Strategic Management: An Integrated Approach PDF

 Strategic 13e Management A n I n t e g r at...

 Strategic 13e Management A n I n t e g r at e d A p p roac h Theory & Cases CHARLES W. L. HILL University of Washington – Foster School of Business MELISSA A. SCHILLING New York University – Stern School of Business GARETH R. JONES Australia Brazil Mexico Singapore United Kingdom United States Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). 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.  This is an electronic version of the print textbook. Due to electronic rights restrictions, some third party content may be suppressed. 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Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 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 ALL RIGHTS RESERVED. No part of this work covered by the copyright Senior Vice President, Higher Ed Product, herein may be reproduced or distributed in any form or by any means, Content, and Market Development: except as permitted by U.S. copyright law, without the prior written Erin Joyner permission of the copyright owner. Product Director: Bryan Gambrel Product Manager: Michael Giffen Content Manager: Amanda White For product information and technology assistance, contact us at Cengage Customer & Sales Support, 1-800-354-9706 Product Assistant: Nick Perez or support.cengage.com. Marketing Manager: Audrey Wyrick For permission to use material from this text or product, submit all Marketing Coordinator: Rachel Treinen requests online at www.cengage.com/permissions. Production Service: MPS Limited Senior Art Director: Bethany Bourgeois Library of Congress Control Number: 2018959065 Text Designer: Mike Stratton Soft Cover Edition ISBN: 9780357033845 Cover Designer: Bethany Bourgeois Loose-Leaf Edition ISBN: 9781337916721 Cover Image: iStock.com/bronswerk Cengage Strategy in Action Sailboat Image: 20 Channel Center Street © Steve Bly/Getty Images Boston, MA 02210 Part 5 Nautical Compass Image: USA © holbox/Shutterstock.com Cengage is a leading provider of customized learning solutions with Intellectual Property Analyst: Diane Garrity employees residing in nearly 40 different countries and sales in more than Intellectual Property Project Manager: 125 countries around the world. Find your local representative at Nick Barrows www.cengage.com. Cengage products are represented in Canada by Nelson Education, Ltd. To learn more about Cengage platforms and services, register or access your online learning solution, or purchase materials for your course, visit www.cengage.com. Printed in the United States of America Print Number: 01   Print Year: 2019 Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). 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.  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 Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). 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. Brief Contents PART ONE Introduction to Strategic Management 1 Strategic Leadership: Managing the Strategy-Making Process for Competitive Advantage 2 2 External Analysis: The Identification of Opportunities and Threats 40 PART Two The Nature of Competitive Advantage 3 Internal Analysis: Resources and Competitive Advantage 76 4 Competitive Advantage Through Functional-Level Strategies 107 PART THREE Strategies 5 Business-Level Strategy 144 6 Business-Level Strategy and the Industry Environment 168 7 Strategy and Technology 199 8 Strategy in the Global Environment 236 9 Corporate-Level Strategy: Horizontal Integration, Vertical Integration, and Strategic Outsourcing 276 10 Corporate-Level Strategy: Related and Unrelated Diversification 311 PART FOUR IMPLEMENTING STRATEGY 11 Corporate Governance, Social Responsibility, and Ethics 350 12 Implementing Strategy Through Organization 389 PART FIVE Cases in Strategic Management C-1 Glossary G-1 Index I-1 iv Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). 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.  Contents Preface xvi Acknowledgments xx Dedication xxiii PART ONE Introduction to Strategic Management Chapter 1 Strategic Leadership: Managing the Strategy-Making Process for Competitive Advantage 2 Opening Case: T-Mobile’s Uncarrier Strategy 2 1-1 Overview 4 1-2 Strategic Leadership, Competitive Advantage, and Superior Performance 5 1-2a Superior Performance 5 1-2b Competitive Advantage and a Company’s Business Model 7 1-2c Industry Differences in Performance 8 1-2d Performance in Nonprofit Enterprises 8 Strategy in Action 1.1: The Gates Foundation—Eradicating Malaria 9 1-3 Strategic Managers 10 1-3a Corporate-Level Managers 10 1-3b Business-Level Managers 12 1-3c Functional-Level Managers 12 1-4 The Strategy-Making Process 12 1-4a A Model of the Strategic Planning Process 13 1-4b Mission Statement 13 1-5 Major Goals 17 1-5a External Analysis 18 1-5b Internal Analysis 18 Strategy in Action 1.2: The Evolution of Strategy at Time Inc. 19 1-5c SWOT Analysis and the Business Model 20 1-5d Strategy Implementation 21 1-5e The Feedback Loop 21 1-6 Strategy as an Emergent Process 22 1-6a Strategy Making in an Unpredictable World 22 1-6b Autonomous Action: Strategy Making by Lower-Level Managers 22 1-6c Serendipity and Strategy 23 1-6d Intended and Emergent Strategies 23 Strategy in Action 1.3: A Strategic Shift at Charles Schwab 24 v Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). 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. vi Contents 1-7 S trategic Planning in Practice 26 1-7a Scenario Planning 26 1-7b Decentralized Planning 28 1-8 Strategic Decision Making 28 1-8a Cognitive Biases and Strategic Decision Making 28 1-8b Techniques for Improving Decision Making 30 1-9 Strategic Leadership 30 1-9a Vision, Eloquence, and Consistency 31 1-9b Articulation of the Business Model 31 1-9c Commitment 31 1-9d Being Well Informed 32 1-9e Willingness to Delegate and Empower 32 1-9f The Astute Use of Power 32 1-9g Emotional Intelligence 33 Closing Case: The Rise of LuLulemon 35 Chapter 2 External Analysis: The Identification of Opportunities and Threats 40 Opening Case: Competition in the U.S. Airline Industry 40 2-1 Overview 42 2-2 Defining an Industry 42 2-3 Porter’s Competitive Forces Model 43 2-3a Risk of Entry by Potential Competitors 44 Strategy in Action 2.1: Circumventing Entry Barriers into the Soft Drink Industry 47 2-3b Rivalry Among Established Companies 48 Strategy in Action 2.2: Price Wars in the Breakfast Cereal Industry 50 2-3c The Bargaining Power of Buyers 51 2-3d The Bargaining Power of Suppliers 52 2-3e Substitute Products 53 2-3f   Complementors 53 2-3g Summary: Why Industry Analysis Matters 54 2-4 Strategic Groups within Industries 55 2-4a Implications of Strategic Groups 57 2-4b The Role of Mobility Barriers 57 2-5 Industry Life-Cycle Analysis 58 2-5a Embryonic Industries 58 2-5b Growth Industries 59 2-5c Industry Shakeout 60 2-5d Mature Industries 61 2-5e Declining Industries 61 2-5f Summary 62 2-6 Limitations of Models for Industry Analysis 62 2-6a Life-Cycle Issues 62 2-6b Innovation and Change 62 2-6c Company Differences 64 Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). 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.  Contents vii 2-7 T he Macroenvironment 65 2-7a Macroeconomic Forces 65 2-7b Global Forces 66 2-7c Technological Forces 67 2-7d Demographic Forces 67 2-7e Social Forces 68 2-7f Political and Legal Forces 68 Closing Case: Competition in the U.S. Market for Wireless Telecommunications 70 PART TWO The Nature of Competitive Advantage Chapter 3 Internal Analysis: Resources and Competitive Advantage 76 Opening Case: Competitive Advantage at Nordstrom 76 3-1 Overview 78 3-2 Competitive Advantage 78 3-2a Distinctive Competencies 78 3-2b Resources 79 3-2c Resource Quality: The VRIO Framework 81 3-2d Resources and Sustained Competitive Advantage 82 3-3 Value Creation and Profitability 85 3-4 The Value Chain 88 3-4a Primary Activities 89 Strategy in Action 3.1: Value Creation at Burberry 90 3-4b Support Activities 91 Strategy in Action 3.2: Competitive Advantage at Zara 92 3-4c Value-Chain Analysis: Implications 93 3-5 The Building Blocks of Competitive Advantage 94 3-5a Efficiency 95 3-5b Quality as Excellence and Reliability 95 3-5c Innovation 97 3-5d Customer Responsiveness 97 3-6 Analyzing Competitive Advantage and Profitability 98 3-6a Comparing Wal-Mart and Target 100 Closing Case: Southwest Airlines 104 Chapter 4 Competitive Advantage Through Functional-Level Strategies 107 Opening Case: Automation at Boeing 107 4-1 Overview 109 4-2 Achieving Superior Efficiency 109 4-2a Efficiency and Economies of Scale 110 4-2b Efficiency and Learning Effects 111 Strategy in Action 4.1: Learning Effects in Cardiac Surgery 113 4-2c Efficiency and the Experience Curve 113 4-2d Efficiency, Flexible Production Systems, and Mass Customization 115 Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). 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. viii Contents Strategy in Action 4.2: Pandora: Mass Customizing Internet Radio 117 4-2e Efficiency, Automation and Artificial Intelligence 118 4-2f Marketing and Efficiency 118 4-2g Materials Management, Just-in-Time Systems and Efficiency 120 4-2h Research and Development Strategy and Efficiency 121 4-2i Human Resource Strategy and Efficiency 121 4-2j Information Systems and Efficiency 123 4-2k Infrastructure and Efficiency 123 4-2l Summary 124 4-3 Achieving Superior Quality 125 4-3a Attaining Superior Reliability 125 4-3b Implementing Reliability Improvement Methodologies 126 Strategy in Action 4.3: General Electric’s Six Sigma Quality Improvement Process 127 4-3c Improving Quality as Excellence 129 4-4 Achieving Superior Innovation 130 4-4a The High Failure Rate of Innovation 131 4-4b Reducing Innovation Failures 132 4-5 Achieving Superior Customer Responsiveness 134 4-5a Focusing on the Customer 135 4-5b Demonstrating Leadership 135 4-5c Shaping Employee Attitudes 135 4-5d Knowing Customer Needs 135 4-5e Satisfying Customer Needs 136 Closing Case: Trouble at McDonald’s 139 PART THREE Strategies Chapter 5 Business-Level Strategy 144 Opening Case: Reinventing The New York Times 144 5-1 Overview 146 5-2 Low Cost and Differentiation 146 5-2a Lowering Costs 146 5-2b Differentiation 147 5-2c The Differentiation–Low-Cost Trade-off 149 5-2d Value Innovation: Greater Differentiation at a Lower Cost 151 Strategy in Action 5.1: IKEA: Value Innovation in Furniture Retailing 152 5-3 Who are Our Customers? Market Segmentation 153 5-3a Three Approaches to Market Segmentation 153 5-3b Market Segmentation, Costs and Revenues 154 5-4 Business-Level Strategy Choices 156 Strategy in Action 5.2: Microsoft Office Versus Google Apps 158 5-5 Business-Level Strategy, Industry, and Competitive Advantage 159 5-6 Implementing Business-Level Strategy 160 5-6a Lowering Costs Through Functional Strategy and Organization 161 Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). 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.  Contents ix 5-6b D  ifferentiation Through Functional-Level Strategy and Organization 161 5-7 Competing Differently: Blue Ocean Strategy 162 Closing Case: Virgin America 166 Chapter 6 Business-Level Strategy and the Industry Environment 168 Opening Case: The Rise of Internet Streaming Services and Decline in the Power of Cable Companies 168 6-1 Overview 170 6-2 Strategy in a Fragmented Industry 170 6-2a Reasons for Fragmentation 170 6-2b Consolidating a Fragmented Industry Through Value Innovation 171 6-2c Chaining and Franchising 172 6-2d Horizontal Mergers 173 6-3 Strategies in Embryonic and Growth Industries 174 6-3a The Changing Nature of Market Demand 175 6-3b Strategic Implications: Crossing the Chasm 178 6-3c Strategic Implications of Differences in Market Growth Rates 179 Strategy in Action 6.1: Crossing the Chasm in the Smartphone Market 180 6-4 Strategy in Mature Industries 182 6-4a Strategies to Deter Entry 183 6-4b Strategies to Manage Rivalry 185 Strategy in Action 6.2: Toyota Uses Market Development to Become the Global Leader 189 6-5 Strategies in Declining Industries 192 6-5a The Severity of Decline 192 6-5b Choosing a Strategy 193 Closing Case: Can Best Buy Survive the Rise of E-commerce? 196 Chapter 7 Strategy and Technology 199 Opening Case: Tencent and WeChat 199 7-1 Overview 201 7-2 Technical Standards and Format Wars 202 Strategy in Action 7.1: “Segment Zero”—A Serious Threat to Microsoft? 203 7-2a Examples of Standards 205 7-2b Benefits of Standards 206 7-2c Establishment of Standards 207 7-2d Network Effects, Positive Feedback, and Lockout 208 7-3 Strategies for Winning a Format War 212 7-3a Ensure a Supply of Complements 212 7-3b Leverage Killer Applications 212 7-3c Aggressive Pricing and Marketing 213 Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). 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. x Contents 7-3d Cooperate with Competitors 214 7-3e License the Format 214 7-4 Costs in High-Technology Industries 215 7-4a Comparative Cost Economics 215 7-4b Strategic Significance 216 Strategy in Action 7.2: Lowering the Cost of Ultrasound Equipment Through Digitalization 217 7-5 Capturing First-Mover Advantages 218 7-5a First-Mover Advantages 219 7-5b First-Mover Disadvantages 220 7-5c Strategies for Exploiting First-Mover Advantages 221 7-6 Technological Paradigm Shifts 224 7-6a Paradigm Shifts and the Decline of Established Companies 225 7-6b Strategic Implications for Established Companies 229 7-6c Strategic Implications for New Entrants 230 Closing Case: Blu-ray versus HD-DVD and Streaming: Standards Battles in Video 232 Chapter 8 Strategy in the Global Environment 236 Opening Case: Ford’s Global Strategy 236 8-1 Overview 238 8-2 Global and National Environments 238 8-2a The Globalization of Production and Markets 239 Strategy in Action 8.1: Making the Apple iPhone 240 8-2b National Competitive Advantage 242 8-3 Global Expansion, Profitability, and Profit Growth 245 8-3a Expanding the Market: Leveraging Products 245 8-3b Realizing Cost Economies from Global Volume 246 8-3c Realizing Location Economies 246 8-3d Leveraging the Competencies of Global Subsidiaries 247 8-4 Cost Pressures and Pressures for Local Responsiveness 248 8-4a Pressures for Cost Reductions 249 8-4b Pressures for Local Responsiveness 250 8-5 Choosing a Global Strategy 253 8-5a Global Standardization Strategy 253 8-5b Localization Strategy 254 8-5c Transnational Strategy 255 8-5d International Strategy 256 8-5e Changes in Strategy over Time 257 8-6 The Choice of Entry Mode 258 8-6a Exporting 258 8-6b Licensing 259 Strategy in Action 8.2: Burberry Shifts its Strategy in Japan 261 8-6c Franchising 261 8-6d Joint Ventures 262 8-6e Wholly-Owned Subsidiaries 263 8-6f Choosing an Entry Strategy 264 Copyright 2020 Cengage Learning. 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Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.  Contents xi 8-7 Global Strategic Alliances 266 8-7a Advantages of Strategic Alliances 267 8-7b Disadvantages of Strategic Alliances 267 8-7c Making Strategic Alliances Work 268 Closing Case: The Globalization of Starbucks 272 Chapter 9 Corporate-Level Strategy: Horizontal Integration, Vertical Integration, and Strategic Outsourcing 276 Opening Case: Netflix in 2018 276 9-1 Overview 278 9-2 Corporate-Level Strategy and the Multibusiness Model 279 9-3 Horizontal Integration: Single-Industry Corporate Strategy 280 9-3a Benefits of Horizontal Integration 281 Strategy in Action 9.1: Wal-Mart’s Expansion into Other Retail Formats 283 9-3b Problems with Horizontal Integration 285 9-4 Vertical Integration: Entering New Industries to Strengthen the “Core” Business Model 286 9-4a Increasing Profitability Through Vertical Integration 288 9-4b Problems with Vertical Integration 291 9-5 Alternatives to Vertical Integration: Cooperative Relationships 293 9-5a Short-Term Contracts and Competitive Bidding 294 9-5b Strategic Alliances and Long-Term Contracting 294 9-5c Modularity and Platform Competition 295 9-5d Building Long-Term Cooperative Relationships 299 Strategy in Action 9.2: eBay’s Changing Commitment to Its Sellers 300 9-6 Strategic Outsourcing 301 9-6a Benefits of Outsourcing 303 9-6b Risks of Outsourcing 304 Closing Case: The Proposed Merger of Comcast and Time Warner Cable 307 Chapter 10 Corporate-Level Strategy: Related and Unrelated Diversification 311 Opening Case: Google’s acquisition of ITA Software 311 10-1 Overview 313 10-2 Increasing Profitability Through Diversification 314 10-2a Transferring Competencies Across Businesses 315 10-2b Leveraging Competencies to Create a New Business 316 10-2c Sharing Resources and Capabilities 316 10-2d Utilizing General Organizational Competencies 319 Strategy in Action 10.1: United Technologies Has an “ACE” in Its Pocket 321 10-3 Two Types of Diversification 322 10-3a Related Diversification 323 10-3b Unrelated Diversification 323 10-4 The Limits and Disadvantages of Diversification 325 10-4a Changes in the Industry or Company 325 Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). 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. xii Contents 10-4b Diversification for the Wrong Reasons 325 10-4c The Bureaucratic Costs of Diversification 327 Strategy in Action 10.2: How Bureaucratic Costs Rose Then Fell at Pfizer 329 10-5 Choosing a Strategy 330 10-5a Related Versus Unrelated Diversification 330 10-5b The Web of Corporate-Level Strategy 330 10-6 Entering New Industries: Internal New Ventures 332 10-6a The Attractions of Internal New Venturing 332 10-6b Pitfalls of New Ventures 332 10-6c Guidelines for Successful Internal New Venturing 334 10-7 Entering New Industries: Acquisitions 335 10-7a The Attraction of Acquisitions 336 10-7b Acquisition Pitfalls 336 10-7c Guidelines for Successful Acquisition 339 10-8 Entering New Industries: Joint Ventures 341 10-8a Restructuring 342 10-8b Why Restructure? 342 Closing Case: LVMH: Getting Big While Staying Beautiful 345 PART FOUR IMPLEMENTING STRATEGY Chapter 11 Corporate Governance, Social Responsibility, and Ethics 350 Opening Case: Volkswagen: From the “People’s Car” to Dieselgate 350 11-1 Overview 355 11-2 Stakeholders and Corporate Performance 355 11-2a Stakeholder Impact Analysis 357 11-2b The Unique Role of Stockholders 357 11-2c Profitability, Profit Growth, and Stakeholder Claims 358 Strategy in Action 11.1: Price Fixing at Sotheby’s and Christie’s 361 11-3 Agency Theory 361 11-3a Principal–Agent Relationships 362 11-3b The Agency Problem 362 Strategy in Action 11.2: Self-Dealing at Hollinger International Inc. 366 11-4 Governance Mechanisms 367 11-4a The Board of Directors 367 11-4b Stock-Based Compensation 369 11-4c Financial Statements and Auditors 370 11-4d The Takeover Constraint 371 11-4e Governance Mechanisms Inside a Company 372 11-5 Ethics and Strategy 374 11-5a Ethical Issues in Strategy 375 11-5b The Roots of Unethical Behavior 378 11-5c Behaving Ethically 379 Closing Case: Starbucks: Taking a Stand on Social Issues 384 Copyright 2020 Cengage Learning. 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Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.  Contents xiii Chapter 12 Implementing Strategy Through Organization 389 Opening Case: Organization at Microsoft 389 12-1 Overview 391 12-2 Organizational Architecture 391 12-3 Organizational Structure 393 12-3a Centralization and Decentralization 393 Strategy in Action 12.1: FEMA and Hurricane Katrina 396 12-3b Tall Versus Flat Hierarchies 397 12-3c Structural Forms 399 12-3d Formal Integrating Mechanisms 403 12-3e Informal Integrating Mechanisms 405 12-4 Organization Controls and Incentives 407 12-4a Control Systems 407 Strategy in Action 12.2: Goal Setting and Controls at Nordstrom 409 12-4b Methods of Control 410 12-5 Organizational Culture 415 12-6 Organization Processes 417 Strategy in Action 12.3: Organizational Culture at Lincoln Electric 417 12-7 Implementing Strategy Through Organizational Architecture 418 12-7a Strategy and Organization in the Single-Business Enterprise 418 12-7b Strategy and Organization in the Multibusiness Enterprise 422 Closing Case: Organization Change at Google (Alphabet) 425 PART FIVE Cases in Strategic Management Introduction: Analyzing a Case Study and Writing a Case Study Analysis C-4 What is Case Study Analysis? C-4 Analyzing a Case Study C-5 Writing a Case Study Analysis C-10 The Role of Financial Analysis in Case Study Analysis C-12 Profit Ratios C-12 Liquidity Ratios C-13 Activity Ratios C-14 Leverage Ratios C-14 Shareholder-Return Ratios C-15 Cash Flow C-16 Conclusion C-16 Endnote C-17 Long Cases Case 1: Trader Joe’s in 2018 C-18 Case 2: Small Package Express Delivery Industry, 1973–2018 C-23 Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). 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. xiv Contents Case 3: Airborne Express: The Underdog C-38 Case 4: Charles Schwab C-50 Case 5: Coca-Cola C-65 Case 6: Uber in 2018 C-76 Case 7: Dell Inc (A)—Going Private C-90 Case 8: Dell Inc (B)—Transforming the Company C-100 Case 9: Apple at Fourty C-106 Case 10: Wal-Mart Stores C-122 Case 11: Costco Wholesale Corporation in 2018 C-134 Case 12: SpaceX: Disrupting the Space Industry C-144 Case 13: Alibaba Group: The Rise of a Platform Giant C-151 Case 14: Ending HIV? Sangamo and Gene Editing C-159 Case 15: Tesla, Inc. in 2018 C-168 Case 16: C  hotukool: Challenges and Opportunities in Frugal Innovation C-181 Case 17: IKEA in 2018: Furniture Retailer to the World C-184 Case 18: General Electric C-193 Case 19: 3M: The Innovation Engine C-204 Case 20: Nike: The Sweatshop Debate 20 Years on C-219 Short Cases Case 21: How to Make Money in Newspaper Advertising C-226 Case 22: A Battle for Dominance in Mobile Payments C-228 Case 23: The Market for Large Commercial Jet Aircraft C-232 Case 24: Verizon Wireless: Competitive Advantage C-234 Case 25: A  mazon.com: Competitive Advantage and Functional Strategy C-236 Case 26: Nordstrom: Business-Level Strategy C-238 Case 27: Procter & Gamble: Evolution of Global Strategy C-240 Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). 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.  Contents xv Case 28: JCB in India C-242 Case 29: Outsourcing and Vertical Integration at Apple C-244 Case 30: Citigroup: The Opportunities and Risks of Diversification C-246 Case 31: HP’s Disastrous Acquisition of Autonomy C-249 Case 32: Organization at Apple C-251 Glossary G-1 Index I-1 Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). 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. 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 Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). 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.  Preface xvii have included 32 cases, 20 of which are the traditional long-form cases, and 12 of which are shorter cases. All of the cases are current. We have made an effort to include cases that have high name recognition with students, and that they will enjoy reading and working on. These include long-form cases on Trader Joe’s, Coca Cola, Wal-Mart, Uber, SpaceX, Alibaba, Dell, Apple, IKEA, Tesla, 3M, and General Electric. Practicing Strategic Management: An Interactive Approach We have received a lot of positive feedback about the usefulness of the end-of-chapter exer- cises and assignments in the Practicing Strategic Management sections of our book. They offer a wide range of hands-on and digital learning experiences for students. We are thrilled to announce that we have moved some of these elements into the MindTap digital learning solu- tion to provide a seamless learning experience for students and instructors. We have enhanced these features to give students engaging, multimedia learning experiences that teach them the case analysis framework and provide them multiple opportunities to step into the shoes of a manager and solve real-world strategic challenges. For instructors, MindTap offers a fully cus- tomizable, all-in-one learning suite including a digital gradebook, real-time data analytics, and full integration into your LMS. Select from assignments including: Cornerstone to Capstone Diagnostic assesses students’ functional area knowledge and pro- vides feedback and remediation so that students are up to speed and prepared for the stra- tegic management course material. Multimedia Quizzes assess students’ basic comprehension of the reading material to help you gauge their level of engagement and understanding of the content. Guided Cases engage students by presenting businesses facing strategic challenges, placing concepts in real-world context, and making for great points of discussion. As they com- plete these activities, students receive instruction and feedback that teaches them the case analysis methodology and helps them build critical thinking and problem-solving skills. Experiential Exercises are based on the “Practicing Strategic Management” assignments in the end-of-chapter materials in previous editions. They have been updated for the MindTap and challenge students to work in teams using the YouSeeU app in our one-of-a-kind col- laborative environment to solve real-world managerial problems and begin to experience firsthand what it’s like to work in management. Branching Activities present challenging problems that cannot be solved with one specific, correct answer. Students are presented with a series of decisions to be made based upon information they are given about a company, and are scored according to the quality of their decisions. Case Analysis Projects are delivered in our online collaborative environment via the YouSeeU app so that students can work together synchronously to complete their com- prehensive case analysis projects, papers, and presentations. Offered in conjunction with robust cases written exclusively by Charles Hill and Melissa Schilling, these activities challenge students to think and act like tomorrow’s strategic leaders. Use our default activity, written by seasoned strategic management instructors, or customize the project to suit your class. It is not our intention to suggest that all exercises should be used for every chapter. Strate- gic management is taught at both undergraduate and graduate levels, and therefore we offer a variety of pedagogically designed activities with numerous challenge levels so that instructors can customize MindTap to best suit their teaching style and the objectives of the course. Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). 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. xviii Preface We have found that our interactive approach to teaching strategic management appeals to students. It also greatly improves the quality of their learning experience. Our approach is more fully discussed in the Instructor’s Resource Manual. Strategic Management Cases The 32 cases that we have selected for this edition will appeal, we are certain, to students and professors alike, both because these cases are intrinsically interesting and because of the num- ber of strategic management issues they illuminate. The organizations discussed in the cases range from large, well-known companies, for which students can do research to update the in- formation, to small, entrepreneurial businesses that illustrate the uncertainty and challenge of the strategic management process. In addition, the selections include many international cases, and most of the other cases contain some element of global strategy. Refer to the Contents for a complete listing of the cases. To help students learn how to effectively analyze and write a case study, we continue to include a special section on this subject. It has a checklist and an explanation of areas to con- sider, suggested research tools, and tips on financial analysis. Additionally, the MindTap learn- ing activities include Directed Cases that ask students to complete the steps and offer in-depth explanations to guide them through the process, as well as case-based Branching Activities that place students in the shoes of a manager and require them to move through strategic decisions; students are assessed on the quality of their analysis in making their choices, and the activity concludes with a discussion question for you to implement in class. We feel that our entire selection of cases is unrivaled in breadth and depth. Teaching and Learning Aids Taken together, the teaching and learning features of Strategic Management provide a pack- age that is unsurpassed in its coverage and that supports the integrated approach that we have taken throughout the book. MindTap. MindTap is the digital learning solution that helps instructors engage students and help them become tomorrow’s strategic leaders. All activities are designed to teach students to problem-solve and think like management leaders. Through these activi- ties and real-time course analytics, and an accessible reader, MindTap helps you turn cookie cutter into cutting edge, apathy into engagement, and memorizers into higher- level thinkers. Customized to the specific needs of this course, activities are built to facilitate mas- tery of chapter content. We have addressed case analysis from cornerstone to capstone with a functional area diagnostic of prior knowledge, guided cases, branching activi- ties, multimedia presentations of real-world companies facing strategic decisions, and a collaborative environment in which students can complete group case analysis projects together synchronously. Instructor Website. Access important teaching resources on this companion website. For your convenience, you can download electronic versions of the instructor supplements from the password-protected section of the site, including Instructor’s Resource Manual, Comprehensive Case Notes, Cognero Testing, and PowerPoint® slides. To access these additional course materials and companion resources, please visit www.cengage.com. Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). 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.  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. Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). 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. 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 Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). 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.  Acknowledgments xxi Bruce Fern, New York University Mark Fiegener, Oregon State University Chuck Foley, Columbus State Community College Isaac Fox, Washington State University Craig Galbraith, University of North Carolina at Wilmington Scott R. Gallagher, Rutgers University Eliezer Geisler, Northeastern Illinois University Gretchen Gemeinhardt, University of Houston Lynn Godkin, Lamar University Sanjay Goel, University of Minnesota—Duluth Robert L. Goldberg, Northeastern University James Grinnell, Merrimack College Russ Hagberg, Northern Illinois University Allen Harmon, University of Minnesota—Duluth Ramon Henson, Rutgers University David Hoopes, California State University—Dominguez Hills Todd Hostager, University of Wisconsin—Eau Claire David Hover, San Jose State University Graham L. Hubbard, University of Minnesota Miriam Huddleston, Harford Community College Tammy G. Hunt, University of North Carolina at Wilmington James Gaius Ibe, Morris College W. Grahm Irwin, Miami University Homer Johnson, Loyola University—Chicago Jonathan L. Johnson, University of Arkansas Walton College of Business Administration Marios Katsioloudes, St. Joseph’s University Robert Keating, University of North Carolina at Wilmington Geoffrey King, California State University—Fullerton Rico Lam, University of Oregon Robert J. Litschert, Virginia Polytechnic Institute and State University Franz T. Lohrke, Louisiana State University Paul Mallette, Colorado State University Daniel Marrone, SUNY Farmingdale Lance A. Masters, California State University—San Bernardino Robert N. McGrath, Embry-Riddle Aeronautical University Charles Mercer, Drury College Van Miller, University of Dayton Debi Mishra, Binghamton University Tom Morris, University of San Diego Joanna Mulholland, West Chester University of Pennsylvania James Muraski, Marquette University Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). 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. xxii Acknowledgments John Nebeck, Viterbo University Jeryl L. Nelson, Wayne State College Louise Nemanich, Arizona State University Francine Newth, Providence College Don Okhomina, Fayetteville State University Phaedon P. Papadopoulos, Houston Baptist University John Pappalardo, Keen State College Paul R. Reed, Sam Houston State University Rhonda K. Reger, Arizona State University Malika Richards, Indiana University Simon Rodan, San Jose State Stuart Rosenberg, Dowling College Douglas Ross, Towson University Ronald Sanchez, University of Illinois Joseph A. Schenk, University of Dayton Brian Shaffer, University of Kentucky Leonard Sholtis, Eastern Michigan University Pradip K. Shukla, Chapman University Mel Sillmon, University of Michigan—Dearborn Dennis L. Smart, University of Nebraska at Omaha Barbara Spencer, Clemson University Lawrence Steenberg, University of Evansville Kim A. Stewart, University of Denver Ted Takamura, Warner Pacific College Scott Taylor, Florida Metropolitan University Thuhang Tran, Middle Tennessee University Bobby Vaught, Southwest Missouri State Robert P. Vichas, Florida Atlantic University John Vitton, University of North Dakota Edward Ward, St. Cloud State University Kenneth Wendeln, Indiana University Daniel L. White, Drexel University Edgar L. Williams, Jr., Norfolk State University Donald Wilson, Rochester Institute of Technology Jun Zhao, Governors State University Charles W. L. Hill Melissa A. Schilling Gareth R. Jones Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). 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.  Dedication To my daughters Elizabeth, Charlotte, and Michelle — Charles W. L. Hill For my children, Julia and Conor — Melissa A. Schilling xxiii Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). 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.  Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). 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.  1 Introduction to Strategic Management Chapter 1 Strategic Leadership: Managing the Strategy-Making Process for Competitive Advantage Chapter 2 External Analysis: The