Chapter 2 ppfs practice answers

INSIGHTS The “Insights” feature is new to this edition. “Insights from Executives” spotlight interviews with executives from worldwide organizations about current issues salient to strategic management. “Insights from Research” summarize key research findings relevant to maintaining the effectiveness of an organization and its management.

industries? There are several reasons. With regard to the collection period, grocery stores operate mostly on a cash basis, hence a very short collection period. Semiconductor manu- facturers sell their output to other manufacturers (e.g., computer makers) on terms such as 2/15 net 45, which means they give a 2 percent discount on bills paid within 15 days and start charging interest after 45 days. Skilled-nursing facilities also have a longer collection period than grocery stores because they typically rely on payments from insurance companies.

The industry norms for return on sales also highlight differences among these industries. Grocers, with very slim margins, have a lower return on sales than either skilled-nursing facil- ities or semiconductor manufacturers. But how might we explain the differences between

Financial Ratio Semiconductors Grocery Stores Skilled-Nursing Facilities

Quick ratio (times) 1.9 0.6 1.3

Current ratio (times) 3.6 1.7 1.7

Total liabilities to net worth (%) 35.1 72.7 82.5

Collection period (days) 48.6 3.3 36.5

Assets to sales (%) 131.7 22.1 58.3

Return on sales (%) 24 1.1 3.1

Source: Dun & Bradstreet. Industry Norms and Key Business Ratios, 2010–2011. One Year Edition, SIC #3600–3699 (Semiconductors); SIC #5400–5499 (Grocery Stores); SIC #8000–8099 (Skilled-Nursing Facilities). New York: Dun & Bradstreet Credit Services.

EXHIBIT 3.10 How Financial Ratios Differ across Industries

Admiral William H. McRaven, Retired Chancellor, University of Texas System

BIOSKETCH University of Texas Chancellor William H. McRaven, a retired four-star admiral, leads the nation’s second largest system of higher education. As chief executive officer of the UT System since January 2015, he oversees 14 institutions that educate 217,000 students and employ 20,000 faculty and more than 70,000 health care professionals, researchers, and staff.

Prior to becoming chancellor, McRaven, a Navy SEAL, was the commander of U.S. Special Operations Command during which time he led a force of 69,000 men and women and was responsible for conducting counter-terrorism operations world- wide. McRaven is also a recognized national authority on U.S. foreign policy and has advised presidents George W. Bush and Barack Obama and other U.S. leaders on defense issues. His acclaimed book, Spec. Ops: Case Studies in Special Operations Warfare: Theory and Practice, has been published in several lan-

SEAL—helps young people move past self-imposed limits of physical and mental endurance and build confidence in themselves to lead others. The result is a person who is capable of leading in an environment of constant stress, chaos, failure and hardships. In fact, to me, basic SEAL training was a lifetime sampling of micro-challenges I would later face while leading people and organizations all crammed into six months.

Question 2. In leading Neptune Spear, what were the key leadership decisions you made to build an organization to accomplish this task?

The majority of the key leadership decisions that in past enabled us to accomplish this task began before I took command of the organization—but as a member of the

organization and its number 2 leader over a period of years, I had been an engaged student in the trial, error, and the ulti- mate development of what my old boss, General Stan McChrystal, called a “team of teams.” You see, our operational envi- ronment was changing at an incredibly rapid pace. Unlike any time in our history the rate of change was—and is—no longer

INSIGHTS from executives1.1

THE STRATEGIC MANAGEMENT PROCESS

Overview People often think that older workers are less motivated and less healthy, resist change and are less trusting, and have more trouble balancing work and family. It turns out these assumptions just aren’t true. By challenging these stereotypes in your organization, you can keep your employees working.

What the Research Shows In a 2012 paper published by Personnel Psychology, research- ers from the University of Hong Kong and the University of Georgia examined 418 studies of workers’ ages and stereotypes. A meta-analysis—a study of studies—was conducted to find out if any of the six following stereotypes about older workers—as compared with younger workers—was actually true:

• They are less motivated. • They are less willing to participate in training and

career development. • They are more resistant to change. • They are less trusting. • They are less healthy. • They are more vulnerable to work-family imbalance.

retain, and encourage mature employees’ continued involve- ment in workplaces because they have much to offer in the ways of wisdom, experience, and institutional knowledge. The alternative is to miss out on a growing pool of valuable human capital.

How can you deal with age stereotypes to keep older workers engaged? The authors suggest three effective ways:

• Provide more opportunities for younger and older workers to work together.

• Promote positive attributes of older workers, like experience, carefulness, and punctuality.

• Engage employees in open discussions about stereotypes.

Adam Bradshaw of the DeGarmo Group Inc. has sum- marized research on addressing age stereotypes in the workplace and offers practical advice. For instance, make sure hiring practices identify factors important to the job other than age. Managers can be trained in how to spot age stereotypes and can point out to employees why the stereo- types are often untrue by using examples of effective older workers. Realize that older workers can offer a competitive advantage because of skills they possess that competitors

INSIGHTS from Research2.1

NEW TRICKS: RESEARCH DEBUNKS MYTHS ABOUT OLDER WORKERS

Reflecting on Career Implications . . . This chapter discusses both the long-term focus of strategy and the need for coherence in strategic direction. The following questions extend these themes by asking students to consider their own strategic goals and how they fit with the goals of the firms in which they work or would seek employment.

Attributes of Strategic Management: The attributes of strategic management described in this chapter are applicable to your personal careers as well. What are your overall goals and objectives? Who are the stakeholders you have to consider in making your career decisions (family, community, etc.)? What trade- offs do you see between your long-term and short-term goals?

Intended versus Emergent Strategies: While you may have planned your career trajectory carefully, don’t be too tied to it. Strive to take advantage of new opportunities as they arise. Many promising career opportunities may “emerge” that were not part of your intended career strategy or your specific job assignment. Take initiative by pursuing opportunities to get additional training (e.g., learn a software or a statistical package), volunteering for a short-term overseas assignment, etc. You may be in a better position to take advantage of such emergent opportunities if you take the effort to prepare for

them. For example, learning a foreign language may position you better for an overseas opportunity.

Ambidexterity: In Strategy Spotlight 1.1, we discussed the four most important traits of ambidextrous individuals. These include looking for opportunities beyond the description of one’s job, seeking out opportunities to collaborate with others, building internal networks, and multitasking. Evaluate yourself along each of these criteria. If you score low, think of ways in which you can improve your ambidexterity.

Strategic Coherence: What is the mission of your organization? What are the strategic objectives of the department or unit you are working for? In what ways does your own role contribute to the mission and objectives? What can you do differently in order to help the organization attain its mission and strategic objectives?

Strategic Coherence: Setting strategic objectives is important in your personal career as well. Identify and write down three or four important strategic objectives you want to accomplish in the next few years (finish your degree, find a better-paying job, etc.). Are you allocating your resources (time, money, etc.) to enable you to achieve these objectives? Are your objectives measurable, timely, realistic, specific, and appropriate?

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PART 1 STRATEGIC ANALYSIS 1 Strategic Management: Creating Competitive Advantages 2

2 Analyzing the External Environment of the Firm: Creating Competitive Advantages 34

3 Assessing the Internal Environment of the Firm 70

4 Recognizing a Firm’s Intellectual Assets: Moving beyond a Firm’s Tangible Resources 102

PART 2 STRATEGIC FORMULATION 5 Business-Level Strategy: Creating and Sustaining Competitive

Advantages 138

6 Corporate-Level Strategy: Creating Value through Diversification 172

7 International Strategy: Creating Value in Global Markets 202

8 Entrepreneurial Strategy and Competitive Dynamics 236

PART 3 STRATEGIC IMPLEMENTATION 9 Strategic Control and Corporate Governance 266

10 Creating Effective Organizational Designs 300

11 Strategic Leadership: Creating a Learning Organization and an Ethical Organization 332

12 Managing Innovation and Fostering Corporate Entrepreneurship 360

PART 4 CASE ANALYSIS 13 Analyzing Strategic Management Cases 392

Cases C-1

Indexes I-1

BRIEF CONTENTS

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PART 1 STRATEGIC ANALYSIS

CHAPTER 1 Strategic Management: Creating Competitive Advantages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Learning from Mistakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

What Is Strategic Management? . . . . . . . . . . . . . . . . . 6 Defining Strategic Management . . . . . . . . . . . . . . . . . . . . . . 6 The Four Key Attributes of Strategic Management . . . . . . . 7

1.1 STRATEGY SPOTLIGHT

Ambidextrous Behaviors: Combining Alignment and Adaptability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

The Strategic Management Process . . . . . . . . . . . . . . 9 Intended versus Realized Strategies . . . . . . . . . . . . . . . . . . . 10 Strategy Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Strategy Formulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Strategy Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

1.1 INSIGHTS FROM EXECUTIVES

The Strategic Management Process . . . . . . . . . . . . . . . . . . . . .14

The Role of Corporate Governance and Stakeholder Management . . . . . . . . . . . . . . . . . . 16 Alternative Perspectives of Stakeholder Management . . . . .17 Social Responsibility and Environmental Sustainability:

Moving beyond the Immediate Stakeholders . . . . . . . . . 18 1.2 STRATEGY SPOTLIGHT

How Walmart Deploys Green Energy on an Industrial Scale—And Makes Money at It . . . . . . . . . . . . . . . . . . . . . .21

The Strategic Management Perspective: An Imperative Throughout the Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

1.3 STRATEGY SPOTLIGHT

Strategy and the Value of Inexperience . . . . . . . . . . . . . . . . . 23

Ensuring Coherence in Strategic Direction . . . . . . . . 23 Organizational Vision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Mission Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Strategic Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

1.4 STRATEGY SPOTLIGHT

How Perceptual Limited Succeeded by Rallying Around the Founder’s Original Mission . . . . . . . . . . . . . . . . . . . . 27

Issue for Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Reflecting on Career Implications . . . . . . . . . . . . . . . . . . . . . 29 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Experiential Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Application Questions & Exercises . . . . . . . . . . . . . . . . . . . . . 30 Ethics Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

CHAPTER 2 Analyzing the External Environment of the Firm: Creating Competitive Advantages . . . . . . . . . . . . .34

Learning from Mistakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Enhancing Awareness of the External Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 The Role of Scanning, Monitoring, Competitive

Intelligence, and Forecasting . . . . . . . . . . . . . . . . . . . . . 37 2.1 STRATEGY SPOTLIGHT Ethics

Ethical Guidelines on Competitive Intelligence: United Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

SWOT Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

The General Environment . . . . . . . . . . . . . . . . . . . . . . 41 The Demographic Segment . . . . . . . . . . . . . . . . . . . . . . . . . 43 The Sociocultural Segment . . . . . . . . . . . . . . . . . . . . . . . . . 43 The Political/Legal Segment . . . . . . . . . . . . . . . . . . . . . . . . 43

2.1 INSIGHTS FROM RESEARCH

New Tricks: Research Debunks Myths about Older Workers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

The Technological Segment . . . . . . . . . . . . . . . . . . . . . . . . . 45 2.2 STRATEGY SPOTLIGHT Ethics

The Conflict Minerals Legislation: Implications for Supply Chain Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

The Economic Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 The Global Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

CONTENTS

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Relationships among Elements of the General Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Data Analytics: A Technology That Affects Multiple Segments of the General Environment . . . . . . . . . . . . . 47 2.3 STRATEGY SPOTLIGHT Data Analytics

How Big Data Can Monitor Federal, State, and Local Government Expenditures . . . . . . . . . . . . . . . . . . . . . . . . 49

The Competitive Environment . . . . . . . . . . . . . . . . . . 50 Porter’s Five Forces Model of Industry Competition . . . . . 50

2.4 STRATEGY SPOTLIGHT

Apple Flexes Its Muscle When It Comes to Negotiating Rental Rates for Its Stores in Malls . . . . . . . . . . . . . . . . . . .53

How the Internet and Digital Technologies Are Affecting the Five Competitive Forces . . . . . . . . . . . . . . . . . . . . . . 55 2.5 STRATEGY SPOTLIGHT

Buyer Power in Legal Services: The Role of the Internet . . . . 58

Using Industry Analysis: A Few Caveats . . . . . . . . . . . . . . . 59 Strategic Groups within Industries . . . . . . . . . . . . . . . . . . . .61 Issue for Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Reflecting on Career Implications . . . . . . . . . . . . . . . . . . . . . 64 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Experiential Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Application Questions & Exercises . . . . . . . . . . . . . . . . . . . . . 66 Ethics Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

CHAPTER 3 Assessing the Internal Environment of the Firm . . .70

Learning from Mistakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71

Value-Chain Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Primary Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

3.1 STRATEGY SPOTLIGHT

Chipotle’s Efficient Operations . . . . . . . . . . . . . . . . . . . . . . . . .74

Support Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 3.2 STRATEGY SPOTLIGHT Data

The Algorithm for Orange Juice . . . . . . . . . . . . . . . . . . . . . . . 77

3.3 STRATEGY SPOTLIGHT

Schmitz Cargobull: Adding Value to Customers via IT . . . . . . 78

Interrelationships among Value-Chain Activities within and across Organizations . . . . . . . . . . . . . . . . . . . . . . . . 78

Integrating Customers into the Value Chain . . . . . . . . . . . . 78 Applying the Value Chain to Service Organizations . . . . . . 80

Resource-Based View of the Firm . . . . . . . . . . . . . . . 81 Types of Firm Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . .81 Firm Resources and Sustainable Competitive

Advantages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 3.4 STRATEGY SPOTLIGHT

Printed in Taiwan: Path Dependence in 3D Printing . . . . . . . 85

3.5 STRATEGY SPOTLIGHT

Amazon Prime: Very Difficult for Rivals to Copy . . . . . . . . . . 86

The Generation and Distribution of a Firm’s Profits: Extending the Resource-Based View of the Firm . . . . . 88

Evaluating Firm Performance: Two Approaches . . . 90 Financial Ratio Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Integrating Financial Analysis and Stakeholder

Perspectives: The Balanced Scorecard . . . . . . . . . . . . . . 93 Issue for Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Reflecting on Career Implications . . . . . . . . . . . . . . . . . . . . . 96 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97 Experiential Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97 Application Questions & Exercises . . . . . . . . . . . . . . . . . . . . . 98 Ethics Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

CHAPTER 4 Recognizing a Firm’s Intellectual Assets: Moving beyond a Firm’s Tangible Resources . . . .102

Learning from Mistakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103

The Central Role of Knowledge in Today’s Economy . . . . . . . . . . . . . . . . . . . . . . . . . . 104 Human Capital: The Foundation of Intellectual Capital . . . . . . . . . . . . . . . . . . . . . . . . . . 107

4.1 STRATEGY SPOTLIGHT Environmental Sustainability

Can Green Strategies Attract and Retain Talent? . . . . . . . . . . 108

Attracting Human Capital . . . . . . . . . . . . . . . . . . . . . . . . . 108 Developing Human Capital . . . . . . . . . . . . . . . . . . . . . . . . .110

4.1 INSIGHTS FROM RESEARCH

Welcome Back! Recruiting Boomerang Employees . . . . . . . . .111

Retaining Human Capital . . . . . . . . . . . . . . . . . . . . . . . . . .114

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CONTENTS

Enhancing Human Capital: Redefining Jobs and Managing Diversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115 4.2 STRATEGY SPOTLIGHT

Want to Increase Employee Retention? Try Data Analytics . .116

4.3 STRATEGY SPOTLIGHT

Millennials Have a Different Definition of Diversity and Inclusion than Prior Generations . . . . . . . . . . . . . . . . . . . 118

The Vital Role of Social Capital . . . . . . . . . . . . . . . . 118 How Social Capital Helps Attract and Retain Talent . . . . .119 Social Networks: Implications for Knowledge

Management and Career Success . . . . . . . . . . . . . . . . . .119 4.4 STRATEGY SPOTLIGHT

Picasso versus Van Gogh: Who Was More Successful and Why? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .122

The Potential Downside of Social Capital . . . . . . . . . . . . . 123

Using Technology to Leverage Human Capital and Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 Using Networks to Share Information . . . . . . . . . . . . . . . . 124 Electronic Teams: Using Technology to Enhance

Collaboration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 Codifying Knowledge for Competitive Advantage . . . . . . 126

4.5 STRATEGY SPOTLIGHT

How SAP Taps Knowledge Well Beyond Its Boundaries . . . . .127

Protecting the Intellectual Assets of the Organization: Intellectual Property and Dynamic Capabilities . . . 128 Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . 129 Dynamic Capabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 Issue for Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .130 Reflecting on Career Implications . . . . . . . . . . . . . . . . . . . . .131 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .131 Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132 Experiential Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132 Application Questions & Exercises . . . . . . . . . . . . . . . . . . . . .132 Ethics Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133

PART 2 STRATEGIC FORMULATION

CHAPTER 5 Business-Level Strategy: Creating and Sustaining Competitive Advantages . . . . . . . . . . 138

Learning from Mistakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .139

Types of Competitive Advantage and Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 Overall Cost Leadership. . . . . . . . . . . . . . . . . . . . . . . . . . . .141

5.1 STRATEGY SPOTLIGHT Environmental Sustainability Primark Strives to Balance Low Costs with Environmental

Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .143 Differentiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

5.1 INSIGHTS FROM RESEARCH Linking Customer Interactions to Innovation: The Role

of the Organizational Practices. . . . . . . . . . . . . . . . . . . . .147 5.2 STRATEGY SPOTLIGHT Data Analytics Caterpillar Digs into the Data to Differentiate Itself . . . . . . . .148

Focus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 5.3 STRATEGY SPOTLIGHT Data Analytics Luxury in the E-Commerce World . . . . . . . . . . . . . . . . . . . . .151

Combination Strategies: Integrating Overall Low Cost and Differentiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 5.4 STRATEGY SPOTLIGHT Expanding the Profit Pool in the Sky . . . . . . . . . . . . . . . . . . .153

Can Competitive Strategies Be Sustained? Integrating and Applying Strategic Management Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 Atlas Door: A Case Example . . . . . . . . . . . . . . . . . . . . . . . 155 Are Atlas Door’s Competitive Advantages Sustainable? . . .156 Strategies for Platform Markets . . . . . . . . . . . . . . . . . . . . . 158

Industry Life-Cycle Stages: Strategic Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 Strategies in the Introduction Stage . . . . . . . . . . . . . . . . . . .161 Strategies in the Growth Stage . . . . . . . . . . . . . . . . . . . . . . .161 Strategies in the Maturity Stage . . . . . . . . . . . . . . . . . . . . . 162 Strategies in the Decline Stage. . . . . . . . . . . . . . . . . . . . . . 163 Turnaround Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

5.5 STRATEGY SPOTLIGHT How Mindy Grossman Led HSN’s Remarkable

Turnaround . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 Issue for Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .166 Reflecting on Career Implications . . . . . . . . . . . . . . . . . . . . .166 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .167 Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .167 Experiential Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .167 Application Questions & Exercises . . . . . . . . . . . . . . . . . . . . .168 Ethics Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .168 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .168

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CHAPTER 6 Corporate-Level Strategy: Creating Value through Diversification . . . . . . . . . . . . . . . . . . . . 172

Learning from Mistakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .173

Making Diversification Work: An Overview . . . . . . . 174 Related Diversification: Economies of Scope and Revenue Enhancement . . . . . . . . . . . . . . . . . . . . . . . 175 Leveraging Core Competencies . . . . . . . . . . . . . . . . . . . . . .175

6.1 STRATEGY SPOTLIGHT Data Analytics

IBM: The New Health Care Expert . . . . . . . . . . . . . . . . . . . .177

Sharing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .178

Enhancing Revenue and Differentiation . . . . . . . . . 178 Related Diversification: Market Power . . . . . . . . . . 179 Pooled Negotiating Power . . . . . . . . . . . . . . . . . . . . . . . . . 179 Vertical Integration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

6.2 STRATEGY SPOTLIGHT Environmental Sustainability

Tesla Breaks Industry Norms by Vertically Integrating . . . . .180

Unrelated Diversification: Financial Synergies and Parenting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 Corporate Parenting and Restructuring . . . . . . . . . . . . . . 182 Portfolio Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183 Caveat: Is Risk Reduction a Viable Goal of

Diversification? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185

The Means to Achieve Diversification . . . . . . . . . . . 186 Mergers and Acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . . 186

6.3 STRATEGY SPOTLIGHT Ethics

Valeant Pharmaceuticals Jacks Up Prices after Acquisitions but Loses in the End. . . . . . . . . . . . . . . . . . . . . . . . . . . . .189

6.4 STRATEGY SPOTLIGHT

The Wisdom of Crowds: When Do Investors See Value in Acquisitions?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .190

Strategic Alliances and Joint Ventures . . . . . . . . . . . . . . . 192 6.5 STRATEGY SPOTLIGHT

Ericsson and Cisco Join Forces to Respond to the Changing Telecommunications Market . . . . . . . . . . . . . . . . . . . . . . . 193

Internal Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193

How Managerial Motives Can Erode Value Creation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194 Growth for Growth’s Sake . . . . . . . . . . . . . . . . . . . . . . . . . 194 Egotism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 Antitakeover Tactics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195

Issue for Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .196 Reflecting on Career Implications . . . . . . . . . . . . . . . . . . . . .197 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .197 Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .198 Experiential Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .198 Application Questions & Exercises . . . . . . . . . . . . . . . . . . . . .198 Ethics Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .198 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .198

CHAPTER 7 International Strategy: Creating Value in Global Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . 202

Learning from Mistakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203

The Global Economy: A Brief Overview . . . . . . . . . . 204 Factors Affecting a Nation’s Competitiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 Factor Endowments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 Demand Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 Related and Supporting Industries . . . . . . . . . . . . . . . . . . 206 Firm Strategy, Structure, and Rivalry . . . . . . . . . . . . . . . . 206 Concluding Comment on Factors Affecting a Nation’s

Competitiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206 7.1 STRATEGY SPOTLIGHT

India and the Diamond of National Advantage . . . . . . . . . . 207

International Expansion: A Company’s Motivations and Risks . . . . . . . . . . . . . . . . . . . . . . . . 208 Motivations for International Expansion . . . . . . . . . . . . . 208 Potential Risks of International Expansion . . . . . . . . . . . . .210

7.2 STRATEGY SPOTLIGHT Ethics

Counterfeit Drugs: A Dangerous and Growing Problem . . . . 213 7.3 STRATEGY SPOTLIGHT

When to Not Adapt Your Company’s Culture—Even If It Conflicts with the Local Culture . . . . . . . . . . . . . . . . . . . .214

Global Dispersion of Value Chains: Outsourcing and Offshoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .214

Achieving Competitive Advantage in Global Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216 Two Opposing Pressures: Reducing Costs and Adapting

to Local Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .216 International Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .217 Global Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .219 Multidomestic Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . 220

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CONTENTS

7.4 STRATEGY SPOTLIGHT

Challenges Involving Cultural Differences That Managers May Encounter When Negotiating Contracts across National Boundaries . . . . . . . . . . . . . . . . . . . . . . . . . . . .221

Transnational Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222 7.5 STRATEGY SPOTLIGHT

Panasonic’s China Experience Shows the Benefits of Being a Transnational . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224

Global or Regional? A Second Look at Globalization . . . 224

Entry Modes of International Expansion . . . . . . . . . 226 Exporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226 Licensing and Franchising . . . . . . . . . . . . . . . . . . . . . . . . . 227 Strategic Alliances and Joint Ventures . . . . . . . . . . . . . . . 228 Wholly Owned Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 229 Issue for Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230 Reflecting on Career Implications . . . . . . . . . . . . . . . . . . . . .231 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .231 Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232 Experiential Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232 Application Questions & Exercises . . . . . . . . . . . . . . . . . . . . 232 Ethics Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233

CHAPTER 8 Entrepreneurial Strategy and Competitive Dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236

Learning from Mistakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237

Recognizing Entrepreneurial Opportunities . . . . . . 238 Entrepreneurial Opportunities . . . . . . . . . . . . . . . . . . . . . . 239

8.1 STRATEGY SPOTLIGHT

Seeing Opportunity in the Bright Side . . . . . . . . . . . . . . . . . 240

8.2 STRATEGY SPOTLIGHT Environmental Sustainability

mOasis Leverages Technology to Improve Water Efficiency for Farmers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .241

Entrepreneurial Resources . . . . . . . . . . . . . . . . . . . . . . . . . 242 Entrepreneurial Leadership . . . . . . . . . . . . . . . . . . . . . . . . 246

Entrepreneurial Strategy . . . . . . . . . . . . . . . . . . . . . 247 Entry Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247

8.3 STRATEGY SPOTLIGHT

Casper Sleep Aims to Be the Warby Parker of Mattresses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249

Generic Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250

8.4 STRATEGY SPOTLIGHT

Shakespeare & Co.: Using Technology to Create a New Local Bookstore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252

Combination Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . 252

Competitive Dynamics . . . . . . . . . . . . . . . . . . . . . . . 253 New Competitive Action . . . . . . . . . . . . . . . . . . . . . . . . . . 253 Threat Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254 Motivation and Capability to Respond . . . . . . . . . . . . . . . 256 Types of Competitive Actions . . . . . . . . . . . . . . . . . . . . . . 256 Likelihood of Competitive Reaction . . . . . . . . . . . . . . . . . 258

8.5 STRATEGY SPOTLIGHT Ethics

Cleaning Up in the Soap Business . . . . . . . . . . . . . . . . . . . . 259

Choosing Not to React: Forbearance and Co-opetition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259

Issue for Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260 Reflecting on Career Implications . . . . . . . . . . . . . . . . . . . . .261 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .261 Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262 Application Questions & Exercises . . . . . . . . . . . . . . . . . . . . 262 Ethics Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263

PART 3 STRATEGIC IMPLEMENTATION CHAPTER 9 Strategic Control and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266

Learning from Mistakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .267

Ensuring Informational Control: Responding Effectively to Environmental Change . . . . . . . . . . . 268 A Traditional Approach to Strategic Control . . . . . . . . . . 268 A Contemporary Approach to Strategic Control . . . . . . . 269

Attaining Behavioral Control: Balancing Culture, Rewards, and Boundaries . . . . . . . . . . . . . . . . . . . . . 270 Building a Strong and Effective Culture . . . . . . . . . . . . . . 270 Motivating with Rewards and Incentives . . . . . . . . . . . . . . .271

9.1 STRATEGY SPOTLIGHT

Using Pictures and Stories to Build a Customer-Oriented Culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .272

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9.1 INSIGHTS FROM RESEARCH

Inspire Passion—Motivate Top Performance . . . . . . . . . . . . . .274

Setting Boundaries and Constraints . . . . . . . . . . . . . . . . . .275 Behavioral Control in Organizations: Situational

Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276 9.2 STRATEGY SPOTLIGHT Data Analytics

Using Data Analytics to Enhance Organizational Control . . .277

Evolving from Boundaries to Rewards and Culture . . . . . 277

The Role of Corporate Governance . . . . . . . . . . . . . 278 The Modern Corporation: The Separation of Owners

(Shareholders) and Management . . . . . . . . . . . . . . . . . 279 Governance Mechanisms: Aligning the Interests of

Owners and Managers . . . . . . . . . . . . . . . . . . . . . . . . . 280 9.3 STRATEGY SPOTLIGHT Ethics

How Women Have Come to Dominate a Corner of Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284

CEO Duality: Is It Good or Bad? . . . . . . . . . . . . . . . . . . . 285 External Governance Control Mechanisms . . . . . . . . . . . 286

9.4 STRATEGY SPOTLIGHT

The Rise of the Privately Owned Firm . . . . . . . . . . . . . . . . . 288

9.5 STRATEGY SPOTLIGHT Ethics