Description
Read the mini case “Can You Follow an Icon and Succeed? Apple and Tim Cook after Steve Jobs and answer to the followings” on page 408 of the textbook and provide an APA formatted written paper, minimum of 3 pages (and at least six (6) google scholar resources in support of your arguments) and answer the following questions:
Please evaluate a CEO’s job, and what makes a CEO’s job so complex? Use the challenges Tim Cook faces as Steve Jobs’ successor to provide examples that support your answer.
Tim Cook came from Apple’s internal managerial labor market to succeed Steve Jobs. According to your analysis, do you think that using the internal managerial labor market is the best approach to follow when replacing S. Jobs?
Use materials in the chapter regarding the internal and external managerial labor markets to explain your answer.
Given their different leadership styles of Steve Jobs and Tim Cook, describe the differences you found in Apple’s culture under Tim Cook’s leadership compared to the culture in Apple when Steve Jobs was CEO.
Using information in this Mini-Case as well as you found additional materials through your searches, how do you evaluate Tim Cook as a CEO?
Is he an effective strategic leader or not? Use examples from the chapter’s discussion of “Key Strategic Leadership Actions” to justify your answer to this question.STRATEGIC MANAGEMENT
Competitiveness & Globalization
Concepts and Cases
13e
Michael A. Hitt
Texas A&M University
and
Texas Christian University
R. Duane Ireland
Texas A&M University
Robert E. Hoskisson
Rice University
Australia ● Brazil ● Japan ● Korea ● Mexico ● Singapore ● Spain ● United Kingdom ● United States
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Strategic Management: Competitiveness
& Globalization: Concepts and Cases,
13th Edition
Michael A. Hitt, R. Duane Ireland,
and Robert E. Hoskisson
Senior Vice President, Higher Ed Product,
Content, and Market Development:
Erin Joyner
© 2020, 2017, 2015 Cengage Learning, Inc.
Unless otherwise noted, all content is © Cengage.
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Print Number: 01 Print Year: 2019
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To Frankie:
You are my partner in life. I love you and look forward to our future
together.
—Michael
To Mary Ann:
We have reached that place we want to go and we will now walk in the
sun. I love you.
—Duane
To Kathy:
You are the best and my love for you is eternal. Thanks for all the support and love you’ve given me and our children throughout our life
together.
—Robert
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Brief Contents
Preface, xiv
About the Authors, xx
Part 1: Strategic Management Inputs
1.
Strategic Management and Strategic Competitiveness, 2
2.
The External Environment: Opportunities, Threats, Industry Competition,
and Competitor Analysis, 36
3.
The Internal Organization: Resources, Capabilities, Core Competencies,
and Competitive Advantages, 74
Part 2: Strategic Actions: Strategy Formulation
4.
Business-Level Strategy, 104
5.
Competitive Rivalry and Competitive Dynamics, 142
6.
Corporate-Level Strategy, 176
7.
Merger and Acquisition Strategies, 208
8.
International Strategy, 238
9.
Cooperative Strategy, 278
Part 3: Strategic Actions: Strategy Implementation
2
104
310
10. Corporate Governance, 310
11. Organizational Structure and Controls, 344
12. Strategic Leadership, 382
13. Strategic Entrepreneurship, 416
Part 4: Case Studies
C-1
Name Index, I-1
Company Index, I-21
Subject Index, I-24
iv
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Contents
Preface xiv
About the Authors xx
Part 1: Strategic Management Inputs 2
1: Strategic Management and Strategic Competitiveness 2
Opening Case: The Honest Co.: Can It Become an Iconic Global Brand? 3
Strategic Focus Competitive Advantage as a Source of Strategic Competitiveness 5
1-1 The Competitive Landscape 8
1-1a The Global Economy 9
1-1b Technology and Technological Changes 11
1-2 The I/O Model of Above-Average Returns 14
1-3 The Resource-Based Model of Above-Average Returns 16
1-4 Vision and Mission 18
1-4a Vision 18
1-4b Mission 18
1-5 Stakeholders 19
1-5a Classifications of Stakeholders 20
1-6 Strategic Leaders 23
1-6a The Work of Effective Strategic Leaders 23
Strategic Focus Strategic Leaders’ Decisions as a Path to Firms’ Efforts to Deal
Successfully with Their Challenges 24
1-7 The Strategic Management Process 26
Summary 27
●
Key Terms 28
●
Review Questions 28
●
Mini-Case 28
●
Notes 30
2: The External Environment: Opportunities, Threats, Industry
Competition, and Competitor Analysis 36
Opening Case: Cracks in the Golden Arches and Mcdonald’s New Glue 37
2-1 The General, Industry, and Competitor Environments 39
2-2 External Environmental Analysis 41
2-2a Scanning 41
2-2b Monitoring 42
2-2c Forecasting 42
2-2d Assessing 43
2-3 Segments of the General Environment 43
2-3a The Demographic Segment 43
2-3b The Economic Segment 46
2-3c The Political/Legal Segment 47
2-3d The Sociocultural Segment 48
v
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vi
Contents
2-3e The Technological Segment 49
2-3f The Global Segment 50
2-3g The Sustainable Physical Environment Segment 51
Strategic Focus Target (Tar-zhey) Is Trying to Navigate in a New and Rapidly Changing
Competitive Landscape 52
2-4 Industry Environment Analysis 53
2-4a Threat of New Entrants 54
2-4b Bargaining Power of Suppliers 57
2-4c Bargaining Power of Buyers 58
2-4d Threat of Substitute Products 58
2-4e Intensity of Rivalry among Competitors 59
2-5 Interpreting Industry Analyses 61
2-6 Strategic Groups 61
Strategic Focus Toys ‘R’ Us Exemplifies the Apocalypse in the Retail Industries 62
2-7 Competitor Analysis 63
2-8 Ethical Considerations 65
Summary 66
●
Key Terms 66
●
Review Questions 66
●
Mini-Case 67
●
Notes 68
3: The Internal Organization: Resources, Capabilities,
Core Competencies, and Competitive Advantages 74
Opening Case: Large Pharmaceutical Companies, Big Data Analytics, Artificial
Intelligence and Core Competencies: A Brave New World 75
3-1 Analyzing the Internal Organization 77
3-1a The Context of Internal Analysis 77
3-1b Creating Value 78
3-1c The Challenge of Analyzing the Internal Organization 79
3-2 Resources, Capabilities, and Core Competencies 81
3-2a Resources 81
Strategic Focus Tangible and Intangible Resources as the Base for Core Competencies 83
3-2b Capabilities 85
3-2c Core Competencies 86
3-3 Building Core Competencies 87
3-3a The Four Criteria of Sustainable Competitive Advantage 87
3-3b Value Chain Analysis 90
3-4 Outsourcing 93
3-5 Competencies, Strengths, Weaknesses, and Strategic Decisions 94
Strategic Focus The Extreme Specialization of Outsourcing: Who Is Doing It and Who Is Not? 95
Summary 96
●
Key Terms 96
●
Review Questions 96
●
Mini-Case 97
●
Notes 98
Part 2: Strategic Actions: Strategy Formulation 104
4: Business-Level Strategy 104
Opening Case: Digital: An Increasingly Important Aspect of Strategy Choice and
Strategy Implementation 105
4-1 Customers: Their Relationship with Business-Level Strategies 107
4-1a Effectively Managing Relationships with Customers 108
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vii
Contents
4-1b Reach, Richness, and Affiliation 108
4-1c Who: Determining the Customers to Serve 109
4-1d What: Determining Which Customer Needs to Satisfy 110
4-1e How: Determining Core Competencies Necessary to Satisfy
Customer Needs 111
4-2 The Purpose of a Business-Level Strategy 112
4-3 Business Models and Their Relationship with BusinessLevel Strategies 113
4-4 Types of Business-Level Strategies 114
4-4a Cost Leadership Strategy 116
4-4b Differentiation Strategy 120
4-4c Focus Strategies 124
Strategic Focus The Differentiation Strategy—Can Macy’s Again Find Ways
to Achieve Success by Implementing This Strategy? 125
Strategic Focus What Type of Hamburger Would You Like to Buy
and Eat Today? 128
4-4d Integrated Cost Leadership/Differentiation Strategy 130
Summary 133
●
Key Terms 134
●
Review Questions 134
●
Mini-Case 135
●
Notes 136
5: Competitive Rivalry and Competitive Dynamics 142
Opening Case: The Grocery Industry: Welcome to
a New Competitive Landscape 146
Strategic Focus The Emergence of Competitive Rivalry among Battery Manufacturers:
Who Will Establish the Most Attractive Market Position? 146
5-1 A Model of Competitive Rivalry 148
5-2 Competitor Analysis 149
5-2a Market Commonality 150
5-2b Resource Similarity 151
5-3 Drivers of Competitive Behavior 152
5-4 Competitive Rivalry 154
5-4a Strategic and Tactical Actions 154
5-5 Likelihood of Attack 155
5-5a First-Mover Benefits 155
5-5b Organizational Size 157
5-5c Quality 158
5-6 Likelihood of Response 159
5-6a Type of Competitive Action 159
5-6b Actor’s Reputation 160
5-6c Market Dependence 160
5-7 Competitive Dynamics 161
5-7a Slow-Cycle Markets 161
Strategic Focus Swiss Watchmakers: The Eroding of a Long-Lasting Competitive Advantage
While Competing in a Slow-Cycle Market? 162
5-7b Fast-Cycle Markets 164
5-7c Standard-Cycle Markets 166
Summary 167
●
Key Terms 168
●
Review Questions 168
●
Mini-Case 169
●
Notes 170
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
viii
Contents
6: Corporate-Level Strategy 176
Opening Case: Amazon’s Successful Growth through
Its Corporate Diversification Strategy 177
6-1 Levels of Diversification 179
6-1a Low Levels of Diversification 180
6-1b Moderate and High Levels of Diversification 181
Strategic Focus Caterpillar Uses the Related Constrained Diversification Strategy 182
6-2 Reasons for Diversification 183
6-3 Value-Creating Diversification: Related Constrained and Related Linked
Diversification 185
6-3a Operational Relatedness: Sharing Activities 185
6-3b Corporate Relatedness: Transferring of Core Competencies 186
6-3c Market Power 187
6-3d Simultaneous Operational Relatedness and Corporate Relatedness 189
6-4 Unrelated Diversification 190
6-4a Efficient Internal Capital Market Allocation 190
Strategic Focus Berkshire Hathaway and SoftBank Use Similar Unrelated Strategies 191
6-4b Restructuring of Assets 192
6-5 Value-Neutral Diversification: Incentives and Resources 193
6-5a Incentives to Diversify 193
6-5b Resources and Diversification 196
6-6 Value-Reducing Diversification: Managerial Motives to Diversify 198
Summary 200
●
Key Terms 200
●
Review Questions 200
●
Mini-Case 201
●
Notes 202
7: Merger and Acquisition Strategies 208
Opening Case: Cisco Systems: Strategic Acquisitions to Adapt
to a Changing Market 209
7-1 The Popularity of Merger and Acquisition Strategies 210
7-1a Mergers, Acquisitions, and Takeovers: What Are the Differences? 211
7-2 Reasons for Acquisitions 212
7-2a Increased Market Power 212
Strategic Focus Broadcom’s Failed Hostile Takeover Attempt of Qualcomm 213
7-2b Overcoming Entry Barriers 215
7-2c Cost of New Product Development and Increased Speed to Market 216
Strategic Focus Cross-Border Mega Mergers in the Agricultural Chemical and Technology Sectors 217
7-2d Lower Risk Compared to Developing New Products 218
7-2e Increased Diversification 218
7-2f Reshaping the Firm’s Competitive Scope 219
7-2g Learning and Developing New Capabilities 219
7-3 Problems in Achieving Acquisition Success 219
7-3a Integration Difficulties 220
7-3b Inadequate Evaluation of Target 221
7-3c Large or Extraordinary Debt 222
7-3d Inability to Achieve Synergy 222
7-3e Too Much Diversification 223
7-3f Managers Overly Focused on Acquisitions 224
7-3g Too Large 224
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ix
Contents
7-4 Effective Acquisitions 225
7-5 Restructuring 227
7-5a Downsizing 227
7-5b Downscoping 227
7-5c Leveraged Buyouts 228
7-5d Restructuring Outcomes 228
Summary 230
●
Key Terms 230
●
Review Questions 231
●
Mini-Case 231
●
Notes 232
8: International Strategy 238
Opening Case: Netflix Achieves Substantial Growth through International Expansion,
But Such Growth Also Is Attracting Significant Competition 239
8-1 Identifying International Opportunities 241
8-1a Incentives to Use International Strategy 241
8-1b Three Basic Benefits of International Strategy 243
8-2 International Strategies 245
8-2a International Business-Level Strategy 245
8-2b International Corporate-Level Strategy 248
Strategic Focus Ikea’s Global Strategy in the Age of Digitalization and Urbanization 250
8-3 Environmental Trends 252
8-3a Liability of Foreignness 252
8-3b Regionalization 253
8-4 Choice of International Entry Mode 254
8-4a Exporting 255
8-4b Licensing 255
8-4c Strategic Alliances 256
8-4d Acquisitions 257
8-4e New Wholly Owned Subsidiary 258
8-4f Dynamics of Mode of Entry 259
8-5 Risks in an International Environment 260
8-5a Political Risks 260
8-5b Economic Risks 261
Strategic Focus The Global Delivery Services Industry: Economic Disruption
of Tariffs and Trade Wars 262
8-6 Strategic Competitiveness Outcomes 263
8-6a International Diversification and Returns 264
8-6b Enhanced Innovation 264
8-7 The Challenge of International Strategies 265
8-7a Complexity of Managing International Strategies 265
8-7b Limits to International Expansion 265
Summary 266
●
Key Terms 267
●
Review Questions 267
●
Mini-Case 268
●
Notes 270
9: Cooperative Strategy 278
Opening Case: Google’s Diversified Alliance Portfolio: A Response to Competitors
and an Attempt to Be a Dominant Force 279
9-1 Strategic Alliances as a Primary Type of Cooperative Strategy 281
9-1a Types of Major Strategic Alliances 281
9-1b Reasons Firms Develop Strategic Alliances 283
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x
Contents
9-2 Business-Level Cooperative Strategy 286
9-2a Complementary Strategic Alliances 286
9-2b Competition Response Strategy 288
9-2c Uncertainty-Reducing Strategy 289
Strategic Focus Tesla Losing Critical Strategic Alliances and Experiencing Challenges Creating
Efficient Operations 290
9-2d Competition-Reducing Strategy 291
9-2e Assessing Business-Level Cooperative Strategies 292
9-3 Corporate-Level Cooperative Strategy 292
9-3a Diversifying Strategic Alliance 293
9-3b Synergistic Strategic Alliance 293
9-3c Franchising 293
9-3d Assessing Corporate-Level Cooperative Strategies 294
9-4 International Cooperative Strategy 294
Strategic Focus The Cross-Border Alliance between Ford and Mahindra: Developing the Automobile
of the Future 296
9-5 Network Cooperative Strategy 297
9-5a Alliance Network Types 297
9-6 Competitive Risks with Cooperative Strategies 298
9-7 Managing Cooperative Strategies 300
Summary 301
●
Key Terms 302
●
Review Questions 302
●
Mini-Case 302
●
Notes 304
Part 3: Strategic Actions: Strategy
Implementation 310
10: Corporate Governance 310
Opening Case: Shareholder Activists and Corporate Governance 311
10-1 Separation of Ownership and Managerial Control 314
10-1a Agency Relationships 315
10-1b Product Diversification as an Example of an Agency Problem 316
Strategic Focus General Electric’s Complex Diversification Strategy Makes Evaluation Difficult
for Board Directors 318
10-1c Agency Costs and Governance Mechanisms 319
10-2 Ownership Concentration 320
10-2a The Increasing Influence of Institutional Owners 321
10-3 Board of Directors 322
10-3a Enhancing the Effectiveness of the Board of Directors 324
10-3b Executive Compensation 325
10-3c The Effectiveness of Executive Compensation 325
10-4 Market for Corporate Control 326
Strategic Focus Has More Governance Scrutiny Made Large CEO Compensation
Packages More Reasonable? 327
10-4a Managerial Defense Tactics 329
10-5 International Corporate Governance 330
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xi
Contents
10-5a Corporate Governance in Germany and Japan 331
10-5b Corporate Governance in China 332
10-6 Governance Mechanisms and Ethical Behavior 333
Summary 334
●
Key Terms 335
●
Review Questions 335
●
Mini-Case 335
●
Notes 337
11: Organizational Structure and Controls 344
Opening Case: Changing McDonald’s Organizational Structure and Controls:
A Path to Improved Performance 345
11-1 Organizational Structure and Controls 347
11-1a Organizational Structure 347
11-1b Organizational Controls 348
11-2 Relationships between Strategy and Structure 349
11-3 Evolutionary Patterns of Strategy and Organizational Structure 350
11-3a Simple Structure 350
11-3b Functional Structure 351
11-3c Multidivisional Structure 352
11-3d Matches between Business-Level Strategies
and the Functional Structure 353
11-3e Matches between Corporate-Level Strategies
and the Multidivisional Structure 356
Strategic Focus General Electric’s Decline, New Strategy, and Reorganization 362
11-3f Matches between International Strategies and Worldwide Structure 363
11-3g Matches between Cooperative Strategies and Network Structures 367
11-4 Implementing Business-Level Cooperative Strategies 369
Strategic Focus Global Airline Alliances, Airline Joint Ventures, and Network Difficulties 370
11-5 Implementing Corporate-Level Cooperative Strategies 371
11-6 Implementing International Cooperative Strategies 371
Summary 372
●
Key Terms 373
●
Review Questions 373
●
Mini-Case 374
●
Notes 376
●
Notes 410
12: Strategic Leadership 382
Opening Case: Meg Whitman: A Pioneering Strategic Leader 383
12-1 Strategic Leadership and Style 386
Strategic Focus Cybersecurity Risk: A Significant and Expanding Challenge
for Strategic Leaders and Their Firms 387
12-2 The Role of Top-Level Managers 388
12-2a Top Management Teams 390
12-3 Managerial Succession 393
12-4 Key Strategic Leadership Actions 396
12-4a Determining Strategic Direction 396
12-4b Effectively Managing the Firm’s Resource Portfolio 398
12-4c Sustaining an Effective Organizational Culture 400
Strategic Focus Organizational Culture: Is It Really That Important? 401
12-4d Emphasizing Ethical Practices 403
12-4e Establishing Balanced Organizational Controls 404
Summary 407
●
Key Terms 408
●
Review Questions 408
●
Mini-Case 408
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xii
Contents
13: Strategic Entrepreneurship 416
Opening Case: Today It Is Gas and Diesel: Tomorrow It Is Likely to Be Electric Vehicles,
Plug-in Hybrids, and Driverless Cars and Trucks 417
13-1 Entrepreneurship and Entrepreneurial Opportunities 419
13-2 Innovation 420
13-3 Entrepreneurs 421
13-4 International Entrepreneurship 422
13-5 Internal Innovation 423
13-5a Incremental and Novel Innovation 424
13-5b Autonomous Strategic Behavior 426
Strategic Focus Seeking Innovation through Autonomous Strategic Behavior at the Country Level 427
13-5c Induced Strategic Behavior 428
13-6 Implementing Internal Innovations 428
13-6a Cross-Functional Product Development Teams 429
13-6b Facilitating Integration and Innovation 430
13-6c Creating Value from Internal Innovation 430
13-7 Innovation through Cooperative Strategies 431
13-8 Innovation through Acquisitions 432
Strategic Focus Will These Acquisitions Lead to Innovation Success or to Strategic Failure? 433
13-9 Creating Value through Strategic Entrepreneurship 434
Summary 437
●
Key Terms 438
●
Review Questions 438
●
Mini-Case 438
●
Notes 440
Part 4: Case Studies C-1
Preparing an Effective Case Analysis C-4
Case 1:
Alphabet Inc.: Reorganizing Google C-13
Case 2:
Baidu’s Business Model and Its Evolution C-29
Case 3:
Future of the Autonomous Automobile: A Strategy for BMW C-44
Case 4:
An Examination of the Long-term Healthcare Industry in the USA C-58
Case 5:
CrossFit at the Crossroads C-63
Case 6:
New Business Models for Heise Medien: Heading for the Digital Transformation C-80
Case 7:
Illinois Tool Works: Retooling for Continued Growth and Profitability C-95
Case 8:
UltraRope: Crafting a Go-to-Market Strategy for Kone’s Innovative ‘UltraRope’
Hoisting Cable C-104
Case 9:
MatchMove: Business Model Evolution C-113
Case 10: The Movie Exhibition Industry: 2018 and Beyond C-124
Case 11: Pacific Drilling: The Preferred Offshore Driller C-147
Case 12: Pfizer C-163
Case 13: Publix Supermarkets, Inc. C-175
Case 14: Driving Innovation and Growth at Starbucks: From Howard Schultz
to Kevin Johnson C-190
Case 15: Sturm, Ruger & Co. and the U.S. Firearms Industry C-198
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Contents
Case 16: The trivago Way—Growing Without Growing Up? C-211
Case 17: The Volkswagen Emissions Scandal C-228
Case 18: The Wells Fargo Banking Scandal C-238
Case 19: ZF Friedrichshafen’s Acquisition of TRW Automotive: Making the Deal C-248
Case 20: The Rise and Fall of ZO Rooms C-259
Name Index I-1
Company Index I-21
Subject Index I-24
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
xiii
Preface
Our goal in writing each edition of this book is to present a new, up-to-date standard for
explaining the strategic management process. To reach this goal with the 13th edition of
our market-leading text, we again present you with an intellectually rich yet thoroughly
practical analysis of strategic management.
With each new edition, we work hard to achieve the goal of maintaining our standard of presenting strategic management knowledge in a readable style. To prepare
for each new edition, we carefully study the most recent academic research to ensure
that the content about strategic management we present to you is up to date and accurate. In addition, we continuously read articles appearing in many different business
publications (e.g., Wall Street Journal, Bloomberg Businessweek, Fortune, Financial
Times, Fast Company, and Forbes, to name a few). We also study postings through social
media (such as blogs) given their increasing use as channels of information distribution.
By studying a wide array of sources, we are able to identify valuable examples of how
companies across the world are using (or not using) the strategic management process.
Though many of the hundreds of companies that we discuss in the book will be quite
familiar, some will likely be new to you. One reason for this is that we use examples
of companies from around the world to demonstrate the globalized nature of business operations. Some of these firms are quite large and known to many while others
are small and known primarily to the customers they serve. To maximize your opportunities to learn as you read and think about how actual companies use strategic
management tools, techniques, and concepts (based on the most current research),
we emphasize a lively and user-friendly writing style. To facilitate learning, we use an
Analysis–Strategy–Performance framework; we explain this framework in Chapter 1
and reference it throughout the book.
Several characteristics of this 13th edition of our book are designed to enhance your
learning experience:
■■ First, we are pleased to note that this book presents you with the most comprehensive
and thorough coverage of strategic management that is available in the market.
■■ We draw the research used in this book from the “classics” as well as the most recent
contributions to the strategic management literature. The historically significant
“classic” research provides the foundation for much of what we know about strategic management, while the most recent contributions reveal insights about how to
use strategic management effectively in the complex, global business environment in
which firms now compete. Our book also presents you with a large number of up-to-date
examples of how firms use the strategic management tools, techniques, and concepts that prominent researchers and business practitioners have developed. Indeed,
although the relevant theory and current research are the foundation for this book, it
also is strongly application oriented and presents you, our readers, with a large number of examples and applications of strategic management concepts, techniques, and
tools. In this edition, for example, we examine more than 600 companies to describe
xiv
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Preface
the use of strategic management. Collectively, no other strategic management book
presents you with the combination of useful and insightful research and applications
in the variety of organizations as does this text.
Company examples you will find in this edition include large U.S.-based firms
such as Apple, Amazon.com, McDonald’s, FedEx, Starbucks, Walmart, Walt Disney,
General Electric, Intel, American Express, Coca-Cola, Netflix, Google, Tesla, Target,
UPS, Kellogg, 3M, DuPont, and Marriott. In addition, we examine firms based
in countries other than the United States such as AXA, Airbus, Deutche Bank,
LafargeHolcim, Sony, Softbank, Kering, Anbang Insurance, Teva, ChemChina, Bayer,
Tokyo Electric Power Company, Nestlé, Mahindra, Air France-KLM, Toyota, Aldi,
Honda, Ahold, Tata Consultancy, Alibaba, IKEA, Lenova, Volkswagen, and Samsung.
As these lists suggest, the firms examined in this book compete in a wide range of
industries and produce a diverse set of goods and services.
■■ We use the ideas of many prominent scholars (e.g., Ron Adner, Rajshree Agarwal,
Ruth Aguilera, Gautam Ahuja, Raffi Amit, Africa Arino, Jay Barney, Paul Beamish,
Peter Buckley, Alfred Chandler, Ming-Jer Chen, Russ Coff, Brian Connelly, Rich
D’Aveni, Kathy Eisenhardt, Nicolas Foss, Gerry George, Javier Gimeno, Luis GomezMejia, Melissa Graebner, Ranjay Gulati, Don Hambrick, Connie Helfat, Amy
Hillman, Tomas Hult, Dave Ketchen, Ryan Krause, Dovev Lavie, Haiyang Li, Yadong
Luo, Shige Makino, Costas Markides, Anita McGahan, Danny Miller, Will Mitchell,
Margie Peteraf, Michael Porter, Nandini Rajagopalan, Jeff Reuer, Joan Ricart, Richard
Rumelt, Wei Shi, David Sirmon, Ken Smith, Steve Tallman, David Teece, Rosalie
Tung, Michael Tushman, Eero Vaara, Margarethe Wiersema, Oliver Williamson,
Mike Wright, Anthea Zhang, Shaker Zahara, and Ed Zajac among others) to shape the
discussion of what strategic management is. We describe the practices of prominent
executives and practitioners (e.g., Thomas Buberl, Tim Cook, Brian Cornell, James
Dyson, Steve Easterbrook, Reed Hastings, Jan Jenisch, Jack Ma, Elon Musk, James
Park, Chuck Robbins, Howard Schultz, Hock Tan, Meg Whitman, and many others)
to help us describe how strategic management is used in many types of organizations.
The authors of this book are also active scholars. We conduct research on a number
of strategic management topics. Our interest in doing so is to contribute to the strategic management literature and to enhance our understanding of how to apply strategic
management tools, techniques, and concepts effectively as a means of increasing organizational performance. Thus, we integrate our own research in the appropriate chapters
along with the research of numerous other scholars, some of whom we list above.
In addition to our book’s characteristics, there are some specific features and revisions
that we have made in this 13th edition that we are pleased to highlight for you:
■■ New Opening Cases and Strategic Focus Segments We continue our tradition of
providing virtually all-new Opening Cases and Strategic Focus segments! Almost all
of these features are new to this edition; we updated completely the few remaining
from the 12th edition because of their continuing relevance and importance. Many
of these application-oriented features deal with companies located outside North
America. In addition, all of the company-specific examples included in each chapter
are either new or substantially updated. Through all of these venues, we present you
with a wealth of examples of how actual organizations, most of which compete internationally as well as in their home markets, use the strategic management process for
the purpose of outperforming rivals and increasing their performance.
■■ Twenty Cases are included in this edition. Offering an effective mix of organizations
headquartered or based in North America and a number of other countries as well,
the cases deal with contemporary and highly important topics. Many of the cases have
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.
xv
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Preface
full financial data (the analyses of which are in the Case Notes that are available to
instructors). These timely cases present active learners with opportunities to apply the
strategic management process and understand organizational conditions and contexts
and to make appropriate recommendations to deal with critical concerns. These cases
also appear in MindTap.
■■ New Mini-Cases appear at the end of each chapter. In these cases, we describe how
companies deal with major issues highlighted in the text. There are 13 of these cases,
one for each chapter, although some of them can overlap with other chapter content.
Students will like their conciseness, but they likewise provide rich content that can
serve as a catalyst for individual or group analysis and class discussion. A set of questions, which guide analysis and discussion, follows each Mini-Case.
■■ More than 1,200 new references from 2017 and 2018 appear in the chapters’ endnotes. We used the materials associated with these references to support new material
added or current strategic management concepts that are included in this edition. In
addition to demonstrating the classic and recent research from which we draw our
material, the large number of references supporting the book’s contents allow us to
integrate cutting-edge research and thinking into a presentation of strategic management tools, techniques, and concepts.
■■ New content appears in several chapters. Examples include: (1) the discussion of
digitalization and its link with the forming and execution of strategies in Chapter 1;
(2) a description of the changing competitive landscape due to new technology development, changing government policies (political landscape), and global competition
in Chapter 2; (3) the importance and use of big data analytics and artificial intelligence
in Chapter 3; (4) the analysis of digital strategies in Chapter 4’s Opening Case; (5) the
description of business models and their relationship with business-level strategies
in Chapter 4; and (6) our discussion and analysis of the emergence and competitive
significance of Amazon’s acquisition of Whole Foods in several chapters.
■■ Updated information appears in several chapters. Examples include updates about
the rapid pace of technology diffusion (Chapter 1), all new and current demographic data (e.g., ethnic mix, geographic distribution) that describe the economic
environment (Chapter 2), the general partner strategies of private equity firms
(Chapter 7), information from the World Economic Forum Competitiveness Report
regarding political risks of international investments (Chapter 8), updates about
corporate governance practices being used in different countries (Chapter 10),
updated data about the number of internal and external CEO selections occurring
in companies today (Chapter 12), a ranking of countries by the amount of their
entrepreneurial activities (Chapter 13), and a ranking of companies on their total
innovation output (Chapter 13).
■■ An Exceptional Balance between current research and up-to-date applications of that
research in actual organizations located throughout the world. The content has not
only the best research documentation but also the largest number of effective realworld examples to help active learners understand the different types of strategies
organizations use to achieve their vision and mission and to outperform rivals.
Supplements to Accompany This Text
MindTap. MindTap is the digital learning solution that helps instructors engage students and helps students become tomorrow’s strategic leaders. All activities are designed
to teach students to problem-solve and think like leaders. Through these activities and
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Preface
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 mastery
of chapter content. We’ve addressed case analysis from cornerstone to capstone with a
functional area diagnostic of prior knowledge, guided cases, branching activities, 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.
■■ Instructor’s Resource Manual. The Instructor’s Resource Manual, organized around
each chapter’s knowledge objectives, includes teaching ideas for each chapter and how
to reinforce essential principles with extra examples. This support product includes
lecture outlines and detailed guides to integrating the MindTap activities into your
course with instructions for using each chapter’s experiential exercises, branching,
and directed cases. Finally, we provide outlines and guidance to help you customize
the collaborative work environment and case analysis project to incorporate your
approach to case analysis, including creative ideas for using this feature throughout
your course for the most powerful learning experience for your class.
■■ Case Notes. These notes include directed assignments, financial analyses, and thorough discussion and exposition of issues in the case. Select cases also have assessment
rubrics tied to National Standards (AACSB outcomes) that can be used for grading
each case. The Case Notes provide consistent and thorough support for instructors,
following the method espoused by the author team for preparing an effective case
analysis.
■■ Cognero Test Bank. This program is easy-to-use test-creation software that
is compatible with Microsoft Windows. Instructors can add or edit questions,
instructions, and answers, and select questions by previewing them on the screen,
selecting them randomly, or selecting them by number. Instructors can also create
and administer quizzes online, whether over the Internet, a local area network
(LAN), or a wide area network (WAN). Thoroughly revised and enhanced, test
bank questions are linked to each chapter’s knowledge objectives and are ranked
by difficulty and question type. We provide an ample number of application questions throughout, and we have also retained scenario-based questions as a means
of adding in-depth problem-solving questions. The questions are also tagged to
National Standards (AACSB outcomes), Bloom’s Taxonomy, and the Dierdorff/
Rubin metrics.
■■ PowerPoints®. An updated PowerPoint presentation provides support for lectures,
emphasizing key concepts, key terms, and instructive graphics.
Acknowledgments
We express our appreciation for the excellent support received from our editorial and
production team at Cengage Learning. We especially wish to thank Michael Giffen,
Senior Product Manager; Bryan Gambrel, Product Director; Audrey Wyrick, Marketing
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
xvii
xviii
Preface
Manager; and Amanda White, our Content Manager. We are grateful for their dedication,
commitment, and outstanding contributions to the development and publication of this
book and its package of support materials.
We are highly indebted to all of the reviewers of past editions. Their comments have
provided a great deal of insight in the preparation of this current edition:
Jay Azriel
York College of Pennsylvania
Robert Goldberg
Northeastern University
Lana Belousova
Suffolk University
Monica Gordillo
Iowa State University
Ruben Boling
North Georgia University
George Griffin
Spring Arbor University
Matthias Bollmus
Carroll University
Susan Hansen
University of Wisconsin–Platteville
Erich Brockmann
University of New Orleans
Glenn Hoetker
Arizona State University
David Cadden
Quinnipiac University
James Hoyt
Troy University
Ken Chadwick
Nicholls State University
Miriam Huddleston
Harford Community College
Bruce H. Charnov
Hofstra University
Carol Jacobson
Purdue University
Jay Chok
Keck Graduate Institute, Claremont
Colleges
James Katzenstein
California State University, Dominguez
Hills
Peter Clement
State University of New York–Delhi
Robert Keidel
Drexel University
Terry Coalter
Northwest Missouri University
Nancy E. Landrum
University of Arkansas at Little Rock
James Cordeiro
SUNY Brockport
Mina Lee
Xavier University
Deborah de Lange
Suffolk University
Patrice Luoma
Quinnipiac University
Irem Demirkan
Northeastern University
Mzamo Mangaliso
University of Massachusetts–Amherst
Dev Dutta
University of New Hampshire
Michele K. Masterfano
Drexel University
Scott Elston
Iowa State University
James McClain
California State University–Fullerton
Harold Fraser
California State University–Fullerton
Jean McGuire
Louisiana State University
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
xix
Preface
John McIntyre
Georgia Tech
Manisha Singal
Virginia Tech
Rick McPherson
University of Washington
Warren Stone
University of Arkansas at Little Rock
Karen Middleton
Texas A&M–Corpus Christi
Elisabeth Teal
University of N. Georgia
Raza Mir
William Paterson University
Jill Thomas Jorgensen
Lewis and Clark State College
Martina Musteen
San Diego State University
Len J. Trevino
Washington State University
Louise Nemanich
Arizona State University
Edward Ward
Saint Cloud State University
Frank Novakowski
Davenport University
Marta Szabo White
Georgia State University
Consuelo M. Ramirez
University of Texas at San Antonio
Michael L. Williams
Michigan State University
Barbara Ribbens
Western Illinois University
Diana J. Wong-MingJi
Eastern Michigan University
Jason Ridge
Clemson University
Patricia A. Worsham
California State Polytechnic University,
Pomona
William Roering
Michigan State University
Manjula S. Salimath
University of North Texas
Deepak Sethi
Old Dominion University
William J. Worthington
Baylor University
Wilson Zehr
Concordia University
Michael A. Hitt
R. Duane Ireland
Robert E. Hoskisson
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
About the Authors
Michael A. Hitt
Michael A. Hitt is a University Distinguished Professor Emeritus at Texas A&M University
and a Distinguished Research Fellow at Texas Christian University. Dr. Hitt received
his Ph.D. from the University of Colorado. He has co-authored or co-edited 27 books
and authored or co-authored many journal articles. A recent article listed him as one
of the 10 most cited authors in management over a 25-year period. The Times Higher
Education 2010 listed him among the top scholars in economics, finance, and management based on the number of highly cited articles he has authored. A recent article in the
Academy of Management Perspectives lists him as one of the top two management scholars in terms of the combined impact of his work both inside (i.e., citations in scholarly
journals) and outside of academia. And, a recent article in the Academy of Management
Learning and Education lists him as the highest cited author in strategic management
textbooks. He has served on the editorial review boards of multiple journals and is a former editor of the Academy of Management Journal and a former co-editor of the Strategic
Entrepreneurship Journal. He is a fellow in the Academy of Management, the Strategic
Management Society, and the Academy of International Business. He has received honorary doctorates (Doctor Honoris Causa) from the Universidad Carlos III de Madrid and
from Jonkoping University. He is a former president of both the Academy of Management
and the Strategic Management Society. He received awards for the best article published
in the Academy of Management Executive (1999), Academy of Management Journal
(2000), Journal of Management (2006), and Family Business Review (2012). In 2001, he
received the Irwin Outstanding Educator Award and the Career Achievement Award
for Distinguished Service from the Academy of Management. In 2004, Dr. Hitt was
awarded the Best Paper Prize by the Strategic Management Society. In 2006, he received
the Falcone Distinguished Entrepreneurship Scholar Award from Syracuse University. In
2017, he received the Career Achievement Award for Distinguished Educator from the
Academy of Management. He received Distinguished Alumnus Awards from Texas Tech
University and from the University of Colorado in 2018. In 2014–2018, Dr. Hitt was listed
as a Thomson Reuters Highly Cited Researcher (a listing of the world’s most influential
researchers).
R. Duane Ireland
R. Duane Ireland is a University Distinguished Professor, holder of the Benton
Cocanougher Chair in Business, and the Executive Associate Dean in Mays Business
School, Texas A&M University. Dr. Ireland teaches strategic management courses at all
levels. He has more than 200 publications, including approximately 25 books. His research,
which focuses on diversification, innovation, corporate entrepreneurship, strategic
entrepreneurship, and the informal economy, appears in an array of journals. He has
xx
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About the Authors
served as a member of multiple editorial review boards and is a former editor (and a former associate editor) of the Academy of Management Journal. He has been a guest editor
for 12 special issues of journals. He is a past president of the Academy of Management.
Dr. Ireland is a fellow of the Academy of Management, a fellow of the Strategic Management
Society, and a research fellow in the Global Consortium of Entrepreneurship Centers. A
recent article in the Academy of Management Learning and Education lists him as among
the most highly cited authors in strategic management textbooks. He received awards for
the best article published in Academy of Management Executive (1999), the Academy of
Management Journal (2000), and the Journal of Applied Management and Entrepreneurship
(2010). He received an Association of Former Students Distinguished Achievement Award
for Research from Texas A&M University (2012). In 2014, 2015, and 2018, Thomson
Reuters identified Dr. Ireland as a Thomson Reuters Highly Cited Researcher (a listing
of the world’s most influential researchers). He received a Distinguished Service award
from the Academy of Management in 2017 and a Distinguished Service award from the
strategic management division of the Academy of Management in the same year. The
Rawls College of Business, Texas Tech University, chose him as a Distinguished Alumnus
in 2018. In 2017, he received the Lifetime Achievement Award for Research and
Scholarship from Mays Business School.
Robert E. Hoskisson
Robert E. Hoskisson is the George R. Brown Emeritus Chair of Strategic Management at
the Jesse H. Jones Graduate School of Business, Rice University. Dr. Hoskisson received
his Ph.D. from the University of California-Irvine. His research topics focus on corporate
governance, acquisitions and divestitures, corporate and international diversification, and
cooperative strategy. He teaches courses in corporate and international strategic management, cooperative strategy, and strategy consulting. He has co-authored 26 books,
including recent books on business strategy and competitive advantage. Dr. Hoskisson
has served on several editorial boards for such publications as the Strategic Management
Journal (Associate Editor), Academy of Management Journal (Consulting Editor), Journal
of International Business Studies (Consulting Editor), Journal of Management (Associate
Editor), and Organization Science. His research has appeared in over 130 publications,
including the Strategic Management Journal, Academy of Management Journal, Academy
of Management Review, Organization Science, Journal of Management, Academy of
Management Perspective, Academy of Management Executive, Journal of Management
Studies, Journal of International Business Studies, Journal of Business Venturing,
Entrepreneurship Theory and Practice, California Management Review, and Journal of
World Business. A recent article in the Academy of Management Learning and Education
lists him among the most highly cited authors in strategic management textbooks. He is
listed in the Thomson Reuters Highly Cited Researcher list that catalogues the world’s most
influential research scholars. Dr. Hoskisson is a fellow of the Academy of Management
and a charter member of the Academy of Management Journal’s Hall of Fame. He is also
a fellow of the Strategic Management Society and has received awards from the American
Society for Competitiveness and the William G. Dyer Alumni award from the Marriott
School of Management, Brigham Young University. He completed three years of service as
a Representative-at-Large on the Board of Governors of the Academy of Management. He
also served as President of the Strategic Management Society, and served on the Executive
Committee of its Board of Directors for six years.
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xxi
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Case Title
Manu
facturing
Service
Consumer
Goods
Food/
Retail
High
Technology
Internet
Transportation/
Communication
International
Perspective
●
●
Alphabet
(Google)
●
●
●
Baidu
●
●
●
BMW
●
●
●
Social/
Ethical
Issues
Industry
Perspective
●
●
●
●
CrossFit
●
●
●
Healthcare
Industry
(Long-Term)
●
●
●
Heise Medien
●
●
Illinois Tool
Works
●
●
Kone
●
●
MatchMove
●
Movie
Exhibition
Industry
●
●
●
●
●
●
●
●
●
Pacific Drilling
●
●
●
Pfizer
●
●
●
Publix
●
Starbucks
Sturm, Ruger
and Co.
Volkswagen
ZO-Rooms
●
●
●
●
●
●
●
●
●
●
●
●
Wells Fargo
ZF Friedrichshafen
●
●
Trivago
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
●
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Chapters
Case Title
1
2
3
4
5
Alphabet (Google)
Baidu
●
BMW
●
●
CrossFit
●
●
●
7
●
●
●
●
●
●
●
Healthcare Industry
(Long-Term)
●
●
●
Heise Medien
●
●
●
Illinois Tool Works
●
Movie Exhibition
Industry
●
●
Publix
●
●
●
●
●
●
●
●
Starbucks
●
●
Sturm, Ruger and Co.
●
●
●
●
●
12
●
●
●
●
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●
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Volkswagen
●
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Wells Fargo
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ZO-Rooms
●
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●
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Trivago
ZF Friedrichshafen
13
●
●
●
11
●
●
●
10
●
Pacific Drilling
Pfizer
9
●
●
●
8
●
●
Kone
MatchMove
6
●
●
●
●
●
●
●
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
●
1
Strategic Management and
Strategic Competitiveness
Studying this chapter should provide
you with the strategic management
knowledge needed to:
Define strategic competitiveness,
strategy, competitive advantage,
above-average returns, and the
strategic management process.
1-2
Describe the competitive landscape
and explain how globalization and
technological changes shape it.
1-3
Use the industrial organization (I/O)
model to explain how firms can
earn above-average returns.
1-4
Use the resource-based model to
explain how firms can earn aboveaverage returns.
1-5
Describe vision and mission and
discuss their value.
1-6
Define stakeholders and
describe their ability to influence
organizations.
1-7
Describe the work of strategic
leaders.
1-8
Explain the strategic management
process.
iStock.com/DNY59
1-1
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
THE HONEST CO.: CAN IT BECOME AN ICONIC GLOBAL BRAND?
Stefanie Keenan/WireImage/Getty Images
Launched on 2011, The Honest Co. is an eco-friendly consumer goods company co-founded
by actress Jessica Alba. According to Alba, a desire as a parent to be able to purchase safe,
effective products that perform as promised drove the decision to establish Honest. The firm
says that it is a “wellness brand with values rooted in consciousness, community, transparency
and design. We’re on a mission to empower people to live happy, healthy lives.”
Over the years, Honest has offered consumers products in a number of categories including
diapering, vitamins, feeding, personal care, and cleaning among others. Essentially, this firm’s
strategy calls for it to provide unique products to customers who value that uniqueness and
are willing to pay for it in the form of prices that exceed those of “mainstream” products. Implementing this strategy successfully would be the foundation for the firm achieving strategic
competitiveness (we define strategy and strategic competitiveness in this chapter).
According to the firm’s CEO, for the
near future at least, Honest intends to
concentrate on its baby and beauty
products categories as a means of
making progress to reach its objective
of becoming an iconic global brand.
Expansion into Europe in 2019 was
an important strategic action taken
to reach this objective. To avoid the
highly competitive and low-margin
diaper category, part of Honest’s
European expansion strategy includes
its partnership with “German cosmetics
and perfume chain Douglas to sell its
beauty products in Germany, France,
Spain, Italy, Poland, the Netherlands,
and Austria.”
The path to achieving strategic
competitiveness has not been challenge- and error-free for The Honest
Co. In terms of challenges, the firm
has direct competitors such as Zulily
(a firm offering always-fresh products
for families with new babies including home décor items, clothing, gifts,
etc.) and Giggle, a one-stop source
for new parents seeking unique baby
Co-founder of The Honest Company Jessica Alba
products. Additionally, large consumat a special ribbon cutting ceremony in Beverly Hills,
er-goods companies such as Unilever
and Procter & Gamble offer products to
California.
consumers with some of the features
associated with Honest’s items, sometimes at a lower price. A series of lawsuits filed against
The Honest Co. suggest mistakes made by the firm. In 2016, for example, a lawsuit alleged false
labelling of some of the ingredients of the firm’s cleaning products. Other allegations include
one that the firm’s sunscreen product does not work effectively. Honest also had to recall its
organic baby powder for potential contamination and its baby wipes because of contamination with mold.
Recently, Honest received a $200 million dollar minority investment from L. Catterton, a
private equity firm. The Honest Co. believes this investment provides the capital required to
expand its supply chains and global reach. Honest thinks of L. Catterton as a perfect investment partner because of its expertise with global supply chains. The Honest Co. is the type
of firm in which L. Catterton typically invests, as shown by its involvement with well-known
American beauty product businesses such as Bliss, Elemis, and Tula.
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.
4
Going forward, will The Honest Co. be able to use its resources to outcompete rivals as
a means of reaching its objective to become an iconic global brand by offering consumers
eco-friendly and effective products? While committed to regaining consumers’ trust and
confidence by producing products they want to buy, reaching this objective is challenging,
especially in light of the competition the firm faces. On the other hand, some analysts believe
Honest will succeed because the firm has three valuable capabilities (we define capabilities in
this chapter): “tremendous brand equity, innovative and quality products, and a loyal customer
following.” Time will tell if The Honest Co. will be able to execute with these capabilities in a
way that yields competitive success in the form of strategic competitiveness.
Sources: 2018, The Honest Co., About us, www.honest.com, August, 8; 2018, Jessica Alba’s Honest Co. gets $200 million
investment from L. Catterton, Fortune, www.fortune.com, June 6; A. Black, 2018, The right way for food companies to buy
their way to growth, Wall Street Journal, www.wsj.com, June 6; W. Colville, 2018, Jessica Alba’s Honest Co. gets $200 million
investment, Wall Street Journal, www.wsj.com, June 6; A. Gasparro & J. Bunge, 2018, Food companies churn through
CEOs, desperate for fresh ideas, Wall Street Journal, www.wsj.com, May 29; A. Stych, 2018, Jessica Alba’s Honest Company
gets $200M investment, bizwomen, www.bizwomen.com, June 7; J. Valinsky, 2018, Jessica Alba’s Honest Co. just got a
$200 million lifeline, CNNMoney, www.cnnmoney.com, June 6; A. C. Wischhover, 2018, Jessica Alba’s Honest Company is
relaunching products and trying to put bad PR drama behind it, Racked, www.racked.com, June 7.
A
Firms achieve strategic
competitiveness by
formulating and
implementing a value
creating strategy.
A strategy is an integrated
and coordinated set of
commitments and actions
designed to exploit core
competencies and gain a
competitive advantage.
A firm has a competitive
advantage when by
implementing a chosen
strategy, it creates superior
value for customers and
when competitors are not
able to imitate the value the
firm’s products create or find
it too expensive to attempt
imitation.
s we see from the Opening Case, achieving strategic competitiveness by implementing a firm’s chosen strategy successfully is challenging. Founded as a wellness brand
with a grounding in the values of consciousness, community, transparency, and design,
Honest is struggling to reach its mission and the founders’ desired level of competitive
success. An eco-friendly consumer goods company, Honest seeks to provide customers
with unique products for which they are willing to pay a higher price, compared to the
prices for consumer goods products with relatively standard features and capabilities.
Honest’s top management team, including Jessica Alba, is using the strategic management
process (see Figure 1.1) as the foundation for the commitments, decisions, and actions
the team is taking to pursue strategic competitiveness and above-average returns. Given
the firm’s challenges, some of its decisions and actions going forward will likely differ
from some made previously. In this book, we explain the strategic management process
The Honest Co. and multiple other firms use to implement a chosen strategy successfully
and to achieve strategic competitiveness by doing so. We introduce you to this process in
the next few paragraphs.
Firms achieve strategic competitiveness by formulating and implementing a valuecreating strategy. A strategy is an integrated and coordinated set of commitments and
actions designed to exploit core competencies and gain a competitive advantage. When
choosing a strategy, firms make choices among competing alternatives as the pathway for
deciding how they will pursue strategic competitiveness. In this sense, the chosen strategy
indicates what the firm will do as well as what the firm will not do.
A firm has a competitive advantage when by implementing a chosen strategy, it creates superior value for customers and when competitors are not able to imitate the value
the firm’s products create or find it too expensive to attempt imitation.1 An organization
can be confident that its strategy yields a competitive advantage after competitors’ efforts
to duplicate it have ceased or failed. In addition, firms must understand that no competitive advantage is permanent.2 The speed with which competitors are able to acquire the
skills needed to duplicate the benefits of a firm’s value-creating strategy determines how
long the competitive advantage will last.3 The Honest Co. seeks to create a competitive
advantage, as do all organizations. We discuss competitive advantages and provide a few
firm-specific examples of them in the Strategic Focus.
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.
5
Chapter 1: Strategic Management and Strategic Competitiveness
Strategic Focus
Competitive Advantage as a Source of Strategic Competitiveness
and personal data.” Home Depot officials cite the firm’s culture
as a competitive advantage. The culture emphasizes “excellent
customer service, an entrepreneurial spirit, building strong relationships, taking care of its people, and doing the right thing.” In
today’s globalized competitive environment, firms that learn how
to develop an effective balance among economic growth, ecological balance, and social growth may have a viable competitive
advantage. Finally, some argue that in the final analysis, a firm’s
people are the most important source of competitive advantage.
The reason for this is that a firm’s people think of ways to create
differences between their firm and competitors; a firm’s people
then execute in ways that bring those differences to life.
AB Forces News Collection/Alamy Stock Photo
Possessing a competitive advantage, and understanding how to
use it effectively in marketplace competitions, is foundational to
all firms’ efforts to achieve strategic competitiveness and outperform rivals in the process of doing so. Strategic leaders influence
choices firms make to develop a competitive advantage. (We
define strategic leaders later in this chapter and discuss strategic
leadership in detail in Chapter 12.) In essence, a firm creates a
competitive advantage by being as different as possible from
competitors in ways that are important to customers and in ways
that competitors cannot duplicate. Important differences are
ones for which customers are willing to pay. Having and exploiting a competitive advantage successfully finds a firm creating
superior value for its customers and superior profits for itself.
The competitive advantages firms possess differ among
companies across and within industries. Drawing from Michael
Porter’s work, we explain in Chapter 4 that firms have a
competitive advantage when they deliver the same value to
customers as competitors deliver but at a lower cost, or when
they deliver benefits for which customers are willing to pay
that exceed the benefits competitors offer. Facilitating a firm’s
efforts to develop a competitive advantage is its ability to
make the value its products offers customers as clear, concise,
and easily recognizable as possible. In slightly different words,
firms must convey effectively the value of their products, relative to competitors’ offerings, to their customers. The larger is
the “gap” between the value a firm’s products creates for customers and the value competitors’ products bring to customers,
the more significant is a firm’s competitive advantage.
The competitive dimensions on which firms are able to
establish a competitive advantage are virtually endless. In a
general sense, technological developments, which continue at a
rapid pace, may be a source of competitive advantage for firms
in multiple industries. Salesforce.com, the customer relationship
management (CRM) firm that uses cloud computing extensively,
recently “debuted a CRM solution that uses machine learning
to build comprehensive data-based customer profiles, identify
crucial touch points and uncover additional sales opportunities.”
Adaptability and flexibility are additional potential sources of
competitive advantage for firms learning how to exploit newly
developing technologies quickly and successfully. Netflix is building competitive advantages in terms of its original programming and its customer interface platform that creates unique
experiences for individual users. Some analysts feel that trust
is an important source of competitive advantage. In a recent
survey, a group reported that “Unlike other online retailers, 67%
of Amazon customers trust the company to protect their privacy
Volunteers with The Home Depot’s Building Materials
Department help to restore the memorial of Sergeant Adam
Cann during the K9 upgrade project at Camp Pendleton.
We note in Chapter 4 that no competitive advantage is
sustainable permanently. In some instances, a firm’s advantage
no longer creates value for which customers are willing to pay.
In other cases, competitors will learn how to create more value
for customers with respect to a valued competitive dimension
for which they are willing to pay. Thus, to achieve strategic
competitiveness across time, a firm must concentrate simultaneously on exploiting the competitive advantage it possesses
today while contemplating decisions to make today to ensure
that it will possess a competitive advantage in the future.
Sources: A. Bylund, 2018, What is Netflix, Inc.’s competitive advantage? The Motley
Fool, www.fool.com, July 21; I. Hunkeler, 2018, How to turn digital disruption into a
competitive advantage, Small Business Daily, www.smallbizdaily.com, January 26;
L. Lent, 2018, Strategic sustainability focus delivers competitive advantages,
PHYS.ORG, www.phys.org, February 8; I. Linton, 2018, Strategic moves to build a
competitive advantage, Houston Chronicle, www.smallbusiness.chron.com, June 29;
G. Pickard-Whitehead, 2018, What is competitive advantage? Small Business Trends,
www.smallbiztrends.com, April 10; A. Rogers, 2018, Innovation case studies:
How companies use technology to solidify a competitive advantage, Forbes,
www.forbes.com, April 13; J. Silver, 2018, Culture as a competitive advantage, Hispanic
Executive, www.hispanicexecutive.com, May 1; G. Sterling, 2018, Survey: Consumer
trust may be Amazon’s true competitive advantage, Search Engine Land, www
.searchengineland.com, June 7; R. Wartzman & L. Crosby, 2018, A company’s performance depends first of all on its people, Wall Street Journal, www.wsj.com, August 12.
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.
6
Part 1: Strategic Management Inputs
Above-average returns
are returns in excess of what
an investor expects to earn
from other investments with
a similar amount of risk.
Risk is an investor’s
uncertainty about the
economic gains or losses that
will result from a particular
investment.
Average returns are returns
equal to those an investor
expects to earn from other
investments possessing a
similar amount of risk.
The strategic management
process is the full set of
commitments, decisions, and
actions firms take to achieve
strategic competitiveness and
earn above-average returns.
Above-average returns are returns in excess of what an investor expects to earn from
other investments with a similar amount of risk. Risk is an investor’s uncertainty about
the economic gains or losses that will result from a particular investment. The most
successful companies learn how to manage risk effectively;4 doing so reduces investors’
uncertainty about the outcomes of their investment.5 Firms often use accounting-based
metrics, such as return on assets, return on equity, and return on sales to assess their
performance. Alternatively, firms can assess their performance in terms of stock market
returns, even monthly returns. (Monthly returns are the end-of-the-period stock price
minus the beginning stock price divided by the beginning stock price, yielding a percentage return.) In smaller, new venture firms, returns are sometimes measured in terms
of the amount and speed of growth (e.g., in annual sales) rather than more traditional
profitability measures6 because new ventures require time to earn acceptable returns (in
the form of return on assets and so forth) for investors.7
Understanding how to exploit a competitive advantage is important for firms seeking
to earn above-average returns.8 Firms without a competitive advantage or those that do
not compete in an attractive industry earn, at best, average returns. Average returns are
returns equal to those an investor expects to earn from other investments possessing a
similar amount of risk. Over time, an inability to earn at least average returns results first
in decline and, eventually, failure.9 Failure occurs because investors withdraw their investments from those firms earning less-than-average returns.
As previously noted, there are no guarantees of permanent success. Companies succeeding at a point in time must not become overconfident. Research suggests that overconfidence can lead to excessive risk taking.10 Used as an example several times in this
book, Amazon.com today continues growing and increasing its sales revenue. This firm
too though must avoid assuming that success today is a guarantee of success tomorrow.
Using the strategic management process effectively facilitates firms’ efforts to achieve
success across time.
The strategic management process is the full set of commitments, decisions, and
actions firms take to achieve strategic competitiveness and earn above-average returns
(see Figure 1.1).11 The process involves analysis, strategy, and performance (the A-S-P
model—see Figure 1.1). The firm’s first step in the process is to analyze its external environment and internal organization to identify external opportunities and threats and to
recognize its internal resources, capabilities, and core competencies. The results of these
analyses influence the selection of the firm’s strategy or strategies. The strategy portion of
the model entails strategy formulation and strategy implementation.
With the information gained from external and internal analyses, the firm develops
its vision and mission and formulates one or more strategies. To implement its strategies,
the firm takes actions to enact each one with the intent of achieving strategic competitiveness and above-average returns (performance). Effective actions that take place in the
context of integrated strategy formulation and implementation efforts result in positive
performance. Firms seek to maintain the quality of what is a dynamic strategic management process as a means of dealing successfully with ever-changing markets and evolving
internal conditions.12
In the remaining chapters of this book, we use the strategic management process
to explain what firms do to achieve strategic competitiveness and earn above-average
returns. We demonstrate why some firms achieve competitive success consistently while
others do not. Today, global competition is a critical part of the strategic management
process and influences firms’ performances.13 Indeed, learning how to compete in the
globalized world is one of the most significant challenges firms face.14
We discuss several topics in this chapter. First, we describe the current competitive
landscape. Several realities, including the emergence of a global economy, globalization
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.
7
Chapter 1: Strategic Management and Strategic Competitiveness
Figure 1.1 The Strategic Management Process
Analysis
Chapter 2
The External
Environment
Vision
Mission
Chapter 3
The Internal
Organization
Performance
Strategy
Strategy Formulation
Strategy Implementation
Chapter 4
Business-Level
Strategy
Chapter 5
Competitive
Rivalry and
Competitive
Dynamics
Chapter 6
CorporateLevel Strategy
Chapter 10
Corporate
Governance
Chapter 11
Organizational
Structure and
Controls
Chapter 7
Merger and
Acquisition
Strategies
Chapter 8
International
Strategy
Chapter 9
Cooperative
Strategy
Chapter 12
Strategic
Leadership
Chapter 13
Strategic
Entrepreneurship
Strategic
Competitiveness
Above-Average
Returns
resulting from that economy, and rapid technological changes, influence this landscape.
Next, we examine two models firms use to gather the information and knowledge
required to choose and then effectively implement their strategies. The insights gained
from these models also serve as the foundation for forming the firm’s vision and mission.
The first model (industrial organization or I/O) suggests that the external environment
is the primary determinant of a firm’s strategic actions. According to this model, identifying and then operating effectively in an attractive (i.e., profitable) industry or segment
of an industry are the keys to competitive success.15 The second model (resource-based)
suggests that a firm’s unique resources and capabilities are the critical link to strategic
competitiveness.16 Thus, the first model is concerned primarily with the firm’s external
environment while the second model is concerned primarily with the firm’s internal organization. After discussing vision and mission, direction-setting statements that influence
the choice and use of strategies, we describe the stakeholders that organizations serve.
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.
8
Part 1: Strategic Management Inputs
The degree to which stakeholders’ needs can be met increases when firms achieve strategic competitiveness and earn above-average returns. Closing the chapter are introductions to strategic leaders and the elements of the strategic management process.
1-1 The Competitive Landscape
Hypercompetition is a
condition where competitors
engage in intense rivalry,
markets change quickly and
often, and entry barriers are
low.
The fundamental nature of competition in many of the world’s industries is changing.
Digitalization, for example, which is the process of converting something to digital
form, is a new competitive dimension that is affecting competition in multiple industries
throughout the world. The Apple watch demonstrates “digitalization at its best where
technology has taken an ordinary watch and introduced technology into it with phone
capabilities, messaging, and even Internet capabilities.”17
The full array of possibilities flowing from digitalization as a means of competition
among companies remains unspecified. Recent evidence, though, suggests that firms
understanding digitalization and its capabilities may be able to outperform their rivals.
Headquartered in London, PricewaterhouseCoopers (doing business as PwC) is a multinational professional services firm. Based on a survey of 1,155 manufacturing executives
located in 26 countries, PwC concluded that “Distinct from Industry 3.0, which involved
the automation of single machines and processes, Industry 4.0 encompasses end-to-end
digitization and data integration of the value chain: offering digital products and services, operating connected physical and virtual assets, transforming and integrating all
operations and internal activities, building partnerships, and optimizing customer-facing
activities.”18 An analysis of its survey results found PwC concluding that firms committed
to becoming digital leaders are able to distinguish themselves from competitors by producing innovative products that unique groups of customers value. Indeed, a significant
benefit of digitalization is that it allows firms to identify specific customer groups and
then serve their personalized and unique needs.19
The number of customers interested in digitalization as a source for product development and subsequent use is huge and increasing. “There are two-and-a-half billion digital
customers globally who are under 25 years of age. What characterizes this group is the
fact that they are ‘always on’ and that they show a different usage behavior compared to
that of the traditional ‘analog’ consumer.”20 Thus, in today’s competitive landscape, a challenge is for firms to understand the strategic implications associated with digitalization
and to integrate digitalization effectively into their strategies.
Other characteristics of the current competitive landscape are noteworthy.
Conventional sources of competitive advantage such as economies of scale and large
advertising budgets are not as effective as they once were (e.g., because of social media
advertising) in terms of helping firms earn above-average returns. Moreover, the traditional managerial mind-set is unlikely to lead a firm to strategic competitiveness.
Managers must adopt a new mind-set that values flexibility, speed, innovation, integration, and the challenges flowing from constantly changing conditions.21 The conditions
of the competitive landscape result in a perilous business world—a world in which the
investments necessary to compete on a global scale are enormous and the consequences
of failure are severe.22 Effective use of the strategic management process reduces the likelihood of failure for firms while competing against their rivals.
Hypercompetition is a condition where competitors engage in intense rivalry, markets
change quickly and often, and entry barriers are low. In these environments, firms find it
difficult to maintain a competitive advantage.23 Rivalry in hypercompetitive environments
tends to occur among global competitors who innovate regularly and successfully.24 It is
a condition of rapidly escalating competition based on price-quality positioning, competition to create new know-how and establish first-mover advantage, and competition to
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9
Chapter 1: Strategic Management and Strategic Competitiveness
protect or invade established product and/or geographic markets. In a hypercompetitive
market, firms often challenge their competitors aggressively to strengthen their market
position and ultimately, their performance.25 Specifically how firms challenge each other
in hypercompetitive markets varies across time. Recently, for example, Internet giant
Tencent Holdings Ltd. of China has become one of the world’s largest technology investors. Between 2013 and mid-2018, the firm took stakes in 277 startups. Analysts believe
this is a calculated strategy to crowd out rivals and to increase profits.26
Several factors create hypercompetitive environments and influence the nature of
the current competitive landscape. The emergence of a global economy and technology,
specifically rapid technological change, are two primary drivers of hypercompetitive environments and the nature of today’s competitive landscape.
1-1a The Global Economy
A global economy is one in which goods, services, people, skills, and ideas move
freely across geographic borders. Relatively unfettered by artificial constraints, such as
tariffs, the global economy significantly expands and complicates a firm’s competitive
environment.27
The global economy, which changes rapidly and constantly,28 increases the scope of
the competitive environment in which companies compete. Because of this, firms must
study the global economy carefully as a foundation for learning how to position themselves successfully for competitive purposes.
The size of parts of the global economy is an important aspect of studying this competitive arena. In 2018 for example, the United States was the world’s largest economy
at a value of $20.4 trillion. At that time, China was the world’s second largest economy
with a value of $14 trillion while Japan was the third largest at $5.1 trillion. Following
Japan were three European countries (Germany at $4.2 trillion, United Kingdom at
$2.94 trillion, and France at $2.93 trillion). In observing economies’ values in 2018, the
World Economic Forum noted that the size of the United States economy was “larger
than the combined economies of numbers four to 10 on the list. Overall, the global
economy (was) worth an estimated $79.98 trillion, meaning the United States accounts
for more than one-quarter of the world total.”29 Thus, companies scanning the global
economy for opportunities in 2018 might conclude that markets in the United States,
China, and Japan yield potentially significant opportunities for them. Of course, such
an analysis also must consider entry barriers to various economies in the form of tariffs. This type of analysis must also be forward looking in that in 2018, for example,
the World Economic Forum estimated that China and India’s economies would exceed
the size of the U.S. economy by 2050 and that the economies of Germany, United
Kingdom, and France would decline in size by this time as well. Companies should
study carefully predictions such as these when determining the parts of the world in
which growth opportunities as well as threats to their competitive global positions
may exist in future years.
U.S.-based Netflix continues studying the global economy to identify opportunities
in countries and regions in which it can grow. In mid-2018, the firm continued adding
subscribers, reaching 125 million globally. At that time, analysts predicted the firm would
have 360 million subscribers by 2030. International markets were to be the source of
much of the growth in subscribers.30 Informing this prediction was the expectation that
Netflix would achieve reasonable levels of market penetration internationally, including
reaching penetration in 35 percent of all broadband households worldwide, excluding
China.31 To fuel its international plans, Netflix offers some of its original movies in languages other than English. In 2018 alone, the firm allocated $8 billion to develop original
programming, with some of those programs targeted to international customers.32
A global economy is one
in which goods, services,
people, skills, and ideas move
freely across geographic
borders.
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10
Part 1: Strategic Management Inputs
During the global recession of roughly 2007 and 2008, General Motors (GM)
identified what it thought was a significant international opportunity in China. The
fact that GM and its Chinese joint venture partners are now the leading manufacturers in the world’s largest automobile market seems to validate GM’s assessment and
the actions it took in light of it. GM and its partners’ decision to launch the Baojun
brand is foundational to the firm’s success in China. With expectations of continuing
growth, “Baojun is an entry-level brand targeted at consumers who live in (China’s)
smaller cities and rural areas.”33 In recent times, the competitive actions GM is taking
in China result in the firm outperforming its rival Ford Motor Co. in this key global
market.34
The March of Globalization
Globalization is the increasing economic interdependence among countries and their
organizations as reflected in the flow of products, financial capital, and knowledge across
country borders.35 Globalization is a product of a large number of firms competing against
one another in an increasing number of global economies.
In globalized markets and industries, firms might obtain financial capital in one
national market and use it to buy raw materials in another. Firms might then use manufacturing equipment purchased in a third national market to produce and deliver products that it sells in a fourth market. Thus, globalization increases the range of opportunities for companies competing in the current competitive landscape.36
Firms operating globally must make culturally sensitive decisions when using the
strategic management process, as is the case in Starbucks’ operations in European
countries (we discuss additional aspects of this firm’s recent decisions and actions
in this Chapter’s Mini-Case). Additionally, highly globalized firms must anticipate
ever-increasing complexity in their operations as goods, services, people, and so forth
move freely across geographic borders and throughout different economies.
Overall, globalization has led to higher performance standards with respect to multiple competitive dimensions, including quality, cost, productivity, product introduction time, and operational efficiency. In addition to firms competing in the global
economy, these standards affect firms competing on a domestic-only basis. Customers
will choose to buy a global competitor’s product when it creates superior value for them
relative to the value created by the domestic firm’s product. Workers now flow rather
freely among global economies. This is important in that employees are a key source of
competitive advantage.37 Firms must learn how to deal with the reality that in today’s
competitive landscape, only companies capable of meeting, if not exceeding, global
standards typically earn above-average returns.
Although globalization offers potential benefits to firms, it is not without risks.
“Liability of foreignness” is the term describing the risks of competing outside a firm’s
domestic markets.38 The amount of time firms usually require to learn to compete in
markets that are new to them is one risk of entering a global market. A firm’s performance can suffer until it gains the knowledge needed to compete successfully in a new
global market.39 In addition, a firm’s performance may suffer by entering too many
global markets either simultaneously or too quickly. When this happens, the overall
organization may lack the skills required to manage effectively all of its diversified
global operations.40
The increasing opportunities available in emerging economies is a major driver of
growth in the size of the global economy. Important emerging economies include the
BRIC countries (Brazil, Russia, India, and China),41 the VISTA countries (Vietnam,
Indonesia, South Africa, Turkey, and Argentina),42 as well as Mexico and Thailand.
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Chapter 1: Strategic Management and Strategic Competitiveness
Demonstrating the growth in size of some of these economies is the 2018 prediction
that by 2050, Indonesia, Brazil, Russia, and Mexico will be the fourth, fifth, sixth, and
seventh largest economies in the world by size. If this were to happen, by 2050, the
size of these emerging economies would exceed those of Japan, Germany, the United
Kingdom, and France.43 Emerging economy firms now compete in global markets,
some with increasing success.44 Indeed, the emergence of emerging-market multinational corporations (MNCs) in international markets forces large MNCs based in
developed markets to enrich their own capabilities to compete effectively in global
markets.45
Thus, entry into international markets, even for firms with substantial experience
in the global economy, requires effective use of the strategic management process.
Moreover, while global markets are an attractive strategic option for some companies,
they are not the only source of strategic competitiveness. In fact, most companies, even
those capable of competing successfully in global markets, should commit to remaining competitive in their home market and in the international markets in which they
choose to compete. Firms do this by remaining in tune with technological opportunities and potential disruptions innovations might create. As indicated in this chapter’s
Mini-Case, Starbucks is emphasizing both product innovation and international expansion as means of growing profitably.
1-1b Technology and Technological Changes
Increasingly, technology affects all aspects of how companies operate and as such, the
strategies they choose to implement. Boston Consulting Group analysts describe technology’s impact as follows: “No company can afford to ignore the impact of technology
on everything from supply chains to customer engagement, and the advent of even more
advanced technologies, such as artificial intelligence (AI) and the Internet of Things,
portends more far-reaching change.”46
There are three categories of technology-related trends and conditions affecting
today’s firms: technology diffusion and disruptive technologies, the information age, and
increasing knowledge intensity. As noted in the paragraph above, these categories have a
significant effect on the nature of competition in many industries.
Technology Diffusion and Disruptive Technologies
The rate of technology diffusion, which is the speed at which new technologies become
available to firms and when firms choose to adopt them, is far greater than was the case a
decade or two ago. Consider the following rates of technology diffusion:
It took the telephone 35 years to get into 25 percent of all homes in the United States. It took
TV 26 years. It took radio 22 years. It took PCs 16 years. It took the Internet 7 years.47
The impact of technological changes on individual firms and industries is broad
and significant. For example, in the not-too-distant past, people rented movies on videotapes from retail stores such as Blockbuster. (Dish Network acquired Blockbuster in
2011.) Today, customers on a global basis use electronic means almost exclusively to rent
movies and games. The publishing industry (books, journals, magazines, newspapers)
is moving rapidly from hard copy to electronic format. Many firms in these industries,…
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