Hitt M.A., Ireland R.D., Hoskisson R.E. Strategic Management: Competitiveness and Globalization: Concepts
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Limits to International Expansion: Management Problems 240
Strategic Focus: The Continuing Threat to Legitimate Companies from Counterfeit or Fake
Products 241
Summary 242 • Review Questions 243 • Experiential Exercises 243
Video Case 244
• Notes 245
9: Cooperative Strategy 252
Opening Case: Using Cooperative Strategies at IBM 253
Strategic Alliances as a Primary Type of Cooperative
Strategy 255
Three Types of Strategic Alliances 256
Reasons Firms Develop Strategic Alliances 257
Business-Level Cooperative Strategy 260
Complementary Strategic Alliances 260
Strategic Focus: How Complementary Alliances Are Affected by
the Global Economic Downturn 262
Competition Response Strategy 263
Uncertainty-Reducing Strategy 264
Competition-Reducing Strategy 264
Assessment of Business-Level Cooperative Strategies 265
Corporate-Level Cooperative Strategy 266
Diversifying Strategic Alliance 266
Synergistic Strategic Alliance 267
Franchising 267
Assessment of Corporate-Level Cooperative Strategies 268
International Cooperative Strategy 268
Network Cooperative Strategy 270
Alliance Network Types 270
Competitive Risks with Cooperative Strategies 271
Managing Cooperative Strategies 272
Strategic Focus: Troubles in the Russian Oil Joint Venture, TNK-BP 273
Summary 275 • Review Questions 276 • Experiential Exercises 276
Video Case 276 • Notes 277
Part 3: Strategic Actions: Strategy
Implementation 283
10: Corporate Governance 284
Opening Case: Is CEO Pay Outrageous, Irresponsibile,
or Greedy? 285
Separation of Ownership and Managerial Control 287
Agency Relationships 288
Product Diversifi cation as an Example of an Agency Problem 289
Agency Costs and Governance Mechanisms 291
Ownership Concentration 292
The Growing Infl uence of Institutional Owners 292
Board of Directors 293
Enhancing the Effectiveness of the Board of Directors 295
Strategic Focus: Where Have All the Good Directors Gone? 296
Executive Compensation 297
The Effectiveness of Executive Compensation 298
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Market for Corporate Control 299
Managerial Defense Tactics 300
International Corporate Governance 302
Corporate Governance in Germany and Japan 302
Corporate Governance in China 303
Global Corporate Governance 304
Strategic Focus: The Satyam Truth: CEO Fraud and Corporate Governance Failure 305
Governance Mechanisms and Ethical Behavior 306
Summary 307
• Review Questions 308 • Experiential Exercises 308
Video Case 309 • Notes 310
11: Organizational Structure and Controls 316
Opening Case: Cisco’s Evolution of Strategy and Structure 317
Organizational Structure and Controls 318
Organizational Structure 319
Organizational Controls 320
Relationships between Strategy and Structure 321
Evolutionary Patterns of Strategy and Organizational Structure 322
Simple Structure 323
Functional Structure 323
Multidivisional Structure 323
Matches between Business-Level Strategies and the Functional Structure 324
Matches between Corporate-Level Strategies and the Multidivisional
Structure 327
Strategic Focus: Hewlett-Packard Implements the Related Constrained Strategy
through the Cooperative M-form Structure 329
Matches between International Strategies and Worldwide Structure 334
Matches between Cooperative Strategies and Network Structures 338
Strategic Focus: PepsiCo: Moving from the Geographic Area Structure toward
the Combined Structure Implementing the Transnational Strategy 339
Implementing Business-Level Cooperative Strategies 341
Implementing Corporate-Level Cooperative Strategies 342
Implementing International Cooperative Strategies 342
Summary 343
• Review Questions 344 • Experiential Exercises 344
Video Case 345 • Notes 345
12: Strategic Leadership 350
Opening Case: Selecting a New CEO: The
Importance of Strategic Leaders 351
Strategic Leadership and Style 352
The Role of Top-Level Managers 354
Top Management Teams 355
Managerial Succession 358
Strategic Focus: The Model Succession at
Xerox 360
Key Strategic Leadership Actions 361
Determining Strategic Direction 361
Effectively Managing the Firm’s Resource
Portfolio 362
Sustaining an Effective Organizational Culture 365
Emphasizing Ethical Practices 366
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Establishing Balanced Organizational Controls 367
Strategic Focus: The “Global Duke of Retail”: The New Strategic Leader of Wal-Mart 370
Summary 371 • Review Questions 372 • Experiential Exercises 372
Video Case 372 • Notes 373
13: Strategic Entrepreneurship 378
Opening Case: The Continuing Innovation Revolution at
Amazon: The Kindle and E-Books 379
Entrepreneurship and Entrepreneurial Opportunities 381
Innovation 381
Entrepreneurs 382
International Entrepreneurship 383
Internal Innovation 384
Incremental and Radical Innovation 384
Strategic Focus: Competitiveness and Innovation: Are We
Experiencing a Paradigm Shift? 385
Autonomous Strategic Behavior 386
Induced Strategic Behavior 387
Implementing Internal Innovations 388
Cross-Functional Product Development Teams 388
Facilitating Integration and Innovation 389
Creating Value from Internal Innovation 390
Innovation through Cooperative Strategies 390
Strategic Focus: All in a Twitter about My Space in Order to Be Linked in to the Book of
Faces: The Social Networking Phenomenon 392
Innovation through Acquisitions 393
Creating Value through Strategic Entrepreneurship 393
Summary 395 • Review Questions 396 • Experiential Exercises 396
Video Case 397 • Notes 397
Name Index I1-I14
Company Index I15-I17
Subject Index I18-I23
Contents
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Brief Contents
Our goal in writing each edition of this book is to present a new, up-to-date standard for
explaining the strategic management process. To reach this goal with the 9th edition of
our market-leading text, we again present you with an intellectually rich yet thoroughly
practical analysis of strategic management.
With each new edition, we are challenged and invigorated by the goal of establishing
a new standard for presenting strategic management knowledge in a readable style. To
prepare for each new edition, we carefully study the most recent academic research to
ensure that the strategic management content we present to you is highly current and
relevant for use in organizations. In addition, we continuously read articles appearing in
many different business publications (e.g., Wall Street Journal, BusinessWeek, Fortune,
Financial Times, and Forbes, to name a few); we do this to identify valuable examples of
how companies are actually using the strategic management process. Though many of
the hundreds of companies we discuss in the book will be quite familiar to you, some
companies will likely be new to you as well. One reason for this is that we use examples of
companies from around the world to demonstrate how globalized business has become.
To maximize your opportunities to learn as you read and think about how actual com-
panies use strategic management tools, techniques, and concepts (based on the most
current research), we emphasize a lively and user-friendly writing style.
Several characteristics of this 9th edition of our book will enhance your learning
opportunities:
This book presents you with the most comprehensive and thorough coverage of stra- ■
tegic management that is available in the market.
The research used in this book is drawn from the “classics” as well as the most recent ■
contributions to the strategic management literature. The historically significant
“classic” research provides the foundation for much of what is known about strategic
management; the most recent contributions reveal insights about how to effectively
use strategic management in the complex, global business environment in which most
firms operate while trying to outperform their competitors. Our book also presents
you with many up-to-date or recent examples of how firms use the strategic manage-
ment tools, techniques, and concepts developed by leading researchers. Indeed, this
book is strongly application oriented and presents you, our readers, with a vast num-
ber of examples and applications of strategic management concepts, techniques, and
tools. In this edition, for example, we examine more than 600 companies to describe
the use of strategic management. Collectively, no other strategic management book
presents you with the combination of useful and insightful research and applications
in a wide variety of organizations as does this text. Company examples range from the
large U.S.-based firms such as Amazon.com, Wal-Mart, IBM, Johnson & Johnson,
Preface
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Hershey, Hewlett Packard, Dell, PepsiCo, and Cisco to major foreign-based firms
such as Toyota, Nokia, British Petroleum, Ryanair, Volkswagon, and Huawei. We
also include examples of successful younger and newer firms such as Dylan’s Candy
Bar, Facebook, Honest Tea, MySpace, Yandex and Sun Tech Power and middle-sized
family-owned firms such as Sargento Foods.
We carefully ■ integrate two of the most popular and well-known theoretical con-
cepts in the strategic management field: industrial-organization economics and the
resource-based view of the firm. Other texts usually emphasize one of these two
theories (at the cost of explaining the other one to describe strategic management).
However, such an approach is incomplete; research and practical experience indicate
that both theories play a major role in understanding the linkage between strategic
management and organizational success. No other book integrates these two theo-
retical perspectives effectively to explain the strategic management process and its
application in all types of organizations.
We use the ideas of prominent scholars (e.g., Raphael [Raffi] Amit, Kathy Eisenhardt,
■
Don Hambrick, Constance [Connie] Helfat, Ming-Jer Chen, Michael Porter,
C. K. Prahalad, Richard Rumelt, Ken Smith, David Teece, Michael Tushman, Oliver
Williamson, and many younger, emerging scholars such as Rajshree Agarwal, Gautam
Ahuja, Javier Gimeno, Amy Hillman, Michael Lennox, Yadong Luo, Jeff Reuer, Mary
Tripsas, and Maurizio Zollo [along with numerous others] to shape the discussion of
what strategic management is. We describe the practices of prominent executives and
practitioners (e.g., Mike Duke, Jeffrey Immelt, Steven Jobs, Gianfranco Lanci, Indra
Nooyi, and many others) to help us describe how strategic management is used in
many types of organizations.
We, the authors of this book, are also active scholars. We conduct research on dif- ■
ferent strategic management topics. Our interest in doing so is to contribute to the
strategic management literature and to better understand how to effectively apply
strategic management tools, techniques, and concepts to increase organizational per-
formance. Thus, our own research is integrated in the appropriate chapters along
with the research of numerous other scholars, some of which are noted above.
In addition to our book’s characteristics, there are some specific features of this 9th
edition that we want to highlight for you:
New Opening Cases and Strategic Focus Segments. ■ We continue our tradition of
providing all-new Opening Cases and Strategic Focus segments. In addition, new
company-specific examples are included in each chapter. Through all of these venues,
we present you with a wealth of examples of how actual organizations, most of which
compete internationally as well as in their home markets, use the strategic manage-
ment process to outperform rivals and increase their performance.
30 All-New Cases ■ with an effective mix of organizations headquartered or based in
the United States and a number of other countries. Many of the cases have full finan-
cial data (the analyses of which are in the Case Notes that are available to instructors).
These timely cases present active learners with opportunities to apply the strategic
management process and understand organizational conditions and contexts and to
make appropriate recommendations to deal with critical concerns.
All New Video Case Exercises
■ are now included in the end-of-chapter material for
each chapter and are directly connected to the textbook’s Fifty Lessons video collec-
tion. These engaging exercises demonstrate for students how the concepts they are
learning actually connect to the ideas and actions of the interesting individuals and
companies highlighted in the videos.
New ■ and Revised Experiential Exercises to support individuals’ efforts to under-
stand the use of the strategic management process. These exercises place active
learners in a variety of situations requiring application of some part of the strategic
management process.
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Strategy Right Now ■ is used in each chapter to highlight companies that are effec-
tively using a strategic management concept examined in the chapter or to provide
additional coverage of a particular topic. In Chapter 5, for example, Wal-Mart’s
offering of financial services tailored to its customers’ needs, such as the MoneyCard,
is discussed in the context of competition among the big box retailers. In Chapter
13, the explosion of social media and networking, in particular Twitter, is examined
in detail. This feature is a valuable tool for readers to quickly identify how a firm is
effectively using a strategic management tool, technique, or concept. We follow up
with the most current research and information about these firms by using Cengage
Learning’s Business & Company Resource Center (BCRC). Links to specific current
news articles related to these companies and topics can be found on our website
(
www.cengage.com/management/hitwww.cengage.com/management/hittt). Whenever you see the Strategy Right Now
icon in the text, you will know that current research is available from the BCRC links
posted to our website.
An Exceptional Balance ■ between current research and up-to-date applications of it
in actual organizations. The content has not only the best research documentation
but also the largest amount of effective real-world examples to help active learners
understand the different types of strategies organizations use to achieve their vision
and mission.
Access to Harvard Business School (HBS) Cases. ■ We have developed a set of assign-
ment sheets and AACSB International assessment rubrics to accompany 10 of the
best selling HBS cases. Instructors can use these cases and the accompanying set of
teaching notes and assessment rubrics to formalize assurance of learning efforts in
the capstone Strategic Management/Business Policy course.
Lively, Concise Writing Style ■ to hold readers’ attention and to increase their interest
in strategic management.
Continuing, Updated Coverage ■ of vital strategic management topics such as com-
petitive rivalry and dynamics, strategic alliances, mergers and acquisitions, interna-
tional strategies, corporate governance, and ethics. Also, we continue to be the only
book in the market with a separate chapter devoted to strategic entrepreneurship.
Full four-color ■ format to enhance readability by attracting and maintaining readers’
interests.
To maintain current and up-to-date content, new concepts are explored in the 9th edi-
tion.
In Chapter 2, we added the physical environment as the seventh segment of the gen-
eral environment. The discussion of the physical environment emphasizes the impor-
tance of sustainability. Sustainability has become a “watchword” at many companies
such as Honest Tea and Dell. For example, Dell has a goal of having a carbon neutral
footprint. This discussion is integrated with the explanation in Chapter 4 of how firms
are developing a “green” strategy that is a core part of their competitive strategy. Wal-
Mart is investing significant capital and effort to be a “green” firm, as are other firms
such as Procter & Gamble and Target. We describe the actions a number of firms are
taking regarding the physical environment in one of the Strategic Focus segments in
Chapter 2.
In Chapter 6, we explore a new strategic trend also caused by the global economic
crisis. While many firms downscoped in the late 1980s and 1990s because of the perfor-
mance problems caused by over-diversification, the economic recession has served as a
catalyst for a new trend of diversification to help firms spread their risk across several
markets (to avoid bankruptcy). In Chapter 7, we expand our discussion of cross-border
acquisitions. In fact, cross-border acquisitions remain quite popular during the global eco-
nomic crisis, largely because of the number of firms in financial trouble that have under-
valued assets as a result. Chinese firms have become especially active, which is discussed
in detail in Chapter 7 with special emphasis in a Strategic Focus segment. Chapter 8
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includes new content exampling emerging international firms from China (Sun Tech
Power in commercial solar power and ZTE and Huawei in network equipment) and
Russia (Yandex, a competitor to Google).
In Chapter 10, we added content related to the new actions and policies that deal with
corporate governance. For example, the U.S. Securities and Exchange Commission (SEC)
has implemented some new policies providing for closer oversight of companies’ finan-
cial dealings. The SEC has also developed new rules to allow owners with large stakes to
propose new directors. These new rules are likely to shift the balance even more in favor
of outside and independent members of companies’ boards of directors. We inserted a
new section into this chapter to explain corporate governance in China. As a major new
global economic power with several of the world’s largest firms, corporate governance
in China has become an important issue. Interestingly, many of the new corporate gov-
ernance practices implemented in Chinese companies resemble governance practices in
the United States.
In Chapter 13, we explain how innovation has become highly important for firms to
compete effectively in global markets. As such, there have been major drives to increase
the innovativeness of firms in the United States and China. The importance of innova-
tion has been heightened by the emphasis on sustainability (developing “greener” prod-
ucts—see Chapters 2 and 4) and by the growing demand from customers that companies
provide them with “excellent” value in the form of the goods or services they are making
and selling (see Chapter 2).
Supplements
Instructors
Instructor’s Resource DVD (0-538-75315-3) Key ancillaries (Instructor’s Resource
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TM
, and PowerPoint®, as well as
the Fifty Lessons video collection) are provided on DVD, giving instructors the ultimate
tool for customizing lectures and presentations.
New Expanded Instructor Case Notes (0-538-75461-3) To better reflect the varying
approaches to teaching and learning via cases, the 9th edition offers a rich selection of
case note options:
Basic Case Notes – Each of the 30 cases in the 9th edition is accompanied by a suc-
cinct case note designed for ease of use while also providing the necessary background
and financial data for classroom discussion.
Presentation Case Notes – For a selection of 13 cases from the 9th edition, a full set
of PowerPoint slides has been developed for instructors to effectively use in class,
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outlines, detailed answers to end-of-chapter review questions, instructions for using each
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Certified Test Bank Thoroughly revised and enhanced, test bank questions are linked to
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whether over the Internet, a local area network (LAN), or a wide area network (WAN).
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your students’ fingertips! This premier online business research tool allows you and your
students to search thousands of periodicals, journals, references, financial data, industry
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bcrc to learn more about this indispensable tool. For this text in particular, BCRC will
be especially useful in further researching the companies featured in the text’s 30 cases.
We’ve also included BCRC links for the Strategy Right Now feature on our website, as
well as in the Cengage NOW product.
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Student Premium Companion Site The new optional student premium website fea-
tures text-specific resources that enhance student learning by bringing concepts to life.
Dynamic interactive learning tools include online quizzes, flashcards, PowerPoint slides,
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Students
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& Company Resource Center. Students are sent to this database to be able to quickly
gather data needed for financial analysis.
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Acknowledgments
We express our appreciation for the excellent support received from our editorial and
production team at South-Western. We especially wish to thank Michele Rhoades, our
Senior Acquisitions Editor; John Abner, our Development Editor; Nate Anderson, our
Marketing Manager; and Jaci Featherly, our Content Project Manager. We are grateful
for their dedication, commitment, and outstanding contributions to the development
and publication of this book and its package of support materials.
We are highly indebted to the reviewers of the 8th edition in preparation for this
current edition:
Erich Brockmann Bruce H. Charnov
University of New Orleans Hofstra University
Scott Elston Susan Hansen
Iowa State University University of Wisconsin-Platteville
Carol Jacobson Frank Novakowski
Purdue University Davenport University
Consuelo M. Ramirez Manjula S. Salimath
University of Texas at San Antonio University of North Texas
Deepak Sethi Manisha Singal
Old Dominion University Virginia Tech
Len J. Trevino Edward Ward
Washington State University Saint Cloud State University
Marta Szabo White Michael L Williams
Georgia State University Michigan State University
Diana J. Wong-MingJi Wilson Zehr
Eastern Michigan University Concordia University
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Finally, we are very appreciative of the following people for the time and care that
went into preparing the supplements to accompany this edition:
Charles Byles Paul Friga
Virginia Commonwealth University University of North Carolina
Richard H. Lester Paul Mallette
Texas A&M University Colorado State University
Kristi L. Marshall
Michael A. Hitt
R. Duane Ireland
Robert E. Hoskisson