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Chapter 6: Organizational Strategy
Pedagogy Map
This chapter begins with the learning outcome summaries and terms covered in the chapter, followed by a
set of lesson plans for you to use to deliver the content in Chapter 6.
• Lesson Plan for Lecture (for large sections)
• Lesson Plan for Group Work (for smaller classes)
• Assignments with Teaching Tips and Solutions
 What Would You Do Case Assignment – Walt Disney Company
 Self-Assessment – Strategy Questionnaire
 Management Decision – Dealing with Competition
 Management Team Decision – A New Strategy for India?
 Practice Being a Manager – Most Likely to Succeed
 Develop Your Career Potential – Individual SWOT Analysis
 Reel to Real Video Assignment – Biz Flix clip on Field of Dreams
 Reel to Real Video assignment – Management Workplace on Theo Chocolate
 Review Questions
 Additional Activities and Assignments
Highlighted Assignments Key Points

What Would You Do? The Walt Disney Company must resolve several strategic
questions as it faces struggling brands and products.
Self-Assessment Students assess how comfortable they are competing and
being in competitive environments.
Management Decision Students are asked to consider how a company should
respond to a competitor’s decision to sell soft drinks in
schools.
Management Team Decision A management team must decide if a cell phone company
needs to adopt a new strategy for selling cell phones in India.
Practice Being a Manager Students consider competitive advantage as they work to win
a “Most Likely to Succeed” award.
Develop Your Career Potential Conducting an individual SWOT analysis can help students
plan their future.
118 Chapter 6: Organizational Strategy

Reel to Real Video Assignment – In Field of Dreams, Ray Kinsella jeopardizes his farm by
Biz Flix plowing under a cornfield to create a baseball diamond after
hearing a voice that says, “If you build it, he will come.”
Reel to Real Video Assignment – Though Theo Chocolates’ products were well-received by
Management Workplace critics and organic food enthusiasts, it was not liked by
general consumers, leading founder Joe Whinney to come up
with a new strategy.
Supplemental Resources Where to Find Them

Course Pre-Assessment IRCD
Course Post-Assessment IRCD
PowerPoint slides with lecture notes IRCD and online
Who Wants to Be a Manager game IRCD and online
Test Bank IRCD and online
Learning Outcomes
1 Specify the components of sustainable competitive advantage and explain why it is

important.
Firms can use their resources to create and sustain a competitive advantage, that is, to provide greater
value for customers than competitors can. A competitive advantage becomes sustainable when other
companies cannot duplicate the benefits it provides and have, for now, stopped trying.
2 Describe the steps involved in the strategy-making process.
The first step in strategy making is determining whether a strategy needs to be changed to sustain a
competitive advantage. The second step is to conduct a situational analysis that examines internal
strengths and weaknesses as well as external threats and opportunities. In the third step of strategy
making, Strategic Reference Point Theory suggests that when companies are performing better than their
strategic reference points, top management will typically choose a risk-averse strategy. When
performance is below strategic reference points, risk-seeking strategies are more likely to be chosen.
3 Explain the different kinds of corporate-level strategies.
Corporate-level strategies such as portfolio strategy and the grand strategies help managers determine
what businesses they should be in. Portfolio strategy focuses on lowering business risk by being in
multiple, unrelated businesses and by investing the cash flows from slow-growth businesses into faster-
growing businesses. One portfolio strategy is the BCG matrix. The most successful way to use the
portfolio approach to corporate strategy is to reduce risk through related diversification.
The three kinds of grand strategies are growth, stability, and retrenchment/recovery. Companies can
grow externally by merging with or acquiring other companies, or they can grow internally through direct
expansion or creating new businesses. Companies choose a stability strategy when their external
environment changes very little or after they have dealt with periods of explosive growth. Retrenchment
strategy, shrinking the size or scope of a business, is used to turn around poor performance. If
retrenchment works, it is often followed by a recovery strategy that focuses on growing the business
again.
4 Describe the different kinds of industry-level strategies.
Chapter 6: Organizational Strategy 119

Industry-level strategies focus on how companies choose to compete in their industry. Five industry
forces determine an industry’s overall attractiveness to corporate investors and its potential for long-term
profitability. Together, a high level of these elements combines to increase competition and decrease
profits. Positioning strategies (cost leadership, differentiation, focus) can help companies protect
themselves from the negative effects of industry-wide competition. The four adaptive strategies help
companies adapt to changes in the external environment. Defenders want to defend their current strategic
positions. Prospectors look for new market opportunities by bringing innovative new products to market.
Analyzers minimize risk by following the proven successes of prospectors. Reactors do not follow a
consistent strategy but instead react to changes in their external environment after they occur.
5 Explain the components and kinds of firm-level strategies.
Firm-level strategies are concerned with direct competition between firms. Market commonality and
resource similarity determine whether firms are in direct competition and thus likely to attack each other
or respond to each other’s attacks. In general, the more markets in which there is product, service, or
customer overlap, and the greater the resource similarity between two firms, the more intense the direct
competition between them. Market entries and exits are the most important kinds of attacks and
responses.
Terms
acquisition diversification resources
analyzers dog response
attack firm-level strategy retrenchment strategy
bargaining power of buyers focus strategy secondary firms
bargaining power of supplies grand strategy situational (SWOT) analysis
BCG matrix growth strategy stability strategy
cash cow imperfectly imitable resources star
character of the rivalry industry-level strategy strategic dissonance
competitive advantage market commonality strategic group
competitive inertia nonsubstitutable resources strategic reference points
core capabilities portfolio strategy sustainable competitive
core firms prospectors advantage
corporate-level strategy question mark threat of new entrants
cost leadership rare resource threat of substitute products
defenders reactors or service
differentiation recovery unrelated diversification
direct competition related diversification valuable resources
distinctive competence resource similarity
Lesson Plan for Lecture
Pre-Class Prep for You: Pre-Class Prep for Your Students:

• Review chapter and determine what points to • Bring book.
cover.
• Bring PPT slides.

Warm Up Begin Chapter 6 by asking your students the following questions: “Name a company
that has a strategic competitive advantage?” Then push them to articulate what they
think gives that company a strategic advantage.
Content Lecture slides: Make note of where you stop so you can pick up at the next class
Delivery meeting. Slides have teaching notes on them to help you as you lecture.
Topics PowerPoint Slides Activities

Basics of Organizational 1: Organizational Ask students to respond to
Strategy Strategy this statement: Sustainable
1 Sustainable 2: What Would You Do? competitive advantage only
Competitive 3: Basics of functions well as a theory
Advantage Organizational Strategy and are impossible in
4: Sustainable practice.
Competitive Advantage
5: Sustainable
Competitive Advantage
6: Requirements for
Sustainable Competitive
Advantage
2 Strategy-Making 7: Strategy-Making
Process Process
2.1 Assessing the 8: Assessing Need for Use your college’s sports
Need for Strategic Strategic Change conference to illustrate
Change 9: Situational Analysis strategic groups (core
2.2 Situational 10: Situational Analysis rivalries/competitors,
Analysis 11: Strategic Groups secondary schools,
2.3 Choosing 12: Choosing Strategic transient schools).
Strategic Alternatives
Alternatives 13: Strategic Reference
Points
Corporate-, Industry-, 14: Corporate, Industry,

and Firm-Level and Firm-Level
Strategies Strategies
3 Corporate-Level 15: Corporate-Level
Strategies Strategies
3.1 Portfolio 16: Corporate-Level
3.2 Grand Strategies
17: BCG Matrix
18: Diversification and
Risk
19: Problems with
Portfolio Strategy
20: Grand Strategies
4 Industry-Level 21: Industry-Level The adaptive strategy of

Strategies Strategies prospectors pushes
4.1 Five Industry 22: Porter’s Five Industry managers to think about the
Forces Forces future. Ask students, “What
4.2 Positioning 23: Positioning Strategies are the advantages and
Strategies 24: Adaptive Strategies

4.3 Adaptive disadvantages of belonging
Strategies to the party of the future?”
5 Firm-Level Strategies 25: Firm-Level Strategies Managers often visit

5.1 Direct 26: Firm-Level Strategies competitors’ stores or
Competition 27: Direct Competition consume competitors’
5.2 Strategic Moves 28: Strategic Moves of products or services in
of Direct Direct Competition order to benchmark their
Competition 29: Entrepreneurship and own performance. Ask
5.3 Entrepreneurship Intrapreneurship students, “Do you do any
and 30: Key Dimensions benchmarking in order to
Intrapreneurship: 31: Bix Flix – Field of boost your performance as
Entering New Dreams a student, an athlete, or
Markets 32: Management hobbyist of any sort? What
Workplace – Theo do you do and how does it
Chocolate help?”
Adjust lecture to include the activities in the right column. *Some activities should be
done before introducing the concept, some after.
Conclusion Assignments:
and 1. Assign students to diagram the framework of direct competition for the movie
Preview rental industry. Students first need to create the list of companies to plot – like
Netflix, Intelliflix, Blockbuster, Hollywood, on-demand cable movies,
Movielink (downloadable movies), and even TiVo.
2. Assign students to complete the Management Decision about Scotts Miracle
Gro, maker of lawn fertilizers and plant foods.
3. Assign students to review Chapter 6 and read the next chapter on your syllabus.
Remind students about any upcoming events.
Lesson Plan for Group Work
Pre-Class Prep for You: Pre-Class Prep for Your Students:

• Review material to cover and modify lesson • Bring book.
plan to meet your needs.
• Set up the classroom so that small groups of
4-5 students can sit together.
Warm Up Begin Chapter 6 by asking your students to name a company they think has a
sustainable competitive advantage. For each company they name, have them say why
they think that company has a sustainable advantage.
Content Lecture on Sustainable Competitive Advantage (Section 1).

Delivery
Break for group activity:

“iPod Advantage / Sirius Advantage”
Divide the class into small groups (3-4 students) and have them think about digital
music players or satellite radio. Whichever industry they choose, have them list the
companies operating in that space (there will be more for digital music players than
for satellite radio) and determine if they think any one company in particular has a
sustainable competitive advantage. If they decide “no,” then tell them to push harder
to decide if a company used to have an advantage and lost it (why); or if a company
is poised to create one (how).
Lecture on the Strategy-Making Process (Section 2).
“Even if companies can’t produce a sustainable competitive advantage, that doesn’t

mean that their strategy-making process is flawed. As you learned in Chapter 3, the
external environment (not to mention the internal environment) is dynamic and can
force companies to meet rapidly changing demands.”
Break for group activity:
“Risky Business”
Divide the class into small groups of 3 to 4 students and tell each group that it
represents the management team of a locally owned and operated water park, The
Beach, which has been in business for 15 years.* Revenues are $5 million per season;
equipment is neither new nor old; the company has little debt service, a good
reputation in the community, and a flood of job applicants each summer. Next
season, however, the Paramount’s King’s Island amusement park across the highway
is adding a water park to its traditional thrill ride attractions. Conduct a quick
situational analysis and then determine which strategic alternatives will help the
company create or maintain its competitive advantage.
*The Beach actually faced this strategic challenge in the late 1990’s.
Come back together as a class to share results from the group activity.
Segue into a lecture on Corporate-Level Strategies – Portfolio Strategy (Section 3.1).
Break for the following activity:
“Portfolio Strategy”
Divide the class into groups of 2-3 students to map the portfolio of a well-known,
diversified company such as Disney, Procter & Gamble, or HBO. Before doing the
exercise in class, check out a set of annual reports from the campus library. (If that is
not feasible, at least research the latest annual report for the company(ies) you want
students to work on and make lists of the various divisions.) Give each student group
an annual report and have students use their books to create a diagram of the
company’s portfolio. Ideally, students will be able to tell from the report how each
division is performing. If that is not possible, have them estimate. If you teach in an
electronic classroom, you can increase the group size and have students consult
online annual reports online directly from class.
Remind students of the disadvantages with portfolio strategy, and move into a
discussion of grand strategies (3.2).
Lecture on Industry- and Firm-Level Strategies (Sections 4-5).

As you move through the section on direct competition, refer back to the activity with
The Beach and Paramount’s King’s Island. Use it as a basis for talking about direct
competition and the strategic moves of direct competition. Other good examples
include:
• XM Satellite and Sirius because they are the only two companies in a newly
defined industry, which itself is competing with traditional broadcast radio
• Dell, H-P, Apple, Sony (computers)
• GM, Ford, Chrysler, Hyundai, Kia, Toyota, Honda, Volkswagen
• Coke, Pepsi, 7Up/Dr. Pepper, Jones Soda, Snapple, Red Bull
“Framework for Direct Competition”

Divide students into small groups of 3-4 students and have them diagram the
framework of direct competition for the movie rental industry. Have students create
the list of companies to plot. If they have trouble, suggest Netflix, Intelliflix,
Blockbuster, Hollywood, on-demand cable movies, Movielink (downloadable
movies), and even TiVo.
Conclusion Assignments:
and 1. As an assignment, have students do the Management Decision on Scotts Miracle
Preview Gro, makers of lawn fertilizers and plant food. Consider having students create a
framework of direct competition OR a strategic grouping for Scotts and its lawn
chemical industry.
2. If you have finished covering Chapter 6, assign students to review the chapter
and read the next chapter on your syllabus.
Remind students about any upcoming events.
Assignment Teaching Tips and Solutions
Case Assignment - What Would You Do?

[insert wwyd text]
What Really Happened? Solution
WALT DISNEY COMPANY

In the case, you learned that Disney’s acquisition of Pixar Studios was the key factor in saving Disney’s
animated film business, which had struggled and lost money over the last decade. While giving Pixar
total control over Disney animated film turned around that part of Disney’s business, the other parts of
Disney – films, consumer products, media networks, and online, mobile, and video games – consistently
underperformed expectations. In general, Disney products were seen as “too old” because of aging
characters like Mickey Mouse and Winnie-the-Pooh, or “too young,” because they only appealed to very
young children. Let’s find out what happened at Disney and see what strategic plans and steps CEO Bob
Iger took to improve Disney’s competitive position.
With many of Disney’s brands and products clearly suffering, you face a basic decision. Should Disney
grow, stabilize or retrench? Disney is an entertainment conglomerate with Walt Disney Studios (films),
parks and resorts (including Disney Cruise lines and vacations), consumer products (i.e., toys, clothing,
books, magazines, and merchandise), and media networks such as TV (ABC, ESPN, shows and channels

(ABC, ESPN, Disney Channels, ABC Family), radio, and the Disney Interactive Media Group (online,
mobile, and video games and products). If Disney should grow, where? Like Pixar, is another strategic
acquisition necessary? If so, who? If stability, how do you improve quality to keep doing what Disney
has been doing, but even better? Finally, retrenchment would mean shrinking Disney’s size and scope. If
you were to do this, what divisions would you shrink or sell?
The purpose of a growth strategy is to increase profits, revenues, market share, or the number of
places (stores, offices, locations) in which a company does business. Companies can grow externally by
merging with or acquiring other companies in the same or different businesses. Or, they can grow
internally, directly expanding the company’s existing business or creating and growing new businesses.
The purpose of a stability strategy is to continue doing what the company has been doing, just doing it
better. Companies following a stability strategy try to improve the way in which they sell the same
products or services to the same customers. The purpose of a retrenchment strategy is to turn around very
poor company performance by shrinking the size or scope of the business or, if a company is in multiple
businesses, by closing or shutting down different lines of the business. The first step of a typical
retrenchment strategy might include making significant cost reductions; laying off employees; closing
poorly performing stores, offices, or manufacturing plants; or closing or selling entire lines of products or
services. After cutting costs and reducing a business’s size or scope, the second step in a retrenchment
strategy is recovery. Recovery consists of the strategic actions that a company takes to return to a growth
strategy.
Should Disney grow, stabilize or retrench? Soon after Bob Iger became CEO, Disney found itself in
the midst of a deep, global economic recession. Disney Films, which had been profitable, saw revenues
drop 12% with a $12 million loss just a year after earning $97 million in profit. At Disney’s TV
networks, operating income fell by 34% as the number of viewers aged 18-to-49 dropped by 9.7%.
So, faced with losses and decreasing revenues, Iger employed a retrenchment strategy. For example,
with operating income also down sharply at Disney parks and resorts, Disney offered voluntary buyouts
to 600 executives, hoping to significantly cut costs. Chair of the parks and resorts unit, Jay Rasulo,
indicated that the cuts would help build “an organization and cost structure that meet today’s economic
realities.” Likewise, further savings were achieved by consolidating departments, such as the menu
planning departments at Disney Land in California and the menu planning department at Disney World in
Florida, into one department to serve both parks.
While the first step of retrenchment includes significant cost reductions, the next step is recovery,
taking strategic actions to return to a growth strategy. Indeed, after cutting costs, Iger “doubled down” on
investments in theme parks, technology, and construction, all intended to return Disney to aggressive
growth. Said Iger, “In some cases we started [building and investing] before the recession, and some
cases we were in it. Our construction costs have tended to be lower because we built in the downturn.”
Iger reasoned that long-term Disney couldn’t afford to pass up the significantly lower costs for
construction and expensive assets like cruise ships brought about by the recession. So, in the midst of the
recession, the company invested millions in the Disney Dream, a brand new cruise ship, $1 billion to
Disney’s California Adventure park (next door to Disney Land), and then spent billions more to expand
Hong Kong Disney Land, as well as a new Disney resort in Hawaii.
While those investments were intended to grow Disney organically, that is, to create growth in current
lines of business, Disney spent $4.3 billion to buy Marvel Entertainment, home to well know Comic book
heroes such as X-Men, Captain America, Iron Man, and Thor, and $563 million to buy Playdom, a
company which makes games for Facebook users. When it comes to Marvel Entertainment, Iger
explained, “We’ve taken back distribution, or bought back distribution from [Viacom Inc.'s] Paramount,
for some critical franchises. Notably, Iron Man will be distributed by us, and Avengers. We're developing
three live-action series for ABC and ABC Family. You can buy Marvel products at Disney stores. And
we're working on Marvel games.”
Disney’s acquisition of Playdom helps the company in terms of technology and online games. Iger
noted that, “Playdom gives us access to technology and to experience in a space that we felt we wanted

and needed to be in. We did not have that expertise in the company, and we felt that bringing it into the
company through an acquisition would get us there much faster than doing it organically.”
Next, given the number of different entertainment areas that Disney has, what business is Disney really
in? Is Disney a content business, creating characters and stories? Or is it a technology/distribution
business that simply needs to find ways to buy content wherever it can, for example, buying Pixar, and
then delivering that content in ways that customers want (i.e., DVDs, cable channels, iTunes, Netflix,
social media, Internet TV, etc.)?
Corporate-level strategy is the overall organizational strategy that addresses the question “What
business or businesses are we in or should we be in?”There are two major approaches to corporate-level
strategy, portfolio strategy and grand strategies, the latter of which is also discussed in question 3.
Corporate-level strategies such as portfolio strategy and grand strategies help managers determine
what businesses they should be in. Portfolio strategy focuses on lowering business risk by being in
multiple, unrelated businesses and by investing the cash flows from slow-growth businesses into faster-
growing businesses. One portfolio strategy, the BCG matrix, suggests that cash flows from cash cows
should be reinvested in stars and in carefully chosen question marks. Dogs should be sold or liquidated.
Portfolio strategy has several problems, however. Acquiring unrelated businesses, however, actually
increases risk rather than lowering it. The BCG matrix is often wrong when predicting companies’ futures
(as dogs or cash cows, for example). And redirecting cash flows can seriously weaken cash cows. The
most successful way to use the portfolio approach to corporate strategy is to reduce risk through related
diversification.
A grand strategy is a broad strategic plan used to help an organization achieve its strategic goals.
Grand strategies guide the strategic alternatives that managers of individual businesses or subunits may
use in deciding what businesses they should be in. As discussed in question 1, there are three kinds of
grand strategies: growth, stability, and retrenchment/recovery.
Disney is an entertainment conglomerate with Walt Disney Studios (films), parks and resorts
(including Disney Cruise lines and vacations), consumer products (i.e., toys, clothing, books, magazines,
and merchandise), and media networks such as TV (ABC, ESPN, shows and channels (ABC, ESPN,
Disney Channels, ABC Family), radio, and the Disney Interactive Media Group (online, mobile, and
video games and products). Given the number of different entertainment areas that Disney has, what
business is Disney really in? Is Disney a content business, creating characters and stories? Or is it a
technology/distribution business that simply needs to find ways to buy content wherever it can, for
example, buying Pixar, and then delivering that content in ways that customers want (i.e., DVDs, cable
channels, iTunes, Netflix, social media, Internet TV, etc.)?
Disney, says Iger, is in the content business, and that creative content, not distribution, is Disney’s
“heart and soul.” “My goal is to make more great content, deliver it to more people, in more places, more
often.” Creating content in the form of storytelling, not technology, is why Disney bought Pixar Studies.
Pixar president Ed Catmull says, “We won’t let anything get ahead of the quality of the story.” That’s
also why Disney gave Catmull and Pixar control over Disney’s animation unit. Disney’s animated films
were still visually compelling, but their stories and character development were no longer compelling. By
contrast, at Pixar, content is more important than animation, and that’s reflected in Pixar staff members
holding regular meetings to critique and improve plot lines and characters across all of Pixar’s movie
projects.
Finally, from a strategic perspective, how should Disney’s different entertainment areas be managed?
Should there be one grand strategy (i.e., growth, stability, retrenchment) that every division follows, or
should each division have a focused strategy for its own market and customers? Likewise, how much
discretion should division managers have to set and execute their strategies, or does that need to be
controlled and approved centrally by the strategic planning department at Disney headquarters?

As mentioned in question 2, a grand strategy is a broad strategic plan used to help an organization
achieve its strategic goals. Grand strategies guide the strategic alternatives that managers of individual
businesses or subunits may use in deciding what businesses they should be in. As discussed in question 1,
there are generally three kinds of grand strategies: growth, stability, and retrenchment/recovery. Rather
than using just one broad strategic plan to achieve its organizational goals, Disney, however, used two of
those, growth and retrenchment/recovery.
So, does that mean that Disney doesn’t have a grand strategy? No. Disney does in fact possess a
grand strategy, but it not based on growth, stability, or retrenchment/recovery. Instead, Disney’s grand
strategy is to manage its portfolio of brands in an integrative way, but differently from the ideas suggested
in portfolio theory. An example is the best way to illustrate this.
It was a textbook example of the "Disney way" of doing business: a new movie that set off a fountain
of spinoffs. There was a theme-park attraction, a series of Simon & Schuster books, a soundtrack
album and a line of toys and childrens' clothing featuring the beloved heroine. To make sure kids
knew about the movie, Disney script writers planted repeated references to it in the company's
television shows.
No, this isn’t just the well-recognized strategy that Disney used with Toy Story 3, the release of the first
Winnie the Pooh movie in 50 years, or The Pirates of the Caribbean: On Stranger Tides, it’s the strategy
that Disney used in 1958 to promote and profit from its classic animated movie, Sleeping Beauty. As then
Disney President Roy Disney explained, “Our diversified activities are related and tend to complement
each other,” adding, “Integration is the key word around here. We don't do anything in one line without
giving a thought to its likely profitability in our other lines.” That was Disney’s strategy for decades, a
strategy from which it strayed, and the strategy to which Disney returned under CEO Bob Iger.
Iger, however, added one important dimension to Disney’s integrative portfolio strategy, brand
management. Each successful Disney movie (Beauty and the Beast), TV show (High School Musical), or
character (Winnie the Pooh) is a Disney brand. And, at Disney, under Iger, the strategy is to manage and
integrate those brands across the different parts of Disney’s businesses. Iger explains how it works:
These great character franchises were all brands unto themselves. But nobody was really
managing those brands, and decisions were being made in a vacuum. So if we determine that Toy
Story is a real franchise for the company, then Toy Story should get made. Now, you still have to
have a great story and great execution-and in the absence of that, you shouldn't make it. And not
everything has to be a franchise. I was recently asked whether Ratatouille was a franchise. I said
no: Ratatouille is an extremely good animated film and will be a classic unto itself, but it is not a
franchise. You are not going to see Ratatouille attractions in parks. When you look at Toy Story,
we're making our third film, we're opening two Toy Story Mania attractions at parks this summer,
we have a very strong consumer products line, we have a Toy Story musical opening on the cruise
line, we have a game in development-that's a franchise.
So, with an integrative strategy that leverages key brands across Disney’s various businesses, how much
discretion are Disney’s division managers given to execute their strategies? On first thought, it would
seem that Disney’s strategic planning department would keep a tight rein to effectively execute the
company’s integrated strategy. CEO Iger, explains that he and his top executives drive and control this
process. Says Iger, “We get together about every six weeks with the heads of the Disney business units.
Sometimes we'll even focus on a market-say, what's going on in Japan with Pooh? We've also created
financial metrics to track them against each franchise so we can see what's going on financially. If we see
a trend that is worrisome-or the opposite-we bring it up at this meeting.”
That tight integration, however, is balanced by tremendous creative autonomy for Disney’s division
managers and content creators. Remember, first and foremost, Disney is in the business of creating
content. And that means that the people managing content creation or the divisions where content is
created have to have the freedom to develop great stories and strong characters. Steve Jobs, Apple
Computer’s CEO, and former CEO of Pixar Studios explains that when Iger became CEO, “Disney was
really messed up. Bob looked at the guys running the divisions and said, ‘You're in charge of your
businesses now.’” Because of this critical issue, one of the first steps Iger took as CEO was to disband
Disney’s long-standing strategic planning department.
Sources: D. Fonda, L. Locke, J. Ressner, & R. Corliss, “When Woody Met Mickey,” Time, 6 February 2006, 46-47;
R. Grover, “How Bob Iger Unchained Disney,” BusinessWeek, 5 February 2007, 74-79; M. Gunther & C. Hajim,
“The Iger Sanction,” Fortune, 23 January 2006, 47-50; M. Marr, “Better Mousetrap: In Shakeup, Disney Rethinks
How It Reaches Audiences; Iger Seeks High-Tech Delivery Of Movies, TV Shows; Theater Owners Worry;
'Housewives' on a Handheld,” Wall Street Journal, 1 October 2005, A1; B. Orwall& E. Nelson, “Small World:
Hidden Wall Shields Disney's Kingdom: 80 Years of Culture; For Comcast or Any Suitor, Mastering Insular Ways
Would Be Daunting Job; Walking in Mickey's Shoes,” Wall Street Journal, 13 February 2004, A1; P. Sanders,
“Corporate News: Disney Plans To Reduce Staff At Theme Parks,” Wall Street Journal, 19 February 2009, B2; R.
Siklos, “Q&A, The Iger Difference,” Fortune, 28 April 2008, 90-94; R. Siklos, “Bob Iger Rocks Disney,” Fortune,
19 January 2009, 80-86; T. Stanley, “Iger Needs Superpowers for Quick Fix at Disney,” Advertising Age, 21 March
2005, 33-34.
Self-Assessment
STRATEGY QUESTIONNAIRE
In-Class Use
Have students open their books to page 234 of the text and give them 5 to 7 minutes to complete the
inventory. Use the Self-Assessment PowerPoint slides and have students raise their hands as you read off
the scoring ranges. Tell students to keep their hand up until you have counted the responses for each item
and entered the count into the spreadsheet embedded in the PowerPoint presentation. Display the
distribution to the class so students can see where they fit.
Scoring
The inventory is a competitiveness index designed to determine interpersonal competitiveness in
everyday contexts. For women, a 6 would be a low score and a 14 would be a high score. The average
score for women is 9.52. For men, 7 would be a low score and 15 would be a high score. The average
score for men is 12.06.
Management Decision
DEALING WITH COMPETITION
Purpose
The purpose of this activity is to push students to think about how companies respond to the decisions
made by their closest competitors.
Setting It Up
This activity works well as either a paired or individual activity. For more background information, ask
students to research Coca-Cola’s and Pepsi’s sales and revenues in primary and secondary schools.
Questions
1. Using Porter’s five industry forces, map the soft-drink industry.
According to Michael Porter, five industry forces determine an industry’s overall attractiveness and
potential for long-term profitability. These are the character of the rivalry, the threat of new entrants,
the threat of substitute products or services, the bargaining power of suppliers, and the bargaining

power of buyers.
The character of the rivalry between Pepsi and Coca-Cola is very strong, since each represents the
other’s main competition not just in the primary and secondary school market, but in virtually every
beverage market around the world. The rivalry between the two companies is marked by near-
constant moves against each other, whether it’s responding to an innovative product, or as described
in the case, responding to a strategic decision. Because Pepsi and Coca-Cola are so dominant in the
market, the threat of new entrants is somewhat high. Any company that wants to introduce a new soft-
drink will face enormous competition from both Coca-Cola and Pepsi products, which are known and
sold all over the world. What is more, a new beverage company must also invest heavily in
production, warehouse, transportation, and marketing to insure that its product gets made and placed
in enough stores. The threat of substitute products or services is also high in the soft-drink industry.
For people who don’t like Coca-Cola, there is Pepsi, or dozens of other cola drinks. For people who
don’t like Gatorade, there is Vitaminwater or PowerAde. In other words, consumers have many
choices among similar soft-drink products. It should be noted, however, that many consumers are
likely to point out that similar products are not identical; that is, that Coca-Cola is in fact not a
substitute for Pepsi and vice versa. Finally, with regard to bargaining power, the bargaining power of
suppliers is moderately high. Though no one soft-drink company has total control over the market,
they have developed enough brand loyalty that consumers will be very disappointed if a particular
retailer no longer carries, for example, Dr. Pepper or Mr. Pibb. Therefore, it is in the best interest of
retailers to cater to soft-drink suppliers. As for the bargaining power of buyers, this force is low, since
no soft-drink company sells just to one or two exclusive customer groups.
2. What are the risks and opportunities of the strategies followed by Pepsi? Of Coca-Cola?
For Pepsi, the primary benefit of its decision not to sell is developing the reputation that it cares about
public-health issues and is taking an active role in insuring that children get a proper diet. Even
though it will see a decrease in sales, its public reputation for doing the right thing will increase. The
greatest risk, of course, is decreased sales and revenues. By pulling out of an entire market segment,
Pepsi will no doubt lose a tremendous amount of sales since soft drinks seem to be so popular in
primary and secondary schools. For Coca-Cola, the primary benefit and risk are the exact opposite of
Pepsi’s. Coca-Cola will likely benefit from increased sales of its drinks since students will only have
access to low-calorie products from Pepsi. Additionally, Coca-Cola’s market share is likely to grow
since Pepsi is no longer a factor in schools all over the world. However, it faces the risk of growing a
negative public reputation that it cares more about making money than looking out for children’s
health.
3. How would you respond to Coca-Cola’s change in sales policy? How would you ensure Pepsi’s board
that this response will allow you to remain competitive and profitable?
The text defines a “response” as a countermove, prompted by a rival’s attack, that is designed to
defend or improve a company’s market share or profit. The two methods of responding are to either
mirror the rival moves or to respond along a different dimension. Thus, students’ responses should be
formed along one of those two choices—either Pepsi backtracks on its decision and decides to start
selling in schools again, or it finds a new way to make up for lost sales and revenues.
Management Team Decision

A NEW STRATEGY FOR INDIA?
Purpose
In this case, students are asked to decide how what a global company should do to increase its sales in a
foreign market. The most cost effective way to do global business is to sell the same product line in all of
the different markets. This approach, however, can be risky, since different consumers in different
markets may not be attracted to the same products.
Setting It Up
A creative way to introduce this case to students would be to show them pictures of various products sold
in other countries. Examples might include food products or clothing that are generally unknown to
American consumers. After showing them the pictures, ask students “What would a company have to do
to get you to buy these products?”
Questions
1. What do you think would be more effective strategy for Nokia to respond to Micromax –
differentiate itself from Micromax or replicate what it is doing?
Students’ responses will vary.
2. How could a shadow strategy task force help Nokia identify the best way to proceed?
A shadow-strategy task force actively seeks out its own company’s weaknesses and then, thinking
like a competitor, determines how other companies could exploit them for competitive advantage.
If Nokia were to use this approach, it would take a very critical look at its product line and, rather
than trying to accentuate the positives, look for any negatives that might turn potential consumers
away. By analyzing the negatives, Nokia would get a better understanding of why it is failing and
what steps it could take to turn things around.
3. What positioning strategy should Nokia use to gain an advantage against Micromax and other
competitors?
Students’ responses will vary, but they should choose one of the three positioning strategies in the
text and discuss why it is the best option for Nokia’s efforts in India. There are three positioning
strategies: cost leadership, differentiation, and focus. Cost leadership means producing a product
or service of acceptable quality at consistently lower production costs than competitors so that the
firm can offer the product or service at the lowest price in the industry. It should be noted,
however, that Micromax and other competitors already have extremely low price points, which
means that there may be little room for Nokia to cut prices without risking its margin.
Differentiation means making your product or service sufficiently different from competitors’
offerings so that customers are willing to pay a premium price for the extra value or performance
that it provides. Again, this approach is difficult because a key part of Micromax’s success is its
ability to understand and deliver what Indian consumers want. With a focus strategy, a company
uses either cost leadership or differentiation to produce a specialized product or service for a
limited, specially targeted group of customers in a particular geographic region or market
segment. Taking this approach, Nokia would try to reach only a limited segment of the consumer
base, perhaps businessmen or executives who need smartphone capabilities that other competitors
don’t offer. Again, though, this approach is risky because it makes little effort to reach a broader
consumer base.
Practice Being a Manager
MOST LIKELY TO SUCCEED
Exercise Overview and Objective

The objective of this exercise is to apply the concepts of sustainable competitive advantage and strategic
groups in a setting familiar to students—the local restaurant market. Student work groups will each
develop a restaurant concept (name; description of menu, layout, and any other distinguishing features;
and likely direct competitors with your new concept). A judging team will listen to brief concept

presentations by each work group and select the concept(s) most likely to succeed. The class will then
debrief on the topics of sustainable competitive advantage and strategic groups.
Preparation
This exercise will work best if students are encouraged to give some attention to the local restaurant
market in advance of conducting the exercise. You may stimulate such attention a session or two before
conducting the exercise by asking students to consider the following three (3) items:
• Are you aware of any restaurants in our (local) market that have failed/closed over the past few
years? If so, why do you think that these restaurants failed/closed?
• What restaurants are highly successful in our (local) market? What factors do you think account
for their success? Have any of these restaurants been successful for more than five (5) years?
• Pick two local restaurants that are quite different from one another in terms of menu, pricing,
and/or atmosphere. Try to identify the direct competitors (strategic group) for each of these
restaurants.
These three items should help students begin to think about factors that might play a role in determining
competitive success (sustainable competitive advantage) or failure. The last bulleted item should help
students to begin to see strategic groups within the local restaurant market.
If you would like to use more informal preparation, you might simply ask students to think about
what factors might determine success or failure in your local restaurant market, and what type of
restaurant they might open if they wished to enter this market.
Whether you assign questions or use a more informal approach to student preparation for this
exercise, you should announce that the exercise will involve competition among teams and that studying
their local restaurant market (i.e., preparation questions above) will help their teams to perform well in the
competition. You should NOT announce the aim of the contest in advance (e.g., developing a
restaurant concept), as this may short-circuit student exploration of restaurant market dynamics.
Announcing the purpose of the competition in advance may also make it more difficult to control for
outside help and other fairness concerns.
If you will assign teams at the opening of the session in which you conduct the exercise, you may
want to remind students to keep their ideas to themselves until they are assigned to their teams. If you
choose to assign teams in advance of the exercise, then students should be encouraged to work as a team
to research the local restaurant market.
In-Class Use
You may use convenient groupings (e.g., project groups) for this exercise or simply assign students
randomly to groups of three or four students. The exercise instructions assume that ten (10) teams will
present their concepts. At two (2) minutes each, the presentations require 20 minutes. If you are
conducting this exercise in a 50-minute session, you will probably want to adjust team sizes so that no
more than ten (10) teams are participating. At the upward bound of ten teams, only ten minutes would be
available for debriefing at the end of the session. This exercise may be used to open a multiple-session
discussion of strategy, in which case you might continue to debrief and discuss the exercise in subsequent
class sessions.
At the opening of the session you should be prepared with team assignments, and with your selection
of JUDGES (one of the teams). The judges will listen to the team presentations and select those most
likely to succeed. Teams should be assigned and their work initiated as quickly as possible after the start
of the class session.
While the competing teams are developing their concepts (Step 1), you should give the Judges their
instructions. Inform Judges to listen carefully to each team’s presentation, and to evaluate them on the
basis of the likelihood that the team’s concept will result in sustainable competitive advantage. Some
factors to consider:
• Market knowledge—To what degree does the team demonstrate that they have given thoughtful
consideration to the key success factors in the local restaurant market? Do they accurately
describe the market?

• Strength of Concept—To what degree has the team persuasively made the case for their concept?
How likely is it that this concept will achieve sustainable competitive advantage?
• Competitive Awareness—Has the team accurately identified likely direct competitors? To what
degree has the team effectively demonstrated awareness of strategic groups in the market?
Judges should take notes and then confer briefly at the end of the team presentations. You may want to
use 1st through 3rd places, with some associated prize. In the event of a deadlock among the judges, you
should cast a tiebreaker vote.
Quickly announce winners and (optional) award prizes, and then move directly to the debriefing.
Debriefing questions are provided in Step 4 of the exercise. The overarching aim of the
debriefing/discussion is to help students see the application of strategy concepts such as sustainable
competitive advantage and strategic groups to a market with which they have some familiarity.
Develop Your Career Potential
AN INDIVIDUAL SWOT ANALYSIS
Purpose
To allow students to practice the SWOT analysis technique in a contextually relevant way.
Setting It Up
Because this is a very personal exercise, it will probably not be a good in-class exercise. You will
probably have more success if this is done as a take-home assignment. In order to prepare students for the
activity, you will want to review section 2.2 on SWOT analysis. It may be helpful to do an in-class warm
up, asking students to identify the elements of a SWOT analysis, the purpose of such an analysis, and to
envision how the situational analysis can apply to them personally.
After the assignment has been completed, you may wish to poll your class on how they found the
activity (difficult, challenging, probing, thought-provoking, etc.) and how they think the exercise can help
them as they work toward their degrees and in their careers.
Questions
1. In light of the SWOT analysis, what plans might you propose for yourself that will help you
maximize your strengths, exploit your opportunities, and minimize your weaknesses and threats?
Write three S.M.A.R.T. goals (remember Chapter 5) that will help you implement your plans.
2. How might this assignment prepare you for both your academic and your professional career?
Reel to Real – Biz Flix

Because they are so short, the Biz Flix videos are best used to supplement your lesson plans. They are
designed to illustrate the content rather than convey all of the chapter concepts.
Video: Field of Dreams
Segment Summary:
In the classic 1989 film Field of Dreams, Ray Kinsella (Kevin Costner) hears a voice while working in
his Iowa cornfield that says, “If you build it, he will come.” Ray concludes that “he” is legendary
“Shoeless Joe” Jackson (Ray Liotta), a 1919 Chicago White Sox player suspended for rigging the 1919
World Series. With the support of his wife Annie (Amy Madigan), Ray jeopardizes his farm by plowing
under a cornfield and creating a modern baseball diamond in its place. Shoeless Joe soon arrives,
followed by the rest of the suspended players. This charming fantasy film, based on W.P. Kinsella’s
novel Shoeless Joe, shows the rewards of pursuing a dream. In this clip, Ray’s brother-in-law Mark
(Timothy Busfield) insists that they will have to start farming on the field again if they’re going to make
enough money to avoid foreclosure on the property, but Ray’s daughter Karin (Gaby Hoffman) suggests
another idea.

Discussion Questions from Text:
1. If you were Ray, what would you do in this situation? Would you be more likely to take Mark’s
advice or Karin’s?
Although students’ answers will vary, they should support their response using concepts from chapter
six. In making this decision, Ray should take a strategic approach. He should consider his
competitors, his resources, internal strengths and weaknesses, and external opportunities and threats.
Ray’s competitors include major and minor league baseball venues. An internal strength that Ray can
capitalize on is his unique product that is not being offered elsewhere. A weakness he should
consider is his lack of financial resources. An external strength would be the potential for revenue
that would come by opening the field to the public. A threat that Ray should watch out for is the
possibility that people will not come to see the field. Some students may argue that using modest
resources, Ray was able to establish a sustainable competitive advantage by building on the emotion
and feelings that are tied to the game of baseball. Others may argue that Ray did not use strategic
thinking in making his decision and relied mostly on emotions.
2. If Ray decides to do what his daughter Karin suggests with the field, could you call that an example
of entrepreneurship? Intrapreneurship?
Entrepreneurship is the process of entering new or established markets with new goods or services,
whereas intrapreneurship is entrepreneurship within an existing organization. Although Ray is a
farmer business man, this type of business is not likely to be viewed as entrepreneurship because it
involves selling established commodities in established markets. By opening up the field of dreams
to the public, this would most definitely constitute entrepreneurship, since it involves a new product
and service, entering a new market, and drawing in a different type of customer.
3. What are the risks Ray faces if he acts on Karin’s suggestion?
If he acts on Karin’s suggestion, Ray faces the risk of losing the entire farm. In the event that people
will not come to visit the field, Ray will not be able to recoup the investment that went into
constructing the field. Ray should work to avoid this outcome by using strategic planning.
According to chapter six, there is a 61 percent chance that small firms that engage in the strategy-
making process will have more sales growth than small firms that don’t. There is also a 62 percent
chance that small firms that engage in the strategy-making process will have a larger return on
investment than small firms that don’t. Even though Ray cannot control the external environment, he
should do all that he can to engage in strategic planning to avoid the obvious risks of Karin’s
suggestion.
Additional Discussion Questions:

1. How might Ray diversify his core business strategy in order to maximize the potential of his dream?
Students’ answers will vary. Some students will suggest that Ray focus on related diversification by
investing in businesses that are complementary to baseball. For example, he might consider investing
in concessions or even a restaurant near the field. Other students will suggest that Ray focus on
unrelated diversification strategies that have nothing to do with the sport of baseball. One advantage
of this approach is that he could collect revenue throughout the year. For example, during the off-
season and in late-Autumn, Ray could use the open space on his field to hold family-friendly events
such as hay rides and corn mazes.
2. In your opinion, which positioning strategy should Ray select when developing his strategic plan for
his field of dreams?
The three positioning strategies include cost leadership, differentiation, and focus. Cost leadership
involves producing a product or service at lower costs than those of competitors. Because a $20

ticket to his field is cheaper than the price of a ticket to a major-league game, some students may
argue that he should adopt this strategy. Differentiation, on the other hand, is offering a product or
service that is sufficiently different from that of competitors so that customers are willing to pay a
premium for it. Because Ray’s field is so special and unique from conventional ball fields, students
may support the differentiation strategy. The focus strategy involves producing a specialized product
or service for a limited, specially targeted group of customers. Because Ray will specifically target
individuals who love the game of baseball, many students will consider a focus strategy.
Reel to Real – Management Workplace

Management Workplace videos can support several in-class uses. In most cases you can build an entire
50-minute class around them. Alternatively, they can provide a springboard into a group lesson plan.
Video: Theo Chocolate

Strategy Formulation and Execution
Summary:
When Theo Chocolate first started its production, the company offered an exotic line of dark chocolate
and milk chocolate bars and truffles. These early treats had unusual names such as the 3400 Phinney Bar,
and they were wrapped in artistic watercolor packaging with whimsical cover designs. Though the
chocolate was well received by critics and organic food enthusiasts, it was not popular with mainstream
consumers. Founder Joe Whinney began working on a new strategy, creating classic milk chocolate bars
as a gateway product that would attract consumers more easily. The end result is that Theo now offers
two distinct product lines for two different market segments - a Classic line of milk chocolate bars for
mainstream customers, and Fantasy Flavors for more adventurous eaters.
Discussion Questions from Text:

1. Evaluate Theo’s new strategy in light of the company’s strengths, weaknesses, opportunities, and
threats.
A SWOT analysis for Theo Chocolate begins by recognizing that Theo has a mission to be the
most loved and most ethical chocolate company in the world. Internal strengths that help the
company achieve its mission and goals include the company’s expertise in chocolate making,
knowledge of sustainable business practices, and control over much of its supply chain. Whinney
and Music observed, however, that the company’s exotic product line was too unusual for
mainstream markets—a major barrier to becoming the world’s most loved chocolate company.
As Whinney and Music examined the external environment for opportunities, they noted that the
mainstream candy market was lacking a traditional chocolate bar that could claim to have green
benefits. This general analysis is what lead Theo to come up with a new strategy to launch a
product line that would appeal mainstream candy customers yet offer unique environmental
benefits.
2. Using the BCG Matrix, explain Theo’s decision to offer a classic line of chocolate bars after
having limited success with Fantasy Flavor chocolates.
Theo began as an organic chocolate maker with an exotic product line that appealed to Fair Trade
consumers and sophisticated chocolate lovers. As creative as Theo’s products were, they weren’t
generating high volume sales. On the BCG Matrix, Theo’s original business represents a question
mark—a risky business unit with small market share in a fast growing organic foods marketplace.
However, managers eventually decided that they wanted a product line that could become a cash
cow, and so Theo began making traditional milk chocolate candy bars with familiar flavors.
Theo’s Classic product line is situated in a mature slow-growth market and is positioned to
challenge the market share of large well-known chocolate companies. According to founder Joe
Whinney, Theo will continue to operate its original question mark business unit in hopes that it
will become a star (a business unit with large market share in a fast growing organic foods
industry). However, it remains to be seen whether Theo will end up as a traditional chocolate
maker competing in a large slow-growth confectionary industry, as a green pioneer with high
market share in a fast-growth organic foods industry.
3. Which of the three competitive strategies—differentiation, cost leadership, or focus—do you

think is right for Theo Chocolate? Explain.
Answers will vary, but students should recognize that Theo is banking on its organic and Fair
Trade expertise to differentiate itself from other chocolate makers and brands (differentiation
strategy). As a small company, Theo cannot offer better prices than those offered by large
chocolate companies—so a cost leadership strategy is not an option. And while the company
seems well suited for a focus strategy—the company is a hit with green consumers in the Pacific
Northwest—founder Joe Whinney is not satisfied with a narrow target market. He hopes to share
his chocolate with mainstream chocolate consumers.
Workplace Video Quiz
Video Segment 1
Video segment title Strategy Formulation and Implementation

Start time (in sec) 0:00
Stop time (in sec) 2:13
Quiz Question 1 Which of the following statements from the clip best describes Theo
Chocolate’s early approach to formulating a business strategy?
Option a “We work with a distribution system in grocery”
Option b “We produced products that really excited us, and we put them in
packaging we really liked”
Option c “Joe convinced me I should start this company with him”
Option d None of these
Correct option b: “We produced products that really excited us, and we put them in
packaging we really liked”
Feedback for option a
Feedback for option b Correct. Theo Chocolate began with a desire and plan to make products
that the owners were interested in producing.
Feedback for option c Incorrect. Theo Chocolate began with a desire and plan to make products
Feedback for option d Incorrect. Theo Chocolate began with a desire and plan to make products
Quiz Question 2
Option a The strategy failed to align with the wants and demands of mainstream
consumers
Option b The strategy failed to excite and motivate employees
Option c The strategy aimed to distribute chocolate bars to grocery stores
Option d The strategy wasn’t written down
Correct option a: The strategy failed to align with the wants and demands of mainstream
consumers

Feedback for option a Correct. The company’s products were lauded by critics, but few
mainstream consumers found them appealing.
Feedback for option b Incorrect. The company’s products were lauded by critics, but few
Feedback for option c Incorrect. The company’s products were lauded by critics, but few
Feedback for option d Incorrect. The company’s products were lauded by critics, but few
Quiz Question 3 Leaders at Theo Chocolate took the right steps to fix their misdirected
strategy when they:
Option a Decided to enter the confectionary industry
Option b Resolved to have an ethical business model
Option c Reevaluated Theo’s internal strengths and weakness and searched for
profitable opportunities in the marketplace
Option d Moved to Seattle
Correct option c: Reevaluated Theo’s internal strengths and weakness and searched for
profitable opportunities in the marketplace
Feedback for option a Incorrect. The company conducted a situational analysis to determine
how it needed to change.
Feedback for option b Incorrect. The company conducted a situational analysis to determine
Feedback for option c Correct. The company conducted a situational analysis to determine how
it needed to change.
Feedback for option d Incorrect. The company conducted a situational analysis to determine
Video Segment 2

Quiz Question 1 To make their company’s strategy more effective and profitable,
managers at Theo Chocolate had to do all the following except:
Option a Lower the price of candy bars
Option b Wrap chocolate bars in less exotic packaging
Option c Produce chocolate flavors that appeal to mainstream candy eaters
Option d Inform the public of the company’s organic standards
Correct option d: Inform the public of the company’s organic standards
Feedback for option a Incorrect. The public already knew about the company’s standards, but
did not find the chocolates appealing.
Feedback for option b Incorrect. The public already knew about the company’s standards, but
Feedback for option c Incorrect. The public already knew about the company’s standards, but
Feedback for option d Correct. The public already knew about the company’s standards, but did
not find the chocolates appealing.

Quiz Question 2 Theo Chocolate’s companywide decision to abandon its niche-oriented
business model and instead pursue mainstream customers and high
volume sales is consistent with this grand strategy:
Option a Stability strategy
Option b Growth strategy
Option c Retrenchment strategy
Option d All of these
Correct option b: Growth strategy
Feedback for option a Incorrect. A growth strategy is intended to increase profits, revenues,
market share, or the number of places in which a company does business.
Feedback for option b Correct. A growth strategy is intended to increase profits, revenues,
Feedback for option c Incorrect. A growth strategy is intended to increase profits, revenues,
Feedback for option d Incorrect. A growth strategy is intended to increase profits, revenues,
Quiz Question 3 Theo Chocolate’s decision to revise its strategy around more familiar
mainstream chocolate bars has the following drawback:
Option a The change weakens the company’s ability to differentiate itself from
other chocolate companies
Option b Theo will have difficulty matching the low prices of chocolate bars mass
produced by the leading brands
Option c The company may lose its diehard fans in Seattle and the surrounding
region
Correct option d: All of these
Feedback for option a Incorrect. The company’s decision to follow more mainstream
competitors reduces its uniqueness and may potentially reduce its
competitive advantages.
Feedback for option b Incorrect. The company’s decision to follow more mainstream
Feedback for option c Incorrect. The company’s decision to follow more mainstream
Feedback for option d Correct. The company’s decision to follow more mainstream competitors
reduces its uniqueness and may potentially reduce its competitive
advantages.
Video Segment 3
Example screenshot

Quiz Question 1 What is Theo Chocolate’s competitive advantage within the chocolate
industry?

Option a The company’s chocolate bars come in multiple flavors
Option b The company has expertise in manufacturing chocolate
Option c The company has expertise in manufacturing organic fair trade chocolate
Correct option c: The company has expertise in manufacturing organic fair trade
chocolate
Feedback for option a Incorrect. Theo Chocolate was the first American chocolate company to
be fair-trade certified.
Feedback for option b Incorrect. Theo Chocolate was the first American chocolate company to
Feedback for option c Correct. Theo Chocolate was the first American chocolate company to be
fair-trade certified.
Feedback for option d Incorrect. Theo Chocolate was the first American chocolate company to
Quiz Question 2 A potential ongoing weakness of Theo Chocolate’s business strategy is:
Option a Not enough consumers like chocolate
Option b The company has control over its factory and entire supply chain
Option c The organic fair trade concept at the core of Theo’s mission doesn’t
excite the average mainstream chocolate consumer
Option d The company’s organic fair trade standards are likely to be criticized by
environmental special interest groups
Correct option c: The organic fair trade concept at the core of Theo’s mission doesn’t
excite the average mainstream chocolate consumer
Feedback for option a Incorrect. Mainstream consumers did not find much appeal in buying fair
trade chocolate.
Feedback for option b Incorrect. Mainstream consumers did not find much appeal in buying fair
trade chocolate.
Feedback for option c Correct. Mainstream consumers did not find much appeal in buying fair
trade chocolate.
Feedback for option d Incorrect. Mainstream consumers did not find much appeal in buying fair
trade chocolate.
Quiz Question 3 Which of the following strategy assessment tools would not apply to a
small company like Theo Chocolate, which has a single division and
only a few chocolate bar products?
Option a SWOT analysis
Option b Porter’s Five Competitive Forces
Option c Porter’s generic strategies (differentiation, cost leadership, focus)
Option d BCG matrix
Correct option d: BCG matrix
Feedback for option a Incorrect. The BCG matrix is a portfolio strategy that categorizes a
corporation’s business by growth rate and relative market share.
Feedback for option b Incorrect. The BCG matrix is a portfolio strategy that categorizes a
Feedback for option c Incorrect. The BCG matrix is a portfolio strategy that categorizes a
Feedback for option d Correct. The BCG matrix is a portfolio strategy that categorizes a
Video Segment 4

Quiz Question 1 Which of the following hypothetical new-product ideas would fit a
“related diversification” strategy that Theo could use to expand its
business?
Option a Launch a line of Theo Chocolate women’s fragrances
Option b Create a line of educational videos about sustainable, fair trade
manufacturing processes
Option c Sell Theo Chocolate branded cookware
Correct option b: Create a line of educational videos about sustainable, fair trade
manufacturing processes
Feedback for option a Incorrect. In related diversification, business units share similar products,
manufacturing, marketing, technology, or cultures.
Feedback for option b Correct. In related diversification, business units share similar products,
Feedback for option c Incorrect. In related diversification, business units share similar products,
Feedback for option d Incorrect. In related diversification, business units share similar products,
Quiz Question 2 In the segment, Vice President Debra Music discusses Theo Chocolate’s
marketing department activities, including factory tours, chocolate
sampling, and brand ambassadors, that help the company set itself apart
from competitors. Strategies planned and executed at this level of the
organization are called:
Option a Corporate-level strategy
Option b Industry-level strategy
Option c Local-level strategy
Option d Global-level strategy
Correct option b: Industry-level strategy
Feedback for option a Incorrect. Industry-level strategy addresses the question “How should we
complete in this industry?”
Feedback for option b Correct. Industry-level strategy addresses the question “How should we
Feedback for option c Incorrect. Industry-level strategy addresses the question “How should we
Feedback for option d Incorrect. Industry-level strategy addresses the question “How should we
Quiz Question 3 Theo Chocolate differentiates its products from competitors by:
Option a Offering factory tours
Option b Offering fair trade, organic products
Option c Offering domestically grown products
Option d Offering free product samples
Correct option b: offering fair trade, organic products
Feedback for option a Incorrect. Differentiation is when a company makes a product or offers a
service that is sufficiently different from a competitor’s offerings.
Feedback for option b Correct. Differentiation is when a company makes a product or offers a
Feedback for option c Incorrect. Differentiation is when a company makes a product or offers a
Feedback for option d Incorrect. Differentiation is when a company makes a product or offers a
Review Questions
1. Identify the components of a sustainable competitive advantage.
A competitive advantage is the advantage that a firm has when it uses its resources to provide greater
value to the customer than its competitors can. The components of a sustainable competitive
advantage are valuable resources, rare resources, imperfectly imitable resources, and nonsubstitutable
resources.
2. Outline steps of the strategy-making process.
The strategy-making process has three steps:
• Assess the need for strategic change: Managers must determine if strategic change within the
organization is needed based on what is happening in the business environment.
• Conduct a situational analysis: A situational analysis might include a SWOT analysis, or an
assessment of the organization’s strengths, weaknesses, opportunities, and threats. The
analysis of the strengths and weaknesses represent an internal analysis, while the analysis of
opportunities and threats requires external environmental scanning.
• Choose strategic alternatives: Based on the situational analysis, managers will determine
what strategies to follow to successfully achieve goals and objectives.
3. What is a corporate-level strategy? Describe the major approaches to corporate-level strategy.
A corporate-level strategy is the overall organizational strategy that addresses the question: “What
business or businesses are we in or should we be in?” Two kinds of corporate-level strategies are:
• Portfolio strategy: a corporate-level strategy that minimizes risk by diversifying investment

among various businesses or product lines.
• Grand strategy: a broad corporate-level strategic plan used to achieve strategic goals and
guide the strategic alternatives that managers of individual businesses or subunits may use.
These strategies include growth, retrenchment/recovery, and stability.
4. What are the elements of the BCG matrix?
The BCG (Boston Consulting Group) matrix is a type of portfolio strategy that managers can use to
categorize their products by growth and market share. The four categories of products are:
• Star: a product with a large share of a fast-growing market. Stars would receive a
disproportionately large percentage of resources due to their future promise.
• Question mark: a product with a small share of a fast-growing market. The amount of
resources given to question marks would depend on how much promise they have for the
future.
• Cash cow: a product with a large share of a slow-growing market. Cash cows generate a lot
of profit, which can be reinvested back into the cash cows or given to the stars. Managers
generally invest enough in cash cows to keep them top-of-mind to the consumer.
• Dog: a product with a small share of a slow-growing market. Dogs generally receive few
resources due to their limited growth and profit potential.
5. Identify three grand strategies and give examples of each.

The three kinds of grand strategies are:
• Growth strategy: a strategy that focuses on increasing profits, revenues, market share, or the
number of places in which the company does business.
• Stability strategy: a strategy that focuses on improving the way in which the company sells
the same products or services to the same customers.
• Retrenchment strategy: a strategy that focuses on turning around very poor company
performance by shrinking the size or scope of the business.
• Recovery consists of the strategic actions taken after retrenchment to return to a growth
strategy.
6. What is an industry-level strategy? What tools can companies use to develop successful industry-level
strategies?
An industry-level strategy is a corporate strategy that addresses the question, “How should we
compete in this industry?” Before determining a proper strategy, a company should first examine the
five forces that determine the overall level of competitiveness in their industry.
• Michael Porter’s five industry forces include the analysis of the character of rivalry, the threat
of new entrants, the threat of substitute products, the bargaining power of buyers, and the
bargaining power of suppliers.
Depending on the results of the analysis, a company can choose between two types of industry-level
strategies:
• Positioning strategies: three types of positioning strategies are cost leadership,

differentiation, and focus.
• Adaptive strategies: strategies that are best suited to changes in the organization’s external
environment, such as defending, prospecting, analyzing, and reacting.
7. What are Porter’s five industry forces and how do they affect a company’s strategy?
Five industry forces determine an industry’s overall attractiveness to corporate investors and its
potential for long-term profitability. Together, a high level of new entrants, substitute products or
services, bargaining power of suppliers, bargaining power of buyers, and rivalry between competitors
combine to increase competition and decrease profits. The stronger these forces, the less attractive the
industry becomes to corporate investors because it is more difficult for companies to be profitable.
8. What is a firm-level strategy?
A firm-level strategy addresses the question, “How should we compete against a particular firm?”
Three types of firm-level strategies are:
• Direct competition: the relationship between two companies offering similar products and
services that acknowledge each other as rivals and take offensive and defensive positions as
they act and react to teach other’s strategic actions.
• Beyond the Book: Entrepreneurship and intrapreneurship: Entrepreneurship occurs when a
new firm enters new or established markets with new goods or services. Intrapreneurship
occurs when an existing firm enters new or established markets with new goods or services.
9. What are the basic elements of direct competition?
Market commonality and resource similarity determine whether firms are in direct competition and
thus likely to attack each other or respond to each other’s attacks. In general, the more markets in
which there is product, service, or customer overlap, and the greater the resource similarity between
two firms, the more intense the direct competition between them. When firms are direct competitors

in a large number of markets, attacks are less likely because responding firms are highly motivated to
quickly and forcefully defend their profits and market share. Resource similarity also affects response
capability, meaning how quickly and forcefully a company responds to an attack. When resource
similarity is strong, attacks are much less likely to produce a sustained advantage because the
responding firm is capable of striking back with equal force.
Market entries and exits are the most important kinds of attacks and responses. Entering a new
market is a clear offensive signal, while exiting a market is a clear signal that a company is retreating.
Market entry is perhaps the most forceful attack or response because it sends the clear signal that the
company is committed to gaining or defending market share and profits at a direct competitor’s
expense. In general, attackers and early responders gain market share and profits at the expense of
late responders. Attacks must be carefully planned and carried out, however, because they can
provoke harsh retaliatory responses.
10. Beyond the Book: How do companies implement entrepreneurship as an internal strategy?
Entrepreneurship is entering new or established markets with new goods or services. The five key
dimensions of entrepreneurship are: autonomy, innovativeness, risk-taking, proactiveness, and
competitive aggressiveness. In general, we tend to think of entrepreneurship as business startups, but
established firms can also be entrepreneurial simply by incorporating the elements of
entrepreneurship into their management practices. When an established company develops new goods
or services using those dimensions, it is called intrapreneurship.
Additional Assignments and Activities

Out-of-Class Project: “Industry Analysis.” Divide the class into small groups. Each group should
select a company that participates in an industry that has at least three other competitors. Groups should:
1) identify the strategic group in which the company participates; 2) conduct analysis of the five industry
forces; 3) determine which company uses which positioning strategy; and 4) determine which company
uses what adaptive strategy. The groups should present their findings to the class.
In-Class Activity: “S.W.O.T.” Divide the class into small groups (around 4 students). Give each group a
different organization and have them conduct a SWOT analysis of the company, considering its internal
and external environment. Some examples of organizations would be an airline (such as Southwest), a
movie studio, a university or college, a video game manufacturer, and a carmaker.
Portfolio Matrix. Go to HBO’s Web site at www.hbo.com. Listed are the TV series, movies,
documentaries, and other channels that HBO owns. Read about a few of these channels and then put
together a portfolio analysis using the BCG matrix. What type of strategy would you use for each
product?
Entrepreneurial Orientation. Go to Hewlett-Packard’s company information site at

http://www.hp.com/hpinfo/. Find evidence of each of the five characteristics of entrepreneurship:
1) autonomy; 2) innovativeness; 3) risk-taking; 4) proactiveness; and 5) competitive aggressiveness.
Positioning Strategies. Go to the Web site of C.L.I.A. (Cruise Lines International Association), at
www.cruising.org. This official association of the cruise line industry provides brief descriptions of the
major cruise lines of the world. Look up ten well-known cruise lines and determine what kind of
positioning strategy it uses: cost leadership, differentiation, or focus. Describe in detail exactly what each
cruise line does that leads you to determine which strategy it uses.
SWOT Analysis. Go to the Web site of Kodak at www.kodak.com. Kodak faces an uncertain future due
to the ubiquitous nature of digital photography. (Kodak has traditionally held the highest market share in
film photography.) Assess Kodak’s strengths, weaknesses, opportunities, and threats, given the rapid
changes in the digital age.

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Chapter 6: Organizational Strategy

Highlighted Assignments Key Points

118 Chapter 6: Organizational Strategy

Supplemental Resources Where to Find Them

1 Specify the components of sustainable competitive advantage and explain why it is

2 Describe the steps involved in the strategy-making process.

3 Explain the different kinds of corporate-level strategies.

4 Describe the different kinds of industry-level strategies.

Chapter 6: Organizational Strategy 119

5 Explain the components and kinds of firm-level strategies.

Lesson Plan for Lecture

Pre-Class Prep for You: Pre-Class Prep for Your Students:

120 Chapter 6: Organizational Strategy

Topics PowerPoint Slides Activities

Corporate-, Industry-, 14: Corporate, Industry,

4 Industry-Level 21: Industry-Level The adaptive strategy of

Chapter 6: Organizational Strategy 121

5 Firm-Level Strategies 25: Firm-Level Strategies Managers often visit

Remind students about any upcoming events.

Lesson Plan for Group Work

Pre-Class Prep for You: Pre-Class Prep for Your Students:

Content Lecture on Sustainable Competitive Advantage (Section 1).

122 Chapter 6: Organizational Strategy

Lecture on the Strategy-Making Process (Section 2).

“Even if companies can’t produce a sustainable competitive advantage, that doesn’t

Break for group activity:

Segue into a lecture on Corporate-Level Strategies – Portfolio Strategy (Section 3.1).

Break for the following activity:

Lecture on Industry- and Firm-Level Strategies (Sections 4-5).

Chapter 6: Organizational Strategy 123

“Framework for Direct Competition”

Remind students about any upcoming events.

Assignment Teaching Tips and Solutions

Case Assignment - What Would You Do?

What Really Happened? Solution

WALT DISNEY COMPANY

124 Chapter 6: Organizational Strategy

Chapter 6: Organizational Strategy 125

126 Chapter 6: Organizational Strategy

DEALING WITH COMPETITION

128 Chapter 6: Organizational Strategy

Management Team Decision

Students’ responses will vary.

Practice Being a Manager

MOST LIKELY TO SUCCEED

Exercise Overview and Objective

130 Chapter 6: Organizational Strategy

Chapter 6: Organizational Strategy 131

Develop Your Career Potential

AN INDIVIDUAL SWOT ANALYSIS

Reel to Real – Biz Flix

Video: Field of Dreams

132 Chapter 6: Organizational Strategy

3. What are the risks Ray faces if he acts on Karin’s suggestion?

Additional Discussion Questions:

Chapter 6: Organizational Strategy 133

Reel to Real – Management Workplace

Video: Theo Chocolate

Discussion Questions from Text:

3. Which of the three competitive strategies—differentiation, cost leadership, or focus—do you

Workplace Video Quiz

Video segment title Strategy Formulation and Implementation