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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 Management 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. This page intentionally left blank 3rd Edition Essentials of Strategic Management Charles W. L. Hill University of Washington Gareth R. Jones Texas A&M University Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States 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. Essentials of Strategic Management, © 2012, 2009 South-Western, Cengage Learning Third Edition ALL RIGHTS RESERVED. No part of this work covered by the copyright Charles W. L. Hill, Gareth R. 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Printed in the Canada 1 2 3 4 5 6 7 15 14 13 12 11 Brief Contents PART ONE INTRODUCTION TO STRATEGIC MANAGEMENT 1 The Strategy- Making Process 1 2 Stakeholders, The Mission, Governance, and Business Ethics 27 PART TWO THE NATURE OF COMPETITIVE ADVANTAGE 3 External Analysis: The Identifi cation of Opportunities and Threats 55 4 Building Competitive Advantage 83 PART THREE BUILDING AND SUSTAINING LONG-RUN COMPETITIVE ADVANTAGE 5 Business-L evel Strategy and Competitive Positioning 117 6 Strategy in the Global Environment 145 7 Corporate-L evel Strategy and Long- Run Profi tability 172 PART FOUR STRATEGY IMPLEMENTATION 8 Strategic Change: Implementing Strategies to Build and Develop a Company 200 9 Implementing Strategy Through Organizational Design 226 iii iv Contents Contents Preface xi PART ONE INTRODUCTION TO STRATEGIC MANAGEMENT Chapter 1 The Strategy- Making Process 1 Competitive Advantage and Superior Performance 2 Running Case: Walmart’s Competitive Advantage 3 Strategic Managers 5 Corporate- Level Managers 6 Business-L evel Managers 6 Functional- Level Managers 7 The Strategy-M aking Process 7 A Model of the Strategic Planning Process 7 The Feedback Loop 11 Strategy as an Emergent Process 11 Strategy Making in an Unpredictable World 11 Autonomous Action: Strategy Making by Lower- Level Managers 12 Serendipity and Strategy 12 Strategy in Action 1.1: A Strategic Shift at Microsoft 13 Intended and Emergent Strategies 14 Strategic Planning in Practice 15 Scenario Planning 15 Decentralized Planning 16 Strategic Decision Making 17 Cognitive Biases 17 Improving Decision Making 18 Strategic Leadership 19 Vision, Eloquence, and Consistency 19 Commitment 20 Being Well Informed 20 Willingness to Delegate and Empower 20 The Astute Use of Power 21 Emotional Intelligence 21 Practicing Strategic Management 23 Closing Case: Planning for the Chevy Volt 24 iv Contents v Chapter 2 Stakeholders, The Mission, Governance, and Business Ethics 27 Stakeholders 28 The Mission Statement 29 The Mission 30 Vision 31 Values 32 Major Goals 32 Corporate Governance and Strategy 33 The Agency Problem 34 Strategy In Action 2.1: The Agency Problem at Tyco 35 Governance Mechanisms 38 Ethics and Strategy 42 Ethical Issues in Strategy 42 Running Case: Working Conditions at Walmart 45 The Roots of Unethical Behavior 46 Behaving Ethically 47 Final Words 49 Practicing Strategic Management 51 Closing Case: Google’s Mission, Ethical Principles, and Involvement in China 52 PART TWO THE NATURE OF COMPETITIVE ADVANTAGE Chapter 3 External Analysis: The Identifi cation of Opportunities and Threats 55 Analyzing Industry Structure 56 Risk of Entry by Potential Competitors 58 Strategy in Action 3.1: Circumventing Entry Barriers into the Soft Drink Industry 59 Rivalry among Established Companies 61 The Bargaining Power of Buyers 63 The Bargaining Power of Suppliers 64 Substitute Products 65 Porter’s Model Summarized 66 Strategic Groups within Industries 66 Running Case: Walmart’s Bargaining Power over Suppliers 67 Implications of Strategic Groups 68 vi Contents The Role of Mobility Barriers 69 Industry Life Cycle Analysis 69 Embryonic Industries 70 Growth Industries 70 Industry Shakeout 71 Mature Industries 72 Declining Industries 72 Summary 73 The Macroenvironment 73 Macroeconomic Forces 73 Global Forces 75 Technological Forces 75 Demographic Forces 75 Social Forces 76 Political and Legal Forces 76 Practicing Strategic Management 78 Closing Case: The Pharmaceutical Industry 79 Chapter 4 Building Competitive Advantage 83 Competitive Advantage: Value Creation, Low Cost, and Differentiation 84 The Generic Building Blocks of Competitive Advantage 86 Effi ciency 87 Quality as Excellence and Reliability 88 Innovation 89 Customer Responsiveness 90 The Value Chain 90 Primary Activities 91 Support Activities 92 Functional Strategies and The Generic Building Blocks of Competitive Advantage 93 Increasing Effi ciency 93 Strategy in Action 4.1: Learning Effects in Cardiac Surgery 95 Running Case: Human Resource Strategy and Productivity at Walmart 99 Increasing Quality 100 Increasing Innovation 103 Achieving Superior Customer Responsiveness 106 Distinctive Competencies and Competitive Advantage 108 Resources and Capabilities 108 The Durability of Competitive Advantage 110 Practicing Strategic Management 112 Closing Case: Starbucks 113