfitters

©McGraw-Hill Education.
 What Strategy Is Not

1. Grandiose statements
– Statements of desire
– Ex: “Our strategy is to win” or “We will be No. #1”
2. A failure to face a competitive challenge
– Managers must know whether they are making progress
in addressing the challenge.
3. Operational effectiveness, competitive
benchmarking, or other tactical tools
– These support competitive strategy, but are not
sufficient to sustain it.

©McGraw-Hill Education.
 Industry Vs. Firm Effects In Determining Firm Performance
(1 of 3)

• Industry effects: describe the underlying economic

structure of the industry.
– Determined by elements common to all industries
– Examples:
• Entry and exit barriers
• Number and size of companies
• Types of products and services offered
• About 20% of a firm’s profitability depends on the
industry it’s in.

©McGraw-Hill Education.
 Industry Vs. Firm Effects In Determining Firm Performance
(2 of 3)

• Firm effects: firm performance is attributed to

managerial actions.
– More important factor in determining firm performance
than external environment forces
• A firm’s strategy can explain up to 55% of its
performance.

©McGraw-Hill Education.
 Industry Vs. Firm Effects In Determining Firm Performance
(3 of 3)

• Exhibit 1.1

©McGraw-Hill Education.
 Stakeholders and Competitive Advantage

©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
 Value Creation for Society (1 of 2)

• Companies with good strategy generate value for

society.
– Firms compete in their own self-interest.
– Firms obeying the law and acting ethically
• Companies with a good strategy:
– Provide products or services to consumers at an affordable
price
– Make a profit
– Benefit both parties
– Make society better
©McGraw-Hill Education.
 Value Creation for Society (2 of 2)

• Successful companies create value for the economy:

– Education, public safety, and health care
• Superior performance allows a firm to reinvest some
of its profits for growth
– More opportunities for employment
• Example: Google
– Employs 55,000 people
– People rely on Google for information

©McGraw-Hill Education.
 Strategic Failure is Expensive

• HP has not been able to address the competitive

challenges effectively:
– Stakeholders suffered
– Shareholder value was destroyed
– Had to lay off thousands of employees
– Customers no longer received innovative products
• Google and HP illustrate the relationship between
individual firms and society at large

©McGraw-Hill Education.
 Black Swan Events (1 of 2)

• In the past, most people assumed that all swans

were white.
– When they first encountered swans that were black, they
were surprised.
• Today, the metaphor of a black swan describes the
high impact of a highly improbable event.

©McGraw-Hill Education.
 Black Swan Events (2 of 2)

• Trust between corporations and society have

deteriorated because of black swans .
– Accounting Scandals: Enron
– Real Estate Bubble: 2008 financial crisis
• Managerial actions can affect the well-being of
people around the globe.
– Most black swan events result from executive actions (or
inactions.)

©McGraw-Hill Education.
 Stakeholders (1 of 2)

• Stakeholders:
• Organizations, groups, and individuals
• They can affect or are affected by a firm’s actions.
• Have a vested claim or interest in the performance
and continued survival of the firm.
– Internal stakeholders:
• Stockholders, employees (including executives, managers, and
workers), and board members
– External stakeholders:
• Customers, suppliers, alliance partners, creditors, unions,
communities, media, and governments at various levels

©McGraw-Hill Education.
 Stakeholders (2 of 2)

• Stakeholders make contributions, and they also

receive benefits.
– Employees
– Shareholders
– Communities
• The firm is embedded in an exchange relationship
with internal and external stakeholders.

©McGraw-Hill Education.
 Exhibit 1.2 Internal and External Stakeholders in an Exchange
Relationship with the Firm

Jump to Appendix 2 long image

description
©McGraw-Hill Education.
 Stakeholder Strategy

• Managing stakeholders in order to gain and sustain

competitive advantage
– Firms analyze and manage stakeholders
– Determine how external and internal stakeholders interact
– Stakeholders can create and trade value
• Exemplifies how managers can act to improve firm
performance
– Enhances competitive advantage
– Enhances continued survival
• Example: Target Corporation

©McGraw-Hill Education.
 Effective Stakeholder Management Benefits
Firm Performance

1. Cooperation and information availability

2. Lowered costs
3. Greater organizational adaptability and flexibility
4. More predictable and stable returns
5. Stronger reputation

©McGraw-Hill Education.
 “World’s Most Admired Companies”

• Most managers care about public perception.

• Fortune magazine publishes the “World’s Most
Admired Companies” annually:
– In 2014, the top five companies were Apple, Amazon,
Google, Berkshire Hathaway, and Starbucks.

©McGraw-Hill Education.
 Stakeholder Impact Analysis (1 of 3)

• Primary stakeholders: achieve their objectives

– Shareholders and investors
• Other stakeholders: satisfy concerns
– Employees, suppliers, and customers
• Stakeholder impact analysis:
– A decision tool
– Managers recognize, prioritize, and address stakeholder
needs

©McGraw-Hill Education.
 Stakeholder Impact Analysis (2 of 3)

• A five-step process recognizing stakeholders’ claims.

• Managers must note three stakeholder attributes:
– Power
– Legitimacy
– Urgency

©McGraw-Hill Education.
3
9
Exhibit 1.3 Stakeholder Impact Analysis (3 of 3)

Jump to Appendix 3 long image

description

©McGraw-Hill Education.
 Step 1: Identify Stakeholders

• Focus on stakeholders that the firm has, or

potentially can have
• Identify: powerful internal and external stakeholders
and their needs
– For public-stock companies: shareholders and suppliers of
capital
– Also: customers, suppliers, and unions
• Example: Boeing
– Its new 787 Dreamliner will be built in its non-unionized
South Carolina factory

©McGraw-Hill Education.
 Step 2: Identify Stakeholder Interests

• Specify and assess the interests and claims of

stakeholders.
• Use the power, legitimacy, and urgency criteria.
• Shareholders:
• Legal owners
• Have legitimate claim on a company’s profits
• Employees can be turned into shareholders.
– Coca-Cola, Google, Microsoft, Southwest Airlines, Starbucks,
Walmart, and Whole Foods all offer stock ownership plans.
• ‘Shareholder activists’ put public pressure on a
company to change its strategy,

©McGraw-Hill Education.
 Step 3: Identify Opportunities and Threats

• Opportunities and threats are two sides of the same

coin.
– Example: consumer boycotts can be a credible threat.
• Example: PETA: called for a boycott of McDonald’s due to alleged
animal-rights abuses.
• Managers should try to transform threats into
opportunities.
– Example: Sony
• Dutch government blocked PlayStation shipments due to a toxic
cable.
• Sony’s response included a redesign of its supplier management
system.

©McGraw-Hill Education.
 Step 4: Identify Societal Responsibilities

• “What economic, legal, ethical, and philanthropic

responsibilities do we have to our stakeholders?”
• Corporate Social Responsibility (CSR):
– A framework to recognize and address economic, legal,
social, and philanthropic expectations

©McGraw-Hill Education.
 Exhibit 1.4 The Pyramid of Corporate Social
Responsibility

SOURCE: Adapted from A. B. Carroll (1991), “The pyramid of corporate social responsibility:
Toward the moral management of organizational stakeholders,” Business Horizons, July-August: 42.

Jump to Appendix 4 long image

©McGraw-Hill Education. description
 Step 5: Address Stakeholder Concerns

• Managers decide the appropriate course of action.

• The attributes of power, legitimacy, and urgency help
to prioritize legitimate claims.

©McGraw-Hill Education.
 Strategy Highlight 1.2 (1 of 4)

• On April 20, 2010, an explosion occurred.

– At a drilling rig off the Louisiana coastline
– Killed 11 workers
• The oil spill continued for over three months.
• It released an estimated 5 million barrels of crude oil
into the Gulf of Mexico.
– The largest environmental disaster in U.S. history

©McGraw-Hill Education.
 Strategy Highlight 1.2 (2 of 4)

• The cleanup cost was $14 billion.

• Tony Hayward, BP’s CEO at the time, was fired.
• Experts said BP’s problems were systemic:
– Management repeatedly failed to put a safety culture in
place.

©McGraw-Hill Education.
 Strategy Highlight 1.2 (3 of 4)

• BP faced thousands of claims by many small business

owners.
– Mainly in the tourism and seafood industries
• Collectively, the small business owners became
powerful BP stakeholders.
• BP paid out over $25 billion to settle their claims.

©McGraw-Hill Education.
 Strategy Highlight 1.2 (4 of 4)

• Total cost for this incident: $60 billion

• The Environmental Protection Agency (EPA) banned
BP from any new contracts with the U.S.
government.
• This ban puts BP at a major competitive
disadvantage.

©McGraw-Hill Education.
 The AFI Strategy Framework

©McGraw-Hill Education.
 Overview of AFI

• Outlines actions that managers take to gain and

sustain competitive advantage
• AFI helps managers craft and execute a strategy that
enhances the chances of achieving superior
performance.
• AFI includes three broad tasks:
– Analyze (A)
– Formulate (F)
– Implement (I)

©McGraw-Hill Education.
 The AFI Strategy Framework (1 of 2)

• AFI: A model that links three interdependent strategic

management tasks
– Analyze
– Formulate
– Implement
• This model help managers plan and implement a strategy
that can
– Improve performance
– Result in competitive advantage.
• Each of these tasks are interdependent.
• Each of these tasks can happen simultaneously.
©McGraw-Hill Education.
 Exhibit 1.5 The AFI Strategy Framework (2 of 2)

Jump to Appendix 5 long image

description
©McGraw-Hill Education.
 Strategy Analysis (A) Topics and Questions

• Strategic leadership and the strategy process:

– What roles do strategic leaders play? What are the firm’s vision, mission, and
values? What is the firm’s process for creating strategy and how does strategy
come about? (Chapter 2)
• External analysis:
– What effects do forces in the external environment have on the firm’s potential to
gain and sustain a competitive advantage? How should the firm deal with them?
(Chapter 3)
• Internal analysis:
– What effects do internal resources, capabilities, and core competencies have on
the firm’s potential to gain and sustain a competitive advantage? How should the
firm leverage them for competitive advantage? (Chapter 4)
• Competitive advantage, firm performance, and business models:
– How does the firm make money? How can one assess and measure competitive
advantage? What is the relationship between competitive advantage and firm
performance? (Chapter 5)

©McGraw-Hill Education.
 Strategy Formulation (F) Topics and Questions

• Business strategy:
– How should the firm compete: cost leadership,
differentiation, or integration? (Chapters 6 and 7)
• Corporate strategy:
– Where should the firm compete: industry, markets, and
geography? (Chapters 8 and 9)
• Global strategy:
– How and where should the firm compete: local, regional,
national, or international? (Chapter 10)

©McGraw-Hill Education.
 Strategy Implementation (I) Topics and Questions

• Organizational design:
– How should the firm organize to turn the formulated
strategy into action? (Chapter 11)
• Corporate governance and business ethics:
– What type of corporate governance is most effective? How
does the firm anchor strategic decisions in business ethics?
(Chapter 12)

©McGraw-Hill Education.
 Implications for the Strategist

©McGraw-Hill Education.
 The Difference Between Success and Failure
Lies in a Firm’s Strategy

• Applying tools and frameworks can enable your firm

to be more successful.
• You can apply the strategic management toolkit to
your own career:
– To pursue your professional goals
– Reference the myStrategy modules
• Strategy is the art and science of success and failure

©McGraw-Hill Education.
 Competition Is Everywhere

• Strategic management principles can be applied

universally.
• Strategists work in:
– Small start-ups and large, multi-national companies
– For-profit and nonprofit organizations
– Private and public sectors
– Developed and emerging economies

©McGraw-Hill Education.
 The Strategist Follows a Three-step Process

1. Analyze the external and internal environments.

2. Formulate an appropriate business and corporate
strategy.
3. Implement the formulated strategy through
structure, culture, and controls.

©McGraw-Hill Education.
 The Role of Uncertainty and Complexity

• Decisions must consider uncertainty and complexity.

• Maintain awareness of key stakeholders.
– They can affect or be affected by decisions.
• Monitor and evaluate progress toward strategic
objectives.
– Make adjustments as necessary.

©McGraw-Hill Education.
 Chapter 1 Summary

©McGraw-Hill Education.
 Take Away Concepts (1 of 5)

LO 1-1 Explain the role of strategy in a firm’s quest for competitive

advantage.
•Strategy is the set of goal-directed actions a firm takes to gain and sustain
superior performance relative to competitors.
•A good strategy enables a firm to achieve superior performance. It consists
of three elements:
– A diagnosis of the competitive challenge.
– A guiding policy to address the competitive challenge.
– A set of coherent actions to implement the firm’s guiding policy.
•A successful strategy requires three integrative management tasks—analysis,
formulation, and implementation.

©McGraw-Hill Education.
 Take Away Concepts (2 of 5)

LO 1-2 Define competitive advantage, sustainable competitive advantage,

competitive disadvantage, and competitive parity.
•Competitive advantage is always judged relative to other competitors or the industry
average.
•To obtain a competitive advantage, a firm must either create more value for
customers while keeping its cost comparable to competitors, or it must provide the
value equivalent to competitors but at a lower cost.
•A firm able to outperform competitors for prolonged periods of time has a sustained
competitive advantage.
•A firm that continuously underperforms its rivals or the industry average has a
competitive disadvantage.
•Two or more firms that perform at the same level have competitive parity.
•An effective strategy requires that strategic trade-offs be recognized and addressed—
for example, between value creation and the costs to create the value.

©McGraw-Hill Education.
 Take Away Concepts (3 of 5)

LO 1-3 Differentiate the roles of firm effects and industry effects in

determining firm performance.
•A firm’s performance is more closely related to its managers’ actions (firm
effects) than to the external circumstances surrounding it (industry effects).
•Firm and industry effects, however, are interdependent. Both are relevant in
determining firm performance.

©McGraw-Hill Education.
 Take Away Concepts (4 of 5)

LO 1-4 Evaluate the relationship between stakeholder strategy and

sustainable competitive advantage.
•Stakeholders are individuals or groups that have a claim or interest in the
performance and continued survival of the firm. They make specific contributions for
which they expect rewards in return.
•Internal stakeholders include stockholders, employees (for instance, executives,
managers, and workers), and board members.
•External stakeholders include customers, suppliers, alliance partners, creditors,
unions, communities, and governments at various levels.
•Several recent black swan events eroded the public’s trust in business as an
institution and in free -market capitalism as an economic system.
•The effective management of stakeholders—the organization, groups, or individuals
that can materially affect or are affected by the action of a firm—is necessary to
ensure the continued survival of the firm and to sustain any competitive advantage.

©McGraw-Hill Education.
 Take Away Concepts (5 of 5)

LO 1-5 Conduct a stakeholder impact analysis.

•Stakeholder impact analysis considers the needs of different stakeholders,

which process enables the firm to perform optimally and to live up to the
expectations of good citizenship.
•In a stakeholder impact analysis, managers pay particular attention to three
important stakeholder attributes: power, legitimacy, and urgency.
•Stakeholder impact analysis is a five-step process that answers the following
questions for the firm:
1. Who are our stakeholders?
2. What are our stakeholders’ interests and claims?
3. What opportunities and threats do our stakeholders present?
4. What economic, legal, and ethical responsibilities do we have to our
stakeholders?
5. What should we do to effectively address the stakeholder concerns?
©McGraw-Hill Education.
 Key Terms
• AFI strategy framework
• Black swan events
• Competitive advantage
• Competitive disadvantage
• Competitive parity
• Corporate social
responsibility (CSR)
• Firm effects
©McGraw-Hill Education.
• Industry effects
• Stakeholders
• Stakeholder impact analysis
• Stakeholder strategy
• Strategic management
• Strategy
• Sustainable competitive
advantage
 Chapter 1 Cases & Exercises

©McGraw-Hill Education.
 Chapter Case 1: Consider This… (1 of 2)

• Launched in 2006
• Users send short messages: “tweets”
• Restricted to 140 characters
• 300 million worldwide active users
• Twitter’s business model:
– Grow its user base
– Charge advertisers for promotion

©McGraw-Hill Education.
 Chapter Case 1: Consider This… (2 of 2)

• Why is Twitter struggling?

• What role do industry and firm effects?
• What grade would you give Dick Costolo?
– Twitter’s CEO from 2010 until 2015
• Why is crafting a good strategy at Twitter so difficult?

©McGraw-Hill Education.
 My Strategy Exercise

• Considerations for your career choices

• Referencing Table 1.1:
– What effect does industry growth play in your career
choices?
– Why are growth rates an important consideration?

©McGraw-Hill Education.
 Small Group Exercise

• Hurricanes Katrina and Sandy highlighted the need

for:
• Resilient infrastructure and buildings
• More flexible & effective responses
• Each group should search the Internet for options
and plans to:
– (1) build more sustainable communities
– (2) organize responses to black swan events
– (3) additional recommendations for policy makers

©McGraw-Hill Education.
 End of Chapter 01

©McGraw-Hill Education.
 Strategy Smart Videos

©McGraw-Hill Education.
 Strategy Smart Videos (1 of 6)

• Professor Frank T. Rothaermel

• Meet your textbook author - a personal introduction
• Link:
– https://www.youtube.com/watch?v=6SsQfXrFNqo
• 1:55 Minutes

©McGraw-Hill Education.
 Strategy Smart Videos (2 of 6)

• Professor Frank T. Rothaermel

• An Overview of Your Textbook
• Link:
– https://www.youtube.com/watch?v=85-A8Wz14PU
• 1:59 Minutes

©McGraw-Hill Education.
 Strategy Smart Videos (3 of 6)

• Professor Michael E. Porter

• What is Strategy?
• Link:
– https://www.youtube.com/watch?v=NY4myVa5Wkw
• 1:46 Minutes

©McGraw-Hill Education.
 Strategy Smart Videos (4 of 6)

• Professor Michael E. Porter

• 2 critical aspects of management:
1. Have the right goal - to achieve a superior return on investment.
2. Differentiation - to be better and unique from your competitors.

• Link:
– https://www.youtube.com/watch?v=q8NZfbcNMrM
• 1:35 Minutes

©McGraw-Hill Education.
 Strategy Smart Videos (5 of 6)

• An Interview with Warren Buffett

• Maintaining the Competitive Advantage
• Link:
– https://www.youtube.com/watch?v=_3Qh9iVlLoE
• The first 2:06 minutes of an 8:48 minute video

©McGraw-Hill Education.
 Strategy Smart Videos (6 of 6)

• Doreen Shanahan, Professor of Marketing at

Pepperdine University
• 7 Steps to Creating a Competitive Advantage
• Link:
– https://www.youtube.com/watch?v=BM4nNsvmRaE
• 5:29 Minutes

©McGraw-Hill Education.
 Chapter Case 1

©McGraw-Hill Education.
 Chapter Case 1: Twitter (1 of 2)

• Twitter is currently not flying high.

– In 2015, stock was 50% what it was in 2013.
– Departure of CEO who served from 2010-2015
– Turmoil among executive ranks
• Overview of Twitter
– Users send short messages of 140 characters.
– Users can follow each other.
– 300 million active users worldwide
• Twitter appears constantly in the mass media.

©McGraw-Hill Education.
 Chapter Case 1: Twitter (2 of 2)

• Business model
– Grow user base (individual users pay nothing)
– Advertisers charged for promotion of goods/services.
– Companies pay for promoted tweets.
– Ads can be delivered real time.
• Twitter’s current challenges
– Turnover / reshuffling in management & engineering
– Struggles to grow its user base
• Twitter = 300 million; Facebook = 1.5 billion
• User growth continues to slow
– Could it be taken over?

©McGraw-Hill Education.
 Appendix 1 The AFI Strategy Framework
This image shows several circles, representing the main themes from the textbook, as well as how the chapters map
into each theme. The important inside circle is titled "Gaining and Sustaining a Competitive Advantage" that is at the
very center of the image, with five different circles on the outside of it. Arrows go back and forth from the center circle
to each of the five outer circles. The five outer circles are labeled: (1) Getting Started, (2) External and Internal Analysis,
(3) Formulation: Business Strategy, (4) Formulation, Corporate Strategy, and (5) Implementation.

Each of these outer five circles have a brief description beside them to explain what the circle means:

Under the first outer circle titled "Getting Started", it says: Part 1, Strategy Analysis, "What is Strategy (Chapter 1)" and
"Strategic Leadership: Managing the Strategy Process (Chapter 2)."

Under the second outer circle titled "External and Internal Analysis", it says: Part 1, Strategy Analysis, "External
Analysis: Industry Structure, Competitive Forces and Strategic Groups (Chapter 3)", "Internal Analysis: Resources,
Capabilities and Core Competencies (Chapter 4)", and "Competitive Advantage, Firm Performance, and Business
Models (Chapter 5)."

Under the third outer circle titled "Formulation: Business Strategy", it says: Part 2, Strategy Formulation, "Business
Strategy: Differentiation, Cost Leadership and Integration (Chapter 6)" and "Business Strategy, Innovation and
Entrepreneurship (Chapter 7)."

Under the fourth outer circle titled "Formulation: Corporate Strategy", it says: Part 2, Strategy Formulation, "Corporate
Strategy: Vertical Integration and Diversification (Chapter 8)", "Corporate Strategy: Strategic Alliances, Mergers and
Acquisitions (Chapter 9)", and "Global Strategy: Competing Around the World (Chapter 10)."

Under the fifth outer circle titled "Implementation", it says: Part 3, Strategy Implementation, "Organizational Design:
Structure, Culture and Control (Chapter 11)", and "Corporate Governance and Business Ethics (Chapter 12)."

Return to slide
©McGraw-Hill Education.
 Appendix 2 Exhibit 1.2 Internal and External Stakeholders in
an Exchange Relationship with the Firm

This image shows a firm in the middle, with External Stakeholders on the left
side of it and Internal Stakeholders on the right. An arrow points from the
firm to External Stakeholders named "Benefits," and an arrow points from
External Stakeholders to the firm named "Contributions." Under External
Stakeholders are the following sub-bullets: customers, media, suppliers,
alliance partners, creditors, unions, communities and governments. An arrow
points from the firm to Internal Stakeholders named "Benefits,” and an arrow
points from Internal Stakeholders to the firm named "Contributions." Under
Internal Stakeholders are the following sub-bullets: employees, stockholders,
and board members.

Return to slide
©McGraw-Hill Education.
Appendix 3 Exhibit 1.3 Stakeholder Impact Analysis (3 of 3)

Step 1 - Who are our stakeholders?

Step 2 - What are our stakeholders' interests and claims?
Step 3 - What opportunities and threats do our stakeholders
present?
Step 4 - What economic, legal, ethical and philanthropic
responsibilities do we have to our stakeholders?
Step 5 - What should we do to effectively address stakeholder
concerns?

Return to slide

©McGraw-Hill Education.
 Appendix 4 Exhibit 1.4 The Pyramid of
Corporate Social Responsibility

This image depicts a pyramid, with four separate sections. The bottom (and
broadest) section is named Economic Responsibilities, the next smaller one
up is labeled Legal Responsibilities, the next smaller one up is named Ethical
Responsibilities, and at the top of the pyramid is Philanthropic
Responsibilities. A brief clarification for each section of the pyramid is
provided:
Economic responsibilities - gain and sustain competitive advantage
Legal responsibilities - laws and regulations are society's codified ethics.
Define minimum acceptable standard
Ethical responsibilities - do what is right, just, and fair
Philanthropic responsibilities - corporate citizenship

Return to slide
©McGraw-Hill Education.
 Appendix 5 Exhibit 1.5 The AFI Strategy Framework (2 of 2)

This image shows several circles, representing the main themes from the textbook, as well as how the chapters map into each
theme. The important inside circle is titled "Gaining and Sustaining a Competitive Advantage" that is at the very center of the
image, with five different circles on on the outside of it. Arrows go back and forth from the center circle to each of the five outer
circles. The five outer circles are labeled: (1) Getting Started, (2) External and Internal Analysis, (3) Formulation: Business Strategy,
(4) Formulation, Corporate Strategy, and (5) Implementation.

Each of these outer five circles have a brief description beside them to explain what the circle means:

Under the first outer circle titled "Getting Started", it says: Part 1, Strategy Analysis, "What is Strategy (Chapter 1)" and "Strategic
Leadership: Managing the Strategy Process (Chapter 2)".

Under the second outer circle titled "External and Internal Analysis", it says: Part 1, Strategy Analysis, "External Analysis: Industry
Structure, Competitive Forces and Strategic Groups (Chapter 3)", "Internal Analysis: Resources, Capabilities and Core
Competencies (Chapter 4)", and "Competitive Advantage, Firm Performance, and Business Models (Chapter 5)".

Under the third outer circle titled "Formulation: Business Strategy", it says: Part 2, Strategy Formulation, "Business Strategy:
Differentiation, Cost Leadership and Integration (Chapter 6)" and "Business Strategy, Innovation and Entrepreneurship (Chapter
7)".

Under the fourth outer circle titled "Formulation: Corporate Strategy", it says: Part 2, Strategy Formulation, "Corporate Strategy:
Vertical Integration and Diversification (Chapter 8)", "Corporate Strategy: Strategic Alliances, Mergers and Acquisitions (Chapter
9)", and "Global Strategy: Competing Around the World (Chapter 10)".

Under the fifth outer circle titled "Implementation", it says: Part 3, Strategy Implementation, "Organizational Design: Structure,
Culture and Control (Chapter 11)", and "Corporate Governance and Business Ethics (Chapter 12)".

Return to slide
©McGraw-Hill Education.