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Mini Case Study

Read Min Case Study 1 – Michael Phelps: Strategizing for gold and answer the four questions that follow (p. 428) in a two -three page paper (excluding title and reference pages) include at least three peer-reviewed sources found in the Potomac Library properly cited and referenced.

Additional Resource:

Badenhausen, K. 2013. How Michael Jordan Still Earns $80 Million a Year, Forbes: http://www.forbes.com/sites/kurtbadenhausen/2013/02/14/how-michael-jordan-still-earns-80-million-a-year/

# Unique ID Case Ticker Primary Industry Sector

Industry Type

Firm Size Public

Chapter Part 1: Analysis Part 2: Formulation Part 3: Implementation

Retail Mfg Service Tech Primary Secondary

Vision, Mission, Values

Strategic Leadership

Strategy Process

External Analysis

Internal Analysis

Sustainability, Triple Bottom Line

Business Models

Business Strategy

Innovation & Entrepreneurship

Corporate Strategy

Strategic Alliances

Mergers & Acquisitions

Global Strategy

Structure & Culture

Control & Reward Systems

Corporate Governance

Business Ethics

1 MHE-FTR-037-1259420477 Facebook, Inc. FB Social Media ■ ■ medium yes 5, 6 4, 7 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

2 MHE-FTR-030-1259420477 Better World Books and the Triple Bottom Line N/A Retail — ECommerce & Books ■ ■ ■ small no 1, 5 2, 3 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

3 MHE-FTR-032-1259420477 Tesla Motors, Inc. TSLA Electric Cars & Battery Storage ■ ■ ■ medium yes 3, 4 6, 7 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

4 MHE-FTR-031-1259420477 Apple, Inc. AAPL Consumer Electronics & Online Services ■ ■ ■ large yes 6, 7 4, 10 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

5 MHE-FTR-040-1259420477 The Movie Exhibition Industry N/A Entertainment ■ ■ medium no 1, 3 5, 6 ■ ■ ■ ■

6 MHE-FTR-038-1259420477 McDonald's Corporation MCD Restaurant—Fast Food ■ ■ large yes 6, 10 3, 4 ■ ■ ■ ■ ■ ■ ■ ■ ■

7 MHE-FTR-035-1259420477 Google Inc. GOOG Online Advertising & Information Industry ■ ■ large yes 3, 7 4, 8 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

8 MHE-FTR-039-1259420477 Best Buy Co., Inc. BBY Retail—Consumer Electronics ■ ■ large yes 3, 4 6, 9 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

9 MHE-FTR-028-1259420477 Delta Air Lines, Inc. DAL Airline ■ large yes 6, 10 3, 4 ■ ■ ■ ■ ■ ■ ■ ■

10 MHE-FTR-033-1259420477 Amazon.com, Inc. AMZN Retail—Ecommerce & Web Services ■ ■ ■ large yes 3, 8 4, 7 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

11 MHE-FTR-029-1259420477 Merck & Co., Inc. MRK Pharmaceutical & Biotech ■ ■ large yes 7, 9 8, 11 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

12 MHE-FTR-034-1259420477 IBM at the Crossroads IBM IT & Big Data ■ ■ large yes 3, 8 6, 7 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

13 MHE-FTR-036-1259420477 General Electric after GE Capital GE Conglomerate ■ ■ ■ large yes 8, 11 9, 12 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

14 MHE-FTR-025-1259420477 Grok: Action Intelligence for Fast Data N/A IT & Big Data ■ ■ small no 4, 5 6, 7 ■ ■ ■ ■ ■ ■ ■ ■ ■

15 MHE-FTR-020-1259420477 Make or Break at RIM: Launching BlackBerry 10 BBRY Consumer Electronics & Services ■ ■ ■ ■ medium yes 3, 7 4, 6 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

16 MHE-FTR-014-1259420477 Genentech: After the Acquisition by Roche RHHB Y Biotechnology ■ ■ large yes 9, 11 7, 8 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

17 MHE-FTR-013-1259420477 UPS in India—A Package Deal? UPS Delivery & Logistics ■ ■ large yes 3, 10 8, 9 ■ ■ ■ ■ ■ ■ ■ ■ ■

18 MHE-FTR-007-1259420477 Bank of America and the New Financial Landscape BAC Banking ■ ■ large yes 3, 12 9, 11 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

19 MHE-FTR-011-1259420477 Siemens Energy: How to Engineer a Green Future? SI Energy & Sustainability ■ ■ ■ large yes 8, 9 3, 11 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

20 MHE-FTR-012-1259420477 Infosys Consulting in the U.S.— What to Do Now? INFY IT & Big Data ■ ■ large yes 3, 10 8, 12 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

21 MHE-FTR-005-1259420477 InterfaceRAISE: Raising the Bar in Sustainability Consulting TILE Sustainability Consulting ■ ■ ■ medium yes 2, 11 4, 5 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

STEP 2 / Arrange cases and integrate your own content. Once you’ve selected the cases you want to use in your course, just drag and drop your selections into the order you prefer. You can also add section dividers to organize the cases and even seamlessly integrate your own con- tent, such as a syllabus, class notes, or exercises.

STEP 3 / Personalize your design and choose your format. Put the finishing touches on your course content by choosing a cover, adding your course information, and then deciding on the best format for your students—color print, back-and-white print, or eBook.

STEP 4 / Order a review copy and approve your project. Request an eBook review copy and receive a free PDF sample, with its own ISBN, in minutes! Print review copies are also available and arrive in just days. After viewing your review copy, sign back in to Create and go to My Projects to approve and order your Create project.

At any time you can modify your project and can create as many projects as needed. You can also share your projects with colleagues.

Ready to begin? ■ To build your course solution yourself, go to www.McGrawHillCreate.com/Rothaermel

■ For assistance in building your course solution, contact your local McGraw-Hill Learning Technology Consultant or email CreateRothaermel@mheducation.com

Where do I find cases to incorporate into my class? At the Create site, you can access the full-length cases that accompany Strategic Management by Frank T. Rothaermel.

You will be able to select from 24 cases written by Frank T. Rothaermel as well as cases from Harvard, Ivey, Darden, NACRA, other case authors, and much more!

How do I access these materials? In this insert, we have included a grid showing information about the author-written cases, plus detailed instructions on how to use Create to select the cases and other content you want for your course.

In addition to selecting cases, through Create you also can:

Assemble your own course, selecting the chapters and cases that will work best for you.

or

Choose from several ready-to-go, author-recommended complete course solutions, which include chapters and cases pre-loaded in Create. Among these pre-loaded ExpressBooks solutions, you’ll find options for undergrad, MBA, accelerated, and other strategy courses.

For more information, contact your McGraw-Hill Learning Technology Consultant or email CreateRothaermel@mheducation.com

■

■

HIGH-QUALITY CASES, well integrated with content and frameworks in the chapters, are a key ingredient in teaching strategy. Most of the full-length cases available with Strategic Management, and accessible via McGraw-Hill’s Create™ website, have been

written specifically for the product by Frank T. Rothaermel, with the help of expert contributors. This linkage ensures close interconnection of chapter content and cases.

The cases cover a variety of core strategy issues and topics, including external analysis, competitive dynamics, innovation, mergers and acquisitions, alliances, and corporate ethics. All cases are accompanied by a rich set of Case Teaching Notes. Financial analyses (in Excel spreadsheets) and case videos also are available with selected cases.

You can access the full-length cases that accompany Strategic Management by Frank T. Rothaermel through McGraw-Hill’s custom-publishing program, Create, using a simple four-step process.

STEP 1 / Go to http://www.McGrawHillCreate/Rothaermel and click on “Explore this Collection.”

Search by keyword or browse by discipline to find and add the cases related to strategic management. You can use the case grid on the inside of this insert to learn more about the cases offered with this product. You can also browse Create’s collections and add cases from sources like Harvard Business Publishing, Darden Business Publishing, and Ivey Publishing.

Here, you also will find information about ExpressBooks, pre-loaded chapters and cases that will give you a quick start in creating a custom solution for your course.

For Steps 2 through 4, see the back page of this insert . . .

YourVision…YourVoice…YourCourse…YourWay

Make it happen through Create for Strategic Management, at

www.McGrawHillCreate.com/ Rothaermel

Create what you’ve only imagined.

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THIRD EDITION

Frank T. Rothaermel Georgia Institute of Technology

Strategic Management

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STRATEGIC MANAGEMENT, THIRD EDITION

Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2017 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2015 and 2013. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.

Some ancillaries, including electronic and print components, may not be available to customers outside the United States.

This book is printed on acid-free paper.

1 2 3 4 5 6 7 8 9 0 DOW/DOW 1 0 9 8 7 6

ISBN 978- 1-259-42047-4 (student edition) MHID 1-259-42047-7 (student edition) ISBN 978-1-259-76065-5 (instructor’s edition) MHID 1-259-76065-0 (instructor’s edition)

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All credits appearing on page or at the end of the book are considered to be an extension of the copyright page.

Library of Congress Cataloging-in-Publication Data

Names: Rothaermel, Frank T., author. Title: Strategic management / Frank T. Rothaermel, Georgia Institute of Technology. Description: Third edition. | New York, NY : McGraw-Hill Education, [2017] Identifiers: LCCN 2015043145 | ISBN 9781259420474 Subjects: LCSH: Strategic planning. Classification: LCC HD30.28 .R6646 2017 | DDC 658.4/012—dc23 LC record available at http://lccn.loc.gov/2015043145

The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites.

www.mhhe.com

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To my eternal family for their love, support, and sacrifice: Kelleyn, Harris, Winston, Roman, Adelaide, and Avery

—FRANK T. ROTHAERMEL

DEDICATION

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PART ONE / ANALYSIS 2

CHAPTER 1 What Is Strategy? 4

CHAPTER 2 Strategic Leadership: Managing the Strategy Process 32

CHAPTER 3 External Analysis: Industry Structure, Competitive Forces, and Strategic Groups 64

CHAPTER 4 Internal Analysis: Resources, Capabilities, and Core Competencies 104

CHAPTER 5 Competitive Advantage, Firm Performance, and Business Models 140

PART TWO / FORMULATION 172

CHAPTER 6 Business Strategy: Differentiation, Cost Leadership, and Blue Oceans 174

CHAPTER 7 Business Strategy: Innovation and Entrepreneurship 208

CHAPTER 8 Corporate Strategy: Vertical Integration and Diversification 252

CHAPTER 9 Corporate Strategy: Strategic Alliances, Mergers and Acquisitions 294

CHAPTER 10 Global Strategy: Competing Around the World 326

PART THREE / IMPLEMENTATION 362

CHAPTER 11 Organizational Design: Structure, Culture, and Control 364

CHAPTER 12 Corporate Governance and Business Ethics 400

PART FOUR / MINICASES 427

HOW TO CONDUCT A CASE ANALYSIS 516

PART FIVE / FULL-LENGTH CASES All available through McGraw-Hill Create, www.McGrawHillCreate.com/Rothaermel

CONTENTS IN BRIEF

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MINICASES / 1 Michael Phelps: Strategy Formulation &

Implementation 428

2 Teach for America: How to Inspire Future Leaders 430 3 PepsiCo’s Indra Nooyi: Performance with Purpose 432 4 How the Strategy Process Kills Innovation

at Microsoft 435

5 Strategy and Serendipity: A Billion-Dollar Business 438 6 Apple: What’s Next? 440 7 Starbucks: Schultz Serves Up a Turnaround 443 8 Nike’s Core Competency:

The Risky Business of Fairy Tales 446

9 When Will P&G Play to Win Again? 449 10 Trimming Fat at Whole Foods Market 452 11 Is Porsche Killing the Golden Goose? 454 12 LEGO’s Turnaround: Brick by Brick 457 13 From Good to Great to Gone:

The Rise and Fall of Circuit City 460

14 Cirque du Soleil: Searching for a New Blue Ocean 462 15 Competing on Business Models: Google vs. Microsoft 465 16 Assessing Competitive Advantage: Apple vs.

Blackberry 469

17 Wikipedia: Disrupting the Encyclopedia Business 475 18 Standards Battle: Which Automotive Technology Will

Win? 478

19 “A” Is for Alphabet and “G” Is for Google: Alphabet’s Corporate Strategy and Google’s Strategy Process 480

20 HP’s Boardroom Drama and Divorce 484 21 Hollywood Goes Global 488 22 Does GM’s Future Lie in China? 492 23 Flipkart Is Fulfilling Its Wish and Beating

Amazon.com 494

24 LVMH in China: Cracks Its Empire of Desire? 497 25 Sony vs. Apple: Whatever Happened to Sony? 501 26 Struggling Samsung Electronics 505 27 Alibaba and China’s ECommerce: Reality Bites 509 28 UBS: A Pattern of Ethics Scandals 513 How to Conduct a Case Analysis 516

FULL-LENGTH CASES / All available through McGraw-Hill Create, www.McGrawHillCreate.com/Rothaermel

Facebook, Inc.

Better World Books and the Triple Bottom Line

Tesla Motors, Inc.

Apple, Inc.

The Movie Exhibition Industry +

McDonald’s Corporation

Google Inc.*

Best Buy Co., Inc.

Delta Air Lines, Inc.*

Amazon.com, Inc.

Merck & Co., Inc.

IBM at the Crossroads

General Electric after GE Capital*

Grok: Action Intelligence for Fast Data

Make or Break at RIM: Launching BlackBerry 10

Genentech: After the Acquisition by Roche

UPS in India—A Package Deal?

Bank of America and the New Financial Landscape

Siemens Energy: How to Engineer a Green Future?

Infosys Consulting in the U.S.—What to Do Now?

InterfaceRAISE: Raising the Bar in Sustainability Consulting

MINICASES AND FULL-LENGTH CASES

* NEW TO THE THIRD EDITION REVISED AND UPDATED FOR THE THIRD EDITION + THIRD-PARTY CASE

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CHAPTERCASES / 1 Does Twitter Have a Strategy? 5 2 Marissa Mayer: Turnaround at Yahoo? 33 3 Tesla Motors and the U.S. Automotive Industry 65 4 Dr. Dre’s Core Competency: Coolness Factor 105 5 The Quest for Competitive Advantage: Apple vs.

Microsoft 141 6 JetBlue: “Stuck in the Middle”? 175 7 Netflix: Disrupting the TV Industry 209 8 How Amazon.com Became the Everything

Store 253 9 Disney: Building Billion-Dollar Franchises 295 10 The Wonder from Sweden: Is IKEA’s Success

Sustainable? 327 11 Zappos: From Happiness to Holacracy 365 12 Uber: Most Ethically Challenged Tech

Company? 401

STRATEGY HIGHLIGHTS / 1.1 Threadless: Leveraging Crowdsourcing to Design

Cool T-Shirts 10 1.2 BP “Grossly Negligent” in Gulf of Mexico

Disaster 20 2.1 Merck: Reconfirming Its Core Values 41 2.2 Starbucks’ CEO: “It’s Not What We Do” 51 3.1 Blackberry’s Bust 71 3.2 The Five Forces in the Airline Industry 74 4.1 Applying VRIO: The Rise and Fall of Groupon 117 4.2 Dynamic Capabilities at IBM 123 5.1 Interface: The World’s First Sustainable

Company 161 5.2 Airbnb: Tapping the Value of Unused Space 162 6.1 Dr. Shetty: “The Henry Ford of Heart Surgery” 189 6.2 How JCPenney Sailed Deeper into the Red

Ocean 198 7.1 How Dollar Shave Club Is Disrupting Gillette 236 7.2 GE’s Innovation Mantra: Disrupt Yourself! 237 8.1 Is Coke Becoming a Monster? 263 8.2 The Tata Group: Integration at the Corporate

Level 276 9.1 IBM and Apple: From Big Brother to Alliance

Partner 301 9.2 Food Fight: Kraft’s Hostile Takeover of

Cadbury 312 10.1 The Gulf Airlines Are Landing in the United

States 334 10.2 Walmart Retreats from Germany 337 11.1 The Premature Death of a Google-like Search

Engine at Microsoft 370 11.2 W.L. Gore & Associates: Informality and

Innovation 374 12.1 GE’s Board of Directors 411 12.2 Did Goldman Sachs and the “Fabulous Fab”

Commit Securities Fraud? 416

CHAPTERCASES & STRATEGY HIGHLIGHTS

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CONTENTS

PART ONE / ANALYSIS 2 CHAPTER 1 WHAT IS STRATEGY? 4

CHAPTERCASE 1 Does Twitter Have a Strategy? 5

1.1 What Strategy Is: Gaining and Sustaining Competitive Advantage 6

What Is Competitive Advantage? 8 Industry vs. Firm Effects in Determining Firm Performance 11

1.2 Stakeholders and Competitive Advantage 12 Stakeholder Strategy 14 Stakeholder Impact Analysis 15

1.3 The AFI Strategy Framework 20 1.4 Implications for the Strategist 22

CHAPTERCASE 1 / Consider This... 23

CHAPTER 2 STRATEGIC LEADERSHIP: MANAGING THE STRATEGY PROCESS 32

CHAPTERCASE 2 Marissa Mayer: Turnaround at Yahoo? 33

2.1 Vision, Mission, and Values 34 Vision 35 Mission 36 Values 36

2.2 Strategic Leadership 40 What Do Strategic Leaders Do? 42 How Do You Become a Strategic Leader? 43 Formulating Strategy across Levels: Corporate, Business, and Functional Managers 43

2.3 The Strategic Management Process 46 Top-Down Strategic Planning 46 Scenario Planning 47 Strategy as Planned Emergence: Top-Down and Bottom-Up 49

2.4 Implications for the Strategist 53

CHAPTERCASE 2 / Consider This... 55

CHAPTER 3 EXTERNAL ANALYSIS: INDUSTRY STRUCTURE, COMPETITIVE FORCES, AND STRATEGIC GROUPS 64

CHAPTERCASE 3 Tesla Motors and the U.S. Automotive Industry 65

3.1 The PESTEL Framework 66 Political Factors 67 Economic Factors 68 Sociocultural Factors 69 Technological Factors 70 Ecological Factors 70 Legal Factors 72

3.2 Industry Structure and Firm Strategy: The Five Forces Model 72

Competition in the Five Forces Model 73 The Threat of Entry 75 The Power of Suppliers 79 The Power of Buyers 80 The Threat of Substitutes 81 Rivalry among Existing Competitors 82 A Sixth Force: The Strategic Role of Complements 89

3.3 Changes over Time: Industry Dynamics 89 3.4 Performance Differences within the Same Industry: Strategic Groups 90

The Strategic Group Model 91 Mobility Barriers 93

3.5 Implications for the Strategist 93

CHAPTERCASE 3 / Consider This... 95

CHAPTER 4 INTERNAL ANALYSIS: RESOURCES, CAPABILITIES, AND CORE COMPETENCIES 104

CHAPTERCASE 4 Dr. Dre’s Core Competency: Coolness Factor 105

4.1 Core Competencies 108 4.2 The Resource-Based View 111

Two Critical Assumptions 112 The VRIO Framework 113 Isolating Mechanisms: How to Sustain a Competitive Advantage 118

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4.3 The Dynamic Capabilities Perspective 122 4.4 The Value Chain Analysis 127 4.5 Implications for the Strategist 129

Using SWOT Analysis to Combine External and Internal Analysis 130

CHAPTERCASE 4 / Consider This... 132

CHAPTER 5 COMPETITIVE ADVANTAGE, FIRM PERFORMANCE, AND BUSINESS MODELS 140

CHAPTERCASE 5 The Quest for Competitive Advantage: Apple vs. Microsoft 141

5.1 Competitive Advantage and Firm Performance 142

Accounting Profitability 143 Shareholder Value Creation 149 Economic Value Creation 151 The Balanced Scorecard 156 The Triple Bottom Line 159

5.2 Business Models: Putting Strategy into Action 160

Popular Business Models 163 Dynamic Nature of Business Models 164

5.3 Implications for the Strategist 165

CHAPTERCASE 5 / Consider This... 166

PART TWO / FORMULATION 172 CHAPTER 6 BUSINESS STRATEGY: DIFFERENTIATION, COST LEADERSHIP, AND BLUE OCEANS 174

CHAPTERCASE 6 JetBlue: “Stuck in the Middle”? 175

6.1 Business-Level Strategy: How to Compete for Advantage 177

Strategic Position 178 Generic Business Strategies 178

6.2 Differentiation Strategy: Understanding Value Drivers 180

Product Features 182 Customer Service 182 Complements 182

6.3 Cost-Leadership Strategy: Understanding Cost Drivers 183

Cost of Input Factors 184 Economies of Scale 184 Learning Curve 187 Experience Curve 190

6.4 Business-Level Strategy and the Five Forces: Benefits and Risks 191

Differentiation Strategy: Benefits and Risks 192 Cost-Leadership Strategy: Benefits and Risks 192

6.5 Blue Ocean Strategy: Combining Cost Leadership and Differentiation 194

Value Innovation 194 Blue Ocean Strategy Gone Bad: “Stuck in the Middle” 197

6.6 Implications for the Strategist 200

CHAPTERCASE 6 / Consider This... 200

CHAPTER 7 BUSINESS STRATEGY: INNOVATION AND ENTREPRENEURSHIP 208

CHAPTERCASE 7 Netflix: Disrupting the TV Industry 209

7.1 Competition Driven by Innovation 211 The Innovation Process 212

7.2 Strategic and Social Entrepreneurship 215 7.3 Innovation and the Industry Life Cycle 217

Introduction Stage 219 Growth Stage 220 Shakeout Stage 223 Maturity Stage 224 Decline Stage 224 Crossing the Chasm 225

7.4 Types of Innovation 231 Incremental vs. Radical Innovation 232 Architectural vs. Disruptive Innovation 234 Open Innovation 238

7.5 Implications for the Strategist 241

CHAPTERCASE 7 / Consider This... 242

CHAPTER 8 CORPORATE STRATEGY: VERTICAL INTEGRATION AND DIVERSIFICATION 252

CHAPTERCASE 8 How Amazon.com Became the Everything Store 253

8.1 What Is Corporate Strategy? 255 Why Firms Need to Grow 255 Three Dimensions of Corporate Strategy 257

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8.2 The Boundaries of the Firm 258 Firms vs. Markets: Make or Buy? 259 Alternatives on the Make-or-Buy Continuum 261

8.3 Vertical Integration along the Industry Value Chain 264

Types of Vertical Integration 266 Benefits and Risks of Vertical Integration 267 When Does Vertical Integration Make Sense? 269 Alternatives to Vertical Integration 270

8.4 Corporate Diversification: Expanding Beyond a Single Market 271

Types of Corporate Diversification 273 Leveraging Core Competencies for Corporate Diversification 275 Corporate Diversification and Firm Performance 279

8.5 Implications for the Strategist 282

CHAPTERCASE 8 / Consider This... 283

CHAPTER 9 CORPORATE STRATEGY: STRATEGIC ALLIANCES AND MERGERS AND ACQUISITIONS 294

CHAPTERCASE 9 Disney: Building Billion-Dollar Franchises 295

9.1 How Firms Achieve Growth 296 The Build-Borrow-Buy Framework 297

9.2 Strategic Alliances 299 Why Do Firms Enter Strategic Alliances? 300 Governing Strategic Alliances 304 Alliance Management Capability 307

9.3 Mergers and Acquisitions 309 Why Do Firms Merge with Competitors? 310 Why Do Firms Acquire Other Firms? 311 M&A and Competitive Advantage 313

9.3 Implications for the Strategist 315

CHAPTERCASE 9 / Consider This... 316

CHAPTER 10 GLOBAL STRATEGY: COMPETING AROUND THE WORLD 326

CHAPTERCASE 10 The Wonder from Sweden: Is IKEA’s Success Sustainable? 327

10.1 What Is Globalization? 329 Stages of Globalization 331 State of Globalization 332

10.2 Going Global: Why? 333 Advantages of Going Global 333

Disadvantages of Going Global 336 10.3 Going Global: Where and How? 338

Where in the World to Compete? The CAGE Distance Framework 339 How Do MNEs Enter Foreign Markets? 342

10.4 Cost Reductions vs. Local Responsiveness: The Integration-Responsiveness Framework 343

International Strategy 344 Multidomestic Strategy 345 Global-Standardization Strategy 346 Transnational Strategy 347

10.5 National Competitive Advantage: World Leadership in Specific Industries 348

Porter’s Diamond Framework 350 10.6 Implications for the Strategist 352

CHAPTERCASE 10 / Consider This... 353

PART THREE / IMPLEMENTATION 362 CHAPTER 11 ORGANIZATIONAL DESIGN: STRUCTURE, CULTURE, AND CONTROL 364

CHAPTERCASE 11 Zappos: From Happiness to Holacracy 365

11.1 Organizational Design and Competitive Advantage 367

Organizational Inertia: The Failure of Established Firms 368 Organizational Structure 371 Mechanistic vs. Organic Organizations 372

11.2 Strategy and Structure 374 Simple Structure 375 Functional Structure 375 Multidivisional Structure 377 Matrix Structure 381

11.3 Organizational Culture: Values, Norms, and Artifacts 384

Where Do Organizational Cultures Come From? 386 How Does Organizational Culture Change? 386 Organizational Culture and Competitive Advantage 387

11.4 Strategic Control-and-Reward Systems 389 Input Controls 390 Output Controls 390

11.5 Implications for the Strategist 391

CHAPTERCASE 1 / Consider This... 392

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CHAPTER 12 CORPORATE GOVERNANCE AND BUSINESS ETHICS 400

CHAPTERCASE 12 Uber: Most Ethically Challenged Tech Company? 401

12.1 The Shared Value Creation Framework 403 Public Stock Companies and Shareholder Capitalism 403 Creating Shared Value 405

12.2 Corporate Governance 407 Agency Theory 408 The Board of Directors 409 Other Governance Mechanisms 412

12.3 Strategy and Business Ethics 414 12.4 Implications for the Strategist 418

CHAPTERCASE 12 / Consider This... 419

PART FOUR / MINICASES 427

PART FIVE / FULL-LENGTH CASES All available through McGraw-Hill Create, www.McGrawHillCreate.com/Rothaermel Company Index I1 Name Index I7 Subject Index I9

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Frank T. Rothaermel Georgia Institute of Technology

FRANK T. ROTHAERMEL (PH.D.) is a professor of strategy, holds the Russell and Nancy McDonough Chair in the Scheller College of Business at the Georgia Institute of Technology (GT), and is an Alfred P. Sloan Industry Studies Fellow. He received a National Science Foundation (NSF) CAREER award, which “is a Foundation-wide activity that offers the National Science Foundation’s most prestigious awards in support of . . . those teacher-scholars who most effectively integrate research and education” (NSF CAREER Award description).

Frank’s research interests lie in the areas of strategy, innovation, and entrepreneurship. Frank has published over 30 articles in lead- ing academic journals such as the Strategic Management Journal, Organization Science, Academy of Management Journal, Academy of Management Review, and elsewhere. He has received several rec- ognitions for his research, including the Sloan Industry Studies Best Paper Award, the Academy of Management Newman Award, the Strategic Management Society Conference Best Paper Prize, the DRUID Conference Best Paper Award, and the Israel Strategy Conference Best Paper Prize.

Thomson Reuters identified Frank as one of the “world’s most influential scientific minds” for having published in the top 1% of citation-based journal articles. He was listed among the top-100 scholars for his more than decade-long impact in both economics and business. Businessweek named Frank one of Georgia Tech’s Prominent Faculty in their national survey of business schools. The Kauffman Foundation views Frank as one of the world’s 75 thought leaders in entrepreneurship and innovation.

To inform his research Frank has conducted extensive field work and executive train- ing with leading corporations such as Amgen, Daimler, Eli Lilly, Equifax, GE Energy, GE Healthcare, Hyundai Heavy Industries (South Korea), Kimberly-Clark, Microsoft, McKes- son, NCR, Turner (TBS), UPS, among others. Frank regularly translates his research find- ings for wider audiences in articles in Forbes, MIT Sloan Management Review, Wall Street Journal, and elsewhere.

Frank has a wide range of executive education experience, including teaching in pro- grams at Georgia Institute of Technology, Georgetown University, ICN Business School (France), Politecnico di Milano (Italy), St. Gallen University (Switzerland), and the Uni- versity of Washington. He received numerous teaching awards for excellence in the class- room including the GT institute-wide Georgia Power Professor of Excellence award. When launched (in 2012), Frank’s Strategic Management textbook received the McGraw-Hill 1st Edition of the Year Award in Business & Economics.

Frank holds a PhD degree in strategic management from the University of Washington; a MBA from the Marriott School of Management at Brigham Young University; and a M.Sc. (Diplom-Volkswirt) in economics from the University of Duisburg-Essen, Germany. Frank completed training in the case teaching method at the Harvard Business School. He was a visiting professor at the University of St. Gallen, Switzerland, and an Erasmus Scholar at Sheffield Hallam University, UK.

VISIT THE AUTHOR AT: http://ftrStrategy.com/

ABOUT THE AUTHOR

© Kelleyn Rothaermel

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PREFACE

Strategic Management is a research- and application-based strategy text that covers issues facing managers in a globalized and turbulent 21st century.

When the first edition published, the market response was overwhelmingly enthusiastic, and I was grateful for the strong vote of confidence. When the second edition published, the enthusiasm was even greater; I remain ever grateful for the sustained support. In this third edition, I build upon the unique strengths of the text and continue to add improve- ments based upon hundreds of insightful reviews and important feedback from professors, students, and professionals.

The strategy textbook market has long been separated into two overarching categories: traditional, application-based and research-based. Traditional, application-based strategy books represent the first-generation texts whose first editions were published in the 1980s. The research-based strategy books represent the second-generation texts whose first editions were published in the 1990s. This text represents a new category of strategy textbook—a third-generation text that combines the student accessible, application- oriented framework of the first-generation texts with the research-based framework of the second-generation texts. It integrates core concepts, frameworks, and analysis techniques in strategy with functional course offerings; it also aims to help students become managers capable of making well-reasoned strategic decisions.

To facilitate an enjoyable and refreshing reading experience that enhances learning, I synthesize and integrate theory, empirical research, and practical applications with current real-world examples. This approach and emphasis on real-world examples offers students a learning experience that uniquely combines rigor and relevance. As Dr. John Media of the University of Washington’s School of Medicine and life-long researcher on how the mind organizes information, explains:

How does one communicate meaning in such a fashion that learning is improved? A simple trick involves the liberal use of relevant real-world examples, thus peppering main learning points with meaningful experiences. . . . Numerous studies show this works. . . . The greater the number of examples . . . the more likely the students were to remember the information. It’s best to use real-world situations familiar to the learner. . . . Examples work because they take advantage of the brain’s natural predilection for pattern matching. Information is more readily processed if it can be immediately associated with information already present in the brain. We compare the two inputs, looking for similarities and differences as we encode the new information. Providing examples is the cognitive equivalent of adding more han- dles to the door. [The more handles one creates at the moment of learning, the more likely the information can be accessed at a later date.] Providing examples makes the information more elaborative, more complex, better encoded, and therefore better learned.*

Strategic Management brings theory to life via examples that cover products and services from companies with which students are familiar, such as Facebook, Google, Starbucks, Apple, and Uber. Use of such examples aids in making strategy relevant to students’ lives and helps them internalize strategy concepts and frameworks.

The hallmark features of this text continue to be:

■ Use of a holistic Analysis, Formulation, and Implementation (AFI) Strategy Framework.

■ Synthesis and integration of empirical research and practical applications combined with rel- evant strategy material to focus on what is important for the student and why it is important.

*Source: Medina, J. (2014). Brain Rules: 12 Principles for Surviving and Thriving at Work, Home, and School (pp. 139–140). Pear Press. Kindle Edition.

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■ Comprehensive but concise presentation of core concepts, frameworks, and techniques.

■ Combination of traditional and contemporary strategy concepts. ■ Up-to-date examples and discussion of current topics within a global context. ■ Stand-alone chapter on competitive advantage, including a focus on triple bottom line

and sustainability. ■ Direct applications of strategy to careers and lives (including the popular myStrategy

modules at the end of each chapter). ■ Inclusion of Strategy Term Project (end-of-chapter) and interactive Running Case on

HP (in Connect). ■ Industry-leading digital delivery options and adaptive learning systems (Create,

SmartBook, LearnSmart, and Connect) ■ High-quality Cases, well integrated with textbook chapters and standardized, high-

quality teaching notes; there are two types of cases: ■ ChapterCases begin and end each chapter, framing the chapter topic and content. ■ 28 MiniCases (Part 4 of the book), all based on original research, provide

dynamic opportunities for students to apply strategy concepts by assigning them as add-ons to chapters, either as individual assignments or as group work, or by using them for class discussion.

I have taken pride in authoring all of the ChapterCases, Strategy Highlights, and Mini- Cases. This additional touch allows quality control and ensures that chapter content and cases use one voice and are closely interconnected. Both types of case materials come with sets of questions to stimulate class discussion or provide guidance for written assignments. The instructor resources offer sample answers that apply chapter content to the cases.

In addition to these in-text cases, 21 full-length cases, authored or co-authored by me specifically to accompany this textbook, are available through McGraw-Hill’s custom- publishing Create program (www.McGrawHillCreate.com/Rothaermel). Full-length cases New to the third edition are: Delta, General Electric, and Google. Popular cases about Apple, Amazon.com, IBM, Facebook, McDonald’s, Tesla Motors, and Better World Books among several others are significantly updated and revised. Robust and standardized case teaching notes are also available and accessible through Create; financial data for these cases may be accessed from the Instructor Resource site on Connect.

What’s New in the Third Edition? I have revised and updated the third edition in the following ways, many of which were inspired by conversations and feedback from the many users and reviewers of the first and second editions.

OVERVIEW OF IMPORTANT CHANGES IN 3E: ■ New section on blue ocean strategy (Chapter 6), with application examples and strat-

egy canvas. ■ More global coverage included throughout, with a stronger Asian focus both on the

continent as well as its global competitors. ■ Stronger focus on sustainable business. ■ Increased the total number of MiniCases to 28 (15 brand new, 13 revised). ■ New, completely revised, or updated ChapterCases and Strategy Highlights.

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■ Stronger integration and expanded discussion of ChapterCases throughout. ■ Increased emphasis on practice and applications of strategy concepts and

frameworks. ■ Updated or new firm, product, and service examples to afford more in-depth discussion. ■ Enhanced graphic design and rendering of exhibits throughout entire text.

In detail:

CHAPTER 1 ■ New ChapterCase about Twitter’s rise and current challenges. ■ New Strategy Highlight 1.1 discussing Threadless and its use of crowdsourcing to

help produce better products and maintain competitive advantage. ■ Updated Strategy Highlight 1.2 about BP’s Gulf Coast oil spill and systemic safety

issues over the last decade.

CHAPTER 2 ■ New ChapterCase about Yahoo’s CEO Marissa Mayer and the attempted turnaround

under her leadership. ■ Created new and stand-alone sections on each vision, mission, and values. ■ Updated Strategy Highlight 2.1 on Merck’s core values and the development of drugs

to treat river blindness and the challenges with the Vioxx recall. ■ Added a new table comparing and contrasting top-down strategic planning, scenario

planning, and strategy as planned emergence (brief descriptions, pros and cons, where best used); see Exhibit 2.9.

■ Added new sections to expand discussion of autonomous actions, serendipity, and resource allocation process as part of strategy as planned emergence.

■ Added new ethical/social issues question focusing on Merck’s responsibility to meet the needs of both its customers and its shareholders.

CHAPTER 3 ■ Updated ChapterCase about Tesla Motors and the U.S. automotive industry. ■ Separate discussion of political and legal factors in the PESTEL framework. ■ Sharpened the discussion of PESTEL framework overall. ■ New Strategy Highlight 3.1: “BlackBerry’s Bust.” ■ Updated the discussion of competition in the U.S. domestic airline industry through-

out the chapter, and in Strategy Highlight 3.2: “The Five Forces in the Airline Industry.”

CHAPTER 4 ■ New ChapterCase about Dr. Dre, and multi-billion-dollar Apple acquisition of Beats

Electronics. ■ Fresh examples of core competencies and their applications. ■ Interlocution of the concept of Core Rigidities. ■ Expanded discussion on dynamic capabilities, including new Strategy Highlight 4.2:

“Dynamic Capabilities at IBM.”

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■ Included new Exhibit 4.6 showing IBM’s successful transition throughout several technological discontinuities over the last 125 years.

■ Sharpened discussion of SWOT, including moving (an updated version of) the SWOT application to McDonald’s in the Instructor Manual.

CHAPTER 5 ■ New ChapterCase, focusing on Apple vs. Microsoft and their quest for competitive

advantage over time. ■ Extended discussion of Apple and Microsoft (turnaround under new CEO Satya

Nadella) throughout the chapter. ■ Sharpened discussion of competitive advantage and firm performance. ■ Expanded discussion of business models to include new popular applications and

examples, with a more in-depth discussion. ■ New Strategy Highlight 5.2 on Airbnb and its novel business model.

CHAPTER 6 ■ New ChapterCase about JetBlue and how its straddling of different strategy positions

led to being “Stuck in the Middle” and a competitive disadvantage. ■ New section on Blue Ocean Strategy. ■ Application of the Blue Ocean Strategy canvas to the U.S. domestic airline industry. ■ Discussion of the Eliminate-Reduce-Raise-Create framework from Blue Ocean Strat-

egy and application to IKEA. ■ New Strategy Highlight 6.1: “Dr. Shetty: The Henry Ford of Heart Surgery,” focusing

on cost reductions in healthcare. ■ New Strategy Highlight 6.2: “How JCPenney Sailed into the Red Ocean.” ■ Dropped the section “The Dynamics of Competitive Positioning” ■ New myStrategy module, comparing and contrasting low-cost and differentiated

workplaces.

CHAPTER 7 ■ New ChapterCase on Netflix and the disruption in the TV industry. ■ Coverage of innovation process expanded with a stronger focus on how to manage

innovation. ■ More in-depth coverage of product and process innovation over the entire industry life

cycle, including revision of Exhibit 7.6 “Product and Process Innovation throughout an Industry Life Cycle.”

■ Revision of Exhibit 7.9 “Features and Strategic Implications of the Industry Life Cycle.” ■ New Strategy Highlight 7.1: “How Dollar Shave Club Is Disrupting Gillette.” ■ Dropped the section “The Internet as Disruptive Force: The Long Tail.” ■ Revised the myStrategy module and end-of-chapter section around debate on whether

college adds to potential success of entrepreneurs.

CHAPTER 8 ■ New ChapterCase on how Amazon.com diversified over time to become the “Every-

thing Store,” including a detailed exhibit showing Amazon.com’s key strategic initia- tives and stock market valuation from the idea of in 1994 to 2015 (Exhibit 8.1).

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■ New section titled, “Why Firms Need to Grow.” ■ New Strategy Highlight 8.1 “Is Coke Becoming a Monster?” ■ More in-depth discussion of Exhibit 8.4 “Alternatives on the Make-or-Buy Contin-

uum” in the text. ■ New subsection on “When Does Vertical Integration Make Sense?” ■ Revised section of “Types of Corporate Diversification” to sharpen discussion and

provide graphic support as Rumelt’s framework categorizing different types of diver- sification is developed (Exhibit 8.8).

■ Expanded discussion to clarify more fully the sources of value creation and costs of vertical integration and diversification (Exhibit 8.11).

CHAPTER 9 ■ Revised and updated ChapterCases focusing on Disney’s attempt to build billion-

dollar franchises, with strategic alliances, and mergers and acquisitions as critical to corporate strategy execution.

■ Changed macro structure of chapter by moving the Build-Borrow-Buy Framework upfront to guide and frame the discussion corporate strategy execution using.

■ Discussion of strategic alliances before mergers and acquisitions. ■ Included a new section entitled “How Firms Achieve Growth.” ■ New Strategy Highlight 9.1 “IBM and Apple: From Big Brother to Big Alliance Partner.” ■ Revised to myStrategy module to sharpen the discussion of network strategy in terms

of career management.