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 CONTEMPORARY
STRATEGIC MANAGEMENT
AN AUSTRALASIAN
PERSPECTIVE
2ND EDITION

Robert GRANT | Bella BUTLER | Stuart ORR | Peter A. MURRAY

CONTENTS
Preface xii
About the authors xiv
Acknowledgements xv
PART 1 INTRODUCTION 1
CHAPTER 1 STRATEGY: CONCEPTS
AND PERSPECTIVES 3
SCENE SETTER: Will Qantas become Jetstar?
Introduction 5
What is strategic management? 6
Why does an organisation need strategy? 7
Strategic management approaches 7
STRATEGY CAPSULE 1.1 Strategy as focus 9
Emergent strategy 10
Applying strategy — the formulation process 10
Modern strategic management 13
Strategic intent 15
Strategic thinking 15
Strategy and differentiation 16
Sustainable competitive advantage 16
Industry strategies 17
Organisational purpose 18
Organisational vision and mission 19
Values 19
STRATEGY CAPSULE 1.2 BHP Billiton’s charter 20
Ethical position 20
Key organisational stakeholders 21
STRATEGY CAPSULE 1.3 Christchurch City Holdings
Ltd — responding to the earthquakes 23
A framework for strategic management 24
Analysis of the environment 24
Analysis of the organisation 25
STRATEGY CAPSULE 1.4 Telstra 26
Strategic objectives 27
Crafting of strategies 27
Implementation of the change 28
Performance measures 28
Plan adjustment 28
Types of strategies 28
Strategy for different levels of the organisation 28
Strategy in the public sector 29
Modern public sector strategy approaches 30
Offensive and defensive strategies 31
vi CONTENTS
STRATEGY CAPSULE 1.5 World Vision takes on AIDS 32
Strategy implementation 33
Summary 33
Self-study questions 34
Discussion questions 34
Exercises 35
Further reading 35
Endnotes 35
4 CHAPTER 2 CORPORATE GOVERNANCE
AND SUSTAINABILITY 39
SCENE SETTER: James Hardie Industries Limited —
Boards of directors and continuous disclosure 40
Introduction 41
Corporate governance: basic concepts 41
Governance and sustainability 42
STRATEGY CAPSULE 2.1 Olympus Corporation 42
Boundaries and relationships of corporate
governance 43
Corporate governance: social responsibilities and
stakeholders 44
Corporate governance and social responsibility 45
Management of stakeholders 46
STRATEGY CAPSULE 2.2 Stakeholder analysis 48
The root problem of corporate governance: separation
of ownership and management 48
Managerial opportunism 49
Moral hazard 49
Agency costs 49
Corporate governance mechanisms 50
External governance mechanisms 51
Internal governance mechanisms 53
The governing board as the core of corporate
governance 57
Structure of a governing board 58
Board size 58
Board composition 59
Board demography 59
Roles and responsibilities of governing boards 60
Interaction between management and the governing
board 63
Agent or steward 63
CEO and chairperson of a governing board 64
Corporate governance and performance 65
STRATEGY CAPSULE 2.3 Stakeholder power
and organisational sustainability 66
Current trends in corporate governance 67 CHAPTER 4 INDUSTRY ANALYSIS 111
Public sector governance 67
SCENE SETTER: What is so attractive about
International corporate governance 68
the business environment in China? 112
STRATEGY CAPSULE 2.4 Corporate
Introduction 113
governance in Singapore and Malaysia 68
STRATEGY CAPSULE 4.1 Compass Airlines 113
STRATEGY CAPSULE 2.5 ASXCGC’s
Macro environmental influences 114
principles and recommendations 69
Pestel analysis 115
Key conclusions 71
National competitive advantage 118
Summary 71
STRATEGY CAPSULE 4.2 The national
Self-study questions 72
competitive advantages of the traditional
Discussion questions 72
Chinese medicine industry 120
Exercises 72
Micro external environment analysis 120
Further reading 72
Porter’s five forces of competition framework 121
Endnotes 73
Competition from substitutes 122
Threat of entry 122
PART 2 THE TOOLS OF STRATEGY Rivalry between established competitors 126
ANALYSIS 77 Bargaining power of customers 128
Bargaining power of suppliers 130
CHAPTER 3 GOALS, VALUES Applying Porter’s analysis 130
AND PERFORMANCE 79 STRATEGY CAPSULE 4.3 Boosting
juice sales in Malaysia 132
SCENE SETTER: Wesfarmers’ values 80
Complements — a missing force in
Introduction 81 Porter’s model? 133
Combining goals, values and ethical position 83 Describing industry structure 134
Strategic goals as a quest for value 84 Defining the boundaries of the industry 135
Profitability goals 85 Industries and markets 135
Developing organisational values 86 Competitor analysis 136
STRATEGY CAPSULE 3.1 Seek’s values 87
STRATEGY CAPSULE 4.4 Coca-Cola
Ethical positions 87 loses to Pepsi in India 139
STRATEGY CAPSULE 3.2 Olympic ethics 88 Network environment analysis 139
Corporate social responsibility 88 Scenario planning 141
Strategic philanthropy 89 STRATEGY CAPSULE 4.5 Scenario
STRATEGY CAPSULE 3.3 World Vision International 90 planning in the Queensland Department of
Business performance 91 Natural Resources and Water 142
Performance measurement 93 Identifying key success factors 143
Measuring growth and profit 93 Strategic groups 146
Non-financial business performance measures 94 The SWOT analysis 147
The balanced scorecard 96 Relationship of environmental analysis to strategic
STRATEGY CAPSULE 3.4 Foster’s Group Ltd 96 plans 148
Historical financial performance measures 99 Summary 148
Predictive financial performance measures 101 Self-study questions 149
STRATEGY CAPSULE 3.5 News Corporation 101 Discussion questions 150
Shareholder value analysis 103 Exercises 150
Economic value added 104 Further reading 150
Performance analysis in practice 104 Endnotes 151
Summary 105
Self-study questions 106 CHAPTER 5 ANALYSING RESOURCES
Discussion questions 106 AND CAPABILITIES 153
Exercises 106 SCENE SETTER: Hancock Prospecting Pty
Further reading 107 Ltd — growth driver of the mines 154
Endnotes 107 Introduction 155

CONTENTS vii
 The nature of competitive advantage 155 The emergence of competitive advantage 189
STRATEGY CAPSULE 5.1 The How competitive advantage emerges from external
Warehouse in New Zealand 156 sources of change 190
Product/service offerings 157 Competitive advantage from responsiveness to
Value chain analysis 158 change 190
Primary activities 158 Competitive advantage from innovation: ‘new game’
strategies 191
Support activities 159
Formulating innovative strategies 192
Value chain and competitive advantage 159
Sustaining competitive advantage 192
Core competencies, distinctive competencies and
competitive capabilities 160 Competitive advantage in different market settings 194
The role of resources and capabilities for creating Efficient markets: the absence of competitive
competitive advantage 161 advantage 194
Competitive advantage in trading markets 195
The resource analysis and competitive advantage: the
resource-based view 161 Competitive advantage in production markets 196
Resources and capabilities as sources of profit 164 STRATEGY CAPSULE 6.1 Lenovo’s new strategy to build
up its competitive advantage at emerging markets 198
STRATEGY CAPSULE 5.2 Developing core
resources and capabilities at Coles 165 Industry evolution and strategic advantage 199
Industry life cycle 199
STRATEGY CAPSULE 5.3 Global leadership
STRATEGY CAPSULE 6.2 International migration of
via ongoing innovation at Cochlear 166
production 200
The resources of the company 167
Competitive advantage at the introduction and growth
Tangible resources 168
stages 202
Intangible resources 168
Human resources 170 STRATEGY CAPSULE 6.3 Outsourcing innovation 204
Organisational capabilities 170 Competitive advantage in mature industries 205
Classifying capabilities 171 Strategies for declining industries 207
The dynamic capabilities view 172 Competitive advantage at various levels of a
company 210
STRATEGY CAPSULE 5.4 How dynamic capabilities
Competitive advantage at the network level 211
drive performance in the Indian IT offshoring
industry 173 STRATEGY CAPSULE 6.4 Business ecosystems
The VRIO framework — evaluating competitive resources and competitive advantage 213
and capabilities 174 Competitive advantage from a global perspective 214
Evaluating resources and capabilities 177 STRATEGY CAPSULE 6.5 Nippon Express —
Establishing competitive advantage 177 competitive advantage through adaptation 216
Sustaining competitive advantage 178 Summary 218
Appropriating the returns to competitive advantage 179 Self-study questions 218
Summary 180 Discussion questions 218
Self-study questions 181 Exercises 219
Discussion questions 181 Further reading 219
Exercises 182 Endnotes 220
Further reading 182
Endnotes 182 CHAPTER 7 BUSINESS-LEVEL
STRATEGIES 223
PART 3 THE ANALYSIS OF SCENE SETTER: Rio Tinto automated trains — cost
COMPETITIVE ADVANTAGE 185 advantage and further differentiation via innovations 224
Introduction 225
CHAPTER 6 THE NATURE AND SOURCES Business-level strategies to achieve competitive
advantage 225
OF COMPETITIVE ADVANTAGE 187 The sources of cost advantage 226
SCENE SETTER: Thailand’s Central group — competitive Economies of scale 226
advantage through growth 188 Economies of learning 227
Introduction 189 Process technology and process design 228

viii CONTENTS
 STRATEGY CAPSULE 7.1 The rise of low-cost
airlines in the Asia–Pacific region 228
Using the value chain to analyse costs 229
Risks of cost advantage 230
The nature of differentiation and differentiation
advantage 232
Differentiation variables 232
STRATEGY CAPSULE 7.2 R.M. Williams —
capturing the spirit of the outback 233
Analysing differentiation: the demand side 234
STRATEGY CAPSULE 7.3 Ford’s course to
environmentally friendly models 235
Analysing differentiation: the supply side 236
Using the value chain to analyse differentiation 237
Differentiation and segmentation 239
Focus strategy 239
STRATEGY CAPSULE 7.4 Smiggle —
focus on affordable fun 240
Integrated approach of cost advantage and
differentiation 241
STRATEGY CAPSULE 7.5 Myer’s new
strategy: competitive advantage via
broadening the customer base 242
Summary 242
Self-study questions 243
Discussion questions 243
Exercises 244
Further reading 244
Endnotes 244
PART 4 STRATEGY FORMULATION
AND EVALUATION 247
CHAPTER 8 CORPORATE-LEVEL
STRATEGY 249
SCENE SETTER: GM in China 250
Introduction 251
Corporate-level strategy 252
Setting direction 252
Types of corporate-level strategy 254
Diversification strategy 254
Related and unrelated diversification 254
Drivers for diversification 255
STRATEGY CAPSULE 8.1 Customising
diversification by regions: Asia–Pacific 257
Competitive advantage from diversification 258
Diversification and a company’s market power 262
Diversification and performance 263
Mergers and acquisitions 263
Acquisition 264
STRATEGY CAPSULE 8.2 Japanese companies
climb the acquisition ladder 264
Merger 265
STRATEGY CAPSULE 8.3 Vodafone
embattled since merger 265
Integration strategy 267
Vertical integration 267
STRATEGY CAPSULE 8.4 Synlait: a
new kind of dairy business 268
STRATEGY CAPSULE 8.5 A change of
strategy for NEC Australia 271
Horizontal integration strategy 276
Turnaround and retrenchment strategies 277
Turnaround strategy 277
Retrenchment strategy 277
Turnaround and retrenchment activities 278
STRATEGY CAPSULE 8.6 Kmart’s turnaround
and retrenchment strategy 278
Corporate parenting 279
Value-creating synergies 280
Value-destroying synergies 281
Portfolio analysis 281
Summary 285
Self-study questions 285
Discussion questions 285
Exercises 286
Further reading 286
Endnotes 287
CHAPTER 9 NETWORKS, PARTNERSHIPS
AND ALLIANCES 291
SCENE SETTER: Qantas — turnaround of
international strategy via partnerships 292
Introduction 293
Call for partnerships in the new competitive
landscape 293
STRATEGY CAPSULE 9.1 Two track records — partnering
for global competitive advantage in motorsports 294
Strategic alliances and networks as vehicles of
strategy 295
Why alliances? Advantages achieved through strategic
alliances 296
Entry into new markets 296
STRATEGY CAPSULE 9.2 Competing in China
soft drink manufacturing — reducing risks and
sharing investments in strategic alliances 297
Increased market power and economies of scale and
scope 297
The acquisition and exchange of skills 298
Strategic renewal 298
Risk and investment sharing 298
CONTENTS ix
 Reductions in liabilities of foreignness 298
The choice between alliances, international development
and acquisitions 299
The types and structure of alliances 299
STRATEGY CAPSULE 9.3 Global airlines and
the nature of competing alliances 301
Success and failure of alliances 302
Why do alliances fail? 303
What makes alliances successful? 303
Trust in alliances 304
Governance of alliances: how to make alliances
successful 305
The role of a dedicated alliance function for alliance
success 306
How to collaborate with competitors and win 307
STRATEGY CAPSULE 9.4 Alliance protocols of
Aventis and Millennium Pharmaceuticals 307
The role of a strategic centre in managing a web of
partners 308
Exit from alliances 308
Summary 309
Self-study questions 311
Discussion questions 311
Exercises 311
Further reading 311
Endnotes 311
CHAPTER 10 ORGANISATIONAL STRUCTURE
AND STRATEGIC CONTROL 315
SCENE SETTER: Innovation structures
in global organisations 316
Introduction 317
Principles of organisation design 317
The modern corporation 317
Companies and markets 318
Building blocks of structure 319
Mechanistic and organic forms 319
Specialisation, coordination and cooperation 324
Specialisation and division of labour 324
The coordination problem 325
The cooperation problem: incentives and control 325
Hierarchy in organisational design 327
Hierarchy as coordination: modularity 327
Hierarchy as a control: bureaucracy 328
Rethinking hierarchy 329
STRATEGY CAPSULE 10.1 The restructuring
of Dow Chemical company 330
Types of structure in focus 331
The simple structure 331
The functional structure 332
The multidivisional structure 334
Matrix structures 336
x CONTENTS
Applying the principles of organisational design 338
Defining organisational units 338
Organising on the basis of coordination intensity 338
Other factors influencing the definition of organisational
units 339
Contemporary organisational structures 340
STRATEGY CAPSULE 10.2 CEO span of
control versus span of activities 340
Management systems for coordination and
control 342
Performance management systems 343
Culture 344
Strategic planning systems 345
Financial planning and control systems 347
Integrating different control mechanisms 348
STRATEGY CAPSULE 10.3 Petrofac: integrating
management control systems 348
Organisational restructuring 349
STRATEGY CAPSULE 10.4 ExxonMobil
Australia’s change management 350
Summary 350
Self-study questions 351
Discussion questions 351
Exercises 351
Further reading 351
Endnotes 352
CHAPTER 11 GLOBAL STRATEGIES AND
THE MULTINATIONAL CORPORATION 355
SCENE SETTER: Hutchison Whampoa 356
Introduction 357
Global strategic management 358
STRATEGY CAPSULE 11.1 Fisher
& Paykel Appliances 359
The benefits of a global strategy 360
Analysing a global industry 363
Competition from potential entrants 363
Rivalry among existing organisations 363
Increasing the bargaining power of buyers 363
Greater power of substitutes 364
Reduced power of suppliers 364
STRATEGY CAPSULE 11.2 Australia
Post goes global 364
Impact of local conditions: comparative advantage 365
National competitive advantage 366
The elements of Porter’s model 368
Comparing comparative and competitive advantage 369
Selecting an entry mode 370
The structured entry approach 373
Dunning’s eclectic theory 375
Comparing the approaches 375
 STRATEGY CAPSULE 11.3 Jacob’s Creek, Linkages between the 7-S model and the balanced
Montana and the Pernod Ricard group 376 scorecard 411
Global strategic alliances 377 Assessment of the balanced scorecard as an evaluation
Maintaining strategic alliances 377 technique 413
International joint-venture partnerships 379 Key success factors 413
Organising global operations 379 STRATEGY CAPSULE 12.3 Ford Australia — is there
Global strategy orientation 380 a future for Australian car manufacturing? 414
Business structures for global organisations 382 Strategy evaluation in uncertain times 415
Contemporary structures of global organisations 382 Summary 416
STRATEGY CAPSULE 11.4 Going ‘glocal’ with Self-study questions 417
McDonald’s 386 Discussion questions 418
Global leadership 387 Exercises 418
Creating global strategy success 389 Further reading 418
Summary 391 Endnotes 418
Self-study questions 392
Discussion questions 392
Exercises 392 PART 5 CASES IN STRATEGIC
Further reading 394 MANAGEMENT 421
Endnotes 394
Case study matrix 422
CHAPTER 12 STRATEGY EVALUATION 397 CASE STUDY 1 Facebook: the evolving strategy 423

SCENE SETTER: Air Australia — failure in the
growing budget airlines market 398
Introduction 399
What is strategy evaluation? 399
Key result areas 402
Scenario planning in strategy evaluation 402
Evaluating value 403
Linkages between companies’ profit and value 404
STRATEGY CAPSULE 12.1 David Jones’s
Future Strategic Direction Plan 405
Applying discounted cash flow analysis to valuing
companies, businesses and strategies 406
The McKinsey 7-S model for strategy evaluation and
execution 407
The balanced scorecard 409
STRATEGY CAPSULE 12.2 Structure of a balanced
scorecard for environmental performance of
corporations in automotive industries 410
CASE STUDY 2 The grounded kangaroo? An analysis
of Qantas 427
CASE STUDY 3 Fortescue Metals Group Limited 433
CASE STUDY 4 The Australian supermarket
industry 440
CASE STUDY 5 India’s cup of tea 445
CASE STUDY 6 Michael Hill International: controlled
expansion and sustainable growth 450
CASE STUDY 7 Not just a game 462
CASE STUDY 8 AirAsia: getting everyone to fly 470
CASE STUDY 9 The North Australian Pastoral Company:
corporate strategy in a changing climate 474
CASE STUDY 10 Managing the political factor:
Huawei in Australia 484
Glossary 489
Index 493

CONTENTS xi
PREFACE

Welcome to the exciting world of strategic management. Strategic management encourages

us to consider all of the opportunities available to us and to be creative in the decisions
we make. Strategic management, through its broad and encompassing nature, is applicable
to almost any human endeavour. It can be applied to improving outcomes in our daily
lives, work or study and organisations of any size — even clubs, associations and charities.
It also applies to directing government and defence force organisations and informs our
opinions of political developments.
This text considers strategic management from a fundamental perspective — the phil-
osophy that strategy can be used to increase the success and value created by any type of
human endeavour. With this in mind, the text focuses on all types of organisations, both
commercial and public, not just on large commercial organisations (unlike many strategy
texts). In addition, this text incorporates specific focus on concepts, perspectives, termin-
ology and examples that are relevant to the Asia–Pacific region and globally.
Each chapter commences with a scene-setting case and includes strategy capsules
throughout to provide illustrative examples of specific strategies in practice. The book con-
cludes with ten detailed cases that are relevant to Asia–Pacific organisations, and excellent
for in-class discussion.
My colleagues and I have thoroughly enjoyed distilling contemporary wisdom and per-
spectives on strategic management into this comprehensive and user-friendly format. As
you work through this text, you will see that we have used myriad examples from everyday
experience to bring the chapters to life. This approach, along with a variety of study aids
at the end of each chapter, brings the practical aspects of strategic management to your
studies and management practices. You will find both the discussion questions and exer-
cises to be a useful way to test your knowledge of the material from each chapter.
Each chapter in this text is dedicated to one important aspect of contemporary stra-
tegic management. For ease of reading, the text is broken up into four parts dealing with
general issues, analysis tools, creating competitive advantage and formulating and evalu-
ating strategy. The first chapter provides an overview of the general concepts in the context
of strategic management, including the concepts of modern strategic management and
strategic thinking. The second chapter provides a critical perspective of the contemporary
strategic management landscape and deals with ethics, sustainability and corporate gover-
nance for both public and private sector organisations.
The second part of the text deals with setting strategic goals, analysing the organisation’s
external environment and analysing the internal characteristics of the organisation. The
first chapter in this part considers establishing strategic goals, organisational values and
measuring the performance of both public and private sector organisations. The next
chapter focuses on the analysis of the external environment of the organisation, including
the nature of the forces on the organisation and how they should be measured. The third
chapter considers the internal characteristics of the organisation and perspectives through
which they can be identified, quantified and compared.
The third part of the text is divided into two chapters. The first chapter deals with how
organisations create competitive advantage. The second chapter deals specifically with cre-
ating competitive advantage through business-level strategies.
The final part of this text deals with strategy formulation and evaluation. The first
chapter in this part considers corporate-level strategy, including diversification, vertical

xii PREFACE
integration and partnerships. The second chapter considers how networks of partnering
organisations provide access to opportunities and resources. The third chapter deals with
the relationship between the organisational structure, strategies and the strategic-level con-
trols that keep the organisation on track with its strategic objectives. The fourth chapter
considers the globalisation of all types of organisations and the continuing emergence
of global-level businesses. The final chapter deals with strategy evaluation and demon-
strates how the performance measures discussed in part two of the text can drive strategy
implementation.

The bottom line

Contemporary strategic management is a complex process requiring advanced skills. Inter-
national and performance perspectives, network management and resource optimisation
are some of the many required skills. Successful strategists all require a comprehensive
guide to assist them to create effective strategy. Academics require a sophisticated resource
to assist them to educate the diverse range of individuals who will become tomorrow’s
strategists. This text is specifically designed to meet these requirements. The design, con-
tent, concepts and supportive case material are designed to provide the most contem-
porary and objective information on the subject, with an emphasis on the Asia–Pacific
region. We are confident that any academic or manager will find this a valuable addition
to their bookshelf and that the insights it contains will make understanding and practising
strategic management an engaging and rewarding experience.
Stuart Orr
August 2013

PREFACE xiii
ABOUT THE AUTHORS

Bella BUTLER
Chapters 5, 7, 9 and 12 have been written by Dr Bella Butler. Bella is a Senior Lecturer
in Strategic Management at Curtin University of Technology. She has nearly 20 years of
tertiary teaching, business research and consulting experience. Bella’s expertise is built
on business strategy in dynamic markets; partnerships, alliances and networks; interfirm
cooperation in clusters; international business; and sustainability of regional economies.
Bella is a member of the Strategic Management Society and a member of the Industrial
Marketing Purchasing (IMP) Group. She has published research articles on various topics
of strategic management over the past 10 years. Bella is a reviewer of the International
Marketing Management Journal. She has international experience in business consulting
and executive education. Bella has demonstrated relationship-building skills and leader-
ship skills in a broad international community.

Stuart ORR
Chapters 1, 3, 4 and 11 have been written by Stuart Orr. Stuart is Professor of Strategic
Management at Deakin University and chairs a number of senior university committees.
He is Chief Editor of the World Management Journal, Chair of two annual international
business conferences and has directed two of Australia’s largest MBA programs, owned
and operated two commercial businesses, and was president of one of Australia’s largest
NGOs. Stuart is currently Vice President of the Board of the Decision Sciences Institute
(a global association of researchers), an honorary member of the Finance and Treasury
Association of Australia and a Fellow of both the World Business Institute and Chifley
Business School. He has published an extensive range of articles and books on strategic
management over the past 25 years and has just co-authored a text titled Doing Business in
China: Getting Ready for the Asian Century, published in 2012.

Peter A. MURRAY
Chapters 2, 6, 8 and 10 have been written by Peter A. Murray. Peter is an Associate Pro-
fessor of Management at the University of Southern Queensland and an experienced
academic and researcher with over 50 journal articles, books and book chapters, with pub-
lications in leading journals. Currently, Peter is Associate Editor for the International Journal
of Learning and Change and Australasian Editor for Management Decision. He is a regular
reviewer for Management Learning, Asia Pacific Journal of Human Resources and Human
Resource Management Journal, and sits on the editorial advisory Board for the South Asian
Journal of Global Business Research. He is also an experienced consultant to global firms in
strategic management and change. Peter has conducted consultancies and executive and
group training across Australian and South-East Asia to leading government agencies and
large corporate firms, including the Department of Public Works and Services, Hawker
de Havilland, Sunrice, Energy Australia, B. Braun, and the Australian Nuclear Science and
Technology Organisation.

xiv ABOUT THE AUTHORS

 ACKNOWLEDGEMENTS
The authors and publisher would like to thank the authors from the first edition of this
text for their valuable contribution in the past. Our thanks go to Simone Carr-Cornish
(CSIRO), Paul Evans (University of Melbourne), Nadine France (University of Auck-
land), Andrew Griffiths (University of Queensland), Martina Linnenluecke (University of
Queensland), Jane Menzies (Deakin University), Lucy Miller (Macquarie University), Tim
O’Shannassy (RMIT), Achinto Roy (Deakin University) and Daniel Vidal (University of
Auckland) whose case studies have enriched and helped shape this edition.

We would also like to extend our thanks to the authors and contributors of the supple-
mentary resources that accompany this text:
• PowerPoint presentation slides — Rajeev Sharma (Charles Darwin University)
• Instructor Resource Guides — Yuliani Suseno (Edith Cowan University)
• Testbanks — Martina Linnenluecke (University of Queensland)

We would like express our thanks to the following academics, whose invaluable feed-
back shaped the direction of our first Australasian edition: Sanjay Bhowmick (Auckland
University of Technology), Ian Boudville (Murdoch University), Henri Burgers (Queensland
University of Technology), Jan Creswell (The Australian National University), Stephen
Cummings (Victoria University of Wellington), Aharon Factor (Swinburne University of
Technology), Ali Haidar (Monash University), Kevin Kirchner (Flinders University), Paul
McDonald (Victoria University of Wellington), Bruce Millett (University of Southern
Queensland), Ann Mitsis (Swinburne University of Technology), Murray Oliver (University
of South Australia), Murray Prideaux (James Cook University), Robin E. Roberts (Griffith
University), Damian Ruth (Massey University), Bishnu Sharma (University of the Sunshine
Coast) and Majharul Talukder (University of Canberra). Thank you also to Humphry Hung
for his contribution to the first edition.

Our appreciation goes to the John Wiley & Sons team for their contribution to this book:
Terry Burkitt (Publishing Editor), Dan Logovik (Content Editor), Shukla Chakraborty
(Managing Editor), Tara Seeto (Publishing Assistant), Belinda Rose (Copyright and Image
Researcher), Delia Sala (Graphic Designer) and Jo Hawthorne (External Composition
Coordinator).

The authors and publisher would also like to thank the following copyright holders,
organisations and individuals for their assistance and for permission to reproduce copy-
right material in this book.

Images
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ACKNOWLEDGEMENTS xv
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Management: 202/ Adapted from p. 111 of ‘Controlling competitive dynamics by taking
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111–118 © Academy of Management • Smiggle: 240/ © Smiggle • Newspix: 242/ © Newspix
/ Tracee Lea • Harvard Bus. School Publishing: 323/ Adapted Table 2-2 from ‘Cultivating
communities of practice’ by Etienne Wenger et al., Harvard Business Review Press, 2002,
p. 42; 409/ Fig 1-3 from ‘Strategy maps: Converting intangible assets into tangible out-
comes’ by R.S. Kaplan and D.P. Norton, Harvard Business Review Publishing, 2004, p. 11
• Boral Limited: 335/ Reproduced with kind permission of Boral Ltd • Copyright Clear-
ance Center: 403/ Figure 1 from Goodwin, P. & Wright, G., 2001, ‘Enhancing strategy eval-
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• BHP Billiton: 20/ BHP Billiton. Reproduced with the permission of BHP Billiton
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xvi ACKNOWLEDGEMENTS
strategic tools: A cross-industry study of partnership planning, formation and success’ by
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ACKNOWLEDGEMENTS xvii
PART 1
INTRODUCTION

CHAPTER 1
Strategy: concepts and perspectives 3
CHAPTER 2
Corporate governance and sustainability 39
CHAPTER 1
STRATEGY: CONCEPTS
AND PERSPECTIVES
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
• define what is meant by strategy and strategic management
• explain the difference between emergent and intended strategy
• define the four main types of strategy formulation process
• explain how strategic thinking is used to achieve differentiation
and create strategies that will lead to a sustainable competitive
advantage
• incorporate the vision, values, ethics and stakeholder
needs of an organisation into its organisational purpose
• define the role of internal and external environmental
analyses in strategic management
• define the role of strategic objectives and
performance measures
• explain the two mechanisms by which
sustainability is incorporated into strategic
objectives
• distinguish between corporate-, business-
and functional-level strategies
• comment on how strategy can be
applied in the public sector
• explain the differences between
offensive and defensive
strategies
• explain the major features of
strategy implementation.
 SCENE SETTER

WILL QANTAS BECOME JETSTAR?

When Qantas was privatised
by the Australian government
in the early 1990s, airline travel
was much more of a luxury than
it is today.1 Despite the fact that
the bulk of air travel was inter-
national, competition was much
less global (due to constraints
placed on airlines from other
countries by Australia’s inter-
national airports) and significant
pricing differentials could be
sustained on the basis of con-
venience and service. As deregu-
lation moved through the global
airline industry in the 1990s, the
opportunities for low-cost airlines
increased, which significantly
stimulated the low-cost end of
the market. This caused the tra­
ditional, high-cost airlines to offer cut-price air fares and of providing best value rather than being a cost leader, since
create their own low-cost subsidiaries. These factors com- other airlines, such as AirAsia, are cheaper. By comparison,
bined to reduce the barriers placed on low-cost overseas Jetstar offers a more comprehensive service with greater
airlines by the Australian airports and they entered the frequencies of flights and more destinations at a low price.
market in large numbers. However, Jetstar’s range of services appeal to different
Prior to this, low-cost airlines had to operate from markets than the cheapest airlines (e.g. low-cost business
secondary (and cheaper) airports or utilise less convenient travel) and so it can be considered to be the cost leader in
facilities at major airports. While the use of lower-cost air- these markets.4
ports is still a common feature of low-cost airlines, the greater Jetstar has been very successful5 and, as a result, has
ease of access to premier airport locations has allowed low- contributed to the problem that the low-cost airlines of the
cost airlines to grow rapidly. Low-cost airlines can now offer world have created for the traditional airlines: monopolis­
a comparable level of convenience and service. This has been ation of market growth, leaving the traditional, higher-cost
translated to the stagnation of the high-cost, high-quality airlines with a static or even slightly declining market share.6
market, while the low-cost market has grown dramatically, The path that the traditional high-service, high-cost airline
despite the impact of the global financial crisis.2 industry has followed is fairly typical of industry development
Qantas possessed a significant share of the Australian — starting with an emergent industry (1930s), becoming a
domestic and international travel market as a high-quality, growing industry (1950s to 1980s), maturing (1990s) and
high-fee airline up to this point. In response to the entrance declining (2000 onwards). Qantas has been very lucky that
of low-cost airlines, Qantas followed the route of many other it has been able to enter a new industry (the low-cost air-
major airlines and established a low-cost subsidiary — Jet- line industry) by drawing upon many of its existing skills and
star.3 This allowed the formation of the Qantas Group which utilising some of its existing resources (Qantas transferred
operates with two business level strategies: a high service, some of its underutilised aircraft over to Jetstar). This still
high-cost business unit (Qantas) and a low-cost, no-frills leaves Qantas with the question of what to do with its tra-
business unit (Jetstar) (plus a range of specialist service ditional operations. While some profit is still being generated
units). It could be argued that Jetstar actually has a strategy by this part of the business, its future looks fairly bleak.

4 PART 1 INTRODUCTION
INTRODUCTION
The Qantas scene setter demonstrates how creative strategic management can be and how
it can take a leading role in setting the direction of an organisation’s development and
securing its future. It is arguably the only business management activity that can stake this
claim. The global financial crisis (GFC) illustrated that business survival under difficult
economic conditions is dependent on the quality of an organisation’s strategic manage-
ment. Organisations that depended heavily on the prosperous business conditions that
led up to the GFC faltered and collapsed as a result of the challenges that the GFC intro-
duced. Businesses that took advantage of the opportunities available during those pros-
perous conditions to strengthen their competitiveness and build resources were able to
weather the GFC much better. In fact, some companies were actually able to grow during
the GFC by acquiring the market share of competitors that had collapsed, while others
(such as the four major Australian banks) acquired struggling competitors for attractive
prices.
Despite the clear benefits of strategic management, many organisations review their strat-
egies thoroughly only during times of crisis or when a new chief executive officer (CEO) is
employed.7 One of the more popular business newspaper interview topics for incoming
CEOs tends to be the challenges that they will face when attempting to improve the
performance of a struggling organisation under difficult industry or economic conditions.
Incoming CEOs frequently find that the organisation’s strategies are already out of date
when they take up their new roles, which tends to make their primary responsibility to
introduce new strategies that are more appropriate with regard to the organisation’s capa-
bilities and its external environment.
Telstra, a large Australian telecommunications company, provides a good example
of this phenomena. (Telstra’s strategies are discussed in Strategy capsule 1.4.) The pre-
vious CEO, Sol Trujillo, was frequently interviewed by the business media regarding
his new strategies for supporting Telstra’s transformation from a government-owned
utility (Telecom Australia) to a publicly listed telecommunications carrier with an
annual turnover of A$25 billion in 20128. The Australian government’s plans for
Telstra’s privatisation required it to improve its performance to the point where it
could fully support its costs and return a profit. Without this level of performance,
the Telstra shares that the government released would have attracted a lower price.
Trujillo was employed as CEO to make these changes. In the lead-up to the final share
release and over the period 2005–09, he introduced major changes in the company’s
telecommunications infrastructure, consolidated staffing, improved efficiency and signifi-
cantly altered the relationship of the company with the government. All these changes
were designed to improve the performance of the organisation. The result was a strong
share float price on the Australian Securities Exchange (ASX) and the biggest volume
of trade ever experienced on the Australian stock market. Trujillo was then replaced
by CEO David Thodey. The media interviews then focused on how Thodey would deal
with some of the issues arising from the strategies that Trujillo had introduced (such as
strained relationships with the Australian government) and the strategic changes that he
would make.
strategic management: the
Strategic management is clearly a central issue for all organisations. It is not
process of thinking
a simple process, however. Modern strategic management principles are the result of strategically, setting objectives
half a century of large-scale global research, debate and inquiry. They contain many for the organisation, planning
dimensions, and perspectives within each of those dimensions. This text will navi- and implementing the
gate the central themes of contemporary strategic management and present them as a necessary changes, and
pattern of thought, creativity and planning. This chapter will provide an overview of measuring the outcomes

CHAPTER 1 STRATEGY: CONCEPTS AND PERSPECTIVES 5

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