Starbucks in 2018: Striving for Operational Excellence and Innovation Agility

Week 8: Final Exam Case: Case #29 – Starbucks in 2018: Striving for Operational Excellence and Innovation Agility.

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Due Thursday by 9:59pm

· Points 100

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· Available Apr 29 at 10pm – May 7 at 9:59pm 8 days

Week 8: Instructions for Final Exam Case: Case #29 – Starbucks in 2018: Striving for Operational Excellence and Innovation Agility.


· Organize and identify your responses, preferably, by cutting-and-pasting each specific instruction and number, as written below. All too often, students end-up writing an incorrect or incomplete response because they failed to address the instruction or question exactly as it was written.

· Where appropriate, you should use tables or charts, and/or bullet-points and sub-headings to organize and display your analyses. Doing so not only makes it easier for you to understand and explain, it cuts-down on the amount of supporting narrative that you have to write to explain the outcomes of your analysis and assessments.

· You should read the exam questions in their entirety, before starting.


TASK #1: Regarding Starbucks’ Strategy in 2018

(A) Briefly describe the following aspects of Starbucks’ strategy. 

1. Growth Strategy

2. Strategy to provide a unique coffee experience

3. Product sourcing strategy

4. Product diversification

5. Marketing, advertising, and promotion strategies

(B) Does Starbucks have a winning strategy? Your response must demonstrate your understanding of the three tests of a winning strategy as described in Chapter 1, and be supported by information in Case #29. 

Task #2: Regarding strategy, policies, procedures, and operating practices at Starbucks in 2018

Assume that Starbucks’ CEO Harry Schultz has asked you to advise him on what strategies, policies, procedures, and operating practices at Starbucks are working particularly well and what and changes might be needed to improve Starbuck’s performance in 2018 and beyond. Prepare a response that:  (A) details the things that you feel Starbucks is executing well and  (B) describes any problems that you see and the areas where the company needs to improve; and (C) describes your recommendations to further improve Starbucks performance prospects. In your response, justify why your recommendations should be implemented by utilizing evidence and logical argument. 


TASK #3:  Regarding Starbuck’s mission, business principles, and values. 

Describe: (A) the features that characterize and define Starbucks’ corporate values and culture; and (B) the lengths to which Starbucks management has gone to create a work environment that clearly supports the effective execution of the company’s customer-friendly strategy differentiation strategy.


Describe at least three (3) different ways in which your understanding of management’s role in strategy-making and effective strategy-execution (as described in Chapter 10 thru 12, and related Instructor’s Notes) was enhanced or reinforced as the result of you have worked through this case assignment. PLEASE NOTICE: The focus here should NOT be on the specifics of the Southwest Airlines case. However, this does not preclude you from including information from the case (or your responses to the case questions) to illustrate how your understanding was enhanced or reinforced.

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The Quest for Competitive Advantage

Concepts and Cases

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Arthur A. Thompson
The University of Alabama

Margaret A. Peteraf
Dartmouth College

John E. Gamble
Texas A&M University–Corpus Christi

A.J. Strickland III
The University of Alabama

Concepts and Cases | 2 2 N D E D I T I O N

The Quest for Competitive Advantage

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Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2020 by McGraw-Hill
Education. All rights reserved. Printed in the United States of America. Previous editions © 2018, 2016,
and 2014. No part of this publication may be reproduced or distributed in any form or by any means, or
stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education,
including, but not limited to, in any network or other electronic storage or transmission, or broadcast for
distance learning.

Some ancillaries, including electronic and print components, may not be available to customers outside
the United States.

This book is printed on acid-free paper.

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ISBN 978-1-260-07510-6 (bound edition)
MHID 1-260-07510-9 (bound edition)
ISBN 978-1-260-15718-5 (loose-leaf edition)
MHID 1-260-15718-0 (loose-leaf edition)

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Library of Congress Cataloging-in-Publication Data

Names: Thompson, Arthur A., 1940- author.
Title: Crafting & executing strategy : the quest for competitive advantage:
concepts and cases / Arthur A. Thompson, Jr., University of Alabama
Tuscaloosa, Margaret A. Peteraf, Dartmouth College, John E. Gamble,
University of South Alabama Mobile, A.J. Strickland III, University of
Alabama Tuscaloosa.
Other titles: Crafting and executing strategy
Description: Twenty-second edition. | New York, NY : McGraw-Hill Education,
Identifiers: LCCN 2018052588| ISBN 9781260075106 (bound edition) | ISBN
1260075109 (bound edition) | ISBN 9781260157185 (loose-leaf edition) |
ISBN 1260157180 (loose-leaf edition)
Subjects: LCSH: Strategic planning. | Strategic planning—Case studies.
Classification: LCC HD30.28 .T53 2020 | DDC 658.4/012—dc23 LC record
available at

The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website
does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education
does not guarantee the accuracy of the information presented at these sites.

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To our families and especially our spouses:
Hasseline, Paul, Heather, and Kitty.

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Arthur A. Thompson, Jr.,  earned his BS and PhD degrees in economics from The
University of Tennessee, spent three years on the economics faculty at Virginia Tech, and
served on the faculty of The University of Alabama’s College of Commerce and Business
Administration for 24 years. In 1974 and again in 1982, Dr. Thompson spent semester-long
sabbaticals as a visiting scholar at the Harvard Business School.

His areas of specialization are business strategy, competition and market analysis, and
the economics of business enterprises. In addition to publishing over 30 articles in some
25 different professional and trade publications, he has authored or co-authored five textbooks
and six computer-based simulation exercises. His textbooks and strategy simulations have
been used at well over 1,000 college and university campuses worldwide.

Dr. Thompson and his wife of 58 years have two daughters, two grandchildren, and a
Yorkshire Terrier.

Margaret A. Peteraf is the Leon E. Williams Professor of Management Emerita at the
Tuck School of Business at Dartmouth College. She is an internationally recognized scholar
of strategic management, with a long list of publications in top management journals. She
has earned myriad honors and prizes for her contributions, including the 1999 Strategic
Management Society Best Paper Award recognizing the deep influence of her work on the
field of Strategic Management. Professor Peteraf is a fellow of the Strategic Management
Society and the Academy of Management. She served previously as a member of the Board
of Governors of both the Society and the Academy of Management and as Chair of the
Business Policy and Strategy Division of the Academy. She has also served in various edito-
rial roles and on numerous editorial boards, including the Strategic Management Journal,
the Academy of Management Review, and Organization Science. She has taught in Executive
Education programs in various programs around the world and has won teaching awards at
the MBA and Executive level.

Professor Peteraf earned her PhD, MA, and MPhil at Yale University and held previous
faculty appointments at Northwestern University’s Kellogg Graduate School of Manage-
ment and at the University of Minnesota’s Carlson School of Management.

About the Authors

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John E. Gamble is a Professor of Management and Dean of the College of Business at
Texas A&M University–Corpus Christi. His teaching and research for more than 20 years
has focused on strategic management at the undergraduate and graduate levels. He has
conducted courses in strategic management in Germany since 2001, which have been spon-
sored by the University of Applied Sciences in Worms.

Dr. Gamble’s research has been published in various scholarly journals and he is the
author or co-author of more than 75 case studies published in an assortment of strategic
management and strategic marketing texts. He has done consulting on industry and market
analysis for clients in a diverse mix of industries.

Professor Gamble received his PhD, MA, and BS degrees from The University of Alabama
and was a faculty member in the Mitchell College of Business at the University of South
Alabama before his appointment to the faculty at Texas A&M University–Corpus Christi.

Dr. A. J. (Lonnie) Strickland  is the Thomas R. Miller Professor of Strategic Manage-
ment at the Culverhouse School of Business at The University of Alabama. He is a native
of north Georgia, and attended the University of Georgia, where he received a BS degree
in math and physics; Georgia Institute of Technology, where he received an MS in indus-
trial management; and Georgia State University, where he received his PhD in business

Lonnie’s experience in consulting and executive development is in the strategic manage-
ment arena, with a concentration in industry and competitive analysis. He has developed
strategic planning systems for numerous firms all over the world. He served as Director
of Marketing and Strategy at BellSouth, has taken two companies to the New York Stock
Exchange, is one of the founders and directors of American Equity Investment Life Holding
(AEL), and serves on numerous boards of directors. He is a very popular speaker in the area
of strategic management.

Lonnie and his wife, Kitty, have been married for over 49 years. They have two children
and two grandchildren. Each summer, Lonnie and his wife live on their private game reserve
in South Africa where they enjoy taking their friends on safaris.

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By offering the most engaging, clearly articulated, and conceptually sound text on strategic management, Crafting and Executing Strategy has been able to maintain its position as the leading textbook in strategic management for over 30 years.
With this latest edition, we build on this strong foundation, maintaining the attributes
of the book that have long made it the most teachable text on the market, while updat-
ing the content, sharpening its presentation, and providing enlightening new illustra-
tions and examples.

The distinguishing mark of the 22nd edition is its enriched and enlivened presenta-
tion of the material in each of the 12 chapters, providing an as up-to-date and engrossing
discussion of the core concepts and analytical tools as you will find anywhere. As with
each of our new editions, there is an accompanying lineup of exciting new cases that
bring the content to life and are sure to provoke interesting classroom discussions,
deepening students’ understanding of the material in the process.

While this 22nd edition retains the 12-chapter structure of the prior edition, every
chapter—indeed every paragraph and every line—has been reexamined, refined, and
refreshed. New content has been added to keep the material in line with the latest devel-
opments in the theory and practice of strategic management. In other areas, coverage
has been trimmed to keep the book at a more manageable size. Scores of new examples
have been added, along with 16 new Illustration Capsules, to enrich understanding of
the content and to provide students with a ringside view of strategy in action. The result
is a text that cuts straight to the chase in terms of what students really need to know
and gives instructors a leg up on teaching that material effectively. It remains, as always,
solidly mainstream and balanced, mirroring both the penetrating insight of academic
thought and the pragmatism of real-world strategic management.

A standout feature of this text has always been the tight linkage between the content
of the chapters and the cases. The lineup of cases that accompany the 22nd edition is
outstanding in this respect—a truly appealing mix of strategically relevant and thought-
fully crafted cases, certain to engage students and sharpen their skills in applying the
concepts and tools of strategic analysis. Many involve high-profile companies that
the students will immediately recognize and relate to; all are framed around key strate-
gic issues and serve to add depth and context to the topical content of the chapters. We
are confident you will be impressed with how well these cases work in the classroom
and the amount of student interest they will spark.

For some years now, growing numbers of strategy instructors at business
schools worldwide have been transitioning from a purely text-case course struc –
ture to a more robust and energizing text-case-simulation course structure. Incorpo –
rating a competition-based strategy simulation has the strong appeal of providing
class members with an immediate and engaging opportunity to apply the concepts
and analytical tools covered in the chapters and to become personally involved in craft –
ing and executing a strategy for a virtual company that they have been assigned to

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manage and that competes head-to-head with companies run by other class members.
Two widely used and pedagogically effective online strategy simulations, The Busi-
ness Strategy Game and GLO-BUS, are optional companions for this text. Both
simulations were created by Arthur Thompson, one of the text authors, and, like
the cases, are closely linked to the content of each chapter in the text. The Exer –
cises for Simulation Participants, found at the end of each chapter, provide clear
guidance to class members in applying the concepts and analytical tools covered in
the chapters to the issues and decisions that they have to wrestle with in managing
their simulation company.

To assist instructors in assessing student achievement of program learning objec-
tives, in line with AACSB requirements, the 22nd edition includes a set of Assurance
of Learning Exercises at the end of each chapter that link to the specific learning objec-
tives appearing at the beginning of each chapter and highlighted throughout the text. An
important instructional feature of the 22nd edition is its more closely integrated linkage
of selected chapter-end Assurance of Learning Exercises and cases to the publisher’s
web-based assignment and assessment platform called Connect™. Your students will
be able to use the online Connect™ supplement to (1) complete selected Assurance
of Learning Exercises appearing at the end of each of the 12 chapters, (2) complete
chapter-end quizzes, and (3) enter their answers to a number of the suggested assign-
ment questions for 14 of the 32 cases in this edition. The analysis portion of the
Connect™ exercises is automatically graded, thereby enabling you to easily assess
the learning that has occurred.

In addition, both of the companion strategy simulations have a built-in Learning
Assurance Report that quantifies how well each member of your class performed on
nine skills/learning measures versus tens of thousands of other students worldwide who
completed the simulation in the past 12 months. We believe the chapter-end Assur-
ance of Learning Exercises, the all-new online and automatically graded Connect™
exercises, and the Learning Assurance Report generated at the conclusion of The Busi-
ness Strategy Game and GLO-BUS simulations provide you with easy-to-use, empirical
measures of student learning in your course. All can be used in conjunction with other
instructor-developed or school-developed scoring rubrics and assessment tools to com-
prehensively evaluate course or program learning outcomes and measure compliance
with AACSB accreditation standards.

Taken together, the various components of the 22nd edition package and the sup-
porting set of instructor resources provide you with enormous course design flexibility
and a powerful kit of teaching/learning tools. We’ve done our very best to ensure that
the elements constituting the 22nd edition will work well for you in the classroom,
help you economize on the time needed to be well prepared for each class, and cause
students to conclude that your course is one of the very best they have ever taken—from
the standpoint of both enjoyment and learning.

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Eight standout features strongly differentiate this text and the accompanying instruc-
tional package from others in the field:

1. Our integrated coverage of the two most popular perspectives on strategic management—
positioning theory and resource-based theory—is unsurpassed by any other leading
strategy text. Principles and concepts from both the positioning perspective and
the resource-based perspective are prominently and comprehensively integrated
into our coverage of crafting both single-business and multibusiness strategies.
By highlighting the relationship between a firm’s resources and capabilities to
the activities it conducts along its value chain, we show explicitly how these
two perspectives relate to one another. Moreover, in Chapters 3 through 8 it is
emphasized repeatedly that a company’s strategy must be matched not only to its
external market circumstances but also to its internal resources and competitive

2. With this new edition, we provide the clearest, easiest to understand presentation of the
value-price-cost framework. In recent years, this framework has become an essential
aid to teaching students how companies create economic value in the course of
conducting business. We show how this simple framework informs the concept
of the business model as well as the all-important concept of competitive advan-
tage. In Chapter 5, we add further clarity by showing in pictorial fashion how the
value-price-cost framework relates to the different sources of competitive advantage
that underlie the five generic strategies.

3. Our coverage of cooperative strategies and the role that interorganizational activity
can play in the pursuit of competitive advantage is similarly distinguished. The top-
ics of the value net, ecosystems, strategic alliances, licensing, joint ventures, and
other types of collaborative relationships are featured prominently in a number of
chapters and are integrated into other material throughout the text. We show how
strategies of this nature can contribute to the success of single-business companies
as well as multibusiness enterprises, whether with respect to firms operating in
domestic markets or those operating in the international realm.

4. The attention we give to international strategies, in all their dimensions, make this text-
book an indispensable aid to understanding strategy formulation and execution in an
increasingly connected, global world. Our treatment of this topic as one of the most
critical elements of the scope of a company’s activities brings home to students the
connection between the topic of international strategy with other topics concern-
ing firm scope, such as multibusiness (or corporate) strategy, outsourcing, insourc-
ing, and vertical integration.

5. With a standalone chapter devoted to these topics, our coverage of business ethics,
corporate social responsibility, and environmental sustainability goes well beyond that
offered by any other leading strategy text. Chapter 9, “Ethics, Corporate Social
Responsibility, Environmental Sustainability, and Strategy,” fulfills the important
functions of (1) alerting students to the role and importance of ethical and socially
responsible decision making and (2) addressing the accreditation requirement of
the AACSB International that business ethics be visibly and thoroughly embedded
in the core curriculum. Moreover, discussions of the roles of values and ethics
are integrated into portions of other chapters, beginning with the first chapter,
to further reinforce why and how considerations relating to ethics, values, social


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responsibility, and sustainability should figure prominently into the managerial
task of crafting and executing company strategies.

6. Long known as an important differentiator of this text, the case collection in the
22nd edition is truly unrivaled from the standpoints of student appeal, teachabil-
ity, and suitability for drilling students in the use of the concepts and analytical
treatments in Chapters 1 through 12. The 32 cases included in this edition are
the very latest, the best, and the most on target that we could find. The ample
information about the cases in the Instructor’s Manual makes it effortless to
select a set of cases each term that will capture the interest of students from
start to finish.

7. The text is now more tightly linked to the publisher’s trailblazing web-based assignment
and assessment platform called Connect™. This will enable professors to gauge class
members’ prowess in accurately completing (a) selected chapter-end exercises,
(b) chapter-end quizzes, and (c) the creative author-developed exercises for seven
of the cases in this edition.

8. Two cutting-edge and widely used strategy simulations—The Business Strategy Game and
GLO-BUS—are optional companions to the 22nd edition. These give you an unmatched
capability to employ a text-case-simulation model of course delivery.

• Chapter 1 serves as a brief, general introduction to the topic of strategy, focusing

on the central questions of “What is strategy?” and “Why is it important?” As such,
it serves as the perfect accompaniment for your opening-day lecture on what the
course is all about and why it matters. Using the newly added example of Apple,
Inc., to drive home the concepts in this chapter, we introduce students to what we
mean by “competitive advantage” and the key features of business-level strategy.
Describing strategy making as a process, we explain why a company’s strategy is
partly planned and partly reactive and why a strategy tends to co-evolve with its
environment over time. We discuss the importance of ethics in choosing among
strategic alternatives and introduce the concept of a business model. We show that
a viable business model must provide both an attractive value proposition for the
company’s customers and a formula for making profits for the company. A key
feature of this chapter is a depiction of how the value-price-cost framework can be
used to frame this discussion.We show how the mark of a winning strategy is its
ability to pass three tests: (1) the fit test (for internal and external fit), (2) the com-
petitive advantage test, and (3) the performance test. And we explain why good com-
pany performance depends not only upon a sound strategy but upon solid strategy
execution as well.

• Chapter 2 presents a more complete overview of the strategic management pro-
cess, covering topics ranging from the role of vision, mission, and values to what
constitutes good corporate governance. It makes a great assignment for the sec-
ond day of class and provides a smooth transition into the heart of the course. It
introduces students to such core concepts as strategic versus financial objectives,
the balanced scorecard, strategic intent, and business-level versus corporate-level

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strategies. It explains why all managers are on a company’s strategy-making, strategy-
executing team and why a company’s strategic plan is a collection of strategies
devised by different managers at different levels in the organizational hierarchy.
The chapter concludes with a section on the role of the board of directors in the
strategy-making, strategy-executing process and examines the conditions that have
led to recent high-profile corporate governance failures. The illustration capsule on
Volkswagen’s emissions scandal brings this section to life.

• The next two chapters introduce students to the two most fundamental perspec-
tives on strategy making: the positioning view, exemplified by Michael Porter’s
“five forces model of competition”; and the resource-based view. Chapter 3 pro-
vides what has long been the clearest, most straightforward discussion of the five forces
framework to be found in any text on strategic management. It also offers a set of
complementary analytical tools for conducting competitor analysis, identifying
strategic groups along with the mobility barriers that limit movement among them,
and demonstrates the importance of tailoring strategy to fit the circumstances of
a company’s industry and competitive environment. The chapter includes a discus-
sion of the value net framework, which is useful for conducting analysis of how
cooperative as well as competitive moves by various parties contribute to the cre-
ation and capture of value in an industry.

• Chapter 4 presents the resource-based view of the firm, showing why resource and
capability analysis is such a powerful tool for sizing up a company’s competitive
assets. It offers a simple framework for identifying a company’s resources and capa-
bilities and explains how the VRIN framework can be used to determine whether
they can provide the company with a sustainable competitive advantage over its
competitors. Other topics covered in this chapter include dynamic capabilities,
SWOT analysis, value chain analysis, benchmarking, and competitive strength
assessments, thus enabling a solid appraisal of a company’s cost position and cus-
tomer value proposition vis-á-vis its rivals. An important feature of this chapter is
a table showing how key financial and operating ratios are calculated and how to
interpret them. Students will find this table handy in doing the number crunch-
ing needed to evaluate whether a company’s strategy is delivering good financial

• Chapter 5 sets forth the basic approaches available for competing and winning in
the marketplace in terms of the five generic competitive strategies— broad low-cost,
broad differentiation, best-cost, focused differentiation, and focused low cost. It
demonstrates pictorially the link between generic strategies, the value-price-cost
framework, and competitive advantage. The chapter also describes when each of
the five approaches works best and what pitfalls to avoid. Additionally, it explains
the role of cost drivers and uniqueness drivers in reducing a company’s costs and
enhancing its differentiation, respectively.

• Chapter 6 focuses on other strategic actions a company can take to complement its
competitive approach and maximize the power of its overall strategy. These include
a variety of offensive or defensive competitive moves, and their timing, such as blue-
ocean strategies and first-mover advantages and disadvantages. It also includes choices
concerning the breadth of a company’s activities (or its scope of operations along an
industry’s entire value chain), ranging from horizontal mergers and acquisitions, to
vertical integration, outsourcing, and strategic alliances. This material serves to segue
into the scope issues covered in the next two chapters on international and diversifi-
cation strategies.

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• Chapter 7 takes up the topic of how to compete in international markets. It begins
with a discussion of why differing market conditions across countries must neces-
sarily influence a company’s strategic choices about how to enter and compete in
foreign markets. It presents five major strategic options for expanding a company’s
geographic scope and competing in foreign markets: export strategies, licensing,
franchising, establishing a wholly owned subsidiary via acquisition or “greenfield”
venture, and alliance strategies. It includes coverage of topics such as Porter’s
Diamond of National Competitive Advantage, multi-market competition, and the
choice between multidomestic, global, and transnational strategies. This chapter
explains the impetus for sharing, transferring, or accessing valuable resources
and capabilities across national borders in the quest for competitive advantage,
connecting the material to that on the resource-based view from Chapter 4. The
chapter concludes with a discussion of the unique characteristics of competing in
developing-country markets.

• Chapter 8 concerns strategy making in the multibusiness company, introduc-
ing the topic of corporate-level strategy with its special focus on diversification.
The first portion of this chapter describes when and why diversification makes
good strategic sense, the different means of diversifying a company’s business
lineup, and the pros and cons of related versus unrelated diversification strate-
gies. The second part of the chapter looks at how to evaluate the attractiveness
of a diversified company’s business lineup, how to decide whether it has a good
diversification strategy, and what strategic options are available for improving
a diversified company’s future performance. The evaluative technique integrates
material concerning both industry analysis and the resource-based view, in that
it considers the relative attractiveness of the various industries the company has
diversified into, the company’s competitive strength in each of its lines of busi-
ness, and the extent to which its different businesses exhibit both strategic fit and
resource fit.

• Although the topic of ethics and values comes up at various points in this textbook,
Chapter 9 brings more direct attention to such issues and may be used as a stand-
alone assignment in either the early, middle, or late part of a course. It concerns
the themes of ethical standards in business, approaches to ensuring consistent ethi-
cal standards for companies with international operations, corporate social respon-
sibility, and environmental sustainability. The contents of this chapter are sure to
give students some things to ponder, rouse lively discussion, and help to make stu-
dents more ethically aware and conscious of why all companies should conduct their
business in a socially responsible and sustainable manner.

• The next three chapters (Chapters 10, 11, and 12) comprise a module on strategy exe-
cution that is presented in terms of a 10-step action framework. Chapter 10 …