StrategIC Management An Integrated Approach Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it C h a r l e s W L Hi l L G a r e t h U n i ve r s i t y o f Wa s h i n g to n R Jones Te x a s A & M U n i v e r s i t y StrategIC Management An Integrated Approach Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Strategic Management: An Integrated Approach, Tenth Edition Charles W L Hill and Gareth R Jones Vice President of Editorial, Business: Jack W Calhoun Publisher: Erin Joyner Sr Acquisitions Editor: Michele Rhoades Editorial Assistant: Tammy Grega Developmental Editor: Suzanna Bainbridge Marketing Manager: Jonathan Monahan Marketing Coordinator: Julia Tucker Marketing Communications Manager: Jim Overly Content Project Manager: Jana Lewis Assoc Media Editor: Rob Ellington Manufacturing Planner: Ron Montmongery Production Service: S4 Carlisle Publishing Services Copyeditor: Kelly Lydick Sr Art Director: Tippy McIntosh Internal Designer: Beckmeyer Design, Inc © 2013, 2010 South-Western, 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 For product information and technology assistance, contact us at Cengage Learning Customer & Sales Support, 1-800-354-9706 For permission to use material from this text or product, submit all requests online at www.cengage.com/permissions Further permissions questions can be emailed to permissionrequest@cengage.com Exam View® is a registered trademark of eInstruction Corp Windows is a registered trademark of the Microsoft Corporation used herein under license Macintosh and Power Macintosh are registered trademarks of Apple Computer, Inc used herein under license © 2008 Cengage Learning All Rights Reserved Cengage Learning WebTutor™ is a trademark of Cengage Learning Cover Designer: Beckmeyer Design, Inc Library of Congress Control Number: 2012931470 Cover Image: ©Sandra von Stein, iStock ISBN-13: 978-1-111-82584-3 ISBN-10: 1-111-82584-X South-Western 5191 Natorp Boulevard Mason, OH 45040 USA Cengage Learning products are represented in Canada by Nelson Education, Ltd For your course and learning solutions, visit www.cengage.com Purchase any of our products at your local college store or at our preferred online store www.cengagebrain.com Printed in the Canada 18 17 16 15 14 13 12 Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it This is an electronic version of the print textbook Due to electronic rights restrictions, some third party content may be suppressed Editorial review has deemed that any suppressed content does not materially affect the overall learning experience The publisher reserves the right to remove content from this title at any time if subsequent rights restrictions require it For valuable information on pricing, previous editions, changes to current editions, and alternate formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword for materials in your areas of interest Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Brief Contents PART ONE introduction to strategic management Strategic Leadership: Managing the Strategy-Making Process for Competitive Advantage External Analysis: The Identification of Opportunities and Threats 45 PART Two The nature of competitive advantage Internal Analysis: Distinctive Competencies, Competitive Advantage, and Profitability Building Competitive Advantage Through Functional-Level Strategy 81 117 PART THREE Strategies 10 Building Competitive Advantage Through Business-Level Strategy Business-Level Strategy and the Industry Environment Strategy and Technology Strategy in the Global Environment Corporate-Level Strategy: Horizontal Integration, Vertical Integration, and Strategic Outsourcing Corporate-Level Strategy: Related and Unrelated Diversification 13 Corporate Performance, Governance, and Business Ethics Implementing Strategy in Companies that Compete in a Single Industry Implementing Strategy in Companies that Compete Across Industries and Countries PART five Cases in Strategic Management 155 191 227 263 307 339 PART FOUR implementing strategy 1 12 377 413 461 v Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Contents Preface xix Acknowledgements xxv Dedication xxix PART ONE introduction to strategic management Chapter 1 Strategic Leadership: Managing the Strategy-Making Process for Competitive Advantage 1 Opening Case: Dell Inc. Overview Strategic Leadership, Competitive Advantage, and Superior Performance Superior Performance Competitive Advantage and a Company’s Business Model Industry Differences in Performance Performance in Nonprofit Enterprises Strategic Managers Corporate-Level Managers 10 Business-Level Managers 11 Functional-Level Managers 11 The Strategy-Making Process 11 A Model of the Strategic Planning Process 12 Mission Statement 14 Major Goals 16 External Analysis 17 Strategy in Action 1.1: Strategic Analysis at Time Inc. 18 Internal Analysis 19 SWOT Analysis and the Business Model 19 Strategy Implementation 20 The Feedback Loop 21 Strategy as an Emergent Process 21 Strategy Making in an Unpredictable World 21 Autonomous Action: Strategy Making by Lower-Level Managers 22 Strategy in Action 1.2: Starbucks’ Music Business 22 Strategy in Action 1.3: A Strategic Shift at Charles Schwab 23 Serendipity and Strategy 23 Intended and Emergent Strategies 24 Strategic Planning in Practice 26 Scenario Planning 26 Decentralized Planning 27 Strategic Decision Making 28 Cognitive Biases and Strategic Decision Making 28 vi Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Glossary growth strategy a strategy designed to allow a company to internal stakeholders stockholders and employees, includ- maintain its relative competitive position in a rapidly expanding market and, if possible, to increase it intrapreneurs managers who pioneer and lead new ven- harvest strategy when a company reduces to a minimum the assets it employs in a business to reduce its cost structure and extract or “milk” maximum profits from its investment hierarchy of authority the clear and unambiguous chain of command that defines each manager’s relative authority from the CEO down through top, middle, to first-line managers hold-and-maintain strategy when a company expends resources to develop its distinctive competency to remain the market leader and ward off threats from other companies that are attempting to usurp its leading position holdup when a company is taken advantage of by another company it does business with after it has made an investment in expensive specialized assets to better meet the needs of the other company horizontal integration the process of acquiring or merging with industry competitors to achieve the competitive advantages that arise from a large size and scope of operations hostage taking a means of exchanging valuable resources to guarantee that each partner to an agreement will keep its side of the bargain illusion of control a cognitive bias rooted in the tendency to overestimate one’s ability to control events information asymmetry a situation where an agent has more information about resources they are managing than the principal has information distortion the manipulation of facts sup- plied to corporate managers to hide declining divisional performance information manipulation managers use their control over corporate data to distort or hide information in order to enhance their own financial situation or the competitive position of the firm inside directors senior employees of the company, such as the CEO intangible resources nonphysical entities such as brand names, company reputation, experiential knowledge and intellectual property, including patents, copyrights, and trademarks integrating mechanisms ways to increase communication and coordination among functions and divisions integrating roles managers who work in full-time posi- tions established specifically to improve communication between divisions internal new venturing the process of transferring resources to and creating a new business unit or division in a new industry to innovate new kinds of products ing executive officers, other managers, and board members ture projects or divisions and act as inside or internal entrepreneurs just-in-time system of economizing on inventory holding costs by scheduling components to arrive just in time to enter the production process or as stock is depleted killer applications applications or uses of a new technology or product that are so compelling that customers adopt them in droves, killing the competing formats knowledge management system the company-specific information system that systematizes the knowledge of all its employees and provides access to employees who have the expertise needed to solve problems as they arise leadership strategy when a company develops strategies to become the dominant player in a declining industry learning effects cost savings that come from learning by doing leveraging competencies the process of taking a distinctive competency developed by a business unit in one industry and using it to create a new business unit in a different industry localization strategy strategy focused on increasing profitability by customizing the company’s goods or services so that the goods provide a favorable match to tastes and preferences in different national markets location economies the economic benefits that arise from performing a value creation activity in an optimal location market concentration when a company specializes in some way and adopts a focus business model to reduce investment needs and searches for a viable and sustainable competitive position market development when a company searches for new market segments for a company’s existing products to increase sales market penetration when a company concentrates on expanding market share to strengthen its position in its existing product markets market segmentation the way a company decides to group customers based on important differences in their needs to gain a competitive advantage marketing strategy the position that a company takes with regard to pricing, promotion, advertising, product design, and distribution market structure a way of grouping employees into separate customer groups so that each group can focus on satisfying the needs of a particular customer group in the most effective way mass customization the use of flexible manufacturing technology to reconcile two goals that were once thought to be incompatible: low cost, and differentiation through product customization Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it G3 G4 Glossary matrix structure a way of grouping employees in two ways simultaneously by function and by product or project to maximize the rate at which different kinds of products can be developed merger an agreement between two companies to pool their resources and operations and join together to better compete in a business or industry mission the purpose of the company, or a statement of what the company strives to multidivisional company a company that competes in several different businesses and has created a separate selfcontained division to manage each multidivisional structure a complex organizational design organizational culture the specific collection of values, norms, beliefs, and attitudes that are shared by people and groups in an organization and that control the way they interact with each other and with stakeholders outside the organization organizational design the process of deciding how a company should create, use, and combine organizational structure, control systems, and culture to pursue a business model successfully organizational design skills the ability of the managers of a company to create a structure, culture, and control systems that motivate and coordinate employees to perform at a high level that allows a company to grow and diversify while it also reduces coordination and control problems because it uses self-contained divisions and has a separate corporate headquarters staff organizational slack the unproductive use of functional re- multinational company a company that does business in pany assigns employees to specific tasks and roles and specifies how these tasks and roles are to be linked together to increase efficiency, quality, innovation, and responsiveness to customers two or more national markets network effects the network of complementary products as a primary determinant of the demand for an industry’s product network structure a cluster of different companies whose actions are coordinated by contracts and outsourcing agreements rather than by a formal hierarchy of authority new-venture division a separate and independent division established to give its managers the autonomy to develop a new product niche strategy when a company focuses on pockets of de- mand that are declining more slowly than the industry as a whole to maintain profitability nonprice competition the use of product differentiation strategies to deter potential entrants and manage rivalry within an industry on-the-job consumption a term used by Economists to de- scribe the behavior of company funds by senior management to acquire perks (such as lavish offi ces, jets, etc.) that will enhance their status, instead of investing it to increase stockholder returns operating budget a blueprint that states how managers intend to use organizational resources to most efficiently achieve organizational goals opportunism seeking one’s own selfinterest often through the use of guile sources by divisional managers that can go undetected unless corporate managers monitor their activities organizational structure the means through which a com- output control the control system managers use to es- tablish appropriate performance goals for each division, department, and employee and then measure actual performance relative to these goals outside directors directors who are not full-time employees of the company, needed to provide objectivity to the monitoring and evaluation of processes outside view identification of past successful or failed strategic initiatives to determine whether those initiatives will work for project at hand parallel sourcing policy a policy in which a company enters into longterm contracts with at least two suppliers for the same component to prevent any problems of opportunism personal control the way one managers shapes and influ- ences the behavior of another in a face-to-face interaction in the pursuit of a company’s goals personal ethics generally accepted principles of right and wrong governing the conduct of individuals positioning strategy the specific set of options a company adopts for a product based upon four main dimensions of marketing: price, distribution, promotion and advertising, and product features price leadership when one company assumes the responsi- opportunistic exploitation unethical behavior sometimes bility for determining the pricing strategy that maximizes industry profitability used by managers to unilaterally rewrite the terms of a contract with suppliers, buyers, or complement providers in a way that is more favorable to the firm price signaling the process by which companies increase or decrease product prices to convey their intentions to other companies and influence the price of an industry’s products opportunities elements and conditions in a company’s environment that allow it to formulate and implement strategies that enable it to become more profitable primary activities activities related to the design, creation, and delivery of the product, its marketing, and its support and after-sales service Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it principle of the minimum chain of command the principal that a company should design its hierarchy with the fewest levels of authority necessary to use organizational resources effectively prior hypothesis bias a cognitive bias that occurs when de- Glossary restructuring the process by which a company streamlines its hierarchy of authority and reduces the number of levels in its hierarchy to a minimum to lower operating costs risk capital equity capital for which there is no guarantee that stockholders will ever recoup their investment or ear a decent return cision makers who have strong prior beliefs tend to make decisions on the basis of these beliefs, even when presented with evidence that their beliefs are wrong scenario planning formulating plans that are based upon process innovation development of a new process for pro- self-contained division an independent business unit or di- ducing products and delivering them to customers product innovation development of products that are new to the world or have superior attributes to existing products product structure a way of grouping employees into separate product groups or units so that each product group can focus on the best ways to increase the effectiveness of the product product development the creation of new or improved products to replace existing products product differentiation the process of designing products to satisfy customers’ needs product proliferation the strategy of “filling the niches,” or catering to the needs of customers in all market segments to deter entry by competitors product-team structure a way of grouping employees by product or project line but employees focus on the development of only one particular type of product profit center when each self-contained division is treated as a separate financial unit and financial controls are used to establish performance goals for each division and measure profitability profit growth the increase in net profit over time “what-if” scenarios about the future vision that contains all the value chain functions it needs to pursue its business model successfully self-dealing managers using company funds for their own personal consumption, as done by Enron and Computer Associates in previous years self-managing teams teams where members coordinate their own activities and make their own hiring, training, work, and reward decisions share-building strategy a strategy that aims to build mar- ket share by developing a competitive advantage to attract customers by providing them with knowledge of the company’s products shareholder value returns that shareholders earn from purchasing shares in a company share-increasing Strategy when a company focuses its re- sources to invest in product development and marketing to become a dominant industry competitor span of control the number of subordinates who report di- rectly to a particular manager stakeholders individuals or groups with an interest, claim, or stake in the company, in what it does, and in how well it performs vested in the enterprise standardization the degree to which a company specifies how decisions are to be made so that employees’ behavior become measurable and predictable public domain government- or association- set standards stock options the right to purchase company stock at a profitability the return a company makes on the capital in- of knowledge or technology that any company can freely incorporate into its product razor and blade strategy pricing the product low in order to stimulate demand and pricing complements high reasoning by analogy use of simple analogies to make sense out of complex problems reengineering the process of redesigning business pro- cesses to achieve dramatic improvements in performance such as cost, quality, service, and speed related diversification a corporate-level strategy that is based on the goal of establishing a business unit in a new industry that is related to a company’s existing business units by some form of commonality or linkage between their value-chain functions representativeness a bias rooted in the tendency to generalize from a small sample or even a single vivid anecdote resources assets of a company predetermined price at some point in the future, usually within 10 years of the grant date strategic alliances long-term agreements between two or more companies to jointly develop new products or processes that benefit all companies which are a part of the agreement strategic groups the set of companies that pursue a similar business model and compete for the same group of customers strategic leadership creating competitive advantage through effective management of the strategy-making process strategic outsourcing the decision to allow one or more of a company’s value-chain activities to be performed by independent, specialist companies that focus all their skills and knowledge on just one kind of activity to increase performance strategy a set of related actions that managers take to in- crease their company’s performance Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it G5 Glossary G6 strategy formulation selecting strategies based on analysis of an organization’s external and internal environment transfer pricing the problem of establishing the fair or “com- strategy implementation putting strategies into action petitive” price of a resource or skill developed in one division that is to be transferred and sold to another division substandard working conditions arise when managers un- transferring competencies the process of taking a distinc- der- invest in working conditions, or pay employees belowmarket rates, in order to reduce their production costs supply-chain management the task of managing the flow of inputs and components from suppliers into the company’s production processes to minimize inventory holding and maximize inventory turnover support activities activities of the value chain that provide inputs that allow the primary activities to take place sustained competitive advantage a company’s strategies en- able it to maintain above-average profitability for a number of years switching costs costs that consumers must bear to switch from the products offered by one established company to the products offered by a new entrant tive competency developed by a business unit in one industry and implanting it in a business unit operating in another industry transnational strategy a business model that simultaneously achieves low costs, differentiates the product offering across geographic markets, and fosters a flow of skills between different subsidiaries in the company’s global network of operations two-boss employees employees who report both to a project boss and who report to a functional boss unrelated diversification a corporate-level strategy based on a multibusiness model that uses general organizational competencies to increase the performance of all the company’s business units opportunities, and threats value chain the idea that a company is a chain of activities that transforms inputs into outputs that customers value takeover constraint the risk of being acquired by another values a statement of how employees should conduct SWOT analysis the comparison of strengths, weaknesses, company tangible resources tangible resources Physical entities, such themselves and their business to help achieve the company mission team Strategic control systems the mechanism that allows managers to monitor and evaluate whether their business model is working as intended and how it could be improved vertical integration when a company expands its operations either backward into an industry that produces inputs for the company’s products (backward vertical integration) or forward into an industry that uses, distributes, or sells the company’s products technical standards a set of technical specifications that producers adhere to when making the product, or a component of it vertical disintegration when a company decides to exit industries either forward or backward in the industry value chain to its core industry to increase profitability technological paradigm shifts in new technologies that rev- virtual corporation when companies pursued extensive as land, buildings, equipment, inventory, and money olutionize the structure of the industry, dramatically alter the nature of competition, and require companies to adopt new strategies in order to survive strategic outsourcing to the extent that they only perform the central value-creation functions that lead to competitive advantage threats elements in the external environment that could virtual organization a collection of employees linked by endanger the integrity and profitability of the company’s business total quality management increasing product reliability so that it consistently performs as it was designed to and rarely breaks down laptops, smartphones, and global video teleconferencing who may rarely meet face-toface, but who join and leave project teams as their skills are needed vision the articulation of a company’s desired achievements or future state Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Index (‘f’ indicates a figure; ‘t’ indicates a table) A Absolute cost advantages, 52 Absorptive capacity, 106 Accenture, 489 Accounting terms, 101t Achieve Competitive Excellence (ACE) program, 151, 349–350 Acquisitions, 311, 485–486 attraction of, 364–365 guidelines, 367–369 pitfalls, 365–367 Adaptive culture, 431 Adelaide News, 336 Advanced Micro Devices (AMD), 59 Affymetrix, 145 Age distribution, 73 Agency theory, 384–388 Airline industry, 45, 50, 51, 55, 67, 74, 307–308 Aluminum industry, 320 Amazon.com, 70, 134, 140, 147, 172, 180, 227, 228 AMD, 212, 214 American Airlines (AA), 307 Anheuser-Busch, 51, 196 Anticompetitive behavior, 399–400 AOL, 200, 201f, 202 Apple, 3, 6, 97, 103–104, 103f, 107, 142, 180, 244, 245, 260, 311, 326, 329 differentiation advantage, 177 profitability, 2f, Archer Daniels Midland, 383 Arthur Andersen, 393 Artzt, Russell, 389 Athletic shoe industry, 161 Automobile component supply industry, 58 Automobile industry, 89 Autonomous action, 22, 24 Availability error, 29 Average customer, business model, 163 Avon, 263–264, 265, 467, 468 “Azure,” 38 B Balanced scorecard model, 395–396, 395f Bargaining power, horizontal integration, 315 Barnes & Noble, 70 Barriers to entry, potential competitors, 50–53 Barriers to imitation, 84, 102, 104, 247–248, 248t Bartlett, Christopher, 278, 282 Bartz, Carol, 422 Beer industry, 48, 73 Behavior control, 427–428 Benchmarking, 110 Best Buy, 3, 195 Bethlehem Steel, 77 Bidding strategy, acquisitions, 368 BMW, 159, 174, 175 Board of directors, 390–391 Boeing, 311, 325–326, 383, 400 Book-selling industry, 70 Bowerman, Bill, 215–216 Brand loyalty, 51–52 Bravo, Marie, 92, 93 Breakfast cereal industry, 56 British Sunday Telegraph, 336 Broad differentiation, 180–181, 181f Brooks, Dede, 384 Brown, Justin, 173 Buffet, Warren, 45 Burberry, 92, 93 Bureaucratic costs, 418 diversification, 354–357 and functional structure, 437–438 new industry entrance, 463 vertical integration, 322 Burgelman, Robert, 22 Business defining, 14f Business ethics, 396–397 Business-level managers, 11 Business-level strategies, 19–20, 157 broad differentiation, 180–181, 181f and competitive positioning, 164–167 cost leadership, 168–170 declining industries, 218–222 differentiation, 174–176 embryonic and growth industries, 196–203 focused cost leadership, 170–172, 172f focused differentiation, 176–178 fragmented industries, 194–196 generic, 167–178 mature industries, 207–218 Business model, articulation, 31 broad differentiation, 181f and competitive advantage, 98–100 and competitive positioning, 158–164, 165f distinctive competencies, 164 generic, 167–178, 171f market segmentation, 161–164, 161f, 162f replication, 314–315 Business process, 451–452 Business-to-business (B2B) networks, 488 Business unit, 11 Buyers bargaining power, 57–58 C Cadillac, 160 Canon, 344 Capabilities distinctive competencies, 84–85 sharing in diversification, 345–346, 346f Capacity control strategies, 216–218 excess elimination, 315 factors in excess, 217 maintenance, 210 utilization, 127 Capital turnover, 101f, 101t, 102 Cardiac surgery learning effects, 123 Caterpillar, 92, 148, 254, 283 Cathode ray tubes (CRT), 322 CD players, 237, 239 Cellular phone industry, 270 Centralized authority, 420–421, 467, 468 Chaining, fragmented industry, 194–195 Chambers, John, 494 Chandler, Alfred D., 417 Charles Schwab, 23 Christensen, Clayton, 253, 254, 255–256 Christie’s, 384, 390 Chrysler, 105 Churchill, Winston, 30 Churn rates, 128 Cisco Systems, 132, 142, 244, 255, 494 and Fujitsu, 295 ClearVision, 273–274 Cloud computing, 37, 227–228 Coca-Cola, 47, 49, 53, 74, 105, 247, 267, 366, 484 global strategy, 286 Code of ethics, 403 of Dell, 404 Cognitive biases, 28 Commercialization, new venture, 362 Commitment, leader, 31 Commonalities, diversification, 343, 351, 351f Company differences, profit rates, 70 Company infrastructure efficiency, 134, 135t in value chain, 93 Comparative cost economies, 241–242 I1 Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it I2 Index Compatibility, demand growth, 202–203 Competencies, 85 competitor, 248, 248t, 249 leveraging in diversification, 344–345 transfer in diversification, 343–344, 343f Competitive advantage, 6–7, 83 analysis, 100–102 customer responsiveness, 95f, 98 distinctive competencies, 84–86 durability, 102–107 efficiency, 94–95, 95f failure avoidance, 107–111 and functional strategies, 119f innovation, 95f, 97–98 national, 267, 269–271, 269f superior quality, 95–97, 95f and value creation, 86–90 value creation cycle, 99f Competitive bidding strategy, 324 Competitive chasm, 200, 201f Competitive positioning broad differentiation, 180–181, 181f business-level strategy, 164–167, 165f and business model, 158–164 cost leadership, 168–170 definition, 158 dynamics, 178–180 failures, 183–185 and strategic groups, 181–183 and value creation, 167f Competitive price, 160 Competitors, capability of, 105–106 Complementary assets, first mover strategy, 246–247, 248, 248t Complementary products and standards, 232 supply, 238 Complementors competence, 60 Complexity, demand growth, 202 Computer Associates, 388, 389 Computer industry, 47, 48, 48f, 59, 61, 197 Condit, Phil, 383 Conglomerates, 349, 352 Consistency, leader, 30–31 Consolidated industries, 54, 55, 194 Consumer surplus, 87 Consumer tastes, global markets, 277–278 Continuous improvement and learning, 110 Control system, employee motivation, 416 Conversion activities, standardized, 428 Cooperation with competitors, 239 Cooperative relationships long-term contracting, 324–325 short-term contracts, 324 Coordination diversification, 355, 355f, 357 with rivals, 218 Core business maintenance, outsourcing, 332 Corning, 145 Corporate headquarters staff, 464, 465f Corporate-level managers, 10–11 Corporate-level strategies, 20 acquisitions, 364–369 cooperative relationships, 323–328 diversification, 342–357 horizontal integration, 310–316 joint ventures, 369–370 multibusiness model, 309–310 multidivisional structure, 470–473, 471t new ventures, 360–364 restructuring, 370 strategic outsourcing, 328–333 vertical integration, 316–323 web, 358–360, 358f Corruption, 401 Cost conditions, 55 Cost economies, global volume, 272–273 Cost leadership advantages and disadvantages, 170 decisions, 168–169 organizational design implementation, 440–441 Cost of goods sold (COGS), 101f, 101t, 102 Cost reductions global market entry, 293 global markets, 276–277 Cost structure horizontal integration, 312 outsourcing, 331 vertical integration, 322 Costs/product variety tradeoff, 126f Cott Corporation, 53 Credible commitment, 326 strategic alliance, 325 Credit card industry, 129 Cross-selling, 313–314 Currency exchange rates, 72 Customer defection rates, 128 Customer focus, 146 Customer loyalty, 129, 129f Customer needs, and product differentiation, 159–160 Customer-oriented business, 14 Customer response time, 98, 147–148 Customer responsiveness and competitive advantage, 95f, 98 functional roles, 148t and market structure, 444–445 and strategic control, 424 superior, 145–148 Customer service, in value chain, 92 Customer switching costs, 52 Customization, 147 Cypress Semiconductor, 429, 435 D David, George, 151, 349–350 Davidge, Christopher, 384 Decentralization, 468 Decentralized authority, 420–421 Decentralized planning, 27–28 Decision-making biases, 28–29 techniques, 29–30 Declining industries, 67 business-level strategies, 218–222, 220f intensity, 218–219, 219f Delegation of power, 32 Dell, Michael, 1–3, 9, 31, 184, 404, 431, 442 Dell Computer, 2f, 7, 31, 61, 68, 103–104, 103f, 107, 169, 184, 281, 313, 332, 442–443 Demand and value creation, 88–89 and vertical integration, 323 Deming, W Edwards, 136 Demographic forces, 73 Deregulation, 74 Development research, new venture, 363 Devil’s advocacy, 29 DHL, 173 Dialectic inquiry, 30 Differentiated products, 159 Differentiation business-level strategy, 174–176 organizational design implementation, 441–443 Digital Equipment Corporation (DEC), 109 Digital television broadcasts (DTV), 233 Direct contact, managers, 422–423 Diseconomies of scale, 121, 121f Disruptive technology, 253–255 Distinctive competencies, 84–86 business model, 164 capabilities, 84–85 global market entry, 291–293 resources, 84 Distribution channels, global markets, 278–279 Diversification, 342 limits, 352–357 related, 351 strategies, 357–360 unrelated, 352 Diversified company, 342 Divestment strategy, declining industry, 219, 222 Division, definition, 418 Dolby, 235, 236–237, 240 Dolby, Ray, 236 Dominant design, 231, 231f Donald, Jim, 31–32 Donohue, John, 327 Doz, Yves, 298 Druyun, Darleen, 383 Duplication of resources, horizontal integration, 312 Durability, competitive advantage, 102–107 Dyment, Roy, 146 Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Index E Early adopters, market share, 198, 199f, 200 Early majority, market share, 198–199, 199f eBay, 180, 327 Economies of scale, 51, 120–129, 121f, 122f, 124f, 126f horizontal integration, 312 Economies of scope, diversification, 345 Efficiency achieving, 134, 135f in competitive advantage, 94–95, 95f economies of scale, 120–129, 121f, 122f experience curve, 123–125, 124f and learning effects, 121–123, 122f marketing, 128–129 multidivisional structure, 467 production systems, 125–128 and strategic control, 423 Eisner, Michael, 420, 431 Eli Lilly, 62 Ellison, Larry, 314, 348 Eloquence, leader, 30–31 Embryonic industries, 64–65 business-level strategies, 196–203 investment strategies, 204 Emergent strategies, 24–25, 24f Emotional intelligence, 32–33 Empathy, leader, 33 Employee productivity, 95 Employee stock ownership plans (ESOP), 381–382, 396, 435 Employee training, 131 Empowerment, 132 Enron, 393, 405 Enterprise resources planning (ERP) system, 474 Entrepreneurial capabilities, 347–348 Entry by potential competitors, 50–53 Entry deterrence, 207–210, 207f Entry mode exporting, 285, 287, 292t franchising, 288–289, 292t global market, 285, 291–293, 292t licensing, 287–288, 292t wholly owned subsidiaries, 290–291, 292t Environmental degradation, 401 Escalating commitment, 28 Ethical behavior, 402 decision-making, 403 ethics officer, 404 hiring and promotion, 402–403 moral courage, 405 organization culture and leadership, 403 strong corporate governance, 404–405 Ethical dilemma, 491 definition, 397 exercises, 33, 74, 111, 185, 222, 257, 299, 333, 371, 406 Ethics, and strategy, 396–406 Excavators, paradigm shift, 254 Excess capacity factors, 217 maintenance, 210 Exercises competition, 76 competitive advantage, 113, 187–188 diversification, 372–373 global strategy, 300–302 identifying excellence, 150 industry environment, 224 organizational structure, 455, 493 paradigm shift, 258 stakeholder claims, 408 strategic planning, 35 vertical integration, 335 Exit barriers, 56–57 Experience curve, 123–125, 124f Exploratory research, new venture, 363 Exporting, global market entry, 285, 287, 292t Express mail, 98, 148 and parcel delivery industry, 57 External analysis, 17–19 External stakeholders, 379, 380f Extraordinary pay, senior management, 386 F Face-to-face interaction, 425 Failure avoidance, 107–111 steps, 110–111 Federal Communications Commission (FCC), standards, 233 Federal Trade Commission (FTC), 316 FedEx, 57, 173, 174, 245 Feedback loop, 21 Feigenbaum, A V., 136 First Global Xpress (FGX), 173 First-movers advantages, 244–245 disadvantages, 245–246 exploitation strategies, 246–249 high-tech industry, 243–244, 244f Fixed costs, 120 high tech industry, 242 Flat organizational structure, 418–419, 419f Flexible production technology, 126, 126f, 128 Flextronics, 332 Focused cost leadership, business-level strategy, 170–172, 172f Focused differentiation, business-level strategy, 176–178 Focused market segment, 161, 162f, 164 Focused narrow product line, 450–451 Ford, Henry, 197 Ford Motor Company, 127–128, 477, 481 Foreign sales organization, 477 Forest Labs, 62 I3 Format licensing, 240 Format wars in smartphone operating systems, 259–260 technical standards, 230, 233 winning, 237–240 Foster, Richard, 250, 252 Four Seasons, 146 Fragmented industries, 54 business-level strategy, 194–196, 195f Franchising fragmented industry, 195 global market entry, 288–289, 292t Free cash flow, 342 Fuji, 249, 250 Fujitsu and Cisco Systems, 295 Function, definition, 417 Functional-level managers, Functional-level strategies, 19, 118, 119f control, 434–435 culture development, 435–437 grouping by function, 433–434 Functional managers, 11 Functional resource duplication, multidivisional structure, 470 Functional structure, 434f and bureaucratic costs, 437–438 Fung, Victor, 490 Fung, William, 490 G Gallo Wine, 206 Garriques, Ronald, 184 Gates, Bill, 31, 429–430 General Electric (GE), 10, 11, 132 appliance group, 27 General managers, General Mills, 56 General Motors (GM), 16, 89, 89f, 90, 95, 98, 104, 106, 107, 142, 322, 324, 465 and Toyota, 298 General organizational competencies, sharing in diversification, 347–350 Generally agreed-upon accounting practices (GAAP), 386, 392 Geographic structure, organizational design implementation, 445–446, 446f Ghemawat, Pankaj, 105–106 Ghoshal, Sumantra, 278, 282 Glassman, David, 273, 274 Global area structure, 477f Global division structure, 478, 478f Global environment, 265–279 cost pressures, 275–277 entry modes, 284–293 expansion, 271–275 local responsiveness, 276f, 277–279 strategic alliances, 293–298 strategies, 279–284, 280f, 285f Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Index I4 Global forces, 72 Global-matrix structure, 480, 480f, 481 Global product-group structure, 479, 479f Global standardization strategy, 280–281, 280f Global strategic alliances, 293–298 Global strategies, 20, 280f, 476t Avon Products, 263–264 changes over time, 284, 285f Dell, 281 international, 284, 475, 476t, 477–478 localization, 281–282, 475, 476–477, 476t multidivisional structure, 475–481 standardization, 280–281, 475, 476t, 478–479 transnational, 282–283, 475, 476t, 479–481 Goals, 16–17 Goizueta, Roberto, 286 Goldman Sachs, 377–378, 379, 397 Goleman, Daniel, 32 Google, 6, 21, 38, 209, 228, 260 cloud computing, 228 Gou, Terry, 329 Governance mechanisms, 388 auditing and statements, 392–393 board of directors, 390–391 employee incentives, 396 stock-based compensation, 391–392 strategic control systems, 394–396 takeover constraint, 393–394 Government regulations, 52–53 Greenmail, 394 Grove, Andrew, 22, 60 Growth industries, 65 business-level strategies, 196–203 investment strategies, 205 Growth strategies, 205 H Hai, Hon, 329 Hamel, Gary, 298 Hammer and Champy, 453 Handoffs, 417–418 Harvest strategy, declining industry, 206, 219, 221–222 Health consciousness, 73 Heavyweight project manager, 143 Hewlett Packard, 3, 61, 313 profitability, 2f Hewlett, Bill, 402 Hewlett-Packard (HP), 239, 256, 421, 485 Hierarchy of authority, 418 High market segment, 162, 162f High-technology industries, 229–230 costs, 240–242, 241f first-movers, 243–249 paradigm shifts, 249–256 standards and formats, 230–240 Hiring strategy, 131 Hold-and-maintain strategy, 206 Holdup outsourcing, 332–333 specialized assets, 319 Holiday Inns, 224–225 Home Depot, 195, 387, 392 Honda, 164, 173, 174, 489 Honda Motor Co., 25, 147 Horizontal integration, 311 benefits, 312–315 problems of, 315–316 Horizontal merger, fragmented industry, 196 Host government demands, 279 Hostage taking, strategic alliance, 325–326 Howard Schultz’s Second Act, 81–82 Human resources efficiency, 131, 134, 135t in value chain, 93 Hydraulic systems, paradigm shift, 254 I Iacocca, Lee, 105 IBM, 15, 107, 108, 238, 452–453, 489 global strategy, 302–303 Icarus Paradox, The, 109, 110 Iger, Bob, 420 Illusion of control, 29, 30 Imitating capabilities, 105 Imitating resources, 104–105 Imitation, new products, 243 Immelt, Jeffrey, 10, 348 Industry changing boundaries, 49 competitive structure, 54–55 definition, 47 demand, 55 differences and performance, 7–9, 8f dynamism, 106–107 five forces model, 49–60 innovation and change, 68–70 life cycle analysis, 64–68 macroenvironment impact, 70–74 market segments, 48–49, 48f and sector, 48, 48f strategic groups within, 60–64 Inertia and failure, 108 overcoming, 110–111 Information asymmetry, 385, 386 Information distortion, 469 Information gathering, leader, 32 Information loss, outsourcing, 333 Information manipulation, 399 Information processing and storage, 15 Information systems efficiency, 132–134 in value chain, 93 Information technology and fragmented industry, 196 multidivisional structure, 473–474 strategic control, 428–429 strategic implementation, 487–488 Infrastructure differences, global markets, 278 Innovation and competitive advantage, 95f, 99 exploitation strategies, 246–249, 248t failure rate, 142 failure reduction, 143–145 functional roles, 144t and strategic control, 424 superior, 141–145 Innovators, market share, 198, 199f Inputs, standardized, 427 Inside directors, 390 Intangible resources, 84 Integrating roles, multidivisional structure, 472 Integration, acquisitions, 365, 368 Intel, 22, 59, 197, 212, 213, 214, 243–244 dominant design, 231, 233 Intended and emergent strategies, 24–25, 24f Inter-Continental Hotel Group (IHG), 224–225, 227 Interest rates, 71 Internal analysis, 19, 83 competitive advantage, 100–102 Internal new venturing, 360 Internal stakeholders, 379, 380f International strategy, 280f, 283–284 International trade and investment, 72 Internet retail industry, 134 Intrapreneurs, 481 Invested capital (IC), 100, 101t iPad, 177 iPhone applications, 177 iPod, 177 Isdell, Neville, 286 Ito, Yuzuru, 151 iTunes, 177 Iverson, Ken, 31 Ivester, Douglas, 286 “Ivory tower” planning, 27, 28 J Jet Blue, 50, 51, 189, 307, 308 Jobs, Steve, 177, 348, 362 John Deere, 254 Johnson & Johnson, 247 Joint ventures global market entry, 289–290, 292t new industries, 369–370 Jones, Tim, 22 Jones, Reg, 354 Jung, Andrea, 263, 265, 467, 468 Juran, Joseph, 136 Just-in-time (JIT) inventory systems, 130 K Kahneman, Daniel, 30 Keiretsu system, Japanese carmakers, 325 Kelleher, Herb, 32, 308 Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Index Kellogg, 56 Kennedy, John F., 30 Killer applications, 238 Kindler, Jeffrey, 356 King, Martin Luther, 30 Knight, Phil, 215, 216, 398 Knowledge management system, 488 Kodak, 14, 15, 249, 250, 354–355 Kraft Foods, 56 Krispy Kreme Doughnuts, 165 Kroc, Ray, 114 Kroger, 56, 196 Kumar, Sanjay, 389 L Laggards, market share, 199, 199f Lands’ End, 126, 127, 146 Late majority, market share, 199, 199f Law of diminishing returns, 241 Lay, Ken, 402 Leadership strategy, declining industry, 219, 220 Learning effects, 121–123, 122f Lee Kun-hee, 374 Legal forces, 74 Leveraging competencies, 344–345 Lewis, Ken, 409–410 Lexus, 160 Li & Fung, 490 Liaison roles, mangers, 423 Licensing, global market entry, 287–288, 292t Licensing format, 240 Life cycle, investment strategies, 203–206 Life cycle analysis, 64–68, 65f embryonic stage, 64–65 growth stage, 65 limitations, 68 shakeout stage, 66 Lincoln, 160 Lipitor, 356 Liz Claiborne, 456–457 Local responsiveness, 276f, 277–279, 280f Localization strategy, 280f, 281–282 Location economies, 273–274 Logistics efficiency, 129–130 in value chain, 93 Long-run growth, multidivisional structure, 466–467 Long-term cooperative relationships, 325 Long-term goals, 17 Low-priced products, 159 Luck, and competitive success, 111 M Mackay, Martin, 356 Macroeconomic forces, 71–72 Macroenvironment, 70–74, 71f demographic forces, 73 economic forces, 71–72 global forces, 72 political and legal forces, 74 social forces, 73–74 technological forces, 73 Macy’s, 196 Management by objectives, 435 Manufacturing, functional strategy, 435–436 Marginal costs, high-tech industry, 241, 241f Market concentration, 205 Market demand, 197–200, 198f and standards, 233 Market discipline, strategic alliance, 326–328 Market penetration, 213 Market saturation, 198 Market segmentation, 48–49, 48f, 161–164, 161f, 162f Market structure, organizational design implementation, 444–445 Marketing efficiency, 128–129, 135t strategy, definition, 128 in value chain, 91–92 Markets global, 266–267 growth rates, 201–203 Marks & Spencer, 105, 129 Mass customization, 126, 127 Mass market vs premium beer segment, 48–49 Materials management efficiency, 129 in value chain, 93 Matrix structure, 447–449, 447f global, 480, 480f Matsushita, 151, 234–235, 240, 245 Mature industries, 66–67 business-level strategies, 207–218 investment strategies, 206 Maucher, Helmut, 482 McComb, William, 456–457 McDonald’s, 114, 195, 199, 275, 310, 321 vertical integration, 321 Mercedes-Benz, 159, 160, 174, 477 Merck, 62, 311, 422, 485–486 Merrill Lynch, 409–410, 421 Microsoft, 20, 21, 37–39, 61, 76, 120, 197, 233, 272, 430, 485 cloud computing, 228 dominant design, 231, 235 paradigm shifts, 250 Windows Azure, 228 Miller, Danny, 109 Miller Brewing Co., 73, 343, 344 Mini-mills, 77 Minimum chain of command, 419–420 Minitel, 246 Mintzberg, Henry, 24–25 Mission, definition, 14 Mission statement, 14–16 Mobility barriers, 63–64 I5 Molson Coors, 51 Moore, Ann, 18 Moore, Geoffrey, 200, 201 Moral courage, and ethics, 405 Motivation, leader, 33 Multibusiness model, 309–310, 342 related diversification, 351 Multidivisional company advantages, 466–467 implementation problems, 467, 469–470 organization, 9, 10f structure, 463–466, 465f Multidivisional structure, 464 Multinational companies, 265 subsidiaries’ skills, 275 Murdoch, Rupert, 336–337 Mutual dependence, specialized assets, 319 Mylan Labs, 62 N Nardelli, Bob, 387 National competitive advantage, 267, 269–271, 269f factor endowments, 270–271 local demand conditions, 270 rivalry, 270–271 supporting industries, 270 National Star, 336 Neiman Marcus, 174, 429, 446 Nelson, Martha, 18 Nestlé’s, 482, 484, 486 Net profit, 100, 101f, 101t Netflix, 228 Network effects, 233–234 new entrants, 254 Network structure, 488–491 New industry acquisition, 364–369 New ventures, 360–364, 481, 483 division, 483 guidelines, 363–364 pitfalls, 361–363 New York Post, 336 News Corp., 336–337 NeXT, 177 Niche strategy, declining industries, 219, 220–221 Nike, 215–216, 328, 331, 398, 400, 489–491 Nokia, 260, 268, 270, 326, 461–462, 463 product structure, 444f Nonprice competition, 212–213, 213f Nonprofit enterprises, performance goals, 8–9 Nordstrom, 166, 174 North American Free Trade Agreement (NAFTA), 274 Nucor Steel, 16, 31, 78, 85, 121, 132, 172 Nvidia, 212, 214 Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Index I6 O Office Live, 38 Olson, Ken, 109 On-the-job consumption, 386 O’Neal, Stan, 409 Operating budget, 427 Operating responsibility, multidivisional structure, 464 Opportunism, 296 Opportunistic exploitation, 400 Opportunities, 46, 67 Oracle Corporation, 314 Organizational culture, 16, 416, 416f, 429–430 leadership, 430–431 traits, 431–433 Organizational design, 415–417, 416f implementation, 439–451 skills, 348 Organizational slack, 467 Organizational socialization, 430 Organizational structure, 415–416, 417–418 authority and responsibility, 418–421 functions, divisions and tasks, 417–418 integration, 421–423 Otis Elevator, 151 Output control, 426–427 Outputs, standardized, 428 Outside directors, 390 Outside view, and cognitive biases, 30 Outsourcing, 328–333, 438–439, 488–491 Overcapacity, 217 P Packard, David, 402 Page, Larry, 209 Palm, 244, 245 Palmisano, Sam, 302–303 Paradigm shifts, 249–250 established companies, 250–256 new entrants, 256 Parallel sourcing policies, 328 Pascale, Richard, 25 Paulson, John, 377, 378 Pay for performance, 132 Pay-per-click business model, 21 Pearson, William, 23 PepsiCo, 53, 74, 105 Perot Systems, Perrier, 91–92 Personal computer industry, 61 Personal control, 425 Personal ethics, 401 Peters, T J., 431 Pfeffer, Jeffery, 32 Pfizer, 62, 141, 356 Pharmaceutical industry, 62, 62f Philip Morris, 73, 343, 343f, 344 Pixar, 177 Planned strategies combined with emergent, 26 criticism, 21, 22 Planning process, strategy making, 12, 13f Political forces, 74 Porsche, 159, 178 Porter, Michael E., 49–50, 69, 269, 270–271 Porters Five Forces Model, 49–50, 50f, 60, 170 buyers bargaining power, 57–58 complementors impact, 60 entry by potential competitors, 50–53 macroenvironment impact, 70 rivalry of established companies, 53–57 substitute products, 59–60 suppliers bargaining power, 58–59 Positioning strategy, 142 Positive feedback, standard impact, 234f Potential competitors barriers to entry, 50–51 definition, 50 Power, astute use of, 32 Prahalad, C K., 298 Pratt & Whitney, 151, 152 Preacquisition screening, 367 Preempting rivals, 217 Preferences, global markets, 277–278 Premium pricing, 159 Price cutting, 207f, 210 Price inflation/deflation, 72 Price leadership, 212 Price signaling, 211–212 Pricing and format demand, 239 and value creation, 87, 88, 88f, 89 Primary activities, value chain, 91–92 Principal-agent relationships, 385 Prior hypothesis bias, 28 Prior strategic commitments, and failure, 108 Private clouds, 38 Process innovation, 97 Procter & Gamble, 174, 181, 345, 346f global strategies, 272, 281, 284 Prodigy, 200, 201f, 202 Product attributes, 95, 140t Product bundling, 313, 346–347 Product development, 213–214 cross-functional teams, 143 Product differentiation, 159–160 horizontal integration, 312–314 outsourcing, 332 Product innovation, 97 Product-oriented business, 15 Product proliferation, 208–209, 208f, 215–216 Product quality enhancement, vertical integration, 320–321 Product structure, organizational design implementation, 443–444 Product-team structure, 449–450, 450f Production efficiency, 125–128, 135t globalization, 266–267 in value chain, 91 Profit center, 466 Profit growth, 5f, Profitability, 5f, and competitive advantage, 86–90 different industries, 8, 8f and diversification, 342–350 and flexible production technology, 128 global expansion, 271–275 and goals, 17 multidivisional structure, 466 new venture scale of entry, 362f and organizational design, 439f revenue growth rates, 387f, 388 and stakeholders, 382–384 of U.S computer companies 2001–2010, 2f vertical integration, 318–321 Profitable growth, and goals, 17 Property, plant and equipment (PPE), 101f, 101t, 102 Public domain, 233 Punctuated equilibrium, 69, 69f Q Quality and competitive advantage, 95–97, 95f, 96f as excellence, 134, 139–141 and strategic control, 424 QWERTY format, 230, 233 R R&D skills, 248 Rawls’s theory of justice, 403 Razor and blade strategy, 239 “Razor and razor blades” business model, 20 Reasoning by analogy, 29 Reengineering, 451–453 Related diversification, 351, 357 multidivisional structure, 473 Relational capital, 298 Relative advantage, customer demand, 202 Reliability, 95, 96, 96f, 97 functional roles, 138t methodologies, 138–139 superior, 134–135 Representativeness, 29 Research and development (R&D), 91, 101f, 101t, 102 efficiency, 130–131, 135t functional strategy, 435–437 new venture, 363–364 value chain, 91 Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Index Resources distinctive competencies, 84, 85 sharing in diversification, 345–346, 346f Restructuring, 370, 451 Retail industry, 63, 179 Return on sales (ROS), 101f, 101t, 102 Revenue growth rates, 387f, 388 Reward systems, 429 Richardson Electronics, 220, 221 Risk capital, 5, 381 Rivalry management strategies, 210–218, 211f Rivalry of established companies, 53–57 cost conditions, 55 exit barriers, 56–57 industry competitive strategy, 54–55 industry competitive structure, 54–55 industry demand, 55 Rivalry reduction, horizontal integration, 315 Rodgers, T J., 429, 435 ROIC (return on invested capital), 5f, 40, 101f, 101t different industries, diversification, 342 multidivisional structure, 466, 471, 472 profitability, 100, 101f, 382 targets, 427 Rolex, 95 Roll, Richard, 29 Royal Dutch Shell, 26, 388 Rumelt, Richard, 70 Ryanair, 171 S S-curve, 250 Sales, functional strategy, 436–437 Sales, general and administrative expenses (SG&A), 101f, 101t, 102 Samsung Electronics (SE), 326, 374–375 San Antonio Express, 336 SAP, 474 Sarbanes-Oxley Act (2002), 391, 393 SBA-Miller, 51 Scale of entry, new ventures, 361, 362f Scenario planning, 26–27, 27f Scheduling improvement, vertical integration, 321 Schmidt, Eric, 209 Schultz, Howard, 81, 83 Schwab, Charles, 22, 23 Sears, Roebuck, 25, 28 Sears, Mike, 383 Securities and Exchange Commission (SEC), 36, 378, 392 Self-awareness, leader, 33 Self-contained division, 464 Self-dealing, 389, 399, 405 Self-managing teams, 131, 132 Self-regulation, leader, 33 Semiconductor chips industry, 251 Sequential resource flow, 472 Serendipity, 23–24 Shakeout, strategies, 205–206 Shakeout stage, 66 Share-building strategy, 204 Share-increasing strategy, 205 Shareholder value, determinants, 5f Sharp, 245 Six Sigma quality improvement methodology, 135, 137, 138 Sloan, Alfred, 465–466 Smartphones format war in, 259–260 market, 326 Smith Corona, 15 Social forces, 73–74 Social skills, leader, 33 Soft drink industry, 47, 49 barriers to entry, 53 Sony, 141, 142, 166, 358, 359–360 format war, 232, 234, 235, 238 Southwest Airlines, 3, 32, 85, 172, 188–189, 307–308 Specialized asset investment, 318–320 Stakeholders, 381–382 and corporate performance, 379–380 impact analysis, 380–381 and profitability, 382–384 Standardization, control system, 427 Standards See also Technical standards benefits, 231–232 establishment, 233 examples, 230–231 Staples, 97, 195 Starbucks, 22, 32, 81–82, 83, 84, 228 Steel industry, 77–78, 125 Switzerland, 270 Stock-based compensation, 391–392 Stock options, 391 Stockbrokerage industry, 70 Strategic alliances corporate-level strategy, 324 long-term contracting, 324–325 Strategic alliances (global) advantages, 293–294 disadvantages, 294–295 managing, 297–298 partner selection, 296 structure, 296–297, 297f Strategic control, multidivisional structure, 466 Strategic control systems, 394–396, 423–425 design steps, 425f levels, 424–425, 426f types, 425–428 Strategic decision making, 28–30 Strategic groups competition, 63 competitive positioning, 181–183 implications of, 63 within industries, 60–64, 62f mobility barriers, 63–64 I7 Strategic leadership, 4, 30–33 Strategic managers, 9–11 sharing in diversification, 348, 350 Strategic outsourcing, 328 benefits, 331–332 risks, 332–333 Strategic planning, 26–28 exercise, 35 Strategic responsibility, multidivisional structure, 464 Strategy definition, as emergent process, 21–25 feedback loop, 13f, 21 implementation, 4, 13f, 20 resources, capabilities and competencies, 85–86, 85f Strategy formulation, 4, 11–12, 13f external analysis, 17–19 goals, 16–17 internal analysis, 19 mission statement, 14–16 planning process, 12, 13f SWOT analysis, 19–20 Stringer, Sir Howard, 359–360 Substandard working conditions, 400 Substitute products, 59–60 Successor technologies, 252, 252f, 253f The Sun, 336 Sun Microsystems, 367, 484 Sunday Times, 336 Superior performance, 4, 5–6 broad differentiation, 180–181 nonprofit enterprises, 8–9 Suppliers bargaining power, 58–59 Supply-chain management, 130 Support activities, value chain, 93 Sustained competitive advantage, 7, 83 Switching costs, 52, 235, 239 SWOT (strengths, weaknesses, opportunities, threats) analysis, 19–20 acquisitions, 367 T Tacit price coordination, 315 Taiwan Semiconductor Manufacturing Company (TSMC), 325 Takeover constraint, 393–394 Tall organizational structure, 418–419, 419f Tangible resources, 84 TCP/IP standard, 231, 233 Teams, integration mechanism, 423 Technical standards See also Standards computers, 231f definition, 230 format wars, 230 Technological forces, 73 Technological paradigm shifts, 249–256 Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Index I8 Technology, 229–230 See also Hightechnology industries S curve, 250, 251f, 252, 252f, 255 and vertical integration, 322–323 Telecommunications industry, 49 Texas Instruments, 109, 131 Thain, John, 409–410 Thatcher, Margaret, 30 Threats, 47, 67 3M, 23–24, 141–142, 347, 361, 483 Time, Inc., 18, 19, 21 The Times, 336 Tit-for-tat price signaling strategy, 211 Tobacco industry, 74 Toshiba, 232 Total quality management (TQM), 96, 135–136, 435, 440, 452 Toyota, 84, 89, 89f, 90, 96, 97, 105, 122, 160, 173, 174, 215, 481, 489 Toys R Us, 68 Traditional practices, global markets, 278 Transfer prices, 322 Transfer pricing system multidivisional structure, 466, 469 Transferring competencies, diversification, 343–344, 343f Transnational strategy, 280f, 282–283 TRW, 297 Tyco International, 368–369, 388 U Ultrasound technology, 243 Uncertainty, and planning, 21 Unethical behavior, 401–402 Unethical leadership, 402 Unilever, code of ethics, 403, 405 Union Pacific (UP), 422 United Airlines, United States steel industry, 77–78 United Technologies Corporation (UTC), 151–152, 349–350 Unrelated diversification, 352, 357 multidivisional structure, 471–472 UPS, 57 U.S airline industry, 45, 50, 51, 307–308 U.S computer companies 2001–2010 profitability of, 2f Utility value, 86, 87 V Vacuum tube industry, 219, 221 Value-added, vertical integration, 317, 317–318f Value chain customer service, 92 description, 90, 90f marketing, 91–92 outsourcing, 328 production, 91 related diversification, 351 research and development, 91 support activities, 93 Value creation, 86–90 competitive positioning, 167f cycle, 99f efficiency achievement, 134, 135f frontier, 167 generic business models, 171f outsourcing, 328, 330f pricing options, 88f per unit, 87, 87f Values, company, 15–16 VCR technology, 234 Verizon, 346 Vertical integration corporate level-strategy, 316 limits, 323 multidivisional structure, 472–473 problems, 322–323 profitability increase, 318–321 stages, 317, 317f VF Corp., 339–341 Viral model of infection, demand growth, 203 Virgin America, 50, 51 Virtual corporation, 331 Virtual organization, 488, 489 Vision company, 15 leader, 30–31 Volvo, 141 W Walmart, 3, 6, 163, 381 business model, 99–100 competitive positioning, 169 global expansion, 273, 277, 479 innovation, 68 inventory control, 130 “Sam’s Choice,” 53 supermarket industry entry, 315 Walt Disney Company, 86, 420, 430 Walton, Sam, 30, 31, 431, 432, 435 Wang, Charles, 389 Wang, Jerry, 422 Waterman, R H., 431 Watson Pharmaceuticals, 62 Welch, Jack, 31 Wheeling-Pittsburg, 77 Whitman, Meg, 327 Wholly owned subsidiaries, 290–291, 292t Wilson, Kemmons, 224 Windows, 37 Wintel standard, 231, 231f, 232, 233, 237 Wiseman, Eric, 339 Work-in-progress reductions, 127 Working capital, 101f, 101t, 102 Wrapp, Edward, 32 Wyman, Oliver, 89 X Xerox, 244, 245, 283–284 and Fuji, 297 Y Yahoo!, 422 Yamaha, 147 Yoon-Woo Lee, 374 Z Zara, 93, 94, 98, 179 Zynga Inc., 155–157 Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it M a k e t h e G r a d e w i t h C o u r s e M at e ! The more you study, the better the results Cengage Learning’s CourseMate helps you make the most of your study time by accessing everything you need to succeed in one place features include: • An Interactive eBook with highlighting, note taking, and an interactive glossary • Interactive Learning Tools— read your textbook, take notes, review flashcards, watch videos, and take practice quizzes—online with CourseMate • It’s Affordable—about half the cost of a traditional printed textbook To access additional course materials including CourseMate, please visit www.cengagebrain.com At the CengageBrain.com home page, enter the ISBN of your title (from the back cover of your book) using the search box at the top of the page This will take you to the product page where these resources can be found Copyright 2012 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it ... Industry in 20 11 – Part 2 C261 Case 21 : How Amazon.com Became the Leading Online Retailer in 20 11 C271 Case 22 : eBay and the Online Auction and Retail Sales Industry in 20 11 C284 Case 23 : Is Yahoo’s... Coca-Cola 28 6 Licensing 28 7 Franchising 28 8 Joint Ventures 28 9 Wholly Owned Subsidiaries 29 0 Choosing an Entry Strategy 29 1 Global Strategic Alliances 29 3 Advantages of Strategic Alliances 29 3... xi 22 7 Opening Case: The Rise of Cloud Computing 22 7 Overview 22 9 Technical Standards and Format Wars 23 0 Examples of Standards 23 0 Benefits of Standards 23 1 Establishment of Standards 23 3