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1
Strategic management and
strategic competitiveness
KNOWLEDGE OBJECTIVES
Studying this chapter should provide you with the strategic management knowledge needed to:
1
define strategic competitiveness, strategy, competitive advantage, above-average returns and
the strategic management process
2
describe the 21st-century competitive landscape and explain how globalisation and
technological changes shape it
3
use the industrial organisation (I/O) model to explain how firms can earn above-average
returns
4
use the resource-based model to explain how firms can earn above-average returns
5
describe vision and mission and discuss their value
6
define stakeholders and describe their ability to influence organisations
7
describe the work of strategic leaders
8
explain the strategic management process.
2
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CHAP T E R
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© Stephen Brashear/Getty Images
© REUTERS/Ahmed Jadallah
OPENING CASE
BOEING AND AIRBUS: A GLOBAL
COMPETITIVE BATTLE OVER
SUPREMACY IN PRODUCING
COMMERCIAL AIRCRAFT
is growing in emerging economies, such as throughout
Eastern Europe where smaller airports desire international
connections.
Airbus won the competitor battle that occurred between
2001 and 2005 because it focused on the mid-sized market as
well, using the A-320 strategy, which competes with Boeing’s
737 and 757 aircraft. The A-320 was more efficient than the
Boeing has historically been a global leader in manufacturing
aircraft used by Boeing, and Boeing did not respond to customer
commercial aircraft. However, in 2001, Airbus had more orders
demands to create new, efficient aircraft. In fact, it had slowed
than Boeing for the first time in their competitive history. But,
its innovation process in regard to new models. Besides the lack
in 2006, Boeing regained its supremacy with 1044 versus 790
of new models, the commercial aircraft business was sluggish;
orders for commercial aircraft. The main turnaround in this
new orders significantly ebbed due to the complications of the
battle for competitor orders has been most visible in the super
terrorist attacks and the subsequent recession.
jumbo category with Airbus’s A-380 versus Boeing’s 787.
More recently, Boeing’s strategy in regard to overall design
Apparently, in 1992, Boeing and Airbus’s parent EADS
with the 787 Dreamliner is winning the day, as far as the order
agreed to a joint study on prospects for a super jumbo aircraft.
battle goes. It also promised success by implementing a different
The impetus for the study was the growing traffic in China
strategy in regard to the production process. It attempted to
and India. However, Airbus and Boeing reached different
speed up the process by creating an efficient global supply
conclusions concerning the market trends, and the joint effort
chain that involves many potential customers around the world,
was disbanded.
including Japan, China, and others. Moreover, Airbus is behind
Boeing’s 787 Dreamliner design focused on long-range
in its schedule to produce the A-380 and its mid-sized plane,
efficient flight, capable of transporting 250 passengers,
the A-350, has also had redesign issues. The mid-sized A-350
whereas Airbus’s strategy focused on long-haul flights with
is behind schedule and Airbus has had to provide significant
the huge A-380 offering 550-plus seats. In their diverging
incentive discounts to increase future orders.
strategies, Airbus focused on flying to larger airports that use
Also, Airbus has been forced to produce more of its
the hub-and-spoke system, whereas Boeing concentrated
plane parts in European countries because governments
more on a point-to-point system in which smaller airports are
have significant ownership and provide subsidies to Airbus.
more abundant. In reality, the Airbus A-380 aircraft, because of
Accordingly, these governments – Spain, France, Germany and
its size and weight, is currently able to land at approximately
the United Kingdom – want to maintain employment levels in
only 35 airports. The Boeing aircraft, on the other hand, can
these countries, and thus Airbus must continue to produce
land at many more airports around the world and the number
primarily in European countries. ‘Boeing outsources 85 per cent
3
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of the work for its 787 Dreamliner aircraft. The corresponding
a test flight was therefore abandoned. Qantas has now
figure for Airbus’s A380 is 15 per cent.’ As a result of the
downgraded its order of 787s from 65 to 50 and deferred
design and development delays, Airbus’s development costs
delivery until mid-2013.
for the A-380 have risen to $14 billion versus the $8 billion
invested by Boeing for the 787.
Interestingly, Boeing only receives 50 per cent of its
revenue from the commercial aircraft division as a result of
In making its decision to move ahead with the 787
its diversification strategy. The other 50 per cent of its revenue
Dreamliner versus a more jumbo aircraft comparable to the
comes from military contracts, as well as business from
A-380, Boeing made a more concerted effort in connecting and
space satellite launching. Some crossover takes place in the
getting input from its airline customers, as well as the ultimate
technology used between military aircraft and commercial
customers, the passengers. Overwhelmingly the passengers in
aircraft, which indirectly contributes to lower commercial
particular, and thereby the airlines, preferred smaller aircraft
aircraft development costs. This argument is used by Airbus
which enabled them to get to smaller airports quickly, without
when Boeing confronts it regarding the subsidies from local
as many transfers on a point-to-point system. Additionally,
European governments.
Boeing followed up with the ultimate creditors, the leasing
agents, and asked what they would prefer as far as risks
were concerned. Again, the leasing agents preferred smaller
aircraft which would reduce their risks in financing versus the
large super jumbo A-380. These business-level strategies have
created an obvious advantage in terms of design for Boeing.
They have also exposed them to the inherent difficulties
in a complex outsourcing strategy. Boeing used a globally
distributed range of suppliers and designers, claiming that
this led to major advantages. It unfortunately had two other
impacts: the first was industrial action by their unions who
were concerned about job losses (causing significant delays
in production); and the second has been ongoing difficulties
in getting the aircraft finished due to problems with supply
and fit of parts. As a result, there have been continual
delays on completion. The last, in mid-2009, was particularly
embarrassing when the wing mountings did not work and
S T R AT EGY N OW
• Boeing and Airbus
Sources: J. Bruner & G. Maidment, 2007, ‘Breaking up Airbus’, Forbes,
www.forbes.com, 20 March; N. Clark & L. Wayne, 2007, ‘Airbus hopes
its planes, not its setbacks, will stand out’, New York Times, www.
nytimes.com, 18 June; G. Colvin, 2007, ‘Boeing prepares for takeoff’,
Fortune, 11 June: 133; C. Matlac & S. Holmes, 2007, ‘Airbus revs up
the engines’, BusinessWeek, 5 March: 41; D. Michaels, J. L. Lunsford &
M. Trottman, 2007, ‘Airbus seals US Airways order in big boost for A350
jetliner’, Wall Street Journal Online, www.wsj.com, 18 June; D. Michaels
& J. L. Lunsford, 2007, ‘Airbus faces wide game in A-350 orders’, Wall
Street Journal, 13 June: A3; J. Newhouse, 2007, Boeing versus Airbus:
The inside story of the greatest international competition in business,
Toronto, Canada: Alfred A. Knopf; L. Wayne, 2007, ‘A U.S. star turn for
the jumbo of jets’, New York Times, 20 March: C1; D. Q. Wilber, 2007,
‘Boeing’s 2006 Jet orders surpass Airbus’, Washington Post, 18 January:
D03; 2007, ‘Boeing vs. Airbus: battle of the skies’, CNN, www.cnn.com,
7 May; D. Michaels, R. Stone & J. L. Lunsford, 2006, ‘Airbus superjumbo
jet could be delayed further’, Wall Street Journal, 13 September: A3;
P. Sanders & A. Cole, 2009, ‘Boeing reshuffles as Dreamliner boss
jumps’, The Australian, 2 September: 26; the Economist, 2009, ‘Boeing
may win initial dogfight’, 17 August: 52.
As we see from the Opening Case, Boeing and Airbus are finding it difficult to achieve the levels of
success desired by people who have a stake in the firms’ performance.
In the final analysis, though, we can be confident in believing that those leading Boeing
and Airbus want their firms to be highly competitive (something we call a condition of strategic
competitiveness) and want it to earn profits in the form of above-average returns. These are important
outcomes firms seek to accomplish when using the strategic management process (see Figure 1.1).
The strategic management process is fully explained in this book. We introduce you to this process
in the next few paragraphs.
Strategic competitiveness is achieved when a firm successfully formulates and implements a
value-creating strategy. A strategy is an integrated and coordinated set of commitments and actions
4
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F I G U R E 1 .1
designed to exploit core competencies and gain a competitive advantage. When choosing a strategy,
firms make choices among competing alternatives. In this sense, the chosen strategy indicates what
the firm intends to do as well as what it does not intend to do. Sony Corp, for example, unveiled a
new strategy in September 2005 that was intended to restore the firm’s ability to earn above-average
returns. Changes in the manufacture and distribution of televisions and in its portable music players
products are examples of issues Sony addressed when altering its strategy. Comments by Howard
Stringer, Sony’s chief executive officer (CEO), demonstrated that choices were being made: ‘We
cannot fight battles on every front. We have to make choices … and decide what the company’s
priorities ought to be.’1
A firm has a competitive advantage when it implements a strategy competitors are unable to
duplicate or find too costly to try to imitate.2 An organisation can be confident that its strategy has
resulted in one or more useful competitive advantages only after competitors’ efforts to duplicate its
strategy have ceased or failed. In addition, firms must understand that no competitive advantage is
permanent.3 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.4
The strategic
management process
5
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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.5 Returns are often measured in terms of
accounting figures, such as return on assets, return on equity, or return on sales. Alternatively, returns
can be measured on the basis of stock market returns, such as monthly returns (the end-of-theperiod stock price minus the beginning stock price, divided by the beginning stock price, yielding a
percentage return). In smaller new venture firms, performance is sometimes measured in terms of the
amount and speed of growth (for example, in annual sales) rather than more traditional profitability
measures6 (the reason for this is that new ventures require time to earn acceptable returns on
investors’ investments).7 Understanding how to exploit a competitive advantage is important for
firms that seek to earn above-average returns.8 Firms without a competitive advantage or that are not
competing in an attractive industry earn, at best, average returns. Average returns are returns equal to
those an investor expects to earn from other investments with a similar amount of risk. In the long
run, an inability to earn at least average returns results in failure. Failure occurs because investors
withdraw their investments from those firms earning less-than-average returns.
The strategic management process (see Figure 1.1) is the full set of commitments, decisions
and actions required for a firm to achieve strategic competitiveness and earn above-average returns.
The firm’s first step in the process is to analyse its external and internal environments to determine
its resources, capabilities and core competencies – the sources of its ‘strategic inputs’. With this
information, the firm develops its vision and mission and formulates its strategy. To implement this
strategy, the firm takes actions toward achieving strategic competitiveness and above-average returns.
The summary of the sequence of activities is as follows: Effective strategic actions that take place in
the context of carefully integrated strategy formulation and implementation actions result in desired
strategic outcomes. It is a dynamic process, as ever-changing markets and competitive structures
must be coordinated with a firm’s continuously evolving strategic inputs.9
In the remaining chapters of this book, we use the strategic management process to explain
what firms should do to achieve strategic competitiveness and earn above-average returns. These
explanations demonstrate why some firms consistently achieve competitive success while others
fail to do so.10 As you will see, the reality of global competition is a critical part of the strategic
management process and significantly influences firms’ performances.11 Indeed, learning how to
successfully compete in the globalised world is one of the most significant challenges for firms
competing in the twenty-first century.12
Several topics are discussed in this chapter. First, we describe the twenty-first-century
competitive landscape. This challenging landscape is being created primarily by the emergence of
a global economy, with globalisation resulting from that economy coupled with rapid technological
changes. Next, we examine two models that firms use to gather the information and knowledge
required to choose their strategies and decide how to implement them. The insights gained from
these models also serve as the foundation for forming the firm’s vision and mission. The first model
(industrial organisation or I/O) suggests that the external environment is the primary determinant
of a firm’s strategic actions. The key to this model is identifying and competing successfully in an
attractive (that is, profitable) industry.13 The second model (resource based) suggests that a firm’s
unique resources and capabilities are the critical link to strategic competitiveness.14 Thus, the first
model is concerned with the firm’s external environment while the second model focuses on the firm’s
internal environment. After discussing vision and mission, direction setting statements influencing
the choice and use of organisational strategies, we describe the stakeholders that organisations serve.
The degree to which stakeholders’ needs can be met directly 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.
6
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The twenty-first-century
competitive landscape
The fundamental nature of competition in many of the world’s industries is changing.15 The pace
of this change is relentless and is increasing. Even determining the boundaries of an industry has
become challenging. Consider, for example, how advances in interactive computer networks and
telecommunications have blurred the boundaries of the entertainment industry. Today, networks
such as the ABC, Channel 9 and Fox compete not only among themselves, but also with Microsoft,
Sony and others. Partnerships among firms in different segments of the entertainment industry
further blur industry boundaries. For example, Channel 9 also owns the Women’s Weekly. With fullmotion video and music-playing capabilities readily available on mobile devices, mobile phones
are also competitors for customers’ entertainment expenditures. Entertainment giant Walt Disney
Company is selling wireless phone plans to children.16 That Disney videos can be streamed through
phones is yet another example of the difficulty of determining industry boundaries.
Other characteristics of the twenty-first-century competitive landscape are noteworthy as well.
Conventional sources of competitive advantage such as economies of scale and huge advertising
budgets are not as effective as they once were. 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 that evolve from constantly changing
conditions. The conditions of the competitive landscape result in a perilous business world, one
where the investments required to compete on a global scale are enormous and the consequences
of failure are severe.17 Developing and implementing strategy remains an important element of
success in this environment. It allows for strategic actions to be planned and to emerge when the
environmental conditions are appropriate. It also helps to coordinate the strategies developed by
business units in which the responsibility to compete in specific markets is decentralised.18
Hypercompetition is a term often used to capture the realities of the twenty-first-century
competitive landscape. Under conditions of hypercompetition, ‘assumptions of market stability
are replaced by notions of inherent instability and change’.19 Hypercompetition results from the
dynamics of strategic manoeuvring among global and innovative combatants. This is a condition of
rapidly escalating competition based on price–quality positioning, competition to create new knowhow and establish first-mover advantage, and competition to protect or invade established product
or geographic markets.20 In a hypercompetitive market, firms often aggressively challenge their
competitors in the hopes of improving their competitive position and ultimately their performance.21
Several factors create hypercompetitive environments and influence the nature of the twentyfirst-century competitive landscape. The two primary drivers are the emergence of a global economy
and technology, specifically rapid technological change.
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.22
Interesting opportunities and challenges are associated with the emergence of the global
economy.23 For example, Europe, instead of the United States, is now the world’s largest single
market, with 700 million potential customers. The European Union and the other western European
countries also have a gross domestic product that is over 35 per cent higher than the GDP of the
United States.24 China’s economy is now far larger than Canada’s, causing an analyst to suggest, ‘It’s
7
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hard to talk meaningfully about the world economy any more without China being included’.25
A startling indicator of the rapid rise in the capabilities of China’s economy is the fact that from
roughly 1986 to late 2005, China lifted ‘some 400 million of its 1.3 billion people out of grinding
$1-a-day poverty’.26 India, the world’s largest democracy, has an economy that also is growing rapidly
and now ranks as the world’s fourth largest.27 By 2050, the United States, China, India, Japan, Britain,
France, Germany and South Korea are expected to be the world’s largest economies. Russia and Italy
are two economies projected to decline in size and influence by 2050, mainly because of declining
populations.28
The statistics detailing the nature of the global economy reflect the realities of a hypercompetitive
business environment and challenge individual firms to think seriously about the markets in which
they will compete. Consider the case of General Electric (GE). Although headquartered in the United
States, GE expects that as much as 60 per cent of its revenue growth to 2015 will be generated by
competing in rapidly developing economies (for example, China and India). The decision to count
on revenue growth in developing countries instead of in developed countries such as the United
States and European nations seems quite reasonable in the global economy. In fact, according to
an analyst, what GE is doing is not by choice but by necessity: ‘Developing countries are where the
fastest growth is occurring and more sustainable growth.’29 Based on its analyses of world markets
and their potential, GE estimates that by 2024 China will be the world’s largest consumer of electricity
and will be the world’s largest consumer and consumer-finance market (business areas in which GE
competes). GE is making strategic decisions today, such as investing significantly in China and India,
in order to improve its competitive position in what the firm believes are becoming vital sources of
revenue and profitability.
The march of globalisation
Globalisation is the increasing economic interdependence among countries and their organisations
as reflected in the flow of goods and services, financial capital and knowledge across country
borders.30 Globalisation is a product of a larger number of firms competing against one another in
an increasing number of global economies.
In globalised markets and industries, financial capital might be obtained in one national
market and used to buy raw materials in another one. Manufacturing equipment bought from a
third national market can then be used to produce products that are sold in yet a fourth market.
Thus, globalisation increases the range of opportunities for companies competing in the twentyfirst-century competitive landscape.31
Wal-Mart, the USA retail giant, for instance, is trying to achieve boundaryless retailing with
global pricing, sourcing and logistics. Through boundaryless retailing, the firm seeks to make the
movement of goods and the use of pricing strategies as seamless among all of its international
operations as historically has been the case among its domestic stores. The firm is pursuing this
type of retailing on an evolutionary basis. For example, most of Wal-Mart’s original international
investments were in Canada and Mexico, because it was easier for the firm to rehearse or apply its
global practices in countries that are geographically close to its home base, the United States. Based
on what it has learned, the firm has now expanded into Europe, South America and Asia. WalMart has consistently said that it will not enter Australia, so consistently it is possible to suggest
that the idea is on the books. Today, Wal-Mart is the world’s largest retailer (with over 3600 total
units). Internationally, Wal-Mart now employs over 680 000 people (associates) in its more than 3900
international units and over two million associates overall.32 Globalisation makes it increasingly
difficult to think of firms headquartered in various economies throughout the world as domestic-only
8
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companies. BHP Billiton, for example, has 100
operations in 25 countries and its major
market is China. The challenge to companies
experiencing globalisation to the degree
of such firms is to understand the need for
culturally sensitive decisions when using
the strategic management process and to
anticipate ever-increasing complexity in their
operations as goods, services, people and so
forth move freely across geographic borders
and throughout different economic markets.
Globalisation also affects the design,
production, distribution and servicing of
goods and services. In many instances,
globalisation results in higher-quality goods
and services. Global competitor Toyota
Motor Company provides an example of
how this happens. Because Toyota initially emphasised product reliability and superior customer
service, the company’s products are in high demand across the globe. Because of the demand for
its products, Toyota’s competitive actions have forced its global competitors to make reliability and
service improvements in their operations.33 Indeed, almost any car or truck purchased today from
virtually any manufacturer is of higher quality and is supported by better service than was the case
before Toyota began successfully competing throughout the global economy.
Overall, it is important for firms to understand that globalisation has led to higher levels of
performance standards in many competitive dimensions, including those of 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. The reason for this is
that customers will purchase from a global competitor rather than a domestic firm when the global
company’s good or service is superior. Because workers now flow relatively freely among global
economies and because employees are a key source of competitive advantage, firms must understand
that increasingly, ‘the best people will come from … anywhere’.34 Overall, firms must learn how to
deal with the reality that, in the twenty-first-century competitive landscape, only companies capable
of meeting, if not exceeding, global standards typically have the capability to earn above-average
returns.35
As we have explained, globalisation creates opportunities (such as those being pursued by WalMart and BHP Billiton, among many other firms). However, globalisation is not risk free. Collectively,
the risks of participating outside of a firm’s domestic country in the global economy are labelled a
‘liability of foreignness’.36
One risk of entering the global market is that typically a fair amount of time is required for
firms to learn how to compete in markets that are new to them. A firm’s performance can suffer
until this knowledge is either developed locally or transferred from the home market to the newly
established global location.37 Additionally, a firm’s performance may suffer with substantial amounts
of globalisation. In this instance, firms may over-diversify internationally beyond their ability to
manage these diversified operations.38 The result of over-diversification can have strong negative
effects on a firm’s overall performance.39
Thus, entry into international markets, even for firms with substantial experience in the global
economy such as BHP Billiton and GE, requires proper use of the strategic management process.
© Bill Thomas/Imagen
CHAP T E R
The Australian Coles
organisation is no match
for the world giant Wal-Mart
in terms of size and buying
power.
9
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In this regard, firms should choose to enter more international markets only when there is a viable
opportunity for them to do so, and when they have the competitive advantages required to be
successful in those markets.
It is also important to note that while global markets are attractive strategic options for some
companies, they are not the only source of strategic competitiveness. In fact, for most companies, even
for those capable of competing successfully in global markets, it is critical to remain committed to
and strategically competitive in the domestic market.40 And domestic markets can be testing grounds
for possibly entering an international market at some point in the future.
Technology and technological changes
There are three categories of trends and conditions – technology diffusion and disruptive technologies, the information age and increasing knowledge intensity – through which technology
is significantly altering the nature of competition and contributing to unstable competitive
environments.
Technology diffusion and disruptive technologies
The rate of technology diffusion – the speed at which new technologies become available and are
used – has increased substantially over the last 15 to 20 years.
Perpetual innovation is a term used to describe how rapidly and consistently new, informationintensive technologies replace older ones. The shorter product life cycles resulting from these rapid
diffusions of new technologies place a competitive premium on being able to quickly introduce
new, innovative goods and services into the marketplace.41 In fact, when products become somewhat
indistinguishable because of the widespread and rapid diffusion of technologies, speed to market
with innovative products may be the primary source of competitive advantage (see Chapter 5).42
Indeed, some argue that, increasingly, the global economy is driven by or revolves around constant
innovations. Not surprisingly, such innovations must be derived from an understanding of global
standards and global expectations in terms of product functionality.43
Another indicator of rapid technology diffusion is that it now may take only 12 to 18 months
for firms to gather information about their competitors’ research and development and product
decisions.44 In the global economy, competitors can sometimes imitate a firm’s successful competitive
actions within a few days. Once a source of competitive advantage, the protection firms previously
possessed through their patents has been stifled by the current rate of technological diffusion.
Today, patents may be an effective way of protecting proprietary technology in a small number of
industries such as pharmaceuticals. Indeed, many firms competing in the electronics industry often
do not apply for patents to prevent competitors from gaining access to the technological knowledge
included in the patent application.
Disruptive technologies – technologies that destroy the value of an existing technology and
create new markets45 – surface frequently in today’s competitive markets. Think of the new markets
created by the technologies underlying the development of products such as iPods, iPhones, PDAs,
Wi-Fi and the various social networking sites such as Facebook and Twitter.46 Products such as
these are thought by some to represent radical or breakthrough innovations47 (we talk more about
radical innovations in Chapter 13). A disruptive or radical technology can create what is essentially a
new industry or can harm industry incumbents. Some incumbents, though, are able to adapt based
on their superior resources, experience and ability to gain access to the new technology through
multiple sources (for example, alliances, acquisitions and ongoing internal basic research).48 When a
disruptive technology creates a new industry, competitors follow. As explained in the Strategic Focus,
10
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Amazon.com’s launching created a new industry by making use of a disruptive technology we know
as the Internet.
In addition to making innovative use of the Internet to create Amazon.com, Jeff Bezos also
uses core competence in technology to study information about its customers. These efforts result
in opportunities to understand individual customers’ needs and then target goods and services to
satisfy those needs. Clearly, Amazon understands the importance of information and knowledge
(topics we discuss next) as competitive weapons for use in the twenty-first-century competitive
landscape.
The information age
Dramatic changes in information technology have occurred in recent years. Mobile technology
(including mobile phones), artificial intelligence, virtual reality and massive databases (for example,
Lexis/Nexis) are a few examples of how information is used differently as a result of technological
developments. An important outcome of these changes is that the ability to effectively and efficiently
access and use information has become an important source of competitive advantage in virtually
all industries.49
Both the pace of change in information technology and its diffusion will continue to increase.
The declining costs of information technologies and the increased accessibility to them are also
evident in the twenty-first-century competitive landscape. The global proliferation of relatively
inexpensive computing power and its linkage on a global scale via computer networks combine
to increase the speed and diffusion of information technologies. Thus, the competitive potential of
information technologies is now available to companies of all sizes throughout the world, not only
to large firms in Europe, Japan and North America.
As noted in the Strategic Focus on Amazon.com, the Internet is another technological innovation
contributing to hypercompetition. Available to an increasing number of people throughout the
world, the Internet provides an infrastructure that allows the delivery of information to computers
in any location. Access to significant quantities of relatively inexpensive information yields strategic
opportunities for a number of companies in global markets. Virtually all retailers, such as Woolworths,
use the Internet to provide abundant shopping privileges to customers in multiple locations. As a
distribution channel, the Internet’s popularity continues to grow. The exploding use of the Internet in
China is creating opportunities for Internet companies such as Google, Yahoo! and eBay. In fact, the
huge potential for these firms caused an analyst to suggest that Internet companies without a major
stake in China would experience less growth and a greater possibility of poor long-term performance
as a result.50 After years of negotiating, Google have now withdrawn from China due to censorship,
and the government’s insistence on access to Google-based records of consumer communications.
Increasing knowledge intensity
Knowledge (information, intelligence and expertise) is the basis of technology and its application.
In the twenty-first-century competitive landscape, knowledge is a critical organisational resource
and is increasingly a valuable source of competitive advantage.51 Indeed, starting in the 1980s, the
basis of competition began shifting from hard assets to intangible resources. For example, ‘Wal-Mart
has transformed retailing through its approach to supply chain management and its informationrich relationships with customers and suppliers’.52 This knowledge has extended to other firms,
for example, Woolworths and Coles are now very focused on similar supply chain management
practices. Relationships are an example of an intangible resource.
Knowledge is gained through experience, observation and inference and is an intangible
resource (tangible and intangible resources are fully described in Chapter 3). The value of intangible
11
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AMAZON.COM: USING TECHNOLOGY TO CREATE CHANGE
Jeff Bezos, Amazon.com’s CEO, founded his company in his
the goods and services it can add to its offerings are virtually
basement in 1994. Bezos’s innovative concept was to use the
endless in number and variety.
still-emerging technology called the Internet to establish an
A vast selection of goods and services, a brand name known
online company selling books. Initially, Bezos intended to sell
by many throughout the world, a site that is simple to understand
only books using what became Amazon’s proprietary Internet-
and navigate and a reputation for reliability are Amazon’s
based software. In fact, Bezos’s vision for Amazon was for the
competitive advantages. Technological innovations are the source
firm to be ‘earth’s biggest bookstore’. Because of its growth and
of these advantages. From its inception, Amazon has invested
expansion, Amazon’s vision today is to offer the ‘earth’s biggest
large sums of money in technology to develop an infrastructure
selection’.
that allows it to offer customers a reliable and easy-to-navigate
Amazon officially went ‘live’ on 16 July 1995. The first
way to buy its products. Consistent with the characteristics of
book the firm sold was Fluid Concepts & Creative Analogies:
a rapidly changing, unstable environment, Amazon constantly
Computer Models of the Fundamental Mechanisms of Thought.
develops new technologies that allow it to improve its offerings
At the time of Amazon’s launching, a large number of business
to customers. In addition, technology is the source of Amazon’s
analysts, and certainly competitors in the book business,
expansion into new areas such as its web-search service.
seriously doubted that consumers would respond favourably
Through its A9 unit, Amazon offers searches for users to locate
to an opportunity to purchase books on the Internet from
restaurants, museums and other places in particular areas. But
an unknown start-up venture. However, the sceptics were
Amazon competes with others in this business area, including
clearly wrong. Amazon has grown rapidly, establishing its one
Microsoft, Yahoo! and Google. Version 2 of Amazon’s book
millionth customer account in 1997, the year the firm went
product Kindle allows customers to choose from more than
public. The firm now has over 47 million customers. Sales
250 000 books and magazines in competition with Google books
revenue in 2004 was close to US$7 billion. Revenue was
and now Apple’s iPad.
expected to climb to over US$8.5 billion by year-end 2005.
What does the future hold for Amazon? Although it now has
Amazon is at the top of Internet Retailer’s annual top 400 list
competitors that didn’t exist at the time of its launching, some
and well ahead of second place Dell Inc. in terms of online
analysts think that ‘Amazon is always one step ahead’ of those
business-to-consumer sales.
firms. Bezos believes that the firm’s continuing investments
In the eyes of many, Amazon has become the first successful
in technology will allow it to innovate in ways that prevent
online retailing marketplace in the United States and probably in
competitors from duplicating its competitive advantages – for
the world (given the firm’s continuing expansion into international
example, Kindle, which is the result of the firm’s aim to develop
markets). In fact, international sales (from non-North American
new capabilities.
markets) now account for close to 50 per cent of Amazon’s sales
Sources: Amazon.com. Bezos’ message to shareholders 2009; J. Kaufman,
revenue. Bezos has said that Amazon will continue to devote
2005, ‘A novel heroine: Harriet Klausner, online book reviewer’, Wall Street
efforts to increasing the rate of expansion into international
Journal Online, www.wsj.com, 29 March; M. Mangalindan, 2005, ‘Amazon.
markets. The firm sells items around the globe that are grouped
com unit launches search for local areas’, Wall Street Journal Online, www.
into product categories and 28 new categories have been added
since 2007. Apparel, electronics, toys, baby items, banjo cases,
kitchen and housewares, travel services and jewellery are but
wsj.com, 27 January; J. B. Stewart, 2005, ‘Common sense: Internet big four
hold prospects for greater growth’, Wall Street Journal Online, www.wjs.
com, 4 May; 2005, ‘Internet: Amazon.com to cut number of merchants’,
New York Times Online, www.nytimes.com, 12 May; 2005, ‘Amazon.com’,
a few of the products available from Amazon. The one that
Standard & Poor’s Stock Report, www.standardandpoors.com, 2 July; 2005,
‘surprises’ Bezos with its success is the shoe store Endless.com.
‘At 10 years, Amazon’s top challenge: Itself’, Dallas Morning News Online,
Because the firm uses ‘online (instead of physical) shelf space’,
www.dallasnews.com, 4 July.
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S T R AT E G I C F O C U S
ORGANISATIONAL CHANGE: BE READY, BECAUSE IT CAN’T BE AVOIDED!
In the twenty-first-century competitive landscape, some argue that
What can organisations do to improve their ability to change?
competition is about change – being able to change effectively,
One thing to recognise is that there are no shortcuts. Helping a
quickly and in ways competitors will find difficult to imitate.
firm learn how to change is hard work – work requiring dedicated
Through change, organisations have opportunities to grow and
efforts on the part of many. To help firms learn how to effectively
to learn. In a continuous cycle, new learning resulting from one
and consistently engage in change, research suggests that
change is the foundation for a new cycle of growth and future
strategic leaders (whom we talk about more later in this chapter
change. Without change and the resulting learning that pushes
and in full detail in Chapter 12) should engage in a number of
this continuous, reinforcing cycle, the likelihood of organisational
actions including:
decline and eventual death greatly increases. Being able to rapidly
•
and successfully change is increasingly an irreplaceable dimension
phrasing the need for change in ways that appeal to
employees’ emotions as well as their cognitions
of being able to earn above-average returns in the global economy.
•
casting the need for change as providing positive outcomes
In spite of its importance, change is difficult – for individuals
•
developing a story to describe the needed changes that is
and for organisations. If we think of individuals, it may surprise us
to learn that roughly 90 per cent of heart-bypass patients do not
change their lifestyles – even at the risk of dying. The difficulty
simple, straightforward and appealing
•
continuously developing and describing stories about the
firm’s success with different change efforts.
individuals experience trying to change their behaviour suggests
While these actions won’t lead to organisational change without
the challenge of achieving change in an organisation, which, after
disruption and some trepidation on the part of some employees,
all, is a collection of what are often change-resistant people!
they do facilitate efforts to improve the chance of success when
Nonetheless, there are interesting cases about organisational
engaging in organisational change efforts.
change, one of which we discuss next.
Antonio M. Perez is the CEO and Chairman of Eastman
Sources: 2009, www.topix.com/com/ek/2009/08/eastman-kodak-loses-
Kodak Co. During his previous time at Hewlett-Packard, Perez
189; 2005, ‘Albertson sale draws bidders’, Los Angeles Times, www.
was ‘obsessed with creating a new (product) category every
latimes.com, 19 September; A. Deutschman, 2005, ‘Making change’, Fast
two years’. Creating new product categories this rapidly and
frequently is a function of learning and constant change. Perez
adopted this strategy at Kodak, but despite all the activity the
Company, May: 52–62; M. Arndt, A. Carter & C. Arnst, 2005, ‘Needed:
More bite to fight fat’, Business Week, 31 January: 36; J. A. Byrne, 2005,
‘The case for change’, Fast Company, April: 12; J. A. Byrne, 2005, ‘Great
work if you can get it’, Fast Company, April: 14; S. Holmes, 2005, ‘The
company was not travelling well in 2009, suffering three straight
Jack Welch of the meat aisle’, Business Week, 24 January: 60–1; W. C.
quarters of losses up to mid-2009, with the quarter to August
Symonds & P. Burrows, 2005, ‘A digital warrior for Kodak’, Business Week,
featuring a loss of US$189 million.
23 May: 42.
resources, including knowledge, is growing as a proportion of total shareholder value.53 The
probability of achieving strategic competitiveness in the twenty-first-century competitive landscape
is enhanced for the firm that realises that its survival depends on the ability to capture intelligence,
transform it into usable knowledge and diffuse it rapidly throughout the company.54 Therefore, firms
must develop (for example, through training programs) and acquire (for example, by hiring educated
and experienced employees) knowledge, integrate it into the organisation to create capabilities and
then apply it to gain a competitive advantage.55 In addition, firms must build routines that facilitate
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the diffusion of local knowledge throughout the organisation for use everywhere it has value.56
Firms are better able to do these things when they have strategic flexibility.
Strategic flexibility is a set of capabilities used to respond to various demands and opportunities
existing in a dynamic and uncertain competitive environment. Thus, strategic flexibility involves
coping with uncertainty and its accompanying risks.57 Firms should try to develop strategic flexibility
in all areas of their operations. However, those working within firms to develop strategic flexibility
should understand that this is not an easy task, largely because of inertia that can build up over time.58
To be strategically flexible on a continuing basis and to gain the competitive benefits of such
flexibility, a firm has to develop the capacity to learn. In the words of John Browne, former CEO
of British Petroleum (BP): ‘In order to generate extraordinary value for shareholders, a company
has to learn better than its competitors and apply that knowledge throughout its businesses faster
and more widely than they do.’59 Continuous learning provides the firm with new and up-to-date
sets of skills, which allow it to adapt to its environment as it encounters changes.60 Firms capable
of rapidly and broadly applying what they have learned have strategic flexibility and the resulting
capacity to change in ways that will increase the probability of being able to successfully deal with
uncertain, hypercompetitive environments. As we discuss in the Strategic Focus, some firms must
change dramatically to remain competitive or to again become competitive.
Next, we describe two models firms use to generate the information they need to form their
vision and mission and then to select and decide how to implement one or more strategies.
The I/O model of above-average returns
From the 1960s through to the 1980s, the external environment was thought to be the primary
determinant of strategies that firms selected to be successful.61 The industrial organisation (I/O)
model of above-average returns explains the external environment’s dominant influence on a firm’s
strategic actions. The model specifies that the industry in which a company chooses to compete has
a stronger influence on performance than do the choices managers make inside their organisations.62
The firm’s performance is believed to be determined primarily by a range of industry properties,
including economies of scale, barriers to market entry, diversification, product differentiation and
the degree of concentration of firms in the industry.63 These industry characteristics are examined
in Chapter 2.
Grounded in economics, the I/O model has four underlying assumptions. First, the external
environment is assumed to impose pressures and constraints that determine the strategies that
would result in above-average returns. Second, most firms competing within an industry or within a
certain segment of that industry are assumed to control similar strategically relevant resources and to
pursue similar strategies in view of those resources. Third, resources used to implement strategies are
assumed to be highly mobile across firms, so any resource differences that might develop between
firms will be short-lived. Fourth, organisational decision makers are assumed to be rational and
committed to acting in the firm’s best interests, as shown by their profit-maximising behaviours.64
The I/O model challenges firms to locate the most attractive industry in which to compete. Because
most firms are assumed to have similar valuable resources that are mobile across companies, their
performance generally can be increased only when they operate in the industry with the highest
profit potential and learn how to use their resources to implement the strategy required by the
industry’s structural characteristics.65
The five forces model of competition is an analytical tool used to help firms with this task. The
model (explained in Chapter 2) encompasses several variables and tries to capture the complexity of
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competition. The five forces model suggests that an industry’s profitability (that is, its rate of return
on invested capital relative to its cost of capital) is a function of interactions among five forces:
suppliers, buyers, competitive rivalry among firms currently in the industry, product substitutes,
and potential entrants to the industry.66 Firms can use this tool to understand an industry’s profit
potential and the strategy necessary to establish a defensible competitive position, given the industry’s
structural characteristics. Typically, the model suggests that firms can earn above-average returns
by manufacturing standardised products or producing standardised services at costs below those
of competitors (a cost leadership strategy) or by manufacturing differentiated products for which
customers are willing to pay a price premium (a differentiation strategy). The cost leadership and
product differentiation strategies are fully described in Chapter 4.
As shown in Figure 1.2, the I/O model suggests that above-average returns are earned when
firms implement the strategy dictated by the characteristics of the general, industry and competitor
environments (environments that are discussed in Chapter 2). Companies that develop or acquire
the internal skills needed to implement strategies required by the external environment are likely to
succeed, while those that do not are likely to fail. Hence, this model suggests that returns are determined
primarily by external characteristics rather than by the firm’s unique internal resources and capabilities.
Research findings support the I/O model, in that approximately 20 per cent of a firm’s profitability
can be explained by the industry in which it chooses to compete. This research also shows, however,
FIGURE 1.2
The I/O model of aboveaverage returns
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that 36 per cent of the variance in profitability could be attributed to the firm’s characteristics
and actions.67 This suggests that both the environment and the firm’s characteristics play a role in
determining the firm’s specific level of profitability. Thus, there is likely a reciprocal relationship
between the environment and the firm’s strategy, thereby affecting the firm’s performance.68
As you can see, the I/O model considers a firm’s strategy to be a set of commitments, actions
and decisions that are formed in response to the characteristics of the industry in which the firm has
decided to compete. The resource-based model, discussed next, takes a different view of the major
influences on strategy formulation and implementation.
The resource-based model of
above-average returns
The resource-based model assumes that each organisation is a collection of unique resources and
capabilities. The uniqueness of its resources and capabilities is the basis for a firm’s strategy and its
ability to earn above-average returns.
Resources are inputs into a firm’s production process, such as capital equipment, the skills
of individual employees, patents, finances and talented managers. In general, a firm’s resources
are classified into three categories: physical, human and organisational capital. Described fully in
Chapter 3, resources are either tangible or intangible in nature.
Individual resources alone may not yield a competitive advantage.69 In fact, resources have a
greater likelihood of being a source of competitive advantage when they are formed into a capability. A
capability is the capacity for a set of resources to perform a task or an activity in an integrative manner.
Capabilities evolve over time and must be managed dynamically in pursuit of above-average returns.70
Core competencies are resources and capabilities that serve as a source of competitive advantage for
a firm over its rivals. Core competencies are often visible in the form of organisational functions. For
example, marketing is a core competence for Gillette, a division of Procter & Gamble. This means
that Gillette has used its resources to form marketing-related capabilities that in turn allow the firm to
market its products in ways that are superior to how competitors market their products.
According to the resource-based model, differences in firms’ performances across time are
due primarily to their unique resources and capabilities rather than to the industry’s structural
characteristics. This model also assumes: that firms acquire different resources and develop unique
capabilities based on how they combine and use the resources; that resources and certainly capabilities
are not highly mobile across firms; and that the differences in resources and capabilities are the basis
of competitive advantage.71 Through continued use, capabilities become stronger and more difficult for
competitors to understand and imitate. As a source of competitive advantage, a capability ‘should be
neither so simple that it is highly imitable, nor so complex that it defies internal steering and control’.72
The resource-based model of superior returns is shown in Figure 1.3. As you will see, the
resource-based model suggests that the strategy the firm chooses should allow it to use its competitive
advantages in an attractive industry (the I/O model is used to identify an attractive industry).
Not all of a firm’s resources and capabilities have the potential to be the basis for competitive
advantage. This potential is realised when resources and capabilities are valuable, rare, costly to
imitate and non-substitutable.73 Resources are valuable when they allow a firm to take advantage
of opportunities or neutralise threats in its external environment. They are rare when possessed by
few, if any, current and potential competitors. Resources are costly to imitate when other firms either
cannot obtain them or are at a cost disadvantage in obtaining them compared with the firm that
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already possesses them. And they are non-substitutable when they have no structural equivalents.
Many resources can either be imitated or substituted over time. Therefore, it is difficult to achieve
and sustain a competitive advantage based on resources alone.74 When these four criteria are met,
however, resources and capabilities become core competencies.
As noted previously, research shows that both the industry environment and a firm’s internal
assets affect that firm’s performance over time.75 Thus, to form a vision and mission and subsequently
to select one or more strategies and to determine how to implement them, firms use both the I/O and
the resource-based models.76 In fact, these models complement each other in that one (I/O) focuses
outside the firm while the other (resource-based) focuses inside the firm. In Chapter 2 we describe
how firms use the I/O model and in Chapter 3 we discuss how firms use the resource-based model.
Successful strategy formulation and implementation actions result only when the firm properly uses
both models. Next, we discuss the forming of the firm’s vision and mission – actions taken after the
firm understands the realities of its external (Chapter 2) and internal (Chapter 3) environments.
FIGURE 1.3
The resource-based
model of above-average
returns
Vision and mission
After studying the external environment and the internal environment, the firm has the information it
needs to form a vision and a mission (see Figure 1.1). Stakeholders (those who affect or are affected by
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a firm’s performance, as discussed later in the chapter) learn a great deal about a firm by studying its
vision and mission. Indeed, a key purpose of vision and mission statements is to inform stakeholders
of what the firm is, what it seeks to accomplish and who it seeks to serve.
Vision
Vision is a picture of what the firm wants to be and, in broad terms, what it wants to ultimately
achieve.77 Thus, a vision statement articulates the ideal description of an organisation and gives
shape to its intended future. In other words, a vision statement points the firm in the direction of
where it would eventually like to be in the years to come. Vision is ‘big picture’ thinking with passion
that helps people feel what they are supposed to be doing.78 People feel what they are to do when
their firm’s vision is simple, positive and emotional.79 A vision stretches and challenges people and
evokes emotions and dreams.
It is also important to note that vision statements reflect a firm’s values and aspirations and
are intended to capture the heart and mind of each employee and, hopefully, many of its other
stakeholders. A firm’s vision tends to be enduring while its mission can change in view of changing
environmental conditions. A vision statement tends to be relatively short and concise, making it
easily remembered.
BHP Billiton calls its vision statement a charter:
Our purpose is to create long term value through the discovery, development and conversion of
natural resources and the provision of innovative customer and market-based solutions.
And another example:
Our vision is to be the world’s best quick service restaurant [McDonald’s].
As a firm’s most important and prominent strategic leader, the CEO is responsible for working
with others to form the firm’s vision. It is important for the CEO to do this because, in the words of
Dan Rosensweig, chief operating officer for Yahoo!, ‘With a clear vision and strong leadership, you
can make almost anything happen’.80
Experience shows that the most effective vision statement results when the CEO involves a
host of people (for example, other top-level managers, employees working in different parts of the
organisation, suppliers and customers) to develop it. In addition, to help the firm reach its desired
future state, a vision statement should be clearly tied to the conditions in the firm’s external and
internal environments and it must be achievable. Moreover, the decisions and actions of those
involved with developing the vision, especially the CEO and the other top-level managers, must
be consistent with that vision. In fact, there is nothing worse than for the firm’s top-level strategic
leaders’ actions to be inconsistent with the vision. At Boost Juice or McDonald’s, for example, a
failure to openly provide employees with what they need to quickly and effectively serve customers
would be a recipe for disaster.
Mission
The vision is the foundation for the firm’s mission. A mission specifies the business or businesses
in which the firm intends to compete and the customers it intends to serve.81 As we will learn in
Chapter 4, today’s customers tend to be quite demanding when it comes to their expectations for
product variety and quality.82
The firm’s mission is more concrete than its vision. However, like the vision, a mission should
establish a firm’s individuality and should be inspiring and relevant to all stakeholders.83 Together,
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vision and mission provide the foundation the firm needs to choose and implement one or more
strategies. The probability of forming an effective mission increases when employees have a strong
sense of the ethical standards that will guide their behaviours as they work to help the firm reach
its vision.84 Thus, business ethics are a vital part of the firm’s discussions to decide what it wants to
become (its vision) as well as who it intends to serve and how it desires to serve those individuals
and groups (its mission).85
As with the vision, the final responsibility for forming the firm’s mission rests with the CEO,
though the CEO and other top-level managers tend to involve a larger number of people in forming
the mission. The main reason for this is that mission deals more directly with product markets and
customers. Compared with the CEO and other top-level managers, middle- and first-level managers
and other employees have more direct contact with customers and the markets in which they are
served. Examples of mission statements include the following:
Be the best employer for our people in each community around the world and deliver operational
excellence to our customers in each of our restaurants [McDonald’s].
Our mission is to be recognized by our customers as the leader in applications engineering. We
always focus on the activities customers desire; we are highly motivated and strive to advance our
technical knowledge in the areas of material, part design and fabrication technology [LNP, a GE
Plastics Company].
Notice how the McDonald’s mission statement flows from its vision of being the world’s best quick
service restaurant. LNP’s mission statement describes the business areas (material, part design and
fabrication technology) in which the firm intends to compete.
While reading the vision and mission statements presented above, you likely recognised that
the earning of above-average returns (sometimes called profit maximisation) was not mentioned
in any of them. The reasons for this are that all firms want to earn above-average returns (meaning
that this intention does not differentiate the firm from its rivals) and that desired financial outcomes
result from properly serving certain customers while trying to achieve the firm’s intended future.
In other words, above-average returns are the fruits of the firm’s efforts to achieve its vision and
mission. In fact, research has shown that having an effectively formed vision and mission has a
positive effect on performance as measured by growth in sales, profits, employment and net worth.86
In turn, positive firm performance increases the firm’s ability to satisfy the interests of its stakeholders
(whom we discuss next). The flip-side of the coin also seems to be true – namely, the firm without an
appropriately formed vision and mission is more likely to fail than the firm that has properly formed
vision and mission statements.87
Stakeholders
Every organisation involves a system of primary stakeholder groups with whom it establishes and
manages relationships.88 Stakeholders are the individuals and groups who can affect and are affected
by, the strategic outcomes achieved and who have enforceable claims on a firm’s performance.89 Claims
on a firm’s performance are enforced through the stakeholders’ ability to withhold participation
essential to the organisation’s survival, competitiveness and profitability.90 Stakeholders continue to
support an organisation when its performance meets or exceeds their expectations.91 Also, recent
research suggests that firms effectively managing stakeholder relationships out-perform those that
do not. Stakeholder relationships can therefore be managed to be a source of competitive advantage.92
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FIGURE 1.4
The four stakeholder
groups
Although organisations have dependency relationships with their stakeholders, they are not
equally dependent on all stakeholders at all times93 – as a consequence, not every stakeholder has
the same level of influence. The more critical and valued a stakeholder’s participation, the greater a
firm’s dependency on it. Greater dependence, in turn, gives the stakeholder more potential influence
over a firm’s commitments, decisions and actions. Managers must find ways to either accommodate
or insulate the organisation from the demands of stakeholders controlling critical resources.94
Classifications of stakeholders
The parties involved with a firm’s operations can be separated into at least three groups.95 As shown
in Figure 1.4, these groups are the capital market stakeholders (shareholders and the major suppliers
of a firm’s capital), the product market stakeholders (the firm’s primary customers, suppliers, host
communities and unions representing the workforce) and the organisational stakeholders (all of a
firm’s employees, including both non-managerial and managerial personnel).
Each stakeholder group expects those making strategic decisions in a firm to provide the
leadership through which its valued objectives will be reached.96 The objectives of the various
stakeholder groups often differ from one another, sometimes placing those involved with the
strategic management process in situations where trade-offs have to be made. The most obvious
stakeholders in Australia are shareholders – individuals and groups who have invested capital in a
firm in the expectation of earning a positive return on their investment. This group has grown in
importance in Australia over the past 20 years because of the growing proportion of people who are
direct shareholders in firms. With more than 50 per cent of the population now shareholders – partly
due to the various sell-offs of previously government-owned enterprises (for example, Telstra and
the Commonwealth Bank of Australia) and partly through personal superannuation – Australia has
the highest proportion of shareholders in the world. These stakeholders’ rights are grounded in laws
governing private property and private enterprise.
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Shareholders want the return on their investment (and, hence, their wealth) to be maximised.
Maximisation of returns sometimes is accomplished at the expense of investing in a firm’s future.
Gains achieved by reducing investment in research and development, for example, could be returned
to shareholders, thereby increasing the short-term return on their investments. However, this shortterm enhancement of shareholders’ wealth can negatively affect the firm’s future competitive ability
and sophisticated shareholders with diversified portfolios may sell their interests if a firm fails to
invest in its future. Those making strategic decisions are responsible for a firm’s survival in both the
short and the long term. Accordingly, it is not in the interests of any stakeholders for investments in
the company to be unduly minimised.
In contrast to shareholders, another group of stakeholders – the firm’s customers – prefers
that investors receive a minimum return on their investments. Customers could have their interests
maximised when the quality and reliability of a firm’s products are improved, but without a price
increase. High returns to customers might come at the expense of lower returns negotiated with
capital market shareholders.
A final stakeholder group is the natural environment, the ultimate basis for competitive
advantage. The natural world is not directly represented but has powerful secondary representation
through pressure groups and government bodies. In 2010, the power of this stakeholder, and the
complexity of dealing with it, has become more obvious than ever because of concerns over global
warming.
Because of potential conflicts, each firm is challenged to manage its stakeholders. First, a
firm must carefully identify all important stakeholders. Second, it must prioritise them, in case
it cannot satisfy all of them. Power is the most critical criterion in prioritising stakeholders. Other
criteria might include the urgency of satisfying each particular stakeholder group and the degree of
importance of each to the firm.97
When the firm earns above-average returns, the challenge of effectively managing stakeholder
relationships is lessened substantially. With the capability and flexibility provided by above-average
returns, a firm can more easily satisfy multiple stakeholders simultaneously. When the firm is earning
only average returns, it is unable to maximise the interests of all stakeholders. The objective then
becomes one of at least minimally satisfying each stakeholder. Trade-off decisions are made in view of
how important the support of each stakeholder group is to the firm. For example, environmental groups
may be very important to firms in the energy industry but less important to professional service firms.98
A firm earning below-average returns does not have the capacity to minimally satisfy all stakeholders.
The managerial challenge in this case is to make tradeoffs that minimise the amount of support lost from
stakeholders. Societal values also influence the general
weightings allocated among the three stakeholder
groups shown in Figure 1.4. Although all three groups
are served by firms in the major industrialised nations,
the priorities in their service vary because of cultural
differences. Next, we provide more details about each
of the four major stakeholder groups.
Shareholders, like those
shown here at a shareholder
meeting, have invested capital
in the firm and expect at
least an average return on
their investments. However,
short-term enhancement of
shareholders’ wealth can have
a negative effect on a firm’s
future.
Capital market stakeholders
Shareholders and lenders both expect a firm to
preserve and enhance the wealth they have entrusted
to it. The returns they expect are commensurate with
the degree of risk accepted with those investments
© Bloomberg via Getty Images
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(that is, lower returns are expected with low-risk investments and higher returns are expected
with high-risk investments). Dissatisfied lenders may impose stricter covenants on subsequent
borrowing of capital. Dissatisfied shareholders may reflect their concerns through several means,
including selling their stock.
When a firm is aware of potential or actual dissatisfactions among capital market stakeholders,
it may respond to their concerns. The firm’s response to stakeholders who are dissatisfied is affected
by the nature of its dependency relationship with them (which, as noted earlier, is also influenced
by a society’s values). The greater and more significant the dependency relationship is, the more
direct and significant the firm’s response becomes. Given the situation explained in the Opening
Case, it is reasonable to expect that the CEOs and top-level managers are thinking seriously about
what should be done to improve each firm’s financial performance in order to satisfy capital market
stakeholders.
Product market stakeholders
Some might think that product market stakeholders (customers, suppliers, host communities
and unions) share few common interests. However, all four groups can benefit as firms engage in
competitive battles. For example, depending on product and industry characteristics, marketplace
competition may result in lower product prices being charged to a firm’s customers and higher prices
being paid to its suppliers (the firm might be willing to pay higher supplier prices to ensure delivery
of the types of goods and services that are linked with its competitive success).
As is noted in Chapter 4, customers, as stakeholders, demand reliable products at the lowest
possible prices. Suppliers seek loyal customers who are willing to pay the highest sustainable prices
for the goods and services they receive. Host communities want companies willing to be long-term
employers and providers of tax revenues without placing excessive demands on public support
services. Union officials are interested in secure jobs, under highly desirable working conditions, for
employees they represent. Thus, product market stakeholders are generally satisfied when a firm’s
profit margin reflects at least a balance between the returns to capital market stakeholders (that is,
the returns lenders and shareholders will accept and still retain their interests in the firm) and the
returns in which they share.
Organisational stakeholders
Employees – the firm’s organisational stakeholders – expect the firm to provide a dynamic,
stimulating and rewarding work environment. As employees, we are usually satisfied working for
a company that is growing and actively developing our skills, especially those skills required to be
effective team members and to meet or exceed global work standards. Workers who learn how to use
new knowledge productively are critical to organisational success. In a collective sense, the education
and skills of a firm’s workforce are competitive weapons affecting strategy implementation and firm
performance.99 As suggested by the following statement, strategic leaders are ultimately responsible
for serving the needs of organisational stakeholders on a day-to-day basis: ‘[T]he job of [strategic]
leadership is to fully utilize human potential, to create organizations in which people can grow and
learn while still achieving a common objective, to nurture the human spirit.’100
The natural environment as stakeholder
The natural environment is the basis of all industry, in the end. This is a small planet. Without
trees we have no timber, paper or cardboard; without iron ore and coal we have no steel or nails;
and without those timber and nails there are no wooden houses and no library of books (including
strategy textbooks!). Without cattle there is no beef for McDonald’s and without chickens no chicken
22
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for KFC to process and market to consumers. These are obvious remarks that nevertheless carry
ideas that tend to be forgotten in the business world.
Organisations are now attempting to do more than before, many pursuing the idea of ‘sustainable
development’, that is, development that retains the natural world for future generations. The most
unlikely organisations are now pursuing this idea. For example, Wal-Mart plans to develop a
worldwide sustainable product index that will see an eco-rating placed on all grocery products sold
in its stores. The initiative will take up to a decade to complete and will occur in three phases: first a
survey of its 100 000 suppliers around the world; then development of a life cycle analysis of these
products; and finally development of a sustainability index so consumers can tell how sustainable
each product is.101
A challenging but accurate point of view on this issue is that the very resources that support
our planet and lifestyle will disappear unless the natural world is given stakeholder status, not just
through the lens of business, because it exists of itself. The term for this ‘of itself worth’ is intrinsic
value – a notion that is worryingly at odds with the basic logic of business.
S T R AT EGY N OW
• Wal-Mart’s green
intent
Strategic leaders
are people located in different parts of the firm using the strategic management
process to help the firm reach its vision and mission. Regardless of their location in the firm, successful
strategic leaders are decisive and committed to nurturing those around them102 and are committed
to helping the firm create value for customers and returns for shareholders and other stakeholders.103
When identifying strategic leaders, most of us tend to think of CEOs and other top-level
managers. Clearly, these people are strategic leaders. And, in the final analysis, CEOs are responsible
for making certain their firm effectively uses the strategic management process. Indeed, the
pressure on CEOs to do this is stronger than ever.104 However, there are many other people in
today’s organisations who help choose a firm’s strategy and then determine actions to be taken to
successfully implement it.105 The main reason for this is that the realities of twenty-first-century
competition that we discussed earlier in this chapter (for example, the global economy, globalisation,
rapid technological change, and the increasing importance of knowledge and people as sources of
competitive advantage) are creating a need for those ‘closest to the action’ to be the ones making
decisions and determining the actions to be taken.106 In fact, the most effective CEOs and top-level
managers understand how to delegate strategic responsibilities to people throughout the firm who
influence the use of organisational resources.107
Organisational culture also affects strategic leaders and their work. In turn, strategic leaders’
decisions and actions shape a firm’s culture. Organisational culture refers to the complex set of
ideologies, symbols and core values that are shared throughout the firm and that influence how
the firm conducts business. It is the social energy that drives – or fails to drive – the organisation.
For example, the airline Virgin Blue is known for having a unique and valuable culture. Its culture
encourages employees to work hard but also to have fun while doing so. Moreover, its culture entails
respect for others – employees and customers alike. Some organisational cultures are a source of
disadvantage. Analysts talking about leading aircraft manufacturer Boeing’s culture suggested that
the firm’s ‘dysfunctional corporate culture needs an overhaul and execs must restore source relations
with the Pentagon and Congress’. In addition, some have alleged that Boeing has a ‘toxic political
climate’.108 It is important for strategic leaders to understand, however, that whether the firm’s culture
is functional or dysfunctional, their work takes place within the context of that culture. There is
a continuing reciprocal relationship between organisational culture and strategic leaders’ work,
Strategic leaders
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in that the culture shapes how they work while their work helps shape what is an ever-evolving
organisational culture.
The work of effective strategic leaders
Perhaps not surprisingly, hard work, thorough analyses, a willingness to be brutally honest, a
penchant for wanting the firm and its people to accomplish more and commonsense are prerequisites
to an individual’s success as a strategic leader.109 In addition, strategic leaders must be able to ‘think
seriously and deeply … about the purposes of the organisations they head or functions they perform,
about the strategies, tactics, technologies, systems and people necessary to attain these purposes
and about the important questions that always need to be asked’.110 Additionally, effective strategic
leaders work to set an ethical tone in their firms.
Strategic leaders, regardless of their location in the organisation, often work long hours and
the work is filled with ambiguous decision situations for which effective solutions are not easily
determined.111 However, the opportunities afforded by this work are appealing and offer exciting
chances to dream and to act.112
The organisational term used for a dream that challenges and energises a company is vision
(discussed earlier in this chapter). Strategic leaders have opportunities to dream and to act and the
most effective ones provide a vision as the foundation for the firm’s mission and subsequent choice
and use of one or more strategies.
Predicting outcomes of strategic decisions: Profit pools
Strategic leaders attempt to predict the outcomes of their decisions before taking efforts to implement
them. This is difficult to do, in that many decisions that are a part of the strategic management
process are concerned with an uncertain future and the firm’s place in that future.113
Mapping an industry’s profit pool is something strategic leaders can do to anticipate the
possible outcomes of different decisions and to focus on growth in profits rather than strictly growth
in revenues. A profit pool entails the total profits earned in an industry at all points along the value
chain (value chain is explained in Chapter 3 and further discussed in Chapter 4).114 Analysing the
profit pool in the industry may help a firm see something others are unable to see by helping it
understand the primary sources of profits in an industry. There are four steps to identifying profit
pools: (1) define the pool’s boundaries, (2) estimate the pool’s overall size, (3) estimate the size of the
value-chain activity in the pool and (4) reconcile the calculations.115
Let’s think about how Boeing might map the aircraft manufacturing industry’s profit pools.
First, it would need to define the industry’s boundaries and second, estimate their size. As discussed
in the Opening Case, these boundaries would include markets across the globe while the size of
many of these markets, especially markets in emerging economies, continue to expand rapidly.
Boeing would then be prepared to estimate the amount of profit potential in each part of the value
chain (step 3). Are product design and product quality more important sources of potential profits
than distribution channels and marketing campaigns? These are the types of issues to be considered
with the third step of actions used to map an industry’s profit pool. Boeing should then have the
information and insights needed to identify the strategies to use to be successful where the largest
profit pools are located in the value chain. This process has implications for Qantas. It is currently
struggling in an unattractive industry with a reducing profit pool and as a result of this has reduced
the number of Boeing 787s on order. As this brief discussion shows, profit pools are a tool to use to
help the firm’s strategic leaders recognise the actions to take to increase the likelihood of increasing
profits.
24
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The strategic management process
As suggested by Figure 1.1, the strategic management process is a rational approach firms use to
achieve strategic competitiveness and earn above-average returns. Figure 1.1 also outlines the topics
we examine in this book to present the strategic management process to you.
There are three parts to this book. In Part One, we describe what firms do to analyse their
external environment (Chapter 2) and internal environment (Chapter 3). These analyses are
completed to identify marketplace opportunities and threats in the external environment (Chapter 2)
and to decide how to use the resources, capabilities and core competencies in the firm’s internal
environment to pursue opportunities and overcome threats (Chapter 3). With knowledge about its
external and internal environments, the firm forms its vision and mission.
The firm’s strategic inputs (see Figure 1.1) provide the foundation for choosing one or more
strategies and deciding how to implement them. As suggested in Figure 1.1 by the horizontal
arrow linking the two types of strategic actions, formulation and implementation must be
simultaneously integrated if the firm is to successfully use the strategic management process.
Integration happens as decision makers think about implementation issues when choosing
strategies and as they think about possible changes to the firm’s strategies while implementing
a currently chosen strategy.
In Part Two of this book, we discuss the different strategies firms may choose to use. First,
we examine business-level strategies (Chapter 4). A business-level strategy describes a firm’s actions
designed to exploit its competitive advantage over rivals. A company competing in a single product
market (for example, a locally owned grocery store operating in only one location) has but one
business-level strategy. As you will learn though, a diversified firm competing in multiple product
markets (for example, GE) forms a business-level strategy for each of its businesses. In Chapter 5, we
describe the actions and reactions that occur among firms while using their strategies in marketplace
competitions. As we will see, competitors respond to and try to anticipate each other’s actions. The
dynamics of competition affect the strategies firms choose to use as well as how they try to implement
the chosen strategies.116
For the diversified firm, corporate-level strategy (Chapter 6) is concerned with determining
the businesses in which the company intends to compete as well as how resources, capabilities and
core competencies are to be allocated among the different businesses. Other topics vital to strategy
formulation, particularly in the diversified corporation, include acquiring other companies and, as
appropriate, restructuring the firm’s portfolio of businesses (Chapter 7) and selecting an international
strategy (Chapter 8). With cooperative strategies (Chapter 9), firms form a partnership to share their
resources and capabilities in order to develop a competitive advantage. Cooperative strategies are
becoming increasingly important as firms try to find ways to compete in the global economy’s array
of different markets.117 For example, Microsoft, the world’s largest software company, and Toshiba,
the world’s third-largest maker of notebook PCs, formed a joint venture to combine some of their
resources and capabilities in order to develop software and integrated connectivity for notebook
computers and other mobile devices.118
To examine actions taken to implement strategies, we consider several topics in Part Three of the
book. First, we examine the different mechanisms used to govern firms (Chapter 10). With demands
for improved corporate governance being voiced today by many stakeholders,119 organisations are
challenged to learn how to simultaneously satisfy their stakeholders’ different interests. Finally, the
organisational structure and actions needed to control a firm’s operations (Chapter 11), the patterns
of strategic leadership appropriate for today’s firms and competitive environments (Chapter 12) and
strategic entrepreneurship (Chapter 13) as a path to continuous innovation are addressed.
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Before closing this introductory chapter, it is important to emphasise that primarily because
they are related to how a firm interacts with its stakeholders, almost all strategic management process
decisions have ethical dimensions.120 Organisational ethics are revealed by an organisation’s culture;
that is to say, a firm’s decisions are a product of the core values that are shared by most or all of a
company’s managers and employees. Especially in the turbulent and often ambiguous twenty-firstcentury competitive landscape, those making decisions that are part of the strategic management
process are challenged to recognise that their decisions affect capital market, product market and
organisational stakeholders differently and to evaluate the ethical implications of their decisions on
virtually a daily basis.121 Decision makers failing to recognise these realities accept the risk of putting
their firm at a competitive disadvantage when it comes to consistently engaging in ethical business
practices.122
As you will discover, the strategic management process examined in this book calls for disciplined
approaches to the development of competitive advantage. These approaches provide the pathway
through which firms will be able to achieve strategic competitiveness and earn above-average returns
in the twenty-first century. Mastery of this strategic management process will effectively serve you,
our readers and the organisations for which you will choose to work.
26
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Summary
● Firms use the strategic management process to achieve
● Vision and mission are formed in view of the information
strategic competitiveness and earn above-average returns.
and insights gained from studying a firm’s internal and
Strategic competitiveness is achieved when a firm has
external environments. Vision is a picture of what the firm
developed and learned how to implement a value-creating
wants to be and, in broad terms, what it wants to ultimately
strategy. Above-average returns (in excess of what investors
achieve. Flowing from the vision, the mission specifies the
expect to earn from other investments with similar levels of
business or businesses in which the firm intends to compete
risk) provide the foundation a firm needs to simultaneously
and the customers it intends to serve. Vision and mission
satisfy all of its stakeholders.
provide direction to the firm and signal important descriptive
● The fundamental nature of competition is different in the
information to stakeholders.
twenty-first-century competitive landscape. As a result, those
● Stakeholders are those who can affect, and are affected by, a
making strategic decisions must adopt a different mind-
firm’s strategic outcomes. Because a firm is dependent on the
set, one that allows them to learn how to compete in highly
continuing support of stakeholders (shareholders, customers,
turbulent and chaotic environments that produce disorder and
suppliers, employees, host communities, etc.), they have
a great deal of uncertainty. The globalisation of industries and
enforceable claims on the company’s performance. When
their markets and rapid and significant technological changes
earning above-average returns, a firm has the resources it needs
are the two primary factors contributing to the turbulence of
to at least minimally simultaneously satisfy the interests of all
the twenty-first-century competitive landscape.
stakeholders. However, when earning only average returns,
● Firms use two major models to help them form their vision
different stakeholder groups must be carefully managed in
and mission and then choose one or more strategies to use
order to retain their support. A firm earning below-average
in the pursuit of strategic competitiveness and above-average
returns must minimise the amount of support it loses from
returns. The core assumption of the I/O model is that the firm’s
dissatisfied stakeholders.
external environment has more of an influence on the choice
● Strategic leaders are people located in different parts of the
of strategies than do the firm’s internal resources, capabilities
firm using the strategic management process to help the
and core competencies. Thus, the I/O model is used to
firm reach its vision and mission. In the final analysis, though,
understand the effects an industry’s characteristics can have
CEOs are responsible for making certain that their firms
on a firm when deciding what strategy or strategies to use
properly use the strategic management process. Today, the
to compete against rivals. The logic supporting the I/O model
effectiveness of the strategic management process increases
suggests that above-average returns are earned when the firm
when it is grounded in ethical intentions and behaviours. The
locates an attractive industry and successfully implements the
strategic leader’s work demands decision trade-offs, often
strategy dictated by that industry’s characteristics. The core
among attractive alternatives. It is important for all strategic
assumption of the resource-based model is that the firm’s
leaders and especially the CEO and other members of the
unique resources, capabilities and core competencies have
top management team, to work hard, conduct thorough
more of an influence on selecting and using strategies than
analyses of situations, be brutally and consistently honest
do the firm’s external environment. Above-average returns are
and ask the right questions of the right people at the right
earned when the firm uses its valuable, rare, costly-to-imitate
time.
and non-substitutable resources and capabilities to compete
against its rivals in one or more industries. Evidence indicates
that both models yield insights that are linked to successfully
selecting and using strategies. Thus, firms want to use their
unique resources, capabilities and core competencies as the
● Strategic leaders must predict the potential outcomes of their
strategic decisions. To do so, they must first calculate profit
pools in their industry that are linked to value-chain activities.
In so doing, they are less likely to formulate and implement
ineffective strategies.
foundation for one or more strategies that will allow them to
compete in industries they understand.
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Key terms
strategic competitiveness
strategic management process
vision
strategy
global economy
mission
competitive advantage
strategic flexibility
stakeholders
above-average returns
resources
strategic leaders
risk
capability
organisational culture
average returns
core competencies
profit pool
Search me! management
For additional readings and review on strategy, explore Search me!
management. Search me! is an online library of world-class journals,
ebooks and newspapers, including The Australian and The New York
Times, and is updated daily. Access Search me! from www.cengage.
com/sso using the access card in the front of this book and search for
any of the key terms listed below:
hyper competition
organisation culture
mission
stakeholder management.
Review questions
1
What are strategic competitiveness, strategy, competitive
5
advantage, above-average returns and the strategic management process?
2
3
strategic management process?
6
What are the characteristics of the twenty-first-century land-
What are stakeholders? How do the three primary stakeholder
groups influence organisations?
scape? What two factors are the primary drivers of this landscape?
7
How would you describe the work of strategic leaders?
According to the I/O model, what should a firm do to earn
8
What are the elements of the strategic management process?
above-average returns?
4
What are vision and mission? What is their value for the
What does the resource-based model suggest a firm should do
How are they interrelated?
9
to earn above-average returns?
What is the best way of including the natural environment in
decision making?
Experiential exercises
Creating value
Strategy is about creating value. In this chapter, we learned about the
1
two lenses through which managers seek to create above-average
of performance. It is simply the firm’s net income expressed as
returns – the I/O model and the resource-based model. In each model,
the way in which returns are measured is important. For example,
Percentage of sales: This is the most commonly used measure
a percentage of sales revenues.
2
Return on capital employed: This measure considers what
in the text, risk adjustment is discussed as one criterion that has
was earned for each dollar that shareholders and bond-holders
to be taken into account when accounting profits are compared,
invested. It is a good measure of how well those leading and
particularly with firms in different industries. However, the way in
managing firms have used the capital society has entrusted to
which returns are calculated may also affect firm rankings relative
them. The numerator for this measure is the firm’s profit prior
to an industry average, even among firms in the same industry.
to tax and interest (EBIT). The denominator is the firm’s total
Three widely used measures of return are as follows:
assets minus its current liabilities.
28
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S TR ATE G I C M A N A G E M E N T A N D S TRATE G I C C O M PE T IT IVE N E S S
Total return to shareholders: This measure captures the total
Go to the main web page for the Organisation for Economic
gain to a shareholder over a year as a percentage of the price
Development and Co-operation (OECD) at www.oecd.org/home.
of a share on the first day of the year. The numerator here is the
After reading the background information about the OECD, locate
change in price of a share of stock from the first day to
its statistical portal. In the ‘Data by Topic’ area, you will find a
the last day of the year plus all dividends paid on that share.
significant and valuable amount of information that is relevant
The denominator is the price of the share at the beginning
to understanding the march of globalisation. Under ‘International
of the year.
Trade’, look for the latest report on global trade; it is published
When firms within the same industry are ranked in terms of these
quarterly. Open that document and you should find import and
three performance measures, who is ‘above average’ and who
export numbers for the world in the last five years. Then look for
is ‘below average’ often changes significantly. In other words, a
the report on trade among OECD members. This report is usually
firm may perform well with respect to one of these performance
published on the same date each quarter, as is the world report.
measures but may perform poorly (compared to competitors) on
Use the data you have found to answer the following questions.
another measure.
1
What are the trends in global trade over the last five years that
most stand out? How does the change in trade volumes match
In groups
with the growth of the global economy over the same period?
What is influencing the patterns you have observed?
Select an industry with at least three publicly traded firms that are
dominated by a single business. Banking, airlines, brewing and fast
2
What are the trends in OECD trade over the last four years
food are examples of industries from which you may choose. Look
that most stand out? How do the changes in trade volumes
at the annual report data for the last calendar year for three firms
among the OECD members compare to those numbers you
within the industry you chose and calculate the return measures
saw for the world as a whole? What do you think is causing the
listed above as well as the industry average for each. Present your
patterns you have observed?
results to the class and discuss which measure your group thinks
yields the best indication of managerial performance from the
perspective of the firm’s stakeholders. Be prepared to explain your
reasoning.
The march of globalisation
Mission statements and stakeholders
Effective mission statements, which are derived from the firm’s
vision, are externally focused in order to speak to the needs
of a range of stakeholders. They focus the firm in a certain
Foreign direct investments (FDI) and international trade patterns
direction with respect to products, customers and performance.
demonstrate globalisation’s rapid spread across many of the
A mission statement has a different meaning for different
world’s economies. For example, both FDI and international
stakeholders. For each stakeholder group, though, the mission
trade have been growing at a faster rate than the US economy
statement should provide a mental frame in which a group’s
as a whole for some time. And there are other patterns of
members can evaluate a firm’s actions to verify that they are
importance. As the text points out, significant investment
consistent with the mission.
in developing countries such as India and China has shifted
The mission statements of five pharmaceutical firms are
investment from well-established economies to emerging
presented in the following table. Each of these mission statements
economies over the last ten to 15 years. Looking at these
is posted on the firm’s website for all stakeholders to see. In each
patterns can be very informative with respect to understanding
case, the statement has remained unchanged for at least three
how global business patterns are changing. Managers in the
years.
twenty-first century must be aware of these patterns if they
Using materials in the chapter and discussions of those
are to successfully lead their firms. In particular, strategic
materials during class, evaluate each of the five mission statements
managers who have responsibility for establishing the firm’s
and assign a grade of A, B, C, D, or F based on the perspective
vision and making certain that the firm pursues its mission
of each one of the stakeholder groups. If you give a high grade,
must have a broad awareness of the shifting trends in global
be prepared to defend it. If you give a low grade, be ready to tell
business practices and the different nature of different nations’
what you think is wrong with the statement and how it should be
economics.
improved.
29
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Stakeholder group
Firm and mission statement
Capital
market
stakeholders
Product
market
stakeholders
Organisational
stakeholders
The natural
environment
GlaxoSmithKline (GSK)
GSK’s mission is to improve the quality of human life by
enabling people to do more, feel better and live longer.
Bristol-Myers Squibb
Our company’s mission is to extend and enhance
human life by providing the highest quality of
pharmaceuticals and health care products.
Merck
The mission of Merck is to provide society with superior
products and services by developing innovations and
solutions that improve the quality of life and satisfy
customer needs and to provide employees with
meaningful work and advancement opportunities and
investors with a superior rate of return.
Novartis
We want to discover, develop and successfully market
innovative products to cure diseases, to ease suffering
and to enhance the quality of life. We also want to
provide a shareholder return that reflects outstanding
performance and to adequately reward those who
invest ideas and work in our company.
Pfizer
We will become the world’s most valued company to
patients, customers, colleagues, investors, business
partners and the communities where we work and live.
Notes
1
N. Layne, 2005 ‘Sony to unveil new strategy in September’, Reuters, www.
reuters.com, 22 June.
2
J. B. Barney & T. B. Mackey, 2005, ‘Testing resource-based theory’, in D. J. Ketchen
Jr & D. D. Bergh (eds), Research Methodology in Strategy and Management, 2nd
edn, London: Elsevier, 1–13; D. G. Sirmon, M. A. Hitt & R. D. Ireland, 2007,
‘Managing firm resources in dynamic environments to create value: Looking
inside the black box’, Academy of Management Review, 32(1): 273–92.
3
4
D. Lei & J. W. Slocum, 2005, ‘Strategic and organisational requirements for
competitive advantage’, Academy of Management Executive, 19(1): 31–45;
T. J. Douglas & J. A. Ryman, 2003, ‘Understanding competitive advantage in
the general hospital industry: Evaluating strategic competencies’, Strategic
Management Journal, 24: 333–47.
K. Shimizu & M. A. Hitt, 2004, ‘Strategic flexibility: Organisational preparedness
to reverse ineffective strategic decisions’, Academy of Management Executive,
18(4): 44–59; D. J. Teece, G. Pisano & A. Shuen, 1997, ‘Dynamic capabilities and
strategic management’, Strategic Management Journal, 18: 509–33.
5
P. Shrivastava, 1995, ‘Ecocentric management for a risk society’, Academy of
Management Review, 20: 119.
6
F. Delmar, P. Davidsson & W. B. Gartner, 2003, ‘Arriving at a high-growth firm’,
Journal of Business Venturing, 18: 189–216.
7
T. Bates, 2005, ‘Analysis of young, small firms that have closed: Delineating
successful from unsuccessful closures’, Journal of Business Venturing, 20: 343–58.
8
A. M. McGahan & M. E. Porter, 2003, ‘The emergence and sustainability
of abnormal profits’, Strategic Organisation, 1: 79–108; T. C. Powell, 2001,
‘Competitive advantage: Logical and philosophical considerations’, Strategic
Management Journal, 22: 875–88.
9
R. D. Ireland & C. C. Miller, 2004, ‘Decision-making and firm success’, Academy
of Management Executive, 18(4): 8–12.
30
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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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CHAP T E R
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ONE
P. Nutt, 2004, ‘Expanding the search for alternatives during strategic decisionmaking’, Academy of Management Executive, 18(4): 13–28; S. Dutta, M. J.
Zbaracki & M. Bergen, 2003, ‘Pricing process as a capability: A resource-based
perspective’, Strategic Management Journal, 24: 615–30.
S. Tallman & K. Fladmoe-Lindquist, 2002, ‘Internationalization, globalisation
and capability-based strategy’, California Management Review, 45(1):
116–35; M. A. Hitt, R. D. Ireland, S. M. Camp & D. L. Sexton, 2001, ‘Strategic
entrepreneurship: Entrepreneurial strategies for wealth creation’, Strategic
Management Journal, 22 (Special Issue): 479–91; S. A. Zahra, R. D. Ireland &
M. A. Hitt, 2000, ‘International expansion by new venture firms: International
diversity, mode of market entry, technological learning and performance’,
Academy of Management Journal, 43: 925–50.
S TR ATE G I C M A N A G E M E N T A N D S TRATE G I C C O M PE T IT IVE N E S S
27
A. Virmani, 2005, ‘India a giant economy? Yes, by 2035!’ www.rediff.com,
21 January.
28
Raum, ‘Awakening economic powerhouses’.
29
K. Kranhold, 2005, ‘GE pins hopes on emerging markets’, Wall Street Journal
Online, www.wsj.com, 2 March.
30
P. Williamson & M. Zeng, 2004, ‘Strategies for competing in a changed China’,
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2001, The Quest for Global Dominance, San Francisco: Jossey-Bass.
31
T. Khanna, K. G. Palepu & J. Sinha, 2005, ‘Strategies that fire emerging markets’,
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32
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12
R. Kirkland, 2005, ‘Will the U.S. be flattened by a flatter world?’ Fortune, 27
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33
P. Barwise & S. Meehan, 2004, ‘Don’t be unique, be better’, MIT Sloan
Management Review, 45(4): 23–6.
13
A. Nair & S. Kotha, 2001, ‘Does group membership matter? Evidence from
the Japanese steel industry’, Strategic Management Journal, 22: 221–35;
A. M. McGahan & M. E. Porter, 1997, ‘How much does industry matter, really?’
Strategic Management Journal, 18 (Special Issue): 15–30.
34
M. A. Prospero, 2005, ‘The march of war’, Fast Company, May: 14.
35
G. Fink & N. Holden, 2005, ‘The global transfer of management knowledge’,
Academy of Management Executive, 19(2): 5–8; M. Subramaniam &
N. Venkataraman, 2001, ‘Determinants of transnational new product
development capability: Testing the influence of transferring and deploying
tacit overseas knowledge’, Strategic Management Journal, 22: 359–78.
36
S. Zaheer & E. Mosakowski, 1997, ‘The dynamics of the liability of foreignness:
A global study of survival in financial services’, Strategic Management Journal,
18: 439–64.
37
R. C. May, S. M. Puffer & D. J. McCarthy, 2005, ‘Transferring management
knowledge to Russia: A culturally based approach’, Academy of Management
Executive, 19(2): 24–35.
38
M. A. Hitt, R. E. Hoskisson & H. Kim, 1997, ‘International diversification: Effects
on innovation and firm performance in product-diversified firms’, Academy of
Management Journal, 40: 767–98.
39
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14
D. G. Sirmon & M. A. Hitt, 2003, ‘Managing resources: Linking unique
resources, management and wealth creation in family firms’, Entrepreneurship
Theory and Practice, 27(4): 339–58; J. B. Barney, 2001, ‘Is the resource-based
“view” a useful perspective for strategic management research? Yes’, Academy of
Management Review, 26: 41–56.
15
M. A. Hitt, B. W. Keats & S. M. DeMarie, 1998, ‘Navigating in the new competitive
landscape: Building competitive advantage and strategic flexibility in the 21st
century’, Academy of Management Executive, 12(4): 22–42; R. A. Bettis & M. A.
Hitt, 1995, ‘The new competitive landscape’, Strategic Management Journal, 16
(Special Issue): 7–19.
16
C. Harrison, 2005, ‘Is it Goofy to give your child a phone?’ Dallas Morning
News, 7 July: D1, D3.
17
G. Probst & S. Raisch, 2005, ‘Organisational crisis: The logic of failure’, Academy
of Management Executive, 19(1): 90–105; M. A. Hitt & V. Pisano, 2003, ‘The
cross-border merger and acquisition strategy’, Management Research, 1: 133–44.
40 G. Hamel, 2001, ‘Revolution vs. evolution: You need both’, Harvard Business
Review, 79(5): 150–6.
18
R. M. Grant, 2003, ‘Strategic planning in a turbulent environment: Evidence
from the oil majors’, Strategic Management Journal, 24: 491–517.
41
L. Yu, 2005, ‘Does knowledge sharing pay off?’ MIT Sloan Management Review,
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19
G. McNamara, P. M. Vaaler & C. Devers, 2003. ‘Same as it ever was: The search
for evidence of increasing hypercompetition’, Strategic Management Journal, 24:
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42
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R. A. D’Aveni, 1995, ‘Coping with hypercompetition: Utilizing the new 7S’s
framework’, Academy of Management Executive, 9(3): 46.
L. Valikangas & M. Gibbert, 2005, ‘Boundary-setting strategies for escaping
innovation traps’, MIT Sloan Management Review, 46(3): 58–65; K. M.
Eisenhardt, 1999, ‘Strategy as strategic decision making’, MIT Sloan Management
Review, 40(3): 65–72.
43
21
R. A. D’Aveni, 2004, ‘Corporate spheres of influence’, MIT Sloan Management
Review, 45(4): 38–46; W. J. Ferrier, 2001, ‘Navigating the competitive landscape:
The drivers and consequences of competitive aggressiveness’, Academy of
Management Journal, 44: 858–77.
J. Santos, Y. Doz & P. Williamson, 2004, ‘Is your innovation process global?’ MIT
Sloan Management Review, 45(4): 31–7.
44 C. W. L. Hill, 1997, ‘Establishing a standard: Competitive strategy and
technological standards in winner-take-all industries’, Academy of Management
Executive, 11(2): 7–25.
S-J. Chang & S. Park, 2005, ‘Types of firms generating network externalities
and MNCs’ co-location decisions’, Strategic Management Journal, 26: 595–615;
S. C. Voelpel, M. Dous & T. H. Davenport, 2005, ‘Five steps to creating a global
knowledge-sharing system: Siemens/ShareNet’, Academy of Management
Executive, 19(2): 9–23.
45
23
R. Belderbos & L. Sleuwaegen, 2005, ‘Competitive drivers and international
plant configuration strategies: A product-level test’, Strategic Management
Journal, 26: 577–93.
47
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22
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44(4): 27–32; C. M. Christiansen, 1997, The Innovator’s Dilemma, Boston:
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46 P. Magnusson, 2005, ‘Globalisation is great – sort of’, Business Week, 25
April: 25.
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of the emergence of competition’, Strategic Management Journal, 23: 667–88;
G. Ahuja & C. M. Lampert, 2001, ‘Entrepreneurship in the large corporation:
A longitudinal study of how established firms create breakthrough inventions’,
Strategic Management Journal, 22 (Special Issue): 521–43.
48 C. L. Nichols-Nixon & C. Y. Woo, 2003, ‘Technology sourcing and output of
established firms in a regime of encompassing technological change’, Strategic
Management Journal, 24: 651–66; C. W. L. Hill & F. T. Rothaermel, 2003, ‘The
performance of incumbent firms in the face of radical technological innovation’,
Academy of Management Review, 28: 257–74.
31
Copyright 2010 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.
Licensed to: iChapters User
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49
G. Ferguson, S. Mathur & B. Shah, 2005, ‘Evolving from information to insight’,
MIT Sloan Management Review, 46(2): 51–8.
50
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Business Week, 13 June: 54–6.
51
A. C. Inkpen & E. W. K. Tsang, 2005, ‘Social capital, networks and knowledge
transfer’, Academy of Management Review, 30: 146–65; A. S. DeNisi, M. A. Hitt &
S. E. Jackson, 2003, ‘The knowledge-based approach to sustainable competitive
advantage’, in S. E. Jackson, M. A. Hitt & A. S. DeNisi (eds), Managing Knowledge
for Sustained Competitive Advantage, San Francisco: Jossey-Bass: 3–33.
52
M. Gottfredson, R. Puryear & S. Phillips, 2005, ‘Strategic sourcing: From
periphery to the core’, Harvard Business Review, 83(2): 132–9.
53
K. G. Smith, C. J. Collins & K. D. Clark, 2005, ‘Existing knowledge, knowledge
creation capability and the rate of new product introduction in hightechnology firms’, Academy of Management Journal, 48: 346–57; S. K. McEvily
& B. Chakravarthy, 2002, ‘The persistence of knowledge-based advantage: An
empirical test for product performance and technological knowledge’, Strategic
Management Journal, 23: 285–305.
54
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capabilities’, Academy of Management Executive, 16(2): 81–91; R. L. Priem &
J. E. Butler, 2001, ‘Is the resource-based “view” a useful perspective for strategic
management research?’ Academy of Management Review, 26: 22–40.
70
M. Blyler & R. W. Coff, 2003, ‘Dynamic capabilities, social capital and rent
appropriation: Ties that split pies’, Strategic Management Journal, 24: 677–86.
71
P. Bansal, 2005, ‘Evolving sustainability: A longitudinal study of corporate
sustainable development’, Strategic Management Journal, 26: 197–218.
72
P. J. H. Schoemaker & R. Amit, 1994, ‘Investment in strategic assets: Industry and
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73
S. K. Ethirau, P. Kale, M. S. Krishnan & J. V. Singh, 2005, ‘Where do capabilities
come from and how do they matter?’ Strategic Management Journal, 26: 25–45;
L. Rosenkopf & A. Nerkar, 2001, ‘Beyond local search: Boundary-spanning,
exploration and impact on the optical disk industry’, Strategic Management
Journal, 22: 287–306.
D. M. DeCarolis, 2003, ‘Competencies and imitability in the pharmaceutical
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perspective for strategic management research? Yes’.
74
C. Zott, 2003, ‘Dynamic capabilities and the emergence of intra-industry
differential firm performance: Insights from a simulation study’, Strategic
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Sirmon, Hitt & Ireland, ‘Managing firm resources in dynamic environments to
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75
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by industry- or firm-specific factors? A new look at the evidence’, Strategic
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56 K. Asakawa & M. Lehrer, 2003, ‘Managing local knowledge assets globally: The
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57
R. E. Hoskisson, M. A. Hitt & R. D. Ireland, 2004, Competing for Advantage,
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L. Gratton & S. Ghoshal, 2005, ‘Beyond best practice’, MIT Sloan Management
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60 K. Uhlenbruck, K. E. Meyer & M. A. Hitt, 2003, ‘Organizational transformation in
transition economies: Resource-based and organisational learning perspectives’,
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61
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80 P. B. Brown, 2005, ‘What I know now’, Fast Company, February: 96.
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J. A. Pearce & J. P. Doh, 2005, ‘The high impact of collaborative social initiatives’,
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32
Copyright 2010 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).
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91
S. Sharma & I. Henriques, 2005, ‘Stakeholder influences on sustainability
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95
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96 C. Caldwell & R. Karri, 2005, ‘Organizational governance and ethical systems:
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A. McWilliams & D. Siegel, 2001, ‘Corporate social responsibility: A theory of
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97
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