First, goals are distinguished from action plans. Then the role of goals in mission statements is discussed and the content of goals for each of the four levels of strategy explained.

Next the process of goal formulation is presented. This process is a matter of factoring present goals and action plans with data set information to arrive at new goals. Various goal formulation theories are explained next, followed by discussions of how managers' power relationships and value systems can influence the process and content of the goals that are identified as possibilities.

The second section of the chapter presents a collection of possible action plan choices, divided into offensive and defensive strategic postures.

Appendix 3.1 explains the content of merger strategy, described as one of several possible action plans available to the strategist for reaching corporate-level goals. Appendix 3.2 addresses the process and content of global strategy. Formulation of global strategy requires the continuation of strategic management processes on a wider scale.

CLARIFICATION OF TERMS
Various authors have used the terms goal, target, and objective differently as elements of the strategic management process. One set of differences concerns their definitions: Are they interchangeable terms or do they have distinct meanings? The second concerns their role vis-a-vis strategy: Are they part of strategy (that is, proper elements of strategy statements) or is strategy formulation a separate process that occurs after the process of goal and objective formulation?

On the first issue we have taken the position that goal and objective are interchangeable terms,¹ but we prefer the term goal only because it seems to be most popular. Consequently, the following distinctions apply:

1. A goal is an expected result. Synonyms for goal include the words aim, end, and objective.
2. A qualitative goal is an aspiration toward which effort is directed; a goal to be reached for but not necessarily grasped,² rather than a quantitative level of a certain variable. Thus, a firm might aspire to be a good corporate citizen.
3. A quantitative goal is one intended to be reached, a quantified expected result. There are two types: (1) A hurdle goal value is a certain level of a quantitative goal that is to be exceeded (synonyms include instrumental and interim goal); (b) a final or overall quantitative goal is a value that should be achieved. A final goal could be established without hurdle values or it could be the value achieved after all appropriate hurdles have been reached.³ Achieving a ten percent increase in total revenue within three years would be a final goal. Hurdle goals would be the targeted revenue increase intended at the end of Years 1 and 2.

Resolution of the second area of disagreement (whether goals, actually are part of strategy or should stand alone in the process of strategic management) depends on what you believe should be the content of a firm's strategy. Two views are prevalent among business policy authors. According to one view, strategy consists of both goals and action plans.⁴ Thus the statement "We intend to increase sales by 10 percent within one year by concentrating on market development" would be deemed a strategy (or at least part of one) by adherents to this view. Strategy formulation would have consisted of establishing the quantitative goal of a 10 percent sales increase in one year as well as the selection of the action plan of market development as the means for achieving it.

Arguing against separating goals from the activities designed to achieve them, Andrews states:⁵

The interdependence of purposes ... and action is crucial to the particularity of an individual strategy ... It is theunity, coherence, and internal consistency of a company's strategic decisions that position the company in its environment and give the firm its identity, its power to mobilize its strengths, and its likelihood of success in the marketplace.

=================================================================

===================================================================

Andrews says further, "Breaking up the system of corporate goals and the character-determining major (actions) for attainment leads to narrow and mechanical conceptions of strategic management and endless logic-chopping."⁷

According to the other view, goal setting and the formulation of means for achieving goals are distinct activities⁸ that call for the stabilization of goals followed by selection of the proper strategic alternatives.⁹ The ultimate separation of goals and strategy results in applying the word strategy only to statements about the means for achieving goals. A set of goals would be established first and then discussions about strategy would focus on deciding the best ways to achieve them. However, this view can result in semantic confusion. If the word strategy applies to means, then what word will be used to refer to goals plus the means for achieving them? Unfortunately for the linguist, in practice goals plus means are often also called strategy. For example, when describing the strategy of Mesa Petroleum, Business Week includes Chairman T. Boone Pickens's goal ("to enlarge Mesa's holdings so that its reserves always outpace depletions") as well as this statement: "His strategy ... remains the same: He wants to form a partnership strong enough to buy a big company, sell off large chunks of the target to pay off acquisition debt, and then spin off oil and gas properties in the form of a royalty trust to his shareholders."¹⁰ Similarly, for Intermedics, Inc., Business Week identifies its "strategy" as consisting of both the strategy of diversification and the goal of 30 to 40 percent annual growth over the next five years.¹¹ Thus the word strategy has been applied both to means and ends, and to the means alone.

In this book strategy formulation is a process involving the formulation of goals and also action plans. The latter are treated as separate strategic management steps. Consequently we have taken a position that is somewhere between the two views but includes elements of both. Strategy herein refers to the combination of goals and the means for achieving them. But the means for achieving goals are called action plans when discussed independently of their related goals. As a result, in the chapters that follow, goal and action plan formulation are treated separately as depicted in the shaded portions of Exhibit 3-3. The overall process of formulating both, and we believe they are complementary entities and activities, is called strategy formulation. The strategy includes both goals and action plans,

Making this distinction ultimately leads to breaking somewhat with convention in some sections of the book. Most notably we use "action plan" where others might have used "strategy." However, we do not use the two terms interchangeably as becomes necessary when the means for reaching goals are called strategy.

We chose this structure for several reasons. First, as Schendel and Hofer point out, it is more convenient to order goals and action plans sequentially during the process of describing them, even though "in practice, they are interactive, recycle and repeat themselves and do not move forward in sequence ... neatly."¹² In other words this structure is pedagogically convenient, allowing for discussion of goal and action plan setting separately.

Second, distinguishing between goals and action plans as elements of strategy avoids applying the word strategy to two different concepts. This helps reduce confusion about what strategy is.

Finally, this usage preserves the meaning of the word strategy as the means and ends of an organization's present and future activities. The preponderance of both popular and academic usages of the term implies the content of both an ends component and a means component.

When all of a firm's goals and associated action plans for a single level (typically, corporate, business, or functional) are grouped together, they constitute a set of goals and an accompanying set of action plans that together are called that level's strategy as depicted in Exhibit 3-4.

Notice that some elements of the generalized goal set in Exhibit 3-4 have more than one action plan (e.g., quantitative goals), others have individual action plans (e.g., qualitative goals 1, 2, and 3), and still others share one action plan (interim goals 1.1 and 1.2). As an example of one goal reachable by more than one action plan, John Nevin, president of Firestone, set a quantitative goal for the company in late 1979 of a 9 percent return on equity. It was to be accomplished by (1) divestiture of subsidiaries with less than 12 percent return on assets in the short term and (2) diversification into healthier, unrelated businesses.¹³ More common is the case in which several goals are expected to be reached by the implementation of one action plan. For example, the James River Corporation of Virginia accomplished several goals (raised its profits--presumably by a targeted amount --doubled sales,

In this book the terms master strategy, overall strategy, and strategy set are used interchangeably to identify the particular collection of strategies that characterizes the firm's major thrusts. Indeed, some people seem to apply the word strategy very loosely to just about any reference to business direction that may

be at hand.¹⁵

To avoid using the same word (strategy) for different concepts (individual action plans and overall strategy), we employ the following terms:

	Goal set	A collection of quantitative and qualitative goals for a particular organizational level.
	Action plan	A description of the means by which activity is expected to be directed toward striving for specified goals.
	Strategy.	A set of goals and their action plans for a particular strategy level.

Organizational goals manifested as either qualitative or quantitative values would be tied to action plans that identify the appropriate ways to work toward them. A single-line business would thus have a set of goals and related action plans that together define how it should compete within its business segment. This set of goals and action plans would be called its business-level strategy. It could also have strategies, still made up of goals and action plans, for other strategy levels. That point is covered in the next section.

"Policy" and "tactic" are other terms that have been defined in many different ways. We use policy to refer to standing directions, instructions that vary little with changes in strategy. Thus organizations can have vacation policy, a policy on absenteeism, affirmative action policy, and so on. Policy tends to have fewer competitive implications than strategy when used in this way. However, in many curricula the strategic management course is called business policy. This is probably a holdover from the days of the business policy paradigm as described in Chapter 1.

A tactic is a short-term action taken by management to adjust to internal or external perturbations. They are formulated and implemented within a strategic effort, usually with the intention of keeping the organization on its strategic track.

HIERARCHY OF GOALS
The number of levels of goals appropriate for an organization is a function of its number of organizational levels. Large multi-product firms are typically configured according to the simplified chart in Exhibit 3-5, with major goal sets established for their mission and societal, corporate, business, and functional levels. Single-business firms typically would not require corporate-level goals but would have a mission along with business- and functional-level goal sets, as would each business unit in Exhibit 3-5. Of course, variations from the simplified structure may be necessary in a particular firm. For example, a large diversified corporation may have several unrelated divisions, each of which is composed of a number of single-line businesses. It therefore would be necessary to have a set of corporate-level goals for each division. Each corporate-level goal collection would then have a set of business-level goals for each business unit within it, and a related set of functional goals associated with each business unit's functional departments. Further, an organization with a tall structure could have several sub-functional levels of goals below the so-called functional goals.

In some organizations questions about purpose are left solely to owners, whether widely dispersed stockholders acting through a board of directors, the small group of owners of a closely held corporation, or the sole owner of a small business. In these cases managers are informed of the owners' expectations and these goals serve as overriding constraints or guidelines on the activities and operations of managers.

In other firms managers may participate in the process of deciding on purpose, along with owners or their representatives. Managers may even be called upon to submit basic purpose choices to owners for affirmation or veto.

The importance of a generally understood and accepted notion of purpose cannot be overstressed. The sole owner of a $30 million-a-year industrial supply firm decided, upon reaching fifty years of age, that he no longer saw the purpose of his company as primarily a generator of cash flow for him and his family. Instead he decided its purpose was to generate wealth ultimately through acquisition by a larger company. The change in purpose from a short-term cash generator to a well-groomed acquisition target necessitated a set of dramatic alterations in the way business was conducted on a day-to-day basis by key managers. Things that had been previously assigned low priority--market development, product development, asset reinvestment, development of career commitments by employees and managers, and so on--suddenly became essential goals, the achievement of which, over time, would serve the new mission.

Although many managers tend to develop qualitative mission statements, they can be expressed as a set of quantitative goals stated in financial terms. As such they specify the major financial outcomes expected by owners and managers from operation of the organization. Examples include market share, market growth, cash flow, stock performance, and dividend payout.

Societal Goals
As shown in Exhibit 3-5, societal goals (also called enterprise goals), in organizations that employ societal strategy, would occupy the topmost levels of an organization's hierarchy of goals. In those that do not develop a separate societal strategy, these goals would be woven into corporate-, business-, and functional-level strategies. Societal goals mainly address expectations about the firm's societal legitimacy.¹⁶ Sometimes included in statements called creeds or guiding philosophies,¹⁷ societal goals identify the major ways in which the organization will operate so as to stay within the legal, ethical, and cultural constraints placed on it by society. Although they guide the behavior of people at all levels of the organization, they have particular relevance for the decisions of key managers related to balancing the claims on the firm of society's interest groups and institutions,¹⁸ owners, and managers (which we refer to generally as the firm's stakeholders) (Exhibit 3-6).

Legitimacy goals should address the overall role of the firm in the daily functioning of society.¹⁹ They should include goals that pertain to the major social issues and legislation of the day. Some examples are pollution standards, the firm's antidiscrimination position, safety in working conditions, and sexual harassment.

Corporate Level Goals
Corporate-level goals (Exhibit 3-5) consist of quantitative and qualitative outcomes that encompass management's expectations about the optimal combination and types of businesses that make up the company. They direct the integration of the particular collection of businesses that makes up the overall organization and they serve as behavior specifications for staff members at the corporate level (Exhibit 3-6).

Business-Level Goals
Goals at the business level specify the anticipated performance results of each SBU (Exhibit 3-5). Their values are

Business-level goals integrate the activities of the SBU's functional departments and guide the behavior of business unit managers (Exhibit 3-6). In other words, business strategy defines the role of each functional area relative to each other and to resource requirements and availability. One might say that business-level strategy balances the roles of organizational functions within each business unit in terms of their contributions toward reaching higher level goals.

Functional-Level Goals
At this level goals are set for each of the functional departments into which each SBU is organized (Exhibit 3-5). The point of functional-level goals is to define several aims for each department in such a way that their achievement would result in achievement of business-level goals. Thus to reach a business-level target of 5 percent sales growth, it might be necessary for the personnel department to recruit and screen twenty-five production workers and three more clerical people; for marketing to raise advertising costs by a certain amount, increase the number of sales representatives by a specified number within a certain region, and hire one more inside salesperson; and so on. These functional requirements become, either directly or indirectly, goals of the respective functional departments to be achieved within appropriate time frames.

GOAL FORMULATION
Four sets of factors affect the nature of an organization's collection of goals: (1) The present goals (and action plans); (2) the set of strengths, weaknesses, threats, and opportunities that result from environmental and internal analysis; (3) the set of political influences within which individuals compete over goal preferences; and (4) the personal values of the organization's key managers that shape their preferences.

In this section we discuss the role of present goals, the firm's data set, various explanations of how goals are formulated, a prominent theory about the influence of power on goal selection, and the structure of value systems as goal determinants.

Present Goals and Action Plans
The degree of success experienced by an organization in reaching past or present goals and in implementing related action plans provides insight into the need for new or modified goals. Failure to meet the goal of retired Chairman Willard Rockwell, Jr., to build a $1 billion Rockwell International consumer products division led company managers, under the leadership of new chairman and CEO Robert Anderson, to adopt a new goal: $1 billion in foreign sales.²⁰ This change seems to have been precipitated by the widespread realization that the previous consumer products goal was not likely to be achieved.

Direction for goal formulation at any organizational level also exists in the strategy of the next highest organizational level. These higher levels' goals have the effect of partially defining the context within which goals are to be set at lower levels. For example, when corporate goals are stated in terms of long-term profitability and sales growth, then business-level goals should be consistent with them. Of course, more information would be required about the other factors that affect goal formulation, but at least corporate goals serve significantly to define the goal choices available for the business level. Similarly, business-level goals can structure the formulation of goals at the functional level and thereby define the context of functional-level goals. Think for a moment of the difficulties that might be encountered by a functional department manager, say, the marketing director, in trying to manage the department without any idea of what business-level goals were important to top management.

The Data Set
The contents of an organization's environmental and internal data set provide major clues for goal formulation. As explained in Chapter 2, threats and opportunities (determined by analysis and forecasts of the organization's external circumstances), along with weaknesses and strengths (of the organization's internal state of affairs, in the present and future time frames), can be transformed into goal sets at appropriate organizational levels.

At the corporate level, goals are formulated to define the optimal collection of types of businesses in which the organization is engaged. The firm's data set can be the primary source of information about what types of businesses would be most conducive to future success. The internal portion of the data set highlights problems with existing operations; the external part points out merger possibilities as well as types of operations to avoid. Forecasts can identify potential problems with the present collection of businesses.

Existing business-level goals can be evaluated against the contents of the data set as well. Since business-level goals address business unit performance and competition, such factors as performance shortcomings, competitive position, latent capabilities, potential obstacles, and new opportunities can be discovered through the environmental and internal analyses and their respective parts of the resultant data set.

The data set is also intended to provide major inputs into decisions about the appropriateness of functional-level goals. At this level the portions of the data set that reflect internal strengths and weaknesses play a critical role in goal setting. One might find, for example, during financial analysis that the firm's selling and administrative expenses are excessively high as a percentage of sales. Further analysis might show that sales growth has slowed and that turnover of salespeople is high. Goals could be set for the marketing department that reflect more desirable performance along these dimensions. Marketing action plans would then be modified to achieve the new goals.

Goal Formulation Theories
Many explanations have been offered in the management literature for how organizational goals are formulated. Mintzberg notes that, during this century, organizational goal formulation theories have undergone a complete reversal from the "rational man" view (one goal setter setting a single organizational goal) through the coalition bargaining view (many goals, many goal setters) to the political arena view (no organizational goals, power games among individuals).²¹

Some examples of the influential goal formulation theories that have appeared over the past several decades follow, in chronological order:²²

	Barnard23 (1938):	Organizational goals are formed by a "trickle-up" process in which subordinates' expectations are adopted by a consensus-based acceptance process.
	Papandreou24 (1958):	A top manager forms the organization's goals as a multivariate function of the preferences of influential actors.
	Thompson and McEwen25 (1958):	Organizational goals constitute a dynamic equilibrium that is constantly changing to reflect changes in the relationships between the organization and its environment.
	Cyert and March26 (1963):	Multiple goals emerge from the bargaining among various coalitions that form out of the parrying for control and personal power by key actors.
	Simon27 (1964):	Goals are constraints on profit maximization imposed by decision makers' bounded rationality (discussed in Chapter 4).
	Granger28 (1964):	Hierarchy of goals results from a process of screening, filtering, and narrowing broad expectations to more focused, specific subgoals in a reasonably logical fashion.
	Ansoff29 (1965):	New organization goals are tried out iteratively as means for closing gaps between present goals and hoped-for results.
	Allison30 (1971):	(1) Organization process model - reasonably stable goals emerge as incompatible constraints that represent the quasi-resolution of conflict among internal and external interest groups; (2) bureaucratic politics model - key players "play" politics to produce goals they agree with as individuals.
	Georgiou31 (1973):	Personal goals of individuals come and go as organizational goals according to the short-term victories of key managers as they engage in political combat. There are no organizational goals as such. (See Chapter 4).
	Hall32 (1978):	Goals are set according to three processes, the appropriateness of which depends upon two contingencies, concentration of power and amount of goal-preference conflict: problem solving - concentrated power, no preference conflict; and bargaining - balanced power, preferences in conflict.
	MacMillan33 (1978):	Organizational coalition members demand coalition commitment to personal goals; the coalition responds by developing commitment to generalized versions of individual members' goals. These generalized goals (not the specific goals of individuals) become the organization's goals.

Beyond these explanations, the models of decision-making processes presented in Chapter 4 also apply to goal setting.

It is safe to conclude that different people set goals in different ways. But there are at least two sets of influences that must be acknowledged and incorporated in anyone's goal setting activities. They are the power structure within the firm and the values of managers and other employees as they relate to acceptance of the new goal set.

POWER AND GOALS
A model of goal setting presented by Mintzberg in 1979 has endured in its ability to structure the complicated process of identifying political pressures that must be dealt with by managers.³⁴ Although many of the hypotheses proposed in this model remain untested, it has a great deal of face validity. According to this model, organizational goals result from the plays of power between two groups of organization influencers: the external coalition and the internal coalition. The external coalition is the set of groups and individuals who, from outside the organization, compete for influence over it. These external influencers consist of owners (if they are not actively involved in management), suppliers, unions, and various subsets of the public at large which reflect current social issues. They exert influence over the decisions and activities of those who are running the organization by means of social norms, specific (legal and formal) constraints, pressure campaigns, direct operational controls, and membership on the board of directors.

Three kinds of external coalitions (EC) are proposed by Mintzberg: (1) The dominated EC, in which most power is held by an individual or a group whose members are acting in concert; (2) the divided EC, where most of the power is shared by some key individuals or groups and the organization is faced with a concomitant set of conflicting demands; and (3) the passive EC, in which power is dispersed across a large number of individuals or groups and reverts to the internal coalition.

The internal coalition (IC) gets organizational business done, and through its efforts goals emerge. The internal coalition consists of five influencer individuals or groups: (1) The peak coordinator (the top manager); (2) middle or line managers who are delegated formal responsibility for actions and decisions of designated portions of the operating core or that organizational part of a business where its work is accomplished; (3) operators who make up the operating core are nonmanagers who get the work done; (4) analysts who are free of responsibility for conducting "line" activities and instead, advise, design, and run coordinative systems that bring about planning and control; and (5) support staff who advise on certain specialized activities and actually operate various ancillary processes. Analysts would include such jobs as planner, efficiency experts, expediters, accountants and computer programmers while support staff would consist of cafeteria workers, mailroom people, payroll specialists, legal counsel staff, and so on.

Power is distributed across these groups according to four systems of influence or more specifically, systems of control: The system of authority which is made up of the top manager's personal control system, by which the peak coordinator exercises authority and the bureaucratic (formal) control system (rules, procedures, performance control and evolution systems, training programs, etc.); the political control system, which acts to displace the intentions of the peak coordinator, or the entire system of authority more generally, by exercising illegitimate power often arising out of conflict; the ideologic control system, which defines the personality or character of the organization as an entity apart from its group of participants and is based on the traditions, beliefs, and myths about the organization. Lastly, the system of expertise serves to distribute power on the basis of skill or talent rather than according to authority, ideology, or even, in some cases, political activities.³⁵ It seems that the perception of skill and talent tends to increase one's invulnerability to other control systems to a large degree.

Within these five sets of powers of the internal coalition, formal goals are formed. The peak coordinator, by exercising his/her personal and bureaucratic control systems, attempts to impose formal goals and a collection of subgoals on other participants and units of the organization. But the political system works to displace those formal goals as other internal influencers seek to have their preferences adopted as formal goals. Through a process of bargaining, formal goals are modified. Ideological goals, often the manifestations of mission, become adopted by individuals, and ultimately by the organization.

Depending upon the relative power of these systems, five types of internal coalition can develop. Actually, more than five could develop but, as Mintzberg notes, the five that follow are the most natural: (1) The Personalized IC is dominated by the system of authority in which the top manager dominates. This is the case when the top manager exercises strong control over the IC, makes the strategic decisions, and closely manages and controls implementation. Although the system of ideology can peacefully coexist with a personalized IC as long as ideology is subservient to it, the other systems of power cannot. (2) In the bureaucratic IC power is also concentrated in the system of authority but this time in the bureaucratic control system. Instead of the personal power of the CEO being the dominating force, the organization's standard work activities and procedures serve the insiders who have formal power. But since bureaucratic control systems are usually designed to serve the needs of top management, maybe even to protect them, this IC tends to concentrate power at the top of the organization. (3) The organization's system of ideology dominates goal setting when an ideologic IC prevails. Although the top manager holds power if he/she mirrors the ideological principles of the organization, anyone who represents the ideology tends to share in the power created by personification of company beliefs. (4) In the fourth type of internal coalition, the professional IC, the system of expertise dominates so that power flows to those who are regarded as possessing the skills and knowledge that lead to success of the organization. (5) The politicized IC is our final type of coalition. In it, power rests with the person who has the most energy and skill for playing power games, not with the legitimate systems of influence. There tends to be no focus of power. Instead, the dominant influence tends to rest with the most recent victor in one or another of a series of little power skirmishes that go on in a structure devoid of the other, more substantial power systems. Politicized ICs are characterized by conflict and fluidity with power going, at least temporarily, to the person who is willing to spend the most time playing power games.

Organizational goals are formed according to the nature of six organizational power configurations that emerge from the interactions among the various types of internal and external coalitions. These power configurations are described by Mintzberg as six natural combinations of his internal and external coalitions. There are nine other combinations that he claims are less likely to form (less natural). All fifteen power configurations can be studied in the book from which this section is drawn by those seeking more complete development of ideas. For our purposes, the most important elements of the model are the six natural power configurations because they occur most often. They are the instrument, closed system, autocracy, missionary, meritocracy, and political arena configurations, as explained in the following section:

1. The instrument power configuration is characterized by the organization being controlled by one dominant external influencer or group of them. The internal coalition tends to emerge as bureaucratic attempting to optimize whatever goals were selected for it by the external influencer. "Such a configuration tends to emerge when an organization experiences external power that is focussed and organized, typically around a critical dependency or key legal prerogative, wielded by an external influencer (or a group of them acting in concert) with clear and operational goals."³⁶
2. The closed system also has a bureaucratic internal coalition like the instrument configuration. The difference is that the closed system faces no concentrated external power source. Instead, its environment consists of atomistic inflencers such that none emerges as dominant. In other words, the closed system's external environment is passive. This combination of bureaucratic IC and passive EC leads to domination by the most effective bureaucrats, usually senior managers and their analysts who understand the workings of the bureaucracy better than other insiders. Because of the absence of external influence, the closed system's IC tends to serve its own interests and may even control its environment. "The closed system tends to appear in more established organizations, typically large ones in simple, stable environments with unskilled operators and dispersed external influencers."³⁷
3. The autocracy experiences a passive EC also, but its IC is dominated by the personal control system of the CEO. This close control precludes political games where insiders can either follow the leader or leave. the EC's passivity can be borne out of a long history of lack of response by the organization to external demands or influence or even to a sense of hopelessness. Thus a firm undergoing a long period of decline into which is hired a new "white knight" CEO may switch to an autocracy. In this case the new CEO may be able to formulate and implement strategies previously considered out of the question by the organization's key players.
4. The missionary power configuration has a passive EC and an ideologic IC. Because the IC is dominated by ideology, the external influencers' power is nullified. Insiders are welded together around the strong ideology so that control is unnecessary. Ideologic goals tend to be internalized by participants. There are few political games because involvement in them marks the perpetrator as "anti-ideology." Activities are directed toward preserving, extending, and perfecting the organization's mission and, therefore, the prevailing ideology.
5. Power is centered on the expertise that defines the meritocracy and its professional IC. When there are more than one important expertise or skill that are involved in the conduct of work in the meritocracy, then the possibility exists for political games among skill groups. There may be squabbling about resources, location, top management attention, promotion candidates, and other actions that may serve to distinguish one skill group from another. But the focus on performance expertise tends to resolve most conflict in the true meritocracy, and that includes resolution of conflicting demands placed on the organization from the EC. The major contributor to the formation of meritocracies is the need for the organization's insiders to perform complex work that require skill and talent or some sort within the internal coalition.
6. Conflict within a divided EC and a politicized IC lead to formation of the political arena, our last power configuration. Conflicting demands pressuring the organization from outside and the political conflict and its ensuing chaos inside lead to high turnover, low levels of loyalty, and, as Mintzberg said, loud voices. Political scheming tends to replace conduct of the organization's business. Until another configuration replaces this one, little goal setting activity takes place. Usually the personal discomfort engendered by a politicized IC motivates insiders to correct the situation. Degenerating performance may prompt involvement of owners or a group of insiders to take a major corrective action. Often the political arena develops as a natural step in the transition between two of the other configurations. It may also form in response to a challenge to the organization's existing order of power, a change in leadership, or a competitive threat that is not constructively handled right away.

Mintzberg's model serves three purposes. First, it represents an integrated set of hypotheses that offer plausible explanations of how goals may actually form in organizations. As such it is a useful analytical device for gaining understanding of how goals emerge in cases and in real businesses. Second, it can serve as a structure within which goal changes can be suggested for case studies. By identifying the relative balance of IC and EC power relationships, the most effective ways to "inject" suggestions into an organization can be at least tentatively determined.

Third, the model delineates an explanation of how power comes into play as a major determinant of organizational goal formulation (and action plan formulation as well). Students should learn to decide on the type of internal and external coalitions present in a case or later, in a business, to get an idea about what kinds of goals and action plans might be better received than others.

VALUES OF KEY MANAGERS
In addition to the power relationships between the internal and external coalitions of a firm, the value orientations of the people within the organization will also affect the degree of acceptance with which a new strategy will be received. But values are difficult to measure, identify, and define. This section offers a model of values that allows analysts to describe most types of value orientations they might encounter in cases and real businesses.

Shirley et al. define personal values as "one's `conception of the desirable.'"³⁸ People's values are determined by their experience, education, and family backgrounds and can be thought of as "a guidance system which the manager uses when faced with a decision."³⁹ Herein lies the importance of values to the strategy formulation process. Strategies have to be implemented. That requires acceptance of the new goals and action plans by a majority of managers and employees. Trying to implement strategies that run counter in one way or another to the values of those people who are required to carry them out, especially key people, will lead to failure.

Until the 1950s it was felt that strategic behavior was value-free.⁴⁰ However:⁴¹

The following six value orientations have been identified by Guth and Tagieri as major determinants of peoples' decisions:⁴²

1. Theoretical: emphasis on truth, knowledge, and rational thinking.
2. Economic: orientation toward practicality, usefulness, and the creation of wealth.
3. Political: emphasis on power and recognition.
4. Social: orientation toward positive relationships, affection, and the absence of conflict.
5. Aesthetic: strong desire for artistic factors such as harmony, composition, form, and symmetry.
6. Religious: an orientation toward unit in the universe.

1. Theoretical value orientation: Long-term research and development goals, emphasis on precision, and possibly an acceptance of detail and complexity even to the point of distraction.
2. Economic value orientation: Growth and profitability goals, successful financial performance measures.
3. Political value orientation: Emphasis on goals relating to size, such as total assets, sales volume, or number of employees, number of subsidiaries, and so on.
4. Social value orientation: Goals stressing social responsibility, indirect rather than direct competition, or positive organizational atmosphere rather than possibly threatening congeniality. A disdain for rocking the boat that may even lead to stagnation of products, markets, or human resources.
5. Aesthetic value orientation: Goals emphasizing product design, quality, and appeal even to the detriment of profitability.
6. Religious value orientation: Goals stressing ethical matters, spiritual concepts, and moral obligations.

1. Make success attainable by employees by demonstrating and rewarding the superior performance of outstanding employees who embody the critical company values.
2. Provide role models by finding ways to transmit to employees understanding of how heroes attained their status.
3. Represent the company's values to the outside world.
4. Find a way to preserve the values that make the company special, to keep them current and in employees' minds.
5. Set a standard of performance for employees that is appropriate to the organization's values.
6. Search out and employ a means for motivating employees to perform in a way consistent with, and supportive of, organization values.⁴⁷

The second relevant suggestion, (set a standard of performance--Number 5) implies that managers should "practice what they preach." The value orientations managers expect their employees to adopt should be displayed by the managers themselves. The personal goals of top managers then can be reinterpreted for lower-level managers.

Last, the sixth suggestion (seek motivational techniques consistent with company values) implies that careful thought about the value implications of raises, promotions, job restructuring, recognition, and other motivational approaches is necessary. These techniques should be selected on the basis not only of expected goal achievement, but also of expected value attainment.

These simple value structures make consideration of the important role of values in strategy formulation straightforward. As part of an effective set of solutions to a case analysis, a section which addresses value attainment makes the suggested solution more believable.

ALTERNATIVE AND COMPLEMENTARY STRATEGIC POSTURES
Although a firm's set of strategies may in fact be unique, the essential nature of its set of goals and action plans tends to be one or some combination of the types outlined in Exhibit 3-7.⁴⁸ They are labeled strategic "postures" because each one represents a synthesis of, or tendency in, the elements and characteristics of strategy. Two firms could have the same strategic posture but they would be differentiated by their specific quantitative and qualitative goals, corporate- and business-level strategies, and functional strategies. The offensive types are appropriate for growth-related goals; the defensive for goals that require constricting operations because of inefficiencies.

OFFENSIVE POSTURES
Offensive postures are employed by management to reach goals related to increases in sales or market share, and in some cases, profitability. The five types are concentration, horizontal merger, integration, diversification, and joint venture. It should be pointed out that bringing about an increase in market share alone may not always satisfy performance expectations. There is some evidence suggesting that achieving high returns from high market share depends at least partly on some other considerations.

Woo studied businesses which had successfully established strong market share positions so as to identify the factors which differentiate the high return performers from the low return performers.⁴⁹ She defined business as "a division, product line, or other profit center within its parent company, selling a distinct set of products or services to an identifiable group or groups of customers, in competition with a well-defined set of competitors." The factors suspected of contributing to performance are market stability, competitive strategy, demand characteristics, and degree of relatedness among SBUs within multi-unit firms. The question analyzed was whether factors other than market share alone explain performance differences between the two groups of high market share firms.

The analysis shows that whether gaining high market share will translate into high profitability is a function of three sets of factors. First, higher returns accrue to high share businesses within stable markets than to high share businesses in less stable markets. Within the market stability dimension, profitable share leaders had more competitors and older products with lower value added than more profitable share leaders. They also conducted business in regional markets in which their competitors were well-connected to suppliers and customers.

Generally, the study shows that superior market share does not alone explain effective and high return performance. The additional factors of market stability, competitive strategy, and demand characteristics play important roles in determining the profitability of high share organizations. Thus, an attempt to generate high share alone might be unsuccessful only because these other factors were not considered.

Concentration Postures
Concentration postures are primarily marketing moves attempted to improve sales or profitability by getting more out of resources currently available within the firm.

There are some profound advantages to building a strategy around a firm's present products and markets. Drucker observes:⁵⁰

Second, by focusing on one segment of the market, or on one product or a limited product line, the company's visibility is enhanced. Chances are better for market leadership, especially when competitors have to spread their capabilities across multiple lines or segments.

Next, concentration increases operational flexibility by eliminating, or at least minimizing, interaction effects. Since multiple products in a line, or segments in a marketing mix, must compete for the firm's resources, nonconcentrated companies must balance resource allocation changes. Before more funds can be allocated to the marketing effort of one product, managers first may have to determine from which other products or functions funds will be diverted. Such decisions take time and thus tend to reduce the efficiency of decisions in non-concentrated firms relative to concentrated ones.

As long as demand holds for the product or line, or in the market segments of a firm pursuing concentration, the potential for growth may be greater than for the other choices. Similar advice is offered by Lauenstein and Skinner who advocate focusing attention and resources--technology, knowledge, finances, assets, human skills, and management--on gaining competitive advantage rather than spreading and diverting those resources and eventually either weakening strategic position or preventing its development.⁵¹ Industry dominance is gained by first concentrating on limited fields of technology, product, or market; then reinforcing strengths like financial condition, experience, and share in these concentrated areas; until competitive superiority is achieved in the areas in which resource focus has been built. Once competitive advantage is established, management can apply its superior resources to growth goals with far more dexterity than would have been possible without resource strengths. In operational terms, pursuing resource concentration strategies means avoiding the tendency to "bounce around" from one quick fix--new product, subsidiary, or market--to another, and instead, building fundamental strengths in areas that may ensure the long-term success of the firm.

Students often sense the urge to try something new while analyzing case studies in which the organization has several functional weaknesses and few strengths with which to work. A common reaction is to recommend diversification rather than figuring out what internal capabilities will be necessary for sustained dominance and setting out to develop those capabilities.

Market Penetration. This posture is followed to increase sales within the firm's present markets with its present products. It is essentially an advertising action that would normally follow a market analysis undertaken to gain insight into user and nonuser characteristics, as well as their perceptions of the product and its attributes. Obviously such an analysis would have to reveal sufficient sales potential to justify the effort.

Functional actions that might be designed to implement market penetration include the following:

1. Increase present customers' usage rates by product modification such as "new improved," "longer life", or more effective versions.
2. Find new uses for the product, which will increase sales. The discovery that baking soda would reduce odors in sink drains represented a new use that resulted in consumers turning over their stocks of the product more quickly.
3. Increase the number of customers within a segment by intensified advertising/promotion programs. This choice normally calls for improving ads, increasing media coverage, or increasing advertising frequency, each of which would necessitate an increase in marketing budget, or at least a change in its application.

1. Microcomputer manufacturers entrance into the commercial microcomputer market shortly after introducing their machines as home computers.
2. Development by colleges and universities of continuing education programs in order to take their services to nontraditional students.
3. Attempts by Volkswagen and Volvo during the early-1980s to appeal to the upper-income market by emphasizing that thrifty people are respected for their good judgment and that thriftiness is embodied in buying some models in their lines.
4. Mercedes Benz, Lexus (Toyota) and Infiniti (Nissan) introducing models with lower price tags than their earlier high-priced luxury cars in order to make sales to people not willing or able to buy the high-priced models but wishing to own these pricey brands.

1. Identifying new segments of the existing market area to which an appeal will be made, and then appropriately modifying advertising budgets and related strategies to develop a new series of advertisements.
2. Establishing the necessary supply and distribution systems, along with promotion and advertising strategies, to take the product to a different geographical area.
3. Developing new versions of the product to appeal to a new segment.

Product development strategies can be operationalized by:

1. Developing new features for present products as often seen with various detergents, toothpastes, and cosmetics.
2. Designing additional models and sizes of the product as exemplified by the proliferation of different models of 35mm cameras by the same manufacturers.
3. Creating improved versions of products as has occurred with some heating systems, window and door installation units for the home, and child-restraint systems for automobiles.

Horizontal merger. Horizontal merger is merging with or acquiring another company in the same industry. It is classified as a concentration posture because it involves increasing the firm's level of activity in its present products, markets, or both. The combination of American Motors and Renault was a horizontal merger. During the 1980s many horizontal mergers were allowed by the Securities and Exchange Commission. Some of the most notable were in the banking and airline industries.

Such combinations carry the threat of allegations of antitrust law violations (discussed in Appendix 3.1).

Niching
Newman advocated developing "propitious niches" that optimize a company's position relative to its competitors and its resources.⁵² The resources possessed by a firm around which it might develop a niche could be its unique functional capabilities (strengths), technological knowledge and ability, and so on. When Porter described his now widely known generic competitive strategies of cost leadership, cost focus, differentiation, and focused differentiation,⁵³ he did not refer to them as niche strategies. But if management of a firm sought to establish cost leadership, for example, it would actually be developing a niche based upon its ability to manage the costs of its operations better than its competitors. Similarly, a differentiation strategy would exploit a firm's marketing, production, R&D, or other area's knowledge and abilities and might thus be considered a niche-developing move.

Porter defines lower cost and differentiation as bases of competitive advantage that, if successfully developed, can lead to strategies of cost leadership or cost focus and differentiation or focused differentiation, respectively, as shown below: 

Firms with lower cost advantages that are aiming at a narrow market definition, that is, a small niche, should embark upon a cost focus action plan. They might concentrate on a particular geographic area, well-defined group of customers, or a narrow set of demographics or needs while essentially abrogating the rest of the market to other competitors.

Both lower cost strategies requires making a product or service available more efficiently than one's competitors at the same quality level and doing it by functional rationalization. Rather than controlling costs only in production, both necessitate rationalizing all functional departments so as to minimize the costs of their operation relative to competitors so that profit margins can be higher than those of competitors. Successful rationalization of functional departments' operations would allow the company to achieve functional goals related to thinning the product line or reducing prices so that business level market share or profit goals could be reached.

The conceptual simplicity of functional rationalization masks its difficulty, attendant detail and possible behavioral problems. It is a tough thing to do in a company or business unit that has been riding a growth curve which has suddenly leveled off. This is because the organizational mind set is often slanted toward the almost jubilant extravagance that accompanies rapid growth.

There is a fine distinction between functional rationalization and shallow retrenchment, a defensive action plan discussed in a moment. They differ largely in terms of the environmental circumstances within which they are formulated. Shallow retrenchment is a reduction in size or activity levels in response to financial or economic problems. Rationalization, on the other hand, is a positive, offensive action designed to keep the organization lean and efficient in the face of market, product, or industry maturity. It may be thought of as a necessary element of an intention to reduce prices while maintaining profit margins as a way to compete in a mature or saturated market. As such it is not a reaction to adversity but rather, proaction for growth.

Examples of functional actions which might be included in a functional rationalization to develop a lower cost strategy are the following:

1. Reduce operating expenses in functional departments as well as corporate level operations in order to achieve superior relative cost position.
2. Thin product offerings to the best performers (determined by whatever measures are strategically relevant).
3. Reposition marketing efforts to the potentially most successful markets or segments.
4. Attempt to reduce cost-of-goods-sold as a percentage of sales by streamlining inventory or "buying better."

As the diagram above demonstrates, companies with the competitive advantage of a differentiated product or service can formulate and implement action plans to differentiate within a broad market or to focus differentiation in a narrow market. As with lower cost strategies, the difference between these two alternatives is one of market breadth and thus the scope of competition taken on by the company. Differentiation is striving for industry-wide uniqueness whereas focused differentiation aims at a concentrated market definition. The premier example of broad-based differentiation is Mercedes-Benz' quality-based franchise in the worldwide automobile market. Focused differentiation has been achieved by New Balance by offering athletic shoes in widths so that people with wide feet seek New Balance shoes almost out of necessity.

Lower cost and differentiation strategies can be pursued in either a narrowly defined niche or a broadly defined one. This definition of Integration Strategies

Whereas concentration strategies are aimed primarily at sales increases, integration strategies seek mainly, but not exclusively, to acquire a service or product by merging with or acquiring the prior provider. Therefore, the process of integration should be implemented within a framework of goals that spells out the limits of such evaluative criteria as return on sales and investment, pivotal expense items, time, and cash flow.

Backward Integration. Backward integration entails gaining increased control over the firm's supply (or input) activities. It can be implemented through merger with or acquisition of the firm that produces the company's inputs or by "growing one's own" supply systems. However, it is often easier to finance an acquisition than internal expansion.⁵⁴

Forward Integration. Forward integration consists of obtaining control over the external portions of the firm's marketing systems. In most cases this means either acquiring a distribution system or establishing one internally.

Reasons for Diversity and Integration

Even though the advantages of concentration may be significant, certain forces cause integration and diversification to be favorable strategies for some businesses. Drucker categorizes them as internal and external pressures for diversity.⁵⁵ Internal Pressures. First, there is often psychological pressure for expansion. Business owners as well as managers simply get tired of doing the same thing. The possibility of expanding by diversification or integration, of facing the challenges of a new set of business circumstances, is often too attractive to forego.

Second, businesses can reach a nonoptimal size which integration can rectify. As an example, Drucker explains that in the 1920s and 1930s, Sears, Roebuck emerged as a giant retailer needing supply commitments its suppliers were unwilling to provide without a permanent relationship. Sears integrated backward to the point where more than half of its products are produced by manufacturers in which it has an ownership stake. To commit the desired volume of output to Sears, suppliers needed a permanent reciprocal commitment from Sears to, among other things, obtain adequate control. Without backward integration, Sears was the wrong size.

Third, integration can increase profitability by turning a cost center into a revenue (and profit) producer. Firms that integrate can then operate the new business as a profit center while also serving the needs of the old business. However, inefficiencies in managing the new firm along with the old can create unexpected and burdensome familiarization costs. Integration by merger rather than internal development tends to reduce these costs.⁵⁶ Without careful planning, however, the cost of inefficiencies associated with operating an unfamiliar business can be greater than the costs of purchasing the inputs. Many boat dealers in the Northeast attempted to build vessels in limited quantities during the winter for sale during the boating season, only to find that inefficiencies and unfamiliarity with this new activity made it unprofitable.

Finally, a related integration pressure is the desire to increase control of supply streams to correct inconsistencies in quality or delivery schedules, or unreliability of distributors, when they become intolerable. Sears is a good example of a firm whose huge retail demand, coupled with the need to regularize quality levels, necessitated backward integration.

External Pressures. Often more influential in diversification decisions are forces exerted on the firm from outside. There is first the pressure of reaching the growth limits of the firm's economic environment. Drucker gives as examples such countries as Belgium, India, Peru, Venezuela, and Japan, in which certain firms reached the local economy's growth limits.⁵⁷ They then diversified into other industries in order to grow.

The same problem is faced by small domestic firms tied tightly into local markets. A local marina business, for example, that expands slip and mooring rental facilities to the point where all who want to pay the price to keep their boats there are doing so faces diversification as the only reasonable expansion choice. The owner might choose to open a restaurant, a ships store, or a bar, among others. In the marina case, practical local growth can also be limited by physical space limitations.

The second external pressure for diversification has been the expansion of domestic markets to international scale. Since World War II, country after country has developed similar demand patterns. Since demand determines supply, firms expand to meet developing demand patterns on foreign soil. Thus international corporations, based in countries around the world, have pursued demand across national boundaries.

Third, technological branching creates pressure for diversity. A new technology often spawns a whole family of technologies and a multitude of products and product lines for numerous markets. Management can design strategies to diversify along with technological branching, or even to develop the branch technologies through aggressive R&D.

The fourth external pressure for diversification is the nature of tax laws. Rather than pay taxes on distributed profits from the corporation they own, stockholders often prefer that managers reinvest earnings in the business. When there is limited need for such financing in a firm's existing line of business, managers are forced to seek merger partners to generate acceptable returns. Of course, tax laws were not designed to further industrial concentration in this way.

Finally, career expectations of managers, whose expertise is highly valued by their employers, create pressure for diversification. By acquiring subsidiaries a corporation can also

acquire upper-level management positions for its upwardly mobile and talented junior people.

Profitability of Vertical Integration Strategies. Buzzell analyzed PIMS data* to determine the profitability of vertical integration.⁵⁸ He first explained the benefits and risks of vertical integration and then, on the basis of statistical analysis of 1,649 manufacturing firms, offered five guidelines for evaluating the benefits and risks of integration strategies.

The benefits of vertical integration are explained as follows:⁵⁹

1. Reduction or elimination of transaction costs: This can occur when firms in different stages of a production process combine and reduce buying and selling costs among them.
2. Assurance of continued supplies: Supply of critical input materials can be assured by ownership of suppliers.
3. Cost reductions through improved coordination: Costs generated by the often complex logistics of coordinating production and inventory scheduling among suppliers can be reduced by integration.
4. Easier innovation: Because integrated firms are involved in many production and marketing activities rather than only a few, innovation through improved coordinating of technical and marketing functions is easier.
5. Creation of higher entry barriers: Because integrated firms obtain a greater "critical mass," they necessitate higher financial and managerial investments by would-be competitors.

1. Capital requirements rise when a firm integrates either backward or forward as it supports the resource needs of the new activities. This increase in investment intensity leads to lower profitability by raising the breakeven point.
2. Unbalanced scales of operation appear when different stages of production are combined. This happens when the input requirements of one stage (company) are less than the optimal production level of the producing stage. For example, a small boat dealer began its own line of sailing dinghies rather than buying them from a large national manufacturer. However, because of the small volume of this new operation, the dealer's per-unit costs for producing the boats were so high that he was unable to price them competitively.
3. Limited flexibility accompanies commitment to the new stage of production. This is a problem when a change in technology or market conditions occurs and the company is unable to withdraw from the weak stage quickly.
4. A firm that integrates is no longer specialized in just one stage. The added company requirements of the new production stage can be radically different from its traditional management competence. Learning the new stage's operating characteristics can be costly for the integrating firm's management.

1. When an integration strategy can be implemented without greater investment intensity (investment-to-sales ratio), return on investment (ROI) is likely to rise.⁶²
2. Backward integration of both consumer and industrial goods manufacturers improves ROI a small amount. Return on investment for consumer goods manufacturers is higher when they are more forward integrated than their competitors.⁶³
3. Firms with large market share will tend to receive greater benefits from increases in vertical integration.⁶⁴
4. The profitability of vertical integration strategies does not tend to vary with the stability of market conditions and technology.⁶⁵
5. For firms that undergo rapid increases in materials costs, return on investment and extent of vertical integration tend to be indirectly related.⁶⁶
6. Highly integrated businesses tend to produce more product innovations.

1. Beware of increases in investment needs that tend to accompany vertical integration.
2. Consider other ways of achieving vertical integration without outright ownership. An example is entering into long-term contracts with suppliers and joint ventures or strategic alliances.
3. Do not integrate partway by taking an incremental approach to it. Instead define an integration goal and achieve it.
4. Identify the scale requirements of the integration suppliers/customers and stay within those parameters.
5. Do not integrate for purposes of reducing raw materials costs without careful analysis.

Before the strategist embarks upon an external diversification strategy, several questions should be answered. First, have all reasonable avenues for intensive growth been ruled out as feasible ways to attain goals? They may constitute less risky methods for growth than diversification.

Next, is the firm diversifying out of strength in its present operations? Too often a management group looks to diversification as a way of covering less-than-satisfactory performance in its present activities. Diversification has the best chance of success when the business chosen fits the strategy and when it is attempted by managements who have mastered their current strategies. Those who have been unable to successfully manage one business, or set of businesses, will probably find greater difficulty in managing an additional business.

Yet, as Drucker points out, "(N)o matter how desirable concentration is, it may have to be harmonized with diversification. Otherwise it would become overspecification ... Simplicity and complexity are both genuine needs. They pull the business in opposite directions."⁶⁸

As shown in Exhibit 3-7, there are two diversification approaches--concentric and conglomerate⁶⁹--from which the strategist can choose. The one selected should have the greatest chance of making use of the firm's strengths or external opportunities or dealing constructively with a correctable weakness or external threat. In other words diversification should make sense strategically, just as any other strategic choice.

Concentric Diversification. This is the development of a business with products that have marketing or technological synergies with the firm's present products. New classes of customers will be sought for these products. Minute Maid represented concentric diversification for Coca-Cola, whose marketing expertise, particularly its distribution capabilities, were brought to bear on Minute Maid's products.

Conglomerate Diversification. This is the combination of business units with products that (1) represent no marketing, technological, or other synergies and (2) appeal to new customer classes. It would be viewed as an investment of company funds in a firm with a correctable deficiency or in an environmental opportunity. A well known firm that practices conglomerate diversification as a matter of strategy is Textron. It has acquired such diverse products as helicopters, watchbands, chainsaws, golf carts, staplers, and machine tools.

Joint Venture⁷⁰
A joint venture or strategic alliance is a business unit or competitive effort established for a specific purpose and the ownership of which is shared by two or more businesses. It can be used as a way to own and control a business, product line, market, or activity that does not really fit the strategy of either parent. Ideally joint ventures are formed by organizations with complementary or supplementary capabilities, which are unified in the joint venture. They get together because of a mutual need for the results of its operation.

The major reasons why managers involve their companies in joint ventures are to enter new markets and gain access to raw materials.⁷¹ Killing explains that joint ventures are used to accomplish these objectives for four primary reasons. First, many governments insist that foreign competitors participate in joint ventures with local partners rather than set up a wholly owned subsidiary.

Second, managers may turn to joint venture when the financial risks of certain larger projects are too great for their company to bear alone. The Alaskan pipeline was a joint venture among hundreds of firms. Third, when neither partner alone has sufficient skills or resources to make the business a success, joint venture may be an attractive avenue to success by making it possible to combine the needed attributes.

Finally, a joint venture may be the only way that the partners can reach acceptable economies of scale in research, marketing, or production. Killing notes that European auto makers may be forced

into a series of joint ventures in the future because the volume of cars produced in Europe is too small to support ten different companies.⁷²

The three common types of joint ventures are unrelated partners, related partners, and dual-nationality partners.

Unrelated Partners. These are firms that are independent and usually are in different industries. They pool their respective contributions--resources, skills, technologies, and so on--in the joint venture and share contractually in the results of its operation. in the 1920s General motors and Standard oil of New Jersey formed a joint venture of this type--Ethyl Corporation. Its ultimate purpose was to produce and distribute gasoline containing the additive tetraethyl lead, which was to prevent knocking in gasoline engines.⁷³ The strategic importance of the joint venture is illustrated by GM's role in this partnership. Its strategy involved mechanical activities. Yet the "knocking" problem with gasoline engines was limiting automobile sales. Rather than get into a different business--namely, chemical processing and distribution, a risky diversification for GM--it founded Ethyl Corporation as a joint venture with Standard Oil, which had the needed expertise. General Motors benefited from the sale of Ethyl's products, and also from increased sales of automobiles; Standard Oil participated directly in Ethyl's sales, but also in heightened gasoline demand.

Related Partners. Joint ventures by related partners are aggregations of similar activities or business units that could not survive alone. Aramco (Arabian American Oil Company) is a joint venture formed in the 1940s by Jersey Standard, California Standard, and Mobil.⁷⁴ Although perhaps an unpalatable goal to some by today's standards, its purpose was to monopolize the large Saudi Arabian oil deposits that constituted a major marketing threat to each participant acting alone.

Dual Nationality. The last type of joint venture is the dual-nationality combination, whereby firms join forces to overcome political, social, or cultural obstacles. Many foreign governments allow U.S. firms to do business on their soil only as partners with the local firms in joint ventures.

Joint ventures can be further categorized in terms of the degree of management control or responsibility exercised by the partners. Killing defines three possible levels of control that he calls dominant parent, shared management, and independent joint ventures,⁷⁵ which can be used to identify the control relationships of unrelated, related, and dual nationality ventures as in Exhibit 3-8. Dominant parent joint ventures are those in which one partner is more active in managing the venture's operations than the other. Thus, a venture between two partners each of whose financial ownership amounted to 50 percent would be a dominant joint venture if one actively managed.

1. Defined objectives for each parent and for the joint venture should be specified in an agreement similar to a partnership agreement.
2. The agreement should also provide for a way to arbitrate deadlocks.
3. Whenever possible the joint venture should operate autonomously of the parent firms.
4. Conditions and methods of dissolution or spin-off should be outlined to the extent that it is possible to do so beforehand.

Buzzell, Gale and Sultan define share increasing and maintenance strategies called building and holding, respectively.⁷⁷ Build strategies call for investment to raise market share; holding actions are directed at maintaining present market share. Both strategy types could be implemented with the concentration postures described above.

Similarly, sales maximizing is defined by Utterback and Abernathy as an attempt to increase sales and share primarily by marketing efforts.⁷⁸ Performance maximizing involves competing on the basis of superior product or service performance which can be brought about by emphasis on product development as well as market penetration where R&D might be stressed. Hofer and Schendel describe share increasing strategies as heavy investment in building market share, growth actions as investment in present activities to maintain share position in markets that are growing, and profit strategies as designed to increase net cash flow by investing in current products, markets or activities.⁷⁹

Some of the strategies proposed by Wiseman, et al can also be implemented with concentration actions.⁸⁰ The explosion strategy, improving competitive position quickly, can employ a new product development action plan although acquisition would probably be a popular choice where time is a critical factor. Longer term growth is the usual goal of their expansion strategy which can be accomplished by all the concentration approaches as well as by other offensive action plans described below. Finally, the continuous growth strategy aims at maintaining competitive position and, like the earlier mentioned hold and growth strategies, can use concentration action plans.

Porter's differentiation and focus strategies can employ market penetration and development and product development actions.⁸¹ Differentiation calls for establishing distinctiveness in product or service offerings and would likely be attempted by concentration action plans. Focus strategies are largely market penetration activities aimed at concentration on a particular segment or market. Differentiation based on quality and price are discussed by Porter as important primary goals. The Lincoln Electric company has achieved differentiation on the basis of both quality and price. It has done this by a constant focus on maintaining its top quality position in the industrial welding equipment market while passing along R&D-induced cost savings to customers in the form of price reductions. As a result, it is recognized as a top quality producer of its products worldwide, and as the low-price leader. This combination makes it nearly impossible for its competitors to take away its market share.

The strategy of domain offense is explained by Miles mostly in terms of product development and market penetration and development action plans,⁸² as is Murray's entrepreneurial strategy. The latter example, however, also can be accomplished by the other action plans defined herein, depending on the condition of the organization at the time the strategy is formulated and implemented.⁸³ Entrepreneurial strategy is "characterized by widespread and more-or-less simultaneous change in the pattern of decisions taken by an organization."⁸⁴ Thus, it initially could be based on various defensive action plans in instances where the organization has experienced operating difficulties of one sort or another or it could be built upon a set of mainly offensive action plans for companies that shift emphasis to a higher rate of growth or profit generation.

Guth proposes seven strategies that would be formulated to achieve growth goals and which also emphasize offensive action plans.⁸⁵ For both holding relative market position and increasing market share in growing markets, market development and penetration and product development are appropriate business level actions with key functional strategies (such as production and marketing) properly adjusted to handle the growth goals. In markets that are mature, holding relative position and increasing share can be accomplished by functional rationalization or penetrating or developing markets either domestically (if there is room) or internationally.

Companies that have performed well in markets which are in the process of maturing can hold their strong relative position by applying their financial and other resources to new product or market development or market penetration action plans. The same kinds of actions would likely be called for in firms that have already successfully entered foreign markets and whose managers attempt growth while maintaining strong relative positions within their foreign markets. Internal new product development aimed at diversifying product offerings in foreign markets may become appropriate as understanding of those markets increases.

Finally, Guth explains that to hold relative position with a diversified domestic product line, a likely action plan is market development aimed at market diversification.

DEFENSIVE POSTURES
Not all strategies have expansion orientations. Very often the strategist is forced to contract the firm's operations. Except for the rare attempt by a firm's owners to simplify their lives by shrinking their business's size, contraction is usually a defensive response to adversity. There are three basic types: Retrenchment, divestiture, and liquidation.

Retrenchment Strategies
These strategies are attempts to regain control of a faltering business or to prevent it from faltering in the first place by temporarily "reining in" its operations.⁸⁶ Retrenchment can take three major forms: shallow retrenchment, deep retrenchment, and reorganization.

Shallow Retrenchment. This is a response to adversity characterized by small but significant cutbacks in expenditures for expense items, asset investment, or both. It would normally follow a decision to lighten emphasis on sales growth for a certain time period. To illustrate, this strategy would be appropriate for a growing firm facing a cash flow shortage. Policies accompanying shallow retrenchment in this case might include selling only to high-quality (fast paying) accounts, stretching payables, or simply cutting costs to reduce cash requirements. Shallow retrenchment would continue until a targeted level of net cash flow or some other goal was met. Then the former growth strategy, or a variation, would replace it. As such, shallow retrenchment is an emphasis-switching exercise to build internal strength.

The kinds of activities that would characterize shallow retrenchment generally include reducing hiring rates, laying workers off, delaying asset replacement, dropping narrow margin products or lines, reducing inventory levels, stretching payables or other moves aimed at decreasing operating expenses, increasing net cash flows, and reducing asset investment rates.⁸⁷

Deep Retrenchment. This involves severely curtailing operations as a defense against major economic adversity, financial reverses, competitive disadvantage, or a drastic threat to sales growth or profitability that cannot be met with an offensive move. For shallow retrenchment, management is willing temporarily to de-emphasize growth in order to "trim some fat" and there is usually an implicit expectation to reinstate the former growth strategy. By contrast, deep retrenchment is characterized by the intention to change at least part of strategy, usually by surgery in the product, market, or business-definition areas. The company would plan to exit from deep retrenchment as a different company, with fewer or different product/lines, different (leaner) organization structure, fewer or different markets or segments, and so forth. Clearly the distinction between shallow and deep retrenchment is subjective and a matter of degree; the idea of intended change in strategy provides a useful distinction.

To single outjust one example, Chrysler entered a period of deep retrenchment duyring the late-1970s while searching for a new strategy. It returned to the offensive in 1980 with redefined products. By comparison, during the early-1980s William T. Cresson, Chair and CEO of the troubled Crown Zellerbach Corporation, responded to declining profitability by consolidating operations into fewer, more efficient plants; replacing several senior executives; reducing the size of the workforce; and exchanging debt for equity.⁸⁸ This example exemplifies shallow retrenchment (albeit an extreme case), even though the planned changes were major in their effects on the firm, because the expectation was to remain in the same business with the same product/market scope--that is, to retain the original corporate strategy. What should change is the level of efficiency at which it is implemented in the future.

Chapter XI Reorganization. This was called "arrangement" before the 1978 revision of the Federal Bankruptcy Act. An arrangement constituted a major change in a troubled firm's (or "debtor's") unsecured debt (usually trade credit), whereas a "reorganization" under the old law was a major restructuring of the debtor's debt/equity relationships. Reorganization was covered then by the Chapter X provision of the Bankruptcy Act. Chapters X and XI were consolidated in the 1978 changes in the Act, for a complex set of reasons beyond the scope of this text. Essentially the features of both Chapter X reorganizations and Chapter XI arrangements are now available in the Federal Bankruptcy Act, as amended in 1978, under the redefined Chapter XI proceedings.

As a strategic posture, Chapter XI gives a firm with serious financial problems an alternative to liquidation (explained in a later section). Instead of being sold at auction, an insolvent firm can petition the Federal Bankruptcy Court for the right to propose to its creditors and the court a restructuring of various debt relationships, with management intact and in control. If this is successful, a firm in Chapter XI can return to a "business as usual" status, substantially free of certain financial obligations that previously hampered its operations. Chapter XI is at best a last resort strategy for firms whose financial structures have deteriorated to insolvency. Yet for those to which liquidation is a likely alternative, Chapter XI offers breathing space that could result in a subsequent return to profitable growth.

Under Chapter XI, debtor firms are often required to raise cash quickly to cancel selected debts legally by a partial payment (reduction of principle, referred to as composition), an extension of term, or both (called a "combination"). Usually part of the proposed arrangement is to sell off certain assets. Thus it is actually a special case of deep retrenchment, but under the auspices of the Federal Court.*

Retrenchment can be applied at either the corporate or business level of a diversified firm, but it more neatly applies to the latter. This is so because operating inefficiencies of the type normally addressed by retrenchment tend to be business-unit specific.

Divestiture
Profitability shrinkages, sales declines, and other operational problems of a diversified firm may be curable by divestment when at the root of the problem is an ill-fitting subsidiary or business unit. Actually divestment is more a matter of abandoning a misfit than it is a strategic orientation, except in instances where it is part of a strategy designed to rehabilitate ailing acquisitions subsequently to be spun off.

Although diversified firms often have divestiture guidelines to handle the problem of separating ill-fitting businesses, divestiture can constitute a strategic posture for some firms. For example, Singer labored under a divestiture strategy during the mid- and late 1970s for this reason. The unit had become so large that it had to compete head to head with the major computer firms. By joining with Honeywell, the resulting company became big enough to support the large R&D program, expensive marketing effort, and capital investment necessary to challenge the leaders.⁸⁹

The three fundamental types of divestiture are the sell-off, spin-off, and split off.

Sell-off. The distinction between a sell-off and a spin-off is blurred because both can be accomplished by the sale of a subsidiary. About the only consistent difference seems to be the intentions of the parent firm. If it sells a business unit that it had originally intended to keep, it is typically a sell-off. However, if the intention in acquiring or "growing" the subsidiary had been subsequently to sell it, then it is labeled a spin-off. Beyond this minor distinction, there are few general differences between the two cases.

In a sell-off the parent firm should attempt to find a buyer who constitutes a strategic fit for the salable business. Too often the idea is to "unload a loser" rather than to match the business to the buyer. 

to rectify a 1980 loss of $233.5 million on sales of $1.2 billion. By October 1981 GAF had expected to earn $20 million before taxes on lower sales of $700 million. The next step was to resume growth in its chemicals and roofing businesses.⁹¹

Spin-off. In addition to the parent's original plan to sell the unit, a spin-off divestiture is usually one in which the business unit stands on its own after being separated from the parent.

A firm that used spin-off divestiture as a revenue-producing strategy is Heizer Corporation, a Chicago-based business-development company. Edgar F. Heizer, the public venture firm's chairman and president, developed the new strategy, dubbed "deconglomeration," to buy conglomerates in the $200 million to $400 million range, break up their business parts, and reintegrate the pieces into new companies to be spun off via public sales.⁹²

Split-off. By contrast a split-off is a divorce of two approximately equal-sized business units. An example of a split-off was the separation in 1980 of the toy and writing instruments divisions of Hasbro Industries, Inc. The writing instruments division was incorporated as Empire Pencils, Inc., and stockholders in the original firm were given the choice of which division they would like to own after the separation. Once stock ownership was shuffled, the two businesses simply went their separate ways.

Liquidation

When a firm or unit of a firm is worth more dead than alive, it can be liquidated. Of course, when this happens, the firm ceases to exist; its assets are sold item by item and the proceeds distributed among creditors. Funds left over after creditors and liquidation costs are paid are distributed among stockholders.

Entire firms are rarely liquidated for reasons other than inability to correct financial distress and, obviously, failure to locate a buyer for divestiture.

Liquidation can be accomplished via one of three possible avenues: voluntary closure, assignment, and bankruptcy.

Voluntary Closure. This takes place when a firm simply pays off its creditors, closes its doors, and quietly goes out of business. Voluntary closure implies that the firm or its owner has sufficient cash or liquid assets to pay off creditors. Typically voluntary closure is more prevalent among small businesses than large ones.

To determine the advisability of voluntary liquidation, the decision-maker can focus attention on the liquidating value of owner's equity--the market value of assets (called "liquidating value") less the amount of debt outstanding. Presumably if the firm's going concern value is greater than its liquidating value of equity, the owners will not liquidate. Instead they will seek to sell it as a going concern.

Assignment. This involves the transfer of title to assets to a third party. The trustee or assignee then sells the assets and distributes the proceeds among creditors, according to the magnitude of their claims. It is a way of liquidating the debt of an insolvent firm while preventing mounting costs associated with formal bankruptcy proceedings.

There are three types of assignments:⁹³ common-law assignment, statutory assignment, and assignment plus settlement. Common-law assignment is not carried out under the auspices of a court, but is usually conducted through the adjustment bureau of a local credit managers' association. Debtors are not discharged specifically by common-law assignment from claims that are not paid by assignment. However, discharge may be brought about by meeting certain legal requirements.⁹⁴

Statutory assignment is like common-law assignment except that it is conducted under state assignment regulations and is a more formal procedure. The court oversees appointment of a trustee, sale of assets, and distribution of proceeds. Although discharge is not automatic, it can occur with inclusion of the appropriate statements on settlement checks.⁹⁵

Assignment plus settlement refers to an assignment procedure undertaken in cooperation with a committee of the firm's creditors. The local credit managers' association's adjustment bureau works with the creditors' committee to obtain a release of the debtor from subsequent claims. Thus after assignment procedures have run their course and proceeds have been distributed among creditors, the creditors' committee may grant that execution of the assignment is in full settlement of the claims on the debtor.

Bankruptcy. Liquidation under the Federal Bankruptcy Act is

appropriate when the liquidating value of assets is exceeded by debt; that is, when the firm is insolvent* and the market (appraised) value of assets is insufficient to pay outstanding debt. The primary feature of liquidation under the Federal Bankruptcy Act (as opposed to assignment) is that all obligations are discharged automatically and the owners can start a new business unhampered by the burden of prior debt.⁹⁶

Although bankruptcy assures equitable distribution to creditors and discharges the debtor from all obligations, the procedure is long and cumbersome.

Several opinions have been offered concerning the situation in which harvesting is appropriate. According to the Boston Consulting Group (BCG), a business with a low expected growth rate that also enjoys high market share is called a cash cow.⁹⁸ Harvesting is the appropriate strategy for such a business.

The following conditions for harvesting have been suggested by Kotler:⁹⁹

1. The market is stable or declining.
2. The product is not strategically important.
3. Attempts to increase market share would likely prove futile.
4. Total sales depend little on the unit.
5. Opportunity costs are significant.
6. Chances are high that even with reduced support of the product it can continue to produce positive net cash flows, at least for a while.

1. Market maturity.
2. Average or above average product quality.
3. Reasonable market share.
4. Average or above average price.

Without market maturity, high quality, and strong market share a product would be unlikely to possess sufficient continued cash-generating strength once support is reduced. High price normally allows a high gross profit margin and thus net cash flow generating ability.

CAPTIVE COMPANY
A captive company is a subcontractor that derives the majority of its sales from one buyer (the captor). Although being tightly linked to a source of a large proportion of sales may seem to be a comfortable situation, captives run the risk of being dropped as suppliers and of having too few compensating revenue sources. Because they are heavily dependent on the captor, they may have little control over such factors as price, product characteristics, quality level, and delivery times. Consequently captive companies must be adept at cost control and at maintaining good relations with the captor and meeting its needs. It also helps to have a low need for independence!

Why would management of a firm opt for a captive strategy? Glueck suggests that some firms retrench into captive positions defensively.¹⁰¹ This would happen if a firm were to scale down its operations by closing its smaller accounts. But some firms are captive companies by choice. They often are started to fill a specific need of a large buyer. As long as the captor continues to buy, captives can operate profitably while expending little of the energy and resources required by typical competitiveness.

Among the most often cited examples of captive company strategies are the firms that supply Sears. These include Kellwood Company, which sells 74 percent of its apparel output to Sears; DeSoto, Inc., for which 70 percent of its paint and furniture revenues is from Sears; and the Baltimore-based Easco Corporation, 82 percent of whose sales in 1980 were to Sears.¹⁰² Easco produces Sears' line of Craftsman mechanics' hand tools such as wrenches and sockets. Easco's problems in the early 1980s demonstrate some of the shortcomings of captive company status.

First, a captive is obviously at the mercy of the market capabilities of the captor. This was the case for Easco, which, when Sears' growth started to slip in the late 1970s, decided to market tools under its own name. Although it has increased its private sales by one third, it is still hampered by its long association with Sears.

Second, Easco, by relying on Sears to do its marketing, allowed the introduction of competitors into prime retail markets. Now that it wants to do its own marketing, it faces a long, uphill battle.

Third, when linked closely to Sears, Easco did not need a marketing department. It took the company several years to develop the marketing know-how to venture out on its own.

SUMMARY
This chapter explains how goals fit into strategic management in the first part and enumerates the major action plans (strategy postures) available to managers in the second. First the terminology of goal formulation and its role in strategy formulation were explained. An organization's goal set consists of qualitative and quantitative goals. Quantitative goals, in turn, should consist of both interim and final components. In strategy formulation, goals or expected results, are formulated along with action plans that are the means for achieving goals.

Next the role of goals in the development and expression of mission and strategy at the enterprise, corporate, business, and functional levels was explained. Mission contains goals that express the basic purpose of the organization. For the four levels of strategy, goals are set that represent societal interactions, expected business portfolio characteristics, expected business unit results, and desired functional department outcomes.

Goal formulation processes were reviewed and the importance of present strategies, the firm's data set, and power relationships and value systems as inputs to goal formulation, was discussed. The first section closed with a discussion of ways to inculcate an organization's goal set with intended cultural characteristics.

The second part of the chapter categorizes the major orientations that strategy can have. They are divided into offensive and defensive strategic postures. Offensive postures have a positive valence, so to speak; they are growth-directed. Increased levels of sales, profitability, market share, size, control, or any number of other goals can be the hoped-for result of an offensive strategic posture.

The defensive postures are implemented to produce constriction of operations. As such they are strategic directions designed to recoup strength or to correct a deficiency in the way the firm is operating.

REFERENCES

1. In the Random House American College Dictionary, the terms goal, aim, end, objective, and object have virtually identical definitions. However, popular usage by business authors has precipitated differences in their meanings, especially between goal and objective. Examples of some of these other treatments of goal and objective include the 21021; and John A. Pearce, II and Richard B. Robinson, Jr., Strategic Management (Homewood, Ill.: Irwin, 1978), p. 184, in which they are given different meanings that are roughly similar to those adopted here. (3) Richard F. Vancil, "Strategy Formulation in Complex Organization," in Peter Lorange and Richard F. Vancil, Strategic Planning Systems (Englewood Cliffs, N.J.: Prentice-Hall, 1977), p. 5, in which they are given different meanings, approximately the reverse of those used here.
2. The idea of distinguishing between types of goals in terms of reach and grasp came from Vancil, "Strategy Formulation," p. 6.
3. See Hofer et al., Strategic Management, p. 10 ff.
4. Among those who treat goal formulation and formulation of action plans (referred to variously as strategies, policies, and activities) as parts of the process of strategy formulation are Harvey, Business Policy, pp. 10-11 (separates goals and strategy in his strategic management process model but cites Vancil, who advocates combining goals and strategy); G.A. Steiner et al, Management Policy and Strategy, 2nd ed. (New York: Macmillan, 1982); Newman and Logan, Strategy; H. E.R. Uyterhoeven, R.W. Ackerman, and J.W. Rosenblum, Strategy and Organization, rev. ed. (Homewood, Ill.: Irwin, 1977); and Vancil, "Strategy Formulation."
5. Kenneth R. Andrews, The Concept of Corporate Strategy, rev. ed. (Homewood, Ill.: Irwin, 1980), pp. 20-21.
6. C. Roland Christensen et al., Policy Formulation and Administration, 7th ed. (Homewood, Ill.: Irwin, 1976), p. 11 citing David Braybrooke and Charles E. Lindblom, A Strategy of Decision (New York: Free Press, 1963), p. 40.
7. Ibid.
8. Authors favoring separation of goal and strategy formulation include David Hussey, Corporate Planning: Theory and Practice, 2nd ed. (Elmsford, N.Y.: Pergamon Press, 1982); Frank T. Paine and William Naumes, Organizational Strategy and Policy: Text and Cases (Chicago: Dryden, 1982), pp. 6-7; Pearce and Robinson, Strategic Management, pp. 188-189; Robert C. Shirley, Michael H. Peters, and Adel I. El-Andary, Strategy and Policy Formation: A Mutlifunctional Orientation, 2nd ed. (New York: Irwin, 1981), pp. 40-44; Arthur A. Thompson, Jr., and A.J. Strickland, III, Strategy and Policy: Concepts and Cases (Plano, Texas: Business Publications, 1981), pp. 16-17; William F. Glueck, Business Policy and Strategic Management, p. 16; Thomas J. McNichols, Policy Making and Executive Action, 5th ed. (New York: McGraw-Hill, 1977); Thomas J. Cannon, Business Strategy and Policy (New York: Harcourt, Brace, and World, 1968); H. Igor Ansoff, Corporate Strategy (New York: McGraw-Hill, 1965); and Alfred D. Chandler, Strategy and Structure: Chapters in the History of the American Industrial Enterprises (Boston: M.I.T. Press, 1962).
9. Schendel and Hofer, Strategic Management, p. 14 ff.
10. "Mesa Petroleum: Despite Defeat, It Hankers To Take Over an Oil Giant," Business Week, October 25, 1982, p. 69.
11. "Intermedics: Out To Be No. 1 in the Medical Implants Market," Business Week, January 18, 1982, p. 58.
12. Schendel and Hofer, Strategic Management, p. 14 ff.
13. "Survival in the Basic Industries: A Shrunken Firestone Picks Its Turn in Tires," Business Week, April 26, 1982, pp. 74-76.
14. "Corporate Strategies: James River: The Biggest Test Yet in Upgrading Paper Acquisitions," Business Week, August 23, 1982, pp. 112-113.
15. For a discussion of impressive usages of the world strategy, see William R. Dill, Commentary on H. Igor Ansoff, "The Changing Shape of the Strategic Problem," in Schendel and Hofer, Strategic Management, pp. 47-51.
16. Richards, Organizational Goal Structures, p. 29; Schendel and Hofer, Strategic Management, p. 12; H. Igor Ansoff, "The Changing Shape of the Strategic Problem," in Schendel and Hofer, Strategic Management, pp. 37-40.
17. Richards, Organizational Goal, pp. 28-29.
18. Ibid., p. 28
19. A similar description is used by Schendel and Hofer to describe enterprise strategy in Strategic Management, p. 12.
20. "Rockwell International: Going Strong at Home but Falling Short Overseas," Business Week, November 15, 1982, p. 148.
21. Henry Mintzberg, "Organizational Power and Goals: A Skeletal Theory," in Schendel and Hofer, Strategic Management, p. 64
22. For other systems for explaining the development of goal formulation theories, see Mintzberg, "Organizational Power," pp. 64-65 and William F. Glueck, Business Policy and Strategic Management, 3rd ed. (New York: McGraw-Hill, 1980), pp. 38-43.
23. Chester, I. Barnard, The Functions of the Executive (Cambridge, Mass.: Harvard University Press, 1938).
24. A.G. Papandreou, "Some Basic Problems in the Theory of the Firm," in B.F. Haley, Ed., A Survey of Contemporary Economics (Homewood, Ill.: Irwin, 1952).
25. James D. Thompson and William J. McEwen, "Organizational Goals and Environment: Goal-Setting as an Interaction Process," American Sociological Review, vol. 23, pp. 23-30, February, 1958.
26. Richard M. Cyert and James G. March, A Behavioral Theory of the Firm (Englewood Cliffs, N.J.: Prentice-Hall, 1963).
27. Herbert A. Simon, "On the Concept of Organizational Goal," Administrative Science Quarterly, vol. 9, pp. 1-22, June 1964.
28. Charles H. Granger, "The Hierarchy of Objectives," Harvard Business Review, May-June, 1964.
29. H. Igor Ansoff, Corporate Strategy: An Analytic Approach to Business Policy for Growth and Expansion (New York: McGraw-Hill, 1965).
30. Graham T. Allison Essence of Decision: Explaining the Cuban Missile Crisis (Boston: MA: Little, Brown, 1971).
31. P. Georgiou, "The Goal Paradigm and Notes Towards Counter Paradigm," Administrative Science Quarterly, September 1973.
32. Francine S. Hall, "Organizational Goals: The Status of Theory and Research," in Leslie J. Livingston, Ed., Managerial Accounting: The Behavioral Foundations (Columbus, Ohio: Grid, 1975).
33. Ian C. MacMillan, Strategy Formulation: Political Concepts (St. Paul, Minn.: West, 1978), pp. 57-59.
34. Mintzberg, "Organizational Power and Goals," pp. 64-80, and Power In and Around Organizations, (Englewood Cliffs, N.J.: Prentice-Hall, 1983). The latter is a book in which the power model is developed in great detail.
35. This section of the model is explained much more detail in Mintzberg, Power In and ..., Ch. 9, pp. 119-139.
36. Mintzberg, Power In and..., p. 312.
37. Mintzberg, Power In and ..., p. 312.
38. Robert C. Shirley, Michael H. Peters, and Adel I. El-Ansary, Strategy and Policy Formation: A Multifunctional Orientation, 2nd ed. (New York: Wiley, 1981), p. 77.
39. Harvey, Business Policy, p. 73.
40. H. Igor Ansoff, Strategic Management (New York: Wiley, 1979), p. 118.
41. Ibid., pp. 118-119.
42. William D. Guth and Reneto Tagieri, "Personal Vales and Corporate Strategy," Harvard Business Review, Vol. 43, p. 124, September-October 1965.
43. Adapted from a similar discussion in Shirley et al., Strategy and Policy, pp. 78-79.
44. Ansoff, Strategic Management, p. 119.
45. Terrence E. Deal and Allan K. Kennedy, Corporate Cultures: The Rites and Rituals of Corporate Life (Boston: Addison-Wesley, 1978), p. 24.
46. Ibid., pp. 38-39.
47. Ibid., pp. 39-41.
48. Portions of this section paraphrase Phillip Kotler, Marketing Management: Analysis, Planning and Control, 3rd ed. (Englewood Cliffs, N.J.: Prentice-Hall, 1979), pp. 49-52.
49. Carolyn Y. Woo, "Evaluation of the Strategies and Performance of Low ROI Market Share Leaders," Strategic Management Journal, vol. 4, no. 2 (April-June 1983), pp. 123-135.
50. P.F. Drucker Management (New York: Harper & Row, 1974), p. 680.
51. Milton C. Lauenstein and Wickham Skinner, "Formulating a Strategy of Superior Resources," Journal of Business Strategy, vol. 1, no. 1 (Summer 1980), pp. 4-10.
52. William H. Newman, "Shaping the Master Strategy of Your Firm," California Management Review, Vol. 9, No. 3 (1967), p. 77.
53. The notion of developing strategic advantage by formulating the generic strategies of cost leadership, cost focus, differentiation, or focused differentiation was explained in Michael E. Porter, Competitive Strategy (New York: The Free Press, 1980); Michael E. Porter, Competitive Advantage (New York: The Free Press, 1985); and Michael E. Porter, The Competitive Advantage of Nations (New York: The Free Press, 1990). The relationships among these generic strategies changed as Porter presented them in the three books. Without tracking the details of these changes here, the current interpretation of this simple structure, the one that appears in the 1990 book, is the one explained in this text.
54. Steiner, Top Management Planning, p. 635
55. Abridged and adapted from pp. 683-693 in Management: Tasks, Responsibilities
56. **
57. **
58. **
59. **
60. Ibid., p. 94.
61. **
62. **
63. Ibid., pp. 96-99.
64. Ibid., pp. 98-99.
65. Ibid., p. 98.
66. Ibid.
67. Ibid., pp. 100-101.
68. Drucker, Management, p. 693.
69. Philip Kotler, Marketing Management (Englewood Cliffs, N.J.: Prentice-Hall, 1976), pp. 51-52.
70. This section paraphrases Drucker, Management, pp. 720-724.
71. J. Peter Killing, Strategies for Joint Venture Success, (London: Croom Helm, Ltd., 1983), p. 6 citing A.R. Janger, Organization of International Joint Ventures, (New York: The Conference Board, 1980), p. 1.
72. Killing, p. 8.
73. For more information on Ethyl Corporation, see Drucker, management, pp. 712-713.
74. Drucker, Management, p. 721.
75. Killing, p. 16.
76. Adapted from Drucker, Management, p. 721.
77. R.W. Buzzell, B.T. Gale, and R.G. Sultan, "Market Share: A Key to Profitability," Harvard Business Review, January-February 1975, pp. 97-106. See also R.D. Buzzell and F.D. Wiersema, "Successful Share Building Strategies," Harvard Business Review, January-February 1981, pp. 135-144 and A.K. Gupta and V. Govindarajan, "Build, Hold, Harvest: Converting Strategic Intentions Into Reality," The Journal of Business Strategy, vol. 4, no. 3 (Winter, 1984), pp. 34-47.
78. J.M. Utterback and W.J. Abernathy, "A Dynamic Model of Process and Product Innovation," OMEGA, vol. 3 (1975), pp. 639-656.
79. C.W. Hofer and D.E. Schendel, Strategy Formulation: Analytical Concepts (St. Paul, MN: West Publishing Co., 1978).
80. J.G. Wiseman, H.W. Van der Pol, and H.M. Messer, "Strategic Management Archetypes," Strategic Management Journal, vol. 1, no. 1 (January-March
81. M.E. Porter, Competitive Strategy, (New York: The Free Press, 1980).
82. R.H. Miles, Coffin Nails and Corporate Strategy (Englewood Cliffs, NJ: Prentice-Hall, 1982).
83. J.A. Murray, "A Concept of Entrepreneurial Strategy," Strategic Management Journal, vol. 5, no. 1 (January-March 1985), pp. 1-13.
84. Ibid., p. 1.
85. William D. Guth, "Corporate Growth Strategies," The Journal of Business Strategy, vol. 1, no. 2 (Fall 1980), pp.52-62.
86. For a more detailed discussion of retrenchment see Thompson and Strickland, pp. 89-90 and 104-105, and D. Schendel, G.R. Patton and J. Riggs, "Corporate Turnaround Strategies," Journal of General Management, vol. 3, no. 3, 1976, pp. 3-11.
87. See Thompson and Strickland, Strategy and Policy, pp. 89-90 for a discussion of retrenchment tactics.
88. "The Pruning at Crown Zellerbach," Business Week, October 26, 1981, pp. 60-61.
89. Drucker, Management, pp. 671-672.
90. "GAF: Paring to Half Its Former Size but Left with Its Two Best Lines," Business Week, October 12, 1981, pp. 158-163.
91. Ibid.
92. K. Farrell, "What Happened When Heizer Went Public," Venture, December 1981, pp. 47-51.
93. Adapted from Managerial Finance, 7th ed. pp. 972-974, by J. Fred Weston and Eugene F. Brigham, Copyright c 1981 by the Dryden Press. Reprinted by permission of The Dryden Press, CBS College Publishing.
94. **
95. **
96. Ibid., pp. 974-979.
97. Sidney Schoffler, "Market Position: Build, Hold or Harvest?" The Pimsletter on Business Strategy, No. 3 (Cambridge, Mass.: Strategic Planning Institute, 1980), p. 10.
98. Barry Hedley, "Strategy and the Business Portfolio," Long Range Planning, vol. 10, p. 10, February 1977.
99. Philip Kotler, "Harvesting Strategies for Weak Products," Business Horizons, August 1978, pp. 15-23.
100. Schoeffler, "Marketing Position," p. 10.
101. William F. Glueck and Lawrence R. Jauch, Business Policy and Strategic Management, 4th ed. (New York: McGraw Hill, 1984), pp. 229-230.
102. Adapted from "Easco: Training to New Customers While Helping Sears Promote Tools," Business Week, October 6, 1980, pp. 62-66.