Michael A. Hitt Management of strategy Concepts and cases Part 1 Strategic Management Inputs 1 CHAPTER 1 Strategic Management 2 CHAPTER 2 Analysis of the External Environment 32 CHAPTER 3 Analysis of the Internal Environment 68 Part 2 Strategic Actions: Strategy Formulation 96 CHAPTER 4 Strategy at the Business Level 98 CHAPTER 5 The Competitive Nature of Strategy 130 CHAPTER 6 Strategy at the Corporate Level 158 CHAPTER 7 Acquisitions and Mergers 188 CHAPTER 8 Strategy Abroad 220 CHAPTER 9 Cooperative Strategic Management 258 Part 3 Strategic Actions: Strategy Implementation 288 CHAPTER 10 Corporate Governance 290 CHAPTER 11 Organizational Structure 324 CHAPTER 12 Leadership 360 CHAPTER 13 Entrepreneurship 390 Part 4 Cases NAME INDEX 1-1 COMPANY INDEX 1-3 SUBJECT INDEX 1-7
Preface xxv Part 1 Strategic Management Inputs 1 CHAPTER 1 Strategic Management 2 Opening Case: General Motors: How Bright Is the Future? 3 The 21 st-century Competitive Landscape 6 The Global Economy 7 The March of Globalization 8 Technology and Technological Changes 10 Strategic Focus: Amazon.com: Using Technology to Create Change 12 Strategic Focus: Organizational Change: Be Ready, Because It Can't Be Avoided! 14 The I/O Model of Above-Average Returns 15 The Resource-Based Model of Above-Average Returns 17 Vision and Mission 19 Vision 19 Mission 20 Stakeholders 21 Classifications of Stakeholders 21 Strategic Leaders 24 The Work of Effective Strategic Leaders 25 Predicting Outcomes of Strategic Decisions: Profit Pools 25 The Strategic Management Process 26 Summary 28 Notes 29
CHAPTER 2 Analysis of the External Environment 32 Opening Case: General and Competitive Environmental Influences on U.S.Airlines 33 The General, Industry, and Competitor Environments 35 External Environmental Analysis 37 Scanning 38 Monitoring 39 Forecasting 39 Assessing 39 Segments of the General Environment 40 The Demographic Segment 40 The Economic Segment 43 The Political/Legal Segment 44 The Sociocultural Segment 45 The Technological Segment 46 The Global Segment 47 Industry Environment Analysis 49 Strategic Focus: The Nature of the Competitive Forces in the Global Automobile Industry 50 Threat of New Entrants 51 Bargaining Power of Suppliers 54 Bargaining Power of Buyers 55 Threat of Substitute Products 55 Intensity of Rivalry among Competitors 56 Strategic Focus: Satellite TV Service Substitutes for Digital Cable Service, Which Substitutes for Local Telephone Service 57 Interpreting Industry Analyses 59 Strategic Groups 60 Competitor Analysis 61 Ethical Considerations 63 Summary 64 Notes 64
CHAPTER 3 Analysis of the Internal Environment 68 Opening Case: The Capability to Innovate: A Critical Source of Competitive Advantage 69 The Nature of Internal Environmental Analysis 71 The Context of Internal Analysis 71 Creating Value 71 The Challenge of Internal Analysis 73 Resources, Capabilities, and Core Competencies 75 Resources 75 Strategic Focus: Human Capital: Underutilizing Valuable Intangible Assets 78 Capabilities 79 Core Competencies 80 Building Core Competencies 81 Four Criteria of Sustainable Competitive Advantage 81 Value Chain Analysis 85 Outsourcing 88 Strategic Focus: Outsourcing Boon or Bane to Competitiveness? 90 Competencies, Strengths,Weaknesses,and Strategic Decisions 91 Summary 92 Notes 93 Part 2 Strategic Actions: Strategy Formulation 96 CHAPTER 4 Strategy at the Business Level 98 Opening Case: Lamps of Distinction: Where Did the Customers Go? 99 Customers:Their Relationship with Business-Level Strategies 101 Effectively Managing Relationships with Customers 102 Reach, Richness, and Affiliation 102 Who: Determining the Customers to Serve 103
What: Determining Which Customer Needs to Satisfy 105 How: Determining Core Competencies Necessary to Satisfy Customer Needs 106 The Purpose of a Business-Level Strategy 106 Types of Business-Level Strategies 108 Cost Leadership Strategy 109 Strategic Focus: Beating Wal-Mart: It's Tough, But It Can Be Done 113 Differentiation Strategy 114 Focus Strategies 119 Integrated Cost Leadership/Differentiation Strategy 121 Summary 124 Strategic Focus: Maytag Corporation: A Cost Leader? A Differentiator? 125 Notes 126 CHAPTER 5 The Competitive Nature of Strategy 130 Opening Case: Southwest Airlines:The King of the Hill That Is Changing an Industry 131 A Model of Competitive Rivalry 133 Competitor Analysis 134 Market Commonality 135 Resource Similarity 136 Drivers of Competitive Actions and Responses 137 Strategic Focus: Is General Motors Stuck in the 1970s? 139 Competitive Rivalry 140 Strategic and Tactical Actions 140 Likelihood of Attack 141 First-Mover Incentives 141 Organizational Size 143 Quality 144 Likelihood of Response 146 Type of Competitive Action 146
Actor s Reputation 146 Dependence on the Market 147 Strategic Focus: The Continuing Saga of Coke and Pepsi Competition: Has Coke Fizzled While Pepsi Popped the Top? 148 Competitive Dynamics 149 Slow-Cycle Markets 149 Fast-Cycle Markets 150 Standard-Cycle Markets 152 Summary 153 Notes 155 CHAPTER б Strategy at the Corporate Level 158 Opening Case: Dining Concepts: What Is the Best Combination? 159 Levels of Diversification 161 Low Levels of Diversification 161 Moderate and High Levels of Diversification 163 Strategic Focus: What Is the Best Way to Manage Product Diversification at GE? 164 Reasons for Diversification 165 Value-Creating Diversification: Related Constrained and Related Linked Diversification 167 Operational Relatedness: Sharing Activities 167 Corporate Relatedness: Transferring of Core Competencies 168 Market Power 169 Strategic Focus: Adding Maytag's Products to Whirlpool's: An Effort to Develop Market Power 170 Simultaneous Operational Relatedness and Corporate Relatedness 172 Unrelated Diversification 173 Efficient Internal Capital Market Allocation 173 Restructuring of Assets 174 Value-Neutral Diversification: Incentives and Resources 175 Incentives to Diversify 175
Resources and Diversification 179 Value-Reducing Diversification: Managerial Motives to Diversify 180 Summary 182 Notes 182 CHAPTER 7 Acquisitions and Mergers 188 Opening Case: Domestic and Cross-Border Acquisitions: Meeting Competitive Challenges and Acquiring Critical Resources 189 The Popularity of Merger and Acquisition Strategies 191 Mergers, Acquisitions, and Takeovers: What Are the Differences? 192 Reasons for Acquisitions 193 Increased Market Power 193 Overcoming Entry Barriers 195 Strategic Focus: Mittal Steel Becomes the Largest Worldwide Steel Producer through a Strategy of Cross-Border Acquisitions 196 Cost of New Product Development and Increased Speed to Market 197 Lower Risk Compared to Developing New Products 198 Increased Diversification 199 Reshaping the Firm's Competitive Scope 199 Learning and Developing New Capabilities 200 Problems in Achieving Acquisition Success 200 Integration Difficulties 201 Inadequate Evaluation of Target 202 Large or Extraordinary Debt 203 Inability to Achieve Synergy 203 Too Much Diversification 204 Managers Overly Focused on Acquisitions 205 Too Large 206 Effective Acquisitions 206 Restructuring 208 Downsizing 209
Downscoping 209 Strategic Focus: Restructuring through Firm Spin-offs Allows for Value Creation 210 Leveraged Buyouts 212 Restructuring Outcomes 212 Summary 214 Notes 214 CHAPTER 8 Strategy Abroad 220 Opening Case: Chinese Firms' Incentives for Foreign Acquisitions 221 Identifying International Opportunities: Incentives to Use an International Strategy 224 Increased Market Size 225 Return on Investment 226 Economies of Scale and Learning 226 Location Advantages 227 International Strategies 228 International Business-Level Strategy 228 International Corporate-Level Strategy 230 Environmental Trends 233 Strategic Focus: Whirlpool's Progress toward the Transnational Strategy 234 Liability of Foreignness 235 Regionalization 236 Choice of International Entry Mode 237 Exporting 237 Licensing 238 Strategic Alliances 239 Acquisitions 240 New Wholly Owned Subsidiary 241 Dynamics of Mode of Entry 242 Strategic Competitiveness Outcomes 243
International Diversification and Returns 243 International Diversification and Innovation 244 Complexity of Managing Multinational Firms 245 Risks in an International Environment 245 Political Risks 245 Economic Risks 246 Strategic Focus: Are China and India Changing Their Approach to Intellectual Property Enforcement? 247 Limits to International Expansion: Management Problems 248 Summary 249 Notes 250 CHAPTER 9 Cooperative Strategic Management 258 Opening Case: Using Alliances to Build Greater Value 259 Strategic Alliances as a Primary Type of Cooperative Strategy 261 Three Types of Strategic Alliances 261 Reasons Firms Develop Strategic Alliances 263 Business-Level Cooperative Strategy 265 Complementary Strategic Alliances 266 Competition Response Strategy 268 Uncertainty-Reducing Strategy 268 Competition-Reducing Strategy 269 Assessment of Business-Level Cooperative Strategies 270 Corporate-Level Cooperative Strategy 271 Diversifying Strategic Alliance 272 Synergistic Strategic Alliance 272 Franchising 272 Strategic Focus: Franchising Finger Foods the American Way 273 Assessment of Corporate-Level Cooperative Strategies 274 International Cooperative Strategy 275 Network Cooperative Strategy 276 Alliance Network Types 276
Strategie Focus: Forming an International Alliance Network for Innovation and Its Use 277 Competitive Risks with Cooperative Strategies 279 Managing Cooperative Strategies 281 Summary 283 Notes 284 Part 3 Strategic Actions: Strategy Implementation 288 CHAPTER 10 Corporate Governance 290 Opening Case: Is Managerial Incentive Compensation Too High? 291 Separation of Ownership and Managerial Control 294 Agency Relationships 295 Product Diversification as an Example of an Agency Problem 296 Agency Costs and Governance Mechanisms 298 Strategic Focus: Sarbanes-Oxley Act Increases Governance Intensity 299 Ownership Concentration 301 The Growing Influence of Institutional Owners 301 Board of Directors 302 Strategic Focus: Governing the CEO 305 Enhancing the Effectiveness of the Board of Directors 306 Executive Compensation 307 A Complicated Governance Mechanism 307 The Effectiveness of Executive Compensation 308 Market for Corporate Control 309 Managerial Defense Tactics 311 International Corporate Governance 312 Corporate Governance in Germany 313 Corporate Governance in Japan 314
Global Corporate Governance 315 Governance Mechanisms and Ethical Behavior 315 Summary 316 Notes 317 CHAPTER 11 Organizational Structure 324 Opening Case: Sony's Struggles with Its Online Music Business: Organization and Cooperation Difficulties among Its Businesses 325 Organizational Structure and Controls 326 Organizational Structure 327 Organizational Controls 327 Strategic Focus: A Change in Structure Leads to Improved Strategy Implementation at Kellogg Co. 328 Relationships between Strategy and Structure 331 Evolutionary Patterns of Strategy and Organizational Structure 331 Simple Structure 331 Functional Structure 333 Multidivisional Structure 333 Matches between Business-Level Strategies and the Functional Structure 334 Matches between Corporate-Level Strategies and the Multidivisional Structure 337 Matches between International Strategies and Worldwide Structures 344 Strategic Focus: Unilever is Reorganizing to Implement the Transnational Strategy by Using the Combination Structure 349 Matches between Cooperative Strategies and Network Structures 350 Implementing Business-Level Cooperative Strategies 352 Implementing Corporate-Level Cooperative Strategies 352 Implementing International Cooperative Strategies 353 Summary 354 Notes 355
CHAPTER 12 Leadership 360 Opening Case: Long-Term Vision or Operational Performance?The"Un-Carly" Takes Hewlett-Packard's Reins 361 Strategic Leadership and Style 363 The Role of Top-Level Managers 365 Top Management Teams 365 Managerial Succession 369 Key Strategic Leadership Actions 372 Determining Strategic Direction 372 Effectively Managing the Firm's Resource Portfolio 373 Strategic Focus: How Do Managers Acquire, Protect, and Use Resources Wisely? 374 Sustaining an Effective Organizational Culture 377 Strategic Focus: Change Lost in a 'Sea' of Organizational Politics 379 Emphasizing Ethical Practices 380 Establishing Balanced Organizational Controls 382 Summary 385 Notes 386 CHAPTER 13 Entrepreneurship 390 Opening Case: W. L.Gore & Associates:The Most Innovative Company in America? 391 Entrepreneurship and Entrepreneurial Opportunities 393 Innovation 394 Entrepreneurs 395 International Entrepreneurship 396 Internal Innovation 397 Strategic Focus: Panera Bread Company: Thriving through Internal Innovation 398 Incremental and Radical Innovation 399
Autonomous Strategic Behavior 400 Induced Strategic Behavior 402 Implementing Internal Innovations 402 Cross-Functional Product Development Teams 403 Facilitating Integration and Innovation 403 Creating Value from Internal Innovation 404 Innovation through Cooperative Strategies 405 Strategic Focus: Cooperating to Innovate in the DVD Rental and Sales Markets 406 Innovation through Acquisitions 407 Creating Value through Strategic Entrepreneurship 408 Summary 409 Notes 410 Part 4 Cases Preparing an Effective Case Analysis C-iii Case 1 : Tata Steel: A Century of Corporate Social Responsibilities C-1 Case 2: Doing the Right Thing: Bank One's Response to the Mutual Fund Scandal C-15 Case3: Louis V. Gerstner Jr. The Man Who Turned IBM Around C-23 Case 4: Lufthansa 2003: Energizing a Decade of Change C-31 Case 5: General Motors Defense C-53 Case 6: Mass Retailing in Asia (B) Competition C-61 Case 7: ONGC's Growth Strategy C-71 Case 8: 9Live: Birth of a TV Channel C-79 Case 9: MapQuest C-89 Case 10: Humana Inc.: Turnaround of a Health Insurer C-103 Case 11: Marks and Spencer:The Downfall and Leadership Vacuum C-120 Case 12: Wal-Mart Stores Inc.: Dominating Global Retailing C-128 Case 13: Dell in China:The Strategic Rethinking C-142 Case 14: Lucchetti C-148
Case 15: Whole Foods Market, 2005: Will There Be Enough Organic Food to Satisfy the Growing Demand? C-168 Case 16: L'Oreal's Business Strategy C-178 Case 17: CQUAY Technologies Corp. C-187 Case 18: News Corp. in 2005: Consolidating the DirecTV Acquisition C-197 Case 19: China on the l-way C-207 Case 20: Succession Battles at Viacom C-215 Name Index 1-1 Company Index I-3 Subject Index I-7