Deck 6: Planning, Strategy, and Competitive Advantage

Question 1

A few years ago, IBM announced that it had fired the three top managers of its Argentine division because of their involvement in a scheme to secure a $250 million contract for IBM to provide and service the computers of one of Argentina's largest state-owned banks. The three executives paid $14 million of the contract money to a third company, CCR, which paid nearly $6 million to phantom companies. This $6 million was then used to bribe the bank executives who agreed to give IBM the contract.
These bribes are not necessarily illegal under Argentine law. Moreover, the three managers argued that all companies have to pay bribes to get new business contracts and they were not doing anything that managers in other companies were not.
If bribery is common in a particular country, what effect would this likely have on the nation's economy and culture

Answer 1

Bribe-giving by its competitors, according to one U.S. government study, cost American business $11 billion in a single year. In Germany, a legislator estimated that companies in his nation spend as much as $5.6 billion a year on bribes. Clearly, the diversion of such a large amount of any nation's resources away from production efforts creates inefficiency in its economy and is therefore counterproductive to growth.  Bribery also encourages a creeping erosion of honesty, trust, and other human values that rest at the foundation of a healthy culture.
AACSB standards: 1, 2, 3, 5, 7, 9

Question 2

GM, Ford, and Chrysler: The Detroit Three Are Back, Right
Tall and slender, in a minidress that could have been designed by Miuccia Prada for Marvel Comics, "Lady Stingray" towers over her lord, the 2014 Chevrolet Corvette Stingray. Both are being ogled, its the opening day of the New York International Auto Show. Lady Stingray circles the sports car, trailing one hand along it, talking about extruded aluminum and paddle shifters and carbon fiber.
General Motors (GM) is hoping the Corvette's sex appeal draws in a whole new sort of buyer, the kind that currently prowls the roadways in an Audi (NSU) or a BMW (BMW). More important, GM is looking to the car to lend its Chevrolet brand a touch of élan, helping to erase the public's perception of General Motors as a stodgy industrial behemoth that made good trucks but lousy cars. If it succeeds, the Corvette could well become a symbol of a new era, not only at GM, but also for the American auto industry. A better symbol, though, is something less glamorous: a compact like the Chevy Cruze.
Four years ago, GM and Chrysler had to go through bankruptcy, and the federal government was in the process of pouring $80 billion into the industry. Ford Motor, which managed to survive without bailout funds, had asked Congress the year before for an emergency $9 billion credit line. Today, all three boast healthy bottom lines. GM reported record profits of $9.19 billion in 2011, and Ford hit its own third-quarter record last year. In March all three had particularly strong sales-Ford and Chrysler reported their best numbers since before the recession. On one level, the recipe has been simple: They've gotten their labor costs down, and they're building cars people want to buy. After lagging for decades, American cars have closed the gap with their Japanese rivals in quality ratings. And Detroit has become competitive-and profitable-in the small and midsize car market, a segment it used to concede to the competition.
It's been a very good run for three companies that only a few years ago were famed for hubris and mismanagement. As well as they've played their cards, they've been lucky, too, benefiting from government aid, a (slowly) growing economy, and trouble, selfin-flicted and otherwise, at Japan's automakers. The durability of the American car resurgence is an open question. And for a variety of reasons, this year is when it will start to be answered in earnest.
In 1925 a former star executive from GM named Walter Chrysler founded his own car company. Three years later, after he bought Dodge Brothers, the Automotive Daily News coined the term "the Big Three" to describe the dominant troika that Chrysler formed with GM and Ford. In 2006, however, Toyota Motor (TM) displaced Chrysler as third in U.S. auto sales, and two years later Toyota took the title of the world's largest automaker from GM. These days people in the auto industry don't talk about the Big Three; they talk about the Detroit Three. Because the broader economic meltdown of 2008 struck suddenly, it can be easy to forget that American automakers were troubled well before the housing bubble. True, they were the undisputed market leaders in light trucks and SUVs, and the popularity and high margins of Chevy Silverados, Ford Explorers, and Jeep Grand Cherokees helped them regain some of the U.S. market share that the Japanese had taken in the 1980s and early 1990s. The rest of their offerings, however, were another story: Cars like the Chevy Prizm, the Chrysler Sebring, and the briefly revived Ford Thunderbird were uninspired, unreliable, and underperforming on the road and in showrooms.
The mediocrity of those models reflected complacency, as well as the warped economics of Detroit's automakers. GM, Ford, and Chrysler were saddled with union contracts that had been made to preserve labor peace when revenues were far healthier, and were on the hook not only for generous salaries and benefits but retiree health care and pensions. The Center for Automotive Research has calculated that once all those costs were factored in, GM was spending $78 per hour on each worker. Japanese automakers were spending about $50 per hour at their U.S. factories. When that difference was coming out of the $40,000 price of a Chevy Suburban, there was plenty of profit left. But a $15,000 compact simply couldn't make money with labor that expensive. In other words, the Detroit Three built bad small and midsize cars in part because they didn't see it as worth their while to make them good. "They were basically offending new car buyers in the entry-level and 'move-up' segments," says Kevin Tynan, an auto analyst at Bloomberg Industries. "They didn't care because there was no margin there. They figured it was OK because when you were more affluent and it came time to buy a truck or SUV, they were the only game in town."
Rather than continue to make unloved and low-margin small cars, one sensible option would have been to stop making them, or drastically scale back production and concentrate on higher-margin trucks and SUVs. Two obstacles prevented that. One was the Corporate Average Fuel Economy (CAFE) standard, which requires the average fuel efficiency of a carmaker's fleet, weighted for sales, to be above a certain level; the Obama administration announced that by 2025 the standard will be 54.5 miles per gallon. If the Detroit Three had stopped making compacts and midsize cars, they would have had to pay hefty fines on their profitable pickups and SUVs, so instead the companies opted to keep churning out cars that customers didn't want. To offload the vehicles, dealers had to offer deep discounts and rebates, further cutting into profitability. Or the cars were sold to rental companies, which would use them for a few years then dump them into the used-car market, depressing the cars' resale values and further lessening their appeal. When gas prices shot up in the wake of Hurricane Katrina and buyers fell out of love with gas guzzlers, the Detroit Three's chronic problems grew acute. With the financial crisis, they appeared fatal.
Each of the Detroit Three has followed a different path through the crisis. GM stood on its own, though only after a painful restructuring that forced GM to cut four brands (Pontiac, Hummer, Saturn, and Saab), close or idle 14 plants, and shed more than 1,000 dealers as it went through Chapter 11 bankruptcy. Chrysler also went through Chapter 11 and was sold to Italian carmaker Fiat with similar cuts. The outlier, Ford, didn't require a bailout. In 2006 incoming CEO Alan Mulally had forced the company through a restructuring without bankruptcy, buying out tens of thousands of hourly workers, closing plants, and selling Land Rover and Jaguar to India's Tata Motors. The company went to the capital markets and borrowed $23.4 billion, pledging real estate, factories, even the trademark to its famed blue oval logo as collateral. Although Ford was widely seen as in worse shape than GM at the time-it lost $12.6 billion in 2006-Mulally's actions spared the company from bankruptcy.
One major problem was that GM and Ford had long allowed individual brands and divisions to function as fiefdoms, which created redundancies in everything from research and design to marketing. Now Ford, in particular, has moved toward building more of its cars using the same platforms, taking advantage of its size and globe-spanning reach in ways that companies such as Toyota and Hyundai Motor do. Such savings have allowed all three American automakers to pay attention to the small cars they'd once disdained. It's an important segment: Entry-level cars are where Japanese models win over customers when they're young and keep them as they trade up. Compacts are even more important now that no one expects dollar-a-gallon gas anymore. "It was unheard of, GM selling a $12,000 Chevy and making money on it," says Adam Jonas, a Morgan Stanley (MS) auto analyst. "Now they can."
Ford enjoyed an advantage in that department, having traditionally been stronger in Europe, where high gas prices made small cars more popular. In 2012 the Ford Focus compact was the best-selling car in the world. In the U.S. in recent months, the midsize Fusion has been selling almost as many units as the longtime segment leaders, the Toyota Camry and Honda Accord. GM has also gotten in the game: The Chevy Cruze has been selling in the 15,000- to 25,000-a-month range and for a couple of stretches in 2011 and 2012 it was the best-selling compact in the country. Chrysler's small cars (think Dodge Neon) have had a reputation as clunkers. Yet under Fiat the company revived the Dodge Dart last summer. The compact impressed the critics and, after a slow start, has caught on with buyers-a little more than 8,000 were sold in March. The desirability of these models has allowed American automakers to address their addiction to discounts and rebates. Holding the line on prices means they make more money from each sale.
Not all the Detroit Three's recent success has been the result of small cars. The two best-selling vehicles in the country are pickup trucks: the Ford F-Series (67,500 sold in March) and the Chevy Silverado (39,600). But few in the industry expect truck sales to rebound to the numbers of 2004, when Americans bought 940,000 F-Series. Last year's sales were two-thirds that. In addition, many drivers who bought SUVs to ferry the kids to and from school and soccer practice are turning to something called the crossover utility vehicle, part minivan, part SUV on a car chassis. A leader in the U.S. market is the Ford Explorer-once a best-selling SUV, it's now built on the Ford Taurus platform.
To make up for lost revenue on trucks and the still-slim margins on smaller cars, GM and Ford are trying to get consumers to take a second look at the companies' luxury brands. Cadillac has had some success luring drivers from Toyota's Lexus and the German automakers, and its new ATS compact sedan-meant to compete with the BMW 3 series and the Mercedes C-Class-is selling briskly. In March, Cadillac sold 15,800 vehicles, up 50 percent from the previous year. Lincoln, however, is still struggling to generate much excitement despite high-profile redesigns. Sales have been anemic-6,800 last month. At the New York auto show, Lincoln hosted its share of the curious, but nothing like the aspirational throngs at the neighboring BMW and Audi exhibits.
Just as it took time for Americans to give up on American cars, it will take time for them to covet a Lincoln or believe that Chrysler or GM can make a small car as well as Toyota. And the nature of the American car market is changing. Surveys of people in their late teens and early twenties suggest they are less interested in cars than their parents were. The University of Michigan's Transportation Research Institute found that from 1983 to 2008 the percentage of 19-year-olds with a driver's license fell from 87.3 percent to 75.5 percent. Two years later it hit 69.5 percent. Urbanization is partly to blame along with high gas prices and high youth unemployment. In an era of virtual connectivity, being able to drive somewhere doesn't feel as necessary or as liberating as it once did. No one knows exactly what this means for the industry.
While the offerings from GM, Ford, and Chrysler have markedly improved over the past few years, so have everyone else's. "Every year the bar gets set higher on quality metrics," says John Hoffecker, a managing director at the consulting firm AlixPartners. "What you see is that almost everybody is better than the very best were five to 10 years ago." The Detroit Three have caught their competition. Keeping pace will be just as tough.
What kind of planning and strategic errors led to the downfall of the Big Three Detroit carmakers
Source: Drake Bennett, "GM, Ford, and Chrysler: The Detroit Three Are Back, Right " Bloomberg BusinessWeek, April 4, 2013, www.businessweek.com.

Answer 2

Few decades ago, Company M was dominating the computing device industry, as more than 90 percent of the computing devices were using its software namely Software W. However, at present, this number has reduced to merely 11 percent.
Company M's decline over the past few years has resulted due to the following planning missteps:
• The biggest reason behind declining performance of Company M includes the absence of any vision statements made by top management since long time duration. In absence of any vision statement, the company could not set its long term objectives and strategies.
• The company also failed in evaluating the market properly. Due to this reason, the company could not adapt itself as per the change in market environment. Hence, its competitors outperformed it by modifying their products as per change in customer's taste and preferences.
• Company M failed to provide innovative products and software to its users. Due to this reason, the products offered by the company became outdated and were discarded by the customers.

Question 3

Pick an industry and identify four companies in the industry that pursue one of the four main business-level strategies (low-cost, focused low-cost, etc.).

Answer 3

Within the commercial airline industry, American Airlines attempts to differentiate itself by maintaining a reputation of providing superior service on a national level. Jet Blue pursues a focused differentiation strategy, since it also attempts to distinguish itself by providing superior service but only in secondary hubs. Southwest has successfully executed a low cost strategy for many years.  Sprint Airlines also is pursuing a low cost strategy, but like Jet Blue, is restricted to servicing only secondary hubs.

Question 4

A group of investors in your city is considering opening a new upscale supermarket to compete with the major supermarket chains that are currently dominating the city's marketplace. They have called you in to help them determine what kind of upscale supermarket they should open. In other words, how can they best develop a competitive advantage against existing supermarket chains
List the supermarket chains in your city, and identify their strengths and weaknesses.

Question 5

How to Analyze a Company's Strategy
Pick a well-known business organization that has received recent press coverage and that provides its annual reports at its website. From the information in the articles and annual reports, answer these questions.
Have there been any major changes in its strategy recently Why

Question 6

How to Analyze a Company's Strategy
Pick a well-known business organization that has received recent press coverage and that provides its annual reports at its website. From the information in the articles and annual reports, answer these questions.
What is (are) the main industry(ies) in which the company competes

Question 7

What is the difference between vertical integration and related diversification

Question 8

A few years ago, IBM announced that it had fired the three top managers of its Argentine division because of their involvement in a scheme to secure a $250 million contract for IBM to provide and service the computers of one of Argentina's largest state-owned banks. The three executives paid $14 million of the contract money to a third company, CCR, which paid nearly $6 million to phantom companies. This $6 million was then used to bribe the bank executives who agreed to give IBM the contract.
These bribes are not necessarily illegal under Argentine law. Moreover, the three managers argued that all companies have to pay bribes to get new business contracts and they were not doing anything that managers in other companies were not.
Either by yourself or in a group, decide if the business practice of paying bribes is ethical or unethical.

Question 9

Ask a manager about the kinds of planning exercises he or she regularly uses. What are the purposes of these exercises, and what are their advantages or disadvantages

Question 10

Form groups of three or four people, and appoint one member as the spokesperson who will communicate your findings to the class when called on by the instructor. Then discuss the following scenario.
You are a team of managers of a major national clothing chain, and you have been charged with finding a way to restore your organization's competitive advantage. Recently, your organization has been experiencing increasing competition from two sources. First, discount stores such as Walmart and Target have been undercutting your prices because they buy their clothes from low-cost foreign manufacturers while you buy most of yours from high-quality domestic suppliers. Discount stores have been attracting your customers who buy at the low end of the price range. Second, small boutiques opening in malls provide high-price designer clothing and are attracting your customers at the high end of the market. Your company has become stuck in the middle, and you have to decide what to do: Should you start to buy abroad so that you can lower your prices and begin to pursue a low-cost strategy Should you focus on the high end of the market and become more of a differentiator Or should you try to pursue both a low-cost strategy and a differentiation strategy
Using SWOT analysis, analyze the pros and cons of each alternative.

Question 11

Ask a manager to identify the corporate- and business-level strategies used by his or her organization.

Question 12

Describe the three steps of planning. Explain how they are related.

Question 13

GM, Ford, and Chrysler: The Detroit Three Are Back, Right
Tall and slender, in a minidress that could have been designed by Miuccia Prada for Marvel Comics, "Lady Stingray" towers over her lord, the 2014 Chevrolet Corvette Stingray. Both are being ogled, its the opening day of the New York International Auto Show. Lady Stingray circles the sports car, trailing one hand along it, talking about extruded aluminum and paddle shifters and carbon fiber.
General Motors (GM) is hoping the Corvette's sex appeal draws in a whole new sort of buyer, the kind that currently prowls the roadways in an Audi (NSU) or a BMW (BMW). More important, GM is looking to the car to lend its Chevrolet brand a touch of élan, helping to erase the public's perception of General Motors as a stodgy industrial behemoth that made good trucks but lousy cars. If it succeeds, the Corvette could well become a symbol of a new era, not only at GM, but also for the American auto industry. A better symbol, though, is something less glamorous: a compact like the Chevy Cruze.
Four years ago, GM and Chrysler had to go through bankruptcy, and the federal government was in the process of pouring $80 billion into the industry. Ford Motor, which managed to survive without bailout funds, had asked Congress the year before for an emergency $9 billion credit line. Today, all three boast healthy bottom lines. GM reported record profits of $9.19 billion in 2011, and Ford hit its own third-quarter record last year. In March all three had particularly strong sales-Ford and Chrysler reported their best numbers since before the recession. On one level, the recipe has been simple: They've gotten their labor costs down, and they're building cars people want to buy. After lagging for decades, American cars have closed the gap with their Japanese rivals in quality ratings. And Detroit has become competitive-and profitable-in the small and midsize car market, a segment it used to concede to the competition.
It's been a very good run for three companies that only a few years ago were famed for hubris and mismanagement. As well as they've played their cards, they've been lucky, too, benefiting from government aid, a (slowly) growing economy, and trouble, selfin-flicted and otherwise, at Japan's automakers. The durability of the American car resurgence is an open question. And for a variety of reasons, this year is when it will start to be answered in earnest.
In 1925 a former star executive from GM named Walter Chrysler founded his own car company. Three years later, after he bought Dodge Brothers, the Automotive Daily News coined the term "the Big Three" to describe the dominant troika that Chrysler formed with GM and Ford. In 2006, however, Toyota Motor (TM) displaced Chrysler as third in U.S. auto sales, and two years later Toyota took the title of the world's largest automaker from GM. These days people in the auto industry don't talk about the Big Three; they talk about the Detroit Three. Because the broader economic meltdown of 2008 struck suddenly, it can be easy to forget that American automakers were troubled well before the housing bubble. True, they were the undisputed market leaders in light trucks and SUVs, and the popularity and high margins of Chevy Silverados, Ford Explorers, and Jeep Grand Cherokees helped them regain some of the U.S. market share that the Japanese had taken in the 1980s and early 1990s. The rest of their offerings, however, were another story: Cars like the Chevy Prizm, the Chrysler Sebring, and the briefly revived Ford Thunderbird were uninspired, unreliable, and underperforming on the road and in showrooms.
The mediocrity of those models reflected complacency, as well as the warped economics of Detroit's automakers. GM, Ford, and Chrysler were saddled with union contracts that had been made to preserve labor peace when revenues were far healthier, and were on the hook not only for generous salaries and benefits but retiree health care and pensions. The Center for Automotive Research has calculated that once all those costs were factored in, GM was spending $78 per hour on each worker. Japanese automakers were spending about $50 per hour at their U.S. factories. When that difference was coming out of the $40,000 price of a Chevy Suburban, there was plenty of profit left. But a $15,000 compact simply couldn't make money with labor that expensive. In other words, the Detroit Three built bad small and midsize cars in part because they didn't see it as worth their while to make them good. "They were basically offending new car buyers in the entry-level and 'move-up' segments," says Kevin Tynan, an auto analyst at Bloomberg Industries. "They didn't care because there was no margin there. They figured it was OK because when you were more affluent and it came time to buy a truck or SUV, they were the only game in town."
Rather than continue to make unloved and low-margin small cars, one sensible option would have been to stop making them, or drastically scale back production and concentrate on higher-margin trucks and SUVs. Two obstacles prevented that. One was the Corporate Average Fuel Economy (CAFE) standard, which requires the average fuel efficiency of a carmaker's fleet, weighted for sales, to be above a certain level; the Obama administration announced that by 2025 the standard will be 54.5 miles per gallon. If the Detroit Three had stopped making compacts and midsize cars, they would have had to pay hefty fines on their profitable pickups and SUVs, so instead the companies opted to keep churning out cars that customers didn't want. To offload the vehicles, dealers had to offer deep discounts and rebates, further cutting into profitability. Or the cars were sold to rental companies, which would use them for a few years then dump them into the used-car market, depressing the cars' resale values and further lessening their appeal. When gas prices shot up in the wake of Hurricane Katrina and buyers fell out of love with gas guzzlers, the Detroit Three's chronic problems grew acute. With the financial crisis, they appeared fatal.
Each of the Detroit Three has followed a different path through the crisis. GM stood on its own, though only after a painful restructuring that forced GM to cut four brands (Pontiac, Hummer, Saturn, and Saab), close or idle 14 plants, and shed more than 1,000 dealers as it went through Chapter 11 bankruptcy. Chrysler also went through Chapter 11 and was sold to Italian carmaker Fiat with similar cuts. The outlier, Ford, didn't require a bailout. In 2006 incoming CEO Alan Mulally had forced the company through a restructuring without bankruptcy, buying out tens of thousands of hourly workers, closing plants, and selling Land Rover and Jaguar to India's Tata Motors. The company went to the capital markets and borrowed $23.4 billion, pledging real estate, factories, even the trademark to its famed blue oval logo as collateral. Although Ford was widely seen as in worse shape than GM at the time-it lost $12.6 billion in 2006-Mulally's actions spared the company from bankruptcy.
One major problem was that GM and Ford had long allowed individual brands and divisions to function as fiefdoms, which created redundancies in everything from research and design to marketing. Now Ford, in particular, has moved toward building more of its cars using the same platforms, taking advantage of its size and globe-spanning reach in ways that companies such as Toyota and Hyundai Motor do. Such savings have allowed all three American automakers to pay attention to the small cars they'd once disdained. It's an important segment: Entry-level cars are where Japanese models win over customers when they're young and keep them as they trade up. Compacts are even more important now that no one expects dollar-a-gallon gas anymore. "It was unheard of, GM selling a $12,000 Chevy and making money on it," says Adam Jonas, a Morgan Stanley (MS) auto analyst. "Now they can."
Ford enjoyed an advantage in that department, having traditionally been stronger in Europe, where high gas prices made small cars more popular. In 2012 the Ford Focus compact was the best-selling car in the world. In the U.S. in recent months, the midsize Fusion has been selling almost as many units as the longtime segment leaders, the Toyota Camry and Honda Accord. GM has also gotten in the game: The Chevy Cruze has been selling in the 15,000- to 25,000-a-month range and for a couple of stretches in 2011 and 2012 it was the best-selling compact in the country. Chrysler's small cars (think Dodge Neon) have had a reputation as clunkers. Yet under Fiat the company revived the Dodge Dart last summer. The compact impressed the critics and, after a slow start, has caught on with buyers-a little more than 8,000 were sold in March. The desirability of these models has allowed American automakers to address their addiction to discounts and rebates. Holding the line on prices means they make more money from each sale.
Not all the Detroit Three's recent success has been the result of small cars. The two best-selling vehicles in the country are pickup trucks: the Ford F-Series (67,500 sold in March) and the Chevy Silverado (39,600). But few in the industry expect truck sales to rebound to the numbers of 2004, when Americans bought 940,000 F-Series. Last year's sales were two-thirds that. In addition, many drivers who bought SUVs to ferry the kids to and from school and soccer practice are turning to something called the crossover utility vehicle, part minivan, part SUV on a car chassis. A leader in the U.S. market is the Ford Explorer-once a best-selling SUV, it's now built on the Ford Taurus platform.
To make up for lost revenue on trucks and the still-slim margins on smaller cars, GM and Ford are trying to get consumers to take a second look at the companies' luxury brands. Cadillac has had some success luring drivers from Toyota's Lexus and the German automakers, and its new ATS compact sedan-meant to compete with the BMW 3 series and the Mercedes C-Class-is selling briskly. In March, Cadillac sold 15,800 vehicles, up 50 percent from the previous year. Lincoln, however, is still struggling to generate much excitement despite high-profile redesigns. Sales have been anemic-6,800 last month. At the New York auto show, Lincoln hosted its share of the curious, but nothing like the aspirational throngs at the neighboring BMW and Audi exhibits.
Just as it took time for Americans to give up on American cars, it will take time for them to covet a Lincoln or believe that Chrysler or GM can make a small car as well as Toyota. And the nature of the American car market is changing. Surveys of people in their late teens and early twenties suggest they are less interested in cars than their parents were. The University of Michigan's Transportation Research Institute found that from 1983 to 2008 the percentage of 19-year-olds with a driver's license fell from 87.3 percent to 75.5 percent. Two years later it hit 69.5 percent. Urbanization is partly to blame along with high gas prices and high youth unemployment. In an era of virtual connectivity, being able to drive somewhere doesn't feel as necessary or as liberating as it once did. No one knows exactly what this means for the industry.
While the offerings from GM, Ford, and Chrysler have markedly improved over the past few years, so have everyone else's. "Every year the bar gets set higher on quality metrics," says John Hoffecker, a managing director at the consulting firm AlixPartners. "What you see is that almost everybody is better than the very best were five to 10 years ago." The Detroit Three have caught their competition. Keeping pace will be just as tough.
What new corporate-, business-, and functional-level strategies did the Big Three adopt to help them better compete in the car market How successful have they been
Source: Drake Bennett, "GM, Ford, and Chrysler: The Detroit Three Are Back, Right " Bloomberg BusinessWeek, April 4, 2013, www.businessweek.com.

Question 14

A group of investors in your city is considering opening a new upscale supermarket to compete with the major supermarket chains that are currently dominating the city's marketplace. They have called you in to help them determine what kind of upscale supermarket they should open. In other words, how can they best develop a competitive advantage against existing supermarket chains
What business-level strategies are these supermarkets currently pursuing

Question 15

How to Analyze a Company's Strategy
Pick a well-known business organization that has received recent press coverage and that provides its annual reports at its website. From the information in the articles and annual reports, answer these questions.
What business-level strategy does the company seem to be pursuing in this industry Why

Question 16

A few years ago, IBM announced that it had fired the three top managers of its Argentine division because of their involvement in a scheme to secure a $250 million contract for IBM to provide and service the computers of one of Argentina's largest state-owned banks. The three executives paid $14 million of the contract money to a third company, CCR, which paid nearly $6 million to phantom companies. This $6 million was then used to bribe the bank executives who agreed to give IBM the contract.
These bribes are not necessarily illegal under Argentine law. Moreover, the three managers argued that all companies have to pay bribes to get new business contracts and they were not doing anything that managers in other companies were not.
Should IBM allow its foreign divisions to pay bribes if all other companies are doing so

Question 17

Form groups of three or four people, and appoint one member as the spokesperson who will communicate your findings to the class when called on by the instructor. Then discuss the following scenario.
You are a team of managers of a major national clothing chain, and you have been charged with finding a way to restore your organization's competitive advantage. Recently, your organization has been experiencing increasing competition from two sources. First, discount stores such as Walmart and Target have been undercutting your prices because they buy their clothes from low-cost foreign manufacturers while you buy most of yours from high-quality domestic suppliers. Discount stores have been attracting your customers who buy at the low end of the price range. Second, small boutiques opening in malls provide high-price designer clothing and are attracting your customers at the high end of the market. Your company has become stuck in the middle, and you have to decide what to do: Should you start to buy abroad so that you can lower your prices and begin to pursue a low-cost strategy Should you focus on the high end of the market and become more of a differentiator Or should you try to pursue both a low-cost strategy and a differentiation strategy
Think about the various clothing retailers in your local malls and city, and analyze the choices they have made about how to compete with one another along the low-cost and differentiation dimensions.

Question 18

What is the relationship among corporate-, business-, and functional-strategies, and how do they create value for an organization

Question 19

GM, Ford, and Chrysler: The Detroit Three Are Back, Right
Tall and slender, in a minidress that could have been designed by Miuccia Prada for Marvel Comics, "Lady Stingray" towers over her lord, the 2014 Chevrolet Corvette Stingray. Both are being ogled, its the opening day of the New York International Auto Show. Lady Stingray circles the sports car, trailing one hand along it, talking about extruded aluminum and paddle shifters and carbon fiber.
General Motors (GM) is hoping the Corvette's sex appeal draws in a whole new sort of buyer, the kind that currently prowls the roadways in an Audi (NSU) or a BMW (BMW). More important, GM is looking to the car to lend its Chevrolet brand a touch of élan, helping to erase the public's perception of General Motors as a stodgy industrial behemoth that made good trucks but lousy cars. If it succeeds, the Corvette could well become a symbol of a new era, not only at GM, but also for the American auto industry. A better symbol, though, is something less glamorous: a compact like the Chevy Cruze.
Four years ago, GM and Chrysler had to go through bankruptcy, and the federal government was in the process of pouring $80 billion into the industry. Ford Motor, which managed to survive without bailout funds, had asked Congress the year before for an emergency $9 billion credit line. Today, all three boast healthy bottom lines. GM reported record profits of $9.19 billion in 2011, and Ford hit its own third-quarter record last year. In March all three had particularly strong sales-Ford and Chrysler reported their best numbers since before the recession. On one level, the recipe has been simple: They've gotten their labor costs down, and they're building cars people want to buy. After lagging for decades, American cars have closed the gap with their Japanese rivals in quality ratings. And Detroit has become competitive-and profitable-in the small and midsize car market, a segment it used to concede to the competition.
It's been a very good run for three companies that only a few years ago were famed for hubris and mismanagement. As well as they've played their cards, they've been lucky, too, benefiting from government aid, a (slowly) growing economy, and trouble, selfin-flicted and otherwise, at Japan's automakers. The durability of the American car resurgence is an open question. And for a variety of reasons, this year is when it will start to be answered in earnest.
In 1925 a former star executive from GM named Walter Chrysler founded his own car company. Three years later, after he bought Dodge Brothers, the Automotive Daily News coined the term "the Big Three" to describe the dominant troika that Chrysler formed with GM and Ford. In 2006, however, Toyota Motor (TM) displaced Chrysler as third in U.S. auto sales, and two years later Toyota took the title of the world's largest automaker from GM. These days people in the auto industry don't talk about the Big Three; they talk about the Detroit Three. Because the broader economic meltdown of 2008 struck suddenly, it can be easy to forget that American automakers were troubled well before the housing bubble. True, they were the undisputed market leaders in light trucks and SUVs, and the popularity and high margins of Chevy Silverados, Ford Explorers, and Jeep Grand Cherokees helped them regain some of the U.S. market share that the Japanese had taken in the 1980s and early 1990s. The rest of their offerings, however, were another story: Cars like the Chevy Prizm, the Chrysler Sebring, and the briefly revived Ford Thunderbird were uninspired, unreliable, and underperforming on the road and in showrooms.
The mediocrity of those models reflected complacency, as well as the warped economics of Detroit's automakers. GM, Ford, and Chrysler were saddled with union contracts that had been made to preserve labor peace when revenues were far healthier, and were on the hook not only for generous salaries and benefits but retiree health care and pensions. The Center for Automotive Research has calculated that once all those costs were factored in, GM was spending $78 per hour on each worker. Japanese automakers were spending about $50 per hour at their U.S. factories. When that difference was coming out of the $40,000 price of a Chevy Suburban, there was plenty of profit left. But a $15,000 compact simply couldn't make money with labor that expensive. In other words, the Detroit Three built bad small and midsize cars in part because they didn't see it as worth their while to make them good. "They were basically offending new car buyers in the entry-level and 'move-up' segments," says Kevin Tynan, an auto analyst at Bloomberg Industries. "They didn't care because there was no margin there. They figured it was OK because when you were more affluent and it came time to buy a truck or SUV, they were the only game in town."
Rather than continue to make unloved and low-margin small cars, one sensible option would have been to stop making them, or drastically scale back production and concentrate on higher-margin trucks and SUVs. Two obstacles prevented that. One was the Corporate Average Fuel Economy (CAFE) standard, which requires the average fuel efficiency of a carmaker's fleet, weighted for sales, to be above a certain level; the Obama administration announced that by 2025 the standard will be 54.5 miles per gallon. If the Detroit Three had stopped making compacts and midsize cars, they would have had to pay hefty fines on their profitable pickups and SUVs, so instead the companies opted to keep churning out cars that customers didn't want. To offload the vehicles, dealers had to offer deep discounts and rebates, further cutting into profitability. Or the cars were sold to rental companies, which would use them for a few years then dump them into the used-car market, depressing the cars' resale values and further lessening their appeal. When gas prices shot up in the wake of Hurricane Katrina and buyers fell out of love with gas guzzlers, the Detroit Three's chronic problems grew acute. With the financial crisis, they appeared fatal.
Each of the Detroit Three has followed a different path through the crisis. GM stood on its own, though only after a painful restructuring that forced GM to cut four brands (Pontiac, Hummer, Saturn, and Saab), close or idle 14 plants, and shed more than 1,000 dealers as it went through Chapter 11 bankruptcy. Chrysler also went through Chapter 11 and was sold to Italian carmaker Fiat with similar cuts. The outlier, Ford, didn't require a bailout. In 2006 incoming CEO Alan Mulally had forced the company through a restructuring without bankruptcy, buying out tens of thousands of hourly workers, closing plants, and selling Land Rover and Jaguar to India's Tata Motors. The company went to the capital markets and borrowed $23.4 billion, pledging real estate, factories, even the trademark to its famed blue oval logo as collateral. Although Ford was widely seen as in worse shape than GM at the time-it lost $12.6 billion in 2006-Mulally's actions spared the company from bankruptcy.
One major problem was that GM and Ford had long allowed individual brands and divisions to function as fiefdoms, which created redundancies in everything from research and design to marketing. Now Ford, in particular, has moved toward building more of its cars using the same platforms, taking advantage of its size and globe-spanning reach in ways that companies such as Toyota and Hyundai Motor do. Such savings have allowed all three American automakers to pay attention to the small cars they'd once disdained. It's an important segment: Entry-level cars are where Japanese models win over customers when they're young and keep them as they trade up. Compacts are even more important now that no one expects dollar-a-gallon gas anymore. "It was unheard of, GM selling a $12,000 Chevy and making money on it," says Adam Jonas, a Morgan Stanley (MS) auto analyst. "Now they can."
Ford enjoyed an advantage in that department, having traditionally been stronger in Europe, where high gas prices made small cars more popular. In 2012 the Ford Focus compact was the best-selling car in the world. In the U.S. in recent months, the midsize Fusion has been selling almost as many units as the longtime segment leaders, the Toyota Camry and Honda Accord. GM has also gotten in the game: The Chevy Cruze has been selling in the 15,000- to 25,000-a-month range and for a couple of stretches in 2011 and 2012 it was the best-selling compact in the country. Chrysler's small cars (think Dodge Neon) have had a reputation as clunkers. Yet under Fiat the company revived the Dodge Dart last summer. The compact impressed the critics and, after a slow start, has caught on with buyers-a little more than 8,000 were sold in March. The desirability of these models has allowed American automakers to address their addiction to discounts and rebates. Holding the line on prices means they make more money from each sale.
Not all the Detroit Three's recent success has been the result of small cars. The two best-selling vehicles in the country are pickup trucks: the Ford F-Series (67,500 sold in March) and the Chevy Silverado (39,600). But few in the industry expect truck sales to rebound to the numbers of 2004, when Americans bought 940,000 F-Series. Last year's sales were two-thirds that. In addition, many drivers who bought SUVs to ferry the kids to and from school and soccer practice are turning to something called the crossover utility vehicle, part minivan, part SUV on a car chassis. A leader in the U.S. market is the Ford Explorer-once a best-selling SUV, it's now built on the Ford Taurus platform.
To make up for lost revenue on trucks and the still-slim margins on smaller cars, GM and Ford are trying to get consumers to take a second look at the companies' luxury brands. Cadillac has had some success luring drivers from Toyota's Lexus and the German automakers, and its new ATS compact sedan-meant to compete with the BMW 3 series and the Mercedes C-Class-is selling briskly. In March, Cadillac sold 15,800 vehicles, up 50 percent from the previous year. Lincoln, however, is still struggling to generate much excitement despite high-profile redesigns. Sales have been anemic-6,800 last month. At the New York auto show, Lincoln hosted its share of the curious, but nothing like the aspirational throngs at the neighboring BMW and Audi exhibits.
Just as it took time for Americans to give up on American cars, it will take time for them to covet a Lincoln or believe that Chrysler or GM can make a small car as well as Toyota. And the nature of the American car market is changing. Surveys of people in their late teens and early twenties suggest they are less interested in cars than their parents were. The University of Michigan's Transportation Research Institute found that from 1983 to 2008 the percentage of 19-year-olds with a driver's license fell from 87.3 percent to 75.5 percent. Two years later it hit 69.5 percent. Urbanization is partly to blame along with high gas prices and high youth unemployment. In an era of virtual connectivity, being able to drive somewhere doesn't feel as necessary or as liberating as it once did. No one knows exactly what this means for the industry.
While the offerings from GM, Ford, and Chrysler have markedly improved over the past few years, so have everyone else's. "Every year the bar gets set higher on quality metrics," says John Hoffecker, a managing director at the consulting firm AlixPartners. "What you see is that almost everybody is better than the very best were five to 10 years ago." The Detroit Three have caught their competition. Keeping pace will be just as tough.
What kind of new competitive challenges are the Big Three facing today Search the Internet to see how they are faring against their global competitors.
Source: Drake Bennett, "GM, Ford, and Chrysler: The Detroit Three Are Back, Right " Bloomberg BusinessWeek, April 4, 2013, www.businessweek.com.

Question 20

A group of investors in your city is considering opening a new upscale supermarket to compete with the major supermarket chains that are currently dominating the city's marketplace. They have called you in to help them determine what kind of upscale supermarket they should open. In other words, how can they best develop a competitive advantage against existing supermarket chains
What business-level strategies are these supermarkets currently pursuing

Question 21

How to Analyze a Company's Strategy
Pick a well-known business organization that has received recent press coverage and that provides its annual reports at its website. From the information in the articles and annual reports, answer these questions.
What corporate-level strategies is the company pursuing Why