Strategic Management and Competitive Advantage - GBV

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EDITION

4 Strategic Management and Competitive Advantage CONCEPTS AND CASES INTERNATIONAL EDITION Jay B. Barney The Ohio State University

William S.Hesterly The University of Utah

PEARSON Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo

Part 1: THE TOOLS of STRATEGIC ANALYSIS

CHAPTER 1 What Is Strategy and the Strategic Management Process? 20 Opening Case: The Music Download Industry

20

Strategy and the Strategic Management Process

22

Defining Strategy 22 The Strategic Management Process 22 What Is Competitive Advantage?

Emergent Versus Intended Strategies

28

Measuring Competitive Advantage

38

Ethics and Strategy: Stockholders Versus Stakeholders 39 Strategy in the Emerging Enterprise: Emergent Strategies and Entrepreneurship 40

Research Made Relevant: How Sustainable Are Competitive Advantages? 30 The Strategic Management Process, Revisited

The Relationship Between Economic and Accounting Performance Measures 37

Why You Need to Know About Strategy 31

31

Accounting Measures of Competitive Advantage 31 Economic Measures of Competitive Advantage 35 Strategy in Depth: Estimating a Firm's Weighted Average Cost of Capital 36

Summary

41

42

Challenge Questions 44 Problem Set 44 End Notes 45

CHAPTER 2 Evaluating a Firm's External Environment 46 Opening Case: Competing College? 46 Understanding a Firm's General Environment

48

The Structure-Conduct-Performance Model of Firm Performance 51

Ethics and Strategy: Is a Firm Gaining a Competitive Advantage Good for Society? 52 , The Five Forces Model of Environmental Threats 53

The Threat of Entry 54 Strategy in Depth: The Five Forces Framework and the S-C-P Model 55 The Threat of Rivalry 60 The Threat of Substitutes 61 The Threat of Powerful Suppliers 62 The Threat of Powerful Buyers 64 The Five Forces Model and Average Industry Performance 65 Another Environmental Force: Complementors 66

Research Made Relevant: The Impact of Industry and Firm Characteristics on Firm Performance 67 Industry Structure and Environmental Opportunities 68

Opportunities in Fragmented Industries: Consolidation 68 Opportunities in Emerging Industries: First-Mover Advantages 69 Opportunities in Mature Industries: Product Refinement, Service, and Process Innovation 71 Strategy in the Emerging Enterprise: Microsoft Grows Up 73 Opportunities in Declining Industries: Leadership, Niche, Harvest, and Divestment 74 Summary

77

Challenge Questions 79 Problem Set 79 End Notes 80

8

(contents

CHAPTER 3 Evaluating a Firm's Internal Capabilities 82 Opening Case: Has eBay Lost Its Way? 82 The Resource-Based View of the Firm

Imitation and Competitive Dynamics in an Industry 105

84

What Are Resources and Capabilities? 84 Critical Assumptions of the Resource-Based View Strategy in Depth: Ricardian Economics and the Resource-Based View 86 The VRIO Framework

86

The Question of Value 87 Strategy in the Emerging Enterprise: Are Business Plans Good for Entrepreneurs? 89 Ethics and Strategy: Externalities and the Broader Consequences of Profit Maximization 91 The Question of Rarity 93 The Question of Imitability 94 The Question of Organization 99 Research Made Relevant: Strategic Human Resource Management Research 100 Applying the VRIO Framework

101

Applying the VRIO Framework to Southwest Airlines 103

Not Responding to Another Firm's Competitive Advantage 105 Changing Tactics in Response to Another Firm's Competitive Advantage 107 Changing Strategies in Response to Another Firm's Competitive Advantage 108 Implications of the Resource-Based View

109

Where Does the Responsibility for Competitive Advantage in a Firm Reside? 110 Competitive Parity and Competitive Advantage Difficult-to-Implement Strategies 111 Socially Complex Resources 112 The Role of Organization 112 Summary

110

113

Challenge Questions Problem Set 115 End Notes 116

115

End-of-Part 1 Cases Case 1 -1: Pfizer and the Challenges of the Global Pharmaceutical Industry PC 1-1 Case 1-2: Wal-Mart Stores, Inc., in 2010 PC 1-13 Case 1-3: Harlequin Enterprises: The Mira Decision PC 1-28

Case 1 -4: True Religion Brand Jeans and the Premium Jeans Industry: Cyclical Downturn or Secular Slowdown? PC 1-38

Part 2: BUSIMESS-LEVEL STRATEGIES

CHAPTER4 Cost Leadership

120

Opening Case: The World's Lowest-Cost Airline What Is Business-Level Strategy? What Is Cost Leadership?

122

122

Sources of Cost Advantages 122 Research Made Relevant: How Valuable Is Market Share—Really? 129 Ethics and Strategy: The Race to the Bottom 131

120

The Value of Cost Leadership

131

Cost Leadership and the Threat of Entry 132 Cost Leadership and the Threat of Rivalry 132 Cost Leadership and the Threat of Substitutes 132 Cost Leadership and the Threat of Powerful Suppliers 132 Strategy in Depth: The Economics of Cost Leadership 133 Cost Leadership and the Threat of Powerful Buyers 134

L^ontents

Management Controls in Implementing Cost Leadership 143 Compensation Policies and Implementing Cost Leadership Strategies 144

Cost Leadership and Sustained Competitive Advantage 134

The Rarity of Sources of Cost Advantage 134 The Imitability of Sources of Cost Advantage 136 Strategy in the Emerging Enterprise: The Oakland A's: Summary 144 Inventing a New Way to Play Competitive Baseball 140 Challenge Questions 146 Organizing to Implement Cost Leadership 141 Problem Set 146 Organizational Structure in Implementing Cost End Notes 147 Leadership 141

CHAPTER 5 Product Differentiation

148

Opening Case: Who Is Victoria, and What Is Her Secret? 148 What Is Product Differentiation?

Organizing to Implement Product Differentiation

150

Bases of Product Differentiation 151 Research Made Relevant: Discovering the Bases of Product Differentiation 153 Product Differentiation and Creativity 157 The Value of Product Differentiation

157

Product Differentiation and Environmental Threats Strategy in Depth: The Economics of Product Differentiation 158 Product Differentiation and Environmental Opportunities 159 Product Differentiation and Sustained Competitive Advantage 160

Rare Bases for Product Differentiation 160 Ethics and Strategy: Product Claims and the Ethical Dilemmas in Health Care 161 The Imitability of Product Differentiation 162

157

167

Organizational Structure and Implementing Product Differentiation 168 Management Controls and Implementing Product Differentiation 168 Strategy in the Emerging Enterprise: Can Only Small Firms Be Innovative? 169 Compensation Policies and Implementing Product Differentiation Strategies 172 Can Firms Implement Product Differentiation and Cost Leadership Simultaneously? 172

No: These Strategies Cannot Be Implemented Simultaneously 173 Yes: These Strategies Can Be Implemented Simultaneously 174 Summary

175

Challenge Questions Problem Set 177 End Notes 178

177

End-of-Part 2 Cases Case 2-1: JetBlue Airways: Managing Growth PC 2-1 Case 2-2: Nucorin2010 PC 2-18

Case 2-3: The Levi's Personal Pair Proposal PC 2-41 Case 2-4: Papa John's International, Inc.: TwentyFirst Century Growth Challenges PC 2-51

10

Contents

Part 3: CORPORATE STRATEGIES

CHAPTER6 Vertical Integration

180 The Rarity of Vertical Integration 193 Ethics and Strategy: The Ethics of Outsourcing The Imitability of Vertical Integration 195

Opening Case: Outsourcing Research 180 What Is Corporate Strategy?

182

What Is Vertical Integration?

182

The Value of Vertical Integration

Organizing to Implement Vertical Integration

183

Strategy in Depth: Measuring Vertical Integration 184 Vertical Integration and the Threat of Opportunism 185 Vertical Integration and Firm Capabilities 187 Vertical Integration and Flexibility 188 Applying the Theories to the Management of Call Centers 189 Research Made Relevant: Empirical Tests of Theories of Vertical Integration 190 Integrating Different Theories of Vertical Integration 192 Vertical Integration and Sustained Competitive Advantage 192

CHAPTER 7 Corporate Diversification 208

Types of Corporate Diversification 208 Limited Corporate Diversification 208 Related Corporate Diversification 209 Unrelated Corporate Diversification 211 The Value of Corporate Diversification

196

Organizational Structure and Implementing Vertical Integration 196 Strategy in the Emerging Enterprise: Oprah, Inc. 197 Management Controls and Implementing Vertical Integration 198 Compensation in Implementing Vertical Integration Strategies 199 Summary

202

Challenge Questions Problem Set 204 End Notes 205

204

206

Opening Case: The Worldwide Leader 206 What Is Corporate Diversification?

193

Ethics and Strategy: Globalization and the Threat of the Multinational Firm 228 Corporate Diversification and Sustained Competitive Advantage 229

211

What Are Valuable Economies of Scope? 211 Research Made Relevant: How Valuable Are Economies of Scope, on Average? 212 Strategy in the Emerging Enterprise: Gore-Tex and Guitar Strings 219 Can Equity Holders Realize These Economies of Scope on Their Own? 227

Strategy in Depth: Risk-Reducing Diversification and a Firm's Other Stakeholders 230 The Rarity of Diversification 231 The Imitability of Diversification 232 Summary 233 Challenge Questions 235 Problem Set 235 End Notes 236

Uontents

CHAPTER 8 Organizing to Implement Corporate Diversification Opening Case: Tyco Ten Years On 238 Organizational Structure and Implementing Corporate Diversification 240

The Board of Directors 241 Strategy in Depth: Agency Conflicts Between Managers and Equity Holders 243 Research Made Relevant: The Effectiveness of Boards of Directors 244 Institutional Owners 245 The Senior Executive 246 Corporate Staff 247 Division General Manager 249 Shared Activity Managers 250

238

Allocating Corporate Capital 255 Transferring Intermediate Products 256 Strategy in the Emerging Enterprise: Transforming Big Business into Entrepreneurship 259 Compensation Policies and Implementing Corporate Diversification 260

Ethics and Strategy: CEO Compensation and the Credit Crisis of 2008 260 Summary

262

Challenge Questions Problem Set 263 End Notes 264

263

Management Controls and Implementing Corporate Diversification 251

Evaluating Divisional Performance

252

CHAPTER9 Strategic Alliances 266 Opening Case: Who Makes Video Games? 266 What Is a Strategic Alliance?

268

How Do Strategic Alliances Create Value?

269

Strategic Alliance Opportunities 269 / Strategy in Depth: Winning Learning Races 272 Research Made Relevant: Do Strategic Alliances Facilitate Tacit Collusion ? 2 75 Alliance Threats: Incentives to Cheat on Strategic Alliances 276

The Imitability of Strategic Alliances 281 Ethics and Strategy: When It Comes to Alliances, Do "Cheaters Never Prosper"? 282 Organizing to Implement Strategic Alliances

Explicit Contracts and Legal Sanctions Equity Investments 286 Firm Reputations 288 Joint Ventures 289 Trust 289

Summary 290 Adverse Selection 276 Challenge Questions Moral Hazard 277 Problem Set 291 Holdup 278 Strategy in the Emerging Enterprise: Disney and Pixar 279End Notes 292 Strategic Alliances and Sustained Competitive Advantage 280

The Rarity of Strategic Alliances 280

291

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285

11

12

Contents

CHAPTER 10 Mergers and Acquisitions Opening Case: A Merger Mystery

294

294

What Are Mergers and Acquisitions?

Valuable, Rare, and Costly-to-Imitate Economies of Scope 309 Unexpected Valuable Economies of Scope Between Bidding and Target Firms 310 Implications for Bidding Firm Managers 310 Implications for Target Firm Managers 315

296

The Value of Mergers and Acquisitions

297

Mergers and Acquisitions: The Unrelated Case 297 Mergers and Acquisitions: The Related Case 298 What Does Research Say About Returns to Mergers and Acquisitions? 302

Organizing to Implement a Merger or Acquisition

Strategy in the Emerging Enterprise: Cashing Out 303 Why Are There So Many Mergers and Acquisitions? 304 Strategy in Depth: Evaluating the Performance Effects of Acquisitions 306 Mergers and Acquisitions and Sustained Competitive Advantage 307

Valuable, Rare, and Private Economies of Scope 308

CHAPTER 11 International Strategies

The Value of International Strategies

326

The Local Responsiveness/International Integration Trade-Off 341

To Gain Access to New Customers for Current Products or Services 328

Internationalization and Firm Revenues 328 Strategy in Depth: Countertrade 332 Internationalization and Product Life Cycles 333 Internationalization and Cost Reduction 334 To Gain Access to Low-Cost Factors of Production

To Develop New Core Competencies

335

336

Learning from International Operations 337 Leveraging New Core Competencies in Additional Markets 338 To Leverage Current Core Competencies in New Ways 339 To Manage Corporate Risk

339

321

Challenge Questions 322 Problem Set 322 End Notes 323

Research Made Relevant: Family Firms in the Global Economy 340

327

Raw Materials 334 i Labor 334 Ethics and Strategy: The Race to the Bottom Technology 336

Summary

324

Opening Case: The Russians Are Coming 324 Strategy in the Emerging Enterprise: International Entrepreneurial Firms: The Case of Logitech

316

Post-Merger Integration and Implementing a Diversification Strategy 316 Special Challenges in Post-Merger Integration 316 Research Made Relevant: The Wealth Effects of Management Responses to Takeover Attempts 317

334

The Transnational Strategy

343

Financial and Political Risks in Pursuing International Strategies 343

Financial Risks: Currency Fluctuation and Inflation Political Risks 344

343

Research on the Value of International Strategies

346

International Strategies and Sustained Competitive Advantage 346

The Rarity of International Strategies 347 The Imitability of International Strategies 348 The Organization of International Strategies

349

Becoming International: Organizational Options 349 Summary 355 Challenge Questions 357 Problem Set 357 End Notes 358

Uontents

13

End-of-Parf 3 Cases Case 3-1: eBay Customer Support Outsourcing PC 3-1 Case 3-2: Nucleon, Inc. PC 3-14 Case 3-3: Danaher Corporation PC 3-24 Case 3-4: LVMH: Managing the Multi-Brand Conglomerate PC 3-50

Case 3-5: Aegis Analytical Corporation's Strategic Alliances PC 3-65 Case 3-6: The Actiyision Blizzard Merger PC 3-75 Case 3-7: McDonald's and KFC: Recipes for Success in China PC 3-87

Appendix: Analyzing Cases and Preparing for Ciass Discussions Glossary 365 Company Index 373 Name Index 377 Subject Index 381

361

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Strategic Management and Competitive Advantage - GBV

EDITION 4 Strategic Management and Competitive Advantage CONCEPTS AND CASES INTERNATIONAL EDITION Jay B. Barney The Ohio State University William S...

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