Gregory G. Dess University of Texas 3t Oällas

G. T. Lumpkin Syracuse University

Alan B. Eisner Pace University

Strategie Management

textand cases

fifth edition

McGraw-Hill tS3H Irwin

Contents parti Strategie Analysis Chapter 1 Strategie Management: Creating Competitive Advantages 2

What Is Strategie Management? 9 Defining Strategie Management 9

The Four Key Attributes of Strategie Management 10

The Strategie Management Process 12

Intended versus Realized Strategies 13 Strategy Analysis 13 Strategy Formulation 15 Strategy Implementation 16 The Role of Corporate Governance

and Stakeholder Management 16 Alternative Perspectives of Stakeholder Management. . . 18 Social Responsibility and Environmental Sustainability:

Moving beyond the Immediate Stakeholders 21

The Strategie Management Perspective: An Imperative throughout the Organization . . . 24

Ensuring Coherence in Strategie Direction 25 Organ 'national Vision 26 Mission Statements 28 Strategie Objectives 29 Summary 32

Chapter 2 Analyzing the External Environment of the Firm 38

Creating the Environmental^ Aware Organization 41

The Role ofScanning, Monitoring, Competitive Intelligence, and Forecasting 41 SWOT Analysis 47

The General Environment 47

The Competitive Environment 56 Porter's Five-Forces Model oflndustry Competition . ... 56 How the Internet and Digital Technologies

Are Affecting the Five Competitive Forces 62 Using Industry Analysis: A Few Caveats 67 Strategie Groups within Industries 70 Summary 73

Chapter 3 Assessing the Internal Environment of the Firm 78

Value-Chain Analysis 82 Primary Activities 83 Support Activities 85 Interrelationships among Value-Chain Activities

within and across Organizations 89 Applying the Value Chain to Service Organizations 90

Resource-Based View of the Firm 91

Types ofFirm Resources 93 Firm Resources and Sustainable

Competitive Advantages 94 The Generation and Distribution ofa Firm 's Profits:

Extending the Resource-Based View ofthe Firm 99

Evaluating Firm Performance: Two Approaches 101

Financial Ratio Analysis 101 Integrating Financial Analysis and Stakeholder

Perspectives: The Balanced Scorecard 104 Summary 108 Appendix to Chapter 3: How the Internet and Digital Technologies Add Value 113

Chapter 4 Recognizing a Firm's Intellectual Assets: Moving beyond a Firm's Tangible Resources 118

The Central Role of Knowledge in Today's Economy 120

The Demographic Segment 49 The Sociocultural Segment 49 The PoliticaULegal Segment 50 The Technological Segment 51 The Economic Segment 52 The Global Segment 52 Relationships among Elements ofthe

General Environment 53

Human Capital: The Foundation of Intellectual Capital 123

Attracting Human Capital 125 Developing Human Capital 126 Retaining Human Capital 129 Enhancing Human Capital: The Role ofDiversity

in the Workforce 131

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The Vital Role of Social Capital 133

How Social Capital Helps Attract and Retain Talent 134

Social Networks: Implications for Knowledge Management and Career Success 136

The Potential Downside of Social Capital 140

Using Technology to Leverage Human Capital and Knowledge 141

Using Networks to Share Information 141 Electronic Teams: Using Technology

to Enhance Collaboration 143 Codifying Knowledge for Competitive

Advantage 144

Protecting the Intellectual Assets of the Organization: Intellectual Property

and Dynamic Capabilities 147

Intellectual Property Rights 147 Dynamic Capabilities 147 Summary 149

part2 Strategie Formulation Chapter 5 Business-Level Strategy: Creating and Sustaining Competitive Advantages 156

Types of Competitive Advantage and Sustainability 158

Overall Cost Leadership 160 Differentiation 165 Focus 170 Combination Strategies: Integrating Overall

Low Cost and Differentiation 172

How the Internet and Digital Technologies Are Affecting the Competitive Strategies 176

Overall Cost Leadership 176 Differentiation 177 Focus 178 Are Combination Strategies the Key

to E-Business Success? 179

Industry Life Cycle Stages: Strategie Implications 179

Strategies in the Introduction Stage 182 Strategies in the Growth Stage 182 Strategies in the Maturity Stage 183 Strategies in the Decline Stage 184 Turnaround Strategies 187 Summary 188

Chapter 6 Corporate-Level Strategy: Creating Value through Diversification 194

Making Diversification Work: An Overview 198

Related Diversification: Economies of Scope and Revenue Enhancement 199

Leveraging Core Competencies 200

Sharing Activities 201

Related Diversification: Market Power 203

Pooled Negotiating Power. 203 Vertical Integration 206

Unrelated Diversification: Financial Synergies and Parenting 209

Corporate Parenting and Restructuring 209 Portfolio Management 211 Caveat: Is Risk Reduction a Viable Goal

of Diversification? 214

The Means to Achieve Diversification 214

Mergers and Acquisitions 215 Strategie Alliances and Joint Ventures 220 Internal Development 222

How Managerial Motives Can Erode Value Creation 223

Growth for Growth 's Sake 223 Egotism 224 Antitakeover Tactics 225 Summary 227

Chapter 7 International Strategy: Creating Value in Global Markets 232

The Global Economy: A Brief Overview 234

Factors Affecting a Nation's Competitiveness 235

Factor Endowments. 237 Demand Conditions 237 Related and Supporting Industries 237 Firm Strategy, Structure, and Rivalry 238 Concluding Comment on Factors Affecting

aNation's Competitiveness 238

International Expansion: A Company's Motivations and Risks 238

Motivations for International Expansion 238 Potential Risks of International Expansion 243 Global Dispersion of Value Chains: Outsourcing

and Offshoring 246

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Achieving Competitive Advantage in Global Markets 248

Two Opposing Pressures: Reducing Costs andAdapting to Locol Markets 248

International Strategy 250 Global Strategy 251 Multidomestic Strategy 253 Transnational Strategy 255 Global or Regional? A Second Look

at Globalization 257

Entry Modes of International Expansion . . . . 259

Exporting 260 Licensing and Franchising 261 Strategie Alliances and Joint Ventures 261 Wholly Owned Subsidiaries 263 Summary 265

Chapter 8 Entrepreneurial Strategy and Competitive Dynamics 270

Recognizing Entrepreneurial Opportunities . . 273

Entrepreneurial Opportunities 276 Entrepreneurial Resources 279 Entrepreneurial Leadership 285

Entrepreneurial Strategy 285

Entry Strategies 286 Generic Strategies 290 Combination Strategies 293

Competitive Dynamics 294

New Competitive Action 294 Threat Analysis 295 Motivation and Capability to Respond 297 Types of Competitive Actions 300 Likelihood of Competitive Reaction 301 Choosing Not to React: Forbearance

and Co-opetition 302 Summary 304

IC

ircilon

Chapter 9 Strategie Control and Corporate Governance 310

Ensuring Informational Control: Responding Effectively to Environmental Change 313

A TraditionalApproach to Strategie Control 313 A Contemporary Approach to Strategie Control 314

Attaining Behavioral Control: Balancing Culture, Rewards, and Boundaries 316

Building a Strong and Effective Culture 317 Motivating with Rewards and Incentives 318 Setting Boundaries and Constraints 320 Behavioral Control in Organizations:

Situational Factors 323 Evolvingfrom Boundaries to Rewards and Culture . . . . 323

The Role of Corporate Governance 324

The Modern Corporation: The Separation ofOwners (Shareholders) and Management 326

Governance Mechanisms: Aligning the Interests ofOwners and Managers 327

Externa! Governance Control Mechanisms 332 Corporate Governance: An International Perspective . . 336 Summary 340

Chapter 10 Creating Effective Organizational Designs 346

Traditional Forms of Organizational Structure 349

Patterns ofGrowth ofLarge Corporations: Strategy-Structure Relationships 349

Simple Structure 351 Functional Structure 351 Divisional Structure 353 Matrix Structure 356 International Operations: Implications

for Organizational Structure 357 Global Start-Ups: A New Phenomenon 358 How an Organization 's Structure Can

Influence Strategy Formulation 359

Linking Strategie Reward and Evaluation Systems to Business-Level and Corporate-Level Strategies 360

Business-Level Strategy: Reward and Evaluation Systems 361

Corporate-Level Strategy: Strategie Reward and Evaluation Systems 362

Boundaryless Organizational Designs 363

The Barrier-Free Organization 364 The Modular Organization 367 The Virtual Organization 370 Boundaryless Organizations: MakingThem Work 372

Creating Ambidextrous Organizational Designs 375

Ambidextrous Organizations: Key Design Attributes . . . 375 Why Was the Ambidextrous Organization the Most

Effective Structure? 376 Summary 376

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Chapter 11 Strategie Leadership: Creating a Leaming Organization and an Ethical Organization 382

Leadership: Three Interdependent

Activities 385

Setting a Direction 386 Designing the Organization 388 Nurturing an Excellent and Ethical Culture 388

Elements of Effective Leadership 390

Integrative Thinking 390 Overcoming Barriers to Change 391 The Effective Use of Power 393

Emotional Intelligence: A Key Leadership Trait 394

Self-Awareness 396 Self-Regulation 397 Motivation 397 Empathy 397 Social Skill 397 Emotional Intelligence: Some Potential Drawbacks

and Cautionary Notes 398

Developing a Learning Organization 400

Inspiring and Motivating People with a Mission or Purpose 401

Empowering Employees atAll Levels 401 Accumulating and Sharing Internal Knowledge 402 Gathering and Integrating External Information 404 Challenging the Status Quo and Enabling Creativity. . . 406

Creating an Ethical Organization 407

Individual Ethics versus Organizational Ethics 407 Integrity-Based versus Compliance-Based

Approaches to Organizational Ethics 410 Role Models 411 Corporate Credos and Codes ofConduct 412 Reward and Evaluation Systems 414 Policies and Procedures 415 Summary 418

Chapter 12 Managing Innovation and Fostering Corporate Entrepreneurship 424

Managing Innovation 427

Types of Innovation 427 Challenges of Innovation 431 Defining the Scope of Innovation 432 Managing the Pace of Innovation 432 Stajfing to Capture Valuefrom Innovation 433

Collaborating with Innovation Partners 434

Corporate Entrepreneurship 435

FocusedApproaches to Corporate Entrepreneurship 439

DispersedApproaches to Corporate Entrepreneurship 440

Measuring the Success of Corporate Entrepreneurship Activities 442

Real Options Analysis: A Useful Tool 444

Applications ofReal Options Analysis to Strategie Decisions 444

Potential Pitfalls ofReal Options Analysis 445

Entrepreneurial Orientation 447

Autonomy 448 Innovativeness 449 Proactiveness 452 Competitive Aggressiveness 453 RiskTaking 455 Summary 457

part4 Gase Analysis

Chapter 13 Analyzing Strategie Management Cases 462

Why Analyze Strategie Management Cases? 464

How to Conduct a Case Analysis 465

Become Familiär with the Material 467 Identify Problems 468 Conduct Strategie Analyses 469 Propose Alternative Solutions 471 Make Recommendations 471

How to Get the Most from Case Analysis 473

Using Conflict-Inducing Decision-Making Techniques in Case Analysis 475

Symptoms of Groupthink and How to Prevent It 478 Using Conflict to Improve Decision Making 479

Following the Analysis-Decision-Action Cycle in Case Analysis 481

Summary 485 Appendix 1 to Chapter 13: Financial Ratio Analysis . . . 486 Appendix 2 to Chapter 13: Sources of Company

and Industry Information 495

Cases C-1

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Cases 1 Robin Hood

Hypothetical/Classic Robin Hood and bis Merrymen are in trouble as wealthy travelers are avoiding Sherwood Forest. This classic case is an excellent introduction to strategy management using a nonbusiness Situation C2

2 Edward Marshall Boehm, Inc. Housewares & Accessories, Porcelain Collectibles; Classic This classic case concerns the future direction of a small, high-quality porcelain art objects Company. C3

3 The Skeleton in the Corporate Closet Hypothetical; HBR Brief Case Hap Parker, CEO of GPC, has new, unwanted, and ambiguous information. What Parker does with the information will define bis tenure as CEO and perhaps the future of GPC, the firm bis grandfather started 75 years ago C4

4 The Best-Laid Incentive Plans Hypothetical; HBR Brief Case Rainbarrel Products had a new Performance management system in place; the problem was that employees were following it and doing exactly the things that got rewarded. C7

5 Growing for Brake Hypothetical; HBR Brief Case Paragon Tool, a thriving machine tool Company in an increasingly tough industry, has been pouring money into growth initiatives. These efforts have shrunk the company's margins, but CEO Nikolas Anaptyxi believes they'll provide the foundation for a profitable future. Now Paragon is weighing the acquisition of MonitoRobotics, a Company with proprietary technology for monitoring the functioning of robotics equipment. Cll

6 Crown Cork & Seal in 1989 Harvard Business School; Classic; Manufacturing CEO William Avery is forced to consider new Strategie options in the face of changes in the metal Container industry. C15

7 Automation Consulting Services Harvard Business School; Classic; Professional Services Automation Consulting's founding partners have to grapple with the challenges of managing rapid growth and geographic expansion C32

8 Enron: On the Side of the Angels Ethics/Energy This case provides students an overview of Enron Corporation's demise, one of the preeipitating events for a new era of regulation C38

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9 American Red Cross Nonprofit Marsha "Marty"Johnson Evans had her work cut out for her as the new CEO of the American Red Cross. Negative Publicity and Problems included a workers' strike, a lawsuit relating to the handling ofblood sales, and the Liberty Disaster Relief Fund issue, among others. C48

10 United Way of America Nonprofit Brian Gallagher, United Way of America CEO, established new membership Standards for United Way affiliates' Operations, rebranded United Way as doing "what matters" in the communities it served, and addressed the long-term needs of communities. Gallagher needed to convince the United Way affiliates to buy into the change effort, but he did not have much leverage over them C57

11 World Wrestling Entertainment Entertainment WWE's potent mix of shaved, pierced, and pumped-up muscled hunks; buxom, scantily-clad, and sometimes cosmetically enhanced beauties; and body-bashing clashes of good versus evtl had resulted in an empire that claimed over 35 million fans. C67

12 Schoolhouse Lane Estates Wine Should Jan purchase grape-growing land or expand her retail Operations for her winery? C74

13 QVC Retail Naß clippers that catch clippings, bicycle seats built for bigger bottoms, and novelty items shaped like coffins were among the nearly 600 products trying out for a spot on the QVC home Shopping Channel. However, QVC's CEO Mike George is concerned about where the opportunities for further growth will come from for the worlä's largest television home Shopping Channel. C87

14 McDonald's Restaurant McDonald's turnaround strategy was working, but the firm still faced a rapidly fragmenting market where changes in the tastes of consumers had made once-exotic foods like sushi and burritos everyday options. C92

15 Procter & Gamble Consumer Products Procter & Gamble was the world's largest consumer products conglomerate, with billion-dollar brands such as Tide, Crest, Pampers, Gillette, Right Guard, and Duracell. However, sales were down as consumers were coping with the economic downturn by switching to P&G's lower-priced brands. C99

16 Heineken Beer Heineken can lay Claim to a brand that may be the dosest thing to a global beer brand. But in the United States, Heineken has lost its leading Position among imported beers to Corona, the Mexican beer that is offen served with a garnish of Urne. C106

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17 Pixar Movies Disney CEO Bob Iger worked hard to clinch the deal to acquire Pixar, whose track record has made it one of the world's most successful animation companies. Both Jobs and Iger realized, however, that they must try to protect Pixar's creative culture while they also try to carry some of it over to Disney's animation efforts C110

18 Johnson & Johnson Pharmaceuticals, Personal Care Products, Medical Devices CEO William Weldon knows it will be hard to maintain J&J's 10 percent growth rate through acquisitions. J&J needs collaboration between the business units without killing their entrepreneurial culture C115

19 Samsung Electronics Consumer Electronics Samsung has transformed itself into creating cutting-edge technologies across a spectrum of product lines since its brush with bankruptcy just eight years ago. But is Samsung entering a midlife crisis of complacency? C122

20 Lenovo's Purchase of IBM's PC Division Computers Lenovo Computer, the largest PC manufacturer in China, was struggling to integrate the PC division of IBM Corporation, which it had acquired in a $1.25 billion deal that gave Lenovo instant name recognition and an instant worldwide footprint C128

21 The Casino Industry Casino Industry To deal with the slower growth in gaming revenues, casinos have feit the need to spend more and more in order to entice more gamblers. C135

22 Mattel's Misfit Toys Toys Mattel's CEO, Robert Eckert, has bis work cut out for him in balancing competitive pressures with restoring consumer trust and confidence in the toy industry. Mattel announced the largest toy recall in units in its history, including the Elmo, Big Bird, and Dora characters. How did lead paint slip into Mattel's production line? How did tainted toys slip past bis company's inspectionsF. C141

23 Apple Inc.: Taking a Bite Out of the Competition Computers, Consumer Electronics Apple appeared to be reinventing itself as a digital entertainment Company, moving beyond the personal Computer industry. C155

24 Jamba Juice Smoothies, Juice Bar, Restaurant Jamba Juice Company gradually expanded its product line over the past several years to offer Jamba products that pleased a broader palate, but was the Company biting off more than it could chew? In Ught of mounting same-store sales declines and financial losses, CEO James White had bis work cut out for bim C168

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25 China's Geely Automotive Holdings, Ltd.: Targeting the U.S. Market Automotive Geely, China's largest privately owned automaker, was considering a play for the American automobile market. Chinese vehicle exports had primarily been limited to buses and trucks and other heavy equipment; however, Geely feit it might be ready to compete in the large, potentially lucrative U.S. market with low-priced vehicles C178

26 JetBlue Airlines: Will It Remain "Blue"? Airline This airline start-up success story is facing new challenges as operational problems have surfaced and the founder has left the CEO's seat. C185

27 Southwest Airlines: Does "LUV" Last? Airline Southwest Airlines has emerged as the largest domestic carrier.As Southwest is becoming a different creature, how long can it hold on to its "underdog" image? C194

28 Dippin' Dots Ice Cream Ice Cream Dippin' Dots Ice Cream is faced with mounting competition for its ßagship tiny beads of ice cream fhat are made and served at super-cold temperatures. Can it survive the chill of the economic downturn? C204

29 Keurig Coffee Coffee New CEO Michelle Stacey must perk up Keurig from a technology-focused firm to one that can navigate the caffeine-cbarged, single-cup-brewing coffee maker business. C213

30 Weight Watchers International Inc. Weight Loss Weight Watchers, while the undeniable industry Standard, had lost some of its luster as many Potential consumers considered it the prior generation's answer to weight loss C225

31 A Horror Show at the Cinemaplex? Movie Movies remain as populär as ever, but opportunities for viewing outside the theater have greatly increased. While motion picture Studios increased revenues through product licensing, DVD sales, and international expansion, the exhibitors—movie theaters—have seen their business decline C236

32 Build-A-Bear Workshop Retail While Build-A-Bear celebrated its lOth anniversary with the making of its 50-millionth furry friend in 2007, the Company's future prospects began to fade. Following a huge success in its early years of Operations, Build-A-Bear Workshop was faced with a decline in sales figures as of 2008. C242

33 Reader's Digest: For Whom and for How Much Longer? Publishing The Reader's Digest Association's products were mature, but the problem was that the reader-ship was even more mature and efforts to entice younger customers were to no avail. C250

34 General Motors Automotive General Motors was on the brink of its own demise. Restructuring plans had not been able to stem the tide of sweeping losses. Was GM, the largest U.S. automaker, running on empty? C262

35 Nintendo's Wii Video Games Nintendo's Wii Video game console might be the top-selling console if the Company can deliver the goods. C269

36 One Ford: The Shape of Ford Motor Company to Come? Automotive Ford Motor Company was setting records but, unfortunately, not encouraging ones. Can a leaner Ford survive in the automobile industry? C278

37 American International Group and the Bonus Fiasco Insurance AIG, one of the largest and most respected insurance companies in the world, found itself in big financial distress in September 2008. Unable to post collateral, AIG approached the government for a bailout. C293

38 eBay: Expanding into Asia Internet eBay's Joint venture with Beijing-based Tom Online was expected to give eBay some of the local expertise it desperately needed to compete with China's top auction site, Taobao. However, little ground was gained, and CEO John Donahoe would have to reconcile why one of the fastest-growing companies in history was moving so slowly. C296

39 Ann Taylor: Survival in Specialty Retail Retail, Women's Fashion The founding brand, the Ann Taylor division, struggled to maintain focus and present basic, professional clothing to its iconic customers öfter being upstaged by its younger sister, Ann Taylor Loft. C308

40 FreshDirect: Delivering the Goods? Grocery Can FreshDirect, a New York City-based online grocer, maintain high product quality white keeping product prices low, leading to razor-thin margins among abundant competition from both online and traditional grocers? C323

Indexes 1-1

Company 1-1 Name 1-10 Subject 1-20

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