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Strategic
Management
C OMPETITIVENESS

AND

G LOBALIZATION

Michael A. Hitt
Texas A&M University
SSON

KI

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• HOS

Texas A&M University

HITT •

IRELAN

R. Duane Ireland

•

Robert E. Hoskisson
Arizona State University

Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.



Strategic Management: Competitiveness and Globalization (Concepts and Cases)
Seventh Edition
Michael A. Hitt, R. Duane Ireland, and Robert E. Hoskisson

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R e l eva n t .
Ac c u ra t e.
Co m p l e t e.
Strategize your students’ success with this book!
In today’s competitive business world, what consistently separates successful firms from those that fail is making the
right strategic decisions and actions. Prepare your students for success with Strategic Management: Competitiveness
and Globalization, the most accessible and practical presentation of strategic management you’ll find. Up-to-date
with the latest academic research and trends, this book uses hundreds of real-world examples throughout the text to
highlight key concepts and put them into context.


An author team that’s at the head of the class
This well-respected author team consists of acknowledged experts in strategic management. Hitt, Ireland, and
Hoskisson are active scholars and leaders in the strategy field, and they build a conceptual foundation based on
proven strategic management concepts and the latest in cutting-edge research and practice. Their unique approach
blends the classic industrial organizational model with the resource-based view of the firm to explain the strategic
management process and its application in all types of organizations.

Proven cases that teach and engage
A wealth of compelling case studies allows students to hone their own strategic management skills as they examine
dilemmas facing actual firms and learn what it takes to build and sustain a competitive advantage. And the case notes
for the text—prepared by leading experts in strategic management—are the most complete, accurate, and reliable on
the market.

Also available in these split versions:
Strategic Management: Competitiveness and Globalization, Concepts
Seventh Edition — ISBN: 0-324-40536-7
Strategic Management: Competitiveness and Globalization, Cases
Seventh Edition — ISBN: 0-324-40537-5


SUMMARY
RELEVANT

The strategic management process comes to life
— from vision to implementation.
Strategic Focus
Three new or updated Strategic
Focus segments in every chapter showcase familiar organizations—many of which compete
internationally—to emphasize
applications of the chapter’s

content and to increase your
students’ ability to achieve
higher
performance.
Also
included is additional content
discussing leaders who have
both succeeded or failed based
on their ability to implement
the right business strategy.

New Cases

PREFACE

With this edition,
the authors examine
more than 600 companies
to describe the use of
strategic management
tools, techniques,
and concepts.

This application-oriented text includes 30 all-new cases,
drawing from a variety of topics, organizational settings,
and industries. A correlation guide matches text
chapters with applicable cases. These timely and
intriguing cases feature a mix of well-known
organizations headquartered or based in the
United States and a number of other countries.

With each case, students have an opportunity to
analyze, synthesize, and apply the parts of the
strategic management process they’ve learned. Cases
reflect a variety of management situations to offer a
well-rounded learning experience.

iv

The case notes for the Seventh Edition are the
most complete, accurate, and reliable on the market
– and they have been compiled by six experts in the field of strategic management. Additionally, financial analysis accompanies some of case notes with
tutorials
to guide students.


ACCURATE

Insightful research and a strong application orientation help students understand
what it takes to succeed in today’s—and tomorrow’s—business world.
Current Research with an
Emphasis on Key Trends
Thoroughly updated, this edition contains the most current
research and findings, including references to 2004 and 2005
publications. Plus, this edition expands the text’s discussion of
key trends—such as ethics & social responsibility, global strategy, cultural diversity—and the impact these trends are having
on the practice of strategic management.

Experiential Exercises
In response to positive reviewer feedback, this edition includes updated Experiential
Exercises. Each chapter includes carefully chosen exercises, many of which are new,

providing ample opportunity for hands-on learning and practice with critical concepts
and tools.

EXPERIENTIAL
COMPLETE
EXERCISES

Chapter Opening Vignettes
Each chapter opens with a short vignette featuring an actual firm to introduce the key points of the chapter and
illustrate their relevance to modern organizations. These vignettes, as will the entire text, feature the authors’ live and
concise writing style, which holds readers’ attention and increases their interest in strategic management.

A Focus on Learning
The text’s student-focused approach is extended into its well-crafted pedagogy, which helps students absorb and
review what they’re learning. These features include knowledge objectives, a running glossary, chapter summaries,
and review questions.

PREFACE

From the authors’ engaging narrative to the text’s well-crafted pedagogy, Strategic
Management sets the standard for accessibility and readability.

v


COMPLETE

We make it easy to craft a winning strategy for teaching
and learning. These exclusive resources will save you time
and will help your students achieve success in your

course and in their business endeavors.
INTERNET RESOURCES
Strategic Management: Competitiveness and Globalization
Product Support Web Site

The companion web site for Strategic Management: Competitiveness and Globalization
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and links to strategic management resources. From a password-protected area, instructors
can easily download the Instructor’s Manual, Test Bank, PowerPoint® slides, Integrated
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For students, The Strategy Suite
brings together complete webbased support including links to
online academic journals, professional societies, and other
business resources. A Case
Analysis Method explains the
case approach, while Your
Career in Management offers a
quick opportunity for students
to explore their personal futures
in management.
Case Financial Analysis: Using BCRC, students are guided through performing a financial analysis of selected cases complete with specific directions to obtain the financial data.

PREFACE

The Business & Company Resource Center (BCRC)

vi

Put a complete business library at your students’
fingertips! This premier online business research tool

allows you and your students to search thousands of
periodicals, journals, references, financial information,
industry reports, and more. This powerful research tool
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case analysis, preparing for a presentation, or writing
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Instructor Resource’s CD-ROM with
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exercise, guides to all available videos, and additional assignments

Instructor Case Notes

0-324-36045-2
Move beyond the typical prepared case notes with this innovative tool! These notes are
team-prepared by six leading experts in the field of strategic management to ensure
usefulness and thorough coverage of case content. All case notes follow a consistent

framework for case analysis. Complete financial analysis for selected cases is supported
by Excel spreadsheets on the Product Support Web Site.

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bank.

ABC Videos

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DVD: 0-324-36271-4 / VHS: 0-324-36270-6
ABC videos feature short, high-interest clips about current news events as well
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vii



Brief
Contents

Part 1

Strategic Management Inputs

1

CHAPTER 1

Strategic Management and Strategic Competitiveness 2

CHAPTER 2

The External Environment: Opportunities,Threats, Industry
Competition, and Competitor Analysis 34

CHAPTER 3

The Internal Environment: Resources, Capabilities, and
Core Competencies 72

Part 2 Strategic Actions: Strategy Formulation 102
CHAPTER 4

Business-Level Strategy 104


CHAPTER 5

Competitive Rivalry and Competitive Dynamics 136

CHAPTER 6

Corporate-Level Strategy 166

CHAPTER 7

Acquisition and Restructuring Strategies 196

CHAPTER 8

International Strategy 228

CHAPTER 9

Cooperative Strategy 266

Part 3

Strategic Actions: Strategy Implementation 298

CHAPTER 10 Corporate Governance 300
CHAPTER 11 Organizational Structure and Controls 334
CHAPTER 12 Strategic Leadership 372

Brief Contents
Contents


CHAPTER 13 Strategic Entrepreneurship 404

viii

Part 4

Cases

NAME INDEX I-1
COMPANY INDEX I-12
SUBJECT INDEX I-16


Preface xxii

Contents

Part 1 Strategic Management Inputs 1
Strategic Management and Strategic
Competitiveness 2
Opening Case: General Motors:How Bright Is the Future? 3
The 21st-Century Competitive Landscape 6
The Global Economy 7
The March of Globalization 8
Technology and Technological Changes 10
Strategic Focus: Amazon.com: Using Technology to Create
Change 12
Strategic Focus: Organizational Change: Be Ready, Because It
Can’t Be Avoided! 14


The I/O Model of Above-Average Returns 15
The Resource-Based Model of Above-Average Returns 17
Vision and Mission 19
Vision 19
Mission 20

Stakeholders 21
Classifications of Stakeholders 21

Strategic Leaders 24
The Work of Effective Strategic Leaders 25
Predicting Outcomes of Strategic Decisions: Profit Pools 25

The Strategic Management Process 26
Summary 28
Review Questions 29
Experiential Exercises 29

The External Environment: Opportunities, Threats,
Industry Competition, and Competitor Analysis 34
Opening Case: General and Competitive Environmental
Influences on U.S.Airlines 35
The General,Industry,and Competitor Environments 37

Contents

Notes 31

ix



External Environmental Analysis 39
Scanning 40
Monitoring 41
Forecasting 41
Assessing 41

Segments of the General Environment 42
The Demographic Segment 42
The Economic Segment 45
The Political/Legal Segment 46
The Sociocultural Segment 47
The Technological Segment 48
The Global Segment 49

Industry Environment Analysis 51
Strategic Focus: The Nature of the Competitive Forces in the
Global Automobile Industry 52
Threat of New Entrants 53
Bargaining Power of Suppliers 56
Bargaining Power of Buyers 57
Threat of Substitute Products 57
Intensity of Rivalry among Competitors 58
Strategic Focus: Satellite TV Service Substitutes for Digital Cable
Service, Which Substitutes for Local Telephone Service 59

Interpreting Industry Analyses 61
Strategic Groups 62
Competitor Analysis 63

Ethical Considerations 65
Summary 66
Review Questions 66
Experiential Exercises 67

Contents

Notes 68

x

CHAPTER 3

The Internal Environment: Resources,
Capabilities, and Core Competencies 72

Opening Case: The Capability to Innovate:A Critical Source of Competitive
Advantage 73
The Nature of Internal Environmental Analysis 75
The Context of Internal Analysis 75
Creating Value 75
The Challenge of Internal Analysis 77


Resources,Capabilities,and Core Competencies 79
Resources 79
Strategic Focus: Human Capital: Underutilizing Valuable Intangible Assets 82
Capabilities 83
Core Competencies 84


Building Core Competencies 85
Four Criteria of Sustainable Competitive Advantage 85
Value Chain Analysis 89

Outsourcing 92
Strategic Focus: Outsourcing—Boon or Bane to Competitiveness? 94

Competencies,Strengths,Weaknesses,and Strategic Decisions 95
Summary 96
Review Questions 97
Experiential Exercises 97
Notes 98

Part 2 Strategic Actions: Strategy
Formulation 102
CHAPTER 4

Business-Level Strategy 104

Opening Case: Lamps of Distinction:Where Did the Customers Go? 105
Customers:Their Relationship with Business-Level Strategies 107
Effectively Managing Relationships with Customers 108
Reach, Richness, and Affiliation 108
Who: Determining the Customers to Serve 109
What: Determining Which Customer Needs to Satisfy 111
How: Determining Core Competencies Necessary to Satisfy Customer Needs 112

The Purpose of a Business-Level Strategy 112
Cost Leadership Strategy 115
Strategic Focus: Beating Wal-Mart: It’s Tough, But It Can Be Done 119

Differentiation Strategy 120
Focus Strategies 125
Integrated Cost Leadership/Differentiation Strategy 127
Strategic Focus: Maytag Corporation: A Cost Leader? A Differentiator? 131

Summary 130
Review Questions 132

Contents

Types of Business-Level Strategies 114

xi


Experiential Exercises 132
Notes 133
CHAPTER 5

Competitive Rivalry and Competitive Dynamics 136

Opening Case: Southwest Airlines:The King of the Hill That Is Changing an
Industry 137
A Model of Competitive Rivalry 139
Competitor Analysis 140
Market Commonality 141
Resource Similarity 142

Drivers of Competitive Actions and Responses 143
Strategic Focus: Is General Motors Stuck in the 1970s? 145


Competitive Rivalry 146
Strategic and Tactical Actions 146

Likelihood of Attack 147
First-Mover Incentives 147
Organizational Size 149
Quality 150

Likelihood of Response 152
Type of Competitive Action 152
Actor’s Reputation 152
Dependence on the Market 153
Strategic Focus: The Continuing Saga of Coke and Pepsi Competition: Has Coke
Fizzled While Pepsi Popped the Top? 154

Competitive Dynamics 155
Slow-Cycle Markets 155
Fast-Cycle Markets 156
Standard-Cycle Markets 158

Summary 159
Contents

Review Questions 161
Experiential Exercises 161
Notes 163

xii


CHAPTER 6

Corporate-Level Strategy 166

Opening Case: Dining Concepts:What Is the Best Combination? 167
Levels of Diversification 169


Low Levels of Diversification 169
Moderate and High Levels of Diversification 171
Strategic Focus: What Is the Best Way to Manage Product Diversification
at GE? 172

Reasons for Diversification 173
Value-Creating Diversification:Related Constrained and Related Linked
Diversification 175
Operational Relatedness: Sharing Activities 175
Corporate Relatedness: Transferring of Core Competencies 176
Market Power 177
Strategic Focus: Adding Maytag’s Products to Whirlpool’s: An Effort to Develop
Market Power 178
Simultaneous Operational Relatedness and Corporate Relatedness 180

Unrelated Diversification 181
Efficient Internal Capital Market Allocation 181
Restructuring of Assets 182

Value-Neutral Diversification:Incentives and Resources 183
Incentives to Diversify 183
Resources and Diversification 187


Value-Reducing Diversification:Managerial Motives to Diversify 188
Summary 190
Review Questions 190
Experiential Exercise 191
Notes 192
CHAPTER 7

Acquisition and Restructuring Strategies 196

Opening Case: Domestic and Cross-Border Acquisitions:Meeting Competitive
Challenges and Acquiring Critical Resources 197
The Popularity of Merger and Acquisition Strategies 199
Mergers, Acquisitions, and Takeovers: What Are the Differences? 200
Increased Market Power 201
Overcoming Entry Barriers 203
Strategic Focus: Mittal Steel Becomes the Largest Worldwide Steel Producer
through a Strategy of Cross-Border Acquisitions 204
Cost of New Product Development and Increased Speed to Market 205
Lower Risk Compared to Developing New Products 206
Increased Diversification 207

Contents

Reasons for Acquisitions 201

xiii


Reshaping the Firm’s Competitive Scope 207

Learning and Developing New Capabilities 208

Problems in Achieving Acquisition Success 208
Integration Difficulties 209
Inadequate Evaluation of Target 210
Large or Extraordinary Debt 211
Inability to Achieve Synergy 211
Too Much Diversification 212
Managers Overly Focused on Acquisitions 213
Too Large 214

Effective Acquisitions 214
Restructuring 216
Downsizing 217
Downscoping 217
Strategic Focus: Restructuring through Firm Spin-offs Allows for Value
Creation 218
Leveraged Buyouts 220
Restructuring Outcomes 220

Summary 222
Review Questions 222
Experiential Exercises 223
Notes 223
CHAPTER 8

International Strategy 228

Opening Case: Chinese Firms’Incentives for Foreign Acquisitions 229
Identifying International Opportunities:Incentives to Use an International

Strategy 232
Increased Market Size 233
Return on Investment 234

Contents

Economies of Scale and Learning 234

xiv

Location Advantages 235

International Strategies 236
International Business-Level Strategy 236
International Corporate-Level Strategy 238

Environmental Trends 241
Strategic Focus: Whirlpool’s Progress toward the Transnational Strategy 242
Liability of Foreignness 243
Regionalization 244

Choice of International Entry Mode 245
Exporting 245


Licensing 246
Strategic Alliances 247
Acquisitions 248
New Wholly Owned Subsidiary 249
Dynamics of Mode of Entry 250


Strategic Competitiveness Outcomes 251
International Diversification and Returns 251
International Diversification and Innovation 252
Complexity of Managing Multinational Firms 253

Risks in an International Environment 253
Political Risks 253
Economic Risks 254
Strategic Focus: Are China and India Changing Their Approach to Intellectual
Property Enforcement? 255
Limits to International Expansion: Management Problems 256

Summary 257
Review Questions 258
Experiential Exercises 259
Notes 260
CHAPTER 9

Cooperative Strategy 266

Opening Case: Using Alliances to Build Greater Value 267
Strategic Alliances as a Primary Type of Cooperative Strategy 269
Three Types of Strategic Alliances 269
Reasons Firms Develop Strategic Alliances 271

Business-Level Cooperative Strategy 273
Complementary Strategic Alliances 274
Competition Response Strategy 276
Uncertainty-Reducing Strategy 276

Competition-Reducing Strategy 277

Corporate-Level Cooperative Strategy 279
Diversifying Strategic Alliance 280
Synergistic Strategic Alliance 280
Franchising 280
Strategic Focus: Franchising Finger Foods the American Way 281
Assessment of Corporate-Level Cooperative Strategies 282

International Cooperative Strategy 283
Network Cooperative Strategy 284
Alliance Network Types 284

Contents

Assessment of Business-Level Cooperative Strategies 278

xv


Strategic Focus: Forming an International Alliance Network for Innovation and Its
Use 285

Competitive Risks with Cooperative Strategies 287
Managing Cooperative Strategies 288
Summary 290
Review Questions 292
Experiential Exercises 292
Notes 293


Part 3 Strategic Actions: Strategy
Implementation 298
CHAPTER 10

Corporate Governance 300

Opening Case: Is Managerial Incentive Compensation Too High? 301
Separation of Ownership and Managerial Control 304
Agency Relationships 305
Product Diversification as an Example of an Agency Problem 306
Agency Costs and Governance Mechanisms 308
Strategic Focus: Sarbanes-Oxley Act Increases Governance Intensity 309

Ownership Concentration 311
The Growing Influence of Institutional Owners 311

Board of Directors 312
Strategic Focus: Governing the CEO 315
Enhancing the Effectiveness of the Board of Directors 316

Executive Compensation 317
A Complicated Governance Mechanism 317
The Effectiveness of Executive Compensation 318

Market for Corporate Control 319

Contents

Managerial Defense Tactics 321


xvi

International Corporate Governance 322
Corporate Governance in Germany 323
Corporate Governance in Japan 324
Global Corporate Governance 325

Governance Mechanisms and Ethical Behavior 325
Summary 326
Review Questions 327
Experiential Exercises 328
Notes 329


CHAPTER 11

Organizational Structure and Controls 334

Opening Case: Sony’s Struggles with Its Online Music Business:Organization
and Cooperation Difficulties among Its Businesses 335
Organizational Structure and Controls 336
Organizational Structure 337
Organizational Controls 337
Strategic Focus: A Change in Structure Leads to Improved Strategy
Implementation at Kellogg Co. 338

Relationships between Strategy and Structure 341
Evolutionary Patterns of Strategy and Organizational Structure 341
Simple Structure 341
Functional Structure 343

Multidivisional Structure 343
Matches between Business-Level Strategies and the Functional Structure 344
Matches between Corporate-Level Strategies and the Multidivisional Structure 347
Matches between International Strategies and Worldwide Structures 354
Strategic Focus: Unilever is Reorganizing to Implement the Transnational Strategy
by Using the Combination Structure 359
Matches between Cooperative Strategies and Network Structures 360

Implementing Business-Level Cooperative Strategies 362
Implementing Corporate-Level Cooperative Strategies 362
Implementing International Cooperative Strategies 363
Summary 364
Review Questions 365
Experiential Exercises 366
Notes 368
CHAPTER 12

Strategic Leadership 372

Strategic Leadership and Style 375
The Role of Top-Level Managers 377
Top Management Teams 377

Managerial Succession 381
Key Strategic Leadership Actions 384
Determining Strategic Direction 384
Effectively Managing the Firm’s Resource Portfolio 385
Strategic Focus: How Do Managers Acquire, Protect, and Use Resources

Contents


Opening Case: Long-Term Vision or Operational Performance? The “Un-Carly”
Takes Hewlett-Packard’s Reins 373

xvii


Wisely? 386
Sustaining an Effective Organizational Culture 389
Strategic Focus: Change Lost in a ‘Sea’ of Organizational Politics 391
Emphasizing Ethical Practices 392
Establishing Balanced Organizational Controls 394

Summary 396
Experiential Exercises 398
Review Questions 397
Notes 399
CHAPTER 13

Strategic Entrepreneurship 404

Opening Case: W.L.Gore & Associates:The Most Innovative Company in
America? 405
Entrepreneurship and Entrepreneurial Opportunities 407
Innovation 408
Entrepreneurs 409
International Entrepreneurship 410
Internal Innovation 411
Strategic Focus: Panera Bread Company: Thriving through Internal
Innovation 412

Incremental and Radical Innovation 413
Autonomous Strategic Behavior 414
Induced Strategic Behavior 416

Implementing Internal Innovations 416
Cross-Functional Product Development Teams 417
Facilitating Integration and Innovation 417
Creating Value from Internal Innovation 418

Innovation through Cooperative Strategies 419
Strategic Focus: Cooperating to Innovate in the DVD Rental and Sales Markets 420
Contents

Innovation through Acquisitions 421

xviii

Creating Value through Strategic Entrepreneurship 422
Summary 423
Review Questions 424
Experiential Exercises 424
Notes 425


Part 4 Cases

Name Index I-1
Company Index I-12
Subject Index I-16


Contents

Preparing an Effective Case Analysis C-iii
Case 1: 9Live: Birth of a TV Channel C-1
Case 2: A.G.Lafley: Innovating P&G’s Innovations C-10
Case 3: AMD in 2005: Coming Out of Intel’s Shadow? C-18
Case 4: Anheuser-Busch and Harbin Brewery Group of China C-30
Case 5: Doing the Right Thing: Bank One’s Response to the Mutual Fund
Scandal C-45
Case 6: China on the I-Way C-53
Case 7: Governance Problems in Citigroup Japan C-60
Case 8: CQUAY Technologies Corp. C-71
Case 9: DaimlerChrysler: Corporate Governance Dynamics in a Global
Company C-80
Case 10: De Beers:End of Monopoly? C-96
Case 11: Dell in China: The Strategic Rethinking C-110
Case 12: Fiat and GM: The Troubled Alliance C-116
Case 13: General Motors Defense C-125
Case 14: Louis V.Gerstner Jr.—The Man Who Turned IBM Around C-133
Case 15: Humana Inc.: Turnaround of a Health Insurer C-141
Case 16: L’Oréal’s Business Strategy C-158
Case 17: Lucchetti C-166
Case 18: Lufthansa 2003: Energizing a Decade of Change C-185
Case 19: MapQuest C-207
Case 20: Marks and Spencer: The Downfall and Leadership Vacuum C-220
Case 21: Mass Retailing in Asia (B) Competition C-227
Case 22: News Corp.in 2005: Consolidating the DirecTV Acquisition C-237
Case 23: Nucor in 2005 C-246
Case 24: ONGC’s Growth Strategy C-269
Case 25: Implementation of the Balanced Scorecard as a Means of Corporate

Learning: The Porsche Case C-277
Case 26: Tata Steel: A Century of Corporate Social Responsibilities C-285
Case 27: Succession Battles at Viacom C-299
Case 28: Shanghai Volkswagen: Implementing Project Management in the
Electrical Engineering Division C-308
Case 29: Wal-Mart Stores Inc.: Dominating Global Retailing C-320
Case 30: Whole Foods Market,2005: Will There Be Enough Organic Food to
Satisfy the Growing Demand? C-334

xix


To all of my current and former students. I am blessed to have the opportunity to teach
and learn from you; there is a little piece of each of you in this book.
—Michael A. Hitt

To Jackson Blair Funkhouser, my wonderful new grandson. My hopes for you are that you will
always smile, that you will open your heart to those who love you, that you will keep the fire
burning, and that you will never forget to dream, baby, dream. I love you, Jackson.
—R. Duane Ireland

To my dear wife, Kathy, who has been my greatest friend and support through life, and I hope
will remain so into the eternities.
—Robert E. Hoskisson


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 7th 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 presented is highly current and relevant
for organizations. In addition, we continuously read articles appearing in many different business publications (e.g., Wall Street Journal, Business Week, Fortune, Barron’s, and
Fast Company, to name just a few) to identify valuable examples of how actual companies use the strategic management process. Many of the hundreds of companies we discuss in the book will be quite familiar to you, but some new and different companies
are also included. In particular, we use examples of companies from across the world to
demonstrate how globalized business has become in the 21st century. To maximize your
opportunities to learn as you read and think about how actual companies are using the
relevant strategic management tools, techniques, and concepts (based in the most current research), we emphasize a lively and user-friendly writing style.
There are several characteristics of this 7th edition of our book that are intended to
enhance your learning opportunities:

Preface

• This book presents you with the most comprehensive and thorough coverage of
strategic 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 (or classical) research provides the foundation for much of what is known
about strategic management, while the most recent contributions reveal insights
about how to effectively use strategic management in the complex, global business
environment in which most firms operate and try to outperform their competitors.
Our book also presents you with many examples of how firms use the strategic
management tools, techniques, and concepts developed by leading researchers.
Indeed, this book is strongly application oriented and presents readers with more
examples and applications of strategic management concepts, techniques, and tools
than all other strategic management texts. In this edition, for example, we examine
more than 600 companies to describe the use of strategic management tools, techniques, or concepts. 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 is available in this text.
• We carefully integrate two of the most popular and well-known theoretical concepts in the strategic management field: industrial-organization economics and the
resource-based view of the firm. Other texts emphasize usually 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 theoretical 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., Richard Bettis, Alfred Chandler,
Kathy Eisenhardt, Sumantra Ghoshal, Don Hambrick, Gary Hamel, Rosabeth Kanter, Rita McGrath, Michael Porter, C. K. Prahalad, Richard Rumelt, Ken Smith,
David Teece, Oliver Williamson, and numerous others) to shape the discussion of
what strategic management is. We describe the practices of prominent executives
and practitioners (e.g., Carlos Gutierrez, Reed Hastings, Jeffrey Immelt, Steven Jobs,

Preface

xxi


Herb Kelleher, Anne Mulcahy, Meg Whitman, and many others) to help us describe
how strategic management is used in many different types of organizations.
• We (authors of this book) are also active scholars. We conduct research on different 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 performance. Thus, our own research is integrated in the appropriate
chapters along with the research of other scholars.
In addition to our book’s characteristics, as listed above, there are some specific features
of this 7th edition that we want to highlight for you:

Preface

• 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 readers with a wealth of examples of how actual organizations, most of which

compete internationally as well as in their home markets, use the strategic management process to increase their ability to compete and achieve higher performance.
• An Exceptional Balance between current research and applications of it in actual
(and mostly widely recognized) organizations. The content has not only the best
research documentation but also the largest amount of effective firm examples to
help active learners understand the different types of strategies that organizations
use to achieve their vision and mission.
• 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 enhanced
financial analyses as part of the Case Notes 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 effectively deal with critical concerns.
• Enhanced Experiential Exercises to support individuals’ efforts to understand how
strategic management is used in all types of organizations.
• 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 competitive rivalry and dynamics, strategic alliances, mergers and acquisitions, international 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.

xxii

To maintain current and up-to-date content, several new concepts are explored in the
7th edition. New content is provided in Chapter 2 on the concept of complementors.
Complementors are a network of companies that sell goods or services that “complement” the focal firm’s own good or service. For example, a range of complements is
necessary to sell automobiles, including financial services to arrange credit, luxury
options including stereo equipment, extended warranties, etc. These complementary
products often facilitate a focal firm’s ability to sell its products to the consumer.
In Chapter 7, we emphasize how cross-border acquisitions are used to implement
firms’ strategies and influence their performance. Examples include the Lenovo Group’s
acquisition of the PC assets of IBM and CNOOC’s failed acquisition of Unocal Corporation. Both Lenovo and CNOOC are Chinese companies. We also emphasize the
restructuring of large diversified business groups such as the Tata Group in India.

One of the interesting ideas newly introduced in Chapter 8 dealing with international strategy is the effect that recent changes in intellectual property right laws have
in both India and China. Multinational firms based in other countries have called for
stronger laws to protect their intellectual property in those countries. Interestingly,


many of India and China’s companies are beginning to emphasize innovation instead of
imitating other multinationals’ products; therefore, these companies welcome stronger
patent protections for intellectual property that they develop.
In Chapter 10, we examine the current impact on firms of the Sarbanes-Oxley
(SOX) Act enacted by the U.S. Congress. Although the legal changes were strongly
desired by the market, they have increased the intensity of corporate governance mechanisms and have been costly to firms while simultaneously making the strategic management process more risk averse and conservative.
New structures used by transnational firms are described in Chapter 11. Two alternative
structures are illustrated as we discover new ways that firms are implementing this emerging strategy to compete globally. The new strategy and structure combinations are illustrated in changes at Unilever Corporation, exemplifying the evolution in structural design.
In Chapter 12, “Strategic Leadership,” the discussion of managing the firm’s
resource portfolio has been further enriched with particular focus on the development
and use of human capital and social capital.

Supplements
INSTRUCTORS
IRCD (0-324-36044-4) Key ancillaries (Instructor’s Resource Manual, Instructor’s
Case Notes, Test Bank, ExamView, PowerPoint® and Case Analysis Questions Using
Business & Company Resource Center) are provided on CD-ROM, giving instructors the
ultimate tool for customizing lectures and presentations.
Instructor Case Notes (0-324-36045-2) Prepared by six exceptional case note
writers: R. Apana, University of Cincinnati; Charles Byles, Virginia Commonwealth
University; Joyce Claterbos, University of Kansas; Tammy Ferguson, University of
Louisiana, Lafayette; Marta White, Georgia State University; and Paul Mallette, Colorado
State University. All new case notes provide details about the 30 cases found in the
second part of the main text. The case notes writers provide consistent and thorough
support for instructors, following the method espoused by the author team for

preparing an effective case analysis. The case notes for the 7th edition have been written
in great detail and include questions and answers throughout along with industry and
company background and resolutions wherever possible. Financial analyses of the cases
are provided on our product support website for both students and instructors.
Instructor’s Resource Manual (0-324-36043-6) Prepared by Leslie E. Palich,

Certified Test Bank (0-324-36041-X) Prepared by Janelle Dozier and verified for
accuracy by Amyn Rehman Dhamani. Thoroughly revised and enhanced, test bank
questions are linked to each chapter’s knowledge objectives and are ranked by difficulty
and question type. We provide an ample number of application questions throughout
and we have also retained scenario-based questions as a means of adding in-depth
problem-solving questions. With this edition, we introduce the concept of certification,
whereby another qualified academic has proofread and verified the accuracy of the test
bank questions and answers. The test bank material is also available in computerized
ExamView™ format for creating custom tests in both Windows and Macintosh formats.

Preface

Baylor University. The Instructor’s Resource Manual, organized around each chapter’s
knowledge objectives, includes ideas about how to approach each chapter and how to
reinforce essential principles with extra examples. The support product includes lecture
outlines, detailed answers to end-of-chapter review questions, instructions for using
each chapter’s experiential exercises, and additional assignments.

xxiii


ExamView™ (0-324-36038-X) Computerized testing software contains all of the
questions in the certified printed test bank. This program is an easy-to-use test creation
software compatible with Microsoft Windows. Instructors can add or edit questions,

instructions, and answers, and select questions by previewing them on the screen,
selecting them randomly, or selecting them by number. Instructors can also create and
administer quizzes online, whether over the Internet, a local area network (LAN), or a
wide area network (WAN).

Transparency Acetates (0-324-36040-1) Key figures from the main text have been
re-created as colorful and attractive overhead transparencies for classroom use.
PowerPoint (available on the IRCD: 0-324-36043-6) Prepared by Charlie Cook,
University of West Alabama. An all-new PowerPoint presentation, created for the 7th
edition, provides support for lectures emphasizing key concepts, key terms, and
instructive graphics. Slides can also be used by students as an aid to note-taking.

WebTutorTM WebTutor is used by an entire class under the direction of the instructor
and is particularly convenient for distance learning courses. It provides Web-based
learning resources to students as well as powerful communication and other course
management tools, including course calendar, chat, and e-mail for instructors.
WebTutor is available on WebCT (0-324-43110-4) and Blackboard (0-324-43111-2).
See for more information.

Product Support Website () Our product support
website contains all ancillary products for instructors as well as the financial analysis
exercises for both students and instructors.

JoinIn™ on TurningPoint® Transform any lecture into a truly interactive student
experience with JoinIn. Combined with your choice of several leading keypad systems,
JoinIn turns your ordinary PowerPoint® application into powerful audience response
software. With just a click on a handheld device, your students can respond to
multiple-choice questions, short polls, interactive exercises, and peer review questions.
You can take attendance, check student comprehension of difficult concepts, collect
student demographics to better assess student needs, and even administer quizzes

without collecting papers or grading. In addition, we provide interactive text-specific
slide sets that you can modify and merge with any existing PowerPoint lecture slides for
a seamless classroom presentation. This interactive tool is available to qualified college
and university adopters. For more information, contact your Thomson representative or
visit .

Preface

The Business & Company Resource Center (BCRC) Put a complete business

xxiv

library at your students’ fingertips! This premier online business research tool allows
you and your students to search thousands of periodicals, journals, references, financial
information, industry reports, and more. This powerful research tool saves time for
students—whether they are preparing for a presentation or writing a reaction paper. You
can use the BCRC to quickly and easily assign readings or research projects. Visit
to learn more about this power tool. For this text in
particular, BCRC will be especially useful in further researching the companies featured
in the text’s 30 cases. Finally, we have incorporated data from BCRC into the exercises
for financial analysis to facilitate students’ research and help them focus their attention
on honing their skills in financial analysis (see Web site).

Resource Integration Guide When you start with a new—or even familiar—text,
the amount of supplemental material can seem overwhelming. Identifying each element