Essentials Of Strategic Management - GBV

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Essentials of Strategic ManagementThe Quest for Competitive Advantage2nd EditionJohn E. GambleUniversity of South AlabamaArthur A. Thompson, Jr.The University of AlabamaMcGraw-HillIrwin

Table of ContentsPreface viiiPART ONE: Concepts and Techniques for Crafting andExecuting StrategySection A: Introduction and OverviewChapter 1:Strategy and the Quest for CompetitiveAdvantage 1The Importance of Managing Strategically 2The Scope of a Company's Business Strategy 3Competitive Strategy and Advantage over Rivals 3Why a Company's Strategy Evolves over Time 6The Importance of a Company's Business Model—Is the Strategy a Money-Maker? 8The Three Tests of a Winning Strategy 9The Road Ahead 11Concepts & Connections l.i: McDonald's Strategy in the Quick-Service RestaurantIndustry 5Concepts & Connections 1.2: Sirius XM and Over-the-Air Broadcast Radio: Two ContrastingBusiness Models 10s .*.C h a p t e r 2:Leadership and the Strategic ManagementprocessHThe Strategic Management Process 15Developing a Strategic Vision: Stage 1 of the Strategic Management Process: 17How a Strategic Vision Differs from a Mission Statement 19The Importance of Communicating the Strategic Vision 22The Benefits of an Effective Strategic Vision 22Setting Objectives: Stage 2 of the Strategic Management Process 22xxiv

What Kinds of Objectives to Set—The Need for a Balanced Scorecard 22Crafting a Strategy: Stage 3 of the Strategic Management Process 25Implementing and Executing the Chosen Strategy: Stage 4 of the StrategicManagement Process 27Evaluating Performance and Initiating Corrective Adjustments: Stage 5 of the StrategicManagement Process 28Leading the Strategic Management Process 29Strategic Leadership from the Board of Directors 32Concepts & Connections 2.1: Examples of Strategic Visions—How Well Do They Measure Up? 20Concepts & Connections 2.2: Examples of Company Objectives24Concepts & Connections 2.3: Corporate Governance Failures at Fannie Mae and Freddie Mac34Section B: Core Concepts and Analytical ToolsSiEvaluating a Company's ExternalEnvironment 39Company Performance and the "Macroenvironment" 40Assessing the Company's Industry and Competitive Environment 41Question 1: What Are the Industry's Dominant Economic Characteristics? 41Question 2: How Strong Are the Industry's Competitive Forces? 42The Competitive Force of Buyer Bargaining Power and Seller-Buyer Collaboration 45The Competitive Force of Substitute Products 47The Competitive Force of Supplier Bargaining Power and Supplier-SellerCollaboration 48The Competitive Force of Potential New Entrants 51The Competitive Force of Rivalry among Competing Sellers 53The Collective Strengths of the Five Competitive Forces and Industry Profitability 57Question 3: What Are the Industry's Driving Forces of Change and What Impact WillThey Have? 58The Concept of Industry Driving Forces 58Identifying an Industry's Driving Forces 58Assessing the Impact of the Industry Driving Forces 61Determining Strategy Changes Needed to Prepare for the Impact of DrivingForces 62Question 4: How Are Industry Rivals Positioned? 62Using Strategic Group Maps to Assess the Positioning of Key Competitors 62The Value of Strategic Group Maps 64Question 5: What Strategic Moves Are Rivals Likely to Make Next? 66Predicting the Moves of Industry Rivals 66Question 6: What Are the Industry Key Success Factors? 67

Question 7: Does the Industry Offer Good Prospects for Attractive Profits? 69Concepts & Connections 3.1: Comparative Market Positions of Selected AutomobileManufacturers: A Strategic Group Map Application 634:Internal Situation Analysis: Evaluating aCompany's Resources, Cost Position, andCompetitive Strength 72Question 1: How Well Is the Company's Strategy Working? 73Question 2: What Are the Company's Competitively Important Resources andCapabilities? 74Identifying Competitively Important Resources and Capabilities 75Determining the Competitive Power of a Company Resource 75Resources and Capabilities as the Foundation of Competitive Advantage 77Taking Inventory of a Company's Internal Resource Strengths and Weaknesses and ItsExternal Opportunities and Threats 79Question 3: Are the Company's Costs and Prices Competitive? 82Company Value Chains 82Benchmarking: A Tool for Assessing Whether a Company's Value Chain Activities AreCompetitive 84The Value Chain System for an Entire Industry 85Strategic Options for Remedying a Cost Disadvantage 86Question 4: What Is the Company's Competitive Strength Relative to Key Rivals? 88Interpreting the Competitive Strength Assessments 89Question 5: What Strategic Issues and Problems Must Be Addressed by Management? 91Concepts & Connections 4.1: Estimated Costs for Value Chain Activities in the RecordingIndustry 87Section C: Crafting a Strategy -i.C h a p t e r 5:The Five Generic CompetitiveStrategies 96Competitive Strategies and Industry Positioning 97Low-Cost Provider Strategies 99Achieving Low-Cost Leadership 99Market Conditions Favoring a Low-Cost Provider Strategy 100The Hazards of a Low-Cost Provider Strategy 101Broad Differentiation Strategies 202Approaches to Differentiation 202Creating Value for Customers through Differentiation 203Where to Look for Opportunities to Differentiate 204XXVI

Perceived Value and the Importance of Signaling Value 205Market Conditions Favoring a Differentiation Strategy 205The Hazards of a Differentiation Strategy 205Focused (or Market Niche) Strategies 207A Focused Low-Cost Strategy 207A Focused Differentiation Strategy 208Conditions Making a Focused Low-Cost or Focused Differentiation Strategy Viable 208The Hazards of a Focused Low-Cost or Focused Differentiation Strategy 209Best-Cost Provider Strategy 222The Danger of an Unsound Best-Cost Provider Strategy 222The Peril of Adopting a "Stuck in the Middle" Strategy 223Successful Competitive Strategies Are Well-Matched to a Company's Resources andCapabilities 223Concepts & Connections 5.1: How Walmart Managed Its Value Chain to Achieve a Low-CostAdvantage over Rival Supermarket Chains 101Concepts & Connections 5.2: Vizio's Focused Low-Cost Strategy109Concepts & Connections 5.3: Progressive Insurance's Focused DifferentiationAuto Insurance 110Strategy inConcepts & Connections 5.4: Toyota's Best-Cost Producer Strategy for Its Lexus Line6: ,112Supplementing the Chosen CompetitiveStrategy—Other Important BusinessStrategy Choices 116Strategic Alliances and Collaborative Partnerships 227Failed Strategic Alliances and Cooperative Partnerships 228The Strategic Dangers of Relying on Alliances for Essential Resources and Capabilities 229Merger and Acquisition Strategies 229Why Mergers and Acquisitions Sometimes Fail to Produce Anticipated Results 222Vertical Integration: Operating across More Industry Value Chain Segments 222The Advantages of a Vertical Integration Strategy 222The Disadvantages of a Vertical Integration Strategy 224Outsourcing Strategies: Narrowing the Boundaries of the Business 225Strategic Options to Improve a Company's Market Position—The Use of StrategicOffensives 226Choosing the Basis for Competitive Attack 226Choosing Which Rivals to Attack 228Blue Ocean Strategy—A Special Kind of Offensive229Strategic Options to Protect a Company's Market Position and CompetitiveAdvantage—The Use of Defensive Strategies 229Blocking the Avenues Open to Challengers 230Signaling Challengers that Retaliation Is Likely 230XXVll

Timing a Company's Strategic Moves 230The Potential for Late-Mover Advantages or First-Mover Disadvantages 232Deciding Whether to Be an Early-Mover or Late-Mover 232Concepts & Connections 6.1: Clear Channel Communications—Usingand Acquisitions to Become a Global Market Leader 121MergersConcepts & Connections 6.2: Amazon.corn's First-Mover Advantage in Online Retailing .i,C h a p t e r 7:232Strategies for Competing in InternationalMarkets 136Why Companies Expand into International Markets 237Factors That Shape Strategy Choices in International Markets 238Cross-Country Differences in Cultural, Demographic, and Market Conditions 238Gaining a Location-Based Competitive Advantage 239The Risks of Adverse Exchange Rates Shifts 240The Impact of Host Government Policies on the Local Business Climate 240Strategy Options for Entering and Competing in Foreign Markets 242Export Strategies 242Licensing Strategies 242Franchising Strategies 242Establishing International Operations: Choosing between LocalizedMulticountry Strategies and a Global Strategy 243Using International Strategic Alliances and Joint Ventures to Build CompetitiveStrength in Foreign Markets 246Using International Operations to Improve Overall Competitiveness 249Using Location to Build Competitive Advantage 249Using Cross-Border Coordination to Build Competitive AdvantageUsing Profit Sanctuaries to Wage a Strategic Offensive250252Strategies to Compete in the Markets of Emerging Countries 252Strategy Options for Emerging-Country Markets253Concepts & Connections 7.1: Examples of Cross-Border Strategic Alliances148Concepts & Connections 7.2: Yum! Brands' Strategy for Becoming the LeadingFood Service Brand in China 154ao!Strategies for MultibusinessCorporations 159When Business Diversification Becomes a Consideration 262Building Shareholder Value: The Ultimate Justification for BusinessDiversification 262Approaches to Diversifying the Business Lineup 262Diversification by Acquisition of an Existing Business 262

Entering a New Line of Business through Internal Start-Up 263Using Joint Ventures to Achieve Diversificati&n263Defining the Corporate Strategy: Diversification into Related or UnrelatedBusinesses? 164The Appeal of Related Diversification264Diversifying into Unrelated Businesses 267Corporate Strategies Combining Related and Unrelated Diversification2 70Evaluating the Corporate Strategy of a Diversified Company 272Step 1: Evaluating Industry Attractiveness 272Step 2: Evaluating Business-Unit Competitive Strength 273Step 3: Determining the Competitive Value of Strategic Fits in MultibusinessCompanies 277Step 4: Evaluating the Sufficiency of Corporate Resources in Diversified Companies 278Step 5: Ranking Business Units and Setting a Priority for Resource Allocation 181Step 6: Crafting New Strategic Moves to Improve the Overall Corporate Performance 282Concepts & Connections 8.i: VF's Corporate Restructuring Strategy That Made It the Star ofthe Apparel Industry 1859:Ethical Business Strategies, CorporateSocial Responsibility, and EnvironmentalSustainability 191Business Ethics and the Tasks of Crafting and Executing Strategy 292Drivers of Unethical Strategies and Business Behavior 293The Business Case for Ethical Strategies and Ethical Operating Practices 297Ensuring a Strong Commitment to Business Ethics in Companies with InternationalOperations 298Social Responsibility and Corporate Citizenship 202Corporate Sustainability and the Environment 203Crafting Social Responsibility and Sustainability Strategies 204The Business Case for Socially Responsible Behavior 207Concepts & Connections 9.1: Investment Fraud at Bernard L Madoff Investment Securitiesand Stanford Financial Group 195Section D: Executing the Strategy 1ChapterSuperior Strategy Execution—Another Path10:to Competitive Advantage 212The Principal Managerial Components of the Strategy Execution Process 223Building an Organization Capable of Good Strategy Execution 224Staffing the Organization 225XXIX

Building Dynamic Capabilities and Core Competencies 227Matching Organizational Structure to the Strategy 228Allocating Resources to Strategy-Critical Activities 220Instituting Strategy-Supportive Policies and Procedures 222Striving for Continuous Improvement in Internal Processes 222The Difference between Business Process Reengineering and ContinuousImprovement Programs like Six Sigma and TQM 225Installing Information and Operating Systems 225Using Rewards and Incentives to Promote Better Strategy Execution 226Motivation and Reward Systems 226Guidelines for Designing Monetary Incentive Systems 227Nonmonetary Rewards 228Corporate Cultures and Superior Strategy Execution 229Unhealthy Corporate Cultures 230High-Performance Cultures 232Adaptive Cultures 232Changing a Problem Culture 233Leading the Strategy-Execution Process 236Concepts & Connections 10.1: What Companies Do to Motivate and RewardEmployees 229PART TWO: Cases in Crafting and Executing StrategySection A: Crafting Strategy in Single-Business Companies1. Mystic Monk Coffee 240David L. Turnipseed, University of South Alabama2. Whole Foods Market in 2008: Vision, Core Values, and Strategy 244Arthur A. Thompson, The University of Alabama3. Competition in the Golf Equipment Industry in 2009 277John E. Gamble, University of South Alabama4. Competition in the Movie Rental Industry in 2008: Netflix and Blockbuster Battle forMarket Leadership 300Arthur A. Thompson, The University of Alabama5. Dell Inc. in 2008: Can It Overtake Hewlett-Packard as the Worldwide Leader inPersonal Computers? 328Arthur A. Thompson, The University of AlabamaJohn E. Gamble, University of South Alabama

6. Apple Inc. in 2009 352Lou Marino, The University of AlabamaJohn Hattaway, The University of AlabamaKaty Beth Jackson, The University of Alabama7. Nintendo's Strategy in 2009: The Ongoing Battle with Microsoft and Sony 367Lou Marino, The University of AlabamaSally Sarrett, The University of Alabama8. Google's Strategy in 2009 380John E. Gamble, University of South Alabama9. SkyWest, Inc. and the Regional Airline Industry in 2009 398Annette Lohman, California State University, Long BeachSection B: Corporate Strategy in Multibusiness Companies10. PepsiCo's Diversification Strategy in 2008 428John E. Gamble, University of South Alabama11. Adidas in 2009: Has Corporate Restructuring Increased Shareholder Value? 435John E. Gamble, University of South AlabamaSection C: Implementing and Executing Strategy12. Robin Hood 452Joseph Lampel, New York University13. Walmart Stores Inc. in 2008:,Management's Initiative to Transform the Companyand Curtail Walmart Bashing 453Arthur A. Thompson, The University of Alabama14. Southwest Airlines in 2008: Culture, Values, and Operating Practices 492Arthur A. Thompson, The University of AlabamaJohn E. Gamble, University of South AlabamaSection D: Business Ethics and Social Responsibility15. Countrywide Financial Corporation and the Subprime Mortgage Debacle 525Ronald W. Eastburn, Case Western Reserve UniversityIndexesOrganization 543Subject 549Name 554XXXI

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

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