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Strategic Management: Competitiveness and Globalization D • AN HO L S E K R I I S • S T O T I N H Concepts Strategic Management Competitiveness & Globalization 9th Edition Michael A. Hitt Texas A&M University R. Duane Ireland Texas A&M University Robert E. Hoskisson Rice University Strategic Management: Competitiveness © 2011, 2009 South-Western, a Part of Cengage Learning and Globalization: Concepts, Ninth Edition ALL RIGHTS RESERVED. No part of this work covered by the copyright Michael A. Hitt, Duane Ireland, and herein may be reproduced, transmitted, stored or used in any form Robert E. Hoskisson or by any means graphic, electronic, or mechanical, including but not limited to photocopying, recording, scanning, digitizing, taping, Web VP/Editorial Director: distribution, information networks, or information storage and retrieval Jack W. Calhoun systems, except as permitted under Section 107 or 108 of the 1976 Editor-in-Chief: United States Copyright Act, without the prior written permission of the Melissa Acuna publisher. Senior Acquisitions Editor: Michele Rhoades Director of Development: For product information and technology assistance, contact us at John Abner Cengage Learning Customer & Sales Support, 1-800-354-9706 Senior Editorial Assistant: For permission to use material from this text or product, Ruth Belanger submit all requests online at www.cengage.com/permissions Marketing Manager: Further permissions questions can be emailed to Nathan Anderson [email protected] Senior Marketing Communications Manager: Jim Overly ExamView® and ExamView Pro® are registered trademarks of Marketing Coordinator: FSCreations, Inc. Windows is a registered trademark of the Microsoft Suellen Ruttkay Corporation used herein under license. Macintosh and Power Macintosh are registered trademarks of Apple Computer, Inc. used herein under Content Project Manager: license. Jacquelyn K Featherly Media Editor: Concepts ISBN 13: 978-0-538-75309-8 Rob Ellington Concepts ISBN 10: 0-538-75309-9 Senior Manufacturing Coordinator: Sandee Milewski South-Western Cengage Learning 5191 Natorp Boulevard Production House/Compositor: Mason, OH 45040 Cadmus Communications USA Senior Art Director: Tippy McIntosh Cengage Learning products are represented in Canada Cover and Internal Designer: by Nelson Education, Ltd. Craig Ramsdell, Ramsdell Design Cover Image: For your course and learning solutions, visit www.cengage.com ©Media Bakery Purchase any of our products at your local college store or at our preferred online store www.ichapters.com Printed in Canada 1 2 3 4 5 6 7 13 12 11 10 09 To Ashlyn and Aubrey Your smiles are like sunshine—they brighten my day. —Michael A. Hitt To my entire family I love each of you dearly and remain so grateful for your incredibly strong support and encouragement over the years. Your words and deeds have indeed showed me how to “keep my good eye to the sun and my blind eye to the dark.” —R. Duane Ireland To my wonderful grandchildren (Mara, Seth, Roselyn, Ian, Abby, Madeline, Joseph, and Nadine), who are absolutely amazing and light up my life. —Robert E. Hoskisson iii Brief Contents Preface xiv Part 1: Strategic Management Inputs 1 1. Strategic Management and Strategic Competitiveness, 2 2. The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis, 34 3. The Internal Organization: Resources, Capabilities, Core Competencies, and Competitive Advantages, 70 Part 2: Strategic Actions: Strategy Formulation 97 4. Business-Level Strategy, 98 5. Competitive Rivalry and Competitive Dynamics, 128 6. Corporate-Level Strategy, 156 7. Merger and Acquisition Strategies, 186 8. International Strategy, 216 9. Cooperative Strategy, 252 Part 3: Strategic Actions: Strategy Implementation 283 10. Corporate Governance, 284 11. Organizational Structure and Controls, 316 12. Strategic Leadership, 350 13. Strategic Entrepreneurship, 378 Part 4: Cases 1 Name Index, I-1 Company Index, I-15 Subject Index, I-18 iv Brief Contents Preface xiv About the Authors xxi Part 1: Strategic Management Inputs 1 1: Strategic Management and Strategic Competitiveness 2 Opening Case: McDonald’s Corporation: Firing on All Cylinders while Preparing for the Future 3 Strategic Focus: Circuit City: A Tale of Ineffective Strategy Implementation and Firm Failure 7 The Competitive Landscape 8 The Global Economy 9 Technology and Technological Changes 11 The I/O Model of Above-Average Returns 13 The Resource-Based Model of Above-Average Returns 15 Vision and Mission 16 Vision 17 Mission 18 Strategic Focus: Effective Vision and Mission Statements: Why Firms Need Them 19 Stakeholders 20 Classifi cations of Stakeholders 20 Strategic Leaders 23 The Work of Effective Strategic Leaders 23 Predicting Outcomes of Strategic Decisions: Profi t Pools 24 The Strategic Management Process 25 Summary 26 • Review Questions 27 • Experiential Exercises 27 Video Case 28 • Notes 29 2: The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis 34 Opening Case: Philip Morris International: The Effects of Its External Environment 35 The General, Industry, and Competitor Environments 37 External Environmental Analysis 39 v vi Scanning 40 Monitoring 40 Forecasting 41 Contents Assessing 41 Strategic Focus: Consumers’ Desire to Receive Additional Value When Purchasing Brand-Name Products 42 Segments of the General Environment 43 The Demographic Segment 43 The Economic Segment 45 The Political/Legal Segment 46 The Sociocultural Segment 46 The Technological Segment 47 The Global Segment 48 The Physical Environment Segment 49 Industry Environment Analysis 50 Strategic Focus: Firms’ Efforts to Take Care of the Physical Environment In Which They Compete 51 Threat of New Entrants 52 Bargaining Power of Suppliers 55 Bargaining Power of Buyers 56 Threat of Substitute Products 56 Intensity of Rivalry Among Competitors 57 Interpreting Industry Analyses 58 Strategic Groups 59 Competitor Analysis 59 Ethical Considerations 61 Summary 62 • Review Questions 62 • Experiential Exercises 63 Video Case 64 • Notes 65 3: The Internal Organization: Resources, Capabilities, Core Competencies, and Competitive Advantages 70 Opening Case: Apple Defi es Gravity with Innovative Genius 71 Analyzing the Internal Organization 73 The Context of Internal Analysis 73 Creating Value 74 The Challenge of Analyzing the Internal Organization 75 Strategic Focus: GE Builds Management Capabilities and Shares Them with Others 77 Resources, Capabilities, and Core Competencies 78 Resources 78 Capabilities 80 Core Competencies 80 Building Core Competencies 82 Four Criteria of Sustainable Competitive Advantage 82 Strategic Focus: Ryanair: The Passionate Cost Cutter That Is Both Loved and Hated 84 Value Chain Analysis 85 Outsourcing 89 vii Competencies, Strengths, Weaknesses, and Strategic Decisions 90 Contents Summary 91 • Review Questions 91 • Experiential Exercises 92 Video Case 93 • Notes 93 Part 2: Strategic Actions: Strategy Formulation 97 4: Business-Level Strategy 98 Opening Case: Acer Group: Using a “Bare Bones” Cost Structure to Succeed in Global PC Markets 99 Customers: Their Relationship with Business-Level Strategies 101 Effectively Managing Relationships with Customers 101 Reach, Richness, and Affi liation 102 Who: Determining the Customers to Serve 103 What: Determining Which Customer Needs to Satisfy 104 How: Determining Core Competencies Necessary to Satisfy Customer Needs 104 The Purpose of a Business-Level Strategy 105 Types of Business-Level Strategies 107 Cost Leadership Strategy 108 Differentiation Strategy 112 Focus Strategies 116 Strategic Focus: Declaring War against Counterfeiters to Protect Product Integrity and Profi tability 117 Strategic Focus: Kazoo Toys: Crisp Differentiation as a Means of Creating Value for a Certain Set of Customers 119 Integrated Cost Leadership/Differentiation Strategy 120 Summary 123 • Review Questions 124 • Experiential Exercises 124 Video Case 125 • Notes 125 5: Competitive Rivalry and Competitive Dynamics 128 Opening Case: Competition in Recessions: Let the Bad Times Roll 129 A Model of Competitive Rivalry 132 Competitor Analysis 133 Market Commonality 133 Resource Similarity 134 Drivers of Competitive Actions and Responses 135 Strategic Focus: The Competitive Battle among Big Box Retailers: Wal-Mart versus All the Others 137 Competitive Rivalry 138 Strategic and Tactical Actions 138 Likelihood of Attack 139 First-Mover Incentives 139 Organizational Size 140 Quality 141 Likelihood of Response 142 Type of Competitive Action 142 Actor’s Reputation 143 Dependence on the Market 143 Competitive Dynamics 144 Slow-Cycle Markets 144 viii Fast-Cycle Markets 145 Strategic Focus: Soothing the Soul with Kisses—Candy Kisses That Is 147 Standard-Cycle Markets 148 Contents Summary 149 • Review Questions 150 • Experiential Exercises 150 Video Case 151 • Notes 151 6: Corporate-Level Strategy 156 Opening Case: Foster’s Group Diversifi cation into the Wine Business 157 Levels of Diversifi cation 159 Low Levels of Diversifi cation 159 Moderate and High Levels of Diversifi cation 160 Reasons for Diversifi cation 161 Value-Creating Diversifi cation: Related Constrained and Related Linked Diversifi cation 163 Operational Relatedness: Sharing Activities 163 Corporate Relatedness: Transferring of Core Competencies 164 Strategic Focus: Oracle’s Related Constrained Diversifi cation Strategy 165 Market Power 166 Simultaneous Operational Relatedness and Corporate Relatedness 167 Unrelated Diversifi cation 168 Effi cient Internal Capital Market Allocation 168 Strategic Focus: Johnson & Johnson Uses Both
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