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CHAPTER 6

Business Strategy: Differentiation, Cost Leadership, and Blue Oceans

CHAPTER CONTENTS

Teacher’s Resource Manual: Implementation Guide

Learning Objectives

ChapterCase 6: JetBlue Airways: Finding a New Blue Ocean?

6.1 Business-Level Strategy: How to Compete for Advantage (LO 6-1)

CONNECT® INTEGRATION

Interactive Labeling: Business-Level Strategy

6.2 Differentiation Strategy: Understanding Value Drivers (LO 6-2)

CONNECT® INTEGRATION

Case Analysis: Toyota Handling Recalls and Customer Satisfaction

6.3 Cost-Leadership Strategy: Understanding Cost Drivers (LO 6-3)

CONNECT® INTEGRATION

Whiteboard Animation: Differentiation Strategy and Cost Leadership Strategy

6.4 Business-Level Strategy and the Five Forces: Benefits and Risks (LO 6-4)

6.5 Blue Ocean Strategy: Combining Differentiation and Cost Leadership (LO 6-5, LO 6-6)

CONNECT® INTEGRATION

Interactive Labeling: Blue Ocean Strategy

6.6 Implications for Strategic Leaders

End of Chapter: Discussion Questions

CONNECT® INTEGRATION

HP Running Case: Module 6

myStrategy

Teacher’s Resource Manual: Implementation Guide

This improved Teacher’s Resource Manual (TRM), formerly the Instructor’s Manual (IM), supports delivery of your chosen curriculum and pedagogy. This manual contains more than just guidance on how to cover concepts discussed in the fourth edition of Strategic Management; it also provides tips and best practices for how to utilize the full product suite (from the textbook to SmartBook® to Connect®). In addition, this manual includes a variety of supplemental teaching resources to enhance your ability to create an engaging learning experience for your students. Regardless of whether you teach in face-toface traditional classrooms, blended (flipped) classrooms, online environments, or hybrid formats, you’ll find everything you need in this improved resource.

The TRM follows the order of the textbook outline for each chapter and is divided into sections for each learning objective. Each section identifies the relevant PowerPoint slides from both the Lecture slides and the Supplemental Lecture slides (more on this below). This eases your preparation time for class as you can adjust slides as needed to ensure your students stay actively engaged throughout each session

WHAT INSTRUCTOR RESOURCES ARE AVAILABLE?

Within each section of the TRM you will find an assortment of examples, exercises, Connect® Integration assignments, updates on the latest research, Strategy Smart Video discussions, and end-of-chapter discussion questions and exercises from which you can choose to enhance your students’ learning and engagement. Where the activities are related to program-level learning objectives established by AACSB 2015 Standard 9, the learning objective has been identified for you.

Within the Instructor Resources Tab, located in the Connect® Library, the following Instructor Resources can be found:

▪ Teacher’s Resource Manual

▪ PowerPoints (Accessible)

▪ Test Bank

▪ Create™ Case Support

▪ MiniCase Support

▪ Strategy Term Project

▪ Video Resources

▪ Capsim’s Capstone Simulation

1) This Teacher’s Resource Manual is posted by chapter

2) Two sets of ADA-accessible PowerPoints are available with each chapter:

a. Lecture slides cover chapter concepts and exhibits

b. Supplemental Lecture slides cover:

i. ChapterCases

ii. Strategy Highlights

iii. Implications for Strategic Leaders

iv. End-of-chapter myStrategy and Small Group Exercises

v. Take-Away Concepts

vi. Key Terms

vii. Strategy Smart Video selections (not part of the book, but an additional resource found here)

3) Test Bank questions are posted by chapter. You will find a variety of question types within the test bank such as Matching, Ranking, Multiple Choice, Select-All-That-Apply, True/False, Short Answer, and Essays to test student mastery across Bloom’s Taxonomy (i.e. Understand, Apply, and Analyze). Due to the evolving needs around generating high-quality print test experiences, McGraw-Hill Education provides a free copy of the industry-leading test generation software TestGen® to users (more details can be found within the Instructor Resources tab under “Test Bank”). Furthermore, due to its limitations to function with the latest browsers and operating systems,

Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

McGraw-Hill Education has discontinued EZ-Test Online Some of the robust new features present in TestGen®, include:

▪ Cross-platform software compatibility with Windows and Mac

▪ Multiple LMS export formats, including Blackboard, Moodle, Desire2Learn, and Sakai

▪ Highly customizable formatting and editing option

4) Create™ Case Support (all cases are available in Create™ and selected ones in HBS)

a. A case matrix that identifies the industry sector covered by each case, as well as the primary and secondary chapter alignments

b. One-page case abstract for quick overview of each case

c. Case Teaching Notes for instructor use only

d. Case Financials in Excel files for the exhibit data in the most popular cases

e. Case Strategic Financial Analysis template

f. Instructions on How to Downlaod SEC Financial Data into Excel Spreadsheets

5) MiniCase Support (all MiniCases are located in Part Four of the book)

a. MiniCase Matrix that identifies chapter alignment

b. MiniCase Teaching Notes comprising suggested answers to the MiniCase discussion questions. In some instance, they also provide specific additional article and video resources to accompany each MiniCase.

6) Strategy Term Project

a. Modules for students on how to conduct a strategic management analysis of a company of their choosing; there is one module per chapter so that students can build upon their analysis and tie each section of their analysis to specific chapter concepts.

b. Running Case Teaching Notes that cover the strategy term project found in Connect®. HP is used as the example firm to demonstrate how pieces of the term project align with each chapter.

7) Video Resources

a. The Video Grid and Guide provides links to supplemental video resources to accompany both the MiniCases and full-length Create™ cases

b. The Video Library provides links to all the assignable videos in Connect® .

8) A link to Capsim’s Capstone Simulation is provided; this simulation allows students to apply their knowledge of key strategy concepts.

How can SmartBook® enhance my students’ performance?

The LearnSmart®-powered SmartBook® is assignable through Connect® , McGraw-Hill’s online assignment and assessment system One of the first fully adaptive and individualized study tools designed for students, it creates for them a personalized learning experience, giving them the opportunity to practice and challenge their understanding of core strategy concepts. The reporting tools within SmartBook® show where students are struggling to understand specific concepts.

Typically, SmartBook® is assigned by module (chapter), and instructors can set which learning objectives to cover as well as the number of probes the student will see for each assignment. Instructors also set the number of points a SmartBook® module is worth in the course. Usually, applying a minimal number of points for completion of each module is enough to encourage students to read the chapter. Many instructors assign these modules to be completed before the class or online session.

SmartBook® provides several diagnostic tools for instructors to gauge which concepts their students struggle to understand. Below is the set of adaptive assignment reports available in SmartBook®:

▪ Progress Overview: View student progress broken down by module

▪ Student Details: View student progress details plus completion level breakdown for each module

▪ Module Details: View information on how your class performed on each section of their assigned modules

▪ Practice Quiz: This gives you a quick overview of the quizzes results for your students

▪ Missed Questions

▪ Metacognitive Skills

Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

By selecting “Module Details” the instructor finds the results for the students in the class overall. These details reveal where in the chapters students might be struggling. The module gives the chapter section, average time spent, average questions per student correct/total, and the percentage of correctness (number of assigned items). Information about the most challenging sections for students can help instructors refine the focus of the next classroom or online session.

For more detailed analysis, SmartBook® captures students’ confidence in their competency using the “Metacognitive Skills” report. Below (a recreation of the Metacognitive Skills report), we find the second student is confident and mostly correct (91% in the correct & aware column) while the first student “doesn’t know what she doesn’t know” (39% in the far-right column)

Application Exercises, Quizzes, and Test Bank

What resources are available at the book level?

Connect® offers a wealth of content for both students and instructors. Application Exercises require students to apply key concepts to close the knowing and doing gap, while providing instant feedback for the student and progress tracking for the instructor. Before getting into chapter-level assignments, let’s look at the book-level assignments available.

Four exercises are available for instructors to assign beyond the chapter materials. These are 1) MiniCase Case Analyses, 2) Case Strategic Financial Analyses (SFAs), 3) Financial Ratio Reviews, and 4) Case Exercises.

1) To encourage analytical thinking, each MiniCase from Part Four of the book is also an assignable application exercise (MiniCase Case Analysis). Each MiniCase is followed by four to five multiple-choice questions that assess students’ understanding of the key issues presented in the MiniCase

2) The Case SFA provides assignable key ratio comparisons for the Create™-only full-length cases available with the textbook. These require the student to analyze the case financial statements and calculate answers to several ratios in the spreadsheet. The Case SFAs engage students’ financial analysis skills skills many professors have identified as requiring more practice among their students

3) Financial Ratio Reviews give students the opportunity to further hone their financial analysis skills; review exercises cover each type of financial ratio (activity, leverage, liquidity, market and profitability).

4) Case Exercises, which are new to this edition of Strategic Management, focus on the key symptoms and influences of a problem a firm might be facing, followed by a series of questions that help students understand how the firm eventually achieves a solution to that problem (or asks students to suggest a solution). Case Exercises for this edition accompany the most popular full-length cases: Amazon, Apple, BestBuy, Facebook, McDonald’s, and Tesla.

What resources are available for each chapter and how should I integrate them in my course?

Consider assigning one or two Application Exercises per chapter. They are built around chapter learning objectives, so the instructor can choose based on his/her focus for each specific chapter Several types of application exercises are available in each chapter. The newest addition is the Whiteboard Animation series, comprising four- to five-minute videos on key concepts or concepts that tend to challenge students the most. Each animation is accompanied by three to four multiplechoice questions to check student attention and comprehension. Comprehensive Case Analyses and Video Cases each

Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

feature firms and industries different than those discussed in the textbook. Finally, Click-and-Drag exercises help students actively demonstrate their understanding of the associated learning objectives. Application Exercises can be assigned as preparatory exercises due before class (this is especially good for flipped classrooms), or after class as concept comprehension checks Applications Exercises will generally be assigned as homework or practice as part of the overall class grade A general rule of thumb would be to make application exercises worth 5 to 10 points each since these require time and thought.

To find the Applications in Connect®, go to “Add Assignment” and then select “Question Bank.” Application Exercises are organized by chapter. Instructors have the option to select for one attempt only, but they may want to give students unlimited or multiple attempts on the first few assignments to give students a chance to learn and navigate the system. (As the course progresses, instructors may want to tighten up the time on task and reduce the number of attempts to complete each exercise).

Chapter quizzes and full chapter test banks are available for assignment, and like the Application Exercises, are organized by chapter. The value applied to each question should be relatively low because numerous questions are usually assigned for each chapter. As such, make these questions worth 1 or 2 points each The feedback given to students is time-flexible. Selecting feedback to be displayed after the assignment due date helps to keep students from giving the correct answers to other students while the questions are still available. For this reason, it is suggested that no feedback to quizzes and test bank exams be made available until after the assignment is due

When should I assign these digital components?

To fully utilize the power of the digital components, instructors will often assign the SmartBook® reading and adaptive learning probes before class meets. Application Exercises can be completed either before or after class; if they are completed before class, they can sometimes serve as good springboards for class discussions. The chapter quiz makes a good check on comprehension of the material and may work best if assigned after each class period. The test bank serves as a good resource for building mid-term or final exams.

More detailed information on SmartBook® and Connect® is available through several resources at McGraw-Hill. A good starting point is your local Learning Technology Representative, who can be found here: http://www.mheducation.com/highered/platforms/connect/features-educators.html

Course Preparation

Helpful Suggestions Regarding Assignment Policies: Connect® gives instructors a wide array of flexibility in making assignments and creating grading policies. Instructors may choose to:

• assign as many assignments as appropriate given the level and time commitment expected for the class,

• determine point values for each question/application that works within the total course percentages,

• make available multiple attempts per assignment with options of accepting the highest score or averaging all the attempts together (several attempts are particularly good for homework assignments),

• deduct points for late assignment submissions (percentage deduction per hour/day/week/etc.) or create hard deadlines thus accepting no late submissions,

• show feedback on application/questions immediately upon submission or at the time the assignment is due for the whole class, create new assignments or questions from scratch, or edited versions from a variety of provided resources.

Throughout the TRM for each chapter, we will integrate materials from the Lecture PowerPoint slides, Supplemental Lecture slides, Connect® Application Exercises, end-of-chapter activities, and MiniCases. This integration of resources will allow for a cohesive presentation of the relevant resources at your disposal, helping you to convey these topics effectively and efficiently to your students.

Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

CHAPTER 6

Learning Objectives

LO 6-1

LO 6-2

LO 6-3

LO 6-4

Define business-level strategy and describe how it determines a firm’s strategic position.

Examine the relationship between value drivers and differentiation strategy.

Examine the relationship between cost drivers and cost-leadership strategy

Assess the benefits and risks of differentiation and cost-leadership strategies vis-à-vis the five forces that shape competition

LO 6-5 Evaluate value and cost drivers that may allow a firm to pursue a blue ocean strategy.

LO 6-6 Assess the risks of a blue ocean strategy, and explain why it is difficult to succeed at value innovation

This chapter begins the strategy formulation phase of the Analyze, Formulate, and Implement (AFI) framework. The chapter takes a close look at business-level strategy and how to compete for advantage. Business-level strategy details the actions managers take in their quest for competitive advantage when competing in a single product market. The chapter introduces the generic business strategies and then dives into detail on differentiation and cost-leadership strategies. At the firm level, performance is determined by value and cost positions relative to competitors. The chapter continues by integrating the five forces model (from Chapter 3) with business-level strategies to assess the benefits and risks of each strategy as they vary with industry conditions. Finally, the blue ocean strategy is discussed as a position combining both cost leadership and differentiation

A chapter opening case on JetBlue Airways and two strategy highlights are included in the chapter for tangible applications of the theoretical frameworks discussed.

ChapterCase 6 JetBlue Airways: Finding a New Blue Ocean?

The opening ChapterCase discusses the story of the founding of JetBlue in 2000 as a firm to offer lower costs than even Southwest airlines and yet with amenities and service closer to the large traditional airlines such as American and Delta. After initial success with this blue ocean strategy, the firm faced turbulence with several customer service problems and financial uncertainty. The founder/CEO was replaced in 2007. The firm has been more recently exploring additional blue ocean ideas in order to expand and improve services while keeping costs low. The current CEO is searching for a good balance in the trade-offs needed for a successful blue ocean business.

INSTRUCTOR SUPPLEMENT SLIDES 3–5

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CONSIDER THIS DISCUSSION QUESTIONS

INSTRUCTOR SUPPLEMENT SLIDE 6

1. Despite its initial success, why was JetBlue unable to sustain a blue ocean strategy?

Its value-added investments in equipment and services cost more to offer than the revenue that they generated. As the firm grew, they went from trying to straddle focused differentiation/focused cost leadership to a more challenging position of trying to straddle broad differentiation/broad cost leadership.

2. JetBlue’s chief marketing officer, Marty St. George, was asked by The Wall Street Journal, “What is the biggest marketing challenge JetBlue faces?” His response: “We are flying in a space where our competitors are moving toward commoditization. We have taken a position that air travel is not a commodity but a services business. We want to stand out, but it’s hard to break through to customers with that message.”

a. Given St. George’s statement, which strategic position is JetBlue trying to accomplish: differentiator, cost leader, or blue ocean strategy? Explain why.

With no other information than that statement, one would have to conclude that JetBlue is attempting a differentiation strategy. However, their price positioning in the market, their communication to customers, and their recent actions (see next question) all suggest that JetBlue is also trying to compete with the cost leaders. This mixed message is characteristic of a “stuck in the middle” strategy.

b. Which strategic moves has the new CEO put in place, and why? Explain whether they focus on value creation, operating costs, or both simultaneously. Do these moves correspond to St. George’s understanding of JetBlue’s strategic position? Why or why not? Explain.

Hayes’s decision to reduce legroom is counter to a differentiation strategy and the message communicated by the CMO. His decision to raise fees for checked baggage runs counter to a strategy to compete effectively with Southwest, but is not too dissimilar to ultra-low-cost airlines, like Ryanair or Spirit. It is also counter to customer service, as it means that customers will lug their own baggage more often and there will be more competition for space in overhead bins.

3. Consider JetBlue’s value curve in Exhibit 6.11. Why is JetBlue experiencing a competitive disadvantage? What recommendations would you offer to JetBlue to strengthen its strategic profile? Be specific.

To escape from its “stuck in the middle” position, JetBlue needs to move its curve either up or down. If it is going to try to compete as a differentiator, as St. George suggests, then the highest priority areas for improvement are likely to be customer service and reliability. If it wants to compete more effectively with the low-cost airlines, it needs to significantly pare back costs, by reducing services and amenities. This would likely be the more radical of the two position changes

4. JetBlue CEO Robin Hayes is contemplating adding international routes, connecting the U.S. East Coast to Europe. Would this additional international expansion put more pressure on JetBlue’s current business strategy? Or would this international expansion require a shift in JetBlue’s strategic profile? Why or why not? And if a strategic repositioning is needed, in which direction should JetBlue pivot? Explain.

The actions Mr. Hayes is considering would move JetBlue more in the direction of the legacy hub-and-spoke carriers. While the international routes tend to be quite profitable, they can require increased fixed and variable costs. A key factor may be the success of the new airplane to provide longer range at lower costs for JetBlue. The airline, however, will not be the only one using newer more efficient planes from Airbus and Boeing, thus bringing in a question about the sustainability of any competitive advantage gained from the move. It appears JetBlue is moving towards reducing its differentiation to focus on cost-per-seat savings for the airline. Thus, they may shift out of their attempted blue ocean towards cost leadership unless they can find new elements to spur value innovations.

6.1 Business-Level Strategy: How to Compete for Advantage

LO 6-1Define business-level strategy and describe how it determines a firm’s strategic position .

LECTURE SLIDES 4–10

EXAMPLES

Different generic strategies can lead to competitive advantage, even in the same industry. For example, Rolex and Timex both compete in the market for wristwatches, yet they follow different business strategies. Rolex follows a differentiation strategy: It creates a higher value for its watches by making higher-quality timepieces with unique features that last a lifetime and that bestow a perception of prestige and status upon their owners. Customers are willing to pay a steep premium for these attributes. Timex, in contrast, follows a cost-leadership strategy: It uses lower-cost inputs and efficiently produces a wristwatch of acceptable quality, highlights reliability and accuracy, and prices its timepieces at the low end of the market The issue is not to compare Rolex and Timex directly they compete in different market segments of the wristwatch industry. Both can achieve a competitive advantage using diametrically opposed business strategies. This is because both have a clear strategic profile. Rather, the idea is to compare Rolex’s strategic position with the next-best differentiator (e.g., Ebel), and Timex’s strategic position with the next-best, low-cost producer (e.g., Swatch). In the preceding example, Rolex focuses on a small market segment: affluent consumers who want to present a certain image. Timex offers watches for many different segments of the mass market.

DISCUSSION TOPICS

You may want to use Exhibit 6.1 to pull together several topics touched on in previous chapters as a way to open up this chapter with the class. Chapter 1 noted that competitive advantage is based on the interdependence of firm and industry effects (on the left side of the figure). The green boxes at the top of the figure bring out industry elements discussed in Chapter 3. The blue boxes in the lower part of the diagram are the primary subjects for this chapter. There are two fundamentally different business strategies: differentiation and cost leadership. They are generic due to their wide application to disparate organizations. The scope of competition must also be considered. The business can target a broad audience or a narrow or niche market. Strategic position is the profile based on value creation and cost. Higher value tends to require higher cost, thus the need for trade-offs for businesses to choose between a cost or value position. The generic strategies will build on the marketing courses the students have had prior to this strategy course. The narrow and broad competitive scope complements well with selling into broad or niche target markets.

✓ AACSB 2015 Standard 9 Integrating knowledge across fields

CLASS EXERCISES

LECTURE SLIDE 10

We have at times split the class into small groups and assigned each group a different consumer industry, and then asked each group to identify firms in the industry and where they fit in the 2×2 rubric in Exhibit 6.2. The JCPenney Strategy Highlight 6.2 can be a starting point for analysis of the department store industry. Other industries the students are very familiar with are restaurants, shoes, personal computers, and automobiles.

Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

We find it helpful to remind the students of the strategic group discussion (in Chapter 3) as this tool identifies business strategies that would be similar or different from one firm to the next. If used within a large industry, the results should yield a list of firms that make up strategic groups and are direct competitors with each other within the groups. You could, for example, ask students to analyze the airline industry. Make sure that they do not limit themselves to one firm in each box of the rubric. Begin with the ChapterCase on JetBlue to start them off. After they have completed their analysis in small groups, then pull up the strategic group map from Chapter 3 (Exhibit 3.7) and invite students to compare/contrast their output with the strategic groups map

For a different sort of exercise, you can use the following table to discuss advertising across different business level strategies. The columns show some optional advertising approaches used by companies to communicate the value of their product in order to influence your buying decisions, and the rows list some familiar product categories. For each product category, first consider how each type of advertising might influence you, then rank from 1 (not at all) to 5 (strong influence) and enter that number in the cell. Most consumers use different criteria to make purchase decisions for different categories of product. Compare your rankings with those of other students in the class. What approaches not included here have a stronger influence on your buying decisions? Second, for each advertising approach, decide whether you think it would be more likely to be used for products sold by a company using a differentiation (D), cost-leadership (CL), or integration (I) strategy and enter the letter abbreviation of that strategy under the column heading. Compare your responses with those of other students and discuss why differentiators and cost leaders may choose similar or different advertising approaches.

This exercise would work best as a small group discussion that is later selectively shared with the full classroom. Ask each student to complete the table before arriving in class. Then match their answers against those of other students in a group of two or three. Ask them to draw on what they know about marketing to make a determination of the effectiveness (reach, richness, relevance, and cost) of each type of communication for that industry. Richer media allow more information to be communicated. Communication that is more narrowly targeted toward the customer is higher in relevance. Focus strategies may be communicated more often using high relevance media. Differentiation strategies need richer media to communicate information about products and services. Cost-leadership strategies need very low-cost media.

✓ AACSB 2015 Standard 9 Integrating knowledge across fields

Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

INTEGRATION

Interactive Labeling: Business-Level Strategy

This interactive drag-and-drop exercise covers the textbook examples of firms using a variety of generic business-level strategies. The student will read the brief application case and move the firm name into the correct box provided. A related quiz with questions follows the interactive activity

✓ Difficulty: Medium ✓ Blooms: Apply ✓ AACSB: Analytics

6.2 Differentiation Strategy: Understanding Value Drivers

LO 6-2 Examine the relationship between value drivers and differentiation strategy.

LECTURE SLIDES 11-15

In this section, we discover that firm effects are much larger than industry effects on firm performance. This means that managerial action and strategic leadership are important in determining the overall firm’s performance. This is also important for the purpose of this strategic management course. If industry was the dominant determinant of performance the role of strategy would be much smaller as the main decisions would be completed when the industry to enter was determined.

DISCUSSION TOPICS

Differentiation strategy will add unique or otherwise rare features to increase the value as viewed by the customers. This value in turn will drive a higher price for the product or service. Alternatively, differentiators excel at customer service. Managers must be able to identify unmet customer needs and find ways to satisfy them or exceed customer expectations. Firm C in Exhibit 6.3 is typically the case, as driving higher value will often increase cost. As long as the value gap is increased (value increases MORE than cost), the differentiation will benefit the firm

INTEGRATION

Case Analysis: Toyota Handling Recalls and Customer Satisfaction

This case analysis explores Toyota’s customer service from early successes with the Lexus to more recent problems the firm has had. The activity reinforces the value drivers discussed in the textbook. Students will read the case and then answer the four questions following it.

Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Follow-Up Activity: The instructor can build on these concepts by having the class or small groups develop examples of firms using the other two value drivers (product features and complements). Examples can be successful or failed attempts of firms building competitive advantage with these levers.

✓ Difficulty: Medium

✓ Blooms: Evaluate

✓ AACSB: Analytic

GoPro has a focused differentiation strategy the students may enjoy discussing It sells cameras for sports enthusiasts that are continually innovated to be smaller and more effective for its target market use.

6.3 Cost-Leadership Strategy: Understanding Cost Drivers

LO 6-3 Examine the relationship between cost drivers and costleadership strategy.

LECTURE SLIDES 16-22

EXAMPLES

The South African company De Beers has long held a very strong position in the market for diamonds because it tightly controls the supply of raw materials. The aluminum producer Alcoa has access to lower-cost bauxite mines in the United States, which supply a key ingredient for aluminum. GE, through its GE Capital division, has a lower cost of capital than other industrial conglomerates such as Siemens, Philips, or ABB.

LECTURE SLIDE 19

Economies of scale are illustrated in Exhibit 6.5, which visually shows the range of scale impacts. Royal Caribbean Cruises is betting on economies of scale. It launched its Oasis class $1.4B luxury cruise ships, the Allure of the Seas and Oasis of the Seas the world’s largest at 20 stories above the sea and stretching more than four football fields. The Oasis of the Seas can accommodate more than 5,400 passengers. Will it allow Royal Caribbean to capture economies of scale, or will it prove too large, leading to diseconomies of scale?

The example of W. L. Gore for diseconomies of scale comes from the very readable book The Tipping Point by Malcolm Gladwell. In the book, Gladwell goes on to discuss a Dunbar Number, which is named after a U K scholar (Robin Dunbar). He argues that humans have cognitive limits at around 150 friends. Gore has expanded the idea into effective work group size limits due to excess bureaucracy and management that slows down decision making as the group size grows.

Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

INTEGRATION

Whiteboard Animation: Differentiation and Cost Leadership Strategy

This animated video case analysis provides an overview of these two generic business strategies. It can complement or substitute for a short classroom lecture on the concepts ✓ Difficulty: Medium ✓ Blooms: Apply ✓ AACSB: Analytic

Strategy Highlight 6.1

INSTRUCTOR SUPPLEMENT SLIDES 8-9: DR. SHETTY: “THE HENRY FORD OF HEART SURGERY”

This is a useful example of cost leadership for students because it shows that the cost-leadership strategy is not confined exclusively to commodity products or frequently purchased items. It also incorporates more than one aspect of cost drivers, mentioning learning curves, economies of scale, and input costs.

STRATEGY SMART VIDEO LECTURE

INSTRUCTOR SUPPLEMENT SLIDE 32

In this TEDx video, “It’s Not a Solution if It’s Not Affordable: Dr. Devi Prasad Shetty at TEDxGateway 2013,” Dr. Shetty discusses the status of heart surgeries in India.

DISCUSSION TOPICS

Consider Southwest Airlines, what happens to competitive advantage when a firm with a cost-leadership strategy changes its target customer from one with basic needs to one with more complex needs or expands into high cost/high time delay airports as Southwest has done with its moves into Newark, LaGuardia, Los Angeles, and San Francisco, and added the increased complexity of international flights? Which parts of the value chain have experienced increased costs?

Scale benefits explain the rise of superstores that are often 200,000 square feet or more. Retailers that have leveraged the superstore concept to emerge as category killers are Toys “R” Us, Home Depot, Barnes & Noble, and Best Buy. Now in a new wave of industry evolution, Amazon is “killing the category killers.” Ask students if they can explain why this is happening using economies of scale and learning. They should be able to identify much higher throughput through Amazon’s fulfillment centers than through any individual store. They may also point out that consumers do their own product selection and checkout in Internet commerce, raising the level of sales per employee at Amazon.

Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

END OF CHAPTER SMALL GROUP EXERCISE 1

INSTRUCTOR SUPPLEMENT SLIDE 18

Ryanair clearly has a cost-leadership strategy. They are providing lower-value services and driving their costs low or generating revenues from fees other airlines are not charging to offset some of their costs. We chose Ryanair as an example of low-cost leadership to extend the ChapterCase discussion with a non-U.S. example. Students enjoy finding out about the Irish company and reflecting on how, in many ways, Ryanair is in the leadership position on cost and price structures.

Ryanair based in Dublin, Ireland has been renowned in Europe as a firm that can make a profit on a $20 ticket by imposing numerous fees and surcharges. The airline has sought to be the lowest of the low-cost providers in the EU with a “no frills get you from point A-to-B-model.” Ryanair is on record as saying it wants to be the “Amazon.com of travel in Europe” by bringing in competitors’ price comparison, hotel discounts, and even concert tickets. Check out the company website (http://www.ryanair.com) and consider the questions that follow.

1. If you were a competitor in the European market, such as British Airways or Lufthansa, how would you compete against Ryanair, knowing your cost structure would not allow price parity? If you were a low-cost leader like EasyJet, how would you compete against Ryanair?

The website link is provided here as the firm may well change its policies on disclosure of fees. This is especially true as other more traditional airlines are also imposing more fees on the flying passengers. As of the autumn of 2015, the home page for Ryanair has a link for fees at the bottom of the page in the small print menu under “Information.” Once you click the button, it opens to two rather legal-looking tables of different fees.

The traditional European airlines do not have a cost structure to compete with Ryanair. U.S. airline attempts to lower cost structures (such as Delta’s Song or Continental Lite) were a dismal failure. Therefore, the competitors should compete against Ryanair on differentiated service and acknowledge some ultra-low price routes will be difficult to grow in share. At the same time, the competitors, however, should be sure that consumers are comparing “fully loaded” costs rather than comparing an $8 seat on Ryanair with a $150 seat on Aer Lingus. The competition should not be shy about posting comparable rates for Ryanair and their own prices (with fees included). Many customers will make different decisions if the actual travel costs are $87 for Ryanair versus $165 for Aer Lingus.

2. What similarities and differences do you find about Ryanair compared to JetBlue from the ChapterCase?

Perhaps the most salient conclusion that students will reach is that Ryanair makes no pretenses of offering high levels of customer service. They do not have any issues with being “stuck in the middle” as they are firmly focused on cutting all costs and charging additional fees for what minimal services that they do offer. Both airlines run point-to-point routes and neither interlines baggage.

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6.4 Business-Level Strategy and the Five Forces: Benefits and Risks

LO 6-4 Assess the benefits and risks of differentiation and cost-leadership strategies vis-a-vis the five forces that shape competition.

LECTURE SLIDES 23 - 24

END OF CHAPTER ETHICAL/SOCIAL ISSUES 1

Suppose Procter & Gamble (P&G) learns that a relatively new startup company Method (www.methodhome.com) is gaining market share with a new laundry detergent in West Coast markets. In response, P&G lowers the price of its Tide detergent from $18 to $9 for a 150-oz. bottle only in markets where Method’s product is for sale. The goal of this “loss leader” price drop is to encourage Method to leave the laundry detergent market. Is this an ethical business practice? Why or why not?

Notice we did not ask if this is legal. There are many practices that are legal, but may not be considered ethical or moral behavior. A loss leader approach is not uncommon in retailing and larger firms can afford to do it longer than smaller firms. Students will differ on whether this is ethical, but it is a practice that smaller firms such as Method should be prepared to address. (In the case of Method, they are highly differentiated in their products and target customers and are unlikely to be significantly affected by such a price move.)

6.5 Blue Ocean Strategy: Combining Differentiation and Cost Leadership

LO 6-5 Evaluate value and cost drivers that may allow a firm to pursue a blue ocean strategy.

LECTURE SLIDES 25-30

STRATEGY SMART VIDEO LECTURE

INSTRUCTOR SUPPLEMENT SLIDE 29

Renee Mauborgne, coauthor of Blue Ocean Strategy provides a brief overview of the thinking behind this theory. It can be used to introduce your lecture on this topic or to add interest to an online course. (Blue Ocean Strategy, Create New Markets and Leave the Competition Behind)

EXAMPLES

Success in a blue ocean strategy doesn’t imply that the firm must be the highest-value creator and the lowest-cost producer in its respective industry. Whether a blue ocean strategy can lead to competitive advantage depends on the difference between value creation (V) and cost (C), and on the resulting magnitude of economic value created (V – C). What matters in gaining competitive advantage is the relative difference in economic value creation in comparison to industry rivals. The goal of a blue ocean strategy is therefore to achieve a larger economic value created than that of rivals pursuing a differentiation or low-cost-leadership strategy. To illustrate this point, compare three retail chains: Nordstrom, Target, and Walmart. Nordstrom is a differentiator; Walmart is a cost leader; Target has a blue ocean strategy. Nordstrom is an upscale retailer pursuing a differentiation strategy by focusing on a superior customer experience in a luxury department store setting. Target has been able to effectively compete with Nordstrom mostly by achieving a much lower-cost position, while offering an acceptable shopping experience when compared with Nordstrom. On the other hand, Target has been able to compete with Walmart by building similar skills in efficient logistics. Target almost achieves cost parity with Walmart. At the same time, Target outdoes Walmart in product selection, merchandising, and store layout so that its stores offer a higher-quality shopping experience for the customer. Target creates significantly more value in the minds of customers than does Walmart with its no-frills approach. If Target is successful with its blue ocean strategy, it achieves the highest economic value

Examples of ways in which firms can simultaneously add value and lower cost: Through techniques such as total quality management, companies design and build products with quality in mind, while increasing their differentiated appeal. By building in better quality, companies lower the cost of both production and after-sale service requirements. From the customer’s perspective, the product has increased value because it reduces the total cost of ownership. Advances in manufacturing and information technology have made feasible mass customization the manufacture of a large variety of customized products or services done at a relatively low unit cost. In the car industry, Toyota was the first to introduce lean manufacturing, allowing it to mass customize vehicles and produce higher quality at a lower per-unit cost. Other companies are able to conquer this trade-off by using the Internet. You can design your own T-shirts at threadless.com or create customized sneakers at nike.com

LO 6-6 Assess the risks of a blue ocean strategy, and explain why it is difficult to succeed at value innovation.

Electrolux, the world’s number two appliance manufacturer, entered China with a cost-leadership strategy. What they learned was that they did not have the operating cost structure or the scale to compete effectively with the Chinese domestic manufacturers as a cost leader. They closed most of their Chinese manufacturing capacity in 2013 and formulated a strategy to change to a differentiated position with imported products. Ask students to estimate the locations for both strategies on the productivity frontier. Electrolux plans increases in R&D from 2 percent of sales to 3 percent of sales. What other steps will they need to take to be successful as a differentiator in China? (See “Wash, Rinse, Rebrand: Electrolux Spiffs Up Appliances in China,” The Wall Street Journal 9/20/13.)

✓ AACSB 2015 Standard 9 Managing in a global context

Toyota introduced lean manufacturing to resolve the trade-off between quality and cost. This process innovation allowed Toyota to produce higher-quality cars at a lower unit cost, and to perfect the mass customization of cars. Lean manufacturing, over time, has become a necessary but not sufficient condition for competitive advantage in the auto industry. Today, if a carmaker can’t produce high-quality, mass-customized cars at low cost, it is not even in the game. More recently, Toyota stumbled as questions arose whether the company could maintain its stellar quality record while growing so fast. Korea’s Hyundai stepped into this void, offering cars that surpass Toyota in quality while attempting to provide luxury similar to Lexus vehicles. Hyundai’s managers carved out a strong strategic position for the company by focusing on resolving the trade-offs between luxury, quality, and cost. The ups and downs in the car industry clearly show that competitive advantage is transitory. It is a difficult quest to gain competitive advantage; it is even more difficult to sustain it. The tools of strategic management aid managers in this important challenge.

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Strategy Highlight 6.2

INSTRUCTOR SUPPLEMENT SLIDES 10-11: HOW JCPENNEY SAILED DEEPER INTO THE RED OCEAN

Sadly for JCPenney, this is an excellent example of how changes in strategic position can go badly wrong. At first glance, the strategy change made sense. JCPenney was doing poorly with its cost-leadership strategy because it was not the cost leader. It did not have the economies of scale, supply management processes, or data management systems to compete with cost leaders, like Walmart. It did not have the buying or merchandizing savvy to compete effectively with Target or Macy’s, much less any of the differentiation leaders among department stores. Its stores were not well located and were badly in need of updating. So clearly some significant change in strategy was needed. This is a good opportunity to remind students that they learned in Chapter 4 that intangible resources were often in the minds of customers, such as brand value, brand awareness, and brand personality, or in the minds of employees, such as creative ideas, firm culture, and customer service processes. A radical strategy change, such as that undertaken at JCPenney, runs the risk of destroying those perceived intangible resources. Brand perceptions, in this case, had to be completely altered in the minds of existing customers instantly while at the same time making them like the new perception better than competitors they understand better. Alternatively, the firm would have had to acquire a whole new set of customers, who would have had to been drawn away from competitors (with whom they were presumably satisfied) without price inducements.

STRATEGY SMART VIDEO LECTURE

INSTRUCTOR SUPPLEMENT SLIDE 33

Here is an interview with Ron Johnson while he was still CEO at JCPenney discussing the implementation struggles with changing the firm’s strategy: JCPenney CEO Talks Company’s Losses

END OF CHAPTER SMALL GROUP EXERCISE 2

INSTRUCTOR SUPPLEMENT SLIDES 19

This chapter discusses several firms in the retailing environment. Strategy Highlight 6.2 for example covers the struggles JCPenney has had in recent years and the closing of 140 stores across the United States. JCPenney is far from alone in having performance challenges. By March 2017, 21 retailers (including Macy’s, Sears, and The Limited) had announced the closure of over 3,500 stores affecting more than 50,000 jobs just in 2017. Several factors are impacting the retailing industry. For example, consumer behavior in developed countries is shifting from shopping trips to social experiences. In 2016 the amount of money spent in restaurants and bars for the first time surpassed that spent in grocery stores across the United States. Complicating matters for stores such as JCPenney, Macy’s, and Nordstrom, which are largely based in malls, is a 2017 report that showed the United States had 1,200 malls and probably needs less than 900. On a per capita basis, the United States has 40 percent more shopping space than Canada and a remarkable 1,000 percent more than Germany.

1. The retail department store is clearly a red ocean space right now. Your team has been asked to consult for Simon Property Group (SPG in NYSE), one of the largest U.S. operators of shopping malls. The company wants to know how its mall space could be repurposed. What blue ocean ideas can your team develop to present to the executives at Simon? Consider the positives and negatives of typical mall sizes and locations in your answer. Stretch beyond traditional retailing for ideas to consider.

Students may have a variety of answers for this question and it is one likely to be answered in a variety of different ways across the country over the next five to ten years. If you want to provide some food for thought to the students on this subject

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you can review “The Mall of the Future Will Have No Stores,” in The Wall Street Journal, June 12, 2017. The article has several examples of malls being used for major office space, logistics, and more open-air plazas and parks.

INTEGRATION

Click-and-Drag: Blue Ocean Strategy

This click-and-drag activity builds student comprehension of the differences between a successful value innovation strategy and a firm that is “stuck in the middle.” The student will read the brief case that complements the textbook description of IKEA and the retailing industry. Then, the student will move the labels to their correct locations. Then the student will complete a related quiz with three questions.

Follow-Up Activity: The instructor can expand on the concepts from the “click-and-drag” by having students discuss the different drivers that a successful blue ocean strategy requires. Discussion question 3 at the end of the chapter suggests using the value chain tool from Chapter 4 to compare how the value chain activities would be different for firms using cost leadership, differentiation, and value innovation as their business-level strategies.

✓ Difficulty: Medium ✓ Blooms: Apply ✓ AACSB: Analytics

DISCUSSION TOPICS

Drawing on knowledge from your supply chain and operations management majors, ask students to discuss how the digital revolution in manufacturing might create new opportunities for blue ocean strategies (see “The Digital-Manufacturing Revolution: How It Could Unfold,” McKinsey Quarterly, October 2015).

END OF CHAPTER ETHICAL/SOCIAL ISSUES 2

In the chapter discussion on value innovation, IKEA is noted as a firm that has successfully applied these techniques. What roles, if any, do sustainability and triple-bottom-line factors have in the success of IKEA as a leader in the furniture industry? (See Chapter 5.)

IKEA takes a three-pronged approach to sustainability. It makes, promotes, and sells products that help people live more sustainably; it increasingly acquires raw materials and energy from sustainable sources; it strives to have a positive impact upon the communities in which it does business. All three of these sustainability platforms are closely tied to the firm’s vision and values (Chapter 2). Its value innovation strategy, however, is highly dependent upon reducing costs and weight in their products, as well as long-term access to adequate supplies of wood and other materials

STRATEGY SMART VIDEO LECTURE

INSTRUCTOR SUPPLEMENT SLIDE 31

This brief video, What’s a Strategy Canvas, illustrates the strategy canvas for two rivals in the airline industry, linking it nicely to the ChapterCase.

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EXERCISES

If you used the Whole Foods discussion questions earlier in this guide, ask students to use a strategy canvas to compare Whole Foods to the Trader Joe’s example in Section 6.2

6.6

Implications for Strategic Leaders

INSTRUCTOR SUPPLEMENT SLIDES 12-14

CLASS EXERCISES

Students enjoy the opportunity to practice implementing generic strategies. You can choose any consumer industry and assign one of the four generic strategies to each team of students. Then invite the students to plan a new business in that industry with that strategy. Ask them to identify the value and cost drivers and describe how they will implement them for their firm. Then ask them to develop a marketing message for their firm in the form of a Facebook page, a video “celebrity” endorsement, a podcast radio ad, or a flip chart “billboard.” Ask the class to vote on which business/product they would visit/buy most often. Some retail industries you might use: yogurt shops, coffee shops, gyms, hotels, or spas. Some consumer products you might use: shampoo, frozen pizzas, or salad dressings.

✓ AACSB 2015 Standard 9 Thinking creatively and Application of knowledge (able to translate knowledge of business and management into practice)

RELATED MINICASES

Instructors may want to consider assigning and discussing any of the following MiniCases that cover topics found in this chapter. All MiniCases have assignable McGraw-Hill Connect® case questions available.

Minicase 8: Starbucks after Schultz: How to Sustain a Competitive Advantage?

Minicase 11: Can Amazon Trim the Fat at Whole Foods?

Minicase 12: Lego’s Turnaround: Brick by Brick

Minicase 13: Cirque du Soleil: Searching for New Blue Ocean

ENDOF CHAPTER DISCUSSION QUESTIONS

1. What are some drawbacks and risks to a broad generic business strategy? To a focused strategy?

As the text notes, there is no single correct generic strategy for a specific industry. A drawback of a broad business strategy is that the firm may be blinded to new entrants that enter the industry through a niche approach. Drawbacks to a more focused approach could be that the niche you target will not grow or may decline; economic performance will have higher variability for smaller segments than broader populations; and if economy of scale is important, it can be hard to be large enough to compete with a focused strategy.

2. In Chapter 4, we discussed the internal value chain activities a firm can perform in its business model (see Exhibit 4.7). The value chain priorities can be quite different for firms taking different business strategies. Create examples of value chains for three firms: one using cost leadership, another using differentiation, and a third using a value innovation business-level strategy.

Have the students review Chapter 4 to answer this question. In general, cost-leader firms will focus on primary activities and making them the most efficient. Differentiated firms will focus on secondary activities and providing improved customer

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service, while value innovation firms will choose a combination of these activities to strategically extend value while holding or reducing costs.

3. The chapter notes there are key differences between economies of scale and learning effects. Let us put that into practice with a brief example. A company such as Intel has a complex design and manufacturing process. For instance, one fabrication line for semiconductors typically costs more than $1.5 billion to build. Yet the industry also has high human costs for research and development (R&D) departments. Semiconductor firms spend an average of 17 percent of revenues on R&D. For comparison, the automobile industry spends a mere 3 percent of sales on R&D. Thus, Intel’s management must be concerned with both scale of production and learning curves. When do you think managers should be more concerned with large-scale production runs, and when do you think they should be most concerned with practices that would foster or hinder the hiring, training, and retention of key employees?

Many students will bring work experience to the classroom. At the MBA level, many students will have professional work experience and can make some contributions on HR practices. One point of this question is to note that HR practices will tend to be quite different for a differentiated firm than a cost-focused business. Intel would want to focus on retaining its employee base since the learning curves and experience curves in both design and manufacture of its product is significant. They undergo a thorough recruitment and hiring screening process to try to bring the right skill sets into the firm. Intel also commits major funding into training, including educational support for advanced degrees, and they encourage a sabbatical leave for employees with many years of service.

INTEGRATION

HP

Running Case: Module 6

While offering each student the opportunity to explore and analyze the company of his/her choice can add interest to the exercise, there are many advantages for an instructor when the entire class works on the same firm. Connect® allows you to do this with a running case for a single firm that encompasses every chapter in the textbook and tracks the Strategy Term Project. Hewlett-Packard is provided as an example firm your students can use to see what information and analysis would be helpful to cover this portion of the term project.

Note to the Instructor, Question 12 (Graduate Level): The answer to this question is subjective based on the student’s opinion as well as the discussion points that have been reviewed in class. Some points to consider when checking their answer for thoroughness and logic include: the types of customers that HP serves, the customer needs that HP attempts to satisfy, the intent behind why HP wants to satisfy their customers, and how HP is positioned to satisfy those customer needs

Strategy Term Project: Business Level Strategies

TERM PROJECT MODULE 6

In this section, you will study the business strategy of the firm you have previously selected for this project. Be sure to instruct the students to focus only on ONE business unit if they have selected a larger firm with several operations.

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Does your selected business have differentiated products or services? If so, what is the basis for this differentiation from the competition?

Differentiation or cost focus can often be determined from a close examination of the annual report. All firms will talk about costs, but a differentiated firm will also highlight how it views its products (service) to be different from the competition. The students can review the Value Drivers section of the text for some thoughts on the basis of the differentiation.

Does your firm have a cost-leadership position in this business? If so, can you identify which cost drivers it uses effectively to hold this position?

Financial analysis of the focal firm and key competitors is the clearest way to determine if the firm has cost leadership. Many students will be tempted to take the easier-to-find price differential as a signal on costs, but due to profitability levels this can be misleading, particularly over a short time frame (such as one year). Be sure to help the students focus on costs found in the financial section of the annual report of many industry websites

What is your firm’s approach to the market? If it segments the market, identify the scope of competition it is using.

The market scope should be taken relative to the competitors in the industry of focus. For example, in the furniture industry IKEA is primarily appealing to college-aged consumers and young families just starting out, and has a narrower approach than other retailers such as Ashley Furniture or La-Z-Boy.

Using the answers to the preceding questions, identify which generic business strategies your firm is employing. Is the firm leveraging the appropriate value and cost drivers for the business strategy you identified? Explain why or why not.

This answer makes sure the students can apply the concepts of this chapter to their focal firm. You may want to direct students to look at Exhibit 6.9 on the value and cost drivers if they are still unsure at this point how to categorize the business unit or firm.

As noted in the chapter, each business strategy is context-dependent. What do you see as positives and negatives with the selected business strategy of your firm in its competitive situation?

The section on the relationship to the five forces benefits and risks is likely to be helpful with the student thinking through this question.

Create a strategy canvas (see Exhibit 6.11) for your firm. Set on the horizontal axis an appropriate selection of the value curve items and on the vertical axis, set the other industry segments (such as strategic groups) for comparison.

At this point, it is important to emphasize for the students the importance of taking the time to select axes that are meaningful in the context of competition and competitive advantage within the industry.

What suggestions do you have to improve the firm’s business strategy and strategic position? Here, the student should think through the chapter material and the copious information they have already collected on the firm and make some suggestions for how the firm could improve its position either now or, thinking of the dynamics of competitive position, how it might change in the future

myStrategy

INSTRUCTOR SUPPLEMENT SLIDES 16-17: LOW-COST AND DIFFERENTIATED WORKPLACES

Here, we encourage the student to take what he/she has learned about competitive advantage and apply it to his/her personal career. Encourage students to spend a few minutes looking at themselves to discover their own competitive advantages.

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✓ AACSB 2015 Standard 9 Reflective thinking (able to understand oneself in the context of society)

Employees and consultants say the Amazon workplace is the epitome of a “do more for less cost” environment. We recognize this is a hallmark goal of a cost-leadership business strategy. But ask yourself this key question, Is it the type of high-pressure work environment in which YOU would thrive? Amazon has surpassed 350,000 employees, adding more than 100,000 employees in 2016 alone! They will be offering bold new ideas and moving Amazon toward being the first trillion-dollar retailer under an intense pressure to deliver on their goals. The allure from this type of success is compelling and offers tremendous rewards to many employees, shareholders, and customers. What aspects of success are you seeking in your professional career? Before you launch into a new project, job, or firm, or even before you make a change in industry in the effort to move forward in your career, always consider the trade-offs that you would and would NOT be willing to make.

This could be a particularly interesting conversation to have in class, especially if you have students that represent multiple generations. You may find that millennials on average are more likely to “work to live” than “live to work.” Gen Xers on average may find a high pressure/high reward environment more attractive. A number of students may suggest that they would prefer a small firm or an entrepreneurial start-up to a 350,000-person firm, no matter what pressure level is involved.

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