Essentials of Strategic Management - GBV


Essentials of Strategic Management

The Quest for Competitive Advantage 2nd Edition

John E. Gamble University of South Alabama

Arthur A. Thompson, Jr. The University of Alabama

McGraw-Hill Irwin

Table of Contents

Preface viii

PART ONE: Concepts and Techniques for Crafting and Executing Strategy Section A: Introduction and Overview

Chapter 1:

Strategy and the Quest for Competitive Advantage 1

The Importance of Managing Strategically 2 The Scope of a Company's Business Strategy 3 Competitive Strategy and Advantage over Rivals 3 Why a Company's Strategy Evolves over Time 6 The Importance of a Company's Business Model—Is the Strategy a Money-Maker? 8 The Three Tests of a Winning Strategy 9 The Road Ahead 11 Concepts & Connections l.i: McDonald's Strategy in the Quick-Service Restaurant Industry 5 Concepts & Connections 1.2: Sirius XM and Over-the-Air Broadcast Radio: Two Contrasting Business Models 10




C h a p t e r 2:

Leadership and the Strategic Management



The Strategic Management Process 15 Developing a Strategic Vision: Stage 1 of the Strategic Management Process: 17 How a Strategic Vision Differs from a Mission Statement 19 The Importance of Communicating the Strategic Vision 22 The Benefits of an Effective Strategic Vision 22 Setting Objectives: Stage 2 of the Strategic Management Process 22 xxiv

What Kinds of Objectives to Set—The Need for a Balanced Scorecard 22 Crafting a Strategy: Stage 3 of the Strategic Management Process 25 Implementing and Executing the Chosen Strategy: Stage 4 of the Strategic Management Process 27 Evaluating Performance and Initiating Corrective Adjustments: Stage 5 of the Strategic Management Process 28 Leading the Strategic Management Process 29 Strategic Leadership from the Board of Directors 32 Concepts & Connections 2.1: Examples of Strategic Visions—How Well Do They Measure Up? 20 Concepts & Connections 2.2: Examples of Company Objectives


Concepts & Connections 2.3: Corporate Governance Failures at Fannie Mae and Freddie Mac


Section B: Core Concepts and Analytical Tools


Evaluating a Company's External Environment 39

Company Performance and the "Macroenvironment" 40 Assessing the Company's Industry and Competitive Environment 41 Question 1: What Are the Industry's Dominant Economic Characteristics? 41 Question 2: How Strong Are the Industry's Competitive Forces? 42 The Competitive Force of Buyer Bargaining Power and Seller-Buyer Collaboration 45 The Competitive Force of Substitute Products 47 The Competitive Force of Supplier Bargaining Power and Supplier-Seller Collaboration 48 The Competitive Force of Potential New Entrants 51 The Competitive Force of Rivalry among Competing Sellers 53 The Collective Strengths of the Five Competitive Forces and Industry Profitability 57 Question 3: What Are the Industry's Driving Forces of Change and What Impact Will They Have? 58 The Concept of Industry Driving Forces 58 Identifying an Industry's Driving Forces 58 Assessing the Impact of the Industry Driving Forces 61 Determining Strategy Changes Needed to Prepare for the Impact of Driving Forces 62 Question 4: How Are Industry Rivals Positioned? 62 Using Strategic Group Maps to Assess the Positioning of Key Competitors 62 The Value of Strategic Group Maps 64 Question 5: What Strategic Moves Are Rivals Likely to Make Next? 66 Predicting the Moves of Industry Rivals 66 Question 6: What Are the Industry Key Success Factors? 67

Question 7: Does the Industry Offer Good Prospects for Attractive Profits? 69 Concepts & Connections 3.1: Comparative Market Positions of Selected Automobile Manufacturers: A Strategic Group Map Application 63


Internal Situation Analysis: Evaluating a Company's Resources, Cost Position, and Competitive Strength 72

Question 1: How Well Is the Company's Strategy Working? 73 Question 2: What Are the Company's Competitively Important Resources and Capabilities? 74 Identifying Competitively Important Resources and Capabilities 75 Determining the Competitive Power of a Company Resource 75 Resources and Capabilities as the Foundation of Competitive Advantage 77 Taking Inventory of a Company's Internal Resource Strengths and Weaknesses and Its External Opportunities and Threats 79 Question 3: Are the Company's Costs and Prices Competitive? 82 Company Value Chains 82 Benchmarking: A Tool for Assessing Whether a Company's Value Chain Activities Are Competitive 84 The Value Chain System for an Entire Industry 85 Strategic Options for Remedying a Cost Disadvantage 86 Question 4: What Is the Company's Competitive Strength Relative to Key Rivals? 88 Interpreting the Competitive Strength Assessments 89 Question 5: What Strategic Issues and Problems Must Be Addressed by Management? 91 Concepts & Connections 4.1: Estimated Costs for Value Chain Activities in the Recording Industry 87

Section C: Crafting a Strategy ^-i


C h a p t e r 5:

The Five Generic Competitive

Strategies 96

Competitive Strategies and Industry Positioning 97 Low-Cost Provider Strategies 99 Achieving Low-Cost Leadership 99 Market Conditions Favoring a Low-Cost Provider Strategy 100 The Hazards of a Low-Cost Provider Strategy 101 Broad Differentiation Strategies 202 Approaches to Differentiation 202 Creating Value for Customers through Differentiation 203 Where to Look for Opportunities to Differentiate 204 XXVI

Perceived Value and the Importance of Signaling Value 205 Market Conditions Favoring a Differentiation Strategy 205 The Hazards of a Differentiation Strategy 205 Focused (or Market Niche) Strategies 207 A Focused Low-Cost Strategy 207 A Focused Differentiation Strategy 208 Conditions Making a Focused Low-Cost or Focused Differentiation Strategy Viable 208 The Hazards of a Focused Low-Cost or Focused Differentiation Strategy 209 Best-Cost Provider Strategy 222 The Danger of an Unsound Best-Cost Provider Strategy 222 The Peril of Adopting a "Stuck in the Middle" Strategy 223 Successful Competitive Strategies Are Well-Matched to a Company's Resources and Capabilities 223 Concepts & Connections 5.1: How Walmart Managed Its Value Chain to Achieve a Low-Cost Advantage over Rival Supermarket Chains 101 Concepts & Connections 5.2: Vizio's Focused Low-Cost Strategy


Concepts & Connections 5.3: Progressive Insurance's Focused Differentiation Auto Insurance 110

Strategy in

Concepts & Connections 5.4: Toyota's Best-Cost Producer Strategy for Its Lexus Line

6: ,


Supplementing the Chosen Competitive Strategy—Other Important Business Strategy Choices 116

Strategic Alliances and Collaborative Partnerships 227 Failed Strategic Alliances and Cooperative Partnerships 228 The Strategic Dangers of Relying on Alliances for Essential Resources and Capabilities 229 Merger and Acquisition Strategies 229 Why Mergers and Acquisitions Sometimes Fail to Produce Anticipated Results 222 Vertical Integration: Operating across More Industry Value Chain Segments 222 The Advantages of a Vertical Integration Strategy 222 The Disadvantages of a Vertical Integration Strategy 224 Outsourcing Strategies: Narrowing the Boundaries of the Business 225 Strategic Options to Improve a Company's Market Position—The Use of Strategic Offensives 226 Choosing the Basis for Competitive Attack 226 Choosing Which Rivals to Attack 228 Blue Ocean Strategy—A Special Kind of Offensive


Strategic Options to Protect a Company's Market Position and Competitive Advantage—The Use of Defensive Strategies 229 Blocking the Avenues Open to Challengers 230 Signaling Challengers that Retaliation Is Likely 230 XXVll

Timing a Company's Strategic Moves 230 The Potential for Late-Mover Advantages or First-Mover Disadvantages 232 Deciding Whether to Be an Early-Mover or Late-Mover 232 Concepts & Connections 6.1: Clear Channel Communications—Using and Acquisitions to Become a Global Market Leader 121


Concepts & Connections 6.2: Amazon.corn's First-Mover Advantage in Online Retailing




C h a p t e r 7:


Strategies for Competing in International

Markets 136

Why Companies Expand into International Markets 237 Factors That Shape Strategy Choices in International Markets 238 Cross-Country Differences in Cultural, Demographic, and Market Conditions 238 Gaining a Location-Based Competitive Advantage 239 The Risks of Adverse Exchange Rates Shifts 240 The Impact of Host Government Policies on the Local Business Climate 240 Strategy Options for Entering and Competing in Foreign Markets 242 Export Strategies 242 Licensing Strategies 242 Franchising Strategies 242 Establishing International Operations: Choosing between Localized Multicountry Strategies and a Global Strategy 243 Using International Strategic Alliances and Joint Ventures to Build Competitive Strength in Foreign Markets 246 Using International Operations to Improve Overall Competitiveness 249 Using Location to Build Competitive Advantage 249 Using Cross-Border Coordination to Build Competitive Advantage Using Profit Sanctuaries to Wage a Strategic Offensive



Strategies to Compete in the Markets of Emerging Countries 252 Strategy Options for Emerging-Country Markets


Concepts & Connections 7.1: Examples of Cross-Border Strategic Alliances


Concepts & Connections 7.2: Yum! Brands' Strategy for Becoming the Leading Food Service Brand in China 154

a o!

Strategies for Multibusiness Corporations 159

When Business Diversification Becomes a Consideration 262 Building Shareholder Value: The Ultimate Justification for Business Diversification 262 Approaches to Diversifying the Business Lineup 262 Diversification by Acquisition of an Existing Business 262

Entering a New Line of Business through Internal Start-Up 263 Using Joint Ventures to Achieve Diversificati&n


Defining the Corporate Strategy: Diversification into Related or Unrelated Businesses? 164 The Appeal of Related Diversification


Diversifying into Unrelated Businesses 267 Corporate Strategies Combining Related and Unrelated Diversification

2 70

Evaluating the Corporate Strategy of a Diversified Company 272 Step 1: Evaluating Industry Attractiveness 272 Step 2: Evaluating Business-Unit Competitive Strength 273 Step 3: Determining the Competitive Value of Strategic Fits in Multibusiness Companies 277 Step 4: Evaluating the Sufficiency of Corporate Resources in Diversified Companies 278 Step 5: Ranking Business Units and Setting a Priority for Resource Allocation 181 Step 6: Crafting New Strategic Moves to Improve the Overall Corporate Performance 282 Concepts & Connections 8.i: VF's Corporate Restructuring Strategy That Made It the Star of the Apparel Industry 185


Ethical Business Strategies, Corporate Social Responsibility, and Environmental Sustainability 191

Business Ethics and the Tasks of Crafting and Executing Strategy 292 Drivers of Unethical Strategies and Business Behavior 293 The Business Case for Ethical Strategies and Ethical Operating Practices 297 Ensuring a Strong Commitment to Business Ethics in Companies with International Operations 298 Social Responsibility and Corporate Citizenship 202 Corporate Sustainability and the Environment 203 Crafting Social Responsibility and Sustainability Strategies 204 The Business Case for Socially Responsible Behavior 207 Concepts & Connections 9.1: Investment Fraud at Bernard L Madoff Investment Securities and Stanford Financial Group 195

Section D: Executing the Strategy ^ 1


Superior Strategy Execution—Another Path


to Competitive Advantage 212

The Principal Managerial Components of the Strategy Execution Process 223 Building an Organization Capable of Good Strategy Execution 224 Staffing the Organization 225 XXIX

Building Dynamic Capabilities and Core Competencies 227 Matching Organizational Structure to the Strategy 228 Allocating Resources to Strategy-Critical Activities 220 Instituting Strategy-Supportive Policies and Procedures 222 Striving for Continuous Improvement in Internal Processes 222 The Difference between Business Process Reengineering and Continuous Improvement Programs like Six Sigma and TQM 225 Installing Information and Operating Systems 225 Using Rewards and Incentives to Promote Better Strategy Execution 226 Motivation and Reward Systems 226 Guidelines for Designing Monetary Incentive Systems 227 Nonmonetary Rewards 228 Corporate Cultures and Superior Strategy Execution 229 Unhealthy Corporate Cultures 230 High-Performance Cultures 232 Adaptive Cultures 232 Changing a Problem Culture 233 Leading the Strategy-Execution Process 236 Concepts & Connections 10.1: What Companies Do to Motivate and Reward Employees 229

PART TWO: Cases in Crafting and Executing Strategy

Section A: Crafting Strategy in Single-Business Companies 1. Mystic Monk Coffee 240 David L. Turnipseed, University of South Alabama 2. Whole Foods Market in 2008: Vision, Core Values, and Strategy 244 Arthur A. Thompson, The University of Alabama 3. Competition in the Golf Equipment Industry in 2009 277 John E. Gamble, University of South Alabama 4. Competition in the Movie Rental Industry in 2008: Netflix and Blockbuster Battle for Market Leadership 300 Arthur A. Thompson, The University of Alabama 5. Dell Inc. in 2008: Can It Overtake Hewlett-Packard as the Worldwide Leader in Personal Computers? 328 Arthur A. Thompson, The University of Alabama John E. Gamble, University of South Alabama

6. Apple Inc. in 2009 352 Lou Marino, The University of Alabama John Hattaway, The University of Alabama Katy Beth Jackson, The University of Alabama 7. Nintendo's Strategy in 2009: The Ongoing Battle with Microsoft and Sony 367 Lou Marino, The University of Alabama Sally Sarrett, The University of Alabama 8. Google's Strategy in 2009 380 John E. Gamble, University of South Alabama 9. SkyWest, Inc. and the Regional Airline Industry in 2009 398 Annette Lohman, California State University, Long Beach

Section B: Corporate Strategy in Multibusiness Companies 10. PepsiCo's Diversification Strategy in 2008 428 John E. Gamble, University of South Alabama 11. Adidas in 2009: Has Corporate Restructuring Increased Shareholder Value? 435 John E. Gamble, University of South Alabama

Section C: Implementing and Executing Strategy 12. Robin Hood 452 Joseph Lampel, New York University 13. Walmart Stores Inc. in 2008:,Management's Initiative to Transform the Company and Curtail Walmart Bashing 453 Arthur A. Thompson, The University of Alabama 14. Southwest Airlines in 2008: Culture, Values, and Operating Practices 492 Arthur A. Thompson, The University of Alabama John E. Gamble, University of South Alabama

Section D: Business Ethics and Social Responsibility 15. Countrywide Financial Corporation and the Subprime Mortgage Debacle 525 Ronald W. Eastburn, Case Western Reserve University

Indexes Organization 543 Subject 549 Name 554



Essentials of Strategic Management - GBV

Essentials of Strategic Management The Quest for Competitive Advantage 2nd Edition John E. Gamble University of South Alabama Arthur A. Thompson, J...

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