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Brief Contents
PART ONE Introduction to Strategic Management and Business Policy 1
CHAPTER 1 Basic Concepts of Strategic Management 2
CHAPTER 2 Corporate Governance 40
CHAPTER 3 Social Responsibility and Ethics in Strategic Management 68

PART TWO Scanning the Environment 89

CHAPTER 4 Environmental Scanning and Industry Analysis 90
CHAPTER 5 Internal Scanning: Organizational Analysis 126

PART THREE Strategy Formulation 161

CHAPTER 6 Strategy Formulation: Situation Analysis and Business Strategy 162
CHAPTER 7 Strategy Formulation: Corporate Strategy 184
CHAPTER 8 Strategy Formulation: Functional Strategy and Strategic Choice 214

PART FOUR Strategy Implementation and Control 243

CHAPTER 9 Strategy Implementation: Organizing for Action 244
CHAPTER 10 Strategy Implementation: Staffing and Directing 274
CHAPTER 11 Evaluation and Control 302

PART FIVE Introduction to Case Analysis 331

CHAPTER 12 Suggestions for Case Analysis 332

PART SIX Cases in Strategic Management 1-1

GLOSSARY G-1
NAME INDEX I-1
SUBJECT INDEX I-6

v
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Contents
Preface xxiii
About the Authors xxxi

PART ONE Introduction to Strategic Management and Business Policy 1

CHAPTER 1 Basic Concepts of Strategic Management 2

The Study of Strategic Management 4
Phases of Strategic Management 4
Benefits of Strategic Management 5
Globalization, Innovation, and Sustainability: Challenges to Strategic Management 7
Impact of Globalization 8
Impact of Innovation 9
Global Issue: REGIONAL TRADE ASSOCIATIONS REPLACE NATIONAL TRADE BARRIERS 9
Impact of Sustainability 10
Theories of Organizational Adaptation 11
Creating a Learning Organization 12
Basic Model of Strategic Management 13
Environmental Scanning 14
Strategy Formulation 16
Strategy Implementation 19
Evaluation and Control 21
Feedback/Learning Process 21
Initiation of Strategy: Triggering Events 22
Strategic Decision Making 23
What Makes a Decision Strategic 23
Mintzberg’s Modes of Strategic Decision Making 24
Strategic Decision-Making Process: Aid to Better Decisions 25
The Strategic Audit: Aid to Strategic Decision Making 26
End of Chapter Summary 27
APPENDIX 1.A Strategic Audit of a Corporation 32

vii
viii CONTENTS

CHAPTER 2 Corporate Governance 40

Role of the Board of Directors 43
Responsibilities of the Board 44
Members of a Board of Directors 46
Innovation Issue: JCPENNEY AND INNOVATION 47
Strategy Highlight: AGENCY THEORY VERSUS STEWARDSHIP THEORY
IN CORPORATE GOVERNANCE 49

Nomination and Election of Board Members 52

Organization of the Board 53
Impact of the Sarbanes–Oxley Act on U.S. Corporate Governance 54
Global Issue: GLOBAL BUSINESS BOARD ACTIVISM AT YAHOO! 56
Trends in Corporate Governance 57
The Role of Top Management 58
Responsibilities of Top Management 58
Sustainability Issue: CEO PAY AND CORPORATE PERFORMANCE 59
End of Chapter Summary 62

CHAPTER 3 Social Responsibility and Ethics in Strategic Management 68

Social Responsibilities of Strategic Decision Makers 70
Responsibilities of a Business Firm 70
Sustainability 73
Corporate Stakeholders 74
Sustainability Issue: MARKS & SPENCER LEADS THE WAY 74
Strategy Highlight: JOHNSON & JOHNSON CREDO 77
Ethical Decision Making 77
Some Reasons for Unethical Behavior 78
Global Issue: HOW RULE-BASED AND RELATIONSHIP-BASED GOVERNANCE SYSTEMS
AFFECT ETHICAL BEHAVIOR 79
Innovation Issue: TURNING A NEED INTO A BUSINESS TO SOLVE THE NEED 81
Encouraging Ethical Behavior 82
End of Chapter Summary 84

PART TWO Scanning the Environment 89

CHAPTER 4 Environmental Scanning and Industry Analysis 90

Environmental Scanning 92
Identifying External Environmental Variables 92
 C O NT E N T S ix

Sustainability Issue: GREEN SUPERCARS 94

Global Issue: SUVs POWER ON IN CHINA 102
Identifying External Strategic Factors 103
Industry Analysis: Analyzing the Task Environment 104
Porter’s Approach to Industry Analysis 104
Industry Evolution 108
Innovation Issue: TAKING STOCK OF AN OBSESSION 109
Categorizing International Industries 109
International Risk Assessment 110
Strategic Groups 110
Strategic Types 112
Hypercompetition 112
Using Key Success Factors to Create an Industry Matrix 113
Competitive Intelligence 114
Sources of Competitive Intelligence 115
Strategy Highlight: EVALUATING COMPETITIVE INTELLIGENCE 116
Monitoring Competitors for Strategic Planning 117
Forecasting 118
Danger of Assumptions 118
Useful Forecasting Techniques 118
The Strategic Audit: A Checklist for Environmental Scanning 120
Synthesis of External Factors—EFAS 120
End of Chapter Summary 122

CHAPTER 5 Internal Scanning: Organizational Analysis 126

A Resource-Based Approach to Organizational Analysis 128
Core and Distinctive Competencies 128
Using Resources to Gain Competitive Advantage 129
Determining the Sustainability of an Advantage 130
Business Models 132
Value-Chain Analysis 133
Industry Value-Chain Analysis 134
Corporate Value-Chain Analysis 135
Scanning Functional Resources and Capabilities 136
Basic Organizational Structures 137
Corporate Culture: The Company Way 138
x CONTENTS

Global Issue: MANAGING CORPORATE CULTURE FOR GLOBAL COMPETITIVE

ADVANTAGE: ABB VS. PANASONIC 140

Strategic Marketing Issues 140

Innovation Issue: DOCOMO MOVES AGAINST THE GRAIN 142
Strategic Financial Issues 143
Strategic Research and Development (R&D) Issues 144
Strategic Operations Issues 146
Strategic Human Resource (HRM) Issues 147
Sustainability Issue: THE OLYMPIC GAMES—SOCHI 2014 AND RIO 2016 150
Strategic Information Systems/Technology Issues 151
The Strategic Audit: A Checklist for Organizational Analysis 153
Synthesis of Internal Factors 153
End of Chapter Summary 155

PART THREE Strategy Formulation 161

CHAPTER 6 Strategy Formulation: Situation Analysis and Business Strategy 162

Situational Analysis: SWOT Approach 164
Generating a Strategic Factors Analysis Summary (SFAS) Matrix 164
Finding a Propitious Niche 165
Review of Mission and Objectives 168
Business Strategies 169
Porter’s Competitive Strategies 169
Global Issue: THE NIKE SHOE STRATEGY VS. THE NEW BALANCE SHOE STRATEGY 171
Innovation Issue: CHEGG AND COLLEGE TEXTBOOKS 174
Cooperative Strategies 175
Sustainability Issue: STRATEGIC SUSTAINABILITY—ESPN 176
End of Chapter Summary 180

CHAPTER 7 Strategy Formulation: Corporate Strategy 184

Corporate Strategy 186
Directional Strategy 186
Growth Strategies 187
Strategy Highlight: TRANSACTION COST ECONOMICS ANALYZES VERTICAL
GROWTH STRATEGY 191

International Entry Options for Horizontal Growth 192

Global Issue: GLOBAL EXPANSION IS NOT ALWAYS A PATH TO EXPANSION 192
Controversies in Directional Growth Strategies 196
 C O NT E N T S xi

Stability Strategies 197

Retrenchment Strategies 198
Portfolio Analysis 200
BCG Growth-Share Matrix 200
Sustainability Issue: GENERAL MOTORS AND THE ELECTRIC CAR 202
Advantages and Limitations of Portfolio Analysis 203
Managing a Strategic Alliance Portfolio 204
Corporate Parenting 205
Innovation Issue: TO RED HAT OR NOT? 205
Developing a Corporate Parenting Strategy 206
Horizontal Strategy and Multipoint Competition 207
End of Chapter Summary 207

CHAPTER 8 Strategy Formulation: Functional Strategy and Strategic Choice 214

Functional Strategy 216
Marketing Strategy 216
Financial Strategy 217
Research and Development (R&D) Strategy 219
Operations Strategy 220
Global Issue: WHY DOESN’T STARBUCKS WANT TO EXPAND TO ITALY? 221
Purchasing Strategy 222
Sustainability Issue: HOW HOT IS HOT? 223
Logistics Strategy 224
Innovation Issue: WHEN AN INNOVATION FAILS TO LIVE UP TO EXPECTATIONS 224
Human Resource Management (HRM) Strategy 225
Information Technology Strategy 225
The Sourcing Decision: Location of Functions 226
Strategies to Avoid 229
Strategic Choice: Selecting the Best Strategy 229
Constructing Corporate Scenarios 230
The Process of Strategic Choice 235
Developing Policies 236
End of Chapter Summary 237

PART FOUR Strategy Implementation and Control 243

CHAPTER 9 Strategy Implementation: Organizing for Action 244

Strategy Implementation 246
Who Implements Strategy? 247
xii CONTENTS

What Must Be Done? 248

Developing Programs, Budgets, and Procedures 248
Sustainability Issue: A BETTER BOTTLE—ECOLOGIC BRANDS 249
Achieving Synergy 252
How Is Strategy to Be Implemented? Organizing for Action 253
Structure Follows Strategy 253
Stages of Corporate Development 254
Innovation Issues: THE P&G INNOVATION MACHINE STUMBLES 255
Organizational Life Cycle 258
Advanced Types of Organizational Structures 260
Reengineering and Strategy Implementation 263
Six Sigma 264
Designing Jobs to Implement Strategy 265
International Issues in Strategy Implementation 266
International Strategic Alliances 266
Stages of International Development 267
Global Issue: OUTSOURCING COMES FULL CIRCLE 268
Centralization Versus Decentralization 268
End of Chapter Summary 270

CHAPTER 10 Strategy Implementation: Staffing and Directing 274

Staffing 276
Staffing Follows Strategy 277
Selection and Management Development 279
Innovation Issue: HOW TO KEEP APPLE “COOL” 279
Problems in Retrenchment 281
International Issues in Staffing 283
Leading 285
Sustainability Issue: PANERA AND THE “PANERA CARES COMMUNITY CAFÉ” 285
Managing Corporate Culture 286
Action Planning 290
Management by Objectives 292
Total Quality Management 292
International Considerations in Leading 293
Global Issue: CULTURAL DIFFERENCES CREATE IMPLEMENTATION
PROBLEMS IN MERGER 295

End of Chapter Summary 296

 C O NT E N T S xiii

CHAPTER 11 Evaluation and Control 302

Evaluation and Control in Strategic Management 304
Measuring Performance 304
Appropriate Measures 304
Types of Controls 305
Innovation Issue: REUSE OF ELECTRIC VEHICLE BATTERIES 306
Activity-Based Costing 307
Enterprise Risk Management 308
Primary Measures of Corporate Performance 308
Balanced Scorecard Approach: Using Key Performance Measures 311
Sustainability Issue: E-RECEIPTS 311
Primary Measures of Divisional and Functional Performance 313
Responsibility Centers 314
Using Benchmarking to Evaluate Performance 315
International Measurement Issues 316
Global Issue: COUNTERFEIT GOODS AND PIRATED SOFTWARE: A GLOBAL PROBLEM 318
Strategic Information Systems 318
Enterprise Resource Planning (ERP) 319
Radio Frequency Identification (RFID) 319
Divisional and Functional is Support 320
Problems in Measuring Performance 320
Short-Term Orientation 320
Goal Displacement 322
Guidelines for Proper Control 323
Strategic Incentive Management 323
End of Chapter Summary 325

PART FIVE Introduction to Case Analysis 331

CHAPTER 12 Suggestions for Case Analysis 332

The Case Method 334
Researching the Case Situation 334
Financial Analysis: A Place to Begin 335
Analyzing Financial Statements 335
Common-Size Statements 339
Z-Value and the Index of Sustainable Growth 339
Useful Economic Measures 340
Format for Case Analysis: The Strategic Audit 341
xiv CONTENTS

End of Chapter Summary 343

APPENDIX 12.A Resources for Case Research 345
APPENDIX 12.B Suggested Case Analysis Methodology Using the Strategic Audit 347
APPENDIX 12.C Example of Student-Written Strategic Audit 350

PART SIX Cases in Strategic Management 1-1

SECTION A Corporate Governance: Executive Leadership

CASE 1 The Recalcitrant Director at Byte Products, Inc.: Corporate Legality versus
Corporate Responsibility 1-7
(Contributors: Dan R. Dalton, Richard A. Cosier, and Cathy A. Enz)
A plant location decision forces a confrontation between the board of directors and the CEO
regarding an issue in social responsibility and ethics.

CASE 2 The Wallace Group 2-1

(Contributor: Laurence J. Stybel)
Managers question the company’s strategic direction and how it is being managed by its founder and
CEO. Company growth has resulted not only in disorganization and confusion among employees, but
in poor overall performance. How should the board deal with the company’s founder?

SECTION B Business Ethics

CASE 3 Everyone Does It 3-1
(Contributors: Steven M. Cox and Shawana P. Johnson)
When Jim Willis, Marketing VP, learns that the launch date for the company’s new satellite will be late
by at least a year, he is told by the company’s president to continue using the earlier published date
for the launch. When Jim protests that the use of an incorrect date to market contracts is unethical,
he is told that spacecraft are never launched on time and that it is common industry practice to list
unrealistic launch dates. If a realistic date was used, no one would contract with the company.

CASE 4 The Audit 4-1

(Contributors: Gamewell D. Gantt, George A. Johnson, and John A. Kilpatrick)
A questionable accounting practice by the company being audited puts a new CPA in a difficult
position. Although the practice is clearly wrong, she is being pressured by her manager to ignore it
because it is common in the industry.

SECTION C Corporate Social Responsibility

CASE 5 Early Warning or False Sense of Security? Concussion Risk and the Case of the
Impact-Sensing Football Chinstrap 5-1
(Contributors: Clifton D. Petty, and Michael R. Shirley)
In 2009, Battle Sports Science, headquartered in Omaha, Nebraska, was built with a focus on
new “enhancing safety for athletes.” Specifically, the company wanted to protect young athletes who might
have suffered a concussion. Battle Sports Science attempted to gain market attention for its US$149.99
impact indicator (chin strap) through endorsements, and had enlisted a number of NFL players. The
company hoped to sell the device to sports programs (schools) as well as to individual players.
 C O NT E N T S xv

SECTION D International Issues in Strategic Management

CASE 6 A123 Systems: A New Lithium-Ion Battery System for Electric
and Hybrid Cars 6-1
(Contributor: Alan N. Hoffman)
In 2007, A123 was developing its hybrid electric vehicle business. A123 entered into a partnership
new with Cobasys to introduce lithium-ion batteries into the automotive market. A123 also entered into an
agreement with GM to use their batteries in the Saturn Vue Plug-in Hybrid development program and
to co-develop a lithium-ion battery for the Chevrolet Volt. A123 faced cash flow shortages after its
2009 IPO and its ultimate survival was threatened by its diminishing funds for continued operations.

CASE 7 Guajilote Cooperativo Forestal, Honduras 7-1

(Contributors: Nathan Nebbe and J. David Hunger)
This forestry cooperative has the right to harvest, transport, and sell fallen mahogany trees in
La Muralla National Park of Honduras. Although the cooperative has been successful thus far, it is
facing some serious issues: low prices for its product, illegal logging, deforestation by poor farmers,
and possible world trade restrictions on the sale of mahogany.

SECTION E General Issues in Strategic Management

INDUSTRY ONE: INTERNET COMPANIES

CASE 8 Google Inc. (2010): The Future of the Internet Search Engine 8-1
(Contributor: Patricia A. Ryan)
Google, an online company that provides a reliable Internet search engine, was founded in 1998 and
soon replaced Yahoo as the market leader in Internet search engines. By 2010, Google was one of
the strongest brands in the world. Nevertheless, its growth by acquisition strategy was showing signs
of weakness. Its 2006 acquisition of YouTube had thus far not generated significant revenue growth.
Groupon, a shopping Web site, rebuffed Google’s acquisition attempt in 2010. Is it time for a strategic
change?

CASE 9 Amazon.com, Inc.: Retailing Giant to High-Tech Player? 9-1

(Contributor: Alan N. Hoffman)
In 2012, more than half of all Amazon sales came from computers, mobile devices including the
Kindle, Kindle Fire, and Kindle Touch, and other electronics, as well as general merchandise from
home and garden supplies to groceries, apparel, jewelry, health and beauty products, sports and
new outdoor equipment, tools, and auto and industrial supplies. Amazon was at a crossroads with regard
to its push into technology versus its general merchandise. Amazon also faced other challenges,
including those from state governments that wanted it to collect sales taxes so it would not adversely
compete against local businesses.

CASE 10 Blue Nile, Inc.: “Stuck in the Middle” of the Diamond Engagement
Ring Market 10-1
(Contributor: Alan N. Hoffman)
Blue Nile Inc. has developed into the largest online retailer of diamond engagement rings. Unlike
traditional jewelry retailers, Blue Nile operates completely store-front-free, without in-person
new consultation services. The business conducts all sales online or by phone, and sales include both
engagement (70%) and non-engagement (30%) categories. Blue Nile’s vision is to educate its
customer base so customers can make an informed, confident decision no matter what event they
are celebrating. It wants to make the entire diamond-buying process easy and hassle-free.
xvi CONTENTS

INDUSTRY TWO: ENTERTAINMENT AND LEISURE

CASE 11 Groupon Inc.: Daily Deal or Lasting Success? 11-1
(Contributors: Nick Falcone, Eric Halbruner, Ellie A. Fogarty, and Joyce Vincelette)
Groupon began as a local Chicago discount service and became a global phenomenon seemingly
overnight. It was a great idea. The company was the first of its kind and changed the way consumers
new spend, shop, and think about discounts. But how could Groupon, based on such innovation and having
experienced such exceptional growth, be in such a precarious position? A wave of competition had
swelled, including the likes of technology giants and both general and niche daily deals services, all
replicating Groupon’s business model. How could Groupon compete against large companies and
their expansive resources?

CASE 12 Netflix Inc.: The 2011 Rebranding/Price Increase Debacle 12-1

(Contributor: Alan N. Hoffman)
On September 18, 2011, Netflix CEO and co-founder Reed Hastings announced on the Netflix blog
that the company was splitting its DVD delivery service from its online streaming service, rebranding
its DVD delivery service Qwikster, as a way to differentiate it from its online streaming service, and
new creating a new Web site for it. Three weeks later, in response to customer outrage and confusion,
Hastings rescinded the decision to rebrand the DVD delivery service Qwikster and reintegrated it
into Netflix. Nevertheless, only five weeks after the initial split, Netflix acknowledged that it had lost
800,000 U.S. subscribers and expected to lose many more, thanks both to the Qwikster debacle and the
price hike the company had decided was necessary to cover increasing content costs.

CASE 13 Carnival Corporation & plc (2010) 13-1

(Contributors: Michael J. Keeffe, John K. Ross III, Sherry K. Ross, Bill J. Middlebrook,
and Thomas L. Wheelen)
With its “fun ship,” Carnival Cruises changed the way people think of ocean cruises. The cruise
became more important than the destination. Through acquisition, Carnival expanded its product line
to encompass an entire range of industry offerings. How can Carnival continue to grow in the industry
it now dominates?

CASE 14 Zynga, Inc. (2011): Whose Turn Is It? 14-1

(Contributors: Zachary Burkhalter, Daniel Zuller, Concetta Bagnato, Joyce Vincelette,
and Ellie A. Fogarty)
Zynga built its company around social gaming. This new type of gaming transformed the gaming
industry on multiple levels and across various platforms. Zynga originally built its games using the
new
Facebook platform and then capitalized on the company’s unique method of social networking to
capture audiences around the world. However, this strong reliance on Facebook and changes in
consumer gaming practices caused some concern among outside investors as to the future of Zynga.

INDUSTRY THREE: FOOD AND BEVERAGE

CASE 15 The Boston Beer Company: Brewers of Samuel Adams Boston Lager
(Mini Case) 15-1
(Contributor: Alan N. Hoffman)
The Boston Beer Company, founded in 1984 by Jim Koch, is viewed as pioneer in the American craft
beer revolution. Brewing over one million barrels of 25 different styles of beer, Boston Beer is the
sixth-largest brewer in the United States. Even though overall domestic beer sales declined 1.2% in
2010, sales of craft beer have increased 20% since 2002, with Boston Beer’s increasing 22% from
2007 to 2009. How can the company continue its rapid growth in a mature industry?
 C O NT E N T S xvii

CASE 16 Panera Bread Company (2010): Still Rising Fortunes? 16-1

(Contributors: Joyce P. Vincelette and Ellie A. Fogarty)
Panera Bread is a successful bakery-café known for its quality soups and sandwiches. Even though
Panera’s revenues and net earnings have been rising rapidly, new unit expansion throughout North
America has fueled this growth. Will revenue growth stop once expansion slows? The retirement
of CEO Ronald Shaich, the master baker who created the “starter” for the company’s phenomenal
growth, is an opportunity to rethink Panera’s growth strategy.

CASE 17 Whole Foods Market (2010): How to Grow in an Increasingly

Competitive Market? (Mini Case) 17-1
(Contributors: Patricia Harasta and Alan N. Hoffman)
Whole Foods Market is the world’s leading retailer of natural and organic foods. The company
differentiates itself from competitors by focusing on innovation, quality, and service excellence,
allowing it to charge premium prices. Although the company dominates the natural/organic foods
category in North America, it is facing increasing competition from larger food retailers like Wal-
Mart, who are adding natural/organic foods to their offerings.

CASE 18 Burger King (Mini Case) 18-1

(Contributor: J. David Hunger)
Founded in Florida in 1953, Burger King has always trailed behind McDonald’s as the second-largest
fast-food hamburger chain in the world. Although its total revenues dropped only slightly from 2009,
its 2010 profits dropped significantly, due to high expenses. Burger King’s purchase by an investment
group in 2010 was an opportunity to rethink the firm’s strategy.

CASE 19 Church & Dwight: Time to Rethink the Portfolio? 19-1

(Contributor: Roy A. Cook)
Church & Dwight, the maker of ARM & HAMMER Baking Soda, has used brand extension to
successfully market multiple consumer products based on sodium bicarbonate. Searching for a new
growth strategy, the firm turned to acquisitions. Can management successfully achieve a balancing act
based on finding growth through expanded uses of sodium bicarbonate while assimilating a divergent
group of consumer products into an expanding international footprint?

INDUSTRY FOUR: APPAREL

CASE 20 Under Armour 20-1
(Contributors: Ram Subramanian and Pradeep Gopalakrishna)
Under Armour’s footwear sales declined by 4.5% during the second quarter of 2009 and showed
a 16.6% decline in the first six months of 2010 compared to 2009. This was in contrast to its
new performance apparel, the company’s core category, which saw a 32.2% uptick over 2009. Under
Armour had tremendous growth opportunities in the apparel category in China. However, CEO Kevin
Plank wanted Under Armour to be a leading player in the field of athletic footwear.

CASE 21 TOMS Shoes (Mini Case) 21-1

(Contributor: J. David Hunger)
Founded in 2006 by Blake Mycoskie, TOMS Shoes is an American footwear company based in Santa
Monica, California. Although TOMS Shoes is a for-profit business, its mission is more like that of a
not-for-profit organization. The firm’s reason for existence is to donate to children in need one new
pair of shoes for every pair of shoes sold. By 2010, the company had sold over one million pairs of
shoes. How should the company plan its future growth?
xviii CONTENTS

CASE 22 Best Buy Co. Inc. (2009): A Sustainable Customer-Centricity Model? 22-1
(Contributor: Alan N. Hoffman)
Best Buy, the largest consumer electronics retailer in the United States, operates 4000 stores in North
America, China, and Turkey. It distinguishes itself from competitors by deploying a differentiation
strategy based on superior service rather than low price. The recent recession has stressed its finances
and the quality of its customer service. How can Best Buy continue to have innovative products, top-
notch employees, and superior customer service while facing increased competition, operational costs,
and financial stress?

INDUSTRY FIVE: SPECIALTY RETAILING

CASE 23 Rosetta Stone Inc.: Changing the Way People Learn Languages 23-1
(Contributors: Christine B. Buenafe and Joyce P. Vincelette)
Rosetta Stone’s mission was to change the way people learn languages. The company blended
language learning with technology at a time when globalization connected more and more individuals
and institutions to each other. How should the company move forward? Would it be appropriate for
Rosetta Stone to offer products like audio books or services in order to increase market share? Which
international markets could provide the company with a successful future?

CASE 24 Dollar General Corporation: 2011 Growth Expansion Plans (Mini Case) 24-1
(Contributor: Kathryn E. Wheelen)
With annual revenues of US$12.7 billion and 9200 stores in 35 states, Dollar General is the largest
of the discount “dollar stores” in the United States. Although far smaller than its “big brothers”
Wal-Mart and Target, Dollar General has done very well during the recent economic recession. In
2011, it planned to open 625 new stores in three new states. Given that the company has a substantial
long-term debt, is this the right time to expand its operations?

CASE 25 iRobot: Finding the Right Market Mix? 25-1

(Contributor: Alan N. Hoffman)
Founded in 1990, iRobot was one of the first companies to introduce robotic technology into the
consumer market. Employing over 500 robotic professionals, the firm planned to lead the robotics
industry. Unfortunately, its largest revenue source, home care robots, is a luxury good and vulnerable
to recessions. Many of iRobot’s patents are due to expire by 2019. The firm is highly dependent upon
suppliers to make its consumer products and the U.S. government for its military sales. What is the
best strategy for its future success?

SECTION D

I N D U S T R Y S I X : TRANSPORTATION
CASE 26 Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956 26-1
(Contributor: Alan N. Hoffman)
Tesla Motors was founded in 2004 to produce electric automobiles. Its first car, the Tesla Roadster,
sold for US$101,000. It could accelerate from 0 to 60 mph in 3.9 seconds, and cruise for 236 miles
new on a single charge. In contrast to existing automakers, Tesla sold and serviced its cars through the
Internet and its own Tesla stores. With the goal of building a full line of electric vehicles, Tesla Motors
faces increasing competition from established automakers. How can Tesla Motors succeed in an
industry dominated by giant global competitors?

CASE 27 Delta Air Lines (2012): Navigating an Uncertain Environment 27-1

(Contributors: Alan N. Hoffman and J. David Hunger)
Delta used mergers and acquisitions (M&A) successfully to solidify its strong position as a leader in
the airline industry. It has gone through five M&As since 1953, including the most recent acquisition
new of Northwest Airlines (Northwest), which turned Delta into an airline with major operations in every
region of the world. The Northwest merger took a toll on Delta’s financial position, however, by
contributing to its high long-term debt.
 C O NT E N T S xix

In 2012, top management began cautiously exploring opportunities for entering new markets, routes,
and partnerships in order to boost market share. Management was also searching for ways to reduce
costs and expenses in an industry that was rapidly consolidating into fewer major national and
international players. Delta is considering purchasing from Conoco.

CASE 28 TomTom: New Competition Everywhere! 28-1

(Contributor: Alan N. Hoffman)
TomTom, an Amsterdam-based company that provides navigation services and devices, led the
navigation systems market in Europe and is second in popularity in the United States. However, the
company is facing increasing competition from other platforms using GPS technology, like cell phones
and Smartphones with built-in navigation functions. As its primary markets in the United States and
Europe mature, how can the company ensure its future growth and success?

SECTION G

INDUSTRY SEVEN: MANUFACTURING

CASE 29 General Electric, GE Capital, and the Financial Crisis of 2008: The Best of the
Worst in the Financial Sector? 29-1
(Contributor: Alan N. Hoffman)
The financial services industry was, by definition, volatile, and GE Capital was particularly hard
hit by the economic recession of 2008. With the credit markets illiquid and financial markets falling,
GE Capital found it was overexposed to commercial real estate and foreign residential mortgages.
new At this point, GE’s parent corporation stepped in, began reorganizing GE Capital, and significantly
downsized the unit. GE Capital hoped to see continued sustainable earnings growth with growing
margins and lower portfolio risk, and to return money to investors and resume paying dividends to its
parent company

CASE 30 AB Electrolux: Challenging Times in the Appliance Industry 30-1

(Contributor: Alan N. Hoffman)
AB Electrolux is currently the world’s second-largest appliance maker, behind Whirlpool. Electrolux
has over 50,000 employees in more than 50 countries around the world. Its headquarters are in
Stockholm, Sweden.
As the social and demographic trends continue to evolve, so do the opportunities afforded to
Electrolux. The most significant demographic shift globally is the growing middle class in Asia, which
includes families with incomes between US$6000 and US$30,000. It is estimated that by 2020 there
new will be one billion more people in the global middle class than there were in 2010. Correlated with
rising incomes worldwide, homeownership has also increased at a substantial rate, giving rise to
increased demand for consumer durables such as refrigerators, washing machines, and dishwashers.

INDUSTRY EIGHT: INFORMATION TECHNOLOGY

CASE 31 Apple Inc.: Performance in a Zero-Sum World Economy 31-1
(Contributors: Moustafa H. Abdelsamad, Hitesh (John) Adhia, David B. Croll, Bernard A.
Morin, Lawrence C. Pettit Jr., Kathryn E. Wheelen, Richard D. Wheelen, Thomas L.
Wheelen II, and Thomas L. Wheelen)
By the 1990s, Apple, the first company to mass-market a personal computer, had become a minor
player in an industry dominated by Microsoft. After being expelled from the company in 1985, founder
Steve Jobs returned as CEO in 1997 to reenergize the firm. The introduction of the iPod in 2001,
followed by the iPad, catapulted Apple back into the spotlight. However, in 2011 Jobs was forced to
take his third medical leave, leading to questions regarding his ability to lead Apple. How can Apple
continue its success? How dependent is the company on Steve Jobs?
xx CONTENTS

CASE 32 Dell Inc.: Changing the Business Model (Mini Case) 32-1
(Contributor: J. David Hunger)
Dell, once the largest PC vendor in the world, is now battling with Acer for second place in the global
PC market. Its chief advantages—direct marketing and power over suppliers—no longer provides
a competitive advantage. The industry’s focus has shifted from desktop PCs to mobile computing,
software, and technology services, areas of relative weakness for Dell. Is it time for Dell to change
its strategy?

CASE 33 Logitech (Mini Case) 33-1

(Contributor: Alan N. Hoffman)
Logitech, the world’s leading provider of computer peripherals, was on the forefront of mouse,
keyboard, and videoconferencing technology. By 2010, however, Logitech’s products were threatened
by new technologies, such as touchpads, that could replace both the mouse and keyboard. As the
peripherals market begins to disintegrate, Logitech is considering a change in strategy.

CASE 34 Daktronics (A): The U.S. Digital Signage Industry 2010 34-1
(Contributors: Joseph Kavanaugh, Joshua Warne, and Carol J. Cumber)
The billboard, sign, and outdoor advertising industry in the United States is almost as old as the
Colonies. Lighted billboards, roadside signs, neon lights, and other forms of display are part of our
everyday environment. The newest segment of the industry, digital signage, is driven by 21st-century
new technologies in computers, peripherals, graphics, and new sources of light—liquid crystal display
(LCD), light-emitting diodes (LED), and others. Less than 20 years old, the digital segment (sales of
US$2.14 billion) was estimated to be 17.8% of the outdoor signage industry in 2008. This note reviews
the digital signage industry and explores the forces that are driving this emerging segment of the
advertising, messaging, and sign industry.
GLOSSARY G-1
NAME INDEX I-1
SUBJECT INDEX I-6
 Dedicated to

SPECIAL DEDICATION TO TOM WHEELEN

Tom originated this book in the late 1970s and with his friend David Hunger brought the first edition
to fruition in 1982. What a ride it has been! After battling bone cancer, Tom died in Saint Petersburg,
Florida, on December 24, 2011. It was Tom’s idea from the very beginning to include the latest research
and useful material written in such a way that the typical student could read and understand the book
without outside assistance. That has been a key reason for the success of the book through its many
editions. Tom’s last months were spent working with the two new co-authors to map out the direction for
the 14th edition. We thank you, Tom, and bid you a fond farewell! This 14th edition is for you.
J. David Hunger
Alan N. Hoffman
Charles E. Bamford

This is a special dedication to Thomas L. Wheelen, co-author, father, and best friend,
May 30, 1935 – December 24, 2011. This is the 14th edition of SMBP the creation you and
Mr. Hunger started due to your friendship at the McIntire School of Commerce at UVA with that
adjoining door! It is not very often that two co-authors become the best of friends, but you both did.
That was a very special gift that Tom treasured until the end. We are so glad you were able to meet as
the dynamic foursome to discuss the 14th edition of SMBP! The new addition of co-authors
Alan Hoffman and Chuck Bamford gave you and Mr. Hunger the ability to relax and smell the roses.
We have come full circle with you being back at UVA! You were an amazing friend, visionary,
teacher, and leader! Thank you for pushing us to be who we are today! You were very blessed to
have two children as your best friends! You will never know how much you are missed!

Dad – chailleann againn go mbainfidh tú agus grá agat. Tá do Spiorad na hÉireann le linn i gcónaí!
GNPD KEW and RDW
Betty, Kari and Jeff, Maddie and Megan, Suzi and Nick, Summer and Kacey, Lori,
Merry, Dylan, and newborn Edan. Also to Wolfie (arf!).
David Hunger
To Will Hoffman, the greatest son in the world. . . . and to our saint Wendy Appel.
In memory of my good friend, Tom Wheelen, via con dios. Thank you, Tom and David.
Alan Hoffman
To Yvonne, for your support, advice, encouragement, love, and confidence. To David and Tom, for your
confidence, council, and mental energy in the revision of this remarkable text.
Chuck Bamford
This page intentionally left blank
Preface
Welcome to the 14th edition of Strategic Management and Business Policy! All of the
chapters have been updated, and most of the cases are new and different. We have added
several brand-new cases (Early Warning: Concussion Risk and the Case of the Impact
Sensing Chinstrap, A123, Amazon, Blue Nile, Groupon, Netflix, Zynga, Under Armour,
General Electric, AB Electrolux, Tesla Motors, Delta Airlines, and The U.S. Digital
Signage Industry Note) for a total of 13 new cases! Many of the cases are exclusive to this
edition! Although we still make a distinction between full-length and mini cases, we have
interwoven them throughout the book to better identify them with their industries.
This edition revamps the theme that runs throughout all 12 chapters. We utilize a three-
legged approach consisting of globalization, innovation, and sustainability. These three
strategic issues comprise the cornerstone that all organizations must build upon to push their
businesses forward. Each chapter incorporates specific vignettes about these three themes.
We continue to be the most comprehensive and practical strategy book on the market, with
chapters ranging from corporate governance and social responsibility to competitive strat-
egy, functional strategy, and strategic alliances.

FEATURES NEW TO THIS 14TH EDITION

For the first time in 30 years, the 14th edition has added two new authors to the text. Alan
Hoffman, a major contributor to the 13th edition, is a former textbook author and world-
renowned author of strategy business cases, and Chuck Bamford, who was a student of Tom
Wheelen and David Hunger back in 1980 at the University of Virginia (McIntire School of
Commerce), has authored four other textbooks. They join J. David Hunger and bring a fresh
perspective to this extraordinarily well-researched and practically crafted text. In that vein,
this edition of the text has:
■ Vignettes on Sustainability (which is widely defined as Business Sustainability),
Globalization (which we view as an expectation of business), and Innovation (which is
the single most important element in achieving competitive advantage) appear in every
chapter of the text.
■ Every example, chapter opening, and story has been updated. This includes chapter
opening vignettes examining companies such as: Five Guys, RIM (BlackBerry), HP’s
Board of Directors, Tata Motors, Costco, and Pfizer among many others.
■ Resource-based analysis (Chapter 5) has been added to the toolbox of students’ under-
standing of competitive advantage.
■ Extensive additions have been made to the text on strategy research.
■ Current consulting practices have been added to the topics of strategy formulation and
strategy implementation.
■ Thirteen new full-length cases have been added:
Twelve new comprehensive cases and one new Industry Note have been added to support
the 13 popular full-length cases and 8 mini-cases carried forward from past editions. Thir-
teen of the cases in the 14th edition are brand new and one case is an updated favorite from

xxiii
Another random document with
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banquette her own se’f. I done seed her, one mornin’; she war a-
scrubbin’ lak mad. An’ bress yer, honey, she done had a veil on; so
no one won’t know her. Shore’s I live, she done brick her banquette
wid a veil on.”
“If she cleans the banquette herself, they must be very poor,” was
Pepsie’s logical conclusion. “Perhaps, after all, they’re not so proud;
only they don’t want people to know how poor they are. And, Tite,
don’t you tell that on the poor lady. You know it’s just one of your
stories about her having a veil on. It may have been some one else.
You couldn’t tell who it was, if she had a veil on, as you say.”
This argument did not in the least shake Tite Souris in her
conviction that she had seen the granddaughter of the Count
d’Hautreve bricking her banquette before “sun-up” with a veil over
her face.
However, Lady Jane and Pepsie were reconciled, and the little
cripple, to show her confidence in the child’s affection, was now as
anxious to have her go to Mam’selle Diane and learn music, as she
was averse to it before.
“Yes, Lady dear, I want you to learn to play on the piano, and I’ll
tell you what I’ve been thinking of,” said Pepsie as they leaned
confidentially toward each other across the table, “mama has some
money in the bank. She’s been saving it to get something for me.
You know, she does everything I want her to do. I wanted to learn to
read, and she had a teacher come to me every day until I could read
and write very well, so I’m sure she’ll do this, if I want her to; and this
is what it is: She must buy a piano to put right there in that space
next to bed.”
“For me to play on? Oh, Pepsie, how lovely!” and Lady Jane
clasped her hands with delight.
“And you can practise all the time,” continued the practical Pepsie.
“You know, if you ever learn music well you must practise a great
deal. Cousin Marie practised three hours a day in the convent. And
then, when you are grown up, you’ll sing in the cathedral, and earn a
great deal of money; and you can buy a beautiful white satin dress,
all trimmed down the front with lace, and they will ask you to sing in
the French Opera, on Rue Bourbon; and every one will bring you
flowers, and rings and bracelets, and jewels, and you’ll be just like a
queen.”
“And sit on a throne, and wear a crown?” gasped Lady Jane, her
eyes wide and sparkling, and her cheeks flushed over the glories of
Pepsie’s riotous imagination.
“Yes,” said Pepsie. Now that she had started she meant to give full
rein to her fancy. “And every one will be ready to worship you, and
you’ll ride out in a blue carriage, with eight white horses.”
“Oh, oh!” interrupted Lady Jane rapturously; “and you’ll go with
me, and it will be just as good as riding in Tante Modeste’s milk cart.”
“Better, much better,” agreed Pepsie, quite willing, in her present
mood, to admit that there was something better; “and then you’ll
have a big, big house in the country, with grass, and trees, and
flowers, and a fountain that will tinkle, tinkle all the time.”
“And you and Mama Madelon will live with me always.” Here a
sudden shadow passed over the bright little face, and the wide eyes
grew very wistful. “And, Pepsie, perhaps God will let papa and mama
come and live with me again.”
 “YES, LADY DEAR, I WANT YOU TO LEARN TO PLAY ON THE
PIANO, AND I’LL TELL YOU WHAT I’VE BEEN THINKING OF,” SAID
PEPSIE
 “Perhaps so, dear,” returned Pepsie with quick sympathy. “When I
say my prayers, I’ll ask.”
Presently Lady Jane said softly, with an anxious glance at Pepsie,
“You know, you told me that mama might come back before
Christmas. It’s nearly Christmas, isn’t it? Oh, I wish I could know if
she was coming back! Can’t you ask your cards, Pepsie? Perhaps
they’ll tell if she’ll come.”
“I’ll try,” replied Pepsie, “yes, I’ll try; but sometimes they won’t tell.”
When Lady Jane asked permission of Madame Jozain to study
music with Mam’selle Diane, Tante Pauline consented readily. In fact,
she was overjoyed. It was no common honor to have one’s niece
instructed by a d’Hautreve, and it was another feather in her much
beplumed cap. By and by people would think more of her and treat
her with greater consideration. When she was once intimate with the
d’Hautreve ladies, the neighbors wouldn’t dare turn the cold shoulder
to her; for through their interest in the child she expected to gain a
foothold for herself; but she had yet to learn how very exclusive a
d’Hautreve could be, under certain circumstances.
 CHAPTER XVII
LADY JANE’S DANCING-MASTER

A MONG all Lady Jane’s friends there was no one who

congratulated her on her good fortune with half the enthusiasm
and warmth displayed by little Gex.
“Vell, vell, my dear leetle lady,” he said, rubbing his small hands
delightedly. “Vhy, you are in luck, and no mistake! To have such a
teacher for the music as Mam’selle Diane d’Hautreve is as good as a
fortune to you. She’ll give you the true style,—the style of the French
nobility, the only style vhat is good. I know just vhat that is. Peoples
think old Gex knows nothing; but they’re mistaken, leetle lady;
they’re mistaken. They don’t know vhat I vas once. There isn’t
nothing in music that Gex hasn’t heard. I’ve seen everything fine,
and I’ve heard everything fine, vhen I used to be alvays at the
French opera.”
“Oh, were you in the French opera?” interrupted Lady Jane, with
sparkling eyes; “that’s where Pepsie says I shall sing, and I’m going
to have flowers and—and a throne, and—oh, I don’t remember; but
everything, everything!” she added impressively, summing it all up in
one blissful whole.
“Vell, I shouldn’t vonder, I shouldn’t vonder,” said Gex, looking at
her proudly, with his head on one side, much like an antiquated crow,
“for you’ve got one voice already vhat vould make soft the heart of
one stone.”
“Oh, Mr. Gex, where did you hear me sing?” and Lady Jane looked
at him with grave surprise. “I never sang for any one but Pepsie, and
Mam’selle Diane, and you weren’t there.”
“But I’ve heard you sing; I’ve heard you, my leetle lady,” insisted
the old man, with twinkling eyes. “It vas one morning vhen you vas a-
singing vith Mam’selle Diane, outside on the banquette. I stepped
out, and there I heard you sing like one leetle bird; but you didn’t
know I vas a-listening.”
“No, I didn’t know it,” said Lady Jane, smiling brightly again. “I’m
glad you heard me, and some day I’ll sing, ‘Sleep, baby, sleep,’ for
you if you’d like to hear it.”
Mr. Gex assured her that he would, and added that he adored the
music. “I haven’t heard the fine music for many years,” he remarked,
with a little sigh, “and I used to be just crazed for it; but I vas different
then, leetle lady, I vas different; you vouldn’t think it, but I vas
different.”
“You didn’t wear a handkerchief over your ears then, did you, Mr.
Gex?”
“No, no, my leetle lady; it vas the ear-ache vat made me tie up my
ear.”
“Did you wear an apron, and did you sew?” continued Lady Jane,
very curious to know in what ways he was different.
“Vear an apron!” exclaimed Gex, holding up his hands. “Vhy, bless
your leetle heart, I dressed like one gentleman. I vore the black
clothes, fine and glossy. I vas one neat leetle man. My hair vas black
and curly and, you von’t believe it, I’m afraid you von’t believe it, but I
vore the silk hose, and leetle fine shoes tied vith one ribbon, and one
gold chain across my vaistcoat, and one ring on that finger,” and Gex
touched one of his hard and shrunken digits my way of emphasis.
“Did you, Mr. Gex,—oh, did you?” and Lady Jane’s eyes glistened,
and her little face was one smile of delight. “Oh, how nice you must
have looked! But you didn’t have a fruit-stall then?”
“No, indeed; no, indeed; I vas in one fine business. I vas
fashionable then; I vas one fine leetle gentleman.”
“Mr. Gex, what did you do?” cried Lady Jane, in a little, shrill,
impetuous voice, for her curiosity had reached the climax. “I want to
know what you did, when you curled your hair and wore a gold
chain.”
“I vas one professeur, leetle lady. I vas one professeur.”
 “One professeur! Oh, what is one professeur?” cried Lady Jane
impatiently.
“He is one gentleman vhat does teach.”
“Then you taught music. Oh, I’ve guessed it,—you taught music,”
and Lady Jane looked at him admiringly. “Now I know why you like it
so much!”
“No, no, leetle lady. It vas not the music. It vas the sister to the
music; it vas the dance. I vas professeur of the dance. Think of that,
of the dance. So nimble, so quick; see, like this,” and little Gex,
carried away by the memory of his former triumphs, took hold of the
sides of his apron and made two or three quaint, fantastic steps,
ending them with a little pirouette and a low bow which enchanted
Lady Jane.
“Oh, how funny, how funny! Please do it again—won’t you, Mr.
Gex? Oh, do, do!”
Gex smiled indulgently, but shook his head. “No, no, leetle lady.
Once is enough, just to show you how nimble and quick one
professeur of the dance can be; but then I vas young and supple,
and full of life. I vas running over vith life; I vas one fine leetle
gentleman, so springy and light, and I vas all the fashion. Vould you
believe it, leetle lady? I had one fine grand house on Rue Royale,
and all the rich peoples, and all the noblesse, and all the leetle
gentlemen and the small leetle ladies like you came to the
‘Professeur Gex’ to learn the dance.”
“But why, why, Mr. Gex, did you leave the Rue Royale?” asked
Lady Jane, greatly puzzled at his changed condition, and anxious to
know by what strange freak of destiny he had been brought to sell
fruit and vegetables in Good Children Street, to wear an apron, and
to mend his own stockings.
“Ah, vell, my leetle lady, it vas many things vhat brought me to
here,” he replied, with a sigh of resignation. “You see, I did not stay
the fashion. I got old, and the rheumatism made me slow and stiff,
and I vas no more such a fine, light leetle gentleman. I could not
jump and turn so nimble and quick, and a new professeur came from
Paris, and to him vent all my pupils. I had no money, because I vas
vairy fond of good living and I lived high like one gentleman; and so
ven I vas old I vas poor, and there vas nothing but to sell the fruit and
vegetables in Good Children Street.”
“Oh, dear, dear, what a pity!” sighed Lady Jane regretfully. To think
that the mighty had fallen so low touched her loyal little heart, and
brought the tears of sympathy to her blue eyes.
“Naiver mind, naiver mind. You see I vas old, and I could not teach
the dance alvay; but attendez, my leetle lady, listen to vhat I say,”
and he clasped his hands persuasively, and turned his head on one
side, his little twinkling eyes full of entreaty. “Vould you now, vould
you like to learn the dance? I’m old, and I’m no more so nimble and
light, but I know the steps, all the fine steps, and my leetle lady must
learn the dance some time. Von’t you let me teach you how to take
the fine leetle steps?”
“Oh, Mr. Gex, will you?” cried Lady Jane, jumping down from her
chair, with a flushed, eager face, and standing in front of the little
dancing-master. “Do, do!—I’m all ready. Teach them to me now!”
“Vell, that is all right, stand as you are, and I vill begin just now,”
said Gex, beaming with pleasure, while he hurriedly rolled his aprons
up under his armpits, and pushed his spectacles well on the top of
his bald head. “Now, now, leetle lady, turn out your toes, take hold of
your skirt, just so. Right foot, left foot, just so. Vatch me. Right foot,
left foot. One, two, three. Right foot, one, two; left foot, one, two,
three; half around, one, two, three; just so, vatch me. Back again,
half around, one, two, one two—oh, good, good, vairy good! My
leetle lady, you vill learn the dance so vell!”
It was a delicious picture that they made in the dingy little shop,
surrounded by fruit and vegetables. Lady Jane, with her yellow flying
hair, her radiant rosy face, her gracious head coquettishly set on one
side, her sparkling blue eyes fixed on Gex, her dainty little fingers
holding out her short skirt, her slender, graceful legs and tiny feet
advancing and retreating in shy mincing steps, turning and whirling
with a graceful swaying motion first on one side, then the other, right
in front of Gex, who, with a face of preternatural gravity, held out his
loose trousers’ legs, and turned his small brogans to the correct
angle, while he went through all the intricate steps of a first dancing-
lesson in the quaint, old-fashioned style of fifty years ago, every
movement being closely followed by the child with a grace and spirit
really charming.
When the lesson was over, and Lady Jane ran to tell her friend of
this latest stroke of good fortune, Pepsie showed all her white teeth
in a broad smile of satisfaction.
“Well, Lady,” she said, “you are a lucky child. You’ve not only found
a music-teacher, but you’ve found a dancing-master.”
 CHAPTER XVIII
LADY JANE’S CHRISTMAS PRESENTS

C HRISTMAS came and went; and whatever hopes, desires, or

regrets filled the loving little heart of Lady Jane, the child kept
them to herself, and was outwardly as bright and cheerful as on
other days, although Pepsie, who watched her closely, thought that
she detected a wistfulness in her eyes, and, at times, a sad note in
the music of her happy voice. If the affection that finds expression in
numerous Christmas gifts can make a child contented, Lady Jane
had certainly no reason to complain.
The first thing on which her eyes fell when she awoke was her
stockings, the slender legs very much swollen and bulged, hanging
in madame’s chimney-corner, waiting to be relieved of their undue
expansion. Even Raste—the extravagant and impecunious Raste—
had remembered her; for a very dressy doll, with a French-gilt
bangle encircling its waist (the bangle being intended not for the doll,
but for Lady Jane), bore a card on which was inscribed in bold
characters, “M. Adraste Jozain,” and underneath the name, “A mery
Crismus.” Adraste was very proud of his English, and as Lady Jane
was more grateful than critical it passed muster. Then there was a
basket of fruit from Gex, and beside the basket nestled a little yellow
duckling which came from Mam’selle Diane, as Lady Jane knew
without looking at the tiny old-fashioned card attached to it. And,
after she had been made happy at home, she still had another
pleasure in store, for Pepsie, wishing to witness the pleasure of her
little friend, had the Paichoux presents, with her own and Madelon’s,
beautifully arranged on her table, and carefully covered, until the
important moment of unveiling. Every Paichoux had remembered
Lady Jane, and a finer array of picture books, dolls, and toys was
never spread before a happier child; but the presents which pleased
her most were a small music box from Madelon, a tiny silver thimble
from Pepsie, and Mam’selle Diane’s little duckling. These she kept
always among her treasures.
“The day I like best,” said Pepsie, after Lady Jane had exhausted
all the adjectives expressive of admiration, “is the jour de l’an, New
Year’s, as you call it. Then Tante Modeste and the children come
and bring bonbons and fireworks, and the street is lighted from one
end to the other, and the sky is full of rockets and Roman candles,
and there is so much noise, and every one is merry—because the
New Year has come.”
At that moment, Tite Souris entered with an expressive grin on her
ebony face, and an air of great mystery:
“Here you, chil’runs, I done got yer Crismus; doan’ say nufin ’bout
it, ’cause ’t ain’t nufin’ much. I ain’t got no money ter buy dolls an’
sech; so I jes bought yer boaf a ‘stage-plank.’ I lowed yer might lak a
‘stage plank.’”
Unfolding a large yellow paper, she laid a huge sheet of coarse
black ginger-bread on the table among Lady Jane’s treasures.
“Thank you, Tite,” said Lady Jane, eyeing the strange object
askance. “What is it?”
“Oh Lor’, Miss Lady, ain’t ye neber seed a ‘stage plank’? It’s ter
eat. It’s good,—ain’t it, Miss Peps’?”
“I don’t know, Tite; I never ate one,” replied Pepsie, smiling
broadly, “but I dare say it’s good. It’s kind of you to think of us, and
we’ll try it by and by.”
“Dear me!” said Pepsie, after Tite, who was grinning with
satisfaction, had left the room. “What shall we do with it? We can’t
eat it.”
“Perhaps Tony will,” exclaimed Lady Jane, eagerly. “He will eat
almost anything. He ate all Tante Pauline’s shrimps, the other day,
and he swallowed two live toads in Mam’selle Diane’s garden. Oh,
he’s got a dreadful appetite. Tante Pauline says she can’t afford to
feed him.” And she looked anxiously at her greedy pet.
 “Well, we’ll try him,” said Pepsie, breaking off a piece of the ‘stage
plank’ and throwing it to Tony. The bird gobbled it down promptly,
and then looked for more.
Lady Jane clapped her hands delightedly. “Oh, isn’t Tony nice to
eat it? But we mustn’t let Tite know, because she’d be sorry that we
didn’t like it. We’ll keep it and give it all to Tony,” and in this way Tite’s
“stage plank” was disposed of.
If Christmas was a merry day to Lady Jane, New Year’s was
certainly a happy one. The Paichoux children came, as Pepsie said
they would, loaded with bonbons and fireworks, and all day the
neighborhood was lively with their fun—and such a dinner as they
brought with them! Lady Jane thought there never could be anything
as pretty as the table in Madelon’s little room, loaded, as it was, with
all sorts of good things. Tante Modeste went home to dine with her
husband, but the children remained until the milk-cart came for them
when it was quite dark.
After they were all gone, and quiet was restored to the tiny
dwelling, Lady Jane remarked to Pepsie that she thought New Year’s
was better than Christmas.
“But just wait,” said Pepsie, smiling mysteriously, “just wait until
Carnival. Christmas and New Year’s are lovely; but Mardi-gras—oh,
Mardi-gras! there’s nothing like it in the world!”
Lady Jane wondered very much what “Mardi-gras” was, but tried
to wait patiently until that wonderful day should arrive. The time did
not pass slowly to her, surrounded as she was by tender care and
affection.
Pepsie was teaching her to read and sew, and Mam’selle Diane
was drilling her in scales,—although at times Madame d’Hautreve
grumbled and quavered about the noise, and declared that the child
was too young; for, stretch them all she could, her tiny fingers would
not reach an octave.
And then there were the dancing lessons, which were always a
pleasure, and a constant source of amusement in which Pepsie and
Tite Souris shared; Pepsie as an enraptured spectator, and Tite
Souris by personating Mr. Gex in Lady Jane’s frequent rehearsals;
and even Tony had caught the spirit of Terpsichore, and under Lady
Jane’s constant instruction had learned to take steps, to mince and
hop and pirouette, if not as correctly, at least as gracefully as the
ancient Professor Gex.
Tite Souris had happened to pass Gex’s little shop one day while
Lady Jane was taking her lesson, and from that moment the
humorous darky could never speak of the little dancing-master
without loud explosions of laughter. “Oh Lor’, Miss Peps’, I wish you
jes’ done seed littl’ Mars Gex, a-stanin’ up wid he toes turn out so he
look lak he o’ny got one foot, an’ he ap’on roll up un’er he arms, an’
he hands jes’ so,”—here Tite caught the sides of her scant skirt,
displaying two enormous feet and a pair of thin black legs—“a-
steppin’, an’ a-hoppin’ an’ a-whirlin’ an’ a-smilin’ wid he eyes shet,
jes’ as if he done got religion, an’ was so happy he doan’ know
what’er do. An’ Miss Lady, wid ’er head on one side, lak a morkin
bird, a-holdin’ out ’er littl’ skirt, an’ a-steppin’, an’ a-prancin’, for all de
worl’ jes’ lak Mars Gex, an’ a-puttin’ ’er han’ on ’er bre’s’, an’ a-
bowin’ so er yaller har all-a-mos’ tech der flo’. Lor’, Lor’, I done mos’
die a-larfin’. Such cuttin’s up yer nebber did see! It’s might’ funny,
Miss Peps’, all dis yer dancin’ an’ a-caperin’, but I’se scared ’bout
Miss Lady wid all dem goin’s on. I’m feared der gobble-uns’ll ketch
’er sum time, w’en ’ers a-steppin’ an’ a-hoppin’, an’ tote ’er off ter dat
dar ole wicked devil, wat’s watchin’ fer triflin’ chil’ren lak dat, ’cause
Deacon Jone say, der devil’ll git all pussuns wat dance, shore,
shore.”
“Nonsense, Tite, go away!” cried Pepsie, laughing till the tears
came at her handmaid’s droll pantomime. “If what you say is true,
where do you think you’ll go to? Haven’t you been acting Mr. Gex for
Miss Lady, over and over, when she’s been repeating her dancing-
lesson to me? Haven’t you been standing right up on that floor,
holding out your skirt, and dancing back and forth, and whirling, and
prancing, as much like Mr. Gex as you possibly could? Haven’t you
now, Tite? And I’m sure the ‘gobble-uns’ would take an ugly black
thing like you before they would a little angel like Miss Lady.”
 “But I war jes’ a-funnin’, Miss Peps’. Date ole devil know I war jes’
a-funnin’; an’ he ain’t gwine ter tote me off w’en I ain’t done no harm;
’t ain’t lak I war in earnest, yer know, Miss Peps’.” And with this nice
distinction Tite comforted herself and went on her way rejoicing.
About this time Madame Jozain was seized with a sudden spasm
of piety and took to going to church again. However, she kept at a
discreet distance from Father Ducros, who, at the time of the death
of the young widow, had asked her some rather searching questions,
and several times when he met her afterwards remarked that she
seemed to have given up church-going. She was very glad,
therefore, when about this time she heard that he had been sent to
Cuba on a mission, which Madame hoped would detain him there
always. One Sunday it occurred to her that she ought to take Lady
Jane to church with her, and not allow her to grow up like a heathen;
and besides, the child dressed in her best had such an air of
distinction that she would add greatly to the elegant appearance
Madame desired to make.
Pepsie had a knack of dressing Lady Jane as Madame never
could; so the little girl was sent across the street to be made
beautiful, with flowing glossy hair and dainty raiment. And when
Madame, dressed in one of the young widow’s elegant mourning
suits, somewhat changed to better suit her age and position, leading
Lady Jane by the hand with a gentle maternal air, limped slowly up
the broad aisle of the Cathedral, she felt perfectly satisfied with
herself and her surroundings.
Lady Jane had never been in a church before, and the immense
interior, the grand, solemn notes of the organ, and the heavenly
music of the choir made a deep and lasting impression upon her,
and opened up to her new vistas of life through which her pure little
soul longed to stray.
The musical nature is often a religious nature, and in the child was
a deep vein of piety, which only needed working to produce the
richest results; therefore, the greatest of all her pleasures from that
time was to go to church and listen to the music, and afterwards to
tell Pepsie of all she had seen and enjoyed, and to repeat, as far as
it was possible with her small, sweet voice, the heavenly strains of
the anthems she had heard.
 CHAPTER XIX
MARDI-GRAS

O NE morning—it was the day before Mardi-Gras—when Lady

Jane entered Pepsie’s room, instead of finding her friend
engaged in her usual occupation, the table was cleared of all that
pertained to business, and on it was spread a quantity of pink
cambric, which Pepsie was measuring and snipping with great
gravity.
“Oh, Pepsie, what are you making?” cried Lady Jane, greatly
surprised at this display of finery.
“It’s a domino,” replied Pepsie curtly, her mouth full of pins.
“A domino, a domino,” repeated Lady Jane. “What’s a domino? I
never saw one.”
“Of course, you never saw one, because you never saw a Mardi-
Gras,” said Pepsie, removing the pins, and smiling to herself as she
smoothed the pattern on the cloth.
“Mardi-gras! Is it for Mardi-gras?” asked Lady Jane eagerly. “You
might tell me all about it. I don’t know what it’s for,” she added, much
puzzled, and somewhat annoyed at Pepsie’s air of secrecy.
“Well, it’s for some one to wear, Mardi-Gras,” replied Pepsie, still
smiling serenely, and with an exasperating air of mystery.
“Oh, Pepsie—who, who is it for?” cried Lady Jane, pressing close,
and putting both arms around her friend’s neck; “tell me, please, do!
If it’s a secret I won’t tell.”
“Oh, it’s for a little girl I know,” said Pepsie, cutting and slashing
the cambric with the greatest indifference, and evidently bent on
keeping her own counsel.
 Lady Jane stood still for a moment, letting her arms fall from
Pepsie’s neck. Her face was downcast, and something like a tear
shone on her lashes; then, a little slowly and thoughtfully, she
climbed into her chair on the other side of the table, and, leaning on
her elbows, watched the absorbed Pepsie silently.
Pepsie pinned, and snipped, and smoothed, all the while smiling
with that little air of unconcern which so puzzled the child. Presently,
without looking up, she said:
“Can’t you guess, Lady, who it’s for?”
“Isn’t it for Sophie Paichoux?” ventured Lady Jane.
“No, no,” said Pepsie decidedly; “the one I mean it for isn’t any
relation to me.”
“Then, I don’t know any other little girl. Oh, Pepsie, I can’t guess.”
“Why, you dear, stupid, little goose!” cried Pepsie, laughing aloud.
“Oh, Pepsie. It isn’t! is it?” and Lady Jane’s eyes shone like stars,
and her face broke into a radiant smile. “Do you mean it for me?
Really, do you, Pepsie?”
“Why, certainly. Who do you think I’d make it for, if not for you?”
“Oh, you dear, darling Pepsie! But why didn’t you say so just at
first? Why—why did you make me,” she hesitated for a word, and
then added, “why did you make me—jealous?”
“I only wanted to tease you a little,” laughed Pepsie. “I wanted to
see if you’d guess right off. I thought you’d know right away that I
didn’t love any one else well enough to make a domino for her, and I
wanted to try you, that was all.”
This rather ambiguous explanation was quite satisfactory, and
after a great many caresses Pepsie went on to tell that Tante
Modeste had been there very early, and that she had invited Lady
Jane to go in her milk-cart, that afternoon, up on Canal Street to see
the King of the Carnival arrive. The cans were to be taken out of the
cart, and an extra seat was to be put in, so that all the young ones
could take part in the glorious spectacle.
 Then Pepsie waited for Lady Jane to get her breath before she
finished telling her of Tante Modeste’s plans for the next day, the
long-looked-for Mardi-gras.
The little Paichoux wanted Lady Jane to see everything; by some
means she must take an active part in the festivities; she must be on
Canal Street not as a spectator, but as an actor in the gay scene.
“Children don’t enjoy it half as well, at least mine don’t,” said Tante
Modeste, “if they’re cooped up in a cart, or on a gallery, so the best
way is to put a domino on them, and turn them in with the crowd.”
“But I’m afraid for Lady,” demurred Pepsie, “she might get
frightened in such a crowd, or she might get lost.”
“You needn’t be afraid of that; Tiburce is going to take care of my
young ones, and I’ve told him that he must hold fast to the child all
the time. Then, Tite can go too; I’ve got an old domino that’ll do for
her, and she can keep the child’s hand fast on the other side. If they
keep together, there’s no danger.”
“But perhaps Madame Jozain won’t allow her to go on Canal
Street.”
“Yes, she will, she’ll be glad to get rid of the care of the child. I just
met her coming from market, she had a cream cheese for the little
one. I guess she’s pretty good to her, when it doesn’t put her out.
She says Madame Hortense, the milliner, on Canal Street, is an old
friend of hers, and she’s invited her to come and sit on her gallery
and see the show, and there’s no room for children, so she’ll be very
glad to have her niece taken care of, and it’s so good of me, and all
that. Oh dear, dear! I can’t like that woman. I may be wrong, but
she’s a dose I can’t swallow,” and Tante Modeste shrugged her
shoulders and laughed.
“But Lady’s got no domino,” said Pepsie ruefully, “and I’m afraid
Madame Jozain won’t make her one.”
“Never mind saying anything to her about it. Here’s two bits. Send
Tite for some cambric, and I’ll cut you a pattern in a minute. I’ve
made so many I know all about it, and, my dear, you can sew it up
through the day. Have her ready by nine o’clock. I’ll be here by nine.
I’m going to take them all up in the cart and turn them out, and they
can come back to me when they’re tired.”
In this way Tante Modeste surmounted all difficulties, and the next
morning Lady Jane, completely enveloped in a little pink domino,
with a tiny pink mask carefully fastened over her rosy face, and her
blue eyes wide with delight and wonder sparkling through the two
holes, was lifted into the milk cart with the brood of little Paichoux,
and with many good-byes to poor forlorn Pepsie and to Tony, who
was standing dejectedly on one leg, the happy child was rattled
away in the bright sunlight, through the merry, noisy crowd, to that
center of every delight, Canal Street, on Mardi-gras.
There was no room for Tite Souris in the cart, so that dusky
maiden, arrayed in the colors of a demon of darkness, an old red
domino with black, bat-like wings, was obliged to take herself to the
rendezvous, near the Clay statue, by whatever means of locomotion
she could command. When the cart was passing Rue Royale, there
was Tite in her uncanny disguise, flapping her black wings, and
scuttling along as fast as her thin legs would carry her.
At last the excited party in the milk cart and the model for a
diabolical flying machine were together under Tante Modeste’s
severe scrutiny, listening with much-divided attention to her final
instructions.
“Tiburce, attend to what I tell you,” she said impressively; “you are
the eldest of the party, and you must take care of the little ones,
especially of Lady Jane; keep her hand in yours all the time, mind
what I say—don’t let go of her. And you, Tite, keep on the other side
and hold her hand fast. Sophie, you can go in front with the two
smallest, and the others can follow behind. Now keep together, and
go along decently, no running or racketing on the street, and as soon
as the procession passes, you had better come back to me. You will
be tired and ready to go home. And Tite, remember what Miss
Pepsie told you about Miss Lady. If you let anything happen to her,
you’d better go and drown yourself.”
Tite, with her wings poised for flight, promised everything, even to
drowning herself if necessary; and before Tante Modeste had
climbed into her cart the whole brood had disappeared amongst the
motley crowd.
At first, Lady Jane was a little frightened at the noise and
confusion; but she had a brave little heart, and clung tightly to
Tiburce on one side and Tite on the other. In a few moments she
was quite reassured and as happy as any of the merry little imps
around her.
It was delightful; she seemed to be carried along in a stream of
riotous life, all disguised and decorated to suit their individual
fancies. There were demons and angels, clowns and monks, imps
and fairies, animals and birds, fish and insects—in fact, everything
that the richest imagination could devise.
At first, Tite Souris ambled along quite decorously, making now
and then a little essay at flying with her one free wing, which gave
her a curious one-sided appearance, provoking much mirth among
the little Paichoux; but at length restraint became irksome, and finally
impossible. She could bear it no longer, even if she died for it.
Ignoring all her promises, and the awful reckoning in store for her,
with one bound for freedom she tore herself from Lady Jane’s
clinging hand and, flapping her hideous wings, plunged into the
crowd, and was instantly swallowed up in the vortex of humanity that
whirled everywhere.
The procession was coming, the crowd grew very dense, and they
were pulled, and pushed, and jostled; but still Tiburce, who was a
strong, courageous boy, held his ground, and landed Lady Jane on a
window-sill, where she could have a good view. The other Paichoux,
under the generalship of Sophie, came up to form a guard, and so, in
a very secure and comfortable position, in spite of Tite’s desertion
Lady Jane saw the procession of King Rex, and his royal household.
When Tiburce told her that the beautiful Bœuf gras, decorated so
gaily with flowers and ribbons, would be killed and eaten afterward,
she almost shed tears, and when he further informed her that King
Rex was no King at all, only a citizen dressed as a King in satin and
velvet, and feathers, she doubted it, and still clung to the illusion that