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132 PART 2 • STRATEGY FORMULATION

Hundreds of companies today, including Sears, IBM, Searle, and Hewlett-Packard, have
embraced strategic planning fully in their quest for higher revenues and profits. Kent
Nelson, former chair of UPS, explains why his company has created a new strategic-
planning department: “Because we’re making bigger bets on investments in technology,
we can’t afford to spend a whole lot of money in one direction and then find out five years
later it was the wrong direction.” 1
This chapter brings strategic management to life with many contemporary examples.
Sixteen types of strategies are defined and exemplified, including Michael Porter’s generic
strategies: cost leadership, differentiation, and focus. Guidelines are presented for determining
when it is most appropriate to pursue different types of strategies. An overview of strategic
management in nonprofit organizations, governmental agencies, and small firms is provided.

Doing Great in a Weak Economy. How?

Volkswagen AG

hile most automobile companies talk about
Wbankruptcy, merger, collapse, and liquidation,
Volkswagen AG is posting solid earnings. Based in
Wolfsburg, Germany, and Europe’s biggest automaker
by sales, Volkswagen (VW) managed the global eco-
nomic recession well by focusing on emerging markets
such as China and Brazil and continually reducing costs.
VW is the leading auto firm in China, not Toyota or
Nissan. VW’s market share in Western Europe rose to 20
percent in 2009 from 17.9 percent a year ago. While
shrinking demand for new cars in major markets and
high raw-material costs, and unfavorable exchange rates
have reduced earnings of most European automakers,
VW anticipated these conditions through excellent 125,000 vehicles from North America to Europe. VW‘s
strategic planning and continues to take market share plans include large expansions at its Puebla, Mexico,
from rival firms worldwide. plant.
The German truck maker and engineering company While most auto companies are cutting expenses,
MAN AG is VW’s largest single shareholder at 30 percent, VW is increasing is 2009 U.S. marketing budget by 15
and its business too has been good. MAN’s third percent in its Audi AG luxury division. The Audi ads even
quarter of 2008 saw profit jump 34 percent, lifted by ran during the 2009 Super Bowl.
strong sales of trucks, diesel engines, and turbo For all of 2008, VW’s net profit rose 15 percent to
machinery. VW is currently spending $1 billion to build 4.75 billion euros and revenues rose 4.5 percent to 114
a new plant in Chattanooga, Tennessee, for the billion. VW expects flat or even slight declines in 2009
production of a midsize sedan in 2011 with initial but some of its competitors are incurring billion dollar
capacity of 150,000 cars annually. VW’s plans for 2018 losses.
include increasing its U.S. market share from 2 percent VW has cars named for climate patterns, insects,
to 6 percent by selling 800,000 vehicles annually in the and small mammals. Along with the New Beetle, VW’s
United States. By 2018, VW also plans to export annual production of 6 million cars, trucks, and vans