1 CHAPTER 2 THE EXTERNAL ENVIRONMENT: OPPORTUNITIES, THREATS, INDUSTRY COMPETITION AND COMPETITOR ANALYSIS Opening remarks Company’s strategic actions are affected by External environment Internal environment External environment is the source of: Opportunities Threats The need for monitoring and analyzing external environment The pace of change Complexity Uncertainty 2 The general, industry and competitor analysis 3 General environment – broader society dimensions ( 7 dimensions) Demographic, economic, political/legal, sociocultural, technological, physical and global Out of firm’s control so must monitor and gather information Industry environment – factors in competitive environment Threat of new entrants, power of suppliers, power of buyers, threat of product substitutes, intensity of rivalry among competitors Firm must assess industry’s opportunities for profit potential Competitor analysis or competitive intelligence – the way firm’s can gather and analyze information on the industry competitors Identifying their actions, responses and intentions These three analyses influence and are influenced by the firm’s vision, mission and strategic actions The general, industry and competitor environments 4 Three External Environments include: General Industry Competitor Segments of the general environment 5 DEMOGRAPHIC Population size Geographic distribution ECONOMIC Nature and direction of the economy in which a firm competes or may compete SOCIO-CULTURAL Refers to potential and actual changes in the physical environment and business practices that are intended to positively respond to and deal with those changes Age structure Ethnic mix Income distribution POLITICAL/LEGAL PHYSICAL TECHNOLOGICAL GLOBAL Arena in which organizations and interest groups compete for attention, resources, and a voice in overseeing the body of laws and regulations guiding the interactions among nations as well as between firms and various local governmental agencies Concerned with a society's attitudes and cultural values Includes the institutions and activities involved with creating new knowledge and translating that knowledge into new products, processes, and materials Includes relevant new global markets, existing markets that are changing, important international political events, and critical cultural and institutional characteristics of global markets External environmental analysis 6 The objective of this analysis is identification of Opportunities and Threats Opportunity – a condition in the external environment that helps a company achieve strategic competitiveness, if exploited Threat – a condition in the external environment that may diminish company’s efforts towards achieving strategic competitiveness The four-step process includes Scanning Monitoring Forecasting Assessing 1. Scanning Studying all the segments of the general environment Early signals of changes an ...

1. 1
CHAPTER
2
THE EXTERNAL ENVIRONMENT:
OPPORTUNITIES, THREATS, INDUSTRY COMPETITION
AND COMPETITOR ANALYSIS
Opening remarks
Company’s strategic actions are affected by
External environment
Internal environment
External environment is the source of:
Opportunities
Threats
The need for monitoring and analyzing external environment
The pace of change
Complexity
Uncertainty
2
The general, industry and competitor
analysis
3
General environment – broader society dimensions ( 7
dimensions)

2. Demographic, economic, political/legal, sociocultural,
technological, physical and global
Out of firm’s control so must monitor and gather information
Industry environment – factors in competitive environment
Threat of new entrants, power of suppliers, power of buyers,
threat of product substitutes, intensity of rivalry among
competitors
Firm must assess industry’s opportunities for profit potential
Competitor analysis or competitive intelligence – the way
firm’s can gather and analyze information on the industry
competitors
Identifying their actions, responses and intentions
These three analyses influence and are influenced by the firm’s
vision, mission and strategic actions
The general, industry and competitor environments
4

3. Three External Environments include:
General
Industry
Competitor
Segments of the general environment
5
DEMOGRAPHIC
Population size
Geographic distribution
ECONOMIC
Nature and direction of the economy in which a firm competes
or may compete
SOCIO-CULTURAL

4. Refers to potential and actual changes in the physical
environment and business practices that are intended to
positively respond to and deal with those changes
Age structure
Ethnic mix
Income distribution
POLITICAL/LEGAL
PHYSICAL
TECHNOLOGICAL
GLOBAL
Arena in which organizations and interest groups compete for
attention, resources, and a voice in overseeing the body of laws
and regulations guiding the interactions among nations as well
as between firms and various local governmental agencies
Concerned with a society's attitudes and cultural values
Includes the institutions and activities involved with creating

5. new knowledge and translating that knowledge into new
products, processes, and materials
Includes relevant new global markets, existing markets that are
changing, important international political events, and critical
cultural and institutional characteristics of global markets
External environmental analysis
6
The objective of this analysis is identification of
Opportunities and
Threats
Opportunity – a condition in the external environment that helps
a company achieve strategic competitiveness, if exploited
Threat – a condition in the external environment that may
diminish company’s efforts towards achieving strategic
competitiveness
The four-step process includes
Scanning
Monitoring
Forecasting
Assessing
1. Scanning
Studying all the segments of the general environment
Early signals of changes and general environment trends
Understand trends in the Companies detect changes that are
already under way.
How companies like Amazon, Netflix, or Facebook collect early

6. signals?
Ex: amazon.com they welcome people who have visited the site
already
How airline companies deal with external environment? What
factors do they analyze constantly?
Regulations? Politics? Weather?
Random data are collected
7
Scanning and monitoring provide a picture of what has already
taken place and what is happening.
2. Monitoring
Observing environmental changes – important trends
Focuses on important trends arising from the scanning phase
Monitoring immigrants trends – effect on grocery stores?
What can we say when monitoring oil prices recent trend?
8
3. Forecasting
Forecasting - feasible projections about what might happen and
how quickly
Based on the outputs from scanning and monitoring
Very challenging task
9
Ex: how long will it take the new technology to reach
the market place? Are current lifestyle trends likely to
continue?

7. 4. Assessing
The objective – determine the timing and significance of the
identified trends and changes
Specification of implications
Inputs – from scanning, monitoring and forecasting
What are the implications of oil prices decline?
For oil producers?
For companies?
10
Answer Q’s such as what are the key issues presented by the
environment, and what are the implications of such issues for
the organizations?
Industry environment analysis
What is industry?
Industry – the group of firms producing products that are close
substitutes
In which industry does your chosen company operate?
Work in teams, figure out the industry
11
Industry environment analysis
Comparing with general environment, does industry have more
or less direct influence on your business?
Industry’s profit potential depends on
Threats of new entrants
The bargaining power of suppliers
The bargaining power of buyers
Product substitutes
Intensity of rivalry among competitors
12

8. Figure 2.2
Michael Porter’s Five forces of competition Model
Threats of new entrants
How do new competitors affect our market share?
What are the good sides of new entrants?
Factors that determine the likelihood of new entrants
13When firms will enter an industry is a function of two factors
1 – Barriers to entry2- Expected Retaliation Economies of scale
Product differentiation
Capital requirements
Switching costs
Access to distribution channels
Cost disadvantages independent of scale (learning or experience
curve, proprietary product technology, access to raw materials,
favorable locations and government subsidies).
Gov’t policy.Refers to the response existing competitors may
take to the emergence of a new competitor. Types
of retaliation include dropping prices, offering increased
incentives to buy, offering additional service for the same price.
Ex: Honda entering enter the market of motorcycles with small
engine neglected the barriers of Harley Davidson. Then they
competed against them in a larger market.
14
Bargaining power of suppliers
Unfavorable situations with suppliers
Few large companies (concentration)
There are no good substitute products
We are not important buyers

9. Supplier sells products which are very important to us
High switching costs
Forward integration by the supplier
15
Bargaining power of buyers
Unfavorable situations with buyers
Their purchase within the industry is significant
Their purchase accounts for a significant portion of the seller’s
sales
They can easily replace the seller
Products are standardized (not differentiated) – backward
integration is possible
16
Substitute products
Substitutes – goods or services from outside the given industry
that perform similar or the same functions as a product that the
industry produces
Find substitutes to the following products/services
Coffee –
Plastic containers –
Newspapers –
SMS –
TV -
17
Intensity of rivalry among competitors

10. In what way you are different from them?
Factors affecting the rivalry intensity
Number and power of competitors
Slow growth in the industry
High fixed costs or high storage costs (rebates, discounts)
Lack of differentiation or low switching costs
High strategic stakes
High exit barriers
18
19
Interpreting industry analyses
Industry analysis must be implemented thoroughly, and with
careful interpretation of data and information from different
sources
The impact of globalization – sometimes it is more important to
analyze global factors than just industry factors
What is the outcome of the five forces analysis?
To determine the attractiveness of an industry
How do we know that an industry is attractive?
Based on potential above-average earnings
Strategic groups
Do luxury restaurants compete with fast food restaurants and
they are within the same industry?
Strategic group – a set of firms emphasizing similar strategic
dimensions to use a similar strategy.
Ex: fast-food and fine-dining based on variables such as
preparation time, pricing, and presentation.
Intra-strategic group competition is more intense than inter-
strategic competition

11. Examples of strategic groups dimensions
Technological leadership
Quality of products
Pricing policies
Distribution channels
Customer service
Important notions – mobility barriers, don’t get stuck in the
middle
20
D
Industry
21
Customers
Products
Technology
A
B
C
E
F
G
How do we know that a company belongs to certain industry?
Reciprocal demand elasticity
The reciprocal demand elasticity refers to the ratio of
proportional change in the quantity of imports demanded to the
proportional change in the price of exports relative to the price
of imports.
Same opportunities and threats

12. D
Strategic groups
22
Customers
Products
Technology
A
B
C
E
F
G
Example:
- Pharmaceutical industry
Possible strategic groups:
Medicines for children
Commercial medicines
Special medicines
Prescription medicines
Dimensions:
Positioning skills
R&D expertise
Marketing skills
Competitor analysis
Competitor environment – the last part of external environment
analysis
The aims of competitor analysis:
Future objectives

13. Current strategy
Assumptions about the industry
Strengths and weaknesses
23
Competitor analysis
24
RESPONSE
- What will our competitors do in the future? –
Where do we hold our advantage over our competitors?
– How will this change our relationship with our competitors?
Future objectives
Current strategy
Assumptions
How do our goals compare with our competitor goals?
Where will emphasis be placed in the future?
What is the attitude toward risk?
How are we currently competing?

14. Does their strategy support changes in the competitive
structure?
Do we assume the future will be volatile?
Are we operating under a status quo?
What assumptions do our competitors hold about the industry
and themselves?
Capabilities
What are our strengths and weaknesses?
How do we rate compared to our competitors?
Competitor analysis
Competitor intelligence – the set of data and information
the firm gathers to better understand and better anticipate
competitors’ objectives, strategies, assumptions, and
capabilities
Complementors – the network of companies that sell
complementary goods or services or are compatible with
the focal firm’s own product or service
Intel and Microsoft (Pentium processors and Windows), or
Microsoft and McAfee (Microsoft Windows & McAfee anti-

15. virus).
25
Ethical considerations
Laws, regulations, and ethical guidelines when gathering
competitor intelligence
Legal and ethical practices:
Obtaining publicly available information
Attending trade fairs
Any examples on unethical or illegal gathering of competitors’
data and information?
What is the difference between legal and ethical practices?
Can something be legal but unethical? Or vice versa?
26
Michael A. Hitt
Texas A&M University
and
Texas Christian University
R. Duane Ireland
Texas A&M University
Robert E. Hoskisson
Rice University
STRATEGIC MANAGEMENT
Competitiveness & Globalization

16. Concepts and Cases
12e
Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain
• United Kingdom • United States
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To My Family:
I love each and every one of you. Thank you for all of your love
and
support.
— Michael, DaD, PaPa
To Mary Ann:
“Now everyone dreams of a love lasting and true.” This was my
dream
that you have completely fulfilled. Thank you for all of the

21. love, support,
and encouragement throughout our life together.
— R. Duane iRelanD
To Kathy:
My love for you is eternal, and I hope that we can be eternally
together.
Thanks for all the support and love you’ve given me throughout
my life.
— BoB
Preface, xiii
About the Authors, xx
Part 1: Strategic Management Inputs 2
1. Strategic Management and Strategic Competitiveness, 2

22. 2. The External Environment: Opportunities, Threats, Industry
Competition,
and Competitor Analysis, 38
3. The Internal Organization: Resources, Capabilities, Core
Competencies,
and Competitive Advantages, 76
Part 2: Strategic Actions: Strategy Formulation 108
4. Business-Level Strategy, 108
5. Competitive Rivalry and Competitive Dynamics, 142
6. Corporate-Level Strategy, 172
7. Merger and Acquisition Strategies, 204
8. International Strategy, 236
9. Cooperative Strategy, 276
Part 3: Strategic Actions: Strategy Implementation 308
10. Corporate Governance, 308
11. Organizational Structure and Controls, 344

23. 12. Strategic Leadership, 382
13. Strategic Entrepreneurship, 416
Part 4: Case Studies C-1
Name Index, I-1
Company Index, I-20
Subject Index, I-23
Brief Contents
iv
Preface xiii
About the Authors xx
Part 1: Strategic Management Inputs 2
1: Strategic Management and Strategic Competitiveness 2

24. Opening Case: Alibaba: An Online Colossus in China Goes
Global 3
1-1 The Competitive Landscape 7
1-1a The Global Economy 8
1-1b Technology and Technological Changes 10
Strategic Focus: Starbucks Is “Juicing” Its Earnings per Store
through Technological Innovations 11
1-2 The I/O Model of Above-Average Returns 14
1-3 The Resource-Based Model of Above-Average Returns 16
1-4 Vision and Mission 18
1-4a Vision 18
1-4b Mission 19
1-5 Stakeholders 19
Strategic Focus: The Failure of BlackBerry to Develop an
Ecosystem of Stakeholders 20
1-5a Classifications of Stakeholders 21

25. 1-6 Strategic Leaders 25
1-6a The Work of Effective Strategic Leaders 25
1-7 The Strategic Management Process 26
Summary 28 • Key Terms 28 • Review Questions 29 • Mini-
Case 29 • Notes 30
2: The External Environment: Opportunities, Threats, Industry
Competition, and Competitor Analysis 38
Opening Case: Are There Cracks in the Golden Arches? 39
2-1 The General, Industry, and Competitor Environments 41
2-2 External Environmental Analysis 43
2-2a Scanning 43
2-2b Monitoring 44
2-2c Forecasting 44
2-2d Assessing 45
2-3 Segments of the General Environment 45

26. 2-3a The Demographic Segment 45
2-3b The Economic Segment 48
2-3c The Political/Legal Segment 49
2-3d The Sociocultural Segment 50
2-3e The Technological Segment 51
2-3f The Global Segment 52
Contents
v
vi Contents
2-3g The Sustainable Physical Environment Segment 53
Strategic Focus: Target Lost Its Sway Because Tar-zhey No
Longer Drew the Customers 54
2-4 Industry Environment Analysis 55

27. 2-4a Threat of New Entrants 56
2-4b Bargaining Power of Suppliers 59
2-4c Bargaining Power of Buyers 60
2-4d Threat of Substitute Products 60
2-4e Intensity of Rivalry among Competitors 60
2-5 Interpreting Industry Analyses 63
2-6 Strategic Groups 63
Strategic Focus: Watch Out All Retailers, Here Comes Amazon;
Watch Out Amazon, Here Comes
Jet.com 64
2-7 Competitor Analysis 65
2-8 Ethical Considerations 67
Summary 68 • Key Terms 68 • Review Questions 68 • Mini-
Case 69 • Notes 70

28. 3: The Internal Organization: Resources, Capabilities, Core
Competencies, and Competitive Advantages 76
Opening Case: Data Analytics, Large Pharmaceutical
Companies, and
Core Competencies: A Brave New World 77
3-1 Analyzing the Internal Organization 79
3-1a The Context of Internal Analysis 79
3-1b Creating Value 81
3-1c The Challenge of Analyzing the Internal Organization 81
3-2 Resources, Capabilities, and Core Competencies 84
3-2a Resources 84
Strategic Focus: Strengthening the Superdry Brand as a
Foundation to Strategic Success 85
3-2b Capabilities 88
3-2c Core Competencies 89
3-3 Building Core Competencies 89
3-3a The Four Criteria of Sustainable Competitive Advantage

29. 89
3-3b Value Chain Analysis 93
3-4 Outsourcing 96
3-5 Competencies, Strengths, Weaknesses, and Strategic
Decisions 96
Strategic Focus: “We’re Outsourcing that Activity but Not That
One? I’m Surprised!” 97
Summary 98 • Key Terms 99 • Review Questions 99 • Mini-
Case 100 • Notes 101
Part 2: Strategic Actions: Strategy Formulation 108
4: Business-Level Strategy 108
Opening Case: Hain Celestial Group: A Firm Focused on
“Organic” Differentiation 109
4-1 Customers: Their Relationship with Business-Level
Strategies 112
4-1a Effectively Managing Relationships with Customers 112
4-1b Reach, Richness, and Affiliation 113

30. 4-1c Who: Determining the Customers to Serve 114
4-1d What: Determining Which Customer Needs to Satisfy 114
viiContents
4-1e How: Determining Core Competencies Necessary to Satisfy
Customer Needs 115
4-2 The Purpose of a Business-Level Strategy 116
4-3 Types of Business-Level Strategies 117
4-3a Cost Leadership Strategy 118
4-3b Differentiation Strategy 122
Strategic Focus: Apple vs. Samsung: Apple Differentiates and
Samsung Imperfectly Imitates 126
4-3c Focus Strategies 127
4-3d Integrated Cost Leadership/Differentiation Strategy 129

31. Strategic Focus: RadioShack’s Failed Focus Strategy: Strategic
Flip-Flopping 130
Summary 134 • Key Terms 135 • Review Questions 135 • Mini-
Case 135 • Notes 136
5: Competitive Rivalry and Competitive Dynamics 142
Opening Case: Does Google Have Competition? Dynamics of
the High Technology
Markets 143
5-1 A Model of Competitive Rivalry 146
5-2 Competitor Analysis 147
5-2a Market Commonality 147
5-2b Resource Similarity 148
Strategic Focus: Does Kellogg Have the Tiger by the Tail or Is
It the Reverse? 150
5-3 Drivers of Competitive Behavior 150
5-4 Competitive Rivalry 152

32. 5-4a Strategic and Tactical Actions 152
5-5 Likelihood of Attack 153
5-5a First-Mover Benefits 153
5-5b Organizational Size 155
5-5c Quality 156
5-6 Likelihood of Response 157
5-6a Type of Competitive Action 157
5-6b Actor’s Reputation 158
5-6c Market Dependence 158
5-7 Competitive Dynamics 159
5-7a Slow-Cycle Markets 159
5-7b Fast-Cycle Markets 161
5-7c Standard-Cycle Markets 162
Strategic Focus: The Ripple Effect of Supermarket Wars: Aldi
Is Changing the Markets in Many

33. Countries 163
Summary 164 • Key Terms 166 • Review Questions 166 • Mini-
Case 166 • Notes 167
6: Corporate-Level Strategy 172
Opening Case: Disney Adds Value Using a Related
Diversification Strategy 173
6-1 Levels of Diversification 175
6-1a Low Levels of Diversification 176
6-1b Moderate and High Levels of Diversification 177
6-2 Reasons for Diversification 178
6-3 Value-Creating Diversification: Related Constrained and
Related
Linked Diversification 179
viii Contents
6-3a Operational Relatedness: Sharing Activities 180

34. 6-3b Corporate Relatedness: Transferring of Core Competencies
181
6-3c Market Power 182
6-3d Simultaneous Operational Relatedness and Corporate
Relatedness 184
6-4 Unrelated Diversification 185
6-4a Efficient Internal Capital Market Allocation 185
Strategic Focus: GE and United Technology Are Firms that
Have Pursued Internal Capital Allocation
and Restructuring Strategies 186
6-4b Restructuring of Assets 187
6-5 Value-Neutral Diversification: Incentives and Resources
188
6-5a Incentives to Diversify 188
Strategic Focus: Coca-Cola’s Diversification to Deal with Its
Reduced Growth in Soft Drinks 190

35. 6-5b Resources and Diversification 192
6-6 Value-Reducing Diversification: Managerial Motives to
Diversify 193
Summary 196 • Key Terms 196 • Review Questions 196 • Mini-
Case 197 • Notes 198
7: Merger and Acquisition Strategies 204
Opening Case: Mergers and Acquisitions: Prominent Strategies
for Firms Seeking to
Enhance Their Performance 205
7-1 The Popularity of Merger and Acquisition Strategies 206
7-1a Mergers, Acquisitions, and Takeovers: What Are the
Differences? 207
7-2 Reasons for Acquisitions 208
Strategic Focus: A Merger of Equals: Making It Happen Isn’t
Easy! 209
7-2a Increased Market Power 210
7-2b Overcoming Entry Barriers 211

36. Strategic Focus: Different Strategic Rationales Driving Cross-
Border Acquisitions 212
7-2c Cost of New Product Development and Increased Speed to
Market 213
7-2d Lower Risk Compared to Developing New Products 214
7-2e Increased Diversification 214
7-2f Reshaping the Firm’s Competitive Scope 215
7-2g Learning and Developing New Capabilities 215
7-3 Problems in Achieving Acquisition Success 216
7-3a Integration Difficulties 217
7-3b Inadequate Evaluation of Target 218
7-3c Large or Extraordinary Debt 219
7-3d Inability to Achieve Synergy 220
7-3e Too Much Diversification 221

37. 7-3f Managers Overly Focused on Acquisitions 221
7-3g Too Large 222
7-4 Effective Acquisitions 222
7-5 Restructuring 224
7-5a Downsizing 224
7-5b Downscoping 224
7-5c Leveraged Buyouts 225
7-5d Restructuring Outcomes 225
Summary 227 • Key Terms 228 • Review Questions 228 • Mini -
Case 228 • Notes 230
ixContents
8: International Strategy 236
Opening Case: Netflix Ignites Growth Through International
Expansion, But Such

38. Growth Also Fires Up the Competition 237
8-1 Identifying International Opportunities 239
8-1a Incentives to Use International Strategy 239
8-1b Three Basic Benefits of International Strategy 241
8-2 International Strategies 243
8-2a International Business-Level Strategy 243
8-2b International Corporate-Level Strategy 246
Strategic Focus: Furniture Giant IKEA’s Global Strategy 248
8-3 Environmental Trends 250
8-3a Liability of Foreignness 250
8-3b Regionalization 251
8-4 Choice of International Entry Mode 252
8-4a Exporting 253
8-4b Licensing 253
8-4c Strategic Alliances 254

39. 8-4d Acquisitions 255
8-4e New Wholly Owned Subsidiary 256
8-4f Dynamics of Mode of Entry 257
8-5 Risks in an International Environment 258
8-5a Political Risks 258
8-5b Economic Risks 259
Strategic Focus: The Global Soccer Industry and the Effect of
the FIFA Scandal 260
8-6 Strategic Competitiveness Outcomes 262
8-6a International Diversification and Returns 262
8-6b Enhanced Innovation 263
8-7 The Challenge of International Strategies 264
8-7a Complexity of Managing International Strategies 264
8-7b Limits to International Expansion 264

40. Summary 265 • Key Terms 266 • Review Questions 266 • Mini -
Case 266 • Notes 268
9: Cooperative Strategy 276
Opening Case: Google, Intel, and Tag Heuer: Collaborating to
Produce a Smartwatch 277
9-1 Strategic Alliances as a Primary Type of Cooperative
Strategy 279
9-1a Types of Major Strategic Alliances 279
9-1b Reasons Firms Develop Strategic Alliances 281
9-2 Business-Level Cooperative Strategy 284
9-2a Complementary Strategic Alliances 284
9-2b Competition Response Strategy 286
9-2c Uncertainty-Reducing Strategy 287
9-2d Competition-Reducing Strategy 287
Strategic Focus: Strategic Alliances as the Foundation for Tesla
Motors’ Operations 288

41. 9-2e Assessing Business-Level Cooperative Strategies 290
9-3 Corporate-Level Cooperative Strategy 290
9-3a Diversifying Strategic Alliance 291
x Contents
9-3b Synergistic Strategic Alliance 291
9-3c Franchising 291
9-3d Assessing Corporate-Level Cooperative Strategies 292
9-4 International Cooperative Strategy 292
9-5 Network Cooperative Strategy 293
9-5a Alliance Network Types 294
9-6 Competitive Risks with Cooperative Strategies 295
Strategic Focus: Failing to Obtain Desired Levels of Success
with Cooperative Strategies 296
9-7 Managing Cooperative Strategies 297

42. Summary 299 • Key Terms 300 • Review Questions 300 • Mini -
Case 300 • Notes 302
Part 3: Strategic Actions: Strategy Implementation 308
10: Corporate Governance 308
Opening Case: The Corporate Raiders of the 1980s Have
Become the Activist
Shareholders of Today 309
10-1 Separation of Ownership and Managerial Control 312
10-1a Agency Relationships 313
10-1b Product Diversification as an Example of an Agency
Problem 314
10-1c Agency Costs and Governance Mechanisms 316
10-2 Ownership Concentration 317
10-2a The Increasing Influence of Institutional Owners 318
10-3 Board of Directors 319
10-3a Enhancing the Effectiveness of the Board of Directors
321

43. 10-3b Executive Compensation 322
10-3c The Effectiveness of Executive Compensation 323
Strategic Focus: Do CEOs Deserve the Large Compensation
Packages They Receive? 324
10-4 Market for Corporate Control 325
10-4a Managerial Defense Tactics 326
10-5 International Corporate Governance 328
10-5a Corporate Governance in Germany and Japan 328
Strategic Focus: “Engagement” versus “Activist” Shareholders
in Japan, Germany, and China 330
10-5b Corporate Governance in China 331
10-6 Governance Mechanisms and Ethical Behavior 332
Summary 333 • Key Terms 334 • Review Questions 334 • Mini -
Case 335 • Notes 336
11: Organizational Structure and Controls 344

44. Opening Case: Luxottica’s Dual CEO Structure: A Key to Long-
Term Success or a Cause
for Concern? 345
11-1 Organizational Structure and Controls 347
11-1a Organizational Structure 347
Strategic Focus: Changing McDonald’s Organizational
Structure: A Path to Improved Performance? 348
11-1b Organizational Controls 350
11-2 Relationships between Strategy and Structure 351
11-3 Evolutionary Patterns of Strategy and Organizational
Structure 351
11-3a Simple Structure 352
xiContents
11-3b Functional Structure 353
11-3c Multidivisional Structure 353

45. 11-3d Matches between Business-Level Strategies and the
Functional Structure 354
11-3e Matches between Corporate-Level Strategies and the
Multidivisional Structure 357
Strategic Focus: Sony Corporation’s New Organizational
Structure: Greater Financial Accountability
and Focused Allocations of Resources 362
11-3f Matches between International Strategies and Worldwide
Structure 365
11-3g Matches between Cooperative Strategies and Network
Structures 369
11-4 Implementing Business-Level Cooperative Strategies 370
11-5 Implementing Corporate-Level Cooperative Strategies 371
11-6 Implementing International Cooperative Strategies 372
Summary 373 • Key Terms 373 • Review Questions 374 • Mini -
Case 374 • Notes 375

46. 12: Strategic Leadership 382
Opening Case: Can You Follow an Icon and Succeed? Apple
and Tim Cook After Steve
Jobs 383
12-1 Strategic Leadership and Style 384
12-2 The Role of Top-Level Managers 387
12-2a Top Management Teams 387
12-3 Managerial Succession 391
Strategic Focus: Trial by Fire: CEO Succession at General
Motors 395
12-4 Key Strategic Leadership Actions 396
12-4a Determining Strategic Direction 396
12-4b Effectively Managing the Firm’s Resource Portfolio 397
Strategic Focus: All the Ways You Can Fail! 400
12-4c Sustaining an Effective Organizational Culture 401
12-4d Emphasizing Ethical Practices 402

47. 12-4e Establishing Balanced Organizational Controls 403
Summary 406 • Key Terms 407 • Review Questions 407 • Mini-
Case 407 • Notes 409
13: Strategic Entrepreneurship 416
Opening Case: Entrepreneurial Fervor and Innovation Drive
Disney’s Success 417
13-1 Entrepreneurship and Entrepreneurial Opportunities 419
13-2 Innovation 420
13-3 Entrepreneurs 420
13-4 International Entrepreneurship 421
13-5 Internal Innovation 422
13-5a Incremental and Novel Innovation 423
Strategic Focus: Innovation Can Be Quirky 425
13-5b Autonomous Strategic Behavior 426

48. 13-5c Induced Strategic Behavior 427
13-6 Implementing Internal Innovations 427
13-6a Cross-Functional Product Development Teams 428
13-6b Facilitating Integration and Innovation 429
13-6c Creating Value from Internal Innovation 429
13-7 Innovation through Cooperative Strategies 430
xii Contents
13-8 Innovation through Acquisitions 431
Strategic Focus: What Explains the Lack of Innovation at
American Express? Is It Hubris, Inertia, or
Lack of Capability? 432
13-9 Creating Value through Strategic Entrepreneurship 433
Summary 435 • Key Terms 436 • Review Questions 436 • Mini-
Case 436 • Notes 437

49. Part 4: Case Studies C-1
Preparing an Effective Case Analysis C-4
CASE 1: Kindle Fire: Amazon’s Heated Battle for the Tablet
Market C-13
CASE 2: American Express: Bank 2.0 C-30
CASE 3: BP In Russia: Bad Partners or Bad Partnerships? (A)
C-42
CASE 4: Carlsberg in Emerging Markets C-47
CASE 5: Fisk Alloy Wire, Inc. and Percon C-56
CASE 6: Business Model and Competitive Strategy of IKEA in
India C-66
CASE 7: Invitrogen (A) C-78
CASE 8: Keurig: From David to Goliath: The Challenge of
Gaining and Maintaining
Marketplace Leadership C-87
CASE 9: KIPP Houston Public Schools C-97

50. CASE 10: Luck Companies: Igniting Human Potential C-112
CASE 11: Corporate Governance at Martha Stewart Living
Omnimedia:
Not “A Good Thing” C-126
CASE 12: The Movie Exhibition Industry: 2015 C-141
CASE 13: Polaris and Victory: Entering and Growing the
Motorcycle Business C-161
CASE 14: Safaricom: Innovative Telecom