About the Authors vii

Preface ix

Acknowledgements xiii

1 What is Business Strategy? 1

What is Business Strategy? 2

Competitive Advantage 3

The Strategic Management Process 4

What Information and Analysis Guides Strategy Formulation? 7

Mission 8

External Analysis 8

Internal Analysis 9

How are Strategies Formulated? 10

Strategy Vehicles for Achieving Strategic Objectives 10

Strategy Implementation 11

Who is Responsible for Business Strategy? 12

Who Benefits from a Good Business Strategy? 13

Summary 14

Key Terms 14

Review Questions 15

Application Exercises 15

References 15

2 Analysis of the External Environment: Opportunities and Threats 17

Determining the Right Landscape: Defining a Firm’s Industry 19

Five Forces that Shape Average Profitability Within Industries 21

Rivalry: Competition Among Established Companies 21

Buyer Power: Bargaining Power and Price Sensitivity 24

Supplier Bargaining Power 25

Threat of New Entrants 26

Threat of Substitute Products 28

Overall Industry Attractiveness 29

Where Should We Compete? New Thinking About the Five Forces and Industry Attractiveness 30

How the General Environment Shapes Firm and Industry Profitability 31

Complementary Products or Services 33

Technological Change 33

General Economic Conditions 34

Demographic Forces 35

Ecological/Natural Environment 35

Global Forces 36

Political, Legal, and Regulatory Forces 36

Social/Cultural Forces 36

Summary 37

Key Terms 37

Review Questions 37

Application Exercises 38

Strategy Tool 38

References 42

3 Internal Analysis: Strengths, Weaknesses, and Competitive Advantage 44

The Value Chain 46

The Resource-Based View 47

Resources 47

Capabilities 47

Priorities 49

Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability 49

Value 50

Rarity 50

Inimitability 50

Organized to Exploit 53

Assessing Competitive Advantage with VRIO 53

The Competitive Advantage Pyramid: A Tool for Assessing Competitive Advantage 54

Gathering Data for the Competitive Advantage Pyramid Analysis 55

Using the Competitive Advantage Pyramid 56

Summary 58

Key Terms 58

Review Questions 58

Application Exercises 59

References 59

4 Cost Advantage 61

Economies of Scale and Scope 63

Ability to Spread Fixed Costs of Production 63

Ability to Spread Nonproduction Costs 63

Specialization of Machines and Equipment 64

Specialization of Tasks and People 64

Evaluating Economies of Scale: The Scale Curve 65

Economies of Scope 66

Learning and Experience 67

The Learning Curve 67

The Experience Curve 67

Experience Curves and Market Share 69

How Strategists Use the Scale and Experience Curves to Make Decisions 70

Proprietary Knowledge 72

Lower Input Costs 72

Bargaining Power over Suppliers 72

Cooperation with Suppliers 73

Location Advantages 73

Preferred Access to Inputs 74

Different Business Model or Value Chain 74

Eliminating Steps in the Value Chain 74

Performing Completely New Activities 74

Revisiting Tata 75

Summary 75

Key Terms 76

Review Questions 76

Application Exercises 76

Strategy Tool 76

References 77

5 Differentiation Advantage 79

What is Product Differentiation? 80

Sources of Product Differentiation 81

Different Product/Service Features 81

Quality or Reliability 83

Convenience 83

Brand Image 85

How to Find Sources of Product Differentiation 85

Customer Segmentation 85

Mapping the Consumption Chain 88

Building the Resources and Capabilities to Differentiate 91

New Thinking: Achieving Low Cost and Differentiation 92

Assessing Differentiation Performance 93

Strategy in Your Career: What is Your Unique Value? 94

Summary 94

Key Terms 95

Review Questions 95

Application Exercises 95

Strategy Tool 95

References 96

6 Corporate Strategy 98

Corporate Versus Business Unit Strategy 99

Creating Value Through Diversification 100

Levels of Diversification 100

Value Creation: Exploit and Expand Resources and Capabilities 101

The Eight Ss 102

Destroying Value Through Diversification 106

Methods of Diversification 108

The Acquisition and Integration Process 109

Making the Acquisition 109

Integrating the Target 109

Summary 113

Key Terms 114

Review Questions 114

Application Exercises 114

References 115

7 Vertical Integration and Outsourcing 117

What is Vertical Integration? 118

The Value Chain 119

Forward Integration and Backward Integration 119

Three Key Reasons to Vertically Integrate 120

Capabilities 120

Coordination 121

Control 123

Dangers of Vertical Integration 124

Loss of Flexibility 124

Loss of Focus 125

Advantages of Outsourcing 126

Dangers of Outsourcing 128

Summary 129

Key Terms 129

Review Questions 129

Application Exercises 130

Strategy Tool 130

References 131

8 Strategic Alliances 133

What is a Strategic Alliance? 134

Choosing an Alliance 135

Types of Alliances 137

Nonequity or Contractual Alliance 137

Equity Alliance 138

Joint Venture 138

Vertical and Horizontal Alliances 138

Ways to Create Value in Alliances 140

Combine Unique Resources 140

Pool Similar Resources 141

Create New, Alliance-Specific Resources 142

Lower Transaction Costs 142

The Risks of Alliances 143

Hold-Up 143

Misrepresentation 143

Building Trust to Lower the Risks of Alliances 143

Building an Alliance Management Capability 146

Improves Knowledge Management 146

Increases External Visibility 146

Provides Internal Coordination 147

Facilitates Intervention and Accountability 147

Summary 148

Key Terms 148

Review Questions 148

Application Exercises 149

Strategy Tool 149

References 150

9 International Strategy 152

The Globalization of Business 153

Why Firms Expand Internationally 155

Growth 155

Efficiency 156

Managing Risk 157

Knowledge 157

Responding to Customers or Competitors 158

Where Firms Should Expand 158

Cultural Distance 159

Administrative Distance 160

Geographic Distance 161

Economic Distance 161

How Firms Compete Internationally 162

Multidomestic Strategy—Adapt to Fit the Local Market 163

Global Strategy—Aggregate and Standardize to Gain Economies of Scale 165

Arbitrage Strategy 166

Combining International Strategies 167

How a Firm Gets into a Country: Modes of Entry 168

Exporting 168

Licensing and Franchising 168

Alliances and Joint Ventures 169

Wholly Owned Subsidiaries 170

Choosing a Mode of Entry 171

Summary 171

Key Terms 172

Review Questions 172

Application Exercises 172

Strategy Tool 173

References 174

10 Innovative Strategies That Change the Nature of Competition 177

What is an Innovative Strategy? 178

Incremental Versus Radical Innovation 179

Categories of Innovative Strategies 181

Reconfiguring the Value Chain to Eliminate Activities (Disintermediation) 181

Low-End Disruptive Innovations 182

High-End/Top-Down Disruptive Innovations 184

Reconfiguring the Value Chain to Allow for Mass Customization 185

Blue Ocean Strategy—Creating New Markets by Targeting Nonconsumers 185

Create a Platform to Coordinate and Share Private Assets 186

Free Business/Revenue Models 187

Hypercompetition: The Accelerating Pace of Innovation 189

Innovation and the Product/Business/Industry Life Cycle (S-Curve) 190

Introduction Stage 190

Growth Stage 190

Maturity Stage 191

Decline Stage 191

Summary 192

Key Terms 192

Review Questions 192

Application Exercises 192

References 193

11 Competitive Strategy and Sustainability 194

Understanding the Competitive Landscape 195

Strategic Groups and Mobility Barriers 195

Strategy Canvas 197

Evaluating the Competition 199

What Drives the Competitor? 200

What is the Competitor Doing or Capable of Doing? 200

How Will a Competitor Respond to Specific Moves? 200

Using Game Theory to Evaluate Specific Moves 201

Principles of Competitive Strategy 205

Know Your Strengths and Weaknesses 205

Bring Strength Against Weakness 205

Protect and Neutralize Vulnerabilities 205

Develop Strategies That Cannot Be Easily Copied 206

Competitive Actions for Different Market Environments 206

Competition Under Monopoly 206

Competition Under Oligopoly 207

“Perfect” Competition 208

Dynamic Environments 210

Sustaining Competitive Advantage 210

Summary 212

Key Terms 212

Review Questions 212

Application Exercises 213

Strategy Tool 213

References 213

12 Implementing Strategy 215

Alignment: The 7 S Model 217

Strategy 217

Structure 217

Systems 219

Staffing 219

Skills 219

Style 220

Shared Values 220

Strategic Change 222

The Three Phases of Change 223

The Eight Steps to Successful Change 224

Measurement 227

Line of Sight 227

Summary 230

Key Terms 230

Review Questions 230

Application Exercises 231

References 231

13 Corporate Governance and Ethics 233

The Purposes of the Corporation 234

The Shareholder Primacy Model 235

The Stakeholder Model 236

Governance: Boards and Incentives 238

The Board of Directors 239

Compensation and Incentives 240

Corporate Ethics 241

Corporate Culture and Ethics 243

Creating an Ethical Climate 244

Summary 246

Key Terms 246

Review Questions 246

Application Exercises 247

References 247

14 Strategy and Society 249

Strategy and Social-Value Organizations 250

The Tools of Strategy and the Creation of Social Value 251

External Analysis and the Value Net 251

Internal Analysis: Resources and Capabilities 253

Cost Leadership, Differentiation, and Innovative Strategies 253

Corporate Strategy and Alliances 254

Implementation and Governance 254

Strategy and Social Change 255

Corporate Social Responsibility (CSR) 255

CSR and Firm Performance 256

Social Entrepreneurship 256

Types of Social Entrepreneurship 257

Skills of Social Entrepreneurs 258

Challenges in Social Entrepreneurship 259

Summary 261

Key Terms 261

Review Questions 261

Application Exercises 261

References 262

Glossary 264

Index 269

Case 01 Walmart Stores: Gaining and Sustaining a Competitive Advantage C-1

Case 02 Coca-Cola and Pepsi: The Shifting Landscape of the Carbonated Soft Drink Industry C-12

Case 03A ESPN in 2015: Continued Dominance in Sports Television? C-25

Case 03B ESPN in 2019: A Network in Search of a Solution C-37

Case 04 Southwest Airlines: Flying High with Low Costs C-41

Case 05 Harley-Davidson: Growth Challenges Ahead C-56

Case 06 Ecolab and the Nalco Acquisition: Sustainable Advantage Through Shared Values C-68

Case 07 Nike: Sourcing and Strategy in Athletic Footwear C-78

Case 08 AT&T and Apple: A Strategic Alliance C-87

Case 09 Samsung: Overtaking Philips, Panasonic, and Sony as the Leader in the Consumer Electronics Industry C-100

Case 10 Tesla Motors: Disrupting the Auto Industry? C-114

Case 11 Smartphone Wars in 2013 C-124

Case 12 Lincoln Electric: Aligning for Global Growth C-137

Case 13 ICARUS Revisited: The Rise and Fall of Valeant Pharmaceuticals C-145

Case 14 Safe Water Network: Mastering the Model at Dzemeni C-156

Case 15 Facebook at a Crossroads: Russian Interference in the 2016 Election C-169

Case 16 CVS in 2015: From Neighborhood Pharmacy Provider to Healthcare Company C-182

Case 17 Uber Technologies Inc. C-192

ADDITIONAL CASES CAN BE FOUND IN WILEYPLUS

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