Strategic Management This Page Intentionally Left Blank Strategic Management Philip Sadler First published in 1993, authors James C Craig and Robert M Grant Second edition published in Great Britain and the United States in 2003 by Kogan Page Limited, author Philip Sadler Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic reproduction in accordance with the terms and licences issued by the CLA. Enquiries concerning reproduction outside these terms should be sent to the publishers at the undermentioned addresses: 120 Pentonville Road 22883 Quicksilver Drive London N1 9JN Sterling VA 20166–2012 UK USA www.kogan-page.co.uk © James C Craig and Robert M Grant, 1993 © Philip Sadler, 2003 The right of Philip Sadler to be identified as the author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988. ISBN 0 7494 3938 6 British Library Cataloguing in Publication Data A CIP record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Sadler, Philip, 1930- Strategic management / Philip Sadler. – 2nd ed. p. cm. – (MBA masterclass series) Rev. ed. of: Strategic management / James C. Craig. 1st ed. 1993. Includes bibliographical references and index. ISBN 0-7494-3938-6 1. Strategic planning. I. Title. II. Series. HD30.28.S224 2003 658.4’012–dc21 2002154764 Typeset by Saxon Graphics Ltd, Derby Printed and bound in Great Britain by Biddles Ltd, Guildford and King’s Lynn www.biddles.co.uk Contents The series editor ix Introduction 1 Part 1 Strategic management and its context 7 1 Introduction to strategic management 9 The elements of strategy 9 Corporate and competitive strategy 13 Schools of thought in strategic management 15 Summary 24 2 The environmental context 27 Introduction 27 The impact of the ‘New Economy’ 28 The new agenda – sustainable development and 34 corporate social responsibility Two kinds of pressure 41 Anticipating environmental change 44 Summary 44 Part 2 Corporate strategy 47 Introduction 49 3 Clarification of purpose or mission – the starting 51 point for strategic management Introduction 51 Shareholder value 51 The stakeholder approach 54 vi Contents Aspirational purpose 57 Summary 59 4 The role of the parent company 60 Introduction 60 Adding value 60 Parenting styles 62 Sustaining competitiveness 65 Strategy and organization at corporate level 70 Reputation, image and brand identity 73 Summary 80 5 Building the portfolio (1): analyzing industry and 82 competition Introduction 82 Analyzing industry attractiveness 82 The application of industry analysis: forecasting 89 profitability Changing industry structure 91 Market segmentation 91 Summary 93 6 Building the portfolio (2): vertical integration 95 Introduction 95 Costs of using the market 96 Long-term contracts and ‘quasi-vertical integration’ 99 Summary 102 7 Building the portfolio (3): diversification 103 Introduction 103 Conglomerate or unrelated diversification 103 The case for related diversification 108 Diversification and synergy 112 Diversification and performance 113 Managing the diversified corporation 115 Portfolio planning models 118 Summary 120 8 Strategic options 123 Mergers and acquisitions versus organic growth 123 Outsourcing 131 Strategic alliances 132 Contents vii Partnership sourcing 135 Summary 139 9 Functional strategies 140 Manufacturing strategy 140 Human resource strategy 148 Marketing strategy 152 Part 3 Competitive strategy 159 Introduction 161 10 The firm: resources, capabilities and competitive 163 advantage Introduction 163 Resources, capabilities and strategy formulation 164 Fundamentals of resource analysis 166 Capabilities 171 Appraising capabilities 173 Managing capabilities 174 From resources and capabilities to competitive 175 advantage Summary 177 11 Strategies for cost advantage and differentiation 179 advantage Introduction 179 Creation and erosion of competitive advantage 180 Cost and differentiation advantages 183 Sources of cost advantage 185 Cost drivers 187 Analyzing costs 188 Differentiation and differentiation advantage 190 Analyzing differentiation 191 Tangible and intangible differentiation 191 The costs of differentiation 193 Value chain analysis of differentiation advantage 194 Summary 195 12 Competing in global markets 197 Introduction 197 Implications of internationalization for industry 199 structure and competition viii Contents Implications of internationalization for competitive 201 advantage Strategies for exploiting overseas market 204 opportunities Global versus multinational strategies 208 Location decisions and the value chain 209 Organizing the multinational corporation 210 The ‘transnational’ corporation 212 Summary 213 Part 4 Implementation 215 13 Managing strategic change 217 Introduction 217 Change objectives 218 Implementation 223 Evaluation 227 Recent trends in organizational change 228 Summary 229 Cases 231 Tesco 231 Marks and Spencer 243 Glossary 252 References 256 Further reading 261 Index 263 The series editor Philip Sadler is a Vice President of the Ashridge Business School where he was chief executive for 20 years. He now divides his time between writing, speaking, consultancy and voluntary service. He is a Fellow of the International Academy of Management, a Companion of the Institute of Management, a Fellow of the Institute for Personnel and Development, a Fellow of the Institute of Directors, and a Patron of the Centre for Tomorrow’s Company. He has been awarded the honorary degrees of DSc (City University) and DBA (De Montfort University). He holds the Burnham Gold Medal of the Institute of Management and was appointed CBE in 1986. His recent books include Managing Change (1995), Leadership (1998), The Seamless Organization (2001) and Building Tomorrow’s Company (2002). This Page Intentionally Left Blank THE MBA MASTERCLASS SERIES The new MBA Masterclass series is designed to meet the needs of both MBA students and experienced managers looking for a refresher course in a particular subject. Authoritative but practical, these titles focus on MBA core subjects as well as covering the latest developments in management thinking and practice. Written by international academics, consultants and practitioners, this series is an ideal companion for any busy MBA student or manager. Current titles published in the series: Leadership Intercultural Management Strategic Management And still to be published: Project Management Branding Finance and Accounting Human Resource Management To obtain further information, please contact the publisher at the address below: Kogan Page Limited 120 Pentonville Road London N1 9JN Tel: +44 (0) 20 7278 0433 Fax: +44 (0) 20 7837 6348 www.kogan-page.co.uk This Page Intentionally Left Blank Introduction This book is aimed at two overlapping audiences. For aspiring or actual MBA students I have tried to include references to the most important work by both academics and consultants since the topic of strategy first became salient in the 1950s. For practising managers facing strategic decisions I have tried to use common-sense language where possible, avoiding undue reliance on jargon. I have also tried to illustrate points in the argument with relatively recent and familiar examples of both good and bad practice. On the surface the notion of business strategy would seem to be quite straightforward and uncomplicated. Surely it is just a matter of deciding some medium- to long-term goals, bringing together the resources, human and material, that will be required if they are to be achieved, devising a plan and schedule for implementation, and then just getting on with it. In practice, however, and especially in large, multi-business companies, it is not at all straightforward. There are several reasons why this is the case. First, by definition, a strategy is something that unfolds over time; during that time period the environment is changing with great rapidity and can invalidate the assumptions on which the plan was based. Secondly, there are often sharp conflicts between the requirements of the strategy and the imperatives of short-term profitability or even survival. Thirdly, as research has shown, in practice strategy formulation is usually far from being the rational, objective process that the textbooks prescribe. It is subject to distortion from such factors as the machina- tions of organizational politics, the existence of mindsets linked to particular corporate cultures, and ‘fashions’ in management theory. 2 Strategic management Fourthly, there is the tendency of people with a high level of intelli- gence and formal education to eschew the simple approach and overcom- plicate things – a tendency symbolized by the growth of the use of jargon. Finally, implementation is certainly not always a smooth process; successful implementation is a function of many interacting variables among which the quality of leadership is paramount. Unravelling this complexity has involved a massive output of writings by management experts in the business schools and management consultancies. A whole industry of strategy consultants has grown up, peddling a wide range of analytical techniques and methodologies. These consultants command fees commensurate with the importance of the issues they are dealing