ix

1 Introduction to the Second Volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2 Business Strategy: Formulation, Development and Control . . . . . . . . . 32.1 The Strategy Pillars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2.1.1 Putting Strategy in its Place . . . . . . . . . . . . . . . . . . . . . . . . . . 42.1.2 The Five Major Pillars of Strategy . . . . . . . . . . . . . . . . . . . . . 5

2.2 How do Firms Formulate Strategies? . . . . . . . . . . . . . . . . . . . . . . . . . 62.2.1 Deliberate Strategy Framework . . . . . . . . . . . . . . . . . . . . . . . 72.2.2 Positioning Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112.2.3 Emergent Strategy Framework . . . . . . . . . . . . . . . . . . . . . . . . 13

2.3 Competitive Advantage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152.3.1 Results and Sources of Competitive Advantage . . . . . . . . . . . 172.3.2 Assessing and Anticipating Competitive Dynamics . . . . . . . . 18

2.4 Sustaining Superior Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192.4.1 The Threats to Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . 192.4.2 Some Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202.4.3 Preventing the Threats or Reacting to them . . . . . . . . . . . . . . 22

2.5 New Developments in Strategy Formulation and Control: Critique and Integration of the “Blue Ocean Strategy” Approach . . . 232.5.1 The Blue Ocean Myth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232.5.2 The “Value Curve” Approach . . . . . . . . . . . . . . . . . . . . . . . . . 252.5.3 The Major Problems with the “Value Curve” Approach . . . . 262.5.4 A More Systematic Approach . . . . . . . . . . . . . . . . . . . . . . . . 282.5.5 The Need for Appropriate Quantification . . . . . . . . . . . . . . . . 292.5.6 An Articulated and Integrated “Strategic

and Economic Control Dashboard” . . . . . . . . . . . . . . . . . . . . 292.5.7 Testing the New Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . 342.5.8 Potential Weaknesses of the Strateco Dashboard

and Its Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Contents

Contentsx

3 Corporate Strategy: Diversification and Management of Multiple SBUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393.1 Objectives and Configurations of Diversification . . . . . . . . . . . . . . . 393.2 Vertical Diversification and Integration . . . . . . . . . . . . . . . . . . . . . . . 423.3 Horizontal Diversification and Expansion . . . . . . . . . . . . . . . . . . . . . 44

3.3.1 Cost Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 443.3.2 Revenue Enhancement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

3.4 Geographic Diversification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 503.4.1 Assessment of the Countries’ Attractiveness . . . . . . . . . . . . . 503.4.2 Countries’ Profiles and Their Impact on the Key

Success Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 583.4.3 Entry and Development Strategies . . . . . . . . . . . . . . . . . . . . . 653.4.4 A Comprehensive Dashboard for Strategic Management

in Multiple Businesses and Countries . . . . . . . . . . . . . . . . . . 693.5 Unrelated Diversification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

3.5.1 Pros and Cons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 723.5.2 Passing the Essential Tests . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

3.6 Strategy … in Action! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 743.6.1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 753.6.2 Decisions and Available Budget . . . . . . . . . . . . . . . . . . . . . . . 753.6.3 Estimates About the Market Characteristics

and the Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 773.6.4 The Structure and Impact of Our Strategic Decisions . . . . . . 793.6.5 The Decisions Made by the Competitors in the First Year . . . 803.6.6 Market and Economic Results . . . . . . . . . . . . . . . . . . . . . . . . 813.6.7 The Decisions Made by the Competitors in the Second Year . . . 84

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

4 Organization, Ownership and Collaboration Strategies . . . . . . . . . . . . 894.1 Basic Organizational Structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 894.2 The Essential Elements for Designing an Organizational Structure . . . 934.3 Fitting Strategy and Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . 944.4 Ownership Versus Market Transaction Alternatives . . . . . . . . . . . . . . 95

4.4.1 Mergers and Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 964.4.2 Joint Ventures and Minority Stakes Purchase. . . . . . . . . . . . . 974.4.3 Strategic Alliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

5 Financial Performance and Sustainability of Strategy . . . . . . . . . . . . . 1015.1 Strategy and Value Creation: Old and New Metrics . . . . . . . . . . . . . . 101

5.1.1 Competing Value-Based Metrics . . . . . . . . . . . . . . . . . . . . . . 1015.1.2 The Drivers of Value Creation . . . . . . . . . . . . . . . . . . . . . . . . 109

5.2 Financial Feasibility of Strategic Moves: A General Framework . . . 1115.2.1 Sustainability of Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1115.2.2 How to Reconcile Strategic Moves and Financial Goals . . . . 114

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116