Professional Documents
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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
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Strategic Management: An Integrated © 2020, 2017, 2015 Cengage Learning, Inc.
Approach: Theory and Cases, 13th Edition
Charles W. L. Hill, Melissa A. Schilling, Unless otherwise noted, all content is © Cengage.
Gareth R. Jones WCN: 02-300
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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
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Brief Contents
Glossary G-1
Index I-1
iv
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Contents
Preface xvi
Acknowledgments xx
Dedication xxiii
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vi Contents
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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
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viii Contents
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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
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x Contents
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Contents xi
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xii Contents
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Contents xiii
Long Cases
Case 1: Trader Joe’s in 2018 C-18
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xiv Contents
Case 16: C
hotukool: Challenges and Opportunities in Frugal
Innovation C-181
Short Cases
Case 21: How to Make Money in Newspaper Advertising C-226
Case 23: The Market for Large Commercial Jet Aircraft C-232
Case 25: A
mazon.com: Competitive Advantage and Functional
Strategy C-236
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Contents xv
Glossary G-1
Index I-1
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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
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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.
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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.
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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.
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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
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Acknowledgments xxi
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xxii Acknowledgments
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Dedication
— Charles W. L. Hill
— Melissa A. Schilling
xxiii
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1
Introduction to Strategic
Management
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Strategic Leadership: Managing
1
Photomaxx/Shutterstock.com
the Strategy-Making Process
for Competitive Advantage
LEARNING OBJECTIVES OPENING CASE
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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.
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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
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Chapter 1 Strategic Leadership: Managing the Strategy-Making Process for Competitive Advantage 5
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.
Prof itability
(ROIC)
Ef fectiveness Shareholder
of strategies value
Prof it
growth
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6 Part 1 Introduction to Strategic Management
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
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Chapter 1 Strategic Leadership: Managing the Strategy-Making Process for Competitive Advantage 7
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.
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8 Part 1 Introduction to Strategic Management
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).
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Chapter 1 Strategic Leadership: Managing the Strategy-Making Process for Competitive Advantage 9
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.
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10 Part 1 Introduction to Strategic Management
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.
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Chapter 1 Strategic Leadership: Managing the Strategy-Making Process for Competitive Advantage 11
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
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12 Part 1 Introduction to Strategic Management
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.
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Chapter 1 Strategic Leadership: Managing the Strategy-Making Process for Competitive Advantage 13
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14 Part 1 Introduction to Strategic Management
STRATEGY FORMULATION
Existing
Business Model
Mission, Vision,
Values, and
Goals
Chapter 1
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
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Chapter 1 Strategic Leadership: Managing the Strategy-Making Process for Competitive Advantage 15
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.
Business
Definition
How are
customer needs
being satisfied?
Distinctive
competencies
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16 Part 1 Introduction to Strategic Management
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.”
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Chapter 1 Strategic Leadership: Managing the Strategy-Making Process for Competitive Advantage 17
●● “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.
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18 Part 1 Introduction to Strategic Management
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.
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Chapter 1 Strategic Leadership: Managing the Strategy-Making Process for Competitive Advantage 19
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.
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Another random document with
no related content on Scribd:
Fig. 1
Fig. 2
Fig. 3
Fig. 4 Fig. 5
The traveling man who “lives in a suitcase” and at the same time
wishes to enjoy the pleasures of amateur photography sometimes
experiences difficulty in developing films in a hotel room. Soup plates
borrowed from the steward, or even the bowl pitcher and the ice-
water pitcher in the room, can be used for development, but it is very
hard to improvise a ruby lamp. My emergency lamp is a small vest-
pocket flash lamp over which two yellow envelopes, one inside of the
other, are slipped, as shown. The lower edges are cut perfectly
square and rest on the table, or shelf, in the closet, and all white light
is excluded. At night, the shades may be drawn, and a yellow-paper
sack may be tied around the electric light.—Contributed by J. L.
Pinkston, Granite Hill, Ga.
An Ice Creeper
Dissolve ¹⁄₂ oz. of orange shellac in ¹⁄₂ pt. of alcohol, and add 1
teaspoonful of Venice turpentine, the same quantity of raw linseed
oil, and 2 oz. tincture of benzoin. Shake well, and set in a varnish
can in hot water.
Soak the coiled line in the varnish for two hours, then hang it up to
dry. Thin the varnish with alcohol, and repeat the dipping. When the
line is dry, rub it down well with a wool rag greased with tallow. Silk
lines treated in this manner are pliable, and the fibers of the silk are
so united by the varnish that the strength of the line is almost
doubled.
Making Chest Lock More Secure
Theprose,
charm of the birchen canoe has long been sung in verse and
and while the bark that the Indian used has been
supplanted by a more perfect type of modern manufacture, the
popularity of this, the most graceful of water craft, has increased with
years, until today we find the canoe the choice of thousands of
recreation seekers who paddle about in park lakes and quiet
streams, or spend their vacations in cruising down rivers and other
attractive waterways—sometimes within the environs of towns and
villages, and again dipping paddles in the wilderness streams of the
far north. True, the modern canoe is a distinct product of the
twentieth century, and while it is so largely used at summer resorts, it
nevertheless retains all the good points of the old, while embodying
numerous improvements which fit it even better for wilderness travel
than the Indian model after which it was patterned. The noteworthy
increase in the number of canoeists in the past dozen years is good
evidence that this natty craft is fast coming into its own, and as more
and more outdoor men and women understand its possibilities and
limitations and become proficient in handling it, the long-rooted fear
and distrust with which the uninformed public regard the canoe, will
pass away. As a matter of fact, accidents ever follow in the wake of
ignorance and carelessness, and while there are very few expert
gunners injured by firearms, and still fewer experienced canoeists
drowned, there are numerous sad accidents constantly occurring to
the reckless and foolhardy, who do not know how to handle a
weapon, nor understand the first thing about paddling a canoe. Let
us consider then, the practical side of the subject, the choice of a
suitable canoe and the knack of handling it in a safe and efficient
manner.
If one would experience in full measure the many-sided charm of
paddling, he should get a good canoe. Unlike other and heavier
water craft, the canoe is a lightly balanced and responsive
conveyance, which may be cranky and dangerous, or safe and
stable, according to the model, the skill of the builder, and the
dexterity of the paddler. There are canoes and canoes, of varying
models and sizes, and constructed of many materials, and while all
may serve as a means of getting about in the water, the paddling
qualities include numerous little idiosyncrasies which serve to
differentiate canoes as well as men. In fact, this light and graceful
craft may be properly viewed as the highest type of boat building,
since it must be fashioned strong but light; it must be steady when
going light; capable of carrying comparatively heavy loads; draw little
water, and it must be honestly constructed of good material to stand
up under the hard usage which every canoe is subjected to, whether
used for summer paddling, or upon long hunting and shooting trips.
Three types of canoes are in common use by experienced
canoeists, the birch-bark, the all-wood, and the canvas-covered
cedar canoe. The birch-bark, by reason of its rougher workmanship,
is slow under the paddle, is easily injured, and it grows heavier and
more difficult to handle every time it is used. The all-wood canoe is
most expensive to buy, and though swift under the paddle, is too
easily injured and too difficult to repair for rough and ready use. The
cedar-planked canoe which is covered with filled and painted canvas
is for many reasons the best all-around craft-attractive enough for
park use, and stout enough for use in rapid water and for cruising in
northern lakes and rivers.
This type of craft is much used in Canada along the St. Lawrence
River, and to a much less extent by American sportsmen, owing to
its higher cost, and its tendency to break and cause a leak. Of
course, the all-wood canoe is a good craft, but everything
considered, there can be no question in the minds of canoeists who
are acquainted with all types of canoes, that the all-cedar or
basswood craft is less dependable than the canvas-covered cedar
canoe. The Peterborough type—so called from a Canadian city of
this name where many wood canoes are made—with its relatively
low ends and straight sides with but little sheer and tumble home, is
the model commonly used by practically all manufacturers of the all-
wood canoe. While a boat of this kind can be, and often is, used in
rough-water lake paddling as well as in wilderness travel, the all-
wood canoe is better suited for club use, and in the wider and more
quiet-flowing streams and lakes.
The Best All-Around Craft, for Two Men and a Reasonable Amount of Camp
Duffle, Is a Canvas-Covered Cedar Canoe, 16 Feet Long, 32-Inch Beam, and
12 Inches Amidships, Weighing About 60 Pounds
The Canvas-Covered Cedar Canoe