STRATEGIC MANAGEMENT

Competitiveness & Globalization

Concepts and Cases
13e

Michael A. Hitt
Texas A&M University
and
Texas Christian University

R. Duane Ireland
Texas A&M University

Robert E. Hoskisson
Rice University

Australia ● Brazil ● Japan ● Korea ● Mexico ● Singapore ● Spain ● United Kingdom ● United States

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Brief Contents

Preface, xiv

About the Authors, xx

Part 1: Strategic Management Inputs 2

1. Strategic Management and Strategic Competitiveness, 2
2. The External Environment: Opportunities, Threats, Industry Competition,
and Competitor Analysis, 36
3. The Internal Organization: Resources, Capabilities, Core Competencies,
and Competitive Advantages, 74

Part 2: Strategic Actions: Strategy Formulation 104

4. Business-Level Strategy, 104
5. Competitive Rivalry and Competitive Dynamics, 142
6. Corporate-Level Strategy, 176
7. Merger and Acquisition Strategies, 208
8. International Strategy, 238
9. Cooperative Strategy, 278

Part 3: Strategic Actions: Strategy Implementation 310

10. Corporate Governance, 310
11. Organizational Structure and Controls, 344
12. Strategic Leadership, 382
13. Strategic Entrepreneurship, 416

Part 4: Case Studies C-1

Name Index, I-1

Company Index, I-21

Subject Index, I-24

iv

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 Contents

Preface xiv
About the Authors xx

Part 1: Strategic Management Inputs 2

1: Strategic Management and Strategic Competitiveness 2
Opening Case: The Honest Co.: Can It Become an Iconic Global Brand? 3
Strategic Focus Competitive Advantage as a Source of Strategic Competitiveness 5
1-1 The Competitive Landscape 8
1-1a The Global Economy 9
1-1b Technology and Technological Changes 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 18
1-5 Stakeholders 19
1-5a Classifications of Stakeholders 20
1-6 Strategic Leaders 23
1-6a The Work of Effective Strategic Leaders 23
Strategic Focus Strategic Leaders’ Decisions as a Path to Firms’ Efforts to Deal
Successfully with Their Challenges 24
1-7 The Strategic Management Process 26
Summary 27 ●
Key Terms 28 ●
Review Questions 28 ●
Mini-Case 28 ●
Notes 30

2: The External Environment: Opportunities, Threats, Industry

Competition, and Competitor Analysis 36
Opening Case: Cracks in the Golden Arches and Mcdonald’s New Glue 37
2-1 The General, Industry, and Competitor Environments 39
2-2 External Environmental Analysis 41
2-2a Scanning 41
2-2b Monitoring 42
2-2c Forecasting 42
2-2d Assessing 43
2-3 Segments of the General Environment 43
2-3a The Demographic Segment 43
2-3b The Economic Segment 46
2-3c The Political/Legal Segment 47
2-3d The Sociocultural Segment 48
v

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vi Contents

2-3e The Technological Segment 49

2-3f The Global Segment 50
2-3g The Sustainable Physical Environment Segment 51
Strategic Focus Target (Tar-zhey) Is Trying to Navigate in a New and Rapidly Changing
Competitive Landscape 52
2-4 Industry Environment Analysis 53
2-4a Threat of New Entrants 54
2-4b Bargaining Power of Suppliers 57
2-4c Bargaining Power of Buyers 58
2-4d Threat of Substitute Products 58
2-4e Intensity of Rivalry among Competitors 59
2-5 Interpreting Industry Analyses 61
2-6 Strategic Groups 61
Strategic Focus Toys ‘R’ Us Exemplifies the Apocalypse in the Retail Industries 62
2-7 Competitor Analysis 63
2-8 Ethical Considerations 65
Summary 66 ●
Key Terms 66 ●
Review Questions 66 ●
Mini-Case 67 ●
Notes 68

3: The Internal Organization: Resources, Capabilities,

Core Competencies, and Competitive Advantages 74
Opening Case: Large Pharmaceutical Companies, Big Data Analytics, Artificial
Intelligence and Core Competencies: A Brave New World 75
3-1 Analyzing the Internal Organization 77
3-1a The Context of Internal Analysis 77
3-1b Creating Value 78
3-1c The Challenge of Analyzing the Internal Organization 79
3-2 Resources, Capabilities, and Core Competencies 81
3-2a Resources 81
Strategic Focus Tangible and Intangible Resources as the Base for Core Competencies 83
3-2b Capabilities 85
3-2c Core Competencies 86
3-3 Building Core Competencies 87
3-3a The Four Criteria of Sustainable Competitive Advantage 87
3-3b Value Chain Analysis 90
3-4 Outsourcing 93
3-5 Competencies, Strengths, Weaknesses, and Strategic Decisions 94
Strategic Focus The Extreme Specialization of Outsourcing: Who Is Doing It and Who Is Not? 95
Summary 96 ●
Key Terms 96 ●
Review Questions 96 ●
Mini-Case 97 ●
Notes 98

Part 2: Strategic Actions: Strategy Formulation 104

4: Business-Level Strategy 104
Opening Case: Digital: An Increasingly Important Aspect of Strategy Choice and
Strategy Implementation 105
4-1 Customers: Their Relationship with Business-Level Strategies 107
4-1a Effectively Managing Relationships with Customers 108

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 Contents vii

4-1b Reach, Richness, and Affiliation 108

4-1c Who: Determining the Customers to Serve 109
4-1d What: Determining Which Customer Needs to Satisfy 110
4-1e How: Determining Core Competencies Necessary to Satisfy
Customer Needs 111
4-2 The Purpose of a Business-Level Strategy 112
4-3 Business Models and Their Relationship with Business-
Level Strategies 113
4-4 Types of Business-Level Strategies 114
4-4a Cost Leadership Strategy 116
4-4b Differentiation Strategy 120
4-4c Focus Strategies 124
Strategic Focus The Differentiation Strategy—Can Macy’s Again Find Ways
to Achieve Success by Implementing This Strategy? 125
Strategic Focus What Type of Hamburger Would You Like to Buy
and Eat Today? 128
4-4d Integrated Cost Leadership/Differentiation Strategy 130
Summary 133 ●
Key Terms 134 ●
Review Questions 134 ●
Mini-Case 135 ●
Notes 136

5: Competitive Rivalry and Competitive Dynamics 142

Opening Case: The Grocery Industry: Welcome to
a New Competitive Landscape 146
Strategic Focus The Emergence of Competitive Rivalry among Battery Manufacturers:
Who Will Establish the Most Attractive Market Position? 146
5-1 A Model of Competitive Rivalry 148
5-2 Competitor Analysis 149
5-2a Market Commonality 150
5-2b Resource Similarity 151
5-3 Drivers of Competitive Behavior 152
5-4 Competitive Rivalry 154
5-4a Strategic and Tactical Actions 154
5-5 Likelihood of Attack 155
5-5a First-Mover Benefits 155
5-5b Organizational Size 157
5-5c Quality 158
5-6 Likelihood of Response 159
5-6a Type of Competitive Action 159
5-6b Actor’s Reputation 160
5-6c Market Dependence 160
5-7 Competitive Dynamics 161
5-7a Slow-Cycle Markets 161
Strategic Focus Swiss Watchmakers: The Eroding of a Long-Lasting Competitive Advantage
While Competing in a Slow-Cycle Market? 162
5-7b Fast-Cycle Markets 164
5-7c Standard-Cycle Markets 166
Summary 167 ●
Key Terms 168 ●
Review Questions 168 ●
Mini-Case 169 ●
Notes 170

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viii Contents

6: Corporate-Level Strategy 176

Opening Case: Amazon’s Successful Growth through
Its Corporate Diversification Strategy 177
6-1 Levels of Diversification 179
6-1a Low Levels of Diversification 180
6-1b Moderate and High Levels of Diversification 181
Strategic Focus Caterpillar Uses the Related Constrained Diversification Strategy 182
6-2 Reasons for Diversification 183
6-3 Value-Creating Diversification: Related Constrained and Related Linked
Diversification 185
6-3a Operational Relatedness: Sharing Activities 185
6-3b Corporate Relatedness: Transferring of Core Competencies 186
6-3c Market Power 187
6-3d Simultaneous Operational Relatedness and Corporate Relatedness 189
6-4 Unrelated Diversification 190
6-4a Efficient Internal Capital Market Allocation 190
Strategic Focus Berkshire Hathaway and SoftBank Use Similar Unrelated Strategies 191
6-4b Restructuring of Assets 192
6-5 Value-Neutral Diversification: Incentives and Resources 193
6-5a Incentives to Diversify 193
6-5b Resources and Diversification 196
6-6 Value-Reducing Diversification: Managerial Motives to Diversify 198
Summary 200 ●
Key Terms 200 ●
Review Questions 200 ●
Mini-Case 201 ●
Notes 202

7: Merger and Acquisition Strategies 208

Opening Case: Cisco Systems: Strategic Acquisitions to Adapt
to a Changing Market 209
7-1 The Popularity of Merger and Acquisition Strategies 210
7-1a Mergers, Acquisitions, and Takeovers: What Are the Differences? 211
7-2 Reasons for Acquisitions 212
7-2a Increased Market Power 212
Strategic Focus Broadcom’s Failed Hostile Takeover Attempt of Qualcomm 213
7-2b Overcoming Entry Barriers 215
7-2c Cost of New Product Development and Increased Speed to Market 216
Strategic Focus Cross-Border Mega Mergers in the Agricultural Chemical and Technology Sectors 217
7-2d Lower Risk Compared to Developing New Products 218
7-2e Increased Diversification 218
7-2f Reshaping the Firm’s Competitive Scope 219
7-2g Learning and Developing New Capabilities 219
7-3 Problems in Achieving Acquisition Success 219
7-3a Integration Difficulties 220
7-3b Inadequate Evaluation of Target 221
7-3c Large or Extraordinary Debt 222
7-3d Inability to Achieve Synergy 222
7-3e Too Much Diversification 223
7-3f Managers Overly Focused on Acquisitions 224
7-3g Too Large 224

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 Contents ix

7-4 Effective Acquisitions 225

7-5 Restructuring 227
7-5a Downsizing 227
7-5b Downscoping 227
7-5c Leveraged Buyouts 228
7-5d Restructuring Outcomes 228
Summary 230 ●
Key Terms 230 ●
Review Questions 231 ●
Mini-Case 231 ●
Notes 232

8: International Strategy 238

Opening Case: Netflix Achieves Substantial Growth through International Expansion,
But Such Growth Also Is Attracting Significant Competition 239
8-1 Identifying International Opportunities 241
8-1a Incentives to Use International Strategy 241
8-1b Three Basic Benefits of International Strategy 243
8-2 International Strategies 245
8-2a International Business-Level Strategy 245
8-2b International Corporate-Level Strategy 248
Strategic Focus Ikea’s Global Strategy in the Age of Digitalization and Urbanization 250
8-3 Environmental Trends 252
8-3a Liability of Foreignness 252
8-3b Regionalization 253
8-4 Choice of International Entry Mode 254
8-4a Exporting 255
8-4b Licensing 255
8-4c Strategic Alliances 256
8-4d Acquisitions 257
8-4e New Wholly Owned Subsidiary 258
8-4f Dynamics of Mode of Entry 259
8-5 Risks in an International Environment 260
8-5a Political Risks 260
8-5b Economic Risks 261
Strategic Focus The Global Delivery Services Industry: Economic Disruption
of Tariffs and Trade Wars 262
8-6 Strategic Competitiveness Outcomes 263
8-6a International Diversification and Returns 264
8-6b Enhanced Innovation 264
8-7 The Challenge of International Strategies 265
8-7a Complexity of Managing International Strategies 265
8-7b Limits to International Expansion 265
Summary 266 ●
Key Terms 267 ●
Review Questions 267 ●
Mini-Case 268 ●
Notes 270

9: Cooperative Strategy 278

Opening Case: Google’s Diversified Alliance Portfolio: A Response to Competitors
and an Attempt to Be a Dominant Force 279
9-1 Strategic Alliances as a Primary Type of Cooperative Strategy 281
9-1a Types of Major Strategic Alliances 281
9-1b Reasons Firms Develop Strategic Alliances 283

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x Contents

9-2 Business-Level Cooperative Strategy 286

9-2a Complementary Strategic Alliances 286
9-2b Competition Response Strategy 288
9-2c Uncertainty-Reducing Strategy 289
Strategic Focus Tesla Losing Critical Strategic Alliances and Experiencing Challenges Creating
Efficient Operations 290
9-2d Competition-Reducing Strategy 291
9-2e Assessing Business-Level Cooperative Strategies 292
9-3 Corporate-Level Cooperative Strategy 292
9-3a Diversifying Strategic Alliance 293
9-3b Synergistic Strategic Alliance 293
9-3c Franchising 293
9-3d Assessing Corporate-Level Cooperative Strategies 294
9-4 International Cooperative Strategy 294
Strategic Focus The Cross-Border Alliance between Ford and Mahindra: Developing the Automobile
of the Future 296
9-5 Network Cooperative Strategy 297
9-5a Alliance Network Types 297
9-6 Competitive Risks with Cooperative Strategies 298
9-7 Managing Cooperative Strategies 300
Summary 301 ●
Key Terms 302 ●
Review Questions 302 ●
Mini-Case 302 ●
Notes 304

Part 3: Strategic Actions: Strategy

Implementation 310
10: Corporate Governance 310
Opening Case: Shareholder Activists and Corporate Governance 311
10-1 Separation of Ownership and Managerial Control 314
10-1a Agency Relationships 315
10-1b Product Diversification as an Example of an Agency Problem 316
Strategic Focus General Electric’s Complex Diversification Strategy Makes Evaluation Difficult
for Board Directors 318
10-1c Agency Costs and Governance Mechanisms 319
10-2 Ownership Concentration 320
10-2a The Increasing Influence of Institutional Owners 321
10-3 Board of Directors 322
10-3a Enhancing the Effectiveness of the Board of Directors 324
10-3b Executive Compensation 325
10-3c The Effectiveness of Executive Compensation 325
10-4 Market for Corporate Control 326
Strategic Focus Has More Governance Scrutiny Made Large CEO Compensation
Packages More Reasonable? 327
10-4a Managerial Defense Tactics 329
10-5 International Corporate Governance 330

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 Contents xi

10-5a Corporate Governance in Germany and Japan 331

10-5b Corporate Governance in China 332
10-6 Governance Mechanisms and Ethical Behavior 333
Summary 334 ●
Key Terms 335 ●
Review Questions 335 ●
Mini-Case 335 ●
Notes 337

11: Organizational Structure and Controls 344

Opening Case: Changing McDonald’s Organizational Structure and Controls:
A Path to Improved Performance 345
11-1 Organizational Structure and Controls 347
11-1a Organizational Structure 347
11-1b Organizational Controls 348
11-2 Relationships between Strategy and Structure 349
11-3 Evolutionary Patterns of Strategy and Organizational Structure 350
11-3a Simple Structure 350
11-3b Functional Structure 351
11-3c Multidivisional Structure 352
11-3d Matches between Business-Level Strategies
and the Functional Structure 353
11-3e Matches between Corporate-Level Strategies
and the Multidivisional Structure 356
Strategic Focus General Electric’s Decline, New Strategy, and Reorganization 362
11-3f Matches between International Strategies and Worldwide Structure 363
11-3g Matches between Cooperative Strategies and Network Structures 367
11-4 Implementing Business-Level Cooperative Strategies 369
Strategic Focus Global Airline Alliances, Airline Joint Ventures, and Network Difficulties 370
11-5 Implementing Corporate-Level Cooperative Strategies 371
11-6 Implementing International Cooperative Strategies 371
Summary 372 ●
Key Terms 373 ●
Review Questions 373 ●
Mini-Case 374 ●
Notes 376

12: Strategic Leadership 382

Opening Case: Meg Whitman: A Pioneering Strategic Leader 383
12-1 Strategic Leadership and Style 386
Strategic Focus Cybersecurity Risk: A Significant and Expanding Challenge
for Strategic Leaders and Their Firms 387
12-2 The Role of Top-Level Managers 388
12-2a Top Management Teams 390
12-3 Managerial Succession 393
12-4 Key Strategic Leadership Actions 396
12-4a Determining Strategic Direction 396
12-4b Effectively Managing the Firm’s Resource Portfolio 398
12-4c Sustaining an Effective Organizational Culture 400
Strategic Focus Organizational Culture: Is It Really That Important? 401
12-4d Emphasizing Ethical Practices 403
12-4e Establishing Balanced Organizational Controls 404
Summary 407 ●
Key Terms 408 ●
Review Questions 408 ●
Mini-Case 408 ●
Notes 410

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xii Contents

13: Strategic Entrepreneurship 416

Opening Case: Today It Is Gas and Diesel: Tomorrow It Is Likely to Be Electric Vehicles,
Plug-in Hybrids, and Driverless Cars and Trucks 417
13-1 Entrepreneurship and Entrepreneurial Opportunities 419
13-2 Innovation 420
13-3 Entrepreneurs 421
13-4 International Entrepreneurship 422
13-5 Internal Innovation 423
13-5a Incremental and Novel Innovation 424
13-5b Autonomous Strategic Behavior 426
Strategic Focus Seeking Innovation through Autonomous Strategic Behavior at the Country Level 427
13-5c Induced Strategic Behavior 428
13-6 Implementing Internal Innovations 428
13-6a Cross-Functional Product Development Teams 429
13-6b Facilitating Integration and Innovation 430
13-6c Creating Value from Internal Innovation 430
13-7 Innovation through Cooperative Strategies 431
13-8 Innovation through Acquisitions 432
Strategic Focus Will These Acquisitions Lead to Innovation Success or to Strategic Failure? 433
13-9 Creating Value through Strategic Entrepreneurship 434
Summary 437 ●
Key Terms 438 ●
Review Questions 438 ●
Mini-Case 438 ●
Notes 440

Part 4: Case Studies C-1

Preparing an Effective Case Analysis C-4
Case 1: Alphabet Inc.: Reorganizing Google C-13
Case 2: Baidu’s Business Model and Its Evolution C-29
Case 3: Future of the Autonomous Automobile: A Strategy for BMW C-44
Case 4: An Examination of the Long-term Healthcare Industry in the USA C-58
Case 5: CrossFit at the Crossroads C-63
Case 6: New Business Models for Heise Medien: Heading for the Digital Transformation C-80
Case 7: Illinois Tool Works: Retooling for Continued Growth and Profitability C-95
Case 8: UltraRope: Crafting a Go-to-Market Strategy for Kone’s Innovative ‘UltraRope’
Hoisting Cable C-104
Case 9: MatchMove: Business Model Evolution C-113
Case 10: The Movie Exhibition Industry: 2018 and Beyond C-124
Case 11: Pacific Drilling: The Preferred Offshore Driller C-147
Case 12: Pfizer C-163
Case 13: Publix Supermarkets, Inc. C-175
Case 14: Driving Innovation and Growth at Starbucks: From Howard Schultz
to Kevin Johnson C-190
Case 15: Sturm, Ruger & Co. and the U.S. Firearms Industry C-198

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 Contents xiii

Case 16: The trivago Way—Growing Without Growing Up? C-211

Case 17: The Volkswagen Emissions Scandal C-228
Case 18: The Wells Fargo Banking Scandal C-238
Case 19: ZF Friedrichshafen’s Acquisition of TRW Automotive: Making the Deal C-248
Case 20: The Rise and Fall of ZO Rooms C-259

Name Index I-1

Company Index I-21

Subject Index I-24

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