About the Authors vii Preface ix Acknowledgements xiii 1 What is Business Strategy? 1 What is Business Strategy? 2 Competitive Advantage 3 The Strategic Management Process 4 What Information and Analysis Guides Strategy Formulation? 7 Mission 8 External Analysis 8 Internal Analysis 9 How are Strategies Formulated? 10 Strategy Vehicles for Achieving Strategic Objectives 10 Strategy Implementation 11 Who is Responsible for Business Strategy? 12 Who Benefits from a Good Business Strategy? 13 Summary 14 Key Terms 14 Review Questions 15 Application Exercises 15 References 15 2 Analysis of the External Environment: Opportunities and Threats 17 Determining the Right Landscape: Defining a Firm''s Industry 19 Five Forces that Shape Average Profitability Within Industries 21 Rivalry: Competition Among Established Companies 21 Buyer Power: Bargaining Power and Price Sensitivity 24 Supplier Bargaining Power 25 Threat of New Entrants 26 Threat of Substitute Products 28 Overall Industry Attractiveness 29 Where Should We Compete? New Thinking About the Five Forces and Industry Attractiveness 30 How the General Environment Shapes Firm and Industry Profitability 31 Complementary Products or Services 33 Technological Change 33 General Economic Conditions 34 Demographic Forces 35 Ecological/Natural Environment 35 Global Forces 36 Political, Legal, and Regulatory Forces 36 Social/Cultural Forces 36 Summary 37 Key Terms 37 Review Questions 37 Application Exercises 38 Strategy Tool 38 References 42 3 Internal Analysis: Strengths, Weaknesses, and Competitive Advantage 44 The Value Chain 46 The Resource-Based View 47 Resources 47 Capabilities 47 Priorities 49 Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability 49 Value 50 Rarity 50 Inimitability 50 Organized to Exploit 53 Assessing Competitive Advantage with VRIO 53 The Competitive Advantage Pyramid: A Tool for Assessing Competitive Advantage 54 Gathering Data for the Competitive Advantage Pyramid Analysis 55 Using the Competitive Advantage Pyramid 56 Summary 58 Key Terms 58 Review Questions 58 Application Exercises 59 References 59 4 Cost Advantage 61 Economies of Scale and Scope 63 Ability to Spread Fixed Costs of Production 63 Ability to Spread Nonproduction Costs 63 Specialization of Machines and Equipment 64 Specialization of Tasks and People 64 Evaluating Economies of Scale: The Scale Curve 65 Economies of Scope 66 Learning and Experience 67 The Learning Curve 67 The Experience Curve 67 Experience Curves and Market Share 69 How Strategists Use the Scale and Experience Curves to Make Decisions 70 Proprietary Knowledge 72 Lower Input Costs 72 Bargaining Power over Suppliers 72 Cooperation with Suppliers 73 Location Advantages 73 Preferred Access to Inputs 74 Different Business Model or Value Chain 74 Eliminating Steps in the Value Chain 74 Performing Completely New Activities 74 Revisiting Tata 75 Summary 75 Key Terms 76 Review Questions 76 Application Exercises 76 Strategy Tool 76 References 77 5 Differentiation Advantage 79 What is Product Differentiation? 80 Sources of Product Differentiation 81 Different Product/Service Features 81 Quality or Reliability 83 Convenience 83 Brand Image 85 How to Find Sources of Product Differentiation 85 Customer Segmentation 85 Mapping the Consumption Chain 88 Building the Resources and Capabilities to Differentiate 91 New Thinking: Achieving Low Cost and Differentiation 92 Assessing Differentiation Performance 93 Strategy in Your Career: What is Your Unique Value? 94 Summary 94 Key Terms 95 Review Questions 95 Application Exercises 95 Strategy Tool 95 References 96 6 Corporate Strategy 98 Corporate Versus Business Unit Strategy 99 Creating Value Through Diversification 100 Levels of Diversification 100 Value Creation: Exploit and Expand Resources and Capabilities 101 The Eight Ss 102 Destroying Value Through Diversification 106 Methods of Diversification 108 The Acquisition and Integration Process 109 Making the Acquisition 109 Integrating the Target 109 Summary 113 Key Terms 114 Review Questions 114 Application Exercises 114 References 115 7 Vertical Integration and Outsourcing 117 What is Vertical Integration? 118 The Value Chain 119 Forward Integration and Backward Integration 119 Three Key Reasons to Vertically Integrate 120 Capabilities 120 Coordination 121 Control 123 Dangers of Vertical Integration 124 Loss of Flexibility 124 Loss of Focus 125 Advantages of Outsourcing 126 Dangers of Outsourcing 128 Summary 129 Key Terms 129 Review Questions 129 Application Exercises 130 Strategy Tool 130 References 131 8 Strategic Alliances 133 What is a Strategic Alliance? 134 Choosing an Alliance 135 Types of Alliances 137 Nonequity or Contractual Alliance 137 Equity Alliance 138 Joint Venture 138 Vertical and Horizontal Alliances 138 Ways to Create Value in Alliances 140 Combine Unique Resources 140 Pool Similar Resources 141 Create New, Alliance-Specific Resources 142 Lower Transaction Costs 142 The Risks of Alliances 143 Hold-Up 143 Misrepresentation 143 Building Trust to Lower the Risks of Alliances 143 Building an Alliance Management Capability 146 Improves Knowledge Management 146 Increases External Visibility 146 Provides Internal Coordination 147 Facilitates Intervention and Accountability 147 Summary 148 Key Terms 148 Review Questions 148 Application Exercises 149 Strategy Tool 149 References 150 9 International Strategy 152 The Globalization of Business 153 Why Firms Expand Internationally 155 Growth 155 Efficiency 156 Managing Risk 157 Knowledge 157 Responding to Customers or Competitors 158 Where Firms Should Expand 158 Cultural Distance 159 Administrative Distance 160 Geographic Distance 161 Economic Distance 161 How Firms Compete Internationally 162 Multidomestic Strategy--Adapt to Fit the Local Market 163 Global Strategy--Aggregate and Standardize to Gain Economies of Scale 165 Arbitrage Strategy 166 Combining International Strategies 167 How a Firm Gets into a Country: Modes of Entry 168 Exporting 168 Licensing and Franchising 168 Alliances and Joint Ventures 169 Wholly Owned Subsidiaries 170 Choosing a Mode of Entry 171 Summary 171 Key Terms 172 Review Questions 172 Application Exercises 172 Strategy Tool 173 References 174 10 Innovative Strategies That Change the Nature of Competition 177 What is an Innovative Strategy? 178 Incremental Versus Radical Innovation 179 Categories of Innovative Strategies 181 Reconfiguring the Value Chain to Eliminate Activities (Disintermediation) 181 Low-End Disruptive Innovations 182 High-End/Top-Down Disruptive Innovations 184 Reconfiguring the Value Chain to Allow for Mass Customization 185 Blue Ocean Strategy--Creating New Markets by Targeting Nonconsumers 185 Create a Platform to Coordinate and Share Private Assets 186 Free Business/Revenue Models 187 Hypercompetition: The Accelerating Pace of Innovation 189 Innovation and the Product/Business/Industry Life Cycle (S-Curve) 190 Introduction Stage 190 Growth Stage 190 Maturity Stage 191 Decline Stage 191 Summary 192 Key Terms 192 Review Questions 192 Application Exercises 192 References 193 11 Competitive Strategy and Sustainability 194 Understanding the Competitive Landscape 195 Strategic Groups and Mobility Barriers 195 Strategy Canvas 197 Evaluating the Competition 199 What Drives the Competitor? 200 What is the Competitor Doing or Capable of Doing? 200 How Will a Competitor Respond to Specific Moves? 200 Using Game Theory to Evaluate Specific Moves 201 Principles of Competitive Strategy 205 Know Your Strengths and Weaknesses 205 Bring Strength Against Weakness 205 Protect and Neutralize Vulnerabilities 205 Develop Strategies That Cannot Be Easily Copied 206 Competitive Actions for Different Market Environments 206 Competition Under Monopoly 206 Competition Under Oligopoly 207 "Perfect" Competition 208 Dynamic Environments 210 Sustaining Competitive Advantage 210 Summary 212 Key Terms 212 Review Questions 212 Application Exercises 213 Strategy Tool 213 References 213 12 Implementing Strate.