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  • Strategic Management

    FRANK T. ROTHAERMELGeorgia Institute of Technology




    P A R T 1Strategy Analysis 1

    CHAPTER 1What Is Strategy and Why Is It Important? 2


    The Premature Death of a Google \Forerunner at Microsoft 3

    What Strategy Is: Gaining and Sustaining CompetitiveAdvantage 4

    What Is Competitive Advantage? 4What Is Strategy? 6Strategy as a Theory of How to Compete 7Industry vs. Firm Effects in Determining Performance 8What Strategy Is Not 9

    Formulating Strategy Across Levels: Corporate,Business, and Functional Managers 10Business Models: Putting Strategy into Action 11

    Strategy in the 21st Century 13Accelerating Technological Change 13A Truly Global World 14Future Industries 15

    | JJteSggp^ IK19M5g|lnlS tlH | Threadless: Leveraging

    Crowdsourcing to Design Cool T-Shirts 17

    Gaining & Sustaining Competit ive Advantaged

    Stakeholders 18

    The AFI Strategy Framework 19

    CHAPTERCASE 1 Consider This... 21

    CHAPTER 2The Strategic Management Process 30

    CHAPTERCASE 2Teach For America: Inspiring Future Leaders 31

    Vision, Mission, and Values 32Visionary Organizations 32Forming Strategic Intent 33

    Strategic Intent 34

    Mission Statements 34

    Gaining & Sustaining Competitive Advantage1^Mission Statements and Competitive Advantage 36

    Living the Values 38

    Strategizing for Competitive Advantage: How IsStrategy "Made"? 39

    Strategic Planning 39

    | j j&rgfe jy (H$(g)OaflflfMJJJT] Shell's Future

    Scenarios 40Scenario Planning 40

    Strategy as Planned Emergence: Top-Down and Bottom-Up 43

    |fSiMlSigiy Irflljg)flaOflfOiftt] Starbucks's CEO: "It's

    Not What We Do!" 44

    Implications for the Strategist 46

    CHAPTERCASE 2 Consider This... 47

    CHAPTER 3External Analysis: Industry Structure, CompetitiveForces, and Strategic Groups 54


    Build Your Dreams (BYD) to Sidestep EntryBarriers 55

    The PESTEL Framework 56

    I UBS-Relents to

    Pressure by U.S. Government 57

    Political Factors 57Economic Factors 57Sociocultural Factors 59Technological Factors 60Ecological Factors 60Legal Factors 60

    Understanding Differences in Industry Performance:The Structure-Conduct-Performance Model 61

    Perfect Competition 62Monopolistic Competition 63Oligopoly 63Monopoly 64

    Competitive Forces and Firm Strategy: The FiveForces Model 64

    Threat of Entry 65The Power of Suppliers 66Power of Buyers 66Threat of Substitutes 67Bivalry among Existing Competitors 67

    Gaining & Sustaining Competitive AdvantagedFive Forces in Airlines vs. Soft Drinks 68


  • CONTENTS xli

    Adding a Sixth Force: The Strategic Role ofComplements 70

    Changes Over Time: Industry Dynamics J71

    Attractive OS Software Business: How Much

    Longer? 72

    Explaining Performance Differences Within the SameIndustry: Strategic Groups 74

    Mapping Strategic Groups 74Mobility Barriers 76

    C H A P T E R C A S E 3 Consider This... 77

    CHAPTER 4Internal Analysis: Resources, Capabilities,and Activities 84


    From Good to Great to Gone: The Rise andFall of Circuit City 85

    Internal Analysis: Looking Inside the Firm for CoreCompetencies 86

    The Resource-based View 88Two Critical Assumptions 90The VRIO Framework 91

    Ij^SMSSgffl trflO pQugjOoS4 .1) | How Nintendo Focused

    on the Casual Gamer 95 /

    The Value Chain and Activity Systems 95Primary and Support Activities 95Dynamic Strategic Activity Systems 97

    The Dynamic Capabilities Perspective 99

    Strategic Fit 100

    Gaining & Sustaining Competitive AdvantagedHow to Protect a Competitive Advantage 102

    Better Expectations of Future Resource Value 102

    Gates 103

    Path Dependence 103Causal Ambiguity 104Social Complexity 104

    Putting Together Internal and External Analysis: TheSWOT Analysis 105

    C H A P T E R C A S E 4 Consider This... 106

    C H A P T E R 5Competitive Advantage and Firm Performance 112

    CHAPTERCASE j fAssessing Competitive Advantage: Googlevs. Microsoft 113

    Measuring Competitive Advantage 114Economic Value Creation 115Accounting Profitability 117Shareholder Value Creation 121

    Gaining & Sustaining Competitive Advantage0^Assessing Competitive Advantage: Google vs.Microsoft, Continued 123

    The Balanced Scorecard 124Advantages of the Balanced Scorecard 126Disadvantages of the Balanced Scorecard 127

    The Triple Bottom Line 127

    fjaf@6Sjy PS@y9)te^Jl Interface: The World's

    First Sustainable Company 128

    Implications for the Strategist 129

    CHAPTERCASE 5 Consider This... 130

    PART 2Strategy Formulation 137

    C H A P T E R 6Business Strategy: Differentiation, Cost Leadership,and Integration 138


    Trimming Fat at Whole Foods Market 139

    Business-Level Strategy: How to Compete forAdvantage 140

    Strategic Position 141Generic Business Strategies 142

    Differentiation Strategy: Understanding ValueDrivers 143

    Value Drivers 145

    j Toyota: From "Perfect^

    Recall" to "Recall Nightmare" 146

    Cost-Leadership Strategy: Understanding CostDrivers 147

    J Ryanair: Lower Cost

    than the Low-Cost Leader! 148

    Cost Drivers 148

  • xlii CONTENTS

    Business-Level Strategy and the Five Forces: Benefitsand Risks 153

    Benefits and Risks of the Cost-Leadership Strategy 154Benefits and Risks of the Differentiation Strategy 154

    Integration Strategy: Combining Cost Leadershipand Differentiation 155

    Integration Strategy at the Business Level 155Value and Cost Drivers of Integration Strategy 157Integration Strategy at the Corporate Level 160

    Gaining & Sustaining Competitive AdvantagedThe Dynamics of Competitive Positioning 161

    CHAPTERCASE 6 Consider This... 163

    CHAPTER 7Business Strategy: Innovation and StrategicEntrepreneurship 170


    From Encyclopedia Britannica to EncartatoWikipedia 171

    Competition Driven by Innovation 172

    Innovation and the Industry Life Cycle 173Introduction Stage 174

    Network Effects to Propel Growth 175

    Growth Stage 175

    IJfeiitgjsiy [HlBg)toD6]|}DST3L [ Some Standards Die

    Hard: QWERTY vs. DSK 177

    Maturity Stage 178Decline Stage 179

    Strategic Entrepreneurship 180

    Types of Innovation 182Incremental and Radical Innovations 182

    King of Incremental Innovation 183

    Architectural and Disruptive Innovations 184

    Innovation: Disrupt Yourself! 186

    The Internet as Disruptive Force: The Long Tail 187

    Discontinuities: Periods of Paradigm Change 189

    Gaining & Sustaining Competitive AdvantagedHypercompetition 191

    C H A P T E R C A S E 7 Consider This... 193

    CHAPTER 8Corporate Strategy: Vertical Integrationand Diversification 200

    C H A P T E R C A S E 8 jRefocusing GE: A Future of Clean-Techand Health Care? 201

    What Is Corporate-Level Strategy? 202Transaction Cost Economics and the Scope of theFirm 204

    Firms vs. Markets: Make or Buy? 204Alternatives on the Make-or-Buy Continuum 207

    |@SJgfSg)iy OffijgyfijsflfaS Ht) | Toyota Locks Up

    Lithium for Car Batteries 208

    Vertical Integration along the Industry Value Chain 209Types of Vertical Integration 210

    Benefits and Risks of Vertical Integration 212

    | JJOEHSggiy (rOB;|}DD5g](}gS{HI |Back to the Future:

    PepsiCo's Forward Integration 213 -

    Alternatives to Vertical Integration 214

    Corporate Diversification: Expanding Beyond a SingleMarket 216

    Types of Corporate Diversification 216

    Leveraging Core Competencies for Corporate Diversification 218

    &$?S$3$ [rflBg]ljD08gj|}pS @L [ ExxonMobil Diversifies

    into Natural Gas 218

    Gaining & Sustaining Competitive AdvantagedCorporate Diversification 221

    Corporate Strategy: Combining Vertical Integrationand Diversification 225

    CHAPTERCASE 8 Consider This... 226

    CHAPTER 9Corporate Strategy: Acquisitions, Alliances,and Networks 236


    Facebook: From Dorm Room to DominantSocial Network 237

    Integrating Companies: Mergers and Acquisitions 238' Horizontal Integration: Merging with Competitors 239

    Gaining & Sustaining Competitive AdvantagedMergers and Acquisitions 241

    Food Fight: Kraft's

    Hostile Takeover of Cadbury 241

  • CONTENTS xliii

    Strategic Alliances: Causes and Consequences ofPartnering 244

    Challenge Amazon 245

    Why Do Firms Enter Strategic Alliances? 245

    Alliance to Acquisition 247

    Governing Strategic Alliances 248Alliance Management Capability 251

    Strategic Networks 254Analyzing Strategic Networks 254

    i/hen Strategic

    Networks Become Dysfunctional 255

    CHAPTERCASE 9 Consider This... 257

    CHAPTER 10Global Strategy: Competing Around the World 268

    CHAPTERCASE7IO_"Hollywood Goes Global 269

    What Is Globalization? 271Going Global: Why? 272

    Advantages of Expanding Internationally 272

    I Stages of

    Globalization 273

    Does GM's Future Lie

    in China? 275

    Disadvantages of Expanding Internationally 276

    Going Global: Where and How? 277Which Countries Do MNEs Enter? 277How Do MNEs Enter Foreign Markets? 280

    Strategy Around the World: Cost Reductions vs. LocalResponsiveness 281

    International Strategy 282Localization Strategy 283Global-Standardization Strategy 284Transnational Strategy 284

    ) n Retreats

    from Germany 285

    National Competitive Advantage: World Leadership inSpecific Industries 287

    Porter's National Competitive Advantage Framework 287

    Gaining & Sustaining Competitive Adva