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Copyright © 2014 by SAGE Publications, Inc. All rights reserved. No part of this book may be reproduced or utilized in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission in writing from the publisher. Photo credits (listed by page number): xx: © Can Stock Photo Inc. / vally_home. 11: Comstock/Comstock/Thinkstock. 12: Protodisc/ Photodisc/Thinkstock. 26: Jupiterimages/Comstock/Thinkstock. 31: BananaStock/BananaStock/Thinkstock. 39: Comstock/ Comstock/Thinkstock. 41: Thomas Northcut/Digital Vision/Thinkstock. 52: Jupiterimages/Photos.com/Thinkstock. 55: Comstock/ Comstock/Thinkstock. 57: Brand X Pictures/Brand X Pictures/Thinkstock. 62: Creatas Images/Creatas/Thinkstock. 68: Brand X FOR INFORMATION: Pictures/Brand X Pictures/Thinkstock. 78: Comstock Images/Comstock/Thinkstock. 83: Comstock/Comstock/Thinkstock. 86: Stockbyte/Stockbyte/Thinkstock. 90: Jeffrey Hamilton/Lifesize/Thinkstock. 92: Comstock/Comstock/Thinkstock. 116: George SAGE Publications, Inc. Doyle/Stockbyte/Thinkstock. 121: Hemera Technologies/Photos/com/Thinkstock. 123: Darrin Klimek/Digital Vision/Thinkstock. 132: Comstock/Comstock/Thinkstock. 133: Thinkstock/Comstock/Thinkstock. 150: ©iStockphoto.com/mediaphotos. 166: 2455 Teller Road Goodshot/Goodshot/Thinkstock. 168: Brand X Pictures/Brand X Pictures/Thinkstock. 182: Siri Stafford/Lifesize/Thinkstock. 189: Brand X Pictures/Brand X Pictures/Thinkstock. 195: Ablestock.com/Ablestock.com/Thinkstock. 218: © Sam Robinson/ Thousand Oaks, California 91320 Digital Vision/Thinkstock. 222 (top): RyanMcVay/Photodisc/Thinkstock. 222 (bottom): Thinkstock/Comstock/Thinkstock. 224: E-mail: [email protected] JupiterImages/Comstock/Thinkstock. 228: Comstock/Comstock/Thinkstock. 232: Felipe Dupouy/Lifesize/Thinkstock. 246: Mike Powell/Digital Vision/Thinkstock. 247: Comstock/Comstock/Thinkstock. 255: Comstock/Comstock/Thinkstock. 270: iStockphoto/ Thinkstock. 273: RyanMcVay/Photodisc/Thinkstock. 292: ©iStockphoto.com/Marcus Clackson. 296: DigitalVision/DigitalVision/ SAGE Publications Ltd. Thinkstock. 300 (top): RyanMcVay/Lifesize/Thinkstock. 300 (bottom): Comstock/Comstock/Thinkstock. 326: © Can Stock Photo Inc./ fikmik. 335: JupiterImages/Goodshot/Thinkstock. 336: Stockbyte/Stockbyte/Thinkstock. 1 Oliver’s Yard Strategy + Business reading credits (listed by chapter): Chapter 1: “The China Challenge” by Edward Tse reprinted with permission 55 City Road from the Spring 2010 issue of strategy+business magazine, published by Booz & Company Inc., based on the book The China London EC1Y 1SP Strategy, published by Basic Books. Copyright © 2010. All rights reserved. www.strategy-business.com. Chapter 2: “Focus and Scale on the Internet” by Tim Laseter reprinted with permission from the Summer 2011 issue of strategy+business, published by United Kingdom Booz & Company Inc. Copyright © 2011. All rights reserved. www.strategy-business.com. Chapter 3: “Competing for the Global Middle Class” by Edward Tse, Bill Russo, and Ronald Haddock, reprinted with permission from the Autumn 2011 issue of strategy+business magazine, published by Booz & Company Inc. Copyright © 2011. All rights reserved. www.strategy-business SAGE Publications India Pvt. Ltd. .com. Chapter 4: “The Rise of Generation C” by Roman Friedrich, Michael Peterson and Alex Koster reprinted with permission from B 1/I 1 Mohan Cooperative Industrial Area the Spring 2011 issue of strategy+business magazine, published by Booz & Company Inc. Copyright © 2011. All rights reserved. www.strategy-business.com. Chapter 5: “Values vs. Value” by Timothy Devinney, Pat Auger, and Giana M. Eckhardt reprinted with Mathura Road, New Delhi 110 044 permission from the Spring 2011 issue of strategy+business magazine, published by Booz & Company Inc. Copyright © 2011. All rights reserved. www.strategy-business.com. Chapter 6: “The Unique Advantage,” by Alexander Kandybin and Surbhee Grover India reprinted with permission from the Autumn 2008 issue of strategy+business, published by Booz & Company Inc. Copyright © 2008. All rights reserved. www.strategy-business.com. Chapter 7: “Growth through Focus: A Blueprint for Driving Profitable SAGE Publications Asia-Pacific Pte. Ltd. Expansion” by Sanjay Khosla and Mohanbir Sawhney reprinted with permission from the Summer 2010 issue of strategy+business magazine, published by Booz & Company Inc. Copyright © 2010. All rights reserved. www.strategy-business.com. Chapter 8: 3 Church Street “The Power of the Post-Recession Consumer” by John Gerzema and Michael D’Antonio reprinted with permission from the Spring 2011 issue of strategy+business magazine, published by Booz & Company Inc. Copyright © 2011. All rights reserved. www #10-04 Samsung Hub .strategy-business.com. Chapter 9: “10 Clues to Opportunity” by Donald Sull reprinted with permission from the Autumn 2011 Singapore 049483 issue of strategy+business, published by Booz & Company Inc. Copyright © 2011. All rights reserved. www.strategy-business.com .Chapter 10: “Design for Frugal Growth” by Jaya Pandrangi, Steffen Lauster, and Gary L. Neilson reprinted with permission from the Autumn 2008 issue strategy+business magazine, published by Booz & Company Inc. Copyright © 2008. All rights reserved. www .strategy-business.com. Chapter 11: “CEO Succession 2010: The Four Types of CEOs” by Ken Favaro, Per-Ola Karlsson, and Gary L. Neilson reprinted with permission from the Summer 2011 issue of strategy+business magazine, published by Booz & Company Inc. Copyright © 2011. All rights reserved. www.strategy-business.com. Chapter 12: “How to Prevent Self-Inflicted Disasters” by Eric Kronenberg reprinted with permission from the strategy+business website, published by Booz & Company Inc. (http://www .strategy-business.com/article/00086) Copyright © 2011. All rights reserved. www.strategy-business.com. Traditional case credits (listed by number): Case 1, Case 6, Case 7, Case 11: Reprinted with permission from the Society for Case Research. Case 2, Case 8, Case 9: Reprinted with permission from Rebecca Treadway. Case 3, Case 4: Reprinted with permission from Sue Cullers. Case 5: Reprinted with permission from Neilson Publishers. Case 10: Reprinted with permission from Marlene Reed. Printed in the United States of America Library of Congress Cataloging-in-Publication Data Parnell, John A. (John Alan), 1964- Strategic management : theory and practice / John A. Parnell. — 4th ed. p. cm. Includes bibliographical references and index. ISBN 978-1-4522-3498-4 (pbk.) 1. Strategic planning. 2. Industrial management. 3. Organizational effectiveness. I. Title. Acquisitions Editor: Patricia Quinlin HD30.28.P316 2014 Associate Editor: Maggie Stanley 658.4′012-—dc23 2012032644 Assistant Editor Megan Koraly This book is printed on acid-free paper. Editorial Assistant: Katie Guarino Production Editor: Laureen Gleason Copy Editor: Megan Markanich Typesetter: C&M Digitals (P) Ltd. Proofreader: Jen Grubba Indexer: Wendy Allex Cover Designer: Anupama Krishnan Marketing Manager: Liz Thornton Permissions Editor: Jennifer Barron 13 14 15 16 17 10 9 8 7 6 5 4 3 2 1 Brief Contents Preface xv About the Author xix 1. Fundamentals of Strategic Management 1 2. Industry Competition 27 3. The External Environment: Political-Legal and Economic Forces 53 4. The External Environment: Social and Technological Forces 79 5. The Organization: Ethics and Corporate Social Responsibility 117 6. Corporate-Level Strategies 151 7. Business Unit Strategies 183 8. Functional Strategies 219 9. Strategy Formulation 247 10. Strategy Execution: Structure 271 11. Strategy Execution: Strategic Change, Culture, and Leadership 293 12. Strategic Control and Crisis Management 327 Appendix 353 Case Analysis 354 Real-Time Cases 361 Traditional Cases 395 Glossary 611 Index 621 vi vi STRAETNETGRIECP RMEANNEUARGSEHMIPENT Detailed Contents Preface xv Description of Text xv Key Features xvi What’s New in This Edition xvi Ancillaries xvii Acknowledgments xviii About the Author xix 1. Fundamentals of Strategic Management 1 What Is Strategic Management? 1 Intended and Realized Strategies 4 Scientific and Artistic Perspectives on Strategic Management 5 Influence on Strategic Management 6 Corporate Governance and Boards of Directors 7 Strategic Decisions 10 The Global Imperative 12 Summary 13 Key Terms 13 Review Questions and Exercises 14 Practice Quiz 14 True or False? 14 Multiple Choice 15 Student Study Site 15 Notes 16 Strategy + BuSineSS Reading: The China Challenge 18 2. Industry Competition 27 Industry Life Cycle Stages 30 Industry Structure 32 Intensity of Rivalry Among Incumbent Firms 32 Concentration of Competitors 34 High Fixed or Storage Costs 35 Slow Industry Growth 35 Lack of Differentiation or Low Switching Costs 35 Capacity Augmented in Large Increments 36 Diversity of Competitors 36 High Strategic Stakes 36 High Exit Barriers 36 Threat of Entry 37 Economies of Scale 38 Brand Identity and Product Differentiation 38 Capital Requirements 39 Switching Costs 39 Access to Distribution Channels 39 Cost Advantages Independent of Size 39 Government Policy 39 Pressure From Substitute Products 40 Bargaining Power of Buyers 40 Bargaining Power of Suppliers 41 Limitations of Porter’s Five Forces Model 42 Summary 43 Key Terms 43 Review Questions and Exercises 44 Practice Quiz 44 True or False? 44 Multiple Choice 45 Student Study Site 45 Notes 46 Strategy + BuSineSS Reading: FoCus and sCale on The inTeRneT 47 3. The External Environment: Political-Legal and Economic Forces 53 Analysis of the External Environment 53 Political-Legal Forces 54 Global Considerations 60 Economic Forces 63 Gross Domestic Product 64 Inflation Rates 66 Interest Rates 66 Exchange Rates 66 Ecological Influences 67 Summary 69 Key Terms 69 Review Questions and Exercises 69 Practice Quiz 69 True or False? 69 Multiple Choice 70 Student Study Site 70 Notes 71 Strategy + BuSineSS Reading: CompeTing FoR The global middle Class 73 4. The External Environment: Social and Technological Forces 79 Social Forces 79 Case #1: Eating Habits 83 Case #2: Automobiles 86 Global Concerns 88 Technological Forces 90 The Internet 92 Strategic Dimensions of the Internet 96 Movement Toward Information Symmetry 96 Internet as Distribution Channel 97 Speed 97 Interactivity 97 Potential for Cost Reductions and Cost Shifting 97 Forms of Electronic Commerce 98 Business-to-Business 98 Business-to-Consumer 98 Business-to-Government 99 Consumer-to-Consumer 99 Consumer-to-Business 99 Commoditization and Mass Customization 99 Environmental Scanning 100 Summary 102 Key Terms 102 Review Questions and Exercises 103 Practice Quiz 103 True or False? 103 Multiple Choice 103 Student Study Site 104 Notes 104 Strategy + BuSineSS Reading: The Rise oF geneRaTion C 108 5. The Organization: Ethics and Corporate Social Responsibility 117 Organizational Direction: Mission, Goals, and Objectives 118 Goals and Stakeholders 118 The Agency Problem 120 Management Serves Its Own Interests 120 Management and Stockholders Share the Same Interests 122 Managerial Ethics 123 Perspectives on Ethics 126 Social Responsibility 129 Corporate Social Responsibility in Practical Terms 132 Sustainable Strategic Management 135 Takeovers 135 Outsourcing and Offshoring 136 Linking Managerial Ethics and Corporate Social Responsibility 139 Summary 140 Key Terms 140 Review Questions and Exercises 141 Practice Quiz 141 True or False? 141 Multiple Choice 142 Student Study Site 143 Notes 143 Strategy + BuSineSS Reading: Values Vs. Value 146 6. Corporate-Level Strategies 151 The Corporate Profile 151 Strategic Alternatives at the Corporate Level 153 Growth Strategies 153 Horizontal (Related) Integration 156 Horizontal (Related) Diversification 156 Conglomerate (Unrelated) Diversification 157 Vertical Integration 157 Strategic Alliances (Partnerships) 157 Stability Strategy 159 Retrenchment Strategies 161 Turnaround 161 Divestment 163 Liquidation 163 Boston Consulting Group Growth-Share Matrix 163 Global Corporate Strategy 166 Wal-Mart Abroad 168 Global Orientation Assessment 169 Summary 170 Key Terms 170 Review Questions and Exercises 172 Practice Quiz 172 True or False? 172 Multiple Choice 172 Student Study Site 173 Notes 173 Strategy + BuSineSS Reading: The unique adVanTage 176 7. Business Unit Strategies 183 Porter’s Generic Strategies 184 Low-Cost (Cost Leadership) Strategy (Without Focus) 185 Focus–Low-Cost Strategy 187 Differentiation Strategy (Without Focus) 188 Focus-Differentiation Strategy 190 Low-Cost–Differentiation Strategy 191 Focus–Low-Cost–Differentiation Strategy 195 Multiple Strategies 195 The Miles and Snow Strategy Framework 196 Business Size, Strategy, and Performance 197 Assessing Strategies 198 Global Concerns 199 Summary 202