Exploring Strategy 12th Edition PDF

EXPLORING STRATEGY T WELF TH EDITION Richard Whittington Patrick Regnér Duncan Angwin Gerry Johnson Kevan Scholes TEXT AND CASES  Welcome to Exploring Strategy Strategy is a crucial subject. It’s about t...

EXPLORING STRATEGY T WELF TH EDITION Richard Whittington Patrick Regnér Duncan Angwin Gerry Johnson Kevan Scholes TEXT AND CASES  Welcome to Exploring Strategy Strategy is a crucial subject. It’s about the development, success and failure of all kinds of organisations, from multinationals to entrepreneurial start-ups, from charities to government agencies, and many more. Strategy raises the big questions about these organisations – how they grow, how they innovate and how they change. As a manager or an entrepreneur, you will be involved in shaping, implementing or communicating these strategies. Our primary aim with Exploring Strategy is to give you a comprehensive understanding of the issues and techniques of strategy. We can also help you get a great final result in your course. You can make the most of the text by: Exploring hot topics in cutting-edge issues such as business models, corporate gover- nance, innovation, entrepreneurship and strategy practice. Engaging with our ‘Thinking Differently’ sections to access novel and distinctive perspec- tives on core themes in strategy Using the ‘Strategy Lenses’ to think critically and originally about key topics and to set you on your way to better grades in your assignments and exams. Pursuing some of the recommended readings at the end of each chapter. They’re specially selected as accessible and valuable sources that will enhance your learning and give you an extra edge in your course work. We want Exploring Strategy to give you what you need: a comprehensive view of the subject, an ambition to put that into practice, and – of course – success in your studies. We hope that you’ll be as excited by the key issues of strategy as we are! So, read on and good luck! Richard Whittington Patrick Regnér Duncan Angwin Gerry Johnson Kevan Scholes  Richard Whittington MA, MBA, PhD is Professor of Strategic Management at the Saïd Business School and Millman Fellow at New College, University of Oxford. He is an Associate Editor of the Strategic Management Journal and author of ten books, including Opening Strategy: Professional Strategists and Practice Change, 1960 to Today (2019). He has had full or visiting positions at the Harvard Business School, HEC Paris, Imperial College London, the University of Toulouse and the University of Warwick. He is active in executive education and consulting internationally. Patrick Regnér, BSc, MSc, PhD, is Professor of Strategic Management at Stockholm School of Economics. He has published in leading journals like Strategic Management Journal, Journal of International Business, Human Relations, etc. and serves on several editorial boards including Academy of Management Review, Journal of Management Studies and Strategic Organization. He has extensive teaching experience on all academic levels at several international institutions. He does executive teaching and consulting with organisations active worldwide and is senior advisor at strategy advisory firm Value Formation. His current research focuses on strategy and institutions. Duncan Angwin, MA, MPhil, MBA, PhD is the Dean of Nottingham University Business School. He was previously the Sir Roland Smith Professor of Strategic Management and Head of Department for Entrepreneurship and Strategy at Lancaster University. He has authored twelve books, over forty refereed articles in journals such as Academy of Management Learning & Education, California Management Review, Journal of World Business, MIT Sloan Management Review, and Organization Studies and is on the editorial boards of several journals, including Journal of Management Studies. He teaches strategy to executives internationally. He has won in excess of €10m in research grants and currently focuses on international M&A and strategy practices. See http://www.duncanangwin.com Gerry Johnson, BA, PhD is Emeritus Professor of Strategic Management at Lancaster University School of Management. He has also taught at Strathclyde Business School, Cranfield School of Management, Manchester Business School and Aston University. He is the author of numerous books and his research has been published in many of the foremost management research journals in the world. He also works with senior management teams on issues of strategy development and strategic change. Kevan Scholes MA, PhD, DMS, CIMgt, FRSA is Principal Partner of Scholes Associates – specialising in strategic management. He is also Emiritus Professor of Strategic Management and formerly Director of the Sheffield Business School, UK. He has extensive experience of teaching strategy to undergraduate and postgraduate students inside and outside the UK, as well as of management development work in private and public sector organisations. He has been an advisor on management development to a number of national bodies and is a Companion of The Chartered Management Institute. EXPLORING STRATEGY TE X T AND CA SES TWELFTH EDITION Richard Whittington Saïd Business School, University of Oxford Patrick Regnér Stockholm School of Economics Duncan Angwin Nottingham University Business School Gerry Johnson Lancaster University Management School Kevan Scholes Sheffield Business School With the assistance of Jason Evans Clive Kerridge Harlow, England London New York Boston San Francisco Toronto Sydney Dubai Singapore Hong Kong Tokyo Seoul Taipei New Delhi Cape Town São Paulo Mexico City Madrid Amsterdam Munich Paris Milan PEARSON EDUCATION LIMITED KAO Two KAO Park Harlow CM17 9SR United Kingdom Tel: +44 (0)1279 623623 Web: www.pearson.com/uk First edition published under the Prentice Hall imprint 1984 (print) Fifth edition published under the Prentice Hall imprint 1998 (print) Sixth edition published under the Financial Times Prentice Hall imprint 2002 (print) Seventh edition 2005 (print) Eighth edition 2008 (print) Ninth edition 2011 (print) Tenth edition published 2014 (print and electronic) Eleventh edition published 2017 (print and electronic) Twelfth edition published 2020 (print and electronic) © Simon & Schuster Europe Limited 1998 (print) © Pearson Education 2002, 2011 (print) © Pearson Education Limited 2014, 2017 and 2020 (print and electronic) The rights of Gerry Johnson, Richard Whittington, Kevan Scholes, Duncan Angwin, Patrick Regnér, Clive Kerridge and Jason Evans to be identified as authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. The print publication is protected by copyright. Prior to any prohibited reproduction, storage in a retrieval system, distribution or transmission in any form or by any means, electronic, mechanical, recording or otherwise, permission should be obtained from the publisher or, where applicable, a licence permitting restricted copying in the United Kingdom should be obtained from the Copyright Licensing Agency Ltd, Barnard’s Inn, 86 Fetter Lane, London EC4A 1EN. The ePublication is protected by copyright and must not be copied, reproduced, transferred, distributed, leased, licensed or publicly performed or used in any way except as specifically permitted in writing by the publishers, as allowed under the terms and conditions under which it was purchased, or as strictly permitted by applicable copyright law. Any unauthorised distribution or use of this text may be a direct infringement of the authors’ and the publisher’s rights and those responsible may be liable in law accordingly. All trademarks used herein are the property of their respective owners. The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners. Pearson Education is not responsible for the content of third-party internet sites. The Financial Times. With a worldwide network of highly respected journalists, The Financial Times provides global business news, insightful opinion and expert analysis of business, finance and politics. With over 500 journalists reporting from 50 countries worldwide, our in-depth coverage of international news is objectively reported and analysed from an independent, global perspective. To find out more, visit www.ft.com/pearsonoffer. ISBN: 978-1-292-28245-9 (print) 978-1-292-28246-6 (PDF) 978-1-292-28250-3 (ePub) British Library Cataloguing-in-Publication Data A catalogue record for the print edition is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Whittington, Richard, 1958- author. Title: Exploring strategy / Richard Whittington, Saïd Business School, University of Oxford, Patrick Regnér, Stockholm School of Economics, Duncan Angwin, Lancaster University Management School, Gerry Johnson, Lancaster University Management School, Kevan Scholes, Sheffield Business School ; with the assistance of Jason Evans, Clive Kerridge. Other titles: Exploring corporate strategy Description: Twelfth Edition. | Hoboken : Pearson, 2019. | Revised edition of Exploring strategy, | Includes bibliographical references and index. Identifiers: LCCN 2019035569 | ISBN 9781292282459 (paperback) | ISBN 9781292282466 | ISBN 9781292282503 (epub) Subjects: LCSH: Business planning. | Strategic planning. | Business planning--Case studies. | Strategic planning--Case studies. Classification: LCC HD30.28.J648 2019 | DDC 658.4/012--dc23 LC record available at https://lccn.loc.gov/2019035569 10 9 8 7 6 5 4 3 2 1 23 22 21 20 Cover: Otto Steininger / Ikon Images / Getty Images Print edition typeset in 9/12.5pt Frutiger Neue LT W1G by SPi Gobal Print edition printed in Slovakia by Neografia NOTE THAT ANY PAGE CROSS REFERENCES REFER TO THE PRINT EDITION Brief contents Illustrations and Thinking Differently xvii List of figures xix List of tables xxii Preface xxiii Exploring Strategy features xxv Exploring Strategy Online xxvi Digital Courseware xxvii Chapter 1 Introducing strategy 2 Part I The strategic position 31 Introduction to Part I 32 Chapter 2 Macro-environment analysis 34 Chapter 3 Industry and sector analysis 62 Chapter 4 Resources and capabilities analysis 94 Chapter 5 Stakeholders and governance 128 Chapter 6 History and culture 156 Commentary on Part I The strategy lenses 184 Part II Strategic choices 199 Introduction to Part II 200 Chapter 7 Business strategy and models 202 Chapter 8 Corporate strategy 236 Chapter 9 International strategy 270 Chapter 10 Entrepreneurship and innovation 302 Chapter 11 Mergers, acquisitions and alliances 334 Commentary on Part II Strategic choices 364 v Brief contents Part III Strategy in action 367 Introduction to Part III 368 Chapter 12 Evaluating strategies 370 Chapter 13 Strategy development processes 404 Chapter 14 Organising and strategy 434 Chapter 15 Leadership and strategic change 464 Chapter 16 The practice of strategy 494 Commentary on Part III Strategy in action 528 Case studies 531 Glossary 771 Name index 777 General index 787 Acknowledgements 801 vi Contents Illustrations and Thinking Differently xvii List of figures xix List of tables xxii Preface xxiii Exploring Strategy features xxv Exploring Strategy Online xxvi Digital Courseware xxvii 1 Introducing strategy 2 1.1 Introduction 3 1.1.1 Why ‘Exploring Strategy’? 4 1.2 What is strategy? 5 1.2.1 Defining strategy 5 1.2.2 The purpose of strategy: mission, vision, values and objectives 8 1.2.3 Strategy statements 9 1.2.4 Levels of strategy 12 1.3 The Exploring Strategy Framework 12 1.3.1 Strategic position 14 1.3.2 Strategic choices 15 1.3.3 Strategy in action 16 1.4 Working with strategy 18 1.5 Studying strategy 19 1.6 Exploring strategy further 22 1.6.1 Exploring strategy in different contexts 22 1.6.2 Exploring strategy through different ‘strategy lenses’ 23 Summary 24 Work assignments 24 Recommended key readings 25 References 25 Case example: The rise of a unicorn: Airbnb 26 Part I The strategic position Introduction to Part I 32 2 Macro-environment analysis 34 2.1 Introduction 35 vii Contents 2.2 PESTEL analysis 36 2.2.1 Politics 37 2.2.2 Economics 40 2.2.3 Social 41 2.2.4 Technology 43 2.2.5 Ecological 45 2.2.6 Legal 47 2.2.7 Key drivers for change 49 2.3 Forecasting 50 2.3.1 Forecast approaches 50 2.3.2 Directions of change 51 2.4 Scenario analysis 52 Summary 56 Work assignments 56 Recommended key readings 56 References 57 Case example: Alibaba: the Yangtze River Crocodile 59 3 Industry and sector analysis 62 3.1 Introduction 63 3.2 Industry analysis 64 3.2.1 Defining the industry 65 3.2.2 The competitive forces 66 3.2.3 Complementors and network effects 71 3.2.4 Implications of the Competitive Five Forces 73 3.3 Industry types and dynamics 75 3.3.1 Industry types 75 3.3.2 Industry structure dynamics 76 3.4 Competitors and markets 80 3.4.1 Strategic groups 80 3.4.2 Market segments 83 3.4.3 Critical success factors and ‘Blue Oceans’ 84 3.5 Opportunities and threats 85 Summary 87 Work assignments 87 Recommended key readings 88 References 88 Case example: Game-changing forces and the global advertising industry 90 4 Resources and capabilities analysis 94 4.1 Introduction 95 4.2 Foundations of resources and capabilities 96 4.2.1 Resources and capabilities 96 4.2.2 Threshold and distinctive resources and capabilities 96 4.3 Distinctive resources and capabilities as a basis of competitive advantage 98 4.3.1 V – value of resources and capabilities 99 4.3.2 R – rarity 100 viii  Contents 4.3.3 I – inimitability 100 4.3.4 O – organisational support 102 4.4 Analysing resources and capabilities 104 4.4.1 VRIO analysis 104 4.4.2 The value chain and value system 105 4.4.3 Activity systems 109 4.4.4 Benchmarking 111 4.4.5 SWOT 112 4.5 Dynamic capabilities 116 Summary 120 Work assignments 121 Recommended key readings 121 References 122 Case example: Rocket Internet – will the copycat be imitated? 125 5 Stakeholders and governance 128 5.1 Introduction 129 5.2 Stakeholders 130 5.2.1 Stakeholder groups 130 5.2.2 Stakeholder mapping 133 5.2.3 Owners 135 5.3 Corporate governance 138 5.3.1 The governance chain 138 5.3.2 Different governance models 141 5.3.3 How boards of directors influence strategy 144 5.4 Social responsibility 145 Summary 149 Work assignments 150 Recommended key readings 150 References 151 Case example: Petrobras and the Lizards 153 6 History and culture 156 6.1 Introduction 157 6.2 History and strategy 158 6.2.1 Historical relationships 158 6.2.2 Historical analysis 160 6.3 Culture and strategy 162 6.3.1 Geographically based cultures 162 6.3.2 Organisational fields 164 6.3.3 Organisational culture 166 6.3.4 Culture’s influence on strategy 168 6.3.5 Analysing culture: the cultural web 169 6.3.6 Undertaking cultural analysis 171 6.4 Strategic drift 174 Summary 178 Work assignments 178 ix Contents Recommended key readings 179 References 179 Case example: Uber and the ubermensch 181 Commentary on Part I The strategy lenses 184 Case example: How does Facebook make strategy? 195 Part II Strategic choices Introduction to Part II 200 7 Business strategy and models 202 7.1 Introduction 203 7.2 Generic competitive strategies 204 7.2.1 Cost leadership strategy 205 7.2.2 Differentiation strategy 209 7.2.3 Focus strategy 210 7.2.4 Hybrid strategy 212 7.2.5 The Strategy Clock 213 7.3 Interactive strategies 214 7.3.1 Interactive price and quality strategies 215 7.3.2 Game theory 217 7.4 Business models 221 7.4.1 Value creation, configuration and capture 221 7.4.2 Business model patterns 224 7.4.3 Multi-sided platforms 225 Summary 228 Work assignments 228 Recommended key readings 229 References 229 Case example: The IKEA approach 231 8 Corporate strategy 236 8.1 Introduction 237 8.2 Strategy directions 238 8.2.1 Market penetration 239 8.2.2 Product and service development 241 8.2.3 Market development 242 8.2.4 Unrelated diversification 242 8.3 Diversification drivers 244 8.4 Diversification and performance 246 x  Contents 8.5 Vertical integration 246 8.5.1 Forward and backward integration 247 8.5.2 To integrate or to outsource? 247 8.5.3 Divestment 250 8.6 Value creation and the corporate parent 251 8.6.1 Value-adding and value-destroying activities of corporate parents 251 8.6.2 The portfolio manager 253 8.6.3 The synergy manager 254 8.6.4 The parental developer 256 8.7 Portfolio matrices 256 8.7.1 The BCG (or growth/share) matrix 256 8.7.2 The directional policy (GE–McKinsey) matrix 258 8.7.3 The parenting matrix 260 Summary 263 Work assignments 263 Recommended key readings 264 References 264 Case example: Grand strategies in vision 266 9 International strategy 270 9.1 Introduction 271 9.2 Internationalisation drivers 272 9.3 Geographic sources of advantage 276 9.3.1 Locational advantage: Porter’s diamond 276 9.3.2 The international value system 278 9.4 International strategies 280 9.5 Market selection and entry 283 9.5.1 Country and market characteristics 283 9.5.2 Competitive characteristics 287 9.5.3 Entry mode strategies 289 9.6 Subsidiary roles in an international portfolio 292 9.7 Internationalisation and performance 293 Summary 294 Work assignments 295 Recommended key readings 295 References 295 Case example: China goes to Hollywood: Wanda’s move into the US movie industry 299 10 Entrepreneurship and innovation 302 10.1 Introduction 303 10.2 Entrepreneurship 304 10.2.1 Opportunity recognition 304 10.2.2 Steps in the entrepreneurial process 307 xi Contents 10.2.3 Stages of entrepreneurial growth 308 10.2.4 Social entrepreneurship 310 10.3 Innovation dilemmas 311 10.3.1 Technology push or market pull 312 10.3.2 Product or process innovation 314 10.3.3 Open or closed innovation 315 10.4 Innovation diffusion 318 10.4.1 The pace of diffusion 318 10.4.2 The diffusion S-curve 319 10.5 Innovators and imitators 320 10.5.1 First-mover advantages and disadvantages 321 10.5.2 The incumbent’s response 322 Summary 325 Work assignments 326 Recommended key readings 326 References 326 Case example: Rovio’s Angry Birds: The evolution of a global entertainment empire 329 11 Mergers, acquisitions and alliances 334 11.1 Introduction 335 11.2 Organic development 336 11.3 Mergers and acquisitions 337 11.3.1 Defining M&A 337 11.3.2 M&A contexts 338 11.3.3 M&A strategy 338 11.3.4 M&A processes 341 11.3.5 M&A strategy over time 346 11.4 Strategic alliances 347 11.4.1 Types of strategic alliance 347 11.4.2 Motives for alliances 349 11.4.3 Strategic alliance processes 350 11.5 Comparing acquisitions, alliances and organic development 354 11.5.1 Buy, ally or DIY? 354 11.5.2 Key success factors 356 Summary 357 Work assignments 358 Recommended key readings 358 References 358 Case example: Future-proofing business? Sainsbury’s acquires Argos 361 Commentary on Part II Strategic choices 364 xii  Contents Part III Strategy in action Introduction to Part III 368 12 Evaluating strategies 370 12.1 Introduction 371 12.2 Organisational performance 372 12.2.1 Performance measures 372 12.2.2 Performance comparisons 374 12.2.3 Gap analysis 375 12.2.4 Complexities of performance analysis 375 12.3 Suitability 376 12.3.1 Ranking and screening 378 12.3.2 Decision trees 380 12.4 Acceptability 382 12.4.1 Return 382 12.4.2 Risk 388 12.4.3 Reaction of stakeholders 390 12.5 Feasibility 392 12.5.1 Financial feasibility 392 12.5.2 People and skills 394 12.6 Evaluation 394 12.6.1 Three qualifications 395 Summary 396 Work assignments 397 Recommended key readings 397 References 398 Case example: ITV: DIY, buy or ally? 399 13 Strategy development processes 404 13.1 Introduction 405 13.2 Deliberate strategy development 406 13.2.1 The role of the strategic leader 406 13.2.2 Strategic planning systems 408 13.2.3 Externally imposed strategy 412 13.3 Emergent strategy development 412 13.3.1 Logical incrementalism 412 13.3.2 Strategy as the outcome of political processes 415 13.3.3 Strategy as the result of organisational structures and systems 416 xiii Contents 13.4 Implications for managing strategy development 419 13.4.1 Strategy development in different contexts 419 13.4.2 Managing deliberate and emergent strategy 423 Summary 424 Work assignments 425 Recommended key readings 425 References 426 Case example: Alphabet: who and what drives strategy 429 14 Organising and strategy 434 14.1 Introduction 435 14.2 Structural types 436 14.2.1 The functional structure 436 14.2.2 The divisional structure 438 14.2.3 The matrix structure 440 14.2.4 Multinational/transnational structures 441 14.2.5 Project-based structures 444 14.2.6 Strategy and structure fit 444 14.3 Systems 446 14.3.1 Planning systems 447 14.3.2 Cultural systems 448 14.3.3 Performance targeting systems 449 14.3.4 Market systems 451 14.4 Agility and resilience 454 14.5 Configurations 455 Summary 457 Work assignments 458 Recommended key readings 458 References 458 Case example: Tencent: Third Time Lucky? 460 15 Leadership and strategic change 464 15.1 Introduction 465 15.2 Leadership and strategic change 466 15.2.1 Strategic leadership roles 466 15.2.2 Leadership styles 467 15.3 Analysing the change context 469 15.3.1 The change kaleidoscope 469 15.3.2 Forcefield analysis 471 15.4 Types of strategic change 473 15.4.1 Adaptation 475 15.4.2 Reconstruction (turnaround) 475 15.4.3 Revolution 476 15.4.4 Evolution 477 15.5 Levers for strategic change 478 15.5.1 A compelling case for change 479 15.5.2 Challenging the taken for granted 479 xiv  Contents 15.5.3 Changing operational processes and routines 480 15.5.4 Symbolic management 480 15.5.5 Power and political systems 481 15.5.6 Timing 484 15.5.7 Visible short-term wins 484 15.6 Problems of formal change programmes 485 Summary 486 Work assignments 487 Recommended key readings 487 References 488 Case example: Can the Saturday boy change Marks & Spencer? 490 16 The practice of strategy 494 16.1 Introduction 495 16.2 The strategists 496 16.2.1 Top managers and directors 496 16.2.2 Strategic planners 497 16.2.3 Middle managers 498 16.2.4 Strategy consultants 501 16.2.5 Who to involve in strategy development? 502 16.3 Strategising 503 16.3.1 Strategy analysis 503 16.3.2 Strategic issue-selling 505 16.3.3 Strategic decision making 508 16.3.4 Communicating strategy 510 16.4 Strategy methodologies 511 16.4.1 Strategy workshops 511 16.4.2 Strategy projects 513 16.4.3 Hypothesis testing 514 16.4.4 Business cases and strategic plans 516 Summary 518 Work assignments 518 Recommended key readings 519 References 519 Case example: Participative strategy process in the city of Vaasa 522 Commentary on Part III Strategy in action 528 Case studies Guide to using the case studies 532 Guide to the main focus of cases in the book 534 Glastonbury: from hippy weekend to international festival 537 The global pharmaceutical industry: harnessing a whirlwind 540 xv Contents Siemens A: The Foresight Programme 551 Relocation, relocation, relocation: evolving strategies to deal with shifting shopping patterns at Vision Express 558 Ricoh Canada Inc. 565 H&M in fast fashion: continued success? 573 The Formula 1 constructors 583 ‘Access to Healthcare’: integrating a CSR programme in Coloplast 592 Manchester United FC: struggling to compete with Europe’s elite clubs 599 Adnams: a local company 609 ‘Dare to know’: challenges in merging two French Universities 616 Ryanair: the low fares airline – new directions? 622 Multi-sided platform competition in the video game industry 632 Megabrew: creating an undisputed global brewing champion? 638 Air Asia and the Tune Group 650 Severstal: a journey from growth to consolidation within the steel industry 661 Indian Premier League: glitz, glamour and globalisation 668 Handelsbanken – Banking done differently 672 Caitec: A Chinese business in Africa 680 Going for a ride: entrepreneurial journeys in the on-demand transportation sector 685 Leadership at Apple Inc. 689 Has Teva been saved? Responding to challenges and problems in generic pharmaceuticals 695 Managing M&A: Elekta’s acquisition of Neuromag 702 CRH plc: Optimising value through corporate strategy 707 Counterstrategy: resisting the Mexican narco-trafficking business 715 Oak Tree Inn: growth challenges facing a family-run tourism business 723 Strategic planning at King Faisal Hospital and research centre Saudi Arabia 731 Mormor Magda’s Ice Cream: can you be hot in a cool market? 736 Emmaus: the founder as a resource? 741 Siemens B: ‘making real what matters’ 745 Cultivating a rich harvest at Orchard 756 Strategy Work in Dörr och Portbolaget: How open can you be? 760 In the Boardroom at HomeCo 765 Glossary 771 Name index 777 General index 787 Acknowledgements 801 xvi Illustrations and Thinking Differently Illustrations 1.1 Tesla Motors: the future is electric! 7 1.2 Strategy statements 11 1.3 Strategists 20 2.1 A PESTEL for the FANGs 38 2.2 Intelligence Unit 8200 and the Small World of Israeli Hi-Tech 44 2.3 Juul duels with the rules 48 2.4 Colouring the World 53 3.1 Busted banking barriers? 68 3.2 Facebook’s network fears 72 3.3 Steps in an industry analysis 74 3.4 Consolidation across the UK charity and public sectors 79 4.1 Resources and capabilities 97 4.2 Groupon and the sincerest form of flattery 103 4.3 An integrated value system in the Nepalese poultry industry 108 4.4 SWOT analysis of Pharmcare 114 4.5 Dynamic capabilities (and rigidities) in mobile telephone companies 118 5.1 Oxfam’s infamy 132 5.2 Too hot in the kitchen? Jamie’s family management 139 5.3 Volkswagen’s governance crisis 143 5.4 Unilever’s sustainability strategy – more than greenwashing? 146 6.1 The family bank 161 6.2 Learn the culture proper to each. University pays a price for success 165 6.3 The Bogleheads and Vanguard Asset Management 172 6.4 Kodak: the decline and fall of a market leader 175 7.1 Vanguard’s low-cost strategy comes to Europe 208 7.2 Volvo’s different Indian buses 211 7.3 Game theory in practice in the public sector 219 7.4 Uber’s ubiquitous business model 222 8.1 Choosing new directions at Tesco? 240 8.2 From Sat nav to driverless cars 243 8.3 Outsourcing – a broken model? 249 8.4 Eating its own cooking: Berkshire Hathaway’s parenting 255 8.5 Chipotle: Doing things differently 259 9.1 Walmart: International successes and failures 273 9.2 The international ‘Joint Effort Enterprise’ 279 9.3 Tomra’s institutional challenges 285 9.4 Base of the pyramid strategies 288 10.1 Entrepreneurs, start-up teams and external relationships 306 10.2 Almost Facebook and nearly billionaires 309 xvii Illustrations and Thinking Differently 10.3 ‘Pad Man’ and Frugal sanitary towels 313 10.4 ARM’s Extensive Ecosystem 316 11.1 Strategies clash in a contested bid 339 11.2 Money can’t buy everything 344 11.3 Apple’s iPad advantage 348 11.4 All good things come to an end? 352 12.1 Britain’s oldest and worst retailer – WHSmith? 376 12.2 ‘Refreshing’ Heineken 380 12.3 How to decide among strategy options at a family business – a decision tree analysis 382 12.4 Real options evaluation for developing premium beers in India 387 12.5 Sensitivity analysis 389 12.6 Using break-even analysis to examine strategic options 391 13.1 The influence of strategic leaders 407 13.2 Strategic planning at Siemens 409 13.3 An incrementalist view of strategic management 414 13.4 A classic case: Honda entering the US motorcycle market 420 14.1 Elon Musk reorganises Tesla: time to shower? 437 14.2 Alphabet’s $29bn new structure 443 14.3 Call Fire, Police and Ambulance 450 14.4 God’s work in Malaysia 453 15.1 Leadership styles 468 15.2 Challenges of change in Indian banking 472 15.3 Digital transformation at La Redoute 474 15.4 Change levers in action 482 16.1 Wanted: Team member for strategy unit 499 16.2 How open should your strategising be? 504 16.3 A day in the life of a strategy director 507 16.4 A tale of two workshops 512 16.5 Hypothesis testing at a bank 515 Thinking Differently by chapter 2 The crowdsourced forecast 55 3 From five forces to one 86 4 Micro-foundations of capabilities 120 5 Benefit corporations 149 6 Institutional logics versus organisational culture 177 7 Transient rather than sustainable advantage 227 8 Corporate strategy is a fool’s errand 262 9 An institution-based view of strategy 294 10 Entrepreneurship: Discovery or creation? 325 11 From acquiring capabilities to acquiring as capability? 357 12 Misrepresenting strategic projects 396 13 Different strategy development styles 424 14 Beyond hierarchy? 457 15 Women as leaders 486 16 Rethinking the role of strategists 517 xviii List of figures 1.1 Strategy: its definition, purpose, analysis and work 3 1.2 Definitions of strategy 5 1.3 Three horizons for strategy 6 1.4 The Exploring Strategy Framework 13 1.5 Strategy’s three branches 19 Part I.1 Strategic position 32 2.1 Layers of the business environment 35 2.2 Analysing the macro-environment 36 2.3 The political environment 39 2.4 Economic cycles and strategic investments 40 2.5 Sociogram of networks within an organisational field 42 2.6 Technology roadmap for the Internet of Things 45 2.7 Contexts and motives for ecological issues 47 2.8 Forecasting under conditions of uncertainty 50 2.9 The scenario cube: selection matrix for scenario key drivers 52 2.10 The scenario process 54 3.1 Industry and sector environments: the key topics 63 3.2 The Five Competitive Forces Framework 64 3.3 The industry life cycle 77 3.4 Comparative industry structure analysis 80 3.5 Characteristics for identifying strategic groups 81 3.6 Strategic groups in the Indian pharmaceutical industry 82 3.7 Strategy canvas for electrical component companies 85 4.1 Resources and capabilities: the key issues 95 4.2 VRIO 99 4.3 Criteria for the inimitability of resources and capabilities 101 4.4 The value chain within an organisation 105 4.5 The value system 107 4.6 Activity systems at Geelmuyden.Kiese 110 4.7 The TOWS matrix 113 5.1 The position of stakeholders, governance and ethics 130 5.2 Stakeholders of a large organisation 131 5.3 Stakeholder mapping: the power/attention matrix 133 5.4 Ownership, management and purpose 136 5.5 The chain of corporate governance: typical reporting structures 140 6.1 The influence of history and culture 157 6.2 Four relationships between strategy and history 158 6.3 Cultural frames of reference 163 6.4 Culture in four layers 167 6.5 Culture’s influence on strategy development 168 6.6 The cultural web of an organisation 169 xix List of figures 6.7 The cultural web: some useful questions 173 6.8 Strategic drift 176 C.i Design lens 186 C.ii Experience lens 187 C.iii Variety lens 189 C.iv Discourse lens 192 Part II.1 Strategic Choices 200 7.1 Business strategy and models: three main themes 203 7.2 Three generic strategies 205 7.3 Economies of scale and the experience curve 206 7.4 Costs, prices and profits for generic strategies 207 7.5 The Strategy Clock 213 7.6 Interactive price and quality strategies 215 7.7 Responding to low-cost rivals 216 7.8 Prisoner’s dilemma game in aircraft manufacture 220 7.9 Business model components 221 8.1 Strategic directions and corporate-level strategy 238 8.2 Corporate strategy directions 239 8.3 Diversity and performance 246 8.4 Diversification and integration options: car manufacturer example 248 8.5 Divestiture decision 250 8.6 Portfolio managers, synergy managers and parental developers 253 8.7 The growth share (or BCG) matrix 257 8.8 Directional policy (GE-McKinsey) matrix 260 8.9 The parenting matrix: the Ashridge Portfolio Display 261 9.1 International strategy: five main themes 271 9.2 Drivers of internationalisation 274 9.3 Porter’s Diamond – the determinants of national advantages 277 9.4 International strategies: global integration vs. local responsiveness 281 9.5 International cross-cultural comparison 286 9.6 International competitor retaliation 289 9.7 Subsidiary roles in multinational firms 292 10.1 Entrepreneurship and innovation: four major themes 303 10.2 Entrepreneurial opportunity recognition 305 10.3 Steps in an entrepreneurial process 307 10.4 Stages of entrepreneurial growth 308 10.5 Product and process innovation 315 10.6 The diffusion S-curve 319 10.7 Disruptive innovation 323 10.8 Portfolio of innovation options 324 11.1 Three strategy methods 335 11.2 The acquisition process 342 11.3 Post acquisition integration matrix 345 11.4 Strategic alliance motives 349 11.5 Strategic alliance evolution 351 11.6 Buy, ally or DIY 355 12.1 Evaluating strategies 371 12.2 The Du Pont model 373 12.3 Gap analysis 375 xx  List of figures 12.4 Assessing profitability 384 13.1 Deliberate and emergent strategy development 405 13.2 A continuum of emergent strategy development processes 413 13.3 Strategy development as the result of structures and systems 417 13.4 Strategic direction from the continuity of prior strategic decisions 418 13.5 Strategy development in different contexts 421 14.1 Organisational configurations: strategy, structure and systems 435 14.2 A functional structure 438 14.3 A multidivisional structure 439 14.4 Two examples of matrix structures 440 14.5 Multinational structures 441 14.6 Strategy styles 447 14.7 A strategy map 452 14.8 The McKinsey 7Ss 455 15.1 Leadership and change 465 15.2 The change kaleidoscope 469 15.3 Styles of change leadership according to capability and readiness 471 15.4 Types of change 475 15.5 Kotter‘s Eight Steps for Change 479 16.1 The pyramid of strategy practice 495 16.2 Who to include in strategy making? 503 16.3 Formal channels for strategy issue-selling 506 xxi  List of tables 1.1 The strategy checklist 17 3.1 Industry types 75 3.2 Some bases of market segmentation 83 4.1 Resources and capabilities 96 4.2 The VRIO framework 104 5.1 Some common conflicts of stakeholder interests and expectations 133 5.2 Sources of power 134 5.3 Corporate social responsibility stances 145 5.4 Some questions of corporate social responsibility 148 C.i A summary of the strategy lenses 194 7.1 Platform providers 225 9.1 Comparison of entry mode strategies 291 12.1 The SAFE criteria and key questions 377 12.2 Suitability of strategic options in relation to strategic position 378 12.3 Examples of suitability 379 12.4 Financial strategy and the business life cycle 393 14.1 Strategy and structure fits 445 14.2 Types of control systems 446 15.1 Turnaround: revenue generation and cost reduction steps 476 15.2 Organisational rituals and change 481 15.3 Political mechanisms in organisations 483 16.1 Managing conflict 509 xxii Preface We are delighted to offer this twelfth edition of Exploring Strategy. With sales of previous editions now well over one million worldwide, we believe we have a tried and tested product. Yet the strategy field is constantly changing. For this edition, therefore, we have thoroughly refreshed all chapters, with new concepts, new cases and new examples throughout. Here we would like to highlight three principal changes, while recalling some of the classic features of the book. As well as more detailed changes, the twelfth edition has the following principal changes: a stronger focus on technology strategy: reflecting today’s culture of rapid technolog- ical change, we have developed the discussion of business models and ecosystems, with concepts such as multisided platforms and peer-to-peer models. an updated approach to corporate strategy: with radical changes to the nature of the corporation, this edition enhances its treatment of divestment as well as acquisitions and mergers a revised approach to strategy evaluation: we focus our discussion of the evaluation of strategic options on practical techniques, adding for instance DuPont pyramid analysis At the same time, Exploring Strategy retains its longstanding commitment to a compre- hensive and real-world view of strategy. In particular, this entails a deep concern for: Process: we believe that the human processes of strategy, not only the economics of partic- ular strategies, are central to achieving long-term organisational success. Throughout the book, we underline the importance of human processes, but in particular we devote Part III to processes of strategy formation, implementation and change. Practice: we conclude the book with a chapter on the Practice of Strategy (Chapter 16), focused on the practicalities of managing strategy. Throughout the book, we introduce concepts and techniques through practical illustrations and applications, rather than abstract descriptions.. Many people have helped us with the development of this new edition. Jason Evans and Clive Kerridge have led in coordinating the case collection. We have consulted carefully with reviewers and our Advisory Board, made up of experienced lecturers, many of whom are adopters of the book. Many other adopters of the book provide more informal advice and suggestions – many of whom we have had the pleasure of meeting at our annual teachers’ workshops. This kind of feedback is invaluable and we hope you will keep the comments flowing. Also, our students and clients at Lancaster University, Oxford University, Stockholm School of Economics, Sheffield Hallam and the many other places where we teach are a constant source of ideas and stimulus. We also gain from our links across the world, particu- larly in Austria, Ireland, the Netherlands, Denmark, Sweden, France, Canada, China, Australia, New Zealand, Hong Kong, Malaysia, Morocco, Singapore and the USA. Many contribute directly by providing case studies and illustrations and these are acknowledged in the text. xxiii Preface Finally, we thank those organisations that have been generous enough to be written up as case studies. We hope that those using the book will respect the wishes of the case study organisations and not contact them directly for further information. Richard Whittington ([email protected]) Patrick Regnér ([email protected]) Duncan Angwin ([email protected]) Gerry Johnson ([email protected]) Kevan Scholes ([email protected]) March 2019 Reviewers We would like to thank the following academics who reviewed for this edition of Exploring Strategy or the first release of Exploring Strategy Revel: Keith Seed University of Hertfordshire Dr Mohammad Roohanifar Manchester Metropolitan University James Roberts University of Leeds Kenneth Wiltshire The University of Queensland Peter Barton Liverpool John Moores University Nnaemeka Madumere Coventry University Jens Schmidt Aalto University Dr Andrew Wild University of Nottingham Dr Humphrey Bourne University of Bristol Mohammad Bakhtiar Rana Aalborg University Jonathan Fanning University of York Sheena Davies University of Portsmouth Dr. Petya Koleva Coventry University Dr. Keith Halcro Glasgow Caledonian University xxiv Exploring Strategy features This twelfth edition of Exploring Strategy builds on the established strengths of this best- selling textbook. A range of in-text features and supplementary features have been devel- oped to enable you and your students to gain maximum added value from the teaching and learning of strategy. Outstanding pedagogical features. Each chapter has clear learning outcomes, practical questions associated with real-life illustrations and examples which students can easily apply to what they have learnt. Flexibility of use. You can choose to use either the Text and Cases version of the book, or – if you don’t use longer cases (or have your own) – the Text-only version. The two versions are complemented by a concise version of the text, Fundamentals of Strategy, and instructors also have the option of further customising the text. Speak to your local Pearson Sales Representative if you would like to explore customization options. Up-to-date materials. we have fully revised all chapters, incorporating new research and updating references so that you can easily access the latest research. Encouraging innovative and critical thinking. The Strategy Lenses and commentaries are designed to encourage critical thinking, while each chapter ends with a ‘Thinking Differently’ section, introducing students new and distinctive approaches to key issues of the chapter. Our ‘three circles’ framework – depicting the overlapping issues of strategic position, strategic choices and strategy-in-action – also challenges a simple linear, sequential view of the strategy process. Case and examples. A wide range of Illustrations, Case Examples and (in the Text and Cases version) longer Case Studies are fresh and engage with student interests and day-to-day experience. Many of these are entirely new to this edition; others have been extensively revised. We draw these examples from all over the world and use examples from the public and voluntary sectors as well as the private. Teaching and learning support. You and your students can access a wealth of resources detailed in the Exploring Strategy Online section that follows this. Teachers’ workshop. We run an annual workshop to facilitate discussion of key challenges and solutions in the teaching of strategic management. Details of forthcoming workshops can be found at: https://heuk.pearson.com/events.html xxv  Exploring Strategy Online A wide range of supporting resources are available at: www.pearsoned.co.uk/ exploringstrategy. Resources for students Multiple choice questions that test your understanding of key content Key concept audio summaries that you can download or listen to online Video cases that show managers talking about strategic issues in their own organisations Revision flashcards to help you prepare for your exams A multi-lingual online glossary to help explain key concepts Guidance on how to analyse a case study Links to relevant sites on the web so you can explore more about the organisations featured in the case studies Classic cases – over 30 case studies from previous editions of the book Resources for instructors Instructor’s manual which provides a comprehensive set of teaching support, including guidance on the use of case studies and assignments, and advice on how to plan a programme using the text. PowerPoint slides containing key information and figures from the book Classic cases from previous editions of the book xxvi Digital Courseware Revel is an interactive learning environment designed for how you want to teach — and how your students want to learn. Cleverly combining reading material with interactive videos, quizzes and writing activities, it enriches the learning experience and boosts student performance. We have launched Exploring Strategy in Revel, which offers interactive media, including videos and writing activities, within the narrative content to reinforce key concepts and encourage exploration and application of a complex and diverse subject area. It caters to today’s modern strategy students, who need a hands-on, applied and current exploration to the subject. Unlike any existing resource, Revel for Strategy allows lecturers to bring strategy to life and drive engagement across large classes, increasing students’ understanding of the key concepts, encouraging them to reflect on their actions, build confidence, and helping them to evaluate the impact of their decisions. MyStrategyExperience is an engaging and rigorous simulation designed to bring together the theory and practice of strategy-making in the realistic environment of a dynamic organ- isation and industry. The simulation puts students on the board of directors in a global advertising agency and allows them to make a strategic analysis of the business, put together a business plan and then make a number of challenging decisions on the future strategy of the company. As students set and implement strategy, they will see the impact of their decisions on financial and non-financial measures of performance within the simulated company. Your students will need to balance strategic opportunities with inherent risk thus gaining knowl- edge and insights relevant to their strategic studies. The simulation draws on the content of Exploring Strategy and the two can be used to complement each other on a strategy course. For more information about Revel or MyStrategyExperience, contact your local Pearson Sales Representative or visit https://www.pearson.com/uk/educators/higher-education-educa- tors/products-and-services/course-resources-and-content.html xxvii Chapter 1 Introducing strategy Key terms Learning outcomes business-level strategy 12 After reading this chapter you should be able to: corporate-level strategy 12 Summarise the strategy of an organisation in a functional strategy 12 ‘strategy statement’. four strategy lenses 23 Distinguish between corporate, business and Exploring Strategy Framework 12 functional strategies. mission statement 8 Identify key issues for an organisation’s strategy using the Exploring Strategy Framework. objectives 9 Understand different people’s roles in strategy work. statements of corporate values 9 Appreciate the importance of different strategic choices 15 organisational contexts, academic disciplines and strategic position 14 theoretical lenses to practical strategy analysis. strategy 5 strategy in action 16 strategy statements 9 three-horizons framework 6 vision statement 9  1.1 Introduction 1.1 Introduction The Chief Executive Officer (CEO) of a medium-sized family business knew they had a problem. New aggressive competition in their main European markets was threatening their performance just as demand was softening. To help him address this major problem the CEO invited in a consultancy firm to assess whether this was the right time for his business to find new international markets for growth or to invest more in product innovation to stimulate demand. Claudia, the junior consultant in the team, heard the consulting partner explain how they would carry out a systematic analysis of the company’s situation to under- stand its success, assess the challenges posed by the competition and shifting markets and identify broader opportunities and threats from the wider environment. It would be her task to assemble key data and conduct analysis to generate future possible options for the business. These would help inform the CEO’s decision about how his business could improve its competitive position. The consulting firm would assist with implementation if needed. The problem presented by the CEO to the consultants is one of strategy. It is concerned with key issues for the future of the organisation. For instance, how should the company compete in the future with aggressive new entrants? What growth options are there for the company? If further internationalisation is a good strategy, what would be the optimal method to achieve this outcome and what might be the resourcing implications? All of these strategy questions are vital to the future survival of the organisation. Strategy questions naturally concern entrepreneurs and senior managers at the top of their organisations. But these questions matter more widely. Outside of the organisation, stakeholders such as investors, including banks, venture capitalists and analysts, influence the strategy. Inside the organisation, middle managers also have to understand the strategic direction, both to know how to get top management support for their initiatives and to explain it to the people they are responsible for. Anybody looking for a management-track job needs to be ready to discuss strategy with their potential employer. Indeed, anybody taking a job should first be confident that their new employer’s strategy is actually viable. There are even specialist career opportunities in strategy, for example like Claudia, as a strategy consultant or as an in-house strategic planner, often key roles for fast-track young managers. Figure 1.1 Strategy: its definition, purpose, analysis and work What is strategy? The purpose of strategy The Exploring Strategy Framework Working with strategy 3 Chapter 1 Introducing strategy This book is relevant to any kind of organisation responsible for its own direction into the future. Thus the book refers to large private sector multinationals and small entrepreneurial start-ups; to family businesses, both large and small; to public-sector organisations such as schools and hospitals; and to not-for-profits such as charities or sports clubs. Strategy matters to almost all organisations, and to everybody working in them. In this chapter you will begin with examining the main definitions of strategy, build your understanding of strategy’s purpose, be introduced to the Exploring Strategy Framework for analysing an organisation’s strategy and increase your awareness of working, as students and managers, with strategy in different contexts (see Figure 1.1). But first, why is the book entitled Exploring Strategy? 1.1.1 Why ‘Exploring Strategy’? There are a large number of strategy textbooks available on the market so it is important to realise why readers choose Exploring Strategy. As strategists we believe that one of strat- egy’s distinctive features is that it draws upon many other perspectives, including economics, finance, marketing, operational management, organisational behaviour, psychology to name a few. However many strategy textbooks adopt a single disciplinary focus, such as an economics perspective, for instance, that ignores other critical issues, such as the work of strategists, the influence of organisational politics, history and culture. Others focus much more on the behavioural side of strategy and largely overlook the importance of finance and economics. Exploring Strategy is distinctive in emphasising a comprehensive view of strategy, and this will enable you to explore the insights of many disciplinary perspec- tives including both the economics of strategy and the people side of managing strategy in practice. A further reason for the word ‘Exploring’ in the title is rooted in the practical world of strategy work. Our focus on the practice and practicalities of strategy reveals that there are rarely obvious answers. Indeed, many strategy problems are highly complex and managers should beware of over-simplified ‘solutions’. Therefore in strategy it is important both to recognise the real scope of problems and to explore several options. Through exploration you will widen your awareness of practical issues relevant to strategy, recognise the difficul- ties of interconnectedness, and probe each option carefully before making informed choices. We therefore believe that major strengths of Exploring Strategy, its comprehensiveness and focus upon practice, will help reduce your risk of myopia to enable you to produce well- informed, grounded solutions to complex strategic problems. We also believe that ‘Exploring’ in the title is appropriate as this is a research-led book, drawing upon world-class research and including the latest thinking on key strategic topics. These feature throughout Exploring Strategy and particularly pioneering work is found in the ‘Thinking differently’ sections at the ends of chapters. The ‘Strategy lens’ sections at the end of the main parts of the book also introduce novel and distinctive themes. These will ensure that you are at the cutting edge of strategy. Exploring Strategy also explores a wide range of organisational and geographic contexts. Through a diverse and substantial selection of illustrations and case studies, we include large multinationals as well as medium-sized and entrepreneurial start-up firms. We give weight not only to ‘for-profit’ companies but also family businesses that may also be not-for-profit, public sector and other not-for-profit organisations. We examine these not only in devel- oped economies in the West but also in a wide range of emerging markets and developing countries. This broad base of organisations and contexts will give you a wider knowledge base than is common in other strategy texts. 4  1.2 What is strategy? 1.2 What is strategy?1 The origins of the word strategy have been traced back to the city of Athens in the sixth century BC where it was developed to name a new military and political leadership posi- tion. It combined the words stratos, which meant ‘army spread out over the ground’, and agein, meaning ‘to lead’.2 To this practical consideration of managing and directing a large complex force, the importance of strategy was highlighted by the Chinese military philos- opher Sun Tzu, who defined strategy as ‘the great work of the organization. In situations of life or death, it is the Tao of survival or extinction’ (Tao is a Chinese word that indicates ‘path’, ‘way’, ‘route’ and even ‘principle’). Since that time there have been many new defin- itions of the word strategy, particularly by the military, but in the 1960s Alfred Chandler, strategy’s founding theorist, brought strategy formally into a business context.3 Since then, definitions of strategy have continued to refine our understanding of the term and several prominent ones are examined below. However, for this book our initial basic definition of strategy, which we shall elaborate upon at the end of the chapter, is as follows: strategy is the long-term direction of an organisation. Thus, for example, the long-term direction of Amazon is from book retailing to internet services in general. For Disney, it is from cartoons to diversified entertainment. This section examines the practical implication of this definition of strategy; distinguishes between different levels of strategy; and explains how to summarise an organisation’s strategy in a ‘strategy statement’. 1.2.1 Defining strategy Defining strategy as the long-term direction of an organisation implies a more compre- hensive view than some influential definitions. Figure 1.2 shows the strategy definitions of several leading strategy theorists: Alfred Chandler and Michael Porter, both from the Harvard Business School, Peter Drucker from Claremont University, California and Henry Mintzberg, from McGill University, Canada. Each points to important elements of strategy. Chandler emphasises a logical flow from the determination of goals and objectives to the alloca- tion of resources. Porter focuses on deliberate choices, difference and competition. Drucker suggests that it is a theory about how a firm will win.4 Mintzberg, however, takes the view Figure 1.2 Definitions of strategy ‘... the determination of the long-run goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals’ Alfred D. Chandler ‘Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value’ Michael Porter ‘a firm’s theory about how to ‘a pattern in a stream of ‘the long-term direction of an gain competitive advantages’ decisions’ organisation’ Peter Drucker Henry Mintzberg Exploring Strategy Sources: A.D. Chandler, Strategy and Structure: Chapters in the History of American Enterprise, MIT Press, 1963, p. 13; M.E. Porter, ‘What is strategy?’, Harvard Business Review, November–December 1996, p. 60; P.F. Drucker, ‘The theory of business’, Harvard Business Review, September–October 1994, pp. 95–106; H. Mintzberg, Tracking Strategies: Towards a General Theory, Oxford University Press, 2007, p. 3. 5 Chapter 1 Introducing strategy that strategy is less certain and uses the word ‘pattern’ to allow for the fact that strategies do not always follow a deliberately chosen and logical plan, but can emerge in more ad hoc ways. Sometimes strategies reflect a series of incremental decisions that only cohere into a recognisable pattern – or ‘strategy’ – after some time. There are two advantages to our opening definition of strategy. First, the long-term direc- tion of an organisation can include both deliberate, logical strategy and more incremental, emergent patterns of strategy. Second, long-term direction can include both strategies that emphasise difference and competition, and strategies that recognise the roles of cooperation and even imitation. The three elements of this strategy definition – the long term, direction and organisation – can each be explored further. The strategy of Tesla Motors illustrates important points (see Illustration 1.1): The long term. Strategies are typically measured over years, for some organisations a decade or more. The importance of a long-term perspective on strategy is emphasised by the ‘three horizons’ framework shown in Figure 1.3. The three-horizons framework suggests organisations should think of their businesses or activities in terms of different ‘horizons’, defined by time. Horizon 1 businesses are basically the current core activities. In the case of Tesla Motors, Horizon 1 includes the original Tesla Roadster car and subsequent models. Horizon 1 businesses need defending and extending but the expectation is that in the long term they risk becoming flat or declining in terms of profits (or whatever else the organisation values). Horizon 2 businesses are emerging activities that should provide new future sources of profit. For Tesla, that might include the new mega-battery business. Finally, there are Horizon 3 possibilities, which are more open and for which outcomes are even more uncertain. These are typically risky research and development projects, start-up ventures, test-market pilots or similar: at Tesla, these might be further solar electric initiatives, rockets and space transportation. For a fast-moving organisation like Tesla, Horizon 3 might generate profits a few years from the present time. In a pharmaceutical company, where the R&D and regulatory processes for a new drug take many years, Horizon 3 might be a decade ahead. While timescales might differ, as industries and types of firm can move at different rates, the basic point about the ‘three horizons’ framework is that managers need to avoid focusing on the short-term issues of their existing activities. Strategy involves pushing out Horizon 1 as far as possible, at the same time as looking to Horizons 2 and 3. Figure 1.3 Three horizons for strategy Horizon 3 > create viable options Performance potential Horizon 2 > build emerging businesses Horizon 1 > extend and defend core business Time (years) Source: Adapted from M. Baghai, S. Coley and D. White, The Alchemy of Growth, Texere Publishers, 2000. Figure 1.1, p. 5. 6  1.2 What is strategy? Illustration 1.1 Tesla Motors: the future is electric! a high-end sports car with lower price and emissions than competitors – and a lower resource cost to the planet. Model S 0–60 mph < 2.5 seconds; 100mpg; world-class handling; Zero tailpipe emissio