Strategy and Value Creation Discussion

C O N T E M POR A R Y
S T R ATE GY
A N A LYSI S
CONT EMPORARY
ST RATEGY
A NALYSIS
TENTH EDITION
ROBERT M. GRANT
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Names: Grant, Robert M., 1948? author.
Title: Contemporary strategy analysis / Robert M. Grant.
Description: Tenth edition. | Hoboken, NJ : Wiley & Sons, 2018. | Includes
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To Liam, Ava, Finn, Evie, Max, Lucy, and Bobby
BRIEF CONTENTS
Author Biography
Preface to Tenth Edition
PART I
1
INTRODUCTION
The Concept of Strategy
xiv
xv
1
3
PART II THE TOOLS OF STRATEGY ANALYSIS
31
2
Goals, Values, and Performance
33
3
Industry Analysis: The Fundamentals
59
4
Further Topics in Industry and Competitive Analysis
83
5
Analyzing Resources and Capabilities
107
6
Organization Structure and Management Systems:
The ?Fundamentals of Strategy Implementation
131
PART III BUSINESS STRATEGY AND THE QUEST FOR
COMPETITIVE ADVANTAGE
153
7
The Sources and Dimensions of Competitive Advantage
155
8
Industry Evolution and Strategic Change
189
9
Technology-Based Industries and the
Management of Innovation
219
PART IV
CORPORATE STRATEGY
249
10 Vertical Integration and the Scope of the Firm
251
11 Global Strategy and the Multinational Corporation
269
12 Diversification Strategy
297
viii BRIEF CONTENTS
13 Implementing Corporate Strategy: Managing
the Multibusiness Firm
315
14 External Growth Strategies: Mergers, Acquisitions,
and Alliances
340
15 Current Trends in S
? trategic Management
360
CASES TO ACCOMPANY CONTEMPORARY STRATEGY
ANALYSIS, TENTH EDITION
Glossary
Index
637
643
CONTENTS
Author Biography
Preface to Tenth Edition
xiv
xv
PART I INTRODUCTION
1
1
3
The Concept of Strategy
Introduction and Objectives
The Role of Strategy in Success
The Basic Framework for Strategy Analysis
A Brief History of Business Strategy
Strategy Today
How is Strategy Made? The Strategy Process
Strategic Management of Not-For-Profit Organizations
Summary
Self-Study Questions
Notes
4
4
9
11
14
20
24
26
28
28
PART II THE TOOLS OF STRATEGY ANALYSIS
31
2
Goals, Values, and Performance
33
Introduction and Objectives
Strategy as a Quest for Value
Profit, Cash Flow, and Enterprise Value
Putting Performance Analysis into Practice
Beyond Profit: Values and Corporate Social Responsibility
Beyond Profit: Strategy and Real Options
Summary
Self-Study Questions
Notes
34
35
39
42
49
53
56
57
57
Industry Analysis: The Fundamentals
59
Introduction and Objectives
From Environmental Analysis to Industry Analysis
Analyzing Industry Attractiveness
Applying Industry Analysis to Forecasting Industry Profitability
Using Industry Analysis to Develop Strategy
Defining Industries: Where to Draw the Boundaries
From Industry Attractiveness to Competitive Advantage:
Identifying Key Success Factors
60
60
62
71
74
75
3
77
x CONTENTS
4
5
6
Summary
Self-Study Questions
Notes
80
81
81
Further Topics in Industry and Competitive Analysis
83
Introduction and Objectives
The Limits of Industry Analysis
Beyond the Five Forces: Complements, Ecosystems, and Business Models
Competitive Interaction: Game Theory and Competitor Analysis
Segmentation and Strategic Groups
Summary
Self-Study Questions
Notes
84
84
86
91
98
103
103
104
Analyzing Resources and Capabilities
107
Introduction and Objectives
The Role of Resources and Capabilities in Strategy Formulation
Identifying Resources and Capabilities
Appraising Resources and Capabilities
Developing Strategy Implications
Summary
Self-Study Questions
Notes
108
108
112
119
123
128
129
130
Organization Structure and Management Systems:
The ?Fundamentals of Strategy Implementation
131
Introduction and Objectives
Strategy Formulation and Strategy Implementation
The Fundamentals of Organizing: Specialization,
Cooperation, and Coordination
Developing Organizational Capability
Organization Design
Summary
Self-Study Questions
Notes
132
133
136
139
142
150
150
151
PART III BUSINESS STRATEGY AND THE QUEST
FOR COMPETITIVE ADVANTAGE
153
7
The Sources and Dimensions of Competitive Advantage
155
Introduction and Objectives
How Is Competitive Advantage Established?
How Is Competitive Advantage Sustained?
Cost Advantage
Differentiation Advantage
Can Firms Pursue Both Cost and Differentiation Advantage?
156
156
162
166
173
184
CONTENTS xi
8
9
Summary
Self-Study Questions
Notes
185
186
186
Industry Evolution and Strategic Change
189
Introduction and Objectives
The Industry Life Cycle
The Challenge of Organizational Adaptation and Strategic Change
Managing Strategic Change
Summary
Self-Study Questions
Notes
190
191
198
204
215
215
216
Technology-Based Industries and the
Management of Innovation
219
Introduction and Objectives
Competitive Advantage in Technology-Intensive Industries
Strategies to Exploit Innovation: How and When to Enter
Standards, Platforms, and Network Externalities
Implementing Technology Strategies: Internal and External
Sources of Innovation
Implementing Technology Strategies: Organizing for Innovation
Summary
Self-Study Questions
Notes
220
221
227
232
238
242
245
246
246
PART IV CORPORATE STRATEGY
249
10 Vertical Integration and the Scope of the Firm
251
Introduction and Objectives
Transaction Costs and the Scope of the Firm
The Benefits and Costs of Vertical Integration
Designing Vertical Relationships
Summary
Self-Study Questions
Notes
11 Global Strategy and the Multinational Corporation
Introduction and Objectives
Implications of International Competition for Industry Analysis
Analyzing Competitive Advantage in an International Context
Internationalization Decisions: Locating Production
Internationalization Decisions: Entering a Foreign Market
Multinational Strategies: Global Integration versus
National Differentiation
Implementing International Strategy: Organizing the
Multinational Corporation
252
252
256
263
266
266
267
269
270
271
273
276
278
281
287
xii CONTENTS
Summary
Self-Study Questions
Notes
12 Diversification Strategy
Introduction and Objectives
Motives for Diversification
Competitive Advantage from Diversification
Diversification and Performance
The Meaning of Relatedness in Diversification
Summary
Self-Study Questions
Notes
293
294
295
297
298
299
303
307
309
311
312
312
13 Implementing Corporate Strategy: Managing the Multibusiness
Firm
315
Introduction and Objectives
The Role of Corporate Management
Managing the Corporate Portfolio
Managing Linkages Across Businesses
Managing Individual Businesses
Managing Change in the Multibusiness Corporation
Governance of Multibusiness Corporations
Summary
Self-Study Questions
Notes
14 External Growth Strategies: Mergers, Acquisitions,
and Alliances
Introduction and Objectives
Mergers and Acquisitions
Strategic Alliances
Summary
Self-Study Questions
Notes
15 Current Trends in ?Strategic Management
Introduction
The New Environment of Business
New Directions in Strategic Thinking
Redesigning Organizations
The Changing Role of Managers
Summary
Notes
316
316
317
319
323
329
333
337
338
338
340
341
342
351
357
357
358
360
361
361
365
369
371
372
373
CONTENTS xiii
CASES TO ACCOMPANY CONTEMPORARY STRATEGY
ANALYSIS, TENTH EDITION
1
Tough Mudder Inc.: Building Leadership in Mud Runs
375
2
Kering SA: Probing the Performance Gap with LVMH
384
3
Pot of Gold? The US Legal Marijuana Industry
393
4
The US Airline Industry in 2018
403
5
The Lithium-Ion Battery Industry
415
6
Walmart Inc. in 2018: The World?s Biggest Retailer Faces
New Challenges
428
7
Harley-Davidson, Inc. in 2018
442
8
BP: Organizational Structure and Management Systems
455
9
Starbucks Corporation, March 2018
462
10 Eastman Kodak?s Quest for a Digital Future
475
11 The New York Times: Adapting to the Digital Revolution
492
12 Tesla: Disrupting the Auto Industry
503
13 Video Game Console Industry in 2018
515
14 Eni SpA: The Corporate Strategy of an International
Energy Major
527
15 Zara: Super-Fast Fashion
546
16 Manchester City: Building a Multinational Soccer Enterprise
554
17 Haier Group: Internationalization Strategy
566
18 The Virgin Group in 2018
577
19 Google Is Now Alphabet?But What?s the Corporate Strategy?
587
20 Restructuring General Electric
600
21 Walt Disney, 21st Century Fox, and the Challenge of New Media 617
22 W. L. Gore & Associates: Rethinking Management
629
Glossary
Index
637
643
AUTHOR BIOGRAPHY
Robert M. Grant is Professor of Strategic Management at Bocconi University, Milan,
Italy and a Visiting Professor at Cass Business School, London. He was born in Bristol,
England and has taught at Georgetown University, London Business School, University of British Columbia, California Polytechnic, UCLA, Insead, and University of South
Africa. His business experience includes making tires (Firestone) and meat pies (Kraft
Foods) and strategy consulting at American Express, Eni, BP, and other companies.
PREFACE T O
TENTH EDITION
Contemporary Strategy Analysis equips managers and students of management with
the concepts and frameworks needed to make better strategic decisions. My goal is
a strategy text that reflects the dynamism and intellectual rigor of this ?fast-developing
field of management and takes account of the strategy issues that companies face today.
Contemporary Strategy Analysis endeavors to be both rigorous and relevant. While
embodying the latest thinking in the strategy field, it aims to be accessible to students
from different backgrounds and with varying levels of experience. I achieve this accessibility by combining clarity of exposition, concentration on the fundamentals of value
creation, and an emphasis on practicality.
This tenth edition maintains the book?s focus on the essential tasks of strategy: identifying the sources of superior business performance and formulating and implementing a strategy that exploits these sources of superior performance. At the same time,
the content of the book has been revised to reflect recent developments in the business
environment and in strategy research.
Distinctive features of the tenth edition include:
??
??
??
??
More explicit guidance on how to apply the tools of strategy to analyze strategic
situations and develop strategy recommendations. See, in particular: ?Applying
Strategy Analysis? in Chapter 1, ?Putting Performance Analysis into Practice?
in Chapter 2, ?Using Industry Analysis to Develop Strategy? in Chapter 3, and
?Developing Strategy Implications? [from the analysis of resources and capabilities] in Chapter 5.
Increased emphasis on strategy making under conditions of technological
change?especially in digital markets where strategy analysis must take account
of complements, network externalities, platform-based competition, and the
application of innovative business models to complex business ecosystems (see
Chapters 4, 8, and 9).
Integration of stakeholder interests and corporate social responsibility within a
view of the firm as an institution for creating value (Chapter 2).
An updated approach to strategy implementation. While maintaining an
integrated approach to strategy formulation and strategy implementation,
?Chapters 6, 8, and 13 offers a systematic approach to strategy execution that
the role of organizational capabilities and capability development in guiding resource allocation, and the design of organizational structures and
management systems.
My thanks to my editorial and production team at Wiley, especially to Lise Johnson,
Judy Howarth, and S. Indirakumari; and to Mary Fogarty and Nitish Mohan for their
xvi PREFACE TO TENTH EDITION
assistance. This tenth edition of Contemporary Strategy Analysis has benefitted hugely
from feedback and suggestions from users?both instructors and students. I thank you
and look forward to continuing my engagement with you. Please feel free to contact me at
[email protected].
Robert M. Grant
I
INTRODUCTION
1 The Concept of Strategy
1
The Concept of Strategy
Strategy is the great work of the organization. In situations of life or death, it is the Tao
of survival or extinction. Its study cannot be neglected.
?SUN TZU, THE ART OF WAR
To shoot a great score you need a clever strategy.
?RORY MCILROY, GOLF MONTHLY, MAY 19, 2011
Everybody has a plan until they get punched in the mouth.
?MIKE TYSON, FORMER WORLD HEAVYWEIGHT BOXING CHAMPION
OUTLINE
??
Introduction and Objectives
??
Corporate and Business Strategy
??
The Role of Strategy in Success
??
Describing Strategy
??
The Basic Framework for Strategy Analysis
??
??
??
??
Strategic Fit
A Brief History of Business Strategy
??
Origins and Military Antecedents
??
From Corporate Planning to Strategic Management
Strategy Today
How Is Strategy Made? The Strategy Process
??
Design versus Emergence
??
Applying Strategy Analysis
??
Strategic Management of Not-For-Profit
?Organizations
??
Summary
What Is Strategy?
??
??
Self-Study Questions
??
Why Do Firms Need Strategy?
??
Notes
??
Where Do We Find Strategy?
4 PART I INTRODUCTION
Introduction and Objectives
Strategy is about achieving success. This chapter explains what strategy is and why it is important to
success, for both organizations and individuals. We will distinguish strategy from planning. Strategy is
not a detailed plan or program of instructions; it is a unifying theme that gives coherence and direction
to the actions and decisions of an individual or an organization.
The principal task of this chapter will be to introduce the basic framework for strategy analysis that
underlies this book. This framework comprises two components of strategy analysis: analysis of the
external environment of the firm (mainly industry analysis) and analysis of the internal environment
(primarily analysis of the firm?s resources and capabilities). We shall then examine what strategy is, how it
has developed over time, how to describe the strategy of a business enterprise, and how organizations
go about making strategy.
By the time you have completed this chapter, you will be able to:
??
Appreciate the contribution that strategy can make to successful performance and recognize the essential components of an effective strategy.
??
Comprehend the basic framework of strategy analysis that underlies this book.
??
Recognize how strategic management has evolved over the past 60 years.
??
Identify and describe the strategy of a business enterprise.
??
Understand how strategy is made within organizations.
??
Recognize the distinctive features of strategic management among not-for-profit organizations.
Since the purpose of strategy is to help us to win, we start by looking at the role of strategy in success.
The Role of Strategy in Success
Strategy Capsules 1.1 and 1.2 describe the careers of two individuals, Queen Elizabeth
II and Lady Gaga, who have been outstandingly successful in leading their organizations. Although these two remarkable women operate within vastly different arenas,
can their success be attributed to any common factors?
For neither of them can success be attributed to overwhelmingly superior resources.
For all of Queen Elizabeth?s formal status as head of state, she has very little real power
and, in most respects, is a servant of the democratically elected British government.
Lady Gaga is clearly a creative and capable entertainer, but few would claim that
she entered the music business with outstanding talents as a vocalist, musician, or
songwriter.
CHAPTER 1 The Concept of Strategy 5
Nor can their success be attributed either exclusively or primarily to luck. Both have
experienced difficulties and setbacks at different stages of their careers. Central to their
success, however, has been their ability to respond to events?whether positive or negative?with flexibility and clarity of direction.
My contention is that, common to both the 60-year successful reign of Queen Elizabeth II and the short but stellar career of Lady Gaga, is the presence of a soundly formulated and effectively implemented strategy. While these strategies did not exist as
explicit plans, for both Queen Elizabeth and Lady Gaga we can discern a consistency
of direction based upon clear goals and an ability to bend circumstances toward their
desired outcomes.
Elizabeth Windsor?s strategy as queen of the UK and the Commonwealth countries
is apparent in the relationship she has created between herself and her people. As
queen she is figurehead for the nation, an embodiment of its stability and continuity, a
symbol of British family and cultural life, and an exemplar of service and professional
dedication.
Lady Gaga?s remarkable success during 2008?18 reflects a career strategy that uses
music as a gateway to celebrity status, which she has built by combining the generic
tools of star creation?shock value, fashion leadership, and media presence?with a
uniquely differentiated image that has captured the attention and loyalty of teenagers
and young adults throughout the world.
What do these two examples tell us about the characteristics of a strategy that are
conducive to success? In both stories, four common factors stand out (Figure 1.1):
??
??
??
??
Goals that are consistent and long term: Both Queen Elizabeth and Lady
Gaga display a focused commitment to career goals that they have pursued
steadfastly.
Profound understanding of the competitive environment: The ways in
which both Elizabeth II and Lady Gaga define their roles and pursue their
careers reveal a deep and insightful appreciation of the external environments in which they operate. Queen Elizabeth has been alert both to the
changing political environment in which the monarchy is situated and to the
mood and needs of the British people. Lady Gaga?s business model and strategic positioning show a keen awareness of the changing economics of the
music business, the marketing potential of social networking, and the needs
of Generation Y.
Objective appraisal of resources: Both Queen Elizabeth and Lady Gaga have
been adept at recognizing and deploying the resources at their disposal, and
also building those resources?for the Queen, this has included her family, the
royal household, and the recipients of royal patronage; for Lady Gaga, it comprises the creative talents of her Haus of Gaga.
Effective implementation: Without effective implementation, the best-laid strategies are of little use. Critical to the success of Queen Elizabeth and Lady Gaga
has been their effectiveness coordinating and leading ?ecosystems? of supportive individuals and organizations.
These observations about the role of strategy in success can be made in relation
to most fields of human endeavor. Whether we look at warfare, chess, politics, sport,
or business, the success of individuals and organizations is seldom the outcome of a
6 PART I INTRODUCTION
STRATEGY CAPSULE 1.1
Queen Elizabeth II and the House of Windsor
By late 2018, Elizabeth Windsor had been queen for 66
herself. According to her website, she ?has a less formal
years?longer than any of her predecessors.
role as Head of Nation? where she ?acts as a focus for
At her birth on April 21, 1926, 45 other countries were
national identity, unity and pride; gives a sense of sta-
hereditary monarchies. By 2018, the forces of democracy,
bility and continuity; officially recognises success and
modernity, and reform had reduced these to 26?mostly
excellence; and supports the ideal of voluntary service?
small autocracies such as Bahrain, Qatar, Oman, Kuwait,
(www.royal.gov.uk).
Bhutan, and Lesotho. Monarchies had also survived in
How has Queen Elizabeth been able to retain not
Denmark, Sweden, Norway, the Netherlands, and Bel-
just the formal position of the monarchy but also its
gium, but these royal families had lost most of their
status, influence, and wealth despite so many chal-
wealth and privileges.
lenges? These include wrenching social and political
By contrast, the British royal family retains con-
changes and the trials of leading such a famously
siderable wealth?the Queen?s personal net worth
?dysfunctional family?including the failed marriages
is about $500 million?not including the $10 billion
of most of her children and the controversy that sur-
worth of palaces and other real estate owned by the
rounded the life and death of her daughter-in-law,
nation but used by her and her family. Queen Eliza-
Diana, Princess of Wales.
beth?s formal status is head of state of the UK and 15
At the heart of Elizabeth?s sustaining of the British
other Commonwealth countries (including Canada and
monarchy has been her single-minded devotion to what
Australia), head of the Church of England, and head of
she regards as her duties to the monarchy and to the
the British armed forces. Yet none of these positions
nation. In cultivating her role as leader of her nation, she
confers any decision-making power?her influence
has preserved her political neutrality?even when she
comes from the informal role she has established for
has disagreed with her prime ministers (notably with
purely random process. Nor is superiority in initial endowments of skills and resources
typically the determining factor. Strategies that build on these four elements almost
always play an influential role.
Look at the ?high achievers? in any competitive area. Whether we review the
world?s political leaders, the CEOs of the Fortune 500, or our own circles of friends
and acquaintances, those who have achieved outstanding success in their careers
are seldom those who possessed the greatest innate abilities. Success has gone to
those who managed their careers most effectively, typically by combining these
four strategic factors. They are goal focused; their career goals have taken primacy over the multitude of life?s other goals?friendship, love, leisure, knowledge,
spiritual fulfillment?which the majority of us spend most of our lives juggling and
reconciling. They know the environments within which they play and tend to be
fast learners in terms of recognizing the paths to advancement. They know themselves well in terms of both strengths and weaknesses. Finally, they implement
CHAPTER 1 The Concept of Strategy 7
Margaret Thatcher?s ?socially divisive? policies and Tony
Blair?s sending troops to Iraq and Afghanistan).
While respecting tradition and protocol, she adapts
in the face of pressing circumstances. The death of her
Through her outreach activities she promotes British
daughter-in-law, Diana, created difficult tensions bet-
influence, British culture, and British values within the
ween her responsibilities as mother and grandmother
wider world. She has made multiple visits to each of the
and her need to show leadership to a grieving nation.
54 Commonwealth nations, including 27 to Canada and
In responding to this crisis she recognized the need to
16 to Australia.
depart from established traditions.
The growing unacceptability of hereditary privilege
Elizabeth has made effective use of the resources
and the traditional British class system has required her
available to her?especially the underlying desire of
to reposition the royal family from being the leader of
the British people for continuity and their inherent
the ruling class to embodying the nation as a whole. To
distrust of their political leaders. By positioning
make her and her family more inclusive and less socially
?herself above the political fray and emphasizing her
stereotyped she has cultivated involvement with
lineage?including the prominent public roles of her
popular culture, with ordinary people engaged in social
mother and her children and grandchildren?she
service and charitable work, and she has endorsed the
?reinforces the legitimacy of herself, her family, and the
marriage of her grandsons William and Harry?the first
institution they represent. She has also exploited her
members of the royal family to marry outside the ranks
powers of patronage, using her formal position to cul-
of the aristocracy.
tivate informal relationships with both political and
Elizabeth has been adept at exploiting new media
cultural leaders.
for communicating both with her subjects and with a
The success of Elizabeth?s 66-year reign is indicated
wider global audience: initially through television, more
by the popular support for her personally and for the
recently using the web, Twitter, and Facebook. Her press
institution of the monarchy. Outside of Northern Ireland
and public relations staff comprises top professionals
and Quebec, republicanism is weak throughout the
who report to her private secretary.
British Commonwealth.
their career strategies with commitment, consistency, and determination. As the
management guru Peter Drucker observed: ?we must learn how to be the CEO of
our own career.?1
There is a downside, however. Focusing on a single goal may lead to outstanding
success but may be matched by dismal failure in other areas of life. Many people who
have reached the pinnacles of their careers have led lives scarred by poor relationships
with friends and families and stunted personal development. These include Howard
Hughes and Jean Paul Getty in business, Richard Nixon and Joseph Stalin in politics,
Elvis Presley and Marilyn Monroe in entertainment, Tiger Woods and Boris Becker
in sport, and Bobby Fischer in chess. For most of us, personal fulfillment is likely to
require broad-based rather than narrowly focused goals.2
These same ingredients of successful strategies?clear goals, understanding the
competitive environment, resource appraisal, and effective implementation?form the
key components of our analysis of business strategy.
8 PART I INTRODUCTION
STRATEGY CAPSULE 1.2
Lady Gaga and the Haus of Gaga
Stefani Joanne Angelina Germanotta, better known as
Lady Gaga has developed a business model adapted
Lady Gaga, is one of the most successful popular enter-
to the post-digital world of entertainment. Like Web 2.0
tainers of the 21st century. Since her first album, The
pioneers such as Facebook and Twitter, Gaga has fol-
Fame, in 2008, all four of her albums have topped the Bill-
lowed the model: first build market presence, and then
board charts; she has also topped Forbes Celebrity 100 list,
think about monetizing that presence. By 2012, her
and generated $560 million in ticket sales from her five
YouTube views, Facebook likes, and Twitter followers
concert tours between 2009 and 2017.
had made her the ?most popular living musician online.?
Since dropping out of NYU?s Tisch School of the Arts
Her networking with fans includes Gagaville, an interac-
in 2005, Germanotta has shown total commitment to
tive game developed by Zynga, and The Backplane, a
advancing her musical career, first as a songwriter, and
?music-based social network.
then developing her Lady Gaga persona.
Her emphasis on visual imagery takes account of the
Gaga?s music is a catchy mix of pop and dance, well
means through which media popularity is converted
suited to dance clubs and radio airplay. It features good
into revenues. While music royalties are important, con-
melodies, Gaga?s capable vocals, and her reflections on
certs are her primary revenue source. Other revenue
society and life, but it is hardly exceptional or innovative:
sources?endorsements, product plac