Strategie

Management

Flanning for Domestic &

Fourteenth Edition

Global Competition

John A. Pearce II
Villanova School ofBusiness
Villanova University
Richard B. Robinson, Jr.
Daria Moore School of Business
University of South Carolina

Mc
Graw
Hill
Education

Table of Contents

Key Terms 41
Questions for Discussion 41
APPENDIX BB&T Vision, Mission,
and Purpose 42

PART ONE
OVERVIEW OF STRATEGIC
MANAGEMENT 1
Chapter 1
Strategie Management 2
The Natura and Value of Strategie Management 3
Dimensions of Strategie Decisions 4
Formality in Strategie Management 7
Benefits of a Participative Appwach to Strategie
Management 10
The Strategie Management Process 11
Strategie Management as a Process 15
Summary 19
Key Terms 19
Questions for Discussion 19
PARTTWO
STRATEGY FORMULAIION
Chapter 2
Company Mission

21

22

What Is a Company Mission? 23

The Need for an Explicit Mission 23
Formulating a Mission 24
Basie Produet or Service: Primary Market; Principal
Technology 24
Company Goals: Survival; Gmwth; Profitability 26
Company Philosophy 27
Public Image 28
Company Self-Coneept 30
Newest Trends in Mission Components 31
Customers 32
Quality 32
Vision Statement 33
An Exemplary Mission Statement 34
Boards of Directors 36
Agency Theory 38
How Agency Problems Oecur 38
Problems That Can Resultfrom Agency 39
Solutions to the Agency Problem 40
Summary 40

Chapter 3
Corporate Social Responsibility and
Business Ethics 47
The Stakeholder Approach to Social
Responsibility 48
The Dynamics of Social Responsibility 50
Types of Social Responsibility 51
Corporate Social Responsibility and Profitability 56
Sarbanes-Oxley Act of 2002 63
The New Corporate Governance Structure 66
CSR's Effect on the Mission Statement 66
Social Audit 67
Satisfying Corporate Social Responsibility 69
The Core of the CSR Debate 70
Mutual Advantages of Collaborative Social
Initiatives 71
Five Principles ofSuccessful Collaborative Social
Initiatives 72
Assembling the Components 77
The Limits of CSR Strategies 77
The Future of CSR 79
Management Ethics 79
The Nature of Ethics in Business 79
Approaehes to Questions of Ethics 81
Codes of Business Ethics 82
Major Trends in Codes of Ethics 83
Business Ethics Self-Assessment 85
Summary 85
Key Terms 85
Questions for Discussion 85
Chapter 4
The External Environment

87

The Firm's External Environment 88

Remote Environment 88
Economic Factors 88
Social Factors 90
xvii

xviii Table of Contents

Political Factors 93
Technological Factors 94
Ecological Factors %
Industry Environment 100
How Competitive Forces Shape Strategy 100
Contending Forces 101
Threat ofEntry 102
Powerful Suppliers 105
Powerful Buyers 106
Substitute Products 107
Jockeyingfor Position 107
Industiy Analysis and Competitive Analysis 109
Industry Boundaries 109
Power Curves 112
Competitive Analysis 114
Operating Environment 116
Competitive Position 116
Customer Profites 117
Suppliers 118
Creditors 118
Human Resources: Nature ofthe Labor Market 119
Emphasis on Environmental Factors 120
Summary 123
Key Terms 123
Questions for Discussion 123
APPENDIX Sources for Environmental
Forecasting 125
Chapter 5
The Global Environment

127

Globalization 128
Development of a Global Corporation 130
Why Firms Globalize 131
Strategie Orientations of Global Firms 133
At the Start of Globalization 133
Complexity of the Global Environment 135
Control Problems of the Global Firm 137
Global Strategie Flanning 137
Multidomestic Industries and Global Industries 138
The Global Challenge 140
Competitive Strategie for Firms in Foreign
Markets 141
Niche Market Exporting 142
Licertsing and Contract Manufacturing 142
Franchising 143
Foreign Brandung 143
Joint Ventures 143
Wholly Owned Subsidiaries 144
Summary 147

Key Terms 147

Questions for Discussion 148
APPENDIX Components of the Global
Environment 149
Chapter 6
Internal Analysis

151

Swot Analysis: A Traditional Approach to Internal

Analysis 153
Using SWOT Analysis in Strategie Analysis 155
Limitations ofSWOT Analysis 158
Value Chain Analysis 159
Conducting a Value Chain Analysis 161
Recognizing the Difficulty in Activity-Based Cost
Accounting 163
Resource-Based View of the Firm 165
Core Competencies 166
Three Basic Resources: Tangible Assets, Intangible Assets,
and Organizational Capabilities 167
What Makes a Resource Valuable? 169
Using the Resource-Based View in Internal Analysis 172
Internal Analysis: Making Meaningful
Comparisons 175
Comparison with Past Performance 175
Benchmarking: Comparison with Competitors 176
Comparison with Success Factors in the Industry 180
Product Life Cycle 181
Summary 182
Key Terms 183
Questions for Discussion 184
APPENDIX A Key Resources across
Functional Areas 185
APPENDIX B Using Financial Analysis 186
Chapter 7
Long-Term Objectives and
Strategies 195
Long-Term Objectives 196
Qualities of Long-Term Objectives 197
The Balanced Scorecard 199
Generic Strategies 200
Low-Cost Leadership 201
Differentiation 202
Focus 202
The Value Disciplines 202
Operational Excellence 203
Customer lntimacy 203
Product Leadership 204

Table of Contents xix

Grand Strategies 205
1. Concentrated Growth 205
2. Market Development 209
3. Product Development 211
4. Innovation 213
5. Horizontal Acquisition 214
6. Vertical Acquisition 217
7. Goncentric Diversification 219
8. Gonglomerate Diversification 219
9. Turnaround 221
10. Divestiture 224
11. Liquidation 226
12. Bankruptcy 227
13. Joint Ventures 230
14. Strategie Alliances 233
15. Consortia, Keiretsus, and Chaebols 234
Selection of Long-Term Objectives and Grand
Strategy Sets 235
Sequence of Objectives and Strategy
Selection 236
Designing a Profitable Business Model 237
Summary 239
Key Terms 239
Questions for Discussion 239
Chapter 8
Business Strategy

240

Evaluating and Choosing Business Strategies:

Seeking Sustained Competitive Advantage 241
Evaluating Cost Leadership Opportunities 243
Evaluating Differentiation Opportunities 246
Evaluating Speed as a Competitive Advantage 249
Evaluating Market Focus as a Way to
Competitive Advantage 252
Stages oflndustry Evolution and Business
Strategy Choices 254
Competitive Advantage in Fragmented
Industries 259
Competitive Advantage in Global Industries 260
Dominant Product/Service Businesses:
Evaluating and Choosing to Diversify
to Build Value 261
Grand Strategy Selection Matrix 262
Model of Grand Strategy Clusters 264
Opportunities for Building Value as a Basis for
Choosing Diversification or Acquisition 266
Summary 266
Key Terms 267
Questions for Discussion 267

Chapter 9
Multibusiness Strategy 268
The Portfolio Approach: A Historical
Starting Point 272
The BCG Growth-Share Matrix 272
The Industry Attractiveness-Business Strength Matrix 274
BCG's Strategie Environments Matrix 274
Limitations of Portfolio Approaches 277
The Synergy Approach: Leveraging Core
Competencies 280
The Corporate Parent Role: Can It Add Tangible
Value? 285
The Parenting Opportunities Framework 286
The Parenting Strategy Approach 288
The Patching Approach 293
Summary 295
Key Terms 296
Questions for Discussion 296
PART THREE
STRATEGY IMPLEMENTATION,
CONTROL, AND INNOVATION 297
Chapter10
Implementation

299

Short-Term Objectives 302

Qualities ofEffective Short-Term Objectives 303
Functional Tactics That Implement Business
Strategies 304
Differences between Business Strategies and
Functional Tactics 305
Outsourcing Functional Activities 308
Empowering Operating Personnel: The Role of
Policies 310
Creating Policies That Empower 311
Bonus Compensation Plans 314
Major Plan Types 314
Matching Bonus Plans and Corporate Goals 320
Summary 323
Key Terms 323
Questions for Discussion 323
APPENDIX Functional Tactics 324
Chapter11
Organizational Structure

331

Traditional Organizational Structures and Their

Strategy-Related Pros and Cons 337
Simple Organizational Structure 337

xx Table of Contents
Functional Organizational Structure 338
Divisional Structure 338
Matrix Organizational Structure 342
Product-Team Structure 343
The New Millennium 344
Globalization 345
The Internet 347
Speed 347
Initial Efferts to Improve the Effectiveness of
Traditional Organizational Structures 348
Redefine the Role of Corporate Headquarters front
Control to Support and Coordination 348
Balance the Demandsfor Control/Differentiation
with the Need for Coordination/Integration 349
Restructure to Emphasize and Support Strategically
Critical Activities 350
Creating Agile, Virtual Organization 353
OutsourcingCreating a Modular Organization 354
Strategie Alliances 359
Toward Boundaryless Structures 361
Ambidextrous Learning Organizations 363
Summary 365
Key Terms 366
Questions for Discussion 366
Chapter 12
Leadership and Culture 367
Strategie Leadership: Embracing Change 370
Clarifying Strategie Intent 370
Building an Organization 373
Shaping Organizational Culture 377
Recruiting and Developing Talented Operational
Leadership 379
Organizational Culture 383
The Role of the Organizational Leader in Organizational
Culture 384
Build Time in the Organization 384
Emphasize Key Themes or Dominant Values 387
Encourage Dissemination ofStories and Legends
about Core Values 388
Institutionalize Practices That Systematically Reinforce
Desired Beliefs and Values 388
Adapt Some Very Common Themes in Their Own Unique
Ways 388
Organizational Culture in a Global Organization 389
Manage the Strategy-Culture Relationship 389
Summary 395
Key Terms 395
Questions for Discussion 396

Chapter 13
Strategie Control

397

Strategie Control 398

Establishing Strategie Controls 399
Premise Control 399
Strategie Surveillance 401
Special Alert Control 402
The Balanced Scorecard Methodology 407
Summary 411
Key Terms 412
Questions for Discussion 412
Chapter 14
Innovation and Entrepreneurship 413
What Is Innovation? 415
Incremental Innovation 415
Breakthrough Innovation 420
Risks Associated with Innovation 422
What Is Entrepreneurship? 430
Intrapreneurship 436
Summary 439
Key Terms 440
Questions for Discussion 440
PART FOUR
CASES 441
Guide to Strategie Management Case Analysis 442
Cases

1-1

SHORT CASES
1. Bristol-Myers Squibb's Growth through
Addition, Subtraction, and Sharing 1-1
2. Competing for New York's Best Lobster Roll:
Failed Trade Protection 2-1
3. JCPenney's Uncertain l\irnaround 3-1
4. Livestrong: Cycling Around Lance
Armstrong 4-1
5. A "World's Top Company": Southern
New Hampshire University 5-1
6. Wal-Mart OnlineWhat to Do about Amazon
.com? 6-1
7. Wells Fargo's Remarkable Ascent 7-1
8. Wendy Aust, Senior Strategie Analyst, Global
Strategy Advisors, LLC 8-1
TRADITIONAL CASES
9. Absolut Vodka 9-1
10. Amazon.com, Inc: Retailing Giant to High-Tech
Player? 10-1

Table of Contents xxi

11. Apple v. Samsung: Intellectual Property and the
Smartphone Patent Wars 11-1
12. American Public Education, Inc. (A) 12-1
American Public Education, Inc. (B) 12-8
13. The Apollo Group, Inc. [University of
Phoenix] 13-1
14. Barnes & Noble, Inc.: The Yucaipa Proxy
Challenge 14-1
15. Blue Nile, Inc.: "Stuck in the Middle" ofthe
Diamond Engagement Ring Market 15-1
16. BMW of North America: Dream lt. Build It.
Drive It. 16-1
17. Of Orangutans and Chainsaws: Cargill,
Inc. Confronts The Rainforest Action Network
Advocacy 17-1
18. Chipotle: Mexican Grill, Inc.: Food With
Integrity 18-1
19. Delta Airlines and the Trainer Refinery 19-1
20. The Global Oil and Gas Industry 20-1
21. Good Hotel: Ding Good, Ding Well? 21-1
22. Google s Acquisition of Motorola Mobility:
Will the "Gamble" Pay Off? 22-1
23. Lagunitas Brewing Company, Inc., 2013 23-1

24. Leica Camera: A "Boutique" Firm Faces a

World ofChange 24-1
25. Louis Vuitton 25-1
26. The Movie Exhibition Industry 2013 26-1
27. Netflix, Inc. (A): The 2011 Rebranding/Price
Increase Debacle 27-1
28. Netflix (B): A Strategie Pivot ofMythic
Proportion 28-1
29. Volvo and Geely 29-1
30. Yahoo! Inc.: Marissa Mayer's Challenge 30-1
GLOSSARY

G-1

PHOTO CREDITS
NAME INDEX

1-1

SUBJECT INDEX
CASE INDEX

P-1

1-13

I-25