Mgmt project

10/20/21, 4:17 PM Implementing the Plan

https://myclassroom.apus.edu/d2l/le/enhancedSequenceViewer/43326?url=https%3A%2F%2Ff54cbe36-23a9-4505-85fe-e251f80ec34d.sequences.api.brightspace.com%2F43326%2Factivity%2F4853248%3FfilterOnDates… 1/2

Implementing the Plan

Once you have the vision, it must be implemented.  Once
the vision or parts of the vision are in place, then the
marketing begins.  You have to sell your product or
service to ensure the competition doesn’t override your
plans.  It is important to market creatively so that your
product or service is recognized and stands out over other
competitors.   If you are selling a product such as a
vacuum cleaner that has proven to be an excellent piece of
equipment and you have done every experiment with
many other vacuums and you know this vacuum works
better and lasts longer than any other vacuum that alone
will not sell vacuums.   You need to market the product.  
You can set up shop in a Costco and give demonstrations;
you can stand outside your store and lure customers in the
front door.  But, no matter how wonderful your product
may be, it won’t sell unless you find a way to reach
customers.

If you take the example of a product such as Downy fabric
softener.  You may see a wonderful commercial on TV
advertising Downy using a cute little naked baby with a
soft blanket wrapped around his body and a puppy
cuddled up on top of the edge of the Downy smelling
blanket.   The TV ad costs the company lots of money.  
They have to raise the price of the product to compensate

Then there is the time you have that splitting headache and
you go to the store for some Advil.   The 30 count Advil is
$5.00.  On the shelf, right next to Advil is the CVS
generic brand for $4.40.   Your headache is killing you and
you don’t want to mess around with anything that won’t
work.  However, you check the ingredients on the back of
the box, and there it is.   Exactly the same ingredients as
ADVIL and exactly the same dose.   You buy the cheaper
generic brand and find that it was just as effective as the
name brand.   You were not fooled by the packaging this
time!

But what about marketing for services?  Does everyone
have to market?   It is quite obvious that if you want to
expand your business, in most cases you will need to
market in some way.  Is spreading the word verbally
(word of mouth) marketing?  Of course, it is.   If you are a
landscaper and you have a truck to conduct your business,
why wouldn’t you put a big advertisement on the side of
the truck?   Then, when you are parked at a customer’s
house, it is easy to have neighbors see the good work you
do, the professionalism of your employees, the quality of
the trees you are planting and without spending a dime,
you have advertised your business.   One year you decide
to have flyers printed out and delivered by the post office. 

10/20/21, 4:17 PM Implementing the Plan

https://myclassroom.apus.edu/d2l/le/enhancedSequenceViewer/43326?url=https%3A%2F%2Ff54cbe36-23a9-4505-85fe-e251f80ec34d.sequences.api.brightspace.com%2F43326%2Factivity%2F4853248%3FfilterOnDates… 2/2

for the cost of the advertising.   So, the bottle of Downy
fabric softener may be sold for $3.00 rather than $2.75.  
Then you go to the store and you need fabric softener.  
There is the nice blue bottle of Downy with that cute little
baby on the cover.  Right next to the Downy is the generic
CVS brand or the ACME brand softener.  The CVS and
ACME brand is $2.69 rather than $3.00, but you have the
vision of that commercial and you want that same
experience when you wash your blankets.  You buy the
Downy brand!

It costs you $7,000 which is a huge expense for you as a
little landscaper.   But that year, you were awarded seven
additional jobs (over and above the previous year)
bringing in a total gross income of $83,000.   Can you
make the assumption that the Flyers increased business?  I
think that would be a good assumption.  Would you do
flyers again the following year, or would you try a
different venue?

10/20/21, 4:18 PM Consumer Wants and Needs

https://myclassroom.apus.edu/d2l/le/enhancedSequenceViewer/43326?url=https%3A%2F%2Ff54cbe36-23a9-4505-85fe-e251f80ec34d.sequences.api.brightspace.com%2F43326%2Factivity%2F4853250%3FfilterOnDates… 1/2

Consumer Wants and Needs

Marketing is one of the value-chain activities of an organization’s operations. It
communicates the need for a product or service. Strategic marketing is valuable
to help achieve the long term and short term goals of the organization.
Marketing can be viewed as a one-way communication tool where an
organization disseminates information about a product or service. But, effective
marketing has a two-way communication process in that consumer wants and
needs are considered to produce better products and services.

It could be said that strategic marketing will, in essence, convince the
consumer to purchase a product or service. In many cases, organizations use
marketing to choose who they want their customers and competitors to be. As
an example, if a company is selling small and economical cars, they are going
to advertise to a certain market, most likely young people and couples with
young families. It may be beneficial to advertise on TV shows that you know
are watched by this group of people. You may want to set up a booth at the
local county fair to show off the newest model of that car and hand out flyers.
Marketing strategies should always work toward consumer loyalty.

Niche Marketing
Some products or services are meant for a certain small group of customers.
This is called niche marketing. Products or services offered to niche markets
often come with higher prices and higher quality. Reputation and customer
loyalty generally drive sales in niche markets. Niche marketing reduces
competition and provides a barrier of entry to new competition.

10/20/21, 4:18 PM Consumer Wants and Needs

https://myclassroom.apus.edu/d2l/le/enhancedSequenceViewer/43326?url=https%3A%2F%2Ff54cbe36-23a9-4505-85fe-e251f80ec34d.sequences.api.brightspace.com%2F43326%2Factivity%2F4853250%3FfilterOnDates… 2/2

10/20/21, 4:36 PM Mission Statements

https://myclassroom.apus.edu/d2l/le/enhancedSequenceViewer/43326?url=https%3A%2F%2Ff54cbe36-23a9-4505-85fe-e251f80ec34d.sequences.api.brightspace.com%2F43326%2Factivity%2F4853238%3FfilterOnDates… 1/3

Mission Statements

Mission statements are not required and there is no firm rule about how they
should be written. The statement should give a very brief explanation as to why
the company exists. Some companies have written goals and values and
visions. These are different from a mission statement. The most effective
mission statements are concise with only one or two sentences. 

How to Write a Mission Statement with 10 Inspiring Examples.

(Berry, T., 2021)

Berry (2021) contends that there are five essential elements to writing a
mission statement.

1. Have a market-defining story 
A market defining story is in the background of the written statement. It is
what to think about while formulating the statement. It is the
understanding that customers need to be drawn to the business and want
or need their product or services. It is also the understanding of how the
business is different from others and what it can provide that others can’t.
These things must be understood before the mission statement can be
created.

2. Define what your business does for its customers
Begin with the positive contribution your company makes to society or
customers. Highlight the good!

10/20/21, 4:36 PM Mission Statements

https://myclassroom.apus.edu/d2l/le/enhancedSequenceViewer/43326?url=https%3A%2F%2Ff54cbe36-23a9-4505-85fe-e251f80ec34d.sequences.api.brightspace.com%2F43326%2Factivity%2F4853238%3FfilterOnDates… 2/3

3. Define what your business does for its employees
The mission statement might include a phrase about what it offers for its
employees. If you can’t be unique in this segment, it may be better to
avoid this topic. In other words, you don’t want a mission statement to say
what 100 other companies could say. If they apply, use words like
fairness, diversity, creativity, and empowerment for emphasis. Some
businesses may choose to focus more on the customer or the team. 
American Express includes the team in its mission:
“We have a mission to be the world’s most respected service brand. To do
this, we have established a culture that supports our team members, so
they can provide exceptional service to our customers”.

4. What does the business do for its owners
Most businesses are created to make money. It is rare that a business
exists for any other reason. Not all mission statements mention profits and
that is understandable. Most mission statements focus on the customer to
lure them in. 
Some of the most effective mission statements incorporate ownership and
profits.
In one short sentence, Warby Parker, an eyewear company, includes
customers, employees, and owners in their mission statement. 
“Warby Parker was founded with a rebellious spirit and a lofty objective:
to offer designer eyewear at a revolutionary price while leading the way
for socially-conscious business.”

5. Discuss, digest, cut, polish, review, and revise
A mission statement should not be written in one sitting. There should be
a draft and then discussion. Reword, edit, and reword again. It is critical to
avoid a statement that many other companies could also have. This does
not allow your company to stand out and often does not tell anything
about what you really do.

10/20/21, 4:36 PM Mission Statements

https://myclassroom.apus.edu/d2l/le/enhancedSequenceViewer/43326?url=https%3A%2F%2Ff54cbe36-23a9-4505-85fe-e251f80ec34d.sequences.api.brightspace.com%2F43326%2Factivity%2F4853238%3FfilterOnDates… 3/3

Avoid using phrases that everyone always uses. Phrases such as “provide the
best product,” “world-class,” and “great customer service” often are dismissed
because they are too familiar. Be certain that what you do write is valid and not
just made up jargon. If you don’t highlight customer service in your business,
don’t say it. Spread the draft around to others and ensure they voice their
opinions before you finalize.

As your business grows, review and revise when necessary. As with
everything, change is constant, and so your mission statement need not be
carved in stone.

10/20/21, 4:55 PM Mission Statements

https://myclassroom.apus.edu/d2l/le/enhancedSequenceViewer/43326?url=https%3A%2F%2Ff54cbe36-23a9-4505-85fe-e251f80ec34d.sequences.api.brightspace.com%2F43326%2Factivity%2F4853238%3FfilterOnDates… 1/3

Mission Statements

Mission statements are not required and there is no firm rule about how they
should be written. The statement should give a very brief explanation as to why
the company exists. Some companies have written goals and values and
visions. These are different from a mission statement. The most effective
mission statements are concise with only one or two sentences. 

How to Write a Mission Statement with 10 Inspiring Examples.

(Berry, T., 2021)

Berry (2021) contends that there are five essential elements to writing a
mission statement.

1. Have a market-defining story 
A market defining story is in the background of the written statement. It is
what to think about while formulating the statement. It is the
understanding that customers need to be drawn to the business and want
or need their product or services. It is also the understanding of how the
business is different from others and what it can provide that others can’t.
These things must be understood before the mission statement can be
created.

2. Define what your business does for its customers
Begin with the positive contribution your company makes to society or
customers. Highlight the good!

10/20/21, 4:55 PM Mission Statements

https://myclassroom.apus.edu/d2l/le/enhancedSequenceViewer/43326?url=https%3A%2F%2Ff54cbe36-23a9-4505-85fe-e251f80ec34d.sequences.api.brightspace.com%2F43326%2Factivity%2F4853238%3FfilterOnDates… 2/3

3. Define what your business does for its employees
The mission statement might include a phrase about what it offers for its
employees. If you can’t be unique in this segment, it may be better to
avoid this topic. In other words, you don’t want a mission statement to say
what 100 other companies could say. If they apply, use words like
fairness, diversity, creativity, and empowerment for emphasis. Some
businesses may choose to focus more on the customer or the team. 
American Express includes the team in its mission:
“We have a mission to be the world’s most respected service brand. To do
this, we have established a culture that supports our team members, so
they can provide exceptional service to our customers”.

4. What does the business do for its owners
Most businesses are created to make money. It is rare that a business
exists for any other reason. Not all mission statements mention profits and
that is understandable. Most mission statements focus on the customer to
lure them in. 
Some of the most effective mission statements incorporate ownership and
profits.
In one short sentence, Warby Parker, an eyewear company, includes
customers, employees, and owners in their mission statement. 
“Warby Parker was founded with a rebellious spirit and a lofty objective:
to offer designer eyewear at a revolutionary price while leading the way
for socially-conscious business.”

5. Discuss, digest, cut, polish, review, and revise
A mission statement should not be written in one sitting. There should be
a draft and then discussion. Reword, edit, and reword again. It is critical to
avoid a statement that many other companies could also have. This does
not allow your company to stand out and often does not tell anything
about what you really do.

10/20/21, 4:55 PM Mission Statements

https://myclassroom.apus.edu/d2l/le/enhancedSequenceViewer/43326?url=https%3A%2F%2Ff54cbe36-23a9-4505-85fe-e251f80ec34d.sequences.api.brightspace.com%2F43326%2Factivity%2F4853238%3FfilterOnDates… 3/3

Avoid using phrases that everyone always uses. Phrases such as “provide the
best product,” “world-class,” and “great customer service” often are dismissed
because they are too familiar. Be certain that what you do write is valid and not
just made up jargon. If you don’t highlight customer service in your business,
don’t say it. Spread the draft around to others and ensure they voice their
opinions before you finalize.

As your business grows, review and revise when necessary. As with
everything, change is constant, and so your mission statement need not be
carved in stone.

10/20/21, 4:38 PM Organizational Culture

https://myclassroom.apus.edu/d2l/le/enhancedSequenceViewer/43326?url=https%3A%2F%2Ff54cbe36-23a9-4505-85fe-e251f80ec34d.sequences.api.brightspace.com%2F43326%2Factivity%2F4853242%3FfilterOnDates… 1/2

Organizational Culture

Edgar Schein proposed four layers of organizational culture

1 – Values
 (these are stated by the organization within their goals and mission) 
Values are what is important to any given company. Obviously if a company
values a formal environment, then wearing jeans and sneakers would not be
allowed. You should know before you begin to work there that they value a
formal environment.

2 – Beliefs
(these are more specific). I can use the example of Chik-Fil-A. They have
Christian beliefs and they run their business based on those beliefs. They do
not open for business on Sunday because it is a day of rest. Obviously, if you
can’t agree to accept their beliefs in the way they run their business, I would
not think you should work there.

3 – Behaviors
(day to day operations). These behaviors would include structures, work
procedures and policies, and operating controls. If you work for Wells Fargo,
the employees would most likely have certain behaviors each day since there

10/20/21, 4:38 PM Organizational Culture

https://myclassroom.apus.edu/d2l/le/enhancedSequenceViewer/43326?url=https%3A%2F%2Ff54cbe36-23a9-4505-85fe-e251f80ec34d.sequences.api.brightspace.com%2F43326%2Factivity%2F4853242%3FfilterOnDates… 2/2

are always clients within hearing distance. They would know to wear business
attire, always speak quietly to subordinates, and never use language or actions
that would be offensive to clients.

4 – Taken for granted assumptions or
Paradigm.
These are the core of the culture of an organization and are commonly known
and practiced aspects of behavior. One can assume that an organization has an
informal atmosphere by looking and talking to the employees. If most
employees enter the building wearing jeans and sneakers then outsiders can
assume they have a relaxed environment.

Essential summary

Strategic management is the organization’s management of its overall
long-term purpose. It must not be confused with strategy, which is an
organization’s overall approach for directing operations to achieve
the organization’s long-term purpose. An organization’s strategy must
be used to guide and align the formation of sub-strategies in different
parts of the organization.

Strategic planning is the process of planning sequencing activities
in terms of responsibilities and resources within a given time-frame to
be able to progress an organization’s purpose over time.

Strategic change is a step and transformational change that moves
an organization to a new and sustainable competitive position and is
likely to require changes in existing strategy.

Continuous improvement is organizational learning that sustains
and incrementally improves productivity and customer value in daily
management, subject to the requirements of an organization’s strategy.

Competitive strategy is a business-level strategy designed to sus-
tain a competitive advantage over rivals and potential rivals.

Strategic management1

The management of an organization’s long-term purpose is called strategic
management. A distinction is often made between strategic management
and operations. However, the management of operations today must take
account of the strategic management of tomorrow. So, strategic manage-
ment is also about managing an organization in its entirety, including the
extent of how operations serve the strategic needs of the organization’s
strategy. The components of strategic management are shown in Figure 1.1.

C
o
p
y
r
i
g
h
t

2
0
2
0
.

R
o
u
t
l
e
d
g
e
.

A
l
l

r
i
g
h
t
s

r
e
s
e
r
v
e
d
.

M
a
y

n
o
t

b
e

r
e
p
r
o
d
u
c
e
d

i
n

a
n
y

f
o
r
m

w
i
t
h
o
u
t

p
e
r
m
i
s
s
i
o
n

f
r
o
m

t
h
e

p
u
b
l
i
s
h
e
r
,

e
x
c
e
p
t

f
a
i
r

u
s
e
s

p
e
r
m
i
t
t
e
d

u
n
d
e
r

U
.
S
.

o
r

a
p
p
l
i
c
a
b
l
e

c
o
p
y
r
i
g
h
t

l
a
w
.

EBSCO Publishing : eBook Academic Collection (EBSCOhost) – printed on 10/20/2021 6:11 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM
AN: 2239146 ; Barry J. Witcher.; Absolute Essentials of Strategic Management
Account: s7348467.main.ehost

Strategic management 3

Purpose is the basic reason for an organization’s long-term existence,
and it is the starting point for understanding an organization in its entirety.
Purpose is articulated at the top level, and it is communicated from there
through purpose statements of vision, mission, and values (see chapter 2). A
situation analysis evaluates an organization’s current external and internal
situations (see chapters 3 and 4); these are used to develop strategic objec-
tives (see chapter 5). The strategy used to achieve strategic objectives is
conditioned by the scale and nature of an organization’s activities, whether
single-business (see chapter 6), multi-business (see chapter 7), or global in
orientation (see chapter 8). Implementation includes organizing for manag-
ing change (see chapter 9) and strategic control, including feedback and
learning through strategic performance management (see chapter 10). In the
end, the effectiveness of an organization’s strategic management depends
on the nature and commitment of top management, its strategic leadership
(see chapter 11).

An organization’s top management has the ultimate responsibility for
managing the components of strategic management. Of course, everybody

SITUATION ANALYSIS
The External Environment
The Internal Environment

Strategic Objectives

PURPOSE

STRATEGY
Business-level Strategy
Corporate-level Strategy

Global-level Strategy

IMPLEMENTATION
Strategy Implementation

Strategic Control
Strategic Leadership

Figure 1.1 The components of strategic management

EBSCOhost – printed on 10/20/2021 6:11 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

4 Strategic management

must be involved to some extent, but it is the senior level that spends most
of its time on strategic management (see Figure 1.2). Other levels primarily
spend their time on routine management of an operational and functional
character. Strategic management therefore must be a top-down directed pro-
cess, but this has to be done in ways to facilitate bottom-up decision-making
and feedback about the feasibility and progress of strategically related work
at operational and functional levels.

A top level’s strategic objectives and strategy to achieve them must be
broken down into departmental strategic objectives and strategies and trans-
lated into operational objectives and strategies for daily management. This
procedural order is sometimes called a strategy hierarchy, and it must be
coordinated to ensure that everyone is working to the organization’s purpose.

Strategic planning
Strategic planning is the sequencing of strategic management decisions in
advance by an executive or senior management. It is a formal analytic pro-
cess that provides an organization with a sequenced framework or orga-
nizing design to move towards a long-term purpose. At its most simple,
strategic planning is equated with POST: Purpose, Objectives, Strategy, and
Tactics. At its most complex, strategic planning is known as long-range
planning, which examines trends to forecast future events, sometimes far
into the future. The high-water mark of long-range planning was during the
mid-period of the twentieth century. Forecasting is notoriously difficult: a
leading management consultancy, McKinsey & Company, forecast in 1984
that a million mobile phones would be in use by 2000, but the actual number
was 741 million.

Strategic
Management

Daily Management

Senior Managers

Managers

Supervisors &
Operators

Figure 1.2 Time spent on organizational activities

EBSCOhost – printed on 10/20/2021 6:11 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

Strategic management 5

Strategy scholars began to question the effectiveness of strategic plan-
ning. The most well-known critic is Henry Mintzberg (1994), who argued
that strategic plans are changed during their implementation as local strategy
emerges. In other words, changes to strategy emerge and alter the intended
strategy into a different one (see Figure 1.3) (Mintzberg and Waters, 1985).
There is an implementation gap between what a top level intends and what
lower levels actually achieve. This is not necessarily a bad thing if the
changes are incremental and are a logical response to local conditions – a
leading strategy researcher, Brian Quinn (1980), called this tendency logical
incrementalism.

Mintzberg and Quinn both argue that strategy formulation (the design of
objectives and strategy by top management) followed by its implementa-
tion (by the rest of the organization) is really an iterative process of strategy
formation. Thus, more pragmatic approaches to strategic planning – which
require effective organization-wide feedback and review systems – are nec-
essary to enable top management to understand how and why its organiza-
tion is implementing and making changes to its strategy.

Today, strategic planning is one of the most popular management
approaches, but it is typically used as a vehicle for coordinating decentral-
ized strategy-making, which allows lower-level managers to step outside
routine pressures to challenge thinking and to redirect their people’s time
and resources to a common purpose.

Intended
Strategy

�ea���ed
Strategy

ded
egy

Figure 1.3 Intended strategy into a realized strategy

EBSCOhost – printed on 10/20/2021 6:11 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

6 Strategic management

Strategic planning is now understood to be a part of strategic manage-
ment. The Baldrige Excellence Framework defines good practice in terms
of a set of management principles (NIST):

1 All tasks must be planned properly.
2 Plans must be implemented so that people are working to these plans.
3 Work must be monitored and progress must be reviewed.
4 Necessary action must be taken to account for any deviation from the

plan.
5 Organizations must have structures and management systems to ensure

the above work in practice.
6 Everybody must be involved in these structures and systems.

The first four principles correspond to the order of the Deming Cycle –
plan, do, check, act (see chapter 4), while the other two cover the necessary
provisions of organizational support and a favourable corporate culture. In
addition to these management principles, Baldrige specifies that a strategic
plan should have

1 A defined strategy,
2 Action plans derived from this strategy,
3 An awareness and recognition of the differences between short- and

longer-term plans,
4 An approach for developing strategy based on an organization’s external

environment and internal strategic resources,
5 An approach for implementing action plans that considers an organiza-

tion’s key processes and performance measures, and
6 An approach for monitoring and evaluating organizational performance

in relation to the strategic plan.

While Baldrige does not specify a best way for strategic planning, the list
emphasizes the parts that strategic management should have.

Strategic change
Strategic change is transformational change which aims to move an orga-
nization to a new position of performance. It works by focusing energy and
resources on a few critical success factors or strategic priorities to achieve a
new desired state and market position for an organization. So, the direction
of change is guided by a strategy that is designed to achieve a vision of a
future state. It requires a small number of strategic objectives which senior
managers can realistically manage. Given the demands on top management

EBSCOhost – printed on 10/20/2021 6:11 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

Strategic management 7

in terms of attention and time, it is important to keep strategy simple and not
to get bogged down in too much detail – otherwise you can’t see the forest
for the trees.

According to Jack Welch (2005), a former chief executive of General
Electric, strategy is an approximate course of action that the leadership fre-
quently revisits and redefines according to shifting market conditions. It is
an iterative process. This is consistent with Henry Mintzberg’s view that
strategy is a sense of where you are going – in other words, what direction
you and your organization are taking to move your organization forward.

Making substantial strategic change should normally be episodic. It typi-
cally happens when threats and opportunities in the external and sometimes
in the internal environment call for urgent, radical changes to an organiza-
tion’s existing strategy and business model. Otherwise, overall purpose and
the strategy for achieving it should be stable enough to provide a consistent
basis for decision-making in an organization as a whole. When conditions
are stable, strategic change is actioned through improvement.

Continuous improvement
Change that is continuous is incremental and based on making improve-
ments. These are typically driven by a need to sustain and improve pro-
ductivity and customer value in daily management. The principle is to stay
within a stable business model of an organization’s core value- creating
areas of the organization. To ensure that an organization continues to be
fit for purpose, a number of key performance indicators (KPIs) along
with the strategies and targets to achieve them are laid out, typically in
the form of a business plan. These are often misunderstood as strategic
plans, but to the extent that the KPIs drive best practice, they are really
about improving operational effectiveness. While important to sustaining
strategy, the substance of daily management may not be very different
from that of rivals.

Competitive strategy
Competitive strategy gives an organization an advantage for earning above-
average profits within its industry by creating value that is unique compared
with that offered by its rivals. This requires a competitive strategy that is
sustainable over time. Its role is to integrate and coordinate those organiza-
tion’s activities that make the organization different from rivals in what it
does and what it offers. A sustainable competitive difference is not simply
doing similar activities better than rivals: it is doing those activities in a way
that is hard for rivals to copy at an equivalent cost.

EBSCOhost – printed on 10/20/2021 6:11 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

8 Strategic management

What is strategy?
The terms strategy and strategic management are used interchangeably
across teaching courses and textbooks. In fact they are quite different things.
The strategy concept is central to strategic management, but like strategic
planning, it is only a part of strategic management. Strategy is an approach
for directing an organization’s operations to ensure its direction and purpose
are sustained over time. It acts as a reference framework for all organiza-
tional decision-making by clarifying an organization’s overall priorities and
identifying the main options to progress the direction of activities in line
with its purpose.

In thinking about strategy, there are two perspectives that are consid-
ered individually but which need to come together, especially for effective
competitive strategy. One starts with external market positioning; the other,
internal strategic resources (see Figure 1.4).

Figure 1.4 Outside-in and inside-out influences on strategy

C��� ������
���������

������������������ ��
����������� ����������

�� ��������������

������C����

������������������ ���

�������������������

C����C����������

������ ��C���������

Outside-in
direc�on of
influence on
strategic
management

Inside-out
direc�on of
influence on
strategic
management

�

EBSCOhost – printed on 10/20/2021 6:11 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

Strategic management 9

The most influential work about competitive strategy comes from
Michael Porter of the Harvard Business School. His thinking belongs to a
well-established industrial organization tradition dating back to the 1960s;
this places an importance on the external environment as a determining
influence for successful strategy. It reflects outside-in perspectives and is
sometimes referred to as market-based thinking. It starts with an analysis
of an industry to determine its attractiveness and the choice of a com-
petitive strategy to take advantage of the opportunities. Strategy-related
activities are coordinated and optimized through a value chain. The aim is
to achieve and sustain a strong competitive position within an organiza-
tion’s industry.

Inside-out perspectives centre on an organization’s internal environment
and the resource-based view of strategy. Strategic resources are those orga-
nizational attributes that combine to give a unique competitive advantage;
they are typically core competencies that over time require dynamic capa-
bilities to manage them. The aim is to manage an internal fit of strategic
resources to create and sustain a unique competitive difference.

Big-picture strategists are perhaps more likely to take an outside-in view
of strategy, compared with hands-on strategists who may be inclined to start
with inside-out thinking. It is essential for strategic management to have
both. While leaders must have an eye on what is happening in the world,
the other eye should have a clear view of day-to-day operations – getting the
mix right is absolutely essential:

You don’t want to micromanage every little thing and constrain people
in your team. But at the same time, you can’t get so preoccupied with
a vision or dream . . . It’s essential that I get right into the nitty-gritty
of how decisions are being executed and make sure things are moving
as fast as I want.

(McKinsey & Company, 2012)

The meaning of strategy is much discussed – from the viewpoint of differ-
ent strategy schools (Mintzberg, Ahlstrand, and Lampel, 1998) to its history
dating back to the ancient Greeks (Freeman, 2013). A leading strategy aca-
demic, Richard Rumelt (2012), gives a good introduction in distinguishing
between good strategy and bad strategy.

References
Freeman, L. (2013), Strategy: A History, Oxford: Oxford University Press.
McKinsey & Company. (2012), Leading in the 21st Century: An interview with

ICICI’s Chanda Kochhar, McKinsey Quarterly, mckinseyquarterly.com

EBSCOhost – printed on 10/20/2021 6:11 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

10 Strategic management

Mintzberg, H. (1994), The Rise and Fall of Strategic Planning, London: Prentice Hall.
Mintzberg, H., Ahlstrand, B., & Lampel, J. (1998), Strategy Safari, London: Prentice

Hall.
Mintzberg, H., & Waters, J. A. (1985), Of strategies, deliberate and emergent, Stra-

tegic Management Journal, 6, 257–272.
National Institute of Science & Technology (NIST), Baldrige Quality Framework,

https://www.nist.gov/baldrige/publications/baldrige-excellence-framework
Rumelt, R. (2012), Good Strategy, Bad Strategy, London: Profile Books.
Quinn, J. B. (1980), Strategies for Change: Logical Incrementalism, Homewood,

IL: Irwin.
Welch, J. (with Welch S.) (2005), Winning, London: HarperCollins.

EBSCOhost – printed on 10/20/2021 6:11 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

Essential summary

The internal environment comprises of those conditions internal to
the organization, including the organization’s strategic resources,
abilities, and management capabilities.

The resource-based view of strategy (RBV) is based on the view
that competitive advantage and superior performance are based on the
internal management of strategic resources.

The VRIO framework – value, rarity, inimitability, and organiza-
tional support – is a mnemonic that identifies four key criteria for
assessing which capabilities are strategic.

Core competences are organization-specific abilities that an organi-
zation’s people have which enable them to sustain competitive advan-
tage and superior performance.

Dynamic capabilities allow an organization to renew and re-create
its strategic capabilities, including its core competencies, to meet the
needs of a changing environment.

Organizational learning is broadly of two kinds – incremental,
based on the organization’s experience of routine working and exist-
ing knowledge, which is called exploitive learning; and innovatory,
based on unfamiliar working and new knowledge, which is called
exploratory learning.

The internal environment4

An organization’s internal environment consists of the conditions inside an
organization, including its strategic resources, abilities, and management
capabilities. An organization’s competitive advantage primarily depends
upon its managerial and organizational processes. All organizations are dif-
ferent, and this difference can be recognized by management and used to

C
o
p
y
r
i
g
h
t

2
0
2
0
.

R
o
u
t
l
e
d
g
e
.

A
l
l

r
i
g
h
t
s

r
e
s
e
r
v
e
d
.

M
a
y

n
o
t

b
e

r
e
p
r
o
d
u
c
e
d

i
n

a
n
y

f
o
r
m

w
i
t
h
o
u
t

p
e
r
m
i
s
s
i
o
n

f
r
o
m

t
h
e

p
u
b
l
i
s
h
e
r
,

e
x
c
e
p
t

f
a
i
r

u
s
e
s

p
e
r
m
i
t
t
e
d

u
n
d
e
r

U
.
S
.

o
r

a
p
p
l
i
c
a
b
l
e

c
o
p
y
r
i
g
h
t

l
a
w
.

EBSCO Publishing : eBook Collection (EBSCOhost) – printed on 10/20/2021 5:50 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM
AN: 2239146 ; Barry J. Witcher.; Absolute Essentials of Strategic Management
Account: s7348467.main.ehost

30 The internal environment

drive the strategic management process from the inside out. As a general
point, while being in the right industry matters, it is also necessary to be
good at what you do.

The resource-based view of strategy
The resource-based view of strategy (RBV) is a view of strategic manage-
ment as the management of strategic resources. These are internal strategic
assets, such as core competencies and how employees work in ways that
are unique to a particular organization; as such they provide a competitive
advantage that is difficult for rivals to understand and imitate. Edith Penrose
(1959) suggested in her book The Theory of the Growth of the Firm that
‘resources’ should be defined in terms of their value in supporting strategy
rather than as narrow economic resources defined by their market value.
Strategic resources may have little general market value, but according to
the RBV, firm-specific resources matter most to competitive difference.

The VRIO framework
Jay Barney (1997) offers the VRIO framework as a means to identify stra-
tegic resources; he suggests that above-average profits are likely if an orga-
nization’s attributes are

1 Valuable – when they enable an organization to implement strategy that
improves its effectiveness and efficiency;

2 Rare – few, if any, competing organizations have these valuable attributes;
3 Inimitable – the attributes are too difficult to emulate because they have

a unique history and development, their nature is ambiguous or socially
complex; and

4 Organizable – an organization can manage and exploit the competitive
potential of the first three.

Strategic resources that meet the VRIO criteria can be enhanced in combina-
tions of different ways – by the recruitment of people with certain aptitudes
and knowledge, patents and proprietary technologies, physical assets like
buildings and other facilities, location, social and business networks, alli-
ances, and so on. The importance of intangible resources, such as corporate
image, brands, and customer service, is also fundamental to establish how
people will perceive the difference between organizations and the products
and services they offer. Intangibility is quintessentially a holistically sensed
quality. All organizations are to some extent unique bundles of attributes,
and it is how these are used and managed that determines differences in
organizational performance. The key thing is to strategically manage the

EBSCOhost – printed on 10/20/2021 5:50 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

The internal environment 31

integration of resources so the intangibility of the whole creates an image
that puts the organization apart from its rivals. Central to this is how manag-
ers and other employees manage and do their work.

Core competencies
Core competencies are the organization-specific competencies people have
which are shared and used in common in ways that give the organization its
competitive advantage. They have the following advantages:

1 They are hard for rivals to understand how they work, and they are dif-
ficult to copy.

2 They are relevant to a range of markets and industries.
3 They provide a shared understanding of an organization’s purpose, and

top-down objectives can be better understood and easily implemented.
4 They promote cross-functional working for teams and project manage-

ment generally.
5 They facilitate a common language of objectives which are managed in

a similar way across the organization.
6 They promote a common set of learning-based tools and working prin-

ciples for solving problems.
7 They facilitate bottom-up management for decision making.

A core competency is not simply an ability to be good or even to excel at a
job if rivals are able to copy the competency. Core competencies produce
a different way of working and a competitive difference that rivals cannot
emulate. An organization’s core competencies are characterized as bundles
or patterns of skills, knowledge, and supporting resources which give the
organization its idiosyncratic pattern of competencies that are core to its
strategic purpose. These are typically reinforced and strengthened over time
so that they follow a path or trajectory.

The weakness is that once trajectories are formed they become entrenched
and are hard to change when the need arises. A strategic lock-in occurs when
core competencies are inflexible and difficult to change quickly. The ability
of an organization to manage its core competencies over time is referred to
in strategic management as a strategic dynamic capability.

Dynamic capabilities
David Teece, Gary Pisano and Amy Shuen (1997), in a seminal journal
paper, define a dynamic capability as an organization’s ability to integrate,
build, and reconfigure core competencies to meet change. A more general
definition is an organization’s ability to renew and re-create its strategic

EBSCOhost – printed on 10/20/2021 5:50 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

32 The internal environment

capabilities (including core competencies) to meet the needs of a changing
environment. From the perspective of strategic management this is a senior-
level strategic management process, but lower-level capabilities will also
be strategic in the sense of their being cross-functional processes, such as
product development, alliance and acquisition capabilities, resource alloca-
tion, and knowledge transfer routines.

Teece, Pisano, and Shuen identify the Toyota Production System as an
example of a dynamic capability. All automakers now have similar lean pro-
duction systems to that of Toyota, which suggests it is no longer a uniquely
distinctive capability and cannot be a strategic resource in that sense. How-
ever, dynamic capabilities are often similar across different organizations,
and the real competitive differences are in the detail of their application –
factors such as timing, cost, and learning effects – which can produce robust
differences in performance.

In particular, it is in the way that dynamic capabilities cluster cross-
functional activities including management philosophies and business
methodologies that makes dynamic capabilities competitively unique. Lean
activities including total quality management (TQM), business excellence,
benchmarking, and organizational learning are closely intertwined as comple-
mentary activities that together add value that exceeds the sum of their parts.
An organization’s dynamic capability, if it involves a complex integration of
these methodologies, is likely to produce a stable pattern of collective activity
through which the organization systematically generates and modifies operat-
ing routines in pursuit of improvement that really counts strategically.

Lean working

Lean working (or lean production as it is known in manufacturing) is a man-
agement system for ensuring any non-value-creating activity is removed.
The driving principle is to link the management of an organization’s core
business processes to strategic objectives to continuously improve customer
value. Many assume that lean is an operational tool used only to save waste
and costs, but it is much more than this since lean is applied to the organiza-
tion’s critical business or core areas that are important both to a customer
value proposition and also competitive strategy. Senior managers identify
and specify these areas to give them priority for monitoring and reviewing
to ensure the organization remains fit for purpose.

Total quality management (TQM)

TQM is an organization-wide philosophy and set of management principles
for improving continually the quality of a product/service to meet customer

EBSCOhost – printed on 10/20/2021 5:50 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

The internal environment 33

needs. The ‘total’ principle is that customer quality is only as good as the
weakest link in the quality chain (see Figure 4.1).

Every part of the production and delivery chain must be good enough to
give the next work process exactly what it wants for it to produce exactly
what is needed by the following process and so on. Discipline is needed
throughout the supply chain to ensure that parts and services are delivered
exactly when and where needed. The quality chain can be envisaged and
applied along the whole supply chain to include external organizations.

If teams have responsibility to control their work to meet their immediate
customer’s requirements, they are likely to see their work not as a static and
standalone process but as a dynamic activity which changes with the needs
of the organization’s strategy. The guiding principle is that every process is
managed according to the Deming (or PDCA) Cycle (Deming, 1986):

1 Plan – what has to be done
2 Do – carry out the work to plan and monitor
3 Check – progress of work and review
4 Act – if required take corrective action or amend plan, the cycle starts over

In a TQM-conditioned environment, PDCA is used for any business pro-
cess, including strategic management. It forms the basic mechanism for

Figure 4.1 The quality chain

The Quality Chain: Each process is a customer of the preceding one, and a
supplier to the following process

external customer

external supplier

������ ���
������������

each diamond is a process

��e�all �uality i� �nly a� ���� a� the
weakest link in the chain…….

EBSCOhost – printed on 10/20/2021 5:50 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

34 The internal environment

organizational learning. PDCA drives continuous improvement (sometimes
called kaizen) in lean working. As a purely operations-based approach,
TQM is largely only about taking corrective action to improve a business
process. However, when business processes are linked to the achievement of
strategic priorities, an external dimension is brought to make TQM strategi-
cally sensitive. This happens with kaizen in lean working when organiza-
tions use hoshin kanri (policy deployment) to deploy strategic priorities in
the daily management of processes.

Business excellence (audit) models

Excellence models are used to audit good management practice in the
general core areas of a business or organization; a common name is self-
assessment, and the main reason is to identify and deploy good practice and
organization-wide learning. Organizations design their own frameworks,
but most of these are based on three models: the Malcolm Baldrige National
Quality Award, the EFQM Excellence Award, and the Deming Prize. The
areas for assessment are similar and cover leadership, people, partnerships
and resources, and processes. The components that, according to Baldrige,
should be in place for strategic planning are noted in chapter 1.

Benchmarking

Benchmarking is a comparison of an organization’s practices with those of
other organizations in order to identify ideas for improvement and the adop-
tion of useful practices and (sometimes) to compare relative standards of
performance. There are two main types. The first is competitive benchmark-
ing, where the benchmarks are normally expressed as measured reference
goals for aggregate performance, such as the output of a production line.
The other is process benchmarking, where teams may visit another organi-
zation, often in an unrelated industry, to study analogous business processes.

From the resource-based view of strategy, the replication of best practice
may be illusive since the managerial practices that are most central to com-
petitive advantage are likely to be specific to an individual organization. It is
possible that the more benchmarking organizations do, the more they copy
each other and come to resemble one another. Porter (1996), in particular,
thinks of benchmarking as operational effectiveness – it will reduce costs,
but because every competitor will copy, it will not lead to a distinctive com-
petitive advantage on which long-term success depends.

On the other hand, good practice should be learnt if it is consistent with
an organization’s purpose. Imitation can improve the way an organization
performs. To make strategy work and to improve finding best practices,

EBSCOhost – printed on 10/20/2021 5:50 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

The internal environment 35

adapting them, and continuously improving them lead to new ideas about
products and services. Learning then becomes the norm, where everyone is
searching for a better way.

Organizational learning
Central to the resource-based view and the strategic management of core
competencies is organizational learning. Chris Argyris and Donald Schon
(1981) distinguish three different kinds: single loop, double loop, and
deutero-learning. Single-looped learning involves identifying and correct-
ing errors in existing ways of working: there is a single feedback loop that
checks performance against existing plans. The second involves a double
feedback loop, which not only connects errors to present plans but also
involves questioning the assumptions of the plans and the measures defin-
ing effective performance: double loops look beyond the present ways of
doing things. Deutero-learning involves monitoring and reviewing how
learning is used to manage work, an essential prerequisite for organiza-
tional adaptation.

These three types of learning correspond to three different forms of
review: single feedback is most associated with routine daily management
in operations; double feedback is mostly associated with periodic reviews
of strategy; and deutero-learning is important for business audits of how an
organization learns and manages its core processes (see chapter 10).

James March (1991), writing from the resource-based view of strategy,
makes a distinction between explorative and exploitive learning. Explora-
tion covers unfamiliar sources of knowledge, search, and discovery, while
exploitation is concerned with existing knowledge. In other words, explor-
ative learning is the pursuit of new knowledge of things that might come to
be known, while exploitive learning is the development of things already
known. It is generally thought that an organization should be ambidextrous
and use structures and processes that favour explorative learning for major
innovation and exploitive learning for incremental improvement.

Some observers suggest that organizations will do better to use exploratory
learning if their industry environments are unstable and changeable, while the
use of exploitative learning is preferable for stable conditions. For instance,
for organizations in mature stages of their industry life cycle, innovation may
be stimulated by pressures to reduce costs, improve quality, and increase
productivity rather than stimulated by strategic change. William Abernathy
(1978) pointed to a productivity dilemma – a possible trade-off between the
possible gains in productivity against possible losses in innovative capabil-
ity. The dynamism of globalization up to the financial crisis of 2008 may
have favoured explorative innovation rather than exploitative improvement

EBSCOhost – printed on 10/20/2021 5:50 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

36 The internal environment

approaches. If so, slower growth in developed economies since then may
have swung the pendulum the other way.

References
Abernathy, W. J. (1978), The Productivity Dilemma: Roadblock to Innovation in the

Automobile Industry, London: Johns Hopkins University Press.
Argyris, C., & Schon, D. (1981), Organizational Learning, Reading, MA: Addison-

Wesley.
Barney, J. B. (1997), Gaining and Sustaining Competitive Advantage, Harlow, England:

Addison-Wesley Publishing.
Deming, W. E. (1986), Out of the Crisis: Quality, Productivity and Competitive

Position, Cambridge: Cambridge University Press.
March, J. G. (1991), Exploration and exploitation in organizational learning, Orga-

nization Science, 21, 71–87.
Penrose, E. T. (1959), The Theory of the Growth of the Firm, Oxford: Basil Black-

well.
Porter, M. E. (1996), What is strategy? Harvard Business Review, November-

December, 61–78.
Teece, D. C., Pisano, G., & Shuen, A. (1997), Dynamic capabilities and strategic

management, Strategic Management Journal, 18, 509–533.

EBSCOhost – printed on 10/20/2021 5:50 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

Essential summary

The external environment is those conditions external to the organi-
zation which influence the organization and its industry, especially
those that influence the intensity of competition.

The PESTEL framework is a broad but useful mnemonic to group
external environmental influences into political, economic, social,
technological, environmental, and legal factors.

Structural breaks are fundamental and unpredictable events in the
external environment which are likely to require a sudden rethinking
about an organization’s purpose and strategy.

The industry life cycle likens the life of an industry to a living
organism that goes through stages of introduction, growth, maturity,
and decline; each stage exhibits distinct characteristics that should be
considered against the purpose of the organization.

The five competitive forces are the primary influences affecting
choice of industry and competitive positioning, which affect an orga-
nization’s competitive advantage and profitability.

Hypercompetition is a dynamic state of constant disequilibrium
and competitive change in an industry.

The external environment3

An organization’s external environment consists of the conditions outside
the organization, including the people and organizations that influence the
external changes in the organization’s industry, especially those that influ-
ence the intensity of competition. External conditions are constantly chang-
ing, and organizations need to monitor and review strategy continuously to
effectively manage any emerging threats and to be able to exploit advanta-
geous opportunities. Many changes are difficult to identify, and their con-
sequences are often uncertain and even unknowable. The starting point is

C
o
p
y
r
i
g
h
t

2
0
2
0
.

R
o
u
t
l
e
d
g
e
.

A
l
l

r
i
g
h
t
s

r
e
s
e
r
v
e
d
.

M
a
y

n
o
t

b
e

r
e
p
r
o
d
u
c
e
d

i
n

a
n
y

f
o
r
m

w
i
t
h
o
u
t

p
e
r
m
i
s
s
i
o
n

f
r
o
m

t
h
e

p
u
b
l
i
s
h
e
r
,

e
x
c
e
p
t

f
a
i
r

u
s
e
s

p
e
r
m
i
t
t
e
d

u
n
d
e
r

U
.
S
.

o
r

a
p
p
l
i
c
a
b
l
e

c
o
p
y
r
i
g
h
t

l
a
w
.

EBSCO Publishing : eBook Collection (EBSCOhost) – printed on 10/20/2021 5:49 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM
AN: 2239146 ; Barry J. Witcher.; Absolute Essentials of Strategic Management
Account: s7348467.main.ehost

The external environment 17

to monitor and review the background trends to identify and assess oppor-
tunities and threats; this drives the strategic management process from the
outside in.

The PESTEL framework
The most comprehensive and most used approach for grouping and review-
ing macro-environmental trends in strategic management is PESTEL, which
is a mnemonic for political, economic, social, technological, environment,
and legal factors. Changes over time in any of these areas are liable to lead
to the transformation of industries. If an organization monitors and audits its
external environment it will be better able to respond to trends and respond
more quickly to change than its competitors. As the old saying goes – ‘The
early bird catches the worm.’

While the framework comprises six categories, it is important to use it
as an integrated, not compartmentalized view of trends and changes. Stra-
tegic management is about seeing and understanding connections and is not
concerned with isolated trends but with the management of the BIG picture.
Of course, picking out critical details is vital for understanding how change
may occur but only in terms of what this suggests for an organization’s
strategic management. It is important to understand how trends may work
together to drive change and innovation. There will be opportunities as well
as risks. A periodic PESTEL review challenges strategists to think about
long-term trends and raise questions, such as, ‘Will our overall strategy give
enough flexibility to deal with new forms of competition?’

Political trends

Political factors include trends in not only the actions of local, national, and
international governments and agencies but also the thinking and activi-
ties of influential groups and individuals. Competition in many areas is
shaped by government policies and regulatory decisions. For example, great
uncertainty is hanging over global markets because of a possible trade war
between the United States and China.

Economic trends

Economic trends include resource use and prices, interest rates, disposal
income, economic growth, inflation, and productivity. Since the financial
crisis of 2008, the emergent economies of China, India, and some other
Asian countries have led the world in rates of economic growth. While glo-
balization has slowed down in the wake of the global financial crisis, it
shows every sign of continuing albeit at a slower pace.

EBSCOhost – printed on 10/20/2021 5:49 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

18 The external environment

Social trends

Social factors include demographic, social and lifestyle trends, group identi-
ties and gender roles, national cultures, ethics, morality, and expectations.
The post-WWII baby boom in Western countries brought into existence a
sizeable and distinct group of consumers who, as they age, will spend more
on health and leisure.

Technological trends

Technology includes the impact of new and developing technological
change on resources, organizational behaviours, products and services, and
operations. The prevalence of smartphones and price scanning applications
and the increased use of the Internet are transforming the nature of shopping
and the role of information more generally.

Environmental trends

Environmental factors include not only quality of life, sustainability, and
recycling of resources but also logistical possibilities and infrastructure.
Issues such as world resources, global warming, and pollution caused by
plastic packaging and intensive farming are intensifying and will have to be
taken into account by most organizations.

Legal trends

Legal factors include laws and regulatory action, standards, border require-
ments, labour regulations, and so on. This may also include globalization
issues dealing with international trade and competition law. National legal
frameworks vary considerably, and their consequences for individual indus-
tries are profound. One of the most significant trends is the tightening of
regulatory accounting standards following large corporate failures – such
as Enron, Tyco International, Peregrine Systems, and WorldCom – and the
bursting of the dot.com bubble.

The PESTEL process

The PESTEL process should be kept as simple as possible with the big
picture always kept central. The use of the approach should follow this set
of principles:

1 Someone should be in charge of the process, including meetings and
discussions.

EBSCOhost – printed on 10/20/2021 5:49 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

The external environment 19

2 Before starting, think through the process and be clear what the objec-
tives of the PESTEL analysis are.

3 Keep it simple; do not get bogged down in detail so that the big picture
gets lost.

4 Involve a balance of pessimists and optimists; include outsiders with
different perspectives and beware of vested interests and group-think.

5 Agree on appropriate sources and check inside the organization first for
information.

6 Use visual tools and discussion aids.
7 Identify the most critical factor issues for strategy.
8 Produce a discussion document for wider circulation.
9 Use feedback and follow-up checks on actions and keep all PESTEL

participants informed on follow-up to encourage continual dialogue.
10 Decide which issues to monitor on an ongoing basis; link to existing

in-house processes for monitoring and reviewing change, especially for
planning.

PESTEL is a useful framework to check and determine strategic priori-
ties since managers are encouraged to look beyond their organization and
industry and to be less insular. But beware of weaknesses in the method. It
can be too easy to scan data and over time slip into lazily ticking boxes. A
good PESTEL should go deep enough to consider the root causes behind the
trends; things are not always as they appear. The analysis should not merely
highlight the obvious; strategists should avoid information overload. Issues
should be strategic, not operational, and always relevant to an organization’s
purpose. There should be a concentration on those factors and issues of most
relevance to driving change. Be mindful that ideas are always a question of
creativity and judgement – be critically creative.

Black swans and structural breaks
PESTEL analysis is primarily about monitoring and reviewing longer-term
trends, but there are also single events that cannot easily be foreseen. These
are structural breaks that subvert trends and change existing behavioural
patterns. These will require organizations in general to rethink their purpose
and overall strategy. Some are so potentially catastrophic that a societal and
perhaps a world response are required. The World Health Organization’s
projected the impact of influenza A/H5N1 pandemic (avian/bird flu) is 7 to
350 million deaths.

David Hume used the discovery of black swans in Australia to illustrate
that no matter how many times something can be proved – that swans are
always white – it takes only a single event to prove it untrue. This example

EBSCOhost – printed on 10/20/2021 5:49 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

20 The external environment

was developed by Nassim Taleb (2007) in his book The Black Swan, in
which he wrote about events that cannot be predicted. When they occur,
they have a massive impact that takes everyone by surprise. The global
financial crisis in 2008 was a good example of a structural break.

Compliance requirements have helped to drive the documentation of stra-
tegic risks in organizations. The US Securities and Exchange Commission
requires publicly listed companies to document the key business areas and
the underlying assumptions that are core to strategic success. This is central
to strategic risk management – a systematic and overall approach for man-
aging external events and trends that could seriously harm an organization’s
effectiveness for achieving its longer-term purpose. It should be a central
part of any organization’s strategic management.

Strategic risk management should have these key aspects:

1 A statement of an organization’s value proposition in relation to busi-
ness objectives

2 A definition of risks based on the organization’s objectives and support-
ing business strategy

3 A statement on the required corporate culture and behavioural expecta-
tions with regard to risk taking

4 A definition of organizational ownership of risk management strategy
at organizational levels

5 A description of the management framework or system being employed
to deliver the above requirements

6 A definition of the performance criteria employed for reviewing the
effectiveness of the risk management framework

While there is no useful way to see when structural breaks and the risks
they bring will occur, a PESTEL analysis is likely to raise questions like
‘what if?’ Downturns in the world economy occur every few years, and
there have been four global recessions in the last 50 years. While the timing
of a future downturn is uncertain, it is possible to learn something from past
events. Some industries, for instance, seem able to weather recessions better
than others, such as utilities, telecommunication services, health care, and
consumer staples, but these are less likely to grow significantly during an
upturn. Industries also have their own periodic cycles.

Industry life cycle
The industry life cycle likens the life of an industry to a living organism:
markets expand over time, eventually maturing and finally declining.
The life cycle has introduction, growth, maturity, and decline stages (see

EBSCOhost – printed on 10/20/2021 5:49 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

The external environment 21

Figure 3.1). The competitive conditions of the industry change as the stages
change.

Introduction stage

In the beginning, production is low, costs are high, and demand is very low.
There may be a large variety of products and services and diverse orga-
nizations. Small entrepreneurial organizations are typically involved, but
well-established organizations from other industries may be diversifying
and entering a new industry to test the water. An important barrier to entry
may be based on knowledge of a developing technology, and large organiza-
tions acquire this by taking over small specialist firms. The first to perfect
a robust design and applications may be able to capture a significant part of
the future market as a first mover. Success is not necessarily based on either
best function or lowest cost but rather a robust product supported by a mar-
keting mix that locks in first users, who often buy for reasons of novelty, and
early adopters, who are into the personality of the brand.

Growth stage

This is the time when first movers become well established and take domi-
nant positions in their industries. Expansion comes as customers, distribu-
tors, and retailers become familiar with the new products and as supplier
organizations gain experience and exploit greater economies of scale to offer

Figure 3.1 Industry life cycle stages

EBSCOhost – printed on 10/20/2021 5:49 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

22 The external environment

lower prices. A tipping point is reached at a sales threshold when a band-
wagon effect gathers force and the number of competing organizations first
rises and then reduces to a handful as a dominant design establishes itself.

Maturity stage

A mature industry is relatively stable, and competition has reduced to a
handful of rivals. The term category killer is sometimes used by observers
to describe an organization that has been able to eliminate most of the com-
petition for a category of product or service. During the maturity stage, it
is no longer possible to maintain individual growth rates without capturing
market shares from other rivals. Generally, because of large-scale produc-
tion advantages, prices are low and rivals compete through distribution and
brand loyalty. Economies of scale and branding constitute significant bar-
riers to entry to the industry. If the number of surviving companies is fairly
large and similar in size, oligopolistic positions may mean they are well
placed to avoid price wars and be able to take advantage of high prices and
earn high profits. The maturity stage is also a time when a basic product or
service is developed as a range of different but related offers. Each offer
is subject to its own product life cycle when the marketing programme is
changed to suit the evolving needs of the segment.

Decline stage

The reasons for decline may lie embedded in the general environment and in
any of the PESTEL factors. An important reason is a change in technology,
although sometimes old technology can rally – a ‘sailing ship effect’ – when
steam ships were introduced, sailing technology actually became more effi-
cient. In modern times the convergence of computing, telecommunications,
and media technology has transformed industries, bringing about new life
cycles.

Do industry life cycle models work?

An industry life cycle model helps strategists identify the opportunities
and threats that characterize different industry environments. Managers
need to design their strategy to take account of changing conditions. How-
ever, it is often difficult to identify a stage precisely and even more dif-
ficult to forecast since there is no universally recognized standard length
of life cycles. The strength of the concept lies in its use as a powerful tool
for clarifying strategic options as industries and markets develop broadly
along trajectories from uncertain beginnings through typically chaotic and

EBSCOhost – printed on 10/20/2021 5:49 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

The external environment 23

intensely competitive growth and afterwards reach more mature and rela-
tively stable states.

The industry life cycle focuses on the characteristics of an industry’s
stages of development. Nevertheless, it may not be the stages as such but
actually how rivals in those stages compete with each other that is impor-
tant. It is not just the general conditions of an industry and its markets but
how rival organizations compete against each other to survive – and the
fittest survive:

Some make the deep-seated error of considering the physical condi-
tions . . . as the most important for its inhabitants; whereas it cannot, I
think, be disputed that the nature of the other inhabitants with which each
has to compete is generally a far more important element of success.’

(Charles Darwin, 1859)

The five competitive forces
Arguably the most influential contribution to thinking about competitive
strategy has come from Michael Porter (1980), who introduced the industry
profitability and five competitive forces framework (see Figure 3.2). The cen-
tral force is the intensity of the rivalry between existing competitors; this is
influenced by four others – the threat of new business, the bargaining power

Threat of
new

business
Bargaining
power of

customers

Threat of
substitute
products

or services

Bargaining
power of
suppliers

Rivalry
among
current
competitors

Figure 3.2 The five competitive forces

EBSCOhost – printed on 10/20/2021 5:49 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

24 The external environment

of customers, the bargaining power of suppliers, and the threat of substitute
products and services. The strength of these forces and the way they influ-
ence each other determine an industry’s profitability and shape its structure.

Porter contrasts the global automotive industry, the international art mar-
ket, and the regulated health care industry in Europe and observes that,
while each is different on the surface, the profitability of each industry is
conditioned by the same underlying driving forces of competition. The prin-
ciple facing the strategist is how an organization can sustain an advanta-
geous position in its industry.

If the competitive forces are intense, an organization is unlikely to earn
attractive returns on its investment. If they are weak, above-average returns are
possible. Many factors have an influence on short-term profitability, but it is
important to realize that the five competitive forces are factors that apply to the
longer-term. For example, while the price of food moves up and down depend-
ing upon the weather and the cost of fuel for storage and transport, the general
and longer-term profitability of supermarkets rests on the bargaining power of
the retail chains in relation to their suppliers and customers. The threat of new
entrants is low, and the scope for substitutes for groceries is limited.

An individual organization must consider its industry structure as well as
its own strategic position within the industry if it is going to defend itself and
shape an industry’s forces in its favour. The nature of the forces differs by
industry, and the strongest force may not be obvious. For example, the threat
of new business has been low for supermarkets. Traditionally, the value created
for customers of supermarkets lies in their convenience and low costs, and this
has critically depended for the customer on the location of the stores. However,
Internet shopping now poses uncertainty for longer-term profitability.

The threat of new entrants (new business)

New competition from outside brings additional capacity pressures on exist-
ing market shares that influence prices, costs, and investment in an industry.
For this reason many existing firms in a threatened industry may hold down
profitability to make their industry less attractive to possible entrants. If
entry barriers are low and industry profitability is high, new business can
enter the industry and drive down prices and raise costs for the existing
competitors. The challenge for new entrants is to find ways to overcome
the entry barriers without the heavy costs of investment that cancel out the
profitability of operating in the industry. There are eight sources of barriers
to entry that entrants have to consider and overcome:

1 Supply-side economies of scale – incumbents have a cost advantage
over incumbents from economies of scale and can sustain lower prices.

EBSCOhost – printed on 10/20/2021 5:49 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

The external environment 25

2 Demand-side benefits of scale – incumbents have a reputation for qual-
ity and service that comes from size.

3 Customer switching costs – there is a high cost to customers of incum-
bents in switching to entrants.

4 Capital requirements – cost and availability for investment in new areas
are likely to be high for entrants.

5 Incumbency advantages independent of size – there are advantages
stemming from first advantage, such as proprietary technology, access
to resources, and locations.

6 Unequal access to distribution channels – fewer wholesale and retail
channels may mean these are tied up by incumbents.

7 Restrictive government policy – competition policy, regulation, and
licensing may foreclose entry to entrants from overseas.

8 Expected retaliation – the ability and history of incumbents to retaliate
when faced with new competition may deter entrants.

The bargaining power of customers

Powerful customers or groups of customers can force suppliers in an indus-
try to lower prices, demand more customized features, and force up service
and quality levels. This activity drives down an organization’s profitability
and shifts the balance of power and value in favour of buyers. Customers
have an advantage if the following conditions apply:

1 Customers are few and buy in quantities that are large in relation to the
size of suppliers: if the fixed costs of suppliers are high and marginal
costs are low, there are likely to be attempts to keep capacity filled
through discounting.

2 The industry’s products are standardized or undifferentiated: if buyers
can find equivalent products elsewhere, suppliers can be played off
against each other.

3 Customers have low switching costs in changing suppliers.
4 Customers can produce the product themselves if a supplier is too costly.

Buyers are likely to be sensitive to prices if the cost of the product or service
is a significant proportion of its costs and are likely to search for best deals and
to negotiate hard. The opposite is true when price forms a low percentage of
a buyer’s costs. In general, however, price is less important when the quality
of the supplied product and its influence on the buyer’s own products are vital
considerations. The importance of service, especially when quick response and
advice are required from the supplier, can be much more important than price.
Also, cash-rich and profitable business customers with healthy enterprises may

EBSCOhost – printed on 10/20/2021 5:49 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

26 The external environment

be less sensitive to levels of price. Intermediate customers and customers who
are not the end-user of the final product, such as in distribution, are similarly
less motivated by price. Producers often attempt to reduce the power of chan-
nels through exclusive arrangements with distributors and retailers.

The bargaining power of suppliers

The strength of suppliers will influence the profitability of customer organi-
zations; if this is strong, suppliers can negotiate higher prices to their advan-
tage. This is likely to apply if any of the following conditions apply to an
industry’s suppliers:

1 Supply is more concentrated than the industry’s customers.
2 Suppliers are not dependent upon a single industry for their revenues.
3 Suppliers have customers with high switching costs and close supply

chain relations with customers.
4 Suppliers with differentiated products and services are less dependent

on individual customers.
5 Suppliers have products and services for which there are no substitutes.
6 Suppliers have a potential to integrate forward and enter a customer’s

market.

The threat of substitute products and services

Substitutes are nearly always present but are difficult to identify if they
appear different in form from an industry’s products or services. However,
the threat of substitutes influences an industry’s profitability because it may
enable an industry’s customers to go elsewhere. The threat of substitutes is
high if it is apparent that alternatives offer an attractive price-performance
trade-off to the industry’s offer. The customer’s switching cost must be low
not just in terms of costs but also in terms of convenience and assurance.

Rivalry among existing competitors

This competitive force is influenced by the other four and is the most pow-
erful, depending upon how aggressively rivals are using the other forces
to strengthen positions, increase revenue, and save costs. Rivalry is strong
when competitors are roughly of equal power and size and are numerous. In
this case it is difficult for any organization to win customers without taking
them from rivals. Unless the industry has an industry leader which sets the
competitive conditions for the industry, competition is likely to be unstable
and costly for the industry as a whole.

EBSCOhost – printed on 10/20/2021 5:49 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

The external environment 27

Slow industry growth, which is a characteristic of mature markets, can
stimulate intense competition for market share. This is especially so if exit
barriers are high, when organizations are locked into technologies and have
specialized resources that are limited in resale value to other industries. Too
many suppliers in an industry may lead to chronic excess capacity that is
likely to encourage discounting.

Organizations are often present in an industry for a variety of reasons,
including non-profit ones, such as the presence of public-service organiza-
tions that have social objectives. There may also be organizations that are
part of larger groups and are primarily interested in having the experience of
the industry’s technology and business, which they use to develop products
and services in other industries. This may lead to lower profitability in the
industry and make it less attractive.

The importance of the five forces

Michael Porter revisited his five force framework in an article published in
2008, in which he summed up its importance:

Understanding the forces that shape industry competition is the starting
point for developing strategy. Every company should already know what
the average profitability of its industry is and how it has been changing
over time. The five forces reveal why industry profitability is what it is.
Only then can a company incorporate industry conditions into strategy.

An organization’s competitive strategy can be based on building defences
against the five forces or on finding a position in an industry where the forces
are weakest. Porter warns that an organization should be careful not to set
in motion dynamics that will undermine the attractiveness of the industry in
the longer-term. However, for some industries, especially those emerging
from new technologies, the short-term may be more important.

Hypercompetition
The short-term is important in conditions of hypercompetition, described by
Richard D’Aveni (1994) as a competitive state of constant disequilibrium and
change. The concept gained popularity in the early years of the Internet and
the rise of the new dot.com enterprises. In emerging and rapidly changing
markets competitive advantage is transient rather than sustainable, and orga-
nizations typically move on before competitors can react. There is an empha-
sis on renewing rather than protecting an existing market. A related idea is
disruptive innovation, an idea described by Clayton Christensen (1997) as a

EBSCOhost – printed on 10/20/2021 5:49 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

28 The external environment

revolutionary product that replaces existing ways of competing. There are
two basic forms: the first acts to create new competition with new markets
and customers; the second acts to generate new value for existing custom-
ers who are located in a low value-added part of a market, where existing
competition is concentrating effort up-market rather than defending low-
end segments.

Michael Porter (1999) has noted that new competition generated by
e-commerce has encouraged many observers to claim that there can be little
advantage in sustaining a competitive strategy over time and that organiza-
tions instead should be nimble, quick, and able to learn as change happens.
While this may be true, Porter suggests the danger is that this leads organiza-
tions to compete only on best practice rather than on competitive difference.
In the end, because rivals do similar things and offer similar products and
services, customers choose only on prices, and the resulting price competi-
tion will eventually undermine industry profitability.

Strategic fit
Strategic fit is matching the opportunities of the external environment with
an organization’s internal capabilities. The opportunities and threats sug-
gested by PESTEL, the industry life cycle, and the five competitive forces
have to be assessed against the strengths and weakness of the organization’s
internal environment. How good this fit is will be an important determinant
of the strategic success of the organization in achieving its purpose.

References
Christensen, C. M. (1997), The Innovator’s Dilemma: When New Technologies

Cause Great Firms to Fall, Boston, MA: Harvard Business School Press.
D’Aveni, R. (1994), Hypercompetition: Managing the Dynamics of Strategic

Manoeuvring, New York: Free Press.
Darwin, C. (1859), On the Origins of Species, London: John Murray.
Porter, M. E. (1980), Competitive Strategy: Techniques for Analyzing Industries and

Competitors, Boston, MA: Free Press.
Porter, M. E. (1999), A conversation with Michael Porter: A “significant extension”

toward operational improvement and positioning, an interview by Richard M.
Hodgetts, Organizational Dynamics, 28(1), 24–33.

Porter, M. E. (2008), The five competitive forces that shape strategy, Harvard Busi-
ness Review, January, 79–93.

Taleb, N. N. (2007), The Black Swan: The Impact of the Highly Improbable, New
York: Random House.

EBSCOhost – printed on 10/20/2021 5:49 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

Essential summary

Purpose is the reason for the organization and its overall goals.
Vision statement is the organization’s statement of its desired future

state or ideal.
Mission is the organization’s statement of its overriding pur-

pose, such as the value it creates for its stakeholders and other
responsibilities.

Values are the organization’s statement of its expected collective
norms and behaviours and will include its overall core business meth-
odologies and management philosophies.

Purpose2

It is essential for organizations to have a common purpose. There is no sen-
sible strategic management without purpose. This is important if everybody
in an organization is to work effectively together. Senior managers spend
considerable time clarifying and making purpose meaningful. This is done
not only to inspire the organization but also to help employees in an orga-
nization to develop their priorities and roles and to understand the priorities
and roles of others they work with.

Purpose is the primary and basic reason for an organization’s existence,
and it is founded on belief. An organization must believe that it serves a use-
ful purpose, and this requires some sort of belief system to make sense of
what an organization does since in everyday work much has to go unques-
tioned. There are three dimensions to how organizations manage themselves
as a collective entity – vision, mission, and values. Each offers a differ-
ent role in strategic management for clarifying organizational purpose (see
Figure 2.1).

C
o
p
y
r
i
g
h
t

2
0
2
0
.

R
o
u
t
l
e
d
g
e
.

A
l
l

r
i
g
h
t
s

r
e
s
e
r
v
e
d
.

M
a
y

n
o
t

b
e

r
e
p
r
o
d
u
c
e
d

i
n

a
n
y

f
o
r
m

w
i
t
h
o
u
t

p
e
r
m
i
s
s
i
o
n

f
r
o
m

t
h
e

p
u
b
l
i
s
h
e
r
,

e
x
c
e
p
t

f
a
i
r

u
s
e
s

p
e
r
m
i
t
t
e
d

u
n
d
e
r

U
.
S
.

o
r

a
p
p
l
i
c
a
b
l
e

c
o
p
y
r
i
g
h
t

l
a
w
.

EBSCO Publishing : eBook Academic Collection (EBSCOhost) – printed on 10/20/2021 5:48 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM
AN: 2239146 ; Barry J. Witcher.; Absolute Essentials of Strategic Management
Account: s7348467.main.ehost

12 Purpose

Vision is a desired future state or ideal for an organization; this requires an
organization to make a substantial strategic change. Mission is a statement
of an organization’s present aims and core activities; these guide an orga-
nization’s control of its core business areas and continuous improvement
for creating customer value. Visionary change and the strategy to achieve
it bring change to existing working. Values, the expected collective norms
and behaviour of everybody, have a mediating role in terms of how values
influence the management of vision and mission together.

Vision statements
Visions are drawn up in document form as a statement of intent. They are
typically short and memorably ambitious but not overblown. A vision will
provide the basic rationale for change to ensure that the reasons and the
broad implications for action are obvious. Its inspirational qualities should
excite and motivate enough to encourage people to stretch possibilities and
rethink their work. But it also needs to seem realistic – so senior manag-
ers need to walk a narrow line between distant ambition and the possibili-
ties of getting there carefully. The development of a vision needs to take
into account an organization’s situation with regard to both the external and

Figure 2.1 The three dimensions of organizational purpose

Vision

Values

Mission

Strategy

Business
Model

Important to continuous
improvement and the

control of core business
areas for creating value

Important to making
a substantial

strategic change

Important to the core
business methodologies

and management
philosophies

A desired future state
or ideal for an
organization

The expected collective
norms and behaviour of

everybody in an organization

A statement of an
organization’s present

aims and core activities

EBSCOhost – printed on 10/20/2021 5:48 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

Purpose 13

internal environments; this may involve an envisioning process involving
the participation of an organization’s important stakeholders.

A particular kind of vision statement is a simple ‘big idea’ – something
very different that will change an organization. This can be used as a mem-
orable catchphrase to be easily communicated as a slogan to spur people
on to make exceptional efforts. A word of warning is necessary: vision
statements should be meaningful statements useful to guide activities in a
desired direction and should not be reduced to superficial slogans. It is also
essential to understand that they have a different role from that of mission
statements.

Mission statements
A mission statement explains why an organization exists. It explains the
scope of what an organization does and typically will have a rationale to
explain how it adds stakeholder value. The style and the form of statements
vary considerably in practice since organizations use them in different ways.
For example, a statement can be used for public relations to influence impor-
tant publics or for marketing to indicate a distinctiveness that stands out
against competitors. Care is necessary to ensure that an organization is able
to live up to its claims. The statement may claim excellence and quality, but
if it fails to deliver these, the organization’s reputation will suffer. Platitudes
like ‘we make your life better’ can leave both customers and employees
feeling cynical.

The importance of stakeholders to mission is important. Stakeholders are
individuals and groups who benefit directly by receiving value from what
an organization does and provides. This includes, of course, shareholders
and other groups who invest in an organization. They may also include
employees, suppliers, and facilitators, such as partners and more broadly
society and government. Peter Drucker, widely acknowledged as the father
of modern management, in an oft-quoted piece from his classic The Practice
of Management (1955), puts the customer first:

If we want to know what a business is we have to start with its purpose.
And its purpose must lie outside of the business itself. In fact, it must
lie in society since a business enterprise is an organ of society. There
is only one valid definition of business purpose: to create a customer.

But a ‘customer’ can be hard to define for some organizations. In the
case of public service organizations, political purpose is important – as well
service users and citizens. A major question is about how the wider com-
munity can be treated as a customer and how a commercial firm can create

EBSCOhost – printed on 10/20/2021 5:48 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

14 Purpose

significant shared value for society. Corporate social responsibility (CSR)
is based on a view that large corporations should fulfil a world citizen role.
CSR involves the joint pursuit of profit, good citizenship, and setting a good
example by achieving high standards of business morality, especially in
relation to practices in the developing world and the environment (Bhat-
tacharya, Sen, and Korschun, 2011).

Values statements
A values statement documents the expected collective norms and standards
of behaviour for an organization’s managers and workforce. It may also be
expressed in terms of a set of principles setting out the way that managers
and other employees should do and conduct their work. Note that values are
different from stakeholder value: values are the standards by which people
work, while value is an outcome produced by that work. Values statements
should be designed to sustain social capital by emphasizing trust, fairness,
support, and honesty – those values upon which most working relationships
depend.

In strategic management, values statements have become more important
with the rise in growth and power of global organizations. An important rea-
son is a greater requirement to integrate corporate-wide management phi-
losophies and business methodologies across global workforces that differ
widely in terms of national cultures. Large organizations have to harmonize
cross-functional activity with functional ones, and this needs a general con-
text in which individuals can work consistently in relation to each other to
develop and sustain organization-wide values.

An organization’s general context for working must be stable over a long
period. Jim Collins (2001), in his important book Good to Great, argues that
the best companies sustain their position by preserving their core values and
purpose, while their strategy and operating practices continuously adapt to
change. It does not matter what these core values are so much that to be
successful companies must have them – it is more important that senior
managers are aware of them, can build them explicitly into the organization,
and preserve them over time.

An organization’s core values constitute its basic strategic understanding,
and Collins emphasizes the importance of a culture of self-disciplined peo-
ple who adhere to a consistent system within which they have the freedom
and responsibility to take action. This discipline is felt as much intuitively
as it is consciously. It should be communicated through a common organi-
zational culture which is shared by key managers and employees.

Edgar Schein (1985), in his influential book Organizational Culture and
Leadership, explains organizational culture as the shared basic assumptions

EBSCOhost – printed on 10/20/2021 5:48 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

Purpose 15

and beliefs learned from experience. These operate unconsciously and deter-
mine the taken-for-granted perceptions everybody in an organization has of
his or her environment. Assumptions and beliefs are forged over time as
people learn from dealing with an organization’s problems, which become
embedded in behaviour that repeatedly proves itself over time. Organiza-
tional culture is pervasive and powerful in its influence, so senior managers
should be aware and manage its effects for strategic management – or else
they are likely to find that culture will manage them.

An established culture is typically organization-specific and because of
this it may have given the organization unique ways of working and stra-
tegic resources which underpin its competitive advantage. Thus, a new top
management should be careful if it wishes to change an organizational cul-
ture. It may be more practical to work with a culture than to seek to change
it; certainly, with culture it is necessary to build any required changes gradu-
ally over time.

References
Bhattacharya, C. B., Sen, S., & Korschun, D. (2011), Leveraging Corporate Social

Responsibility: The Stakeholder Route to Business and Social Value, Cambridge:
Cambridge University Press.

Collins, J. (2001), Good to Great: Why Some Companies Make the Leap . . . and
Others Don’t, London: HarperCollins.

Drucker, P. F. (1955), The Practice of Management, London: Heinemann Butter-
worth.

Schein, E. H. (1985), Organizational Culture and Leadership, London: Jossey-Bass.

EBSCOhost – printed on 10/20/2021 5:48 PM via AMERICAN PUBLIC UNIVERSITY SYSTEM. All use subject to https://www.ebsco.com/terms-of-use

LA}C}

‘=?1 _f*’

cAsE ,f: ‘:
&*Fh&hk t g htp]
iv* q- {“Jq-,} gv&&&- !.-, b

McDonald’s announced on January 28, 2015, that Don
Thompson would retire as president and chief executive
at the end of February. He would be replaced by Steve
Easterbrook, the firm’s chief branding officer. The abrupt
exit came after the world’s largest restaurant chain posted
one of its worst financial performances in years (see Exhib-
its I and 2). Revenue in the last quarter, through December,
1’ell 7 percent to $6.6 billion. Earnings, however, dropped
by 21 percent to $1.1 billion from $1.4 billion in the same
period a year earlier. “People have seen results go from
the best in the industry to one of the worst in the course of
three years,” said Will Slabaugh, an analyst.l

Days betbre his retirement, Thompson acknowledged
that McDonald’s results had fallen short of expectations,

” Case prepared by Jamal Shamsie, Michigan State UDiversity, with the
assistance of Prolcssor AIan B. Eisncr, Pace Univcrsity. Material has been
drarvn from published sources to be used for purposes of class discussion.
Copyright O 201 5 Jamal Shansie and Alan B. Eisner.

but he noted that the firm had sufl’ered partly because of
events beyond his control. Sales in Asia and the Middle
East had fallen sharply because of food safety concerns
with a Chinese meat supplier. McDonald’s also had to face
shortages of French fries in several markets because of a
slowdown at the port in Los Angeles. Finally, some Russian
outlets were temporarily closed by food inspectors, appar-
ently in retaliation for Western sanctions against Russia
over its military intervention in Ukraine (see Exhibit 3).

However, McDonald’s faced its biggest challenge in
the United States, its largest market, where it had 111,200
of its 35,000 mostly franchised restaurants. It had lost
a lot of ground with consumers, especially millennials.
who were defbcting to traditional competitors like Burger
King and Wendy’s as well as to new designer burger out-
lets such as Five Guys and Shake Shack. Changing tastes
were responsible for the loss of customers who were lin-
ing up at fast-casual chains such as Chipotle Mexican

lncome Statement
($ millions)

Balance Sheet
($ millions)

C1S{ C,&SF ?5:: MCDONALD’S

Revenue

Gross profit

Operating income

lncome before taxes

Net income

;;;’r;;#;;.—

Total current assets

Total assets

Total current liabilities

Total liabilities

Total stockholders’ equity

Source: McDonald’s

24,01s

9,637

7,473

7,000

4,946

21,006

10,687

8,530

8,012

s,503

27,567

10,816

8,605

8,079

5,465

28,1 06

10,903

8,764

8,204

5,586

21 ,441

10,456

7 QtO

7,312

4,758

4,368

21 07E

2,925

17,341

14,634

4,403

32,990

3,509

18,600

14,390

4,922

35,386

3,403

20,093

15,294

5,050

36,626

3,1 70

20,617

1 6,01 0

4,186

34,281

2,7 48

21,428

12,853

E
Grill and Panera Bread. which offered customized order-
ing and fresh ingredients (see Exhibit 4).

McDonald’s response to this growing competition was to
expand its menu with snacks, salads, and new drinks. From
33 basic items that the chain offered in 1990, the menu grew
to 121 items by 2014. The greatly expanded menu led ro a

significant increase in costs and longer preparation times.
This forced the firm to increase the prices of many of its
items and to take more time to serve customers. moving it
away fiom the attributes that it had built its reputarion on.
“McDonald’s stands for value, consistency and convenience.”
said Darren Tristano, a restaurant industry consultant.2

..,r i,t:r- ‘

Breakdown of
Revenues ($ millions)Company-operated sales:

U.S.

Europe

APMEA

Other Countries & Corporate

Total

Franchised revenues:

U.S.

Europe

API4EA

Other Countries & Corporate

Total

Total revenues:

IJ.S.

Europe

APMEA

Other Countries & Corporate

Total

Source: McDonald’s.

$ 4,351

7,808

5,210

740

$18,169

$ 4,300

3,270

1,0s4

648

$ e,272

$ 8,651

11,078

6,324

‘1,388

$21,441

$ 4,512

8,1 38

5,425

800

$ 1 8,875

$ +,sss

3,162

1,052

678

$ 9,231

$ s,sst

11,300

6,477

1,478

$28.1 06

$ 4,530

7,850

5,350

873

$ 1 8,603

$ 4,284

2,977

1,041

662

$ 8,e64

$ B,B 14

10,827

6,39’l

1,535

$21,561

U.S. Market Share of Fast-Food Burger Chains

2008

2009

2010

20’11

2012

2013

2A14

46.90/o

48.0

to1

50.1

50.0

49.7

49.6

13.50/o

13.0

12.7

12.5

12.2

12.2

12.3

14.37a

13.8

t 5.l

12.2

12.1

11.8

11.9

6.0%

5.9

5.5

5.4

5.4

5.4

5.4

4.970

4.8

4.5

4.4

4.4

4.3

4.3

1.87o

1.8

1.9

1.9

2.1

2.7

2.8

2.67o

2.6

2.6

2.7

2.1

2.1

2.2Yo

2.1

2.0

2.0

2.0

2.0

2.0

0.50/o

0.8

1.1

1.4

‘1.5

1.6

1.1

Source: USA Todnr,, December 8, 20 I,X, and author esitmates.

eASr 25:: MCDONALD’S t”195

The fast-food chajn had gone through a sintilar crtsts
befbre. Back in 2002-2003, McDonald’s had experienced
a decline in performance because of quality problems as
a result of rapid expansion. At that time, the firm brought
James R. Cantalupo back out of retirement to turn things
around. He formulated the “Plan to Win,” which was the
basis of McDonald’s strategy over the next decade. The
core of the plan was to increase sales at existing loca-
tions by improving the menu, returbishing the outlets, and
extending hours. This time, however, such incremental
steps might not be enough.

Pulling Out of a Downward Spiral
Since it was founded mole than 50 years ago. McDon-
ald’s had been defining the fast-food business. lt provided
millions of Arnericans their filst jobs even as it changed

their eating habits. It rose from a single outlet in a nonde-
scr ipt Cl.ricago suburb to one of the largest chains ol outlets
spread around the globe. But it gradually began to run into
various problems that began to slow down its sales growth
(see Exhibit 5).

This decline could be attributed in large part to a drop
in McDonald’s once-vaunted service and quality since it:
expansion in the 1990s, when headquarters stopped gradin-u
franchises for cleanliness. speed, and service. By the end
of the decade, the chain ran into more problems because oi
the tighter labor market. As it stluggled hard to find neu
recruits, McDonald’s began to cut back on training. leadin-s
to a dramatic lallotf in the skills of its employees. Accord-
ing to a 2002 survey by market researcher Global Growth
Group, McDonald’s came in third in average service time.
behind Wendy’s and sandwich shop Chick-fil-A Inc.

1948

‘1955

1 961

1 963

1 965

1967

1 968

1912

197 4

1975

1979

1 987

1991

1992

1 996

1997

1 998

1 999

McDonald’s Milestones

Brothers Richard and Maurice lVlcDonald open the first restaurant in San Bernardlno, California, that sells hamburgers, fries,

and milk shakes.

Ray A. Kroc, 52, opens his first McDonald’s in Des Plalnes, lllinois. Kroc, a distributor of milk shake mixers, figures he can sell

a bundle ofthem if he franchises the McDonalds’business and installs his mlxers in the new stores.

Six years later, Kroc buys out the McDonald brothers for $2.7 million.

Ronald lVcDonald makes his debut as corporate spokesclown, using future NBC-TV weatherman Willard Scott. During the year,

the company also sells its 1-billionth burger.

McDonald’s stock goes public at $22.50 a share. lt will split 12 times in the next 35 years.

The first lVcDonald’s restaurant outside the U.S. opens in Richmond, British Columbia. Today there are 3’1 ,108 McDonald’s in

1 1 B countries.

The Big Mac, the first extension of McDonald’s basic burger, makes its debut and is an immediate hit.

McDonald’s switches to the frozen variety for its successful French fries.

Fred L. Turner succeeds Kroc as CEO. ln the midst of a recession, the minimum wage rises to $2 per hour, a big cost increase

for McDonald’s, which is built around a model of young, low-wage workers.

The first drivethrough wlndow is opened in Sierra Vista, Arizona.

McDonald’s responds to the needs ofworking women by introducing Happy Meals. A burger, some fries, a soda, and a toy

give working moms a break.

Michael R. 0uinlan becomes chief executive.

Responding to the public’s desire for healthier foods, McDonald’s introduces the low{at Mclean Deluxe burger. lt flops and is
withdrawn from the market. Over the next few years, the chain will stumble several times trying to spruce up its menu.

The company sells its 90-billionth burger and stops counting.

In order to attract more adult customers, the company launches its Arch Deluxe, a “grown-up” burger with an idiosyncratic

taste. Like the low-fat burger, it falls flat.

McDonald’s launches Campalgn 55, which cuts the cost of a Big Mac to $0.55. lt is a response to discounting by Burger King

and Taco Bell. The move, which prefigures similar price wars in 2002, is widely considered a failure.

Jack l4. Greenberg becomes McDonald’s fourth chief executlve. A 1 6-year company veteran, he vows to spruce up the

restaurants and their menu.

For the first time, sales from international operations outstrip domestic revenues. In search of other concepts, the company

acquires Aroma Cafe, Chipotle, Donatos, and, later, Boston l4arket.

l

1

a

1

t

I

t

ir

o

fi

tt
r(
or

itr

to

ClS6 CASI 25:: MCDONALD’S

2000

2001

2002

2003

2004

2005

2006

2008

2012

2015

Continued

McDonald’s sales in the u.s. peak at an average of $i.6 million annually per restaurant, a
It is, however, still more than sales at any other fast-food chain.

figure that has not changed since.

Su bway s urpasses McDona ld’s as the fast-food cha in with the most U. S. o utlets. At the end of the yea r it had j 3,247 stores,
148 more than McDonald’s.

forecast for per-share earnings growth.

Charles H. Bell takes over the firm after
been developed by his predecessor.

the sudden death of cantalupo. He states he will continue with the strategies that have

Jim skinner takes over as cEO after Bell announces retirement for health reasons.

McDonald’s launches specialty beverages, including coffee-based drinks.

McDonald’s plans to add McCaf6s to each of its ou|ets.

Don Thompson succeeds Skinner as CEO ofthe chain.

Thompson resigns because of declining performance and is replaceci by Steve Easterbrook, the firm’s chief branding officer

McDonald’s posts its first-ever quarterly loss, of $343.8 rnillion

James R. Cantalupo returns to McDonald’s in January as CEO

Ihe stock drops to around $13.50, down 40o/.from five years ago.

He immediately pulls back from the company’s 1)y”-15y”

Sourcc; McDonald’s.

By the beginning of 2003, consumer sLrrveys were indi_
cating that McDonald’s was headecl fbr serious trouble.
Measures for the service and quality of the chain were con_
tinuin-g to fall” dropping far behind those of its rivals. To
deal with its deteriorating perforntance. the firm clecided
to bring back retired vice chair.man James R. Cantalupo,
59, who had overseen McDonald’s successful interna_
tional expansion in the 1980s and I990s. Cantalupo, who
had letired only a year earlier” was perceiveci to be the
only candidate with the necessary qualifications. despite
shareholder sentiment for.an outsicler. The board felt that
it needed someone who knew the company well and could
move quickly to turn things around.

Cantalupo realized that McDonalcl,s often tencled to
miss the mark on deiivering the cr.itical aspects of consis_
tent, l)st, and fiiendly sen,ice and an all-around enjoyable
experience lbr the whole family. He understood that its
franchisees and ernployees alike needed to be inspired as
well as retrained on their role in putting the smile back into
the McDonald’s experience. When Cantalupo and his team
laid out their turnaround plan in 2003, they stressecl settins
the basics of service ancl quality righr. in part by reiistituti
ing a tough “up or out” gracling system that would kick
out underperforming fianchisees. ,,We have to rebuild the
foundation. It’s fruitless to add growth if the fbundation is
weak.” said Cantal upo.3

In his effort to focus on the firm,s core business. Can-
talupo sold ofT the nonbur-ter chains that the firm had
recently acquired. He also cut back on the opening of new
outlets, focusing insteacl on generating more saies fiom
its existing outlets. Cantalupo pushecl McDonald’s to rr.y
to draw more customers through the introduction of new

products. The chain had a positive response to its increased
emphasis on healthiel fbods, led by a revampecl line of
fancier salads. The revamped menu was promoted through
a new worldwide ad slogan. “l’m loving it.” u,hich was
delivered by pop idol Justin Timberlake thr-ough a set of
MTV-s11 Ie cgnt met’ciuls.

Striving for a l{ealthier lrnage
When Jim Skinner took over from Cantalupo in 2004. he
continued to push lbr McDonaid’s to chan_{e its irnage.
Skinner f-elt that one of his top priorities was to deal
with the growing concerns about the unhealthy intage of
McDonald’s, given the rise of obesity in the U.S. Tl.rese
concerns were highlighted in the populal documentary
Super Siz.e Me, made by Morgan Spurlock. Spurlock vii.
idly displayed rhe health risks rhat were posecl by a steady
diet of food fi’om tl.re fast-food chain. With a rise in aware_
ness of the high fat content of most of the proclucts olfered
by McDonald’s, the firm was also beginning to face law_
suits fiom sorle of its loyal customers.

In response to the growing health concerns, one of the
first steps taken by McDonald’s was to phase out supersiz_
ing by the end of 2004. The supersizing option allowed
cLrstomers to get a lnrger order of French fries and a big_
ger sofi drink by paying a little extra. McDonald,s also
announced that it intended to start providing nuh.ition
information on the packagin-s of its products. The infor_
mation would be easy to read and would provide custom_
ers with details on the calories. fat, protein, carbohydrates.
and sodium that were in each product. Finally. McDonalcl,s
began to remove the arterl,-clogging trrlns-tut acids from
the oil that it used to make its French fries. and it recentlv

eA5e ?5:; MCDOI{ALD’S C1S7

announced plans to reduce the sodium content in all of its
products by 15 percent.

But Skinner: was also trying to push out more otfer-
ings that were likely to be perceived by customers as being
healthier. McDonald’s continued to build upon its chicken
offerings using white meat with ploducts such as Chicken
Selects. It also placed a great deal of emphasis upon irs
new salad offerings. McDonald’s carried out extensive
experiments and tests on them and decided to use higher-
quality ingredients. from a variety of lertuces and tasty
cherry tomatoes to sharper cheeses and better cuts of
meat. lt off-ered a choice of Newman’s Own dressings, a
well-known higher-end brand. “Salads have changed the
way people think of our brand.” said Wade Thonta, vice
president for menu development in the U.S. “It tells people
that we are very serious about offering things people f’eel
comfortable eating.”4

McDonald’s was trying to include more fiuits and
vegetables in its well-known and popular Happy Meals.
It announced in 2011 that it would reduce the amount of
French fries and phase out the caramel dipping sauce that
accompanied the apple slices in these meals. The addition
of fruits and vegetables raised the firm’s operating costs.
since they were more expensive to ship and store because
of their more perishable nature. “We are doing what we
can,” said Danya Proud. a spokesperson for the firm. “We
have to evolve with the times.”5

The rollout of new beverages, highlighted by new
coff-ee-based drinks, represented the chain’s biggest menu
expansion in almost three decades. Under a plan to add
a McCaf6 section to all of its nearly 14,000 U.S. outlets,
McDonald’s was offering lattes, cappuccinos, ice-blended
fiappes, and fruit-based smoothies to its customers. “In
rnany cases, they’re now coming lbr the beverage, whereas
before they were coming for the meaI.” said Lee Renz, an
executive who was r”esponsible for the rollout.6

Returbishing the Outlets
As part of its turnaround strategy, McDonaid’s had been
selling ofT the outlets that it owned. More than 75 percent
of its outlets were now in the hands of franchisees and other
affiliates. Skinner was working with the franchisees to
address the look and feel of many of tl.re chain’s aging stores.
Without any changes to their decor, the firm was likely to
be lefi behind by more savvy fast-food and drink retailers.
The firm was in the midst of pushing harder to refur-bish-
or reimage-all of its outlets around the worid. “People eat
with their eyes first,” said Thompson. “If you have a restau-
rant that is appealing, contemporary, and relevant both from
the street and interior. the food tastes better”.”7

The reimaging concept was first tried in France in 1996
by Dennis Hennequin, an executive in charge of the chain’s
European operations, who felt that the effort was essential
to revive the firm’s sagging sales. “We were hip 15 years
ago, but I think we lost that,” he saici.8 McDonald’s was
applying the reimaging concept to its outlets around the

C19B CASE ?5: MCDONALD,S

world. with a budget of more than half of its total annual
capital expenditures. In the U.S., the changes cost an aver-
age of $ 150,000 per restzrurant, a cost that was shared with
the franchisee when the outlet was not company-owned.

One of the prototype interiors being tested out by
McDonald’s had curved counters with surfaces painted
in bright colors. In one corner, a touch-activated screen
allowed customel’s to punch in orders without queuing.
The interiors could feature armchairs and sofas. modern
lighting, large television screens. and even wireless Inter-
net access. The lirm was also developing new features lbr
its drive-through customers, who account for 65 percent of
a1l transactions in the U.S. These f’eatures included music
aimed at queuing vehicles and a wall of windows on the
drive-through side of the restaurant allowing customers to
see meals being prepared from their cars.

The chain was even developing McCaf6s inside its out-
lets. next to the usual fast-fbod counter. The McCa16 con-
cept originated in Australia in 1993 and rvas rolled out in
many restaurants around the world. McDonald’s introduced
the concept to the U.S. as part of the refurbishment of its
outlets. In fact, part ofthe makeover focused on the installa-
tion of a specialty beverage platfbrm in all U.S. outlets. The
cost of installing this equipment was about $100,000 per
outlet, with McDonald’s subsidizing part of the expense.

The firm planned to have all McCaf6s offer espresso-
based coffee. gourmet coffee blends. fiesh-baked muffins.
and high-end desserts. Customers would be able to consume
thern while relaxing in sofi leather chairs and listening to
jazz,br,g band, or blues music. Commenting on this signifi-
cant expansion of offerings, Marty Brochstein, executive
editor of The Lic’ensing Letter, said “McDonald’s wants to
be seen as a lifestyle brand, not just a place to go to have a
DUrger.

Rethinking the Business Ffiodel
In response to the decline in performance, McDonald’s
was testing a number of new concepts, including a kiosk
f’eature in four stores in southern Califbrnia that allowed
customers to skip the counter and head to tabletlike kiosks
where they could customize everything about their burger.
from the type of bun to the variety of cheese to the man)
glossy toppings and sauces that can go on it. The firm later’
decided to expand the concept to 30 locations in five more
states and to 2,000, or about one in seven, of the 121,000
outlets in the U.S.

With its “Create Your Taste” kiosk platfor”m.
McDonald’s was hoping to attract more younger customers
who might have been moving away liom frozen processed
food that was loaded with preservatives. No one mentioned
anything about the quality of meat that the chain used for
its burgers. “Today’s customers increasingly prefer cus-
tomizable lood oprions. dining in a contemporary. invitin-u
atmosphere and using more convenient ways to order and
pay for their meals,” CEO Thompson stated last year when
the test was launched.lo

1

l

1

(

(

I
I
c

f

r
5

1′,1

a

v
it

o
h

a

:l

n1

a1

fr

F/

E

m

th
SU

to
CC

qr
tu
a

rel

thi
in.
TT

Of(

to
tio
wa

far

However, there were risks invoived with making such
a change. The butgers were priced higher, at $5.49; could
take seven minutes to prepare; and could be ordered only
fiom inside the store and eventuaiiy brought to your table.
This ran counter to the image of inlxpenslve and fast food
that McDonald,s had workeci hard to build over the years.
Nevertheless. the firm hopecl this change would bring
more customers into its outlets, bringing the U.S. counterl
drive-through customer ratio closerlo 5O_SO, ,p liom the
current 10*i0.

At the same time, McDonald,s was working to sim_plify its menu, reducing the number of ,,value meal,,
promotions-groups of items that together cost less than
ordering the items individually. It tweJed its ,,clollarmenu,,,
replacing it with ,,dollar value and more,, ;rnd raising the
prices of many items as part of a bid to get each customer to
spend more. But McDonald,s had intr.o-duced these b;rgain
menus because its prices had risen over the years, driving
away customers to cheaper outlets. Over the previous five
years, about 15 percent of the chain,s saies hai come fiom
its dollar menu, on which everything cost u clotia..

McDonald’s was trying out all options. It even quietly
opened a sandwich and salad shop in Australia, a bit of a
hybrid of Panera and Starbucks, with no ,ign of a golden
arch or Ronaid McDonald anywhere. eiA it recently
sigaed a deal to begin selling iti coffee in gro”ery ,tor”..
“They are throwing a lot of .spaghefti at th! *uli, but it,.
not clear that any of it is the right spaghetti,,, said Sara Sen_
atore, an investment analyst. ,,They have all these thinss
going on and it’s not obvious that,s what .”nrr.;;;;;;;
from McDonald’s.,,ll

More Gold in These Arches?
Even though McDonald,s had appointed a new CEO and
made some changes in its organization, it was not clear how
the chain could pull out of iis present situati on. ln ZOI+, u
survey in Consumer Reporls showed that McDonald,s cus_
tomers ranked its burgers significantly below those of 20
competitors. McDonald,s also had the Iowest rank in food
quality of all rated hamburger chains in the Nction,s Re,s_
taurant 1y’ews Consumer picks survey. ,,McDonald,s has
a huge image problem in America,,, saiO fohrrCorOon, a
restaurant consultant. I 2

fiom.just fiye items: Big Macs, hamburgers, cheeseburg_
ers. McNuggers. and fi.ies.

.
Restaurant analyst Bryan Elliott commented: ..They,ve

l.]”9 t” be all things to ail peopie who walk in their door.,,i3
McDonald’s recent markeiing campaign, anchored around
the catchy phrase ,,I,m Ioving it,,, ioof o, difTerent tbrms
to target each of the groups that the firm was seeking.
Larry Light, the head of global marketing ar McDonaid,s
who pushed for this campaign, insistJ thar the firm
had to exploit irs brand Uy pustring it in many different
directions.

^
For the most part, McDonald,s tried to reach out to dif._

ferent^ customer segments by offering different products
at different times of the day. It targef,d young aclults for
breakfast with irs gourmet coffee, ejg ,uodri.f,.r, and far
free muffins. It attracted working uJJtt, fo. lunch, particu_
larly those who were squeezed for time, with its burgers
and fries. And its introduction of wraps drew in teenagers
late in the evening after they had been partylrg.

Nevertheless, the expansion of the menu”beyond the
staple of burgers and fries raised some fundamental ques_
]i:r: M9i, significantly, ir was nor clear jusr how far
McDonald’s could stretch its brand while keeping all of its
outlets under the traditional symbol of its golden-arches. In
fact, industry experts believed that the lo-ng_term success
of the firm might well depend on its ability ro compere
with rival burger chains. ..The burger category has great
strength,” added David C. Novak, chairian’ancl CEO
of Yuml Brands, parent of KFC and Taco Beli- .,That,s
America’s food. people love hamburgers.,,14

ENDNOTES
1. Beth Kowitt. Fallen arches. Fortune,December l,201,{, p. l0g.
2. The Economist. When the chips are down. January I 0, U O I S, p. -::.
3. Pallavi Gogoi & Michael Arndt. Hamburger hell. B usines,s Week,

March 3,2003, p. 105.
.1. Melanie Warner you want any fruit with thatBigMac? New york

Iiizes, February 20,200-5, p. g.
5. Stephanie Stronr. McDonalrl,s trims jts Happy Med. 1r/er yorkTinrcs,

July 27,2011,p.87.
6. Janet Adamy. McDonald,s coffee strategy is tough seli. Wall Street

JournaL, October 27, 200g, p. 83.
7. Ben Paynter. Super style me. Fast Company, October 2010, p. I07.
8. Jeremy Grant. McDonald,s to revamp UK outlets. Financial l.imes,

February 2, 2006, p. t4.As it tried to make changes, McDonald,s announced
that it planned to open fewer stores in 201 5 and pare capital
investmenr to $2 biilion, the least in more tt u.i*. y”u.r.
ll. f,:rn was already rryirrg our a variery oi ..rrui”gi., in
“ro:l lo move away from burgers and increase its appealto different segments of the market. Through tt e aaop_
tion of a mix of outlet decor and menu items,-McDonald,s
yut. jlyir.g to targer young aclults, teenagers, children, and
rrmllles. tn spire of these effbrts, 30 percent of sales came

9. Bruce Horovitz. McDonald,s ventures beyond burgers to duds, toys.
USA Today, November Il. 2003. p. 6F..

10. Bruce Horovitz. McDonald,s sales down, but better than expected.
USA Toduy. orenrber I l. 2014. p. 68.

r

1 l. Stephanie Strom. McDonald’s tests custom burgers and other new
concepts as sales drop. Nevy york Times, January 24,201 5, p. 83.

12. The Econonirl, op. cit., p. 54.
13. Kowitt, op. cir.. p. I 10.
14. Juiie Jargon. McDonald,s is feeling fiied. Wall Street Journal

November 9, 2012, p.82.

eASf ;5 :: MCDONALD,S CIBB