Strategic Management
Creating Value in a Turbulent World
page ii is blank
Strategic Management
Creating Value in a Turbulent World

Monash University

Columbia Un...
PROJECT EDITOR Jessica Bartelt

In writing this book we have made every attempt to ensure that it reflects the competitive
environment in which fu...
vi   Preface

       change within the firm is critical and no strategy will last for long in today’s and tomor-
Preface     vii

     In Chapter 3, we cover the understanding of product markets—the broad environ-
ment in which the firm...
viii    Preface

               Chapter 8 addresses strategy in the multi-divisional firm—the common situation for
Preface     ix

  Many individuals and organizations have contributed to the publication of this text.
page x is blank
Brief Contents

Managing Strategically 1

The Fundamentals of Strategic Management 27

  CHAPTER 3...
page xii is blank
Preface v                                                 Creating Value 43
xiv      Contents

       Shareholder Value 93                            CHAPTER 6
       Risk Types 93                  ...
Contents       xv

     Competitive Business Strategies 201          9.3 A Framework for Managing the Dynamic
xvi    Contents

11.2 Structure 319                                    Problems with Accounting Numbers 384
     The Natur...
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Strategic Management

  1. 1. Strategic Management Creating Value in a Turbulent World
  2. 2. page ii is blank
  3. 3. Strategic Management Creating Value in a Turbulent World PETER FITZROY Monash University JAMES M. HULBERT Columbia University JOHN WILEY & SONS, INC.
  4. 4. ASSOCIATE PUBLISHER Judith R. Joseph SENIOR EDITORIAL ASSISTANT Jessica Bartelt PROJECT EDITOR Jessica Bartelt SENIOR PRODUCTION EDITOR Patricia McFadden SENIOR MARKETING MANAGER David Woodbury PRODUCTION SERVICES Hermitage Publishing Services COVER CREDIT ©Akira Inoue/Photonica This book was set in 10 point New Caledonia by Hermitage Publishing Services and printed and bound by RR Donnelley (Willard). The cover was printed by Phoenix Color. This book is printed on acid free paper. Copyright 2005 © John Wiley & Sons, Inc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permis- sion of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc. 222 Rosewood Drive, Danvers, MA 01923, (978)750-8400, fax (978)646-8600. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201)748-6011, fax (201)748-6008. To order books or for customer service please, call 1-800-CALL WILEY (225-5945). Library of Congress Cataloging in Publication Data: (CIP to come) ISBN 0-471-43420-5 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1
  5. 5. Preface In writing this book we have made every attempt to ensure that it reflects the competitive environment in which future strategic managers will work. The fact that we were starting anew, rather than re-writing an earlier text greatly facilitated this effort. We hope this has resulted in a book that is really current and reflects contemporary business reality. The book is written for a capstone course in strategic management for MBA and advanced undergraduate students. We have consequently assumed that readers will have a sound foundation in marketing, economics, finance, accounting, information technology, and organizational behavior. Therefore the book serves as the basis for a course that integrates these subjects into an overall perspective on strategic manage- ment of the enterprise. We have chosen to adopt a strategic management rather than a planning perspec- tive. We view strategic management as the task of creating and maintaining organiza- tions that generate value. Strategic management of a modern firm is a complex task; there are no easy solutions. The problems with which the modern firm is concerned are complex, unstructured and non-routine. The process of strategic management must involve a deep understanding of the environment in which the firm operates. Its essence is about making decisions that ensure not only the survival, but also the success of the firm. This task is becoming increasingly difficult for several reasons described below. One characteristic of the world in which we live is that it is global and increasingly interconnected. This has implications whether one works for a multinational, a regional, a national, or even a local firm. There is no doubt in our minds that the ongoing process of globalization will profoundly affect the lives of senior managers in firms of any size. We have therefore drawn our examples not only from a wide range of industries, but also from a wide range of countries. A second characteristic is the increasing rate of change and the increasing turbu- lence of that change. Change can be external to the firm or it may be change introduced to the firm by managers. It may be manifest in the blurring of industry and firm bound- aries, driven by technology, deregulation, or, indeed, globalization itself. As a conse- quence, a vital task for the management of the firm is to create and respond to change. Change management will of necessity become increasingly important, and all managers will need to become accomplished in the management of change. A third characteristic is the increased attention given to the performance of the firm. We take a value-based approach, emphasizing the firm as an economic entity. So we dis- cuss how the performance on the firm can be assessed at both the corporate and business unit level. We also regard it as critical that strategic managers have an informed under- standing of the impact of financial markets on strategy. Not only do financial markets put pressure on the firm for performance, they also facilitate and constrain the strategy adopted by the firm. However, while we are conscious of the importance of shareholders, we also understand that the modern firm has multiple stakeholders with interests in its performance. It is also true that environmental and social concerns have affected the oper- ations of many companies. Yet in a competitive world—whether in product markets or capital markets—the importance of customers and shareholders should be self-evident. Throughout the book we take a managerial perspective that the task of all managers is to create and manage the resources of the firm. Turbulence implies that managing v
  6. 6. vi Preface change within the firm is critical and no strategy will last for long in today’s and tomor- row’s world. It is also the case that physical assets are becoming less important for the firm and are being replaced by intangible assets. It is through these assets that compet- itive advantage and value are created. The value of most firms is increasingly embedded in their people and processes. With the rise of the knowledge-based economy, the man- aging of intangible assets and the firm's knowledge base has moved inexorably to center stage, factors reflected in the coverage of our text. Despite our concern that the firms generate value, the corporate scandals of the early 21st century have served to underline the importance of ethical behavior on the part of senior executives. The post-Enron environment is one where senior managers can expect higher levels of public expectation and more stringent scrutiny. The whole subject of corporate governance is critically important in an era where countless millions have become more and more dependent on private savings and pensions. We devote a separate chapter to the subject. Perhaps one of the most important distinctions of our book is that we spend a great deal of time on the issues of corporate, rather than business, management. Too many strategic management books make the implicit assumption that the firm is a single-busi- ness entity, but this is clearly not the case for most firms of medium size or above. There is a whole set of issues that arise from the task of managing a multi-business entity that do not appear on the horizon of a single business firm. These we explore in detail. We have organized our book to make it easy for you, the student, to follow, and for instructors to use the book in a variety of ways. We have adopted a more or less standard approach to the content of the book’s chapters. Each begins with a definition of learn- ing objectives—what you should get out of the chapter. We then introduce an opening vignette—a short business example that illustrates the relevance and importance of the chapter’s subject matter. Each chapter then presents a theoretical framework typically illustrated with several charts and figures emphasizing key points. We have made every attempt to give you a straightforward structure to follow, with headings and subheadings clearly identified, and we hope you will find our text easy to read. Each chapter closes with a summary, a set of review questions, and extensive references to permit a more detailed follow up if you are interested. OVERVIEW Chapter 1, Managing Strategically, introduces our model of strategic management and discusses the distinctions between strategic decisions, strategy, and strategic manage- ment. It focuses on the nature of the firm as an economic entity, measures of success of that entity, and the source of success, which we see as a synthesis between external mar- ket characteristics and the internal resources of the firm. We finally discuss some of the influences on the development of strategic management. In Chapter 2, The Fundamentals of Strategic Management, we expand our discus- sion on the distinctions between strategic decisions, strategy, and strategic management. Strategic decisions are those hard-to-reverse major decisions taken by management. Strategy is the theme underlying a set of strategic decisions. Such strategies have several characteristics that are further developed. Strategic management is about creating organizations that generate value. A core concept here is change management. Follow- ing a discussion of business models, we address the question of value from the perspec- tive of the firm’s various stakeholders. Strategic managers need a good understanding of the internal and external context in which they operate. This is the subject of Chapters 3, 4 and 5.
  7. 7. Preface vii In Chapter 3, we cover the understanding of product markets—the broad environ- ment in which the firm’s products and services compete—as well as industry and busi- ness unit environments. It is here that many changes that affect the firm originate. These changes could be the development of a new product technology that threatens to make obsolete the firm’s existing products. They also can be political or economic change in one of the major global markets of the firm, such as the introduction of the Euro in many European countries or the rise of China as a source of production and its entry in to the World Trade Organization. We address the importance of understanding the dynamics of the industry in which a particular business unit operates, including identifying when the boundaries are changing. Global firms can be considered to operate in two fundamentally different mar- kets: financial markets for debt and equity and product markets for customers. In Chapter 4 we review financial markets and their impact on strategy. Most firms raise some funds for growth and expansion in the global financial markets either by issuing debt or equity. The cost and availability of these funds have a significant impact on the firm’s strategy. We review the characteristics of debt and equity markets and the pres- sure they place on firms for performance. Since financial markets are global, this pres- sure for performance is felt on a global basis. It is hard to hide behind national barriers. Finally, we review the nature and use of newer financial instruments such as derivatives. While understanding the external world is critical, so is an understanding of the internal skills of the firm—what we call capabilities or what the firm is good at. Here we take a balanced view of the firm. Certainly the environment in which the firm oper- ates can influence its performance, but so also do firm-specific resources. These resources may be tangible or intangible, and are combined to permit the firm to develop specific competences that may lead to competitive advantage and drive supe- rior performance. We regard strategy as a synthesis of an “outside in” and an “inside out” approach. In a competitive world, there is an inexorable pressure for cost reduc- tions, so we then address the major cost drivers such as economies of scale and experi- ence curves. The chapter concludes with a discussion of the importance of knowledge and intellectual capital. In Chapter 6, we turn our attention to the first step in generating strategy for the firm—creating a sense of the future of the firm, what it aspires to, and what it hopes to become. A firm, in our view, cannot be strategically managed unless senior management has a clear idea of where it wants to go. It is critical that senior management develop and communicate this vision throughout the firm, so that all staff is aware of and committed to the firm’s aspirations. Management must also establish a set of values that can guide employee behavior in fulfilling these aspirations. A mission (a specification of the areas in which the firm will operate) and quantitative objectives for the firm and its compo- nents need to be established. Chapters 7–9 are concerned with strategy. Chapter 7 addresses strategy for an indi- vidual strategic business unit, a unit of the firm that can be considered as relatively autonomous. Developing strategy at the business unit level requires an understanding of corporate objectives which will usually have a strong effect on the business. In addi- tion, it requires an understanding of the business’s own, specific environment. Strategy is then addressed, including the three major decision areas: where to compete, how to compete, and growth strategy. The concept of competitive advantage (how this can be developed and utilized) is of central concern in developing business unit strategy such as is the positioning on the business both vertically and horizontally. This determines what activities it undertakes and where it decides to compete.
  8. 8. viii Preface Chapter 8 addresses strategy in the multi-divisional firm—the common situation for larger firms. Key decisions include which businesses should comprise the firm and how the combination of businesses create value. In multidivisional firms, a major task for cor- porate management is to allocate resources across the business units. Tools to identify which businesses should be supported are developed. This discussion is complemented with a discussion of the value of diversification. We then address a limited number of essentially financial decisions that are also the responsibility of senior management, such as establishing appropriate debt levels and dividends. The chapter concludes with a dis- cussion of the risk profile of the firm. In Chapter 9 we consider innovation within the firm. We cover opportunities for the firm to restructure its industry, innovate organizationally or change its mission. Success- ful firms must re-invent themselves and their mix of businesses, either through internal development or through mergers and acquisitions. Both means are discussed in some detail. We also address how firms can reduce their activities through divestments or spinouts. Chapter 10 is concerned with managing change within the firm. In the text, we have placed considerable emphasis on the fact that change is an on-going feature of organi- zational life, and that change management must be a core competence for the firm. We develop a process model of change management and emphasize the role of leadership. Chapter 11 continues the discussion of strategy implementation and is concerned with the design of some of the internal features of the firm, what we call organizational architecture. We look at several of the principles of designing organizational structure and some of the choices available to the global firm. With the increasing importance of process management, we review process improvement, information technology infra- structure and knowledge management systems. Finally we explore human resource con- cerns such as reward and appraisal systems and their alignment with its strategy. Chapter 12 is new for most strategy books. It looks at organizational performance from the perspective of the entire firm, as well as from the perspective of a component of the firm. While financial measures of performance, in particular economic profit, are highlighted, so are nonfinancial measures. This reflects the increasing importance of intangible assets. The chapter includes examples of performance measurement systems adopted by two firms. Chapter 13 covers governance which includes the concerns of the board. The board has a number of legal and statutory responsibilities that must be met. While senior man- agers are responsible for developing strategy, the board is the group that is legally responsible for firm performance, and is accountable to shareholders. We examine the role, composition and structure of the board as well as board processes. We contrast gov- ernance procedures in different regions of the world, all with a view to ensuring that the firm acts to generate value in an ethical manner. Chapter 14 is a short summary and review. It considers how strategic management may develop in the future. The chapter emphasizes the fact that both theory and prac- tice are in constant evolution with new ideas, new theories, new practices, and new chal- lenges constantly arising. As a would-be strategic manager, you, our readers, will face a lifetime of learning and change. You will certainly be living in interesting times! SUPPORT MATERIAL A comprehensive instructor’s manual is available that details suggested teaching timeta- bles, teaching notes and presentation slides. Suggested case studies for each chapter and guides on the end of chapter review questions are also available.
  9. 9. Preface ix ACKNOWLEDGEMENTS Many individuals and organizations have contributed to the publication of this text. Although anonymous, we are very grateful to the large numbers of MBA students in the United States, Australia, Europe, and Asia who have used some or all of the material as it was in preparation. We also owe a debt of gratitude to the anonymous reviewers who provided us with such useful feedback on our earlier drafts. In addition, we would like to express our thanks formally to colleagues in several countries for their support and assistance. These include Neil Abromavage, Graeme Addison, Mohamed Ariff, Chris Ballenden, David Beim, Pierre Berthon, Walter Borghi, Wido Bosch, Noel Capon, Paul Coughlin, Graham Edward, Jean Noel Ezingëard, Gra- ham Hubbard, Kevin Jagiello, Nell Kimberley, Mike Knowles, Roger Love, Gordon Mandry, Nigel Morkel-Kingsbury, Mark Nicholson, Chandana Perara, Eli Raskin, James Sarros, Bill Schroder, On Kit Tam, Bernard Taylor, Dianne Waddell and Greg Whitwell. We would also like to express our appreciation to several individuals and organiza- tions for providing data used in the book. This includes Arnaud Humblot of Dealogic, Stuart Westmore of L.E.K. Consulting, Rory Manchee of Standard and Poor’s, and Derry Pickford of Smithers and Co. We also express our thanks to several organizations for the use of material from their web pages. This includes BHPBilliton, Canon, Celemi, Ciba Specialty Chemicals, CitiGroup, Harley-Davidson, LG, News Corporation, Petro- bras, Philips, Proctor & Gamble, Siemens and Unilever. We also wish to acknowledge the help we received from the secretarial and library staff at Monash and Columbia, as well as the constant encouragement of our partners Margaret and Madge. The staff at Wiley have been consistent and sympathetic advisors. We could not have hoped for a better publisher. Our thanks to Jessica Bartelt, Johanna Barto, Steve Hardman, Jeff Marshal, Steve Hardman, and Anna Rowe. ABOUT THE AUTHORS Peter FitzRoy is a Professor in the MBA Program at Monash University in Melbourne, Aus- tralia where he has taught Strategic Management for several years. He has held appoint- ments at a number of institutions including Columbia University, the University of Illinois, the Manchester Business School, the Wharton school of the University of Pennsylvania, the University of Waterloo, and Purdue University. He also has extensive experience in lecturing on management development programs in Asia, Australia, the United Kingdom and the United States. He is actively involved in the Strategic Management Society, and has served for many years on the editorial board of the Strategic Management Journal. James (Mac) Hulbert is the R. C. Kopf Professor at the Graduate School of Business, Columbia University. He has taught or held visiting positions at the Fundacao Joao Pin- heiro (Brazil), Henley Management College, the London Business School, Peking Uni- versity, and UCLA among others. He has also taught on executive development programs in Europe, South America, North America, the Middle East, Africa, and Asia. He has worked as a consultant with numerous global companies including Monsanto, 3M, IBM, General Electric, Chase Manhattan Bank, BASF, Ericsson, BHP Billiton, ICI, Unilever, and Visa International. His research interests are strategy and planning, which have resulted in several published books and numerous articles in the Strategic Management Journal, Sloan Management Review, California Management Review, European Management Journal among others.
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  11. 11. Brief Contents CHAPTER 1 Managing Strategically 1 CHAPTER 2 The Fundamentals of Strategic Management 27 CHAPTER 3 The Competitive Environment 56 CHAPTER 4 Financial Markets 89 CHAPTER 5 Internal Analysis: Managing Competences, Costs and Knowledge 123 CHAPTER 6 Creating Future Direction 153 CHAPTER 7 Business Level Strategy 179 CHAPTER 8 Corporate Level Strategy 216 CHAPTER 9 Managing Innovation and the Dynamic Scope of the Firm 259 CHAPTER 10 Leading Organizational Change 293 CHAPTER 11 Designing Organizational Architecture 315 CHAPTER 12 Measuring Organizational Performance 351 CHAPTER 13 Corporate Governance 389 CHAPTER 14 Strategic Management in Transition 411 xi
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  13. 13. Contents Preface v Creating Value 43 Ethics 44 CHAPTER 1 2.5 Business Models 44 Managing Strategically 1 Components of a Business Model 45 1.1 Introduction 3 2.6 The Strategy Development Process—A Definition of Strategic Management Terms 5 Management Perspective 46 1.2 Firm Success 7 Impediments to the Strategy Process 47 What Do We Mean by Success? 7 2.7 Stakeholders and Organizational Value 50 What Determines Success? 8 Shareholders 50 Sustainability of Success 11 Customers 51 1.3 The Concept of the Firm 14 Employees 51 Managerial Implications 15 Other Stakeholders 52 1.4 Dynamics of Change 16 2.8 Getting Strategy Implemented 52 1.5 Strategic Management Process 17 2.9 Summary 53 Context 17 Review Questions 53 Strategy 18 Endnotes 54 Implementation 19 CHAPTER 3 Performance 20 1.6 Who “Does” Strategy? 20 The Competitive Environment 56 1.7 Changes Affecting Strategic 3.1 Introduction 57 Management 21 Select Key Variables 58 Globalization 21 Forecast Changes 58 Increased Competition 22 Estimate the Impact of the Change 58 Technological Change 23 3.2 The Remote Environment 61 Knowledge Intensity 23 Political 61 De-regulation and Privatization 24 Economic 64 1.8 Summary 24 Socio-Cultural 65 Review Questions 25 Technological 67 Endnotes 25 Legal 70 Environmental 71 CHAPTER 2 3.3 The Industry Environment 73 The Fundamentals of Strategic Industry Value Chain 76 Management 27 Limitations of the Industry Model 77 2.1 Introduction 27 3.4 The Business-Unit Environment 79 2.2 Characteristics of Strategic Decisions 28 Customer Analysis 80 Create Value 29 Analyzing Competitors 83 Major Resource Commitment 29 3.5 Multi-Industry Competition 84 Difficult to Reverse 30 Network Competition 84 Long Term Commitment 30 Corporate Level Competition 86 2.3 Characteristics of Strategy 31 3.6 Summary 86 Incremental or Revolutionary Strategy 31 Review Questions 87 Strategy at the Corporate and Business-Unit Endnotes 87 Levels 37 Strategy as Building Competences 38 CHAPTER 4 Strategy as Resolving Paradox 38 Financial Markets 89 Other Characteristics of Strategy 40 4.1 Introduction 89 2.4 Characteristics of Strategic Management 41 4.2 The Two Markets in Which Firms Creating the Organization 42 Compete 91 Creating and Managing Change 42 Firm Value 93 xiii
  14. 14. xiv Contents Shareholder Value 93 CHAPTER 6 Risk Types 93 Creating Future Direction 153 4.3 Financial Markets 94 6.1 Introduction 154 Major Participants in Financial Markets 96 Vision 155 Global Nature of Financial Markets 97 Values 156 Current Concerns with Financial Markets 100 Mission 156 4.4 Equity Markets 100 Objectives 156 Types of Investors 101 6.2 Vision 156 The Cost of Equity Capital 102 The Vision Statement 157 Trends in Equity Markets 103 Characteristics of Vision Statements 158 4.5 Debt Markets 104 Creating a Vision Statement 159 Types of Debt 104 6.3 Values 160 Ratings Agencies 106 Values as a Source of Problems 162 Islamic Banking 107 6.4 Mission 163 4.6 Cost of Capital and Firm Valuation 108 Corporate Versus Business-Unit Mission Firm Valuation 108 Statements 165 Accounting Measures of Profitability 111 Characteristics of Mission Statements 166 4.7 Risk Management and Derivatives 112 Creating and Changing a Mission Forward Contracts 113 Statement 166 Options 114 Bases for Mission Definition 166 Swaps 115 6.5 Objectives 168 4.8 Summary 116 Corporate and Business-Unit Objectives 168 Review Questions 117 Financial and Nonfinancial Objectives 170 Appendix: Interest-Rate Swap 117 Setting Objectives 171 Endnoteses 120 Categories of Objectives 171 Level of Objectives 172 CHAPTER 5 Problems in Setting Objectives 173 Internal Analysis: Managing Competences, Unintended Consequences 174 Costs, and Knowledge 123 Synthesizing the Concepts 174 5.1 Introduction 124 6.6 An Integrative Example 175 5.2 Resources 127 6.7 Summary 176 Tangible Resources 127 Review Questions 177 Intangible Resources 128 Endnotes 177 Classifying Resources 128 CHAPTER 7 5.3 Resources and Competences 132 Business-Level Strategy 179 5.4 Competences and Competitive Advantage 134 7.1 Introduction 180 Valuable 134 Corporate and Business-Unit Scarce 135 Relationships 181 Nonimitiable 135 Strategic Management of the Business 182 Sustainable 136 Business Vision and Objectives 183 Appropriable 136 7.2 Context 184 5.5 Dynamic Competences 136 Remote Environment 184 5.6 The Value Chain 138 Industry 185 5.7 Cost Drivers 139 Competitor Analysis 187 Economies of Scale 139 7.3 Analysis for Developing Strategy 187 Learning 142 The Business Value Chain 187 Value Drivers 143 Business-Unit Analysis 192 5.8 Knowledge and Intellectual Capital 143 7.4 Developing Business-Level Strategy 192 Types of Knowledge 145 A Strategic Decision Framework 193 Characteristics of Knowledge Products 147 7.5 Where to Compete 194 5.9 Summary 148 Vertical Positioning 194 Review Questions 150 Horizontal Positioning 198 Endnotes 150 7.6 How to Compete 201
  15. 15. Contents xv Competitive Business Strategies 201 9.3 A Framework for Managing the Dynamic Dynamics of Competitive Advantage 204 Scope of a Firm 266 Dynamics and Strategy 205 Means for Changing Scope 269 Competences and Architecture 208 9.4 Managing the Changing Scope—Internal 7.7 Business Growth 208 Development 270 Product/Market Growth Alternatives 209 Technological Innovation 271 Innovation and Sources of Value 210 9.5 Managing the Change of Scope—Mergers 7.8 Illustrative Business Strategy 213 and Acquisitions 275 7.9 Summary 213 Drivers of Mergers and Acquisitions 278 Review Questions 214 Success of Mergers and Acquisitions 278 Endnotes 214 Process Model of Mergers and Acquisitions 279 CHAPTER 8 9.6 Managing the Changing Scope—Hybrid Corporate-Level Strategy 216 Approaches 286 8.1 Introduction 217 Stategic Alliances 286 Understanding Corporate Structures 218 Licensing and Technology Purchase 287 Creating Value 220 Equity Investment 287 8.2 Elements of Corporate Strategy 222 Consortia 288 Creating Future Direction 222 Option Buying 288 Style of the Center 222 9.7 Managing the Changing Scope—Divestments, Resource Allocation 223 Spinoffs and Restructuring 289 Diversification and Relatedness among Divestments and Spinoffs 289 Business Units 224 Restructuring 290 Financial Decisions 224 9.8 Summary 290 8.3 Creating Future Direction 225 Review Questions 291 8.4 Style of the Center 225 Endnotes 291 Synergy 227 Interfacing with Business Units 228 CHAPTER 10 8.5 Resource Allocation 228 Leading Organizational Change 293 Resource Allocation—Current and Future 10.1 Introduction 295 Portfolio 230 Drivers of Change 295 Tools for Allocating Resources 231 Changes in the Firm 295 8.6 Diversification 244 10.2 Characteristics of Organizational Related Diversification 246 Change 298 Unrelated Diversification 246 Change and the Environment 298 8.7 Financial Decisions 247 Change and the Firm 299 Capital Structure 247 10.3 The Change Process 305 Dividend Policy 249 Initiating Change 306 Share Repurchases 250 Managing Change 308 Management Incentive Options 250 Sustaining Change: The Organization of the 8.8 Managing Strategic Risk 252 Future 310 Assessing Strategy 252 10.4 Leadership 311 Strategic Risk Profile 253 Leader versus Manager 311 Managing Risk 254 Competences and Behaviors of Leaders 311 8.9 Summary 256 10.5 Summary 313 Review Questions 257 Review Questions 313 Endnotes 257 Endnotes 313 CHAPTER 9 Managing Innovation and the Dynamic Scope CHAPTER 11 of the Firm 259 Designing Organizational Architecture 315 9.1 Introduction 260 11.1 Introduction 316 9.2 Features of Organizational Innovation 261 What is Organizational Architecture? 317 Organizing for innovation 263 Need for Innovation in All Types of Innovation 264 Characteristics 317
  16. 16. xvi Contents 11.2 Structure 319 Problems with Accounting Numbers 384 The Nature of Structure 320 Endnotes 387 Principles of Structural Design 320 CHAPTER 13 Types of Organizational Structures 324 11.3 Processes and Process Management 334 Corporate Governance 389 Key Process Management Activities 335 13.1 Introduction 390 Business Process Reengineering 336 What is Corporate Governance? 390 Information Technology Infrastructure 337 Global Issues in Corporate Governance 391 Major IT Initiatives 338 13.2 The Modern Corporation 392 Knowledge Management Systems 339 Global Institutional Arrangements 392 11.4 Human Resources 342 13.3 The Governance Model 395 Managing Resources and Competences 343 13.4 Shareholders and Boards 395 Succession Planning 343 13.5 Management and Boards 396 Managing Human Resource Policies 344 13.6 The Role of Directors and the Board 398 11.5 Summary 347 Responsibilities of Directors 398 Review Questions 348 Composition of the Board 399 Endnotes 349 Competences of Directors 401 Compensation of Directors 401 CHAPTER 12 13.7 Board Operations 401 Measuring Organizational Performance 351 Board Processes 401 12.1 Introduction 352 Board Tasks 402 12.2 Performance Measures 352 Board Committees 404 Shareholder Value and Firm Value 353 13.8 Global Governance Approaches 405 Variables and Measures 353 Europe 406 Diagnostic Use 355 Asia 406 Financial and Non-financial Measures 355 13.9 Summary 407 Benchmarking 356 Review Questions 408 Need for a Set of Measures 356 Endnotes 409 12.3 Developing a Performance Measurement CHAPTER 14 System 356 Identifying and Designing Performance Strategic Management in Transition 411 Measures 357 14.1 Introduction 411 12.4 Measuring Business-Level 14.2 Context 412 Performance 359 Globalization 413 Customer Measures 360 Competition 413 Internal Measures 362 Technology and Innovation 413 Innovation and Learning Measures 362 14.3 Strategy 414 Financial Measures 363 Managing Paradoxes 414 12.5 Corporate Performance Measures 366 Changing Boundaries 414 Product/Market Performance and External Scale, Efficiency, and Flexibility 414 Stakeholders 367 Ethics and Transparency 415 Internal Measures and Internal 14.4 Implementation 415 Stakeholders 369 Leadership in the Organization of the Innovation and Change Management 372 Future 415 Financial Measures and Stakeholders 373 Intangible Assets 416 Company Examples 376 Change 416 12.6 Summary 379 Competences and Opportunities 417 Review Questions 380 14.5 Performance 417 Appendix A: Measures of Relatedness 380 Creating Value 417 Appendix B: Financial Measures of Non-financial Criteria 417 Performance 381 Financial Ratio Analysis 383 Glossary 419 Value-Based Management 384 Index 000