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1/27/14

Lind - Basic Statistics for Business & Economics - 8e, solutions manual and test bank 0073521477

Basic Statistics for Business and Economics 8e,  solutions manual and test bank  0073521477


  • Publisher: McGraw-Hill/Irwin; 8 edition (January 18, 2012)
  • Language: English
  • ISBN-10: 0073521477
  • ISBN-13: 978-0073521473

Publication Date: January 18, 2012 | ISBN-10: 0073521477 | ISBN-13: 978-0073521473 | Edition: 8
The 8th edition of Lind/Marchal/Wathen: Basic Statistics for Business and Economics, is a step-by-step approach that enhances student performance, accelerates preparedness and improves motivation for the student taking a business statistics course. The main objective of the text is to provide students majoring in all fields of business administration with an introductory survey of the many applications of descriptive and inferential statistics. The relevant approach taken in this text relates to the college students today as they will receive the information that is important to them in this class as well as their future careers. Understanding the concepts, seeing and doing plenty of examples and exercises, and comprehending the application of statistical methods in business and economics are the focus of this book.
 
 

Chapter 2
Describing Data: Frequency Tables, Frequency Distributions, and Graphic Presentation
1. Pepsi-Cola has a 25% market share, found by 90/360. (LO 3)
2. Three classes are needed, one for each player. (LO 1)
3. There are four classes: winter, spring, summer, and fall.
The relative frequencies are 0.1, 0.3, 0.4, and 0.2, respectively. (LO 1)
4. (LO 1)
City Frequency Relative Frequency
Indianapolis 100 0.05
St. Louis 450 0.225
Chicago 1300 0.65
Milwaukee 150 0.075

5. a. A frequency table.
Color Frequency Relative Frequency
Bright White 130 0.10
Metallic Black 104 0.08
Magnetic lime 325 0.25
Tangerine Orange 455 0.35
Fusion Red 286 0.22
Total 1300 1.00
b.
clip_image002
c.
clip_image004
d. 350,000 orange; 250,000 lime; 220,000 red; 100,000 white, and 80,000 black, found by multiplying relative frequency by 1,000,000 production. (LO 3)
6. Maxwell Heating & Air Conditioning far exceeds the other corporations in sales. Mancell electric & Plumbing and Mizelle Roofing & Sheet Metal are the two corporations with the least amount of fourth quarter sales. (LO 2)
clip_image006
7. clip_image008 therefore 6 classes (LO 4)
8. 25 = 32, 26 = 64 suggests 6 classes. clip_image010 Use interval of 5. (LO 4)
9. 27 = 128, 28 = 256 suggests 8 classes clip_image012 Use interval of 45. (LO 4)
10. a. 25 = 32, 26 = 64 suggests 6 classes.
b. clip_image014 Use interval of 15 and start first class at 40. (LO 4)
11. a. 24 =16 suggests 5 classes
b. clip_image016 Use interval of 1.5
c. 24
d. f Relative frequency
24 up to 25.5 2 0.125
25.5 up to 27 4 0.250
27 up to 28.5 8 0.500
28.5 up to 30 0 0.000
30 up to 31.5 2 0.125
Total 16 1.000
e. The largest concentration is in the 27 up to 28.5 class (8). (LO 5)
12. a. 24 = 16, 25 = 32, suggest 5 classes
b. clip_image018 Use interval of 10.
c. 50
d. f Relative frequency
50 up to 60 4 0.20
60 up to 70 5 0.25
70 up to 80 6 0.30
80 up to 90 2 0.10
90 up to 100 3 0.15
Total 20 1.00
e. The fewest number is about 50, the highest about 100. The greatest concentration is in classes 60 up to 70 and 70 up to 80. (LO 5)

Visits f
13. a. 0 up to 3 9
3 up to 6 21
6 up to 9 13
9 up to 12 4
12 up to 15 3
15 up to 18 1
Total 51
b. The largest group of shoppers (21) shop at BiLo 3, 4 or 5 times during a month period. Some customers visit the store only 1 time during the month, but others shop as many as 15 times.
c. Number of Percent of
Visits Total
0 up to 3 17.65
3 up to 6 41.18
6 up to 9 25.49
9 up to 12 7.84
12 up to 15 5.88
15 up to 18 1.96
Total 100.00 (LO 5)







































































Ghillyer - Business Ethics Now - 4e, solutions manual and test bank 0078023203

Business Ethics Now  Andrew Ghillyer (Author) 4e, solutions manual and test bank 0078023203

  • Publisher: McGraw-Hill/Irwin; 4 edition (September 3, 2013)
  • Language: English
  • ISBN-10: 0078023203
  • ISBN-13: 978-0078023200


CHAPTER 2

Defining Business Ethics

Table of Contents
Chapter Summary and Learning Outcomes 2-2
Learning Outcomes 2-2
Frontline Focus: “The Customer is Always Right” Questions 2-2
Learning Outcome 1 2-3
Learning Outcome 2 2-3
Learning Outcome 3 2-4
Learning Outcome 4 2-5
Learning Outcome 5 2-5
Learning Outcome 6 2-6
Life Skills 2-6
Progress ✓Questions 2-7
Ethical Dilemma 2-10
Frontline Focus: “The Customer is Always Right—Carol Makes a Decision” Questions 2-13
Key Terms 2-13
Review Questions 2-14
Review Exercises 2-15
Internet Exercises 2-16
Team Exercises 2-16
Thinking Critically 2-19


Chapter Summary

This chapter begins by defining how ethics are applied to business behavior. It describes and explains who the stakeholders are in an organization, their interests in the organization, and the impact on them from unethical behavior. Many people, because of the track record over the past two decades, believe that business ethics is an oxymoron, the combination of two contradictory terms. This chapter also discusses the history of business ethics and the dramatic changes that have taken place in the business environment over the last five decades. It continues going into deeper detail about the definition and resolution of ethical dilemmas. It discusses four commonly held rationalizations that can lead to misconduct. In conclusion, this chapter begins looking at the aspects in building and operating an ethical business.

Learning Outcomes

After studying this chapter, the student should be able to:
1. Define the term business ethics.
2. Identify an organization’s stakeholders.
3. Discuss the position that business ethics is an oxymoron.
4. Summarize the history of business ethics.
5. Identify and propose a resolution for an ethical dilemma in your work environment.
6. Explain how executives and employees seek to justify unethical behavior.
Extended Chapter Outline

Frontline Focus

“The Customer is Always Right” Questions
1. Look at Figures 2.1 and 2.2, and identify which stakeholders would be directly impacted by Dave’s plan to sabotage the new healthy menu.
The stakeholders that would be directly impacted by Dave’s plan would include customers, employees, and stockholders or shareholders.
2. Describe the ethical dilemma that Carol is facing here.
Carol is faced with the ethical dilemma of whether to abide or not to abide by Dave’s new plan.
3. What should Carol do now?
Carol must decide if her values are strong enough to stand up to this dilemma. She could go along with Dave’s plan and limit the number of new items and push side items and desserts; or, if her values do not agree with Dave’s, Carol could leave the company or could express her opinion to Dave’s boss.
Learning Outcome 1: Define the Term Business Ethics.
· Business ethics is the application of ethical standards to business behavior.
· Students of business ethics can approach the topic from two distinct perspectives:
o A descriptive summation of the customs, attitudes, and rules that are observed within a business.
o A normative (or prescriptive) evaluation of the degree to which the observed customs, attitudes, and rules can be said to be ethical.
· In either case, business ethics should not be applied as a separate set of moral standards or ethical concepts from general ethics.
o Ethical behavior, it is argued, should be the same both inside and outside a business situation.
· By recognizing the challenging environment of business, people are acknowledging the identity of the key players impacted by any potentially unethical behavior—the stakeholders.
o In addition, people can identify the troubling situation where their personal values may be placed in direct conflict with standards of behavior they feel are expected of them by their employer.
Learning Outcome 2: Identify an Organization’s Stakeholders.
· Figure 2.1 maps out the relevant stakeholders for any organization and their respective interests in the ethical operation of that organization—stockholders or shareholders, employees, customers, suppliers/vendor partners, retailers/wholesalers, federal government, creditors, and community.
· A stakeholder is someone with a share or interest in a business enterprise.
· Not every stakeholder will be relevant in every business situation.
o Not all companies use wholesalers to deliver their products or services to their customers.
o Customers would not be involved in payroll decisions between the organization and its employees.
· Of great concern is the involvement of stakeholders with the actions of the organization and the extent to which they would be impacted by unethical behavior.
Learning Outcome 3: Discuss the Position that Business Ethics is an Oxymoron.
· Over the last two decades, the ethical track record of many organizations would lead people to believe that no ethical policies or procedures have been in place.
· Corporate governance is the system by which business corporations are directed and controlled.
o It is the extent to which the officers of a corporation are fulfilling the duties and responsibilities of their offices to the relevant stakeholders.
· The standard of corporate governance appears to be at the lowest level in business history:
o Several prominent organizations—Enron, WorldCom, Lehman Brothers, Bear Stearns—have been found to have hidden the true state of their precarious finances from their stakeholders.
o Others—Adelphia Cable, Tyco, and Merrill Lynch—have been found to have senior officers who appeared to regard the organization’s funds as their personal bank accounts.
o Financial reports are released that are then restated at a later date.
o Products are rushed to market that have to be recalled due to safety problems at a later date (Toyota).
o Organizations are being sued for monopolistic practices (Microsoft), race and gender discrimination (Walmart, Texaco, Denny’s), and environmental contamination (GE).
o CEO salary increases far exceed those of the employees they lead.
o CEO salaries have increased while shareholder returns have fallen.
o CEOs continue to receive bonuses while the stocks of their companies underperform the market average and thousands of employees are being laid off.
· Therefore, it is understandable that many observers would believe that the business world lacks any sense of ethical behavior whatsoever.
o Some would even argue that the two words are incompatible and “business ethics” is really an oxymoron—the combination of two contradictory terms, such as “deafening silence” or “jumbo shrimp”.
· While these may not be the best of times for business ethics, it could be argued that the recent negative publicity has served as a wake-up call for many organizations to take a more active role in establishing standards of ethical conduct in their daily operations.
o One of the key indicators in this process has been the increased prominence of a formal code of ethics in an organization’s public statements.
· Code of ethics is a company’s written standards of ethical behavior that are designed to guide managers and employees in making the decisions and choices they face every day.
o The code of ethics can be seen to serve a dual function:
Ø As a message to the organization’s stakeholders, the code should represent a clear corporate commitment to the highest standards of ethical behavior.
Ø As an internal document, the code should represent a clear guide to managers and employees in making the decisions and choices they face every day.
Learning Outcome 4: Summarize the History of Business Ethics
· Figure 2.3 illustrates several dramatic changes that have taken place in the business environment over the last five decades:
o The increased presence of an employee voice has made individual employees feel more comfortable speaking out against actions of their employers that they feel to be irresponsible or unethical.
o The issue of corporate social responsibility has advanced from an abstract debate to a core performance-assessment issue with clearly established legal liabilities.
o Corporate ethics has moved from the domain of legal and human resource departments into the organizational mainstream with the appointment of corporate ethics officers with clear mandates.
o Codes of ethics have matured from cosmetic public relations documents into performance-measurement documents that an increasing number of organizations are now committing to share with all their stakeholders.
o The 2002 Sarbanes-Oxley Act has introduced greater accountability for chief executive officers and boards of directors in signing off on the financial performance records of the organizations they represent.
Learning Outcome 5: Identify and Propose a Resolution for an Ethical Dilemma in Your Work Environment.

· When employees observe unethical behavior (e.g., fraud, or theft of company property) or are asked to do something that conflicts with their own personal values, the extent of the guidance available to them is often a series of clichés:
o Consult the company code of ethics.
o Do what’s right for the organization’s stakeholders.
o Do what’s legal.
o Do what you think is best (“use your best judgment”).
o Do the right thing.
· Ethical dilemma is a situation in which there is no obvious right or wrong decision, but rather a right or right answer.
· Resolution of an ethical dilemma can be achieved by first reorganizing the type of conflict people are dealing with:
o Truth versus loyalty—do you tell the truth or remain loyal to the person or organization that is asking you not to reveal that truth?
o Short-term versus long-term—does your decision have a short-term consequence or a longer-term consequence?
o Justice versus mercy—do you perceive this issue as a question of dispensing justice or mercy? (Which one are you more comfortable with?)
o Individual versus community—will your choice affect one individual or a wider group or community?
Ø In the examples given above, both sides are right to some extent, but since people can’t take both actions, they are required to select the better or higher right based on their own resolution process.
· Once people have reached a decision as to the type of conflict they are facing, three resolution principles are available to them:
o Ends-based—which decision would provide the greatest good for the greatest number of people?
o Rules-based—what would happen if everyone made the same decision as you?
o The Golden Rule—do unto others as you would have them do unto you.
Ø None of these principles can be said to offer a perfect solution or resolution to the problem because one cannot possibly predict the reactions of the other people involved in the scenario.
Ø However, the process of resolution at least offers something more meaningful than “going with your gut feeling” or “doing what’s right.”
Learning Outcome 6: Explain How Executives and Employees Seek to Justify Unethical Behavior.
· Saul Gellerman identified “four commonly held rationalizations that can lead to misconduct”:
o A belief that the activity is within reasonable ethical and legal limits—that is, that it is not “really” illegal or immoral.
o A belief that the activity is in the individual’s or the corporation’s best interests—that the individual would somehow be expected to undertake the activity.
o A belief that the activity is safe because it will never be found out or publicized—the classic crime-and-punishment issue of discovery.
o A belief that because the activity helps the company, the company will condone it and even protect the person who engages in it.
Life Skills
Making Tough Choices
This Life Skills box discusses what happens when your personal values appear to directly conflict with those of your employer. Three options are open—leave and find another job; keep your head down, do what you have been asked to do, and hold on to the job; or, talk to someone in the company about how uncomfortable the situation is making you feel and see if you can change things. All three options are tough choices.

Progress Questions
1. Explain the term business ethics.
Business ethics is the application of ethical standards to business behavior.
2. Explain the difference between a descriptive and prescriptive approach to business ethics.
A descriptive approach is a descriptive summation of the customs, attitudes, and rules that are observed within a business. This involves documenting what is happening.
A prescriptive approach is a prescriptive evaluation of the degree to which the observed customs, attitudes, and rules can be said to be ethical. This involves recommending what should be happening.
3. Identify six stakeholders of an organization.
Stakeholders of an organization can include stockholders or shareholders, employees, customers, suppliers or vendor partners, retailers or wholesalers, federal government, creditors, and community.
4. Give four examples of how stakeholders could be negatively impacted by unethical corporate behavior.
The following are four examples of how stakeholders could be negatively impacted by unethical corporate behavior:
· Stockholders could lose value of their stock ownership.
· Employees could lose their job.
· Customers could receive poor service quality.
· Suppliers may not be paid for invoices when a company declares bankruptcy.
5. Define the term oxymoron and provide three examples.
An oxymoron is the combination of two contradictory terms, such as “deafening silence,” “jumbo shrimp,” or “authentic reproduction.”
6. Is the term business ethics an oxymoron? Explain your answer.
Student answers will vary. Given the ethical track record of organizations over the last several decades, many students may believe that the business world lacks any sense of ethical behavior. Thus, they will argue that the two words “business” and “ethics” are as incompatible as in an oxymoron.
7. Define the term corporate governance.
Corporate governance is the system by which business corporations are directed and controlled.
8. Explain the term code of ethics.
A code of ethics is a company’s written standards of ethical behavior that are designed to guide managers and employees in making the decisions and choices they face every day.
9. Identify a major ethical dilemma in each of the last five decades.
Following are some of the major ethical dilemmas in each of the last five decades:
· 1960s—environmental issues, increased employee-employer tension, civil rights issues dominate, honesty, the work ethic changes, and drug use escalates.
· 1970s—employee militancy, human rights issues surface, and some firms choose to cover rather than correct dilemmas.
· 1980s—bribes and illegal contracting practices, influence peddling, deceptive advertising, financial fraud, and transparency issues arise.
· 1990s—unsafe work practices in Third World countries, increased corporate liability for personal damage, and financial mismanagement and fraud.
· 2000s—cyber crime, increased corporate liability, privacy issues, financial mismanagement, international corruption, loss of privacy, and intellectual property theft.
10. Identify a key development in business ethics in each of the last five decades.
Following are the key developments in business ethics in each of the last five decades:
· 1960s:
o Companies begin establishing codes of conduct and values statements
o Birth of social responsibility movement
o Corporations address ethics issues through legal or personnel departments
· 1970s:
o Ethics Resource Center (ERC) founded (1977)
o Compliance with laws highlighted
o Federal Corrupt Practices Act passed in 1977
o Values movement begins to move ethics away from compliance orientation to being “values centered”
· 1980s:
o ERC develops the U.S. Code of Ethics for Government Service
o ERC forms first business ethics office at General Dynamics
o Defense Industry Initiative established
o Some companies create ombudsman positions in addition to ethics officer roles
o False Claims Act (government contracting)
· 1990s:
o Federal Sentencing Guidelines (1991)
o Class action lawsuits.
o Global Sullivan Principles (1999
o In re Caremark
o ERC establishes international business ethics centers
o Royal Dutch/Shell International begins issuing annual reports on its ethical performance
· 2000s:
o Business regulations mandate stronger ethical safeguards (Federal Sentencing Guidelines for Organizations; Sarbanes-Oxley Act of 2002)
o Anticorruption efforts grow
o Shift to emphasis on corporate social responsibility and integrity management
o Formation of international ethics centers to serve the needs of global business
o OECD Convention on Bribery (1997-2000)

11. Which decade saw the most development in business ethics? Why?
The 1990s saw the most developments in business ethics because of global expansion and the emergence of the Internet.
12. Which decade saw the most ethical dilemmas? Why?
The 2000s saw the most ethical dilemmas because of the Internet, international expansion, and financial mismanagement.
13. Give four examples of the clichés employees often hear when faced with an ethical dilemma.
Some examples of the clichés employees often hear when faced with an ethical dilemma are:
· Consult the company code of ethics.
· Do what’s right for the organization’s stakeholders.
· Do what’s legal.
· Do what you think is best (“use your best judgment”).
· Do the right thing.
14. List the four types of ethical conflict.
The four types of ethical conflict are:
· Truth versus loyalty
· Short-term versus long-term
· Justice versus mercy
· Individual versus community
15. List the three principles available to you in resolving an ethical dilemma.
The three principles for resolving an ethical dilemma are:
· Ends-based
· Rules-based
· The Golden Rule
16. Give an example of an ethical business dilemma you have faced in your career, and explain how you resolved it, indicating the type of conflict you experienced and the resolution principle you adopted.
Students’ responses will vary. The ethical dilemma described should fit the definition—a situation in which there is no obvious right or wrong decision, but rather a right or right answer.
Ethical Dilemma
2.1 – The Ford Pinto
1. Should a manufacturer go beyond government standards if it feels there may be a potential safety hazard with its product?
Students’ responses will vary. Students may argue that a manufacturer should go above and beyond the government’s standards if it feels there may be a potential safety hazard with its products. Other will argue that a manufacturer will only do what is required by government standards. However, to remain competitive in the marketplace, a manufacturer can go above and beyond to ensure that the consumer is safe. This strategy not only benefits the stakeholders, but also establishes a positive reputation within the industry.
2. Once the safety issue became apparent, should Ford have recalled the vehicle and paid for the retrofit? Should it have invited owners to pay for the new barrier if they so chose? If only half the owners responded to the recall, what would the company’s obligation be?
Student responses will vary. Some of the students may feel that Ford should have recalled the vehicle and paid for the retrofit once they knew that there was a safety issue. Ford’s obligation would be far less if only half the owners responded to the recall; and the company needed to pay for the new barrier to project to consumers that they care about consumers’ wellness and business.
3. Is there a difference for a consumer between being able to make a conscious decision about upgrading safety features (such as side airbags) and relying on the manufacturer to determine features such as the tensile strength of the gas tank?
Student responses will vary. There is a huge difference between being able to make a conscious decision about a safety-feature upgrade and relying on a manufacturer to determine the safety features. Typically, manufacturers only have the obligation to offer basic or required safety features on the automobiles sold to consumers.
4. Once Pintos had a poor reputation, they were often sold at a discount. Do private sellers have the same obligations as Ford if they sell a car they know may have design defects? Does the discount price absolve sellers from any responsibility for the product?
Student responses will vary. Private owners should have the same obligation as Ford if they sell a car they know may have design defects. A discount price should not absolve sellers from any responsibility for the product. It is important for sellers to have a strong code of ethics in their business transactions.
2.2 – Three-Card Mont
1. Summarize the positions of both critics and supporters of these tax strategies.
Critics call the tax strategies (the movement of those funds) by many companies as deliberate tax avoidance; and supporters call it profit maximization.
2. Supporters and critics of these tax strategies agree that corporations are making use of legal financial options that are available to them under current tax law. However, does that equate to ethical business conduct? Why or why not?
Student responses will vary. Some of them may say that what Microsoft, Apple, Hewlett-Packard (HP), and Google are doing does not equate to ethical business conduct. They may cite the following reasons to support their answer:
· Microsoft elected to shift the intellectual property (IP) rights for software that the company developed in America to Puerto Rico, Ireland, and Singapore. As a result, the earnings from those IP rights can now be taxed at a much lower local rate rather than at the American rate of as much as 35 percent, which contributes significantly to Microsoft’s overall tax rate of only 4 percent.
· Google avoided almost $2 billion in worldwide income taxes in 2011 by moving $9.8 billion in revenues to a Bermuda shell company (where there is no corporate income tax).
o Should any one of these companies ever need any of the money being held overseas, rather than “repatriating” the funds (and paying taxes), the company simply borrows the money from its subsidiary as a short-term loan (and pays no taxes).
o Students may not find this deliberate act to avoid tax an ethical business conduct.
3. The French chairman and CEO of Louis Vuitton, Bernard Arnault, recently announced that he was leaving France for Belgium, allegedly to avoid the new highest-income tax rate of 75 percent. Is that any different from what corporations are doing? Why or why not?
Student responses will vary. Arnault is leaving France just to avoid paying high income taxes. This is no different from what corporations are doing because. Microsoft, for example, elected to shift the intellectual property (IP) rights for software that the company developed in America to Puerto Rico, Ireland, and Singapore so that the earnings from those IP rights can be taxed at a much lower local rate rather than at the American rate of as much as 35 percent, which contributes significantly to Microsoft’s overall tax rate of only 4 percent. Should it ever need of any of the money being held overseas, rather than “repatriating” the funds (and paying taxes), the company simply borrows the money from its subsidiary as a short-term loan (and pays no taxes).
4. Is there a potential solution that would represent a more ethical business approach to the payment of corporate taxes? Explain your answer.
Student responses will vary. Some of them may suggest that corporations who pay their taxes on time could be given some kind of a subsidy.
Frontline Focus
“The Customer Is Always Right—Carol Makes a Decision” Questions
1. Did Carol make the right choice here?
Students’ answers will vary. Carol did a good job of keeping track of the sales and information needed to show Dave that he wouldn’t have to purposely run out of new items. She also was able to keep customers happy while she gathered the information. However, she will need to present this information to Dave in a professional and courteous manner so that she does not to insult him or his idea.
2. What do you think Dave’s reaction will be?
Students’ answers will vary. Dave’s reaction will depend on how Carol approaches him with the information. If she accuses him of being unethical and wrong, Dave will not be happy and probably reprimand Carol for not following instructions. If Carol can portray the information in a manner that does not insult Dave, she may be rewarded for taking initiative as an innovative and inspiring team leader.
3. What would the risk have been for the restaurant if it had implemented Dave’s plan and deliberately run out of the new items?
Students’ answers will vary. The risk would have been the loss of customers, both old and new. Customers loyal to the old menu items would continue to purchase those items, with an occasional new item. However, new customers would be driven away and frustrated if they were constantly told that the restaurant was out of an item and offered something else instead.

Key Terms

Business Ethics: The application of ethical standards to business behavior.
Code of Ethics: A company’s written standards of ethical behavior that are designed to guide managers and employees in making the decisions and choices they face every day.
Corporate Governance: The system by which business corporations are directed and controlled.
Ethical Dilemma: A situation in which there is no obvious right or wrong decision, but rather a right or right answer.
Oxymoron: The combination of two contradictory terms, such as “deafening silence” or “jumbo shrimp.”
Stakeholder: Someone with a share or interest in a business enterprise.
Review Questions
NOTE: Some questions allow for a number of different answers. Below are some suggestions.
1. Based on the history of business ethics reviewed in this chapter, do you think the business world is becoming more or less ethical? Explain your answer.
Students’ responses will vary. Some students may say that the business world is becoming less ethical based on the number of bailouts that resulted from the financial crisis in 2008 and 2009. Government is increasing the laws, regulations, and the punishment associated with unethical behavior and in the long run this will make businesses become more ethical. Others may say regulation is creating more problems, rather than solving them.
2. How would you propose the resolution of an ethical dilemma using The Golden Rule?
Student responses will vary. Students need to propose an ethical dilemma and use the Golden Rule—do unto others as you would have them do unto you—in their responses.
3. Why should a short-term or long-term consequence make a difference in resolving an ethical dilemma?
Student responses will vary. The resolution of any ethical dilemma requires the recognition of the type of conflict at hand. Individuals can see both the short-term and long-term consequences that result in unethical behavior. Short-term consequences may require a different resolution principle. For example, for a long-term consequence, the manager could consider an ends-based resolution principle; and for a short-term consequence, the manager may consider the Golden Rule resolution principle or the rules-based resolution principle.
4. Of the four commonly held rationalizations for unethical behavior proposed by Saul Gellerman, which one do you think gets used most often? Why?
The students’ responses will vary based on their perceptions, but students are expected to include one of Gellerman’s four rationalizations in their responses.
5. Is it ever acceptable to justify unethical behavior? Why or why not?
Student responses will vary. However, it is never acceptable to justify unethical behavior. Most organizations have formal code of ethics and they expect their employees to adhere to them.
6. Explain what “doing the right thing” in a business environment means to you.
The students’ responses will vary. The student should explain his/her view of what “doing the right thing” in a business environment means to the individual student.
Review Exercises
1. Since you are traveling on company time, does the free ticket belong to you or your company? Defend your choice.
Student responses will vary. The ticket belongs to the company. The company is paying for your travel expenses; therefore, the “right thing to do” is to professionally and ethically represent your company and complete the assignment at the best of your ability.
2. If the later flight was actually the next day (and the airline offered you an accommodation voucher along with the meal vouchers) and you would be late getting into work, would you make the same choice? Explain your answer.
Student responses will vary. If there was no way around this situation, then this would be fine. However, if you simply chose to take the late flight to receive the upgrades, then it would not be fair to your employer. A better choice would be to take the flight that was originally booked and return to work as scheduled.
3. What if the offer only reached a $100 discount coupon on another ticket—would you still take it? If so, would you hold the same opinion about whether the coupon belonged to you or your company?
Student responses will vary. The amount of extra time spent waiting for the late flight would not be worth the $100 discount on another ticket, especially if it means getting to work late. If the discount were taken, the coupon would belong to the company.
4. Should your company offer a clearly stated policy on this issue, or should it trust its employees to “do the right thing?” Explain your answer.
Student responses will vary. There should be a clearly stated policy regarding traveling on company time and resources. However, there will always be situational issues that arise that may or may not be covered, in which case the company should trust their employees, along with giving them ethical training.

Internet Exercises

1. Locate the website for the Ethics and Compliance Officer Association (ECOA). The ECOA makes a public commitment to four key values. What are they? How does the mission of the ECOA differ from that of the ERC?
The Ethics Resource Center (ERC) is a nonprofit research organization that is devoted to the advancement of high ethical standards and practices in public and private institutions. ERC assists organizations of all types with their efforts to assess their ethics and compliance programs.
The ECOA’s values include integrity, confidentiality, collegiality, and cooperation. The mission of the ECOA differs from the ERC’s in that it brings together ethics professionals and creates a network of resources. The ERC is more based on the research of ethics.
2. Locate the website for the Ethics Resource Center.
a. Find the Research Publications page, and select a recent research report.
The Ethics Resource Center’s website is http://www.ethics.org/. Students may select any recent research project of their choice. When accessed on June 10, 2013, the following was the recent release:
Retaliation: When Whistleblowers Become Victims
A Supplemental Report of the 2011 NBES
b. Briefly summarize the ethical issue discussed in the report.
Student responses will vary based on the research report selected.
c. Do you agree or disagree with the conclusions reached in the report? Explain your answer.
Student responses will vary.
Team Exercises
1. Thanks for the training!
Divide into two groups and prepare arguments for and against the following behavior:
You work in the IT department of a large international company. At your annual performance review, you were asked about your goals and objectives for the coming year and you stated that you would like to become a Microsoft Certified Systems Engineer (MCSE). You didn’t get much of a pay raise (yet another cost-cutting initiative!), but your boss told you there was money in the training budget for the MCSE courseyou’re attending the training next week. However, after receiving the poor pay raise, you had polished your resume and applied for some other positions. You received an attractive job offer from another company for more money, and, in the last interview, your potential new boss commented that it was a shame you didn’t have your MCSE certification because that would qualify you for a higher pay grade. The new company doesn’t have the training budget to put you through the MCSE training for at least two years. You tell the interviewer that you will complete the MCSE training prior to starting the new position in order to qualify for the higher pay grade. You choose not to qualify that statement with any additional information on who will be paying for the training. You successfully gain the MCSE certification and then give your two weeks’ notice. You start with your new company at the higher pay grade. Is that ethical?
Group responses will vary. Many people do move on to new jobs after receiving training from one company. If there is no stipulation in the company policy stating the employee must work for a specified time period upon completion of training to be fully paid for by the company, then it is the employee’s right to search for other jobs. Many companies will only pay for certification courses if the employee agrees to work for them for a certain time period; otherwise, if the employee decides to leave, then the certification is their financial obligation.



2. What you do in your free time…
Divide into two groups and prepare arguments for and against the following behavior:
You are attending an employee team-building retreat at a local resort. During one of the free periods in the busy agenda, you observe one of your colleagues in a passionate embrace with a young woman from another department. Since you work in HR and processed the hiring paperwork on both of them, you know that neither one of them is married, but your benefit plan provides coverage for “life partners,” and both of them purchased health coverage for life partners. As you consider this revelation further, you are reminded that even if they have both ended their relationships with their respective partners, the company has a policy that expressly forbids employees from dating other employees in the company. Both you and the colleague you observed have applied for the same promotiona promotion that carries a significant salary increase. What is your obligation here? Should you report him to your boss?
Group responses will vary. This is a tough scenario. If you do not inform your boss of your colleague, then there are potential problems if something should happen between the two “partners” or if someone else were to see them together. Plus, if the company has a clearly stated policy on employees not dating other employees, then your colleague should be reported. However, if you do report your colleague, it may seem as though you are motivated by the promotion for which you and the colleague are both applying. This may cause some inter-office conflict, especially if the colleague discovers who reported his actions to the boss.

3. Treatment or prevention?
Divide into two groups and prepare arguments for treatment (Group A) and prevention (Group B) in the following situation:
You work in your city for a local nonprofit organization that is struggling to raise funds for its programs in a very competitive grant market. Many nonprofits in your city are chasing grant funds, donations, and volunteer hours for their respective missionshomelessness, cancer awareness and treatment, orphaned children, and many more. Your organization’s mission is to work with HIV/AIDS patients in your community to provide increased awareness of the condition for those at risk and also to provide treatment options for those who have already been diagnosed. Unfortunately, with such a tough financial situation, the board of directors of the nonprofit organization has determined that a more focused mission is needed. Rather than serving both the prevention and treatment goals, the organization can only do one. The debate at the last board meeting, which was open to all employees and volunteers, was very heated. Many felt that the treatment programs offered immediate relief to those in need, and therefore represented the best use of funds. Others felt that the prevention programs needed much more time to be effective and that the funds were spread over a much bigger population who might be at risk. A decision has to be reached. What do you think?
Group responses will vary. If the organization decided to focus on the treatment, then they would provide some relief to those who are suffering. It is extremely expensive to treat these patients; therefore, these patients would be grateful for the options and help provided. However, if the organization focuses on treatment, then it may send a signal to the community that the organization emphasizes prevention. More people could potentially be saved through prevention methods rather than waiting until they have contracted the disease.

4. Time to raise prices…
Divide into two groups and prepare arguments for and against the following behavior:
You are a senior manager at a pharmaceutical company that is facing financial difficulties after failing to receive FDA approval for a new experimental drug for the treatment of Alzheimer’s disease. After reviewing your test data, the FDA examiners decided that further testing was needed. Your company is now in dire financial straits. The drug has the potential to revolutionize the treatment of Alzheimer’s, but the testing delay could put you out of business. The leadership team meets behind closed doors and decides the only way to keep the company afloat long enough to bring the new drug to market is to raise the prices of its existing range of drug products. However, given the financial difficulties your company is facing, some of those price increases will exceed 1,000 percent. When questions are raised about the size of the proposed increases, the chief executive officer defends the move with the following response: “Look, our drugs are still a cheaper option than surgery, even at these higher prices; the insurance companies can afford to pick up the tab; and, worst case scenario, they’ll raise a few premiums to cover the increase. What choice do we have? We have to bring this new drug to market if we are going to be a player in this industry.”
Group responses will vary. The company needs to look at all possible options before deciding to increase prices. The company should try to minimize the increase in price if this is the only option and then increase the drugs with the smallest profit margin. The ethical issue in this situation is a matter of price gouging, though this company would not be increasing prices only to stay in business, and not just to improve their bottom line. It is not unethical to charge more than other businesses. The idea that this new drug, once further tested, could really help with the treatment of Alzheimer’s could potentially help a lot of people.
Thinking Critically

2.1 – Hostess Brands: Impossible to Save?
1. Was the leadership of Hostess Brands to blame for the demise of the company? Why or why not?
Students’ responses will vary. Some of the students may feel the company’s leaderships were to blame for its demise. They may cite the point that critics argued that for a company with such an “unhealthy” line of products, the leadership failed to adjust to changing consumer tastes.
2. What role did the unions play in the ultimate liquidation of Hostess Brands?
Students’ responses will vary. The company had turned to the unions for yet more concessions to lower operating costs but the unions were unwilling to be any more flexible than they had already been; they felt they had given enough in 2009 when there was underwent steep concessions in pay rates, work contracts, and negotiated layoffs. They also pointed to specific leadership decisions such as unfunded pension obligations and increased executive salaries of as much as 80 percent, as evidence of explicit unfairness in the negotiations.
3. Private equity firms and hedge funds are being singled out in this case. Was their conduct unethical? Why or why not?
Students’ responses will vary. Hedge fund companies Silver Point and Monarch were assumed to have purchased Interstate Bakeries Corporation (IBC) debt at a steep discount with a business strategy to “turn the company around” and replace the debt at full price. With the restructured debt, the newly named Hostess Brands was expected to perform wonders. However, all the new debt had to be serviced (interest payments) in addition to dealing with falling sales and arcane union arrangements such as separate deliveries for separate product lines to the same retail locations in order to comply with existing agreements with the Teamsters Union. The capital infusion enabled the company to crawl through to another bankruptcy in late 2011, but the funds were used for operating costs and debt service only, with no investment in vehicles or plant equipment. Students may feel that the hedge fund companies should have invested in vehicles or plant equipment because this investment would have truly helped the company prosper. And because the hedge fund companies didn’t do this, students may feel that the hedge fund companies’ conduct although not strictly unethical, was however, not enough.
4. What could have been done differently by the ownership and management of Hostess Brands?
Student responses will vary. Improving the “stale” product line is one of the things the ownership and management could have done to adjust to the changing consumer tastes.
5. Was there a long-term future for Hostess Brands? Why or why not?
Student responses will vary. Some students may say that if Hostess Brands had taken steps to improve the following conditions, it could have had a long-term future:
· “Unhealthy” product line
· “Stale” product line
· High labor costs
· 5,500 different delivery routes
· 40 different pension plans
6. What do you think will happen now?
Students’ responses will vary. The case does end with the following information:
By late 2012, faced with billions of dollars in debt and unions that were unwilling to be any more flexible than they had already been, Hostess Brands elected to liquidate. In one final act of apparent callousness, the leadership team of the company was allowed to keep $1.8 million of awarded bonuses in order, it was argued, to ensure that they didn’t leave before winding down the company effectively. Fifteen thousand employees were dismissed immediately, with about three thousand being retained to manage the wind-down phase. The government-run Pension Benefit Guaranty Corporation will assume any remaining pension benefit entitlements.
2.2 – Unequivocal Dedication to Business Ethics?
1. Visit the website for BELA at http://m1.ethisphere.com/brochure/bela_brochure.pdf. Define the four core values in detail, and explain which one you think will be the hardest for members to achieve and why.
Students’ responses will vary. According to the website, the four core values at the Business Ethics Leadership Alliance (BELA) include legal compliance, transparency, identification of conflicts of interest, and accountability.
2. Do you think it was a good idea to welcome founding members with such widely publicized ethical transgressions in their past? Why or why not?
Students’ responses will vary. Some of the students may find it a good idea because regardless of their past, the council members provide access to important resources to help individuals do their jobs.
3. BELA is a U.S.-driven initiative at the moment. Do you think it will achieve a wider global acceptance over time? Why or why not?
Students’ responses will vary. Some of them may say that as time progresses and the role of ethics becomes a wide-spread initiative, it is hopeful that it will achieve a wider global acceptance over a period of time.
4. Are the four core values—legal compliance, transparency, identification of conflicts of interest, and accountability—enough to establish a credible reputation as an ethical company? What other values would you consider adding and why?
Students’ responses will vary. Some of them may say that these four core values will be enough to enhance the opportunities to develop a credible reputation as an ethical company. Some of them may say that a commitment to sustainability by following environment friendly ways may also help establish a credible reputation as an ethical company.
5. Cynics could argue that this is simply a public relations exercise for companies that have performed unethical business practices in the past. Optimists could argue that this is, at the very least, a step in the right direction of restoring the ethical reputation of business as a whole. What do you think?
Students’ responses will vary. Some of them may say that hopefully it is a step in the right direction of restoring the ethical reputation of the business. It is very difficult to re-establish a positive image and reputation once it has been tarnished.
6. According to the rules of BELA, members will be audited every two years to make sure they are in compliance with BELA standards, and can face removal from the alliance should that audit provide evidence of failure to comply. Do you think the threat of removal from the alliance will keep members in line? Why or why not?
Students’ responses will vary. Some students may find that the threat of removal from the alliance is an incentive to keep members in line. Although some members of the alliance may partake in unethical practices, it is hopeful that they would learn how to and continue to make strong ethical decisions.
2.3 – Teaching or Selling?
1. Where is the conflict of interest in this CME relationship?
Students’ responses will vary. The conflict of interest in this continuing medical education (CME) relationship is that drug makers and medical device manufacturers are only sponsoring CME courses for their own benefit by promoting their products.
2. Do you think doctors are likely to be influenced by such promotional tactics? Why or why not?
Students’ responses will vary. Doctors would most likely be influenced by seeing the names and sponsors of drug makers and manufacturers while attending and completing their CME courses. These promotional tactics relate the name of the drug companies as a company who is heavily involved in the medical industry and willing to sponsor such events.
3. If the pharmaceutical company is paying for the event, shouldn’t it have the right to promote its products at the event? Why or why not?
Students’ responses will vary. If the pharmaceutical company is paying for the event, it should have the right to promote its products at the event because all pharmaceutical companies have the opportunity to be a sponsor or pay for the event. However, the sole purpose of paying for the event should not be promotion.
4. Pfizer stated in 2008 that it would only support medical education put on by hospitals and professional medical associations. How can it then justify the Stanford grant?
Students’ responses will vary. Doctors and physicians are required to take CME courses; however, if these courses are put on by marketing companies, then it appears to be more of a promotional seminar than a learning environment. If supported when put on by hospitals and professional medical associations, it appears to have a more professional and educational aspect. Some students may consider it a way for Pfizer to obtain research and data for the good of the cause; however, others might consider its acts unethical.
5. Has Pfizer simply replaced one conflict of interest with another? Why or why not?
Students’ responses will vary. The company had the right to modify its 2008 position and create a grant to encourage medical courses in education. It doesn’t necessarily mean that it replaced one conflict of interest with another.
6. Propose an alternative approach to ensure CME is provided without a conflict of interest.
Students’ responses will vary. CME courses must be taken by doctors in order to maintain their licenses. Pharmaceutical companies must be aware of the mounting concern of conflict of interest and promotional tactics and take this into consideration when supporting or sponsoring a CME event. CME events put on by hospitals and professional medical organizations appear much more legitimate and less conflicting than when third-party marketing and communications companies put on the event.



















































































































































































































































































































































Dess - Strategic Management: Text and Cases - 7e, solutions manual and test bank 007786252x

Strategic Management: Text and Cases ,Gregory Dess (Author), G.T. (Tom) Lumpkin (Author), Alan Eisner (Author), Gerry McNamara (Author)  7e, solutions manual and test bank 007786252x

http://www.mediafire.com/view/kjj7pswdmbd2dli/ch2.docx

http://www.mediafire.com/view/hxc1al01y33fqt8/IMChap002.doc

http://www.mediafire.com/view/8wh0dv88kc4emic/Case_02_Edward_Marshall_Boehm_TN.doc


  • Series: Strategic Management
  • Publisher: McGraw-Hill/Irwin; 7 edition (September 23, 2013)
  • Language: English
  • ISBN-10: 007786252X
  • ISBN-13: 978-0077862527
 Chapter 2 solutions manual
Analyzing the External Environment of the Firm................. 34 (2-2)
Creating the Environmentally Aware Organization.............................. 36 (2-3)
The Role of Scanning, Monitoring, Competitive Intelligence,
and Forecasting..................................................................................................
36 (2-3)
SWOT Analysis................................................................................................................ 41 (2-8)
The General Environment....................................................................... 42 (2-8)
The Demographic Segment............................................................................................. 42 (2-9)
The Sociocultural Segment............................................................................................. 42 (2-9)
The Political/Legal Segment........................................................................................... 44 (2-10)
The Technological Segment............................................................................................ 45 (2-12)
The Economic Segment................................................................................................... 45 (2-13)
The Global Segment........................................................................................................ 46 (2-13)
Relationships among Elements of the General Environment......................................... 46 (2-14)
The Competitive Environment................................................................ 48 (2-15)
Porter’s Five-Forces Model of Industry Competition................................................... 49 (2-15)
How the Internet and Digital Technologies
are Affecting the Five Competitive Forces.........................................................
55 (2-18)
Using Industry Analysis: A Few Caveats....................................................................... 59 (2-22)
Strategic Groups within Industries................................................................................. 61 (2-23)
Issue for Debate 64 (2-24)
Reflecting on Career Implications 64 (2-25)
Summary 65 (2-27)



Chapter 2
Analyzing the External Environment of the Firm

Summary/Objectives


The purpose of this chapter is to familiarize students with techniques for evaluating a firm’s external environment. This chapter focuses on the value managers add when they have a sense of events outside the company. By focusing on external events, managers are able to stay a step ahead of competitors by accurately anticipating and promptly responding to actions that can impact the organization. The chapter is organized into three sections.
1. The environmentally aware organization. Emphasize that managers use scanning, monitoring, and competitive intelligence to develop forecasts. Also, the role of scenario planning is discussed.
2. The influence of the six broad segments (demographic, sociocultural, political/legal, technological, economic, global) of the general environment of the firm.
3. The role of the competitive (also called the task or industry) environment and its analysis through the application of Porter’s five forces model. We address how industry and competitive practices are being affected by the internet and digital technologies. We also address the concept of strategic groups. Managers use strategic groups to identify who its main competitors are and how a company fits in with the overall industry in which it competes.
Lecture/Discussion Outline
We lead off the chapter with the opening case of Cell Zone. Here’s a firm that clearly did a poor job of recognizing and understanding the opportunity and threats in the external environment. Ask:

s Discussion Question 1: What is the biggest stumbling block for Cell Zone?
Response guidelines: Students should understand that there are a few links in the chain of events that prevent Cell Zone’s success. Most obviously, there is the issue of low demand for the product. Few restaurants and libraries are willing to pay Cell Zone, or otherwise devote space, for its cell phone booths. Restaurants might support Cell Zone if loud cell phone conversations were more of a problem, and if Cell Zone offered an effective response. The next possible issue is the rise of quiet text messaging as a way to communicate in a more considerate way. In effect, a new technology, text messaging, solved much of the loud cell phone conversation problem.
But both these issues may be only part of Cell Zone’s problem. Students may identify other relevant issues such as the effectiveness of the Cell Zone booths, the possibility of imitation booths that may use similar design, consumers’ use of other areas within restaurants for talking on their cell phones, and the possible unwillingness of customers to use the booths.
s Discussion Question 2: Are there other market segments where Cell Zone might work?

Response guidelines: Students may come up with a few intriguing suggestions. After they do, instructors may want to develop characteristics of the market segments. Some characteristics may be:
· Situations where calls contain confidential information that should not be overheard, such as lawyers, executives, military, police, and doctors.
· Places where the atmosphere requires quiet, such as libraries, lecture halls, or concert halls.
These two characteristics suggest segments such as law firms, prisons, government offices, schools, concert halls, and doctor’s offices. This list is only suggestive, and students can be encouraged to consider other possibilities.
I. Creating the Environmentally Aware Organization
We address three important processes—scanning, monitoring, and gathering competitive intelligence—which managers use to develop environmental forecasts. EXHIBIT 2.1 depicts relationships among these activities. Also, we address scenario analysis and its role in anticipating future major changes in the external environment as well as the role of SWOT analysis.
A. The Role of Scanning, Monitoring, Competitive Intelligence, and Forecasting
1. Environmental Scanning
Environmental scanning involves surveillance of the firm’s external environment to predict environmental changes to come and detect changes that are already underway. We discuss the example of how Procter & Gamble, with its wide range of household products, can be a good barometer of household spending.
s Discussion Question 3: Why would a retail executive be at a disadvantage if s/he were not aware of such trends?
Discussion Question 4: Would these “tips” be equally appropriate for all industries? Why? Why not?
Discussion Question 5: Could such an approach be used in other industries? What investments would be required?
Environmental scanning can also involve obtaining information from your customer base. The SUPPLEMENT below provides an example of how this was effectively used by an online contact-lens retailer, Coastal Contacts.
& Extra Example: Ask your Customers for Ideas
Coastal Contacts, one of the largest online contact-lens retailers in North America, came out of its two-day planning session with few ideas about how to spur growth. Thus, over the next six months CEO Roger hardy and his senior team called customers each week to see whether they had any ideas. To the company’s surprise, one recurring theme emerged—customers wanted to get their lenses the next day. “We started overnighting everything,” he reports. Sales in the U.S., where he recently made the change, were up 41% for the year, bringing company sales to $155 million.
Source: Harnish, V. 2011. Five ways to get your strategy right. Fortune. April 11: 42.
s Discussion Question 6: What are some other examples of firms that got excellent ideas by simply asking their customers for input?
2. Environmental Monitoring
Environmental monitoring tracks the evolution of trends, events, or streams of activities in the external environment. In this section, we present some of the factors monitored by three organizations: Motel 6, Pier 1 Imports, and Johnson and Johnson Medical Products. Such factors are vital for managers in determining their firm’s strategic direction and resource allocations.
The SUPPLEMENT below represents the factors that the Director of Planning of Vought Aircraft considered critical. You may initially ask the students:
s Discussion Question 7: What indicators do you believe a firm should monitor that produces both (1) weapon systems for the military, and, (2) key components for the commercial aircraft industry?
& Extra Example: Factors to Monitor—Vought Aircraft
Commercial Aircraft:
1. Oil prices
2. Age of fleet of airlines
3. Profitability of airlines
Defense Department:
1. Where weapons are in the life cycle
2. Mission requirements of the military
Source: Authors’ interviews.
The SUPPLEMENT below discusses how Cisco, the $46 billion (2012 revenues) networking giant, learned from its mistakes during the Internet bust in 2001—and now carefully monitors its inventory levels. It points out that managers must monitor key aspects of the firm’s internal environment—as well as the firm’s external environment.
& Extra Example: How Cisco Learned from Its Mistakes
In April, 2001, Cisco made one of the more painful confessions of the Internet bust: It had so much networking gear piled up that it had to take a $2.5 billion write-off for equipment that it figured nobody would ever buy. It has been working hard ever since to make sure that such a thing never happens again.
Supply chain chief Angel Mendez is grilled at monthly reviews by CEO John Chambers and other top executives. Now, Cisco has half the inventory it did in 2001—even though its revenues are twice as large. Says Mendez: “It didn’t take John eight years to start asking questions (about inventory levels). He asks about every eight minutes.”
Source: Burrows, P. 2009. Tech: Lean and Ready to Spring. BusinessWeek. April 27: 14-16.
s Discussion Question 8: Are you aware of other firms that have failed to effectively monitor key aspects of their internal environment? (e.g., excessive numbers of employees and layers of management; high levels of inventory that became obsolescent; insufficient sales, marketing, engineers, etc. to meet increasing demand for goods/services and innovations, etc.?)
We also discuss Dan Burrus’ valuable contribution in his recent book, Flash Foresight: How to see the Invisible and do the Impossible. Burrus makes the important distinction between:



Soft trends: Something that might happen and the probability with which it might happen can be estimated.

Hard trends: A projection based on measurable facts, events, or objects. It is something that will happen.
We illustrate these concepts in STRATEGY SPOTLIGHT 2.1 with the example of Mayo Clinic’s transformation. Here, hard trends in technology (PC and information storage) were used to help create a CD so that consumers could access reliable medical information written in an accessible fashion.

s Discussion Question 9: What are some other examples of soft and hard trends that have implications for an industry with which you are familiar? (e.g., demographic changes related to the aging of the US population provides opportunities in the health care industry (hard trend), increases (decreases) in government spending provides more (fewer) opportunities for consulting firms (soft trend).

3. Competitive Intelligence
Competitive intelligence helps firms define and understand their industry and identify rivals’ strengths and weaknesses. Done properly, competitive intelligence helps a company to avoid surprises by effectively anticipating and responding to competitors’ moves.
We briefly address the importance of competitive intelligence to firms in the banking, airline, and automobile industry.
s Discussion Question 10: What are other industries where competitive intelligence is extremely important? How might such information be collected?
We address how the Internet has accelerated the speed at which firms can find competitive intelligence.
STRATEGY SPOTLIGHT 2.2 discusses some of the ethical guidelines that United Technologies has implemented.
s Discussion Question 11: Are you aware of ethical guidelines that other companies have developed? Were they effective? Why? Why not?
clip_image001 Teaching Tip: The discussion of Competitor Intelligence provides the instructor with an opportunity to introduce the subject of ethics into the classroom. We suggest presenting scenarios that are not “black and white.” For example, a firm advertises a position in order to get a chance to interview employees of a rival company with no intention to hire them. While this may not be illegal, clearly it is difficult to justify morally. The ensuing discussion will help to clarify the distinction between illegal and unethical behavior.
4. Environmental Forecasting
Environmental scanning, monitoring, and competitive intelligence are important inputs for analyzing the external environment. However, they are of little use unless they provide raw material that is accurate enough to help managers make accurate forecasts.
We address the twin problems of either assuming that the world is certain and open to precise predictions, or the assumption that it is uncertain and totally unpredictable. And, we provide the famous example of poor forecasting by Digital Equipment Corp. which caused it to ignore the potential of personal computers.
s Discussion Question 12: What are some other errors in forecasting with which you are familiar?
The SUPPLEMENT below provides another error (most likely!) in forecasting—the value of Apple’s stock.
& Extra Example: Forecasting Apple’s Stock Price

With every $100 level increment n Apple’s (AAPL) stock price, we hear a chorus of worrywarts on business TV saying it just can’t continue. It’s unprecedented they say. . . Yet no company this big before has ever had the opportunities and relatively low market share that Apple now has.
We’re at $600 now (March 21, 2012), but I think Apple has much further to go from here. If things play out as I expect, Apple with hit $1,650 by the end of 2015.
(Note: Apple was at $430 in early-April, 2013.)
Source: Jackson, E. 2012. Why Apple will hit $1,650 by the end of 2015. forbes.com. March 21. np.



s Discussion Question 13: Do you agree with this forecast? (Although one can’t predict where Apple’s stock price will be at the end of 2015, what do you think Mr. Jackson’s reasoning was for making such a prediction?)
5. Scenario Analysis
Scenario analysis provides a set of tools that enable managers to imagine threats and opportunities the future may bring. As a general rule, scenarios should be used by businesses whose external environments are prone to fundamental or sudden change and whose anticipation of such change is of vital strategic importance.
It is important to note that scenario analysis draws on a wide range of disciplines and interests, among them economics, psychology, sociology, and demographics.
s Discussion Question 14: Why must scenario analysis and scenario planning draw on a variety of disciplines and interests?
We provide the example of Lego, and how its position in the toy industry may become eroded if they define their industry—and its future—in a very narrow context.
STRATEGY SPOTLIGHT 2.3 includes the example of PPG Industries has benefited from the use of scenario analysis and planning.

We address the value of a firm in creating an environmentally aware organization—which includes environmental scanning and monitoring, as well as competitive intelligence, forecasting, and scenario planning. In contrast, the late Steve Jobs (Apple’s former Chairman) took a far different approach to determining what customers really wanted. Below, we discuss Jobs’ distaste for sophisticated approaches to market research.
& Extra Example: Steve Jobs’ invaluable intuition
Steve Jobs was convinced that market research and focus groups only limited one’s ability to innovate. When asked how much research was done to guide Apple when he introduced the iPad, Jobs famous quipped: “None. It isn’t the consumers’ job to know what they want. It’s hard for (consumers) to tell you what they want when they’ve never seen anything remotely like it.”
Jobs relied on his own intuition—his radar-like feel for emerging technologies and how they could be brought together to create, in his words “insanely great” products, that ultimately made the difference.” For Jobs, who died in 2011 at the age of 56, intuition was no mere gut call. It was, as he put it in his often-quoted commencement speech at Stanford, about “connecting the dots, glimpsing the relationships among wildly disparate life experiences and changes in technologies.”
Source: Byrne, J. 2012. Great ideas are hard to come by. Fortune, April 7: 69+.



s Discussion Question 15: Would such a mindset work for other organizations? Why? Why not? (Firms in commodity industries—which experience much less uncertainty than technology industries have less need for such “intuition” since these industries face much less dramatic change in market demand and technologies. And, of course, very few firms have the visionary genius of a Steve Jobs! Also, you might point out how Ron Johnson (who was fired as CEO of J.C. Penney in early April, 2013) relied too much on his intuition and drove the firm into the ground. Only time will tell if his replacement (and his predecessor!) Myron Ullman will be able to turn things around.

B. SWOT Analysis
We briefly address SWOT Analysis at this point. SWOT stands for strengths, weaknesses, opportunities, and threats. SWOT analysis provides a framework for analyzing these four elements of a company’s internal and external environment.
It is important to note that SWOT analysis provides the “raw material”, that is, a basic listing of conditions and factors inside and outside of a company.
s Discussion Question 16: What do you consider to be some of the major advantages and disadvantages of SWOT analysis? (This issue is addressed in more detail in Chapter 3, but you should point out that a key disadvantage is that strengths may not necessarily convert to sources of competitive advantage that are sustainable in the marketplace.)
II. The General Environment
The general environment consists of factors that can have a dramatic effect on a firm’s strategy. Typically, a firm has little ability to predict trends and events in the general environment, and even less ability to control them.
We divide the general environment into six segments: demographic, sociocultural, political/legal, technological, economic, and global.
EXHIBIT 2.2 provides examples of key trends and events in each of the six segments of the general environment
s Discussion Question 17: How will the factors in Exhibit 2.3 affect specific industries?

Discussion Question 18: Which factors are more difficult to predict than others? (e.g., macroeconomic changes are typically more difficult to predict than demographic changes)

Discussion Question 19: How are these factors interrelated?

Discussion Question 20: What factors do you feel are important that are not listed in this exhibit?
A. The Demographic Segment
Demographics are the most easily understood and quantifiable elements of the general environment. Demographics include elements such as the aging population, rising or declining affluence, changes in ethnic composition, geographic distribution of the population, and income level disparities.
s Discussion Question 21: What are the implications of ethnic diversity for the work place?

Discussion Question 22: What implications do the migration to the South and West in the United States have for individual businesses?

Discussion Question 23: How does the “graying of America” affect U. S. companies?
Among the trends we discuss are the aging of the population and how it may differentially affect a wide variety of industries. We also discuss the increasing number of older Americans and its importance for attracting and retaining older workers.
Ask:

s Discussion Question 24: It might be interesting to ask what the implications (of the aging of the population) are for today’s organization (e.g., how can firms attract and retain older workers, changes in financial and non-financial incentives, etc.) as well as for public policy (e.g., changes in tax policies, increasing the number of immigrants, etc.).



B. The Sociocultural Segment
Sociocultural forces influence the values, beliefs, and lifestyles of a society. Examples include a higher percentage of women in the workforce, dual-income families, increases in the number of temporary workers, greater concern for healthy diets and physical fitness, greater interest in the environment, and families postponing having children.
s Discussion Question 25: Name two industries that have benefited from the growing awareness about health and fitness. Also name two that have been adversely affected by this trend.

Discussion Question 26: What must firms do to attract and retain women employees? Why are such efforts becoming increasingly important?
The section also addresses the increased educational attainment of women in the workplace. We discuss increases in both the number of degrees granted to women as well as the increased formation of businesses by women.
Ask:

s Discussion Question 27: Can you think of any other important implications this trend has for businesses in a specific industry?

The SUPPLEMENT below provides some perspective on why the job market for women should be very attractive over the next several years.

& Extra Example: A Favorable Job Market for Women for Years to Come!
The job market for women should be very good, according to British futurist Ian Pearson, founder of consultancy Futurizon and author of You Tomorrow. As we move further toward a service economy, skills like communication and collaboration will move to the forefront. “I call it the care economy,” he says. “A lot of women already work in those roles, and there will be more tomorrow.”
Health care and personal services are the fastest-growring sectors of the economy and are dominated by women. IN the U.S. 15 million women hold health and education jobs, up from 2.5 million in 1964. They are already the majority of nurses, pharmacists, and physical therapists, and by 2020 employment in health care is projected to grow 29% and personal care and services by 27%. The trend is not limited to the U.S. Globally, women are more than two-thirds of the graduates in health care and education programs.
In the U.S. women now hold 51.6% of all managerial and professional jobs. A new focus on “soft skills” like mentoring, inspiring, collaboration and building relationship may benefit women. In a comprehensive study of more than 7,000 leaders, women ranked higher than men in 12 out of 16 leadership attributes.
Source: Goudreau, J. 2012. A golden age for working women. Forbes. December 24: 56.
We close the section with Strategy Spotlight 2.4. We point out the trend toward increased obesity among Americans and how it has provided a business opportunity for clothing retailers.

C. The Political/Legal Segment
Political processes and legislation influence the regulations with which industries must comply. Some important elements of the political/legal arena include tort reform, the Americans with Disabilities Act (ADA), the repeal of the Glass-Stegall Act in 1999 (now banks may offer brokerage services), deregulation of utilities and other industries, and increases in the federally mandated minimum wage.
s Discussion Question 28: What do you see as some of the pros/cons of the Americans with Disabilities (ADA) Act?

Discussion Question 29: Do you think the federally mandated minimum wage should be increased? What are the implications?
Another area where visa restrictions is having an important impact is “very close to home” — universities. In the SUPPLEMENT below we provide an example of one student who elected to attend an M.B.A. program in China (because of visa concerns in the United States) and the fact that applications from Asian students have declined by as much as 50 percent at some U.S. business schools.
We close this section with a brief discussion of how legislation in the U.S. has restricted the number of H-1B visas for highly skilled professionals. We discuss the proactive step Microsoft has taken (e.g. setting up a research facility in Vancouver, Canada) to address this issue.
s Discussion Question 30: Should the U.S. Congress increase the number of H-1B visas? Why? Why not?)
The SUPPLEMENT below discusses how government legislation can have a dramatic impact on housing foreclosures. In Germany, large down payments are required and mortgage interest is not tax deductible. Thus, the country has experienced far fewer foreclosures than the U.S.



& Extra Example: German Legislation leads to far Few Housing Foreclosures
Germany has one of the lowest homeownership rates among wealthy nations—46 percent versus two-thirds in the United States—as well as one of the most stable housing markets. According to the Association of German Pfandbrief Banks, prices of owner-occupied housing in Germany were up 9 percent between 2003 and 2009.
What’s their secret? Housing is less subject to booms and busts because only highly qualified buyers can get a mortgage. Down payments are usually at least 20 percent, often 40 percent—thus, homeowners have some of the proverbial “skin in the game.” Mortgage interest is also not tax-deductible, as it is in the U.S. Thus, excessive leverage is discouraged. Germans are justly proud of their Pfandbrief, an ultrasafe bond whose collateral is a set of standardized mortgages whose loan-to-value ratio can’t exceed 60 percent. The bank that sells a mortgage-backed Pfandbrief to investors retains all the risk of default, providing it the incentive to underwrite cautiously.
Source: Coy, P. 2011. Minimize mortgages. Bloomberg BusinessWeek. June 13-19: 54.
s Discussion Question 31: Should the U.S. adopt Germany’s approach to mortgage lending? (This question may inspire some debate given that many students may feel that home ownership is critical to the “American Dream.” Point out, of course, that tougher lending rules would lessen the risk of another housing crash but in the long-run America would have to accept a lower rate of home ownership. And, if such policies were implemented it would result in a drop in real estate prices because there would be less demand for housing.)

D. The Technological Segment
Developments in technology lead to new products and services and improve how they’re produced and delivered to the end user. Innovations can create entirely new industries and alter existing industries.
s Discussion Question 32: Ask students to speculate on the impact of the following technologies on American industry: (1) the Internet, (2) manufacturing innovations (e.g., robotics), (3) genetic engineering/designer genes. (The last items may provoke some heated discussion regarding the ethical implications.)
We discuss the key implications that the Internet, information technology, and nanotechnology has had on industry — in particular, its impact on productivity gains.
We also address a fascinating issue: some of the promising future applications of nanotechnology and how it will impact some industries.
We close out the section by addressing some of the “downsides” of technology. In addition to ethical issues, we discuss environmental damage, such as the emission of greenhouse gases. We discuss BP Amoco’s innovative approach to this matter.
The SUPPLEMENT below illustrates how technology improves the fuel efficiency of cargo ships and results in carbon reduction. It points out that technology is now one of the important key aspects of the firm’s external environment.
& Extra Example: How Shipping Companies Use Technology to Improve Fuel Efficiency
The cargo ships that sail the world’s oceans are leading contributors to global warming. Commercial vessels emitted 3 percent of the world’s carbon in 2007, and that may increase to 18 percent by 2050, as global trade increases. U.N. measures to halve carbon emissions from shipping could come into effect as soon as 2012, so the industry is scrambling to clean up its act. “The marine industry is gearing up for the biggest revolution since World War II,” says Lee Sokje, an analyst at Mirae Asset Securities in Seoul. “You’re either ahead of the game or you’re out.”
Rivals, meanwhile, are exploring other routes to fuel efficiency. China Cosco Holdings is considering bringing back nuclear-powered cargo ships, introduced in the early 1960s. “We’re not only looking into nuclear but also wind energy and solar energy,” says Zhang Liang, president of China Cosco. Analysts warn that the costs of deploying some alternative energy technologies are prohibitive. “Ship prices are going to go through the roof if any of these ships using renewable energy are built,” says Mirae’s Lee Sokje.
Source: Park, K. 2010. Deconstructed: Big ships go green. Bloomberg Businessweek. May 17: 35.
s Discussion Question 33: Are you aware of other cases where technology is a key factor that is reshaping an industry? What industries are most likely to be influenced by technological changes?

Discussion Question 34: Do such initiatives tend to lead to advantages that are difficult to rivals to imitate? Why? Why not?
E. The Economic Segment
The economy has an impact on all industries, from suppliers of raw materials to manufacturers of finished goods and services, as well as all organizations in the service, wholesale, retail, government, and nonprofit sectors of economies. Key indicators include interest rates, unemployment rates, the consumer price index (CPI), the Gross Domestic Product (GDP), and net disposable income.
s Discussion Question 35: Compare the impact of rising (or declining) interest rates on the overall demand for the following industries: (1) housing (will have a significant impact), (2) automobiles (will have a significant impact), (3) fast food (will have very little effect).
F. The Global Segment
Globalization provides both opportunities to access larger potential markets and a broad base of factors of production such as raw materials, labor, skilled managers, and technical professionals. However, such endeavors carry many political, social, and economic risks. Examples of important elements in the global segment include currency exchange rates, increasing global trade, the economic emergence of India, China’s admittance to the World Trade Organization, trade agreements among regional blocs (e.g., EC), and the GATT Agreement (lowering of tariffs).
s Discussion Question 36: Provide examples of firms that have succeeded (stumbled) in their efforts to expand into international markets. What factors can explain their success (failure)?
The SUPPLEMENT below suggests various implications of the earthquake that hit Japan in 2011to the global economy—given the extent of the globalization in the automobile industry.
& Extra Example: The Global Implications of the 2011 Japanese Earthquake
A ferocious tsunami hit the coast of Northeast Japan on March 11, 2011 after a magnitude 9.0 earthquake. The tsunami slammed the coast and killed thousands of people as it swept away cars, hotels, and homes. Meanwhile, the Fukushima nuclear plant exploded and led to radiation leakage after the earthquake damaged the facility.
Damages also spread from the local to the global economy. Globalization may make Japan more vulnerable than in the past, as it offers Japan’s export customers alternatives they might not have enjoyed a decade or two ago. Hyundai and Ford now are good substitutes for Toyota’ cars, and even more so, Caterpillar tractors make in China can now replace Komatsu’s earth movers.
Source: Morici, P. 2011. Japan crisis—The economic consequences of disaster. www.foxnews.com. March 15: np.
We also address the rising middle class in emerging countries and how it has led to increased employment in those countries by multinationals.
s Discussion Question 37: What are the risks associated with accessing a larger potential market overseas as a result of the process of globalization? Do the risks of globalization outweigh its benefits?
G. Relationships among Elements of the General Environment
In our discussion of the general environment, we have addressed many relationships among the various elements.
EXHIBIT 2.3 provides many examples of how the impact of trends or events in the general environment can vary across industries.
The SUPPLEMENT below provides some insights on how many elements of the General Environment are interrelated. It is a rather interesting context—Cairo, Egypt after the Arab Spring.
& Extra Example: Entrepreneurship in Cairo after the Arab Spring
A different type of grassroots revolution has begun in the aftermath of the Arab Spring. According to Ramez Mohamed, CEO of Flat6Labs, a Cairo-based startup accelerator, entrepreneurship has thrived over the past two years. He contends that Egypt’s youth feel empowered to make a difference, one venture at a time.
Here are some of his firm’s most promising startups and the opportunity that they are tackling:
· Ekshef: With an Arabic-only platform and Yelp-like rating system, the service enables Egyptians to search, review, and recommend doctors form the directory. Opportunity: The country has more than 75,000 health care clinics, but it is hard for patients to find the right physician.
· Nafham: The service condenses the country’s public school curriculum into online, crowdsourced lessons. Users can vote up or down based on quality. Its staff also produces video content. Opportunity: Egypt’s rising population is putting a squeeze on classroom space.
· Eshtery: The utility lets users shop by scanning codes on signs around town and having the items delivered to them. The business was inspired by Home Plus, a supermarket that offers a similar service in South Korea. Opportunity: It is hard to buy groceries if you work two hours from the market.
· Ogra: A mobile app, a la Uber, which connects passengers with reliable drivers. Opportunity: With social tensions spilling onto the street, public transportation that is dependable is hard to find.
Source: Anonymous. 2013. Emerging tech scene: Cairo. Fast Company. March: 31.

1. Crowdsourcing: A Technology that Impacts Multiple Segments of the General Environment
We introduce the term and provide examples, including STRATEGY SPOTLIGHT 2.5– How Goldcorp Used Crowdsourcing to Strike Gold! In several of the other chapters of the book, we have additional detailed examples in STRATEGY SPOTLIGHTS.
Here, we define crowdsourcing as “a practice where the Internet is used to tap a broad range of individuals and groups to generate ideas and solve problems.” We list examples of the Linux operating systems, Amazon’s online reviews of books, and Wikipedia (the free online encyclopedia).
With crowdsourcing, stakeholders can also fulfill multiple roles (drawing from Chapter 1). STRATEGY SPOTLIGHT 2.4 discusses how world class talent (that was not directly associated with Goldcorp) became valued suppliers of technical expertise—and in the process helped Goldcorp survive and prosper.
s Discussion Question 38: To get the students familiar with the concept, ask them what other examples of crowdsourcing they are familiar with? And, ask if they are successful? Why? Why not?
III. The Competitive Environment
Here, we draw upon a well-known analytic tool, Michael Porter’s five forces model of industry competition. We introduce this model and discuss examples of each force. We then address the impact of the Internet on the five forces and the strategic groups concept and its implications for studying rivalry and competition.
A. Porter’s Five Forces Model of Industry Competition
EXHIBIT 2.4 illustrates Porter’s five forces model of industry competition
When introducing this model, it is useful to show how the model provides insight into an industry’s dynamics and expected profit levels. The SUPPLEMENT below provides such an analysis on the paint and allied products industry. The analysis is restricted to the trade sales (i.e., house paint) segment of the industry. The competitive forces are very different for other segments such as the specialized high-tech automobile finishes.
Note: For our purposes of illustrating the “basics” of the “five forces,” the analysis has been simplified. We assume buyers to be consumers, although there are, of course, other distinct groups such as hardware stores, and large discounters such as Wal-Mart. Obviously firms’ bargaining power vis-à-vis paint manufacturers vary significantly. Similarly, our analysis assumes the industry’s products to be commodity products. However, there are exceptions, such as Olympic Stain, that have successfully differentiated their products on the basis of quality.
& Extra Example: The Paint and Allied Products (PAP) Industry
An analysis of the Paints and Allied Products industry (SIC 2851), using the five forces model, demonstrates why this industry has traditionally been caught in a price-cost squeeze and is unable to pass on rising raw material costs to its customers.
To illustrate the price-cost squeeze that this industry is facing, consider that between the years 1995 to 2000, the PPI (producer price index — the price for which it sells its output) of the PAP industry increased an average of only 2 percent. The PPI for petroleum refining and related products — a key supplier to this industry — increased at a rate of 6 percent over this same period of time. Hence the price of this key raw material was roughly twice the rate of inflation (about 3 percent); whereas, the PAP industry was lower than the rate of inflation. Thus, the PAP industry has been unable—due to unfavorable industry competitive forces — to pass on cost increases to their suppliers; thus eroding profitability.
Consider the PAP industry in terms of each of Porter’s Five Forces:
Threats of Entry: Very High (minimal capital investment needed, little proprietary technology, regional firms can compete in local markets due to high transportation costs, little brand identification of existing competitors)
Buyer Power: Very High (low brand loyalty, relatively little product differentiation, relatively low switching costs)
Supplier Power: High (especially for petroleum derivative raw materials—a key input in industry)
Substitute Products: High (plastics, wood paneling, wallpaper coverings, etc.)
Rivalry: High (competition is based mostly on price competition, because of little brand loyalty and product differentiation; easy entry and exit from the industry gives rise to frequent price wars; little price leadership exhibited by larger firms)
Sources: www.bls.gov (Bureau of Labor Statistics); www.ita.doc.gov (International Trade Administration)
It is useful to point out that there can also be very profitable opportunities to compete in industries that have overall low profits, overall. For example, in the paint industry, Olympic Stain has typically been a very successful and highly-profitable firm because they have found an attractive niche in the market and developed a differentiated product (through product development and advertising).

1. Threat of New Entrants
After summarizing the major barriers to entry, ask students to provide examples of industries characterized by each of these entry barriers. This may help them to understand what initially may appear to be rather complex ideas.
We discuss the example of ProCD — a firm (producing electronic telephone books) that failed because of low entry barriers.
clip_image001[1] Teaching Tip: The chapter explains how economies of scale and economies of experience (learning curve) erect significant entry barriers. In the auto industry, U.S. manufacturers such as Ford and G.M. have high economies of scale (being the large producers) and all the benefits of learning curve (having been in the business for almost a century). Despite these advantages, foreign auto producers have entered the U.S. market and have increasingly gained market share over the past few decades. Ask the students why this happened? Does this prove that the concepts we discussed are wrong? Or does it point out that additional factors have to be considered? Point out that foreign producers have the benefits of lower labor costs and/or have developed better manufacturing technologies (such as Toyota’s lean manufacturing).
2. Bargaining Power of Buyers
Briefly summarize some of the conditions under which a supplier group may become powerful. It may be interesting how things have changed (if they have) with regard to the power of buyers of talent (i.e., businesses of varying sizes and industries) and suppliers of talent (i.e., business school graduates—either undergraduate or MBA).
We also discuss how universities (during the recent recession) may take advantage of their “bargaining position” when increasing tuition and fees that they charge students. Ask: Are such actions justified or not? (Caution: This may be a “high risk” question!)
3. Bargaining Power of Suppliers

Briefly discuss some of the conditions under which a supplier group may become powerful. The bargaining power of suppliers can be presented as the mirror opposite of the bargaining power of suppliers. For example, the relative sizes and concentrations largely determine the bargaining power of the two parties involved in the transaction.
The section discusses the relative power of the providers of talent — ranging from unskilled labor (low) to highly skilled professionals (high). Especially hard hit will be several unions such as those in declining industries such as steel manufacturing.
4. The Threat of Substitute Products and Services

Emphasize that the viability of a substitute product depends largely on its relative price-performance trade-off, i.e., more value for the same price or the same value for a lower price. Examples are electronic security systems versus security guards, and the use of steel versus plastic for components in the manufacture of automobiles.
We discuss substitutes and give the example of IBM’s use of teleconferencing. Clearly, this technology poses a threat to the airline industry.
STRATEGY SPOTLIGHT 2.6 addresses the decreasing role of hybrids as a substitute for gasoline-powered cars.
5. The Intensity among Competitors in an Industry
After discussing the factors that lead to intense rivalry in an industry, provide an example of an industry in which competition has recently been intense. For example, most students are familiar with the recurring price wars in the U. S. airline industry. Ask them to explain this using the factors discussed (e.g., undifferentiated service, low switching costs, slow industry growth, numerous competitors, etc.) You might point out that this industry was expected to report huge losses in 2001 even before the September 11, 2001 terrorist attack. Beginning in late 2005, the airlines’ problems were further aggravated by extremely high fuel costs.
In this section we discuss the intense rivalry between Pfizer’s Viagra (impotence treatment product) and a competing product developed by Eli Lilly & Company and Icos—Cialis. This provides an example that intense rivalry can take place on factors other than pricing in an industry that is highly profitable.
The SUPPLEMENT below is Michael Porter’s response to a question as to whether or not he would add a “sixth force” if he were developing his framework today.
& Extra Example: Should There Be a “Sixth Force?” Michael Porter’s Perspective

“There have been two nominees for the sixth force. One is government. After much further work using and teaching the framework, I have reaffirmed my original conclusion that government is not a sixth force because there is no monotonic (direct linear) relationship between the strength and influence of government and profitability of an industry. You can’t say that “government is low, industry profitability is high.” It all depends on exactly what government does. Also, there are many different parts of government, each with its own distinct impacts. And, how do you assess the consequence of what government does? Well, you look at how it affects the five forces.
“The other, more recent, candidate for a sixth force involves organizations whose products and services are complementary to the primary organization’s products and services. Again, there is no monotonic relationship between the extent of complements and profitability. Sometimes having many complements is consistent with high industry profitability, sometimes with low profitability. It has to do with how complements affect the five forces…Clearly, complements have much to do with the size of the pie, but their role in the division of the pie is independent on other factors.”
Source: Argyres, N. & McGahan, A. M. 2002. An interview with Michael Porter. Academy of Management Executive. 16 (2): 43-52.
EXHIBIT 2.5 provides a summary of key points from the discussion of industry five forces analysis.
B. How the Internet and Digital Technologies Are Affecting the Five Competitive Forces
The changes caused by the Internet economy have made strategizing more challenging. Strategic analysis, informed formulation, and successful implementation may be even more difficult in the Internet era because of the uncertainty surrounding the new technology. In this section we address the impact of the Internet and digital technologies in terms of Porter’s five-forces model of competition.
1. The Threat of New Entrants
In most industries, new entrants will be a bigger threat because the Internet lowers barriers to entry. Thus, scale economies may be less important in an Internet context and new entrants can go to market with lower capital costs.
Businesses launched on the Internet may enjoy savings on traditional expenses such as office rent, salaries, and postage. Thus, a new entrant could use the savings to charge lower prices and compete on price despite an incumbent competitor’s scale advantages. Alternatively, a new entrant may be able to serve a market more effectively, with more personalized services and greater attention to product details. Then they could build a reputation in their niche and charge premium prices.
Another potential benefit for Internet-based businesses is access to distribution channels. Manufacturers or distributors that can reach potential outlets for their products via the Internet may be encouraged to enter markets that were previously closed to them. Such access is not guaranteed, however.
s Discussion Question 39: What are some examples of industries where there have been a lot of new entrants because of the Internet? Have these new entrants been successful? How have incumbent firms reacted?
2. The Bargaining Power of Buyers
The Internet may increase buyer power by providing consumers with more information to make buying decisions and lowering switching costs. But, by giving buyers new ways to access sellers, the Internet may also suppress the power of traditional buyer channels that have concentrated buying power in the hands of a few. In this section, we address two types of buyers: end users and buyer channel intermediaries.
End users are the final customers in a distribution channel. Internet sales activity that is labeled “B2C” is concerned with end users. Because a large amount of consumer information is available on the Internet, end users can easily shop for quality merchandise and bargain for price concessions. Switching costs are also potentially lower because the cost of switching may involve only a few clicks of the mouse to find and view a competing product or service online.
Buyer channel intermediaries are the wholesalers and distributors who serve as “middlemen” between manufacturers and end users. In some industries buyer channels are dominated by powerful players. The Internet, however, makes it easier and less expensive for businesses to reach customers directly. Thus, the Internet may increase the power of incumbent firms relative to these traditional buyer channels.
s Discussion Question 40: What are some other ways that end users can increase their buying power by using the Internet?

STRATEGY SPOTLIGHT 2.7 addresses the role of the Internet in shaking up the legal services industry.

s Discussion Question 41: What are some examples of other companies that have used the Internet to enhance their buying power?
3. The Bargaining Power of Suppliers
The Internet has streamlined and quickened the process of acquiring supplies. But the extent to which the Internet is a benefit or a detriment to suppliers may depend on where the supplier is positioned along the supply chain.
Suppliers provide products or services to other businesses. The term “B2B” is used to refer to businesses that supply or sell to other businesses. On the one hand, the Internet makes it possible for suppliers to access more customers at a relatively lower cost per customer. On the other hand, because buyers can comparatively shop more easily and negotiate prices faster, suppliers may not be able to hold on to them. This is especially damaging to supply chain intermediaries, such as product distributors, who may not be able to stop suppliers from directly accessing other potential business customers.
s Discussion Question 42: What can supply chain intermediaries do to strengthen their position, that is, make it worthwhile for their customers in the supply chain to continue using their services?

Discussion Question 43: What are some examples of companies that have abandoned their traditional method of reaching customers and are using the Internet to reach customers directly?
Teaching Note: Case 2 – Edward Marshall Boehm, Inc.

Case Objectives

  1. To provide an introduction to the conceptual framework of strategic management.
  2. To introduce students to the process of problem identification and potential solution analysis that will be used in case discussions throughout the semester.
See the table below to determine where to use this case:
Chapter Use Key Concepts
1: Strategy Concept Leadership for strategic management; sustainable competitive advantage; vision, mission, strategic objectives
2: External Environment Industry competition five forces; general environmental factors
3: Internal Analysis Value-chain analysis; resource-based view of the firm; VRIN
4: Intellectual Assets Intellectual and human capital
5: Business Level Strategy Competitive strategy; generic strategies
6: Corporate-Level Strategy Diversification; synergy
8: Entrepreneurial Strategies Opportunity recognition
9: Strategic Control Informational vs. behavioral control
10: Organizational Design Organizational structure; functional structure
11: Strategic Leadership Leadership; learning organization
12: Managing Innovation Innovation; scope of innovation

Case Synopsis

Edward Marshall Boehm, Inc. is a small, high-quality porcelain art objects company that has been very successful, particularly at producing images of vanishing species of birds. These pieces are complex sculptures selling from $100 to over $20,000, and are sought by some sophisticated collectors. The company is run by Mr. and Mrs. Boehm (pronounced “beam”): he is the artist and master of the complex hard paste porcelain manufacturing process; she is in charge of the marketing and financial aspects of the business. At the end of the case, demand for the artistic creations is growing, and many of the company’s past policies no longer seemed appropriate. The Boehms wanted to position the company for the long run. Their stated goals for the company were “to make the world aware of Mr. Boehm’s artistic talent, to help world wildlife causes by creating appreciation and protection for threatened species, and to build a continuing business that could make them comfortably wealthy, perhaps millionaires.” How should the Boehms proceed?

Teaching Plan

It’s possible to ask students to read this short case in class during the 2nd or 3rd class meeting, after they’ve had a chance to read and discuss Chapter 1. This case can be used to demonstrate how all the components of strategic management are necessary in order to achieve a sustainable competitive advantage. The Edward Marshall Boehm story contains short examples of almost all the major concepts contained in the textbook, so the instructor can use the case with Figure 1.3 to show how strategic analysis, formulation, and implementation are linked. Either use the case PowerPoint slides or ask the discussion questions directly. As students respond, either write answers on the board or refer to the PowerPoint slide answers. As you begin the discussion, it might be interesting to students to view the Boehm website at http://www.boehmporcelain.com/ .

Summary of Discussion Questions

Here is a list of the suggested discussion questions. You can decide which questions to assign, and also which additional readings or exercises to include to augment each discussion. Refer back to the Case Objectives Table to identify any additional readings and/or exercises so they can be assigned in advance.
  1. What should the strategy of Edward Marshall Boehm be?
  1. Is there a certain sequence of actions that would be best to take when developing these strategies?
  1. What roles do goals, and specific policies, rules and limits to decision-making, play in establishing strategy?

Discussion Questions and Responses

Referencing Chapter 1: Introduction and Analyzing Goals and Objectives


  1. What should the strategy of Edward Marshall Boehm be?
Strategy is all about the ideas, decisions, and actions that enable a firm to succeed. See Chapter 1, Exhibit 01: Strategic management consists of the analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantages:
· strategy directs the organization toward overall goals and objectives;
· includes multiple stakeholders in decision making;
· incorporates both short-term and long-term perspectives;
· recognizes trade-offs between efficiency and effectiveness.
Strategic management involves
  • Analysis of strategic goals (vision, mission, strategic objectives), and of the internal and external environment;
  • Decisions about what industries to compete in, and how to compete in those industries; and
  • Actions to allocate necessary resources and design the organization to bring intended strategies to reality.
An interesting question that the instructor can ask at this point is: what business is Edward Marshall Boehm in? Some students might say porcelain manufacturing, some might say art. The answers to this question will help students understand the importance of vision and mission: the leader must have a clear idea of the purpose of the business, and who it competes with, in order to craft strategy. If the business is porcelain manufacturing, the focus might be on improving the manufacturing process; if the business is selling collectible art objects, the focus might be on art design capabilities and marketing.

Leaders face a large number of complex challenges. Leaders must be proactive, anticipate change and continually refine changes to their strategies. This requires a certain level of “ambidextrous behavior”, where leaders are alert to opportunities beyond the confines of their own jobs, and are also cooperative and seek out opportunities to combine their efforts with others. Leaders must make strategic management both a process and a way of thinking throughout the organization.

See Chapter 1, Exhibit 06: The primary role of the organizational leader is to articulate vision, mission and strategic objectives. Leaders must communicate their initial vision of the organization’s purpose: what was the original goal that evokes a powerful and compelling mental image of a shared future, one that would be massively inspiring, overarching, and long-term, that represented a destination that is driven by and evokes passion? How well did Mr. Boehm seem to do this? It appears from the case that his passion, his love, was for nature and wildlife causes, especially trying to preserve the images of vanishing species of birds. This passion appeared to inspire his designers and artists to do their very best work.
A mission encompasses both the purpose of the company as well as the basis for competition and competitive advantages. Organizations must respond to multiple constituencies if they are to survive and prosper, and the mission provides a means of communicating to diverse organizational stakeholders. The mission of Edward Marshall Boehm is clearly stated. The Boehms were interested in: (1) having Mr. Boehm’s art recognized and honored in the art world, (2) supporting nature and wildlife causes in a significant way, (3) and being very wealthy as a result of their company’s success. This tells both their employees and their customers what the company stands for, and the kind of product that the company will produce: high-end quality pieces depicting various wildlife, especially birds.
Anticipating that things might change, the leader must establish strategic objectives to operationalize the mission statement. That is, objectives help to operationalize the mission statement with specific yardsticks, and provide guidance on how the organization can fulfill or move toward the “higher goals” in the goal hierarchy—the mission and vision.
At least one of the objectives established in the case was to further develop the techniques of high quality porcelain manufacturing. This objective has implications for how to acquire both tangible and intangible resources, how to monitor and control performance, how to analyze opportunities, manage innovation, and create an effective structure to handle growth. It requires doing an analysis of the external environment, both relative to general factors that might affect how the product is positioned in the market, and also who the company is competing against for that market. It requires also doing an assessment of internal resources and capabilities for production of the high quality products.
  1. Is there a certain sequence of actions that would be best to take when developing these strategies?
During strategic analysis, the leader does “advance work” to anticipate unforeseen environmental developments, identify unanticipated resource constraints, assess changes in his or her preferences for how to manage. During strategy formation, depending on the type of organization structure, the leader might include key individuals in a discussion around selecting those strategies that might be best to implement at each level within the organization. In strategy implementation, the leader must ensure proper strategic controls and organizational design, and establish effective means to coordinate and integrate activities within the firm as well as with suppliers, customers and possible alliance partners.
The basic question strategic management tries to answer is: How can we create competitive advantages in the marketplace that are not only unique and valuable but also difficult for competitors to copy or substitute? The Boehms must assess how functional areas and activities “fit together” to achieve goals and objectives, and whether past policies are still appropriate.
Here is where the other chapters in the book are applicable. See Exhibit 1.3.
Referencing Chapter 2: Analyzing the External Environment -
See the segments of the external competitive environment that include competitors, customers, and suppliers. Porter’s five forces model allows strategists to anticipate where the industry might be most vulnerable. See Exhibit 2.4. If the Boehms are considered to be in the business of selling collectible art objects, there is not a lot of competition, nor many threats from suppliers, customers, or new entrants into the industry. At this time, with the company being over 60 years old, it appears the collectible market is still strong, with resale of Boehm limited editions going for over $500 on eBay.
Regarding the general external environment, Boehm must consider the political/legal, economic and global, sociocultural and demographic, and technological forces that might affect the ability of the firm to get its product to market and sustain sales. The sociocultural and demographic forces seem to be the most important ones for Boehm to consider.
Referencing Chapter 3: Analyzing the Internal Environment -
See the concept of the resource-based view of the firm, and the three key types of resources: tangible resources, intangible resources, and organizational capabilities. A firm’s strengths and capabilities – no matter how unique or impressive – do NOT necessarily lead to a competitive advantage. The resource-based view of the firm takes the perspective that firms’ competitive advantages are due to their endowment of strategic resources that are valuable, rare, costly to imitate, and costly to substitute. Determining whether the internal resources are valuable, rare, difficult to imitate, or difficult to substitute (VRIN) can help a firm sustain a competitive advantage. See Exhibits 3.5 and 3.6. Without these unique resources, the firm can only attain competitive parity. RBV goes beyond a SWOT analysis to integrate internal and external perspectives in a broader competitive context. RBV can reveal how core competencies embedded in a firm can help it exploit new product and market opportunities.
It’s possible that Boehm has all these attributes, based on the valuable, rare, and unique porcelain process Edward Boehm developed, and on the art design capabilities that are difficult for a competitor to find a substitute for.
In addition, Boehm must assess the relationships between the elements in its value chain. Remember, value-chain analysis is a strategic analysis of an organization that uses value-creating activities. Value is the amount that buyers are willing to pay for what a firm provides them and is measured by total revenue, a reflection of the price a firm’s product commands, and the quantity it can sell. A firm is profitable when the value it receives exceeds the total costs involved in creating its product or service. Creating value for buyers that exceeds the costs of production (i.e. margin) is a key concept used in analyzing a firm’s competitive position.
Every activity should add value. Take a look at Exhibit 3.1 to see the value chain activities. It makes sense for Boehm to focus attention on technology development of the porcelain process, manufacturing operations, and marketing and sales. Here is where Boehm can add value.
Referencing Chapter 4: Assessing Intellectual Capital -
See the concepts of intellectual capital and human capital, both of which are intangible assets that a company such as Boehm needs to have in order to compete successfully. Intellectual capital is a measure of the value of a firm’s intangible assets, its reputation, employee loyalty and commitment, customer relationships, company values, brand names, and the experience and skills of employees. How do companies create value in a knowledge–intensive economy? The general answer is to attract and leverage human capital (intangible assets) effectively through mechanisms that create products and services of value over time.
Human capital involves the individual capabilities, knowledge, skills, and experience of the company’s employees and managers. This knowledge is relevant to the task at hand, as well as the capacity to add to this reservoir of knowledge, skills, and experience through learning.
Since the creation of fine porcelain figures is very labor intensive, and requires significant skill and training, Boehm’s relationships with employees is critical to long-term success.
Referencing Chapter 5: Formulating Business-Level Strategies -
See the types of competitive strategies, including the three generic strategies that are used to overcome the five forces and achieve a competitive advantage:
  • Overall cost leadership
    • Low-cost-position relative to a firm’s peers
    • Manage relationships throughout the entire value chain
  • Differentiation
    • Create products and/or services that are unique and valued
    • Non-price attributes for which customers will pay a premium
  • Focus strategy
    • Narrow product lines, buyer segments, or targeted geographic markets
    • Attain advantages either through differentiation or cost leadership
Generic strategies are plotted on two dimensions: competitive advantage and strategic target. The overall cost leadership and differentiation strategies strive to attain advantages industrywide, while focusers have a narrow target market in mind.
Given Boehm’s goals, low-cost leadership is not an option. It’s more likely that a focused differentiated strategy would work best.
Referencing Chapter 6: Formulating Corporate-Level Strategies -
See the concept of diversification. Diversification is the process of firms expanding their operations by entering new businesses. Diversification initiatives – whether through mergers and acquisitions, strategic alliances and joint ventures, or internal development – must be justified by the creation of value for shareholders. But this is not always the case. Firms typically pay high premiums when they acquire a target firm. So why should companies even bother with diversification initiatives? The answer is synergy, which means “working together”, and synergistic effects should be multiplicative – one plus one should equal more than two.
If Boehm wants to grow, this might be an option. Some possibilities include:
  • Mergers and acquisitions
  • Strategic alliances
  • Joint ventures
  • Internal development
Whatever the choice of initiative, it should create value for all stakeholders – employees, suppliers, distributors, and the Boehms themselves. The choice of diversification strategy should create synergy so that all parties gain something they would not have had on their own. Boehm might want to acquire another porcelain manufacturer, say from Britain where the craft has been practiced for a long time, or partner with a dealer in fine porcelain to expand distribution to premier markets.
Referencing Chapter 8: Entrepreneurial Strategy & Competitive Dynamics -
See the concept of opportunity recognition, the process of discovering and evaluating changes in the business environment, such as a new technology, socio-cultural trends, or shifts in consumer demand, that can be exploited. Changes in the external environment can lead to new business creation, but the discovery of these new ideas is not enough. They then need to be evaluated to find out if they’re strong enough to become new ventures.
Entrepreneurs must go through a process of identifying, selecting, and developing potential opportunities.
See Exhibit 8.1 and the opportunity analysis framework: the relationship between an entrepreneur, the firm’s resources, and the opportunities available in the firm’s environment. Edward and especially Helen Boehm seemed very aware of the possibilities here. At the time of Boehm’s founding there were few fine porcelain manufacturers in the U.S. (NOT IN THE CASE: Over sixty years later, Boehm is the last American porcelain company left making collectible items. See current news, especially “Keeping American Porcelain in the States” by John Christopher Fine, February 7, 2013 at
































































































































































































































































































































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