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Strategic 13e
Management
A n I n t e g r at e d A p p roac h
Theory & Cases
CHARLES W. L. HILL
University of Washington – Foster School of Business
MELISSA A. SCHILLING
New York University – Stern School of Business
GARETH R. JONES
Australia ● Brazil ● Mexico ● Singapore ● United Kingdom ● United States
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Print Number: 01 Print Year: 2019
ABOUT THE AUTHORS
Charles W. L. Hill
Charles W. L. Hill is the Hughes M and Katherine Blake Professor of Strategy and Interna-
tional Business at the Foster School of Business, University of Washington, Seattle. He received
his Ph.D. from the University of Manchester’s Institute of Science and Technology (UMIST)
in Britain. Before joining the University of Washington in 1988, he served on the faculties of
UMIST, Texas A&M University and Michigan State University. Professor Hill has published
extensively in top tier peer reviewed academic journals. His work is widely cited. Professor
Hill teaches courses on strategic management, microeconomics, and international business.
He has received numerous awards for teaching excellence. In addition to his academic work,
he has worked on a private basis with many organizations including Alaska Airlines, Boeing,
Microsoft, Swedish Health Services, Thompson Financial Services, and Wizards of the Coast.
Melissa A. Schilling
Melissa A. Schilling is the John Herzog Chair Professor of Management at New York Uni-
versity Stern School of Business. She received her Ph.D. in strategic management from the
University of Washington. Her research focuses on innovation and strategy in high technol-
ogy industries such as smartphones, videogames, pharmaceuticals, biotechnology, electric
vehicles, and renewable energies. Her research has earned her awards such as the National
Science Foundation’s CAREER Award, and the Best Paper in Management Science and
Organization Science for 2007 Award. Professor Schilling teaches courses in technology and
innovation management, strategic management, corporate strategy, and strategy for social-
mission-based organizations. She has also taught workshops or consulted with organizations
such as Bloomberg Corporation, IBM, Siemens, Standard & Poor’s, Warner Chilcott, White
& Case, PayPal, Facebook, Skullcandy, Behr Paints, The Kauffman Foundation, National
Academy of Sciences, the American Antitrust Institute, and others. She has been quoted in
or interviewed for articles in Fortune, Forbes, Inc., Thomson Reuters, CNBC, CNN Money,
Bloomberg Business Week, NPR’s Marketplace, NPR’s Tech Nation, Machine Design, The
Brian Lehrer Show, The Huffington Post, Scientific American, and more.
iii
Brief Contents
PART ONE Introduction to Strategic Management

1 Strategic Leadership: Managing the Strategy-Making Process for Competitive
Advantage 2
2 External Analysis: The Identification of Opportunities and Threats 40
PART Two The Nature of Competitive Advantage

3 Internal Analysis: Resources and Competitive Advantage 76
4 Competitive Advantage Through Functional-Level Strategies 107
PART THREE Strategies

5 Business-Level Strategy 144
6 Business-Level Strategy and the Industry Environment 168
7 Strategy and Technology 199
8 Strategy in the Global Environment 236
9 Corporate-Level Strategy: Horizontal Integration, Vertical Integration,
and Strategic Outsourcing 276
10 Corporate-Level Strategy: Related and Unrelated Diversification 311
PART FOUR IMPLEMENTING STRATEGY

11 Corporate Governance, Social Responsibility, and Ethics 350
12 Implementing Strategy Through Organization 389
PART FIVE Cases in Strategic Management C-1
Glossary G-1
Index I-1
iv
Contents
Preface xvi
Acknowledgments xx
Dedication xxiii
PART ONE Introduction to Strategic Management

Chapter 1 Strategic Leadership: Managing the Strategy-Making
Process for Competitive Advantage 2
Opening Case: T-Mobile’s Uncarrier Strategy 2
1-1 Overview 4
1-2 Strategic Leadership, Competitive Advantage, and Superior
Performance 5
1-2a Superior Performance 5
1-2b Competitive Advantage and a Company’s Business Model 7
1-2c Industry Differences in Performance 8
1-2d Performance in Nonprofit Enterprises 8
Strategy in Action 1.1: The Gates Foundation—Eradicating Malaria 9
1-3 Strategic Managers 10
1-3a Corporate-Level Managers 10
1-3b Business-Level Managers 12
1-3c Functional-Level Managers 12
1-4 The Strategy-Making Process 12
1-4a A Model of the Strategic Planning Process 13
1-4b Mission Statement 13
1-5 Major Goals 17
1-5a External Analysis 18
1-5b Internal Analysis 18
Strategy in Action 1.2: The Evolution of Strategy at Time Inc. 19
1-5c SWOT Analysis and the Business Model 20
1-5d Strategy Implementation 21
1-5e The Feedback Loop 21
1-6 Strategy as an Emergent Process 22
1-6a Strategy Making in an Unpredictable World 22
1-6b Autonomous Action: Strategy Making by Lower-Level
Managers 22
1-6c Serendipity and Strategy 23
1-6d Intended and Emergent Strategies 23
Strategy in Action 1.3: A Strategic Shift at Charles Schwab 24
vi Contents
1-7 S trategic Planning in Practice 26

1-7a Scenario Planning 26
1-7b Decentralized Planning 28
1-8 Strategic Decision Making 28
1-8a Cognitive Biases and Strategic Decision Making 28
1-8b Techniques for Improving Decision Making 30
1-9 Strategic Leadership 30
1-9a Vision, Eloquence, and Consistency 31
1-9b Articulation of the Business Model 31
1-9c Commitment 31
1-9d Being Well Informed 32
1-9e Willingness to Delegate and Empower 32
1-9f The Astute Use of Power 32
1-9g Emotional Intelligence 33
Closing Case: The Rise of LuLulemon 35
Chapter 2 External Analysis: The Identification of Opportunities

and Threats 40
Opening Case: Competition in the U.S. Airline Industry 40
2-1 Overview 42
2-2 Defining an Industry 42
2-3 Porter’s Competitive Forces Model 43
2-3a Risk of Entry by Potential Competitors 44
Strategy in Action 2.1: Circumventing Entry Barriers into the Soft Drink
Industry 47
2-3b Rivalry Among Established Companies 48
Strategy in Action 2.2: Price Wars in the Breakfast Cereal Industry 50
2-3c The Bargaining Power of Buyers 51
2-3d The Bargaining Power of Suppliers 52
2-3e Substitute Products 53
2-3f Complementors 53
2-3g Summary: Why Industry Analysis Matters 54
2-4 Strategic Groups within Industries 55
2-4a Implications of Strategic Groups 57
2-4b The Role of Mobility Barriers 57
2-5 Industry Life-Cycle Analysis 58
2-5a Embryonic Industries 58
2-5b Growth Industries 59
2-5c Industry Shakeout 60
2-5d Mature Industries 61
2-5e Declining Industries 61
2-5f Summary 62
2-6 Limitations of Models for Industry Analysis 62
2-6a Life-Cycle Issues 62
2-6b Innovation and Change 62
2-6c Company Differences 64
Contents vii
2-7 T he Macroenvironment 65
2-7a Macroeconomic Forces 65
2-7b Global Forces 66
2-7c Technological Forces 67
2-7d Demographic Forces 67
2-7e Social Forces 68
2-7f Political and Legal Forces 68
Closing Case: Competition in the U.S. Market for Wireless
Telecommunications 70
PART TWO The Nature of Competitive Advantage

Chapter 3 Internal Analysis: Resources and Competitive Advantage 76
Opening Case: Competitive Advantage at Nordstrom 76
3-1 Overview 78
3-2 Competitive Advantage 78
3-2a Distinctive Competencies 78
3-2b Resources 79
3-2c Resource Quality: The VRIO Framework 81
3-2d Resources and Sustained Competitive Advantage 82
3-3 Value Creation and Profitability 85
3-4 The Value Chain 88
3-4a Primary Activities 89
Strategy in Action 3.1: Value Creation at Burberry 90
3-4b Support Activities 91
Strategy in Action 3.2: Competitive Advantage at Zara 92
3-4c Value-Chain Analysis: Implications 93
3-5 The Building Blocks of Competitive Advantage 94
3-5a Efficiency 95
3-5b Quality as Excellence and Reliability 95
3-5c Innovation 97
3-5d Customer Responsiveness 97
3-6 Analyzing Competitive Advantage and Profitability 98
3-6a Comparing Wal-Mart and Target 100
Closing Case: Southwest Airlines 104
Chapter 4 Competitive Advantage Through Functional-Level Strategies 107

Opening Case: Automation at Boeing 107
4-1 Overview 109
4-2 Achieving Superior Efficiency 109
4-2a Efficiency and Economies of Scale 110
4-2b Efficiency and Learning Effects 111
Strategy in Action 4.1: Learning Effects in Cardiac Surgery 113
4-2c Efficiency and the Experience Curve 113
4-2d Efficiency, Flexible Production Systems, and Mass
Customization 115
viii Contents
Strategy in Action 4.2: Pandora: Mass Customizing Internet Radio 117

4-2e Efficiency, Automation and Artificial Intelligence 118
4-2f Marketing and Efficiency 118
4-2g Materials Management, Just-in-Time Systems and Efficiency 120
4-2h Research and Development Strategy and Efficiency 121
4-2i Human Resource Strategy and Efficiency 121
4-2j Information Systems and Efficiency 123
4-2k Infrastructure and Efficiency 123
4-2l Summary 124
4-3 Achieving Superior Quality 125
4-3a Attaining Superior Reliability 125
4-3b Implementing Reliability Improvement Methodologies 126
Strategy in Action 4.3: General Electric’s Six Sigma Quality Improvement
Process 127
4-3c Improving Quality as Excellence 129
4-4 Achieving Superior Innovation 130
4-4a The High Failure Rate of Innovation 131
4-4b Reducing Innovation Failures 132
4-5 Achieving Superior Customer Responsiveness 134
4-5a Focusing on the Customer 135
4-5b Demonstrating Leadership 135
4-5c Shaping Employee Attitudes 135
4-5d Knowing Customer Needs 135
4-5e Satisfying Customer Needs 136
Closing Case: Trouble at McDonald’s 139
PART THREE Strategies

Chapter 5 Business-Level Strategy 144
Opening Case: Reinventing The New York Times 144
5-1 Overview 146
5-2 Low Cost and Differentiation 146
5-2a Lowering Costs 146
5-2b Differentiation 147
5-2c The Differentiation–Low-Cost Trade-off 149
5-2d Value Innovation: Greater Differentiation at a Lower Cost 151
Strategy in Action 5.1: IKEA: Value Innovation in Furniture Retailing 152
5-3 Who are Our Customers? Market Segmentation 153
5-3a Three Approaches to Market Segmentation 153
5-3b Market Segmentation, Costs and Revenues 154
5-4 Business-Level Strategy Choices 156
Strategy in Action 5.2: Microsoft Office Versus Google Apps 158
5-5 Business-Level Strategy, Industry, and Competitive Advantage 159
5-6 Implementing Business-Level Strategy 160
5-6a Lowering Costs Through Functional Strategy
and Organization 161
Contents ix
5-6b D
ifferentiation Through Functional-Level Strategy and
Organization 161
5-7 Competing Differently: Blue Ocean Strategy 162
Closing Case: Virgin America 166
Chapter 6 Business-Level Strategy and the Industry Environment 168

Opening Case: The Rise of Internet Streaming Services and Decline
in the Power of Cable Companies 168
6-1 Overview 170
6-2 Strategy in a Fragmented Industry 170
6-2a Reasons for Fragmentation 170
6-2b Consolidating a Fragmented Industry Through Value
Innovation 171
6-2c Chaining and Franchising 172
6-2d Horizontal Mergers 173
6-3 Strategies in Embryonic and Growth Industries 174
6-3a The Changing Nature of Market Demand 175
6-3b Strategic Implications: Crossing the Chasm 178
6-3c Strategic Implications of Differences in Market Growth
Rates 179
Strategy in Action 6.1: Crossing the Chasm in the Smartphone Market 180
6-4 Strategy in Mature Industries 182
6-4a Strategies to Deter Entry 183
6-4b Strategies to Manage Rivalry 185
Strategy in Action 6.2: Toyota Uses Market Development to Become
the Global Leader 189
6-5 Strategies in Declining Industries 192
6-5a The Severity of Decline 192
6-5b Choosing a Strategy 193
Closing Case: Can Best Buy Survive the Rise of E-commerce? 196
Chapter 7 Strategy and Technology 199

Opening Case: Tencent and WeChat 199
7-1 Overview 201
7-2 Technical Standards and Format Wars 202
Strategy in Action 7.1: “Segment Zero”—A Serious Threat to
Microsoft? 203
7-2a Examples of Standards 205
7-2b Benefits of Standards 206
7-2c Establishment of Standards 207
7-2d Network Effects, Positive Feedback, and Lockout 208
7-3 Strategies for Winning a Format War 212
7-3a Ensure a Supply of Complements 212
7-3b Leverage Killer Applications 212
7-3c Aggressive Pricing and Marketing 213
x Contents
7-3d Cooperate with Competitors 214

7-3e License the Format 214
7-4 Costs in High-Technology Industries 215
7-4a Comparative Cost Economics 215
7-4b Strategic Significance 216
Strategy in Action 7.2: Lowering the Cost of Ultrasound Equipment Through
Digitalization 217
7-5 Capturing First-Mover Advantages 218
7-5a First-Mover Advantages 219
7-5b First-Mover Disadvantages 220
7-5c Strategies for Exploiting First-Mover Advantages 221
7-6 Technological Paradigm Shifts 224
7-6a Paradigm Shifts and the Decline of Established Companies 225
7-6b Strategic Implications for Established Companies 229
7-6c Strategic Implications for New Entrants 230
Closing Case: Blu-ray versus HD-DVD and Streaming:
Standards Battles in Video 232
Chapter 8 Strategy in the Global Environment 236

Opening Case: Ford’s Global Strategy 236
8-1 Overview 238
8-2 Global and National Environments 238
8-2a The Globalization of Production and Markets 239
Strategy in Action 8.1: Making the Apple iPhone 240
8-2b National Competitive Advantage 242
8-3 Global Expansion, Profitability, and Profit Growth 245
8-3a Expanding the Market: Leveraging Products 245
8-3b Realizing Cost Economies from Global Volume 246
8-3c Realizing Location Economies 246
8-3d Leveraging the Competencies of Global Subsidiaries 247
8-4 Cost Pressures and Pressures for Local Responsiveness 248
8-4a Pressures for Cost Reductions 249
8-4b Pressures for Local Responsiveness 250
8-5 Choosing a Global Strategy 253
8-5a Global Standardization Strategy 253
8-5b Localization Strategy 254
8-5c Transnational Strategy 255
8-5d International Strategy 256
8-5e Changes in Strategy over Time 257
8-6 The Choice of Entry Mode 258
8-6a Exporting 258
8-6b Licensing 259
Strategy in Action 8.2: Burberry Shifts its Strategy in Japan 261
8-6c Franchising 261
8-6d Joint Ventures 262
8-6e Wholly-Owned Subsidiaries 263
8-6f Choosing an Entry Strategy 264
Contents xi
8-7 Global Strategic Alliances 266

8-7a Advantages of Strategic Alliances 267
8-7b Disadvantages of Strategic Alliances 267
8-7c Making Strategic Alliances Work 268
Closing Case: The Globalization of Starbucks 272
Chapter 9 Corporate-Level Strategy: Horizontal Integration,

Vertical Integration, and Strategic Outsourcing 276
Opening Case: Netflix in 2018 276
9-1 Overview 278
9-2 Corporate-Level Strategy and the Multibusiness Model 279
9-3 Horizontal Integration: Single-Industry Corporate Strategy 280
9-3a Benefits of Horizontal Integration 281
Strategy in Action 9.1: Wal-Mart’s Expansion into Other Retail Formats 283
9-3b Problems with Horizontal Integration 285
9-4 Vertical Integration: Entering New Industries to Strengthen
the “Core” Business Model 286
9-4a Increasing Profitability Through Vertical Integration 288
9-4b Problems with Vertical Integration 291
9-5 Alternatives to Vertical Integration: Cooperative Relationships 293
9-5a Short-Term Contracts and Competitive Bidding 294
9-5b Strategic Alliances and Long-Term Contracting 294
9-5c Modularity and Platform Competition 295
9-5d Building Long-Term Cooperative Relationships 299
Strategy in Action 9.2: eBay’s Changing Commitment to Its Sellers 300
9-6 Strategic Outsourcing 301
9-6a Benefits of Outsourcing 303
9-6b Risks of Outsourcing 304
Closing Case: The Proposed Merger of Comcast and Time Warner Cable 307
Chapter 10 Corporate-Level Strategy: Related and Unrelated

Diversification 311
Opening Case: Google’s acquisition of ITA Software 311
10-1 Overview 313
10-2 Increasing Profitability Through Diversification 314
10-2a Transferring Competencies Across Businesses 315
10-2b Leveraging Competencies to Create a New Business 316
10-2c Sharing Resources and Capabilities 316
10-2d Utilizing General Organizational Competencies 319
Strategy in Action 10.1: United Technologies Has an “ACE”
in Its Pocket 321
10-3 Two Types of Diversification 322
10-3a Related Diversification 323
10-3b Unrelated Diversification 323
10-4 The Limits and Disadvantages of Diversification 325
10-4a Changes in the Industry or Company 325
xii Contents
10-4b Diversification for the Wrong Reasons 325

10-4c The Bureaucratic Costs of Diversification 327
Strategy in Action 10.2: How Bureaucratic Costs Rose Then Fell
at Pfizer 329
10-5 Choosing a Strategy 330
10-5a Related Versus Unrelated Diversification 330
10-5b The Web of Corporate-Level Strategy 330
10-6 Entering New Industries: Internal New Ventures 332
10-6a The Attractions of Internal New Venturing 332
10-6b Pitfalls of New Ventures 332
10-6c Guidelines for Successful Internal New Venturing 334
10-7 Entering New Industries: Acquisitions 335
10-7a The Attraction of Acquisitions 336
10-7b Acquisition Pitfalls 336
10-7c Guidelines for Successful Acquisition 339
10-8 Entering New Industries: Joint Ventures 341
10-8a Restructuring 342
10-8b Why Restructure? 342
Closing Case: LVMH: Getting Big While Staying Beautiful 345
PART FOUR IMPLEMENTING STRATEGY

Chapter 11 Corporate Governance, Social Responsibility, and Ethics 350
Opening Case: Volkswagen: From the “People’s Car” to Dieselgate 350
11-1 Overview 355
11-2 Stakeholders and Corporate Performance 355
11-2a Stakeholder Impact Analysis 357
11-2b The Unique Role of Stockholders 357
11-2c Profitability, Profit Growth, and Stakeholder Claims 358
Strategy in Action 11.1: Price Fixing at Sotheby’s and Christie’s 361
11-3 Agency Theory 361
11-3a Principal–Agent Relationships 362
11-3b The Agency Problem 362
Strategy in Action 11.2: Self-Dealing at Hollinger International Inc. 366
11-4 Governance Mechanisms 367
11-4a The Board of Directors 367
11-4b Stock-Based Compensation 369
11-4c Financial Statements and Auditors 370
11-4d The Takeover Constraint 371
11-4e Governance Mechanisms Inside a Company 372
11-5 Ethics and Strategy 374
11-5a Ethical Issues in Strategy 375
11-5b The Roots of Unethical Behavior 378
11-5c Behaving Ethically 379
Closing Case: Starbucks: Taking a Stand on Social Issues 384
Contents xiii
Chapter 12 Implementing Strategy Through Organization 389

Opening Case: Organization at Microsoft 389
12-1 Overview 391
12-2 Organizational Architecture 391
12-3 Organizational Structure 393
12-3a Centralization and Decentralization 393
Strategy in Action 12.1: FEMA and Hurricane Katrina 396
12-3b Tall Versus Flat Hierarchies 397
12-3c Structural Forms 399
12-3d Formal Integrating Mechanisms 403
12-3e Informal Integrating Mechanisms 405
12-4 Organization Controls and Incentives 407
12-4a Control Systems 407
Strategy in Action 12.2: Goal Setting and Controls at Nordstrom 409
12-4b Methods of Control 410
12-5 Organizational Culture 415
12-6 Organization Processes 417
Strategy in Action 12.3: Organizational Culture at Lincoln Electric 417
12-7 Implementing Strategy Through Organizational Architecture 418
12-7a Strategy and Organization in the Single-Business
Enterprise 418
12-7b Strategy and Organization in the Multibusiness Enterprise 422
Closing Case: Organization Change at Google (Alphabet) 425
PART FIVE Cases in Strategic Management

Introduction: Analyzing a Case Study and Writing a
Case Study Analysis C-4
What is Case Study Analysis? C-4
Analyzing a Case Study C-5
Writing a Case Study Analysis C-10
The Role of Financial Analysis in Case Study Analysis C-12
Profit Ratios C-12
Liquidity Ratios C-13
Activity Ratios C-14
Leverage Ratios C-14
Shareholder-Return Ratios C-15
Cash Flow C-16
Conclusion C-16
Endnote C-17
Long Cases
Case 1: Trader Joe’s in 2018 C-18
Case 2: Small Package Express Delivery Industry, 1973–2018 C-23
xiv Contents
Case 3: Airborne Express: The Underdog C-38
Case 4: Charles Schwab C-50
Case 5: Coca-Cola C-65
Case 6: Uber in 2018 C-76
Case 7: Dell Inc (A)—Going Private C-90
Case 8: Dell Inc (B)—Transforming the Company C-100
Case 9: Apple at Fourty C-106
Case 10: Wal-Mart Stores C-122
Case 11: Costco Wholesale Corporation in 2018 C-134
Case 12: SpaceX: Disrupting the Space Industry C-144
Case 13: Alibaba Group: The Rise of a Platform Giant C-151
Case 14: Ending HIV? Sangamo and Gene Editing C-159
Case 15: Tesla, Inc. in 2018 C-168
Case 16: C
hotukool: Challenges and Opportunities in Frugal
Innovation C-181
Case 17: IKEA in 2018: Furniture Retailer to the World C-184
Case 18: General Electric C-193
Case 19: 3M: The Innovation Engine C-204
Case 20: Nike: The Sweatshop Debate 20 Years on C-219
Short Cases
Case 21: How to Make Money in Newspaper Advertising C-226
Case 22: A Battle for Dominance in Mobile Payments C-228
Case 23: The Market for Large Commercial Jet Aircraft C-232
Case 24: Verizon Wireless: Competitive Advantage C-234
Case 25: A
mazon.com: Competitive Advantage and Functional
Strategy C-236
Case 26: Nordstrom: Business-Level Strategy C-238
Case 27: Procter & Gamble: Evolution of Global Strategy C-240
Contents xv
Case 28: JCB in India C-242
Case 29: Outsourcing and Vertical Integration at Apple C-244
Case 30: Citigroup: The Opportunities and Risks of Diversification C-246
Case 31: HP’s Disastrous Acquisition of Autonomy C-249
Case 32: Organization at Apple C-251
Glossary G-1
Index I-1
PREFACE
Consistent with our mission to provide students with the most current and up-to-date
account of the changes taking place in the world of strategy and management, there
have been significant changes in the 13th edition of Strategic Management: An Integrated
Approach.
After making major contributions to the last two editions, Melissa Schilling has fully re-
placed Gareth Jones as a contributor in this edition. Melissa is a Professor of Management
and Organization at the Leonard Stern School of Business at New York University, where she
teaches courses on strategic management, corporate strategy, and technology and innovation
management. She has published extensively in top-tier academic journals and is recognized as
one of the leading experts on innovation and strategy in high-technology industries.
Second, continuing the trend of the last two editions, there have been significant revisions
to the text in this edition. In the 11th edition, Chapter 5, “Business-Level Strategy,” was re-
written from scratch. In addition to the standard material on Porter’s generic strategies, this
chapter now includes discussion of value innovation and blue ocean strategy following the work
of W. C. Kim and R. Mauborgne. Chapter 6, “Business-Level Strategy and the Industry Envi-
ronment,” was also extensively rewritten and updated to clarify concepts and bring it into the
21st century. For the 12th edition, we significantly revised and updated Chapter 3, building
discussion of resources and competitive advantage around Jay Barney’s popular VRIO model.
We also combined Chapters 12 and 13 into a single chapter on implementing strategy through
organization. We think this more streamlined approach greatly strengthened the book and
enhanced readability, particularly for students.
For the 13th edition, further changes were made in content. For example, Chapter 7 con-
tains a more in-depth discussion of direct and indirect network effects and switching costs. In
Chapter 8, we discuss how the rapidly changing international trade environment as exemplified
by Brexit, the renegotiation of the North American Free Trade Agreement (NAFTA), and on-
going trade disputes between the United States and China, might impact enterprise strategy. In
Chapter 9, we added an extensive section on the multiple benefits of horizontal integration, and
added a section on modularity and platform competition. Chapter 10 was strengthened by the
addition of a section on how agency problems can lead to acquisitions that do not create value.
Third, the examples and cases contained in each chapter have been revised. Every chapter
has a new Opening Case and a new Closing Case. There are also many new Strategy in Action
features. In addition, we have significantly updated the examples used in the text to make them
both more modern and more globally representative. In making these changes, our goal has
been to make the book relevant for students reading it in the second decade of the 21st century.
Fourth, we have a substantially revised selection of cases for this edition. All cases are
either new to this edition or are updates of cases that adopters have indicated they like to see
in the book. As with the last edition, we made the decision to use only our own cases. Over
the years, it has been increasingly difficult to find high-quality, third-party cases, while we
have received consistently positive feedback about the quality of cases that we have written;
so, we decided that from this point forward we would only use our own cases. We have also
received feedback that many professors like to use shorter cases, instead of or in addition to
the longer cases normally included in our book. Consequently, in this edition of the book we
xvi
Preface xvii
have included 32 cases, 20 of which are the traditional long-form cases, and 12 of which are
shorter cases. All of the cases are current. We have made an effort to include cases that have
high name recognition with students, and that they will enjoy reading and working on. These
include long-form cases on Trader Joe’s, Coca Cola, Wal-Mart, Uber, SpaceX, Alibaba, Dell,
Apple, IKEA, Tesla, 3M, and General Electric.
Practicing Strategic Management: An Interactive Approach

We have received a lot of positive feedback about the usefulness of the end-of-chapter exer-
cises and assignments in the Practicing Strategic Management sections of our book. They
offer a wide range of hands-on and digital learning experiences for students. We are thrilled to
announce that we have moved some of these elements into the MindTap digital learning solu-
tion to provide a seamless learning experience for students and instructors. We have enhanced
these features to give students engaging, multimedia learning experiences that teach them the
case analysis framework and provide them multiple opportunities to step into the shoes of a
manager and solve real-world strategic challenges. For instructors, MindTap offers a fully cus-
tomizable, all-in-one learning suite including a digital gradebook, real-time data analytics, and
full integration into your LMS. Select from assignments including:
●● Cornerstone to Capstone Diagnostic assesses students’ functional area knowledge and pro-
vides feedback and remediation so that students are up to speed and prepared for the stra-
tegic management course material.
●● Multimedia Quizzes assess students’ basic comprehension of the reading material to help
you gauge their level of engagement and understanding of the content.
●● Guided Cases engage students by presenting businesses facing strategic challenges, placing
concepts in real-world context, and making for great points of discussion. As they com-
plete these activities, students receive instruction and feedback that teaches them the case
analysis methodology and helps them build critical thinking and problem-solving skills.
●● Experiential Exercises are based on the “Practicing Strategic Management” assignments in
the end-of-chapter materials in previous editions. They have been updated for the MindTap
and challenge students to work in teams using the YouSeeU app in our one-of-a-kind col-
laborative environment to solve real-world managerial problems and begin to experience
firsthand what it’s like to work in management.
●● Branching Activities present challenging problems that cannot be solved with one specific,
correct answer. Students are presented with a series of decisions to be made based upon
information they are given about a company, and are scored according to the quality of
their decisions.
●● Case Analysis Projects are delivered in our online collaborative environment via the
YouSeeU app so that students can work together synchronously to complete their com-
prehensive case analysis projects, papers, and presentations. Offered in conjunction with
robust cases written exclusively by Charles Hill and Melissa Schilling, these activities
challenge students to think and act like tomorrow’s strategic leaders. Use our default
activity, written by seasoned strategic management instructors, or customize the project
to suit your class.
It is not our intention to suggest that all exercises should be used for every chapter. Strate-
gic management is taught at both undergraduate and graduate levels, and therefore we offer a
variety of pedagogically designed activities with numerous challenge levels so that instructors
can customize MindTap to best suit their teaching style and the objectives of the course.
xviii Preface
We have found that our interactive approach to teaching strategic management appeals to
students. It also greatly improves the quality of their learning experience. Our approach is more
fully discussed in the Instructor’s Resource Manual.
Strategic Management Cases

The 32 cases that we have selected for this edition will appeal, we are certain, to students and
professors alike, both because these cases are intrinsically interesting and because of the num-
ber of strategic management issues they illuminate. The organizations discussed in the cases
range from large, well-known companies, for which students can do research to update the in-
formation, to small, entrepreneurial businesses that illustrate the uncertainty and challenge of
the strategic management process. In addition, the selections include many international cases,
and most of the other cases contain some element of global strategy. Refer to the Contents for
a complete listing of the cases.
To help students learn how to effectively analyze and write a case study, we continue to
include a special section on this subject. It has a checklist and an explanation of areas to con-
sider, suggested research tools, and tips on financial analysis. Additionally, the MindTap learn-
ing activities include Directed Cases that ask students to complete the steps and offer in-depth
explanations to guide them through the process, as well as case-based Branching Activities that
place students in the shoes of a manager and require them to move through strategic decisions;
students are assessed on the quality of their analysis in making their choices, and the activity
concludes with a discussion question for you to implement in class.
We feel that our entire selection of cases is unrivaled in breadth and depth.
Teaching and Learning Aids

Taken together, the teaching and learning features of Strategic Management provide a pack-
age that is unsurpassed in its coverage and that supports the integrated approach that we have
taken throughout the book.
●● MindTap. MindTap is the digital learning solution that helps instructors engage students
and help them become tomorrow’s strategic leaders. All activities are designed to teach
students to problem-solve and think like management leaders. Through these activi-
ties and real-time course analytics, and an accessible reader, MindTap helps you turn
cookie cutter into cutting edge, apathy into engagement, and memorizers into higher-
level thinkers.
Customized to the specific needs of this course, activities are built to facilitate mas-
tery of chapter content. We have addressed case analysis from cornerstone to capstone
with a functional area diagnostic of prior knowledge, guided cases, branching activi-
ties, multimedia presentations of real-world companies facing strategic decisions, and a
collaborative environment in which students can complete group case analysis projects
together synchronously.
●● Instructor Website. Access important teaching resources on this companion website. For
your convenience, you can download electronic versions of the instructor supplements
from the password-protected section of the site, including Instructor’s Resource Manual,
Comprehensive Case Notes, Cognero Testing, and PowerPoint® slides. To access these
additional course materials and companion resources, please visit www.cengage.com.
Preface xix
●● The Instructor’s Resource Manual. For each chapter, we provide a clearly focused synopsis,
a list of teaching objectives, a comprehensive lecture outline, teaching notes for the Ethical
Dilemma feature, suggested answers to discussion questions, and comments on the end-of-
chapter activities. Each Opening Case, Strategy in Action boxed feature, and Closing Case
has a synopsis and a corresponding teaching note to help guide class discussion.
●● Case Teaching Notes. These include a complete list of case discussion questions, as well as
comprehensive teaching notes for each case, which give a complete analysis of case issues.
●● Cognero Test Bank. A completely online test bank allows the instructor the ability to cre-
ate comprehensive, true/false, multiple-choice, and essay questions for each chapter in the
book. The mix of questions has been adjusted to provide fewer fact-based or simple memo-
rization items and to provide more items that rely on synthesis or application.
●● PowerPoint Presentation Slides. Each chapter comes complete with a robust PowerPoint
presentation to aid with class lectures. These slides can be downloaded from the text
website.
Acknowledgments
This book is the product of far more than three authors. We are grateful to our Senior Product
Manager, Mike Giffen; our Content Manager, Amanda White; and our Marketing Manager,
Audrey Wyrick, for their help in developing and promoting the book and for providing us with
timely feedback and information from professors and reviewers, which allowed us to shape the
book to meet the needs of its intended market. We also want to thank the departments of man-
agement at the University of Washington and New York University for providing the setting
and atmosphere in which the book could be written, and the students of these universities who
react to and provide input for many of our ideas. In addition, the following reviewers of this
and earlier editions gave us valuable suggestions for improving the manuscript from its original
version to its current form:
Andac Arikan, Florida Atlantic University
Ken Armstrong, Anderson University
Richard Babcock, University of San Francisco
Kunal Banerji, West Virginia University
Kevin Banning, Auburn University- Montgomery
Glenn Bassett, University of Bridgeport
Thomas H. Berliner, The University of Texas at Dallas
Bonnie Bollinger, Ivy Technical Community College
Richard G. Brandenburg, University of Vermont
Steven Braund, University of Hull
Philip Bromiley, University of Minnesota
Geoffrey Brooks, Western Oregon State College
Jill Brown, Lehigh University
Amanda Budde, University of Hawaii
Lowell Busenitz, University of Houston
Sam Cappel, Southeastern Louisiana University
Charles J. Capps III, Sam Houston State University
Don Caruth, Texas A&M Commerce
Gene R. Conaster, Golden State University
Steven W. Congden, University of Hartford
Catherine M. Daily, Ohio State University
Robert DeFillippi, Suffolk University Sawyer School of Management
Helen Deresky, SUNY—Plattsburgh
Fred J. Dorn, University of Mississippi
Gerald E. Evans, The University of Montana
John Fahy, Trinity College, Dublin
Patricia Feltes, Southwest Missouri State University
xx
Acknowledgments xxi
Bruce Fern, New York University

Mark Fiegener, Oregon State University
Chuck Foley, Columbus State Community College
Isaac Fox, Washington State University
Craig Galbraith, University of North Carolina at Wilmington
Scott R. Gallagher, Rutgers University
Eliezer Geisler, Northeastern Illinois University
Gretchen Gemeinhardt, University of Houston
Lynn Godkin, Lamar University
Sanjay Goel, University of Minnesota—Duluth
Robert L. Goldberg, Northeastern University
James Grinnell, Merrimack College
Russ Hagberg, Northern Illinois University
Allen Harmon, University of Minnesota—Duluth
Ramon Henson, Rutgers University
David Hoopes, California State University—Dominguez Hills
Todd Hostager, University of Wisconsin—Eau Claire
David Hover, San Jose State University
Graham L. Hubbard, University of Minnesota
Miriam Huddleston, Harford Community College
Tammy G. Hunt, University of North Carolina at Wilmington
James Gaius Ibe, Morris College
W. Grahm Irwin, Miami University
Homer Johnson, Loyola University—Chicago
Jonathan L. Johnson, University of Arkansas Walton College of Business Administration
Marios Katsioloudes, St. Joseph’s University
Robert Keating, University of North Carolina at Wilmington
Geoffrey King, California State University—Fullerton
Rico Lam, University of Oregon
Robert J. Litschert, Virginia Polytechnic Institute and State University
Franz T. Lohrke, Louisiana State University
Paul Mallette, Colorado State University
Daniel Marrone, SUNY Farmingdale
Lance A. Masters, California State University—San Bernardino
Robert N. McGrath, Embry-Riddle Aeronautical University
Charles Mercer, Drury College
Van Miller, University of Dayton
Debi Mishra, Binghamton University
Tom Morris, University of San Diego
Joanna Mulholland, West Chester University of Pennsylvania
James Muraski, Marquette University
xxii Acknowledgments
John Nebeck, Viterbo University

Jeryl L. Nelson, Wayne State College
Louise Nemanich, Arizona State University
Francine Newth, Providence College
Don Okhomina, Fayetteville State University
Phaedon P. Papadopoulos, Houston Baptist University
John Pappalardo, Keen State College
Paul R. Reed, Sam Houston State University
Rhonda K. Reger, Arizona State University
Malika Richards, Indiana University
Simon Rodan, San Jose State
Stuart Rosenberg, Dowling College
Douglas Ross, Towson University
Ronald Sanchez, University of Illinois
Joseph A. Schenk, University of Dayton
Brian Shaffer, University of Kentucky
Leonard Sholtis, Eastern Michigan University
Pradip K. Shukla, Chapman University
Mel Sillmon, University of Michigan—Dearborn
Dennis L. Smart, University of Nebraska at Omaha
Barbara Spencer, Clemson University
Lawrence Steenberg, University of Evansville
Kim A. Stewart, University of Denver
Ted Takamura, Warner Pacific College
Scott Taylor, Florida Metropolitan University
Thuhang Tran, Middle Tennessee University
Bobby Vaught, Southwest Missouri State
Robert P. Vichas, Florida Atlantic University
John Vitton, University of North Dakota
Edward Ward, St. Cloud State University
Kenneth Wendeln, Indiana University
Daniel L. White, Drexel University
Edgar L. Williams, Jr., Norfolk State University
Donald Wilson, Rochester Institute of Technology
Jun Zhao, Governors State University
Charles W. L. Hill
Melissa A. Schilling
Gareth R. Jones
Dedication
To my daughters Elizabeth, Charlotte, and Michelle
— Charles W. L. Hill
For my children, Julia and Conor
— Melissa A. Schilling
xxiii
1
Introduction to Strategic
Management
Chapter 1 Strategic Leadership: Managing

the Strategy-Making Process for
Competitive Advantage
Chapter 2 External Analysis: The
Identification of Opportunities
and Threats
Photomaxx/Shutterstock.com
Strategic Leadership: Managing
1
Photomaxx/Shutterstock.com
the Strategy-Making Process
for Competitive Advantage
LEARNING OBJECTIVES OPENING CASE
1.1 Explain what is meant by T-Mobile’s Uncarrier Strategy

“competitive advantage”
1.2 Discuss the strategic role of When John Legere joined T-Mobile as CEO in September 2012, the
managers at different levels number four US wireless service provider was in trouble. The company
within an organization would lose $7.2 billion in 2012. The market was saturated, and growth
was slow. Verizon and AT&T dominated the business with almost 80%
1.3 Identify the primary steps in of the market between them. T-Mobile had just 10% Verizon and AT&T
a strategic planning process enjoyed cost advantages that came from significant economies of scale.
1.4 Discuss the common pitfalls Both companies had better network coverage and fewer dropped calls
of planning, and how those than T-Mobile. Moreover, unlike its larger rivals, T-Mobile did not offer
pitfalls can be avoided the best-selling iPhone to its customers. To compound matters, AT&T had
tried to acquire T-Mobile, but the deal fell apart after opposition from the
1.5 Outline the cognitive biases
that might lead to poor
strategic decisions, and
explain how these biases
can be overcome
1.6 Discuss the role strategic
leaders play in the
strategy-making process
Bloomberg/Getty Images
Chapter 1 Strategic Leadership: Managing the Strategy-Making Process for Competitive Advantage 3
Justice Department who thought that merger would reduce competition in the industry.
Employee moral had taken a hit during the merger talks and had yet to recover.
Legere saw things differently. Although employee morale was beaten down, he
thought that the overall culture was intact and had the potential to be a powerful driver
of growth. The average age of field employees was just 27. They were looking for
somebody to energize them, and Legere meant to deliver. He did so by providing a
clear strategic direction, eliminating bureaucratic rules and procedures that stifled mo-
tivation and initiative taking, and creating a sense of excitement. Legere also realized
that customers hated industry practices. They hated being locked into contracts. They
hated being gouged by extra fees they couldn’t understand or couldn’t fully control, such
as data and roaming charges. They also thought wireless phones were cheap, whereas
the wireless carriers were in fact subsidizing the phone manufacturers and recouping the
cost of selling cheap handsets by charging high service fees. To Legere’s way of think-
ing, customer dissatisfaction with industry practices created an opportunity for T-Mobile.
He believed that the best way to succeed in the industry was to do things differently from
existing carriers – to do the complete opposite – and so was born T-Mobile’s strategy of
being the “Un-carrier.”
First though, Legere had to fix some obvious problems. T-Mobile wasn’t selling the
iPhone, so he went to Apple and made a deal. T-Mobile’s network coverage had been
terrible, so the company began buying up all of the wireless spectrum they could and
investing heavily in upgrading their network to improve both the coverage and speed of
service. Next, Legere and his team started to make dramatic changes to the company’s
offering aimed at making the experience better for customers. T-Mobile eliminated long-
term contracts and replaced them with a transparent pricing model. They made it easier
to upgrade to a new smartphone, and stopped charging for global roaming. They of-
fered to pay the early termination fees for customers who wanted to switch from other
carriers to T-Mobile. The company was also the first to offer unlimited data plans. In
2017, it upped the ante by offering free Netflix streaming to customers with two or more
lines. Legere backed up all of this with flashy marketing, including creative use of his
twitter account to promote T-Mobile and lambast industry rivals (Legere has an impressive
5.3 million followers on Twitter).
The strategy has produced some noticeable results. The total number of subscribers
at T-Mobile increased from 33 million in late 2012 to 70 million by late 2017, making
the company number one in terms of customer growth. Market share expanded from
10% to 17% over the same period. Monthly churn rates, a key metric of customer satis-
faction, fell from 2.7% in 2011 to 1.3% in 2017, close to the 1% achieved by industry
leader Verizon. That being said, T-Mobile still faces big challenges. It continues to lack
the economies of scale and coverage of its larger rivals. T-Mobile also has poor retail
distribution in one-third of the United States, a deficiency it is now trying to fix by rapidly
expanding its retail presence. It added more than 3,000 retail stores in 2017 alone. If
it gains enough new customers, it may be able to attain scale economies, lower its costs
per customer and become more profitable.
Sources: John Legere, “T-Mobile’s CEO on winning market share by trash talking rivals,” Harvard Business Review,
January-February 2017. Brandt Ranj, “How the unlimited data plans from AT&T, Verizon, T-Mobile and Sprint all
stack up,” Business Insider, June 29, 2017. Ina Fried, “T-Mobile COO explains why the “uncarrier” strategy is
working,” Axios, September 11, 2017.
4 Part 1 Introduction to Strategic Management
1-1 OVERVIEW
Why do some companies succeed, whereas others fail? In the airline industry,
how has Southwest Airlines managed to keep increasing its revenues and profits
through both good times and bad, whereas rivals such as United Airlines have had
to seek bankruptcy protection? What explains the persistent growth and profit-
ability of Nucor Steel, now the largest steelmaker in the United States, during a
period when many of its once-larger rivals disappeared into bankruptcy? And with
reference to the Opening Case, why has T-Mobile recently been able to grow faster
than its rivals?
In this book, we explain how the strategies that a company’s managers pursue have
a major impact on the company’s performance relative to that of its competitors. A
strategy strategy is a set of related actions that managers take to attain a goal or goals. For
A set of related actions most, if not all, companies, achieving superior financial performance relative to rivals
that managers take to is the ultimate goal. If a company’s strategies result in superior performance, it is said
increase their company’s to have a competitive advantage.
performance.
For T-Mobile, the search for competitive advantage is still a work in progress.
When John Legere joined T-Mobile as CEO in 2012, his primary goal was to increase
the market share of the company in order to better attain economies of scale and in-
crease profitability (see the Opening Case). He pursued a number of actions that were
consistent with this goal, which collectively are referred to at T-Mobile as the “un-
carrier” strategy. So far, the strategy has been successful at increasing market share.
By 2018, T-Mobile had twice as many subscribers as it did when Legere became CEO.
However, the company still lags its larger rivals on common measures of financial
performance such as return on invested capital (a popular measured of profitability).
T-Mobile will need to continue to build on its current success if it is going to establish
a sustainable competitive advantage and reap the gains in terms of superior financial
performance.
This book identifies and describes the strategies that managers can pursue to
achieve superior performance and provide their companies with a competitive advan-
tage. One of its central aims is to give you a thorough understanding of the analyti-
cal techniques and skills necessary to formulate and implement strategies successfully.
The first step toward achieving this objective is to describe in more detail what supe-
strategic leadership rior performance and competitive advantage mean, and to explain the pivotal role that
Creating competitive managers play in leading the strategy-making process.
advantage through Strategic leadership is about how to most effectively manage a company’s strategy-
effective management making process to create competitive advantage. Strategy-making is the process by
of the strategy-making which managers select and then implement a set of strategies that aim to achieve a
process.
competitive advantage. Strategy formulation is the task of selecting strategies. Strategy
strategy formulation implementation is the task of putting strategies into action, which includes design-
Selecting strategies ing, delivering, and supporting products; improving the efficiency and effectiveness of
based on analysis of an operations; and designing a company’s organizational structure, control systems, and
organization’s external culture. T-Mobile has been successful so far under Legere’s leadership not just because
and internal environment.
he and his team formulated a viable strategy, but because that strategy has been well
strategy implementation implemented.
Putting strategies into By the end of this chapter, you will understand how strategic leaders can manage
action. the strategy-making process by formulating and implementing strategies that enable
a company to achieve a competitive advantage and superior performance. Moreover,

you will learn how the strategy-making process can sometimes go wrong, and what
managers can do to make this process more effective.
1-2
Strategic Leadership, Competitive
Advantage, and Superior
Performance
Strategic leadership is concerned with managing the strategy-making process to in-
crease the performance of a company, thereby increasing the value of the enterprise
to its owners, its shareholders. As shown in Figure 1.1, to increase shareholder value,
managers must pursue strategies that increase the profitability of the company and
ensure that profits grow (for more details, see the Appendix to this chapter). To do this,
a company must be able to outperform its rivals; it must have a competitive advantage.
1-2a Superior Performance

Shareholder value refers to the returns that shareholders earn from purchasing shares shareholder value
in a company. These returns come from two sources: (a) capital appreciation in the Returns that shareholders
value of a company’s shares, and (b) dividend payments. For example, during 2017, a earn from purchasing
share of Microsoft increased in price from $62.84 to $85.95. Each share of Microsoft shares in a company.
also paid a dividend of $1.56 to its owners during 2017. Thus, in 2017, shareholders in
Microsoft earned a return of 39.3%, 36.8% of which came from capital appreciation
risk capital
in the value of the share, and 2.5% of which came in the form of a dividend payout.
Maximizing shareholder value is the ultimate goal of profit-making companies, Equity capital invested
with no guarantee that
for two reasons. First, shareholders provide a company with the risk capital that en- stockholders will recoup
ables managers to buy the resources needed to produce and sell goods and services. their cash or earn a
Risk capital is capital that cannot be recovered if a company fails and goes bankrupt. decent return.
Figure 1.1 Determinants of Shareholder Value
Prof itability
(ROIC)
Ef fectiveness Shareholder
of strategies value
Prof it
growth
Shareholders will not provide risk capital unless they believe that managers are com-
mitted to pursuing strategies that provide a good return on their capital investment.
Second, shareholders are the legal owners of a corporation, and their shares therefore
represent a claim on the profits generated by a company. Thus, managers have an
obligation to invest those profits in ways that maximize shareholder value.
As noted in Figure 1.1, increasing shareholder value requires strategies that boost
the profitability of the enterprise, and enable it to attain greater profit growth. One
profitability way to measure the profitability of a company is by its return on the capital invested in
The return a company the enterprise.1 The return on invested capital (ROIC) that a company earns is defined
makes on the capital as its net profit over the capital invested in the firm (profit/capital invested). By net
invested in the enterprise. profit, we mean net income after tax. By capital, we mean the sum of money invested
in the company: that is, stockholders’ equity plus debt owed to creditors. So defined,
profitability is the result of how efficiently and effectively managers use the capital at
their disposal to produce goods and services that satisfy customer needs. A company that
uses its capital efficiently and effectively makes a positive return on invested capital.
On this measure, T-Mobile still has some way to go. Although the company has been
return on invested capital profitable since 2012, T-Mobile’s return on invested capital (ROIC) remains mired in
Return on invested the low to mid-single digits. In 2017, for example, it was 6.7% compared to 14% at
capital is equal to net Verizon. In the long run, Legere will have to increase ROIC if his tenure is to be judged
profit divided by capital a complete success.
invested in the company.
A company’s profit growth can be measured by the increase in net profit over time.
profit growth A company can grow its profits if it sells products in rapidly growing markets, gains
The increase in net profit market share from rivals, increases sales to existing customers, expands overseas, or
over time. diversifies profitably into new lines of business. For example, between 2013 and 2017,
T-Mobile increased its net profits from $35 million to $2.2 billion, gaining market
share and doubling its subscriber base thanks to its successful “un-carrier” strategy.
Due to its profit growth, T-Mobile’s earnings per share increased from $0.05 to $2.55
over this period, resulting in appreciation in the value of each share in T-Mobile.
Together, profitability and profit growth are the principal drivers of shareholder
value (see the Appendix to this chapter for details). To both boost profitability and grow
profits over time, managers must formulate and implement strategies that give their com-
pany a competitive advantage over rivals. Under the leadership of Legere, T-Mobile has
been doing this. Between the start of 2013 and the end of 2017, the company’s share
price rose from $18 to almost $64, as investors came to realize that Legere’s strategy
was starting to work. If T-Mobile can continue to improve its market share, higher
profitability will follow and shareholders will be rewarded for their decision to invest
in the company.
One key challenge managers face is how best to simultaneously generate high
profitability and increase profits. Companies that have high profitability but no profit
growth will often be less valued by shareholders than companies that have both high
profitability and rapid profit growth (see the Appendix for details). At the same time,
managers need to be aware that if they grow profits but profitability declines, that too
will be less highly valued by shareholders. What shareholders want to see, and what
managers must try to deliver through strategic leadership, is profitable growth: that is,
high profitability and sustainable profit growth. This is not easy, but some of the most
successful enterprises of our era have achieved it—companies such as Apple, Google,
and Microsoft.
It is important to remember that while maximizing shareholder value is the pri-
mary goal of for profit enterprises, as explained later in this book, managers must
behave in a legal, ethical, and socially responsible manner while working towards this
goal. Moreover, as we shall see, there is good evidence that the best way to maximize
the long-run return to shareholders is to focus on customers and employees. Satisfy-
ing customer needs, and making sure that employees are fairly treated and work pro-
ductively, typically translates into better financial performance and superior long-run
returns for shareholders. Alternatively, ignoring customer needs, and treating employ-
ees unfairly, may boost short-run profits and returns to shareholders, but it will also
damage the long-run viability of the enterprise and ultimately depress shareholder
value. This is why many successful managers argue that if a company focuses on its
customers, and creates incentives for its employees to work productivity, shareholder
returns will take care of themselves. Interestingly, at T-Mobile a major part of Legere’s
strategy has been to focus on treating customers well and empowering employees.
1-2b Competitive Advantage and a Company’s Business Model

Managers do not make strategic decisions in a competitive vacuum. Their company
is competing against other companies for customers. T-Mobile competes against
Verizon, AT&T, and Sprint. Competition is a rough-and-tumble process in which
only the most efficient, effective companies win out. It is a race without end. To maxi-
mize long-run shareholder value, managers must formulate and implement strategies
that enable their company to outperform rivals—that give it a competitive advantage.
A company is said to have a competitive advantage over its rivals when its profitability competitive advantage
and profit growth are greater than the average of other companies competing for the The achieved advantage
same set of customers. The higher its profitability and profit growth relative to rivals, over rivals when a
the greater its competitive advantage will be. A company has a sustained competitive company’s profitability is
greater than the average
advantage when its strategies enable it to maintain above-average profitability and
profitability of firms in its
profit growth for a number of years. T-Mobile isn’t there yet, but it is moving in the industry.
right direction.
The key to understanding competitive advantage is appreciating how the different sustained competitive
strategies managers pursue over time can create activities that fit together to make a advantage
company unique and able to consistently outperform them. A business model is man- A company’s strategies
agers’ conception of how the set of strategies their company pursues work together enable it to maintain
above-average
as a congruent whole, enabling the company to gain a competitive advantage and profitability for a number
achieve superior profitability and profit growth. In essence, a business model is a kind of years.
of mental model, or gestalt, of how the various strategies and capital investments a
company makes fit together to generate above-average performance. A business model business model
encompasses the totality of how a company will: The conception of how
strategies should work
●● Select its customers. together as a whole to
●● Define and differentiate its product offerings. enable the company
to achieve competitive
●● Create value for its customers.
advantage.
●● Acquire and keep customers.
●● Produce goods or services.
●● Increase productivity and lower costs.
●● Deliver goods and services to the market.
●● Organize activities within the company.
●● Configure its resources.
●● Achieve and sustain a high level of profitability.
●● Grow the business over time.
The business model at discount stores such as Wal-Mart, for example, is based on
the idea that costs can be lowered by replacing a full-service retail format with a self-
service format and a wider selection of products sold in a large-footprint store that
contains minimal fixtures and fittings. These savings are passed on to consumers in
the form of lower prices, which in turn grow revenues and help the company achieve
further cost reductions from economies of scale. Over time, this business model has
proved superior to the business models adopted by smaller, full-service, “mom-and-
pop” stores, and by traditional, high-service department stores such as Sears. The
business model—known as the self-service supermarket business model—was first
developed by grocery retailers in the 1950s and later refined and improved on by gen-
eral merchandisers such as Wal-Mart in the 1960s and 1970s. Subsequently, the same
basic business model was applied to toys (Toys “R” Us), office supplies (Staples, Office
Depot), and home-improvement supplies (Home Depot and Lowes).
1-2c Industry Differences in Performance

It is important to recognize that in addition to its business model and associated strate-
gies, a company’s performance is also determined by the characteristics of the industry
in which it competes. Different industries are characterized by different competitive
conditions. In some industries, demand is growing rapidly; in others it is contracting.
Some industries might be beset by excess capacity and persistent price wars; others by
strong demand and rising prices. In some, technological change might be revolutioniz-
ing competition; others may be characterized by stable technology. In some industries,
high profitability among incumbent companies might induce new companies to enter
the industry, and these new entrants might subsequently depress prices and profits
in the industry. In other industries, new entry might be difficult, and periods of high
profitability might persist for a considerable time. Thus, the different competitive con-
ditions prevailing in different industries may lead to differences in profitability and
profit growth. For example, average profitability might be higher in some industries
and lower in other industries because competitive conditions vary from industry to
industry. Exactly how industries differ is discussed in detail in Chapter 2. For now, it
is important to remember that the profitability and profit growth of a company are
determined by two main factors: its relative success in its industry and the overall per-
formance of its industry relative to other industries.2
1-2d Performance in Nonprofit Enterprises

A final point concerns the concept of superior performance in the nonprofit sector. By
definition, nonprofit enterprises such as government agencies, universities, and chari-
ties are not in “business” to make profits. Nevertheless, they are expected to use their
resources efficiently and operate effectively, and their managers set goals to measure
their performance. One performance goal for a business school might be to get its
programs ranked among the best in the nation. A performance goal for a charity such
as the Gates Foundation might be to eradicate malaria (see Strategy in Action 1.1 for
details). A performance goal for a government agency might be to improve its services
while reducing its need for taxpayer funds. The managers of nonprofits need to map
out strategies to attain these goals. They also need to understand that nonprofits com-
pete with each other for scarce resources, just as businesses do. For example, charities
1.1 STRATEGY IN ACTION

The Gates Foundation—Eradicating Malaria
In 2007, the Bill & Melinda Gates Foundation, the committed funds to promising efforts to develop a vac-
philanthropic foundation established by Microsoft cine for malaria. Second, realizing that many malaria
founder Bill Gates and his wife Melinda, announced carriers are asymptomatic, the foundation backed ef-
an ambitious, long-term goal: to eradicate malaria forts to developing better diagnostic tests that could
worldwide, rather than just keeping it under control, be used quickly and efficiently in poor regions so that
as had been the prevailing policy for decades. Many carriers in a population could be identified and treat-
thought the goal was overly ambitious. An earlier ated. Third, it funded efforts to develop new drugs to
tempt to eradicate the disease in the late 1950s had treat those with malaria. These drugs represented an
failed. The call came at a challenging time. Malaria effort to respond to the rise of drug resistant malaria
was killing more than 1 million people a year, most parasites. Fourth, it sought to fund the development
of them children. Deaths from malaria in sub-Saharan of more effective transmission control tools such as
Africa had doubled over the prior 20 years as the insecticide treated bed nets and indoor spraying of
malaria parasite grew resistant to existing drugs, and walls and other surfaces with an insecticide. Finally,
as the mosquitos that carry the disease grew resistant realizing that it could do far more with the support
to insecticides. The Gates Foundation backed up its and cooperation of national governments and multi-
call to arms with a commitment to invest $860 mil- national institutions, the foundation used its resources
lion to malaria programs, and another $650 million to advocate for better funding and more effective poli-
to support the Global Fund to Fight AIDS, Tuberculosis cies, and it partnered proactively with national gov-
and Malaria. ernment in affected areas to help them develop more
With a clear, long-term goal in place, the Gates effective policies.
Foundation needed to develop a set of strategies to How much progress has the foundation made? In
attain this goal. The Foundation knew only too well 2016, malaria claimed 429,000 lives. While that fig-
that simply throwing money at the problem would not ure is still way too high, it represented a 50% reduction
lead to a solution. Besides, even an organization like overall from the diseases peak in the early 2000s. The
the Gates Foundation, which is the world’s largest pri- Gates Foundation’s malaria strategy is evolving. Bill
vate charity, has limited resources and many different Gates is the first to admit that some of its goals were
requests for funding. The foundation needed to make too ambitious. Early on, he thought we would have a
very clear choices about how it allocated its limited malaria vaccine by now. While that hasn’t happened,
resources in order to have maximum effect and help a promising vaccine is now in development. Equally
win the war against malaria. To aid in this process, it notable, some low technology and inexpensive strate-
hired scientists and public health experts to help evalu- gies have proved to be very successful, such as giving
ate requests for funding. away insecticide treated bed nets and placing mosqui-
As it developed over the next few years, the to traps in ventilation airways between the walls and
foundation’s strategy had several elements. First, it rooks of buildings.
Sources: D.G. Blankinship, “Gates Foundation looks to fight Malaria,” Associated Press, October 17, 2007. Bill Gates, “Mosquito Wars,”
gatesnotes, August 15, 2017. Bill & Melinda Gates Foundation, “Malaria: Strategy Overview,” April 2011. N. Kirsch, “Philanthropy King:
Bill Gates gives away $4.6 billion, unveils new campaign to combat malaria,” Forbes, August 15, 2017.
compete for scarce donations, and their managers must plan and develop strategies
that lead to high performance and demonstrate a track record of meeting performance
goals. A successful strategy gives potential donors a compelling message about why
they should contribute additional donations. Thus, planning and thinking strategi-
cally are as important for managers in the nonprofit sector as they are for managers in
profit-seeking firms.
1-3
Strategic Managers
Managers are the linchpin in the strategy-making process. Individual managers must
take responsibility for formulating strategies to attain a competitive advantage and
for putting those strategies into effect through implementation. They must lead the
strategy-making process. The strategies that have resulted in improved performance
at T-Mobile were not chosen by some abstract entity known as “the company”; they
were chosen by the company’s CEO, John Legere, and the managers he hired. Later in
the chapter, we discuss strategic leadership, which is how managers can effectively lead
the strategy-making process.
general managers In most companies, there are two primary types of managers: general managers,
Managers who bear who bear responsibility for the overall performance of the company or for one of
responsibility for the its businesses or product lines, and functional managers, who are responsible for su-
overall performance of pervising a particular function; that is, a task, an activity, or an operation such as
the company or for one
accounting, marketing, research and development (R&D), information technology,
of its major self-contained
subunits or divisions. or logistics. Put differently, general managers have profit-and-loss responsibility for a
product, a business, or the company as a whole.
functional managers A company is a collection of functions or departments that work together to bring a
Managers responsible for particular good or service to the market. A company that that operates in several different
supervising a particular businesses often creates self-contained divisions for each business, with a general manager
function, that is, a task,
activity, or operation, running each. The overriding concern of general managers is the success of the whole
such as accounting, company or the divisions under their direction; they are responsible for deciding how to
marketing, research and create a competitive advantage and achieve high profitability with the resources and capi-
development (R&D), tal at their disposal. Figure 1.2 shows the organization of a multidivisional company that
information technology, competes in several different businesses and has created a separate, self-contained division
or logistics.
to manage each. As you can see, there are three main levels of management: corporate,
multidivisional company business, and functional. General managers are found at the first two of these levels, but
A company that their strategic roles differ depending on their sphere of responsibility.
competes in several
different businesses and
has created a separate,
self-contained division to 1-3a Corporate-Level Managers
manage each. The corporate level of management consists of the chief executive officer (CEO), other
senior executives, and corporate staff. These individuals occupy the apex of decision
making within the organization. The CEO is the principal general manager. In consul-
tation with other senior executives, the role of corporate-level managers is to oversee
the development of strategies for the whole organization. This role includes defining
the goals of the organization, determining what businesses it should be in, allocat-
ing resources among the different businesses, formulating and implementing strategies
that span individual businesses, and providing leadership for the entire organization.
Figure 1.2 Levels of Strategic Management
Head
Corporate Level Office
CEO, Board of
Directors,
Corporate staff
Business Level
Divisional
Division A Division B Division C
managers
and staff
Functional Level
Business Business Business
Functional
functions functions functions
managers
Market A Market B Market C
Consider General Electric (GE) as an example. GE is active in a wide range of

businesses, including lighting equipment, motor and transportation equipment, tur-
bine generators, construction and engineering services, industrial electronics, medi-
cal systems, aerospace, and aircraft engines. The main strategic responsibilities of its
CEO, John Flannery, are setting overall strategic goals, allocating resources among
the different business areas, deciding whether the firm should divest itself of any of its
businesses, and determining whether it should acquire any new ones. In other words,
it is up to Flannery to develop strategies that span individual businesses; his con-
cern is with building and managing the corporate portfolio of businesses to maximize
corporate profitability.
It is not the CEO’s specific responsibility to develop strategies for competing in
individual business areas such as medical systems. The development of such strate-
gies is the responsibility of the general managers in these different businesses, or
business-level managers. However, as CEO, it is Flannery’s responsibility to probe
the strategic thinking of business-level managers to make sure that they are pursu-
ing robust business models and strategies that will contribute to the maximization
of GE’s long-run profitability; to coach and motivate those managers; to reward
them for attaining or exceeding goals; and to hold them accountable for poor
performance.
Corporate-level managers also provide a link between the people who oversee the
strategic development of a firm and those who own it (the shareholders). Corporate-
level managers, particularly the CEO, can be viewed as the agents of shareholders.3
It is their responsibility to ensure that the corporate and business strategies that the
company pursues are consistent with superior profitability and profit growth. If they
are not, then the CEO is likely to be called to account by the shareholders.
1-3b Business-Level Managers

business unit A business unit is a self-contained division with its own functions (for example, finance,
A self-contained division purchasing, production, and marketing departments) that provides a product or ser-
that provides a product vice for a particular market. The principal general manager at the business level, or the
or service for a particular business-level manager, is the head of the division. The strategic role of these manag-
market.
ers is to translate the general statements of direction and intent from the corporate
level into concrete strategies for individual businesses. Whereas corporate-level general
managers are concerned with strategies that span individual businesses, business-level
general managers are concerned with strategies that are specific to a particular busi-
ness. At GE, a major corporate goal is to be a market leader in every business in which
the corporation competes. The general managers in each division work out for their
business the strategies that are consistent with this objective.
1-3c Functional-Level Managers

Functional-level managers are responsible for the specific business functions or op-
erations (human resources, purchasing, product development, logistics, production,
customer service, and so on) found within a company or one of its divisions. Thus, a
functional manager’s sphere of responsibility is generally confined to one organiza-
tional activity, whereas general managers oversee the operation of an entire company
or division. Although they are not responsible for the overall performance of the or-
ganization, functional managers nevertheless have a major strategic role: to develop
functional strategies in their areas that help fulfill the strategic objectives set by
business- and corporate-level general managers.
In GE’s aerospace business, for instance, production managers are responsible
for developing manufacturing strategies consistent with corporate objectives. More-
over, functional managers provide most of the information that makes it possible for
business- and corporate-level general managers to formulate realistic and attainable
strategies. Indeed, because they are closer to the customer than is the typical general
manager, functional managers may generate important ideas that subsequently be-
come major strategies for the company. Thus, it is important for general managers to
listen closely to the ideas of their functional managers. An equally great responsibil-
ity for managers at the operational level is strategy implementation: the execution of
corporate- and business-level plans.
1-4
The Strategy-Making Process
We can now turn our attention to the process by which managers formulate and
implement strategies. Many writers have emphasized that strategy is the outcome of
a formal planning process, and that top management plays the most important role
in this process.4 Although this view has some basis in reality, it is not the whole story.
As we shall see later in the chapter, valuable strategies often emerge from deep within
the organization without prior planning. Nevertheless, a consideration of formal,
rational planning is a useful starting point for our journey into the world of strategy.
Accordingly, we consider what might be described as a typical, formal strategic plan-
ning model.
1-4a A Model of the Strategic Planning Process

The formal strategic planning process has the following five main steps:
1. Select the corporate mission and major corporate goals.
2. Analyze the organization’s external competitive environment to identify opportu-
nities and threats.
3. Analyze the organization’s internal operating environment to identify the organi-
zation’s strengths and weaknesses.
4. Select strategies that build on the organization’s strengths and correct its weaknesses
in order to take advantage of external opportunities and counter external threats.
These strategies should be consistent with the mission and major goals of the orga-
nization. They should be congruent and constitute a viable business model.
5. Implement the strategies.
The task of analyzing the organization’s external and internal environments, and
then selecting appropriate strategies, constitutes strategy formulation. In contrast, as
noted earlier, strategy implementation involves putting the strategies (or plan) into
action. This includes taking actions consistent with the selected strategies of the com-
pany at the corporate, business, and functional levels; allocating roles and responsi-
bilities among managers (typically through the design of organizational structure);
allocating resources (including capital and money); setting short-term objectives; and
designing the organization’s control and reward systems. These steps are illustrated in
Figure 1.3 (which can also serve as a road map for the rest of this book).
Each step in Figure 1.3 constitutes a sequential step in the strategic planning pro-
cess. At step 1, each round, or cycle, of the planning process begins with a statement
of the corporate mission and major corporate goals. The mission statement is followed
by the foundation of strategic thinking: external analysis, internal analysis, and stra-
tegic choice. The strategy-making process ends with the design of the organizational
structure and the culture and control systems necessary to implement the organiza-
tion’s chosen strategy. This chapter discusses how to select a corporate mission and
choose major goals. Other aspects of strategic planning are reserved for later chapters,
as indicated in Figure 1.3.
Some organizations go through a new cycle of the strategic planning process every
year. This does not necessarily mean that managers choose a new strategy each year.
In many instances, the result is simply to modify and reaffirm a strategy and struc-
ture already in place. The strategic plans generated by the planning process generally
project over a period of 1 to 5 years, and the plan is updated, or rolled forward, every
year. The results of the annual strategic planning process should be used as input into
the budgetary process for the coming year so that strategic planning shapes resource
allocation within the organization.
1-4b Mission Statement

The first component of the strategic management process is crafting the organization’s
mission statement, which provides the framework—or context—within which strate-
gies are formulated. A mission statement has four main components: a statement of
the organization’s reason for existence—normally referred to as the mission; a state-
ment of some desired future state, usually referred to as the vision; a statement of the
key values to which the organization is committed; and a statement of major goals.
Figure 1.3 Main Components of the Strategic Planning Process
STRATEGY FORMULATION
Existing
Business Model
Mission, Vision,
Values, and
Goals
Chapter 1
External Analysis: Internal Analysis:

SWOT
Opportunities Strengths and
Strategic
and Threats Weaknesses
Choice
Chapter 2 Chapter 3
FEEDBACK
Functional-Level Strategies
Chapter 4
Business-Level Strategies
Chapters 5, 6, and 7
Global Strategies
Chapter 8
Corporate-Level Strategies
Chapters 9 and 10
STRATEGY IMPLEMENTATION
Governance and Ethics

Chapter 11
Designing Designing Designing

Organizational Organizational Organizational
Structure Culture Controls
Chapter 12 Chapter 12 Chapter 12
The Mission A company’s mission describes what the organization does. For exam- mission
ple, the mission of Google is to organize the world’s information and make it univer- The purpose of the
sally accessible and useful.5 Google’s search engine is the method that is employed to company, or a statement
“organize the world’s information and make it accessible and useful.” In the view of of what the company
strives to do.
Google’s founders, Larry Page and Sergey Brin, information includes not just text on
websites, but also images, video, maps, products, news, books, blogs, and much more.
You can search through all of these information sources using Google’s search engine.
According to the famous management writer, Peter Drucker, an important first
step in the process of formulating a mission is to come up with a definition of the
organization’s business. Essentially, the definition answers these questions: “What is
our business? What will it be? What should it be?”6 The responses to these questions
guide the formulation of the mission. To answer the question “What is our business?”
a company should define its business in terms of three dimensions: who is being satis-
fied (what customer groups), what is being satisfied (what customer needs), and how
customers’ needs are being satisfied (by what skills, knowledge, or distinctive compe-
tencies).7 Figure 1.4 illustrates these dimensions.
This approach stresses the need for a customer-oriented rather than a product-
oriented business definition. A product-oriented business definition focuses on the
characteristics of the products sold and the markets served, not on the customer needs
the products satisfy. Such an approach obscures the company’s true mission because
a product is only the physical or service manifestation of applying a particular skill to
satisfy a particular need for a particular customer group. In practice, that need may
be satisfied in many different ways, and a broad, customer-oriented business definition
that identifies these ways can safeguard companies from being caught unaware by
major shifts in demand.
Figure 1.4 Defining the Business
Who is being What is being

satisfied? satisfied?
Customer groups Customer needs
Business
Definition
How are
customer needs
being satisfied?
Distinctive
competencies
Google’s mission statement is customer oriented. Google’s product is search. Its

production technology involves the development of complex search algorithms and
vast databases that archive information. But Google does not define its self as a search
engine company. Rather, it sees itself as organizing information to make it accessible
and useful to customers.
The need to take a customer-oriented view has often been ignored. History is pep-
pered with the ghosts of once-great corporations that did not define their businesses,
or defined them incorrectly, and so ultimately declined. In the 1950s and 1960s, many
office equipment companies such as Smith Corona and Underwood defined their
businesses as being the production of typewriters. This product-oriented definition
ignored the fact that they were really in the business of satisfying customers’ needs
for information processing. Unfortunately for those companies, when a new form of
technology appeared that better served customer needs for information processing
(computers), demand for typewriters plummeted. The last great typewriter company,
Smith Corona, went bankrupt in 1996, a victim of the success of computer-based
word-processing technology.
In contrast, IBM correctly foresaw what its business would be. In the 1950s, IBM
was a leader in the manufacture of typewriters and mechanical tabulating equipment
using punchcard technology. However, unlike many of its competitors, IBM defined
its business as providing a means for information processing and storage, rather than
only supplying mechanical tabulating equipment and typewriters.8 Given this defini-
tion, the company’s subsequent moves into computers, software systems, office sys-
tems, and printers seem logical.
vision Vision The vision of a company defines a desired future state; it articulates, often in
The articulation of a bold terms, what the company would like to achieve. In its early days, Microsoft oper-
company’s desired ated with a very powerful vision of a computer on every desk and in every home. To turn
achievements or future this vision into a reality, Microsoft focused on producing computer software that was
state.
cheap and useful to businesses and consumers. In turn, the availability of powerful,
inexpensive software such as Windows and Office helped to drive the penetration of
personal computers into homes and offices.
values Values The values of a company state how managers and employees should
A statement of how conduct themselves, how they should do business, and what kind of organiza-
employees should tion they should build. Insofar as they help drive and shape behavior within a
conduct themselves and company, values are commonly seen as the bedrock of a company’s organi-
their business to help
achieve the company
zational culture: the set of values, norms, and standards that control how em-
mission. ployees work to achieve an organization’s mission and goals. An organization’s
culture is commonly seen as an important source of its competitive advantage.9
(We discuss the issue of organizational culture in depth in Chapter 12.) For
example, Nucor Steel is one of the most productive and profitable steel firms in the
world. Its competitive advantage is based, in part, on the extremely high produc-
tivity of its workforce, which the company maintains is a direct result of its cul-
tural values, which in turn determine how it treats its employees. These values are
as follows:
●● “Management is obligated to manage Nucor in such a way that employees will
have the opportunity to earn according to their productivity.”
●● “Employees should be able to feel confident that if they do their jobs properly, they
will have a job tomorrow.”
●● “Employees have the right to be treated fairly and must believe that they will be.”
●● “Employees must have an avenue of appeal when they believe they are being
treated unfairly.”10
At Nucor, values emphasizing pay for performance, job security, and fair treat-
ment for employees help to create an atmosphere within the company that leads to
high employee productivity. In turn, this has helped Nucor achieve one of the lowest
cost structures in its industry, and it helps to explain the company’s profitability in a
very price-competitive business.
In one study of organizational values, researchers identified a set of values associ-
ated with high-performing organizations that help companies achieve superior finan-
cial performance through their impact on employee behavior.11 These values included
respect for the interests of key organizational stakeholders: individuals or groups that
have an interest, claim, or stake in the company, in what it does, and in how well it
performs.12 They include stockholders, bondholders, employees, customers, the com-
munities in which the company does business, and the general public. The study found
that deep respect for the interests of customers, employees, suppliers, and sharehold-
ers was associated with high performance. The study also noted that the encourage-
ment of leadership and entrepreneurial behavior by mid- and lower-level managers,
and a willingness to support change efforts within the organization, contributed to
high performance. The same study identified the attributes of poorly performing
companies—as might be expected, these are not articulated in company mission state-
ments: (1) arrogance, particularly in response to ideas from outside the company;
(2) lack of respect for key stakeholders; and (3) a history of resisting change efforts
and “punishing” mid- and lower-level managers who showed “too much leadership.”
1-5
M ajor Goals
Having stated the mission, vision, and key values, strategic managers can take the next
step in the formulation of a mission statement: establishing major goals. A goal is a
precise, measurable, desired future state that a company attempts to realize. In this
context, the purpose of goals is to specify with precision what must be done if the
company is to attain its mission or vision.
Well-constructed goals have four main characteristics:13
●● They are precise and measurable. Measurable goals give managers a yardstick or
standard against which they can judge their performance.
●● They address crucial issues. To maintain focus, managers should select a limited
number of crucial or important goals to assess the performance of the company.
●● They are challenging but realistic. They give all employees an incentive to look for
ways of improving the operations of the organization. If a goal is unrealistic in
the challenges it poses, employees may give up; a goal that is too easy may fail to
motivate managers and other employees.14
●● They specify, when appropriate, a time period in which the goals should be achieved.
Time constraints tell employees that success requires a goal to be attained by a given
date, not after that date. Deadlines can inject a sense of urgency into goal attainment
and act as a motivator. However, not all goals require time constraints.
Well-constructed goals also provide a means by which the performance of manag-
ers can be evaluated.
As noted earlier, although most companies operate with a variety of goals, the
primary goal of most corporations is to maximize shareholder returns. Doing this
requires both high profitability and sustained profit growth. Thus, most companies
operate with goals for profitability and profit growth. However, it is important that
top managers do not make the mistake of overemphasizing current profitability to
the detriment of long-term profitability and profit growth.15 The overzealous pursuit
of current profitability to maximize short-term ROIC can encourage such misguided
managerial actions as cutting expenditures judged to be nonessential in the short
run—for instance, expenditures for research and development, marketing, and new
capital investments. Although cutting current expenditures increases current profit-
ability, the resulting underinvestment, lack of innovation, and diminished marketing
can jeopardize long-run profitability and profit growth.
To guard against short-run decision making, managers need to ensure that they
adopt goals whose attainment will increase the long-run performance and competi-
tiveness of their enterprise. Long-term goals are related to such issues as product de-
velopment, customer satisfaction, and efficiency. They emphasize specific objectives or
targets concerning such details as employee and capital productivity, product quality,
innovation, customer satisfaction, and customer service.
1-5a External Analysis

The second component of the strategic management process is an analysis of the or-
ganization’s external operating environment. The essential purpose of the external
analysis is to identify strategic opportunities and threats within the organization’s op-
erating environment that will affect how it pursues its mission. Strategy in Action 1.2
describes how an analysis of opportunities and threats in the external environment as
resulted in a strategic shift at Time Inc.
Three interrelated environments should be examined when undertaking an
external analysis: the industry environment in which the company operates, the
country or national environment, and the wider socioeconomic or macroenviron-
ment. Analyzing the industry environment requires an assessment of the com-
petitive structure of the company’s industry, including the competitive position
of the company and its major rivals. It also requires analysis of the nature, stage,
dynamics, and history of the industry. Because many markets are now global, ana-
lyzing the industry environment also means assessing the impact of globalization
on competition within an industry. Such an analysis may reveal that a company
should move some production facilities to another nation, that it should aggres-
sively expand in emerging markets such as China, or that it should beware of new
competition from emerging nations. Analyzing the macroenvironment consists of
examining macroeconomic, social, governmental, legal, international, and techno-
logical factors that may affect the company and its industry. We look at external
analysis in Chapter 2.
1-5b Internal Analysis

Internal analysis, the third component of the strategic planning process, focuses on re-
viewing the resources, capabilities, and competencies of a company in order to identify
its strengths and weaknesses. For example, as described in Strategy in Action 1.2, an
1.2 STRATEGY IN ACTION

The Evolution of Strategy at Time Inc.
Time Inc., the icon magazine publisher established in at Time Inc., and better exploiting opportunities on the
1922, has a venerable history. Its magazine titles in- Web, started with merging the print and online news-
clude Time, Fortune, In Style, Entertainment Weekly, rooms at People, removing the distinction between
Sports Illustrated, and People, all long-time leaders in them. Then, she relaunched the magazine’s online site,
their respective categories. By the first decade of this made major editorial commitments to Web publishing,
century, however, Time Inc. was confronted with declin- stated that original content should appear on the Web,
ing subscription rates. An external analysis revealed and emphasized the importance of driving traffic to the
what was happening. The readership of Time’s maga- site and earning advertising revenues. Over the next
zines was aging. Younger readers were getting what 2 years, page views at People.com increased fivefold.
they wanted from the Web and consuming media on Ann Moore, then CEO at Time Inc., formalized
digital devices. This was both a threat for Time Inc., as this strategy in 2005, mandating that all print offer-
its Web offerings were not strong, and an opportunity, ings should follow the lead of People.com, integrating
because with the right offerings, Time Inc. could cap- print and online newsrooms and investing significantly
ture this audience. Time also realized that advertising more resources in Web publishing. To drive this initia-
dollars were migrating rapidly to the Web, and if the tive home, Time hired several well-known bloggers to
company was going to maintain its share, its Web offer- write for its online publications. The goal of Moore’s
ings had to be every bit as good as its print offerings. strategy was to neutralize the cultural weakness that
An internal analysis revealed why, despite multiple had hindered online efforts in the past and to redirect
attempts, Time had failed to capitalize on the opportu- resources to Web publishing.
nities offered by the emergence of the Web. Although In 2007, to further its shift to web-centric publish-
Time had tremendous strengths, including well-known ing, Time Inc. announced another change in strategy:
brands and strong reporting, development of its Web It would sell off 18 magazine titles that, although good
offerings had been hindered by a serious weakness— performers, did not appear to have much traction on
an editorial culture that regarded Web publishing as the Web. Moore stated that going forward Time Inc.
a backwater. At People, for example, the online op- would focus its energy, resources, and investments on
eration used to be “like a distant moon,” according the company’s largest, most profitable brands, those
to managing editor Martha Nelson. Managers at Time that have demonstrated an ability to draw large audi-
Inc. had also been worried that Web offerings would ences in digital form. Since then, the big push has been
cannibalize print offerings and accelerate the decline to develop magazine apps for tablet computers, most
in the circulation of magazines, with dire financial con- notably Apple’s iPad and tablets that use the Android
sequences for the company. As a result of this culture, operating system. By early 2012, Time Inc. had its en-
efforts to move publications onto the Web were under- tire magazine catalog on every major tablet platform.
funded or were stymied entirely by a lack of manage- As of 2018, revenues from digital editions and digital
ment attention and commitment. advertising were growing rapidly, while print subscrip-
Martha Nelson showed the way forward for the tions were in a secular decline, which underlined the
company. Her strategy for overcoming the weakness wisdom of Moore’s digitalization strategy.
Sources: A. Van Duyn, “Time Inc. Revamp to Include Sale of 18 Titles,“ Financial Times (September 13, 2006): 24; M. Karnitsching, “Time
Inc. Makes New Bid to Be Big Web Player,” The Wall Street Journal (March 29, 2006): B1; M. Flamm, “Time Tries the Web Again,”
Crain’s New York Business (January 16, 2006): 3; T. Carmody, “Time Warner Bringing Digital Magazines, HBO to More Platforms,” Wired
(July 3, 2011); Sydney Ember, “Time Inc. reshuffles in a digital reinvention,” New York Times, July 13, 2016.
Another random document with
no related content on Scribd:
apotheosis of womanhood, sketched by Guido Guinizelli, is
developed with mystical fullness, and there is even perhaps a hint of
some future work in honour of Beatrice that will deal with the world
beyond the grave. The two sonnets that follow are a kind of
supplement; the first:
Amore e ’l cor gentil sono una cosa,
“Love and the gentle heart are one same thing,” gives a definition of
love, elaborating the Guinizellian doctrine; the second:
Ne li occhi porta la mia donna Amore,
“Within her eyes my lady carries Love,” pursues the conception

further, to represent Beatrice herself as the creatrix of the divine gift
of gentilezza by which the heart is capable of noble love. Two
sonnets on the death of Beatrice’s father lead up to a veritable lyrical
masterpiece, the canzone:
Donna pietosa e di novella etate,
“A lady pitiful and of tender age,” the anticipatory vision of Beatrice’s

death—the “Dante’s Dream” of Rossetti’s famous picture. The
following sonnet, in which Beatrice and Cavalcanti’s lady, Primavera
or Giovanna, appear together, is the only place in the Vita Nuova
where Dante calls her whom he loved by the name by which she
was actually known—“Bice.” Love now no longer appears weeping,
but speaks joyfully in the poet’s heart. All that was personal in
Dante’s worship seems to have passed away with his earlier
lamentations; his love has become a transcendental rapture, an
ecstasy of self-annihilation. This part of the book culminates in the
two sonnets:
Tanto gentile e tanto onesta pare,
“So noble and so pure seems my lady,” in which a similar sonnet of

Guinizelli’s is easily surpassed, and
Vede perfettamente onne salute,
“He seeth perfectly all bliss, who beholds my lady among the ladies”;
sonnets which are flawless gems of mediaeval poetry. Then abruptly,
in the composition of a canzone which should have shown how Love
by means of Beatrice regenerated his soul, the pen falls from his
hand: Beatrice has been called by God to Himself, to be glorious
under the banner of Mary, “How doth the city sit solitary that was full
of people!”
Some falling off may be detected here and there in the third part of
the Vita Nuova (xxix. to xli.), which includes the prose and poetry
connected with Beatrice’s death, the love for the lady who takes pity
upon the poet’s grief, his repentance and return to Beatrice’s
memory. A stately canzone:
Li occhi dolenti per pietà del core,
“The eyes that grieve for pity of the heart,” is a companion piece to
the opening canzone of the second part; the poet now speaks of
Beatrice’s death in the same form and to the same love-illumined
ladies to whom he had formerly sung her praises. More beautiful are
the closing lines of the shorter canzone, written for Dante’s second
friend, who was apparently Beatrice’s brother. After the charming
episode of the poet drawing an Angel on her anniversary, the “gentle
lady, young and very fair,” inspires him with four sonnets; and his
incipient love for her is dispelled by a “strong imagination,” a vision of
Beatrice as he had first seen her in her crimson raiment of childhood.
The bitterness of Dante’s repentance is a foretaste of the confession
upon Lethe’s bank in the Purgatorio. The pilgrims pass through the
city on their way to Rome, “in that season when many folk go to see
that blessed likeness which Jesus Christ left us as exemplar of His
most beauteous face, which my lady sees in glory” (V. N. xli.); and
this third part closes with the sonnet in which Dante calls upon the
pilgrims to tarry a little, till they have heard how the city lies desolate
for the loss of Beatrice.
In the epilogue (xlii., xliii.), in answer to the request of two of those
noble ladies who throng the ways of Dante’s mystical city of youth
and love as God’s Angels guard the terraces of the Mount of
Purgation, Dante writes the last sonnet of the book; wherein a “new
intelligence,” born of Love, guides the pilgrim spirit beyond the
spheres into the Empyrean to behold the blessedness of Beatrice. It
is an anticipation of the spiritual ascent of the Divina Commedia,
which is confirmed in the famous passage which closes the “new life”
of Love:
“After this sonnet there appeared unto me a wonderful vision:
wherein I saw things which made me purpose to say no more of this
blessed one, until such time as I could discourse more worthily
concerning her. And to attain to that I labour all I can, even as she
knoweth verily. Wherefore if it shall be His pleasure, through whom is
the life of all things, that my life continue for some years, I hope that I
shall yet utter concerning her what hath never been said of any
woman. And then may it seem good unto Him, who is the Lord of
courtesy, that my soul may go hence to behold the glory of its lady:
to wit, of that blessed Beatrice who gazeth gloriously upon the
countenance of Him who is blessed throughout all ages.”[10]
From the mention of the pilgrimage, and this wonderful vision, it
has been sometimes supposed that the closing chapters of the Vita
Nuova were written in 1300. It seems, however, almost certain that
there is no reference whatever to the year of Jubilee in the first case.
When Dante’s positive statement in the Convivio, that he wrote the
Vita Nuova at the entrance of manhood (gioventute being the twenty
years from twenty-five to forty-five, Conv. iv. 24), is compared with
the internal evidence of the book itself, the most probable date for its
completion would be between 1291 and 1293. It should, however, be
borne in mind that, while there is documentary evidence that some of
the single poems were in circulation before 1300, none of the extant
manuscripts of the whole work can be assigned to a date much
earlier than the middle of the fourteenth century. It is, therefore, not
inconceivable that the reference to the vision may be associated with
the spiritual experience of 1300 and slightly later than the rest of the
book.[11]
The form of the Vita Nuova, the setting of the lyrics in a prose
narrative and commentary, is one that Dante may well have invented
for himself. If he had models before his eyes, they were probably, on
the one hand, the razos or prose explanations which accompanied
the poems of the troubadours, and, on the other, the commentaries
of St. Thomas Aquinas on the works of Aristotle, which Dante
imitates in his divisions and analyses of the various poems. His
quotations show that he had already studied astronomy, and made
some rudimentary acquaintance with Aristotle and with the four chief
Latin poets; the section in which he speaks of the latter, touching
upon the relations between classical and vernacular poetry (xxv.),
suggests the germ of the De Vulgari Eloquentia. The close of the
book implies that he regarded lack of scientific and literary
equipment as keeping him from the immediate fulfilment of the
greater work that he had even then conceived for the glory of
Beatrice.
In the Convivio, where all else is allegorical, Beatrice is still simply
his first love, lo primo amore (ii. 16). Even when allegorically
interpreting the canzone which describes how another lady took her
place in his heart, after her death, as referring to Philosophy, there is
no hint of any allegory about quella viva Beatrice beata, “that
blessed Beatrice, who lives in heaven with the Angels and on earth
with my soul” (Conv. ii. 2). When about to plunge more deeply into
allegorical explanations, he ends what he has to say concerning her
by a digression upon the immortality of the soul (Conv. ii. 9): “I so
believe, so affirm, and so am certain that I shall pass after this to
another better life, there where that glorious lady lives, of whom my
soul was enamoured.”
Those critics who question the reality of the story of the Vita
Nuova, or find it difficult to accept without an allegorical or idealistic
interpretation, are best answered in Dante’s own words: Questo
dubbio è impossibile a solvere a chi non fosse in simile grado fedele
d’Amore; e a coloro che vi sono è manifesto ciò che solverebbe le
dubitose parole; “This difficulty is impossible to solve for anyone who
is not in similar grade faithful unto Love; and to those who are so,
that is manifest which would solve the dubious words” (V. N. xiv.).
2. The “Rime”
The Rime—for which the more modern title, Canzoniere, has
sometimes been substituted—comprise all Dante’s lyrical poems,
together with others that are more doubtfully attributed to him. In the
Vita Nuova were inserted three canzoni, two shorter poems in the
canzone mould, one ballata, twenty-five sonnets (including two
double sonnets). The “testo critico” of the Rime, edited by Michele
Barbi for the sexcentenary Dante, in addition to these accepts as
authentic sixteen canzoni (the sestina is merely a special form of
canzone), five ballate, thirty-four sonnets, and two stanzas. Dante
himself regards the canzone as the noblest form of poetry (V. E. ii.
3), and he expounded three of his canzoni in the Convivio. From the
middle of the fourteenth century onwards, a large number of MSS.
give these three and twelve others (fifteen in all) as a connected
whole in a certain definite order, frequently with a special rubric in
Latin or Italian prefixed to each; this order and these rubrics are due
to Boccaccio.[12] It has been more difficult to distinguish between the
certainly genuine and the doubtful pieces among the ballate and
sonnets, and the authenticity of some of those now included by Barbi
in the canon is still more or less open to question. The Rime, on the
whole, are the most unequal of Dante’s works; a few of the sonnets,
particularly some of the earlier ones and those in answer to other
poets, have but slight poetic merit, while several of the later canzoni
rank among the world’s noblest lyrics. In the sexcentenary edition
the arrangement of the lyrics is tentatively chronological, with
subsidiary groupings according to subject-matter. While following the
same general scheme, I slightly modify the arrangement, as certain
poems regarded by Barbi as “rime d’amore” appear to me to be
more probably allegorical.
(a) A first group belongs to the epoch of the Vita Nuova.
Conspicuous among them are two canzoni. One:
La dispietata mente che pur mira,
“Pitiless memory that still gazes back at the time gone by,” is
addressed directly to a woman (in this respect differing from Dante’s
other canzoni), who is probably the second lady represented as the
poet’s screen. The other:
E ’m’ incresce di me si duramente,
“I grieve for myself so bitterly,” seems to give fuller expression to the

first part of the Vita Nuova with an alien note—the image of the little
maiden has yielded to that of the woman whose great beauty is the
object of unattainable desire. At times a lighter note is struck; Dante
is apparently simply supplying words for composers to set to music,
or revealing a spirit of playfulness of which there is no trace in the
Vita Nuova.[13] Besides sonnets in honour of Beatrice, we have a
few relating to other women, and in two ballate even their names are
given: Fioretta and Violetta. One delightful sonnet:
Sonar bracchetti e cacciatori aizzare,
“Beagles questing and huntsmen urging on,” reveals the poet taking
part in sport and appreciating a jape at his own expense. A number
of correspondence sonnets belong to this epoch, a small series
addressed to Dante da Maiano (of which no MS. has been
preserved) being probably earlier than the first sonnet of the Vita
Nuova. A note of pure romance is struck in the charming sonnet to
Guido Cavalcanti, in which the younger poet wishes that they two,
with Lapo Gianni and their three ladies (Dante’s being the first lady
who screened his love), might take a voyage over enchanted seas in
Merlin’s magic barque. Several admirable sonnets, now included in
this group, were formerly attributed to Cino da Pistoia.[14]
(b) The tenzone with Forese Donati forms a little group apart. Its
date is uncertain, but may be plausibly taken as between 1290 and
1296. These sonnets, though not free from bitterness which is
perhaps serious, may be regarded as exercises in that style of
burlesque and satirical poetry to which even Guido Guinizelli had
once paid tribute, and which Rustico di Filippo had made
characteristically Florentine.
(c) Next comes a group of poems, connected with the allegory of
the Convivio, in which an intellectual ideal is pursued with the
passion and wooed in the language of the lover who adores an
earthly mistress. “I say and affirm that the lady, of whom I was
enamoured after my first love, was the most beautiful and most pure
daughter of the Emperor of the Universe, to whom Pythagoras gave
the name Philosophy” (Conv. ii. 16). By some, not entirely
reconcilable, process the donna gentile, who appears at the end of
the Vita Nuova, has become a symbol of Philosophy, and the poet’s
love for her a most noble devotion. The canzone:
Voi che ’ntendendo il terzo ciel movete,
“Ye who by understanding move the third heaven” describing the

conflict in Dante’s mind between this new love and the memory of
Beatrice, deals again with the matter of one of the sonnets of the
Vita Nuova; but the allegory is perhaps an after-thought. It is
commented upon in the second treatise of the Convivio and quoted
in Canto viii. of the Paradiso. The other poems of this group seem
purely allegorical: “By love, in this allegory, is always intended that
study which is the application of the enamoured mind to that thing of
which it is enamoured” (Conv. ii. 16). At first this service is painful
and laborious; and the mystical lady seems a cruel and proud
mistress, as she is represented in the “pitiful ballata”:
Voi che savete ragionar d’Amore,
“Ye who know how to discourse of love,” which is referred to in the

third treatise of the Convivio (iii. 9). But the defect is on the lover’s
own part, and in her light the difficulties which sundered him and her
are dispersed like morning clouds before the face of the sun. This
mystical worship culminates in the supreme hymn to his spiritual
mistress, whose body is Wisdom and whose soul is Love:
Amor che ne la mente mi ragiona,
“Love that in my mind discourses to me of my lady desirously,” which

is the second canzone of the Convivio (quoted in V. E. ii. 6), the
amorous song that Casella was to sing “met in the milder shades of
Purgatory.” It is one of Dante’s lyrical masterpieces. Hardly less
beautiful is the canzone, likewise cited in the De Vulgari Eloquentia
(V. E. ii. 5, II):
Amor, che movi tua vertù dal cielo,
“Love that movest thy power from heaven”; with a mystical

comparison of the workings of love to those of the sun and striking
lines on the supernatural power of the illumined imagination. This
allegorical group may be regarded as closed by the canzone:
Io sento si d’Amor la gran possanza,

“I feel so the great power of love,” in which Dante represents himself
as too young to obtain his lady’s grace, but is content to serve on,
finding the quest of philosophic truth its own reward. This poem has
two commiati (the commiato, or tornata, being the stanza or part of a
stanza, or a few independent lines, added as an address or farewell
at the end of a canzone); both seem to imply that philosophic verse
may be the instrument of political or social reform.[15]
(d) Dante originally held that Italian poetry should only be used for
writing upon love, and therefore, in his younger days, a philosophical
poem would naturally take the form of a love ode. In the Vita Nuova,
he argues “against those who rhyme upon any matter other than
amorous; seeing that such mode of speech was originally found for
speaking of love” (V. N. xxv). His views naturally widened before he
wrote his later canzoni (cf. V. E. ii. 2); but when, lacking inspiration
for a higher lyrical flight or baffled by some metaphysical problem, he
turns to set erring men right in didactic canzoni on some humbler
ethical subject, he represents himself as so doing because out of
favour with his lady or deserted by love. Thus, “The sweet rhymes of
love, which I was wont to seek in my thoughts, needs must I leave”—
Le dolci rime d’amor, ch’i’ solia
—opens the canzone on the spiritual nature of true gentilezza

(inspired in part by Guinizelli), which is expounded in the fourth
treatise of the Convivio, and, although somewhat unequal, contains
one ineffable stanza upon the noble soul in life’s four stages. A
companion poem:
Poscia ch’Amor del tutto m’ ha lasciato,
“Since love has left me utterly,” deals with leggiadria, the outward
expression of a chivalrous soul, and shows the influence of the
Tesoretto of Brunetto Latini. These two canzoni, which contain
transcripts from the Aristotelian Ethics, only here and there become
poetry. In the larger proportion of short lines in the stanza, Dante
seems feeling his way to a more popular metrical form and a freer
treatment, as well as a wider range of subject. The second has
satirical sketches of vicious or offensive types of men, with whom he
will deal more severely in the Commedia.
(e) There are certain lyrics of Dante’s which can hardly admit of an
allegorical interpretation, but are almost certainly the expression of
passionate love for real women. Most notable among these are a
group of four canzoni, known as the rime per la donna pietra, which
are characterised by a peculiar incessant playing upon the word
pietra, or “stone,” which has led to the hypothesis that they were
inspired by a lady named Pietra, or at least by one who had been as
cold and rigid as Beatrice had been the giver of blessing. The
canzone of the aspro parlare:
Così nel mio parlar voglio esser aspro,
“So in my speech would I be harsh, as this fair stone is in her acts,”

shows that Dante could be as terrible in his love as in his hate, and
has a suggestion of sensuality which we hardly find elsewhere in his
poetry. It is indirectly referred to in the Convivio, and quoted by
Petrarch. The other three canzoni of this “stony” group show very
strongly the influence of the Provençal Arnaut Daniel in their form,
and all their imagery is drawn from nature in winter. The sestina:
Al poco giorno e al gran cerchio d’ombra,
“To the short day and the large circle of shade have I come,” is the
first Italian example of that peculiar variety of the canzone which was
invented by Arnaut (V. E., ii. 10, 13). It gives a most wonderful
picture of this strange green-robed girl, her golden hair crowned with
grass like Botticelli’s Libyan Sibyl, in the meadow “girdled about with
very lofty hills.” Less beautiful and more artificial, the canzone:
Amor, tu vedi ben che questa donna,
“Love, thou seest well that this lady cares not for thy power,” is
likewise quoted with complacency, for its novelty and metrical
peculiarity, in the De Vulgari Eloquentia (ii. 13). And the passion of
the whole group is summed up in the poem on Love and Winter:
Io son venuto al punto de la rota,
“I am come to the point of the wheel,” where, stanza by stanza, the

external phenomena of the world in winter are contrasted with the
state of the poet’s soul, ever burning in the “sweet martyrdom” of
love’s fire. It is the ultimate perfection of a species of poem
employed by Arnaut and other troubadours; another lyrical
masterpiece, anticipating in its degree the treatment of nature which
we find in the Commedia. These four poems were probably
composed shortly before Dante’s banishment, but another canzone
of somewhat similar tone was certainly written in exile—the famous
and much discussed “mountain song”:
Amor, da che convien pur ch’io mi doglia,
“Love, since I needs must make complaint,” apparently describing an

overwhelming passion for the fair lady of the Casentino; its pathetic
close, with its reference to Florence, has been already quoted. The
striking sonnet to Cino da Pistoia about the same time:
Io sono stato con Amore insieme.
“I have been in company with love since the circling of my ninth sun,”
affords further testimony that, at certain epochs of his life, earthly
love took captive Dante’s freewill.
(f) To the earlier years of Dante’s exile belongs the noblest and
most sublime of his lyrics, the canzone:
Tre donne intorno al cor mi son venute,
“Three ladies are come around my heart and are seated without, for
within sits Love who is in lordship of my life.” They are Justice and
her spiritual children; Love prophesies the ultimate triumph of
righteousness, and the poet, with such high companionship in
outward misfortune, declares that he counts his exile as an honour.
While recalling the legend of the apparition of Lady Poverty and her
two companions to St. Francis of Assisi, and a poem of Giraut de
Borneil on the decay of chivalry, the canzone echoes Isaiah (ch. li.).
Its key may be found in the prophet’s words: “Hearken unto me, ye
that know Justice, the people in whose heart is my law; fear ye not
the reproach of men, neither be ye afraid of their revilings.” It was
probably written between 1303 and 1306; its opening lines have
been found transcribed in a document of 1310.[16] To about the
same epoch must be assigned the powerful canzone against vice in
general and avarice in particular:
Doglia mi reca ne lo core ardire,
“Grief brings daring into my heart,” which is cited in the De Vulgari

Eloquentia (associated with another poem of Giraut de Borneil) as a
typical poem on rectitudo, “righteousness,” “the direction of the will”
(V. E. ii. 2). These two canzoni are the connecting link between the
Rime and the Commedia; the first contains the germ of Dante’s
prophecy of the Veltro, his Messianic hope of the Deliverer to come,
who shall make Love’s darts shine with new lustre and renovate the
world; in the second, we already catch the first notes of the saeva
indignatio of the sacred poem. With the exception of the “montanina
canzone” and some sonnets to Cino da Pistoia, Dante wrote few
other lyrics at this period[17]; indeed, one of the sonnets seems to
imply that he had finally turned away from such poetry (da queste
nostre rime) in contemplation of his greater task:
Io mi credea del tutto esser partito,
“I deemed myself to have utterly departed from these our rhymes,

Messer Cino, for henceforth another path befits my ship and further
from the shore.”
3. The “Convivio”
The Convivio, or “Banquet,” bears a somewhat similar relation to
the work of Dante’s second period as the Vita Nuova did to that of
his adolescence. Just as after the death of Beatrice he collected his
earlier lyrics, furnishing them with prose narrative and commentary,
so now in exile he intended to put together fourteen of his later
canzoni and write a prose commentary upon them, to the honour
and glory of his mystical lady, Philosophy. Dante was certainly not
acquainted with Plato’s Symposium. It was from the De Consolatione
Philosophiae of Boëthius that the idea came to him of representing
Philosophy as a woman; but the “woman of ful greet reverence by
semblaunt,” who “was ful of so greet age, that men ne wolde nat
trowen, in no manere, that she were of oure elde” (so Chaucer
renders Boëthius), is transformed to the likeness of a donna gentile,
the idealised human personality of the poetry of the “dolce stil
nuovo”:
“And I imagined her fashioned as a gentle lady; and I could
not imagine her in any bearing save that of compassion;
wherefore so willingly did the sense of truth look upon her,
that scarcely could I turn it from her. And from this imagining I
began to go there where she revealed herself in very sooth, to
wit, in the schools of religious and at the disputations of
philosophers; so that in a short time, perchance of thirty
months, I began to feel so much of her sweetness, that her
love drove out and destroyed every other thought” (Conv. ii.
13).
The Convivio is an attempt to bring philosophy out of the schools
of religious and away from the disputations of philosophers, to
render her beauty accessible even, to the unlearned. “The Convivio”,
says Dr. Wicksteed, “might very well be described as an attempt to
throw into popular form the matter of the Aristotelian treatises of
Albertus Magnus and Thomas Aquinas.” Dante’s text is the opening
sentence of Aristotle’s Metaphysics: “All men by nature desire to
know”; which he elaborates from the commentary of Aquinas and the
latter’s Summa contra gentiles. He would gather up the crumbs
which fall from the table where the bread of Angels is eaten, and
give a banquet to all who are deprived of this spiritual food. It is the
first important work on philosophy written in Italian—an innovation
which Dante thinks necessary to defend in the chapters of the
introductory treatise, where he explains his reasons for commenting
upon these canzoni in the vernacular instead of Latin, and
incidentally utters an impassioned defence of his mother-tongue,
with noteworthy passages on the vanity of translating poetry into
another language and the potentialities of Italian prose (Conv. i. 7,
10).
In addition to this principal motive for writing the work, the desire of
giving instruction, Dante himself alleges another—the fear of infamy,
timore d’infamia (Conv. i. 2): “I fear the infamy of having followed
such great passion as whoso reads the above-mentioned canzoni
will conceive to have held sway over me; the which infamy ceases
entirely by the present speaking of myself, which shows that not
passion, but virtue, has been the moving cause.” It would seem that
Dante intended to comment upon certain of the canzoni connected
with real women, and to represent them as allegorical; it may be that,
consumed with a more than Shelleyan passion for reforming the
world, he chose this method of getting rid of certain episodes in the
past which he, with too much self-severity, regarded as rendering
him unworthy of the sublime office he had undertaken. And, by a
work of lofty style and authority, he would rehabilitate the man who,
in his exiled wanderings, had “perchance cheapened himself more
than truth wills” (i. 4).
Only the introductory treatise and three of the commentaries were
actually written: those on the canzoni Voi cite ’ntendendo, Amor che
ne la mente mi ragiona, Le dolci rime d’amor. If the whole work had
been completed on the same scale as these four treatises, a great
part of the field of knowledge open to the fourteenth century would
have been traversed in the ardent service of this mystical lady, whom
the poet in the second treatise—not without considerable
inconsistency—represents as the same as the donna gentile who
appeared towards the end of the Vita Nuova (Conv. ii. 2). As it is, the
movements of the celestial bodies, the ministry of the angelic orders,
the nature of the human soul and the grades of psychic life, the
mystical significance and universality of love, are among the subjects
discussed in the second and third treatises. The fourth treatise is
primarily ethical: nobility as inseparable from love and virtue, wealth,
the Aristotelian definition of moral virtue and human felicity, the goal
of human life, the virtues suitable to each age, are among the
themes considered. Under one aspect the Convivio is a vernacular
encyclopaedia (like the Trésor of Brunetto Latini), but distinguished
from previous mediaeval works of the kind by its peculiar form, its
artistic beauty, and its personal note. From the first treatise it is
evident that the whole work had been fully planned; but it is not
possible to reconstruct it with any plausibility, or to decide upon the
question of which of the extant canzoni were to be included, and in
what order. From iv. 26, it may be conjectured that the passionate
canzone, Così nel mio parlar voglio esser aspro (Rime ciii., O. canz.
xii.), was to be allegorised in the seventh treatise; while, from i. 12, ii.
1, iv. 27, it appears fairly certain that the canzone of the three ladies,
Tre donne intorno al cor (Rime civ., O. canz. xx.), would have been
expounded in the fourteenth, where Justice and Allegory were to
have been discussed; and, from i. 8 and iii. 15, that the canzone
against the vices, Doglia mi reca (Rime cvi., O. canz. x.), was
destined for the poetical basis of the last treatise of all. It is thus clear
that the Convivio would have ended with the two canzoni which form
the connecting link between the lyrical poems and the Divina
Commedia. For the rest, it is certain that there would have been no
mention of Beatrice in any of the unwritten treatises. In touching
upon the immortality of the soul (Conv. ii. 9), Dante had seen fit to
end what he wished to say of “that living blessed Beatrice, of whom I
do not intend to speak more in this book.” There seems also good
reason for supposing that the canzone for the beautiful lady of the
Casentino (Rime cxvi., O. canz. xi.), which may be of a slightly later
date than the others, would not have formed part of the completed
work.
Witte and others after him have supposed that the Convivio
represents an alienation from Beatrice; that the Philosophy, which
Dante defines as the amorous use of wisdom, is a presumptuous
human science leading man astray from truth and felicity along the
dangerous and deceptive paths of free speculation. There is,
however, nothing in the book itself to support this interpretation,[18]
and, indeed, a comparison between the second canzone, Amor che
ne la mente mi ragiona, and the first canzone of the Vita Nuova
points to the conclusion that the personification of philosophy is but a
phase in the apotheosis of Beatrice herself. The Convivio is the first
fruit of Dante’s labours to fulfil the promise made at the end of the
book of his youth; his knowledge of literature and philosophy has
immeasurably widened, his speculations on human life and nature
have matured, and his prose style, in its comparative freedom and
variety, its articulation and passages of spontaneous eloquence,
shows a vast progress from that of the Vita Nuova.
There are passages in the Convivio which appear to be
contradicted in the Divina Commedia. One of the most curious is the
treatment of Guido da Montefeltro, who, in Conv. iv. 28, is “our most
noble Italian,” and a type of the noble soul returning to God in the
last stage of life, whereas, in the Inferno (Canto xxvii.), he is found in
the torturing flames of the evil counsellors. Several opinions are
directly or indirectly withdrawn in the Paradiso; but these are to be
rather regarded as mistakes which, in the light of subsequent
knowledge, Dante desired to rectify or repudiate; such as the theory
of the shadow on the moon being caused by rarity and density,
based upon Averroës, and a peculiar arrangement of the celestial
hierarchies, derived from the Moralia of St. Gregory the Great. And,
in the Purgatorio, the poet discards his “dread of infamy,” when he
dares not meet Beatrice’s gaze in the Garden of Eden; he casts
aside the allegorical veil he had tried to draw over a portion of the
past, and makes the full confession which we find in Cantos xxx. and
xxxi. In the fourth treatise, an erroneous sentence attributed to
Frederick II. (in reality a mutilated version of the definition of nobility
given by Aristotle in the Politics) leads Dante to examine the limits
and foundation of the imperial authority, the divine origin of Rome
and the universal dominion of the Roman people, the relation of
philosophy to government; a theme which he will work out more fully
and scientifically in the Monarchia. The result is two singularly
beautiful chapters (iv.-v.); a prose hymn to Rome, an idealised
history of the city and her empire. It is the first indication of the poet’s
conversion from the narrower political creed of the Florentine citizen
to the ideal imperialism which inspires his later works.
It has sometimes been held that portions of the Convivio were
written before exile. Nevertheless, while two of the canzoni were
composed before 1300, it seems most probable that the prose
commentaries took their present shape between Dante’s breaking
with his fellow-exiles and the advent of Henry VII. A passage
concerning Frederick II., “the last emperor of the Romans with
respect to the present time, although Rudolph and Adolph and Albert
were elected after his death and that of his descendants” (Conv. iv.
3), shows that the fourth treatise was written before the election of
Henry VII., in November 1308; while a reference to Gherardo da
Cammino, lord of Treviso (iv. 14), seems to have been written after
his death in March 1306. From the mention of Dante’s wanderings in
exile through so many regions of Italy (i. 3), it has sometimes been
argued that the first is later than the subsequent treatises. It is
tempting to associate the breaking off the work with Boccaccio’s
story of the recovery of the beginning of the Inferno. Be that as it
may, the advent of the new Caesar, Dante’s own return for a while to
political activity, probably interrupted his life of study; and, when the
storm passed away and left the poet disillusioned, his ideals had
changed, another world lay open to his gaze, and the Convivio was
finally abandoned.
FOOTNOTES:
[10] Io spero di dicer di lei quello che mai non fue detto
d’alcuna: dicer (dire) and detta, have here (as elsewhere in
Dante) the sense of artistic utterance, and more particularly
composition in poetry, whether in Latin or the vernacular. Cf. V. N.
xxv.
[11] Livi has shown that the first documentary evidence of the
existence of the Vita Nuova as a book is found at Bologna in June
1306.
[12] The Sexcentenary Dante admits as authentic one canzone
not included in this series: Lo doloroso amor che mi conduce
(Rime lxviii., O. canz. xvi.*); which is evidently an early
composition.
[13] Cf. Rime xlviii., lvi., lxiii. and the later xcix.; O. son. xlviii.*,
ball. viii., son. I.*, son. xxxvii.*
[14] Note especially Rime lix., lxvi.; O. sonnets lv., xxxviii*.
[15] To this group I would assign the sonnet, Chi guarderà già
mai sanza paura, and the ballata, I’ mi son pargoletta bella e
nova, without attaching any special significance to the fact that
“pargoletta” (“maiden” or “young girl”) occurs also in the canzone,
Io son venuto al punto de la rota, and in Beatrice’s rebuke, Purg.
xxxi. 59.
[16] Cf. G. Livi, Dante suoi primi cultori sua gente in Bologna, p.
24.
[17] Barbi adds to the Rime written in exile the impressive
political sonnet, yearning for justice and peace, Se vedi li docchi
miei di pianger vaghi (of which the attribution to Dante has
sometimes been questioned), and the sonnet on Lisetta, Per
quella via che la bellezza corre, a beautiful piece of
unquestionable authenticity, but which may, perhaps, belong to an
earlier epoch in the poet’s life.
[18] But cf. Wicksteed, From Vita Nuova to Paradiso, pp. 93-
121.
CHAPTER III
DANTE’S LATIN WORKS
1. The “De Vulgari Eloquentia”
In the first treatise of the Convivio (i. 5), Dante announces his
intention of making a book upon Volgare Eloquenza, artistic
utterance in the vernacular. Like the Convivio, the De Vulgari
Eloquentia remains incomplete; only two books, instead of four, were
written, and of these the second is not finished. In the first book the
poet seeks the highest form of the vernacular, a perfect and imperial
Italian language, to rule in unity and concord over all the dialects, as
the Roman Empire over all the nations; in the second book he was
proceeding to show how this illustrious vulgar tongue should be used
for the art of poetry. Villani’s description of the work applies only to
the first book: “Here, in strong and ornate Latin, and with fair
reasons, he reproves all the dialects of Italy”; Boccaccio’s mainly to
the second: “A little book in Latin prose, in which he intended to give
instruction, to whoso would receive it, concerning composition in
rhyme.”[19]
Book I.—At the outset Dante strikes a slightly different note from
that of the Convivio, by boldly asserting that vernacular in general
(as the natural speech of man) is nobler than “grammar,” literary
languages like Latin or Greek, which he regards as artificially formed
(V. E. i. 1). To discover the noblest form of the Italian vernacular, the
poet starts from the very origin of language itself. To man alone of
creatures has the intercourse of speech been given: speech, the
rational and sensible sign needed for the intercommunication of
ideas. Adam and his descendants spoke Hebrew until the confusion
of Babel (cf. the totally different theory in Par. xxvi. 124), after which
this sacred speech remained only with the children of Heber (i. 2-7).
From this point onwards the work becomes amazingly modern. Of
the threefold language brought to Europe after the dispersion, the
southernmost idiom has varied into three forms of vernacular speech
—the language of those who in affirmation say oc (Spanish and
Provençal), the language of oil (French), the language of sì (Italian).
[20] And this Italian vulgar tongue has itself varied into a number of
dialects, of which Dante distinguishes fourteen groups, none of
which represent the illustrious Italian language which he is seeking.
“He attacks,” wrote Mazzini, “all the Italian dialects, but it is because
he intends to found a language common to all Italy, to create a form
worthy of representing the national idea.” The Roman is worst of all
(i. 11). A certain ideal language was indeed employed by the poets
at the Sicilian court of Frederick and Manfred, but it was not the
Sicilian dialect (i. 12). The Tuscans speak a degraded vernacular,
although Guido Cavalcanti, Lapo Gianni and another Florentine
(Dante himself), and Cino da Pistoia have recognised the excellence
of the ideal vulgar tongue (i. 13). Bologna alone has a “locution
tempered to a laudable suavity”; but which, nevertheless, cannot be
the ideal language, or Guido Guinizelli and other Bolognese poets
would not have written their poems in a form of speech quite
different from the special dialect of their city (i. 15). “The illustrious,
cardinal, courtly, and curial vulgar tongue in Italy is that which
belongs to every Italian city, and yet seems to belong to none, and
by which all the local dialects of the Italians are measured, weighed,
and compared” (i. 16). This is that ideal Italian which has been
artistically developed by Cino and his friend (Dante himself) in their
canzoni, and which makes its familiars so glorious that “in the
sweetness of this glory we cast our exile behind our back” (V. E. i.
17). Such should be the language of the imperial Italian court of
justice, and, although as far as Italy is concerned there is no prince,
and that court is scattered in body, its members are united by the
gracious light of reason (i. 18). This standard language belongs to
the whole of Italy, and is called the Italian vernacular (latinum
vulgare); “for this has been used by the illustrious writers who have
written poetry in the vernacular throughout Italy, as Sicilians,
Apulians, Tuscans, natives of Romagna, and men of both the
Marches” (i. 19).

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PART ONE Introduction to Strategic Management

PART Two The Nature of Competitive Advantage

PART THREE Strategies

PART FOUR IMPLEMENTING STRATEGY

PART FIVE Cases in Strategic Management C-1

PART ONE Introduction to Strategic Management

1-7 S trategic Planning in Practice 26

Chapter 2 External Analysis: The Identification of Opportunities

PART TWO The Nature of Competitive Advantage

Chapter 4 Competitive Advantage Through Functional-Level Strategies 107

Strategy in Action 4.2: Pandora: Mass Customizing Internet Radio 117

PART THREE Strategies

Chapter 6 Business-Level Strategy and the Industry Environment 168

Chapter 7 Strategy and Technology 199

7-3d Cooperate with Competitors 214

Chapter 8 Strategy in the Global Environment 236

8-7 Global Strategic Alliances 266

Chapter 9 Corporate-Level Strategy: Horizontal Integration,

Chapter 10 Corporate-Level Strategy: Related and Unrelated

10-4b Diversification for the Wrong Reasons 325

PART FOUR IMPLEMENTING STRATEGY

Chapter 12 Implementing Strategy Through Organization 389

PART FIVE Cases in Strategic Management

Case 2: Small Package Express Delivery Industry, 1973–2018 C-23

Case 3: Airborne Express: The Underdog C-38

Case 4: Charles Schwab C-50

Case 5: Coca-Cola C-65

Case 6: Uber in 2018 C-76

Case 7: Dell Inc (A)—Going Private C-90

Case 8: Dell Inc (B)—Transforming the Company C-100

Case 9: Apple at Fourty C-106

Case 10: Wal-Mart Stores C-122

Case 11: Costco Wholesale Corporation in 2018 C-134

Case 12: SpaceX: Disrupting the Space Industry C-144

Case 13: Alibaba Group: The Rise of a Platform Giant C-151

Case 14: Ending HIV? Sangamo and Gene Editing C-159

Case 15: Tesla, Inc. in 2018 C-168

Case 17: IKEA in 2018: Furniture Retailer to the World C-184

Case 18: General Electric C-193

Case 19: 3M: The Innovation Engine C-204

Case 20: Nike: The Sweatshop Debate 20 Years on C-219

Case 22: A Battle for Dominance in Mobile Payments C-228

Case 24: Verizon Wireless: Competitive Advantage C-234

Case 26: Nordstrom: Business-Level Strategy C-238

Case 27: Procter & Gamble: Evolution of Global Strategy C-240

Case 28: JCB in India C-242

Case 29: Outsourcing and Vertical Integration at Apple C-244

Case 30: Citigroup: The Opportunities and Risks of Diversification C-246

Case 31: HP’s Disastrous Acquisition of Autonomy C-249

Case 32: Organization at Apple C-251

Practicing Strategic Management: An Interactive Approach

Strategic Management Cases

Teaching and Learning Aids

1-7 S trategic Planning in Practice 26

Chapter 1 Strategic Leadership: Managing