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STRATEGIC
MANAGEMENT 6e

Frank T. Rothaermel
Strategic
Management
SIXTH EDITION

Strategic
Management

Frank T. Rothaermel
Georgia Institute of Technology
STRATEGIC MANAGEMENT
Published by McGraw Hill LLC, 1325 Avenue of the Americas, New York, NY 10019. Copyright ©2024 by
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DEDICATION
To my eternal family for their love, support, and sacrifice: Kelleyn, Harris,
Winston, Roman, Adelaide, Avery, and Ivy.
—Frank T. Rothaermel
CONTENTS IN BRIEF
PART ONE / ANALYSIS 2

CHAPTER 1 What Is Strategy? 4

CHAPTER 2 Strategic Leadership: Managing the Strategy Process 32
CHAPTER 3 External Analysis: Industry Structure, Competitive Forces,
and Strategic Groups 80
CHAPTER 4 Internal Analysis: Resources, Capabilities, and Core
Competencies 128
CHAPTER 5 Shared Value and Competitive Advantage 168

PART TWO / FORMULATION 206

CHAPTER 6 Business Strategy: Differentiation, Cost Leadership, and Blue

Oceans 208
CHAPTER 7 Business Strategy: Innovation, Entrepreneurship, and Platforms 244
CHAPTER 8 Corporate Strategy: Vertical Integration and Diversification 294
CHAPTER 9 Corporate Strategy: Strategic Alliances, Mergers, and
Acquisitions 342
CHAPTER 10 Global Strategy: Competing Around the World 374

PART THREE / IMPLEMENTATION 414

CHAPTER 11 Organizational Design: Structure, Culture, and Control 416

CHAPTER 12 Corporate Governance, Business Ethics, and Business Models 460

PART FOUR / MINICASES 493

HOW TO CONDUCT A CASE ANALYSIS 494

Twelve MiniCases are included.

PART FIVE / FULL-LENGTH CASES Twelve full-length cases with auto-graded exercises are included
in Connect.
All of Frank T. Rothaermel's full-length cases are available through
McGraw Hill Create: www.mcgrawhillcreate.com/rothaermel

vi
MINICASES & FULL-LENGTH CASES
MINICASES /
The twelve MiniCases correspond to their respective chapter number. These MiniCases are also available in Connect, with
accompanying auto-graded exercises.
1 Whitney Wolfe Herd’s Dating Strategy: From Tinder to Bumble
2 Microsoft: Satya Nadella hits Refresh
3 Robinhood: Democratizing Investing or Robbing Investors?
4 Dr. Dre’s Core Competency: Coolness Factor
5 Sustaining Shared Value: The Rise and Fall of Toms Shoes
6 Warby Parker’s Blue Ocean Strategy
7 Platform Strategy: How PayPal Solved the Chicken-or-Egg Problem
8 GE: Corporate Strategy Gone Bad
9 LVMH Acquires Tiffany: The American Jeweler Learns How to Speak French
10 Hollywood Goes Global
11 Chick-fil-A’s Structure, Culture, and Control
12 Purdue Pharma and the Opioid Addiction Crisis

FULL-LENGTH CASES /
Twelve cases with auto-graded exercises are included in Connect. All of Frank T. Rothaermel’s cases are available through
McGraw Hill Create: www.mcgrawhillcreate.com/rothaermel

1 Peloton >> 7 Tesla *

2 Airbnb * 8 Uber >>
3 Rivian >> 9 Disney *
4 Starbucks * 10 Netflix *
5 Best Buy * 11 McDonald’s *
6 Apple * 12 Nike

>> NEW TO THE SIXTH EDITION * REVISED AND UPDATED FOR THE SIXTH EDITION

PRIOR EDITION CASES /

Fifteen additional cases are included in Connect, in a standalone ebook. This combination of classic and contemporary cases provides
even more options for instructors and students.

vii
CHAPTERCASES & STRATEGY HIGHLIGHTS
CHAPTERCASES / STRATEGY HIGHLIGHTS /
1 Tesla: The Trillion-Dollar Tech Titan 5 1.1 Twitter Needs a Strategy 10
2 Facebook Becomes Meta 33 1.2 Merck’s Stakeholder Strategy 21
3 Airbnb’s Pandemic Pivot 81 2.1 Teach for America: Inspiring Future Leaders 46
4 Five Guys’ Core Competency: “Make the Best 2.2 Starbucks CEO: “It’s Not What We Do” 60
Burger. Don’t Worry about Cost.” 129 3.1 Blockbuster’s Bust 88
5 Patagonia: A Pioneer in Creating Shared 3.2 From League of Legends to Fortnite: The Rise of
Value 169 Esports 114
6 JetBlue Airways: En Route to a New Blue 4.1 Yeti’s Core Competency: Making Quality
Ocean? 209 Cool 134
7 Netflix: No Longer a Disruptor? 245 4.2 Applying VRIO: The Rise and Fall of
8 Amazon’s Corporate Strategy 295 Groupon 145
9 Little Lyft Gets Big Alliance Partners and Beats 5.1 BlackRock’s $10 Trillion of Shared Value 178
Uber in Going Public 343 5.2 PepsiCo’s Indra Nooyi: Performance with
10 IKEA: The World’s Most Profitable Retailer 375 Purpose 195
11 “A” Is for Alphabet and “G” Is for Google 417 6.1 Dr. Shetty: “The Henry Ford of Heart
12 Theranos: Bad Blood 461 Surgery” 226
6.2 How JCPenney Sailed into a Red Ocean 235
7.1 Standards Battle: Which Automotive Technology
Will Win? 261
7.2 How to Compete with Amazon.com? Easy: Use
Shopify 279
8.1 The Equity Alliance between Coca-Cola and
Monster: A Troubled Engagement? 308
8.2 P&G’s Diversification Strategy: Turning the
Tide? 326
9.1 How Tesla Used Alliances Strategically 350
9.2 Kraft Heinz: From Specializing in Hostile
Takeovers to Eating Humble Pie 362
10.1 Walmart Retreats from Germany, and German
Ultra-Low-Cost Grocers Invade the United
States 388
10.2 Squid Game: Netflix’s Transnational
Strategy 400
11.1 Zappos: Of Holacracy and (Not Much)
Happiness 435
11.2 Sony vs. Apple: Whatever Happened
to Sony? 442
12.1 VW’s Dieselgate: School of Hard NOx 473
12.2 Business Model Innovation: How Dollar Shave
Club Disrupted Gillette 482

viii
CONTENTS
PART ONE / ANALYSIS 2
2.4 Strategic Decision Making 63
Strategic Inflection Points 63
Two Distinct Modes of Decision Making 65
CHAPTER 1 Cognitive Biases and ­D ecision Making 66
WHAT IS STRATEGY? 4 How to Improve Strategic Decision Making 70
2.5 Implications for Strategic Leaders 71
/
CHAPTERCASE 1 Part I CHAPTERCASE 2 / Part II 72
Tesla: The Trillion-Dollar Tech Titan 5
CHAPTER 3
1.1 What Strategy Is: Gaining and Sustaining
EXTERNAL ANALYSIS: INDUSTRY STRUCTURE,
Competitive Advantage 7
Crafting and Implementing Strategy at Tesla 7
COMPETITIVE FORCES, AND STRATEGIC
What is Competitive Advantage? 12 GROUPS 80
1.2 Stakeholder Strategy and Competitive
­Advantage 15 /
CHAPTERCASE 3 Part I
Value Creation 15 Airbnb’s Pandemic Pivot 81
Stakeholder Impact Analysis 17
1.3 The Analysis, Formulation, Implementation (AFI) 3.1 The PESTEL Framework 83
Political Factors 83
Strategy Framework 22
Economic Factors 84
Key Topics and Questions of the AFI
Sociocultural Factors 86
Strategy Framework 23
Technological Factors 87
1.4 Implications for Strategic Leaders 24 Ecological Factors 89
CHAPTERCASE 1 / Part II 25 Legal Factors 89
3.2 Industry Structure and Firm Strategy: The Five
CHAPTER 2 Forces Model 90
Industry vs. Firm Effects In Determining Firm
STRATEGIC LEADERSHIP: MANAGING THE STRATEGY
Performance 90
PROCESS 32
Competition in the Five Forces Model 91
The Threat of Entry 92
CHAPTERCASE 2 Part I/ The Power of Suppliers 97
Facebook Becomes Meta 33 The Power of Buyers 98
The Threat of Substitutes 99
2.1 Strategic Leadership 34 Rivalry Among Existing Competitors 100
What Do Strategic Leaders Do? 35 Applying the Five Forces Model to
Strategic Leadership at Meta’s Facebook 37 the U.S. Airline Industry 107
How Do You Become a Strategic Leader? 38 A Sixth Force: The Strategic Role of Complements 109
The Strategy Process Across Levels: Corporate, Business, 3.3 Changes over Time: Entry Choices and ­I ndustry
and Functional Leaders 41 Dynamics 110
2.2 Vision, Mission, and Values 43 Entry Choices 110
A Purpose-Driven Vision 44 Industry Dynamics 112
Mission 51 3.4 Performance Differences within the
Values 51 Same Industry: Strategic Groups 116
2.3 The Strategic Management Process 52 The Strategic Group Model 117
Top-Down Strategic Planning 53 Mobility Barriers 118
Scenario Planning 54 Strategic Group Dynamics 119
Strategy as Planned Emergence: Top Down and 3.5 Implications for Strategic Leaders 120
Bottom Up 57
CHAPTERCASE 3 / Part II 121

ix
x CONTENTS

CHAPTER 4 PART TWO / FORMULATION 206

INTERNAL ANALYSIS: RESOURCES, CAPABILITIES,
AND CORE COMPETENCIES 128
CHAPTER 6
CHAPTERCASE 4 Part I / BUSINESS STRATEGY: DIFFERENTIATION, COST
LEADERSHIP, AND BLUE OCEANS 208
Five Guys’ Core Competency: “Make the Best Burger.
Don’t Worry about Cost.” 129
CHAPTERCASE 6 Part I/
4.1 From External to Internal Analysis 131 JetBlue Airways: En Route to a New Blue Ocean? 209
4.2 Core Competencies 132
Leveraging Core Competencies Requires Focus on What to 6.1 Business-Level Strategy: How to Compete for
Do and What Not to Do 132 Advantage 211
Resources and Capabilities 137 Strategic Position 212
4.3 The Resource-Based View 138 Generic Business Strategies 212
Resource Heterogeneity and Resource Immobility 140 6.2 Differentiation Strategy: Understanding Value
The VRIO Framework 141 Drivers 214
Isolating Mechanisms: How to Sustain a Competitive Product Features 217
Advantage 146 Customer Service 217
4.4 The Dynamic Capabilities Perspective 151 Complements 217
Core Rigidities 151 6.3 Cost-Leadership Strategy: Understanding Cost
Dynamic Capabilities 152 Drivers 218
Resource Stocks and Resource Flows 152 Cost of Input Factors 220
4.5 The Firm Value Chain and ­Strategic ­Activity Economies of Scale 220
Systems 154 Learning Curve 223
Firm Value Chain 154 Experience Curve 227
Strategic Activity Systems 157 6.4 Business-Level Strategy and the
4.6 Implications for Strategic Leaders 160 Five Forces: Benefits and Risks 228
Using Swot Analysis to Generate Insights From ­External Differentiation Strategy: Benefits and Risks 228
and Internal Analysis 160 Cost-Leadership Strategy: Benefits and Risks 230
CHAPTERCASE 4 / Part II 162 6.5 Blue Ocean Strategy: Combining Differentiation
and Cost Leadership 231
CHAPTER 5 Value Innovation 232
Blue Ocean Strategy Gone Bad: “Stuck in the Middle” 234
SHARED VALUE AND COMPETITIVE ADVANTAGE 168
6.6 Implications for Strategic Leaders 238
CHAPTERCASE 5 Part I / CHAPTERCASE 6 / Part II 239
Patagonia: A Pioneer in Creating Shared Value 169
CHAPTER 7
5.1 From Corporate Social Responsibility to Creating
Shared Value 171 BUSINESS STRATEGY: INNOVATION,
Shareholder Capitalism 172 ENTREPRENEURSHIP, AND PLATFORMS 244
Shareholder Capitalism in Crisis? 174
Stakeholder Capitalism and Shared Value 175 /
CHAPTERCASE 7 Part I
5.2 Competitive Advantage 181 Netflix: No Longer a Disruptor? 245
Accounting Metrics 181
Shareholder Value Creation 183 7.1 Competition Driven by Innovation 246
Economic Value Creation 186 Netflix’s Continued Innovation 247
The Balanced Scorecard 192 The Speed of Innovation 247
The Triple Bottom Line 195 The Innovation Process 249
5.3 Implications for Strategic Leaders 197 The Four Industrial Revolutions 251

CHAPTERCASE 5 / Part II 199


7.2 Strategic and Social Entrepreneurship 254
7.3 Innovation and the Industry Life Cycle 257
Introduction Stage 259
Growth Stage 260
Shakeout Stage 264
Maturity Stage 265
Decline Stage 265
Crossing the Chasm 266
7.4 Types of Innovation 274
Incremental vs. Radical Innovation 274
Architectural vs. Disruptive Innovation 276
7.5 Platform Strategy 281
The Platform vs. Pipeline Business Models 281
The Platform Ecosystem 283
7.6 Implications for Strategic Leaders 286
CHAPTERCASE 7 / Part II 287
CHAPTER 8
CORPORATE STRATEGY: VERTICAL INTEGRATION
AND DIVERSIFICATION 294
CHAPTERCASE 8 Part I/
Amazon’s Corporate Strategy 295
8.1 What Is Corporate Strategy? 298
Why Firms Need to Grow 299
Three Dimensions of Corporate Strategy 300
8.2 The Boundaries of the Firm 302
Firms vs. Markets: Make or Buy? 303
The Make-or-Buy Continuum 306
8.3 Vertical Integration along the Industry Value
Chain 310
Types of Vertical Integration 312
Benefits and Risks of Vertical Integration 315
When Does Vertical Integration Make Sense? 317
Alternatives to Vertical Integration 318
8.4 Corporate Diversification:
Expanding Beyond a Single Market 319
Types of Corporate Diversification 321
Core Competencies and Corporate
Diversification 323
Corporate Diversification and Firm Performance 328
8.5 Implications for Strategic Leaders 333
CHAPTERCASE 8 / Part II 333
CONTENTS xi
CHAPTER 9
CORPORATE STRATEGY: STRATEGIC ALLIANCES,
MERGERS, AND ACQUISITIONS 342
/
CHAPTERCASE 9 Part I
Little Lyft Gets Big Alliance Partners and Beats Uber in
Going Public 343
9.1 How Firms Achieve Growth 345
The Build-Borrow-Buy Framework 345
9.2 Strategic Alliances 348
Why Do Firms Enter Strategic Alliances? 349
Governing Strategic Alliances 353
Alliance Management Capability 356
9.3 Mergers and Acquisitions 358
Why Do Firms Merge with Competitors? 359
Why Do Firms Acquire Other Firms? 361
M&A and Competitive Advantage 364
9.4 Implications for Strategic Leaders 366
CHAPTERCASE 9 / Part II 367
CHAPTER 10
GLOBAL STRATEGY: COMPETING AROUND
THE WORLD 374
CHAPTERCASE 10 Part I /
IKEA: The World’s Most Profitable Retailer 375
10.1 What Is Globalization? 377
Stages of Globalization 379
State of Globalization 381
10.2 Competing Globally: Why? 384
Advantages of Competing Globally 385
Disadvantages of Competing Globally 387
10.3 Competing Globally: Where and How? 391
Where in the World to Compete? The CAGE Distance
Framework 391
How Do MNEs Enter Foreign Markets? 395
10.4 Cost Reductions vs. Local ­Responsiveness 396
International Strategy 397
Multidomestic Strategy 398
Global-Standardization Strategy 398
Transnational Strategy 399
10.5 National Competitive Advantage: World
Leadership in Specific Industries 404
Porter’s Diamond Framework 404
10.6 Implications for Strategic Leaders 406
CHAPTERCASE 10 / Part II 407
xii CONTENTS

12.2 Strategy and Business Ethics 471

PART THREE / IMPLEMENTATION 414 Bad Apples vs. Bad Barrels 474
12.3 Business Models: Strategy in Action 476
CHAPTER 11 The Business Model Framework 476
ORGANIZATIONAL DESIGN: STRUCTURE, CULTURE, Popular Business Models 478
AND CONTROL 416 Dynamic Nature of Business Models 480
Business Model Innovation 481
CHAPTERCASE 11 Part I/ 12.4 Implications for Strategic Leaders 486
“A” Is for Alphabet and “G” Is for Google 417 CHAPTERCASE 12 / Part II 487
11.1 Organizational Design and Competitive
Advantage 420
Organizational Inertia: The Failure PART FOUR / MINICASES 493
of Established Firms 421
Organizational Structure 424 HOW TO CONDUCT A CASE ANALYSIS 494
Mechanistic vs. Organic Organizations 426
11.2 Strategy and Structure 428
Simple Structure 428
Functional Structure 429
Multidivisional Structure 432 PART FIVE / FULL-LENGTH CASES
Matrix Structure 436 Twelve cases with auto-graded exercises are included
11.3 Organizing for Innovation 440 in Connect. All of Frank T. Rothaermel’s cases
11.4 Organizational Culture: Values, Norms, and are available through McGraw Hill Create:
Artifacts 444 www.mcgrawhillcreate.com/rothaermel
Where Do Organizational Cultures Come From? 447 Company Index CI-1
How Does Organizational Culture Change? 448
Organizational Culture and Competitive Advantage 449 Name Index NI-1
11.5 Strategic Control-and-Reward Systems 450 Subject Index SI-1
Input Controls 451
Output Controls 451
11.6 Implications for Strategic Leaders 452
CHAPTERCASE 11 / Part II 453

CHAPTER 12
CORPORATE GOVERNANCE, BUSINESS ETHICS, AND
BUSINESS MODELS 460

CHAPTERCASE 12 Part I/
Theranos: Bad Blood 461

12.1 Corporate Governance 463

Agency Theory 465
The Board of Directors 466
Other Governance Mechanisms 468
ABOUT THE AUTHOR
Frank T. Rothaermel
Georgia Institute of Technology

Frank T. Rothaermel, Ph.D., is a Professor of Strategy and Innovation,

holds the Russell and Nancy McDonough Chair in the Scheller College
of Business at the Georgia Institute of Technology (GT), and is an Alfred
P. Sloan Industry Studies Fellow. He received a National Science Founda-
tion (NSF) CAREER award, which “offers the National Science Founda-
tion’s most prestigious awards in support of those teacher-scholars who
most effectively integrate research and education.”1 Bloomberg Business-
week named Frank one of Georgia Tech’s Prominent Faculty, while Poets
& Quants selected Frank as one of the “Favorite Business School Profes-
sors Teaching MBAs.” He received the Theory-to-Practice Award from
the Vienna Strategy Forum at the Vienna University of Economics and
Business.
Frank is the author of a leading textbook—Strategic Management
(6th edition, 2023), with translations into Greek, Korean, Mandarin, and
Spanish. When launched, Frank’s textbook won the McGraw Hill 1st
­Edition Award of the Year in Business and Economics. The 4th edition
won the McGraw Hill Product of the Year Award in Business and
­Economics. Frank also authored over 50 case studies distributed by
McGraw Hill Create (www.mcgrawhillcreate.com/rothaermel) and
­Harvard Business Publishing (HBP), with 23 achieving “bestseller” status
Courtesy of Kelleyn Rothaermel
among the cases distributed by HBP.
Frank’s research interests lie in strategy, innovation, and entrepreneurship; he has published over 35 articles in
leading academic journals such as the Strategic Management Journal, Organization Science, Academy of Management
Journal, Academy of Management Review, and elsewhere. Using published papers in the top 1% based on citations,
Thomson Reuters identified Frank as one of the “world’s most influential scientific minds” and listed him among
the top 100 scholars based on impact over more than a decade in economics and business. He is among the world’s
top 2% most-cited researchers, according to research conducted by the Meta-Research Innovation Center at Stanford
University.
Frank has a wide range of executive education experience, including teaching in programs at GE Management
Development Institute (Crotonville, New York), Georgia Institute of Technology, Georgetown University, ICN
­Business School (France), Politecnico di Milano (Italy), St. Gallen University (Switzerland), and the University of
Washington. He received numerous teaching awards for excellence in the classroom, including the GT-wide Georgia
Power Professor of Excellence award. To inform his research, Frank has conducted extensive fieldwork and executive
training with a wide range of companies such as Amgen, Daimler, Eli Lilly, Equifax, GE Energy, GE Healthcare,
Hyundai Heavy Industries (South Korea), Kimberly-Clark, Microsoft, McKesson, NCR, Turner (TBS), and UPS,
among others.
Frank held visiting professorships at EBS University of Business and Law (Germany), Singapore Management
University (Tommie Goh Professorship), and the University of St. Gallen (Switzerland). He is a member of the
American Economic Association, the Academy of Management, and the Strategic Management Society.
Frank holds a Ph.D. in strategic management from the University of Washington, an MBA from the Marriott
School of Management at Brigham Young University, and is Diplom-Volkswirt (M.Sc. equivalent) in economics
from the University of Duisburg-Essen, Germany.

1. NSF CAREER Award description.

xiii
PREFACE
I’m pleased to introduce the new 6th edition of Strategic Management. Since January 2020,
when the 5th edition published, the world has changed dramatically:
■ The Covid-19 pandemic led to millions of deaths across the world. Governments shut
down entire economies for periods of time. Working from home became the new nor-
mal. Governments spent trillions of dollars in fiscal stimuli and relief while central
banks added substantial monetary expansions. Combined with disrupted supply chains,
double-digit inflation not seen in decades ensued.
■ The George Floyd killing (in 2020) sparked mass protests, leading to societies world-
wide confronting a history of racial injustices.
■ Russia invaded Ukraine, resulting in a significant supply-side shock to post-Covid econ-
omies still recovering, contributing to inflation, food shortages, and surges in oil, gas,
and other commodity prices.
■ Disenchantment with the economic system led to a shift from shareholder capitalism to
stakeholder capitalism, with an emphasis on creating shared value.
Not only are we all affected by these significant events, but they also profoundly impact
how strategic leaders run companies. As such, these dramatic events have a direct bearing
on Strategic Management. I discuss these black swan events in detail and derive implications
for strategy and competitive advantage. For instance, Chapter 5 has an entirely new focus by
framing the discussion of competitive advantage in light of the shift toward creating shared
value for all stakeholders.

What’s New in the Sixth Edition?

I have revised and updated the new edition in the following ways, many of which were
inspired by current events, recent developments in strategic management, and conversations
and feedback from the many users, reviewers, and students of the prior editions.

OVERVIEW OF MAJOR CHANGES IN THE SIXTH EDITION

■ The implications of the Covid-19 pandemic, the racial-justice movement, and the disen-
chantment with the capitalist system permeate the new 6th edition and capture the
momentum toward stakeholder strategy to create shared value.
New Chapter:
■ Chapter 5 has an entirely new focus by framing the discussion of competitive advantage
in light of the shift toward creating shared value for all stakeholders, reflected in the
new chapter title, “Shared Value and Competitive Advantage”
New ChapterCases:
■ “Facebook becomes Meta” (Chapter 2)
■ “Patagonia: A Pioneer in Creating Shared Value” (Chapter 5)
New Sections:
■ “The Red Queen Effect in Business Competition” in Chapter 1, “What Is Strategy?”
■ “Strategic Leadership at Meta’s Facebook” in Chapter 2, “Strategic Leadership”
■ “A Purpose-Driven Mission and Strategic Intent” in Chapter 2, “Strategic Leadership”

xiv
 PREFACE xv

■ “Strategic Leadership and the Future of Work” in Chapter 2, “Strategic Leadership”

■ “Strategic Inflection Points” in Chapter 2, “Strategic Leadership”
■ “Strategic Group Dynamics” in Chapter 3, “External Analysis: Industry Structure,
Competitive Forces, and Strategic Groups”
■ “The Four Industrial Revolutions” in Chapter 7, “Business Strategy: Innovation, Entre-
preneurship, and Platforms”
■ “Not All Industry Value Chain Stages Are Equally Profitable” in Chapter 8, “Corporate
Strategy: Vertical Integration and Diversification”
■ “Systemic Rivalry and Techno Cold War” in Chapter 10, “Global Strategy: Competing
Around the World”
■ “The Ambidextrous Organization: Balancing Trade-Offs” in Chapter 11, “Organiza-
tional Design: Structure, Culture, and Control”
New Exhibits:
■ “The Interplay between Purpose-Driven Vision, Strategic Intent, and Core Competen-
cies” in Chapter 2, “Strategic Leadership”
■ “Strategic Inflection Point” in Chapter 2, “Strategic Leadership”
■ “Strategic Groups and Mobility Barriers in U.S. Domestic Airline Industry, Including
the Emergence of the Ultra-Low-Cost Strategic Subgroup” in Chapter 3, “External
Analysis: Industry Structure, Competitive Forces, and Strategic Groups”
■ “Four Industrial Revolutions from the 1780s to 2020s” in Chapter 7, “Business Strategy:
Innovation, Entrepreneurship, and Platforms”
■ “The Three Dimensions of Corporate-Level Strategy: Vertical Integration, Horizontal
Diversification, and Geographic Scope” in Chapter 8, “Corporate Strategy: Vertical
Integration and Diversification”
■ “The Smiley Curve: Differential Profit Potential along the Industry Value Chain” in
Chapter 8, “Corporate Strategy: Vertical Integration and Diversification”
■ “The Short Head and the Long Tail” in Chapter 12, “Corporate Governance, Business
Ethics, and Business Models”
Improvements to Content Flow:
■ “Business Models: Strategy in Action” is now in Chapter 12, “Corporate Governance,
Business Ethics, and Business Models,” to reflect the role of business models in strat-
egy implementation
■ All new or updated and revised Strategy Highlights (two per chapter).
Cases:
■ Nine (!) new out of 12 MiniCases, featuring successes and failures. Companies featured
in the new MiniCases: Chick-fil-A, Dr. Dre (Beats Electronics), Microsoft, Purdue
Pharma, Robinhood, Tiffany and LVMH, Tinder and Bumble, Toms Shoes, and Warby
Parker.
■ All other MiniCases are revised and updated.
■ One MiniCase per chapter, tightly integrated with learning objectives.
■ Detailed and high-quality teaching notes are available in the Connect Library.
■ Three new full-length Cases: Rivian, Peloton, and Uber
■ All other cases, including the most popular ones, such as Apple, Best Buy, Disney,
McDonald’s, Starbucks, and Tesla, are revised and updated.
■ Detailed and updated case teaching notes are available in the Connect Library.
xvi PREFACE

IN DETAIL
CHAPTER 1
■ A stronger emphasis on “Stakeholder Strategy and Competitive Advantage”
■ New Section: “The Red Queen Effect in Business Competition”
■ Revised and updated:
■ ChapterCase: “Tesla: The Trillion-Dollar Tech Titan”
■ Section: “Crafting and Implementing Strategy at Tesla”
■ Strategy Highlight: “Twitter Needs a Strategy?”

CHAPTER 2
■ New ChapterCase: “Facebook Becomes Meta”
■
New Sections:
■ “Strategic Leadership at Meta’s Facebook”
■ “A Purpose-Driven Mission and Strategic Intent”
■ “Strategic Leadership and the Future of Work”
■ “Strategic Inflection Points”
■ Revised and updated Strategy Highlight: “Teach for America: Inspiring Future Leaders”

CHAPTER 3
■ Revised and updated:
■ ChapterCase: “Airbnb: Disrupting the Hotel Industry”
■ Strategy Highlight: “From League of Legends to Fortnite: The Rise of ESports”
■ New Section:
■ “Strategic Group Dynamics”

CHAPTER 4
■ Revised and updated ChapterCase: “Five Guys’ Core Competency: ‘Make the Best
Burger, Don’t Worry about Cost.’”
■ New Strategy Highlight: “Yeti’s Core Competency: Making Quality Cool”

CHAPTER 5
■ New ChapterCase: “Patagonia: A Pioneer in Creating Shared Value”
■ New A-head Section: “From Corporate Social Responsibility to Creating Shared Value”
■ New Sections:
■ “Shareholder Capitalism”
■ “Shareholder Capitalism in Crisis?”
■ “Creating Shared Value”
■ New Strategy Highlight: “BlackRock’s $10 Trillion of Shared Value”

CHAPTER 6
■ Revised and updated ChapterCase: “JetBlue Airways: En Route to a New Blue Ocean?”
■ New Strategy Highlight: “How JC Penney Sailed into a Red Ocean”
 PREFACE xvii

CHAPTER 7
■ Revised and updated ChapterCase: “Netflix: No Longer a Disruptor?”
■ New Section: “The Four Industrial Revolutions”
■ New Strategy Highlight: “How to Compete with Amazon.com? Easy: Use Shopify”
■ Revised and updated Strategy Highlight: “Standards Battle: Which Automotive Technol-
ogy Will Win?”

CHAPTER 8
■ Revised and updated ChapterCase: “Amazon’s Corporate Strategy”
■ New Section: “Not All Industry Value Chain Stages Are Equally Profitable”
■ Revised and updated Strategy Highlights:
■ “The Equity Alliance between Coca-Cola and Monster: A Troubled Engagement?”
■ “P&G Diversification Strategy: Turning the Tide?”

CHAPTER 9
■ Revised and updated ChapterCase: “Little Lyft Gets Big Alliance Partners and Beats
Uber in Going Public”
■ Revised and updated Strategy Highlight: “Kraft Heinz: From Specializing in Hostile
Takeovers to Eating Humble Pie”

CHAPTER 10
■ Revised and updated ChapterCase: “IKEA: The World’s Most Profitable Retailer”
■ New Section: “Systemic Rivalry and Techno Cold War”
■ New Strategy Highlight: “Squid Game: Netflix’s Transnational Strategy”
■ Revised and updated Strategy Highlight: “Walmart Retreats from Germany, and
­German Ultra-Low-Cost Grocers Invade the United States”
■ Revised and updated section “Cost Reductions vs. Local Responsiveness,” where the
“Integration-Responsiveness Framework” is now the “Cost-Responsiveness Framework”

CHAPTER 11
■ Revised and updated ChapterCase: “‘A’ is for Alphabet and ‘G’ is for Google”
■ New Section: “The Ambidextrous Organization: Balancing Trade-Offs”
■ Revised and updated Strategy Highlights:
■ “Zappos: Of Holacracy and (Not Much) Happiness”
■ “Sony vs. Apple: Whatever Happened to Sony?”

CHAPTER 12
■ Revised and updated ChapterCase: “Theranos: Bad Blood”
■ New A-head Section: “Business Models: Strategy in Action”
■ New Section: “The Long Tail and Business Model Innovation”
■ New Strategy Highlight: “Business Model Innovation: How Dollar Shave Club
­Disrupted Gillette”
xviii PREFACE

PEDAGOGY
The market for strategy texts can be broadly separated into two overarching categories: tra-
ditional application-based and research-based. Traditional application-based strategy books
represent the first-generation texts, with first editions published in the 1980s. The research-
based strategy books represent the second-generation texts with first editions published in
the 1990s. I wrote this text to address a needed new category—the third generation of strat-
egy content that combines into one the student-accessible, application-oriented frameworks
of the first-generation texts with the research-based frameworks of the second-generation
texts. The market response to this unique approach to teaching and studying strategy contin-
ues to be overwhelmingly enthusiastic.
To facilitate an enjoyable and refreshing reading experience that enhances student learn-
ing and retention, I synthesize and integrate strategy frameworks, empirical research, and
practical applications with current real-world examples. I also move iteratively between strat-
egy concepts and real-world examples. This unique approach offers students a learning expe-
rience that combines rigor and relevance. As John Media of the University of Washington’s
School of Medicine and lifelong researcher on how the mind organizes information explains:
How does one communicate meaning in such a fashion that learning is improved? A simple
trick involves the liberal use of relevant real-world examples, thus peppering main learning
points with meaningful experiences. . . . Numerous studies show this works. . . . The greater the
number of examples . . . the more likely the students were to remember the information. It’s
best to use real-world situations familiar to the learner. . . . Examples work because they take
advantage of the brain’s natural predilection for pattern matching. Information is more readily
processed if it can be immediately associated with information already present in the brain. We
compare the two inputs, looking for similarities and differences as we encode the new informa-
tion. Providing examples is the cognitive equivalent of adding more handles to the door. [The
more handles one creates at the moment of learning, the more likely the information can be
accessed at a later date.] Providing examples makes the information more elaborative, more
complex, better encoded, and therefore better learned.2

Strategic Management brings conceptual frameworks to life via examples that cover prod-
ucts and services from companies with which students are familiar, such as Airbnb, Apple,
Amazon, Chick-fil-A, Disney, Five Guys, IKEA, JetBlue, Lyft and Uber, Meta (Facebook),
Netflix, Nike, Patagonia, Peloton, Robinhood, Rivian, Starbucks, Tinder and Bumble, Tesla,
Toms Shoes, Warby Parker, and Yeti. Liberal use of such examples aids in making strategy
relevant to students’ lives and helps them internalize strategy concepts and frameworks.
Integrating current examples with modern strategy thinking, I prepare students with the
foundation they need to understand how companies gain and sustain competitive advantage.
I also develop students’ skills to become successful leaders capable of making well-reasoned
strategic decisions in a turbulent 21st century.
My distinctive approach to teaching strategy offers students a unique learning experience
that combines theory and practice and provides tight linkages between concepts and cases.
In this new 6th edition, I build upon the unique strengths of this product and continue to add
improvements based upon hundreds of insightful reviews and important feedback from pro-
fessors, students, and working professionals. The hallmark features of this text continue to be:
■ Student engagement via practical and relevant application of strategy concepts using a
holistic Analysis, Formulation, and Implementation (AFI) Strategy Framework.

2. M
 edina, J. (2014), Brain Rules: 12 Principles for Surviving and Thriving at Work, Home, and School (Seattle: Pear
Press), 139–140.
 PREFACE xix

■ Synthesis and integration of empirical research and practical applications combined with
relevant strategy material to focus on “What is important?” for the student and “Why is it
important?”
■ Strong emphasis on diversity, equity, and inclusion (DEI) by featuring a wide range of stra-
tegic leaders from different backgrounds and fields, not just in business but also in
entertainment, professional sports, and so forth.
■ Coverage of a wide array of organizations, including for-profit public companies, private
firms (including startups), and nonprofit organizations. All of them need a good strategy!
■ Global perspective, with a focus on competing around the world, featuring many leading
companies from Asia, Europe, Latin America, and North America. I was fortunate to
study, live, and work across the globe, and I attempt to bring this cosmopolitan perspec-
tive to bear in this text.
■ Industry-leading digital delivery option (Create), adaptive learning system (SmartBook),
activity-based applications (ABAs or mini sims in Connect), and other online assignment
and assessment tools (Connect).
■ Best-in-class Teaching Resources.
■ A standalone module on How to Conduct a Case Analysis.
■ High-quality Cases, well integrated with text chapters and standardized, high-quality and
detailed teaching notes; there are three types of cases that come with this text:
■ 12 ChapterCases begin and end each chapter, framing the chapter topic and content.
Each ChapterCase has thought-provoking questions tailored to the specific chapter
content to stimulate in-class discussions.
■ 12 MiniCases in Part 4 of the book, with one MiniCase specifically matched to each
chapter with accompanying discussion questions. All of the cases are based on origi-
nal research, provide dynamic opportunities for students to apply strategy concepts
by assigning them in conjunction with specific chapters, and can be used in various
ways (as individual assignments, group work, and in class).
■ 27 full-length Cases by Frank T. Rothaermel are included free of charge for students
in 6th edition Connect: 12 are new or fully updated; 15 are from previous editions.
■ Over 50 full-length Cases by Frank T. Rothaermel are available through McGraw Hill
Create (www.mcgrawhillcreate.com/rothaermel).
I have taken great pride in authoring this text’s case materials (some with co-authors). This
additional touch is a differentiating feature from other offerings on the market and allows
for strict quality control and seamless integration with chapter content. All case materials
come with sets of questions to stimulate class discussion and provide guidance for written
assignments. High-quality case teaching notes that more fully integrate content and cases
are available to instructors in the Connect Library (Instructor Resources).

CONTENT DELIVERY
Connect, McGraw Hill’s online assignment and assessment system, offers a wealth of con-
tent for both students and instructors. Assignable activities include the following:
■ SmartBook, one of the first fully adaptive and individualized study tools, provides stu-
dents with a personalized learning experience, allowing them to practice and challenge
their understanding of core strategy concepts. It allows the instructor to set up all assign-
ments before the semester, have them auto-released on preset dates, and receive auto-
graded progress reports for each student and the entire class. Students love SmartBook
because they learn at their own pace, and it helps them to study more efficiently by deliv-
ering an interactive reading experience through adaptive highlighting and review.
xx PREFACE

■ Application-Based Activities (ABAs) are highly interactive mini simulations that chal-
lenge students to use problem-solving skills and apply their knowledge to realistic
­scenarios. Students are placed in specific roles in which they are required to apply
­multiple concepts and make data-informed decisions. They progress from understand-
ing basic concepts to analyzing complex scenarios and solving problems.  
■ Application Exercises including animated video cases and on-location video cases, Mini-
Case case analyses, interactive exercises, and new case exercises for all 12 full-length
cases are available in Connect and require students to apply key concepts, thereby clos-
ing the knowing and doing gap, while providing instant feedback for the student and
progress tracking for the instructor.
■ New Student Primer, available in Connect, contains direct personal applications of
strategy concepts to students’ careers and lives, helping them to internalize the content.
Included in the new Student Primer are the popular and completely revised myStrategy
modules for each chapter, as well as Financial Ratio Reviews, which give students the
opportunity to further hone their financial analysis skills. These review exercises cover
each type of financial ratio (activity, leverage, liquidity, market, and profitability). As
such, they provide students with a solid foundation for effective case analysis.

INSTRUCTOR RESOURCES
The Instructor Resources located in Connect provide the following teaching tools, all of
which have been tested and updated with this edition:
■ The Teacher’s Resource Manual (TRM) includes thorough coverage of each chapter and
guidance for integrating Connect—all in a single resource. Included in this newly com-
bined TRM, which retains favorite features of the previous edition’s Instructor’s Manual,
is the appropriate level of theory, framework, recent application, additional company
examples not found in the textbook, teaching tips, PowerPoint references, critical discus-
sion topics, answers to ChapterCase discussion questions, and a variety of exercises. In
addition, all end-of-chapter discussion questions are now located in the TRM.
■ The PowerPoint (PPT) slide decks, available in an accessible version for individuals
with visual impairment, provide comprehensive lecture notes, video links, and addi-
tional company examples not found in the textbook. Options include instructor media-
enhanced slides as well as notes with outside application examples. All slides can be
edited by individual instructors to suit their needs.
■ The Test Bank includes 100 to 150 questions per chapter, in a range of formats and with
a greater-than-usual number of comprehension, critical-thinking, and application or sce-
nario-based questions. Each question is tagged to learning objectives, Bloom’s taxon-
omy levels, and AACSB compliance requirements. Many questions are new and written
especially for this new edition.
■ The Video Guide includes video links that relate to concepts from every chapter. The
guide includes links to a wide range of sources, from Big Think to Stanford University’s
Entrepreneurship Corner; The McKinsey Quarterly to BBC and YouTube.

CREATE
■ Create, McGraw Hill’s custom-publishing tool, is where you access additional full-length
cases (and Teaching Notes) beyond those included complimentary in Connect that accom-
pany Strategic Management (http://www.mcgrawhillcreate.com/rothaermel). You can cre-
ate customized course packages in print and/or digital form at a competitive price point.
 PREFACE xxi

■ Through Create, you will be able to select from all author-written cases as well as
instructor-written cases that match specifically with the new 6th edition. Create also
contains cases from Harvard, Ivey, Darden, NACRA, and much more! You can assem-
ble your own course, selecting the chapters, cases (multiple formats), and readings that
will work best for you, or choose from several ready-to-go, author-recommended com-
plete course solutions, which include chapters, cases, and readings, preloaded in Create.
Among the preloaded solutions, you’ll find options for undergraduate, MBA, acceler-
ated, and other strategy courses.
ACKNOWLEDGMENTS
Any list of acknowledgments will always be incomplete, but I would like to thank some spe-
cial people without whom this product would not have been possible. First and foremost,
my wife, Kelleyn, and our children: Harris, Winston, Roman, Adelaide, Avery, and Ivy. Over
the last few years, I have worked longer hours than when I was a graduate student to con-
duct the research and writing necessary for this text and accompanying case studies and
other materials. I sincerely appreciate the sacrifice this has meant for my family.
The Georgia Institute of Technology provides a conducive intellectual environment and
superb institutional support to make this project possible. I thank Russell and Nancy
McDonough for generously funding the endowed chair I am honored to hold. I’m grateful
to Dean Maryam Alavi and Senior Associate Deans Jonathan Clarke and Soumen Ghosh
for providing the exceptional leadership that allows faculty to focus on research, teaching,
and service. I would like to thank my colleagues at Georgia Tech—all of whom are not only
great scholars but also fine individuals whom I’m fortunate to have as friends: Marco Cec-
cagnoli, Anne Fuller, Jonathan Giuliano, Stuart Graham, David Ku, Ashlee Li, Astrid Mari-
noni, John McIntyre, Alex Oettl, Aleksandra Rebeka, Eunhee Sohn, and Peter Thompson.
I’m also fortunate to work with a great team at McGraw Hill: Michael Ablassmeir (direc-
tor), Anne Ehrenworth (senior product developer), Debbie Clare (executive marketing man-
ager), Sherry Kane and Bruce Gin (senior content project managers), and Sarah Flynn
(senior content licensing specialist). Steve Rigolosi contributed as a superb content develop-
ment editor on the 6th edition manuscript. I’m grateful for the excellent research assistance
provided by Veronica Bian, Melissa Francisco, Megan Gamble, and Duncan Siebert.
I’m thankful for the contributions of great colleagues on various resources that accom-
pany this new edition of Strategic Management:
■ John Burr (Purdue University) on the Video Guide.
■ Meredith Peabody (Northern Arizona University) and Carla Flores (Ball State
University) on the revision of Connect, including the Interactive Exercises, MiniCase
Exercises, and Case Exercises.
■ Orhun Guldiken (Florida International University) on the accessible PowerPoint slide
decks.
■ Jennifer Sexton (Mississippi State University) on the Teacher Resource Manual.
Last but certainly not least, I wish to thank the reviewers and focus group attendees who
shared their expertise with us, from the beginning when we developed the prospectus to the
new teaching and learning package you hold in your hands. The reviewers have given us the
greatest gift of all—the gift of time! These very special people are listed below.

Frank T. Rothaermel
Georgia Institute of Technology

Web: https://www.ftrStrategy.com
Email: frank@ftrStrategy.com

xxii
THANK YOU . . .
This text has gone through McGraw Hill Education’s thorough development process. Over
the course of several years, the project has benefited from numerous developmental focus
groups, hundreds of reviews from instructors across the country, beta-testing, and market
reviews of subsequent editions on various campuses in the U.S. and across the world. The
author and McGraw Hill wish to thank the following people who shared their insights, con-
structive criticisms, and valuable suggestions throughout the development of this project.
Your contributions have greatly improved this product:

Joshua R. Aaron Bindu Arya Geoff Bell

East Carolina University
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xxiii
xxiv THANK YOU . . .
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Dominguez Hills
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University
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Mississippi
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 THANK YOU . . . xxv

Kimberly Ellis Jeffrey Furman Marcia McLure Hardy

Florida Atlantic University Boston University Northwestern State
University, Louisiana
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University of Arkansas, University of North Texas Darel Hargrove
Fayetteville Central Michigan University
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Downtown
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University of Dayton Jon Timothy Heames
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University of South Carolina,
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xxvi THANK YOU . . .
Tammy G. Hunt
University of North Carolina,
Wilmington
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Crosse
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 THANK YOU . . . xxvii

Jean McGuire Canan C. Mutlu Ronaldo Parente

Louisiana State University Kennesaw State University Florida International
University
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xxviii THANK YOU . . .
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THANK YOU . . . xxix
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PART

1 Analysis

CHAPTER 1 What Is Strategy?

CHAPTER 2 Strategic Leadership: Managing the Strategy

Process

CHAPTER 3 External Analysis: Industry Structure,

Competitive Forces, and Strategic Groups

CHAPTER 4 Internal Analysis: Resources, Capabilities, and

Core Competencies

CHAPTER 5 Shared Value and Competitive Advantage

The AFI Strategy Framework

Part 1: A nalysis
1. What Is Strategy?
2. Strategic Leadership:
Managing the Strategy
Process
Part 1: A nalysis
Part 3: Implementation 3. External Analysis: Industry Structure,
Competitive Forces, and Strategic
Groups
11. Organizational Design: Structure,
Culture, and Control 4. Internal Analysis: Resources,
12. Corporate Governance, Business Getting Capabilities, and Core Competencies
Ethics, and Business Models Started 5. Shared Value and Competitive
Advantage

External and
Implementation Internal
Gaining and Analysis
Sustaining
Competitive
Advantage

Formulation: Formulation:
Corporate Business
Strategy Strategy

Part 2: F ormulation Part 2: F ormulation

8. Corporate Strategy: Vertical 6. Business Strategy:
Integration and Diversification Differentiation, Cost Leadership,
9. Corporate Strategy: Strategic Alliances, and Blue Oceans
Mergers and Acquisitions 7. Business Strategy: Innovation,
10. Global Strategy: Competing Entrepreneurship, and Platforms
Around the World

3
CHAPTER
What Is Strategy?

1
Chapter Outline Learning Objectives
1.1 What Strategy Is: Gaining and Sustaining LO 1-1 Explain the role of strategy in a firm’s
Competitive Advantage quest for competitive advantage.
Crafting and Implementing Strategy at Tesla
What Is Competitive Advantage? LO 1-2 Define competitive advantage,
sustainable competitive advantage,
1.2 Stakeholder Strategy and Competitive competitive disadvantage, and
Advantage competitive parity.
Value Creation
Stakeholder Impact Analysis LO 1-3 Assess the relationship between
1.3 The Analysis, Formulation, Implementation stakeholder strategy and sustainable
(AFI) Strategy Framework competitive advantage.
Key Topics and Questions of the AFI Strategy Framework
LO 1-4 Conduct a stakeholder impact analysis.
1.4 Implications for Strategic Leaders
LO 1-5 Apply the Analysis, Formulation,
Implementation (AFI) Strategy
Framework.

4
CHAPTERCASE 1 Part I
Tesla: The Trillion-Dollar
Tech Titan
Tesla, Inc., an American manufacturer of all-electric cars,
had a market capitalization1 of greater than $1 trillion in
2022, an appreciation of 50,000% over its initial public of-
fering in 2010. Only five other tech companies—Alphabet,
Amazon, Apple, Meta Platforms (formerly Facebook), and
Microsoft—are in the elite trillion-dollar club.2 A mere 18
years after its founding, Tesla is the youngest company to
reach this important milestone. Moreover, the Austin,
Texas–based electric vehicle company is almost twice as
valuable as five major car
companies combined: Ford,
GM, Stellantis (formerly Fiat
Chrysler), Toyota, and Volks­
wagen (VW).
How did Tesla transform
from a fledgling startup to a
trillion-dollar tech titan? The
answer: Tesla’s strategy. In a
2006 blog entry, Elon Musk,
Tesla’s co-founder and chief
executive officer (CEO), Elon Musk introduced the Cybertruck in 2019, with mass production of
­e xplained the startup’s the futuristic truck in 2023.
­master plan:3 Frederic J. Brown/AFP/Getty Images
1. Build sports car.
2. Use that money to build an affordable car.
3. Use that money to build an even more affordable car.
4. While doing above, also provide zero-emission electric
power generation options.
Did Tesla stick to its strategy? In 2008, Tesla introduced
its first car: the Roadster, a $110,000 sports coupe with
faster acceleration than a Porsche or a Ferrari. The Roadster
served as a prototype to demonstrate that electric vehicles
(EVs) can be more than mere golf carts. Tesla thus com-
pleted Step 1 of its master plan.
In Step 2, after selling 2,500 Roadsters, Tesla stopped
producing them in 2012 to focus on its next car: the Model
S, a four-door family sedan with an initial base price of
$73,500. The Model S, which appeals to a somewhat
broader market and thus allows for larger production runs to
drive down unit costs, received an outstanding market
r­ eception. It was named the Motor Trend Car of the Year
and ­received the highest score of any car ever tested by Con-
sumer Reports (99/100). The refreshed Tesla Model S Plaid,
introduced in 2022, is the world’s fastest mass-production
car; it accelerates from 0 mph to 60 mph in two seconds.
Tesla has sold more than 300,000 Model S cars worldwide.
Tesla also completed Step 3 of its master plan. In 2016, it
unveiled the Model 3, an all-electric compact luxury sedan
with a starting price of $35,000. Many people who wanted
the new Model 3 stood in line overnight, eagerly waiting for
Tesla stores to open so they could pay their $1,000 deposit
and secure a spot on the waiting list for a car they had never
seen, let alone taken for a test drive. As a result of this con-
sumer enthusiasm, Tesla received more than 500,000 preor-
ders for the Model 3, for a
total of $500 million in inter-
est-free loans. Despite Tesla’s
initial difficulties in scaling
up production, Model 3 de-
liveries began in 2017. In
2019, Tesla launched the
Model Y, a compact SUV
with the entry version start-
ing at $39,000 (and a range
of 230 miles) and the high-
end performance version
starting at $60,000 (and a
range of 280 miles).
The two lower-priced Models 3 and Y were critical for
Tesla to break into the mass market. In 2021, Tesla sold
close to 1 million vehicles worldwide, with Models 3/Y ac-
counting for 97% of sales. With upgrade options, the average
selling price in 2021 was $54,000 for the Model 3 and
$68,000 for the Model Y. Despite its higher price, the Model
Y is the most popular Tesla vehicle globally, and Tesla con-
tinuously works on ramping up production volume to drive
down costs ­further.
Step 4 of Musk’s master plan for Tesla aims to provide
zero-emission electric power generation options. To achieve
this goal, Tesla acquired SolarCity, a solar energy company,
for more than $2 billion in 2016. The integration of Tesla
and SolarCity, which resulted in the first fully integrated
clean-tech energy company that combines solar power,
power storage, and transportation, marks the completion of
Step 4 in Tesla’s master plan.
In 2016, 10 years after creating Tesla’s initial master
plan, Elon Musk unveiled the second part of his strategy to
5
 continue the pursuit of Tesla’s vision “to accelerate the
­advent of sustainable energy.”4 Again, CEO Musk detailed a
set of stretch goals:
1. Create stunning solar roofs with seamlessly integrated
battery storage.
2. Expand the EV product line to address all major
­segments.
3. Develop a self-driving capability that is 10 times safer
than manual via massive fleet learning.
4. Enable your car to make money for you when you
aren’t using it.
In the updated strategy, Step 1 leverages the integration
of SolarCity. Tesla is now a fully integrated sustainable en-
ergy company, combining energy generation and storage. It
provides energy generation via solar roofs that look like reg-
ular roofing shingles but last longer and cost less, all things
considered. Tesla also offers its Powerwall to residential con-
sumers, making it possible to store solar energy captured on
the roof of their house for later use. Energy generation there-
fore becomes decentralized. Thanks to the Powerwall, con-
sumers can generate and use energy without being
dependent on a utility company and can sell their excess
energy to utility providers. Indeed, consumers can generate
enough energy to power not only their Tesla cars but also
their entire house. Should there be a power outage in the
central utility grid, the Powerwall provides electricity to a
home for one week.
In Step 2, Tesla is planning to expand the EV lineup to
address all major market segments. Elon Musk excels in
product development, and Tesla has introduced several new
vehicles, including a futuristic pickup truck (the Cybertruck,
with production in 2023) and a heavy-duty semitruck.
In Step 3, Tesla is developing its vehicles’ self-driving
­capabilities. The goal is to make self-driving vehicles 10 times
safer than cars driven manually, thus increasing the demand
for fully autonomous cars. Many industry observers expect
commercial trucks to be the first fully autonomous vehicles,
especially on interstate highways. Self-driving large trucks
can be on the road 24/7 and need to stop only to recharge
their batteries.
Fully self-driving capabilities are required for Tesla to ful-
fill Step 4 of the new master plan: Turn your car into an in-
come-generating asset. The idea is to offer an Uber-like
service composed of Tesla vehicles but without drivers. On
average, cars are in use for less than three hours a day. The
idea is that your self-driving Tesla will be part of a shared
vehicle fleet when you are not using it. This new business
model drastically reduces the total cost of ownership of a
Tesla vehicle. It also allows anyone to ride in a Tesla due to
the sharing economy.5
Part II of this ChapterCase appears in Section 1.4.

Why is Tesla so successful? In contrast to Tesla’s success, the big three U.S.
­automakers—Ford, GM, and Chrysler (now Stellantis)—struggled during the first
decade of the 21st century, with both GM and Chrysler filing for bankruptcy
­protection.
Why are some companies successful while others fail? And what, as a strategic leader, can
you do about it? These are the big questions that define strategic management. Answering
these questions requires integrating the knowledge you’ve obtained in your studies of vari-
ous business disciplines to understand what leads to superior performance and how you can
help your organization achieve it.
strategic management Strategic management is the integrative management field that combines analysis, formu-
An integrative manage- lation, and implementation in the quest for competitive advantage. Mastery of strategic man-
ment field that
agement enables you to view a firm or a nonprofit organization in its entirety. It also allows
­c ombines analysis,
­f ormulation, and you to think like a general manager to help your organization achieve superior performance.
­implementation in the The AFI Strategy Framework embodies this view of strategic management. It will guide our
quest for competitive exploration of strategic management throughout this book.
advantage. In this chapter, we lay the groundwork for the study of strategic management. First, we
introduce foundational ideas about strategy and competitive advantage. We move beyond
thinking about competitive advantage solely as superior financial performance and

6
 CHAPTER 1 What Is Strategy? 7

introduce the concept of stakeholder strategy. Understanding stakeholder strategy allows

us to appreciate the role of business in society more broadly. We then examine the compo-
nents of the AFI framework and provide an overview of the entire strategic management
process. We conclude this introductory chapter, as we conclude all other chapters in this
text, with a section titled Implications for Strategic Leaders, which provides practical
­applications and considerations of the material developed in the chapter. Let’s begin the
exciting journey that ends with a deep understanding of strategic management and
­competitive advantage.

1.1 W
 hat Strategy Is: Gaining and Sustaining LO 1-1
Competitive Advantage Explain the role of
strategy in a firm’s
Strategy is a set of goal-directed and integrated actions a firm takes to gain and sustain quest for competitive
advantage.
­superior performance relative to competitors.6 Strategy is the outcome of the strategic
­management process. To achieve superior performance, companies compete for resources:
New ventures compete for financial and human capital, existing companies compete for
strategy The set of
profitable growth, charities compete for donations, universities compete for the best
goal-directed and
­students and professors, sports teams compete for championships, and celebrities compete ­integrated actions a
for endorsements. As highlighted in the ChapterCase, Tesla, a new entrant in the automo- firm takes to gain and
tive industry, is competing for customers with established U.S. companies such as GM and sustain superior
Ford, and with foreign automakers Toyota, Honda, Nissan, Hyundai, VW, Audi, Porsche, ­p erformance relative
to competitors.
Mercedes, and BMW, among others.
A good strategy enables a firm to achieve superior performance and sustainable com- good strategy Enables
petitive advantage relative to its competitors in any competitive situation. A good strategy a firm to achieve supe-
consists of three key elements that make up the strategic management process: rior performance and
sustainable competi-
1. A diagnosis to identify the competitive challenge. Diagnosis includes analyzing the tive advantage relative
firm’s external and internal environments (Part 1 of the AFI framework: Analysis). to its competitors. It is
the outcome of a stra-
2. A guiding policy to address the competitive challenge through strategy formulation. The tegic management
guiding policy lays the foundation to craft a firm’s corporate, business, and functional ­p rocess that consists
strategies (Part 2 of the AFI framework: Formulation). of three elements: (1) a
3. A set of coherent actions to implement the firm’s guiding policy (Part 3 of the AFI diagnosis of the com-
petitive challenge; (2) a
framework: Implementation). guiding policy to ad-
dress the competitive
challenge; and (3) a set
CRAFTING AND IMPLEMENTING STRATEGY AT TESLA of coherent actions to
implement a firm’s
Let’s revisit ChapterCase 1 to see whether Tesla pursues a good strategy. Tesla is performing
guiding policy.
quite well in terms of indicators such as stock appreciation, where it outperforms its com-
petitors by a wide margin. The appreciation of Tesla stock after its initial public offering
(IPO) points to investors’ expectations of future growth. By other measures, such as generat-
ing profits, Tesla underperforms compared to established car companies. Early on, startups
expect losses, especially if the business requires significant upfront investments such as
building new manufacturing facilities and retooling existing factories, which Tesla was
required to do. Since 2020, Tesla has been generating positive and increasing net income.
What we can say at this point is that Tesla seems to be starting with a promising strategy and
is in the process of achieving superior performance relative to its competitors. But can Tesla
sustain this outstanding performance over time? Let’s use the three elements of a good strat-
egy to explore this question.
8 CHAPTER 1 What Is Strategy?

DIAGNOSIS OF THE COMPETITIVE CHALLENGE. A good strategy needs to start with a

precise and critical diagnosis of the competitive challenge. Elon Musk, Tesla’s
­co-founder and CEO, describes himself as an “engineer and entrepreneur who builds
and operates companies to solve environmental, social, and economic challenges.”7
Tesla was founded with the vision to “accelerate the world’s transition to sustainable
­transport.”8
To accomplish this mission, Tesla must build zero-emission electric vehicles that are
attractive and affordable. Beyond achieving a competitive advantage for Tesla, Musk is work-
ing hard to set a new standard in automotive technology. He hopes that zero-emission elec-
tric vehicles will one day replace gasoline-powered cars.
Tesla’s competitive challenge is sizable. To succeed, it must use its new technology to
manufacture attractive and affordable vehicles, which will compete with cars running on
gasoline. To overcome “range anxiety,”9 Tesla has installed a charging station network. At
this point, mass-market EVs cannot drive as far on one charge as gasoline-powered cars with
a tank of gas. Gas stations are pretty much on every corner in cities and every couple of
miles on highways.10

A GUIDING POLICY. After diagnosing the competitive challenge, strategic leaders must
formulate an effective guiding policy in response. The developed strategy needs to be
consistent over the long term, and it is often backed up with strategic commitments. A
strategic commitment, for instance, is a sizable investment or a change to an organiza-
tion’s incentive and reward system. Strategic commitments (such as Tesla’s Gigafacto-
ries) are significant investments resulting in fundamental changes to the organization’s
structure. In ­general, strategic commitments are significant changes that are difficult
and costly to reverse.
Without consistency in a firm’s guiding policy, it can create confusion among employees
about which priorities to address. An inconsistent policy, therefore, negatively impacts effec-
tive day-to-day decisions that support the overall strategy. Moreover, other stakeholders,
including investors and customers, become frustrated if the firm does not have a consistent
and coherent strategy over time.
Tesla’s guiding policy is to build cost-competitive mass-market vehicles such as Models
3/Y. Its formulated strategy is consistent with its mission and the competitive challenge
identified. This strategy required significant strategic commitments, as demonstrated by
Tesla’s $5 billion investment in a new lithium-ion battery plant in Nevada, the so-called
Gigafactory or Giga Nevada. Batteries are the most critical component of electric vehicles.
To build the battery manufacturing component of the Gigafactory, Tesla partnered with
Panasonic of Japan, a world leader in battery technology.
To expand global production capacity rapidly and drive down costs, Tesla invested bil-
lions in several electric vehicle manufacturing plants across the globe. In 2019, it completed
a production facility in Shanghai, China. Giga Shanghai is a vast factory, equal in size to the
Tesla car manufacturing facility in Fremont, California, combined with its Gigafactory in
Nevada. The goal is to produce batteries and cars on a large scale and in the same location.
Large scale and co-location of critical tasks allow Tesla to further lower the price of Models
3/Y. The completion of Giga Shanghai in a record time of less than one year was a turning
point for Tesla because the company was facing bankruptcy in 2018. The development and
manufacturing costs of the luxury Models S/X were much higher than anticipated, leading
to huge losses.
 CHAPTER 1 What Is Strategy? 9

Giga Shanghai services the European market and the Chinese market, which is the larg-
est electric vehicle market globally. The cost of Models 3/Y at Giga Shanghai is an esti-
mated 40% lower than the costs when they are made in the United States, with no loss in
quality. To further expand production capacity, in 2022 Tesla opened Giga Berlin, a $7 bil-
lion factory, and Giga Texas (near Austin), a $10 billion investment. Although such signifi-
cant up-front investments frequently lead to early-year losses, they also represent a solid and
credible commitment to becoming a viable competitor in the mass automobile market.
Moreover, they deter entry by other potential newcomers to the EV industry.

COHERENT ACTIONS. Strategic leaders implement a guiding policy through coherent

actions. Tesla’s strategic leaders implement the formulated strategy with activities consistent
with their diagnosis of the competitive challenge. To make a cost-competitive mass-market
vehicle, Tesla must benefit from economies of scale, decreasing the cost per vehicle as output
increases. To reap critical cost reductions, Tesla must ramp up its production volume. Tes-
la’s retooling of its manufacturing facility in Fremont, California, to rely more heavily on
cutting-edge robotics as well as its multibillion-dollar investment to secure an uninterrupted
supply of lithium-ion batteries, exemplify actions coherent with Tesla’s formulated strategy.
So do its investments in Gigafactories in Austin, Berlin, and Shanghai.
Another set of coherent actions are those focused on Tesla’s best-selling vehicles, Models
3/Y. In 2021, the EV maker doubled its production volume to close to 1 million cars com-
pared to 2020. Thus, since 2015, Tesla has achieved a 20-fold increase in production volume
from 50,000 cars built per year. Tesla’s focus on Models 3/Y explains why they made up
97% of Tesla’s vehicle deliveries in 2021. In addition, to ramp up production and drive down
costs even further, Elon Musk announced, in 2022, that Tesla will not introduce any new
vehicles for the time being. Moreover, he pushed back the mass production date for the
much-anticipated Cybertruck to 2023.
At the same time, Tesla is expanding its network of charging stations across North
America, Europe, and Asia. To fund this initiative and to avoid bottlenecks, Tesla
announced that it will no longer provide new owners free use of the company’s charging
network. In addition, to accomplish the lofty goal of making zero-emission electric motors
rather than internal combustion engines the new standard in automotive technology,
Tesla decided to make some of its proprietary technology available to the public. Musk
hopes that sharing Tesla’s patents will expand the overall market size for electric vehicles
as other manufacturers use Tesla’s technology. This set of coherent actions shows that
Tesla is dedicated to achieving its mission of accelerating the transition to sustainable
transportation.
In review, to craft a good strategy, three steps are crucial in the strategic management
process:
■ A good strategy must define an organization’s competitive challenge through a critical
and honest assessment of the status quo.
■ A good strategy provides a game plan for dealing with the competitive challenge identi-
fied. The firm needs a guiding policy that provides clear guidance for all employees.
■ A good strategy requires effective implementation through a coherent and consistent set
of actions.
Strategy Highlight 1.1 examines Twitter and asks whether the social media company has
a strategy.
10 CHAPTER 1 What Is Strategy?
Strategy Highlight 1.1
Twitter Needs a Strategy
In late 2021, Jack Dorsey, Twitter’s co-founder, was ousted
as CEO for the second time. Dorsey had led Twitter from
its founding in 2006 until 2008, and then returned as CEO
for a second stint from 2015 until 2021. Despite its promi-
nent role in public discourse, Twitter has failed to live up
to expectations. In comparing normalized stock apprecia-
tion between Twitter’s initial public offering (IPO) in 2013
and 2022, we see that Twitter’s market cap increased by a
mere 25%. Over the same period, the market cap of Meta
(formerly Facebook) increased by over 620%. What went
wrong? Despite churning through five CEOs in its short
history, Twitter did not have a strategy!
Jack Dorsey co-founded Twitter in 2006. He served as CEO from 2006 to
2008 and 2015–2021.
Burston/Bloomberg/Getty Images
Twitter is an online news and social networking site
that allows its users to send short messages (“tweets”) of
up to 280 characters to their followers. People who follow
one another on Twitter can see tweets in each others’
feeds. Users with the most followers include former Presi-
dent Barack Obama with 131 million, Justin Bieber (114 mil-
lion), Katy Perry (109 million), and Rihanna (104 million).
Many politicians, such as U.S. Senate and House Repre-
sentatives and world leaders such as India’s Prime Minis-
ter Narendra Modi (75 million followers), use Twitter to
communicate directly with the public, allowing them to
bypass traditional media outlets. While famous for its
newsy and gossipy content, Twitter’s cultural significance
has resulted from its pivotal role during the Arab Spring
(2010–2012), in the Black Lives Matter movement (founded
in 2013), and in its real-time coverage of breaking news,
such as the raid on Osama bin Laden’s compound in Paki-
stan (2011) and the killing of George Floyd (2020).
To bolster the assertion that Twitter did not have a
strategy, let’s apply the three critical elements of a good
strategy: diagnose the competitive challenge, formulate a
guiding policy, and implement a coherent set of actions.
DIAGNOSIS OF THE COMPETITIVE CHALLENGE
Twitter is a two-sided platform business, matching users
with advertisers. Twitter’s goal is to grow its user base
and foster engagement. Capturing a large number of
­u sers and their attention allows Twitter to develop fine-
grained profiles for each user, which in turn allows it to
sell targeted advertising matched to each user’s unique
profile. Gaining market share in the digital ad space is
critical for Twitter to drive future revenue growth, which is
needed to fund continued innovation in product features
and services. In 2022, the digital ad spending globally
was a whopping $525 billion.
But compare Twitter’s user base with that of another
social media platform, Facebook. Twitter has 210 million
daily users compared to Facebook’s 2 billion daily users.
Given Twitter’s much smaller user base, advertisers view it
as a niche application and thus channel the bulk of their
digital ad dollars to three dominant digital ad platforms:
Facebook (part of Meta Platforms), Google (part of Alpha-
bet), and Amazon. These digital ad platforms allow adver-
tisers to target their ads with great precision. The
dominant ad platforms feed their artificial intelligence (AI)
algorithms with data such as the user’s location, browsing
history, and demographic information (birth year, univer-
sity affiliation, network of friends, interests, etc.) thus
­allowing for precisely targeted ads.
At the same time, Twitter also lost out on the digital ad
bonanza during the Covid-19 pandemic. Advertisers
poured billions into the digital ad space to reach consum-
ers staying at home during the pandemic. Twitter fell fur-
ther behind the digital ad giants and younger competitors
in the digital ad space, such as Snap and TikTok. The
newer entrants doubled their digital revenue during the
pandemic.
A GUIDING POLICY Twitter’s guiding policy is “to
have the largest audience in the world,” 11 which is not a

good strategy. Indeed, it is no strategy at all. Instead, it is
a mere statement of desire.
COHERENT ACTIONS As Twitter attempts to attract
more users, it encounters trade-offs that are hard, perhaps
even impossible, to reconcile. Core users’ needs differ
from those of casual visitors or passive viewers. To narrow
these gaps, Twitter has attempted to be everything to ev-
erybody, resulting in strategic confusion. One result was
increased frustration among managers and engineers,
which led to the turnover of key personnel. Low employee
morale and inferior products and services resulted in a
competitive disadvantage. Internal turmoil was further
stoked by Jack Dorsey’s personnel decisions, such as pro-
moting close personal friends into important ­positions.
GOODBYE @JACK, HELLO @PARAGA Since the
company’s inception, Twitter’s culture has been shaped by
infighting and its leaders’ public intrigues. Twitter insiders
and analysts also charged that Jack Dorsey was “missing
in action” as CEO because he focused on his fintech com-
pany Square (now Block) and spent little time on Twitter.
Things came to a head when Dorsey announced shortly
before the Covid-19 pandemic that he would move to
­Africa. The turmoil at Twitter led Elliott Management, an
activist investor, to take a 9% stake in the company.
Threatening an ugly proxy fight at the next shareholder
meeting, Elliott presented Twitter’s board of directors with
a list of demands, including Dorsey giving up the CEO role
and leaving Twitter.
Parag Agrawal became the CEO of Twitter in November 2021. At 37, A
native of India, Agrawal is a computer engineer and scientist who
graduated from the prestigious Indian Institute of Technology (IIT). He holds
a master’s and doctoral degrees from Stanford University. Before being
appointed CEO, Agrawal served as Twitter’s Chief Technology Officer. When
Musk took over Twitter, he fired the company’s top management team,
including Parag Agrawal.
ZUMA Press, Inc./Alamy Stock Photo
CHAPTER 1 What Is Strategy? 11
Parag Agrawal, formerly Twitter’s Chief Technology
­ fficer, was appointed CEO in late 2021. Under his leader-
O
ship, Twitter has successfully implemented several strate-
gic initiatives. For example, Twitter decided to shut down
its custom-built technology infrastructure (which regularly
encountered security, reliability, and scaling issues) and
moved its back-end computing needs to Amazon Web
­S ervices (AWS), the largest provider of cloud computing.
Using AWS allows Twitter to be more innovative and to
­introduce new features and services faster. Jack Dorsey
himself called Twitter “slow” and “not innovative.” 12
Agrawal has also focused on fine-tuning Twitter’s ad
­p latform, allowing it to serve ads to its users with higher
accuracy.
One thorny problem in growing its user base is that
Twitter is a text-based SMS service, whereas newer com-
petitors such as Instagram and TikTok are photo and video
based. The vast majority of people are visual and not tex-
tual. Moreover, pictures and videos allow users to relax,
which facilitates online shopping; Twitter is, by its nature,
combative. However, Twitter is the forum where news
breaks, is shaped, and is battled over, which means that
new services will find it hard to dislodge Twitter.
While Twitter’s impact on social and cultural life is tre-
mendous, its ability to make money appears limited, given
the nature of its product. One option for increasing reve-
nue is to apply AI to Twitter’s vast amount of real-time
­information, and license these data insights to stockbro-
kers, investment banks, hedge funds, media companies,
other Fortune 500 companies, and governments. In 2021,
revenues from licensing data to enterprise customers
were less than 15% of Twitter’s revenues. So, there
­appears to be room for growth.
Rather than limiting the company to the tactical
changes Agrawal spearheaded, the new CEO needed a
strategy! As Twitter’s market cap continued to decline
(from a peak of $62 billion in March 2021 down to $29 bil-
lion in early 2022—a loss of more than 50%), it ­b ecame a
takeover target.
Elon Musk felt the same way because he revealed (in
spring 2022) that he had taken a 9% stake in Twitter, mak-
ing him the single largest shareholder. Musk has been
concerned with Twitter’s commitment to free speech. After
buying his stake in Twitter, Musk tweeted to his over 100
million followers: “Free speech is essential to a function-
ing democracy. Do you believe Twitter rigorously adheres
to this principle?” He added in a follow-up tweet: “The
consequences of this poll will be important. Please vote
(Continued)
12 CHAPTER 1 What Is Strategy?

carefully.” More than 70% of his followers that responded
to the poll voted no. A few weeks later, Musk made an
­o ffer to buy Twitter for $44 billion, taking the company
private. He announced sweeping changes in strategy. The
new Twitter owner wants less reliance on advertising.
Rather, he wants to implement a subscription-based
model. Musk also indicated that all human users should be
verified and that bots, spam, and scams need to be
­r emoved more aggressively. He also advocated for less
content moderation as he sees free speech as “the bed-
rock of a functioning democracy, and Twitter is the digital
town square where matters vital to the future of humanity
are debated.”
In the summer of 2022, Musk announced that he would
walk away from the deal to buy Twitter, arguing that the
social message company has not been forthcoming
enough in providing him with appropriate data to assess
the problem of fake accounts and bots on the site. Twit-
ter’s board responded that they will insist that the agree-
ment will be consummated. Twitter sued Musk to fulfill his
commitment to acquiring Twitter at the price premium he
originally offered. After some back-and-forth, the acquisi-
tion closed in the fall of 2022. Twitter became a private
company owned by Elon Musk, who is implementing a
new strategy. His first action at Twitter was to fire a slew
of senior executives, including the CEO, Parag Agrawal.13

LO 1-2 WHAT IS COMPETITIVE ADVANTAGE?

Define competitive A firm with superior performance relative to competitors in the same industry or the
advantage, sustainable
­industry average has a competitive advantage.14 Competitive advantage is always relative, not
competitive advantage,
competitive absolute. To assess competitive advantage, we compare firm performance to a benchmark—
disadvantage, and either the performance of other firms in the same industry or an industry average. Tesla’s
competitive parity. stock market valuation has increased much more in recent years than the market valuation
of the major carmakers combined and thus has a competitive advantage, at least on this
­dimension.
competitive advantage A firm that can outperform its competitors or the industry average over a prolonged
Superior performance period has a sustainable competitive advantage. Apple, for example, has enjoyed a sustain-
relative to other com-
able competitive advantage over Samsung in the smartphone industry since introducing the
petitors in the same
industry or the industry iPhone in 2007. Brands with smaller market share include HTC (Google Pixel phones), LG,
average. and Motorola/Lenovo. Other phone makers, such as Microsoft (which purchased Nokia)
and BlackBerry, have exited the smartphone market, while new entrants such as Oppo,
sustainable competi- Xiaomi, and ZTE of China are gaining traction.
tive advantage
Outperforming com-
If a firm underperforms its rivals or the industry average, it has a competitive disadvan-
petitors or the industry tage. For example, a 15% return on invested capital may sound like superior firm perfor-
average over a pro- mance. In the consulting industry, though, where the average return on invested capital is
longed period of time. often above 20%, such a return puts a firm at a competitive disadvantage. In contrast, if a
firm’s return on invested capital is 2% in a declining industry such as newspaper publishing,
competitive disadvan-
tage Underperfor- where the industry average has been –5% for the past few years, then the firm has a com-
mance relative to other petitive advantage. When two or more firms perform at the same level, they have competitive
competitors in the parity. In Chapter 5, we discuss in greater depth how to evaluate and assess competitive
same industry or the advantage and firm performance.
industry average.
Two distinct strategies form the basis for competitive advantage:
competitive parity ■ A firm provides goods or services that consumers value more than its competitors’ offer-
Performance of two or
more firms at the same
ings, but at a similar cost (a differentiation strategy), or
level. ■ the firm furnishes goods and services similar to those of competitors but at a lower cost
(a cost leadership strategy).
The rewards of superior value creation and capture are higher profitability and increased
market share. For example, Elon Musk, who is motivated to address climate change, formed
 CHAPTER 1 What Is Strategy? 13

Tesla to build electric vehicles with zero emissions. Sara Blakely, founder and CEO of
Spanx, the global leader in the shapewear industry, is motivated to promote confidence in
people. In creating Walmart, now the world’s largest retailer, Sam Walton was driven to
offer acceptable value at a lower cost than his competitors. Successful companies fill a need
and provide a product, service, or experience that consumers want at a price they can afford
while still making a profit. For Musk, Blakely, Walton, and numerous other entrepreneurs
and businesspeople, creating shareholder value and making money is the consequence of
being purpose-driven.15
The critical point here is that a good strategy delivers superior value while managing the
costs of creating it or by offering similar value at a lower cost. Managers achieve these com-
binations of value and cost through strategic positioning. They stake out a unique position
that allows the firm to provide value to customers while controlling costs. The larger the
difference between value creation and cost, the greater the firm’s economic contribution and
the greater the likelihood of gaining a competitive advantage.
Strategic positioning requires trade-offs, however. Walmart has a clear strategic profile
and serves a specific market segment as a low-cost retailer. Upscale retailer Nordstrom has
also built a clear strategic profile, but it is almost the opposite of Walmart’s: Nordstrom
provides superior customer service to a high-end, luxury market segment. Although these
companies are in the same industry, they are not direct competitors because their customer
segments have very little overlap. Walmart and Nordstrom have chosen distinct but different
strategic positions: cost leadership for Walmart, differentiation for Nordstrom. Their strate-
gic leaders make conscious trade-offs that help each company strive for competitive advan-
tage in the retail industry. Walmart provides acceptable service in a big-box retail outlet
offering “everyday low prices,” while Nordstrom offers a superior customer experience by
hiring professional salespeople and offering a luxury setting.
Each retailer’s clear strategic profile—which specifies its level of product differentiation,
customer service, and cost structure—allows it to meet specific customer needs. The goal is
to create value for customers (in this example, through lower prices or better service and
selection). Even though Walmart and Nordstrom compete in the same industry, both can
win if they achieve a clear strategic position through a well-executed competitive strategy.
Strategy, therefore, is not a zero-sum game.
The key to a successful strategy is to combine activities to stake out a unique strategic
position in an industry. Competitive advantage comes from performing different activities or
performing the same activities differently from rivals. Ideally, consistent and coherent activ-
ities reinforce one another rather than create trade-offs. For instance, Walmart’s strategic
decisions work together to strengthen its position as a cost leader. Key components of
Walmart’s success include its big retail stores in rural locations, extremely high purchasing
power, sophisticated IT systems, large regional distribution centers, low corporate overhead,
decent base wages (well above the federal minimum) and salaries, employee profit-sharing,
and a highly effective website (walmart.com) that provides an omnichannel experience (in-
store/curbside pick-up or delivery).
Because precise strategic positioning requires trade-offs, strategy is as much about decid-
ing what not to do as it is about deciding what to do.16 Because resources are limited, deci-
sion-makers must carefully consider their strategic choices in the quest for competitive
advantage. Trying to be everything to everybody will likely result in inferior performance.
As a striking example, the Sears department store chain was founded in 1886 and long
hailed as an innovator. For instance, Sears pioneered its iconic mail-order catalog, which
allowed customers in rural and remote areas of the United States to shop like city dwellers.
The Sears catalog was an early version of Amazon.com, albeit with a smaller selection and
slower delivery time. However, as time progressed and Sears failed to adapt to new
14 CHAPTER 1 What Is Strategy?
Red Queen effect
A situation in which
­everyone runs faster
but there are no
changes in relative
strategic ­p ositions.
competitive challenges, it lost its competitive advantage. In recent years, Sears did not have
a clear strategic position and tried to be too many things for too many types of customers.
Consequently, after more than 130 years in business, Sears filed for bankruptcy in 2018.
It is also important to note that operational effectiveness, marketing skills, and other
functional expertise can strengthen a unique strategic position. However, those capabilities
do not substitute for competitive strategy. Competing to be similar to but just a bit better
than your competitor is likely a recipe for cutthroat competition and low profits. Let’s exam-
ine this idea further with a quick thought experiment: If all firms in the same industry pur-
sue a low-cost position through the application of competitive benchmarking, then all firms
will have an identical cost structure. None could gain a competitive advantage. Everyone
would be running faster, but nothing would change in relative strategic positions.
THE RED QUEEN EFFECT IN BUSINESS COMPETITION. The Red Queen effect17 refers to
a situation in which everyone runs faster but there are no changes in relative strategic posi-
tions. That is, studying and copying the competition results in unsuccessful efforts to gain a
competitive advantage. The metaphor of the Red Queen comes from Lewis Carroll’s novel
Through the Looking Glass, in which the Red Queen informs Alice, “Here, you see, it takes
all the running you can do, to keep in the same place. If you want to get somewhere else, you
must run at least twice as fast as that!”18
Applying the idea of the Red Queen effect to business competition implies that when
competitors copy one another, everyone will run faster, but their relative strategic positions
may not change. The result is zero-sum competition in which a firm can gain market share
only at a competitor’s expense. As the Red Queen effect plays out, there is little value cre-
ation for customers because companies have no resources to invest in product and process
improvements. Moreover, the least-efficient firms will be driven out of business, thus reduc-
ing customer choice.
To gain a deeper understanding of what strategy is, it is therefore helpful to think about
what strategy is not.19 Be on the lookout for the following red flags of what strategy is not:
Grandiose Statements Are Not Strategy. You may hear leaders say, “Our strategy is to
win” or “We will be No. 1.” Twitter, for example, declared its “ambition is to have the largest
audience in the world.”20 These statements of desire, on their own, are not strategies. They
provide little managerial guidance and often lead to goal conflict and confusion. Moreover,
this type of wishful thinking frequently fails to address the economic fundamentals of value
creation and cost. A compelling vision and mission can lay the foundation for crafting a good
strategy; however, strategic actions and commitments based on economic fundamentals
must address the competitive challenge identified.
A Failure to Face a Competitive Challenge Is Not Strategy. If a firm’s leaders do not
define a clear competitive challenge, employees have no way of assessing whether they are
making progress in addressing it. For example, strategic leaders at the now-defunct video
rental chain Blockbuster failed to address the competitive challenges posed by new players,
including Netflix and Redbox. Likewise, Blackberry RIM did not address the competitive
challenge posed by Apple’s iPhone. Microsoft initially failed to address the shift to mobile
computing pioneered by Google’s Android and Apple’s iOS.
Operational Effectiveness, Competitive Benchmarking, and Other Tactical Tools Are
Not Strategy. People casually refer to a host of different policies and initiatives as “strat-
egy”: pricing strategy, internet strategy, alliance strategy, operations strategy, AI strategy,
brand strategy, marketing strategy, HR strategy, China strategy, Covid-19 strategy, and so on.
These elements may be a necessary part of a firm’s functional and global initiatives to
Another random document with
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 The other version current in Usagara, in the north of the Colony,
says nothing of the serpent or the hot water, but states that the
sorcerers began by ordering large beer-drinkings in every village.
When the pombe had produced its effect, the villagers were initiated
into the conspiracy, and received their dawa, of whose composition
no details are given, but which, in this case also, was supposed to
possess the power of making them invulnerable, so that the bullets of
the Germans would simply be changed into water as soon as they left
the rifle-barrel. The Majimaji soon discovered, in the course of
numerous battles that this was not the case, but nevertheless, the
fanaticism of these natives, who, under a murderous fire, charged up
to within a spear’s length of the machine-guns—the bumbum, as they
call them—is truly astonishing.
From the coast to a little beyond Nyangao the character of the
vegetation is essentially different from that which we find farther
west. The greater part of the road (the barabara, in the carriers’
jargon, that is to say, the path cut to the regulation width on which
all the long-distance traffic takes place) runs as far as Nyangao
through thick scrub from 10 to 15 feet high, from which rise here and
there single trees of twice or three times that height. Several times in
the course of the day’s march the traveller comes across large open
spaces in the bush on either side of the path. It is clear from the
absence of underwood and the presence of charred stumps that this
is old cultivated ground—no doubt the sites of former villages. But
where are the huts and where the people who once hoed their
gardens here? Here we find a typical touch of African history, more
especially in recent times, when its primitive conditions have been
modified by the modern plantation system with its demand for
labour and the necessity for a native military force. Originally and in
himself the African is by no means shy, on the contrary, he is
inquisitive and fully alive to the attractions of town life and social
intercourse. But he cannot stand having his private affairs interfered
with. Every caravan of inland natives on their way to the coast,
whether to sell their supplies of wax, tobacco or what not, or to
engage themselves as labourers to some European, considered that
they had a natural right to expect food and drink from the villagers
along their route. Even the caravan of a white man is apt to make the
same sort of demands on the villagers. How often have I seen my
men scatter at every halt, to ask for some service or other—perhaps
merely the loan of a gourd dipper—at one or other of the straggling
huts, which may be half-a-mile apart. However good-natured and
obliging the native may be, he cannot put up with an indefinite
continuance of such disturbances to the quiet of his home life, and
therefore prefers to pull down his huts and build new ones in the
bush at a distance from the main road, where they can only be
reached by narrow side paths.
Anthropologically speaking, one might take the Wamwera for
Indians, such is the lustrous copper tone of their skins. At first I
thought that this marked redness of tint was a peculiarity of the
tribe, but have since met with many individuals of exactly the same
shade among the Makua of Hatia’s, Nangoo and Chikugwe, and a few
among the Yaos at this place and those at Mtua, and Mtama. In fact,
it seems to me very difficult to do any really satisfactory
anthropological work here—the types are too much mixed, and it is
impossible to tell from any man’s features the tribe to which he
belongs. Probably, indeed, there is no distinction of race at all, for
Wamwera, Wangindo, Wayao, Makonde, Matambwe and Makua
alike belong to the great sub-group of the East African Bantu. This is
one additional reason, when time is so precious, for giving to
anthropology even less attention than I had originally planned. Let
the gentlemen come out here themselves with their measuring
instruments, compasses and poles—we ethnographers have more
urgent work to attend to.
The Wamwera are just now in a deplorable condition. The whole of
this tribe was concerned in the rising, and though refusing to
acknowledge defeat in battle after battle, were ultimately forced to
take refuge in the bush. The mere fact of living for months without
shelter in the rainy season would of itself cause suffering enough;
and when we add that they have had no harvest, being unable to sow
their crops at the beginning of the rains, it can readily be understood
that numbers must have perished. Now that most of the ringleaders
have been secured and sent down to the coast, the survivors are
gradually coming forth from their hiding-places. But what a spectacle
do the poor creatures present! encrusted more thickly than usual
with dirt, emaciated to skeletons, suffering from skin-diseases of
various kinds, with inflamed eyes—and exhaling a nauseous
effluvium. But at least they are willing to face the white man—a sign
of newly-established confidence in our rule which must not be
undervalued.
Several hours’ hard marching from Nyangao bring us to the
residence of “Sultan” Hatia. He is the fourth of his name on this tiny
throne of the Makua. The grave of his predecessor, Hatia III, lies in a
deep cave on the Unguruwe mountain. This mountain is really a
promontory of the Makonde plateau projecting far into the Lukuledi
plain. It is visible from the road for several days before we reach it,
with its gleaming red cliff-face, which might fitly be described as the
emblem of the whole Central Lukuledi region. It also plays a great
part in the myths and legends of the local tribes. The traditions of the
past had already gathered round it before the burial of Hatia III; but
now that the dead chief rests in a dark ravine forbidden to every
profane footstep, from the toil and turmoil of his life, the Unguruwe
has become in popular belief a sanctuary where, on moonlight
nights, Hatia rises from his grave, and assembles the ghosts of his
subjects round him for the dance.
Hatia IV had returned to his capital just before our arrival, having
had some months’ leisure on the coast, in which to think over the
consequences of the rising. He impressed me as a broken man,
physically in no better case than his subjects; moreover he was no
better lodged, and certainly no better provided with food than they.
On the day of our halt at his village, he was more than ordinarily
depressed. A few hours previously a lion, whose impudence has
made him famous throughout the country, had in broad daylight
dragged a woman out of a hut, not far from the chief’s dwelling. The
prints of the enormous paws were still quite clear in the sand, so that
we could track the robber right round the hut in which a man with
his wife and child had been sitting at their ease. The great brute had
suddenly sprung on the woman who was sitting next the door. Her
husband tried to hold her, but was weak from illness, and could offer
no effectual resistance. Though for some time the poor creature’s
shrieks, “Nna kufa! Nna kufa!”—“I die! I die!”—could be heard in the
bush, growing fainter and fainter, no one could come to her help, for
the people have been deprived of their guns since the rising, and
even if they had had them, there was no ammunition, the
importation of this having been stopped some time ago.
 The nephew and heir of Hatia IV is to take the part of avenger. He
is a handsome, jet-black youth with a small frizzled moustache on his
upper lip, and an enviably thick growth of woolly hair on his scalp.
Armed with a rifle, of which he is unconscionably proud, he has come
with us from Lindi in order to deliver his people from the plague of
lions. Such an expression is, in truth, no exaggeration as far as this
place is concerned. It is said that the whole length of the road from
Nyangao to Masasi has been divided between four pairs of lions, each
of which patrols its own section, on the look-out for human victims.
Even the three missionaries at Nyangao are not safe; Father Clement,
when out for a walk, not long ago, suddenly found himself face to
face with a huge lion, who, however, seemed quite as much startled
by the incident as the good Father himself.
After examining the architecture of the present Wamwera huts, I
can easily understand how the lion at Hatia’s could drag the woman
out from the interior. Anyone desirous of studying the evolution of
the human dwelling-house could very well see its beginnings here.
Most of these dwellings are nothing more or less than two walls,
consisting of bundles of grass roughly tied together, and leaning
against each other in a slanting position. The addition of gable-ends
marks quite a superior class of house. Besides this, the Wamwera
have been compelled to build their huts, such as they are, in the
untouched jungle, since they have lost all they had, even the
necessary implements for tillage and for clearing the bush. Their
villages, containing their only possessions of any value, were of
course levelled with the ground by our troops. The lion is shy of open
spaces, but feels at home in the pori, which he looks upon as his
natural hunting-ground, and where he can creep unseen close up to a
hut before making his deadly spring.
One point I must not forget. Even before leaving Lindi, my mouth
had watered at the descriptions I heard of the extraordinary
appearance presented by the Wamwera women. But I find that these
descriptions come far short of the reality. The famous Botocudos of
Brazil with their labrets are nothing to the southern tribes of German
East Africa. I had long known that the Makonde plateau and the
whole surrounding country belong to the region of the pelele, or lip
ring, but I have never come across a good illustration of earlier date
than my own. The accompanying reproductions of photographs will
show the nature of this extraordinary decoration more clearly than
any description.
The pelele, or, as it is called in Kimwera, itona, is only worn by the
women, but among them it is universal. It is a peg, in older persons
even an actual disc, of ebony, or else of some light-coloured wood
bleached snow-white with argillaceous earth, inserted in the upper
lip, which is perforated and stretched to receive it. Of course, a disc
the size of a two-shilling piece is not inserted all at once: the
operation is very gradual and begins by piercing the lip, between a
girl’s seventh and ninth year, with the end of a razor which is ground
into the shape of an awl.[8] The hole is kept open by inserting a
foreign body of small size, such as a thin stalk of grass, or the like. It
is then enlarged by adding another stalk at regular intervals; and
after a time, a strip of palm-leaf rolled up into a spiral is substituted.
This, being elastic, presses against the sides of the opening, and so,
in due course renders it large enough to receive the first solid plug.
Among the Wamwera the diameter of this varies from the thickness
of a finger to the size of a florin; the older Makonde women,
however, are said to have them twice as large. Naturally I am all
impatience to see these people, whose country, moreover, is as yet a
complete terra incognita, as far as science is concerned.
Not content with the
itona, the old women
sometimes wear a pin
or peg in the lower lip,
called nigulila. It is
long and slender,
ending in a round
knob, and is intended
to divert the eye from
the withered skin and
A MWERA WOMAN faded charms of the
wearer.[9] Discs or plugs
inserted in the lobe of
the ear are also very general. Furthermore, the YOUNG MAN OF THE
countenance of these fair ones are covered MWERA TRIBE
with extraordinary scars which, at a distance,
suggest that they must have passed their
youth at a German university. On a close inspection it will be found
that these are not scars, left by straight cuts, but consist of a
multitude of small keloids arranged in various patterns. The patterns
are made by parallel rows of small cuts (usually vertical), which have
been prevented from healing by repeatedly opening them during the
process of cicatrization. Thus in the course of weeks and months they
take the form of conspicuous swellings which, in their totality, give a
distinctive character to the whole physiognomy.
Even this is not enough to satisfy the
craving of the Wamwera women for
adornment. If the cloth draping chest and
back slips aside for a moment, either through
an incautious movement on the part of the
wearer or through the inseparable baby being
shifted from its usual place on its mother’s
back to her hip—the astonished eye discovers
that the surfaces thus revealed are adorned
with markings similar to those on the face.
Even the hips and upper part of the thighs are
said to be covered with them. The
ethnographer, reflecting on these and other
queer manifestations of human vanity, may be
tempted, perhaps, to indulge in a comfortable
sense of superiority. But, after all, the fashion
of wearing earrings is not quite extinct in
Europe; and the advantages of the corset,
considered as an aid to beauty, might be quite
as much open to discussion as the African
MWERA WOMAN ornaments we have just been describing. I am
WITH PIN IN LOWER alluding, of course, to those women who think
LIP that tight lacing improves the figure.
Otherwise I am inclined to agree with Max
Buchner of Munich, who thinks that some form of this article would
be of great service to the women of all the less-clothed races among
whom appliances for supporting the bust are unknown.
Up to the present, I have been able to see but little of the real life of
the inland tribes, yet that little has been very interesting. On the
march to Masasi I noticed that wherever the natives had taken an
active part in the rebellion, the roads were in perfect order, while in
the territory of the friendly tribes they were nearly impassable with
high grass, and sometimes bushes. These allies of ours are now,
secure in the consciousness of their past services, saying to
themselves that they may take things easy for a time, as the “Mdachi”
will surely consider their loyalty and make no very severe demands
on them. Captain Ewerbeck, however, has been laying down the law
with great precision and energy to the Akidas and Jumbes, the
district chiefs and village headmen, who are responsible for order
within their own districts.
One can enjoy magnificent spectacles by night in Africa. Sitting in
front of my tent on the way here, or now, when I step out in front of
the Baraza—the rest-house in which I have taken up my abode—I
see, wherever I turn my eyes, the red glow of flames on the horizon.
This is the burning of the grass—a custom practised by the Africans
for thousands of years. It may be remembered that when Hanno, on
his voyage from Carthage, sailed down the West coast of Africa,
nothing produced such a deep and lasting impression of terror on
himself and his crew as the streams of fire seen to flow down from
the coast-ranges at night. In my opinion, which, of course, I do not
consider decisive, these streams of fire were certainly not, as has so
often been maintained, connected with any volcanic phenomena, but
resulted from the processes still put into operation by the inhabitants
of the Dark Continent every night during the dry season.
 ROAD THROUGH THE BUSH IN THE NEIGHBOURHOOD OF
CHINGULUNGULU

Much has been written in our Colonial publications with regard to

the benefit or injury to be derived from this grass-burning. Some
condemn it as deleterious to the growth of trees, while others take
the part of the natives and say that only by burning off the high grass
and brushwood of the African forest at regular intervals can they
possibly get the upper hand of the vermin, which would otherwise
increase by myriads. Besides, it is said, the ashes are for the present
the only manure that can be applied on a large scale. I do not feel
justified in attempting a decision, but confine myself to admiring the
magnificent effect of the near and distant fires, reflected in the most
varied gradations of light and colour in the misty atmosphere. None
of these fires, moreover, is dangerous to the traveller; where the
flames seize a patch of completely dry grass, they rush along, it is
true, with a noise like the crackling of musketry-fire; but otherwise,
and indeed in general, the people have to keep up the conflagration
by systematic kindling of the grass in fresh places. In any case they
have the direction and extent of the fire fully under control.
This burning is, so far as I am enabled to judge, only possible
where the remarkable form of vegetation prevails which
characterizes the greater part of Africa, and covers the whole extent
of the great plain on the west and north-west of the Makonde
plateau. This is the “open bush and grass steppe” (lichte Baumgras-
steppe) as it has been very appropriately named by the geologist
Bornhardt. In fact, this form of vegetation is neither exclusively
forest nor altogether steppe; it unites the characters of the two.
Imagine a particularly neglected orchard, in some rural part of
Germany (where I am sorry to say the farmers still pay far too little
attention to this branch of cultivation), and fill up the spaces between
the scattered apple, pear or plum trees, not with our modest German
grass but with the African variety, two or three yards high and more
like canes, mix this with underwood—thorny, but not very close—and
finally bind together the tops of the trees (which are not very high—
certainly none of them over forty feet—and all varieties having a sort
of general resemblance to our maple) by means of a system of airy
lianas. Having done all this, you have, without any further strain on
the imagination, a fairly correct picture of what is here generally
called pori, though in the North the name of “myombo forest” is
more usually applied to it. During the rains, and just after them, this
pori must undeniably have its charms,—in fact, Ewerbeck and his
companion Knudsen are indefatigable in singing its praises as it
appears in that season. Now, on the other hand, in July, it is
anything but beautiful: it neither impresses us by the number and
size of its trees, nor refreshes us with any shade whatever, nor
presents the slightest variation in the eternal monotony which greets
the traveller as soon as he leaves Nyangao and crosses to the right
bank of the Lukuledi and from which he only escapes after a march
of several weeks, high up on the Upper Rovuma. “So this is the
exuberant fertility of the tropics, and this is what an evergreen
primeval forest looks like!” I thought, after enjoying this spectacle for
the space of a whole day. Just as with regard to the alleged want of
appetite experienced by Europeans in the tropics, we ought to see
that the general public is more correctly informed as to the supposed
fertility of Equatorial Africa, and so saved from forming extravagant
notions of the brilliant future in store for our colonies.
The pori becomes downright unpleasant wherever the owners of
the country have just been burning it. To right and left of the road
extends a thick layer of black or grey ashes, on which, here and there,
lies a dead tree, steadily smouldering away. Now that there is no
grass to obstruct the view, the eye ranges unhindered through what
at other times is impenetrable bush. For the sportsman this state of
things is a pleasure, as he can now see game at almost any distance;
but for the traveller, especially if encumbered with a large caravan, it
is nothing less than torture. This is not so much the case in the early
morning, when the fine particles of dust are laid by the heavy dews;
but, when the sun rises higher, marked differences of temperature
are produced within a comparatively small area. Tramping on
through the glowing heat of noon, suspecting no harm and intending
none, the traveller suddenly sees something whirling in front of his
feet—a black snake spinning round in a raging vortex, rises straight
up, dances round him in coquettish curves, and then vanishes
sideways behind the trees, with a low chuckle, as if in derision of the
stranger and his immaculately clean khaki suit. The native followers
have not suffered, being of the same colour as the insidious foe. But
what is the aspect presented by the leader of the expedition! Though
not guaranteed to wash, he presents a sufficiently close resemblance
to a blackamoor, and under the circumstances, the faithful Moritz
and Kibwana, as soon as we have reached camp, will have no more
pressing task than to prepare the bath for their master and
thoroughly soap him down from the crown of his head to the sole of
his foot. And all this is the work of the pori whirlwind.
In these small distresses of life on the march, the imperturbable
cheerfulness of the natives is always a comfort. Among the Wamwera
on the scene of the late rising, there was little inclination for dancing
and merriment—the prevailing misery was too great; but everywhere
else, before our camp was even half arranged, the inhabitants of the
place had assembled in crowds, and the scene which ensued was
always the same in its general features, though varying in detail. The
negro has to dance. As the German, whenever anything lifts him out
of the dead level of the workaday mood, feels irresistibly impelled to
sing, so the African misses no opportunity of assembling for a
ngoma. The word ngoma, in its original signification means nothing
more than a drum; in an extended sense it denotes all festivities
carried on to the sound of the drum. These festivities have an
indisputable advantage over ours, in that the instrumental music,
dancing, and singing are all simultaneous. The band drums, but also
occasionally improvises songs, the audience standing round in a
circle form the chorus and at the same time march round the band to
the rhythm of the song. This is the usual picture, with all its
strangeness so fascinating that the oldest residents in the coast
towns do not think it beneath their dignity to honour this expression
of aboriginal life by attending from time to time, if only for a few
minutes. Other and less sophisticated whites are regular habitués at
these festivals, and never let a Saturday evening pass—this being the
day when ngomas are allowed by law—without standing for hours
among the panting and perspiring crowd. One of these dances,
executed by the women of every place I have so far visited, on every
possible occasion, is peculiarly pleasing. It is called likwata
(“clapping of hands”). A number of women and girls stand in a circle,
facing inwards. Suddenly arms rise into the air, mouths open, feet
twitch in unison, and all goes on in exact step and time; hand-
clapping, singing and dancing. With the peculiar grace which
characterizes all movements of native women, the whole circle moves
to the right, first one long step, then three much shorter. The hand-
clapping, in time and force, accurately follows the above rhythm, as
does the song, which I shall presently reproduce. Suddenly, at a
certain beat, two figures step out of the line of dancers—they trip in
the centre of the circle, moving round one another in definite figures,
the movements in which, unfortunately, are too rapid for the eye to
follow—and then return to their fixed places in the circle to make
way for two more solo artists. So the game goes on, without
interruption or diminution of intensity, hour after hour, regardless of
the babies who, tied in the inevitable cloth on their mothers’ backs,
have gone through the whole performance along with them. In this
confined, hot, and often enough dirty receptacle, they sleep, wake or
dream, while the mother wields the heavy pestle, pounding the maize
in the mortar, or grinds the meal on the stone, while she breaks the
ground for sowing, hoes up the weeds or gathers in the crops, while
she carries the heavy earthen water-jar on her head from the distant
spring, and while, as now, she sways to and fro in the dance. No
wonder if, under such circumstances, the native baby is thoroughly
familiar with the national step and rhythm even before he has left the
carrying-cloth and the maternal breast. The sight of tiny shrimps of
three and four moving with absolute certainty through the mazes of
the grown people’s dance, would almost of itself be worth the journey
to East Africa.
And now come the very profound words accompanying this dance
which seems so full of meaning and poetry. The spectator standing
by and watching the varied and graceful movements of the women—
perhaps working the cinematograph at the same time—is apt, in spite
of all previous resolutions, to pay too little heed to the words sung.
When, the dance over, he arranges the performers before the
phonograph, he is tempted to believe that his ears have deceived
him, so utterly inane are these words. I have made records of the
likwata at a number of different places, but never succeeded in
getting any other result than the following—

[10]

The reader will agree that no undue amount of intellect has been
lavished on this ditty, but this is a trait common to all native songs
here in the South. Even those acknowledged virtuosi, my
Wanyamwezi, cannot do very much better in this respect. Here we
have really every right to say, “We Wazungu are better singers after
all!”
MOUNTAINS NEAR MASASI. DRAWN BY SALIM MATOLA
 CHAPTER V
LOOKING ROUND

Masasi, July 25, 1906.

I have been here at Masasi quite a week. My abode is a hut in the

purest Yao style, built by the natives under the orders of the Imperial
District Commissioner, expressly for the benefit of passing European
travellers. This hut—or, I suppose I ought to say, this house, for it is a
sizeable building of some forty feet by twenty—lies outside the boma
which shelters the local police force. It is an oval structure whose
roof is exactly like an overturned boat. The material of the walls is, as
everywhere in this country, bamboo, and wood, plastered inside and
out with dark grey clay. My palace is superior to the abodes of the
natives in the matter of windows, though they are not glazed. At
night, before I creep under my mosquito-net into the camp bed, the
openings are closed with shutters constructed of strong pieces of
bamboo. The floor, as in all native huts, is of beaten earth, which can
in general be kept quite clean, but is not calculated for the sharp
edges of European boot-heels, which soon play havoc with its
surface. The interior forms an undivided whole, only interrupted by
the two posts standing as it were in the foci of the ellipse, and
supporting the heavy thatched roof. This projects outward and
downward far beyond the wall of the house, its outer edge being
carried by a further ellipse of shorter posts, and so makes a broad
shady passage round the whole house, such as, under the name of
baraza is an essential part of every East African residence.
The natives give the name of Masasi to a whole district alike
interesting from the point of view of geography, geology, botany or
geography.
Almost immediately after passing Nyangao, as one comes from the
coast, begins the “open bush and grass steppe” already mentioned,
while at the same time the edges of the Makonde plateau on the
south and of the high ground to the north of the Lukuledi retreat
further and further. As one walks on, day after day, across a perfectly
horizontal plain covered with the same monotonous vegetation, the
journey is by no means exciting. Then, suddenly, at a turn of the
path, we see a huge cliff of glittering grey. We draw a long breath and
forget all our fatigue in presence of this new charm in the landscape.
Even the heavy-laden carriers step more lightly. Suddenly the bush,
which has become fresher and greener as we approach the rock,
ceases, and instead of the one cliff we now see a whole long range of
rocky peaks, which seem to stand as a barrier right across our path.
This, however, is not the case, for close to the foot of the first
mountain the road turns sharply to S.S.E., running parallel and close
to the range. When the range ends, the road ends too, for there,
embosomed in a circle of “hill-children,”—as the native would say in
his own language, i.e., low hills of a few thousand feet or under,—lies
the military station of Masasi.
The dome-shaped gneiss peaks of Masasi are celebrated in
geological literature: they are, in fact, unique, not in their
petrographic constituents, but in the regularity of their serried ranks.
Orographically this whole region of East Africa which I am now
traversing is characterized by insular mountains (Inselberge), as they
are called by the geologist Bornhardt. The name is very appropriate,
for, if the land were to sink some three hundred feet, or the Indian
Ocean to rise in the same degree, the valleys of the Lukuledi,
Umbekuru and Rovuma, as well as, in all probability, several rivers
in Portuguese East Africa, and also the whole vast plain west of the
Mwera and Makonde plateaus would form one great lake. Here in the
west, only these lumpy, heavy gneiss peaks would rise as tiny islands
above the waters, while towards the coast the plateaus just
mentioned would so to speak represent the continents of this piece of
the earth’s surface.
 THE INSULAR MOUNTAIN OF MASASI

In general these peaks are scattered irregularly over the whole

wide area of the country. If I climb one of the smaller hills
immediately behind my house, I can overlook an almost illimitable
number of these remarkable formations to north, west and south.
They are mostly single or in small clusters, but several days’ journey
further west a large number are gathered into a close cluster in the
Majeje country. The Masasi range in our immediate neighbourhood
is the other exception. Corresponding to their irregular distribution
is a great variety in height. Many are only small hillocks, while others
rise to a sheer height of 1,600 feet and over from the plain, which
here at Masasi is fully 1,300 feet above sea-level. The highest of these
hills thus attain about the middle height among our German
mountains.
As to the origin of these strange mountain shapes, not being a
geologist, I am in no position to form an opinion. According to
Bornhardt, who in his magnificent work on the earth-sculpture and
geology of German East Africa[11] has described the geological
features of this landscape with admirable vividness, all these insular
peaks testify to a primeval and never interrupted struggle between
the constructive activity of the sea and the denuding, eroding,
digging and levelling action of flowing water and of atmospheric
influences. He sees this tract in primordial times as an immense
unbroken plain of primitive gneiss. In this, in course of time, streams
and rivers excavated their valleys, all more or less in the same
direction. At the end of this long-continued process, long hill ridges
were left standing between the different valleys. Then came another
epoch, when stratification took the place of destruction. Whereas
formerly, rain, springs, brooks and rivers carried the comminuted
and disintegrated rock down to the sea, now, the sea itself overflowed
the land, filled the valleys, and probably covered the whole former
scene of action with its sediment. This sediment, again, in the course
of further ages became hardened into rock. Once more the scene
changed; again the land was left dry; and wind, rain and running
water could once more begin their work of destruction. But this time
their activity took a different direction. They had formerly carried the
detritus north or south, but now they swept it eastward, at right
angles to their former course, and so gradually ground and filed away
the whole of the later deposit, and also eroded the long ridges which
had survived from the first period of destruction. Finally, when even
this primitive rock had been worn away down to the bottom level of
the first valleys, nothing remained of the old sheet of gneiss except in
the angles formed by the crossing of the two lines of abrasion and
erosion. The superincumbent strata being swept away, the hard
gneiss cores of these angles of ground form the very insular peaks I
have been describing. Bornhardt’s theory is a bold one and assumes
quite immeasurable periods of time, but it has been generally
accepted as the most plausible of all attempts to explain the facts. In
any case it is a brilliant proof of the capacity for inductive reasoning
possessed by German scholars.
These mighty masses of rock, springing with an unusually steep
slope, direct from the plain, dominate their surroundings wherever
one comes across them, but where they appear in such a wonderfully
regular series as they do here—Mkwera, Masasi, Mtandi, Chironji,
Kitututu, Mkomahindo, and the rest of the lesser and greater
elevations within my horizon,—they present an incomparable and
quite unforgettable spectacle. When once the projected railway
across the Umbekuru basin is completed, the tourist agencies will
have no more popular excursion than that to the Masasi Range.
 From a botanical point of view, also, the visitor finds himself well
repaid for his trouble. Once in the shadow of these hills, the
desolation of the pori is forgotten as if by magic; one plantation
succeeds another, and patches of all the different varieties of millet
bow their heavy cobs and plumes in the fresh morning breeze, which
is a real refreshment after the stifling heat of the long day’s march
through the bush. Beans of all kinds, gourds and melons, rejoice the
eye with their fresh green, on either side of the path the mhogo
(manioc) spreads its branches with their pale-green leaves and pink
stalks. Wherever there is an interval between these various crops, the
bazi pea rattles in its pod. This fertility (astonishing for the southern
part of German East Africa) is only rendered possible by the
geological constitution of the soil. Wherever we have set foot on the
main road, and north and south of the same, as far as the eye can
reach, the principal constituents of the upper stratum have been
loamy sand and sandy loam. In places where the action of water has
been more marked, we find an outcrop of bare, smooth gneiss rocks;
or the ground is covered with hard quartzite, crunching under foot.
Only where these mighty gneiss ranges break the monotony does
anyone examining the country with an eye to its economic value find
full satisfaction. Gneiss weathers easily and forms excellent soil, as
the natives have long ago discovered; and, though they by no means
despise the less fertile tracts, yet the most favoured sites for
settlements have always been those in the immediate vicinity of the
gneiss islands. Masasi, with its enormous extent, taking many hours
to traverse, is the typical example of such economic insight.
Since this would naturally attract people from all directions, it is
not to be wondered at if a question as to the tribal affinities of the
Masasi people should land one in a very chaos of tribes. Makua,
Wayao, Wangindo, a few Makonde, and, in addition a large
percentage of Coast men:—such are the voluntary immigrants to this
little centre of social evolution. To these we must add a
miscellaneous collection of people belonging to various tribes of the
far interior, who are here included under the comprehensive
designation of Wanyasa. These Wanyasa are the living testimony to
an experiment devised in the spirit of the highest philanthropy,
which, unfortunately, has not met with the success hoped for and
expected by its promoters. This very region was some decades ago
the scene of an extremely active slave-traffic; the trade, kept up by
the Zanzibar and Coast Arabs, preferred the route through this
easily-traversed and at that time thickly-populated country. The
situation of Kilwa Kivinje on a bay so shallow that Arab slave-dhows,
but not the patrolling gun-boats of rigidly moral Powers, can anchor
there, is to this day a speaking testimony to that dark period in the
not excessively sunny history of Africa.
In order to get at the root of the evil, English philanthropists have
for many years been in the habit of causing the unhappy victims
driven down this road in the slave-stick, to be ransomed by the
missionaries and settled on their stations as free men. The principal
settlement of this kind is that among the gneiss peaks of Masasi. The
Christian world cherished the hope that these liberated slaves might
be trained into grateful fellow-believers and capable men. But when
one hears the opinion of experienced residents in the country, it is
not possible without a strong dose of preconceived opinion to see in
these liberated converts anything better than their compatriots. The
fact remains and cannot by any process of reasoning be explained
away, that Christianity does not suit the native; far less, in any case
than Islam, which unhesitatingly allows him all his cherished
freedom.
Personally, however, I must say I have not so far noticed any
discreditable points in the character of the Masasi people; all who
have come in contact with me have treated me in the same friendly
fashion as the rest of those I have come across in this country. Such
contact has by no means been wanting in spite of the shortness of my
stay here, since I have thrown myself into my work with all the
energy of which I am capable, and am convinced that I have already
seen with my own eyes and heard with my own ears a large and
important part of the people’s life.
The very beginning of my studies was remarkably promising. The
Mission station of Masasi lies a short hour’s walk north north-
eastward from us, immediately under the precipitous side of Mtandi
Mountain. This Mtandi is the most imposing peak of the whole
range; it rises in an almost vertical cliff directly behind the straw huts
of the Mission, ending, at a height of nearly 3,100 feet in a flat dome.
District Commissioner Ewerbeck and I had already, when riding past
it on the day of our arrival, determined to visit this mountain; and we
carried out our project a day or two later. The trip was not without a
certain fascination. At 4.30 a.m. in a pitch-dark tropical night, we
were ready to march, the party consisting of two Europeans and half-
a-dozen carriers and boys, with Ewerbeck’s Muscat donkey and my
old mule. As quickly as the darkness allowed, the procession passed
along the barabara, turning off to the left as we approached Mtandi.
The animals with their attendants were left behind at the foot of the
mountain, while the rest of us, making a circuit of the Mission
grounds, began our climbing practice.
I had equipped myself for my African expedition with the laced
boots supplied by Tippelskirch expressly for the tropics. When I
showed these to “old Africans” at Lindi, they simply laughed at me
and asked what I expected to do in this country with one wretched
row of nails on the edge of the sole. They advised me to send the
things at once to Brother William at the Benedictine Mission, who
earns the gratitude of all Europeans by executing repairs on shoes
and boots. Brother William, in fact, very kindly armed my boots with
a double row of heavy Alpine hobnails, and I wore a pair the first day
out from Lindi, but never again on the march. They weighed down
my feet like lead, and it soon appeared that the heavy nails were
absolutely unnecessary on the fine sand of the barabara. After that
first day, I wore my light laced shoes from Leipzig, which make
walking a pleasure. Here, on the other hand, on the sharp ridges of
Mtandi, the despised mountain boots rendered me excellent service.
I prefer to omit the description of my feelings during this ascent. It
grew lighter, and we went steadily upwards, but this climbing, in
single file, from rock to rock and from tree to tree was, at any rate for
us two well-nourished and comfortable Europeans, by no means a
pleasure. In fact, we relinquished the ambition of reaching the
highest peak and contented ourselves with a somewhat lower
projection. This was sensible of us, for there was no question of the
magnificent view we had expected; the heights and the distant
landscape were alike veiled in thick mist, so that even the longest
exposure produced no effect to speak of on my photographic plates.