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Week 1 Discussion (GRADED)

Must post first.


Please refer to the Discussion Grading Rubric before starting the assignment. Be certain to read the case scenario carefully. Be careful to address each question posed. Include APA formatted in-text citations and a reference list. (In this class, all applicable citations should contain the page or paragraph numbers. The only exceptions are videos or podcasts.)

Use the lettering system indicated below in your memo. Your answers should be listed in sections labeled “A” through “D.”


It’s a Friday at 4:00, and you are looking at the clock – it’s been a tough week at Paul’s Discount Tires & Repairs business, and the week is not over! The global COVID Pandemic has hit the business hard, and you saw several people working there laid off this week. You feel lucky to be still working as their business consultant!

The business is family-owned and has been in business for over 21 years. The founder of the company, Paul Wilford, started the company as a small tire shop then expanded into service repairs. Now Paul’s grandson, Steve Wilford, runs the company, which has grown to several million in annual revenues over the past couple of years. 

Steve Wilford stops by your cubicle. He looks worried and worn out from the long workday. Despite that, he greets you warmly.

“You are taking a course in Strategic Management right now, aren’t you?” Steve asks you.

You reply yes.

“Well, that is great timing,” says Steve, “because I just drafted a 10-year strategy for our business! If I get you a copy, would you mind looking it over during the weekend and giving me your thoughts?”

You tell Steve that you’d be happy to give your input. Within 5 minutes, a one-page document is on your desk. At the top of the page is written “Paul’s Discount Tires & Repairs Strategic Plan.” You start to read it in your remote work office at home.

The basics of the plan are highlighted with the following three (3) bullet points:

1. Paul’s Discount Tires & Repairs core business will continue providing tires and minor vehicle repair services to our retail customers over the next ten years.

2. Paul’s Discount Tires & Repairs will beat its competitors by providing the lowest price discount tires, vehicle repairs, exceptional customer service, and quality work.

3. Paul’s Discount Tires & Repairs culture is rooted in its 21-year history. Paul’s will overcome the setbacks caused by the COVID Pandemic by sticking to its core values and cutting costs wherever necessary. Our people will help get us through these tough times.

You look at the bottom of the page and see a post-it note with questions posed to you by Steve.

A. What is wrong with this strategy?

B. What is right about this strategy?

C. We are the market leader in discount tires and repairs in our city, indicating that we currently have a competitive advantage. Will we sustain it with this strategy?

D. What is one thing we could do to improve on this strategy?

Directions for Initial Posting:

Write a memo to Steve answering these four questions. Your memo should outline all four questions, and the answers to all four questions should be supported by course materials.

Class:  Please replace the following Week 1 course material link:  


What is Strategy? It’s a Lot Simpler Than You Think 

with the following link: 



Other Writing Guidelines for this Discussion:

· Use the grading rubric while completing the project to ensure all requirements are met to lead to the highest possible grade.  

· This is a business memo to Steve Wilford, who runs Paul’s Discount Tires & Repairs. Ensure your memo answers all 4 questions and that your writing is concise. There is a balance between providing a robust answer and writing succinctly and to the point.

· Third-person writing is required.  The third person means no words such as “I, me, my, we, or us” (first-person writing).

· Contractions are not often used in business writing, so do not use them here. 

· Paraphrase – do not use direct quotation marks. This means that you will put the ideas of an author or article into your own words rather than lift them directly from a source document. You may not use more than four consecutive words from a source document (including the case scenario) or change words in a passage as doing so would require direct quotation marks. Use a passage from a source document by putting it into your own words (paraphrase) and attribute the passage to the source document.  Changing words from a passage does not exclude the passage from having to have quotation marks. If direct quotes are presented, they will not be included in the grading.

·  Use in-text citations and provide a reference list that contains a reference associated with each in-text citation. 

· Only course materials (from this course’s content) may be used. Sources other than this course’s ebook or the course materials listed under content will not be considered sources of support.

· Provide the page or paragraph number in every in-text citation presented.  Refer to this link for more guidance on how to do this:

In-Text Citations – Including Page or Paragraph Numbers

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Chapter 1

Mastering Strategy: Art and Science


After reading this chapter, you should be able to understand and articulate answers to the following


1. What are strategic management and strategy?

2. Why does strategic management matter?

3. What elements determine firm performance?

Strategic Management: A Core Concern for Apple

The Opening of the Apple Store

Image courtesy of Neil Bird,

March 2, 2011, was a huge day for Apple. The firm released its much-anticipated iPad2, a thinner and

faster version of market-leading Apple’s iPad tablet device. Apple also announced that a leading publisher,

Random House, had made all seventeen thousand of its books available through Apple’s iBookstore.

Apple had enjoyed tremendous success for quite some time. Approximately fifteen million iPads were sold

in 2010, and the price of Apple’s stock had more than tripled from early 2009 to early 2011.

Chapter 1 from Mastering Strategic Management was adapted by The Saylor Foundation under
a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 license without attribution as requested

by the work’s original creator or licensee. © 2014, The Saylor Foundation.

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But future success was far from guaranteed. The firm’s visionary founder Steve Jobs was battling serious

health problems. Apple’s performance had suffered when an earlier health crisis had forced Jobs to step

away from the company. This raised serious questions. Would Jobs have to step away again? If so, how

might Apple maintain its excellent performance without its leader?

Meanwhile, the iPad2 faced daunting competition. Samsung, LG, Research in Motion, Dell, and other

manufacturers were trying to create tablets that were cheaper, faster, and more versatile than the iPad2.

These firms were eager to steal market share by selling their tablets to current and potential Apple

customers. Could Apple maintain leadership of the tablet market, or would one or more of its rivals

dominate the market in the years ahead? Even worse, might a company create a new type of device that

would make Apple’s tablets obsolete?

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1.1 Defining Strategic Management and Strategy


1. Learn what strategic management is.

2. Understand the key question addressed by strategic management.

3. Understand why it is valuable to consider different definitions of strategy.

4. Learn what is meant by each of the 5 Ps of strategy.

What Is Strategic Management?

Issues such as those currently faced by Apple are the focus of strategic management because they help

answer the key question examined by strategic management—“Why do some firms outperform other

firms?” More specifically, strategic management examines how actions and events involving top

executives (such as Steve Jobs), firms (Apple), and industries (the tablet market) influence a firm’s

success or failure. Formal tools exist for understanding these relationships, and many of these tools are

explained and applied in this book. But formal tools are not enough; creativity is just as important to

strategic management. Mastering strategy is therefore part art and part science.

This introductory chapter is intended to enable you to understand what strategic management is and why

it is important. Because strategy is a complex concept, we begin by explaining five different ways to think

about what strategy involves. Next, we journey across many centuries to examine the evolution of

strategy from ancient times until today. We end this chapter by presenting a conceptual model that maps

out one way that executives can work toward mastering strategy. The model also provides an overall portrait

s of this book’s contents by organizing the remaining nine chapters into a coherent whole.

Defining Strategy: The Five Ps

Defining strategy is not simple. Strategy is a complex concept that involves many different processes and

activities within an organization. To capture this complexity, Professor Henry Mintzberg of McGill

University in Montreal, Canada, articulated what he labeled as “the 5 Ps of strategy.” According to

Mintzberg, understanding how strategy can be viewed as a plan, as a ploy, as a position, as a pattern, and

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as a perspective is important. Each of these five ways of thinking about strategy is necessary for

understanding what strategy is, but none of them alone is sufficient to master the concept. [1]

Figure 1.1 Defining Strategy: The Five Ps

Images courtesy of Thinkstock (first);Wikipedia (second); OldNavy (third); James Duncan

Davidson from Portland, USA (fourth)

Strategy as a Plan

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Strategic plans are the essence of strategy, according to one classic view of strategy. A strategic plan is a

carefully crafted set of steps that a firm intends to follow to be successful. Virtually every organization

creates a strategic plan to guide its future. In 1996, Apple’s performance was not strong, and Gilbert F.

Amelio was appointed as chief executive officer in the hope of reversing the company’s fortunes. In a

speech focused on strategy, Amelio described a plan that centered on leveraging the Internet (which at the

time was in its infancy) and developing multimedia products and services. Apple’s subsequent success

selling over the Internet via iTunes and with the iPad can be traced back to the plan articulated in 1996. [2]

A business model should be a central element of a firm’s strategic plan. Simply stated, a business model

describes the process through which a firm hopes to earn profits. It probably won’t surprise you to learn

that developing a viable business model requires that a firm sell goods or services for more than it costs

the firm to create and distribute those goods. A more subtle but equally important aspect of a business

model is providing customers with a good or service more cheaply than they can create it themselves.

Consider, for example, large chains of pizza restaurants such as Papa John’s and Domino’s.

Franchises such as Pizza Hut provide an example of a popular business model that has been successful worldwide.

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Image courtesy of Derek Jensen, .

Because these firms buy their ingredients in massive quantities, they pay far less for these items than any

family could (an advantage called economies of scale). Meanwhile, Papa John’s and Domino’s have

developed specialized kitchen equipment that allows them to produce better-tasting pizza than can be

created using the basic ovens that most families rely on for cooking. Pizza restaurants thus can make

better-tasting pizzas for far less cost than a family can make itself. This business model provides healthy

margins and has enabled Papa John’s and Domino’s to become massive firms.

Strategic plans are important to individuals too. Indeed, a well-known proverb states that “he who fails to

plan, plans to fail.” In other words, being successful requires a person to lay out a path for the future and

then follow that path. If you are reading this, earning a college degree is probably a key step in your

strategic plan for your career. Don’t be concerned if your plan is not fully developed, however. Life is full

of unexpected twists and turns, so maintaining flexibility is wise for individuals planning their career

strategies as well as for firms.

For firms, these unexpected twists and turns place limits on the value of strategic planning. Former

heavyweight boxing champion Mike Tyson captured the limitations of strategic plans when he noted,

“Everyone has a plan until I punch them in the face.” From that point forward, strategy is less about a

plan and more about adjusting to a shifting situation. For firms, changes in the behavior of competitors,

customers, suppliers, regulators, and other external groups can all be sources of a metaphorical punch in

the face. As events unfold around a firm, its strategic plan may reflect a competitive reality that no longer

exists. Because the landscape of business changes rapidly, other ways of thinking about strategy are


Strategy as a Ploy

A second way to view strategy is in terms of ploys. A strategic ploy is a specific move designed to outwit or

trick competitors. Ploys often involve using creativity to enhance success. One such case involves the

mighty Mississippi River, which is a main channel for shipping cargo to the central portion of the United

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States. Ships traveling the river enter it near New Orleans, Louisiana. The next major port upriver is

Louisiana’s capital, Baton Rouge. A variety of other important ports exist in states farther upriver.

Many decades ago, the governor of Louisiana was a clever and controversial man named Huey Long.

Legend has it that Long ordered that a bridge being constructed over the Mississippi River in Baton Rouge

be built intentionally low to the ground. This ploy created a captive market for cargo because very large

barges simply could not fit under the bridge. Large barges using the Mississippi River thus needed to

unload their cargo in either New Orleans or Baton Rouge. Either way, Louisiana would benefit. Of course,

owners of ports located farther up the river were not happy.

Ploys can be especially beneficial in the face of much stronger opponents. Military history offers quite a

few illustrative examples. Before the American Revolution, land battles were usually fought by two

opposing armies, each of which wore brightly colored clothing, marching toward each other across open

fields. George Washington and his officers knew that the United States could not possibly defeat better-

trained and better-equipped British forces in a traditional battle. To overcome its weaknesses, the

American military relied on ambushes, hit-and-run attacks, and other guerilla moves. It even broke an

unwritten rule of war by targeting British officers during skirmishes. This was an effort to reduce the

opponent’s effectiveness by removing its leadership.

Centuries earlier, the Carthaginian general Hannibal concocted perhaps the most famous ploy ever.

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Hannibal’s clever use of elephants to cross the Alps provides an example of a strategic ploy.

Image courtesy of Wikipedia, .

Carthage was at war with Rome, a scary circumstance for most Carthaginians given their far weaker

fighting force. The Alps had never been crossed by an army. In fact, the Alps were considered such a

treacherous mountain range that the Romans did not bother monitoring the part of their territory that

bordered the Alps. No horse was up to the challenge, but Hannibal cleverly put his soldiers on elephants,

and his army was able to make the mountain crossing. The Romans were caught completely unprepared

and most of them were frightened by the sight of charging elephants. By using the element of surprise,

Hannibal was able to lead his army to victory over a much more powerful enemy.

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Ploys continue to be important today. In 2011, a pizzeria owner in Pennsylvania was accused of making a

rather unique attempt to outmaneuver two rival pizza shops. According to police, the man tried to

sabotage his competitors by placing mice in their pizzerias. If the ploy had not been discovered, the two

shops could have suffered bad publicity or even been shut down by authorities because of health concerns.

Although most strategic ploys are legal, this one was not, and the perpetrator was arrested. [3]

Strategy as a Pattern

Strategy as pattern is a third way to view strategy. This view focuses on the extent to which a firm’s actions

over time are consistent. A lack of a strategic pattern helps explain why Kmart deteriorated into

bankruptcy in 2002. The company was started in the late nineteenth century as a discount department

store. By the middle of the twentieth century, consistently working to be good at discount retailing had led

Kmart to become a large and prominent chain.

By the 1980s, however, Kmart began straying from its established strategic pattern. Executives shifted the

firm’s focus away from discount retailing and toward diversification. Kmart acquired large stakes in

chains involved in sporting goods (Sports Authority), building supplies (Builders Square), office supplies

(OfficeMax), and books (Borders). In the 1990s, a new team of executives shifted Kmart’s strategy again.

Brands other than Kmart were sold off, and Kmart’s strategy was adjusted to emphasize information

technology and supply chain management. The next team of executives decided that Kmart’s strategy

would be to compete directly with its much-larger rival, Walmart. The resulting price war left Kmart

crippled. Indeed, this last shift in strategy was the fatal mistake that drove Kmart into bankruptcy. Today,

Kmart is part of Sears Holding Company, and its prospects remain uncertain.

In contrast, Apple is very consistent in its strategic pattern: It always responds to competitive challenges

by innovating. Some of these innovations are complete busts. Perhaps the best known was the Newton, a

tablet-like device that may have been ahead of its time. Another was the Pippin, a video game system

introduced in 1996 to near-universal derision. Apple TV, a 2007 offering intended to link televisions with

the Internet, also failed to attract customers. Such failures do not discourage Apple, however, and enough

of its innovations are successful that Apple’s overall performance is excellent. However, there are risks to

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following a pattern too closely. A consistent pattern can make a company predictable, a possibility that

Apple must guard against in the years ahead.

Strategy as a Position

Viewing strategy as a plan, a ploy, and a pattern involve only the actions of a single firm. In contrast, the

next P—strategy as position—considers a firm and its competitors. Specifically, strategy as position refers

to a firm’s place in the industry relative to its competitors. McDonald’s, for example, has long been and

remains the clear leader among fast-food chains. This position offers both good and bad aspects for

McDonald’s. One advantage of leading an industry is that many customers are familiar with and loyal to

leaders. Being the market leader, however, also makes McDonald’s a target for rivals such as Burger King

and Wendy’s. These firms create their strategies with McDonald’s as a primary concern. Old Navy offers

another example of strategy as position. Old Navy has been positioned to sell fashionable clothes at

competitive prices.

Old Navy occupies a unique position as the low-cost strategy within the Gap Inc.’s fleet of brands.

Image courtesy of Lindsey Turner,

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Old Navy is owned by the same corporation (Gap Inc.) as the midlevel brand the Gap and upscale brand

Banana Republic. Each of these three brands is positioned at a different pricing level. The firm hopes that

as Old Navy’s customers grow older and more affluent, they will shop at the Gap and then eventually at

Banana Republic. A similar positioning of different brands is pursued by General Motors through its

Chevrolet (entry level), Buick (midlevel), and Cadillac (upscale) divisions.

Firms can carve out a position by performing certain activities in a different manner than their rivals. For

example, Southwest Airlines is able to position itself as a lower-cost and more efficient provider by not

offering meals that are common among other airlines. In addition, Southwest does not assign specific

seats. This allows for faster loading of passengers. Positioning a firm in this manner can only be

accomplished when managers make trade-offs that cut off certain possibilities (such as offering meals and

assigned seats) to place their firms in a unique strategic space. When firms position themselves through

unique goods and services customers value, business often thrives. But when firms try to please everyone,

they often find themselves without the competitive positioning needed for long-term success. Thus

deciding what a firm is not going to do is just as important to strategy as deciding what it is going to do. [4]

To gain competitive advantage and greater success, firms sometimes change positions. But this can be a

risky move. Winn-Dixie became a successful grocer by targeting moderate-income customers. When the

firm abandoned this established position to compete for wealthier customers and higher margins, the

results were disastrous. The firm was forced into bankruptcy and closed many stores. Winn-Dixie

eventually exited bankruptcy, but like Kmart, its future prospects are unclear. In contrast to firms such as

Winn-Dixie that change positions, Apple has long maintained a position as a leading innovator in various

industries. This positioning has served Apple well.

Strategy as a Perspective

The fifth and final P shifts the focus to inside the minds of the executives running a

firm. Strategy as perspective refers to how executives interpret the competitive landscape around them.

Because each person is unique, two different executives could look at the same event—such as a new

competitor emerging—and attach different meanings to it. One might just see a new threat to his or her

firm’s sales; the other might view the newcomer as a potential ally.

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An old cliché urges listeners to “make lemons into lemonade.” A good example of applying this idea

through strategy as perspective is provided by local government leaders in Sioux City, Iowa. Rather than

petition the federal government to change their airport’s unusual call sign—SUX—local leaders decided to

leverage the call sign to attract the attention of businesses and tourists to build their city’s economic base.

An array of clothing and other goods sporting the SUX name is available at Some

strategists such as these local leaders are willing to take a seemingly sour situation and see the potential

sweetness, while other executives remain fixated on the sourness.

Executives who adopt unique and positive perspectives can lead firms to find and exploit opportunities

that others simply miss. In the mid-1990s, the Internet was mainly a communication tool for academics

and government agencies. Jeff Bezos looked beyond these functions and viewed the Internet as a potential

sales channel. After examining a number of different markets that he might enter using the Internet,

Bezos saw strong profit potential in the bookselling business, and he began selling books online. Today,

the company he created—Amazon—has expanded far beyond its original focus on books to become a

dominant retailer in countless different markets. The late Steve Jobs at Apple appeared to take a similar

perspective; he saw opportunities where others could not, and his firm has reaped significant benefits as a



Strategic management focuses on firms and the different strategies that they use to become and remain

successful. Multiple views of strategy exist, and the 5 Ps described by Henry Mintzberg enhance

understanding of the various ways in which firms conceptualize strategy.


1. Have you developed a strategy to manage your career? Should you make it more detailed? Why or why


2. Identify an example of each of the 5 Ps of strategy other than the examples offered in this section.

3. What business that you visit regularly seems to have the most successful business model? What makes

the business model work?

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[1] Mintzberg, H. 1987. The strategy concept I: Five Ps for strategy. California Management Review, 30(1), 11–24.

[2] Markoff, J. 1996, May 14. Apple unveils strategic plan of small steps. New York Times. Retrieved

from -plan-of-small-steps.html

[3] Reuters. 2011, March 1. Philadelphia area pizza owner used mice vs. competition—police. Retrieved from

[4] Porter, M. E. 1996, November–December. What is strategy? Harvard Business Review, 61–79.

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1.2 Intended, Emergent, and Realized Strategies


1. Learn what is meant by intended and emergent strategies and the differences between them.

2. Understand realized strategies and how they are influenced by intended, deliberate, and emergent


A few years ago, a consultant posed a question to thousands of executives: “Is your industry facing

overcapacity and fierce price competition?” All but one said “yes.” The only “no” came from the

manager of a unique operation—the Panama Canal! This manager was fortunate to be in charge of a

venture whose services are desperately needed by shipping companies and that offers the only simple

route linking the Atlantic and Pacific Oceans. The canal’s success could be threatened if transoceanic

shipping was to cease or if a new canal were built. Both of these possibilities are extremely remote,

however, so the Panama Canal appears to be guaranteed to have many customers for as long as

anyone can see into the future.

When an organization’s environment is stable and predictable, strategic planning can provide

enough of a strategy for the organization to gain and maintain success. The executives leading the

organization can simply create a plan and execute it, and they can be confident that their plan will

not be undermined by changes over time. But as the consultant’s experience shows, only a few

executives—such as the manager of the Panama Canal—enjoy a stable and predictable situation.

Because change affects the strategies of almost all organizations, understanding the concepts of

intended, emergent, and realized strategies is important. Also relevant are deliberate and

nonrealized strategies.

Intended and Emergent Strategies

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An intended strategy is the strategy that an organization hopes to execute. Intended strategies are usually

described in detail within an organization’s strategic plan. When a strategic plan is created for a new

venture, it is called a business plan. As an undergraduate student at Yale in 1965, Frederick Smith had to

complete a business plan for a proposed company as a class project. His plan described a delivery system

that would gain efficiency by routing packages through a central hub and then pass them to their

destinations. A few years later, Smith started Federal Express (FedEx), a company whose strategy closely

followed the plan laid out in his class project. Today, Frederick Smith’s personal wealth has surpassed $2

billion, and FedEx ranks eighth among the World’s Most Admired Companies according

to Fortune magazine. Certainly, Smith’s intended strategy has worked out far better than even he could

have dreamed.[2]

Emergent strategy has also played a role at Federal Express. An emergent strategy is an unplanned

strategy that arises in response to unexpected opportunities and challenges. Sometimes emergent

strategies result in disasters. In the mid-1980s, FedEx deviated from its intended strategy’s focus on

package delivery to capitalize on an emerging technology: facsimile (fax) machines. The firm developed a

service called ZapMail that involved documents being sent electronically via fax machines between FedEx

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offices and then being delivered to customers’ offices. FedEx executives hoped that ZapMail would be a

success because it reduced the delivery time of a document from overnight to just a couple of hours.

Unfortunately, however, the ZapMail system had many technical problems that frustrated customers.

Even worse, FedEx failed to anticipate that many businesses would simply purchase their own fax

machines. ZapMail was shut down before long, and FedEx lost hundreds of millions of dollars following

its failed emergent strategy. In retrospect, FedEx had made a costly mistake by venturing outside of the

domain that was central to its intended strategy: package delivery. [3]

Emergent strategies can also lead to tremendous success. Southern Bloomer Manufacturing Company was

founded to make underwear for use in prisons and mental hospitals. Many managers of such institutions

believe that the underwear made for retail markets by companies such as Calvin Klein and Hanes is

simply not suitable for the people under their care. Instead, underwear issued to prisoners needs to be

sturdy and durable to withstand the rigors of prison activities and laundering. To meet these needs,

Southern Bloomers began selling underwear made of heavy cotton fabric.

An unexpected opportunity led Southern Bloomer to go beyond its intended strategy of serving

institutional needs for durable underwear. Just a few years after opening, Southern Bloomer’s

performance was excellent. It was servicing the needs of about 125 facilities, but unfortunately, this was

creating a vast amount of scrap fabric. An attempt to use the scrap as stuffing for pillows had failed, so the

scrap was being sent to landfills. This was not only wasteful but also costly.

One day, cofounder Don Sonner visited a gun shop with his son. Sonner had no interest in guns, but he

quickly spotted a potential use for his scrap fabric during this visit. The patches that the gun shop sold to

clean the inside of gun barrels were of poor quality. According to Sonner, when he “saw one of those

flimsy woven patches they sold that unraveled when you touched them, I said, ‘Man, that’s what I can do’”

with the scrap fabric. Unlike other gun-cleaning patches, the patches that Southern Bloomer sold did not

give off threads or lint, two by-products that hurt guns’ accuracy and reliability. The patches quickly

became popular with the military, police departments, and individual gun enthusiasts. Before long,

Southern Bloomer was selling thousands of pounds of patches per month. A casual trip to a gun store

unexpectedly gave rise to a lucrative emergent strategy. [4]

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Realized Strategy

A realized strategy is the strategy that an organization actually follows. Realized strategies are a product of

a firm’s intended strategy (i.e., what the firm planned to do), the firm’s deliberate strategy (i.e., the parts

of the intended strategy that the firm continues to pursue over time), and its emergent strategy (i.e., what

the firm did in reaction to unexpected opportunities and challenges). In the case of FedEx, the intended

strategy devised by its founder many years ago—fast package delivery via a centralized hub—remains a

primary driver of the firm’s realized strategy. For Southern Bloomers Manufacturing Company, realized

strategy has been shaped greatly by both its intended and emergent strategies, which center on underwear

and gun-cleaning patches.

In other cases, firms’ original intended strategies are long forgotten. A nonrealized strategy refers to the

abandoned parts of the intended strategy. When aspiring author David McConnell was struggling to sell

his books, he decided to offer complimentary perfume as a sales gimmick. McConnell’s books never did

escape the stench of failure, but his perfumes soon took on the sweet smell of success. The California

Perfume Company was formed to market the perfumes; this firm evolved into the personal care products

juggernaut known today as Avon. For McConnell, his dream to be a successful writer was a nonrealized

strategy, but through Avon, a successful realized strategy was driven almost entirely by opportunistically

capitalizing on change through emergent strategy.

Strategy at the Movies

The Social Network

Did Harvard University student Mark Zuckerberg set out to build a billion-dollar company with more

than six hundred million active users? Not hardly. As shown in 2010’s The Social Network, Zuckerberg’s

original concept in 2003 had a dark nature. After being dumped by his girlfriend, a bitter Zuckerberg

created a website called “FaceMash” where the attractiveness of young women could be voted on. This

evolved first into an online social network called Thefacebook that was for Harvard students only. When

the network became surprisingly popular, it then morphed into Facebook, a website open to everyone.

Facebook is so pervasive today that it has changed the way we speak, such as the word friend being used

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as a verb. Ironically, Facebook’s emphasis on connecting with existing and new friends is about as

different as it could be from Zuckerberg’s original mean-spirited concept. Certainly, Zuckerberg’s

emergent and realized strategies turned out to be far nobler than the intended strategy that began his

adventure in entrepreneurship.

The Social Network demonstrates how founder Mark Zuckerberg’s intended strategy gave way to

an emergent strategy via the creation of Facebook.

Image courtesy of Robert Scoble,


Most organizations create intended strategies that they hope to follow to be successful. Over time,

however, changes in an organization’s situation give rise to new opportunities and challenges.

Organizations respond to these changes using emergent strategies. Realized strategies are a product of

both intended and realized strategies.


1. What is the difference between an intended and an emergent strategy?

2. Can you think of a company that seems to have abandoned its intended strategy? Why do you suspect it

was abandoned?

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3. Would you describe your career strategy in college to be more deliberate or emergent? Why?

[1] Mintzberg, H., & Waters, J. A. 1985. Of strategies, deliberate and emergent. Strategic Management Journal, 6,


[2] Donahoe, J. A. 2011, March 10. Forbes: Fred Smith’s fortune grows to $.21B. Memphis Business Journal.

Retrieved from

to.html; Fortune: FedEx 8th “most admired” company in the world. Memphis Business Journal. Retrieved

from http://www.bizjournals .com/memphis/news/2011/03/03/fortune-fedex-8th-most- admired.html

[3] Funding Universe. FedEx Corporation. Retrieved from –


[4] Wells, K. 2002. Floating off the page: The best stories from the Wall Street Journal’s middle column. New York:

Simon & Shuster. Quote from page 97.

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1.3 The History of Strategic Management


1. Consider how strategy in ancient times and military strategy can provide insights to businesses.

2. Describe how strategic management has evolved into a field of study.

Those who cannot remember the past are condemned to repeat it.

– George Santayana, The Life of Reason

Santayana’s quote has strong implications for strategic management. The history of strategic management

can be traced back several thousand years. Great wisdom about strategy can be acquired by

understanding the past, but ignoring the lessons of history can lead to costly strategic mistakes that could

have been avoided. Certainly, the present offers very important lessons; businesses can gain knowledge

about what strategies do and do not work by studying the current actions of other businesses. But this

section discusses two less obvious sources of wisdom: (1) strategy in ancient times and (2) military

strategy. This section also briefly traces the development of strategic management as a field of study.

Strategy in Ancient Times

Perhaps the earliest-known discussion of strategy is offered in the Old Testament of the

Bible. [1] Approximately 3,500 years ago, Moses faced quite a challenge after leading his fellow Hebrews

out of enslavement in Egypt. Moses was overwhelmed as the lone strategist at the helm of a nation that

may have exceeded one million people. Based on advice from his father-in-law, Moses began delegating

authority to other leaders, each of whom oversaw a group of people. This hierarchical delegation of

authority created a command structure that freed Moses to concentrate on the biggest decisions and

helped him implement his strategies. Similarly, the demands of strategic management today are simply

too much for a chief executive officer (the top leader of a company) to handle alone. Many important tasks

are thus entrusted to vice presidents and other executives.

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In ancient China, strategist and philosopher Sun Tzu offered thoughts on strategy that continue to be

studied carefully by business and military leaders today. Sun Tzu’s best-known work is The Art of War. As

this title implies, Sun Tzu emphasized the creative and deceptive aspects of strategy.

One of Sun Tzu’s ideas that has numerous business applications is that winning a battle without fighting is

the best way to win. Apple’s behavior in the personal computer business offers a good example of this idea

in action. Many computer makers such as Toshiba, Acer, and Lenovo compete with one another based

primarily on price. This leads to price wars that undermine the computer makers’ profits. In contrast,

Apple prefers to develop unique features for its computers, features that have created a fiercely loyal set of

customers. Apple boldly charges far more for its computers than its rivals charge for theirs. Apple does

not even worry much about whether its computers’ software is compatible with the software used by most

other computers. Rather than fighting a battle with other firms, Apple wins within the computer business

by creating its own unique market and by attracting a set of loyal customers. Sun Tzu would probably

admire Apple’s approach.

Perhaps the most famous example of strategy in ancient times revolves around the Trojan horse.

According to legend, Greek soldiers wanted to find a way to enter the gates of Troy and attack the city

from the inside. They devised a ploy that involved creating a giant wooden horse, hiding soldiers inside

the horse, and offering the horse to the Trojans as a gift. The Trojans were fooled and brought the horse

inside their city. When night arrived, the hidden Greek soldiers opened the gates for their army, leading to

a Greek victory. In modern times, the term Trojan horse refers to gestures that appear on the surface to

be beneficial to the recipient but that mask a sinister intent. Computer viruses also are sometimes referred

to as Trojan horses.

A far more noble approach to strategy than the Greeks’ is attributed to King Arthur of Britain. Unlike the

hierarchical approach to organizing Moses used, Arthur allegedly considered himself and each of his

knights to have an equal say in plotting the group’s strategy. Indeed, the group is thought to have held its

meetings at a round table so that no voice, including Arthur’s, would be seen as more important than the

others. The choice of furniture in modern executive suites is perhaps revealing. Most feature rectangular

meeting tables, perhaps signaling that one person—the chief executive officer—is in charge.

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Another implication for strategic management offered by King Arthur and his Knights of the Round Table

involves the concept of mission. Their vigorous search to find the Holy Grail (the legendary cup used by

Jesus and his disciples at the Last Supper) serves as an exemplar for the importance of a central mission

to guide organizational strategy and actions.

Lessons Offered by Military Strategy

Key military conflicts and events have shaped the understanding of strategic


Indeed, the word strategy has its roots in warfare. The Greek verb strategosmeans “army leader” and the idea

of stratego (from which we get the word strategy) refers to defeating an enemy by effectively using resources.[2]

A book written nearly five hundred years ago is still regarded by many as an insightful guide for

conquering and ruling territories. Niccolò Machiavelli’s 1532 book The Prince offers clever recipes for

success to government leaders. Some of the book’s suggestions are quite devious, and the

word Machiavellianis used today to refer to acts of deceit and manipulation.

Two wars fought on American soil provide important lessons about strategic management. In the late

1700s, the American Revolution pitted the American colonies against mighty Great Britain. The

Americans relied on nontraditional tactics, such as guerilla warfare and the strategic targeting of British

officers. Although these tactics were considered by Great Britain to be barbaric, they later became widely

used approaches to warfare. The Americans owed their success in part to help from the French navy,

illustrating the potential value of strategic alliances.

Nearly a century later, Americans turned on one another during the Civil War. After four years of

hostilities, the Confederate states were forced to surrender. Historians consider the Confederacy to have

had better generals, but the Union possessed greater resources, such as factories and railroad lines. As

many modern companies have discovered, sometimes good strategies simply cannot overcome a stronger


Two wars fought on Russian soil also offer insights. In the 1800s, a powerful French invasion force was

defeated in part by the brutal nature of Russian winters. In the 1940s, a similar fate befell German forces

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during World War II. Against the advice of some of his leading generals, Adolf Hitler ordered his army to

conquer Russia. Like the French before them, the Germans were able to penetrate deep into Russian

territory. As George Santayana had warned, however, the forgotten past was about to repeat itself.

Horrific cold stopped the German advance. Russian forces eventually took control of the combat, and

Hitler committed suicide as the Russians approached the German capital, Berlin.

Five years earlier, Germany ironically had benefited from an opponent ignoring the strategic management

lessons of the past. In ancient times, the Romans had assumed that no army could cross a mountain range

known as the Alps. An enemy general named Hannibal put his men on elephants, crossed the mountains,

and caught Roman forces unprepared. French commanders made a similar bad assumption in 1940.

When Germany invaded Belgium (and then France) in 1940, its strategy caught French forces by surprise.

The top French commanders assumed that German tanks simply could not make it through a thickly

wooded region known as the Ardennes Forest. As a result, French forces did not bother preparing a strong

defense in that area. Most of the French army and their British allies instead protected against a small,

diversionary force that the Germans had sent as a deception to the north of the forest. German forces

made it through the forest, encircled the allied forces, and started driving them toward the ocean. Many

thousands of French and British soldiers were killed or captured. In retrospect, the French generals had

ignored an important lesson of history: Do not make assumptions about what your adversary can and

cannot do. Executives who make similar assumptions about their competitors put their organizations’

performance in jeopardy.

Strategic Management as a Field of Study

Universities contain many different fields of study, including physics, literature, chemistry, computer

science, and engineering. Some fields of study date back many centuries (e.g., literature), while others

(such as computer science) have emerged only in recent years. Strategic management has been important

throughout history, but the evolution of strategic management into a field of study has mostly taken place

over the past century. A few of the key business and academic events that have helped the field develop

are discussed next.

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The ancient Chinese strategist Sun Tzu made it clear that strategic management is part art. But it is also

part science. Major steps toward developing the scientific aspect of strategic management were taken in

the early twentieth century by Frederick W. Taylor. In 1911, Taylor published The Principles of Scientific

Management. The book was a response to Taylor’s observation that most tasks within organizations were

organized haphazardly. Taylor believed that businesses would be much more efficient if management

principles were derived through scientific investigation. In The Principles of Scientific Management,

Taylor stressed how organizations could become more efficient through identifying the “one best way” of

performing important tasks. Implementing Taylor’s principles was thought to have saved railroad

companies hundreds of millions of dollars. [3] Although many later works disputed the merits of trying to

find the “one best way,” Taylor’s emphasis on maximizing organizational performance became the core

concern of strategic management as the field developed.

Also in the early twentieth century, automobile maker Henry Ford emerged as one of the pioneers of

strategic management among industrial leaders. At the time, cars seemed to be a luxury item for wealthy

people. Ford adopted a unique strategic perspective, however, and boldly offered the vision that he would

make cars the average family could afford. Building on ideas about efficiency from Taylor and others, Ford

organized assembly lines for creating automobiles that lowered costs dramatically. Despite his wisdom,

Ford also made mistakes. Regarding his company’s flagship product, the Model T, Ford famously stated,

“Any customer can have a car painted any color that he wants so long as it is black.” When rival

automakers provided customers with a variety of color choices, Ford had no choice but to do the same.

In 1912, Harvard University became the first higher education institution to offer a course focused on how

business executives could lead their organizations to greater success. The approach to maximizing

performance within this “business policy” course was consistent with Taylor’s ideas. Specifically, the goal

of the business policy course was to identify the one best response to any given problem that an

organization confronted. By finding and pursuing this ideal solution, the organization would have the best

chance of enjoying success.

In the 1920s, A&W Root Beer became the first franchised restaurant chain. Franchising involves an

organization (called a franchisor) granting the right to use its brand name, products, and processes to

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other organizations (known as franchisees) in exchange for an up-front payment (a franchise fee) and a

percentage of franchisees’ revenues (a royalty fee). This simple yet powerful business model allows

franchisors to grow their brands rapidly and provides franchisees with the safety of a proven business

format. Within a few decades, the franchising business model would fuel incredible successes for many

franchisors and franchisees across a variety of industries. Today, for example, both Subway and

McDonald’s have more than thirty thousand restaurants carrying their brand names.

The acceptance of strategic management as a necessary element of business school programs took a major

step forward in 1959. A widely circulated report created by the Ford Foundation recommended that all

business schools offer a “capstone” course. The goal of this course would be to integrate knowledge across

different business fields such as marketing, finance, and accounting to help students devise better ideas

for addressing complex business problems. Rather than seeking a “one best way” solution, as advocated

by Taylor and Harvard’s business policy course, this capstone course would emphasize students’ critical

thinking skills in general and the notion that multiple ways of addressing a problem could be equally

successful in particular. The Ford Foundation report was a key motivator that led US universities to create

strategic management courses in their undergraduate and master of business administration programs.

In 1962, business and academic events occurred that seemed minor at the time but that would later give

rise to huge changes. Building on the business savvy that he had gained as a franchisee, Sam Walton

opened the first Walmart in Rogers, Arkansas. Relying on a strategy that emphasized low prices and high

levels of customer service, Walmart grew to 882 stores with a combined $8.4 billion dollars in annual

sales by 1985. A decade later, sales reached $93.6 billion across nearly 3,000 stores. In 2010, Walmart

was the largest company in the world. In recent years, Walmart has arguably downplayed customer

service in favor of cutting costs. Time will tell whether deviating from Sam Walton’s original strategic

positioning will hurt the company.

Also in 1962, Harvard professor Alfred Chandler published Strategy and Structure: Chapters in the

History of the Industrial Enterprise. This book describes how strategy and organizational structure need

to be consistent with each other to ensure strong firm performance, a lesson that Moses seems to have

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mastered during the Hebrews’ exodus from Egypt. Many people working in the field of strategic

management consider Chandler’s book to be the first work of strategic management research.

Two pivotal events that firmly established strategic management as a field of study took place in 1980.

One was the creation of the Strategic Management Journal. The introduction of the journal offered a

forum for researchers interested in building knowledge about strategic management. Much like important

new medical findings appear in the Journal of the American Medical Association and the New England

Journal of Medicine, the Strategic Management Journal publishes pathbreaking insights about strategic


The second pivotal event in 1980 was the publication of Competitive Strategy: Techniques for Analyzing

Industries and Competitors by Harvard professor Michael Porter. This book offers concepts such as five

forces analysis and generic strategies that continue to strongly influence how executives choose strategies

more than thirty years after the book’s publication. Given the importance of these concepts, both five

forces analysis and generic strategies are discussed in detail in Chapter 3, “Evaluating the External

Environment” and Chapter 5, “Selecting Business-Level Strategies”, respectively.

Many consumers today take web-based shopping for granted, but this channel for commerce was created

less than two decades ago. The 1995 launch of Amazon by founder Jeff Bezos was perhaps the pivotal

event in creating Internet-based commerce. In pursuit of its vision “to be earth’s most customer-centric

company,” Amazon has diversified far beyond its original focus on selling books and has evolved into a

dominant retailer. Powerful giants have stumbled badly in Amazon’s wake. Sears had sold great varieties

of goods (even including entire houses) through catalogs for many decades, as had JCPenney. Neither

firm created a strong online sales presence to keep pace with Amazon, and both eventually dropped their

catalog businesses. As often happens with old and large firms, Sears and JCPenney were outmaneuvered

by a creative and versatile upstart.

Ethics have long been an important issue within the strategic management field. Attention to the need for

executives to act ethically when creating strategies increased dramatically in the early 2000s when a series

of companies such as Enron Corporation, WorldCom, Tyco, Qwest, and Global Crossing were found to

have grossly exaggerated the strength of their performance. After a series of revelations about fraud and

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corruption, investors in these firms and others lost billions of dollars, tens of thousands of jobs were lost,

and some executives were sent to prison.

Like ethics, the implications of international competition are of central interest to strategic management.

Provocative new thoughts on the nature of the international arena were offered in 2005 by Thomas L.

Friedman. In his book The World Is Flat: A Brief History of the Twenty-First Century, Friedman argues

that many of the advantages that firms in developed countries such as the United States, Japan, and Great

Britain take for granted are disappearing. One implication is that these firms will need to improve their

strategies if they are to remain successful.

Looking to the future, it appears likely that strategic management will prove to be more important than

ever. In response, researchers who are interested in strategic management will work to build additional

knowledge about how organizations can maximize their performance. Executives will need to keep track

of the latest scientific findings. Meanwhile, they also must leverage the insights that history offers on how

to be successful while trying to avoid history’s mistakes.


Although strategic management as a field of study has developed mostly over the last century, the

concept of strategy is much older. Understanding strategic management can benefit greatly by learning

the lessons that ancient history and military strategy provide.

1. What do you think was the most important event related to strategy in ancient times?

2. In what ways are the strategic management of business and military strategy alike? In what ways are they

3. Do you think executives are more ethical today as a result of the scandals in the early 2000s? Why or why


[1] Bracker, J. 1980. The historical development of the strategic management concept.Academy of Management

Review, 5(2), 219–224.

[2] Bracker, J. 1980. The historical development of the strategic management concept.Academy of Management

Typewritten Text

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1.4 Understanding the Strategic Management Process


1. Learn the strategic management process.

2. Understand the four steps in the strategic management process.

Modeling the Strategy Process

Strategic management is a process that involves building a careful understanding of how the world is

changing, as well as a knowledge of how those changes might affect a particular firm. CEOs, such as late

Apple-founder Steve Jobs, must be able to carefully manage the possible actions that their firms might

take to deal with changes that occur in their environment. We present a model of the strategic

management process in Figure 1.7 “Overall Model of the Strategic Management Process”. This model also

guides our presentation of the chapters contained in this book.

Figure 1.7 Overall Model of the Strategic Management Process

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The strategic management process begins with an understanding of strategy and performance. As we have

noted in this introductory chapter, strategic management is both an art and a science, and it involves

multiple conceptualizations of the notion of strategy drawn from recent and ancient history. In Chapter 2

“Leading Strategically”, we focus on how leading strategically is needed if the firm is to achieve the long-

term strong performance companies such as Apple have attained. Consequently, how managers

understand and interpret the performance of their firms is often central to understanding strategy.

Environmental and internal scanning is the next stage in the process. Managers must constantly scan the

external environment for trends and events that affect the overall economy, and they must monitor

changes in the particular industry in which the firm operates. For example, Apple’s decision to create the

iPhone demonstrates its ability to interpret that traditional industry boundaries that distinguished the

cellular phone industry and the computer industry were beginning to blur. At the same time, firms must

evaluate their own resources to understand how they might react to changes in the environment. For

example, intellectual property is a vital resource for Apple. Between 2008 and 2010, Apple filed more

than 350 cases with the US Patent and Trademark Office to protect its use of such terms as apple, pod,

and safari. [1]

A classic management tool that incorporates the idea of scanning elements both external and internal to

the firm is SWOT (strengths, weaknesses, opportunities, and threats) analysis. Strengths and weaknesses

are assessed by examining the firm’s resources, while opportunities and threats refer to external events

and trends. The value of SWOT analysis parallels ideas from classic military strategists such as Sun Tzu,

who noted the value of knowing yourself as well as your opponent. Chapter 3 “Evaluating the External

Environment” examines the topic of evaluating the external environment in detail, and Chapter 4

“Managing Firm Resources” presents concepts and tools for managing firm resources.

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The importance of knowing yourself and your opponent is applicable to the knowledge of strategic

management for business, military strategy, and classic strategy games such as chess.

Strategy formulation is the next step in the strategic management process. This involves developing

specific strategies and actions. Certainly, part of Apple’s success is due to the unique products it offers the

market, as well as how these products complement one another. A customer can buy an iPod that plays

music from iTunes—all of which can be stored in Apple’s Mac computer. [2] In Chapter 5 “Selecting

Business-Level Strategies”, we discuss how selecting business-level strategies helps to provide firms with

a recipe that can be followed that will increase the likelihood that their strategies will be successful.

In Chapter 6 “Supporting the Business-Level Strategy: Competitive and Cooperative Moves”, we present

insights on how firms can support the business-level strategy through competitive and cooperative

moves. Chapter 7 “Competing in International Markets” presents possibilities for firms competing in

international markets, and Chapter 8 “Selecting Corporate-Level Strategies” focuses on selecting

corporate-level strategies.

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Strategy implementation is the final stage of the process. One important element of strategy

implementation entails crafting an effective organizational structure and corporate culture. For example,

part of Apple’s success is due to its consistent focus on innovation and creativity that Steve Jobs described

as similar to that of a start-up. Chapter 9 “Executing Strategy through Organizational Design” offers ideas

on how to manage these elements of implementation. The final chapter explores how to lead an ethical

organization through corporate governance, social responsibility, and sustainability.


Strategic management is a process that requires the ability to manage change. Consequently, executives

must be careful to monitor and to interpret the events in their environment, to take appropriate actions

when change is needed, and to monitor their performance to ensure that their firms are able to survive

and, it is hoped, thrive over time.


1. Who makes the strategic decisions for most organizations?

2. Why is it important to view strategic management as a process?

3. What are the four steps of the strategic management process?

4. How is chess relevant to the study of strategic management? What other games might help teach

strategic thinking?

[1] Apple Inc. litigation. Wikipedia. Retrieved from litigation

[2] Inside CRM Editors. Effective strategies Apple uses to create loyal customers [Online article]. Retrieved

from -customers

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1.5 Conclusion

This chapter provides an overview of strategic management and strategy. Ideas about strategy span

many centuries, and modern understanding of strategy borrows from ancient strategies as well as

classic militaries strategies. You should now understand that there are numerous ways to

conceptualize the idea of strategy and that effective strategic management is needed to ensure the

long-term success of firms. The study of strategic management provides tools to effectively manage

organizations, but it also involves the art of knowing how and when to apply creative thinking.

Knowledge of both the art and the science of strategic management is needed to help guide

organizations as their strategies emerge and evolve over time. Such tools will also help you effectively

chart a course for your career as well as to understand the effective strategic management of the

organizations for which you will work.


1. Think about the best and worst companies you know. What is extraordinary (or extraordinarily bad) about

these firms? Are their strategies clear and focused or difficult to define?

2. If you were to write a “key takeaway” section for this chapter, what would you include as the material

you found most interesting?



Chapter 2

Leading Strategically


After reading this chapter, you should be able to understand and articulate answers to the following


1. What are vision, mission, and goals, and why are they important to organizations?

2. How should executives analyze the performance of their organizations?

3. In what ways can having a celebrity CEO and a strong entrepreneurial orientation help or harm an


Questions Are Brewing at Starbucks

Starbucks’s global empire includes this store in Seoul, South Korea.

Image courtesy of Wikimedia,


Chapter 2 from Mastering Strategic Management was adapted by The Saylor Foundation under
a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 license without attribution as requested

by the work’s original creator or licensee. © 2014, The Saylor Foundation.

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March 30, 2011, marked the fortieth anniversary of Starbucks first store opening for business in Seattle,

Washington. From its humble beginnings, Starbucks grew to become the largest coffeehouse company in

the world while stressing the importance of both financial and social goals. As it created thousands of

stores across dozens of countries, the company navigated many interesting periods. The last few years

were a particularly fascinating era.

In early 2007, Starbucks appeared to be very successful, and its stock was worth more than $35 per share.

By 2008, however, the economy was slowing, competition in the coffee business was heating up, and

Starbucks’s performance had become disappointing. In a stunning reversal of fortune, the firm’s stock was

worth less than $10 per share by the end of the year. Anxious stockholders wondered whether Starbucks’s

decline would continue or whether the once high-flying company would return to its winning ways.

Riding to the rescue was Howard Schultz, the charismatic and visionary founder of Starbucks who had

stepped down as chief executive officer eight years earlier. Schultz again took the helm and worked to turn

the company around by emphasizing its mission statement: “to inspire and nurture the human spirit—one

person, one cup and one neighborhood at a time.” [1]About a thousand underperforming stores were shut

down permanently. Thousands of other stores closed for a few hours so that baristas could be retrained to

make inspiring drinks. Food offerings were revamped to ensure that coffee—not breakfast sandwiches—

were the primary aroma that tantalized customers within Starbucks’s outlets.

By the time Starbucks’s fortieth anniversary arrived, Schultz had led his company to regain excellence,

and its stock price was back above $35 per share. In March 2011, Schultz summarized the situation by

noting that “over the last three years, we’ve completely transformed the company, and the health of

Starbucks is quite good. But I don’t think this is a time to celebrate or run some victory lap. We’ve got a lot

of work to do.” [2] Indeed, important questions loomed. Could performance improve further? How long

would Schultz remain with the company? Could Schultz’s eventual successor maintain Schultz’s

entrepreneurial approach as well as keep Starbucks focused on its mission?

[1] Our Starbucks mission statement. Retrieved from

information/mission-statement. Accessed March 31, 2011.

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[2] Starbucks CEO: Can you “get big and stay small” [Review of the book Onward: How Starbucks fought for its life

without losing its soul by Howard Schultz]. 2011, March 28. NPR Books. Retrieved


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2.1 Vision, Mission, and Goals


1. Define vision and mission and distinguish between them.

2. Know what the acronym SMART represents.

3. Be able to write a SMART goal.

The Importance of Vision

Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly

drive it to completion.

– Jack Welch, former CEO of General Electric

Many skills and abilities separate effective strategic leaders like Howard Schultz from poor strategic

leaders. One of them is the ability to inspire employees to work hard to improve their organization’s

performance. Effective strategic leaders are able to convince employees to embrace lofty ambitions and

move the organization forward. In contrast, poor strategic leaders struggle to rally their people and

channel their collective energy in a positive direction.

As the quote from Jack Welch suggests, a vision is one key tool available to executives to inspire the

people in an organization. An organization’s vision describes what the organization hopes to become

in the future. Well-constructed visions clearly articulate an organization’s aspirations. Avon’s vision is

“to be the company that best understands and satisfies the product, service, and self-fulfillment needs

of women—globally.” This brief but powerful statement emphasizes several aims that are important to Avon,

including excellence in customer service, empowering women, and the intent to be a worldwide player.

Like all good visions, Avon sets a high standard for employees to work collectively toward.

Perhaps no vision captures high standards better than that of aluminum maker Alcoa. This firm’s very ambitious

vision is “to be the best company in the world—in the eyes of our customers, shareholders, communities

and people.” By making clear their aspirations, Alcoa’s executives hope to inspire employees to act in ways that

help the firm become the best in the world.

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The results of a survey of one thousand five hundred executives illustrate how the need to create an

inspiring vision creates a tremendous challenge for executives. When asked to identify the most important

characteristics of effective strategic leaders, 98 percent of the executives listed “a strong sense of vision”

first. Meanwhile, 90 percent of the executives expressed serious doubts about their own ability to create a

vision. [1] Not surprisingly, many organizations do not have formal visions. Many organizations that do

have visions find that employees do not embrace and pursue the visions. Having a well-formulated vision

employees embrace can therefore give an organization an edge over its rivals.

Mission Statements

In working to turnaround Starbucks, Howard Schultz sought to renew Starbucks’s commitment to

its mission statement: “to inspire and nurture the human spirit—one person, one cup and one

neighborhood at a time.” A mission such as Starbucks’s states the reasons for an organization’s existence.

Well-written mission statements effectively capture an organization’s identity and provide answers to the

fundamental question “Who are we?” While a vision looks to the future, a mission captures the key

elements of the organization’s past and present.

Organizations need support from their key stakeholders, such as employees, owners, suppliers, and

customers, if they are to prosper. A mission statement should explain to stakeholders why they should

support the organization by making clear what important role or purpose the organization plays in

society. Google’s mission, for example, is “to organize the world’s information and make it universally

accessible and useful.” Google pursued this mission in its early days by developing a very popular Internet

search engine. The firm continues to serve its mission through various strategic actions, including offering

its Internet browser Google Chrome to the online community, providing free e-mail via its Gmail service,

and making books available online for browsing.

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Many consider Abraham Lincoln to have been one of the

greatest strategic leaders in modern history.

Image courtesy of Alexander Gardner,

ncoln_head_on_shoulders_photo_portrait .

One of Abraham Lincoln’s best-known statements is that “a house divided against itself cannot stand.”

This provides a helpful way of thinking about the relationship between vision and mission. Executives ask

for trouble if their organization’s vision and mission are divided by emphasizing different domains. Some

universities have fallen into this trap. Many large public universities were established in the late 1800s

with missions that centered on educating citizens. As the twentieth century unfolded, however, creating

scientific knowledge through research became increasingly important to these universities. Many

university presidents responded by creating visions centered on building the scientific prestige of their

schools. This created a dilemma for professors: Should they devote most of their time and energy to

teaching students (as the mission required) or on their research studies (as ambitious presidents

demanded via their visions)? Some universities continue to struggle with this trade-off today and remain

houses divided against themselves. In sum, an organization is more effective to the extent that its vision

and its mission target employees’ effort in the same direction.

Pursuing the Vision and Mission through SMART Goals

An organization’s vision and mission offer a broad, overall sense of the organization’s direction. To work

toward achieving these overall aspirations, organizations also need to create goals—narrower aims that

should provide clear and tangible guidance to employees as they perform their work on a daily basis. The

most effective goals are those that are specific, measurable, aggressive, realistic, and time-bound. An easy

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way to remember these dimensions is to combine the first letter of each into one word: SMART.

Employees are put in a good position to succeed to the extent that an organization’s goals are SMART.

A goal is specific if it is explicit rather than vague. In May 1961, President John F. Kennedy proposed a

specific goal in a speech to the US Congress: “I believe that this nation should commit itself to achieving

the goal, before this decade is out, of landing a man on the moon and returning him safely to the

earth.” [2]Explicitness such as was offered in this goal is helpful because it targets people’s energy. A few

moments later, Kennedy made it clear that such targeting would be needed if this goal was to be reached.

Going to the moon, he noted, would require “a major national commitment of scientific and technical

manpower, materiel and facilities, and the possibility of their diversion from other important activities

where they are already thinly spread.” While specific goals make it clear how efforts should be directed,

vague goals such as “do your best” leave individuals unsure of how to proceed.

A goal is measurable to the extent that whether the goal is achieved can be quantified. President

Kennedy’s goal of reaching the moon by the end of the 1960s offered very simple and clear measurability:

Either Americans would step on the moon by the end of 1969 or they would not. One of Coca-Cola’s

current goals is a 20 percent improvement to its water efficiency by 2012 relative to 2004 water usage.

Because water efficiency is easily calculated, the company can chart its progress relative to the 20 percent

target and devote more resources to reaching the goal if progress is slower than planned.

A goal is aggressive if achieving it presents a significant challenge to the organization. A series of

research studies have demonstrated that performance is strongest when goals are challenging but

attainable. Such goals force people to test and extend the limits of their abilities. This can result in

reaching surprising heights. President Kennedy captured this theme in a speech in September 1962: “We

choose to go to the moon. We choose to go to the moon in this decade…not because [it is] easy, but

because [it is] hard, because that goal will serve to organize and measure the best of our energies and


In the case of Coca-Cola, reaching a 20 percent improvement will require a concerted effort, but the goal

can be achieved. Meanwhile, easily achievable goals tend to undermine motivation and effort. Consider a

situation in which you have done so well in a course that you only need a score of 60 percent on the final

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exam to earn an A for the course. Understandably, few students would study hard enough to score 90

percent or 100 percent on the final exam under these circumstances. Similarly, setting organizational

goals that are easy to reach encourages employees to work just hard enough to reach the goals.

It is tempting to extend this thinking to conclude that setting nearly impossible goals would encourage

even stronger effort and performance than does setting aggressive goals. People tend to get discouraged

and give up, however, when faced with goals that have little chance of being reached. If, for example,

President Kennedy had set a time frame of one year to reach the moon, his goal would have attracted

scorn. The country simply did not have the technology in place to reach such a goal. Indeed, Americans

did not even orbit the moon until seven years after Kennedy’s 1961 speech. Similarly, if Coca-Cola’s water

efficiency goal was 95 percent improvement, Coca-Cola’s employees would probably not embrace it. Thus

goals must also be realistic, meaning that their achievement is feasible.

You have probably found that deadlines are motivating and that they help you structure your work time.

The same is true for organizations, leading to the conclusion that goals should be time-bound through

the creation of deadlines. Coca-Cola has set a deadline of 2012 for its water efficiency goal, for example.

The deadline for President Kennedy’s goal was the end of 1969. The goal was actually reached a few

months early. On July 20, 1969, Neil Armstrong became the first human to step foot on the moon.

Incredibly, the pursuit of a well-constructed goal had helped people reach the moon in just eight years.

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Americans landed on the moon eight years after President Kennedy set a moon landing as a key

goal for the United States.

Image courtesy of NASA Apollo Archive, .

The period after an important goal is reached is often overlooked but is critical. Will an organization rest

on its laurels or will it take on new challenges? The US space program again provides an illustrative

example. At the time of the first moon landing, Time magazine asked the leader of the team that built the

moon rockets about the future of space exploration. “Given the same energy and dedication that took

them to the moon,” said Wernher von Braun, “Americans could land on Mars as early as 1982.” [3] No new

goal involving human visits to Mars was embraced, however, and human exploration of space was de-

emphasized in favor of robotic adventurers. Nearly three decades after von Braun’s proposed timeline for

reaching Mars expired, President Barack Obama set in 2010 a goal of creating by 2025 a new space

vehicle capable of taking humans beyond the moon and into deep space. This would be followed in the

mid-2030s by a flight to orbit Mars as a prelude to landing on Mars. [4] Time will tell whether these goals

inspire the scientific community and the country in general.


Strategic leaders need to ensure that their organizations have three types of aims. A vision states what

the organization aspires to become in the future. A mission reflects the organization’s past and present by

stating why the organization exists and what role it plays in society. Goals are the more specific aims that

organizations pursue to reach their visions and missions. The best goals are SMART: specific, measurable,

aggressive, realistic, and time-bound.


1. Take a look at the website of your college or university. What is the organization’s vision and mission?

Were they easy or hard to find?

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2. As a member of the student body, do you find the vision and mission of your college or university to be

motivating and inspirational? Why or why not?

3. What is an important goal that you have established for your career? Could this goal be improved by

applying the SMART goal concept?

[1] Quigley, J. V. 1994. Vision: How leaders develop it, share it, and sustain it. Business Horizons, 37(5), 37–41.

[2] Key documents in the history of space policy: 1960s. National Aeronautics and Space Administration. Retrieved


[3] The Moon: Next, Mars and beyond. 1969, July 15. Time. Retrieved


[4] Amos, J. 2010, April 15. Obama sets Mars goal for America. BBC News. Retrieved from

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2.2 Assessing Organizational Performance


1. Understand the complexities associated with assessing organizational performance.

2. Learn each of the dimensions of the balanced scorecard framework.

3. Learn what is meant by a “triple bottom line.”

Organizational Performance: A Complex Concept

Organizational performance refers to how well an organization is doing to reach its vision, mission, and

goals. Assessing organizational performance is a vital aspect of strategic management. Executives must

know how well their organizations are performing to figure out what strategic changes, if any, to make.

Performance is a very complex concept, however, and a lot of attention needs to be paid to how it is


Two important considerations are (1) performance measures and (2) performance referents (Figure 2.5

“How Organizations and Individuals Can Use Financial Performance Measures and



A performance measure is a metric along which organizations can be gauged. Most executives examine

measures such as profits, stock price, and sales in an attempt to better understand how well their

organizations are competing in the market. But these measures provide just a glimpse of organizational

performance. Performance referents are also needed to assess whether an organization is doing well. A

performance referent is a benchmark used to make sense of an organization’s standing along a

performance measure. Suppose, for example, that a firm has a profit margin of 20 percent in 2011. This

sounds great on the surface. But suppose that the firm’s profit margin in 2010 was 35 percent and that the

average profit margin across all firms in the industry for 2011 was 40 percent. Viewed relative to these two

referents, the firm’s 2011 performance is cause for concern.

Using a variety of performance measures and referents is valuable because different measures and

referents provide different information about an organization’s functioning. The parable of the blind men

and the elephant—popularized in Western cultures through a poem by John Godfrey Saxe in the

nineteenth century—is useful for understanding the complexity associated with measuring organizational

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performance. As the story goes, six blind men set out to “see” what an elephant was like. The first man

touched the elephant’s side and believed the beast to be like a great wall. The second felt the tusks and

thought elephants must be like spears. Feeling the trunk, the third man thought it was a type of snake.

Feeling a limb, the fourth man thought it was like a tree trunk. The fifth, examining an ear, thought it was

like a fan. The sixth, touching the tail, thought it was like a rope. If the men failed to communicate their

different impressions they would have all been partially right but wrong about what ultimately mattered.

Figure 2.5 How Organizations and Individuals Can Use Financial Performance Measures and


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This story parallels the challenge involved in understanding the multidimensional nature of organization

performance because different measures and referents may tell a different story about the organization’s

performance. For example, the Fortune 500 lists the largest US firms in terms of sales. These firms are

generally not the strongest performers in terms of growth in stock price, however, in part because they are

so big that making major improvements is difficult. During the late 1990s, a number of Internet-centered

businesses enjoyed exceptional growth in sales and stock price but reported losses rather than profits.

Many investors in these firms who simply fixated on a single performance measure—sales growth—

absorbed heavy losses when the stock market’s attention turned to profits and the stock prices of these

firms plummeted.

The story of the blind men and the elephant provides a metaphor for understanding the

complexities of measuring organizational performance.

Image courtesy of Hanabusa Itcho, .

The number of performance measures and referents that are relevant for understanding an organization’s

performance can be overwhelming, however. For example, a study of what performance metrics were used

within restaurant organizations’ annual reports found that 788 different combinations of measures and

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referents were used within this one industry in a single year. [1]Thus executives need to choose a rich yet

limited set of performance measures and referents to focus on.

The Balanced Scorecard

To organize an organization’s performance measures, Professor Robert Kaplan and Professor David

Norton of Harvard University developed a tool called the balanced scorecard. Using the scorecard helps

managers resist the temptation to fixate on financial measures and instead monitor a diverse set of

important measures.

Indeed, the idea behind the framework is to provide a “balance” between financial measures

and other measures that are important for understanding organizational activities that lead to sustained,

long-term performance. The balanced scorecard recommends that managers gain an overview of the

organization’s performance by tracking a small number of key measures that collectively reflect four

dimensions: (1) financial, (2) customer, (3) internal business process, and (4) learning and growth. [2]

Financial Measures

Financial measures of performance relate to organizational effectiveness and profits. Examples include

financial ratios such as return on assets, return on equity, and return on investment. Other common

financial measures include profits and stock price. Such measures help answer the key question “How do

we look to shareholders?”

Financial performance measures are commonly articulated and emphasized within an organization’s

annual report to shareholders. To provide context, such measures should be objective and be coupled with

meaningful referents, such as the firm’s past performance. For example, Starbucks’s 2009 annual report

highlights the firm’s performance in terms of net revenue, operating income, and cash flow over a five-

year period.

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Customer Measures

Customer measures of performance relate to customer attraction, satisfaction, and retention. These

measures provide insight to the key question “How do customers see us?” Examples might include the

number of new customers and the percentage of repeat customers.

Starbucks realizes the importance of repeat customers and has taken a number of steps to satisfy and to

attract regular visitors to their stores. For example, Starbucks rewards regular customers with free drinks

and offers all customers free Wi-Fi access. [3] Starbucks also encourages repeat visits by providing cards

with codes for free iTunes downloads. The featured songs change regularly, encouraging frequent repeat


Internal Business Process Measures

Internal business process measures of performance relate to organizational efficiency. These measures

help answer the key question “What must we excel at?” Examples include the time it takes to manufacture

the organization’s good or deliver a service. The time it takes to create a new product and bring it to

market is another example of this type of measure.

Organizations such as Starbucks realize the importance of such efficiency measures for the long-term

success of its organization, and Starbucks carefully examines its processes with the goal of decreasing

order fulfillment time. In one recent example, Starbucks efficiency experts challenged their employees to

assemble a Mr. Potato Head to understand how work could be done more quickly. [4] The aim of this

exercise was to help Starbucks employees in general match the speed of the firm’s high performers, who

boast an average time per order of twenty-five seconds.

Learning and Growth Measures

Learning and growth measures of performance relate to the future. Such measures provide insight to tell

the organization, “Can we continue to improve and create value?” Learning and growth measures focus on

innovation and proceed with an understanding that strategies change over time. Consequently,

developing new ways to add value will be needed as the organization continues to adapt to an evolving

environment. An example of a learning and growth measure is the number of new skills learned by

employees every year.

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One way Starbucks encourages its employees to learn skills that may benefit both the firm and individuals

in the future is through its tuition reimbursement program. Employees who have worked with Starbucks

for more than a year are eligible. Starbucks hopes that the knowledge acquired while earning a college

degree might provide employees with the skills needed to develop innovations that will benefit the

company in the future. Another benefit of this program is that it helps Starbucks reward and retain high-

achieving employees.

Measuring Performance Using the Triple Bottom Line

Ralph Waldo Emerson once noted, “Doing well is the result of doing good. That’s what capitalism is all

about.” While the balanced scorecard provides a popular framework to help executives understand an

organization’s performance, other frameworks highlight areas such as social responsibility. One such

framework, the triple bottom line, emphasizes the three Ps of people (making sure that the actions of the

organization are socially responsible), the planet (making sure organizations act in a way that promotes

environmental sustainability), and traditional organization profits. This notion was introduced in the

early 1980s but did not attract much attention until the late 1990s.

The triple bottom line emphasizes the three Ps of people (social concerns), planet (environmental

concerns), and profits (economic concerns).

In the case of Starbucks, the firm has made clear the importance it attaches to the planet by creating an

environmental mission statement (“Starbucks is committed to a role of environmental leadership in all

facets of our business”) in addition to its overall mission.[5]In terms of the “people” dimension of the

triple bottom line, Starbucks strives to purchase coffee beans harvested by farmers who work under

humane conditions and are paid reasonable wages. The firm works to be profitable as well, of course.

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Organizational performance is a multidimensional concept, and wise managers rely on multiple measures

of performance when gauging the success or failure of their organizations. The balanced scorecard

provides a tool to help executives gain a general understanding of their organization’s current level of

achievement across a set of four important dimensions. The triple bottom line provides another tool to

help executives focus on performance targets beyond profits alone; this approach stresses the

importance of social and environmental outcomes.


1. How might you apply the balanced scorecard framework to measure performance of your college or


2. Identify a measurable example of each of the balanced scorecard dimensions other than the examples

offered in this section.

3. Identify a mission statement from an organization that emphasizes each of the elements of the triple

bottom line.

[1] Short, J. C., & Palmer, T. B. 2003. Organizational performance referents: An empirical examination of their

content and influences. Organizational Behavior and Human Decision Processes, 90, 209–224.

[2] Kaplan, R. S., & Norton, D. 1992, February. The balanced scorecard: Measures that drive performance. Harvard

Business Review, 70–79.

[3] Miller, C. 2010, June 15. Aiming at rivals, Starbucks will offer free Wi-Fi. New York Times. Section B, p. 1.

[4] Jargon, J. 2009, August 4. Latest Starbucks buzzword: “Lean” Japanese techniques. Wall Street Journal, p. A1.

[5] Our Starbucks mission statement. Retrieved on March 31, 2011, from

us/company-information/mission-statement. Accessed March 31, 2011.

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2.3 The CEO as Celebrity


1. Understand the benefits and costs of CEO celebrity status.

2. List and define the four types of CEOs based on differences in fame and reputation.

3. Be able to offer an example of each of the four types of CEOs

Benefits and Costs of CEO Celebrity

The nice thing about being a celebrity is that when you bore people, they think it’s their fault.

Henry Kissinger, former US Secretary of State

The word celebrity quickly brings to mind actors, sports stars, and musicians. Some CEOs, such as Bill

Gates, Oprah Winfrey, Martha Stewart, and Donald Trump, also achieve celebrity status. Celebrity CEOs

are not a new phenomenon. In the early twentieth century, industrial barons such as Henry Ford, John D.

Rockefeller, and Cornelius Vanderbilt were household names. However, in the current era of mass and

instant media, celebrity CEOs have become more prevalent and visible (Figure 2.7 “CEO”). [1]

Cornelius Vanderbilt was one of the earliest celebrity CEOs; Vanderbilt University serves as his


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Image courtesy of Mathew Brady and Michel Vuijlsteke, .

Both benefits and costs are associated with CEO celebrity. As the quote from Henry Kissinger suggests,

celebrity confers a mystique and reverence that can be leveraged in a variety of ways. CEO celebrity can

serve as an intangible asset for the CEO’s firm and may increase opportunities available to the firm.

Hiring or developing a celebrity CEO may increase stock price, enhance a firm’s image, and improve the

morale of employees and other stakeholders. However, employing a celebrity CEO also entails risks for an

organization. Increased attention to the firm via the celebrity CEO means any gaps between actual and

expected firm performance are magnified. Further, if a celebrity CEO acts in an unethical or illegal

manner, chances are that the CEO’s firm will receive much more media attention than will other firms

with similar problems. [2]

There are also personal benefits and risks associated with celebrity for the CEO. Celebrity CEOs tend to

receive higher compensation and job perks than their colleagues. Celebrity CEOs are likely to enjoy

increased prestige power, which facilitates invitations to serve on the boards of directors of other firms

and creates opportunities to network with other “managerial elites.” Celebrity also can provide CEOs with

a “benefit of the doubt” effect that protects against quick sanctions for downturns in firm performance

and stock price. However, celebrity also creates potential costs for individuals. Celebrity CEOs face larger

and more lasting reputation erosion if their job performance and behavior is inconsistent with their

celebrity image. Celebrity CEOs face increased personal media scrutiny, and their friends and family must

often endure increased attention into their personal and public lives. Accordingly, wise CEOs will attempt

to understand and manage their celebrity status. [3]

Types of CEOs

Icons are CEOs possessing both fame and strong reputations. The icon CEO combines style and substance

in the execution of his or her job responsibilities. Mary Kay Ash, Richard Branson, Bill Gates, and Warren

Buffett are good examples of icons. The late Mary Kay Ash founded Mary Kay Cosmetics Corporation. The

firm’s great success and Ash’s unconventional motivational methods, such as rewarding sales

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representatives with pink Cadillacs, made her famous. Partly because she emphasized helping other

women succeed and ethical business practices, Mary Kay Ash also had a very positive reputation. Richard

Branson has created an empire with more than four hundred companies, including Virgin Atlantic

Airways and Virgin Records. Branson’s celebrity status led him to star in his own reality-based show. He

has also appeared on television series such as Baywatch and Friends, in addition to several cameo

appearances in major motion pictures. Bill Gates, founder and former CEO of Microsoft, also has fame

and a largely positive reputation. Gates is a proverbial “household name” in the tradition of Ford,

Rockefeller, and Vanderbilt. He also is routinely listed among Time magazine’s “100 Most Influential

People” and has received “rock star” receptions in India and Vietnam in recent years.

Former Microsoft CEO Bill Gates exemplifies a CEO who has reached icon


Image courtesy of World Economic Forum,,2007 .

Warren Buffett is perhaps the best-known executive in the United States. As CEO of Berkshire Hathaway,

he has accumulated wealth estimated at $62 billion and was the richest person in the world as of March

2008. Buffett’s business insights command a level of respect that is perhaps unrivaled. Many in the

investment and policymaking communities pay careful attention to his investment choices and his

commentary on economic conditions. Despite Buffett’s immense wealth and success, his reputation

centers on humility and generosity. Buffett avoids the glitz of Wall Street and has lived for fifty years in a

house he bought in Omaha, Nebraska, for $31,000. Meanwhile, his 2006 donation of approximately $30

billion to the Bill and Melinda Gates Foundation was the largest charitable gift in history.

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CEOs who display high levels of relative fame but low levels of reputation are in the group called

scoundrels. These CEOs are well known but vilified. The late Leona Helmsley was a prototypical

scoundrel. Leona Helmsley’s life was a classic rags-to-riches story. Born to immigrant parents, Helmsley

became a billionaire through her work as the head of an extensive hotel and real estate empire. While

certainly famous, her reputation was anything but positive, as reflected by her nickname: the Queen of

Mean. During Helmsley’s trial for tax fraud, her housekeeper quoted her as proclaiming, “We don’t pay

taxes. Only the little people pay taxes.” Following twenty-one months in jail, Helmsley was required to

perform 750 hours of community service. One hundred fifty hours were added to this sentence after it was

discovered that employees had performed some of her service hours. Helmsley’s apparent arrogance,

combined with her cruelty to employees and her reputation as the ultimate workplace bully, cemented her

position as a scoundrel.

The corporate governance scandals of the early 2000s revealed several CEOs as scoundrels. Perhaps the

best known were Kenneth Lay and Dennis Kozlowski. Both men rose to prominence as their firms’ success

and stock prices soared but were undone by dubious activities. Lay was once revered as the son of a poor

minister who founded Enron and built it into a giant in the energy business. In 2001, however, he became

the face of corporate abuses in the United States after Enron’s collapse led to scenes, captured on

television, of employees left jobless and with retirement accounts full of worthless Enron stock. Lay was

convicted of fraud in 2006 but died before sentencing.

Also born to a poor family, Kozlowski started at Tyco as an accountant and worked his way up to the

executive suite. In May 2001, a BusinessWeek cover story lauded Kozlowski as “the most aggressive CEO”

in the country and detailed his strategy for building Tyco into the next General Electric by using

acquisitions to gain the first or second position in all the industries in which it competed. By 2002,

Kozlowski’s reputation was in jeopardy. He was indicted for avoiding more than $1 million in sales taxes

on art purchases. Media stories described in detail a $2 million birthday party Kozlowski threw for his

wife (billing half of it to Tyco as a company function), a $19 million apartment Tyco purchased for him,

and $11 million worth of furnishings for the apartment (including an infamous $6,000 shower curtain).

Accusations that Kozlowski and another Tyco executive stole hundreds of millions of dollars from the firm

ultimately led to a prison sentence of eight to twenty-five years.

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Hidden gems are CEOs who lack fame but possess positive reputations. These CEOs toil in relative

obscurity while leading their firms to success. Their skill as executives is known mainly by those in their

own firm and by their competitors. In many cases, the firm has some renown due to its success, but the

CEO stays unknown. For example, consider the case of Anne Mulcahy. Mulcahy, CEO of Xerox, started

her career at Xerox as a copier salesperson. Despite building an excellent reputation by rescuing Xerox

from near bankruptcy, Mulcahy eschews fame and publicity. While being known for successfully leading

Xerox by example and being willing to fly anywhere to meet a customer, she avoids stock analysts and


Silent killers are the fourth and final group of CEOs. These CEOs are overlooked and ignored sources of

harm to their firms. While scoundrels are closely monitored and scrutinized by the media, it may be too

late before the poor ethics or incompetence of the silent killers is detected. In this sense, silent killers are

sometimes worse than scoundrels. One example of a silent killer is Harding Lawrence, former CEO of

defunct Braniff International. Lawrence initiated a massive expansion of the airline following industry

deregulation in the late 1970s. The result was a bloated firm, ill-equipped to survive the extremely

competitive setting that evolved in the early 1980s. Howard Putnam, the CEO of a small regional carrier

named Southwest Airlines, was hired in a failed effort to save the company. By the time Braniff went

bankrupt, Putnam was left to explain its demise, and the name of the main culprit was all but forgotten.

Ironically, had Putnam declined the opportunity to try to save Braniff, perhaps he and not Herb Kelleher

would have become an icon at the helm of Southwest.

Strategy at the Movies

Iron Man

Has Tony Stark gone crazy? This was the question that many stakeholders of Stark Industries were asking

themselves in the 2008 blockbuster Iron Man. Tony Stark, CEO of Stark Industries, stunned his

shareholders, employees, and the world when he announced that he was changing Stark Industries’

mission from being one of the world’s leading weapons manufacturers to being a socially responsible,

clean energy producer. Following his announcement, Stark faced fierce opposition from his board of

directors, employees, the media, and clients such as the US military. The changes at Stark Industries

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attracted tremendous attention in part because of the glamorous Stark’s status as a celebrity CEO.

Initially, Stark is seen by the public as a scoundrel that pays little attention to the social impact his

company makes. After shifting the direction of Stark Industries, however, Stark is viewed as an icon that

is just as attentive to the social performance of the company as he is to its financial performance. Iron

Man illustrates that while changing elements such as firm mission and CEO status is difficult, it is not


Iron Man: The Greatest Creation of Fictional Celebrity CEO Tony Stark

Image courtesy of Pop Culture Geek,

Celebrity Rehabilitation

Anything I say or do is now at risk of showing up on the front page of a national daily newspaper and

therefore, I need to be much more conscious about the implications of everything that I say or do in all


John Mackey, CEO of Whole Foods Market

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Achieving the level of success that brings about celebrity is seldom a completely smooth process. Even

well-regarded celebrity CEOs seldom have totally untarnished reputations. Bill Gates has been portrayed

as a ruthless and devious genius, for example, while General Electric CEO Jack Welch was attacked in

media outlets for an extramarital affair.

One of the more interesting recent cases of a tarnished reputation centers on John Mackey, founder and

CEO of Whole Foods Market. His strategy of offering organic food and high levels of service allowed

Whole Foods to carve out a profitable and growing niche in an industry whose overall margins have been

squeezed as Walmart’s Supercenters have gained market share. Under Mackey’s leadership, Whole Food’s

stock price tripled from 2001 to 2006. Mackey’s efforts to make food supplies healthier and his teamwork-

centered management approach attracted publicity, and he appeared headed for icon status.

But in 2007 Mackey and Whole Foods were embarrassed by the revelation that Mackey had been

anonymously posting negative information about a rival, Wild Oats, online. Through his online persona

“rahodeb” (a scrambling of his wife’s name), Mackey asserted that Wild Oats’ stock was overpriced and

that the firm was headed toward bankruptcy. This was viewed by some observers as a possible effort to

manipulate Wild Oats’ stock price prior to a proposed acquisition by Whole Foods. Meanwhile, in e-mails

to other Whole Foods executives, Mackey noted that the acquisition of Wild Oats could allow them to

avoid “nasty price wars.” This caught the eye of Federal Trade Commission (FTC) regulators who were

concerned about the antitrust implications of the acquisition.

Whole Foods CEO John Mackey’s celebrity status was amplified when it was revealed that he had posted negative

information online about competitor Wild Oats.

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Image courtesy of Joe M500,,_of_Whole_Foods_in_2009 .

What should a CEO do when his or her reputation takes a hit? As the old saying goes, honesty is the best

policy. An example is offered by David Neeleman, founder and CEO of JetBlue. The reputations of JetBlue

and Neeleman took a severe blow after a widely reported February 2007 debacle in which travelers were

stranded in airplanes for excessive periods of time during a busy holiday weekend. Neeleman took a giant

step toward restoring both his and JetBlue’s reputation by issuing a public, heartfelt apology. He not only

issued a written apology to customers but also bought full-page advertisements in newspapers, posted a

video apology online, and created a new “bill of rights” for JetBlue customers.

Mackey apologized for his actions via his blog in 2008. As part of this apology, Mackey acknowledged that

he had failed to recognize how expectations change when one becomes a celebrity. Mackey noted that

when Whole Foods was a smaller company, “I was seldom interviewed and few people knew or cared who

I was. I wasn’t a public figure and had no desire to become one.” As his company grew, however, Mackey

became subject to more scrutiny. As Mackey put it, “At some point in the past 10 years I went from being a

relatively unknown person to becoming a public figure. I regret not having the wisdom to recognize this

fact until very recently.”[4] A big part of managing celebrity status is realizing that one is in fact a celebrity.


The media exposure common to modern CEOs provides the opportunity for such top executives to reach

celebrity status. While this status can provide positive benefits to their firms such as increased

performance, CEOs should be aware of and manage the potential for increased scrutiny associated with

this status.


1. Can you identify another example of a celebrity CEO, such as Cornelius Vanderbilt, that existed prior to

the 1900s?

2. Identify examples of icons, scoundrels, hidden gems, and silent killers other than the examples offered in

this section.

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3. Would you enjoy the media attention associated with CEO celebrity, or would you prefer to hide from the

limelight? Does your answer have implications for your future career choices?

[1] This section of the chapter is adapted from Ketchen, D., Adams, G., & Shook, C. 2008. Understanding and

managing CEO celebrity. Business Horizons, 51(6), 529–534.

[2] Ranft, A. L., Zinko, R., Ferris, G. R., & Buckley, M. R. 2006. Marketing the image of management: The costs and

benefits of CEO reputation. Organizational Dynamics, 35(3), 279–290.

[3] Wade, J. B., Porac, J. F., Pollock, T. G., & Graffin, S. D. 2008. Star CEOs: Benefit or burden? Organizational

Dynamics, 37(2), 203–210.

[4] John Mackey’s blog. 2008, May 21. Re: Apology. Retrieved


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2.4 Entrepreneurial Orientation

1. Understand how thinking and acting entrepreneurially can help organizations and individuals.

2. List and define the five dimensions of an entrepreneurial orientation.

The Value of Thinking and Acting Entrepreneurially

When asked to think of an entrepreneur, people typically offer examples such as Howard Schultz, Estée

Lauder, and Michael Dell—individuals who have started their own successful businesses from the bottom

up that generated a lasting impact on society. But entrepreneurial thinking and doing are not limited to

those who begin in their garage with a new idea, financed by family members or personal savings. Some

people in large organizations are filled with passion for a new idea, spend their time championing a new

product or service, work with key players in the organization to build a constituency, and then find ways

to acquire the needed resources to bring the idea to fruition. Thinking and behaving entrepreneurially can

help a person’s career too. Some enterprising individuals successfully navigate through the environments

of their respective organizations and maximize their own career prospects by identifying and seizing new


As a college student, Michael Dell demonstrated an entrepreneurial

orientation by starting a computer-upgrading business in his dorm room.

He later founded Dell Inc.

Image courtesy of Ilan Costica,


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In the 1730s, Richard Cantillon used the French term entrepreneur, or literally “undertaker,” to refer to

those who undertake self-employment while also accepting an uncertain return. In subsequent years,

entrepreneurs have also been referred to as innovators of new ideas (Thomas Edison), individuals who

find and promote new combinations of factors of production (Bill Gates’ bundling of Microsoft’s

products), and those who exploit opportunistic ideas to expand small enterprises (Mark Zuckerberg at

Facebook). The common elements of these conceptions of entrepreneurs are that they do something new

and that some individuals can make something out of opportunities that others cannot.

Entrepreneurial orientation (EO) is a key concept when executives are crafting strategies in the hopes of

doing something new and exploiting opportunities that other organizations cannot exploit. EO refers to

the processes, practices, and decision-making styles of organizations that act entrepreneurially. [2] Any

organization’s level of EO can be understood by examining how it stacks up relative to five dimensions: (1)

autonomy, (2) competitive aggressiveness, (3) innovativeness, (4) proactiveness, (5) and risk taking.

These dimensions are also relevant to individuals.


Autonomy refers to whether an individual or team of individuals within an organization has the freedom

to develop an entrepreneurial idea and then see it through to completion. In an organization that offers

high autonomy, people are offered the independence required to bring a new idea to fruition, unfettered

by the shackles of corporate bureaucracy. When individuals and teams are unhindered by organizational

traditions and norms, they are able to more effectively investigate and champion new ideas.

Some large organizations promote autonomy by empowering a division to make its own decisions, set its

own objectives, and manage its own budgets. One example is Sony’s PlayStation group, which was created

by chief operating officer (COO) Ken Kutaragi, largely independent of the Sony bureaucracy. In time, the

PlayStation business was responsible for nearly all Sony’s net profit. Because of the success generated by

the autonomous PlayStation group, Kutaragi later was tapped to transform Sony’s core consumer

electronics business into a PlayStation clone. In some cases, an autonomous unit eventually becomes

completely distinct from the parent company, such as when Motorola spun off its successful

semiconductor business to create Freescale.

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Competitive Aggressiveness

Competitive aggressiveness is the tendency to intensely and directly challenge competitors rather than

trying to avoid them. Aggressive moves can include price-cutting and increasing spending on marketing,

quality, and production capacity. An example of competitive aggressiveness can be found in Ben & Jerry’s

marketing campaigns in the mid-1980s, when Pillsbury’s Häagen-Dazs attempted to limit distribution of

Ben & Jerry’s products. In response, Ben & Jerry’s launched their “What’s the Doughboy Afraid Of?”

advertising campaign to challenge Pillsbury’s actions. This marketing action was coupled with a series of

lawsuits—Ben & Jerry’s was competitively aggressive in both the marketplace and the courtroom.

Although aggressive moves helped Ben & Jerry’s, too much aggressiveness can undermine an

organization’s success. A small firm that attacks larger rivals, for example, may find itself on the losing

end of a price war. Establishing a reputation for competitive aggressiveness can damage a firm’s chances

of being invited to join collaborative efforts such as joint ventures and alliances. In some industries, such

as the biotech industry, collaboration is vital because no single firm has the knowledge and resources

needed to develop and deliver new products. Executives thus must be wary of taking competitive actions

that destroy opportunities for future collaborating.


Innovativeness is the tendency to pursue creativity and experimentation. Some innovations build on

existing skills to create incremental improvements, while more radical innovations require brand-new

skills and may make existing skills obsolete. Either way, innovativeness is aimed at developing new

products, services, and processes. Those organizations that are successful in their innovation efforts tend

to enjoy stronger performance than those that do not.

Known for efficient service, FedEx has introduced its Smart Package, which allows both shippers and

recipients to monitor package location, temperature, and humidity. This type of innovation is a welcome

addition to FedEx’s lineup for those in the business of shipping delicate goods, such as human organs.

How do firms generate these types of new ideas that meet customers’ complex needs? Perennial

innovators 3M and Google have found a few possible answers. 3M sends nine thousand of its technical

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personnel in thirty-four countries into customers’ workplaces to experience firsthand the kinds of

problems customers encounter each day. Google’s two most popular features of its Gmail, thread sorting

and unlimited e-mail archiving, were first suggested by an engineer who was fed up with his own e-mail

woes. Both firms allow employees to use a portion of their work time on projects of their own choosing

with the goal of creating new innovations for the company. This latter example illustrates how multiple

EO dimensions—in this case, autonomy and innovativeness—can reinforce one another.

Ben & Jerry’s displays innovativeness by developing a series of offbeat and creative flavors over time.

Image courtesy of theimpulsivebuy,

Ben & Jerry's Red Velvet Cake


Proactiveness is the tendency to anticipate and act on future needs rather than reacting to events after

they unfold. A proactive organization is one that adopts an opportunity-seeking perspective. Such

organizations act in advance of shifting market demand and are often either the first to enter new markets

or “fast followers” that improve on the initial efforts of first movers.

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Consider Proactive Communications, an aptly named small firm in Killeen, Texas. From its beginnings in

2001, this firm has provided communications in hostile environments, such as Iraq and areas impacted by

Hurricane Katrina. Being proactive in this case means being willing to don a military helmet or sleep

outdoors—activities often avoided by other telecommunications firms. By embracing opportunities that

others fear, Proactive’s executives have carved out a lucrative niche in a world that is technologically,

environmentally, and politically turbulent. [3]

Risk Taking

Risk taking refers to the tendency to engage in bold rather than cautious actions. Starbucks, for example,

made a risky move in 2009 when it introduced a new instant coffee called VIA Ready Brew. Instant coffee

has long been viewed by many coffee drinkers as a bland drink, but Starbucks decided that the

opportunity to distribute its product in a different format was worth the risk of associating its brand name

with instant coffee.

Although a common belief about entrepreneurs is that they are chronic risk takers, research suggests that

entrepreneurs do not perceive their actions as risky, and most take action only after using planning and

forecasting to reduce uncertainty. [4] But uncertainty seldom can be fully eliminated. A few years ago,

Jeroen van der Veer, CEO of Royal Dutch Shell PLC, entered a risky energy deal in Russia’s Far East. At

the time, van der Veer conceded that it was too early to know whether the move would be

successful. [5] Just six months later, however, customers in Japan, Korea, and the United States had

purchased all the natural gas expected to be produced there for the next twenty years. If political

instabilities in Russia and challenges in pipeline construction do not dampen returns, Shell stands to post

a hefty profit from its 27.5 percent stake in the venture.

Building an Entrepreneurial Orientation

Steps can be taken by executives to develop a stronger entrepreneurial orientation throughout an

organization and by individuals to become more entrepreneurial themselves. For executives, it is

important to design organizational systems and policies to reflect the five dimensions of EO. As an

example, how an organization’s compensation systems encourage or discourage these dimensions should

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be considered. Is taking sensible risks rewarded through raises and bonuses, regardless of whether the

risks pay off, for example, or does the compensation system penalize risk taking? Other organizational

characteristics such as corporate debt level may influence EO. Do corporate debt levels help or impede

innovativeness? Is debt structured in such a way as to encourage risk taking? These are key questions for

executives to consider.

Examination of some performance measures can assist executives in assessing EO within their

organizations. To understand how the organization develops and reinforces autonomy, for example, top

executives can administer employee satisfaction surveys and monitor employee turnover rates.

Organizations that effectively develop autonomy should foster a work environment with high levels of

employee satisfaction and low levels of turnover. Innovativeness can be gauged by considering how many

new products or services the organization has developed in the last year and how many patents the firm

has obtained.

Similarly, individuals should consider whether their attitudes and behaviors are consistent with the five

dimensions of EO. Is an employee making decisions that focus on competitors? Does the employee

provide executives with new ideas for products or processes that might create value for the organization?

Is the employee making proactive as opposed to reactive decisions? Each of these questions will aid

employees in understanding how they can help to support EO within their organizations.


Building an entrepreneurial orientation can be valuable to organizations and individuals alike in

identifying and seizing new opportunities. Entrepreneurial orientation consists of five dimensions: (1)

autonomy, (2) competitive aggressiveness, (3) innovativeness, (4) proactiveness, and (5) risk taking.


1. Can you name three firms that have suffered because of lack of an entrepreneurial orientation?

2. Identify examples of each dimension of entrepreneurial orientation other than the examples offered in

this section.

3. How does developing an entrepreneurial orientation have implications for your future career choices?

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4. How could you apply the dimensions of entrepreneurial orientation to a job search?

[1] This section is adapted from Certo, S. T., Moss, T. W., & Short, J. C. 2009. Entrepreneurial orientation: An

applied perspective. Business Horizons, 52, 319–324.

[2] Lumpkin, G. T., & Dess, G. G. 1996. Clarifying the entrepreneurial orientation construct and linking it to

performance. Academy of Management Review, 21, 135–172.

[3] Choi, A. S. 2008, April 16. PCI builds telecommunications in Iraq. Bloomberg Businessweek. Retrieved


[4] Simon, M., Houghton, S. M., & Aquino, K. 2000. Cognitive biases, risk perception, and venture formation: How

individuals decide to start companies. Journal of Business Venturing, 14, 113–134.

[5] Certo, S. T., Connelly, B., & Tihanyi, L. 2008. Managers and their not-so-rational decisions. Business

Horizons, 51(2), 113–119.

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2.5 Conclusion

This chapter explains several challenges that executives face in attempting to lead their organizations

strategically. Executives must ensure that their organizations have visions, missions, and goals in

place that help move these organizations forward. Measures and referents for assessing performance

must be thoughtfully chosen. Some executives become celebrities, thereby creating certain

advantages and disadvantages for themselves and for their firms. Finally, executives must monitor

the degree of entrepreneurial orientation present within their organizations and make adjustments

when necessary. When executives succeed at leading strategically, an organization has an excellent

chance of success.


1. Divide your class into four or eight groups, depending on the size of the class. Assign each group to

develop arguments that one of the key issues discussed in this chapter (vision, mission, goals; assessing

organizational performance; CEO celebrity; entrepreneurial orientation) is the most important within

organizations. Have each group present their case, and then have the class vote individually for the

winner. Which issue won and why?

2. This chapter discussed Howard Schultz and Starbucks on several occasions. Based on your reading of the

chapter, how well has Schultz done in dealing with setting a vision, mission, and goals, assessing

organizational performance, CEO celebrity, and entrepreneurial orientation?

3. Write a vision and mission for an organization or firm that you are currently associated with. How could

you use the balanced scorecard to assess how well that organization is fulfilling the mission you wrote?

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