(BQ) Part 1 book Management has contents: Introduction to organisations and management, management yesterday and today, managing in a global environment, social responsibility and managerial ethics, managing change and innovation, foundations of planning, strategic management.
www.downloadslide.com Inspire with Robbins, Management, 6th edition! We live in dynamic times and ‘business as usual’ is no longer an option Management students must be well prepared to manage modern, ever-changing organisations Visit www.pearson.com.au/mymanagementlab to activate or purchase your access code today! Robbins | Bergman | Stagg | Coulter Management, 6th edition is accompanied by a flexible and completely revised suite of instructor and student resources designed to encourage critical thinking, make management concepts meaningful and excite students about the possibilities of a career in management Management, 6th edition can be packaged with MyManagementLab, an interactive, personalised and engaging€learning solution for€instructors and students This new edition of Management is once again a resource at the leading edge of research for this dynamic discipline Blending management theory with inspiring and innovative practices, Robbins shows managers and organisations how to meet their economic, environmental and social responsibilities Robbins | Bergman | Stagg | Coulter ISBN 978-1-4425-3860-3 781442 538603 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e_Final Cover.indd 12/7/11 10:34:22 AM www.downloadslide.com Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e *Prelims.indd 17/6/11 11:58:23 AM www.downloadslide.com Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e *Prelims.indd 17/6/11 11:58:23 AM www.downloadslide.com Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e *Prelims.indd 17/6/11 11:58:27 AM www.downloadslide.com Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 Pearson Australia Unit 4, Level 14 Aquatic Drive Frenchs Forest NSW 2086 www.pearson.com.au Authorised adaptation from the United States edition, entitled Management, 10th edition, ISBN: 9780132090711 by Robbins, Stephen P.; Coulter, Mary, published by Pearson Education, Inc, publishing as Prentice Hall, Copyright © 2009 Sixth adaptation edition published by Pearson Australia Group Pty Ltd., Copyright © 2012 The Copyright Act 1968 of Australia allows a maximum of one chapter or 10% of this book, whichever is the greater, to be copied by any educational institution for its educational purposes provided that that educational institution (or the body that administers it) has given a remuneration notice to Copyright Agency Limited (CAL) under the Act For details of the CAL licence for educational institutions contact: Copyright Agency Limited, telephone: (02) 9394 7600, email: info@copyright.com.au All rights reserved Except under the conditions described in the Copyright Act 1968 of Australia and subsequent amendments, no part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the copyright owner Acquisitions Editors: Dan Tylman, Karen Hutchings and Judith Bamber Project Editor: Kathryn Munro Development Editor: Katie Pittard Editorial Coordinator: Camille Layt Production Controller: Barbara Honor Copy Editor: Robyn Flemming Proofreader: Annabel Adair Copyright and Pictures Editors: Laura Ramsay and Emma Gaulton Indexer: Jo Rudd Cover and internal design by Natalie Bowra Cover image © Olga Miltsova / Shutterstock Typeset by Midland Typesetters, Australia Printed in China 15 14 13 12 11 National Library of Australia Cataloguing-in-Publication Data Title: Edition: ISBN: VitalSource ISBN: Notes: Subjects: Other Authors: Dewey Number: Management / Stephen Robbins [et al.] 6th ed 9781442538603 (pbk) 9781442538658 Includes index Management—Textbooks Robbins, Stephen P (Stephen Paul), 1943658 Every effort has been made to trace and acknowledge copyright However, should any infringement have occurred, the publishers tender their apologies and invite copyright owners to contact them Due to copyright restrictions, we may have been unable to include material from the print edition of the book in this digital edition, although every effort has been made to minimise instances of missing content Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e *Prelims.indd 17/6/11 11:58:27 AM www.downloadslide.com contents in brief Preface Acknowledgements About the authors Making the most of your text Case matrix Part Introduction â•⁄ Introduction to organisations and management â•⁄ Management yesterday and today xiv xvii xviii xix xxiv 41 Part Defining the manager’s terrain â•⁄ Environment and organisational culture: The constraints â•⁄ Managing in a global environment â•⁄ Social responsibility and managerial ethics â•⁄ Managing change and innovation 77 79 123 165 211 Part Planning â•⁄ Decision making: The essence of a manager’s job â•⁄ Foundations of planning â•⁄ Strategic management 257 259 291 321 Part Organising 10 Organisational structure and design 11 Managers and communication 12 Human resource management 355 357 391 423 Part Leading 13 Understanding individual behaviour 14 Understanding groups and teams 15 Motivating employees 16 Leadership 469 471 517 555 601 Part Controlling 17 Foundations of control 18 Managing operations 645 647 689 719 733 Glossary Index Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e *Prelims.indd 17/6/11 11:58:29 AM www.downloadslide.com contents Preface Acknowledgements About the authors Making the most of your text Case matrix P ART ╇ I NTRODUCT I ON Introduction to organisations and management Learning outcomes What is an organisation? Why are managers important? Managers who made a difference: Ian McLeod, CEO, Coles Group Who are managers? Managing workforce diversity and inclusion: Women are still underrepresented and underpaid in Australian businesses What is management? What managers do? Management functions Management roles Management skills Summary of multiple perspectives on the manager’s job Is the manager’s job universal? Organisational level Organisational area Organisational type Organisational size Cross-national transferability Managing from a global perspective: Organisations and managers in today’s world How is the manager’s job changing? Importance of customers to the manager’s job Importance of innovation to the manager’s job Importance of sustainability to the manager’s job Managing for sustainability: Eco-efficiency and eco-effectiveness Why study management? The universality of management The reality of work Managing yourself Challenges and rewards of being a manager Thinking critically about ethics: How much is an executive worth? xiv xvii xviii xix xxiv 3 10 11 12 13 13 14 17 18 19 19 19 20 20 21 22 23 24 24 25 26 27 27 28 28 29 30 Learning summary Thinking critically about management issues Becoming a manager Working together: Team-based exercise Ethical dilemma Case application: Managing McDonald’s Australia Key terms Endnotes Photo credits Management yesterday and today Learning outcomes Historical background of management Scientific management Important contributions How today’s managers use scientific management? General administrative theory Important contributions How today’s managers use general administrative theories? Quantitative approach to management Important contributions How today’s managers use the quantitative approach? Towards understanding organisational behaviour Early advocates The Hawthorne Studies The human relations movement and behavioural science theorists How today’s managers use the behavioural approach? Managers who made a difference: Roger and Lesley Gillespie, co-founders, Bakers Delight Contemporary approaches The systems approach Managing from a global perspective: One Ford… One Team… One Plan… One Goal The contingency approach Current trends and issues Globalisation Ethics Workforce diversity Managing in the Asia-Pacific region: Samsung’s ‘New Management’ initiative 31 32 33 33 33 34 36 37 39 41 41 44 46 46 48 48 48 49 50 51 52 52 52 53 54 54 55 56 56 57 58 59 59 61 62 64 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e *Prelims.indd 17/6/11 11:58:30 AM www.downloadslide.com contents Entrepreneurship Knowledge management and learning organisations Thinking critically about ethics: WikiLeaks: What to publish or not to publish? Managing for sustainability Managing for sustainability: Yvon Chouinard, CEO, Patagonia and an environmentalist Learning summary Thinking critically about management issues Becoming a manager Working together: Team-based exercise Ethical dilemma Case application: Factor Five Key terms Endnotes Photo credits P ART ╇DEF I N I NG THE MANAGER ’ S TERRA I N Environment and organisational culture: The constraints 65 66 67 67 69 70 71 71 72 72 73 75 75 76 77 79 Learning outcomes 79 The manager: Omnipotent or symbolic? 82 The omnipotent view 82 The symbolic view 83 Reality suggests a synthesis 83 Managers who made a difference: Chip Goodyear, former CEO, 84 BHP Billiton The external environment: Constraints and challenges 85 Defining the external environment 86 The specific environment 87 The general environment 88 Managing from a global perspective: Held hostage in France 92 How the environment affects managers 93 Assessing environmental uncertainty 93 Managing the stakeholder relationship 95 Organisational culture: Constraints and challenges 97 What is organisational culture? 97 Strong versus weak cultures 98 The source of culture 100 How an organisation’s culture continues 100 How employees learn culture 101 Managing workforce diversity and inclusion: Global stumble 103 How culture affects managers 104 Thinking critically about ethics: Should organisations protect whistleblowers? 106 Current organisational culture issues facing managers 106 Creating an ethical culture 106 Creating an innovative culture 107 Managing in the Asia-Pacific region: All staff make NetApp a different place to work 108 Creating a customer-responsive culture Creating an organisational culture that embraces sustainability Spirituality and organisational culture Learning summary Thinking critically about management issues Becoming a manager Working together: Team-based exercise Ethical dilemma Case application: Out of control Key terms Endnotes Photo credits Managing in a global environment Learning outcomes The globalisation of business Who owns what? What is your global perspective? Managing in the Asia-Pacific region: Opportunities and challenges for fast-food companies in India The risk of cross-cultural blunders Thinking critically about ethics: IBM’s policy of moving jobs overseas Understanding the global environment Regional trading alliances Global trade mechanisms Managing workforce diversity and inclusion: Global challenges in population trends Doing business globally Different types of international organisations How organisations go international Australian and New Zealand companies going international Managing in a global environment The legal–political environment The economic environment The cultural environment Global management in today’s world Managing from a global perspective: Leading here is not like leading there: The role of national culture in effective leadership Sustainability on a global scale Managing for sustainability: Green up on aisle two Learning summary Thinking critically about management issues Becoming a manager Working together: Team-based exercise Ethical dilemma Case application: Learning to love globalisation at ╇ ‘German’ SAP vii 109 109 110 113 114 114 115 115 116 117 117 121 123 123 126 126 129 131 131 132 133 133 136 137 138 139 140 142 144 144 145 146 149 151 152 153 155 156 157 157 158 158 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e *Prelims.indd 17/6/11 11:58:31 AM www.downloadslide.com viii contents Key terms Endnotes Photo credits 160 160 163 Social responsibility and managerial ethics 165 Learning outcomes 165 What is social responsibility? 168 Two opposing views of social responsibility 169 Social responsibility and economic performance 173 Ecologically sustainable management 174 Managing in the Asia-Pacific region: Sustainability in the Asia175 Pacific region Global environmental problems 176 How organisations adopt a more ecologically sustainable approach 176 Evaluating ecological sustainability 178 Managerial ethics 178 Managing for sustainability: Westpac Banking Corporation 179 Factors that affect employee ethics 181 Managing from a global perspective: Lessons from Lehman 184 Brothers: Will we ever learn? Ethics in a global context 186 Improving ethical behaviour 187 Social responsibility and ethics issues in today’s world 192 Managing ethical lapses and social irresponsibility 192 Thinking critically about ethics: Price fixing at Visy and Amcor 194 Social entrepreneurship 195 Managing workforce diversity and inclusion: Indigenous 196 employment in the northwest of Australia Businesses promoting positive social change 197 Learning summary 199 Thinking critically about management issues 200 200 Becoming a manager 201 Working together: Team-based exercise 201 Ethical dilemma Case application: The biggest corporate corruption scandal 202 in Australia’s history? 205 Key terms 205 Endnotes 210 Photo credits Managing change and innovation Learning outcomes Forces for change External forces Internal forces Two views of the change process The calm waters metaphor The white-water rapids metaphor Putting the two views in perspective Managing from a global perspective: Nokia – faded signal 211 211 214 214 215 216 216 217 218 218 Managing organisational change 219 What is organisational change? 219 Types of change 219 Managing workforce diversity and inclusion: Deutsche 223 Telekom Managing resistance to change 223 Why people resist change 223 Using force-field analysis 224 Techniques for reducing resistance 226 Managing for sustainability: Community involvement to 227 overcome resistance Contemporary issues in managing change 228 Changing organisational cultures 228 Managing the downsized workplace 231 Handling employee stress 233 Thinking critically about ethics: Long working hours and stress – 235 what are the costs? Making change happen successfully 236 Stimulating innovation 238 Creativity versus innovation 238 Stimulating and nurturing innovation 238 Managers who made a difference: Ratan Tata, Indian 240 business guru Change, innovation and sustainability 241 Sustainability-driven change 242 Social and environmental entrepreneurs 243 Sustainability – a profound challenge for change 245 Learning summary 247 248 Thinking critically about management issues 248 Becoming a manager 249 Working together: Team-based exercise 249 Ethical dilemma 249 Case application: Kodak Australasia 251 Key terms 252 Endnotes 256 Photo credits P ART ╇ P LANN I NG Decision making: The essence of a manager’s job Learning outcomes The decision-making process Step 1: Identifying a problem Managing in the Asia-Pacific region: Pacific Laundry reduces water and power usage Step 2: Identifying decision criteria Step 3: Allocating weights to the criteria Step 4: Developing alternatives Step 5: Analysing alternatives Step 6: Selecting an alternative 257 259 259 262 263 264 265 265 265 266 266 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e *Prelims.indd 17/6/11 11:58:32 AM www.downloadslide.com contents Step 7: Implementing the alternative 267 Step 8: Evaluating decision effectiveness 267 The manager as decision maker 267 Managers who made a difference: Richard Goyder, CEO, 268 Wesfarmers Making decisions: Rationality, bounded rationality and intuition 269 Types of problems and decisions 272 Decision-making conditions 273 Managing for sustainability: Universities act on sustainability 274 Decision-making styles 277 Decision-making biases and errors 277 Managing workforce diversity and inclusion: The value of diversity in decision making 279 Summing up managerial decision making 279 Thinking critically about ethics: A mistake by Google? 280 Decision making for today’s world 281 Managing from a global perspective: Cultural differences 282 in leaders’ decision-making styles Learning summary 284 Thinking critically about management issues 285 285 Becoming a manager Working together: Team-based exercise 286 286 Ethical dilemma Case application: Designing for dollars 286 Key terms 288 288 Endnotes Photo credits 289 Foundations of planning Learning outcomes The what and why of planning What is planning? Why managers plan? Managing for sustainability: Sustainable dairy farms in a changing climate Planning and performance Goals and plans Types of goals Managers who made a difference: Brian Doolan, CEO, The Fred Hollows Foundation Types of plans Setting goals and developing plans Approaches to setting goals Managing workforce diversity and inclusion: A university’s standing plan on diversity Characteristics of well-designed goals Steps in goal setting Developing plans Approaches to planning Project management 291 291 294 294 294 295 296 297 297 298 299 301 301 303 304 304 305 306 307 Contemporary issues in planning Effective planning in dynamic environments Managing from a global perspective: Underwater chaos Use of environmental scanning and competitive intelligence Forecasting Thinking critically about ethics: Suggested techniques for gathering competitor information Learning summary Thinking critically about management issues Becoming a manager Working together: Team-based exercise Ethical dilemma Case application: Icelandic volcano, 1; ╇╇ global commerce, 0 Key terms Endnotes Photo credits Strategic management Learning outcomes The importance of strategic management What is strategic management? Why is strategic management important? Managers who made a difference: Margot and Alan Spalding, Jimmy Possum Furniture The strategic management process Step 1: Identifying the organisation’s current mission, goals and strategies Step 2: Doing an external analysis Managing for sustainability: Palm oil and sustainability Step 3: Doing an internal analysis Step 4: Formulating strategies Step 5: Implementing strategies Step 6: Evaluating results Corporate strategies What is corporate strategy? What are the three main types of corporate strategy? Thinking critically about ethics: Should ethical considerations be part of strategy decisions? How are corporate strategies managed? Competitive strategies The role of competitive advantage Managing in the Asia-Pacific region: John Borghetti changes strategy at Virgin Blue Choosing a competitive strategy Functional strategies Current strategic management issues The need for strategic leadership The need for strategic flexibility New directions in organisational strategies ix 308 308 309 310 311 311 314 315 315 316 316 316 318 318 320 321 321 324 324 325 326 327 327 328 329 330 331 331 332 332 332 333 334 335 336 336 338 339 340 341 341 342 342 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e *Prelims.indd 17/6/11 11:58:33 AM www.downloadslide.com 340 part differentiation strategy part A competitive strategy in which a company offers unique products that are widely valued by customers focus strategy A competitive strategy in which a company pursues a cost or differentiation advantage in a narrow industry segment stuck in the middle A situation in which an organisation has not been able to develop either a low-cost or differentiation competitive advantage planning A company that competes by offering unique products that are widely valued by customers is following a differentiation strategy Sources of differentiation might be exceptionally high quality, extraordinary service, innovative design, technological capability or an unusually positive brand image In these companies, there is usually a strong coordination between the research and development, product development and marketing functions, which help them to develop creative and unique products or services The key to this competitive strategy is that the product or service attribute chosen for differentiation must set the firm apart from its competitors and be significant enough to justify a price premium that exceeds the cost of differentiating For example, 3M Company focuses on product quality and innovative design, and Apple focuses on product design Whereas the cost leadership strategy and differentiation strategy are aimed at the broad market, the final type of competitive strategy – the focus strategy – involves a cost advantage (cost focus) or a differentiation advantage (differentiation focus) in a narrow segment or niche That is, managers select a market segment or group of segments in an industry and not attempt to serve the broad market The goal of a focus strategy is to exploit a narrow segment of a market Research suggests that the focus strategy may be the most effective choice for small busiÂ� nesses, which typically not have the economies of scale or internal resources to pursue successfully one of the other two strategies.22 However, there are also large organisations that successfully use the focus strategy For example, Denmark’s Bang & Olufsen, whose annual revenues are over US$900 million, focuses on high-end audio equipment sales Whether a focus strategy is feasible depends on the size of the segment and whether the organisation can make money serving that segment What happens if an organisation is unable to develop a cost or differentiation advantage? Porter uses the term stuck in the middle to describe those organisations that find it very difficult to achieve long-term success He goes on to note that successful organisations frequently get into trouble by reaching beyond their competitive advantage and ending up stuck in the middle However, research conducted since Porter’s original work has shown that organisations can successfully pursue a low-cost and differentiation advantage and achieve high performance.23 However, it is not easy to pull off! To so successfully, an organisation must be strongly committed to keeping costs low and establishing solid sources of differentiation Companies such as IKEA, FedEx, Intel and Coca-Cola have been able to differentiate their products while at the same time maintaining low-cost operations For example, at the extremely successful and global home furnishing giant IKEA, every attempt is made to reduce costs in its operations, as well as design, production, transport and storage of its products, so that it can pass on the savings to its customers At the same time, IKEA has been able to differentiate itself from other home furnishing companies through its Scandinavian design of flexible, functional and comfortable home furnishings In the process, it has also developed some innovative approaches in the industry, such as most of its furniture being ‘flat-packed’ for easy home transport as well as selfassembly of the furniture by the customers themselves Functional strategies functional strategy An organisational strategy that seeks to determine how to support the competitive strategy Functional strategies seek to determine how to support the competitive strategy For organisations that have traditional functional departments such as manufacturing, marketing, human resources, research and development, and finance, these functional strategies need to support the competitive strategy For example, before Tiger Airways started up its operations as a low-fare airline in Australia in 2007, its marketing department had to develop marketing strategies in relation to the pricing of tickets and promotions of its flights, the human resources department had to develop human resource strategies for recruitment and training of staff, and the operations department had to develop information systems and logistics strategies for how decision makers were going to be provided with information necessary to make decisions at all levels within the organisation Specific functional strategies are not covered in this book, as they are the content of other business courses you may take Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e 2ndpp *Pt3 Ch09.indd 340 17/6/11 11:49:06 AM www.downloadslide.com Strategic management chapter 341 No matter what corporate, competitive or functional strategies an organisation chooses to pursue, keep in mind that all are part of the strategic management process, which plays a crucial role in organisational success Without the strategic management process to guide and direct their strategic planning decisions and actions, managers would have little chance of designing effective and efficient strategies 11 Explain Porter’s Five Forces model review questions chapter 10 Describe the role of competitive advantage in competitive strategies 12 Describe Porter’s three generic competitive strategies Current strategic management issues There is no better example of the strategic challenges faced by managers in today’s market environment than the recorded music industry Global sales of CDs have plummeted in the last decade and are down about 50 per cent from their peak Not only has this trend impacted the music companies, but it has affected music retailers as well Rampant global piracy (according to the IFPI – an organisation that represents the worldwide recording industry – one in three music discs sold worldwide is an illegal copy), economic uncertainty and intense competition from other forms of entertainment have devastated the music industry Managers are struggling to find strategies that will help their organisations succeed in such an environment Many have had to shift into whole new areas of business.24 But the music industry is not the only industry dealing with such enormous strategic challenges Managers in all kinds of organisations face increasingly intense global competition and high performance expectations by investors and customers How have managers responded to these new realities? In this section, we want to look at some current issues in strategy, including the need for strategic leadership, the need for strategic flexibility, and how managers design strategies to emphasise e-business, customer service and innovation 9.7 L ea r n in g o u t co m e Discuss current strategic management issues The need for strategic leadership Pablo Isa, CEO of Spain’s Inditex (owner of clothing chain Zara), is overseeing an aggressive expansion The company is adding as many as 450 stores a year.25 An organisation’s strategies are usually developed and overseen by its top managers An organisation’s top manager is typically the CEO (chief executive officer) This individual usually works with a top management team that includes other executive or senior managers such as a COO (chief operating officer), CFO (chief financial officer), CIO (chief information officer), and other individuals who may have various titles Traditional descriptions of the CEO’s role in strategic management include being the ‘chief’ strategist, structural architect and developer of the organisation’s information/ control systems.26 Other descriptions include ‘key decision maker’, ‘visionary leader’, ‘political actor’, ‘monitor and interpreter of environment changes’, and ‘strategy designer’.27 No matter how top management’s job is described, you can be certain that from their perspective at the organisation’s upper levels, it is like no other job in the organisation By definition, top managers are ultimately responsible for every decision and action of every organisational employee One important role that top managers play is that of strategic leader Organisational researchers study leadership in relation to strategic management because an organisation’s top managers must provide effective strategic leadership What is strategic leadership? It is the ability to anticipate, envision, maintain flexibility, think strategically and work with others in the organisation to initiate changes that will create a viable and valuable future for the organisation.28 How can top managers provide effective strategic leadership? Eight key dimensions have been identified (see Figure 9.6).29 These dimensions include determining the organisation’s purpose or vision, exploiting and maintaining the strategic leadership The ability to anticipate, envision, maintain flexibility, think strategically and work with others in the organisation to initiate changes that will create a viable and valuable future for the organisation Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e 2ndpp *Pt3 Ch09.indd 341 17/6/11 11:49:07 AM www.downloadslide.com 342 part planning Figure 9.6╇ Effective strategic leadership part Determining the organisation’s purpose or vision Creating and sustaining a strong organisational culture Exploiting and maintaining the organisation’s core competencies Effective strategic leadership Developing the organisation’s human capital Establishing appropriately balanced organisational controls organisation’s core competencies, developing the organisation’s human capital, creating and sustaining a strong organisational culture, creating and maintaining organisational relationships, reframing prevailing views by asking penetrating questions and questioning assumptions, emphasising ethical organisational decisions and practices, and establishing appropriately balanced organisational controls Each dimension describes an important part of the strategic management process The need for strategic flexibility Not surprisingly, the economic recession during the Global Financial Crisis changed the way that many companies approached strategic Emphasising ethical planning For instance, at Spartan Motors, a organisational maker of specialty vehicles, managers used decisions and to draft a one-year strategic plan and a threepractices year financial plan, reviewing each one every financial quarter However, CEO John Sztykiel Sources: Based on J.P Wallman, ‘Strategic transactions and managing the future: said: ‘That relatively inflexible method bears A Druckerian perspective’, Management Decision, Vol 48, No 4, 2010, pp 485–99; D.E Zand, ‘Drucker’s strategic thinking process: Three key techniques’, Strategy some of the blame for Spartan’s sharp drop in & Leadership, Vol 38, No 3, 2010, pp 23–8; and R.D Ireland and M.A Hitt, sales and gross profit.’ The company also did not ‘Achieving and maintaining strategic competitiveness in the 21st century: The role of ‘respond quickly enough to shifting demand’, strategic leadership’, Academy of Management Executive, February 1999, pp 43–57 he said.30 Now, the company uses a three-year strategic plan that the top management team updates every month Jürgen Schrempp, former CEO of DaimlerChrysler, stated: ‘My principle always was … move as fast as you can and [if] you indeed make mistakes, you have to correct them It is much better to move fast, and make mistakes occasionally, than move too slowly.’31 You would not think that smart individuals who are paid lots of money to manage organisations would make mistakes when it comes to strategic decisions But even when managers ‘manage strategically’ by following the strategic management process, there is no guarantee that the chosen strategies will lead to positive outcomes Reading any of the current business periodicals would certainly support this assertion! But the key for managers is responding quickly when it is obvious that the strategy is not working In other words, they need strategic flexibility – that is, the strategic flexibility ability to recognise major external environmental changes, to quickly commit resources and The ability to recognise to recognise when a strategic decision is not working Given the environment that managers major external changes, to face today – oftentimes, highly uncertain and changing – strategic flexibility seems absolutely quickly commit resources, necessary Table 9.2 provides some suggestions for developing strategic flexibility and to recognise when the Creating and maintaining organisational relationships strategic decision was a mistake Reframing prevailing views by asking penetrating questions and questioning assumptions New directions in organisational strategies ESPN.com gets more than 16 million unique users a month! That is four times the population of New Zealand Its popular online business is just one of many business ventures that ESPN is in Originally founded as a television channel, ESPN is now into original programming (ESPN develops its own shows and movies), radio (the largest US sports-radio network), online (ESPN com), publishing (ESPN The Magazine), wireless (Mobile ESPN), gaming (video games by exclusive licensee Electronic Arts), X games (annual extreme sports competition), ESPY awards (recognising Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e 2ndpp *Pt3 Ch09.indd 342 17/6/11 11:49:08 AM www.downloadslide.com Strategic management chapter 343 Table 9.2╇ Creating strategic flexibility • Know what is happening with strategies currently being used by monitoring and measuring results • Encourage employees to be open about disclosing and sharing negative information • Get new ideas and perspectives from outside the organisation • Learn from mistakes Source: Based on K Shimizu and M.A Hitt, ‘Strategic flexibility: Organisational preparedness to reverse ineffective strategic decisions’, Academy of Management Executive, November 2004, pp 44–59 chapter • Have multiple alternatives when making strategic decisions Managing in an e-business world T o day’s managers function in an e-business world In fact, as a student, your learning may increasingly be taking place in an electronic environment While critics have questioned the viability of internet-based companies (dot.coms), especially after the high-tech implosion in 2000 and 2001, e-business is here for the long term E-business offers many advantages to organisations – small to large, profit or not for profit, global and domestic, and in all industries E-business (electronic business) is a comprehensive term describing the way an organisation uses electronic (internet-based) linkages with its key constituencies (employees, managers, customers, suppliers and partners) in order to achieve its goals efficiently and effectively It includes e-commerce, which is essentially the sales and marketing aspect of e-business Firms such as Dell (computers) and Amazon are engaged in e-commerce because they sell items over the internet Not every organisation is or needs to be a total e-business Instead, organisations can choose from three categories of e-business involvement The first type is what we are going to call an e-business-enhanced organisation, a traditional organisation that sets up e-business capabilities, usually e-commerce, while maintaining its traditional structure Many of Australia’s larger companies are evolving into e-businesses using this approach They use the internet to enhance (not to replace) their traditional ways of doing business For instance, Dymocks (bookshops), Pizza Hut and Just Jeans have become e-business-enhanced organisations Another category of e-business involvement is an e-business-enabled organisation which uses the internet to perform its traditional business functions better, but not to sell everything In other words, the internet enables organisational members to their work more efficiently and effectively Numerous organisations use electronic linkages to communicate with employees, customers and suppliers, and to support them with information For instance, in Australia, Sussan, Tupperware and IKEA use their websites to interact with customers, providing them with the latest information about their companies and their products, but the customer cannot buy online Most of these organisations also use an intranet, an internal organisational communication system that uses internet technology and is accessible only by organisational employees, to communicate with their Australian or global workforce Other organisations are using enterprise-wide software solutions that link together all organisational areas and levels For example, staff at Monash University can access hundreds of specialised internal websites containing thousands of pages of administrative records and information They can also access various internal databases, depending on their classification and level of clearance Information that used to take days to get can now be obtained in a matter of a few minutes simply by linking, pointing and clicking Organisations have found that being e-business enabled makes them more efficient and competitive The last category of e-business involvement is when an organisation becomes a total e-business Organisations such as Amazon.com, Google, Yahoo! and eBay are total e-business organisations Their whole existence is based around the internet Managing FROM A GLOBAL PERSPECTIVE Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e 2ndpp *Pt3 Ch09.indd 343 17/6/11 11:49:08 AM www.downloadslide.com 344 part part planning top achievements in sports), ESPN Zones (sports-theme restaurants), and global (ESPN programming is available in 11 languages in more than 180 countries).32 Company president George Bodenheimer runs one of the most successful and envied franchises in entertainment, and obviously understands how to successfully manage its various strategies in today’s environment In Australia, both the commercial and public free-to-air TV networks have built internet sites that provide many of the services and products pioneered by ESPN.33 What strategies are important for today’s environment? We think there are three: e-business, customer service and innovation e-business strategies Managers can use e-business strategies to develop a sustainable competitive advantage.34 A cost leader can use e-business techniques to reduce costs in a variety of ways For example, it might use online bidding and order processing to eliminate the need for sales calls and to decrease sales-force expenses; it could use web-based inventory control systems that reduce storage costs; or it might use online testing and evaluation of job applicants A differentiator needs to offer products or services that customers perceive and value as unique How could e-business techniques contribute? The differentiator might use internetbased knowledge systems to shorten customer response times; provide rapid online responses to service requests; or automate purchasing and payment systems so that customers have detailed status reports and purchasing histories Dell Computer is an excellent example of a company that has exploited the differentiation advantage made possible by e-business techniques Finally, because the focuser targets a narrow market segment with customised products, it might provide chat rooms or discussion boards for customers to use to interact with others who have common interests; design niche websites that target specific groups with specific interests; or use websites to perform standardised office functions such as payroll or budgeting One focuser that has capitalised on internet technology is SalvageSale, a unique web business that specialises in quick liquidation of commercial salvage goods Its efficient use of e-business techniques allows it to keep costs low and appeal to a specific customer group, primarily insurance and transportation companies Research has shown that an important e-business strategy might be a clicks-and-bricks strategy A clicks-and-bricks firm is one that uses both online (clicks) and traditional stand-alone locations (bricks).35 For example, in Australia, ePharmacy, which supplies prescriptions and other pharmaceutical goods over the internet, must by law have a regular pharmacy, so it has to be a clicks-and-bricks business It has also developed a partnership with the Chemist Warehouse Group, which runs a chain of regular pharmacies ePharmacy now employs over 1000 staff generating an annual revenue in excess of $200 million from its stores and online business Its success has been built on its aggressive pricing and large volumes of trade.36 So, its clicks-andbricks strategy works … and works well! Customer service strategies Companies that emphasise customer service need strategies that cultivate that atmosphere from top to bottom Such strategies involve giving customers what they want, communicating effectively with them, and providing employees with customer service training Let us look first at the strategy of giving customers what they want It should not surprise you that an important customer service strategy is giving customers what they want, which is a major aspect of an organisation’s overall marketing strategy For example, New Balance Athletic Shoes does something that Nike and Reebok not It gives customers a truly unique product: shoes in varying widths No other athletic shoe manufacturer has shoes for narrow or wide feet.37 Having an effective customer communication system is an important customer service strategy Managers should know what is going on with customers They need to find out what customers liked and did not like about their encounter with an organisation, including their interactions with employees as well as their experience with the actual product or service Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e 2ndpp *Pt3 Ch09.indd 344 17/6/11 11:49:09 AM www.downloadslide.com Strategic management chapter 345 But communication is not a one-way street It is also important to let customers know what is going on with the organisation that might affect future purchase decisions Finally, we have discussed previously the importance of an organisation’s culture in emphasising customer service And this requires that employees be trained to provide exceptional customer service For example, Singapore Airlines is well known for its customer service, which has also been highlighted by business analysts in comments like, ‘On everything facing the customer, they not scrimp.’38 Employees are expected to ‘get service right’, leaving them with no doubt about how to treat their customers This customer focus has resulted in the company routinely being described as the world’s best airline, winning so many ‘best of’ awards from around the globe that its website is updated monthly to keep track of them chapter Innovation strategies When Procter & Gamble purchased the Iams pet-food business, it did what it always does – used its renowned research division to look for ways to transfer technology from its other divisions to make new products.39 One of the outcomes of this cross-divisional combination: a new tartar-fighting ingredient from toothpaste that is included in all of its dry adult pet foods As this example shows, innovation strategies are not necessarily focused on just the radical, breakthrough products They can include the application of existing technology to new uses And organisations of all kinds and sizes have successfully used both approaches What types of innovation strategies organisations need in today’s environment? Those strategies should reflect their philosophy about innovation, which is shaped by two strategic decisions: innovation emphasis and innovation timing Managers must first decide where the emphasis of their innovation efforts will be Is the organisation going to focus on basic scientific research, product development or process improvement? Basic scientific research requires the heaviest resource commitment because it involves the nuts-and-bolts activities and work of scientific research In numerous industries (for instance, genetics engineering, cosmetics, information technology or pharmaceuticals), an organisation’s expertise in basic research is the key to a sustainable competitive advantage However, not every organisation requires this extensive commitment to scientific research to achieve high performance levels Instead, many depend on product development strategies Although this strategy also requires a significant resource investment, it is not in the areas associated with scientific research Instead, the organisation takes existing technology and improves on it or applies it in new ways, just as Procter & Gamble did when it applied tartarfighting knowledge to pet food products Both of these first two strategic approaches to innovation (basic scientific research and product development) can help an organisation achieve high levels of differentiation, which is a significant source of competitive advantage Finally, the last strategic approach to innovation emphasis is a focus on process development Using this strategy, an organisation looks for ways to improve and enhance its work processes The organisation innovates new and improved ways for employees to their work in all organisational areas This innovation strategy can lead to an organisation’s lowering costs, which, as we know, also can be a significant source of competitive advantage Once managers have determined the focus of their innovation efforts, they must decide their innovation timing strategy Some organisations want to be the first with innovations, whereas others are content to follow or mimic the innovations An organisation that is first to bring a product innovation to the market or to use a new process innovation is called a first mover Being a first mover has certain strategic advantages and disadvantages, as shown in Table 9.3 Some organisations pursue this route, hoping to develop a sustainable competitive advantage Others have successfully developed a sustainable competitive advantage by being the followers in the industry They let the first movers pioneer the innovations and then mimic their products or processes Which approach managers choose depends on their organisation’s innovation philosophy and specific resources and capabilities first mover An organisation that is first to bring a product innovation to the market or to use a new process innovation Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e 2ndpp *Pt3 Ch09.indd 345 17/6/11 11:49:09 AM www.downloadslide.com 346 part planning Table 9.3╇ First mover advantages and disadvantages part Advantages Disadvantages • Reputation for being innovative and industry leader • Cost and learning benefits • Control over scarce resources and keeping competitors from having access to them • Opportunity to begin building customer relationships and customer loyalty • • • • Uncertainty over exact direction technology and market will go Risk of competitors imitating innovations Financial and strategic risks High development costs Environmentally sustainable innovation strategies Another aspect of all three approaches to innovation strategies is the critical need to make businesses sustainable within an environment that includes such issues as global warming, reduced water availability, and the need for power supplies from renewable energy sources Many firms are undertaking original research in this field, and this is important as we look towards a new world with possible hydrogen-powered transport, and electricity generated from the sun, the wind or sea movements Some firms are also trying to develop cleaner methods of such damaging processes as coal power generation The second approach to sustainability is that of product development Many firms are active in developing products using conventional technology that assists their customers to live more environmentally sustainable lives For example, firms are developing home-based water collection and water-recycling systems Appliance makers are developing products with high star ratings in energy usage Builders and architects are designing and building homes that are more comfortable and use far less energy, in both the building process and their ongoing habitation A concern was expressed by David Suzuki and Holly Dressel in their book Good News for a Change that we can make more fuel-efficient cars and houses, and firms could supply less toxic products that can be reused and recycled.40 This need, while urgent, is a relatively new pressure on business leaders, and so far businesses are just scratching the surface The need is for everybody involved in business to develop this ‘conserve, refine and recycle’ approach, which is not how most managers were trained Also, governments have tended to look at short-term fixes and encouraged competition and privatisation often where, in hindsight, it was inappropriate The third aspect of ‘innovation to create sustainability’ is that of carrying out the work of the organisation in a more sustainable way Within the chapters of this text we have included, in the boxes called ‘Managing for sustainability’, examples of firms that have adopted strategies of using less water, power, resources or travel within their operations Firms are also becoming involved in offsetting their environmental impact by the use of carbon offsets What is becoming clear is that organisations that are developing strategies to make their operations more environmentally sustainable, or are developing products and/or services that encourage and allow the community to operate in an environmentally sustainable fashion, are building unique competitive advantages for themselves For example, the vision behind Conservo () is not just to sell bio-fuel, but also to promote and expand the use and acceptance of a variety of cost-effective sustainable products and services in Australia The company is in the process of setting up a number of side businesses that are all focused on sustainability For example, Conservo Parking offers car parking outside the Melbourne CBD Ultimately, Conservo Parking plans to tandem the car-parking business with Conservo Bikes, which is a bicycle lending system under development by Melbourne City Bicycles There is also Conservo Flexicar, a carsharing company that offers cars for short-term rent to members, saving them from having to own their own car It is estimated that one Flexicar removes six individually owned cars from the road Conservo began as a social goal for its founder, Daniel Epstein, who wanted to bring sustainability into mainstream Australia Daniel says, ‘There has been so much talk over the last few years about environmental issues In some ways this is great; mainstream media are now Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e 2ndpp *Pt3 Ch09.indd 346 17/6/11 11:49:10 AM www.downloadslide.com Strategic management chapter saying things others have been on about for years However, this is creating a type of hysteria in the general population, whereas I think we need to stay calm and make practical choices about how to repair the situation.’41 Epstein knows that the bio-fuels offered at Conservo are not a longterm solution, but they are a step in the right direction Epstein hopes that Conservo will assist Australians in understanding that ‘alternative’ fuels such as bio-fuels and ‘alternative’ energy sources such as solar and wind energy are no longer alternative His argument is that these are now the norms in many countries that are working towards becoming more sustainable, and that they can be the norms in Australia, too Epstein explains: ‘Conservo is a declaration to business and government; put your money where your mouth is Let’s be responsible for our actions, let’s be responsible for our time here in history Let’s make decisions that we can look back on with pride when we are old To be a sustainable society, we need not abstain from the fruits we are offered, but in eating them we must ensure the tree still bears fruits for our children.’42 13 Explain why strategic flexibility is important 14 Describe strategies for applying e-business techniques 15 Explain what strategies organisations might use to become more customer oriented and more innovative 347 chapter review questions 16 Explain how companies can use sustainability as a strategy in building a competitive advantage Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e 2ndpp *Pt3 Ch09.indd 347 17/6/11 11:49:10 AM www.downloadslide.com 348 part planning Do you know this material yet? Let MyManagementLab tell you where you need help and devise a personal study plan for you Visit www.pearson.com.au/mymanagementlab Learning summary Learning outcome 9.1: Define strategic management and explain why it is important Strategic management is what managers to develop the organisation’s strategies Strategies are the plans for how the organisation will whatever it is in business to do, how it will compete successfully, and how it will attract and satisfy its customers in order to achieve its goals A business model is how a company is going to make money Strategic management is important for three reasons First, it makes a difference in how well organisations perform Second, it is important for helping managers cope with continually changing situations Finally, strategic management helps coordinate and focus employee efforts on what is important Learning outcome 9.2: Explain what managers during the six steps of the strategic management process The six steps in the strategic management process encompass strategy planning, implementation and evaluation, and include: (1) identify the current mission, goals and strategies; (2) an external analysis; (3) an internal analysis – steps and collectively are known as SWOT analysis; (4) formulate strategies; (5) implement strategies; and (6) evaluate strategies Strengths are any activities the organisation does well, or any unique resources that it has Weaknesses are activities the organisation does not well, or resources it needs but does not have Opportunities are positive trends in the external environment Threats are negative trends Learning outcome 9.3: Describe the three main types of corporate strategies A growth strategy is when an organisation expands the number of markets served or products offered, either through current or new businesses The types of growth strategies include concentration, vertical integration (backward and forward), horizontal integration, and diversification (related and unrelated) A stability strategy is when an organisation makes no significant changes in what it is doing Both renewal strategies – retrenchment and turnaround – address organisational weaknesses that are leading to performance declines Learning outcome 9.4: Discuss how corporate strategies can be managed using the BCG matrix The BCG matrix is a way to analyse a company’s portfolio of businesses by looking at its market share and its industry’s anticipated growth rate The four categories of the BCG matrix are cash cows, stars, question marks and dogs The BCG matrix is a useful strategic management tool that helps managers make resource allocation decisions in diverse businesses Learning outcome 9.5: Describe the role of competitive advantage in developing a competitive strategy An organisation’s competitive advantage is what sets it apart; its distinctive edge A company’s competitive advantage becomes the basis for choosing an appropriate business or competitive strategy Porter’s Five Forces model assesses the five competitive forces that dictate the rules of competition in an industry: (1) threat of new entrants, (2) threat of substitutes, (3) bargaining power of buyers, (4) bargaining power of suppliers, and (5) current rivalry Learning outcome 9.6: Identify Porter’s three competitive strategies Porter’s three competitive strategies are as follows: (1) cost leadership (competing on the basis of having the lowest costs in the industry); (2) differentiation (competing on the basis of having unique products that are widely valued by customers); and (3) focus (competing in a narrow segment with either a cost advantage or a differentiation advantage) Learning outcome 9.7: Discuss current strategic management issues Managers face three current strategic management issues: (1) strategic leadership, (2) strategic flexibility, and (3) important types of strategies for today’s environment Strategic leadership is the ability to anticipate, envision, maintain flexibility, think Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e 2ndpp *Pt3 Ch09.indd 348 17/6/11 11:49:11 AM www.downloadslide.com strategic management chapter 349 strategically, and work with others in the organisation to initiate changes that will create a viable and valuable future for the organisation and includes eight key dimensions Strategic flexibility – that is, the ability to recognise major external environmental changes, to quickly commit resources, and to recognise when a strategic decision is not working – is important, because managers oftentimes face highly uncertain environments Managers can use e-business strategies to reduce costs, to differentiate their firm’s products and services, or to target (focus on) specific customer groups or to lower costs by standardising certain office functions Another important e-business strategy is the clicks-and-bricks strategy, which combines online and traditional stand-alone locations Strategies managers can use to become more customer oriented include giving customers what they want, communicating effectively with them, and having a culture that emphasises customer service Strategies managers can use to become more innovative include deciding their organisation’s innovation emphasis (basic scientific research, product development or process development) and its innovation timing (first mover or follower) Finally, managers can also use environmentally sustainable innovation strategies Thinking critically about management issues Perform a SWOT analysis on a local business you think you know well What, if any, competitive advantage does this organisation have? How might the process of strategy formulation, implementation and evaluation differ for (a) large businesses, (b) small businesses, (c) not-for-profit organisations, and (d) global businesses? ‘The concept of competitive advantage is as important for not-for-profit organisations as it is for for-profit organisations.’ Do you agree or disagree with this statement? Explain, using examples to make your case Should ethical considerations be included in analyses of an organisation’s internal and external environments? Why or why not? How could the internet be helpful to managers as they follow the steps in the strategic management process? Find examples of five different organisational mission statements Using the mission statements, describe what types of corporate and competitive strategies each organisation might use to fulfil that mission statement Explain your rationale for choosing each strategy Becoming a manager What are some of the steps you can take to learn about strategic management? • Using current business periodicals, find two examples of each of the corporate and competitive strategies discussed in the chapter Write a description of what these businesses are doing and how this represents that particular strategy • Do a personal SWOT analysis Assess your personal strengths and weaknesses (skills, talents, abilities) What are you good at? What are you not so good at? What you enjoy doing? What you dislike doing? Then, identify career opportunities and threats by researching job prospects in the industry you are interested in Look at trends and projections You might want to check out the Australian Bureau of Statistics information on job prospects Once you have all this information, write a specific career action plan Outline five-year career goals and what you need to to achieve those goals • Pick three companies Research these companies and identify their (a) mission statement, (b) strategic goals, and (c) strategies being used • In your own words, write down three things you learned in this chapter about being a good manager Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e 2ndpp *Pt3 Ch09.indd 349 17/6/11 11:49:12 AM www.downloadslide.com 350 part planning Working together: Team-based exercise Organisational mission statements: Are they a promise, a commitment, or just a bunch of hot air? Form small groups of three to four individuals and find examples of three different organisational mission statements, by searching some companies’ websites Your first task is to evaluate the mission statements How they compare to the items listed in Table 9.1? Would you describe each as an effective mission statement? Why or why not? How might you rewrite each mission statement to make it better? Your second task is to use the mission statements to describe the types of corporate and competitive strategies each organisation might use to fulfil that mission statement Explain your rationale for choosing each strategy Be prepared to share your examples with the class Ethical dilemma After the largest killer whale in captivity killed one of its trainers, SeaWorld Parks and Entertainment wrestled with the dilemma of what to with its most prized asset.43 Orcas are big business As the headline acts at SeaWorld parks in Orlando, San Diego and San Antonio, they draw a combined 12.2 million visitors annually And the animals represent a huge investment A killer whale can bring almost US$10 million on the open market, and years of preparation are necessary for an orca to perform in a show What you think? What ethical dilemmas are involved with this strategic decision about a valuable organisational asset? What factors would influence the decision? (Think in terms of the various stakeholders that might be impacted by this decision.) c a se a p p l i c a t i o n Starbucks and McCafe – a David versus Goliath battle? The first Starbucks Cafe opened in 1971 in Seattle, but it was not until the 1990s that the chain’s phenomenal growth took off, first in the US and then in the rest of the world Today, with more than 17 000 stores in over 50 countries, Starbucks is the premier roaster and retailer of specialty coffee in the world All over the world, millions of times each week, a customer receives a drink from a Starbucks barista There is no hiding the fact that Starbucks’ strategy is to grow into a global empire Starbucks has found a way to appeal to practically every customer demographic, as its customers cover a broad base It is not just the affluent or the urban professionals, and it is not just the intellectuals or the creative types, who frequent Starbucks You will find mums, construction workers, bank tellers and clerical assistants at Starbucks And despite the high price of its products, customers pay it because they think it is worth it What they get for that price is some of the finest coffee available commercially, custom preparation and, of course, that Starbucks ambiance – the music, the comfy chairs, the aromas, the hissing steam from the espresso machine – all invoking that warm feeling of community and connection Starbucks has designed its growth strategies to exploit the customer connections it has so carefully nurtured and the brand equity it has built so masterfully And company executives have taken the company in new directions even while continuing to grow store numbers and locations and increasing same-store sales Starbucks opened its first company-operated store in Sydney’s CBD in July 2000 This was followed by the opening of a further 16 stores in 2000/01 and 15 in 2002 So, from this expansion, it seems like Starbucks had a great belief that it would be able to conquer some of the Australian coffee market Most of Starbucks’ coffee outlets were concentrated in the capital cities before the company expanded into regional centres, such as the Queensland coastal strip, in 2003 In September 2007, Starbucks had 84 company-operated stores across Australia Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e 2ndpp *Pt3 Ch09.indd 350 17/6/11 11:49:15 AM www.downloadslide.com strategic management chapter 351 However, Starbucks’ strategy to develop a strong foothold in the Australian market did not go according to plan It became clear that it had encountered some difficulties when Starbucks announced on 29 July 2008 that it would close 61 of its company-operated stores Starbucks had evaluated several options to strengthen its business in Australia, but had decided to refocus its operations on three core cities and surrounding areas: Brisbane, Melbourne and Sydney It closed its outlets in Tasmania, South Australia and the ACT A spokesperson for the company’s Australian operation said the decision had been necessary because the stores had been losing money, and the chain had been struggling the further it strayed from the high-density CBDs along the east coast Despite opening five new stores in Australia in 2007 and selling $64 million worth of coffee and food in Australia in the financial year 2006/07, its operations posted a net loss of $36 million Even with selling double the number of coffees – 270 a day, according to the Australian market researcher IBISWorld – compared to the average sold across Australia’s 12 000 coffee shops, Starbucks had not been able to break even Many of the company-operated stores had not performed up to expectations, and high rental costs in many of the high-profile streets where they had set up the coffee outlets made the situation worse The closure of some of the Australian stores was therefore seen to be the appropriate course of action Starbucks claimed that it had evaluated several alternatives to improve its business in Australia, but had concluded that it would be better off concentrating its attention and resources on profitable growth in other markets in the world Even Starbucks’ global chairman Howard Schultz’s comments suggested that Starbucks had encountered some very unusual difficulties in the Australian market ‘While this decision represents business challenges unique to the Australian market, it in no way reflects the strong state of Starbucks business in countries outside of the United States,’ said Schultz when the announcement was made that Starbucks would close down more than 70 per cent of its outlets in Australia ‘There are no other international markets that need to be addressed in this manner.’ In relation to the 23 stores that would remain open, the company said it would concentrate its attention and resources on profitable growth, operational efficiencies, and an enhanced experience for customers and partners (employees) In New Zealand, Starbucks operates under a licence agreement with Restaurant Brands NZ Ltd About 40 Starbucks stores operate throughout the country, the first of which was opened in 1998 The Starbucks brand has therefore been considerably more successful there, even though the New Zealand market is only one-fifth the size of the Australian one Starbucks found that the Australian market was quite crowded, with strong brands such as Gloria Jean’s, Hudsons Coffee and McCafé competing with Starbucks for market share These brands have been considerably more successful than Starbucks in Australia The involvement of McDonald’s with ‘upmarket’ coffee in a style similar to Starbucks’ started in 1993 when the Australian arm of McDonald’s saw the emergence of consumer demands for high-quality coffee and the popularity of coffee shops in general The first McCafé opened in Melbourne in 1993 The strategy proved very successful, generating extra revenues of 15 per cent for those McDonald’s outlets that had a McCafé The concept has now been adopted in a number of other international markets, and in 2009 there were more than 1300 McCafés around the world in places such as Australia, New Zealand, Japan, Singapore, Ireland, Sweden, Germany, the US, Brazil and Argentina, with a wider rollout in the US having started in 2008, although it has had a smaller presence there since 2001 While it is still a small part of the overall McDonald’s strategy, and McDonald’s is rather secret about its plans, there are suggestions that it possibly plans to install coffee bars with ‘baristas’ serving cappuccinos, lattes, mochas and the Frappe (similar to Starbucks’ ice-blended Frappuccino) in up to 14 000 US outlets The capacity of McDonald’s to become a potential competitor to Starbucks in the US and global markets should not be underestimated Over time, the two chains have gradually overlapped their strategies, with McDonald’s introducing higher-quality coffee choices and modernisation of its interior designs as well as wireless internet access, while Starbucks has added drive-through windows and hot breakfast as well as lunch choices.Both companies have used these strategies in an attempt to adapt to the changing market; however, they are risky choices, since the companies are also moving away from the product and customer niches that they had traditionally mastered Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e 2ndpp *Pt3 Ch09.indd 351 17/6/11 11:49:21 AM www.downloadslide.com 352 part planning Discussion questions If you were the manager of or an adviser to Starbucks Australia, how could you use a SWOT analysis in deciding your strategy for the chain’s future in Australia? Prepare an abbreviated SWOT analysis for the organisation, using information from the case and your general knowledge of the coffee market in Australia You may find it useful to visit the home pages of Starbucks, McCafé and some of their competitors What competitive advantage(s) you think Starbucks and McCafé each have? Do you think, given your answer, that each chain’s strategy is appropriate? If you were asked to explain Starbucks’ strategy, how would you describe it? If you were asked to explain McCafé’s strategy, how would you describe it? Sources: Case developed based on information from Starbucks’ website, , February 2011; McDonald’s website, , February 2011; B Speedy, ‘US parent company keeping Starbucks Australia alive’, The Australian, 18 February 2010, p 21; J Lindhe, ‘One skinny cap to go’, BRW, August 2008, p 17; D Cooke, ‘American coffee culture gets roasted’, The Age, August 2008, p 13; N Wailes, ‘Taste of defeat for the mugs from Starbucks’, The Sydney Morning Herald, 31 July 2008, p 11; M Allison, ‘Schultz sure Starbucks will come out ahead’, The Seattle Times, 31 July 2008, p 4; D Emerson, ‘Hundreds of jobs lost as Starbucks shuts 61 shops’, The Age, 30 July 2008, p 3; M Bartiromo, ‘Howard Schultz on reinventing Starbucks’, BusinessWeek, 21 April 2008, pp 19–20; B Kiviat, ‘Wake up and sell the coffee’, Time South Pacific (Australia/New Zealand edition), April 2008, pp 52–6; and J Adamy, ‘McDonald’s takes on a weakened Starbucks’, The Wall Street Journal Online, , January 2008 Key terms BCG matrix (p 335) business model (p 325) capabilities (p 330) competitive advantage (p 337) competitive strategy (p 336) core competencies (p 331) corporate strategy (p 332) cost leadership strategy (p 339) differentiation strategy (p 340) first mover (p 345) focus strategy (p 340) functional strategy (p 340) growth strategy (p 333) mission (p 327) opportunities (p 329) related diversification (p 334) renewal strategies (p 335) resources (p 330) retrenchment strategy (p 335) stability strategy (p 334) strategic business units (SBUs) (p 337) strategic flexibility (p 342) strategic leadership (p 341) strategic management (p 324) strategic management process (p 327) strategies (p 324) strengths (p 331) stuck in the middle (p 340) SWOT analysis (p 331) threats (p 329) turnaround strategy (p 335) unrelated diversification (p 334) weaknesses (p 331) Endnotes This case is based on L Allen, ‘Veteran virgin’, Business Review Weekly, 25 November 2010, pp 28–-29; and M Coulthard and L Dooley (eds), Cases in International Business: Strategies for Internationalisation, (Prahran, Vic: Tilde University Press, Prahan, Vic, 2010) L Edwards, ‘New player joins petrol price war’, The Age, 30 September 2003, p Based on A.A Thompson, Jr, A.J Strickland III and J.E Gamble, Crafting and Executing Strategy, 14th edn (New York: McGraw-Hill Irwin, 2005) J Magretta, ‘Why business models matter’, Harvard Business Review, May 2002, pp 86–92 L Sinclair, ‘MasterChef sparks Coles sales surge’, The Australian, 21 June 2010 M Reimann, O Schilke and J.S Thomas, ‘Customer relationship management and firm performance: The mediating role of business strategy’, Journal of the Academy of Marketing Science, Summer 2010, pp 326–-46; J Aspara, J Hietanen and H Tikkanen, ‘Business model innovation vs replication: Financial performance implications of strategic Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e 2ndpp *Pt3 Ch09.indd 352 17/6/11 11:49:24 AM www.downloadslide.com strategic management emphases’, Journal of Strategic Marketing, February 2010, pp 39–56; J.C Short, D.J Ketchen Jr., T.B Palmer and G.T.M Hult, ‘Firm, strategic group, and industry influences on performance’, Strategic Management Journal, February 2007, pp 147–67; H.J Cho and V Pucik, ‘Relationship between innovativeness, quality, growth, profitability and market value’, Strategic Management Journal, June 2005, pp 555–75; W.F Joyce, ‘What really works’, Organizational Dynamics, May 2005, pp 118–29; M.A Roberto, ‘Strategic decision-making processes’, Group & Organization Management, December 2004, pp 625–58; A Carmeli and A Tischler, ‘The relationships between intangible organizational elements and organizational performance’, Strategic Management Journal, December 2004, pp 1257–78; D.J Ketchen, C.C Snow and V.L Street, ‘Improving firm performance by matching strategic decision-making processes to competitive dynamics’, Academy of Management Executive, November 2004, pp 29–43; and E.H Bowman and C.E Helfat, ‘Does corporate strategy matter?’, Strategic Management Journal, Vol 22, 2001, pp 1–23 This information came from S Dutta and I Mia, The Global Information Technology Report 2007–2008, World Economic Forum, ; D Uren, ‘China emerges as our biggest trade partner’, The Australian, May 2010; and W Cole, S Steptoe and S.S Dale, ‘The multitasking generation’, Time, 27 March 2006, pp 48–55 S Bowles, ‘What, movies worry?’, USA Today, 20 March 2006, pp 1B+; S Waxman, ‘When moviegoers vote with their feet’, The New York Times Online, , 16 March 2006; R Levine, ‘Can theaters thrive in another dimension?’, Business 2.0, March 2006, p 38; D Leonhardt, ‘Change ahead for a theater near you’, The New York Times Online, , 15 February 2006; A Breznican and G Strauss, ‘Where have all the moviegoers gone?’, USA Today, 23 June 2005, pp 1B+; and R Chittum, ‘The show before the movie’, The Wall Street Journal, 15 June 2005, pp B1+ C.K Prahalad and G Hamel, ‘The core competence of the corporation’, Harvard Business Review, May–June 1990, pp 79–91 10 A Taylor, ‘How Toyota does it’, Fortune, March 2006, pp 107–24; C Woodyard, ‘Slow and steady drives Toyota’s growth’, USA Today, 21 December 2005, pp 1B+; I.M Kunii, C Dawson and C Palmeri, ‘Toyota is way ahead of the hybrid pack’, BusinessWeek, May 2003, p 48; and S Spear and H.K Bowen, ‘Decoding the DNA of the Toyota production system’, Harvard Business Review, September–October 1999, pp 96–106 See, for example, Cho and Pucik, ‘Relationship between innovativeness, quality, growth, profitability and market value’; W.F Joyce, ‘Building the 4+2 organization’, Organizational Dynamics, May 2005, pp 118–29; and R.S Kaplan and D.P Norton, ‘Measuring the strategic readiness of intangible assets’, Harvard Business Review, February 2004, pp 52–63 11 chapter 353 12 J.P Kotter and J.L Heskett, Corporate Culture and Performance (New York: The Free Press, 1992) 13 K.E Klein, ‘Slogans that are the real thing’, BusinessWeek Online, , August 2005; and T Mucha, ‘The payoff for trying harder’, Business 2.0, July 2002, pp 84–5 14 E Greenblat, ‘Foster’s picks plum sectors’, The Age, 13 October 2010, p B8 15 H Quarls, T Pernsteiner and K Rangan, ‘Love your dogs’, Strategy & Business, Spring 2006, pp 58–65; and P Haspeslagh, ‘Portfolio planning: Uses and limits’, Harvard Business Review, January–February 1982, pp 58–73 16 Perspective on Experience (Boston, MA: Boston Consulting Group, 1970) 17 J.B Barney, ‘Looking inside for competitive advantage’, Academy of Management Executive, November 1995, pp 49–61; 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and M Esterl, ‘Marine park operator faces a big dilemma’, The Wall Street Journal, March 2010, p A6 Photo credits 323 AFP PHOTO/AAP; 325 AAP Image/Fooderati, Melissa Leong; 327 Photo Copyright Jimmy Possum 2011 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e 2ndpp *Pt3 Ch09.indd 354 17/6/11 11:49:26 AM ... vii 10 9 10 9 11 0 11 3 11 4 11 4 11 5 11 5 11 6 11 7 11 7 12 1 12 3 12 3 12 6 12 6 12 9 13 1 13 1 13 2 13 3 13 3 13 6 13 7 13 8 13 9 14 0 14 2 14 4 14 4 14 5 14 6 14 9 15 1 15 2 15 3 15 5 15 6 15 7 15 7 15 8 15 8 Copyright © Pearson Australia... 407 408 410 411 411 412 412 413 414 414 415 417 418 418 418 419 419 420 420 422 423 423 426 427 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2 012 – 97 814 42538603... xiii 678 679 6 81 682 682 682 683 683 684 685 687 689 689 692 692 693 694 696 697 697 698 699 699 699 7 01 703 704 705 705 706 708 710 711 711 713 713 714 714 714 715 716 716 718 719 733 Copyright