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This International Student Edition is for use outside of the U.S. TENTH EDITION Strategic Management Creating Competitive Advantages Gregory Dess Gerry McNamara Alan Eisner Seung-Hyun Lee STRATEGIC MANAGEMENT GREGORY G. DESS University of Texas at Dallas GERRY McNAMARA Michigan State University ALAN B. EISNER Pace University SEUNG-HYUN (SEAN) LEE University of Texas at Dallas With contributions by Steve Sauerwald University of Illinois at Chicago tenth edition STRATEGIC MANAGEMENT creating competitive advantages Nico Muller Art/Shutterstock STRATEGIC MANAGEMENT: CREATING COMPETITIVE ADVANTAGES Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2021 by McGrawHill Education. All rights reserved. Printed in the United States of America. 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. 1 2 3 4 5 6 7 8 9 LWI 22 21 20 ISBN 978-1-260-57526-2 MHID 1-260-57526-8 Cover Image: Nico Muller Art/Shutterstock All credits appearing on page or at the end of the book are considered to be an extension of the copyright page. 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. mheducation.com/highered To my family, Margie, Taylor, Alex – our new sonin-law, and my parents, the late Bill and Mary Dess dedication To my first two academic mentors—Charles Burden and Les Rue (of Georgia State University) –Greg To my wonderful wife, Gaelen, and my children, Megan and AJ –Gerry To my family, Helaine, Rachel, and Jacob –Alan To my family, Hannah, Paul, and Stephen; and my parents, Kenny and Inkyung –Sean about the authors Gregory G. Dess vi ©He Gao Gregory G. Dess Gerry McNamara is the Andrew R. Cecil Endowed Chair in Management at the University of Texas at Dallas. His primary research interests are in strategic management, organization environment relationships, and knowledge management. He has published numerous articles on these subjects in both academic and practitioner-oriented journals. He also serves on the editorial boards of a wide range of practitioner-oriented and academic journals. In August 2000, he was inducted into the Academy of Management Journal’s Hall of Fame as one of its charter members. Professor Dess has conducted executive programs in the United States, Europe, Africa, Hong Kong, and Australia. During 1994 he was a Fulbright Scholar in Oporto, Portugal. In 2009, he received an honorary doctorate from the University of Bern (Switzerland). He received his PhD in Business Administration from the University of Washington (Seattle) and a BIE degree from Georgia Tech. is the Eli Broad Professor of Management at Michigan State University. His research draws on cognitive and behavioral theories to explain strategic phenomena, including strategic decision making, mergers and acquisitions, and environmental assessments. His research has been published in the Academy of Management Journal, the Strategic Management Journal, Organization Science, Organizational Behavior and Human Decision Processes, the Journal of Applied Psychology, the Journal of Management, and the Journal of International Business Studies. Gerry’s research has also been abstracted in the Wall Street Journal, Harvard Business Review, New York Times, Bloomberg Businessweek, the Economist, and Financial Week. He serves as an Associate Editor for the Strategic Management Journal and previously served as an Associate Editor for the Academy of Management Journal. He received his PhD from the University of Minnesota. Alan B. Eisner Seung-Hyun Lee Alan B. Eisner Seung-Hyun Lee is Professor of Management and Associate Dean for Graduate Programs at the Lubin School of Business, Pace University. He received his PhD in management from the Stern School of Business, New York University. His primary research interests are in strategic management, technology management, organizational learning, and managerial decision making. He has published research articles and cases in journals such as Advances in Strategic Management, International Journal of Electronic Commerce, International Journal of Technology Management, American Business Review, Journal of Behavioral and Applied Management, and Journal of the International Academy for Case Studies. He is the former Associate Editor of the Case Association’s peer-reviewed journal, The CASE Journal. is a Professor of strategic management and international business and the Area Coordinator of the Organization, Strategy, and International Management area at the Jindal School of Business, University of Texas at Dallas. His primary research interests lie on the intersection between strategic management and international business spanning from foreign direct investment to issues of microfinance and corruption. He has published in numerous journals including Academy of Management Review, Journal of Business Ethics, Journal of International Business Studies, Journal of Business Venturing, and Strategic Management Journal. He received his MBA and PhD from the Ohio State University. vii Welcome to the Tenth Edition of Strategic Management: Creating Competitive Advantages! We always appreciate the con- preface structive and helpful feedback that we have received on our work. And, later in the Preface, we are happy to acknowledge the reviewers for all of the 10 editions of Strategic Management by name. The following are some examples of the encouraging feedback we have received: Dess and colleagues have crafted a globally compelling, innovatively current, and poignantly challenging strategic tool for those of us passionate about teaching strategy. Educators will be inspired and impressed by the portfolio of relevant concepts linked to practical applications through Learning From Mistakes (my favorite), Strategy Spotlights, Insights from Executives, Reflecting on Career Implications, and Cases. Nicely done! Marta Szabo White, Georgia State University We like to change up our cases each term so this gives us a good variety to pick from and rotate through. I feel like each case offers a different learning experience so it is good to incorporate variety. Nicole Lowes, Liberty University The Dess book comprehensively covers the fundamentals of strategy and supports concepts with research and managerial insights. Joshua J. Daspit, Mississippi State University Very engaging. Students will want to read it and find it hard to put down. Amy Gresock, University of Michigan, Flint Strategic Management by Dess, McNamara, Eisner, and Lee is the most engaging and relevant strategy text on the market. The information is convincingly presented and with enough timely examples that students will be engaged. The text also provides thorough, accurate coverage of strategy concepts. These factors combined are a recipe for student learning. Drake Mullens, Tarleton State University I use Strategic Management in a capstone course required of all business majors, and students appreciate the book because it synergizes all their business education into a meaningful and understandable whole. My students enjoy the book’s readability and tight organization, as well as the contemporary examples, case studies, discussion questions, and exercises. William Sannwald, San Diego State University The content is current and my students would find the real-world examples to be extremely interesting. My colleagues would want to know about it and I would make extensive use of the following features: Learning from Mistakes, Strategy Spotlights, Issues for Debate, and I especially like the Reflecting on Career Implications feature. Bottom line: the authors do a great job of explaining complex material and at the same time their use of up-to-date examples promotes learning. Jeffrey Richard Nystrom, University of Colorado at Denver The examples in each chapter are extremely useful to the students and the choice of cases are excellent for case study analysis. Michael L. Sloan, San Diego State University We always endeavor to improve our work and we are most appreciative of the extensive and thoughtful feedback that many strategy professionals have graciously given us. The author team has worked hard to incorporate many of their ideas into the Tenth Edition. viii We believe we have made valuable improvements throughout our many revised editions of Strategic Management. At the same time, we strive to be consistent and “true” to our original overriding objective: a book that satisfies three Rs—rigor, relevance, and readable. And we are pleased that we have received feedback (such as the comments on the previous page) that is consistent with what we are trying to accomplish. What are some of the features in Strategic Management that reinforce the three Rs? First, we build in rigor by drawing on the latest research by management scholars and insights from management consultants to offer a current and comprehensive view of strategic issues. We reinforce this rigor with our Issues for Debate and Reflecting on Career Implications that require students to develop insights on how to address complex issues and understand how strategy concepts can enhance their career success. Second, to enhance relevance, we provide numerous examples from management practice in the text and Strategy Spotlights (sidebars). We also increase relevance by relating course topic and examples to current business and societal themes, including environmental sustainability, ethics, globalization, entrepreneurship, and data analytics. Third, we stress readability through an engaging writing style with minimal jargon to ensure an effective learning experience. This is most clearly evident in the conversational presentations of chapter opening Learning from Mistakes and chapter ending Issues for Debate. Unlike other strategy texts, we provide three separate chapters that address timely topics about which business students should have a solid understanding. These are the role of intellectual assets in value creation (Chapter 4), entrepreneurial strategy and competitive dynamics (Chapter 8), and fostering entrepreneurship in established organizations (Chapter 12). We also provide an excellent and thorough chapter on how to analyze strategic management cases. In developing Strategic Management: Creating Competitive Advantages, we certainly didn’t forget the instructors. As we all know, you have a most challenging (but rewarding) job. We did our best to help you. We provide a variety of supplementary materials that should help you in class preparation and delivery. For example, our chapter notes do not simply summarize the material in the text. Rather (and consistent with the concept of strategy), we ask ourselves: “How can we add value?” Thus, for each chapter, we provide numerous questions to pose to help guide class discussion, at least 12 boxed examples to supplement chapter material, and three detailed “teaching tips” to further engage students. For example, we provide several useful insights on strategic leadership from one of Greg’s colleagues, Charles Hazzard (formerly Executive Vice President, Occidental Chemical). Also, we completed the chapter notes ourselves. That is, unlike many of our rivals, we didn’t simply farm the work out to others. Instead, we felt that such efforts help to enhance quality and consistency—as well as demonstrate our personal commitment to provide a top-quality total package to strategy instructors. With the Tenth Edition, we also benefited from valued input by our strategy colleagues to further improve our work. Let’s now address some of the key substantive changes in the Tenth Edition. Then we will cover some of the major features that we have had in previous editions. WHAT’S NEW? HIGHLIGHTS OF THE TENTH EDITION We have endeavored to add new material to the chapters that reflects the feedback we have received from our reviewers as well as the challenges today’s managers face. Thus, we all invested an extensive amount of time carefully reviewing a wide variety of books, academic and practitioner journals, and the business press. We also worked hard to develop more concise and tightly written chapters. Based on feedback from some of the reviewers, we have tightened our writing style, tried to eliminate redundant examples, and focused more directly on what we feel is the most important content in each chapter for our audience. The overall result is that we were able to update our material, add valuable new content, and—at the same time—shorten the length of the chapters. ix PREFACE Here are some of the major changes and improvements in the Tenth Edition: • • • • • • x Digital Economy. We discuss and illustrate how the rise in digital technologies is changing the competitive environment and how firms are enhancing their strategic position by leveraging elements of the digital economy. A few examples include: • How Alibaba has created a sprawling e-commerce giant in Chapter 1 • How Zara is restructuring its operations to serve online customers in Chapter 3 • How Unilever uses artificial intelligence to hire the best talent in Chapter 4 • How firms use data analytics to enhance organizational control in Chapter 9 Sustainability. With sustainability being an increasing concern of our students, customers, and investors, sustainability has become a key driver of organizational success. We illustrate how firms have incorporated sustainability as a core element of their strategy. A few examples include: • How firms proactively incorporate environmental concerns in their business practices by eliminating plastic waste in Chapter 2 • How firms are focusing on sustainability across a range of elements of the value chain and how these efforts support the attainment of long-term financial performance in Chapter 3 • How sustainable business strategies can attract and retain talent in Chapter 4 • How entrepreneurial firms are working to produce more environmentally sustainable batteries in Chapter 12 The importance of human and social capital for career and firm success. We enhance our discussion of how building and leveraging human and social capital is a core strategic activity. A few examples include: • How to network more effectively in Chapter 4 • How firms can build and leverage independent work teams in Chapter 9 • How firms can inspire passion in their employees in Chapter 9 • How superbosses can help employees working for them accomplish more than they ever thought possible in Chapter 11 Executive Insights: The Strategic Management Process. Here, we introduce an in-depth interview with Mr. Usman Ghani, an internationally recognized consultant who is Chairman of ConfluCore LLP. Usman provides several practical insights into the strategic management process based on his extensive consulting experience and academic background at the Massachusetts Institute of Technology, where he earned three graduate degrees. Over half of the 12 opening Learning from Mistakes vignettes that lead off each chapter are totally new. Unique to this text, they are all examples of what can go wrong, and they serve as an excellent vehicle for clarifying and reinforcing strategy concepts. After all, what can be learned if one simply admires perfection? Over half of our Strategy Spotlights (sidebar examples) are brand new, and many of the others have been thoroughly updated. Although we have reduced the number of Spotlights from the previous edition to conserve space, we still have a total of 60—among the most in the strategy market. We focus on bringing the most important strategy concepts to life in a concise and highly readable manner. And we work hard to eliminate unnecessary detail that detracts from the main point we are trying to make. Also, consistent with our previous edition, many of the Spotlights focus on two “hot” issues that are critical in leading today’s organizations—ethics and environmental sustainability—as well as the digital economy in this edition. Key content changes for the chapters include: • • • • • • Chapter 1 addresses why executives must communicate their long-term thinking to help ensure the support of investors and other stakeholders. Such an initiative has many benefits. Among these are to provide investors with two critical elements: a long-term value creation story (the past) and a long term-value creation plan (the future). Further, when a company espouses an authentic, sustainable purpose, it is more likely to attract, motivate, and retain talent—a core objective in the knowledge economy. We also address how research by Andrew Winston, founder of Winston Eco-Strategies, has demonstrated the dramatic increase in the percentage of S&P companies that have produced detailed and rigorous reports on how they manage environmental and social issues as well as how they have incorporated them into their financial reports. Chapter 2 discusses the importance of the digital economy as a fundamental shift in the business environment. The term digital economy refers to economic transactions and business operations that are based on digital computing technologies. We highlight how the rise of the digital economy has disrupted existing industries by, for instance, reducing the asset intensity of business operations. Embracing the opportunities created by the digital economy has allowed entrepreneurs to create new business models such as ride sharing services and social networks. Chapter 3 discusses how firms are leveraging artificial intelligence to increase the sustainability of their competitive advantages. Firms are beginning to use artificial intelligence (AI) to better assess the preferences of their customers, how customers use their products, and how to best structure the firm’s operations to build and maintain competitive advantages. Using AI, these firms are able to build sustainable advantages because their resource sets are built on path dependent and socially complex processes, making imitation difficult. Chapter 4 discusses some of the challenges that women face when it comes to networking, an activity that is vital for career advancement. Given that there are relatively fewer women in positions of leadership, it often becomes more difficult for them to find sponsors in order to make introductions and referrals. Professor Herminia Ibarra, of the London Business School, has proposed some suggestions on how women can more successfully engage in networking activities. These include making connections across diverse circles, investing time in extracurricular activities, and joining a professional women’s network. We also provide examples of how companies have overcome the geographic preferences of talented professionals by building dispersed facilities and creating and maintaining formal relationships with research institutions. Chapter 5 introduces the concept of unscaling and how firms are using it to create a combination strategy. While firms have traditionally built large-scaled operations to run as efficiently as possible in order to dominate markets, firms that pursue unscaling turn things on their head. Unscaled firms look to build small scale operations that meet the needs of particular customers as efficiently as possible, at times even more efficiently than scaled competitors. Unscaling involves both the leveraging of technology, such as artificial intelligence, and the reliance on suppliers or customers to provide critical inputs to the process. We illustrate the concept by showing how Waze, P&G, and Indochino all use unscaling to efficiently offer differentiated products and services. Chapter 6 discusses how CEO underpayment can be a trigger for acquisitions. Research shows that when CEOs are underpaid relative to their peer CEOs, they undertake acquisitions to grow the size of the firm and increase their compensation. Further, it appears to work for the acquiring CEOs. They do benefit by seeing their pay rise. Thus, this research provides evidence that CEOs sometimes undertake acquisitions to benefit themselves, not the stockholders of the firm. xi PREFACE • • • • • • xii Chapter 7 illustrates the potential of reverse innovation for the health care sector in highincome countries such as the United States. Reverse innovation refers to innovations that flow from low-income to high-income countries rather than the other way around. We illustrate how Indian hospital groups reconfigured their healthcare delivery to achieve high quality care at prices that are much lower than in the United States. These heathcare innovations subsequently found great success in parts of the United States that resemble the problems found in low-income countries. Chapter 8 challenges the conventional view that entrepreneurial firms are typically started by tech savvy college students or young adults. Research shows that the average age at which entrepreneurs start businesses is in their early forties. Further, the fastest growing firms were started by entrepreneurs who were even older, with founders of fast growing firms almost three times more likely to be over fifty than under thirty. Chapter 9 outlines disadvantages associated with outsider dominated boards of directors. The dominant view of boards of directors is that having boards that are primarily populated with outsiders, those not employed by or tied to the firm, is beneficial since the board will then be able to better monitor the firm’s CEO. However, we outline a number of disadvantages that arise with outsider dominated boards. First, the board receives less information about the firm’s operations since all information is filtered through the CEO. Second, the board has greater difficulty identifying who should be the next CEO of the firm since they don’t regularly interact with any executives other than the current CEO. Third, non-CEO executives miss out on opportunities to develop their strategic decision making skills by being part of the board. Chapter 10 discusses the power of small, independent teams in keeping the firm innovative and agile. We draw on consultants’ insights on how to structure and manage teams to make them more effective. Recommendations include keeping the size of the team small, staffing the team with top performers, empowering the team to spend their budget, holding the team accountable for their goals, and having an engaged manager. Chapter 11 delves into the attributes of superbosses. Superbosses not only build strong firms but also help those around them accomplish more than they ever thought possible. How do they do it? First, they strive to hire the best employees and surround themselves with unusually gifted people. They have no desire to be the smartest person in the room. Instead, Lorne Michaels, the producer of Saturday Night Live, reflected the mindset of a superboss when he said, “If you look around the room and think, ‘God, these people are amazing,’ then you’re probably in the right room.” Once they have these highly skilled individuals on their team, superbosses also figure out how to develop employees. We discuss several actions managers can take to identify the best candidates for their firm and ways they can act to best develop their employees. Chapter 12 discusses the mindset needed to leverage the value of technologies in different markets. Firms often struggle in their efforts to leverage their existing technologies in new markets. We discuss a four-step process firms can employ to increase their effectiveness in leveraging their technologies in new markets. The steps redefine the technology or competency in general terms, identify new applications of the technology, select the most promising applications, and choose the best entry mode. We discuss these steps in more detail and provide an example of each in the chapter. • Chapter 13 updates our Appendix: Sources of Company and Industry Information. As always, the authors owe a huge debt of gratitude to Ms. Ruthie Brock, of the University of Texas at Arlington. She has provided us with comprehensive and updated information for the Tenth Edition that is organized on a wide range of issues. These include competitive intelligence, annual report collections, company rankings, business websites, as well as strategic and competitive analysis. She has always been very gracious when we impose on her every two years! WHAT REMAINS THE SAME: KEY FEATURES OF EARLIER EDITIONS Let’s now briefly address some of the exciting features that remain from the earlier editions. • • • Traditional organizing framework with three other chapters on timely topics. Crisply written chapters cover all of the strategy bases and address contemporary topics. First, the chapters are divided logically into the traditional sequence: strategy analysis, strategy formulation, and strategy implementation. Second, we include three chapters on such timely topics as intellectual capital/knowledge management, entrepreneurial strategy and competitive dynamics, and fostering corporate entrepreneurship and new ventures. Learning from Mistakes chapter-opening cases. To enhance student interest, we begin each chapter with a case that depicts an organization that has suffered a dramatic performance drop, or outright failure, by failing to adhere to sound strategic management concepts and principles. We believe that this feature serves to underpin the value of the concepts in the course and that it is a preferred teaching approach to merely providing examples of outstanding companies that always seem to get it right. After all, isn’t it better (and more challenging) to diagnose problems than admire perfection? As Dartmouth’s Sydney Finkelstein, author of Why Smart Executives Fail, notes: “We live in a world where success is revered, and failure is quickly pushed to the side. However, some of the greatest opportunities to learn—for both individuals and organizations—come from studying what goes wrong.”* We’ll see how, for example, Mattress Firm grew to more than 3,200 stores and $3 billion in annual revenue—but then crashed into bankruptcy. Clearly, the advent of nimble internet rivals, such as Casper Sleep, Inc., led to their downfall. However, their demise was hastened by their aggressive expansion and the accumulation of excessive debt to fund it. We’ll also explore the bankruptcy of storied law firm Dewey & LeBoeuf LLP. Their failure can be attributed to three major issues: a reliance on borrowed money, making large promises about compensation to incoming partners (which didn’t sit well with their existing partners!), and a lack of transparency about the firm’s financials. Issue for Debate at the end of each chapter. We find that students become very engaged (and often animated!) in discussing an issue that has viable alternate points of view. It is an exciting way to drive home key strategy concepts. For example, in Chapter 4, we ask whether or not providing financial incentives to employees to lose weight actually works. And, in Chapter 10 we address a trend that is taking place in many large corporations: the flattening of hierarchical organizational structures. In fact, one survey found that 93 percent of polled firms indicate that they intend to flatten their organization in the near future. On the one hand, such restructuring has its advantages—it can offer cost savings, flexibility, and quicker response times. However, some of these *Personal Communication, June 20, 2005. xiii PREFACE • • • benefits may be offset by some negative consequences that can occur. These include the overstretching of management attention, additional friction among managers at various levels since there are fewer middle managers to resolve conflicts, and demotivating effects caused by reduced opportunities for managers to advance through the management ranks. Clearly, one size does not fit all. Firms must consider the relative benefits and costs of flattening their structures as well as take into account such factors as a firm’s size, technology, and culture as well as the industry in which it competes. Insights from Research. We include six of these features in the Tenth Edition—and half of them are entirely new. Here, we summarize key research findings on a variety of issues and, more importantly, address their relevance for making organizations (and managers!) more effective. For example, in Chapter 2 we discuss findings from a meta-analysis (research combining many individual studies) to debunk several myths about older workers—a topic of increasing importance, given the changing demographics in many developed countries. In Chapter 4, we address a study that explored the viability of re-hiring employees who had previously left the organizations. Such employees, called “boomerangs” may leave an organization for several reasons and such reasons may strongly influence their willingness to return to the organization. And in Chapter 6, we explore a study that investigates how closely CEOs attend to media assessments of actions that they take. Using a large database of 745 large acquisitions undertaken by S&P 500 firms, researchers find that CEOs do pay attention to media evaluations of acquisitions. However, the extent to which they are future- or past-focused influences whether and how they learn from the media. Reflecting on Career Implications . . . We provide insights that are closely aligned with and directed to three distinct issues faced by our readers: prepare them for a job interview (e.g., industry analysis), help them with current employers or their career in general, or help them find potential employers and decide where to work. We believe this will be very valuable to students’ professional development. Consistent chapter format and features to reinforce learning. We have included several features in each chapter to add value and create an enhanced learning experience. First, each chapter begins with an overview and a list of key learning objectives. Second, as previously noted, the opening case describes a situation in which a company’s performance eroded because of a lack of proper application of strategy concepts. Third, at the end of each chapter there are four different types of questions/exercises that should help students assess their understanding and application of material: 1. 2. 3. 4. Summary review questions. Experiential exercises. Application questions and exercises. Ethics questions. Given the centrality of online systems to business today, each chapter contains at least one exercise that allows students to explore the use of the Internet in implementing a firm’s strategy. • xiv Key Terms. Approximately a dozen key terms for each chapter are identified in the margins of the pages. This addition was made in response to reviewer feedback and improves students’ understanding of core strategy concepts. • • • • • Clear articulation and illustration of key concepts. Key strategy concepts are introduced in a clear and concise manner and are followed by timely and interesting examples from business practice. Such concepts include value-chain analysis, the resource-based view of the firm, Porter’s five forces model, competitive advantage boundaryless organizational designs, digital strategies, corporate governance, ethics, data analytics, and entrepreneurship. Extensive use of sidebars. We include 60 sidebars (or about five per chapter) called Strategy Spotlights. The Strategy Spotlights not only illustrate key points but also increase the readability and excitement of new strategy concepts. Integrative themes. The text provides a solid grounding in ethics, globalization, environmental sustainability, and technology. These topics are central themes throughout the book and form the basis for many of the Strategy Spotlights. Implications of concepts for small businesses. Many of the key concepts are applied to start-up firms and smaller businesses, which is particularly important since many students have professional plans to work in such firms. Not just a product, but an entire package. Strategic Management features the best chapter teaching notes available today. Rather than merely summarizing the key points in each chapter, we focus on value-added material to enhance the teaching (and learning) experience. Each chapter includes dozens of questions to spur discussion, teaching tips, in-class group exercises, and about a dozen detailed examples from business practice to provide further illustrations of key concepts. TEACHING RESOURCES Instructor’s Manual (IM) Prepared by the textbook authors, along with valued input from our strategy colleagues, the accompanying IM contains summary/objectives, lecture/discussion outlines, discussion questions, extra examples not included in the text, teaching tips, reflecting on career implications, experiential exercises, and more. Test Bank Revised by Christine Pence of the University of California-Riverside, the test bank contains more than 1,000 true/false, multiple-choice, and essay questions. It is tagged with learning objectives as well as Bloom’s Taxonomy and AACSB criteria. • • Assurance of Learning Ready. Assurance of Learning is an important element of many accreditation standards. The Tenth Edition is designed specifically to support your Assurance of Learning initiatives. Each chapter in the book begins with a list of numbered learning objectives that appear throughout the chapter. Every test bank question is also linked to one of these objectives, in addition to level of difficulty, topic area, Bloom’s Taxonomy level, and AACSB skill area. Test Builder, an easy-to-use, cloudbased test bank software, can search the test bank by these and other categories, providing an engine for targeted Assurance of Learning analysis and assessment. AACSB Statement. McGraw-Hill is a proud corporate member of AACSB International. Understanding the importance and value of AACSB accreditation, the Tenth Edition has sought to recognize the curricula guidelines detailed in the AACSB standards for business accreditation by connecting selected questions in Dess 10e and the test bank to the xv PREFACE • general knowledge and skill guidelines found in the AACSB standards. The statements contained in this new edition are provided only as a guide for the users of this text. The AACSB leaves content coverage and assessment within the purview of individual schools, the mission of the school, and the faculty. While this new edition and the teaching package make no claim of any specific AACSB qualification or evaluation, we have labeled selected questions within the title according to the six general knowledge and skills areas. Test Builder. A comprehensive bank of test questions is provided within a computerized test bank powered by Test Builder, a cloud-based tool that enables instructors to format tests that can be printed or administered within a LMS. Available in Connect, Test Builder offers a modern, streamlined interface for easy content configuration that matches course needs, without requiring a download. Test Builder allows you to: • • • • • • • access all test bank content from a particular title. easily pinpoint the most relevant content through robust filtering options. manipulate the order of questions or scramble questions and/or answers. pin questions to a specific location within a test. determine your preferred treatment of algorithmic questions. choose the layout and spacing. add instructions and configure default settings. Test Builder provides a secure interface for better protection of content and allows for just-in-time updates to flow directly into assessments. PowerPoint Presentation Prepared by Pauline Assenza of Western Connecticut State University, it consists of more than 400 slides incorporating an outline for the chapters tied to learning objectives. Also included are instructor notes, multiple-choice questions that can be used as Classroom Performance System (CPS) questions, and additional examples outside the text to promote class discussion. The Business Strategy Game and GLO-BUS Online Simulations Both allow teams of students to manage companies in a head-to-head contest for global market leadership. These simulations give students the immediate opportunity to experiment with various strategy options and to gain proficiency in applying the concepts and tools they have been reading about in the chapters. To find out more or to register, please visit www.bsg-online. com or www.glo-bus.com. xvi COURSE DESIGN AND DELIVERY RESOURCES Craft your teaching resources to match the way you teach! With McGraw-Hill Create, www. mcgrawhillcreate.com, you can easily rearrange chapters, combine material from other content sources, and quickly upload content you have written, like your course syllabus or teaching notes. Find the content you need in Create by searching through thousands of leading McGraw-Hill textbooks. Arrange your book to fit your teaching style. Create even allows you to personalize your book’s appearance by selecting the cover and adding your name, school, and course information. Order a Create book and you’ll receive a complimentary print review copy in three to five business days or a complimentary electronic review copy (eComp) via email in about one hour. Go to www.mcgrawhillcreate.com today and register. Experience how McGraw-Hill Create empowers you to teach your students your way. At McGraw-Hill, we understand that getting the most from new technology can be challenging. That’s why our services don’t stop after you purchase our products. You can email our product specialists 24 hours a day to get product training online. Or you can search our knowledge bank of Frequently Asked Questions on our support website. For customer support, call 800-338-3987 or visit www.mheducation.com/contact.html. One of our technical support analysts will be able to assist you in a timely fashion. ACKNOWLEDGMENTS Strategic Management represents far more than just the joint efforts of the four co-authors. Rather, it is the product of the collaborative input of many people. Some of these individuals are academic colleagues, others are the outstanding team of professionals at McGraw-Hill, and still others are those who are closest to us—our families. It is time to express our sincere gratitude. First, we’d like to acknowledge the dedicated instructors who have graciously provided their insights since the inception of the text. Their input has been very helpful in both pointing out errors in the manuscript and suggesting areas that needed further development as additional topics. We sincerely believe that the incorporation of their ideas has been critical to improving the final product. These professionals and their affiliations are: The Reviewer Hall of Fame Moses Acquaah, University of North Carolina–Greensboro Todd Alessandri, Northeastern University Larry Alexander, Virginia Polytechnic Institute Thomas H. Allison, Washington State University Brent B. Allred, College of William & Mary Allen C. Amason, Georgia Southern University Kathy Anders, Arizona State University Jonathan Anderson, University of West Georgia Peter H. Antoniou, California State University– San Marcos Dave Arnott, Dallas Baptist University Marne L. Arthaud-Day, Kansas State University Dr. Bindu Arya, University of Missouri– St. Louis Jay A. Azriel, York College of Pennsylvania Jeffrey J. Bailey, University of Idaho David L. Baker, PhD, John Carroll University xvii PREFACE Dennis R. Balch, University of North Alabama Bruce Barringer, University of Central Florida Barbara R. Bartkus, Old Dominion University Barry Bayon, Bryant University Brent D. Beal, Louisiana State University Dr. Patricia Beckenholdt, Business and Professional Programs, University of Maryland, University College Joyce Beggs, University of North CarolinaCharlotte Michael Behnam, Suffolk University Kristen Bell DeTienne, Brigham Young University Eldon Bernstein, Lynn University Lyda Bigelow, University of Utah David Blair, University of Nebraska at Omaha Daniela Blettner, Tilburg University Dusty Bodie, Boise State University William Bogner, Georgia State University David S. Boss, PhD, Ohio University Scott Browne, Chapman University Jon Bryan, Bridgewater State College xviii Charles M. Byles, Virginia Commonwealth University Mikelle A. Calhoun, Valparaiso University Thomas J. Callahan, University of Michigan– Dearborn Samuel D. Cappel, Southeastern Louisiana State University Gary Carini, Baylor University Shawn M. Carraher, University of Texas–Dallas Tim Carroll, University of South Carolina Don Caruth, Amberton University Maureen Casile, Bowling Green State University Gary J. Castrogiovanni, Florida Atlantic University Radha Chaganti, Rider University Erick PC Chang, Arkansas State University Tuhin Chaturvedi, Joseph M. Katz Graduate School of Business, University of Pittsburgh Jianhong Chen, University of New Hampshire Tianxu Chen, Oakland University Andy Y. Chiou, SUNY Farmingdale State College Theresa Cho, Rutgers University Timothy S. Clark, Northern Arizona University Bruce Clemens, Western New England College Betty S. Coffey, Appalachian State University Wade Coggins, Webster University–Fort Smith Metro Campus Susan Cohen, University of Pittsburgh George S. Cole, Shippensburg University Jennifer Collins, Florida A&M University Joseph Coombs, Virginia Commonwealth University Christine Cope Pence, University of California– Riverside James J. Cordeiro, SUNY Brockport Stephen E. Courter, University of Texas at Austin Jeffrey Covin, Indiana University Keith Credo, Auburn University Joshua J. Daspit, PhD, Mississippi State University Deepak Datta, University of Texas at Arlington James Davis, Utah State University Justin L. Davis, University of West Florida David Dawley, West Virginia University Daniel DeGravel, California State University Northridge, David Nazarian College of Business and Economics Helen Deresky, State University of New York– Plattsburgh Rocki-Lee DeWitt, University of Vermont Jay Dial, Ohio State University Michael E. Dobbs, Arkansas State University Jonathan Doh, Villanova University Dr. John Donnellan, NJCU School of Business Tom Douglas, Clemson University Jon Down, Oregon State University Meredith Downes, Illinois State University Mohinder Dugal, Western Connecticut State University Alan E. Ellstrand, University of Arkansas Dean S. Elmuti, Eastern Illinois University Clare Engle, Concordia University Mehmet Erdem Genc, Baruch College, CUNY Tracy Ethridge, Tri-County Technical College William A. Evans, Troy State University–Dothan Frances H. Fabian, University of Memphis Angelo Fanelli, Warrington College of Business Michael Fathi, Georgia Southwestern University Carolyn J. Fausnaugh, Florida Institute of Technology Tamela D. Ferguson, University of Louisiana at Lafayette David Flanagan, Western Michigan University Kelly Flis, The Art Institutes Karen Ford-Eickhoff, University of North Carolina Charlotte Dave Foster, Montana State University Isaac Fox, University of Minnesota Charla S. Fraley, Columbus State Community College–Columbus, Ohio Debbie Gilliard, Metropolitan State College– Denver Deborah Francis, Brevard College Niran Harrison, University of Oregon Steven A. Frankforter, Winthrop University Paula Harveston, Berry College Harold Fraser, California State University– Fullerton Ahmad Hassan, Morehead State University Donald Hatfield, Virginia Polytechnic Institute Vance Fried, Oklahoma State University Karen Froelich, North Dakota State University Naomi A. Gardberg, Baruch College, CUNY Joe Gerard, Western New England University J. Michael Geringer, Ohio University Diana L. Gilbertson, California State University– Fresno Matt Gilley, St. Mary’s University Yezdi H. Godiwalla, University of Wisconsin– Whitewater Sanjay Goel, University of Minnesota-Duluth Sandy Gough, Boise State University Amy Gresock, PhD The University of Michigan, Flint Vishal K. Gupta, The University of Mississippi Dr. Susan Hansen, University of Wisconsin– Platteville Allen Harmon, University of Minnesota–Duluth Kim Hester, Arkansas State University Scott Hicks, Liberty University John Hironaka, California State University– Sacramento Anne Kelly Hoel, University of Wisconsin–Stout Alan Hoffman, Bentley College Gordon Holbein, University of Kentucky Stephen V. Horner, Pittsburg State University xix PREFACE Jill Hough, University of Tulsa John Humphreys, Eastern New Mexico University James G. Ibe, Morris College Jay J. Janney, University of Dayton Lawrence Jauch, University of Louisiana–Monroe Dana M. Johnson, Michigan Technical University Homer Johnson, Loyola University, Chicago Hyungu Kang, Central Michigan University Patricia Kanishiro, Loyola University, Maryland Marilyn R. Kaplan, Naveen Jindal School of Management, University of Texas–Dallas James Katzenstein, California State University– Dominguez Hills Joseph Kavanaugh, Sam Houston State University Franz Kellermanns, University of Tennessee Craig Kelley, California State University– Sacramento Donna Kelley, Babson College Dave Ketchen, Auburn University John A. Kilpatrick, Idaho State University Dr. Jaemin Kim, Stockton University Brent H. Kinghorn, Emporia State University xx Helaine J. Korn, Baruch College, CUNY Stan Kowalczyk, San Francisco State University Daniel Kraska, North Central State College Donald E. Kreps, Kutztown University Jim Kroeger, Cleveland State University Subdoh P. Kulkarni, Howard University Ron Lambert, Faulkner University Theresa Lant, New York University Jai Joon Lee, California State University Sacramento Dan Lockhart, University of Kentucky John Logan, University of South Carolina Franz T. Lohrke, Samford University Eduardo Lopez, Belmont University Kevin B. Lowe, Graduate School of Management, University of Auckland Ted Legatski, Texas Christian University David J. Lemak, Washington State University– Tri-Cities Cynthia Lengnick-Hall, University of Texas at San Antonio Donald L. Lester, Arkansas State University Wanda Lester, North Carolina A&T State University Krista B. Lewellyn, University of Wyoming Benyamin Lichtenstein, University of Massachusetts at Boston Jun Lin, SUNY at New Paltz Zhiang (John) Lin, University of Texas at Dallas James Maddox, Friends University Ravi Madhavan, University of Pittsburgh Paul Mallette, Colorado State University Santo D. Marabella, Moravian College Catherine Maritan, Syracuse University Daniel Marrone, Farmingdale State College, SUNY Sarah Marsh, Northern Illinois University Jim Martin, Washburn University John R. Massaua, University of Southern Maine Hao Ma, Bryant College Eric Shaunn Mattingly, Boise State University Nicole Lowes, Liberty University Leyland M. Lucas, Morgan State University Doug Lyon, Fort Lewis College Rickey Madden, PhD, Presbyterian College Larry McDaniel, Alabama A&M University Jean McGuire, Louisiana State University Abagail McWilliams, University of Illinois-Chicago Ofer Meilich, California State University– San Marcos John E. Merchant, California State University– Sacramento John M. Mezias, University of Miami Michael Michalisin, Southern Illinois University at Carbondale Elouise Mintz, St. Louis University Doug Moesel, University of Missouri–Columbia Fatma Mohamed, Morehead State University Mike Montalbano, Bentley University Debra Moody, University of North Carolina– Charlotte Gregory A. Moore, Middle Tennessee State University James R. Morgan, Dominican University and UC Berkeley Extension Ken Morlino, Wilmington University Sara A. Morris, Old Dominion University Todd W. Moss, PhD, Syracuse University Carolyn Mu, Baylor University Stephen Mueller, Northern Kentucky University John Mullane, Middle Tennessee State University Chandran Mylvaganam, Northwood University Sucheta Nadkarni, Cambridge University Anil Nair, Old Dominion University Floyd Ormsbee, Clarkson University Dr. Mine Ozer, SUNY–Oneonta Dr. Eren Ozgen, Troy University–Dothan Campus Karen L. Page, University of Wyoming Jacquelyn W. Palmer, University of Cincinnati V.K. Narayanan, Drexel University Julie Palmer, University of Missouri– Columbia Maria L. Nathan, Lynchburg College Daewoo Park, Xavier University Louise Nemanich, Arizona State University Gerald Parker, Saint Louis University Kent Neupert, Boise State University Ralph Parrish, University of Central Oklahoma Charles Newman, University of Maryland, University College Vijay Patel, University of North Carolina– Charlotte Stephanie Newport, Austin Peay State University Amy Patrick, Wilmington University Gerry Nkombo Muuka, Murray State University John Pepper, The University of Kansas Bill Norton, University of Louisville Douglas K. Peterson, Indiana State University Dr. Jill E. Novak Texas A&M University Edward Petkus, Mary Baldwin College Roman Nowacki, Northern Illinois University Yusuf A. Nur, SUNY Brockport Michael C. Pickett, National University Jeffrey Richard Nystrom, University of Colorado–Denver Peter Ping Li, California State University– Stanislaus William Ross O’Brien, Dallas Baptist University Michael W. Pitts, Virginia Commonwealth University d.t. ogilvie, Rutgers University Laura Poppo, Virginia Tech xxi PREFACE Steve Porth, Saint Joseph’s University Jodi A. Potter, Robert Morris University Jeremy Short, University of Oklahoma Mark Simon, Oakland University–Michigan Tobias Pret, Pace University John K. Ross III, Texas State University–San Marcos Scott A. Quatro, Grand Canyon University Robert Rottman, Kentucky State University Bruce Skaggs, University of Massachusetts Ranfeng Qiu, California State University– San Bernadino Matthew R. Rutherford, Gonzaga University Lise Anne D. Slattern, University of Louisiana at Lafayette Nandini Rajagopalan, University of Southern California Annette L. Ranft, North Carolina State University Abdul Rasheed, University of Texas at Arlington Devaki Rau, Northern Illinois University George Redmond, Franklin University Kira Reed, Syracuse University Clint Relyea, Arkansas State University Barbara Ribbens, Western Illinois University Maurice Rice, University of Washington Violina P. Rindova, University of Texas–Austin Ron Rivas, Canisius College David Robinson, Indiana State University–Terre Haute Kenneth Robinson, Kennesaw State University Simon Rodan, San Jose State University xxii Patrick R. Rogers, North Carolina A&T State University Carol M. Sanchez, Grand Valley State University Doug Sanford, Towson University William W. Sannwald, San Diego State University Yolanda Sarason, Colorado State University Marguerite Schneider, New Jersey Institute of Technology Roger R. Schnorbus, University of Richmond Terry Sebora, University of Nebraska–Lincoln John Seeger, Bentley College Jamal Shamsie, Michigan State University Mark Shanley, University of Illinois at Chicago Ali Shahzad, James Madison University Lois Shelton, California State University– Northridge Herbert Sherman, Long Island University Weilei Shi, Baruch College, CUNY Chris Shook, Auburn University Rob Singh, Morgan State University Michael Sloan, San Diego State University Wayne Smeltz, Rider University Anne Smith, University of Tennessee Andrew Spicer, University of South Carolina James D. Spina, University of Maryland John Stanbury, George Mason University & Inter-University Institute of Macau, SAR China Timothy Stearns, California State University– Fresno Elton Stephen, Austin State University Charles E. Stevens, University of Wyoming Alice Stewart, Ohio State University Christopher Stewart, Metropolitan State University of Denver Mohan Subramaniam, Carroll School of Management Boston College Ram Subramanian, Grand Valley State University Roy Suddaby, University of Iowa Michael Sullivan, UC Berkeley Extension Marta Szabo White, Georgia State University Stephen Takach, University of Texas at San Antonio Justin Tan, York University, Canada Qingjiu Tao, PhD, James Madison University Renata A. Tarasievich, University of Illinois at Chicago Linda Teagarden, Virginia Tech Bing-Sheng Teng, George Washington University Alan Theriault, University of California–Riverside Tracy Thompson, University of Washington– Tacoma Karen Torres, Angelo State University Mary Trottier, Associate Professor of Management, Nichols College Robert Trumble, Virginia Commonwealth University Francis D. (Doug) Tuggle, Chapman University K.J. Tullis, University of Central Oklahoma Craig A. Turner, PhD, East Tennessee State University Beverly Tyler, North Carolina State University Rajaram Veliyath, Kennesaw State University S. Stephen Vitucci, Tarleton State University– Central Texas Jay A. Vora, St. Cloud State University Valerie Wallingford, Ph.D., Bemidji State University Jorge Walter, Portland State University Bruce Walters, Louisiana Tech University Edward Ward, St. Cloud State University N. Wasilewski, Pepperdine University Andrew Watson, Northeastern University Larry Watts, Stephen F. Austin University Marlene E. Weaver, American Public University System Paula S. Weber, St. Cloud State University Kenneth E. A. Wendeln, Indiana University Robert R. Wharton, Western Kentucky University Laura Whitcomb, California State University– Los Angeles Marta Szabo White, Georgia State University Scott Williams, Wright State University Ross A. Wirth, Franklin University Gary Wishniewsky, California State University East Bay Diana Wong, Bowling Green State University Beth Woodard, Belmont University John E. Wroblewski, State University of New YorkFredonia Anne York, University of NebraskaOmaha Michael Zhang, Sacred Heart University Monica Zimmerman, Temple University Second, we would like to thank the people who have made our two important features possible. The information found in our six Insights from Research was provided courtesy of www. businessminded.com, an organization founded by K. Matthew Gilley, PhD (St. Mary’s University) that transforms empirical management research into actionable insights for business leaders. We appreciate Matt’s graciousness and kindness in helping us out. And, of course, our Executive Insights: The Strategic Management Process would not have been possible without the ­gracious participation of Usman Ghani, a premier international consultant, and Chairman of ConfluCore, LLP. xxiii PREFACE Third, the authors would like to thank several faculty colleagues who were particularly helpful in the review, critique, and development of the book and supplementary materials. Greg’s and Sean’s colleagues at the University of Texas at Dallas also have been helpful and supportive. These individuals include Mike Peng, Joe Picken, Kumar Nair, John Lin, Larry Chasteen, Tev Dalgic, and Livia Markoczy. Administrative assistant, Shalonda Hill, has been extremely helpful. Four doctoral students, Brian Pinkham, Steve Sauerwald, Kyun Kim, and Canan Mutlu, have provided many useful inputs and ideas. They also appreciate the support of his dean and associate dean, Hasan Pirkul and Varghese Jacob, respectively. Greg wishes to thank a special colleague, Abdul Rasheed at the University of Texas at Arlington, who certainly has been a valued source of friendship and ideas for us for many years. He provided valuable contributions to many of the editions. Gerry thanks all of his colleagues at Michigan State University for their help and support over the years. He also thanks his mentor, Phil Bromiley, as well as the students and former students he has had the pleasure of working with. Alan thanks his colleagues at Pace University and the Case Association for their support in developing these fine case selections. Special thanks go to Jamal Shamsie at Michigan State University for his support in developing the case selections for this edition. Fourth, we would like to thank the team at McGraw-Hill for their outstanding support throughout the entire process. As we work on the book through the various editions, we always appreciate their hard work and recognize how so many people add value to our final package. This began with John Biernat, formerly publisher, who signed us to our original contract. He was always available to us and provided a great deal of support and valued input throughout several editions. Presently, in editorial, Terri Schiesl, managing director, editorial director Mike Ablassmeir, and senior product developer Anne Ehrenworth kept things on track, responded quickly to our seemingly endless needs and requests, and offered insights and encouragement. We appreciate their expertise—as well as their patience! Once the manuscript was completed and revised, content project manager Harvey Yep expertly guided it through the content and assessment production process. Matt Diamond provided excellent design and artwork guidance. We also appreciate executive marketing manager Debbie Clare and marketing coordinator Julia Blankenship for their energetic, competent, and thorough marketing efforts. Last, but certainly not least, we thank MHE’s outstanding book reps—who serve on the front lines—as well as many in-house sales professionals. Clearly, they deserve a lot of credit (even though not mentioned by name) for our success. Fifth, we acknowledge the valuable contributions of many of our strategy colleagues for their excellent contributions to our supplementary and digital materials. Such content really adds a lot of value to our entire package! We are grateful to Pauline Assenza at Western Connecticut State University for her superb work on case teaching notes as well as chapter and case PowerPoints. Patrick McGuigan, Pace University, deserves our thanks for his hard work in developing excellent digital materials for Connect. We thank Christine Pence, University of California–Riverside, for her important contributions in revising our test bank and chapter quizzes, and Todd Moss, Oregon State University, for his hard work in putting together an excellent set of videos online, along with the video grid that links videos to chapter material. Finally, we thank Steve Sauerwald, University of Illinois– Chicago, for his excellent contributions to the content in some of the chapters. Finally, we would like to thank our families. For Greg this includes his parents, the late William and Mary Dess, who have always been there for him. His wife, Margie, and daughter, Taylor, have been a constant source of love and companionship. Our family is also thrilled to welcome a new member—Alex, who married Taylor in December 2018. Gerry thanks his wife, Gaelen, for her love, xxiv support, and friendship; and his children, Megan and AJ, for their love and the joy they bring to his life. He also thanks his current and former PhD students who regularly inspire and challenge him. Alan thanks his family—his wife, Helaine, and his children, Rachel and Jacob—for their love and support. He also thanks his parents, Gail Eisner and the late Marvin Eisner, for their support and encouragement. Sean thanks his wife, Hannah, and his two boys, Paul and Stephen, for their unceasing love and care. He also thanks his parents, Kenny and Inkyung Lee, for being there whenever needed. xxv ® FOR INSTRUCTORS You’re in the driver’s seat. Want to build your own course? No problem. Prefer to use our turnkey, prebuilt course? Easy. Want to make changes throughout the semester? Sure. And you’ll save time with Connect’s auto-grading too. 65% Less Time Grading They’ll thank you for it. Adaptive study resources like SmartBook® 2.0 help your students be better prepared in less time. You can transform your class time from dull definitions to dynamic debates. Find out more about the powerful personalized learning experience available in SmartBook 2.0 at www.mheducation.com/highered/ connect/smartbook Laptop: McGraw-Hill; Woman/dog: George Doyle/Getty Images Make it simple, make it affordable. Solutions for your challenges. Connect makes it easy with seamless integration using any of the major Learning Management Systems— Blackboard®, Canvas, and D2L, among others—to let you organize your course in one convenient location. Give your students access to digital materials at a discount with our inclusive access program. Ask your McGraw-Hill representative for more information. A product isn’t a solution. Real solutions are affordable, reliable, and come with training and ongoing support when you need it and how you want it. Our Customer Experience Group can also help you troubleshoot tech problems— although Connect’s 99% uptime means you might not need to call them. See for yourself at status. mheducation.com Padlock: Jobalou/Getty Images Checkmark: Jobalou/Getty Images FOR STUDENTS Effective, efficient studying. Connect helps you be more productive with your study time and get better grades using tools like SmartBook 2.0, which highlights key concepts and creates a personalized study plan. Connect sets you up for success, so you walk into class with confidence and walk out with better grades. Study anytime, anywhere. Download the free ReadAnywhere app and access your online eBook or SmartBook 2.0 assignments when it’s convenient, even if you’re offline. And since the app automatically syncs with your eBook and SmartBook 2.0 assignments in Connect, all of your work is available every time you open it. Find out more at www.mheducation.com/readanywhere “I really liked this app—it made it easy to study when you don’t have your textbook in front of you.” – Jordan Cunningham, Eastern Washington University No surprises. The Connect Calendar and Reports tools keep you on track with the work you need to get done and your assignment scores. Life gets busy; Connect tools help you keep learning through it all. Calendar: owattaphotos/Getty Images Learning for everyone. McGraw-Hill works directly with Accessibility Services Departments and faculty to meet the learning needs of all students. Please contact your Accessibility Services office and ask them to email [email protected], or visit www.mheducation.com/about/accessibility for more information. Top: Jenner Images/Getty Images, Left: Hero Images/Getty Images, Right: Hero Images/Getty Images a guided tour CHAPTER 1 ©Nico Muller Art/Shutterstock Strategic Management Creating Competitive Advantages Learning Objectives LEARNING OBJECTIVES Learning Objectives numbered LO 1-1, LO 1-2, LO 1-3, etc., with corresponding icons in the margins to indicate where learning objectives are covered in the text. LEARNING FROM MISTAKES What makes the study of strategic management so interesting? Things can change so rapidly! Some start-ups can disrupt industries and become globally recognized names almost overnight and the rankings of the world’s most valuable firms can dramatically change in a brief period of time. On the other hand, many impressive, high-flying firms can struggle to reclaim past glory—or fail altogether. As colorfully (and ironically!) noted by Arthur Martinez, Sears’s former Chairman: “Today’s peacock is tomorrow’s feather duster.”1 Consider the following:2 • • • • • • The 33-year average tenure of companies on the S&P 500 in 1962 narrowed to 24 years by 2016 and is forecast to shrink to merely 12 years by 2027. At the beginning of 2000, the four firms in the world with the highest market values were General Electric, Exxon Mobil, Pfizer, and Citigroup. By late 2019, four tech firms headed the list: Apple, Alphabet (parent of Google), Amazon, and Microsoft. Record private equity activity, a strong M&A market, and the growth of start-ups with billion dollar market caps (called “unicorns”) are often viewed as leading factors to increase disruptions in a wide variety of industries. A quarter century ago, few would have predicted that a South Korean firm would be a global car giant, an Indian firm would be one of the world’s largest technology firms, and a huge Chinese Internet firm would list on an American stock exchange. In 1995, only about 3 percent of the companies on the Fortune 500 list were from emerging markets. This number has increased to 26 percent in 2013, and is predicted to grow to 45 percent by 2025. With the emergence of the digital economy, new entrants are shaking up long-standing industries. After all, Alibaba has become the world’s most valuable retailer—but holds no inventory; Airbnb is the world’s largest provider of accommodations— but owns no real estate; and Uber is the world’s largest car service—but owns no cars. Retail has become one of the prime examples of an industry that has been impacted by the digital disruption and the emergence of online competitors. Many brickand-mortar (i.e., high asset intensive) firms such as Bed, Bath & Beyond, Urban Outfitters, Sears, Radio Shack, and J.C. Penney have either filed for bankruptcy, or have become mere shadows of their former selves. Let’s take a closer look at another retailer, Mattress Firm, which filed for bankruptcy on October 5, 2018.3 Houston-based Mattress Firm was founded in 1986 and eventually grew to more than 3,200 stores and $3 billion in annual revenues. However, its pursuit of growth and dominance—largely via acquisition–in the industry led to its eventual demise. A turning point came in 2015 when it purchased one of its chief rivals, Sleepy’s, for $780 million. Steve Stagner, Mattress Firm’s CEO at the time asserted, “This transformational acquisition unites the nation’s two largest mattress specialty retailers providing customers with convenience, value, and choice.” However, things certainly didn’t turn out as he had hoped. Acquiring Sleepy’s 1,000 stores left Mattress Firm severely over-retailed. As store traffic slowed, costly leases turned into an albatross around the firm’s neck. In bankruptcy court filings, the rapid expansion led to the “cannibalization” of stores that were clustered too closely and put them in direct competition with each other. This was poignantly stated by Hendre Ackermann, the firm’s CFO: “There are many examples of a Mattress Firm store being located literally across the street from another Mattress Firm store.” Mattress Firm’s fortunes were also eroded by a set of more nimble competitors: online upstarts, including Casper, Lessa, Tuft & Needle, and Sapira. For example, Casper Sleep, Inc., founded in 2014, raised $240 million to sell mattresses directly to consumers. It provided easy online ordering, hassle-free delivery, and returns of reasonably affordable mattresses. Within a year, Casper booked sales of $100 million. The online rivals also had another major advantage over Mattress Firm: Shoppers had grown weary of the traditional mattress-buying experience. This involved going into a store, testing out a slew of mattresses for a few minutes, and rushing into a decision on an expensive item designed to last for years. And, customers were often LO1-3 Identify the vital role of corporate governance and stakeholder management, as well as how “symbiosis” can be achieved among an organization’s stakeholders. LO1-4 Understand the importance of social responsibility, including environmental sustainability, and how it can enhance a corporation’s innovation strategy. LO1-5 LO1-6 Recognize the need for greater empowerment throughout the organization. Understand the strategic management process and its three interrelated and principal activities. Explain how an awareness of a hierarchy of strategic goals can help an organization achieve coherence in its strategic direction. PART 1: STRATEGIC ANALYSIS LEARNING FROM MISTAKES Learning from Mistakes vignettes are examples of where things went wrong. Failures are not only interesting but also sometimes easier to learn from. And students realize strategy is not just about “right or wrong” answers, but requires critical thinking. des75087_ch01_001-035.indd 2 1.1 STRATEGY SPOTLIGHT AMBIDEXTROUS BEHAVIORS: COMBINING ALIGNMENT AND ADAPTABILITY They are multitaskers who are comfortable wearing more than one hat. Although an operations manager for a major coffee and tea distributor was charged with running his plant as effiA study involving 41 business units in 10 multinational compaciently as possible, he took it upon himself to identify value-added nies identified four ambidextrous behaviors in individuals. Such services for his clients. By developing a dual role, he was able to behaviors are the essence of ambidexterity, and they illustrate manage operations and develop a promising electronic module how a dual capacity for alignment and adaptability can be woven that automatically reported impending problems inside a coffee into the fabric of an organization at the individual level. vending machine. With corporate funding, he found a subcontracThey take time and are alert to opportunities beyond the tor to develop the software, and he then piloted the module in his confines of their own jobs. A large computer company’s sales own operations. It was so successful that it was eventually manager became aware of a need for a new software module adopted by operations managers in several other countries. that nobody currently offered. Instead of selling the customer A recent Harvard Business Review article provides some usesomething else, he worked up a business case for the new modful insights on how one can become a more ambidextrous ule. With management’s approval, he began working full time on leader. Consider the following questions: its development. • Do you meet your numbers? They are cooperative and seek out opportunities to combine their efforts with others. A marketing manager for Italy • Do you help others? was responsible for supporting a newly acquired subsidiary. • What do you do for your peers? Are you just their When frustrated about the limited amount of contact she had in-house competitor? with her peers in other countries, she began discussions with • When you manage up, do you bring problems—or them. This led to the creation of a European marketing forum problems with possible solutions? that meets quarterly to discuss issues, share best practices, and • Are you transparent? Managers who get a reputation collaborate on marketing plans. for spinning events gradually lose the trust of peers and They are brokers, always looking to build internal netsuperiors. works. When visiting the head office in St. Louis, a Canadian • Are you developing a group of managerstowho plant manager heard about This situation creates an opportunity forsenior companies use ENVIRONMENTAL SUSTAINABILITY IN plans THEfor a $10 million investment know you and are willing to back your original ideas for a new tape manufacturing plant. After inquiring further about sustainability to differentiate their brands. With growing concerns FASHION INDUSTRY the plans and returning to Canada, he contacted a regional manwith resources? over thehiswaste, retailers have begun placing recycling bins promager in Manitoba, who he knew was looking for ways to build The $3 trillion fashion industry employs over 60 million people along Birkinshaw, C. Gibson.materials, 2004. Building ambidexterity into anwin inentlygovin manySources: stores, usingJ. and greener etc., to help business. With some generous support from the Manitoba organization. MIT Sloan Management Review, 45(4): 47–55; and Bower, J. L. 2007. its global value chain. Althoughernment, it makes 100 billion accessories and the regional manager bid for, and ultimately won, the over customers. Let’s look atcrisis some of Inditex’s initiatives: Solve the succession by growing inside-out leaders. Harvard Business Review, garments each year, three-fifths theminvestment. are thrown away within a 85(11): 90–99. $10of million 1:51 PM 1.2 PART 1: STRATEGIC ANALYSIS These boxes weave themes of ethics, globalization, and technology into every chapter of the text, providing students with a thorough grounding necessary for understanding strategic management. Select boxes incorporate the digital economy, environmental sustainability, and ethical themes. xxviii Define strategic management and its four key attributes. We encourage you to reflect on how the concepts presented in this chapter can enhance your career success (see “Reflecting on Career Implications…” at the end of the chapter). STRATEGY SPOTLIGHT des75087_ch01_001-035.indd 3 LO1-1 LO1-2 12/18/19 STRATEGY SPOTLIGHT • Began disassembling old clothing to spin into yarns for year, according to McKinsey & Company. Further, a vast amount of fashions it markets as “garments with a past.” cotton, water, and power is used to make their products, but less than 1 percent is recycled into new clothes, according to an environ• Grouped many of its sustainability efforts—clothes made 1-2 mental research group in England. Amazingly, the United Nations organic cotton and repurposed fabricsLO into a subTHE STRATEGIC MANAGEMENTfrom PROCESS Understand the Economic Commission for Europe estimates that about 40 percent brand called Join Life. strategic management We’ve identified three ongoing processes—analyses, decisions, and actions—that are central of clothes in the wardrobes of developed countries are never worn! •three To boost the share of greener textiles in itsprocess mix, the and firm its three to strategic management. In practice, these processes—often referred to as strategy To provide some perspective, Rob Opsomer, a sustainability reinterrelated andin has funded research programs at MIT analysis, strategy formulation, and strategy implementation—are highly interdependent andand universities principal activities. searcher asserts that “the equivalent of a dump truck filled with texOne initiative is to try using 3D printing to make do not take place one after the other in a sequentialSpain. fashion in most companies. tiles gets landfilled or incinerated every single second.” textiles using by-products from timber operations. Inditex SA, the company that ownsversus Zara andRealized several other Intended Strategies Inditex says that for now they’re absorbing the extra costs of brands, made 1.6 billion garments in 2016—a scale that has Henry Mintzberg, a management scholar at McGill University, argues that viewing the using recycled or reconstituted helped its stock price quintuple over a recent 10-year strategic management process period. as one in which analysis is followed by optimalgarments. decisions The Join Life line is pricedneither competitively with itemsmanagein the Zara stores—T-shirts However, recently industryand growth slowed, meticulous in part because theirhas subsequent implementation describes theother strategic less27than $10 the andbusiness jeans are priced under $40. The firm is ment process nor prescribes practice. He sees environment millennials have become sensitive to fastaccurately fashion’s impact on the idealcost as fartofrom predictable, limiting fortoanalysis. Further, decisions are sel- materials and it exstriving keep a lid on prices of its greener environment. (In fact, according Boston Consultingthus Group, one-our ability dom basedidentifies on optimal rationalityas alone, that occurincreases. in all pectsthethepolitical cost toprocesses fall as production Anna Gedda, an third of this demographic consistently sustainability a given organizations.28 executive at rival H&M, whose firm has undertaken similar initiafactor that influences their purchasing habits.) Plus, they exhibit a tives, asserts, “We take it as a long-term investment instead of preference for spending on experiences rather than goods. charging it to our customers. We CHAPTER believe1 ::sustainable fashion 9 Despite their strong past performance, Inditex has missed STRATEGIC MANAGEMENT should be affordable for all.” analysts’ revenue expectations in recent quarters and its shares have lost about one third of their value since the summer of Sources: Hirtenstein, A., and D. Wei. 2018. The greening of throwaway stuff. 2017. As noted by Edwin Keh, CEO of the Hong Kong Research 12/18/19 1:51 PM 1.1 INSIGHTS from Executives THE STRATEGIC MANAGEMENT PROCESS INSIGHTS Usman Ghani, Chairman, ConfluCore Usman Ghani has held leadership roles in strategic planning, Beware! While not broadly published, strategic failures marketing, operations, organization development, IT, and outnumber strategic successes in all sizes and types of executive education, as well as led cross-functional, multiorganizations. It is only when the acclaimed ones (like cultural core business process teams to effective implementaBorders, GE, Kodak, and Sears) result in large-scale tions. He is a former Fortune 100 executive distinguished by failures that we become aware and then only for a his record of developing powerful board policies and busiwhile. Often, it is the dysfunctional strategic manageness strategies for a variety of industry leaders, including ment of these organizations that fail them. McKinsey & Company, Royal Dutch/Shell Group, Exxon Successes and failures occur every day, but only for Mobil Corporation, and HP/Electronic Data Systems. the attentive. These accumulate and, upon crossing Characterized as a high-energy some threshold, successes are celevisionary, Usman is passionate about brated while failures are shunned. So, 3.1 helping complex organizations see the the top pitfall is that strategic managebig picture so that they are capable of ment often lacks a critiquing process to transformation. He consistently applies leverage both successes and “failures” THE BENEFITS OF BALANCE fresh thinking, refined dynamic stratas active learning. Both can contribute So, why isby consistency egy models, organizational approaches, effectively if acknowledged manage- beneficial? The researchers suggest Overview thatsaid when a firm has uneven performance across these meaand futuristic technologies to revealBusiness the ment. Bill Gates there is nothing leaders face strong pressures to produce financial sures, may be particular areas of weakness that could best solutions to compound challenges. more of dangerous thanthere not knowing why results, but they also know that ignoring other areas the become major problems His advisory firm, ConfluCore, firm inte- can cause trouble down the line. This studyand how you have succeeded. I would for the firm in coming years. The speaks on researchers use the metaphor of an elite athlete. If the athlete grates multiple concepts to generate add to that statement that failures are that topic and shows that having balance in performance neglects endurance andtofocuses exclusively on strength and confluence at the core of organizations learning steps and opportunities pays off for the firm financially. she will not be the able to sustain performance over time. to generate superior synergies. Confluleapfrog ahead;speed, without knowing Core is headquartered in Las Colinas, why and how of your failures, over time What the Research Shows Key Takeaways Texas. It has offices and affiliates on all organizations are bound to repeat their Researchers from the Drucker Institute have compiled a six continents and has been serving past failures or accumulate negative • Five keythe areas of performance for firms to focus on dataset on 693 large, publicly-traded companies from boards and senior executives worldwide consequences fromare their smallersatisfaction, failcustomer employee engagement and 2012 to 2017. They collected information on 37 indicators for two decades. ures, eventually becoming big failures. development, innovation, social responsibility, and of performance in five specific areas: customer satisfacWith three Master’s degrees from Usman A. Ghani However, very few organizations realize financial strength. tion, employee engagement, innovation, social responsibilMIT and multiple certifications, courses, this and management may hide failures • Firms tend to perform better over time if they perity, and financial performance. Companies were scored and diplomas, Usman has strived to undertake the tutelage to avoid negative consequences and also to exaggerate form consistently across these five areas. on a range of 0 to 100 in each of these five areas. The of some of the world’s premier thought leaders in each field successes to beget recognition. scores were standardized so that the mean score on each any of the five areas indicates an issue he has taken on. These include Robert Blake, Peter Drucker, The most dangerous pitfalls• inWeakness strategic on managescale was 50. The researchers were specifically focused on could emerge EXHIBIT 3.2 Jay Forrester, David McClelland, Edgar Schein, and Peter ment are often attitudinal and that behavioral. Theseinto a crisis for the firm. whether consistency in performance across the five areas Senge. Believing in lifelong learning, he continues his own include disallowing changes to static/fixed strategies, The Value Chain: Some would have an impact on the firm’s future financial per- Questions becoming comfortable with average benchmarks, overFactors to Consider indevelopment personally and professionally. formance. confident executives, complacent group1. management, What are some examples of firms that have been withresults organizations, Assessing a Firm’s Question 1. In your experience workingThe were very clear. The more a firm consisthink cultures, playing favorites, etc. All these can bebut that faced struggles because of strong performers what have you found to be key attributes of successful tently performed across the five areas, the more the firm Primary Activities checked if management so desires specific to avert areas attitudinal of weakness? How did these firms strategies? avoided major peaks and valleys, the better the firm’s finanand behavioral pitfalls. respond to these challenges? performance the following year. For example, if a Successful strategies have notcial a few but severalinattri2. Amazon is very Question 3. How have you built and what are highly ranked on a number of the received an average over the five areas of 70 (anyour career butes and all of them must firm operate in concert. The score dimensions examined, valuable experiences you’ve taken from but the firm scored quite average score) and had asome consistency score of 50or insights three aspects I emphasize are,above that: (a) considered straunevenly across the areas, scoring particularly low in different points in your career journey? (right on thedisplay mean value), the predicted financial perfortegic processes are applied, (b) strategies syssocial responsibility. Should Amazon see this as a for the following 62.career But if istheatypical. firm’s avertematic adaptability, and (c) mance customer offerings are year wasMy Being fortunate to get guidance potential threat? What actions, if any, should remained theTosame (70), its minds consistency score effectively differentiated by age thescore organizations. ofbut great early on, I avoided singular specializaAmazon take moving forward? was also well above (70), could anticipate the ensure this, strategic management should itself alsoaverage be tionit and aspired to understand a wide range of subfirm’s performance in the following This across these. By choice, regularly assessed. jectsyear andwould strovebeto65. integrate three-point rise may not seem like much, but it moves the Research Reviewed firm’s anticipated financial performance from the top Wartzman, R., and L. Crosby. 2018. The key to improving a firm’s financial health. The Wall Street Journal, May 21: R6. 12 percent into the top 7 percent of firms. 14 PART 1 :: STRATEGIC ANALYSIS Chapter 1’s “Insights from Executive” contains an interview with a worldwide organization about current issues salient to strategic management. “Insights from Research” throughout the text summarize key research findings relevant to maintaining the effectiveness of an organization and its management. Inbound Logistics • • Location of distribution facilities to minimize shipping times. Warehouse layout and designs to increase efficiency of operations for incoming materials. Operations • • • Efficient plant operations to minimize costs. Efficient plant layout and workflow design. Incorporation of appropriate process technology. Both new and improved exhibits in every chapter provide visual presentations of the most complex concepts covered to support student comprehension. Effective shipping processes to provide quick delivery and minimize damages. Shipping of goods in large lot sizes to minimize transportation costs. Marketing and Sales • • Innovative approaches to promotion and advertising. Proper identification of customer segments and needs. Service • • INSIGHTS from Research EXHIBITS Outbound Logistics • • outcomes. And organizational scorecards must be aligned with individuals’ scorecards to turn the balanced scorecards into a powerful tool for sustained performance. In a study of 50 Canadian medium-size and large organizations, the number of users 12/18/19 expressing skepticism about scorecard performance was much greater than the number claiming positive results. A large number of respondents agreed with the statement “Balanced scorecards don’t really work.” Some representative comments included: “It became just a number-crunching exercise by accountants after the first year,” “It is just the latest management fad and is already dropping lower on management’s list of priorities as all fads eventually do,” and “If scorecards are supposed to be a measurement tool, why is it so hard to measure their results?” There is much work to do before scorecards can become a viable framework to measure sustained strategic performance. des75087_ch01_001-035.indd 14 Quick response to customer needs and emergencies. Quality of service personnel and ongoing training. Source: Adapted from Porter, M. E. 1985. Competitive Advantage: Creating and Sustaining Superior Performance. New York: Free Press. Reflecting on Career Implications . . . Question 2. Looking at it from the other side, what are some of the key pitfalls you’ve seen firms fall prey to that have resulted in strategic failures? Biosketch and its suppliers, customers, and alliance partners. Just-in-time (JIT) inventory systems, for example, were designed toUnderstanding achieve efficient and strengthening these linkages can This chapter importance of theJIT internal environment inbound logistics. In addresses essence, the Dell epitomizes inventory systems, incontribute which computer greatly to your career advancement within your for strategic As aassembly strategic manager, fully components arrive atmanagers. the firm’s plants you onlyshould hours before they are needed. JIT current organization. understand how you can leverage your competencies to both systems play a vital role in fulfilling Dell’s commitment to fill a computer buyer’s orderView in of the Firm: Are your skills and Resource-Based bring value to your firm and enhance your career opportunities. just a few days. Dell’s operations are designed differently than traditional manufacturing talents rare, valuable, and difficult to imitate, and do they have Value Chain: It is important that you develop an before they are assembled into systems that The involve the ordering of components months few substitutes? If so, you are in the better position to add understanding of your firm’s value activities are computers that are then sold through largechain. chainWhat retailers. value for your firm—and earn rewards and incentives. How can des75087_ch03_072-101.indd CHAPTER 3 :: ASSESSING THE INTERNAL ENVIRONMENT OF THE FIRM 95 REFLECTING ON CAREER Reflecting on Career Implications . . . Operations Operations include all activities associated with transforming inputs into the final product form, such as machining, packaging, assembly, testing, printing, and facility IMPLICATIONS operations. and its suppliers, customers, and alliance partners. Understanding and strengthening these linkages can contribute greatly to your career advancement within your current organization. This section before the summary of every chapter consists of examples on how understanding of key concepts helps business students early in their careers. Resource-Based View of the Firm: Are your skills and talents rare, valuable, and difficult to imitate, and do they have few substitutes? If so, you are in the better position to add value for your firm—and earn rewards and incentives. How can your skills and talents be enhanced to help satisfy these criteria to a greater extent? Get more training? Change positions within the firm? Consider career options at other organizations? 95 most critical for attaining competitive advantage? Think of your skills and talents be enhanced to help satisfy these ways in which you can add value in your firm’s value chain. operations criteria to a greaterThis extent? Get addresses more training? Change of the internal environment chapter the importance How might your firm’s support activities (e.g., information all activities associated positions within theforfirm? Consider career options at other strategic managers. As a strategic manager, you should fully technology, human resource practices) help you accomplish with transforming inputs organizations? understand youproduct can leverage your assigned tasks more effectively? How will you bring your into how the final form. your competencies to both Creating environmentally friendly manufacturing is one way to use operations achieve bringCan value todesign your firm and enhance your career opportunities. BalancedtoScorecard: you a balanced scorecard value-added contribution to the attention of your superiors? competitive advantage. Shaw Industries (now part of Berkshire Hathaway), world-class for youra life? What perspectives would youItinclude in it? In The Value Chain: is important that you develop an The Value Chain: Consider the most important linkages competitor in the floor-covering industry, is well known for its concern forways thewould environwhat suchunderstanding a balanced scorecard help you attain of your firm’s value chain. What activities are between the activities you perform in your organization with 6 ment. It has other beenactivities successful in reducing the expenses associated with the disposal success in life?of dan- most critical for attaining competitive advantage? Think of both within your firm and between your firm gerous chemicals and other waste products from its manufacturing operations. Its ways in which you can add value in your firm’s value chain. environmental endeavors have multiple payoffs. Shaw has received many awards for its recy- How might your firm’s support activities (e.g., information technology, human resource practices) help you accomplish cling efforts—awards that enhance its reputation. your assigned tasks more effectively? How will you bring your Outbound Logistics Outbound logistics is associated with collecting, storing, and distribut- value-added outbound logistics to the attention of your superiors? contribution des75087_ch03_072-101.indd 75 • It is important to understand each of the firm’s valuechain activities, but real firm value is generated when the firm leverages relationships among the different activities. This includes (1) interrelationships among activities within the firm and (2) relationships among activities within the firm and its suppliers and customers. • des75087_ch03_072-101.indd 97 12/18/19 1:58 PM Interrelationships improve overall firm value when they involve the effective coordination of actions and exchange of resources, such as information, technology, and people. LO3-3 The resource-based view of the firm and the different types of tangible and intangible resources, as well as organizational capabilities. • • The resource-based view of the firm considers the firm as a bundle of resources: tangible resources, intangible resources, and organizational capabilities. Competitive advantages that are sustainable over time generally arise from the creation of bundles of resources and capabilities. LO3-4 The four criteria that a firm’s resources must possess to maintain a sustainable advantage and how value created can be appropriated by employees and managers. • CHAPTER 3 :: ASSESSING THE INTERNAL ENVIRONMENT OF THE FIRM 97 • 12/18/19 1:58 PM Balanced Scorecard: Can you design a balanced scorecard for your life? What perspectives would you include in it? In what ways would such a balanced scorecard help you attain success in life? storing, and ing the product or service to buyers. These activities include finished goods, warehousing, The collecting, Value Chain: Consider the most important linkages distributing the product or material handling, delivery vehicle operation, order processing, and scheduling. between the activities you perform in your organization with service to buyers. Campbell Soup uses an electronic network to facilitate its continuous-replenishment pro- other activities both within your firm and between your firm gram with many of its retailers.7 Each morning, retailers electronically inform Campbell of • centers. Interrelationships primary and support their product needs and of the LO3-1 level ofThe inventories in their distribution Campbell improve overall firm value when they involve the effective coordination of actions and activities of a firm’s value chain. uses that information to forecast future demand and to determine which products require exchange of resources, such as information, technology, key points • Primary activities include all replenishment (based on the inventory limits previously established with each retailer). and people. parts ofafternoon the organization that at the retailers’ Trucks leave Campbell’s shipping plant that and arrive distribution are involved in the direct physical LO3-3 The resource-based view of the firm and the creation, distribution, sale, or servicing of the CHAPTER firms 3 :: ASSESSING THE INTERNAL ENVIRONMENT OF THE FIRM 75 different types of tangible and intangible resources, products and services, including inbound logistics, as well as organizational capabilities. operations, outbound logistics, marketing and sales, The primary and support • The resource-based view of the firm LO3-1 considers and service. activities of a firm’s value chain. the firm as a bundle of resources: tangible • Support activities either add value themselves or in key resources, points and •organizational resources, intangible Primary activities include all combination with both primary and other support capabilities. parts of the organization that activities, including procurement, technology develop12/18/19 1:58 PMin the direct physical • Competitive advantages that are sustainable time areover involved ment, human resource management, and general generally arise fromcreation, the creation of bundles of or servicing of the firms distribution, sale, administration. resources and capabilities. products and services, including inbound logistics, operations, outbound logistics, marketing and sales, LO3-2 How value-chain analysis can help managers LO3-4 The four criteriaand that a firm’s resources must service. create value by investigating relationships among possess to maintain sustainable advantage and activities within the firm and between the firm and • aSupport activities either add value themselves or in how value created cancombination be appropriated by primary and other support its customers and suppliers. with both employees and managers. activities, including procurement, technology develop• It is important to understand each of the firm’s valuehuman resource management, and general • For advantages to bement, sustainable, four criteria must chain activities, but real firm value is generated when administration. be satisfied: value, rarity, difficulty in imitation, and the firm leverages relationships among the different difficulty in substitution. activities. How value-chain • The owners of LO3-2 a business may not captureanalysis all of the can help managers • This includes (1) interrelationships among activities create value investigating relationships among value created by the firm. Theby appropriation of value within the firm and (2) relationships among activities activities the firm between the firm and created by a firm betweenwithin the owners and and employees within the firm and its suppliers and customers. its customers and suppliers. 1:51 PM • For advantages to be sustainable, four criteria must be satisfied: value, rarity, difficulty in imitation, and difficulty in substitution. The owners of a business may not capture all of the value created by the firm. The appropriation of value created by a firm between the owners and employees xxix brief contents PART 1 STRATEGIC ANALYSIS 1 Strategic Management: Creating Competitive Advantages 2 2 Analyzing the External Environment of the Firm 36 3 Assessing the Internal Environment of the Firm 72 4 Recognizing a Firm’s Intellectual Assets: Moving beyond a Firm’s Tangible Resources 102 PART 2 STRATEGIC FORMULATION 5 Business-Level Strategy: Creating and Sustaining Competitive Advantages 138 6 Corporate-Level Strategy: Creating Value through Diversification 172 7 International Strategy: Creating Value in Global Markets 202 8 Entrepreneurial Strategy and Competitive Dynamics 236 PART 3 STRATEGIC IMPLEMENTATION 9 Strategic Control and Corporate Governance 264 10 Creating Effective Organizational Designs 298 11 Strategic Leadership: Creating a Learning Organization and an Ethical Organization 330 12 Managing Innovation and Fostering Corporate Entrepreneurship 358 PART 4 CASE ANALYSIS 13 Analyzing Strategic Management Cases 388 Indexes I-1 xxxi contents PART 1 STRATEGIC ANALYSIS CHAPTER 1 Strategic Management: Creating Competitive Advantages ���������������������������������������������������������������2 Learning from Mistakes���������������������������������������������������������������3 What Is Strategic Management? ���������������������������������� 5 Defining Strategic Management �������������������������������������������� 5 The Four K…

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