Isbn 978 1 285 42517 7

Kor K

Michael A. Hitt Texas A&M University

R. Duane Ireland Texas A&M University

Robert E. Hoskisson Rice University

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Strategic Management

COMPETITIVENESS & GLOBALIZATION

11e

CONCEPTS & CASES

With each edition of this book, our goal has been to develop an effective learning tool for students and an effective teaching tool for instructors. Accordingly, we dedicate this 11th edition to all students and instructors past and present who have used or currently use this book. We sincerely hope that it proves to be of value as you learn about and successfully use the strategic management process.

—Michael A. Hitt, R. Duane Ireland, Robert E. Hoskisson

Printed in Canada 1 2 3 4 5 6 7 17 16 15 14 13

© 2015, 2013 Cengage Learning

ALL RIGHTS RESERVED. No part of this work covered by the copyright herein may be reproduced, transmitted, stored, or used in any form or by any means graphic, electronic, or mechanical, including but not limited to photocopying, recording, scanning, digitizing, taping, web distribution, information networks, or information storage and retrieval systems, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the publisher.

Library of Congress Control Number: 2013951199

ISBN-13: 978-1-285-42517-7 ISBN-10: 1-285-42517-0

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Strategic Management: Competitiveness & Globalization: Concepts and Cases, Eleventh Edition

Michael A. Hitt, R. Duane Ireland, and Robert E. Hoskisson

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WCN: 02-200-203

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Preface, xv

About the Authors, xxii

Part 1: Strategic Management Inputs . Strategic Management and Strategic Competitiveness, 

. The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis, 

. The Internal Organization: Resources, Capabilities, Core Competencies, and Competitive Advantages, 

Part 2: Strategic Actions: Strategy Formulation . Business-Level Strategy, 

. Competitive Rivalry and Competitive Dynamics, 

. Corporate-Level Strategy, 

. Merger and Acquisition Strategies, 

. International Strategy, 

. Cooperative Strategy, 

Part 3: Strategic Actions: Strategy Implementation . Corporate Governance, 

. Organizational Structure and Controls, 

. Strategic Leadership, 

. Strategic Entrepreneurship, 

Part 4: Cases

Name Index, I-

Company Index, I-

Subject Index, I-

B r i e f C o n t e n t s

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C o n t e n t s

Preface xv

About the Authors xxii

Part 1: Strategic Management Inputs

1: Strategic Management and Strategic Competitiveness 2 Opening Case: The Global Impact of the Golden Arches 3

1-1 The Competitive Landscape 7

1-1a The Global Economy 8 Strategic Focus: Starbucks is a New Economy Multinational 9

The March of Globalization 10

1-1b Technology and Technological Changes 11 Technology Diffusion and Disruptive Technologies 11

The Information Age 12

Increasing Knowledge Intensity 13

1-2 The I/O Model of Above-Average Returns 14 Strategic Focus: The Airlines Industry Exemplifies the I/O Model Imitation

and Poor Performance 16

1-3 The Resource-Based Model of Above-Average Returns 17

1-4 Vision and Mission 19

1-4a Vision 19

1-4b Mission 19

1-5 Stakeholders 20

1-5a Classifications of Stakeholders 21 Capital Market Stakeholders 22

Product Market Stakeholders 22

Organizational Stakeholders 23

1-6 Strategic Leaders 23

1-6a The Work of Effective Strategic Leaders 24

1-6b Predicting Outcomes of Strategic Decisions: Profit Pools 25

1-7 The Strategic Management Process 26

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Contents v

2: The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis 36 Opening Case: The Coca-Cola Co. and Pepsico: Rivals Competing in a Challenging Environment 37

2-1 The General, Industry, and Competitor Environments 38

2-2 External Environmental Analysis 40

2-2a Scanning 41

2-2b Monitoring 42

2-2c Forecasting 42

2-2d Assessing 43

2-3 Segments of the General Environment 43

2-3a The Demographic Segment 43 Population Size 43

Age Structure 44

Geographic Distribution 44

Ethnic Mix 45

Income Distribution 45

2-3b The Economic Segment 46

2-3c The Political/Legal Segment 46

2-3d The Sociocultural Segment 47

2-3e The Technological Segment 48

2-3f The Global Segment 49

2-3g The Physical Environment Segment 50 Strategic Focus: The Informal Economy: What It Is and Why It Is Important 51

2-4 Industry Environment Analysis 52

2-4a Threat of New Entrants 53 Barriers to Entry 53

Expected Retaliation 55

2-4b Bargaining Power of Suppliers 56

2-4c Bargaining Power of Buyers 56

2-4d Threat of Substitute Products 57

2-4e Intensity of Rivalry among Competitors 57 Numerous or Equally Balanced Competitors 57

Slow Industry Growth 58

High Fixed Costs or High Storage Costs 58

Lack of Differentiation or Low Switching Costs 58

High Strategic Stakes 58

High Exit Barriers 59

2-5 Interpreting Industry Analyses 59

2-6 Strategic Groups 60

2-7 Competitor Analysis 60 Strategic Focus: German Performance/Luxury Cars: If You Have Seen One, Have You Seen Them All? 61

2-8 Ethical Considerations 63

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Contentsvi

3: The Internal Organization: Resources, Capabilities, Core Competencies, and Competitive Advantages 72 Opening Case: Zara: The Capabilities behind the Spanish “Fast Fashion” Retail Giant 73

3-1 Analyzing the Internal Organization 75

3-1a The Context of Internal Analysis 75

3-1b Creating Value 77

3-1c The Challenge of Analyzing the Internal Organization 77

3-2 Resources, Capabilities, and Core Competencies 79

3-2a Resources 79 Tangible Resources 80

Strategic Focus: Emphasis on Value Creation through Tangible (Kinder Morgan) and Intangible (Coca-Cola Inc.) Resources 81

Intangible Resources 82

3-2b Capabilities 83

3-2c Core Competencies 84 Strategic Focus: Samsung Bests Apple in Smartphone Sales by Its Imitation Capability 85

3-3 Building Core Competencies 86

3-3a The Four Criteria of Sustainable Competitive Advantage 86 Valuable 87

Rare 87

Costly to Imitate 87

Nonsubstitutable 88

3-3b Value Chain Analysis 89

3-4 Outsourcing 91

3-5 Competencies, Strengths, Weaknesses, and Strategic Decisions 93

Part 2: Strategic Actions: Strategy Formulation

4: Business-Level Strategy 102 Opening Case: Is J.C. Penney Killing Itself with a Failed Strategy? 103

4-1 Customers: Their Relationship with Business-Level Strategies 105

4-1a Effectively Managing Relationships with Customers 106

4-1b Reach, Richness, and Affiliation 106

4-1c Who: Determining the Customers to Serve 107

4-1d What: Determining Which Customer Needs to Satisfy 108

4-1e How: Determining Core Competencies Necessary to Satisfy Customer Needs 108

4-2 The Purpose of a Business-Level Strategy 109 Strategic Focus: Continuously Innovating to Satisfy Customers’ Needs 110

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Contents vii

4-3 Types of Business-Level Strategies 111

4-3a Cost Leadership Strategy 113 Rivalry with Existing Competitors 114

Bargaining Power of Buyers (Customers) 114

Bargaining Power of Suppliers 115

Potential Entrants 116

Product Substitutes 116

Competitive Risks of the Cost Leadership Strategy 117

4-3b Differentiation Strategy 117 Rivalry with Existing Competitors 118

Bargaining Power of Buyers (Customers) 118

Strategic Focus: Apple vs. Samsung: Apple Differentiates and Samsung Imperfectly Imitates 119

Bargaining Power of Suppliers 119

Potential Entrants 120

Product Substitutes 121

Competitive Risks of the Differentiation Strategy 121

4-3c Focus Strategies 121 Focused Cost Leadership Strategy 122

Focused Differentiation Strategy 122

Competitive Risks of Focus Strategies 123

4-3d Integrated Cost Leadership/Differentiation Strategy 123 Flexible Manufacturing Systems 124

Information Networks 125

Competitive Risks of the Integrated Cost Leadership/Differentiation Strategy 126

5: Competitive Rivalry and Competitive Dynamics 134 Opening Case: Tesco PLC: A Case Study in Competitive Behavior 135 Strategic Focus: Competitive Rivalry in Fast Fashion: A Constant Stream of Actions and Responses 137

5-1 A Model of Competitive Rivalry 139

5-2 Competitor Analysis 140

5-2a Market Commonality 141

5-2b Resource Similarity 141 Strategic Focus: FedEx and United Parcel Service (UPS): Maintaining Success While Competing

Aggressively 143

5-3 Drivers of Competitive Behavior 144

5-4 Competitive Rivalry 145

5-4a Strategic and Tactical Actions 145

5-5 Likelihood of Attack 146

5-5a First-Mover Benefits 146

5-5b Organizational Size 148

5-6 Likelihood of Response 150

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Contentsviii

5-6a Type of Competitive Action 150

5-6b Actor’s Reputation 151

5-6c Market Dependence 152

5-7 Competitive Dynamics 152

5-7a Slow-Cycle Markets 152

5-7b Fast-Cycle Markets 154

5-7c Standard-Cycle Markets 155

6: Corporate-level Strategy 164 Opening Case: General Electric: The Classic Diversified Firm 165

6-1 Levels of Diversification 167

6-1a Low Levels of Diversification 167 Strategic Focus: Sany’s Highly Related Core Businesses 169

6-1b Moderate and High Levels of Diversification 170

6-2 Reasons for Diversification 171

6-3 Value-Creating Diversification: Related Constrained and Related Linked Diversification 172

6-3a Operational Relatedness: Sharing Activities 173

6-3b Corporate Relatedness: Transferring of Core Competencies 173

6-3c Market Power 174 Strategic Focus: Ericsson’s Substantial Market Power 175

6-3d Simultaneous Operational Relatedness and Corporate Relatedness 176

6-4 Unrelated Diversification 177

6-4a Efficient Internal Capital Market Allocation 177

6-4b Restructuring of Assets 179

6-5 Value-Neutral Diversification: Incentives and Resources 179

6-5a Incentives to Diversify 180 Antitrust Regulation and Tax Laws 180

Low Performance 181

Uncertain Future Cash Flows 181

Synergy and Firm Risk Reduction 182

6-5b Resources and Diversification 183

6-6 Value-Reducing Diversification: Managerial Motives to Diversify 184

7: Merger and Acquisition Strategies 192 Opening Case: Strategic Acquisitions and Accelerated Integration of Those Acquisitions Are a Vital Capability of Cisco Systems 193

7-1 The Popularity of Merger and Acquisition Strategies 195

7-1a Mergers, Acquisitions, and Takeovers: What Are the Differences? 196

7-2 Reasons for Acquisitions 197

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Contents ix

7-2a Increased Market Power 197 Horizontal Acquisitions 197

Vertical Acquisitions 197

Related Acquisitions 198

7-2b Overcoming Entry Barriers 198 Cross-Border Acquisitions 199

Strategic Focus: Cross-Border Acquisitions by Firms from Emerging Economies: Leveraging Resources to Gain a Larger Global Footprint and Market Power 200

7-2c Cost of New Product Development and Increased Speed to Market 201

7-2d Lower Risk Compared to Developing New Products 202

7-2e Increased Diversification 202

7-2f Reshaping the Firm’s Competitive Scope 203

7-2g Learning and Developing New Capabilities 203

7-3 Problems in Achieving Acquisition Success 203

7-3a Integration Difficulties 205

7-3b Inadequate Evaluation of Target 206

7-3c Large or Extraordinary Debt 206

7-3d Inability to Achieve Synergy 207

7-3e Too Much Diversification 208

7-3f Managers Overly Focused on Acquisitions 208

7-3g Too Large 209

7-4 Effective Acquisitions 210

7-5 Restructuring 212

7-5a Downsizing 212

7-5b Downscoping 213

7-5c Leveraged Buyouts 213 Strategic Focus: Strategic Positioning of Private Equity Buyout Firms (General Partners) 214

7-5d Restructuring Outcomes 217

8: International Strategy 226 Opening Case: An International Strategy Powers ABB’s Future 227

8-1 Identifying International Opportunities 229

8-1a Incentives to Use International Strategy 229

8-1b Three Basic Benefits of International Strategy 231 Increased Market Size 231

Economies of Scale and Learning 232

Location Advantages 232

8-2 International Strategies 233

8-2a International Business-Level Strategy 233

8-2b International Corporate-Level Strategy 236 Multidomestic Strategy 236

Global Strategy 237

Transnational Strategy 238

Strategic Focus: Mondelez International: A Global Leader in Snack Foods Markets 239

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Contentsx

8-3 Environmental Trends 240

8-3a Liability of Foreignness 240

8-3b Regionalization 241

8-4 Choice of International Entry Mode 242

8-4a Exporting 243

8-4b Licensing 243

8-4c Strategic Alliances 244

8-4d Acquisitions 245

8-4e New Wholly Owned Subsidiary 246

8-4f Dynamics of Mode of Entry 247

Strategic Focus: Mexico’s FEMSA: Building its International Prowess 248

8-5 Risks in an International Environment 249

8-5a Political Risks 249

8-5b Economic Risks 250

8-6 Strategic Competitiveness Outcomes 250

8-6a International Diversification and Returns 251

8-6b Enhanced Innovation 251

8-7 The Challenge of International Strategies 252

8-7a Complexity of Managing International Strategies 252

8-7b Limits to International Expansion 253

9: Cooperative Strategy 262 Opening Case: Alliance Formation, Both Globally and Locally, in the Global Automobile Industry 263

9-1 Strategic Alliances as a Primary Type of Cooperative Strategy 265

9-1a Types of Major Strategic Alliances 266

9-1b Reasons Firms Develop Strategic Alliances 267 Slow-Cycle Markets 268

Fast-Cycle Markets 269

Standard-Cycle Markets 270

9-2 Business-Level Cooperative Strategy 271

9-2a Complementary Strategic Alliances 271 Vertical Complementary Strategic Alliance 271

Horizontal Complementary Strategic Alliance 273

9-2b Competition Response Strategy 273

9-2c Uncertainty-Reducing Strategy 274

9-2d Competition-Reducing Strategy 274

9-2e Assessing Business-Level Cooperative Strategies 275

9-3 Corporate-Level Cooperative Strategy 276

9-3a Diversifying Strategic Alliance 276 Strategic Focus: Samsung Electric Is Using Diversifying Alliances to Reduce Its Dependence on Google’s

Android Operating System 277

9-3b Synergistic Strategic Alliance 278

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Contents xi

9-3c Franchising 278

9-3d Assessing Corporate-Level Cooperative Strategies 279

9-4 International Cooperative Strategy 279

9-5 Network Cooperative Strategy 280

9-5a Alliance Network Types 281 Strategic Focus: Industrial Clusters: Geographic Centers for Collaborative Partnering 282

9-6 Competitive Risks with Cooperative Strategies 284

9-7 Managing Cooperative Strategies 285

Part 3: Strategic Actions: Strategy Implementation

10: Corporate Governance 294 Opening Case: The Imperial CEO, JPMorgan Chase’s Jamie Dimon: Is It the End of Corporate Governance? 295

10-1 Separation of Ownership and Managerial Control 297

10-1a Agency Relationships 299

10-1b Product Diversification as an Example of an Agency Problem 300

10-1c Agency Costs and Governance Mechanisms 302

10-2 Ownership Concentration 303

10-2a The Increasing Influence of Institutional Owners 304

10-3 Board of Directors 305

10-3a Enhancing the Effectiveness of the Board of Directors 307

10-3b Executive Compensation 308

10-3c The Effectiveness of Executive Compensation 309 Strategic Focus: CEO Pay and Performance: Board Revolution at Citigroup 310

10-4 Market for Corporate Control 311

10-4a Managerial Defense Tactics 312 Strategic Focus: Rewarding Top Executives of One of the Worst-Performing Food Companies in the World:

The Chinese Takeover of Smithfield Foods 314

10-5 International Corporate Governance 315

10-5a Corporate Governance in Germany and Japan 315

10-5b Corporate Governance in China 317

10-6 Governance Mechanisms and Ethical Behavior 317

11: Organizational Structure and Controls 328 Opening Case: Big-Box Retailers Struggle to Change Their Strategies and Structures in the Face of Online Competition 329

11-1 Organizational Structure and Controls 332

11-1a Organizational Structure 332

11-1b Organizational Controls 334

11-2 Relationships between Strategy and Structure 335

11-3 Evolutionary Patterns of Strategy and Organizational Structure 336 Ju st

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Contentsxii

11-3a Simple Structure 337

11-3b Functional Structure 337

11-3c Multidivisional Structure 337

11-3d Matches between Business-Level Strategies and the Functional Structure 338 Using the Functional Structure to Implement the Cost Leadership Strategy 339

Using the Functional Structure to Implement the Differentiation Strategy 340

Using the Functional Structure to Implement the Integrated Cost Leadership/Differentiation Strategy 341

11-3e Matches between Corporate-Level Strategies and the Multidivisional Structure 341 Using the Cooperative Form of the Multidivisional Structure to Implement the Related Constrained

Strategy 342

Using the Strategic Business Unit Form of the Multidivisional Structure to Implement the Related Linked Strategy 344

Strategic Focus: A Change in Corporate Strategy Requires a Change in the Corporate Organizational Structure 345

Using the Competitive Form of the Multidivisional Structure to Implement the Unrelated Diversification Strategy 347

11-3f Matches between International Strategies and Worldwide Structure 349 Using the Worldwide Geographic Area Structure to Implement the Multidomestic Strategy 349

Using the Worldwide Product Divisional Structure to Implement the Global Strategy 350

Using the Combination Structure to Implement the Transnational Strategy 352

11-3g Matches between Cooperative Strategies and Network Structures 353 Strategic Focus: Unilever Cooperates with Many Firms and Nonprofit Organizations to Implement Its

Strategy While Creating a More Sustainable Environment 354

11-4 Implementing Business-Level Cooperative Strategies 356

11-5 Implementing Corporate-Level Cooperative Strategies 357

11-6 Implementing International Cooperative Strategies 358

12: Strategic Leadership 368 Opening Case: A Change at the Top at Procter & Gamble (P&G): An Indication of How Much the CEO Matters? 369

12-1 Strategic Leadership and Style 371 Strategic Focus: The Life of a CEO as a Firm’s Primary Strategic Leader:

Breadth, Depth, and Complexity 373

12-2 The Role of Top-Level Managers 374

12-2a Top Management Teams 374 Top Management Teams, Firm Performance, and Strategic

Change 375

The CEO and Top Management Team Power 376

12-3 Managerial Succession 378

12-4 Key Strategic Leadership Actions 380

12-4a Determining Strategic Direction 380 Strategic Focus: Keeping Quality People at the Top of The Firm’s Leadership Structure: The Importance of

Planning for Managerial Succession 381

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12-4b Effectively Managing the Firm’s Resource Portfolio 383 Exploiting and Maintaining Core Competencies 383

Developing Human Capital and Social Capital 384

12-4c Sustaining an Effective Organizational Culture 386 Entrepreneurial Mind-Set 386

Changing the Organizational Culture and Restructuring 387

12-4d Emphasizing Ethical Practices 387

12-4e Establishing Balanced Organizational Controls 388 The Balanced Scorecard 388

13: Strategic Entrepreneurship 398 Opening Case: Innovation’s Importance to Competitive Success 399

13-1 Entrepreneurship and Entrepreneurial Opportunities 401

13-2 Innovation 401

13-3 Entrepreneurs 402

13-4 International Entrepreneurship 403

13-5 Internal Innovation 404

13-5a Incremental and Radical Innovation 405

13-5b Autonomous Strategic Behavior 407

13-5c Induced Strategic Behavior 407

13-6 Implementing Internal Innovations 408

13-6a Cross-Functional Product Development Teams 408

13-6b Facilitating Integration and Innovation 409

13-6c Creating Value from Internal Innovation 409

13-7 Innovation through Cooperative Strategies 410 Strategic Focus: An Innovation Failure at JC Penney: Its Causes and Consequences 411

13-8 Innovation through Acquisitions 412

13-9 Creating Value through Strategic Entrepreneurship 413 Strategic Focus: Pursuing Competitive Success by Using Strategic Entrepreneurship 414

Part 4: Cases Preparing an Effective Case Analysis iv

CASE 1: Ally Bank 1

CASE 2: AstraZeneca: Transforming How New Medicines Flow to Patients 16

CASE 3: Avon 30

CASE 4: Black Canyon Coffee 43

CASE 5: Blue Nile, Inc.: “Stuck in the Middle” of the Diamond Engagement Ring Market 54

CASE 6: Campbell: Is the Soup Still Simmering? 64

CASE 7: Chick-fil-A: Bird of a Different Feather 75

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