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

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Chapter 2:

Leadership and the Strategic Management

process H

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 24 Concepts & Connections 2.3: Corporate Governance Failures at Fannie Mae and Freddie Mac 34

Section B: Core Concepts and Analytical Tools

Evaluating a Company's External

Si

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

4:

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

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The Five Generic Competitive

C h a p t e r 5: 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 109

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

Concepts & Connections 5.4: Toyota's Best-Cost Producer Strategy for Its Lexus Line 112

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 229 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 Mergers and Acquisitions to Become a Global Market Leader 121

Concepts & Connections 6.2: Amazon.corn's First-Mover Advantage in Online Retailing 232

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Strategies for Competing in International

C h a p t e r 7: 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 250 Using Profit Sanctuaries to Wage a Strategic Offensive 252 Strategies to Compete in the Markets of Emerging Countries 252

Strategy Options for Emerging-Country Markets 253

Concepts & Connections 7.1: Examples of Cross-Border Strategic Alliances 148

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

a

Strategies for Multibusiness

o ! 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 263 Defining the Corporate Strategy: Diversification into Related or Unrelated Businesses? 164 The Appeal of Related Diversification 264 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

9:

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

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Superior Strategy Execution--Another Path

C h a p t e r 1 0 : 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

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