Part 2 Strategic Actions: Strategy Formulation 96 Management of ...

Part 1 Strategic Management Inputs 1
CHAPTER 1 Strategic Management 2
CHAPTER 2 Analysis of the External Environment 32
CHAPTER 3 Analysis of the Internal Environment 68
Part 2 Strategic Actions: Strategy Formulation 96
CHAPTER 4 Strategy at the Business Level 98
CHAPTER 5 The Competitive Nature of Strategy 130
CHAPTER 6 Strategy at the Corporate Level 158
CHAPTER 7 Acquisitions and Mergers 188
CHAPTER 8 Strategy Abroad 220
CHAPTER 9 Cooperative Strategic Management 258
Part 3 Strategic Actions: Strategy Implementation 288
CHAPTER 10 Corporate Governance 290
CHAPTER 11 Organizational Structure 324
CHAPTER 12 Leadership 360
CHAPTER 13 Entrepreneurship 390
Part 4 Cases
NAME INDEX 1-1
COMPANY INDEX 1-3
SUBJECT INDEX 1-7
Michael A. Hitt
Management of strategy
Concepts and cases

Preface xxv
Part 1 Strategic Management Inputs 1
CHAPTER 1 Strategic Management 2
Opening Case: General Motors: How Bright Is the Future? 3
The 21 st-Century Competitive Landscape 6
The Global Economy 7
The March of Globalization 8
Technology and Technological Changes 10
Strategic Focus: Amazon.com: Using Technology to Create
Change 12
Strategic Focus: Organizational Change: Be Ready, Because It
Can't Be Avoided! 14
The I/O Model of Above-Average Returns 15
The Resource-Based Model of Above-Average Returns 17
Vision and Mission 19
Vision 19
Mission 20
Stakeholders 21
Classifications of Stakeholders 21
Strategic Leaders 24
The Work of Effective Strategic Leaders 25
Predicting Outcomes of Strategic Decisions: Profit Pools 25
The Strategic Management Process 26
Summary 28
Notes 29

CHAPTER 2 Analysis of the External Environment 32
Opening Case: General and Competitive Environmental
Influences on U.S.Airlines 33
The General, Industry, and Competitor Environments 35
External Environmental Analysis 37
Scanning 38
Monitoring 39
Forecasting 39
Assessing 39
Segments of the General Environment 40
The Demographic Segment 40
The Economic Segment 43
The Political/Legal Segment 44
The Sociocultural Segment 45
The Technological Segment 46
The Global Segment 47
Industry Environment Analysis 49
Strategic Focus: The Nature of the Competitive Forces in the
Global Automobile Industry 50
Threat of New Entrants 51
Bargaining Power of Suppliers 54
Bargaining Power of Buyers 55
Threat of Substitute Products 55
Intensity of Rivalry among Competitors 56
Strategic Focus: Satellite TV Service Substitutes for Digital Cable
Service, Which Substitutes for Local Telephone Service 57
Interpreting Industry Analyses 59
Strategic Groups 60
Competitor Analysis 61
Ethical Considerations 63
Summary 64
Notes 64

CHAPTER 3 Analysis of the Internal Environment 68
Opening Case: The Capability to Innovate: A Critical Source of Competitive
Advantage 69
The Nature of Internal Environmental Analysis 71
The Context of Internal Analysis 71
Creating Value 71
The Challenge of Internal Analysis 73
Resources, Capabilities, and Core Competencies 75
Resources 75
Strategic Focus: Human Capital: Underutilizing Valuable Intangible Assets 78
Capabilities 79
Core Competencies 80
Building Core Competencies 81
Four Criteria of Sustainable Competitive Advantage 81
Value Chain Analysis 85
Outsourcing 88
Strategic Focus: Outsourcing—Boon or Bane to Competitiveness? 90
Competencies, Strengths,Weaknesses,and Strategic Decisions 91
Summary 92
Notes 93
Part 2 Strategic Actions: Strategy
Formulation 96
CHAPTER 4 Strategy at the Business Level 98
Opening Case: Lamps of Distinction: Where Did the Customers Go? 99
Customers:Their Relationship with Business-Level Strategies 101
Effectively Managing Relationships with Customers 102
Reach, Richness, and Affiliation 102
Who: Determining the Customers to Serve 103

What: Determining Which Customer Needs to Satisfy 105
How: Determining Core Competencies Necessary to Satisfy Customer Needs 106
The Purpose of a Business-Level Strategy 106
Types of Business-Level Strategies 108
Cost Leadership Strategy 109
Strategic Focus: Beating Wal-Mart: It's Tough, But It Can Be Done 113
Differentiation Strategy 114
Focus Strategies 119
Integrated Cost Leadership/Differentiation Strategy 121
Summary 124
Notes 126
Strategic Focus: Maytag Corporation: A Cost Leader? A Differentiator? 125
CHAPTER 5 The Competitive Nature of Strategy 130
Opening Case: Southwest Airlines:The King of the Hill That Is Changing an
Industry 131
A Model of Competitive Rivalry 133
Competitor Analysis 134
Market Commonality 135
Resource Similarity 136
Drivers of Competitive Actions and Responses 137
Strategic Focus: Is General Motors Stuck in the 1970s? 139
Competitive Rivalry 140
Strategic and Tactical Actions 140
Likelihood of Attack 141
First-Mover Incentives 141
Organizational Size 143
Quality 144
Likelihood of Response 146
Type of Competitive Action 146

Actor s Reputation 146
Dependence on the Market 147
Strategic Focus: The Continuing Saga of Coke and Pepsi Competition: Has Coke
Fizzled While Pepsi Popped the Top? 148
Competitive Dynamics 149
Slow-Cycle Markets 149
Fast-Cycle Markets 150
Standard-Cycle Markets 152
Summary 153
Notes 155
CHAPTER б Strategy at the Corporate Level 158
Opening Case: Dining Concepts: What Is the Best Combination? 159
Levels of Diversification 161
Low Levels of Diversification 161
Moderate and High Levels of Diversification 163
Strategic Focus: What Is the Best Way to Manage Product Diversification
at GE? 164
Reasons for Diversification 165
Value-Creating Diversification: Related Constrained and Related Linked
Diversification 167
Operational Relatedness: Sharing Activities 167
Corporate Relatedness: Transferring of Core Competencies 168
Market Power 169
Strategic Focus: Adding Maytag's Products to Whirlpool's: An Effort to Develop
Market Power 170
Simultaneous Operational Relatedness and Corporate Relatedness 172
Unrelated Diversification 173
Efficient Internal Capital Market Allocation 173
Restructuring of Assets 174
Value-Neutral Diversification: Incentives and Resources 175
Incentives to Diversify 175

Resources and Diversification 179
Value-Reducing Diversification: Managerial Motives to Diversify 180
Summary 182
Notes 182
CHAPTER 7 Acquisitions and Mergers 188
Opening Case: Domestic and Cross-Border Acquisitions: Meeting Competitive
Challenges and Acquiring Critical Resources 189
The Popularity of Merger and Acquisition Strategies 191
Mergers, Acquisitions, and Takeovers: What Are the Differences? 192
Reasons for Acquisitions 193
Increased Market Power 193
Overcoming Entry Barriers 195
Strategic Focus: Mittal Steel Becomes the Largest Worldwide Steel Producer
through a Strategy of Cross-Border Acquisitions 196
Cost of New Product Development and Increased Speed to Market 197
Lower Risk Compared to Developing New Products 198
Increased Diversification 199
Reshaping the Firm's Competitive Scope 199
Learning and Developing New Capabilities 200
Problems in Achieving Acquisition Success 200
Integration Difficulties 201
Inadequate Evaluation of Target 202
Large or Extraordinary Debt 203
Inability to Achieve Synergy 203
Too Much Diversification 204
Managers Overly Focused on Acquisitions 205
Too Large 206
Effective Acquisitions 206
Restructuring 208
Downsizing 209

Downscoping 209
Strategic Focus: Restructuring through Firm Spin-offs Allows for Value
Creation 210
Leveraged Buyouts 212
Restructuring Outcomes 212
Summary 214
Notes 214
CHAPTER 8 Strategy Abroad 220
Opening Case: Chinese Firms' Incentives for Foreign Acquisitions 221
Identifying International Opportunities: Incentives to Use an International
Strategy 224
Increased Market Size 225
Return on Investment 226
Economies of Scale and Learning 226
Location Advantages 227
International Strategies 228
International Business-Level Strategy 228
International Corporate-Level Strategy 230
•
Environmental Trends 233
Strategic Focus: Whirlpool's Progress toward the Transnational Strategy 234
Liability of Foreignness 235
Regionalization 236
Choice of International Entry Mode 237
Exporting 237
Licensing 238
Strategic Alliances 239
Acquisitions 240
New Wholly Owned Subsidiary 241
Dynamics of Mode of Entry 242
Strategic Competitiveness Outcomes 243

International Diversification and Returns 243
International Diversification and Innovation 244
Complexity of Managing Multinational Firms 245
Risks in an International Environment 245
Political Risks 245
Economic Risks 246
Strategic Focus: Are China and India Changing Their Approach to Intellectual
Property Enforcement? 247
Limits to International Expansion: Management Problems 248
Summary 249
Notes 250
CHAPTER 9 Cooperative Strategic Management 258
Opening Case: Using Alliances to Build Greater Value 259
Strategic Alliances as a Primary Type of Cooperative Strategy 261
Three Types of Strategic Alliances 261
Reasons Firms Develop Strategic Alliances 263
Business-Level Cooperative Strategy 265
Complementary Strategic Alliances 266
Competition Response Strategy 268
Uncertainty-Reducing Strategy 268
Competition-Reducing Strategy 269
Assessment of Business-Level Cooperative Strategies 270
Corporate-Level Cooperative Strategy 271
Diversifying Strategic Alliance 272
Synergistic Strategic Alliance 272
Franchising 272
Strategic Focus: Franchising Finger Foods the American Way 273
Assessment of Corporate-Level Cooperative Strategies 274
International Cooperative Strategy 275
Network Cooperative Strategy 276
Alliance Network Types 276

Strategie Focus: Forming an International Alliance Network for Innovation and Its
Use 277
Competitive Risks with Cooperative Strategies 279
Managing Cooperative Strategies 281
Summary 283
Notes 284
Part 3 Strategic Actions: Strategy
Implementation 288
CHAPTER 10 Corporate Governance 290
Opening Case: Is Managerial Incentive Compensation Too High? 291
Separation of Ownership and Managerial Control 294
Agency Relationships 295
Product Diversification as an Example of an Agency Problem 296
Agency Costs and Governance Mechanisms 298
Strategic Focus: Sarbanes-Oxley Act Increases Governance Intensity 299
Ownership Concentration 301
The Growing Influence of Institutional Owners 301
Board of Directors 302
Strategic Focus: Governing the CEO 305
Enhancing the Effectiveness of the Board of Directors 306
Executive Compensation 307
A Complicated Governance Mechanism 307
The Effectiveness of Executive Compensation 308
Market for Corporate Control 309
Managerial Defense Tactics 311
International Corporate Governance 312
Corporate Governance in Germany 313
Corporate Governance in Japan 314

Global Corporate Governance 315
Governance Mechanisms and Ethical Behavior 315
Summary 316
Notes 317
CHAPTER 11 Organizational Structure 324
Opening Case: Sony's Struggles with Its Online Music Business: Organization
and Cooperation Difficulties among Its Businesses 325
Organizational Structure and Controls 326
Organizational Structure 327
Organizational Controls 327
Strategic Focus: A Change in Structure Leads to Improved Strategy
Implementation at Kellogg Co. 328
Relationships between Strategy and Structure 331
Evolutionary Patterns of Strategy and Organizational Structure 331
Simple Structure 331
Functional Structure 333
Multidivisional Structure 333
Matches between Business-Level Strategies and the Functional Structure 334
Matches between Corporate-Level Strategies and the Multidivisional Structure 337
Matches between International Strategies and Worldwide Structures 344
Strategic Focus: Unilever is Reorganizing to Implement the Transnational Strategy
by Using the Combination Structure 349
Matches between Cooperative Strategies and Network Structures 350
Implementing Business-Level Cooperative Strategies 352
Implementing Corporate-Level Cooperative Strategies 352
Implementing International Cooperative Strategies 353
Summary 354
Notes 355

CHAPTER 12 Leadership 360
Opening Case: Long-Term Vision or Operational Performance?The"Un-Carly"
Takes Hewlett-Packard's Reins 361
Strategic Leadership and Style 363
The Role of Top-Level Managers 365
Top Management Teams 365
Managerial Succession 369
Key Strategic Leadership Actions 372
Determining Strategic Direction 372
Effectively Managing the Firm's Resource Portfolio 373
Strategic Focus: How Do Managers Acquire, Protect, and Use Resources
Wisely? 374
Sustaining an Effective Organizational Culture 377
Strategic Focus: Change Lost in a 'Sea' of Organizational Politics 379
Emphasizing Ethical Practices 380
Establishing Balanced Organizational Controls 382
Summary 385
Notes 386
CHAPTER 13 Entrepreneurship 390
Opening Case: W. L.Gore & Associates:The Most Innovative Company in
America? 391
Entrepreneurship and Entrepreneurial Opportunities 393
Innovation 394
Entrepreneurs 395
International Entrepreneurship 396
Internal Innovation 397
Strategic Focus: Panera Bread Company: Thriving through Internal
Innovation 398
Incremental and Radical Innovation 399

Autonomous Strategic Behavior 400
Induced Strategic Behavior 402
Implementing Internal Innovations 402
Cross-Functional Product Development Teams 403
Facilitating Integration and Innovation 403
Creating Value from Internal Innovation 404
Innovation through Cooperative Strategies 405
Strategic Focus: Cooperating to Innovate in the DVD Rental and Sales Markets 406
Innovation through Acquisitions 407
Creating Value through Strategic Entrepreneurship 408
Summary 409
Notes 410
Part 4 Cases
Preparing an Effective Case Analysis C-iii
Case 1 : Tata Steel: A Century of Corporate Social Responsibilities C-1
Case 2: Doing the Right Thing: Bank One's Response to the Mutual Fund
Scandal C-15
Case3: Louis V. Gerstner Jr.—The Man Who Turned IBM Around C-23
Case 4: Lufthansa 2003: Energizing a Decade of Change C-31
Case 5: General Motors Defense C-53
Case 6: Mass Retailing in Asia (B) Competition C-61
Case 7: ONGC's Growth Strategy C-71
Case 8: 9Live: Birth of a TV Channel C-79
Case 9: MapQuest C-89
Case 10: Humana Inc.: Turnaround of a Health Insurer C-103
Case 11: Marks and Spencer:The Downfall and Leadership Vacuum C-120
Case 12: Wal-Mart Stores Inc.: Dominating Global Retailing C-128
Case 13: Dell in China:The Strategic Rethinking C-142
Case 14: Lucchetti C-148

Case 15: Whole Foods Market, 2005: Will There Be Enough Organic Food to
Satisfy the Growing Demand? C-168
Case 16: L'Oreal's Business Strategy C-178
Case 17: CQUAY Technologies Corp. C-187
Case 18: News Corp. in 2005: Consolidating the DirecTV Acquisition C-197
Case 19: China on the l-Way C-207
Case 20: Succession Battles at Viacom C-215
Name Index 1-1
Company Index I-3
Subject Index I-7